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1
Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
ANNUAL REPORT
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
Commission File No. 2-64309
GOLF HOST RESORTS, INC.
State of Colorado Employer Identification No. 84-0631130
Post Office Box 3131, Durango, Colorado 81302
Telephone Number (303) 259-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 [ ]
Issuer has no common stock subject to this report.
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PART I
ITEM 1. BUSINESS
Golf Host Resorts, Inc. (the "Company") was formed in July 1972 and is
engaged in the operation of The Westin Innisbrook Resort in Tarpon
Springs, Florida ("Innisbrook") and Sheraton Tamarron Resort in Durango,
Colorado ("Tamarron"). Innisbrook and Tamarron (the "Resorts") offer
championship quality golf facilities, restaurant and conference
facilities, recreational activities including swimming and tennis and
related resort activities. The Resorts are managed by Westin Hotel Company
and Sheraton Operating Corporation, respectively, under long-term
management agreements. Hilton Hotels Corporation ("HHC") managed
Innisbrook from April 1, 1993 to July 15, 1997 and Tamarron from December
1, 1995 to August 31, 1998. Prior to management by HHC, the Resorts were
managed by the Company.
Prior to June 23, 1997, the Company was an 80% owned subsidiary of Golf
Hosts, Inc. ("GHI"). The minority shareholders of the Company were also
the majority shareholders of GHI. On June 23, 1997, TM Golf Hosts, Inc.
("TMGHI") acquired all of the outstanding shares of the Company.
Concurrently, TMGHI and GHI merged with the legal survivor being GHI,
which now owns 100% of the Company.
The Company receives significant revenue from food and beverage sales, and
from golf operations (primarily golf fees and merchandise sales). Also,
during 1994, the Company undertook the development of nine residential
homesites at Tamarron, identified as Estates at Tamarron-Highpoint. All of
the homesites have been sold and closed with the last closing occurring in
1997. During 1995, the Company began a second development of nine
residential homesites, Estates at Tamarron-Pine Ridge. Two of the sites
were sold and closed during 1996, four during 1998, and the remaining
three were sold and closed during 1999.
The majority of the condominium owners at the Resorts provide such
apartments as resort accommodations under rental pool lease operations.
The Resorts are the lessees under the lease operation agreements, which
provide for the distribution of a percentage of room revenues, as defined,
to participating condominium owners. Accordingly, the Company does not
bear the expense of financing as well as certain operating costs of the
rental units.
Condominium ownership, simply stated, is a realty subdivision in which the
individual "lots" are apartment units. Instead of owning a plot of ground,
the condominium owner owns the air space where his condominium unit is
located. This leaves substantial properties in interest which are not
individually owned, e.g., the underlying land, roadways, parking lots,
building foundations, exterior wall and roofs, garden areas, utility
lines, et cetera. These areas are termed "common property" or "common
elements" and each condominium owner has an undivided fractional interest
in such property. The condominium owners at each of the Resorts establish
an "Association of Condominium Owners" to administer and maintain such
property and to conduct business of the condominium owners, such as
maintaining insurance on the real property, upkeep of the structures,
maintenance of the grounds, and provisions for certain utilities. The
Association assesses fees to defray such expenses and to establish
necessary reserves. Such charges, if not timely paid, may constitute a
lien upon the separate condominium units. Each condominium owner must pay
ad valorem property taxes and assessments for electricity, and to such
matters independent of the other unit owners. These expenses would be
incurred by owners of condominium units, regardless of an election to
participate in the rental pool. With respect to governing the affairs of
the Association, which is subject to state statutes, the participating
condominium owners are accorded one (1) vote per condominium unit owned.
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The percentages of the foregoing revenue components to total revenues are
as follows:
191 DAY 174 DAY
PERIOD ENDED PERIOD ENDED
1999 1998 12/31/97 6/23/97
REVENUES
Resort facilities 35.5% 34.0% 31.5% 33.9%
Food and beverage 29.4% 27.0% 27.6% 25.5%
Golf 25.2% 26.7% 31.1% 29.5%
Other 9.9% 12.3% 9.8% 10.5%
Real estate activities 0.0% 0.0% 0.0% 0.6%
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
The Company hosts more than a thousand conferences and related group
meetings each year with its clients coming from a variety of industries,
primarily from the central and eastern United States. Accordingly, the
loss of a single client or a few clients would have no significant adverse
effect on the Company's business.
The conference-oriented resort business is quite competitive; however, the
Company has established itself as a leader in its industry and enjoys an
excellent reputation with its clients. Its major competitors are other
conference and golf-oriented resorts throughout the country.
The Resorts' revenues are seasonal, with Innisbrook's peak season being in
the winter and spring and Tamarron's being in the summer.
The Company has, on average, approximately 1,200 employees (900 at
Innisbrook and 300 at Tamarron).
ITEM 2. DESCRIPTION OF PROPERTIES
Innisbrook is a condominium resort project situated on approximately 850
acres of land located in the northern portion of Pinellas County, Florida,
near the Gulf of Mexico. It is north of Clearwater (approximately 9 miles)
and west of Tampa (approximately 20 miles). There are 938 condominium
units, 36 of which are strictly residential, with the balance eligible for
rental pool participation. Of these 902 eligible units, 746, on average,
participate in the rental pool. The resort complex includes 72 holes of
golf; three practice ranges; three clubhouses with retail golf, food and
beverage outlets; three conference and exhibit buildings; five swimming
pools; a themed water attraction; a recreation center; tennis/fitness
facility and numerous administrative and support structures.
Tamarron is a condominium resort project situated on approximately 730
acres of land located in the northern portion of La Plata County,
Colorado. It is north of Durango (approximately 18 miles) and south of
Silverton (approximately 28 miles). The property is surrounded on three
sides by the San Juan National Forest and is readily accessible via U. S.
Highway 550. There are 381 condominium units, all of which are eligible
for rental pool participation. Approximately 281 units, on average,
participate in the rental pool. The resort complex includes 18 holes of
golf; a practice range; an indoor swimming pool/fitness facility; several
restaurants and lounges; a conference facility; a tennis complex and
numerous administrative and support facilities and structures.
During 1994 and 1995, approximately 24 acres of land at Tamarron were set
aside for the Estates at Tamarron residential homesite development. As of
this filing, 18 homesites have been sold and closed, with 9 additional
homesites in the preliminary stages of development.
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At December 31, 1999, the properties are encumbered by various mortgages
totaling $84,624,425. Reference is made to Note 7 of Notes to Consolidated
Financial Statements of Golf Host Resorts, Inc. and Subsidiary contained
elsewhere in this filing for a more detailed description of these
mortgages.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in lawsuits other than ordinary
routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's stock is privately held and there is no established market
for the stock.
There are a total of 1,283 condominium units allowing rental pool
participation by their owners, of which three are owned by a subsidiary of
the Company, Golf Host Condominium, Inc. (GHC). Of the units not owned by
GHC, 1,259 were sold under Registration Statements effective through March
1, 1983. The remaining 21 units were sold via private offerings exempt
from registration with the Securities and Exchange Commission. The
condominium units not owned by the Company or its affiliate are held by
1,145 different owners.
The condominium units sold by the Company, allowing rental pool
participation, are deemed to be securities because of the rental pool
feature (see Item 1); however, there is no market for such securities
other than the normal real estate market.
Since the security is real estate, no dividends have been paid or will be
paid.
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ITEM 6. SELECTED FINANCIAL DATA
191 DAY PERIOD 174 DAY PERIOD
ENDED ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, JUNE 23, YEAR ENDED DECEMBER 31,
1999 1998 1997 1997 1996 1995
Operating revenue $ 59,664,822 $58,184,711 $ 18,023,753 $31,750,008 $57,710,742 $56,535,735
============ =========== ============ =============================================
Net income (loss) $ (7,196,907) $ 7,822,846 $ (5,492,683) $ 1,488,116 $ 1,370,523 $ 1,375,917
============ =========== ============ =============================================
Net income (loss) per
common share $ (1,490.64) $ 1,513.31 $ (1,125.15) $ 272.98 $ 222.84 $ 223.92
============ =========== ============ =============================================
Total assets $ 86,895,774 $98,807,861 $ 92,897,633 $ -- $53,135,194 $52,822,127
============ =========== ============ =============================================
Notes payable $ 84,624,425 $83,436,029 $ 77,999,163 $ -- $28,474,570 $30,001,491
============ =========== ============ =============================================
Cash dividends per
common share $ -- $ -- $ -- $ -- $ -- $ --
============ =========== ============ =============================================
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ITEM 7. RESULTS OF OPERATIONS
For the purposes of discussing comparative results from operations for
1999, 1998 and 1997, the results for the periods prior to and subsequent
to the June 23, 1997 merger transaction, described in Note 1 to the
financial statements, are combined.
Guest occupancy during the last three years, measured by room nights, was
as follows:
Total % Changes
------- ---------
1999 171,940 (2.8)
1998 176,861 11.4
1997 158,807 (9.8)
1999 COMPARED TO 1998
For the years ended December 31, 1999 and December 31, 1998, the Company
recognized $59,664,822 and $58,184,711, respectively in revenue from the
rental of condominium units, sales of food and beverage, golf operations,
and ancillary services. The increase in revenue of $1,480,111 or 2.5% is
due to an increase in average guest spending per room night to $347.01
totaling approximately $3,099,000 offset by the reduction in room nights
sold, noted above, in the approximate amount of $1,619,000. During the
period ended December 31, 1999, room nights increased by 2% and decreased
by 3.8% at the Tamarron and Innisbrook properties respectively. Tamarron's
increase in room nights is attributed to stabilized airline transportation
into the Durango airport and the continuity of the management team.
Innisbrook's decrease in occupancy is directly attributable to competitive
pressure within the Southeastern resort market. Management has modified
the Innisbrook market focus and changed certain members of the senior
management team in response to these pressures.
Operating expenses and losses on assets held for sale totaled $55,969,745
and $55,433,307 for the years ended December 31, 1999 and December 31,
1998, respectively. The increase of $536,438 or 1.0% is the result of 1)
the increase in the rental pool distribution in the amount of $501,000, 2)
increases in depreciation of $372,000, 3) decreases in amortization of
$448,000, 4) net gains on the sale of certain Innisbrook non-operational
frontage parcels held for sale in the approximate amount of $1,295,000, 5)
reductions in operating losses of the Tamarron property of $990,000
attributed to a 2% increase in "room nights," a $14.27 per room night (or
5%) increase in average spending, and reductions in general and
administrative and other operating expenses, 6) increases in payroll and
payroll related expenses of $1,120,000, 7) increases in sales and
marketing expense of $970,000 and 8) increases in travel agent
commissions, employee benefit costs, utilities, and miscellaneous
operating expense in the aggregate of $306,000.
Interest, net was $9,218,816 for the year ended December 31, 1999 as
compared to $8,073,416 for the year ended December 31, 1998. The increase
of approximately $1,145,000 can be primarily attributed to 1) an increase
in interest payments and accruals relating to the GTA financing amounting
to $1,282,000, 2) an increased utilization of the accounts receivable
credit facility generating $46,000 more in expense, 3) a reduction of
balances owed to the former shareholders producing $75,000 in reduced
interest expense, and a reduction in interest expense associated with
accrued property taxes, short-term shareholder loans, capital leases and
financial institution service changes all in the aggregate of
approximately $108,000.
The parent income tax charges net of the extraordinary gain on change in
tax status, have been decreased by approximately $13,145,000. This is
attributable to the Subchapter S status of the corporation becoming
effective February 3, 1998. Income taxes are no longer provided for at the
Company level.
-6-
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During 1999, the Company changed its accounting procedures for start-up
costs related to the transition from Hilton Hotel Corporation to Westin
Hotels and Resorts. This change in accounting policy resulted in a
one-time write-off of $1,673,168. Previous years amortization of these
costs are reflected in the 1998 costs and operating expenses in the
Depreciation and Amortization caption and amounted to approximately
$448,000.
1998 COMPARED TO 1997
Revenues from resort operations rose 17.3% due to an 11.4% increase in
room nights coupled with a 5.3% increase in guests spending. The increases
resulted in an increase in non-real-estate operating income of $7,289,000.
Loss on assets held for sale increased from $0 in 1997 to $3,294,000 in
1998. The loss in 1998 is due to holding period costs and operating losses
from assets classified as held for sale by management. Assets held for
sale consist of Tamarron and certain other non-operating assets at
Innisbrook. These losses resulted from several factors, including a
decline in occupied rooms at Tamarron, the transition from management by
Hilton Hotels Corporation to Sheraton Operating Corporation effective
September 1, 1998, allocated interest expense and expenditures necessary
to maintain the operating assets at Tamarron at their current recorded
value.
Interest, net increased from $4,777,000 in 1997 to $8,073,000. The
increase resulted from the significant increase in debt in June 1997 as a
result of the sale of the Company, coupled with an increase in draws
during 1998 from the Company's available credit facilities.
1997 COMPARED TO 1996
Revenues from resort activities for 1997 declined nearly 13% from the 1996
levels due to lower occupancy and guest spending per occupied room night
resulting from the sale of the Company. The operating income margin
declined from an income of $4,041,000 in 1996 to a loss of $1,153,000 in
1997. In addition to lower margins attendant to the decline in occupancy
and guest spending, nonrecurring costs relative to the sale of the
Company, as well as the beginning of the amortization of intangibles and
pre-operating costs contributed to the decline.
INCOME TAX STATUS
Reference is made to the Notes to Consolidated Financial Statements
regarding income taxes.
FINANCIAL CONDITION AND LIQUIDITY
The Company's working capital at December 31, 1999, excluding assets held
for sale, was a deficit of $9,839,339 and the Company's cash flow from
operational sources are currently tight. The Company typically experiences
seasonal fluctuation in its net working capital position without
significantly impairing its ability to pay trade creditors in a timely
manner and satisfy its financial obligations in an orderly fashion. In
addition to operational cash flows, the Company anticipates funding its
working capital needs through the following sources: available accounts
receivable revolving line of credit at Innisbrook amounting to $3,000,000,
cash funding by Westin pursuant to the management agreement of up to
$2,500,000 per year (Westin has funded $2,500,000 in 1997 and $2,200,000
in 2000 under this agreement), proceeds from the sale of assets held for
sale, and if necessary, capital contributions from its shareholders.
As a result of the additional cash sources described above, the Company
assesses its liquidity as satisfactory.
-7-
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YEAR 2000 ISSUE
The Company has carefully reviewed the impact of the Year 2000 issues on
its information technology and other electronic systems as well as its
vendors and suppliers. It has determined the consequences of its Year 2000
issues do not have and have not had a material impact on either the future
operating results or financial condition of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements Page
Reports of Independent Certified Public Accountants F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Changes in Shareholder's (Deficit) Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
Innisbrook Rental Pool Lease Operation F-16
Tamarron Rental Pool Lease Operation F-25
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name / Position Age Five-Year Principal Occupation
--------------- --- ------------------------------
Merrick R. Kleeman 36 Managing Director, Starwood Capital Group
President, Secretary and Director
Jeffrey R. Rosenthal 48 Chief Operating Officer, Starwood Capital Group
Senior Vice President (April 1997 - present)
Chief Financial Officer, Reyes Holdings (February
1996 - April 1997)
Chief Financial Officer, JBM Realty Company
(December 1987 - February 1996)
Jerome C. Silvey 42 Chief Financial Officer, Starwood Capital Group
Senior Vice President
Keith Wilt 47 Vice President and Treasurer, Golf Host Resorts,
Vice President and Treasurer Inc. (August 1999 - Present)
Chief Financial Officer, Suncoast Auto Builders,
Inc. (March 1997 - August 1999)
Consultant (January 1995 - March 1997)
All directors and officers serve a one-year term or until their successors are
elected.
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ITEM 11. EXECUTIVE COMPENSATION
All items for Golf Host Resorts, Inc., except those set forth below, have
been omitted as not applicable or not required.
SUMMARY COMPENSATION TABLE
The following table sets forth the remuneration paid, distributed or
accrued by Golf Host Resorts, Inc. and its parent, Golf Hosts, Inc.,
during the three years in the period ended December 31, 1999, to the
Company's executive officers.
NAME AND PRINCIPAL POSITION YEAR COMMISSION BONUS COMPENSATION (3)
Golf Host Resorts, Inc.
Merrick R. Kleeman (1) 1999 $ -- $ -- $ -- $ --
President 1998 -- -- -- --
1997 -- -- -- --
R. Keith Wilt (1) & (2) 1999 -- -- -- --
Vice President and Treasurer 1998 -- -- -- --
1997 -- -- -- --
Richard L. Akin (1) & (3) 1999 -- -- -- --
Vice President and Treasurer 1998 -- -- -- --
1997 -- -- -- --
(1) Total of annual salary and bonus was not greater than $100,000 for the
years where dollar amounts are not presented.
(2) R. Keith Wilt became an officer August 1, 1999.
(3) Resigned effective May 31, 1999
-9-
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PENSION PLAN
The Company and its parent, Golf Hosts, Inc., provided a supplemental
retirement income plan (the Plan) for officers who had completed 15 years
of service, were employed at age 65 by the Company and retired, and were
elected to participate in the Plan by the Golf Hosts, Inc. Board of
Directors. The Plan provided an annual income of $10,000 for a period of
10 years.
Concurrent with the sale of the Company and Golf Hosts, Inc., the Plan was
terminated and the related liability, which approximated $297,000, was
distributed in cash to the participants.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners:
NAME AND ADDRESS OF AMOUNT BENEFICIALLY
TITLE OF CLASS BENEFICIAL OWNER OWNED PERCENT OF CLASS
Golf Host Resorts, Inc.:
Common Golf Hosts, Inc. 5,000 100%
Three Pickwick Plaza
Suite 250
Greenwich, CT 06830
Golf Hosts, Inc.:
Common Golf Host Holdings, Inc. 1 100%
Three Pickwick Plaza
Suite 250
Greenwich, CT 06830
(b) Security ownership of management of the Company in Golf Hosts, Inc.
(GHI):
None
(c) Changes in control:
None
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others
GHI charges administrative and other expenses to the Company on the basis
of estimated time and expenses incurred as reasonably determined by GHI.
As part of the terms of the new management agreement for Innisbrook,
Westin guaranteed minimum cash flow to Innisbrook. The terms of the
agreement provide that if incentive cash flow, as defined, is less than
the minimum annual payment, as defined, for the operating year, Westin
will advance Innisbrook the shortage up to $2.5 million with the advance
being repayable when the Company has available cash, as defined. In
addition, the Company signed an agreement under which Westin will provide
50% of the funding for approved capital expenditures incurred subsequent
to the Acquisition in excess of $6 million, plus 50% of capital
expenditures in excess of capital reserve requirements on an annual basis,
as defined.
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(b) Certain Business Relationships
Merrick R. Kleeman, President and Director of Golf Host Resorts,
Inc., is a member of the Westin Hotel Company Board of Directors,
the manager of Innisbrook.
(c) Indebtedness of Management
None
(d) Transactions with Promoters
Not applicable
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
Golf Host Resorts, Inc. and Subsidiary (included in
Item 8)
Innisbrook Rental Pool Lease Operation Financial
Statements together with Report of Independent
Certified Public Accountants (Included in Item 8)
Tamarron Rental Pool Lease Operation Financial
Statements together with Report of Independent
Certified Public Accountants (Included in Item 8)
2. Financial Statement Schedules of Golf Host Resorts,
Inc.
None
(b) Reports on Form 8-K
Not applicable.
(c) Exhibits
Financial statement schedules required by this Item are listed
in the index appearing in Item 8 of this report.
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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, therefore duly authorized.
GOLF HOST RESORTS, INC.
By: /s/ M.R. Kleeman By: /s/ R. Keith Wilt
------------------- --------------------
Merrick R. Kleeman R. Keith Wilt
President Vice President and Treasurer
Dated: September 20, 2000
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GOLF HOST RESORTS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1999
14
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholder and Board of Directors of Golf Host Resorts, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholder's (deficit)
equity and of cash flows present fairly, in all material respects, the
financial position of Golf Host Resorts, Inc. and subsidiary at December 31,
1999 and 1998, 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 accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for start-up costs in 1999.
March 10, 2000, except for Note 10, as to
which the date is June 12, 2000
F-1
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GOLF HOST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
1999 1998
ASSETS
Current assets:
Cash $ 131,440 $ 77,689
Restricted cash 318,860 705,297
Accounts receivable, net 4,499,990 6,680,506
Other receivables 907,568 864,671
Inventories and supplies 1,755,452 2,057,450
Prepaid expenses and other assets 132,116 1,061,668
Note receivable from GHI -- 1,349,823
------------- -------------
7,745,426 12,797,104
Assets held for sale 8,634,596 12,684,302
------------- -------------
16,380,022 25,481,406
Intangibles, net 26,994,645 28,547,188
Property and equipment, net 43,205,256 41,585,829
Other assets 315,851 1,874,723
------------- -------------
Total assets $ 86,895,774 $ 97,489,146
============= =============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 5,039,225 $ 1,792,174
Line of credit 2,109,316 3,832,443
Accrued payroll costs 899,750 1,203,240
Accrued interest 691,265 697,703
Other payables and accrued expenses 3,214,321 3,320,348
Deposits and deferred revenue 2,841,038 3,657,913
Current notes payable 795,205 19,976
Due to related parties 1,994,645 459,520
------------- -------------
17,584,765 14,983,317
Notes payable 83,829,220 83,416,053
Other long-term liabilities 5,168,028 4,353,543
Deferred income taxes 1,770,467 1,770,467
------------- -------------
Total liabilities 108,352,480 104,523,380
------------- -------------
Shareholder's deficit:
Common stock, $1 par, 5,000 shares authorized,
issued and outstanding 5,000 5,000
5.6% cumulative preferred stock, $1 par, 4,577,000
shares authorized, issued and outstanding 4,577,000 4,577,000
Paid-in capital (13,557,000) (13,557,000)
Retained (deficit) earnings (12,481,706) 1,940,766
------------- -------------
Total shareholder's deficit (21,456,706) (7,034,234)
------------- -------------
Total liabilities and shareholder's deficit $ 86,895,774 $ 97,489,146
============= =============
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-2
16
GOLF HOST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
191-DAY 174-DAY
PERIOD ENDED PERIOD ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, JUNE 23,
1999 1998 1997 1997
REVENUES:
Resort facilities $ 21,194,045 $ 19,759,350 $ 5,695,294 $ 10,775,626
Food and beverage 17,558,360 15,734,890 4,966,112 8,106,385
Golf 15,008,103 15,561,161 5,604,215 9,347,282
Other 5,904,314 7,129,310 1,758,132 3,340,715
Real estate activities -- -- -- 180,000
------------- ------------- ------------- -------------
59,664,822 58,184,711 18,023,753 31,750,008
------------- ------------- ------------- -------------
COSTS AND OPERATING EXPENSES:
Resort facilities 14,898,705 14,524,110 6,696,074 9,083,194
Food and beverage 11,019,695 10,173,446 3,873,016 5,591,373
Golf 6,994,183 7,105,350 3,504,919 3,247,628
Other 11,240,764 11,285,360 4,028,140 6,390,303
General and administrative 6,796,954 4,963,565 2,930,846 2,374,385
Depreciation and amortization 4,010,448 4,086,832 1,833,977 1,282,510
Real estate activities -- -- -- 90,618
------------- ------------- ------------- -------------
54,960,749 52,138,663 22,866,972 28,060,011
Loss on assets held for sale 1,008,996 3,294,344 -- --
------------- ------------- ------------- -------------
Operating income (loss) 3,695,077 2,751,704 (4,843,219) 3,689,997
Interest, net 9,218,816 8,073,416 3,831,669 945,481
------------- ------------- ------------- -------------
(Loss) income before income tax (5,523,739) (5,321,712) (8,674,888) 2,744,516
Parent income tax charge (benefit) -- 328,828 (3,182,205) 967,800
------------- ------------- ------------- -------------
(Loss) income before
extraordinary items and
cumulative effect of change
in accounting principle (5,523,739) (5,650,540) (5,492,683) 1,776,716
Gain on change in tax status -- 13,473,386 -- --
Loss on early extinguishment of
long-term debt (net of taxes
of $155,400) -- -- -- (288,600)
Cumulative effect of change
in accounting principle (1,673,168) -- -- --
------------- ------------- ------------- -------------
Net income (loss) (7,196,907) 7,822,846 (5,492,683) 1,488,116
Dividend requirements on
preferred stock 256,312 256,312 133,085 123,227
------------- ------------- ------------- -------------
Net income (loss) available
to common shareholder $ (7,453,219) $ 7,566,534 $ (5,625,768) $ 1,364,889
============= ============= ============= =============
EARNINGS (LOSS) PER COMMON SHARE:
(Loss) income before
extraordinary items $ (1,105) $ (1,130) $ (1,098) $ 355
Extraordinary gain (loss) -- 2,694 -- (58)
Cumulative effect of change in
accounting principle (335) -- -- --
------------- ------------- ------------- -------------
Net income (loss) (1,440) 1,564 (1,098) 297
Dividend requirements on
preferred stock 51 51 27 24
------------- ------------- ------------- -------------
Net income (loss) available
to common shareholder $ (1,491) $ 1,513 $ (1,125) $ 273
============= ============= ============= =============
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-3
17
GOLF HOST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S (DEFICIT) EQUITY
$1 PAR VALUE 5.6% CUMULATIVE RETAINED TOTAL
COMMON STOCK PREFERRED STOCK PAID-IN EARNINGS SHAREHOLDER'
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT) EQUITY
------ ------ --------- ---------- ------------ ------------ ----------------
Balance, December 31, 1997 5,000 $5,000 4,577,000 $4,577,000 $(13,557,000) $ (5,625,768) $(14,600,768)
Net income (loss) available to
common shareholder -- -- -- -- -- 7,566,534 7,566,534
----- ------ --------- ---------- ------------ ------------ ------------
Balance, December 31, 1998 5,000 5,000 4,577,000 4,577,000 (13,557,000) 1,940,766 (7,034,234)
Net income (loss) available
to common shareholder -- -- -- -- -- (7,453,219) (7,453,219)
Distribution to shareholder -- -- -- -- -- (6,969,253) (6,969,253)
----- ------ --------- ---------- ------------ ------------ ------------
Balance, December 31, 1999 5,000 $5,000 4,577,000 $4,577,000 $(13,557,000) $(12,481,706) $(21,456,706)
===== ====== ========= ========== ============ ============ ============
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-4
18
GOLF HOST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
191-DAY 174-DAY
PERIOD ENDED PERIOD ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, JUNE 23,
1999 1998 1997 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (7,196,907) $ 7,822,846 $ (5,492,683) $ 1,488,116
Noncash items included in income:
Provision for bad debts 100,300 92,100 50,150 89,609
Depreciation and amortization 4,010,448 4,086,832 1,833,977 1,282,510
Write-off of start-up costs 1,673,168 -- -- --
Deferred income taxes -- (13,134,558) (2,565,122) --
Changes in operating assets and liabilities:
(Increases) decreases in:
Restricted cash 386,437 1,533,470 (2,238,767) --
Accounts receivable and other receivables 2,037,319 (2,165,049) (1,961,883) 730,004
Inventories and supplies 301,998 (157,852) 1,089,703 2,134,665
Prepaid expenses and other assets 929,552 (377,171) 15,792 255,765
Increases (decreases) in:
Accounts payable 3,247,051 (2,482,736) 2,605,479 (589,271)
Accrued payroll costs (303,490) 67,113 1,136,127 --
Accrued interest (6,438) 111,043 586,660 --
Other payables and accrued expenses (106,027) (895,478) (866,266) 504,111
Deposits and deferred revenue (816,875) 750,441 1,266,234 (1,114,059)
Due from related parties 1,278,816 3,060,448 1,714,869 (3,980,882)
------------- ------------- ------------- -------------
Cash provided by (used in) operations 5,535,352 (1,688,551) (2,825,730) 800,568
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Decreases) increases in other assets (114,296) (251,810) (1,417,165) 62,302
Purchases of property and equipment (2,838,892) (7,823,091) (3,005,076) (1,517,431)
Decrease (increase) in assets held for sale 4,049,706 829,007 (1,263,309) --
Additions to note receivable from GHI (662,593) (1,349,823) -- --
Payments on notes receivable from GHI 2,012,416 -- -- 1,185,120
------------- ------------- ------------- -------------
Cash used in (provided by) investing 2,446,341 (8,595,717) (5,685,550) (270,009)
------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings on existing debt 331,780 5,672,421 2,398,997 1,514,587
Repayment of existing debt (381,824) (358,855) -- (25,037,262)
Proceeds from sale of company -- -- -- 63,524,946
Proceeds to selling shareholders -- -- -- (38,046,827)
(Repayments) borrowings on line of credit (1,723,127) 3,832,443 -- --
Distribution to shareholder (6,969,256) -- -- --
Increases in other long-term liabilities 814,485 1,159,858 3,193,685 --
------------- ------------- ------------- -------------
Cash (used in) provided by financing (7,927,942) 10,305,867 5,592,682 1,955,444
------------- ------------- ------------- -------------
Net increase (decrease) in cash 53,751 21,599 (2,918,598) 2,486,003
Cash, beginning of period 77,689 56,090 2,974,688 488,685
------------- ------------- ------------- -------------
Cash, end of period $ 131,440 $ 77,689 $ 56,090 $ 2,974,688
============= ============= ============= =============
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-5
19
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION, BUSINESS AND LIQUIDITY
Golf Host Resorts, Inc. (the "Company" or "GHR") owns The Westin
Innisbrook Resort ("Innisbrook") in Tarpon Springs, Florida and
Sheraton Tamarron Resort ("Tamarron") in Durango, Colorado (the
"Resorts"). The Resorts offer championship quality golf facilities,
restaurant and conference facilities, and related resort facilities. A
majority of the condominium apartment owners at the Resorts provide
their units as resort accommodations under rental pool lease
operations.
As shown in the accompanying consolidated financial statements, the
Company has negative working capital at December 31, 1999 of
$9,839,339, exclusive of assets held for sale of $8,634,596, and
incurred net losses for each of the periods presented since the
Acquisition. The Company has a $3,000,000 line of credit
collateralized by Innisbrook's accounts receivable and a $1,500,000
line of credit collateralized by certain operating assets at Tamarron
(Note 7), and anticipates funding cash flow deficits, if any, with the
undrawn portions of the available lines of credit and through the sale
of Tamarron, its principal asset held for sale (Note 10). The
Company's shareholder has also committed to provide, if needed, debt
or equity to meet cash flow deficiencies expected to be experienced
during the upcoming year. The Company also has an agreement with
Westin Hotel Company ("Westin") whereby cash deficiencies, as defined,
arising from the Innisbrook operation will be temporarily funded by
Westin (Note 9).
Golf Host Condominium, Inc. ("GHC"), a wholly owned subsidiary of the
Company, was formed on December 1, 1997. GHC's assets consist of three
Innisbrook condominiums previously owned by the Company. A lease
agreement between Lost Oaks, L.P., a related party to the Company, and
Golf Trust of America, L.P. ("GTA"), the Company's primary lender
(Note 7), is secured by 89.1% of GHC's stock and the stock of the
Company's parent, Golf Host, Inc. ("GHI").
Prior to June 23, 1997, the Company was an 80% owned subsidiary of
GHI. The minority shareholders were also GHI's majority shareholders.
On June 23, 1997, TM Golf Hosts, Inc. ("TMGHI") acquired all the
outstanding shares of GHI and the 20% of the Company's shares not held
by GHI. Concurrently, TMGHI and GHI merged with the legal survivor
being GHI, which now owns 100% of the Company (the "Acquisition"). The
purchase price of the Company was approximately $66,333,000, including
assumption of certain liabilities. The transaction was financed by GTA
and all previous secured indebtedness was paid, resulting in an
approximately $444,000 extraordinary loss on early retirement of debt
relating to unamortized debt discounts and related deferred expenses.
For financial statement purposes, the Acquisition has been accounted
for as a purchase as of June 23, 1997 and accordingly, the purchase
price has been allocated based upon the fair value of assets acquired
and liabilities assumed as follows:
Cash $ 2,974,688
Accounts receivable 3,560,495
Inventory 2,989,301
Assets held for sale 6,575,000
Other current assets 5,168,529
Fixed assets 34,851,692
Other non-current assets 35,196,630
-------------
91,316,335
Accounts payable 8,392,761
Deferred income taxes 16,590,181
-------------
$ 66,333,393
=============
F-6
20
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
The Company is negotiating with the former owners certain adjustments
to the acquisition price (Note 10). Adjustments after the final
resolution of the purchase price will be reflected as adjustments to
intangible assets. During 1998, the Company adjusted the purchase
price allocation of certain assets held for sale by $4,475,000 and to
reflect the associated estimated tax payments due thereon from the
sale of Tamarron and other non-operating assets with built-in gains
within the statutory 10-year period from Acquisition.
2. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Golf
Host Resorts, Inc. and Golf Host Condominium, Inc. All significant
intercompany balances and transactions are eliminated in
consolidation.
USE OF ESTIMATES
Preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions which affect reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all short-term highly liquid investments with a
purchased maturity of three months or less to be cash equivalents. At
December 31, 1999 and 1998, the balance represents cash restricted for
capital improvements and cash collected on behalf of the former
shareholders.
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
191-DAY 174-DAY
PERIOD ENDED PERIOD ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, JUNE 23,
1999 1998 1997 1997
NONCASH FINANCING AND INVESTING ACTIVITIES:
Satisfaction of preferred stock dividend
requirement through the intercompany
account $ 256,312 $ 256,312 $ 133,085 $123,227
Transfer of investment in GTA to GHI $ -- $ -- $8,975,000 $ --
Capital lease obligations $1,222,700 $ 123,300 $ -- $ --
OTHER INFORMATION:
Interest paid in cash $8,479,738 $8,219,000 $3,004,840 $965,117
Income taxes paid in cash $ -- $ -- $ -- $118,090
ACCOUNTS RECEIVABLE
Accounts receivable represents amounts due from resort guests and is
net of allowances of $123,000 and $152,000 for doubtful accounts at
December 31, 1999 and 1998, respectively.
F-7
21
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
INVENTORIES AND SUPPLIES
The Company records materials and supplies inventories at the lower of
first-in, first-out cost or market.
NOTE RECEIVABLE FROM GHI
At December 31, 1998, approximately $1,350,000 was due to the Company
for services under the terms of a $2,500,000 demand note receivable
from GHI. The note, dated December 31, 1998, bears interest at 8.5%,
is payable monthly in arrears and is due on demand. Effective October
1, 1999, the entire then outstanding note receivable balance of
$2,012,416 was paid off by GHI. The Company earned interest income of
approximately $108,000 and $56,000 for the years ended December 31,
1999 and 1998.
ASSETS HELD FOR SALE
The Company's intent was to sell the Sheraton Tamarron Resort and a
portion of the non-operating assets at Innisbrook within one year from
the date of acquisition. At Acquisition, the Tamarron related net
assets were recorded at their estimated proceeds, as adjusted for
estimated operations and interest expense during the estimated holding
period as required by EITF 87-11. The net loss for the twelve months
subsequent to June 23, 1997, was capitalized in assets held for sale.
Thereafter, costs incurred to maintain the assets are expensed during
the holding period (Note 10).
PROPERTY AND EQUIPMENT
Costs of maintenance and repairs of property and equipment used in
operations are charged to expense as incurred, while renewals and
betterments are capitalized. When property and equipment are replaced,
retired or otherwise disposed, the costs are deducted from the asset
and accumulated depreciation accounts. Gains or losses on sales or
retirements of buildings, vehicles and certain golf course and
recreational facilities are recorded in income. Gains or losses on
sales or retirements of all other property and equipment are recorded
in the applicable accumulated depreciation accounts in accordance with
the composite method.
Depreciation is recorded using the straight-line unit method for
buildings, vehicles and certain golf course and recreational
facilities and the straight-line composite method for the other
components. Estimates of useful lives used in computing annual
depreciation are as follows:
ESTIMATED USEFUL
LIFE IN YEARS
----------------
Land improvements 28 to 30
Buildings 50
Recreational facilities 30
Machinery and equipment 10 to 15
Provisions for value impairment are recorded when estimated future
cash flows from operations and projected sales proceeds are less than
the net carrying value. There were no adjustments made to the carrying
value of property and equipment.
F-8
22
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
OTHER ASSETS
Other assets consist of costs incurred in conjunction with the
refurbishment of condominium units provided as resort accommodations
under the rental pool lease operations and amounts due from the former
shareholders related to working capital differences at Acquisition.
Upon completion of the refurbishment project, the Company will be
reimbursed by the individual condominium owners. As of December 31,
1998, other assets also consisted of start-up costs associated with
the change in management of Innisbrook to Westin and were being
amortized over a five-year term. During 1999, start-up costs of
$1,673,000 were written off (Note 3).
MANAGEMENT AGREEMENTS
Westin became manager of Innisbrook effective July 15, 1997, for a
20-year term unless terminated earlier. Westin receives annual
management fees and certain cost reimbursements aggregating $893,000,
$853,000 and $235,000 for the years ended December 31, 1999 and 1998
and 191 days ended December 31, 1997, respectively. Westin will also
receive a portion of actual earnings above specified levels, as
defined, and guarantees certain amounts as discussed in Note 9.
Sheraton Operating Corporation ("Sheraton") became manager of Tamarron
effective September 1, 1998, for a ten-year term unless terminated
earlier. Under the management agreement, Sheraton receives annual
management fees and certain cost reimbursements aggregating $272,000
and $201,000 for the year ended December 31, 1999 and the period ended
December 31, 1998. Prior to this date, Tamarron was managed by Hilton
Hotels Corporation.
INTERCOMPANY ALLOCATIONS AND ADVANCES
The Company reimburses GHI for administrative and other expenses based
on estimated time and expenses incurred. Amounts charged were
approximately $514,000, $321,000, $140,000 and $451,000 for the years
ended December 31, 1999 and 1998, the 191 days ended December 31, 1997
and the 174 days ended June 23, 1997, respectively, of which $60,000
was payable to GHI at December 31, 1999 and 1998.
GHI is a wholly owned subsidiary of Golf Host Holdings, Inc. The
majority shareholders of Golf Host Holdings, Inc. are majority
shareholders of Lost Oaks, Inc., which is the general partner in Lost
Oaks, L.P. Lost Oaks, L.P. manages an 18-hole golf course, Lost Oaks
of Innisbrook, which is located near Innisbrook. The Company provides
services to Lost Oaks, L.P., including payroll, accounting, purchasing
and cash management. The Company is to be reimbursed for these
services at approximately cost under the terms of a note receivable
from GHI.
REVENUE
Revenue from resort operations is recognized as the related service is
performed. Revenue includes rental revenues from condominium units
owned by third parties participating in the rental pool lease
operations. If these rental units were owned by the Company, normal
costs associated with ownership such as depreciation, interest, real
estate taxes and maintenance would have been incurred. Instead, costs
and operating expenses include distributions of approximately
$8,102,000, $7,601,000, $3,042,000, and $4,932,000 for the years ended
December 31, 1999 and 1998, the 191 days ended December 31, 1997 and
the 174 days ended June 23, 1997, to the rental pool participants,
respectively.
INTEREST, NET
The Company's cash management policy is to utilize cash resources to
minimize net interest expense, through either temporary cash
investments or reductions in existing interest-bearing obligations.
F-9
23
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Accordingly, temporary cash investments and interest income vary from
period to period. Interest expense is net of interest income of
approximately $6,500, $140,000, $143,000 and $79,000 for the years
ended December 31, 1999 and 1998, the 191 days ended December 31, 1997
and the 174 days ended June 23, 1997, respectively.
EMPLOYEE BENEFIT PLANS
GHI maintains a defined contribution Employee Thrift and Investment
Plan (the "Plan") which provides retirement benefits for all eligible
employees who have elected to participate. Employees must fulfill a
90-day service requirement to be eligible. The Company currently
matches one half of the first 6% of an employee's contribution.
Company contributions approximated $212,000, $188,000, $52,000 and
$61,000 for the years ended December 1, 1999 and 1998, the 191 days
ended December 31, 1997 and the 174 days ended June 23, 1997, and are
fully funded.
EARNINGS PER SHARE
The Company reports both basic earnings per share, which is based on
the weighted average number of common shares outstanding, and diluted
earnings per share, which is based on the weighted average number of
common shares outstanding and all dilutive potential common shares
outstanding. The Company had no dilutive potential common shares
outstanding for any of the periods presented. As such, dilutive
earnings per share are equal to basic earnings per share for each of
the periods indicated.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with
current year presentation.
3. ACCOUNTING CHANGE
In 1999, the Company adopted Accounting Standards Executive Committee
Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities," effective for fiscal years beginning after
December 15, 1998. Previously, the Company capitalized start-up costs
and amortized these costs over a five-year useful life. In accordance
with SOP 98-5, the Company expensed these costs amounting to
$1,673,168 to operations during 1999. The initial application of SOP
98-5 has been reported as a cumulative effect of a change in
accounting principle in the consolidated financial statements.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
1999 1998
Land and land improvements $ 6,318,054 $ 6,080,066
Buildings 11,965,802 11,754,936
Golf courses and recreational facilities 16,542,399 15,715,509
Machinery and equipment 9,999,680 9,100,787
Capital leases 1,362,295 123,854
Construction in progress 1,323,975 1,301,198
------------- -------------
47,512,205 44,076,350
Less accumulated depreciation (4,306,949) (2,490,521)
------------- -------------
$ 43,205,256 $ 41,585,829
============= =============
F-10
24
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Construction in progress ("CIP") consists of costs incurred while
constructing resort amenities. Interest costs of approximately
$147,000 and $351,000 was capitalized to CIP for the years ended
December 31, 1999 and 1998, respectively.
Depreciation expense of $2,458,000, $2,086,000, $1,011,000 and
$1,290,000 was recorded for the years ended December 31, 1999 and
1998, the 191 days ended December 31, 1997 and the 174 days ended June
23, 1997, respectively.
5. INTANGIBLE ASSETS
Resulting from the Acquisition, a resort intangible of approximately
$34,000,000, relating to acquiring an operating resort property with
an existing rental pool agreement, was recorded and is being amortized
on a straight-line basis over 20 years, subsequently adjusted for
purchase price adjustments (Note 1). Amortization expense for all
intangible assets was approximately $1,553,000, $2,001,000 and
$848,000 for the years ended December 31, 1999 and 1998 and the 191
days ended December 31, 1997, respectively.
6. OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Other accounts payable and accrued expenses consist of the following:
DECEMBER 31,
1999 1998
Rental pool lease distribution $ 1,677,601 $ 2,053,915
Taxes, other than income taxes 966,384 505,302
Other 570,336 761,131
----------- -----------
$ 3,214,321 $ 3,320,348
=========== ===========
7. LINE OF CREDIT AND NOTES PAYABLE
DECEMBER 31,
1999 1998
LINE OF CREDIT
Revolving line of credit limited to a percentage of qualifying
accounts receivable with interest at the prime rate
plus 0.75% (9.25% at December 31, 1999); the loan
matures on October 8, 2001 $ 2,109,316 $ 3,832,443
============= =============
NOTES PAYABLE
Participating mortgage note at varying pay rates
maturing in 2027 $ 69,975,000 $ 69,975,000
$9,000,000 participating mortgage note credit facility 9,000,000 8,696,584
Mortgage note at 6.34%, maturing in 2002 4,417,764 4,645,264
Capital leases ranging from 1.89% to 10.76% 1,231,661 119,181
------------- -------------
84,624,425 83,436,029
Less current maturities 795,205 19,976
------------- -------------
$ 83,829,220 $ 83,416,053
============= =============
F-11
25
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
On October 8, 1998, the Company obtained a $5,000,000 accounts
receivable line of credit with a financial institution. The line of
credit was reduced to $3,000,000 on April 30, 1999. At December 31,
1999 and 1998, approximately $770,000 and $972,000 was available under
the accounts receivable line of credit, net of $121,000 and $196,000
in letters of credit. On July 19, 1999, the Company obtained a
$1,500,000 line of credit with a financial institution for property
and equipment at Tamarron. The line of credit bears interest at 1%
over the financial institutions' index (9.0% at December 31, 1999).
The outstanding balance of the note of $1,165,000 is secured by
Tamarron operating assets and is included in assets held for sale at
December 31, 1999.
Concurrent with the Acquisition, the Company obtained a $78,975,000
note payable from GTA. The note payable has two components: a
$69,975,000 participating mortgage note and a $9,000,000 credit
facility. The note payable is secured by substantially all assets
other than Innisbrook's accounts receivable and is guaranteed by GHI.
The agreement defines Tamarron, undeveloped land at Innisbrook,
unpledged GTA shares, or the proceeds of the sale of any of those as
Additional Collateral. The note payable agreement stipulates that
Additional Collateral will be released when the ratio of Innisbrook's
Net Operating Income equals or exceeds a ratio to Debt Service, as
defined. For the year ended December 31, 1998 the release ratio was
met, and accordingly, Additional Collateral of $4,956,837 was released
as security during 1999 (Note 2). The release ratio has not been met
for the year ended December 31, 1999.
The participating mortgage note was used to finance the Company's
Acquisition and the purchase of GTA stock. The participating mortgage
note calls for initial annual interest payments of $6,739,063 with an
annual 5% increase in the interest payment commencing January 1, 1998
(prorated to 2.616% for 1998) and continuing each year through 2002.
Interest, payable monthly, has been recorded using the effective
interest method. The effective interest rate is approximately 11.5%
over the life of the note payable. In addition, the participating
mortgage note calls for participation payments based upon levels of
revenue, as defined, of the Innisbrook property ("Participating
Interest"). The Participating Interest incurred by the Company was $0,
$243,000 and $0 for the years ended December 31, 1999 and 1998 and the
191 days ended December 31, 1997, respectively.
Principal on the GTA note payable is due at maturity on June 23, 2027.
Upon expiration or earlier termination of the participating mortgage
note, GTA has the option to purchase Innisbrook at fair market value.
The Company incurred interest expense of $9,005,000, $7,767,000 and
$3,808,000 on the GTA note payable during the years ended December 31,
1999 and 1998 and the 191 days ended December 31, 1997, of which
$3,359,000 and $2,551,000 was payable at December 31, 1999 and 1998.
Accrued interest of $691,000 represents interest payable during the
next fiscal year. The balance of accrued interest is included in other
long-term liabilities and results from the effective interest method
discussed above.
The $9,000,000 credit facility bears interest initially at a 9.75%
fixed rate with an annual 5% interest escalator commencing January 1,
1998 (10.51%, 10.01% and 9.75% for the years ended December 31, 1999
and 1998, and the 191 days ended December 31, 1997, respectively) and
continuing each year through 2002. As of December 31, 1999, the
Company has drawn the full $9,000,000 available under this facility.
The Company obtained a $5,000,000 mortgage note on June 20, 1997 from
the seller as a part of the sale transaction. The note bears interest
at a fixed rate of 6.34% with interest payable quarterly. The Company
incurred interest expense of $291,000, $340,000 and $168,000 for the
years ended December 31, 1999 and 1998 and the 191 days ended December
31, 1997, of which $8,400 and $9,000 was payable at December 31, 1999
and 1998. The mortgage note is collateralized by certain assets at
F-12
26
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Tamarron and principal payments of $500,000 are due on June 20, 2000
and 2001, with the remaining balance due on June 20, 2002 (Note 10).
The Company has leased property under capital leases expiring in 2003.
Principal payments under the leases are payable as follows: 2000 -
$299,000; 2001 - $373,000; 2002 - $551,000; and 2003 - $30,000.
As a condition under the note payable agreement with GTA, the Company
acquired 159,326 common shares of Golf Trust of America, Inc. (the
100% owner of GTA) and 274,000 Operating Partnership Units ("OPUs") in
GTA for $8,975,000 with an option to acquire for $26 per unit 150,000
additional OPUs. The note payable agreement restricts the Company's
ability to sell its investments in GTA until certain Company operating
results, as defined, are attained. The Company distributed its GTA
investment to its parent upon acquisition. In 1998, GHI sold 65,000 of
the common shares. The proceeds from the sale of $2,253,000 were held
by GTA as Additional Collateral in accordance with the terms of the
note payable and were released to GHI during 1999.
8. INCOME TAXES
On April 17, 1998, the Company filed an election with the Internal
Revenue Service to change its tax status to a Qualified Subchapter S
Subsidiary effective February 3, 1998. As a result of this election,
all applicable deferred tax liabilities have been removed from the
balance sheet and reflected as an extraordinary item in the
consolidated statements of operations. The remaining deferred tax
liability represents the estimated liability for taxes to be paid on
built-in gains associated with the sale of Tamarron and other
non-operating assets within the statutory 10-year period from
Acquisition.
Prior to the Qualified Subchapter S Subsidiary election, the provision
for income taxes consisted of the following:
FOR THE 33-DAY FOR THE 191-DAY FOR THE 174-DAY
PERIOD ENDED PERIOD ENDED PERIOD ENDED
FEBRUARY 2, DECEMBER 31, JUNE 23,
1998 1997 1997
Charges to operations:
Current income tax (benefit) expense
Federal $ -- $ (2,951,811) $ 337,163
State -- (509,631) 70,605
------------ ------------ ---------
-- (3,461,442) 407,768
------------ ------------ ---------
Deferred income tax expense (benefit):
Federal 280,711 239,091 346,458
State 48,117 40,146 58,174
------------ ------------ ---------
328,828 279,237 404,632
------------ ------------ ---------
Total income tax expense (benefit) $ 328,828 $ (3,182,205) $ 812,400
============ ============ =========
F-13
27
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
The provision for the 174-day period ended June 23, 1997 of $812,400
is net of the tax benefit of $155,400 for loss on the early
extinguishment of the long-term debt.
DECEMBER 31,
1999 1998
Deferred income taxes consist of the following:
Deferred income tax asset:
Net operating loss $ 1,113,700 $ 1,113,700
Deferred income tax liability:
Basis difference in property and intangible assets (2,884,167) (2,884,167)
------------ ------------
Total deferred income tax liability $ (1,770,467) $ (1,770,467)
============ ============
The following table reconciles total income tax expense (benefit) to
an amount produced by multiplying pretax income by the 37.5% blended
federal and state statutory rate.
FOR THE 33-DAY FOR THE
PERIOD ENDED YEAR ENDED
FEBRUARY 2, DECEMBER 31,
1998 1997
Tax computed at the federal statutory rate $ 287,694 $ (2,167,286)
Increase (decrease) in tax from:
State income taxes, net 30,716 (227,183)
Meals and entertainment 10,418 24,664
---------- -------------
Total income tax expense (benefit) $ 328,828 $ (2,369,805)
========== =============
The Company filed a consolidated tax return with related parties for
the period ended February 2, 1998. Tax expense or benefit was
allocated based on the consolidated group's tax sharing agreement.
No valuation allowance is provided on deferred tax assets as
management believes it is more likely than not that such assets will
be realized upon sale of its assets held for sale. Under the Internal
Revenue Code, if certain substantial changes in the Company's
ownership occur, there are annual limitations on utilization of loss
carryforwards.
9. COMMITMENTS AND CONTINGENCIES
RENTAL POOL DISTRIBUTION
GHR offered, effective January 1, 1998, a separate Guaranteed
Distribution Master Lease Agreement ("GMLA") to Innisbrook
participants. Among other things, the GMLA provides for an equal
sharing between GHR and Innisbrook participants of Adjusted Gross
Revenues and includes as deductions from the Gross Income
Distribution, as defined, a 5.5% Management Fee and a 3% Marketing
Fee. GHR has also guaranteed that distributions will not be less than
an amount which approximates the 1996 Gross Income Distribution, as
prorated based upon Weighted Days Pool Participation, as defined. For
the years ended December 31, 1999 and 1998, approximately $0 and
$11,000 was paid under the guarantee. The GMLA has a noncancelable
term through 2011 with an annual rental pool participation election by
individual unit owners. At December 31, 1999 and 1998, 85 and 86
condominium units had elected to remain in the previous rental pool
agreement, which expires on December 31, 2001, while 817 and 816 had
elected to participate in the GMLA, respectively.
F-14
28
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
WESTIN GUARANTEE AND CONTINGENCY
Under the terms of the Innisbrook management agreement, Westin
guaranteed a minimum cash flow to Innisbrook. The agreement provides
that if Incentive Cash Flow, as defined, is less than the Minimum
Annual Payment, as defined, for the operating year, then Westin will
advance Innisbrook the shortage up to $2.5 million, with the advance
being repayable when the Company has Available Cash, as defined. The
advance was fully funded for 1997, is non-interest bearing and is
recorded in other long-term liabilities in the accompanying balance
sheets. No advance was funded for 1998. In addition, Westin earns a
fee based on revenues of Innisbrook. Other accounts payable and
accrued expenses include a payable to Westin for this fee of $145,000
and $131,000 at December 31, 1999 and 1998, respectively.
The Westin management agreement requires the Company to maintain a
capital replacement fund based on a percentage of gross revenues. The
Company contributed $2,295,000 and $2,238,000 for the years ended
December 31, 1999 and 1998, respectively. At December 31, 1999 and
1998, the capital replacement fund had a balance of $82,000 and
$404,000 and is included in restricted cash in the accompanying
consolidated balance sheets.
In April 1998, the Company signed an agreement under which Westin will
provide 50% of the funding for approved capital expenditures incurred
subsequent to the Acquisition in excess of $6,000,000, plus capital
replacement fund requirements, as defined above.
LEGAL
The Company, in the normal course of operations, is subject to claims
and lawsuits. The Company does not believe that the ultimate
resolution of such matters will materially impair operations or have
an adverse effect on the Company's financial position and results of
operations.
10. SUBSEQUENT EVENTS
FINAL PURCHASE PRICE SETTLEMENT
On June 12, 2000, the previous owners of the Company agreed to release
their security interest in Tamarron assets for a security interest in
a land parcel at Innisbrook. In addition, the Company released the
previous owners from all claims under the Acquisition and the previous
owners amended and restated the mortgage note from $4,417,764 to
$3,168,000. Terms of the amended mortgage note call for principal
payments of $500,000 on June 23, 2001 and $2,668,000 on June 23, 2002.
In the event a portion or all of the collateral is sold prior to June
23, 2002, proceeds will be used to pay down the then outstanding
mortgage note balance. The write-down under the terms of the amended
mortgage note, net of balances due from the previous owners was
approximately $654,000 and will be adjusted against intangible assets
during 2000.
TRANSFER OF TAMARRON
On June 12, 2000, the previous owners of the Company agreed to
substitute their security interest in Tamarron assets for a security
interest in a land parcel at Innisbrook. The Company then dividended
the assets and liabilities of Tamarron of approximately $6,200,000,
net, to GHI, who contributed it to Golf Host II, Inc., a wholly owned
subsidiary of GHI.
F-15
29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Golf Host Resorts, Inc. and the Lessors of the
Innisbrook Rental Pool Lease Operation
In our opinion, the accompanying balance sheets and the related statements of
operations and of changes in participants' fund balance present fairly, in all
material respects, the financial position of the Innisbrook Rental Pool Lease
Operation at December 3l, 1999 and 1998, and the results of its operations and
the changes in participants' fund balance for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the rental pool's operators; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
March 10, 2000
F-16
30
INNISBROOK RENTAL POOL LEASE OPERATION
BALANCE SHEETS - DISTRIBUTION FUND
DECEMBER 31,
1999 1998
ASSETS
Receivable from Golf Host Resorts, Inc. for distribution $ 1,677,827 $ 1,894,144
Interest receivable from Maintenance Escrow Fund 67,667 25,588
----------- -----------
$ 1,745,494 $ 1,919,732
=========== ===========
LIABILITIES AND PARTICIPANTS' FUND BALANCE
Due to participants for distribution $ 1,406,654 $ 1,534,105
Due to Maintenance Escrow Fund 338,840 385,627
Participants' fund balance -- --
----------- -----------
$ 1,745,494 $ 1,919,732
=========== ===========
F-17
31
INNISBROOK RENTAL POOL LEASE OPERATION
BALANCE SHEETS - MAINTENANCE ESCROW FUND
DECEMBER 31,
1999 1998
ASSETS
Cash and cash equivalents $ 893,477 $ 590,380
Short-term investments 3,705,000 1,570,000
Inventories -- 21,655
Construction in progress 2,435,821 --
Receivable from Distribution Fund 338,840 385,627
Carpet care receivable 13,280 3,212
Interest receivable 82,429 24,104
----------- -----------
$ 7,468,847 $ 2,594,978
=========== ===========
LIABILITIES AND PARTICIPANTS' FUND BALANCE
Accounts payable $ 379,834 $ 64,280
Interest payable to Distribution Fund 67,667 25,588
Participants' fund balance 7,021,346 2,505,110
----------- -----------
$ 7,468,847 $ 2,594,978
=========== ===========
F-18
32
INNISBROOK RENTAL POOL LEASE OPERATION
STATEMENTS OF OPERATIONS - DISTRIBUTION FUND
FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997
Gross revenues $ 20,563,724 $ 19,484,376 $ 14,896,075
------------ ------------ ------------
Deductions:
Agents' commissions 1,189,691 775,083 322,654
Credit card fees 153,233 173,718 --
Audit fees 13,000 13,000 12,100
------------ ------------ ------------
1,355,924 961,801 334,754
------------ ------------ ------------
Adjusted gross revenues 19,207,800 18,522,575 14,561,321
Management fee (9,570,271) (9,223,148) (6,843,820)
------------ ------------ ------------
Gross income distribution 9,637,529 9,299,427 7,717,501
Adjustments to gross income distribution:
Management fee (1,065,487) (998,760) --
Marketing fee (581,174) (544,778) --
Miscellaneous pooled expenses (98,886) (88,870) --
Corporate complimentary occupancy fees 35,305 32,984 16,828
Westin Associate room fees 59,927 23,366 --
Payment under guarantee -- 10,918 --
Occupancy fees (1,713,493) (1,776,640) (1,541,670)
Advisory Committee expenses (29,242) (29,933) (106,540)
Life-safety reimbursements -- -- (186,613)
------------ ------------ ------------
Net income distribution 6,244,479 5,927,714 5,899,506
Adjustments to net income distribution:
Occupancy fees 1,713,493 1,776,640 1,541,670
Hospitality suite fees 324 134 10,328
Greens fees 9,753 12,588 86,354
Additional participation credits 3,720 5,100 69,825
------------ ------------ ------------
Amount available for distribution to participants $ 7,971,769 $ 7,722,176 $ 7,607,683
============ ============ ============
F-19
33
INNISBROOK RENTAL POOL LEASE OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE - DISTRIBUTION FUND
FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997
Balance, beginning of year $ -- $ -- $ --
Additions:
Amounts available for distribution
to participants 7,971,769 7,722,176 7,794,296
Interest earned from Maintenance Escrow Fund 174,805 92,721 110,562
Reductions:
Amounts withheld for Maintenance Escrow Fund (1,547,718) (1,580,182) (1,156,262)
Amounts withheld in reserve for life-safety
reimbursement -- -- (186,613)
Amounts accrued or paid to participants (6,598,856) (6,234,715) (6,561,983)
------------ ------------ ------------
Balance, end of year $ -- $ -- $ --
============ ============ ============
F-20
34
INNISBROOK RENTAL POOL LEASE OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE - MAINTENANCE ESCROW FUND
FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997
Balance, beginning of year $ 2,505,110 $ 1,901,616 $ 1,734,415
Additions:
Amounts withheld from occupancy fees 1,526,064 1,580,182 1,156,262
Interest earned 174,805 92,721 110,562
Charges to participants to establish or
restore escrow balances 4,815,118 198,492 1,091,298
Reductions:
Maintenance charges (1,340,680) (941,153) (1,947,493)
Carpet care reserve deposit (57,487) (35,533) (35,427)
Interest accrued or paid to Distribution Fund (174,805) (92,721) (110,562)
Refunds to participants due under
Lease Agreements (426,779) (198,494) (97,439)
------------ ------------ ------------
Balance, end of year $ 7,021,346 $ 2,505,110 $ 1,901,616
============ ============ ============
F-21
35
INNISBROOK RENTAL POOL LEASE OPERATION
NOTES TO FINANCIAL STATEMENTS
1. RENTAL POOL LEASE OPERATION AND RENTAL POOL LEASE AGREEMENTS:
Organization and Operations
The Innisbrook Rental Pool Lease Operation (the "Rental Pool")
consists of condominiums at the Westin Innisbrook Resort
("Innisbrook") which are provided as resort accommodations by their
owners. The condominium owners ("Participants") have entered into
Annual Rental Pool Lease Agreements ("ALAs") and either a Master Lease
Agreement ("MLA") or, effective January 1, 1998, a Guaranteed
Distribution Master Lease Agreement ("GMLA"), which define the terms
and conditions related to each ALA with Golf Host Resorts, Inc.
("GHR"), the lessee of the Rental Pool. The MLA, GMLA and ALAs are
referred to collectively as the "Agreements." The ALAs expire at the
end of each calendar year and the MLA and GMLA will remain in effect
through December 31, 2001 and December 31, 2011, respectively. At
December 31, 1999, 85 condominium owners had elected to participate in
the MLA while 817 had elected to participate in the GMLA.
The Rental Pool consists of two funds: the Distribution Fund and the
Maintenance Escrow Fund. The Distribution Fund balance sheets
primarily reflect amounts receivable from GHR for the Rental Pool
distribution payable to Participants and amounts due to the
Maintenance Escrow Fund. The operations of the Distribution Fund
reflect Participants' earnings in the Rental Pool. The Maintenance
Escrow Fund reflects the accounting for certain escrowed assets of the
Participants and, therefore, has no operations. It consists primarily
of amounts escrowed by Participants or due from the Distribution Fund
to meet escrow requirements, fund the carpet care reserve and maintain
the interior of the unit.
Computation and Allocation of Earnings
Under the GMLA, Participants and GHR share equally in Adjusted Gross
Revenues, while GHR receives as deductions from the Gross Income
Distribution a 5.5% Management Fee, a 3% Marketing Fee and
Miscellaneous Pooled Expenses comprised of linen and other pooled
expenses. The GMLA guarantees Rent (Net Income Distribution plus
Occupancy and Hospitality Suite Fees) will not be less than an amount
which approximates the 1996 Gross Income Distribution, as prorated
based upon Weighted Days Pool Participation, as defined. In 1999 and
1998, approximately $0 and $11,000 was paid under the guarantee. The
GMLA also guarantees a noncancelable term through 2011 with an annual
rental pool participation election.
Under the MLA, Participants and GHR share Adjusted Gross Revenues in
accordance with the terms of the Agreements. Adjusted Gross Revenues
consist of revenues earned from rental of condominiums, net of agents'
commissions, credit cards fees and audit fees. GHR receives a
Management Fee equal to 47% of Adjusted Gross Revenues. Each
Participant receives a fixed Occupancy Fee, based on apartment size,
for each day of occupancy. After allocation of Occupancy Fees, the
balance of Adjusted Gross Revenues, net of the Management Fee and
adjustments, is allocated proportionately to Participants, based on
the Participation Factor as defined in the Agreements.
Corporate complimentary occupancy fees are rental fees paid by GHR to
the Participants for complimentary rooms unrelated to Rental Pool
operations. Westin Associate room fees represent total room revenues
earned from rental of condominiums by Westin employees passed through
to the Rental Pool.
Owners who purchased units prior to January 1, 1991 and who
participate in the Rental Pool under the MLA for at least 50% of the
year or 50% of the time they own their unit receive Additional
Participation Credits. Participation in greens fees is restricted to
original condominium owners participating in the MLA who executed
purchase agreements for certain units prior to April 13, 1972. Greens
fees and
F-22
36
INNISBROOK RENTAL POOL LEASE OPERATION
NOTES TO FINANCIAL STATEMENTS
Additional Participation Credits are requirements of agreements other
than the current Agreements; these amounts are included in Adjustments
to Net Income Distribution of the Rental Pool as this treatment is
consistent with the method utilized by GHR to pay such amounts to the
applicable Participants.
Maintenance Escrow Fund Accounts
The MLA and GMLA provide that 75% and 90%, respectively, of the
Occupancy Fees earned by each Participant are deposited in the
Participant's Maintenance Escrow Fund account. This account provides
funds for payment of amounts which are due from Participants under the
Agreements for maintenance and refurbishment services. Under the MLA,
when the balance of the Participant's Maintenance Escrow Fund account
exceeds 75% of the defined furniture replacement value, the excess is
refunded to the Participant upon their election. Should a
Participant's balance fall below that necessary to provide adequate
funds for maintenance and replacements, the Participant is required to
restore the escrow balance to an adequate level. The GMLA provides for
an Occupancy Fee deposit into the Participant's Maintenance Escrow
Fund account until the balance in the account equals the total
anticipated charges for maintenance, repair and refurbishing of the
condominium.
Under the MLA and GMLA, a percentage of the Occupancy Fees is
deposited into the carpet care reserve in the Maintenance Escrow Fund
which will bear the expenses of carpet cleaning for all Participants.
This percentage is estimated to provide the amount necessary to fund
carpet cleaning expenses and may be adjusted annually. The amounts
expended for carpet care were $68,000, $66,000 and $47,000 for 1999,
1998 and 1997, respectively. These expenditures were in excess of the
carpet care reserve for 1999 and 1998.
GHR places the maintenance escrow funds on behalf of the participants
as instructed by the Lessors' Advisory Committee and in compliance
with restrictions in the Agreements. The Lessors' Advisory Committee
consists of nine Participants elected to advise GHR in Rental Pool
matters. Income earned on these investments is allocated
proportionately to Participants' Maintenance Escrow Fund accounts and
paid quarterly through the Distribution Fund. Included in cash and
cash equivalents at December 31, 1999 are certificates of deposit of
$285,000 at cost, maturing between February 2000 and March 2000, and
bearing interest at rates from 5.6% to 5.7%, with the remainder held
in a money market account. Included in short-term investments at
December 31,1999 are certificates of deposit of $2,455,000 at cost,
maturing between January 2000 and September 2000, and bearing interest
at rates from 5.0% to 5.9% and bonds of $1,250,000 at cost, maturing
between January 2000 and February 2000 and bearing interest at rates
from 5.375% to 6.375%.
Construction in progress includes costs incurred in conjunction with
the condominium refurbishment project authorized by the Participants
of the Rental Pool. The refurbishment project is expected to be
completed by the end of 2000.
F-23
37
INNISBROOK RENTAL POOL LEASE OPERATION
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of accounting
The accounting records of the funds are maintained on the accrual
basis of accounting
Use of estimates
Preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions which affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Income taxes
No federal or state taxes have been reflected in the accompanying
financial statements as the tax effect of fund activities accrued to
the Participants and shareholder of GHR.
3. AFFILIATE OWNED CONDOMINIUMS:
Golf Host Condominium, Inc., a wholly owned subsidiary of GHR, owns
three condominiums. Its condominiums participated in the Rental Pool
under the GMLA in the same manner as all others.
4. COMMITMENTS AND CONTINGENCIES:
Hilton Hotels Corporation ("HHC") managed Innisbrook from April 1993
to July 15, 1997, at which time the management was changed to Westin
Hotel Company. In connection with the HHC agreement, HHC funded
certain special projects and property improvements, including
installation of life-safety equipment in condominium units
participating in the Rental Pool and related common areas. Separately,
the Rental Pool agreed to reimburse GHR the cost of installing the
life-safety equipment, including reimbursements to condominium
apartment owners for previously installed equipment, in an amount
equal to $1,779,000, plus interest at 7.75% per annum for no more than
five years on each related draw thereunder. Payments were required for
years in which the Amount Available for Distribution to Participants
exceeded $7,375,000 in an amount equal to 50% of such excess.
Participants withdrawing from the Rental Pool for any reason, other
than a sale, before the obligation to GHR had been fully repaid were
required to immediately pay their proportionate share of the unpaid
balance. In l996 and 1995, repayment requirements of $362,593 and
$150,036, respectively, resulted, yielding a balance of $1,591,341.
Under the terms of the related agreement, the Rental Pool was not
obligated to reimburse GHR if the management agreement between HHC and
GHR was terminated. Therefore, effective with the July 15, 1997 change
in management, the obligation of the Rental Pool to continue to make
reimbursements ceased. The former shareholders of GHR retained all
notes receivable, including the amount due from the Rental Pool, and
have disputed the termination. The outcome of this matter is uncertain
at this time. GHR is holding $228,000 in escrow as potential payments
to the former shareholders pending resolution of this matter.
F-24
38
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Golf Host Resorts, Inc. and the Lessors of the
Tamarron Rental Pool Lease Operation
In our opinion, the accompanying balance sheets and the related statements of
operations and of changes in participants' fund balance present fairly, in all
material respects, the financial position of the Tamarron Rental Pool Lease
Operation at December 31, 1999 and 1998, and the results of its operations and
the changes in participants' fund balance for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the rental pool's operators; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
March 10, 2000
F-25
39
TAMARRON RENTAL POOL LEASE OPERATION
BALANCE SHEETS - DISTRIBUTION FUND
DECEMBER 31,
1999 1998
ASSETS
Cash $ 1,000 $ 1,000
Receivable from Golf Host Resorts, Inc. for distribution 132,557 184,410
Interest receivable from Maintenance Escrow Fund 2,195 114
----------- -----------
$ 135,752 $ 185,524
=========== ===========
LIABILITIES AND PARTICIPANTS' FUND BALANCE
Due to participants for distribution $ 93,415 $ 119,642
Due to Maintenance Escrow Fund 42,337 65,882
Participants' fund balance -- --
----------- -----------
$ 135,752 $ 185,524
=========== ===========
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
F-26
40
TAMARRON RENTAL POOL LEASE OPERATION
BALANCE SHEETS - MAINTENANCE ESCROW FUND
DECEMBER 31,
1999 1998
ASSETS
Cash and cash equivalents $ 125,514 $ 25,387
Due from Distribution Fund 42,337 65,882
Inventory:
Linen 26,832 82,515
Materials and supplies 9,950 11,467
----------- -----------
$ 204,633 $ 185,251
=========== ===========
LIABILITIES AND PARTICIPANTS' FUND BALANCE
Accounts payable $ 14,100 $ 11,026
Interest payable to Distribution Fund 2,195 114
Participants' fund balance 188,338 174,111
----------- -----------
$ 204,633 $ 185,251
=========== ===========
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
F-27
41
TAMARRON RENTAL POOL LEASE OPERATION
STATEMENTS OF OPERATIONS - DISTRIBUTION FUND
FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997
Gross revenues $ 3,385,651 $ 3,225,267 $ 3,372,242
------------ ------------ ------------
Deductions:
Agents' commissions 95,409 115,790 127,758
Sales and marketing expenses 253,924 241,895 269,779
Audit fees 13,000 13,000 10,400
------------ ------------ ------------
362,333 370,685 407,937
------------ ------------ ------------
Adjusted gross revenues 3,023,318 2,854,582 2,964,305
Management fee (1,511,659) (1,427,291) (1,482,153)
------------ ------------ ------------
Gross income distribution 1,511,659 1,427,291 1,482,152
Adjustments to gross income distribution:
Corporate complimentary occupancy fees 2,236 2,611 3,580
Occupancy fees (317,383) (317,350) (344,556)
Designated items (103,558) (90,950) (118,109)
Advisory Committee expenses (8,684) (11,226) (14,943)
------------ ------------ ------------
Pooled income 1,084,270 1,010,376 1,008,124
Adjustments to pooled income:
Hospitality suite fees -- -- --
Occupancy fees 317,383 317,350 344,556
------------ ------------ ------------
Net income distribution $ 1,401,653 $ 1,327,726 $ 1,352,680
============ ============ ============
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
F-28
42
TAMARRON RENTAL POOL LEASE OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE - DISTRIBUTION FUND
FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997
Balance, beginning of year $ -- $ -- $ --
Additions:
Amounts available for distribution 1,401,654 1,327,727 1,352,681
Interest earned from Maintenance Escrow Fund 2,195 1,103 930
Reductions:
Amounts withheld for Maintenance Escrow Fund (158,700) (158,683) (172,285)
Amounts accrued or paid to participants (1,245,149) (1,170,147) (1,181,326)
------------ ------------ ------------
Balance, end of year $ -- $ -- $ --
============ ============ ============
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
F-29
43
TAMARRON RENTAL POOL LEASE OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE - MAINTENANCE ESCROW FUND
FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997
Balance, beginning of year $ 174,111 $ 165,522 $ 197,548
Additions:
Amounts withheld from occupancy fees 158,700 158,682 172,285
Interest earned 2,195 1,103 930
Reimbursement of designated items 103,559 90,950 118,109
Charges to participants to establish or restore
escrow balances 74,372 375,597 47,749
Reductions:
Maintenance and inventory charges (190,025) (254,270) (161,718)
Refurbishing charges 5,447 (254,907) (66,602)
Interest accrued or paid to Distribution Fund (2,195) (1,103) (930)
Designated items (103,559) (90,950) (118,108)
Refunds to participants as prescribed by
Master Lease Agreement (34,267) (16,513) (23,741)
------------ ------------ ------------
Balance, end of year $ 188,338 $ 174,111 $ 165,522
============ ============ ============
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
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TAMARRON RENTAL POOL LEASE OPERATION
NOTES TO FINANCIAL STATEMENTS
1. RENTAL POOL LEASE OPERATION AND RENTAL POOL LEASE AGREEMENT:
Organization and Operations
The Tamarron Rental Pool Lease Operation (the "Rental Pool") consists
of condominiums at Sheraton Tamarron Resort which are provided as
resort accommodations by their owners. The condominium owners
("Participants") have entered into Annual Rental Pool Lease Agreements
(ALAs) and a Master Lease Agreement ("MLA"), which define the terms
and conditions related to each ALA, with Golf Host Resorts, Inc.
("GHR"), the lessee of the Rental Pool. The MLA and ALAs are referred
to collectively as the "Agreements." The ALAs expire at the end of
each calendar year and the MLA will remain in effect through December
31, 2003.
The Rental Pool consists of two funds: the Distribution Fund and the
Maintenance Escrow Fund. The Distribution Fund balance sheets
primarily reflect amounts due from GHR for the Rental Pool
distribution payable to Participants and amounts due to the
Maintenance Escrow Fund. The operations of the Distribution Fund
reflect Participants' earnings in the Rental Pool. The Maintenance
Escrow Fund reflects the accounting for certain escrowed assets of the
Participants and, therefore, has no operations. It consists primarily
of amounts escrowed by Participants or due from the Distribution Fund
to meet escrow requirements, maintain the interior of the unit and
purchase adequate inventory items, as defined.
Funding of the estimated amounts receivable from GHR for distribution
is due at least weekly to the extent that borrowings available to GHR
under its various lines of credit are less than amounts due to the
Distribution Fund. The receivable from GHR as of December 31, 1999 and
1998 was paid in accordance with the terms of the Agreements.
Computation and Allocation of Earnings
Participants and GHR share Adjusted Gross Revenues in accordance with
the terms of the Agreements. Adjusted Gross Revenues consist of
revenues earned from rental of condominiums net of Sales and Marketing
expenses (limited to 7.5% for 1999 and 1998, and 8.0% for 1997 of
Gross Revenues), agents' commissions (not to exceed 5.5% of Gross
Revenues) and audit fees. GHR receives a Management Fee equal to 50%
of Adjusted Gross Revenues.
Each Participant receives a fixed Occupancy Fee, based on apartment
size, for each day of occupancy. After allocation of Occupancy Fees,
the balance of Adjusted Gross Revenues, net of the Management Fee
adjustments, is allocated proportionately to Participants based on the
Participation Factor as defined in the Agreements.
Corporate complimentary occupancy fees are rental fees paid by GHR for
complimentary rooms unrelated to Rental Pool operations. Designated
items are purchases of supplies to maintain the interior of the units,
as defined in the Agreements.
Maintenance Escrow Fund Accounts
The Agreements provide that 50% of the Occupancy Fees earned by each
Participant is deposited in the Participant's Maintenance Escrow Fund
account. This account provides funds for payment of amounts which are
due from the Participant under the Agreements for maintenance and
refurbishment services. When the balance of the Participant's
Maintenance Escrow Fund account exceeds the maximum specified in the
Agreements, the excess is refunded to the Participant, as provided in
the
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TAMARRON RENTAL POOL LEASE OPERATION
NOTES TO FINANCIAL STATEMENTS
Agreements. Should a Participant's balance fall below that necessary
to provide adequate funds for maintenance and replacements, the
Participant is required to restore the escrow balance to an adequate
level.
Funds deposited in the Maintenance Escrow Fund are invested on behalf
of the Participants. Income earned on these investments is allocated
proportionately to Participants' Maintenance Escrow Fund accounts and
paid quarterly through the Distribution Fund. Cash and cash
equivalents at December 31, 1999 and 1998 consists of an interest
bearing demand account.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of accounting
The accounting records of the funds are maintained on the accrual
basis of accounting
Use of estimates
Preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions which affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Income taxes
No federal or state taxes have been reflected in the accompanying
financial statements as the tax effect of fund activities accrued to
the Participants and the shareholder of GHR.
3. AFFILIATE OWNED CONDOMINIUMS:
Through the sale of GHR on June 23, 1997, Golf Host Development, Inc.
(an affiliate of GHR), and certain shareholders, directors and
officers of GHR and its affiliates from time to time owned
condominiums which participated in the Rental Pool in the same manner
as all others. Subsequent to the sale, no condominiums are owned by
GHR, its affiliates or the shareholders, directors or officers
thereof.
4. LINEN AND MATERIALS AND SUPPLIES INVENTORY:
Linen amortization and the cost of Participants' actual usage of
certain supplies, collectively referred to as Designated Items, are
charged to all Participants as a group and allocated to Participants
based upon their Participation Factors. Linen inventory is stated at
cost, less accumulated amortization of $98,000 and $92,000 at December
31, 1999 and 1998, respectively. Linen amortization is computed on the
straight-line method over an estimated useful life of 48 months.
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46
TAMARRON RENTAL POOL LEASE OPERATION
NOTES TO FINANCIAL STATEMENTS
Materials and supplies inventories consist primarily of minor
apartment furnishings and appliances carried at cost, determined on a
first-in, first-out basis. The costs of such items, not considered
Designated Items, are charged to Participants' individual Maintenance
Escrow Fund accounts based on actual usage.
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