SVLF Silverleaf Resorts, Inc. (MM)

Silverleaf Resorts, Inc. (Nasdaq:SVLF) today announced its financial results for the fourth quarter and year ended December 31, 2006. Sharon K. Brayfield, President, commented, �We are pleased with our overall operating results for 2006, particularly the 28.0% increase in Vacation Interval sales and 66.9% increase in adjusted net income compared to 2005. Additionally, we made a number of key strategic decisions in 2006, most importantly completing our second term securitization and increasing the availability under our revolving credit facilities, which position Silverleaf for continued success. We feel confident that we are well positioned to meet our net income guidance for 2007 of approximately $25.5 million.� Adoption of SFAS No. 152 As previously announced, the Company was required to adopt SFAS No. 152, �Accounting for Real Estate Time-Sharing Transactions� as of January 1, 2006. As a result, new line items are included in the Company�s Consolidated Statement of Operations and total revenue and total costs and expenses are reduced. However, adoption of SFAS No. 152 did not have a material impact on consolidated operating results or financial position. See the exhibit to this release entitled �Supplemental Consolidated Statements of Operations Demonstrating the Impact of Adoption of SFAS No. 152� for a comparison of the Company�s results as reported and as its results would have been reported had SFAS No. 152 not been adopted. 2006 Fourth Quarter Results Vacation Interval sales increased 23.9% to $46.0 million during the fourth quarter of 2006 compared to $37.1 million during the same period of 2005. Total revenue for the fourth quarter of 2006 increased to $52.1 million compared to $48.2 million for the fourth quarter of 2005. Total revenue for the fourth quarter of 2006 is reduced by estimated uncollectible revenue of $8.0 million in accordance with SFAS No. 152, representing estimated future gross cancellations of notes receivable prior to any recoveries of inventory. In addition, sampler sales are accounted for as incidental operations under SFAS No. 152, which requires that any such incidental revenues be recorded as a reduction of incremental costs or expenses. Accordingly, $0.8 million of sampler sales, which would have been reported as revenue prior to adoption of SFAS No. 152, were accounted for as a reduction to sales and marketing expense in the fourth quarter of 2006. Had these two changes mandated by SFAS No. 152 not been made, revenues would have increased by 26.2% to $60.8 million. Cost of Vacation Interval sales decreased to 8.7% of Vacation Interval sales for the fourth quarter of 2006 from 16.0% during the same period of 2005, due predominantly to the requirement under SFAS No. 152 that cost of sales be reduced by the estimated future recoveries of inventory. Sales and marketing expense increased to 55.3% of Vacation Interval sales for the fourth quarter of 2006 from 53.0% for the same period of 2005. Had sales and marketing expense not been reduced by sampler sales, as described above, sales and marketing expense would have been 57.0% of Vacation Interval sales. The increase compared to the previous year�s quarter reflects the investment in the additional sales channel that the Dallas and Chicago off-site sales centers will provide, as well as the investment in securing additional personnel and processes ahead of the Company�s expected growth. As required by SFAS No. 152, in 2006 there is no longer a cost and operating expense for the provision for uncollectible notes as it is now replaced by the estimated uncollectible revenue offset to sales and corresponding decrease in cost of sales described above. Without this change, the fourth quarter 2006 provision for uncollectible notes expense would have been $6.0 million, or 13.0% of fourth quarter 2006 Vacation Interval sales, compared to $5.6 million for 2005, or 15.0% of Vacation Interval sales. During the fourth quarter of 2006, Silverleaf recorded income tax expense at 38.5% of pre-tax income, compared to 30.2% of pre-tax income in the same period of 2005. The increase in the effective rate is due to the transition in 2005 from fully reserved net deferred tax assets at December 31, 2004 to net deferred tax liabilities at December 31, 2005. Income tax expense for 2006 was therefore recorded at full statutory rates. Net income for the quarter ended December 31, 2006 increased to $4.0 million, or $0.10 per diluted share compared to net income of $3.6 million, or $0.09 per diluted share for the quarter ended December 31, 2005. 2006 Full Year Results Vacation Interval sales increased 28.0% to $187.5 million for 2006 compared to $146.4 million for 2005. Total revenue for 2006 increased to $206.9 million compared to $201.9 million in 2005. Total revenue for the year of 2006 is reduced by estimated uncollectible revenue of $32.5 million in accordance with SFAS No. 152. In addition, sampler sales are accounted for as incidental operations under SFAS No. 152, which requires that any such incidental revenues be recorded as a reduction of incremental costs or expenses. Accordingly, $2.9 million of sampler sales, which would have been reported as revenue prior to adoption of SFAS No. 152, were accounted for as a reduction to sales and marketing expense for the year ended December 31, 2006. Had these two changes mandated by SFAS No. 152 not been made, revenues would have increased by 20.0% to $242.3 million. Total revenue for 2005 included a gain on sale of notes receivable of $6.5 million and a gain on sale of undeveloped land of $3.6 million. Cost of Vacation Interval sales decreased to 10.1% of Vacation Interval sales in 2006 from 16.0% in 2005, due predominantly to the requirement under SFAS No. 152 that cost of sales be reduced by the estimated future recoveries of inventory. Sales and marketing expense decreased to 50.1% of Vacation Interval sales for 2006 from 51.0% for 2005. Had sales and marketing expense not been reduced by sampler sales, as described above, sales and marketing expense would have been 51.7% of Vacation Interval sales. The increase compared to 2005 reflects the investment in the additional sales channel that the Dallas and Chicago off-site sales centers will provide, as well as the investment in securing additional personnel and processes ahead of the Company�s expected growth. As required by SFAS No. 152, in 2006 there is no longer a cost and operating expense for the provision for uncollectible notes as it is now replaced by the estimated uncollectible revenue offset to sales and corresponding decrease in cost of sales described above. Without this change, the 2006 provision for uncollectible notes expense would have been $24.4 million, or 13.0% of 2006 Vacation Interval sales, compared to $23.6 million for 2005, or 16.2% of Vacation Interval sales. During 2006, Silverleaf recorded income tax expense at 38.5% of pre-tax income, compared to 30.2% of pre-tax income in 2005. The increase in the effective rate is due to the transition in 2005 from fully reserved net deferred tax assets at December 31, 2004 to net deferred tax liabilities at December 31, 2005. Income tax expense for 2006 was therefore recorded at full statutory rates. Net income for the year ended December 31, 2006 was $23.0 million, or $0.59 per diluted share compared to net income of $23.2 million, or $0.59 per diluted share for the year ended December 31, 2005. For the purposes of providing more transparency, the Company�s results for 2006 and 2005 shown below include core operations, and exclude historical gains and discontinued operations, and assume 2005 amounts were fully taxed at the 2006 effective income tax rate of 38.5%. 2006� 2005� Net income, as reported $ 23.0� $ 23.2� Adjustments between net income as reported, and Adjusted net income: Gain on sale of notes receivable -� (6.5) Gain on sale of undeveloped land (0.5) (3.6) Income from discontinued operations, net of taxes -� (0.7) Provision for income taxes, as reported 14.4� 9.7� Adjusted income before provision for income taxes 36.9� 22.1� Provision for income taxes at 2006 rate of 38.5% (14.2) (8.5) Adjusted Net Income $ 22.7� $ 13.6� Adjusted Fully Diluted EPS $ 0.58� $ 0.35� 2007 Outlook The Company is now forecasting 2007 net income of approximately $25.5 million. This represents the high end of its previous guidance and an increase of approximately 11% compared to 2006 net income of $23.0 million. About Silverleaf Resorts Based in Dallas, Texas, Silverleaf Resorts, Inc. currently owns and operates timeshare resorts with a wide array of country club-like amenities, such as golf, clubhouses, swimming, tennis, boating, and many organized activities for children and adults. For additional information, please visit www.silverleafresorts.com. This release contains certain forward-looking statements that involve risks and uncertainties and actual results may differ materially from those anticipated. The Company is subject to specific risks associated with the timeshare industry, the regulatory environment, and various economic factors. These risks and others are more fully discussed under the heading �Risk Factors� in the Company�s reports filed with the Securities and Exchange Commission, including the Company�s 2005 Annual Report on Form 10-K (pages 22 through 30 thereof) filed on March 17, 2006. For more information or to visit our website, click here: http://www.b2i.us/irpass.asp?BzID=1358&Nav=0&S=0&L=1 SILVERLEAF RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (Unaudited) � Three Months Ended Year Ended December 31, December 31, 2006� 2005� 2006� 2005� Revenues: Vacation Interval sales $ 45,965� $ 37,112� $ 187,481� $ 146,416� Estimated uncollectible revenue (7,966) -� (32,491) -� Sampler sales -� 864� -� 2,623� Net sales 37,999� 37,976� 154,990� 149,039� � Interest income 12,809� 9,216� 46,248� 38,154� Management fee income 465� 505� 1,861� 1,856� Gain on sale of notes receivable -� -� -� 6,457� Other income 805� 471� 3,785� 6,402� Total revenues 52,078� 48,168� 206,884� 201,908� � Costs and Operating Expenses: Cost of Vacation Interval sales 4,017� 5,920� 19,003� 23,427� Sales and marketing 25,422� 19,681� 93,957� 74,667� Provision for uncollectible notes -� 5,566� -� 23,649� Operating, general and administrative 8,986� 6,861� 32,315� 28,038� Depreciation 789� 566� 2,539� 2,723� Interest expense and lender fees 6,389� 4,488� 21,662� 17,253� Total costs and operating expenses 45,603� 43,082� 169,476� 169,757� � Income before provision for income taxes and discontinued operations 6,475� 5,086� 37,408� 32,151� Provision for income taxes (2,493) (1,536) (14,402) (9,725) Income from continuing operations 3,982� 3,550� 23,006� 22,426� � Discontinued Operations Gain on sale of discontinued operations (net of taxes) -� -� -� 613� Income from discontinued operations (net of taxes) -� -� -� 128� Income from discontinued operations -� -� -� 741� � Net income $ 3,982� $ 3,550� $ 23,006� $ 23,167� � Basic income per share: Income from continuing operations $ 0.11� $ 0.10� $ 0.61� $ 0.61� Income from discontinued operations $ -� $ -� $ -� $ 0.02� Net income $ 0.11� $ 0.10� $ 0.61� $ 0.63� � Diluted income per share: Income from continuing operations $ 0.10� $ 0.09� $ 0.59� $ 0.57� Income from discontinued operations $ -� $ -� $ -� $ 0.02� Net income $ 0.10� $ 0.09� $ 0.59� $ 0.59� � Weighted average basic shares outstanding: 37,729,429� 37,190,670� 37,579,462� 36,986,926� � Weighted average diluted shares outstanding: 39,315,817� 39,259,107� 39,261,652� 39,090,921� SILVERLEAF RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) (Unaudited) � � December 31, December 31, ASSETS 2006� 2005� � Cash and cash equivalents $ 11,450� $ 10,990� Restricted cash 15,771� 4,893� Notes receivable, net of allowance for uncollectible notes of $68,118 and $52,479, respectively 229,717� 177,572� Accrued interest receivable 2,936� 2,243� Investment in special purpose entity 13,008� 22,802� Amounts due from affiliates 1,251� 680� Inventories 147,759� 117,597� Land, equipment, buildings, and leasehold improvements, net 28,040� 10,441� Land held for sale 205� 495� Prepaid and other assets 24,393� 14,083� � TOTAL ASSETS $ 474,530� $ 361,796� � � LIABILITIES AND SHAREHOLDERS' EQUITY � LIABILITIES Accounts payable and accrued expenses $ 14,192� $ 9,556� Accrued interest payable 1,792� 1,354� Amounts due to affiliates 246� 544� Unearned samplers 6,245� 5,310� Income taxes payable 163� 1,268� Deferred income taxes 17,683� 8,485� Notes payable and capital lease obligations 254,550� 177,269� Senior subordinated notes 31,467� 33,175� � Total Liabilities 326,338� 236,961� � COMMITMENTS AND CONTINGENCIES � SHAREHOLDERS' EQUITY Preferred stock, 10,000,000 shares authorized, none issued and outstanding -� -� Common stock, par value $0.01 per share, 100,000,000 shares authorized, 37,808,154 shares issued and outstanding at December 31, 2006, and 37,494,304 shares issued and outstanding at December 31, 2005 378� 375� Additional paid-in capital 112,555� 112,207� Retained earnings 35,259� 12,253� � Total Shareholders' Equity 148,192� 124,835� � TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 474,530� $ 361,796� SILVERLEAF RESORTS, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS DEMONSTRATING IMPACT OF ADOPTION OF SFAS NO. 152 (in thousands, except share and per share amounts) (Unaudited) � Three Months Ended December 31, 2006 Three Months As Reported - Comparable to 2005 - Ended Reflects Adoption Does Not Reflect December 31, of SFAS No.152 SFAS No. 152 2005� Revenues: Vacation Interval sales $ 45,965� $ 45,965� $ 37,112� Estimated uncollectible revenue (7,966) -� -� Sampler sales -� 761� 864� All other revenue 14,079� 14,079� 10,192� Total revenues 52,078� 60,805� 48,168� � Costs and Operating Expenses: Cost of Vacation Interval sales 4,017� 6,009� 5,920� Sales and marketing 25,422� 26,183� 19,681� Provision for uncollectible notes -� 5,974� 5,566� All other costs and expenses 16,164� 16,164� 11,915� Total costs and operating expenses 45,603� 54,330� 43,082� � Income before provision for income taxes 6,475� 6,475� 5,086� Provision for income taxes (2,493) (2,493) (1,536) � Net income $ 3,982� $ 3,982� $ 3,550� � � Net income per share, basic $ 0.11� $ 0.11� $ 0.10� � Net income per share, diluted $ 0.10� $ 0.10� $ 0.09� � Weighted average basic common shares outstanding 37,729,429� 37,729,429� 37,190,670� � Weighted average diluted common shares outstanding 39,315,817� 39,315,817� 39,259,107� SILVERLEAF RESORTS, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS DEMONSTRATING IMPACT OF ADOPTION OF SFAS NO. 152 (in thousands, except share and per share amounts) (Unaudited) � Year Ended December 31, 2006 Year As Reported - Comparable to 2005 - Ended Reflects Adoption Does Not Reflect December 31, of SFAS No.152 SFAS No. 152 2005� Revenues: Vacation Interval sales $ 187,481� $ 187,481� $ 146,416� Estimated uncollectible revenue (32,491) -� -� Sampler sales -� 2,905� 2,623� All other revenue 51,894� 51,894� 52,869� Total revenues 206,884� 242,280� 201,908� � Costs and Operating Expenses: Cost of Vacation Interval sales 19,003� 27,126� 23,427� Sales and marketing 93,957� 96,862� 74,667� Provision for uncollectible notes -� 24,368� 23,649� All other costs and expenses 56,516� 56,516� 48,014� Total costs and operating expenses 169,476� 204,872� 169,757� � Income before provision for income taxes and discontinued operations 37,408� 37,408� 32,151� Provision for income taxes (14,402) (14,402) (9,725) Income from continuing operations 23,006� 23,006� 22,426� � Discontinued Operations Gain on sales of discontinued operations (net of taxes) -� -� 613� Income from discontinued operations (net of taxes) -� -� 128� Income from discontinued operations -� -� 741� � Net income $ 23,006� $ 23,006� $ 23,167� � Basic income per share: Income from continuing operations $ 0.61� $ 0.61� $ 0.61� Income from discontinued operations $ -� $ -� $ 0.02� Net income $ 0.61� $ 0.61� $ 0.63� � Diluted income per share: Income from continuing operations $ 0.59� $ 0.59� $ 0.57� Income from discontinued operations $ -� $ -� $ 0.02� Net income $ 0.59� $ 0.59� $ 0.59� � Weighted average basic common shares outstanding 37,579,462� 37,579,462� 36,986,926� � Weighted average diluted common shares outstanding 39,261,652� 39,261,652� 39,090,921�