<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-29114
-------------
VISTANA, INC.
(Exact Name of Registrant as Specified in its Charter)
FLORIDA 59-3415620
(State of Incorporation) (IRS Employer Identification Number)
8801 Vistana Centre Drive
Orlando, Florida 32821
(Address of Principal Executive Offices and Zip Code)
(407) 239-3100
(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.
Yes X No
----- -----
Number of shares outstanding of the issuer's Common Stock, par value $.01
per share, as of May 7, 1997: 18,800,000 shares.
This quarterly report on Form 10-Q contains 15 pages, of which this is page
1.
<PAGE>
VISTANA, INC. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
Part I Financial Information
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, March 31, 1997 (unaudited)
and December 31, 1996 Page 3
Condensed Consolidated Statements of Income for the
three month periods ended March 31,1997 and 1996 (unaudited) Page 4
Condensed Consolidated Statement of Cash Flows for the
three month periods ended March 31, 1997 and 1996 (unaudited) Page 5
Notes to Condensed Consolidated Financial Statements (unaudited) Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations Page 10
Part II Other Information
Item 1. Legal Proceedings Page 14
None
Item 2. Changes in Securities Page 14
None
Item 3. Defaults upon Senior Securities Page 14
None
Item 4. Submission of Matters to a Vote of Security Holders Page 14
None
Item 5. Other Information Page 14
None
Item 6. Exhibits and Reports on Form 8-K Page 14
</TABLE>
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VISTANA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 14,171 $ 6,134
Restricted cash 5,925 3,847
Customer mortgages receivable, net 104,681 100,166
Other receivables, net 3,796 4,111
Inventory of Vacation Ownership Interests 23,173 16,541
Construction in progress 6,682 8,670
-------- --------
Total Vacation Ownership Interests 29,855 25,211
-------- --------
Prepaid expenses and other assets 12,052 13,978
Land held for development 7,664 8,080
Property and equipment, net 12,838 12,395
-------- --------
Total Assets $190,982 $173,922
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities 3,895 3,829
Accrued compensation and benefits 6,696 9,291
Customer deposits 5,855 4,995
Deferred income taxes 13,394 --
Other liabilities 7,293 6,160
Notes and mortgages payable 86,848 118,557
-------- --------
Total Liabilities 123,981 142,832
Minority interest 4,364 4,442
Shareholder's Equity
Common stock, $.01 par value:
Authorized 100,000,000 shares 188 --
Issued and outstanding 18,800,000 shares
at March 31, 1997
Additional paid-in capital 62,134 --
Retained earnings 315 --
Equity of predecessor entities -- 26,648
-------- --------
Total Shareholder's Equity 62,637 26,648
-------- --------
Total Liabilities and Shareholder's Equity $190,982 $173,922
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3
<PAGE>
VISTANA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1997 1996
------- -------
<S> <C> <C>
Revenues:
Vacation Ownership Interest sales $18,246 $13,529
Interest 4,445 3,563
Resort 3,886 3,621
Telecommunications 1,583 1,325
Other 143 121
------- -------
Total revenues 28,303 22,159
------- -------
Costs and operating expenses:
Vacation Ownership Interests cost of sales 4,217 3,502
Sales and marketing 8,581 6,031
Interest expense - treasury 1,775 1,660
Provision for doubtful accounts 1,282 970
Resort 3,158 3,056
Telecommunications 1,271 1,072
General and administrative 2,362 1,624
Depreciation and amortization 708 536
Interest expense - other 760 1,050
Other 790 (133)
Deferred executive incentive compensation -- 256
------- -------
Total costs and operating expenses 24,904 19,624
------- -------
Operating income 3,399 2,535
Excess value recognized 18 35
Minority interest 79 --
------- -------
Income before income taxes and extraordinary item 3,496 2,570
Provision for income taxes 700 --
Non-recurring charge associated with the change of
tax status 13,201 --
------- -------
Income (Loss) before extraordinary item (10,405) 2,570
Extraordinary item early extinguishment of debt (net of tax) (825) --
------- -------
Net Income (Loss) ($11,230) $ 2,570
======= =======
Per Share Data:
Loss per share before extraordinary item ($0.66) --
Extraordinary item ($0.05) --
----- -------
Net loss per share ($0.71) --
===== =======
Weighted average number of shares outstanding: 15,819,444 --
========== =======
Pro Forma Share Data:
Income before income taxes -- $ 2,570
Income tax provision -- 977
-------
Net income -- $ 1,593
========== =======
Net income per share -- $ 0.11
========== =======
Weighted average number of shares outstanding -- 14,175,000
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4
<PAGE>
VISTANA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income (Loss) $(11,230) $ 2,570
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization expense 708 536
Amortization of discount on customer mortgages
receivable (765) (542)
Provision for doubtful accounts 1,282 970
Minority interest (79) --
Deferred income taxes 13,394 --
Changes in operating assets and liabilities:
Other receivables, net 315 (14)
Vacation ownership interest (4,228) 2,797
Prepaid expenses and other assets 1,624 985
Accounts payable and accrued liabilities 66 (2,287)
Accrued compensation and benefits (2,595) (327)
Customer deposits 860 895
Repurchase obligations -- (1,179)
Other liabilities 1,132 2,752
-------- -------
Net cash provided by operating activities 484 7,156
-------- -------
INVESTING ACTIVITIES
Expenditures for land, property and equipment (849) (596)
Origination of customer mortgages receivable (5,032) (3,692)
Additions to restricted cash (2,078) (452)
-------- -------
Net cash used in investing activities (7,959) (4,740)
-------- -------
FINANCING ACTIVITIES
Proceeds from notes and mortgages payable 17,593 8,771
Payments on notes and mortgages payable (49,301) (9,156)
Proceeds from public offering 51,615 --
Costs of public offering (2,150) --
Equity distributions (2,245) (734)
-------- -------
Net cash provided (used) by financing activities 15,512 (1,119)
-------- -------
Net increase in cash and cash equivalents $ 8,037 $ 1,297
======== =======
Cash and cash equivalents, beginning of period $ 6,134 $ 7,543
Cash and cash equivalents, end of period $ 14,171 $ 8,840
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,436 $ 2,472
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5
<PAGE>
VISTANA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. General
Vistana, Inc. and its consolidated subsidiaries (the "Company") generate
revenues from the sale and financing of vacation ownership interests ("VOI's")
in its resort properties which typically entitle the buyer to ownership of a
fully-furnished unit for a one week period on an annual or an alternate-year
basis. The Company's principal operations consist of (1) constructing,
furnishing, marketing and selling VOI's, (2) providing consumer financing for
the purchase of VOI's at its resorts, (3) managing the operations of its
resorts and related amenities, and (4) installation and maintenance of
telecommunications equipment for others on a limited basis. The Company sells
VOI's to both domestic and foreign purchasers. All contracts relating to the
sale of VOI's are denominated in United States (U. S.) dollars.
The condensed consolidated financial statements shown herein for the Company and
its consolidated subsidiaries for each respective period include the operations
of its predecessors in interest. The Company became the parent company for all
of the operations of its predecessors in connection with its initial public
offering (the "Offering") completed on February 28, 1997.
At March 31, 1997, the condensed consolidated financial statements of the
Company include the accounts of the Company and its consolidated subsidiaries
and two partnerships between one or more subsidiaries and unaffiliated third
party partners wherein the Company exercises operational and financial control
over such partnerships. Interests of unaffiliated third parties are reflected
as minority interests.
The condensed consolidated financial statements of the Company as of and for the
three months ended March 31, 1997 have not been audited. In the opinion of
management, the unaudited condensed consolidated financial statements include
all adjustments and accruals (consisting of normal recurring adjustments)
necessary to present fairly the Company's consolidated financial position at
March 31, 1997 and the consolidated results of its operations for the three
months ended March 31, 1997 and 1996. Results for interim periods are not
necessarily indicative of the results to be expected during the remainder of the
current year or for any future period. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted or condensed.
All significant intercompany accounts and transactions have been eliminated in
consolidation. These financial statements and footnotes should be read in
conjunction with the audited combined financial statements and notes included in
Amendment No.2 of the Company's Registration Statement on Form S-1 (Registration
No. 333-19045) filed with the Securities and Exchange Commission on February 28,
1997. The accounting policies used in preparing these condensed consolidated
financial statements are the same as those described in the Registration
Statement on Form S-1.
Note 2. Effective New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" which simplifies the
calculation of earnings per share as currently calculated under APB 15.
Compliance with this statement cannot be implemented by the Company before
December 31, 1997.
Note 3. Earnings Per Share
Earnings per share is calculated on the weighted average number of shares
outstanding as if the Offering had occurred at the beginning of the period. The
dilutive effect of common stock equivalents for the computation of earnings per
share was less than 3% for the three months ended March 31, 1997. For periods
prior to the Offering on February 28, 1997, 14,175,000 shares were assumed to be
outstanding which included the shares issued by the Company in exchange for the
interests in the predecessor corporations and limited partnerships. Earnings per
share for the period ended March 31, 1996 has been adjusted to reflect proforma
tax expense of $977,000.
Page 6
<PAGE>
Note 4. Capital Transactions and Public Offering
During the three months ended March 31, 1997, the Company consummated the
Offering of 4,625,000 shares of the Company's common stock at a price of $12 per
share. The net proceeds from the Offering, after deducting the related issuance
costs, amounted to approximately $49.5 million. In addition, 14,175,000 shares
of the Company's common stock were issued just prior to and in connection with
the formation transactions to the former holders of interests in the Company's
predecessor corporations and limited partnerships.
In addition, in connection with the Offering and the formation transactions, (1)
former equity holders of the Company's predecessor corporations and limited
partnerships received a distribution of approximately $2.5 million, $0.3 million
of which represented the balance of such holders' federal and state income tax
liability attributable to their ownership of such entities through the date of
the Offering and $2.2 million of which represented the retained earnings of the
Company's predecessor corporations and limited partnerships for which such
holders had previously paid income tax; and (2) the Company used approximately
$39.8 million to prepay outstanding indebtedness, together with accrued interest
and related prepayment penalties.
The formation transactions have been accounted for as a reorganization of
entities under common control in a manner similar to a pooling of interests.
Accordingly, the net assets of the predecessor corporations and limited
partnerships were recorded at the predecessor entity's basis. In addition, the
accompanying condensed consolidated financial statements reflect historical
results of operations of the predecessor corporations and limited partnerships
on a combined basis.
Note 5. Customer Mortgages Receivable, Net
At March 31, 1997 and December 31, 1996, customer mortgages receivable, net
consisted of:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- -------------
(In thousands)
<S> <C> <C>
Customer mortgages receivable, gross $119,478 $115,970
Less:
Unamortized discount on repurchased
customer mortgages receivable (4,774) (5,539)
Unamortized excess value over consideration (62) (74)
Allowance for loss on receivables (9,961) (10,191)
-------- --------
Customer mortgages receivable, net $104,681 $100,166
======== ========
</TABLE>
As of March 31, 1997 and December 31, 1996, customer mortgages receivable,
gross, from foreign buyers aggregated approximately $29.1 million and $28.1
million respectively, with buyers within no individual foreign country
aggregating more than 5% of gross outstanding customer mortgages receivable.
Stated interest rate on customer mortgages receivable outstanding at March 31,
1997 range from 00.0% to 17.9% per annum (averaging approximately 14.09% per
annum contractually). Interest is not imputed on customer mortgages receivable
with less than a market interest rate because such amounts are immaterial.
The activity in the customer mortgages receivable allowance for doubtful
accounts is as follows:
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
------------- -------------
(In thousands)
<S> <C> <C>
Balance, beginning of period $10,191 $ 9,009
Provision for doubtful accounts 1,282 970
Allowance relating to repurchased customer mortgages receivable --- ---
Customer mortgages receivable charged off (1,512) (806)
------- -------
Balance, end of period $ 9,961 $ 9,173
======= =======
</TABLE>
Page 7
<PAGE>
Note 6. Notes and Mortgages Payable
At March 31, 1997 and December 31, 1996 notes and mortgages payable consisted
of:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------- --------
(In thousands)
<S> <C> <C>
Notes payable and mortgage obligations to lender, cross collateralized,
which bear interest at prime plus 2% (10.25% per annum at March 31,
1997). A total of $147.3 million may be borrowed. Maturity dates range
from July 1997 to May 2004. Notes are secured by customer mortgages
receivable, land and improvements. $53,540 $ 70,135
Notes payable to bank bearing interest ranging from 8.35% to 11.37%
per annum and with maturity dates ranging from December 1997 to
December 2005. Notes are secured by customer mortgages receivable,
land and improvements, and equipment. 10,556 31,893
Notes payable and mortgage obligations to lender, cross collateralized,
which bear interest at prime plus 2% (10.25% per annum at March 31,
1997) plus incentive fees. A total of $39.4 million may be borrowed.
Monthly interest payments are required. Maturity dates range
from June 25, 2001 to July 24, 2001. 22,752 16,529
------- --------
Total notes and mortgages payable: $86,848 $118,557
======= ========
</TABLE>
During the quarter ended March 31, 1997, the Company repaid $38.9 million of
debt. The Company recorded an expense relating to the write-off of previously
capitalized fees and prepayment penalties of $.8 million, net of related tax
benefits of $.5 million.
Note 7. Income Taxes
As the result of the Offering and the formation transactions, the Company became
subject to federal, state and foreign income taxes and was required to record a
deferred tax liability of $13.2 million for cumulative temporary differences
between financial reporting and tax reporting. The deferred tax assets, deferred
tax liabilities and the current tax provision were estimated based on
management's current estimate as of the end of the period. The provision for
income taxes reflects the income tax expense from the date of the Offering
through March 31, 1997.
The Company reports most of its sales of VOI's on the installment method for
federal income tax purposes. As a result, the Company does not recognize taxable
income on these sales until the installment payments have been received from the
Company's customers. The Company is not currently subject to the Alternative
Minimum Tax ("AMT") as a result of the deferred income which results from the
installment sales method, but may become subject to the AMT in the future.
Under Section 453(l) of the Internal Revenue Code, interest may be imposed on
the amount of tax attributable to the installment payments on customer
receivables for the period beginning on the date of sale and ending on the date
the related tax is paid. If the Company is otherwise not subject to pay tax in a
particular year, no interest is imposed since the interest is based on the
amount of tax paid in that year. The Company has not included a provision for
this interest, as it is not currently subject to the tax. However, in the future
it may become so. The Company continues to monitor its tax provision and may
adjust it to provide for this interest in the future.
Note 8. Stock Plans
In December 1996, the Company granted certain executive officers and other
employees options to purchase an aggregate of 535,000 shares of Common Stock at
an exercise price of $11.00 per share, none of which were exercised during the
period. In addition, in February 1997, the Company granted 1,026,000 options to
purchase shares of Common Stock at an exercise price of $12.00 per share to
certain employees, directors and an outside consultant, none of which were
exercised during the period.
Page 8
<PAGE>
<TABLE>
<CAPTION>
Certain of the former owners of the Company's predecessor corporations and limited partnership interests granted to certain
executive officers and other employees of the Company options to acquire an aggregate of 1,350,000 shares of Common Stock at an
exercise price equal to $12 per share. These options are currently exercisable in full and will terminate ten years after the date
of grant.
Note 9. Proforma Information
VISTANA, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
March 31, 1997
----------------------------------------------------
Proforma
Actual Adjustments Proforma
---------- ----------- ----------
<S> <C> <C> <C>
Revenues:
Vacation Ownership Interest sales $18,246 $18,246
Interest 4,445 4,445
Resort 3,886 3,886
Telecommunications 1,583 1,583
Other 143 143
--------- ----------
Total revenues 28,303 28,303
Costs and operating expenses:
Vacation Ownership Interest cost of sales 4,217 4,217
Sales and marketing 8,581 8,581
Interest expense - treasury 1,775 (358)a. 1,417
Provision for doubtful accounts 1,282 1,282
Resort 3,158 3,158
Telecommunications 1,271 1,271
General and administrative 2,362 2,362
Depreciation and amortization 708 708
Interest expense - other 760 (356)a. 404
Other 790 790
Deferred executive incentive compensation 0 0
--------- ----------- ----------
Total costs and operating expenses 24,904 (714) 24,190
--------- ----------- ----------
Operating Income 3,399 714 4,113
Excess value recognized 18 18
Minority Interest 79 79
--------- ----------- ----------
Income before income taxes and extraordinary item 3,496 714 4,210
Provision for taxes - regular (700) (900)b. (1,600)
Non-recurring change associated with the conversion of
S-Corporation to C-Corporation tax status (13,201) 13,201 c. 0
--------- ----------- ----------
Income/(Loss) before extraordinary item (10,405) 13,015 2,610
Extraordinary item early extinguishment of debt (net of tax) (825) 825 d. 0
--------- ----------- ----------
Net Income ($11,230) $13,840 $ 2,610
========= =========== ==========
Proforma weighted average shares of common
stock outstanding 18,800,000
==========
Proforma net income per share of common stock $ 0.14
---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
March 31, 1996
------------------------------------------------
Proforma
Actual Adjustments Proforma
---------- ------------ -----------
<S> <C> <C> <C>
Revenues:
Vacation Ownership Interest sales $13,529 $13,529
Interest 3,563 3,563
Resort 3,621 3,621
Telecommunications 1,325 1,325
Other 121 121
---------- -----------
Total revenues 22,159 22,159
Costs and operating expenses:
Vacation Ownership Interest cost of sales 3,502 3,502
Sales and marketing 6,031 6,031
Interest expense - treasury 1,660 (240)e. 1,420
Provision for doubtful accounts 970 970
Resort 3,056 3,056
Telecommunications 1,072 1,072
General and administrative 1,624 1,624
Depreciation and amortization 536 536
Interest expense - other 1,050 (797)e. 253
Other (133) (133)
Deferred executive incentive compensation 256 256
---------- ----------- -----------
Total costs and operating expenses 19,624 (1,037) 18,587
---------- ----------- -----------
Operating Income 2,535 1,037 3,572
Excess value recognized 35 35
Minority Interest 0 0
---------- ----------- -----------
Income before income taxes and extraordinary item 2,570 1,037 3,607
Provision for taxes - regular 0 (1,371)f. (1,371)
Non-recurring change associated with the conversion of
S-Corporation to C-Corporation tax status 0 0
---------- ----------- -----------
Income/(Loss) before extraordinary item 2,570 (334) 2,236
Extraordinary item early extinguishment of debt (net of tax) 0 0 0
---------- ----------- -----------
Net Income $ 2,570 ($334) $ 2,236
========== =========== ===========
Proforma weighted average shares of common stock outstanding 18,800,000
===========
Proforma net income per share of common stock $ 0.12
===========
</TABLE>
Notes: The proforma statements of income give effect to the consolidation of
the Company's predecessor corporations and partnerships and the Company's
initial public offering as if these events occurred at the beginning of each
respective period. The proforma adjustments are based upon currently available
information and certain assumptions that the Company's management believes are
reasonable under current circumstances.
a) Reflects the effect on 1997 historical statements of income of the issuance
of common stock on January 1, 1997 and the reduction of interest expense with
the early retirement of $38.9 million of debt.
b) Reflects the effect on 1997 historical statements of income referred to in
note (a) and assumes the Company had been treated as a C corporation, rather
than the treatment of the Company's predecessors as S corporations and limited
partnerships for federal income tax purposes.
c) Reflects the elimination of the non-recurring charge for deferred taxes
that relate to the formation transaction.
d) Reflects the write-off of prepaid financing fees related to the notes and
mortgages payable to financial institutions.
<PAGE>
e) Reflects the effect on 1996 historical statements of income of the issuance
of common stock on January 1, 1996 and the reduction of interest expense with
the early retirement of $38.9 million of term debt.
f) Reflcts the effect on 1996 historical statements of income referred to in
note (a) and assumes the Company had been treated as a C Corporation rather than
the treatment of the Company's predecessors as S corporations and limited
partnerships for federal income tax purposes.
Page 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion of the Company's results of operations is derived from
the condensed consolidated statements of income for the three months ended March
31, 1997 and March 31, 1996.
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1996
------ ------
<S> <C> <C>
STATEMENT OF OPERATIONS:
AS A PERCENTAGE OF TOTAL REVENUES:
VOI sales 64.5% 61.1%
Interest 15.7% 16.1%
Resort 13.7% 16.3%
Telecommunications 5.6% 6.0%
Other 0.5% 0.5%
------ ------
Total revenues 100.0% 100.0%
====== ======
AS A PERCENTAGE OF VOI SALES:
VOI cost of sales 23.1% 25.9%
Sales and marketing 47.0% 44.6%
Provision for doubtful accounts 7.0% 7.2%
AS A PERCENTAGE OF INTEREST REVENUES:
Loan portfolio:
Interest expense - treasury 39.9% 46.6%
AS A PERCENTAGE OF TOTAL REVENUES:
General and administrative 8.3% 7.3%
Depreciation and amortization 2.5% 2.4%
Interest expense - other 2.7% 4.7%
Other 2.8% -0.6%
Total costs and operating expenses 88.0% 88.6%
AS A PERCENTAGE OF RESORT REVENUES:
Resort expenses (1) 81.3% 84.4%
AS A PERCENTAGE OF TELECOMMUNICATION REVENUES:
Telecommunications expenses (1) 80.3% 80.9%
SELECTED OPERATING DATA:
Number of resorts at end of period 3 2
Number of VOI's sold (2) 1,842 1,350
Number of VOI's in inventory at period end (3) 14,915 4,150
Average sales price per VOI sold $9,905 $10,022
</TABLE>
- -----------------------------------
(1) Does not include interest and depreciation expenses.
(2) Includes both sales of annual and alternate-year VOI's.
(3) Inventory classified as annual VOI's.
Page 10
<PAGE>
Comparison of the three months ended March 31, 1997 to the three months ended
March 31, 1996.
Revenue:
For the three months ended March 31, 1997, the Company recognized total revenues
of $28.3 million compared to $22.2 million for the three months ended March 31,
1996, an increase of $6.1 million, or 27.7%. This increase is primarily due to a
$4.7 million increase in sales of VOI's from $13.5 million during 1996 to $18.2
million during 1997, an increase of 34.9%. VOI sales increased due to a 36.4%
increase in the number of VOI's sold, partially offset by a 1.2% decrease in the
average sales price (which was primarily due to the inclusion of VOI sales at
Oak Plantation Resort at a lower average price in the current period). The
increase in VOI's sold was a result of expanded sales and marketing programs,
both in central Florida and internationally, and sales of VOI's at Oak
Plantation Resort which were included in sales for 1997 but not 1996.
Interest income increased 24.8%, from $3.6 million to $4.4 million due to a
25.0% increase in the average principal amount of net customer mortgages
receivable from $82.1 million to $102.4 million. Also included in interest
income is the discount amortization on customer mortgages receivable recognized
during the comparable three month periods ended March 31, 1997 and March 31,
1996 of $.8 million and $.5 million, respectively, relating to the repurchase of
customer mortgages receivable. This discount resulted from a 1995 transaction in
which the Company re-acquired customer mortgages receivable (pursuant to a
related clean up call provision) which had been previously sold in 1991 as well
as recognition of a discount on certain customer mortgages receivable
repurchased in 1996 (pursuant to a related clean-up call provision) from an
investment partnership. As of March 31, 1997, $4.8 million of total unamortized
discount remained and is expected to be amortized through 1999.
Resort revenue increased 7.3%, from $3.6 million to $3.9 million, as a result of
increased room rentals and room rates at Vistana Resort in Orlando and the
impact of additional room rentals at Oak Plantation Resort, which are included
for March 31, 1997, but not for 1996. Telecommunication revenues (guest
telephone charges relating to the existing resorts and revenues from contracting
services provided to third parties) increased 19.5% from $1.3 million at March
31, 1996 to $1.6 million at March 31, 1997, due to increased telephone usage by
resort guests and an increase in contracting revenues from $1.0 million to $1.3
million.
Costs and Operating Expenses:
Operating costs and expenses increased 26.9% from $19.6 million to $24.9
million, although as a percentage of total revenues, operating costs and
expenses decreased from 88.6% in 1996 to 88.0% in 1997. VOI product costs, as a
percentage of VOI revenues, decreased from 25.9% in 1996 to 23.1% in 1997, as a
result of sales in the current period of phases with relatively lower per unit
costs at Vistana Resort. The Company anticipates later phases at Vistana Resort
will continue to have relatively lower per unit costs. Sales and marketing
expenses increased 42.3% from $6.0 million in 1996 to $8.6 million in 1997
during the comparable three month period due to a 34.9% increase in related VOI
sales levels as well as pre-opening expenses related to the opening of the
Company's newest national and international sales facilities.
Loan portfolio expenses consisting of interest expense--treasury increased to
$1.8 million in 1997 from $1.7 million in 1996 primarily as a result of
increased financing activities associated with the increased sales of VOI's, net
of the interest benefit or debt repayment from a portion of the proceeds of the
Offering. Provision for doubtful accounts remained relatively constant at 7.0%
of VOI revenues in 1997 compared to 7.2% in 1996. The Company annually monitors
its provision for doubtful accounts to provide for future losses associated with
any defaults on customer mortgages receivable and provides for additions to the
reserve as a percentage of VOI's sold in the applicable period. Management
believes that the provision is adequate for such future losses. Resort and
telecommunication expenses increased at a late commensurate with that
of related revenues.
General and administrative expenses increased from $1.6 million for the three
months ended March 31, 1996 to $2.4 million for the three months ended March 31,
1997, increasing slightly, as a percent of total revenues, from 7.3% in 1996 to
8.3% in 1997. The increase in general and administrative expenses was the result
of (1) increased revenue levels and commensurate business activities, (2) the
addition of a number of senior managers and key executives in order to build the
management and organizational infrastructure necessary to efficiently manage the
Company's future growth, (3) the Company's expenses and reporting obligations as
a public company, and (4) added salary, travel and office expenses attributable
to the current and planned growth in the size of the Company. Depreciation and
amortization increased at a rate lower than that of total revenues reflecting
the leveraging of these costs and assets over a larger revenue base. In
addition, operating costs and expenses decreased by $256,000 as a result of a
decrease in the amount of deferred executive incentive compensation. Interest
expense-other decreased due to early extinguishment of debt from funds provided
by the Offering.
Operating income increased 34.1% to $3.4 million, or 12.0% of total revenues,
during the three months ended March 31, 1997 from $2.5 million, or 11.4% of
total revenues, during the three months ended March 31, 1996.
Page 11
<PAGE>
Provision for Income Taxes:
As the result of the Offering and the formation transactions, the Company became
subject to federal, state and foreign income taxes and was required to record a
nonrecurring deferred tax liability of $13.2 million for cumulative temporary
differences between financial reporting and tax reporting. For the quarter ended
March 31, 1997, the Company also recorded a deferred income tax expense
provision of $700,000, less $500,000 relating to the extraordinary item which
was recorded net of tax. The deferred tax assets, deferred tax liabilities and
the current tax provision were estimated based on management's most recent
information as of March 31, 1997. The provision for income taxes reflects the
income tax expense from the date of the formation through March 31, 1997.
The Company reports most of its sales of VOI's on the installment method for
federal income tax purposes. As a result, the Company does not recognize taxable
income on these sales until the installment payments have been received from the
Company's customers. The Company is not currently subject to the Alternative
Minimum Tax ("AMT") as a result of the deferred income which results from the
installment sales method, but may become subject to the AMT in the future.
Under Section 453(l) of the Internal Revenue Code, interest may be imposed on
the amount of tax attributable to the installment payments on customer
receivables for the period beginning on the date of sale and ending on the date
the related tax is paid. If the Company is otherwise not subject to pay tax in
a particular year, no interest is imposed since the interest is based on the
amount of tax paid in that year. The Company has not included a provision for
any of this interest since it is not currently subject to tax. However, in the
future it may become so. The Company continues to monitor its tax provision and
may adjust it to provide for this interest in the future.
Extraordinary Item:
During the quarter ended March 31, 1997, the Company repaid $38.9 million of
debt. The Company recorded an expense relating to the write-off of previously
capitalized fees and prepayment penalties of $.8 million, net of related tax
benefits of $.5 million.
LIQUIDITY AND CAPITAL RESOURCES:
The Company generates cash from operations from the sales and financing of
VOI's, resort operations, management activities and telecommunication services.
With respect to the sale of VOI's, the Company generates cash for operations
from customer down payments and third party financing of customer mortgages
receivable in amounts typically equal to 90% of the related customer mortgage
receivable. The Company generates additional cash from the financing of VOI's
equal to the difference between the interest charged on the customer mortgages
receivable (which averaged 14.09% at March 31, 1997) and the interest paid on
the notes payable secured by the Company's pledge of such customer mortgages
receivable (which averaged 10.25 at March 31, 1997). Cash provided by operations
for the three months ended March 31, 1997 and 1996 was $0.5 million and $7.1
million, respectively. The reduction in 1997 is due primarily to the increase in
expenditures to complete additional units in the inventory of VOI's and payment
of the increase in accrued compensation benefits.
Net cash used in investing activities for the three months ended March 31, 1997
and 1996 was $8.0 million and $4.7 million, respectively, principally due to
increased sales of VOI's and the related increase in customer mortgages
receivable.
Page 12
<PAGE>
Net cash provided by financing activities was $15.5 million during the quarterly
period ended March 31, 1997 versus a net cash used in 1996 of $1.1 million
primarily due to the Company's issuance in the 1997 quarter of 4,625,000 shares
of common stock in the Offering resulting in approximately $49.5 million of net
proceeds. The net proceeds of the Offering were used by the Company to repay
$38.9 million of outstanding debt. The remaining $10.6 million is being used to
fund expansion and to provide the Company with working capital.
The Company requires funds to finance the acquisition and development of
vacation ownership resorts and related inventory, and to finance customer
purchases of VOI's. Historically, these funds have been provided by indebtedness
secured by a portion of the Company's inventory of unsold VOI's, customer
mortgages receivable and other assets. As of March 31, 1996, the Company had
$26.7 million outstanding under its notes payable secured by its land and VOI
inventory, $55.4 million outstanding under its notes payable secured by customer
mortgages receivable and $4.8 of other secured and unsecured notes payable. As
of March 31, 1997, the Company's scheduled principal payments on its long-term
indebtedness through 2001 (excluding payments on credit facilities secured
primarily by customer mortgages receivable) were $1.5 million in 1997 (last nine
months), $1.4 million in 1998, $1.4 million in 1999, $1.1 million in 2000 and
$0.7 million in 2001.
The Company's current credit facilities (the "Credit Facilities") provide for
term loans, of which $29.2 million were outstanding as of March 31, 1997, and
revolving lines of credit, under which the Company had borrowings of $57.6
million as of March 31, 1997 against total available capacity at that date of
$80.9 million. As of March 31, 1997, the Company's term loans accrued interest
at various rates between 8.4% and 11.3%, and the Company's revolving lines of
credit accrued interest at rates between 9.75% and 10.25%. Approximately $74
million of the Company's indebtedness bears interest at variable rates based on
fixed spreads over a specified prime rate. The Company's indebtedness under the
Credit Facilities is secured primarily by pledges of the Company's receivables
(primarily its customer mortgages receivable), mortgages on certain of the
Company's unsold inventory of VOI's and other owned real and personal property.
The terms of certain of the Credit Facilities impose certain operating and
financial restrictions upon the Company, including, without limitation, (1)
maintenance of a minimum tangible net worth by certain of the Company's
operating subsidiaries; (2) maintenance of certain financial ratios, including
the ratio of selling expenses to net VOI sales; and (3) limitations on cash
distributions by certain of the Company's operating subsidiaries to the amount
of the subsidiary's net income or net cash flow (subject to certain exceptions
for tax and other permitted distributions).
The Company intends to pursue a growth-oriented strategy; accordingly, the
Company may, from time to time acquire, among other things, additional vacation
ownership resorts and additional land upon which vacation ownership resorts may
be developed and companies operating resorts or having vacation ownership
assets, management, sales or marketing expertise commensurate with the Company's
operations in the vacation ownership industry. In this regard, the Company is
currently considering the acquisition of several additional land parcels for the
development of additional resorts, either under a non-multi-hotel brand, under
the Vistana brand, or one or more additional brands. The Company may also
evaluate asset and operating company acquisitions, but presently has no
contracts or capital commitments relating to any such potential acquisition.
In the future, the Company may negotiate additional credit facilities, or issue
debt or additional equity securities. Any debt incurred or issued by the
Company may be secured or unsecured, bear interest at fixed or variable rates,
and be subject to terms and conditions approved by management. The Company has
historically enjoyed good credit relationships and has been successful in
establishing new relationships and expanding existing credit facilities as its
growth and opportunities have necessitated. Management believes the Company
will continue to be able to borrow in this manner.
The Company believes that the net proceeds to the Company from the Offering
together with cash generated from operations and future borrowings, will be
sufficient to meet the Company's working capital and capital expenditure needs
for the next 12 months. However, depending upon conditions in the capital and
other financial markets, and other factors, the Company may from time to time
consider the issuance of debt or other securities, the proceeds of which may be
used to finance acquisitions, to refinance debt or for general corporate
purposes.
Page 13
<PAGE>
FORWARD-LOOKING INFORMATION
This Management's Discussion and Analysis of Financial Condition and Results of
Operations may include certain forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including (without limitation)
statements with respect to anticipated future operating and financial
performance, growth and acquisition opportunities and other similar forecasts
and statements of expectation. Words such as "expects", "anticipates",
"intends", "plans", "believes", "seeks", "estimates" and "should" and variations
of these words and similar expressions, are intended to identify these forward-
looking statements. Forward-looking statements made by the Company and its
management are based on estimates, projections, beliefs and assumptions of
management at the time of such statements and are not guarantees of future
performance. The Company disclaims any obligation to update or revise any
forward-looking statement based on the occurrence of future events, the receipt
of new information or otherwise.
Actual future performance, outcomes and results may differ materially from those
expressed in forward-looking statements made by the Company and its management
as a result of a number of risks, uncertainties and assumptions. Representative
examples of these factors include (without limitation) general industry and
economic conditions; interest rate trends; cost of capital and capital
requirements; availability of real estate properties; competition from national
hospitality companies; shifts in customer demands; changes in operating
expenses, including employee wages, benefits and training; governmental and
public policy changes and the continued availability of financing in the amounts
and at the terms necessary to support the Company's future business.
Page 14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27: Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended March
31, 1997.
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.
VISTANA, INC.
(Registrant)
Date: May 15, 1997 By:
--------------------------------- -------------------------------
Raymond L. Gellein, Jr.
Chairman and Co-Chief Executive
By:
-------------------------------
John M. Sabin
Sr. Vice President and Chief
Financial Officer
Chief Accounting Officer
Page 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Consolidated Balance Sheet, Consolidated Statement of Operations and
Consolidated Statement of Cash Flows included in the company's Form 10-Q for the
period ending March 31, 1997, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 20,096
<SECURITIES> 0
<RECEIVABLES> 119,334
<ALLOWANCES> (10,857)
<INVENTORY> 29,855
<CURRENT-ASSETS> 0
<PP&E> 18,427
<DEPRECIATION> (5,589)
<TOTAL-ASSETS> 190,982
<CURRENT-LIABILITIES> 0
<BONDS> 86,848
0
0
<COMMON> 188
<OTHER-SE> 62,449
<TOTAL-LIABILITY-AND-EQUITY> 190,982
<SALES> 18,246
<TOTAL-REVENUES> 28,303
<CGS> 4,217
<TOTAL-COSTS> 13,010
<OTHER-EXPENSES> 3,860
<LOSS-PROVISION> 1,282
<INTEREST-EXPENSE> 2,535
<INCOME-PRETAX> 3,496
<INCOME-TAX> (10,405)
<INCOME-CONTINUING> 97
<DISCONTINUED> 0
<EXTRAORDINARY> (825)
<CHANGES> 0
<NET-INCOME> (11,230)
<EPS-PRIMARY> (0.71)
<EPS-DILUTED> 0
</TABLE>
