<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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-29114
-------
VISTANA, INC.
(Exact Name of Registrant as Specified in its Charter)
FLORIDA 59-3415620
(State of Incorporation) (IRS Employer Identification Number)
8801 Vistana Centre Drive
Orlando, Florida 32821
(Address of Principal Executive Offices and Zip Code)
(407) 239-3000
(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 6, 1999: 21,320,952 shares.
This quarterly report on Form 10-Q contains 24 pages, of which this is page 1.
1
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VISTANA, INC. AND SUBSIDIARIES
Index
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, as of
June 30, 1999 (unaudited) and December 31, 1998 Page 3
Condensed Consolidated Statements of Income for
the three month periods ended June 30, 1999 and
1998 (unaudited) Page 4
Condensed Consolidated Statements of Income for
the six month periods ended June 30, 1999 and
1998 (unaudited) Page 5
Condensed Consolidated Statements of Cash Flow
for the six month periods ended June 30, 1999
and 1998 (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 13
Item 3. Quantitative and Qualitative Disclosures about
Market Risk Page 20
Part II Other Information
Item 1. Legal Proceedings Page 22
Item 2. Changes in Securities Page 22
Item 3. Defaults upon Senior Securities Page 22
Item 4. Submission of Matters to a Vote of Security Holders Page 22
Item 5. Other Information Page 22
Item 6. Exhibits and Reports on Form 8-K Page 23
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,
1999 1998
--------------------- --------------------
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 28,350 $ 20,001
Restricted cash 23,951 29,054
Customer mortgages receivable, net 252,533 223,275
Other receivables, net 10,540 8,053
Inventory of Vacation Ownership Interests 66,442 50,019
Construction in progress 18,815 30,922
--------------------- --------------------
Total Vacation Ownership Interests 85,257 $ 80,941
--------------------- --------------------
Prepaid expenses and other assets 27,319 24,408
Land held for development 21,003 23,874
Intangible assets, net 20,514 19,743
Property and equipment, net 49,429 42,071
--------------------- --------------------
Total Assets $518,896 $471,420
===================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 17,295 $ 17,502
Income taxes payable 1,048 424
Accrued compensation and benefits 11,077 10,883
Customer deposits 19,010 22,610
Deferred income taxes 29,098 25,753
Other liabilities 7,446 5,723
Notes and mortgages payable 276,687 242,644
--------------------- --------------------
Total Liabilities 361,661 325,539
Minority interest 736 1,665
Shareholders' Equity
Common stock, $.01 par value: Authorized 100,000,000 shares
Issued and outstanding 21,316,068 and 21,224,172 shares
at June 30, 1999 and December 31, 1998, respectively 213 212
Additional paid-in capital 112,777 111,502
Retained earnings 43,509 32,502
--------------------- --------------------
Total Shareholders' Equity 156,499 144,216
--------------------- --------------------
Total Liabilities and Shareholders' Equity $518,896 $471,420
===================== ====================
</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,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenues:
Vacation Ownership Interest sales $ 55,931 $ 42,596
Interest 8,446 6,154
Resort 7,716 5,488
Telecommunications 2,217 2,058
Other 1,400 1,255
---------- ----------
Total revenues 75,710 57,551
---------- ----------
Costs and operating expenses:
Vacation Ownership Interest cost of sales 12,895 9,372
Sales and marketing 24,167 20,192
Interest expense -- treasury 2,637 2,083
Provision for doubtful accounts 4,137 3,144
Resort 7,065 4,819
Telecommunications 1,929 1,660
General and administrative 5,233 4,753
Depreciation and amortization 2,282 1,481
Interest expense -- other 2,064 442
Other 2,136 1,551
---------- ----------
Total costs and operating expenses 64,545 49,497
---------- ----------
Operating income 11,165 8,054
Excess value recognized 19 32
Minority interest 129 285
---------- ----------
Income before income taxes 11,313 8,371
Provision for income taxes 4,412 3,181
---------- ----------
Net income 6,901 5,190
========== ==========
Per Share Data:
Basic
---------- ----------
Net income per share $0.32 $0.25
========== ==========
Weighted average number of shares outstanding 21,294,153 21,162,981
========== ==========
Diluted
---------- ----------
Net income per share $0.32 $0.24
========== ==========
Weighted average number of shares outstanding 21,516,551 21,630,417
========== ==========
</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,
-----------------------------
1999 1998
----------- ------------
<S> <C> <C>
Revenues:
Vacation Ownership Interest sales $ 106,015 $ 76,131
Interest 16,343 12,239
Resort 14,682 10,080
Telecommunications 3,869 4,101
Other 2,548 2,186
------------- -----------
Total revenues 143,457 104,737
------------- -----------
Costs and operating expenses:
Vacation Ownership Interest cost of sales 24,597 16,420
Sales and marketing 48,155 37,137
Interest expense -- treasury 5,049 4,271
Provision for doubtful accounts 7,844 5,626
Resort 13,242 8,576
Telecommunications 3,343 3,307
General and administrative 10,813 9,348
Depreciation and amortization 4,588 2,661
Interest expense -- other 3,924 815
Other 3,839 3,235
------------- -----------
Total costs and operating expenses 125,394 91,396
------------- -----------
Operating income 18,063 13,341
Excess value recognized 38 62
Minority interest 929 579
------------- -----------
Income before income taxes and cumulative effect of change in accounting 19,030 13,982
Provision for income taxes 7,422 5,313
------------- -----------
Income before cumulative effect of change in accounting 11,608 8,669
Cumulative effect of change in accounting, net of tax 601 --
------------- -----------
Net income 11,007 8,669
============= ===========
Per Share Data:
Basic
Income per share before cumulative effect of change in accounting $ 0.55 $ 0.41
Cumulative effect of change in accounting (0.03) --
------------- -----------
Net income per share $ 0.52 $ 0.41
============= ===========
Weighted average number of shares outstanding 21,258,041 21,062,732
============= ===========
Diluted
Income per share before cumulative effect of change in accounting $ 0.54 $ 0.40
Cumulative effect of change in accounting (0.03) --
------------- -----------
Net income per share $ 0.51 $ 0.40
============= ===========
Weighted average number of shares outstanding 21,406,321 21,568,074
============= ===========
</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,
------------------------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 11,007 $ 8,669
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 4,588 2,661
Amortization of discount on customer mortgages receivable (379) (824)
Provision for doubtful accounts 7,844 5,626
Minority interest (929) (579)
Deferred income taxes 3,345 2,584
Changes in operating assets and liabilities:
Other receivables, net (3,058) (1,720)
Vacation ownership interests and land held for development (1,445) (27,482)
Prepaid expenses and other assets (3,920) (5,088)
Accounts payable and accrued liabilities (207) 4,894
Income taxes payable 624 (482)
Accrued compensation and benefits 194 (83)
Customer deposits (3,600) 7,182
Other liabilities 1,723 4,232
-------- --------
Net cash provided (used) by operating activities 15,787 (410)
-------- --------
INVESTING ACTIVITIES
Expenditures for property and equipment (10,069) (11,018)
Customer mortgages receivable, net (36,723) (33,430)
Restricted cash 5,103 (8,576)
-------- --------
Net cash used in investing activities (41,689) (53,024)
-------- --------
FINANCING ACTIVITIES
Proceeds from notes and mortgages payable 115,033 125,995
Payments on notes and mortgages payable (80,990) (67,700)
Proceeds from exercised stock options - 839
Proceeds from employee stock purchase plan 208 -
-------- --------
Net cash provided by financing activities 34,251 59,134
-------- --------
Net increase in cash and cash equivalents $ 8,349 $ 5,700
Cash and cash equivalents, beginning of period 20,001 9,878
-------- --------
Cash and cash equivalents, end of period $ 28,350 $ 15,578
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 9,814 $ 3,235
======== ========
Taxes $ 3,068 $ 3,210
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<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, 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.
At June 30, 1999 and 1998, 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, 1999 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, 1999 and the consolidated results of its operations for the
three months and six months ended June 30, 1999 and 1998. 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. Capital Transactions and Basis of Presentation
The Company became the parent for all of the operations of its predecessors in
connection with the initial public offering (the "Initial Offering") completed
on February 28, 1997. 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 the
Company 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.
7
<PAGE>
The majority of the consolidated subsidiaries in the Formation Transaction 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 each respective
period include the operations of its predecessors in interest.
For the three months and six months ended June 30, 1999, the Company had no
amounts considered as other comprehensive income. Therefore, comprehensive
income is equivalent to net income as reported on the face of the condensed
consolidated statements of income.
Note 3. Customer Mortgages Receivable, Net
At June 30, 1999 and December 31, 1998, customer mortgages receivable, net,
consisted of:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
(In thousands)
<S> <C> <C>
Customer mortgages receivable, gross $276,674 $243,263
Less:
Unamortized discount on repurchased customer mortgages receivable (451) (830)
Allowance for doubtful accounts (23,690) (19,158)
-------- --------
Customer mortgages receivable, net $252,533 $223,275
======== ========
</TABLE>
As of June 30, 1999 and December 31, 1998, customer mortgages receivable, gross,
from buyers not residing in the United States or Canada aggregated approximately
$42.7 million and $42.2 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, 1999 range from 00.0% to 17.9% per annum (averaging approximately
14.5% 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,
----------------------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Balance, beginning of period $19,158 $12,594
Provision for doubtful accounts 7,844 5,626
Customer mortgages receivable charged off (3,312) (2,807)
-------- --------
Balance, end of period $23,690 $15,413
======== ========
</TABLE>
8
<PAGE>
Note 4. Notes and Mortgages Payable
At June 30, 1999 and December 31, 1998, notes and mortgages payable consisted
of:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Notes payable secured by customer mortgages receivable bearing interest at
rates which include fixed interest of 6.1% and variable rates ranging
from prime plus 2% (9.75% at June 30, 1999), LIBOR plus 2.5% (7.74% at
June 30, 1999), LIBOR plus 2.65% (7.89% at June 30, 1999) and LIBOR plus
1% (6.24% at June 30, 1999) $153,129 $133,265
Notes payable and mortgage obligations secured by real estate bearing
interest at rates which include fixed interest at 8.2% and variable rates
ranging from prime plus 2%, LIBOR plus 1.50% (6.74% at June 30, 1999),
LIBOR plus 3.25% (8.49% at June 30, 1999), LIBOR plus 2.65%, and LIBOR
plus 2.85% (8.09% at June 30, 1999) 103,937 91,532
Other notes and mortgage loans payable bearing variable interest at rates
which include LIBOR plus 2.25% (7.49% at June 30, 1999) and prime plus 2% 19,621 17,847
-------- --------
Total notes and mortgages payable: $276,687 $242,644
======== ========
</TABLE>
Note 5. 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.
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 1999, 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 first day of the following tax year
after 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 6. 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, and amended by the
Company's shareholders in April 1998. As amended, the Stock Plan covers 2.5
million shares of Common Stock and 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. 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, 1999, the only grants that had
been made under the Stock Plan were NSOs.
9
<PAGE>
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, and
(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.
Subsequent to the Initial Offering, the Principal Shareholders granted certain
executive officers (i) 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 (ii) 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. All of 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, 1999
and December 31, 1998. In connection with the Merger Agreement described in
Note 10, the Principal Shareholders have indicated that they intend to reduce
the exercise prices of certain of these options effective immediately prior to
the consummation date of the merger.
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 1.0 million shares of Common Stock is reserved for issuance under the
Purchase Plan. Shares purchased under the Purchase Plan are issued semi-
annually on October 1 and April 1. As of June 30, 1999, approximately 57,000
shares had been issued under the Purchase Plan.
Note 7. 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. For the three months and
six months ended June 30, 1999, approximately 0.2 million and 0.1 million net
shares, respectively, 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 diluted EPS calculation. For the three months and six
months ended June 30, 1998, approximately 0.5 million net shares relative to
options granted were considered dilutive. An additional 0.2 million and 0.3
million shares, respectively, for the three months and six months ended June 30,
1999, were considered anti-dilutive and therefore excluded from the diluted EPS
calculation. For the three months and six months ended June 30, 1998, 0.02
million net shares were considered anti-dilutive. Contingent shares recorded
but not issued were considered outstanding for purposes of computing diluted
EPS.
Note 8. Accounting Change
On January 1, 1999, the Company adopted Statement of Position 98-5, "Reporting
on the Costs of Start-up Activities" (SOP 98-5), issued by the American
Institute of Certified Public Accountants. SOP 98-5 requires costs of start-up
activities and organizational costs be expensed as incurred. The effect of
initially applying the provisions of SOP 98-5 was reported as a change in
accounting principle and, thereafter, all such costs have been expensed as
incurred. The change in accounting principle resulted in the write-off of
amounts capitalized as pre-opening costs as of December 31, 1998. The
cumulative effect of the write-off, which totaled $0.6 million (net of tax), was
expensed in the first quarter and is reflected in the condensed consolidated
statements of income for the six months ended June 30, 1999.
10
<PAGE>
Note 9. Segment Reporting
<TABLE>
<CAPTION>
Revenue from
External Operating
Customers Income (1)
------------ ----------
<S> <C> <C>
Three months ended June 30, 1999
Timeshare Development $ 63,893 $10,630
Resort Operations 7,716 338
-------- -------
Total Segments 71,609 10,968
Other 4,101 197
-------- -------
Total Company $ 75,710 $11,165
======== =======
Three months ended June 30, 1998
Timeshare Development $ 50,005 $ 7,342
Resort Operations 5,488 419
-------- -------
Total Segments 55,493 7,761
Other 2,058 293
-------- -------
Total Company $ 57,551 $ 8,054
======== =======
Six months ended June 30, 1999
Timeshare Development $124,906 $16,912
Resort Operations 14,682 814
-------- -------
Total Segments 139,588 17,726
Other 3,869 337
-------- -------
Total Company $143,457 $18,063
======== =======
Six months ended June 30, 1998
Timeshare Development $ 90,556 $11,763
Resort Operations 10,080 975
-------- -------
Total Segments 100,636 12,738
Other 4,101 603
-------- -------
Total Company $104,737 $13,341
======== =======
</TABLE>
(1) Total Company operating income equals income before taxes and cumulative
effect of change in accounting.
Note 10. Subsequent Events
Merger Agreement
On July 18, 1999, the Company entered into a definitive merger agreement
("Merger Agreement") with Starwood Hotels & Resorts Worldwide, Inc. ("Starwood")
pursuant to which Vistana will become a wholly-owned subsidiary of Starwood. The
merger is structured to provide holders of shares of common stock of Vistana
("Common Stock") with consideration valued at $19.00 per share, assuming the
average price of a Starwood unit for the twenty-day trading period ending on the
sixth day prior to the closing date of the merger (the "Market Price") is
between $30.00 and $36.00 per share. In particular, the Merger Agreement
provides that, upon consummation of the merger, holders of shares of Common
Stock would be entitled to receive, for each share of Common Stock,
consideration consisting of (i) $5.00 in cash and (ii) such number of units of
Starwood stock ("Starwood Units") determined by multiplying each share of Common
Stock by the Exchange Ratio. For such purposes, the "Exchange Ratio" shall equal
(x) $14.00 divided by (y) the Market Price of a Starwood Unit;
11
<PAGE>
provided that in no event shall the Exchange Ratio be (A) less than an amount
equal to $14.00 divided by $36.00 or (B) greater than an amount equal to $14.00
divided by $30.00. If the Market Price of the Starwood Units is less than $30,
then the Exchange Ratio will be fixed at 0.4667 of a Starwood Unit for each
share of Common Stock and the combination of cash and Starwood Units received by
holders of Common Stock in the merger will have a value of less than $19 per
share. At August 6, 1999, the closing price of Starwood Units on the New York
Stock Exchange was $25.00.
The Board of Directors of Vistana unanimously approved the Merger Agreement on
July 18, 1999. The Principal Shareholders of Vistana, who hold an aggregate
of approximately 53% of the outstanding shares of Common Stock, have executed
written consents to approve the Merger Agreement and, therefore, the required
shareholder approval under Florida law has been obtained and no further meeting
of shareholders will be held. The merger is subject to customary closing
conditions. Either Starwood or Vistana may terminate the Merger Agreement upon
certain events, including if the Market Price of Starwood Units is less than
$23.00 on the day immediately preceding the closing date. The Merger Agreement
may also be terminated by Starwood or Vistana if the merger has not been
effected on or prior to January 31, 2000.
Receivable Securitization
On July 22, 1999, the Company completed the private placement of $80.3 million
in principal amount of timeshare mortgage backed notes (the "Notes"). The
securitization was structured as three classes of fixed-rate notes, with $44.0
million of 6.8% notes rated "AAA," approximately $28.8 million of 7.19% notes
rated "A," and $7.5 million of 8.15% notes rated "BBB," by Duff & Phelps Credit
Rating Co. ("DCR"). The Notes are secured by approximately $86.4 million in
first mortgage liens on VOI's sold by Vistana subsidiaries in Florida, South
Carolina, Arizona and Colorado. Credit enhancement for the "AAA" rated notes is
provided by subordination of the "A" and "BB" rated notes, 7.0%
overcollateralization, a letter of credit (approximately $0.8 million at
execution) from Dresdner Bank AG, and a reserve account derived from the excess
interest spread earned that grows from 0.0% to 5.0% of the pool balance. The "A"
rated notes are credit enhanced by subordination of the "BBB" rated notes, the
overcollaterization, a letter of credit (approximately $4.0 million at
execution) from Dresdner Bank AG and the reserve account. The "BBB" rated notes
are credit enhanced by the overcollaterization, a letter of credit
(approximately $1.5 million at execution) from Dresdner Bank AG and the reserve
account. The weighted average cost of the Notes, including the yield on the
Notes and the cost of the letters of credit, is approximately 7.18% per annum.
The Notes were issued through a bankruptcy-remote Vistana subsidiary. The
securitization was treated as an on balance sheet financing for accounting
purposes. No gain on sale will be recognized as a result of this transaction.
The net proceeds of the securitzation were used primarily to repay $55.1 million
of outstanding debt secured by customer mortgages receivable and bearing
interest at LIBOR plus 1.0%. The buildup of the reserve account will be treated
as restricted cash. The balance in the reserve account, once fully funded, and
the levels of the letters of credit (subject to certain restrictions) will
decrease at a rate commensurate with the amortization of the receivable pool.
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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, 1999 and June 30, 1998 (Unaudited).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------
1999 1998 1999 1998
------------------------------------------
<S> <C> <C> <C> <C>
Statement of operations:
As a Percentage of total revenues:
VOI sales 73.9% 74.0% 73.9% 72.7%
Interest 11.2% 10.7% 11.4% 11.7%
Resort 10.2% 9.5% 10.2% 9.6%
Telecommunications 2.9% 3.6% 2.7% 3.9%
Other 1.8% 2.2% 1.8% 2.1%
-----------------------------------------
Total Revenues 100.0% 100.0% 100.0% 100.0%
=========================================
As a Percentage of VOI Sales:
VOI cost of sales 23.1% 22.0% 23.2% 21.6%
Sales and marketing 43.2% 47.4% 45.4% 48.8%
Provision for doubtful accounts 7.4% 7.4% 7.4% 7.4%
As a Percentage of interest revenues:
Loan portfolio:
Interest expense--treasury 31.2% 33.8% 30.9% 34.9%
As a percentage of total revenues:
General and administrative 6.9% 8.3% 7.5% 8.9%
Depreciation and amortization 3.0% 2.6% 3.2% 2.5%
Interest expense--other 2.7% 0.8% 2.7% 0.8%
Other 2.8% 2.7% 2.7% 3.1%
Total costs and operating expenses 85.3% 86.0% 87.4% 87.3%
As a Percentage of resort revenues:
Resort expenses (1) 91.6% 87.8% 90.2% 85.1%
As a Percentage of telecommunication revenues:
Telecommunications expenses (1) 87.0% 80.7% 86.4% 80.6%
SELECTED OPERATING DATA:
Number of resorts at end of period 10 8 10 8
Number of VOI's sold--actual (2) 5,414 4,642 10,084 8,105
Average sales price per VOI sold--actual (2) $10,331 $ 9,549 $10,149 $ 9,607
Number of VOI's sold--annualized (3) 4,316 3,792 7,988 6,637
Average sales price per VOI sold--annualized (3) $12,960 $11,690 $12,812 $11,732
Percentage of alternate unit week sales 40.6% 36.7% 41.6% 36.1%
Number of VOI's in inventory at period end (4) 24,524 17,729 24,524 17,729
</TABLE>
(1) Does not include interest and depreciation expenses.
(2) Includes sales of both annual and alternate-year VOI's.
(3) Includes sales of annual intervals plus sales of alternate year intervals
adjusted on an annualized basis.
(4) Inventory classified as annual VOI's.
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Recent Developments
On July 18, 1999, the Company entered into a definitive merger agreement
("Merger Agreement") with Starwood Hotels & Resorts Worldwide, Inc. ("Starwood")
pursuant to which Vistana will become a wholly-owned subsidiary of Starwood (the
"Merger"). The Board of Directors of Vistana unanimously approved the Merger
Agreement on July 18, 1999 and the principal shareholders of Vistana, who hold
an aggregate of approximately 53% of the outstanding shares of Common Stock,
have executed written consents to approve the Merger Agreement. Either Starwood
or Vistana may terminate the Merger Agreement upon certain events. For more
information, see Note 10 of Notes to Condensed Consolidated Financial
Statements and the Company's current Report on Form 8-K dated July 18, 1999.
Comparison of the three months ended June 30, 1999 to the three months ended
June 30, 1998.
Revenue:
For the three months ended June 30, 1999, the Company recognized total revenues
of $75.7 million compared to $57.6 million for the three months ended June 30,
1998, an increase of $18.1 million, or 31.4%. This increase is primarily due to
a $13.3 million, or 31.2%, increase in sales of vacation ownership interests
(VOI's) from $42.6 million during 1998 to $55.9 million during 1999. VOI sales
increased due to a 16.6% increase in the number of VOI's sold from 4,642 in the
three months ended June 30, 1998 to 5,414 in 1999, and an 8.2% increase in the
average sales price from $9,549 to $10,331. Annualizing alternate year VOI
sales, the number of VOI's sold during the three months ended June 30, 1999,
increased 13.8% to 4,316 from 3,792, and the average sales price per interval
increased 10.9% to $12,960 from $11,690. The increase in VOI sales resulted from
increased VOI sales at the Company's Vistana Resort in Orlando, its resorts at
Myrtle Beach and Scottsdale, Vistana Resort at World Golf Village and the
Lakeside Terrace resort. The increase in average sales price reflects increased
volume from resorts with higher price-point inventory, offset by higher sales of
alternate-year VOI's.
Interest income increased 35.5% to $8.4 million from $6.2 million due to a 28.8%
increase in the average principal amount of net customer mortgages receivable,
from $191.6 million at June 30, 1998 to $246.8 million at June 30, 1999.
Resort revenue increased 40.0%, from $5.5 million to $7.7 million, primarily as
a result of increased room rentals due to an increase in rooms available for
rental and higher occupancy levels. Telecommunication revenues (guest telephone
charges at the Company's resorts and revenues from contracting services provided
to third parties) increased 4.8% from $2.1 million for the quarter ended June
30, 1998 to $2.2 million for the quarter ended June 30, 1999, primarily due to
increased guest telephone charges from higher resort occupancy.
Costs and Operating Expenses:
Total costs and operating expenses increased 30.3% to $64.5 million from $49.5
million, a decrease as a percentage of total revenues from 86.0% in 1998 to
85.3% in 1999. VOI cost of sales (product cost), as a percentage of VOI sales,
increased from 22.0% in 1998 to 23.1% in 1999, primarily reflecting an increased
mix of higher cost product at some of the Company's new resorts, seasonal
pricing at the Company's Myrtle Beach resort, a higher mix of one-bedroom VOI
sales, and the acquisition of some higher cost product through lien
foreclosures, offset by increased sales of alternate-year VOI's. VOI cost of
sales is expected to remain higher than 1998 levels as new resorts having
increased land and construction costs comprise a larger part of the Company's
VOI sales. Sales and marketing expenses increased 19.8% from $20.2 million in
1998 to $24.2 million in the comparable three-month period in 1999, primarily
due to a 31.2% increase in related VOI sales levels. As a percentage of VOI
sales, sales and marketing expenses decreased from 47.4% in 1998 to 43.2% in the
comparable three month period in 1999, primarily as a result of higher sales
volume, lower costs at the Company's Myrtle Beach and Scottsdale resorts and
increased efficiencies at Vistana Resort in Orlando, particularly from the
Company's in-house and telemarketing programs.
Loan portfolio expenses consist of interest expense-treasury and the provision
for doubtful accounts. Interest expense-treasury increased to $2.6 million in
1999 from $2.1 million in 1998, primarily as a result of increased levels of
debt secured by customer mortgages receivable offset by a lower average cost of
funds. Because a
14
<PAGE>
significant portion of the Company's indebtedness bears interest at variable
rates and the Company's customer mortgages receivable earn interest at fixed
rates, increases in short-term interest rates could have an adverse effect on
the net interest margin earned by the Company on its customer mortgages
receivable. The provision for doubtful accounts remained at 7.4% of VOI sales
for the quarter ended June 30, 1999, consistent with the second quarter of 1998.
The Company periodically monitors its allowance for doubtful accounts to provide
for future losses associated with any defaults on customer mortgages receivable.
Management believes that the allowance is adequate for such future losses.
Resort expenses increased as a percentage of resort revenue from 87.8% for the
quarter ended June 30, 1998 to 91.6% for the quarter ended June 30, 1999, as a
result of increased operating costs at the Company's newer resorts including the
Myrtle Beach resort and the Scottsdale resort, which are reflected in the
quarter ended June 30, 1999, but not in the comparable period in 1998. Resort
expenses do not reflect certain income credited to the Company's developer
operations from the results of its resort operations. (See the discussion of
other expenses below.) Telecommunication expense increased as a percentage of
telecommunication revenue as a result of lower than expected revenues from
contracting services. General and administrative expenses increased from $4.8
million for the three months ended June 30, 1998 to $5.2 million for the three
months ended June 30, 1999, decreasing as a percent of total revenues from 8.3%
in 1998 to 6.9% in 1999. The decrease in general and administrative expenses as
a percentage of total revenues was primarily the result of economies of scale
relating to increased revenue levels. Depreciation and amortization increased as
a percentage of total revenues to 3.0% for the three months ended June 30, 1999,
compared to 2.6% in the same period in 1998, primarily due to capital additions
during the fourth quarter of 1998 and first quarter of 1999 for resort and sales
facilities and information technology assets. Interest expense-other increased
as a percentage of revenue from 0.8% for the three months ended June 30, 1998 to
2.7% in the same period in 1999 due to increased borrowings secured by real
estate primarily related to the construction of additional VOI inventory.
Interest expense-other excludes amounts capitalized of $0.5 million and $1.0
million for the quarters ended June 30, 1999 and 1998, respectively.
Other revenue increased $0.1 million or 7.7% from $1.3 million for the three
months ended June 30, 1998 to $1.4 million for the three months ended June 30,
1999, primarily as a result of increased net sales of ticket inventory at the
Company's Central Florida marketing company. Other expenses increased $0.5
million or 31.3%, from $1.6 million for the three months ended June 30, 1998, to
$2.1 million for the three months ended June 30, 1999, primarily as a result of
$1.2 million in expenses incurred in connection with the proposed Merger and
legal fees and settlement costs relating to a lawsuit settled in July 1999. The
impact of these expenses was largely offset by approximately $1.1 million in
income credited to developer operations from the results of the resort
operations. Minority interest decreased $0.2 million from $0.3 million for the
three months ended June 30, 1998 to $0.1 million for the three months ended June
30, 1999, reflecting the smaller losses from operations from consolidated
ventures which are not wholly owned.
Operating income, excluding amounts for excess value recognized and minority
interest, increased 38.3% to $11.2 million, or 14.8% of total revenues, during
the three months ended June 30, 1999 from $8.1 million, or 14.1% of total
revenues, during the three months ended June 30, 1998.
Comparison of the six months ended June 30, 1999 to the six months ended
June 30, 1998.
Revenue:
For the six months ended June 30, 1999, the Company recognized total revenues of
$143.5 million compared to $104.7 million for the six months ended June 30,
1998, an increase of $38.8 million, or 37.1%. This increase is primarily due to
a $29.9 million, or 39.3%, increase in sales of vacation ownership interests
(VOI's) from $76.1 million during 1998 to $106.0 million during 1999. VOI sales
increased due to a 24.4% increase in the number of VOI's sold from 8,105 in the
six months ended June 30, 1998 to 10,084 in 1999, a 5.6% increase in the average
sales price from $9,607 to $10,149 and the recognition in the first quarter 1999
of $3.8 million in VOI sales as calculated under the percentage of completion
method for the Company's Scottsdale resort. Annualizing alternate year VOI
sales, the number of VOI's sold during the six months ended June 30, 1999,
increased 20.4% to 7,988 from 6,637, and the average sales price per interval
increased 9.2% to $12,812 from
15
<PAGE>
$11,732. The increase in VOI sales resulted from increased VOI sales at the
Company's Vistana Resort in Orlando, its resort at Myrtle Beach, and Vistana
Resort at World Golf Village. In addition, VOI sales increased for the six
months ended June 30, 1999 due to VOI sales at the Lakeside Terrace and
Scottsdale resorts which are included in revenues in 1999, but only in the three
months ended June 30, 1998. The increase in average sales price reflects
increased volume from resorts with higher price-point inventory, offset by
higher sales of alternate-year VOI's.
Interest income increased 33.6% to $16.3 million from $12.2 million due to a
28.2% increase in the average principal amount of net customer mortgages
receivable, from $185.5 million at June 30, 1998 to $237.9 million at June 30,
1999.
Resort revenue increased 45.5%, from $10.1 million to $14.7 million, primarily
as a result of increased room rentals due to an increase in rooms available for
rental and higher occupancy levels. Telecommunication revenues (guest telephone
charges at the Company's resorts and revenues from contracting services provided
to third parties) decreased 4.9% from $4.1 million for the six months ended June
30, 1998 to $3.9 million for the six months ended June 30, 1999, primarily due
to lower revenue from contracting services offset by increased guest telephone
charges from higher resort occupancy.
Costs and Operating Expenses:
Total costs and operating expenses increased 37.2% to $125.4 million from $91.4
million, an increase as a percentage of total revenues from 87.3% in 1998 to
87.4% in 1999. VOI cost of sales (product cost), as a percentage of VOI sales,
increased from 21.6% in 1998 to 23.2% in 1999, primarily reflecting an increased
mix of higher cost product at some of the Company's new resorts, lower seasonal
pricing at the Company's Myrtle Beach resort during the first quarter 1999, a
higher mix of one-bedroom VOI sales, and the acquisition of some higher cost
product through lien foreclosures, offset by the increased sales of alternate-
year VOI's. VOI cost of sales is expected to remain higher than 1998 levels as
new resorts having increased land and construction costs comprise a larger part
of the Company's VOI sales. Sales and marketing expenses increased 29.9% from
$37.1 million in 1998 to $48.2 million in 1999, primarily due to a 39.3%
increase in related VOI sales levels. As a percentage of VOI sales, sales and
marketing expenses decreased from 48.8% in 1998 to 45.4% in 1999, primarily as a
result of higher sales volume, lower costs at the Company's Myrtle Beach and
Scottsdale resorts and increased efficiencies at Vistana Resort in Orlando,
particularly from the Company's in-house and telemarketing programs.
Interest expense-treasury increased to $5.0 million in 1999 from $4.3 million in
1998, primarily as a result of increased levels of debt secured by customer
mortgages receivable offset by a lower average cost of funds. Because a
significant portion of the Company's indebtedness bears interest at variable
rates and the Company's customer mortgages receivable earn interest at fixed
rates, increases in short-term interest rates could have an adverse effect on
the net interest margin earned by the Company on its customer mortgages
receivable. The provision for doubtful accounts remained at 7.4% of VOI sales
for the six months ended June 30, 1999, consistent with the same period of 1998.
The Company periodically monitors its allowance for doubtful accounts to provide
for future losses associated with any defaults on customer mortgages receivable.
Management believes that the allowance is adequate for such future losses.
Resort expenses increased as a percentage of resort revenue from 85.1% for the
six months ended June 30, 1998 to 90.2% for the six months ended June 30, 1999
as a result of increased operating costs at the Company's newer resorts,
including the Myrtle Beach resort, Vistana Resort at World Golf Village and the
Scottsdale resort, which are reflected in the six months ended June 30, 1999,
but not in the comparable period of 1998. Resort expenses do not reflect certain
income credited to the Company's developer operations from the results of its
resort operations. (See also discussion of other expenses below.)
Telecommunication expense increased as a percentage of telecommunication revenue
as a result of lower than expected revenues from contracting services. General
and administrative expenses increased from $9.3 million for the six months ended
June 30, 1998 to $10.8 million for the six months ended June 30, 1999,
decreasing as a percent of total revenues from 8.9% in 1998 to 7.5% in 1999. The
decrease in general and administrative expenses as a percent of total revenues
was primarily the result of economies of scale relating to increased revenue
levels. Depreciation and amortization increased as a percentage of total
revenues to 3.2% for the six months ended June 30, 1999, compared to 2.5%
16
<PAGE>
in the same period in 1998, primarily due to capital additions during the fourth
quarter of 1998 and first quarter of 1999 for resort and sales facilities and
information technology assets. Interest expense-other increased as a percentage
of revenue from 0.8% for the six months ended June 30, 1998 to 2.7% in the same
period in 1999 due to increased borrowings secured by real estate primarily
related to the construction of additional VOI inventory. Interest expense-other
excludes amounts capitalized of $1.2 million and $1.7 million for the six months
ended June 30, 1999 and 1998, respectively.
Other revenue increased $0.3 million or 13.6% from $2.2 million for the six
months ended June 30, 1998 to $2.5 million for the six months ended June 30,
1999, primarily as a result of increased net sales of ticket inventory at the
Company's Central Florida marketing company. Other expenses increased $0.6
million or 18.8% from $3.2 million for the six months ended June 30, 1998 to
$3.8 million for the six months ended June 30, 1999, primarily as a result of
$1.2 million in expenses incurred in connection with the Merger Agreement, and
legal fees and settlement costs relating to a lawsuit settled in July 1999. The
impact of these expenses was largely offset by approximately $2.1 million in
income credited to developer operations from the results of the resort
operations. Minority interest increased $0.3 million from $0.6 million for the
six months ended June 30, 1998 to $0.9 million for the six months ended June 30,
1999, reflecting the loss from operations from consolidated ventures which are
not wholly owned.
Operating income, excluding amounts for excess value recognized and minority
interest, increased 36.1% to $18.1 million, or 12.6% of total revenues, during
the six months ended June 30, 1999 from $13.3 million, or 12.7% of total
revenues, for the six months ended June 30, 1998.
Cumulative Effect of a Change in Accounting Principle:
On January 1, 1999, the Company adopted Statement of Position 98-5, "Reporting
on the Cost of Start-up Activities" (SOP 98-5), issued by the American Institute
of Certified Public Accountants. SOP 98-5 requires that future costs of start-up
activities be expensed as incurred. The effect of initially applying the
provisions of SOP 98-5 was reported as a change in accounting principle and,
thereafter, all such costs have been expensed as incurred. The change in
accounting principle resulted in the write-off of the costs capitalized as of
December 31, 1998. The cumulative effect of the write-off, which totaled $0.6
million (net of tax), was expensed in the first quarter 1999 and is reflected in
the condensed consolidated statements of income for the six months ended
June 30, 1999.
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 received on the customer
mortgages receivable and the interest paid on the notes payable secured by the
Company's pledge of such customer mortgages receivable (which averaged 7.1% at
June 30, 1999). As of June 30, 1999, the customer mortgages receivable portfolio
averaged a 14.5% stated rate of interest. Net cash provided by operations for
the six months ended June 30, 1999 was $15.8 million, and net cash used by
operations was $0.4 million for the six months ended June 30, 1998. The increase
in cash provided by operations for the six months ended June 30, 1999, reflects
a decrease in the level of construction activities offset by a decrease in
customer deposits which resulted from the deeding of sales at resorts which were
previously in pre-opening sales.
Net cash used in investing activities for the six months ended June 30, 1999 and
1998 was $41.7 million and $53.0 million, respectively. The decrease in 1999 is
principally due to decreases in restricted cash in the form of customer deposits
related to the deeding of sales at resorts which were previously in pre-opening
sales, offset slightly by increased sales of VOI's and the related increase in
origination of customer mortgages receivable.
17
<PAGE>
Net cash provided by financing activities was $34.3 million during the six-month
period ended June 30, 1999 and $59.1 million in the comparable period in 1998.
The decrease reflects lower borrowing levels combined with an increase in
repayment levels.
The Company requires funds to finance the acquisition and development of
vacation ownership resorts and related inventory, to finance customer purchases
of VOI's and to fund working capital. Historically, these funds have been
principally provided by indebtedness secured by customer mortgages receivable, a
portion of the Company's land, construction in progress and inventory of unsold
VOI's, and other assets. As of June 30, 1999, the Company had $153.1 million
outstanding under its notes payable secured by customer mortgages receivable,
$103.9 million outstanding under its notes payable secured by its land,
construction in progress and VOI inventory, and $19.7 million of other secured
and unsecured notes payable.
The Company's current credit facilities (the "Credit Facilities") provide for
term loans, of which $141.8 million were outstanding as of June 30, 1999, and
revolving lines of credit, of which $104.6 million were outstanding related to
notes payable secured by customer mortgages receivable, and $13.3 million were
outstanding related to notes secured by land, construction in progress and VOI
inventory. At June 30, 1999, total committed but unused available capacity under
the revolving lines of credit (assuming the availability of sufficient
receivables or other qualified assets) and term loans was $90.3 million and
$53.6 million, respectively. In addition, the Company has a $20.0 million
revolving unsecured line of credit, which had a remaining capacity of $3.0
million as of June 30, 1999. As of June 30, 1999, the Company's term loans and
revolving lines of credit accrued interest at various rates between 6.10% and
9.75% per annum. Approximately $228.1 million of the Company's indebtedness
bears interest at variable rates based on fixed spreads over a specified
reference rate. The Company bears the risk of increases in interest rates with
respect to this indebtedness.
As of June 30, 1999, the Company's scheduled principal payments on its long-term
indebtedness through 2003 (excluding payments on Credit Facilities secured
primarily by customer mortgages receivable, as discussed below) were $40.5
million in 1999 (remaining six months), $35.1 million in 2000, $14.2 million in
2001, $18.2 million in 2002 and $15.5 million in 2003 and thereafter. The
foregoing principal repayment obligations exclude amounts due on notes payable
secured by customer mortgages receivable, including the notes issued in
connection with the 1998 securitization of $66.2 million in customer mortgages
receivable, as such notes do not have fixed principal amortization dates.
Rather, all collections of principal and interest on the receivables serving as
collateral for these notes are paid to the lender on a monthly basis. Payments
are first applied to outstanding interest and then to principal. The total
amount of customer mortgages receivable pledged was $173.2 million and $160.9
million at June 30, 1999 and December 31, 1998, respectively.
At June 30, 1999, the Company's inventory of VOI's was 24,524 compared to 17,729
at June 30, 1998, an increase of 38.3%. The increase since June 30, 1998,
resulted from the addition of units at the Company's Vistana Resort in Orlando,
its resort at Myrtle Beach, and Vistana Resort at World Golf Village, and at the
Scottsdale and Lakeside Terrace resorts which were completed in the quarter
ended March 31, 1999.
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; (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); (4) subordination of certain
intercompany obligations; and (5) limitations on certain indebtedness. The
Company's Credit Facilities are generally established for fixed terms and are
also subject to early termination under certain events.
During the three months ended June 30, 1999, the Company entered into a $9.8
million real estate facility which bears interest at LIBOR plus 1.5% and matures
on July 20, 2014.
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<PAGE>
the vacation ownership industry. The Company is currently considering the
acquisition of several additional land parcels for development of additional VOI
inventory. The Company from time to time evaluates additional acquisitions of
operating companies and related assets, but presently has no contracts or
capital commitments relating to any such acquisitions.
In the future, the Company may, subject to certain limitations imposed by the
Merger Agreement, negotiate additional or renewed credit facilities, issue debt
or execute additional securitizations of customer mortgages receivable. 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. However,
adverse conditions in the capital or other financial markets, adverse financial
performance by the Company or its subsidiaries, or the need for additional
equity capital, could curtail or increase the cost of the Company's access to
debt.
The Company believes that, if the Merger is completed as proposed, the cash
generated from operations and future borrowings, including possible
securitizations of customer mortgages receivable, will be sufficient to meet its
working capital and capital expenditure needs for its current operations for the
next 12 months. However, if the Merger is not completed, the Company would
expect to consider the issuance of debt, equity or other securities within 12
months, with the proceeds being used to refinance debt, improve the Company's
debt/equity ratio, finance acquisitions and additional resort development, or
for general corporate purposes. Any decision to issue such securities would
depend upon a number of factors, including the Company's growth opportunities,
conditions in the capital and other markets and the availability and cost of
alternative forms of financing.
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 and may be necessary to provide or
supplement general working capital. 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. However, 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. In addition, to the extent inflationary trends reduce
consumer confidence or disposable income, such events could adversely affect VOI
sales and the performance of the Company's customer mortgages receivable.
Seasonality
The Company's revenues are 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.
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Year 2000
During the quarter ended June 30, 1999, the Company continued its efforts to
minimize the risk of disruption from the "year 2000 (`Y2K') problem." This
problem results from computer programs having been written using two digits
(rather than four) to store date information. The Company's overall plan to
address the Y2K problem is described more fully in its Annual Report on
Form 10-K for the year ended December 31, 1998, and the following is an update
of the information included therein.
IT Systems and non-IT Systems - Remediation efforts (including testing and
certification) continued with respect to the Company's previously identified
"critical" and "important" systems. At the end of the second quarter all
"critical" systems have been tested and certified as Y2K compliant. The Company
continues to expect that all "important" systems will be tested and certified by
September 1999.
Costs - Total anticipated expenditures related to the Y2K project remain on
target and are not expected to require significant incremental internal
resources or third-party expense.
Based upon its efforts to date, the Company continues to believe that the
majority of both its IT and its non-IT systems, including all critical and
important systems, will remain fully operational after January 1, 2000.
Accordingly, the Company does not currently anticipate that internal systems
failures will result in any material adverse effect on its results of operations
or financial condition. At this time, the Company believes its most likely
"worst-case" scenario involves potential disruptions in the areas in which the
Company must rely on third parties whose systems may not work properly after
January 1, 2000. Although such failures could affect important operations of the
Company, either directly or indirectly, in a significant manner, and have a
material adverse effect on its results of operations and financial condition,
the Company cannot presently estimate either the likelihood or the potential
costs of such failures.
The nature and focus of the Company's efforts to address the Y2K issues may be
revised periodically as interim goals are achieved and new issues identified. In
addition, it is important to note that the description of the Company's efforts
involves estimates and projections with respect to activities required in the
future. These estimates and projections are subject to change as work continues
and additional information is made available, and such changes may be
substantial.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion should be read in conjunction with the Annual Report on
Form 10-K for the year ended December 31, 1998 and the condensed consolidated
financial statements and notes thereto included elsewhere in the Form 10-Q.
The Company is exposed to interest rate changes primarily as a result of its
notes and mortgages payable used to finance the acquisition and development of
vacation ownership resorts and related inventory and to fund working capital.
The Company is also exposed to interest rate changes with respect to its
customer mortgages receivable which earn interest at fixed rates. The Company's
interest rate risk management objective is to limit the impact of interest rate
changes on earnings and cash flows and to lower its overall borrowing costs. To
achieve its objectives, the Company may enter into derivative financial
instruments such as interest rate swaps in order to mitigate its interest rate
risk on a related financial instrument. The Company does not enter into
derivative or interest rate transactions for speculative purposes.
For a complete description of the Company's interest rate and foreign currency
related market risks, see the discussion in Part II, Item 7A of the Company's
Annual Report on Form 10-K for the year ended December 31, 1998. There has not
been a material change in the Company's exposure to interest rate risks since
December 31, 1998.
20
<PAGE>
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contain "forward-looking statements" within the meaning of the
federal securities laws, including statements concerning the Company's future
prospects and financial performance, expansion plans, business strategies and
their intended results, and similar statements about anticipated future events
and expectations that are not historical facts. Such statements are subject to
numerous risks and uncertainties, including the effects of economic conditions,
interest rates, consumer demand, payment and default risks on customer mortgages
receivable, competitive conditions, the impact of government regulations and
approval requirements, the availability and cost of capital to finance future
growth, the ability to acquire, develop and sell vacation ownership inventory
cost-effectively, the availability of qualified personnel, the ability to
transfer the experience and historical operating results of the Company's mature
resorts to its new properties, the ability to avoid disruption from year 2000
technology problems, the satisfactory completion of proposed joint venture,
licensing, financing and other agreements, the satisfaction of various
conditions and compliance with various covenants contained in the Company's
existing agreements, and other risks described in the Company's filings with the
Securities and Exchange Commission on Forms 10-K, 10-Q, 10-Q/A, and 8-K. Such
risks could cause actual results to differ materially from those expressed or
implied by forward-looking statements contained herein.
21
<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
a) The 1999 annual meeting of shareholders of Vistana, Inc. was held on
April 28, 1999.
b) All director nominees described in (c) below were elected. The following
additional directors continued in office after the meeting: Jeffrey A.
Adler, Laurence S. Geller, Charles E. Harris and Steven J. Heyer.
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
Proposal ---------- ------- ------- ---------
- --------
<S> <C> <C> <C> <C>
Ratification of engagement of 19,796,013 24,981 590 1,455,999
independent auditors
Election of Directors:
James G. Brocksmith, Jr. 19,812,484 -- 9,100 1,455,999
Raymond L. Gellein, Jr. 19,805,884 -- 15,700 1,455,999
</TABLE>
ITEM 5. OTHER INFORMATION
None.
22
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 10.21-B Second Amendment to Loan and Security Agreement dated
as of April 20, 1999 between Vistana Timeshare Mortgage
Corp. and Dresdner Bank AG New York and Grand Cayman
Branches
Exhibit 10.27-A First Amendment to Master Vistana Resort Receivables Loan
Facility and Ratification of Guaranty dated as of January
29, 1999 between Vistana, Inc. and Heller Financial, Inc.
Exhibit 10.27-B Second Amendment to Master Vistana Resort Receivables Loan
Facility and Ratification to Guaranty dated as of April
30, 1999 between Vistana, Inc. and Heller Financial, Inc.
Exhibit 10.27-C Third Amendment to Master Vistana Resort Receivables Loan
Facility and Ratification of Guaranty dated as of June 30,
1999 between Vistana, Inc. and Heller Financial, Inc.
Exhibit 27: Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June 30, 1999.
23
<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 12, 1999 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
24
<PAGE>
EXHIBIT 10.21-B
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT, dated as of April 30, 1999 ("Amendment"), to that
certain Loan and Security Agreement, dated as of November 1, 1997, by and
between Vistana Timeshare Mortgage Corp. (the "Borrower") and Dresdner Bank AG
New York and Grand Cayman Branches (the "Lender") (as amended from time to time,
the "Agreement").
WITNESSETH:
-----------
WHEREAS, the parties have previously entered into the Agreement pursuant to
which the Lender agreed to make a revolving loan (the "Loan") to Borrower,
secured by certain level payment promissory notes and related mortgages on
timeshare interests, in the initial maximum principal amount of $70,000,000.00;
WHEREAS, the Lender and Borrower previously have amended certain terms of
the Agreement with regard to the maximum principal amount that may be borrowed,
which became $100,000,000.00, and extension of the maturity date, which became
November 24, 1999;
WHEREAS, the parties now wish to amend Exhibit F to the Agreement to
include in that list of Resorts a new facility, The Lakeside Terrace
Condominiums.
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise amended by the terms of this
Amendment terms used in this Amendment shall have the meanings assigned to them
in the Agreement.
SECTION 2. Amendments to Agreement. Effective upon the execution and
delivery of this Amendment, the Agreement shall be amended as follows:
a. Section 1.80 is hereby amended to read:
"Manager": a Person with whom an Association enters into a
Management Agreement. As of March 1, 1999, such Managers were
Points of Colorado, Inc., with respect to Eagle Pointe, Falcon
Pointe and Lakeside Terrace, Resort Advisory Group, Inc. with
respect to Christie Lodge and Vistana MB Management, Inc. with
respect to Embassy Vacation Resort at Myrtle Beach.
b. Section 6.2 of the Agreement is hereby amended to add as
paragraph (t):
Renewal of Certificate of Occupancy. The Borrower hereby
covenants and agrees to cause Points of Colorado, Inc. to (i)
prior to June 30, 1999 and continuing thereafter, continually
renew and deliver to Lender, evidence, satisfactory to Lender in
all respects, that it has renewed, or further renewed, as
applicable, the temporary certificate of occupancy
<PAGE>
issued by the Town of Avon with respect to the Lakeside Terrace
Condominiums without interruption between renewals until such
time as a permanent certificate of occupancy is issued by the
Town of Avon, or by such other local or zoning authority duly
authorized to issue such permanent certificate of occupancy with
respect thereto, and (ii) prior to November 1, 1999, obtain a
permanent certificate of occupancy from the Town of Avon or such
other local or zoning authority duly authorized to issue such
permanent certificate of occupancy with respect to the Lakeside
Terrace Condominium. Breach of the foregoing covenant will not
constitute an Event of Default under this Agreement if prior to
the lapse of any temporary certificate of occupancy or prior to
November 1, 1999 if no permanent certificate of occupancy has
been obtained, Borrower causes each of the Designated Instruments
related to Lakeside Terrace Condominium to be completely replaced
or repaid.
c. Exhibit F of the Agreement is hereby amended to designate as an
additional Resort under Section 1.113 of the Agreement, Lakeside
Terrace Condominium, Eagle County, Colorado and to add the
following page thereto, in the form attached hereto.
d. Exhibit L of the Agreement is hereby amended to designate
Lakeside Terrace as an additional Resort referenced in such
Exhibit L, and to add the following page thereto, in the form
attached.
SECTION 3. Events of Default. The Borrower represents and warrants that no
Event of Default or, in the good faith and reasonable business judgment of
Borrower, Incipient Default has occurred or is continuing on the date hereof.
SECTION 4. Conditions Precedent. The Borrower represents and warrants that
all conditions precedent to the effectiveness of this Amendment, and all
conditions precedent in Section 4.1(b) and 4.1(c) of the Agreement with respect
to Lakeside Terrace are met. It shall be a condition precedent to the execution
of this Amendment that the Borrower shall have delivered to the Lender an
opinion of either Weil, Gotshal & Manges LLP, or, Dean, Mead, Egerton,
Bloodworth, Capouano & Bozarth, P.A., to the effect that the Agreement, as
amended by this second amendment, the first amendment and the Amended and
Restated Note has been duly authorized, executed and delivered by the Borrower
and are legal, valid, and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms.
SECTION 5. Effectiveness of Agreement. Except as expressly amended by the
terms of this Amendment, all terms and conditions of the Agreement shall remain
in full force and effect.
SECTION 6. Execution in Counterparts, Effectiveness. This Amendment may be
executed by the parties hereto in several counterparts, each of which shall be
executed by the Borrower and the Lender and be deemed to be an original and all
of which shall constitute together but one and the same agreement.
2
<PAGE>
SECTION 7. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO CONFLICT OF LAW PRINCIPLES.
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment to be duly executed and delivered as of the date hereof.
BORROWER:
VISTANA TIMESHARE MORTGAGE CORP.
a Delaware corporation
By: /s/ Susan Werth
-------------------------------------
Name: Susan Werth
-----------------------------------
Title: Senior Vice President - Law
----------------------------------
LENDER:
DRESDNER BANK AG NEW YORK AND
GRAND CAYMAN BRANCHES
By: /s/ Harry C. Forsyth
-------------------------------------
Name: Harry C. Forsyth
-----------------------------------
Title: Vice President
----------------------------------
By: /s/ Edward M. Weber
-------------------------------------
Name: Edward M. Weber
-----------------------------------
Title: Assistant Treasurer
----------------------------------
3
<PAGE>
Additional page for Exhibit F of the Loan and Security Agreement,
dated November 1, 1997, by and between Vistana Timeshare Mortgage
Corp. and Dresdner Bank AG New York and Grand Cayman Branches.
Legal Description for Lakeside Terrace Condominiums
All that real property situate in Eagle County, Colorado,
described as follows:
Units B201, B202, B203, B204, B205, B301, B302, B303, B304, B401,
B402, B403, B404, B501, PHB502, C201, C202, C203, C204, C301, C302,
C303, C304, C401, C402, C403, C404, PHC501, PHC502, FIRST SUPPLEMENT
TO CONDOMINIUM MAP OF LAKESIDE TERRACE CONDOMINIUMS, according to the
Map thereof filed March 10, 1999, at Reception No. 689208, and
according to the Condominium Declaration recorded January 30, 1998, at
Reception No. 645962, and First Amendment to Condominium Declaration
recorded March 10, 1999, at Reception No. 689207.
4
<PAGE>
Additional page for Exhibit L of the Loan and Security Agreement,
dated November 1, 1997, by and between Vistana Timeshare Mortgage
Corp. and Dresdner Bank AG New York and Grand Cayman Branches.
[WGM to provide]
5
<PAGE>
EXHIBIT 10.27-A
FIRST AMENDMENT TO MASTER VISTANA
RESORT RECEIVABLES LOAN FACILITY AND RATIFICATION OF GUARANTY
-------------------------------------------------------------
THIS FIRST AMENDMENT TO MASTER VISTANA RESORT RECEIVABLES LOAN FACILITY AND
RATIFICATION OF GUARANTY (the "Amendment") is made and entered into as of
January 29, 1999, by and among HELLER FINANCIAL, INC., a Delaware corporation
("Lender"), and VISTANA, INC., a Florida corporation ("Vistana").
WHEREAS, Lender and Vistana are parties to that certain Master Vistana
Resort Receivables Loan Agreement dated as of December 30, 1998 (the
"Agreement"), pursuant to which Lender agreed to extend receivables financing
from time to time to certain affiliates of Vistana in an amount not to exceed
$20,000,000 principal outstanding at any one time; and
WHEREAS, both Lender and Vistana desire to amend and modify the terms and
provisions of the Agreement with regard to the maximum principal balance that
may be borrowed under the Receivables Loans for a certain period of time.
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. Except as otherwise provided herein to the contrary or
unless the context otherwise requires, all capitalized terms used in this
Amendment shall have the meanings ascribed to them in the Agreement.
2. Maximum Loan Amount. The following definition of Maximum Loan Amount is
hereby added to the Appendix to the Agreement:
Maximum Loan Amount. (a) For the period commencing on the date hereof
and ending on April 30, 1999, $30,000,000 principal balance
outstanding at any one time for all Receivables Loans for all Eligible
Resorts pursuant to the terms hereof and (b) for the period commencing
on May 1, 1999 and ending on the Facility Maturity Date, $20,000,000
principal balance outstanding at any one time for all Receivables
Loans for all Eligible Resorts pursuant to the terms hereof.
3. Facility Maturity Date. The following definition of Facility Maturity
Date is hereby added to the Appendix to the Agreement:
Facility Maturity Date. December 30, 2008.
4. Amendments.
(a) Clause (A) of Section 1.1(a)(ii) of the Agreement is hereby
deleted in its entirety and replaced and superceded by the following:
(A) The Maximum Loan Amount,
<PAGE>
(b) Section 1.6 of the Agreement is hereby deleted in its entirety and
replaced and superceded by the following:
1.6 Maximum Loan Amount. Notwithstanding any provision to the
contrary in this Agreement or the Receivables Loan Documents, the
outstanding principal balance under this Master Vistana Resort
Receivables Loan Facility shall never exceed in the aggregate the
Maximum Loan Amount. Vistana acknowledges and agrees that if on April
30, 1999 the outstanding principal balance under this Master Vistana
Receivables Loan Facility exceeds $20,000,000, then such excess amount
shall be due and payable on May 1, 1999.
5. Ratification of Guaranty. Vistana hereby ratifies its obligations under
the Master Vistana Resort Receivables Loan Facility Guaranty (the "Guaranty") as
increased by this Amendment. Nothing contained in this Amendment or any of the
transactions contemplated herein shall be deemed to waive, release, or limit any
obligation of Vistana relating to or otherwise connected with the Guaranty nor
shall it constitute a novation of the indebtedness secured by the Guaranty.
6. Authority.
(a) As of the date hereof, Vistana is duly organized, validly
existing, and in good standing under the laws of the State of Florida and every
other jurisdiction in which it conducts business.
(b) The execution, delivery, and performance by Vistana of this
Amendment has been duly authorized by all necessary corporate Vistana action and
does not and will not result in a breach of, or constitute a default by Vistana
under, any indenture, loan, or credit agreement or any other contract,
agreement, document, instrument, or certificate to which Vistana is legally
bound or by which it or any of its assets are affected.
7. Miscellaneous.
(a) No Other Changes. Except as expressly set forth herein, each and
every term, provision, and condition contained in the Agreement and Vistana
Guaranty, including all exhibits and schedules thereto and all of Lender's
rights and remedies thereunder, shall remain unchanged and in full force and
effect following the date hereof. In the event of any conflict between the
provisions hereof and those contained in the Agreement and Vistana Guaranty, the
provisions hereof shall govern and control the parties' respective rights and
obligations.
(b) Counterparts. This Amendment may be executed in identical
counterparts, each of which shall be deemed an original for any and all purposes
and all of which, collectively, shall constitute one and the same instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
Master Vistana Resort Receivables Loan Facility to be duly executed and
delivered as of the date first above written.
VISTANA:
VISTANA, INC., a Florida corporation
By: /s/ Susan Werth
-------------------------------------
Name: Susan Werth
-----------------------------------
Title: Senior Vice President and
----------------------------------
General Counsel
----------------------------------
LENDER:
HELLER FINANCIAL, INC.,
a Delaware corporation
By: /s/ Lisa J. Hansen
-------------------------------------
Name: Lisa J. Hansen
-----------------------------------
Title: Assistant Vice President
----------------------------------
3
<PAGE>
EXHIBIT 10.27-B
SECOND AMENDMENT TO MASTER VISTANA
RESORT RECEIVABLES LOAN FACILITY AND RATIFICATION OF GUARANTY
-------------------------------------------------------------
THIS SECOND AMENDMENT TO MASTER VISTANA RESORT RECEIVABLES LOAN FACILITY
AND RATIFICATION OF GUARANTY (the "Amendment") is made and entered into as of
April 30, 1999, by and among HELLER FINANCIAL, INC., a Delaware corporation
("Lender"), and VISTANA, INC., a Florida corporation ("Vistana").
WHEREAS, Lender and Vistana are parties to that certain Master Vistana
Resort Receivables Loan Agreement dated as of December 30, 1998 (as amended by
the First Amendment to Master Vistana Resort Receivables Loan Facility and
Ratification of Guaranty dated as of January 29, 1999 between Lender and
Vistana, the "Agreement"), pursuant to which Lender agreed to extend receivables
financing from time to time to certain affiliates of Vistana in an amount not to
exceed $30,000,000 principal outstanding at any one time; and
WHEREAS, both Lender and Vistana desire to amend and modify the terms and
provisions of the Agreement with regard to the maximum principal balance that
may be borrowed under the Receivables Loans for a certain period of time.
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. Except as otherwise provided herein to the contrary or
unless the context otherwise requires, all capitalized terms used in this
Amendment shall have the meanings ascribed to them in the Agreement.
2. Amendments.
----------
(a) Section 1.6 of the Agreement is hereby deleted in its entirety
and replaced and superceded by the following:
1.6 Maximum Loan Amount. Notwithstanding any provision to the
contrary in this Agreement or the Receivables Loan Documents, the
outstanding principal balance under this Master Vistana Resort
Receivables Loan Facility shall never exceed in the aggregate the
Maximum Loan Amount. Vistana acknowledges and agrees that if on the
Interim Increase Date the outstanding principal balance under this
Master Vistana Receivables Loan Facility exceeds $20,000,000, then
such excess amount shall be due and payable on the next Business Day
following the Interim Increase Date.
(b) Interim Increase Date. The following definition of Interim
Increase Date is hereby added to the Appendix to the Agreement:
<PAGE>
Interim Increase Date. June 30, 1999.
(c) Maximum Loan Amount. The definition of Maximum Loan Amount in
the Appendix to the Agreement is hereby deleted in its entirety and replaced and
superceded by the following:
Maximum Loan Amount. (a) For the period commencing on the date hereof
and ending on the Interim Increase Date, $30,000,000 principal balance
outstanding at any one time for all Receivables Loans for all Eligible
Resorts pursuant to the terms hereof and (b) for the period commencing
on the next Business Day following the Interim Increase Date and
ending on the Facility Maturity Date, $20,000,000 principal balance
outstanding at any one time for all Receivables Loans for all Eligible
Resorts pursuant to the terms hereof.
3. Ratification of Guaranty. Vistana hereby ratifies its obligations
under the Master Vistana Resort Receivables Loan Facility Guaranty (the
"Guaranty") as increased by this Amendment. Nothing contained in this Amendment
or any of the transactions contemplated herein shall be deemed to waive,
release, or limit any obligation of Vistana relating to or otherwise connected
with the Guaranty nor shall it constitute a novation of the indebtedness secured
by the Guaranty.
4. Authority.
---------
(a) As of the date hereof, Vistana is duly organized, validly
existing, and in good standing under the laws of the State of Florida and every
other jurisdiction in which it conducts business.
(b) The execution, delivery, and performance by Vistana of this
Amendment has been duly authorized by all necessary corporate Vistana action and
does not and will not result in a breach of, or constitute a default by Vistana
under, any indenture, loan, or credit agreement or any other contract,
agreement, document, instrument, or certificate to which Vistana is legally
bound or by which it or any of its assets are affected.
5. Miscellaneous.
-------------
(a) No Other Changes. Except as expressly set forth herein, each and
every term, provision, and condition contained in the Agreement and Vistana
Guaranty, including all exhibits and schedules thereto and all of Lender's
rights and remedies thereunder, shall remain unchanged and in full force and
effect following the date hereof. In the event of any conflict between the
provisions hereof and those contained in the Agreement and Vistana Guaranty, the
provisions hereof shall govern and control the parties' respective rights and
obligations.
(b) Counterparts. This Amendment may be executed in identical
counterparts, each of which shall be deemed an original for any and all purposes
and all of which, collectively, shall constitute one and the same instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
Master Vistana Resort Receivables Loan Facility to be duly executed and
delivered as of the date first above written.
VISTANA:
VISTANA, INC., a Florida corporation
By: /s/ Susan Werth
-------------------------------------
Name: Susan Werth
-----------------------------------
Title: Senior Vice President and
----------------------------------
General Counsel
----------------------------------
LENDER:
HELLER FINANCIAL, INC.,
a Delaware corporation
By: /s/ Lisa J. Hansen
-------------------------------------
Name: Lisa J. Hansen
-----------------------------------
Title: Vice President
----------------------------------
3
<PAGE>
EXHIBIT 10.27-C
THIRD AMENDMENT TO MASTER VISTANA
RESORT RECEIVABLES LOAN FACILITY AND RATIFICATION OF GUARANTY
-------------------------------------------------------------
THIS THIRD AMENDMENT TO MASTER VISTANA RESORT RECEIVABLES LOAN FACILITY AND
RATIFICATION OF GUARANTY (the "Amendment") is made and entered into as of June
30, 1999, by and among HELLER FINANCIAL, INC., a Delaware corporation
("Lender"), and VISTANA, INC., a Florida corporation ("Vistana").
WHEREAS, Lender and Vistana are parties to that certain Master Vistana
Resort Receivables Loan Agreement dated as of December 30, 1998 (as amended by
the First Amendment to Master Vistana Resort Receivables Loan Facility and
Ratification of Guaranty dated as of January 29, 1999 and the Second Amendment
to Master Vistana Resort Receivables Loan Facility and Ratification of Guaranty
dated as of April 30, 1999, the "Agreement"), pursuant to which Lender agreed to
extend receivables financing from time to time to certain affiliates of Vistana
in an amount not to exceed $30,000,000 principal outstanding at any one time;
and
WHEREAS, both Lender and Vistana desire to amend and modify the terms and
provisions of the Agreement with regard to the maximum principal balance that
may be borrowed under the Receivables Loans for a certain period of time.
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. Except as otherwise provided herein to the contrary or
unless the context otherwise requires, all capitalized terms used in this
Amendment shall have the meanings ascribed to them in the Agreement.
Interim Increase Date. The definition of Interim Increase Date is
hereby deleted in its entirety and replaced and supercede by the following:
Interim Increase Date. July 31, 1999.
2. Ratification of Guaranty. Vistana hereby ratifies its obligations under
the Master Vistana Resort Receivables Loan Facility Guaranty (the "Guaranty") as
increased by this Amendment. Nothing contained in this Amendment or any of the
transactions contemplated herein shall be deemed to waive, release, or limit any
obligation of Vistana relating to or otherwise connected with the Guaranty nor
shall it constitute a novation of the indebtedness secured by the Guaranty.
3. Authority.
(a) As of the date hereof, Vistana is duly organized, validly
existing, and in good standing under the laws of the State of Florida and every
other jurisdiction in which it conducts business.
<PAGE>
(b) The execution, delivery, and performance by Vistana of this
Amendment has been duly authorized by all necessary corporate Vistana action and
does not and will not result in a breach of, or constitute a default by Vistana
under, any indenture, loan, or credit agreement or any other contract,
agreement, document, instrument, or certificate to which Vistana is legally
bound or by which it or any of its assets are affected.
4. Miscellaneous.
(a) No Other Changes. Except as expressly set forth herein, each and
every term, provision, and condition contained in the Agreement and Vistana
Guaranty, including all exhibits and schedules thereto and all of Lender's
rights and remedies thereunder, shall remain unchanged and in full force and
effect following the date hereof. In the event of any conflict between the
provisions hereof and those contained in the Agreement and Vistana Guaranty, the
provisions hereof shall govern and control the parties' respective rights and
obligations.
(b) Counterparts. This Amendment may be executed in identical
counterparts, each of which shall be deemed an original for any and all purposes
and all of which, collectively, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
Master Vistana Resort Receivables Loan Facility to be duly executed and
delivered as of the date first above written.
VISTANA:
VISTANA, INC., a Florida corporation
By: /s/ Susan Werth
-------------------------------------
Name: Susan Werth
-----------------------------------
Title: Senior Vice President and
----------------------------------
General Counsel
----------------------------------
LENDER:
HELLER FINANCIAL, INC.,
a Delaware corporation
By: /s/ Lisa J. Hansen
-------------------------------------
Name: Lisa J. Hansen
-----------------------------------
Title: Vice President
----------------------------------
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of
Income and Condensed Consolidated Statements of Cash Flow included in the
Company's Form 10-Q for the period ending June 30, 1999, 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 28,350
<SECURITIES> 0
<RECEIVABLES> 252,533
<ALLOWANCES> 23,690
<INVENTORY> 85,257
<CURRENT-ASSETS> 0
<PP&E> 49,429
<DEPRECIATION> 13,397
<TOTAL-ASSETS> 518,896
<CURRENT-LIABILITIES> 0
<BONDS> 276,687
0
0
<COMMON> 213
<OTHER-SE> 156,286
<TOTAL-LIABILITY-AND-EQUITY> 518,896
<SALES> 106,015
<TOTAL-REVENUES> 143,457
<CGS> 24,597
<TOTAL-COSTS> 125,394
<OTHER-EXPENSES> 3,839
<LOSS-PROVISION> 7,844
<INTEREST-EXPENSE> 8,973
<INCOME-PRETAX> 19,030
<INCOME-TAX> 7,422
<INCOME-CONTINUING> 11,608
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 601
<NET-INCOME> 11,007
<EPS-BASIC> 0.52
<EPS-DILUTED> 0.51
</TABLE>
