SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 16, 2000
EQUIVEST FINANCE, INC.
(Exact name of registrant as specified in its charter)
Delaware 333-29015 59-2346270
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
100 NORTHFIELD STREET
GREENWICH, CONNECTICUT 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 618-0065
INFORMATION TO BE INCLUDED IN REPORT
Item 1. Changes in Control of Registrant
Not Applicable.
Item 2. Acquisition or Disposition of Assets
Not Applicable.
Item 3. Bankruptcy or Receivership
Not Applicable.
Item 4. Changes in Registrant's Certifying Accountant
Not Applicable.
Item 5. Other Events
Press Release
EQUIVEST FINANCE ANNOUNCES
RECORD SECOND QUARTER AND FIRST HALF REVENUES;
NET INCOME OF $.08 PER DILUTED
SHARE FOR SECOND QUARTER
Greenwich, Connecticut (Business Wire) - August 16, 2000 - Equivest
Finance, Inc. (NASDAQSC:EQUI) reported record revenue of $40.4 million for its
second quarter ended June 30, 2000, up 67% from $24.2 million in the comparable
period last year. Revenues for the first six months of 2000 rose 119% to $78.6
million, compared with $35.9 million in the comparable 1999 period. For the six
months ended June 30, 2000, net income was $5.1 million, or $0.17 per share
diluted, up 18% from $4.3 million, and $0.16 per share, in 1999. For the quarter
ended June 30, 2000, net income was $2.5 million, or $0.08 per share diluted,
down 10% from $2.8 million and $0.10 per diluted share, in the comparable period
of 1999. Equivest provides high quality vacation ownership opportunities to more
than 87,000 owners at 30 resort locations on the eastern and Gulf coasts of the
United States, and in St. Thomas, USVI. During the second quarter Equivest
opened new resorts in San Antonio, Texas and Williamsburg, Virginia. Equivest
also provides financing for independent developers of vacation ownership resorts
and their customers.
Total assets as of June 30, 2000 were $436.2 million, an increase of
57% compared with $278.6 million at June 30, 1999. Total capital at June 30,
2000 was $80.5 million, an increase of 35% from $59.8 million at June 30, 1999.
The growth in revenues, assets and net worth as of June 30, 2000 reflects the
acquisition of Peppertree Resorts, Ltd. and certain affiliates ("Peppertree") in
late 1999, as well as the Company's operating results.
For the six months ended June 30, 2000, pretax income increased 21% to
$8.9 million from $7.3 million last year. Net income during the first half of
2000 increased 18% to $5.1 million, up from $4.3 million for the same period in
1999. Diluted earnings per share in the first half were $0.17 in 2000 compared
with $0.16 in 1999.
2
As previously announced, results in the second quarter of 1999 were
benefited by the one-time recognition of approximately $1.9 million of deferred
sales revenue and $0.7 million of deferred pretax income relating to the
completion of two resort buildings under construction in St. Thomas that were
acquired in March, 1999. If the one-time gains in 1999 are excluded from first
half 1999 results, 2000 first half pretax income of $8.9 million increased 33%
from $6.6 million in 1999. Similarly, excluding the 1999 one-time gains, net
income for the first six months of 2000 was $5.1 million, or $0.17 per diluted
share, up 31% compared with $3.9 million, or $0.14 per diluted share, in the
first half of 1999.
For the quarter ended June 30, 2000, pretax income was $4.2 million, a
decline of 7% compared with 1999. Net income was $2.5 million, a decline of 10%
compared with $2.8 million in 1999. However, as noted above, results in the
second quarter of 1999 were significantly benefited by the one-time recognition
of approximately $1.9 million of deferred sales revenue and $0.7 million of
deferred pretax income. If this non-recurring income is excluded from the
Company's second quarter 1999 results, pretax income of $4.2 million for the
second quarter of 2000 represents a 10% increase compared with $3.9 million in
1999. Similarly, if such non-recurring income is excluded, net income of $2.5
million for the second quarter in 2000 represents an increase of 6% compared
with $2.3 million in 1999.
On a comparable basis, diluted earnings per share in the quarter ended
June 30, 2000 were flat, with $0.08 on 28.3 million weighted average shares
outstanding compared with earnings per share of $0.08 during the comparable 1999
period, excluding non-recurring income, on 26.1 million weighted average shares
outstanding. If the non-recurring income in the second quarter of 1999 is
included in results, diluted earnings per share in 1999 were $0.10.
During the second quarter of 2000, the Company increased its rate of
provisioning for doubtful receivables to 8% of vacation ownership intervals
("VOIs"), compared with 3.5% in the prior year. This increase reflects what the
Company's "Target Reserve Methodology," or "TRM," suggests is a more appropriate
long-term rate of provisioning for doubtful receivables. If the Company had
utilized the same percentage of VOI sales as a provision for doubtful
receivables in the second quarter of 2000 as it did in the second quarter of
1999, the amount of provisions taken would have decreased by approximately $1.1
million. Under the Company's TRM system, the Company assigns reserve targets of
5%, 10%, 50% and 95% to consumer receivables relating to purchasers in its own
resorts that are current, 30, 60 or over 90 days past due, respectively. In this
manner the level of provisioning for doubtful receivables required to maintain
adequate coverage of the actual volume of consumer notes in different aging
categories is monitored over time, with adjustment where necessary to maintain
adequate reserve coverage ratios, or "RCRs".
3
The company's loan receivable portfolio grew 48% to $270.4 million for
the quarter ended June 30, 2000, compared to $182.2 million as of June 30, 1999.
Of this amount $137.6 million represented receivables relating to VOI purchases
in the Company's own resorts, $101.0 million represented receivables relating to
consumer loans at third party developer resorts, and the balance represented
acquisition and development and other loans. At June 30, 2000, the Company
maintained total portfolio reserves and over collateralization of $34 million,
or 12.6% of total loans. The allowance for doubtful accounts included in total
reserves was $10.8 million at June 30, 2000, up 63% compared with $6.6 million
at June 30, 1999. As of June 30, 2000 the Company's Reserve Coverage Ratio
showed total reserves and over collateralization equal to 4.4 times the total
volume of consumer receivables over 60 days past due. However, there is no
assurance that the Company's TRM will not require higher reserves for doubtful
accounts in the future.
During the second quarter of 2000, sales of VOIs increased 108% to
$23.8 million, or 59% of total revenues, from $11.4 million for the same period
in 1999. During the second quarter of 2000, the Company sold 1,008 fixed-week
VOIs at an average price of approximately $11,684, as well as 1,400 points
packages. As of June 30, 2000, the company held approximately 27,200 unsold VOIs
in inventory, representing more than $315 million in potential gross sales
proceeds at the current fixed week average sale price as of June 30, 2000.
During the second quarter of 2000, sales and marketing costs rose to
48.1% of VOI sales, compared with 42.5% for the prior year period. To a
significant degree, the increase in the Company's sales and marketing expense
levels reflects higher costs and lower efficiencies at its newly-acquired
Peppertree division. For example, sales and marketing expense for the
non-Peppertree sales centers was 44% in the second quarter, while Peppertree's
sales and marketing expense during the same period was 52.3% of VOI revenues.
The Company has embarked on a wide-ranging program of cost cutting designed to
bring Peppertree's costs into line with Equivest's historic costs in its other
sales centers. This program of cost cutting has included elimination of senior
and mid-level management, closure of certain high-cost operations, greater
efficiency in the use of personnel resources and outsourcing of various
functions. The Company believes that Peppertree's cost levels will be reduced
during the balance of 2000 as a result of cost-cutting measures, but it cannot
predict when or if levels similar to the historic costs at its other sales
centers will be achieved. The Company also believes that high sales and
marketing costs and low gross sales totals at Peppertree are in part a
reflection of the long-term effects of the severe hurricane-related flooding
experienced in many of Peppertree's traditional marketing areas in the fall of
1999. The Company believes that such adverse effects have been declining, but
cannot predict the extent or precise timing of further market place improvement,
to the extent it occurs.
4
Interest expense as a percent of interest income increased to 67.6% in
the second quarter of 2000 from 53.2% in the comparable period in 1999,
reflecting greater levels of outstanding indebtedness and higher average
interest rates payable. This in large part reflects the assumption of
outstanding Peppertree debt carrying much higher average interest rates than
Equivest's own obligations. The Company recently repaid more than $20 million in
high-cost loans to Peppertree from Liberty Bank, refinancing these liabilities
at a significant cost reduction. The Company anticipates that it will seek to
refinance Peppertree's outstanding liabilities wherever it has the right to do
so, and that it will realize future savings in interest expense to the extent it
is successful in repricing Peppertree's liabilities.
Interest income for the second quarter of 2000 was $9.6 million, or 24%
of total revenues, an increase of 58% compared to $6.1 million for the second
quarter of 1999. Resort management operations generated $6.7 million in revenue,
representing 17% of total revenues, an increase of 6% compared to $6.3 million
for the first quarter of 1999. Resort operations expense as a percent of resort
management revenues fell to 74.1% in the quarter ended June 30, 2000 from 80.8%
in the second quarter of 1999. Second quarter 2000 general and administrative
expense was 11.2% of total revenues, up from 10.1% in the second quarter 1999.
Richard C. Breeden, Chairman, President and Chief Executive Officer of
Equivest commented: "During the second quarter Equivest continued work
integrating our Peppertree acquisition, with a strong focus on reducing
Peppertree's sales and marketing costs to bring those costs in line with
Equivest's other sales centers. We also brought two new resorts - San Antonio,
Texas and Williamsburg, Virginia - on line during the period, and we are working
to integrate product offerings across the entire company better. While revenue
increased substantially over 1999, we intend to continue our focus on cost
cutting to improve profit margins from their current levels."
Certain statements in this press release are forward-looking. These may
be identified by the use of forward-looking words or phrases such as "believe,"
"expect," "anticipate," "should," "planned," "estimated," and "potential." These
forward-looking statements are based on the Company's current expectations. The
Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for
such forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause actual results
and experience to differ materially from the anticipated results or other
expectations expressed in such forward-looking statements. The risks and
uncertainties that may affect the operations, performance, development, and
results of the Company's businesses include a downturn in the real estate cycle,
lack of available qualified prospects to tour the Company's resorts, competition
from other developers, lack of appropriate sites for future developments,
failure to complete construction in a timely and cost-efficient manner, or other
factors which result in lower sales of vacation ownership interests, possible
financial difficulties of one or more of the developers with whom the Company
does business, including the risk of carrying non-performing assets or losses if
defaulted loans prove to have insufficient collateral backing, fluctuations in
interest rates, prepayments by consumers of indebtedness, inability of
developers to honor replacement obligations for defaulted consumer notes, and
competition from organizations with greater financial resources.
Contact: Gerald L. Klaben, Jr., Chief Financial Officer (203) 618-0065
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
EQUIVEST FINANCE, INC.
Date: August 16, 2000 By: /s/Gerald L. Klaben, Jr.
-------------------------------------------
Name: Gerald L. Klaben, Jr.
Title: Senior Vice President &
Chief Financial Officer