<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, 1998.
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 3, 1998: 21,127,280 shares.
This quarterly report on Form 10-Q contains 19 pages, of which this is page 1.
1
<PAGE>
VISTANA, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, June 30, 1998 (unaudited)
and December 31, 1997 Page 3
Condensed Consolidated Statements of Income for the three month
periods ended June 30, 1998 and 1997 (unaudited) Page 4
Condensed Consolidated Statements of Income for the six month
periods ended June 30, 1998 and 1997 (unaudited) Page 5
Condensed Consolidated Statements of Cash Flow for the six month
periods ended June 30, 1998 and 1997 (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 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings Page 18
Item 2. Changes in Securities Page 18
Item 3. Defaults upon Senior Securities Page 18
Item 4. Submission of Matters to a Vote of Security Holders Page 18
Item 5. Other Information Page 18
Item 6. Exhibits and Reports on Form 8-K Page 18
</TABLE>
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>
June 30, December 31,
1998 1997
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 15,578 $ 9,878
Restricted cash 17,772 9,196
Customer mortgages receivable, net 183,676 155,048
Other receivables, net 6,673 4,953
Inventory of Vacation Ownership Interests 28,662 27,271
Construction in progress 47,728 17,026
-------- ----------
Total Vacation Ownership Interests $ 76,390 $ 44,297
-------- --------
Prepaid expenses and other assets 19,129 15,021
Land held for development 9,229 13,840
Intangible assets, net 18,483 17,275
Property and equipment, net 27,441 17,701
-------- --------
Total Assets $374,371 $287,209
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 14,170 $ 9,276
Income taxes payable 1,445 1,927
Accrued compensation and benefits 9,764 9,847
Customer deposits 16,605 9,423
Deferred income taxes 20,119 17,535
Other liabilities 10,497 6,265
Notes and mortgages payable 167,842 109,547
-------- ----------
Total Liabilities 240,442 163,820
Minority interest 3,405 3,984
Shareholder's Equity
Common stock, $.01 par value:
Authorized 100,000,000 shares
Issued and outstanding 21,127,280 shares and 21,007,630
at June 30, 1998 and December 31, 1997, respectively 211 210
Additional paid-in capital 109,790 107,341
Retained earnings 20,523 11,854
-------- --------
Total Shareholder's Equity 130,524 119,405
-------- --------
Total Liabilities and Shareholder's Equity $374,371 $287,209
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
VISTANA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenues:
Vacation Ownership Interest sales $ 42,596 $ 21,837
Interest 6,154 4,481
Resort 5,488 4,164
Telecommunications 2,058 1,612
Other 1,255 99
----------- -----------
Total revenues 57,551 32,193
----------- -----------
Costs and operating expenses:
Vacation Ownership Interest cost of sales 9,372 5,060
Sales and marketing 20,192 9,705
Interest expense--treasury 2,083 1,355
Provision for doubtful accounts 3,144 1,527
Resort 4,819 3,405
Telecommunications 1,660 1,309
General and administrative 4,753 2,593
Depreciation and amortization 1,481 705
Interest expense--other 442 310
Other 1,551 681
----------- -----------
Total costs and operating expenses 49,497 26,650
----------- -----------
Operating income 8,054 5,543
Excess value recognized 32 18
Minority interest 285 (28)
----------- -----------
Income before income taxes 8,371 5,533
Provision for income taxes 3,181 2,103
----------- -----------
Net Income $ 5,190 $ 3,430
=========== ===========
Per Share Data:
Basic
Net income (loss) per share $ 0 .25 $ 0.18
Weighted average number of shares outstanding 21,162,981 18,800,000
=========== ===========
Diluted
Net income (loss) per share 0.24 0.18
Weighted average number of shares outstanding: 21,630,417 18,824,908
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
VISTANA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Vacation Ownership Interest sales $ 76,131 $ 40,083
Interest 12,239 8,923
Resort 10,080 8,050
Telecommunications 4,101 3,195
Other 2,186 246
----------- -----------
Total revenues 104,737 60,497
----------- -----------
Costs and operating expenses:
Vacation Ownership Interest cost of sales 16,420 9,276
Sales and marketing 37,137 18,287
Interest expense--treasury 4,271 3,130
Provision for doubtful accounts 5,626 2,809
Resort 8,576 6,562
Telecommunications 3,307 2,580
General and administrative 9,348 4,957
Depreciation and amortization 2,661 1,412
Interest expense--other 815 1,071
Other 3,235 1,470
----------- -----------
Total costs and operating expenses 91,396 51,554
----------- -----------
Operating income 13,341 8,943
Excess value recognized 62 36
Minority interest 579 50
----------- -----------
Income before income taxes and extraordinary item 13,982 9,029
Provision for income taxes 5,313 2,803
Non-recurring charge associated with the change of tax status 0 13,201
----------- -----------
Income (Loss) before extraordinary item 8,669 (6,975)
Extraordinary item early extinguishment of debt (net of tax) 0 (825)
----------- -----------
Net Income (Loss) $ 8,669 $ (7,800)
=========== ===========
Per Share Data:
Basic
Income (Loss) per share before extraordinary item $ 0.41 $ (0.40)
Extraordinary item .00 (0.05)
----------- -----------
Net income (loss) per share $ 0.41 $ (0.45)
=========== ===========
Weighted average number of shares outstanding: 21,062,732 17,317,956
=========== ===========
Diluted
Income (Loss) per share before extraordinary item $ 0.40 $ (0.40)
Extraordinary item .00 (0.05)
----------- -----------
Net income (loss) per share $ 0.40 $ (0.45)
----------- -----------
Weighted average number of shares outstanding: 21,568,074 17,317,956
=========== ===========
Pro Forma Share Data:
Income before income taxes $ 9,029
Income tax provision 3,431
-----------
Net income $ 5,598
===========
Net income per share $ .30
===========
Weighted average number of shares outstanding 18,800,000
===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
VISTANA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------
1998 1997
---- ----
Operating activities
<S> <C> <C>
Net Income (Loss) $ 8,669 $ (7,800)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization expense 2,661 1,412
Amortization of discount on customer mortgages receivable (824) (1,531)
Provision for doubtful accounts 5,626 2,809
Minority interest (579) (50)
Deferred income taxes 2,584 15,217
Changes in operating assets and liabilities
Other receivables, net (1,720) 152
Vacation ownership interests (27,482) (8,325)
Prepaid expenses and other assets (5,088) 313
Accounts payable and accrued liabilities 4,894 1,572
Income taxes payable (482) --
Accrued compensation and benefits (83) (1,767)
Customer deposits 7,182 2,013
Other liabilities 4,232 561
-------- --------
Net cash provided (used) by operating activities (410) 4,576
-------- --------
Investing activities
Expenditures for land, property and equipment (11,018) (1,374)
Origination of customer mortgages receivable (33,430) (12,241)
Additions to restricted cash (8,576) (1,195)
-------- --------
Net cash used in investing activities (53,024) (14,810)
-------- --------
Financing activities
Proceeds from notes and mortgages payable 125,995 26,130
Payments on notes and mortgages payable (67,770) (60,161)
Proceeds from public offering -- 51,615
Payments of public offering costs -- (2,150)
Equity distributions/redemption -- (2,245)
Proceeds from option exercises 839 --
-------- --------
Net cash provided by financing activities 59,134 13,189
-------- --------
Net increase in cash and cash equivalents $ 5,700 2,955
======== ========
Cash and cash equivalents, beginning of period 9,878 6,134
-------- --------
Cash and cash equivalents, end of period $ 15,578 $ 9,089
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 3,235 $ 4,876
======== ========
Cash paid during the period for taxes $ 3,210 $ 280
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
VISTANA, INC. AND SUBSIDIARIES
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, selling and financing the sale of VOI's, and (2) managing
the operations of its resorts and related amenities. The Company sells VOI's to
both domestic and foreign purchasers. All contracts relating to the sale of
VOI's are denominated in U. S. dollars.
The condensed consolidated financial statements shown herein for the Company and
its consolidated subsidiaries for 1997 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 "Initial Offering") completed on February 28, 1997. At June 30, 1998 and
1997, the 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, 1998 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, 1998 and the consolidated results of its operations for the
three months and six months ended June 30, 1998 and 1997. 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. The accounting policies used in preparing these
condensed consolidated financial statements are the same as those described in
the Company's Annual Report on Form 10-K and the consolidated financial
statements incorporated by reference therein.
Note 2. Effect of New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per
Share" which simplifies the calculation of earnings per share. Basic earnings
per share ("EPS") excludes dilution and is computed by dividing income available
to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue Common Stock were
exercised and shared in the earnings of the Company. The Company adopted this
Standard in December 1997 with prior interim periods restated as required. For
the three months and the six months ended June 30, 1998, approximately 0.5
million net shares relative to options granted were considered dilutive after
giving effect for taxes and the application of the treasury stock method and
were included in the respective diluted EPS calculations. An additional 0.02
million net shares were considered anti-dilutive and therefore excluded from the
respective diluted EPS calculations.
In 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income" which
addresses the reporting requirements for presenting comprehensive income in
interim and annual 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. Compliance with this
Statement is effective for fiscal years beginning after December 31, 1997. For
the three months and six months ended June 30, 1998, the Company had no amounts
considered as "other" comprehensive income in accordance with SFAS No. 130.
Therefore, comprehensive income is equivalent to net income as reported on the
face of the statement of income.
7
<PAGE>
In June 1997, the FASB issued SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information" which establishes standards for the way
public business enterprises are to report information about operating segments
in annual financial statements. This Statement requires reporting of selected
information about operating segments. This Statement is effective for fiscal
years beginning after December 15, 1997, although it is not required for interim
financial statements in the initial year of application. This Statement will
not have a material impact on the Company.
On April 3, 1998, the AICPA Accounting Standards Executive Committee (AcSEC)
issued Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" (SOP 98-5). SOP 98-5 is applicable to all nongovernmental entities
and requires that costs of start-up activities, including organization costs, be
expensed as incurred. Except for certain specified investment companies, SOP
98-5 is effective for financial statements for fiscal years beginning after
December 15, 1998. This Statement will not have a material impact on the
Company.
In March 1998, the AcSEC issued SOP 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 is applicable to all
nongovernmental entities and requires that external direct costs of materials
and services incurred in developing or obtaining internal use software, payroll
and payroll-related costs for employees who are directly associated with and who
devote time to the internal use software project, and interest costs be
capitalized. All other costs should be expensed as incurred. SOP 98-1 is
effective for financial statements for financial statements for fiscal years
beginning after December 15, 1998 with earlier application permitted. This
Statement will not have a material impact on the Company.
Note 3. Capital Transactions and Basis of Presentation
The Company became the parent for all of the operations of its predecessors in
connection with the Initial Offering. At the time of the Initial Offering, each
of the owners of the predecessor entities (the "Principal Shareholders")
transferred to the Company all of the existing common stock and partnership
interests owned by them in exchange for 14.2 million shares (20 shares of the
Common Stock of Vistana, Inc. were outstanding at the time of the Initial
Offering) of the Company (the "Formation Transactions"). A total of 5.6 million
shares of the Common Stock of the Company were offered (4.6 million shares by
the Company and 0.9 million shares by the Principal Shareholders) to the public
in the Initial Offering. In addition, in connection with the Initial Offering
and the Formation Transactions, former equity holders of the Company's
predecessor corporations and limited partnerships received a distribution of
approximately $2.6 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 Initial Offering, and $2.3
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. The Formation Transactions were 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 entities' basis.
The majority of the consolidated subsidiaries were formed in 1991 by the
principal shareholders to acquire and own, either directly or indirectly, the
assets and certain liabilities of the predecessor operating entities from the
previous owner. The consolidated financial statements shown herein for the
Company and its consolidated subsidiaries for 1997 include the operations of its
predecessors in interest.
Pro forma (unaudited) financial data presented on the face of the condensed
consolidated statement of income for the six months ended June 30, 1997 reflect
the elimination of the non-recurring charge for deferred taxes pertaining to the
predecessor entities relative to all years prior to 1997.
Note 4. Customer Mortgages Receivable, Net
At June 30, 1998 and December 31, 1997, customer mortgages receivable, net,
consisted of:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
<S> <C> <C>
(In thousands)
Customer mortgages receivable, gross $200,746 $170,147
Less:
Unamortized discount on repurchased customer mortgages receivable (1,654) (2,478)
Unamortized excess value over consideration (3) (27)
Allowance for loss on receivables (15,413) (12,594)
-------- --------
Customer mortgages receivable, net $183,676 $155,048
======== ========
</TABLE>
8
<PAGE>
As of June 30, 1998 and December 31, 1997, customer mortgages receivable, gross,
from foreign buyers aggregated approximately $38.8 million and $34.5 million,
respectively, with buyers within no individual foreign country aggregating more
than 5% of gross outstanding customer mortgages receivable. Stated interest
rates on customer mortgages receivable outstanding at June 30, 1998 range from
00.0% to 17.9% per annum (averaging approximately 14.22% 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,
1998 1997
------- -------
<S> <C> <C>
(In thousands)
Balance, beginning of period $12,594 $10,191
Provision for doubtful accounts 5,626 2,809
Customer mortgages receivable charged off (2,807) (2,975)
------- -------
Balance, end of period $15,413 $10,025
======= =======
</TABLE>
Note 5. Notes and Mortgages Payable
At June 30, 1998 and December 31, 1997 notes and mortgages payable consisted of:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
(In thousands)
<S> <C> <C>
Notes payable secured by customer mortgages receivable bearing
interest at rates which include fixed interest of 11.34% and variable
rates ranging from prime plus 1.5% (10% at June 30, 1998), prime plus
2% (10.5% at June 30, 1998) LIBOR plus 2.5% (8.16% at June 30, 1998)
and LIBOR plus 1% (6.66% at June 30, 1998) $110,487 $ 79,202
Notes payable and mortgage obligations secured by real estate bearing
interest at variable rates which include prime plus 2%, LIBOR plus
3.25% (8.91% at June 30, 1998) and fixed interest at 8.2% 44,245 27,527
Other notes and mortgage loans payable bearing primarily variable
interest at rates which include LIBOR plus 2.25% (7.91% at June 30,
1998) and prime plus 2% 13,110 2,818
-------- -----------
Total notes and mortgages payable: $167,842 $ 109,547
======== ===========
</TABLE>
During the quarter ended March 31, 1997, the Company repaid $39.7 million of
debt and related interest and prepayment penalties in connection with the
Initial Offering. 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 6. Income Taxes
Upon completion of the Initial Offering, the Company became subject to federal
and state income taxes from the effective date of the sale of the Common Stock.
In addition, during the quarter ended March 31, 1997, the Company was required
to provide a deferred tax liability for cumulative temporary differences between
financial reporting and tax reporting in its consolidated statements of income
for the period following the effective date of the Initial Offering. Such
deferred taxes were based on the cumulative temporary differences at the date of
the Initial Offering and totaled $13.2 million.
9
<PAGE>
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. In 1997, the Company became subject to the Alternative
Minimum Tax ("AMT") as a result of the deferred income which results from the
installment sales method. In 1998, the Company will continue to be subject to
state and federal AMT.
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 mortgages
receivable 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 7. Stock Plans
The Vistana, Inc. Stock Plan (the "Stock Plan") was adopted by the Company's
shareholders in December 1996, prior to the Initial Offering. As of June 30,
1998, the Stock Plan covered 2.5 million shares of Common Stock. The Stock Plan
permits the Company to grant to employees, directors, officers, and consultants
of the Company and its subsidiaries and affiliates: (i) incentive stock options
("ISOs"); (ii) non-qualified stock options ("NSOs"); (iii) stock appreciation
rights; (iv) phantom stock awards; and (v) restricted stock. An amendment
increasing the number of shares covered by the Stock Plan from 1.9 million
shares to 2.5 million shares was approved by the shareholders and became
effective on April 30, 1998. The Stock Plan is administered by the Compensation
Committee of the Board of Directors, which also selects the individuals who
receive grants under the plan. As of June 30, 1998, the only grants that had
been made under the Stock Plan were NSOs.
In connection with the Initial Offering, the Principal Shareholders granted
certain executive officers and other employees of and a consultant to the
Company (i) immediately exercisable options to purchase an aggregate of 1.4
million shares of Common Stock at an exercise price equal to $12 per share, (ii)
an option, which vests on February 10, 2001, to purchase an aggregate of 0.04
million shares of Common Stock at an exercise price equal to $12 per share,
(iii) an option, which vests over a period of four years, to purchase 0.4
million shares of Common Stock at an exercise price equal to $24.62 per share,
and (iv) an option, which vests over a period of four years, to purchase an
aggregate of 0.04 million shares of Common Stock at an exercise price equal to
$24.25 per share. These options will terminate ten years after the date of
grant, subject to certain exceptions. The shares covered by these options were
included in shares issued and outstanding as of June 30, 1998 and December 31,
1997.
Effective October 1, 1997, the Company adopted the Vistana, Inc. Employee Stock
Purchase Plan (the "Purchase Plan") to assist employees in acquiring a stock
ownership interest in the Company and to encourage employees to remain in the
employ of the Company. The Purchase Plan meets the requirements of an "employee
stock purchase plan" pursuant to section 423 of the Internal Revenue Code. A
maximum of 1 million shares of Common Stock is reserved for issuance under the
Purchase Plan. The first purchase period under the Purchase Plan occurred on
April 1, 1998.
Note 8. Subsequent Events
On July 9, 1998, the Company entered into a $60 million revolving construction
credit facility (the "Construction Facility"). The Construction Facility
provides a three-year borrowing term followed by a five-year provision for
repayment and bears interest at LIBOR (30 day) plus 2.85% per annum. The
Construction Facility matures on July 9, 2006.
On July 30, 1998, the Company acquired approximately 45 acres of land with an
option for an additional 45 acres in Orlando, Florida at a total acquisition
cost of $12.7 million. The full 90 acres is zoned for up to 1,800 VOI's. The
purchase is intended for the development of the successor to the Company's
flagship property, Vistana Resort. Construction is expected to begin in the
third quarter of 1999. Financing of the acquisition was provided through the
Construction Facility.
10
<PAGE>
Note 9. Pro Forma Information
VISTANA, INC. AND ITS SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR SIX MONTHS ENDED JUNE 30, 1997
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Vacation Ownership Interest sales $40,083 $ 40,083
Interest 8,923 8,923
Resort 8,050 8,050
Telecommunications 3,195 3,195
Other 246 246
------- -----------
Total revenues 60,497 60,497
------- -----------
Costs and operating expenses:
Vacation Ownership Interest cost of
Sales 9,276 9,276
Sales and marketing 18,287 18,287
Interest expense--treasury 3,130 (358) (a) 2,772
Provision for doubtful accounts 2,809 2,809
Resort 6,562 6,562
Telecommunications 2,580 2,580
General and administrative 4,957 4,957
Depreciation and amortization 1,412 1,412
Interest expense--other 1,071 (356) (a) 715
Other 1,470 1,470
------- ------- -----------
Total costs and operating expenses 51,554 (714) 50,840
Operating income 8,943 714 9,657
Excess value recognized 36 36
Minority interest 50 50
------- ------- -----------
Income before income taxes and
extraordinary item 9,029 714 9,743
Provision for income taxes 2,803 900 (b) 3,703
Non-recurring charge associated
with the change of tax status 13,201 (13,201) (c) --
------- ------- -----------
Income (Loss) before extraordinary item (6,975) 13,015 6,040
Extraordinary item early
extinguishment of debt, Net of tax (825) 825 (d) --
Net (Loss) Income $(7,800) $ 13,840 $ 6,040
======= ======== ===========
Pro forma earnings per share--diluted $ 0.32
===========
Pro forma weighted average shares of
common stock outstanding--diluted 18,800,000
===========
</TABLE>
(a) Reflects the Company's Initial Offering and related reduction of interest
expense with the early extinguishment of debt as if these events had
occurred at the beginning of the period.
(b) Reflects the treatment of the Company as a C corporation for federal income
tax purposes as of the beginning of the period.
(c) Reflects the elimination of the non-recurring charge for deferred taxes
that relates to the conversion of tax status for the Company's predecessor
entities.
(d) Reflects the elimination of the extraordinary items related to the early
extinguishment of debt, net of taxes, referred to in (a) above.
11
<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, 1998 and June 30, 1997 (Unaudited).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of operations:
As a Percentage of total revenues:
VOI sales 74.0% 67.8% 72.7% 66.3%
Interest 10.7% 13.9% 11.7% 14.7%
Resort 9.5% 12.9% 9.6% 13.3%
Telecommunications 3.6% 5.0% 3.9% 5.3%
Other 2.2% 0.3% 2.1% 0.4%
------ ------- ------ -------
Total Revenues 100.0% 100.0% 100.0% 100.0%
====== ======= ====== =======
As a Percentage of VOI Sales:
VOI cost of sales 22.0% 23.2% 21.6% 23.1%
Sales and marketing 47.4% 44.4% 48.8% 45.6%
Provision for doubtful accounts 7.4% 7.0% 7.4% 7.0%
As a Percentage of interest revenues:
Loan portfolio:
Interest expense--treasury 33.8% 30.2% 34.9% 35.1%
As a percentage of total revenues:
General and administrative 8.3% 8.1% 8.9% 8.2%
Depreciation and amortization 2.6% 2.2% 2.5% 2.3%
Interest expense--other 0.8% 1.0% 0.8% 1.8%
Other 2.7% 2.1% 3.1% 2.4%
Total costs and operating expenses 86.0% 82.8% 87.3% 85.2%
As a Percentage of resort revenues:
Resort expenses (1) 87.8% 81.8% 85.1% 81.5%
As a Percentage of telecommunication revenues:
Telecommunications expenses (1) 80.7% 81.2% 80.6% 80.8%
Selected operating data:
Number of resorts at end of period 8 3 8 3
Number of VOI's sold (2) 4,642 2,078 8,105 3,920
Number of VOI's in inventory at period end (3) 17,729 13,421 17,729 13,421
Average sales price per VOI sold $ 9,549 $10,509 9,607 $10,225
</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.
12
<PAGE>
RESULTS
Comparison of the three months ended June 30, 1998 to the three months ended
June 30, 1997.
Revenue:
For the three months ended June 30, 1998, the Company recognized total revenues
of $57.6 million compared to $32.2 million for the three months ended June 30,
1997, an increase of $25.4 million, or 78.9%. This increase is primarily due to
a $20.8 million increase in sales of VOI's from $21.8 million during 1997 to
$42.6 million during 1998, an increase of 95.4%. VOI sales increased due to a
123.4% increase in the number of VOI's sold, offset by a 9.1% decrease in the
average sales price. The increase in VOI's sold reflects the contribution of the
Company's western operations acquired in a September 1997 transaction accounted
for as a purchase, increases in VOI sales at the Company's Orlando area resorts
and its international division, and VOI sales at the Myrtle Beach, World Golf
Village and Scottsdale resorts included in revenues for the three month period
in 1998, but not in the comparable period in 1997.
Interest income increased 37.8%, from $4.5 million to $6.2 million due to a
56.7% increase in the average principal amount of customer mortgages receivable
for the quarters ended June 30, 1997 and 1998 from $122.3 million to $191.6
million, respectively, and an increase in the average interest rate on customer
mortgages receivable from 13.9% to 14.2%. Also included in interest income is
the discount amortization on customer mortgages receivable recognized during the
comparable three month periods ended June 30, 1998 and June 30, 1997 of $0.4
million and $0.8 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, 1998, $1.7 million of total unamortized discount
remained and is expected to be amortized through 1999.
Resort revenue increased 31.0%, from $4.2 million to $5.5 million, due to
the increase in rooms available and occupancy levels. Telecommunication
revenues (guest telephone charges relating to the existing resorts and revenues
from contracting services provided to third parties) increased 31.3% from $1.6
million at June 30, 1997 to $2.1 million at June 30, 1998, due to an increase in
contract revenues and higher resort occupancies.
Costs and Operating Expenses:
Total operating costs and expenses increased $22.8 million, or 85.4% from
$26.7 million in the second quarter of 1997 to $49.5 million in the comparable
1998 quarter, an increase as a percentage of total revenues from 82.8% in 1997
to 86.0% in 1998. VOI product costs, as a percentage of VOI revenues, decreased
from 23.2% in 1997 to 22.0% in 1998, as a result of increased sales volume at
resorts with lower unit costs, a broader product mix in sales and increased
sales of alternate year VOI's. Sales and marketing expenses, as a percentage of
VOI revenues, increased from 44.4% in 1997 to 47.4% in 1998 during the
comparable three month period due to higher sales and marketing expenses at the
Company's newer properties, as well as expenses related to increased
international sales, which typically carry higher sales and marketing costs.
Loan portfolio expenses consisting of interest expense--treasury increased
to $2.1 million in 1998 from $1.4 million in 1997, primarily as a result of
increased levels of debt offset by a lower average cost of funds. Provision for
doubtful accounts increased to 7.4% of VOI sales in 1998 compared to 7.0% in
1997. 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,
increased to 87.8% from 81.8% for the three months ended June 30, 1998 and 1997,
respectively, as a result of increased occupancy levels at certain resorts and
higher resort costs associated with the Company's new properties at Myrtle Beach
and World Golf Village. Telecommunications expenses decreased 0.5% as a
percentage of total telecommunication revenues due to increased operating
efficiencies.
General and administrative expenses increased from $2.6 million for the
three months ended June 30, 1997 to $4.8 million for the three months ended June
30, 1998, increasing as a percent of total revenues from 8.1% in 1997 to 8.3% in
1998. The increase in general and administrative expenses primarily resulted
from (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
13
<PAGE>
planned growth in the size of the Company. Depreciation and amortization
increased as a percentage of total revenues to 2.6% for the three months ended
June 30, 1998 compared to 2.2% in the same period in 1997 due to capital
additions during the current year for resort and sales facilities and
information technology assets. Interest expense--other decreased as a percentage
of total revenues from 1.0% in 1997 to 0.8% in the same period of 1998 due to
lower levels of outstanding debt and increased levels of capitalized interest.
Operating income increased 47.3% to $8.1 million, or 14.1% of total
revenues, during the three months ended June 30, 1998 from $5.5 million, or
17.1% of total revenues, during the three months ended June 30, 1997.
Comparison of the six months ended June 30, 1998 to the six months ended June
30, 1997.
Revenue:
For the six months ended June 30, 1998, the Company recognized total revenues of
$104.7 million compared to $60.5 million for the six months ended June 30, 1997,
an increase of $44.2 million, or 73.1%. This increase is primarily due to a
$36.0 million increase in sales of VOI's from $40.1 million during 1997 to $76.1
million during 1998, an increase of 89.8%. VOI sales increased due to a 106.8%
increase in the number of VOI's sold, offset by a 6.0% decrease in the average
sales price. The increase in VOI's sold reflects the contribution of the
Company's western operations acquired in a September 1997 transaction accounted
for as a purchase, increases in VOI sales at the Company's Orlando area resorts
and its international division, and VOI sales at the Myrtle Beach, World Golf
Village and Scottsdale resorts included in revenues for the six month period in
1998, but not in the comparable period in 1997.
Interest income increased 37.1%, from $8.9 million to $12.2 million due to
a 53.8% increase in the average principal amount of customer mortgages
receivable for the period ended June 30, 1997 and 1998 from $120.6 million to
$185.5 million, respectively, with a slight increase in the average interest
rate on customer mortgages receivable from 14.1% to 14.2%. Also included in
interest income is the discount amortization on customer mortgages receivable
recognized during the comparable six month periods ended June 30, 1998 and June
30, 1997 of $0.8 million and $1.5 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 June 30, 1998, $1.7 million of total
unamortized discount remained and is expected to be amortized through 1999.
Resort revenue increased 24.7%, from $8.1 million to $10.1 million, due to
increased rooms available and higher occupancy levels. Telecommunication
revenues (guest telephone charges relating to the existing resorts and revenues
from contracting services provided to third parties) increased $0.9 million or
28.1% to $4.1 million for the six months ended June 30, 1998 from $3.2 million
for the comparable six-month period ended June 30, 1997 due to an increase in
contract revenues and higher resort occupancies.
Costs and Operating Expenses:
Total operating costs and expenses increased $39.8 million or 77.1% from
$51.6 million in the period ending June 30, 1997 to $91.4 million in the
comparable 1998 period, increasing as a percentage of total revenue from 85.2%
in 1997 to 87.3% in 1998. VOI product costs, as a percentage of VOI revenues,
decreased from 23.1% in 1997 to 21.6% in 1998, as a result of increased sales
volume at resorts with lower unit costs, a broader product mix in sales and
increased sales of alternate year VOI's. Sales and marketing expenses increased
102.7% from $18.3 million for the six months ended June 30, 1997 to $37.1
million during the comparable period in 1998 principally due to the 89.8%
increase in related VOI sales levels as well as operating inefficiencies and
adverse effects of seasonality at the Company's Myrtle Beach resort (which
opened in May 1998), start-up costs at the World Golf Village resort (which also
opened in May 1998), and costs associated with the expansion of the Company's
international operations. As a percentage of VOI sales, selling and marketing
expenses increased from 45.6% in the period ended June 30, 1997 to 48.8% in
period ended June 30, 1998.
Loan portfolio expenses consisting of interest expense--treasury increased
to $4.3 million in 1998 from $3.1 million in 1997 primarily as a result of
increased levels of debt offset by a lower average cost of funds. Provision for
doubtful accounts increased to 7.4% of VOI revenues in 1998 compared to 7.0% in
1997. 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
14
<PAGE>
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 $5.0 million for the six
months ended June 30, 1997 to $9.3 million for the six months ended June 30,
1998, increasing as a percentage of total revenues from 8.2% in 1997 to 8.9% in
1998. The increase in general and administrative expenses primarily resulted
from (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 as a percentage of total revenues to 2.5% for the six
months ended June 30, 1998, compared to 2.3% in the same period in 1997, due to
capital additions during the current year for resort and sales facilities and
information technology assets. Interest expense--other decreased as a
percentage of total revenue from 1.8% in 1997 to 0.8% in the same period of 1998
due to lower levels of outstanding debt and increased levels of capitalized
interest.
Operating income increased 49.4% to $13.3 million, or 12.7% of total
revenues, during the six months ended June 30, 1998 from $8.9 million, or 14.7%
of total revenues, during the six months ended June 30, 1997.
Extraordinary Item:
During the six months ended June 30, 1997, the Company repaid $39.7 million
of debt. 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.
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 14.22% for the quarter ended June 30, 1998)
and the interest paid on the notes payable secured by the Company's pledge of
such customer mortgages receivable (which averaged 8.17% for the quarter ended
June 30, 1998). Cash from operations for the six months ended June 30, 1998 and
1997 decreased from $4.6 million provided by operations to $0.4 million used by
operations primarily due to an increase in construction in progress and related
completed VOI inventory in 1998.
Net cash used in investing activities for the six months ended June 30,
1998 and 1997 was $53.0 million and $14.8 million, respectively, principally due
to increased sales of VOI's and the related increase in origination of customer
mortgages receivable and restricted cash levels associated with the escrow of
customer deposits.
Net cash provided by financing activities was $59.1 million during the six-
month period ended June 30, 1998 versus net cash provided in 1997 of $13.2
million. Net cash provided in the six month period in 1998 was the result of
net borrowings largely from the financing of customer mortgages receivable. Net
cash provided in the comparable period of 1997 was primarily due to the
Company's issuance in the first quarter of 1997 of 4.6 million shares of common
stock in the Initial 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 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 June 30, 1998, the Company had
$44.2 million outstanding under its notes payable secured by its land and VOI
inventory, $110.5 million outstanding under its notes payable secured by
customer mortgages receivable and $13.1 million of other secured and unsecured
notes payable. As of June 30, 1998, the Company's scheduled principal payments
on its long-term indebtedness through 2002 (excluding payments on credit
facilities secured primarily by customer mortgages receivable) were $12.0
million in 1998 (remaining six months), $10.5 million in 1999, $20.3 million in
2000, $10.5 million in 2001 and $4.0 million in 2002 and thereafter.
15
<PAGE>
The Company's credit facilities as of June 30, 1998 (the "Credit
Facilities") provide for term loans, of which $36.2 million were outstanding as
of June 30, 1998, and revolving lines of credit, under which the Company had
borrowings of $131.7 million as of June 30, 1998 against total available
capacity under the revolving lines of credit (assuming the availability of
sufficient receivables) at that date of $271.0 million. As of June 30, 1998,
the Company's term loans accrued interest at various rates between 8.2% and
11.3%, and the Company's revolving lines of credit accrued interest at rates
between 6.7% and 10.5%. Approximately $162.3 million of the Company's
indebtedness bears interest at variable rates based on fixed spreads over a
specified reference rate. The Company's indebtedness under the Credit
Facilities is secured 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 the Company and certain of its 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). Because most of the Company's indebtedness
bears interest at variable rates and the Company's customer mortgages receivable
earn interest at fixed rates, the Company bears the risk of increases in
interest rates with respect to its indebtedness.
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.
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.
The Company believes that the 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, 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.
During future periods, continued access to external funding will be
necessary for the Company to acquire, develop, and sell additional VOI inventory
and to finance customer purchases of its VOI's. If the Company were unable to
obtain credit facilities or debt or equity financing in amounts, and on terms
and conditions satisfactory for such purposes, such event would have a material
adverse effect on the Company's business and results of operations.
Inflation
Inflation and changing prices have not had a material impact on the
Company's revenues, operating income and net income during any of the Company's
three most recent fiscal years. Due to the current economic climate, the
Company does not expect that inflation and changing prices will have a material
impact on the Company's revenues, operating income or net income in the near
term. To the extent inflationary trends affect short-term interest rates, a
portion of the Company's debt service costs may be affected as well as the rates
the Company charges on its customer mortgages.
16
<PAGE>
Seasonality
The Company's revenues are moderately seasonal. Owner and guest activity
at the Company's resorts in the eastern United States are currently the greatest
from February through April and June through August. Owner and guest activity
at the Company's resorts in the western United States are currently the greatest
from June 15 to Labor Day and Christmas to Easter. As a result of this
seasonality, the Company currently anticipates its weakest operating results
during the first quarter, and its strongest operating results during the third
quarter, of each calendar year. However, as the Company opens new resorts and
expands into new markets and geographic locations, it may experience increased
or different seasonality dynamics creating fluctuations in operating results
that are different from those experienced in the past.
Year 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a risk. The Company has continued to assess this risk as it relates to the
availability and integrity of financial systems and the reliability of
operational systems. The Company has established processes for evaluating and
managing the risks and costs associated with this issue. The computing
portfolio was previously identified and an initial assessment has been
completed. The remaining cost of achieving Year 2000 compliance is estimated to
be approximately $0.3 million over the cost of normal software upgrades and
replacements and will be incurred through fiscal 1999.
FORWARD-LOOKING INFORMATION
Statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations regarding the Company's prospective business
opportunities, financial performance and expansion plans, are forward-looking
statements that involve substantial risks and uncertainties. Such forward-
looking statements include, without limitation, (i) the plan to develop and sell
additional resorts, (ii) the intention to acquire additional land for the
expansion of existing resorts and for the development of future resorts, (iii)
the anticipation of when construction will commence for existing and future
vacation resorts, and (iv) statements relating to the Company or its operations
that are preceded by terms such as "anticipates," "believes," "intends,"
"expects," and similar expressions. In accordance with the Private Securities
Litigation Reform Act of 1995, the following are important risk factors that
could cause the Company's actual results, performance, or achievements to differ
materially from those implied by such forward-looking statements: (i) the
Company lacks experience in certain of the markets where it has purchased land
and is developing vacation ownership resorts, (ii) the Company is subject to
significant competition from other entities in the leisure and vacation
industry, (iii) the construction and development of vacation ownership resorts
and the commencement and implementation of sales and marketing programs are
subject to extensive regulatory requirements which could cause unanticipated
expenses, delays and changes; (iv) the Company's success depends to a
significant extent on its ability to hire, train, and retain qualified
employees, (v) the Company's ability to acquire, develop and sell VOI inventory
and finance customer purchases of its VOI's requires access to external funding
on satisfactory terms, and (vi) the Company's indebtedness and related service
obligations may increase its vulnerability to adverse economic conditions.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
Incorporated by reference. See Note 7 of the "Notes to Condensed
Consolidated Financial Statements" (Unaudited)
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The 1998 annual meeting of shareholders of Vistana, Inc. was held
on April 30, 1998.
b) All director nominees described in (c) below were elected. The
following additional directors continued in office after the
meeting: Jeffrey A. Adler, James G. Brocksmith, Jr., Raymond L.
Gellein, Jr., and Charles E. Harris.
c) Certain matters voted on at the meeting and the votes cast with
respect to such matters are as follows:
<TABLE>
<CAPTION>
Votes Cast
----------
For Against Abstain Non-votes
---------- ------- ------- ---------
<S> <C> <C> <C> <C>
Proposal
--------
Approval of proposed amendments to the Vistana
Stock Plan. 18,579,401 910,556 190 1,529,451
Ratification of engagement of independent auditors 18,920,987 568,370 790 1,529,451
Election of Directors:
Laurence S. Geller 19,490,047 -- 100 1,529,451
Steven J. Heyer 19,490,047 -- 100 1,529,451
</TABLE>
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,
1998.
18
<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 10, 1998 By: /s/ RAYMOND L. GELLEIN, JR.
--------------------------------------
Raymond L. Gellein, Jr.
Chairman and Co-Chief Executive
Officer
By: /s/ CHARLES E. HARRIS
--------------------------------------
Charles E. Harris
Vice Chairman and Chief
Financial Officer
By: /s/ MARK E. PATTEN
--------------------------------------
Mark E. Patten
Vice President and Chief
Accounting Officer
19
<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, 1998 (unaudited), 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 33,350
<SECURITIES> 0
<RECEIVABLES> 183,676
<ALLOWANCES> 15,413
<INVENTORY> 28,662
<CURRENT-ASSETS> 0
<PP&E> 27,441
<DEPRECIATION> 8,765
<TOTAL-ASSETS> 374,371
<CURRENT-LIABILITIES> 0
<BONDS> 167,842
0
0
<COMMON> 211
<OTHER-SE> 130,313
<TOTAL-LIABILITY-AND-EQUITY> 374,371
<SALES> 76,131
<TOTAL-REVENUES> 104,737
<CGS> 16,420
<TOTAL-COSTS> 91,396
<OTHER-EXPENSES> 3,235
<LOSS-PROVISION> 5,626
<INTEREST-EXPENSE> 5,086
<INCOME-PRETAX> 13,982
<INCOME-TAX> 5,313
<INCOME-CONTINUING> 8,669
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,669
<EPS-PRIMARY> .41
<EPS-DILUTED> .40
</TABLE>
