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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
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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
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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
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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
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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
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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
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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
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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
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(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
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(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
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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
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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
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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
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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
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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
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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
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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
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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
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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