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): November 12, 2001
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
Item 5. Other Events
Press Release
Equivest Finance, Inc.
Announces Third Quarter Net Income of $0.6 million
and EPS of $0.02 per share
Greenwich, Connecticut (Business Wire) - November 12, 2001. Equivest
Finance, Inc. (NASDAQSC:EQUI) announced today net income of $0.6 million, or
$0.02 per share fully diluted, for the third quarter of 2001. Revenues for the
third quarter were $32.6 million. For the nine months ended September 30, 2001,
net income was $6.5 million, or $0.21 per share fully diluted, on revenues of
$92.3 million. Equivest operates hotels and vacation ownership resorts at 29
locations along the eastern and Gulf coasts of the United States and in St.
Thomas, USVI, with more than 84,000 owners of vacation interests in its
properties. Equivest also operates a specialty finance company providing
financing for consumer purchases of vacation intervals in its own resorts and
those of independent developers.
The Company had net income of $3.5 million, or $0.12 per share fully
diluted, on revenues of $46.3 million during the quarter ended September 30,
2000. For the nine months ended September 30, 2000, the Company had net income
of $8.7 million, or $0.29 per share fully diluted, on revenues of $122.6
million.
During the nine months ended September 30, 2001, the Company reduced
aggregate indebtedness by $39.7 million. Total liabilities at September 30, 2001
were $313.2 million, while total liabilities less the sum of cash and net notes
receivable ("Net Debt") were $71.8 million. This represents a reduction of 15%
from Net Debt of $84.5 million at September 30, 2000. At September 30, 2001 the
Company's overall total debt/equity ratio was 2.7:1, compared with 3.4:1 at
September 30, 2000. Net worth at September 30, 2001 represented 22.8% of total
assets, compared with 19.2% at September 30, 2000. Book value per share rose
from $2.99 at September 30, 2000 to $3.26 at September 30, 2001.
For the nine months ended September 30, 2001, the Company had a pretax
profit margin (excluding one-time asset sales and including deferred revenues,
or "Adjusted Pretax Margin") of 13.1%, compared with an Adjusted Pretax Margin
of 12.2% for the nine months ended September 30, 2000. Adjusted Pretax Margin
was 17.7% for the six months ended June 30, 2001, but fell to 4.5% for the third
quarter, reflecting in part the overall impact of the extraordinary events
during the third quarter of 2001.
2
During the third quarter of 2001, the Company's results were
substantially adversely affected by the sharp reduction in travel that followed
the terrorist attacks in New York City and Washington, D.C. on September 11,
2001. Both rental occupancies and the number of tours by potential timeshare
purchasers declined severely following the attacks. Because of the sudden nature
of the terrorist strikes, unlike seasonal downturns, the Company did not have
any advance opportunity to implement personnel or other cost reductions. Certain
timeshare marketing costs that had already been incurred represented an
abnormally high percentage of sales volume because of the sharp decline in the
number of tours by prospective purchasers and resulting lower gross sales
revenues. The Company cannot identify the overall cost of these extraordinary
events with any degree of certainty. However, during the portion of the third
quarter prior to September 11, the Company's operations were generally
consistent with operations during the six months ended June 30, 2001, with lower
revenues than 2000, but higher profit margins.
Most of the Company's resort network of 29 properties are "drive-to"
resorts, with the exception of its properties in St. Thomas, USVI, and to a
lesser degree New Orleans, LA. The Company generally expects that in times of
economic or security uncertainty, local "drive-to" resorts will not be as
greatly affected as more distant "fly to" resorts. On an overall basis,
approximately 78% of the Company's total of just over 800,000 annual room nights
in its resorts are pre-sold to more than 84,000 owners of vacation intervals.
The Company owns approximately 22% of total room inventory in its resorts, or
just over 180,000 room nights per year, which it rents to hotel guests for
transient stays, as well as providing rental services for owner weeks on a fee
basis. Since the end of the third quarter, occupancy levels throughout the
Company's network have improved in varying degrees at different locations. The
Company does not have any way to determine whether the partial recovery in
occupancy levels to date will continue, or the degree to which it will be
successful in increasing occupancy and tour levels.
During the third quarter, the Company continued its program of selling
surplus land and other assets acquired in previous acquisitions. During the
quarter it sold VOI inventory in Branson, Missouri, along with certain
additional developable land, to an unaffiliated sales and marketing
organization, reducing debt by approximately $2.5 million. The Branson resort
was originally developed by the Company's Peppertree subsidiary, and was not
compatible with the Company's objectives for resort locations. Equivest Capital,
the Company's finance arm, will provide financing for future consumer
receivables generated by sale of these VOIs by the purchaser. The Company
recorded a loss of approximately $0.2 million on this transaction, which amount
may be recovered in the future as this inventory is sold by the purchaser. The
Company anticipates selling one or more additional tracts of land or other
surplus improved facilities over the next twelve months.
3
During the third quarter, the Company reviewed its note receivable
portfolio in light of the possible onset of a recession. The overall portfolio
has $245.6 million of loans, of which $144.4 million are consumer notes relating
to purchases of VOIs in the Company's own resorts ("Consumer Notes"), while the
balance relate to third party consumer notes ($97.0 million) or acquisition and
development loans ($4.2 million). The Company uses its "Target Reserve
Methodology" ("TRM") to determine the appropriate level of reserves for possible
defaults on its Consumer Notes. TRM applies target reserve percentages ranging
from 5% for all current notes to 95% for notes with payments 90 days past due
against actual aging of the note portfolio at any given time.(1)
At September 30, 2001 the Company's target under TRM for reserves on
Consumer Notes was $7.0 million, while actual reserves for this purpose were
$9.5 million, representing an actual reserve level of approximately 137% of
targets. Reserves of $9.5 million at September 30, 2001 were more than 580% of
the total of $1.6 million in Consumer Notes that were 90 days or more past due
at that time.
Total reserves and overcollateralization at September 30, 2001 of $32.3
million were 13.2% of the total loan portfolio (including both Consumer Notes
and third party notes), compared with $33.7 million or 12.1% at September 30,
2000. The Company also wrote off past due loans more aggressively in the third
quarter compared with the comparable period in 2000, resulting in a lower level
of nonperforming loans compared to the third quarter of 2000. Total 90 day past
due loans of the Company at September 30, 2001 were $2.6 million, or 1.0% of the
total portfolio, compared to $4.8 million or 1.7% of the portfolio at September
30, 2000. At September 30, 2001 total reserves and overcollateralization of
$32.3 million represented more than 1,200% coverage of the total volume of 90
day past due loans, compared to coverage of 700% at September 30, 2000. In
addition, the Company has reduced its portfolio of third party construction
loans from $20.1 million at September 30, 2000 to approximately $4.2 million at
September 30, 2001.
The TRM methodology has been employed for several years, and the
Company believes the target reserve levels required by this methodology have
provided ample reserve coverage to date. However, the Company does not have
significant data regarding the historic level of consumer note defaults during
economic downturns. Therefore, during the third quarter the Company added
approximately $4 million to its provisions for loan losses on Consumer Notes.
This represents approximately the amount of write-offs against reserves that
would occur if the Company experienced an entire year of consumer note defaults
at a rate of 125% of the average annual rate of note defaults over the last
decade. In addition, the Company anticipates continuing a heightened level of
provisioning over the next several quarters compared with levels during 2000 or
the first half of 2001, though current loan loss provisions are already
significantly in excess of the amount of note defaults that would otherwise be
expected at average historic levels.
- --------
(1) At September 30, 2001 the Company also held $97.0 million in notes relating
to consumer purchases of VOIs in third party resorts. The Company has the
right to require each independent developer to repurchase all defaulted
notes, and in addition the Company holds reserves specific to each
developer.
4
The Company's main liquidity facility for financing consumer notes is a
5-year committed $150 million facility with limited recourse to the Company. At
September 30, 2001 the Company had total outstanding notes under this facility
of $131.5 million. Given the relative stability of the aggregate size of the
portfolio, the Company expects this line to be adequate in size to its needs for
the foreseeable future, although the Company and its lender are discussing a
possible expansion of this facility. The Company is also free to securitize or
otherwise sell consumer notes out of the facility, without contracting the size
of the facility. To date the Company has not found any such alternative to be
cost-effective compared to use of the existing facility.
As previously reported, during the third quarter CapitalSource Finance
LLC purchased approximately $35 million of debt of the Company to CS First
Boston, thereby extinguishing all remaining debt to CS First Boston
approximately five months prior to its maturity. Approximately $24.5 million of
the new CapitalSource debt matures in August 2005, while approximately $7
million of CapitalSource debt matures in August of 2004. The Company will
receive a 5% discount on repayment of each individual CapitalSource loan,
subject to certain conditions the Company expects to satisfy.
In November 1999 the Company borrowed $20.7 million from the Bank of
America, N.A., to finance the cash portion of the purchase price of an
acquisition. At September 30, 2001, the remaining balance on this loan was $13.6
million, which amount is due in February 2003. The Company made a mandatory $1
million principal payment prior to its due date on November 1, 2001, and has
already paid $0.9 million of an additional $2.5 million principal payment due in
February 2002. The Company anticipates completing the February 2002 payments due
to Bank of America, as well as all other scheduled principal amortization and
interest payments.
CERTAIN STATEMENTS IN THIS PRESS RELEASE ARE FORWARD-LOOKING. THEY 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 OR INDEBTEDNESS, INABILITY OF
DEVELOPERS TO HONOR REPLACEMENT OBLIGATIONS FOR DEFAULTED CONSUMER NOTES, AND
COMPETITION FROM ORGANIZATIONS WITH GREATER FINANCIAL RESOURCES.
For Information Contact:
Gerald L. Klaben, Jr., Chief Financial Officer (203) 618-0065
5
EQUIVEST FINANCE, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
Sept. 30, 2001 December 31, 2000
--------------- -----------------
ASSETS (Unaudited)
-----------
- --------------------------------------------------------------------------
Cash and cash equivalents $ 1,950 $ 4,805
Receivables, net 239,411 258,950
Inventory 87,194 95,578
Property and equipment, net 21,013 21,580
Goodwill, net 42,835 44,109
Other assets 13,352 11,952
------------------- --------------------
Total Assets $ 405,755 $ 436,974
=================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------
LIABILITIES
Accounts Payable and Other Liabilities:
Accounts payable $ 5,979 $ 9,624
Accrued expenses and other liabilities 27,063 23,194
Income Taxes 31,449 29,975
------------------- --------------------
Total Accounts Payable and Other Liabilities 64,491 62,793
------------------- --------------------
Notes payable 248,669 288,375
------------------- --------------------
Total Liabilities 313,160 351,168
------------------- --------------------
STOCKHOLDERS' EQUITY
Cumulative Redeemable Preferred Stock--Series 2
Class A, $3 par value; 15,000 shares authorized,
11,650 and 10,000 shares issued and outstanding at
September 30, 2001 and December 31, 2000,
respectively
35 30
Common Stock, $.01 par value; 50,000,000 shares
authorized, 28,377,870 and 28,089,722 shares issued
and outstanding at September 30, 2001 and December
31, 2000, respectively 284 281
Additional paid-in capital 64,202 62,246
Retained earnings 28,074 23,249
------------------- --------------------
Total Stockholders' Equity 92,595 85,806
------------------- --------------------
Total Liabilities and Stockholders' Equity $ 405,755 $ 436,974
=================== ====================
6
EQUIVEST FINANCE, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
Three months ended Nine months ended
September 30, September 30,
2001 2000 (1) 2001 2000 (1)
---- -------- ---- --------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Timeshare interval sales $ 19,010 $ 31,086 $ 49,708 $ 77,400
Interest 8,739 9,891 27,126 28,677
Resort operations 4,652 4,793 14,770 14,830
Other income 228 481 685 1,649
---------------- ---------------- ---------------- ----------------
Total revenues 32,629 46,251 92,289 122,556
Expenses:
Provision for doubtful accounts 4,265 2,451 7,521 6,141
Interest 4,134 6,550 14,704 19,144
Cost of timeshare intervals sold 4,626 7,598 11,568 18,551
Depreciation and amortization 1,226 1,195 3,518 3,562
Sales and marketing 9,978 16,434 24,665 42,354
Resort management 3,831 3,058 9,574 9,251
Loss on sale of asset 241 --- 696 ---
General and administrative 3,178 2,760 8,818 8,488
---------------- ---------------- ---------------- ----------------
Total expenses 31,479 40,046 81,064 107,491
---------------- ---------------- ---------------- ----------------
Income before provision for taxes 1,150 6,205 11,225 15,065
Provision for income taxes 525 2,675 4,750 6,400
---------------- ---------------- ---------------- ----------------
Net income $ 625 $ 3,530 $ 6,475 $ 8,665
================ ================ ================ ================
Basic earnings per share $ 0.02 $ 0.12 $ 0.21 $ 0.29
Diluted earnings per share $ 0.02 $ 0.12 $ 0.21 $ 0.29
(1) Certain amounts from prior year have been reclassified to conform to
current year classifications
7
EQUIVEST FINANCE, INC. and SUBSIDIARIES
Selected Financial Data
Three months ended Nine months ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
As a percentage of total revenues:
Timeshare interval sales 58.2 % 67.2 % 53.8 % 63.2 %
Interest 26.8 % 21.4 % 29.4 % 23.4 %
Resort operations 14.3 % 10.5 % 16.0 % 12.2 %
Other income 0.7 % 0.9 % 0.8 % 1.2 %
--------------- --------------- -------------- ------------------
Total revenues 100.0 % 100.0 % 100.0 % 100.0 %
Expenses:
As a percentage of VOI sales:
Cost of timeshare intervals sold 24.3 % 24.4 % 23.3 % 24.0 %
Sales and marketing 52.5 % 52.9 % 49.6 % 54.7 %
Provision for doubtful accounts (1) 21.7 % 7.9 % 14.3 % 7.9 %
As a percentage of interest income:
Interest 47.3 % 66.2 % 54.2 % 66.8 %
As a percentage of resort operations:
Resort management 82.4 % 63.8 % 64.8 % 62.4 %
As a percentage of total revenues:
Provision for doubtful accounts (2) 0.4 % 0.0 % 0.4 % 0.0 %
Depreciation and amortization 3.8 % 2.6 % 3.8 % 2.9 %
General and administrative 9.7 % 6.0 % 9.6 % 6.9 %
--------------- --------------- -------------- ------------------
Total expenses 96.5 % 86.6 % 87.8 % 87.7 %
--------------- --------------- -------------- ------------------
Income before taxes 3.5 % 13.4 % 12.2 % 12.3 %
Provision for income taxes 1.6 % 5.8 % 5.1 % 5.2 %
--------------- --------------- -------------- ------------------
Net income 1.9 % 7.6 % 7.1 % 7.1 %
(1) Based on provision for doubtful receivables recorded on timeshare
development.
(2) Based on provision for doubtful receivables recorded on timeshare
financing.
8
EQUIVEST FINANCE, INC. and SUBSIDIARIES
Selected Financial Data
(Dollars in thousands)
September 30, September 30,
2001 2000
---- ----
A&D loans $ 4,184 $ 20,097
Purchased receivables 65,584 81,562
Hypothecation loans 26,793 26,703
Consumer loans, owned 144,433 146,812
Other loans 4,627 2,855
----------------- -----------------
Total loans outstanding $ 245,621 $ 278,029
Specific reserves $ 15,255 $ 17,577
General reserves 10,376 10,176
Overcollateralization 6,713 5,955
----------------- -----------------
Total reserves and overcollateralization $ 32,344 $ 33,708
Total reserves and overcollateralization as
% of total loans 13.2% 12.1%
Chargebacks 4,735 4,488
Chargebacks as % of Consumer Financings (1) 5.1% 4.1%
Allowance for doubtful accounts, beginning of year
$ 11,763 $ 10,073
Provision for loan losses 7,521 6,141
Allowance related to an acquisition -0- 501
Charges to allowance for doubtful accounts (8,908) (6,539)
Charges against specific developer reserves -0- -0-
----------------- -----------------
Allowance for doubtful accounts, end of period $ 10,376 $ 10,176
(1) Consumer Financing includes purchased receivables and hypothecation loans.
9
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: November 15, 2001 By: /S/GERALD L. KLABEN, JR.
----------------------------------
Name: GERALD L. KLABEN, JR.
Title: SENIOR VICE PRESIDENT & CFO
10