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Silverleaf Resorts, Inc. (AMEX:SVL) today announced its financial results for the three and six month periods ended June 30, 2006. 2006 Second Quarter Financial Highlights: -- Vacation Interval sales increased by 30.3% to $48.6 million -- Net income increased by 59.8% to $6.8 million Sharon K. Brayfield, President, commented, "The first half of 2006 has been well ahead of our initially projected growth expectations for the period. We have achieved these results by continuing to increase sales efficiencies. This has allowed us to maximize our closing rate on Vacation Interval sales for new and existing customers. Based on reported results through the first half of 2006 we now expect this increased level of efficiency can be maintained through the remainder of 2006. Furthermore, sustaining these sales efficiencies should allow us to meet our plan of 10-15% top-line growth for 2007. 2006 Second Quarter Results: Vacation Interval sales increased 30.3% to $48.6 million during the second quarter of 2006 compared to $37.3 million during the second quarter of 2005. Vacation Interval sales to new customers increased 36.9% to $22.0 million on a 13.8% increase in new customer tours. Vacation Interval sales to existing customers increased 25.3% to $26.7 million on a 6.9% increase in existing customer tours. Total revenue for the second quarter of 2006 increased to $53.0 million compared to $49.4 million in the second quarter of 2005. Total revenue in the second quarter of 2006 is decreased by estimated uncollectible revenue of $8.4 million in accordance with SFAS No. 152, representing estimated future gross cancellations of notes receivable prior to any recoveries of inventory. In addition, under SFAS No. 152, sampler sales are accounted for as incidental operations, which requires that any such incidental revenues be recorded as a reduction of incremental costs or expenses. Accordingly, $0.7 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 quarter ended June 30, 2006. Had these two changes mandated by SFAS No. 152 not been made, revenues would have increased by 25.9% to $62.2 million. Sales and marketing expense decreased to 48.2% of Vacation Interval sales for the second quarter of 2006 from 48.6% for the second quarter of 2005. Had sales and marketing expense not been reduced by sampler sales, as described above, sales and marketing expense would have been 49.6% of Vacation Interval sales. Cost of Vacation Interval sales decreased to 9.7% of Vacation Interval sales in 2006 from 16.1% in 2005, due predominantly to the requirement under SFAS No. 152 that cost of sales be reduced by the estimated future recoveries of inventory, as described above. Without this change, cost of Vacation Interval sales would have been 14.1% of Vacation Interval sales for the quarter ended June 30, 2006. 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 second quarter 2006 provision for uncollectible notes expense would have been $6.3 million, or 13.0% of second quarter 2006 Vacation Interval sales, compared to $6.5 million for 2005, or 17.5% of Vacation Interval sales. During the second quarter of 2006, Silverleaf recorded income tax expense at 38.5% of pre-tax income, compared to 35.1% of pre-tax income in the second quarter 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 is therefore recorded at full statutory rates. Net income for the quarter ended June 30, 2006 increased to $6.8 million, or $0.17 per diluted share compared to net income of $4.2 million, or $0.11 per diluted share for the quarter ended June 30, 2005. 2006 Year to Date Results: Vacation Interval sales increased 33.5% to $90.1 million during the first six months of 2006 compared to $67.5 million during the first half of 2005. Vacation Interval sales to new customers increased 35.1% to $41.9 million on a 10.4% increase in new customer tours. Vacation Interval sales to existing customers increased 32.2% to $48.2 million on a 4.1% increase in existing customer tours. Total revenue for the first half of 2006 increased to $98.7 million compared to $91.4 million in the first half of 2005. Total revenue in the first half of 2006 is decreased by estimated uncollectible revenue of $15.6 million in accordance with SFAS No. 152, representing estimated future gross cancellations of notes receivable prior to any recoveries of inventory. In addition, under SFAS No. 152, sampler sales are accounted for as incidental operations, which requires that any such incidental revenues be recorded as a reduction of incremental costs or expenses. Accordingly, $1.5 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 six-month period ended June 30, 2006. Had these two changes mandated by SFAS No. 152 not been made, revenues would have increased by 26.6% to $115.8 million. Sales and marketing expense decreased to 47.3% of Vacation Interval sales for the first half of 2006 from 52.4% for the first half of 2005. Had sales and marketing expense not been reduced by sampler sales, as described above, sales and marketing expense would have been 49.0% of Vacation Interval sales. Cost of Vacation Interval sales decreased to 9.9% of Vacation Interval sales in the first half of 2006 from 15.9% 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, as described above. Without this change, cost of Vacation Interval sales would have been 14.2% of Vacation Interval sales for the six months ended June 30, 2006. 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 first half of 2006 provision for uncollectible notes expense would have been $11.7 million, or 13.0% of 2006 Vacation Interval sales, compared to $11.8 million for 2005, or 17.5% of Vacation Interval sales. During the first half of 2006, Silverleaf recorded income tax expense at 38.5% of pre-tax income, compared to 30.3% of pre-tax income in the first half 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 is therefore recorded at full statutory rates. Net income for the six months ended June 30, 2006 increased to $13.0 million, or $0.33 per diluted share compared to net income of $6.8 million, or $0.17 per diluted share for the six months ended June 30, 2005. 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 affect net income and did not have a material impact on consolidated results of operations 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. Outlook The Company continues to anticipate that its net income for the year ended December 31, 2006 will be its previously issued guidance of $21 million to $22 million ($0.53 to $0.56 per diluted share). 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 -0- *T SILVERLEAF RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Revenues: Vacation Interval sales $48,635 $37,334 $90,102 $67,471 Estimated uncollectible revenue (8,428) -- (15,615) -- Sampler sales -- 501 -- 1,142 ----------- ----------- ----------- ----------- Net sales 40,207 37,835 74,487 68,613 Interest income 11,323 10,113 21,418 19,871 Management fee income 465 450 930 900 Gain on sale of notes receivable -- -- -- 669 Other income 1,038 957 1,870 1,382 ----------- ----------- ----------- ----------- Total revenues 53,033 49,355 98,705 91,435 Costs and Operating Expenses: Cost of Vacation Interval sales 4,736 6,017 8,917 10,735 Sales and marketing 23,423 18,153 42,655 35,337 Provision for uncollectible notes -- 6,534 -- 11,808 Operating, general and administrative 8,181 7,105 15,370 13,833 Depreciation and amortization 584 744 1,123 1,542 Interest expense and lender fees 5,117 4,286 9,542 8,671 ----------- ----------- ----------- ----------- Total costs and operating expenses 42,041 42,839 77,607 81,926 Income before provision for income taxes and discontinued operations 10,992 6,516 21,098 9,509 Provision for income taxes (4,232) (2,285) (8,123) (2,884) ----------- ----------- ----------- ----------- Income from continuing operations 6,760 4,231 12,975 6,625 Discontinued Operations Income from discontinued operations (net of taxes) -- -- -- 128 ----------- ----------- ----------- ----------- Net income $6,760 $4,231 $12,975 $6,753 =========== =========== =========== =========== Basic income per share: Income from continuing operations $0.18 $0.11 $0.35 $0.18 =========== =========== =========== =========== Income from discontinued operations $-- $-- $-- $-- =========== =========== =========== =========== Net income $0.18 $0.11 $0.35 $0.18 =========== =========== =========== =========== Diluted income per share: Income from continuing operations $0.17 $0.11 $0.33 $0.17 =========== =========== =========== =========== Income from discontinued operations $-- $-- $-- $-- =========== =========== =========== =========== Net income $0.17 $0.11 $0.33 $0.17 =========== =========== =========== =========== Weighted average basic common shares outstanding 37,501,246 36,937,648 37,497,794 36,899,620 =========== =========== =========== =========== Weighted average diluted common shares outstanding 39,250,633 38,933,675 39,217,335 38,874,506 =========== =========== =========== =========== *T -0- *T SILVERLEAF RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) June 30, December 31, ASSETS 2006 2005 ----------- ------------ (Unaudited) Cash and cash equivalents $7,883 $10,990 Restricted cash 9,267 4,893 Notes receivable, net of allowance for uncollectible notes of $68,171 and $52,479, respectively 202,430 177,572 Accrued interest receivable 2,618 2,243 Investment in special purpose entity 17,375 22,802 Amounts due from affiliates 2,595 680 Inventories 143,442 117,597 Land, equipment, and leasehold improvements, net 15,718 10,441 Land held for sale 203 495 Prepaid and other assets 16,588 14,083 ----------- ------------ TOTAL ASSETS $418,119 $361,796 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Accounts payable and accrued expenses $9,197 $9,556 Accrued interest payable 1,612 1,354 Amounts due to affiliates 855 544 Unearned Vacation Interval sales 591 -- Unearned samplers 5,675 5,310 Income taxes payable 3,068 1,268 Deferred income taxes payable 12,832 8,485 Notes payable and capital lease obligations 213,978 177,269 Senior subordinated notes 32,321 33,175 ----------- ------------ Total Liabilities 280,129 236,961 ----------- ------------ 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, 37,545,972 shares issued and outstanding at June 30, 2006, and 37,494,304 shares issued and outstanding at December 31, 2005 375 375 Additional paid-in capital 112,387 112,207 Retained earnings 25,228 12,253 ----------- ------------ Total Shareholders' Equity 137,990 124,835 ----------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $418,119 $361,796 =========== ============ *T -0- *T 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 June 30, 2006 -------------------------------------- Three Month As Reported - Comparable to 2005 - Ended Reflects Adoption Does Not Reflect June 30, of SFAS No.152 SFAS No. 152 2005 ----------------- -------------------- ------------ Revenues: Vacation Interval sales $48,635 $48,635 $37,334 Estimated uncollectible revenue (8,428) -- -- Sampler sales -- 691 501 All other revenue 12,826 12,826 11,520 ----------------- -------------------- ------------ Total revenues 53,033 62,152 49,355 Costs and Operating Expenses: Cost of Vacation Interval sales 4,736 6,842 6,017 Sales and marketing 23,423 24,114 18,153 Provision for uncollectible notes -- 6,322 6,534 All other costs and expenses 13,882 13,882 12,135 ----------------- -------------------- ------------ Total costs and operating expenses 42,041 51,160 42,839 Income before provision for income taxes and discontinued operations 10,992 10,992 6,516 Provision for income taxes (4,232) (4,232) (2,285) ----------------- -------------------- ------------ Net income from continuing operations 6,760 6,760 4,231 Discontinued Operations Net income from discontinued operations (net of taxes) -- -- -- ----------------- -------------------- ------------ Net income $6,760 $6,760 $4,231 ================= ==================== ============ Basic income per share: Net income from continuing operations $0.18 $0.18 $0.11 ================= ==================== ============ Net income from discontinued operations $-- $-- $-- ================= ==================== ============ Net income $0.18 $0.18 $0.11 ================= ==================== ============ Diluted income per share: Net income from continuing operations $0.17 $0.17 $0.11 ================= ==================== ============ Net income from discontinued operations $-- $-- $-- ================= ==================== ============ Net income $0.17 $0.17 $0.11 ================= ==================== ============ Weighted average basic common shares outstanding 37,501,246 37,501,246 36,937,648 ================= ==================== ============ Weighted average diluted common shares outstanding 39,250,633 39,250,633 38,933,675 ================= ==================== ============ 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) Six Months Ended June 30, 2006 -------------------------------------- Six Months As Reported - Comparable to 2005 - Ended Reflects Adoption Does Not Reflect June 30, of SFAS No.152 SFAS No. 152 2005 ----------------- -------------------- ----------- Revenues: Vacation Interval sales $90,102 $90,102 $67,471 Estimated uncollectible revenue (15,615) -- -- Sampler sales -- 1,459 1,142 All other revenue 24,218 24,218 22,822 ----------------- -------------------- ----------- Total revenues 98,705 115,779 91,435 Costs and Operating Expenses: Cost of Vacation Interval sales 8,917 12,819 10,735 Sales and marketing 42,655 44,114 35,337 Provision for uncollectible notes -- 11,713 11,808 All other costs and expenses 26,035 26,035 24,046 ----------------- -------------------- ----------- Total costs and operating expenses 77,607 94,681 81,926 Income before provision for income taxes and discontinued operations 21,098 21,098 9,509 Provision for income taxes (8,123) (8,123) (2,884) ----------------- -------------------- ----------- Net income from continuing operations 12,975 12,975 6,625 Discontinued Operations Net income from discontinued operations (net of taxes) -- -- 128 ----------------- -------------------- ----------- Net income $12,975 $12,975 $6,753 ================= ==================== =========== Basic income per share: Net income from continuing operations $0.35 $0.35 $0.18 ================= ==================== =========== Net income from discontinued operations $-- $-- $-- ================= ==================== =========== Net income $0.35 $0.35 $0.18 ================= ==================== =========== Diluted income per share: Net income from continuing operations $0.33 $0.33 $0.17 ================= ==================== =========== Net income from discontinued operations $-- $-- $-- ================= ==================== =========== Net income $0.33 $0.33 $0.17 ================= ==================== =========== Weighted average basic common shares outstanding 37,497,794 37,497,794 36,899,620 ================= ==================== =========== Weighted average diluted common shares outstanding 39,217,335 39,217,335 38,874,506 ================= ==================== =========== *T