<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
NOVEMBER 17, 1997
--------------------------------------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
SIGNATURE RESORTS, INC.
--------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MARYLAND 000-21193 95-4582157
(STATE OR OTHER (COMMISSION TITLE NUMBER) (IRS EMPLOYER
JURISDICTION IDENTIFICATION
OF INCORPORATION) NUMBER)
</TABLE>
1875 SOUTH GRANT STREET, SUITE 650
SAN MATEO, CALIFORNIA 94402
--------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(650) 312-7171
--------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
<PAGE>
ITEM 5. OTHER EVENTS
Except as indicated to the contrary, all information in this report has been
restated to reflect the Company's three-for-two stock split in the form of a
common stock dividend paid on October 27, 1997 to stockholders of record on
October 10, 1997.
(a) Financial statements of Signature Resorts, Inc.
SELECTED CONSOLIDATED AND RESTATED HISTORICAL FINANCIAL INFORMATION OF THE
COMPANY
(DOLLAR AMOUNTS IN THOUSANDS)
The following table sets forth selected consolidated and restated historical
financial information of Signature Resorts, Inc. (the "Company"). For the
historical period ended December 31, 1996, the financial information presented
below includes the effect of the exchange of direct and indirect interests in,
and obligations of, certain predecessor limited partnerships, limited
liability companies and other corporations of the Company for shares of common
stock (the "Common Stock") of the Company (the "Consolidation Transactions")
and the Company's initial public offering of shares of Common Stock (the
"Initial Public Offering"), both of which were consummated on August 20, 1996.
For all of the periods presented, the financial information presented below
also gives effect to the Company's merger with AVCOM International, Inc.
("AVCOM") on February 7, 1997 (the "AVCOM Merger"), the Company's merger with
Plantation Resorts Group, Inc. ("PRG") on May 15, 1997 (the "PRG Merger") and
the Company's acquisition of LSI Group Holdings Plc ("LSI"), which was
consummated on August 28, 1997 (the "LSI Acquisition") by combining the
historical information of AVCOM, PRG, LSI and the Company and restating the
historical financial information of the Company using the pooling of interests
method of accounting. The following financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements for the
Company and the notes thereto, each of which are contained elsewhere in this
report.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
----------- ----------- -------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Vacation Interval and
vacation point sales.. $52,730 $68,867 $116,356 $ 139,426 $ 182,300 $ 125,565 $ 210,261
Interest income........ 10,355 12,770 15,965 20,339 25,415 18,543 29,529
Other income........... 811 1,110 1,547 8,553 12,132 8,794 9,495
------- ------- -------- ----------- ----------- ----------- -----------
Total revenues....... 63,896 82,747 133,868 168,318 219,847 152,902 249,285
------- ------- -------- ----------- ----------- ----------- -----------
Costs and operating
expenses:
Vacation Interval and
vacation point cost
of sales.............. 13,585 18,548 33,082 39,810 48,218 33,220 54,317
Advertising, sales and
marketing............. 24,404 32,711 54,098 62,258 89,040 59,115 94,757
Loan portfolio:
Interest expense--
treasury............ 7,500 7,435 8,224 10,077 13,482 10,100 10,877
Other expenses....... 853 840 1,466 2,034 4,523 2,803 4,457
Provision for
doubtful accounts... 2,593 1,703 2,045 3,666 8,311 3,653 6,013
General and
administrative........ 3,884 6,852 12,629 19,263 37,436 19,369 30,793
Resort property
valuation allowance... -- -- -- -- 2,620 839 --
Merger costs(a)........ -- -- -- -- -- -- 9,973
Depreciation and
amortization.......... 412 616 1,196 2,514 5,027 3,234 4,269
------- ------- -------- ----------- ----------- ----------- -----------
Total costs and
operating expenses.. 53,231 68,705 112,740 139,622 208,657 132,333 215,456
------- ------- -------- ----------- ----------- ----------- -----------
Income from
operations............ 10,665 14,042 21,128 28,696 11,190 20,569 33,829
Interest expense--
other................. -- 519 1,517 1,728 3,763 3,422 7,160
Equity loss on
investment in joint
venture............... -- -- 271 1,649 299 95 126
Minority interest in
income of
consolidated limited
partnership........... -- -- -- -- 199 111 123
------- ------- -------- ----------- ----------- ----------- -----------
Income before
provision (benefit)
for income taxes and
extraordinary item.... 10,665 13,523 19,340 25,319 6,929 16,941 26,420
Provision (benefit)
for income taxes...... 894 3,064 2,768 4,020 (4,105) 994 10,387
------- ------- -------- ----------- ----------- ----------- -----------
Income before
extraordinary item.... 9,771 10,459 16,572 21,299 11,034 15,947 16,033
Extraordinary item,
net of tax............ -- -- -- -- -- -- 766
------- ------- -------- ----------- ----------- ----------- -----------
Net income............. $ 9,771 $10,459 $ 16,572 $ 21,299 $ 11,034 $ 15,947 $ 15,267
======= ======= ======== =========== =========== =========== ===========
Pro forma net
income(b)............. $ 6,504 $ 8,249 $ 11,954 $ 15,310 $ 4,380 $ 10,165 $ --
======= ======= ======== =========== =========== =========== ===========
Pro forma net income
per share of common
stock and common
stock equivalents
(actual for September
30, 1997):
Pro forma net income
before extraordinary
item................ -- -- -- $ .64 $ .16 $ .40 $ .44
Extraordinary item,
net of tax.......... -- -- -- -- -- -- (.02)
------- ------- -------- ----------- ----------- ----------- -----------
Pro forma net income. -- -- -- $ .64 $ .16 $ .40 $ .42
======= ======= ======== =========== =========== =========== ===========
Pro forma weighted
average number of
shares of common
stock and common
stock equivalents
outstanding (actual
for September 30,
1997)................. -- -- 23,954,856 27,639,647 25,405,437 36,070,145
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
----------- ----------- -------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA (UNAUDITED
FOR ALL PERIODS):
EBITDA(c).............. $18,786 $ 22,622 $ 31,553 $ 41,553 $ 44,622 $ 34,906 $ 60,849
Number of resorts at
period end............ 4 5 16 20 31 21 34
Number of Vacation
Intervals sold........ 4,365 5,917 10,695 10,024 11,946 8,336 13,605
Number of Vacation
Intervals in
inventory............. 5,157 2,830 6,915 23,439 30,399 23,641 29,149
Average price of
Vacation Intervals
sold(d)............... $12,080 $ 11,639 $ 10,078 $ 12,298 $ 13,237 $ 13,135 $ 13,439
Number of vacation
points in inventory... -- -- 233,802 205,943 291,674 304,844 133,907
Number of vacation
points sold........... -- -- 65,325 102,270 132,878 90,715 130,750
Average price of
vacation points sold.. -- -- 198 181 186 172 210
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash and cash
equivalents, including
escrow................ $ 4,316 $ 16,451 $ 17,015 $ 22,779 $ 22,469 $ 25,969 $134,100
Mortgages receivable,
net................... 63,763 78,079 102,470 147,405 215,518 190,922 294,842
Total assets........... 98,531 136,607 210,218 295,771 445,884 410,494 711,028
Total debt............. 63,529 87,839 123,009 177,032 236,122 204,158 445,864
Stockholders' equity .. 28,860 34,232 61,187 75,448 126,425 134,799 195,428
</TABLE>
- --------
NOTES:
(a) Merger costs include expenses related to fees paid to financial advisors,
legal fees, and other transaction expenses in connection with the AVCOM
and PRG Mergers and the LSI Acquisition.
(b) Reflects the effect on the historical statement of operations data,
assuming the combined Company had been treated as a C corporation rather
than as individual limited partnerships and limited liability companies
for federal income tax purposes.
(c) EBITDA represents net income before interest expense-treasury, interest
expense-other, income taxes, non-recurring costs and depreciation and
amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and/or incur
indebtedness. However, EBITDA should not be construed as a substitute for
income from operations, net income or cash flows from operating activities
in analyzing the Company's operating performance, financial position and
cash flows. The EBITDA measure presented herein may not be comparable to
EBITDA as presented by other companies. The following table reconciles
EBITDA to net income:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
----------- ----------- ------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income.............. $ 9,771 $10,459 $16,572 $21,299 $11,034 $15,947 $15,267
Interest expense--
treasury............... 7,500 7,435 8,224 10,077 13,482 10,100 10,877
Interest expense--other. -- 519 1,517 1,728 3,763 3,422 7,160
Capitalized interest
expense included in
Vacation Interval and
vacation point cost of
sales.................. 209 529 1,276 1,915 1,718 1,209 2,150
Income taxes............ 894 3,064 2,768 4,020 (4,105) 994 10,387
Non-recurring costs..... -- -- -- -- 14,381 (e) -- 9,973(e)
Depreciation and
amortization........... 412 616 1,196 2,514 4,349 (e) 3,234 4,269
Extraordinary item, net
of tax................. -- -- -- -- -- -- 766
------- ------- ------- ------- ------- ------- -------
EBITDA.................. $18,786 $22,622 $31,553 $41,553 $44,622 $34,906 $60,849
======= ======= ======= ======= ======= ======= =======
</TABLE>
(d) Dollars presented in actual amounts, not in thousands.
(e) Non-recurring costs for the year ended December 31, 1996 include costs
incurred at AVCOM for (i) an increase in the provision for doubtful
accounts of $2.0 million, (ii) a $6.1 million in severance cost, lease
cancellation, litigation reserves and other integration costs, (iii) a
$2.6 million write-down of certain property to estimated fair market
value, (iv) a $3.0 million reserve for losses associated with certain
property management and related contracts and (v) a $0.7 million charge
relating to amortization of start-up costs over a period of one year. Non-
recurring costs for the nine months ended September 30, 1997, are merger
costs relating to the AVCOM and PRG mergers and the LSI Acquisition.
3
<PAGE>
(b) Pro forma financial information.
PRO FORMA FINANCIAL INFORMATION OF THE COMPANY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary pro forma financial information of
the Company. The pro forma information for the year ended December 31, 1996,
and for the nine month period ended September 30, 1996, gives effect to the
Consolidation Transactions, the Initial Public Offering, the issuance of 5
3/4% convertible subordinated notes and shares of Common Stock in February
1997 ("the Concurrent Offerings") and the issuance of 9 3/4% senior
subordinated notes (the "Senior Subordinated Notes") in August 1997 (the "Note
Offering") in each case, as if it had occurred as of the beginning of the
period presented. The pro forma information for the nine month period ended
September 30, 1997, gives effect to the Concurrent Offerings and the Note
Offering, in each case, as if each had occurred as of the beginning of the
period presented. No pro forma balance sheet information is presented as all
events for which pro forma adjustments would be required had occurred prior to
September 30, 1997. The pro forma information included herein does not give
effect to the Company's acquisition of the Embassy Suites Resort at Kaanapali
Beach, Maui, Hawaii (the "Kaanapali Acquisition"), Marc Hotels & Resorts, Inc.
(the "Marc Acquisition"), Vacation Internationale, Ltd. (the "VI Acquisition")
or the European vacation ownership business of Global Development Ltd. and
certain of its affiliated companies (the "Global Acquisition") because such
acquisitions, individually or in the aggregate, are not considered significant
under Regulation S-X, promulgated under the Securities Act of 1933, as amended
("Regulation S-X"). The Company's actual statement of operations data reflects
the combined operations of the Company, AVCOM, PRG and LSI using pooling-of-
interests accounting for all periods presented.
<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
----------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ ---------------------
1996 1996 1997
------------ ---------- ----------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Vacation Interval and vacation point sales. $ 182,300 $ 125,565 $ 210,261
Interest income............................ 25,415 18,543 29,529
Other income............................... 12,342 9,004 9,495
---------- ---------- ----------
Total revenues............................ 220,057 153,112 249,285
---------- ---------- ----------
COSTS AND OPERATING EXPENSES:
Vacation Interval and vacation point cost
of sales.................................. 48,168 33,170 54,317
Advertising, sales and marketing........... 89,040 59,115 94,757
Loan portfolio:
Interest expense--treasury................ 693 2,561 1,393
Other expenses............................ 4,457 2,737 4,457
Provision for doubtful accounts........... 6,311 3,653 6,013
General and administrative................. 28,353 19,369 30,793
Resort property valuation allowance........ -- 839 --
Depreciation and amortization.............. 4,349 3,234 4,269
Non-recurring costs........................ 14,381 -- --
Merger costs............................... -- -- 9,973
---------- ---------- ----------
Total costs and operating expenses........ 195,752 124,678 205,972
---------- ---------- ----------
Income from operations..................... 24,305 28,434 43,313
Interest expense--other.................... 28,908 21,652 21,652
Equity loss on investment in joint venture. 689 485 126
Minority interest in income of consolidated
limited partnership....................... 199 111 123
---------- ---------- ----------
Income (loss) before provision (benefit)
for income taxes and extraordinary item... (5,491) 6,186 21,412
Provision (benefit) for income taxes....... (2,419) 2,474 8,384
---------- ---------- ----------
Income (loss) before extraordinary item.... (3,072) 3,712 13,028
Extraordinary item, net of tax............. -- -- 766
---------- ---------- ----------
Net income (loss).......................... $ (3,072) $ 3,712 $ 12,262
========== ========== ==========
Pro forma unaudited net income (loss) per
common and common equivalent shares
outstanding .............................. $ (.08) $ .10 $ 0.34
========== ========== ==========
Pro forma unaudited weighted average common
and common equivalent shares outstanding . 36,648,843 35,411,106 36,336,811
</TABLE>
4
<PAGE>
PRO FORMA FINANCIAL INFORMATION OF THE COMPANY
The pro forma statements of operations data set forth below for the year
ended December 31, 1996, and for the nine months ended September 30, 1996
gives effect, individually and in the aggregate, to the Consolidation
Transactions, the Initial Public Offering, the Concurrent Offerings and the
Note Offering and the application of the net proceeds therefrom, in each case,
as if each had occurred at the beginning of the period. The pro forma
information for the nine month period ended September 30, 1997, gives effect
to the Concurrent Offerings and the Note Offering and the application of the
net proceeds therefrom in each case, as if each had occurred at the beginning
of the period. The Company's actual statement of operations data reflects the
combined operations of the Company, AVCOM, PRG and LSI using pooling-of-
interests accounting for all periods presented. The pro forma statements of
operations data set forth below does not give effect to the Kaanapali
Acquisition, the Marc Acquisition, the VI Acquisition or the Global
Acquisition because such acquisitions, individually or in the aggregate, are
not considered significant under Regulation S-X.
PRO FORMA FINANCIAL INFORMATION OF THE COMPANY (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------
PRO FORMA ADJUSTMENTS
-----------------------------
CONSOLIDATION
TRANSACTIONS/
INITIAL
PUBLIC OFFERING/
COMPANY CONCURRENT THE NOTE COMPANY
ACTUAL OFFERINGS(b) OFFERING(c) PRO FORMA
---------- ---------------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Vacation Interval and
vacation point sales(a).. $ 182,300 $ -- $ -- $ 182,300
Interest income........... 25,415 -- -- 25,415
Other income.............. 12,132 210 (d) -- 12,342
---------- --------- -------- ----------
Total revenues........... 219,847 210 -- 220,057
---------- --------- -------- ----------
COSTS AND OPERATING
EXPENSES:
Vacation Interval and
vacation point cost of
sales.................... 48,218 (50)(e) -- 48,168
Advertising, sales and
marketing................ 89,040 -- -- 89,040
Loan portfolio:
Interest expense--
treasury................ 13,482 (12,789)(e) -- 693
Other expenses........... 4,523 (66)(e) -- 4,457
Provision for doubtful
accounts(f)............. 6,311 -- -- 6,311
General and
administrative(f)........ 28,353 -- -- 28,353
Resort property valuation
allowance(f)............. -- -- -- --
Depreciation and
amortization(f).......... 4,349 -- -- 4,349
Non-recurring costs....... 14,381 -- -- 14,381
Merger costs.............. -- -- -- --
---------- --------- -------- ----------
Total costs and operating
expenses................. 208,657 (12,905) -- 195,752
---------- --------- -------- ----------
Income (loss) from
operations............... 11,190 13,115 -- 24,305
Interest expense--other... 3,763 4,645 (e) 20,500 28,908
Equity loss on investment
in joint venture......... 299 390 (g) -- 689
Minority interest in
income of consolidated
limited partnership...... 199 -- -- 199
---------- --------- -------- ----------
Income (loss) before
provision (benefit) for
income taxes............. 6,929 8,080 (20,500) (5,491)
Provision (benefit) for
income taxes............. (4,105) 9,886 (h) (8,200) (2,419)
---------- --------- -------- ----------
Net income (loss)......... $ 11,034 $ (1,806) $(12,300) $ (3,072)
========== ========= ======== ==========
Pro forma earnings per
common and common
equivalent shares........ $ 0.40 $ (.08)
========== ==========
Pro forma weighted average
number of common and
common equivalent shares
outstanding.............. 27,639,647 8,955,196 (i) -- 36,648,843
</TABLE>
5
<PAGE>
- --------
NOTES:
(a) Point sales include amounts attributable to sales of vacation points by
LSI pursuant to its points-based Grand Vacation Club system.
(b) Reflects the Consolidation Transactions and the issuance of 17,032,058
shares of Common Stock pursuant thereto, and the Initial Public Offering
of 9,056,250 shares of Common Stock, each in August 1996 and the
Concurrent Offerings of $138 million of 5.75% Convertible Subordinated
Notes due 2007 and 2,400,000 shares of Common Stock sold by the Company in
February 1997.
(c) Reflects the issuance of the Notes at an effective interest rate of 9.875%
per annum, plus the amortization of debt issuance costs.
(d) Reflects increase in interest income due to the assumption of notes
receivable in the Consolidation Transactions of $2.7 million. Such notes
bear interest at a rate of 12% per annum.
(e) Reflects the following: (i) the elimination or reduction of interest
expense due to the retirement of $140.4 million of debt; (ii) the
reduction of Vacation Interval and vacation point cost of sales due to the
reduction of capitalized interest related to the retirement of debt; (iii)
the elimination of financing fees on advances not required as a result of
the debt retirement and (iv) the incurrence of interest expense of 5.75%
on $138 million of Convertible Subordinated Notes. The weighted average
interest rate on the debt retired was 11% per annum.
(f) The referenced line items have been adjusted to reflect the amounts set
forth in the "non-recurring costs" line item. These non-recurring costs
include costs incurred at AVCOM for (i) an increase in the provision for
doubtful accounts by $2.0 million, (ii) a $6.1 million in severance cost,
lease cancellation, litigation reserves and other integration costs, (iii)
a $2.6 million write-down of certain property to estimated fair market
value, (iv) a $3.0 million reserve for losses associated with certain
property management and related contracts, and (v) a $0.7 million charge
relating to amortization of start-up costs over a period of one year.
(g) Reflects the increase of goodwill amortization on the purchase of a joint
venture interest.
(h) Reflects the effect on 1996 historical statement of operations data set
forth in footnotes (d)-(g) above and assumes the combined Company had been
treated as a C corporation rather than as limited partnerships and limited
liability companies for federal income tax purposes.
(i) Reflects the incremental effect of the following items, assuming such
issuances had occurred as of January 1, 1996:
<TABLE>
<CAPTION>
DESCRIPTION SHARES
----------- ---------
<S> <C>
Initial Public Offering shares issued on August 20, 1996;
effect from January 1, 1996 through August 19, 1996........... 5,765,317
Concurrent Offerings shares issued in February 1997; effect for
the entire year ended December 31, 1996....................... 2,400,000
Options; effect for the entire year ended December 31, 1996.... 789,879
---------
Incremental effect assuming issuance as of beginning of period. 8,955,196
=========
</TABLE>
6
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS DATA (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
-------------------------------------------------- -----------------------------------------------
PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS
---------------------------- -------------------------
CONSOLIDATION
TRANSACTIONS/
INITIAL PUBLIC
OFFERING/
COMPANY CONCURRENT THE NOTE COMPANY COMPANY CONCURRENT THE NOTE COMPANY
ACTUAL OFFERING(b) OFFERING(c) PRO FORMA ACTUAL OFFERINGS(d) OFFERING(c) PRO FORMA
---------- -------------- ----------- ---------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Vacation Interval and
vacation point
sales(a).............. $ 125,565 $ -- $ -- $ 125,565 $ 210,261 $ -- $ -- $ 210,261
Interest income........ 18,543 -- -- 18,543 29,529 -- -- 29,529
Other income........... 8,794 210 (e) -- 9,004 9,495 -- -- 9,495
---------- ---------- -------- ---------- ---------- ------- -------- ----------
Total revenues......... 152,902 210 -- 153,112 249,285 -- -- 249,285
---------- ---------- -------- ---------- ---------- ------- -------- ----------
COSTS AND OPERATING
EXPENSES:
Vacation Intervals and
vacation points cost
of sales.............. 33,220 (50) -- 33,170 54,317 -- -- 54,317
Advertising, sales and
marketing............. 59,115 -- -- 59,115 94,757 -- -- 94,757
Loan portfolio:
Interest expense--
treasury............ 10,100 (7,539)(f) -- 2,561 10,877 (9,484) -- 1,393
Other expenses....... 2,803 (66)(f) -- 2,737 4,457 -- -- 4,457
Provision for
doubtful accounts... 3,653 -- -- 3,653 6,013 -- -- 6,013
General and
administrative........ 19,369 -- -- 19,369 30,793 -- -- 30,793
Depreciation and
amortization.......... 3,234 -- -- 3,234 4,269 -- -- 4,269
Resort property
valuation allowance... 839 -- -- 839 -- -- -- --
Merger costs(g)........ -- -- -- -- 9,973 -- -- 9,973
---------- ---------- -------- ---------- ---------- ------- -------- ----------
Total costs and
operating expenses.... 132,333 (7,655) -- 124,678 215,456 (9,484) -- 205,972
---------- ---------- -------- ---------- ---------- ------- -------- ----------
Income from operations.. 20,569 7,865 -- 28,434 33,829 9,484 -- 43,313
Interest expense--
other................. 3,422 2,855 (f) 15,375 21,652 7,160 (883) 15,375 21,652
Equity loss on
investment in joint
venture............... 95 390 (h) -- 485 126 -- -- 126
Minority interest in
income of
consolidated limited
partnership........... 111 -- -- 111 123 -- -- 123
---------- ---------- -------- ---------- ---------- ------- -------- ----------
Income (loss) before
provision (benefit) for
income taxes........... 16,941 4,620 (15,375) 6,186 26,420 10,367 (15,375) 21,412
Provision (benefit)
for income taxes...... 994 7,630(i) (6,150) 2,474 10,387 4,147 (6,150) 8,384
---------- ---------- -------- ---------- ---------- ------- -------- ----------
Net income (loss)....... 15,947 (3,010) (9,225) 3,712 16,033 6,220 (9,225) 13,028
Extraordinary item, net
of tax................. -- -- -- -- 766 -- -- 766
---------- ---------- -------- ---------- ---------- ------- -------- ----------
Pro forma unaudited net
income (loss).......... $ 15,947 $ (3,010) $ (9,225) $ 3,712 $ 15,267 $ 6,220 $ (9,225) $ 12,262
========== ========== ======== ========== ========== ======= ======== ==========
Pro forma earnings per
common and common
equivalent shares...... $ 0.63 $ .10 $ 0.42 $ 0.34
========== ========== ========== ==========
Pro forma weighted
average number of
common and common
equivalent shares
outstanding ........... 25,405,437 10,005,669 (j) -- 35,411,106 36,070,145 266,666(k) -- 36,336,811
</TABLE>
7
<PAGE>
- --------
NOTES:
(a) Point sales include amounts attributable to sales of vacation points by
LSI pursuant to its points-based vacation club system.
(b) Reflects the Consolidation Transactions and the issuance of 17,032,058
shares of Common Stock pursuant thereto, and the Initial Public Offering
of 9,056,250 shares of Common Stock, each in August 1996, and the
Concurrent Offerings of $138 million of 5.75% Convertible Subordinated
Notes due 2007 and 2,400,000 shares of Common Stock sold by the Company in
February 1997.
(c) Reflects the issuance of the Notes at an effective interest rate of 9.875%
per annum, plus amortization of debt issuance costs.
(d) Reflects the Concurrent Offerings of $138 million of 5.75% Convertible
Subordinated Notes due 2007 and 2,400,000 shares of Common Stock sold by
the Company in February 1997 assuming such issuances had occurred as of
the beginning of the period.
(e) Reflects increase in interest income due to the assumption of notes
receivable in the Consolidation Transactions of $2.7 million. Such notes
bear interest at a rate of 12% per annum.
(f) Reflects the following: (i) the elimination or reduction of interest
expense due to the retirement of $104 million and $120 million of debt
with respect to the period ended September 30, 1996 and 1997,
respectively; (ii) the reduction of Vacation Interval and vacation point
cost of sales due to the reduction of capitalized interest related to the
retirement of construction debt; (iii) the elimination of financing fees
on advances not required as a result of the debt retirement; and (iv) the
incurrence of interest expense of 5.75% on $138 million of Convertible
Subordinated Notes. The weighted average interest rate on a per annum
basis on the debt retired was approximately 11%.
(g) Merger costs include expenses related to fees paid to financial advisors,
legal fees and other transaction expenses in connection with the AVCOM and
PRG Mergers and the LSI Acquisition.
(h) Reflects the increase in goodwill amortization on the purchase of a joint
venture interest.
(i) Reflects the effects on historical statements of operations data set forth
in footnotes (e)-(h) above and assumes the combined Company had been
treated as a C corporation rather than as individual limited partnerships
and limited liability companies for federal income tax purposes.
(j) Reflects the Initial Public Offering of Shares of Common Stock of
9,056,250 issued in August 1996 and the issuance of 2,400,000 shares of
Common Stock in February 1997 in connection with the Concurrent Offerings
assuming such issuances had occurred as of the beginning of the period.
(k) Reflects incremental effect of the 2,400,000 shares of Common Stock issued
in February 1997 in connection with the Concurrent Offerings assuming the
issuance had occurred as of the beginning of the period.
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(c) Management Discussion and Analysis of Financial Condition and Results of
Operations.
RESULTS OF OPERATIONS
The following discussion of the results of operations includes the combined
accounts of Signature Resorts, Inc., AVCOM, PRG, LSI and the subsidiaries that
were acquired or formed prior to August 20, 1996, which became wholly-owned
subsidiaries in connection with the Consolidation Transactions.
Comparison of the nine months ended September 30, 1997 to the nine months
ended September 30, 1996. During the nine months ended September 30, 1997, the
Company achieved total revenue of $249.3 million, an increase of $96.4
million, or 63%, over the $152.9 million during the nine months ended
September 30, 1996. This increase was primarily due to a 67% increase in
vacation interval and point sales and a 59% increase in interest income during
the nine months ended September 30, 1997 over the comparable period of 1996.
The growth in interval sales was due to a 63% increase in intervals sold to
13,605 in the nine months ended September 30, 1997 from 8,336 in the nine
months ended September 30, 1996, and a 2% increase in average sales price of
intervals sold to $13,439 in the nine months ended September 30, 1997 from
$13,135 in the comparable period of 1996. The increase in intervals sold was
due to the commencement of sales during the nine months ended September 30,
1997 at San Luis Bay Resort, Embassy Vacation Resort Lake Tahoe, Sedona Summit
Resort, Scottsdale Villa Mirage Resort, and Villas on the Lake. The growth in
average sales price of intervals sold was due to a change in the mix of units
sold. The average sales price will change from period to period depending upon
the mix of resorts in sales and the type of units sold (studio, one, two and
three bedrooms). The average price per point sold at the Company's European
resorts increased 22% to $210 during the nine months ended September 30, 1997
from $172 during the comparable period of 1996.
Interest income increased $11.0 million, or 59%, to $29.5 million for the
nine months ended September 30, 1997 from $18.5 for the comparable period of
1996. The increase is the result of increases in gross mortgages receivable
and interest income from investments. Gross mortgages receivable increased to
$315.2 million at September 30, 1997, an increase of $110.4 million, or 54%,
from $204.8 million at September 30, 1996. Interest income from investments
increased by approximately $3.5 million as a result of investment of the
proceeds received from the Concurrent Offerings consummated in February 1997
and the Senior Subordinated Notes Offering consummated in August 1997.
Total costs and operating expenses for the nine months ended September 30,
1997 increased by $83.2 million, or 63%, to $215.5 million from $132.3 million
for the comparable period of 1996. Total costs and operating expenses, net of
$10.0 million in non-recurring merger and acquisition costs associated with
the AVCOM, PRG and LSI Mergers, were $205.5 million for the nine months ended
September 30, 1997 compared to $131.5 million, net of a $0.8 million non-
recurring write-down of certain AVCOM assets to estimated fair market value,
for the comparable period of 1996. However, as a percentage of total revenue,
total costs and operating expenses, excluding non-recurring charges, decreased
to 82% in the nine months ended September 30, 1997 from 86% in the comparable
period of 1996. This decrease is attributable to a decrease in interest
expense-treasury as a percentage of total revenue to 4% in the nine months
ended September 30, 1997 from 7% in the comparable period of 1996, as the
Company began to finance mortgages receivable with the proceeds from the
Concurrent Offerings and the Senior Subordinated Note Offering, rather than
hypothecated debt. Vacation interval and point cost of sales, as a percentage
of vacation interval and point sales, were 26% for each of the nine months
ended September 30, 1997 and 1996.
Advertising, sales and marketing expenses increased $35.7 million to $94.8
million for the nine months ended September 30, 1997 from $59.1 million for
the nine months ended September 30, 1996. As a percentage of vacation interval
and point sales, advertising, sales and marketing expenses decreased to 45%
for the nine months ended September 30, 1997 from 47% for the comparable
period of 1996. Reductions in advertising, sales and marketing resulted from
reductions in these expenses at the resorts acquired in the AVCOM Merger as
well as from the company-wide application of the best marketing practices of
each of AVCOM, PRG and LSI.
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Other loan portfolio expenses increased $1.7 million during the nine months
ended September 30, 1997 to $4.5 million from $2.8 million during the
comparable period of 1996. However, as a percentage of gross mortgages
receivable, other loan portfolio expense remained constant at 1.4% for both
periods.
The provision for doubtful accounts increased $2.3 million during the nine
months ended September 30, 1997 to $6.0 million from $3.7 million during the
comparable period of 1996. The allowance for doubtful accounts as a percentage
of gross mortgages receivable decreased to 6.5% at September 30, 1997 from
6.8% at September 30, 1996.
General and administrative expenses increased to $30.8 million for the nine
months ended September 30, 1997 from $19.4 million for the nine months ended
September 30, 1996, an increase of 59%. As a percentage of total revenue,
general and administrative expenses decreased to 12% for the nine months ended
September 30, 1997 from 13% for the comparable period of 1996 as a result of
increased efficiencies provided by the Company's larger resort base. The
increase in general and administrative expenses was the result of (i) the
addition of a number of senior officers and key executives in order to build
the management and organizational infrastructure necessary to efficiently
manage the Company's growth, (ii) the Company's expenses and reporting
obligations as a public company, (iii) increased overhead due to the
acquisition of additional resorts, and (iv) added salary, travel and office
expenses attributable to the growth in the size of the Company.
Depreciation and amortization increased $1.1 million, or 34%, to $4.3
million during the nine months ended September 30, 1997 from $3.2 million
during the nine months ended September 30, 1996, reflecting increased
depreciation and amortization from capital expenditures.
Interest expense-other, reported net of capitalized interest of $2.7 million
and $3.8 million at September 30, 1997 and 1996, respectively, increased $3.8
million, or 112%, to $7.2 million for the nine months ended September 30, 1997
from $3.4 million for the comparable period of 1996. The increase was due
primarily to the interest on the Convertible Notes and the Senior Subordinated
Notes issued in 1997.
As a result of the factors discussed above, income before provision for
income taxes and non-recurring charges increased 104% to $36.4 million for the
nine months ended September 30, 1997 from $17.8 million for the nine months
ended September 30, 1996.
An extraordinary item of $0.8 million, net of income taxes, was charged to
net income for the nine months ended September 30, 1997 as the result of the
early retirement of notes payable to financial institutions.
For the nine months ended September 30, 1997, income taxes increased $9.4
million over the comparable period in 1996 as a result of the change in the
Company's status to a C corporation subsequent to its August 1996 initial
public offering. Previously, the Company's predecessor entities only incurred
federal income taxes with regard to AVCOM and foreign income taxes with
respect to LSI and the company's properties located in St. Maarten,
Netherlands Antilles.
Income before extraordinary item and non-recurring charges (net of taxes)
was $22.0 million for the nine months ended September 30, 1997, an increase of
$5.5 million, or 33%, from $16.5 million for the comparable period of 1996.
Assuming the Company was taxed as a C corporation for the nine months ended
September 30, 1996 at a 40% tax rate, income before extraordinary item and
non-recurring charges (net of taxes) would have been $10.7 million, compared
to $22.0 million for the corresponding period of 1997, an increase of 106%.
Reported net income was $15.3 million for the nine months ended September 30,
1997, compared to $15.9 million for the nine months ended September 30, 1996.
Comparison of the year ended December 31, 1996 to year ended December 31,
1995. For the year ended December 31, 1996, the Company achieved total
revenues of $219.8 million compared to $168.3 million for the year ended
December 31, 1995, an increase of $51.5 million or 31%. Such increase was due
to the growth of
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Vacation Intervals sold from 10,024 in 1995 to 11,946 in 1996, a 19% increase
coupled with a 8% increase in the average sales price from $12,298 in 1995 to
$13,237 in 1996. The growth in Vacation Intervals sold was due to the
commencement of sales at San Luis Bay, Embassy Vacation Resort Lake Tahoe,
Sedona Summit and Scottsdale Villa Mirage combined with a full year of
Vacation Interval sales at Royal Palm and Flamingo Beach Club. The average
price per point sold at the Company's European resorts increased 2.8% to $186
for the year ended December 31, 1996 from $181 for the year ended December 31,
1995. In addition, vacation point sales at the Company's European resorts for
the year ended December 31, 1996 increased 30% to 132,878 points sold from
102,270 sold for the comparable period of 1996.
Interest income increased $5.1 million, or 25%, due to an increase in
mortgages receivable, net from $147.4 million in 1995 to $215.5 million in
1996. Other income, which includes rental income, management fees, other
interest income and portfolio income from the $10.2 million portfolio acquired
with the two St. Maarten resorts in 1995, increased $3.5 million from
$8.6 million in 1995 to $12.1 million in 1996. The increase in other income
was the result of $1.7 million of income from the settlement of certain
receivables from the former owners of the St. Maarten resorts, and a $1.3
million increase in portfolio income from the St. Maarten portfolio.
Total costs and operating expenses for the years ended 1995 and 1996
increased by $69.1 million from $139.6 million to $208.7 million,
respectively. The increase in total costs and operating expenses was the
result of significant charges incurred by AVCOM during the fourth quarter of
1996, costs and operating expenses, as a percentage of total revenues,
increased from 83% in 1995 to 95% in 1996. The significant AVCOM charges
include (i) an increase in the provision for doubtful accounts by $2.0
million, (ii) a $6.1 million in severance cost, lease cancellation, litigation
reserves and other integration costs, (iii) a $2.6 million write-down of
certain property to estimated fair market value, (iv) $3.0 million reserve for
losses associated with certain property management and related contracts and
(v) a $0.7 million charge relating to amortization of start-up costs over a
period of one year. Excluding the non-recurring AVCOM charges of $13.6
million, costs and operating expenses as a percentage of total revenues would
have decreased to 88% of total revenues. As a percentage of Vacation Interval
and vacation point sale revenues, Vacation Interval and vacation point cost of
sales decreased to 26% in 1996 compared to 29% in 1995 as the Company was able
to purchase and construct Vacation Intervals at a discount to historical
development costs, reducing the unit cost on average for each Vacation
Interval sold.
Interest expense--treasury increased $3.4 million from $10.1 million in 1995
to $13.5 million in 1996, or 34% as the result of notes payable to financial
institutions and notes payable to related parties increasing from $177.0
million to $236.1 million or 33% and the prime rate increasing during the
year. Other expenses increased 125% from $2.0 million in 1995 to $4.5 million
in 1996. As a percentage of total revenues, other expenses increased from 1%
in 1995 to 2% in 1996. The provision for doubtful accounts increased 124% from
$3.7 million in 1995 to $8.3 million as the result of a $2.0 million increase
in the AVCOM provision for doubtful accounts during the fourth quarter of
1996.
General and administrative expenses increased $18.1 million from $19.3
million during 1995 to $37.4 million during 1996. As a percentage of total
revenues, general and administrative expenses were lower during 1995 at 11% as
compared to 17% during 1996. The increase in general and administrative
expenses was the result of (i) a $5.3 million expense relating to severance
arrangements, lease cancellations and other expenses related to the AVCOM
Merger, (ii) the addition of a number of senior officers and key executives in
connection
with building the Company's management and organizational infrastructure
necessary to efficiently manage the Company's future growth, (iii) the
Company's expenses and reporting obligations as a public company,
(iv) increased overhead due to the acquisition and development of additional
resorts, and (v) added salary, travel, and office expenses attributable to the
current and planned growth of the Company.
Depreciation and amortization increased $2.5 million, or 100% from $2.5
million in 1995 to $5.0 million, reflecting increased depreciation and
amortization resulting from (i) a $0.7 million AVCOM charge relating to
amortization of start-up costs over a period of one year from AVCOM's previous
policy of three years and (ii) an increase in capital expenditures and
intangible assets.
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Equity loss on investment in joint venture decreased to $0.3 million in 1996
from $1.6 million in 1995 due to increased Vacation Interval sales and higher
hotel occupancy at Embassy Vacation Poipu Point during 1996. In 1996, 1,146
Vacation Intervals were sold at the Embassy Vacation Poipu Point, while 281
Vacation Intervals were sold at the Embassy Vacation Poipu Point in 1995.
Primarily as the result of the significant charges incurred by AVCOM during
the fourth quarter of 1996, as discussed above, income before provision for
income taxes decreased to $6.9 million during 1996 from $25.3 million in 1995.
However, income before provision for taxes of the Company (excluding AVCOM)
increased 17% to $27.3 million in 1996 from $23.4 in 1995. AVCOM's (loss)
income before provision for taxes decreased to $(20.4) million in 1996 from
$1.9 million in 1995, primarily as a result of $13.6 million of non-recurring
charges related to accrued expenses and the write-down and write-off of
certain assets of AVCOM.
Provision (benefit) for income taxes changed from an expense of $4.0 million
in 1995 to a tax benefit of $4.1 million in 1996. The 1996 tax benefit results
from the recognition of AVCOM's operating loss carryforwards. Previously, the
Company's predecessor entities incurred federal income taxes only with respect
to AVCOM as well as foreign income taxes with respect to LSI and the Company's
properties located in St. Maarten, Netherlands Antilles.
As a result of the factors discussed above, net income decreased 48% from
$21.3 million for 1995 to $11.0 million for 1996.
Comparison of the year ended December 31, 1995 to year ended December 31,
1994. For the year ended December 31, 1995 the Company achieved total revenues
of $168.3 million compared to $133.9 million for the year ended December 31,
1994, an increase of $34.4 million or 26%. Total revenues grew due to a 20%
increase in Vacation Interval and vacation point sales from $116.4 million to
$139.4 million, a 27% increase in interest income from $16.0 million to $20.3
million, and a $7.0 million increase in other income. The commencement of
sales of Vacation Intervals at Royal Palm, Flamingo Beach Club, Greensprings
Plantation and Embassy Vacation Resort Grand Beach drove domestic Vacation
Interval sales volume at the resorts from 8,834 sold in 1994 to 9,726 sold in
1995, an increase of 10%. These higher volumes, combined with price growth,
drove the 20% increase in domestic Vacation Interval sales revenue. The
average price per point sold at the Company's European resorts decreased 9% to
$181 for the year ended December 31, 1995 from $198 for the comparable period
of 1994. However, vacation point sales increased 57% from 65,325 points sold
for the year ended December 31, 1994 to 102,270 points sold for the year ended
December 31, 1995. European Vacation Intervals sold decreased from 1,861 for
the year ended December 31, 1994 to 298 for the year ended December 31, 1995
as European operations converted from selling Vacation Intervals to vacation
point sales.
Interest income increased due to a 44% increase in mortgages receivables,
net, which grew from $102.5 million at the end of 1994 to $147.4 million at
the end of 1995. Other income, which included rental income management fees,
other interest income and portfolio income from the $10.2 million portfolio
acquired with the two St. Maarten resorts in 1995 and other operating income,
increased $7.1 million from $1.5 million in 1994 to $8.6 million in 1995. This
increase was the result of the acquisition of a mortgages receivable portfolio
of approximately $10.2 million acquired with the two St. Maarten resorts on
which the Company earned $2.2 million. In addition, the Company accrued $2.0
million of business interruption insurance claims to compensate for lost
revenues and profits related to damages sustained from Hurricane Luis at the
two St. Maarten resorts.
While total costs and operating expenses increased from $112.7 million for
the year ended December 31, 1994 to $139.6 million for the year ended December
31, 1995, an increase of 24%, as a percentage of total revenues, total costs
and operating expenses decreased from 84% in 1994 to 83% in 1995. Relative
decreases in Vacation Interval and vacation point cost of sales and
advertising, sales and marketing expenses as a percentage of total revenues,
were offset by relative increases in general and administrative expenses and
equity loss on investment in joint venture.
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Loan portfolio expenses consisting of interest expense--treasury, other
expenses and provision for doubtful accounts increased from $11.7 million in
total in 1994 to $15.8 million in total in 1995, an increase of 35%. This
increase reflects the 44% increase in mortgages receivable, net due to
Vacation Interval sales growth and acquisitions of resorts made by the Company
in 1995.
General and administrative expenses increased 53% from $12.6 million in 1994
to $19.3 million in 1995. The increase in general and administrative expenses
was the result of increased salary expenses and overhead due to the
acquisition of additional resorts and growth in the size of the Company.
Relative to total revenues, general and administrative expenses increased to
11% of revenues in 1995 from 9% of revenues in 1994.
Depreciation and amortization increased from $1.2 million in 1994 to $2.5
million in 1995, reflecting increased depreciation resulting from an increase
in capital expenditures.
The Company made its investment in the Embassy Vacation Resort Poipu Point
during the last quarter of 1994. The Embassy Vacation Resort Poipu Point has
experienced losses associated with the start-up operations of the related
resort, which is being converted to a vacation ownership resort. Equity loss
on investment in joint venture increased from $0.3 million in 1994 to $1.6
million in 1995 reflecting a full year's operations at the resort in 1995.
Income before provision for income taxes increased 31% to $25.3 million, or
15% of total revenues, in 1995 from $19.3 million, or 14% of total revenues,
in 1994.
Provision for income taxes increased to $4.0 million for the year ended
December 31, 1995 from $2.8 million for the year ended December 31, 1994.
Previously, the Company's predecessor entities incurred federal income taxes
only with respect to AVCOM as well as foreign income taxes with respect to LSI
and the Company's properties located in St. Maarten, Netherlands Antilles.
Net income increased $4.7 million to $21.3 million for the twelve months
ended December 31, 1995 from $16.6 million for the twelve months ended
December 31, 1994.
Comparison of the year ended December 31, 1994 to year ended December 31,
1993
For the year ended December 31, 1994, the Company generated total revenue of
$133.9 million compared to $82.7 million in 1993, an increase of 62%. This
increase was due primarily to a 69% growth in Vacation Interval sales revenues
from $68.9 million in 1993 to $116.4 million in 1994. The first full year of
sales at the Plantation at Fall Creek Resort, the addition of the Royal Dunes
Resort, and the addition of seven European resorts operated by LSI, increased
Vacation Interval sales from 5,917 Vacation Intervals sold in 1993 to 10,695
Vacation Intervals sold in 1994. In addition, the Company sold 65,325 vacation
points in 1994 at its European resorts operated by LSI. The Company had no
European operations in 1993. Interest income increased in 1994 due to a $24.4
million increase in mortgage receivables, net, from $78.1 million at December
31, 1993 to $102.5 million at December 31, 1994, an increase of 31%.
Operating costs increased from $68.7 million for the year ended December 31,
1993 to $112.7 million for the year ended December 31, 1994, an increase of
64%. As a percentage of revenues, operating costs increased slightly from 83%
in 1993 to 84% in 1994. Vacation Interval cost of sales increased from 27% of
vacation interval sales in 1993 to 28% in 1994. Advertising, sales, and
marketing expenses was 40% of revenues in 1993 and 1994. From 1993 to 1994,
general and administrative expenses increased from 8% of revenues to 9% of
revenues, while depreciation and amortization increased from 0.7% of revenues
to 0.9% of revenues.
Vacation Interval cost of sales increased as a percentage of Vacation
Interval Sales due to slightly higher costs associated with the first year of
operations at Royal Dunes and at the Company's seven European resorts.
Advertising, sales and marketing expenses increased 65%, from $32.7 million in
1993 to $54.1 million in 1994. General and administrative expenses increased
83%, from $6.9 million in 1993 to $12.6 million in 1994, reflecting additional
administrative costs needed to support the Company's growing business. Equity
loss on
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investment in joint venture of $0.3 million in 1994 reflects the Company's
share of losses associated with the start-up operations at the Embassy
Vacation Resort Poipu Point.
Loan portfolio expenses consisting of interest expense-treasury, other
expenses and provision for doubtful accounts, increased from $10.0 million in
1993 to $11.7 million in 1994, an increase of 17%. This reflects the increase
in Vacation Intervals sold in 1994 and a relative increase in borrowings made
by the Company secured by interval inventory. As a percentage of total
revenue, loan portfolio expenses decreased from 12% in 1993 to 8% in 1994.
Interest expense-treasury decreased from 58% of interest income in 1993 to 52%
in 1994. Provision for doubtful accounts decreased from 2% of revenues in 1993
to 1.5% in 1994. Other loan portfolio expenses increased from $0.8 million in
1993 (1.0% of revenues) to $1.5 million in 1994 (1.1% of revenues).
Income before provision for income taxes increased 43% to $19.3 million, or
14% of total revenues, in 1994 from $13.5 million or 16% of total revenues.
Provision for income taxes decreased to $2.8 million for the year ended
December 31, 1994 from $3.1 million for the year ended December 31, 1993.
Previously, the Company's predecessor entities incurred federal income taxes
only with respect to AVCOM as well as foreign income taxes with respect to
LSI.
Net income increased 66%, to $16.6 million for the twelve months ended
December 31, 1994 from $10.0 million for the twelve months ended December 31,
1993.
MERGER WITH AVCOM AND RELATED EXPENSES
In February 1997, the Company consummated the AVCOM Merger, acquiring AVCOM
for 1,324,554 shares of the Company's Common Stock, representing on a pro
forma basis approximately 4.4% of the shares of the Company's Common Stock
outstanding following such acquisition. Based upon the closing price of the
Common Stock on February 7, 1997, the 1,324,554 shares issued in the AVCOM
Merger were valued at an aggregate of approximately $32.2 million. The Company
also assumed approximately $68.3 million in debt in the AVCOM Merger. The
Company has accounted for this merger under the pooling-of-interests method of
accounting for business combinations.
Transaction costs relating to the negotiation of, preparation for, and
consummation of the AVCOM Merger and the combination of certain operations of
the Company and AVCOM resulted in a one-time charge to the Company's earnings
of $1.7 million in the first quarter of 1997. This charge includes the fees
and expenses payable to financial advisors, legal fees and other transaction
expenses related to the AVCOM Merger. In addition, there can be no assurance
that the Company will not incur additional charges in subsequent quarters to
reflect costs associated with the AVCOM Merger and the integration of the
Company's and AVCOM's operations.
MERGER WITH PRG AND RELATED EXPENSES
On May 15, 1997 the Company consummated its merger (the "PRG Merger") with
Plantation Resorts Group, Inc., a developer, marketer and operator of two
vacation ownership resorts in Williamsburg, Virginia. The merger was
consummated through the issuance of 3,601,844 shares of the Company's Common
Stock, representing on a pro forma basis approximately 10.7% of the shares of
the Company's Common Stock outstanding following such acquisition. Based upon
the closing price of the Common Stock on May 15, 1997, the shares issued in
the merger were valued at an aggregate of $59.1 million. The Company also
assumed approximately $58.4 million of debt in the PRG Merger. The Company has
accounted for the PRG Merger under the pooling-of-interests method of
accounting for business combinations.
As a result of the PRG Merger, the Company recorded a one-time charge of
$4.2 million during the second quarter 1997 for charges related to the PRG
Merger including financial advisors, legal, and other transaction related
expenses. However, there can be no assurance the Company will not incur
additional charges in subsequent quarters to reflect costs associated with the
PRG Merger and the integration of the Company's and PRG's operations.
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ACQUISITION OF LSI AND RELATED EXPENSES
In June 1997, the Company entered into a definitive agreement to acquire
100% of the capital stock of LSI, a United Kingdom-based developer, owner and
operator of a points-based vacation club system with vacation ownership
resorts in England, Spain, and Austria (the "LSI Acquisition"). LSI's Grand
Vacation Club system allows members to exchange points for various vacation
alternatives at LSI's resorts through the year 2054. LSI's 11 resorts are
located in England's Lake District and Midlands (three resorts), Southern
England, the sun coast of Spain (three resorts), the Spanish island of Menorca
(two resorts), Lanzarote in the Canary Islands and the Austrian Alps.
On August 28, 1997, the Company consummated the LSI Acquisition, acquiring
100% of LSI's capital stock in exchange for 1,996,401 newly issued shares of
the Company's Common Stock, representing on a pro forma basis approximately
5.6% of the shares of the Company's Common Stock outstanding as of June 30,
1997. Based upon the closing price of the Common Stock on August 28, 1997, the
1,996,401 shares issued in the LSI Acquisition were valued at an aggregate of
approximately $48.2 million. In addition to the Common Stock issued in the LSI
Acquisition, the Company also assumed $0.5 million in debt and paid cash
consideration of approximately $1,036,000 to a former LSI shareholder. The
Company has accounted for the LSI Acquisition under the pooling-of-interests
method of accounting for business combinations.
Transaction costs relating to the negotiation of and preparation for the LSI
Acquisition and the anticipated combination of certain operations resulted in
a one-time charge to the Company's earnings of $4.1 million in the third
quarter of 1997. These charges include the fees and expenses payable to
financial advisors, legal fees and other transaction expenses related to the
LSI Acquisition. In addition, there can be no assurance that the Company will
not incur additional charges in subsequent quarters to reflect costs
associated with the LSI Acquisition and the integration of the Company's and
LSI's operations.
LIQUIDITY AND CAPITAL RESOURCES
In August 1997, the Company consummated the Note Offering of $200.0 million
of the Senior Subordinated Notes at a price of 99.234% of the principal amount
for an effective yield of 9.875% per annum. After deducting underwriters
discounts and expenses, the net proceeds to the Company were $191.0 million.
The Company has agreed to exchange new notes (the "Exchange Notes") which will
be registered with the Securities and Exchange Commission, for its existing
Senior Subordinated Notes. The form and terms of the Exchange Notes are
identical to the Senior Subordinated Notes, except that the Exchange Notes
will be registered under the Securities Act of 1933, as amended.
As of the date of this report, the Company has used the net proceeds from
the Note Offering to retire approximately $35.7 million (and expects to retire
an additional $14.0 million) of existing indebtedness of the Company, finance
approximately $8.3 million (and expects to finance an additional $1.7 million)
in costs relating to the acquisition of the Embassy Suites Resort at Kaanapali
Beach, Maui, Hawaii and finance approximately $17 million ($14.9 million
purchase cost and $2 million conversion cost) relating to the acquisition of
the Savoy Hotel in Miami Beach, Florida (which was consummated on August 16,
1997). The balance will be used to finance consumer mortgages, complete
construction and expansion at certain resorts, finance the acquisition and
development of additional resorts and vacation ownership-related assets and
for working capital and other general corporate purposes. Pending any such
additional uses, the Company will invest the excess proceeds in commercial
paper, bankers' acceptances, other short-term investment-grade securities and
money-market accounts.
The Company has received a commitment from a bank lender to provide it with
a $100.0 million Senior Credit Facility (the "Credit Facility"). The Credit
Facility is expected to have a variable borrowing rate based on the percentage
of the Company's mortgages receivable pledged to the lender under such
facility and the amount of funds advanced thereunder. The interest rate will
vary between LIBOR plus 7/8% and LIBOR plus 1 3/8%, depending on the amount of
advances against mortgages receivable. It is expected that the Credit Facility
will have a three year term and will contain customary covenants,
representations and warranties and conditions to draw down on the funds. No
assurance can be given, however, that the Company will be able to enter into
definitive documents with respect to such Credit Facility.
15
<PAGE>
In February 1997, the Company consummated its public offering of $138.0
million aggregate principal amount of Convertible Notes and its offering of 6.0
million shares of Common Stock (comprised of 2.4 million newly-issued shares
sold by the Company and 3.6 million secondary shares sold by certain selling
stockholders). The net proceeds to the Company from the sale of the 2.4 million
newly-issued shares of Common Stock and from the sale of the $138.0 million
aggregate principal amount of Convertible Notes, based on a public price of
100% of the principal amount thereof, in each case after deducting underwriting
discounts and expenses, were $53.2 million and $134.9 million, respectively.
The Convertible Notes may be exchanged for shares of the Company's Common Stock
at any time prior to maturity on January 15, 2007 at a conversion price of
$30.417 per share, subject to adjustment under certain circumstances as stated
in the related indenture.
The Company generates cash for operations from the sale of vacation intervals
and points, the financing of the sales of vacation intervals, the rental of
unsold vacation interval units, and the receipt of management fees. With
respect to the sale of vacation intervals, the Company generates cash for
operations from cash sales of vacation intervals, from the receipt of down
payments from customers, and from the hypothecation of mortgages receivable
from purchasers equal to 85% to 90% of the amount borrowed by such purchasers.
The Company generates cash related to the financing of vacation interval sales
on the difference between the interest charged on mortgages receivable, which
averaged 15% for the nine months ended September 30, 1997, and the interest
paid on the notes payable secured by such mortgages receivable, which averaged
10% for the same period.
The Company requires funds to finance the future acquisition and development
of vacation ownership resorts and properties and to finance customer purchases
of vacation intervals. Such capital has been provided by secured financings on
vacation interval inventory, secured financings on mortgages receivable
generally funded by third party lenders and unsecured notes (including the
Convertible Notes and the Senior Subordinated Notes issued in 1997). As of
September 30, 1997, the Company had $198.8 million of additional borrowing
capacity under certain third party lending agreements. As of September 30,
1997, the Company had $94.7 million outstanding under its notes payable to
financial institutions secured by mortgages receivable and $13.2 million
outstanding under its notes payable to financial institutions secured by
vacation inventory.
During 1997, the Company anticipates spending approximately $56.5 million for
expansion and development activities at the Company's resorts. The Company may
also be required to expend additional amounts to fund certain AVCOM guarantees
relating to the North Bay Resort at Lake Arrowhead. The Company plans to fund
these expenditures primarily with the net proceeds at the Concurrent Offerings,
the Note Offering, available capacity on credit facilities and cash generated
from operations. In addition, during 1997, the Company anticipates spending
approximately $8.8 million to finance the acquisition, development and
conversion costs related to the St. John acquisition. These expenditures are
expected to be funded primarily with the net proceeds of the Concurrent
Offerings, the Note Offering, available borrowing capacity under lines of
credit and cash generated from operations.
In addition, the Company anticipates spending approximately $212.0 million to
complete its expansion plans at its resorts (excluding the resorts acquired in
the AVCOM Merger (the "All Seasons Resorts") and the resorts acquired in the
PRG Merger (the "PRG Resorts") during the periods following 1997. The Company
also plans to spend $34.0 million to complete expansion plans at the All
Seasons Resorts and $96.7 million at the PRG Resorts during the periods
following 1997. The Company anticipates financing the expansion plans of the
Company's resorts through cash acquired from operations, future credit
facilities and/or future issuance of securities. There can be no assurance that
the Company will be able to obtain the financing necessary to continue such
expansion plans.
The Company intends to pursue a growth-oriented strategy. From time to time,
the Company may acquire, among other things, additional vacation ownership
properties, resorts and completed Vacation Intervals; land upon which
additional vacation ownership resorts may be built; management contracts; loan
portfolios of Vacation Interval mortgages; portfolios which include properties
or assets which may be integrated into the Company's operations; and operating
companies providing or possessing management, sales, marketing, development,
administration and/or other expertise with respect to the Company's operations
in the vacation ownership industry.
16
<PAGE>
In the future, in addition to the financing activities described, the
Company may issue corporate debt or equity securities to finance its
acquisition activities. Any debt incurred or issued by the Company may be
secured or unsecured, fixed or variable rate interest, and may be subject to
such terms as management deems prudent.
The Company believes that, with respect to its current operations, the net
proceeds to the Company from the Senior Subordinated Notes Offering, the
Credit Facility and borrowing capacity under certain third-party lending
agreements, together with cash generated from operations and future
borrowings, will be sufficient to meet the Company's working capital and
capital expenditure needs through September 30, 1998. However, depending upon
conditions in the capital and other financial markets, other factors and the
Company's growth and expansion plans, the Company may from time to time
consider the issuance of other debt or equity securities, the proceeds of
which would be used to finance acquisitions, to refinance debt, finance
mortgage receivables or for other purposes.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
<TABLE>
<C> <S>
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of KPMG
27 Financial Data Schedule
</TABLE>
17
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SIGNATURE RESORTS, INC.
/s/ Dewey W. Chambers
By: _________________________________
Name: Dewey W. Chambers
Title: Vice President and
Treasurer
Dated: December 23, 1997
18
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants........................ F-2
Report of Independent Auditors............................................ F-3
Independent Auditors' Report.............................................. F-4
Consolidated Balance Sheets as of December 31, 1996 and 1995.............. F-5
Consolidated Statements of Income for each of the three years ended
December 31, 1996........................................................ F-6
Consolidated Statements of Equity for each of the three years ended
December 31, 1996........................................................ F-7
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1996........................................................ F-8
Notes to Consolidated Financial Statements................................ F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Signature Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of Signature
Resorts, Inc. (a Maryland Corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income, equity and
cash flows for each of the years in the three-year period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the 1996, 1995 and 1994
financial statements of LSI Group Holdings plc and the 1995 and 1994 financial
statements of AVCOM International, Inc. and subsidiaries, both companies
acquired during 1997 in transactions accounted for as pooling of interests, as
discussed in Note 1. Such statements are included in the consolidated
financial statements of Signature Resorts, Inc. and subsidiaries, and reflect
total assets and revenues of 5 percent and 13 percent in 1996, total assets
and revenues of 17 percent and 34 percent in 1995, and total revenues of 32
percent in 1994, respectively, of the related consolidated totals. These
statements were audited by other auditors whose reports have been furnished to
us and our opinion, insofar as it relates to the amounts included for LSI
Group Holdings plc and AVCOM International, Inc. and subsidiaries, is based
solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Signature Resorts, Inc. and subsidiaries
as of December 31, 1996 and 1995, and the results of their operations and
their cash flows for each of the years in the three-year period ended December
31, 1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Orlando, Florida,
August 28, 1997 (except with
respect to the matters discussed in
Note 16, as to which the dates are
October 10, October 27,
November 7, November 14 and December 5, 1997.)
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
AVCOM International, Inc.
We have audited the consolidated balance sheet of AVCOM International, Inc.
(Company) as of December 31, 1995, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the two years in the
period ended December 31, 1995 (not presented separately herein). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of AVCOM International, Inc. as of December 31, 1995, and the consolidated
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Ernst & Young llp
Phoenix, Arizona
May 31, 1996, except for
Note 12, as to which the
date is July 1, 1996
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
LSI Group Holdings Plc
We have audited the consolidated balance sheets of LSI Group Holdings Plc and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, equity and cash flow for each of the years in the three-
year period ended December 31, 1996 (not presented separately herein). These
financial statements are the responsibility of Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LSI
Holdings Plc and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles in the United States of America.
KPMG
Chartered Accountants
Registered Auditors
Preston, England
March 27, 1997
F-4
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents........................... $ 20,757,000 $ 20,030,000
Cash in escrow...................................... 1,712,000 2,749,000
Mortgages receivable, net of an allowance of
$17,328,000 and $13,271,000 at December 31, 1996
and 1995, respectively............................. 215,518,000 147,405,000
Due from related parties............................ 11,897,000 17,524,000
Other receivables, net.............................. 11,847,000 9,830,000
Prepaid expenses and other assets................... 14,738,000 8,860,000
Investment in joint venture......................... 7,397,000 2,644,000
Real estate and development costs................... 142,870,000 72,404,000
Property and equipment, net......................... 14,612,000 8,511,000
Intangible assets, net.............................. 4,536,000 5,814,000
------------ ------------
Total assets..................................... $445,884,000 $295,771,000
============ ============
LIABILITIES AND EQUITY:
Accounts payable.................................... $ 24,418,000 $ 11,272,000
Accrued liabilities................................. 49,198,000 25,025,000
Due to related parties.............................. 1,656,000 1,906,000
Income taxes payable................................ 3,268,000 1,615,000
Deferred taxes...................................... 3,259,000 2,400,000
Notes payable to financial institutions............. 236,122,000 167,564,000
Notes payable to related parties.................... -- 9,468,000
Convertible Subordinated Notes Payable.............. -- --
------------ ------------
Total liabilities................................ 317,921,000 219,250,000
------------ ------------
Commitments and contingencies (Note 10)
Minority interest in consolidated limited
partnership........................................ 1,538,000 --
------------ ------------
Convertible redeemable preferred stock.............. -- 1,073,000
------------ ------------
Stockholders' equity:
Preferred stock (25,000,000 shares authorized; and
none issued or outstanding)...................... -- --
Common stock ($0.01 par value, 50,000,000 shares
authorized; 33,011,106 outstanding at December
31, 1996; par value $100 and $.01 on 200 and
6,922,799 shares outstanding at December 31,
1995, respectively).............................. 330,000 89,000
Additional paid-in capital........................ 101,978,000 3,895,000
Retained earnings................................. 23,544,000 35,607,000
Members' deficit.................................. -- (1,432,000)
Partners' equity:
General partners' equity.......................... -- 4,176,000
Limited partners' equity.......................... -- 33,114,000
Cumulative foreign currency translation adjustment.. 573,000 (1,000)
------------ ------------
Total equity..................................... 126,425,000 75,448,000
------------ ------------
Total liabilities and equity..................... $445,884,000 $295,771,000
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Vacation interval and vacation point
sales.............................. $182,300,000 $139,426,000 $116,356,000
Interest income..................... 25,415,000 20,339,000 15,965,000
Other income........................ 12,132,000 8,553,000 1,547,000
------------ ------------ ------------
Total revenues...................... 219,847,000 168,318,000 133,868,000
COSTS AND OPERATING EXPENSES:
Vacation Interval and vacation point
cost of sales...................... 48,218,000 39,810,000 33,082,000
Advertising, sales, and marketing... 89,040,000 62,258,000 54,098,000
Loan portfolio:
Interest expense--treasury......... 13,482,000 10,077,000 8,224,000
Other expenses..................... 4,523,000 2,034,000 1,466,000
Provision for doubtful accounts.... 8,311,000 3,666,000 2,045,000
General and administrative.......... 37,436,000 19,263,000 12,629,000
Resort property valuation allowance. 2,620,000 -- --
Depreciation and amortization....... 5,027,000 2,514,000 1,196,000
------------ ------------ ------------
Total costs and operating expenses. 208,657,000 139,622,000 112,740,000
------------ ------------ ------------
Income from operations.............. 11,190,000 28,696,000 21,128,000
Interest expense--other (net of
capitalized interest of $6,723,000,
and $3,315,000 in 1996 and 1995,
respectively)........................ 3,763,000 1,728,000 1,517,000
Equity loss on investment in joint
venture............................ 299,000 1,649,000 271,000
Minority interest in income of
consolidated limited partnership... 199,000 -- --
------------ ------------ ------------
Income before (benefit) provision
for income taxes................... 6,929,000 25,319,000 19,340,000
(Benefit) provision for income
taxes.............................. (4,105,000) 4,020,000 2,768,000
------------ ------------ ------------
Net income.......................... $ 11,034,000 $ 21,299,000 $ 16,572,000
============ ============ ============
PRO FORMA INCOME DATA (UNAUDITED):
Income before provision for income
taxes.............................. $ 6,929,000 $ 25,319,000 $ 19,340,000
Pro forma provision for income
taxes.............................. $ 2,549,000 $ 10,009,000 $ 7,386,000
------------ ------------ ------------
Pro forma net income................ $ 4,380,000 $ 15,310,000 $ 11,954,000
============ ============ ============
Pro forma net income per common and
common equivalent share............ $ 0.16 $ 0.64 --
Pro forma weighted average common
and common equivalent
shares outstanding................. 27,639,647 23,954,856 --
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK FOREIGN
--------------------- ADDITIONAL GENERAL LIMITED CURRENCY
SHARES PAID-IN RETAINED MEMBERS' PARTNERS' PARTNERS' TRANSLATION
OUTSTANDING AMOUNT CAPITAL EARNINGS DEFICIT EQUITY EQUITY ADJUSTMENTS
----------- -------- ------------ ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1993............ 4,926,398 $ 49,000 $ 2,595,000 $19,751,000 $ -- $ (59,000) $ 11,897,000 $ --
Payment for
stock held in
escrow.......... -- -- 10,000 -- -- -- --
Repurchase of
AVCOM common
stock........... -- -- (30,000) -- -- -- -- --
Contributions... -- -- -- -- -- 3,205,000 12,315,000 --
Distributions... -- -- -- (4,434,000) -- -- (870,000) --
Net income...... -- -- -- 12,009,000 -- 183,000 4,380,000 --
Common stock
issued upon
formation of LSI
Group Holdings
plc............. 1,996,401 20,000 128,000 -- -- -- -- --
Foreign currency
translation
adjustments..... -- -- -- -- -- -- -- 40,000
---------- -------- ------------ ----------- ----------- ----------- ------------ --------
Balance at
December 31,
1994............ 6,922,799 69,000 2,703,000 27,326,000 -- 3,329,000 27,722,000 40,000
---------- -------- ------------ ----------- ----------- ----------- ------------ --------
Issuance of
Common Stock.... 200 20,000 157,000 -- -- -- -- --
Proceeds from
the sale of
AVCOM common
stock, net of
issuance costs
of $115,000..... -- -- 885,000 -- -- -- -- --
Contributions... -- -- 150,000 655,000 1,000 374,000 -- --
Distributions... -- -- -- (4,811,000) (2,437,000) (43,000) (1,950,000) --
Net income...... -- -- -- 12,437,000 1,004,000 516,000 7,342,000 --
Foreign currency
translation
adjustments..... -- -- -- -- -- -- -- (41,000)
---------- -------- ------------ ----------- ----------- ----------- ------------ --------
Balance at
December 31,
1995............ 6,922,999 89,000 3,895,000 35,607,000 (1,432,000) 4,176,000 33,114,000 (1,000)
---------- -------- ------------ ----------- ----------- ----------- ------------ --------
Distributions of
partnership
equity and other
equity
interests....... -- -- -- (7,191,000) (5,394,000) -- (1,633,000) --
Conversion of
convertible
notes payable to
AVCOM common
stock........... -- -- 400,000 -- -- -- -- --
Proceeds from
the sale of
common stock to
the public, net
of offering
costs, including
16,211,558
shares issued in
exchange for
partners' and
members' equity. 25,267,807 253,000 73,071,000 -- -- -- -- --
Stock issued and
goodwill
recorded in
connection with
the acquisition
of investment in
Joint Venture... 820,500 8,000 4,981,000 -- -- -- -- --
Acquisition of
minority limited
partners'
interests....... -- -- (7,465,000) -- -- -- -- --
Deferred taxes
recorded in
connection with
the
Consolidation
Transactions.... -- -- (9,464,000) -- -- -- -- --
Interest accrued
on deferred
installment
gains in
connection with
the
Consolidation
Transactions.... -- -- (820,000) -- -- -- -- --
Net income
(loss).......... -- -- -- 3,875,000 3,568,000 (164,000) 3,755,000 --
Exchange of
partners' and
members' equity
for stock in
connection with
the
Consolidation
Transactions.... (200) (20,000) 37,380,000 (1,370,000) 3,258,000 (4,012,000) (35,236,000) --
Assignment to
venturers' of
receivable due
from related
party........... -- -- -- (3,449,000) -- -- -- --
Write-off of
receivable from
related party... -- -- -- (3,890,000) -- -- -- --
Dividends
declared........ -- -- -- (38,000) -- -- -- --
Foreign currency
translation
adjustments..... -- -- -- -- -- -- -- 574,000
---------- -------- ------------ ----------- ----------- ----------- ------------ --------
Balance at
December 31,
1996............ 33,011,106 $330,000 $101,978,000 $23,544,000 $ -- $ -- $ -- $573,000
========== ======== ============ =========== =========== =========== ============ ========
<CAPTION>
TOTAL EQUITY
-------------
<S> <C>
Balance at
December 31,
1993............ $ 34,233,000
Payment for
stock held in
escrow.......... 10,000
Repurchase of
AVCOM common
stock........... (30,000)
Contributions... 15,520,000
Distributions... (5,304,000)
Net income...... 16,572,000
Common stock
issued upon
formation of LSI
Group Holdings
plc............. 148,000
Foreign currency
translation
adjustments..... 40,000
-------------
Balance at
December 31,
1994............ 61,189,000
-------------
Issuance of
Common Stock.... 177,000
Proceeds from
the sale of
AVCOM common
stock, net of
issuance costs
of $115,000..... 885,000
Contributions... 1,180,000
Distributions... (9,241,000)
Net income...... 21,299,000
Foreign currency
translation
adjustments..... (41,000)
-------------
Balance at
December 31,
1995............ 75,448,000
-------------
Distributions of
partnership
equity and other
equity
interests....... (14,218,000)
Conversion of
convertible
notes payable to
AVCOM common
stock........... 400,000
Proceeds from
the sale of
common stock to
the public, net
of offering
costs, including
16,211,558
shares issued in
exchange for
partners' and
members' equity. 73,324,000
Stock issued and
goodwill
recorded in
connection with
the acquisition
of investment in
Joint Venture... 4,989,000
Acquisition of
minority limited
partners'
interests....... (7,465,000)
Deferred taxes
recorded in
connection with
the
Consolidation
Transactions.... (9,464,000)
Interest accrued
on deferred
installment
gains in
connection with
the
Consolidation
Transactions.... (820,000)
Net income
(loss).......... 11,034,000
Exchange of
partners' and
members' equity
for stock in
connection with
the
Consolidation
Transactions.... --
Assignment to
venturers' of
receivable due
from related
party........... (3,449,000)
Write-off of
receivable from
related party... (3,890,000)
Dividends
declared........ (38,000)
Foreign currency
translation
adjustments..... 574,000
-------------
Balance at
December 31,
1996............ $126,425,000
=============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-7
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income.......................... $ 11,034,000 $ 21,299,000 $ 16,572,000
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization...... 5,027,000 2,514,000 1,196,000
Gain on sale of notes receivable... -- (566,000) (571,000)
Provision for doubtful accounts.... 8,311,000 3,666,000 2,045,000
Resort property valuation
allowance......................... 2,620,000 -- --
Equity loss on investment in joint
venture........................... 299,000 1,649,000 271,000
Minority interest in income of
consolidated Limited Partnership.. 199,000 -- --
Loss on disposal of Property and
Equipment......................... 573,000 -- --
Changes in operating assets and
liabilities:
Cash in Escrow................... 1,037,000 473,000 (1,617,000)
Due from Related Parties......... (1,712,000) (4,083,000) (5,182,000)
Prepaid Expenses and Other
Assets.......................... (5,878,000) (3,753,000) 245,000
Real Estate and Development
Costs........................... (73,086,000) (19,012,000) (17,755,000)
Other Receivables................ (2,017,000) (5,797,000) (522,000)
Accounts Payable................. 13,146,000 5,241,000 2,017,000
Accrued Liabilities.............. 23,353,000 8,963,000 923,000
Income Taxes .................... 1,653,000 353,000 689,000
Deferred Taxes................... (8,605,000) 497,000 541,000
Due to Related Parties........... (250,000) 1,267,000 536,000
------------- ------------ ------------
Net Cash (Used In) Provided By
Operating Activities............... (24,296,000) 12,711,000 (612,000)
------------- ------------ ------------
INVESTING ACTIVITIES:
Cash Received (Paid) for Acquisition
of Subsidiary...................... -- 129,000 (1,702,000)
Expenditures for Investment in Joint
Venture............................ (63,000) -- (4,565,000)
Expenditures for Property and
Equipment.......................... (8,214,000) (4,601,000) (2,074,000)
Expenditures for Intangible Assets.. (2,206,000) (2,608,000) (3,300,000)
Mortgages receivable................ (76,424,000) (48,601,000) (24,356,000)
------------- ------------ ------------
Net Cash Used In Investing
Activities......................... (86,907,000) (55,681,000) (35,997,000)
------------- ------------ ------------
FINANCING ACTIVITIES:
Proceeds from Notes Payable to
Financial Institutions............. 170,394,000 98,733,000 45,318,000
Payments on Notes Payable to
Financial Institutions............. (101,436,000) (46,890,000) (21,619,000)
Proceeds from Convertible
Subordinated Notes................. -- -- --
Proceeds from Notes Payable to
Related Parties.................... 5,606,000 3,711,000 5,145,000
Payments on Notes Payable to Related
Parties............................ (15,074,000) (1,343,000) (2,569,000)
Contributions ...................... 1,500,000 1,357,000 15,520,000
Proceeds from Stock Offerings....... 73,324,000 885,000 --
Acquisition of Minority Limited
Partners' Interests................ (7,465,000) -- --
Redemption of Convertible Redeemable
Preferred Stock.................... (1,080,000) -- --
Proceeds from Sale of Convertible
Redeemable Preferred Stock......... -- 1,090,000 --
Net proceeds from sale of common
stock.............................. -- -- --
(Distributions) contributions from
minority limited partnerships...... -- -- --
Repurchase of AVCOM Common Stock.... -- -- (30,000)
Proceeds from Employee Stock
Options............................ -- -- --
Distributions....................... (14,413,000) (9,241,000) (5,304,000)
------------- ------------ ------------
Net Cash Provided by Financing
Activities......................... 111,356,000 48,302,000 36,461,000
------------- ------------ ------------
Net Increase (Decrease) In Cash and
Cash Equivalents................... 153,000 5,332,000 (148,000)
Effect of Exchange Rates on Cash and
Cash Equivalents................... 574,000 (41,000) 40,000
Cash and Cash Equivalents, Beginning
of Period.......................... 20,030,000 14,739,000 14,847,000
------------- ------------ ------------
Cash and Cash Equivalents, End of
Period............................. $ 20,757,000 $ 20,030,000 $ 14,739,000
============= ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.............. $ 24,127,000 $ 14,466,000 $ 12,059,000
Cash paid for taxes................. $ 1,629,000 $ 2,753,000 $ 1,325,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INFORMATION
Stock issued and goodwill recorded
in connection with the acquisition
of investment in joint venture..... $ 4,989,000
Deferred taxes recorded in
connection with the Consolidation
Transactions....................... $ 9,464,000
Interest accrued on deferred
installment gains in connection
with the Consolidation
Transactions....................... $ 820,000
Net assets of predecessor
partnership acquired in exchange
for 17,032,058 shares of common
stock in connection with the
Consolidation Transactions......... $ 37,380,000
Assignment to venturers of
receivable due from related party
recorded as a reduction of
venturers' equity.................. $ 3,449,000
Write off of receivable from related
party recorded as a reduction of
stockholders' equity............... $ 3,890,000
Conversion of convertible notes
payable to AVCOM common stock...... $ 400,000
</TABLE>
See accompanying notes to the consolidated financial statements.
F-8
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. NATURE OF BUSINESS
Signature Resorts, Inc. and its wholly-owned subsidiaries (the Company)
generate revenues from the sale and financing of vacation ownership interests
in their resorts, which typically entitle the owner to use a fully furnished
vacation resort in perpetuity, typically for a one-week period each year
(each, a Vacation Interval). The Company's principal operations consist of (i)
developing and acquiring vacation ownership resorts, (ii) marketing and
selling Vacation Intervals and vacation points at its resorts, (iii) providing
consumer financing for the purchase of Vacation Intervals and vacation points
at its resorts, and (iv) managing the operations of its resorts.
The Company was incorporated in May 1996. On August 20, 1996, the Company
consummated an initial public offering of a portion of its Common Stock (the
Initial Public Offering) by offering 9,056,250 shares to the public. The gross
proceeds from the public offering were $84,525,000. The Company incurred
$11,201,000 of costs associated with this offering. Concurrent with the
Initial Public Offering, certain predecessor limited partnerships, limited
liability companies and corporations (the Entities) exchanged their direct or
indirect interest in, and obligations of the entities, for 16,211,558 shares
of the Company's common stock (the Consolidation Transactions). The
accompanying consolidated financial statements reflect the financial position
and results of operations of the Entities since the date they were acquired or
formed, which range from November 1986 to June 1996. Concurrent with the
Initial Public Offering, the Company exchanged 820,500 shares of Common Stock
with the former holders of interests in the Embassy Vacation Resort at Poipu
Point, Koloa, Kauai, Hawaii.
On September 23, 1996, the Company announced the signing of a merger
agreement to acquire AVCOM International Inc. (AVCOM) for approximately $34.6
million of the Company's Common Stock. AVCOM is the parent company of All
Seasons Resorts, Inc., a developer, marketer and operator of vacation
ownership resorts in Arizona, California and Texas. On February 7, 1997 this
merger (the "AVCOM Merger") was consummated. Under the terms of the merger
agreement, the Company issued approximately 1,324,554 shares of its common
stock in exchange for all the outstanding capital stock of AVCOM. The AVCOM
Merger has been treated as a pooling-of-interests and is reflected in the
accompanying consolidated financial statements as if it took place at the
beginning of the earliest period presented.
On May 15, 1997, the Company announced the acquisition and merger (the PRG
Merger) of Plantation Resorts Group, Inc. (PRG), a Williamsburg, Virginia,
based developer, owner and operator of vacation ownership intervals. PRG owns
and operates vacation ownership resorts in Williamsburg, Virginia. PRG was
incorporated in April 1997 through a private placement of its common stock in
which certain predecessor joint ventures and corporations (the PRG Entities)
exchanged their interests for shares of PRG's common stock (the PRG Exchange).
The PRG Merger was consummated through the issuance of 3.6 million shares of
the Company's common stock. The PRG Merger has been treated as a pooling-of-
interests and is reflected in the accompanying consolidated financial
statements as if it took place at the beginning of the earliest period
presented.
On August 28, 1997, the Company announced the completion of the acquisition
of 100% of the capital stock of LSI Group Holdings plc (LSI), in exchange for
1,996,401 newly-issued shares of the Company's common stock and approximately
$1,036,000 in cash (the LSI Merger). United Kingdom-based LSI is a developer,
owner and operator of vacation ownership resorts located in Europe. Through
its Grand Vacation Club, LSI operates a points-based club system. The LSI
Merger has been treated as a pooling-of-interests and is reflected in the
accompanying consolidated financial statements as if it took place in 1994,
the year in which LSI began its operations.
Total revenues of the combined entities were $219,847,000, $168,318,000 and
$133,868,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. AVCOM contributed $48,421,000, $34,269,000 and $24,854,000, PRG
contributed $48,425,000, $38,825,000 and $46,694,000 and LSI contributed
$27,947,000,
F-9
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$22,616,000 and $18,029,000 to the Company's total revenues during the years
ended December 31, 1996, 1995 and 1994, respectively.
Net income of the combined entities was $11,034,000, $21,299,000 and
$16,572,000 during the years ended December 31, 1996, 1995 and 1994,
respectively. AVCOM contributed $(12,442,000), $1,040,000 and $922,000, PRG
contributed $7,031,000, $7,538,000 and $9,829,000 and LSI contributed
$2,267,000, $1,808,000 and $1,529,000 to the Company's net income during the
years ended December 31, 1996, 1995 and 1994, respectively.
All intercompany transactions between the Company and AVCOM have been
eliminated for all periods presented. There were no intercompany transactions
between the Company, PRG, and LSI for all periods presented.
As part of the AVCOM Merger, AVCOM recorded approximately $13.6 million of
expenses during 1996 as a result of the write-down and write-off of certain
assets recorded by AVCOM.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying financial statements include the combined accounts of
Signature Resorts, Inc., AVCOM, PRG, LSI and the Entities discussed in Note 1
that were acquired or formed prior to August 20, 1996, which became wholly-
owned subsidiaries in connection with the Consolidation Transactions, the
AVCOM Merger, the PRG Merger or the LSI Merger. As a result, the combined
accounts are now referred to as consolidated financial statements for the
historical periods presented. All significant intercompany transactions and
balances have been eliminated from these consolidated financial statements.
The Consolidation Transactions have been accounted for as a reorganization
of entities under common control. Accordingly, the net assets of the
predecessor entities were recorded at the predecessor entities' basis. In
addition, the accompanying consolidated financial statements reflect the
historical results of operations of the predecessor partnerships on a combined
basis.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, money market, and all highly
liquid investments purchased with an original maturity of three months or
less.
Cash in Escrow
Cash in escrow is restricted cash consisting of deposits received on sales
of Vacation Intervals that are held in escrow until a certificate of occupancy
is obtained or the legal rescission period has expired.
Real Estate and Development Costs
Real estate is valued at the lower of cost or net realizable value.
Development costs include both hard and soft construction costs and together
with real estate costs are allocated to Vacation Intervals. Interest, taxes,
and other carrying costs incurred during the construction period are
capitalized.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful life of 3 to 7 years. Buildings
are amortized over the estimated useful life of 39 to 40 years.
F-10
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation and amortization expense related to property and equipment was
$1,542,000, $950,000, and $502,000 in 1996, 1995 and 1994, respectively.
Intangible Assets
Organizational costs incurred in connection with the formation of the
Company have been capitalized and are being amortized on a straight-line basis
over a period of three to five years. Start-up costs relate to costs incurred
to develop a marketing program prior to receiving regulatory approval to
market the related property and are being amortized on a straight line basis
over a period of one year.
Financing and loan origination fees incurred in connection with obtaining
funding for the Company have been capitalized and are being amortized over the
life of the respective loans.
Goodwill recorded in connection with the acquisition of the Investment in
Joint Venture is being amortized by a fixed amount per Interval as Intervals
are sold.
Foreign Currency Translation
Financial statements for the Company's subsidiaries outside the United
States are translated into U.S. dollars at year-end exchange rates for assets
and liabilities and weighted average exchange rates for income and expenses.
The resulting translation adjustments are recorded as a separate component of
equity.
Revenue Recognition
The Company recognizes sales of Vacation Intervals and Vacation Points on an
accrual basis after a binding sales contract has been executed, a 10% minimum
down payment has been received, the rescission period has expired,
construction is substantially complete, and certain minimum sales levels have
been achieved. If all the criteria are met except that construction is not
substantially complete, then revenues are recognized on the percentage-of-
completion (cost to cost) basis. For sales that do not qualify for either
accrual or percentage-of-completion accounting, all revenue is deferred using
the deposit method.
Revenues from resort management and maintenance services are recognized on
an accrual basis as earned.
Income Taxes
Prior to August 20, 1996, the predecessor entities were taxed either as a
corporation at the corporate level, as an S corporation taxable at the
shareholder level, or as a partnership taxable at the partner level. The
Company became subject to federal, state, and foreign income taxes from the
effective date of the Initial Public Offering. The pro forma net income per
common and common equivalent share uses the historical net income of the
Company as adjusted by the unaudited pro forma provision for income taxes to
reflect the net income per common and common equivalent share, as if the
Company had been treated as a C corporation rather than as individual limited
partnerships and limited liability companies for federal income tax purposes
for the years ended December 31, 1996, 1995 and 1994.
As a result of the AVCOM Merger (see Note 1), AVCOM's results of operations
have been included in the accompanying consolidated financial statements under
the pooling-of-interests method of accounting. During each period presented,
AVCOM was taxed as a C corporation.
Prior to the PRG Merger, certain of the PRG Entities were not subject to
federal and state income taxes for all periods presented. In connection with
the PRG Exchange and the PRG Merger, PRG became a C corporation, which made it
subject to federal and state income taxes from the date of incorporation. As a
result the pro forma provision for income taxes assumes the PRG entities were
treated as C corporations for federal income tax purposes.
F-11
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As a result of the LSI Merger, LSI's results have been included in the
accompanying consolidated financial statements under the pooling-of-interests
method of accounting. During each period presented, LSI was subject to income
taxes levied by the various local and country taxing authorities in the
foreign countries in which it operates.
The Company accounts for income taxes using an asset and liability approach
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
Deferred tax assets and liabilities are measured by applying enacted statutory
tax rates applicable to the future years in which the related deferred tax
assets or liabilities are expected to be settled or realized. Income tax
expense consists of the taxes payable for the current period and the change
during the period in deferred tax assets and liabilities.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Newly Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of (SFAS 121), which requires impairment losses to be recorded
on long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for the expected disposition of long-lived assets. The Company
adopted SFAS 121 during the year ended December 31, 1996. The impact of
adopting SFAS 121 was to reduce net income by $2,620,000 and has been recorded
as a resort property valuation allowance to reduce real estate and development
costs.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation (SFAS 123). SFAS 123 was adopted
during the year ended December 31, 1996. SFAS 123 requires that the Company's
financial statements include certain disclosures about stock-based employee
compensation arrangements and permits the adoption of a change in accounting
for such arrangements. Changes in accounting for stock-based compensation are
optional and the Company has adopted only the disclosure requirements.
During February 1997, the Financial Accounting Standards Board issued SFAS
No. 128 (SFAS 128), Earnings Per Share. The statement establishes standards
for computing and presenting earnings per share (EPS) and applies to publicly
held common stock or potential common stock. The statement simplifies the
standards for computing EPS previously found in APB Opinion No. 15, Earnings
Per Share (Opinion 15). It replaces presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15.
F-12
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The statement requires implementation for the Company during the fourth
quarter of 1997 and does not allow for early implementation. However, if the
Company had implemented SFAS 128, basic EPS and diluted EPS would have been
$0.16 and $0.64, for the years ended December 31, 1996 and 1995, respectively.
Reclassifications
Certain reclassifications were made to the 1995 and 1994 accompanying
consolidated financial statements to conform to the 1996 presentation.
3. ACCOUNTS RECEIVABLE
The Company has accrued insurance claims, of $1.25 million and $3.8 million
at December 31, 1996 and 1995, respectively, which are included in other
receivables, as a result of hurricane damage to its Royal Palm and Flamingo
properties located in St. Maarten, Netherlands Antilles. The receivable at
December 31, 1996 consists of business interruption insurance claims. The
Company has submitted additional claims above the amounts accrued for business
interruption insurance and is in negotiations with its carriers regarding
these claims. Subsequent to December 31, 1996, the Company collected $650,000
in partial payment of this receivable.
4. MORTGAGES RECEIVABLE
The Company provides financing to the purchasers of Vacation Intervals which
are collateralized by their interest in such Vacation Intervals. The mortgages
receivable generally bear interest at the time of issuance of between 12% and
17% and remain fixed over the term of the loan, which is five to ten years.
The weighted average rate of interest on outstanding mortgages receivable is
15% as of December 31, 1996.
As of December 31, 1996, approximately 4.1% of the Company's consumer loans
were considered by the Company to be delinquent (past due 60 or more days). In
addition, the Company had commenced deed-in-lieu of foreclosure or foreclosure
action on 1.2% of its consumer loans as of December 31, 1996.
At December 31, 1996 and 1995, approximately $4.4 million and $2.4 million,
respectively, of mortgages receivable are non-interest bearing. These
mortgages have not been discounted as management has determined that the
effect would not be material to the accompanying consolidated financial
statements.
Additionally, the Company has accrued interest receivable related to
mortgages receivable of $2,472,000 and $1,984,000 at December 31, 1996 and
1995, respectively. The accrued interest receivable at December 31, 1996 and
1995 is net of an allowance for doubtful accounts of $165,000 and $145,000,
respectively, and is included in other receivables, net.
The following schedule reflects the principal maturities of mortgages
receivable:
<TABLE>
<S> <C>
Year ending December 31:
1997....................................................... $ 30,725,000
1998....................................................... 30,643,000
1999....................................................... 30,355,000
2000....................................................... 30,935,000
2001....................................................... 31,120,000
Thereafter................................................. 79,068,000
------------
Total principal maturities of mortgages receivable......... 232,846,000
Less allowance for doubtful accounts....................... (17,328,000)
------------
Net principal maturities of mortgages receivable......... $215,518,000
============
</TABLE>
F-13
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The activity in the mortgages receivable allowance for doubtful accounts is
as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Balance, beginning of the period.................. $13,271,000 $ 8,876,000
(Decrease) increase in allowance for purchased
mortgages receivable............................. (400,000) 3,156,000
Provision......................................... 8,311,000 3,666,000
Receivables charged off........................... (3,854,000) (2,427,000)
----------- -----------
Balance, end of the period...................... $17,328,000 $13,271,000
=========== ===========
</TABLE>
During September 1995, the Company recorded an allowance for doubtful
accounts of $3,412,000 for certain mortgage portfolios acquired in conjunction
with the acquisition of the two properties in St. Maarten.
5. REAL ESTATE AND DEVELOPMENT COSTS
Real estate and development costs and accumulated cost of sales consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Land.......................................... $ 54,614,000 $ 26,558,000
Development costs, excluding capitalized
interest..................................... 248,972,000 163,141,000
Capitalized interest.......................... 13,276,000 6,553,000
------------- -------------
Total real estate and development costs....... 316,862,000 196,252,000
Less accumulated cost of sales................ (171,372,000) (123,848,000)
Less resort property valuation allowance...... (2,620,000) --
------------- -------------
Net real estate and development costs....... $ 142,870,000 $ 72,404,000
============= =============
</TABLE>
As of December 31, 1996, the Company commenced vacation interval sales at
certain properties, or phases of certain properties, that are expected to be
completed during 1997. The estimated costs to complete the projects, or the
specific phases of the projects, is approximately $28.4 million.
6. INVESTMENT IN JOINT VENTURE
The Company owns partnership interests in the Embassy Vacation Resort at
Poipu Point, Koloa, Kauai, Hawaii (the "Poipu Partnership"). As co-managing
general partner, the Company holds a 0.5% partnership interest for purposes of
distributions, profits and losses. The Company is also a limited partner and
holds a 29.93% limited partnership interest for purposes of distributions,
profits and losses, for a total partnership interest of 30.43%. In addition,
following repayment of any outstanding partner loans, the Company is entitled
to receive a preferred 10% per annum return on the initial capital investment
of approximately $4.6 million. After payment of such preferred return and the
return of approximately $4.6 million of capital to the Company on a pari passu
basis with the other partner in the partnership, the Company is entitled to
receive approximately 50% of the net profits. In the event certain internal
rates of return specified under the partnership agreement are achieved, the
Company is entitled to receive approximately 55% of the net profits.
F-14
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summarized financial information for the Poipu Partnership is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Mortgages receivable................................ $15,920,000 $ 3,474,000
Real estate and development costs, net.............. 38,262,000 3,248,000
Net property and equipment.......................... 510,000 39,287,000
Total assets........................................ 60,474,000 50,696,000
Notes payable....................................... 40,903,000 35,494,000
Advances from partners.............................. 6,675,000 4,000,000
Partners' capital................................... 8,452,000 8,688,000
Revenues............................................ 23,904,000 10,119,000
Net loss............................................ 237,000 5,419,000
</TABLE>
Concurrent with the Initial Public Offering, the Company exchanged 820,500
shares of stock with the former holders of interests in the Poipu Partnership
for the 30.43% interest in the joint venture. As a result of this exchange,
$4,989,000 of goodwill was recorded as an increase in investment in joint
venture and is being amortized on a per Interval basis as Intervals are sold.
The amortization of such goodwill for the year ended December 31, 1996 was
$168,000 and is included in equity loss on investment in joint venture. The
Company also acquired a $2,547,000 note receivable from the partnership in
connection with the exchange. The principal balance and accrued interest
related to this note receivable was $2,031,000 and $291,000 respectively, and
is included in due from related parties as of December 31, 1996.
7. INTANGIBLE ASSETS
Intangible assets and accumulated amortization consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Organizational costs............................... $ 2,569,000 $ 2,547,000
Start-up costs..................................... 2,433,000 2,051,000
Bond issuance costs................................ 933,000 933,000
Loan origination fees.............................. 2,712,000 1,514,000
Financing fees..................................... 1,620,000 1,444,000
Goodwill........................................... 41,000 40,000
----------- -----------
Total intangible assets............................ 10,308,000 8,529,000
Less accumulated amortization...................... (5,772,000) (2,715,000)
----------- -----------
Net intangible assets............................ $ 4,536,000 $ 5,814,000
=========== ===========
</TABLE>
Amortization expense was $3,485,000, $1,564,000 and $694,000 in 1996, 1995
and 1994, respectively. In addition, $428,000 of fully amortized intangibles
were retired from the related asset and accumulated amortization accounts in
1996.
F-15
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. NOTES PAYABLE
Notes payable to financial institutions consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Construction loans payable not to exceed $49.0 million
in the aggregate, interest payable monthly at prime
plus 2% (10.65% at December 31, 1995)................ $ -- $ 9,268,000
Construction and acquisition loan payable, due October
31, 1998 with interest payable monthly at LIBOR plus
4.25% (9.94% at December 31, 1995) collateralized by
land, improvements and vacation ownership interests.. -- 1,898,000
Revolving lines of credit not to exceed $161 million
in the aggregate (limited by eligible collateral),
with interest payable monthly at prime plus 2% to
prime plus 3% (10.25% to 11.25% at December 31,
1996), payable in monthly installments of principal
and interest equal to 100% of all proceeds of the
receivables collateral collected during the month but
not less than the accrued interest, with any
remaining principal due seven to ten years after the
date of the last advance related to mortgages
receivable, collateralized by specific mortgages
receivable........................................... 61,290,000 45,791,000
Revolving line of credit, collateralized by certain
mortgages receivable with interest payable at prime
plus 1.5% to prime plus 1.75% (9.75% to 10% at
December 31, 1996) or LIBOR plus 4.25% (9.78% at
December 31, 1996), payable in monthly installments
of principal and interest equal to 100% of all
proceeds of the receivables collateral collected
during the month but not less than the accrued
interest, with any remaining principal from September
2000 to October 2003................................. 21,648,000 18,125,000
Revolving line of credit of $40.0 million and $25
million during 1996 and 1995, respectively, with
interest payable monthly at LIBOR plus 3% (8.69% at
December 31, 1996) payable in monthly installments of
principal and interest equal to 100% of all proceeds
of the receivables collateral collected during the
month but not less than the accrued interest, with
any remaining principal due June 1998................ 37,226,000 12,277,000
Revolving working capital line of credit of $4.0
million, with interest payable monthly at prime plus
2% (10.25% at December 31, 1996), due in April 1999,
collateralized by certain mortgage receivables....... 3,707,000 521,000
Acquisition loans payable not to exceed $14.45 million
in the aggregate, with interest payable monthly at
prime plus 2% to prime plus 3% (10.25%
to 11.25% at December 31, 1996), due on dates ranging
from January 1998 to June 1999, payable with a
portion of the proceeds received on the sale of
Vacation Intervals, collateralized by specific
mortgages receivable................................. 4,396,000 5,998,000
Acquisition note payable with monthly principal and
interest payments due at 8%, collateralized by
certain real property, due January 10, 2001.......... 615,000 --
Acquisition note payable with monthly interest
payments due at 6.75%,
collateralized by certain real property, due June 14,
1999................................................. 552,000 --
</TABLE>
F-16
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
------------ ------------
<S> <C> <C>
Acquisition note payable with monthly principal and
interest payments due at 9%, collateralized by
certain real property, due February 14, 2014....... $ 436,000 $ --
Construction loan payable not to exceed $47 million
in the aggregate, with monthly interest payable at
prime plus 2% (10.25% at December 31, 1996)
principal payable with a portion of the proceeds
received on the sale of Vacation Intervals,
collateralized by specific land and unsold interval
inventory, due from January 1998 to April 2004..... 16,476,000 3,692,000
Construction loan payable not to exceed $3.0 million
in the aggregate, with monthly interest payable at
LIBOR plus 4.25% (9.78% at December 31, 1996)
principal payable with a portion of the proceeds
received on the sale of Vacation Intervals,
collateralized by specific land and unsold interval
inventory, due by October 31, 1998................. 419,000 --
Noninterest bearing land purchase obligation (net of
a $335,000 discount for imputed interest at 8.5% in
1996) due October 1, 1997.......................... 2,165,000 1,500,000
Note payable with monthly interest payable at LIBOR
plus 4.25% (9.78% at December 31, 1996) payable
with a portion of the proceeds on the sale of
Vacation Intervals, collateralized by specific
land............................................... 516,000 --
Noninterest bearing land loan of $500,000 payable at
$54 per interval sold with remaining balance due
May 1, 1997........................................ 500,000 --
Notes payable to certain investors and former
owners,with monthly principal payments of $100,000,
plus interest at 12%, with additional interest of
$325 per interval sold, due April 10, 1998......... 1,655,000 2,900,000
Mortgages receivable sold with option to repurchase,
collateralized by certain mortgages receivable..... 6,281,000 --
Noninterest bearing purchase money mortgage note,
payable in annual installments of $2.0 million with
final payment due November 5, 1997 (net of a
discount of $670,000 for imputed interest at 8.5%
at December 31, 1996 collateralized by specific
land).............................................. 1,330,000 5,588,000
Bonds payable, due April 2004 with interest at
7.75%, payable from collections of mortgages
receivable, collateralized by mortgages receivable. 17,460,000 23,180,000
Endpaper loan, due dates from December 2002 to April
2003 with interest at prime plus 2% to prime plus
2.25% (10.25% to 10.5% at December 31, 1996),
payable from collections of mortgages receivable,
collateralized by mortgages receivable............. 30,327,000 23,748,000
Endpaper loan, due dates from December 2002 to June
2005 with interest at prime plus 1.25% (9.5% at
December 31, 1996), payable from collections of
mortgages receivable, collateralized by mortgages
receivable......................................... 5,259,000 2,104,000
Various lease obligations, due December 2003 with
interest at variable rates, collateralized by
property and equipment............................. 432,000 298,000
Other notes payable................................. 23,432,000 10,676,000
------------ ------------
Total notes payable................................. $236,122,000 $167,564,000
============ ============
</TABLE>
F-17
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the terms of the revolving lines of credit agreements, totaling
approximately $220 million, the Company may typically borrow from 85% to 90%
of the balances of the pledged mortgages receivable. A total of $112 million
is available under these certain agreements at December 31, 1996, the
borrowing capacity expires seven to ten years after the date on which the last
advance related to mortgages receivable was executed.
The loans contain certain covenants, the most restrictive of which require
certain of the consolidated entities to maintain a minimum net worth and
require certain expenses to not exceed certain percentages of sales. At
December 31, 1996, the Company was in compliance with all covenants or had
received waivers with respect to these covenants.
Dividends are restricted by certain of the Company's debt agreements which
require tangible net worth of at least $140 million.
Subsequent to December 31, 1996, the Company paid $84,551,000 of the
$236,122,000 notes payable outstanding at December 31, 1996, including all
other notes payable. The expected maturities of the remaining notes payable,
are as follows:
<TABLE>
<CAPTION>
Due in fiscal year
<S> <C>
1997........................................................ $ 36,268,000
1998........................................................ 29,422,000
1999........................................................ 27,818,000
2000........................................................ 26,234,000
2001........................................................ 21,510,000
2002 and thereafter......................................... 10,319,000
------------
$151,571,000
============
</TABLE>
In February 1997, the Company consummated its offering (the "Convertible
Offering") of $138 million aggregate principal amount of its 5.75% Convertible
Subordinated Notes due 2007 (the "Convertible Notes") and its offering (the
"Stock Offering" and together with the Convertible Offering the "Offerings")
of 6.0 million shares of its Common Stock (including 2.4 million primary
shares sold by the Company and 3.6 million secondary shares sold by certain
selling stockholders).
The Convertible Notes may be exchanged for shares of the Company's Common
Stock at any time prior to maturity on January 15, 2007. Each $1,000 principal
amount of Convertible Notes is exchangeable at a conversion price of $30.417
per share, subject to adjustment under certain circumstances as stated in the
related Indenture.
The net proceeds to the Company from the sale of the 2.4 million primary
shares of Common Stock offered by the Company in the Stock Offering, based on
public offering price of $24.33 per share, and from the sale of the $138.0
million aggregate principal amount of 5.75% Convertible Subordinated Notes due
2007 offered by the Company in the Convertible Offering, based on a public
price of 100% of the principal amount thereof, in each case after deducting
underwriting discounts and estimated expenses of the Offerings, were $53.2
million and $134.9 million, respectively.
In August 1997, the Company consummated a private placement offering (the
"Senior Subordinated Notes Offering") of $200.0 million aggregate principal
amount of its 9.75% Senior Subordinated Notes due 2007 (the "Senior
Subordinated Notes") at a price of 99.234% of the principal amount for an
effective yield of 9.875% per annum. After deducting underwriters discounts
and expenses, the net proceeds to the Company were $191.0 million.
F-18
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. RELATED PARTY TRANSACTIONS
At December 31, 1996, the Company, had accrued $4,405,000 and $1,590,000 as
a receivable and payable, respectively, with the various homeowners'
associations at its resorts. The Company accrued $1,220,000 and $1,771,000 as
a receivable and payable, respectively, at December 31, 1995 with the
homeowners' associations at its resorts. The related party payable to the
homeowners' associations at December 31, 1995, included $1,030,000 of a
special assessment fee charged to the Company. The Company generally accrues
receivables from homeowners' associations for management fees and certain
other expenses. Payables to the homeowners' associations consist mostly of
maintenance fees for units owned by the Company. All of these amounts are
classified as due from and due to related parties in the accompanying
consolidated balance sheets.
The Company recorded a receivable of $1,154,000 and $121,000 from two of its
predecessor partnerships at December 31, 1995, for predevelopment costs
incurred by the Company at its Embassy Vacation Resort Lake Tahoe and San Luis
Bay Resorts. These receivables were included as due from related parties. Such
predecessor partnerships were consolidated into the Company on August 20,
1996, as a result of the Consolidation Transactions.
Additionally, amounts due from related parties include advances to
affiliates and owners of the Company of $4,044,000 and $12,316,000 at December
31, 1996 and 1995, respectively. These amounts represent advances to entities
owned by shareholders to fund working capital and expansion.
Due from related parties also includes amounts due from shareholders
totaling $383,000 and $1,817,000 at December 31, 1996 and 1995, respectively.
These amounts represent advances for services to be provided to the Company.
For each of the three years in the period ended December 31, 1996,
shareholders of the Company, through their affiliates, provided certain
marketing and development services to the Company as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Marketing.............................. $16,071,000 $11,812,000 $15,597,000
Development............................ 13,572,000 10,612,000 9,006,000
</TABLE>
The above services were performed at rates negotiated by the shareholders
and are reflected in the accompanying consolidated statements of income,
except for development-related costs, which have been capitalized as real
estate and development costs.
During 1996, the Company wrote off a receivable from a related party that
the Company determined would not be collected. The receivable of $3,890,000
was charged to retained earnings in accordance with Accounting Principles
Board Opinion No. 26, Early Extinguishment of Debt, since the related party
was under common control. In addition, a predecessor entity that was acquired
by the Company in connection with the PRG Merger, assigned its rights to a
receivable from a related party to its owners (i.e., the Venturers'). This
receivable of $3,449,000 was treated as a reduction of stockholders' equity
since the related party was under common control.
The Company made payments of $295,000 during the twelve months ended
December 31, 1995, to an affiliate of the Company for construction consulting
and expense reimbursement. For the year ended December 31, 1996, no such
payments were made.
F-19
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Notes payable to related parties as of December 31, 1995 consist of the
following:
<TABLE>
<S> <C>
Notes payable to CPI Securities, L.P., an affiliate of a limited
partner, with interest at 12%, payable monthly and the entire
principal balance and all accrued interest due on December 31,
1996........................................................... $2,722,000
Notes payable to Grace Investments, Ltd. one of the limited
partners, with interest at 12% payable monthly, due on December
31, 1996....................................................... 1,667,000
Notes payable to Dickstein & Company, L.P., an affiliate of a
limited partner, with interest payable monthly at 12%, due on
December 31, 1996.............................................. 1,111,000
Acquisition loan payable with interest payable at 12%, due on
December 31, 1996.............................................. 1,495,000
Notes payable to partners, with interest accrued at 16%, payable
on demand...................................................... 2,157,000
Other........................................................... 316,000
----------
Total notes payable to related parties........................ $9,468,000
==========
</TABLE>
During 1996, notes payable to related parties were satisfied as part of the
Consolidation Transactions.
10. COMMITMENTS AND CONTINGENCIES
The Company has license agreements with Embassy Vacation Resorts, a division
of The Promus Corporation ("Promus"), to franchise the Grand Beach and Lake
Tahoe properties. The agreements allow the resorts to be operated and marketed
as "Embassy Vacation Resorts." The agreements provide for Promus to be paid a
percentage of net sales of the Embassy Vacation Resort properties. Additional
terms are stated in the related license agreements.
The Company has an agreement with Westin Hotels & Resorts ("Westin") to
acquire, develop, and sell Vacation Intervals at four and five star Westin
Vacation Clubs. In December 1996, the Company announced plans to acquire the
first Westin Vacation Club. This property will be located in St. John, U.S.
Virgin Islands. The Company and Westin will form the Westin Partnership owned
50% each by the Company and Westin to acquire an interest in the St. John
Resort. Of the $10.5 million purchase price, each company is obligated to
contribute $2.5 million. The remaining $5.5 million of the acquisition price
will be paid by the Westin Partnership using debt financing. In addition, the
Westin Partnership will borrow approximately $7.1 million to complete the
conversion of the project to a Westin Vacation Club.
The Westin Agreement is terminable by either the Company or Westin upon the
merger of such party with a third party. As a result of the pending closing of
the merger of Westin into Starwood Lodging Trust and Starwood Lodging Corp.,
the Company and Westin have begun discussions regarding whether to modify the
exclusive agreement between the Company and Westin to acquire, develop and
market four and five star vacation ownership resorts in North America, Mexico
and the Caribbean (the "Territory"). The discussions include whether to modify
the agreement to make the relationship a non-exclusive one, and whether to
continue to have a representative from the Company and Westin serve on each
other's Board of Directors. As written, the existing exclusive agreement
limits the Company's ability to develop four and five star vacation ownership
resorts in the Territory with hotel and resort companies that are competitors
of Westin and simultaneously limits Westin's ability to develop four and five
star vacation ownership resorts in the Territory with anyone other than the
Company.
If the parties elect to modify the agreement to make it non-exclusive, the
Company and Westin will each be free to pursue four and five star vacation
ownership acquisition and development opportunities in the Territory either
alone, with each other or with other luxury hotel and resort companies. In
that event, it would be the Company's intention to continue to work to expand
its four and five star vacation ownership resorts in a variety
F-20
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of ownership structures, including as Westin Vacation Clubs in joint venture
with Westin (subject to Westin's approval of the specific project); as
Sunterra Resorts (the Company's branded resorts); and as other luxury hotel
and resort company brands. In any event, the parties currently intend to
continue their existing joint venture in St. John, U.S. Virgin Islands. Upon
completion of pending acquisitions (see Note 16), the Company will operate 70
vacation ownership resorts, of which the Westin Vacation Club at St. John will
be the Company's only Westin branded resort.
The Company is currently subject to litigation and claims regarding
employment, tort, contract, construction, and commission disputes, among
others. In the judgment of management, none of such lawsuits or claims against
the Company is likely to have a material adverse effect on the Company or its
business.
The Spanish direct and indirect tax authorities have not yet established a
clear position regarding the taxation of vacation ownership operations. While
the uncertainty surrounding this area could potentially result in there being
an exposure to taxation in Spain, management believes that any such liability
would be mitigated by other relevant taxation factors. Due to the nature of
the uncertainty, management does not consider it practicable to make an
estimate of the potential financial effect.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires that the Company disclose estimated fair values for its financial
instruments. The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents and cash in escrow: The carrying amount reported
in the balance sheet for cash and cash equivalents and cash in escrow
approximates their fair value because of the short maturity of these
instruments.
Mortgages receivable: The carrying amount reported in the balance sheet for
mortgages receivable approximates its fair value because the weighted average
interest rate on the portfolio of mortgages receivable approximates current
interest rates to be received on similar current mortgages receivable.
Notes payable to financial institutions: The carrying amount reported in the
balance sheet for notes payable approximates its fair value because the
interest rates on these instruments approximate current interest rates charged
on similar current borrowings.
Notes payable to related parties: The fair value of the notes payable to
related parties is not determinable since these financial instruments are not
readily marketable and are payable to related parties.
12. OTHER INCOME
Included in other income for the year ended December 31, 1996, is primarily
$3.5 million of income from the realization of purchased mortgages receivable,
$1.7 million of income related to the settlement of certain receivables from
the former owners of the St. Maarten properties, $2.0 million of rental
income, $0.9 million of management fees, $(0.5) million of losses from AVCOM's
property management and health spa operations, $1.0 million of consulting and
development income related to certain joint marketing programs, $1.4 million
of commissions received from third party lending institutions related to the
lending institutions' financing of vacation interval and vacation point sales,
and $.6 million net commission income from sales of travel services. Other
income for the year ended December 31, 1995, consists primarily of business
interruption insurance proceeds of $2.0 million, income from the realization
of purchased mortgages receivable of $2.2 million, rental income of $1.3
million, $1.2 million of management fees, and $1.0 million of commissions
received from third party lending institutions in connection with financing of
vacation interval and vacation point sales.
F-21
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. STOCK OPTIONS
The Company issued 2,653,500 stock options during 1996 which were
outstanding at December 31, 1996. The Company accounts for these options under
APB Opinion No. 25, Accounting for Stock Issued to Employees, under which no
compensation cost has been recognized. Under SFAS 123, the Company's net
income and unaudited pro forma earnings per share would have been $8,756,000
and ($0.08), respectively, during the year ended December 31, 1996. SFAS 123
would not have affected the Company's net income and earnings per share for
the years ended December 31, 1995 and 1994. A summary of the Company's stock
options for the year ended December 31, 1996 is presented below.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Outstanding options, beginning of year.................. -- --
Granted................................................. 2,653,500 $10.29
Exercised............................................... -- --
Forfeited............................................... -- --
Expired................................................. -- --
--------- ------
Outstanding options, end of year........................ 2,653,500 $10.29
========= ======
Exercisable at end of year.............................. 522,000 $10.18
Weighted average fair value of options granted.......... $ 4.23
</TABLE>
The following is a summary of the exercise prices and terms of the 2,653,500
options granted during 1996.
<TABLE>
<CAPTION>
EXERCISE PRICE OPTIONS TERM
-------------- ------- -------
<S> <C> <C>
$ 8.00..................................................... 562,500 4 years
9.33..................................................... 793,500 5 years
9.33..................................................... 675,000 3 years
11.87..................................................... 60,000 5 years
12.08..................................................... 165,000 4 years
16.08..................................................... 397,500 4 years
</TABLE>
The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions:
risk free interest rate of 6.0%, expected dividend yield of zero, expected
volatility of 35%, and expected lives of 5 years.
14. EMPLOYEE BENEFIT PLANS
During 1996, the Company authorized 750,000 shares of Common Stock to be
issued in connection with its 1996 Equity Participation Plan and The Employee
Stock Purchase Plan (the "Plan"). The Plan allows employees that work at least
20 hours per week to purchase Common Stock of the Company at a 15% discount
from the lesser of the stock price on the date of grant or the date the stock
is purchased. Employees may purchase up to a maximum of 10% of their annual
compensation or $25,000. As of December 31, 1996, no shares were issued or
outstanding related to the Plan.
The Company also sponsors a 401(k) deferred savings plan (the "401(k) Plan")
in which employees can contribute up to 10% of their eligible compensation on
a pre-tax basis subject to certain maximum amounts. Under the terms of the
401(k) Plan, the Company can, at its option, match 50% of employee
contributions up to three percent of compensation. No contributions were made
to the 401(k) Plan by the Company during 1996.
F-22
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. INCOME TAXES
On August 20, 1996, the Company consummated a public offering which made it
subject to federal, state, and foreign income taxes from the effective date of
the Initial Public Offering. In addition, the Company is now required to
record a deferred tax liability for cumulative temporary differences between
financial reporting and tax reporting following the effective date of the
Initial Public Offering. For the year ended December 31, 1996, the Company
recorded approximately $4,506,000 of current income tax expense and
approximately $8,611,000 of deferred income tax benefit. Additionally, the
Company recorded deferred taxes of $9,464,000 related to deferred taxes from
prior years that were assumed as part of the Initial Public Offering. The
total current tax liability and deferred tax liability at December 31, 1996
was $3,268,000 and $3,259,000, respectively.
The Company has recorded $820,000 of accrued interest related to deferred
installment gains from previous years that were assumed as part of the Initial
Public Offering. During the year ended December 31, 1996, the Company recorded
an additional $78,000 of expense related to these deferred installment gains.
Prior to August 20, 1996, the predecessor entities were taxed either as a
corporation at the corporate level, as an S corporation taxable at the
shareholder level, or as a partnership taxable at the partner level.
Accordingly, the table below summarizes the unaudited pro forma provision for
income taxes that would have been reported had the Company been treated as a C
corporation rather than as individual limited partnerships and limited
liability companies for federal income tax purposes for the years ended
December 31, 1996 and 1995. AVCOM's and LSI's actual deferred income taxes and
provision for income taxes are included in the pro forma schedules and 1996
actual schedule below. The Company's actual income tax provision is presented
for the period subsequent to August 20, 1996.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
PRO FORMA UNAUDITED
-----------------------------------
1996 1996 1995 1994
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Current:
Federal.................. $ 2,785,000 $ 4,990,000 $ 5,654,000 $3,940,000
State.................... 481,000 846,000 711,000 606,000
Foreign.................. 1,240,000 1,233,000 1,645,000 687,000
----------- ----------- ----------- ----------
4,506,000 7,069,000 8,010,000 5,233,000
Deferred:
Federal.................. $(7,182,000) $(3,675,000) $ 1,363,000 $1,750,000
State.................... (1,393,000) (809,000) 594,000 368,000
Foreign.................. (36,000) (36,000) 42,000 35,000
----------- ----------- ----------- ----------
(8,611,000) (4,520,000) 1,999,000 2,153,000
----------- ----------- ----------- ----------
(Benefit) provision for
income taxes............ $(4,105,000) $ 2,549,000 $10,009,000 $7,386,000
=========== =========== =========== ==========
</TABLE>
For financial reporting purposes, income before income taxes includes the
following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
United States............................. $3,525,000 $22,503,000 $17,088,000
Foreign................................... 3,404,000 2,816,000 2,252,000
---------- ----------- -----------
$6,929,000 $25,319,000 $19,340,000
========== =========== ===========
</TABLE>
F-23
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The reconciliation between the statutory provision for income taxes and the
actual provision for income taxes is shown as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
PRO FORMA UNAUDITED
-----------------------------------
1996 1996 1995 1994
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Income tax at U.S. federal
statutory rate........... $ 2,357,000 $2,357,000 $ 8,862,000 $6,575,000
State tax, net of federal
benefit.................. 163,000 163,000 1,037,000 783,000
Difference in foreign tax
rates.................... (34,000) (34,000) (56,000) (23,000)
Write-off of receivable
from related party....... (1,478,000) -- -- --
Non-deductible expenses... 598,000 63,000 166,000 51,000
Non-taxable income from
Entities................. (5,711,000) -- -- --
----------- ---------- ----------- ----------
(Benefit) provision for
income taxes........... $(4,105,000) $2,549,000 $10,009,000 $7,386,000
=========== ========== =========== ==========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the net deferred tax liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
PRO FORMA
UNAUDITED
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................ $ 5,659,000 $ 4,365,000
Fixed assets and inventory..................... 3,389,000 (135,000)
Accrued expenses............................... 2,386,000 62,000
Net operating loss carryforward................ 15,763,000 1,383,000
Federal benefit of state deferred tax.......... -- 364,000
Foreign tax credit carryover................... 332,000 632,000
Minimum tax credit carryover................... 1,629,000 3,094,000
------------ ------------
Total deferred tax assets.................... $ 29,158,000 $ 9,765,000
------------ ------------
Deferred tax liabilities:
Installment sales.............................. (27,191,000) (19,402,000)
Percentage of completion....................... (4,370,000) --
Other.......................................... (856,000) (1,164,000)
------------ ------------
Total deferred tax liabilities............... $(32,417,000) $(20,566,000)
------------ ------------
Net deferred taxes........................... $ (3,259,000) $(10,801,000)
============ ============
</TABLE>
Additionally, certain of the Company's consolidated affiliates include
foreign corporations which are taxed at a regular rate up to 45%. The Company
has filed a request for a tax holiday for AKGI-Royal Palm C.V.O.A. which
effectively reduces the tax to 2%. This 2% tax liability rate will be in
effect for the fiscal year ending December 31, 1997. Generally, a foreign tax
credit is allowed for any taxes paid on foreign income up to the amount of
U.S. tax.
F-24
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. SUBSEQUENT EVENTS
In August 1997, the Company consummated its acquisition of the Savoy Hotel
in Miami Beach, Florida for a purchase price of approximately $15.0 million in
cash. The Company plans to convert the existing 40 completed hotel units and
the 28 partially completed units into approximately 65 studio, one and two
bedroom vacation ownership units.
On October 10, 1997, the Company consummated its acquisition of Hawaii based
Marc Hotels & Resorts, Inc. ("Marc Resorts"), acquiring 100% of the capital
stock of Marc Resorts for 212,717 newly issued shares of the Company's Common
Stock. The transaction qualified for purchase accounting.
On October 27, 1997, the Company completed a three-for-two stock split in
the form of a dividend on the Company's Common Stock. Stockholders of record
on October 10, 1997 received one additional share of the Company's Common
Stock for every two shares owned on such date. Fractional shares were paid in
cash. All share and per share amounts in the accompanying consolidated
financial statements and notes thereto have been restated to reflect the
three-for-two stock split.
On November 7, 1997, the Company consummated its acquisition of 100% of the
capital stock of Vacation Internationale, Ltd. ("VI") for approximately $24.3
million, comprised of $8.0 million in cash and the assumption of approximately
$16.3 million of indebtedness. The acquired assets include VI's approximately
$12.8 million of mortgages receivable portfolio. The transaction will be
accounted for using the purchase method of accounting for business
combinations.
On November 14, 1997, a partnership of which the Company is a managing
general partner consummated its acquisition of the Embassy Suites Resort at
Kaanapali Beach, Maui, Hawaii (the "Kaanapali Acquisition") for approximately
$78.0 million from a Japanese partnership. The acquiring entity is a
partnership formed by a wholly-owned subsidiary of the Company (as the
managing general partner), the Whitehall Street Real Estate Limited
Partnership VII and Apollo Real Estate Advisors, L.P. The Company's subsidiary
owns a 24% partnership interest in the acquiring entity. The Embassy Suites
Resort at Kaanapali Beach is a 413-suite, full service resort hotel located on
the beach in Kaanapali, Maui, Hawaii. Upon the receipt of necessary
governmental approvals, the Company intends to convert the first phase of
hotel suites to vacation ownership units. The Company expects to operate the
resort with approximately 256 hotel suites and approximately 157 one-bedroom
and two-bedroom vacation ownership units. Vacation ownership sales at the
resort are anticipated to commence in the first half of 1998.
On December 5, 1997, the Company consummated its acquisition of the European
vacation ownership business of Global Development, Ltd. and certain of its
affiliated companies (the "Global Group") through an asset purchase for
approximately $18 million in cash. The Global Group sells vacation ownership
interests and operates a European points based vacation club with 13 resort
locations in France (3), United Kingdom (4), Austria (1), mainland Spain (1),
and the Canary Islands (4). The Global acquisition is expected to qualify for
the purchase method of accounting for business combinations. The Company
assumed no long-term debt as part of this transaction.
F-25
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment, which includes the
development, acquisition, marketing, sales, financing and management of
vacation ownership resorts. The Company's areas of operation outside of the
United States include St. Maarten, Netherlands Antilles, the United Kingdom,
Spain and Austria. The Company's customers are not concentrated in any
specific geographic region and no single customer accounts for a significant
amount of the Company's sales.
Information about the Company's operations in different geographic locations
is shown below:
<TABLE>
<CAPTION>
UNITED
STATES FOREIGN TOTAL
------------ ----------- ------------
<S> <C> <C> <C>
1996
Total revenues........................ $179,003,000 $40,844,000 $219,847,000
Income before provision for income
taxes................................ 356,000 6,573,000 6,929,000
Identifiable assets................... 412,339,000 33,545,000 445,884,000
<CAPTION>
UNITED
STATES FOREIGN TOTAL
------------ ----------- ------------
<S> <C> <C> <C>
1995
Total revenues........................ $138,925,000 $29,393,000 $168,318,000
Income before provision for income
taxes................................ 18,162,000 7,157,000 25,319,000
Identifiable assets................... 267,162,000 28,609,000 295,771,000
<CAPTION>
UNITED
STATES FOREIGN TOTAL
------------ ----------- ------------
<S> <C> <C> <C>
1994
Total revenues........................ $115,838,000 $18,030,000 $133,868,000
Income before provision for income
taxes................................ 17,088,000 2,252,000 19,340,000
</TABLE>
F-26
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT DESCRIPTION PAGE
------- -------------------- ------------
<C> <S> <C>
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of KPMG
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference of our report in this Form 8-K filed on or around
December 19, 1997, into the Company's previously filed Amendment No. 1 to Form
S-8 Registration Statement (Registration No. 333-15361) and Amendment No. 4 to
Form S-3 Registration Statement (Registration No. 333-30285).
/s/ Arthur Andersen LLP
Arthur Andersen LLP
December 19, 1997
Orlando, Florida
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated May 31, 1996,
except for Note 12, as to which the date is July 1, 1996, with respect to the
consolidated financial statements of AVCOM International, Inc. as of December
31, 1995 and for each of the two years in the period ended December 31, 1995,
included in this Current Report on Form 8-K filed on or about December 19, 1997,
of Signature Resorts, Inc, in the previously filed Registration Statement
(Amendment No. 1 to Form S-8 No. 333-15361) and the previously filed
Registration Statement (Amendment No. 4 to Form S-3 No. 333-30285) of Signature
Resorts, Inc.
/s/ Ernst & Young LLP
Ernst & Young LLP
Phoenix, Arizona
December 19, 1997
<PAGE>
EXHIBIT 23.4
Consent of Independent Auditors
-------------------------------
We consent to the incorporation by reference to our report in this Form 8-K
filed on or around 19 December 1997, into the Company's previously filed
Amendment No. 1 to Form S-8 Registration Statement (Registration No. 333-15361)
and Amendment No. 4 to Form S-3 Registration Statement (Registration No.
333-30285).
/s/ KPMG
KPMG
Chartered Accountants
Preston, England
22 December 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CAPTION>
RESTATED FINANCIAL DATA SCHEDULE
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1996 DEC-31-1995
<PERIOD-END> SEP-30-1997 SEP-30-1996 DEC-31-1996 DEC-31-1995
<CASH> 134,100,000 25,969,000 22,469,000 22,779,000
<SECURITIES> 0 0 0 0
<RECEIVABLES> 317,548,000 205,322,000 227,415,000 164,929,000
<ALLOWANCES> 20,331,000 13,832,000 17,328,000 13,271,000
<INVENTORY> 174,991,000 128,694,000 142,870,000 72,404,000
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 30,062,000 12,477,000 14,612,000 8,511,000
<DEPRECIATION> 0 0 0 0
<TOTAL-ASSETS> 711,028,000 410,494,000 445,884,000 295,771,000
<CURRENT-LIABILITIES> 0 0 0 0
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 356,000 330,000 330,000 89,000
<OTHER-SE> 195,072,000 134,469,000 126,095,000 38,070,000
<TOTAL-LIABILITY-AND-EQUITY> 711,028,000 410,494,000 445,884,000 295,771,000
<SALES> 210,261,000 125,565,000 182,300,000 139,426,000
<TOTAL-REVENUES> 249,285,000 152,902,000 219,847,000 168,318,000
<CGS> 54,317,000 33,220,000 48,218,000 39,810,000
<TOTAL-COSTS> 149,074,000 92,335,000 137,258,000 102,068,000
<OTHER-EXPENSES> 49,741,000 26,451,000 50,104,000 25,460,000
<LOSS-PROVISION> 6,013,00 3,653,000 8,311,000 3,666,000
<INTEREST-EXPENSE> 18,037,000 13,522,000 17,245,000 11,805,000
<INCOME-PRETAX> 26,420,000 16,941,000 6,929,000 25,319,000
<INCOME-TAX> 10,387,000 994,000 (4,105,000) 4,020,000
<INCOME-CONTINUING> 16,033,000 15,947,000 11,034,000 21,299,000
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 766,000 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 15,267,000 10,165,000<F1><F2> 4,380,000<F1><F2> 15,310,000<F1><F2>
<EPS-PRIMARY> 0.42<F1> 0.40<F1><F2> 0.16<F1><F2> 0.64<F1><F2>
<EPS-DILUTED> 0.42<F1> 0.40<F1><F2> 0.16<F1><F2> 0.64<F1><F2>
<FN>
<F1> THE SUBJECT FINANCIAL INFORMATION FOR THE RELEVANT PERIODS GIVES EFFECT TO
THE COMPANY'S OCTOBER 27, 1997 THREE-FOR-TWO STOCK SPLIT IN THE FORM OF A
COMMON STOCK DIVIDEND PAID TO STOCKHOLDERS OF RECORD ON OCTOBER 10, 1997.
<F2> THE SUBJECT FINANCIAL INFORMATION FOR THE RELEVANT PERIODS IS PRESENTED ON
A PRO FORMA BASIS. SEE NOTES 1 AND 15 OF THE COMPANY'S NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S CURRENT REPORT
ON FORM 8-K FILED ON SEPTEMBER 9, 1997, AS AMENDED BY THE CURRENT REPORT ON
FORM 8-K/A FILED ON OCTOBER 10, 1997 AND AS AMENDED BY THE CURRENT REPORT
ON FORM 8-K/A FILED ON OCTOBER 22, 1997 AND IN THE COMPANY'S CURRENT REPORT
ON FORM 8-K FILED ON DECEMBER 24, 1997.
</FN>
</TABLE>
