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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 September 30, 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 November 13, 2000: 12,889,417
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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 Operations for the three months
and nine months ended September 30, 2000 (restated) and 1999 (restated)...... 3
Consolidated Condensed Balance Sheets as of September 30, 2000 (restated)
and December 31, 1999 (restated)............................................. 4
Consolidated Condensed Statement of Shareholders' Equity for the nine
months ended September 30, 2000 (restated)................................... 5
Consolidated Condensed Statements of Cash Flows for the nine months
ended September 30, 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........................................................ 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 19
Item 6. Exhibits and Reports on Form 8-K............................................. 19
Signatures................................................................... 20
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 June 30, 2000
and March 31, 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 SEPTEMBER 30, 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 SEPTEMBER 30,
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 OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(As Restated) (As Restated) (As Restated) (As Restated)
REVENUES:
Vacation Interval sales $ 67,585 $ 51,517 $ 181,421 $ 138,895
Sampler sales 994 421 2,537 1,289
------------ ------------ ------------ ------------
Total sales 68,579 51,938 183,958 140,184
Interest income 10,469 7,656 28,635 20,088
Management fee income 150 678 697 2,218
Other income 1,836 1,590 4,020 3,889
------------ ------------ ------------ ------------
Total revenues 81,034 61,862 217,310 166,379
COSTS AND OPERATING EXPENSES:
Cost of Vacation Interval sales 11,282 7,983 31,385 21,378
Sales and marketing 32,577 26,781 94,960 72,150
Provision for uncollectible notes 39,597 5,036 60,128 13,802
Operating, general and administrative 8,766 7,214 25,894 19,794
Depreciation and amortization 1,925 1,472 5,624 4,076
Interest expense and lender fees 8,939 4,537 23,037 11,617
------------ ------------ ------------ ------------
Total costs and operating expenses 103,086 53,023 241,028 142,817
Income (loss) before benefit (provision) for
income taxes and extraordinary item (22,052) 8,839 (23,718) 23,562
Benefit (provision) for income taxes 8,164 (3,403) 8,788 (9,072)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (13,888) 5,436 (14,930) 14,490
Extraordinary gain on extinguishment of
debt (net of income tax of $197) -- -- 316 --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (13,888) $ 5,436 $ (14,614) $ 14,490
============ ============ ============ ============
BASIC AND DILUTED EARNINGS PER SHARE:
Income (loss) before extraordinary item $ (1.08) $ 0.42 $ (1.16) $ 1.12
Extraordinary item -- -- 0.02 --
------------ ------------ ------------ ------------
Net income (loss) $ (1.08) $ 0.42 $ (1.14) $ 1.12
============ ============ ============ ============
WEIGHTED AVERAGE BASIC AND DILUTED
SHARES OUTSTANDING: 12,889,417 12,889,417 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)
September 30, December 31,
ASSETS 2000 1999
------------- ------------
(As Restated) (As Restated)
Cash and cash equivalents $ 7,596 $ 4,814
Restricted cash 1,178 903
Notes receivable, net of allowance for uncollectible notes of
$70,332 and $32,023, respectively 347,602 282,290
Accrued interest receivable 2,976 2,255
Amounts due from affiliates 11,168 6,596
Inventories 121,972 112,613
Land, equipment, buildings, and utilities, net 50,929 50,446
Income tax receivable 3,404 --
Land held for sale 939 1,078
Prepaid and other assets 18,535 16,947
--------- ---------
TOTAL ASSETS $ 566,299 $ 477,942
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 15,007 $ 13,398
Accrued interest payable 5,276 2,621
Amounts due to affiliates 270 --
Unearned revenues 11,667 7,998
Income taxes payable -- 185
Deferred income taxes, net 17,623 26,256
Notes payable and capital lease obligations 299,054 194,468
Senior subordinated notes 74,000 75,000
--------- ---------
Total Liabilities 422,897 319,926
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 38,929 53,543
Treasury stock, at cost (422,100 shares) (4,999) (4,999)
--------- ---------
Total Shareholders' Equity 143,402 158,016
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 566,299 $ 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 loss (As Restated) -- -- -- (14,614) -- -- (14,614)
---------- ---- -------- -------- -------- ------- ---------
September 30, 2000 (As Restated) 13,311,517 $133 $109,339 $ 38,929 (422,100) $(4,999) $ 143,402
========== ==== ======== ======== ======== ======= =========
See notes to consolidated condensed financial statements.
5
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
----------------------------
2000 1999
------------- -------------
(As Restated) (As Restated)
OPERATING ACTIVITIES:
Net income (loss) $ (14,614) $ 14,490
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Provision for uncollectible notes 60,128 13,802
Depreciation and amortization 5,624 4,076
Gain on sale of investment (317) --
Deferred income taxes (8,633) 4,149
Extraordinary gain on extinguishment of debt (514) --
Increase (decrease) in cash from changes in
assets and liabilities:
Restricted cash (275) (30)
Notes receivable (125,440) (97,533)
Accrued interest receivable (721) (588)
Amounts due from affiliates (4,302) (4,465)
Inventories (9,359) (25,346)
Land held for sale 456 (541)
Prepaid and other assets (1,855) 497
Income tax receivable (3,404) --
Accounts payable and accrued expenses 1,609 5,193
Accrued interest payable 2,655 2,250
Unearned revenues 3,669 4,764
Income taxes payable (185) (2,502)
--------- ---------
Net cash used in operating activities (95,478) (81,784)
--------- ---------
INVESTING ACTIVITIES:
Purchases of land, equipment, buildings, and utilities (1,688) (15,576)
Proceeds from sales of land, equipment, buildings, and utilities -- 6,466
--------- ---------
Net cash used in investing activities (1,688) (9,110)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowings from unaffiliated entities 142,951 145,832
Payments on borrowings to unaffiliated entities (43,003) (58,267)
--------- ---------
Net cash provided by financing activities 99,948 87,565
--------- ---------
Net change in cash and cash equivalents 2,782 (3,329)
CASH AND CASH EQUIVALENTS:
Beginning of period 4,814 11,355
--------- ---------
End of period $ 7,596 $ 8,026
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 20,432 $ 10,038
Income taxes $ 3,630 $ 7,426
Non-cash transactions:
Equipment acquired under capital lease or note $ 4,188 $ 9,114
Extraordinary gain on extinguishment of debt $ 514 $ --
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 and nine months
ended September 30, 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 three and nine month periods ended
September 30, 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 and
nine month periods ended September 30, 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 and
nine months periods ended September 30, 1999. Outstanding stock options totaling
approximately $1,594,000 options were potentially dilutive securities that were
not included in the computation of diluted EPS because to do so would have been
anti-dilutive for the three and nine month periods ended September 30, 2000.
NOTE 3 - DEBT
Notes payable, capital lease obligations, and senior subordinated notes as of
September 30, 2000 and December 31, 1999 are as follows (in thousands):
7
September 30, 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% ..................................... $ 34,423 $ 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% ............................................................. 59,843 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% ........................ 74,182 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% ........................ 67,520 14,150
$40 million revolving loan agreement, which contains certain financial
covenants, due August 2005, principal and interest payable from the proceeds
obtained on customer notes receivable pledged as collateral
for the note, at an interest rate of Prime ................................... 27,759 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% ..................................................... 8,925 --
Various notes, due from October 2000 through November 2009, collateralized
by various assets with interest rates ranging from 4.20% to 14.0% ............ 3,795 4,088
------------- ------------
Total notes payable .................................................... 286,383 182,668
Capital lease obligations ...................................................... 12,671 11,800
------------- ------------
Total notes payable and capital lease obligations ...................... 299,054 194,468
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 .......................... 74,000 75,000
------------- ------------
$373,054 $269,468
============= ============
At September 30, 2000, LIBOR rates were from 6.62% to 6.80%, and the Prime rate
was 9.50%. At December 31, 1999, LIBOR rates were from 5.82% to 6.00%, and the
Prime rate was 8.50%.
In June 2000, the Company recognized an extraordinary gain of $316,000, net of
income tax of $197,000, related to the early extinguishment of $1.0 million of
10 1/2% senior subordinated notes.
Effective August 18, 2000, the Company reached a definitive agreement with a
lender to increase its $30 million revolving loan agreement, due September 2006,
to a $40 million five-year revolving loan agreement, due August 2005.
Certain of the above debt agreements include restrictions on the Company's
ability to pay dividends based on minimum levels of net income and cash flow.
The debt agreements contain covenants including requirements that
8
the Company (i) preserve and maintain the collateral securing the loans; (ii)
pay all taxes and other obligations relating to the collateral; and (iii)
refrain from selling or transferring the collateral or permitting any
encumbrances on the collateral. The debt agreements also contain restrictive
covenants which include (i) restrictions on liens against and dispositions of
collateral, (ii) restrictions on distributions to affiliates and prepayments of
loans from affiliates, (iii) restrictions on changes in control and management
of the Company, (iv) restrictions on sales of substantially all of the assets of
the Company, and (v) restrictions on mergers, consolidations, or other
reorganizations of the Company. Under certain credit facilities, a sale of all
or substantially all of the assets of the Company, a merger, consolidation, or
reorganization of the Company, or other changes of control of the ownership of
the Company, would constitute an event of default and permit the lenders to
accelerate the maturity thereof.
Such credit facilities also contain operating covenants requiring the Company to
(i) maintain an aggregate minimum tangible net worth ranging from $17.5 million
to $110 million, minimum liquidity, including a debt to equity ratio of not
greater than 2.5 to 1 and a liquidity ratio of not less than 5%, an interest
coverage ratio of at least 2.0 to 1, a marketing expense ratio of no more than
0.55 to 1, a consolidated cash flow to consolidated interest expense ratio of at
least 2.0 to 1, and total tangible capital funds greater than $200 million plus
75% of net income beginning October 1999; (ii) maintain its legal existence and
be in good standing in any jurisdiction where it conducts business; (iii) remain
in the active management of the Resorts; and (iv) refrain from modifying or
terminating certain timeshare documents. The credit facilities also include
customary events of default, including, without limitation (i) failure to pay
principal, interest, or fees when due, (ii) untruth of any representation of
warranty, (iii) failure to perform or timely observe covenants, (iv) defaults
under other indebtedness, and (v) bankruptcy.
As of September 30, 2000, the Company is in default with respect to its
operating covenants related to one of its revolving loan agreements, with
respect to its operating covenants related to its senior subordinated notes, and
with respect to under-collateralization related to a non-revolving secured
lender.
NOTE 4 - SUBSIDIARY GUARANTEES
As of September 30, 2000, all subsidiaries of the Company have guaranteed the
$74.0 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 nine
months ended September 30, 2000 and 1999, are as follows (in thousands):
September 30,
-----------------
2000 1999
---- ----
Revenues $-- $ 46
Expenses -- (65)
---- ----
Net loss $-- $(19)
==== ====
9
Combined summarized balance sheet information as of September 30, 2000 for the
Guarantor Subsidiaries is as September 30, follows (in thousands):
2000
----
Other assets $10
----
Total assets $10
====
Investment by parent (includes equity
and amounts due to parents $10
----
Total liabilities and equity $10
====
NOTE 5 - RESTATEMENT
Subsequent to the issuance of its interim financial statements for the three and
nine-month periods ended September 30, 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.
Provision for Uncollectible Notes - During 2000, the Company substantially
reduced two programs that were previously used to remedy defaulted notes
receivable. Additionally, there was a deterioration of the U.S. economy that
came to public awareness in late 2000. In connection with the Company's analysis
of the adequacy of its allowance for uncollectible notes for the year ended
December 31, 2000, it was determined that a significant increase to the
provision for uncollectible notes was warranted. Based on these results, the
Company reexamined the adequacy of its reserve in prior periods. It was
determined that the performance of the notes receivable portfolio began to
deteriorate in the second quarter of 2000. Accordingly, the Company increased
its allowance for uncollectible notes and the related provision for
uncollectible notes as shown below.
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 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.
Incorrect Application of Membership Dues Payments - It was discovered that
membership dues payments had been inappropriately applied as principal payments
on customer notes receivable. This misapplication resulted in the Company
recognizing Vacation Interval sales on accounts without a 10% down payment. To
appropriately defer Vacation Interval sales without a 10% down payment, the
Company deferred Vacation Interval sales previously recognized in the quarter
ended September 30, 2000, as shown below.
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
10
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.
Revision to Prepaid Customer Lists Policy - It was determined that the Company's
accounting treatment for costs of acquiring marketing customer lists to be used
in the leads accumulation process was inappropriate. Previously, the Company had
capitalized and amortized these costs over their estimated useful lives.
Subsequently, it was determined that these costs should be charged to expense as
incurred. As a result, the Company charged such costs to sales and marketing
expense as shown below.
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 operations is as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
-----------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1999 2000 1999 2000
-------- --------- --------- --------
Revenues As Previously Reported ................................... $ 61,534 $ 75,519 $ 166,987 $ 211,745
Revision to downgrade policy .................................. -- 3,451 -- 4,231
Delayed cancellation of rescinded sales ....................... (118) 1,927 (1,225) 910
Deferral of sales within the rescission period ................ 472 -- 521 585
Incorrect application of membership dues payments ............. -- (104) -- (104)
Revision to interest income related to loan amortization ...... -- 718 -- 936
Revision to sampler revenue recognition policy ................ (116) (416) 25 (726)
Reconciliation of lender debt ................................. 90 (61) 71 (267)
-------- -------- ------- --------
Total adjustments ......................................... 328 5,515 (608) 5,565
Revenues As Restated .......................................... $ 61,862 $ 81,034 $ 166,379 $ 217,310
======== ======== ======== ========
Costs and Expenses As Previously Reported $ 52,710 $ 68,449 $ 141,373 $ 195,701
Increased provision for uncollectible notes ................... -- 29,751 -- 38,530
Revision to downgrade policy .................................. -- 3,451 -- 4,231
Delayed cancellation of rescinded sales ....................... (34) 556 (333) 263
Deferral of sales within the rescission period ................ 158 -- 280 249
Incorrect application of membership dues payments ............. -- (44) -- (44)
Revision to sampler revenue recognition policy ................ 200 (12) 872 26
11
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- ---------------
1999 2000 1999 2000
----- ---- ----- -----
Reconciliation of lender debt ................................. (81) 33 (5) 194
Litigation costs .............................................. -- 402 -- 1,041
Revision to prepaid customer lists policy ..................... -- 203 -- 388
Other miscellaneous items ..................................... 70 297 630 449
------ -------- ------ --------
Total adjustments ......................................... 313 34,637 1,444 45,327
Costs and Expenses As Restated ................................ $ 53,023 $ 103,086 $ 142,817 $ 241,028
====== ======== ======= ========
Income before provision for income taxes as previously reported ... $ 8,824 $ 7,070 $ 25,614 $ 16,044
Total adjustments ............................................. 15 (29,122) (2,052) (39,762)
------ -------- ------- --------
Income (loss) before provision for income taxes as restated ... $ 8,839 $ (22,052) $ 23,562 $ (23,718)
====== ========= ======= ========
Provision for income taxes as previously reported ................. $ 3,397 $ 2,722 $ 9,861 $ 6,178
Total adjustments ............................................. 6 (10,886) (789) (14,966)
------ --------- ------- --------
Provision (benefit) for income taxes as restated .............. $ 3,403 $ (8,164) $ 9,072 $ (8,788)
====== ========= ======= ========
Net income as previously reported ................................. $ 5,427 $ 4,348 $ 15,753 $ 10,182
Total adjustments ............................................. 9 (18,236) (1,263) (24,796)
------ --------- ------- --------
Net income (loss) as restated ................................. $ 5,436 $ (13,888) $ 14,490 $ (14,614)
====== ========= ======= ========
A summary of the significant effects of the restatement on the Company's
consolidated condensed financial statements for the three and nine month periods
ended September 30, 2000 and 1999, and as of September 30, 2000 and December 31,
1999 is as follows (in thousands):
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------
1999 2000
---------------------- -----------------------
AS AS
PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
---------- ------- ---------- ---------
Vacation Interval sales ..................................... $50,706 $51,517 $61,831 $ 67,585
Sampler sales ............................................... 1,247 421 1,891 994
Total revenues .............................................. 61,534 61,862 75,519 81,034
Total costs and expenses .................................... 52,710 53,023 68,449 103,086
Income (loss) before provision (benefit) for income taxes and
Extraordinary item ..................................... 8,824 8,839 7,070 (22,052)
Net income (loss) ........................................... 5,427 5,436 4,348 (13,888)
Earnings (loss) per share - basic and diluted ............... 0.42 0.42 0.34 (1.08)
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------
1999 2000
----------------------- -----------------------
AS AS
PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
--------- --------- --------- ---------
Vacation Interval sales ............................................... $ 138,481 $ 138,895 $ 174,876 $ 181,421
Sampler sales ......................................................... 3,274 1,289 4,172 2,537
Total revenues ........................................................ 166,987 166,379 211,745 217,310
Total costs and expenses .............................................. 141,373 142,817 195,701 241,028
Income (loss) before provision (benefit) for income taxes and
extraordinary item ............................................. 25,614 23,562 16,044 (23,718)
Net income (loss) ..................................................... 15,753 14,490 10,182 (14,614)
Earnings (loss) per share before extraordinary item - basic and diluted 1.22 1.12 0.77 (1.16)
Earnings (loss) per share - basic and diluted ......................... 1.22 1.12 0.79 (1.14)
Net cash provided by (used in) operating activities ................... 2,916 (81,784) 6,857 (95,478)
Net cash used in investing activities ................................. (93,650) (9,110) (103,779) (1,688)
12
DECEMBER 31, 1999 SEPTEMBER 30, 2000
------------------------ ----------------------
AS AS
PREVIOUSLY PREVIOUSLY
REPORTED AS RESTATED REPORTED AS RESTATED
---------- ----------- ---------- ---------
Notes receivable, net ..................... $286,581 $282,290 $389,113 $347,602
Accrued interest receivable ............... (a) 2,255 (a) 2,976
Land held for sale ........................ (a) 1,078 (a) 939
Prepaid and other assets .................. 17,203 16,947 19,211 18,535
Accounts payable and accrued expenses ..... 15,539 13,398 18,993 15,007
Accrued interest payable .................. (a) 2,621 (a) 5,276
Unearned revenues ......................... 5,601 7,998 8,704 11,667
Deferred income taxes, net ................ 28,251 26,256 31,180 17,623
Notes payable and capital lease obligations 194,171 194,468 298,956 299,054
Retained earnings ......................... 56,737 53,543 66,919 38,929
Total shareholders' equity ................ 161,210 158,016 171,392 143,402
(a) -not previously presented separately
NOTE 6 - SUBSEQUENT EVENTS
Effective October 16, 2000, the Company reached a definitive agreement with a
lender to increase its $40 million revolving loan agreement, due August 2005, to
a $45 million revolving loan agreement.
Effective October 30, 2000, the Company entered into a $100 million revolving
credit agreement to finance Vacation Interval notes receivable through an
off-balance-sheet special purpose entity, formed on October 16, 2000. The
agreement has a term of 5 years. On November 1, 2000, the first funding of $41.4
million was drawn against this credit facility.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's consolidated condensed financial statements for the three and nine
months ended September 30, 2000 and 1999, have been restated as discussed in
Note 5 to the accompanying consolidated condensed financial statements. The
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 113,000.
The consolidated condensed financial statements of the Company include the
accounts of Silverleaf Resorts, Inc. and its subsidiaries, all of which are
wholly owned.
13
RESULTS OF OPERATIONS
The following table sets forth certain operating information for the Company.
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
----------------- -----------------
2000 1999 2000 1999
----- ----- ----- -----
As a percentage of total revenues:
Vacation Interval sales ............. 83.4% 83.3% 83.5% 83.5%
Sampler sales ....................... 1.2% 0.7% 1.2% 0.8%
----- ----- ----- -----
Total sales ...................... 84.6% 84.0% 84.7% 84.3%
Interest income ..................... 12.9% 12.4% 13.2% 12.1%
Management fee income ............... 0.2% 1.1% 0.3% 1.3%
Other income ........................ 2.3% 2.5% 1.8% 2.3%
----- ----- ----- -----
Total revenues ................. 100.0% 100.0% 100.0% 100.0%
As a percentage of Vacation Interval sales:
Cost of Vacation Interval sales ..... 16.7% 15.5% 17.3% 15.4%
Provision for uncollectible notes ... 58.6% 9.8% 33.1% 9.9%
As a percentage of total sales:
Sales and marketing ................. 47.5% 51.6% 51.6% 51.5%
As a percentage of total revenues:
Operating, general and administrative 10.8% 11.7% 11.9% 11.9%
Depreciation and amortization ....... 2.4% 2.4% 2.6% 2.4%
As a percentage of interest income:
Interest expense and lender fees .... 85.4% 59.3% 80.5% 57.8%
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues
Revenues for the quarter ended September 30, 2000 were $81.0 million,
representing a $19.2 million or 31.0% increase over revenues of $61.9 million
for the quarter ended September 30, 1999. The increase was primarily due to a
$16.1 million increase in sales of Vacation Intervals and a $2.8 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 third
quarter of 2000 versus the same period of 1999, increased sales and improved
closing percentages at several sales offices, and increased sales prices.
In the third quarter of 2000, the number of Vacation Intervals sold, exclusive
of in-house Vacation Intervals, increased 18.0% to 4,764 from 4,038 in the same
period of 1999; and the average price per interval increased 4.3% to $9,750 from
$9,349. Total interval sales for the third quarter of 2000 included 1,723
biennial intervals (counted as 862 Vacation Intervals) compared to 1,514 (757
Vacation Intervals) in the third quarter of 1999. The Company 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 third quarter of 2000, 4,406 upgraded Vacation
Intervals were sold at an average price of $4,797, compared to 3,152 upgraded
Vacation Intervals sold at an average price of $4,367 during the comparable 1999
period.
Sampler sales increased $573,000 to $1.0 million for the quarter ended September
30, 2000, compared to $421,000 for the same period in 1999, which is consistent
with the overall increase in Vacation Interval sales.
14
Interest income increased 36.7% to $10.5 million for the quarter ended September
30, 2000, from $7.7 million for the same period of 1999. This increase primarily
resulted from an increase in notes receivable, net of allowance for
uncollectible notes, since September 30, 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 $528,000 for the third quarter of 2000, as
compared to the third 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 $246,000 to $1.8 million for the third quarter of 2000,
compared to $1.6 million for the same period of 1999. The increase consists of a
$317,000 gain associated with the sale of land, growth in water and utilities
income, and increased golf course and pro shop income at two resorts, offset by
a decrease in the sale of Bonus Time Program to owners at the Company's managed
resorts.
Cost of Sales
Cost of sales as a percentage of Vacation Interval sales increased to 16.7% in
the third quarter of 2000, from 15.5% 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 third quarter of 1999.
Sales and Marketing
Sales and marketing costs as a percentage of total sales decreased to 47.5% for
the quarter ended September 30, 2000, from 51.6% for the same period of 1999.
The Company realized efficiency improvements in its marketing processes during
the third quarter of 2000, specifically in regards to staffing of available
training resources and in the transition towards increased reliance on national
retail chains for lead generation efforts.
Provision for Uncollectible Notes
The provision for uncollectible notes as a percentage of Vacation Interval sales
increased to 58.6% for the third quarter of 2000, compared to 9.8% the third
quarter of 1999. The increased provision for uncollectible notes was due to the
deterioration of the U.S. economy and a substantial reduction by the Company in
two programs that were previously used to bring delinquent notes receivable
current.
Operating, General and Administrative
Operating, general and administrative expenses as a percentage of total revenues
decreased to 10.8% for the third quarter of 2000, compared to 11.7% for the same
period of 1999, due to increased sales without a proportionate increase in
overhead. However, operating, general and administrative expenses increased $1.6
million for the third quarter of 2000, as compared to 1999, primarily due to
increased headcount, higher salaries, increased legal expense, and increased
title and recording fees due to increased borrowings against pledged notes
receivable.
Depreciation and Amortization
Depreciation and amortization expense as a percentage of total revenues remained
flat at 2.4% for the quarters ended September 30, 2000 and 1999. Overall,
depreciation and amortization expense increased $453,000 for the third 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 85.4% for the
third quarter of 2000, from 59.3% for
15
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 to 9.7% in the third
quarter of 2000 compared to 9.1% in the third quarter of 1999.
Income (Loss) before Benefit (Provision) for Income Taxes and Extraordinary Item
Income (loss) before benefit (provision) for income taxes and extraordinary item
decreased $30.9 million to a loss of $22.1 million for the quarter ended
September 30, 2000 from income of $8.8 million for the quarter ended September
30, 1999. The decrease is a result of the aforementioned operating results.
Benefit (Provision) for Income Taxes
Benefit (provision) for income taxes as a percentage of income (loss) before
benefit (provision) for income taxes and extraordinary item was 37.0% for the
third quarter of 2000 compared to 38.5% in the third quarter of 1999. The
decrease in effective income tax rate was primarily the result of permanent
differences in 2000 lowering the benefit recognized.
Net Income (Loss)
Net income decreased $19.3 million to a loss of $13.9 million for the quarter
ended September 30, 2000, as compared to net income of $5.4 million for the
quarter ended September 30, 1999. The decrease is a result of the aforementioned
operating results.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues
Revenues for the nine months ended September 30, 2000 were $217.3 million,
representing a $50.9 million or 30.6% increase over revenues of $166.4 million
for the nine months ended September 30, 1999. The increase was primarily due to
a $42.5 million increase in sales of Vacation Intervals and an $8.5 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
nine months of 2000 versus the same period of 1999, increased sales and improved
closing percentages at several sales offices, and increased sales prices.
In the first nine months of 2000, the number of Vacation Intervals sold,
exclusive of in-house Vacation Intervals, increased 5.7% to 12,588 from 11,904
in the same period of 1999; and the average price per interval increased 12.9%
to $9,799 from $8,682. Total interval sales for the nine months ended September
30, 2000 included 5,157 biennial intervals (counted as 2,579 Vacation Intervals)
compared to 4,386 (2,193 Vacation Intervals) in the nine months ended September
30, 1999. The Company 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. For the
nine months ended September 30, 2000, 12,112 in-house Vacation Intervals were
sold at an average price of $4,794, compared to 8,162 upgraded Vacation
Intervals sold at an average price of $4,355 during the comparable 1999 period.
Sampler sales increased $1.2 million to $2.5 million for the nine months ended
September 30, 2000, compared to $1.3 million for the same period in 1999, which
is consistent with the overall increase in Vacation Interval sales.
Interest income increased 42.5% to $28.6 million for the nine months ended
September 30, 2000, from $20.1 million for the same period of 1999. This
increase primarily resulted from an increase in notes receivable, net of
allowance for uncollectible notes, since September 30, 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 $1.5 million for the nine months ended September
30, 2000, as compared to the same period of 1999, due to increased operating
expenses at the management clubs.
16
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 $131,000 to $4.0 million for the nine months ended
September 30, 2000, compared to $3.9 million for the same period of 1999. The
increase consists of a $317,000 gain associated with the sale of land, growth in
water and utilities income, and increased golf course and pro shop income at two
resorts, offset by a decrease in the sale of Bonus Time Program to owners at the
Company's managed resorts.
Cost of Sales
Cost of sales as a percentage of Vacation Interval sales increased to 17.3% in
the nine months ended September 30, 2000, from 15.4% 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 increased compared to 1999. This increase, however, was partially
offset by increased sales prices since September 30, 1999.
Sales and Marketing
Sales and marketing costs as a percentage of total sales increased to 51.6% for
the nine months ended September 30, 2000, from 51.5% 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
nine months of 2000. The Company increased its headcount at the call centers
significantly since the third quarter of 1999, which created inefficiencies due
to temporary lack of available training resources. The Company also moved
towards reliance on national retail chains for its leads generation efforts, in
addition to the traditional local programs. The transition to national programs
was slower in generating leads than originally planned. In the third quarter of
2000, however, marketing efficiencies were realized as sales and marketing costs
as a percentage of sales declined.
Provision for Uncollectible Notes
The provision for uncollectible notes as a percentage of Vacation Interval sales
increased to 33.1% for the nine-months ended September 30, 2000, compared to
9.9% the same period of 1999. The increased provision for uncollectible notes
was due to the deterioration of the U.S. economy and a substantial reduction by
the Company in two programs that were previously used to bring delinquent notes
receivable current.
Operating, General and Administrative
Operating, general and administrative expenses as a percentage of total revenues
remained flat at 11.9% for the nine months ended September 30, 2000 and 1999.
Overall, operating, general and administrative expense increased $6.1 million
for the first nine months of 2000, as compared to 1999, primarily due to
increased headcount, higher salaries, increased legal expense, and increased
title and recording fees due to increased borrowings against pledged notes
receivable.
Depreciation and Amortization
Depreciation and amortization expense as a percentage of total revenues
increased to 2.6% for the nine months ended September 30, 2000, compared to 2.4%
for the nine months ended September 30, 1999. Overall, depreciation and
amortization expense increased $1.5 million for the nine months ended September
30, 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 80.5% for the
nine months ended September 30, 2000, from 57.8% 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 to 9.6% in the first nine months of 2000
compared to 9.2% in the first nine months of 1999.
17
Income (Loss) before Benefit (Provision) for Income Taxes and Extraordinary Item
Income (loss) before benefit (provision) for income taxes and extraordinary item
decreased $47.3 million to a loss of $23.7 million for the nine months ended
September 30, 2000 from income of $23.6 million for the nine months ended
September 30, 1999. The decrease is a result of the aforementioned operating
results.
Benefit (Provision) for Income Taxes
Benefit (provision) for income taxes as a percentage of income (loss) before
benefit (provision) for income taxes and extraordinary item was 37.1% for the
nine months ended September 30, 2000 compared to 38.5% for the same 1999 period.
The decrease in effective income tax rate was primarily the result of permanent
differences in 2000 lowering the benefit recognized.
Extraordinary Item
The Company recognized an extraordinary gain of $316,000, net of income tax of
$197,000, related to the early extinguishment of $1.0 million of 10 1/2% senior
subordinated notes in the first nine months of 2000. There were no extraordinary
items during the first nine months of 1999.
Net Income (Loss)
Net income decreased $29.1 million to a loss of $14.6 million for the nine
months ended September 30, 2000, as compared to net income of $14.5 million for
the nine months ended September 30, 1999. The decrease is 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 nine months ended September 30, 2000 and 1999, cash provided by
financing activities was $99.9 million and $87.6 million, respectively. The
increase in cash provided by financing activities was primarily due to decreased
payments on borrowings during the nine months ended September 30, 2000, compared
to the same period of 1999. As of September 30, 2000, the Company's credit
facilities provide for loans of up to $335.0 million. At September 30, 2000,
approximately $284.0 million of principal related to advances under the credit
facilities was outstanding. For the nine months ended September 30, 2000, the
weighted average cost of funds for all borrowings, including the senior
subordinated debt, was approximately 9.6%.
USES OF CASH. During the nine months ended September 30, 2000, cash used in
operating activities was $95.5 million, compared to cash used in operating
activities of $81.8 million for the same period of 1999. The increase in cash
used in operating activities was primarily the 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 nine months ended September 30, 2000 and 1999, was $1.7 million and $9.1
million, respectively. The decrease was primarily due to reduced capital
expenditures offset by $6.5 million of cash received in the first half of 1999
related to sales of equipment.
18
SUBSEQUENT EVENTS
Effective October 16, 2000, the Company reached a definitive agreement with a
lender to increase its $40 million revolving loan agreement, due August 2005, to
a $45 million revolving loan agreement.
Effective October 30, 2000, the Company entered into a $100 million revolving
credit agreement to finance Vacation Interval notes receivable through an
off-balance-sheet special purpose entity, formed on October 16, 2000. The
agreement has a term of 5 years. On November 1, 2000, the first funding of $41.4
million was drawn against this credit facility.
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 September 30, 2000 filed on November
13, 2000.
(a) Exhibits
10.1 Amendment No. 1, dated August 18, 2000, to Loan and Security
Agreement, dated September 30, 1999, among the Company,
BankBoston, N.A., and Liberty Bank.
10.2 Amendment No. 2, dated October 16, 2000, to Loan and Security
Agreement, dated September 30, 1999, among the Company,
BankBoston, N.A., and Liberty Bank.
10.3 Receivables Loan and Security Agreement, dated October 30,
2000, by and among the Company, as Servicer, Silverleaf
Finance I, Inc., as Borrower, DG Bank Deutsche
Genossenschaftsbank, as Agent, Autobahn Funding Company LLC,
as Lender, U.S. Bank Trust N.A., as Agent's Bank, and Wells
Fargo Bank, National Association, as the Backup Servicer.
10.4 Purchase and Contribution Agreement, dated October 30, 2000,
between the Company, as Seller, and Silverleaf Finance I,
Inc., as Purchaser.
10.5 Supplemental Executive Retirement Plan Agreement between the
Company and Thomas C. Franks.
10.6 Supplemental Executive Retirement Plan Agreement between the
Company and Sharon K. Brayfield.
*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
19
(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
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
20
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
21
3
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