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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2003.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO
- ---------------.
Commission File Number 01-14115
RESORTQUEST INTERNATIONAL, INC.
(Exact name of registrant in its charter)
Delaware I.R.S. No. 62-1750352
(State of Incorporation) (I.R.S. Employer Identification No.)
530 Oak Court Drive, Suite 360
Memphis, Tennessee 38117
(Address of principal executive offices)(Zip Code)
(901) 762-0600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of March 31, 2003.
Common Stock 19,251,749 shares
Page 1 of 23
PART I - FINANCIAL INFORMATION
- ------------------------------
Company or group of companies for which report is filed:
RESORTQUEST INTERNATIONAL, INC. AND SUBSIDIARIES
Item 1. Financial Statements
- ----------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited) December 31, March 31,
2002 2003
ASSETS ----------- --------
Current assets
Cash and cash equivalents $ 859 $ 1,087
Cash held in escrow 15,468 17,345
Trade and other receivables, net 5,841 7,025
Deferred income taxes 724 759
Other current assets 4,807 6,481
-------- --------
Total current assets 27,699 32,697
-------- --------
Goodwill, net 205,830 205,830
Property, equipment and software, net 34,100 33,627
Other assets 5,924 6,720
-------- --------
Total assets $273,553 $278,874
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 94 $ 76,275
Deferred revenue and property owner payables 47,402 50,410
Accounts payable and accrued liabilities 14,628 15,278
Other current liabilities 2,024 1,648
-------- --------
Total current liabilities 64,148 143,611
-------- --------
Long-term debt, net of current maturities 75,045 -
Deferred income taxes 2,869 3,413
Other long-term obligations 5,007 4,686
-------- --------
Total liabilities 147,069 151,710
-------- --------
Stockholders' equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
19,251,749 and 19,251,749 shares outstanding, respectively 193 193
Additional paid-in capital 153,933 153,933
Accumulated other comprehensive loss (60) (122)
Excess distributions (29,500) (29,500)
Retained earnings 1,918 2,660
-------- --------
Total stockholders' equity 126,484 127,164
-------- --------
Total liabilities and stockholders' equity $273,553 $278,874
======== ========
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
Page 2 of 23
RESORTQUEST INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31, March 31,
2002 2003
-------- --------
Revenues
Property management fees $25,324 $22,556
Service fees 10,300 10,070
Real estate and other 4,889 5,044
------- -------
40,513 37,670
Other revenue from managed entities 8,503 8,887
------- -------
Total revenues 49,016 46,557
------- -------
Operating expenses
Direct operating 20,142 21,212
General and administrative 13,336 11,721
Depreciation 1,430 1,665
------- -------
34,908 34,598
Other expenses from managed entities 8,503 8,887
------- -------
Total operating expenses 43,411 43,485
------- -------
Operating income 5,605 3,072
Interest and other expense, net 1,466 1,812
------- -------
Income before income taxes 4,139 1,260
Provision for income taxes 1,552 518
------- -------
Income before the cumulative effect of a change in accounting principle 2,587 742
Cumulative effect of a change in accounting principle, net of
a $1.9 million income tax benefit (6,280) -
------- -------
Net income (loss) $(3,693) $ 742
======= =======
Earnings per share
Basic
Before cumulative effect of a change in accounting principle $ 0.13 $ 0.04
Cumulative effect of a change in accounting principle (0.32) -
------- -------
$ (0.19) $ 0.04
======= =======
Diluted
Before cumulative effect of a change in accounting principle $ 0.13 $ 0.04
Cumulative effect of a change in accounting principle (0.32) -
------- -------
$ (0.19) $ 0.04
======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 3 of 23
RESORTQUEST INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
(In thousands, except share amounts)
(Unaudited)
Accumulated
Additional Other
Common Stock Paid-in Comprehensive Excess Retained Comprehensive
Shares Amount Capital Loss Distributions Earnings Total Income
---------- ------ ---------- ------------- ------------- -------- -------- -------------
Balance, January 1, 2003 ..... 19,251,749 $193 $153,933 $(60) $(29,500) $1,918 $126,484
Net income ................. -- -- -- -- -- 742 742 $742
Foreign currency translation
loss .................... -- -- -- (62) -- -- (62) (62)
----
Comprehensive income ......... $680
---------- ---- -------- ----- -------- ------ -------- ====
Balance, March 31, 2003 ...... 19,251,749 $193 $153,933 $(122) $(29,500) $2,660 $127,164
========== ==== ======== ===== ======== ====== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 4 of 23
RESORTQUEST INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31, March 31,
2002 2003
-------- --------
Cash flows from operating activities:
Net income (loss) $ (3,693) $ 742
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of a change in accounting
principle 6,280 --
Depreciation 1,430 1,665
Changes in operating assets and liabilities:
Cash held in escrow (1,773) (1,877)
Trade and other receivables 201 (1,184)
Accounts payable and accrued liabilities 724 875
Deferred revenue and property owner payables 4,339 3,008
Other 27 (2,720)
-------- --------
Net cash provided by operating activities 7,535 509
-------- --------
Cash flows from investing activities:
Cash portion of acquisitions, net (1,296) --
Purchases of property, equipment and software (2,973) (1,417)
-------- --------
Net cash used in investing activities (4,269) (1,417)
-------- --------
Cash flows from financing activities:
Credit facility borrowings 25,150 19,050
Credit facility repayments (25,300) (17,850)
Payments of capital lease and other obligations (151) (64)
-------- --------
Net cash provided by (used in) financing activities (301) 1,136
-------- --------
Net change in cash and cash equivalents 2,965 228
Cash and cash equivalents, beginning of period 213 859
-------- --------
Cash and cash equivalents, end of period $ 3,178 $ 1,087
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 5 of 23
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
In these footnotes, the words "Company," "ResortQuest," "we," "our" and
"us" refer to ResortQuest International, Inc., a Delaware corporation, and its
wholly-owned subsidiaries, unless otherwise stated or the context requires
otherwise.
NOTE 1 - BASIS OF PRESENTATION
Organization and Principles of Consolidation
ResortQuest is one of the world's leading vacation rental property
management companies with over 20,000 units under management. We are the first
company offering vacation condominium and home rentals, sales and management
under an international brand name in over 50 premier destination resorts located
in the continental United States, Hawaii and Canada. Our condensed consolidated
financial statements include the accounts of ResortQuest and its wholly-owned
subsidiaries after elimination of all significant intercompany accounts and
transactions.
The condensed consolidated financial statements included herein are
unaudited and have been prepared by the Company pursuant to the rules and
regulations of the United States Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures are adequate
to make the information presented not misleading. In the opinion of management,
all adjustments (which include normal recurring adjustments) necessary for a
fair presentation of results for the interim periods have been made. The results
for the interim periods are not necessarily indicative of results to be expected
for the full fiscal year. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 2002.
Acquisition Costs
Costs incurred in the course of our evaluation of acquisition
candidates and the ultimate consummation of acquisitions consist primarily of
attorneys' fees, accounting fees and other costs incurred by us in identifying
and closing transactions. These costs incurred are deferred on the balance sheet
until the related transaction is either consummated or terminated. Similar
treatment is followed in recording costs incurred by us in the course of
amending existing debt, generating additional debt or obtaining equity
financing. Transaction costs and the excess of the purchase price over the fair
value of identified net assets acquired represent goodwill (see Note 2).
Goodwill is calculated based on a preliminary estimate that is adjusted to its
final balance within one year of the close of the acquisition. Additionally,
certain of our acquisitions have "earn-up" provisions that require additional
consideration to be paid if certain operating results are achieved over periods
of up to three years. This additional consideration is recorded as goodwill when
the amount is fixed and determinable.
During the first quarter of 2002 we made net cash payments
approximating $1.3 million for an earn-up payment related to a 2000 acquisition
and other purchase accounting adjustments related to certain 2001 acquisitions.
No such payments were made during the first quarter of 2003.
NOTE 2 - STOCK-BASED COMPENSATION
As permitted under the Financial Accounting Standards Board ("FASB")
Statement No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an Amendment of FASB Statement No. 123," no compensation cost has
been recognized in the condensed consolidated statements of operations for
issued options. The Company continues to account for stock-based compensation
utilizing the intrinsic value method in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations.
In accordance with Statement No. 123, "Accounting for Stock-Based
Compensation," ResortQuest has estimated the fair value of each option grant
using the Black-Scholes Option-Pricing Model. Had compensation cost for issued
options been determined based on the fair value at the grant dates,
ResortQuest's net income (loss) and earnings (loss) per share would have been
impacted by the pro forma amounts as indicated in the following table:
Page 6 of 23
Three Months Ended March 31,
(in thousands, except per share amounts) 2002 2003
------- -------
Net income (loss)
As reported $(3,693) $ 742
Less: Pro forma stock-based employee compensation expense - (74)
------- --------
Pro forma (3,693) 668
======= ========
Basic earnings (loss) per share
As reported $ (0.19) $ 0.04
Less: Pro forma stock-based employee compensation expense - (0.01)
------- --------
Pro forma $ (0.19) $ 0.03
======= ========
Diluted earnings (loss) per share
As reported $ (0.19) $ 0.04
Less: Pro forma stock-based employee compensation expense - (0.01)
------- --------
Pro forma $ (0.19) $ 0.03
======= ========
Assumptions included an average risk-free interest rate of 3.05%; an average
expected life of 4 years; a volatility factor of 47.2%; and no dividends.
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations." The Company adopted this statement in the first quarter
of 2003. Adoption of this statement did not have a material impact on our
financial position or results of operations.
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement provides for the rescissions or amendment of
certain previously issued accounting standards. The various provisions of this
standard are effective for either 2002 or 2003. Also during the quarter ended
June 30, 2002, Statement No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," was issued and is effective for activities initiated after
December 31, 2002. The Company adopted the applicable provisions under Statement
No. 145 and Statement No. 146 during the first quarter of 2003. Adoption of
these statements did not have a material impact on our financial position or
results of operations.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation -Transition and Disclosure - an Amendment of FASB
Statement No. 123," to provide alternative methods of transition for a voluntary
change to the fair-value-based method of accounting for stock-based employee
compensation. Statement No. 148 also requires disclosure in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
transition guidance and annual disclosure provisions of Statement No. 148 were
effective for fiscal years ending after December 15, 2002, and the disclosure
provisions were applied in our 2002 financial statements. The Company adopted
the applicable disclosure provisions under Statement No. 148 during the first
quarter of 2003 and will continue to account for stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Adoption of Statement
No.148 did not have a material impact on our financial position or results of
operations.
In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates on existing
disclosure requirements for most guarantees including loan guarantees such as
standby letters of credit. It also clarifies that at the time a company issues a
guarantee, the Company must recognize an additional liability for the fair value
or market value of the obligations it assumes under that guarantee and must
disclose that information in its interim and annual financial statements. The
initial recognition and initial measurement provisions apply on a prospective
basis to guarantees issued or modified after December 31, 2002, the disclosure
requirements in the interpretation were effective for financial statements of
interim or annual periods ending after December 15, 2002. The Company has
adopted the measurement provisions and disclosure requirements of FIN 45 during
the first quarter of 2003. Adoption of this interpretation did not have a
material impact on our financial position or results of operations.
Page 7 of 23
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN 46 addresses consolidation by business enterprises where
equity investors do not bear the residual economic risks and rewards. These
entities have been commonly referred to as "special purpose entities." Companies
are required to apply the provision of FIN 46 prospectively for all variable
interest entities created after January 31, 2003 and to variable interest
entities in which an enterprise obtains an interest after that date. All
interests acquired before February 1, 2003 must follow the new rules in
accounting periods beginning after June 15, 2003. The Company adopted this
interpretation in the first quarter of 2003. Adoption of this interpretation did
not have a material impact on our financial position or results of operations.
NOTE 4 - NOTE RECEIVABLE
During 1998, we formalized a $4.0 million promissory note resulting
from cash advances to a primary stockholder of a predecessor company who is no
longer an affiliate of ResortQuest. On February 16, 2000, this note was
restructured in order to provide for additional collateral. This note bears
interest at 1/2% below the prime rate of interest, but not less than 6% and not
more than 10%. Interest payments under the $4.0 million note are due every
January and July 1st, with the principal recorded in Other assets in the
accompanying Condensed Consolidated Balance Sheets, being due in full on May 25,
2008. To date, all interest payments due under the restructured terms of the
note have been received.
NOTE 5 - LONG-TERM BORROWINGS
At March 31, 2003, all long-term borrowings are classified as current
maturities and were comprised of $50.0 million in 10.06% Senior Notes due June
2004, $26.2 million in borrowings under our Credit Facility that expires in
January 2004 and $30,000 in capital lease obligations and other borrowings
assumed in connection with certain acquisitions that have varying maturities
through 2004. The $26.2 million in borrowings under the Credit Facility are
classified as current maturities due to the January 2004 maturity date of this
Facility. The $50.0 million in Senior Notes are not due until June 2004, but are
also classified as current maturities. This current classification is based on
management's belief that it will be necessary to refinance the Senior Notes and
the Credit Facility concurrently, prior to the January 22, 2004 Credit Facility
maturity. Management is currently in discussions to refinance all outstanding
borrowings during 2003. There is no assurance that we will be able to refinance
these borrowings and significant changes to the current terms, such as interest
rates and restrictive covenants, may result from any refinancing.
NOTE 6 - OTHER CHARGES
During the quarter ended March 31, 2003, general and administrative
expenses include approximately $300,000 of items that relate to the move of the
Company's corporate office to Destin, Florida. The Company estimates that the
total cost of the move will be $800,000, which includes actual moving costs and
related severance.
During the quarter ended March 31, 2002, general and administrative
expenses include approximately $500,000 of items that are primarily professional
fees resulting from employee-related matters and a study to explore financing
and strategic growth alternatives. During the fourth quarter of 2002,
liabilities were incurred related to certain senior management changes and
announced office closings.
The following table summarizes all activities related to these other
charges:
Employee Office Closings
(in thousands) Related Items and Other Misc. Total
-------------- --------------- -------
Accrual at December 31, 2002 $ 1,980 $ 610 $ 2,590
Quarter-ended March 31, 2003 expenses 10 306 316
Less: Cash payments (312) (605) (917)
------- ----- -------
Accrual at March 31, 2003 1,678 311 1,989
Less: Current portion (839) (187) (1,026)
------- ----- -------
Long-term portion of accrual $ 839 $ 124 $ 963
======= ===== =======
Page 8 of 23
NOTE 7 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if outstanding options to purchase our securities are
exercised.
The following table reflects our weighted average common shares
outstanding and the impact of outstanding dilutive stock options:
Three Months Ended
March 31, March 31,
2002 2003
---------- ----------
Basic weighted average common shares outstanding 19,243,249 19,251,749
Effect of dilutive securities - stock options 109,238 351
---------- ----------
Diluted weighted average common shares outstanding 19,352,487 19,252,100
========== ==========
NOTE 8 - SEGMENT REPORTING
With the quarter ended March 31, 2003, the Company's management began
allocating Corporate expenses to each of the Company's property management and
technology operations. The Corporate expenses are being allocated to each
operation based on revenues. We believe that this allocation method is the most
appropriate for our operations. This change was made as the Company began its
relocation of its Corporate operations to Destin, Florida and the continued
centralization of support functions for all operations. Based on this change,
the Company has two reportable segments. All goodwill is allocated to the
Property Management segment. Prior to this change, Corporate expenses were not
allocated to the Property Management segment. The following table presents the
revenues, operating income and assets of our reportable segments, with
reclassified 2002 data presented for comparative purposes:
Three Months Ended
March 31, March 31,
(in thousands) 2002 2003
-------- --------
Revenues
Property Management $48,345 $45,811
ResortQuest Technologies 671 746
------- -------
$49,016 $46,557
======= =======
Operating Income
Property Management $ 5,676 $ 3,084
ResortQuest Technologies (71) (12)
------- -------
$ 5,605 $ 3,072
======= =======
December 31, March 31,
(in thousands) 2002 2003
----------- --------
Assets
Property Management $267,921 $273,176
ResortQuest Technologies 5,632 5,698
-------- --------
$273,553 $278,874
======== ========
Page 9 of 23
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
ResortQuest is one of the world's leading providers of vacation
condominium and home rental property management services in premier destination
resorts located in the United States and Canada. We have developed the first and
only branded international network of vacation rental properties and currently
offer management services to over 20,000 rental properties. Our operations are
in more than 50 premier resort locations in the Beach, Hawaii, Mountain and
Desert geographical regions.
Our rental properties are generally second homes or investment
properties owned by individuals who assign us the responsibility of managing,
marketing and renting their properties. We earn management fees as a percentage
of the rental income from each property, but have no ownership interest in the
properties. In addition to the vacation property management business, we offer
real estate brokerage services and other rental and property owner services. We
have also developed an industry leading proprietary vacation rental management
software, First Resort Software, with over 900 licenses sold to vacation
property management companies.
We provide value-added services to both vacationers and property
owners. For vacationers, we offer the value, convenience and features of a
condominium or home while providing many of the amenities and services of a
hotel. For property owners, we offer a comprehensive package of marketing,
management and rental services designed to enhance rental income and
profitability while providing services to maintain the property. Property owners
also benefit from our QuestPerks program, which offers benefits such as
discounts on lodging, air travel and car rentals. To manage guests'
expectations, we have developed and implemented a five-tier rating system that
segments our property portfolio into five categories: Quest Home, Platinum,
Gold, Silver and Bronze.
Utilizing our marketing database, we market our properties through
national cable television ad campaigns and various other media channels. We have
significant distribution through ResortQuest.com, our proprietary website
offering "real-time" reservations, and our inventory distribution partnerships
that include Expedia, Travelocity, Condosaver, retail travel agents, travel
wholesalers and others. We are constantly enhancing our website to improve the
booking experience for leisure travelers. In addition to detailed property
descriptions, virtual tours, interior and exterior photos, floor plans and local
information, vacationers can search for properties by date, activity, event or
location; comparison shop among similar vacation rental units; check for special
discounts and promotions; and obtain maps and driving directions.
RESULTS OF OPERATIONS
Our operating results are highly seasonal due to the geographical
dispersion of the resort locations in which we operate. The results of
operations are subject to quarterly fluctuations caused primarily by the
seasonal variations in the vacation rental and property management industry,
with peak seasons dependent on whether the resort is primarily a summer or
winter destination. Our financial results will be discussed on a consolidated
basis, but due to the seasonal nature of our operations, our results will also
be discussed by geographic region with ResortQuest Technologies representing our
ResortQuest Technologies and First Resort Software operations. With the period
ended March 31, 2003, the Company's management began allocating Corporate
expenses to each of the Company's property management and technology operations.
The Corporate expenses are being allocated to each operation based on revenues.
This change was made as the Company began its relocation of its Corporate
operations to Destin, Florida and the continued centralization of support
functions for all operations.
Page 10 of 23
Consolidated
The following table sets forth the condensed consolidated results of
operations for the three months ended March 31, 2002 and 2003.
Three Months Ended March 31,
(dollars in thousands) 2002 2003
----------------- -----------------
Revenues $49,016 100.0% $46,557 100.0%
Direct operating expenses 20,142 41.1 21,212 45.5
General and administrative expenses 13,336 27.2 11,721 25.2
Other expenses from managed entities 8,503 17.3 8,887 19.1
------- ----- ------- -----
Operating income before depreciation 7,035 14.4 4,737 10.2
Depreciation 1,430 2.9 1,665 3.6
------- ----- ------- -----
Operating income 5,605 11.5 3,072 6.6
Interest and other expense, net 1,466 3.0 1,812 3.9
Provision for income taxes 1,552 3.2 518 1.1
------- ----- ------- -----
Income before the cumulative effect of a
change in accounting principle $ 2,587 5.3% $ 742 1.6%
======= ===== ======= =====
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
- - Consolidated
Revenues. Revenues decreased $2.5 million, or 5%, from $49.0 million in
2002 to $46.5 million in 2003. Excluding other revenues from managed entities,
revenues decreased $2.8 million, or 7%, from $40.5 million in 2002 to $37.7
million in 2003, primarily due to an 8.4% decrease in gross lodging revenues
driven by a 6.3 point decrease in occupancy that was a result of the general
decline in leisure travel resulting from the war in Iraq and the state of the
economy.
Direct operating expenses. Direct operating expenses increased $1.1
million, or 5%, from $20.1 million in 2002 to $21.2 million in 2003, primarily
due to increased labor costs and travel intermediary fees. As a percentage of
revenues, direct operating expenses increased 4.4 points primarily due to these
increased costs and the decrease in revenues.
General and administrative expenses. General and administrative
expenses decreased $1.6 million, or 12%, from $13.3 million in 2002 to $11.7
million in 2003, primarily due to cost reduction initiatives partially offset by
the $306,000 in other charges related to the relocation of the Corporate
operations to Destin, Florida. As a percentage of revenues, general and
administrative expenses decreased 2.0 points due to cost reduction initiatives.
Other expenses from managed entities. Other expenses from managed
entities increased $384,000, or 5%, from $8.5 million in 2002 to $8.9 million in
2003, due to an increase in payroll for managed entities. These expenses are
reimbursed at our cost by the entities under our management. The reimbursements
for these amounts are reflected in revenues. As a percentage of revenues, other
expenses from managed entities increased 1.8 points, primarily due to the
decrease in revenues.
Depreciation. Depreciation increased $235,000, or 16%, from $1.4
million in 2002 to $1.7 million in 2003, primarily due to increased technology
capital expenditures. As a percentage of revenues, depreciation increased 0.7
points due to the increase in technology capital expenditures.
Interest and other expense, net. Interest expense, net of interest
income, increased $346,000, or 24%, from $1.5 million in 2002 to $1.8 million in
2003, primarily due to increased average debt levels and an increased weighted
average borrowing rate. As a percentage of revenues, interest increased 0.9
points due to the increase in borrowing costs and a decrease in revenues.
Provision for income taxes. Provision for income taxes decreased $1.0
million, or 67%, from $1.5 million in 2002 to $518,000 in 2003, primarily due to
a decline in taxable income.
Page 11 of 23
Beach
The following table sets forth the condensed consolidated results of
operations for the three months ended March 31, 2002 and 2003 for our Beach
operations in Gulf Shores, Alabama; Bethany Beach, Delaware; Anna Maria Island,
Beaches of South Walton, Bonita Springs, Bradenton, Captiva Island, Destin, Fort
Myers, Fort Myers Beach, Fort Walton Beach, Lido Key, Longboat Key, Marco
Island, Naples, Navarre Beach, New Port Richey, Okaloosa Island, Orlando, Panama
City, Pensacola, Perdido Key, Sanibel Island, Sarasota, Siesta Key, Vanderbilt
Beach and Venice, Florida; St. Simons Island, Georgia; Nantucket, Massachusetts;
Outer Banks, North Carolina; and Hilton Head Island, South Carolina.
Three Months Ended March 31,
(dollars in thousands) 2002 2003
----------------- -----------------
Revenues $16,560 100.0% $14,780 100.0%
Direct operating expenses 9,704 58.6 9,748 66.0
General and administrative expenses 5,964 36.0 5,045 34.1
Other expenses from managed entities 1,091 6.6 1,230 8.3
------- ----- ------- -----
Operating loss before depreciation (199) n/m (1,243) n/m
Depreciation 618 3.7 692 4.7
------- ----- ------- -----
Operating loss $ (817) n/m $(1,935) n/m
======= ===== ======= =====
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
- - Beach
Revenues. Revenues decreased $1.8 million, or 11%, from $16.6 million
in 2002 to $14.8 million in 2003. Excluding other revenues from managed
entities, revenues decreased $1.9 million, or 12%, from $15.5 million in 2002 to
$13.6 million in 2003, primarily due to an 18.2% decrease in gross lodging
revenues driven by an 8.2 point decrease in occupancy that was a result of the
general decline in leisure travel resulting from the war in Iraq and the state
of the economy.
Direct operating expenses. Direct operating expenses remained
relatively flat in 2003 when compared to 2002. As a percentage of revenues,
direct operating expenses increased 7.4 points due primarily to increases in
labor costs and the decrease in revenues.
General and administrative expenses. General and administrative
expenses decreased $919,000, or 15%, from $6.0 million in 2002 to $5.0 million
in 2003, primarily due to cost reduction initiatives. As a percentage of
revenues, general and administrative expenses decreased 1.9 points due to cost
reduction initiatives.
Other expenses from managed entities. Other expenses from managed
entities increased $139,000, or 13%, from $1.1 million in 2002 to $1.2 million
in 2003, due to an increase in payroll for managed entities. These expenses are
reimbursed at our cost by the entities under our management. The reimbursements
for these amounts are reflected in revenues. As a percentage of revenues, other
expenses from managed entities increased 1.7 points due to the decrease in
revenues.
Depreciation. Depreciation increased $74,000, or 12%, from $618,000 in
2002 to $692,000 in 2003, primarily due to the opening of our regional laundry
facility in 2002 in Florida and other capital expenditures. As a percentage of
revenues, depreciation increased 1.0 point due to these items.
Page 12 of 23
Hawaii
The following table sets forth the condensed consolidated results of
operations for the three months ended March 31, 2002 and 2003 for our Hawaiian
operations on the islands of Hawaii, Kauai, Maui and Oahu.
Three Months Ended March 31,
(dollars in thousands) 2002 2003
----------------- -----------------
Revenues $13,477 100.0% $13,807 100.0%
Direct operating expenses 1,913 14.2 2,319 16.8
General and administrative expenses 3,290 24.4 2,909 21.1
Other expenses from managed entities 7,138 53.0 7,369 53.3
------- ----- ------- -----
Operating income before depreciation 1,136 8.4 1,210 8.8
Depreciation 261 1.9 257 1.9
------- ----- ------- -----
Operating income $ 875 6.5% $ 953 6.9%
======= ===== ======= =====
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
- - Hawaii
Revenues. Revenues increased $330,000, or 2%, from $13.5 million in
2002 to $13.8 million in 2003. Excluding other revenues from managed entities,
revenues increased $99,000, or 2%, from $6.3 million in 2002 to $6.4 million in
2003, primarily due to a 6.4% increase in gross lodging revenues driven by a 7.2
point increase in the Average Daily Rate ("ADR").
Direct operating expenses. Direct operating expenses increased
$406,000, or 21%, from $1.9 million in 2002 to $2.3 million in 2003, primarily
due to increased labor costs. As a percentage of revenues, direct operating
expenses increased 2.6 points due to these cost increases.
General and administrative expenses. General and administrative
expenses decreased $381,000, or 12%, from $3.3 million in 2002 to $2.9 million
in 2003, primarily due to cost reduction initiatives. As a percentage of
revenues, general and administrative expenses decreased 3.3 points primarily due
to the cost reductions.
Other expenses from managed entities. Other expenses from managed
entities increased $231,000, or 3%, from $7.1 million in 2002 to $7.4 million in
2003, due to an increase in payroll for managed entities. These expenses are
reimbursed at our cost by the entities under our management. The reimbursements
for these amounts are reflected in revenues. As a percentage of revenues, other
expenses from managed entities remained relatively flat.
Depreciation. Depreciation decreased $4,000, or 2%, from $261,000 in
2002 to $257,000 in 2003. As a percentage of revenues, depreciation remained
relatively flat.
Page 13 of 23
Mountain
The following table sets forth the condensed consolidated results of
operations for the three months ended March 31, 2002 and 2003 for our Mountain
operations in Whistler, British Columbia; Aspen, Breckenridge, Crested Butte,
Dillon, Keystone, Snowmass Village, Steamboat Springs and Telluride, Colorado;
Sun Valley, Idaho; Big Sky, Montana; Mt. Bachelor and Sunriver, Oregon;
Gatlinburg and Pigeon Forge, Tennessee; and The Canyons, Deer Valley and Park
City, Utah.
Three Months Ended March 31,
(dollars in thousands) 2002 2003
----------------- -----------------
Revenues $16,968 100.0% $16,234 100.0%
Direct operating expenses 7,572 44.6 8,290 51.0
General and administrative expenses 3,546 20.9 3,161 19.5
Other expenses from managed entities 274 1.6 288 1.8
------- ----- ------- -----
Operating income before depreciation 5,576 32.9 4,495 27.7
Depreciation 441 2.6 485 3.0
------- ----- ------- -----
Operating income $ 5,135 30.3% $ 4,010 24.7%
======= ===== ======= =====
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
- - Mountain
Revenues. Revenues decreased $734,000, or 4%, from $17.0 million in
2002 to $16.2 million in 2003. Excluding other revenues from managed entities,
revenues decreased $748,000, or 4%, from $16.7 million in 2002 to $16.0 million
in 2003, primarily due to a 12.3% decrease in gross lodging revenues driven by a
9.4 point decrease in occupancy that was result of the general decline in
leisure travel due to the war in Iraq and the state of the economy. The
profitability of the Mountain operations has deteriorated, primarily due to year
over year declines in occupancy. Should this negative trend continue, it may
result in a future impairment of the goodwill of the Mountain operations.
Reviews for impairment are performed by management as prescribed under FASB
Statement No. 142, "Goodwill and Other Intangible Assets."
Direct operating expenses. Direct operating expenses increased
$718,000, or 9%, from $7.6 million in 2002 to $8.3 million in 2003, primarily
due to increased labor and travel intermediary costs. As a percentage of
revenues, direct operating expenses increased 6.4 points, primarily due to these
increased costs.
General and administrative expenses. General and administrative
expenses decreased $385,000, or 11%, from $3.5 million in 2002 to $3.2 million
in 2003, primarily due to cost reduction initiatives. As a percentage of
revenues, general and administrative expenses decreased 1.4 points due to the
cost reduction initiatives.
Other expenses from managed entities. Other expenses from managed
entities increased $14,000, or 5%, from $274,000 in 2002 to $288,000 in 2003,
due to an increase in payroll for managed entities. These expenses are
reimbursed at our cost by the entities under our management. The reimbursements
for these amounts are reflected in revenues. As a percentage of revenues, other
expenses from managed entities remained relatively flat.
Depreciation. Depreciation increased $44,000, or 10%, from $441,000 in
2002 to $485,000 in 2003, primarily due to increased capital expenditures during
the later part of 2002. As a percentage of revenues, depreciation remained
relatively flat.
Page 14 of 23
Desert
The following table sets forth the condensed consolidated results of
operations for the three months ended March 31, 2002 and 2003 for our Desert
operations in Phoenix, Scottsdale and Tucson, Arizona; and Palm Desert,
California.
Three Months Ended March 31,
(dollars in thousands) 2002 2003
----------------- -----------------
Revenues $ 1,340 100.0% $ 990 100.0%
Direct operating expenses 491 36.6 540 54.5
General and administrative expenses 336 25.1 367 37.1
Other expenses from managed entities -- -- -- --
------- ----- ------- -----
Operating income before depreciation 513 38.3 83 8.4
Depreciation 30 2.2 27 2.7
------- ----- ------- -----
Operating income $ 483 36.0% $ 56 5.7%
======= ===== ======= =====
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
- - Desert
Revenues. Revenues decreased $350,000, or 26%, from $1.3 million in
2002 to $1.0 million in 2003, primarily due to a 31.6% decrease in gross lodging
revenues driven by a 10.7 point decrease in occupancy and a 19.8% decrease in
units under management that was a result of the general decline in leisure
travel due to the war in Iraq and the state of the economy.
Direct operating expenses. Direct operating expenses increased $49,000,
or 10%, from $491,000 in 2002 to $540,000 in 2003, primarily due to increased
marketing costs. As a percentage of revenues, direct operating expenses
increased 17.9 points due to the increased costs and decreased revenues.
General and administrative expenses. General and administrative
expenses increased $31,000, or 9%, from $336,000 in 2002 to $367,000 in 2003,
primarily due to increased labor costs. As a percentage of revenues, general and
administrative expenses increased 12.0 points due to increased costs and the
decrease in revenues.
Other expenses from managed entities. These operations do not have any
arrangements with managed entities to receive reimbursement for any payroll
related costs.
Depreciation. Depreciation decreased $3,000, or 10%, from $30,000 in
2002 to $27,000 in 2003, primarily due to certain in-service assets being fully
depreciated. As a percentage of revenues, depreciation remained relatively flat.
Page 15 of 23
ResortQuest Technologies
The following table sets forth the condensed consolidated results of
operations for the three months ended March 31, 2002 and 2003 for our
ResortQuest Technologies operations.
Three Months Ended March 31,
(dollars in thousands) 2002 2003
--------------- -----------------
Revenues $ 671 100.0% $ 746 100.0%
Direct operating expenses 462 68.9 315 42.2
General and administrative expenses 200 29.8 239 32.0
Other expenses from managed entities -- -- -- --
----- ----- ------- -----
Operating income before depreciation 9 1.3 192 25.7
Depreciation 80 11.9 204 27.3
----- ----- ------- -----
Operating loss $ (71) n/m $ (12) n/m
===== ===== ======= =====
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
- - ResortQuest Technologies
Revenues. Revenues increased $75,000, or 11%, from $671,000 in 2002 to
$746,000 in 2003, primarily due to increased software sales and service fee
revenues.
Direct operating expenses. Direct operating expenses decreased
$147,000, or 32%, from $462,000 in 2002 to $315,000 in 2003, primarily due to a
reorganization of the technology operations. As a percentage of revenues, direct
operating expenses decreased 26.7 points, primarily due to the reorganization
and increased revenues.
General and administrative expenses. General and administrative
expenses increased $39,000, or 20%, from $200,000 in 2002 to $239,000 in 2003,
primarily due to increased project management costs.
Other expenses from managed entities. These operations do not have any
arrangements with managed entities to receive reimbursement for any payroll
related costs.
Depreciation. Depreciation increased $124,000, or 155%, from $80,000 in
2002 to $204,000 in 2003, primarily due to increased technology capital
expenditures related to enhancements to our First Resort Software application.
As a percentage of revenues, depreciation increased 15.4 points primarily due to
these investments in technology.
Liquidity and Capital Resources
ResortQuest is a holding company that conducts all of its operations
through its subsidiaries operating in over 50 premier resort locations.
Accordingly, the primary internal source of our liquidity is through the cash
flows realized from our subsidiaries and our long-term borrowings. We utilize a
consolidated daily cash management system that allows us to fully utilize all
unrestricted cash to repay outstanding debt in order to reduce our net interest
expense.
We generated $509,000 of cash in operating activities for the three
months ended March 31, 2003 primarily due to increases in deferred revenue and
property owner payables. Cash used in investing activities was approximately
$1.4 million for the three months ended March 31, 2003, due to expenditures
related to software development, software implementation and for purchases of
property and equipment. The majority of these costs represent our continued
capital investment in our First Resort Software product. For the three months
ended March 31, 2003, cash provided by financing activities totaled $1.1
million.
At March 31, 2003, we had approximately $18.4 million in cash, of which
$17.3 million represents cash held in escrow. The cash held in escrow is
released at varying times in accordance with state regulations, generally based
upon the guest stay or, in the case of real estate sales deposits, when the
property is sold. At March 31, 2003, we had a working capital deficit of $110.9
million and up to $9.3 million remaining, subject to certain restrictions,
available under our Credit Facility. The $26.2 million in borrowings under the
Credit Facility are classified as current maturities due to the January 2004
maturity date of this Facility. The $50.0 million in Senior Notes are not due
until June 2004, but are also classified as current maturities. This current
classification is based on management's belief that it will be necessary to
refinance the Senior Notes and the Credit Facility concurrently, prior to the
January 22, 2004 Credit Facility maturity. Management is currently in
discussions to refinance all outstanding borrowings during 2003. There is no
assurance that we will be able to refinance these borrowings and
Page 16 of 23
significant changes to the current terms, such as interest rates and restrictive
covenants, may result from any refinancing. We anticipate that our cash flows
from operations will provide cash in excess of our normal working capital needs
and planned capital expenditures over the next year.
Long-Term Borrowings
At March 31, 2003, all long-term borrowings are classified as current
maturities and were comprised of $50.0 million in 10.06% Senior Notes due June
2004, $26.2 million in borrowings under our Credit Facility that expires in
January 2004 and $30,000 in capital lease obligations and other borrowings
assumed in connection with certain acquisitions that have varying maturities
through 2004. The $26.2 million in borrowings under the Credit Facility are
classified as current maturities due to the January 2004 maturity date of this
Facility. The $50.0 million in Senior Notes are not due until June 2004, but are
also classified as current maturities. This current classification is based on
management's belief that it will be necessary to refinance the Senior Notes and
the Credit Facility concurrently, prior to the January 22, 2004 Credit Facility
maturity. Management is currently in discussions to refinance all outstanding
borrowings during 2003. There is no assurance that we will be able to refinance
these borrowings and significant changes to the current terms, such as interest
rates and restrictive covenants, may result from any refinancing.
Registration and Equity Offerings
We have registered 8.0 million shares of common stock through various
shelf registration statement filings. As of March 31, 2003, we had issued
3,289,487 shares under these shelf registration statements in connection with
acquisitions.
Acquisition Strategy
Although our strategy is to focus on internal growth, we intend to
continue to pursue, subject to our debt agreements, selected acquisition
opportunities in strategic and existing markets. There can be no assurance that
we will be able to identify, acquire or profitably manage additional businesses
or successfully integrate acquired businesses into our operations without
substantial costs, delays or other operational or financial problems. Increased
competition for acquisition candidates may develop, in which event there may be
fewer acquisition opportunities available to us, as well as higher acquisition
prices. Furthermore, acquisitions involve a number of risks, including the
failure of acquired companies to achieve anticipated results, diversion of
management's attention, failure to retain key personnel, risks associated with
unanticipated events or liabilities and amortization of acquired intangible
assets. Some or all of these could have a material adverse effect on our
business, financial condition and results of operations.
The timing, size or success of any acquisition effort and the
associated potential capital commitments are unpredictable. We expect to fund
future acquisitions primarily through a combination of cash flows from
operations, debt borrowings and the issuance of common stock. Our ability to
fund future acquisitions through debt borrowings may be limited by certain
restrictive covenants of the facility, the satisfaction of which may be
dependent upon our ability to raise additional equity through either offerings
for cash or the issuance of stock as consideration for acquisitions.
Non-compete and Employment Agreements
We have entered into non-compete agreements with many of the former
owners of the companies that now comprise ResortQuest. These non-compete
agreements are generally three to five years in length effective the day the
operations are merged with ResortQuest. Additionally, we have entered into
employment agreements with many of these former owners, all senior corporate
officers and several key employees. Among other things, these agreements allow
for severance payments and some include acceleration of stock option awards upon
a change in control of ResortQuest, as defined under the agreements. At March
31, 2003, the maximum amount of compensation that would be payable under all
agreements if a change in control occurred without prior written notice would be
approximately $10.6 million.
Page 17 of 23
Seasonality and Quarterly Fluctuations
Our business is highly seasonal. Our results of operations are subject
to quarterly fluctuations caused primarily by the seasonal variations in the
vacation rental and property management industry, with peak seasons dependent on
whether the resort is primarily a summer or winter destination. Our quarterly
results of operations may also be subject to fluctuations as a result of the
timing and cost of acquisitions, the timing of real estate sales, changes in
relationships with travel providers, extreme weather conditions or other factors
affecting leisure travel and the vacation rental and property management
industry.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. We continually evaluate our estimates and
assumptions, including those related to bad debts, trade and other receivables,
valuation of property, equipment and software, goodwill, self-insurance
reserves, and contingencies and litigation. Our estimates and assumptions are
based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying amounts of assets and liabilities that are
not readily apparent from other sources. We believe the following critical
accounting policies affect our more significant estimates and assumptions used
in preparing our condensed consolidated financial statements. Actual results
could differ from our estimates.
Trade and other receivables are reflected net of an estimated allowance
for doubtful accounts. This estimate is based primarily on historical experience
and assumptions with respect to future payment trends.
Property, equipment and software are stated at cost, or in the case of
equipment acquired under capital lease, the present value of future lease
payments, less accumulated depreciation. Certain costs for developing,
customizing and installing software for internal use and for sale to third
parties are capitalized. Revenues related to the sale of software to third
parties are recognized when the systems are installed. Depreciation is computed
using the straight-line method over the estimated useful lives of the recorded
assets or the lease terms. We periodically, or upon the occurrence of certain
events, review the balances of these long-lived assets for possible impairment.
The assessment of long-lived assets for impairment requires us to make certain
judgments, including the estimate of cash flows from the respective assets.
In accordance with the Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets," as of January 1, 2002, the goodwill balance recorded by the
Company is no longer amortized, but reviewed annually and upon the occurrence of
certain events for impairment. The calculation of any impairment charge requires
us to make estimates of future cash flows with respect to the identified net
assets acquired.
We are self-insured for various levels of workers' compensation and
employee medical and dental insurance coverage. Insurance reserves include the
present values of projected settlements for claims. Projected settlements are
estimated based on historical trends and actuarial data.
We are involved with various legal actions arising in the course of our
business. Legal reserves are established for actions where the outcomes of the
cases are probable and monetary damages are reasonably estimable as determined
by in-house and external legal counsel. We do not believe that any of the
remaining actions will have a material adverse effect on our business, financial
condition or results of operations.
Revenues are primarily derived through property management fees,
service fees and real estate commissions. Property management fees and service
fees are recognized as services are provided. Real estate commissions are
recognized for real estate brokerage commissions at time of closing, net of
agent commissions.
Page 18 of 23
New Accounting Pronouncements
In June 2001, FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations." The Company adopted this statement in the first quarter
of 2003. Adoption of this statement did not have a material impact on our
financial position or results of operations.
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement provides for the rescissions or amendment of
certain previously issued accounting standards. The various provisions of this
standard are effective for either 2002 or 2003. Also during the quarter ended
June 30, 2002, Statement No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," was issued and is effective for activities initiated after
December 31, 2002. The Company adopted the applicable provisions under Statement
No. 145 and Statement No. 146 during the first quarter of 2003. Adoption of
these statements did not have a material impact on our financial position or
results of operations.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB
Statement No. 123," to provide alternative methods of transition for a voluntary
change to the fair-value-based method of accounting for stock-based employee
compensation. Statement No. 148 also requires disclosure in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
transition guidance and annual disclosure provisions of Statement No. 148 were
effective for fiscal years ending after December 15, 2002, and the disclosure
provisions were applied in our 2002 financial statements. The Company adopted
the applicable disclosure provisions under Statement No. 148 during the first
quarter of 2003 and will continue to account for stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Adoption of Statement
No. 148 did not have a material impact on our financial position or results of
operations.
In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates on existing
disclosure requirements for most guarantees including loan guarantees such as
standby letters of credit. It also clarifies that at the time a company issues a
guarantee, the Company must recognize an additional liability for the fair value
or market value of the obligations it assumes under that guarantee and must
disclose that information in its interim and annual financial statements. The
initial recognition and initial measurement provisions apply on a prospective
basis to guarantees issued or modified after December 31, 2002, the disclosure
requirements in the interpretation were effective for financial statements of
interim or annual periods ending after December 15, 2002. The Company has
adopted the measurement provisions and disclosure requirements of FIN 45 during
the first quarter of 2003. Adoption of this interpretation did not have a
material impact on our financial position or results of operations.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN 46 addresses consolidation by business enterprises where
equity investors do not bear the residual economic risks and rewards. These
entities have been commonly referred to as "special purpose entities." Companies
are required to apply the provision of FIN 46 prospectively for all variable
interest entities created after January 31, 2003 and to variable interest
entities in which an enterprise obtains an interest after that date. All
interests acquired before February 1, 2003 must follow the new rules in
accounting periods beginning after June 15, 2003. The Company adopted this
interpretation in the first quarter of 2003. Adoption of this interpretation did
not have a material impact on our financial position or results of operations.
Risks Associated With Forward-Looking Statements
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainties, including but not
limited to the risks associated with: successful integration of acquisitions,
factors affecting internal growth and management of growth, our acquisition
strategy and availability of financing, the travel and tourism industry,
seasonality, quarterly fluctuations and general economic conditions, and our
dependence on technology, e-commerce and travel providers. Important factors
that could cause actual results to differ materially include, but are not
limited to, those listed in our previous filings with the Securities and
Exchange Commission.
Although we believe that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and, therefore, there can be no assurance that the forward-looking
statements included in this filing will prove to be accurate. In light of the
Page 19 of 23
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by us or any other person that the objectives and plans will be
achieved. We undertake no obligation to update forward looking statements,
whether as a result of new information, future events or otherwise.
ResortQuest International, Inc.
Performance Statistics
Total System (2)
Three Months Ended
March 31, March 31,
2002 2003 VAR
-------- -------- -----
Beach
Gross Lodging Revenues(1) $ 34,359 $28,101 (18.2)%
Occupancy 56.2% 48.0% (8.2)pts
ADR $ 92.66 $ 89.80 (3.1)%
RevPAU $ 52.04 $ 43.11 (17.2)%
Total Units 9,276 9,056 (2.4)%
Hawaii
Gross Lodging Revenues(1) $ 37,123 $39,503 6.4%
Occupancy 78.2% 77.0% (1.2)pts
ADR $ 110.90 $118.86 7.2%
RevPAU $ 86.70 $ 91.56 5.6%
Total Units 5,537 5,464 (1.3)%
Mountain
Gross Lodging Revenues(1) $ 32,584 $28,588 (12.3)%
Occupancy 53.4% 44.0% (9.4)pts
ADR $ 236.91 $243.87 2.9%
RevPAU $ 126.55 $107.32 (15.2)%
Total Units 3,331 3,351 0.6%
Desert
Gross Lodging Revenues(1) $ 3,613 $ 2,470 (31.6)%
Occupancy 64.5% 53.8% (10.7)pts
ADR $ 142.74 $149.94 5.0%
RevPAU $ 92.02 $ 80.63 (12.4)%
Total Units 506 406 (19.8)%
Total
Gross Lodging Revenues(1) $107,679 $98,662 (8.4)%
Occupancy 62.7% 56.4% (6.3)pts
ADR $ 124.00 $126.65 2.1%
RevPAU $ 77.74 $ 71.48 (8.1)%
Total Units 18,650 18,277 (2.0)%
(1) Lodging revenues are in thousands and represent the total rental
charged to property rental customers. Our revenue represents from 3% to
over 40% of the lodging revenues based on the services provided by us.
(2) Total system statistics include all exclusive managed contracts from
the period under management through March 31, 2002 and March 31, 2003.
Excluded from these statistics are non-exclusive management contracts
which approximated 1,440 units as of March 31, 2002 and 1,600 as of
March 31, 2003. Also excluded from these statistics are owner use
nights and renovation nights which were approximately 15.6% of gross
available nights in the three months ended March 31, 2002 and 15.6% of
gross available nights in the three months ended March 31, 2003.
Page 20 of 23
ResortQuest International, Inc.
Performance Statistics
Same-Store (2)
Three Months Ended
March 31, March 31,
2002 2003 VAR
-------- -------- -----
Beach
Gross Lodging Revenues(1) $ 34,273 $28,101 (18.0)%
Occupancy 56.2% 48.0% (8.2)pts
ADR $ 93.29 $ 89.80 (3.7)%
RevPAU $ 52.41 $ 43.11 (17.7)%
Total Units 9,195 9,056 (1.5)%
Hawaii
Gross Lodging Revenues(1) $ 37,123 $39,503 6.4%
Occupancy 78.2% 77.0% (1.2)pts
ADR $ 110.90 $118.86 7.2%
RevPAU $ 86.70 $ 91.56 5.6%
Total Units 5,537 5,464 (1.3)%
Mountain
Gross Lodging Revenues(1) $ 32,584 $28,588 (12.3)%
Occupancy 53.4% 44.0% (9.4)pts
ADR $ 236.91 $243.87 2.9%
RevPAU $ 126.55 $107.32 (15.2)%
Total Units 3,331 3,351 0.6%
Desert
Gross Lodging Revenues(1) $ 3,613 $ 2,470 (31.6)%
Occupancy 64.5% 53.8% (10.7)pts
ADR $ 142.74 $149.94 5.0%
RevPAU $ 92.02 $ 80.63 (12.4)%
Total Units 506 406 (19.8)%
Total
Gross Lodging Revenues(1) $107,593 $98,662 (8.3)%
Occupancy 62.7% 56.4% (6.3)pts
ADR $ 124.39 $126.65 1.8%
RevPAU $ 78.03 $ 71.48 (8.4)%
Total Units 18,569 18,277 (1.6)%
(1) Lodging revenues are in thousands and represent the total rental
charged to property rental customers. Our revenue represents from 3% to
over 40% of the lodging revenues based on the services provided by us.
(2) For better comparability, the above statistics exclude all
non-exclusive management contracts as well as all properties that were
not part of ResortQuest for both time periods, which approximated 1,540
units as of March 31, 2002 and 1,600 units as of March 31, 2003. Also
excluded from these statistics are owner use nights and renovation
nights which were approximately 15.6% of gross available nights in the
three months ended March 31, 2002 and 15.6% of gross available nights
in the three months ended March 31, 2003.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not have significant market risk with respect to interest rates,
foreign currency exchanges or other market rate or price risks, and we do not
hold any financial instruments for trading purposes. At March 31, 2003, $26.2
million of our borrowings accrue interest at variable interest rates. Based on
this debt level, annual interest expense would increase by approximately
$115,000, if interest rates were to increase by 44 basis points, or 10%, over
the current weighted average interest rate of these variable rate borrowings.
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Item 4. Controls and Procedures
Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision of the Company's Chief Executive
Officer and Chief Financial Officer and with the participation of the Company's
management, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company required to
be included in the Company's periodic Securities and Exchange Commission
filings. No significant changes were made in the Company's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in various legal actions arising in the ordinary course
of our business. We do not believe that any of these actions will have a
material adverse effect on our business, financial condition or results of
operations.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed herewith
99.1 - Certification of Chief Executive Officer
99.2 - Certification of Chief Financial Officer
(b) Reports on Form 8-K:
i) Form 8-K filed January 23, 2003 announcing the Company's move
of its corporate headquarters to Destin, Florida.
ii) Form 8-K filed February 13, 2003 announcing the Company's 2002
fourth quarter and annual financial results.
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf be the
undersigned thereunto duly authorized.
RESORTQUEST INTERNATIONAL, INC.
May 15, 2003 By: /s/ J. Mitchell Collins
-----------------------------
J. Mitchell Collins
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer,
Chief Accounting Officer
and Duly Authorized Officer)
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