Provides Guidance for Full Year 2013
Diamond Resorts International, Inc. (NYSE:DRII) (“Diamond” or
the “Company”), today announced results for the quarter ended
September 30, 2013.
“We are very pleased to report a record third quarter, as our
unique business model delivered strong operating performance,
underscoring the advantages of our asset light, integrated
hospitality platform,” stated David F. Palmer, President and Chief
Executive Officer. “As we look to the remainder of the year and
2014, we remain confident that our hospitality-oriented approach to
our business and our value proposition for consumers and HOAs
position us to produce strong future results and shareholder
value.”
Third Quarter 2013 Highlights
- Total revenue increased $48.9 million,
or 34.3%, to $191.6 million for the three months ended September
30, 2013 from $142.7 million for the three months ended September
30, 2012.
- Hospitality and Management Services
revenue grew by $4.8 million, or 12.1%, for the three months ended
September 30, 2013 compared to the three months ended September 30,
2012. This growth was driven mainly by increased management fees as
a result of the inclusion of the managed properties from the Island
One and PMR Service Companies acquisitions (both completed in July
2013) and increased club revenues.
- Vacation Interest sales, net grew by
$40.4 million, or 48.5%, for the third quarter of 2013 compared to
the same period in 2012. This growth was driven by a:
- 8.3% increase in tours to 56,822 from
52,474
- 9.1% increase in transactions to 8,342
from 7,647 (reflecting closing percentages of 14.7% for the 2013
period and 14.6% for the 2012 period)
- 36.0% increase in average transaction
price to $16,881 from $12,414
- Advertising, sales and marketing
expense for the quarter included a non-cash charge of $2.0 million
related to the IPO. Excluding this charge, advertising, sales and
marketing as a percentage of Vacation Interest sales revenue
decreased 5.3 percentage points to 50.0%, from 55.3% in the 2012
period. The non-cash charge related to stock-based compensation was
recognized in the three months ended September 30, 2013. Giving
effect to this charge, advertising, sales and marketing as a
percentage Vacation Interest sales revenue was 51.4%. This
improvement was primarily due to improved leverage of fixed costs
through increased sales efficiencies.
- The pre-tax loss for the quarter
included non-cash items netting to $49.1 million related to the IPO
and related transactions. Excluding these items, pre-tax income
would have increased $26.4 million to $15.2 million for the three
months ended September 30, 2013 from a pre-tax loss of $11.3
million for the three months ended September 30, 2012. The non-cash
items were charges related to stock-based compensation of $38.5
million and early extinguishment of debt of $13.4 million, offset
in part by a gain on bargain purchase of $2.8 million, each
recognized in the three months ended September 30, 2013. Giving
effect to these items, the pre-tax loss was $34.0 million for the
three months ended September 30, 2013.
- Net cash used by operations for the
three months ended September 30, 2013 was $13.0 million, reflecting
$43.8 million, net of repayments, from the buildup of receivables
which will be included in future securitizations.
- Adjusted EBITDA for the Company and its
Restricted Subsidiaries increased $21.8 million, or 56.5%, to $60.6
million for the period from $38.8 million for the three months
ended September 30, 2012. This is based on Adjusted EBITDA for the
Company on a consolidated basis of $60.4 million for the three
months ended September 30, 2013 and $32.3 million for the three
months ended September 30, 2012.
Third Quarter Earnings Summary
Hospitality and Management
Services
Total management and member services revenue in our Hospitality
and Management Services segment increased $3.6 million, or 12.0%,
to $33.6 million for the three months ended September 30, 2013 from
$30.0 million for the three months ended September 30, 2012.
Management fees increased as a result of the inclusion of the
managed properties from our acquisitions of Island One and the PMR
Service Companies (both completed in July 2013) for the three
months ended September 30, 2013. We also experienced higher club
revenues due to increased membership dues, higher collection rate
and higher club member count in the three months ended September
30, 2013 compared to the three months ended September 30, 2012. We
had a total of 183,110 and 154,987 club members as of September 30,
2013 and 2012, respectively. These increases were partially offset
by the reduction in commissions earned on fee-for-service
agreements with Island One which were terminated in conjunction
with the Island One acquisition on July 24, 2013.
Other revenue in our Hospitality and Management Services segment
increased $0.2 million to $1.2 million for the three months ended
September 30, 2013 from $1.0 million for the three months ended
September 30, 2012.
Management and member services expense increased $0.5 million,
or 6.2%, to $9.4 million for the three months ended September 30,
2013 from $8.9 million for the three months ended September 30,
2012. The increase was primarily attributable to higher operating
expense associated with higher club member count and higher
operating costs at the resorts that we manage. The above increases
were partially offset by a reduction in the costs incurred under
the fee-for-service agreements with Island One that terminated in
conjunction with the Island One acquisition and an increase in the
allocation of certain resort management expenses to the HOAs that
we manage. Management and member services expense as a percentage
of management and member services revenue decreased to 28.0% for
the three months ended September 30, 2013 from 29.5% for the three
months ended September 30, 2012.
Vacation Interest Sales and Financing
Vacation Interest sales, net, increased $40.4 million, or 48.5%,
to $123.7 million for the three months ended September 30, 2013
from $83.3 million for the three months ended September 30, 2012.
The increase in Vacation Interest sales, net, was attributable to a
$48.0 million increase in Vacation Interest sales revenue,
partially offset by a $7.6 million increase in our provision for
uncollectible Vacation Interest sales revenue. The $48.0 million
increase in Vacation Interest sales revenue during the three months
ended September 30, 2013 compared to the three months ended
September 30, 2012 was generated by sales growth on a same-store
basis from 47 sales centers due to an increase in the number of
transactions and a higher average sales price per transaction.
During the quarter, the Company closed two low performing off-site
sales centers, which will enable us to increase sales efficiencies.
Our total number of tours increased to 56,822 for the three months
ended September 30, 2013 from 52,474 for the three months ended
September 30, 2012, primarily due to an increase in the number of
tours generated on a same-store basis resulting from the expansion
of our lead-generation and marketing programs. We closed a total of
8,342 Vacation Interest sales transactions during the three months
ended September 30, 2013, compared to 7,647 transactions during the
three months ended September 30, 2012. Our closing percentage
(which represents the percentage of Vacation Interest sales closed
relative to the total number of sales presentations at our sales
centers during the period presented) increased slightly to 14.7%
for the three months ended September 30, 2013 from 14.6% for the
three months ended September 30, 2012. Vacation Interest sales
price per transaction increased to $16,881 for the three months
ended September 30, 2013 from $12,414 for the three months ended
September 30, 2012 due principally to a change in our selling
strategy to focus on selling larger point packages and the success
of the sales and marketing initiatives implemented in furtherance
of this strategy.
Sales incentives increased $1.2 million, or 53.8%, to $3.6
million for the three months ended September 30, 2013 from $2.4
million for the three months ended September 30, 2012. As a
percentage of gross Vacation Interest sales revenue, sales
incentives were 2.6% for both the three months ended September 30,
2013 and the three months ended September 30, 2012.
Provision for uncollectible Vacation Interest sales revenue
increased $7.6 million, or 120.7%, to $13.9 million for the three
months ended September 30, 2013 from $6.3 million for the three
months ended September 30, 2012, primarily due to the increase in
Vacation Interest sales revenue and an increase in the percentage
of financed Vacation Interest sales for the three months ended
September 30, 2013 as compared to the three months ended September
30, 2012.
Advertising, sales and marketing costs as a percentage of
Vacation Interest sales revenue, were 51.4% for the three months
ended September 30, 2013, compared to 55.3% for the three months
ended September 30, 2012. Advertising, sales and marketing expense
includes a charge of $2.0 million for stock-based compensation
related to option grants made at the time of the IPO. Without this
non-cash charge, advertising, sales and marketing as a percentage
of gross Vacation Interest sales revenue would have been 50.0%, a
decrease of 5.3 percentage points from the prior year period. The
decrease of such costs as a percentage of Vacation Interest sales
revenue was primarily due to improved absorption of fixed costs
through increased sales efficiencies.
Vacation Interest cost of sales related to our Vacation Interest
Sales and Financing Segment increased $1.8 million, or 10.9%, to
$18.6 million for the three months ended September 30, 2013 from
$16.8 million for the three months ended September 30, 2012.
Vacation Interest cost of sales as a percentage of Vacation
Interest revenue decreased to 13.5% for the three months ended
September 30, 2013 from 18.7% for the three months ended September
30, 2012. The decrease was primarily due to an increase in low-cost
inventory added during the third quarter of 2013 as compared to the
third quarter of 2012, primarily as a result of our inventory
recovery agreements and the Island One acquisition.
Corporate General and Administrative Expense
General and administrative expense for the quarter included a
non-cash charge of $35.4 million related to the IPO. Excluding this
charge, general and administrative expense would have decreased
$2.3 million, or 8.1%, to $25.7 million for the three months ended
September 30, 2013 from $28.0 million for the three months ended
September 30, 2012. This decrease was due to lower legal and
professional expenses after the integration of the Pacific Monarch
Resorts acquisition and higher allocation of our expenses to the
HOAs and the Collections, partially offset by higher payroll
expense to support operations acquired in connection with the
Island One acquisition and the PMR Service Companies
acquisition.
The $35.4 million non-cash charge noted above relates to
stock-based compensation recognized in the three months ended
September 30, 2013 due to the issuance of 6.4 million stock options
by Diamond in connection with the IPO. Giving effect to this
charge, general administrative expense as reported was $61.1
million for the three months ended September 30, 2013.
Pre-tax Income/Loss and Net Loss
The pre-tax loss for the quarter included non-cash items netting
to $49.1 million related to the IPO and related transactions.
Excluding these items, pre-tax income would have increased $26.4
million to $15.2 million for the three months ended September 30,
2013 from a pre-tax loss of $11.3 million for the three months
ended September 30, 2012.
The non-cash items were charges related to stock-based
compensation of $38.5 million and early extinguishment of debt of
$13.4 million, offset in part by a gain on bargain purchase of $2.8
million, each recognized in the three months ended September 30,
2013. Giving effect to these items, the pre-tax loss was $34.0
million for the three months ended September 30, 2013.
Net loss increased $14.7 million to $26.3 million for the three
months ended September 30, 2013 from $11.6 million for the three
months ended September 30, 2012.
Capital Resources and Liquidity
As of September 30, 2013, we had cash and cash equivalents of
$29.9 million and total indebtedness of $735.6 million (which
included approximately $386.0 million of corporate debt and
approximately $349.6 million of non-recourse debt). Our cash used
in operating activities was $13.0 million for the three months
ended September 30, 2013, compared to cash provided by operating
activities of $5.3 million for the three months ended September 30,
2012. Capital expenditures for the three months ended September 30,
2013 were $4.3 million, a decrease of $0.9 million from $5.2
million for the three months ended September 30, 2012. Cash
expenditures for the acquisition of the PMR Service Companies
during the three months ended September 30, 2013 were $47.8
million.
The indenture governing our 12% senior secured notes due 2018
includes covenants which are determined by reference to the
Adjusted EBITDA of Diamond and its “restricted subsidiaries.”
Adjusted EBITDA, as defined in the indenture, was $60.6 million for
the three months ended September 30, 2013. The calculation of
Adjusted EBITDA in accordance with the indenture is detailed in the
table below:
Quarter Ended
September 30,
2013 2012 ($ in thousands) Net cash used in
operating activities $ (12,981 ) $ (5,251 ) (Benefit) provision for
income taxes (7,626 ) 340
Provision for uncollectible Vacation
Interest sales revenue(a)
(13,851 ) (6,276 )
Amortization of capitalized financing
costs and original issue discounts(a)
(1,804 ) (1,660 ) Deferred income taxes(b) 8,040 159 Gain on
foreign currency (c) 3 154 Gain on mortgage purchase(a) 33 7
Unrealized loss on derivative instruments(d) (657 ) — Corporate
interest expense(e) 16,658 20,254
Change in operating assets and liabilities
excluding acquisitions(f)
53,983 7,797 Vacation interest cost of sales(g) 18,605
16,778 Adjusted EBITDA - Consolidated 60,403 32,302 Less:
Adjusted EBITDA - Unrestricted Subsidiaries(h) 7,917 756 Plus:
Intercompany elimination(i) 8,099 7,172 Adjusted
EBITDA - Diamond and Restricted Subsidiaries $ 60,585 $
38,718 (a) Represents non-cash charge or gain. (b)
Represents the deferred income tax liability arising from the
difference between the treatment for financial reporting purposes
as compared to income tax return purposes, primarily related to the
Island One acquisition. (c) Represents net realized gains on
foreign exchange transactions settled at favorable exchange rates
and unrealized net gains resulting from the revaluation of foreign
currency-denominated assets and liabilities. (d) Represents the
effects of the changes in mark-to-market valuations of derivative
liabilities. (e) Represents corporate interest expense; does not
include interest expense related to non-recourse indebtedness
incurred by our special-purpose subsidiaries that is secured by our
Vacation Interest consumer loans. (f) Represents the net change in
operating assets and liabilities excluding acquisitions, as
computed directly from the statements of cash flows. Vacation
Interest cost of sales is included in the net changes in unsold
Vacation Interests, net, as presented in the statements of cash
flows. (g) We record Vacation Interest cost of sales using the
relative sales value method in accordance with ASC 978,
"Real-estate Time-Sharing Activities," which requires us to make
significant estimates which are subject to significant uncertainty.
In determining the appropriate amount of costs using the relative
sales value method, we rely on complex, multi-year financial models
that incorporate a variety of estimated inputs. These models are
reviewed on a regular basis, and the relevant estimates used in the
models are revised based upon historical results and management's
new estimates. (h) Represents the Adjusted EBITDA of unrestricted
subsidiaries as defined in, and calculated in accordance with our
12% senior secured notes. (i) Represents the elimination of
revenues and expenses related to agreements entered into between
our restricted and unrestricted subsidiaries. The agreements
include service agreements for sales and marketing management
(terminated on July 24, 2013), resort management, reservation
services and portfolio management, whereby certain restricted
subsidiaries operate these functions on behalf of the unrestricted
subsidiaries for a fee. In addition to these service agreements, we
have also entered into intercompany sales agreements, whereby
certain restricted subsidiaries purchase unsold Vacation Interests
from unrestricted subsidiaries.
Outlook
For the full year ending December 31, 2013, the Company is
providing the following guidance for its expected operating
results:
Year Ending December 31,
2013
($ in thousands)
Low High Pre-tax income
(loss) $ (11,700 ) $
5,500
Corporate interest expense $ 70,100 $ 69,600 Vacation interest cost
of sales(a) $ 70,000 $ 61,600 Depreciation and amortization $
28,600 $ 27,600 Other non-cash items(b) $ 55,400 $ 54,400
For the year ending December 31, 2013, the Company anticipates
cash expenditures for the acquisition of inventory, excluding
inventory from acquisitions, to be between $25.0 million and $30.0
million, including inventory acquired pursuant to the company’s
inventory recovery agreements and excluding construction in
progress related to the lobby and other common areas at the
Company’s Cabo Azul resort. In addition, the company anticipates
capital expenditures(c) to be between $15.0 million and $17.0
million.
(a) In accordance with ASC 978, the Company records Vacation
Interest Cost of Sales using the relative sales value method (See
Note 2 - Summary of Significant Accounting Policies in the Annual
Report on Form 10-K for the year ended December 31, 2012 of Diamond
Resorts Corporation). This method requires the Company to make a
number of projections and estimates, which are subject to
significant uncertainty and retroactive adjustment in the future
periods. These "true-up" adjustments may result, and for the
Company have resulted in prior periods, in major swings (both
positive and negative) in the Company's pre-tax income computed in
accordance with US GAAP that do not have a direct correlation to
the operating performance for the periods in which the "true-ups"
are made. It is difficult to predict with any degree of precision
what the projections and estimates used in connection with the
relative sales value method will be and what impact those
projections and estimates will have on the amount recorded in
future periods as Vacation Interest Cost of Sales. As a result,
guidance for Vacation Interest Cost of Sales (and as a result,
pre-tax income) covers a wide range of outcomes. (b) Other non-cash
items include: stock based compensation, loss on extinguishment of
debt, impairments and other write-offs, gain on disposal of assets,
gain on bargain purchase from business combinations, amortization
of loan origination costs, and amortization of net portfolio
(discounts) premiums. (c) Principally for IT infrastructure and
sales center expansion/refurbishment. This does not include
expenditures for the acquisition of inventory, or resort-level
capital improvements which are paid by the homeowners associations.
Third Quarter 2013 Earnings Call
The company will be conducting a conference call to discuss the
second quarter financial results at 10:00 a.m. Eastern Time on
October 31, 2013, available via webcast on the Company's website at
http://www.diamondresorts.com/corporate/about/investor/earnings.html.
A webcast replay will become available within 2 hours of the call
and will run for approximately one year on the Company’s website.
Alternatively, participants may call into (866) 562-5561 from the
United States, or (706) 679-1894 from outside the U.S. with
conference ID 86342767; please dial in fifteen minutes early to
ensure a timely start. A call replay will be available from 12:00
p.m. Eastern Time on October 31, 2013 through November 7, 2013 and
can be accessed by dialing (800) 585-8367 with conference ID
86342767.
Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements,
including the guidance for expected operating results presented
under “Outlook” above and other statements regarding the current
expectations of Diamond Resorts International, Inc. (the “Company”)
about its prospects and opportunities. These forward-looking
statements are covered by the "Safe Harbor for Forward-Looking
Statements" provided by the Private Securities Litigation Reform
Act of 1995. The Company has tried to identify these forward
looking statements by using words such as “expect,” “anticipate,”
“estimate,” “plan,” “will,” “would,” “should,” “could,” “forecast,”
“believe,” “guidance,” “projection,” “target” or similar
expressions, but these words are not the exclusive means for
identifying such statements. The Company cautions that a number of
risks, uncertainties and other factors could cause the Company's
actual results to differ materially from those expressed in, or
implied by, the forward-looking statements, including, without
limitation, adverse trends or disruptions in economic conditions
generally or in the vacation ownership, vacation rental and travel
industries; adverse changes to, or interruptions in, relationships
with the Company's affiliates and other third parties, including
termination of the Company's hospitality management contracts; the
Company's ability to maintain an optimal inventory of vacation
ownership interests for sale; the Company's ability to sell,
securitize or borrow against its consumer loans; decreased demand
from prospective purchasers of Vacation Interests; adverse events
or trends in vacation destinations and regions where the resorts in
our network are located; changes in the Company's senior
management; the Company's ability to comply with regulations
applicable to the vacation ownership industry; the effects of the
Company's indebtedness and its compliance with the terms thereof;
the Company's ability to successfully implement its growth
strategy; and the Company's ability to compete effectively. For a
detailed discussion of factors that could affect the Company's
future operating results, please see the Company's filings with the
Securities and Exchange Commission, including the disclosures under
“Risk Factors” in those filings. Except as expressly required by
the federal securities laws, the Company undertakes no obligation
to update or revise any forward-looking statements, whether as a
result of new information, changed circumstances or future events
or for any other reason.
ABOUT DIAMOND RESORTS INTERNATIONAL®
Diamond Resorts International®, with its network of 306 vacation
destinations located in 33 countries throughout the continental
United States, Hawaii, Canada, Mexico, the Caribbean, South
America, Central America, Europe, Asia, Australia and Africa
provides guests with choices and flexibility as they design their
dream vacation, whether they're traveling an hour away or around
the world. Our hassle-free, relaxing vacations give guests a truly
memorable experience every time, for a lifetime.
Diamond Resorts International® owns, operates and manages
vacation ownership resorts and, through resort and partner
affiliation agreements, provides members and owners with access to
92 managed resorts, 162 affiliated resorts, 48 affiliated hotels
and four cruise itineraries through THE Club® at Diamond Resorts
International®. To learn more, visit Diamondresorts.com.
Basis of Presentation
On July 24, 2013, Diamond closed the initial public offering
(“IPO”) of its common stock. Prior to the consummation of the
initial public offering, Diamond was a newly-formed Delaware
corporation that had not conducted any activities other than those
incident to its formation and other actions in connection with the
IPO. Diamond was formed for the purpose of changing the
organizational structure of Diamond Resorts Parent, LLC (“DRP”)
from a limited liability company to a corporation. Immediately
prior to the consummation of the IPO, DRP was the sole stockholder
of Diamond. In connection with, and immediately prior to the
completion of the IPO, various reorganization transactions were
effected ultimately with DRP merging with and into Diamond. See
“Organizational Structure-Reorganization Transactions” in the
Registration Statement on Form S-1 filed by Diamond with the
Securities and Exchange Commission for additional information
concerning these reorganization transactions. References in this
press release to “Diamond,” “the Company,” ”DRII,” “we,” “us” and
“our,” refer to Diamond Resorts International, Inc. and its
subsidiaries, after giving effect to those reorganization
transactions, and our consolidated financial statements and other
historical financial data included in this press release for
periods prior to July 24, 2013 are those of DRP and its
subsidiaries after giving effect to the reorganization
transactions.
Presentation of Certain Financial Metrics
We believe supplementing our consolidated financial statements
presented in accordance with U.S. GAAP with non-U.S. GAAP measures
provides investors with useful information regarding our liquidity
and short-term and long-term trends.
We define Adjusted EBITDA as our net income (loss), plus: (i)
corporate interest expense; (ii) provision (benefit) for income
taxes; (iii) depreciation and amortization; (iv) Vacation Interest
cost of sales; (v) loss on extinguishment of debt; (vi) impairments
and other non-cash write-offs; (vii) loss on the disposal of
assets; (viii) amortization of loan origination costs; (ix)
amortization of net portfolio premiums; and (x) stock-based
compensation; less (a) gain on the disposal of assets; (b) gain on
bargain purchase from business combination; and (c) amortization of
net portfolio discounts. Adjusted EBITDA is a non-U.S. GAAP
financial measure and should not be considered in isolation, or as
an alternative to net cash provided by operating activities or any
other measure of liquidity, or as an alternative to net income
(loss), operating income (loss) or any other measure of financial
performance, in each case calculated and presented in accordance
with U.S. GAAP. Additional information regarding our calculation of
Adjusted EBITDA is provided below.
We present Adjusted EBITDA primarily because, as indicated
above, the indenture governing our 12% senior secured notes due
2018 includes covenants which are determined by reference to the
Adjusted EBITDA of the Company and its “restricted subsidiaries,”
and other of our debt-related agreements include covenants that are
determined by reference to Adjusted EBITDA. As a result, we believe
that supplementing our consolidated financial statements presented
in accordance with US GAAP with this non-GAAP measure provides
investors with useful information with respect to our
liquidity.
In addition to its application under the Indenture for our
senior secured notes, our management uses Adjusted EBITDA: (i) for
planning purposes, including the preparation of our annual
operating budget; (ii) to allocate resources to enhance the
financial performance of our business; (iii) to evaluate the
effectiveness of our business strategies and (iv) as a factor for
determining compensation for personnel employed by the Company.
We understand that, although measures similar to Adjusted EBITDA
are frequently used by investors and securities analysts in their
evaluation of companies, it has limitations as an analytical tool,
including:
- Adjusted EBITDA does not reflect our
cash expenditures or future requirements for capital expenditures
or Vacation Interest inventory;
- Adjusted EBITDA does not reflect
changes in, or cash requirements for, our working capital
needs;
- Adjusted EBITDA does not reflect cash
requirements for income taxes;
- Adjusted EBITDA does not reflect
interest expense for our corporate indebtedness;
- although depreciation and amortization
are non-cash charges, the assets being depreciated or amortized
will often have to be replaced, and Adjusted EBITDA does not
reflect any cash requirements for these replacements;
- we make expenditures to replenish
Vacation Interests inventory (principally pursuant to our inventory
recovery agreements and in connection with our strategic
acquisitions), and Adjusted EBITDA does not reflect our cash
requirements for these expenditures or certain costs of carrying
such inventory (which are capitalized); and
- other companies in our industry may
calculate Adjusted EBITDA differently than we do, limiting its
usefulness as a comparative measure.
See “Capital Resources and Liquidity” above for a reconciliation
of Adjusted EBITDA to Net cash used in operating activities.
We present pre-tax income excluding non-cash items netting to
$49.1 million for the third quarter of 2013 because management
excludes these items from its forecasts and evaluation of our
operational performance and because we believe that our pre-tax
loss including these items are not indicative of our core operating
results. We believe this is particularly the case because these
items relate to actions related to our IPO and related
transactions. The following is a reconciliation of our pre-tax
income excluding these non-cash items to our pre-tax loss for the
three months ended September 30, 2013:
Quarter
EndedSeptember 30,2013
($ in thousands) Loss before benefit for income taxes $ (33,935 )
Plus: Non-cash charge from stock-based compensation 38,495 Non-cash
charge from early extinguishment from of debt 13,383 Less: Gain on
bargain purchase (2,756 ) Income before provision for income taxes
excluding net non-cash items $ 15,187
To properly and prudently evaluate our business, we encourage
you to review our U.S. GAAP consolidated financial statements
included in this press release, and not to rely on any single
financial measure to evaluate our business. The non-U.S. GAAP
financial measures included in this press release should not be
considered in isolation, or as an alternative to net cash provided
by operating activities or any other measure of liquidity, or as an
alternative to net income (loss), operating income (loss) or any
other measure of financial performance, in any such case calculated
and presented in accordance with U.S. GAAP.
Segment Reporting
The Company presents its results of operations in two segments:
(i) Hospitality and Management Services, which includes operations
related to the management of resort properties and the Collections,
revenue from club operations and the provision of other services;
and (ii) Vacation Interest Sales and Financing, which includes
operations relating to the marketing and sales of Vacation
Interests, as well as the consumer financing activities related to
such sales. While certain line items reflected on the statement of
operations and comprehensive income (loss) fall completely into one
of these business segments, other line items relate to revenues or
expenses which are applicable to more than one segment. For line
items that are applicable to more than one segment, revenues or
expenses are allocated by management, which involves significant
estimates. Certain expense items (principally corporate interest
expense and depreciation and amortization) are not, in management's
view, allocable to either of these business segments as they apply
to the entire Company. In addition, general and administrative
expenses are not allocated to either of these business segments
because, historically, management has not allocated these expenses
for purposes of evaluating the Company's different operational
divisions. Accordingly, these expenses are presented under
Corporate and Other.
DIAMOND RESORTS INTERNATIONAL, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
BY BUSINESS SEGMENTFor the Quarters Ended September 30, 2013
and 2012(In thousands)(Unaudited)
Quarter Ended September 30,
2013
Quarter Ended September 30,
2012
Hospitality
andManagement
Services
VacationInterest Salesand
Financing
CorporateandOther
Total
Hospitality
andManagementServices
VacationInterest Salesand
Financing
CorporateandOther
Total Revenues: Management and member services
$ 33,610 $ — $ — $ 33,610 $ 29,999 $ — $ — $ 29,999 Consolidated
resort operations 9,326 — — 9,326 8,361 — — 8,361
Vacation Interest sales, net of provision
of $0, $13,851, $0, $13,851, $0, $6,276, $0 and $6,276,
respectively
— 123,708 — 123,708 — 83,318 — 83,318 Interest — 13,971 326 14,297
— 12,551 335 12,886 Other 1,227 9,434 — 10,661
1,019 7,129 — 8,148 Total
revenues 44,163 147,113 326 191,602
39,379 102,998 335 142,712
Costs and
Expenses: Management and member services 9,408 — — 9,408 8,862
— — 8,862 Consolidated resort operations 9,602 — — 9,602 7,314 — —
7,314 Vacation Interest cost of sales — 18,605 — 18,605 — 16,778 —
16,778 Advertising, sales and marketing — 70,714 — 70,714 — 49,554
— 49,554 Vacation Interest carrying cost, net — 10,154 — 10,154 —
8,226 — 8,226 Loan portfolio 278 2,018 — 2,296 189 2,257 — 2,446
Other operating — 3,912 — 3,912 — 2,454 — 2,454 General and
administrative — — 61,114 61,114 — — 27,976 27,976 Depreciation and
amortization — — 7,583 7,583 — — 5,205 5,205 Interest — 4,267
16,658 20,925 — 4,554 20,254 24,808 Loss on extinguishment of debt
— — 13,383 13,383 — — — — Impairments and other write-offs — —
1,200 1,200 — — 401 401 Gain on disposal of assets — — (585 ) (585
) — — (122 ) (122 )
(Gain) adjustment on bargain purchase from
business combinations
— — (2,756 ) (2,756 ) — — 115
115 Total costs and expenses 19,288 109,670
96,597 225,555 16,365 83,823 53,829
154,017 Income (loss) before (benefit) provision for
income taxes 24,875 37,443 (96,271 ) (33,953 ) 23,014 19,175
(53,494 ) (11,305 ) (Benefit) provision for income taxes — —
(7,626 ) (7,626 ) — — 340 340
Net income (loss) $ 24,875 $ 37,443 $ (88,645 ) $
(26,327 ) $ 23,014 $ 19,175 $ (53,834 ) $ (11,645 )
DIAMOND RESORTS INTERNATIONAL, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
BY BUSINESS SEGMENTFor the Nine Months Ended September 30,
2013 and 2012(In thousands)(Unaudited)
Nine Months Ended September 30,
2013
Nine Months Ended September 30,
2012
Hospitality
andManagementServices
VacationInterest Salesand
Financing
CorporateandOther
Total
Hospitality
andManagementServices
VacationInterest Salesand
Financing
CorporateandOther
Total Revenues: Management and member services
$ 96,304 $ — $ — $ 96,304 $ 85,574 $ — $ — $ 85,574 Consolidated
resort operations 26,465 — — 26,465 25,522 — — 25,522
Vacation Interest sales, net of provision
of $0, $29,731, $0, $29,731, $0, $16,093, $0 and $16,093,
respectively
— 325,815 — 325,815 — 202,764 — 202,764 Interest — 40,021 1,138
41,159 — 38,015 1,039 39,054 Other 7,535 21,649 —
29,184 3,835 16,357 — 20,192
Total revenues 130,304 387,485 1,138
518,927 114,931 257,136 1,039 373,106
Costs and Expenses: Management and member services
27,952 — — 27,952 25,597 — — 25,597 Consolidated resort operations
26,169 — — 26,169 22,620 — — 22,620 Vacation Interest cost of sales
— 45,451 — 45,451 — 17,175 — 17,175 Advertising, sales and
marketing — 181,668 — 181,668 — 124,591 — 124,591 Vacation Interest
carrying cost, net — 29,141 — 29,141 — 26,674 — 26,674 Loan
portfolio 782 6,773 — 7,555 631 6,549 — 7,180 Other operating —
6,518 — 6,518 — 5,419 — 5,419 General and administrative — —
105,612 105,612 — — 70,937 70,937 Depreciation and amortization — —
19,912 19,912 — — 13,379 13,379 Interest — 12,451 58,110 70,561 —
14,240 55,718 69,958 Loss on extinguishment of debt — — 13,383
13,383 — — — — Impairments and other write-offs — — 1,279 1,279 — —
390 390 Gain on disposal of assets — — (673 ) (673 ) — — (218 )
(218 )
Gain on bargain purchase from business
combinations
— — (2,726 ) (2,726 ) — — (22,634 )
(22,634 ) Total costs and expenses 54,903 282,002
194,897 531,802 48,848 194,648 117,572
361,068 Income (loss) before benefit for income taxes
75,401 105,483 (193,759 ) (12,875 ) 66,083 62,488 (116,533 ) 12,038
Benefit for income taxes — — (6,777 ) (6,777 ) —
— (13,353 ) (13,353 ) Net income (loss) $ 75,401
$ 105,483 $ (186,982 ) $ (6,098 ) $ 66,083 $
62,488 $ (103,180 ) $ 25,391
Consolidating Financial Statements - Restricted and
Unrestricted Subsidiaries
The following consolidating financial statements present the
financial position, results of operations, and statements of cash
flow for (1) those subsidiaries of the Company which have been
designated "Unrestricted Subsidiaries" for purposes of the Senior
Secured Note Indenture; and (2) the Company and all of its other
subsidiaries. As of September 30, 2013 and December 31, 2012, the
Unrestricted Subsidiaries were FLRX Inc. and its subsidiaries, ILX
Acquisition Inc. and its subsidiaries, Tempus Acquisition, LLC and
its subsidiaries, DPM Acquisition, LLC and its subsidiaries and
Aegean Blue Holdings Plc and its subsidiaries. As of September 30,
2012, the Unrestricted Subsidiaries were FLRX Inc. and its
subsidiaries, ILX Acquisition Inc. and its subsidiaries, Tempus
Acquisition, LLC and its subsidiaries and DPM Acquisition, LLC and
its subsidiaries.
DIAMOND RESORTS INTERNATIONAL, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENTS OF
OPERATIONSFor the Quarters Ended September 30, 2013 and
2012(In thousands)(Unaudited)
Quarter Ended September 30,
2013
Quarter Ended September 30,
2012
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination
Total
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total Revenues: Management
and member services $ 31,851 $ 6,099 $ (4,340 ) $ 33,610 $ 29,772 $
4,220 $ (3,993 ) $ 29,999 Consolidated resort operations 8,216
1,110 — 9,326 7,262 1,099 — 8,361
Vacation Interest sales, net of provision
(adjustment) of $13,494, $357, $0, $13,851, $6,639, $(363), $0 and
$6,276, respectively
113,110 10,598 — 123,708 77,318 6,000 — 83,318 Interest 12,964
1,333 — 14,297 10,053 2,833 — 12,886 Other 11,774 12,665
(13,778 ) 10,661 9,034 10,178 (11,064 )
8,148 Total revenues 177,915 31,805 (18,118 )
191,602 133,439 24,330 (15,057 ) 142,712
Costs and Expenses: Management and member services
10,002 2,887 (3,481 ) 9,408 9,837 2,432 (3,407 ) 8,862 Consolidated
resort operations 8,333 1,269 — 9,602 6,183 1,131 — 7,314 Vacation
Interest cost of sales 18,121 484 — 18,605 16,121 657 — 16,778
Advertising, sales and marketing 63,840 7,715 (841 ) 70,714 46,721
3,405 (572 ) 49,554 Vacation Interest carrying cost, net 7,394
3,783 (1,023 ) 10,154 6,518 2,498 (790 ) 8,226 Loan portfolio 2,267
650 (621 ) 2,296 2,316 1,204 (1,074 ) 2,446 Other operating 4,508
3,457 (4,053 ) 3,912 2,973 1,523 (2,042 ) 2,454 General and
administrative 57,473 3,641 — 61,114 17,780 10,196 — 27,976
Depreciation and amortization 3,847 3,736 — 7,583 2,348 2,857 —
5,205 Interest 14,591 6,334 — 20,925 16,952 7,856 — 24,808 Loss on
extinguishment of debt 8,443 4,940 — 13,383 — — — — Impairments and
other write-offs — 1,200 — 1,200 401 — — 401 (Gain) loss on
disposal of assets (590 ) 5 — (585 ) (122 ) — — (122 )
(Gain) adjustment on bargain purchase from
business combinations
— (2,756 ) — (2,756 ) — 115 —
115 Total costs and expenses 198,229 37,345
(10,019 ) 225,555 128,028 33,874 (7,885 )
154,017
(Loss) income before (benefit) provision
for income taxes
(20,314 ) (5,540 ) (8,099 ) (33,953 ) 5,411 (9,544 ) (7,172 )
(11,305 ) (Benefit) provision for income taxes (7,705 ) 79 —
(7,626 ) 450 (110 ) — 340 Net (loss)
income $ (12,609 ) $ (5,619 ) $ (8,099 ) $ (26,327 ) $ 4,961
$ (9,434 ) $ (7,172 ) $ (11,645 )
DIAMOND RESORTS
INTERNATIONAL, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATING
STATEMENTS OF OPERATIONSFor the Nine Months Ended September
30, 2013 and 2012(In thousands)(Unaudited)
Nine Months Ended September 30,
2013
Nine Months Ended September 30,
2012
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total Revenues: Management
and member services $ 93,171 $ 16,046 $ (12,913 ) $ 96,304 $ 85,023
$ 9,173 $ (8,622 ) $ 85,574 Consolidated resort operations 22,285
4,180 — 26,465 21,430 4,092 — 25,522
Vacation Interest sales, net of provision
(adjustment) of $28,930, $801, $0, $29,731, $17,273, $(1,180), $0
and $16,093, respectively
301,644 24,171 — 325,815 189,776 12,988 — 202,764 Interest 34,829
6,330 — 41,159 28,853 10,201 — 39,054 Other 32,884
33,267 (36,967 ) 29,184 23,657
18,374 (21,839 ) 20,192 Total
revenues 484,813 83,994 (49,880 ) 518,927
348,739 54,828 (30,461 ) 373,106
Costs and
Expenses: Management and member services 30,285 8,070 (10,403 )
27,952 26,395 5,948 (6,746 ) 25,597 Consolidated resort operations
22,166 4,003 — 26,169 18,949 3,671 — 22,620 Vacation Interest cost
of sales 43,139 2,312 — 45,451 16,249 926 — 17,175 Advertising,
sales and marketing 167,396 16,734 (2,462 ) 181,668 119,072 6,507
(988 ) 124,591 Vacation Interest carrying cost, net 22,175 10,072
(3,106 ) 29,141 22,875 5,708 (1,909 ) 26,674 Loan portfolio 7,436
2,196 (2,077 ) 7,555 6,960 2,143 (1,923 ) 7,180 Other operating
8,702 7,892 (10,076 ) 6,518 7,309 3,419 (5,309 ) 5,419 General and
administrative 94,084 11,528 — 105,612 51,923 19,014 — 70,937
Depreciation and amortization 9,198 10,714 — 19,912 6,793 6,586 —
13,379 Interest 47,984 22,577 — 70,561 50,534 19,424 — 69,958 Loss
on extinguishment of debt 8,443 4,940 — 13,383 — — — — Impairments
and other write-offs 79 1,200 — 1,279 390 — — 390 (Gain) loss on
disposal of assets (674 ) 1 — (673 ) (218 ) — — (218 )
Gain on bargain purchase from business
combinations
— (2,726 ) — (2,726 ) —
(22,634 ) — (22,634 ) Total costs and
expenses 460,413 99,513 (28,124 ) 531,802
327,231 50,712 (16,875 ) 361,068
Income (loss) before (benefit) provision
for income taxes
24,400 (15,519 ) (21,756 ) (12,875 ) 21,508 4,116 (13,586 ) 12,038
(Benefit) provision for income taxes (6,946 ) 169
— (6,777 ) 209 (13,562 )
— (13,353 ) Net income (loss) $ 31,346 $
(15,688 ) $ (21,756 ) $ (6,098 ) $ 21,299 $ 17,678 $
(13,586 ) $ 25,391
DIAMOND RESORTS
INTERNATIONAL, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATING
BALANCE SHEETSAs of September 30, 2013 and December 31,
2012(In thousands)
September 30,
2013(Unaudited)
December 31, 2012
(Audited)
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total Assets: Cash
and cash equivalents $ 22,868 $ 7,008 $ — $ 29,876 $ 16,963 $ 4,098
$ — $ 21,061 Cash in escrow and restricted cash 58,544 2,698 —
61,242 40,785 1,526 — 42,311
Mortgages and contracts receivable, net of
allowance of $91,904, $6,249, $0, $98,153, $61,067, $22,717, $0,
and $83,784, respectively
359,207 18,306 — 377,513 266,303 46,633 (4 ) 312,932 Due from
related parties, net 240,915 2,460 (206,917 ) 36,458 45,428 4,510
(26,943 ) 22,995 Other receivables, net 28,112 4,865 — 32,977
40,292 5,757 — 46,049 Income tax receivable 25 5,807 (5,807 ) 25
927 — — 927 Prepaid expenses and other assets, net 71,547 17,862
(528 ) 88,881 49,512 9,409 (897 ) 58,024 Unsold Vacation Interests,
net 272,869 72,858 (44,018 ) 301,709 263,493 74,635 (22,261 )
315,867 Property and equipment, net 40,688 20,530 — 61,218 33,664
21,456 — 55,120 Assets held for sale 5,326 5,855 — 11,181 5,070 154
— 5,224 Intangible assets, net 107,685 123,440 —
231,125 30,914 81,584 — 112,498
Total assets $ 1,207,786 $ 281,689 $ (257,270
) $ 1,232,205 $ 793,351 $ 249,762 $ (50,105 )
$ 993,008
Liabilities and Stockholders' equity
(deficit): Accounts payable $ 8,569 $ 5,997 $ — $ 14,566 $
13,467 $ 2,252 $ — $ 15,719 Due to related parties, net 41,730
253,798 (216,249 ) 79,279 42,632 57,179 (35,607 ) 64,204 Accrued
liabilities 85,199 14,802 (1,055 ) 98,946 91,511 16,004 (1,064 )
106,451 Income taxes payable 1,091 — — 1,091 701 — — 701 Deferred
income taxes 17,706 — (5,807 ) 11,899 — — — — Deferred revenues
83,406 6,332 — 89,738 92,490 1,343 — 93,833
Senior Secured Notes, net of unamortized
original issue discount of $6,798, $0, $0, $6,798, $8,509, $0, $0,
and $8,509, respectively
367,642 — — 367,642 416,491 — — 416,491
Securitization notes and Funding
Facilities, net of unamortized original issue discount for $515,
$0, $0, $515, $753, $0, $0, $753, respectively
324,364 5,698 — 330,062 209,450 46,852 — 256,302 Revolving credit
facility 15,000 — — 15,000 — — — — Derivative liabilities 657 — —
657 — — — — Notes payable 3,347 19,519 —
22,866 3,238 134,668 — 137,906
Total liabilities 948,711 306,146 (223,111 )
1,031,746 869,980 258,298 (36,671 ) 1,091,607
Stockholders' equity (deficit):
Common stock $0.01 par value; authorized -
250,000,000 shares; issued and outstanding - 75,458,402, 0, 0 and
75,458,402, 54,057,867, 0, 0 and 54,057,867 shares
755 — — 755 541 — — 541 Additional paid-in capital 461,733 9,675
(9,675 ) 461,733 155,027 9,675 (9,675 ) 155,027 Accumulated deficit
(184,753 ) (33,251 ) (25,528 ) (243,532 ) (215,433 ) (17,563 )
(4,438 ) (237,434 )
Accumulated other comprehensive (loss)
income
(18,660 ) (881 ) 1,044 (18,497 ) (16,764 ) (648 ) 679
(16,733 ) Total stockholders' equity (deficit) 259,075
(24,457 ) (34,159 ) 200,459 (76,629 ) (8,536 ) (13,434 )
(98,599 )
Total liabilities and stockholders' equity
(deficit)
$ 1,207,786 $ 281,689 $ (257,270 ) $
1,232,205 $ 793,351 $ 249,762 $
(50,105 ) $ 993,008
DIAMOND RESORTS
INTERNATIONAL, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOWSFor the Quarters Ended September 30,
2013 and 2012(In thousands)(Unaudited)
Quarter Ended September 30,
2013
Quarter Ended September 30,
2012
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total Operating Activities: Net (loss)
income $ (12,609 ) $ (5,619 ) $ (8,099 ) $ (26,327 ) $ 4,961 $
(9,434 ) $ (7,172 ) $ (11,645 ) Adjustments to reconcile net (loss)
income
to net cash (used in) provided by
operating
activities:
Provision for uncollectible Vacation
Interest sales revenue
13,494 357 — 13,851 6,639 (363 ) — 6,276
Amortization of capitalized financing
costs and original issue discounts
1,688 116 — 1,804 1,433 227 — 1,660
Amortization of capitalized loan
origination costs and net portfolio discount
1,372 401 — 1,773 823 153 — 976 Depreciation and amortization 3,847
3,736 — 7,583 2,348 2,857 — 5,205 Stock-based compensation 38,495 —
— 38,495 — — — — Loss on extinguishment of debt 8,443 4,940 —
13,383 — — — — Impairments and other write-offs — 1,200 — 1,200 401
— — 401 (Gain) loss on disposal of assets (590 ) 5 — (585 ) (122 )
— — (122 )
(Gain) adjustment on bargain purchase from
business combinations
— (2,756 ) — (2,756 ) — 115 — 115 Deferred income taxes (611 )
(1,622 ) (5,807 ) (8,040 ) — (159 ) — (159 ) Gain on foreign
currency exchange (1 ) (2 ) — (3 ) (154 ) — — (154 ) Loss (gain) on
mortgage repurchase 6 (39 ) — (33 ) (7 ) — — (7 ) Unrealized loss
on derivative instrument 657 — — 657 — — — —
Unrealized loss on post-retirement benefit
plan
774 — — 774 — — — —
Changes in operating assets and
liabilities excluding acquisitions:
Mortgages and contracts receivable (67,110 ) 23,294 (1 ) (43,817 )
(24,609 ) 2,271 — (22,338 ) Due from related parties, net (164,795
) 4,339 159,928 (528 ) 7,678 (381 ) 4,248 11,545 Other receivables,
net 352 963 — 1,315 (46 ) 330 16 300 Prepaid expenses and other
assets, net 23,041 2,470 197 25,708 19,822 4,346 51 24,219 Unsold
Vacation Interests, net 1,532 2,094 8,098 11,724 (11,763 ) (3,840 )
7,171 (8,432 ) Accounts payable (1,386 ) 1,558 — 172 (938 ) (525 )
— (1,463 ) Due to related parties, net (17,156 ) 158,870 (160,079 )
(18,365 ) (5,163 ) 6,854 (4,247 ) (2,556 ) Accrued liabilities
(15,900 ) (4,913 ) (44 ) (20,857 ) (6,635 ) 7,977 (67 ) 1,275
Income taxes payable 76 (5,807 ) 5,807 76 (457 ) — — (457 )
Deferred revenues (12,863 ) 2,678 — (10,185 ) (9,477
) (413 ) — (9,890 )
Net cash (used in) provided by operating
activities
(199,244 ) 186,263 — (12,981 ) (15,266 ) 10,015
— (5,251 ) Investing activities: Property and
equipment capital expenditures (4,263 ) (48 ) — (4,311 ) (5,150 )
(16 ) — (5,166 )
Cash acquired in connection with the
Island One Acquisition
725 — — 725 — — — —
Purchase of assets in connection with the
PMR Service Companies Acquisition, net of cash acquired of $0, $0,
$0, $0, $0, $0, $0 and $0, respectively
— (47,758 ) — (47,758 ) — — — — Proceeds from sale of assets 1,656
— — 1,656 177 — —
177 Net cash used in investing activities $ (1,882 ) $
(47,806 ) $ — $ (49,688 ) $ (4,973 ) $ (16 ) $ — $
(4,989 )
DIAMOND RESORTS INTERNATIONAL, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENTS OF CASH
FLOWS—ContinuedFor the Quarters Ended September 30, 2013 and
2012(Unaudited)(In thousands)
Quarter Ended
September 30, 2013 Quarter Ended September 30, 2012
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total Financing activities: Changes in
cash in escrow and restricted cash $ 914 $ (1,258 ) $ — $ (344 ) $
4,304 $ (200 ) $ — $ 4,104 Proceeds from issuance of revolving
credit facility 15,000 — — 15,000 — — — —
Proceeds from issuance of securitization
notes and Funding Facilities
94,584 — — 94,584 36,878 101 — 36,979 Proceeds from issuance of
notes payable — 1,407 — 1,407 1,124 13 — 1,137
Payments on securitization notes and
Funding Facilities
(37,818 ) (29,467 ) — (67,285 ) (19,096 ) (4,888 ) — (23,984 )
Payments on senior secured notes (50,560 ) — — (50,560 ) — — — —
Payments on notes payable (2,844 ) (109,040 ) — (111,884 ) (2,378 )
(5,451 ) — (7,829 ) Payments of debt issuance costs (2,152 ) 41 —
(2,111 ) — — — —
Proceeds from issuance of common stock,
net of related costs
204,705 — — 204,705 — — — — Repurchase of remaining outstanding
warrants (10,346 ) — — (10,346 ) — — — —
Payments of costs related to issuance of
common units
10 — — 10 (26 ) — — (26 )
Net cash provided by (used in) financing
activities
211,493 (138,317 ) — 73,176 20,806
(10,425 ) — 10,381
Net increase (decrease) in cash and cash
equivalents
10,367 140 — 10,507 567 (426 ) — 141
Effect of changes in exchange rates on
cash and cash equivalents
447 75 — 522 230 — — 230
Cash and cash equivalents, beginning of
period
12,054 6,793 — 18,847 17,001 875
— 17,876 Cash and cash equivalents, end of
period $ 22,868 $ 7,008 $ — $ 29,876 $
17,798 $ 449 $ — $ 18,247
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 24,630 $ 9,957 $ — $
34,587 $ 28,778 $ 4,259 $ — $ 33,037
Cash paid for taxes, net of cash tax refunds $ 332 $
60 $ — $ 392 $ 941 $ 49 $ —
$ 990
Purchase of assets in connection with the
Island One Acquisition:
Fair value of assets acquired based on
valuation reports
$ 83,164 $ — $ — $ 83,164 $ — $ — $ — $ — Goodwill acquired 27,665
— — 27,665 — — — — DRII common stock issued (73,307 ) — — (73,307 )
— — — — Deferred tax liability (18,317 ) — — (18,317
) — — — — Liabilities assumed $ 19,205
$ — $ — $ 19,205 $ — $ —
$ — $ —
Purchase of assets in connection with the
PMR Service Companies Acquisition:
Fair value of assets acquired based on
valuation reports
$ — $ 52,291 $ — $ 52,291 $ — $ — $ — $ — Gain on bargain purchase
recognized — (2,756 ) — (2,756 ) — — — — Cash paid — (47,758 ) —
(47,758 ) — — — — Deferred tax liability — (1,622 ) —
(1,622 ) — — — — Liabilities assumed $
— $ 155 $ — $ 155 $ — $ —
$ — $ —
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Unsold Vacation Interests, net
reclassified to assets held for sale
$ 14 $ — $ — $ 14 $ — $ —
$ — $ —
DIAMOND RESORTS
INTERNATIONAL, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOWS—ContinuedFor the Quarters Ended
September 30, 2013 and 2012(Unaudited)(In
thousands)
Quarter Ended September 30,
2013
Quarter Ended September 30,
2012
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total
Assets held for sale reclassified to
management contracts (intangible assets, net)
$ — $ — $ — $ — $ 5 $ — $
— $ 5
Assets held for sale reclassified to
unsold Vacation Interests, net
$ — $ — $ — $ — $ 38 $ —
$ — $ 38
DIAMOND RESORTS
INTERNATIONAL, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOWSFor the Nine Months Ended September
30, 2013 and 2012(In thousands)(Unaudited)
Nine Months Ended September 30,
2013
Nine Months Ended September 30,
2012
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total Operating Activities: Net income
(loss) $ 31,346 $ (15,688 ) $ (21,756 ) $ (6,098 ) $ 21,299 $
17,678 $ (13,586 ) $ 25,391
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating activities:
Provision for uncollectible Vacation
Interest sales revenue
28,930 801 — 29,731 17,273 (1,180 ) — 16,093
Amortization of capitalized financing
costs and original issue discounts
4,860 747 — 5,607 4,163 579 — 4,742
Amortization of capitalized loan
origination costs and net portfolio discounts (premiums)
3,815 493 — 4,308 2,282 (706 ) — 1,576 Depreciation and
amortization 9,198 10,714 — 19,912 6,793 6,586 — 13,379 Stock-based
compensation 38,495 — — 38,495 — — — — Loss on extinguishment of
debt 8,443 4,940 — 13,383 — — — — Impairments and other write-offs
79 1,200 — 1,279 390 — — 390 (Gain) loss on disposal of assets (674
) 1 — (673 ) (218 ) — — (218 )
Gain on bargain purchase from business
combinations
— (2,726 ) — (2,726 ) — (22,634 ) — (22,634 ) Deferred income taxes
(611 ) (1,622 ) (5,807 ) (8,040 ) — (13,612 ) — (13,612 ) Loss
(gain) on foreign currency exchange 138 77 — 215 (98 ) — — (98 )
Loss (gain) on mortgage repurchase 7 (78 ) — (71 ) (26 ) — — (26 )
Unrealized loss on derivative instruments 657 — — 657 — — — —
Unrealized loss on post-retirement benefit plan 774 — — 774 — — — —
Gain on insurance settlement (2,876 ) — — (2,876 ) — — — — Changes
in operating assets and
liabilities excluding acquisitions:
Mortgages and contracts receivable (111,575 ) 27,110 (4 ) (84,469 )
(42,828 ) 11,803 (2 ) (31,027 ) Due from related parties, net
(191,209 ) 1,825 179,821 (9,563 ) 9,225 348 8,735 18,308 Other
receivables, net 16,860 1,946 — 18,806 14,783 (1,422 ) 19 13,380
Prepaid expenses and other assets, net (16,448 ) (11,973 ) 108
(28,313 ) (20,289 ) 1,638 (21 ) (18,672 ) Unsold Vacation
Interests, net (9,229 ) (5,158 ) 21,757 7,370 (39,266 ) (7,745 )
12,737 (34,274 ) Accounts payable (6,039 ) 3,622 — (2,417 ) 1,270
1,042 — 2,312 Due to related parties, net 1,179 196,628 (179,974 )
17,833 41,079 15,613 (7,896 ) 48,796 Accrued liabilities (14,263 )
1,135 48 (13,080 ) 1,515 10,912 14 12,441 Income taxes payable
1,294 (5,807 ) 5,807 1,294 (2,046 ) — — (2,046 ) Deferred revenues
(12,105 ) 4,990 — (7,115 ) (10,139 ) 1,277 —
(8,862 )
Net cash (used in) provided by operating
activities
(218,954 ) 213,177 — (5,777 ) 5,162 20,177
— 25,339 Investing activities: Property
and equipment capital expenditures (12,183 ) (609 ) — (12,792 )
(11,005 ) (268 ) — (11,273 )
Cash acquired in connection with the
Island One Acquisition
725 — — 725 — — — —
Purchase of assets in connection with the
PMR Service Companies Acquisition, net of cash acquired of $0, $0,
$0, $0, $0, $0, $0, and $0, respectively
— (47,758 ) — (47,758 ) — — — —
Purchase of assets in connection with the
PMR Acquisition, net of cash acquired of $0, $0, $0, $0, $0, $0,
$0, and $0, respectively
— — — — — (51,635 ) — (51,635 ) Proceeds from sale of assets 3,126
— — 3,126 497 — —
497
Net cash used in investing activities
$ (8,332 ) $ (48,367 ) $ — $ (56,699 ) $ (10,508 ) $ (51,903
) $ — $ (62,411 )
DIAMOND RESORTS INTERNATIONAL, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENTS OF CASH
FLOWS—ContinuedFor the Nine Months Ended September 30, 2013
and 2012(Unaudited)(In thousands)
Nine Months Ended September 30,
2013
Nine Months Ended September 30,
2012
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total Financing activities: Changes in
cash in escrow and restricted cash $ (16,496 ) $ (1,174 ) $ — $
(17,670 ) $ (4,521 ) $ (232 ) $ — $ (4,753 ) Proceeds from issuance
of revolving credit facility 15,000 — — 15,000 — — — —
Proceeds from issuance of securitization
notes and Funding Facilities
265,160 713 — 265,873 80,997 1,867 — 82,864
Proceeds from issuance of notes
payable
— 3,882 — 3,882 1,124 64,138 — 65,262
Payments on securitization notes and
Funding Facilities
(159,717 ) (41,867 ) — (201,584 ) (66,937 ) (15,358 ) — (82,295 )
Payments on senior secured notes (50,560 ) — — (50,560 ) — — — —
Payments on notes payable (8,409 ) (123,423 ) — (131,832 ) (7,426 )
(15,919 ) — (23,345 ) Payments of debt issuance costs (6,147 ) (16
) — (6,163 ) (24 ) (2,570 ) — (2,594 )
Proceeds from issuance of Common Stock,
net of related costs
204,705 — — 204,705 — — — — Repurchase of remaining outstanding
warrants (10,346 ) — — (10,346 ) — — — —
Payments of costs related to issuance of
common and preferred units
— — — — (35 ) — — (35 )
Net cash provided by (used in) financing
activities
233,190 (161,885 ) — 71,305 3,178
31,926 — 35,104
Net increase (decrease) in cash and cash
equivalents
5,904 2,925 — 8,829 (2,168 ) 200 — (1,968 )
Effect of changes in exchange rates on
cash and cash equivalents
1 (15 ) — (14 ) 318 — — 318
Cash and cash equivalents, beginning of
period
16,963 4,098 — 21,061 19,648 249
— 19,897 Cash and cash equivalents, end of
period $ 22,868 $ 7,008 $ — $ 29,876 $
17,798 $ 449 $ — $ 18,247
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 55,505 $ 18,922 $ — $
74,427 $ 61,067 $ 11,032 $ — $ 72,099
(Cash tax refunds, net of cash paid for
taxes) Cash paid for taxes, net of cash tax refunds
$ (138 ) $ 150 $ — $ 12 $ 2,337 $ —
$ — $ 2,337
Purchase of assets in connection with the
Island One Acquisition:
Fair value of assets acquired based on
valuation reports
$ 83,164 $ — $ — $ 83,164 $ — $ — $ — $ — Goodwill acquired 27,665
— — 27,665 — — — — DRII common stock issued (73,307 ) — — (73,307 )
— — — — Deferred tax liability (18,317 ) — — (18,317
) — — — — Liabilities assumed $ 19,205
$ — $ — $ 19,205 $ — $ —
$ — $ —
Purchase of assets in connection with the
PMR Service Companies Acquisition:
Fair value of assets acquired based on
valuation reports
$ — $ 52,291 $ — $ 52,291 $ — $ — $ — $ — Gain on bargain purchase
recognized — (2,756 ) — (2,756 ) — — — — Cash paid — (47,758 ) —
(47,758 ) — — — — Deferred tax liability — (1,622 ) —
(1,622 ) — — — — Liabilities assumed $
— $ 155 $ — $ 155 $ — $ —
$ — $ —
DIAMOND RESORTS
INTERNATIONAL, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOWS—ContinuedFor the Nine Months Ended
September 30, 2013 and 2012(Unaudited)(In
thousands)
Nine Months Ended September 30,
2013
Nine Months Ended September 30,
2012
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total
Purchase of assets in connection with the
PMR Acquisition:
Fair value of assets acquired based on
valuation reports
$ — $ — $ — $ — $ — $ 89,760 $ — $ 89,760
Gain on bargain purchase recognized
— — — — — (22,765 ) — (22,765 ) Cash paid — — — — — (51,635 ) —
(51,635 ) Deferred tax liability — — — —
— (13,612 ) — (13,612 ) Liabilities assumed $
— $ — $ — $ — $ — $ 1,748
$ — $ 1,748
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Insurance premiums financed through
issuance of notes payable
$ 7,822 $ — $ — $ 7,822 $ 7,573
$ — $ — $ 7,573
Assets held for sale reclassified to
unsold vacation interests
$ — $ — $ — $ — $ 1,353 $ —
$ — $ 1,353
Unsold Vacation Interests, net
reclassified to assets held for sale
$ 4,464 $ 5,701 $ — $ 10,165 $ —
$ — $ — $ — Assets held for sale reclassified
to
management contracts (intangible
assets, net)
$ — $ — $ — $ — $ 192 $ —
$ — $ 192
Media Contact:Diamond Resorts International®Stevi Wara,
702-823-7069media@diamondresorts.comorInvestor Contact:Sloane and
CompanyJoshua Hochberg, 212-486-9500jhochberg@sloanepr.com
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