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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For quarterly period ended March 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission File Number: 333-61433
EPIC RESORTS, LLC
(Exact name of registrant as specified in its charter)
DELAWARE 23-2888968
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1150 FIRST AVENUE, SUITE 900 19406
KING OF PRUSSIA, PA (Zip Code)
(Address of principal executive offices)
(610) 992-0100
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since
last report)
- --------------------------------------------------------------------------------
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 / /
As of March 31, 2000, 1,118,000 membership interests of the registrant
were outstanding.
- --------------------------------------------------------------------------------
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EPIC RESORTS, LLC
INDEX
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PART I. FINANCIAL INFORMATION PAGE
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ITEM 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999..............................................................3
Consolidated Statements of Operations - Three Months Ended
March 31, 2000 and 1999.........................................................4
Consolidated Statements of Cash Flows - Three Months Ended
March 31, 2000 and 1999.........................................................5
Notes to Consolidated Financial Statements......................................6
ITEM 2. Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations.......................................................7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.....................11
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.................................................
SIGNATURES
EXHIBIT INDEX .................................................................................
</TABLE>
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PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EPIC RESORTS, LLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
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March 31, December 31,
2000 1999
---- ----
(unaudited)
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<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,522,000 $2,359,000
Cash in escrow 13,670,000 12,004,000
Investment in residual interests 35,627,000 29,465,000
Notes and mortgages receivable, net of allowance of $1,548,000 and $1,628,000 12,997,000 11,874,000
as of March 31, 2000 and December 31, 1999 respectively
Inventory 61,219,000 65,804,000
Property and equipment, net 15,982,000 15,665,000
Deferred financing costs, net 7,470,000 7,721,000
Other assets 5,844,000 4,659,000
----------------- ----------------
Total assets $156,331,000 $149,551,000
================= ================
LIABILITIES AND MEMBERS' EQUITY
Accounts payable $ 3,095,000 $ 2,794,000
Accrued expenses 423,000 987,000
Accrued interest payable 4,961,000 736,000
Advance deposits 43,000 43,000
Deferred revenue 213,000 258,000
Notes payable 308,000 351,000
Senior secured notes payable 127,924,000 127,825,000
----------------- ----------------
Total liabilities 136,967,000 132,994,000
----------------- ----------------
Commitments and contingencies - -
Warrants 2,757,000 2,757,000
Members' equity 16,607,000 13,800,000
----------------- ----------------
Total liabilities and members' equity $156,331,000 $149,551,000
================= ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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EPIC RESORTS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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For the Three Months
Ended March 31,
---------------
2000 1999
---- ----
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Revenue:
Sales of vacation ownership interests $ 26,059,000 $ 15,651,000
Resort operations 5,764,000 3,450,000
Gains on sales of receivables and other
financing income 5,660,000 1,780.000
Other income 740,000 720,000
------------ ------------
38,223,000 21,601,000
------------ ------------
Costs and expenses:
Cost of sales of vacation ownership interests 4,770,000 3,127,000
Resort operations 6,549,000 3,680,000
Selling and marketing costs 12,072,000 6,648,000
General and administrative 6,052,000 3,298,000
Provision for doubtful accounts 638,000 735,000
Depreciation 396,000 212,000
Financing and closing costs 210,000 140,000
Interest expense 4,660,000 4,799,000
------------ ------------
35,347,000 22,639,000
------------ ------------
Net income (loss) $ 2,876,000 $ (1,038,000)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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EPIC RESORTS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,876,000 $ (1,038,000)
Adjustments to reconcile net income to net cash used in operating activities-
Depreciation 396,000 212,000
Amortization of deferred financing costs 326,000 573,000
Provision for doubtful accounts 638,000 735,000
Gains on sales of receivables and other financing income (5,660,000) (1,780,000)
Accretion of Senior secured Sales Payable 99,000 --
Changes in assets and liabilities--
Notes and mortgages receivable (16,051,000) (10,896,000)
Inventory 4,585,000 1,459,000
Other assets (1,185,000) (488,000)
Accounts payable 301,000 396,000
Accrued expenses (563,000) (1,090,000)
Accrued interest payable 4,225,000 4,225,000
Advance deposits -- 18,000
Deferred revenue (45,000) 137,000
------------ ------------
Net cash used in operating activities (10,058,000) (7.537,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (712,000) (1,288,000)
Investment in residual interests Proceeds (6,162,000) (2,133,000)
------------ ------------
Net cash used in investing activities (6,874,000) (3,421,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES: --
Payments on notes payable (43,000) (1,000)
Cash escrow, net (1,667,000) --
Proceeds from sales of receivables 19,950,000 (193,000)
Payment of deferred financing costs (75,000) (7,121,000)
Distributions to members (70,000) (70,000)
------------ ------------
Net cash provided by financing activities 18,095,000 6,857,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,163,000 (4,101,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,359,000 16,095,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,522,000 $ 11,994,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 11,000 $ 1,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
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EPIC RESORTS, LLC
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
1. BASIS OF PRESENTATION:
The consolidated financial statements have been prepared by the
Registrant, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Registrant believes that the disclosures are adequate
to make the information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the audited
financial statements and the notes thereto included in the Registrant's latest
annual report on Form 10-K. In the opinion of the Registrant, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
consolidated financial position and the consolidated results of its operations
and its cash flows, have been included. The results of operations for such
interim periods are not necessarily indicative of the results for the full year.
2. NATURE OF BUSINESS:
EPIC Resorts, LLC (a sole-member Delaware Limited Liability Company) and its
wholly owned subsidiaries (the Company) generate revenue from the sale and
financing of vacation points in its resorts. Customers acquire the right to use
a fully furnished vacation residence, based upon the number of points purchased
in EPIC's Vacation Club, in perpetuity or over an extended period not less than
35 years (Vacation Points). The Company's principal operations consist of (i)
acquiring, developing and operating vacation ownership resort locations, (ii)
marketing and selling Vacation Points in its resorts, and (iii) providing
customer financing to individual purchasers of Vacation Points at its resorts.
The Company also generates income from the transient rental of resort
accommodations.
In January 1999, the Company adopted a vacation club system. The vacation club
holds units of each of the Company's resort locations. The units of each resort
location are contributed to the club. The club then sells "Vacation Points".
Prior to January 1999, the Company sold vacation ownership interests in its
resorts. The customer acquired the right to use a fully furnished vacation
residence, generally for a one-week period each year.
3. SALES OF NOTES AND MORTGAGES RECEIVABLE:
During the three months ended March 31, 2000, EPIC sold $23,057,000 of
notes and mortgages receivables as part of its $100 million Vacation Ownership
Loan Participation Facility ("Receivables Facility"). Under this Receivables
Facility, EPIC sells its Vacation Ownership Interest Receivables on a
non-recourse basis to EPIC Master Funding Corporation ("EPIC Funding"), a
wholly-owned subsidiary which is a qualifying special purpose entity as defined
in SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
(i) unpaid principal balance of the receivables sold or (ii) the market value of
such receivables as determined by the financial institution. The Receivable
Facility contains a customary provision requiring the substitution of collateral
in an equal amount if receivables become 60 days past due.
4. SEGMENT AND GEOGRAPHIC INFORMATION:
The Company operates in one industry segment, which includes the
development, acquisition, marketing, financing, and management of vacation
ownership resorts. The Company does not operate outside the United States. The
Company's customers are not concentrated in any specific geographic region and
no single customer accounts for a significant amount of EPIC's revenue.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
This Quarterly Report, and other written reports and oral statements
made from time to time by EPIC , may contain "forward-looking statements." All
statements that address operating performance, events or developments that
management anticipates will occur in the future, including statements related to
future sales, profits, expenses, and income, or statements expressing general
optimism about future results, are forward-looking statements. In addition,
words such as "expects," "anticipates," "intends," "plans," "believes," and
"estimates," and variations of such words and similar expressions are intended
to identify forward-looking statements.
Because forward-looking statements are based on a number of beliefs,
estimates and assumptions by management that could ultimately prove inaccurate,
there is no assurance that forward-looking statements will prove to be correct.
Any number of factors could affect future operations and results, including the
following: increasing competition; fluctuations in consumer demand and
confidence; fluctuations in costs and expenses; the effectiveness of
advertising, marketing and promotional programs; weather conditions that affect
the geographic areas where the Company's resorts are located; the effectiveness
of the integration of the Company's recently acquired resorts; the timing,
quality and completion of construction and development activities at the
Company's resorts; the timing and availability of governmental permits and
authorizations regarding the Company's resorts; the continued availability and
terms of financing; and other general economic conditions, such as the rate of
employment, inflation and interest rates. This list of factors is not exclusive.
Forward-looking statements are subject to the safe harbors created in
the Securities Act of 1933 and the Securities Exchange Act of 1934. The Company
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
BUSINESS
HISTORY AND OWNERSHIP
EPIC Resorts, LLC, a Delaware limited liability company (the
"Company"), was formed in June 1998 to merge with EPIC Resorts, Inc. EPIC
Resorts, Inc. had been formed to combine the ownership of the London Bridge
Resort and the Daytona Beach Regency and their vacation ownership acquisition
and development businesses. London Bridge Resort was acquired in 1986 by London
Bridge Resort, Inc., a Delaware corporation wholly owned by Thomas F. Flatley,
the Company's President. In April 1996, the Daytona Beach Regency Resort was
acquired by Daytona Beach Regency, Ltd., a limited partnership controlled by Mr.
Flatley.
In connection with the private placement of $130 million aggregate
principal amount of the Company's Senior Secured Redeemable Notes due 2005 (the
"Notes") in July 1998, Resorts, Inc. was merged into EPIC Resorts, LLC and
certain of its subsidiaries were merged into limited liability companies. Mr.
Flatley simultaneously contributed his membership interests in certain of those
subsidiaries to the Company. In connection with the issuance of the Notes, the
Company acquired four new resorts (Desert Paradise Resort, Scottsdale Links
Resort, Palm Springs Marquis Villas and Island Links Resort) and purchased the
limited partnership interests in Daytona Beach Regency, Ltd.
EPIC'S VACATION OWNERSHIP BUSINESS
The Company is a nationwide developer and marketer of vacation
ownership resorts located in major tourist destinations. Vacation ownership
interests typically entitle the buyer to a fully furnished vacation residence in
any one of the Company's six resorts based on the number of points purchased in
EPIC Vacation Club, a nonprofit corporation operated by the Company (the
"Club"). The Club holds units of each of the Company's resorts which are
transferred into the Club by each of the Company's operating subsidiaries. The
Company converted its operations to this vacation club system in January 1999.
Prior to this time, a customer would
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purchase a one-week interest at one particular resort, and would receive a deed
evidencing their purchase. The Company now sells points ("Vacation Points") in
the Club, which entitle the purchaser to reserve units at any of the Company's
six resorts and in increments as short as one day. A customer now has access to
all of the Company's resorts, as well as over 1,700 other resorts worldwide
through the Company's participation in vacation ownership interest exchange
networks. The vacation club system offers the Company's customers greater
flexibility in their vacation planning, a wider variety of vacation options, and
easier access to the Company's network of resorts.
The Company's six resorts are located in Las Vegas, Nevada; Scottsdale,
Arizona; Palm Springs, California; Daytona Beach, Florida; Lake Havasu City,
Arizona; and Hilton Head, South Carolina.
The Company marketed and sold its deeded vacation ownership interests
and markets and sells its vacation points through both on-site and off-site
sales centers. In addition, the Company generates income through the rental of
available suites at its resorts. The Company sells Vacation Ownership Interests
to purchasers for leisure purposes and not for investment purposes.
EPIC VACATION CLUB
The Club is a Delaware nonprofit, non stock corporation formed by the
Company in 1998. The Club's articles of incorporation provide that it was formed
for the specific purpose of owning and managing the real property conveyed to it
by the Company and its resort subsidiaries. Purchasers of Club Points
("Purchasers") receive the right to reserve time at any of the resort units
conveyed to the Club as well as the right to vote to elect the Club's board
members and to vote on major Club matters. The number of votes that each
Purchaser has is based on the number of Club Points the Purchaser owns.
The Club maintains a reserve, funded from the annual assessments
collected from Purchasers, which is used to maintain and upgrade the interiors
and furnishings of the resort units, and the exteriors and common areas of the
resorts in which the Club owns all of the units. The Club collects maintenance
dues from Purchasers based on the number of Vacation Points owned. Currently,
the annual dues are 4-1/2 CENTS per vacation point. These dues are intended to
cover the Club's operating costs, including condominium association dues at each
resort. The Company will pay association dues for all unsold Vacation Points.
The vacation club system provides Purchasers with significant
flexibility in planning their vacations. Under this system, Purchasers can
select vacations according to their schedules, space needs and available
Vacation Points. The number of Vacation Points that are required to stay one day
at one of the Company's resorts varies depending upon the particular resort, the
size of the unit, the season and the day of the week. For example, a Friday or
Saturday night stay at a one-bedroom unit may require 1,000 Vacation Points per
night off-season and 1,500 Club Points per night in peak season. A midweek stay
at the same one-bedroom unit would require fewer Vacation Points. Vacation
Points are reissued on an anniversary date basis and any unused Vacation Points
may be carried over for one year. A Purchaser may also borrow Vacation Points
from their allotment for the next year.
The Club has a board of directors that manages its business and
affairs. Each of the directors and principal executive officers of the Club are
also officers of the Company. The Board must obtain the approval of a majority
of the voting power represented to take certain actions, including (i) any
incurrence of a capital expenditure exceeding 5% of the Club's budgeted gross
expenses during any fiscal year and (ii) the sale of any of the Club's property
during any fiscal year, if the aggregate fair market value is in excess of 5% of
the Club's budgeted expenses for that year.
SALES AND MARKETING
The Company focuses its sales and marketing activities on generating a
predictable flow of both off-site and on-site prospective purchasers of Vacation
Ownership Interests at minimal cost.
OFF-SITE SALES CENTERS: The Company currently operates off-site sales
centers in Torrance, California; Schaumburg, Illinois and in
Philadelphia, Pennsylvania. The Company opened its fourth center in
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Atlanta, Georgia in the first quarter and plans to add its fifth and
sixth centers by the end of 2000. The Company currently intends to
locate these planned sales centers in major metropolitan areas, which
can be conveniently toured during evenings and weekends. These centers,
which are leased by the Company, are generally more cost effective
because they reduce the need for on-site tours of the Company's resorts
and are more easily accessible to the Company's target customers.
ON-SITE SALES CENTERS: The Company utilizes a variety of marketing
techniques to generate on-site tours, including mini-vacations
resulting from telemarketing and targeted mailings, retail center
kiosks, in-house marketing to renters, marketing to current owners of
Vacation Ownership Interests and referrals. The Company's completed but
unsold inventory of resort units also provides additional revenue as
well as sales and marketing cost advantages through (i) rental income,
(ii) access to a steady source of high quality, low cost, on-site sales
tours from rental customers, and (iii) lower mini-vacation marketing
costs.
The Company's sales representatives are a critical component of its
sales and marketing effort, and the Company continually strives to attract,
train and retain a dedicated sales force. The Company provides sales instruction
and training, which coupled with the sales representative's valuable knowledge
of each resort, assists in acquainting prospective customers with the benefits
of each resort. The Company's sales staff is required to provide each customer
with a written disclosure statement regarding the Vacation Points to be sold
prior to the time the customer signs a purchase agreement. This disclosure
statement sets forth relevant information regarding ownership of a Vacation
Ownership Interest at the resort and must be signed by every purchaser. The
Company believes that this information statement contains all material and
relevant information a customer requires to make an informed decision regarding
the purchase of a Vacation Ownership Interest at one of its resorts, and
contributes to its low rates of rescission. At closing, customers are also
provided with a toll free customer service phone number to facilitate any
additional information requests.
To support its marketing and sales efforts, the Company has also
developed a computer database to track its vacation ownership marketing and
sales programs. Management believes that as the Company's vacation ownership
operations grow, this database will become an increasingly significant asset and
will enable it to take advantage of less costly marketing and referral
opportunities.
CUSTOMER FINANCING
Approximately 90% of the Company's customers finance their purchase of
Vacation Points with the Company. These customers are required to make a down
payment of at least 10% of the Vacation Points sales price. The balance is
typically financed for a period of seven to ten years at a fixed interest rate.
The adequacy of the Company's reserve for loan losses is determined by
management and reviewed on a regular basis considering, among other factors,
historical frequency of default, loss experience, present and expected economic
conditions as well as the quality of receivables.
EPIC believes that its financing is attractive to purchasers who find
it convenient to handle all facets of the purchase of Vacation Ownership
Interests through a single source. In addition, the down payments required by
EPIC are similar to those required by banks and mortgage companies that offer
this type of credit, when such credit is available.
VACATION OWNERSHIP EXCHANGE NETWORKS
According to the American Resort Developers Association, the primary
reason cited by consumers for purchasing a Vacation Ownership Interest is the
ability to exchange such interest for accommodations at other resorts through
worldwide exchange networks. Membership in an exchange network allows the owner
of a Vacation Ownership Interest at one of the Company's resorts to exchange
their occupancy right for a similar right at another participating resort, based
upon availability and the payment of a variable exchange fee. A Vacation
Ownership Interest can be exchanged by listing the interest as available with
the exchange network affiliated with
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the owner's home resort and requesting occupancy at another participating
resort, indicating the preferred resort or geographic area, the size of the unit
desired, and the period during which occupancy is desired. The exchange network
assigns a rating to each listed Vacation Ownership Interest, which is based upon
a number of factors, including the location and size of the unit, the quality of
the resort and the time of year during which the exchanging owner's Vacation
Ownership Interest is available. The network then attempts to satisfy the
exchange request by providing an occupancy right in a participating resort with
a similar rating.
All of EPIC's resorts are affiliated with Interval International
("II"), one of the leading worldwide vacation ownership exchange companies.
Participation in II entitles owners to exchange their annual Vacation Ownership
Interests for occupancy at over 1,700 II resorts worldwide. All six EPIC Resort
locations have received Five-Star designations from II, the highest designation
under II's rating system. II awards this designation to less than 10% of its
1,700 member resorts.
RESULTS OF OPERATIONS
The following analysis by the management of EPIC Resorts summarizes the
significant changes in the results of operations presented in the statements of
operations for the three months ended March 31, 2000 and 1999 and presents an
analysis of the financial condition of as of March 31, 2000.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 TO THE THREE MONTHS ENDED
MARCH 31, 1999.
REVENUES. For the three months ended March 31, 2000, the Company
generated total revenues of $38.2 million compared to $21.6 million for the
three months ended March 31, 1999, an increase of $16.6 million, or 76.9%. This
increase can be attributed to a $10.4 million increase in sales of Vacation
Ownership Points to $26.1 million in 2000 from $15.7 million in 1999, an
increase of 66.2% sales of Vacation Ownership. Vacation Ownership point sales
continue to grow as the sales locations mature.
Resort operations revenue increased 66.5% to $5.7 million for the three months
ended March 31, 2000 from $3.5 million for the comparable period in 1999, as a
result of $2.3 million of revenue from package sales and $3.4 million of revenue
from hotel operations. The Company developed several marketing programs in the
fourth quarter to attract guests using print media as well as internet sites.
These strategies helped create exposure for the resorts and created new
business.
Gains on sales of receivables increased to $5.7 million for the three months
ended March 31, 2000 from $1.8 million for the comparable prior period. This
increase is attributable to the higher volume of sales that have been sold to
the receivables facility.
Other income increased 14.0% to $0.8 million for the three months ended March
31, 2000 from $0.7 million for the comparable period in 1999, due to two
components. Interest Income decreased by $.2 million while Miscellaneous Revenue
increased by $.4 million.
COST OF SALES. Cost of sales for Vacation Ownership Interests as a percentage
of sales of Vacation Ownership Interests decreased to 18.3% for the three months
ended March 31, 2000 from 20.0% for the comparable period in 1999. This decrease
was attributable to the increase in the average sales price of Vacation
Ownership Points at the resorts, as well as the lower cost of sales from the
newer resorts.
RESORT OPERATIONS EXPENSE. Resort operations expense increased 75.7%
to $6.5 million for the three months ended March 31, 2000 from $3.7 million for
the comparable period in 1999, reflecting increased expenses to support the
additional revenues being generated in package sales and transient rentals at
the resorts.
SELLING AND MARKETING. Selling and marketing expenses (including
commissions) as a percentage of Sales of Vacation Ownership Points increased to
46.3% for the three months ended March 31, 2000 from 42.5% for the comparable
period in 1999. This increase was primarily a result of the marketing costs
incurred to generate leads as sales commenced at the company's new off-site
center in Atlanta as well as the implementation of the company's 2000 Marketing
Plan.
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GENERAL AND ADMINISTRATIVE. General and Administrative expenses
increased to $6.0 million for the three months ended March 31, 2000 from $3.3
million for the comparable period in 1999. As a percentage of revenues, general
and administrative expenses increased to 15.8% for the three months ended March
31, 2000 from 15.3% for the comparable period in 1999 primarily as a result of
increased staffing.
INTEREST EXPENSE. Interest expense decreased to $4.7 million for the
three months ended March 31, 2000 from $4.8 million for the comparable period in
2000, reflecting a decrease in the interest payable on the company's equipment
loan.
PROVISION FOR DOUBTFUL ACCOUNTS. Provision for doubtful accounts as a
percentage of financed sales of Vacation Ownership Points decreased to 3.0% for
the three months ended March 31, 2000 from 3.9% for the comparable period in
1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash from operations through the sale and financing of
membership interests in Epic Vacation Club, Vacation Ownership Interests, resort
operations, transient rental of resort accommodations and management fees. With
respect to the sale of Vacation Ownership Interests, Epic generates cash from
operations from customer downpayments and third party financing of customer
mortgages receivable in amounts typically equal to 90% of the related customer
mortgages receivable. The Company generates additional cash from the financing
of Vacation Ownership Interests equal to the difference between the interest
charged on the customer mortgages receivable and the interest paid on the notes
payable secured by Epic's pledge of such customer mortgages receivable. The
Company expects to generate additional cash flow from its Vacation Ownership
Interests Receivable portfolio through receipt of the spread between the yield
on such portfolio and the cost of its receivables facility upon completion of
securitizations of such receivables.
The Company requires funds to finance the acquisition and development of resorts
and related inventory, and to finance customer purchases of Vacation Ownership
Interests. These funds are provided by Epic's non-recourse $100 million vacation
ownership loan participation facility. Under this receivables facility, Epic
sells Vacation Ownership Interest receivables to a limited purpose, bankruptcy
remote subsidiary of Epic, and a financial institution purchases from the
subsidiary participation interests in such receivables. The proceeds from the
sale of the participation interests are paid to Epic as consideration for the
receivables sold to the subsidiary. The receivables facility provides for
advance rates of 88% of the lesser of (i) unpaid principal balance of the
receivables sold to the subsidiary or (ii) the market value of such receivables
as determined by the financial institution. The receivables facility provides
non-recourse interim funding for the Vacation Ownership Interests receivables
pending their permanent funding through receivables securitization transactions.
The Company expects to be able to fund a significant portion of its future
development from funds provided by its receivables facility.
The Company's capital resources are provided from the following sources: (i)
cash flows from operations, (ii) proceeds from the receivables facility and
(iii) working capital. The Company intends to pursue a growth-oriented strategy;
accordingly, the Company may, from time to time acquire, among other things,
additional vacation ownership resorts and additional land upon which vacation
ownership resorts may be developed, and companies operating quality resorts or
having vacation ownership assets, management, sales or marketing expertise
commensurate with the Company's operations in the vacation ownership industry.
The Company believes that its available working capital, together with cash
generated from operations and future borrowings, will be sufficient to meet the
Company's working capital and capital expenditure needs for future business
operations. The Company may obtain additional credit facilities or issue other
corporate debt or equity securities in connection with future acquisitions. Any
debt incurred or issued by Epic may be secured or unsecured, at fixed or
variable rates of interest and may be subject to such terms as management deems
prudent.
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YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define applicable years. Computer programs
that have date-sensitive software may recognize a date coded "00" as the year
may cause disruptions of operations, including temporary inability to process
transactions. Prior to year-end 1999, the Company completed an assessment of all
of its significant operating systems. The Company had, in the ordinary course of
business, purchased new software packages for most of its computer systems. Most
of these purchases occurred prior to the 1999 fiscal year. The Company had also
implemented, through routine software releases, Year 2000-compliant upgrades to
most of its financial and operational software. Any remaining software
applications were insignificant to the Company's operations, and were upgraded
to Year 2000-compliant status prior to the end of 1999. The Company had also
addressed the Year 2000 activities of its suppliers and customers. By reviewing
their Year 2000 Readiness Disclosures, or by direct contact, the Company
determined that substantially all of its significant suppliers and customers
were Year 2000 compliant. The Company has not, to date, experienced any negative
effects from its suppliers or customers related to the Year 2000 issue. While
there can be no guarantee that Year 2000 issues by a third party will not occur
in future periods, and such effects could have a material adverse effect on the
Company, management believes that its continuing communications with its
suppliers and customers will minimize these risks. The Company has to date not
experienced any negative effects from the Year 2000 date change, and does not
expect any such effects in future periods. The Company has not incurred and does
not anticipate incurring material incremental costs for Year 2000 issues
relating to its computer information systems, since all updates or replacements
of such systems occurred in the ordinary course of business, most of which
occurred prior to the 1999 year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not exposed to interest rate risk in the nearterm, as
substantially all of the Company's indebtedness is at fixed rates (principally
the $130 million of senior secured notes which bear interest at a fixed rate of
13.0%). The Company does not maintain a trading account for any class of
financial instrument, has never purchased any derivative instruments and is not
directly subject to any foreign currency exchange or commodity price risk.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are included in this Quarterly Report
on Form 10-Q:
Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 2000.
13
<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.
EPIC RESORTS, LLC
Dated: _____________________ By:___________________________________________
Scott J. Egelkamp
Vice President and Chief Financial Officer
Duly Authorized Principal Financial Officer
14
<PAGE>
EXHIBIT INDEX
Exhibit 27. Financial Data Schedule
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001068052
<NAME> EPIC RESORTS LLC
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 17,192,000
<SECURITIES> 35,627,000
<RECEIVABLES> 14,545,000
<ALLOWANCES> 1,548,000
<INVENTORY> 61,219,000
<CURRENT-ASSETS> 10,314,000
<PP&E> 28,800,000
<DEPRECIATION> 5,818,000
<TOTAL-ASSETS> 156,331,000
<CURRENT-LIABILITIES> 9,043,000
<BONDS> 130,681,000
0
0
<COMMON> 0
<OTHER-SE> 16,607,000
<TOTAL-LIABILITY-AND-EQUITY> 156,331,000
<SALES> 26,059,000
<TOTAL-REVENUES> 38,223,000
<CGS> 4,770,000
<TOTAL-COSTS> 23,480,000
<OTHER-EXPENSES> 6,549,000
<LOSS-PROVISION> 638,000
<INTEREST-EXPENSE> 4,660,000
<INCOME-PRETAX> 2,876,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,876,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,876,000
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
