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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 001-13003
SILVERLEAF RESORTS, INC.
(Exact Name of Registrant as Specified in its Charter)
TEXAS 75-2259890
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1221 RIVERBEND DRIVE, SUITE 120 75247
DALLAS, TEXAS (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: 214-631-1166
Securities Registered Pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
--------------------------- -------------------------------------------
COMMON STOCK, $.01 PAR NYSE
VALUE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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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 [ ]
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sales price of the Common Stock on March 19,
1999 as reported on the New York Stock Exchange, was approximately $38,519,599.
At March 19, 1999, there were 12,889,417 shares of the Registrant's Common Stock
outstanding.
Documents Incorporated by Reference: Certain portions of the Registrant's
Definitive Proxy Statement, to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the close of
the Registrant's 1998 fiscal year, are incorporated by reference in Part III of
this Form 10-K.
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FORM 10-K INDEX
PAGE
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PART I
Items 1 and 2. Business and Properties.................................................... 4
Item 3. Legal Proceedings.......................................................... 38
Item 4. Submission of Matters to a Vote of Security Holders........................ 38
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...... 39
Item 6. Selected Financial Data.................................................... 40
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 42
Item 7a. Quantitative and Qualitative Disclosures about Market Risk................. 49
Item 8. Financial Statements and Supplementary Data................................ 49
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure................................................ 49
PART III
Item 10. Directors and Executive Officers of the Registrant......................... 49
Item 11. Executive Compensation..................................................... 51
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 51
Item 13. Certain Relationships and Related Transactions............................. 51
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........... 51
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ITEMS 1 AND 2. BUSINESS AND PROPERTIES
OVERVIEW
Silverleaf Resorts, Inc. ("Silverleaf" or the "Company") is a leading
developer, marketer, and operator of "drive-to" timeshare resorts. Silverleaf
currently owns and/or operates fourteen "drive-to resorts" in Texas, Missouri,
Illinois, Alabama, North Carolina, South Carolina, Pennsylvania, and Tennessee
(the "Drive-to Resorts"). Silverleaf also owns and/or operates four "destination
resorts" in Missouri, Mississippi, and Massachusetts (the "Destination
Resorts"). The Company also owns five properties that are currently under
development, including three properties being developed as Drive-to Resorts near
Atlanta, Georgia, Kansas City, Missouri, and Philadelphia, Pennsylvania, and two
properties being developed as Destination Resorts in Las Vegas, Nevada, and
Galveston, Texas (collectively, the "New Resorts"). The Drive-to Resorts are
designed to appeal to vacationers seeking comfortable and affordable
accommodations in locations convenient to their residences and are located
proximate to major metropolitan areas. Silverleaf locates its Drive-to Resorts
near principal market areas to facilitate more frequent "short stay" getaways,
which it believes is a growing vacation trend. Silverleaf's Destination Resorts,
which are located in or near areas with national tourist appeal, offer
Silverleaf customers the opportunity to upgrade into a more upscale resort area
as their lifestyles and travel budgets permit. Both the Drive-to Resorts and the
Destination Resorts (collectively, the "Existing Resorts") provide a quiet,
relaxing vacation environment. The New Resorts extend Silverleaf's core strategy
of drive-to getaways with opportunity to upgrade to Destination Resorts.
Silverleaf believes its resorts offer its customers an economical alternative to
commercial vacation lodging. The average price for an annual one-week Vacation
Interval for a two-bedroom unit at the Existing Resorts was $8,042 for 1998 and
$7,834 for 1997, which compares favorably to an industry average price of
$11,458 for 1997.
Owners of Silverleaf Vacation Intervals ("Silverleaf Owners") enjoy benefits
which are uncommon in the timeshare industry. These benefits include (i) use of
vacant lodging facilities at the Existing Resorts at no extra cost through
Silverleaf's "Endless Escape" program; (ii) year-round access to the Existing
Resorts' non-lodging amenities such as fishing, boating, horseback riding,
tennis, or golf on a daily basis for little or no additional charge; and (iii)
the right to exchange a week of vacation ownership ("Vacation Interval") for a
different time period or different Existing Resort through Silverleaf's internal
exchange program. These benefits are subject to availability and other
limitations. Most Silverleaf Owners may also enroll in the Vacation Interval
exchange network operated by Resort Condominiums International ("RCI").
OPERATIONS
Silverleaf is in the business of marketing and selling Vacation Intervals.
Silverleaf's principal activities in this regard include (i) acquiring and
developing timeshare resorts; (ii) marketing and selling one week annual and
biennial Vacation Intervals to prospective first-time owners; (iii) marketing
and selling upgraded Vacation Intervals to existing Silverleaf Owners; (iv)
providing financing for the purchase of Vacation Intervals; and (v) operating
timeshare resorts. The Company has substantial in-house capabilities which
enable it to coordinate all aspects of development and expansion of the Existing
Resorts and New Resorts and the development of any new resorts, including site
selection, design, and construction pursuant to standardized plans and
specifications. The Company also performs substantially all marketing and sales
functions internally and continues to make significant investments in operating
technology, including sophisticated telemarketing and computer systems and
proprietary software applications. The Company identifies potential purchasers
through internally developed marketing techniques, and sells Vacation Intervals
through on-site sales offices located at certain of its resorts which are
located in close proximity to major metropolitan areas. This practice allows the
Company an alternative to the more expensive marketing costs of subsidized
airfare and lodging which are typically associated with the timeshare industry.
The Company believes its marketing program and operating systems enable it to
market and sell Vacation Intervals at a lower cost than its competitors in the
timeshare industry.
As part of the Vacation Interval sales process, the Company offers potential
purchasers financing of up to 90% of the purchase price over a seven to ten year
period. The Company has historically financed its operations by borrowing from
third-party lending institutions at an advance rate of up to 70% of eligible
customer receivables. At December 31, 1998, the Company had a portfolio of
approximately 36,075 customer promissory notes totaling approximately $196.9
million with an average yield of 14.2% per annum, which compares favorably to
the Company's weighted average cost of borrowings of 9.6% per annum. At December
31, 1998, approximately $8.8 million in principal, or 4.5% of the Company's
loans to Silverleaf Owners, were 61 to 120 days past due, and approximately
$17.8 million in principal, or 9.0% of the Company's loans to Silverleaf Owners,
were more than 120 days past due. The Company provides for uncollectible notes
by reserving an amount which management believes is sufficient to cover
anticipated losses from customer defaults.
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Each Existing Resort has a timeshare owners' association (a "Club"). Each
Club operates through one of three centralized organizations, referred to as
Silverleaf Club, Oak N' Spruce Club, or Crown Club (collectively "Management
Clubs") to manage the Existing Resorts on a collective basis. Crown Club
consists of several individual Club agreements which have terms of two to five
years with a minimum of two renewal options remaining. The Management Clubs, in
turn, have contracted with the Company to perform the supervisory, management,
and maintenance functions at the Existing Resorts on a collective basis. All
costs of operating the Existing Resorts, including management fees to the
Company, are covered by monthly dues paid by Silverleaf Owners to their
respective Clubs as well as income generated by the operation of certain
amenities at the Existing Resorts. Effective January 1999, Oak N' Spruce Club
was merged into a Club within Silverleaf Club.
RECENT DEVELOPMENTS
o CONTINUED DEVELOPMENT OF TIMBER CREEK PROPERTY. In August 1997,
Silverleaf purchased the Timber Creek Resort for $1.2 million for
development as a Drive-to Resort. Timber Creek Resort is located 50 miles
south of St. Louis, Missouri. Silverleaf intends to develop approximately
528 additional units (27,456 Vacation Intervals) at the Timber Creek
Resort. Construction of 72 units was complete as of December 31, 1998.
Sales of Vacation Intervals at Timber Creek Resort began in October 1997.
o CONTINUED DEVELOPMENT OF FOX RIVER PROPERTY. In August 1997, Silverleaf
purchased the Fox River Resort for $1.7 million for development as a
Drive-to Resort. Fox River Resort is located approximately 70 miles
southwest of Chicago, Illinois. Silverleaf intends to develop
approximately 740 additional units (38,480 Vacation Intervals) on this
property. Construction of 60 units was complete as of December 31, 1998.
Sales of Vacation Intervals at Fox River Resort began in November 1997.
o CONTINUED DEVELOPMENT OF OAK N' SPRUCE RESORT. In December 1997,
Silverleaf acquired the Oak N' Spruce Resort, an existing hotel/timeshare
resort, in the Berkshire Mountains of western Massachusetts for $5.1
million as a new Destination Resort (originally classified as a Drive-to
Resort) to serve Boston and the greater New York City market. The Oak N'
Spruce Resort presently has 132 existing units. Silverleaf intends to
develop approximately 568 new units (29,536 Vacation Intervals) at this
resort. Silverleaf's sales of Vacation Intervals at Oak N' Spruce Resort
began in January 1998.
o CONTINUED DEVELOPMENT OF THE VILLAGES. The Villages resort, located on
the shores of Lake Palestine, approximately 100 miles east miles east of
Dallas, Texas, has 276 existing units. Silverleaf intends to develop
approximately 424 new units (22,048 Vacation Intervals) at this resort.
o CONTINUED DEVELOPMENT OF HOLIDAY HILLS RESORT. The Holiday Hills Resort,
located two miles east of Branson, Missouri, in Taney County, has 78
existing units. Silverleaf intends to develop approximately 722 new units
(37,452 Vacation Intervals) at this resort.
o CONTINUED DEVELOPMENT OF HILL COUNTRY RESORT. The Hill Country Resort,
located near Canyon Lake in the hill country of central Texas between
Austin and San Antonio, has 189 existing units. Silverleaf intends to
develop approximately 411 new units (21,364 Vacation Intervals) at this
resort.
o DEVELOPMENT OF LAS VEGAS, NEVADA, SITE. In November 1997, Silverleaf
acquired a two acre parcel near the "strip" in Las Vegas, Nevada, for
$2.7 million. Silverleaf intends to develop this property as a new
Destination Resort which will contain approximately 157 units (8,164
Vacation Intervals).
o DEVELOPMENT OF GALVESTON, TEXAS, SITE. In December 1997 and February
1998, Silverleaf acquired two adjoining tracts of land in Galveston,
Texas, for approximately $1.7 million, to be developed as a new
beach-front Gulf Coast Destination Resort (i.e., Silverleaf's Seaside
Resort). Silverleaf intends to develop approximately 282 units (14,664
Vacation Intervals) at this resort.
o ACQUISITION OF CROWN MANAGEMENT RIGHTS. In May 1998, the Company
consummated an agreement with Crown Resort Company, LLC ("Crown") to
acquire management rights to eight timeshare resorts in Alabama,
Mississippi, North Carolina, Pennsylvania, South Carolina, Tennessee, and
Texas for $4.8 million. At December 31, 1998, these eight resorts had
approximately 25,017 timeshare owners. As part of this agreement,
Silverleaf received approximately 1,800 unsold Vacation Intervals and
certain equipment at the eight resorts.
o PURCHASE OF ATLANTA, GEORGIA, SITE. The Company consummated several
transactions in the fourth quarter of 1998 whereby 275 acres of property,
including a 221 acre golf course, 72 miles north of Atlanta, Georgia,
were acquired for approximately $4.2 million. The property is being
developed as a Drive-to Resort (i.e., Apple Mountain Resort). Silverleaf
intends to develop approximately 608 units (31,616 Vacation Intervals) at
this resort.
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o PURCHASE OF KANSAS CITY, MISSOURI, SITE. In September 1998, the Company
purchased 260 acres of undeveloped land near Kansas City, Missouri, for
approximately $1.5 million. The property will be developed as a Drive-to
Resort (i.e., Lakeview Lodge). Silverleaf intends to develop
approximately 608 units (31,616 Vacation Intervals) at this resort.
o PURCHASE OF PHILADELPHIA, PENNSYLVANIA, SITE. In December 1998, the
Company purchased 1,940 acres of undeveloped land near Philadelphia,
Pennsylvania, for approximately $1.9 million. The property will be
developed as a Drive-to Resort (i.e., Beech Mountain Resort). Silverleaf
has requested initial regulatory approval of 144 units. If fully
developed, the property could accommodate approximately 608 units (31,616
Vacation Intervals) at this resort.
o INCREASED SALES OF VACATION INTERVALS AT EXISTING RESORTS. In addition to
the acquisitions described above, Silverleaf has also been successful in
improving internal sales growth at the Existing Resorts. During 1998,
Silverleaf sold 13,191 Vacation Intervals (excluding upgrades) compared
to 6,592 and 5,634 during 1997 and 1996, respectively. Total sales
increased to $138.4 million in 1998 from $70.1 million and $47.6 million
in 1997 and 1996, respectively.
o INVESTMENTS IN OPERATING AND TELEMARKETING SYSTEMS. During 1998,
Silverleaf invested approximately $3.6 million in new automated dialers,
telephone systems, computer systems, and central marketing facilities to
improve Silverleaf's operating and telemarketing systems.
o IMPROVEMENTS IN COLLECTION EFFORTS. The Company has improved its
provision for uncollectible notes from 15.3% of Vacation Interval sales
in 1997 to 12.1% of Vacation Interval sales in 1998. This is primarily
the result of improvements in the collections efforts, including
increased staffing, improved collections administrative software, and the
implementation of a program through which certain delinquent loans are
assumed by existing owners with a consistent payment history. Also, in
the fourth quarter of 1998, the Company initiated an auto-debit program
whereby new Vacation Interval buyers can elect to have their monthly dues
and installment payments charged directly to their bank accounts.
GROWTH STRATEGY
Silverleaf intends to grow through the following strategies:
INCREASING DEVELOPMENT AND SALES OF VACATION INTERVALS. Silverleaf intends
to capitalize on its significant expansion capacity at the Existing Resorts and
the New Resorts by increasing marketing, sales, and development activities. At
December 31, 1998, Silverleaf owned approximately 1,500 acres of land that were
available for further development of timeshare units and amenities under
Silverleaf's master plan. Such plan projects development of 6,632 additional
units (including 126 units presently under construction), which would result in
344,584 additional Vacation Intervals. During 1998, Silverleaf has enhanced its
marketing efforts, including increased telemarketing capacity through
investments in computer and automated dialing technology, increased its sales
force, enhanced its lead generation methods, completed the construction of new
sales offices and other amenities, enhanced its collection efforts, and
commenced the development of new lodging facilities. Furthermore, Silverleaf
continues to emphasize its Endless Escape program designed to accommodate
shorter, "getaway" vacations and market secondary products such as biennial
(alternate year) intervals and short-term leasing packages ("Samplers") which
are designed to broaden Silverleaf's potential market with a wider price range
of product.
INCREASING SALES OF UPGRADED INTERVALS. Silverleaf believes it can continue
to improve operating margins by increasing sales of upgraded Vacation Intervals
to existing Silverleaf Owners since these sales have significantly lower sales
and marketing costs. Upgrades by a Silverleaf Owner include the purchase of (i)
an interval in a newly designed and constructed standard unit; (ii) an interval
in a larger or higher quality unit; (iii) an interval during a more desirable
time period; (iv) an interval at a different Drive-to Resort; or (v) an interval
at a Destination Resort. Silverleaf has designed specific marketing and sales
programs to sell upgraded Vacation Intervals to Silverleaf Owners. Silverleaf
continues to construct higher quality, larger units for sale as upgraded
intervals, as well as developing sites at Las Vegas and Galveston as new upgrade
locations. For example, at Ozark Mountain Resort in Branson, Missouri, luxury
"Presidents View" units are offered for sale at prices ranging from $12,500 to
$20,500 per Vacation Interval. Intervals exchanged for upgraded intervals are
added back to inventory, at historical cost, for resale at the current offering
price. Sales of upgrades increased to $29.5 million in 1998, from $16.9 million
in 1997 (upgrade sales represented 21.8% of Silverleaf's Vacation Interval sales
in 1998 as compared to 24.6% for 1997). Silverleaf incurs additional sales
commissions upon the resale of Vacation Intervals reconveyed to Silverleaf by
purchasers of upgraded intervals. Such sales absorb their proportionate share of
marketing costs to the extent they displace the sale of another interval,
although they do not directly result in incremental marketing costs.
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DEVELOPMENT OF ADDITIONAL RESORTS AND ACQUISITIONS. In 1998, Silverleaf
purchased three sites for development as Drive-to Resorts and acquired
management rights to eight existing timeshare resorts, including seven Drive-to
Resorts and one Destination Resort. Silverleaf continues to seek new properties
for Drive-to Resorts in scenic wooded areas on lakes or waterways that are near
major metropolitan areas with favorable demographic characteristics. For
Destination Resorts, Silverleaf seeks popular destination resort areas that are
easily accessible to Silverleaf Owners. Silverleaf is currently exploring a
number of other property acquisition opportunities, and intends to continue
analyzing expansion through acquiring and/or developing additional resorts.
COMPETITIVE ADVANTAGES
Silverleaf believes the following characteristics afford it certain
competitive advantages:
LOWER MARKETING, SALES, AND ADMINISTRATIVE COSTS. With on-site sales offices
within a one to two-hour drive of its targeted customers, Silverleaf can invite
potential customers to tour the Drive-to Resorts without offering subsidized
airline tickets and lodging, a significant marketing expense typically incurred
by competitors in the industry. Silverleaf has also reduced marketing,
operating, and administrative costs through centralization and automation of
many functions. While marketing and sales costs as a percentage of sales will
increase for recently acquired new resorts, the Company believes that these
costs will, over time, return to historical levels.
CONVENIENT DRIVE-TO LOCATIONS. Silverleaf's Drive-to Resorts are located
within a two-hour drive of a majority of the target customers' residences, which
accommodates the growing demand for shorter, more frequent, close-to-home
vacations. This proximity facilitates use of Silverleaf's Endless Escape
Program, allowing Silverleaf Owners to use vacant units for no additional
charge, subject to availability and certain limitations. Silverleaf believes it
is the only timeshare operator in the industry which offers its customers these
benefits. Silverleaf Owners can also conveniently enjoy non-lodging resort
amenities year-round on a "country-club" basis. See "Features Common to Existing
Resorts" contained elsewhere herein.
SUBSTANTIAL INTERNAL GROWTH CAPACITY. At December 31, 1998, Silverleaf had
an inventory of 14,453 Vacation Intervals, and a master plan to construct new
units which will result in up to 226,908 additional Vacation Intervals at the
Existing Resorts and 117,676 Vacation Intervals at the New Resorts. Silverleaf's
master plan for construction of new units is contingent upon future sales at the
Existing Resorts and New Resorts and the availability of financing, grant of
governmental permits, and future land-planning and site-layout considerations.
IN-HOUSE OPERATIONS. Silverleaf has in-house marketing, sales, financing,
development, and property management capabilities. While Silverleaf utilizes
outside contractors to supplement internal resources, when appropriate, the
breadth of Silverleaf's internal capabilities allows greater control over all
phases of its operations and helps maintain operating standards and reduce
overall costs.
LOWER CONSTRUCTION AND OPERATING COSTS. Silverleaf has developed and
generally employs standard architectural designs and operating procedures which
it believes significantly reduce construction and operating expenses.
Standardization and integration also allow Silverleaf to rapidly develop new
inventory in response to demand. Weather permitting, new units at Existing
Resorts can normally be constructed on an "as needed" basis within 180 days.
CENTRALIZED PROPERTY MANAGEMENT. Silverleaf presently operates all of the
Existing Resorts on a centralized and collective basis, with operating and
maintenance costs paid from Silverleaf Owners' monthly dues. Silverleaf believes
that consolidation of resort operations benefits Silverleaf Owners by providing
them with a uniform level of service, accommodations, and amenities on a
standardized, cost-effective basis. Integration also facilitates Silverleaf's
internal exchange program, the Endless Escape Program, and the resorts'
qualification in external Vacation Interval exchange programs.
EXPERIENCED MANAGEMENT. The Company's senior management has extensive
experience in the acquisition, development, and operation of timeshare resorts.
Robert E. Mead, Chairman of the Board and Chief Executive Officer, has more than
19 years of experience in the timeshare industry and since 1995 has served as a
trustee member of American Resort Developers Association ("ARDA"), the primary
trade association for the timeshare industry. The Company's senior officers have
an average of eleven years of experience in the timeshare industry.
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RESORTS SUMMARY
The following tables set forth certain information regarding each of the
Existing Resorts and New Resorts at December 31, 1998, unless otherwise
indicated.
EXISTING RESORTS
VACATION INTERVALS
UNITS AT RESORTS AT RESORTS
----------------------- --------------------------
PRIMARY INVENTORY INVENTORY
MARKET AT PLANNED AT PLANNED
RESORT/LOCATION SERVED 12/31/98 EXPANSION(b) 12/31/98 EXPANSION
- ---------------------- ------------ -------- ------------ ---------- ------------
DRIVE-TO RESORTS
Holly Lake Dallas- 130 108 661 5,508(d)
Hawkins, TX Ft. Worth, TX
The Villages Dallas- 276 424 2,132 22,048(f)(i)
Flint, TX Ft. Worth, TX
Lake O' The Woods Dallas- 64 16 218 800(d)
Flint, TX Ft. Worth, TX
Piney Shores Houston, TX 148 452 2,102 23,488(f)(i)
Conroe, TX
Hill Country Austin-San 189(h) 411 2,482 21,364(f)(i)
Canyon Lake, TX Antonio, TX
Timber Creek St. Louis, 72 528(i) 2,528 27,456(f)(i)
DeSoto, MO MO
Fox River Chicago, IL 60 740(i) 317 38,480(f)(i)
Sheridan, IL
Treasure Lake Central PA 145 --(e) 490 --(e)
Dubois, PA
Alpine Bay Central AL 54 --(e) -- --(e)
Alpine, AL
Beech Mountain Lakes Eastern PA, 54 --(e) 118 --(e)
Drums, PA NY
Foxwood Hills Eastern SC, 114 --(e) 496 --(e)
Westminster, SC Western GA
Lake Royale Raleigh- 16 --(e) 215 --(e)
Bunn, NC Durham, NC
Tansi Resort Nashville- 124 --(e) 364 --(e)
Crossville, TN Knoxville, TN
Westwind Manor Dallas- 37 --(e) 342 --(e)
Bridgeport, TX Ft. Worth, TX
DESTINATION RESORTS
Ozark Mountain Branson, 124 400 519 20,776(f)(i)
Kimberling City, MO MO
Holiday Hills Branson, 78 722 518 37,452(f)(i)
Branson, MO MO
Oak N' Spruce Boston, MA 132 568 786 29,536(f)(i)
South Lee, MA New York, NY
Hickory Hills Gulf Coast, 80 --(e) 165 -- (e)
Gautier, MS MS
------ ------ ------ ------
Total 1,897 4,369 14,453 226,908
====== ====== ====== =======
VACATION
INTERVALS
SOLD(a)
------- AVERAGE
PRIMARY DATE IN SALES
MARKET SALES THROUGH 1998 PRICE AMENITIES/
RESORT/LOCATION SERVED COMMENCED 12/31/98 ONLY IN 1998 ACTIVITIES(c)
- ---------------------- ------------ ------------ --------- ---------- ---------- -------------
DRIVE-TO RESORTS
Holly Lake Dallas- 1982 5,839 1,070 $7,341 B,F,G,H,M,S,T
Hawkins, TX Ft. Worth, TX
The Villages Dallas- 1980 12,220 2,670 7,816 B,F,H,M,S,T
Flint, TX Ft. Worth, TX
Lake O' The Woods Dallas- 1987 2,982 605 6,873 F,M,S,T(g)
Flint, TX Ft. Worth, TX
Piney Shores Houston, TX 1988 5,594 1,700 8,534 B,F,H,M,S,T
Conroe, TX
Hill Country Austin-San 1984 6,968 1,500 8,471 M,S,T(g)
Canyon Lake, TX Antonio, TX
Timber Creek St. Louis, 1997 1,216 1,110 8,011 B,F,G,M,S,T
DeSoto, MO MO
Fox River Chicago, IL 1997 2,804 2,515 8,710 G,M,S,T
Sheridan, IL
Treasure Lake Central PA 1998 6,905 139 4,196 G,B,F,S,T,M
Dubois, PA
Alpine Bay Central AL 1998 2,754 4 4,108 G,B,F,S,T,M
Alpine, AL
Beech Mountain Lakes Eastern PA, 1998 2,636 51 4,098 B,F,S,T
Drums, PA NY
Foxwood Hills Eastern SC, 1998 5,318 5 1,786 G,T,F,S,M(g)
Westminster, SC Western GA
Lake Royale Raleigh- 1998 601 -- -- G,B,F,S,T
Bunn, NC Durham, NC
Tansi Resort Nashville- 1998 5,960 5 3,471 T,G,F,B,M
Crossville, TN Knoxville, TN
Westwind Manor Dallas- 1998 1,545 -- -- G,F,M,S,T
Bridgeport, TX Ft. Worth, TX
DESTINATION RESORTS
Ozark Mountain Branson, 1982 5,705 273 10,022 B,F,H,M,S,T
Kimberling City, MO MO
Holiday Hills Branson, 1984 3,490 377 10,755 G,M,S,T(g)
Branson, MO MO
Oak N' Spruce Boston, MA 1998 6,078 1,165 6,488 F,G,S,T
South Lee, MA New York, NY
Hickory Hills Gulf Coast, 1998 3,915 2 2,935 B,F,G,M,T,S
Gautier, MS MS
------- ------ ------
Total 82,530 13,191 $ 8,042
======= ====== =======
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NEW RESORTS
PRIMARY DATE PLANNED PLANNED EXISTING AND PLANNED
RESORT/LOCATION MARKET SERVED ACQUIRED UNITS(i) INTERVALS(i) AMENITIES/ACTIVITIES
--------------- --------------- -------- -------- ------------ --------------------
Galveston, TX... Houston, TX 1997(j) 282(l) 14,664(f)(l) B,F,M,S,T
Las Vegas, NV... Las Vegas, NV 1997 157(l) 8,164(f)(l) S
Clarkesville, GA Atlanta, GA 1998 608 31,616(f)(k) G,M,H,S,T
Smithville, MO.. Kansas City, MO 1998 608(k) 31,616(f)(k) F,M,S,T(g)
Drums, PA....... Philadelphia, PA 1998 608(k) 31,616(f)(k)(m) B,F,M,S,T
------ -------
Total... 2,263 117,676
====== =======
- ----------
(a) These totals do not reflect sales of upgraded Vacation Intervals to
Silverleaf Owners. For the year ended December 31, 1998, upgrade sales at
the Existing Resorts were as follows:
AVERAGE SALES PRICE
FOR THE YEAR
ENDED 12/31/98
UPGRADED VACATION -- NET OF
RESORT INTERVALS SOLD EXCHANGED INTERVAL
------------------ ------------------ ------------------
Holly Lake....................... 271 $ 3,376
The Villages..................... 1,041 4,267
Lake O' The Woods................ 159 3,501
Piney Shores..................... 512 3,493
Hill Country..................... 757 3,840
Timber Creek..................... 154 3,339
Fox River........................ 253 3,059
Ozark Mountain................... 534 3,976
Holiday Hills.................... 2,621 5,068
Oak N' Spruce.................... 505 4,223
Beech Mountain................... 3 6,167
Treasure Lake.................... 7 5,825
--------- --------
6,817 $ 4,327
========= ========
(b) Represents units included in the Company's master plan. This plan is subject
to change based upon various factors, including consumer demand, the
availability of financing, grant of governmental land-use permits, and
future land-planning and site layout considerations. The following chart
reflects the status of certain planned units at December 31, 1998:
LAND-USE LAND-USE LAND-USE
PROCESS PROCESS PROCESS CURRENTLY IN SHELL
NOT STARTED PENDING COMPLETE CONSTRUCTION COMPLETE TOTAL
------------ ------------ ------------ ------------ ------------ ------------
Holly Lake ............ 54 -- 50 -- 4 108
The Villages .......... 226 -- 180 18 -- 424
Lake O' The Woods ..... -- -- 16 -- -- 16
Piney Shores .......... 236 54 162 -- -- 452
Hill Country .......... 171 -- 220 16 4 411
Timber Creek .......... 432 -- 96 -- -- 528
Fox River ............. 626 -- 84 30 -- 740
Ozark Mountain ........ 364 -- 12 12 12 400
Holiday Hills ......... 342 180 160 26 14 722
Oak N' Spruce ......... 406 60 78 24 -- 568
------------ ------------ ------------ ------------ ------------ ------------
2,857 294 1,058 126 34 4,369
============ ============ ============ ============ ============ ============
"Land-Use Process Pending" means that the Company has commenced the
process which the Company believes is required under current law in order to
obtain the necessary land-use authorizations from the applicable local
governmental authority with jurisdiction, including submitting for approval
any architectural drawings, preliminary plats, or other attendant items as
may be required.
"Land-Use Process Complete" means either that (i) the Company believes
that it has obtained all necessary land-use authorizations under current law
from the applicable local governmental authority with jurisdiction,
including the approval and filing of any required preliminary or final plat
and the issuance of building permit(s), in each case to the extent
applicable, or (ii) upon payment of any required filing or other fees, the
Company believes that it will under current law obtain such necessary
authorizations without further process.
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The 34 "Shell Complete" units are currently devoted to such uses as a
general store, registration office, sales office, activity center,
construction office, or pro shop. The Company anticipates that these units
will continue to be used for such purposes during 1999.
(c) Principal amenities available to Silverleaf Owners at each resort are
indicated by the following symbols: B -- boating; F -- fishing; G -- golf
course; H -- horseback riding; M -- miniature golf; S -- swimming pool; and
T -- tennis.
(d) These figures are based primarily on 50 one-week intervals per unit.
(e) The Company has management rights with respect to these resorts and
presently has no ability to expand the resorts.
(f) These figures are based primarily on 52 one-week intervals per unit.
(g) Boating is available near the resort.
(h) Includes three units which have not been finished-out for accommodations and
which are currently used for other purposes.
(i) Engineering, architectural, and construction estimates have not been
completed by the Company, and there can be no assurance that the Company
will develop these properties at the unit numbers currently projected.
(j) One portion of this tract was acquired in February 1998.
(k) The Company has not commenced the timeshare permit process. The Company has
commenced the land use permit process.
(l) The Company has commenced the timeshare permit application process, but has
not yet received a permit.
(m) The Company has requested regulatory approval to initially develop 144
units. This number reflects the approximate number of units that could be
accommodated on the property if fully developed.
FEATURES COMMON TO EXISTING RESORTS
Drive-to Resorts are primarily located in rustic areas offering Silverleaf
Owners a quiet, relaxing vacation environment. Furthermore, the resorts offer
different vacation activities, including golf, fishing, boating, swimming,
horseback riding, tennis, and archery. Destination Resorts are located in or
near areas with national tourist appeal. Features common to the Existing Resorts
include the following:
ENDLESS ESCAPE PROGRAM. The Company's Endless Escape Program offers
Silverleaf Owners a substantial benefit not typically enjoyed by many other
timeshare owners. In addition to the right to use a unit one week per year, the
Endless Escape Program allows a Silverleaf Owner to also use vacant units at any
of the Existing Resorts for no additional charge. The Endless Escape Program is
limited based on the availability of units which include unused intervals and
unsold inventory. Silverleaf Owners who have utilized the resort less frequently
are given priority to use the program and may only use an interval with an equal
or lower rating than the owned Vacation Interval. The Company believes this
program is important as many vacationers prefer shorter two to three day
vacations.
The Company changed the Endless Escape Program for customers who purchase a
Vacation Interval after July 1, 1998. Customers who purchase a Vacation Interval
at a Drive-to Resort after July 1, 1998 will not be able to use the Endless
Escape Program at the Company's Destination Resorts, including the New Resorts
in Galveston and Las Vegas. However, customers who are or become Silverleaf
Owners before such date will be able to use the Endless Escape Program at all
Destination Resorts, except the Galveston and Las Vegas resorts. Silverleaf
Owners who purchase a Vacation Interval at any Destination Resort after such
date will be able to use the Endless Escape Program at any of Silverleaf's
resorts, including the New Resorts at Galveston and Las Vegas.
YEAR-ROUND USE OF AMENITIES. Even when not using the lodging facilities,
Silverleaf Owners have unlimited year-round day usage of the amenities located
at the Existing Resorts, such as boating, fishing, miniature golf, tennis,
swimming, or hiking, for little or no additional cost. Certain amenities,
however, such as golf, horseback riding, or watercraft rentals, may require a
usage fee.
EXCHANGE PRIVILEGES. Each Silverleaf Owner has certain exchange privileges
which may be used on an annual basis to (i) exchange an interval for a different
interval (week) at the same resort so long as the different interval is of an
equal or lower rating; or
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(ii) exchange an interval for the same interval (week) at any other of the
Existing Resorts. These intra-company exchange rights are a convenience
Silverleaf provides its members as an accommodation to them, and are conditioned
upon availability of the desired interval or resort. The Company executed
approximately 1,478 intra-company exchanges in 1998. In addition, for an annual
fee of approximately $84, most Silverleaf Owners may join the exchange program
administered by RCI.
DEEDED OWNERSHIP. The Company typically sells a Vacation Interval which
entitles the owner to use a specific unit for a designated one-week interval
each year. The Vacation Interval purchaser receives a recorded deed which grants
the purchaser a percentage interest in a specific unit for a designated week.
The Company also sells a biennial (alternate year) Vacation Interval which
allows the owner to use a unit for a one-week interval every other year with
reduced dues.
MANAGEMENT CLUBS. Each of the Existing Resorts has a Club for the benefit of
the Silverleaf Owners. The Clubs operate under one of the Management Clubs to
manage the Existing Resorts on a centralized and collective basis. The
Management Clubs have contracted with the Company to perform the supervisory,
management, and maintenance functions granted by the Clubs to the Management
Clubs. Costs of these operations are covered by monthly dues paid by Silverleaf
Owners to their respective Clubs together with income generated by the operation
of certain amenities at the Existing Resorts. See "Clubs / Management Clubs"
contained elsewhere herein. Due to Nevada timeshare laws, the proposed resort in
Las Vegas will not be managed by the Management Clubs.
ON-SITE SECURITY. The Existing Resorts are patrolled by security personnel
who are either employees of the Management Clubs or personnel of independent
security service companies which have contracted with the Clubs.
DESCRIPTION OF EXISTING RESORTS OWNED AND OPERATED BY THE COMPANY
HOLLY LAKE RESORT. Holly Lake is a family-oriented golf resort located in
the Piney Woods of East Texas, approximately 105 miles east of Dallas. The
timeshare portion of Holly Lake is part of a 4,300 acre mixed-use development of
single-family lots and timeshare units with other third-party developers. The
Company owns approximately 2,740 acres within Holly Lake, of which approximately
2,667 may not be developed due to deed restrictions. At December 31, 1998,
approximately 27 acres were developed and approximately 45 remaining acres are
currently planned by the Company to be used for future development.
At December 31, 1998, 130 units were completed and an additional 108 units
are planned for development. Three different types of units are offered at the
resort: (i) two bedroom, two bath, wood siding, and stucco fourplexes; (ii) one
bedroom, one bath, one sleeping loft, log construction duplexes; and (iii) two
bedroom, two bath, log construction fourplexes. Each unit has a living room with
sleeper sofa and full kitchen. Other amenities within each unit include
whirlpool tub, color television, and vaulted ceilings. Certain units include
interior ceiling fans, imported ceramic tile, over-sized sliding glass doors,
and rattan and pine furnishings.
Amenities at the resort include an 18-hole golf course with pro shop;
19th-hole private club and restaurant; Holly Lake Restaurant; Country Store;
indoor rodeo arena and stables; six tennis courts (two lighted); four different
lakes (one with sandy swimming beach and swimming dock, one with boat launch for
water skiing); two swimming pools with bathhouses; children's pool and pavilion;
recently completed hiking/nature trail; children's playground area; two
miniature golf courses; five picnic areas; activity center with big screen
television; gameroom with arcade games and pool tables; horseback trails;
activity areas for basketball, horseshoes, volleyball, shuffleboard, and
archery; and camp sites with electrical and water hookups. Silverleaf Owners can
also rent canoes, bicycles, and water trikes. Homeowners in neighboring
subdivisions are entitled to use the amenities at Holly Lake pursuant to
easements or use agreements.
At December 31, 1998, the resort contained 6,500 Vacation Intervals, of
which 661 intervals remained available for sale. The Company plans to build an
additional 108 units, which would yield an additional 5,508 Vacation Intervals
available for sale. Vacation Intervals at the resort are currently priced from
$5,500 to $12,500 for one-week stays. During 1998, 1,070 Vacation Intervals were
sold.
THE VILLAGES AND LAKE O' THE WOODS RESORTS. The Villages and Lake O' The
Woods are sister resorts located on the shores of Lake Palestine, approximately
100 miles east of Dallas, Texas. The Villages, located approximately five miles
northwest of Lake O' The Woods, is an active sport resort popular for
water-skiing and boating. Lake O' The Woods is a quiet wooded resort where
Silverleaf Owners can enjoy the seclusion of dense pine forests less than two
hours from the Dallas-Fort Worth metroplex. The Villages is a mixed-use
development of single-family lots and timeshare units, while Lake O' The Woods
has been developed solely as a timeshare resort. The two resorts contain
approximately 615 acres, of which approximately 379 may not be developed due to
deed restrictions. At December 31, 1998, approximately 92.5 acres were developed
such that approximately 143.5 remaining acres are currently planned by the
Company to be used for future development.
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At December 31, 1998, 276 units were completed at The Villages and 64 units
were completed at Lake O' The Woods. An additional 424 units and 16 units are
planned for development at The Villages and Lake O' The Woods, respectively.
There are five different types of units at these resorts: (i) three bedroom, two
and one-half bath, wood siding exterior duplexes and fourplexes (two units);
(ii) two bedroom, two and one-half bath, wood siding exterior duplexes and
fourplexes; (iii) two bedroom, two bath, brick and siding exterior fourplexes;
(iv) two bedroom, two bath, siding exterior fourplexes, sixplexes, and
three-story twelveplexes; and (v) one bedroom, one bath with two-bed loft
sleeping area, log construction duplexes. Amenities within each unit include
full kitchen, whirlpool tub, and color television. Certain units include
interior ceiling fans, ceramic tile, and/or a fireplace. "Presidents Harbor"
units feature a larger, more spacious floor plan (1,255 square feet), front and
back verandas, washer and dryer, and a more elegant decor.
Both resorts are situated on Lake Palestine, a 27,000 acre public lake.
Recreational facilities and improvements at The Villages include a full service
marina with convenience store, boat launch, water-craft rentals, and covered and
locked rental boat stalls; two swimming pools; lighted tennis court; miniature
golf course; nature trails; camp sites; riding stables; soccer/softball field;
children's playground; RV sites; a new 9,445 square foot activity center with
movie theater, wide-screen television, reading room, tanning beds, pool table,
and small indoor gym; and competitive sports facilities which include horseshoe
pits, archery range, and shuffleboard, volleyball, and basketball courts.
Silverleaf Owners at The Villages can also rent or use bicycles, jet skis, motor
boats, paddle boats, pontoon boats, and water trikes. Neighboring homeowners are
also entitled to use these amenities pursuant to a use agreement.
Recreational facilities at Lake O' The Woods include swimming pool,
bathhouse, lighted tennis court, a recreational beach area with picnic areas, a
fishing pier on Lake Palestine, nature trails, soccer/softball field, children's
playground, RV sites, an activity center with wide-screen television and pool
table, horseshoe pits, archery range, putting green, miniature golf course,
shuffleboard, volleyball, and basketball courts. Guests can also ride horses or
rent bicycles.
At December 31, 1998, The Villages contained 14,352 total Vacation
Intervals, of which 2,132 remained available for sale. The Company plans to
build 424 additional units at The Villages, which would yield an additional
22,048 Vacation Intervals available for sale. At December 31, 1998, Lake O' The
Woods contained 3,200 total Vacation Intervals, of which 218 remained available
for sale. The Company plans to build 16 additional units at Lake O' The Woods,
which would yield 800 additional Vacation Intervals available for sale. Vacation
Intervals at The Villages and Lake O' The Woods are currently priced from $5,500
to $14,500 for one-week stays (and start at $3,800 for biennial intervals),
while one-week "Presidents Harbor" intervals are priced at $12,500 to $18,500
depending on the value rating of the interval. During 1998, 2,670 and 605
Vacation Intervals were sold at The Villages and Lake O' The Woods,
respectively.
PINEY SHORES RESORT. Piney Shores Resort is a quiet, wooded resort ideally
located for day-trips from metropolitan areas in the southeastern Gulf Coast
area of Texas. Piney Shores Resort is located on the shores of Lake Conroe,
approximately 40 miles north of Houston, Texas. At December 31, 1998, the resort
contained approximately 116 acres, of which approximately 57.5 acres are planned
by the Company for future development.
At December 31, 1998, 148 units were completed and an additional 452 units
are planned for development. All units are two bedroom, two bath units and will
comfortably accommodate up to six people. Amenities include a living room with
sleeper, full kitchen, whirlpool tub, color television, and interior ceiling
fans. Certain "lodge-style" units feature stone fireplaces, white-washed pine
wall coverings, "age-worn" paint finishes, and antique furnishings.
The primary recreational amenity at the resort is Lake Conroe, a 21,000 acre
public lake. Other recreational facilities and improvements available at the
resort include a swimming pool with spa, a new bathhouse complete with showers
and restrooms, lighted tennis court, miniature golf course, stables, horseback
riding trails, children's playground, picnic areas, boat launch, beach area for
swimming, 4,626-square foot activity center with big-screen television, 32-seat
movie theatre, covered wagon rides, and facilities for horseshoes, archery,
shuffleboard, and basketball. The resort also has a vintage moored
paddle-wheeled riverboat which is available for parties and receptions.
At December 31, 1998, the resort contained 7,696 Vacation Intervals, of
which 2,102 remained available for sale. The Company intends to build 452
additional units, which would yield an additional 23,488 Vacation Intervals
available for sale. Vacation Intervals at the resort are currently priced from
$6,500 to $14,500 for one-week stays (and start at $3,800 for biennial
intervals). During 1998, 1,700 Vacation Intervals were sold.
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HILL COUNTRY RESORT. Hill Country Resort is located near Canyon Lake in the
hill country of central Texas between Austin and San Antonio. At December 31,
1998, Hill Country Resort contained approximately 122 acres, of which
approximately 62 acres are currently planned by the Company to be used for
future development.
At December 31, 1998, 189 units were completed and an additional 411 units
are planned for development. Twenty units are single story, while all other
units are two-story structures in which the bedrooms and baths are located on
the second story. Each unit contains two bedrooms, two bathrooms, living room
with sleeper sofa, and full kitchen. Other amenities within each unit include
whirlpool tub, color television, and interior design details such as vaulted
ceilings. Certain units include interior ceiling fans, imported ceramic tile,
over-sized sliding glass doors, rattan and pine furnishings, and/or a fireplace.
64 units feature the Company's new "lodge style". "Presidents Villas" units
feature a larger, more spacious floor plan (1,228 square feet), front and back
verandas, washer and dryer, and a more elegant decor.
Amenities at the resort include a 7,943-square foot activity center with
electronic games, pool table, and wide-screen television; miniature golf course;
a children's playground area; barbecue and picnic areas; enclosed swimming pool
and heated spa; children's wading pool; newly-constructed tennis court; archery
range; and activity areas for shuffleboard, basketball, horseshoes, and
volleyball. In November 1998 the Company began construction on the expansion of
the existing clubhouse at the resort. The Company estimates that the addition
will cost approximately $680,000 and will take six months to complete. Area
sights and activities include water-tubing on the nearby Guadalupe River and
visiting the many tourist attractions in San Antonio, such as Sea World, The
Alamo, The River Walk, and the San Antonio Zoo.
At December 31, 1998, the resort contained 9,450 Vacation Intervals, of
which 2,482 remained available for sale. The Company plans to build 411
additional units, which collectively would yield 21,364 additional Vacation
Intervals available for sale. Vacation Intervals at the resort are currently
priced from $6,500 to $14,500 for one-week stays (and start at $3,800 for
biennial intervals), while one-week "Presidents Villas" intervals are priced at
$12,500 to $18,500 depending on the value rating of the interval. During 1998,
1,500 Vacation Intervals were sold.
OZARK MOUNTAIN RESORT. Ozark Mountain Resort is a family-oriented resort
located on the shores of Table Rock Lake which features bass fishing. The resort
is located approximately 15 miles from Branson, Missouri, a family music and
entertainment center, 233 miles from Kansas City, and 276 miles from St. Louis.
Ozark Mountain Resort is a mixed-use development of timeshare and condominium
units. At December 31, 1998, the resort contained approximately 116 acres, of
which approximately 82 acres are currently planned by the Company to be used for
future development.
At December 31, 1998, 124 units were completed and an additional 400 units
are planned for development. There are two types of units: (i) two bedroom, two
bath, one-story fourplexes; and (ii) two bedroom, two bath, three-story
sixplexes. Each standard unit includes two large bedrooms, two bathrooms, living
room with sleeper sofa, and full kitchen. Other amenities within each unit
include whirlpool tub, color television, and vaulted ceilings. Certain units
contain interior ceiling fans, imported ceramic tile, over-sized sliding glass
doors, rattan or pine furnishings, or fireplace. "Presidents View" units feature
a panoramic view of Table Rock Lake, a larger, more spacious floor plan (1,255
square feet), front and back verandas, washer and dryer, and a more elegant
decor.
The primary recreational amenity available at the resort is Table Rock Lake,
a 43,100-acre public lake. Other recreational facilities and improvements at the
resort include a swimming beach with dock, an activities center with pool table,
covered boat dock and launch ramp, olympic-sized swimming pool, concession area
with dressing facilities, lighted tennis court, nature trails, horseback riding
trails, two picnic areas, two playgrounds, miniature golf course, and a
competitive sports area accommodating volleyball, basketball, tetherball,
horseshoes, shuffleboard, and archery. Guests can also rent or use canoes,
paddle boats, or rowboats. Owners of neighboring condominium units developed by
the Company in the past are also entitled to use these amenities pursuant to use
agreements with the Company. Similarly, owners of Vacation Intervals are
entitled to use certain amenities of these condominium developments, including a
wellness center featuring a jacuzzi and exercise equipment.
At December 31, 1998, the resort contained 6,224 Vacation Intervals, of
which 519 remained available for sale. The Company plans to build 400 additional
units which would yield an additional 20,776 Vacation Intervals available for
sale. Vacation Intervals at the resort are currently priced from $8,500 to
$15,000 for one-week stays, while one-week "Presidents View" intervals are
priced at $12,500 to $20,500 depending on the value rating of the interval.
During 1998, 273 Vacation Intervals were sold.
HOLIDAY HILLS RESORT. Holiday Hills Resort is a resort community located in
Taney County, Missouri, two miles east of Branson, Missouri. The resort is 224
miles from Kansas City and 267 miles from St. Louis. The resort is heavily
wooded by cedar, pine, and hardwood trees, and is favored by Silverleaf Owners
seeking quality golf and nightly entertainment in nearby Branson. Holiday Hills
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Resort is a mixed-use development of single-family lots, condominiums and
timeshare units. At December 31, 1998, the resort contained approximately 338
acres, of which approximately 108 acres are currently planned by the Company to
be used for future development.
At December 31, 1998, 78 units were completed and an additional 722 units
are planned for future development. There are four types of timeshare units: (i)
two bedroom, two bath, one-story fourplexes; (ii) one bedroom, one bath, with
upstairs loft, log construction duplexes; (iii) two bedroom, two bath, two-story
fourplexes; and (iv) two bedroom, two bath, three-story sixplexes. Each unit
includes a living room with sleeper sofa, full kitchen, whirlpool tub, and color
television. Certain units will include a fireplace, ceiling fans, imported tile,
oversized sliding glass doors, vaulted ceilings, and rattan or pine furniture.
"Presidents Fairways" units feature a larger, more spacious floor plan (1,255
square feet), front and back verandas, washer and dryer, and a more elegant
decor.
Taneycomo Lake, a popular lake for trout fishing, is three miles away, and
Table Rock Lake is approximately ten miles away. Amenities at the resort include
a newly renovated 18-hole golf course; miniature golf course; tennis court;
picnic area; camp sites; archery range; basketball court; activity area which
includes shuffleboard and horseshoes; and construction of a new 5,356 square
foot clubhouse that includes a pro shop, restaurant, and meeting space is
currently being completed. The Company intends to develop a new 2,800 square
foot outdoor swimming pool with a wellness center. Lot and condominium unit
owners are also entitled to use these amenities pursuant to use agreements
between the Company and certain homeowner associations.
At December 31, 1998, the resort contained 4,008 Vacation Intervals, of
which 518 remained available for sale. The Company plans to build 722 additional
units, which would yield an additional 37,452 Vacation Intervals available for
sale. Vacation Intervals at the resort are currently priced from $8,500 to
$14,500 for one-week stays, while one-week "Presidents Fairways" intervals are
priced at $12,500 to $20,500 depending on the value rating of the interval.
During 1998, 377 Vacation Intervals were sold.
TIMBER CREEK RESORT. In August 1997, the Company acquired the Timber Creek
Resort in Desoto, Missouri. The resort is located approximately 50 miles south
of St. Louis. Prior to its acquisition by the Company, the Timber Creek Resort
was operated as a campground by a nationwide campground operator. At December
31, 1998, the resort contained approximately 308 acres, of which approximately
142 acres are currently planned by the Company to be used for development.
At December 31, 1998, 72 units were completed and an additional 528 units
are planned for future development. All units are two bedroom, two bath units.
Amenities within each new unit include a living room with sleeper sofa, full
kitchen, whirlpool tub, and color television. Certain units will include a
fireplace, ceiling fans, imported ceramic tile, oversized sliding glass doors,
and rattan or pine furniture.
The primary recreational amenity available at the resort is a 35-acre
fishing lake. Other existing or planned amenities include a clubhouse; outdoor
pavilion; swimming pool; two lighted tennis courts; themed miniature golf
course; volleyball court; shuffleboard/multi-use sports court; archery;
horseback riding trail; and hook-ups for recreational vehicles. The Company
plans to construct a new par three executive golf course; clubhouse; stable and
corral; lake pavilion; indoor pool; indoor heated cedar sauna; and welcome
station as well. Other planned improvements by the Company include conversion of
the existing sales and registration buildings and renovation of the clubhouse
and clubhouse pool. The Company is obligated to maintain and provide campground
facilities for members of the previous owner's campground system.
At December 31, 1998, the resort contained 3,744 Vacation Intervals and
2,528 Vacation Intervals remained available for sale. The Company plans to build
528 additional units, which would collectively yield 27,456 additional Vacation
Intervals available for sale. Vacation Intervals at the resort are currently
priced from $6,500 to $12,500 for one-week stays (and start at $3,800 for
biennial intervals). During 1998, 1,110 Vacation Intervals were sold.
FOX RIVER RESORT. In August 1997, the Company acquired the Fox River Resort
in Sheridan, Illinois. The resort is located approximately 70 miles southwest of
Chicago. Prior to its acquisition by the Company, the Fox River Resort was
operated as a campground by a nationwide campground operator. At December 31,
1998, the resort contained approximately 308 acres, of which approximately 87
acres are currently planned by the Company to be used for future development.
At December 31, 1998, 60 units are completed and an additional 740 units are
planned for future development. All units are two bedroom, two bath units.
Amenities within each unit include a living room with sleeper sofa, full
kitchen, whirlpool tub, and color television. Certain units will include a
fireplace, ceiling fans, imported ceramic tile, oversized sliding glass doors,
and rattan or pine furniture.
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Amenities available at the resort include a new par three five-hole
executive golf course; tennis court; sports court; shuffleboard courts; outdoor
pavilion; swimming pool; miniature golf course; and hook-ups for recreational
vehicles. The Company plans to construct new sales and registration buildings;
clubhouse; covered pool; playground; children's movie theater; stable and
corral; and welcome station. The Company also plans to offer winter recreational
activities at this resort, including ice-skating, snowmobiling, and
cross-country skiing. The Company is obligated to maintain and provide
campground facilities for members of the previous owner's campground system.
At December 31, 1998, the resort contained 3,120 Vacation Intervals and 317
Vacation Intervals remained available for sale. The Company plans to build 740
additional units, which would collectively yield 38,480 additional Vacation
Intervals available for sale. Vacation Intervals at the resort are currently
priced from $6,500 to $12,500 for one-week stays (and start at $3,800 for
biennial intervals). During 1998, 2,515 Vacation Intervals were sold.
OAK N' SPRUCE RESORT. In December 1997, the Company acquired the Oak N'
Spruce Resort in the Berkshire mountains of western Massachusetts. The resort is
located approximately 134 miles west of Boston and 114 miles north of New York
City. Oak N' Spruce is a mixed-use development which includes a hotel and
timeshare units. At December 31, 1998, the resort contained approximately 240
acres, of which approximately 120 acres are currently planned by the Company to
be used for future development.
At December 31, 1998, the resort had 132 units and an additional 568 units
are planned for development. There are seven types of existing units: (i) studio
flat; (ii) one-bedroom flat; (iii) one-bedroom townhouse; (iv) two-bedroom flat;
(v) two-bedroom townhouse; (vi) two-bedroom, flex-time; and (vii) two-bedroom,
lockout. There is also a 21-room hotel at the resort which may be converted to
timeshare use. The hotel will initially be used primarily to provide
accommodations for potential timeshare customers who tour the resort. Amenities
within each new unit will include a living room with sleeper sofa, full kitchen,
whirlpool tub, and color television. Certain units will include a fireplace,
ceiling fans, imported ceramic tile, oversized sliding glass doors, and rattan
or pine furniture.
Amenities at the resort include two indoor heated swimming pools with hot
tubs; one outdoor olympic-sized, spring fed pool with bar and snack bar; sauna;
health club; nine-hole golf course; ski rentals; shuffleboard, basketball and
tennis courts; horseshoe pits; hiking and ski trails; and activity areas for
sledding and badminton. The resort is also near Beartown State Forest.
At December 31, 1998, the resort contained 6,864 Vacation Intervals, of
which 786 remained available for sale. The Company plans to build 568 additional
"lodge-style" units, which would yield an additional 29,536 Vacation Intervals
available for sale. Vacation Intervals at the resort are currently priced from
$6,600 to $12,500 for one-week stays (and start at $3,800 for biennial
intervals). During 1998, 1,165 Vacation Intervals were sold.
DESCRIPTION OF EXISTING RESORTS MANAGED BY THE COMPANY
The management rights to the following resorts were acquired via the Crown
acquisition in May 1998.
ALPINE BAY RESORT. Alpine Bay Resort is located in Talledega County,
Alabama, near Lake Logan Martin and is approximately 50 miles east of
Birmingham. The resort contains 54 units and includes a golf course, pro shop
lounge, outdoor pool, and tennis courts. At December 31, 1998, there are no
remaining unsold Vacation Intervals at this resort. During 1998, four Vacation
Intervals and Silverleaf Club Endless Escape Program memberships were sold. No
further development is planned at this resort.
HICKORY HILLS RESORT. Hickory Hills is located in Jackson County,
Mississippi, near the Pascagoula River and is approximately 20 miles east of
Biloxi. The resort contains 80 units and has a golf course, restaurant/lounge,
outdoor pool, clubhouse, fitness center, miniature golf course, tennis courts,
and playground. At December 31, 1998, there are approximately 165 unsold
Vacation Intervals at this resort. During 1998, two Vacation Intervals and
Silverleaf Club Endless Escape Program memberships were sold. No further
development is planned at this resort.
LAKE ROYALE RESORT. Lake Royale is located in Franklin County, North
Carolina, and is approximately 50 miles east of Raleigh/Durham. The resort
contains 16 units and has a golf course, pro shop lounge, outdoor pool,
clubhouse, miniature golf course, tennis courts, and playground. At December 31,
1998, there are 215 unsold Vacation Intervals at this resort. During 1998, no
Vacation Intervals or Silverleaf Club Endless Escape Program memberships were
sold. No further development is planned at this resort.
BEECH MOUNTAIN LAKES RESORT. Beech Mountain Lakes is located in Butler
Township, Luzerne County, Pennsylvania, and is approximately 30 miles south of
Wilkes Barre-Scranton. The resort contains 54 units and has a restaurant/lounge,
indoor pool/sauna, clubhouse, fitness center, tennis courts, and pontoon boat.
At December 31, 1998, there are approximately 118 unsold Vacation
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Intervals at this resort. During 1998, 51 Vacation Intervals and Silverleaf Club
Endless Escape Program memberships were sold. No further development is planned
at this resort.
TREASURE LAKE RESORT. Treasure Lake is located in Sandy Township, Clearfield
County, Pennsylvania, and is approximately 160 miles northeast of Pittsburgh.
The resort contains 145 units and has two golf courses, a restaurant/lounge,
indoor pool/sauna, outdoor pool, clubhouse, tennis courts, and pontoon boat. At
December 31, 1998, there are approximately 490 unsold Vacation Intervals at this
resort. During 1998, 139 Vacation Intervals and Silverleaf Club Endless Escape
Program memberships were sold. No further development is planned at this resort.
FOXWOOD HILLS RESORT. Foxwood Hills is located in Oconee County, South
Carolina, near Lake Hartwell and is approximately 100 miles northeast of
Atlanta. The resort contains 114 units and has a golf course, restaurant/lounge,
indoor pool/sauna, outdoor pool, clubhouse, miniature golf course, tennis
courts, pontoon boat, and playground. At December 31, 1998, there are
approximately 496 unsold Vacation Intervals at this resort. During 1998, five
Vacation Intervals and Silverleaf Club Endless Escape Program memberships were
sold. No further development is planned at this resort.
TANSI RESORT. Tansi Resort is located in Cumberland County, Tennessee, and
is approximately 75 miles west of Knoxville. The resort contains 124 units and
has a golf course, restaurant/lounge, indoor pool/sauna, outdoor pool,
clubhouse, fitness center, miniature golf course, tennis courts, and playground.
At December 31, 1998, there are approximately 364 unsold Vacation Intervals at
this resort. During 1998, five Vacation Intervals and Silverleaf Club Endless
Escape Program memberships were sold. No further development is planned at this
resort.
WESTWIND MANOR RESORT. Westwind Manor is located in Wise County, Texas, on
Lake Bridgeport and is approximately 65 miles northwest of the Dallas-Fort Worth
metroplex. The resort contains 37 units and has a golf course,
restaurant/lounge, outdoor pool, clubhouse, miniature golf course, tennis
courts, and playground. At December 31, 1998, there are approximately 342 unsold
Vacation Intervals at this resort. During 1998, no Vacation Intervals or
Silverleaf Club Endless Escape Program memberships were sold. No further
development is planned at this resort.
DESCRIPTION OF NEW RESORTS
SILVERLEAF'S LAS VEGAS RESORT. In November 1997, the Company acquired a two
acre parcel of land two blocks off the "strip" in Las Vegas, Nevada, for
development as a new Destination Resort.
The Company plans to build a five-story tower and a nine-story tower which
will include approximately 157 units, including 83 two-bedroom and 74
one-bedroom units. Construction of the units is anticipated to begin in late
1999. This resort will feature balconies, washer and dryer, whirlpool tubs,
living room with sleeper sofa, full kitchen, and color television.
Amenities at the resort will include a swimming pool, health spa with sauna,
exercise facilities, children's theatre, and video arcade. The resort will also
feature a waterfall cascading down the front of one tower.
The Company plans to build 157 units which would yield 8,164 Vacation
Intervals for sale. The Company anticipates that sales efforts will begin in
2000. The Company anticipates Vacation Intervals at the resort will be priced
from $9,500 to $13,500 for one-week stays.
SILVERLEAF'S SEASIDE RESORT. In December 1997 and February 1998, the Company
acquired over 83 acres of land, including beachfront, in Galveston, Texas. These
adjacent tracts are located approximately 50 miles south of Houston, Texas, and
were acquired for development as a new Destination Resort. Prior to its
acquisition by the Company, one tract was operated by a nationwide campground
operator.
The Company plans to build 282 new units situated in three-story 12-plex
buildings, with construction of 24 units slated to begin in April 1999. All
units will be two bedroom, two bath units. Amenities within each unit will
include two large bedrooms, two bathrooms (one with a whirlpool tub), living
room with sleeper sofa, full kitchen, color television, and vaulted ceilings.
This resort will also include the Company's upscale Presidents View units which
will overlook the Gulf of Mexico and offer 1,255 square feet of floor space,
front and back verandas, washer and dryer, and a more elegant decor.
The primary amenity at the resort is the Gulf of Mexico. This site has 635
feet of beachfront. Other currently existing amenities include a lodge with
kitchen, sports court, and swimming pool. The Company is obligated to maintain
and provide campground facilities for members of the previous owner's campground
system.
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The Company plans to build 282 units which would yield 14,664 Vacation
Intervals for sale. Construction began in January 1999. The Company anticipates
that sales efforts will begin in the summer of 1999. Vacation Intervals at the
resort will be priced from $8,000 to $14,500 for one-week stays.
APPLE MOUNTAIN RESORT. In October 1998, the Company acquired the Apple
Mountain Resort in Clarkesville, Georgia, for approximately $4.2 million. The
resort will be situated on 275 acres of beautiful open pastures and rolling
hills, with 221 acres being the golf course. The resort is approximately 125
miles north of Atlanta, Georgia, and will be developed as a Drive-to Resort.
At December 31, 1998, 608 units are planned for development. The "Lodge
Get-A-Way" will be the first units developed. Each unit will be approximately
827 square feet with all units being two bedrooms, two full baths. Amenities
within each new unit will include a living room with sleeper sofa, full kitchen,
whirlpool tub, and color television. Certain units will include a fireplace,
ceiling fans, imported ceramic tile, oversized sliding glass doors, and rattan
or pine furniture.
The administration building and activity center are also planned for
development early in 1999. The new buildings will total approximately 9,445
square feet and will feature an amenity package including wide screen
television, pool tables, arcade games, snack area, and movie theatre. Proposed
amenities will also include a tennis court, swimming pool, horseshoes,
shuffleboard, archery, miniature golf course, and volleyball and basketball
courts.
The primary recreational amenity available to the resort is an established
18-hole golf course situated on approximately 150 acres of open fairways and
rolling hills. Elevation of the course is 1,530 feet at the lowest point and
1,808 feet at the highest point. The course is designed with approximately
104,000 square feet of bent grass greens. The course's tees total approximately
4 acres, fairways total approximately 24 acres, and primary roughs total
approximately 29 acres, all covered with TIF 419 Bermuda. The balance of grass
totals approximately 95 acres and is covered with Fescue. The course has 19 sand
bunkers totaling 19,800 square feet and there are approximately seven miles of
cart paths. Lining the course are apple orchards totaling approximately four
acres, with white pine roughs along twelve of the fairways. The course has a
five-acre irrigation lake and two ponds, one approximately 3,000 square feet and
located on the fourth hole and the second approximately 1,500 square feet and
located on the fifteenth hole. The driving range covers approximately nine acres
and has 20,000 square feet of tee area covered in TIF 419 Bermuda. The pro shop
offers a full line of golfing accessories and equipment. There is also a golf
professional on site to offer lessons and to plan events for the club. This
resort is located in the Blue Ridge Mountains and offers accessibility to many
other outdoor recreational activities, including Class 5 white water rapids.
The Company plans to build 608 units which would yield 31,616 Vacation
Intervals for sale. Construction began in late 1998. Sales efforts began in
January 1999. Vacation Intervals at the resort will be priced from $6,500 to
$12,500 for one-week stays (and start at $3,800 for biennial intervals).
LAKEVIEW LODGE. In September 1998, the Company completed its purchase of 260
acres of undeveloped land near Kansas City, Missouri, for approximately $1.5
million. The property will be developed as a Drive-to Resort. At December 31,
1998, 608 units are planned for development, with all units being two bedroom,
two bath. Amenities within each unit will include a living room with sleeper
sofa, full kitchen, whirlpool tub, and color television. Certain units will
include a fireplace, ceiling fans, imported ceramic tile, oversized sliding
glass doors, and rattan or pine furniture.
The primary recreational amenity available at the resort is an adjoining
fishing lake. Other planned amenities include a clubhouse; outdoor pavilion;
swimming pool; lighted tennis courts; themed miniature golf course; volleyball
court; shuffleboard/multi-use sports court; archery; horseback riding trail;
stable and corral; lake pavilion; indoor pool; indoor heated cedar sauna;
welcome station; and hook-ups for recreational vehicles.
The Company plans to build 608 units which would yield 31,616 Vacation
Intervals for sale. The resort is in the preliminary development phase. Vacation
Intervals at the resort will be priced from $6,500 to $12,500 for one-week stays
(and start at $3,800 for biennial intervals).
BEECH MOUNTAIN RESORT. In December 1998, the Company acquired 1,998 acres of
undeveloped land near Philadelphia, Pennsylvania, for approximately $1.9
million. The property will be developed as a Drive-to Resort, to be known as
Beech Mountain Resort. At December 31, 1998, all units planned for development
will be two bedroom, two bath. Amenities within each unit will include a living
room with sleeper sofa, full kitchen, whirlpool tub, and color television.
Certain units will include a fireplace, ceiling fans, imported ceramic tile,
oversized sliding glass doors, and rattan or pine furniture.
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The primary recreational amenity available at the resort is a fishing lake.
Other planned amenities include a clubhouse; outdoor pavilion; swimming pool;
lighted tennis courts; themed miniature golf course; volleyball court;
shuffleboard/multi-use sports court; archery; horseback riding trail; stable and
corral; lake pavilion; indoor pool; indoor heated cedar sauna; welcome station;
and hook-ups for recreational vehicles.
The Company has requested initial approval of 144 units. If fully developed,
the property could accommodate approximately 608 units which would yield 31,616
Vacation Intervals for sale. The resort is in the preliminary development phase.
Vacation Intervals at the resort will be priced from $6,500 to $12,500 for
one-week stays (and start at $3,800 for biennial intervals).
MARKETING AND SALES
Marketing is the process by which the Company attracts potential customers
to visit and tour an Existing Resort or attend a sales presentation. Sales is
the process by which the Company seeks to sell a Vacation Interval to a
potential customer once he arrives for a tour at an Existing Resort or attends a
sales presentation. The Company believes it has the marketing and sales systems
necessary to sell Vacation Intervals on a low-cost basis. The Company also
believes it is strategically positioned to enter new markets and develop
marketing programs for additional resorts it may develop in the future at a
lower cost than its competitors.
MARKETING. The Company's in-house marketing staff develops prospects through
a variety of marketing programs specifically designed to attract the Company's
target customers. Databases of new prospects are principally developed through
cooperative arrangements between Database Research, Inc., a subsidiary of the
Company, and other local businesses and special event sponsors. Under these
cooperative marketing programs, basic demographic information of potential
customers is solicited on a voluntary basis from individuals who patronize these
businesses or events. After entering this demographic information into its
permanent database, the Company utilizes its systems to identify prospects who
meet the Company's marketing criteria. Using the Company's automated dialing and
bulk mailing equipment, in-house marketing specialists conduct coordinated
telemarketing and direct mail procedures which invite prospects to tour one of
the Company's resorts and receive an incentive, such as a free gift.
SALES. The Company actively sells its Vacation Intervals primarily through
on-site salespersons at certain Existing Resorts. Upon arrival at an Existing
Resort for a scheduled tour, the prospect is met by a member of the Company's
on-site salesforce who conducts the prospect on a one to two hour tour of the
resort and its related amenities. At the conclusion of the tour, the sales
representative explains the benefits and costs of becoming a Silverleaf Owner.
The presentation also includes a description of the financing alternatives
offered by the Company. Prior to the closing of any sale, a verification officer
(a salaried employee of the Company) interviews each prospect to ensure
compliance with Company sales policies and regulatory agency requirements. No
sale becomes final until a statutory waiting period (which varies from state to
state) of up to fifteen days has passed.
Sales representatives receive commissions ranging from 5% to 14% of the
sales price depending on established guidelines. Sales managers also receive
commissions of 3% to 4% and are subject to commission chargebacks in the event
the purchaser fails to make the first required payment. Sales directors also
receive commissions of 1.5% to 3%, which are also subject to chargebacks.
Prospects who are interested in a lower priced product are offered biennial
(alternate year) intervals or Samplers, which entitle the prospect to sample a
resort for a specified number of nights. The prospect may apply the cost of a
Sampler against the down-payment on a Vacation Interval if purchased at a later
date. In addition, the Company actively markets upgraded Vacation Intervals to
existing Silverleaf Owners. Although most upgrades are sold by the Company's
in-house sales staff, the Company has contracted with a third party to assist in
offsite marketing of upgrades at the Destination Resorts. These upgrade programs
have been well received by Silverleaf Owners and accounted for approximately
24.6% and 21.8% of the Company's gross revenues from Vacation Interval sales for
1997 and 1998, respectively. By offering Samplers and upgraded Vacation
Intervals, the Company believes it offers an affordable product for all
prospects in its target market. Also, by offering products with a range of
prices, the Company attempts to attract younger purchasers with its lower-priced
products and gradually upgrade such purchasers over time as their earnings
increase.
Because the Company's sales representatives are a critical component of the
sales and marketing effort, the Company continually strives to attract, train
and retain a dedicated salesforce. The Company provides intensive sales
instruction and training which, coupled with the representative's valuable local
knowledge, assists the sales representatives in acquainting prospects with the
resort's benefits. Each sales representative is an employee of the Company and
receives some employment benefits. At December 31, 1998, the Company employed
more than 600 sales representatives at its Existing Resorts.
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CUSTOMER FINANCING
The Company offers financing to the buyers of Vacation Intervals at the
Company's resorts. These buyers typically make a down payment of at least 10% of
the purchase price and deliver a promissory note to the Company for the balance.
The promissory notes generally bear interest at a fixed rate, are generally
payable over a seven year period, and are secured by a first mortgage on the
Vacation Interval. The Company bears the risk of defaults on these promissory
notes, and this risk is heightened inasmuch as the Company generally does not
verify the credit history of its customers and will provide financing if the
customer is presently employed and meets certain household income criteria.
The Company's credit experience is such that in 1998 it allocated 12.1% of
the purchase price of Vacation Intervals to its provision for uncollectible
notes. In addition, in 1998 the Company decreased sales by $1.9 million for
customer returns (cancellations of sales transactions in which the customer
fails to make the first installment payment) and increased operating, general
and administrative expenses by $831,000 for customer releases (voluntary
cancellations of properly recorded sales transactions which in the opinion of
management is consistent with the maintenance of overall customer goodwill). If
a buyer of a Vacation Interval defaults, the Company generally must foreclose on
the Vacation Interval and attempt to resell it; the associated marketing,
selling, and administrative costs from the original sale are generally not
recovered; and sales and marketing costs must be incurred again to resell the
Vacation Interval. Although the Company, in many cases, may have recourse
against a Vacation Interval buyer for the unpaid price, certain states have laws
which limit or hinder the Company's ability to recover personal judgments
against customers who have defaulted on their loans. For example, under Texas
law, if the Company were to pursue a post-foreclosure deficiency claim against a
customer, the customer may file a court proceeding to determine the fair market
value of the property foreclosed upon. In such event, the Company may not
recover a personal judgment against the customer for the full amount of the
deficiency, but may recover only to the extent that the indebtedness owed to the
Company exceeds the fair market value of the property. Accordingly, the Company
has generally not pursued this remedy. In 1998, the Company implemented a
program through which delinquent loans are assumed by existing owners with a
consistent payment history.
Prior to 1996, the Company sold customer promissory notes and mortgages to
third parties, generally with recourse, as a means of financing its operations.
As a result, the Company may be required to repurchase customer promissory notes
previously sold which become delinquent. The Company takes these contingent
obligations into account in establishing its allowance for uncollectible notes.
At December 31, 1998, the Company had notes receivable (including notes
unrelated to Vacation Intervals) in the approximate principal amount of $197.9
million, was contingently liable with respect to approximately $3.8 million
principal amount of customer notes sold with recourse, and had an allowance for
uncollectible notes of approximately $23.9 million.
The Company recognizes interest income as earned. If interest payments on
customer notes become delinquent, the Company ceases recognition of the interest
income until collection is deemed probable. When inventory is returned to the
Company, any unpaid note receivable balances are charged against the allowance
for uncollectible notes net of the amount at which the Vacation Interval is
being restored to inventory.
The Company intends to borrow additional funds under its existing revolving
credit facilities to finance its operations. Under its existing revolving credit
facilities, the Company may borrow up to $130.0 million collateralized by
customer promissory notes and mortgages. At December 31, 1998, the Company had
borrowings under such revolving credit facilities in the approximate principal
amount of $54.7 million. These facilities permit borrowings up to 70% of the
principal amount of performing notes, and payments from Silverleaf Owners on
such notes are credited directly to the lender and applied against the Company's
loan balance. At December 31, 1998, the Company had a portfolio of approximately
36,075 Vacation Interval customer promissory notes in the approximate principal
amount of $196.9 million, of which approximately $26.6 million in principal
amount were 61 days or more past due and therefore ineligible as collateral.
At December 31, 1998, the Company's portfolio of customer notes receivable
had an average yield of 14.2%. At such date, the Company's borrowings, which
bear interest at variable rates, had a weighted average cost of 9.6%. The
Company has historically derived net interest income from its financing
activities because the interest rates it charges its customers who finance the
purchase of their Vacation Intervals exceed the interest rates the Company pays
to its lenders. Because the Company's existing indebtedness currently bears
interest at variable rates and the Company's customer notes receivable bear
interest at fixed rates, increases in interest rates would erode the spread in
interest rates that the Company has historically experienced and could cause the
interest expense on the Company's borrowings to exceed its interest income on
its portfolio of customer loans. The Company has not engaged in interest rate
hedging transactions. Therefore, any increase in interest rates, particularly if
sustained, could have a material adverse effect on the Company's results of
operations, liquidity, and financial position.
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Limitations on availability of financing would inhibit sales of Vacation
Intervals due to (i) the lack of funds to finance the initial negative cash flow
that results from sales that are financed by the Company, and (ii) reduced
demand if the Company is unable to provide financing to purchasers of Vacation
Intervals. The Company ordinarily receives only 10% of the purchase price on the
sale of a Vacation Interval but must pay in full the costs of development,
marketing, and sale of the Vacation Interval. Maximum borrowings available under
the Company's current credit agreements may not be sufficient to cover these
costs, thereby straining capital resources, liquidity, and capacity to grow. In
addition, to the extent interest rates decrease generally on loans available to
the Company's customers, the Company faces an increased risk that customers will
pre-pay their loans and reduce the Company's income from financing activities.
The Company typically provides financing to customers over a seven year
period, and customer notes had an average maturity of 6.5 years at December 31,
1998. The Company's revolving credit facilities mature between December 1999 and
October 2005. $60.0 million of such credit facilities mature in December 1999,
however, the Company has an option to extend this credit facility to December
2000. Accordingly, there could be a mismatch between the Company's cash receipts
and the Company's cash disbursement obligations in December 1999 and subsequent
periods. Although the Company has historically been able to secure financing
sufficient to fund its operations, it does not presently have agreements with
its lenders to extend the term of its existing funding commitments or to replace
such commitments upon their expiration. Failure to obtain such refinancing
facilities could require the Company to sell its portfolio of customer notes
receivable, probably at a substantial discount, or to seek other alternatives to
enable it to continue in business. While the Company has been successful in
obtaining financing to date, there is no assurance it will be able to do so in
the future.
DEVELOPMENT AND ACQUISITION PROCESS
The Company believes there is substantial opportunity to develop and acquire
resorts. As part of its current growth strategy, the Company intends to develop
and selectively acquire new resorts with characteristics similar to the Existing
Resorts and New Resorts.
In evaluating a potential site for a Drive-to Resort, the Company generally
seeks locations within 100 miles of large metropolitan areas that have favorable
demographic characteristics. For Drive-to Resorts, the Company generally seeks
wooded rustic settings with amenities such as golf courses or water frontage.
For Destination Resorts, the Company seeks popular destination resort areas that
are easily accessible to Silverleaf Owners. The Las Vegas, Nevada, site, for
example, was acquired in response to a survey in which Silverleaf Owners
expressed a strong interest in a Destination Resort in Las Vegas. The Company
also seeks locations offering an absence of competing properties near the target
location, ease of development with respect to zoning and land-use issues, and
ease of compliance with governmental regulations concerning timeshare sales and
operations.
Before committing capital to a site, the Company tests the market using
certain marketing techniques developed by the Company. The Company also explores
the zoning and land-use laws applicable to the potential site and the regulatory
issues pertaining to licenses and permits for timeshare sales and operations.
The Company will also contact various governmental entities and review
applications for necessary governmental permits and approvals. If the Company is
satisfied with its market and regulatory review, it will prepare a conceptual
layout of the resort, including building site plans and resort amenities. After
the Company applies its standard lodging unit design and amenity package, the
Company prepares a budget which estimates the cost of developing the resort,
including costs of lodging facilities, infrastructure, and amenities, as well as
projected sales, marketing, and general and administrative costs. Purchase
contracts typically provide for additional due diligence by the Company,
including obtaining an environmental report by an environmental consulting firm,
a survey of the property, and a title commitment. The Company employs legal
counsel to review such documents and to also review pertinent legal issues. If
the Company continues to be satisfied with the site after the environmental and
legal review, the Company will complete the purchase of the property.
All construction activities are managed internally by the Company. The
Company typically completes the development of a new resort's basic
infrastructure and models within one year, with additional units to be added
within 180 days based on demand, weather permitting. A normal part of the
development process is the establishment of a functional sales office at the new
resort.
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CLUBS / MANAGEMENT CLUBS
Upon purchasing a Vacation Interval at a resort, the purchaser automatically
becomes a member of a homeowner's association ("Club") for that particular
resort. At the resorts owned by the Company, the Company has the right to
appoint the directors of the Clubs. However, the Company does not have this
right at the exclusively managed resorts. The Silverleaf Owners are obligated to
pay monthly dues to their respective Clubs, which obligation is secured by a
lien on their Vacation Interval in favor of the Club. If a Silverleaf Owner
fails to pay his monthly dues, the Club may foreclose on the delinquent
Silverleaf Owner's Vacation Interval. During 1997 and 1998, approximately 228
and 201 foreclosures, respectively, resulted from Silverleaf Owners' failure to
pay monthly dues.
Each Existing Resort has a Club which has entered into a Management Club
Agreement with the Management Clubs. The Management Club Agreements authorize
the Management Clubs to manage the Existing Resorts on a centralized and
collective basis. The consolidation of resort operations through the Management
Clubs permits: (i) a centralized reservation system for all resorts; (ii)
substantial cost savings by purchasing goods and services for all resorts on a
group basis, which generally results in a lower cost of goods and services than
if such goods and services were purchased by each resort on an individual basis;
(iii) centralized management for the entire resort system; (iv) centralized
legal, accounting, and administrative services for the entire resort system; and
(v) uniform implementation of various rules and regulations governing all
resorts. All furniture, furnishings, recreational equipment, and other personal
property used in connection with the operation of the Existing Resorts are owned
by the Management Clubs, rather than the Company.
At December 31, 1998, the Management Clubs had 494 full-time employees and
is solely responsible for their salaries. The Management Clubs are also
responsible for the direct expenses of operating the Existing Resorts, while the
Company is responsible for the direct expenses of new development and all
marketing and sales activities. To the extent the Management Clubs provide
payroll, administrative, and other services that directly benefit the Company,
the Company reimburses the Management Clubs for such services.
The Management Clubs collect dues from Silverleaf Owners, plus certain other
amounts assessed against the Silverleaf Owners from time to time, together with
all income generated by the operation of certain amenities at the Existing
Resorts. Silverleaf Club dues are currently $49.98 per month ($24.99 for
biennial owners). During 1998, Oak N' Spruce Club dues were $358.82 annually.
Crown Club dues are currently $350 annually. Such amounts are placed in a common
account and are used by the Management Clubs to pay the costs of operating the
Existing Resorts and the management fees due to the Company pursuant to
Management Agreements between the Company and the Management Clubs. These
Management Agreements authorize the Company to manage and operate the resorts
and provide for a maximum management fee equal to 15% of gross revenues for
Silverleaf Club and Oak N' Spruce Club, or 10% to 15% of dues collected for
Clubs within Crown Club, but the Company's right to receive such fee on an
annual basis is limited to the amount of each Management Club's net income.
However, if the Company does not receive the maximum fee, such deficiency is
deferred for payment to succeeding year(s), subject again to the net income
limitation. Due to anticipated refurbishment of units at the Existing Resorts,
together with the operational and maintenance expenses associated with the
Company's current expansion and development plans, the Company believes its 1999
management fee will be subject to the net income limitation. For financial
reporting purposes, management fees from the Management Clubs are recognized
based on the lower of (i) the aforementioned maximum fees or (ii) each
Management Club's net income. The Silverleaf Club Management Agreement was
entered into in March 1990, has a ten year term, and will continue year-to-year
thereafter unless cancelled by either party. Oak N' Spruce Club was merged into
a Club within Silverleaf Club effective January 1999. Crown Club consists of
several individual Club agreements which have terms of two to five years with a
minimum of two renewal options remaining. At December 31, 1998, there were
approximately 46,256, 4,830, and 25,800 Silverleaf Owners who pay dues to
Silverleaf Club, Oak N' Spruce Club, and Crown Club, respectively.
As the Company develops new resorts, their respective Clubs are expected to
be added to the Silverleaf Club Management Agreement. However, the timeshare
laws of some states, including Nevada, prohibit the collective dues/expense
arrangement used by Silverleaf Club. Accordingly, the Club for the New Resort in
Las Vegas will not be managed by Silverleaf Club but will be managed directly by
Silverleaf.
OTHER OPERATIONS
OPERATION OF AMENITIES. The Company owns, operates, and receives the
revenues from the marina at The Villages and the golf course and pro shop at
Holiday Hills. Although the Company owns the golf course at Holly Lake, a
homeowners association in the development operates the golf course. In general,
the Management Clubs receive revenues from the various amenities which require a
usage fee, such as watercraft rentals, horseback rides, and restaurants.
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UNIT LEASING. The Company also recognizes revenues from sales of Samplers
which allow prospective Vacation Interval purchasers to sample a resort for a
specified number of nights. A five night Sampler package currently sells for
$595. For the years ended December 31, 1997 and 1998, the Company recognized
$1.4 million and $2.8 million, respectively, in revenues from Sampler sales. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere herein.
UTILITY SERVICES. The Company owns its own water supply facilities at Piney
Shores, The Villages, Hill Country, Holly Lake, Ozark Mountain, Holiday Hills,
Timber Creek, and Fox River resorts. The Company also currently owns its own
waste-water treatment facilities at The Villages, Piney Shores, Ozark Mountain,
Holly Lake, Timber Creek, and Fox River resorts. The Company recently
transferred the waste-water treatment facilities at the Holiday Hills Resort to
a local public utility district. The Company is in the process of applying for
permits to build expanded water supply and waste-water facilities at the Timber
Creek and Fox River resorts. The Company has permits to supply and charge third
parties for the water supply facilities at The Villages, Holly Lake, Holiday
Hills, Ozark Mountain, Hill Country, and Piney Shores resorts, and the
waste-water facilities at the Ozark Mountain, Holly Lake, Piney Shores, Hill
Country, and The Villages resorts. The Company has applied for permits which
would allow it to charge third-parties for water supply and waste-water service
at the Timber Creek resort. The Company anticipates developing or augmenting
utility service capacity at the Timber Creek and Fox River resorts and the new
resort in Galveston.
OTHER PROPERTY. The Company owns an undeveloped five-acre tract of land in
Pass Christian, Mississippi, which has been listed with a broker for sale. The
Company had planned to develop this property as a Destination Resort. However,
in a recent survey, the Silverleaf Owners expressed a strong interest in a Texas
resort on the Gulf of Mexico. In response, the Company acquired the parcels in
Galveston, Texas, which will supplant development of the Pass Christian
property. Additionally, the Company owns approximately 45 acres in Mississippi,
and the Company is entitled to 85% of any profits from this land. An affiliate
of a director of the Company owns a 10% net profits interest in this land.
OTHER OPERATIONS. The Company provides management services for certain
condominium homeowners' associations at the Existing Resorts. The Company will
receive fees from campground members at the Timber Creek, Fox River, and
Galveston resorts.
PARTICIPATION IN VACATION INTERVAL EXCHANGE NETWORKS
INTERNAL EXCHANGES. As a convenience to Silverleaf Owners, each purchaser of
a Vacation Interval from the Company has certain exchange privileges which may
be used to: (i) exchange an interval for a different interval (week) at the same
resort so long as the different interval is of an equal or lower rating; and
(ii) exchange an interval for the same interval of equal or lower rating at any
other Existing Resort. These intra-company exchange rights are conditioned upon
availability of the desired interval or resort. Owners of Vacation Intervals at
the Drive-to Resorts generally do not have exchange rights to Destination
Resorts.
RCI EXCHANGES. The Company believes that its Vacation Intervals are made
more attractive by the Company's participation in Vacation Interval exchange
networks operated by RCI. The Existing Resorts, except Oak N' Spruce, are
registered with RCI, and approximately one-third of Silverleaf Owners
participate in RCI's exchange network. The Oak N' Spruce Resort is currently
under contract with a different network exchange company, Interval
International. Membership in RCI allows participating Silverleaf Owners to
exchange their occupancy right in a unit in a particular year for an occupancy
right at the same time or a different time of the same or lower color rating in
another participating resort, based upon availability and the payment of a
variable exchange fee. A member may exchange a Vacation Interval for an
occupancy right in another participating resort by listing the Vacation Interval
as available with the exchange organization and by requesting occupancy at
another participating resort, indicating the particular resort or geographic
area to which the member desires to travel, the size of the unit desired, and
the period during which occupancy is desired.
RCI assigns a rating of "red", "white", or "blue" to each Vacation Interval
for participating resorts based upon a number of factors, including the location
and size of the unit, the quality of the resort, and the period during which the
Vacation Interval is available, and attempts to satisfy exchange requests by
providing an occupancy right in another Vacation Interval with a similar rating.
For example, an owner of a red Vacation Interval may exchange his interval for a
red, white, or blue interval. An owner of a white Vacation Interval may exchange
only for a white or blue interval, and an owner of a blue interval may exchange
only for a blue interval. If RCI is unable to meet the member's initial request,
it suggests alternative resorts based on availability.
RCI has more than 3,400 participating resort facilities and over 2.5 million
members worldwide as of December 31, 1998. During 1998, RCI processed over 1.8
million Vacation Interval exchanges. The cost of the annual membership fee in
RCI, which is at the option and expense of the owner of the Vacation Interval,
is currently $84 per year. Exchange rights require an additional fee of
approximately $118 for domestic exchanges and $155 for foreign exchanges.
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COMPETITION
The timeshare industry is highly fragmented and includes a large number of
local and regional resort developers and operators. However, some of the world's
most recognized lodging, hospitality, and entertainment companies, such as
Marriott Ownership Resorts ("Marriott"), The Walt Disney Company ("Disney"),
Hilton Hotels Corporation ("Hilton"), Hyatt Corporation ("Hyatt"), and Four
Seasons Resorts ("Four Seasons") have recently entered the industry. Other
companies in the timeshare industry, including Sunterra Corporation ("Sunterra",
formerly Signature Resorts, Inc.), Fairfield Communities, Inc. ("Fairfield"),
Vistana Inc. ("Vistana"), Ramada Vacation Suites ("Ramada"), TrendWest Resorts,
Inc. ("TrendWest"), and Bluegreen Corporation ("Bluegreen") are, or are
subsidiaries of, public companies, with the enhanced access to capital and other
resources that public ownership implies.
Fairfield and Sunterra own timeshare resorts in or near Branson, Missouri,
which compete with the Company's Holiday Hills and Ozark Mountain resorts, and
to a lesser extent with the Company's newly-acquired Timber Creek Resort.
Sunterra also owns a resort which is located near and competes with the
Company's Piney Shores Resort. Additionally, the Company believes there are a
number of public or privately-owned and operated timeshare resorts in most
states in which the Company owns resorts which will compete with the Company's
Existing Resorts and New Resorts.
The Company believes Marriott, Disney, Hilton, Hyatt, and Four Seasons
generally target consumers with higher annual incomes than the Company's target
market. The Company believes the other competitors named above target consumers
with similar, but slightly higher, income levels than the Company's target
market. The Company's competitors may possess significantly greater financial,
marketing, personnel, and other resources than the Company, and there can be no
assurance that such competitors will not significantly reduce the price of their
Vacation Intervals or offer greater convenience, services, or amenities than the
Company.
While the Company's principal competitors are developers of timeshare
resorts, the Company is also subject to competition from other entities engaged
in the commercial lodging business, including condominiums, hotels, and motels;
others engaged in the leisure business; and, to a lesser extent, from
campgrounds, recreational vehicles, tour packages, and second home sales. A
reduction in the product costs associated with any of these competitors, or an
increase in the Company's (or its customers') costs relative to such
competitors' (or their customers') costs, could have a material adverse effect
on the Company's results of operations, liquidity, and financial position.
Numerous businesses, individuals, and other entities compete with the
Company in seeking properties for acquisition and development of new resorts.
Some of these competitors are larger and have greater financial and other
resources than the Company. Such competition may result in a higher cost for
properties the Company wishes to acquire or may cause the Company to be unable
to acquire suitable properties for the development of new resorts.
GOVERNMENTAL REGULATION
GENERAL. The Company's marketing and sales of Vacation Intervals and other
operations are subject to extensive regulation by the federal government and the
states and jurisdictions in which the Existing Resorts and New Resorts are
located and in which Vacation Intervals are marketed and sold. On a federal
level, the Federal Trade Commission has taken the most active regulatory role
through the Federal Trade Commission Act, which prohibits unfair or deceptive
acts or competition in interstate commerce. Other federal legislation to which
the Company is or may be subject includes the Truth-in-Lending Act and
Regulation Z, the Equal Opportunity Credit Act and Regulation B, the Interstate
Land Sales Full Disclosure Act, the Real Estate Settlement Procedures Act, the
Consumer Credit Protection Act, the Telephone Consumer Protection Act, the
Telemarketing and Consumer Fraud and Abuse Prevention Act, the Fair Housing Act,
and the Civil Rights Acts of 1964 and 1968.
In response to certain fraudulent marketing practices in the timeshare
industry in the 1980's, various states enacted legislation aimed at curbing such
abuses. Certain states in which the Company operates have adopted specific laws
and regulations regarding the marketing and sale of Vacation Intervals. The laws
of most states require the Company to file a detailed offering statement and
supporting documents with a designated state authority, which describe the
Company, the project, and the promotion and sale of Vacation Intervals. The
offering statement must be approved by the appropriate state agency before the
Company may solicit residents of such state. The laws of certain states require
the Company to deliver an offering statement (or disclosure statement), together
with certain additional information concerning the t