SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended March 31, 1995 Commission File Number 33-16122
-------------- --------
ILX INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
ARIZONA 86-0564171
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2777 East Camelback Road, Phoenix, AZ 85016
-------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code 602-957-2777
---------------------------------------------
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
------- ------
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
Class Outstanding at March 31, 1995
- ------------------------------- -----------------------------
Common Stock, without par value 12,407,065 shares
Preferred Stock, $10 par value 420,728 shares
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1995 1994
---- ----
(Unaudited)
Assets
Cash and cash equivalents .................... $ 2,736,230 $ 3,635,587
Notes receivable, net ........................ 7,504,125 6,750,896
Resort property held for timeshare sales ..... 9,003,362 9,407,733
Resort property under development ............ 3,842,260 1,735,592
Land held for sale ........................... 1,672,168 1,673,168
Deferred assets .............................. 1,082,547 1,114,137
Property and equipment, net .................. 1,397,069 1,437,227
Deferred income taxes ........................ 1,155,757 1,137,524
Other assets ................................. 1,896,361 1,730,023
------------ ------------
$ 30,289,879 $ 28,621,887
============ ============
Liabilities and Shareholders' Equity
Accounts payable ............................. $ 2,196,963 $ 1,581,659
Accrued and other liabilities ................ 1,345,491 1,488,816
Income taxes payable ......................... 108,146
Genesis funds certificates ................... 1,615,319 1,612,457
Due to affiliates ............................ 476,420 984,534
Deferred income .............................. 483,639 365,195
Notes payable ................................ 6,007,174 4,881,861
Notes payable to affiliates .................. 1,881,158 2,000,584
------------ ------------
14,114,310 12,915,106
------------ ------------
Minority interests ............................... 2,709,330 2,531,169
------------ ------------
Shareholders' Equity
Preferred stock, $10 par value;
10,000,000 shares authorized; 420,728
and 430,313 shares issued and outstanding;
liquidation preference of $4,207,280
and $4,303,130, respectively ............... 1,557,258 1,648,755
Common stock, no par value;
40,000,000 shares authorized;
12,407,065 and 12,405,325 shares
issued and outstanding ..................... 8,975,718 8,972,969
Additional paid in capital ................... 30,000 30,000
Retained earnings ............................ 2,903,263 2,523,888
------------ ------------
13,466,239 13,175,612
------------ ------------
$ 30,289,879 $ 28,621,887
============ ============
See notes to consolidated financial statements
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
---------------------
1995 1994
---- ----
Revenues
Sales of timeshare interests ................ $ 4,980,552 $ 4,364,412
Resort operating revenue .................... 1,704,543 1,839,336
Sales of land ............................... -- 131,250
Sales of consumer products .................. 151,702 --
----------- -----------
6,836,797 6,334,998
----------- -----------
Cost of sales and operating expenses
Cost of timeshare interests sold ............ 1,622,516 1,436,157
Cost of resort operations ................... 1,775,510 1,729,976
Cost of land sold ........................... -- 115,745
Cost of consumer products ................... 107,770 --
Advertising and promotion ................... 1,502,789 1,069,808
General and administrative .................. 775,909 574,479
Provision for doubtful
accounts ................................ 269,063 234,886
----------- -----------
6,053,557 5,161,051
----------- -----------
Operating income ................................ 783,240 1,173,947
Other Income (expense)
Interest expense .............................. (209,570) (170,461)
Interest income ............................... 114,049 70,358
----------- -----------
Income before minority interests and income taxes 687,719 1,073,844
Minority interests .............................. (178,161) (352,661)
Income taxes .................................... (128,823) --
----------- -----------
Net income ...................................... $ 380,735 $ 721,183
=========== ===========
Net income per common and
equivalent share .............................. $ 0.03 $ 0.06
=========== ===========
Number of common and equivalent shares .......... 12,516,219 12,417,867
=========== ===========
Net income per share assuming
full dilution ................................. $ 0.03 $ 0.06
=========== ===========
Number of fully diluted shares 13,011,924 12,927,167
=========== ==========
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 380,735 $ 721,183
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed minority interest ........................ 178,161 314,841
Additions to (reduction of) notes receivable-net ....... (1,022,292) 1,212,435
Provision for doubtful accounts ........................ 269,063 234,886
Depreciation and amortization .......................... 168,511 93,002
Deferred income taxes .................................. 89,913 --
Cost of timeshare interests sold ....................... 620,837 445,460
Amortization of guarantee fees ......................... 27,200 31,000
Change in assets and liabilities:
(Increase) decrease in other assets ................ (171,488) 58,916
Increase in accounts payable ....................... 615,304 274,012
Increase (decrease) in accrued and other liabilities (233,055) 114,163
Increase (decrease) in Genesis funds certificates .. 2,862 (141,884)
Decrease in due to affiliates ...................... (508,114) (81,896)
Increase (decrease) in deferred income ............. 118,444 (456,899)
------------ ------------
Net cash provided by operating activities ................ 536,081 2,819,219
------------ ------------
Cash flows from investing activities:
Increase in deferred assets ............................ (31,955) (702,952)
Purchases of plant and equipment ....................... (21,377) (64,496)
Additions to resort property held for timeshare sales .. (280,947) (380,918)
Additions to resort property under development ......... (2,106,668) --
------------ ------------
Net cash used in investing activities .................... (2,440,947) (1,148,366)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable ............................ 2,457,014 165,746
Principal payments on notes payable .................... (1,331,701) (827,674)
Principal payments on notes payable
to affiliates ........................................ (119,426) (296,102)
Proceeds from issuance of common stock ................. -- 93,535
Redemption of preferred stock .......................... (185) (1,540)
Redemption of common stock ............................. (185) (360)
Preferred stock dividend payments ...................... (8) --
------------ ------------
Net cash provided by (used in) financing activities ...... 1,005,509 (866,395)
------------ ------------
Net (decrease) increase in cash and cash equivalents ..... (899,357) 804,458
Cash and cash equivalents at beginning of period ......... 3,635,587 2,060,107
------------ ------------
Cash and cash equivalents at end of period ............... $ 2,736,230 $ 2,864,565
=========== ===========
See notes to consolidated financial statements
</TABLE>
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation and Business Activities
The Company's significant business activities include developing, operating,
marketing and financing ownership interests in resort properties and, effective
in the third quarter of 1994, marketing of skin and hair care products.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Registration S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments and
reclassifications considered necessary for a fair and comparable presentation
have been included and are of a normal recurring nature. Operating results for
the three month period ended March 31, 1995, are not necessarily indicative of
the results that may be expected for the year ending December 31, 1995. The
accompanying financial statements should be read in conjunction with the
Company's most recent audited financial statements.
The consolidated financial statements include the accounts of ILX Incorporated
and its wholly-owned and majority-owned subsidiaries ("ILX" or the "Company").
All significant intercompany transactions and balances have been eliminated in
consolidation.
Revenue Recognition
Revenue from sales of timeshare interests is recognized in accordance with
Statement of Financial Accounting Standard No. 66, Accounting for Sales of Real
Estate ("SFAS No. 66"). No sales are recognized until such time as a minimum of
10% of the purchase price has been received in cash, the buyer is committed to
continued payments of the remaining purchase price and, except for sales of
timeshare interests in Varsity Clubs of America-Notre Dame, the Company has been
released of all future obligations for the timeshare interest. Revenue from
sales of timeshare interests in Varsity Clubs of America - Notre Dame is being
recognized by the percentage of completion method as development and
construction proceeds and as the costs of development and profit can be
reasonably estimated. Resort operating revenue represents daily room rentals and
revenues from food and other resort services. Such revenues are recorded as the
rooms are rented or the services are performed.
Statements of Cash Flows
Cash equivalents are highly liquid investments with an original maturity of
three months or less. During the three month periods ended March 31, 1995 and
1994, the Company paid interest of approximately $279,000 and $119,000 and
income taxes of $8,000 and $0, respectively.
Reclassifications
The financial statements for prior periods have been reclassified to be
consistent with the 1995 financial statement presentation.
Note 2 - Income Taxes
Income taxes have been provided based on the estimated effective annual tax
rate, including an estimated reduction in the valuation allowance.
Note 3 - Notes Payable
In March 1995, the first deed of trust holder on the Golden Eagle Resort loaned
an additional $1,010,075 against its interest in the property. The agreement
provides for an assignment of the Company's general partnership interest in LAP
in exchange for the advance of the additional funds and an extension of the
maturity date through 1998.
During the first quarter of 1995, the Company borrowed $1,446,940 on its $5
million construction financing commitment for the Varsity Clubs of America -
Notre Dame facility, bringing the balance outstanding on the loan to $1,847,724
at March 31, 1995.
Note 4 - Shareholders' Equity
During the first quarter of 1995, holders of 573 shares of Series C Preferred
Stock exchanged their shares for 955 shares of common stock. The exchanges were
recorded as a reduction in preferred stock and an increase in common stock of
$1,582. Shares of stock valued at $1,352 and cash of $8 was issued in the first
quarter of 1995 for the Dividend Arrearage due to the holders of Series C
Preferred Stock who converted their shares in the last quarter of 1994 and first
quarter of 1995.
During the first quarter of 1995, holders of 8,973 shares of Series A Preferred
Stock exchanged their shares for lodging certificates at the Los Abrigados
resort. Preferred stock was reduced by $89,730, which is the liquidation and par
value of the shares surrendered.
Note 5 - Other
In March 1995, the Company reached an agreement to acquire the Kohl's Ranch
Lodge, a 10 acre rustic resort near Payson, Arizona for a purchase price of
$1,650,000, consisting of a $50,000 cash down payment, assumption of an existing
mortgage of approximately $950,000, issuance of a $350,000 note payable to
seller and the issuance of 150,000 shares of ILX restricted common stock valued
at $2 per share. The agreement provides for a 60 day right of cancellation by
ILX. The Company intends to offer timeshare intervals in the property.
ILX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The increase in sales of timeshare interests between years reflects the
recognition of a percentage of the sales in Varsity Clubs of America - Notre
Dame, sales of upgraded intervals to existing timeshare owners of Los Abrigados
resort and increased sales from the Sedona Sales Office in 1995, net of a
decrease in sales from the Phoenix Sales Office in 1995 and net of $428,100 in
deferred revenue from a 1992 bulk sale recognized in 1994.
In the first quarter of 1995, the Company recognized $868,000 in Varsity Clubs
of America - Notre Dame sales, which represents 56% of the sales through March
31, 1995. While the revenue and directly related expenses, such as product cost,
commissions, closing costs and bad debt allowance, were recognized based on a
percentage of completion, the advertising and promotion expenses related to
these sales have been expensed in their entirety, including $299,000 in the
first quarter of 1995.
During the first quarter of 1995, the Company converted eight of its one bedroom
business suites at Los Abrigados resort to two bedroom suites with kitchens, and
invited its existing timeshare owners to exchange their one and two bedroom
suites without kitchens to these upgraded units. Owners of approximately 115
intervals accepted the offer, generating revenue of approximately $471,000
during the quarter.
Timeshare sales from the Phoenix Sales Office decreased between years due to
fewer tours and reduced closing rates. On April 1, 1995, the Company closed the
Phoenix Sales Office and began directing the customers who would otherwise have
attended a Phoenix Sales Office presentation to the Sedona Sales Office, where
closing rates have consistently exceeded those of the Phoenix Sales Office. The
Company intends to resume marketing from the Phoenix Sales Office in the future,
possibly with the introduction of sales in the Kohl's Ranch Lodge.
The increased sales in the Sedona Sales Office in 1995 reflect higher closing
rates on a lower number of tours and higher average prices.
The decrease in resort operating revenue and the increase in cost of resort
operations as a percentage of resort operating revenue between years reflects
the increasing usage of the Los Abrigados resort by timeshare owners and tour
guests, and the decreasing availability of rooms for traditional resort guests.
Owners and tour guests pay substantially less for their usage than traditional
resort guests.
The 1994 land sales reflect the sales of parcels held by Genesis.
The 1995 sales of consumer products and the related cost of sales reflect sales
of Red Rock Collection products.
The increase in advertising and promotion as a percentage of sales in 1995
reflects a higher cost per tour and a lower closing rate in the Phoenix Sales
Office in 1995, recognition of a disproportionate amount of advertising and
promotion expenses of Varsity Clubs of America - Notre Dame relative to sales
recognition in 1995 and the 1994 bulk sale deferred revenue recognition for
which there was no associated advertising and promotion.
The increase in general and administrative expenses from 1994 to 1995 reflects
the amortization of Red Rock Collection start up costs and recognition of its
operating expenses. Red Rock Collection expenses were deferred in the first
quarter of 1994 pending commencement of operations in the third quarter of 1994.
The increase in interest expense between years reflects increased borrowings
against consumer paper and interest on notes payable arising from the
acquisition of the Los Abrigados Partners Limited Partnership ("LAP") Class A
limited partnership interests in the third quarter of 1994. The increase in
interest income from 1994 to 1995 is a result of the increased consumer paper
retained by the Company.
The decrease in minority interest from 1994 to 1995 reflects both the
acquisition of the LAP Class A limited partnership interests and the decrease in
LAP net income in 1995 due to reduced tours and closing rates at the Phoenix
Sales Office and due to the deferred profit recognized in 1994 on the 1992 bulk
sale.
Income tax expense increased between 1994 and 1995 because in 1994 a reduction
in the valuation allowance (which had been established to reflect the
uncertainty of the utilization of the deferred tax assets) offset the tax
provision in full. In the first quarter of 1995, income tax expense has been
recorded based on the estimated effective annual tax rate for fiscal 1995,
including an estimated reduction in the Genesis deferred tax benefit valuation
allowance.
Liquidity and Capital Resources
The Company's liquidity needs principally arise from the necessity of financing
notes received from sales of timeshare interests. In that regard, the Company
has $18 million in lines of credit issued by financing companies under which
conforming notes from sales of interval interests in Los Abrigados and the
Golden Eagle Resort can be sold to lenders on a recourse basis. At March 31,
1995, approximately $15 million is available under the lines. In addition, the
Company has a financing commitment whereby the Company may borrow up to $2.5
million against non-conforming notes through September 1998. Approximately $1.3
million was available under this commitment at March 31, 1995.
The Company also has a $10 million financing commitment whereby the Company may
sell eligible notes received from sales of timeshare interests in Varsity Clubs
of America - Notre Dame on a recourse basis through February 1996. The
commitment may be extended for an additional eighteen month period and an
additional $10 million at the option of the financing company. This commitment
was unused at March 31, 1995.
The Company will continue to retain certain non-conforming notes which have one
to two year terms or which do not otherwise meet existing financing criteria,
and finance these notes either through internal funds or through borrowings from
affiliates secured by the non-conforming notes. The Company will pursue
additional credit facilities to finance conforming and non-conforming notes as
the need for such financing arises.
The Company has a $500,000 line of credit from one financial institution and a
$400,000 line of credit from another. Both were available for working capital at
March 31, 1995.
The Company has a $5 million construction loan for the construction and
furnishing of Varsity Clubs of America-Notre Dame. The loan provides for
principal repayment via release payments as timeshare interests are sold.
Approximately $3.1 million is available at March 31, 1995, which is expected to
be sufficient to complete the facility.
The Company has optioned property near various college campuses for possible
future Varsity Clubs of America sites and expects to finance such land
acquisitions through seller financing or through financial institutions, secured
by the land acquired. The Company may seek equity and/or debt financing for the
construction of facilities and future sites.
Cash provided by operating activities decreased from 1994 to 1995 because 1994
included the collection of $750,000 on a note receivable which arose from a 1992
bulk sale and the collection of $1,000,000 on a Genesis mortgage receivable. In
addition, financing of notes receivable generated from sales of timeshare
interests in Varsity Clubs of America-Notre Dame during the first quarter of
1995 was deferred until the second quarter of 1995.
Cash used in investing activities increased from 1994 to 1995 due to the
construction in 1995 of Varsity Clubs of America-Notre Dame.
The change from cash used in financing activities in 1994 to cash provided by
financing activities in 1995 reflects increased borrowings in 1995 for
construction of Varsity Clubs of America-Notre Dame and for improvements to the
Los Abrigados resort.
In March 1995, the Company borrowed an additional $1,010,000 from the first
mortgage holder on the Golden Eagle Resort. The Company intends to use these
funds for further expansion of food and beverage facilities, refurbishment of
suites and the construction of additional administrative facilities at Los
Abrigados resort.
In March 1995, the Company entered into an agreement, subject to a sixty day
right of cancellation, to acquire the Kohl's Ranch Lodge, a ten acre rustic
resort near Payson, Arizona for $1,650,000. The purchase price will consist of a
$50,000 cash down payment, assumption of the existing deed of trust of
approximately $950,000, seller financing of approximately $350,000, and the
issuance of 150,000 shares of ILX restricted common stock valued at $2 per
share. The Company intends to finance the cost of the initial improvements and
renovations from working capital. Construction of additional units and future
improvements may be financed through the existing deed of trust holder, other
financing sources, or from working capital.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ILX INCORPORATED
(Registrant)
Joseph P. Martori
---------------------------------
Joseph P. Martori
Chief Executive Officer
Nancy J. Stone
---------------------------------
Nancy J. Stone
Executive Vice President/
Chief Financial Officer
Denise L. Janda
---------------------------------
Denise L. Janda
Controller
Date: May 1, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS FIRST QUARTER 1995 CONSOLIDATED FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 2,736,230
<SECURITIES> 0
<RECEIVABLES> 9,065,367
<ALLOWANCES> 1,561,242
<INVENTORY> 14,517,790
<CURRENT-ASSETS> 24,758,145
<PP&E> 1,829,468
<DEPRECIATION> 432,399
<TOTAL-ASSETS> 30,289,879
<CURRENT-LIABILITIES> 3,542,454
<BONDS> 7,888,332
<COMMON> 8,975,718
0
1,557,258
<OTHER-SE> 30,000
<TOTAL-LIABILITY-AND-EQUITY> 30,289,879
<SALES> 5,132,254
<TOTAL-REVENUES> 6,836,797
<CGS> 1,730,286
<TOTAL-COSTS> 5,008,585
<OTHER-EXPENSES> 775,909
<LOSS-PROVISION> 269,063
<INTEREST-EXPENSE> 209,570
<INCOME-PRETAX> 687,719
<INCOME-TAX> 128,823
<INCOME-CONTINUING> 380,735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 380,735
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
