TRENDWEST RESORTS ANNOUNCES 83% NET INCOME GROWTH ON 51% SALES INCREASE
FOR SECOND QUARTER
Press Release: Trendwest Resorts
August 4, 1999
REDMOND, WA--Trendwest Resorts Inc. (Nasdaq:TWRI), one of the nation's leading timeshare companies, today reported
record quarterly net income of $9.5 million, or $0.55 per diluted share, for its second quarter ended June 30,
1999.
This represents an 82.7% increase over net income of $5.2 million or $0.29 per diluted share for the same period
last year. Vacation Credit sales increased 33.8% to $56.2 million, compared with $42.0 million a year ago. Second
quarter sales included $7.2 million from sales of Fractional Interests. The Fractional Interest sales program commenced
pre-selling of Fractional Interests at the Depoe Bay resort on the Oregon Coast in October 1998. The Company exercised
its purchase option in April of 1999 and began recognizing revenue from the pre-sales at that time. Upgrade sales
increased 21.9% to $7.8 million for the quarter, up from $6.4 million one year ago.
The average price per Vacation Credit sold increased to $1.31 per credit, versus $1.26 per credit for the same
period last year as a result of the June 29, 1998 price increase. On June 28, 1999, the Company again increased
the selling price of Vacation Credits by approximately 4%.
"Sales for the quarter were exceptionally strong, driven by continued growth of our seasoned sales offices,
maturation of our new sales offices and region opened in 1998, steady growth of Upgrade Sales and the impact of
our Fractional Sales Program,'' stated William F. Peare, Trendwest's Chief Executive Officer. ``Bottom-line performance
was also solid. As expected, product cost as a percentage of sales was higher, largely due to the impact of the
Depoe Bay resort. However, this was offset by the lower sales and marketing costs associated with our Fractional
Sales Program. The continued growth and overall improvement in our Southern California and Southwest regions also
improved our sales and marketing cost percentages. We are extremely pleased with the overall impact of the Depoe
Bay acquisition and the related Fractional Sales strategy. It has allowed us to add an exceptional resort in a
high-demand area, while keeping operating margins within our objectives.
"It has been over nine months since we opened a new sales office. After opening seven offices in 1998, we
needed to absorb the costs of developing sales and marketing personnel and ensure that each region was running
efficiently and profitably. We believe we have reached this level and are planning to open three new on-site sales
offices and one off-site sales office in the third quarter. The off-site office is scheduled to open in Anchorage,
Alaska, in mid-September. We have no competition in Alaska, so our marketing efforts should be cost-effective and
our system already has the destinations that are popular with Alaskans. The three small on-site offices will be
located at our resorts in Vistoso and Pinetop-Lakeside, Arizona, and at Harbor Village on Utah's Bear Lake.''
The Company has four new destination resorts under development. The 61-unit resort at Pinetop-Lakeside, Arizona,
is on schedule to open in early September 1999. Thirty three units at Monterey Bay, California, are expected to
be transferred to WorldMark in September. The first phase of a 111-unit resort at Vistoso near Tucson, Arizona,
is anticipated by late November 1999. Construction of 76 units at Denarau Island, Fiji, is ahead of schedule, with
completion of most units anticipated late in the fourth quarter.
Product cost as a percentage of total sales for the second quarter was 32.3%, as expected, up from 26.7% in the
second quarter last year. Sales and marketing costs as a percentage of sales decreased to 42.1% compared with 50.0%
for the same period last year. As a percentage of total revenue, general and administrative costs decreased to
8.0% for the quarter from 9.0% for the comparable period last year. Excluding the increase in gains on sales of
Notes Receivable and Fractional Interest sales, general and administrative expenses would have been comparable
to the prior period.
The Company achieved total revenues of $73.3 million for the quarter, compared to $48.0 million for the same period
last year. Finance income for the quarter increased 6.5% to $3.3 million, compared with $3.1 million for the second
quarter of 1998. The percentage increase in finance income is less than the percentage increase in carrying balances
of Notes Receivable for the comparable periods. This is due to an unfavorable mark-to-market adjustment on the
residual interest in Notes Receivable sold resulting from early payoffs and from increases in the short-term LIBOR
interest rates late in the second quarter. Gains on sales of Notes Receivable for the quarter were $4.8 million,
up from $1.5 million in the second quarter of 1998. The increase was primarily attributable to a 129.9% increase
in the principal balances of Notes Receivable sold to $33.1 million from $14.4 million in the second quarter of
1998. The increase is also attributable to an improved spread resulting from a reduction in the Company's short-term
borrowing costs as compared to June 30, 1998.
The Company anticipates completion of a $160 million asset-backed securitization by mid-August 1999, as well as
the completion of an additional $75 million commercial paper-based conduit securitization by the end of the third
quarter. The $160 million securitization will be at a fixed rate and reduce the Company's interest-rate risk should
rates rise in the future.
The allowance for doubtful accounts for Notes Receivable held by the Company, as well as recourse liability for
Notes Receivable sold, was $25.0 million, or 7.2% of the total portfolio, at the end of the second quarter. This
compares with $20.9 million, or 6.8% of the total portfolio, at December 31, 1998. At June 30, 1999, 1.84% of the
total Notes Receivable portfolio was more than 60 days past due. At December 31, 1998, 1.97% of the total Notes
Receivable portfolio was more than 60 days past due.
Trendwest Resorts, Inc., is a leader in the timeshare industry. Through its exclusive relationship with WorldMark,
The Club, the Company provides a flexible vacation ownership system, based on use of Vacation Credits, to approximately
77,000 Owners through 1,390 condominium units at 26 locations in the continental Western United States, Hawaii,
British Columbia and Mexico.
The addresses for the Company and WorldMark on the World Wide Web are www.trendwestresorts.com and www.worldmarktheclub.com.
Statements herein contain forward-looking information concerning the Company's future prospects and other forecasts
and statements of expectations. Actual results may differ materially from those expressed in the forward looking
statements made by the Company due to, among other things, the Company's ability to develop or acquire additional
resort properties, find acceptable debt or equity capital to fund such development, achieve planned sales levels,
as well as other risk factors described in the Company's SEC reports and filings.
Selected Financial Highlights
(dollars in thousands except per share and operating data)
TRENDWEST RESORTS, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in thousands) (Unaudited)
| Assets |
June 30, 1999
|
December 31, 1998
|
| Assets: |
|
|
| Cash |
$ 9
|
9
|
| Restricted cash |
3,153
|
2,351
|
Notes Receivable, net of allowance
for doubtful accounts, sales
returns and deferred gross profit |
94,328
|
93,361
|
| Accrued interest and other receivables |
12,420
|
11,399
|
Residual interest in Notes
Receivable sold |
28,457
|
23,683
|
| Receivable from Parent |
891
|
--
|
| Inventories |
44,057
|
42,309
|
| Property and equipment, net |
20,311
|
20,343
|
| Deferred income taxes |
464
|
702
|
| Other assets |
3,010
|
4,341
|
| Total assets |
$207,100
|
198,498
|
| Liabilities and Shareholders' Equity |
|
|
| Liabilities: |
|
|
| Accounts payable |
5,669
|
1,436
|
| Accrued liabilities |
9,108
|
6,645
|
| Accrued construction in progress |
619
|
1,064
|
| Borrowing under bank line of credit |
20,000
|
30,000
|
| Due to Parent |
--
|
5,688
|
Allowance for recourse liability
and deferred gross profit on Notes
Receivable sold |
11,847
|
11,250
|
| Income taxes payable |
1,471
|
1,153
|
| Total liabilities |
48,714
|
57,236
|
| Shareholders' equity: |
|
|
Preferred stock, no par value
Authorized 10,000,000 shares;
no shares issued or outstanding |
--
|
--
|
Common stock, no par value
Authorized 90,000,000 shares;
issued and outstanding
17,129,026 and 17,158,766 shares
at June 30, 1999 and
December 31, 1998, respectively |
61,318
|
61,848
|
| Retained earnings |
97,068
|
79,414
|
| Total shareholders' equity |
158,386
|
141,262
|
| Commitments and contingencies |
|
|
Total liabilities and
shareholders' equity |
$207,100
|
198,498
|
TRENDWEST RESORTS, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(dollars in thousands, except per share data) (Unaudited)
|
Three months ended June 30,
|
Six months ended June 30,
|
|
1999
|
1998
|
1999
|
1998
|
| Revenues: |
|
|
|
|
Vacation Credit and
Fractional Interest
sales, net |
$ 63,426
|
41,988
|
112,442
|
76,873
|
| Finance income |
3,338
|
3,101
|
7,289
|
6,300
|
Gains on sales
of Notes
Receivable |
4,793
|
1,537
|
9,143
|
5,135
|
Resort
management
services |
953
|
367
|
1,775
|
995
|
| Other |
785
|
1,000
|
2,550
|
1,519
|
| Total revenues |
73,295
|
47,993
|
133,199
|
90,822
|
| Costs and operating expenses: |
|
|
|
|
Vacation Credit and
Fractional Interest
cost of sales |
20,482
|
11,169
|
34,103
|
20,682
|
Resort management
services |
421
|
322
|
818
|
599
|
Sales and
marketing |
26,664
|
21,022
|
50,162
|
38,658
|
General and
administrative |
5,853
|
4,281
|
11,245
|
8,069
|
Provision for
doubtful accounts
and recourse
liability |
4,377
|
2,919
|
7,820
|
5,315
|
| Interest |
53
|
2
|
109
|
38
|
Total costs and
operating
expenses |
57,850
|
39,715
|
104,257
|
73,361
|
Income before
income taxes |
15,445
|
8,278
|
28,942
|
17,461
|
Income tax
expense |
5,935
|
3,114
|
11,288
|
6,433
|
| Net income |
$ 9,510
|
5,164
|
17,654
|
11,028
|
Basic net
income per
common share |
$ .55
|
.29
|
1.03
|
.63
|
Diluted net
income per
common share |
$ .55
|
.29
|
1.03
|
.63
|
Weighted average shares
of common stock and
dilutive potential
common stock
outstanding: |
|
|
|
|
| Basic |
17,140,051
|
17,593,366
|
17,149,358
|
17,593,366
|
| Diluted |
17,186,588
|
17,593,366
|
17,185,054
|
17,593,366
|
TRENDWEST RESORTS, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(dollars in thousands) (Unaudited)
|
Six months
ended June 30,
|
|
1999
|
1998
|
| Cash flows from operating activities: |
|
|
| Net income |
$ 17,654
|
11,028
|
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities: |
|
|
| Depreciation and amortization |
750
|
474
|
| Gain on sale of property and equipment |
(886)
|
--
|
Amortization of residual interest
in Notes Receivable sold |
4,670
|
3,108
|
Provision for doubtful accounts,
sales returns and recourse liability |
10,744
|
7,061
|
| Recoveries of Notes Receivable charged off |
134
|
98
|
| Residual interest in Notes Receivables sold |
(9,473)
|
(6,160)
|
Unrealized loss (gain) on residual
interest in Notes Receivable sold |
874
|
(399)
|
| Change in deferred gross profit |
(10)
|
(510)
|
| Deferred income tax expense (benefit) |
238
|
(166)
|
| Issuance of Notes Receivable |
(95,810)
|
(67,104)
|
| Proceeds from sale of Notes Receivable |
66,022
|
55,643
|
| Proceeds from repayment of Notes Receivable |
21,975
|
13,924
|
| Purchase of Notes Receivable |
(4,270)
|
(7,477)
|
| Changes in certain assets and liabilities: |
|
|
| Restricted cash |
(802)
|
(339)
|
| Inventories |
(1,748)
|
681
|
| Accounts payable and accrued liabilities |
2,594
|
(3,824)
|
| Income taxes payable to Parent |
--
|
(2,755)
|
| Income taxes payable |
318
|
(429)
|
| Other |
244
|
202
|
Net cash provided by
operating activities |
13,218
|
3,056
|
| Cash flows from investing activities: |
|
|
| Purchase of property and equipment |
(4,178)
|
(3,818)
|
| Proceeds from sale of property and equipment |
4,412
|
--
|
Net cash provided by (used in)
investing activities |
234
|
(3,818)
|
| Cash flows from financing activities: |
|
|
| Net (repayment) borrowing under bank line of credit and other |
(6,343)
|
4,000
|
| Increase in Receivable from Parent |
(891)
|
(123)
|
| Decrease in Due to Parent |
(5,688)
|
(1,947)
|
| Repurchase of common stock |
(530)
|
--
|
Net cash (used in) provided
by financing activities |
(13,452)
|
1,930
|
| Net increase (decrease) in cash |
--
|
1,168
|
| Cash at beginning of period |
9
|
70
|
| Cash at end of period |
$ 9
|
1,238
|
|
TRENDWEST RESORTS, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(continued)
(dollars in thousands) (unaudited)
|
|
Six month
ended June 30,
|
|
1999
|
1998
|
Supplemental disclosures of cash flow
information cash paid during the period for:
Interest (excluding capitalized amounts of
$715 and $238, respectively) |
$ 146
|
27
|
| Income taxes |
10,732
|
9,783
|
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|
1999
|
1998
|
1999
|
1998
|
| Selected Operating Data: |
|
|
|
|
Number of WorldMark
Resorts (at end
of period) |
--
|
--
|
26
|
23
|
Number of Units
(at end of period) |
--
|
--
|
1,390
|
1,058
|
Number of Vacation
Credits sold
(in thousands) |
42,925
|
32,580
|
79,967
|
59,715
|
Average price per
Vacation Credit
sold |
$ 1.31
|
1.26
|
1.31
|
1.26
|
Average cost per
Vacation Credit sold |
$ .38
|
.35
|
.38
|
.35
|
Total number of
WorldMark Owners
(at end of period) |
--
|
--
|
77,115
|
58,940
|
Average purchase price
for new WorldMark
Owners |
$ 8,772
|
8,417
|
8,752
|
8,414
|
Contact:
Trendwest Resorts Inc., Redmond
Gary Florence, 425/498-2553 (Chief Financial Officer)
or
Morgen-Walke Associates, Inc.
Investor Relations
John Swenson or Erica Mannion, 415/296-7383
Media Relations
Sheryl Seapy, 415/296-7383
Wire Services
Eric Gonzales, 212/850-5600