<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
JANUARY 16, 1997
COMMISSION FILE NUMBER: 0-26528
PATRIOT AMERICAN HOSPITALITY, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 75-2599709
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3030 LBJ FREEWAY, SUITE 1500 75234
DALLAS, TEXAS (Zip Code)
(Address of principal executive office)
(972) 888-8000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changes since last
report)
===============================================================================
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
ACQUISITION OF CAREFREE RESORTS
On January 16, 1997 and January 17, 1997, Patriot American Hospitality,
Inc. (collectively with its subsidiaries, the "Company") acquired Resorts
Limited Partnership ("RLP"), Carefree Resorts Corporation ("Carefree") and their
assets (the "Carefree Acquisition"). The assets of these entities include the
100% fee interest in The Boulders near Scottsdale, Arizona ("The Boulders") and
the Lodge at Ventana Canyon in Tucson, Arizona ("Ventana Canyon"), and a 50%
partnership interest in the entities that own The Peaks Resort and Spa at
Telluride, Colorado ("The Peaks") and Carmel Valley Ranch in Carmel, California
("Carmel Valley Ranch"). The four resort properties are collectively referred
to as the Carefree Resorts.
Additionally, on January 17, 1997, the Company acquired from The Morgan
Stanley Real Estate Fund, L.P. and certain of its affiliates the remaining 50%
partnership interest in the entities that own The Peaks and Carmel Valley Ranch
(the "Morgan Stanley Acquisition").
The aggregate purchase price of the Carefree Acquisition and the Morgan
Stanley Acquisition was approximately $262.5 million and consisted of 1,295,077
units of limited partnership interest ("OP Units") in Patriot American
Hospitality Partnership, L.P. (the "Operating Partnership") valued at $58.7
million, the assumption of approximately $28.5 million of debt on Ventana
Canyon, the assumption of a net working capital liability of $4.8 million and
approximately $170.5 million in cash (including closing costs and loan
commitment fees). The cash portion of the purchase price was financed primarily
with funds drawn on the Company's Line of Credit.
THE BOULDERS. The Boulders, located near Scottsdale, Arizona, consists of
160 guest "casitas." In addition, the resort has access to 33 private homes
which participate in a rental pool. The resort includes two Jay Moorish 18-hole
championship golf courses, six tennis courts, two swimming pools, a fitness
center and spa, plus approximately 21,000 square feet of meeting space and
approximately 61,400 square feet of specialty retail space. Additionally, the
Company acquired approximately 72 acres containing 99 separate residential
parcels. Fee interest in The Boulders is held by Boulders Joint Venture, a
general partnership held through the Operating Partnership and a wholly-owned
subsidiary of the Company.
THE PEAKS RESORT AND SPA. The Peaks, located in Telluride, Colorado,
consists of 177 guest rooms, plus 7 penthouse condominiums. The resort includes
approximately 42,000 square feet of health spa and fitness facilities, pools,
and squash and racquet ball courts, plus approximately 7,100 square feet of
meeting space. Additionally, the Company acquired residential parcels of land
for development. Fee interest in The Peaks is held by Telluride Resorts and Spa,
L.P., a limited partnership owned, directly and indirectly, by the Operating
Partnership and certain of its subsidiaries.
VENTANA CANYON. Ventana Canyon, located in Tucson, Arizona, consists
of 49 suites. The resort includes two 18-hole Tom Fazio-designed championship
golf courses, 12 lighted tennis courts with a 3,000-seat stadium court, and a
swimming pool. Fee interest in Ventana Canyon is held by PAH Ventana Canyon,
L.P., a limited partnership owned, directly and indirectly, by the Operating
Partnership and a subsidiary of the Company.
CARMEL VALLEY RANCH. Carmel Valley Ranch, located near Carmel,
California, consists of 100 one-bedroom guest suites. The resort, which is
situated on 1,700 acres, includes an 18-hole Pete Dye championship golf course,
12 tennis courts, two pools and a fitness center, plus approximately 4,000
square feet of meeting space. Additionally, the Company acquired approximately
4.3 acres of residential land for development. Fee interest in Carmel Valley
Ranch is held by CV Ranch, L.P., a limited partnership owned, directly and
indirectly, by the Operating Partnership and certain of its subsidiaries.
In connection with the Carefree Acquisition, certain Carefree employees
were retained to provide consulting services for the Carefree Resorts. As
consideration for entering into consulting agreements with the Company, certain
Carefree employees were granted on January 17, 1997, 390,000 non-qualified
options to purchase an aggregate of 390,000 shares of common stock at an
exercise price of $38.25. The options to purchase common stock vest annually
over a period of seven years.
PAH RSI, L.L.C. The Company has leased each of The Boulders, Ventana
Canyon, The Peaks, and Carmel Valley Ranch (collectively, the "Resorts") to PAH
RSI, L.L.C. (the "PAH RSI Lessee") for a period of one year pursuant to separate
Participating Lease agreements. The PAH RSI Lessee, which is owned and
controlled by certain executive
2
<PAGE>
officers of the Company, has entered into management agreements with Resort
Services, Inc. ("RSI") to operate each of the Resorts. RSI is owned by certain
executive officers of the Company (who hold non-voting common stock representing
a 99% economic interest) and certain former stockholders of RSI (who hold voting
common stock representing a 1% economic interest).
In connection with the Carefree Acquisition, the Operating Partnership and
certain of its subsidiaries acquired certain assets relating to the Resorts and
then sold these assets to PAH RSI Lessee in exchange for promissory notes in an
aggregate amount of approximately $2 million. The principal amount of the notes
is due in January 1998. Interest at an annual rate of 13% is payable semi-
annually commencing July 1, 1997. In addition, PAH RSI Lessee acquired from the
Operating Partnership and certain of its subsidiaries certain trade names and
the right to receive royalty fees through the issuance of a promissory note for
$9 million. The principal amount of the note is due January 17, 2002. Interest
at an annual rate of 13% is payable semi-annually commencing July 1, 1997.
The Company has entered into an agreement (the "Merger") to merge into
California Jockey Club ("CJC"), a real estate investment trust which is paired
with an operating corporation, Bay Meadows Operating Company ("BMOC"). It is
currently anticipated that following the Merger, BMOC will offer to acquire the
members' interests in PAH RSI Lessee and the capital stock of RSI at the then
fair market value for such interests. If the Company acquires such interests in
PAH RSI Lessee and RSI, the Company currently intends to lease each of the
Resorts to BMOC.
PAH BOULDERS, INC. In connection with the acquisition of the Resorts,
certain assets associated with the Resorts were transferred to PAH Boulders,
Inc., a corporation owned by certain executive officers of the Company (who hold
voting common stock representing a 1% economic interest) and the Operating
Partnership (who holds non-voting common stock representing a 99% economic
interest). PAH Boulders, Inc. acquired the right to receive certain royalty fees
through the issuance of a promissory note to the Operating Partnership and
certain of its subsidiaries for approximately $1.6 million. The principal amount
of the note is due January 17, 2002. Interest at an annual rate of 13% is
payable semi-annually commencing July 1, 1997.
ITEM 5. OTHER EVENTS
OTHER ACQUISITIONS
On November 15, 1996, the Company, through the Operating Partnership,
acquired the 147-room Tutwiler Hotel in Birmingham, Alabama from Historic Hotel
Partners of Birmingham, Limited Partnership, an unrelated entity, for
approximately $7.6 million plus 85,078 OP Units valued at approximately $3.5
million based on the average market price of the Company's common stock at the
date of the acquisition. The full-service historic hotel, located in the
downtown business district, was originally built in 1913 and renovated in 1986
to become the Tutwiler Hotel. The hotel is leased for a period of ten years to
Grand Heritage Leasing, LLC ("Grand Heritage") pursuant to a Participating Lease
agreement. Grand Heritage has entered into a management agreement with an
affiliate to manage the hotel. The cash portion of the purchase was financed
primarily with funds drawn on the Company's Line of Credit.
The Company has entered into two additional partnership agreements in which
the Operating Partnership owns an 85% general partnership interest and DTR PAH
Holding, Inc. ("DTR"), an affiliate of Doubletree Hotels Corporation, owns a 15%
limited partnership interest. The two partnerships, formed for the purpose of
acquiring certain hotel properties, include PAH-DT Allen Partners, L.P. ("Allen
Partners") and PAH-DT Tulsa Partners, L.P. ("Tulsa Partners"). Each partnership
is a Delaware limited partnership.
On November 20, 1996, Allen Partners acquired the 341-room Doubletree Hotel
at Allen Center in Houston, Texas from The Metropolitan Life Insurance Company,
an unrelated entity, for approximately $28.7 million. The full service hotel
was built in 1978 and is located in the downtown business and entertainment
district of the city. The hotel is leased for a period of 10 years to DTR North
Canton, Inc. (the "Doubletree Lessee"), a subsidiary of Doubletree Hotels
Corporation, pursuant to a Participating Lease agreement. The Doubletree Lessee
has entered into a management agreement with a subsidiary of Doubletree Hotels
Corporation to manage the hotel. The acquisition of the hotel was funded
through cash contributed to the partnership of approximately $23.6 million by
the Operating Partnership and approximately $5.1 million by DTR. The Operating
Partnership's contribution was financed primarily with funds drawn on the
Company's Line of Credit.
On December 23, 1996, Tulsa Partners acquired the 417-room Doubletree Hotel
in Tulsa, Oklahoma from The Metropolitan Life Insurance Company, an unrelated
entity, for approximately $22.4 million. The full service hotel was built in
1980 and is located in downtown Tulsa. The hotel is leased for a period of 10
years to the Doubletree Lessee pursuant to a Participating Lease agreement. The
Doubletree Lessee has entered into a management agreement with a subsidiary of
Doubletree Hotels Corporation to manage the hotel. The acquisition of the hotel
was funded through cash contributed to the partnership of approximately $19.1
million by the Operating Partnership and approximately $3.3 million by DTR. The
Operating Partnership's contribution was financed primarily with funds drawn on
the Company's Line of Credit.
On November 26, 1996, the Company, through the Operating Partnership,
acquired the 189-room Pickwick Hotel in San Francisco, California from 85 Fifth
Street Associates, L.P., an unrelated entity, for approximately $14.7 million.
The historic full service hotel was built in 1928 and is located in the downtown
business and entertainment district of San
3
<PAGE>
Fransisco. The Company plans to commence an approximate $7 million renovation of
the hotel. Pursuant to a Participating Lease agreement, the hotel is leased for
a period of 10 years to NorthCoast Hotels, L.L.C. ("NorthCoast"), a Seattle-
based hotel investment company owned by a consortium of investors, including
WestCoast Hotels, Inc. and a subsidiary of Sunmakers Travel Group, a Pacific
Northwest tour and travel company. NorthCoast has entered into a management
agreement with WestCoast Hotels, Inc. to manage the hotel. The hotel acquisition
was financed primarily with funds drawn on the Company's Line of Credit.
On January 14, 1997, the Company, through the Operating Partnership,
acquired the 190-room Radisson Overland Park Hotel in Overland Park, Kansas
from Midwest Realty and Management, Inc., an unrelated entity, for approximately
$7.7 million. The full service hotel was built in 1974 and is located near the
Kansas City central business district. The hotel is leased for a period of 10
years to CHC Lease Partners pursuant to a Participating Lease agreement. CHC
Lease Partners has entered into a management agreement with GAH II, L.P.
("GAH"), an affiliate of CHC International, Inc. and the Gencom Group, to manage
the hotel. The acquisition of the hotel was financed primarily with funds drawn
on the Company's Line of Credit.
On January 29, 1997, the Company, through the Operating Partnership,
acquired the 313-room Radisson Northbrook Hotel in Northbrook, Illinois from
unrelated individuals for approximately $15.6 million. The full-service hotel
was built in phases and completed in 1976. The hotel was renovated in 1994. The
hotel is located in a northwest suburb of Chicago. The hotel is leased to the
PAH RSI Lessee for a one year period pursuant to a Participating Lease
agreement. PAH RSI Lessee has entered into a management agreement with GAH to
manage the hotel. The acquisition of the hotel was primarily financed with funds
drawn on the Company's Line of Credit.
LINE OF CREDIT AND MORTGAGE NOTE
In connection with the Carefree Acquisition, the maximum amount available
under the Line of Credit with Paine Webber Real Estate Services, Inc. was
increased from $250 million to $475 million, along with certain other
modifications, thereby increasing the Company's ability to borrow under the Line
of Credit. The Carefree Acquisition was financed primarily with funds drawn on
the Company's Line of Credit. The Company has approximately $395 million
outstanding on the Line of Credit.
On January 17, 1997, the Company, through the Operating Partnership,
obtained financing from the First National Bank of Commerce, New Orleans,
Louisiana in the amount of $13.5 million. The net proceeds from the financing of
approximately $13.4 million were used to repay the Line of Credit and release
the Bourbon Orleans Hotel from the borrowing base of the Line of Credit. The
principal amount of the note along with accrued interest is due January 1, 2004.
Interest at a rate of LIBOR plus 2% is payable monthly commencing February 1,
1997 through January 1, 1999. Thereafter, monthly payments of principal and
interest are due through maturity. Initial interest is at a rate of 7.469% per
annum. The note is collateralized by a first mortgage lien on the Bourbon
Orleans Hotel.
4
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF PROPERTIES ACQUIRED
The index to the financial information for Resorts Limited Partnership
(which includes the financial position and results of operations for The
Boulders and Ventana Canyon), CV Ranch Limited Partnership and Telluride Resort
and Spa Limited Partnership are included on page F-1 of this report. Based upon
the size of the other acquisitions relative to the Company, audited financial
information for these hotels is not required to be included in this Form 8-K.
(B) PRO FORMA FINANCIAL INFORMATION
The Company has determined that it is impracticable to file pro forma
financial statements for the Company and for the Company's Lessees, as
prescribed by Article II of Regulation S-X. Such statements will be filed by
amendment as soon as practicable, but in no event later than April 1, 1997.
(C) EXHIBITS
NUMBER
EXHIBIT DESCRIPTION
------- ----------------------------
23.1 Consent of Ernst & Young LLP
5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: January 30, 1997
PATRIOT AMERICAN HOSPITALITY, INC.
By: ____________________________________________________
Rex E. Stewart
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
6
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
FINANCIAL STATEMENTS OF PROPERTIES ACQUIRED:
<S> <C>
RESORTS LIMITED PARTNERSHIP:
Report of Independent Auditors - Ernst & Young LLP....................................F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994
and September 30, 1996 (unaudited)..................................................F-3
Consolidated Statements of Operations for the years ended December 31, 1995 and 1994
and the nine months ended September 30, 1996 and 1995 (unaudited)...................F-4
Consolidated Statements of Partners' Capital for the years ended December 31, 1995
and 1994 and the nine months ended September 30, 1996 (unaudited)...................F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995
and 1994 and the nine months ended September 30, 1996 and 1995 (unaudited)..........F-6
Notes to Consolidated Financial Statements............................................F-8
CV RANCH LIMITED PARTNERSHIP:
Report of Independent Auditors - Ernst & Young LLP....................................F-22
Balance Sheets as of December 31, 1995 and 1994 and September 30, 1996 (unaudited)....F-23
Statements of Operations for the years ended December 31, 1995 and 1994
and the nine months ended September 30, 1996 and 1995 (unaudited)...................F-24
Statements of Changes in Partners' Capital for the years ended December 31, 1995
and 1994 and the nine months ended September 30, 1996 (unaudited)...................F-25
Statements of Cash Flows for the years ended December 31, 1995 and 1994
and the nine months ended September 30, 1996 and 1995 (unaudited)...................F-26
Notes to Financial Statements.........................................................F-27
TELLURIDE RESORT AND SPA LIMITED PARTNERSHIP:
Report of Independent Auditors - Ernst & Young LLP....................................F-32
Balance Sheets as of December 31, 1995 and 1994 and September 30, 1996 (unaudited)....F-33
Statements of Operations for the years ended December 31, 1995 and 1994
and the nine months ended September 30, 1996 and 1995 (unaudited)...................F-34
Statement of Changes in Partners' Capital for the years ended December 31,
1995 and 1994 and the nine months ended September 30, 1996 (unaudited)..............F-35
Statements of Cash Flows for the years ended December 31, 1995 and 1994
and the nine months ended September 30, 1996 and 1995 (unaudited)...................F-36
Notes to Financial Statements.........................................................F-37
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
The Partners of
Resorts Limited Partnership
We have audited the accompanying consolidated balance sheets of Resorts Limited
Partnership as of December 31, 1995 and 1994, and the related consolidated
statements of operations, partners' capital and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated 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 audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Resorts
Limited Partnership at December 31, 1995 and 1994, and the consolidated results
of its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
Phoenix, Arizona
March 15, 1996
F-2
<PAGE>
Resorts Limited Partnership
Consolidated Balance Sheets
DECEMBER 31 SEPTEMBER 30
1995 1994 1996
__________________________________________
(Unaudited)
ASSETS
Properties:
Income producing properties
(Note3) $109,144,723 $ 75,404,029 $109,021,464
Land held for development
(Note 4) 15,399,073 20,532,304 16,803,078
Land held for lease (Note 12) 869,648 878,987 869,648
------------------------------------------
125,413,444 96,815,320 126,694,190
Resort property joint ventures
(Note 5) 26,133,536 23,792,514 26,433,351
Other:
Cash and cash equivalents 21,021,022 16,215,886 26,176,446
Restricted cash 673,878 907,354 208,998
Accounts receivable, net 4,743,048 3,553,411 3,124,442
Notes receivable (Note 6) 257,594 350,334 -
Club memberships 3,153,509 5,409,506 2,576,184
Tradenames, net (Note 7) 2,816,229 2,850,000 2,771,331
Other assets, net 2,293,378 2,078,752 2,478,661
------------------------------------------
$186,505,638 $151,973,077 $190,463,603
==========================================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other
liabilities $ 5,681,939 $ 4,175,923 $ 5,980,818
Advance deposits 2,934,214 2,022,708 3,311,363
Notes payable (Note 8) 55,961,987 29,373,762 55,910,295
Minority interest 1,131,737 1,011,495 1,218,861
------------------------------------------
65,709,877 36,583,888 66,421,337
Commitments (Note 11)
Partners' capital 120,795,761 115,389,189 124,042,266
------------------------------------------
$186,505,638 $151,973,077 $190,463,603
==========================================
See accompanying notes.
F-3
<PAGE>
Resorts Limited Partnership
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
1995 1994 1996 1995
--------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Income producing properties (Note 3) $46,783,183 $38,292,193 $36,378,746 $29,990,105
Development properties 17,409,214 8,194,239 7,282,663 13,953,029
--------------------------------------------------------
64,192,397 46,486,432 43,661,409 43,943,134
OPERATING EXPENSES
Income producing properties (Note 3) 36,478,913 29,561,017 28,868,719 23,474,396
Development properties 14,108,801 6,816,718 5,448,383 10,557,609
--------------------------------------------------------
50,587,714 36,377,735 34,317,102 34,032,005
--------------------------------------------------------
Gross operating profit 13,604,683 10,108,697 9,344,307 9,911,129
NONOPERATING (INCOME) EXPENSE
Interest expense 4,097,659 3,017,441 3,129,568 3,041,631
Depreciation and amortization 3,694,373 3,155,073 2,829,563 2,637,455
Other income and expense, net (Note 11) (788,569) (787,640) (1,059,498) (621,295)
--------------------------------------------------------
7,003,463 5,384,874 4,899,633 5,057,791
--------------------------------------------------------
6,601,220 4,723,823 4,444,674 4,853,338
Loss on sale of hotel (Note 10) - 3,731,021 - -
--------------------------------------------------------
Income before minority interest
and equity in losses of resort
property joint ventures 6,601,220 992,802 4,444,674 4,853,338
Minority interest in income
of partnership 120,242 55,351 87,124 89,571
--------------------------------------------------------
Income before equity in losses
of resort property joint ventures 6,480,978 937,451 4,357,550 4,763,767
Equity in income (losses) of resort
property joint ventures (Note 5) (1,074,406) (1,640,428) 1,291,523 (282,995)
--------------------------------------------------------
Net income (loss) $ 5,406,572 $ (702,977) $ 5,649,073 $ 4,480,772
========================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Resorts Limited Partnership
Consolidated Statements of Partners' Capital
<TABLE>
<CAPTION>
LIMITED PARTNERS
GENERAL --------------------------------------------------------
PARTNER CLASS A CLASS B CLASS C
--------------------------------------------------------------------------------
AT&T
CAREFREE MASTER OTHER
RESORTS PENSION PENSION VARIOUS
CORPORATION TRUST TRUSTS INDIVIDUALS TOTAL
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Partners' capital,
January 1, 1994 $1,138,278 $60,649,777 $32,591,732 $21,712,379 $116,092,166
Net loss (6,893) (367,255) (197,353) (131,476) (702,977)
--------------------------------------------------------------------------------------------------
Partners' capital
December 31, 1994 1,131,385 60,282,522 32,394,379 21,580,903 115,389,189
Net income 53,011 2,824,544 1,517,842 1,011,175 5,406,572
--------------------------------------------------------------------------------------------------
Partners' capital
December 31, 1995 1,184,396 63,107,066 33,912,221 22,592,078 120,795,761
Capital distributions
(Unaudited) (23,555) (1,255,168) (674,496) (449,349) (2,402,568)
Net income (Unaudited) 55,389 2,951,233 1,585,921 1,056,530 5,649,073
--------------------------------------------------------------------------------------------------
Partners' capital
September 30, 1996
(Unaudited) $1,216,230 $64,803,131 $34,823,646 $23,199,259 $124,042,266
==================================================================================================
</TABLE>
See accompanying notes
F-5
<PAGE>
Resorts Limited Partnership
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
1995 1994 1996 1995
----------------------------------------------------------
OPERATING ACTIVITIES (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income (loss) $ 5,406,572 $ (702,977) $ 5,649,073 $ 4,480,772
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and amortization 3,694,373 3,155,073 2,829,563 2,637,455
Interest expense added to
notes payable 758,225 - 448,308 166,575
Loss on sale of hotel - 3,731,021 - -
Minority interest in income
of partnership 120,242 55,351 87,124 89,571
Equity in (income) losses
of resort property joint ventures 1,074,406 1,640,428 (1,291,523) 282,995
Changes in operating assets
and liabilities:
Accounts receivable, net (273,860) (482,926) 1,618,606 1,944,309
Club memberships 2,255,997 1,441,904 577,325 677,245
Land held for development 5,133,231 1,842,754 (1,404,005) 2,841,529
Other assets, net (534,904) 290,029 (459,635) (639,101)
Accounts payable and
other liabilities 383,994 1,067,312 298,879 333,685
Advance deposits 839,836 105,047 377,149 2,521
----------------------------------------------------------
Net cash provided by operating
activities 18,858,112 12,143,016 8,730,864 12,817,556
</TABLE>
See accompanying notes.
F-6
<PAGE>
Resorts Limited Partnership
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
1995 1994 1996 1995
----------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INVESTING ACTIVITIES
Decrease (increase) in
restricted cash 233,476 (424,113) 464,880 (10,659)
Additions to income producing
properties (8,445,638) (5,129,438) (2,374,994) (6,818,793)
Purchase of the Lodge, net of
cash acquired (1,476,897) - - (1,476,897)
Payments received from notes
receivable 92,740 671,643 257,594 89,337
Proceeds from sale of hotel - 10,028,841 - -
Additional investments in resort
property joint ventures (3,415,428) (2,836,352) - (3,167,550)
Distribution proceeds from
resort property joint ventures - - 991,000 -
Additional investment in
tradenames (41,229) - (11,352) (24,286)
----------------------------------------------------------
Net cash provided by (used
in) investing activities (13,052,976) 2,310,581 (672,872) (11,408,848)
FINANCING ACTIVITIES
Capital distributions - - (2,402,568) -
Proceeds from draws on notes payable - 29,373,762 - -
Principal payments on notes payable (1,000,000) (43,000,000) (500,000) (356,365)
----------------------------------------------------------
Net cash used in financing activities (1,000,000) (13,626,238) (2,902,568) (356,365)
---------------------------------------------------------
Increase in cash and cash equivalents 4,805,136 827,359 5,155,424 1,052,343
Cash and cash equivalents at beginning
of period 16,215,886 15,388,527 21,021,022 16,215,886
Cash and cash equivalents at end of
period $ 21,021,022 $ 16,215,886 $26,176,446 $ 17,268,229
==========================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITY
Purchase of the Lodge financed by
notes payable (Note 3) $ 26,830,000 $ - $ - $ 26,830,000
==========================================================
</TABLE>
See accompanying notes.
F-7
<PAGE>
Resorts Limited Partnership
Notes to Consolidated Financial Statements
1. THE PARTNERSHIP
Resorts Limited Partnership (RLP, the Partnership) was formed on June 17, 1992,
for the purpose of acquiring and operating resort and hotel properties.
Carefree Resorts Corporation (Carefree), an Arizona Corporation, is general
partner; AT&T Master Pension Trust is Class A Limited Partner, other pension
trusts are Class B Limited Partners, and various individuals are Class C Limited
Partners.
In accordance with the Partnership Agreement, a series of transactions occurred
upon the Partnership's formation whereby the partners contributed cash and
certain resort and hotel properties as initial capital contributions. This
series of transactions resulted in the following Partnership ownership
percentages:
Carefree, as general partner 0.98050%
Class A Limited Partner:
AT&T Master Pension Trust 52.24278
Class B Limited Partners, in the aggregate 28.07401
Class C Limited Partners, in the aggregate 18.70271
The accompanying balance sheet as of September 30, 1996 and statements of
operations, partners' capital and cash flows for the nine months ended September
30, 1996 and 1995 are unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Boulders Joint Venture, a
97.56216 percent owned partnership, as well as the Lodge at Ventana Canyon, an
operating unit of the Partnership. The Partnership's consolidated statements of
operations include the operating results of the Lodge at Ventana Canyon since
the purchase date of March 1, 1995. Hotel Westcourt, which was an operating
unit of the Partnership at January 1, 1994, was sold by the Partnership in
October 1994 (see Note 10). The Partnership's 1994 financial statements include
the operating results of Hotel Westcourt through October 1994.
F-8
<PAGE>
Resorts Limited Partnership
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in noninterest bearing checking
accounts, interest bearing money market accounts, and U.S. Treasury Bills
maturing within one month of purchase.
RESTRICTED CASH
Restricted cash consists of cash reserved for future capital improvements
relating to the Boulders Resort and Club and cash pledged for improvements to
Scottsdale Road which is adjacent to the Boulders Joint Venture property.
PROPERTIES
Income producing properties and land held for lease are recorded at amounts
which approximated fair market value at the date the Partnership was formed.
Subsequent additions have been recorded at cost. Land held for development is
recorded at cost.
Buildings and improvements are depreciated using 20 to 40 years as an estimate
of useful lives. Furniture and equipment is depreciated using 5 to 10 years as
an estimate of useful lives.
In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Partnership adopted Statement 121 effective
January 1, 1996, and no such impairment losses have been recognized to date by
the Partnership.
INVENTORIES
Inventories, consisting primarily of food, beverage, gift and golf shop
merchandise, are carried at the lower of cost or market using the first-in,
first-out cost method and are included in income producing properties on the
balance sheet.
RESORT PROPERTY JOINT VENTURES
Resort property joint ventures are accounted for using the equity method.
F-9
<PAGE>
Resorts Limited Partnership
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CLUB MEMBERSHIPS
Club memberships of Boulders Joint Venture are recorded at amounts which
approximated fair market value at the date the Partnership was formed. These
club memberships are expensed as actual club membership fees are received. The
consolidated balance sheet does not include any cost basis for club memberships
of the Lodge at Ventana Canyon; as such, no cost of sales is recorded on the
consolidated statement of operations relating to sales of these club
memberships.
TRADENAMES
Tradenames are recorded at amounts which approximated fair market value at the
date the Partnership was formed. Subsequent additions have been recorded at
cost. Tradenames are amortized using the straight line method over a 40 year
estimated useful life.
INCOME TAXES
Under the Internal Revenue Code, a partnership is not a taxable entity and,
accordingly, no provision for income taxes has been included in the accompanying
financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Management believes that the actual results will not differ materially from the
estimates used in preparing the financial statements.
RECLASSIFICATIONS
Certain amounts in the 1994 consolidated financial statements have been
reclassified to conform to the classifications used in the 1995 consolidated
financial statements.
F-10
<PAGE>
Resorts Limited Partnership
Notes to Consolidated Financial Statements (continued)
3. INCOME PRODUCING PROPERTIES
Income producing properties consist of the following:
DECEMBER 31
1995 1994
--------------------------
Resort and Club $ 71,848,718 $68,220,890
Shopping Center 7,372,354 7,183,139
The Lodge 29,923,651 -
--------------------------
$109,144,723 $75,404,029
==========================
A detailed description of the individual components of income producing
properties follows.
RESORT AND CLUB
The Boulders Resort and Club consists of a 160 casita resort, two 18-hole
championship golf courses, restaurants, golf and gift shops, and a golf and
tennis clubhouse, located in Carefree, Arizona. Assets of the Resort and Club
are as follows:
DECEMBER 31
1995 1994
--------------------------
Land and Improvements $20,102,191 $20,102,191
Buildings and improvements 45,105,165 43,050,382
Furniture, fixtures and
equipment 11,999,886 8,454,401
Inventories 1,420,841 1,303,281
--------------------------
78,628,083 72,910,255
Accumulated depreciation
and amortization 6,779,365 4,689,365
--------------------------
$71,848,718 $68,220,890
==========================
F-11
<PAGE>
Resorts Limited Partnership
Notes to Consolidated Financial Statements (continued)
3. INCOME PRODUCING PROPERTIES (CONTINUED)
SHOPPING CENTER
The El Pedregal Shopping Center consists of a 120,000 square foot high-end
specialty retail center located adjacent to the Boulders Resort and Club.
Assets of the Shopping Center are as follows:
DECEMBER 31
1995 1994
--------------------------
Land and Improvements $ 856,253 $ 856,253
Buildings and improvements 6,542,029 5,960,907
Inventories 1,287,464 1,269,368
--------------------------
8,685,746 8,086,528
Accumulated depreciation
and amortization 1,313,392 903,389
--------------------------
$7,372,354 $7,183,139
==========================
THE LODGE
On March 1, 1995, the Partnership purchased all of the operating assets and
assumed all of the operating liabilities of the Lodge at Ventana Canyon (the
Lodge) from FINOVA Capital Corporation (formerly known as Greyhound Financial
Corporation) for $28,942,827. The amount paid to FINOVA consisted of the
following:
Cash $2,112,827
Senior Note Payable
(Note 8) 18,000,000
Junior Note Payable
(Note 8) 8,830,000
----------
$28,942,827
==========
F-12
<PAGE>
Resorts Limited Partnership
Notes to Consolidated Financial Statements (continued)
3. INCOME PRODUCING PROPERTIES (CONTINUED)
The Lodge, located in Tucson, Arizona, consists of a 49 suite luxury resort, two
18-hole championship golf courses and golf clubhouse, and 12 tennis courts.
Income producing assets of the Lodge are as follows at December 31, 1995:
Land and improvements $ 6,969,090
Buildings and improvements 20,682,496
Furniture, fixtures and equipment 2,647,629
Inventories 360,808
-----------
30,660,023
Accumulated depreciation
and amortization 736,372
-----------
$29,923,651
===========
HOTEL
Hotel Westcourt is a 284 room, five-story hotel in North Phoenix. The Hotel was
sold by the Partnership during October 1994 (see Note 10).
Income producing properties' operating revenues consist of the following:
1995 1994
------------------------
Resort and club $32,714,510 $29,477,501
The Lodge 8,421,602 -
Club memberships 4,123,506 1,995,590
Shopping center 1,523,565 1,278,177
Hotel - 5,540,925
------------------------
$46,783,183 $38,292,193
========================
Income producing properties' operating expenses consist of the following:
1995 1994
------------------------
Resort and club $25,164,174 $22,488,103
The Lodge 8,115,351 -
Club memberships 2,486,696 1,590,326
Shopping center 712,692 562,016
Hotel - 4,920,572
------------------------
$36,478,913 $29,561,017
========================
F-13
<PAGE>
Resorts Limited Partnership
Notes to Consolidated Financial Statements (continued)
4. LAND HELD FOR DEVELOPMENT
Land held for development consists of the following:
DECEMBER 31
1995 1994
-------------------------
Commercial land $ 6,100,000 $ 6,100,000
Residential land 7,768,803 12,561,829
Construction in process 1,530,270 1,870,475
-------------------------
$15,399,073 $20,532,304
=========================
Commercial land consists of approximately 26 acres located adjacent to the
Boulders Resort and Club. This land is currently undeveloped.
Residential land consists of approximately 99 acres of developed, partially
developed, and undeveloped residential land located within the Boulders
Community and includes capitalized land development costs of $2,750,000 and
$4,350,000 at December 31, 1995 and 1994, respectively.
Construction in process consists of single-family homes under construction
within the Boulders Community.
5. RESORT PROPERTY JOINT VENTURES
The Partnership has ownership interests in two resort property joint ventures:
CV Ranch Limited Partnership and Telluride Resort and Spa Limited Partnership.
CV RANCH LIMITED PARTNERSHIP (CVRLP)
CVRLP was formed on October 18, 1993, under the laws of the State of Delaware,
for the purpose of acquiring and operating the Carmel Valley Ranch Resort. The
Partnership, along with its general partner, Carefree, established a
partnership, Resorts Limited Partnership II (RLP II), for the sole purpose of
acquiring a partnership interest in CVRLP. RLP II is owned by the Partnership
(99.9 percent) as general partner and Carefree (0.1 percent) as limited partner.
RLP II and its wholly owned subsidiary, CV Ranch - RLP II, Inc., a California
corporation, effectively own 50 percent of CVRLP.
F-14
<PAGE>
Resorts Limited Partnership
Notes to Consolidated Financial Statements (continued)
5. RESORT PROPERTY JOINT VENTURES (CONTINUED)
RLP II, The Morgan Stanley Real Estate Fund, L.P. (Morgan Stanley), CV Ranch -
RLP II, Inc., and MS California Corporation each own the following CVRLP
partnership interests:
RLP II 49.5%
Morgan Stanley 49.5
CV Ranch - RLP II, Inc. 0.5
MS California Corporation 0.5
----------
100.0%
==========
Carmel Valley Ranch Resort, located in Carmel, California, consists of a 100
suite luxury resort, a semi-private 18-hole championship golf course and
clubhouse, a private tennis club and clubhouse, and approximately 300 acres of
undeveloped residential land surrounding the Resort.
TELLURIDE RESORT AND SPA LIMITED PARTNERSHIP (TRSLP)
TRSLP was formed on September 15, 1993, under the laws of the State of Delaware,
for the purpose of acquiring and operating The Peaks at Telluride. The
Partnership established a wholly owned subsidiary, RLP Telluride, Inc., to
acquire a minor partnership interest in TRSLP. The Partnership, along with
Morgan Stanley, RLP Telluride, Inc., MS Colorado Corporation, and Resorts
Services, Inc., each own the following TRSLP partnership interests:
Morgan Stanley 49.5%
RLP 49.1
RLP Telluride, Inc. 0.5
MS Colorado Corporation 0.5
Resorts Services, Inc. 0.4
----------
100.0%
==========
The Peaks at Telluride, located in Telluride, Colorado, consists of a 177 suite
luxury resort, 12 residential condominiums, and a 42,000 square-foot world-class
health spa.
F-15
<PAGE>
Resorts Limited Partnership
Notes to Consolidated Financial Statements (continued)
5. RESORT PROPERTY JOINT VENTURES (CONTINUED)
SUMMARY INFORMATION
A summary of the resort property joint ventures at December 31, 1995 is as
follows:
<TABLE>
<CAPTION>
CVRLP TRSLP TOTAL
--------------------------------------------
<S> <C> <C> <C>
Investment balance at January 1, 1995 $ 9,598,835 $14,193,679 $23,792,514
Capital contributions 2,995,000 420,428 3,415,428
Equity in losses of resort property
joint ventures (315,247) (759,159) (1,074,406)
--------------------------------------------
Investment balance at December 31, 1995 $12,278,588 $13,854,948 $26,133,536
============================================
A summary of the resort property joint ventures at December 31, 1994 is as follows:
CVRLP TRSLP TOTAL
--------------------------------------------
Investment balance at January 1, 1994 $ 8,741,730 $13,854,860 $22,596,590
Capital contributions 1,175,000 1,661,352 2,836,352
Equity in losses of resort property
joint ventures (317,895) (1,322,533) (1,640,428)
--------------------------------------------
Investment balance at December 31, 1994 $ 9,598,835 $14,193,679 $23,792,514
===========================================
</TABLE>
Summarized financial information relating to the resort property joint ventures
at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
CVRLP TRSLP CVRLP TRSLP
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Total assets $26,485,345 $31,146,237 $21,036,331 $32,680,837
Partners' capital 24,557,177 27,933,363 19,197,670 28,616,290
Net loss for the period (630,493) (1,530,563) (635,790) (2,666,397)
</TABLE>
F-16
<PAGE>
Resorts Limited Partnership
Notes to Consolidated Financial Statements (continued)
6. NOTES RECEIVABLE
The Partnership generated notes receivable in conjunction with the sale of
residential property. These notes require periodic principal and interest
installments until various dates in 1996 and 1999, at which time all remaining
principal and unpaid interest becomes due. Interest income received on these
notes was approximately $44,000 and $59,000 in 1995 and 1994, respectively, and
is included in other income.
7. TRADENAMES
The Partnership is the owner or licensee of certain tradenames, the rights under
which are licensed to a related party (see Note 11). Tradenames are included in
the Partnership's balance sheet net of accumulated amortization, which totals
$225,000 and $150,000 at December 31, 1995 and 1994, respectively.
8. NOTES PAYABLE
The following is a summary of notes payable at December 31, 1995 and 1994:
DECEMBER 31
1995 1994
--------------------------
Line of credit payable to Bank One
Arizona, N.A. $28,373,762 $29,373,762
Notes and deferred interest payable
to FINOVA Capital Corporation 27,588,225 -
--------------------------
$55,961,987 $29,373,762
==========================
BANK ONE ARIZONA, N.A.
The line of credit payable to Bank One Arizona, N.A. requires monthly interest
payments of prime plus 0.25 percent, although the Partnership may fix the
interest rate for all or a portion of the principal balance at any time at the
London Interbank Market Interest Rate plus 2.75 percent. Principal payments of
$500,000 are due semi-annually beginning June 1, 1995 until December 1999, at
which time all remaining principal and outstanding interest is due. The line of
credit is collateralized by certain real property held by the Partnership. At
December 31, 1995, the Partnership has $10,626,238 available on this line of
credit. Draws are available under the terms of the agreement.
F-17
<PAGE>
Resorts Limited Partnership
Notes to Consolidated Financial Statements (continued)
8. NOTES PAYABLE (CONTINUED)
The Partnership has entered into an interest rate cap agreement which hedges its
interest rate exposure on the variable interest rate line of credit payable to
Bank One Arizona, N.A. The agreement, which expires on December 10, 1997,
exchanges the Partnership's variable interest rate obligation for a fixed
interest rate (10 percent) when the variable rate exceeds 10 percent. At
December 31, 1995, the notional principal amount relating to this agreement was
$30,000,000. No amounts were received under the terms of this agreement during
1995 or 1994. The $147,000 premium paid for this interest rate cap agreement is
included in other assets and is being amortized over the term of the agreement.
FINOVA CAPITAL CORPORATION
Amounts payable to FINOVA are summarized as follows at December 31, 1995:
Senior note payable to FINOVA Capital Corporation $18,000,000
Junior note payable to FINOVA Capital Corporation 8,830,000
Interest payable to FINOVA Capital Corporation 936,793
-----------
27,766,793
Less current portion of interest included in
accounts payable and other liabilities (178,568)
-----------
$27,588,225
===========
The senior and junior notes payable to FINOVA were originated in connection with
the purchase of the Lodge on March 1, 1995 and are collateralized by the Lodge's
property and equipment. All unpaid principal and interest is payable upon
maturity on March 1, 2005. Both notes provide for annual interest to accrue at
a rate of 6.5 percent (computed based on stated interest payment amounts);
however, during each of the initial three years of the term of the notes, actual
interest paid is dependent on the attainment of certain levels of annual Lodge
cash flows. Any interest which accrues on the notes which is unpaid during each
of the first three years is added to the senior note balance. In the event that
the Partnership sells the Lodge after March 1, 2000 and distributes the Net
Sales Proceeds (as defined) to FINOVA in accordance with the terms specified in
the purchase agreement, any remaining unpaid balance on the junior note may be
deemed discharged.
The Partnership also has a construction loan available from FINOVA in
conjunction with the purchase of the Lodge. Under the terms of the construction
loan agreement, FINOVA is required to loan to the Partnership a maximum of
$4,500,000 (approximately 60 percent of budgeted construction cost) for the
planned expansion of the Lodge. No funds have been drawn under this agreement
by the Partnership as of December 31, 1995.
F-18
<PAGE>
Resorts Limited Partnership
Notes to Consolidated Financial Statements (continued)
8. NOTES PAYABLE (CONTINUED)
Total interest paid on all of the Partnership's notes payable was approximately
$3,128,000 and $2,840,000 in 1995 and 1994, respectively.
Principal maturities on notes payable at December 31, 1995 are as follows:
1996 $ 1,000,000
1997 1,000,000
1998 1,000,000
1999 25,373,762
2000 -
Thereafter 27,588,225
-----------
$55,961,987
===========
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments" requires that the Partnership disclose estimated
fair values of financial instruments. Cash and cash equivalents, restricted
cash, accounts receivable, notes receivable, accounts payable and other
liabilities, and advance deposits, are carried at amounts that reasonably
approximate their fair values. The Partnership believes the carrying value of
the notes payable and the interest rate cap agreement approximates fair value at
December 31, 1995.
The estimated fair value of financial instruments were determined by management
using available market information and appropriate valuation methodologies.
Judgment is necessary to interpret market data and develop estimated fair value.
Accordingly, management's estimates are not necessarily indicative of the
amounts the Partnership could realize on disposition of the financial
instruments. The use of different market assumptions and/or estimation
methodologies could have a material effect on the estimated fair value amounts.
10. LOSS ON SALE OF HOTEL
During October 1994, the Partnership sold Hotel Westcourt for a sales price (net
of selling costs) of approximately $10,029,000. A loss on sale of Hotel was
recorded on the 1994 statement of operations in the amount of $3,731,021.
F-19
<PAGE>
Resorts Limited Partnership
Notes to Consolidated Financial Statements (continued)
11. COMMITMENTS
The Partnership has management agreements with Resorts Services, Inc., (RSI) a
related affiliate, in which RSI manages and operates the Boulders Resort and
Club and the Lodge at Ventana Canyon. Management fees incurred under these
agreements totaled approximately $1,833,000 and $1,295,000 in 1995 and 1994,
respectively.
The Partnership, which is the owner or licensee of certain tradenames, is
subject to an exclusive license agreement with RSI for the use of the
tradenames. Certain royalties may be paid to the Partnership by RSI if adjusted
gross receipts, as defined, of RSI exceed certain thresholds. Royalties earned
in conjunction with this agreement were $1,243,719 and $1,132,638 in 1995 and
1994, respectively, and are included in other income and expense, net.
The Partnership had a management agreement with RSI to manage and operate the
Hotel. Management fees under this agreement were approximately $160,000 in
1994.
The Partnership is also subject to various agreements, whereby management fees
are paid by the Boulders Joint Venture and the Lodge at Ventana Canyon to RSI
based on asset disposition, asset acquisitions, development projects and club
membership sales. Management fees paid during 1996 and 1995 under these
agreements were approximately $499,000 and $242,000, respectively.
In conjunction with the purchase of the Lodge, the Partnership is committed to
construct approximately 50 additional lodging suites and related infrastructure
at the Lodge property using specifications approved by FINOVA. Management
estimates that the total cost of the construction will approximate $7,500,000.
The Partnership has a construction loan available totaling $4,500,000 (Note 8)
to assist in funding this construction.
12. LEASES
The Shopping Center leases have remaining terms that range from 1 to 5 years.
The leases generally provide for minimum annual rental amounts that may be
subject to cost of living increases, and for reimbursement by tenants for common
area environmental costs. Rental income, net of common area reimbursements, was
approximately $946,000 and $810,000 in 1996 and 1995, respectively.
Land held for lease consists of 2.26 acres of land and land improvements, net of
accumulated depreciation, adjacent to the Boulders Resort and Club. The lease
calls for annual payments of $60,000, plus 25 percent of gross rental income
received, as defined, and expires in 2053. Rental income was approximately
$60,000 in both 1996 and 1995.
F-20
<PAGE>
Resorts Limited Partnership
Notes to Consolidated Financial Statements (continued)
12. LEASES (CONTINUED)
At December 31, 1995, approximate future minimum lease payments receivable under
noncancelable operating leases are as follows:
1996 $1,078,000
1997 842,000
1998 457,000
1999 124,000
2000 125,000
Thereafter 3,259,000
----------
$5,885,000
==========
13. SUBSEQUENT EVENT (UNAUDITED)
During January 1997, the Partnership was sold in its entirety to Patriot
American Hospitality, Inc. for approximately $210,000,000.
F-21
<PAGE>
Report of Independent Auditors
The Partners of CV Ranch Limited Partnership
We have audited the accompanying balance sheets of CV Ranch Limited Partnership
as of December 31, 1995 and 1994 and the related statements of operations,
changes in partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership'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 audits 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 CV Ranch Limited Partnership at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Phoenix, Arizona
February 23, 1996
F-22
<PAGE>
CV Ranch Limited Partnership
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1995 1994 1996
--------------------------------------------
<S> <C> <C> <C>
ASSETS (Unaudited)
Cash $ 1,487,644 $ 678,043 $ 1,996,158
Inventories 304,021 368,045 345,660
Accounts and notes receivable (Note 3) 1,695,859 537,104 1,905,293
Prepaid expenses and other current assets 97,444 155,506 33,135
--------------------------------------------
3,584,968 1,738,698 4,280,246
Property and equipment:
Land and land improvements 4,837,266 3,265,278 4,837,266
Buildings and improvements 9,457,051 7,983,317 9,457,051
Construction in progress 395,398 1,664,759 1,253,716
Furniture and equipment 5,841,798 3,269,968 5,844,813
China, silver, glass and linen 144,841 138,718 228,792
--------------------------------------------
20,676,354 16,322,040 21,621,638
Less accumulated depreciation (1,305,518) (599,527) (1,917,518)
--------------------------------------------
19,370,836 15,722,513 19,704,120
Intangible assets, net 242,094 304,438 188,033
Residential land held for development 3,287,447 3,270,682 2,967,001
--------------------------------------------
$26,485,345 $21,036,331 $27,139,400
============================================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 162,287 $ 507,075 $ 359,688
Accrued expenses and other liabilities 817,257 662,653 822,784
Advance deposits 735,483 429,633 690,868
Deferred revenue 213,141 122,453 104,565
Capital lease obligation (Note 5) - 116,847 -
--------------------------------------------
1,928,168 1,838,661 1,977,905
Commitments (Note 4)
Partners' capital 24,557,177 19,197,670 25,161,495
--------------------------------------------
$26,485,345 $21,036,331 $27,139,400
============================================
</TABLE>
See accompanying notes.
F-23
<PAGE>
CV Ranch Limited Partnership
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
1995 1994 1996 1995
-------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES: (Unaudited) (Unaudited)
Rooms $ 4,969,385 $4,926,497 $ 5,351,564 $3,616,887
Food and beverage (Note 4) 2,118,892 2,049,722 1,970,308 1,567,595
Club 2,692,427 2,562,676 3,390,064 1,826,593
Other 612,949 335,473 376,130 255,552
-------------------------------------------------------
10,393,653 9,874,368 11,088,066 7,266,627
DIRECT DEPARTMENT EXPENSES:
Rooms 1,584,736 1,386,142 1,510,899 1,131,813
Food and beverage (Note 4) 2,244,813 2,019,250 1,895,409 1,643,287
Club 1,502,498 1,372,852 1,529,376 991,553
Other 178,453 175,330 150,926 129,834
-------------------------------------------------------
5,510,500 4,953,574 5,086,610 3,896,487
-------------------------------------------------------
Gross operating profit 4,883,153 4,920,794 6,001,456 3,370,140
UNALLOCATED OPERATING EXPENSES:
Administrative and general 1,528,630 1,673,272 1,013,365 1,149,710
Marketing 1,094,323 873,640 780,110 787,253
Energy costs 484,104 477,624 385,436 355,377
Property operation and maintenance 1,924,560 1,825,089 1,590,702 1,431,577
-------------------------------------------------------
5,031,617 4,849,625 3,769,613 3,723,917
-------------------------------------------------------
Operating profit (loss) (148,464) 71,169 2,231,843 (353,777)
LAND DEVELOPMENT:
Land sales - 1,395,000 720,000 -
Cost of land sales - 1,072,718 486,930 -
-------------------------------------------------------
Land development operating profit - 322,282 233,070 -
OTHER INCOME:
Club initiation fees 1,034,019 203,900 365,813 966,576
Food and beverage income
(Note 4) 420,100 283,895 122,132 232,452
-------------------------------------------------------
1,454,119 487,795 487,945 1,199,028
OTHER EXPENSES:
Depreciation and amortization 792,913 551,419 662,229 630,313
Management fees (Note 4) 731,908 582,165 454,774 450,453
Property taxes and insurance 399,262 374,752 226,547 360,754
Interest expense and other 12,065 8,700 4,990 8,262
-------------------------------------------------------
1,936,148 1,517,036 1,348,540 1,449,782
-------------------------------------------------------
Net income (loss) $ (630,493) $ (635,790) $ 1,604,318 $ (604,531)
=======================================================
</TABLE>
See accompanying notes.
F-24
<PAGE>
CV Ranch Limited Partnership
Statement of Changes in Partners' Capital
<TABLE>
<CAPTION>
GENERAL PARTNERS LIMITED PARTNERS
--------------------------------------------------------------
THE MORGAN
MS RESORTS STANLEY REAL
CV RANCH CALIFORNIA LIMITED ESTATE FUND
RLP II, INC. CORPORATION PARTNERSHIP II L.P. TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Partners' capital,
January 1, 1994 $ 87,418 $ 87,418 $ 8,654,312 $ 8,654,312 $17,483,460
Capital contributions 11,750 11,750 1,163,250 1,163,250 2,350,000
Net loss (3,179) (3,179) (314,716) (314,716) (635,790)
-----------------------------------------------------------------------------
Partners' capital,
December 31, 1994 95,989 95,989 9,502,846 9,502,846 19,197,670
Capital contributions 29,950 29,950 2,965,050 2,965,050 5,990,000
Net loss (3,152) (3,152) (312,095) (312,094) (630,493)
-----------------------------------------------------------------------------
Partners' capital,
December 31, 1995 122,787 122,787 12,155,801 12,155,802 24,557,177
Capital distributions (Unaudited) (5,000) (5,000) (495,000) (495,000) (1,000,000)
Net income (Unaudited) 8,022 8,022 794,137 794,137 1,604,318
-----------------------------------------------------------------------------
Partners' capital,
September 30, 1996 (Unaudited) $125,809 $125,809 $12,454,938 $12,454,939 $25,161,495
=============================================================================
</TABLE>
See accompanying notes.
F-25
<PAGE>
CV Ranch Limited Partnership
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
1995 1994 1996 1995
-------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES (Unaudited) (Unaudited)
Net income (loss) $ (630,493) $ (635,790) $ 1,604,318 $ (604,531)
Adjustments to reconcile net income
(loss) to net cash used in operating activities:
Depreciation and amortization 792,913 551,419 662,229 630,313
Changes in operating assets and
liabilities:
Inventories 64,024 (82,574) (41,639) 41,628
Accounts and notes receivable (1,158,755) (188,103) (209,434) (1,304,059)
Prepaid expenses and other current assets 58,062 (27,340) 64,309 96,218
Residential land held for development (16,765) 698,036 320,446 (13,502)
Accounts payable (344,788) 107,708 197,401 (191,522)
Accrued expenses and other liabilities 154,604 33,136 5,527 (42,592)
Advance deposits 305,850 20,267 (44,615) 139,794
Deferred revenue 90,688 54,537 (108,576) 4,211
-------------------------------------------------------
Net cash provided by (used in) operating activities (684,660) 531,296 2,449,966 (1,244,042)
INVESTING ACTIVITIES
Additions to property and equipment
(4,495,739) (2,456,259) (941,452) (4,282,626)
Additions to intangible assets - (162,312) - -
Payments made on capital lease obligation - (46,289) - -
-------------------------------------------------------
Net cash used in investment activities
(4,495,739) (2,664,860) (941,452) (4,282,626)
FINANCING ACTIVITIES
Additional capital contributions 5,990,000 2,350,000 - 5,990,000
Capital distributions - - (1,000,000) -
-------------------------------------------------------
Net cash provided by (used in) financing activities 5,990,000 2,350,000 (1,000,000) 5,990,000
-------------------------------------------------------
Increase in cash 809,601 216,436 508,514 463,332
Cash, beginning of period 678,043 461,607 1,487,644 678,043
-------------------------------------------------------
Cash, end of period $ 1,487,644 $ 678,043 $ 1,996,158 $ 1,141,375
=======================================================
</TABLE>
See accompanying notes
F-26
<PAGE>
CV Ranch Limited Partnership
Notes to Financial Statements
1. THE PARTNERSHIP
CV Ranch Limited Partnership (the Partnership) was formed on October 18, 1993,
under the laws of the State of Delaware, for the purpose of acquiring and
operating the Carmel Valley Ranch Resort. Resorts Limited Partnership II, The
Morgan Stanley Real Estate Fund, L.P., CV Ranch - RLP II, Inc., and MS
California Corporation each contributed cash as initial capital contributions in
exchange for partnership interests, which are as follows:
<TABLE>
<CAPTION>
Ownership
Percentage
--------------
<S> <C>
Resorts Limited Partnership II 49.5%
The Morgan Stanley Real Estate Fund, L.P. 49.5
CV Ranch - RLP II, Inc. 0.5
MS California Corporation 0.5
--------------
100.0%
==============
</TABLE>
MS California Corporation, a Delaware corporation, is wholly owned by The Morgan
Stanley Real Estate Fund, L.P., a Delaware limited partnership. CV Ranch - RLP
II, Inc., a California corporation, is wholly owned by Resorts Limited
Partnership II, a Delaware limited partnership. Resorts Limited Partnership II
is owned by Resorts Limited Partnership (99.9 percent) as general partner and
Carefree Resorts Corporation (0.1 percent) as limited partner.
Income, losses, and distributions are allocated to partners in the same
proportion as their respective ownership percentages.
Carmel Valley Ranch Resort (the Resort), located in Carmel, California, consists
of a 100 suite luxury resort hotel, a semi-private 18-hole championship golf
course and clubhouse, a private tennis club and clubhouse, and approximately 300
acres of undeveloped residential land surrounding the Resort.
The accompanying balance sheet as of September 30, 1996 and statements of
operations, partners' capital and cash flows for the nine months ended September
30, 1996 and 1995 are unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full year.
F-27
<PAGE>
CV Ranch Limited Partnership
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH
Cash consists of noninterest bearing checking accounts and interest bearing
money market accounts.
INVENTORIES
Inventories, consisting primarily of food, beverage, golf shop, and gift shop
merchandise are carried at the lower of cost or market using the first-in,
first-out cost method.
BUILDINGS AND IMPROVEMENTS
Buildings and improvements are recorded at cost, and are depreciated using the
straight-line method over their estimated useful lives.
In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Partnership adopted Statement 121 effective
January 1, 1996, and no such impairment losses have been recognized to date by
the Partnership.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost, and are depreciated using the
straight line method over the estimated useful lives of the assets.
CONSTRUCTION IN PROGRESS
Construction in progress is stated on the basis of cost and is reclassified to
the appropriate property and equipment account upon completion, at which time it
will be depreciated using the straight-line method over its estimated useful
life.
F-28
<PAGE>
CV Ranch Limited Partnership
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CHINA, SILVER, GLASS AND LINEN
China, silver, glass and linen are stated on the basis of cost and amortized
using the straight-line method over their estimated useful lives until 50
percent amortized. Periodic cost of replacements is expensed as incurred.
INTANGIBLE ASSETS
Intangible assets are primarily comprised of organization costs and pre-opening
expenses, stated on the basis of cost, and are amortized using the straight-line
method over their estimated useful lives.
RESIDENTIAL LAND HELD FOR DEVELOPMENT
Residential land held for development is recorded at cost.
REAL ESTATE SALES
The Partnership accounts for real estate sales under the accrual method of
accounting pursuant to the recognition criteria prescribed in Statement of
Financial Accounting Standards No. 66 "Accounting for Sales of Real Estate."
INCOME TAXES
Under provisions of the Internal Revenue Code, a Partnership is not a taxable
entity; accordingly, taxable income or losses are allocated to the partners for
inclusion in their respective income tax returns. No provision for income taxes
has been included in the accompanying financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments" requires that the Partnership disclose estimated
fair values of financial instruments. Cash, accounts and notes receivable,
accounts payable, accrued expenses and other liabilities, and advance deposits
are carried at amounts that reasonably approximate their fair values.
F-29
<PAGE>
CV Ranch Limited Partnership
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amount reported in the financial statements and accompanying notes.
Management believes that the actual results will not differ materially from the
estimates used in preparing the financial statements.
RECLASSIFICATIONS
Certain amounts in the 1994 financial statements have been reclassified to
conform to the classifications used in the 1995 financial statements.
3. NOTES RECEIVABLE
The Partnership assumed notes receivable in conjunction with the sale of club
memberships. At December 31, 1995, notes receivable totaled $549,500. These
notes are noninterest bearing, with principal payments due annually in two equal
installments.
4. COMMITMENTS/RELATED PARTY TRANSACTIONS
The Resort is managed by Resort Services, Inc., (RSI) an affiliate of the
Partnership. RSI is currently managing the property under a Management
Agreement (the "Agreement"). The Agreement requires compensation to RSI based
on a percentage of the Resort's gross revenues, as defined in the Agreement and
subsequent amendment. Management fees were $731,908 and $582,165 during 1995
and 1994, respectively.
The Agreement specifies that RSI is responsible for the operations of the food
and beverage department of the Resort, including the club. RSI guarantees a net
profit equal to 10 percent of food and beverage gross revenues. The Partnership
records the actual revenues and related expenses of the department in the
statement of operations. During 1995 and 1994, a total of $420,100 and
$283,895, respectively was recognized by the Partnership to adjust the net
profit to 10 percent, which is included in other income.
The Partnership also capitalized $203,789 and $89,497 of development fees paid
to RSI as construction in progress or in the respective asset categories at
December 31, 1995 and 1994, respectively.
F-30
<PAGE>
CV Ranch Limited Partnership
Notes to Financial Statements (continued)
5. LEASES
The Partnership's capital lease obligation that existed at December 31, 1994 was
renegotiated with the lessor, such that the revised terms result in the lease
being classified as an operating lease. The operating lease has a remaining
term of approximately five years.
Future minimum lease payments under the Partnership's noncancelable lease
agreement at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 54,000
1997 65,000
1998 65,000
1999 65,000
2000 11,000
----------
$260,000
==========
</TABLE>
6. SUBSEQUENT EVENT (UNAUDITED)
During January 1997, Patriot American Hospitality, Inc. acquired each of the
partnership interests of CV Ranch Limited Partnership.
F-31
<PAGE>
Report of Independent Auditors
The Partners of Telluride Resort and Spa Limited Partnership
We have audited the accompanying balance sheets of Telluride Resort and Spa
Limited Partnership as of December 31, 1995 and 1994, and the related statements
of operations, changes in partners' capital and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership'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 audits 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 Telluride Resort and Spa
Limited Partnership at December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Phoenix, Arizona
March 1, 1996
F-32
<PAGE>
Telluride Resort and Spa Limited Partnership
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1995 1994 1996
--------------------------------------------
<S> <C> <C> <C>
(Unaudited)
ASSETS
Cash $ 732,667 $ 930,965 $ 1,182,413
Inventories 423,203 364,311 379,385
Accounts receivable 768,307 824,038 1,957,794
Prepaid expenses and other current assets 70,822 276,556 242,076
--------------------------------------------
1,994,999 2,395,870 3,761,668
Property and equipment:
Land 2,600,000 2,600,000 2,600,000
Buildings and improvements 17,347,073 16,761,030 17,362,241
Construction in progress 13,059 903,325 322,299
Furniture and equipment 3,960,534 3,523,894 3,973,242
China, silver, glass, and linen 256,035 195,860 295,695
--------------------------------------------
24,176,701 23,984,109 24,553,477
Less accumulated depreciation (2,152,199) (1,138,345) (2,919,734)
--------------------------------------------
22,024,502 22,845,764 21,633,743
Preopening expenses, net 388,773 518,364 291,573
Real estate held for sale (Note 3) 6,737,963 6,920,839 4,628,508
--------------------------------------------
$31,146,237 $32,680,837 $30,315,492
============================================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 746,988 $ 1,357,172 $ 265,849
Accrued expenses and other liabilities 1,111,021 1,453,282 1,372,146
Advance deposits 1,313,128 1,145,838 753,392
Capital lease obligation (Note 5) 41,737 108,255 2,699
--------------------------------------------
3,212,874 4,064,547 2,394,086
Commitments (Note 4)
Partners' capital 27,933,363 28,616,290 27,921,406
--------------------------------------------
$31,146,237 $32,680,837 $30,315,492
============================================
</TABLE>
See accompanying notes.
F-33
<PAGE>
Telluride Resort and Spa Limited Partnership
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
1995 1994 1996 1995
---------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Rooms $ 6,731,238 $ 5,814,465 $ 6,567,450 $ 5,781,591
Food and beverage 2,451,247 2,220,068 2,642,638 2,099,465
Spa 1,926,994 1,692,170 1,688,175 1,514,061
Other 1,736,253 1,308,329 1,893,016 1,361,058
---------------------------------------------------------------
12,845,732 11,035,032 12,791,279 10,756,175
DIRECT DEPARTMENT EXPENSES:
Rooms 2,350,221 2,173,718 2,212,119 1,826,130
Food and beverage 2,846,223 2,527,371 2,448,043 2,178,540
Spa 1,632,532 1,330,525 1,408,284 1,232,238
Other 1,113,671 916,180 1,029,185 873,515
---------------------------------------------------------------
7,942,647 6,947,794 7,097,631 6,110,423
---------------------------------------------------------------
Gross operating profit 4,903,085 4,087,238 5,693,648 4,645,752
UNALLOCATED OPERATING EXPENSES:
Administrative and general 1,513,748 1,478,806 1,218,369 1,133,724
Marketing 1,328,571 1,603,950 1,109,506 961,308
Energy costs 841,447 1,051,186 703,712 634,090
Property operation and maintenance 832,021 734,051 642,105 617,420
---------------------------------------------------------------
4,515,787 4,867,993 3,673,692 3,346,542
---------------------------------------------------------------
Operating income (loss) 387,298 (780,755) 2,019,956 1,299,210
REAL ESTATE:
Real estate sales 822,089 1,420,126 2,775,775 822,089
Cost of real estate sales 615,458 1,079,161 2,109,455 615,458
---------------------------------------------------------------
206,631 340,965 666,320 206,631
OTHER EXPENSES:
Depreciation and amortization 1,143,445 1,053,235 864,735 812,569
Management fees (Note 4) 256,915 300,000 255,364 215,060
Property taxes and insurance 492,815 574,193 387,727 406,210
Interest and other 231,317 299,179 190,407 35,164
---------------------------------------------------------------
2,124,492 2,226,607 1,698,233 1,469,003
---------------------------------------------------------------
Net income (loss) $(1,530,563) $(2,666,397) $ 988,043 $ 36,838
===============================================================
</TABLE>
See accompanying notes.
F-34
<PAGE>
Telluride Resort and Spa Limited Partnership
Statements of Changes in Partners' Capital
<TABLE>
<CAPTION>
General Partners Limited Partners
----------------------------------------------------------------------------------------
The Morgan
Resorts Stanley Real Resorts
RLP MS Colorado Limited Estate Fund, Services,
Telluride, Inc. Corporation Partnership L.P. Inc. Total
---------------- -------------- ------------------ ---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Partners' capital,
January 1, 1994 $139,665 $139,665 $13,715,195 $13,826,928 $111,734 $27,933,187
Capital contributions 16,747 16,747 1,644,605 1,658,003 13,398 3,349,500
Net loss (13,332) (13,332) (1,309,201) (1,319,867) (10,665) (2,666,397)
-------------------------------------------------------------------------------------------------------
Partners' capital,
December 31, 1994 143,080 143,080 14,050,599 14,165,064 114,467 28,616,290
Capital contributions 4,238 4,238 416,190 419,580 3,390 847,636
Net loss (7,653) (7,653) (751,506) (757,629) (6,122) (1,530,563)
-------------------------------------------------------------------------------------------------------
Partners' capital,
December 31, 1995 139,665 139,665 13,715,283 13,827,015 111,735 27,933,363
Capital distributions
(Unaudited) (5,000) (5,000) (491,000) (495,000) (4,000) (1,000,000)
Net income (Unaudited) 4,940 4,940 485,129 489,082 3,952 988,043
-------------------------------------------------------------------------------------------------------
Partners capital,
September 30, 1996
(Unaudited) $139,605 $139,605 $13,709,412 $13,821,097 $111,687 $27,921,406
=======================================================================================================
</TABLE>
See accompanying notes.
F-35
<PAGE>
Telluride Resort and Spa Limited Partnership
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
1995 1994 1996 1995
--------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES (Unaudited) (Unaudited)
Net income (loss) $(1,530,563) $(2,666,397) $ 988,043 $ 36,838
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization 1,143,445 1,053,235 864,735 812,569
Gain on sale of property and
equipment - (5,717) - -
Changes in operating assets and
liabilities:
Accounts receivable 55,731 (609,205) (1,189,487) 74,847
Inventories (58,892) (128,147) 43,818 (21,015)
Prepaid expenses and other current
assets 205,734 (239,289) (171,254) 170,945
Real estate held for sale 182,876 1,079,161 2,109,455 224,375
Accounts payable (610,184) 723,303 (481,139) (948,367)
Accrued expenses and other
liabilities (342,261) 300,740 261,125 (302,985)
Advance deposits 167,290 360,892 (559,736) (556,611)
--------------------------------------------------------
Net cash provided by (used in)
operating activities (786,824) (131,424) 1,865,560 (509,404)
INVESTING ACTIVITIES
Proceeds from sale of property and
equipment - 25,121 - -
Additions to property and equipment (192,592) (2,772,898) (376,776) (90,429)
Additions to preopening expenses - (284,266) - -
--------------------------------------------------------
Net cash used in investing activities (192,592) (3,032,043) (376,776) (90,429)
FINANCING ACTIVITIES
Additional capital contributions 847,636 3,349,500 - 347,636
Distributions to partners - - (1,000,000) -
Principal payments on capital lease
obligation (66,518) (64,493) (39,038) (50,264)
--------------------------------------------------------
Net cash provided by (used in)
financing activities 781,118 3,285,007 (1,039,038) 297,372
--------------------------------------------------------
Increase (decrease) in cash (198,298) 121,540 449,746 (302,461)
Cash at beginning of period 930,965 809,425 732,667 930,965
--------------------------------------------------------
Cash at end of period $ 732,667 $ 930,965 $ 1,182,413 $ 628,504
========================================================
</TABLE>
See accompanying notes.
F-36
<PAGE>
Telluride Resort and Spa Limited Partnership
Notes to Financial Statements
1. THE PARTNERSHIP
Telluride Resort and Spa Limited Partnership (the Partnership) was formed on
September 15, 1993, under the laws of the State of Delaware, for the purpose of
acquiring and operating The Peaks at Telluride. The Morgan Stanley Real Estate
Fund, L.P., Resorts Limited Partnership, RLP Telluride, Inc., MS Colorado
Corporation, and Resorts Services, Inc. each contributed cash as initial capital
contributions in exchange for their respective partnership interests, which are
as follows:
<TABLE>
<CAPTION>
OWNERSHIP
PERCENTAGE
------------------
<S> <C>
The Morgan Stanley Real Estate Fund, L.P. 49.5%
Resorts Limited Partnership 49.1
RLP Telluride, Inc. 0.5
MS Colorado Corporation 0.5
Resorts Services, Inc. 0.4
------------------
100.0%
==================
</TABLE>
MS Colorado Corporation, a Delaware corporation, is wholly owned by The Morgan
Stanley Real Estate Fund, L.P., a Delaware limited partnership. RLP Telluride,
Inc., an Arizona corporation, is wholly owned by Resorts Limited Partnership, a
Delaware limited partnership. Resorts Services, Inc., an Arizona corporation,
is owned by various individuals affiliated with Resorts Limited Partnership.
Income, losses and distributions are allocated to partners in the same
proportion as their respective ownership percentages.
The Peaks at Telluride (the Resort), located in Telluride, Colorado, consists of
a 177 suite luxury resort hotel, residential condominiums, residential land, and
a 42,000 square-foot world-class health spa.
The accompanying balance sheet as of September 30, 1996 and statements of
operations, partners' capital and cash flows for the nine months ended September
30, 1996 and 1995 are unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full year.
F-37
<PAGE>
Telluride Resort and Spa Limited Partnership
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH
Cash consists of cash in noninterest bearing checking accounts and interest
bearing money market accounts.
INVENTORIES
Inventories, consisting primarily of food, beverage, and gift shop merchandise
are carried at the lower of cost or market using the first-in, first-out cost
method.
BUILDINGS AND IMPROVEMENTS
Buildings and improvements are recorded at cost, and are depreciated using the
straight-line method over their estimated useful lives.
In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Partnership adopted Statement 121 effective
January 1, 1996, and no such impairment losses have been recognized to date by
the Partnership.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost. Equipment leased under a capital
lease is stated on the basis of cost. Furniture and equipment is depreciated
using the straight-line method over the estimated useful lives of the assets.
CONSTRUCTION IN PROGRESS
Construction in progress is stated on the basis of cost and is reclassified to
the appropriate property and equipment account upon completion, at which time it
will be depreciated using the straight-line method over its estimated useful
life.
F-38
<PAGE>
Telluride Resort and Spa Limited Partnership
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CHINA, SILVER, GLASS, AND LINEN
China, silver, glass and linen are stated on the basis of cost and amortized
using the straight-line method over their estimated useful lives until 50
percent amortized. Periodic cost of replacements is expensed as incurred.
PREOPENING EXPENSES
Preopening expenses are stated on the basis of cost and are amortized using the
straight-line method over a five-year period.
REAL ESTATE HELD FOR SALE
Real estate held for sale is recorded at cost.
REAL ESTATE SALES
The Partnership accounts for real estate sales under the accrual method of
accounting pursuant to the recognition criteria prescribed in Statement of
Financial Accounting Standards No. 66 "Accounting for Sales of Real Estate."
INCOME TAXES
Under provisions of the Internal Revenue Code, a Partnership is not a taxable
entity and, accordingly, taxable income or losses are allocated to the partners
for inclusion in their respective income tax returns. No provision for income
taxes has been included in the accompanying financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments" requires that the Partnership disclose estimated
fair values of financial instruments. Cash, accounts receivable, accounts
payable, accrued expenses and other liabilities, and advance deposits are
carried at amounts that reasonably approximate their fair values.
F-39
<PAGE>
Telluride Resort and Spa Limited Partnership
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amount reported in the financial statements and accompanying notes.
Management believes that the actual results will not differ materially from the
estimates used in preparing the financial statements.
RECLASSIFICATIONS
Certain amounts in the 1994 financial statements have been reclassified to
conform to the classifications used in the 1995 financial statements.
3. REAL ESTATE HELD FOR SALE
Real estate held for sale consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
--------------------------
<S> <C> <C>
Residential land $ 762,779 $ 762,779
Residential condominium units 5,975,184 6,158,060
--------------------------
$6,737,963 $6,920,839
==========================
</TABLE>
Residential land consists of approximately 0.75 acres located adjacent to the
Resort. This land is currently undeveloped.
Residential condominium units consist of 12 condominium units held for sale
which are located on the upper levels of the Resort.
4. COMMITMENTS/RELATED PARTY TRANSACTIONS
The Resort is managed by Resort Services, Inc. (RSI), an affiliate of the
Partnership. RSI is currently managing the property under a Management
Agreement (the "Agreement") dated August 26, 1993. The Agreement requires
compensation to RSI based on a percentage of the Resort's gross revenues and
adjusted gross operating profit, as defined in the Agreement. In connection
with this Agreement, the Partnership incurred management fees of $256,915 during
1995 and $300,000 during 1994.
F-40
<PAGE>
Telluride Resort and Spa Limited Partnership
Notes to Financial Statements (continued)
4. COMMITMENTS/RELATED PARTY TRANSACTIONS (CONTINUED)
The Partnership capitalized approximately $117,000 and $129,000 of development
fees paid to RSI as construction in progress or in the respective asset
categories at December 31, 1995 and 1994, respectively.
5. LEASES
The Resort leases certain telephone equipment under a capital lease with a
remaining term of less than one year. At December 31, 1995 and 1994, assets
held under this lease are included in furniture and equipment.
6. SUBSEQUENT EVENT (UNAUDITED)
During January 1997, Patriot American Hospitality, Inc. acquired each of the
partnership interests of Telluride Resort and Spa Limited Partnership.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 333-10317) pertaining to the 1995 Incentive Plan and Non-Employee
Directors' Incentive Plan of Patriot American Hospitality, Inc. (the "Company")
and the Registration Statement on Form S-3 (No. 333-12973) of the Company and
the related Prospectus of our reports (a) dated March 15, 1996 with respect to
the Consolidated Financial Statements of Resorts Limited Partnership for the
years ended December 31, 1995 and 1994; (b) dated February 23, 1996 with respect
to the Financial Statements of CV Ranch Limited Partnership for the years ended
December 31, 1995 and 1994; and (c ) dated March 1, 1996 with respect to the
Financial Statements of Telluride Resort and Spa Limited Partnership for the
years ended December 31, 1995 and 1994; all of which are included in the
Company's Current Report on Form 8-K dated January 16, 1997.
ERNST & YOUNG LLP
Phoenix, Arizona
January 28, 1997
