UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] AMENDMENT NO. 1 TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number: 001-13003
SILVERLEAF RESORTS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2259890
(State of incorporation) (I.R.S. Employer
Identification No.)
1221 RIVER BEND DRIVE, SUITE 120
DALLAS, TEXAS 75247
(Address of principal executive offices, including zip code)
214-631-1166
(Registrant's telephone number, including area code)
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 [ ]
Number of shares of common stock outstanding of the issuer's Common Stock, par
value $0.01 per share, as of May 10, 2000 was: 12,889,417
SILVERLEAF RESORTS, INC.
INDEX
This amendment No. 1 on Form 10-Q/A is being filed to give effect to the
restatement of the Company's financial statements, included in Item 1, as
discussed in Note 5 thereto.
Page
----
PART I. FINANCIAL INFORMATION (Unaudited)
Item 1. Consolidated Condensed Statements of Income for the three months ended
March 31, 2000 (restated) and 1999 (restated) ................................. 3
Consolidated Condensed Balance Sheets as of March 31, 2000 (restated)
and December 31, 1999 (restated) .............................................. 4
Consolidated Condensed Statement of Shareholders' Equity for the three
months ended March 31, 2000 (restated) ........................................ 5
Consolidated Condensed Statements of Cash Flows for the three months
ended March 31, 2000 (restated) and 1999 (restated) ........................... 6
Notes to the Consolidated Condensed Financial Statements ...................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................................. 15
Item 6. Exhibits and Reports on Form 8-K .............................................. 15
Signatures .................................................................... 15
EXPLANATORY NOTE
On November 19, 2002, the Company simultaneously filed this Form 10Q/A
report and the other below described delinquent and/or amended reports with the
Securities and Exchange Commission:
1
Forms 10-Q for each of the quarterly periods ended June 30,
2002 and March 31, 2002;
Forms 10-K for each of the years ended December 31, 2001 and
December 31, 2000;
Forms 10-Q for each of the quarterly periods ended September
30, 2001, June 30, 2001, and March 31, 2001;
Forms 10-Q/A for each of the quarterly periods ended September
30, 2000 and June 30, 2000.
CERTAIN STATEMENTS CONTAINED IN THIS FORM 10-Q/A UNDER ITEMS 1 AND 2,
IN ADDITION TO CERTAIN STATEMENTS CONTAINED ELSEWHERE IN THIS 10-Q/A, INCLUDING
STATEMENTS QUALIFIED BY THE WORDS "BELIEVE," "INTEND," "ANTICIPATE," "EXPECTS"
AND WORDS OF SIMILAR IMPORT, ARE "FORWARD-LOOKING STATEMENTS" AND ARE THUS
PROSPECTIVE. THESE STATEMENTS REFLECT THE EXPECTATIONS OF THE COMPANY FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 2000, AND HAVE NOT BEEN UPDATED FOR THIS FILING
REGARDING THE COMPANY'S FUTURE PROFITABILITY, PROSPECTS AND RESULTS OF
OPERATIONS. ALL SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. ALL FORWARD-LOOKING STATEMENTS ARE MADE AS OF THE ORIGINAL FILING
DATE OF THIS REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000,
AND HAVE NOT BEEN UPDATED FOR THIS FILING. AND THE COMPANY ASSUMES NO OBLIGATION
TO UPDATE THE FORWARD-LOOKING STATEMENTS OR TO UPDATE THE REASONS WHY ACTUAL
RESULTS COULD DIFFER FROM THE PROJECTIONS IN THE FORWARD-LOOKING STATEMENTS.
2
PART I: FINANCIAL INFORMATION (UNAUDITED)
ITEM 1 FINANCIAL STATEMENTS
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended
March 31,
---------
2000 1999
---- ----
(As Restated) (As Restated)
REVENUES:
Vacation Interval sales $ 54,498 $ 41,675
Sampler sales 1,268 508
------------ ------------
Total sales 55,766 42,183
Interest income 8,685 5,608
Management fee income 81 900
Other income 861 728
------------ ------------
Total revenues 65,393 49,419
COSTS AND OPERATING EXPENSES:
Cost of Vacation Interval sales 9,544 5,875
Sales and marketing 30,666 21,267
Provision for uncollectible notes 5,849 4,262
Operating, general and administrative 8,551 6,383
Depreciation and amortization 1,813 1,237
Interest expense and lender fees 6,486 3,285
------------ ------------
Total costs and operating expenses 62,909 42,309
Income before provision for income taxes 2,484 7,110
Provision for income taxes (920) (2,738)
------------ ------------
NET INCOME $ 1,564 $ 4,372
============ ============
NET INCOME PER COMMON SHARE:
BASIC $ 0.12 $ 0.34
============ ============
DILUTED $ 0.12 $ 0.34
============ ============
WEIGHTED AVERAGE BASIC AND DILUTED
SHARES OUTSTANDING: 12,889,417 12,889,417
============ ============
See notes to consolidated condensed financial statements.
3
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
March 31, December 31,
ASSETS 2000 1999
---- ----
(As Restated) (As Restated)
Cash and cash equivalents $ 12,211 $ 4,814
Restricted cash 903 903
Notes receivable, net of allowance for uncollectible notes of
$36,073 and $32,023, respectively 311,795 282,290
Accrued interest receivable 2,324 2,255
Amounts due from affiliates 7,770 6,596
Inventories 116,503 112,613
Land, equipment, buildings, and utilities, net 50,959 50,446
Land held for sale 1,136 1,078
Prepaid and other assets 17,341 16,947
--------- ---------
TOTAL ASSETS $ 520,942 $ 477,942
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 12,021 $ 13,398
Accrued interest payable 4,835 2,621
Amounts due to affiliates 365 --
Unearned revenues 8,035 7,998
Income taxes payable -- 185
Deferred income taxes, net 27,171 26,256
Notes payable and capital lease obligations 233,935 194,468
Senior subordinated notes 75,000 75,000
--------- ---------
Total Liabilities 361,362 319,926
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, par value $0.01 per share, 100,000,000
shares authorized, 13,311,517 shares issued, and
12,889,417 shares outstanding 133 133
Additional paid-in capital 109,339 109,339
Retained earnings 55,107 53,543
Treasury stock, at cost (422,100 shares) (4,999) (4,999)
--------- ---------
Total Shareholders' Equity 159,580 158,016
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 520,942 $ 477,942
========= =========
See notes to consolidated condensed financial statements.
4
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share amounts)
(Unaudited)
Common Stock
--------------------
Number of $0.01 Additional Treasury Stock
Shares Par Paid-in Retained --------------------
Issued Value Capital Earnings Shares Cost Total
------ ----- ------- -------- ------ ---- -----
January 1, 2000 (As Previously
Reported) 13,311,517 $133 $109,339 $ 56,737 (422,100) $(4,999) $ 161,210
Adjustments -- -- -- (3,194) -- -- (3,194)
---------- ---- -------- -------- -------- ------- ---------
January 1, 2000 (As Restated) 13,311,517 133 109,339 53,543 (422,100) (4,999) 158,016
Net income (As Restated) -- -- -- 1,564 -- -- 1,564
---------- ---- -------- -------- -------- ------- ---------
March 31, 2000 (As Restated) 13,311,517 $133 $109,339 $ 55,107 (422,100) $(4,999) $ 159,580
========== ==== ======== ======== ======== ======= =========
See notes to consolidated condensed financial statements.
5
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
March 31,
---------
2000 1999
---- ----
(As Restated) (As Restated)
OPERATING ACTIVITIES:
Net income $ 1,564 $ 4,372
Adjustments to reconcile net income to net cash
used in operating activities:
Provision for uncollectible notes 5,849 4,262
Depreciation and amortization 1,813 1,237
Deferred income taxes 915 1,034
Increase (decrease) in cash from changes in
assets and liabilities:
Notes receivable (35,354) (28,681)
Accrued interest receivable (69) (48)
Amounts due from affiliates (809) (921)
Inventories (3,890) (10,908)
Land held for sale (58) (15)
Prepaid and other assets (471) 2,191
Accounts payable and accrued expenses (1,377) 4,686
Accrued interest payable 2,214 1,971
Unearned revenues 37 333
Income taxes payable (185) (2,953)
-------- --------
Net cash used in operating activities (29,821) (23,440)
-------- --------
INVESTING ACTIVITIES:
Purchases of land, equipment, buildings, and utilities (471) (7,491)
Proceeds from sales of land, equipment, buildings and utilities -- 4,494
-------- --------
Net cash used in investing activities (471) (2,997)
-------- --------
FINANCING ACTIVITIES:
Proceeds from borrowings from unaffiliated entities 51,599 37,948
Payments on borrowings to unaffiliated entities (13,910) (9,626)
-------- --------
Net cash provided by financing activities 37,689 28,322
-------- --------
Net increase in cash and cash equivalents 7,397 1,885
CASH AND CASH EQUIVALENTS:
Beginning of period 4,814 11,355
-------- --------
End of period $ 12,211 $ 13,240
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 4,416 $ 1,454
Income taxes paid $ 190 $ 4,657
Equipment acquired under capital lease or note $ 1,778 $ 4,596
See notes to consolidated condensed financial statements.
6
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BACKGROUND
These consolidated condensed financial statements of Silverleaf Resorts, Inc.
and subsidiaries ("the Company") presented herein do not include certain
information and disclosures required by accounting principles generally accepted
in the United States of America for complete financial statements. However, in
the opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the three months ended
March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.
Subsequent to the issuance of its annual and interim financial statements for
the year ended December 31, 1999 and the quarterly period ended March 31, 2000,
the Company's management determined that the accounting treatment afforded to
certain types of transactions was inappropriate. Accordingly, the previously
reported financial information for the three months ended March 31, 2000 and
1999, along with the December 31, 1999 balance sheet, have been restated. Such
restatement is further discussed in Note 5 to the Company's financial statements
included herein.
Certain previously reported amounts have been reclassified to conform to the
current presentation.
Recent Accounting Pronouncements
SFAS No. 133 -- In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, as amended,
is effective for fiscal years beginning after June 15, 2000 and will be adopted
for the period beginning January 1, 2001. SFAS No. 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of the derivatives are recorded each period in current
earnings or other comprehensive income depending on whether a derivative is
designated as part of a hedge transaction, and if it is, the type of hedge
transaction. The impact of SFAS No. 133 on the Company's results of operations,
financial position, or cash flows will be dependent on the level and types of
derivative instruments the Company will have entered into at the time the
standard is implemented.
SAB No. 101 -- In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB No. 101"), which
is required to be adopted by the Company in 2000. In connection with the
adoption of SAB No. 101 in the fourth quarter of 2000, management determined
that its methodology for recording sampler sales was inappropriate. As a result,
the Company has changed its method of accounting for sampler sales, and treated
such change as a correction of an error. See Note 5. There were no other
significant changes in the Company's accounting practices resulting from the
adoption of SAB No. 101.
NOTE 2 - EARNINGS PER SHARE
Outstanding stock options were not dilutive because the exercise price for such
options exceeded the market price for the Company's shares for the three months
ended March 31, 2000 and 1999.
NOTE 3 - DEBT
Notes payable, capital lease obligations, and senior subordinated notes as of
March 31, 2000 and December 31, 1999 are as follows (in thousands):
7
March 31, December 31,
2000 1999
---- ----
$60 million revolving loan agreement, which contains certain financial
covenants, due December 2000, principal and interest payable from the proceeds
obtained on customer notes receivable pledged as collateral for the note, at
an interest rate of LIBOR plus 2.55% ......................................... $ 32,689 $ 39,864
$70 million revolving loan agreement, capacity reduced by amounts
outstanding under the $10 million inventory loan agreement, which contains
certain financial covenants, due August 2004, principal and interest payable
from the proceeds obtained on customer notes receivable pledged as collateral
for the note, at an interest rate of LIBOR plus 2.65% ........................ 47,690 45,783
$75 million revolving loan agreement, which contains certain financial
covenants, due April 2005, principal and interest payable from the proceeds
obtained on customer notes receivable pledged as collateral for the note, at
an interest rate of LIBOR plus 3.00% ......................................... 72,945 62,166
$75 million revolving loan agreement, which contains certain financial
covenants, due November 2005, principal and interest payable from the proceeds
obtained on customer notes receivable pledged as collateral for the note, at
an interest rate of LIBOR plus 2.67% ......................................... 29,753 14,150
$30 million revolving loan agreement, which contains certain financial
covenants, due September 2006, principal and interest payable from the
proceeds obtained on customer notes receivable pledged as collateral for the
note, at an interest rate of Prime ........................................... 20,329 6,680
$10 million inventory loan agreement, which contains certain financial
covenants, due August 2002, interest payable monthly, at an interest
rate of LIBOR plus 3.50% ..................................................... 9,936 9,937
$10 million inventory loan agreement, which contains certain financial
covenants, due November 2001, interest payable monthly, at an interest
rate of LIBOR plus 3.25% ..................................................... 3,948 --
Various notes, due from April 2000 through November 2009, collateralized
by various assets with interest rates ranging from 4.20% to 14.0% ............ 4,100 4,088
-------- --------
Total notes payable .................................................... 221,390 182,668
Capital lease obligations ...................................................... 12,545 11,800
-------- --------
Total notes payable and capital lease obligations ...................... 233,935 194,468
10 1/2% senior subordinated notes, due 2008, interest payable semi-
annually on April 1 and October 1, guaranteed by all of the Company's
present and future domestic restricted subsidiaries .......................... 75,000 75,000
-------- --------
$308,935 $269,468
======== ========
At March 31, 2000, LIBOR rates were from 6.13% to 6.29%, and the Prime rate was
9.00%. At December 31, 1999, LIBOR rates were from 5.82% to 6.00%, and the Prime
rate was 8.50%.
8
NOTE 4 - SUBSIDIARY GUARANTEES
All subsidiaries of the Company have guaranteed the $75.0 million of senior
subordinated notes. The separate financial statements and other disclosures
concerning each guaranteeing subsidiary (each, a "Guarantor Subsidiary") are not
presented herein because the Company's management has determined that such
information is not material to investors. The guarantee of each Guarantor
Subsidiary is full and unconditional and joint and several. Each Guarantor
Subsidiary is a wholly owned subsidiary of the Company, and together comprise
all direct and indirect subsidiaries of the Company.
Combined summarized operating results of the Guarantor Subsidiaries for the
three months ended March 31, 2000 and 1999, are as follows (in thousands):
March 31,
---------
2000 1999
---- ----
Revenues $ -- $ 1
Expenses -- (45)
----- ----
Net loss $ -- $(44)
===== ====
Combined summarized balance sheet information as of March 31, 2000 for the
Guarantor Subsidiaries is as follows (in thousands):
March 31,
2000
----
Other assets $10
---
Total assets $10
===
Investment by parent (includes equity
and amounts due to parent) $10
---
Total liabilities and equity $10
===
NOTE 5 - RESTATEMENT
Subsequent to the issuance of its interim financial statements for the quarter
ended March 31, 2000, the Company's management determined that the accounting
treatment that had been originally afforded to certain types of transactions was
inappropriate. The specific matters for which adjustments have been made are
described below:
Revision to Downgrade Policy - It was determined that the Company's reporting
classification for downgrade transactions was inappropriate. Previously, the
Company had inappropriately classified the difference between the traded
Vacation Interval and the newly assumed Vacation Interval of lower value as a
reduction to Vacation Interval sales. The decreased sales price from the
original Vacation Interval to the downgraded Vacation Interval represents a
write-off of an uncollectible note. Hence, the Company increased Vacation
Interval sales and equal amounts were charged to the provision for uncollectible
notes as shown below for the period restated.
Delayed Cancellation of Rescinded Sales - The Company identified an accumulation
of rescinded Vacation Interval sales that had not been appropriately cancelled.
To correct the delayed cancellation of such sales, the Company
9
adjusted Vacation Interval sales and the direct costs associated with these
sales as shown below for the periods restated.
Deferral of Sales within the Rescission Period - It was determined that the
Company was immediately recognizing certain Vacation Interval sales rather than
appropriately deferring such sales until the customer's legal right of
rescission period had elapsed. Consequently, the Company adjusted Vacation
Interval sales and the direct costs associated with these sales as shown below
for the periods restated.
Interest Income Related to Loan Amortization - The Company determined that an
over-application of principal related to certain customer accounts had occurred
in 2000. To properly account for interest income during 2000, the Company
recorded an adjustment to interest income as shown below, with offsetting
increases to customer notes receivable.
Revision to Sampler Revenue Recognition Policy - In connection with the adoption
of SAB No. 101, the Company determined that it had inappropriately accounted for
customer payments associated with the sampler program as revenue in advance of
fulfilling the Company's obligations or expiration of the sampler terms. As a
result, the Company has modified its method of accounting for sampler sales to
properly match revenues to the fulfillment of its obligations, which resulted in
the adjustment of sampler sales and the direct costs associated with these sales
as shown below for the periods restated.
Reconciliation of Lender Debt - It was discovered that the Company had not been
appropriately reconciling debt balances and lender lock box activity related to
pledged notes receivable. As a result, the Company failed to recognize certain
customer deposits and returned customer payments processed through the lender
lock boxes on a timely basis. The Company could not identify the specific
customers involved, and determined that it would not pursue recovery of any
amounts previously credited to customers in error. As a result, management
concluded that the correcting adjustment should reduce interest income, increase
the provision for uncollectible notes, and increase the recorded debt balances.
Consequently, adjustments were made to reconcile lender debt as shown below for
the periods restated.
Litigation Costs - The Company was notified by its insurance carrier that
remediation work performed by the Company related to certain condominiums
subject to litigation would not be covered by insurance. Prior to that time, the
Company had incorrectly deferred these remediation costs under the premise that
such costs would be recovered. The Company has written-off the deferred
remediation costs as shown below for the periods restated.
Cash Flows From Operating Activities - On the consolidated statements of cash
flows, customer notes receivable activity is now properly classified as an
operating activity rather than an investing activity as previously reported.
A summary of the effects of these adjustments on the Company's consolidated
condensed statements of income is as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
---------
1999 2000
---- ----
Revenues As Previously Reported ............................... $ 49,080 $ 64,906
Revision to downgrade policy .............................. -- 82
Delayed cancellation of rescinded sales ................... (361) (174)
Deferral of sales within the rescission period ............ 365 585
Revision to interest income related to loan amortization .. -- 38
Revision to sampler revenue recognition policy ............ 405 87
Reconciliation of lender debt ............................. (70) (131)
-------- --------
Total adjustments ..................................... 339 487
Revenues As Restated ...................................... $ 49,419 $ 65,393
======== ========
Costs and Expenses As Previously Reported ..................... $ 41,195 $ 61,857
Increased provision for uncollectible notes ............... -- 400
Revision to downgrade policy .............................. -- 82
Delayed cancellation of rescinded sales ................... (85) (49)
10
THREE MONTHS ENDED
MARCH 31,
---------
1999 2000
---- ----
Deferral of sales within the rescission period ............ 239 249
Revision to sampler revenue recognition policy ............ 599 20
Reconciliation of lender debt ............................. 82 155
Litigation costs .......................................... -- 136
Other miscellaneous items ................................. 279 59
-------- --------
Total adjustments ..................................... 1,114 1,052
Costs and Expenses As Restated ............................ $ 42,309 $ 62,909
======== ========
Income before provision for income taxes as previously reported $ 7,885 $ 3,049
Total adjustments ......................................... (775) (565)
-------- --------
Income before provision for income taxes as restated ...... $ 7,110 $ 2,484
======== ========
Provision for income taxes as previously reported ............. $ 3,036 $ 1,174
Total adjustments ......................................... (298) (254)
-------- --------
Provision for income taxes as restated .................... $ 2,738 $ 920
======== ========
Net income as previously reported ............................. $ 4,849 $ 1,875
Total adjustments ......................................... (477) (311)
-------- --------
Net income as restated .................................... $ 4,372 $ 1,564
======== ========
A summary of the significant effects of the restatement on the Company's
consolidated condensed financial statements for the three months ended March 31,
2000 and 1999 and as of March 31, 2000 and December 31, 1999 is as follows (in
thousands):
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 2000
---- ----
AS AS
PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
-------- -------- -------- --------
Vacation Interval sales ........................... $ 41,328 $ 41,675 $ 53,886 $ 54,498
Sampler sales ..................................... 700 508 1,297 1,268
Total revenues .................................... 49,080 49,419 64,906 65,393
Total costs and expenses .......................... 41,195 42,309 61,857 62,909
Income before provision for income taxes .......... 7,885 7,110 3,049 2,484
Net income ........................................ 4,849 4,372 1,875 1,564
Earnings per share - basic and diluted ............ 0.38 0.34 0.15 0.12
Net cash provided by (used in) operating activities 1,251 (23,440) 386 (29,821)
Net cash used in investing activities ............. (27,120) (2,997) (30,202) (471)
DECEMBER 31, 1999 MARCH 31, 2000
----------------- --------------
AS AS
PREVIOUSLY PREVIOUSLY
REPORTED AS RESTATED REPORTED AS RESTATED
-------- ----------- -------- -----------
Notes receivable, net ............... $286,581 $282,290 $316,312 $311,795
Accrued interest receivable ......... (a) 2,255 (a) 2,324
Land held for sale .................. (a) 1,078 (a) 1,136
Prepaid and other assets ............ 17,203 16,947 17,321 17,341
Accounts payable and accrued expenses 15,539 13,398 16,116 12,021
Accrued interest payable ............ (a) 2,621 (a) 4,835
Unearned revenues ................... 5,601 7,998 5,902 8,035
Deferred income taxes, net .......... 28,251 26,256 28,902 27,171
Notes payable and capital lease
obligations ......................... 194,171 194,468 233,162 233,935
Retained earnings ................... 56,737 53,543 58,612 55,107
Total shareholders' equity .......... 161,210 158,016 163,085 159,580
(a) - not previously presented separately
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's consolidated condensed financial statements for the three months
ended March 31, 2000 and 1999, have been restated as discussed in Note 5 to the
accompanying consolidated condensed financial statements. The
11
information included in the following discussion gives effect to that
restatement.
Certain matters discussed throughout this Form 10-Q/A filing are forward looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those projected.
The Company currently owns and/or operates 22 resorts in various stages of
development. These resorts offer a wide array of country club-like amenities,
such as golf, swimming, horseback riding, boating, and many organized activities
for children and adults. The Company represents an owner base of over 106,000.
The consolidated condensed financial statements of the Company include the
accounts of Silverleaf Resorts, Inc. and its subsidiaries, all of which are
wholly owned.
RESULTS OF OPERATIONS
The following table sets forth certain operating information for the Company.
Three Months Ended
March 31,
---------
2000 1999
---- ----
As a percentage of total revenues:
Vacation Interval sales .............. 83.4% 84.4%
Sampler sales ........................ 1.9% 1.0%
------ ------
Total sales ....................... 85.3% 85.4%
Interest income ...................... 13.3% 11.3%
Management fee income ................ 0.1% 1.8%
Other income ......................... 1.3% 1.5%
------ ------
Total revenues .................. 100.0% 100.0%
As a percentage of Vacation Interval sales:
Cost of Vacation Interval sales ...... 17.5% 14.1%
Provision for uncollectible notes .... 10.7% 10.2%
As a percentage of total sales:
Sales and marketing .................. 55.0% 50.4%
As a percentage of total revenues:
Operating, general and administrative 13.1% 12.9%
Depreciation and amortization ........ 2.8% 2.5%
As a percentage of interest income:
Interest expense and lender fees ..... 74.7% 58.6%
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Revenues
Revenues for the quarter ended March 31, 2000 were $65.4 million, representing a
$16.0 million or 32.3% increase over revenues of $49.4 million for the quarter
ended March 31, 1999. The increase was primarily due to a $12.8 million increase
in sales of Vacation Intervals and a $3.1 million increase in interest income.
The strong increase in Vacation Interval sales primarily resulted from an
increase in the number of upgrade sales for the first quarter of 2000 versus the
same period of 1999, improved closing percentages at several sales offices, and
increased sales prices.
12
In the first quarter of 2000, the number of Vacation Intervals sold, exclusive
of upgraded Vacation Intervals, was 3,877 compared to 3,923 in the same period
of 1999; the average price per interval, however, increased 20.7% to $9,831 from
$8,143. Total interval sales for the first quarter of 2000 included 1,666
biennial intervals (counted as 833 Vacation Intervals) compared to 1,417 (709
Vacation Intervals) in the first quarter of 1999. The Company also increased
sales of upgraded intervals through the continued implementation of marketing
and sales programs focused on selling upgraded intervals to the Company's
existing Vacation Interval owners. In the first quarter of 2000, the 3,495
upgraded Vacation Intervals were sold at an average price of $4,688 compared to
2,248 upgraded Vacation Intervals sold at an average price of $4,329 during the
comparable 1999 period.
Sampler sales increased $760,000 to $1.3 million for the quarter ended March 31,
2000, compared to $508,000 for the same period in 1999. Despite an increase in
sales contracts, the increase resulted from the timing of revenue recognition,
which corresponds to when members utilize their stays.
Interest income increased 54.9% to $8.7 million for the quarter ended March 31,
2000, from $5.6 million for the same period of 1999. This increase primarily
resulted from an increase in notes receivable, net of allowance for
uncollectible notes, since March 31, 1999, due to increased sales.
Management fee income, which consists of management fees collected from the
resorts' management clubs, cannot exceed the management clubs' net income.
Management fee income decreased $819,000 for the first quarter of 2000, as
compared to the first quarter of 1999, due to increased operating expenses at
the management clubs.
Other income consists of water and utilities income, condominium rental income,
marina income, golf course and pro shop income, and other miscellaneous items.
Other income increased $133,000 to $861,000 for the first quarter of 2000
compared to $728,000 for the same period of 1999. The increase primarily relates
to growth in water and utilities income and increased golf course and pro shop
income at two resorts.
Cost of Sales
Cost of sales as a percentage of Vacation Interval sales increased to 17.5% in
the first quarter of 2000, from 14.1% for the same period of 1999. As the
Company continues to deplete its inventory of low-cost Vacation Intervals
acquired primarily in 1995 and 1996, the Company's sales mix has shifted to more
recently constructed units, which were built at a higher average cost per
Vacation Interval. Hence, the cost of sales as a percentage of Vacation Interval
sales has increased compared to 1999. This increase, however, was partially
offset by increased sales prices since the first quarter of 1999.
Sales and Marketing
Sales and marketing costs as a percentage of total sales increased to 55.0% for
the quarter ended March 31, 2000, from 50.4% for the same period of 1999. Due to
recent growth rates and implementation of new leads generation programs, the
Company experienced relatively higher marketing costs in the first quarter of
2000. The Company increased its headcount at the call centers significantly
during the first quarter of 2000, which created inefficiencies due to temporary
lack of available training resources. In addition, the Company has moved towards
reliance on national retail chains for its leads generation efforts, in addition
to the traditional local programs. The transition to national programs has been
slower in generating leads than originally planned. A major focus of Company
management in 2000 is to improve the efficiencies of the marketing process,
which will bring sales and marketing expenses more in line with expectations.
Provision for Uncollectible Notes
The provision for uncollectible notes as a percentage of Vacation Interval sales
remained virtually unchanged at 10.7% for the first quarter of 2000, compared to
10.2% for the first quarter of 1999.
Operating, General and Administrative
Operating, general and administrative expenses as a percentage of total revenues
increased to 13.1% for the quarter
13
ended March 31, 2000, as compared to 12.9% for the quarter ended March 31, 1999.
The increase is primarily attributable to increased legal expenses, increases in
payroll taxes, employee benefits, and workers' compensation related to Company
growth, an increase in title and recording fees due to increased borrowings
against pledged notes receivable, and an increase in water and utilities
expenses due to Company growth.
Depreciation and Amortization
Depreciation and amortization expense as a percentage of total revenues was
relatively flat at 2.8% for the quarter ended March 31, 2000, compared to 2.5%
for the quarter ended March 31, 1999. Overall, depreciation and amortization
expense increased $576,000 for the first quarter of 2000, as compared to 1999,
primarily due to investments in automated dialers, investments in telephone
systems, and investments in a central marketing facility, which opened in
September 1999.
Interest Expense
Interest expense as a percentage of interest income increased to 74.7% for the
first quarter of 2000, from 58.6% for the same period of 1999. This increase is
primarily the result of interest expense related to increased borrowings against
pledged notes receivable. Also, the Company's weighted average cost of borrowing
increased slightly in the first quarter of 2000 compared to the first quarter of
1999.
Income before Provision for Income Taxes
Income before provision for income taxes decreased to $2.5 million for the
quarter ended March 31, 2000, as compared to $7.1 million for the quarter ended
March 31, 1999, as a result of the aforementioned operating results.
Provision for Income Taxes
Provision for income taxes as a percentage of income before provision for income
taxes was 37.0% in the first quarter of 2000, as compared to 38.5% in the first
quarter of 1999. The decrease in the effective tax rate is primarily the result
of permanent differences in 2000 lowering the benefit recognized.
Net Income
Net income decreased to $1.6 million for the quarter ended March 31, 2000, as
compared to $4.4 million for the quarter ended March 31, 1999, as a result of
the aforementioned operating results.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF CASH. The Company generates cash primarily from down payments on the
sale of Vacation Intervals, sampler sales, collections of principal and interest
on customer notes receivable from Vacation Interval owners, management fees, and
resort and utility operations. The Company typically receives a 10% down payment
on sales of Vacation Intervals and finances the remainder by receipt of a seven
to ten year customer promissory note. The Company generates cash from financing
of customer notes receivable (i) by borrowing at an advance rate of 70% to 85%
of eligible customer notes receivable and (ii) from the spread between interest
received on customer notes receivable and interest paid on related borrowings.
Because the Company uses significant amounts of cash in the development and
marketing of Vacation Intervals, but collects cash on customer notes receivable
over a seven-year to ten-year period, borrowing against receivables has
historically been a necessary part of normal operations.
For the three months ended March 31, 2000 and 1999, cash provided by financing
activities was $37.7 million and $28.3 million, respectively. The increase in
net cash provided by financing activities was primarily due to increased
borrowings against pledged notes receivable during the three months ended March
31, 2000, compared to the same period of 1999. As of March 31, 2000, the
Company's credit facilities provide for loans of up to $320.0 million. At March
31, 2000, approximately $218.2 million of principal and interest related to
advances under the credit facilities was outstanding. For the three months ended
March 31, 2000, the weighted average cost of funds for all borrowings, including
the senior subordinated debt, was approximately 9.4%.
14
USES OF CASH. During the three months ended March 31, 2000, cash used in
operating activities was $29.8 million, compared to cash used in operating
activities of $23.4 million for the same period of 1999. The increase in cash
used in operating activities was primarily a result of an increase in customer
notes receivable.
Investing activities typically reflect a net use of cash as a result of capital
additions and property acquisitions. Net cash used in investing activities for
the three months ended March 31, 2000 and 1999, was $471,000 and $3.0 million,
respectively. The decrease was primarily due to a reduction in capital
expenditures offset by $4.5 million of cash received in the first quarter of
1999 related to sales of equipment.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently subject to litigation arising in the normal course of
its business. From time to time, such litigation includes claims regarding
employment, tort, contract, truth-in-lending, the marketing and sale of Vacation
Intervals, and other consumer protection matters. Litigation has been initiated
from time to time by persons seeking individual recoveries for themselves, as
well as, in some instances, persons seeking recoveries on behalf of an alleged
class. In the judgment of the Company, none of these lawsuits or claims against
the Company, either individually or in the aggregate, is likely to have a
material adverse effect on the Company, its business, results of operations, or
financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Unless otherwise indicated, the following items were included with the original
Form 10-Q for the quarterly period ended March 31, 2000 filed on May 10, 2000.
(a) Exhibits
10.1 Contract of sale dated September 23, 1999 among the Company and George
Woelfel, individually and as Co-Trustee, and PNC Bank, N.A., as
Co-Trustee of the Woefel PNC Trust.
*99.1 Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
*99.2 Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
- ----------
*Filed herewith
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 19, 2002 By: /s/ ROBERT E. MEAD
-------------------
Robert E. Mead
Chairman of the Board and
Chief Executive Officer
Dated: November 19, 2002 By: /s/ HARRY J. WHITE, JR.
------------------------
Harry J. White, Jr.
Chief Financial Officer
15
CERTIFICATION
I, Robert E. Mead, Chairman and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Silverleaf
Resorts, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: November 19, 2002 /s/ ROBERT E. MEAD
------------------------------------
Robert E. Mead
Chairman and Chief Executive Officer
CERTIFICATION
I, Harry J. White, Jr., Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Silverleaf
Resorts, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: November 19, 2002 /s/ HARRY J. WHITE, JR.
-----------------------------------
Harry J. White, Jr.
Chief Financial Officer
16
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
99.1 Certification of CEO Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification of CFO Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002