<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
________________
FORM 10-Q
________________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________to_____________
Commission File Number 000-21193
________________
SIGNATURE RESORTS, INC.
(Exact name of registrant as specified in its charter)
Maryland 95-4582157
(State of incorporation) (I.R.S. Employer
Identification No.)
1875 SOUTH GRANT STREET, SUITE 650
SAN MATEO, CALIFORNIA 94402
(Address of principal executive offices including zip code))
415-312-7171
(Registrant's telephone number, including area code)
________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [_] No
Number of shares of common stock outstanding of the issuer's Common Stock,
par value $0.01 per share as of June 30, 1997, 22,292,070.
--------------------------
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<PAGE>
SIGNATURE RESORTS, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1 Financial Statements
Consolidated statements of income for the three and six months ended
June 30, 1997 and June 30, 1996...................................................... 1
Consolidated balance sheets as of
June 30, 1997 and December 31, 1996.................................................. 2
Consolidated statements of cash flows for the six months ended
June 30, 1997 and June 30, 1996...................................................... 3
Notes to the consolidated financial statements............................................ 4 - 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 - 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders....................................... 9
Item 6. Exhibits and Reports on Form 8-K.......................................................... 9
Signatures................................................................................ 10
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
SIGNATURE RESORTS, INC.
Consolidated Statements of Income
Three and Six Months Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
Revenues:
Vacation Interval sales $59,089,000 $37,051,000 $113,019,000 $68,226,000
Interest income 9,363,000 6,244,000 17,779,000 11,899,000
Other income 2,456,000 3,799,000 4,823,000 5,450,000
----------- ----------- ------------ -----------
Total revenues 70,908,000 47,094,000 135,621,000 85,575,000
----------- ----------- ------------ -----------
Costs and operating expenses:
Vacation Interval cost of sales 15,691,000 10,155,000 30,263,000 18,684,000
Advertising, sales and marketing 26,776,000 17,684,000 51,303,000 32,396,000
Loan portfolio:
Interest expense - treasury 3,838,000 3,152,000 7,938,000 6,364,000
Other expenses 1,870,000 859,000 3,292,000 2,220,000
Provision for doubtful accounts 1,510,000 973,000 3,648,000 2,269,000
General and administrative 8,062,000 4,365,000 16,287,000 8,322,000
Depreciation and amortization 1,374,000 1,002,000 2,431,000 1,707,000
Merger costs 4,203,000 - 5,896,000 -
----------- ----------- ----------- -----------
Total costs and operating expenses 63,324,000 38,190,000 121,058,000 71,962,000
----------- ----------- ----------- -----------
Income from operations 7,584,000 8,904,000 14,563,000 13,613,000
Interest expense - other 1,504,000 1,500,000 2,841,000 2,334,000
Minority interest in profits of limited partnership 99,000 - 123,000 -
Equity loss on investment in joint venture 50,000 62,000 120,000 63,000
------ ------ ------- ------
Income before provision for income taxes and
extraordinary item 5,931,000 7,342,000 11,479,000 11,216,000
Provision for income taxes 2,372,000 534,000 4,592,000 538,000
----------- ----------- ----------- -----------
Income before extraordinary item 3,559,000 6,808,000 6,887,000 $10,678,000
Extraordinary item, net of income taxes 518,000 - 518,000 -
----------- ----------- ----------- -----------
Net income $ 3,041,000 $ 6,808,000 $ 6,369,000 $10,678,000
=========== =========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding 22,763,867 14,638,970 22,571,182 14,638,970
Earning per common and common equivalent share:
Net income before extraordinary item $0.15 $0.47 $0.30 $0.73
Extraordinary item, net of income taxes (0.02) - (0.02) -
----- ----- ----- -----
Net income $0.13 $0.47 $0.28 $0.73
===== ===== ===== =====
</TABLE>
See accompanying notes to the consolidated financial statements.
1
<PAGE>
SIGNATURE RESORTS, INC.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------------- ------------
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 44,361,000 $ 14,387,000
Cash in escrow 1,925,000 1,712,000
Mortgages receivable, net of an allowance of $18,999,000 and
$16,989,000 at June 30, 1997 and December 31, 1996, respectively 259,044,000 214,452,000
Due from related parties 13,308,000 11,760,000
Other receivables, net 15,834,000 7,903,000
Prepaid expenses and other assets 23,952,000 14,185,000
Investment in joint venture 7,277,000 7,397,000
Real estate and development costs 134,215,000 137,401,000
Property and equipment, net 13,830,000 11,504,000
Intangible assets, net 7,503,000 4,495,000
------------- ------------
Total assets $ 521,249,000 $425,196,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 13,942,000 $ 22,413,000
Accrued liabilities 31,067,000 39,778,000
Due to related parties 1,127,000 1,656,000
Income taxes payable 439,000 438,000
Deferred taxes 3,863,000 3,545,000
Notes payable to financial institutions 154,280,000 235,690,000
Convertible subordinated notes 138,000,000 -
------------- ------------
Total liabilities 342,718,000 303,520,000
------------- ------------
Minority Interest in consolidated limited partnership 116,000 1,538,000
------------- ------------
Stockholders' equity:
Preferred stock (25,000,000 shares authorized and none outstanding) - -
Common stock ($0.01 par value, 50,000,000 shares
authorized, 22,292,070 and 20,676,470 outstanding as of
June 30, 1997 and December 31, 1996, respectively) 223,000 207,000
Additional paid in capital 155,145,000 101,953,000
Retained earnings 23,047,000 17,978,000
------------- ------------
Total stockholders' equity 178,415,000 120,138,000
------------- ------------
Total liabilities and stockholders' equity $ 521,249,000 $425,196,000
============= ============
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE>
SIGNATURE RESORTS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
June 30, June 30,
1997 1996
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES: $6,369,000 $ 10,678,000
Net income
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 2,431,000 1,707,000
Provision for doubtful accounts 3,648,000 2,269,000
Minority interest in profits of limited partnership 123,000 -
Equity loss on investment in joint venture 120,000 63,000
Changes in operating assets and liabilities:
Cash in escrow (213,000) 644,000
Due from related parties (1,548,000) 8,258,000
Prepaid expenses and other assets (9,767,000) 1,289,000
Real estate and development costs 3,186,000 (41,007,000)
Other receivables (7,931,000) (8,327,000)
Accounts payable (8,471,000) 7,929,000
Accrued liabilities (8,711,000) (2,753,000)
Income taxes payable 1,000 (231,000)
Deferred taxes payable 318,000 (335,000)
Due to related parties (529,000) (607,000)
------------ ------------
Cash used in operating activities (20,974,000) (20,423,000)
------------ ------------
INVESTING ACTIVITIES:
Investment in joint venture - (601,000)
Property and equipment (3,288,000) (4,081,000)
Intangible assets (4,477,000) (3,219,000)
Mortgages receivable (48,240,000) (25,441,000)
------------ ------------
Cash used in investing activities (56,005,000) (33,342,000)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from notes payable to financial institutions 22,263,000 85,597,000
Payments on notes payable to financial institutions (103,673,000) (32,994,000)
Proceeds from convertible subordinated notes 138,000,000 -
Net proceeds from sale of common stock 52,988,000 -
Proceeds from exercise of common stock options 220,000 404,000
(Distributions to) contributions from minority limited partners (1,545,000) 1,050,000
Equity distributions (1,300,000) (3,710,000)
------------ ------------
Cash provided by financing activities 106,953,000 50,347,000
------------ ------------
Net increase (decrease) in cash and cash equivalents 29,974,000 (3,418,000)
Cash and cash equivalents, beginning of period 14,387,000 16,806,000
------------ ------------
Cash and cash equivalents, end of period $44,361,000 $ 13,388,000
============ ============
Supplemental disclosure of cash flow information:
Interest paid during the period $8,697,000 $ 10,627,000
Taxes paid (received) during the period 4,042,000 (28,000)
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND
The consolidated financial statements have been presented using pooling-of-
interests accounting to give effect to the AVCOM Merger and PRG Merger (each, as
defined) as of the earliest period presented (See note 5). These statements
should be read in conjunction with the audited consolidated financial statements
and footnotes included in the Signature Resorts, Inc.'s (the "Company") 1996
Annual Report on Form 10-K (File No. 000-21193). The accounting policies used in
preparing these consolidated financial statements are the same as those
described in the aforementioned annual report.
These consolidated financial statements do not include certain information and
footnotes required by generally accepted accounting principles for complete
financial statements. However, in the opinion of management, all adjustments
considered necessary for a fair presentation have been included and are of a
normal recurring nature. Operating results for three and six months ended June
30, 1997, are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997.
NOTE 2 - PRO FORMA FINANCIAL INFORMATION
The following table reflects selected pro forma information for the Company
for the three and six month periods ended June 30, 1996.
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1996
Actual Pro Forma Adjustments (a) Pro Forma
------ ------------------------- ----------
<S> <C> <C> <C>
Income before provision for income taxes and extraordinary item $ 7,342,000 $ 1,371,000 $ 8,713,000
Provision for income taxes 534,000 2,951,000 (b) 3,485,000
----------- ------------ ---------
Income before extraordinary item 6,808,000 (1,580,000) 5,228,000
Extraordinary item - - -
----------- ------------ ---------
Net income $ 6,808,000 $ (1,580,000) $ 5,228,000
----------- ------------ ----------
Weighted average number of common
and common equivalent shares outstanding 14,638,970 6,037,500 20,676,470
Earnings per share:
- ------------------
Income before extraordinary item $ 0.47 $ 0.25
Extraordinary item, net of income taxes - -
----------- -----------
Net income $ 0.47 $ 0.25
=========== ===========
<CAPTION>
Six Months Ended
June 30, 1996
Actual Pro Forma Adjustments (a) Pro Forma
------ ------------------------- ---------
<S> <C> <C> <C>
Income before provision for income taxes and extraordinary item $11,216,000 $ 2,936,000 $14,152,000
Provision for income taxes 538,000 5,123,000 (b) 5,661,000
----------- ------------ -----------
Income before extraordinary item $10,678,000 $ (2,187,000) $ 8,491,000
Extraordinary item - - -
----------- ------------ -----------
Net income $10,678,000 $ (2,187,000) $ 8,491,000
----------- ------------ -----------
Weighted average number of common
and common equivalent shares outstanding 14,638,970 6,037,500 20,676,470
Earnings per share:
- ------------------
Income before extraordinary item $ 0.73 $ 0.41
Extraordinary item, net of income taxes - -
----------- -----------
Net income $ 0.73 $ 0.41
=========== ===========
</TABLE>
(a) The pro forma adjustments give effect to the consolidation of the Company's
predecessor corporations, partnerships and limited liability companies and
the Company's initial public offering as if they had occurred at the
beginning of the period ended June 30, 1996. The pro forma adjustments are
based upon currently available information and certain assumptions that the
Company's management believes are reasonable under current circumstances.
(b) Reflects the effect on historical statement of operations data set forth in
footnote (a) above and assumes the combined Company had been treated as a C
corporation rather than as limited partnerships and limited liability
companies for federal and state income tax purposes.
4
<PAGE>
NOTE 3 - EARNINGS PER SHARE
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 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.
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 the statement for the three months ended June 30, 1997
and 1996, basic EPS would have been $0.14 and $0.47, respectively and diluted
EPS would have been $0.13 and $0.47, respectively. For the six months ended June
30, 1997 and 1996, basic EPS would have been $0.29 and $0.73, respectively and
diluted EPS would have been $0.28 and $0.73, respectively.
NOTE 4 - COMMON STOCK AND NOTE OFFERINGS
In February 1997, the Company consummated its public offering of $138.0
million aggregate principal amount of its 5.75% Convertible Subordinated Notes
due 2007 (the "Convertible Notes") and its public offering (together with the
Convertible Notes the "Concurrent Offerings") of 4.0 million shares of its
Common Stock (including 1.6 million primary shares sold by the Company and 2.4
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 their maturity on January 15, 2007. The Convertible
Notes are exchangeable at a conversion price of $45.625 per share, subject to
adjustment under certain circumstances as stated in the related indenture.
The proceeds to the Company from the sale of the 1.6 million primary shares of
Common Stock offered by the Company and from the sale of the $138.0 million
aggregate principal amount of the Convertible Notes, based on a public offering
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.
NOTE 5 - MERGERS
On February 7, 1997, the Company consummated a merger (the "AVCOM Merger")
with AVCOM International, Inc. ("AVCOM"). AVCOM is the parent company of All
Seasons Resorts, a developer, marketer and operator of vacation ownership
resorts with ten resorts located in Arizona, California, and Texas. Pursuant to
the terms of the AVCOM Merger, AVCOM shareholders of record on February 7, 1997,
received an aggregate of 883,036 shares of the Company's Common Stock. The
Company has accounted for the AVCOM Merger under the pooling-of-interests method
of accounting for business combinations and has eliminated all intercompany
transactions for all periods presented.
On May 15, 1997, the Company consummated a merger (the "PRG Merger") with
Plantation Resorts Group, Inc. ("PRG"), a Williamsburg, Virginia based
developer, owner and operator of vacation ownership resorts. The PRG Merger was
consummated through the issuance of an aggregate of 2,401,229 shares of the
Company's Common Stock. PRG owns and operates the Powhatan Plantation Resort and
the Greensprings Plantation Resort, each located in Williamsburg, Virginia. In
addition, the Company acquired an additional 141 acres of waterfront land for
potential expansion near the two resorts.
As a result of the AVCOM and PRG Mergers, the Company recorded one-time
charges to earnings of $4.2 million and $5.9 million for the three and six
months ended June 30, 1997, respectively, for charges that include fees and
expenses payable to financial advisors, legal fees, and other transaction
related expenses related to the mergers.
Total revenues and net income contributed by the Company (without giving
effect to the AVCOM Merger and the PRG Merger), AVCOM and PRG for the three and
six months ended June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C>
Total revenues:
Company $38,191,000 $21,421,000 $ 71,952,000 $38,931,000
AVCOM 21,868,000 13,182,000 41,662,000 19,699,000
PRG 10,849,000 12,491,000 22,007,000 26,945,000
----------- ----------- ------------ -----------
Total revenues $70,908,000 $47,094,000 $135,621,000 $85,575,000
=========== =========== ============ ===========
Net income (loss):
Company $ 2,441,000 $ 3,879,000 $ 5,581,000 $ 6,364,000
AVCOM 2,772,000 813,000 2,228,000 39,000
PRG (2,172,000) 2,116,000 (1,440,000) 4,275,000
----------- ----------- ------------ -----------
Total net income $ 3,041,000 $ 6,808,000 $ 6,369,000 $10,678,000
=========== =========== ============ ===========
</TABLE>
Net income for the three and six months ended June 30, 1997 for PRG includes
$4.2 million in merger costs. Net income for AVCOM for the six months ended June
30, 1997 includes $1.7 million in merger costs.
NOTE 6 - SUBSEQUENT EVENTS
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. The Company intends to use the net
proceeds from the Senior Subordinated Notes Offering to retire approximately
$52.4 million of existing indebtedness of the Company, finance approximately $10
million in costs relating to the Kaanapali Acquisition (as defined), and finance
approximately $17 million ($15 million purchase cost and $2 million conversion
cost) relating to the Savoy Acquisition (as defined). 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.
In June 1997, the Company entered into a definitive agreement to acquire 100%
of the capital stock of LSI Group Holdings, PLC ("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.
The Company will acquire 100% of LSI's capital stock in exchange for
approximately 1,400,000 newly issued shares of the Company's Common Stock,
representing on a pro forma basis 5.9% of the shares of the Company's Common
Stock outstanding as of June 30, 1997.
The LSI Acquisition is subject to applicable waiting periods required for
governmental approvals and the satisfaction of other customary conditions. The
LSI Acquisition is structured to qualify for the pooling-of-interests method of
accounting and is anticipated to close in August 1997.
In March 1997, the Company announced the execution of a definitive agreement
to acquire the Savoy Hotel in Miami Beach, Florida for a purchase price of
approximately $15.0 million in cash (the "Savoy Acquisition"). The Savoy Hotel
is located on the beach in the South Beach district of Miami Beach, Florida.
Following the Savoy Acquisition, which is expected to close in the third quarter
of 1997, the Company intends to convert the existing 40 completed hotel units
and the 28 partially completed units into approximately 68 studio, one and two
bedroom vacation ownership units. Following the closing and the receipt of
necessary governmental approvals, the Company intends to begin sales of vacation
intervals at the Savoy Hotel during the fourth quarter of 1997.
On July 28, 1997, the Company announced the execution of a definitive
agreement to acquire 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. The Kaanapali Acquisition
is anticipated to close during the fourth quarter of 1997 and vacation ownership
sales at the resort are anticipated to commence in the first half of 1998.
5
<PAGE>
Item 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Three Month Comparison.
Comparison of the three months ended June 30, 1997 to the three months ended
June 30, 1996. During the three months ended June 30, 1997, the Company achieved
total revenue of $70.9 million compared to $47.1 million for the three months
ended June 30, 1996, an increase of $23.8 million, or 51%. This increase was
primarily due to a 59% increase in vacation interval sales and a 50% increase in
interest income. The growth in vacation interval sales was due to an increase in
vacation intervals sold to 4,434 in the second quarter of 1997 from 2,715 in the
second quarter of 1996, an increase of 63%. The growth in vacation intervals
sold was due to the commencement of sales at San Luis Bay Resort, Embassy
Vacation Resort Lake Tahoe, Scottsdale Villa Mirage, and Villas on the Lake. The
average price per vacation interval sold decreased 2% to $13,326 for the three
months ended June 30, 1997 compared to $13,647 for the comparable period of 1996
as the result of a shift in product mix, as vacation interval sales prices at
all resorts were either higher or the same price when compared to June 30, 1996.
Interest income for the three month period in 1997 increased $3.1 million as a
result of an increase in mortgages receivable and increases in interest income
from investments. The gross mortgages receivable balance as of June 30, 1997
increased to $278.0 million from $180.8 million as of June 30, 1996, an increase
of $97.2 million, or 54%. Interest income from investments increased by
approximately $0.7 million as a result of the investment of proceeds received as
part of the Concurrent Offerings consummated in February 1997.
Other income decreased by $1.3 million, or 35%, to $2.5 million for the three
months ended June 30, 1997 from $3.8 million for the comparable period of 1996.
The decrease was the result of a $1.7 million one-time gain realized during the
three months ended June 30, 1996, related to the collection of a note receivable
obtained in connection with the purchase of the Company's Flamingo Beach Club
Resort.
Total costs and operating expenses for the three months ended June 30, 1997
and 1996, increased by $25.1 million, or 66%, to $63.3 million from $38.2
million, respectively. Total costs and operating expenses, net of $4.2 million
merger costs associated with the PRG Merger, were $59.1 million for the three
months ended June 30, 1997, compared to $38.2 million for the comparable period
in 1996, a 55% increase. As a percentage of total revenues, total costs and
operating expenses, net of merger costs, increased to 83% in 1997 from 81% in
1996. This increase was attributable to an increase in general and
administrative expenses which increased to 11% as a percentage of total revenue
during the three months ended June 30 from 9% in the three months ended June 30,
1996. Vacation interval cost of sales, as a percentage of vacation interval
sales, were 27% in each of the three month periods ended June 30, 1997 and 1996.
Advertising, sales and marketing expenses increased 51% to $26.8 million for
the three month period ended June 30, 1997 from $17.7 million for the three
month period ended June 30, 1996. As a percentage of vacation interval sales,
advertising, sales and marketing expenses decreased to 45% for the three months
ended June 30, 1997 from 48% for the comparable 1996 period. Reductions in
advertising, sales and marketing resulted from reductions in these expenses at
the resorts acquired in the AVCOM Merger.
Loan portfolio expenses consisting of interest expense, other expenses and
provision for doubtful accounts increased to $7.2 million for the three months
ended June 30, 1997, from $5.0 million for the comparable period in 1996, an
increase of 44%. However, as a percentage of total revenue, loan portfolio
expenses were 10% during the three month period ended June 30, 1997 compared to
11% during the three month period ended June 30, 1996.
Interest expense-treasury increased to $3.8 million during the three month
period ended June 30, 1997, from $3.2 million in the three month period ended
June 30, 1996. As a percentage of interest income, excluding interest from
investments of $0.7 million in 1997, interest expense-treasury decreased to 44%
in 1997 from 50% in 1996 as the Company has utilized the proceeds from the
Concurrent Offerings rather than using notes payable to financial institutions
to finance mortgages receivable.
Other loan portfolio expenses increased $1.0 million during the three months
ended June 30, 1997, to $1.9 million, or 0.67% of gross mortgages receivable,
from $0.9 million, or 0.23% of gross mortgages receivable, during the comparable
period in 1996.
The provision for doubtful accounts increased $0.5 million during the three
months ended June 30, 1997 to $1.5 million from $1.0 million. The allowance for
doubtful accounts as a percentage of gross mortgages receivable increased to
6.8% at June 30, 1997 compared to 5.9% at June 30, 1996. As of June 30, 1996 and
prior to its acquisition by Signature, AVCOM's allowance for doubtful accounts
as a percentage of gross mortgages receivable was 3.6%. AVCOM recorded a $2.0
million charge to the provision for doubtful accounts in the fourth quarter of
1996. As a result, at June 30, 1997, the allowance for doubtful accounts as a
percentage of gross mortgages receivable was 6.4%. The Mortgages receivable
delinquency rate (past due by 60 or more days and less than 120 days) was 3.9%
at June 30, 1997 and 4.1% at June 30, 1996.
General and administrative expenses increased to $8.1 million for the three
months ended June 30, 1997 from $4.4 million for the three months ended June 30,
1996, an increase of $3.7 million. As a percentage of total revenues, general
and administrative expenses increased to 11% in 1997 from 9% in 1996. 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 future 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 current and planned growth in the size of the Company.
Depreciation and amortization increased $0.4 million, or 37%, to $1.4 million
during the three months ended June 30, 1997 from $1.0 million during the three
months ended June 30, 1996, reflecting increased depreciation and amortization
from capital expenditures.
As a result of the factors discussed above, income before provision for income
taxes and merger costs was $10.1 million for the three months ended June 30,
1997 compared to $5.6 million, excluding a one-time gain of $1.7 million for the
three months ended June 30, 1996, an increase of 80%.
An extraordinary item, net of income taxes of $0.5 million was charged to net
income for the three months ended June 30, 1997 as the result of early
retirement of notes payable to financial institutions.
During the three months ended June 30, 1997, income taxes increased $1.8
million from June 30, 1996 as a result of the changes in the Company's status as
a C corporation in connection with its initial public offering in August of
1996. Previously, the Company's predecessor entities only incurred federal
income taxes with regard to AVCOM and foreign income taxes on properties located
in St. Maarten, Netherlands Antilles.
Income, before extraordinary item and merger costs (net of taxes) was
$6.1 million for the three month period ended June 30, 1997, compared to $6.8
million for the three months ended June 30, 1996, a 10% decrease. However,
assuming the Company was taxed as a C corporation for the three months ended
June 30, 1996 at a 40% tax rate, income before extraordinary item and a one-time
gain of $1.7 million would have been $3.4 million
6
<PAGE>
compared to $6.1 million for the three months ended June 30, 1997 or a 79%
increase. Net income was $3.0 million for the three months ended June 30, 1997
compared to $6.8 million in the comparable period of 1996, a decrease of 56%.
Six Month Comparison
Comparison of the six months ended June 30, 1997 to the six months ended June
30, 1996. During the six months ended June 30, 1997, the Company recorded total
revenue of $135.6 million compared to $85.6 million for the six months ended
June 30, 1996, an increase of $50.0 million, or 58%. This increase was primarily
due to a 66% increase in vacation interval sales and a 49% increase in interest
income. The growth in vacation interval sales was due to an increase in vacation
intervals sold to 8,438 in 1997 from 5,147 in 1996, an increase of 68%. The
growth in vacation intervals sold was due to the commencement of sales at San
Luis Bay Resort, Embassy Vacation Resort Lake Tahoe, Sedona Summit Resort,
Scottsdale Villa Mirage Resort, and Villas on the Lake during the first or
second quarter of 1997.
Interest income for the six month period increased $5.9 million as a result of
an increase in gross mortgages receivable and increases in interest income from
investments. The gross mortgages receivable as of June 30, 1997 increased to
$278.0 million from $180.8 million as of June 30, 1996, and increase of $97.2
million, or 54%. Interest investing income from investments increased by
approximately $1.6 million as a result of investing cash received from the
Concurrent Offerings that were consummated in February 1997.
Total costs and operating expenses for the six months ended June 30, 1997 and
1996 increased by $49.1 million, or 68%, to $121.1 million from $72.0 million,
respectively. Total costs and operating expenses, net of $5.9 million merger
cost associated with the PRG and AVCOM mergers were $115.1 million for the six
months ended June 30, 1997 compared to $72.0 million for the comparable period
in 1996, an increase of 60%. However, as a percentage of total revenues, total
costs and operating expenses, net of merger costs, have increased slightly to
85% in the 1997 period from 84% in the 1996 period. This increase is
attributable to an increase in general and administrative expenses as a
percentage of revenues to 12% in the 1997 period from 10% in the 1996 period.
Vacation interval cost of sales, as a percentage of vacation interval sales,
were 27% for both six month periods ended June 30, 1997 and 1996. Advertising,
sales and marketing expenses increased 58% to $51.3 million for the six month
period ended June 30, 1997 from $32.4 million for the prior year comparable six
month period. As a percentage of vacation interval sales, advertising, sales and
marketing expenses decreased to 45% for the six month period ended June 30, 1997
from 47% for the comparable 1996 period. Reductions in advertising, sales and
marketing resulted from reductions in these expenses at the resorts acquired in
the AVCOM merger.
Loan portfolio expenses consisting of interest expense, other expenses and
provision for doubtful accounts increased to $14.9 million for the six months
ended June 30, 1997 from $10.9 million for the comparable period in 1996, an
increase of 37%. However, as a percentage of total revenue, loan portfolio
expenses were 11% for the six months ended June 30, 1997 compared to 13% for the
comparable period in 1996.
Interest expense-treasury increased to $7.9 million during the six month
period ended June 30, 1997, from $6.4 million in the six month period ended June
30, 1996. As a percentage of interest income, excluding interest from
investments of $1.6 million in 1997, interest expense-treasury decreased to 48%
in 1997 from 53% in 1996 as the Company has utilized the proceeds from the
Concurrent Offerings, rather than using notes payable from financial
institutions to finance mortgages receivable.
Other loan portfolio expenses increased $1.1 million during the six months
ended June 30, 1997, to $3.3 million, or 1.18% of gross mortgages receivable,
from $2.2 million, or 1.0% of gross mortgages receivable, during the comparable
period in 1996.
The provision for doubtful accounts increased $1.3 million during the six
months ended June 30, 1997 to $3.6 from $2.3 million. The allowance for doubtful
accounts as a percentage of gross mortgages receivable increased to 6.8% at June
30, 1997 compared to 5.9% at June 30, 1996. As of June 30, 1996 and prior to its
acquisition by Signature, AVCOM's allowance for doubtful accounts as a
percentage of gross mortgages receivable was 3.6%. AVCOM recorded a $2.0 million
charge to the provision for doubtful accounts in the fourth quarter of 1996. As
a result, at June 30, 1997, the allowance for doubtful accounts as a percentage
of gross mortgages receivable was 6.4%. The mortgages receivable delinquency
rate (past due by 60 or more days and less than 120 days) was 3.9% at June 30,
1997 and 4.1% at June 30, 1996.
General and administrative expenses increased to $16.3 million for the six
months ended June 30, 1997 from $8.3 million for the six months ended June 30,
1996, an increase of 96%. As a percentage of total revenues, general and
administrative expenses increased to 12% in 1997 from 10% in 1996. 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
future growth, (ii) the Company's additional 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 current and planned growth in the Company's size.
Depreciation and amortization increased $0.7 million, or 42%, to $2.4 million
during the six months ended June 30, 1997 from $1.7 million during the six
months ended June 30, 1996, reflecting increased depreciation and amortization
from capital expenditures.
As a result of the factors discussed above, income before provision for income
taxes and merger costs was $17.4 million for the six months ended June 30, 1997
compared to $9.5 million, excluding a one-time gain of $1.7 million for the
three months ended June 30, 1996 an increase of 83%.
An extraordinary item of $0.5 million was charged to net income for the six
months ended June 30, 1997 as the result of early retirement of notes payable to
financial institutions.
During the six months ended June 30, 1997, income taxes increased $4.1 million
from June 30, 1996 as a result of the changes in the Company's status as a C
corporation subsequent to its initial public offering in August of 1996.
Previously, the Company's predecessor entities only incurred federal income
taxes with regard to AVCOM and foreign income taxes on their properties located
in St. Maarten, Netherlands Antilles.
Income, before extraordinary item and merger costs (net of taxes) for the six
months ended June 30, 1997 was $10.4 million compared to $10.7 million for the
six months ended June 30, 1996, decrease of 3%. However, assuming the Company
was taxed as a C corporation for the six months ended June 30, 1996 at a 40% tax
rate, income before extraordinary item and a one-time gain of $1.7 million (net
of taxes) would have been $5.7 million
7
<PAGE>
compared to $10.4 million for the six months ended June 30, 1997 or an increase
of 82%.
Liquidity and Capital Resources
In August 1997, the Company consummated the Senior Subordinated Note Offering
of $200.0 million aggregate principal amount of its 9.75% senior subordinated
notes due 2007 at a price of 99.234% of the principal amount, an effective yield
of 9.875% per annum. The Company intends to use the net proceeds of the Senior
Subordinated Note Offering primarily to retire approximately $52.4 million of
existing indebtedness of the Company, finance approximately $10 million in costs
relating to the Kaanapali Acquisition, and finance approximately $17 million
($15 million purchase cost and $2 million conversion cost) in costs relating to
the Savoy Acquisition. 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 "Proposed Credit Facility"). The
Proposed 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 pursuant thereto. 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
Proposed 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 Proposed Credit Facility on
the terms set forth in the commitment letter.
In February 1997, the Company consummated its public offering of $138.0
million aggregate principal amount of its 5.75% Convertible Subordinated Notes
due 2007 (the "Convertible Notes") and its offering (together with the
Convertible Notes the "Concurrent Offerings") of 4.0 million shares of its
Common Stock (including 1.6 million primary shares sold by the Company and 2.4
million secondary shares sold by certain selling stockholders). The proceeds to
the Company from the sale of the 1.6 million primary shares of Common Stock
offered by the Company and from the sale of the $138.0 million aggregate
principal amount of 5.75% Convertible Subordinated Notes due 2007, 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. Each
$1,000 principal amount of Convertible Notes is exchangeable at a conversion
price of $45.625 per share, subject to adjustment under certain circumstances as
stated in the related indenture.
The Company requires funds to finance the future acquisition and development
of vacation ownership resorts and to finance customer purchases of vacation
intervals. In addition to the sources of financings cited above, such capital
has been provided by secured financings on vacation interval inventory and
secured finances on mortgages receivable. As of June 30, 1997 the Company had
approximately $134.0 million of additional borrowing capacity under certain
third party lending agreements. As of June 30, 1997, the Company had $14.5
million outstanding under its notes payable secured by vacation interval
inventory or land and $139.7 million outstanding under its notes payable to
financial institutions secured by mortgages receivable.
During the six months ended June 30, 1997 and 1996, cash used in operating
activities was $(21.0) million and $(20.4) million, respectively. Cash used in
operating activities was higher for the six months ended June 30, 1997 when
compared to the comparable period in 1996 primarily due to the payment of
AVCOM's current accounts payable and accrued liabilities and the payment of
approximately $8.0 million to finance the acquisition of the Westin Vacation
Club in St. John, U.S. Virgin Islands offset by decreases in the amount of
expenditures made for real estate and development costs during the six months
ended June 30, 1997.
Net cash used in investing activities for the six months ended June 30, 1997
and 1996 was $(56.0) million and $(33.3) million, respectively. For the six
months ended June 30, 1997, the financing of net mortgage receivables was $22.8
million higher than during the comparable period in 1996 due to an increase in
vacation intervals sold. As of June 30, 1997, approximately 3.9% of the
Company's consumer loans from the sale of vacation intervals were considered by
the company to be delinquent (past due by 60 or more days) and the Company has
completed or commenced foreclosure or deed-in-lieu of foreclosure on an
additional approximately 2.4% of its consumer loans. As of June 30, 1996,
approximately 4.1% of the Company's consumer loans were considered delinquent
and the Company had commenced deed-in-lieu of foreclosure of approximately an
additional 2.3% of its consumer loans. In addition, net cash used in investing
activities also reflects the payments of $3.8 million in underwriting discounts
and expenses associated with the Convertible Offering.
For the six months ended June 30, 1997 and 1996, net cash provided by
financing activities was $107.0 million and $ 50.3 million, respectively. The
increase in cash provided by financing activities during the six months ended
June 30, 1997 was due to the receipt of proceeds from the Concurrent Offerings,
a reduction in proceeds from notes payable to financial institutions of $63.3
million, and payments to financial institutions of $70.0 million mostly as a
result of payments to retire indebtedness as a result of the Concurrent
Offerings.
The Company is currently evaluating the acquisition and/or development of a
number of resort properties and of completed vacation Intervals as
8
<PAGE>
inventory, but currently has no binding contracts or capital commitments
relating to any such potential property or inventory acquisitions, other than
those discussed in this filing. In addition, the Company is currently evaluating
several vacation ownership asset and management and operating company
acquisitions to integrate into or to expand the operations of the Company, but
currently has no binding contracts or capital commitments relating to any such
potential vacation ownership asset or management and operating company
acquisitions.
In the future, the Company may issue additional 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 Note Offering and the
Proposed Credit Facility, together with cash generated from operations and
future borrowings, will be sufficient to meet the Company's working capital and
capital expenditure needs for the near future. However, depending upon
conditions in the capital and other financial markets, other factors and the
Company's aggressive growth and expansion plans, the Company may from time to
time consider the issuance of debt or other securities, the proceeds of which
would be used to finance acquisitions, to refinance debt, finance mortgage
receivables or for other purposes.
Merger with AVCOM International, Inc.
On February 7, 1997, the Company consummated the AVCOM Merger. AVCOM is the
parent company of All Seasons Resorts, a developer, marketer and operator of
vacation ownership resorts with ten resorts located in Arizona, California, and
Texas. Pursuant to the terms of the AVCOM Merger, AVCOM shareholders of record
on February 7, 1997 received one share of Signature Resorts Common Stock for
every 6.1538 shares of AVCOM Common Stock, resulting in a total of 883,036
shares of the Company's Common Stock being issued in consideration of the
merger. The Company has accounted for this merger under the pooling-of-interest
method of accounting for business combinations.
As a result of the AVCOM Merger, the Company recorded a one-time charge to
earnings of $1.7 million during the first quarter of 1997, for charges that
include fees and expenses payable to financial advisors, legal fees, and other
transaction related expenses related to the AVCOM Merger. However, 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 Plantation Resorts Group, Inc.
On May 15, 1997, the Company consummated the PRG Merger. PRG is a developer,
marketer and operator of two vacation ownership resorts in Williamsburg,
Virginia. The merger was consummated through the issuance of 2,401,229 shares of
the Company's Common Stock. The Company has accounted for this merger under the
pooling-of-interest 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 quarter ended June 30, 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.
9
<PAGE>
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May 15, 1997,
the Company submitted to a vote and its stockholders approved the following
items:
(a) Election of Class I Directors of the Company to serve until the
Company's 2000 Annual Meeting of Stockholders:
<TABLE>
<CAPTION>
Name Votes For Withheld Authority
- ---- --------- ------------------
<S> <C> <C>
Steven C. Kenninger 17,506,790 206,950
James E. Noyes 17,506,790 206,950
Juergen Bartels 17,506,776 206,964
</TABLE>
(b) Adoption of the Company's 1996 Equity Participation Plan, as
amended, by a vote of 16,219,494 "for", 1,466,180 "against" and 20,414
"abstain".
(c) Ratification of the appointment of Arthur Andersen LLP as the
Company's independent public accountants for the year ending December
31, 1997 by a vote of 17,712,940 "for", 500 "against" and 300
"abstain".
Item 6 - Exhibits and Reports on Form 8K
(a) Current report on form 8K, dated May 15, 1997 filed with the
Commission on May 27, 1997 reporting the consummation of the PRG
Merger.
(b) Exhibits
27.1 Financial Data Schedule
10
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on it's behalf by the
undersigned thereunto duly authorized
Dated: August 14, 1997 By: /s/ Steven C. Kenninger
------------------- ------------------------------------------
Steven C. Kenninger
Director, Chief Operating Officer and
Secretary
Dated: August 14, 1997 By: /s/ Michael A. Depatie
------------------- ------------------------------------------
Michael A. Depatie
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<CASH> 44,361,000 14,387,000
<SECURITIES> 0 0
<RECEIVABLES> 278,043,000 231,441,000
<ALLOWANCES> 18,999,000 16,989,000
<INVENTORY> 134,215,000 137,401,000
<CURRENT-ASSETS> 0 0
<PP&E> 13,830,000 11,504,000
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 521,249,000 425,196,000
<CURRENT-LIABILITIES> 45,009,000 62,191,000
<BONDS> 138,000,000 0
0 0
0 0
<COMMON> 223,000 207,000
<OTHER-SE> 178,192,000 119,931,000
<TOTAL-LIABILITY-AND-EQUITY> 521,249,000 425,196,000
<SALES> 113,019,000 156,045,000
<TOTAL-REVENUES> 135,621,000 191,294,000
<CGS> 30,263,000 41,973,000
<TOTAL-COSTS> 121,058,000 183,707,000
<OTHER-EXPENSES> 79,452,000 119,883,000
<LOSS-PROVISION> 3,648,000 8,009,000
<INTEREST-EXPENSE> 10,779,000 17,904,000
<INCOME-PRETAX> 11,479,000 3,525,000
<INCOME-TAX> 4,592,000 (5,244,000)
<INCOME-CONTINUING> 6,887,000 8,769,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 518,000 0
<CHANGES> 0 0
<NET-INCOME> 6,369,000 8,769,000
<EPS-PRIMARY> 0.28 0.52
<EPS-DILUTED> 0.28 0.52
</TABLE>
