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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, 1997
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 Tamarron Hilton 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 Hilton Hotels Corporation ("HHC"), respectively, under long-term
management agreements. HHC managed Innisbrook from April 1, 1993 to July
15, 1997 while HHC has managed Tamarron since December 1, 1995. 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 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 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 one 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 while no sales occurred during 1997.
Through the date of this filing, one homesite has been sold and closed
during 1998.
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 expenses 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, 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 the 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 apartment 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 (l) 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
12/31/97 6/23/97 1996 1995
REVENUES
Food and beverage 27.6% 25.5% 26.5% 25.8%
Golf 31.1% 29.5% 28.2% 28.3%
Resort facilities 31.5% 33.9% 33.1% 32.4%
Other 9.8% 10.5% 10.9% 11.4%
Real estate activities 0.0% 0.6% 1.3% 2.1%
----- ----- ----- -----
Total 100.0% 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,
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 1,250 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 with an
additional 9 holes opening in January 1998 (which upon completion will
result in 72 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 facilities and structures.
During 1994 and 1995, approximately 24 acres of land at Tamarron were set
aside for the
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Estates at Tamarron residential homesite development.
At December 31, 1997, the properties are encumbered by various mortgages
totaling $77,999,163. Reference is made to Note 4 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
1,160 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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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 statements and notes thereto appearing elsewhere
in this annual report on Form 10-K.
191 day period | 174 day period Year Ended December 3l,
ended December 31, | ended June 23, --------------------------------------------------
1997 | 1997 1996 1995 1994 1993
------------------ | --------------- ---------- ----------- ---------- ----------
|
OPERATING REVENUE $18,023,753 | $31,750,008 $57,710,742 $56,535,735 $52,573,941 $45,101,103
=========== | =========== =========== =========== =========== ===========
|
NET (LOSS) INCOME $(5,492,683) | $ 1,488,116 $ 1,370,523 $ 1,375,917 $ 393,919 $ (538,062)
=========== | =========== =========== =========== =========== ===========
NET (LOSS) INCOME |
PER COMMON SHARE $ (1,098.54) | 297.62 274.10 275.18 78.78 (107.61)
=========== | =========== =========== =========== =========== ===========
|
TOTAL ASSETS $92,897,633 | $ - $53,135,194 $52,822,127 $50,579,114 $49,278,940
=========== | =========== =========== =========== =========== ===========
LONG-TERM |
OBLIGATIONS $77,999,163 | $ - $28,474,570 $30,001,491 $28,861,345 $28,825,440
=========== | =========== =========== =========== =========== ===========
CASH DIVIDENDS |
PER COMMON |
SHARE $ - | $ - $ - $ - $ - $ -
=========== | =========== =========== =========== =========== ===========
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
1997 Compared to 1996
For purposes of discussing comparative results from operations for 1996
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 % Change
----- --------
1997 158,807 (9.8)
1996 176,149 (.5)
1995 177,059 1.2
Revenues from resort facilities declined 12.9% due to the above reduction
in occupancy combined with a decline in guest spending per room night of
3.4%, or $312.29 as compared with the prior year $323.22. The decline in
revenues is primarily attributable to the sale of the Company and the
resultant disruption in marketing efforts as Innisbrook transitioned from
management by Hilton Hotels Corporation to Westin Hotel Company effective
July 15th. Of significance, occupied room nights at Innisbrook for the
first two months of 1998 have exceeded 1997 levels by over 26% while the
guest spending per room night has increased over 3%. Hilton Hotels
Corporation has continued to manage Tamarron, which is impacted by
inconsistent airline transportation into the Durango, Colorado area.
Non-real estate operating income declined $4,511,000 from the prior year,
primarily due to a $7,522,000 decline in revenue. Food and beverage
revenues declined $2,226,000 and operating income declined $1,199,000, or
25%. Meals served declined 2%; however, the revenue per meal served
declined 5.5% as prices were adjusted to improve volume. The food cost of
sales rose .7% as higher quality products are being offered. Golf revenue
approximated the prior year despite a 3% decrease in rounds played as the
revenue per round played rose 3%. Other revenue declined $1,190,000 while
the related costs and operating expenses approximated the prior year.
A new Innisbrook master lease agreement between the Company and the
condominium owners has been offered with an effective date of January 1,
1998. The terms of the new agreement are outlined in the Notes to
Financial Statements of Golf Host Resorts, Inc. and the Innisbrook Rental
Pool Lease Operation included in this filing. The effect of the new
agreement is to change the effective rate of distribution of room revenue
from 51% to the condominium owner and 49% to the Company to 59% to the
Company and 41% to the condominium owner. While the previous master lease
agreement remains in effect, at present approximately 90% of rental pool
participants have elected to participate in the new agreement. This change
is expected to have a significant favorable impact on resort facilities
operations in 1998 and future years.
Installation of Westin Hotel Company as the manager of Innisbrook, coupled
with the significant capital expenditures discussed below, is anticipated
to have a favorable impact on both guest spending and occupancy. The
installation of the themed pool at Innisbrook discussed below is
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also anticipated to favorably impact Innisbrook's summer occupancy levels.
In addition, the Company has historically experienced occupancy constraints
during its peak season as a result of the unavailability of golf tee times.
This has been addressed by the opening in January 1998 of an additional
nine hole golf course at the Resort as discussed below. In addition, a
related party of the Company, Lost Oaks, L.P., acquired an 18 hole golf
course near Innisbrook in October 1997. Tee times at this course are
available to Innisbrook guests, further enhancing the availability of peak
season tee times.
General and administrative expenses increased $1,205,000 over the prior
year. The increase includes nonrecurring costs relative to the sale of the
Company, a 12% increase in property taxes, and $744,000 of amortization of
intangibles and preopening costs relative to the sale, and the writeoff of
$548,000 of previously capitalized costs as a result of the transition to
Westin management at Innisbrook.
Interest expense increased from $1,880,000 in 1996 to $4,777,150. The
increase resulted from the significant increase in debt as a result of the
sale of the Company coupled with an increase in the related interest rate.
During 1997, the Company made significant capital improvements at
Innisbrook beyond normal recurring items. These improvements included an
additional 9 holes of golf and major system enhancements throughout the
property. Further significant expenditures planned for 1998 include a
themed pool including waterfalls and slides at a cost of approximately
$3,500,000 scheduled to open at the end of May and significant expansion
of the central clubhouse including the relocation of the guest
registration area, at a cost of approximately $6,000,000. In addition,
approximately $1,700,000 of capital additions are planned for Tamarron in
1998, including conference center and restaurant refurbishment and
construction of an outdoor recreational area. Approximately $6,600,000 of
capital addition financing is available from the Company's lender for the
1998 capital expenditures. Other sources of funds to complete these
additions are discussed below.
Revenues from real estate activities declined significantly as one
residential homesite at Tamarron was sold in 1997 as compared to two
higher priced homesites in 1996. In addition, approximately $120,000 of
deferred profit from a 1994 transaction was recognized in 1996. Real
estate activity costs in 1997 include the writeoff of $122,000 of
previously deferred marketing costs relative to homesite sales. As of the
date of this filing, one residential homesite at Tamarron has been sold
and closed in 1998.
1996 Compared to 1995
Revenues from resort activities for 1996 increased over 1995 at a rate
approximately equal to the general price level on a per occupied room
night basis. However, significant gains were enjoyed over 1995 at
Innisbrook in average daily room rate and average food and beverage
revenue. The operating income margin of 7% declined primarily as the
result of expenses associated with the commencement of the Hilton
management agreement at Tamarron.
Assets Held for Sale
The Company intends to sell certain resort assets (the Tamarron Hilton
Resort and a portion of the non-operating assets at Innisbrook) within one
year from the date of acquisition. The Tamarron related net assets have
been recorded at their estimated proceeds, as adjusted for
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estimated cash flows from operations and estimated interest expense during
the holding period on the incremental debt incurred to finance the purchase
as required by EITF 87-11. The net loss from operations subsequent to June
23, 1997, related to the Tamarron assets held for sale of approximately
$803,000 and the interest expense of $460,000 on the related allocated
debt, have been excluded from the current year's consolidated statement of
earnings. The impact of the sale will have a positive impact on earnings
and liquidity. Additionally, $1,200,000 of land at Innisbrook is included
in assets held for sale at December 31, 1997. It is intended to be sold
within the next year, and would have a positive impact on liquidity.
INCOME TAX STATUS
Reference is made to the Notes to the Consolidated Financial Statements
regarding income taxes.
FINANCIAL CONDITION AND LIQUIDITY
As more fully discussed in Note 1 to the financial statements, on June 23,
1997 all the stock of the Company and its parent Golf Hosts, Inc. was
acquired by previously unrelated parties in a transaction financed by new
debt obligations of the Company. These transactions resulted in the
termination of the Company's accounts receivable line of credit, which
negatively impacted the Company's ability to meet its cash needs during the
latter part of the year. Cash advances from its parent and under the Westin
management agreement together with the deferral of vendor payments enabled
the Company to sustain operations. Due to the seasonal nature of the
Company's business, the Company also expects cash flow deficits from
operations during the third and fourth quarters of 1998. The Company has
evaluated the cash needs with respect to these deficits and scheduled
capital expenditures and has reason to believe that cash flow generated
from operations during the first half of the year will not be sufficient to
meet the expected cash needs during the second half of 1998. Management
recognizes that the Company must generate additional cash resources to
ensure the continuation of operations. To achieve this during 1998, the
Company has entered into an unsecured capital expenditure sharing agreement
with Westin whereby Westin will fund 50% of capital expenditures incurred
subsequent to the June 23, 1997 merger transaction in excess of $6,000,000,
plus capital reserve requirements as defined. In addition, the Company's
primary lender has released Innisbrook's accounts receivable from its
collateral and the Company is negotiating an accounts receivable line of
credit with a major financial institution. The Company anticipates these
efforts will yield adequate cash flow for the remainder of 1998 and beyond.
The Company's working capital position (exclusive of Assets Held for Sale)
on a comparative basis at December 31, 1997 was a deficit of $3,106,260 as
compared with a deficit of $1,278,000 at December 31, 1996.
Notwithstanding the operating situation discussed above, the Company
typically experiences seasonal fluctuations in its net working capital
position without impairing its ability to pay trade creditors in a timely
manner and satisfy its financial obligations in an orderly fashion.
As a result of the change in control previously discussed, the Company's
former lenders were replaced with a single lender on June 23, 1997.
Reference is made to the notes to the consolidated financial statements
regarding the new lender.
While the Company has a substantial retained deficit, based on existing
cash levels and the additional cash sources discussed above, the Company
assesses its liquidity as satisfactory.
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Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Reports of Independent Certified Public Accountants
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Operations for the 191 day period ended December
31, 1997, 174 day period ended June 23, 1997 and for the two years ended
December 31, 1996
Consolidated Statements of Changes in Shareholder's Equity for the three
years ended December 31, 1997
Consolidated Statements of Cash Flows for the 191 day period ended December
31, 1997, 174 day period ended June 23, 1997 and for the two years ended
December 31, 1996
Notes to Consolidated Financial Statements
Innisbrook Rental Pool Lease Operation statements of financial position
Tamarron Rental Pool Lease Operation statements of financial position
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
Concurrent with the sale of the Company on June 23, 1997, the Company
changed its auditor from Arthur Andersen LLP to Price Waterhouse LLP.
PART III
Item 10. Directors and Executive Officers of the Registrant
Name/Position Age Five Year Principal Occupation
------------- --- ------------------------------
Merrick R. Kleeman 34 Managing Director
President, Secretary and Director Starwood Capital Group
Jeffrey R. Rosenthal 46 Chief Operating Officer
Senior Vice President Starwood Capital Group (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 40 Chief Financial Officer
Senior Vice President Starwood Capital Group
Richard L. Akin 52 Vice President and Treasurer
Vice President and Treasurer Golf Host Resorts, Inc.
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.
EXECUTIVE COMPENSATION
GOLF HOST RESORTS, INC.
Summary Compensation Table
The following table sets forth the remuneration paid, distribution or
accrued by Golf Host Resorts, Inc. and its parent Golf Hosts, Inc. during the
three years in the period ended December 31, 1997, to the Company's executive
officers.
Fiscal Salary and Other Annual All Other
Name and Principal Position Year Commission($) Bonus($) Compensation($) Compensation($)(1)
- --------------------------- ------ ------------- -------- --------------- ------------------
Golf Hosts, Inc.:
Stanley D. Wadsworth(2) and (3) 1997 -- -- -- --
President and Chief 1996 153,000 15,400 -- 14,492
Executive Officer 1995 147,100 33,300 -- 93,898
Richard S. Ferreira (2) and (3) 1997 -- -- -- --
Executive Vice President and 1996 148,600 15,600 -- 7,473
Chief Financial Officer 1995 143,200 37,200 -- 22,747
Richard L. Akin(3) 1997 -- -- -- --
Vice President and Treasurer 1996 -- -- -- --
1995 -- -- -- --
(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.
(2) Resigned effective June 23, 1997.
(3) Total of annual salary and bonus was not greater than $100,000 for the
years where dollar amounts are not presented.
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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 l5 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 $l0,000 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:
Amount Percent
Title of Name and Address Beneficially of
Class of Beneficial Owner Owned 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:
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 GHI's majority shareholders. On June 23, 1997 TM Golf Hosts,
Inc. ("TMGHI") acquired all of the outstanding shares of GHI and 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.
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, plus
capital reserve requirements, as defined.
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(b) Certain Business Relationships
Lewis H. Hill, III, Secretary and Director of the Company through June 22,
1997, is a retired partner of and, at that time, of counsel to the law
firm of Foley & Lardner, the Company's general counsel through June 22,
1997.
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 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
Form 8-K for Golf Host Resorts, Inc. filed on September 4 and July 8,
1997 is incorporated herein by reference for the acquisition and
change in auditor, respectively.
(c) Exhibits
Financial statement schedules required by this Item are listed in the
index appearing in Item 8 of this report.
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.
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GOLF HOST RESORTS, INC.
By: /s/ M. R. Kleeman By: /s/ R. L. Akin
----------------------------- ----------------------------
Merrick R. Kleeman, President Richard L. Akin
Vice President and Treasurer
Dated: April 30, 1998
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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 sheet and the related
consolidated statements of operations and 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, 1997, and the
results of their operations and their cash flows for the 191 day period ended
December 31, 1997 and for the 174 day period ended June 23, 1997, in conformity
with generally accepted accounting principles. 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 audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards 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
audit provides a reasonable basis for the opinion expressed above. The financial
statements of Golf Host Resorts, Inc. for the years ended December 31, 1996 and
1995 were audited by other independent accountants whose report dated March 21,
1997 expressed an unqualified opinion on those statements.
/s/Price Waterhouse LLP
Tampa, Florida
April 8, 1998, except for Note 10,
paragraph 3, as to which the date is
April 17, 1998
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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
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GOLF HOST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
(Substantially all pledged - Note 5)
1997 | 1996
----------- | -----------
|
CURRENT ASSETS |
|
Cash $ 56,090 | $ 488,685
Restricted cash 2,238,767 | --
Accounts receivable, net 5,472,228 | 4,380,108
Notes receivable -- | 163,942
Inventories and supplies 1,899,598 | 5,123,966
Prepaid expenses and other assets 684,497 | 956,054
Intercompany receivables 2,857,240 | 724,312
----------- | -----------
13,208,420 | 11,837,067
|
Assets held for sale 9,038,309 | --
----------- | -----------
|
Total current assets 22,246,729 | 11,837,067
|
INTANGIBLES, net 32,879,352 | --
|
PROPERTY AND EQUIPMENT, at cost, less |
accumulated depreciation and amortization 35,725,251 | 40,038,322
|
OTHER ASSETS 1,996,301 | 238,627
|
LONG-TERM RECEIVABLES -- | 1,021,178
----------- | -----------
|
$92,847,635 | $53,135,194
=========== | ===========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
16
17
GOLF HOST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
LIABILITIES AND SHAREHOLDER'S (DEFICIT) EQUITY
1997 | 1996
------------- | -----------
|
CURRENT LIABILITIES |
|
Accounts payable $ 7,854,720 | $ 2,258,702
Accrued expenses 5,552,488 | 4,577,981
Deposits and prepaid fees 2,907,472 | 2,755,764
Note payable -- | 734,429
Maturing long-term obligations -- | 2,788,297
------------- | -----------
16,314,680 | 13,115,173
|
LONG-TERM OBLIGATIONS 77,999,163 | 17,777,544
DEFERRED INCOME TAXES 13,134,558 | --
LONG-TERM INTERCOMPANY PAYABLE -- | 4,951,895
LONG-TERM CONTINGENCY (Note 9) -- | 2,221,938
------------- | -----------
|
Total liabilities 107,448,401 | 38,066,550
|
|
|
SHAREHOLDER'S (DEFICIT) EQUITY |
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) | 2,329,447
Retained (deficit) earnings (5,625,768) | 8,157,197
------------- | -----------
|
Total shareholder's (deficit) equity (14,600,768) | 15,068,644
------------- | -----------
|
Total liabilities and shareholder's |
(deficit) equity $ 92,847,633 | $53,135,194
============= | ===========
17
18
GOLF HOST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
191 day 174 day |
period ended period ended | Year ended Year ended
December 31, June 23, | December 31, December 31,
1997 1997 | 1996 1995
----------- ----------- | ----------- -----------
|
REVENUES: |
Resort facilities $ 5,695,294 $10,775,626 | $19,087,031 $18,296,069
Food and beverage 4,966,112 8,106,385 | 15,298,357 14,600,080
Golf 5,604,215 9,347,282 | 16,261,342 15,997,215
Other 1,758,132 3,340,715 | 6,289,034 6,471,371
Real estate activities -- 180,000 | 774,978 1,171,000
----------- ----------- | ----------- -----------
|
18,023,753 31,750,008 | 57,710,742 56,535,735
----------- ----------- | ----------- -----------
|
COSTS AND OPERATING EXPENSES: |
Resort facilities 6,696,074 9,083,194 | 16,660,453 15,783,533
Food and beverage 3,873,016 5,591,373 | 10,491,643 10,232,692
Golf 3,504,919 3,247,628 | 6,272,674 6,238,748
Other 8,299,769 7,672,813 | 16,019,199 15,159,466
General and administrative 370,959 2,374,385 | 3,950,708 4,250,819
Real estate activities 122,235 90,618 | 275,227 617,095
----------- ----------- | ----------- -----------
22,866,972 28,060,011 | 53,669,904 52,282,353
----------- ----------- | ----------- -----------
|
OPERATING (LOSS) INCOME (4,843,219) 3,689,997 | 4,040,838 4,253,382
INTEREST, NET 3,831,669 945,481 | 1,880,215 2,124,965
----------- ----------- | ----------- -----------
(LOSS) INCOME BEFORE INCOME TAX (8,674,888) 2,744,516 | 2,160,623 2,128,417
PARENT INCOME TAX CHARGE (Benefit) (3,182,205) 967,800 | 790,100 752,500
----------- ----------- | ----------- -----------
(LOSS) INCOME BEFORE |
EXTRAORDINARY ITEMS (5,492,683) 1,776,716 | 1,370,523 1,375,917
LOSS ON EARLY EXTINGUISHMENT |
OF LONG TERM DEBT (NET OF |
TAXES OF $155,400) -- (288,600) | -- --
----------- ----------- | ----------- -----------
NET (LOSS) INCOME (5,492,683) 1,488,116 | 1,370,523 1,375,917
DIVIDEND REQUIREMENTS ON |
PREFERRED STOCK 133,085 123,227 | 256,312 256,312
----------- ----------- | ----------- -----------
NET CHANGE IN (DEFICIT) EQUITY $(5,625,768) $ 1,364,889 | $ 1,114,211 $ 1,119,605
=========== =========== | =========== ===========
|
EARNINGS (LOSS) PER |
COMMON SHARE: |
(LOSS) INCOME BEFORE |
EXTRAORDINARY LOSS $ (1,098.54) $ 355.34 | $ 274.10 $ 275.18
EXTRAORDINARY LOSS -- (57.72) | -- --
----------- ----------- | ----------- -----------
NET INCOME (1,098.54) 297.62 | 274.10 275.18
DIVIDEND REQUIREMENTS |
ON PREFERRED STOCK 26.62 24.65 | 51.26 51.26
----------- ----------- | ----------- -----------
NET CHANGE IN EQUITY $ (1,125.16) $ 272.97 | $ 222.84 $ 223.92
=========== =========== | =========== ===========
18
19
GOLF HOST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS/SHAREHOLDER'S (DEFICIT) EQUITY
$1 Par Value 5.6% Cumulative Total
Common Stock Preferred Stock Retained Shareholders/
------------------ ----------------------- Paid-In (Deficit) Shareholder
Shares Amount Shares Amount Capital Earnings (Deficit) Equity
------- ------- --------- ---------- ---------- ----------- ----------------
Balance, December 31, 1995 5,000 $5,000 4,577,000 $4,577,000 $ 2,329,447 $ 7,042,986 $ 13,954,433
Net change in equity - - - - - 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
Notes receivable
distribution - - - - - (3,941,666) (3,941,666)
Net change in equity - - - - - 1,364,889 1,364,889
----- ----- --------- ---------- ------------ ----------- ------------
Balance, June 23, 1997 5,000 $5,000 4,577,000 $4,577,000 $ 2,329,447 $ 5,580,420 12,491,867
===== ====== ========= ========== ============ =========== ============
Balance, June 24, 1997 5,000 $5,000 4,577,000 $4,577,000 $ (4,582,000) - $ -
Distribution to
shareholder - - - - (8,975,000) - (8,975,000)
Net change in deficit - - - - - (5,625,768) (5,625,768)
----- ----- --------- ---------- ------------ ----------- ------------
Balance, December 31, 1997 5,000 $5,000 4,577,000 $4,577,000 $(13,557,000) $(5,625,768) $(14,600,768)
===== ====== ========= ========== ============ =========== ============
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
19
20
GOLF HOST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
191 day 174 day |
period ended period ended | Year ended Year ended
December 31, June 23, | December 31, December 31,
1997 1997 | 1996 1995
----------- ------------ | ----------- -----------
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
Net (loss) income $(5,625,768) $ 1,488,116 | $ 1,370,523 $ 1,375,917
Noncash items included in income: |
Provision for bad debts 50,150 89,609 | -- --
Depreciation and amortization 1,833,977 1,282,510 | 2,570,206 2,401,522
Decrease in deferred tax (3,455,623) -- | -- --
Deferred profit -- -- | (119,266) (4,500)
Changes in operating working capital (Note 8) 6,674,718 (2,059,667) | 180,153 (936,139)
----------- ------------ | ----------- -----------
Cash provided by operations (522,546) 800,568 | 4,001,616 2,836,800
----------- ------------ | ----------- -----------
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
(Decreases) increases in other assets (1,417,165) 62,302 | (238,627) --
Purchases of property and equipment (3,005,076) (1,517,431) | (2,448,315) (3,777,820)
Net recovery of cost of property and |
equipment sold or retired -- -- | 70,807 3,739
Increase in assets held for sale (1,263,309) -- | -- --
Decrease in intangible 890,501 -- | -- --
Additions to notes receivable -- -- | (165,238) (623,601)
Reduction in notes receivable -- 1,185,120 | 739,072 164,776
----------- ------------ | ----------- -----------
Cash (used for) investing (4,795,049) (270,009) | (2,042,301) (4,232,906)
----------- ------------ | ----------- -----------
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
Net change in notes payable -- -- | (551,344) 1,285,673
Increases in long-term obligations -- -- | 861,072 1,699,222
Decreases in long-term obligations -- -- | (2,808,513) (2,669,609)
Increases in long-term intercompany -- -- | 571,373 303,910
Increases in long-term contingency -- -- | 144,179 264,638
Additional borrowings 2,398,997 1,514,587 | -- --
Proceeds from sale of company -- 63,524,946 | -- --
Repayment of existing debt -- (25,037,262) | -- --
Proceeds to selling shareholders -- (38,046,827) | -- --
----------- ------------ | ----------- -----------
Cash provided by (used for) financing 2,398,997 1,955,444 | (1,783,233) 883,834
----------- ------------ | ----------- -----------
NET (DECREASE) INCREASE IN CASH (2,918,598) 2,486,003 | 176,082 (512,272)
CASH, BEGINNING OF PERIOD 2,974,688 488,685 | 312,603 824,875
----------- ------------ | ----------- -----------
CASH, END OF PERIOD $ 56,090 $ 2,974,688 | $ 488,685 $ 312,603
=========== ============ | =========== ===========
|
|
NONCASH FINANCING AND INVESTING |
|
ACTIVITIES: |
|
The Company obtained machinery and |
equipment through a trade-in $ -- $ -- | $ -- $ 351,050
The Company transferred undeveloped land |
to inventory $ -- $ -- | $ -- $ 63,955
The Company satisfied its preferred |
stock dividend liability to GHI |
through the intercompany account $ 133,085 $ 123,227 | $ 256,312 $ 256,312
The Company transferred its investment in |
GTA to GHI $ 8,975,000 $ -- | $ -- $ --
|
OTHER INFORMATION |
|
Interest paid in cash $ 3,004,840 $ 965,117 | $ 2,029,000 $ 2,100,000
|
Income taxes paid in cash $ -- $ 118,090 | $ 192,001 $ 413,316
20
21
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) ORGANIZATION, BUSINESS AND LIQUIDITY
Golf Host Resorts, Inc. (the "Company" or "GHR") is engaged in the operation of
Innisbrook Westin Resort ("Innisbrook") in Tarpon Springs, Florida and Tamarron
Hilton Resort ("Tamarron") in Durango, Colorado (the "Resorts"). The Resorts
offer championship quality golf facilities, restaurant and conference
facilities, recreational activities including swimming and tennis and related
resort facilities. A majority of the condominium apartment owners at the
Resorts provide their apartments as resort accommodations under rental pool
lease operations. The Resorts are lessees under operating lease agreements,
which provide for distribution of a percentage of room revenues, as defined, to
participating condominium owners, the lessors.
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 a 5.5% Management Fee and a 3% Marketing Fee. GHR will receive an
Incentive Fee of 10% of the excess of Gross Revenues over $20,000,000. GHR
guarantees that 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. The GMLA has a noncancelable term through 2011 with an annual
rental pool participation election. At February 28, 1998, 86 condominium owners
had elected to remain in the Master Lease Agreement while 816 had elected to
participate in the GMLA.
Due to the seasonal nature of the Company's business, the Company expects
seasonal cash flow deficits from operations during the third and fourth
quarter. Management has evaluated the Company's cash needs and believes cash
flow generated from operations during the first and second quarters will be
insufficient to meet expected cash requirements through the third and fourth
quarters of 1998. Management recognizes that the Company must generate
additional resources to assure continuation of the Company's operations and
anticipates funding cash flow deficits by obtaining additional financing from
lending institutions, entering into a capital sharing agreement with Westin
Hotel Company, and/or considering the sale of Tamarron and certain
non-operating assets. Management expects these efforts to generate enough cash
to cover any deficiency experienced during the year. If necessary, the
Company's parent and its shareholders may be asked to make advances to fund
operating cash flow deficits.
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 a
related party to the Company and GTA is secured by 89.1% of GHC's stock.
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 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 (see note 4) 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
===========
The Company is negotiating with the former owners certain adjustments to the
acquisition price. Adjustments after the final resolution of the purchase price
will be reflected as adjustments to intangible assets.
21
22
The following table presents the amount assigned to pro forma operating results
as if the Acquisition had occurred on January 1, 1996 (unaudited):
(Unaudited)
For the year ended December 31,
1997 | 1996
------------ | ------------
|
Revenues $ 49,954,000 | $ 57,711,000
Costs and operating expenses (51,481,000) | (55,331,000)
Interest, net (7,305,000) | (7,022,000)
Net income before taxes (8,831,000 | (4,642,000)
Net income available to common shareholders (10,079,000) | (5,228,000)
The pro forma results are based upon certain assumptions and estimates which
the Company believes are reasonable. The pro forma results do not purport to be
indicative of results that actually would have been obtained had the
Acquisition occurred on January 1, 1996, nor are they intended to be a
projection of future results. The pro forma results include adjustments
relating to interest expense, depreciation, amortization and taxes.
(2) ACCOUNTING POLICIES
FINANCIAL STATEMENTS
Amounts included in these Notes to Consolidated Financial Statements, unless
otherwise indicated, are as of December 31, 1997 and 1996, or for the years
ended December 31, 1997, 1996 and 1995, respectively, as applicable.
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 AND CASH EQUIVALENTS
The Company considers all short-term highly liquid investments with an original
maturity of three months or less to be cash equivalents.
RESTRICTED CASH
As of December 31, 1997, the Company has $2,238,767 of restricted cash.
Restricted cash is designated for payment of the 1997 fourth quarter rental
pool distribution. The cash is held in custody by a commercial bank, is
restricted as to withdrawal or use and is currently invested in cash and cash
equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable is net of allowances of $50,000 and $43,000 for doubtful
accounts at December 31, 1997 and 1996, respectively.
INVENTORIES AND SUPPLIES
The Company records materials and supplies inventories at the lower of
first-in, first-out cost or market.
ASSETS HELD FOR SALE
The Company intends to sell certain resort assets (the Tamarron Hilton Resort
and a portion of the non-operating assets at Innisbrook) within one year from
the date of acquisition. The Tamarron related net assets related to these
operations have been recorded at their estimated proceeds, as adjusted for
estimated cash flows from operations and estimated interest
22
23
expense during the holding period on the incremental debt incurred to finance
the purchase as required by EITF 87-11. The net loss from operations subsequent
to June 23, 1997, related to these assets held for sale of approximately
$803,000, and the interest expense of $460,000 on the allocated debt, have been
excluded from the current year's consolidated statement of earnings. Tamarron
generated a net loss in the current period. The impact of the sale will have a
positive impact on earnings and liquidity. Additionally, $1,200,000 of land of
Innisbrook is included in assets held for sale, which approximates fair value,
at December 31, 1997. It is intended to be sold within the next year and would
have a positive impact on liquidity.
REAL ESTATE DEVELOPMENT COSTS
Prior to the Acquisition, real estate development costs related to development
of Tamarron-Highpoint and Pine Ridge residential homesites were carried at the
lower of cost or net realizable value (estimated selling price in the normal
course of business less estimated costs of completion, holding and disposal).
Development costs include the original cost of land, engineering, surveying,
road construction, utilities, interest and other costs. Development costs were
allocated to individual parcels and lots using the relative sales value method.
Approximately $986,000 and $898,000 related to the Estates at Tamarron-Pine
Ridge are included in asset held for sale and inventory, respectively, in 1997
and 1996. Estates at Tamarron-Pine Ridge consists of nine homesites, two of
which were sold and closed during 1996. In addition, the Company previously
developed Estates at Tamarron-Highpoint which comprised nine homesites. All of
these homesites were sold, with the last closing in January 1997.
OTHER ASSETS
The other asset balance consists of costs associated with the change in
management of Innisbrook to Westin. These costs are being amortized over a five
year term.
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.
MANAGEMENT AGREEMENTS
Westin Hotel Company ("Westin") became manager of Innisbrook effective July 15,
1997, for a 20 year term unless terminated earlier. Under the management
agreement, Westin receives annual management fees and certain cost
reimbursements. Westin will also receive a portion of actual earnings above
specified levels, as defined, and guarantees certain amounts as discussed in
Note 10.
Hilton Hotels Corporation ("HHC"), the previous manager of Innisbrook, has
managed Tamarron since December 1995. Under the related agreement, whose term
is 20 years with provisions for earlier termination by either party, HHC
receives annual management fees and certain cost reimbursements. HHC will
receive a portion of actual earnings above specified levels, as defined.
INTERCOMPANY ALLOCATIONS AND ADVANCES
GHI charges the Company administrative and other expenses based on estimated
time and expenses incurred. Amounts charged were approximately $140,000,
$451,000, $656,000 and $970,000 for the 191 days ended December 31, 1997, 174
days ended June 23, 1997 and for the years ended December 31, 1996 and 1995,
respectively, of which $31,000 was payable to GHI at December 31, 1997.
The Company has three affiliates, Golf Host Securities, Inc. (Securities) and
Golf Host Development, Inc. (Development), both of which are wholly owned
subsidiaries of GHI, and Golf Host Realty, Inc. (Realty), a 70% owned
subsidiary of Securities. Securities and Realty are engaged in brokerage
activity with respect to resale of condominiums at Innisbrook and Tamarron,
respectively. Realty also serves as agent for selling Estates at Tamarron
residential homesites. Development is presently inactive.
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, formerly known as Tarpon Woods,
which is located near Innisbrook. The Company provides services to Lost Oaks,
including payroll, accounting, purchasing and operations and cash management.
The Company is reimbursed for these services at approximately cost.
23
24
PARTICIPATING RENTAL UNITS
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 $3,042,000, $4,932,000, $9,783,000 and $9,358,000 for the 191
days ended December 31, 1997, 174 days ended June 23, 1997 and for the years
ended December 31, 1996 and 1995, respectively, to the rental pool
participants.
INTEREST, NET
The Company's cash management policy is to utilize cash resources to minimize
net interest expensed, through either temporary cash investments or reductions
in existing interest-bearing obligations. Accordingly, temporary cash
investments and interest income vary from period to period. Interest expense is
net of interest income of approximately $143,000, $79,000, $154,000 and
$257,000 for the 191 days ended December 31, 1997, 174 days ended June 23,
1997, and for the years ended December 31, 1996 and 1995, 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 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. Effective January 1, 1998, the Company
will match one-half of the first 6% annually. Company contributions
approximated $52,000, $61,000, $120,000 and $130,000 for the 191 days ended
December 31, 1997, 174 days ended June 23, 1997 and for the years ended
December 31, 1996 and 1995, respectively, and are fully funded.
Prior to the Acquisition, GHI provided a supplemental retirement income plan
for officers who met certain eligibility requirements upon retirement. The
Company included its portion of the related liability in long-term obligations.
At the acquisition date this plan was terminated, with the amount accrued paid
to those officers who participated in the plan at that time.
During 1995, the Company's parent terminated its self-funded employee health
insurance plan. The 1995 and 1996 statements of operations include
approximately $277,000 and $15,000, respectively, of related termination costs
in costs and operating expenses.
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 is based on each affiliate's taxable
income before income tax multiplied by the blended federal and states statutory
tax rate.
For 1996 and previous, income taxes are credited to the long-term intercompany
liability to GHI as incurred and GHI accepted future liability for the payment
of the Company's deferred income taxes when due.
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"), effective December 31, 1997. SFAS 128
requires the Company to report 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 is equal to basic earnings per
share for each of the periods indicated. All prior years' earnings per share
data are presented to reflect the new standard's provisions.
24
25
(3) PROPERTY AND EQUIPMENT
Components of property and equipment are as follows:
1997 | 1996
------------ | ------------
|
Undeveloped land $ -- | $ 1,327,284
Land and land improvements 5,688,625 | 6,362,888
Buildings 11,583,624 | 22,598,173
Golf courses and recreational facilities 9,601,395 | 10,185,110
Machinery and equipment 7,175,030 | 25,780,867
Construction in progress 2,687,915 | 110,817
------------ | ------------
36,736,589 | 66,365,139
Less - accumulated depreciation (1,011,338) | (26,326,817)
------------ | ------------
$ 35,725,251 | $ 40,038,322
============ | ============
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. Estimates of useful lives used in computing annual depreciation are
as follows:
LIFE IN YEARS
-------------
Land improvements 28 to 30
Buildings 50
Recreational facilities 30
Machinery and equipment 10 to 15
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 properties 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.
Construction in progress ("CIP") consists of costs incurred during the
construction of an additional nine holes of golf. Interest costs of
approximately $88,000 related to financing construction were capitalized and
are included in the CIP balance at December 31, 1997.
Depreciation expense of $1,011,338, $1,290,000, $2,570,000 and $2,402,000 was
recorded for the 191 days ended December 31, 1997, 174 days ended June 23, 1997
and the years ended 1996 and 1995, respectively.
(4) INTANGIBLE ASSETS
As discussed in Note 1, the purchase price of the Company has been allocated to
assets based upon their estimated fair value at Acquisition date. In
conjunction therewith a resort intangible of approximately $34,000,000,
relating to acquiring an existing operating resort property, was recorded and
is being amortized on a straight-line basis over 20 years. Amortization expense
for all intangible assets was approximately $848,000 for the 191 days ended
December 31, 1997.
25
26
(5) ACCRUED EXPENSES
Components of accrued expenses are as follows:
1997 | 1996
---------- | ----------
|
Rental pool lease distribution $1,821,803 | $2,134,459
Salaries 1,146,127 | 1,456,267
Taxes, other than income taxes 862,562 | 242,820
Other 1,721,996 | 744,435
---------- | ----------
$5,552,488 | $4,577,981
========== | ==========
(6) NOTE PAYABLE
1997 | 1996
----------- | ------------
|
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 December 31, 1996 $ N/A | $ 734,429
=========== | ============
|
Long-term obligations |
Participating mortgage note at varying pay |
rates maturing in 2027 $69,975,000 | $ --
|
$9,000,000 participating mortgage note |
credit facility 3,024,163 | --
|
Mortgage note at 6.34%, maturing in 2002 5,000,000 | --
|
Mortgage notes at varying rates, ranging from 8.05% |
to 9%, maturing from 1998 to 2007 -- | 15,487,194
|
Equipment revolving credit line at prime, maturing |
serially to 2001. $1,108,272 available for use at |
December 31, 1996 -- | 3,891,728
|
A $2,000,000 revolving credit line at 9%, maturing in |
2007 -- | 1,368,000
|
Other -- | 286,386
Unamortized debt discount and expense -- | (467,000)
----------- | ------------
77,999,163 | 20,566,308
Less - current maturities -- | (2,788,764)
----------- | ------------
$77,999,163 | $ 17,777,544
=========== | ============
Concurrent with the Acquisition described in Note 1, the Company obtained a
$78,975,000 loan from GTA. The loan has two primary components; a $69,975,000
participating mortgage note and a $9,000,000 credit facility. The loan is
secured by substantially all the Company's assets and is guaranteed by GHI.
The participating mortgage note was used to finance the Company's Acquisition
and the purchase of GTA stock, as discussed below. The participating mortgage
note calls for initial annual interest payments of $6,739,063 with an annual 5%
interest escalator 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 and the effective interest rate is
approximately 11.5% over the life of the loan. In addition, the participating
mortgage note calls for participation payments based upon levels of revenue, as
defined, of the Innisbrook property, adjusted for inflation ($15,701,000 for
the 191 days ended December 31, 1997). The Company incurred no participating
interest for the 191 days ended December 31, 1997.
The $9,000,000 credit facility is used to finance the Company's capital plan
for continued resort development. This facility
26
27
bears interest initially at a 9.75% fixed rate with an annual 5% interest
escalator commencing January 1, 1998 (prorated to 2.616% for 1998) and
continuing each year through 2002.
As of December 31, 1997, the participating mortgage note was fully funded, and
$3,024,163 was outstanding under the credit facility. Loan principal 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 $3,808,050 on the GTA
debt during the 191 days ended December 31, 1997, of which $1,273,608 was
payable at December 31, 1997.
The Company obtained a $5,000,000 mortgage note on June 20, 1997 from the
seller as a part of the sale transaction. Note proceeds are expected to be used
to fund the Company's operations during seasonal cash flow shortages. Unused
proceeds are held by the parent company on behalf of the Resorts and amount to
approximately $1,800,000 at December 31, 1997. The note bears interest at a
fixed rate of 6.34% with interest payable quarterly. The Company incurred
interest expense of $167,619 during the 191 days ended December 31, 1997, of
which $10,422 was payable at December 31, 1997. Annual principal payments under
this note for the next five fiscal years are as follows:
YEAR AMOUNT
---- ----------
1998 $ --
1999 --
2000 500,000
2001 500,000
2002 4,000,000
----------
$5,000,000
==========
The Company incurred aggregate interest costs of $1,023,481 on debt during the
174 days ended June 23, 1997.
As a condition under the loan 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 ("OPU") in GTA for $8,975,000 with an
option to acquire an additional 150,000 OPU at a fixed price (the
"investment"). The loan agreement restricts the Company's ability to sell the
investment until certain Company operating results, as defined, are obtained.
The Company distributed the investment in GTA to its parent upon acquisition.
Substantially all assets of the Resorts are pledged as collateral.
(7) INCOME TAXES
The provision for income taxes consists of the following:
FOR THE 174 DAY PERIOD FOR THE 191 DAY PERIOD
ENDED JUNE 23, 1997 ENDED DECEMBER 31, 1997
---------------------- -----------------------
Charges to operations:
Current income tax (benefits) expense
Federal $ 337,163 $(2,951,811)
State 70,605 (509,631)
----------- -----------
407,768 (3,461,442)
----------- -----------
Deferred income tax expense (benefit):
Federal 346,458 239,091
State 58,174 40,146
----------- -----------
404,632 279,237
----------- -----------
Total income tax expense (benefit) $ 812,400 $(3,182,205)
=========== ===========
The provision for the 174 day period ended June 23, 1997 of $812,400 includes
the tax benefit of $155,400 to the loss on the early extinguishment of the long
term debt.
The following table reconciles total income tax expense (benefit) to an amount
produced by multiplying pretax income by the 37.5% blended federal and states'
statutory rate.
27
28
FOR THE YEAR ENDED
DECEMBER 31, 1997
-----------------
Tax computed at the federal statutory rate $(2,167,286)
Increase (decrease) in tax from:
State income taxes, net (227,183)
Meals and entertainment 24,664
-----------
Total income tax expense (benefit) $(2,369,805)
===========
Deferred income tax consists of the following:
FOR THE YEAR ENDED
DECEMBER 31, 1997
-----------------
Deferred income tax asset:
Net operating loss $ 2,193,418
Deferred revenue and other accrued liabilities 535,034
Deferred income tax liability:
Basis difference in property and intangible assets (15,611,614)
Other (251,396)
------------
Total deferred income tax liability $(13,134,558)
============
The Company files a consolidated tax return with related parties. Tax expense or
benefit is allocated based on the consolidated group's tax sharing agreement.
No valuation allowance has been provided on deferred tax assets as management
believes it is more likely than not that such assets will be realized.
Under the Internal Revenue Code, if certain substantial changes in the
Company's ownership occur, there are annual limitations on utilization of loss
carryforwards.
(8) CHANGES IN WORKING CAPITAL
(Increases) decreases in working capital other than cash are as follows:
191 DAY PERIOD 174 DAY PERIOD |
ENDED ENDED |
DECEMBER 31, 1997 JUNE 23, 1997 | 1996 1995
----------------- ------------- | --------- ---------
|
Accounts receivable $(1,961,883) $ 730,004 | $ 91,569 $(708,251)
Inventories and supplies 1,089,703 2,134,665 | (731,468) 32,164
Prepaid expenses and other 15,792 255,765 | 251,132 16,724
Intercompany 1,847,954 (3,980,882) | (156,857) (260,038)
Accounts payable 6,185,289 (589,271) | 347,650 429,351
Accrued expenses 470,396 504,111 | 303,896 (42,334)
Deposits and prepaid fees 1,266,234 (1,114,059) | 74,231 (403,755)
Restricted cash (2,238,767) -- | -- --
----------- ----------- | --------- ---------
$ 6,674,718 $(2,059,667) | $ 180,153 $(936,139)
=========== =========== | ========= =========
(9) COMMITMENTS AND CONTINGENCIES
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.
Exclusive of rental pool payments, operating lease expense for the 191 days
ended December 31, 1997, 174 days ended June 23, 1997 and for the years ended
December 31, 1996 and 1995, respectively, approximated $60,884, $37,420,
$156,000 and $160,000 and there were no contingent rentals or operating
subleases. No significant operating leases extend beyond one year.
LONG-TERM CONTINGENCY AND ADVANCE
Effective with the Acquisition, liabilities and receivables associated with the
contingencies and advances discussed below
28
29
were assumed by the former shareholders.
In prior years, the Company drew $1,721,000 under the Innisbrook HHC agreement
primarily to acquire GHR property and equipment. Interest amounting to $403,462
was accrued at 8% per annum on this amount and included in long-term
contingency.
In addition, the Company was funded $2,900,000 under the Innisbrook and
Tamarron HHC agreements for life safety equipment. The Company in turn advanced
approximately $1,700,000 and $1,200,000 to the Innisbrook Rental Pool and the
Tamarron Association of Condominium Owners, Inc., respectively, for life safety
equipment on terms similar to the HHC advances. Effective with the Acquisition,
the amounts remaining under these liabilities and receivables were assumed by
the former shareholders.
WESTIN GUARANTEE AND CONTINGENCY
As part of the terms of the new management agreement for Innisbrook, Westin
guaranteed a 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, 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. In addition, Westin will share
in revenues of Innisbrook above defined amounts. At December 31, 1997,
Innisbrook had a net payable to Westin of $2,611,511 for cash advances received
and Westin's share of operating revenues.
(10) SUBSEQUENT EVENTS
On April 2, 1998, GTA permitted the Company to obtain a working capital line of
credit by releasing its lien on the Innisbrook accounts receivable. The Company
is currently negotiating with a major financial institution regarding the terms
and conditions of the working capital line. As part of the agreement between
GTA and the Company, the net proceeds from the sale of Tamarron and the
Innisbrook land (as described in Note 1) will be used to pay down the working
capital line, and the working capital line will be reduced to a predetermined
amount.
In April, 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 reserve requirements, as
defined.
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. On this effective date, substantially all deferred
tax liability, exclusive of that which is associated with built-in gain, will
be removed from the balance sheet.
29
30
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 sheet and the related statement 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, 1997, and the results of its operations and the
changes in participants' fund balance for the year ended December 31, 1997, in
conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards 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 audit provides a reasonable basis for the
opinion expressed above. The financial statements of Innisbrook Rental Pool
Lease Operation for the years ended December 31, 1996 and 1995, were audited by
other independent accountants whose report dated March 21, 1997 expressed an
unqualified opinion on the statements.
/s/Price Waterhouse LLP
Tampa, Florida
April 8, 1998
30
31
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 INNISBROOK RENTAL POOL LEASE
OPERATIONS (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 Operations as of December 31, 1996 and 1995, and the results of its
operations and its 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
31
32
INNISBROOK RENTAL POOL LEASE OPERATION
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
DISTRIBUTION FUND
1997 1996
---------- ----------
ASSETS
RECEIVABLE FROM GOLF HOST RESORTS, INC
FOR DISTRIBUTION - FULLY SECURED $1,808,040 $1,938,129
INTEREST RECEIVABLE FROM MAINTENANCE
ESCROW FUND 28,652 22,045
---------- ----------
$1,836,692 $1,960,174
========== ==========
LIABILITIES AND PARTICIPANTS' FUND BALANCE
DUE TO PARTICIPANTS FOR DISTRIBUTION $1,375,107 $1,316,480
DUE TO MAINTENANCE ESCROW FUND 274,972 302,506
RESERVE FOR ESTIMATED LIFE-SAFETY
REIMBURSEMENT 186,613 341,188
PARTICIPANTS' FUND BALANCE -- --
---------- ----------
$1,836,692 $1,960,174
========== ==========
MAINTENANCE ESCROW FUND
ASSETS
CASH AND CASH EQUIVALENTS $1,710,216 1,580,919
INVENTORIES -- --
RECEIVABLE FROM DISTRIBUTION FUND 274,972 302,506
INTEREST RECEIVABLE 27,992 19,856
---------- ----------
$2,013,180 $1,903,281
========== ==========
LIABILITIES AND PARTICIPANTS' FUND BALANCE
ACCOUNTS PAYABLE $ 55,905 $ 108,391
INTEREST PAYABLE TO DISTRIBUTION FUND 28,652 22,045
CARPET CARE RESERVE 27,007 38,430
PARTICIPANTS' FUND BALANCE 1,901,616 1,734,415
---------- ----------
$2,013,180 $1,903,281
========== ==========
32
33
INNISBROOK RENTAL POOL LEASE OPERATION
STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
DISTRIBUTION FUND
1997 1996 1995
------------ ------------ ------------
GROSS REVENUES $ 14,896,075 $ 15,480,899 $ 14,662,736
------------ ------------ ------------
DEDUCTIONS:
Agents' commissions 322,654 357,441 353,383
Audit fees 12,100 12,100 12,100
------------ ------------ ------------
334,754 369,541 365,483
------------ ------------ ------------
ADJUSTED GROSS REVENUES 14,561,321 15,111,358 14,297,253
MANAGEMENT FEE (6,843,820) (7,102,338) (6,719,709)
------------ ------------ ------------
GROSS INCOME DISTRIBUTION 7,717,501 8,009,020 7,577,544
ADJUSTMENTS TO GROSS INCOME
DISTRIBUTION:
Corporate complimentary
occupancy fees 16,828 10,058 8,441
Occupancy fees (1,541,670) (1,689,670) (1,343,526)
Advisory Committee expenses (106,540) (96,795) (89,120)
Life-safety reimbursement (186,613) (341,188) (132,635)
------------ ------------ ------------
NET INCOME DISTRIBUTION 5,899,506 5,891,425 6,020,704
ADJUSTMENTS TO NET INCOME
DISTRIBUTION:
Occupancy fees 1,541,670 1,689,670 1,343,526
Hospitality suite fees 10,328 15,790 11,093
Greens fees 86,354 89,248 91,338
Additional participation credits 69,825 72,865 75,775
------------ ------------ ------------
AMOUNT AVAILABLE FOR DISTRI-
BUTION TO PARTICIPANTS $ 7,607,683 $ 7,758,998 $ 7,542,436
============ ============ ============
33
34
INNISBROOK RENTAL POOL LEASE OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
DISTRIBUTION FUND
1997 1996 1995
----------- ----------- -----------
BALANCE, beginning of period $ -- $ -- $ --
ADDITIONS:
Amounts available for distribution
before life-safety reimbursement 7,794,296 8,100,186 7,675,071
Interest received or receivable
from Maintenance Escrow Fund 110,562 82,198 58,209
REDUCTIONS:
Amounts withheld for Maintenance
Escrow Fund (1,156,262) (1,263,618) (671,782)
Amounts withheld in reserve for
life-safety reimbursement (186,613) (341,188) (132,635)
Amounts accrued or paid
to participants (6,561,983) (6,577,578) (6,928,863)
----------- ----------- -----------
BALANCE, end of period $ -- $ -- $ --
=========== =========== ===========
MAINTENANCE ESCROW FUND
1997 1996 1995
----------- ----------- -----------
BALANCE, beginning of period $ 1,734,415 $ 1,141,259 $ 851,207
ADDITIONS:
Amounts withheld from
occupancy fees 1,156,262 1,263,618 671,782
Interest earned 110,562 82,198 58,209
Charges to participants to establish
or restore escrow balances 1,091,298 1,081,816 1,341,784
REDUCTIONS:
Maintenance charges (1,947,493) (1,633,437) (1,644,340)
Carpet care reserve deposit (35,427) (33,708) (13,449)
Interest accrued or paid to
Distribution Fund (110,562) (82,198) (58,209)
Refunds to participants due under
Master Lease Agreement (97,439) (85,133) (65,725)
----------- ----------- -----------
BALANCE, end of year $ 1,901,616 $ 1,734,415 $ 1,141,259
=========== =========== ===========
34
35
INNISBROOK RENTAL POOL LEASE OPERATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(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 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 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 and 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
Participants' earnings 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 (the Line) are less than the amounts due.
Upon the sale of GHR on June 23, 1997, the Line was terminated and the amount
due from GHR was funded. Subsequent amounts due from GHR were funded 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
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 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 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.
35
36
Corporate complimentary occupancy fees are rental fees paid by GHR for
complimentary rooms unrelated to Rental Pool operations.
GHR has offered, effective January 1, 1998, a separate Guaranteed
Distribution Master Lease Agreement (GMLA) to Participants. Among other things,
the GMLA provides for an equal sharing between GHR and its Participants of
Adjusted Gross Revenues and includes as deductions from the Gross Income
Distribution an additional 5.5% Management Fee and a 3% Marketing Fee. GHR will
receive an Incentive Fee of 10% of the excess of Gross Revenues over
$20,000,000. The GMLA guarantees that Rent (Net Income Distribution plus
Occupancy and Hospitality Suite Fees) shall not be less than an amount which
approximates the 1996 Gross Income Distribution, as prorated based upon
Weighted Days Pool Participation, as defined. The GMLA also guarantees a
noncancelable term through 2011 with an annual rental pool participation
election. At February 28, 1998, 86 condominium owners had elected to remain in
the MLA while 816 had elected to participate in the GMLA.
Owners who purchased units prior to January 1, l991 and 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; 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. Additional
Participation Credits and greens fees participation are not available under the
GMLA.
MAINTENANCE ESCROW FUND ACCOUNTS
The Agreements provide that 75% of the Occupancy Fees earned by each
Participant is to be deposited in such 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.
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. 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 a 90% 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 unit.
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 $46,850, $38,170 and $39,675 for 1997,
1996 and 1995, respectively. Under the GMLA, this separate reserve has been
eliminated.
GHR, under the direction of the Lessors' Advisory Committee and in
compliance with restrictions in the MLA, invests maintenance escrow funds 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'
36
37
Maintenance Escrow Fund accounts and paid quarterly through the Distribution
Fund. Included in cash and cash equivalents at December 31, 1997 are
certificates of deposit of $1,380,000 at cost, maturing between February 26,
1998 and May 21, 1999, and bearing interest at rates from 5.35% to 6.15%, with
the remainder being held in a money market account.
(2) AFFILIATE OWNED CONDOMINIUM APARTMENTS:
Golf Host Condominium, Inc., a wholly owned subsidiary of GHR, owns three
condominium apartments. Its apartments which participated in the Rental Pool
did so in the same manner as all others.
(3) 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 the cost of 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. Pending the resolution of this matter, potential payments to the
former shareholders are being held in escrow by GHR.
37
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 sheet 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, 1997, and the results of its operations and the
changes in participants' fund balance for the year ended December 31, 1997, in
conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards 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 audit provides a reasonable basis for the opinion expressed
above. The financial statements of the Tamarron Rental Pool Lease Operation for
the years ended December 31, 1996 and 1995 were audited by other independent
accountants whose report dated March 21, 1997 expressed an unqualified opinion
on the statements.
/s/Price Waterhouse LLP
Tampa, Florida
April 8, 1998
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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 TAMARRON RENTAL POOL LEASE
OPERATIONS (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
Operations as of December 31, 1996 and 1995, and the results of its operations
and its 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, 1997 AND 1996
DISTRIBUTION FUND
1997 1996
-------- --------
ASSETS
CASH $ 1,000 $ 1,000
RECEIVABLE FROM GOLF HOST RESORTS, INC
FOR DISTRIBUTION 154,173 196,330
INTEREST RECEIVABLE FROM MAINTENANCE
ESCROW FUND 342 454
-------- --------
$155,515 $197,784
======== ========
LIABILITIES AND PARTICIPANTS' FUND BALANCE
DUE TO PARTICIPANTS FOR DISTRIBUTION $104,400 $155,505
DUE TO MAINTENANCE ESCROW FUND 51,115 42,279
PARTICIPANTS' FUND BALANCE -- --
-------- --------
$155,515 $197,784
======== ========
MAINTENANCE ESCROW FUND
ASSETS
CASH AND CASH EQUIVALENTS $ 56,199 $ 83,576
DUE FROM DISTRIBUTION FUND 51,115 42,279
INTEREST RECEIVABLE -- --
INVENTORY:
Linen 65,562 86,904
Materials and supplies 16,346 7,737
-------- --------
$189,222 $220,496
======== ========
LIABILITIES AND PARTICIPANTS' FUND BALANCE
ACCOUNTS PAYABLE $ 23,358 $ 22,494
INTEREST PAYABLE TO DISTRIBUTION FUND 342 454
PARTICIPANTS' FUND BALANCE 165,522 197,548
-------- --------
$189,222 $220,496
======== ========
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TAMARRON RENTAL POOL LEASE OPERATION
STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
DISTRIBUTION FUND
1997 1996 1995
----------- ----------- -----------
GROSS REVENUES $ 3,372,242 $ 3,606,132 $ 3,633,333
----------- ----------- -----------
DEDUCTIONS:
Agents' commissions 127,758 125,209 113,560
Sales and marketing expenses 269,779 306,520 327,000
Audit fees 10,400 10,400 10,400
----------- ----------- -----------
407,937 442,129 450,960
----------- ----------- -----------
ADJUSTED GROSS REVENUES 2,964,305 3,164,003 3,182,373
MANAGEMENT FEE (1,482,153) (1,582,002) (1,591,186)
----------- ----------- -----------
GROSS INCOME DISTRIBUTION 1,482,152 1,582,001 1,591,187
ADJUSTMENTS TO GROSS INCOME
DISTRIBUTION:
Corporate complimentary
occupancy fees 3,580 4,084 2,990
Occupancy fees (344,556) (304,829) (307,019)
Designated items (118,109) (71,150) (65,275)
Advisory Committee expenses (14,943) (11,136) (6,425)
----------- ----------- -----------
POOLED INCOME 1,008,124 1,198,970 1,215,458
ADJUSTMENTS TO POOLED INCOME:
Hospitality suite fees -- 53 105
Occupancy fees 344,556 304,829 307,019
----------- ----------- -----------
NET INCOME DISTRIBUTION $ 1,352,680 $ 1,503,852 $ 1,522,582
=========== =========== ===========
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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, 1997
DISTRIBUTION FUND
1997 1996 1995
----------- ----------- -----------
BALANCE, beginning of period $ -- $ -- $ --
ADDITIONS:
Amounts available for distribution 1,352,681 1,503,852 1,522,582
Interest received or receivable from
Maintenance Escrow Fund 930 3,261 6,004
REDUCTIONS:
Amounts withheld for Maintenance
Escrow Fund (172,285) (152,416) (153,513)
Amounts accrued or paid to participants (1,181,326) (1,354,697) (1,375,073)
----------- ----------- -----------
BALANCE, end of year $ -- $ -- $ --
=========== =========== ===========
MAINTENANCE ESCROW FUND
1997 1996 1995
--------- --------- ---------
BALANCE, beginning of period $ 197,548 $ 328,336 $ 397,655
ADDITIONS:
Amounts withheld from occupancy fees 172,285 152,416 153,513
Interest earned 930 3,261 6,004
Reimbursement of designated items 118,109 71,150 65,275
Charges to participants to establish or
restore escrow balances 47,749 276,838 116,398
REDUCTIONS:
Maintenance and inventory charges (161,718) (164,323) (172,737)
Refurbishing charges (66,602) (369,161) (138,476)
Interest accrued or paid to
Distribution Fund (930) (3,261) (6,004)
Designated items (118,108) (71,150) (65,275)
Refunds to participants as prescribed
by Master Lease Agreement (23,741) (26,558) (28,017)
--------- --------- ---------
BALANCE, end of period $ 165,522 $ 197,548 $ 328,336
========= ========= =========
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TAMARRON RENTAL POOL LEASE OPERATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(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 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 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 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
by the fund (as discussed below) and amounts due to the Maintenance Escrow
Fund. The operations of the Distribution Fund reflect the Participants'
earnings 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, 1997, 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
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 rental of condominium apartments net of Sales and
Marketing expenses (limited to 8.0%, 8.5% and 9% of Gross Revenues for 1997,
1996 and 1995, 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 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.
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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 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 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, 1997 consists
of an interest bearing demand account.
(2) AFFILIATE-OWNED CONDOMINIUM APARTMENTS:
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 condominium apartments which
participated in the Rental Pool in the same manner as all others. Subsequent to
the sale, no condominium apartments are owned by GHR, its affiliates or the
shareholders, directors or officers thereof.
(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 Participants based upon their
Participation Factors. Linen inventory is stated at cost, less accumulated
amortization of $109,567 and $59,237 at December 31, 1997 and 1996,
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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