<PAGE> 1
Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
ANNUAL REPORT
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
Commission File No. 2-64309
GOLF HOST RESORTS, INC.
State of Colorado Employer Identification No. 84-0631130
Post Office Box 3131, Durango, Colorado 81302
Telephone Number (303) 259-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Issuer has no common stock subject to this report.
<PAGE> 2
PART I
ITEM 1. BUSINESS
Golf Host Resorts, Inc. (the "Company") was formed in July 1972 and is
engaged in the operation of The Westin Innisbrook Resort in Tarpon
Springs, Florida ("Innisbrook") and Tamarron Hilton Resort in Durango,
Colorado ("Tamarron"). Innisbrook and Tamarron (the "Resorts") offer
championship quality golf facilities, restaurant and conference
facilities, recreational activities including swimming and tennis and
related resort activities. The Resorts are managed by Westin Hotel
Company and Sheraton Operating Corporation, respectively, under
long-term management agreements. Hilton Hotels Corporation ("HHC")
managed Innisbrook from April 1, 1993 to July 15, 1997 and Tamarron
from December 1, 1995 to August 31, 1998. Prior to management by HHC,
the Resorts were managed by the Company.
Prior to June 23, 1997, the Company was an 80% owned subsidiary of Golf
Hosts, Inc. ("GHI"). The minority shareholders of the Company were also
the majority shareholders of GHI. On June 23, 1997, TM Golf Hosts, Inc.
("TMGHI") acquired all of the outstanding shares of GHI and the 20% of
the Company's shares not held by GHI. Concurrently, TMGHI and GHI
merged with the legal survivor being GHI, which now owns 100% of the
Company.
The Company receives significant revenue from food and beverage sales,
and from golf operations (primarily golf fees and merchandise sales).
Also, during 1994, the Company undertook the development of nine
residential homesites at Tamarron, identified as Estates at
Tamarron-Highpoint. All of the homesites have been sold and closed with
the last closing occurring in 1997. During 1995, the Company began a
second development of nine residential homesites, Estates at
Tamarron-Pine Ridge. Two of the sites were sold and closed during 1996,
and four during 1998. Through the date of this filing, one homesite has
been sold and closed during 1999.
The majority of the condominium owners at the Resorts provide such
apartments as resort accommodations under rental pool lease operations.
The Resorts are the lessees under the lease operation agreements, which
provide for the distribution of a percentage of room revenues, as
defined, to participating condominium owners. Accordingly, the Company
does not bear the expense of financing as well as certain operating
costs of the rental units.
Condominium ownership, simply stated, is a realty subdivision in which
the individual "lots" are apartment units. Instead of owning a plot of
ground, the condominium owner owns the air space where his condominium
unit is located. This leaves substantial properties in interest which
are not individually owned, e.g., the underlying land, roadways,
foundations, exterior wall and roofs, garden areas, utility lines, et
cetera. These areas are termed "common property" or "common elements"
and each condominium owner has an undivided fractional interest in such
property. The condominium owners at each of the Resorts establish an
"Association of Condominium Owners" to administer and maintain such
property and to conduct business of the condominium owners, such as
maintaining insurance on the real property, upkeep of the structures,
maintenance of the grounds, and provisions for certain utilities. The
Association assesses fees to defray such expenses and to establish
necessary reserves. Such charges, if not timely paid, may constitute a
lien upon the separate condominium units. Each condominium owner must
pay ad valorem property taxes and assessments for electricity, and to
such matters independent of the other unit owners. These expenses would
be incurred by owners of condominium units, regardless of an election
to participate in the rental pool. With respect to governing the
affairs of the Association, which is subject to state statutes, the
participating condominium owners are accorded one (1) vote per
condominium unit owned.
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The percentages of the foregoing revenue components to total revenues are as
follows:
<TABLE>
<CAPTION>
191 DAY 174 DAY
PERIOD ENDED PERIOD ENDED
1998 12/31/97 6/23/97 1996
REVENUES
<S> <C> <C> <C> <C>
Resort facilities 34.0% 31.5% 33.9% 33.1%
Food and beverage 27.0% 27.6% 25.5% 26.5%
Golf 26.7% 31.1% 29.5% 28.2%
Other 12.3% 9.8% 10.5% 10.9%
Real estate activities 0.0% 0.0% 0.6% 1.3%
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
The Company hosts more than a thousand conferences or related group
meetings each year and its clients come from a variety of industries,
primarily from the central and eastern United States. Accordingly, the
loss of a single client or a few clients would have no significant
adverse effect on the Company's business.
The conference-oriented resort business is quite competitive; however,
the Company has established itself as a leader in its industry and
enjoys an excellent reputation with its clients. Its major competitors
are other conference and golf-oriented resorts throughout the country.
The Resorts' revenues are seasonal, with Innisbrook's peak season
being in the winter and spring and Tamarron's being in the summer.
The Company has, on average, approximately 1,250 employees (950 at
Innisbrook and 300 at Tamarron).
ITEM 2. DESCRIPTION OF PROPERTIES
Innisbrook is a condominium resort project situated on approximately
850 acres of land located in the northern portion of Pinellas County,
Florida, near the Gulf of Mexico. It is north of Clearwater
(approximately 9 miles) and west of Tampa (approximately 20 miles).
There are 938 condominium units, 36 of which are strictly residential,
with the balance eligible for rental pool participation. Of these
units, 746, on average, participate in the rental pool. The resort
complex includes 72 holes of golf; three practice ranges; three
clubhouses with retail golf, food and beverage outlets; three
conference and exhibit buildings; five swimming pools; a themed water
attraction; a recreation center; tennis facility and numerous
administrative and support structures.
Tamarron is a condominium resort project situated on approximately 730
acres of land located in the northern portion of La Plata County,
Colorado. It is north of Durango (approximately 18 miles) and south of
Silverton (approximately 28 miles). The property is surrounded on
three sides by the San Juan National Forest and is readily accessible
via U. S. Highway 550. There are 381 condominium units, all of which
are eligible for rental pool participation. Approximately 281 units,
on average, participate in the rental pool. The resort complex
includes 18 holes of golf; a practice range; an indoor swimming pool;
several restaurants and lounges; a conference facility; a tennis
complex and numerous administrative and support facilities and
structures.
During 1994 and 1995, approximately 24 acres of land at Tamarron were
set aside for the Estates at Tamarron residential homesite
development. As of this filing, 16 homesites have been sold and
closed, with the two remaining improved homesites under contract and
nine additional homesites in the preliminary stages of development.
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At December 31, 1998, the properties are encumbered by various
mortgages totaling $83,316,848. Reference is made to Note 6 of Notes
to Consolidated Financial Statements of Golf Host Resorts, Inc. and
Subsidiary contained elsewhere in this filing for a more detailed
description of these mortgages.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in lawsuits other than ordinary
routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's stock is privately held and there is no established
market for the stock.
There are a total of 1,283 condominium units allowing rental pool
participation by their owners, of which three are owned by a
subsidiary of the Company, Golf Host Condominium, Inc. (GHC). Of the
units not owned by GHC, 1,259 were sold under Registration Statements
effective through March 1, 1983. The remaining 21 units were sold via
private offerings exempt from registration with the Securities and
Exchange Commission. The condominium units not owned by the Company or
its affiliate are held by 1,145 different owners.
The condominium units sold by the Company, allowing rental pool
participation, are deemed to be securities because of the rental pool
feature (see Item 1); however, there is no market for such securities
other than the normal real estate market.
Since the security is real estate, no dividends have been paid or will
be paid.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
191 DAY PERIOD | 174 DAY PERIOD
YEAR ENDED ENDED | ENDED
DECEMBER 31, DECEMBER 31, | JUNE 23, YEAR ENDED DECEMBER 31,
1998 1997 | 1997 1996 1995 1994
<S> <C> <C> | <C> <C> <C> <C>
|
Operating revenue $58,184,711 $ 18,023,753 | $31,750,008 $57,710,742 $56,535,735 $52,573,941
----------- ------------ | ----------- ----------- ----------- -----------
|
Net income (loss) $ 7,822,846 $ (5,492,683) | $ 1,488,116 $ 1,370,523 $ 1,375,917 $ 393,919
----------- ------------ | ----------- ----------- ----------- -----------
|
Net income (loss) per |
common share $ 1,513.31 $ (1,125.15) | $ 272.98 $ 222.84 $ 223.92 $ 27.52
----------- ------------ | ----------- ----------- ----------- -----------
|
Total assets $98,807,861 $ 92,897,633 | $ -- $53,135,194 $52,822,127 $50,579,114
----------- ------------ | ----------- ----------- ----------- -----------
|
Notes payable $83,436,029 $ 77,999,163 | $ -- $28,474,570 $30,001,491 $28,861,345
----------- ------------ | ----------- ----------- ----------- -----------
|
Cash dividends per |
common share $ -- $ -- | $ -- $ -- $ -- $ --
----------- ------------ | ----------- ----------- ----------- -----------
</TABLE>
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ITEM 7. RESULTS OF OPERATIONS
1998 COMPARED TO 1997
For purposes of discussing comparative results from operations for
1998 and 1997, the results for the periods prior to and subsequent to
the June 23, 1997 merger transaction, described in Note 1 to the
financial statements, are combined.
Guest occupancy during the last three years, measured by room nights,
was as follows:
<TABLE>
<CAPTION>
Total % Change
----- --------
<S> <C> <C>
1998 176,861 11.4
1997 158,807 (9.8)
1996 176,149 (.5)
</TABLE>
Revenues from resort operations rose 17.3% due to the above occupancy
change coupled with an increase in guest spending per room night of
5.3%, or $328.98 as compared with the prior year $312.29. The net
increase in room nights results from a 16.7% increase in occupied
rooms at Innisbrook and an 8.0% decline in occupied rooms at Tamarron.
Tamarron transitioned from management by Hilton Hotels Corporation to
Sheraton Operating Corporation effective September 1, 1998. The
decline in Tamarron room nights relates partially to the management
transition and also to inconsistent airline transportation into the
Durango, Colorado area. The growth in Innisbrook's room nights
occurred in conference and golf groups as social room nights were
consistent with the prior year. The increase reflects the benefit of a
23.8% increase in marketing expenditures at Innisbrook and the
transition to Westin as manager.
Non-real estate operating income increased $7,289,000 from the prior
year. Resort facilities operating income rose $4,544,000 because of
the occupancy improvement noted above coupled with the below noted
change in the Innisbrook master lease agreement. Food and beverage
operating income rose $1,953,000, or 54.1% as related revenues grew
$2,662,000. Meals served increased 12.6 %, while the revenue per cover
improved 11.2% as restaurants were rethemed to a higher quality
presentation. Food and beverage operating costs rose a moderate
$709,000, or 7.5%, reflecting the increased level of higher margin
conference dining. Golf revenue was $610,000 greater than the prior
year as rounds played rose 5.8% and the revenue per round played rose
.9%. The slight rise in golf operating income of $257,000, or 3%,
resulted from poor weather conditions during the first half of the
year. This caused reduced play and higher maintenance costs on the
courses. Other revenue increased $2,030,000 while the related costs
and operating expenses rose $1,837,000.
A new Innisbrook master lease agreement between the Company and the
condominium owners was effective January 1, 1998. The terms of the new
agreement are outlined in the Notes to Financial Statements of the
Innisbrook Rental Pool Lease Operation included in this filing. The
effect of the new agreement is to change the effective rate of
distribution of room revenue from 52% to the condominium owners and
48% to the Company in 1997 to 60% to the Company and 40% to the
condominium owners in 1998. While the previous master lease agreement
remains in effect, over 92% of rental pool participants elected to
participate in the new agreement in 1998. As a result, Innisbrook's
rental pool distribution expense declined 4.2% while the related
revenues increased 30.9%.
The installation of Sheraton Operating Corporation as the manager of
Tamarron, coupled with increased capital expenditures there, is
anticipated to have a significant favorable impact on Tamarron's guest
spending and occupancy. The installation of the $3.4 million Loch Ness
pool at Innisbrook, which opened during July 1998, is anticipated to
significantly increase Innisbrook's summer occupancy levels and
favorably impact the remainder of the year as well. The Company also
opened an additional 9 holes of golf at Innisbrook, reconfiguring a
27-hole course into two 18-hole courses. Coupled with access to 18
holes at
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<PAGE> 7
a nearby course, Lost Oaks of Innisbrook, this alleviates the shortage
of tee times relative to available guestrooms previously experienced
during the peak winter season.
General and administrative expenses declined $342,000 from the prior
year. The decline results from nonrecurring expense items in 1997.
These items resulted from the sale of the Company and the transition
to Westin management at Innisbrook. These one-time charges were
partially replaced in 1998 by a full year of intangible asset
amortization.
Loss on assets held for sale increased from $0 in 1997 to $3,294,000
in 1998. The loss in 1998 is due to holding period costs and operating
losses from assets classified as held for sale by management. Assets
held for sale consist of Tamarron and certain other non-operating
assets at Innisbrook. These losses resulted from several factors,
including a decline in occupied rooms at Tamarron, the transition from
management by Hilton Hotels Corporation to Sheraton Operating
Corporation effective September 1, 1998, allocated interest expense
and expenditures necessary to maintain the operating assets at
Tamarron at their current recorded value.
Interest, net increased from $4,777,000 in 1997 to $8,073,000. The
increase resulted from the significant increase in debt in June 1997
as a result of the sale of the Company, coupled with an increase in
draws during 1998 from the Company's available credit facilities.
In 1998, the Company opened a $3.4 million pool at Innisbrook. The
pool includes water slides, water falls, a beach area, a large Jacuzzi
and a food and beverage outlet. This addition is anticipated to
increase the resort's ability to draw family-oriented business.
Innisbrook also refurbished the interior and exterior of its
conference facilities, as well as the interior of two restaurants.
Other significant capital expenditures at Innisbrook include the
reconfiguration of a portion of a golf course. Further significant
expenditures planned for 1999 include the dramatic expansion of the
central clubhouse, including the relocation of the guest reception
area, at a cost of approximately $9,500,000, and the addition of a
$6,000,000 upscale health spa. A major refurbishment program of
guestrooms by the condominium owners will also begin in the summer of
1999. Significant capital expenditures at Tamarron in 1998 included
the upgrade of the restaurant patio area, the construction of an
outdoors recreational area for group functions and the
refurbishment/expansion of the fitness and spa area. Approximately
$1,500,000 of capital additions are planned for Tamarron in 1999,
including a major conference center and restaurant
refurbishment/reconfiguration and electronic systems enhancements.
Funds to finance the Innisbrook capital expenditures, in addition to
the Innisbrook capital replacement fund, are anticipated to come from
the release of the GTA Additional Collateral discussed below as well
as additional financing from GTA. Tamarron additions will be financed
primarily through working capital and the proceeds from Tamarron lot
sales that occurred in 1998 and will occur in 1999, as discussed
below.
The Company sold four residential homesites at Tamarron in 1998 while
one such homesite was sold and closed in 1997. The costs of sales for
the 1998 transactions are included in loss on assets held for sale in
the consolidated statement of operations. The net proceeds of these
sales were used to reduce certain debt by $355,000 and provide
$638,000 of funds for 1998 and 1999 Tamarron capital additions. As of
the date of this filing, one residential homesite at Tamarron has been
sold and closed in 1999. The two remaining improved homesites are
scheduled to close in 1999. The Company is planning to begin
improvements on nine additional homesites at Tamarron during 1999.
1997 COMPARED TO 1996
Revenues from resort activities for 1997 declined nearly 13% from the
1996 levels due to lower occupancy and guest spending per occupied
room night resulting from the sale of the Company. The operating
income margin declined from an income of $4,041,000 in 1996 to a loss
of $1,153,000 in 1997. In addition to lower margins attendant to the
decline in occupancy and guest spending, nonrecurring costs relative
to
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the sale of the Company, as well as the beginning of the amortization
of intangibles and pre-opening costs, contributed to the decline.
INCOME TAX STATUS
Reference is made to the Notes to Consolidated Financial Statements
regarding income taxes.
FINANCIAL CONDITION AND LIQUIDITY
During October 1998, the Company acquired a $5,000,000 line of credit
collateralized by Innisbrook's accounts receivable. In addition, the
Company has attained the Additional Collateral release ratio under its
loan agreement with Golf Trust of America, L.P. (GTA) as discussed in
the Notes to Financial Statements. This should result in the release
in early 1999 of more than $6,600,000 of Company funds held by GTA.
The Company also has an agreement with Westin whereby cash
deficiencies, as defined, arising from the Innisbrook operation will
be temporarily funded by Westin.
The Company's working capital position at December 31, 1997, excluding
assets held for sale, was $87,000 as compared with a deficit of
$2,186,000 at December 31, 1998. The Company typically experiences
seasonal fluctuations in its net working capital position without
impairing its ability to pay trade creditors in a timely manner and
satisfy its financial obligations in an orderly fashion.
Based on existing cash levels and the additional cash sources
discussed above, the Company assesses its liquidity as satisfactory.
YEAR 2000 ISSUE
The Company has carefully reviewed the impact of the Year 2000 issues
on its information technology and other electronic systems as well as
its vendors and suppliers. It has determined the consequences of its
Year 2000 issues do not have a material impact on either the future
operating results or financial condition of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Certified Public Accountants F-1
Consolidated Balance Sheets at December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the year ended December 31, 1998, the
191-day period ended December 31, 1997, the 174-day period ended June 23, 1997,
and the year ended December 31, 1996 F-4
Consolidated Statements of Changes in Shareholder's (Deficit) Equity for the two years
ended December 31, 1998 F-5
Consolidated Statements of Cash Flows for the year ended December 31, 1998, the
191-day period ended December 31, 1997, the 174-day period ended June 23, 1997,
and for the year ended December 31, 1996 F-6
Notes to Consolidated Financial Statements F-7
Innisbrook Rental Pool Lease Operation Financial Statements F-18
Tamarron Rental Pool Lease Operation Financial Statements F-28
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
-8-
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ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name / Position Age Five-Year Principal Occupation
--------------- --- ------------------------------
<S> <C> <C>
Merrick R. Kleeman 35 Managing Director, Starwood Capital Group
President, Secretary and Director
Jeffrey R. Rosenthal 47 Chief Operating Officer, Starwood Capital
Senior Vice President Group (April 1997 - present)
Chief Financial Officer, Reyes Holdings
(February 1996 - April 1997)
Chief Financial Officer, JBM Realty Company
(December 1987 - February 1996)
Jerome C. Silvey 41 Chief Financial Officer, Starwood Capital
Senior Vice President Group
Richard L. Akin 53 Vice President and Treasurer, Golf Host
Vice President and Treasurer Resorts, Inc.
</TABLE>
All directors and officers serve a one-year term or until their successors are
elected.
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ITEM 11. EXECUTIVE COMPENSATION
All items for Golf Host Resorts, Inc., except those set forth below,
have been omitted as not applicable or not required.
SUMMARY COMPENSATION TABLE
The following table sets forth the remuneration paid, distributed or
accrued by Golf Host Resorts, Inc. and its parent, Golf Hosts, Inc.,
during the three years in the period ended December 31, 1998, to the
Company's executive officers.
<TABLE>
<CAPTION>
OTHER ALL OTHER
FISCAL SALARY AND ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR COMMISSION BONUS COMPENSATION (3)
<S> <C> <C> <C> <C> <C>
Golf Hosts, Inc.
Stanley D. Wadsworth (1) and (2) 1998 $ -- $ -- $ -- $ --
President and Chief Executive Officer 1997 -- -- -- --
1996 153,000 15,400 -- 14,492
Richard S. Ferreira (1) and (2) 1998 -- -- -- --
Executive Vice President and Chief Financial Officer 1997 -- -- -- --
1996 148,600 15,600 -- 7,473
Richard L. Akin (2) 1998 -- -- -- --
Vice President and Treasurer 1997 -- -- -- --
1996 -- -- -- --
</TABLE>
(1) Resigned effective June 23, 1997
(2) Total of annual salary and bonus was not greater than $100,000 for the
years where dollar amounts are not presented.
(3) Includes Company 401(k) matching contributions of $400 annually for
each named executive officer, life insurance premiums, medical
reimbursement and the value of Company provided vehicles.
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<PAGE> 11
PENSION PLAN
The Company and its parent, Golf Hosts, Inc., provided a supplemental
retirement income plan (the Plan) for officers who had completed 15
years of service, were employed at age 65 by the Company and retired,
and were elected to participate in the Plan by the Golf Hosts, Inc.
Board of Directors. The Plan provided an annual income of $10,000 for
a period of 10 years.
Concurrent with the sale of the Company and Golf Hosts, Inc., the Plan
was terminated and the related liability, which approximated $297,000,
was distributed in cash to the participants.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Security ownership of certain beneficial owners:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT BENEFICIALLY PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER OWNED CLASS
<S> <C> <C> <C>
Golf Host Resorts, Inc.:
Common Golf Hosts, Inc. 5,000 100%
Three Pickwick Plaza
Suite 250
Greenwich, CT 06830
Golf Hosts, Inc.:
Common Golf Host Holdings, Inc. 1 100%
Three Pickwick Plaza
Suite 250
Greenwich, CT 06830
</TABLE>
(b) Security ownership of management of the Company in Golf
Hosts, Inc. (GHI):
None
(c) Changes in control:
None
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others
GHI charges administrative and other expenses to the Company on the
basis of estimated time and expenses incurred as reasonably determined
by GHI.
As part of the terms of the new management agreement for Innisbrook,
Westin guaranteed minimum cash flow to Innisbrook. The terms of the
agreement provide that if incentive cash flow, as defined, is less
than the minimum annual payment, as defined, for the operating year,
Westin will advance Innisbrook the shortage up to $2.5 million with
the advance being repayable when the Company has available cash, as
defined. In addition, the Company signed an agreement under which
Westin will provide 50% of the funding for approved capital
expenditures incurred subsequent to the Acquisition in excess of $6
million, plus capital reserve requirements, as defined.
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<PAGE> 12
(b) Certain Business Relationships
Lewis H. Hill, III, Secretary and Director of the Company
through June 22, 1997, is a retired partner of and, at that
time, counsel to the law firm of Foley & Lardner, the
Company's general counsel through June 22, 1997.
Merrick R. Kleeman, President and Director of Golf Host
Resorts, Inc., is a member of the Westin Hotel Company Board
of Directors, the manager of Innisbrook.
(c) Indebtedness of Management
None
(d) Transactions with Promoters
Not applicable
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)1. Financial Statements:
Golf Host Resorts, Inc. and Subsidiary (included in Item 8)
Innisbrook Rental Pool Lease Operation Financial Statements
together with Report of Independent Certified Public
Accountants
Tamarron Rental Pool Lease Operation Financial Statements
together with Report of Independent Certified Public
Accountants
2. Financial Statement Schedules of Golf Host Resorts, Inc.
None
(b) Reports on Form 8-K
Not applicable.
(c) Exhibits
27 - Financial Data Schedule (for SEC use only).
Financial statement schedules required by this Item are
listed in the index appearing in Item 8 of this report.
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SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, therefore duly authorized.
GOLF HOST RESORTS, INC.
By: /s/ M.R. Kleeman By: /s/ R.L. Akin
------------------------------- ----------------------------
Merrick R. Kleeman Richard L. Akin
President Vice President and Treasurer
Dated: March 29, 1999
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholder and Board of Directors of Golf Host Resorts, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and changes in shareholder's (deficit)
equity and of cash flows present fairly, in all material respects, the
financial position of Golf Host Resorts, Inc. and subsidiary at December 31,
1998 and 1997, and the results of their operations and their cash flows for the
year ended December 31, 1998, for the 191 day period ended December 31, 1997
and for the 174 day period ended June 23, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. The
financial statements of Golf Host Resorts, Inc. for the year ended December 31,
1996 were audited by other independent accountants whose report dated March 21,
1997 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Tampa, Florida
March 3, 1999
F-1
<PAGE> 15
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Golf Host Resorts, Inc.
We have audited the accompanying balance sheets of Golf Host Resorts, Inc. (a
Colorado corporation and an 80% owned subsidiary of Golf Hosts, Inc.) as of
December 31, 1996 and 1995, and the related statements of operations,
shareholders' investment and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Golf Host Resorts, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida
March 21, 1997
F-2
<PAGE> 16
GOLF HOST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,396,404 $ 56,090
Restricted cash 705,297 2,238,767
Accounts receivable, net 6,680,506 5,349,156
Other receivables 864,671 123,072
Inventories and supplies 2,057,450 1,899,598
Prepaid expenses and other assets 1,061,668 684,497
Note receivable from GHI 1,349,823 --
Intercompany receivables -- 2,857,240
------------ ------------
14,115,819 13,208,420
Assets held for sale 12,684,302 9,038,309
------------ ------------
26,800,121 22,246,729
INTANGIBLES, NET 28,547,188 32,879,352
PROPERTY AND EQUIPMENT, NET 41,585,829 35,725,251
OTHER ASSETS 1,874,723 1,996,301
------------ ------------
Total assets $ 98,807,861 $ 92,847,633
============ ============
CURRENT LIABILITIES
Accounts receivable line of credit $ 3,832,443 $ --
Accounts payable 3,110,889 4,274,910
Accrued payroll costs 1,203,240 1,136,127
Accrued interest 697,703 586,660
Other accounts payable and accrued expenses 3,340,324 4,215,826
Deposits and prepaid fees 3,657,913 2,907,472
Intercompany payables 459,520 --
------------ ------------
16,302,032 13,120,995
NOTES PAYABLE 83,416,053 77,999,163
OTHER LONG-TERM LIABILITIES 4,353,543 3,193,685
DEFERRED INCOME TAXES 1,770,467 13,134,558
------------ ------------
Total liabilities 105,842,095 107,448,401
------------ ------------
SHAREHOLDER'S DEFICIT
Common stock, $1 par, 5,000 shares authorized,
issued and outstanding 5,000 5,000
5.6% cumulative preferred stock, $1 par, 4,577,000
shares authorized, issued and outstanding 4,577,000 4,577,000
Paid-in capital (13,557,000) (13,557,000)
Retained earnings (deficit) 1,940,766 (5,625,768)
------------ ------------
Total shareholder's deficit (7,034,234) (14,600,768)
------------ ------------
Total liabilities and shareholder's deficit $ 98,807,861 $ 92,847,633
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-3
<PAGE> 17
GOLF HOST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
191 DAY | 174 DAY
YEAR ENDED PERIOD ENDED | PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, | JUNE 23, DECEMBER 31,
1998 1997 | 1997 1996
<S> <C> <C> | <C> <C>
Revenues: |
Resort facilities $ 19,759,350 $ 5,695,294 | $ 10,775,626 $19,087,031
Food and beverage 15,734,890 4,966,112 | 8,106,385 15,298,357
Golf 15,561,161 5,604,215 | 9,347,282 16,261,342
Other 7,129,310 1,758,132 | 3,340,715 6,289,034
Real estate activities -- -- | 180,000 774,978
------------ ------------ | ------------ -----------
58,184,711 18,023,753 | 31,750,008 57,710,742
------------ ------------ | ------------ -----------
Costs and operating expenses: |
Resort facilities 14,524,110 6,696,074 | 9,083,194 16,660,453
Food and beverage 10,173,446 3,873,016 | 5,591,373 10,491,643
Golf 7,105,350 3,504,919 | 3,247,628 6,272,674
Other 15,372,192 5,862,117 | 7,672,813 16,019,199
General and administrative 4,963,565 2,930,846 | 2,374,385 3,950,708
Real estate activities -- -- | 90,618 275,227
------------ ------------ | ------------ -----------
52,138,663 22,866,972 | 28,060,011 53,669,904
Loss on assets held for sale 3,294,344 -- | -- --
------------ ------------ | ------------ -----------
Operating income (loss) 2,751,704 (4,843,219) | 3,689,997 4,040,838
Interest, net 8,073,416 3,831,669 | 945,481 1,880,215
------------ ------------ | ------------ -----------
(Loss) income before income tax (5,321,712) (8,674,888) | 2,744,516 2,160,623
Parent income tax charge (benefit) 328,828 (3,182,205) | 967,800 790,100
------------ ------------ | ------------ -----------
(Loss) income before |
extraordinary items (5,650,540) (5,492,683) | 1,776,716 1,370,523
Gain on change in tax status 13,473,386 -- | -- --
Loss on early extinguishment of |
long term debt (net of taxes |
of $155,400) -- -- | (288,600) --
------------ ------------ | ------------ -----------
Net income (loss) 7,822,846 (5,492,683) | 1,488,116 1,370,523
Dividend requirements on |
preferred stock 256,312 133,085 | 123,227 256,312
------------ ------------ | ------------ -----------
Net income (loss) available |
to common shareholder $ 7,566,534 $ (5,625,768) | $ 1,364,889 $ 1,114,211
============ ============ | ============ ===========
Earnings (loss) per common share: |
(Loss) income before |
extraordinary items $ (1,130) $ (1,098) | $ 355 $ 274
Extraordinary gain (loss) 2,694 -- | (58) --
------------ ------------ | ------------ -----------
Net income (loss) 1,564 (1,098) | 297 274
Dividend requirements on |
preferred stock 51 27 | 24 51
------------ ------------ | ------------ -----------
Net income (loss) available |
to common shareholder $ 1,513 $ (1,125) | $ 273 $ 223
============ ============ | ============ ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-4
<PAGE> 18
GOLF HOST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S (DEFICIT) EQUITY
<TABLE>
<CAPTION>
$1 Par Value 5.6% Cumulative Retained Total
Common Stock Preferred Stock Paid-in Earnings Shareholder's
Shares Amount Shares Amount Capital (Deficit) (Deficit) Equity
------ ------- --------- ---------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 5,000 $ 5,000 4,577,000 $ 4,577,000 $ 2,329,447 $ 8,157,197 $ 15,068,644
Notes receivable distribution -- -- -- -- -- (3,941,666) (3,941,666)
Net income (loss) available to
common shareholders -- -- -- -- -- 1,364,889 1,364,889
------ ------- --------- ----------- ------------ ----------- ------------
Balance, June 23, 1997 5,000 $ 5,000 4,577,000 $ 4,577,000 $ 2,329,447 $ 5,580,420 $ 12,491,867
====== ======= ========= =========== ============ =========== ============
- -------------------------------------------------------------------------------------------------------------------------------
Balance, June 24, 1997 5,000 $ 5,000 4,577,000 $ 4,577,000 $ (4,582,000) $ -- $ --
Distribution to shareholder -- -- -- -- (8,975,000) -- (8,975,000)
Net income (loss) available to
common shareholder -- -- -- -- -- (5,625,768) (5,625,768)
------ ------- --------- ----------- ------------ ----------- ------------
Balance, December 31, 1997 5,000 5,000 4,577,000 4,577,000 (13,557,000) (5,625,768) (14,600,768)
Net income (loss) available to
common shareholder -- -- -- -- -- 7,566,534 7,566,534
------ ------- --------- ----------- ------------ ----------- ------------
Balance, December 31, 1998 5,000 $ 5,000 4,577,000 $ 4,577,000 $(13,557,000) $ 1,940,766 $ (7,034,234)
====== ======= ========= =========== ============ =========== ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-5
<PAGE> 19
GOLF HOST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
191 day | 174 day
Year ended period ended | period ended Year ended
December 31, December 31, | June 23, December 31,
1998 1997 | 1997 1996
|
<S> <C> <C> | <C> <C>
Cash flows from operating activities: |
Net income (loss) $ 7,822,846 $(5,492,683) | $ 1,488,116 $ 1,370,523
Noncash items included in income: |
Provision for bad debts 92,100 50,150 | 89,609 --
Depreciation and amortization 4,086,832 1,833,977 | 1,282,510 2,570,206
Deferred income taxes (13,134,558) (2,565,122) | -- --
Deferred profit -- -- | -- (119,266)
Changes in operating working |
capital (Note 8) 762,944 3,347,948 | (2,059,667) 180,153
------------ ----------- | ------------ -----------
Cash (used in) provided by operations (369,836) (2,825,730) | 800,568 4,001,616
------------ ----------- | ------------ -----------
Cash flows from investing activities: |
(Decreases) increases in other assets (251,810) (1,417,165) | 62,302 (238,627)
Purchases of property and equipment (7,823,091) (3,005,076) | (1,517,431) (2,448,315)
Net recovery of cost of property |
and equipment sold or retired -- -- | -- 70,807
(Increase) decrease in assets held for sale 829,007 (1,263,309) | -- --
Additions to note receivable from GHI (1,349,823) -- | -- --
Additions to notes receivable -- -- | -- (165,238)
Reduction in notes receivable -- -- | 1,185,120 739,072
------------ ----------- | ------------ -----------
Cash used in investing (8,595,717) (5,685,550) | (270,009) (2,042,301)
------------ ----------- | ------------ -----------
Cash flows from financing activities: |
Net change in notes payable -- -- | -- (551,344)
Increases in long-term obligations -- -- | -- 861,072
Decreases in long-term obligations -- -- | -- (2,808,513)
Increases in long-term intercompany -- -- | -- 571,373
Increases in long-term contingency -- -- | -- 144,179
Additional borrowings 5,672,421 2,398,997 | 1,514,587 --
Proceeds from sale of company -- -- | 63,524,946 --
Repayment of existing debt (358,855) -- | (25,037,262) --
Proceeds to selling shareholders -- -- | (38,046,827) --
Additional borrowings on line of credit 3,832,443 -- | -- --
Increases in other long-term liabilities 1,159,858 3,193,685 | -- --
------------ ----------- | ------------ -----------
Cash provided by (used in) financing 10,305,867 5,592,682 | 1,955,444 (1,783,233)
------------ ----------- | ------------ -----------
Net increase (decrease) in cash 1,340,314 (2,918,598) | 2,486,003 176,082
Cash, beginning of period 56,090 2,974,688 | 488,685 312,603
------------ ----------- | ------------ -----------
Cash, end of period $ 1,396,404 $ 56,090 | $ 2,974,688 $ 488,685
============ =========== | ============ ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-6
<PAGE> 20
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION, BUSINESS AND LIQUIDITY
Golf Host Resorts, Inc. (the "Company" or "GHR") owns The Westin
Innisbrook Resort ("Innisbrook") in Tarpon Springs, Florida and
Sheraton Tamarron Resort ("Tamarron") in Durango, Colorado (the
"Resorts"). The Resorts offer championship quality golf facilities,
restaurant and conference facilities, recreational activities
including swimming and tennis and related resort facilities. A
majority of the condominium apartment owners at the Resorts provide
their apartments as resort accommodations under rental pool lease
operations. The Resorts are lessees under operating lease agreements,
which provide for distribution of a percentage of room revenues, as
defined, to participating condominium owners, the lessors.
Golf Host Condominium, Inc. ("GHC"), a wholly-owned subsidiary of the
Company, was formed on December 1, 1997. GHC's assets consist of three
Innisbrook condominiums previously owned by the Company. A lease
agreement between Lost Oaks, L.P., a related party to the Company, and
Golf Trust of America, L.P. ("GTA"), the Company's primary lender
(Note 6), is secured by 89.1% of GHC's stock.
Prior to June 23, 1997, the Company was an 80% owned subsidiary of
Golf Hosts, Inc. ("GHI"). The minority shareholders were also GHI's
majority shareholders. On June 23, 1997, TM Golf Hosts, Inc. ("TMGHI")
acquired all the outstanding shares of GHI and the 20% of the
Company's shares not held by GHI. Concurrently, TMGHI and GHI merged
with the legal survivor being GHI, which now owns 100% of the Company
(the "Acquisition"). The purchase price of the Company was
approximately $66,333,000, including assumption of certain
liabilities. The transaction was financed by GTA and all previous
secured indebtedness was paid, resulting in an approximately $444,000
extraordinary loss on early retirement of debt relating to unamortized
debt discounts and related deferred expenses. For financial statement
purposes, the Acquisition has been accounted for as a purchase as of
June 23, 1997 and accordingly, the purchase price has been allocated
based upon the fair value of assets acquired and liabilities assumed
as follows:
<TABLE>
<S> <C>
Cash $ 2,974,688
Accounts receivable 3,560,495
Inventory 2,989,301
Assets held for sale 6,575,000
Other current assets 5,168,529
Fixed assets 34,851,692
Other non-current assets 35,196,630
------------
91,316,335
Accounts payable 8,392,761
Deferred income taxes 16,590,181
------------
$ 66,333,393
============
</TABLE>
The Company is negotiating with the former owners certain adjustments
to the acquisition price. Adjustments after the final resolution of
the purchase price will be reflected as adjustments to intangible
assets. During 1998, the Company adjusted the purchase price
allocation of certain assets held for sale by $4,475,000 and to
reflect the associated estimated tax payments due thereon from the
sale of Tamarron and other non-operating assets with built-in gains
within the statutory 10-year period from Acquisition.
F-7
<PAGE> 21
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
2. ACCOUNTING POLICIES
Financial Statements
Amounts included in these Notes to Consolidated Financial Statements,
unless otherwise indicated, are as of December 31, 1998 and 1997, or
for the years ended December 31, 1998, 1997 and 1996, respectively, as
applicable.
Principles of Consolidation
The consolidated financial statements include the accounts of Golf
Host Resorts, Inc. and Golf Host Condominium, Inc. All significant
intercompany balances and transactions are eliminated in
consolidation.
Cash and Cash Equivalents
The Company considers all short-term highly liquid investments with an
original maturity of three months or less to be cash equivalents. Book
overdrafts of approximately $1,319,000 and $751,000, respectively,
have been included in accounts payable in the accompanying
consolidated balance sheets.
Restricted Cash
At December 31, 1997, the Company had $2,239,000 of restricted cash,
of which $1,605,000 was designated for payment of the fourth quarter
rental pool distribution. At December 31, 1998, the fourth quarter
rental pool distribution under the Master Lease Agreement ("MLA") was
collateralized by a lien against the accounts receivable line of
credit. At December 31, 1998, the balance represents cash restricted
for capital improvements and cash collected on behalf of the former
shareholders.
Accounts Receivable
Accounts receivable represents amounts due from resort guests and is
net of allowances of $152,000 and $50,000 for doubtful accounts.
Inventories and Supplies
The Company records materials and supplies inventories at the lower of
first-in, first-out cost or market.
Note Receivable from GHI
At December 31, 1998, approximately $1,350,000 was due to the Company
for services under the terms of a $2,500,000 demand note receivable
from GHI. The note, dated December 31, 1998, bears interest at 8.5%,
is payable monthly in arrears and is due on demand. Prior to the
effective date of the note, the Company allocated interest charges on
the average outstanding balance at an interest rate of 9.0%. The
Company allocated interest income of approximately $56,000 for the
year ended December 31, 1998.
F-8
<PAGE> 22
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
Assets Held for Sale
The Company's intent was to sell the Sheraton Tamarron Resort and a
portion of the non-operating assets at Innisbrook within one year from
the date of acquisition. At Acquisition, the Tamarron related net
assets were recorded at their estimated proceeds, as adjusted for
estimated operations and interest expense during the estimated holding
period as required by EITF 87-11. The net loss for the twelve months
subsequent to June 23, 1997, was approximately $929,000 ($803,000 for
the 191 day period ended December 31, 1997), and the interest expense
was approximately $900,000 ($460,000 for the 191 day period ended
December 31, 1997) on the allocated debt. Such amounts were
capitalized in assets held for sale.
Assets held for sale are not depreciated and costs incurred to
maintain the assets are expensed during the holding period.
Accordingly, the loss associated with Tamarron and related interest
expense for the period subsequent to June 23, 1998 of $2,861,000 and
$433,000, respectively (aggregating $3,294,000), are shown in the
consolidated statement of operations as loss on assets held for sale
as required by EITF 90-6. Proceeds from the sale of assets held for
sale are restricted as Additional Collateral in accordance with the
terms of the GTA note payable.
Property and Equipment
Costs of maintenance and repairs of property and equipment used in
operations are charged to expense as incurred, while renewals and
betterments are capitalized. When properties are replaced, retired or
otherwise disposed, the costs are deducted from the asset and
accumulated depreciation accounts. Gains or losses on sales or
retirements of buildings, vehicles and certain golf course and
recreational facilities are recorded in income. Gains or losses on
sales or retirements of all other property and equipment are recorded
in the applicable accumulated depreciation accounts in accordance with
the composite method. Provisions for value impairment are recorded
when estimated future cash flows from operations and projected sales
proceeds are less than the net carrying value. There were no
adjustments made to the carrying value of property and equipment.
Other Assets
Other assets consist of start up costs associated with the change in
management of Innisbrook to Westin and are being amortized over a
five-year term.
Revenue Recognition
Revenue from resort operations is recognized as the related service is
performed. Profit is recognized on real estate sales either when the
closing occurs, or under the installment sales or cost recovery
methods, as appropriate. Real estate sales activity is reflected in
loss on assets held for sale for the year ended December 31, 1998.
Management Agreements
Westin Hotel Company ("Westin") became manager of Innisbrook effective
July 15, 1997, for a 20-year term unless terminated earlier. Under the
management agreement, Westin receives annual management fees and
certain cost reimbursements. Westin will also receive a portion of
actual earnings above specified levels, as defined, and guarantees
certain amounts as discussed in Note 9.
Sheraton Operating Corporation ("Sheraton") became manager of Tamarron
effective September 1, 1998, for a ten-year term unless terminated
earlier. Under the management agreement, Sheraton
F-9
<PAGE> 23
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
receives annual management fees and certain cost reimbursements. Prior
to this date, Tamarron was managed by Hilton Hotels Corporation
("HHC"). Costs associated with the terminating of the HHC management
agreement of $325,000 were charged to loss on assets held for sale in
the accompanying consolidated statement of operations.
Intercompany Allocations and Advances
GHI charges the Company for administrative and other expenses based on
estimated time and expenses incurred. Amounts charged were
approximately $321,000, $140,000, $451,000 and $656,000 for the year
ended December 31, 1998, the 191 days ended December 31, 1997, the 174
days ended June 23, 1997 and for the year ended December 31, 1996,
respectively, of which $60,000 and $31,000 was payable to GHI.
In addition to GHI, the Company has four affiliates. Golf Host
Securities, Inc. ("Securities"), Golf Host Management, Inc.
("Management") and Golf Host Development, Inc. ("Development") are
wholly-owned subsidiaries of GHI. Golf Host Realty, Inc. ("Realty") is
a 70% owned subsidiary of Securities. Securities and Realty are
engaged in brokerage activity with respect to condominium resales at
Innisbrook and Tamarron, respectively. Realty also serves as agent for
selling Estates at Tamarron residential homesites. Management is the
legal employer of Innisbrook employees and Development is presently
inactive.
GHI is a wholly-owned subsidiary of Golf Host Holdings, Inc. The
majority shareholders of Golf Host Holdings, Inc. are majority
shareholders of Lost Oaks, Inc., which is the general partner in Lost
Oaks, L.P. Lost Oaks, L.P. manages an 18-hole golf course, Lost Oaks of
Innisbrook, which is located near Innisbrook. The Company provides
services to Lost Oaks, L.P., including payroll, accounting, purchasing
and cash management. The Company is to be reimbursed for these services
at approximately cost under the terms of a note receivable with GHI.
Participating Rental Units
Revenue includes rental revenues from condominium units owned by third
parties participating in the rental pool lease operations. If these
rental units were owned by the Company, normal costs associated with
ownership such as depreciation, interest, real estate taxes and
maintenance would have been incurred. Instead, costs and operating
expenses include distributions of approximately $7,601,000,
$3,042,000, $4,932,000, and $9,783,000 for the year ended December 31,
1998, the 191 days ended December 31, 1997, the 174 days ended June
23, 1997 and for the year ended December 31, 1996, to the rental pool
participants, respectively.
Interest, Net
The Company's cash management policy is to utilize cash resources to
minimize net interest expense, through either temporary cash
investments or reductions in existing interest-bearing obligations.
Accordingly, temporary cash investments and interest income vary from
period to period. Interest expense is net of interest income of
approximately $140,000, $143,000, $79,000 and $154,000 for the year
ended December 31, 1998, the 191 days ended December 31, 1997, the 174
days ended June 23, 1997 and for the year ended December 31, 1996,
respectively.
Employee Benefit Plans
GHI maintains a defined contribution Employee Thrift and Investment
Plan (the "Plan") which provides retirement benefits for all eligible
employees who have elected to participate. Employees
F-10
<PAGE> 24
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
must fulfill a one-year service requirement to be eligible. Employees
may contribute a percentage of their compensation, as defined, with
the Company matching one-half of the first 6%. Prior to 1998, the
Company matched the lesser of one-half of the first 4% or $400 per
employee annually. Company contributions approximated $188,000,
$52,000, $61,000 and $120,000 for the year ended December 31, 1998,
the 191 days ended December 31, 1997, the 174 days ended June 23, 1997
and for the year ended December 31, 1996, respectively, and are fully
funded.
Income Tax Allocation and Sharing Policy
Through February 2, 1998, the Company joined with GHI in filing
consolidated income tax returns. Effective February 3, 1998, the
Company elected Subchapter S status and, accordingly, no allocations
have been recorded subsequent to that date.
For 1996 and previous years, income taxes were credited to the
long-term intercompany liability to GHI as incurred and GHI accepted
future liability for payment of the Company's deferred income taxes
when due.
Earnings Per Share
The Company reports both basic earnings per share, which is based on
the weighted average number of common shares outstanding, and diluted
earnings per share, which is based on the weighted average number of
common shares outstanding and all dilutive potential common shares
outstanding. The Company had no dilutive potential common shares
outstanding for any of the periods presented. As such, dilutive
earnings per share are equal to basic earnings per share for each of
the periods indicated.
Use of Estimates
Preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions which affect reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Land and land improvements $ 6,080,066 $ 5,688,625
Buildings 11,754,936 11,583,624
Golf courses and recreational facilities 15,715,509 9,601,395
Machinery and equipment 9,224,641 7,175,030
Construction in progress 1,301,198 2,687,915
------------ ------------
44,076,350 36,736,589
Less accumulated depreciation (2,490,521) (1,011,338)
------------ ------------
$ 41,585,829 $ 35,725,251
============ ============
</TABLE>
F-11
<PAGE> 25
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
The Company provides depreciation for financial reporting purposes
using the straight-line unit method for buildings, vehicles and
certain golf course and recreational facilities and the straight-line
composite method for the other components. Estimates of useful lives
used in computing annual depreciation are as follows:
<TABLE>
ESTIMATE USEFUL
LIFE IN YEARS
---------------
<S> <C>
Land improvements 28 to 30
Buildings 50
Recreational facilities 30
Machinery and equipment 10 to 15
</TABLE>
Construction in progress ("CIP") consists of costs incurred while
constructing resort amenities. Interest costs of approximately
$351,000 and $88,000 related to financing construction were
capitalized and are included in the respective property and equipment
components at December 31, 1998 and 1997.
Depreciation expense of $2,086,000, $1,011,000, $1,290,000 and
$2,570,000 was recorded for the year ended December 31, 1998, the 191
days ended December 31, 1997, the 174 days ended June 23, 1997 and for
the year ended December 31, 1996, respectively.
4. INTANGIBLE ASSETS
As discussed in Note 1, the purchase price of the Company has been
allocated to assets based upon their estimated fair value at
Acquisition date. In conjunction therewith a resort intangible of
approximately $34,000,000, relating to acquiring an operating resort
property with an existing rental pool agreement, was recorded and is
being amortized on a straight-line basis over 20 years. Amortization
expense for all intangible assets was approximately $2,001,000 and
$848,000 for the year ended December 31, 1998 and the 191 days ended
December 31, 1997, respectively.
5. OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Other accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
Rental pool lease distribution $ 2,053,915 $ 1,821,803
Taxes, other than income taxes 505,302 907,627
Other 781,107 1,486,396
----------- -----------
$ 3,340,324 $ 4,215,826
=========== ===========
</TABLE>
F-12
<PAGE> 26
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
6. LINE OF CREDIT AND NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
Line of credit
$5,000,000 revolving line of credit limited to a percentage of qualifying
accounts receivable with interest at the prime rate plus 0.75% (8.50% at
December 31, 1998); the loan matures on October 8, 2001
$ 3,832,443 $ --
----------- -----------
Notes payable
Participating mortgage note at varying pay rates
maturing in 2027 69,975,000 69,975,000
$9,000,000 participating mortgage note credit facility 8,696,584 3,024,163
Mortgage note at 6.34%, maturing in 2002 4,645,264 5,000,000
Capital lease at 9.51% 119,181 --
----------- -----------
83,436,029 77,999,163
Less current maturities 19,976 --
----------- -----------
$83,416,053 $77,999,163
=========== ===========
</TABLE>
On October 8, 1998, the Company obtained a $5,000,000 accounts
receivable line of credit with a financial institution. The line of
credit will be reduced to $3,000,000 on the Release Date (as defined
in the loan agreement with GTA described below). At December 31, 1998,
approximately $972,000 was available under the accounts receivable
line of credit, net of $196,000 in letters of credit.
Concurrent with the Acquisition, the Company obtained a $78,975,000
note payable from GTA. The note payable has two components: a
$69,975,000 participating mortgage note and a $9,000,000 credit
facility. The note payable is secured by substantially all assets
other than Innisbrook's accounts receivable and is guaranteed by GHI.
The agreement defines Tamarron, undeveloped land at Innisbrook,
unpledged GTA shares, or the proceeds of the sale of any of those as
Additional Collateral. The note payable agreement stipulates that
Additional Collateral will be released when the ratio of Innisbrook's
Net Operating Income equals or exceeds a ratio to Debt Service, as
defined. For the year ended December 31, 1998 the release ratio was
met, and accordingly, a portion of the Additional Collateral will be
released as security for the GTA note payable in 1999.
The participating mortgage note was used to finance the Company's
Acquisition and the purchase of GTA stock. The participating mortgage
note calls for initial annual interest payments of $6,739,063 with an
annual 5% increase in the interest payment commencing January 1, 1998
(prorated to 2.616% for 1998) and continuing each year through 2002.
Interest, payable monthly, has been recorded using the effective
interest method. The effective interest rate is approximately 11.53%
over the life of the note payable. In addition, the participating
mortgage note calls for participation payments based upon levels of
revenue, as defined, of the Innisbrook property ("Participating
Interest"). The Participating Interest incurred by the Company was
$243,000 and $0 for the year ended December 31, 1998 and the 191 days
ended December 31, 1997, respectively.
The $9,000,000 credit facility is used to finance the Company's
capital plan for continued resort development. This facility bears
interest initially at a 9.75% fixed rate with an annual 5% interest
escalator commencing January 1, 1998 (prorated to 2.616% for 1998) and
continuing each year
F-13
<PAGE> 27
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
through 2002. At December 31, 1998, approximately $303,000 was
available to draw under this facility.
Note payable principal is due at maturity on June 23, 2027. Upon
expiration or earlier termination of the participating mortgage note,
GTA has the option to purchase Innisbrook at fair market value. The
Company incurred interest expense of $7,767,000 and $3,808,000 on the
GTA debt during the year ended December 31, 1998 and the 191 days
ended December 31, 1997, of which $2,551,000 was payable at December
31, 1998. Accrued interest of $698,000 represents interest payable
during the next fiscal year. The balance of accrued interest is
included in other long-term liabilities and results from the effective
interest method discussed above.
The Company obtained a $5,000,000 mortgage note on June 20, 1997 from
the seller as a part of the sale transaction. Note proceeds are
expected to be used to fund operations during seasonal cash flow
shortages. Unused proceeds are held by the parent company on behalf of
the Resorts and amount to approximately $1,211,000 at December 31,
1998. The note bears interest at a fixed rate of 6.34% with interest
payable quarterly. The Company incurred interest expense of $340,000
and $168,000 for the year ended December 31, 1998 and the 191 days
ended December 31, 1997, of which $9,000 and $10,000 was payable at
December 31, 1998 and 1997. Principal payments of $500,000 are due on
June 20, 2000 and 2001, with the remaining balance due on June 20,
2002.
The Company leases automobiles under capital leases expiring in 2001.
Principal payments under the leases are payable as follows: 1999 -
$19,976; 2000 - $21,961; and 2001 - $77,244. The current portion of
capital lease obligations is included in other accounts payable and
accrued expenses in the accompanying consolidated balance sheets.
The Company incurred aggregate interest costs of approximately
$1,023,000 on debt during the 174 days ended June 23, 1997.
As a condition under the note payable agreement with GTA, the Company
acquired 159,326 common shares of Golf Trust of America, Inc. (the
100% owner of GTA) and 274,000 Operating Partnership Units ("OPUs") in
GTA for $8,975,000 with an option to acquire for $26 per unit 150,000
additional OPUs. The note payable agreement restricts the Company's
ability to sell its investments in GTA until certain Company operating
results, as defined, are attained. The Company distributed its GTA
investment to its parent upon acquisition. In 1998, GHI sold 65,000 of
the common shares. The proceeds from the sale of $2,253,000 are held
by GTA as Additional Collateral in accordance with the terms of the
note payable and should be released to GHI during 1999.
7. INCOME TAXES
On April 17, 1998, the Company filed an election with the Internal
Revenue Service to change its tax status to a Qualified Subchapter S
Subsidiary effective February 3, 1998. As a result of this election,
all applicable deferred tax liabilities have been removed from the
balance sheet and reflected as an extraordinary item in the
consolidated statements of operations. The remaining deferred tax
liability represents the estimated liability for taxes to be paid on
built-in gains associated with the sale of Tamarron and other
non-operating assets within the statutory 10-year period from
Acquisition.
F-14
<PAGE> 28
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
Prior to the Qualified Subchapter S Subsidiary election, the provision
for income taxes consisted of the following:
<TABLE>
<CAPTION>
FOR THE 33 DAY FOR THE 191 DAY FOR THE 174 DAY
PERIOD ENDED PERIOD ENDED PERIOD ENDED
FEBRUARY 2, DECEMBER 31, JUNE 23,
1998 1997 1997
<S> <C> <C> <C>
Charges to operations:
Current income tax (benefit) expense
Federal $ -- (2,951,811) $ 337,163
State -- (509,631) 70,605
---------- ----------- ------------
-- (3,461,442) 407,768
Deferred income tax expense (benefit):
Federal 280,711 239,091 346,458
State 48,117 40,146 58,174
---------- ----------- ------------
328,828 279,237 404,632
---------- ----------- ------------
Total income tax expense (benefit) $ 328,828 $(3,182,205) $ 812,400
========== =========== ============
</TABLE>
The provision for the 174 day period ended June 23, 1997 of $812,400
is net of the tax benefit of $155,400 for loss on the early
extinguishment of the long-term debt.
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
Deferred income taxes consist of the following:
Deferred income tax asset:
Net operating loss $ 1,113,700 $ 2,193,418
Deferred revenue and other accrued liabilities -- 535,034
Deferred income tax liability:
Basis difference in property and intangible assets (2,884,167) (15,611,614)
Other -- (251,396)
----------- ------------
Total deferred income tax liability $(1,770,467) $(13,134,558)
=========== ============
</TABLE>
The following table reconciles total income tax expense (benefit) to
an amount produced by multiplying pretax income by the 37.5% blended
federal and state statutory rate.
<TABLE>
<CAPTION>
FOR THE 33 DAY FOR THE
PERIOD ENDED YEAR ENDED
FEBRUARY 2, DECEMBER 31,
1998 1997
<S> <C> <C>
Tax computed at the federal statutory rate $ 287,694 $ (2,167,286)
Increase (decrease) in tax from:
State income taxes, net 30,716 (227,183)
Meals and entertainment 10,418 24,664
---------- ------------
Total income tax expense (benefit) $ 328,828 $ (2,369,805)
========== ============
</TABLE>
The Company filed a consolidated tax return with related parties for
the period ended February 2, 1998. Tax expense or benefit was
allocated based on the consolidated group's tax sharing agreement.
No valuation allowance is provided on deferred tax assets as
management believes it is more likely than not that such assets will
be realized.
F-15
<PAGE> 29
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
Under the Internal Revenue Code, if certain substantial changes in the
Company's ownership occur, there are annual limitations on utilization
of loss carryforwards.
8. SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
(Increases) decreases in working capital other than cash are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED 191 DAY PERIOD | 174 DAY PERIOD YEAR ENDED
DECEMBER 31, ENDED DECEMBER 31, | ENDED JUNE 23, DECEMBER 31,
1998 1997 | 1997 1996
|
<S> <C> <C> | <C> <C>
Restricted cash $ 1,533,470 $(2,238,767) | -- --
Accounts receivable and |
other receivables (2,165,049) (1,961,883) | $ 730,004 $ 91,569
Inventories and supplies (157,852) 1,089,703 | 2,134,665 (731,468)
Prepaid expenses and other assets (377,171) 15,792 | 255,765 251,132
Intercompany 3,060,448 1,714,869 | (3,980,882) (156,857)
Accounts payable (1,164,021) 2,605,479 | (589,271) 347,650
Accrued payroll costs 67,113 1,136,127 | -- --
Accrued interest 111,043 586,660 | -- --
Other accounts payable and |
accrued expenses (895,478) (866,266) | 504,111 303,896
Deposits and prepaid fees 750,441 1,266,234 | (1,114,059) 74,231
----------- ----------- | ----------- ---------
$ 762,944 $ 3,347,948 | $(2,059,667) $ 180,153
=========== =========== | =========== =========
</TABLE>
<TABLE>
<CAPTION>
191 DAY | 174 DAY
YEAR ENDED PERIOD ENDED | PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, | JUNE 23, DECEMBER 31,
1998 1997 | 1997 1996
<S> <C> <C> | <C> <C>
NONCASH FINANCING AND INVESTING ACTIVITIES: |
Satisfaction of preferred stock |
dividend requirement through the |
intercompany account $ 256,312 $ 133,085 | $ 123,227 $ 256,312
Transfer of investment in GTA |
to GHI $ -- $ 8,975,000 | $ -- $ --
Capital lease obligations $ 123,300 $ -- | $ -- $ --
|
OTHER INFORMATION |
Interest paid in cash $ 8,219,000 $ 3,004,840 | $ 965,117 $ 2,029,000
Income taxes paid in cash $ -- $ -- | $ 118,090 $ 192,001
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Rental Pool Distribution
GHR offered, effective January 1, 1998, a separate Guaranteed
Distribution Master Lease Agreement ("GMLA") to Innisbrook
participants. Among other things, the GMLA provides for an equal
sharing between GHR and Innisbrook participants of Adjusted Gross
Revenues and includes as deductions from the Gross Income
Distribution, as defined, a 5.5% Management Fee and a 3% Marketing
Fee.
F-16
<PAGE> 30
GOLF HOST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
GHR will receive an Incentive Fee of 10% of the excess of Gross
Revenues over $20,000,000. GHR guarantees Rent (Net Income
Distribution plus Occupancy and Hospitality Suite Fees) will not be
less than an amount which approximates the 1996 Gross Income
Distribution, as prorated based upon Weighted Days Pool Participation,
as defined. For the year ended December 31, 1998, approximately
$11,000 was paid under the guarantee. The GMLA has a noncancelable
term through 2011 with an annual rental pool participation election.
At December 31, 1998, 145 condominium units had elected to remain in
the MLA, which expires on December 31, 2001, while 1,075 had elected
to participate in the GMLA.
Westin Guarantee and Contingency
Under the terms of the Innisbrook management agreement, Westin
guaranteed a minimum cash flow to Innisbrook. The agreement provides
that if Incentive Cash Flow, as defined, is less than the Minimum
Annual Payment, as defined, for the operating year, then Westin will
advance Innisbrook the shortage up to $2.5 million, with the advance
being repayable when the Company has Available Cash, as defined. The
advance was fully funded for 1997, is non-interest bearing and is
recorded in other long-term liabilities in the accompanying balance
sheets. No advance was funded for 1998. In addition, Westin shares in
revenues of Innisbrook above defined amounts. Other accounts payable
and accrued expenses include a payable to Westin for Westin's share of
operating revenues of $131,000 and $112,000.
The Westin management agreement requires the Company to maintain a
capital replacement fund based on a percentage of gross revenues. The
Company contributed $2,238,000 and $1,000,000 for the period ended
December 31, 1998 and the 191 days ended December 31, 1997,
respectively. At December 31, 1998, the capital replacement fund had a
balance of $404,000 and is included in restricted cash in the
accompanying consolidated balance sheets.
In April 1998, the Company signed an agreement under which Westin will
provide 50% of the funding for approved capital expenditures incurred
subsequent to the Acquisition in excess of $6,000,000, plus capital
replacement fund requirements, as defined above.
Operating Leases
Exclusive of rental pool payments, operating lease expense for the
year ended December 31, 1998, the 191 days ended December 31, 1997,
the 174 days ended June 23, 1997 and for the year ended December 31,
1996, respectively, approximated $54,000, $61,000, $37,000 and
$156,000 and there were no contingent rentals or operating subleases.
No significant operating leases extend beyond one year.
Legal
The Company, in the normal course of operations, is subject to claims
and lawsuits. The Company does not believe that the ultimate
resolution of such matters will materially impair operations or have
an adverse effect on the Company's financial position and results of
operations.
10. SUBSEQUENT EVENTS
On January 29, 1999, the Company sold for $4,536,000 approximately 36
acres of undeveloped land at Innisbrook. The land is external to the
Resort property and its sale will have no direct impact on Resort
operations. Proceeds from the sale are held as Additional Collateral,
as defined, by GTA and should be released to the Company during 1999.
F-17
<PAGE> 31
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Golf Host Resorts, Inc., and the Lessors of the
Innisbrook Rental Pool Lease Operation
In our opinion, the accompanying balance sheets and the related statements of
operations and of changes in participants' fund balance present fairly, in all
material respects, the financial position of the Innisbrook Rental Pool Lease
Operation at December 3l, 1998 and 1997, and the results of its operations and
the changes in participants' fund balance for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the rental pool's operators; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above. The financial statements of Innisbrook Rental Pool
Lease Operation for the year ended December 31, 1996, were audited by other
independent accountants whose report dated March 21, 1997 expressed an
unqualified opinion on the statements.
PricewaterhouseCoopers LLP
Tampa, Florida
March 3, 1999
F-18
<PAGE> 32
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Golf Host Resorts, Inc., and the Lessors of the
Innisbrook Rental Pool Lease Operation:
We have audited the accompanying balance sheets of Innisbrook Rental Pool Lease
Operation (Note 1) as of December 31, 1996 and 1995, and the related statements
of operations and changes in participants' fund balances for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Innisbrook Rental Pool
Lease Operations as of December 31, 1996 and 1995, and the results of its
operations and its changes in its participants' fund balances for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida
March 21, 1997
F-19
<PAGE> 33
INNISBROOK RENTAL POOL LEASE OPERATION
BALANCE SHEET - DISTRIBUTION FUND
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
ASSETS
Receivable from Golf Host Resorts, Inc. for distribution $ 1,894,144 $ 1,808,040
Interest receivable from maintenance escrow fund 25,588 28,652
----------- -----------
$ 1,919,732 $ 1,836,692
=========== ===========
LIABILITIES AND PARTICIPANTS' FUND BALANCE
Due to participants for distribution $ 1,534,105 $ 1,375,107
Due to maintenance escrow fund 385,627 274,972
Reserve for estimated life-safety reimbursement -- 186,613
Participants' fund balance -- --
----------- -----------
$ 1,919,732 $ 1,836,692
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
F-20
<PAGE> 34
INNISBROOK RENTAL POOL LEASE OPERATION
BALANCE SHEET - MAINTENANCE ESCROW FUND
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,160,380 $ 1,710,216
Inventories 21,655 --
Receivable from distribution fund 385,627 274,972
Interest receivable 24,104 27,992
----------- -----------
$ 2,591,766 $ 2,013,180
=========== ===========
LIABILITIES AND PARTICIPANTS' FUND BALANCE
Accounts payable $ 61,068 $ 55,905
Interest payable to distribution fund 25,588 28,652
Carpet care reserve -- 27,007
Participants' fund balance 2,505,110 1,901,616
----------- -----------
$ 2,591,766 $ 2,013,180
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
F-21
<PAGE> 35
INNISBROOK RENTAL POOL LEASE OPERATION
STATEMENTS OF OPERATIONS - DISTRIBUTION FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Gross Revenues $ 19,484,376 $ 14,896,075 $ 15,480,899
------------ ------------ ------------
Deductions:
Agents' commissions 775,083 322,654 357,441
Credit card fees 173,718 -- --
Audit fees 13,000 12,100 12,100
------------ ------------ ------------
961,801 334,754 369,541
------------ ------------ ------------
Adjusted gross revenues 18,522,575 14,561,321 15,111,358
Management fee (9,223,148) (6,843,820) (7,102,338)
------------ ------------ ------------
Gross income distribution 9,299,427 7,717,501 8,009,020
Adjustments to gross income distribution:
Management fee (998,760) -- --
Marketing fee (544,778) -- --
Miscellaneous pooled expenses (88,870) -- --
Corporate complimentary occupancy fees 32,984 16,828 10,058
Westin Associate room fees 23,366 -- --
Payment under guarantee 10,918 -- --
Occupancy fees (1,776,640) (1,541,670) (1,689,670)
Advisory Committee expenses (29,933) (106,540) (96,795)
Life-safety reimbursements -- (186,613) (341,188)
------------ ------------ ------------
Net income distribution 5,927,714 5,899,506 5,891,425
Adjustments to net income distribution:
Occupancy fees 1,776,640 1,541,670 1,689,670
Hospitality suite fees 134 10,328 15,790
Greens fees 12,588 86,354 89,248
Additional participation credits 5,100 69,825 72,865
------------ ------------ ------------
Amount available for distribution to
participants $ 7,722,176 $ 7,607,683 $ 7,758,998
============ ============ ============
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
F-22
<PAGE> 36
INNISBROOK RENTAL POOL LEASE OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE - DISTRIBUTION FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Balance, beginning of year $ -- $ -- $ --
Additions:
Amounts available for distribution before
life-safety reimbursement 7,722,176 7,794,296 8,100,186
Interest received or receivable from
Maintenance Escrow Fund 92,721 110,562 82,198
Reductions:
Amounts withheld for Maintenance Escrow Fund (1,580,182) (1,156,262) (1,263,618)
Amounts withheld in reserve for life-safety
reimbursement -- (186,613) (341,188)
Amounts accrued or paid to participants (6,234,715) (6,561,983) (6,577,578)
----------- ----------- -----------
Balance, end of year $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
F-23
<PAGE> 37
INNISBROOK RENTAL POOL LEASE OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE - MAINTENANCE ESCROW FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Balance, beginning of year $ 1,901,616 $ 1,734,415 $ 1,141,259
Additions:
Amounts withheld from occupancy fees 1,580,182 1,156,262 1,263,618
Interest earned 92,721 110,562 82,198
Charges to participants to establish or
restore escrow balances 198,492 1,091,298 1,081,816
Reductions:
Maintenance charges (941,153) (1,947,493) (1,633,437)
Carpet care reserve deposit (35,533) (35,427) (33,708)
Interest accrued or paid to Distribution Fund (92,721) (110,562) (82,198)
Refunds to participants due under Master
Lease Agreement (198,494) (97,439) (85,133)
----------- ----------- -----------
Balance, end of year $ 2,505,110 $ 1,901,616 $ 1,734,415
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
F-24
<PAGE> 38
INNISBROOK RENTAL POOL LEASE OPERATION
NOTES TO FINANCIAL STATEMENTS
1. RENTAL POOL LEASE OPERATION AND RENTAL POOL LEASE AGREEMENT:
Organization and Operations
The Innisbrook Rental Pool Lease Operation (the "Rental Pool")
consists of condominiums at the Westin Innisbrook Resort
("Innisbrook") which are provided as resort accommodations by their
owners. The condominium owners ("Participants") have entered into
Annual Rental Pool Lease Agreements ("ALAs") and either a Master Lease
Agreement ("MLA") or, effective January 1, 1998, a Guaranteed
Distribution Master Lease Agreement ("GMLA"), which define the terms
and conditions related to each ALA with Golf Host Resorts, Inc.
("GHR"), the lessee of the Rental Pool. The MLA, GMLA and ALAs are
referred to collectively as the "Agreements." The ALAs expire at the
end of each calendar year and the MLA and GMLA will remain in effect
through December 31, 2001 and December 31, 2011, respectively. At
December 31, 1998, 145 condominium owners had elected to participate
in the MLA while 1,075 had elected to participate in the GMLA.
The Rental Pool consists of two funds: the Distribution Fund and the
Maintenance Escrow Fund. The Distribution Fund balance sheets
primarily reflect amounts receivable from GHR for the Rental Pool
distribution payable to Participants and amounts due to the
Maintenance Escrow Fund. The operations of the Distribution Fund
reflect Participants' earnings in the Rental Pool. The Maintenance
Escrow Fund reflects the accounting for certain escrowed assets of the
Participants and, therefore, has no operations. It consists primarily
of amounts escrowed by Participants or due from the Distribution Fund
to meet escrow requirements, the carpet care reserve and amounts
payable for maintenance services received.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management's
estimates.
Computation and Allocation of Earnings
Under the MLA, Participants and GHR share Adjusted Gross Revenues in
accordance with the terms of the Agreements. Adjusted Gross Revenues
consist of revenues earned from rental of condominiums, net of agents'
commissions (not to exceed 5.5% of Gross Revenues, as defined in the
Agreements) and audit fees. GHR receives a Management Fee equal to 47%
of Adjusted Gross Revenues. Each Participant receives a fixed
Occupancy Fee, based on apartment size, for each day of occupancy.
After allocation of Occupancy Fees, the balance of Adjusted Gross
Revenues, net of the Management Fee and adjustments, is allocated
proportionately to Participants, based on the Participation Factor as
defined in the Agreements.
Under the GMLA, Participants and GHR share equally in Adjusted Gross
Revenues, while GHR receives as deductions from the Gross Income
Distribution a 5.5% Management Fee, a 3% Marketing Fee and
Miscellaneous Pooled Expenses comprised of linen and other pooled
expenses. GHR will also receive an Incentive Fee of 10% of the excess
of Gross Revenues over $20,000,000. The GMLA guarantees Rent (Net
Income Distribution plus Occupancy and Hospitality Suite Fees) will
not be less than an amount which approximates the 1996 Gross Income
Distribution, as prorated based upon Weighted Days Pool Participation,
as defined. In 1998, approximately $11,000 was paid under the
guarantee. The GMLA also guarantees a noncancelable term through 2011
with an annual rental pool participation election.
Corporate complimentary occupancy fees are rental fees paid for
complimentary rooms unrelated to Rental Pool operations. Westin
Associate room fees represent total revenues earned from Westin
employees passed through to the Rental Pool.
F-25
<PAGE> 39
INNISBROOK RENTAL POOL LEASE OPERATION
NOTES TO FINANCIAL STATEMENTS
Owners who purchased units prior to January 1, 1991 and who
participate in the Rental Pool under the MLA for at least 50% of the
year or 50% of the time they own their unit receive Additional
Participation Credits. Participation in greens fees is restricted to
original condominium owners participating in the MLA who executed
purchase agreements for certain units prior to April 13, 1972. Greens
fees and Additional Participation Credits are requirements of
agreements other than the current Agreements; these amounts are
included in Adjustments to Net Income Distribution of the Rental Pool
as this treatment is consistent with the method utilized by GHR to pay
such amounts to the applicable Participants.
Maintenance Escrow Fund Accounts
The MLA and GMLA provide that 75% and 90%, respectively, of the
Occupancy Fees earned by each Participant is deposited in the
Participant's Maintenance Escrow Fund account. This account provides
funds for payment of amounts which are due from Participants under the
Agreements for maintenance and refurbishment services. Under the MLA,
when the balance of the Participant's Maintenance Escrow Fund account
exceeds 75% of the defined furniture replacement value the excess is
refunded to the Participant. Should a Participant's balance fall below
that necessary to provide adequate funds for maintenance and
replacements, the Participant is required to restore the escrow
balance to an adequate level. The GMLA provides for an Occupancy Fee
deposit into the Participant's Maintenance Escrow Fund account until
the balance in the account equals the total anticipated charges for
maintenance, repair and refurbishing of the condominium.
Under the MLA, a percentage of the Occupancy Fees is deposited into
the carpet care reserve in the Maintenance Escrow Fund which will bear
the expenses of carpet cleaning for all Participants. This percentage
is estimated to provide the amount necessary to fund carpet cleaning
expenses and may be adjusted annually. The amounts expended for carpet
care were $65,752, $46,850 and $38,170 for 1998, 1997 and 1996,
respectively. Under the GMLA, this separate reserve has been
eliminated.
GHR, under the direction of the Lessors' Advisory Committee and in
compliance with restrictions in the Agreements, invests maintenance
escrow funds on behalf of the Participants. The Lessors' Advisory
Committee consists of nine Participants elected to advise GHR in
Rental Pool matters. Income earned on these investments is allocated
proportionately to Participants' Maintenance Escrow Fund accounts and
paid quarterly through the Distribution Fund. Included in cash and
cash equivalents at December 31, 1998 are certificates of deposit of
$1,645,000 at cost, maturing between February 22, 1999 and December 9,
1999, and bearing interest at rates from 5.00% to 6.15%, and a bond of
$230,000 maturing on January 6, 1999. The remainder is held in a money
market account.
2. AFFILIATE OWNED CONDOMINIUMS:
Golf Host Condominium, Inc., a wholly-owned subsidiary of GHR, owns
three condominiums. Its condominiums participated in the Rental Pool
under the GMLA in the same manner as all others.
F-26
<PAGE> 40
INNISBROOK RENTAL POOL OPERATION
NOTES TO FINANCIAL STATEMENTS
3. COMMITMENTS AND CONTINGENCIES:
Hilton Hotels Corporation ("HHC") managed Innisbrook from April 1993
to July 15, 1997, at which time the management was changed to Westin
Hotel Company. In connection with the HHC agreement, HHC funded
certain special projects and property improvements, including
installation of life-safety equipment in condominium units
participating in the Rental Pool and related common areas. Separately,
the Rental Pool agreed to reimburse GHR the cost of installing the
life-safety equipment, including reimbursements to condominium
apartment owners for previously installed equipment, in an amount
equal to $1,779,000, plus interest at 7.75% per annum for no more than
five years on each related draw thereunder. Payments were required for
years in which the Amount Available for Distribution to Participants
exceeded $7,375,000 in an amount equal to 50% of such excess.
Participants withdrawing from the Rental Pool for any reason, other
than a sale, before the obligation to GHR had been fully repaid were
required to immediately pay their proportionate share of the unpaid
balance. In l996 and 1995, repayment requirements of $362,593 and
$150,036, respectively, resulted, yielding a balance of $1,591,341.
Under the terms of the related agreement, the Rental Pool was not
obligated to reimburse GHR if the management agreement between HHC and
GHR was terminated. Therefore, effective with the July 15, 1997 change
in management, the obligation of the Rental Pool to continue to make
reimbursements ceased. The former shareholders of GHR retained all
notes receivable, including the amount due from the Rental Pool, and
have disputed the termination. The outcome of this matter is uncertain
at this time. Pending the resolution of this matter, potential
payments to the former shareholders are being held in escrow by GHR.
F-27
<PAGE> 41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Golf Host Resorts, Inc. and the Lessors of the
Tamarron Rental Pool Lease Operation
In our opinion, the accompanying balance sheets and the related statements of
operations and of changes in participants' fund balance present fairly, in all
material respects, the financial position of the Tamarron Rental Pool Lease
Operation at December 31, 1998 and 1997, and the results of its operations and
the changes in participants' fund balance for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the rental pool's operators; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above. The financial statements of the Tamarron Rental Pool
Lease Operation for the year ended December 31, 1996 were audited by other
independent accountants whose report dated March 21, 1997 expressed an
unqualified opinion on the statements.
PricewaterhouseCoopers LLP
Tampa, Florida
March 3, 1999
F-28
<PAGE> 42
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Golf Host Resorts, Inc., and the Lessors of the
Tamarron Rental Pool Lease Operation:
We have audited the accompanying balance sheets of Tamarron Rental Pool Lease
Operation (Note 1) as of December 31, 1996 and 1995, and the related statements
of operations and changes in participants' fund balances for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Tamarron Rental Pool Lease
Operations as of December 31, 1996 and 1995, and the results of its operations
and its changes in its participants' fund balances for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida
March 21, 1997
F-29
<PAGE> 43
TAMARRON RENTAL POOL LEASE OPERATION
BALANCE SHEET - DISTRIBUTION FUND
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
ASSETS
Cash $ 1,000 $ 1,000
Receivable from Golf Host Resorts, Inc. for distribution 184,410 154,173
Interest receivable from maintenance escrow fund 114 342
--------- ---------
$ 185,524 $ 155,515
========= =========
LIABILITIES AND PARTICIPANTS' FUND BALANCE
Due to participants for distribution $ 119,642 $ 104,400
Due to maintenance escrow fund 65,882 51,115
Participants' fund balance -- --
--------- ---------
$ 185,524 $ 155,515
========= =========
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
F-30
<PAGE> 44
TAMARRON RENTAL POOL LEASE OPERATION
BALANCE SHEET - MAINTENANCE ESCROW FUND
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 25,387 $ 56,199
Due from distribution fund 65,882 51,115
Inventory:
Linen 82,515 65,562
Materials and supplies 11,467 16,346
--------- ---------
$ 185,251 $ 189,222
========= =========
LIABILITIES AND PARTICIPANTS' FUND BALANCE
Accounts payable $ 11,026 $ 23,358
Interest payable to distribution fund 114 342
Participants' fund balance 174,111 165,522
--------- ---------
$ 185,251 $ 189,222
========= =========
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
F-31
<PAGE> 45
TAMARRON RENTAL POOL LEASE OPERATION
STATEMENTS OF OPERATIONS - DISTRIBUTION FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Gross revenues $ 3,225,267 $ 3,372,242 $ 3,606,132
----------- ----------- -----------
Deductions:
Agents' commissions 115,790 127,758 125,209
Sales and marketing expenses 241,895 269,779 306,520
Audit fees 13,000 10,400 10,400
----------- ----------- -----------
370,685 407,937 442,129
----------- ----------- -----------
Adjusted gross revenues 2,854,582 2,964,305 3,164,003
Management fee (1,427,291) (1,482,153) (1,582,002)
----------- ----------- -----------
Gross income distribution 1,427,291 1,482,152 1,582,001
Adjustments to gross income distribution:
Corporate complimentary occupancy fees 2,611 3,580 4,084
Occupancy fees (317,350) (344,556) (304,829)
Designated items (90,950) (118,109) (71,150)
Advisory Committee expenses (11,226) (14,943) (11,136)
----------- ----------- -----------
Pooled income 1,010,376 1,008,124 1,198,970
Adjustments to pooled income:
Hospitality suite fees -- -- 53
Occupancy fees 317,350 344,556 304,829
----------- ----------- -----------
Net income distribution $ 1,327,726 $ 1,352,680 $ 1,503,852
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
F-32
<PAGE> 46
TAMARRON RENTAL POOL LEASE OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE - DISTRIBUTION FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Balance, beginning of year $ -- $ -- $ --
Additions:
Amounts available for distribution 1,327,727 1,352,681 1,503,852
Interest received or receivable from
Maintenance Escrow Fund 1,103 930 3,261
Reductions:
Amounts withheld for Maintenance Escrow Fund (158,683) (172,285) (152,416)
Amounts accrued or paid to participants (1,170,147) (1,181,326) (1,354,697)
----------- ----------- -----------
Balance, end of year $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
F-33
<PAGE> 47
TAMARRON RENTAL POOL LEASE OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE - MAINTENANCE ESCROW FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Balance, beginning of year $ 165,522 $ 197,548 $ 328,336
Additions:
Amounts withheld from occupancy fees 158,682 172,285 152,416
Interest earned 1,103 930 3,261
Reimbursement of designated items 90,950 118,109 71,150
Charges to participants to establish or restore
escrow balances 375,597 47,749 276,838
Reductions:
Maintenance and inventory charges (254,270) (161,718) (164,323)
Refurbishing charges (254,907) (66,602) (369,161)
Interest accrued or paid to Distribution Fund (1,103) (930) (3,261)
Designated items (90,950) (118,108) (71,150)
Refunds to participants as prescribed by
Master Lease Agreement (16,513) (23,741) (26,558)
--------- --------- ---------
Balance, end of year $ 174,111 $ 165,522 $ 197,548
========= ========= =========
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
F-34
<PAGE> 48
TAMARRON RENTAL POOL LEASE OPERATION
NOTES TO FINANCIAL STATEMENTS
1. RENTAL POOL LEASE OPERATION AND RENTAL POOL LEASE AGREEMENT:
Organization and Operations
The Tamarron Rental Pool Lease Operation (the "Rental Pool") consists
of condominiums at Sheraton Tamarron Resort which are provided as
resort accommodations by their owners. The condominium owners
("Participants") have entered into Annual Rental Pool Lease Agreements
(ALAs) and a Master Lease Agreement ("MLA"), which defines the terms
and conditions related to each ALA, with Golf Host Resorts, Inc.
("GHR"), the lessee of the Rental Pool. The MLA and ALAs are referred
to collectively as the "Agreements." The ALAs expire at the end of
each calendar year and the MLA will remain in effect through December
31, 2003.
The Rental Pool consists of two funds: the Distribution Fund and the
Maintenance Escrow Fund. The Distribution Fund balance sheets
primarily reflect amounts due from GHR for the Rental Pool
distribution payable to Participants and amounts due to the
Maintenance Escrow Fund. The operations of the Distribution Fund
reflect Participants' earnings in the Rental Pool. The Maintenance
Escrow Fund reflects the accounting for certain escrowed assets of the
Participants and, therefore, has no operations. It consists primarily
of amounts escrowed by Participants or due from the Distribution Fund
to meet escrow requirements and inventory to provide for periodic
maintenance and repairs to Participants' condominium apartments.
Funding of the estimated amounts receivable from GHR for distribution
is due at least weekly to the extent that borrowings available to GHR
under its various lines of credit are less than amounts due to the
Distribution Fund. The receivable from GHR as of December 31, 1998 and
1997, was paid in accordance with the terms of the Agreements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management's
estimates.
Computation and Allocation of Earnings
Participants and GHR share Adjusted Gross Revenues in accordance with
the terms of the Agreements. Adjusted Gross Revenues consist of
revenues earned from rental of condominiums net of Sales and Marketing
expenses (limited to 7.5%, 8.0% and 8.5% of Gross Revenues for 1998,
1997 and 1996, respectively), agents' commissions (not to exceed 5.5%
of Gross Revenues) and audit fees. GHR receives a Management Fee equal
to 50% of Adjusted Gross Revenues.
Each Participant receives a fixed Occupancy Fee, based on apartment
size, for each day of occupancy. After allocation of Occupancy Fees,
the balance of Adjusted Gross Revenues, net of the Management Fee
adjustments, is allocated proportionately to Participants based on the
Participation Factor as defined in the Agreements.
Corporate complimentary occupancy fees are rental fees paid by GHR for
complimentary rooms unrelated to Rental Pool operations.
Maintenance Escrow Fund Accounts
The Agreements provide that 50% of the Occupancy Fees earned by each
Participant is deposited in the Participant's Maintenance Escrow Fund
account. This account provides funds for payment of
F-35
<PAGE> 49
TAMARRON RENTAL POOL LEASE OPERATION
NOTES TO FINANCIAL STATEMENTS
amounts which are due from the Participant under the Agreements for
maintenance and refurbishment services. When the balance of the
Participant's Maintenance Escrow Fund account exceeds the maximum
specified in the Agreements, the excess is refunded to the
Participant, as provided in the Agreements. Should a Participant's
balance fall below that necessary to provide adequate funds for
maintenance and replacements, the Participant is required to restore
the escrow balance to an adequate level.
Funds deposited in the Maintenance Escrow Fund are invested on behalf
of the Participants. Income earned on these investments is allocated
proportionately to Participants' Maintenance Escrow Fund accounts and
paid quarterly through the Distribution Fund. Cash and cash
equivalents at December 31, 1998 and 1997 consists of an interest
bearing demand account.
2. AFFILIATE OWNED CONDOMINIUMS:
Through the sale of GHR on June 23, 1997, Golf Host Development, Inc.
(an affiliate of GHR), and certain shareholders, directors and
officers of GHR and its affiliates from time to time owned
condominiums which participated in the Rental Pool in the same manner
as all others. Subsequent to the sale, no condominiums are owned by
GHR, its affiliates or the shareholders, directors or officers
thereof.
3. LINEN AND MATERIALS AND SUPPLIES INVENTORY:
Linen amortization and the cost of Participants' actual usage of
certain supplies, collectively referred to as Designated Items, are
charged to all Participants as a group and allocated to Participants
based upon their Participation Factors. Linen inventory is stated at
cost, less accumulated amortization of $92,339 and $109,567 at
December 31, 1998 and 1997, respectively. Linen Amortization is
computed on the straight-line method over an estimated useful life of
48 months.
Materials and supplies inventories consist primarily of minor
apartment furnishings and appliances carried at cost, determined on a
first-in, first-out basis. The costs of such items, not considered
Designated Items, are charged to Participants' individual Maintenance
Escrow accounts based on actual usage.
F-36
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,101,701
<SECURITIES> 0
<RECEIVABLES> 7,697,177
<ALLOWANCES> (152,000)
<INVENTORY> 2,057,450
<CURRENT-ASSETS> 26,800,121
<PP&E> 44,076,350
<DEPRECIATION> (2,490,521)
<TOTAL-ASSETS> 98,807,861
<CURRENT-LIABILITIES> 16,302,032
<BONDS> 83,416,053
0
4,577,000
<COMMON> 5,000
<OTHER-SE> (11,616,234)
<TOTAL-LIABILITY-AND-EQUITY> 98,807,861
<SALES> 19,468,220
<TOTAL-REVENUES> 58,184,711
<CGS> 5,791,439
<TOTAL-COSTS> 52,138,663
<OTHER-EXPENSES> 3,294,344
<LOSS-PROVISION> 92,100
<INTEREST-EXPENSE> 8,073,416
<INCOME-PRETAX> (5,321,712)
<INCOME-TAX> 328,828
<INCOME-CONTINUING> (5,650,540)
<DISCONTINUED> 0
<EXTRAORDINARY> 13,473,386
<CHANGES> 0
<NET-INCOME> 7,822,846
<EPS-PRIMARY> 1,513
<EPS-DILUTED> 1,513
</TABLE>
