##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 333-172772
 
 DIAMOND RESORTS CORPORATION
 (Exact name of registrant as specified in its charter)
 
 Maryland
    
    95-4582157(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 10600 West Charleston Boulevard
Las Vegas, Nevada 89135
(Address of principal executive offices and zip code)
Tel: (702) 684-8000
(Registrants telephone number, including area code)
 
 o þ
 o o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer þ
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 TABLE OF CONTENTS
 PAGENUMBERPART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010 (Audited)
    
    
    3Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010
(Unaudited)
    
    
    4Condensed Consolidated Statements of Member Capital (Deficit) and Comprehensive Income (Loss) for the six
months ended June 30, 2011 and 2010 (Unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (Unaudited)
    
    
    6Notes to the Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    44Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    71Item 4. Controls and Procedures
    
    
    71PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    72Item 1A. Risk Factors
    
    
    72Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    72Item 3. Defaults Upon Senior Securities
    
    
    72Item 4. Removed and Reserved
    
    
    72Item 5. Other Information
    
    
    72Item 6. Exhibits
    
    
    72Signatures
    
    
    73EX-10.1EX-10.2EX-10.3EX-31.1EX-31.2EX-32.1EX-32.2
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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2011 and December 31, 2010
(In thousands, except share data)
 June 30,
    
    
    December 31,2011
    
    
    2010(Unaudited)
    
    
    (Audited)ASSETSCash and cash equivalents
    
    $
    28,618
    
    
    $
    27,329Cash in escrow and restricted cash
    
    
    33,370
    
    
    
    30,048Mortgages and contracts receivable, net of allowance of
$51,356 and
$55,151, respectively
    
    
    229,765
    
    
    
    245,287Due from related parties, net
    
    
    23,177
    
    
    
    20,958Other receivables, net
    
    
    20,034
    
    
    
    35,980Income tax receivable
    
    
    26
    
    
    
    10Prepaid expenses and other assets, net
    
    
    81,961
    
    
    
    46,248Unsold Vacation Interests, net
    
    
    222,563
    
    
    
    190,564Property and equipment, net
    
    
    34,068
    
    
    
    29,097Assets held for sale
    
    
    6,786
    
    
    
    9,517Intangible assets, net
    
    
    43,320
    
    
    
    45,713Total assets
    
    $
    723,688
    
    
    $
    680,751LIABILITIES AND MEMBER CAPITAL (DEFICIT)Accounts payable
    
    $
    8,595
    
    
    $
    7,655Due to related parties, net
    
    
    75,551
    
    
    
    36,251Accrued liabilities
    
    
    74,987
    
    
    
    67,533Income taxes payable
    
    
    5,026
    
    
    
    3,936Deferred revenues
    
    
    59,707
    
    
    
    67,706Senior secured notes, net of unamortized original issue
discount of
$9,882 and $10,278, respectively
    
    
    415,118
    
    
    
    414,722Securitization notes and conduit facility, net
    
    
    186,052
    
    
    
    186,843Derivative liabilities
    
    
    
    
    
    
    79Notes payable
    
    
    27,790
    
    
    
    23,273Total liabilities
    
    
    852,826
    
    
    
    807,998Commitments and contingenciesRedeemable preferred units (1,133.33 and 1,000 shares
authorized,
issued and outstanding, respectively)
    
    
    103,065
    
    
    
    84,502Member capital (deficit):Member capital (authorized 1,115.1 common units, no par
value;
issued 1,115.1 and 1090 common units, respectively)
    
    
    7,162
    
    
    
    7,335Accumulated deficit
    
    
    (223,984
    )
    
    
    (201,338
    )Accumulated other comprehensive loss
    
    
    (15,381
    )
    
    
    (17,746
    )Total member capital (deficit)
    
    
    (232,203
    )
    
    
    (211,749
    )Total liabilities and member capital (deficit)
    
    $
    723,688
    
    
    $
    680,751
 
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##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended June 30, 2011 and 2010
(Unaudited)
(In thousands)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Revenues:Vacation Interest sales
    
    $
    52,470
    
    
    $
    54,236
    
    
    $
    94,403
    
    
    $
    102,318Provision for uncollectible Vacation Interest sales revenue
    
    
    (3,753
    )
    
    
    754
    
    
    
    (6,743
    )
    
    
    (868
    )Vacation Interest, net
    
    
    48,717
    
    
    
    54,990
    
    
    
    87,660
    
    
    
    101,450Management, member and other services
    
    
    27,936
    
    
    
    25,723
    
    
    
    59,721
    
    
    
    50,448Consolidated resort operations
    
    
    7,242
    
    
    
    6,993
    
    
    
    14,188
    
    
    
    13,494Interest
    
    
    9,801
    
    
    
    9,671
    
    
    
    19,630
    
    
    
    19,487Gain on mortgage repurchase
    
    
    91
    
    
    
    56
    
    
    
    120
    
    
    
    92Total revenues
    
    
    93,787
    
    
    
    97,433
    
    
    
    181,319
    
    
    
    184,971Costs and Expenses:Vacation Interest cost of sales
    
    
    (5,681
    )
    
    
    11,240
    
    
    
    (5,614
    )
    
    
    21,865Advertising, sales and marketing
    
    
    33,197
    
    
    
    27,799
    
    
    
    61,633
    
    
    
    53,264Vacation Interest carrying cost, net
    
    
    7,347
    
    
    
    6,747
    
    
    
    15,907
    
    
    
    14,182Management, member and other services
    
    
    6,034
    
    
    
    5,652
    
    
    
    12,294
    
    
    
    12,174Consolidated resort operations
    
    
    7,106
    
    
    
    6,648
    
    
    
    13,274
    
    
    
    12,525Loan portfolio
    
    
    2,539
    
    
    
    2,627
    
    
    
    5,157
    
    
    
    5,230General and administrative
    
    
    18,670
    
    
    
    16,572
    
    
    
    37,723
    
    
    
    31,892Gain on disposal of assets
    
    
    (363
    )
    
    
    (758
    )
    
    
    (372
    )
    
    
    (760
    )Depreciation and amortization
    
    
    3,142
    
    
    
    2,651
    
    
    
    6,312
    
    
    
    5,448Interest
    
    
    19,908
    
    
    
    15,731
    
    
    
    38,280
    
    
    
    31,410Impairments and other write-offs
    
    
    240
    
    
    
    980
    
    
    
    323
    
    
    
    980Total costs and expenses
    
    
    92,139
    
    
    
    95,889
    
    
    
    184,917
    
    
    
    188,210Income (loss) before (benefit) provision for income taxes
    
    
    1,648
    
    
    
    1,544
    
    
    
    (3,598
    )
    
    
    (3,239
    )(Benefit) provision for income taxes
    
    
    (891
    )
    
    
    720
    
    
    
    582
    
    
    
    1,425Net income (loss)
    
    $
    2,539
    
    
    $
    824
    
    
    $
    (4,180
    )
    
    $
    (4,664
    )
 
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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF MEMBER CAPITAL (DEFICIT)
AND COMPREHENSIVE INCOME (LOSS)
For the six months ended June 30, 2011 and 2010
(Unaudited)
($ in thousands)
 Temporary Capital
    
    


    Permanent CapitalAccumulatedRedeemable
    
    
    Common
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Total MemberPreferred Units
    
    
    Units
    
    
    Member
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Capital
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    (Deficit)
    
    
    LossBalance at December 31, 2009
    
    
    1,000
    
    
    $
    103,528
    
    
    
    1,000
    
    
    $
    7,335
    
    
    $
    (198,317
    )
    
    $
    (16,407
    )
    
    $
    (207,389
    )Guggenheim equity investment
    
    
    
    
    
    
    25,000Repurchase of equity previously held by
another minority institutional investor
    
    
    
    
    
    
    (25,000
    )Fee related to 2010 Equity recapitalization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (721
    )
    
    
    
    
    
    
    (721
    )Net loss for the six months ended
June 30, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,664
    )
    
    
    
    
    
    
    (4,664
    )
    
    $
    (4,664
    )Other comprehensive loss:Currency translation adjustments, net of
tax of $0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,604
    )
    
    
    (2,604
    )
    
    
    (2,604
    )Priority returns and redemption
premiums
    
    
    
    
    
    
    5,722
    
    
    
    
    
    
    
    
    
    
    
    (5,722
    )
    
    
    
    
    
    
    (5,722
    )Balance at June 30, 2010
    
    
    1,000
    
    
    $
    109,250
    
    
    
    1,000
    
    
    $
    7,335
    
    
    $
    (209,424
    )
    
    $
    (19,011
    )
    
    $
    (221,100
    )Comprehensive loss for the six months
ended June 30, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (7,268
    )Balance at December 31, 2010
    
    
    1,000
    
    
    $
    84,502
    
    
    
    1,090
    
    
    $
    7,335
    
    
    $
    (201,338
    )
    
    $
    (17,746
    )
    
    $
    (211,749
    )Equity investment
    
    
    133.33
    
    
    
    10,151
    
    
    
    25.1Repurchase of a portion of outstanding
warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (97
    )
    
    
    (10,054
    )
    
    
    
    
    
    
    (10,151
    )Costs related to issuance of common and
preferred units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76
    )
    
    
    
    
    
    
    
    
    
    
    (76
    )Net loss for the six months ended
June 30, 2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,180
    )
    
    
    
    
    
    
    (4,180
    )
    
    $
    (4,180
    )Other comprehensive income:Currency translation adjustments, net of
tax of $0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,365
    
    
    
    2,365
    
    
    
    2,365Priority returns and redemption
premiums
    
    
    
    
    
    
    8,412
    
    
    
    
    
    
    
    
    
    
    
    (8,412
    )
    
    
    
    
    
    
    (8,412
    )Balance at June 30, 2011
    
    
    1,133.33
    
    
    $
    103,065
    
    
    
    1,115.1
    
    
    $
    7,162
    
    
    $
    (223,984
    )
    
    $
    (15,381
    )
    
    $
    (232,203
    )Comprehensive loss for the six months
ended June 30, 2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,815
    )
 
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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2011 and 2010
(Unaudited)
(In thousands)
 Six months
    
    
    Six monthsended
    
    
    endedJune 30,
    
    
    June 30,2011
    
    
    2010Operating Activities:Net loss
    
    $
    (4,180
    )
    
    $
    (4,664
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation and amortization
    
    
    6,312
    
    
    
    5,448Provision for uncollectible Vacation Interest sales revenue
    
    
    6,743
    
    
    
    868Amortization of capitalized financing costs and original
issue discounts
    
    
    3,334
    
    
    
    1,436Amortization of capitalized loan origination costs and
portfolio discount
    
    
    1,145
    
    
    
    550Gain on foreign currency exchange
    
    
    (17
    )
    
    
    (1
    )Gain on disposal of assets
    
    
    (372
    )
    
    
    (760
    )Gain on mortgage repurchase
    
    
    (120
    )
    
    
    (92
    )Deferred income taxes
    
    
    
    
    
    
    80Unrealized gain on derivative instruments
    
    
    (79
    )
    
    
    (201
    )Gain on insurance settlement
    
    
    (3,535
    )
    
    
    Impairments and other write-offs
    
    
    323
    
    
    
    980Changes in operating assets and liabilities excluding acquisitions:Mortgages and contracts receivable
    
    
    5,898
    
    
    
    10,054Due from related parties, net
    
    
    (305
    )
    
    
    7,835Other receivables, net
    
    
    18,497
    
    
    
    18,815Prepaid expenses and other assets, net
    
    
    (35,151
    )
    
    
    (26,776
    )Unsold Vacation Interests, net
    
    
    (28,287
    )
    
    
    1,865Accounts payable
    
    
    842
    
    
    
    (2,213
    )Due to related parties, net
    
    
    43,297
    
    
    
    15,754Accrued liabilities
    
    
    7,225
    
    
    
    467Income taxes payable
    
    
    947
    
    
    
    4,932Deferred revenues
    
    
    (8,494
    )
    
    
    (1,456
    )Net cash provided by operating activities
    
    
    14,023
    
    
    
    32,921Investing activities:Property and equipment capital expenditures
    
    
    (3,304
    )
    
    
    (2,214
    )Disbursement of Tempus Acquisition note receivable
    
    
    (3,493
    )
    
    
    Proceeds from sale of assets
    
    
    2,004
    
    
    
    2Net cash used in investing activities
    
    $
    (4,793
    )
    
    $
    (2,212
    )
 
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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  Continued  For the six months ended June 30, 2011 and 2010
(Unaudited)
 (In thousands)
 Six months
    
    
    Six monthsended
    
    
    endedJune 30,
    
    
    June 30,2011
    
    
    2010Financing activities:Changes in cash in escrow and restricted cash
    
    $
    (3,285
    )
    
    $
    759Proceeds from issuance of securitization notes and conduit facility
    
    
    80,554
    
    
    
    3,127Proceeds from issuance of notes payable
    
    
    3,200
    
    
    
    Payments on securitization notes and conduit facility
    
    
    (81,510
    )
    
    
    (35,552
    )Payments on line of credit agreements
    
    
    
    
    
    
    (1,138
    )Payments on notes payable
    
    
    (4,397
    )
    
    
    (4,285
    )Payments of debt issuance costs
    
    
    (2,740
    )
    
    
    (559
    )Proceeds from equity investment
    
    
    10,151
    
    
    
    25,000Repurchase of a portion of outstanding warrants
    
    
    (10,151
    )
    
    
    Repurchase of equity previously held by another minority
institutional investor
    
    
    
    
    
    
    (25,000
    )Payments of costs related to issuance of common and
preferred units
    
    
    (76
    )
    
    
    (721
    )Net cash used in financing activities
    
    
    (8,254
    )
    
    
    (38,369
    )Net increase (decrease) in cash and cash equivalents
    
    
    976
    
    
    
    (7,660
    )Effect of changes in exchange rates on cash and cash
equivalents
    
    
    313
    
    
    
    (355
    )Cash and cash equivalents, beginning of period
    
    
    27,329
    
    
    
    17,186Cash and cash equivalents, end of period
    
    $
    28,618
    
    
    $
    9,171SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    35,220
    
    
    $
    31,220Cash tax refunds, net of cash paid for taxes
    
    $
    (340
    )
    
    $
    (3,612
    )SUPPLEMENTAL
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Priority returns and redemption premiums on preferred units
    
    $
    8,412
    
    
    $
    5,722Insurance premiums financed through issuance of note payable
    
    $
    5,713
    
    
    $
    6,052Assets held for sale reclassified to unsold Vacation Interests
    
    $
    3,082
    
    
    $
    
 
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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 1Background, Business and Basis of Presentation
 Business and Background
 
 ® ®
  
    
    Hospitality and Management Services.The Company manages 71 branded resort properties,
which are located in the continental United States, Hawaii, the Caribbean and Europe. The
Company also manages five multi-resort trusts or similar arrangements (the Collections).
Each Collection holds real estate in the Companys resort properties underlying the
Vacation Interests that the Company sells. As manager of the Companys branded resorts and
Collections, it provides billing services, account collections, accounting and treasury
functions and information technology services. In addition, for branded resorts, the
Company also provides an online reservation system and customer service contact center,
operates the front desks and amenities and furnishes housekeeping, maintenance and human
resources services. Management contracts typically have an initial term of three to five
years with automatic renewals and are structured on a cost-plus basis, thereby providing
the Company with a recurring and stable revenue stream. In addition, the Company earns
recurring fees by operating THE Club, the points-based exchange and member services program
that enables members to vacation at any of the 207 resorts in the Companys network. These
items are included in management, member and other services revenue and expense in the
accompanying condensed consolidated statements of operations.
 In addition, the Company serves as the homeowners association (HOA) for its two resorts
in St. Maarten and earns maintenance fees and incurs operating expenses at these two
resorts. At certain resorts, the Company also operates golf courses, food and beverage
venues, retail shops, a campground and a marina and earns incidental revenue and incurs
operating expense. Finally, the Company provides cable, telephone, and technology services
to HOAs. These items are included in consolidated resort
operations revenue and expense in the accompanying condensed consolidated statements of
operations.
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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
 
    
    Marketing and Sales of Vacation Interests.The Company markets and sells Vacation
Interests in its resort network. Sales prospects are generated by utilizing a variety of
marketing programs. Currently, the Company sells Vacation Interests only in the form of
points, which can be utilized for vacations for varying lengths of stay at any resort in
its network. In the past, the Company also sold Vacation Interests in the form of deeded
intervals, which provide the right to vacation at a particular resort for a specified
length of time.
 
    
    Consumer Financing of Vacation Interests. The Company provides loans to eligible
customers who purchase Vacation Interests through sales centers and choose to finance their
purchase. These loans are collateralized by the underlying Vacation Interests and bear
interest at a fixed rate. The Companys consumer finance servicing operations include
underwriting, collection and servicing of its consumer loan portfolio.
 Basis of Presentation
  AKGI St. Maarten, NV and subsidiariesCitrus Insurance Company, Inc.DRI Quorum 2010 LLCDiamond Resorts (Europe) Ltd. and subsidiariesDiamond Resorts Centralized Services CompanyDiamond Resorts CorporationDiamond Resorts Developer and Sales Holding Company and subsidiariesDiamond Resorts Finance Holding Company and subsidiariesDiamond Resorts Holdings, LLCDiamond Resorts Issuer 2008, LLCDiamond Resorts Management and Exchange Holding Company and subsidiariesDiamond Resorts Owner Trust 2009-1Diamond Resorts Owner Trust 2011-1Diamond Resorts Polo Development, LLCDiamond Resorts Services, LLCFLRX, Inc. and subsidiariesGeorge Acquisition Subsidiary, Inc.ILX Acquisition, Inc. and subsidiariesSunterra Owner Trust 2004-1Tempus Acquisition, LLC and subsidiaries
 
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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
  Reclassifications
  Liquidity
   Note 2Summary of Significant Accounting Policies
 Principles of Consolidation
 Use of Estimates
  10




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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
  Recently Adopted Accounting Pronouncements
     11




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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
    Note 3Cash in Escrow and Restricted Cash
  June 30,
    
    
    December 31,2011
    
    
    2010Securitization and conduit collection and reserve cash
    
    $
    11,505
    
    
    $
    14,040Collected on behalf of HOAs and other
    
    
    8,949
    
    
    
    5,447Escrow
    
    
    5,063
    
    
    
    4,615Rental trust
    
    
    5,506
    
    
    
    3,717Bonds and deposits
    
    
    2,347
    
    
    
    2,229Total cash in escrow and restricted cash
    
    $
    33,370
    
    
    $
    30,048
 Note 4Mortgages and Contracts Receivable and Allowance for Loan and Contract Losses
  12




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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
       13




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##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
 June 30,
    
    
    December 31,2011
    
    
    2010Mortgages and contracts receivable, acquired  April 27, 2007 Merger
    
    $
    61,982
    
    
    $
    71,200Mortgages and contracts receivable, contributed
    
    
    4,796
    
    
    
    11,125Mortgages and contracts receivable, originated
    
    
    197,308
    
    
    
    198,959Mortgages and contracts receivable, purchased (unrestricted subsidiaries)
    
    
    8,872
    
    
    
    12,043Mortgages and contracts receivable, originated (unrestricted subsidiaries)
    
    
    605
    
    
    
    Mortgages and contracts receivable, gross
    
    
    273,563
    
    
    
    293,327Allowance for loan and contract losses
    
    
    (47,509
    )
    
    
    (51,551
    )Allowance for loan and contract losses (unrestricted subsidiaries)
    
    
    (3,847
    )
    
    
    (3,600
    )Deferred profit on Vacation Interest transactions
    
    
    (2,255
    )
    
    
    (2,349
    )Deferred loan and contract origination costs, net of accumulated amortization
    
    
    2,552
    
    
    
    2,823Inventory value of defaulted mortgages that were previously contributed and
acquired
    
    
    7,900
    
    
    
    7,439Discount on mortgages and contracts receivable, net of accumulated
amortization
    
    
    (639
    )
    
    
    (802
    )Mortgages and contracts receivable, net
    
    $
    229,765
    
    
    $
    245,287
     14




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##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Balance, beginning of period
    
    $
    52,992
    
    
    $
    56,806
    
    
    $
    55,149
    
    
    $
    60,911Provision for uncollectible Vacation Interest sales revenue
    
    
    3,774
    
    
    
    (705
    )
    
    
    6,640
    
    
    
    719Provision for uncollectible Vacation Interest sales revenue
(unrestricted subsidiaries)
    
    
    10
    
    
    
    
    
    
    
    83
    
    
    
    Mortgages and contracts receivable charged off
    
    
    (5,950
    )
    
    
    (4,171
    )
    
    
    (12,665
    )
    
    
    (9,589
    )Mortgages and contracts receivable charged off
(unrestricted subsidiaries)
    
    
    (679
    )
    
    
    
    
    
    
    (1,497
    )
    
    
    Recoveries
    
    
    1,210
    
    
    
    
    
    
    
    1,973
    
    
    
    Increase in allowance based on final ILX appraisal
(unrestricted subsidiaries)
    
    
    
    
    
    
    
    
    
    
    1,660
    
    
    
    Effect of translation rate
    
    
    (1
    )
    
    
    
    
    
    
    13
    
    
    
    (111
    )Balance, end of period
    
    $
    51,356
    
    
    $
    51,930
    
    
    $
    51,356
    
    
    $
    51,930
  Diamond
    
    
    UnrestrictedResorts
    
    
    SubsidiariesMortgages and
    
    
    Mortgages andFICO Scores
    
    Contracts
    
    
    Contracts
    
    
    Total>799
    
    $
    14,729
    
    
    $
    289
    
    
    $
    15,018700 - 799
    
    
    115,397
    
    
    
    2,819
    
    
    
    118,216600 - 699
    
    
    90,750
    
    
    
    3,563
    
    
    
    94,313<600
    
    
    36,889
    
    
    
    2,196
    
    
    
    39,085No FICO Scores
    
    
    6,320
    
    
    
    611
    
    
    
    6,931$
    264,085
    
    
    $
    9,478
    
    
    $
    273,563
  Diamond
    
    
    UnrestrictedResorts
    
    
    SubsidiariesMortgages and
    
    
    Mortgages andFICO Scores
    
    Contracts
    
    
    Contracts
    
    
    Total>799
    
    $
    17,055
    
    
    $
    90
    
    
    $
    17,145700 - 799
    
    
    123,558
    
    
    
    2,888
    
    
    
    126,446600 - 699
    
    
    96,087
    
    
    
    3,977
    
    
    
    100,064<600
    
    
    38,373
    
    
    
    2,128
    
    
    
    40,501No FICO Scores
    
    
    6,211
    
    
    
    2,960
    
    
    
    9,171$
    281,284
    
    
    $
    12,043
    
    
    $
    293,327
   15




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##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
  Note 5Transactions with Related Parties
 Due from Related Parties, Net and Due to Related Parties, Net
    June 30,
    
    
    December 31,2011
    
    
    2010Amounts due from HOAs
    
    $
    19,272
    
    
    $
    19,941Amounts due from trusts
    
    
    3,905
    
    
    
    1,017Total due from related parties, net
    
    $
    23,177
    
    
    $
    20,958
  June 30,
    
    
    December 31,2011
    
    
    2010Amounts due to HOAs
    
    $
    49,046
    
    
    $
    30,377Amounts due to trusts
    
    
    26,505
    
    
    
    5,874Total due to related parties, net
    
    $
    75,551
    
    
    $
    36,251
 16




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##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
 Management Services
   Allocation of Expenses
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Reduction of management, member and other services expenses
    
    $
    2,192
    
    
    $
    1,646
    
    
    $
    4,401
    
    
    $
    3,322Reduction of general and administrative expenses
    
    
    6,556
    
    
    
    5,896
    
    
    
    13,063
    
    
    
    11,916Total allocation of expenses
    
    $
    8,748
    
    
    $
    7,542
    
    
    $
    17,464
    
    
    $
    15,238
 Note 6Other Receivables, Net
  June 30,
    
    
    December 31,2011
    
    
    2010THE Club dues receivable
    
    $
    11,218
    
    
    $
    29,534Mortgage interest receivable
    
    
    3,149
    
    
    
    3,651Tempus Note Receivable
    
    
    6,498
    
    
    
    3,005Rental receivables and other resort management-related receivables
    
    
    4,108
    
    
    
    2,893Owner maintenance fee receivable
    
    
    3,835
    
    
    
    2,097THE Club conversion receivable
    
    
    920
    
    
    
    1,409Mini-vacation and sampler programs receivable
    
    
    1,128
    
    
    
    1,060Proceeds from ILXA Inventory Loan in Transit
    
    
    
    
    
    
    1,028Insurance claims receivable
    
    
    195
    
    
    
    533Other receivables
    
    
    1,938
    
    
    
    2,970Total other receivables, gross
    
    
    32,989
    
    
    
    48,180Allowance for doubtful accounts
    
    
    (12,955
    )
    
    
    (12,200
    )Total other receivables, net
    
    $
    20,034
    
    
    $
    35,980
 17




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##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
  Note 7Prepaid Expenses and Other Assets, Net
  Prepaid and unamortized maintenance fees
 Deferred commissions
 Vacation Interest purchases in transit
 Prepaid rent
 Unamortized exchange fees
 Prepaid payroll expense
  18




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##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS     Continued
(Unaudited)
 June 30,
    
    
    December 31,2011
    
    
    2010Debt issuance costs, net
    
    $
    24,065
    
    
    $
    24,098Prepaid and unamortized maintenance fees
    
    
    29,797
    
    
    
    5,663Other inventory/consumables
    
    
    3,183
    
    
    
    3,019Deferred commissions
    
    
    2,885
    
    
    
    2,494Deposits and advances
    
    
    1,733
    
    
    
    2,457Assets to be disposed (not actively marketed)
    
    
    2,252
    
    
    
    2,169Prepaid insurance
    
    
    3,636
    
    
    
    2,061Vacation Interest purchases in transit
    
    
    1,101
    
    
    
    1,099Prepaid rent
    
    
    259
    
    
    
    255Prepaid sales and marketing costs
    
    
    251
    
    
    
    239Unamortized exchange fees
    
    
    4,237
    
    
    
    Deferred interval recovery and remarketing agreement expenses
    
    
    1,758
    
    
    
    Prepaid payroll expense
    
    
    2,413
    
    
    
    Other
    
    
    4,391
    
    
    
    2,694Total prepaid expenses and other assets, net
    
    $
    81,961
    
    
    $
    46,248
   Note 8Unsold Vacation Interests, Net
  June 30,
    
    
    December 31,2011
    
    
    2010Completed unsold Vacation Interests, net
    
    $
    188,704
    
    
    $
    157,491Undeveloped land
    
    
    32,568
    
    
    
    32,159Vacation Interest construction in progress
    
    
    1,291
    
    
    
    914Unsold Vacation Interests, net
    
    $
    222,563
    
    
    $
    190,564
  19




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##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
      Note 9Property and Equipment, Net
    June 30,
    
    
    December 31,2011
    
    
    2010Land and improvements
    
    $
    5,705
    
    
    $
    4,021Buildings and leasehold improvements
    
    
    22,685
    
    
    
    18,468Furniture and office equipment
    
    
    9,387
    
    
    
    8,674Computer software
    
    
    9,618
    
    
    
    9,110Computer equipment
    
    
    5,517
    
    
    
    4,776Construction in progress
    
    
    551
    
    
    
    433Property and equipment, gross
    
    
    53,463
    
    
    
    45,482Less accumulated depreciation
    
    
    (19,395
    )
    
    
    (16,385
    )Property and equipment, net
    
    $
    34,068
    
    
    $
    29,097
 20




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##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
   Note 10Intangible Assets, Net
  GrossCarrying
    
    
    Accumulated
    
    
    Net BookCost
    
    
    Amortization
    
    
    ValueManagement contracts
    
    $
    49,342
    
    
    $
    (11,419
    )
    
    $
    37,923Member relationships
    
    
    26,943
    
    
    
    (22,486
    )
    
    
    4,457Distributor relationships and other
    
    
    1,249
    
    
    
    (309
    )
    
    
    940$
    77,534
    
    
    $
    (34,214
    )
    
    $
    43,320
  GrossCarrying
    
    
    Accumulated
    
    
    Net BookCost
    
    
    Amortization
    
    
    ValueManagement contracts
    
    $
    48,700
    
    
    $
    (9,239
    )
    
    $
    39,461Member relationships
    
    
    26,953
    
    
    
    (21,753
    )
    
    
    5,200Distributor relationships and other
    
    
    1,227
    
    
    
    (175
    )
    
    
    1,052$
    76,880
    
    
    $
    (31,167
    )
    
    $
    45,713
 
  Note 11Assets Held for Sale
  21




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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
  Note 12Borrowings
 Diamond Resorts Owners Trust Series 2011-1 Timeshare Loan Backed Notes, Series 2011-1
   Tempus Acquisition Loan
  
 Polo Towers Lines of Credit and Securitization Notes Payable
   22




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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
 Notes Payable
   June 30,
    
    
    
    
    
    
    December 31,2011
    
    
    2010WeightedAveragePrincipal
    
    
    Interest
    
    
    
    
    
    
    PrincipalBalance
    
    
    Rate
    
    
    Maturity
    
    
    BalanceSenior Secured Notes
    
    $
    425,000
    
    
    
    12.0
    %
    
    
    8/15/18
    
    
    $
    425,000Original
issue discount related to Senior Secured Notes
    
    
    (9,882
    )
    
    
    
    
    
    
    
    
    
    
    (10,278
    )Diamond Resorts Owners Trust Series 2009-1
    
    
    102,112
    
    
    
    9.5
    %
    
    
    3/20/26
    
    
    
    121,843Original
issue discount related to Diamond Resorts Owners Trust Series 2009-1
    
    
    (746
    )
    
    
    
    
    
    
    
    
    
    
    (899
    )Diamond Resorts Owners Trust Series 2011-1
    
    
    60,935
    
    
    
    4.0
    %
    
    
    3/20/23
    
    
    
    Original
issue discount related to Diamond Resorts Owners Trust Series 2011-1
    
    
    (433
    )
    
    
    
    
    
    
    
    
    
    
    2008 Conduit Facility
    
    
    3,486
    
    
    
    5.5
    %
    
    
    8/30/11
    
    
    
    39,467ILXA Inventory Loan
    
    
    18,178
    
    
    
    7.5
    %
    
    
    8/31/15
    
    
    
    18,541Quorum Facility
    
    
    12,146
    
    
    
    7.4
    %
    
    
    4/30/12
    
    
    
    12,942ILXA Receivables Loan
    
    
    8,552
    
    
    
    10.0
    %
    
    
    8/31/15
    
    
    
    10,292Tempus Acquisition Loan*
    
    
    6,500
    
    
    
    10.0
    %
    
    
    7/1/11
    
    
    
    3,300Polo Towers Lines of Credit
    
    
    
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    2,060Notes payable-insurance policies
    
    
    3,068
    
    
    
    3.2
    %
    
    Various
    
    
    1,366Polo Towers Securitization Notes Payable
    
    
    
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    1,138Notes payable-other
    
    
    44
    
    
    
    3.6
    %
    
    Various
    
    
    66Total borrowings
    
    $
    628,960
    
    
    
    
    
    
    
    
    
    
    $
    624,838
 
 *
    
    Paid in full on July 1, 2011; however, additional debt was issued on the same date in
connection with the Tempus Resorts Acquisition. Derivative Instruments
   23




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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
     Borrowing Restrictions and Limitations
  Capitalized Interest
  Note 13Accrued Liabilities
  Accrued marketing expenses
 Accrued liability related to business combinations
 24




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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
 Accrued exchange company fees
 Accrued contingent litigation liabilities
 Accrued operating lease liabilities
 Accrued call center cost
 Accrued construction costs
  June 30,
    
    
    December 31,2011
    
    
    2010Accrued interest
    
    $
    20,169
    
    
    $
    20,365Accrued payroll and related
    
    
    13,953
    
    
    
    14,953Accrued marketing expenses
    
    
    4,996
    
    
    
    5,405Accrued commissions
    
    
    7,046
    
    
    
    4,787Accrued liability related to business combinations
    
    
    3,744
    
    
    
    3,744Accrued other taxes
    
    
    4,145
    
    
    
    3,299Accrued insurance
    
    
    2,112
    
    
    
    2,766Accrued professional fees
    
    
    2,035
    
    
    
    2,648Accrued contingent litigation liabilities
    
    
    2,693
    
    
    
    2,642Accrued operating lease liabilities
    
    
    2,080
    
    
    
    2,046Accrued exchange company fees
    
    
    5,958
    
    
    
    1,206Accrued call center costs
    
    
    1,521
    
    
    
    1,114Accrued construction costs
    
    
    446
    
    
    
    247Other
    
    
    4,089
    
    
    
    2,311Total accrued liabilities
    
    $
    74,987
    
    
    $
    67,533
 Note 14Deferred Revenues
  THE Club deferred revenue
 Deferred maintenance and reserve fee revenue 
 Deferred mini-vacations and sampler programs revenue
 Deferred revenue from an exchange company
 25




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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
   June 30,
    
    
    December 31,2011
    
    
    2010THE Club deferred revenue
    
    $
    17,881
    
    
    $
    36,535Deferred maintenance fee revenue
    
    
    22,291
    
    
    
    13,491Deferred mini-vacations and sampler program revenue
    
    
    13,369
    
    
    
    11,465Deferred revenue from an exchange company
    
    
    3,046
    
    
    
    3,246Other
    
    
    3,120
    
    
    
    2,969Total deferred revenues
    
    $
    59,707
    
    
    $
    67,706
 Note 15Income Taxes
  Note 16Commitments and Contingencies
 Lease Agreements
   Purchase Obligations
  Litigation and Other
  26




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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS     Continued
(Unaudited)
     27




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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
   Note 17Fair Value Measurements
  
    
    Level 1: Quoted prices for identical instruments in active markets.
 
    
    Level 2: Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-derived
valuations whose inputs or significant value drivers are observable.
 
    
    Level 3: Unobservable inputs used when little or no market data is available.
    Derivative LiabilitiesBalance at December 31, 2010
    
    $
    79Total change in fair value as a reduction to interest expense
    
    
    (79
    )Balance at June 30, 2011
    
    $
    
  28




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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    Continued
(Unaudited)
        Note 18  Common and Preferred Units
    29




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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
          30




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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
     Note 19Business Combination
   31




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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
 AdjustmentsBased on
    
    
    RecordedPreliminary
    
    
    During theAppraisal as
    
    
    Quarter Ended
    
    
    Based onPreviously
    
    
    March 31,
    
    
    FinalReported
    
    
    2011
    
    
    AppraisalConsideration:Cash
    
    $
    30,722
    
    
    $
    
    
    
    $
    30,722Fair value of total consideration transferred
    
    $
    30,722
    
    
    $
    
    
    
    $
    30,722Recognized amounts of identifiable assets and
liabilities assumed as of August 31, 2010:Cash in escrow and restricted cash
    
    $
    54
    
    
    $
    
    
    
    $
    54Mortgages and contracts receivable
    
    
    9,802
    
    
    
    (1,660
    )
    
    
    8,142Prepaid expenses and other assets
    
    
    365
    
    
    
    (31
    )
    
    
    334Unsold Vacation Interests
    
    
    10,100
    
    
    
    
    
    
    
    10,100Property and equipment
    
    
    5,705
    
    
    
    1,679
    
    
    
    7,384Intangible assets
    
    
    8,850
    
    
    
    (100
    )
    
    
    8,750Total assets
    
    
    34,876
    
    
    
    (112
    )
    
    
    34,764Current liabilities
    
    
    4,154
    
    
    
    (112
    )
    
    
    4,042Total identifiable net assets
    
    $
    30,722
    
    
    $
    
    
    
    $
    30,722
  Based on
    
    
    RecordedWeighted
    
    
    Preliminary
    
    
    During theAverage
    
    
    Appraisal as
    
    
    Quarter Ended
    
    
    Based onUseful Life
    
    
    Previously
    
    
    March 31,
    
    
    Finalin Years
    
    
    Reported
    
    
    2011
    
    
    AppraisalMember relationships
    
    
    10
    
    
    $
    1,100
    
    
    $
    (100
    )
    
    $
    1,000Management contracts
    
    
    5
    
    
    
    7,120
    
    
    
    
    
    
    
    7,120Trade name
    
    
    5
    
    
    
    600
    
    
    
    
    
    
    
    600Domain name
    
    
    5
    
    
    
    30
    
    
    
    
    
    
    
    30Total acquired intangible assets
    
    
    
    
    
    $
    8,850
    
    
    $
    (100
    )
    
    $
    8,750
 The ILX management contracts have automatic renewals for a weighted average term of
approximately ten years. The weighted average period before the next renewal or extension is
approximately five years.
 These notes to the condensed consolidated financial statements do not present supplemental pro
forma information to include revenue and earnings of ILX for all periods presented, as the Company
deems that it is impracticable to obtain this information. The historical ILX financial statements
include segments of operations that were not acquired by the Company. These financial statements
co-mingle all activities. As such, management cannot reasonably estimate and carve out the amounts
related to the assets acquired and the liabilities assumed by the Company. Additionally, based on
the criteria included in ASC 805, the ILX Acquisition is not material in relation to the total
assets included on the condensed consolidated balance sheets and the net loss reported on the
condensed consolidated statements of operations.
 32




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##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
 Note 20Segment Reporting
   33




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##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
  CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS BY BUSINESS SEGMENT
For the three months ended June 30, 2011 and 2010
(In thousands)
 Three Months Ended
    
    
    Three Months EndedJune 30, 2011
    
    
    June 30, 2010Hospitality and
    
    
    Vacation
    
    
    
    
    
    
    
    
    
    
    Hospitality and
    
    
    VacationManagement
    
    
    Interest Sales
    
    
    Corporate and
    
    
    
    
    
    
    Management
    
    
    Interest Sales
    
    
    Corporate andServices
    
    
    and Financing
    
    
    Other
    
    
    Total
    
    
    Services
    
    
    and Financing
    
    
    Other
    
    
    TotalRevenues:Vacation Interest sales
    
    $
    
    
    
    $
    52,470
    
    
    $
    
    
    
    $
    52,470
    
    
    $
    
    
    
    $
    54,236
    
    
    $
    
    
    
    $
    54,236Provision for uncollectible Vacation
Interest sales revenue
    
    
    
    
    
    
    (3,753
    )
    
    
    
    
    
    
    (3,753
    )
    
    
    
    
    
    
    754
    
    
    
    
    
    
    
    754Vacation Interest, net
    
    
    
    
    
    
    48,717
    
    
    
    
    
    
    
    48,717
    
    
    
    
    
    
    
    54,990
    
    
    
    
    
    
    
    54,990Management, member and other services
    
    
    25,235
    
    
    
    2,701
    
    
    
    
    
    
    
    27,936
    
    
    
    22,929
    
    
    
    2,794
    
    
    
    
    
    
    
    25,723Consolidated resort operations
    
    
    7,242
    
    
    
    
    
    
    
    
    
    
    
    7,242
    
    
    
    6,993
    
    
    
    
    
    
    
    
    
    
    
    6,993Interest
    
    
    
    
    
    
    9,298
    
    
    
    503
    
    
    
    9,801
    
    
    
    
    
    
    
    9,655
    
    
    
    16
    
    
    
    9,671Gain on mortgage repurchase
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    56Total revenues
    
    
    32,477
    
    
    
    60,807
    
    
    
    503
    
    
    
    93,787
    
    
    
    29,922
    
    
    
    67,495
    
    
    
    16
    
    
    
    97,433Costs and Expenses:Vacation Interest cost of sales
    
    
    
    
    
    
    (5,681
    )
    
    
    
    
    
    
    (5,681
    )
    
    
    
    
    
    
    11,240
    
    
    
    
    
    
    
    11,240Advertising, sales and marketing
    
    
    
    
    
    
    33,197
    
    
    
    
    
    
    
    33,197
    
    
    
    
    
    
    
    27,799
    
    
    
    
    
    
    
    27,799Vacation Interest carrying cost, net
    
    
    
    
    
    
    7,347
    
    
    
    
    
    
    
    7,347
    
    
    
    
    
    
    
    6,747
    
    
    
    
    
    
    
    6,747Management, member and other services
    
    
    5,547
    
    
    
    487
    
    
    
    
    
    
    
    6,034
    
    
    
    5,125
    
    
    
    527
    
    
    
    
    
    
    
    5,652Consolidated resort operations
    
    
    7,106
    
    
    
    
    
    
    
    
    
    
    
    7,106
    
    
    
    6,648
    
    
    
    
    
    
    
    
    
    
    
    6,648Loan portfolio
    
    
    260
    
    
    
    2,279
    
    
    
    
    
    
    
    2,539
    
    
    
    264
    
    
    
    2,363
    
    
    
    
    
    
    
    2,627General and administrative
    
    
    
    
    
    
    
    
    
    
    18,670
    
    
    
    18,670
    
    
    
    
    
    
    
    
    
    
    
    16,572
    
    
    
    16,572Gain on sale of assets
    
    
    
    
    
    
    
    
    
    
    (363
    )
    
    
    (363
    )
    
    
    
    
    
    
    
    
    
    
    (758
    )
    
    
    (758
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    3,142
    
    
    
    3,142
    
    
    
    
    
    
    
    
    
    
    
    2,651
    
    
    
    2,651Interest
    
    
    
    
    
    
    4,378
    
    
    
    15,530
    
    
    
    19,908
    
    
    
    
    
    
    
    4,608
    
    
    
    11,123
    
    
    
    15,731Impairments and other write-offs
    
    
    
    
    
    
    
    
    
    
    240
    
    
    
    240
    
    
    
    
    
    
    
    
    
    
    
    980
    
    
    
    980Total costs and expenses
    
    
    12,913
    
    
    
    42,007
    
    
    
    37,219
    
    
    
    92,139
    
    
    
    12,037
    
    
    
    53,284
    
    
    
    30,568
    
    
    
    95,889Income (loss) before provision for
income taxes
    
    
    19,564
    
    
    
    18,800
    
    
    
    (36,716
    )
    
    
    1,648
    
    
    
    17,885
    
    
    
    14,211
    
    
    
    (30,552
    )
    
    
    1,544(Benefit) provision for income taxes
    
    
    
    
    
    
    
    
    
    
    (891
    )
    
    
    (891
    )
    
    
    
    
    
    
    
    
    
    
    720
    
    
    
    720Net income (loss)
    
    $
    19,564
    
    
    $
    18,800
    
    
    $
    (35,825
    )
    
    $
    2,539
    
    
    $
    17,885
    
    
    $
    14,211
    
    
    $
    (31,272
    )
    
    $
    824
 34




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##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS BY BUSINESS SEGMENT
For the six months ended June 30, 2011 and 2010
(In thousands)
 Six Months Ended
    
    
    Six Months EndedJune 30, 2011
    
    
    June 30, 2010Hospitality and
    
    
    Vacation
    
    
    
    
    
    
    
    
    
    
    Hospitality and
    
    
    VacationManagement
    
    
    Interest Sales
    
    
    Corporate and
    
    
    
    
    
    
    Management
    
    
    Interest Sales
    
    
    Corporate andServices
    
    
    and Financing
    
    
    Other
    
    
    Total
    
    
    Services
    
    
    and Financing
    
    
    Other
    
    
    TotalRevenues:Vacation Interest sales
    
    $
    
    
    
    $
    94,403
    
    
    $
    
    
    
    $
    94,403
    
    
    $
    
    
    
    $
    102,318
    
    
    $
    
    
    
    $
    102,318Provision for uncollectible Vacation
Interest sales revenue
    
    
    
    
    
    
    (6,743
    )
    
    
    
    
    
    
    (6,743
    )
    
    
    
    
    
    
    (868
    )
    
    
    
    
    
    
    (868
    )Vacation Interest, net
    
    
    
    
    
    
    87,660
    
    
    
    
    
    
    
    87,660
    
    
    
    
    
    
    
    101,450
    
    
    
    
    
    
    
    101,450Management, member and other services
    
    
    54,878
    
    
    
    4,843
    
    
    
    
    
    
    
    59,721
    
    
    
    44,920
    
    
    
    5,528
    
    
    
    
    
    
    
    50,448Consolidated resort operations
    
    
    14,188
    
    
    
    
    
    
    
    
    
    
    
    14,188
    
    
    
    13,494
    
    
    
    
    
    
    
    
    
    
    
    13,494Interest
    
    
    
    
    
    
    18,713
    
    
    
    917
    
    
    
    19,630
    
    
    
    
    
    
    
    19,449
    
    
    
    38
    
    
    
    19,487Gain on mortgage repurchase
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    92
    
    
    
    
    
    
    
    92Total revenues
    
    
    69,066
    
    
    
    111,336
    
    
    
    917
    
    
    
    181,319
    
    
    
    58,414
    
    
    
    126,519
    
    
    
    38
    
    
    
    184,971Costs and Expenses:Vacation Interest cost of sales
    
    
    
    
    
    
    (5,614
    )
    
    
    
    
    
    
    (5,614
    )
    
    
    
    
    
    
    21,865
    
    
    
    
    
    
    
    21,865Advertising, sales and marketing
    
    
    
    
    
    
    61,633
    
    
    
    
    
    
    
    61,633
    
    
    
    
    
    
    
    53,264
    
    
    
    
    
    
    
    53,264Vacation Interest carrying cost, net
    
    
    
    
    
    
    15,907
    
    
    
    
    
    
    
    15,907
    
    
    
    
    
    
    
    14,182
    
    
    
    
    
    
    
    14,182Management, member and other services
    
    
    11,552
    
    
    
    742
    
    
    
    
    
    
    
    12,294
    
    
    
    11,182
    
    
    
    992
    
    
    
    
    
    
    
    12,174Consolidated resort operations
    
    
    13,274
    
    
    
    
    
    
    
    
    
    
    
    13,274
    
    
    
    12,525
    
    
    
    
    
    
    
    
    
    
    
    12,525Loan portfolio
    
    
    439
    
    
    
    4,718
    
    
    
    
    
    
    
    5,157
    
    
    
    516
    
    
    
    4,714
    
    
    
    
    
    
    
    5,230General and administrative
    
    
    
    
    
    
    
    
    
    
    37,723
    
    
    
    37,723
    
    
    
    
    
    
    
    
    
    
    
    31,892
    
    
    
    31,892Gain on sale of assets
    
    
    
    
    
    
    
    
    
    
    (372
    )
    
    
    (372
    )
    
    
    
    
    
    
    
    
    
    
    (760
    )
    
    
    (760
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    6,312
    
    
    
    6,312
    
    
    
    
    
    
    
    
    
    
    
    5,448
    
    
    
    5,448Interest
    
    
    
    
    
    
    8,433
    
    
    
    29,847
    
    
    
    38,280
    
    
    
    
    
    
    
    9,535
    
    
    
    21,875
    
    
    
    31,410Impairments and other write-offs
    
    
    
    
    
    
    
    
    
    
    323
    
    
    
    323
    
    
    
    
    
    
    
    
    
    
    
    980
    
    
    
    980Total costs and expenses
    
    
    25,265
    
    
    
    85,819
    
    
    
    73,833
    
    
    
    184,917
    
    
    
    24,223
    
    
    
    104,552
    
    
    
    59,435
    
    
    
    188,210Income (loss) before provision for
income taxes
    
    
    43,801
    
    
    
    25,517
    
    
    
    (72,916
    )
    
    
    (3,598
    )
    
    
    34,191
    
    
    
    21,967
    
    
    
    (59,397
    )
    
    
    (3,239
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    582
    
    
    
    582
    
    
    
    
    
    
    
    
    
    
    
    1,425
    
    
    
    1,425Net income (loss)
    
    $
    43,801
    
    
    $
    25,517
    
    
    $
    (73,498
    )
    
    $
    (4,180
    )
    
    $
    34,191
    
    
    $
    21,967
    
    
    $
    (60,822
    )
    
    $
    (4,664
    )
 35




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##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
 Note 21Condensed Consolidating Financial Statements
  36




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##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
 CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2011 and December 31, 2010
(In thousands)
 June 30, 2011
    
    
    December 31, 2010(Unaudited)
    
    
    (Audited)Diamond
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DiamondResorts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ResortsParent, LLC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Parent, LLCand Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    
    
    
    
    and Restricted
    
    
    UnrestrictedSubsidiaries
    
    
    Subsidiaries
    
    
    Elimination
    
    
    Total
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Elimination
    
    
    TotalASSETSCash and cash equivalents
    
    $
    28,341
    
    
    $
    277
    
    
    $
    
    
    
    $
    28,618
    
    
    $
    27,163
    
    
    $
    166
    
    
    $
    
    
    
    $
    27,329Cash in escrow and
restricted cash
    
    
    33,192
    
    
    
    178
    
    
    
    
    
    
    
    33,370
    
    
    
    29,868
    
    
    
    180
    
    
    
    
    
    
    
    30,048Mortgages and contracts
receivable, net of
allowance of $47,508,
$3,848, $0, $51,356,
$51,551, $3,600, $0 and
$55,151, respectively
    
    
    224,364
    
    
    
    5,408
    
    
    
    (7
    )
    
    
    229,765
    
    
    
    236,846
    
    
    
    8,454
    
    
    
    (13
    )
    
    
    245,287Due from related parties,
net
    
    
    22,889
    
    
    
    301
    
    
    
    (13
    )
    
    
    23,177
    
    
    
    20,789
    
    
    
    223
    
    
    
    (54
    )
    
    
    20,958Other receivables, net
    
    
    13,149
    
    
    
    6,885
    
    
    
    
    
    
    
    20,034
    
    
    
    31,650
    
    
    
    4,330
    
    
    
    
    
    
    
    35,980Income tax receivable
    
    
    26
    
    
    
    209
    
    
    
    (209
    )
    
    
    26
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    10Prepaid expenses and other
assets, net
    
    
    77,795
    
    
    
    5,831
    
    
    
    (1,665
    )
    
    
    81,961
    
    
    
    45,260
    
    
    
    2,662
    
    
    
    (1,674
    )
    
    
    46,248Unsold Vacation Interests,
net
    
    
    209,621
    
    
    
    12,942
    
    
    
    
    
    
    
    222,563
    
    
    
    180,464
    
    
    
    10,100
    
    
    
    
    
    
    
    190,564Property and equipment, net
    
    
    27,046
    
    
    
    7,022
    
    
    
    
    
    
    
    34,068
    
    
    
    23,468
    
    
    
    5,629
    
    
    
    
    
    
    
    29,097Assets held for sale
    
    
    6,786
    
    
    
    
    
    
    
    
    
    
    
    6,786
    
    
    
    9,517
    
    
    
    
    
    
    
    
    
    
    
    9,517Intangible assets, net
    
    
    35,945
    
    
    
    7,375
    
    
    
    
    
    
    
    43,320
    
    
    
    37,411
    
    
    
    8,302
    
    
    
    
    
    
    
    45,713Total assets
    
    $
    679,154
    
    
    $
    46,428
    
    
    $
    (1,894
    )
    
    $
    723,688
    
    
    $
    642,446
    
    
    $
    40,046
    
    
    $
    (1,741
    )
    
    $
    680,751LIABILITIES AND
MEMBER CAPITAL
(DEFICIT)Accounts payable
    
    $
    8,480
    
    
    $
    115
    
    
    $
    
    
    
    $
    8,595
    
    
    $
    7,409
    
    
    $
    246
    
    
    $
    
    
    
    $
    7,655Due to related parties, net
    
    
    51,532
    
    
    
    31,204
    
    
    
    (7,185
    )
    
    
    75,551
    
    
    
    29,197
    
    
    
    13,724
    
    
    
    (6,670
    )
    
    
    36,251Accrued liabilities
    
    
    70,162
    
    
    
    6,517
    
    
    
    (1,692
    )
    
    
    74,987
    
    
    
    62,367
    
    
    
    6,853
    
    
    
    (1,687
    )
    
    
    67,533Income taxes payable
    
    
    5,235
    
    
    
    
    
    
    
    (209
    )
    
    
    5,026
    
    
    
    3,936
    
    
    
    
    
    
    
    
    
    
    
    3,936Deferred revenues
    
    
    59,458
    
    
    
    249
    
    
    
    
    
    
    
    59,707
    
    
    
    67,706
    
    
    
    
    
    
    
    
    
    
    
    67,706Senior secured notes, net
of original issue
discount of $9,882, $0,
$0, $9,882, $10,278, $0,
$0 and $10,278,
respectively
    
    
    415,118
    
    
    
    
    
    
    
    
    
    
    
    415,118
    
    
    
    414,722
    
    
    
    
    
    
    
    
    
    
    
    414,722Securitization notes of
conduit facility, net
    
    
    177,500
    
    
    
    8,552
    
    
    
    
    
    
    
    186,052
    
    
    
    176,551
    
    
    
    10,292
    
    
    
    
    
    
    
    186,843Derivative liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    79Notes payable
    
    
    3,112
    
    
    
    24,678
    
    
    
    
    
    
    
    27,790
    
    
    
    1,432
    
    
    
    21,841
    
    
    
    
    
    
    
    23,273Total liabilities
    
    $
    790,597
    
    
    $
    71,315
    
    
    $
    (9,086
    )
    
    $
    852,826
    
    
    $
    763,399
    
    
    $
    52,956
    
    
    $
    (8,357
    )
    
    $
    807,998Redeemable preferred units
    
    
    103,065
    
    
    
    
    
    
    
    
    
    
    
    103,065
    
    
    
    84,502
    
    
    
    
    
    
    
    
    
    
    
    84,502Member capital
    
    
    7,162
    
    
    
    9,675
    
    
    
    (9,675
    )
    
    
    7,162
    
    
    
    7,335
    
    
    
    9,675
    
    
    
    (9,675
    )
    
    
    7,335Accumulated deficit
    
    
    (206,289
    )
    
    
    (34,309
    )
    
    
    16,614
    
    
    
    (223,984
    )
    
    
    (195,044
    )
    
    
    (22,197
    )
    
    
    15,903
    
    
    
    (201,338
    )Accumulated other
comprehensive loss
    
    
    (15,381
    )
    
    
    (253
    )
    
    
    253
    
    
    
    (15,381
    )
    
    
    (17,746
    )
    
    
    (388
    )
    
    
    388
    
    
    
    (17,746
    )Total member capital
(deficit)
    
    
    (214,508
    )
    
    
    (24,887
    )
    
    
    7,192
    
    
    
    (232,203
    )
    
    
    (205,455
    )
    
    
    (12,910
    )
    
    
    6,616
    
    
    
    (211,749
    )Total liabilities and
member capital (deficit)
    
    $
    679,154
    
    
    $
    46,428
    
    
    $
    (1,894
    )
    
    $
    723,688
    
    
    $
    642,446
    
    
    $
    40,046
    
    
    $
    (1,741
    )
    
    $
    680,751
 37




---



##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the three months ended June 30, 2011 and 2010
(In thousands)
 Three Months Ended
    
    
    Three Months EndedJune 30, 2011
    
    
    June 30, 2010Diamond
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DiamondResorts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ResortsParent, LLC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Parent, LLCand Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    
    
    
    
    and Restricted
    
    
    UnrestrictedSubsidiaries
    
    
    Subsidiaries
    
    
    Elimination
    
    
    Total
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Elimination
    
    
    TotalRevenues:Vacation Interest sales
    
    $
    50,508
    
    
    $
    1,962
    
    
    $
    
    
    
    $
    52,470
    
    
    $
    54,236
    
    
    $
    
    
    
    $
    
    
    
    $
    54,236Provision for uncollectible Vacation
Interest sales revenue
    
    
    (3,754
    )
    
    
    1
    
    
    
    
    
    
    
    (3,753
    )
    
    
    754
    
    
    
    
    
    
    
    
    
    
    
    754Vacation Interest, net
    
    
    46,754
    
    
    
    1,963
    
    
    
    
    
    
    
    48,717
    
    
    
    54,990
    
    
    
    
    
    
    
    
    
    
    
    54,990Management, member and other services
    
    
    28,650
    
    
    
    1,015
    
    
    
    (1,729
    )
    
    
    27,936
    
    
    
    25,723
    
    
    
    
    
    
    
    
    
    
    
    25,723Consolidated resort operations
    
    
    7,012
    
    
    
    230
    
    
    
    
    
    
    
    7,242
    
    
    
    6,993
    
    
    
    
    
    
    
    
    
    
    
    6,993Interest
    
    
    9,357
    
    
    
    444
    
    
    
    
    
    
    
    9,801
    
    
    
    9,670
    
    
    
    1
    
    
    
    
    
    
    
    9,671Gain on mortgage repurchase
    
    
    91
    
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    56
    
    
    
    
    
    
    
    
    
    
    
    56Total revenues
    
    
    91,864
    
    
    
    3,652
    
    
    
    (1,729
    )
    
    
    93,787
    
    
    
    97,432
    
    
    
    1
    
    
    
    
    
    
    
    97,433Costs and Expenses:Vacation Interest cost of sales
    
    
    (5,759
    )
    
    
    78
    
    
    
    
    
    
    
    (5,681
    )
    
    
    11,240
    
    
    
    
    
    
    
    
    
    
    
    11,240Advertising, sales and marketing
    
    
    32,009
    
    
    
    1,332
    
    
    
    (144
    )
    
    
    33,197
    
    
    
    27,799
    
    
    
    
    
    
    
    
    
    
    
    27,799Vacation Interest carrying cost, net
    
    
    6,554
    
    
    
    1,161
    
    
    
    (368
    )
    
    
    7,347
    
    
    
    6,747
    
    
    
    
    
    
    
    
    
    
    
    6,747Management, member and other services
    
    
    5,644
    
    
    
    1,651
    
    
    
    (1,261
    )
    
    
    6,034
    
    
    
    5,652
    
    
    
    
    
    
    
    
    
    
    
    5,652Consolidated resort operations
    
    
    6,838
    
    
    
    268
    
    
    
    
    
    
    
    7,106
    
    
    
    6,648
    
    
    
    
    
    
    
    
    
    
    
    6,648Loan portfolio
    
    
    2,460
    
    
    
    79
    
    
    
    
    
    
    
    2,539
    
    
    
    2,627
    
    
    
    
    
    
    
    
    
    
    
    2,627General and administrative
    
    
    15,743
    
    
    
    2,892
    
    
    
    35
    
    
    
    18,670
    
    
    
    15,836
    
    
    
    736
    
    
    
    
    
    
    
    16,572Gain on disposal of assets
    
    
    (363
    )
    
    
    
    
    
    
    
    
    
    
    (363
    )
    
    
    (758
    )
    
    
    
    
    
    
    
    
    
    
    (758
    )Depreciation and amortization
    
    
    2,602
    
    
    
    540
    
    
    
    
    
    
    
    3,142
    
    
    
    2,651
    
    
    
    
    
    
    
    
    
    
    
    2,651Interest
    
    
    18,655
    
    
    
    1,253
    
    
    
    
    
    
    
    19,908
    
    
    
    15,731
    
    
    
    
    
    
    
    
    
    
    
    15,731Impairments and other write-offs
    
    
    230
    
    
    
    10
    
    
    
    
    
    
    
    240
    
    
    
    980
    
    
    
    
    
    
    
    
    
    
    
    980Total costs and expenses
    
    
    84,613
    
    
    
    9,264
    
    
    
    (1,738
    )
    
    
    92,139
    
    
    
    95,153
    
    
    
    736
    
    
    
    
    
    
    
    95,889Income (loss) before (benefit) provision
for income taxes
    
    
    7,251
    
    
    
    (5,612
    )
    
    
    9
    
    
    
    1,648
    
    
    
    2,279
    
    
    
    (735
    )
    
    
    
    
    
    
    1,544(Benefit) provision for income taxes
    
    
    (795
    )
    
    
    (96
    )
    
    
    
    
    
    
    (891
    )
    
    
    720
    
    
    
    
    
    
    
    
    
    
    
    720Net income (loss)
    
    $
    8,046
    
    
    $
    (5,516
    )
    
    $
    9
    
    
    $
    2,539
    
    
    $
    1,559
    
    
    $
    (735
    )
    
    $
    
    
    
    $
    824
 38




---



##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the six months ended June 30, 2011 and 2010
(In thousands)
 Six Months Ended
    
    
    Six Months EndedJune 30, 2011
    
    
    June 30, 2010Diamond
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DiamondResorts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ResortsParent, LLC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Parent, LLCand Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    
    
    
    
    and Restricted
    
    
    UnrestrictedSubsidiaries
    
    
    Subsidiaries
    
    
    Elimination
    
    
    Total
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Elimination
    
    
    TotalRevenues:Vacation Interest sales
    
    $
    91,959
    
    
    $
    2,443
    
    
    $
    1
    
    
    $
    94,403
    
    
    $
    102,318
    
    
    $
    
    
    
    $
    
    
    
    $
    102,318Provision for uncollectible Vacation
Interest sales revenue
    
    
    (6,671
    )
    
    
    (72
    )
    
    
    
    
    
    
    (6,743
    )
    
    
    (868
    )
    
    
    
    
    
    
    
    
    
    
    (868
    )Vacation Interest, net
    
    
    85,288
    
    
    
    2,371
    
    
    
    1
    
    
    
    87,660
    
    
    
    101,450
    
    
    
    
    
    
    
    
    
    
    
    101,450Management, member and other services
    
    
    60,487
    
    
    
    1,780
    
    
    
    (2,546
    )
    
    
    59,721
    
    
    
    50,448
    
    
    
    
    
    
    
    
    
    
    
    50,448Consolidated resort operations
    
    
    13,796
    
    
    
    392
    
    
    
    
    
    
    
    14,188
    
    
    
    13,494
    
    
    
    
    
    
    
    
    
    
    
    13,494Interest
    
    
    18,733
    
    
    
    897
    
    
    
    
    
    
    
    19,630
    
    
    
    19,485
    
    
    
    2
    
    
    
    
    
    
    
    19,487Gain on mortgage repurchase
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    92Total revenues
    
    
    178,424
    
    
    
    5,440
    
    
    
    (2,545
    )
    
    
    181,319
    
    
    
    184,969
    
    
    
    2
    
    
    
    
    
    
    
    184,971Costs and Expenses:Vacation Interest cost of sales
    
    
    (5,723
    )
    
    
    109
    
    
    
    
    
    
    
    (5,614
    )
    
    
    21,865
    
    
    
    
    
    
    
    
    
    
    
    21,865Advertising, sales and marketing
    
    
    60,096
    
    
    
    1,711
    
    
    
    (174
    )
    
    
    61,633
    
    
    
    53,264
    
    
    
    
    
    
    
    
    
    
    
    53,264Vacation Interest carrying cost, net
    
    
    13,645
    
    
    
    2,631
    
    
    
    (369
    )
    
    
    15,907
    
    
    
    14,182
    
    
    
    
    
    
    
    
    
    
    
    14,182Management, member and other services
    
    
    11,162
    
    
    
    3,214
    
    
    
    (2,082
    )
    
    
    12,294
    
    
    
    12,174
    
    
    
    
    
    
    
    
    
    
    
    12,174Consolidated resort operations
    
    
    12,782
    
    
    
    492
    
    
    
    
    
    
    
    13,274
    
    
    
    12,525
    
    
    
    
    
    
    
    
    
    
    
    12,525Loan portfolio
    
    
    5,007
    
    
    
    150
    
    
    
    
    
    
    
    5,157
    
    
    
    5,230
    
    
    
    
    
    
    
    
    
    
    
    5,230General and administrative
    
    
    31,798
    
    
    
    5,856
    
    
    
    69
    
    
    
    37,723
    
    
    
    31,104
    
    
    
    788
    
    
    
    
    
    
    
    31,892(Gain) loss on disposal of assets
    
    
    (500
    )
    
    
    128
    
    
    
    
    
    
    
    (372
    )
    
    
    (760
    )
    
    
    
    
    
    
    
    
    
    
    (760
    )Depreciation and amortization
    
    
    5,268
    
    
    
    1,044
    
    
    
    
    
    
    
    6,312
    
    
    
    5,448
    
    
    
    
    
    
    
    
    
    
    
    5,448Interest
    
    
    35,864
    
    
    
    2,416
    
    
    
    
    
    
    
    38,280
    
    
    
    31,410
    
    
    
    
    
    
    
    
    
    
    
    31,410Impairments and other write-offs
    
    
    313
    
    
    
    10
    
    
    
    
    
    
    
    323
    
    
    
    980
    
    
    
    
    
    
    
    
    
    
    
    980Total costs and expenses
    
    
    169,712
    
    
    
    17,761
    
    
    
    (2,556
    )
    
    
    184,917
    
    
    
    187,422
    
    
    
    788
    
    
    
    
    
    
    
    188,210Income
(loss) before provision (benefit) for income taxes
    
    
    8,712
    
    
    
    (12,321
    )
    
    
    11
    
    
    
    (3,598
    )
    
    
    (2,453
    )
    
    
    (786
    )
    
    
    
    
    
    
    (3,239
    )Provision (benefit) for income taxes
    
    
    791
    
    
    
    (209
    )
    
    
    
    
    
    
    582
    
    
    
    1,425
    
    
    
    
    
    
    
    
    
    
    
    1,425Net income (loss)
    
    $
    7,921
    
    
    $
    (12,112
    )
    
    $
    11
    
    
    $
    (4,180
    )
    
    $
    (3,878
    )
    
    $
    (786
    )
    
    $
    
    
    
    $
    (4,664
    )
 39




---



##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS  Six months ended June 30, 2011 and 2010
(In thousands)
 Six Months Ended
    
    
    Six Months EndedJune 30, 2011
    
    
    June 30, 2010Diamond
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DiamondResorts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ResortsParent, LLC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Parent, LLCand Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    
    
    
    
    and Restricted
    
    
    UnrestrictedSubsidiaries
    
    
    Subsidiaries
    
    
    Elimination
    
    
    Total
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Elimination
    
    
    TotalOperating Activities:Net income (loss)
    
    $
    7,921
    
    
    $
    (12,112
    )
    
    $
    11
    
    
    $
    (4,180
    )
    
    $
    (3,878
    )
    
    $
    (786
    )
    
    $
    
    
    
    $
    (4,664
    )Adjustments to reconcile net loss to net cash provided
by operating activities:Depreciation and amortization
    
    
    5,268
    
    
    
    1,044
    
    
    
    
    
    
    
    6,312
    
    
    
    5,448
    
    
    
    
    
    
    
    
    
    
    
    5,448Provision for uncollectible Vacation Interest
sales revenue
    
    
    6,671
    
    
    
    72
    
    
    
    
    
    
    
    6,743
    
    
    
    868
    
    
    
    
    
    
    
    
    
    
    
    868Amortization of capitalized financing costs
and original issue discounts
    
    
    3,252
    
    
    
    82
    
    
    
    
    
    
    
    3,334
    
    
    
    1,436
    
    
    
    
    
    
    
    
    
    
    
    1,436Amortization of capitalized loan origination
costs and portfolio discount
    
    
    1,145
    
    
    
    
    
    
    
    
    
    
    
    1,145
    
    
    
    550
    
    
    
    
    
    
    
    
    
    
    
    550Gain on foreign currency exchange
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )(Gain) loss on disposal of assets
    
    
    (500
    )
    
    
    128
    
    
    
    
    
    
    
    (372
    )
    
    
    (760
    )
    
    
    
    
    
    
    
    
    
    
    (760
    )Gain on mortgage repurchase
    
    
    (120
    )
    
    
    
    
    
    
    
    
    
    
    (120
    )
    
    
    (92
    )
    
    
    
    
    
    
    
    
    
    
    (92
    )Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    
    
    
    
    80Unrealized gain on derivative instruments
    
    
    (79
    )
    
    
    
    
    
    
    
    
    
    
    (79
    )
    
    
    (201
    )
    
    
    
    
    
    
    
    
    
    
    (201
    )Gain on insurance settlement
    
    
    (3,535
    )
    
    
    
    
    
    
    
    
    
    
    (3,535
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairments and other write-offs
    
    
    313
    
    
    
    10
    
    
    
    
    
    
    
    323
    
    
    
    980
    
    
    
    
    
    
    
    
    
    
    
    980Changes in operating assets and liabilities excluding
acquisitions:Mortgages and contracts receivable
    
    
    4,590
    
    
    
    1,314
    
    
    
    (6
    )
    
    
    5,898
    
    
    
    10,054
    
    
    
    5
    
    
    
    (5
    )
    
    
    10,054Due from related parties, net
    
    
    (205
    )
    
    
    (59
    )
    
    
    (41
    )
    
    
    (305
    )
    
    
    7,835
    
    
    
    
    
    
    
    
    
    
    
    7,835Other receivables, net
    
    
    17,568
    
    
    
    929
    
    
    
    
    
    
    
    18,497
    
    
    
    18,815
    
    
    
    
    
    
    
    
    
    
    
    18,815Prepaid expenses and other assets, net
    
    
    (31,821
    )
    
    
    (3,283
    )
    
    
    (47
    )
    
    
    (35,151
    )
    
    
    (26,776
    )
    
    
    
    
    
    
    
    
    
    
    (26,776
    )Unsold Vacation Interests, net
    
    
    (25,445
    )
    
    
    (2,842
    )
    
    
    
    
    
    
    (28,287
    )
    
    
    1,865
    
    
    
    
    
    
    
    
    
    
    
    1,865Accounts payable
    
    
    973
    
    
    
    (131
    )
    
    
    
    
    
    
    842
    
    
    
    (2,213
    )
    
    
    
    
    
    
    
    
    
    
    (2,213
    )Due to related parties, net
    
    
    25,594
    
    
    
    17,615
    
    
    
    88
    
    
    
    43,297
    
    
    
    14,968
    
    
    
    781
    
    
    
    5
    
    
    
    15,754Accrued liabilities
    
    
    7,458
    
    
    
    (228
    )
    
    
    (5
    )
    
    
    7,225
    
    
    
    467
    
    
    
    
    
    
    
    
    
    
    
    467Income taxes payable
    
    
    1,156
    
    
    
    (209
    )
    
    
    
    
    
    
    947
    
    
    
    4,932
    
    
    
    
    
    
    
    
    
    
    
    4,932Deferred revenues
    
    
    (8,716
    )
    
    
    222
    
    
    
    
    
    
    
    (8,494
    )
    
    
    (1,456
    )
    
    
    
    
    
    
    
    
    
    
    (1,456
    )Net cash provided by operating activities
    
    
    11,471
    
    
    
    2,552
    
    
    
    
    
    
    
    14,023
    
    
    
    32,921
    
    
    
    
    
    
    
    
    
    
    
    32,921Investing activities:Property and equipment capital expenditures
    
    
    (3,245
    )
    
    
    (59
    )
    
    
    
    
    
    
    (3,304
    )
    
    
    (2,214
    )
    
    
    
    
    
    
    
    
    
    
    (2,214
    )Disbursement
of Tempus Acquisition note receivable
    
    
    
    
    
    
    (3,493
    )
    
    
    
    
    
    
    (3,493
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from sale of assets
    
    
    2,003
    
    
    
    1
    
    
    
    
    
    
    
    2,004
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Net cash used in investing activities
    
    $
    (1,242
    )
    
    $
    (3,551
    )
    
    $
    
    
    
    $
    (4,793
    )
    
    $
    (2,212
    )
    
    $
    
    
    
    $
    
    
    
    $
    (2,212
    )
 40




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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS  Continued  Six months ended June 30, 2011 and 2010
(In thousands)
 Six Months Ended
    
    
    Six Months EndedJune 30, 2011
    
    
    June 30, 2010Diamond
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DiamondResorts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ResortsParent, LLC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Parent, LLCand Restricted
    
    
    Unrestricted
    
    
    
    
    
    
    
    
    
    
    and Restricted
    
    
    UnrestrictedSubsidiaries
    
    
    Subsidiaries
    
    
    Elimination
    
    
    Total
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Elimination
    
    
    TotalFinancing activities:Changes in cash in escrow and restricted cash
    
    $
    (3,287
    )
    
    $
    2
    
    
    $
    
    
    
    $
    (3,285
    )
    
    $
    759
    
    
    $
    
    
    
    $
    
    
    
    $
    759Proceeds from issuance of Diamond Resorts
Owners Trust 2011-1
    
    
    64,065
    
    
    
    
    
    
    
    
    
    
    
    64,065
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from issuance of Quorum Facility
    
    
    11,515
    
    
    
    
    
    
    
    
    
    
    
    11,515
    
    
    
    863
    
    
    
    
    
    
    
    
    
    
    
    863Proceeds from issuance of Tempus Acquisition
Loan
    
    
    
    
    
    
    3,200
    
    
    
    
    
    
    
    3,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from issuance of 2008 Conduit Facility
    
    
    4,974
    
    
    
    
    
    
    
    
    
    
    
    4,974
    
    
    
    2,264
    
    
    
    
    
    
    
    
    
    
    
    2,264Payments on Diamond Resorts Owners Trust 2011-1
    
    
    (3,575
    )
    
    
    
    
    
    
    
    
    
    
    (3,575
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payments on Quorum Facility
    
    
    (12,311
    )
    
    
    
    
    
    
    
    
    
    
    (12,311
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payments on Diamond Resorts Owners Trust
2009-1
    
    
    (19,731
    )
    
    
    
    
    
    
    
    
    
    
    (19,731
    )
    
    
    (25,427
    )
    
    
    
    
    
    
    
    
    
    
    (25,427
    )Payments on 2008 Conduit Facility
    
    
    (40,955
    )
    
    
    
    
    
    
    
    
    
    
    (40,955
    )
    
    
    (932
    )
    
    
    
    
    
    
    
    
    
    
    (932
    )Payments on Credit Suisse terms loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,138
    )
    
    
    
    
    
    
    
    
    
    
    (1,138
    )Payments on ILXA Receivables and Inventory
Loans
    
    
    
    
    
    
    (2,103
    )
    
    
    
    
    
    
    (2,103
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payments on Polo Towers lines of credit and
securitization notes
    
    
    (3,198
    )
    
    
    
    
    
    
    
    
    
    
    (3,198
    )
    
    
    (4,668
    )
    
    
    
    
    
    
    
    
    
    
    (4,668
    )Payments on 2004 Securitization Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,525
    )
    
    
    
    
    
    
    
    
    
    
    (4,525
    )Payments on notes payable
    
    
    (4,034
    )
    
    
    
    
    
    
    
    
    
    
    (4,034
    )
    
    
    (4,285
    )
    
    
    
    
    
    
    
    
    
    
    (4,285
    )Payments of debt issuance costs
    
    
    (2,751
    )
    
    
    11
    
    
    
    
    
    
    
    (2,740
    )
    
    
    (559
    )
    
    
    
    
    
    
    
    
    
    
    (559
    )Proceeds from equity investment
    
    
    10,151
    
    
    
    
    
    
    
    
    
    
    
    10,151
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    25,000Repurchase of a portion of outstanding warrants
    
    
    (10,151
    )
    
    
    
    
    
    
    
    
    
    
    (10,151
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repurchase of equity previously held by another
minority institutional investor
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,000
    )
    
    
    
    
    
    
    
    
    
    
    (25,000
    )Payments of costs related to issuance of common
and preferred units
    
    
    (76
    )
    
    
    
    
    
    
    
    
    
    
    (76
    )
    
    
    (721
    )
    
    
    
    
    
    
    
    
    
    
    (721
    )Net cash (used) provided in financing activities
    
    
    (9,364
    )
    
    
    1,110
    
    
    
    
    
    
    
    (8,254
    )
    
    
    (38,369
    )
    
    
    
    
    
    
    
    
    
    
    (38,369
    )Net increase (decrease) in cash and cash
equivalents
    
    
    865
    
    
    
    111
    
    
    
    
    
    
    
    976
    
    
    
    (7,660
    )
    
    
    
    
    
    
    
    
    
    
    (7,660
    )Effect of changes in exchange rates on cash and cash
equivalents
    
    
    313
    
    
    
    
    
    
    
    
    
    
    
    313
    
    
    
    (355
    )
    
    
    
    
    
    
    
    
    
    
    (355
    )Cash and cash equivalents, beginning of period
    
    
    27,163
    
    
    
    166
    
    
    
    
    
    
    
    27,329
    
    
    
    17,186
    
    
    
    
    
    
    
    
    
    
    
    17,186Cash and cash equivalents, end of period
    
    $
    28,341
    
    
    $
    277
    
    
    $
    
    
    
    $
    28,618
    
    
    $
    9,171
    
    
    $
    
    
    
    $
    
    
    
    $
    9,171SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    33,850
    
    
    $
    1,370
    
    
    $
    
    
    
    $
    35,220
    
    
    $
    31,220
    
    
    $
    
    
    
    $
    
    
    
    $
    31,220Cash tax refunds, net of cash paid for taxes
    
    $
    (340
    )
    
    $
    
    
    
    $
    
    
    
    $
    (340
    )
    
    $
    (3,612
    )
    
    $
    
    
    
    $
    
    
    
    $
    (3,612
    )SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:Priority returns and redemption premiums on
preferred units
    
    $
    8,412
    
    
    $
    
    
    
    $
    
    
    
    $
    8,412
    
    
    $
    5,722
    
    
    $
    
    
    
    $
    
    
    
    $
    5,722Insurance premiums financed through issuance
of note payable
    
    $
    5,713
    
    
    $
    
    
    
    $
    
    
    
    $
    5,713
    
    
    $
    6,052
    
    
    
    
    
    
    
    
    
    
    $
    6,052Assets held for sale reclassified to unsold vacation
interests
    
    $
    3,082
    
    
    $
    
    
    
    $
    
    
    
    $
    3,082
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 41




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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
 Note 22Geographic Financial Information
  Three months
    
    
    Three months
    
    
    Six months
    
    
    Six monthsended
    
    
    ended
    
    
    ended
    
    
    endedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010RevenueNorth America
    
    $
    82,516
    
    
    $
    85,792
    
    
    $
    161,026
    
    
    $
    163,697Europe
    
    
    11,271
    
    
    
    11,641
    
    
    
    20,293
    
    
    
    21,274Total Revenues
    
    $
    93,787
    
    
    $
    97,433
    
    
    $
    181,319
    
    
    $
    184,971
 As of
    
    
    As ofJune 30,
    
    
    December 31,2011
    
    
    2010Mortgages and contracts receivable, net
North America
    
    $
    228,440
    
    
    $
    244,541Europe
    
    
    1,325
    
    
    
    746Total mortgages and contracts receivable, net
    
    $
    229,765
    
    
    $
    245,287Unsold Vacation Interest, net
North America
    
    $
    199,494
    
    
    $
    174,642Europe
    
    
    23,069
    
    
    
    15,922Total unsold Vacation Interest, net
    
    $
    222,563
    
    
    $
    190,564Property and equipment, net
North America
    
    $
    28,944
    
    
    $
    24,248Europe
    
    
    5,124
    
    
    
    4,849Total property and equipment, net
    
    $
    34,068
    
    
    $
    29,097Intangible assets, net
North America
    
    $
    38,551
    
    
    $
    40,926Europe
    
    
    4,769
    
    
    
    4,787Total intangible assets, net
    
    $
    43,320
    
    
    $
    45,713Total long-term assets, net
North America
    
    $
    495,429
    
    
    $
    484,357Europe
    
    
    34,287
    
    
    
    26,304Total long-term assets, net
    
    $
    529,716
    
    
    $
    510,661
 42




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##### Table of Contents



DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
 Note 23Impairments and other write-offs
  Note 24Subsequent Events
      43




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   
    
    adverse trends in economic conditions generally in the vacation ownership, vacation
rental and travel industries;
    
    adverse changes to, or interruptions in, relationships with our affiliates and other
third parties, including our hospitality management contracts;
    
    our ability to maintain a sufficient inventory of vacation ownership interests (VOI
or Vacation Interests) for sale to customers without expending significant capital to
develop or acquire additional resort properties;
    
    our ability to sell, securitize or borrow against the consumer loans that we
generate;
    
    decreased demand from prospective purchasers of VOIs;
    
    declines or disruptions in the travel industry;
    
    adverse events or trends in vacation destinations and regions where our resorts are
located;
    
    changes in our senior management;
    
    our ability to comply with regulations applicable to the vacation ownership industry;
    
    the effects of our indebtedness and our compliance with the terms thereof;
    
    our ability to successfully implement our growth strategy; and
    
    our ability to compete effectively.
   44




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##### Table of Contents



Overview
    Critical Accounting Policies and Use of Estimates
  45




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##### Table of Contents



Vacation Interest Sales Revenue Recognition.
 Vacation Interest Cost of Sales.
 Mortgages and Contracts Receivable and Allowance for Loan and Contract Losses.
  46




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##### Table of Contents



Unsold Vacation Interests, Net.
     Income Taxes.
 47




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##### Table of Contents



Segment Reporting
   Key Revenue and Expense Items
 Vacation Interest sales revenue, Net.
 48




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##### Table of Contents



Management, Member and Other Services Revenue.
 
    
    Management fee revenues are recognized in accordance with the terms of our
management contracts. We collect management fees from our HOAs and Collections under
our management agreements, which are recognized ratably throughout the year as earned.
All of these revenues are allocated to our Hospitality and Management Services business
segment. The management fees we earn are included in establishing HOA and Collections
operating budgets which, in turn, are used to establish the annual maintenance fees owed
directly by each owner of VOIs.
    
    We charge an annual fee for membership in THE Club, our internal exchange,
reservation and membership service organization. In addition to annual dues associated
with THE Club, we earn revenue associated with customer conversions into THE Club, which
involve the payment of a one-time fee by interval owners who wish to retain their
intervals but also participate in THE Club. We also earn revenue through our provision
of travel-related services and other affinity programs. All of these revenues are
allocated to our Hospitality and Management Services business segment.
    
    Other services revenue includes (i) collection fees paid by owners when they
bring their accounts current after collection efforts have been made by us on behalf of
HOAs; (ii) reservation protection plan revenue, which is an optional fee paid by
customers when making a reservation to protect their points should they need to cancel
their reservation; (iii) closing costs on sales of VOIs; (iv) revenue associated with
certain sales incentives given to customers as motivation to purchase a VOI, which is
recorded upon recognition of the related VOI sales revenue; and (v) late/impound fees
assessed on delinquent consumer loans. Revenues associated with items (i) and (ii) above
are allocated to our Hospitality and Management Services business segment, and revenues
associated with items (iii), (iv) and (v) above are allocated to our Vacation Interest
Sales and Financing business segment.
 Consolidated Resort Operations Revenue.
 
    
    For our properties located in the Caribbean, we provide services traditionally
administered by an HOA. Consolidated resort operations revenue includes the maintenance
fees billed to owners and the Collections by our St. Maarten HOAs, which are recognized
ratably over the year. In addition, these HOAs also bill the owners for capital project
assessments to repair and replace the amenities of these resorts, as well as special
assessments to reserve the out-of-pocket deductibles for hurricanes and other natural
disasters. These assessments are deferred until refurbishment activity occurs, at which
time the amounts collected are recognized as a direct reduction to refurbishment expense
in consolidated resort operations expense. All operating revenues and expenses
associated with these properties are consolidated within our financial statements,
except for intercompany transactions, such as maintenance fees for our owned inventory
and management fees, which are eliminated.
    
    Food and beverage revenue at certain resorts whose restaurants we manage directly;
    
    Greens fees, equipment rental and operation of food services at the golf courses
owned and managed by us at certain resorts;
    
    Revenue from providing cable, telephone, and technology services to HOAs; and
 49




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##### Table of Contents




    
    Other incidental revenues generated at the resorts including, but not limited to,
retail and gift shops, spa services, activity fees for arts and crafts, sport equipment
rental, and safe rental.
 Interest Revenue.
 Vacation Interest Cost of Sales.
 Advertising, Sales and Marketing Costs.
 Vacation Interest Carrying Cost, Net.
  Management, Member and Other Services Expense.
   50




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##### Table of Contents



Consolidated Resort Operations Expense
 Loan Portfolio Expense.
 General and Administrative Expense.
 Depreciation and Amortization.
 Interest Expense.
 Factors That May Affect Our Future Financial Presentation
   51




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##### Table of Contents



Presentation of Certain Financial Metrics
   
    
    it and similar non-U.S. GAAP measures are widely used by investors and securities
analysts to measure a companys operating performance without regard to items that can
vary substantially from company to company depending upon financing and accounting
methods, book values of assets, capital structures and the methods by which assets were
acquired;
    
    by comparing Adjusted EBITDA in different historical periods, we can evaluate our
operating results without the additional variations of interest income (expense), income
tax provision (benefit), depreciation and amortization expense and the Vacation Interest
cost of sales expense; and
    
    several of the financial covenants governing the senior secured notes and 2008
conduit facility, including the limitation on our ability to incur additional
indebtedness, are determined by reference to our EBITDA as defined in the senior secured
notes, which definition approximates Adjusted EBITDA as presented here.
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010($ in thousands)
    
    
    ($ in thousands)Income (loss) before (benefit) provision for income taxes
    
    $
    1,648
    
    
    $
    1,544
    
    
    $
    (3,598
    )
    
    $
    (3,239
    )Plus: Corporate interest expense(a)
    
    
    15,530
    
    
    
    11,124
    
    
    
    29,847
    
    
    
    21,875Depreciation and amortization(b)
    
    
    3,142
    
    
    
    2,651
    
    
    
    6,312
    
    
    
    5,448Vacation interest cost of sales(c)
    
    
    (5,681
    )
    
    
    11,240
    
    
    
    (5,614
    )
    
    
    21,865Impairments and other write-offs(b)
    
    
    240
    
    
    
    980
    
    
    
    323
    
    
    
    980Gain on the disposal of assets(b)
    
    
    (363
    )
    
    
    (758
    )
    
    
    (372
    )
    
    
    (760
    )Amortization of loan origination costs(b)
    
    
    662
    
    
    
    842
    
    
    
    1,308
    
    
    
    1,678Amortization of portfolio discount(b)
    
    
    (74
    )
    
    
    (94
    )
    
    
    (163
    )
    
    
    (243
    )Adjusted EBITDA  Consolidated(d)
    
    $
    15,104
    
    
    $
    27,529
    
    
    $
    28,043
    
    
    $
    47,604Adjusted EBITDA  Diamond Resorts Parent,
LLC and Restricted Subsidiaries(d)
    
    
    19,063
    
    
    
    28,265
    
    
    
    37,131
    
    
    
    48,391Adjusted EBITDA  Unrestricted Subsidiaries(d)
    
    
    (3,959
    )
    
    
    (736
    )
    
    
    (9,088
    )
    
    
    (787
    )
 
 (a)
    
    Excludes 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/revenues.(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 52




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##### Table of Contents



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. Small changes in any of the numerous assumptions in the model
can have a significant financial statement impact as ASC 978 requires a retroactive
adjustment back to the time of the Sunterra Corporation acquisition in the current period.
Much like depreciation or amortization, for us, Vacation Interest cost of sales is
essentially a non-cash expense item.(d)
    
    For purposes of certain covenants governing the senior secured notes, our financial
performance, including Adjusted EBITDA, is measured with reference to us and our Restricted
Subsidiaries, and the performance of Unrestricted Subsidiaries is not considered.
Therefore, we believe that this presentation of Adjusted EBITDA provides helpful
information to investors in the senior secured notes.  
    
    Adjusted EBITDA does not reflect our cash expenditures or future requirements for
capital expenditures or VOI inventory;
    
    Adjusted EBITDA does not reflect changes in, or cash requirements for, our working
capital needs;
    
    Adjusted EBITDA does not reflect cash requirements for income taxes;
    
    Adjusted EBITDA does not reflect interest expense for our corporate indebtedness;
    
    Although depreciation and amortization are non-cash charges, the assets being
depreciated or amortized will often have to be replaced in the future, and Adjusted EBITDA
does not reflect any cash requirements for these replacements;
    
    Although Vacation Interest cost of sales is also a non-cash item, we may in the
future be required to develop or acquire new resort properties to replenish VOI inventory,
and Adjusted EBITDA does not reflect any cash requirements for these expenditures; and
    
    Other companies in our industry may calculate Adjusted EBITDA differently than we do,
limiting its usefulness as a comparative measure.
  53




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##### Table of Contents



Results of Operations
  Comparison of the Three Months Ended June 30, 2011 to the Three Months Ended June 30, 2010
 (In thousands)
 Three Months Ended
    
    
    Three Months EndedJune 30, 2011
    
    
    June 30, 2010Hospitality and
    
    
    Vacation
    
    
    
    
    
    
    
    
    
    
    Hospitality and
    
    
    VacationManagement
    
    
    Interest Sales
    
    
    Corporate and
    
    
    
    
    
    
    Management
    
    
    Interest Sales
    
    
    Corporate andServices
    
    
    and Financing
    
    
    Other
    
    
    Total
    
    
    Services
    
    
    and Financing
    
    
    Other
    
    
    TotalRevenues:Vacation Interest sales
    
    $
    
    
    
    $
    52,470
    
    
    $
    
    
    
    $
    52,470
    
    
    $
    
    
    
    $
    54,236
    
    
    $
    
    
    
    $
    54,236Provision for uncollectible VacationInterest sales revenue
    
    
    
    
    
    
    (3,753
    )
    
    
    
    
    
    
    (3,753
    )
    
    
    
    
    
    
    754
    
    
    
    
    
    
    
    754Vacation Interest, net
    
    
    
    
    
    
    48,717
    
    
    
    
    
    
    
    48,717
    
    
    
    
    
    
    
    54,990
    
    
    
    
    
    
    
    54,990Management, member and other services
    
    
    25,235
    
    
    
    2,701
    
    
    
    
    
    
    
    27,936
    
    
    
    22,929
    
    
    
    2,794
    
    
    
    
    
    
    
    25,723Consolidated resort operations
    
    
    7,242
    
    
    
    
    
    
    
    
    
    
    
    7,242
    
    
    
    6,993
    
    
    
    
    
    
    
    
    
    
    
    6,993Interest
    
    
    
    
    
    
    9,298
    
    
    
    503
    
    
    
    9,801
    
    
    
    
    
    
    
    9,655
    
    
    
    16
    
    
    
    9,671Gain on mortgage repurchase
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    56Total revenues
    
    
    32,477
    
    
    
    60,807
    
    
    
    503
    
    
    
    93,787
    
    
    
    29,922
    
    
    
    67,495
    
    
    
    16
    
    
    
    97,433Costs and Expenses:Vacation Interest cost of sales
    
    
    
    
    
    
    (5,681
    )
    
    
    
    
    
    
    (5,681
    )
    
    
    
    
    
    
    11,240
    
    
    
    
    
    
    
    11,240Advertising, sales and marketing
    
    
    
    
    
    
    33,197
    
    
    
    
    
    
    
    33,197
    
    
    
    
    
    
    
    27,799
    
    
    
    
    
    
    
    27,799Vacation Interest carrying cost, net
    
    
    
    
    
    
    7,347
    
    
    
    
    
    
    
    7,347
    
    
    
    
    
    
    
    6,747
    
    
    
    
    
    
    
    6,747Management, member and other services
    
    
    5,547
    
    
    
    487
    
    
    
    
    
    
    
    6,034
    
    
    
    5,125
    
    
    
    527
    
    
    
    
    
    
    
    5,652Consolidated resort operations
    
    
    7,106
    
    
    
    
    
    
    
    
    
    
    
    7,106
    
    
    
    6,648
    
    
    
    
    
    
    
    
    
    
    
    6,648Loan portfolio
    
    
    260
    
    
    
    2,279
    
    
    
    
    
    
    
    2,539
    
    
    
    264
    
    
    
    2,363
    
    
    
    
    
    
    
    2,627General and administrative
    
    
    
    
    
    
    
    
    
    
    18,670
    
    
    
    18,670
    
    
    
    
    
    
    
    
    
    
    
    16,572
    
    
    
    16,572Gain on sale of assets
    
    
    
    
    
    
    
    
    
    
    (363
    )
    
    
    (363
    )
    
    
    
    
    
    
    
    
    
    
    (758
    )
    
    
    (758
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    3,142
    
    
    
    3,142
    
    
    
    
    
    
    
    
    
    
    
    2,651
    
    
    
    2,651Interest
    
    
    
    
    
    
    4,378
    
    
    
    15,530
    
    
    
    19,908
    
    
    
    
    
    
    
    4,608
    
    
    
    11,123
    
    
    
    15,731Impairments and other write-offs
    
    
    
    
    
    
    
    
    
    
    240
    
    
    
    240
    
    
    
    
    
    
    
    
    
    
    
    980
    
    
    
    980Total costs and expenses
    
    
    12,913
    
    
    
    42,007
    
    
    
    37,219
    
    
    
    92,139
    
    
    
    12,037
    
    
    
    53,284
    
    
    
    30,568
    
    
    
    95,889Income (loss) before provision for income taxes
    
    
    19,564
    
    
    
    18,800
    
    
    
    (36,716
    )
    
    
    1,648
    
    
    
    17,885
    
    
    
    14,211
    
    
    
    (30,552
    )
    
    
    1,544(Benefit) provision for income taxes
    
    
    
    
    
    
    
    
    
    
    (891
    )
    
    
    (891
    )
    
    
    
    
    
    
    
    
    
    
    720
    
    
    
    720Net income (loss)
    
    $
    19,564
    
    
    $
    18,800
    
    
    $
    (35,825
    )
    
    $
    2,539
    
    
    $
    17,885
    
    
    $
    14,211
    
    
    $
    (31,272
    )
    
    $
    824Adjusted EBITDA  Diamond Resorts
Parent, LLC and Restricted Subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19,063
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    28,265Adjusted EBITDA  Unrestricted
Subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,959
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (736
    )Adjusted EBITDA  Consolidated
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    15,104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    27,529
 54




---



##### Table of Contents



Revenues
  Vacation Interest, Net.
    Management, Member and Other Services .
 55




---



##### Table of Contents



Consolidated Resort Operations
 Interest Revenue .
 Costs and Expenses
  Vacation Interest Cost of Sales .
  Advertising, Sales and Marketing .
 Vacation Interest Carrying Cost, Net .
 56




---



##### Table of Contents



Management, Member and Other Services Expense.
   Consolidated Resort Operations Expense.
 Loan Portfolio Expense .
 General and Administrative Expense .
 Depreciation and Amortization .
 Interest Expense .
 Impairments and Other Write-offs
 57




---



##### Table of Contents



58




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##### Table of Contents



Comparison of the Six Months Ended June 30, 2011 to the Six Months Ended June 30, 2010
 (In thousands)
 Six Months Ended
    
    

    Six Months EndedJune 30, 2011
    
    
    June 30, 2010Hospitality and
    
    
    Vacation
    
    
    
    
    
    
    
    
    
    
    Hospitality and
    
    
    VacationManagement
    
    
    Interest Sales
    
    
    Corporate and
    
    
    
    
    
    
    Management
    
    
    Interest Sales
    
    
    Corporate andServices
    
    
    and Financing
    
    
    Other
    
    
    Total
    
    
    Services
    
    
    and Financing
    
    
    Other
    
    
    TotalRevenues:Vacation Interest sales
    
    $
    
    
    
    $
    94,403
    
    
    $
    
    
    
    $
    94,403
    
    
    $
    
    
    
    $
    102,318
    
    
    $
    
    
    
    $
    102,318Provision for uncollectible VacationInterest sales revenue
    
    
    
    
    
    
    (6,743
    )
    
    
    
    
    
    
    (6,743
    )
    
    
    
    
    
    
    (868
    )
    
    
    
    
    
    
    (868
    )Vacation Interest, net
    
    
    
    
    
    
    87,660
    
    
    
    
    
    
    
    87,660
    
    
    
    
    
    
    
    101,450
    
    
    
    
    
    
    
    101,450Management, member and other services
    
    
    54,878
    
    
    
    4,843
    
    
    
    
    
    
    
    59,721
    
    
    
    44,920
    
    
    
    5,528
    
    
    
    
    
    
    
    50,448Consolidated resort operations
    
    
    14,188
    
    
    
    
    
    
    
    
    
    
    
    14,188
    
    
    
    13,494
    
    
    
    
    
    
    
    
    
    
    
    13,494Interest
    
    
    
    
    
    
    18,713
    
    
    
    917
    
    
    
    19,630
    
    
    
    
    
    
    
    19,449
    
    
    
    38
    
    
    
    19,487Gain on mortgage repurchase
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    92
    
    
    
    
    
    
    
    92Total revenues
    
    
    69,066
    
    
    
    111,336
    
    
    
    917
    
    
    
    181,319
    
    
    
    58,414
    
    
    
    126,519
    
    
    
    38
    
    
    
    184,971Costs and Expenses:Vacation Interest cost of sales
    
    
    
    
    
    
    (5,614
    )
    
    
    
    
    
    
    (5,614
    )
    
    
    
    
    
    
    21,865
    
    
    
    
    
    
    
    21,865Advertising, sales and marketing
    
    
    
    
    
    
    61,633
    
    
    
    
    
    
    
    61,633
    
    
    
    
    
    
    
    53,264
    
    
    
    
    
    
    
    53,264Vacation Interest carrying cost, net
    
    
    
    
    
    
    15,907
    
    
    
    
    
    
    
    15,907
    
    
    
    
    
    
    
    14,182
    
    
    
    
    
    
    
    14,182Management, member and other services
    
    
    11,552
    
    
    
    742
    
    
    
    
    
    
    
    12,294
    
    
    
    11,182
    
    
    
    992
    
    
    
    
    
    
    
    12,174Consolidated resort operations
    
    
    13,274
    
    
    
    
    
    
    
    
    
    
    
    13,274
    
    
    
    12,525
    
    
    
    
    
    
    
    
    
    
    
    12,525Loan portfolio
    
    
    439
    
    
    
    4,718
    
    
    
    
    
    
    
    5,157
    
    
    
    516
    
    
    
    4,714
    
    
    
    
    
    
    
    5,230General and administrative
    
    
    
    
    
    
    
    
    
    
    37,723
    
    
    
    37,723
    
    
    
    
    
    
    
    
    
    
    
    31,892
    
    
    
    31,892Gain on sale of assets
    
    
    
    
    
    
    
    
    
    
    (372
    )
    
    
    (372
    )
    
    
    
    
    
    
    
    
    
    
    (760
    )
    
    
    (760
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    6,312
    
    
    
    6,312
    
    
    
    
    
    
    
    
    
    
    
    5,448
    
    
    
    5,448Interest
    
    
    
    
    
    
    8,433
    
    
    
    29,847
    
    
    
    38,280
    
    
    
    
    
    
    
    9,535
    
    
    
    21,875
    
    
    
    31,410Impairments and other write-offs
    
    
    
    
    
    
    
    
    
    
    323
    
    
    
    323
    
    
    
    
    
    
    
    
    
    
    
    980
    
    
    
    980Total costs and expenses
    
    
    25,265
    
    
    
    85,819
    
    
    
    73,833
    
    
    
    184,917
    
    
    
    24,223
    
    
    
    104,552
    
    
    
    59,435
    
    
    
    188,210Income (loss) before provision for income taxes
    
    
    43,801
    
    
    
    25,517
    
    
    
    (72,916
    )
    
    
    (3,598
    )
    
    
    34,191
    
    
    
    21,967
    
    
    
    (59,397
    )
    
    
    (3,239
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    582
    
    
    
    582
    
    
    
    
    
    
    
    
    
    
    
    1,425
    
    
    
    1,425Net income (loss)
    
    $
    43,801
    
    
    $
    25,517
    
    
    $
    (73,498
    )
    
    $
    (4,180
    )
    
    $
    34,191
    
    
    $
    21,967
    
    
    $
    (60,822
    )
    
    $
    (4,664
    )Adjusted EBITDA  Diamond Resorts
Parent, LLC and Restricted
Subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    37,131
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    48,391Adjusted EBITDA  Unrestricted
Subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,088
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (787
    )Adjusted EBITDA  Consolidated
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    28,043
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    47,604
 59




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##### Table of Contents



Revenues
  Vacation Interest, Net.
    Management, Member and Other Services .
 60




---



##### Table of Contents



Consolidated Resort Operations
 Interest Revenue .
 Costs and Expenses
  Vacation Interest Cost of Sales .
  Advertising, Sales and Marketing .
 Vacation Interest Carrying Cost, Net .
 61




---



##### Table of Contents



Management, Member and Other Services Expense.
   Consolidated Resort Operations Expense.
 Loan Portfolio Expense .
 General and Administrative Expense .
 Depreciation and Amortization .
 Interest Expense .
 62




---



##### Table of Contents



Impairments and Other Write-offs
 Liquidity and Capital Resources
 Overview.
        63




---



##### Table of Contents



Cash Flow From Operating Activities.
  Cash Flow From Investing Activities.
  Cash Flow From Financing Activities.
  64




---



##### Table of Contents



Senior Secured Notes.
 First and Second Lien Facilities .
  Conduit Facilities, 2009 Securitization and 2011 Securitization .
    65




---



##### Table of Contents



Polo Towers Lines of Credit and Securitization Notes Payable.
  Quorum Facility.
  Tempus Acquisition Loan and Tempus Resorts Acquisition Financing.
 66




---



##### Table of Contents



ILXA Receivables Loan and Inventory Loan .
 Notes Payable .
  67




---



##### Table of Contents



December 31,June 30, 2011
    
    2010WeightedAveragePrincipal
    
    
    Interest
    
    
    
    
    PrincipalBalance
    
    
    Rate
    
    
    Maturity
    
    BalanceSenior Secured Notes
    
    $
    425,000
    
    
    
    12.0
    %
    
    8/15/18
    
    $
    425,000Original
issue discount related to Senior Secured Notes
    
    
    (9,882
    )
    
    
    
    
    
    
    
    
    (10,278
    )Diamond Resorts Owners Trust Series 2009-1
    
    
    102,112
    
    
    
    9.5
    %
    
    3/20/26
    
    
    121,843Original
issue discount related to Diamond Resorts Owners Trust Series 2009-1
    
    
    (746
    )
    
    
    
    
    
    
    
    
    (899
    )Diamond Resorts Owners Trust Series 2011-1
    
    
    60,935
    
    
    
    4.0
    %
    
    3/20/23
    
    
    Original
issue discount related to Diamond Resorts Owners Trust Series 2011-1
    
    
    (433
    )
    
    
    
    
    
    
    
    
    2008 Conduit Facility
    
    
    3,486
    
    
    
    5.5
    %
    
    8/30/11
    
    
    39,467ILXA Inventory Loan
    
    
    18,178
    
    
    
    7.5
    %
    
    8/31/15
    
    
    18,541Quorum Facility
    
    
    12,146
    
    
    
    7.4
    %
    
    4/30/12
    
    
    12,942ILXA Receivables Loan
    
    
    8,552
    
    
    
    10.0
    %
    
    8/31/15
    
    
    10,292Tempus Acquisition Loan*
    
    
    6,500
    
    
    
    10.0
    %
    
    7/1/11
    
    
    3,300Polo Towers Lines of Credit
    
    
    
    
    
    
    N/A
    
    
    N/A
    
    
    2,060Notes payable-insurance policies
    
    
    3,068
    
    
    
    3.2
    %
    
    Various
    
    
    1,366Polo Towers Securitization Notes Payable
    
    
    
    
    
    
    N/A
    
    
    N/A
    
    
    1,138Notes payable-other
    
    
    44
    
    
    
    3.6
    %
    
    Various
    
    
    66Total borrowings
    
    $
    628,960
    
    
    
    
    
    
    
    
    $
    624,838
 
 *
    
    Paid in full on July 1, 2011; however, additional debt was issued on the same date in
connection with the Tempus Resorts Acquisition. Future Capital Requirements .
  Deferred Taxes .
 68




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##### Table of Contents



Off-Balance Sheet Financing Arrangements .
 Contractual Obligations.
 New Accounting Pronouncements
    69




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##### Table of Contents



70




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##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Inflation.
 Interest Rate Risk.
   Foreign Currency Translation Risk.
 
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures.
 71




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES.
  
 ITEM 4.
    
    REMOVED AND RESERVED.
 
 ITEM 5.
    
    OTHER INFORMATION.
  
 ITEM 6.
    
    EXHIBITS.
 Exhibit
    
    Description10.1
    
    Amended and Restated Inventory Loan and Security Agreement, dated
as of June 30, 2011, by and among Textron Financial Corporation,
Mystic Dunes Myrtle Beach, LLC and Mystic Dunes, LLC10.2
    
    Loan and Security Agreement, dated as of June 30, 2011, by and
between Resort Finance America, LLC and Mystic Dunes Receivables,
LLC10.3
    
    Loan and Security Agreement, dated as of June 30, 2011, by and
among Tempus Acquisition, LLC, the Lenders party thereto and
Guggenheim Corporate Funding, LLC, as administrative agent31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as amended31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as amended32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 72




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##### Table of Contents



SIGNATURES
  DIAMOND RESORTS CORPORATIONDate: August 15, 2011
    By:

/S/    STEPHEN J. CLOOBECKStephen J. CloobeckChairman of the Board and Chief
Executive Officer     (Principal
Executive Officer)Date: August 15, 2011
    By:

/S/    DAVID F. PALMERDavid F. PalmerPresident and Chief Financial Officer
(Principal Financial Officer) INDEX TO EXHIBITS
 Exhibit
    
    Description10.1
    
    Amended and Restated Inventory Loan and Security Agreement, dated
as of June 30, 2011, by and among Textron Financial Corporation,
Mystic Dunes Myrtle Beach, LLC and Mystic Dunes, LLC10.2
    
    Loan and Security Agreement, dated as of June 30, 2011, by and
between Resort Finance America, LLC and Mystic Dunes Receivables,
LLC10.3
    
    Loan and Security Agreement, dated as of June 30, 2011, by and
among Tempus Acquisition, LLC, the Lenders party thereto and
Guggenheim Corporate Funding, LLC, as administrative agent31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as amended31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as amended32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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