<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 June 30, 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, FL 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 August 12, 1997: 18,800,000 shares.
This quarterly report on Form 10-Q contains 24 pages, of which this is page
1.
<PAGE>
VISTANA, INC. AND SUBSIDIARIES
Index
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets,
June 30, 1997 (unaudited) and December 31, 1996....... Page 3
Condensed Consolidated Statement of Income for the
three month periods ended June 30, 1997 and 1996
(unaudited)........................................... Page 4
Condensed Consolidated Statements of Income for the
six month periods ended June 30, 1997 and 1996
(unaudited)........................................... Page 5
Condensed Consolidated Statement of Cash Flows for
the six month periods ended June 30, 1997 and 1996
(unaudited)........................................... Page 6
Notes to Condensed Consolidated Financial Statements
(unaudited)........................................... Page 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... Page 14
Part II Other Information
Item 1. Legal Proceedings Page 21
None
Item 2. Changes in Securities Page 21
None
Item 3. Defaults upon Senior Securities Page 21
None
Item 4. Submission of Matters to a Vote of Security Holders Page 21
None
Item 5. Other Information Page 21
None
Item 6. Exhibits and Reports on Form 8-K Page 21
<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>
June 30, December 31,
----------- ------------
ASSETS 1997 1996
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
(Unaudited)
Cash and cash equivalents........................ $ 9,089 $ 6,134
Restricted cash.................................. 5,042 3,847
Customer mortgages receivable, net............... 111,129 100,166
Other receivables, net........................... 3,959 4,111
Inventory of Vacation Ownership Interests........ 20,952 16,541
Construction in progress......................... 13,001 8,670
-------- --------
Total Vacation Ownership Interests..... 33,953 25,211
-------- --------
Prepaid expenses and other assets................ 13,056 13,978
Land held for development........................ 7,664 8,080
Property and equipment, net...................... 12,966 12,395
-------- --------
Total Assets........................... $196,858 $173,922
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------
Accounts payable and accrued liabilities......... $ 5,401 $ 3,829
Accrued compensation and benefits................ 7,524 9,291
Customer deposits................................ 7,008 4,995
Deferred income taxes............................ 15,217 --
Other liabilities................................ 6,721 6,160
Notes and mortgages payable...................... 84,526 118,557
-------- --------
Total Liabilities...................... 126,397 142,832
Minority interest................................ 4,393 4,442
Shareholder's Equity
Common stock, $.01 par value:
Authorized 100,000,000 shares............... 188 --
Issued and outstanding 18,800,000 shares at
June 30, 1997...................................
Additional paid-in capital....................... 62,134 --
Retained earnings................................ 3,746 --
Equity of predecessor entities................... -- 26,648
-------- --------
Total Shareholder Equity............... 66,068 26,648
-------- --------
Total Liabilities and Shareholder Equity $196,858 $173,922
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
VISTANA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
June 30,
--------
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Vacation Ownership Interest sales................ $ 21,837 $ 15,092
Interest......................................... 4,481 3,585
Resort........................................... 4,164 3,504
Telecommunications............................... 1,612 1,892
Other............................................ 99 109
---------- ----------
Total revenues..................................... 32,193 24,182
---------- ----------
Costs and operating expenses:
Vacation Ownership Interests cost of sales....... 5,060 3,692
Sales and marketing.............................. 9,705 6,538
Interest expense--treasury....................... 1,355 1,665
Provision for doubtful accounts.................. 1,527 1,064
Resort........................................... 3,405 2,927
Telecommunications............................... 1,309 1,525
General and administrative....................... 2,593 1,752
Depreciation and amortization.................... 705 538
Interest expense--other.......................... 310 990
Other............................................ 681 278
Deferred executive incentive compensation........ -- 299
---------- ----------
Total costs and operating expenses................. 26,650 21,268
---------- ----------
Operating income................................... 5,543 2,914
Excess value recognized.......................... 18 35
Minority interest................................ (28) --
---------- ----------
Income before income taxes and extraordinary item.. 5,533 2,949
Provision for income taxes....................... 2,103 --
---------- ----------
Net Income..................................... $ 3,430 $ 2,949
========== ==========
Per Share Data:
Net income per share $0 .18 --
==========
Weighted average number of shares outstanding: 18,800,000 --
==========
Pro Forma Share Data:
Income before income taxes....................... -- $ 2,949
Income tax provision............................. -- 1,121
========== ----------
Net income....................................... -- $ 1,828
========== ==========
Net income per share............................. -- $ 0.13
========== ==========
Weighted average number of shares outstanding.... -- 14,175,000
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
VISTANA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 30,
--------
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Vacation Ownership Interest sales............................................ $ 40,083 $ 28,622
Interest..................................................................... 8,923 7,149
Resort....................................................................... 8,050 7,125
Telecommunications........................................................... 3,195 3,216
Other........................................................................ 246 230
----------- -----------
Total revenues................................................................ 60,497 46,342
----------- -----------
Costs and operating expenses:
Vacation Ownership Interests cost of sales................................... 9,276 7,195
Sales and marketing.......................................................... 18,287 12,569
Interest expense--treasury................................................... 3,130 3,324
Provision for doubtful accounts.............................................. 2,809 2,034
Resort....................................................................... 6,562 5,984
Telecommunications........................................................... 2,580 2,597
General and administrative................................................... 4,957 3,377
Depreciation and amortization................................................ 1,412 1,074
Interest expense--other...................................................... 1,071 2,040
Other........................................................................ 1,470 145
Deferred executive incentive compensation.................................... -- 553
----------- -----------
Total costs and operating expenses............................................ 51,554 40,892
----------- -----------
Operating income.............................................................. 8,943 5,450
Excess value recognized...................................................... 36 70
Minority interest............................................................ 50 --
----------- -----------
Income before income taxes and extraordinary item............................. 9,029 5,520
Provision for income taxes................................................... 2,803 --
Non-recurring charge associated with the change of tax status................ 13,201 --
----------- -----------
Income (Loss) before extraordinary item...................................... (6,975) 5,520
Extraordinary item early extinguishment of debt (net of tax)................. (825) --
----------- -----------
Net Income (Loss)....................................................... $ (7,800) $ 5,520
=========== ===========
Per Share Data:
Loss per share before extraordinary item..................................... $(.40) --
Extraordinary item........................................................... $(.05) --
----------- -----------
Net loss per share....................................................... $(.45) --
=========== ===========
Weighted average number of shares outstanding:................................ 17,317,956 --
=========== ===========
Pro Forma Share Data:
Income before income taxes................................................... $ 5,520
Income tax provision......................................................... 2,048
-----------
Net income................................................................... $ 3,472
===========
Net income per share......................................................... $0.24
===========
Weighted average number of shares outstanding................................ 14,175,000
===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
VISTANA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Amounts In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------
1997 1996
---- ----
<S> <C> <C>
Operating activities
Net Income (Loss)........................................................................................... $ (7,800) $ 5,520
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense..................................................................... 1,412 1,074
Amortization of discount on customer mortgages receivable................................................. (1,531) (1,085)
Provision for doubtful accounts........................................................................... 2,809 2,034
Minority interest......................................................................................... (50) 0
Deferred income taxes..................................................................................... 15,217 0
Changes in operating assets and liabilities
Other receivables, net................................................................................. 152 (380)
Vacation ownership interests........................................................................... (8,325) (4,547)
Prepaid expenses and other assets...................................................................... 313 1,743
Accounts payable and accrued liabilities............................................................... 1,572 (2,441)
Accrued compensation and benefits...................................................................... (1,767) (9)
Customer deposits...................................................................................... 2,013 1,162
Repurchase obligation.................................................................................. 0 (1,179)
Other liabilities...................................................................................... 561 436
-------- --------
Net cash provided by operating activities........................................................... 4,576 2,328
Investing activities
Expenditures for land, property and equipment............................................................... (1,374) (473)
Origination of customer mortgages receivable................................................................ (12,241) (7,562)
Additions to restricted cash................................................................................ (1,195) (77)
-------- --------
Net cash used in investing activities.................................................................. (14,810) (8,112)
Financing activities
Proceeds from notes and mortgages payable................................................................... 26,130 30,226
Payments on notes and mortgages payable..................................................................... (60,161) (22,345)
Proceeds from public offering............................................................................... 51,615 0
Payments of public offering costs........................................................................... (2,150) 0
Equity distributions/redemption............................................................................. (2,245) (1,778)
-------- --------
Net cash provided by financing activities.............................................................. 13,189 6,103
-------- --------
Net increase in cash and cash equivalents.............................................................. 2,955 319
Cash and cash equivalents, beginning of period.............................................................. 6,134 7,543
-------- --------
Cash and cash equivalents, end of period.................................................................... $ 9,089 $ 7,862
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................................................................... $ 4,876 $ 5,376
-------- --------
Cash paid during the period for taxes....................................................................... $ 280 $ --
-------- --------
</TABLE>
<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 June 30, 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 and six months ended June 30, 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 June 30, 1997 and the consolidated results of its operations for the
three months and six months ended June 30, 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 (FASB) 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.
<PAGE>
In February 1997 FASB issued Statement of Financial Accounting Standards
No. 129 "Disclosure of Information about Capital Structure" which establishes
standards for disclosing information about an entity's capital structures. This
Statement is effective for financial statements for periods ending after
December 15, 1997. This Statement will not have a material impact on the
Company.
In June 1997, FASB issued Statement of Financial Accounting Standards No.
130 "Reporting Comprehensive Income" which establishes standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general-purpose financial statements. This
Statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This statement is effective for fiscal years beginning
after December 15, 1997. This Statement will not have a material impact on the
Company.
Note 3. Earnings Per Share
Earnings per share is calculated on the weighted average number of shares
outstanding. The dilutive effect of common stock equivalents for the computation
of earnings per share was less than 3% for the three and six months ended June
30, 1997, therefore, no adjustment has been made to the weighted average number
of shares outstanding. 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 three and six
month periods ended June 30, 1996 have been adjusted to reflect proforma tax
expense of $1.1 million and $2.0 million respectively.
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.
<PAGE>
Note 5. Customer Mortgages Receivable, Net
At June 30, 1997 and December 31, 1996, customer mortgages receivable, net
consisted of:
<TABLE>
<CAPTION>
June 30, December 31,
--------- -------------
1997 1996
--------- -------------
(In thousands)
<S> <C> <C>
Customer mortgages receivable, gross............................. $ 125,213 $ 115,970
Less:
Unamortized discount on repurchased customer mortgages
receivable. (4,009) (5,539)
Unamortized excess value over consideration................. (50) (74)
Allowance for loss on receivables........................... (10,025) (10,191)
--------- -------------
Customer mortgages receivable, net............................... $ 111,129 $ 100,166
========= =============
</TABLE>
As of June 30, 1997 and December 31, 1996, customer mortgages receivable,
gross, from foreign buyers aggregated approximately $29.2 million and $28.1
million respectively, with obligors within no individual foreign country
aggregating more than 5% of gross outstanding customer mortgages receivable.
Stated interest rate on customer mortgages receivable outstanding at June
30, 1997 range from 00.0% to 17.9% per annum (averaging approximately 13.9% 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>
Six Months Ended
June 30,
1997 1996
------- -------
<S> <C> <C>
(In thousands)
Balance, beginning of period................ $10,191 $ 9,009
Provision for doubtful accounts............. 2,809 2,034
Customer mortgages receivable charged off... (2,975) (1,321)
------- -------
Balance, end of period...................... $10,025 $ 9,722
======= =======
</TABLE>
Note 6. Notes and Mortgages Payable
At June 30, 1997 and December 31, 1996 notes and mortgages payable
consisted of:
<TABLE>
<CAPTION>
June 30, December 31,
-------- ------------
1997 1996
-------- ------------
<S> <C> <C>
(In thousands)
Notes payable and mortgage obligations to lender, cross collateralized, which bear
interest at prime plus 2% (10.50% per annum at June 30, 1997). A total of $147.3
million may be borrowed. Maturity dates range from October 30, 1997 to May 2004.
Notes are secured by customer mortgages receivable, land and improvements............ $ 50,807 $ 70,135
Notes payable to banks bearing interest ranging from 8.35% to 11.34% 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............................................................................ 9,487 31,893
Notes payable and mortgage obligations to lender, cross collateralized, which bear
interest at prime plus 2% (10.50% per annum at June 30, 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................... 24,232 16,529
-------- ------------
Total notes and mortgages payable..................................................... $ 84,526 $ 118,557
======== ============
</TABLE>
<PAGE>
During the quarter ended March 31, 1997, the Company repaid $38.9 million
of debt from the proceeds of the Offering. In that quarter, the Company recorded
an expense relating to the write-off of previously capitalized fees and
prepayment penalties of $0.8 million, net of related tax benefits of $0.5
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 in the quarter ended March 31, 1997, 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 the applicable three or six month period.
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 became subject to the federal
Alternative Minimum Tax ("AMT") as a result of the deferred income which results
from the installment sales method in the period ended June 30, 1997. In the
current quarter the Company began paying state AMT tax and the Company expects
to pay state AMT for the balance of the fiscal year.
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 the quarter ended March 31, 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. No
options were exercised during the period.
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. Percentage of Completion
In the current quarter the Company began pre-construction sales at its
Embassy Vacation Resort in Myrtle Beach, South Carolina. Because construction
had not materially begun at June 30, 1997, no sales revenue for these pre-
construction VOI sales have been recognized. There were no pre-construction VOI
sales or any VOI sales recognized under percentage of completion method in
either the first quarter of 1997 or for the six months ended June 30, 1997. The
Company intends to recognize pre-construction VOI sales on the percentage of
completion method as construction progresses.
<PAGE>
Note 10. Proforma Information
VISTANA, INC. AND ITS SUBSIDIARIES
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THREE MONTHS ENDED JUNE 30
(Amounts in Thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
------------------ ------------------
June 30, 1997 June 30, 1996
------------------------------------- ------------------------------------
Proforma Proforma
Actual Adjustments Proforma Actual Adjustments Proforma
------- ----------- -------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Vacation Ownership Interest sales.......... $21,837 $21,837 $15,092 $15,092
Interest................................... 4,481 4,481 3,585 3,585
Resort..................................... 4,164 4,164 3,504 3,504
Telecommunications......................... 1,612 1,612 1,892 1,892
Other...................................... 99 99 109 109
------ ------ ------ ------
Total revenues.................................. 32,193 32,193 24,182 24,182
------ ------ ------ ------
Costs and operating expenses:
Vacation Ownership Interests cost of sales. 5,060 5,060 3,692 3,692
Sales and marketing........................ 9,705 9,705 6,538 6,538
Interests expense-treasury................. 1,355 1,355 1,665 (240) a. 1,425
Provision for doubful accounts............. 1,527 1,527 1,064 1,064
Resort..................................... 3,405 3,405 2,927 2,927
Telecommunications......................... 1,309 1,309 1,525 1,525
General and administrative................. 2,593 2,593 1,752 1,752
Depreciation and amortization.............. 705 705 538 538
Omterest expense-other..................... 310 310 990 (797) a. 193
Other...................................... 681 681 278 278
Deferred executive incentive -- -- -- 299 299
compensation..............................
------ ------- ------ ------ ------ ------
Total costs and operating
expenses....................................... 26,650 -- 26,650 21,268 (1,037) 20,231
------ ------- ------ ------ ------ ------
Operating income................................ 5,543 5,543 2,914 1,037 3,951
Excess value recognized................ 18 18 35 35
Minority interest...................... (28) (28) -- --
------ ------- ------ ------ ------ ------
Income before income taxes
and extraordinary item......................... 5,533 -- 5,533 2,949 1,037 3,986
Provision for income taxes............. 2,103 2,103 1,514 b. 1,514
------ ------- ------ ------ ------ ------
Net Income...................................... $ 3,430 $ -- $ 3,430 $ 2,949 ($477) $ 2,472
======= ======= ======= ======= ====== =======
Proforma weighted average
shares of common stock
outstanding................................ 18,800,000 18,800,000
========== ==========
Proforma net income per share of common stock... $0.18 $0.13
========== ==========
- --------------
</TABLE>
<PAGE>
VISTANA, INC. AND ITS SUBSIDIARIES
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR SIX MONTHS ENDED JUNE 30
(Amounts in Thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
---------------- ----------------
June 30, 1997 June 30, 1996
--------------------------------- ------------------------------
Proforma Proforma
Actual Adjustments Proforma Actual Adjustments Proforma
------- ----------- ----------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Vacation Ownership Interest sales........... $40,083 $40,083 $28,622 $28,622
Interest.................................... 8,923 8,923 7,149 7,149
Resort...................................... 8,050 8,050 7,125 7,125
Telecommunications.......................... 3,195 3,195 3,216 3,216
Other....................................... 246 246 230 230
------- ------- ------- -------
Total revenues....................................... 60,497 60,497 46,342 46,342
------- ------- ------- -------
Costs and operating expenses:
Vacation Ownership Interests cost of sales.. 9,276 9,276 7,195 7,195
Sales and marketing......................... 18,287 18,287 12,569 12,569
Interest expense - treasury................. 3,130 (358) c. 2,772 3,324 (480) a. 2,844
Provision for doubtful accounts............. 2,809 2,809 2,034 2,034
Resort...................................... 6,562 6,562 5,984 5,984
Telecommunications.......................... 2,580 2,580 2,597 2,597
General and administrative.................. 4,957 4,957 3,377 3,377
Depreciation and amortization............... 1,412 1,412 1,074 1,074
Interest expense - other.................... 1,071 (356) c. 715 2,040 (1,594) a. 446
Other....................................... 1,470 1,470 145 145
Deferred executive incentive compensation... -- -- 553 553
------- ------- ------- ------- ------ -------
Total costs and operating expenses................... 51,554 (714) 50,840 40,892 (2,074) 38,818
Operating income..................................... 8,943 714 9,657 5,450 2,074 7,524
Excess value recognized..................... 36 36 70 70
Minority interest........................... 50 50 -- --
------- ------- ------- ------- ------ -------
Income before income taxes and extraordinary item.... 9,029 714 9,743 5,520 2,074 7,594
Provision for income taxes.................. 2,803 900 d. 3,703 2,884 b. 2,884
Non-recurring charge associated with the
change of tax status...................... 13,201 (13,201) e. -- -- -- --
------- ------- ------- ------- ------ -------
Income before extraordinary item..................... (6,975) 13,015 6,040 5,520 (810) 4,710
Extraordinary item early extinguishment of
debt, Net of tax.......................... (825) 825 f. -- -- -- --
------- ------- ------- ------- ------ -------
Net (Loss) Income.................................... ($7,800) $13,840 $6,040 $5,520 ($810) $ 4,710
======= ======= ====== ====== ====== =======
Proforma weighted average shares of common stock
outstanding........................................ 18,800,000 18,800,000
========== ==========
Proforma net income per share of common stock........ $0.32 $0.25
===== =======
</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.
<PAGE>
a. Reflects the effect on the 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.
b. Reflects the effect on the 1996 historical statements of income referred to
in (a) above 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 effect on the 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.
d. Reflects the effect on the 1997 historical statements of income referred to
in (c) above 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.
e. Reflects the elimination of the non-recurring charge for deferred taxes
that relate to the formation transaction.
f. Reflects the write-off of prepaid financing fees related to the notes and
mortgages payable to financial institutions.
Note 11. Subsequent Events
Subsequent to June 30, 1997, the Company entered into a $12.7 million loan
facility for the construction of Embassy Vacation Resort in Myrtle Beach, South
Carolina and related amenities, as well as a related $10.0 million receivables
based revolving credit facility.
Subsequent to June 30, 1997, the Company executed a definitive
agreement to purchase from an affiliate of The PGA of America approximately 25
acres of land adjacent to an existing 36-hole golf facility owned by another
affiliate of The PGA of America in Port St. Lucie, Florida. The present plan is
for the property to contain at least 250 units, representing a total of at least
12,750 VOI's. The purchase price for this property is $3.75 million, and the
Company intends to finance its purchase of the property through the payment of
$1.5 million in cash from its existing working capital and the issuance of a
non-interest bearing note to the seller in the principal amount of $2.25
million. The closing of the purchase of the land is subject to customary
conditions precedent. Concurrent with the closing of the purchase of the land,
the Company and an affiliate of The PGA of America will execute a long-term
affiliation agreement which provides for, among other things, the development of
future vacation ownership resorts and marketing and golf access agreements for
the Port St. Lucie, Florida property.
<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 and six
months ended June 30, 1997 and June 30, 1996.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ -----------------
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of operations:
As a Percentage of total revenues:
VOI Sales.............................................. 67.8% 62.4% 66.3% 61.8%
Interest............................................... 13.9% 14.8% 14.7% 15.4%
Resort................................................. 12.9% 14.5% 13.3% 15.4%
Telecommunications..................................... 5.0% 7.8% 5.3% 6.9%
Other.................................................. 0.3% 0.5% 0.4% 0.5%
------- ------- ------- -------
Total Revenues..................................... 100.0% 100.0% 100.0% 100.0%
======= ======= ======= =======
As a Percentage of VOI Sales:
VOI cost of sales...................................... 23.2% 24.5% 23.1% 25.1%
Sales and marketing.................................... 44.4% 43.3% 45.6% 43.9%
Provision for doubtful accounts........................ 7.0% 7.1% 7.0% 7.1%
As a Percentage of interest revenues:
Loan portfolio:
Interest expense-treasury.......................... 30.2% 46.4% 35.1% 46.5%
As a percentage of total revenues:
General and administrative............................. 8.1% 7.2% 8.2% 7.3%
Depreciation and amortization.......................... 2.2% 2.2% 2.3% 2.3%
Interest expense--other................................ 1.0% 4.1% 1.8% 4.4%
Other...................................................
Deferred Executive Incentive Compensation.......... -- 1.2% -- 1.2%
------- ------- ------- -------
Total costs and operating expenses................. 82.8% 87.9% 85.2% 88.2%
As a Percentage of resort revenues:
Resort expenses (1).................................... 81.8% 83.5% 81.5% 84.0%
As a Percentage of telecommunication revenues:
Telecommunications expenses (1)........................ 81.2% 80.6% 80.8% 80.7%
Selected operating data:
Number of resorts at end of period..................... 3 2 3 2
Number of VOI's sold (2)............................... 2,078 1,455 3,920 2,805
Number of VOI's in inventory at period end (3)......... 13,421 3,142 13,421 3,142
Average sales price per VOI sold....................... $10,509 $10,373 $10,225 $10,204
</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>
Comparison of the three months ended June 30, 1997 to the three months ended
June 30, 1996.
Revenue:
For the three months ended June 30, 1997, the Company recognized total
revenues of $32.2 million compared to $24.2 million for the three months ended
June 30, 1996, an increase of $8.0 million, or 33.1%. This increase is primarily
due to a $6.7 million increase in sales of VOI's from $15.1 million during 1996
to $21.8 million during 1997, an increase of 44.7%. VOI sales increased due to a
42.8% increase in the number of VOI's sold, enhanced by a 1.3% increase in the
average sales price. The increase in VOI's sold was a result of expanded sales
and marketing programs at both Vistana Resort-Orlando and at Hampton Vacation
Resort-Oak Plantation, which was included in sales for 1997 but not for 1996.
Expanding international sales and marketing programs also contributed to the
increase in VOI sales.
Interest income increased 25.1%, from $3.6 million to $4.5 million due to a
20.1% increase in the average principal amount of net customer mortgages
receivable from $91.4 million to $109.8 million (despite a decrease in the
average interest rate on customer mortgage receivables from 14.2% to 13.9%).
Also included in interest income is the discount amortization on customer
mortgages receivable recognized during the comparable three month periods ended
June 30, 1997 and June 30, 1996 of $765,000 and $542,300, 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 June 30, 1997, $4.0 million of
total unamortized discount remained and is expected to be amortized through
1999.
Resort revenue increased 18.9%, from $3.5 million to $4.2 million,
primarily from the impact of $.6 million of room rentals beginning at Hampton
Vacation Resort-Oak Plantation, which are included for June 30, 1997, but not
for the June 30, 1996 period. Telecommunication revenues (guest telephone
charges relating to the existing resorts and revenues from contracting services
provided to third parties) decreased 14.8% from $1.9 million at June 30, 1996 to
$1.6 million at June 30, 1997, due to a decline in contracting revenues in the
amount of $.3 million.
Costs and Operating Expenses:
Total operating costs and expenses increased $5.4 million, or 25.4% from
$21.3 million in the second quarter of 1996 to $26.7 million in the comparable
1997 quarter but declined as a percentage of total revenues from 87.9% in 1996
to 82.8% in 1997. VOI product costs, as a percentage of VOI revenues, decreased
from 24.5% in 1996 to 23.2% in 1997, as a result of sales in the current period
of phases with relatively lower per unit costs at Vistana Resort and at Hampton
Vacation Resort-Oak Plantation. Sales and marketing expenses, as a percentage of
VOI revenues, increased from 43.3% in 1996 to 44.4% in 1997 during the
comparable three month period due to higher marketing expenses at the Company's
resorts, as well as expenses related to increased international sales, which
carry higher sales and marketing costs, and from the opening of new national and
international sales facilities.
Loan portfolio expenses consisting of interest expense--treasury decreased
to $1.4 million in 1997 from $1.7 million in 1996 primarily as a result of
interest benefit obtained as a result of the debt repayment made 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 7.1% in 1996.
The Company periodically 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 expenses, as a percentage of revenues, decreased to 81.8%
from 83.5% for the three months ended June 30, 1997 and 1996, respectively, as a
result of increased operating efficiencies. Telecommunications expenses
increased 0.6% as a percentage of total telecommunication revenues due to
increases in indirect contracting costs.
General and administrative expenses increased from $1.8 million for the
three months ended June 30, 1996 to $2.6 million for the three months ended June
30, 1997, increasing as a percent of total revenues from 7.2% in 1996 to 8.1% 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
<PAGE>
amortization remained relatively constant as a percentage of total revenues
reflecting the added costs of deprecation from capital additions being spread
over a larger revenue base. Interest expense-other decreased from 4.1% in 1996
as a percentage of total revenues to 1.0% in the same period of 1997 due to
early extinguishment of debt from funds provided by the Offering.
Operating income increased 90.2% to $5.5 million, or 17.2% of total
revenues, during the three months ended June 30, 1997 from $2.9 million, or
12.1% of total revenues, during the three months ended June 30, 1996.
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. For the quarter ended
June 30, 1997, the Company recorded a deferred income tax expense provision of
$2.1 million. The deferred tax assets, deferred tax liabilities and the current
tax provision were estimated based on management's most recent information as of
June 30, 1997. The provision for income taxes reflects the income tax expense
from the date of the formation through June 30, 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 became subject to the federal
Alternative Minimum Tax (''AMT'') as a result of the deferred income which
results from the installment sales method in the period ended June 30, 1997. In
the current quarter the Company began paying state AMT tax and the Company
expects to pay state AMT for the balance of the fiscal year.
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.
<PAGE>
Comparison of the six months ended June 30, 1997 to the six months ended June
30, 1996.
Revenue:
For the six months ended June 30, 1997, the Company recognized total
revenues of $60.5 million compared to $46.3 million for the six months ended
June 30, 1996, an increase of $14.2 million, or 30.6%. This increase is
primarily due to a $11.5 million increase in sales of VOI's from $28.6 million
during 1996 to $40.1 million during 1997, an increase of 40.0%. VOI sales
increased due to a 39.8% increase in the number of VOI's sold, enhanced by a
.2% increase in the average sales price. 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 Hampton Vacation Resort-Oak Plantation
which were included in sales for 1997 but not for 1996.
Interest income increased 24.8%, from $7.1 million to $8.9 million due to a
20.3% increase in the average principal amount of net customer mortgages
receivable from $90.0 million to $108.3 million (despite a decline in the
average interest rate on customer receivables from 14.2% to 14.1%). Also
included in interest income is the discount amortization on customer mortgages
receivable recognized during the comparable six month periods ended June 30,
1997 and June 30, 1996 of $1.5 million and $1.1 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 June 30, 1997, $4.0 million of
total unamortized discount remained and is expected to be amortized through
1999.
Resort revenue increased 13.0%, from $7.1 million to $8.1 million, as a
result of increased room rentals primarily from the impact of additional room
rentals at Hampton Vacation Resort-Oak Plantation, which are included for the
six months ended in June 30, 1997, but not for same period in same period in
1996. Telecommunication revenues (guest telephone charges relating to the
existing resorts and revenues from contracting services provided to third
parties) remained relatively constant against the comparable six month period
ended June 30, 1996.
Costs and Operating Expenses:
Total operating costs and expenses increased $10.7 million or 26.1% from
$40.9 million in the period ending June 30, 1996 to $51.6 million in the
comparable 1997 period, but declined as a percentage of total revenue from 88.2%
in 1996 to 85.2% in 1997. VOI product costs, as a percentage of VOI revenues,
decreased from 25.1% 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-
Orlando and Hampton Vacation Resort-Oak Plantation. Sales and marketing expenses
increased 45.5% from $12.6 million in 1996 to $18.3 million in 1997 during the
comparable six month period principally due to the 40.0% increase in related VOI
sales and the Company's sales facilities expansion. As a percentage of VOI
sales, selling and marketing expenses increased from 43.9% in the period ended
June 30, 1996 to 45.6% in period ended June 30, 1997 as a result of higher
marketing costs, as well as expenses related to increased international sales,
which carry higher sales and marketing costs, and from the opening of new
national and international sales facilities.
Loan portfolio expenses consisting of interest expense--treasury decreased
to $3.1 million in 1997 from $3.3 million in 1996 primarily as a result of the
interest benefit obtained as a result of the debt repayment made 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 7.1% in 1996.
The Company periodically 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 rate
commensurate with that of related revenues.
General and administrative expenses increased from $3.4 million for the six
months ended June 30, 1996 to $5.0 million for the six months ended June 30,
1997 increasing as a percent of total revenues, from 7.3% in 1996 to 8.2% 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
<PAGE>
remained constant at 2.3% as a percentage of total revenues in both respective
periods reflecting the added costs of depreciation from capital additions being
spread over a larger revenue base. Interest expense-other decreased from 4.4% in
1996 as a percentage of total revenue to 1.8% in the same period of 1997 due to
early extinguishment of debt from funds provided by the Offering.
Operating income increased 64.1% to $8.9 million, or 14.8% of total
revenues, during the six months ended June 30, 1997 from $5.5 million, or 11.8%
of total revenues, during the six months ended June 30, 1996.
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 six
months ended June 30, 1997, the Company also recorded a deferred income tax
expense provision of $2.8 million, less $.5 million 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 June 30, 1997. The provision for
income taxes reflects the income tax expense from the date of the formation
through June 30, 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 became subject to the federal
Alternative Minimum Tax (''AMT'') as a result of the deferred income which
results from the installment sales method in the period ended June 30, 1997. In
the current quarter the Company began paying state AMT tax and the Company
expects to pay state AMT for the balance of the fiscal year.
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 first quarter of 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 (i) customer down payments and (ii) 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 13.9% at June 30, 1997) and the interest
paid on the notes payable secured by the Company's pledge of such customer
mortgages receivable (which averaged 10.5% at June 30, 1997). Cash provided by
operations for the six months ended June 30, 1997 and 1996 increased to $4.6
million from $2.3 million, primarily due to improved operating results in 1997.
Net cash used in investing activities for the six months ended June 30,
1997 and 1996 was $14.8 million and $8.1 million, respectively, principally due
to increased sales of VOI's and the related increase in customer mortgages
receivable.
Net cash provided by financing activities was $13.2 million during the six
month period ended June 30, 1997 versus a net cash provided in 1996 of $6.1
million primarily due to the Company's issuance in the first quarter of 1997 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
<PAGE>
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's current credit facilities (the ''Credit Facilities'') provide
for term loans, of which $28.4 million were outstanding as of June 30, 1997, and
revolving lines of credit, under which the Company had borrowings of $56.2
million as of June 30, 1997 against total available capacity at that date of
$81.6 million. As of June 30, 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 10.50%. Approximately $72
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 requires funds, which it obtains from its current Credit
Facilities, 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. Of the amounts outstanding under the Company's
Credit Facilities, as of June 30, 1997, the Company had $27.6 million
outstanding under its notes payable secured by its land and VOI inventory, $52.3
million outstanding under its notes payable secured by customer mortgages
receivable and $4.7 of other secured and unsecured notes payable. As of June 30,
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 $1.0 million in 1997 (last six months), $1.4
million in 1998, $1.4 million in 1999, $1.1 million in 2000 and $.7 million in
2001.
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. The Company is also currently
considering the acquisition of several additional land parcels for the
development of additional resorts. The Company also evaluates additional asset
and operating company acquisitions, but presently has no contracts or capital
commitments relating to any such potential acquisitions.
Also, subsequent to June 30, 1997, the Company executed a definitive
agreement to purchase from an affiliate of The PGA of America approximately 25
acres of land adjacent to an existing 36-hole golf facility owned by another
affiliate of The PGA of America in Port St. Lucie, Florida. The present plan is
for the property to contain at least 250 units, representing a total of at least
12,750 VOI's. The purchase price for this property is $3.75 million, and the
Company intends to finance its purchase of the property through the payment of
$1.5 million in cash from its existing working capital and the issuance of a
non-interest bearing note to the seller in the principal amount of $2.25
million. The closing of the purchase of the land is subject to customary
conditions precedent. Concurrent with the closing of the purchase of the land,
the Company and an affiliate of The PGA of America will execute a long-term
affiliation agreement which provides for, among other things, the development of
future vacation ownership resorts and marketing and golf access agreements for
the Port St. Lucie, Florida property.
In the future, the Company may negotiate additional credit facilities, or
issue debt. 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. In this regard, as of July 31, 1997, the Company entered into a
$12.7 million loan facility for the construction of Embassy Vacation Resort in
Myrtle Beach, South Carolina and related amenities, as well as a related $10.0
million receivable based revolving credit facility.
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 its current operations for the next 12 months. However, depending upon the
Company's growth opportunities and the conditions in the capital and other
financial markets, and other factors, the Company may from time to time consider
the issuance of debt, equity or other securities, the proceeds of which may be
used to finance acquisitions, to refinance debt or for general corporate
purposes.
<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>
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 June 30,
1997.
<PAGE>
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: August 13, 1997 By: /s/ Raymond L. Gellein, Jr.
-------------------------------
Raymond L. Gellein, Jr.
Chairman and Co-Chief Executive
By: /s/ John M. Sabin
-------------------------------
John M. Sabin
Sr. Vice President and Chief Financial Officer
Chief Accounting Officer
<PAGE>
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: August 13, 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
<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 June 30, 1997, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 14,131
<SECURITIES> 0
<RECEIVABLES> 125,213
<ALLOWANCES> (10,025)
<INVENTORY> 33,953
<CURRENT-ASSETS> 0
<PP&E> 18,954,180
<DEPRECIATION> (5,987,618)
<TOTAL-ASSETS> 196,858
<CURRENT-LIABILITIES> 0
<BONDS> 84,526
0
0
<COMMON> 188
<OTHER-SE> 65,880
<TOTAL-LIABILITY-AND-EQUITY> 196,858
<SALES> 40,083
<TOTAL-REVENUES> 60,497
<CGS> 9,276
<TOTAL-COSTS> 27,563
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,809
<INTEREST-EXPENSE> 4,201
<INCOME-PRETAX> 9,029
<INCOME-TAX> 16,004
<INCOME-CONTINUING> (6,975)
<DISCONTINUED> 0
<EXTRAORDINARY> (825)
<CHANGES> 0
<NET-INCOME> (7,800)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> 0
</TABLE>
