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 MARCH 31, 2001.
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 March 31, 2001.
Common Stock ........................... 19,110,266 shares
Page 1 of 19
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, March 31,
2000 2001
------------ ---------
ASSETS
Current assets
Cash and cash equivalents $ 26,344 $ 31,606
Trade and other receivables, net 5,957 7,814
Deferred income taxes 1,061 1,016
Other current assets 8,888 7,620
-------- --------
Total current assets 42,250 48,056
-------- --------
Goodwill, net 185,733 198,052
Property and equipment, net 28,507 33,591
Other assets 6,679 7,446
-------- --------
Total assets $263,169 $287,145
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 483 $ 1,333
Deferred revenue and property owner payables 51,653 59,427
Accounts payable and accrued liabilities 13,774 18,096
Other current liabilities 303 1,783
-------- --------
Total current liabilities 66,213 80,639
-------- --------
Long-term debt, net of current maturities 50,401 52,369
Deferred income taxes 4,041 5,939
Other long-term obligations 6,112 6,567
-------- --------
Total liabilities 126,767 145,514
-------- --------
Stockholders' equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
18,988,246 and 19,110,266 shares outstanding, respectively 190 191
Additional paid-in capital 151,960 152,861
Accumulated other comprehensive income (49) (53)
Excess distributions (29,500) (29,500)
Retained earnings 13,801 18,132
-------- --------
Total stockholders' equity 136,402 141,631
-------- --------
Total liabilities and stockholders' equity $263,169 $287,145
======== ========
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
March 31, March 31,
2000 2001
------- --------
Revenues
Property management fees $22,223 $28,042
Service fees 10,368 11,756
Real estate and other 5,956 5,644
------- -------
Total revenues 38,547 45,442
------- -------
Operating expenses
Direct operating 19,521 20,911
General and administrative 10,501 13,762
Depreciation 819 1,169
Goodwill amortization 1,194 1,347
------- -------
Total operating expenses 32,035 37,189
------- -------
Operating income 6,512 8,253
Interest and other expense, net 1,330 786
------- -------
Income before income taxes 5,182 7,467
Provision for income taxes 2,331 3,136
------- -------
Net income $ 2,851 $ 4,331
======= =======
Earnings per share
Basic $ 0.15 $ 0.23
======= =======
Diluted $ 0.15 $ 0.23
======= =======
The accompanying notes are an integral part of these consolidated
condensed financial statements.
3
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
(In thousands, except share amounts)
(Unaudited)
Accumulated
Additional Other
Common Stock Paid-in Comprehensive Excess Retained Comprehensive
Shares Amount Capital Loss Distributions Earnings Total Income
----------- ------ ---------- ------------- ------------- -------- ----- -------------
Balance, December 31, 2000 ........ 18,988,246 $ 190 $151,960 $ (49) $(29,500) $13,801 $136,402
Net income ...................... -- -- -- -- -- 4,331 4,331 $4,331
Foreign currency translation loss -- -- -- (4) -- -- (4) (4)
Stock issued in connection
with acquisitions ............ 122,020 1 901 -- -- -- 902
----------- ----- -------- ----- -------- ------- -------- ------
Comprehensive Income .............. $4,327
Balance, March 31, 2001 ........... 19,110,266 $ 191 $152,861 $ (53) $(29,500) $18,132 $141,631 ======
=========== ===== ======== ===== ======== ======= ========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31, March 31,
2000 2001
-------- --------
Cash flows from operating activities:
Net income $ 2,851 $ 4,331
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and goodwill amortization 2,013 2,516
Changes in operating assets and liabilities:
Trade and other receivables (1,152) (1,435)
Accounts payable and accrued liabilities (981) 3,559
Deferred revenue and property owner payables 4,597 (2,639)
Other 2,832 4,715
------- -------
Net cash provided by operating activities 10,160 11,047
------- -------
Cash flows from investing activities:
Cash portion of acquisitions, net (974) (2,677)
Purchases of property and equipment (1,429) (5,098)
------- -------
Net cash used in investing activities (2,403) (7,775)
------- -------
Cash flows from financing activities:
Net credit facility (repayments) borrowings (9,000) 2,000
Repayments of secured mortgage notes (5,734) -
Borrowings (payments) of capital lease and other obligations 32 (10)
------- -------
Net cash (used in) provided by financing activities (14,702) 1,990
------- -------
Net change in cash and cash equivalents (6,945) 5,262
Cash and cash equivalents, beginning of period 40,239 26,344
------- -------
Cash and cash equivalents, end of period $33,294 $31,606
======= =======
The accompanying notes are an integral part of these consolidated
condensed financial statements.
5
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(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 24 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. These 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. 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 represent
goodwill. Goodwill is amortized over a life up to 40 years and is calculated
based on 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 the amount is fixed and
determinable.
The total cost for the first quarter 2001 for current year acquisitions and
the earn-up payments related to prior acquisitions was $3.6 million, with 25.1%
of the consideration paid in the form of common stock with an aggregate value of
$902,000 and the remaining $2.7 million of consideration paid in cash, net of
cash acquired. The total cost during 2000 for 2000 acquisitions and the earn-up
payments related to the 1999 acquisitions was $7.6 million, with 12.9% of the
net consideration paid in the form of common stock with an aggregate value of
$989,000, net of retired escrow shares, and the remaining $6.6 million of
consideration paid in cash, net of cash acquired.
NOTE 2 - NOTES RECEIVABLE FROM STOCKHOLDERS
In connection with the initial public offering, we formalized a $4.0
million promissory note resulting from cash advances to a primary stockholder
(see Item I. under Part II.) of a predecessor company. On February 16, 2000,
this Note was restructured in order to provide for additional collateral. At
this time, certain management fee receivables and accrued interest of
approximately $1.1 million were also aggregated into a separate note
(collectively, the "Notes"). The Notes are collateralized by certain 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 $1.1 million note has
been paid down to $540,000 as of March 31, 2001; this remaining balance plus
accrued interest is due June 30, 2001 and is recorded in Other current assets in
the accompanying Consolidated Condensed Balance Sheets. Interest payments under
the $4.0 million note are due every January and July 1st, with the principal,
recorded in Other assets in the accompanying Consolidated Condensed Balance
Sheets, being due in full on May 25, 2008. All payments due under the
restructured terms of the Notes have been received.
6
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
March 31, March 31,
2000 2001
---------- ----------
Basic weighted average common shares outstanding 18,831,328 19,043,352
Effect of dilutive securities - stock options 19,627 138,425
---------- ----------
Diluted weighted average common shares outstanding 18,850,955 19,181,777
========== ==========
NOTE 4 - SEGMENT REPORTING
ResortQuest has one operating segment, property management, which is
managed as one business unit. The All other segment includes First Resort
Software and corporate. At December 31, 2000 and March 31, 2001, approximately
64% and 59%, respectively, 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 ResortQuest's reportable segment:
Three Months Ended
March 31, March 31,
(in thousands) 2000 2001
-------- --------
Revenues
Property management $ 37,680 $ 44,657
All other 867 785
-------- --------
$ 38,547 $ 45,442
======== ========
Operating income
Property management $ 9,239 $ 12,342
All other (2,727) (4,089)
-------- --------
$ 6,512 $ 8,253
======== ========
Assets
Property management $212,000 $238,560
All other 40,650 48,585
-------- --------
$252,650 $287,145
======== ========
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
ResortQuest is the world's largest 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 management
services to approximately 20,000 rental properties. Our operations are in 46
premier resort locations in the Beach, Hawaiian Islands, 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 800 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. Property owners also benefit from
our QuestPerks program, which offers benefits such as discounts on lodging, air
travel and car rentals. To increase customer satisfaction, we have developed and
implemented a five-tier rating system that segments our property portfolio into
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, our proprietary Web
site offering "real time" reservations, and our travel marketing agreement with
America Online (AOL Keyword: ResortQuest) announced in January 2001. In
conjunction with the consummation of our AOL agreement, we have formed
ResortQuest Technologies; a division of ResortQuest focused on Internet
alliances and inventory distribution. In September 2000, we unveiled our second
generation Web site that enhances the booking experience for e-travelers. In
addition to detailed property descriptions, virtual tours, interior and exterior
photos and floor plans, and local information available at our original Web
site, vacationers can search for properties by date, activity, event or
location; comparison shop among similar vacation rental units; check for special
discounts and promotions; and obtain maps and driving directions. The site also
allows foreign travelers to obtain currency conversion rates. We also added AXS
Technologies software that provides high speed/high resolution, scroll, pan and
zoom imaging. During the three months ended March 31, 2001, our Web site
received approximately 14 million page views from 2.7 million visitors, a 124%
and 114% increase, respectively, from the three months ended March 31, 2000;
while our Web-related reservations increased to over 10% of total reservations.
8
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. Our financial results will be discussed on a consolidated
basis, but due to the seasonal nature of our operations, our results will be
also discussed by geographic region with Other representing our corporate and
First Resort Software operations. For better analysis, the following discussion
includes "same-store" comparisons. Same-store comparisons exclude the impact of
the three significant acquisitions completed since the first day of the earliest
period being discussed. Two of these acquisitions are located in the Mountain
region in Sun Valley, Idaho effective July 1, 2000 and in Steamboat, Colorado
effective January 1, 2001; and one in the Beach region in Southwest Florida
effective January 1, 2001.
CONSOLIDATED
The following table sets forth the consolidated condensed results of
operations for the three months ended March 31, 2000 and 2001.
Three Months Ended March 31,
(dollars in thousands) 2000 2001
---------------- ----------------
Revenues $38,547 100.0% $ 45,442 100.0%
Direct operating expenses 19,521 50.7 20,911 46.0
General and administrative expenses 10,501 27.2 13,762 30.3
-------- ----- -------- -----
Operating income before depreciation
and goodwill amortization 8,525 22.1 10,769 23.7
Depreciation 820 2.1 1,169 2.6
Goodwill amortization 1,193 3.1 1,347 3.0
-------- ----- -------- -----
Operating income $ 6,512 16.9% $ 8,253 18.1%
======== ===== ======== =====
Three Months Ended March 31, 2001 Compared to Three Months Ended
March 31, 2000 - Consolidated
Revenues. Revenues increased $6.9 million, or 18%, from $38.5 million in
2000 to $45.4 million in 2001, primarily due to an 18% increase in gross lodging
revenues driven by acquisitions. Excluding the impact of our acquisitions,
revenues increased $1.7 million or 4% due to a 4% increase in same-store gross
lodging revenues driven by a 3% increase in average daily rate ("ADR") and a 3%
increase in units under management.
Direct Operating Expenses. Direct operating expenses increased $1.4
million, or 7%, from $19.5 million in 2000 to $20.9 million in 2001, primarily
due to acquisitions. Excluding the impact of our acquisitions, direct operating
expenses decreased $300,000 or 2% due to increased operating efficiencies. As a
percentage of revenues, direct operating expenses improved 4.7 points primarily
due to operating efficiencies.
General and Administrative Expenses. General and administrative expenses
increased $3.3 million, or 31%, from $10.5 million in 2000 to $13.8 million in
2001, primarily due to our acquisitions and corporate initiatives. Excluding the
impact of these acquisitions, general and administrative expenses increased $1.9
million, or 18%, due to increased insurance costs, centralized accounting costs,
centralized marketing expenditures and other initiatives related to increased
units under management. As a percentage of revenues, general and administrative
expenses increased 3.1 points primarily due to the impact of acquisitions and
corporate initiatives.
Depreciation. Depreciation increased $349,000, or 43%, from $820,000 in
2000 to $1.2 million in 2001, primarily due to increased technology capital
expenditures. As a percentage of revenues, depreciation increased 0.5 points due
to the increase in technology capital expenditures.
Goodwill Amortization. Goodwill amortization increased $154,000, or 13%,
from $1.2 million in 2000 to $1.4 million in 2001, primarily due to the impact
of our acquisitions. As a percentage of revenues, goodwill amortization remained
relatively flat.
9
BEACH
The following table sets forth the consolidated condensed results of
operations for the three months ended March 31, 2000 and 2001 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,
Longboat Key, Marco Island, Okaloosa Island/Fort Walton Beach, Naples, Navarre
Beach, Orlando, Pensacola, Sanibel Island, Sarasota, Siesta Key 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 March 31,
(dollars in thousands) 2000 2001
-------------- --------------
Revenues $14,043 100.0% $16,687 100.0%
Direct operating expenses 9,347 66.6 10,091 60.5
General and administrative expenses 4,403 31.4 5,402 32.4
------- ----- ------- -----
Operating income before depreciation
and goodwill amortization 293 2.0 1,194 7.1
Depreciation 417 2.9 344 2.1
Goodwill amortization 636 4.5 726 4.4
------- ----- ------- -----
Operating (loss) income $ (760) (5.4)% $ 124 0.6%
======= ===== ======= =====
Three Months Ended March 31, 2001 Compared to Three Months Ended
March 31, 2000 - Beach
Revenues. Revenues increased $2.7 million, or 19%, from $14.0 million
in 2000 to $16.7 million in 2001, primarily due to our 2001 Beach acquisition.
Direct Operating Expenses. Direct operating expenses increased $744,000, or
8%, from $9.3 million in 2000 to $10.1 million in 2001, primarily due to our
2001 Beach acquisition. As a percentage of revenues, direct operating expenses
decreased 6.1 points due to an increase in operating efficiencies.
General and Administrative Expenses. General and administrative expenses
increased $1.0 million, or 23%, from $4.4 million in 2000 to $5.4 million in
2001, primarily due to our 2001 Beach acquisition. As a percentage of revenues,
general and administrative expenses increased 1.0 point due primarily to the
2001 Beach acquisition.
Depreciation. Depreciation decreased $73,000, or 18%, from $417,000 in 2000
to $344,000 in 2001, primarily due to a change in estimated useful lives for
certain long-lived assets. As a percentage of revenues, depreciation decreased
0.8 points due primarily to the incremental increase in revenues.
Goodwill Amortization. Goodwill amortization increased $90,000, or 14%,
from $636,000 in 2000 to $726,000 in 2001, primarily due to the impact of our
Beach acquisitions. As a percentage of revenues, goodwill amortization remained
relatively flat.
10
HAWAIIAN ISLANDS
The following table sets forth the consolidated condensed results of
operations for the three months ended March 31, 2000 and 2001 for our Hawaiian
operations on the islands of Hawaii, Kauai, Maui and Oahu.
(dollars in thousands) Three Months Ended March 31,
2000 2001
--------------- --------------
Revenues $7,005 100.0% $8,218 100.0%
Direct operating expenses 2,268 32.4 2,269 27.6
General and administrative expenses 1,767 25.2 1,820 22.2
------- ----- ------- -----
Operating income before depreciation
and goodwill amortization 2,970 42.4 4,129 50.2
Depreciation 122 1.7 124 1.5
Goodwill amortization 18 0.3 18 0.2
------- ----- ------- -----
Operating income $ 2,830 40.4% $ 3,987 48.5%
======= ===== ======= =====
Three Months Ended March 31, 2001 Compared to Three Months Ended
March 31, 2000 - Hawaii
Revenues. Revenues increased $1.2 million, or 17%, from $7.0 million in
2000 to $8.2 million in 2001, primarily due to an 11% increase in lodging
revenues driven by an 8% increase in ADR and a 3% increase in units under
management.
Direct Operating Expenses. Direct operating expenses remained flat in 2001
when compared to 2000, primarily due to increased operating efficiencies. As a
percentage of revenues, direct operating expenses improved 4.8 points due to
increased operating efficiencies.
General and Administrative Expenses. General and administrative expenses
remained relatively flat. As a percentage of revenues, general and
administrative expenses decreased 3.0 points due to operating efficiencies.
Depreciation. Depreciation remained flat. As a percentage of revenues,
depreciation improved 0.2 points due to the incremental increase in revenues.
Goodwill Amortization. Goodwill amortization remained flat in 2001 when
compared to 2000. As a percentage of revenues, goodwill amortization improved
0.1 points due to the incremental increase in revenues.
11
MOUNTAIN
The following table sets forth the consolidated condensed results of
operations for the three months ended March 31, 2000 and 2001 for our Mountain
operations in Whistler, British Columbia; Aspen, Breckenridge, Crested Butte,
Dillon, Snowmass Village, Steamboat Springs and Telluride, Colorado; Sun Valley,
Idaho; Big Sky, Montana; Sunriver, Oregon; and The Canyons, Deer Valley and Park
City, Utah.
(dollars in thousands) Three Months Ended March 31,
2000 2001
--------------- --------------
Revenues $14,894 100.0% $18,042 100.0%
Direct operating expenses 6,982 46.9 7,564 41.9
General and administrative expenses 1,349 9.1 2,581 14.3
------- ----- ------- -----
Operating income before depreciation
and goodwill amortization 6,563 44.0 7,897 43.8
Depreciation 173 1.2 293 1.6
Goodwill amortization 236 1.6 294 1.6
------- ----- ------- -----
Operating income $ 6,154 41.2% $ 7,310 40.6%
======= ===== ======= =====
Three Months Ended March 31, 2001 Compared to Three Months Ended
March 31, 2000 - Mountain
Revenues. Revenues increased $3.1 million, or 21%, from $14.9 million in
2000 to $18.0 million in 2001, primarily due to our Mountain acquisitions.
Excluding the impact of these acquisitions, revenues increased $405,000, or 3%,
due to a 2% increase in lodging revenues driven by a 3% increase in units under
management.
Direct Operating Expenses. Direct operating expenses increased $582,000, or
8%, from $7.0 million in 2000 to $7.6 million in 2001, primarily due to the
impact of our Mountain acquisitions. Excluding the impact of these acquisitions,
direct operating expenses decreased $258,000 or 4% due to increased operating
efficiencies. As a percentage of revenues, direct operating expenses improved
5.0 points primarily due to increased operating efficiencies.
General and Administrative Expenses. General and administrative expenses
increased $1.3 million, or 91%, from $1.3 million in 2000 to $2.6 million in
2001, primarily due to our acquisitions. As a percentage of revenues, general
and administrative expenses increased 5.2 points due to the impact of our
Mountain acquisitions.
Depreciation. Depreciation increased $120,000, or 69%, from $173,000 in
2000 to $293,000 in 2001, primarily due to the impact of our 2000 and 2001
Mountain acquisitions. As a percentage of revenues, depreciation increased 0.4
points due to increased fixed asset balances on recent acquisitions.
Goodwill Amortization. Goodwill amortization increased $58,000, or 25%,
from $236,000 in 2000 to $294,000 in 2001, primarily due to the impact of our
Mountain acquisitions. As a percentage of revenues, goodwill amortization
remained relatively flat.
12
DESERT
The following table sets forth the consolidated condensed results of
operations for the three months ended March 31, 2000 and 2001 for our Desert
operations in Scottsdale and Tucson, Arizona; and Palm Desert and Palm Springs,
California.
(dollars in thousands) Three Months Ended March 31,
2000 2001
-------------- -------------
Revenues $1,738 100.0% $1,710 100.0%
Direct operating expenses 453 26.1 507 29.6
General and administrative expenses 213 12.3 202 11.8
------ ----- ------ -----
Operating income before depreciation
and goodwill amortization 1,072 61.6 1,001 58.6
Depreciation 18 1.0 26 1.5
Goodwill amortization 39 2.2 54 3.2
------ ----- ------ -----
Operating income $1,015 58.4% $ 921 53.9%
====== ===== ====== =====
Three Months Ended March 31, 2001 Compared to Three Months Ended
March 31, 2000 - Desert
Revenues. Revenues remained relatively flat primarily due to a 7.2
point decrease in occupancy that was offset by a 2.9% increase in ADR.
Direct Operating Expenses. Direct operating expenses increased $54,000, or
12%, from $453,000 in 2000 to $507,000 in 2001, primarily due to increased labor
costs. As a percentage of revenues, direct operating expenses increased 3.5
points due to the increase in labor costs.
General and Administrative Expenses. General and administrative expenses
decreased $11,000, or 5%, from $213,000 in 2000 to $202,000 in 2001, primarily
due to increased operating efficiencies. As a percentage of revenues, general
and administrative expenses decreased 0.5 points due to the increase in
operating efficiencies.
Depreciation. Depreciation increased $8,000, or 44%, from $18,000 in 2000
to $26,000 in 2001, primarily due to increased technology capital expenditures.
As a percentage of revenues, depreciation increased 0.5 points due to the
increase in technology capital expenditures.
Goodwill Amortization. Goodwill amortization increased $15,000, or 38%,
from $39,000 in 2000 to $54,000 in 2001, primarily due to the purchase price
adjustments related to a prior year acquisition, which was recorded using the
purchase method of accounting. As a percentage of revenues, goodwill
amortization increased 1.0 points.
13
OTHER
The following table sets forth the consolidated condensed results of
operations for the three months ended March 31, 2000 and 2001 for our Other
operations comprised of First Resort Software and corporate.
(dollars in thousands) Three Months Ended March 31,
2000 2001
----------------- -----------------
Revenues $ 867 100.0% $ 785 100.0%
Direct operating expenses 471 54.3 480 61.1
General and administrative expenses 2,769 N/M 3,757 N/M
------- ------ ------- -------
Operating loss before depreciation
and goodwill amortization (2,373) N/M (3,452) N/M
Depreciation 90 10.4 382 48.7
Goodwill amortization 264 30.4 255 32.5
------- ------ ------- -------
Operating loss $(2,727) N/M $(4,089) N/M
======= ====== ======= =======
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31,
2000 - Other
Revenues. Revenues decreased $82,000, or 9%, from $867,000 in 2000 to
$785,000 in 2001, primarily due to reduced software sales and service fee
revenues.
Direct Operating Expenses. Direct operating expenses remained relatively
flat from 2000 to 2001. As a percentage of revenues, direct operating expenses
increased 6.8 points primarily due to fixed operating costs of First Resort
Software and the decrease in revenues.
General and Administrative Expenses. General and administrative expenses
increased $1.0 million, or 36%, from $2.8 million in 2000 to $3.8 million in
2001, primarily at the corporate level due to increased insurance costs,
centralized accounting costs, centralized marketing expenditures and other
initiatives related to increased units under management.
Depreciation. Depreciation increased $292,000, or 324%, from $90,000 in
2000 to $382,000 in 2001, primarily due to increased technology capital
expenditures related to enhancements to our Web site, upgrades to our software
products sold through First Resort Software and the partial implementation of
our new financial management technology platform scheduled to be completed by
mid-2001. As a percentage of revenues, depreciation increased 38.3 points
primarily due to these investments in technology.
Goodwill Amortization. Goodwill amortization remained relatively flat
in 2001. As a percentage of revenues, goodwill amortization increased 2.1 points
primarily due to the decrease in revenues.
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LIQUIDITY AND CAPITAL RESOURCES
ResortQuest is a holding Company that conducts all of its operations
through its subsidiaries operating in 46 resort locations. Accordingly, the
primary internal source of our liquidity is through the cash flows realized from
our subsidiaries and our long-term borrowings.
We generated cash flows from operating activities of $11.0 million for the
three months ended March 31, 2001 primarily due to increases in net income,
deferred income taxes and accounts payable and accrued liabilities. Cash used in
investing activities was approximately $7.8 million for the three months ended
March 31, 2001 due primarily to the $2.7 million in net cash payments related to
the 2001 acquisitions and the earn-up payments related to 1999 acquisitions and
$5.1 million in software development and implementation costs and purchases of
property and equipment. For the three months ended March 31, 2001, cash provided
by financing activities totaled $2.0 million, which represents net borrowings
under our Credit Facility.
At March 31, 2001, we had approximately $31.6 million in cash and cash
equivalents, of which $25.9 million represents 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, in the case of real estate
sales deposits, when the property is sold. At March 31, 2001, we had a working
capital deficit of $32.6 million; however, we have up to $48 million remaining,
subject to certain restrictions, available under our long-term borrowing
vehicle. During 2000 we implemented a consolidated daily cash management system
that allows us to fully utilize all unrestricted cash to repay outstanding debt
in order to reduce our net interest expense. We anticipate that our cash flows
from operations will provide cash in excess of our normal working capital needs,
debt service requirements and planned capital expenditures over the next year.
However, future acquisitions and/or other initiatives, depending on their size
and the method of financing, may affect our liquidity and capital requirements
at that time.
LONG-TERM BORROWINGS
As of March 31, 2001, our long-term debt was comprised of $50.0 million in
9.06% Senior Notes due June 2004, $2.0 million in borrowings under our Credit
Facility that expires in January 2004 and $1.7 million in capital lease
obligations and other borrowings assumed in connection with certain
acquisitions.
REGISTRATION AND EQUITY OFFERINGS
We have registered 8.0 million shares of common stock through various shelf
registration statement filings. As of March 31, 2001, we had issued 4,814,020
shares under these shelf registration statements in connection with
acquisitions, with the remaining 3,185,980 shares available for future
acquisitions.
PROPOSED ACCOUNTING ANNOUNCEMENTS
The Financial Accounting Standards Board issued an Exposure Draft on
February 15, 2001 to address its revised views for accounting for business
combinations with a final standard expected to be released in June 2001. If
adopted as currently proposed, goodwill related to our future and historical
acquisitions will no longer be amortized. Goodwill will be subject to reviews
for impairment upon the occurrence of certain events, and, if impaired, a
write-down would be recorded. We recorded goodwill amortization of $1.2 million
and $1.3 million for the three months ended March 31, 2000 and 2001,
respectively.
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ACQUISITION STRATEGY
We intend to continue to pursue selected acquisition opportunities in
strategic and existing 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 our operations 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 unique 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 these 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 operations,
borrowings under our Credit Facility, other debt fundings and the issuance of
common stock. Our ability to fund future acquisitions through borrowings under
the Credit Facility may be limited by certain restrictive covenants of the
facility, 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.
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 March 31, 2001, 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
$9.5 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 report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1993, as amended, 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 the Founding
Companies and Post-IPO acquisitions, factors affecting internal growth and
management of growth, our acquisition strategy and availability of financing,
the travel and tourism industry, seasonality, quarterly fluctuations and general
economic conditions, and our dependence on technology, e-commerce and travel
providers. Important factors that could cause actual results to differ
materially include, but are not limited to, those listed 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not have significant market risk with respect to interest rates,
foreign currency exchanges or other market rate or price risks, and we do not
hold any financial instruments for trading purposes. As of March 31, 2001 our
only foreign operations were in Canada.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 26, 2000, Hotel Corp. of the Pacific, Inc., a subsidiary 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, 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. By order of the Circuit Court, the claims asserted
by Hotel Corp. in the lawsuit have been consolidated with an arbitration demand,
filed with the American Arbitration Association by Mr. Tatibouet, in which he
alleges various breaches of his employment agreement with Hotel Corp. The
arbitration is scheduled to take place in September 2001.
Also on May 26, 2000, ResortQuest International and Hotel Corp. brought
action in the Circuit 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
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed herewith
Exhibit No. Description Page No.
----------- ---------------------------------------------- ----------
EX-27 Financial Data Schedule 19
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended March 31, 2001.
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.
May 11, 2001 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)
18