This compares with net income of $5.4 million or $0.31 per diluted share for the same period last year. Vacation credit sales for the fourth quarter increased 46.3% to $47.4 million, compared with $32.4 million for the fourth quarter last year.

Net income for the quarter reflects a significantly higher effective tax rate than in the 1997 period, which resulted from an increased presence in states with higher income tax rates. Upgrade Sales were $5.4 million for the quarter compared with $4.7 million a year ago. The average price per Vacation Credit sold increased to $1.32 per credit, versus $1.27 per credit for the same period last year, reflecting a price increase that went into effect on June 29, 1998.

Vacation credit sales were $170.8 million for the year ended Dec. 31, 1998 compared to $128.8 million in 1997. Net income was $1.38 per diluted share compared to $1.32 per diluted share in 1997 on significantly fewer shares outstanding. Net income per share reflects the effect of 3.3 million shares issued in the company's initial public offering in August 1997. Upgrade Sales were $24.1 million in 1998, compared to $18.2 million in 1997.

"We are pleased with our financial results for the fourth quarter and for 1998," said William F. Peare, Trendwest chief executive officer. "The significant growth of Vacation Credit sales is a direct result of the investments we have made over the past year in new sales offices and expanding our network of top-quality resorts into new regions. We have laid the groundwork for continued strong sales growth and profitability in 1999 and beyond."

The company opened an off-site sales office in Salt Lake City, on Sept. 29, 1998, which began contributing to sales in the fourth quarter. Consistent with its strategy of seeking greater penetration in and around major metropolitan areas, which represent a growing and largely unpenetrated customer base, the company opened a total of four new off-site and three on-site sales offices in 1998 as compared to only two off-site and one on-site in 1997. The company now has a total of 13 off-site sales offices and 7 on-site sales offices.

"As we have discussed previously, the rapid expansion of our sales network in 1998, combined with higher commission rates early in the year, resulted in continued higher than average sales and marketing expenses as a percentage of sales," added Peare. "We fully expect these expenses to return to historical levels as the off-site sales offices in Salt Lake City, San Diego and Scottsdale continue to improve and begin to experience sales efficiency levels in line with our other sales offices.

"As we disclosed in June, we expected product cost for the second half of the year to be approximately 29% of vacation credit sales. For the second half of this year, we were at 28.9%, slightly lower in the third quarter and slightly higher in the fourth quarter. We expect product costs for the full year 1999 to be more in line with our historical average of 27% of sales," Peare continued.

Sales and marketing costs as a percentage of Vacation Credit sales increased to 47%, compared with 45.1% for the fourth quarter last year. This increase reflects the costs associated with the opening of several sales offices during the second and third quarters of 1998, as well as the lower closing percentages that are typical of sales offices that have been open less than one year.

For 1998, sales and marketing expenses were 48.8% of Vacation Credit sales compared to 46.1% in 1997. This increase was attributable to the same factors that increased the quarterly figure as well as increased commissions in the first half of 1998. General and administrative expenses were 8.6% of total revenue for the fourth quarter of 1998 compared to 9.8% for the 1997 period. For the full year, general and administrative expenses were 8.6% of total revenues compared to 8.8% in 1997.

Absent the additional gains on sales of Notes Receivable for the full year, general and administrative expense would have been slightly higher in 1998 as compared to 1997 when expressed as a percentage of total revenue, primarily reflecting increased infrastructure to support the company's growth.

During the fourth quarter of 1998, the company transferred 69 units to WorldMark, the Club. Overall, a total of 326 units were transferred to WorldMark in 1998. The company achieved total revenues of $56.9 million for the quarter, compared to $38.7 million for the same period last year, an increase of 47%. Total revenues for 1998 were $201 million, a 33% increase from the $151.6 million of revenues in 1997.

Finance income for the quarter increased 31% to $4.2 million, compared with $3.2 million for the fourth quarter of 1998, primarily due to increased carrying balances of Notes Receivable. Gains on sales of Notes Receivable increased 91%, from $2.1 million in the fourth quarter last year to $4 million for the 1998 fourth quarter.

The significant increase in income from gains on sales of Notes Receivable was primarily attributable to a strategic decision by the company to sell more Receivables in the fourth quarter to meet working capital needs and to raise capital to purchase an $11.8 million pool of seasoned Receivables from an affiliated party. In addition, reductions in market rates of interest in the fourth quarter resulted in a larger interest differential and larger gains on sales of Notes Receivable.

At Dec. 31, 1998, total Notes Receivable outstanding including Notes Receivable sold, amounted to $307.7 million, compared with $242.3 million at Dec. 31, 1997, an increase of 27%. The allowance for doubtful accounts for Notes Receivable held by the company, as well as recourse liability for Notes Receivable sold, was $20.9 million, or 6.8% of the total portfolio, at the end of the fourth quarter. This compares with $15.2 million, or 6.3%, at Dec. 31, 1997. The company increased its allowance based on a higher mix of sales in newer regions, some of which have slightly higher default rates. At Dec. 31, 1998, 1.97% of the total Notes Receivable portfolio was more than 60 days past due, a slight increase from the 1.88% of the portfolio that was more than 60 days past due on Dec. 31, 1997.
 

Statements herein contain forward looking information concerning the company's future prospects and other forecasts and statements of expectations. Actual results may differ materially from those expressed in the forward looking statements made by the company due to, among other things, the company's ability to develop or acquire additional resort properties, find acceptable debt or equity capital to fund such development, achieve planned sales levels, as well as other risk factors described in the Company's SEC reports and filings.