<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
FORM 10-Q
------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM --------------- TO ---------------
COMMISSION FILE NUMBER 000-21193
------------------------
SIGNATURE RESORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 95-4582157
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
</TABLE>
1875 SOUTH GRANT STREET, SUITE 650
SAN MATEO, CALIFORNIA 94402
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
650-312-7171
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Number of shares of common stock outstanding of the issuer's Common Stock,
par value $0.01 per share as of May 1, 1998, 35,884,679.
================================================================================
<PAGE> 2
SIGNATURE RESORTS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated statements of income for the three months ended
March 31, 1998 and March 31, 1997........................... 2
Consolidated balance sheets as of March 31, 1998 and
December 31, 1997........................................... 3
Consolidated statements of cash flows for three months ended
March 31, 1998 and March 31, 1997........................... 4
Notes to the consolidated financial statements.............. 5
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations................................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K............................ 11
Signatures.................................................. 12
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIGNATURE RESORTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
REVENUES:
Vacation ownership sales.................................... $ 71,487 $ 60,385
Interest income............................................. 12,075 8,514
Other income................................................ 6,187 2,996
---------- ----------
Total revenues.................................... 89,749 71,895
---------- ----------
COSTS AND OPERATING EXPENSES:
Vacation ownership cost of sales.......................... 17,456 16,200
Advertising, sales and marketing.......................... 33,727 27,044
Loan portfolio:
Interest expense -- treasury........................... 2,218 4,100
Other expenses......................................... 1,116 1,429
Provision for doubtful accounts........................ 2,300 2,190
General and administrative................................ 12,191 10,258
Depreciation and amortization............................. 2,163 1,159
Merger and acquisition costs.............................. -- 1,693
---------- ----------
Total costs and operating expenses................ 71,171 64,073
---------- ----------
Income from operations.................................... 18,578 7,822
Interest expense -- other (net of capitalized interest of
$1,653 and $494 at March 31, 1998 and 1997,
respectively).......................................... 6,882 1,344
Equity (gain) loss on investment in joint ventures........ (241) 70
Minority interest in income of consolidated limited
partnership............................................ -- 24
---------- ----------
Income before provision for income taxes.................. 11,937 6,384
Provision for income taxes................................ 4,656 2,511
---------- ----------
Net income................................................ $ 7,281 $ 3,873
========== ==========
EARNINGS PER SHARE:
Basic..................................................... $ 0.20 $ 0.11
Diluted................................................... $ 0.20 $ 0.11
Weighted average number of common shares outstanding...... 35,875,000 34,697,000
Weighted average number of common and potentially dilutive
common shares outstanding.............................. 36,665,000 35,435,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 4
SIGNATURE RESORTS, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 28,952 $ 38,487
Cash in escrow.............................................. 11,960 9,485
Mortgages receivable, net of an allowance of $23,977 and
$22,916 at March 31, 1998 and December 31, 1997,
respectively.............................................. 354,412 331,735
Due from related parties.................................... 28,195 25,576
Other receivables, net...................................... 22,474 17,669
Income tax refund receivable................................ -- 4,719
Prepaid expenses and other assets........................... 19,666 13,047
Investments in joint ventures............................... 15,898 15,657
Real estate and development costs........................... 258,255 219,299
Property and equipment, net................................. 43,643 35,024
Intangible assets, net...................................... 75,697 50,447
-------- --------
Total assets...................................... $859,152 $761,145
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 13,168 $ 25,196
Accrued liabilities......................................... 72,913 68,047
Due to related parties...................................... 1,336 1,032
Income taxes payable........................................ 22 --
Deferred taxes.............................................. 23,752 23,752
Notes payable............................................... 532,792 435,208
-------- --------
Total liabilities................................. $643,983 $553,235
-------- --------
Stockholders' equity:
Preferred stock (25,000,000 shares authorized and none
issued or outstanding)................................. -- --
Common stock ($0.01 par value, 50,000,000 shares
authorized and 35,884,679 and 35,875,287 outstanding at
March 31, 1998 and December 31, 1997, respectively).... 359 359
Additional paid-in capital................................ 163,150 162,969
Retained earnings......................................... 51,078 43,797
Cumulative translation adjustments........................ 582 785
-------- --------
Total stockholders' equity........................ 215,169 207,910
-------- --------
Total liabilities and stockholders' equity........ $859,152 $761,145
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 5
SIGNATURE RESORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 7,281 $ 3,873
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization............................. 2,163 1,159
Provision for doubtful accounts........................... 2,300 2,190
Equity (gain) loss on investment in joint ventures........ (241) 70
Minority interest in income of consolidated limited
partnership............................................ -- 24
Changes in operating assets and liabilities:
Cash in escrow............................................ (2,469) (1,232)
Due from related parties.................................. (2,619) (772)
Prepaid expenses and other assets......................... (6,619) 5,053
Real estate and development costs......................... (38,102) (11,374)
Other receivables, net.................................... (4,335) 4,093
Accounts payable and accrued liabilities.................. (2,807) (12,645)
Income taxes.............................................. 4,398 679
Deferred income taxes..................................... -- (8)
Due to related parties.................................... 304 (938)
-------- --------
Net cash used in operating activities....................... (40,746) (9,828)
-------- --------
INVESTING ACTIVITIES:
Cash paid for acquisition of subsidiaries................. (18,850) --
Property and equipment.................................... (8,697) (3,186)
Intangible assets......................................... (5,677) 465
Mortgages receivable...................................... (17,866) (20,291)
-------- --------
Net cash used in investing activities....................... (51,090) (23,012)
-------- --------
FINANCING ACTIVITIES:
Proceeds from notes payable............................... 97,826 18,083
Payments on notes payable................................. (15,503) (74,679)
Proceeds from convertible notes, net of debt issuance
costs.................................................. -- 133,645
Proceeds from equity offerings............................ -- 53,238
Other..................................................... 181 111
-------- --------
Net cash provided by financing activities................... 82,504 130,398
-------- --------
Net increase (decrease) in cash and cash equivalents........ (9,332) 97,558
Effect of exchange rates on cash and cash equivalents....... (203) (251)
Cash and cash equivalents, beginning of period.............. 38,487 20,757
-------- --------
Cash and cash equivalents, end of period.................... $ 28,952 $118,064
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 7,260 $ 1,767
Cash paid for taxes......................................... $ 258 $ 1,840
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 6
SIGNATURE RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BACKGROUND
Signature Resorts, Inc. and its wholly-owned subsidiaries (the "Company")
generate revenues from the sale and financing of vacation ownership interests in
its resorts, which entitle the buyer to use a fully-furnished vacation
residence, generally for a one-week period each year, in perpetuity ("Vacation
Intervals"). The Company's principal operations consist of (i) acquiring,
developing and operating vacation ownership resort locations, (ii) marketing and
selling Vacation Intervals in certain of its resorts, (iii) marketing and
selling vacation points at certain of its resort locations which may be redeemed
for occupancy rights at participating resorts ("Vacation Points"), and (iv)
providing consumer financing to individual purchasers of Vacation Intervals and
Vacation Points at its North American resorts. The Company also provides resort
management and maintenance services at its resorts for which it receives fees
paid by the resorts' homeowners' associations.
In the opinion of management, all adjustments considered necessary for a
fair presentation have been included and are of a normal recurring nature.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
NOTE 2 -- COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income (SFAS 130). SFAS 130 establishes new standards for the
reporting and display of comprehensive income and its components. Comprehensive
income, as defined, includes all changes in equity (net assets) during a period
from non-owner sources. Adoption of this Statement had no impact on the
Company's consolidated financial position, results of operations or cash flows.
The reconciliation of net income to comprehensive net income is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
MARCH 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Net income.................................................. $7,281 $3,873
Foreign currency translation adjustments.................... (203) (251)
------ ------
Total comprehensive income........................ $7,078 $3,622
====== ======
</TABLE>
NOTE 3 -- EARNINGS PER SHARE
Basic earnings per share were calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share were calculated by dividing the sum of the weighted average
number of common shares outstanding plus all additional common shares that would
have been outstanding if potentially dilutive common shares had been issued and
would have been dilutive to
5
<PAGE> 7
SIGNATURE RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
earnings. The following table reconciles the number of shares utilized in the
earnings per share calculations for the three months ended March 31, 1998 and
1997 (amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
MARCH 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Net income.................................................. $7,281 $3,873
====== ======
Net income available to common stockholders after assumed
conversion of dilutive securities (a)..................... $7,281 $3,873
====== ======
Weighted average number of common shares used in basic
EPS....................................................... 35,875 34,697
Effect of dilutive stock options............................ 790 738
------ ------
Weighted average number of common shares and dilutive
potential common shares used in diluted EPS (a)........... 36,665 35,435
====== ======
</TABLE>
- ---------------
(a) The potential effect on net income and on common stock shares related to the
5.75% Convertible Subordinated Notes due 2007 have not been included in the
calculation of net income or weighted average number of common shares and
dilutive potential common shares outstanding used in diluted EPS because the
effect would be anti-dilutive.
NOTE 4 -- SECURITIZATION AND NOTE OFFERINGS
The Company is finalizing negotiations and expects to complete a $100
million private placement securitization during the second quarter of 1998. Of
the total, $50 million has been pre-committed. The Company expects to convey the
mortgages receivable to a bankruptcy remote subsidiary, which would issue the
securitized notes (the "Securitized Notes"). The Securitized Notes would be
nonrecourse to the Company. The securitization is expected to be treated as a
financing transaction for accounting purposes. The mortgages receivable and the
Securitized Notes will remain on the Company's balance sheet and no gain or loss
would be recognized on the Securitized Notes transaction.
On April 15, 1998, the Company completed its offering (the "Senior Notes
Offering") of $140.0 million aggregate principal amount of its 9 1/4% Senior
Notes due 2006 (the "Senior Notes") at a price of 100% of the principal amount.
After deducting discounts and commissions, the net proceeds to the Company were
$136.2 million.
NOTE 5 -- ACQUISITIONS
During the first quarter of 1998, the Company acquired the 105 unit
Homewood Suites, located in Santa Fe, New Mexico, the 58 unit Club Mougins
resort located near Cannes, France and ten units at the Sunset View resort in
Tenerife, Canary Islands in individual transactions with an aggregate purchase
price of approximately $21.6 million. The Company will operate the Santa Fe
resort under its Sunterra Resorts brand, and will include the Cannes and
Tenerife resorts in its European Grand Vacation Club. The Company intends to
begin vacation ownership sales at each of these newly acquired resorts during
the second quarter of 1998.
On January 26, 1998, the Company acquired the Westin Carambola Beach Resort
(the "Carambola Beach Resort") on the island of St. Croix, United States Virgin
Islands for a cash purchase price of approximately $13 million. The Carambola
Beach Resort contains 156 one-bedroom suites and one two-bedroom suite.
On February 3, 1998, the Company acquired 100% of the capital stock of MMG
Holding Corp., MMG Development Corp. and certain affiliated companies ("MMG")
for approximately $26.5 million, comprised of $18.5 million in cash and the
assumption of approximately $8.0 million of indebtedness. The acquired assets
6
<PAGE> 8
SIGNATURE RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
include MMG's approximately $6.6 million mortgages receivable portfolio. MMG is
an Orlando, Florida based developer, operator and manager of vacation ownership
resorts, with sales or management operations at six resorts in Orlando, Ft.
Lauderdale and Deerfield Beach, Florida, Banner Elk, North Carolina, and
Gatlinburg and Pigeon Forge, Tennessee. In addition, on February 18, 1998, the
Company consummated MMG's commitment to purchase an additional resort in
Gatlinburg, Tennessee. The Company has accounted for this acquisition using the
purchase method of accounting for business combinations.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 1998 to the three months ended
March 31, 1997.
Total revenues for the three months ended March 31, 1998 were $89.7 million
compared with $71.9 million in 1997, an increase of $17.8 million, or 25%.
Vacation ownership revenues increased 18% to $71.5 million from $60.4 million.
The increase in vacation ownership revenues reflects increased sales activities
at certain of the Company's resorts, as well as the recording of Vacation Points
sales at the Company's Vacation Internationale ("VI") and Global Development
Ltd.'s ("Global") points-based vacation clubs, both of which were acquired in
the fourth quarter of 1997, and the recording of Vacation Interval sales at MMG
Development Corp. ("MMG"), which was acquired in February 1998.
Interest income increased 42% to $12.1 million from $8.5 million,
reflecting a 52% increase in mortgages receivable, net, to $354.4 million from
$233.6 million in the comparable period in 1997. Other income increased 107% to
$6.2 million from $3.0 million, reflecting a significant increase in resort
management fees due to a larger number of resorts under management. At March 31,
1998, the Company managed 85 resorts, including those acquired in the VI, Global
and MMG acquisitions, compared with 28 in the prior year quarter. Other income
includes rental income, commissions on the sale of European receivables, and
interest income from short-term investments.
As a percentage of total revenues, total costs and operating expenses,
excluding merger costs, improved to 79% during the quarter from 87% during the
prior year quarter. The overall improvement in margins reflects increased
economies of scale, higher-margin sales to current owner families, improving
operations at acquired companies and locations, and a shift in product mix to
lower cost resorts. Total costs and operating expenses, excluding merger costs,
increased 14% to $71.2 million from $62.4 million reported for the three-month
period ending March 31, 1997.
As a percentage of vacation ownership sales, vacation ownership cost of
sales improved to 24.4% during the quarter from 26.8% in the comparable period
in 1997, due to strong sales in Europe where acquisition costs have been
favorable, and to lower product costs at the resorts added from the acquisition
of AVCOM International, Inc. in 1997. Vacation ownership cost of sales increased
8% to $17.5 million in 1998 from $16.2 million in 1997.
Advertising, sales and marketing expenses increased 25% to $33.7 million
during the first quarter of 1998 from $27.0 million in the comparable period in
1997. As a percentage of vacation ownership sales, advertising, sales and
marketing expenses increased to 47.2% from 44.8%, due to higher marketing
expenses incurred to increase sales at the Company's recently acquired VI
subsidiary. In addition, the Company is building infrastructure in offsite sales
centers in the U.S. and Europe, the costs of which were expensed during the
first quarter of 1998, as well as other marketing initiatives to support the
transition to a points-based club product.
Interest expense-treasury improved to $2.2 million during the quarter, or
2.5% of total revenues, from $4.1 million, or 5.7% in the prior year quarter,
reflecting the Company's financing of mortgages receivable with the proceeds of
securities offerings and borrowings under its bank credit facilities. Interest
expense relating to these offerings is classified as interest expense -- other.
Other loan portfolio expenses decreased to $1.1 million from $1.4 million.
The provision for doubtful accounts increased $0.1 million to $2.3 million
during the quarter from $2.2 million in the comparable period in 1997. The
allowance for doubtful accounts as a percentage of gross mortgages receivable
decreased to 6.3% at March 31, 1998, compared with 6.5% at year end and 7.3% at
March 31, 1997. As of March 31, 1998, approximately 4.7% of the Company's
consumer loans were delinquent (scheduled payment past due by 60 days or more),
compared with 4.6% at year-end and March 31, 1997. In addition, the Company had
commenced deed-in-lieu of foreclosure action on approximately 2.2% of its
consumer loans as of March 31, 1998, compared with 2.2% at both year-end and
March 31, 1997.
As a percentage of total revenues, general and administrative expenses
decreased to 13.6% in the first quarter of 1998 from 14.3% in the prior year
quarter. General and administrative expenses increased 18% to
8
<PAGE> 10
$12.2 million during the quarter from $10.3 million in the comparable period in
1997. The increase in general and administrative expenses was the result of
increased overhead due to the acquisition of additional resorts, offset to some
extent by improvements resulting from increased efficiencies.
Depreciation and amortization increased $1.0 million, or 83%, to $2.2
million in the first quarter of 1998 from $1.2 million in the first quarter of
1997. As a percentage of revenues, depreciation and amortization increased to
2.4% for the first quarter of 1998 from 1.6% for the comparable period in 1997.
The increase in account activity was driven by the amortization of goodwill
associated with the Company's purchases of VI, Global, Marc Hotels & Resorts and
MMG, and depreciation expense on capital expenditures.
Interest expense-other, reported net of capitalized interest of $1.7
million and $0.5 million at March 31, 1998 and 1997, respectively, increased
$5.6 million, or 431%, to $6.9 million for the first quarter of 1998 from $1.3
million in the comparable period in 1997. The increase was due primarily to
increases in debt from public securities offerings and borrowings under its bank
credit facilities.
Excluding merger costs of $1.7 million in 1997 ($1.0 million net of taxes),
income before provision for income taxes increased 47% to $11.9 million during
the first quarter of 1998 from $8.1 million in the comparable period in 1997.
The Company's income tax rate was 39% for both periods, resulting in net income
of $7.3 million and $4.9 million for the periods ending March 31, 1998 and 1997,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash for operations from the sale of vacation
ownership interests, the financing of the sales of vacation ownership interests,
the rental of unsold vacation ownership interests, and the receipt of management
fees. With respect to the sale of vacation ownership interests, the Company
generates cash from (i) the cash sale of vacation ownership interests, (ii) the
receipt of down payments from financing customers' sales, and (iii) the
financing of mortgages receivable ranging from 85% to 90% of the customer
financed amount. The Company generates cash from the financing of vacation
ownership interests from the interest charged on mortgages receivable, which
averaged approximately 14.5% for the quarter ended March 31, 1998.
During the first quarter of 1998, the Company entered into a $117.5 million
Senior Bank Credit Facility (the "Senior Credit Facility"). The Senior Credit
Facility has a variable borrowing rate based on the percentage of the Company's
mortgages receivable pledged under such facility and the amount of funds
advanced thereunder. The interest rate will vary between LIBOR plus 7/8% and
LIBOR plus 1 3/8%, depending on the amount advanced against mortgages
receivable. The Senior Credit Facility has a three-year term and contains
customary covenants, representations and warranties and conditions to borrow. As
of March 31, 1998, the Company had borrowed $97 million on the Senior Credit
Facility. Subsequent to March 31, 1998, with the proceeds from the Senior Note
offering, the Company repaid the amounts borrowed under the Senior Credit
Facility. As a result, as of May 7, 1998, no amounts were outstanding on the
Senior Credit Facility.
The Company is finalizing negotiations and expects to complete a $100
million private placement securitization during the second quarter of 1998. Of
the total, $50 million has been pre-committed. The Company expects to convey the
mortgages receivable to a bankruptcy remote subsidiary, which would issue the
securitized notes (the "Securitized Notes"). The Securitized Notes would be
nonrecourse to the Company. The securitization is expected to be treated as a
financing transaction for accounting purposes. The mortgages receivable and the
Securitized Notes will remain on the Company's balance sheet and no gain or loss
would be recognized on the Securitized Notes transaction.
For the quarter ended March 31, 1998, the Company used $40.7 million in
cash flows from operations. The Company typically finances 90% of the purchase
price of the vacation ownership interests it sells. The Company chooses to
finance the sale of vacation ownership interests, and to hold the related
mortgages receivable, to generate profit from such financing activities.
Therefore, the Company typically incurs significant operating costs in excess of
the actual cash proceeds initially received from the sale of a vacation
ownership interest. To meet the Company's cash requirements to finance these
customer receivables, the Company borrows funds available under its credit
facilities. By borrowing against, hypothecating, or otherwise pledging its
receivables, the Company has the ability to generate positive cash flows from
those receivables.
9
<PAGE> 11
The Company expects to repay its credit facilities with proceeds from the
issuance of pass-through mortgage-backed securities under which the Company
sells the mortgages receivable and related principal or interest payments from
its portfolio of mortgages receivable. The Company may also sell or factor
additional mortgages receivable or borrow under existing or future lines of
credit.
The Company requires funds to finance the acquisition and development of
vacation ownership resorts and properties, and to finance customer purchases of
vacation ownership interests. Such capital has been provided from the proceeds
of public and private securities offerings and borrowings under its bank credit
facilities. As of March 31, 1998, after giving effect to the application of the
proceeds from the Senior Notes Offering, the Company had approximately $247
million of additional borrowing capacity under certain third-party lending
agreements. As of March 31, 1998, the Company had $91.1 million outstanding
under its notes payable collateralized by mortgages receivable and $6.7 million
outstanding under its notes payable collateralized by unsold vacation ownership
interest inventory or other assets.
The Company intends to pursue a growth-oriented strategy. From time to
time, the Company may acquire, among other things, additional vacation ownership
properties, resorts and completed vacation ownership interests, land upon which
additional vacation ownership resorts may be built, management contracts, loan
portfolios of vacation ownership mortgages, portfolios which include properties
or assets which may be integrated into the Company's operations, and operating
companies providing or possessing management, sales, marketing, development,
administration and/or other expertise with respect to the Company's operations
in the vacation ownership industry.
In addition to the financing activities described, the Company may issue
corporate debt, equity securities, or collateralized mortgage-backed securities
to finance its acquisition activities. Any debt incurred or issued by the
Company may be secured or unsecured, fixed or variable rate interest, and may be
subject to such terms, as management deems prudent.
The Company believes that, with respect to its current operations, the
Senior Credit Facility and borrowing capacity under certain third-party lending
agreements, together with cash generated from operations, future borrowings, or
the sale of receivables, will be sufficient to meet the Company's working
capital and capital expenditure needs for the period ended December 31, 1998.
However, depending upon conditions in the capital and other financial markets,
the Company's growth, development and expansion plans and other factors, the
Company may from time to time consider the issuance of other debt or equity
securities, the proceeds of which would be used to finance acquisitions,
refinance debt, finance mortgages receivable or for other purposes.
In April, the Company completed its offering of $140 million aggregate
principal amount of its 9 1/4% Senior Notes. The Company has used the proceeds
to retire existing indebtedness under the Senior Credit Facility. The balance of
the net proceeds are expected to be used primarily to finance the acquisition
and development of additional resorts and vacation ownership-related assets, and
for working capital and other general corporate purposes. Pending any such
additional uses, the Company will invest the excess proceeds in commercial
paper, bankers' acceptances, other short-term investment-grade securities and
money-market accounts.
The preceding discussion should be read in conjunction with the financial
statements and notes included elsewhere in this Form 10-Q. Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements, which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the Company's Annual Report on Form 10-K for the twelve months ended
December 31, 1997.
10
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
(1) Current Report on Form 8-K, dated January 16, 1998, filed with the
Commission on January 20, 1998, reporting the modification of the
Company's relationship with Westin Hotels & Resorts
(2) Current Report on Form 8-K, dated January 27, 1998, filed with the
Commission on February 5, 1998, reporting the Company's fourth
quarter 1997 and full year 1997 financial information
(3) Current Report on Form 8-K, dated April 15, 1998, filed with the
Commission on April 21, 1998, announcing the completion of the
Company's Senior Note Offering
11
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
Dated: May 15, 1998 By: MICHAEL A. DEPATIE
----------------------------------------------------
Michael A. Depatie
Director, Executive Vice President,
And Chief Financial Officer
(Principal Financial Officer)
Dated: May 15, 1998 By: JAMES D. WHEAT
----------------------------------------------------
James D. Wheat
Vice President and
Corporate Controller
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
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0
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