Net income for the quarter ended September 30, 2010 was $1.6 million, or diluted earnings per share of $0.04, compared to a net loss of $3.9 million, or loss per share of $0.10, for the quarter ended September 30, 2009.
Silverleaf Resorts, Inc. (NASDAQ: SVLF) today reported the following results for its third quarter ended September 30, 2010.
Financial highlights for the quarter ended September 30, 2010:
Net income for the quarter ended September 30, 2010 was $1.6 million, or diluted earnings per share of $0.04, compared to a net loss of $3.9 million, or loss per share of $0.10, for the quarter ended September 30, 2009. Excluding recognition of $18.5 million additional provision for estimated uncollectible revenue in the quarter ended September 30, 2009, net income and diluted earnings per share for that quarter would have been $7.2 million and $0.18, respectively.
Vacation Interval sales were $53.2 million in the third quarter of 2010 compared to $70.4 million in the comparable prior-year period. The decrease in Vacation Interval sales is primarily attributable to a reduction in marketing to existing customers which resulted in lower sales of upgrade intervals. The Company implemented more stringent underwriting policies at the end of 2009 to improve the collection of notes receivable. Vacation Interval sales to existing customers comprised 58.7% and 62.2% of total Vacation Interval sales in the quarters ended September 30, 2010 and 2009, respectively, which maintains the Company’s favorable sales-mix trend toward upgrades and second-week sales to existing customers as such sales have relatively lower associated sales and marketing costs.
The provision for estimated uncollectible revenue as a percentage of Vacation Interval sales was 28.3% in the third quarter of 2010 compared to 52.2% in the third quarter of 2009. The ratio was substantially higher in the third quarter of 2009 as cancellations during the first nine months of 2009, and most notably during the third quarter of 2009, exceeded cancellations projected under the Company’s static-pool analysis of the notes receivable portfolio, which tracks uncollectible notes for each year's sales over the lives of the notes. Considering an increase in future cancels beyond that previously estimated, the allowance for uncollectible notes was increased by $18.5 million in the third quarter of 2009 above the 25.9% provision rate estimated in the second quarter of 2009. The allowance for uncollectible notes was 20.9% of the gross notes receivable portfolio as of September 30, 2010 compared to 21.0% as of December 31, 2009. Factors considered in the assessment of uncollectibility include the aging of notes receivable, historical collection experience and credit losses, customer credit scores (FICO® scores), and current economic factors. The Company believes its notes receivable are adequately reserved, however, there can be no assurance that defaults have stabilized or that they will not increase further. Management reviews the allowance for uncollectible notes quarterly and makes adjustments as necessary.
Overall, total revenues for the third quarter of 2010 were $58.5 million compared to $52.8 million for the third quarter of 2009, primarily attributable to the $4.4 million increase in net sales.
Cost of Vacation Interval sales was 10.8% of Vacation Interval sales for the third quarter of 2010 compared to 7.3% in the 2009 comparable period. This increase primarily resulted from revisions made to future relative sales value for the third quarters of both 2010 and 2009 which had a greater impact on decreasing cost of sales in the third quarter of 2009.
Sales and marketing expense as a percentage of Vacation Interval sales was 53.0% for the third quarter of 2010 compared to 47.3% for the comparable prior-year period. The increase was primarily attributable to the decrease in sales to existing customers, which have relatively lower related sales and marketing costs compared to new customer sales.
Total positive net interest spread (interest income less interest expense and lender fees) decreased to $7.8 million for the third quarter of 2010 from $9.2 million for the third quarter of 2009. Interest expense and lender fees as a percentage of interest income increased to 54.9% for the third quarter of 2010 compared to 44.5% for the same period of 2009. Overall, interest expense and lender fees increased $2.1 million for the third quarter of 2010 compared to the same period of 2009 primarily due to an increase in lender fees related to the Silverleaf Finance VII, LLC (“SF-VII”) securitization closed in the second quarter of 2010 and amendments to the Company’s other senior loan agreements since September 2009. In addition, the weighted average cost of borrowings increased to 7.8% for the three months ended September 30, 2010 from 5.6% for the three months ended September 30, 2009 which was primarily related to SF-VII.
2010 Year-to-Date Results
Net income for the nine months ended September 30, 2010 was $6.6 million, or diluted earnings per share of $0.17, compared to net income of $3.4 million, or diluted earnings per share of $0.09, for the nine months ended September 30, 2009. Excluding recognition of $18.5 million additional provision for estimated uncollectible revenue in 2009, net income and diluted earnings per share for the nine months ended September 30, 2009 would have been $14.5 million and $0.37, respectively.
Vacation Interval sales were $157.6 million in the first nine months of 2010 compared to $194.2 million in the comparable prior-year period. The decrease in Vacation Interval sales is primarily attributable to a reduction in marketing to existing customers which resulted in lower sales of upgrade intervals. The Company implemented more stringent underwriting policies at the end of 2009 to improve the collection of notes receivable. Vacation Interval sales to existing customers comprised 57.6% and 62.2% of total Vacation Interval sales in the first nine months of 2010 and 2009, respectively, which maintains the Company’s favorable sales-mix trend toward upgrades and second-week sales to existing customers as such sales have relatively lower associated sales and marketing costs.
The provision for estimated uncollectible revenue as a percentage of Vacation Interval sales was 28.3% for the first nine months of 2010 compared to 35.1% for the same period of 2009. Cancellations during the first nine months of 2009, and most notably during the third quarter of 2009, exceeded cancellations projected under the Company’s static-pool analysis of the notes receivable portfolio, which tracks uncollectible notes for each year's sales over the lives of the notes. Considering an increase in future cancels beyond that previously estimated, the allowance for uncollectible notes was increased by $18.5 million in the third quarter of 2009 above the 25.9% provision rate estimated in the second quarter of 2009. The allowance for uncollectible notes was 20.9% of the gross notes receivable portfolio as of September 30, 2010 compared to 21.0% as of December 31, 2009. Factors considered in the assessment of uncollectibility include the aging of notes receivable, historical collection experience and credit losses, customer credit scores (FICO® scores), and current economic factors. The Company believes its notes receivable are adequately reserved, however, there can be no assurance that defaults have stabilized or that they will not increase further. Management reviews the allowance for uncollectible notes quarterly and makes adjustments as necessary.
Overall, total revenues for the first nine months of 2010 were $171.8 million compared to $183.7 million for the first nine months of 2009, primarily attributable to the $13.1 million reduction in net sales.
Cost of Vacation Interval sales was 8.7% of Vacation Interval sales for the first nine months of 2010 compared to 9.7% in the 2009 comparable period. This decrease primarily resulted from increased sales of lower cost-basis product during the first nine months of 2010 compared to the first nine months of 2009.
Sales and marketing expense as a percentage of Vacation Interval sales was 54.1% for the nine-month period ended September 30, 2010 compared to 50.0% for the comparable prior-year period. The increase was primarily attributable to the decrease in sales to existing customers, which have relatively lower related sales and marketing costs compared to new customer sales.
Total positive net interest spread (interest income less interest expense and lender fees) decreased to $25.5 million for the first nine months of 2010 compared to $26.3 million for the first nine months of 2009. Interest expense and lender fees as a percentage of interest income increased to 50.6% for the first nine months of 2010 compared to 45.4% for the same period of 2009. Overall, interest expense and lender fees increased $4.3 million in the first nine months of 2010 compared to the same period of 2009 primarily due to an increase in lender fees related to the SF-VII securitization and amendments to the Company’s other senior loan agreements since September 2009. In addition, the weighted average cost of borrowings increased to 7.0% for the nine months ended September 30, 2010 from 6.0% for the nine months ended September 30, 2009.
Balance Sheet
At September 30, 2010, senior credit facilities provided for loans of up to $501.6 million, of which $107.9 million was unused. In June 2010, the Company completed a term securitization transaction involving the issuance of approximately $151.5 million of Timeshare Loan-Backed Notes Series 2010-A. In addition, the Company completed the extension of four of its senior revolving credit facilities in the first nine months of 2010. Considering the completion of the new term securitization, the extension of the four senior credit facilities, forecasted sales, and limited expansion plans, the Company’s senior credit facilities provide adequate liquidity through mid-2011. At September 30, 2010, the Company’s senior debt consisted of 46% fixed-rate debt and 54% variable-rate debt. However, the majority of the Company’s variable-rate debt is subject to interest-rate floors between 6.00% and 8.00%.
About Silverleaf Resorts
Based in Dallas, Texas, Silverleaf Resorts, Inc. currently owns and operates timeshare resorts with a wide array of country club-like amenities, such as golf, clubhouses, an indoor water park, swimming, tennis, boating, and many organized activities for children and adults.
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