-----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, JdkETK/5ufaeTrjpdf6+krgf02GseHfvom0CrDpB4ZNDJ1/eIsXYz7UyIKrCHimX aXmO4yh8EZZsKbnq8iWBiA== 0000950144-97-003483.txt : 19970401 0000950144-97-003483.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950144-97-003483 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 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: 97569890 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 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, 1996 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 (l) 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, with the remaining homesite sold during 1996 and closed during 1997. During 1995, the Company began a second development of nine residential homesites, Estates at Tamarron-Pine Ridge. Construction of required improvements has commenced and is substantially complete. Two of the sites were sold and closed during 1996. Page 2 3 The percentages of the foregoing revenues to total revenues are as follows:
REVENUES 1996 1995 1994 ----------- ----------- ---------- Hotel 33.1% 32.4% 32.7% Food and Beverage 26.5 25.8 25.3 Golf 28.2 28.3 29.3 Other 10.9 11.4 11.2 Real Estate Activities 1.3 2.1 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; three practice ranges; three clubhouses with retail golf, food and beverage outlets; three conference and exhibit buildings; six swimming pools; a recreation center; tennis facility and numerous administrative and support structures. Tamarron is a condominium resort project situated on approximately 730 acres of land located in the northern portion of La Plata County, Colorado. It is north of Durango (approximately l8 miles) and south of Silverton (approximately 28 miles). The property is surrounded on three sides by the San Juan National Forest and is readily accessible via U.S. Highway 550. There are 381 condominium units, all of which are eligible for rental pool participation. Approximately 290 units, on average, participate in the rental pool. The resort complex includes 18 holes of golf; a practice range; an indoor swimming pool; several restaurants and lounges; a conference facility; a tennis complex and numerous administrative and support 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, 1996, the properties are encumbered by various mortgages totalling $16,855,194. 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 1,284 condominium units allowing rental pool participation by their owners, of which three are owned by the Company and one is owned by an affiliate of the Company. Of the units not owned by the Company or its affiliate, 1,259 were sold under Registration Statements effective through March 1, 1983. The remaining 21 units were sold via private offerings exempt from registration with the Securities and Exchange Commission. The condominium units not owned by the Company or its affiliate are held by 1,141 different owners. The condominium units sold by the Company, allowing rental pool participation, are deemed to be securities because of the rental pool feature (see Item 1); however, there is no market for such securities other than the normal real estate market. Since the security is real estate, no dividends have been paid or will be paid. 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 statment and notes thereto appearing elsewhere in this annual report on Form 10-K. Year Ended December 3l, ------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 -------------- --------------- --------------- ---------------- ------------------- OPERATING REVENUE $ 57,710,742 $ 56,535,735 $ 52,573,941 $ 45,101,103 $49,864,000 =========== =========== =========== ============ ========== NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 1,114,211 $ 1,119,605 $ 137,607 $ (794,374) $ 626,874 =========== =========== =========== ============ ========== NET INCOME (LOSS) PER COMMON SHARE $ 222.84 $ 223.92 $ 27.52 $ (158.87) $ 125.38 =========== =========== =========== ============ ========== TOTAL ASSETS $ 53,135,194 $ 52,822,127 $ 50,579,114 $ 49,278,940 $51,330,483 =========== =========== =========== ============ ========== LONG-TERM OBLIGATIONS $ 28,474,570 $ 30,001,491 $ 28,861,345 $ 28,825,440 $30,083,567 =========== =========== =========== ============ ========== 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 ------- -------- 1996 176,149 (.5) 1995 177,059 1.2 1994 174,967 18.7
During 1996, total revenues increased approximately 2% from the prior year level. Revenues from non Real Estate Activities (Resort Activities) increased approximately 3%, while those from Real Estate Activities, representing residential homesite sales at Tamarron, declined 34%. During 1996, there were two residential homesite sales closed; in 1995 and 1994, five and three were closed, respectively. During 1996, the Company recognized approximately $120,000 of deferred profit from a homesite sale and closing that occurred in 1994. On a per occupied room night basis, 1996 revenues from Resort Activities increased at a rate approximately equal to that of the general price level, as measured by the CPI-U. However, significant gains were enjoyed at Innisbrook in average daily room rate and average food & beverage revenue per occupied room. The operating income margin, at approximately 7%, declined from the year ago level, primarily as the result of expenses associated with the commencement of the Hilton Management Agreement at Tamarron. During 1996, the Company successfully outsourced two of its minor operated departments at Innisbrook, transportation and media services. Thus far, the Company is pleased with the quality of service rendered by the outside providers and believes that the outside providers will be better able to maintain the appropriate levels of equipment required to meet the needs of Innisbrook's clientele. This change will also eliminate the demand for capital resources in connection with equipment additions and replacements for transportation and media services. Interest expense for 1996 declined from the year-ago level, generally as a result of a lower average prime rate, on which the interest rate of substantially all of the company's debt is based. Total revenues for 1995 represented approximately an 8% increase over 1994, consisting of increases of approximately 7% and 50% for Resort Activities and Real Estate Activities, respectively. The percentage gain in Resort Activities revenues far exceeded the modest increase in occupied rooms. Moreover, when measured on the basis of revenue per occupied room, the increase in 1995 over the 1994 level well exceeded the change in the general price level. The significant improvement in the operating income relationship to total revenues, when compared with the prior year, can be primarily attributed to the gains achieved in revenue per occupied room. Interest expense during 1995 increased from the 1994 level, generally reflecting the somewhat higher prime rate. Page 6 7 Financial Condition The Company's net working capital deficit increased approximately $851,000 from the year-ago level, resulting in a working capital ratio of .90:1. The Company has typically operated with deficit working capital without impairing its ability to meet its credit obligations in a timely and orderly fashion. Cash flows from operating activities sufficiently provided for approximately $2,450,000 of capital additions during the year and a reduction in the level of debt outstanding. 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. At December 31, 1996, approximately $3,786,000 was available for immediate use under these credit facilities. Specific financing is available for equipment additions. Amounts available under loan agreements with Hilton Hotels Corporation are discussed in Note 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 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 10K 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. 68 President and C.E.O. Director Centerpoint Communications, Inc. Richard S. Ferreira 56 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 69 Partner in the law firm of Secretary and Director Foley and Lardner (retired and currently of counsel) C. James McCormick 71 Chairman of the Board, Chairman of the Board McCormick, Inc. and Director Brenton Wadsworth (a) 68 Chairman of the Board, Director Wadsworth Golf Course Construction Companies Stanley D. Wadsworth (a) 61 President of the Company and President and Director its parent, Golf Hosts, Inc. (a) Brothers
All directors and officers serve a one year term or until their successors are elected. 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, 1996, to the Company's executive officers.
All Other Fiscal Salary and Bonus Other Annual Compensation ($) Name and Principal Position Year Commission ($) ($) Compensation ($) (1) - ------------------------------------------ ----------- ---------------- --------- ---------------- --------------- Golf Hosts, Inc.: Stanley D. Wadsworth 1996 153,000 15,400 - 14,492 President & Chief 1995 147,100 33,300 - 93,898 Executive Officer 1994 142,100 16,500 - 23,446 Richard S. Ferreira 1996 148,600 15,600 - 7,473 Executive Vice President 1995 143,200 37,200 - 22,747 & Chief Financial Officer 1994 138,650 17,700 - 5,784
(1) Includes Company 401(k) matching contributions of $400 annually for each named executive officer, life insurance premiums, medical reimbursements and the value of Company provided vehicles. 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 l5 years of service, are still employed at age 65 by the Company and retire. The Plan provides an annual income of $l0,000 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 61 27 Richard S. Ferreira 56 26
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):
Beneficially Title of (D)irect or Owned Class Name (I)ndirect Shares Shares Percent Common William Ellis D 50 Betty Ellis I 50 100 0.2% Common Richard S. Ferreira D 139 Cathlene & Richard Ferreira I 532 671 1.3% Common Lewis H. Hill D 1,000 Sally S. Hill I 100 1,100 2.1% Common C. James McCormick D 1,869 Bettye J. McCormick I 2,000 Clarence & Lynn McCormick I 1,963 Michael & Margaret McCormick I 1,963 Patrick & Sara McCormick I 1,963 Craig & Jane Wissel I 1,963 11,721 22.7% Common Brenton Wadsworth D 0 Jean Wadsworth I 1,236 The Wadsworth Children's Trust I 1,505 Stanley L. Wadsworth I 908 The Wadsworth Partnership I 5,148 Wadsworth Golf Charities Foundation I 3,000 11,797 22.9% Common Stanley D. Wadsworth D 10,028 10,028 19.4% ______ ______ 35,417 35,417 68.7% ______ ______ ______ ______ Total Golf Hosts, Inc. shares outstanding 51,562 ______ ______
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 Page 11 12 (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 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 27 Financial Data Schedule (for SEC use only) 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/ C. James McCormick By: /s/ B. Wadsworth -------------------------------------- ------------------------ C. James McCormick Brenton Wadsworth Chairman of the Board and Director Director
Dated: March 28, 1997 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, 1996 and 1995, and the related statements of operations, shareholders' investment and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Golf Host Resorts, Inc. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Tampa, Florida, March 21, 1997 Page 14 15 GOLF HOST RESORTS, INC. BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS (Substantially all pledged - Note 3)
1996 1995 -------------- ------------ CURRENT ASSETS: Cash $ 488,685 $ 312,603 Accounts receivable 4,380,108 4,471,677 Notes receivable 163,942 627,817 Inventories and supplies 5,123,966 4,392,498 Prepaid expenses and other 956,054 1,207,186 Intercompany receivables 724,312 567,455 ------------- ---------- Total current assets 11,837,067 11,579,236 OTHER DEFERRED CHARGES 238,627 -- LONG-TERM RECEIVABLES, less amounts currently due 1,021,178 1,011,871 PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation and amortization 40,038,322 40,231,020 ------------- ---------- $ 53,135,194 $52,822,127 ============= ==========
The accompanying notes are an integral part of these balance sheets. Page 15 16 GOLF HOST RESORTS, INC. BALANCE SHEETS DECEMBER 31, 1996 AND 1995 LIABILITIES AND SHAREHOLDERS' INVESTMENT
1996 1995 -------------- ------------- CURRENT LIABILITIES: Note payable $ 734,429 $ 1,285,773 Maturing long-term obligations 2,788,764 1,854,401 Accounts payable 2,258,702 1,911,052 Accrued expenses 4,577,981 4,274,085 Deposits and prepaid fees 2,755,297 2,681,066 -------------- ---------- Total current liabilities 13,115,173 12,006,377 -------------- ---------- LONG-TERM OBLIGATIONS, less current maturities 17,777,544 20,659,348 -------------- ---------- LONG-TERM INTERCOMPANY 4,951,895 4,124,210 -------------- ---------- LONG-TERM CONTINGENCY (Note 8) 2,221,938 2,077,759 -------------- ---------- 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 8,157,197 7,042,986 ------------- ---------- Total shareholders' investment 15,068,644 13,954,433 ------------- ---------- $ 53,135,194 $ 52,822,127 ============= ============
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, 1996
1996 1995 1994 ---------------- ------------- ------------ REVENUES: Hotel $ 19,087,031 $18,296,069 $17,196,787 Food and beverage 15,298,357 14,600,080 13,289,590 Golf 16,261,342 15,997,215 15,401,389 Other 6,289,034 6,471,371 5,904,941 Real Estate Activities 774,978 1,171,000 781,234 ------------ ---------- ---------- 57,710,742 56,535,735 52,573,941 ------------ ---------- ---------- COSTS AND OPERATING EXPENSES: Hotel 16,660,453 15,783,533 15,402,446 Food and beverage 10,491,643 10,232,692 9,594,444 Golf 6,272,674 6,238,748 5,977,198 Other 16,019,199 15,159,466 14,869,355 General and administrative 3,950,708 4,250,819 3,633,098 Real Estate Activities 275,227 617,095 408,294 ------------ ---------- ---------- 53,669,904 52,282,353 49,884,835 ------------ ---------- ---------- OPERATING INCOME 4,040,838 4,253,382 2,689,106 INTEREST, NET 1,880,215 2,124,965 2,083,864 ------------ ---------- ---------- INCOME BEFORE INCOME TAX 2,160,623 2,128,417 605,242 PARENT INCOME TAX CHARGE 790,100 752,500 211,323 ------------ ---------- ---------- NET INCOME BEFORE DIVIDEND REQUIREMENTS ON PREFERRED STOCK 1,370,523 1,375,917 393,919 DIVIDEND REQUIREMENTS ON PREFERRED STOCK 256,312 256,312 256,312 ------------ ---------- ---------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 1,114,211 $ 1,119,605 $ 137,607 ============ ========== ========== EARNINGS PER COMMON SHARE: NET INCOME BEFORE DIVIDEND REQUIREMENTS ON PREFERRED STOCK $ 274.10 $ 275.18 $ 78.78 DIVIDEND REQUIREMENTS ON PREFERRED STOCK (51.26) (51.26) (51.26) ------------ ---------- ---------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 222.84 $ 223.92 $ 27.52 ============ ========== ===========
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, 1996
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, 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 31, 1995 5,000 5,000 4,577,000 4,577,000 2,329,447 7,042,986 13,954,433 Net income available to common shareholders - - - - - 1,114,211 1,114,211 --------- ----------- ------------ -------------- ------------- ------------- -------------- Balance, December 31, 1996 5,000 $ 5,000 4,577,000 $4,577,000 $2,329,447 $8,157,197 $15,068,644 ========= =========== ============ ============== ============= ============= ==============
The accompanying notes are an integral part of these statements. Page l8 19 GOLF HOST RESORTS, INC. STATEMENTS OF CASH FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
1996 1995 1994 -------------- ------------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income before dividend requirements on preferred stock $ 1,370,523 $ 1,375,917 $ 393,919 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 2,570,206 2,401,522 2,267,809 Deferred profit (Note l) (119,266) (4,500) 123,766 Changes in working capital other than cash (Note 7) 180,153 (936,139) 688,695 --------- --------- --------- Net cash flows provided by operating activities 4,001,616 2,836,800 3,474,189 ---------- ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Increases in other Deferred Charges (238,627) - - Purchases of property and equipment (2,448,315) (3,777,820) (2,678,498) Recovery of cost of property and equipment sold 70,807 3,739 121,702 Additions to notes receivable (165,238) (623,601) (514,359) Reductions in notes receivable 739,072 164,776 93,534 ------------ ---------- ---------- Net cash flows (used in) investing activities (2,042,301) (4,232,906) (2,977,621) ------------ ------------ ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in notes payable (551,344) 1,285,673 (762,378) Increases in long-term obligations 861,072 1,699,222 1,322,702 Decreases in long-term obligations (2,808,513) (2,669,609) (2,074,731) Increase in long-term intercompany 571,373 303,910 470,801 Increase in long-term contingency (Note 8) 144,179 264,638 823,200 ------------ ------------ --------- Net cash flows provided by (used in) financing activities (1,783,233) 883,834 (220,406) ----------- ----------- --------- NET INCREASE (DECREASE) IN CASH 176,082 (512,272) 276,162 CASH, BEGINNING OF YEAR 312,603 824,875 548,713 ----------- ------------ --------- CASH, END OF YEAR $ 488,685 $ 312,603 $ 824,875 =========== =========== =========
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 31, 1996, 1995 AND 1994 (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, 1996 and 1995, or for the years ended December 31, 1996, 1995 and 1994, respectively, as applicable. Certain reclassifications have been made to the l995 and 1994 financial statements to conform to the 1996 presentation. MANAGEMENT AGREEMENTS Hilton Hotels Corporation (HHC) has managed Innisbrook since April 1993 and Tamarron since December 1995. HHC also advanced certain amounts to the Company (see Note 8). Under the related 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 $656,000, $970,000 and $770,000. The Company has three affiliates, Golf Host Securities, Inc. (Securities), Golf Host Realty, Inc. (Realty) and Golf Host Development, Inc. (Development), all of which are wholely owned subsidiaries of GHI. Securities and Realty are engaged in brokerage activity with respect to the resale of condominiums of Innisbrook and Tamarron, respectively. Realty also serves as agent for the sale of Estates of Tamarron residential homesites. Development is currently inactive. 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 $9,783,000, $9,358,000 and $8,692,000. ACCOUNTS RECEIVABLE Accounts receivable is net of allowances of $43,000 and $60,300 for doubtful accounts. NOTES RECEIVABLE Notes receivable bear interest at rates ranging from 5.75% to 10.25% at December 31, 1996. 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 residential homesites at Tamarron-Highpoint and Pine Ridge 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 $80,900 and $96,000 of such costs are included in inventory related to the Estates at Tamarron-Highpoint. Estates at Tamarron-Highpoint is comprised of nine homesites, of which all have been sold, with the last closing in January 1997. Approximately $898,000 and $116,000 of such costs are included in inventory related to the Estates at Tamarron-Pine Ridge. Estates at Tamarron-Pine Ridge consists of nine homesites, two of which were sold and closed during 1996. 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. The approximately $120,000 of deferred profit reflected in the 1995 financial statements was recognized during 1996. 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 $120,000, $130,000 and $118,000, 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 financial statements include approximately $15,000 and $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 $154,000, $257,000 and $153,000. 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 l2l) 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 therefore, was implemented by the Company in 1996 and did not have a material effect on the company's financial statements. (2) PROPERTY AND EQUIPMENT The components of property and equipment are as follows:
1996 1995 --------------- ------------ Undeveloped land . . . . . . . . . . . . . . . . $ 1,327,284 $ 1,327,284 Land and land improvements . . . . . . . . . . . 6,362,888 6,102,695 Buildings. . . . . . . . . . . . . . . . . . . . 22,598,173 23,255,334 Golf courses and recreational facilities . . . . 10,185,110 10,050,804 Machinery and equipment. . . . . . . . . . . . . 25,780,867 23,958,054 Construction in progress . . . . . . . . . . . . 110,817 152,904 ----------- ----------- 66,365,139 64,847,075 Less - accumulated depreciation and amortization (26,326,817) (24,616,055) ----------- ----------- $ 40,038,322 $ 40,231,020 =========== ===========
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 Note payable Under a $6,000,000 line of credit limited to a percentage of qualifying accounts receivable and inventories, with interest at prime (8.25% at December 31, 1996), due on demand. Approximately $3,786,000 was available for immediate use at year-end. Letters of credit of $509,000 were also outstanding. $ 734,429 $ 1,285,773 ============ ========== Long-term obligations Mortgage notes at varying rates, ranging from 8.05% to 9%, maturing from 1998 to 2007. $ 15,487,194 $ 16,810,140 Equipment revolving credit line at prime, maturing serially from 1997 to 2001. $1,108,272 was available for use at December 31, 1996. 3,891,728 3,862,987 A $2,000,000 revolving credit line at 9%, maturing in 2007. A Letter of Credit of $632,000 was issued as of May 21, 1996, and reduces the borrowings available. Subsequent to year-end, availability under this credit line increased by $585,937. 1,368,000 2,000,000 Other 286,386 346,622 Unamortized debt discount and expense (467,000) (506,000) ------------ ------------ 20,566,308 22,513,749 Less - current maturities (2,788,764) (1,854,401) ------------ ----------- $ 17,777,544 $ 20,659,348 ============ ===========
Page 23 24 The maturities of long-term obligations are as follows: Year Ending December 31, 1998 $ 2,760,202 1999 2,125,661 2000 1,729,099 2001 1,561,072 2002 1,594,337 Thereafter 8,007,173 ------------ $17,777,544 ============
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, 1996. (4) LEASES Total rent expense on operating leases approximated $156,000, $160,000 and $232,000 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:
1996 1995 ----------- ----------- Rental pool lease distribution $ 2,134,459 $ 1,760,259 Salaries 1,456,267 1,400,364 Taxes, other than income taxes 242,820 742,033 Other 744,435 371,429 ----------- ------------- $ 4,577,981 $ 4,274,085 =========== ===========
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:
1996 1995 1994 --------------- -------------- -------------- Accounts receivable $ 91,569 $ (708,251) $ (829,908) Inventories and supplies (731,468) 32,164 (759,044) Prepaid expenses and other 251,132 16,724 213,587 Intercompany (156,857) (260,038) 505,597 Accounts payable 347,650 429,351 246,857 Accrued expenses 303,896 (42,334) 692,627 Deposits and prepaid fees 74,231 (403,755) 618,979 ------------ ---------- ----------- $ 180,153 $ (936,139) $ 688,695 ============ ========== =========== 1996 1995 1994 --------------- -------------- --------- NONCASH ACTIVITIES The Company obtained machinery and equipment through a trade-in. $ - $ 351,050 $ - The Company transferred undeveloped land to inventory. $ - $ 63,955 $ 25,324 The Company received land and related improvements from an affiliate in exchange for a long-term intercom- pany 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. $ 2,029,000 $ 2,100,000 $ 2,249,000 (8) LONG-TERM CONTINGENCY AND ADVANCE The Company has drawn $1,721,000 under the Innisbrook HHC agreement primarily to acquire GHR property and equipment. $403,462 of interest has been accrued at 8% per annum on this amount. These amounts are included in long-term contingency. 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. 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, 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 $97,476. This excess is included in long-term contingency. Repayment of the advances is contingent upon the IRP distribution exceeding a specified level. This has resulted in repayment requirements of $363,593 and $150,036 by the IRP to the Company, with equal and offsetting amounts due HHC from the Company. The Company also entered into a loan agreement with the Tamarron Association of Condominium Owners (TACO) to fund certain improvements to the condominiums and common areas up to a maximum of $1,500,000. A total of $784,000 has been advanced. Also, HHC has advanced amounts to the Company on similar terms which exceed the TACO amount by $30,000. Repayments of the advances are due in seven equal installments commencing November 15, l998. 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, 1996 and 1995, and the related statements of operations and changes in participants' fund balances for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Innisbrook Rental Pool Lease Operation as of December 31, 1996 and 1995, 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, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Tampa, Florida, March 21, 1997 Page 27 28 INNISBROOK RENTAL POOL LEASE OPERATION BALANCE SHEETS DECEMBER 31, 1996 AND 1995
DISTRIBUTION FUND 1996 1995 ------------- ----------- ASSETS RECEIVABLE FROM GOLF HOST RESORTS, INC. FOR DISTRIBUTION - FULLY SECURED $1,938,129 $1,592,105 INTEREST RECEIVABLE FROM MAINTENANCE ESCROW FUND 22,045 16,568 --------- --------- $1,960,174 $1,608,673 ========= ========= LIABILITIES AND PARTICIPANTS' FUND BALANCES DUE TO PARTICIPANTS FOR DISTRIBUTION $1,316,480 $1,340,684 DUE TO MAINTENANCE ESCROW FUND 302,506 135,354 AMOUNT DUE FOR LIFE-SAFETY REIMBURSEMENT 341,188 132,635 PARTICIPANTS' FUND BALANCES - - --------- --------- $1,960,174 $1,608,673 ========= ========= MAINTENANCE ESCROW FUND ASSETS CASH AND CASH EQUIVALENTS $1,580,919 1,132,243 INVENTORIES - 251 RECEIVABLE FROM DISTRIBUTION FUND 302,506 135,354 INTEREST RECEIVABLE 19,856 17,902 --------- --------- $1,903,281 $1,285,750 ========= ========= LIABILITIES AND PARTICIPANTS' FUND BALANCES ACCOUNTS PAYABLE $ 108,391 $ 85,087 INTEREST PAYABLE TO DISTRIBUTION FUND 22,045 16,568 CARPET CARE RESERVE 38,430 42,836 PARTICIPANTS' FUND BALANCES 1,734,415 1,141,259 --------- --------- $1,903,281 $1,285,750 ========= =========
The accompanying notes are an integral part of these statements. Page 28 29 INNISBROOK RENTAL POOL LEASE OPERATION STATEMENTS OF OPERATIONS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996 DISTRIBUTION FUND
1996 1995 1994 -------------- -------------- ----------- GROSS REVENUES $15,480,899 $ 14,662,736 $13,412,188 ------------- ---------- ---------- DEDUCTIONS: Agents' commissions 357,441 353,383 437,827 Audit fees 12,100 12,100 11,500 ------------- ---------- ---------- 369,541 365,483 449,327 ------------- ---------- ---------- ADJUSTED GROSS REVENUES 15,111,358 14,297,253 12,962,861 MANAGEMENT FEE (7,102,338) (6,719,709) (6,092,545) ------------- ---------- ---------- GROSS INCOME DISTRIBUTION 8,009,020 7,577,544 6,870,316 ADJUSTMENTS TO GROSS INCOME DISTRIBUTION: Corporate complimentary occupancy fees 10,058 8,441 7,171 Occupancy fees (1,689,670) (1,343,526) (1,276,451) Advisory Committee expenses (96,795) (89,120) (88,794) Life-safety reimbursement (341,188) (132,635) - -------------- ---------- ---------- NET INCOME DISTRIBUTION 5,891,425 6,020,704 5,512,242 ADJUSTMENTS TO NET INCOME DISTRIBUTION: Occupancy fees 1,689,670 1,343,526 1,276,451 Hospitality suite fees 15,790 11,093 17,164 Greens fees 89,248 91,338 87,721 Additional participation credits 72,865 75,775 78,405 --------------- ---------- ---------- AMOUNT AVAILABLE FOR DISTRI- BUTION TO PARTICIPANTS $ 7,758,998 $ 7,542,436 $ 6,971,983 ============== ========== ==========
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 31, 1996 DISTRIBUTION FUND
1996 1995 1994 ------------- -------------- ------------ BALANCE, beginning of year $ - $ - $ - ADDITIONS: Amounts available for distribution before life-safety reimbursement 8,100,186 7,675,071 6,971,983 Interest received or receivable from Maintenance Escrow Fund 82,198 58,209 29,220 REDUCTIONS: Amounts withheld for Maintenance Escrow Fund (1,263,618) (671,782) (638,237) Amounts withheld for life-safety reimbursement (341,188) (132,635) - Amounts accrued or paid to participants (6,577,578) (6,928,863) (6,362,966) ------------ ------------ ---------- BALANCE, end of year $ - $ - $ - ============ ============ ========== MAINTENANCE ESCROW FUND 1996 1995 1994 ----------- -------------- ------------ BALANCE, beginning of year $ 1,141,259 $ 851,207 $ 733,465 ADDITIONS: Amounts withheld from occupancy fees 1,263,618 671,782 638,237 Interest earned 82,198 58,209 29,220 Charges to participants to establish or restore escrow balances 1,081,816 1,341,784 859,410 REDUCTIONS: Maintenance charges (1,633,478) (1,644,340) (l,278,411) Carpet care reserve deposit (33,708) (13,449) (51,056) Interest accrued or paid to Distribution Fund (82,198) (58.209) (29,220) Refunds to participants as prescribed by Master Lease Agreement (85,133) (65,725) (50,438) ---------- ----------- ----------- BALANCE, end of year $ 1,734,415 $ 1,141,259 $ 851,207 ========== =========== ===========
The accompanying notes are an integral part of these statements. Page 30 31 INNISBROOK RENTAL POOL LEASE OPERATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (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, 1996 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. Page 31 32 Owners who purchased units prior to January 1, l991 who participate in the Rental Pool for at least 50% of the year or 50% of the time they owned their unit receive Additional Participation Credits. Participation in greens fees is restricted to original condominium apartment owners who executed purchase agreements for certain units prior to April 13, 1972. Greens fees and Additional Participation Credits are requirements of agreements other than the current Agreements; 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 75% and 50% for 1996 and 1995, respectively, 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 75% and 50% of the defined furniture replacement value for 1996 and 1995, respectively, 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 $38,170, $39,675 and $59,182 for 1996, 1995 and 1994, 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, 1996 are certificates of deposit of $1,275,000, at cost, maturing between March 12, 1997 and December 12, 1997, and bearing interest at rates from 5.15% to 6.35%; a Treasury Bill maturing January 2, 1997, 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: Hilton Hotels Corporation (HHC) has managed Innisbrook since April 1993. In connection with the related agreement, HHC funded 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 l996 and 1995, repayment requirements of $362,593 and $150,036 resulted. Of the 1996 total repayment, $341,188 was an Adjustment to Gross Income Distribution. The remaining $21,405 was repaid with receipts from Participants who withdrew from the Rental Pool during the year. The 1996 repayment was applied first against accrued interest of $175,586, with the balance applied against principal. Of the 1995 repayment, $l32,635 was an adjustment to Gross Income Distribution. The remaining $17,401 was repaid from receipts from Participants who withdrew from the Rental Pool during the year. The 1995 repayment applied solely to accrued 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, 1996, the maximum amount payable under this arrangement, excluding any future interest accrual, was $1,526,199. 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, 1996 and 1995, and the related statements of operations and changes in participants' fund balances for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Tamarron Rental Pool Lease Operation as of December 31, 1996 and 1995, 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, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Tampa, Florida, March 21, 1997 Page 34 35 TAMARRON RENTAL POOL LEASE OPERATION BALANCE SHEETS DECEMBER 31, 1996 AND 1995 DISTRIBUTION FUND
1996 1995 ----------- ---------- ASSETS CASH $ 1,000 $ 1,000 RECEIVABLE FROM GOLF HOST RESORTS, INC. FOR DISTRIBUTION 196,330 168,154 INTEREST RECEIVABLE FROM MAINTENANCE ESCROW FUND 454 1,750 ----------- ---------- $ 197,784 $ 170,904 =========== ========== LIABILITIES AND PARTICIPANTS' FUND BALANCES DUE TO PARTICIPANTS FOR DISTRIBUTION $ 155,505 $ 138,622 DUE TO MAINTENANCE ESCROW FUND 42,279 32,282 PARTICIPANTS' FUND BALANCES - - ----------- ---------- $ 197,784 $ 170,904 =========== ========== MAINTENANCE ESCROW FUND ASSETS CASH AND CASH EQUIVALENTS $ 83,576 $ 174,562 DUE FROM DISTRIBUTION FUND 42,279 32,282 INTEREST RECEIVABLE - 2,235 INVENTORY: Linen 86,904 89,049 Materials and supplies 7,737 9,320 DEPOSITS - 37,299 ----------- --------- $ 220,496 $ 344,747 ========== ========= LIABILITIES AND PARTICIPANTS' FUND BALANCES ACCOUNTS PAYABLE $ 22,494 $ 14,661 INTEREST PAYABLE TO DISTRIBUTION FUND 454 1,750 PARTICIPANTS' FUND BALANCES 197,548 328,336 ---------- -------- $ 220,496 $ 344,747 ========== =========
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, 1996 DISTRIBUTION FUND
1996 1995 1994 ----------------- ------------------ -------------- GROSS REVENUES $ 3,606,132 $ 3,633,333 $ 3,784,599 ---------- ---------- --------- DEDUCTIONS: Agents' commissions 125,209 113,560 161,030 Sales and marketing expenses 306,520 327,000 359,537 Audit fees 10,400 10,400 9,800 ---------- ---------- ---------- 442,129 450,960 530,367 ---------- ---------- ---------- ADJUSTED GROSS REVENUES 3,164,003 3,182,373 3,254,232 MANAGEMENT FEE (1,582,002) (1,591,186) (1,627,116) ---------- ---------- ---------- GROSS INCOME DISTRIBUTION 1,582,001 1,591,187 1,627,116 ADJUSTMENTS TO GROSS INCOME DISTRIBUTION: Corporate complimentary occupancy fees 4,084 2,990 3,558 Occupancy fees (304,829) (307,019) (343,065) Designated items (71,150) (65,275) (53,595) Advisory Committee expenses (11,136) (6,425) (3,963) ---------- ---------- ---------- POOLED INCOME 1,198,970 1,215,458 1,230,051 ADJUSTMENTS TO POOLED INCOME: Hospitality suite fees 53 105 973 Occupancy fees 304,829 307,019 343,065 ---------- ---------- ---------- NET INCOME DISTRIBUTION $ 1,503,852 $ 1,522,582 $ 1,574,089 ========== ========== ==========
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, 1996 DISTRIBUTION FUND
1996 1995 1994 ------------------ ------------------- ------------- BALANCE, beginning of year $ - $ - $ - ADDITIONS: Amounts available for distribution 1,503,852 1,522,582 1,574,089 Interest received or receivable from Maintenance Escrow Fund 3,261 6,004 5,350 REDUCTIONS: Amounts withheld for Maintenance Escrow Fund (152,416) (153,513) (171,533) Amounts accrued or paid to participants (1,354,697) (1,375,073) (1,407,906) ----------- ---------- ---------- BALANCE, end of year $ - - - =========== ========== ========== MAINTENANCE ESCROW FUND 1996 1995 1994 -------------- --------------- -------------- BALANCE, beginning of year $ 328,336 $ 397,655 $ 258,562 ADDITIONS: Amounts withheld from occupancy fees 152,416 153,513 171,533 Interest earned 3,261 6,004 5,350 Reimbursement of designated items 71,150 65,275 53,595 Charges to participants to establish or restore escrow balances 276,838 116,398 140,794 REDUCTIONS: Maintenance and inventory charges (164,323) (172,737) (128,628) Refurbishing charges (369,161) (138,476) (8,901) Interest accrued or paid to Distribution Fund (3,261) (6,004) (5,350) Designated items (71,150) (65,275) (53,595) Refunds to participants as prescribed by Master Lease Agreement (26,558) (28,017) (35,705) ----------- ---------- ---------- BALANCE, end of period $ 197,548 $ 328,336 $ 397,655 =========== ========== ==========
The accompanying notes are an integral part of these statements. Page 37 38 TAMARRON RENTAL POOL LEASE OPERATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, L996, 1995 AND 1994 (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 will remain in effect through December 31, 2003. The Rental Pool consists of two funds: the Distribution Fund and the Maintenance Escrow Fund. The Distribution Fund balance sheets primarily reflect amounts due from GHR for the Rental Pool distribution payable to Participants by the fund (as discussed below) and amounts due to the Maintenance Escrow Fund. The operations of the Distribution Fund reflect the 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, 1996, 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 8.5%, 9% and 9.5% of Gross Revenues for 1996, 1995 and 1994, respectively), agents' commissions (not to exceed 5.5% of Gross Revenues) and audit fees. GHR receives a Management Fee equal to 50% of Adjusted Gross Revenues. Each Participant receives a fixed Occupancy Fee, based on apartment size, for each day of occupancy. After 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. Page 38 39 Corporate complimentary occupancy fees are rental fees paid by GHR for complimentary rooms unrelated to Rental Pool operations. Maintenance Escrow Fund Accounts The Agreements provide that 50% of the Occupancy Fees earned by each Participant shall be deposited in such Participant's Maintenance Escrow Fund account. This account provides funds for 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, 1996 consists of an interest bearing demand account. (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 $59,237 and $48,211 at December 31, 1996 and 1995, 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 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF GOLF HOST RESORTS, INC. FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 U.S. DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 448,685 0 4,587,125 43,075 5,123,966 11,837,067 66,365,139 26,326,817 53,135,194 13,115,173 20,566,308 0 4,577,000 5,000 10,486,644 53,135,194 20,043,845 57,710,742 6,198,958 53,669,904 0 40,248 1,880,215 2,160,623 790,100 1,370,523 0 0 0 1,370,533 222.84 222.84
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