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 AND
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
Commission File Number 01-14115
RESORTQUEST INTERNATIONAL, INC.
(Exact name of registrant in its charter)
Delaware I.R.S. No. 62-1750352
(State of Incorporation) (I.R.S. Employer Identification No.)
530 Oak Court Drive, Suite 360
Memphis, Tennessee 38117
(Address of principal executive offices)(Zip Code)
(901) 762-0600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of June 30, 2000.
Common Stock . . . . . . . . . . . . . . 19,069,742 shares
PART I - FINANCIAL INFORMATION
Company or group of companies for which report is filed:
RESORTQUEST INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
December 31, June 30,
1999 2000
------------ --------
ASSETS
Current assets
Cash and cash equivalents $ 40,239 $ 41,023
Trade and other receivables, net 4,394 7,032
Deferred income taxes 1,237 1,180
Other current assets 7,676 6,142
-------- --------
Total current assets 53,546 55,377
Goodwill, net 175,167 182,959
Property and equipment, net 20,885 22,276
Note receivables from stockholder 4,470 4,470
Other assets 3,607 3,116
-------- --------
Total assets $257,675 $268,198
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 832 $ 521
Customer deposits, deferred revenue and payable
to property owners 43,392 60,398
Accounts payable and accrued liabilities 15,149 16,887
Other current liabilities 1,468 693
-------- --------
Total current liabilities 60,841 78,499
Long-term debt, net of current maturities 68,090 50,622
Deferred income taxes 734 1,191
Other long-term obligations 2,187 4,655
-------- --------
Total liabilities 131,852 134,967
-------- --------
Stockholders' equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
18,715,447 and 19,069,742 shares outstanding, respectively 187 191
Additional paid-in capital 150,974 152,704
Accumulated other comprehensive income (33) (42)
Excess distributions (29,500) (29,500)
Retained earnings 4,195 9,878
-------- --------
Total stockholders' equity 125,823 133,231
-------- --------
Total liabilities and stockholders' equity $257,675 $268,198
======== ========
The accompanying notes are an integral part of these consolidated condensed
balance sheets.
2
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 2000 1999 2000
-------- -------- ------- -------
Revenues
Property management fees $15,163 $20,083 $33,575 $42,306
Service fees 9,972 12,985 17,689 23,353
Other 5,854 7,772 11,382 13,728
------- ------- ------- -------
Total revenues 30,989 40,840 62,646 79,387
------- ------- ------- -------
Operating expenses
Direct operating 15,787 21,259 30,256 40,780
General and administrative 9,510 11,088 18,948 21,589
Depreciation and amortization 1,672 2,069 3,230 4,081
------- ------- ------- -------
Total operating expenses 26,969 34,416 52,434 66,450
------- ------- ------- -------
Operating income 4,020 6,424 10,212 12,937
Interest and other expense, net 887 1,275 1,534 2,606
------- ------- ------- -------
Income before income taxes 3,133 5,149 8,678 10,331
Provision for income taxes 1,441 2,317 3,946 4,648
------- ------- ------- -------
Net income $ 1,692 $ 2,832 $ 4,732 $ 5,683
======= ======= ======= =======
Earnings per share
Basic $ 0.10 $ 0.15 $ 0.27 $ 0.30
======= ======= ======= =======
Diluted $ 0.10 $ 0.15 $ 0.27 $ 0.30
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
(Unaudited)
Additional Other
Common Stock Paid-in Comprehensive Excess Retained
Shares Amount Capital Income Distributions Earnings Total
---------- ------ ---------- ------------- ------------- -------- -------
Balance, December 31, 1999 18,715,447 $187 $150,974 $(33) $(29,500) $4,195 $125,823
Net income - - - - - 5,683 5,683
Foreign currency translation
loss - - - (9) - - (9)
Stock issued in connection
with acquisitions 354,295 4 1,730 - - - 1,734
---------- ------ ---------- ------------- ------------- -------- -------
Balance, June 30, 2000 19,069,742 $191 $152,704 $(42) $(29,500) $9,878 $133,231
========== ====== ========== ============= ============= ======== ========
The accompanying notes are an integral part of this consolidated condensed
financial statement.
4
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30, June 30,
1999 2000
-------- --------
Cash flows from operating activities:
Net income $ 4,732 $ 5,683
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,230 4,081
Changes in assets and liabilities:
Trade and other receivables (1,843) (2,605)
Customer deposits, deferred revenue and
payable to property owners 9,619 14,074
Accounts payable and accrued liabilities (2,686) 1,932
Other (4,437) (50)
------- -------
Net cash provided by operating activities 8,615 23,115
------- -------
Cash flows from investing activities:
Cash portion of acquisitions, net (14,397) (2,278)
Purchases of property and equipment
and software development costs (1,923) (3,043)
------- -------
Net cash used in investing activities (16,320) (5,321)
------- -------
Cash flows from financing activities:
Net borrowings (repayments) 16,245 (17,791)
Distribution to stockholders (392) -
Other (408) 781
------- -------
Net cash provided by (used in)
financing activities 15,445 (17,010)
------- -------
Net increase in cash and cash equivalents 7,740 784
Cash and cash equivalents, beginning of period 26,247 40,239
------- -------
Cash and cash equivalents, end of period $33,987 $41,023
======= =======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
In these footnotes, the words "Company," "ResortQuest," "we," "our" and "us"
refer to ResortQuest International, Inc., a Delaware corporation, and its
wholly-owned subsidiaries, unless otherwise stated or the context requires
otherwise.
NOTE 1 - BASIS OF PRESENTATION
FORMATION
ResortQuest is the first company to offer vacation condominium and home
rentals, sales and management under a national brand name and is a leading
provider of vacation rentals in premier destination resorts located in the
continental United States, Hawaii and Canada. Since our initial public offering
on May 26, 1998, we have consummated 20 acquisitions, three of which were
accounted for under the pooling-of-interests method of accounting.
ACQUISITION COSTS
Costs incurred in the course of our evaluation of acquisition candidates
and the ultimate consummation of acquisitions consist primarily of attorneys'
fees, accounting fees and other costs incurred by us in identifying and closing
transactions. All costs incurred are deferred on the balance sheet until the
related transaction is either consummated or terminated. Similar treatment is
followed in recording costs incurred by us in the course of generating
additional debt or equity financing. During 1999 we incurred $716,000 in
transaction costs related to the acquisitions accounted for under the
pooling-of-interests method. Of this amount, $298,000 and $716,000 were recorded
in General and Administrative expenses for the three- and six-month periods
ended June 30, 1999. For the acquisitions accounted for under the purchase
method of accounting, all transaction costs and the excess of the purchase price
over the fair value of identified net assets acquired represents goodwill.
Goodwill is amortized over a life up to 40 years and is calculated off of a
preliminary estimate that is adjusted to its final balance within one year of
the close of the acquisition. Additionally, certain of our acquisitions have
"earn-up" provisions that require additional consideration to be paid if certain
operating results are achieved over periods of up to three years. This
additional consideration is recorded as goodwill when paid. Goodwill increased
by $4.9 million, or 2.8% and $7.8 million, or 4.4% during the three- and
six-month periods ended June 30, 2000.
PRO FORMA FINANCIAL INFORMATION
The total cost during 2000 for current year acquisitions and the earn-up
payments related to the 1999 acquisitions was $4.0 million, with 42.5% of the
consideration paid in the form of common stock with an aggregate value of $1.7
million and the remaining $2.3 million of consideration paid in cash, net of
cash assumed. The total cost of the 1999 acquisitions was $39.3 million, with
48.9% of the consideration paid in the form of common stock with an aggregate
value of $19.2 million and the remaining $20.1 million of consideration paid in
cash. The aggregate impact of the 1999 acquisitions is material to our financial
statements and we noted the following pro forma results for the three- and
six-months ended June 30, 1999, assuming these transactions occurred on January
1, 1999:
Three Months Ended June 30, 1999 Six Months Ended June 30, 1999
Pro forma Pro forma Pro forma Pro forma
Actual Impact Combined Actual Impact Combined
(in thousands) ------- --------- --------- ------- --------- ---------
Revenues $30,989 $4,725 $35,714 $62,646 $9,324 $71,970
======= ====== ======= ======= ====== =======
Net income $ 1,692 $ 369 $ 2,061 $ 4,732 $ 44 $ 4,776
======= ====== ======= ======= ====== =======
6
NOTE 2 - NOTE RECEIVABLE FROM STOCKHOLDER
In connection with our initial public offering, we formalized a $4.0
million promissory note resulting from cash advances to a primary stockholder of
a predecessor company. On February 16, 2000, this promissory note along with
approximately $940,000 in accrued interest, management fees and other advances
were restructured into two notes, one for $4.0 million and one for $940,000 (the
"Notes"). The Notes are collateralized by real estate held by the stockholder
and bear interest at 1/2% below the prime rate of interest, but not less than 6%
and not more than 10%. The $940,000 note, plus accrued interest, is due in two
equal installments on December 31, 2000 and June 30, 2001. The current portion
of this note is included as a component of Other current assets. Interest
payments under the $4.0 million note are due and payable every January and July
1st with the principal being due on May 25, 2008.
NOTE 3 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution that
could occur if outstanding options to purchase our securities are exercised. The
following table reflects our weighted average common shares outstanding and the
impact of outstanding dilutive stock options:
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 2000 1999 2000
---------- ---------- ---------- ----------
Basic weighted average common shares outstanding 17,486,882 19,012,950 17,421,508 18,922,139
Effect of dilutive securities - stock options 255,328 45,759 442,518 34,302
---------- ---------- ----------- ----------
Diluted weighted average common shares outstanding 17,742,210 19,058,709 17,864,026 18,956,441
========== ========== =========== ==========
NOTE 4 - SEGMENT REPORTING
Under Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information," we have one operating
segment, property management, which is managed as one business unit. The All
other caption includes First Resort Software and corporate. As of December 31,
1999 and June 30, 2000 approximately 73% and 76% of the All other segment assets
represents goodwill recorded for First Resort Software and corporate. The
following table presents the revenues, operating income and assets of our
reportable segment.
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
(in thousands) 1999 2000 1999 2000
-------- -------- ------- -------
Revenues
Property management $ 30,041 $ 39,987 $60,831 $77,667
All other 948 853 1,815 1,720
-------- -------- ------- -------
$ 30,989 $ 40,840 $62,646 $79,387
======== ======== ======= =======
Operating income
Property management $ 5,880 $ 9,499 $14,350 $18,748
All other (1,860) (3,075) (4,138) (5,811)
-------- -------- ------- -------
$ 4,020 $ 6,424 $10,212 $12,937
======== ======== ======= =======
December 31, June 30,
(in thousands) 1999 2000
----------- --------
Assets
Property management $218,742 $229,986
All other 38,933 38,212
-------- --------
$257,675 $268,198
======== ========
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
ResortQuest is the leading provider of vacation condominium and home rental
property management services in premier destination resorts located in the
United States and Canada. We have developed the first and only branded
nationwide network of vacation rental properties, and currently offer more than
17,500 rental properties. Our operations are in 41 premier resort locations in
the Hawaiian Islands, Beach, Mountain, and Desert geographical regions.
Our rental properties are generally second homes or investment properties
owned by individuals who assign us the responsibility of managing, marketing and
renting their properties. We earn management fees as a percentage of the rental
income from each property, but have no ownership interest in the properties. In
addition to the vacation property management business, we offer real estate
brokerage services and other rental and property owner services. We also have
developed a proprietary vacation rental software package that is utilized by us
and over 600 other vacation property management companies.
We provide value-added services to both vacationers and property owners.
For vacationers, we offer the value, convenience and features of a condominium
or home while providing many of the amenities and services of a hotel. For
property owners, we offer a comprehensive package of marketing, management and
rental services designed to enhance rental income and profitability while
providing services to maintain the property. To increase customer satisfaction,
we have developed and implemented a five-tier rating system that segments our
property portfolio into one of five categories: Bronze, Silver, Gold, Platinum,
and Quest Home.
We market our properties through various media channels and have
significant Internet distribution through resortquest.com, which is our
proprietary web site. This web site is state-of-the-art for our industry and
provides potential guests with the ability to review product quality and book
reservations on-line and in "real time". For the six months ended June 30, 2000,
our web site realized a monthly average of 900,000 unique user sessions and our
web-related reservations increased to over 7% of total reservations.
Through the acquisition of two vacation rental and property management
companies during the six-months ended June 30, 2000, we entered one new resort
market in Pensacola, Florida, and significantly increased our presence in the
Outer Banks of North Carolina. During 1999, we increased properties under
management by approximately 28% and further enhanced our unique national
platform by expanding our presence into 12 new resort markets in six new states
through the acquisition of 13 vacation rental and property management companies.
Two of the acquisitions completed in March 1999 were accounted for under the
pooling-of-interests method of accounting and all historical financial
information includes their results for the entire period presented. The
remaining acquisitions were accounted for under the purchase method of
accounting and their financial results are included in the historical financial
statements since their respective effective dates of acquisition.
RESULTS OF OPERATIONS
Our operating results are highly seasonal due to the geographical
dispersion of the resort locations in which we operate. The results of
operations are subject to quarterly fluctuations caused primarily by the
seasonal variations in the vacation rental and property management industry,
with peak seasons dependent on whether the resort is primarily a summer or
winter destination. Due to the seasonal nature of our operations, our financial
results will be discussed by geographical region with Other representing the
corporate and First Resort Software operations.
8
HAWAIIAN ISLANDS
The following table sets forth the consolidated condensed results of
operations for the three- and six-month periods ended June 30, 1999 and 2000 for
our Hawaiian operations on the islands of Hawaii, Kauai, Maui and Oahu.
Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 1999 2000 1999 2000
-------------- -------------- --------------- ---------------
Revenues $4,922 100.0% $6.024 100.0% $11,347 100.0% $13,029 100.0%
Direct operating expenses 2,192 44.5 2,350 39.0 4,264 37.6 4,618 35.4
General and administrative expenses 1,583 32.2 1,789 29.7 3,188 28.1 3,556 27.3
-------------- -------------- --------------- ---------------
Operating income before depreciation
and amortization 1,147 23.3 1,885 31.3 3,895 34.3 4,855 37.3
Depreciation and amortization 139 2.8 140 2.3 282 2.5 279 2.1
-------------- -------------- --------------- ---------------
Operating income $1,008 20.5% $1,745 29.0% $ 3,613 31.8% $ 4,576 35.2%
============== ============== =============== ===============
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 -
Hawaiian Islands
Revenues. Revenues increased $1.1 million or 22%, from $4.9 million in 1999
to $6.0 million in 2000, primarily due to a 16.1% increase in lodging revenues
driven by a 6.7% increase in average daily rate ("ADR") and a 5.7pt increase in
occupancy.
Direct operating expenses. Direct operating expenses increased $158,000, or
7%, from $2.2 million in 1999 to $2.4 million in 2000 primarily due to the
increase in occupancy. As a percentage of revenues, operating expenses decreased
5.5pts due to a lower incremental increase in variable costs in relation to the
increase in revenues.
General and administrative expenses. General and administrative expenses
increased $206,000 or 13%, from $1.6 million in 1999 to $1.8 million in 2000
primarily due to an increase in units under management. As a percentage of
revenues, general and administrative expenses decreased 2.5pts due to operating
efficiencies.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 -
Hawaiian Islands
Revenues. Revenues increased $1.7 million or 15%, from $11.3 million in
1999 to $13.0 million in 2000, primarily due to an 8.7% increase in lodging
revenues driven by a 6.0% increase in ADR and a 2.1pt increase in occupancy.
Direct operating expenses. Direct operating expenses increased $354,000, or
8%, from $4.3 million in 1999 to $4.6 million in 2000 primarily due to the
increase in occupancy. As a percentage of revenues, operating expenses decreased
2.2pts due to a lower incremental increase in variable costs in relation to the
increase in revenues.
General and administrative expenses. General and administrative expenses
increased $368,000 or 12%, from $3.2 million in 1999 to $3.6 million in 2000
primarily due to an increase in units under management. As a percentage of
revenues, general and administrative expenses decrease 0.8pts due to operating
efficiencies.
9
BEACH
The following table sets forth the consolidated condensed results of
operations for the three- and six-month periods ended June 30, 1999 and 2000 for
our Beach operations in Gulf Shores, Alabama; Bethany Beach, Delaware; Beaches
of South Walton, Bonita Springs, Captiva Island, Destin, Fort Myers, Fort Myers
Beach, Marco Island, Okaloosa Island/Fort Walton Beach, Naples, Navarre Beach,
Orlando, Pensacola, Sanibel Island and Vanderbilt Beach, Florida; St. Simons
Island, Georgia; Nantucket, Massachusetts; Outer Banks, North Carolina; Lake
Erie Islands, Ohio; and Hilton Head Island, South Carolina.
Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 1999 2000 1999 2000
--------------- --------------- --------------- ---------------
Revenues $20,870 100.0% $28,240 100.0% $31,531 100.0% $42,283 100.0%
Direct operating expenses 9,596 46.0 13,632 48.2 16,260 51.6 22,979 54.3
General and administrative expenses 4,084 19.6 4,679 16.6 7,821 24.8 9,082 21.5
--------------- --------------- --------------- ---------------
Operating income before depreciation
and amortization 7,190 34.4 9.929 35.2 7,450 23.6 10,222 24.2
Depreciation and amortization 873 4.1 1,058 3.8 1,672 5.3 2,105 5.0
--------------- --------------- --------------- ---------------
Operating income $ 6,317 30.3% $ 8,871 31.4% $ 5,778 18.3% $ 8,117 19.2%
=============== =============== =============== ===============
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 -
Beach
Revenues. Revenues increased $7.3 million or 35%, from $20.9 million in
1999 to $28.2 million in 2000, due to our Beach acquisitions closed in the
second-half of 1999 and a 16.4% increase in same store lodging revenues driven
by a 3.8% increase in ADR and a 3.5pt increase in occupancy.
Direct operating expenses. Direct operating expenses increased $4.0 million
or 42%, from $9.6 million in 1999 to $13.6 million in 2000, due to our Beach
acquisitions closed in the second-half of 1999, the increase in occupancy and an
increase in labor costs. As a percentage of revenues, direct operating expenses
increased 2.2pts primarily due to the increase in labor costs.
General and administrative expenses. General and administrative expenses
increased $595,000 or 15%, from $4.1 million in 1999 to $4.7 million in 2000,
due to our Beach acquisitions closed in the second-half of 1999 and a 4.3%
increase in units under management. As a percentage of revenues, general and
administrative expenses decreased 3.0pts due to operating efficiencies.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 -
Beach
Revenues. Revenues increased $10.8 million, or 34%, from $31.5 million in
1999 to $42.3 million in 2000, due to our 1999 Beach acquisitions and a 17.0%
increase in same store lodging revenues driven by a 3.7% increase in ADR and a
4.3pt increase in occupancy.
Direct operating expenses. Direct operating expenses increased $6.7
million, or 41%, from $16.3 million in 1999 to $23.0 million in 2000, primarily
due to our 1999 Beach acquisitions, the increase in occupancy and an increase in
labor costs. As a percentage of revenues, direct operating expenses increased
2.7pts primarily due to the increase in labor costs.
General and administrative expenses. General and administrative expenses
increased $1.3 million, or 16%, from $7.8 million in 1999 to $9.1 million in
2000, due to our 1999 Beach acquisitions and a 4.6% increase in units under
management. As a percentage of revenues, general and administrative expenses
decreased 3.3pts due to operating efficiencies.
10
MOUNTAIN
The following table sets forth the consolidated condensed results of
operations for the three- and six-month periods ended June 30, 1999 and 2000 for
our Mountain operations in Whistler, British Columbia; Aspen, Breckenridge,
Crested Butte, Dillon, Snowmass Village and Telluride, Colorado; Big Sky,
Montana; Sunriver, Oregon; and The Canyons, Deer Valley and Park City, Utah.
Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 1999 2000 1999 2000
--------------- --------------- --------------- ---------------
Revenues $ 3,623 100.0% $ 4,994 100.0% $16,067 100.0% $19,888 100.0%
Direct operating expenses 3,252 89.7 4,441 88.9 8,456 52.6 11,423 57.4
General and administrative expenses 1,564 43.2 1,302 26.1 2,845 17.7 2,651 13.3
--------------- --------------- --------------- ---------------
Operating (loss) income before
depreciation and amortization (1,193) (32.9) (749) (15.0) 4,766 29.7 5,814 29.3
Depreciation and amortization 300 8.3 421 8.4 588 3.7 829 4.2
--------------- --------------- --------------- ---------------
Operating (loss) income $(1,493) (41.2)% $(1,170) (23.4)% $ 4,178 26.0% $ 4,985 25.1%
=============== =============== =============== ===============
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 -
Mountain
Revenues. Revenues increased $1.4 million or 38%, from $3.6 million in 1999
to $5.0 million in 2000, primarily due to our June 1999 acquisition in Aspen,
Colorado. Excluding the impact of this acquisition, revenues decreased $213,000
or 6%, from $3.6 million in 1999 to $3.4 million in 2000 due to a 14.2% decline
in gross lodging revenues driven by a 1.0pt decline in occupancy and a 6.7%
decline in ADR resulting from lower reservations in April and the timing of
springbreak.
Direct operating expenses. Direct operating expenses increased $1.2 million
or 37%, from $3.3 million in 1999 to $4.4 million in 2000, primarily due to our
June 1999 acquisition. As a percentage of revenues, operating expenses remained
relatively flat.
General and administrative expenses. General and administrative expenses
decreased $262,000, or 17%, from $1.6 million in 1999 to $1.3 million in 2000,
due to operating efficiencies that were partially offset by our June 1999
acquisition. As a percentage of revenues, general and administrative expenses
decreased 17.1pts due to operating efficiencies.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 -
Mountain
Revenues. Revenues increased $3.8 million or 24%, from $16.1 million in
1999 to $19.9 million in 2000, primarily due to our June 1999 acquisition in
Aspen, Colorado. Excluding the impact of this acquisition, revenues decreased
$236,000 or 2%, from $16.1 million in 1999 to $15.8 million in 2000 due to a
6.2% decline in gross lodging revenues driven by a 4.6pt decline in occupancy
resulting from the lack of snow in January 2000.
Direct operating expenses. Direct operating expenses increased $3.0 million
or 35%, from $8.5 million in 1999 to $11.4 million in 2000, primarily due to our
June 1999 acquisition. As a percentage of revenues, operating expenses increased
4.8pts, primarily due to increased labor costs during the first quarter of 2000.
General and administrative expenses. General and administrative expenses
decreased $194,000, or 7%, from $2.8 million in 1999 to $2.6 million in 2000,
due to operating efficiencies that were partially offset by our June 1999
acquisition. As a percentage of revenues, general and administrative expenses
decreased 4.4pts due to operating efficiencies.
11
DESERT
The following table sets forth the consolidated condensed results of
operations for the three- and six-month periods ended June 30, 1999 and 2000 for
our Desert operations in Scottsdale and Tucson, Arizona; and Palm Desert and
Palm Springs, California.
Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 1999 2000 1999 2000
------------ ------------ -------------- --------------
Revenues $626 100.0% $729 100.0% $1,885 100.0% $2,467 100.0%
Direct operating expenses 316 50.5 417 57.2 379 20.1 870 35.3
General and administrative expenses 215 34.3 203 27.8 655 34.7 416 16.8
------------ ------------ -------------- --------------
Operating income before depreciation
and amortization 95 15.2 $109 15.0 851 45.2 1,181 47.9
Depreciation and amortization 48 7.7 56 7.7 71 3.8 111 4.5
------------ ------------- -------------- --------------
Operating income $ 47 7.5% $ 53 7.3% $ 780 41.4% $1,070 43.4%
============ ============ ============== ==============
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 -
Desert
Revenues. Revenues increased $103,000, or 16%, from $626,000 in 1999 to
$729,000 in 2000, primarily due to a 16.0% increase in lodging revenues driven
by a 16.2% increase in units under management and a 1.0pt increase in occupancy.
Direct operating expenses. Direct operating expenses increased $101,000, or
32%, from $316,000 in 1999 to $417,000 in 2000, primarily due to the increase in
occupancy and the increased costs to service the additional units under
management. As a percentage of revenues, operating expenses increased 6.7pts due
to the additional units under management and increased labor costs.
General and administrative expenses. General and administrative expenses
decreased $12,000, or 6%, from $215,000 in 1999 to $203,000 in 2000, primarily
due to operating efficiencies. As a percentage of revenues, general and
administrative expenses decreased 6.5pts due to operating efficiencies.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 -
Desert
Revenues. Revenues increased $582,000 or 31%, from $1.9 million in 1999 to
$2.5 million in 2000, primarily due to a 24.3% increase in lodging revenues
driven by a 16.2% increase in units under management and a 1.5pt increase in
occupancy.
Direct operating expenses. Direct operating expenses increased $491,000, or
130%, from $379,000 in 1999 to $870,000, in 2000, primarily due to the increase
in occupancy and the increased costs to service the additional units under
management. As a percentage of revenues, operating expenses increased 15.2pts
due to the additional units under management and increased labor costs.
General and administrative expenses. General and administrative expenses
decreased $239,000, or 36%, from $655.000 in 1999 to $416,000 in 2000, primarily
due to operating efficiencies. As a percentage of revenues, general and
administrative expenses decreased 17.9pts due to operating efficiencies.
12
OTHER
The following table sets forth the consolidated condensed results of operations
for the three- and six-month periods ended June 30, 1999 and 2000 for our Other
operations comprised of First Resort Software and corporate.
Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 1999 2000 1999 2000
--------------- -------------- --------------- ---------------
Revenues $ 948 100.0% $ 853 100.0% $ 1,815 100.0% $ 1,720 100.0%
Direct operating expenses 431 45.5 419 49.1 897 49.4 890 51.7
General and administrative expenses 2,064 217.7 3,115 365.2 4,438 244.5 5,884 342.1
--------------- -------------- --------------- ---------------
Operating loss before
depreciation and amortization (1,547) (163.2) (2,681) (314.3) (3,520) (193.9) (5,054) (293.8)
Depreciation and amortization 313 33.0 394 46.2 618 34.1 757 44.0
--------------- --------------- --------------- ---------------
Operating loss $(1,860) (196.2) $(3,075) (360.5) $(4,138) (228.0) $(5,811) (337.8)
=============== =============== =============== ===============
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 -
Other
Revenues. Revenues decreased $95,000 or 10% from $948,000 in 1999 to
$853,000 in 2000 primarily due to reduced software sales and service fee
revenues.
Direct operating expenses. Direct operating expenses decreased $12,000, or
3%, from $431,000 in 1999 to $419,000 in 2000, primarily due to reduced software
sales and service fee revenues.
General and administrative expenses. General and administrative expenses
increased $1.0 million or 51%, from $2.1 million in 1999 to $3.1 million in
2000, primarily due to the incremental marketing and other costs resulting from
the increase in units under management.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 -
Other
Revenues. Revenues decreased $95,000 or 5% from $1.8 million in 1999 to
$1.7 million in 2000, primarily due to reduced software sales and service fee
revenues.
Direct operating expenses. Direct operating expenses decreased $7,000, or
1%, from $897,000 in 1999 to $890,000, in 2000, primarily due to reduced
software sales and service fee revenues.
General and administrative expenses. General and administrative expenses
increased $1.4 million or 33%, from $4.4 million in 1999 to $5.9 million in
2000, primarily due to the incremental marketing and other costs resulting from
the increase in units under management.
13
LIQUIDITY AND CAPITAL RESOURCES
ResortQuest is a holding company that conducts all of its operations
through its subsidiaries operating in 41 resort locations. Accordingly, the
primary internal source of our liquidity is through the cash flows realized from
our subsidiaries and our amended $50 million Credit Facility. We generated cash
flows from operating activities of $23.1 million in the six months ended June
30, 2000 primarily due to net income and an increase in customer deposits,
deferred revenues and payable to property owners. Cash used in investing
activities was approximately $5.3 million in the six months ended June 30, 2000,
due primarily to $2.3 million in net cash payments related to the 2000
acquisitions and the earn-out payments related to 1999 acquisitions and $3.0
million in software development costs and purchases of property and equipment.
In the six months ended June 30, 2000, cash used in financing activities totaled
$17.0 million, primarily related to net repayments under our Credit Facility. At
June 30, 2000, we had approximately $41.0 million in cash and cash equivalents,
of which $34.7 million represented cash held in escrow. The cash held in escrow
is released at varying times in accordance with state regulations, generally
based upon the guest stay, or for real estate sale deposits when the property is
sold. At June 30, 2000, we had a working capital deficit of $23.6 million. Total
capital expenditures for 2000 are anticipated to be between $8.0 million and
$9.5 million, of which approximately $5.0 million will be for web and software
development and systems integration, with the balance being applied to building
improvements, furniture, fixtures and equipment. We anticipate that our cash
flows from operations will provide cash in excess of our normal working capital
levels, debt service requirements and planned capital expenditures for the
foreseeable future. However, future acquisitions and/or other initiatives,
depending on their size and the method of financing, may affect our liquidity
and capital requirements during that time.
LONG-TERM BORROWINGS
As of June 30, 2000 our long-term debt is comprised of the $50 million
9.06% Senior Secured Notes due June 2004, and $1.1 million in capital lease
obligations and other borrowings assumed in connection with certain
acquisitions. As of June 30, 2000, we are in compliance with all debt covenants
and have $50.0 million available under our Credit Facility, subject to certain
restrictive covenants. Additionally, our Credit Facility will expire in May 2001
and we are currently renegotiating this facility. We anticipate that the Credit
Facility will be renewed or replaced by year-end.
SHELF REGISTRATION
We registered 8.0 million shares of common stock through various shelf
registration statement filings. As of June 30, 2000, we have issued in
connection with acquisitions 3,145,456 shares under these shelf registration
statements, with the remaining 4,854,544 shares available for future
acquisitions.
ACQUISITION STRATEGY
Although our strategy moving forward is to focus on internal growth, we
intend to continue to pursue selected acquisition opportunities in strategically
important markets. There can be no assurance that we will be able to identify,
acquire or profitably manage additional businesses or successfully integrate
acquired businesses into ResortQuest without substantial costs, delays or other
operational or financial problems. Increased competition for acquisition
candidates may develop, in which event there may be fewer acquisition
opportunities available to us, as well as higher acquisition prices.
Furthermore, acquisitions involve a number of special risks, including the
failure of acquired companies to achieve anticipated results, diversion of
management's attention, failure to retain key personnel, risks associated with
unanticipated events or liabilities and amortization of acquired intangible
assets. Some or all of which could have a material adverse effect on our
business, financial condition and results of operations.
The timing, size or success of any acquisition effort and the associated
potential capital commitments are unpredictable. We expect to fund future
acquisitions primarily through a combination of cash flows from operating
activities, borrowings under the Credit Facility, other debt fundings, and
issuance of our common stock. Our ability to fund future acquisitions under the
Credit Facility may be limited by certain restrictive covenants, the
satisfaction of which may be dependent upon our ability to raise additional
equity through either offerings for cash or the issuance of stock as
consideration for acquisitions. Our ability to fund acquisitions through
issuance of our common stock may not be feasible at our current stock price.
14
NON-COMPETE AND EMPLOYMENT AGREEMENTS
We have entered into non-compete agreements with many of the former owners
of the companies that now comprise ResortQuest. These non-compete agreements are
generally three to five years in length effective the day the operations are
merged with ResortQuest. Additionally, we have entered into employment
agreements with many of these former owners, all senior corporate officers and
several key employees. Among other things, these agreements allow for severance
payments and some include acceleration of stock option awards upon a change in
control of ResortQuest, as defined under the agreements. At June 30, 2000, the
maximum amount of compensation that would be payable under all agreements if a
change in control occurred without prior written notice would be approximately
$10.0 million.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Our business is highly seasonal. Our results of operations are subject to
quarterly fluctuations caused primarily by the seasonal variations in the
vacation rental and property management industry, with peak seasons dependent on
whether the resort is primarily a summer or winter destination. Our quarterly
results of operations may also be subject to fluctuations as a result of the
timing and cost of acquisitions, the timing of real estate sales, changes in
relationships with travel providers, extreme weather conditions or other factors
affecting leisure travel and the vacation rental and property management
industry.
RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS
This filing contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended, which are intended to be covered by the safe harbors
created thereby. Investors are cautioned that all forward-looking statements
involve risks and uncertainties, including but not limited to the risks
associated with; successful integration of companies acquired, factors affecting
internal growth and management of growth, our acquisition strategy and
availability of financing, the tour and travel industry, seasonality, quarterly
fluctuations and general economic conditions, dependence on technology,
e-commerce and travel providers, and other factors discussed in our previous
filings with the Securities and Exchange Commission. Although we believe that
the assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and, therefore, there
can be no assurance that the forward-looking statements included in this filing
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by us or any other person
that the objectives and plans will be achieved.
15
ResortQuest International, Inc.
Performance Statistics
June 30, 2000
Three Months Ended
June 30, June 30,
1999 2000 Variance
------- ------- --------
Mountain
Lodging Revenues(1) $4,506 $3,864 (14.2)%
Occupancy 19.6% 18.6% (1.0)pts
ADR $117.77 $109.93 (6.7)%
RevPAU $23.09 $20.43 (11.5)%
Total Units 2,394 2,355 (1.6)%
Beach
Lodging Revenues(1) $41,080 $47,836 16.4 %
Occupancy 55.8% 59.3% 3.5 pts
ADR $171.66 $178.10 3.8 %
RevPAU $95.85 $105.56 10.1 %
Total Units 5,641 5,882 4.3 %
Desert
Lodging Revenues(1) $1,493 $1,732 16.0 %
Occupancy 35.8% 36.8% 1.0 pts
ADR $114.41 $106.60 (6.8)%
RevPAU $40.97 $39.24 (4.2)%
Total Units 475 552 16.2 %
Hawaii
Lodging Revenues(1) $30,578 $35,514 16.1 %
Occupancy 70.4% 76.1% 5.7 pts
ADR $97.04 $103.57 6.7 %
RevPAU $68.34 $78.86 15.4 %
Total Units 5,008 5,122 2.3 %
Total
Lodging Revenues(1) $77,657 $88,946 14.5 %
Occupancy 54.7% 58.3% 3.6 pts
ADR $128.21 $134.18 4.7 %
RevPAU $70.12 $78.24 11.6 %
Total Units 13,518 13,911 2.9 %
(1) Lodging revenues are in thousands and represent the total rental charged to
property rental customers. Our revenue represents from 3% to over 40% of the
lodging revenues based on the services provided by us.
For better comparability, the above statistics exclude all non-exclusive
management contracts as well as all properties that were not acquired by
ResortQuest prior to second quarter 1999, which approximated 3,800 units as of
June 30, 2000. Also excluded from these statistics are owner use nights and
renovation nights which were approximately 10.4% of gross available nights in
the three months ended June 30, 2000 and 10.7% of gross available nights in the
three months ended June 30, 1999.
16
ResortQuest International, Inc.
Performance Statistics
June 30, 2000
Six Months Ended
June 30, June 30,
1999 2000 Variance
------- ------- --------
Mountain
Lodging Revenues(1) $29,091 $27,280 (6.2)%
Occupancy 42.5% 37.9% (4.6)pts
ADR $173.32 $186.27 7.5 %
RevPAU $73.67 $70.57 (4.2)%
Total Units 2,394 2,355 (1.6)%
Beach
Lodging Revenues(1) $52,591 $61,518 17.0 %
Occupancy 56.6% 60.9% 4.3 pts
ADR $119.79 $124.24 3.7 %
RevPAU $67.76 $75.63 11.6 %
Total Units 5,270 5,510 4.6 %
Desert
Lodging Revenues(1) $5,300 $6,588 24.3 %
Occupancy 54.4% 55.9% 1.5 pts
ADR $129.25 $127.24 (1.6)%
RevPAU $70.35 $71.18 1.2 %
Total Units 475 552 16.2 %
Hawaii
Lodging Revenues(1) $69,327 $75,373 8.7 %
Occupancy 77.0% 79.1% 2.1 pts
ADR $102.35 $108.48 6.0 %
RevPAU $78.77 $85.84 9.0 %
Total Units 5,008 5,122 2.3 %
Total
Lodging Revenues(1) $156,309 $170,759 9.2 %
Occupancy 62.3% 64.0% 1.7 pts
ADR $117.95 $123.01 4.3 %
RevPAU $73.50 $78.67 7.0 %
Total Units 13,147 13,539 3.0 %
(1) Lodging revenues are in thousands and represent the total rental charged to
property rental customers. Our revenue represents from 3% to over 40% of the
lodging revenues based on the services provided by us.
For better comparability, the above statistics exclude all non-exclusive
management contracts as well as all properties that were not acquired by
ResortQuest prior to first quarter 1999, which approximated 4,200 units as of
June 30, 2000. Also excluded from these statistics are owner use nights and
renovation nights which were approximately 11.2% of gross available nights in
the six months ended June 30, 2000 and 11.4% of gross available nights in the
six months ended June 30, 1999.
17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk, primarily through changes in interest rates
impacting borrowing rates on the Company's debt.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 26, 2000, Hotel Corp. of the Pacific, Inc., a subsidary of
ResortQuest International doing business as Aston Hotels & Resorts, instituted
legal proceedings in the Circuit Court for the First Circuit of Hawaii against
Andre S. Tatibouet, a beneficial owner of more than five percent of the our
outstanding common stock and the president of Hotel Corp. This action arises out
of a document styled Cooperation Agreement that was signed by Andre S.
Tatibouet, purporting to act on behalf of Hotel Corp., on the one hand, with
Cendant Global Services B.V. and Aston Hotels & Resorts International, Inc., on
the other hand. The Cooperation Agreement contains several provisions that are
detrimental to Hotel Corp., including provisions purporting to transfer certain
intellectual property and limit certain intellectual property rights held by
Hotel Corp. Hotel Corp. seeks monetary damages for breach of fiduciary duty,
fraud, and negligent misrepresentation.
Also on May 26, 2000, ResortQuest International and Hotel Corp. brought
action in the Ciruit Court for the First Circuit of Hawaii against Cendant
Corporation, Aston Hotels & Resorts International, Inc. and Cendant Global
Services B.V. ("Defendants"). It is the position of ResortQuest and Hotel Corp.
that the Cooperation Agreement is voidable because (i) it was entered in breach
of a prior agreement between ResortQuest, and the parent company of Cendant
Global Services B.V. and Aston Hotels & Resorts International, Inc., Cendant
Corporation, and (ii) it was entered into by an interested director and officer
of Hotel Corp. who was engaging in self-dealing. Accordingly, ResortQuest and
Hotel Corp. seek damages for breach of contract against Cendant, and the
equitable remedies of rescission and replevin. We believe that we have
meritorious claims and will prevail in each matter.
We are also involved in various legal actions arising in the ordinary
course of our business. We do not believe that any of the remaining actions will
have a material adverse effect on our business, financial condition or results
of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of the stockholders of ResortQuest International, Inc.
was held on Thursday, May 11, 2000. At the meeting, the stockholders considered
and voted upon two proposals: (1) the election of nine members (William W.
Abbott, Jr., Elan J. Blutinger, Joshua M. Freeman, Heidi O'Leary Houston, David
L. Levine, Michael D. Rose, David C. Sullivan, Joseph V. Vittoria, and Theodore
L. Weise) to the board of directors of the Company; and (2) the appointment of
Arthur Andersen LLP as the Company's independent public accountants for the 2000
fiscal year.
The stockholders approved each of the proposals. Voting results were as follows:
Proposal #1 Proposal #2
----------- -----------
For 11,052,685 11,054,880
Against 14,333 9,967
Abstentions - 2,171
Unvoted 4,881,465 4,881,465
All director nominees received the same number of votes for, against,
withheld and abstentions non-votes, with the exception of Heidi Houston, who
received 10,969,351 votes for and 97,667 votes against while the other ten
nominees each received 11,052,685 votes for and 14,333 votes against.
18
ITEM 5. OTHER INFORMATION
Not applicable.
19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed herewith
Exhibit No. Description Page No.
----------- ---------------------------------------------- ----------
EX-27 Financial Data Schedule 20
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended June 30, 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf be the
undersigned thereunto duly authorized.
RESORTQUEST INTERNATIONAL, INC.
July 28, 2000 By: /s/ J. Mitchell Collins
---------------------------
J. Mitchell Collins
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer,
Chief Accounting Officer
and Duly Authorized Officer)
20