Silverleaf Resorts, Inc. Reports Fourth Quarter and Annual 2009 Results

Silverleaf Resorts, Inc. (NASDAQ: SVLF) today reported the following results for its fourth quarter and year ended December 31, 2009 and that it has extended its share repurchase program.

Financial highlights for the quarter ended December 31, 2009:

* Net Income of $2.0 million or diluted earnings per share of $0.05

* Vacation Interval sales of $46.7 million

Financial highlights for the year ended December 31, 2009:

* Net income of $5.5 million or diluted earnings per share of $0.14

* Vacation Interval sales of $241.0 million

2009 Fourth Quarter Results



Robert E. Mead, Chief Executive Officer, commented, “We are pleased with our operating results for 2009 and our ability to remain profitable and sustain adequate liquidity despite current economic conditions. Demand for our product remains strong and we believe the outlook for 2010 is positive. We are also pleased to announce the extension of our share buyback program.”

Vacation Interval sales were $46.7 million in the fourth quarter of 2009 compared to $56.4 million in the comparable prior-year period. The decrease in Vacation Interval sales is primarily attributable to promotional pricing offered during the fourth quarter of 2009 on select products. Vacation Interval sales to existing customers comprised 61.3% and 60.3% of total Vacation Interval sales in the quarters ended December 31, 2009 and 2008, respectively, which maintains the Company’s favorable sales-mix trend toward upgrades and second-week sales to existing customers as such sales have relatively lower associated sales and marketing costs.

The provision for estimated uncollectible revenue as a percentage of Vacation Interval sales was 25.9% in the fourth quarter of 2009 versus 28.1% in the fourth quarter of 2008.

Overall, total revenues for the fourth quarter of 2009 were $53.1 million compared to $59.5 million for the fourth quarter of 2008, primarily attributable to the $5.9 million reduction in net sales.

Cost of Vacation Interval sales was 7.0% of Vacation Interval sales for the fourth quarter of 2009 compared to 7.5% in the 2008 comparable period. This decrease primarily resulted from increased sales of lower cost-basis product during the fourth quarter of 2009 versus the fourth quarter of 2008.

Sales and marketing expense as a percentage of Vacation Interval sales was 61.6% for the fourth quarter of 2009 versus 56.1% for the comparable prior-year period. The increase was primarily attributable to lower Vacation Interval sales.

Total positive net interest spread (interest income less interest expense and lender fees) increased to $9.5 million for the fourth quarter of 2009 from $7.6 million for the fourth quarter of 2008. Interest expense and lender fees as a percentage of interest income decreased to 43.2% for the quarter ended December 31, 2009 compared to 51.1% for the same period of 2008. This decrease was primarily due to a decrease in the weighted average cost of borrowings to 6.0% for the fourth quarter of 2009 from 7.1% for the fourth quarter of 2008, partially offset by a larger average debt balance outstanding during the fourth quarter of 2009, which was $416.6 million compared to $389.7 million for the prior-year comparative period.

2009 Annual Results

Net income for the year ended December 31, 2009 was $5.5 million, or diluted earnings per share of $0.14, compared to net income of $17.9 million, or diluted earnings per share of $0.46, for the year ended December 31, 2008. Excluding the recognition of $18.5 million additional provision for estimated uncollectible revenue in the third quarter of 2009, net income and diluted earnings per share for 2009 would have been $16.6 million and $0.43, respectively.

Vacation Interval sales were $241.0 million in 2009 compared to $256.3 million in 2008. The decrease in Vacation Interval sales is primarily attributable to promotional pricing offered during 2009 on select products, partially offset by a favorable sales mix of higher-end products on additional interval sales to existing customers. Vacation Interval sales to existing customers comprised 62.0% and 59.8% of total Vacation Interval sales in the years ended December 31, 2009 and 2008, respectively, which maintains the Company’s favorable sales-mix trend toward upgrades and second-week sales to existing customers as such sales have relatively lower associated sales and marketing costs.

The provision for estimated uncollectible revenue was $80.3 million for the year ended December 31, 2009 versus $63.1 million for the year ended December 31, 2008, which resulted in an increase in the provision for estimated uncollectible revenue as a percentage of Vacation Interval sales to 33.3% in 2009 from 24.6% in 2008. Cancellations during 2009 exceeded cancellations projected under the Company’s static-pool analysis of its notes receivable portfolio. Considering an increase in cancels beyond that previously estimated, the Company increased the allowance for uncollectible notes by $18.5 million in the third quarter of 2009, above the 25.9% provision rate which had been estimated in prior months.

Overall, total revenues for the year ended December 31, 2009 decreased 10.3% to $236.8 million compared to $264.0 million for the year ended December 31, 2008. As discussed above, the decrease is primarily attributable to the recognition of an $18.5 million additional provision for estimated uncollectible revenue in the third quarter of 2009, and a $15.3 million decrease in Vacation Interval sales, partially offset by a $3.8 million increase in interest income during the year ended December 31, 2009.

Cost of Vacation Interval sales was 9.2% of Vacation Interval sales in 2009 compared to 9.7% in 2008. This decrease primarily resulted from revisions made to future relative sales value for both 2009 and 2008 which had a greater impact on decreasing cost of sales in 2009.

Sales and marketing expense as a percentage of Vacation Interval sales was 52.2% for the year ended December 31, 2009 versus 52.7% for the same period of 2008. The decrease in sales and marketing expense as a percentage of Vacation Interval sales is primarily attributable to cost reductions in new customer marketing programs in 2009 compared to 2008.

Total positive net interest spread (interest income less interest expense and lender fees) increased to $35.8 million during 2009 compared to $32.5 million during 2008. Interest expense and lender fees as a percentage of interest income decreased to 44.8% in the year ended December 31, 2009, compared to 46.8% for the same period of 2008. This decrease was primarily due to a decrease in the weighted average cost of borrowings to 6.0% for the year ended December 31, 2009 from 6.8% for the year ended December 31, 2008, partially offset by a larger average debt balance outstanding during 2009, which was $402.6 million compared to $367.6 million for the prior-year comparative period.

Balance Sheet

At December 31, 2009, senior credit facilities provided for loans of up to $439.5 million, of which $51.2 million was unused. In February 2010, the Company completed the extension of two of its senior revolving credit facilities. Considering the extension of these senior credit facilities, forecasted sales, and limited expansion plans, these senior credit facilities provide adequate liquidity through 2010. The Company is continuing to work with certain of its lenders to extend upcoming maturities as well as identify additional financing arrangements. At December 31, 2009, the Company’s senior debt consisted of 20% fixed-rate debt and 80% variable-rate debt. However, the majority of the Company’s variable-rate debt is subject to interest-rate floors between 5.25% and 8.00%.

Extension of Stock Repurchase Program

The Company announced its plan to extend the repurchase of its common stock under its existing stock repurchase program, which authorized the repurchase of up to two million shares of the Company’s common stock, of which 1,943,789 shares remain available for repurchase. This stock repurchase program, which was originally scheduled to expire in July 2010, has been extended and will now expire in July 2011. The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements and other factors. Repurchases may be conducted in the open market or in privately negotiated transactions.