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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, 1996
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.
Page 1 of 39
2
PART I
Item 1. Business
Golf Host Resorts, Inc. (the Company) is engaged in the
operation of Innisbrook Hilton Resort in Tarpon Springs, Florida
(Innisbrook) and Tamarron Hilton Resort in Durango, Colorado
(Tamarron). Tamarron and Innisbrook (the Resorts) offer hotel
accommodations, restaurant and conference facilities, and
recreational activities including golf, skiing, swimming and tennis.
Both resorts are managed by Hilton Hotels Corporation under long-term
management agreements. The majority of the condominium apartment
owners at the Resorts provide such apartments as hotel 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
expenses of financing as well as certain operating costs of the
rental units.
Condominium apartment ownership, simply stated, is a realty
subdivision in which the individual "lots" are apartment units.
Instead of owning a plot of ground, the owner owns the air space
where his condominium apartment unit is located. This leaves
substantial properties in interest which are not individually owned,
e.g., the underlying land, roadways, foundations, exterior wall and
roofs, garden areas, utility lines, et cetera. These areas are termed
"common property" or "common elements" and each owner has an
undivided fractional interest in such property. The owners establish
an "Association of Condominium Owners" to administer and maintain
such property and to conduct the business of the 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 apartment units. Each owner must
pay ad valorem property taxes and assessments for electricity, and as
to such matters is independent of the other unit owners. These
expenses would be incurred by owners of condominium units, regardless
of an election not to participate in the rental pool. With respect to
governing the affairs of the Association, which is subject to state
statutes, the participating unit owners are accorded one (l) vote per
condominium unit owned.
In addition to room rentals, 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. These homesites are identified as Estates at
Tamarron-Highpoint. Three of the homesites were sold and closed
during 1994, and five during 1995, with the remaining homesite sold
during 1996 and closed during 1997. During 1995, the Company began a
second development of nine residential homesites, Estates at
Tamarron-Pine Ridge. Construction of required improvements has
commenced and is substantially complete. Two of the sites were sold
and closed during 1996.
Page 2
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The percentages of the foregoing revenues to total revenues
are as follows:
REVENUES 1996 1995 1994
----------- ----------- ----------
Hotel 33.1% 32.4% 32.7%
Food and Beverage 26.5 25.8 25.3
Golf 28.2 28.3 29.3
Other 10.9 11.4 11.2
Real Estate Activities 1.3 2.1 1.5
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
The Company hosts more than a thousand conferences or related
group meetings each year and its clients come from a variety of
industries. 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 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 1,250 employees
(950 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 units, 755, on average, participate in the rental pool. The
resort complex includes 63 holes of golf; three practice ranges;
three clubhouses with retail golf, food and beverage outlets; three
conference and exhibit buildings; six swimming pools; a recreation
center; tennis 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 l8
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 290 units, on average, participate in the rental pool.
The resort complex includes 18 holes of golf; a practice range; an
indoor swimming pool; several restaurants and lounges; a conference
facility; a tennis complex and numerous administrative and support
facilites and structures.
Page 3
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During 1994 and 1995, approximately 24 acres of land at
Tamarron were set aside for the Estates at Tamarron residential
homesite development.
At December 31, 1996, the properties are encumbered by various
mortgages totalling $16,855,194. Reference is made to Note 3 of Notes
to Financial Statements of Golf Host Resorts, Inc. 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
There are a total of 1,284 condominium units allowing rental
pool participation by their owners, of which three are owned by the
Company and one is owned by an affiliate of the Company. Of the units
not owned by the Company or its affiliate, 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 1,141 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.
Page 4
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GOLF HOST RESORTS, INC.
Item 6. Selected Financial Data
- ---------------------------------------------
The following selected financial data are not covered by the report of
independent certified public accountants. This summary should be read in
conjunction with the financial statment and notes thereto appearing elsewhere in
this annual report on Form 10-K.
Year Ended December 3l,
-------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- --------------- --------------- ---------------- -------------------
OPERATING REVENUE $ 57,710,742 $ 56,535,735 $ 52,573,941 $ 45,101,103 $49,864,000
=========== =========== =========== ============ ==========
NET INCOME (LOSS)
AVAILABLE TO COMMON
SHAREHOLDERS $ 1,114,211 $ 1,119,605 $ 137,607 $ (794,374) $ 626,874
=========== =========== =========== ============ ==========
NET INCOME (LOSS)
PER COMMON SHARE $ 222.84 $ 223.92 $ 27.52 $ (158.87) $ 125.38
=========== =========== =========== ============ ==========
TOTAL ASSETS $ 53,135,194 $ 52,822,127 $ 50,579,114 $ 49,278,940 $51,330,483
=========== =========== =========== ============ ==========
LONG-TERM
OBLIGATIONS $ 28,474,570 $ 30,001,491 $ 28,861,345 $ 28,825,440 $30,083,567
=========== =========== =========== ============ ==========
CASH DIVIDENDS
PER COMMON
SHARE $ - $ - $ - $ - $ -
=========== =========== =========== ============ ==========
Page 5
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Guest occupancy during the last three years, measured by room
nights, was as follows:
Total % Change
------- --------
1996 176,149 (.5)
1995 177,059 1.2
1994 174,967 18.7
During 1996, total revenues increased approximately 2% from
the prior year level. Revenues from non Real Estate Activities
(Resort Activities) increased approximately 3%, while those from Real
Estate Activities, representing residential homesite sales at
Tamarron, declined 34%. During 1996, there were two residential
homesite sales closed; in 1995 and 1994, five and three were closed,
respectively. During 1996, the Company recognized approximately
$120,000 of deferred profit from a homesite sale and closing that
occurred in 1994.
On a per occupied room night basis, 1996 revenues from Resort
Activities increased at a rate approximately equal to that of the
general price level, as measured by the CPI-U. However, significant
gains were enjoyed at Innisbrook in average daily room rate and
average food & beverage revenue per occupied room. The operating
income margin, at approximately 7%, declined from the year ago
level, primarily as the result of expenses associated with the
commencement of the Hilton Management Agreement at Tamarron. During
1996, the Company successfully outsourced two of its minor operated
departments at Innisbrook, transportation and media services. Thus
far, the Company is pleased with the quality of service rendered by
the outside providers and believes that the outside providers will
be better able to maintain the appropriate levels of equipment
required to meet the needs of Innisbrook's clientele. This change
will also eliminate the demand for capital resources in connection
with equipment additions and replacements for transportation
and media services.
Interest expense for 1996 declined from the year-ago level,
generally as a result of a lower average prime rate, on which the
interest rate of substantially all of the company's debt is based.
Total revenues for 1995 represented approximately an 8%
increase over 1994, consisting of increases of approximately 7% and
50% for Resort Activities and Real Estate Activities, respectively.
The percentage gain in Resort Activities revenues far exceeded the
modest increase in occupied rooms. Moreover, when measured on the
basis of revenue per occupied room, the increase in 1995 over the
1994 level well exceeded the change in the general price level. The
significant improvement in the operating income relationship to total
revenues, when compared with the prior year, can be primarily
attributed to the gains achieved in revenue per occupied room.
Interest expense during 1995 increased from the 1994 level, generally
reflecting the somewhat higher prime rate.
Page 6
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Financial Condition
The Company's net working capital deficit increased
approximately $851,000 from the year-ago level, resulting in a
working capital ratio of .90:1. The Company has typically operated
with deficit working capital without impairing its ability to meet
its credit obligations in a timely and orderly fashion.
Cash flows from operating activities sufficiently provided for
approximately $2,450,000 of capital additions during the year and a
reduction in the level of debt outstanding.
The Company maintains satisfactory relations with several
lenders. Liquidity is provided by an accounts receivable credit line
of $6,000,000 and a revolving mortgage credit facility of $2,000,000.
At December 31, 1996, approximately $3,786,000 was available for
immediate use under these credit facilities. Specific financing is
available for equipment additions. Amounts available under loan
agreements with Hilton Hotels Corporation are discussed in Note 8 of
Notes to Financial Statements of Golf Host Resorts, Inc., contained
elsewhere in this Form 10-K filing.
Based on current forecasts of operating levels and the
existence of credit facilities with Company's lenders, the Company
assesses its liquidity situation as satisfactory.
Item 8. Financial Statements and Supplementary Data
The following Financial Statements of the Company are included
in this Form 10K annual report:
Golf Host Resorts, Inc. Financial Statements together with
Report of Independent Certified Public Accountants
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
None
Page 7
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PART III
Item 10. Directors and Executive Officers of the Registrant
Name/Position Age Five Year Principal Occupation
------------- --- ------------------------------
William Ellis, Jr. 68 President and C.E.O.
Director Centerpoint Communications, Inc.
Richard S. Ferreira 56 Executive Vice President
Executive Vice President, and Chief Financial Officer of
Assistant Secretary and the Company and its parent,
Director Golf Hosts, Inc.
Lewis H. Hill, III 69 Partner in the law firm of
Secretary and Director Foley and Lardner (retired
and currently of counsel)
C. James McCormick 71 Chairman of the Board,
Chairman of the Board McCormick, Inc.
and Director
Brenton Wadsworth (a) 68 Chairman of the Board,
Director Wadsworth Golf Course
Construction Companies
Stanley D. Wadsworth (a) 61 President of the Company and
President and Director its parent, Golf Hosts, Inc.
(a) Brothers
All directors and officers serve a one year term or until their
successors are elected.
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.
Page 8
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EXECUTIVE COMPENSATION
GOLF HOST RESORTS, INC.
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, 1996, to the Company's executive
officers.
All Other
Fiscal Salary and Bonus Other Annual Compensation ($)
Name and Principal Position Year Commission ($) ($) Compensation ($) (1)
- ------------------------------------------ ----------- ---------------- --------- ---------------- ---------------
Golf Hosts, Inc.:
Stanley D. Wadsworth 1996 153,000 15,400 - 14,492
President & Chief 1995 147,100 33,300 - 93,898
Executive Officer 1994 142,100 16,500 - 23,446
Richard S. Ferreira 1996 148,600 15,600 - 7,473
Executive Vice President 1995 143,200 37,200 - 22,747
& Chief Financial Officer 1994 138,650 17,700 - 5,784
(1) Includes Company 401(k) matching contributions of $400 annually for each
named executive officer, life insurance premiums, medical reimbursements and the
value of Company provided vehicles.
Page 9
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(b) Pension Plan
The Company and its parent, Golf Hosts, Inc., provide a
supplemental retirement income plan (Plan) for officers who
have completed l5 years of service, are still employed at age
65 by the Company and retire. The Plan provides an annual
income of $l0,000 for a period of 10 years.
The named executive officers in the Summary
Compensation Table are eligible to participate in this Plan
when they satisfy the criteria set forth above. The ages and
years of service of the named executive officers are as
follows:
Age Years of Service
--- ----------------
Stanley D. Wadsworth 61 27
Richard S. Ferreira 56 26
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners:
Title Amount Percent
of Name and Address Beneficially of
Class of Beneficial Owner Owned Class
------ ------------------- ------------- -------
Common Golf Hosts, Inc. 4,000 80%
P.O. Box 1088
Tarpon Springs, FL 34688-1088
Common C. James McCormick 500 10%
P.O. Box 728
Vincennes, IN 47591
Common Stanley D. Wadsworth 250 5%
P.O. Box 117
Hesperus, CO 81326
Common Brenton Wadsworth 250 5%
1814 Mariner Drive
Tarpon Springs, FL 34689
Page 10
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(b) Security ownership of management of the Company in Golf Hosts,
Inc. (GHI):
Beneficially
Title of (D)irect or Owned
Class Name (I)ndirect Shares Shares Percent
Common William Ellis D 50
Betty Ellis I 50 100 0.2%
Common Richard S. Ferreira D 139
Cathlene & Richard
Ferreira I 532 671 1.3%
Common Lewis H. Hill D 1,000
Sally S. Hill I 100 1,100 2.1%
Common C. James McCormick D 1,869
Bettye J. McCormick I 2,000
Clarence & Lynn
McCormick I 1,963
Michael & Margaret
McCormick I 1,963
Patrick & Sara
McCormick I 1,963
Craig & Jane Wissel I 1,963 11,721 22.7%
Common Brenton Wadsworth D 0
Jean Wadsworth I 1,236
The Wadsworth
Children's Trust I 1,505
Stanley L. Wadsworth I 908
The Wadsworth
Partnership I 5,148
Wadsworth Golf
Charities Foundation I 3,000 11,797 22.9%
Common Stanley D. Wadsworth D 10,028 10,028 19.4%
______ ______
35,417 35,417 68.7%
______ ______
______ ______
Total Golf Hosts, Inc. shares outstanding 51,562
______
______
Due to rounding, individual percentages of class do not
total 68.7%.
(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
determined by GHI
Page 11
12
(b) Certain Business Relationships
Lewis H. Hill, III, Secretary and a Director of the Company, is
a retired partner of and is presently of counsel to the law firm of
Foley & Lardner, the Company's general counsel.
(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. - (included at Item 8)
Innisbrook Rental Pool Lease Operation Financial Statements
together with the Report of Independent Certified Public
Accountants
Tamarron Rental Pool Lease Operation Financial Statements
together with Report of Independent Certified Public Accountants
2. Financial Statement Schedules of Golf Host Resorts, Inc.
None
(b) Reports on Form 8-K
None
(c) Exhibits
27 Financial Data Schedule (for SEC use only)
13
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/ S. D. Wadsworth By: /s/ R. S. Ferreira
-------------------------------------- ------------------------
Stanley D. Wadsworth, President Richard S. Ferreira,
and Vice Chairman of the Board Executive Vice President,
Chief Financial Officer
and Director
By: /s/ A. S. Herzog By: /s/ R. L. Akin
-------------------------------------- ------------------------
A. Stephen Herzog, Richard L. Akin,
Vice President and Controller Vice President
Chief Accounting Officer and Treasurer
By: /s/ C. James McCormick By: /s/ B. Wadsworth
-------------------------------------- ------------------------
C. James McCormick Brenton Wadsworth
Chairman of the Board and Director Director
Dated: March 28, 1997
Page 13
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Golf Host Resorts, Inc.:
We have audited the accompanying balance sheets of GOLF HOST RESORTS,
INC. (a Colorado corporation and an 80%-owned subsidiary of Golf Hosts, Inc.) as
of December 31, 1996 and 1995, and the related statements of operations,
shareholders' investment and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Golf Host Resorts,
Inc. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida,
March 21, 1997
Page 14
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GOLF HOST RESORTS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
(Substantially all pledged - Note 3)
1996 1995
-------------- ------------
CURRENT ASSETS:
Cash $ 488,685 $ 312,603
Accounts receivable 4,380,108 4,471,677
Notes receivable 163,942 627,817
Inventories and supplies 5,123,966 4,392,498
Prepaid expenses and other 956,054 1,207,186
Intercompany receivables 724,312 567,455
------------- ----------
Total current assets 11,837,067 11,579,236
OTHER DEFERRED CHARGES 238,627 --
LONG-TERM RECEIVABLES, less amounts
currently due 1,021,178 1,011,871
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization 40,038,322 40,231,020
------------- ----------
$ 53,135,194 $52,822,127
============= ==========
The accompanying notes are an integral part of these balance sheets.
Page 15
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GOLF HOST RESORTS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
LIABILITIES AND SHAREHOLDERS' INVESTMENT
1996 1995
-------------- -------------
CURRENT LIABILITIES:
Note payable $ 734,429 $ 1,285,773
Maturing long-term obligations 2,788,764 1,854,401
Accounts payable 2,258,702 1,911,052
Accrued expenses 4,577,981 4,274,085
Deposits and prepaid fees 2,755,297 2,681,066
-------------- ----------
Total current liabilities 13,115,173 12,006,377
-------------- ----------
LONG-TERM OBLIGATIONS, less current
maturities 17,777,544 20,659,348
-------------- ----------
LONG-TERM INTERCOMPANY 4,951,895 4,124,210
-------------- ----------
LONG-TERM CONTINGENCY (Note 8) 2,221,938 2,077,759
-------------- ----------
SHAREHOLDERS' INVESTMENT:
Common stock, $1 par, 5,000 shares
authorized and outstanding 5,000 5,000
5.6% cumulative preferred stock, $1 par,
4,577,000 shares authorized and
outstanding 4,577,000 4,577,000
Paid-in capital 2,329,447 2,329,447
Retained earnings 8,157,197 7,042,986
------------- ----------
Total shareholders' investment 15,068,644 13,954,433
------------- ----------
$ 53,135,194 $ 52,822,127
============= ============
The accompanying notes are an integral part of these balance sheets.
Page 16
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GOLF HOST RESORTS, INC.
STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
1996 1995 1994
---------------- ------------- ------------
REVENUES:
Hotel $ 19,087,031 $18,296,069 $17,196,787
Food and beverage 15,298,357 14,600,080 13,289,590
Golf 16,261,342 15,997,215 15,401,389
Other 6,289,034 6,471,371 5,904,941
Real Estate Activities 774,978 1,171,000 781,234
------------ ---------- ----------
57,710,742 56,535,735 52,573,941
------------ ---------- ----------
COSTS AND OPERATING EXPENSES:
Hotel 16,660,453 15,783,533 15,402,446
Food and beverage 10,491,643 10,232,692 9,594,444
Golf 6,272,674 6,238,748 5,977,198
Other 16,019,199 15,159,466 14,869,355
General and administrative 3,950,708 4,250,819 3,633,098
Real Estate Activities 275,227 617,095 408,294
------------ ---------- ----------
53,669,904 52,282,353 49,884,835
------------ ---------- ----------
OPERATING INCOME 4,040,838 4,253,382 2,689,106
INTEREST, NET 1,880,215 2,124,965 2,083,864
------------ ---------- ----------
INCOME BEFORE INCOME TAX 2,160,623 2,128,417 605,242
PARENT INCOME TAX CHARGE 790,100 752,500 211,323
------------ ---------- ----------
NET INCOME BEFORE DIVIDEND
REQUIREMENTS ON PREFERRED STOCK 1,370,523 1,375,917 393,919
DIVIDEND REQUIREMENTS ON
PREFERRED STOCK 256,312 256,312 256,312
------------ ---------- ----------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS $ 1,114,211 $ 1,119,605 $ 137,607
============ ========== ==========
EARNINGS PER COMMON SHARE:
NET INCOME BEFORE DIVIDEND
REQUIREMENTS ON PREFERRED STOCK $ 274.10 $ 275.18 $ 78.78
DIVIDEND REQUIREMENTS ON
PREFERRED STOCK (51.26) (51.26) (51.26)
------------ ---------- ----------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS $ 222.84 $ 223.92 $ 27.52
============ ========== ===========
The accompanying notes are an integral part of these statements.
Page 17
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GOLF HOST RESORTS, INC.
STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
Other Shareholders'
$1 Par Value 5.6% Cumulative Investment
Common Stock Preferred Stock ----------------------------- Total
---------------------- --------------------------- Paid-In Retained Shareholders'
Shares Amount Shares Amount Capital Earnings Investment
--------- ----------- ------------ -------------- ------------- ------------- --------------
Balance, December 31, 1993 5,000 $ 5,000 4,577,000 $4,577,000 $2,329,447 $5,785,774 $12,697,221
Net income available to
common shareholders - - - - - 137,607 137,607
--------- ----------- ------------ -------------- ------------- ------------- --------------
Balance, December 31, 1994 5,000 5,000 4,577,000 4,577,000 2,329,447 5,923,381 12,834,828
Net income available to
common shareholders - - - - - 1,119,605 1,119,605
--------- ----------- ------------ -------------- ------------- ------------- --------------
Balance, December 31, 1995 5,000 5,000 4,577,000 4,577,000 2,329,447 7,042,986 13,954,433
Net income available to
common shareholders - - - - - 1,114,211 1,114,211
--------- ----------- ------------ -------------- ------------- ------------- --------------
Balance, December 31, 1996 5,000 $ 5,000 4,577,000 $4,577,000 $2,329,447 $8,157,197 $15,068,644
========= =========== ============ ============== ============= ============= ==============
The accompanying notes are an integral part of these statements.
Page l8
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GOLF HOST RESORTS, INC.
STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
1996 1995 1994
-------------- ------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income before dividend requirements
on preferred stock $ 1,370,523 $ 1,375,917 $ 393,919
Adjustments to reconcile net
income to net cash flows
from operating activities:
Depreciation and amortization 2,570,206 2,401,522 2,267,809
Deferred profit (Note l) (119,266) (4,500) 123,766
Changes in working capital
other than cash (Note 7) 180,153 (936,139) 688,695
--------- --------- ---------
Net cash flows provided by
operating activities 4,001,616 2,836,800 3,474,189
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increases in other Deferred
Charges (238,627) - -
Purchases of property and equipment (2,448,315) (3,777,820) (2,678,498)
Recovery of cost of property and
equipment sold 70,807 3,739 121,702
Additions to notes receivable (165,238) (623,601) (514,359)
Reductions in notes receivable 739,072 164,776 93,534
------------ ---------- ----------
Net cash flows (used in) investing
activities (2,042,301) (4,232,906) (2,977,621)
------------ ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in notes payable (551,344) 1,285,673 (762,378)
Increases in long-term obligations 861,072 1,699,222 1,322,702
Decreases in long-term obligations (2,808,513) (2,669,609) (2,074,731)
Increase in long-term intercompany 571,373 303,910 470,801
Increase in long-term contingency (Note 8) 144,179 264,638 823,200
------------ ------------ ---------
Net cash flows provided by (used in)
financing activities (1,783,233) 883,834 (220,406)
----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH 176,082 (512,272) 276,162
CASH, BEGINNING OF YEAR 312,603 824,875 548,713
----------- ------------ ---------
CASH, END OF YEAR $ 488,685 $ 312,603 $ 824,875
=========== =========== =========
Supplemental information on noncash financing and investing activities is
included in Note 7.
The accompanying notes are an integral part of these statements.
Page 19
20
GOLF HOST RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) ORGANIZATION, BUSINESS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Golf Host Resorts, Inc. (the Company or GHR) is an 80%-owned subsidiary of
Golf Hosts, Inc. (GHI). The minority shareholders of the Company are also the
major shareholders of GHI. The Company is engaged in the operation of Innisbrook
Hilton Resort (Innisbrook) in Tarpon Springs, Florida and Tamarron Hilton Resort
(Tamarron) in Durango, Colorado (the Resorts). The Resorts offer hotel
accommodations, restaurant and conference facilities, and recreational
activities including golf, skiing, swimming and tennis. The majority of the
condominium apartment owners at the Resorts provide such apartments as hotel
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 apartment
owners.
FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of management's estimates.
Amounts included in these Notes to Financial Statements, unless otherwise
indicated, are as of December 31, 1996 and 1995, or for the years ended December
31, 1996, 1995 and 1994, respectively, as applicable. Certain reclassifications
have been made to the l995 and 1994 financial statements to conform to the 1996
presentation.
MANAGEMENT AGREEMENTS
Hilton Hotels Corporation (HHC) has managed Innisbrook since April 1993 and
Tamarron since December 1995. HHC also advanced certain amounts to the Company
(see Note 8).
Under the related agreements, whose terms are 20 years with provisions for
earlier termination by either party, HHC receives annual management fees and
certain cost reimbursements. HHC will also receive a portion of the actual
earnings, as defined, above certain specified levels. Actual earnings have not
exceeded the specified levels.
INTERCOMPANY ALLOCATIONS AND ADVANCES
GHI charges administrative and other expenses to the Company on the basis of
estimated time and expenses incurred as determined by GHI. The amounts charged
to the Company were approximately $656,000, $970,000 and $770,000.
The Company has three affiliates, Golf Host Securities, Inc. (Securities),
Golf Host Realty, Inc. (Realty) and Golf Host Development, Inc. (Development),
all of which are wholely owned subsidiaries of GHI. Securities and Realty are
engaged in brokerage activity with respect to the resale of condominiums of
Innisbrook and Tamarron, respectively. Realty also serves as agent for the sale
of Estates of Tamarron residential homesites. Development is currently inactive.
Page 20
21
PARTICIPATING RENTAL UNITS
Revenue includes rental revenues from condominium units owned by third
parties participating in the rental pool lease operations previously described.
If these rental units were owned by the Company, normal costs associated with
ownership such as depreciation, interest, real estate taxes, maintenance, etc.
would have been incurred. Instead, costs and operating expenses include
distributions to the rental pool participants of approximately $9,783,000,
$9,358,000 and $8,692,000.
ACCOUNTS RECEIVABLE
Accounts receivable is net of allowances of $43,000 and $60,300 for doubtful
accounts.
NOTES RECEIVABLE
Notes receivable bear interest at rates ranging from 5.75% to 10.25% at
December 31, 1996.
INVENTORIES AND SUPPLIES
The Company records its materials and supplies inventories at the lower of
first-in, first-out cost or market.
REAL ESTATE DEVELOPMENT COSTS
Capitalized real estate costs related to the development of residential
homesites at Tamarron-Highpoint and Pine Ridge include the original cost of
land, engineering, surveying, road construction, utilities, interest and other
costs. Costs are allocated to individual properties using the relative sales
value method.
Approximately $80,900 and $96,000 of such costs are included in inventory
related to the Estates at Tamarron-Highpoint. Estates at Tamarron-Highpoint is
comprised of nine homesites, of which all have been sold, with the last closing
in January 1997. Approximately $898,000 and $116,000 of such costs are
included in inventory related to the Estates at Tamarron-Pine Ridge. Estates
at Tamarron-Pine Ridge consists of nine homesites, two of which were sold and
closed during 1996.
REVENUE RECOGNITION
Revenue from resort operations is recognized as the related service is
performed. Profit is recognized on real estate sales either when the closing
occurs, or under the installment sales or cost recovery methods, as appropriate.
The approximately $120,000 of deferred profit reflected in the 1995 financial
statements was recognized during 1996.
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 one year service requirement to
be eligible. Employees may contribute a percentage of their compensation, as
defined, to the Plan with the Company matching the lesser of one-half of the
first 4% or $400 per employee annually. Company contributions required under the
Plan approximated $120,000, $130,000 and $118,000, and are fully funded.
Page 21
22
GHI also provides a supplemental retirement income plan for officers who meet
certain eligibility requirements upon retirement. The Company has included its
portion of the related liability in long-term obligations.
During 1995, the Company's parent terminated its self-funded employee health
insurance plan. The financial statements include approximately $15,000 and
$277,000 of related termination costs in costs and operating expenses.
INTEREST, NET
The Company's cash management policy requires the utilization of cash
resources to minimize net interest expense, through either temporary cash
investments or reductions in existing interest-bearing obligations, as is most
appropriate in the circumstances. Accordingly, temporary cash investments and
interest income may vary significantly from period to period. Interest expense
is net of interest income of $154,000, $257,000 and $153,000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The book value of all financial instruments other than the long-term
contingency approximates the fair value. It is not practicable to determine the
fair value of the long-term contingency. The fair value of the Company based on
the foregoing is not a market valuation of the Company as a whole.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS l2l) which
addresses when and how impairments to the value of long-lived assets should be
recognized. SFAS 121 is effective for fiscal years beginning after December 15,
1995, and therefore, was implemented by the Company in 1996 and did not have a
material effect on the company's financial statements.
(2) PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
1996 1995
--------------- ------------
Undeveloped land . . . . . . . . . . . . . . . . $ 1,327,284 $ 1,327,284
Land and land improvements . . . . . . . . . . . 6,362,888 6,102,695
Buildings. . . . . . . . . . . . . . . . . . . . 22,598,173 23,255,334
Golf courses and recreational facilities . . . . 10,185,110 10,050,804
Machinery and equipment. . . . . . . . . . . . . 25,780,867 23,958,054
Construction in progress . . . . . . . . . . . . 110,817 152,904
----------- -----------
66,365,139 64,847,075
Less - accumulated depreciation and amortization (26,326,817) (24,616,055)
----------- -----------
$ 40,038,322 $ 40,231,020
=========== ===========
The Company provides depreciation for financial reporting purposes 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. The estimates of useful lives used in computing annual depreciation
are as follows:
Page 22
23
LIFE
Land improvements . . . . . . . . . . . . . . 28 to 30 years
Buildings . . . . . . . . . . . . . . . . . . 50 years
Golf courses and recreational facilities. . . 30 to 75 years
Machinery and equipment . . . . . . . . . . . 10 to 15 years
The costs of maintenance and repairs of property and equipment used in
operations are charged to expense as incurred. Costs of renewals and betterments
are capitalized. When properties are replaced, retired or otherwise disposed of,
the costs of such properties 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.
(3) NOTE PAYABLE AND LONG-TERM OBLIGATIONS
1996 1995
--------------- -------------
Note payable
Under a $6,000,000 line of credit limited to
a percentage of qualifying accounts receivable
and inventories, with interest at prime (8.25% at
December 31, 1996), due on demand. Approximately
$3,786,000 was available for immediate use at
year-end. Letters of credit of $509,000 were also
outstanding. $ 734,429 $ 1,285,773
============ ==========
Long-term obligations
Mortgage notes at varying rates, ranging
from 8.05% to 9%, maturing from
1998 to 2007. $ 15,487,194 $ 16,810,140
Equipment revolving credit line at
prime, maturing serially from 1997
to 2001. $1,108,272 was available
for use at December 31, 1996. 3,891,728 3,862,987
A $2,000,000 revolving credit line at 9%,
maturing in 2007. A Letter of Credit of
$632,000 was issued as of May 21, 1996,
and reduces the borrowings available.
Subsequent to year-end, availability under
this credit line increased by $585,937. 1,368,000 2,000,000
Other 286,386 346,622
Unamortized debt discount and expense (467,000) (506,000)
------------ ------------
20,566,308 22,513,749
Less - current maturities (2,788,764) (1,854,401)
------------ -----------
$ 17,777,544 $ 20,659,348
============ ===========
Page 23
24
The maturities of long-term obligations are as follows:
Year Ending December 31,
1998 $ 2,760,202
1999 2,125,661
2000 1,729,099
2001 1,561,072
2002 1,594,337
Thereafter 8,007,173
------------
$17,777,544
============
Substantially all property and equipment is pledged as collateral for
long-term obligations. Generally, covenants of existing loan agreements prohibit
the disposition of assets other than in the ordinary course of business, limit
the amount of additional debt, limit the payment of dividends and require the
maintenance of certain minimum financial ratios. Substantially all of the
Company's long-term obligations are guaranteed by GHI.
The Company obtained waivers for or was in compliance with all debt covenants
at December 31, 1996.
(4) LEASES
Total rent expense on operating leases approximated $156,000,
$160,000 and $232,000 and there were no contingent rentals or operating
subleases.
Future minimum rental payments on the Company's operating leases are not
significant.
(5) ACCRUED EXPENSES
The components of accrued expenses are as follows:
1996 1995
----------- -----------
Rental pool lease distribution $ 2,134,459 $ 1,760,259
Salaries 1,456,267 1,400,364
Taxes, other than income taxes 242,820 742,033
Other 744,435 371,429
----------- -------------
$ 4,577,981 $ 4,274,085
=========== ===========
Page 24
25
(6) INCOME TAX ALLOCATION AND SHARING POLICY
The Company joins with GHI in filing consolidated income tax returns. For
financial reporting purposes, GHI has an income tax allocation and sharing
policy which defines the manner in which income tax charges and benefits are
allocated among GHI and its affiliates. The policy provides that the Company's
charge (benefit) from GHI for income taxes be based on each affiliate's taxable
income before income tax times the statutory tax rate.
All income taxes are credited to the long-term intercompany liability to GHI
as incurred and GHI accepts the future liability for the payment of the
Company's deferred income taxes as they become due. The deferred taxes recorded
by GHI result primarily from differences in the accounting for financial
reporting and Federal income tax purposes of depreciation of property and
equipment and the recognition of accruals and prepayments.
(7) SUPPLEMENTAL CASH FLOW DATA
CHANGES IN WORKING CAPITAL
The (increases) decreases in working capital other than cash are as follows:
1996 1995 1994
--------------- -------------- --------------
Accounts receivable $ 91,569 $ (708,251) $ (829,908)
Inventories and supplies (731,468) 32,164 (759,044)
Prepaid expenses and other 251,132 16,724 213,587
Intercompany (156,857) (260,038) 505,597
Accounts payable 347,650 429,351 246,857
Accrued expenses 303,896 (42,334) 692,627
Deposits and prepaid fees 74,231 (403,755) 618,979
------------ ---------- -----------
$ 180,153 $ (936,139) $ 688,695
============ ========== ===========
1996 1995 1994
--------------- -------------- ---------
NONCASH ACTIVITIES
The Company obtained machinery and
equipment through a trade-in. $ - $ 351,050 $ -
The Company transferred undeveloped
land to inventory. $ - $ 63,955 $ 25,324
The Company received land and related
improvements from an affiliate in
exchange for a long-term intercom-
pany obligation. $ - $ - $ 236,385
The Company satisfied its preferred
stock dividend liability to GHI
through the intercompany account. $ 256,312 256,312 $ 256,312
Page 25
26
OTHER INFORMATION
Interest paid in cash, net of
amounts capitalized. $ 2,029,000 $ 2,100,000 $ 2,249,000
(8) LONG-TERM CONTINGENCY AND ADVANCE
The Company has drawn $1,721,000 under the Innisbrook HHC agreement primarily
to acquire GHR property and equipment. $403,462 of interest has been accrued at
8% per annum on this amount. These amounts are included in long-term
contingency. Repayment is contingent upon Innisbrook exceeding certain not yet
attained earnings levels. HHC's opportunity to collect under the agreement
expires at the end of 20 years.
The Company entered into an agreement with the Lessors' Advisory Committee of
the Innisbrook Rental Pool (the IRP) to fund certain improvements to the
condominiums and common areas. A total of $1,779,000 was advanced on similar
terms to the Company by HHC, with HHC's opportunity to collect these advances
expiring at the end of 10 years. The amount advanced GHR, together with accrued
interest thereon, exceeds the amount due from IRP by $97,476. This excess is
included in long-term contingency. Repayment of the advances is contingent upon
the IRP distribution exceeding a specified level. This has resulted in repayment
requirements of $363,593 and $150,036 by the IRP to the Company, with equal and
offsetting amounts due HHC from the Company.
The Company also entered into a loan agreement with the Tamarron Association
of Condominium Owners (TACO) to fund certain improvements to the condominiums
and common areas up to a maximum of $1,500,000. A total of $784,000 has been
advanced. Also, HHC has advanced amounts to the Company on similar terms which
exceed the TACO amount by $30,000. Repayments of the advances are due in seven
equal installments commencing November 15, l998.
Page 26
27
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Golf Host Resorts, Inc., and the Lessors of the
Innisbrook Rental Pool Lease Operation:
We have audited the accompanying balance sheets of the INNISBROOK RENTAL
POOL LEASE OPERATION (Note 1) as of December 31, 1996 and 1995, and the related
statements of operations and changes in participants' fund balances for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Innisbrook
Rental Pool Lease Operation as of December 31, 1996 and 1995, and the results of
its operations and changes in its participants' fund balances for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida,
March 21, 1997
Page 27
28
INNISBROOK RENTAL POOL LEASE OPERATION
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
DISTRIBUTION FUND
1996 1995
------------- -----------
ASSETS
RECEIVABLE FROM GOLF HOST RESORTS, INC.
FOR DISTRIBUTION - FULLY SECURED $1,938,129 $1,592,105
INTEREST RECEIVABLE FROM MAINTENANCE
ESCROW FUND 22,045 16,568
--------- ---------
$1,960,174 $1,608,673
========= =========
LIABILITIES AND PARTICIPANTS' FUND BALANCES
DUE TO PARTICIPANTS FOR DISTRIBUTION $1,316,480 $1,340,684
DUE TO MAINTENANCE ESCROW FUND 302,506 135,354
AMOUNT DUE FOR LIFE-SAFETY
REIMBURSEMENT 341,188 132,635
PARTICIPANTS' FUND BALANCES - -
--------- ---------
$1,960,174 $1,608,673
========= =========
MAINTENANCE ESCROW FUND
ASSETS
CASH AND CASH EQUIVALENTS $1,580,919 1,132,243
INVENTORIES - 251
RECEIVABLE FROM DISTRIBUTION FUND 302,506 135,354
INTEREST RECEIVABLE 19,856 17,902
--------- ---------
$1,903,281 $1,285,750
========= =========
LIABILITIES AND PARTICIPANTS' FUND BALANCES
ACCOUNTS PAYABLE $ 108,391 $ 85,087
INTEREST PAYABLE TO DISTRIBUTION FUND 22,045 16,568
CARPET CARE RESERVE 38,430 42,836
PARTICIPANTS' FUND BALANCES 1,734,415 1,141,259
--------- ---------
$1,903,281 $1,285,750
========= =========
The accompanying notes are an integral part of these statements.
Page 28
29
INNISBROOK RENTAL POOL LEASE OPERATION
STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
DISTRIBUTION FUND
1996 1995 1994
-------------- -------------- -----------
GROSS REVENUES $15,480,899 $ 14,662,736 $13,412,188
------------- ---------- ----------
DEDUCTIONS:
Agents' commissions 357,441 353,383 437,827
Audit fees 12,100 12,100 11,500
------------- ---------- ----------
369,541 365,483 449,327
------------- ---------- ----------
ADJUSTED GROSS REVENUES 15,111,358 14,297,253 12,962,861
MANAGEMENT FEE (7,102,338) (6,719,709) (6,092,545)
------------- ---------- ----------
GROSS INCOME DISTRIBUTION 8,009,020 7,577,544 6,870,316
ADJUSTMENTS TO GROSS INCOME
DISTRIBUTION:
Corporate complimentary
occupancy fees 10,058 8,441 7,171
Occupancy fees (1,689,670) (1,343,526) (1,276,451)
Advisory Committee expenses (96,795) (89,120) (88,794)
Life-safety reimbursement (341,188) (132,635) -
-------------- ---------- ----------
NET INCOME DISTRIBUTION 5,891,425 6,020,704 5,512,242
ADJUSTMENTS TO NET INCOME
DISTRIBUTION:
Occupancy fees 1,689,670 1,343,526 1,276,451
Hospitality suite fees 15,790 11,093 17,164
Greens fees 89,248 91,338 87,721
Additional participation credits 72,865 75,775 78,405
--------------- ---------- ----------
AMOUNT AVAILABLE FOR DISTRI-
BUTION TO PARTICIPANTS $ 7,758,998 $ 7,542,436 $ 6,971,983
============== ========== ==========
The accompanying notes are an integral part of these statements.
Page 29
30
INNISBROOK RENTAL POOL LEASE OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCES
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
DISTRIBUTION FUND
1996 1995 1994
------------- -------------- ------------
BALANCE, beginning of year $ - $ - $ -
ADDITIONS:
Amounts available for distribution
before life-safety reimbursement 8,100,186 7,675,071 6,971,983
Interest received or receivable
from Maintenance Escrow Fund 82,198 58,209 29,220
REDUCTIONS:
Amounts withheld for Maintenance
Escrow Fund (1,263,618) (671,782) (638,237)
Amounts withheld for life-safety
reimbursement (341,188) (132,635) -
Amounts accrued or paid
to participants (6,577,578) (6,928,863) (6,362,966)
------------ ------------ ----------
BALANCE, end of year $ - $ - $ -
============ ============ ==========
MAINTENANCE ESCROW FUND
1996 1995 1994
----------- -------------- ------------
BALANCE, beginning of year $ 1,141,259 $ 851,207 $ 733,465
ADDITIONS:
Amounts withheld from
occupancy fees 1,263,618 671,782 638,237
Interest earned 82,198 58,209 29,220
Charges to participants to establish
or restore escrow balances 1,081,816 1,341,784 859,410
REDUCTIONS:
Maintenance charges (1,633,478) (1,644,340) (l,278,411)
Carpet care reserve deposit (33,708) (13,449) (51,056)
Interest accrued or paid to
Distribution Fund (82,198) (58.209) (29,220)
Refunds to participants as
prescribed by Master
Lease Agreement (85,133) (65,725) (50,438)
---------- ----------- -----------
BALANCE, end of year $ 1,734,415 $ 1,141,259 $ 851,207
========== =========== ===========
The accompanying notes are an integral part of these statements.
Page 30
31
INNISBROOK RENTAL POOL LEASE OPERATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) RENTAL POOL LEASE OPERATION AND RENTAL POOL LEASE AGREEMENT:
ORGANIZATION AND OPERATIONS
The Innisbrook Rental Pool Lease Operation (the Rental Pool) consists of
condominium apartments at Innisbrook Hilton Resort (Innisbrook) which are
provided as hotel accommodations by their owners. The condominium owners
(Participants) have entered into Annual Rental Pool Lease Agreements (ALAs) and
a Master Lease Agreement (MLA), which defines 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; the MLA will remain in effect through
December 31, 2001.
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 by the fund (as discussed below) and amounts due to the Maintenance
Escrow Fund. The operations of the Distribution Fund reflect the earnings of the
Participants in the Rental Pool (as discussed below). 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, the
carpet care reserve and amounts payable for maintenance services received.
Amounts receivable from GHR for distribution to Participants are secured by a
secondary interest in certain accounts receivable of GHR. Timely funding is
required to the extent that borrowings available to GHR under its accounts
receivable financing line of credit are less than the amounts due. The
receivable from GHR as of December 31, 1996 was paid in accordance with the
terms of the Agreements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of management's estimates.
COMPUTATION AND ALLOCATION OF EARNINGS
The Participants and GHR share the Adjusted Gross Revenues of the Rental Pool
in accordance with the terms of the Agreements. Adjusted Gross Revenues consist
of revenues earned from the rental of condominium apartments, net of agents'
commissions (not to exceed 5.5% of Gross Revenues, as defined in the Agreements)
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 the allocation of the Occupancy Fees, the balance
of Adjusted Gross Revenues, net of the Management Fee and adjustments, is
allocated proportionately to the 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.
Page 31
32
Owners who purchased units prior to January 1, l991 who participate in the
Rental Pool for at least 50% of the year or 50% of the time they owned their
unit receive Additional Participation Credits. Participation in greens fees is
restricted to original condominium apartment owners who executed purchase
agreements for certain units prior to April 13, 1972. Greens fees and Additional
Participation Credits are requirements of agreements other than the current
Agreements; they have been 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 Agreements provide that 75% and 50% for 1996 and 1995, respectively, of
the Occupancy Fees earned by each Participant shall be deposited in such
Participant's Maintenance Escrow Fund account. This account provides funds for
the payment of amounts which are chargeable to the Participant under the
Agreements for maintenance and refurbishment services. When the balance of the
Participant's Maintenance Escrow Fund account exceeds 75% and 50% of the defined
furniture replacement value for 1996 and 1995, respectively, the excess shall be
refunded to the Participant, as provided in the 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.
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 such expenses and may be adjusted annually. The amounts
expended for carpet care were $38,170, $39,675 and $59,182 for 1996, 1995 and
1994, respectively.
GHR, under the direction of the Lessors' Advisory Committee and in compliance
with restrictions in the MLA, invests the funds of this account on behalf of the
Participants. 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, 1996 are certificates of deposit of $1,275,000, at
cost, maturing between March 12, 1997 and December 12, 1997, and bearing
interest at rates from 5.15% to 6.35%; a Treasury Bill maturing January 2, 1997,
with the remainder being held in a money market account.
(2) AFFILIATE AND GHR OWNED CONDOMINIUM APARTMENTS:
GHR, as well as certain shareholders, directors and officers of GHR and its
affiliates own condominium apartments which participate in the Rental Pool in
the same manner as all others.
(3) COMMITMENTS AND CONTINGENCIES:
Hilton Hotels Corporation (HHC) has managed Innisbrook since April 1993. In
connection with the related agreement, HHC funded the cost of certain special
projects and property improvements, including the 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
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$1,779,000, plus interest at 7.75% per annum for no more than five years on each
related draw thereunder. Payments are required for years in which the Amount
Available for Distribution to Participants exceeds $7,375,000, and shall equal
50% of such excess. If a participant withdraws from the Rental Pool for any
reason, other than a sale, before the obligation to GHR has been fully repaid,
such participant will be required to immediately pay a proportionate share of
the unpaid balance. In l996 and 1995, repayment requirements of $362,593 and
$150,036 resulted. Of the 1996 total repayment, $341,188 was an Adjustment to
Gross Income Distribution. The remaining $21,405 was repaid with receipts from
Participants who withdrew from the Rental Pool during the year. The 1996
repayment was applied first against accrued interest of $175,586, with the
balance applied against principal. Of the 1995 repayment, $l32,635 was an
adjustment to Gross Income Distribution. The remaining $17,401 was repaid from
receipts from Participants who withdrew from the Rental Pool during the year.
The 1995 repayment applied solely to accrued interest.
The Rental Pool is not obligated to reimburse GHR if the agreement between
HHC and GHR is terminated. Also, after 10 years, any amounts still due GHR,
including interest, will no longer be payable and the Rental Pool's obligation
to GHR will end.
As of December 31, 1996, the maximum amount payable under this arrangement,
excluding any future interest accrual, was $1,526,199.
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Golf Host Resorts, Inc., and the Lessors of the
Tamarron Rental Pool Lease Operation:
We have audited the accompanying balance sheets of the TAMARRON RENTAL
POOL LEASE OPERATION (Note 1) as of December 31, 1996 and 1995, and the related
statements of operations and changes in participants' fund balances for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Tamarron Rental
Pool Lease Operation as of December 31, 1996 and 1995, and the results of its
operations and changes in its participants' fund balances for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida,
March 21, 1997
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TAMARRON RENTAL POOL LEASE OPERATION
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
DISTRIBUTION FUND
1996 1995
----------- ----------
ASSETS
CASH $ 1,000 $ 1,000
RECEIVABLE FROM GOLF HOST RESORTS, INC.
FOR DISTRIBUTION 196,330 168,154
INTEREST RECEIVABLE FROM MAINTENANCE
ESCROW FUND 454 1,750
----------- ----------
$ 197,784 $ 170,904
=========== ==========
LIABILITIES AND PARTICIPANTS' FUND BALANCES
DUE TO PARTICIPANTS FOR DISTRIBUTION $ 155,505 $ 138,622
DUE TO MAINTENANCE ESCROW FUND 42,279 32,282
PARTICIPANTS' FUND BALANCES - -
----------- ----------
$ 197,784 $ 170,904
=========== ==========
MAINTENANCE ESCROW FUND
ASSETS
CASH AND CASH EQUIVALENTS $ 83,576 $ 174,562
DUE FROM DISTRIBUTION FUND 42,279 32,282
INTEREST RECEIVABLE - 2,235
INVENTORY:
Linen 86,904 89,049
Materials and supplies 7,737 9,320
DEPOSITS - 37,299
----------- ---------
$ 220,496 $ 344,747
========== =========
LIABILITIES AND PARTICIPANTS' FUND BALANCES
ACCOUNTS PAYABLE $ 22,494 $ 14,661
INTEREST PAYABLE TO DISTRIBUTION FUND 454 1,750
PARTICIPANTS' FUND BALANCES 197,548 328,336
---------- --------
$ 220,496 $ 344,747
========== =========
The accompanying notes are an integral part of these balance sheets.
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TAMARRON RENTAL POOL LEASE OPERATION
STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
DISTRIBUTION FUND
1996 1995 1994
----------------- ------------------ --------------
GROSS REVENUES $ 3,606,132 $ 3,633,333 $ 3,784,599
---------- ---------- ---------
DEDUCTIONS:
Agents' commissions 125,209 113,560 161,030
Sales and marketing expenses 306,520 327,000 359,537
Audit fees 10,400 10,400 9,800
---------- ---------- ----------
442,129 450,960 530,367
---------- ---------- ----------
ADJUSTED GROSS REVENUES 3,164,003 3,182,373 3,254,232
MANAGEMENT FEE (1,582,002) (1,591,186) (1,627,116)
---------- ---------- ----------
GROSS INCOME DISTRIBUTION 1,582,001 1,591,187 1,627,116
ADJUSTMENTS TO GROSS INCOME
DISTRIBUTION:
Corporate complimentary
occupancy fees 4,084 2,990 3,558
Occupancy fees (304,829) (307,019) (343,065)
Designated items (71,150) (65,275) (53,595)
Advisory Committee expenses (11,136) (6,425) (3,963)
---------- ---------- ----------
POOLED INCOME 1,198,970 1,215,458 1,230,051
ADJUSTMENTS TO POOLED INCOME:
Hospitality suite fees 53 105 973
Occupancy fees 304,829 307,019 343,065
---------- ---------- ----------
NET INCOME DISTRIBUTION $ 1,503,852 $ 1,522,582 $ 1,574,089
========== ========== ==========
The accompanying notes are an integral part of these statements.
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TAMARRON RENTAL POOL LEASE OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCES
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
DISTRIBUTION FUND
1996 1995 1994
------------------ ------------------- -------------
BALANCE, beginning of year $ - $ - $ -
ADDITIONS:
Amounts available for distribution 1,503,852 1,522,582 1,574,089
Interest received or receivable from
Maintenance Escrow Fund 3,261 6,004 5,350
REDUCTIONS:
Amounts withheld for Maintenance
Escrow Fund (152,416) (153,513) (171,533)
Amounts accrued or paid to participants (1,354,697) (1,375,073) (1,407,906)
----------- ---------- ----------
BALANCE, end of year $ - - -
=========== ========== ==========
MAINTENANCE ESCROW FUND
1996 1995 1994
-------------- --------------- --------------
BALANCE, beginning of year $ 328,336 $ 397,655 $ 258,562
ADDITIONS:
Amounts withheld from occupancy fees 152,416 153,513 171,533
Interest earned 3,261 6,004 5,350
Reimbursement of designated items 71,150 65,275 53,595
Charges to participants to establish or
restore escrow balances 276,838 116,398 140,794
REDUCTIONS:
Maintenance and inventory charges (164,323) (172,737) (128,628)
Refurbishing charges (369,161) (138,476) (8,901)
Interest accrued or paid to
Distribution Fund (3,261) (6,004) (5,350)
Designated items (71,150) (65,275) (53,595)
Refunds to participants as prescribed
by Master Lease Agreement (26,558) (28,017) (35,705)
----------- ---------- ----------
BALANCE, end of period $ 197,548 $ 328,336 $ 397,655
=========== ========== ==========
The accompanying notes are an integral part of these statements.
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TAMARRON RENTAL POOL LEASE OPERATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, L996, 1995 AND 1994
(1) RENTAL POOL LEASE OPERATION AND RENTAL POOL LEASE AGREEMENT:
Organization and Operations
The Tamarron Rental Pool Lease Operation (the Rental Pool) consists of
condominium apartments at Tamarron Hilton Resort which are provided as hotel
accommodations by their owners. The condominium owners (Participants) have
entered into Annual Rental Pool Lease Agreements (ALAs) and a Master Lease
Agreement (MLA), which defines 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; 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 by
the fund (as discussed below) and amounts due to the Maintenance Escrow Fund.
The operations of the Distribution Fund reflect the earnings of the Participants
in the Rental Pool (as discussed below). 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 and inventory to
provide for periodic maintenance and repairs to Participants' condominium
apartments.
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 the amounts due to the Distribution Fund. The
receivable from GHR as of December 31, 1996, was paid in accordance with the
terms of the Agreements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of management's estimates.
Computation and Allocation of Earnings
The Participants and GHR share the Adjusted Gross Revenues of the Rental Pool
in accordance with the terms of the Agreements. Adjusted Gross Revenues consist
of revenues earned from the rental of condominium apartments net of Sales and
Marketing expenses (limited to 8.5%, 9% and 9.5% of Gross Revenues for 1996,
1995 and 1994, respectively), 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 the allocation of Occupancy Fees, the balance of
Adjusted Gross Revenues, net of the Management Fee adjustments, is allocated
proportionately to the Participants based on the Participation Factor as defined
in the Agreements.
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Corporate complimentary occupancy fees are rental fees paid by GHR for
complimentary rooms unrelated to Rental Pool operations.
Maintenance Escrow Fund Accounts
The Agreements provide that 50% of the Occupancy Fees earned by each
Participant shall be deposited in such Participant's Maintenance Escrow Fund
account. This account provides funds for the payment of amounts which are
chargeable to 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 shall
be refunded to the Participant, as provided in the 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, 1996 consists of an
interest bearing demand account.
(2) AFFILIATE-OWNED CONDOMINIUM APARTMENTS:
Golf Host Development, Inc. (an affiliate of GHR), as well as certain
shareholders, directors and officers of GHR and its affiliates own condominium
apartments which participate in the Rental Pool in the same manner as all
others.
(3) 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 the Participants based upon their
Participation Factors. Linen inventory is stated at cost, less accumulated
amortization of $59,237 and $48,211 at December 31, 1996 and 1995, respectively.
Linen Amortization is computed on the straight-line method over an estimated
useful life of 48 months.
Materials and supplies inventories consist primarily of minor apartment
furnishings and appliances carried at cost, determined on a first-in, first-out
basis. The cost of such items, not considered Designated Items, are charged to
Participants' individual Maintenance Escrow accounts based on actual usage.
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