1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 Riverbend 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 August 11, 1997: 11,311,517
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SILVERLEAF RESORTS, INC.
INDEX
Page
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PART I. FINANCIAL INFORMATION (Unaudited)
Item 1. Condensed consolidated statements of income for the three months ended June 30, 1997
and 1996...................................................................................... 1
Condensed consolidated statements of income for the six months ended June 30, 1997
and 1996...................................................................................... 2
Condensed consolidated balance sheets as of June 30, 1997 and
December 31, 1996............................................................................. 3
Condensed consolidated statement of shareholders' equity for the six months ended
June 30, 1997................................................................................. 4
Condensed consolidated statements of cash flows for the six
months ended June 30, 1997 and 1996........................................................... 5
Notes to the condensed consolidated financial statements...................................... 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 8-12
PART II. OTHER INFORMATION
Item 5. Other Information............................................................................. 13
Item 6. Exhibits and reports on Form 8-K.............................................................. 13
Signatures.................................................................................... 14
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PART I. FINANCIAL INFORMATION (UNAUDITED)
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30,
1997 and 1996
(dollars in thousands, except share and per share data)
(Unaudited)
---------------------------------------------------------------------
June 30, 1997 June 30, 1996
-------------------------------- ---------------------------------
Actual Pro forma (a) Actual Pro forma (a)
------------ ---------------- -------------- -----------------
REVENUES:
Vacation Interval sales $ 19,632 $ 19,632 $ 13,767 $ 13,767
Provision for uncollectible notes (4,069) (4,069) (3,544) (3,544)
----------- ------------ ----------- ------------
Net Vacation Interval sales 15,563 15,563 10,223 10,223
Interest income 2,095 2,095 1,500 1,500
Interest income from affiliates 96 -- 93 --
Management fee income 502 502 556 556
Lease income 389 389 432 432
Other income 837 837 336 336
----------- ------------ ----------- ------------
Total revenues 19,482 19,386 13,140 13,047
COSTS AND OPERATING EXPENSES:
Cost of Vacation Interval sales 1,993 1,993 964 964
Sales and marketing 7,552 7,552 6,045 6,045
Operating, general and administrative 2,543 2,543 2,369 2,557
Depreciation and amortization 454 454 285 285
Interest expense to affiliates 196 -- 216 --
Interest expense to unaffiliated entities 1,498 146 896 22
----------- ------------ ----------- ------------
Total costs and operating expenses 14,236 12,688 10,775 9,873
----------- ------------ ----------- ------------
Income from continuing operations before --
income taxes 5,246 6,698 2,365 3,174
Income tax expense 1,942 2,479 884 1,186
----------- ------------ ----------- ------------
INCOME FROM CONTINUING OPERATIONS 3,304 4,219 1,481 1,988
DISCONTINUED OPERATIONS:
Loss from operations (less applicable income taxes
of $4 for the quarter ended June 30, 1996) -- -- (13) --
----------- ------------ ----------- ------------
NET INCOME $ 3,304 $ 4,219 $ 1,468 $ 1,988
=========== ============ =========== ============
INCOME (LOSS) PER COMMON SHARE FROM:
Continuing Operations $ 0.38 $ 0.37 $ 0.19 $ 0.20
Discontinued Operations -- -- -- --
----------- ------------ ----------- ------------
NET INCOME PER SHARE $ 0.38 $ 0.37 $ 0.19 $ 0.20
=========== ============ =========== ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 8,678,550 11,311,517(b) 7,711,517 10,157,398(b)
=========== ============ =========== ============
- -----------------------
(a) The unaudited condensed consolidated pro forma statements of income give
effect to (i) the sale of 3,600,000 shares of stock at the offering price
of $16 per share, in the aggregate $51.2 million, net of underwriting
discounts, commissions and offering expenses; (ii) payment of all amounts
due to affiliates net of amounts due from affiliates and elimination of the
related interest; (iii) payment of $35.9 million of notes payable to third
parties and elimination of the related interest expense; (iv) estimate of
additional cost to be incurred as a public company of $750 thousand; (v)
adjustment of the provision for income taxes for the effect of the pro
forma adjustments; and (vi) excludes discontinued operations. The unaudited
condensed consolidated pro forma statements of income are not necessarily
indicative of what the actual results of operations of the Company would
have been, nor do they purport to represent the Company's results of
operations for future periods.
(b) As required by Staff Accounting Bulletin No. 55, the weighted average
number of shares outstanding utilized in the pro forma earnings per share
computations assumes (i) the historical shares, as adjusted for the stock
split were outstanding for all periods presented, and (ii) an additional
number of shares were outstanding only in an amount sufficient to retire
the outstanding debt balances during the periods presented.
See accompanying notes to the condensed consolidated financial statements.
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SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended June 30, 1997 and 1996
(dollars in thousands, except share and per share data)
(Unaudited)
----------------------------------------------------------------
June 30, 1997 June 30, 1996
------------------------------ ------------------------------
Actual Pro forma (a) Actual Pro forma (a)
-------------- -------------- ------------- ---------------
REVENUES:
Vacation Interval sales $ 35,402 $ 35,402 $ 26,357 $ 26,357
Provision for uncollectible notes (7,918) (7,918) (6,787) (6,787)
------------ ------------ ----------- ------------
Net Vacation Interval sales 27,484 27,484 19,570 19,570
Interest income 4,028 4,028 2,812 2,812
Interest income from affiliates 204 - 221 -
Management fee income 1,001 1,001 1,108 1,108
Lease income 875 875 888 888
Other income 1,235 1,235 581 581
------------ ------------ ----------- ------------
Total revenues 34,827 34,623 25,180 24,959
COSTS AND OPERATING EXPENSES:
Cost of Vacation Interval sales 3,215 3,215 1,188 1,188
Sales and marketing 13,501 13,501 11,085 11,085
Operating, general and administrative 4,488 4,676 4,712 5,087
Depreciation and amortization 784 784 562 562
Interest expense to affiliates 422 - 444 -
Interest expense to unaffiliated entities 2,958 180 1,724 44
------------ ------------ ----------- ------------
Total costs and operating expenses 25,368 22,356 19,715 17,966
------------ ------------ ----------- ------------
Income from continuing operations before
income taxes 9,459 12,267 5,465 6,993
Income tax expense 3,501 4,540 2,040 2,610
------------ ------------ ----------- ------------
INCOME FROM CONTINUING OPERATIONS 5,958 7,727 3,425 4,383
DISCONTINUED OPERATIONS:
Loss from operations (less applicable income taxes
of $39 for the six months ended June 30, 1996) - - (107) -
------------ ------------ ----------- ------------
NET INCOME $ 5,958 $ 7,727 $ 3,318 $ 4,383
============ ============ =========== ============
INCOME (LOSS) PER COMMON SHARE FROM:
Continuing Operations $ 0.73 $ 0.69 $ 0.44 $ 0.44
Discontinued Operations - - (0.01) -
------------ ------------ ----------- ------------
NET INCOME PER SHARE $ 0.73 $ 0.69 $ 0.43 $ 0.44
============ ============ =========== ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 8,197,705 11,271,680(b) 7,711,517 10,015,910(b)
============ ============ =========== ============
- -----------------------
(a) The unaudited condensed consolidated pro forma statements of income give
effect to (i) the sale of 3,600,000 shares of stock at the offering price
of $16 per share, in the aggregate $51.2 million, net of underwriting
discounts, commissions and offering expenses; (ii) payment of all amounts
due to affiliates net of amounts due from affiliates and elimination of the
related interest; (iii) payment of $35.9 million of notes payable to third
parties and elimination of the related interest expense; (iv) estimate of
additional cost to be incurred as a public company of $750 thousand; (v)
adjustment of the provision for income taxes for the effect of the pro
forma adjustments; and (vi) excludes discontinued operations. The unaudited
condensed consolidated pro forma statements of income are not necessarily
indicative of what the actual results of operations of the Company would
have been, nor do they purport to represent the Company's results of
operations for future periods.
(b) As required by Staff Accounting Bulletin No. 55, the weighted average
number of shares outstanding utilized in the pro forma earnings per share
computations assumes (i) the historical shares, as adjusted for the stock
split were outstanding for all periods presented, and (ii) an additional
number of shares were outstanding only in an amount sufficient to retire
the outstanding debt balances during the periods presented.
See accompanying notes to the condensed consolidated financial statements.
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SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(Unaudited)
June 30, December 31,
1997 1996
-------- --------
ASSETS
Cash and equivalents $ 6,200 $ 973
Notes receivable, net of allowance for uncollectible notes of
$15,487 and $11,894 at June 30, 1997 and December 31,
1996, respectively 71,488 55,794
Amounts due from affiliates 1,905 6,237
Inventory 11,657 10,300
Land, equipment and utilities, net 14,390 12,633
Land held for sale 466 466
Prepaid and other assets 3,485 2,860
Net assets of discontinued operations 1,145 1,589
-------- -------
Total Assets $110,736 $90,852
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 3,505 $ 3,156
Amounts due to affiliates -- 14,765
Unearned revenues 1,598 1,790
Income taxes payable 4,508 3,650
Deferred income taxes, net 7,506 4,843
Notes payable and capital lease obligations 15,856 41,986
-------- -------
Total Liabilities 32,973 70,190
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock, par value $0.01 per share,
100,000,000 shares authorized, 11,311,517 and 7,711,517 shares
issued and outstanding at June 30, 1997 and December 31,
1996, respectively 113 77
Additional paid-in capital 64,577 13,470
Retained earnings 13,073 7,115
-------- -------
Total Shareholders' Equity 77,763 20,662
-------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $110,736 $90,852
======== =======
See accompanying notes to the condensed consolidated financial statements.
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SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(dollars in thousands, except share data)
(Unaudited)
Common Stock
------------------------------------------
Number of $0.01 Additional
Shares Par Paid-in Retained
Issued Value Capital Earnings Total
-------------- ------------ ------------- ------------ ------------
January 1, 1997 7,711,517 $ 77 $ 13,470 $ 7,115 $ 20,662
Issuance of common stock 3,600,000 36 51,107 - 51,143
Net income - - - 5,958 5,958
-------------- ------------ ------------- ------------ ------------
June 30, 1997 11,311,517 $ 113 $ 64,577 $ 13,073 $ 77,763
============== ============ ============= ============ ============
See accompanying notes to the condensed consolidated financial statements.
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SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
-----------------------------
1997 1996
-------------- --------------
OPERATING ACTIVITIES
Net Income $ 5,958 $ 3,318
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 784 562
Discontinued operations 506 970
Deferred tax provision 2,663 1,384
Increase (decrease) in cash and equivalents from changes in assets and liabilities:
Amounts due from affiliates 4,332 (272)
Inventory (1,357) (2,569)
Prepaid and other assets (625) (119)
Accounts payable and accrued expenses 349 312
Amounts due to affiliates 24 301
Unearned revenues (192) 511
Income taxes payable 858 656
-------- --------
Net cash provided by operating activities 13,300 5,054
-------- --------
INVESTING ACTIVITIES:
Purchase of land, equipment and utilities (1,841) (447)
Notes receivable, net (15,694) (11,828)
-------- --------
Net cash used in investing activities (17,535) (12,275)
-------- --------
FINANCING ACTIVITIES:
Proceeds from borrowings from unaffiliated entities 15,187 10,150
Payments on borrowings to unaffiliated entities (42,017) (3,544)
Proceeds from borrowings from affiliates 100
Payments on borrowings to affiliates (14,789) (664)
Proceeds from public offering 51,143 --
Discontinued operations (62) (1,208)
-------- --------
Net cash provided by financing activities 9,462 4,834
-------- --------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 5,227 (2,387)
CASH AND EQUIVALENTS
BEGINNING OF PERIOD 973 3,712
-------- --------
END OF PERIOD $ 6,200 $ 1,325
======== ========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 2,471 $ 1,681
Income taxes paid $ -- $ --
Equipment acquired under capital leases $ 700 $ 320
See accompanying notes to the condensed consolidated financial statements.
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SILVERLEAF RESORTS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BACKGROUND
These condensed consolidated financial statements do not include certain
information and footnotes required by generally accepted accounting principles
for complete financial statements. However, in the opinion of management, all
adjustments considered necessary for a fair presentation have been included and
are of a normal recurring nature. Operating results for three months and six
months ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 1997.
These statements should be read in conjunction with the audited consolidated
financial statements and footnotes included in Amendment No. 3 of the Company's
Registration Statement on Form S-1 (File No. 333-24273) filed with the
Securities and Exchange Commission on June 6, 1997. The accounting policies
used in preparing these consolidated financial statements are the same as those
described in such Registration Statement on Form S-1.
NOTE 2 - EARNINGS PER SHARE
Pro forma earnings per share is calculated based on the weighted average number
of shares of common stock outstanding and, if dilutive, common stock
equivalents, as if the Offering (which was consummated on June 6, 1997) had
occurred at the beginning of each period. The dilutive effect of common stock
equivalents was immaterial for each period presented. Options were not granted
or outstanding during the year ended December 31, 1996. During the three months
and six months ended June 30, 1997, options to purchase approximately 302,000
shares of the Company's common stock was granted to employees and directors of
the Company, none of which was exercised during the period.
In May 1997, the Board of Directors of the Company declared a stock dividend to
existing shareholders, which resulted in an increase in the number of shares of
common stock outstanding. The weighted average shares outstanding for all
periods presented give retroactive effect to the split of common shares.
Statement of Financial Standards ("SFAS") No. 128, "Earnings Per Share"
specifies new computation, presentation and disclosure requirements. The
statement will be effective for both interim and annual periods ending after
December 15, 1997. Management believes that the adoption of this statement will
not have a material impact on the earnings per share presented.
NOTE 3 - CAPITAL TRANSACTIONS AND PUBLIC OFFERING
During the three months ended June 30, 1997, the Company consummated the
offering of 3,600,000 shares of the Company's common stock (the "Offering").
The 3,600,000 shares of the Company's common stock were sold at the Offering at
a price of $16 per share. The net proceeds from the Offering, after the
deduction of the related issuance costs, amounted to approximately $51.2
million.
NOTE 4 - RELATED PARTY TRANSACTIONS
During the three months ended June 30, 1997, the Company paid off affiliate
debt and accrued interest totaling $14.6 million and received payment of $4.7
million of affiliate notes receivable and accrued interest. The payment to
affiliates was made with funds from the Offering. On the condensed consolidated
balance sheet dated June 30, 1997, the remaining due from affiliates relates to
the Master Club and the various homeowners' associations.
NOTE 5 - STOCK PLAN ADOPTED
The Company has established a stock option plan (the "1997 Stock Option Plan").
The 1997 Stock Option Plan provides for the award to directors, officers, and
key employees of nonqualified stock options and provides for the grant to
salaried key employees of incentive stock options. Nonqualified options will
provide for the right to purchase Common Stock at a specified price which may
be less than fair market value on the date of grant (but not less than par
value). Nonqualified stock options may be granted for any term
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and upon such conditions determined by the board of directors of the Company.
The Company has reserved 1,100,000 shares of common stock for issuance pursuant
to the Company's 1997 Stock Option Plan. During the three months ended June 30,
1997, 302,000 options were granted as part of the 1997 Stock Option Plan. The
options are exercisable over a four year period at $16.00 per share.
NOTE 6 - NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable and capital lease obligations related to continuing operations at
June 30, 1997, and December 31, 1996, consist of the following:
June 30, December 31,
1997 1996
---------------- -----------------
$25 million revolving loan agreement, which contains certain financial
covenants, due January 2, 2001, principal and interest payable from the
proceeds obtained from timeshare notes receivable which are pledged as
collateral for the note, at an interest rate as defined in the agreement
(10.53% at June 30, 1997 ...................................................... $3,155 $20,139
$12 million revolving loan agreement which contains certain financial
covenants, due May 8, 2003, principal and interest payable from the proceeds
obtained from timeshare notes receivable which are pledged as collateral for
the note, at an interest rate of Base plus 2.75% (11.25% at June 30, 1997)..... 4,958 6,004
$7.5 million revolving line of credit, which contains certain financial
covenants, due December 31, 1999, secured by certain assets of the Company,
with monthly interest payments at Base plus 2.75% (11.25% at June 30, 1997).... 714 4,000
$40 million revolving loan agreement, which contains certain financial
covenants, due October 9, 1998, principal and interest payable from the
proceeds obtained from timeshare notes receivable pledged as collateral for the
note, at an interest rate of LIBOR plus 4% (9.72% at June 30, 1997)............ 1,706 278
$15 million revolving loan agreement which contains certain financial
covenants, due November 30, 2002, principal and interest payable from the
proceeds obtained from timeshare notes receivable which are pledged as
collateral for the note, at an interest rate of Prime plus 2%.................. 2,794 4,279
$5.4 million note payable, which contains certain financial covenants, due
October 9, 1999, secured by certain assets of the Company, interest only
payments due through April 1, 1998, with payments of principal and interest due
monthly thereafter until maturity, at an interest rate of Prime plus 2%........ -- 5,201
Various notes, due from November, 1997, through October, 2002, collateralized
by various assets with interest rates ranging from 6% to 11 %.................. 874 1,022
---------------- -----------------
Total notes payable 14,201 40,923
Capital lease obligations 1,655 1,063
---------------- -----------------
Total Notes payable and capital lease obligations $15,856 $41,986
================ =================
Prime rate at June 30, 1997 was 8.5%. Substantially all assets of the Company
are pledged as collateral.
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain matters discussed throughout this Form 10-Q filing are forward looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. Such risks and uncertainties
include, but are not limited to, those discussed under "Risk Factors" in the
final prospectus which is a part of the Company's Registration Statement on
Form S-1 (No. 333-24273) which is incorporated herein by reference.
RESULTS OF OPERATIONS
The following table sets forth certain operating information for the Company.
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
1997 1996 1997 1996
-------------- -------------- -------------- -------------
As a percentage of Total Revenues:
Vacation Interval sales 100.8% 104.8% 101.7% 104.7%
Less provision for uncollectible notes -20.9% -27.0% -22.8% -26.9%
Net Vacation Interval sales 79.9% 77.8% 78.9% 77.8%
Interest income 11.2% 12.1% 12.2% 12.0%
Management fee income 2.6% 4.2% 2.9% 4.4%
Lease income 2.0% 3.3% 2.5% 3.5%
Other income 4.3% 2.6% 3.5% 2.3%
Total revenues 100.0% 100.0% 100.0% 100.0%
As a percentage of Vacation Interval sales:
Provision for uncollectible notes -20.7% -25.7% -22.4% -25.8%
Cost of Vacation Interval sales 10.2% 7.0% 9.1% 4.5%
Sales and marketing 38.5% 43.9% 38.1% 42.1%
As a percentage of Interest Income
Interest expense 77.3% 69.8% 79.9% 71.5%
As a percentage of Total Revenues:
Operating, general and administrative 13.1% 18.0% 12.9% 18.7%
Depreciation and amortization 2.3% 2.2% 2.3% 2.2%
Total costs and expenses 73.1% 82.0% 72.8% 78.3%
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COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1997 TO THE THREE MONTHS ENDED
JUNE 30, 1996. Revenues in the second quarter 1997 were $19.5 million,
representing a $6.4 million or 48.3% increase over revenues of $13.1 million in
the second quarter of 1996. The increase was primarily due to a $5.3 million
increase in net sales of Vacation Intervals, a $0.6 million increase in
interest income and a $0.5 million increase in other income. The strong
increase in Vacation Interval revenues resulted from the Company's increased
telemarketing capacity and sales force and enhanced lead generation methods.
In the second quarter of 1997, the number of vacation intervals sold, exclusive
of upgraded Vacation Intervals, increased 18.9% to 2,116 from 1,779 in the same
period of 1996, and the average price per interval increased 21.1% to $9,278
from $7,663. Total interval sales in the second quarter of 1997 included 552
biennial intervals (counted as 276 Vacation Intervals) compared to none in the
same period of 1996. The increase in average price per interval resulted from
the Company's increased sales of higher value rated intervals and biennial
intervals (whose sales price is more than half of an annual interval). In
addition the Company has increased revenues generated from sales of upgraded
intervals at the Existing Resorts through the continued implementation of
marketing and sales programs focused on selling upgraded intervals to
Silverleaf Owners. Upgrade sales accounted for 21.0% of Vacation Interval sales
for the second quarter of 1997 compared to 14.5% of the second quarter 1996.
The provision for uncollectible notes as a percentage of Vacation Interval
sales decreased to 20.7% for the second quarter of 1997 from 25.7% during the
same time period of 1996, reflecting an increased focus on collection efforts
for notes receivable. The improvement can also be attributed to an increase in
receivables relating to upgrade sales which typically represent better
performing accounts resulting in fewer delinquencies.
Interest income increased 37.6% to $2.2 million for the quarter ended June 30,
1997, from $1.6 million for the quarter ended June 30, 1996. This increase is
due to a higher average receivable balance during the three months ended June
30, 1997 compared to June 30, 1996.
Management fee income decreased 9.7% to $502 thousand in the second quarter of
1997 from $556 thousand for the same period in the prior year. The Company
receives a management fee from Master Club, the entity which has contracted to
manage the Company's existing resorts. The decrease in management fee income
was primarily the result of the Master Club's net income being reduced by on
going maintenance and refurbishment expenditures incurred as part of the Master
Club's continuing facility improvement program and increased operating costs.
Lease income, which relates to the Company's starter program, decreased 9.8% to
$389 thousand for the second quarter of 1997 compared to $432 thousand for the
second quarter of 1996. The decrease resulted from the Company's efforts to
market a lower cost biennial usage vacation interval product as an alternative
to its starter program.
Other income increased 149% to $837 thousand for the quarter ended June 30,
1997, from $336 thousand for the quarter ended June 30, 1996. This increase was
due primarily to a higher usage fee and higher water and sewer income from
resort utility operations, as well as receipt of $216 thousand relating to a
claim filed with the FDIC.
Cost of sales as a percentage of gross Vacation Interval sales increased to
10.2% in the second quarter of 1997 from 7.0% in the same period of 1996. The
increase is due to a decline in the volume of sales of Vacation Intervals with
a low cost basis. Cost of sales for the second quarter of 1996 was lower
primarily as a result of the sale of low cost inventory acquired by the Company
in 1995 and 1996 through its program to reacquire Vacation Intervals owned but
not actively used by Silverleaf owners. The Company anticipates that the number
of intervals acquired form Silverleaf owners in 1997 will be lower than the
number in 1996. Additionally, the Company continues to deplete its inventory of
other low cost intervals. As a result of these factors and the Company's
extensive construction program to build new inventory, the cost of sales
average is expected to increase in the future.
Sales and marketing costs as a percentage of gross Vacation Interval sales
declined to 38.5% for the second quarter of 1997 from 43.9% for the second
quarter of 1996. This decline is due mainly to the efficiencies resulting form
the Company's telemarketing and sales force areas and economies of scale
realized from
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higher sales volumes. The reduction can also be attributed to an increase in
upgrade sales which typically require less sales effort and cost.
Operating, general and administrative expenses as a percentage of total
revenues declined to 13.1% during the second quarter of 1997 from 18.0% for the
same quarter of 1996. The decrease was due to efficiencies realized from higher
sales volumes. Overall, operating, general and administrative expenses
increased $174,000 for the three months ended June 30, 1997 compared to the
same period in the prior year. The increase occurred primarily in payroll and
related expenses.
Interest expense as a percentage of interest income increased to 77.3% for the
quarter ended June 30, 1997 from 69.8% for the quarter ended June 30, 1996.
This increase was due to higher borrowing costs during the second quarter,
mostly attributable to an increase in outstanding indebtedness during the
second quarter of 1997 compared to the second quarter of 1996. As a result of
the funds received from the Company's initial public offering completed during
the second quarter of 1997 being used to pay down debt balances, lower interest
expense is expected in the third quarter of 1997.
Depreciation and amortization expense as a percentage of total revenue remained
relatively unchanged at 2.3% for the second quarter of 1997 versus 2.2% for the
second quarter of 1996.
Income from continuing operations before income taxes increased 122% to $5.2
million for the quarter ended June 30, 1997 from $2.4 million for the quarter
ended June 30, 1996 as a result of the above mentioned operating results.
Income tax expense as a percentage of income from continuing operations before
income taxes remained relatively unchanged at 37.0% for the second quarter of
1997 versus 37.4% for the second quarter of 1996.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 TO THE SIX MONTHS ENDED JUNE
30, 1996. Revenues for the first six months of 1997 were $34.8 million,
representing a $9.6 million or 38.3% increase over revenues of $25.2 million
for the first six months of 1996. The increase was primarily due to a $7.9
million increase in net sales of Vacation Intervals, a $1.2 million increase in
interest income and a $0.7 million increase in other income. The strong
increase in Vacation Interval revenues resulted from the Company's increased
telemarketing capacity and sales force and enhanced lead generation methods, as
well as an increase in upgrade sales.
In the first half of 1997, the number of vacation intervals sold, exclusive of
upgraded Vacation Intervals, increased 10.7% to 3,679 from 3,323 in the same
period of 1996, and the average price per interval increased 21.9% to $9,623
from $7,891. Total interval sales for the first six months of 1997 included 904
biennial intervals (counted as 452 Vacation Intervals) compared to none in the
same period of 1996. The increase in average price per interval resulted from
the Company's increased sales of higher value rated intervals and biennial
intervals (whose sales price is more than half of an annual interval). In
addition the Company has increased revenues generated from sales of upgraded
intervals at the Existing Resorts through the continued implementation of
marketing and sales programs focused on selling upgraded intervals to
Silverleaf Owners.
The provision for uncollectible notes as a percentage of Vacation Interval
sales decreased to 22.4% for the first six months of 1997 from 25.8% during the
same time period of 1996, reflecting an increased focus on collection efforts
for notes receivable. The improvement can also be attributed to an increase in
receivables relating to upgrade sales which typically represent better
performing accounts resulting in fewer delinquencies.
Interest income increased 39.5% to $4.2 million for the six months ended June
30, 1997, from $3.0 million for the six months ended June 30, 1996. This
increase resulted from a $24.1 million increase in notes receivable, net of
allowance for uncollectible notes, due to increased sales.
Management fee income decreased 9.6% to $1.0 million in the first half of 1997
from $1.1 million for the same period in the prior year. This decrease was
primarily the result of the Master Club's net income being reduced by on going
maintenance and refurbishment expenditures incurred as part of the Master
Club's continuing facility improvement program and increased operating costs.
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Lease income, which relates to the Company's starter program, remained stable
at $875 thousand for the first six months of 1997 compared to $888 thousand for
the first six months of 1996.
Other income increased 113% to $1.2 million for the six months ended June 30,
1997, from $581 thousand for the six months ended June 30, 1996. This increase
was due primarily to a higher usage fee and higher water and sewer income from
resort utility operations, as well as receipt of $216 thousand relating to a
claim filed with the FDIC.
Cost of sales as a percentage of gross Vacation Interval sales increased to
9.1% in the first six months of 1997 from 4.5% in the same period of 1996. The
increase is due to a decline in the volume of sales of Vacation Intervals with
a low cost basis. Cost of sales for the first six months of 1996 was lower
primarily as a result of the sale of low cost inventory acquired by the Company
in 1995 and 1996 through its program to reacquire Vacation Intervals owned but
not actively used by Silverleaf owners. The Company anticipates that the number
of intervals acquired form Silverleaf owners in 1997 will be significantly
lower than the number in 1996. Additionally, the Company continues to deplete
its inventory of other low cost intervals. As a result of these factors and the
Company's extensive construction program to build new inventory, the cost of
sales average is expected to increase.
Sales and marketing costs as a percentage of gross Vacation Interval sales
declined to 38.1% for the six months ended June 30, 1997 from 42.1% for the six
months ended June 30, 1996. This decline is due mainly to the efficiencies
resulting form the Company's telemarketing and sales force areas and economies
of scale.
Operating, general and administrative expenses as a percentage of total
revenues declined to 12.9% during the first six months of 1997 from 18.7% for
the same period of 1996. The decrease was due to efficiencies realized from
higher sales volumes. Overall, operating, general and administrative expenses
decreased $224 thousand for the six months ended June 30, 1997 compared to the
same period in the prior year. The decrease occurred primarily in legal and
professional fees.
Interest expense as a percentage of interest income increased to 79.9% for the
six months ended June 30, 1997 from 71.5% for the six months ended June 30,
1996. This increase was due to higher borrowing costs during the second
quarter, mostly attributable to an increase in outstanding indebtedness during
the first six months of 1997 compared to the first six months quarter of 1996.
Depreciation and amortization expense as a percentage of total revenue remained
relatively unchanged at 2.3% for the first six months of 1997 versus 2.2% for
the same period of 1996.
Income from continuing operations before income taxes increased 73.1% to $9.5
million for the six months ended June 30, 1997 from $5.5 million for the six
months ended June 30, 1996 as a result of the above mentioned operating
results.
Income tax expense as a percentage of income from continuing operations before
income taxes remained relatively unchanged at 37.0% for the first half of 1997
versus 37.3% for the first half of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Cash. The Company generates cash primarily from the sale of Vacation
Intervals, the payments on borrowings of promissory notes from Silverleaf
owners, management fees, Sampler sales, and resort and utility operations.
During the six months ended June 30, 1997, cash provided by operations was
$13.3 million. The Company generates cash from financing sales not only by
borrowing against customer notes receivable but also from the spread between
interest paid on borrowings and interest received on the related customer notes
receivable. Because the Company uses significant amounts of cash in the
development and marketing of Vacation Intervals, but collects cash on the
customer notes receivable over a long period of time, borrowing against
receivables is a necessary part of normal operations.
For regular Federal income tax purposes, the Company reports substantially all
of the Vacation Interval sales it finances under the installment method. Under
the installment method, the Company does not recognize income on sales of
Vacation Intervals until cash is received in the form of a down payment and as
installment
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payments on customer receivables are received by the Company. The deferral of
income tax liability conserves cash resources on a current basis. Interest will
be imposed, however, on the amount of tax attributable to the installment
payments for the period beginning on the date of sale and ending on the date
the related tax is paid. If the Company is otherwise not subject to tax in a
particular year, no interest is imposed since the interest is based on the
amount of tax paid in that year. The consolidated financial statements do not
contain an accrual for any interest expense that would be paid on the deferred
taxes related to the installment method, as the interest expense is not
estimable as of June 30, 1997. In addition, the Company is subject to current
alternative minimum tax ("AMT") as a result of the deferred income that results
from the installment sales treatment. Payment of AMT reduces future regular tax
liability in respect of installment sales, and creates a deferred tax asset. As
of June 30, 1997, the Company estimates its total liability for AMT to be
approximately $4.5 million which is included in Income Taxes Payable. The
Company's net operating losses, which also may be used to offset installment
sale income, expire beginning 2007 through 2011. Realization of the deferred
tax assets arising from net operating losses is dependent on generating
sufficient taxable income prior to the expiration of the loss carryforwards and
other factors.
For the six months ended June 30, 1997 and 1996, net cash provided by financing
activities was $9.5 million and $4.8 million, respectively. During the quarter
ended June 30, 1997, the Company issued 3,600,000 shares of common stock in the
Offering resulting in approximately $51.2 million of net proceeds. The Company
has five revolving credit facilities with four lenders providing for loans of
up to $96 million. Approximately $14.2 million of principal and interest
related to advances under these credit facilities was outstanding at June 30,
1997. Through the six months ended June 30, 1997, the weighted average cost of
funds for these borrowings was approximately 10.8%.
Uses of Cash. Investing activities typically reflect a net use of cash because
of capital additions and loans to customers in connection with the Company's
Vacation Interval sales. Net cash used in investing activities for the six
months ended June 30, 1997, and June 30, 1996, was $17.5 million and
$12.3 million, respectively. The increase primarily relates to an increase in
net notes receivable of $15.7 million and $11.8 million for the six month
periods ended June 30, 1997 and 1996, respectively.
The Company requires funds to finance the acquisitions of property for future
development and to further develop the existing resorts, as well as to make
capital improvements and support current operations. During the first six
months of 1997, the Company has spent $1.8 million for the development of
additional roads, utilities and amenities at the existing resorts and the
acquisition of telemarketing equipment. The Company is also actively seeking
sites for new resorts. The Company completed a transaction on August 7, 1997,
to acquire two tracts of land in Missouri and Illinois for an aggregate
purchase price of approximately $2.8 million. The acquisition of the tracts of
land was completed with funds generated from operations and proceeds from
borrowings under the existing lines of credit. Future capital expenditures and
acquisition costs will be financed through a combination of cash flow from
operations and proceeds from anticipated borrowings.
Credit Facilities. At June 30, 1997, the Company had available certain
revolving credit facilities for financing customer notes receivable and for
construction and development activities. The net proceeds of the public
offering were used to pay down a substantial amount of the outstanding
indebtedness under these credit facilities. The Company intends to maintain
each of the credit facilities and to utilize such facilities to finance its
operations.
In accordance with its growth strategy, the Company intends to accelerate the
development of the existing resorts and to acquire new properties for
development. The Company intends to finance such development in part with
existing credit facilities. Additional financing will be required. Any failure
to renew existing credit facilities or obtain adequate financing under new
facilities would have a material adverse effect on the Company's financial
position, results of operations or liquidity, and could significantly reduce
the Company's plans to acquire new properties and expand the existing resorts.
In the future, the Company may negotiate additional credit facilities, issue
corporate debt, issue equity securities, or any combination of the above. Any
debt incurred or issued by the Company may be secured or unsecured, may bear
interest at fixed or variable rates of interest, and may be subject to such
terms as management deems prudent. There is no assurance that the Company will
be able to secure additional corporate debt or equity at or beyond current
levels. The Company believes available borrowing capacity, together with cash
generated from operations, will be sufficient to meet the Company's liquidity,
operating and capital requirements for the next 12 months.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On August 7, 1997, the Company completed a transaction to acquire certain land
and amenities located near St. Louis, Missouri, and Chicago, Illinois. The
acquisition price for the two properties totaled approximately $2.8 million.
Property previously under contract located near Memphis, Tennessee, the
acquisition of which was contemplated as part of this transaction was
determined to not meet the criteria set by the Company as part of its due
diligence procedures, and as such, it was not included in the purchase
transaction.
The acquisition of these properties is part of the Company's strategy to
identify and acquire properties that meet its investment criteria for
development as drive-to resorts. The company believes the location of the
acquired property near St. Louis, Missouri, and Chicago, Illinois, are
consistent with this strategy. The Company intends to begin development and
construction activities at these two locations during the fourth quarter of
1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
The Company has not filed any Form 8-K reports for the quarter ended June 30,
1997.
(b) Exhibits
10.1 Nonqualified Stock Option Agreement (David T. O'Connor)
10.2 Incentive Stock Option Agreement (Joe W. Conner)
10.3 Incentive Stock Option Agreement (Larry H. Fritz)
27.1 Financial Data Schedule
99 "Risk Factors" section excerpted from final Prospectus dated
June 5, 1997 for Silverleaf Resorts, Inc. [incorporated by
reference from Registrant's Form S-1 Registration Statement (No.
333-24273) and included as an Exhibit to Form 10-Q for quarter
ended June 30, 1997 pursuant to Rule 12b-23(a)(3)]
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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: August 12, 1997 By: /s/ ROBERT E. MEAD
--------------------------------
Robert E. Mead
Chairman of the Board and
Chief Executive Officer
Dated: August 12, 1997 By: /s/ JOE W. CONNER
--------------------------------
Joe W. Conner
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10.1 Nonqualified Stock Option Agreement (David T. O'Connor)
10.2 Incentive Stock Option Agreement (Joe W. Conner)
10.3 Incentive Stock Option Agreement (Larry H. Fritz)
27.1 Financial Data Schedule
99 "Risk Factors" section excerpted from Final Prospectus dated
June 5, 1997 for Silverleaf Resorts, Inc. [Incorporated by
reference from Registrant's Form S-1 Registration Statement
(No. 333-24273) and included as an Exhibit to Form 10-Q for
quarter ended June 30, 1997 pursuant to Rule 12b-23(a)(3)]