-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WtwEyz3TwwPyBPRR6uO36vnSTqYYI/iElHFrMUoTRPn3fZNovW2ftJor6MUpo2cr 3dCjm8yjXLYxlpPDf4YO4Q== 0000950144-96-001375.txt : 19960401 0000950144-96-001375.hdr.sgml : 19960401 ACCESSION NUMBER: 0000950144-96-001375 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLF HOST RESORTS INC CENTRAL INDEX KEY: 0000042429 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 840631130 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 002-64309 FILM NUMBER: 96541846 BUSINESS ADDRESS: STREET 1: P O DRAWER 3131 CITY: DURANGO STATE: CO ZIP: 81302 BUSINESS PHONE: 3032592000 MAIL ADDRESS: STREET 1: P O BOX 1088 CITY: TARPON SPRINGS STATE: FL ZIP: 34688-1088 FORMER COMPANY: FORMER CONFORMED NAME: TAMARRON INC DATE OF NAME CHANGE: 19870405 FORMER COMPANY: FORMER CONFORMED NAME: GOLF HOST WEST INC /D/B/A/ TAMARRON DATE OF NAME CHANGE: 19840330 10-K 1 GOLF HOST RESORTS (INNISBROOK) FORM 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________ ANNUAL REPORT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 Commission File No. 2-64309 GOLF HOST RESORTS, INC. State of Colorado Employer Identification No. 84-0631130 Post Office Box 3131, Durango, Colorado 81302 Telephone Number (303) 259-2000 SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Issuer has no common stock subject to this report. Page 1 of 39 2 PART I Item 1. Business Golf Host Resorts, Inc. (the Company) is engaged in the operation of Innisbrook Hilton Resort in Tarpon Springs, Florida (Innisbrook) and Tamarron Hilton Resort in Durango, Colorado (Tamarron). Tamarron and Innisbrook (the Resorts) offer hotel accommodations, restaurant and conference facilities, and recreational activities including golf, skiing, swimming and tennis. Both resorts are managed by Hilton Hotels Corporation under long-term management agreements. The majority of the condominium apartment owners at the Resorts provide such apartments as hotel accommodations under rental pool lease operations. The Resorts are the lessees under the lease operation agreements, which provide for the distribution of a percentage of room revenues, as defined, to participating condominium owners. Accordingly, the Company does not bear the expenses of financing as well as certain operating costs of the rental units. Condominium apartment ownership, simply stated, is a realty subdivision in which the individual "lots" are apartment units. Instead of owning a plot of ground, the owner owns the air space where his condominium apartment unit is located. This leaves substantial properties in interest which are not individually owned, e.g., the underlying land, roadways, foundations, exterior wall and roofs, garden areas, utility lines, et cetera. These areas are termed "common property" or "common elements" and each owner has an undivided fractional interest in such property. The owners establish an "Association of Condominium Owners" to administer and maintain such property and to conduct the business of the owners, such as maintaining insurance on the real property, upkeep of the structures, maintenance of the grounds, and provisions for certain utilities. The Association assesses fees to defray such expenses and to establish necessary reserves. Such charges if not timely paid may constitute a lien upon the separate condominium apartment units. Each owner must pay ad valorem property taxes, and assessments for electricity, and as to such matters is independent of the other unit owners. These expenses would be incurred by owners of condominium units, regardless of an election not to participate in the rental pool. With respect to governing the affairs of the Association, which is subject to state statutes, the participating unit owners are accorded one (1) vote per condominium unit owned. In addition to room rentals, the Company receives significant revenue from food and beverage sales and from golf operations (primarily golf fees and merchandise sales). Also, during 1994, the Company undertook the development of nine residential homesites at Tamarron. These homesites are identified as Estates at Tamarron-Highpoint. Three of the homesites were sold and closed during 1994 and five during 1995. During 1995, the Company began a second development of nine residential homesites, Estates at Tamarron-Pine Ridge. Construction of required improvements has not commenced and none of the sites have been sold. Page 2 3 The percentages of the foregoing revenues to total revenues are as follows:
REVENUES 1995 1994 1993 -------- -------- -------- Hotel 31.8% 32.1% 31.1% Food and Beverage 25.4 24.8 23.4 Golf 27.8 28.8 31.5 Other 13.0 12.8 14.1 Real Estate Activities 2.0 1.5 -- ------ ------ ------ Total 100.0% 100.0% 100.0% ====== ====== ======
The Company hosts more than a thousand conferences or related group meetings each year and its clients come from a variety of industries. Accordingly, the loss of a single client or a few clients would have no significant adverse effect on the Company's business. The conference-oriented resort business is quite competitive; however, the Company has established itself as a leader in its industry and enjoys an excellent reputation with its clients. Its major competitors are other conference and golf-oriented resorts throughout the country. The Resorts are seasonal, with Innisbrook's peak season being in the winter and spring and Tamarron's being in the summer. The Company has, on average, approximately 1,250 employees (950 at Innisbrook and 300 at Tamarron). Item 2. Description of Properties Innisbrook is a condominium resort project situated on approximately 850 acres of land located in the northern portion of Pinellas County, Florida, near the Gulf of Mexico. It is north of Clearwater (approximately 9 miles) and west of Tampa (approximately 20 miles). There are 938 condominium units, 36 of which are strictly residential, with the balance eligible for rental pool participation. Of these units, 755, on average, participate in the rental pool. The resort complex includes 63 holes of golf; two driving ranges; three clubhouses with retail golf, food and beverage outlets; three conference and exhibit buildings; six swimming pools; a recreation center; tennis facility and numerous administrative and support structures. Tamarron is a condominium resort project situated on approximately 730 acres of land located in the northern portion of La Plata County, Colorado. It is north of Durango (approximately 18 miles) and south of Silverton (approximately 28 miles). The property is surrounded on three sides by the San Juan National Forest and is readily accessible via U.S. Highway 550. There are 381 condominium units, all of which are eligible for rental pool participation. Approximately 290 units, on average, participate in the rental pool. The resort complex includes 18 holes of golf; a driving range; an indoor swimming pool; several restaurants and lounges; a conference facility; a tennis complex and numerous administrative and support facilites and structures. Page 3 4 During 1994 and 1995, approximately 24 acres of land at Tamarron were set aside for the Estates at Tamarron residential homesite development. At December 31, 1995, the properties are encumbered by various mortgages totalling approximately $18,810,140. Reference is made to Note 3 of Notes to Financial Statements of Golf Host Resorts, Inc. contained elsewhere in this filing for a more detailed description of these mortgages. Item 3. Legal Proceedings The Company is not currently involved in lawsuits other than ordinary routine litigation incidental to its business. Item 4. Submission of Matters to a Vote of Security Holders Not applicable PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters There are a total of 1,283 condominium units allowing rental pool participation by their owners, of which 1,281 have been sold. Of the units sold, 1,261 were sold under Registration Statements effective through March 1, 1983. The remaining 20 units were sold via private offerings exempt from registration with the Securities and Exchange Commission. The condominium units which have been sold are owned by 1,147 individuals. The condominium units sold by the Company are deemed to be securities because of the rental pool feature (see Item 1); however, there is no market for such securities other than the normal real estate market. Since the security is real estate, no dividends have been paid or will be paid. Page 4 5 GOLF HOST RESORTS, INC. Item 6. Selected Financial Data The following selected financial data are not covered by the report of independent certified public accountants. This summary should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this annual report on Form 10-K.
Year Ended December 31, ------------------------------------------------------------------------------------------ 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- OPERATING REVENUE $57,568,773 $53,510,130 $45,934,290 $50,924,925 $55,200,063 =========== =========== =========== =========== =========== NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 1,119,605 $ 137,607 $ (794,374) $ 626,874 $ 293,688 =========== =========== =========== =========== =========== NET INCOME (LOSS) PER COMMON SHARE $ 223.92 $ 27.52 $ (158.87) $ 125.38 $ 58.74 =========== =========== =========== =========== =========== TOTAL ASSETS $52,822,127 $50,579,114 $49,278,940 $51,330,483 $51,582,231 =========== =========== =========== =========== =========== LONG-TERM OBLIGATIONS $30,001,491 $28,861,345 $28,825,440 $30,083,567 $31,049.021 =========== =========== =========== =========== =========== CASH DIVIDENDS PER COMMON SHARE $ -- $ -- $ -- $ -- $ -- =========== =========== =========== =========== ===========
Page 5 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Guest occupancy during the last three years, measured by room nights, was as follows:
Total % Change ------- -------- 1995 177,059 1.2 1994 174,967 18.7 1993 147,424 (14.9)
Results of Operations for 1995 reflect gains far in excess of the modest change in room nights. Revenues, excluding real estate activities, increased 7% from the year-ago level. On a per occupied room night basis, revenues, excluding real estate activities, were $318.53 compared with $301.36 in 1994, reflecting increases significantly greater than the change in the general price level. Compared with a year earlier, spending, on a divisional basis, increased from $324.79 and $228.29 to $340.92 and $236.89 for Innisbrook and Tamarron, respectively. Real estate activities represents the sale and closing of 5 and 3 residential homesites in 1995 and 1994, respectively. Total revenues of $53,510,130 for 1994 were 16.5% above the 1993 level. Excluding real estate activities, the improvement was 14.8%. On a per occupied room night basis, revenues, excluding real estate, were 3.3% below the 1993 level of $311.58. The decline can be attributed to constraints on available golf starting times and the relatively fixed nature of certain components of the golf and other revenue categories. Costs and operating expenses, excluding real estate activities, were 93.4% and 95.6% of related revenues in 1995 and 1994, respectively. The improvement can be attributed to gains in revenue discussed above. The increase in general and administrative reflects increased incentive compensation earned by management personnel as a result of improved results of operations. Costs and operating expenses, as a percentage of total revenues, were 97.6% in 1993. The improvement in 1994 with respect to this ratio can be attributed to the economies of scale that typically accompany higher levels of occupancy. Additionally, certain of the expenses related to the management contract between Hilton Hotels Corporation (HHC) and the Company had begun to displace expenses that were incurred in earlier years. The increases in interest expense in 1995 over 1994 and 1994 over 1993 were generally attributable to increases in the prime rate at which interest on a portion of the Company's debt is based. Page 6 7 Financial Condition The Company's net working capital deficit increased by $78,748 from the prior year level. The Company typically operates with deficit working capital without impairing its ability to pay trade vendors in a timely manner and satisfy its financial obligations in an orderly fashion. During 1995, the Company expended approximately $4,129,000 on capital additions, the funding for which came from operations, borrowings and an equipment trade-in. The Company maintains satisfactory relations with several lenders. Liquidity is provided by an accounts receivable credit line of $6,000,000 and a revolving mortgage credit facility of $2,000,000. Specific financing is in place for equipment additions. Amounts available under a loan agreement with Hilton Hotels Corporation were fully drawn at December 31, 1995. For additional information, refer to Notes 3 and 8 of Notes to Financial Statements of Golf Host Resorts, Inc., contained elsewhere in this Form 10-K filing. Based on current forecasts of operating levels and the existence of credit facilities with the Company's lenders, the Company assesses its liquidity situation as satisfactory. Item 8. Financial Statements and Supplementary Data The following Financial Statements of the Company are included in this Form 10-K annual report: Golf Host Resorts, Inc. Financial Statements together with Report of Independent Certified Public Accountants Item 9. Changes in and Disagreements on Accounting and Financial Disclosure None Page 7 8 PART III Item 10. Directors and Executive Officers of the Registrant
Name/Position Age Five Year Principal Occupation -------------- --- ------------------------------ William Ellis, Jr. 67 President and C.E.O. Director Centerpoint Communications, Inc. Richard S. Ferreira 55 Executive Vice President Executive Vice President, and Chief Financial Officer of Assistant Secretary and the Company and its parent, Director Golf Hosts, Inc. Lewis H. Hill, III 68 Partner in the law firm of Secretary and Director Foley and Lardner (retired and currently of counsel) C. James McCormick 70 Chairman of the Board, Chairman of the Board McCormick, Inc. and Director Brenton Wadsworth (a) 67 Chairman of the Board, Director Wadsworth Golf Course Construction Companies Stanley D. Wadsworth (a) 60 President of the Company and President and Director its parent, Golf Hosts, Inc.
(a) Brothers All directors serve a one year term, expiring June 21, 1996. Officers are elected annually. Item 11. Executive Compensation All items for Golf Host Resorts, Inc., except those set forth below, have been omitted as not applicable or not required. Page 8 9 EXECUTIVE COMPENSATION GOLF HOST RESORTS, INC. Summary Compensation Table The following table sets forth the remuneration paid, distributed or accrued by Golf Host Resorts, Inc., and its parent Golf Hosts, Inc. during the three years in the period ended December 31, 1995, to the Company's executive officers.
Annual Compensation --------------------------------------------------------------------------------------------- All Other Name and Fiscal Salary and Bonus Other Annual Compensation ($) Principal Position Year Commission ($) ($) Compensation ($) (1) - ------------------ ------ -------------- ------ ---------------- ---------------- Golf Hosts, Inc.: Stanley D. Wadsworth 1995 147,100 33,300 - 93,898 President & Chief 1994 142,100 16,500 - 23,446 Executive Officer 1993 140,000 - - 15,370 Richard S. Ferreira 1995 143,200 37,200 - 22,747 Executive Vice President 1994 138,650 17,700 - 5,784 & Chief Financial Officer 1993 136,600 - - 2,369
(1) Includes premiums with respect to life insurance policies, and Company 401(k) matching contributions. The 401(k) contribution amounted to $400 annually for each named executive officer. The balance represents life insurance premiums. Page 9 10 (b) Pension Plan The Company and its parent, Golf Hosts, Inc., provide a supplemental retirement income plan (Plan) for officers who have completed 15 years of service, are still employed at age 65 by the Company and retire. The Plan provides an annual income of $10,000 for a period of 10 years. The named executive officers in the Summary Compensation Table are eligible to participate in this Plan when they satisfy the criteria set forth above. The ages and years of service of the named executive officers are as follows:
Age Years of Service --- ---------------- Stanley D. Wadsworth 60 26 Richard S. Ferreira 55 25
Item 12. Security Ownership of Certain Beneficial Owners and Management (a) Security ownership of certain beneficial owners:
Title Amount Percent of Name and Address Beneficially of Class of Beneficial Owner Owned Class ----- ------------------- ------------ ------- Common Golf Hosts, Inc. 4,000 80% P.O. Box 1088 Tarpon Springs, FL 34688-1088 Common C. James McCormick 500 10% P.O. Box 728 Vincennes, IN 47591 Common Stanley D. Wadsworth 250 5% P.O. Box 117 Hesperus, CO 81326 Common Brenton Wadsworth 250 5% 1814 Mariner Drive Tarpon Springs, FL 34689
Page 10 11 (b) Security ownership of management of the Company in Golf Hosts, Inc. (GHI):
Amount Percent Title of Beneficially of Class Name of Beneficial Owner Owned Class -------- ------------------------ ------------ ------- Common William Ellis 100 .2% Common Richard S. Ferreira 671 1.3% Common Lewis H. Hill 1,100 2.1% Common C. James McCormick 11,721 22.7% Common Brenton Wadsworth 11,797 22.9% Common Stanley D. Wadsworth 10,028 19.4% ------ ----- 35,417 68.7% ======== ======
Due to rounding, individual percentages of class do not total 68.7%. (c) Changes in control: None Item 13. Certain Relationships and Related Transactions (a) Transactions with Management and Others GHI charges administrative and other expenses to the Company on the basis of estimated time and expenses incurred as determined by GHI. (b) Certain Business Relationships Lewis H. Hill, III, Secretary and a Director of the Company, is a retired partner of and is presently of counsel to the law firm of Foley & Lardner, the Company's general counsel. (c) Indebtedness of Management None (d) Transactions with Promoters Not applicable Page 11 12 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial Statements: Golf Host Resorts, Inc. - (included at Item 8) Innisbrook Rental Pool Lease Operation Financial Statements together with the Report of Independent Certified Public Accountants Tamarron Rental Pool Lease Operation Financial Statements together with Report of Independent Certified Public Accountants 2. Financial Statement Schedules of Golf Host Resorts, Inc. None (b) Reports on Form 8-K None (c) Exhibits Innisbrook Rental Pool Lease Operation Policy for Different Situations that Might Arise Regarding the Installation of Life-safety Equipment revised March 4, 1996. Page 12 13 SIGNATURES Pursuant to the Requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, therefore duly authorized. GOLF HOST RESORTS, INC. By: /s/ S. D. Wadsworth By: /s/ R. S. Ferreira ------------------------------ ------------------------------ Stanley D. Wadsworth, President Richard S. Ferreira, and Vice Chairman of the Board Executive Vice President, Chief Financial Officer and Director By: /s/ A. S. Herzog By: /s/ R. L. Akin ------------------------------ ------------------------------ A. Stephen Herzog, Richard L. Akin, Vice President and Controller Vice President Chief Accounting Officer and Treasurer By: /s/ L. H. Hill, III By: /s/ B. Wadsworth ------------------------------ ------------------------------ Lewis H. Hill, III, Brenton Wadsworth Secretary and Director Director
Dated: March 26, 1996 Page 13 14 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Golf Host Resorts, Inc.: We have audited the accompanying balance sheets of GOLF HOST RESORTS, INC. (a Colorado corporation and an 80%-owned subsidiary of Golf Hosts, Inc.) as of December 31, 1995 and 1994, and the related statements of operations, shareholders' investment and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Golf Host Resorts, Inc. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Tampa, Florida, March 22, 1996 Page 14 15 GOLF HOST RESORTS, INC. BALANCE SHEETS DECEMBER 31, 1995 AND 1994 ASSETS (Substantially all pledged - Note 3)
1995 1994 ----------- ----------- CURRENT ASSETS: Cash $ 312,603 $ 824,875 Accounts receivable 4,471,677 3,763,426 Notes receivable 627,817 107,879 Inventories and supplies 4,392,498 4,360,707 Prepaid expenses and other 1,207,186 1,223,910 Intercompany receivables 567,455 307,417 ----------- ----------- Total current assets 11,579,236 10,588,214 LONG-TERM RECEIVABLES, less amounts currently due 1,011,871 1,068,484 PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation and amortization 40,231,020 38,922,416 ----------- ----------- $52,822,127 $50,579,114 =========== ===========
The accompanying notes are an integral part of these balance sheets. Page 15 16 GOLF HOST RESORTS, INC. BALANCE SHEETS DECEMBER 31, 1995 AND 1994 LIABILITIES AND SHAREHOLDERS' INVESTMENT
1995 1994 ----------- ----------- CURRENT LIABILITIES: Note payable $ 1,285,773 $ 100 Maturing long-term obligations 1,854,401 2,053,566 Accounts payable 1,911,052 1,481,701 Accrued expenses 4,274,085 4,316,419 Deposits and prepaid fees 2,681,066 3,084,821 ----------- ----------- Total current liabilities 12,006,377 10,936,607 ----------- ----------- LONG-TERM OBLIGATIONS, less current maturities 20,659,348 21,430,570 ----------- ----------- LONG-TERM INTERCOMPANY 4,124,210 3,563,988 ----------- ----------- LONG-TERM CONTINGENCY (Note 8) 2,077,759 1,813,121 ----------- ----------- SHAREHOLDERS' INVESTMENT: Common stock, $1 par, 5,000 shares authorized and outstanding 5,000 5,000 5.6% cumulative preferred stock, $1 par, 4,577,000 shares authorized and outstanding 4,577,000 4,577,000 Paid-in capital 2,329,447 2,329,447 Retained earnings 7,042,986 5,923,381 ----------- ----------- Total shareholders' investment 13,954,433 12,834,828 ----------- ----------- $52,822,127 $50,579,114 =========== ===========
The accompanying notes are an integral part of these balance sheets. Page 16 17 GOLF HOST RESORTS, INC. STATEMENTS OF OPERATIONS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
1995 1994 1993 ----------- ----------- ----------- REVENUES: Hotel $18,296,069 $17,196,787 $14,282,186 Food and beverage 14,600,080 13,289,590 10,731,253 Golf 15,997,215 15,401,390 14,457,855 Other 7,504,409 6,841,129 6,462,996 Real Estate Activities 1,171,000 781,234 -- ----------- ----------- ----------- 57,568,773 53,510,130 45,934,290 ----------- ----------- ----------- COSTS AND OPERATING EXPENSES: Hotel 15,441,549 15,082,921 12,743,301 Food and beverage 10,232,692 9,594,444 8,211,671 Golf 6,238,748 5,977,198 5,645,869 Other 16,534,489 16,125,069 15,252,251 General and administrative 4,250,818 3,633,098 2,982,859 Real Estate Activities 617,095 408,294 - ----------- ----------- ----------- 53,315,391 50,821,024 44,835,951 ----------- ----------- ----------- OPERATING INCOME 4,253,382 2,689,106 1,098,339 INTEREST, NET 2,124,965 2,083,864 1,963,201 ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAX 2,128,417 605,242 (864,862) PARENT INCOME TAX CHARGE (CREDIT) 752,500 211,323 (326,800) ----------- ----------- ----------- NET INCOME (LOSS) BEFORE DIVIDEND REQUIREMENTS ON PREFERRED STOCK 1,375,917 393,919 (538,062) DIVIDEND REQUIREMENTS ON PREFERRED STOCK 256,312 256,312 256,312 ----------- ----------- ----------- NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 1,119,605 $ 137,607 $ (794,374) =========== =========== =========== EARNINGS (LOSS) PER COMMON SHARE: NET INCOME (LOSS) BEFORE DIVIDEND REQUIREMENTS ON PREFERRED STOCK $ 275.18 $ 78.78 $ (107.61) DIVIDEND REQUIREMENTS ON PREFERRED STOCK (51.26) (51.26) (51.26) ----------- ----------- ----------- NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 223.92 $ 27.52 $ (158.87) =========== =========== ===========
The accompanying notes are an integral part of these statements. Page 17 18 GOLF HOST RESORTS, INC. STATEMENTS OF SHAREHOLDERS' INVESTMENT FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
Other Shareholders' $1 Par Value 5.6% Cumulative Investment Common Stock Preferred Stock -------------------------- Total ----------------- ------------------------- Paid-In Retained Shareholders' Shares Amount Shares Amount Capital Earnings Investment ------ ------ --------- ---------- ---------- ---------- ------------ Balance, December 31, 1992 5,000 $5,000 4,577,000 $4,577,000 $2,329,447 $6,580,148 $13,491,595 Net (loss) available to common shareholders -- -- -- -- -- (794,374) (794,374) ----- ------ --------- ---------- ---------- ---------- ----------- Balance, December 31, 1993 5,000 5,000 4,577,000 4,577,000 2,329,447 5,785,774 12,697,221 Net income available to common shareholders -- -- -- -- -- 137,607 137,607 ----- ------ --------- ---------- ---------- ---------- ----------- Balance, December 31, 1994 5,000 5,000 4,577,000 4,577,000 2,329,447 5,923,381 12,834,828 Net income available to common shareholders -- -- -- -- -- 1,119,605 1,119,605 ----- ------ --------- ---------- ---------- ---------- ----------- Balance, December 3l, 1995 5,000 $5,000 4,577,000 $4,577,000 $2,329,447 $7,042,986 $13,954,433 ===== ====== ========= ========== ========== ========== ===========
The accompanying notes are an integral part of these statements. Page 18 19 GOLF HOST RESORTS, INC. STATEMENTS OF CASH FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
1995 1994 1993 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) before dividend requirements on preferred stock $ 1,375,917 $ 393,919 $ (538,062) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation and amortization 2,401,522 2,267,809 2,243,536 Deferred profit (Note l) - 123,766 - Changes in working capital other than cash (Note 7) (936,139) 688,695 1,572,210 ----------- ----------- ----------- Net cash flows provided by operating activities 2,841,300 3,474,189 3,277,684 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (3,777,820) (2,678,498) (1,914,937) Recovery of cost of property and equipment sold 3,739 121,702 64,854 Reductions in notes receivable 160,276 93,534 105,403 Additions to notes receivable (623,601) (514,359) (81,245) ----------- ----------- ----------- Net cash flows used in investing activities (4,237,406) (2,977,621) (1,825,925) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in notes payable 1,285,673 (762,378) (1,132,367) Increases in long-term obligations 1,699,222 1,322,702 1,018,701 Decreases in long-term obligations (2,669,609) (2,074,731) (1,951,403) Increase in long-term intercompany 303,910 470,801 (439,291) Increase in long-term contingency (Note 8) 264,638 823,200 989,921 ----------- ----------- ----------- Net cash flows provided by (used in) financing activities 883,834 (220,406) (1,514,439) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH (512,272) 276,162 (62,680) CASH, BEGINNING OF YEAR 824,875 548,713 611,393 ----------- ----------- ----------- CASH, END OF YEAR $ 312,603 $ 824,875 $ 548,713 =========== =========== ===========
Supplemental information on noncash financing and investing activities is included in Note 7. The accompanying notes are an integral part of these statements. Page 19 20 GOLF HOST RESORTS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 3L, 1995, 1994 AND 1993 (1) ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BUSINESS Golf Host Resorts, Inc. (the Company or GHR) is an 80%-owned subsidiary of Golf Hosts, Inc. (GHI). The minority shareholders of the Company are also the major shareholders of GHI. The Company is engaged in the operation of Innisbrook Hilton Resort (Innisbrook) in Tarpon Springs, Florida and Tamarron Hilton Resort (Tamarron) in Durango, Colorado (the Resorts). The Resorts offer hotel accommodations, restaurant and conference facilities, and recreational activities including golf, skiing, swimming and tennis. The majority of the condominium apartment owners at the Resorts provide such apartments as hotel accommodations under rental pool lease operations. The Resorts are the lessees under the lease operation agreements, which provide for the distribution of a percentage of room revenues, as defined, to participating condominium apartment owners. FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires the use of management's estimates. Amounts included in these Notes to Financial Statements, unless otherwise indicated, are as of December 31, 1995 and 1994, or for the years ended December 31, 1995, 1994 and 1993, respectively, as applicable. Certain reclassifications have been made to the 1994 and 1993 financial statements to conform to the 1995 presentation. MANAGEMENT AGREEMENTS During March 1993, the Company entered into an agreement with Hilton Hotels Corporation (HHC), effective April 1, 1993, whereby HHC manages Innisbrook. HHC also advanced certain amounts to the Company (see Note 8). GHR entered into an additional agreement with HHC effective December 1, 1995, whereby HHC manages Tamarron. HHC will also advance GHR up to $1.5 million (see Note 8). Under these agreements, whose terms are 20 years with provisions for earlier termination by either party, HHC receives annual management fees and certain cost reimbursements. HHC will also receive a portion of the actual earnings, as defined, above certain specified levels. Actual earnings have not exceeded the specified levels. INTERCOMPANY ALLOCATIONS AND ADVANCES GHI charges administrative and other expenses to the Company on the basis of estimated time and expenses incurred as determined by GHI. The amounts charged to the Company were approximately $970,000, $770,000 and $711,000. Page 20 21 PARTICIPATING RENTAL UNITS Revenue includes rental revenues from condominium units owned by third parties participating in the rental pool lease operations previously described. If these rental units were owned by the Company, normal costs associated with ownership such as depreciation, interest, real estate taxes, maintenance, etc. would have been incurred. Instead, costs and operating expenses include distributions to the rental pool participants of approximately $9,226,000, $8,692,000 and $7,171,000. ACCOUNTS RECEIVABLE Accounts receivable is net of allowances of $60,300 and $76,000 for doubtful accounts. NOTES RECEIVABLE Notes receivable bear interest at rates ranging from 5.75% to 10.5% at December 31, 1995. INVENTORIES AND SUPPLIES The Company records its materials and supplies inventories at the lower of first-in, first-out cost or market. REAL ESTATE DEVELOPMENT COSTS Capitalized real estate costs related to the development of nine residential homesites at Tamarron-Highpoint include the original cost of land, engineering, surveying, road construction, utilities, interest and other costs. Costs are allocated to individual properties using the relative sales value method. Approximately $96,000 and $485,000 of such costs are included in inventory. Estates at Highpoint, comprised of nine homesites, is completed and eight homesites have been sold and closed. Estates at Pine Ridge, consisting of nine homesites, is in the initial stages of development. At December 31, 1995, approximately $116,000 of engineering, design, land and other costs are included in inventory. REVENUE RECOGNITION Revenue from resort operations is recognized as the related service is performed. Profit is recognized on real estate sales either when the closing occurs, or under the installment sales or cost recovery methods, as appropriate. Approximately $120,000 and $124,000 of deferred profit is reflected in the financial statements. EMPLOYEE BENEFIT PLANS GHI maintains a defined contribution Employee Thrift and Investment Plan (the Plan) which provides retirement benefits for all eligible employees who have elected to participate. Employees must fulfill a one year service requirement to be eligible. Employees may contribute a percentage of their compensation, as defined, to the Plan with the Company matching the lesser of one-half of the first 4% or $400 per employee annually. Company contributions required under the Plan approximated $130,000, $118,000 and $122,000 and are fully funded. Page 21 22 GHI also provides a supplemental retirement income plan for officers who meet certain eligibility requirements upon retirement. The Company has included its portion of the related liability in long-term obligations. During 1995, the Company's parent terminated its self-funded employee health insurance plan. The 1995 financial statements include approximately $277,000 of related termination costs in costs and operating expenses. INTEREST, NET The Company's cash management policy requires the utilization of cash resources to minimize net interest expense, through either temporary cash investments or reductions in existing interest-bearing obligations, as is most appropriate in the circumstances. Accordingly, temporary cash investments and interest income may vary significantly from period to period. Interest expense is net of interest income of $257,000, $153,000 and $150,000. FAIR VALUE OF FINANCIAL INSTRUMENTS The book value of all financial instruments other than the long-term contingency approximates the fair value. It is not practicable to determine the fair value of the long-term contingency. The fair value of the Company based on the foregoing is not a market valuation of the Company as a whole. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS In March 1995, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121) which addresses when and how impairments to the value of long-lived assets should be recognized. SFAS 121 is effective for fiscal years beginning after December 15, 1995, and will, therefore, be implemented by the Company in 1996. Management does not expect the implementation of SFAS 121 to have a material effect on the financial statements. (2) PROPERTY AND EQUIPMENT The components of property and equipment are as follows:
1995 1994 ------------ ------------ Undeveloped land........................... $ 1,327,284 $ 1,391,237 Land and land improvements................. 6,102,695 5,993,178 Buildings.................................. 23,255,334 22,672,434 Golf courses and recreational facilities... 10,050,804 9,229,773 Machinery and equipment.................... 23,958,054 22,454,392 Construction in progress................... 152,904 161,338 ----------- ----------- 64,847,075 61,902,352 Less - accumulated depreciation and amortization (24,616,055) (22,979,936) ----------- ----------- $40,231,020 $38,922,416 =========== ===========
The Company provides depreciation for financial reporting purposes using the straight-line unit method for buildings, vehicles and certain golf course and recreational facilities and the straight-line composite method for the other components. The estimates of useful lives used in computing annual depreciation are as follows: Page 22 23
LIFE -------------- Land improvements....................... 28 to 30 years Buildings............................... 50 years Golf courses and recreational facilities 30 to 75 years Machinery and equipment................. 10 to 15 years
The costs of maintenance and repairs of property and equipment used in operations are charged to expense as incurred. Costs of renewals and betterments are capitalized. When properties are replaced, retired or otherwise disposed of, the costs of such properties are deducted from the asset and accumulated depreciation accounts. Gains or losses on sales or retirements of buildings, vehicles and certain golf course and recreational facilities are recorded in income. Gains or losses on sales or retirements of all other property and equipment are recorded in the applicable accumulated depreciation accounts in accordance with the composite method. (3) NOTE PAYABLE AND LONG-TERM OBLIGATIONS
1995 1994 ----------- ----------- Note payable Under a $6,000,000 line of credit limited to a percentage of qualifying accounts receivable and inventories, with interest at prime (8.5% at December 31, 1995), due on demand. Approximately $2,949,000 was available for immediate use at year-end. Letters of credit of $659,000 were also outstanding. $ 1,285,773 $ 100 =========== =========== Long-term obligations Mortgage notes at varying rates, maturing primarily from 2004 to 2008 (see below) $18,810,140 $19,890,351 Equipment revolving credit line at prime, maturing serially from 1997 to 2000. $1,137,013 was available for use at December 31, 1995 3,862,987 3,835,670 Other 346,622 334,115 Unamortized debt discount and expense (506,000) (576,000) ----------- ----------- 22,513,749 23,484,136 Less - current maturities (1,854,401) (2,053,566) ----------- ----------- $20,659,348 $21,430,570 =========== ===========
Mortgage notes include $6,840,000 bearing interest at 9% through 1996 and then reverting to the prime rate; $6,541,000 at the prime rate; and the balance primarily at 9.25%. Page 23 24 During February 1996, $840,000 of long-term debt was incurred for the purpose of refinancing $840,000 of the short-term portion of the equipment revolving line of credit. The maturities at December 31, 1995 reflect this refinancing. The maturities of long-term obligations are as follows:
Year Ending December 31, ------------------------ 1997 2,655,078 1998 2,507,885 1999 1,883,543 2000 1,511,624 2001 1,490,473 Thereafter 10,610,745 ----------- $20,659,348 ===========
Substantially all property and equipment is pledged as collateral for long-term obligations. Generally, covenants of existing loan agreements prohibit the disposition of assets other than in the ordinary course of business, limit the amount of additional debt, limit the payment of dividends and require the maintenance of certain minimum financial ratios. Substantially all of the Company's long-term obligations are guaranteed by GHI. The Company obtained waivers for or was in compliance with all debt covenants at December 31, 1995. (4) LEASES Total rent expense on operating leases approximated $160,000, $232,000 and $361,000 and there were no contingent rentals or operating subleases. Future minimum rental payments on the Company's operating leases are not significant. (5) ACCRUED EXPENSES The components of accrued expenses are as follows:
1995 1994 ----------- ----------- Rental pool lease distribution $ 1,760,259 $ 1,895,688 Salaries 1,400,364 1,244,500 Taxes, other than income taxes 742,033 731,278 Other 371,429 444,953 ----------- ----------- $ 4,274,085 $ 4,316,419 =========== ===========
Page 24 25 (6) INCOME TAX ALLOCATION AND SHARING POLICY The Company joins with GHI in filing consolidated income tax returns. For financial reporting purposes, GHI has an income tax allocation and sharing policy which defines the manner in which income tax charges and benefits are allocated among GHI and its affiliates. The policy provides that the Company's charge (benefit) from GHI for income taxes be based on each affiliate's taxable income before income tax times the statutory tax rate. All income taxes are credited to the long-term intercompany liability to GHI as incurred and GHI accepts the future liability for the payment of the Company's deferred income taxes as they become due. The deferred taxes recorded by GHI result primarily from differences in the accounting for financial reporting and Federal income tax purposes of depreciation of property and equipment and the recognition of accruals and prepayments. (7) SUPPLEMENTAL CASH FLOW DATA CHANGES IN WORKING CAPITAL The (increases) decreases in working capital other than cash are as follows:
1995 1994 1993 ----------- ----------- ----------- Accounts receivable $ (708,251) $ (829,908) $ 1,324,136 Inventories and supplies 32,164 (759,044) 184,137 Prepaid expenses and other 16,724 213,587 180,443 Intercompany (260,038) 505,597 244,943 Accounts payable 429,351 246,857 (472,838) Accrued expenses (42,334) 692,627 (212,808) Deposits and prepaid fees (403,755) 618,979 324,197 ----------- ----------- ----------- $ (936,139) $ 688,695 $ 1,572,210 =========== =========== ===========
1995 1994 1993 ----------- ----------- ----------- NONCASH ACTIVITIES The Company obtained machinery and equipment through a trade-in. $ 351,050 $ -- $ -- The Company transferred un- developed land to inventory. $ 63,955 $ 25,324 $ -- The Company received land and related improvements from an affiliate in exchange for a long-term intercompany obligation. $ -- $ 236,385 $ -- The Company satisfied its preferred stock dividend liability to GHI through the intercompany account. $ 256,312 $ 256,312 $ 256,312
Page 25 26 OTHER INFORMATION Interest paid in cash, net of amounts capitalized $ 2,100,000 $2,249,000 $ 1,956,000
(8) LONG-TERM CONTINGENCY The Company entered into an agreement with the Lessors' Advisory Committee of the Innisbrook Rental Pool (the IRP) to fund certain improvements to the condominiums and common areas. A total of $1,779,000 was advanced on similar terms to the Company by HHC (see Note 1), with HHC's opportunity to collect these advances expiring at the end of 10 years. The amount advanced GHR, together with accrued interest thereon, exceeds the amount due from IRP by $90,978. Repayment of the advances is contingent upon the IRP distribution exceeding a specified level. This level was first exceeded in 1995, resulting in a repayment of $150,036 by the IRP to the Company. The like amount due HHC is reflected in accounts payable at December 31, 1995. An additional $1,721,000 was drawn under the Innisbrook HHC agreement primarily to acquire GHR property and equipment. Its repayment is contingent upon Innisbrook exceeding certain not yet attained earnings levels. HHC's opportunity to collect under the agreement expires at the end of 20 years. Accordingly, this amount, together with $265,781 of interest accrued at 8% per annum, is reflected on the balance sheet as long-term contingency. No amounts have yet been advanced to the Company under the Tamarron HHC management agreement (see Note 1). Page 26 27 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To Golf Host Resorts, Inc., and the Lessors of the Innisbrook Rental Pool Lease Operation: We have audited the accompanying balance sheets of the INNISBROOK RENTAL POOL LEASE OPERATION (Note 1) as of December 31, 1995 and 1994, and the related statements of operations and changes in participants' fund balances for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Innisbrook Rental Pool Lease Operation as of December 31, 1995 and 1994, and the results of its operations and changes in its participants' fund balances for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Tampa, Florida, March 22, 1996 Page 27 28 INNISBROOK RENTAL POOL LEASE OPERATION BALANCE SHEETS DECEMBER 31, 1995 AND 1994 DISTRIBUTION FUND
1995 1994 ---------- ---------- ASSETS RECEIVABLE FROM GOLF HOST RESORTS, INC. FOR DISTRIBUTION - FULLY SECURED $1,592,105 $1,705,455 INTEREST RECEIVABLE FROM MAINTENANCE ESCROW FUND 16,568 9,870 ---------- ---------- $1,608,673 $1,715,325 ========== ========== LIABILITIES AND PARTICIPANTS' FUND BALANCES DUE TO PARTICIPANTS FOR DISTRIBUTION $1,473,319 $1,559,136 DUE TO MAINTENANCE ESCROW FUND 135,354 156,189 COMMITMENTS AND CONTINGENCIES (Note 3) PARTICIPANTS' FUND BALANCES -- -- ---------- ---------- $1,608,673 $1,715,325 ========== ========== MAINTENANCE ESCROW FUND ASSETS CASH AND CASH EQUIVALENTS $1,132,243 $ 844,579 INVENTORIES 251 251 RECEIVABLE FROM DISTRIBUTION FUND 135,354 156,189 INTEREST RECEIVABLE 17,902 7,067 ---------- ---------- $1,285,750 $1,008,086 ========== ========== LIABILITIES AND PARTICIPANTS' FUND BALANCES ACCOUNTS PAYABLE $ 85,087 $ 77,947 INTEREST PAYABLE TO DISTRIBUTION FUND 16,568 9,870 CARPET CARE RESERVE 42,836 69,062 PARTICIPANTS' FUND BALANCES 1,141,259 851,207 ---------- ---------- $1,285,750 $1,008,086 ========== ==========
The accompanying notes are an integral part of these balance sheets. Page 28 29 INNISBROOK RENTAL POOL LEASE OPERATION STATEMENTS OF OPERATIONS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 3L, 1995 DISTRIBUTION FUND
1995 1994 1993 ----------- ----------- ----------- GROSS REVENUES $14,662,736 $13,412,188 $10,666,089 ----------- ----------- ----------- DEDUCTIONS: Agents' commissions 353,383 437,827 369,199 Audit fees 12,100 11,500 11,500 ----------- ----------- ----------- 365,483 449,327 380,699 ----------- ----------- ----------- ADJUSTED GROSS REVENUES 14,297,253 12,962,861 10,285,390 MANAGEMENT FEE (6,719,709) (6,092,545) (4,834,132) ----------- ----------- ----------- GROSS INCOME DISTRIBUTION 7,577,544 6,870,316 5,451,258 ADJUSTMENTS TO GROSS INCOME DISTRIBUTION: Corporate complimentary occupancy fees 8,441 7,171 8,381 Occupancy fees (1,343,526) (1,276,451) (1,064,147) Advisory Committee expenses (89,120) (88,794) (81,205) Life-safety reimbursement (132,635) - - ----------- ----------- ----------- NET INCOME DISTRIBUTION 6,020,704 5,512,242 4,314,287 ADJUSTMENTS TO NET INCOME DISTRIBUTION: Occupancy fees 1,343,526 1,276,451 1,064,147 Hospitality suite fees 11,093 17,164 18,788 Greens fees 91,338 87,721 79,703 Additional participation credits 75,775 78,405 82,065 ----------- ----------- ----------- AMOUNT AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS $ 7,542,436 $ 6,971,983 $ 5,558,990 =========== =========== ===========
The accompanying notes are an integral part of these statements. Page 29 30 INNISBROOK RENTAL POOL LEASE OPERATION STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCES FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 3L, 1995 DISTRIBUTION FUND
1995 1994 1993 ----------- ----------- ----------- BALANCE, beginning of year $ -- $ -- $ -- ADDITIONS: Amounts available for distribution to participants 7,542,436 6,971,983 5,558,990 Interest received or receivable from Maintenance Escrow Fund 58,209 29,220 27,731 REDUCTIONS: Amounts withheld for Maintenance Escrow Fund (671,782) (638,237) (532,091) Amounts accrued or paid to participants (6,928,863) (6,362,966) (5,054,630) ----------- ----------- ----------- BALANCE, end of year $ -- $ -- $ -- =========== =========== =========== MAINTENANCE ESCROW FUND 1995 1994 1993 ----------- ----------- ----------- BALANCE, beginning of year $ 851,207 $ 733,465 $ 729,651 ADDITIONS: Amounts withheld from occupancy fees 671,782 638,237 532,091 Interest earned 58,209 29,220 27,731 Charges to participants to establish or restore escrow balances 1,341,784 859,410 957,674 REDUCTIONS: Maintenance charges (1,644,340) (1,278,411) (1,371,301) Carpet care reserve deposit (13,449) (51,056) (51,313) Interest accrued or paid to Distribution Fund (58,209) (29,220) (27,731) Refunds to participants as prescribed by Master Lease Agreement (65,725) (50,438) (63,337) ----------- ----------- ----------- BALANCE, end of year $ 1,141,259 $ 851,207 $ 733,465 =========== =========== ===========
The accompanying notes are an integral part of these statements. Page 30 31 INNISBROOK RENTAL POOL LEASE OPERATION NOTES TO FINANCIAL STATEMENTS DECEMBER 3L, 1995, 1994 AND 1993 (1) RENTAL POOL LEASE OPERATION AND RENTAL POOL LEASE AGREEMENT: Organization and Operations The Innisbrook Rental Pool Lease Operation (the Rental Pool) consists of condominium apartments at Innisbrook Hilton Resort (Innisbrook) which are provided as hotel accommodations by their owners. The condominium owners (Participants) have entered into Annual Rental Pool Lease Agreements (ALAs) and a Master Lease Agreement (MLA), which defines the terms and conditions related to each ALA with Golf Host Resorts, Inc. (GHR), the lessee of the Rental Pool. The MLA and ALAs are referred to collectively as the "Agreements." The ALAs expire at the end of each calendar year; the MLA will remain in effect through December 31, 2001. The Rental Pool consists of two funds: the Distribution Fund and the Maintenance Escrow Fund. The Distribution Fund balance sheets primarily reflect amounts receivable from GHR for the Rental Pool distribution payable to Participants by the fund (as discussed below) and amounts due to the Maintenance Escrow Fund. The operations of the Distribution Fund reflect the earnings of the Participants in the Rental Pool (as discussed below). The Maintenance Escrow Fund reflects the accounting for certain escrowed assets of the Participants and, therefore, has no operations. It consists primarily of amounts escrowed by Participants or due from the Distribution Fund to meet escrow requirements, the carpet care reserve and amounts payable for maintenance services received. Amounts receivable from GHR for distribution to Participants are secured by a secondary interest in certain accounts receivable of GHR. Timely funding is required to the extent that borrowings available to GHR under its accounts receivable financing line of credit are less than the amounts due. The receivable from GHR as of December 31, 1995 was paid in accordance with the terms of the Agreements. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of management's estimates. Computation and Allocation of Earnings The Participants and GHR share the Adjusted Gross Revenues of the Rental Pool in accordance with the terms of the Agreements. Adjusted Gross Revenues consist of revenues earned from the rental of condominium apartments, net of agents' commissions (not to exceed 5.5% of Gross Revenues, as defined in the Agreements) and audit fees. GHR receives a Management Fee equal to 47% of Adjusted Gross Revenues. Each Participant receives a fixed Occupancy Fee, based on apartment size, for each day of occupancy. After the allocation of the Occupancy Fees, the balance of Adjusted Gross Revenues, net of the Management Fee and adjustments, is allocated proportionately to the Participants, based on the Participation Factor as defined in the Agreements. Corporate complimentary occupancy fees are rental fees paid by GHR for complimentary rooms unrelated to Rental Pool operations. Owners who purchased units prior to January 1, 1991 who participate in the Rental Pool for at least 50% of the year or 50% of the time they owned Page 31 32 their unit receive Additional Participation Credits. Participation in greens fees is restricted to original condominium apartment owners who executed purchase agreements for certain units prior to April 13, 1972. Greens fees and Additional Participation Credits are requirements of agreements other than the current Agreements; they have been included in Adjustments to Net Income Distribution of the Rental Pool as this treatment is consistent with the method utilized by GHR to pay such amounts to the applicable Participants. Maintenance Escrow Fund Accounts The Agreements provide that 50% of the Occupancy Fees earned by each Participant shall be deposited in such Participant's Maintenance Escrow Fund account. This account provides funds for the payment of amounts which are chargeable to the Participant under the Agreements for maintenance and refurbishment services. When the balance of the Participant's Maintenance Escrow Fund account exceeds 50% of the defined furniture replacement value, the excess shall be refunded to the Participant, as provided in the Agreements. Should a Participant's balance fall below that necessary to provide adequate funds for maintenance and replacements, the Participant is required to restore the escrow balance to an adequate level. A percentage of the Occupancy Fees is deposited into the Carpet Care reserve in the Maintenance Escrow Fund which will bear the expenses of carpet cleaning for all Participants. This percentage is estimated to provide the amount necessary to fund such expenses and may be adjusted annually. The amounts expended for carpet care were $39,675, $59,182 and $48,759 for 1995, 1994 and 1993, respectively. GHR, under the direction of the Lessors' Advisory Committee and in compliance with restrictions in the MLA, invests the funds of this account on behalf of the Participants. The Lessors' Advisory Committee consists of nine Participants elected to advise GHR in Rental Pool matters. Income earned on these investments is allocated proportionately to Participants' Maintenance Escrow Fund accounts and paid quarterly through the Distribution Fund. Included in cash and cash equivalents at December 31, 1995 are certificates of deposit of $850,000, at cost, maturing between March 8, 1996 and December 8, 1997, and bearing interest at rates from 5.45% to 6.45%, with the remainder being held in a money market account. (2) AFFILIATE AND GHR OWNED CONDOMINIUM APARTMENTS: GHR, as well as certain shareholders, directors and officers of GHR and its affiliates own condominium apartments which participate in the Rental Pool in the same manner as all others. (3) COMMITMENTS AND CONTINGENCIES: During March 1993, GHR entered into an agreement with Hilton Hotels Corporation (HHC) whereby HHC manages Innisbrook. In connection with this agreement, HHC agreed to fund the cost of certain special projects and property improvements, including the installation of life-safety equipment in condominium units participating in the Rental Pool and related common areas. Separately, the Rental Pool agreed to reimburse GHR the cost of installing the life-safety equipment, including reimbursements to condominium apartment owners for previously installed equipment, in an amount equal to Page 32 33 $1,779,000, plus interest at 7.75% per annum for no more than five years on each related draw thereunder. Payments are required for years in which the Amount Available for Distribution to Participants exceeds $7,375,000, and shall equal 50% of such excess. If a participant withdraws from the Rental Pool for any reason, other than a sale, before the obligation to GHR has been fully repaid, such participant will be required to immediately pay a proportionate share of the unpaid balance. In 1995, this threshold was reached, resulting in a repayment of $150,036. Of the total repayment, $132,635 was an Adjustment to Gross Income Distribution. The remaining $17,401 was repaid with receipts from Participants who withdrew from the Rental Pool during the year. The repayment was applied against interest. The Rental Pool is not obligated to reimburse GHR if the agreement between HHC and GHR is terminated. Also, after 10 years, any amounts still due GHR, including interest, will no longer be payable and the Rental Pool's obligation to GHR will end. As of December 31, 1995, the maximum amount payable under this arrangement excluding any future interest accrual was $1,752,971, including accrued interest of $39,764. Page 33 34 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To Golf Host Resorts, Inc., and the Lessors of the Tamarron Rental Pool Lease Operation: We have audited the accompanying balance sheets of the TAMARRON RENTAL POOL LEASE OPERATION (Note 1) as of December 31, 1995 and 1994, and the related statements of operations and changes in participants' fund balances for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Tamarron Rental Pool Lease Operation as of December 31, 1995 and 1994, and the results of its operations and changes in its participants' fund balances for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Tampa, Florida, March 22, 1996 Page 34 35 TAMARRON RENTAL POOL LEASE OPERATION BALANCE SHEETS DECEMBER 31, 1995 AND 1994 DISTRIBUTION FUND
1995 1994 -------- -------- ASSETS CASH $ 1,000 $ 1,000 RECEIVABLE FROM GOLF HOST RESORTS, INC. FOR DISTRIBUTION 168,154 190,233 INTEREST RECEIVABLE FROM MAINTENANCE ESCROW FUND 1,750 1,616 -------- -------- $170,904 $192,849 ======== ======== LIABILITIES AND PARTICIPANTS' FUND BALANCES DUE TO PARTICIPANTS FOR DISTRIBUTION $138,622 $154,973 DUE TO MAINTENANCE ESCROW FUND 32,282 37,876 PARTICIPANTS' FUND BALANCES -- -- -------- -------- $170,904 $192,849 ======== ======== MAINTENANCE ESCROW FUND ASSETS CASH AND CASH EQUIVALENTS $174,562 $302,883 DUE FROM DISTRIBUTION FUND 32,282 37,876 INTEREST RECEIVABLE 2,235 -- INVENTORY: Linen 89,049 60,272 Materials and supplies 9,320 10,409 DEPOSITS 37,299 -- -------- -------- $344,747 $411,440 ======== ======== LIABILITIES AND PARTICIPANTS' FUND BALANCES ACCOUNTS PAYABLE $ 14,661 $ 12,169 INTEREST PAYABLE TO DISTRIBUTION FUND 1,750 1,616 PARTICIPANTS' FUND BALANCES 328,336 397,655 -------- -------- $344,747 $411,440 ======== ========
The accompanying notes are an integral part of these balance sheets. Page 35 36 TAMARRON RENTAL POOL LEASE OPERATION STATEMENTS OF OPERATIONS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995 DISTRIBUTION FUND
1995 1994 1993 ----------- ----------- ----------- GROSS REVENUES $ 3,633,333 $ 3,784,599 $ 3,616,097 ----------- ----------- ----------- DEDUCTIONS: Agents' commissions 113,560 161,030 136,901 Sales and marketing expenses 327,000 359,537 361,610 Audit fees 10,400 9,800 9,800 ----------- ----------- ----------- 450,960 530,367 508,311 ----------- ----------- ----------- ADJUSTED GROSS REVENUES 3,182,373 3,254,232 3,107,786 MANAGEMENT FEE (1,591,186) (1,627,116) (1,584,971) ----------- ----------- ----------- GROSS INCOME DISTRIBUTION 1,591,187 1,627,116 1,522,815 ADJUSTMENTS TO GROSS INCOME DISTRIBUTION: Corporate complimentary occupancy fees 2,990 3,558 8,315 Occupancy fees (307,019) (343,065) (356,406) Designated items (65,275) (53,595) (55,789) Advisory Committee expenses (6,425) (3,963) -- ----------- ----------- ----------- POOLED INCOME 1,215,458 1,230,051 1,118,935 ADJUSTMENTS TO POOLED INCOME: Hospitality suite fees 105 973 - Occupancy fees 307,019 343,065 356,406 ----------- ----------- ----------- NET INCOME DISTRIBUTION $ 1,522,582 $ 1,574,089 $ 1,475,341 =========== =========== ===========
The accompanying notes are an integral part of these statements. Page 36 37 TAMARRON RENTAL POOL LEASE OPERATION STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCES FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995 DISTRIBUTION FUND
1995 1994 1993 ----------- ----------- ----------- BALANCE, beginning of year $ -- $ -- $ -- ADDITIONS: Net income distribution 1,522,582 1,574,089 1,475,341 Interest received or receivable from Maintenance Escrow Fund 6,004 5,350 3,108 REDUCTIONS: Amounts withheld for Maintenance Escrow Fund (153,513) (171,533) (178,204) Amounts accrued or paid to participants (1,375,073) (1,407,906) (1,300,245) ------------ ----------- ----------- BALANCE, end of year $ -- $ -- $ -- =========== =========== ===========
MAINTENANCE ESCROW FUND
1995 1994 1993 ----------- ----------- ----------- BALANCE, beginning of year $ 397,655 $ 258,562 $ 247,312 ADDITIONS: Amounts withheld from occupancy fees 153,513 171,533 178,204 Interest earned 6,004 5,350 3,108 Reimbursement of designated items 65,275 53,595 55,789 Charges to participants to establish or restore escrow balances 116,398 140,794 101,732 REDUCTIONS: Maintenance and inventory charges (172,737) (128,628) (148,100) Refurbishing charges (138,476) (8,901) (86,466) Interest accrued or paid to Distribution Fund (6,004) (5,350) (3,108) Designated items (65,275) (53,595) (55,789) Refunds to participants as prescribed by Master Lease Agreement (28,017) (35,705) (34,120) ----------- ----------- ----------- BALANCE, end of year $ 328,336 $ 397,655 $ 258,562 =========== =========== ===========
The accompanying notes are an integral part of these statements. Page 37 38 TAMARRON RENTAL POOL LEASE OPERATION NOTES TO FINANCIAL STATEMENTS DECEMBER 3L, 1995, 1994 AND 1993 (1) RENTAL POOL LEASE OPERATION AND RENTAL POOL LEASE AGREEMENT: Organization and Operations The Tamarron Rental Pool Lease Operation (the Rental Pool) consists of condominium apartments at Tamarron Hilton Resort which are provided as hotel accommodations by their owners. The condominium owners (Participants) have entered into Annual Rental Pool Lease Agreements (ALAs) and a Master Lease Agreement (MLA), which defines the terms and conditions related to each ALA, with Golf Host Resorts, Inc. (GHR), the lessee of the Rental Pool. The MLA and ALAs are referred to collectively as the "Agreements." The ALAs expire at the end of each calendar year. The MLA is effective through 2003 and is substantially the same as the previous MLA which was effective for calendar years 1989 through 1993. The Rental Pool consists of two funds: the Distribution Fund and the Maintenance Escrow Fund. The Distribution Fund balance sheets primarily reflect amounts due from GHR for the Rental Pool distribution payable to Participants by the fund (as discussed below) and amounts due to the Maintenance Escrow Fund. The operations of the Distribution Fund reflect the earnings of the Participants in the Rental Pool (as discussed below). The Maintenance Escrow Fund reflects the accounting for certain escrowed assets of the Participants and, therefore, has no operations. It consists primarily of amounts escrowed by Participants or due from the Distribution Fund to meet escrow requirements and inventory to provide for periodic maintenance and repairs to Participants' condominium apartments. Funding of the estimated amounts receivable from GHR for distribution is due at least weekly to the extent that borrowings available to GHR under its various lines of credit are less than the amounts due to the Distribution Fund. The receivable from GHR as of December 31, 1995, was paid in accordance with the terms of the Agreements. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of management's estimates. Computation and Allocation of Earnings The Participants and GHR share the Adjusted Gross Revenues of the Rental Pool in accordance with the terms of the Agreements. Adjusted Gross Revenues consist of revenues earned from the rental of condominium apartments net of Sales and Marketing expenses (limited to 9% of gross revenues for 1995, 9.5% of gross revenues for 1994, and 10% of gross revenues for 1993), agents' commissions (not to exceed 5.5% of Gross Revenues beginning in 1994) and audit fees. GHR receives a Management Fee equal to 50% of Adjusted Gross Revenues (51% for 1993). Each Participant receives a fixed Occupancy Fee, based on apartment size, for each day of occupancy. After the allocation of Occupancy Fees, the balance of Adjusted Gross Revenues, net of the Management Fee adjustments, is allocated proportionately to the Participants based on the Participation Factor as defined in the Agreements. Corporate complimentary occupancy fees are rental fees paid by GHR for complimentary rooms unrelated to Rental Pool operations. Page 38 39 Maintenance Escrow Fund Accounts The Agreements provide that 50% of the Occupancy Fees earned by each Participant shall be deposited in such Participant's Maintenance Escrow Fund account. This account provides funds for the payment of amounts which are chargeable to the Participant under the Agreements for maintenance and refurbishment services. When the balance of the Participant's Maintenance Escrow Fund account exceeds the maximum specified in the Agreements, the excess shall be refunded to the Participant, as provided in the Agreements. Should a Participant's balance fall below that necessary to provide adequate funds for maintenance and replacements, the Participant is required to restore the escrow balance to an adequate level. Funds deposited in the Maintenance Escrow Fund are invested on behalf of the Participants. Income earned on these investments is allocated proportionately to Participants' Maintenance Escrow Fund accounts and paid quarterly through the Distribution Fund. Cash and cash equivalents at December 31, 1995 includes a certificate of deposit of $50,000, at cost, maturing January 28, 1996, and bearing interest at 5.25%, with the remainder in a demand account bearing interest at 2.75%. (2) AFFILIATE-OWNED CONDOMINIUM APARTMENTS: Golf Host Development, Inc. (an affiliate of GHR), as well as certain shareholders, directors and officers of GHR and its affiliates own condominium apartments which participate in the Rental Pool in the same manner as all others. (3) LINEN AND MATERIALS AND SUPPLIES INVENTORY: Linen amortization and the cost of Participants' actual usage of certain supplies, collectively referred to as Designated Items, are charged to all Participants as a group and allocated to the Participants based upon their Participation Factors. Linen inventory is stated at cost, less accumulated amortization of $48,211 and $52,205 at December 31, 1995 and 1994, respectively. Linen Amortization is computed on the straight-line method over an estimated useful life of 48 months. Materials and supplies inventories consist primarily of minor apartment furnishings and appliances carried at cost, determined on a first-in, first-out basis. The cost of such items, not considered Designated Items, are charged to Participants' individual Maintenance Escrow accounts based on actual usage. Page 39 40 EXHIBIT INNISBROOK RENTAL POOL LEASE OPERATIONS Policy For Different Situations That Might Arise Regarding the Installation of Life Safety Equipment (As determined by Lessors' Advisory Committee) Standards for units currently in the rental pool have been updated to include a sprinkler system and a keyless entry system, which throughout the remainder of this policy statement will be designated Life Safety Equipment. The cost for installation of said equipment will be paid over a limited period of time (10 years maximum) by applying 50% of the pooled owners' rental pool distribution that is in excess of the established threshold ($7,375,000). Other situations: 1. Once a lodge has had Life Safety Equipment installed, any owner whose unit had not been in the pool, but now wants to enter, must conform to the existing standard. That will include a sprinkler and a keyless entry system. The cost for same will be a direct owner expense. 2. If a non-rental pool owner elects and pays to have Life Safety Equipment installed in his unit, at the time his lodge is being done and later enters the rental pool, no adjustment will be made monetarily. 3. A non-rental pool owner enters the pool and meets existing standards prior to the installation of Life Safety Equipment in his lodge. Unit is automatically included in both upgrades and owner will receive rental pool distribution according to Section 2.2 of Master Lease Agreement. 4. A non-rental pool owner elects not to have Life Safety Equipment installed in his unit at the time his lodge is being done. Later, the owner decides to sell his unit. In order for the unit to participate in the rental pool, it must conform to existing standards. That would include sprinklers and a keyless entry system. Seller would be responsible for installation cost. 5. An owner signs the Annual Lease Agreement but is not in the pool because he either fails to meet current standards or reserves his unit for the entire year for personal use. Such an owner will only have Life Safety Equipment installed if he so requests and pays for it. 6. (a) Except as provided for hereinafter, if a Rental Pool Owner, who has not fully paid the costs of said Life Safety Equipment for his unit, withdraws said unit from the Lease Operation for any reason before the full costs of said Life Safety Equipment, including accrued interest, have been paid, said Rental Pool Owner shall pay, no later than the effective date of said withdrawal, the then "Proportionate Unit Charge" for said unit, computed by applying the "Withdrawal Factor" for said unit to the then "Outstanding Advances" as calculated from time to time by Lessee. Said payment may be paid from the Escrow Account for said unit to the extent available, otherwise directly by the Rental Pool Owner. 41 Page 2 (b) Notwithstanding the foregoing, in the event of sale, if the Purchaser of said unit elects to immediately rededicate said unit to the Lease Operation, the Seller may be relieved of the obligation to pay said "Proportionate Unit Charge" if the Purchaser, simultaneously with the acquisition of and rededication of said unit, becomes a party to an Assumption Agreement in substantially the form of the attached Exhibit A. The obligation of the Purchaser shall be exactly the same as the obligation of the Seller. 7. To be eligible for the rental pool, all C and D units must have Life Safety Equipment system installed throughout the apartment. In cases where only one part of the apartment is in the rental pool, that portion will be paid through the pooled rental pool distribution and the other half directly by the owner. ADDENDUM TO POLICY: Any situation not specifically addressed in the current policy statement will be decided by the LAC on a fact and circumstance basis. Revised & Adopted March 4, 1996 Robert J. Singleton LAC Chairperson 42 EXHIBIT A ASSUMPTION AGREEMENT Innisbrook Lease Operation Life Safety Equipment AS PART CONSIDERATION for the transfer of the ownership of the Innisbrook Condominium Unit designated below, the undersigned purchaser, upon becoming the new owner, hereby agrees: (a) to assume and by these presents has assumed, simultaneously with the acquisition of said Unit, the obligation of the seller for the unpaid balance, including accrued interest, of the acquisition costs of the LIFE SAFETY EQUIPMENT for said unit. (b) to be bound by the provisions of the Resolution of the Innisbrook Lessor's Advisory Committee (LAC) adopted March 10, 1993, including the POLICY FOR DIFFERENT SITUATIONS THAT MIGHT ARISE REGARDING THE INSTALLATION OF LIFE SAFETY EQUIPMENT adopted April 30, 1993, as amended by the Resolution of LAC adopted March 4, 1996. (c) to acknowledge and accept that said unpaid balance, including interest, is $______________________________ as of _________________________________, and that this unpaid balance may increase or decrease dependent upon the performance of the Innisbrook Lease Operation and/or the accruing of additional interest. Purchaser:________________________ Seller:___________________________ Lodge:____________________________ Unit#(s)__________________________ Executed this____day of___________,199_ _______________________________________ Purchaser/New Owner _______________________________________ Purchaser/New Owner EX-27 2 FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY)
5 0000042429 GOLF HOST RESORTS, INC. 1 US DOLLARS YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 312,603 0 5,159,794 60,300 4,392,498 11,579,236 64,847,075 24,616,055 52,822,127 12,006,377 22,513,749 0 4,577,000 5,000 9,372,433 52,822,127 19,853,955 57,568,773 6,369,447 53,315,391 0 60,327 2,124,965 2,128,417 752,500 1,375,917 0 0 0 1,375,917 275.18 275.18
-----END PRIVACY-ENHANCED MESSAGE-----