Full Year 2014 Revenue up 15.7%
Increased Cash for Full Year 2014 by $206.5
Million
Diamond Resorts International, Inc. (NYSE: DRII) (“Diamond” or
the “Company”), today announced results for the fourth quarter and
full year ended December 31, 2014.
David F. Palmer, President and Chief Executive Officer, stated,
“2014 was an outstanding year for our business, as our record
fourth quarter capped off six consecutive record quarters since our
IPO. These results illustrate the quality of our integrated
hospitality platform and the impact of the innovations we have
adopted throughout our business. As we look ahead to 2015, we are
well positioned to post strong revenue, earnings and free cash flow
growth as we continue to execute against our business plan and
drive innovative and memorable hospitality experiences for our
customers. We will also continue to deploy our free cash flow to
fuel the growth of our business while maintaining our focus on
improving shareholder returns. We are confident that we can deliver
additional shareholder value in 2015 and beyond.”
Fourth Quarter 2014 Highlights
- Total revenue increased $21.5 million,
or 10.2%, to $232.4 million.
- Hospitality and Management Services
revenue increased $2.8 million, or 6.1%, to $47.9 million.
- Vacation Interest Sales, net increased
$14.1 million, or 10.2%, to $152.9 million.
- Pre-tax income, excluding non-cash
stock based compensation in both 2013 and 2014 and a litigation
settlement in 2013, increased $12.5 million, or 40.7%, to $43.3
million.
- Cash and cash equivalents increased
$60.6 million; $41.6 million was generated from operating
activities; $3.5 million was spent in investing activities; and
$23.3 million was generated from financing activities.
- Adjusted EBITDA increased $23.9
million, or 43.1%, to $79.4 million.
Full Year 2014 Highlights
- Total revenue increased $114.8 million,
or 15.7%, to $844.6 million.
- Hospitality and Management Services
revenue increased $23.9 million, or 13.6%, to $199.3 million.
- Vacation Interest Sales, net increased
$67.4 million, or 14.5%, to $532.0 million.
- Pre-tax income, excluding non-cash
stock based compensation charges from early extinguishment of debt
in both 2013 and 2014 and the litigation settlement and gain on
bargain purchase in 2013, increased $105.7 million to $172.7
million.
- Cash and cash equivalents increased
$206.5 million; $118.1 million was generated from operating
activities; $17.1 million was spent in investing activities; and
$106.8 million was generated from financing activities.
- Adjusted EBITDA increased $99.3
million, or 45.1%, to $319.5 million.
- On May 9, 2014, the Company entered
into the Senior Credit Facility Agreement which includes a $445.0
million term loan with a $25.0 million revolving line of credit.
Using the proceeds, the Company redeemed the entire outstanding
principal amount under the 12.0% Senior Secured Notes due 2018 and
repaid all outstanding indebtedness under borrowings incurred in
connection with various acquisitions.
- Authorized $100.0 million share
repurchase program of which 0.6 million shares were acquired during
2014 for $16.1 million.
Outlook
For the full year ending December 31, 2015, the Company is
providing the following guidance for its expected operating
results.
Year Ending December 31, 2015 ($ in thousands)
(Unaudited) Guidance Low High
Pre-tax income $ 159,000 $ 191,000 Corporate interest expense $
28,000 $ 26,000 Vacation interest cost of sales(a) $ 73,000 $
63,000 Depreciation and amortization $ 38,000 $ 36,000 Other
non-cash items(b) $ 47,000 $ 44,000
For the year ending December 31, 2015, the Company anticipates
capital expenditures(c) to be between $25.0 million and $30.0
million. In addition, the Company anticipates its ordinary course
cash expenditures for the acquisition of inventory to be between
$50.0 million and $55.0 million, and its cash tax payments to be
between $17.0 million and $23.0 million.
Consistent with our capital allocation philosophy, we also
anticipate investing approximately $27.0 million of our free cash
flow in projects expected to generate superior returns, including
the build-out of inventory at our Cabo Azul resort and other
strategic investments, continuing our share repurchase program (of
which approximately $75.0 million remains available after giving
effect to repurchases to date in 2015), and pursuing other
opportunities to provide superior returns to our shareholders.
(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 Company’s Annual Report on Form 10-K for the year
ended December 31, 2013). 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, amortization of loan
origination costs, and amortization of net portfolio discounts and
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.
Fourth Quarter 2014 Earnings Summary
Hospitality and Management Services
Total management and member services revenue in our Hospitality
and Management Services segment increased $2.0 million, or 5.8%, to
$37.0 million for the fourth quarter of 2014 from $34.9 million for
the fourth quarter of 2013. Management fees increased as a result
of increases in operating costs at the resort level, which
generated higher management fee revenue on a same-store basis under
our cost-plus management agreements. The Company also experienced
higher revenue as a result of increased club membership dues during
the period in 2014 compared to the period in 2013.
Management and member services expense, which is recorded in our
Hospitality and Management Services segment, decreased $0.2
million, or 1.5%, to $9.8 million for the quarter ended December
31, 2014 from $10.0 million for the quarter ended December 31,
2013. For the quarters ended December 31, 2014 and 2013, management
and member services expense included $0.3 million and $0.1 million,
respectively, of non-cash stock-based compensation charges related
to stock options issued in connection with, and since, the
consummation of the IPO. Excluding these non-cash stock-based
compensation charges, management and member services expense as a
percentage of management and member services revenue decreased to
25.7% for the quarter ended December 31, 2014, compared to 28.1%
for the quarter ended December 31, 2013. The decrease was primarily
attributable to increased recovery of our expenses incurred on
behalf of the HOAs and the Diamond Collections we manage. Including
these non-cash stock-based compensation charges discussed above,
management and member services expense as a percentage of
management and member services revenue decreased to 26.5% for the
quarter ended December 31, 2014 from 28.5% for the quarter ended
December 31, 2013.
Vacation Interest Sales and Financing
Vacation Interest sales, net, increased $14.1 million, or 10.2%,
to $152.9 million for the fourth quarter of 2014 from $138.8
million for the fourth quarter of 2013. The increase in Vacation
Interest sales, net, was attributable to a $16.3 million increase
in Vacation Interest sales revenue, partially offset by a $2.1
million increase in the provision for uncollectible Vacation
Interest sales revenue. The $16.3 million increase in Vacation
Interest sales revenue during the period in 2014 compared to the
period in 2013 was generated due to an increase in the number of
tours and an increase in our VPG. The total number of tours
increased to 54,969 during the period in 2014 from 50,104 during
the period in 2013, primarily due to the expansion of our
lead-generation and marketing programs. VPG increased by $302, or
10.4%, to $3,199 for the fourth quarter of 2014 from $2,897 in the
fourth quarter of 2013, as a result of a higher average sales price
per transaction partially offset by a slight reduction in closing
percentage. The Company closed a total of 8,492 Vacation Interest
sales transactions during the period in 2014, compared to 7,926
transactions during the period in 2013. The Company's closing
percentage (which represents the percentage of Vacation Interest
sales transactions closed relative to the total number of sales
presentations at our sales centers during the period presented)
decreased to 15.4% during the period in 2014 from 15.8% during the
period in 2013. Vacation Interest sales price per transaction
increased to $20,705 during the period in 2014 from $18,313 during
the period in 2013. The increase in average sales price per
transaction and, the increase in VPG and the lower closing
percentage are due principally to a change in our focus on selling
larger point packages and the success of the sales and marketing
initiatives implemented in association with this strategy.
Provision for uncollectible Vacation Interest sales revenue
increased $2.1 million, or 14.3%, to $17.1 million during the
period in 2014 from $14.9 million during the period in 2013,
primarily due to the increase in Vacation Interest sales revenue
and an increase in the percentage of financed Vacation Interest
sales during the period in 2014 as compared to the period in 2013.
The allowance for mortgages and contracts receivable as a
percentage of gross mortgages and contracts receivable was 21.5% as
of December 31, 2014, as compared to 21.3% as of December 31,
2013.
Advertising, sales and marketing expense for the fourth quarter
of 2014 and 2013 included non-cash charges of $0.4 million and $0.2
million, respectively, related to stock-based compensation.
Excluding these charges, advertising, sales and marketing expense
as a percentage of Vacation Interest sales revenue decreased 1.3
percentage points to 48.5% in the fourth quarter of 2014, from
49.8% in the fourth quarter of 2013. 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. Including the non-cash charges, advertising, sales
and marketing expense as a percentage of Vacation Interest sales
revenue was 48.8% for the fourth quarter of 2014, as compared to
49.9% for the fourth quarter of 2013.
Vacation Interest cost of sales, increased $7.4 million, or
65.9%, to $18.7 million for the quarter ended December 31,
2014 from $11.2 million for the quarter ended December 31,
2013. This increase consisted of a $1.4 million increase related to
an increase in Vacation Interest sales revenue and a $6.0 million
increase resulting from changes in the estimates under the relative
sales value method. These changes related to the timing of the
eligibility of inventory for recovery in accordance with our
inventory recovery agreements, partially offset by a larger pool of
low-cost inventory becoming eligible for capitalization for the
three months ended December 31, 2014 as compared to the three
months ended December 31, 2013. Vacation Interest cost of sales as
a percentage of Vacation Interest sales, net increased to 12.2% for
the quarter ended December 31, 2014 from 8.1% for the quarter
ended December 31, 2013.
General and Administrative Expense
General and administrative expense for the fourth quarter of
2014 and 2013 included non-cash charges related to stock based
compensation of $3.2 million and $1.7 million, respectively. In
addition, during the quarter ended December 31, 2013, there was a
$10.5 million charge ($5.5 million of which was non-cash) related
to the final settlement of the certain litigation. Excluding these
charges, general and administrative expense would have decreased
$2.5 million, or 9.0%, to $25.6 million during the period in 2014
from $28.2 million during the period in 2013. This decrease was
primarily due to an increase in the recovery of expenses from the
HOAs and the Diamond Collections we manage, partially offset by
additional general and administrative expense incurred as a result
of supporting operations assumed in connection with the Island One
Acquisition and the PMR Service Companies Acquisition. Including
the non-cash charges discussed above, general and administrative
expense as a percentage of total revenue decreased 6.7 percentage
points to 12.4% in the fourth quarter of 2014, from 19.1% in the
fourth quarter of 2013. Giving effect to these charges, general and
administrative expense as reported was $28.8 million during the
period in 2014 compared to $40.3 million during the period in
2013.
Pre-tax Income/Loss and Net Income / Loss
Pre-tax income for the fourth quarter of 2014 included a
non-cash charge related to stock-based compensation of $4.0
million. Pre-tax income for the fourth quarter of 2013 included a
non-cash charge related to stock-based compensation of $2.0
million, a non-cash charge of $2.2 million related to the early
extinguishment of debt, a charge of $10.5 million ($5.5 million of
which was non-cash) related to the final settlement of certain
litigation ($5.5 million was non-cash) and a gain on bargain
purchase of $0.2 million. Excluding the amounts discussed above,
pre-tax income in 2014 would have been $43.3 million, an increase
of $12.5 million from pre-tax income of $30.7 million in the fourth
quarter of 2013. Including these items, pre-tax income for the
fourth quarter of 2014 was $39.2 million compared to a pre-tax
income in the fourth quarter of 2013 of $16.1 million.
Net income for the fourth quarter in 2014 and 2013 were
inclusive of the non-cash charges and the gain on bargain purchases
discussed above. Net income increased $18.3 million to $21.9
million during the period for 2014 from a net income of $3.6
million during the period in 2013.
Full Year 2014 Earnings Summary
Hospitality and Management Services
Total management and member services revenue in our Hospitality
and Management Services segment increased $21.0 million, or 16.0%,
to $152.2 million for the year ended December 31, 2014 from $131.2
million for the year ended December 31, 2013. Management fees
increased as a result of increases in operating costs at the resort
level, which generated higher management fee revenue on a
same-store basis under our cost-plus management agreements. The
Company also experienced higher revenue from the clubs due to
additional members acquired as a result of the Island One
Acquisition, as well as higher membership dues during 2014 compared
to 2013.
Management and member services expense decreased $4.7 million,
or 12.5%, to $33.2 million for the year ended December 31, 2014
from $37.9 million for the year ended December 31, 2013. The
decrease was primarily attributable to an increase in the
allocation of our expenses to the HOAs and the Diamond Collections
we manage and, the elimination of the costs incurred under the
fee-for-service agreements with Island One, Inc. that terminated in
conjunction with the Island One Acquisition on July 24, 2014. In
addition, we incurred reported lower exchange company costs
associated with the clubs as a result of the renegotiated contract
with an exchange service provider that was entered into in April
2014. Management and member services expense as a percentage of
management and member services revenue decreased to 21.8% during
the period in 2014 from 28.9% during the period in 2013.
Vacation Interest Sales and Financing
Vacation Interest sales, net, increased $67.4 million, or 14.5%,
to $532.0 million for the year ended December 31, 2014 from $464.6
million for the year ended December 31, 2013. The increase in
Vacation Interest sales, net, was attributable to a $79.9 million
increase in Vacation Interest sales revenue, partially offset by a
$12.5 million increase in the provision for uncollectible Vacation
Interest sales revenue. The $79.9 million increase in Vacation
Interest sales revenue in 2014 compared to 2013 was generated by an
increase in the number of tours and an increase in our VPG. The
total number of tours increased to 220,708 in 2014 from 207,075 in
2013, primarily due to the expansion of our lead-generation and
marketing programs. VPG increased by $306, or 12.6%, to $2,732 for
the year ended December 31, 2014 from $2,426 for the year ended
December 31, 2013, as a result of a higher average sales price per
transaction. The Company closed a total of 31,759 Vacation Interest
sales transactions during 2014, compared to 29,955 transactions
during 2013. The Company's closing percentage remained relatively
flat at 14.4% for 2014 compared to 2013. Vacation Interest sales
price per transaction increased to $18,988 in 2014 from $16,771 in
2013. The increase in average sales price per transaction, while
maintaining a consistent closing percentage and the resulting
increase in VPG are due principally to a change in our focus on
selling larger point packages and the success of the sales and
marketing initiatives implemented in association with this
strategy.
Provision for uncollectible Vacation Interest sales revenue
increased $12.5 million, or 28.1%, to $57.2 million for 2014 from
$44.7 million for 2013, primarily due to the increase in Vacation
Interest sales revenue and an increase in the percentage of
financed Vacation Interest sales during 2014 as compared to 2013.
The allowance for mortgages and contracts receivable as a
percentage of gross mortgages and contracts receivable was 21.5% as
of December 31, 2014, as compared to 21.3% as of December 31,
2013.
Advertising, sales and marketing expense for the year ended
December 31, 2014 and 2013 included non-cash charges of $2.2
million and $2.1 million, respectively, related to stock-based
compensation. Excluding these charges, advertising, sales and
marketing expense as a percentage of Vacation Interest sales
revenue decreased 0.3 percentage points to 50.0% for the year ended
December 31, 2014, from 50.3% for the year ended December 31, 2013.
Including the non-cash charges, advertising, sales and marketing
expense as a percentage of Vacation Interest sales revenue was
50.4% for the year ended December 31, 2014, as compared to 50.7%
for the year ended December 31, 2013.
Vacation Interest cost of sales, increased $6.8 million, or
12.0%, to $63.5 million for the year ended December 31, 2014 from
$56.7 million for the year ended December 31, 2013. This increase
consisted of an $8.6 million increase related to an increase in
Vacation Interest sales revenue, partially offset by a $1.8 million
decrease resulting from changes in estimates under the relative
sales value method. These changes are related to a higher average
selling price per point, partially offset by a smaller pool of
low-cost inventory becoming eligible for capitalization in
accordance with our inventory recovery agreements during the year
ended December 31, 2014 as compared to the year ended December 31,
2013. Vacation Interest cost of sales as a percentage of Vacation
Interest sales, net decreased to 11.9% for the year ended December
31, 2014 from 12.2% for the year ended December 31, 2013.
General and Administrative Expense
General and administrative expense for the year ended December
31, 2014 and 2013 included non-cash charges related to stock based
compensation of $11.7 million and $37.0 million, respectively. In
addition, during the year ended December 31, 2013, there was a
$10.5 million charge ($5.5 million of which was non-cash) related
to the final settlement of certain litigation. Excluding these
charges, general and administrative expense would have decreased
$7.1 million, or 7.2%, to $91.3 million during the period in 2014
from $98.4 million during the period in 2013, primarily due to an
increase in the recovery of expenses from to the HOAs and the
Diamond Collections we manage. Including the non-cash charges
discussed above, general and administrative expense as a percentage
of total revenue decreased 7.8 percentage points to 12.2% in the
year ended December 31, 2014, from 20.0% in the year ended December
31, 2013. Giving effect to these charges, general and
administrative expense as reported was $103.0 million during 2014
compared to $145.9 million in 2013.
Pre-tax Income/Loss and Net Income
Pre-tax income for the year ended December 31, 2014 included a
non-cash charge related to stock-based compensation of $16.2
million and a charge of $46.8 million related to the early
extinguishment of debt ($30.2 million was financed under the new
term loan and $16.6 million was non-cash). Pre-tax income for the
year ended December 31, 2013 included a non-cash charge related to
stock-based compensation of $40.5 million, a charge of $15.6
million related to the early extinguishment of debt ($7.5 million
was non-cash); a charge of $10.5 million related to the final
settlement of certain litigation ($5.5 million was non-cash) and a
gain on bargain purchase of $2.9 million. Excluding the amounts
discussed above, pre-tax income in 2014 would have been $172.7
million, an increase of $105.7 million from pre-tax income of $67.0
million in the year ended December 31, 2013. Including these items,
pre-tax income for the year ended December 31, 2014 was $109.7
million compared to a pre-tax income in the year ended December 31,
2013 of $3.3 million.
Net income for the year ended December 31, 2014 and 2013 were
inclusive of the non-cash charges and the gain on bargain purchases
discussed above. Net income increased $62.0 million to $59.5
million during the period for 2014 from a net loss of $2.5 million
during the period in 2013.
Capital Resources and Liquidity
As of December 31, 2014, the Company had cash and cash
equivalents of $242.5 million and corporate indebtedness of $445.3
million. During the year ended December 31, 2014 the Company
generated $206.5 million in cash and cash equivalents.
Net cash provided by operating activities for the year ended
December 31, 2014 was $118.1 million and was primarily the result
of net income of $59.5 million and non-cash revenues and expenses
totaling $191.3 million, partially offset by other changes in
operating assets and liabilities that resulted in a net credit of
$132.7 million. The significant non-cash revenues and expenses
included (i) $57.2 million in the provision for uncollectible
Vacation Interest sales revenue; (ii) $46.8 million of loss on
extinguishment of debt (which includes $30.2 million of redemption
premium which was financed with proceeds from the Senior Financing
facility and $16.6 million of non-cash write-off of unamortized
debt issuance costs and debt discount); (iii) $32.5 million in
depreciation and amortization; (iv) $24.4 million in deferred
income taxes; (v) $16.2 million in stock-based compensation costs;
(vi) $8.9 million in amortization of capitalized loan origination
costs and portfolio discounts (net of premiums); and (vii) $5.3
million in amortization of capitalized financing costs and original
issue discounts. Net cash provided by operating activities for the
year ended December 31, 2013 was $2.7 million and was the result of
net loss of $2.5 million and non-cash revenues and expenses
totaling $149.5 million, partially offset by other changes in
operating assets and liabilities that resulted in a net credit of
$144.3 million. Capital expenditures for the year ended December
31, 2014, primarily associated with information technology-related
projects and equipment, were $18.0 million, an increase of $2.8
million from $15.2 million for the year ended December 31,
2013.
During the years ended December 31, 2014 and 2013, we used cash
of $44.4 million and $32.8 million, respectively, for acquisitions
of VOI inventory pursuant to inventory recovery agreements and in
open market and bulk VOI inventory purchases, for capitalized
legal, title and trust fees and for the construction of VOI
inventory. Of these total cash amounts, $1.3 million and $8.9
million during the years ended December 31, 2014 and 2013,
respectively, were used for the construction of VOI inventory,
primarily related to construction of units at our managed
properties in Mexico and Italy.
In addition, we had increases in unsold Vacation Interests, net,
that did not have an impact on our working capital during the
respective periods. Specifically, we capitalized $21.7 million and
$22.0 million during the years ended December 31, 2014 and 2013,
respectively, related to inventory recovery agreements in the U.S.,
offset by an equal increase in due to related parties, net; cash
will be used in future periods to settle these amounts. In
addition, the Company transferred $3.3 million and $4.8 million
during the years ended December 31, 2014 and 2013, respectively,
from due from related parties, net, to unsold Vacation Interests,
net, as a result of our recovery of VOI inventory pursuant to
inventory recovery arrangements in Europe; cash was used in prior
periods when these amounts were recorded to due from related
parties, net. Furthermore, we transferred $4.3 million and $ 4.2
million from mortgages and contracts receivable, net, to unsold
Vacation Interests, net, during the years ended December 31, 2014
and 2013, respectively, as a result of our recovery of underlying
VOI inventory due to loan defaults.
During the year ended December 31, 2014, the Company entered
into the Senior Credit Facility Agreement which includes a $445.0
million term loan with a $25.0 million revolving line of credit.
Using the proceeds, the Company redeemed the entire outstanding
principal amount under the 12.0% Senior Secured Notes due 2018 and
repaid all outstanding indebtedness under borrowings incurred in
connection with various acquisitions.
During the year ended December 31, 2014, we announced a plan to
repurchase up to $100.0 million of our common stock. During the
fourth quarter, we used cash of $16.1 million to repurchase 0.6
million shares of our common stock. As of today, we have
approximately $75.0 million available for purchases under the
authorized program.
Fourth Quarter 2014 Earnings Call
The company will be conducting a conference call to discuss the
fourth quarter financial results at 5:00 p.m. Eastern Time on
February 18, 2015, available via webcast on the Company's website
at http://investors.diamondresorts.com. 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 (888) 753-4238 from the United States,
or (706) 643-3355 from outside the U.S. with conference ID
77722502; please dial in fifteen minutes early to ensure a timely
start. A call replay will be available from 8:00 p.m. Eastern Time
on February 18, 2015 through February 25, 2015 and can be accessed
by dialing (800) 585-8367 with conference ID 77722502.
Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements,
including the guidance for expected operating results presented
under “Outlook” above, statements regarding the Company’s current
expectations regarding future repurchases of its common stock, and
other statements regarding the Company’s current expectations,
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 overall, as well as in specific Collections; the
market price of the Company's stock prevailing from time to time;
alternative uses of cash and the nature of other investment
opportunities presented to the Company from time to time; the
Company’s compliance with the financial and other covenants
contained in the credit agreement with respect to the Company’s
senior secured credit facility; 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®
We are a global leader in the hospitality and vacation ownership
industry, with a worldwide network of 333 vacation destinations
located in 34 countries throughout the continental United States
("U.S."), Hawaii, Canada, Mexico, the Caribbean, Central America,
South America, Europe, Asia, Australia, New Zealand and Africa. Our
resort network includes 93 resort properties with approximately
11,000 units that we manage and 236 affiliated resorts and hotels
and four cruise itineraries, which we do not manage and do not
carry our brand, but are a part of our network and, through the
Clubs (defined below), are available for our members to use as
vacation destinations. We offer Vacations for Life®--a simple way
to acquire a lifetime of vacations at top destinations
worldwide.
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.
Reconciliation of U.S. GAAP to Non-U.S. GAAP Measures
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, 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, operating income or
any other measure of financial performance, in any such 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 the Senior Credit
Facility Agreement 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 measures calculated
in a manner similar to the calculation of Adjusted EBITDA. As a
result, we believe that supplementing our consolidated financial
statements presented in accordance with U.S. GAAP with this
non-U.S. GAAP measure provides investors with useful information
with respect to our liquidity. As of December 31, 2014, all of
our subsidiaries were designated as restricted subsidiaries, as
defined in the Senior Credit Facility Agreement.
In addition to its application under the Senior Credit Facility
Agreement, 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
certain personnel.
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;
- 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.
The following tables present Adjusted EBITDA reconciled to each
of (i) our net cash provided by operating activities and (ii) our
net income (loss) for the periods presented.
($ in thousands) (Unaudited) Quarter Ended
December 31, Year Ended December 31, 2014
2013 2014 2013 Net cash
provided by operating activities $ 41,554 $ 444 $ 118,058 $ 2,743
Provision for income taxes 17,374 12,554 50,234 5,777 Provision for
uncollectible Vacation Interest sales revenue(a) (17,079 ) (14,939
) (57,202 ) (44,670 ) Amortization of capitalized financing costs
and original
issue discounts(a)
(1,258 ) (1,472 ) (5,337 ) (7,079 ) Non-cash expense related to
Alter Ego Suit(a) — (4,851 ) — (5,508 ) Deferred income taxes(b)
6,037 (11,304 ) (24,424 ) (3,264 ) Loss on foreign currency(c) (264
) (30 ) (362 ) (245 ) Gain on mortgage purchase(a) 102 40 621 111
Unrealized gain on derivative instruments(d) 181 — — — Unrealized
loss on post-retirement benefit plan(e) (43 ) (113 ) (171 ) (887 )
Corporate interest expense(f) 7,369 14,105 41,871 72,215 Change in
operating assets and liabilities excluding
acquisitions(g)
6,790 49,823 132,705 144,277 Vacation Interest cost of sales(h)
18,659 11,244 63,499 56,695 Adjusted
EBITDA - Consolidated $ 79,422 $ 55,501 $ 319,492
$ 220,165 (a) Represents
non-cash charge or gain. (b) For the quarter and the year ended
December 31, 2014, represents the deferred income tax liability
arising from differences between the treatment for financial
reporting purposes as compared to income tax return purposes. For
the quarter and the year ended December 31, 2013, 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 and the PMR Service Companies Acquisition in 2013. (c)
Represents net realized losses on foreign exchange transactions
settled at unfavorable exchange rates and unrealized net losses
resulting from the devaluation of foreign currency-denominated
assets and liabilities. (d) Represents the effects of the changes
in mark-to-market valuations of derivative liabilities. (e)
Represents unrealized loss on our post-retirement benefit plan
related to a collective labor agreement entered into with the
employees of our two resorts in St. Maarten. (f) 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 VOI consumer
loans. (g) 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. (h) 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.
($ in
thousands) (Unaudited) Quarter Ended December 31,
Year Ended December 31, 2014
2013 2014 2013 Net income (loss)
$ 21,874 $ 3,573 $ 59,457 $ (2,525 ) Plus: Corporate interest
expense(a) 7,369 14,105 41,871 72,215 Provision for income taxes
17,374 12,554 50,234 5,777 Depreciation and amortization(b) 7,928
8,273 32,529 28,185 Vacation Interest cost of sales(c) 18,659
11,244 63,499 56,695 Loss on extinguishment of debt(d) — 2,221
46,807 15,604 Impairments and other non-cash write-offs(b) 187 308
240 1,587 Gain on disposal of assets(b) (336 ) (309 ) (265 ) (982 )
Gain on bargain purchase from business combinations(e) — (153 ) —
(2,879 ) Amortization of loan origination costs(b) 2,338 1,543
8,929 5,419 Amortization of net portfolio premiums (discount)(b) 25
104 (11 ) 536 Stock-based compensation(f) 4,004 2,038
16,202 40,533 Adjusted EBITDA - Consolidated $ 79,422
$ 55,501 $ 319,492 $ 220,165 (a)
Corporate interest expense does not include interest expense
related to non-recourse indebtedness incurred by our
special-purpose vehicles that is secured by our VOI consumer loans.
(b) These items represent non-cash charges/gains. (c) We record
Vacation Interest cost of sales using the relative sales value
method in accordance with ASC 978, 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. (d) For the quarter ended December 31, 2013
represents $2.2 million of the unamortized debt discount and debt
issuance cost written off upon the redemption of the DROT 2009
Notes on October 13, 2013 using proceeds from borrowings under the
Conduit Facility. For the year ended December 31, 2014 represents
(i) $30.2 million of redemption premium paid on June 9, 2014 in
connection with the redemption of the outstanding Senior Secured
Notes using proceeds from the term loan portion of the Senior
Credit Facility and (ii) $16.6 million of unamortized debt issuance
costs and debt discount written off upon the extinguishment of the
Senior Secured Notes, the 2013 Revolving Credit Facility, ILXA
Inventory Loan and the Tempus Inventory Loan. For the year ended
December 31, 2013 represents (1) $6.1 million of redemption premium
paid on August 23, 2013 in connection with the $50.6 million
paydown on the Senior Secured Notes and $2.4 million of the
unamortized debt discount and debt issuance cost associated with
the Senior Secured Notes, (2) $4.9 million of the unamortized debt
issuance cost on both the Tempus Acquisition Loan and the PMR
Acquisition Loan written off and the additional exit fees paid upon
the extinguishment of the Tempus Acquisition Loan and the PMR
Acquisition Loan on July 24, 2013 using the proceeds from the IPO
and (3) $2.2 million of the unamortized debt discount and debt
issuance cost written off upon the redemption of the DROT 2009
Notes on October 13, 2013 using proceeds from borrowings under the
Conduit Facility. (e) For the quarter and year ended December 31,
2013, represents the amount by which the fair value of the assets
acquired net of the liabilities assumed in the PMR Service
Companies Acquisition (completed in July 2013) exceeded the
purchase price. (f) Represents the non-cash charge related to
stock-based compensation due to stock options issued in connection
with, and since, the consummation of the IPO.
The following tables present a reconciliation of (i)
advertising, sales and marketing expense as reported to
advertising, sales and marketing expense after excluding non-cash
stock-based compensation; (ii) general and administrative expense
as reported to general and administrative expense after excluding
certain non-cash and one-time items; and (iii) income before
provision for income taxes to income before provision for income
taxes after excluding non-cash stock-based compensation, cash and
non-cash charges from early extinguishment of debt, cash and
non-cash charges related to final settlement of FLRX litigation and
gain on bargain purchase for the periods presented below. We
exclude these non-cash and one-time items because management
excludes them from its forecasts and evaluation of our operational
performance and because we believe that the U.S. GAAP measures
including these items are not indicative of our core operating
results.
($ in thousands) (Unaudited) Quarter Ended
December 31, Year Ended December 31, 2014
2013 2014 2013 Advertising,
sales and marketing expense $ 82,905 $ 76,783 $ 297,095 $ 258,451
Stock-based compensation (394 ) (155 ) (2,198 ) (2,105 )
Advertising, sales and marketing expense after excluding
stock-based compensation $ 82,511 $ 76,628 $ 294,897
$ 256,346
($ in thousands)
(Unaudited) Quarter Ended December 31, Year
Ended December 31, 2014 2013 2014
2013 General and administrative expense $ 28,790 $
40,313 $ 102,993 $ 145,925 Stock-based compensation (3,171 ) (1,655
) (11,701 ) (37,044 ) Final settlement for the FLRX litigation —
(10,500 ) — (10,500 ) General and administrative
expense after excluding certain non-cash and one-time items $
25,619 $ 28,158 $ 91,292 $ 98,381
($ in thousands) (Unaudited) Quarter
Ended December 31, Year Ended December 31,
2014 2013 2014 2013
Income before provision for income taxes $ 39,248 $ 16,127 $
109,691 $ 3,252 Stock-based compensation 4,004 2,038 16,202 40,533
Non-cash charge from early extinguishment of debt — 2,221 16,564
7,502 Non-cash charge from final settlement related to the
FLRX litigation
— 5,500 — 5,500 Cash charge from early extinguishment of debt — —
30,243 8,102 Cash charge from final settlement related to the FLRX
litigation
— 5,000 — 5,000 Gain on bargain purchase — (153 ) —
(2,879 ) Income before provision for income taxes after excluding
stock-based compensation, loss from early extinguishment of debt,
charges related to final settlement of FLRX litigation, and gain on
bargain purchase $ 43,252 $ 30,733 $ 172,700 $
67,010
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, operating income 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 Diamond
Collections, revenue from its operations of the Clubs 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 by business segment fall
completely into one of these business segments, other line items
relate to revenues or expenses that 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 SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS BY BUSINESS SEGMENT
For the Quarters Ended December 31, 2014 and 2013 (In
thousands) (Unaudited)
Quarter Ended December 31, 2014
Quarter Ended December 31, 2013
Hospitality
Hospitality
and
Vacation
Corporate and
Vacation
Corporate Management
Interest Sales
and Management
Interest Sales
and Services
and Financing
Other Total Services
and Financing
Other Total Revenues: Management and
member services $ 36,963 $ — $ — $ 36,963 $ 34,934 $ — $ — $ 34,934
Consolidated resort operations 9,581 — — 9,581 9,047 — — 9,047
Vacation Interest sales, net of
provision of $0, $17,079, $0,
$17,079, $0, $14,939, $0 and
$14,939, respectively
— 152,924 — 152,924 — 138,798 — 138,798 Interest — 19,050 338
19,388 — 15,580 305 15,885 Other 1,339 12,167 —
13,506 1,137 11,060 — 12,197
Total revenues 47,883 184,141 338
232,362 45,118 165,438 305 210,861
Costs and Expenses: Management and member services
9,807 — — 9,807 9,955 — — 9,955 Consolidated resort operations
9,747 — — 9,747 8,164 — — 8,164 Vacation Interest cost of sales —
18,659 — 18,659 — 11,244 — 11,244 Advertising, sales and marketing
— 82,905 — 82,905 — 76,783 — 76,783 Vacation Interest carrying
cost, net — 15,729 — 15,729 — 12,206 — 12,206 Loan portfolio 408
2,154 — 2,562 329 1,747 — 2,076 Other operating — 5,485 — 5,485 —
5,588 — 5,588 General and administrative — — 28,790 28,790 — —
40,313 40,313 Depreciation and amortization — — 7,928 7,928 — —
8,273 8,273 Interest expense — 4,282 7,369 11,651 — 3,960 14,105
18,065 Loss on extinguishment of debt — — — — — — 2,221 2,221
Impairments and other write-offs — — 187 187 — — 308 308 Gain on
disposal of assets — — (336 ) (336 ) — — (309 ) (309 ) Gain on
bargain purchase from
business combinations
— — — — — — (153 ) (153 )
Total costs and expenses 19,962 129,214 43,938
193,114 18,448 111,528 64,758 194,734
Income (loss) before provision for income taxes 27,921
54,927 (43,600 ) 39,248 26,670 53,910 (64,453 ) 16,127 Provision
for income taxes — — 17,374 17,374 —
— 12,554 12,554 Net income (loss) $
27,921 $ 54,927 $ (60,974 ) $ 21,874 $ 26,670
$ 53,910 $ (77,007 ) $ 3,573
DIAMOND RESORTS
INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATING
STATEMENTS OF OPERATIONS BY BUSINESS SEGMENT For the Years
Ended December 31, 2014 and 2013 (In thousands)
(Unaudited) Year Ended December 31, 2014
Year Ended December 31, 2013
Hospitality and
Management Services
Vacation Interest Sales
and Financing
Corporate and
Other
Total
Hospitality and
Management Services
Vacation Interest Sales
and Financing
Corporate and
Other
Total Revenues: Management and member services
$ 152,201 $ — $ — $ 152,201 $ 131,238 $ — $ — $ 131,238
Consolidated resort operations 38,406 — — 38,406 35,512 — — 35,512
Vacation Interest sales, net of
provision of $0, $57,202, $0,
$57,202, $0, $44,670, $0 and $44,670,
respectively
— 532,006 — 532,006 — 464,613 — 464,613 Interest — 66,849 1,549
68,398 — 55,601 1,443 57,044 Other 8,691 44,864 —
53,555 8,673 32,708 — 41,381
Total revenues 199,298 643,719 1,549
844,566 175,423 552,922 1,443 729,788
Costs and Expenses: Management and member services
33,184 — — 33,184 37,907 — — 37,907 Consolidated resort operations
35,409 — — 35,409 34,333 — — 34,333 Vacation Interest cost of sales
— 63,499 — 63,499 — 56,695 — 56,695 Advertising, sales and
marketing — 297,095 — 297,095 — 258,451 — 258,451 Vacation Interest
carrying cost, net — 35,495 — 35,495 — 41,347 — 41,347 Loan
portfolio 1,303 7,508 — 8,811 1,111 8,520 — 9,631 Other operating —
22,135 — 22,135 — 12,106 — 12,106 General and administrative — —
102,993 102,993 — — 145,925 145,925 Depreciation and amortization —
— 32,529 32,529 — — 28,185 28,185 Interest expense — 15,072 41,871
56,943 — 16,411 72,215 88,626 Loss on extinguishment of debt — —
46,807 46,807 — — 15,604 15,604 Impairments and other write-offs —
— 240 240 — — 1,587 1,587 Gain on disposal of assets — — (265 )
(265 ) — — (982 ) (982 ) Gain on bargain purchase from business
combinations — — — — — —
(2,879 ) (2,879 ) Total costs and expenses 69,896 440,804
224,175 734,875 73,351 393,530
259,655 726,536 Income (loss) before provision for
income taxes 129,402 202,915 (222,626 ) 109,691 102,072 159,392
(258,212 ) 3,252 Provision for income taxes — —
50,234 50,234 — — 5,777 5,777
Net income (loss) $ 129,402 $ 202,915 $
(272,860 ) $ 59,457 $ 102,072 $ 159,392 $
(263,989 ) $ (2,525 )
DIAMOND RESORTS
INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE
SHEETS As of December 31, 2014 and 2013 (In
thousands, except share data) (Unaudited)
2014 2013 Assets: Cash and cash
equivalents $ 242,486 $ 35,945 Cash in escrow and restricted cash
80,914 92,231 Mortgages and contracts receivable, net of allowance
of $130,639 and $105,590,
respectively
498,662 405,454 Due from related parties, net 51,651 46,262 Other
receivables, net 59,821 54,588 Income tax receivable 467 25
Deferred tax asset 423 — Prepaid expenses and other assets, net
86,439 68,258 Unsold Vacation Interests, net 262,172 298,110
Property and equipment, net 70,871 60,396 Assets held for sale
14,452 10,662 Goodwill 30,632 30,632 Intangible assets, net 178,786
198,632 Total assets $ 1,577,776 $ 1,301,195
Liabilities and Stockholder's Equity: Accounts
payable $ 14,084 $ 14,629 Due to related parties, net 34,768 44,644
Accrued and other liabilities 134,680 117,435 Income taxes payable
108 1,069 Deferred income taxes 47,250 22,404 Deferred revenues
124,997 110,892 Senior Credit Facility, net of unamortized original
issue discount of $2,055 and $0,
respectively
440,720 — Senior secured notes, net of unamortized original issue
discount of $0 and $6,548,
respectively
— 367,892 Securitization notes and Funding Facilities, net of
unamortized original issue discount of
$156 and $226, respectively
509,208 391,267 Notes payable 4,612 23,150 Total
liabilities 1,310,427 1,093,382
Stockholders' equity: Common stock $0.01 par value per
share; authorized - 250,000,000 shares, issued and
outstanding - 75,732,088 and 75,458,402
shares, respectively
757 755 Additional paid in capital 482,732 463,194 Accumulated
deficit (180,502 ) (239,959 ) Accumulated other comprehensive loss
(19,561 ) (16,177 ) Subtotal 283,426 207,813 Less: Treasury stock
at cost (16,077 ) — Total stockholders' equity 267,349
207,813 Total liabilities and stockholders' equity $
1,577,776 $ 1,301,195
DIAMOND
RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS For the Quarters and Years ended
December 31, 2014 and 2013 (In thousands)
(Unaudited) Quarter Ended December 31,
Year Ended December 31, 2014
2013 2014 2013 Operating
Activities: Net income (loss) $ 21,874 $ 3,573 $ 59,457 $ (2,525 )
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: Provision for uncollectible Vacation Interest
sales revenue 17,079 14,939 57,202 44,670 Amortization of
capitalized financing costs and original
issue discounts
1,258 1,472 5,337 7,079 Amortization of capitalized loan
origination costs and net portfolio discount 2,363 1,647 8,918
5,955 Depreciation and amortization 7,928 8,273 32,529 28,185
Stock-based compensation 4,004 2,038 16,202 40,533 Non-cash expense
related to Alter Ego Suit — 4,851 — 5,508 Loss on extinguishment of
debt — 2,221 46,807 15,604 Impairments and other write-offs 187 308
240 1,587 Gain on disposal of assets (336 ) (309 ) (265 ) (982 )
Gain on bargain purchase from business
combinations
— (153 ) — (2,879 ) Deferred income taxes (6,037 ) 11,304 24,424
3,264 Loss on foreign currency exchange 264 30 362 245 Gain on
mortgage repurchase (102 ) (40 ) (621 ) (111 ) Unrealized gain on
derivative instrument (181 ) — — — Unrealized loss on
post-retirement benefit plan 43 113 171 887 Changes in operating
assets and liabilities excluding acquisitions: Mortgages and
contracts receivable (53,703 ) (44,391 ) (158,842 ) (128,803 ) Due
from related parties, net (3,083 ) (2,722 ) 2,580 (11,568 ) Other
receivables, net (26,090 ) (21,663 ) (5,412 ) (5,853 ) Prepaid
expenses and other assets, net 24,940 21,534 (16,823 ) (6,534 )
Unsold Vacation Interests, net 12,942 (355 ) 22,784 7,131 Accounts
payable (1,472 ) (3,895 ) (288 ) (6,446 ) Due to related parties,
net (23,036 ) (38,199 ) (8,413 ) (20,842 ) Accrued and other
liabilities 28,772 18,395 17,628 13,119 Income taxes payable (1,538
) (30 ) (1,402 ) 1,247 Deferred revenues 35,478 21,503
15,483 14,272 Net cash provided by operating
activities 41,554 444 118,058 2,743
Investing activities: Property and equipment capital
expenditures (4,048 ) (2,400 ) (17,950 ) (15,150 ) (Adjustment to)
cash acquired in connection with the Island
One Acquisition
— (156 ) — 569 Purchase of assets in connection with the PMR
Service
Companies Acquisition, net of cash
acquired of $0, $0,
$0, and $0, respectively
— 341 — (47,417 ) Proceeds from sale of assets 586 933
850 3,933 Net cash used in investing
activities $ (3,462 ) $ (1,282 ) $ (17,100 ) $ (58,065 )
DIAMOND RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued For the
Quarters and Years ended December 31, 2014 and 2013 (In
thousands) (Unaudited) Quarter
Ended December 31, Year Ended December 31, 2014
2013 2014 2013 Financing activities:
Changes in cash in escrow and restricted cash $ (11,267 ) $ (31,077
) $ 11,194 $ (48,637 ) Proceeds from issuance of Senior Credit
Facility — — 442,775 — Proceeds from issuance of 2013 Revolving
Credit Facility — — — 15,000 Proceeds from issuance of
securitization notes and Funding Facilities 260,000 286,804 466,325
552,677 Proceeds from issuance of notes payable — 1,475 1,113 5,357
Payments on Senior Credit Facility (1,113 ) — (2,225 ) — Payments
on 2013 Revolving Credit Facility — (15,000 ) — (15,000 ) Payments
on senior secured notes, including redemption premium — — (404,683
) (56,628 ) Payments on securitization notes and Funding Facilities
(202,248 ) (225,888 ) (348,454 ) (427,472 ) Payments on notes
payable (2,227 ) (5,388 ) (30,721 ) (137,220 ) Payments of debt
issuance costs (4,804 ) (3,833 ) (15,852 ) (9,996 ) Proceeds from
issuance of common and preferred stock,
net of related costs
—
(373 ) — 204,332 Repurchase of outstanding warrants — — — (10,346 )
Purchase of treasury stock (16,077 ) — (16,077 ) — Payments related
to early extinguishment of notes payable — — — (2,034 ) Proceeds
from exercise of stock options
1,046
— 3,355 — Net cash provided by
financing activities 23,310 6,720 106,750
70,033 Net increase in cash and cash equivalents
61,402 5,882 207,708 14,711 Effect of changes in exchange rates on
cash and cash equivalents (839 ) 187 (1,167 ) 173 Cash and cash
equivalents, beginning of period 181,923 29,876
35,945 21,061 Cash and cash equivalents, end of
period $ 242,486 $ 35,945 $ 242,486 $ 35,945
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash interest paid on corporate indebtedness $ 6,331 $ 1,030
$ 55,208 $ 62,956 Cash interest paid on
securitization notes and funding facilities $ 4,254 $ 4,096
$ 15,068 $ 16,597 Cash paid for taxes, net of
cash tax refunds $ 1,082 $ 1,257 $ 3,094 $
1,245 Purchase of assets in connection with
the Island One Acquisition:
Fair value of assets acquired based
on valuation reports
$ — $ — $ — $ 81,281 Goodwill acquired — — — 30,632 Cash paid — — —
569 DRII common stock issued — — — (73,307 ) Deferred tax liability
— — — (17,403 ) Liabilities assumed $ —
$ — $ — $ 21,772
DIAMOND RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued For the
Quarters and Years ended December 31, 2014 and 2013 (In
thousands) (Unaudited) Quarter Ended
December 31, Year Ended December 31, 2014
2013 2014 2013 Purchase of assets in
connection with
the PMR Service Companies Acquisition:
Fair value of assets acquired based
on valuation reports
$ — $ — $ — $ 52,554 Gain on bargain purchase recognized — — —
(2,879 ) Cash paid — — — (47,417 ) Deferred tax liability —
— — (1,737 ) Liabilities assumed $ — $ —
$ — $ 521 SUPPLEMENTAL SCHEDULE OF
NON-CASH INVESTING AND FINANCING ACTIVITIES: Insurance premiums
financed through issuance of notes payable $ 4,426 $ 3,658
$ 10,599 $ 11,480 Unsold Vacation Interests,
net reclassified to assets held for sale $ (3 ) $ 3,603 $
4,254 $ 9,758 Unsold Vacation Interests, net
reclassified to property and equipment $
(85
) $ — $
5,995
$ — Assets held for sale reclassified to
unsold Vacation Interests, net $ — $ 4,000 $ —
$ — Assets to be disposed but not actively marketed
(prepaid
expenses and other assets) reclassified to
property and
equipment
$ (3 ) $ — $ 269 $ — Information
technology software and support financed through issuance of notes
payable $ — $ — $ 472 $ —
Media:Diamond Resorts International®Stevi Wara,
702-823-7069media@diamondresorts.comorInvestors:Sloane and
CompanyJoshua Hochberg, 212-486-9500jhochberg@sloanepr.com
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