Silverleaf Resorts, Inc. Reports Third Quarter and Year to Date 2006 Results

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Silverleaf Resorts (AMEX:SVL)
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Silverleaf Resorts, Inc. (AMEX:SVL) today announced its financial results for the three and nine month periods ended September 30, 2006. Sharon K. Brayfield, president, commented, �We are very pleased with our operating results for the third quarter of 2006 compared to 2005 as we continue to execute on our business strategy. The improvements we have made in our sales closing efficiencies and higher tour flow have resulted in our revenue growth this year and should allow us to meet our plan of 10% - 15% growth in Vacation Interval sales in 2007. We are also issuing net income guidance for 2007 in the range of $24.5 million to $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 Third Quarter Results: Vacation Interval sales increased 22.9% to $51.4 million during the third quarter of 2006 compared to $41.8 million during the third quarter of 2005. Total revenue for the third quarter of 2006 decreased to $56.1 million compared to $62.3 million in the third quarter of 2005. Total revenue in the third quarter of 2006 is decreased by estimated uncollectible revenue of $8.9 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, $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 September 30, 2006. Had these two changes mandated by SFAS No. 152 not been made, revenues would have increased by 5.4% to $65.7 million. Total revenue for the third quarter of 2005 included a gain on sale of notes receivable of $5.8 million and a gain on sale of undeveloped land of $3.6 million. Sales and marketing expense increased to 50.3% of Vacation Interval sales for the third quarter of 2006 from 47.0% for the third quarter of 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 the previous year�s quarter is due in large part to the Company�s costs associated with the Dallas and Chicago off-site sales centers. Cost of Vacation Interval sales decreased to 11.8% of Vacation Interval sales in 2006 from 16.2% 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 16.1% of Vacation Interval sales for the quarter ended September 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 third quarter 2006 provision for uncollectible notes expense would have been $6.7 million, or 13.0% of third quarter 2006 Vacation Interval sales, compared to $6.3 million for 2005, or 15.0% of Vacation Interval sales. During the third 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 third 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 September 30, 2006 decreased to $6.0 million, or $0.15 per diluted share compared to net income of $12.9 million, or $0.33 per diluted share for the quarter ended September 30, 2005. For the purposes of providing more transparency, the Company�s results for the third quarters of 2006 and 2005 shown below 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� Actual Actual Net income, as reported $ 6.0� $ 12.9� Adjustments between net income as reported, and Adjusted net income: Gain on sale of notes receivable -� (5.8) Gain on sale of undeveloped land -� (3.6) Income from discontinued operations, net of taxes -� (0.6) Provision for income taxes, as reported 3.8� 5.3� Adjusted income before provision for income taxes 9.8� 8.2� Provision for income taxes at 2006 rate of 38.5% (3.8) (3.2) Adjusted Net Income $ 6.0� $ 5.0� Adjusted Fully Diluted EPS $ 0.15� $ 0.13� 2006 Year to Date Results: Vacation Interval sales increased 29.5% to $141.5 million during the first nine months of 2006 compared to $109.3 million during the same period of 2005. Total revenue for the first nine months of 2006 increased to $154.8 million compared to $153.7 million in the first nine months of 2005. Total revenue in the first nine months of 2006 is decreased by estimated uncollectible revenue of $24.5 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, $2.1 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 nine-month period ended September 30, 2006. Had these two changes mandated by SFAS No. 152 not been made, revenues would have increased by 18.0% to $181.5 million. Total revenue for the first nine months of 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. Sales and marketing expense decreased to 48.4% of Vacation Interval sales for the first nine months of 2006 from 50.3% 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 49.9% of Vacation Interval sales. Cost of Vacation Interval sales decreased to 10.6% of Vacation Interval sales in the first nine months 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, as described above. Without this change, cost of vacation interval sales would have been 14.9% of Vacation Interval sales for the nine months ended September 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 nine months of 2006 provision for uncollectible notes expense would have been $18.4 million, or 13.0% of 2006 Vacation Interval sales, compared to $18.1 million for 2005, or 16.5% of Vacation Interval sales. During the first nine months of 2006, Silverleaf recorded income tax expense at 38.5% of pre-tax income, compared to 30.3% 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 is therefore recorded at full statutory rates. Net income for the nine months ended September 30, 2006 decreased to $19.0 million, or $0.48 per diluted share compared to net income of $19.6 million, or $0.50 per diluted share for the nine months ended September 30, 2005. For the purposes of providing more transparency, the Company�s results for the nine months ended September 30, 2005 and 2006 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� Actual Actual Net income, as reported $ 19.0� $ 19.6� 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 11.9� 8.2� Adjusted income before provision for income taxes 30.4� 17.0� Provision for income taxes at 2006 rate of 38.5% (11.7) (6.5) Adjusted Net Income $ 18.7� $ 10.5� Adjusted Fully Diluted EPS $ 0.48� $ 0.27� Outlook The Company continues to anticipate that its net income for the year ending December 31, 2006 will be $21 million to $22 million ($0.53 to $0.56 per diluted share). For the full year 2007, the Company is establishing net income guidance in the range of $24.5 million to $25.5 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 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (Unaudited) � Three Months Ended Nine Months Ended September 30, September 30, 2006� 2005� 2006� 2005� Revenues: Vacation Interval sales $ 51,414� $ 41,833� $ 141,516� $ 109,304� Estimated uncollectible revenue (8,910) -� (24,525) -� Sampler sales -� 617� -� 1,759� Net sales 42,504� 42,450� 116,991� 111,063� � Interest income 12,021� 9,067� 33,439� 28,937� Management fee income 465� 450� 1,396� 1,351� Gain on sale of notes receivable -� 5,789� -� 6,457� Other income 1,110� 4,549� 2,980� 5,931� Total revenues 56,100� 62,305� 154,806� 153,739� � Costs and Operating Expenses: Cost of Vacation Interval sales 6,069� 6,772� 14,986� 17,507� Sales and marketing 25,880� 19,648� 68,535� 54,985� Provision for uncollectible notes -� 6,275� -� 18,083� Operating, general and administrative 7,958� 7,344� 23,329� 21,177� Depreciation and amortization 627� 616� 1,750� 2,158� Interest expense and lender fees 5,730� 4,094� 15,273� 12,765� Total costs and operating expenses 46,264� 44,749� 123,873� 126,675� � Income before provision for income taxes and discontinued operations 9,836� 17,556� 30,933� 27,064� Provision for income taxes (3,787) (5,306) (11,909) (8,189) Income from continuing operations 6,049� 12,250� 19,024� 18,875� � Discontinued Operations Gain on sales of discontinued operations (net of taxes) -� 613� -� 613� Income from discontinued operations (net of taxes) -� -� -� 128� Net income from discontinued operations (net of taxes) -� 613� -� 741� � Net income $ 6,049� $ 12,863� $ 19,024� $ 19,616� � Basic income per share: Income from continuing operations $ 0.16� $ 0.33� $ 0.51� $ 0.51� Income from discontinued operations $ -� $ 0.02� $ -� $ 0.02� Net income $ 0.16� $ 0.35� $ 0.51� $ 0.53� � Diluted income per share: Income from continuing operations $ 0.15� $ 0.31� $ 0.48� $ 0.48� Income from discontinued operations $ -� $ 0.02� $ -� $ 0.02� Net income $ 0.15� $ 0.33� $ 0.48� $ 0.50� � Weighted average basic common shares outstanding 37,590,168� 36,954,948� 37,528,924� 36,918,265� � Weighted average diluted common shares outstanding 39,233,579� 39,042,770� 39,232,479� 38,934,572� SILVERLEAF RESORTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) � � September 30, December 31, ASSETS 2006� 2005� (Unaudited) Cash and cash equivalents $ 8,834� $ 10,990� Restricted cash 38,082� 4,893� Notes receivable, net of allowance for uncollectible notes of $69,836 and $52,479, respectively 218,298� 177,572� Accrued interest receivable 2,858� 2,243� Investment in special purpose entity 15,020� 22,802� Amounts due from affiliates 4,122� 680� Inventories 145,203� 117,597� Land, equipment, and leasehold improvements, net 22,264� 10,441� Land held for sale 203� 495� Prepaid and other assets 20,297� 14,083� � TOTAL ASSETS $ 475,181� $ 361,796� � � LIABILITIES AND SHAREHOLDERS' EQUITY � LIABILITIES Accounts payable and accrued expenses $ 10,721� $ 9,556� Accrued interest payable 2,011� 1,354� Amounts due to affiliates 104� 544� Unearned samplers 6,167� 5,310� Income taxes payable 4,094� 1,268� Deferred income taxes payable 15,601� 8,485� Notes payable and capital lease obligations 260,026� 177,269� Senior subordinated notes 32,321� 33,175� � Total Liabilities 331,045� 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, 37,685,397 shares issued and outstanding at September 30, 2006, and 37,494,304 shares issued and outstanding at December 31, 2005 � 377� 375� Additional paid-in capital 112,482� 112,207� Retained earnings 31,277� 12,253� � Total Shareholders' Equity 144,136� 124,835� � TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 475,181� $ 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 September 30, 2006 Three Months Ended September 30, 2005 As Reported - Reflects Adoption of SFAS No.152 Comparable to 2005 - Does Not Reflect SFAS No. 152 Revenues: Vacation Interval sales $ 51,414� $ 51,414� $ 41,833� Estimated uncollectible revenue (8,910) -� -� Sampler sales -� 686� 617� All other revenue 13,596� 13,596� 19,855� Total revenues 56,100� 65,696� 62,305� � Costs and Operating Expenses: Cost of Vacation Interval sales 6,069� 8,295� 6,772� Sales and marketing 25,880� 26,566� 19,648� Provision for uncollectible notes -� 6,684� 6,275� All other costs and expenses 14,315� 14,315� 12,054� Total costs and operating expenses 46,264� 55,860� 44,749� � Income before provision for income taxes and discontinued operations 9,836� 9,836� 17,556� Provision for income taxes (3,787) (3,787) (5,306) Net income from continuing operations 6,049� 6,049� 12,250� � Discontinued Operations Gain on sales of discontinued operations (net of taxes) -� -� 613� Net income from discontinued operations (net of taxes) -� -� -� Net income from discontinued operations (net of taxes) -� -� 613� � Net income $ 6,049� $ 6,049� $ 12,863� � Basic income per share: Net income from continuing operations $ 0.16� $ 0.16� $ 0.33� Net income from discontinued operations $ -� $ -� $ 0.02� Net income $ 0.16� $ 0.16� $ 0.35� � Diluted income per share: Net income from continuing operations $ 0.15� $ 0.15� $ 0.31� Net income from discontinued operations $ -� $ -� $ 0.02� Net income $ 0.15� $ 0.15� $ 0.33� � Weighted average basic common shares outstanding 37,590,168� 37,590,168� 36,954,948� � Weighted average diluted common shares outstanding 39,233,579� 39,233,579� 39,042,770� 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) � Nine Months Ended September 30, 2006 Nine Months Ended September 30, 2005 As Reported - Reflects Adoption of SFAS No.152 Comparable to 2005 - Does Not Reflect SFAS No. 152 Revenues: Vacation Interval sales $ 141,516� $ 141,516� $ 109,304� Estimated uncollectible revenue (24,525) -� -� Sampler sales -� 2,144� 1,759� All other revenue 37,815� 37,815� 42,676� Total revenues 154,806� 181,475� 153,739� � Costs and Operating Expenses: Cost of Vacation Interval sales 14,986� 21,114� 17,507� Sales and marketing 68,535� 70,679� 54,985� Provision for uncollectible notes -� 18,397� 18,083� All other costs and expenses 40,352� 40,352� 36,100� Total costs and operating expenses 123,873� 150,542� 126,675� � Income before provision for income taxes and discontinued operations 30,933� 30,933� 27,064� Provision for income taxes (11,909) (11,909) (8,189) Net income from continuing operations 19,024� 19,024� 18,875� � Discontinued Operations Gain on sales of discontinued operations (net of taxes) -� -� 613� Net income from discontinued operations (net of taxes) -� -� 128� Net income from discontinued operations (net of taxes) -� -� 741� � Net income $ 19,024� $ 19,024� $ 19,616� � Basic income per share: Net income from continuing operations $ 0.51� $ 0.51� $ 0.51� Net income from discontinued operations $ -� $ -� $ 0.02� Net income $ 0.51� $ 0.51� $ 0.53� � Diluted income per share: Net income from continuing operations $ 0.48� $ 0.48� $ 0.48� Net income from discontinued operations $ -� $ -� $ 0.02� Net income $ 0.48� $ 0.48� $ 0.50� � Weighted average basic common shares outstanding 37,528,924� 37,528,924� 36,918,265� � Weighted average diluted common shares outstanding 39,232,479� 39,232,479� 38,934,572� Silverleaf Resorts, Inc. (AMEX:SVL) today announced its financial results for the three and nine month periods ended September 30, 2006. Sharon K. Brayfield, president, commented, "We are very pleased with our operating results for the third quarter of 2006 compared to 2005 as we continue to execute on our business strategy. The improvements we have made in our sales closing efficiencies and higher tour flow have resulted in our revenue growth this year and should allow us to meet our plan of 10% - 15% growth in Vacation Interval sales in 2007. We are also issuing net income guidance for 2007 in the range of $24.5 million to $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 Third Quarter Results: Vacation Interval sales increased 22.9% to $51.4 million during the third quarter of 2006 compared to $41.8 million during the third quarter of 2005. Total revenue for the third quarter of 2006 decreased to $56.1 million compared to $62.3 million in the third quarter of 2005. Total revenue in the third quarter of 2006 is decreased by estimated uncollectible revenue of $8.9 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, $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 September 30, 2006. Had these two changes mandated by SFAS No. 152 not been made, revenues would have increased by 5.4% to $65.7 million. Total revenue for the third quarter of 2005 included a gain on sale of notes receivable of $5.8 million and a gain on sale of undeveloped land of $3.6 million. Sales and marketing expense increased to 50.3% of Vacation Interval sales for the third quarter of 2006 from 47.0% for the third quarter of 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 the previous year's quarter is due in large part to the Company's costs associated with the Dallas and Chicago off-site sales centers. Cost of Vacation Interval sales decreased to 11.8% of Vacation Interval sales in 2006 from 16.2% 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 16.1% of Vacation Interval sales for the quarter ended September 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 third quarter 2006 provision for uncollectible notes expense would have been $6.7 million, or 13.0% of third quarter 2006 Vacation Interval sales, compared to $6.3 million for 2005, or 15.0% of Vacation Interval sales. During the third 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 third 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 September 30, 2006 decreased to $6.0 million, or $0.15 per diluted share compared to net income of $12.9 million, or $0.33 per diluted share for the quarter ended September 30, 2005. For the purposes of providing more transparency, the Company's results for the third quarters of 2006 and 2005 shown below exclude historical gains and discontinued operations, and assume 2005 amounts were fully taxed at the 2006 effective income tax rate of 38.5%. -0- *T 2006 2005 ------ ------ Actual Actual ------ ------ Net income, as reported $6.0 $12.9 Adjustments between net income as reported, and Adjusted net income: Gain on sale of notes receivable - (5.8) Gain on sale of undeveloped land - (3.6) Income from discontinued operations, net of taxes - (0.6) Provision for income taxes, as reported 3.8 5.3 ------ ------ Adjusted income before provision for income taxes 9.8 8.2 Provision for income taxes at 2006 rate of 38.5% (3.8) (3.2) ------ ------ Adjusted Net Income $6.0 $5.0 ====== ====== Adjusted Fully Diluted EPS $0.15 $0.13 ====== ====== *T 2006 Year to Date Results: Vacation Interval sales increased 29.5% to $141.5 million during the first nine months of 2006 compared to $109.3 million during the same period of 2005. Total revenue for the first nine months of 2006 increased to $154.8 million compared to $153.7 million in the first nine months of 2005. Total revenue in the first nine months of 2006 is decreased by estimated uncollectible revenue of $24.5 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, $2.1 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 nine-month period ended September 30, 2006. Had these two changes mandated by SFAS No. 152 not been made, revenues would have increased by 18.0% to $181.5 million. Total revenue for the first nine months of 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. Sales and marketing expense decreased to 48.4% of Vacation Interval sales for the first nine months of 2006 from 50.3% 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 49.9% of Vacation Interval sales. Cost of Vacation Interval sales decreased to 10.6% of Vacation Interval sales in the first nine months 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, as described above. Without this change, cost of vacation interval sales would have been 14.9% of Vacation Interval sales for the nine months ended September 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 nine months of 2006 provision for uncollectible notes expense would have been $18.4 million, or 13.0% of 2006 Vacation Interval sales, compared to $18.1 million for 2005, or 16.5% of Vacation Interval sales. During the first nine months of 2006, Silverleaf recorded income tax expense at 38.5% of pre-tax income, compared to 30.3% 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 is therefore recorded at full statutory rates. Net income for the nine months ended September 30, 2006 decreased to $19.0 million, or $0.48 per diluted share compared to net income of $19.6 million, or $0.50 per diluted share for the nine months ended September 30, 2005. For the purposes of providing more transparency, the Company's results for the nine months ended September 30, 2005 and 2006 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%. -0- *T 2006 2005 ------ ------ Actual Actual ------ ------ Net income, as reported $19.0 $19.6 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 11.9 8.2 ------ ------ Adjusted income before provision for income taxes 30.4 17.0 Provision for income taxes at 2006 rate of 38.5% (11.7) (6.5) ------ ------ Adjusted Net Income $18.7 $10.5 ====== ====== Adjusted Fully Diluted EPS $0.48 $0.27 ====== ====== *T Outlook The Company continues to anticipate that its net income for the year ending December 31, 2006 will be $21 million to $22 million ($0.53 to $0.56 per diluted share). For the full year 2007, the Company is establishing net income guidance in the range of $24.5 million to $25.5 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 -0- *T SILVERLEAF RESORTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Revenues: Vacation Interval sales $51,414 $41,833 $141,516 $109,304 Estimated uncollectible revenue (8,910) - (24,525) - Sampler sales - 617 - 1,759 ----------- ----------- ----------- ----------- Net sales 42,504 42,450 116,991 111,063 Interest income 12,021 9,067 33,439 28,937 Management fee income 465 450 1,396 1,351 Gain on sale of notes receivable - 5,789 - 6,457 Other income 1,110 4,549 2,980 5,931 ----------- ----------- ----------- ----------- Total revenues 56,100 62,305 154,806 153,739 Costs and Operating Expenses: Cost of Vacation Interval sales 6,069 6,772 14,986 17,507 Sales and marketing 25,880 19,648 68,535 54,985 Provision for uncollectible notes - 6,275 - 18,083 Operating, general and administrative 7,958 7,344 23,329 21,177 Depreciation and amortization 627 616 1,750 2,158 Interest expense and lender fees 5,730 4,094 15,273 12,765 ----------- ----------- ----------- ----------- Total costs and operating expenses 46,264 44,749 123,873 126,675 Income before provision for income taxes and discontinued operations 9,836 17,556 30,933 27,064 Provision for income taxes (3,787) (5,306) (11,909) (8,189) ----------- ----------- ----------- ----------- Income from continuing operations 6,049 12,250 19,024 18,875 Discontinued Operations Gain on sales of discontinued operations (net of taxes) - 613 - 613 Income from discontinued operations (net of taxes) - - - 128 ----------- ----------- ----------- ----------- Net income from discontinued operations (net of taxes) - 613 - 741 Net income $6,049 $12,863 $19,024 $19,616 =========== =========== =========== =========== Basic income per share: Income from continuing operations $0.16 $0.33 $0.51 $0.51 =========== =========== =========== =========== Income from discontinued operations $- $0.02 $- $0.02 =========== =========== =========== =========== Net income $0.16 $0.35 $0.51 $0.53 =========== =========== =========== =========== Diluted income per share: Income from continuing operations $0.15 $0.31 $0.48 $0.48 =========== =========== =========== =========== Income from discontinued operations $- $0.02 $- $0.02 =========== =========== =========== =========== Net income $0.15 $0.33 $0.48 $0.50 =========== =========== =========== =========== Weighted average basic common shares outstanding 37,590,168 36,954,948 37,528,924 36,918,265 =========== =========== =========== =========== Weighted average diluted common shares outstanding 39,233,579 39,042,770 39,232,479 38,934,572 =========== =========== =========== =========== *T -0- *T SILVERLEAF RESORTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) September 30, December 31, ASSETS 2006 2005 ---------------- ---------------- (Unaudited) Cash and cash equivalents $8,834 $10,990 Restricted cash 38,082 4,893 Notes receivable, net of allowance for uncollectible notes of $69,836 and $52,479, respectively 218,298 177,572 Accrued interest receivable 2,858 2,243 Investment in special purpose entity 15,020 22,802 Amounts due from affiliates 4,122 680 Inventories 145,203 117,597 Land, equipment, and leasehold improvements, net 22,264 10,441 Land held for sale 203 495 Prepaid and other assets 20,297 14,083 ---------------- ---------------- TOTAL ASSETS $475,181 $361,796 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Accounts payable and accrued expenses $10,721 $9,556 Accrued interest payable 2,011 1,354 Amounts due to affiliates 104 544 Unearned samplers 6,167 5,310 Income taxes payable 4,094 1,268 Deferred income taxes payable 15,601 8,485 Notes payable and capital lease obligations 260,026 177,269 Senior subordinated notes 32,321 33,175 ---------------- ---------------- Total Liabilities 331,045 236,961 ---------------- ---------------- 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, 37,685,397 shares issued and outstanding at September 30, 2006, and 37,494,304 shares issued and outstanding at December 31, 2005 377 375 Additional paid-in capital 112,482 112,207 Retained earnings 31,277 12,253 ---------------- ---------------- Total Shareholders' Equity 144,136 124,835 ---------------- ---------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $475,181 $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 September 30, 2006 --------------------------------- Comparable to Three Months As Reported - 2005 - Does Ended Reflects Adoption Not Reflect September 30, of SFAS No.152 SFAS No. 152 2005 ------------------ -------------- -------------- Revenues: Vacation Interval sales $51,414 $51,414 $41,833 Estimated uncollectible revenue (8,910) - - Sampler sales - 686 617 All other revenue 13,596 13,596 19,855 ------------------ -------------- -------------- Total revenues 56,100 65,696 62,305 Costs and Operating Expenses: Cost of Vacation Interval sales 6,069 8,295 6,772 Sales and marketing 25,880 26,566 19,648 Provision for uncollectible notes - 6,684 6,275 All other costs and expenses 14,315 14,315 12,054 ------------------ -------------- -------------- Total costs and operating expenses 46,264 55,860 44,749 Income before provision for income taxes and discontinued operations 9,836 9,836 17,556 Provision for income taxes (3,787) (3,787) (5,306) ------------------ -------------- -------------- Net income from continuing operations 6,049 6,049 12,250 Discontinued Operations Gain on sales of discontinued operations (net of taxes) - - 613 Net income from discontinued operations (net of taxes) - - - ------------------ -------------- -------------- Net income from discontinued operations (net of taxes) - - 613 Net income $6,049 $6,049 $12,863 ================== ============== ============== Basic income per share: Net income from continuing operations $0.16 $0.16 $0.33 ================== ============== ============== Net income from discontinued operations $- $- $0.02 ================== ============== ============== Net income $0.16 $0.16 $0.35 ================== ============== ============== Diluted income per share: Net income from continuing operations $0.15 $0.15 $0.31 ================== ============== ============== Net income from discontinued operations $- $- $0.02 ================== ============== ============== Net income $0.15 $0.15 $0.33 ================== ============== ============== Weighted average basic common shares outstanding 37,590,168 37,590,168 36,954,948 ================== ============== ============== Weighted average diluted common shares outstanding 39,233,579 39,233,579 39,042,770 ================== ============== ============== *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) Nine Months Ended September 30, 2006 ------------------------- Comparable to 2005 - As Reported Does Not Nine Months - Reflects Reflect Ended Adoption of SFAS No. September 30, SFAS No.152 152 2005 ------------ ------------ -------------- Revenues: Vacation Interval sales $141,516 $141,516 $109,304 Estimated uncollectible revenue (24,525) - - Sampler sales - 2,144 1,759 All other revenue 37,815 37,815 42,676 ------------ ------------ -------------- Total revenues 154,806 181,475 153,739 Costs and Operating Expenses: Cost of Vacation Interval sales 14,986 21,114 17,507 Sales and marketing 68,535 70,679 54,985 Provision for uncollectible notes - 18,397 18,083 All other costs and expenses 40,352 40,352 36,100 ------------ ------------ -------------- Total costs and operating expenses 123,873 150,542 126,675 Income before provision for income taxes and discontinued operations 30,933 30,933 27,064 Provision for income taxes (11,909) (11,909) (8,189) ------------ ------------ -------------- Net income from continuing operations 19,024 19,024 18,875 Discontinued Operations Gain on sales of discontinued operations (net of taxes) - - 613 Net income from discontinued operations (net of taxes) - - 128 ------------ ------------ -------------- Net income from discontinued operations (net of taxes) - - 741 Net income $19,024 $19,024 $19,616 ============ ============ ============== Basic income per share: Net income from continuing operations $0.51 $0.51 $0.51 ============ ============ ============== Net income from discontinued operations $- $- $0.02 ============ ============ ============== Net income $0.51 $0.51 $0.53 ============ ============ ============== Diluted income per share: Net income from continuing operations $0.48 $0.48 $0.48 ============ ============ ============== Net income from discontinued operations $- $- $0.02 ============ ============ ============== Net income $0.48 $0.48 $0.50 ============ ============ ============== Weighted average basic common shares outstanding 37,528,924 37,528,924 36,918,265 ============ ============ ============== Weighted average diluted common shares outstanding 39,232,479 39,232,479 38,934,572 ============ ============ ============== *T

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