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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 September 30, 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 September 30, 2000, 1,118,000 membership interests of the
registrant were outstanding.
===============================================================================
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EPIC RESORTS, LLC
INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets - September 30, 2000 and
December 31, 1999...............................................................................3
Consolidated Statements of Income - Nine Months and Three Months Ended
September 30, 2000 and 1999......................................................................4
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 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......................................12
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K................................................................13
SIGNATURES................................................................................................14
EXHIBIT INDEX.............................................................................................15
</TABLE>
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PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.333
EPIC RESORTS, LLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
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September 30, December 31,
2000 1999
------------- ------------
(unaudited)
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ASSETS
Cash and cash equivalents $ 4,642,000 $ 2,359,000
Cash in escrow 13,613,000 12,004,000
Investment in residual interests 50,304,000 29,465,000
Notes and mortgages receivable, net of allowance of $2,460,000 and
$1,628,000 as of September 30, 2000 and December 31, 1999, respectively 16,892,000 11,874,000
Inventory 56,621,000 65,804,000
Property and equipment, net 16,975,000 15,665,000
Deferred financing costs, net 7,227,000 7,721,000
Other assets 8,942,000 4,659,000
--------------------------------
Total assets $175,216,000 $149,551,000
================================
LIABILITIES AND MEMBER'S EQUITY
Accounts payable $ 5,170,000 $ 2,794,000
Accrued expenses 1,029,000 987,000
Accrued interest payable 4,962,000 736,000
Advance deposits 44,000 43,000
Deferred revenue 236,000 258,000
Notes payable 9,809,000 351,000
Senior secured notes payable 128,120,000 127,825,000
--------------------------------
Total liabilities 149,370,000 132,994,000
--------------------------------
Commitments and contingencies - -
Warrants 2,757,000 2,757,000
Member's equity 23,089,000 13,800,000
--------------------------------
Total liabilities and member's equity $175,216,000 $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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<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
------------------ ------------------
2000 1999 2000 1999
---- ---- ---- ----
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Revenue:
Sales of vacation points $35,843,000 $ 24,542,000 $91,594,000 $63,417,000
Resort operations 3,475,000 5,771,000 14,491,000 15,402,000
Gain on sales of receivables and other financing
income 7,036,000 4,749,000 19,086,000 10,068,000
Other income 507,000 823,000 1,883,000 2,447,000
---------------------------------------------------------------
46,861,000 $35,885,000 127,054,000 91,334,000
---------------------------------------------------------------
Costs and expenses:
Cost of sales of vacation points 6,091,000 4,788,000 15,961,000 12,490,000
Resort operations 5,219,000 6,480,000 18,341,000 17,022,000
Selling and marketing costs 16,987,000 11,041,000 43,116,000 27,696,000
General and administrative 7,645,000 4,068,000 20,514,000 10,790,000
Provision for doubtful accounts 1,414,000 802,000 2,822,000 2,210,000
Depreciation 482,000 373,000 1,298,000 755,000
Financing and closing costs 567,000 226,000 1,317,000 741,000
Interest expense 4,865,000 4,855,000 14,186,000 14,457,000
---------------------------------------------------------------
43,270,000 32,633,000 117,555,000 86,161,000
---------------------------------------------------------------
Income - -
---------------------------------------------------------------
Net (loss) income 3,591,000 $ 3,252,000 $ 9,499,000 $ 5,173,000
================================================================
</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 nine months
ended September 30
-------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,499,000 $ 5,173,000
Adjustments to reconcile net income to net cash used in operating activities-
Depreciation 1,298,000 755,000
Amortization of deferred financing costs 719,000 1,438,000
Provision for doubtful accounts 2,822,000 2,210,000
Gain on sale of receivables and other financing income (19,086,000) (10,068,000)
Accretion of senior secured notes payable 295,000 -
Change in assets and liabilities--
Notes and mortgages receivable (57,658,000) (26,572,000)
Inventory 9,183,000 6,852,000
Other assets (4,283,000) (3,779,000)
Accounts payable 2,376,000 889,000
Accrued expenses 4,269,000 (737,000)
Advance deposits 1,000 (33,000)
Deferred revenue (22,000) 1,198,000
---------------------------------
Net cash used in operating activities (50,587,000) (22,674,000)
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,608,000) (4,032,000)
Investment in residual interests (20,839,000) (13,626,000)
---------------------------------
Net cash used in investing activities (23,447,000) (17,658,000)
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 9,589,000 -
Payments on notes payable (131,000) (203,000)
Cash escrows, net (1,610,000) (300,000)
Proceeds from sale of receivables 68,904,000 31,555,000
Payment of deferred financing costs (225,000) (278,000)
Distributions to members (210,000) (211,000)
---------------------------------
Net cash provided by financing activities 76,317,000 30,563,000
---------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,283,000 (9,769,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,359,000 16,095,000
---------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 4,642,000 $ 6,326,000
=================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 8,608,000 $ 8,794,000
=================================
</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
NINE MONTHS ENDED SEPTEMBER 30, 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 nine months ended September 30, 2000, EPIC sold $80,893,000
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. NOTES PAYABLE:
The Company secured a loan in the third quarter of 2000 which
generated proceeds of $9.5 million. The loan which may be prepaid at any time
will bear interest at a fixed rate of 15% and has a maturity of two years.
The Company intends to use the proceeds from this loan to finance capital
improvements to its existing resorts and the acquisition and/or development
of new resorts and offsite sales centers.
5. 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 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 Points 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 Minnetonka, Minnesota; Torrance, California; Schaumburg,
Illinois, Atlanta, Georgia and in Philadelphia, Pennsylvania. The
Company intends t open its sixth center in the first quarter of 2001.
The Company currently intends to
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continue to locate additional 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 Points 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
Points 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 Points 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 POINT EXCHANGE NETWORKS
According to the American Resort Developers Association, the primary
reason cited by consumers for purchasing a Vacation Points 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 to exchange their occupancy right for a similar
right at another participating resort, based upon availability and the payment
of a variable exchange fee. Vacation Points can be exchanged by listing the
interest as available with the exchange network 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
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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 the Company summarizes the
significant changes in the results of operations presented in the statements of
income for the three and nine months ended September 30, 2000 and 1999 and
presents an analysis of the financial condition of the Company as of September
30, 2000.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUES: For the nine months ended September 30, 2000 the Company generated
total revenues of $127.1 million compared to $91.3 million for the nine months
ended September 30, 1999, an increase of $35.8 million, or 39.2 %. This increase
is primarily the result of a $28.2 million increase in sales of Vacation Points
to $91.6 million for the nine months ended September 30, 2000 from $63.4 million
for the comparable period in 1999, an increase of 44.5 %. The increased volume
is due to the increased sales locations from seven in 1999 to eleven in 2000,
along with growth in sales as the existing locations mature.
Resort operations revenue decreased to $14.5 million for the nine months ended
September 30, 2000 from $15.4 million for the comparable period in 1999. This
decrease is attributed to the seasonality of the resorts, as well as a
decrease in the number of rental units available to the general public.
Gain on sales of receivables increased to $19.1 million for the nine months
ended September 30, 2000 from $10.1 for the comparable prior period. This
increase is attributable to increased sales of vacation points, which increases
receivables to be sold to the Receivables Facility.
Other income decreased 20.8% to $1.9 million for the three months ended
September 30, 2000 from $2.4 million for the comparable period in 1999. This
decrease reflects a reduction in interest income, due to the sale of the notes
receivable under the Company's receivables facility.
COST OF SALES: Cost of sales for Vacation Points as a percentage of sales of
Vacation Points decreased to 17.4% for the nine months ended September 30, 2000
from 19.7 % for the comparable period in 1999. This decrease was attributable to
the increase in the average sales price of Vacation Points at the resorts.
RESORT OPERATIONS EXPENSE: Resort operations expense increased 7.6 % to $18.3
million for the nine months ended September 30, 2000 from $17.0 million for the
comparable period in 1999, reflecting increased expenses to support transient
rentals at the resorts.
SELLING AND MARKETING: Selling and marketing expenses (including commissions) as
a percentage of Sales of Vacation Points increased to 47.1 % for the nine months
ended September 30, 2000 from 43.7 % for the comparable period in 1999. This
increase can be attributed to increased costs needed to generate tours and the
implementation of new marketing programs to continue the company's sales growth
as well as the continued expansion into new offsite sales centers.
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GENERAL AND ADMINISTRATIVE: General and administrative expenses increased to
$20.5 million for the nine months ended September 30, 2000 from $10.8 million
for the comparable period in 1999. As a percentage of revenues, general and
administrative expenses increased to 16.1 % for the nine months ended September
30, 2000 from 11.8 % for the comparable period in 1999 primarily as a result of
increased staffing required to properly support the company's sales and
marketing locations.
PROVISION FOR DOUBTFUL ACCOUNTS: Provision for doubtful accounts as a percentage
of sales of Vacation Points decreased to 3.1 % for the nine months ended
September 30, 2000 from 3.5 % for the comparable period in 1999.
INTEREST EXPENSE: Interest expense decreased to $14.2 million for the nine
months ended September 30, 2000 from $14.5 million at September 30, 1999, a
decrease of $.3 million or 2.1 %. This decrease is attributable to lower
interest related to equipment loans.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1999
REVENUES: For the three months ended September 30, 2000, the Company generated
total revenues of $46.9 million compared to $35.9 million for the three months
ended September 30, 1999, an increase of $11.0 million, or 30.6 %. This increase
can be attributed to an $11.3 million increase in sales of Vacation Ownership
Points to $35.8 million in 2000 from $24.5 million in 1999, an increase of 46.1%
sales of Vacation Ownership. Vacation Ownership point sales continue to grow as
the sales locations mature.
Resort operations revenue decreased 39.7% to $3.5 million for the nine months
ended September 30, 2000 from $5.8 million for the comparable period in 1999, as
a result of decreased revenues due to the seasonality of the locations and
the decrease in the number of rental units available to the general public.
Gains on sales of receivables increased to $7.0 million for the three months
ended September 30, 2000 from $4.7 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 decreased $.5 million for the three months ended September 30, 2000
from $.8 million for the comparable period in 1999, due to a decrease in
interest income of $.3 million.
COST OF SALES: Cost of sales for Vacation Ownership Points as a percentage of
sales of Vacation Ownership decreased to 17.0 % for the three months ended
September 30, 2000 from 19.5 % 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.
RESORT OPERATIONS EXPENSE: Resort operations expense decreased $1.3 million to
$5.2 million for the three months ended September 30, 2000 from $6.5 million for
the comparable period in 1999, reflecting stabilization of resort division
expenses.
SELLING AND MARKETING: Selling and marketing expenses (including commissions) as
a percentage of Sales of Vacation Ownership Points increased to 47.4% for the
three months ended September 30, 2000 from 45.0% for the comparable period in
1999. This increase was primarily a result of the marketing costs incurred to
generate additional tour flow as well as the costs incurred to open our
Minnetonka location.
GENERAL AND ADMINISTRATIVE: General and Administrative expenses increased to
$7.6 million for the three months ended September 30, 2000 from $4.1 million for
the comparable period in 1999. As a percentage of revenues, general and
administrative expenses increased to 16.3% for the three months ended September
30, 2000 from 11.3% for the comparable period in 1999 primarily as a result of
increased staffing to support the company's sales and marketing locations.
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INTEREST EXPENSE: Interest expense remained constant at $4.9 million for the
three months ended September 30, 2000 and $4.9 million for the comparable period
in 1999.
PROVISION FOR DOUBTFUL ACCOUNTS: Provision for doubtful accounts as a percentage
of financed sales of Vacation Ownership Points increased to 3.9% for the three
months ended September 30, 2000 from 3.3% 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 down payments 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 secured
a loan in the third quarter of 2000 which generated proceeds of $9.5 million.
The Company intends to use the proceeds to finance capital improvements to its
existing resorts as well as the acquisition and/or development of new resorts
and offsite sales centers.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not exposed to interest rate risk in the near term, 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.
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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
September 30, 2000.
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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: November 14, 2000 By: /s/ Scott J. Egelkamp
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Scott J. Egelkamp
Vice President and Chief Financial Officer
Duly Authorized Principal Financial Officer
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