<PAGE> 1
================================================================================
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 SEPTEMBER 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)
<TABLE>
<S> <C>
MARYLAND 95-4582157
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
</TABLE>
1875 SOUTH GRANT STREET, SUITE 650
SAN MATEO, CALIFORNIA 94402
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
650-312-7171
(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.
Yes [X] No [ ]
Number of shares of common stock outstanding of the issuer's Common Stock,
par value $0.01 per share as of November 13, 1997, 35,876,486.
================================================================================
<PAGE> 2
SIGNATURE RESORTS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated statements of income for the three and nine months ended
September 30, 1997 and September 30, 1996................................... 2
Consolidated balance sheets as of September 30, 1997 and December 31,
1996........................................................................ 3
Consolidated statements of cash flows for nine months ended September 30,
1997 and September 30, 1996................................................. 4
Notes to the consolidated financial statements.............................. 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................... 9
PART II. OTHER INFORMATION
Item 5. Other Information........................................................... 16
Item 6. Exhibits and reports on Form 8-K............................................ 17
Signatures.................................................................. 19
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIGNATURE RESORTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Vacation interval and point sales....... $79,915,000 $47,083,000 $210,261,000 $125,565,000
Interest income......................... 11,488,000 6,435,000 29,529,000 18,543,000
Other income............................ 2,831,000 2,279,000 9,495,000 8,794,000
----------- ----------- ------------ ------------
Total revenue................... 94,234,000 55,797,000 249,285,000 152,902,000
----------- ----------- ------------ ------------
Costs and operating expenses:
Vacation interval and point cost of
sales................................ 19,579,000 11,988,000 54,317,000 33,220,000
Advertising, sales and marketing........ 35,718,000 22,730,000 94,757,000 59,115,000
Loan portfolio:
Interest expense -- treasury......... 2,939,000 3,736,000 10,877,000 10,100,000
Other expenses....................... 1,145,000 1,025,000 4,457,000 2,803,000
Provision for doubtful accounts...... 2,278,000 1,316,000 6,013,000 3,653,000
General and administrative.............. 10,231,000 7,627,000 30,793,000 19,369,000
Depreciation and amortization........... 1,604,000 1,329,000 4,269,000 3,234,000
Resort property valuation allowance..... -- 839,000 -- 839,000
Merger and acquisition costs............ 4,077,000 -- 9,973,000 --
----------- ----------- ------------ ------------
Total costs and operating
expenses...................... 77,571,000 50,590,000 215,456,000 132,333,000
----------- ----------- ------------ ------------
Income from operations.................. 16,663,000 5,207,000 33,829,000 20,569,000
Interest expense -- other............... 4,304,000 1,070,000 7,160,000 3,422,000
Minority interest in profits of limited
partnership.......................... -- 111,000 123,000 111,000
Equity loss on investment in joint
venture.............................. 6,000 32,000 126,000 95,000
----------- ----------- ------------ ------------
Income before provision for income taxes
and extraordinary item............... 12,353,000 3,994,000 26,420,000 16,941,000
Provision (benefit) for income taxes.... 4,941,000 (115,000) 10,387,000 994,000
----------- ----------- ------------ ------------
Income before extraordinary item........ 7,412,000 4,109,000 16,033,000 15,947,000
Extraordinary item, net of income
taxes................................ 248,000 -- 766,000 --
----------- ----------- ------------ ------------
Net income.............................. $ 7,164,000 $ 4,109,000 $ 15,267,000 $ 15,947,000
=========== =========== ============ ============
Weighted average number of common and
common equivalent shares
outstanding.......................... 36,479,900 28,250,718 36,070,145 25,405,437
Earning per common and common equivalent
share:
Income before extraordinary item..... $0.21 $0.15 $0.44 $0.63
Extraordinary item, net of income
taxes.............................. (.01) -- (0.02) --
----- ----- ----- -----
Net income........................... $0.20 $0.15 $0.42 $0.63
===== ===== ===== =====
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE> 4
SIGNATURE RESORTS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................ $126,369,000 $ 20,757,000
Cash in escrow........................................... 7,731,000 1,712,000
Mortgages receivable, net of an allowance of $20,331,000
and $17,328,000 at September 30, 1997 and December 31,
1996, respectively..................................... 294,842,000 215,518,000
Due from related parties................................. 22,706,000 11,897,000
Other receivables, net................................... 13,057,000 11,847,000
Prepaid expenses and other assets........................ 17,887,000 14,738,000
Investment in joint venture.............................. 7,271,000 7,397,000
Real estate and development costs........................ 174,991,000 142,870,000
Property and equipment, net.............................. 30,062,000 14,612,000
Intangible assets, net................................... 16,112,000 4,536,000
----------- -----------
Total assets................................... $711,028,000 $ 445,884,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable......................................... $ 13,029,000 $ 24,418,000
Accrued liabilities...................................... 48,227,000 49,198,000
Due to related parties................................... 883,000 1,656,000
Income taxes payable..................................... 4,355,000 3,268,000
Deferred taxes........................................... 3,107,000 3,259,000
Notes payable to financial institutions.................. 107,864,000 236,122,000
Senior subordinated notes payable........................ 200,000,000 --
Convertible subordinated notes payable................... 138,000,000 --
----------- -----------
Total liabilities.............................. 515,465,000 317,921,000
Minority interest in consolidated limited partnership.... 135,000 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 35,620,769 and 33,011,106 outstanding as
of September 30, 1997 and December 31, 1996,
respectively)....................................... 356,000 330,000
Additional paid-in capital............................. 156,855,000 101,978,000
Retained earnings...................................... 38,073,000 23,544,000
Cumulative foreign currency translation adjustment..... 144,000 573,000
----------- -----------
Total stockholders' equity..................... 195,428,000 126,425,000
----------- -----------
Total liabilities and stockholders' equity..... $711,028,000 $ 445,884,000
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 5
SIGNATURE RESORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................. $ 15,267,000 $ 15,947,000
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization..................................... 4,269,000 3,234,000
Provision for doubtful accounts................................... 6,013,000 3,653,000
Minority interest in profits of limited partnership............... 123,000 111,000
Equity loss on equity investment in joint venture................. 126,000 95,000
Resort property valuation allowance............................... -- 839,000
Changes in operating assets and liabilities:
Cash in escrow.................................................... (6,019,000) 443,000
Due from related parties.......................................... (10,809,000) (766,000)
Prepaid expenses and other assets................................. (3,149,000) (2,928,000)
Real estate and development costs................................. (32,121,000) (47,035,000)
Other receivables................................................. (3,232,000) (3,331,000)
Accounts payable.................................................. (11,389,000) 10,215,000
Accrued liabilities............................................... (971,000) 6,581,000
Income taxes payable.............................................. 1,087,000 (41,000)
Deferred taxes payable............................................ (152,000) (873,000)
Due to related parties............................................ (773,000) 80,000
------------- -------------
Net cash used in operating activities.................................. (41,730,000) (13,776,000)
------------- -------------
INVESTING ACTIVITIES:
Investment in joint venture....................................... -- (8,000)
Property and equipment............................................ (17,108,000) (5,309,000)
Intangible assets................................................. (14,187,000) (2,721,000)
Mortgages receivable.............................................. (83,315,000) (46,063,000)
------------- -------------
Net cash used in investing activities.................................. (114,610,000) (54,101,000)
------------- -------------
FINANCING ACTIVITIES:
Proceeds from notes payable to financial institutions............. 24,294,000 133,280,000
Payments on notes payable to financial institutions............... (152,552,000) (106,380,000)
Proceeds from notes payable to related parties.................... -- 5,606,000
Payments on notes payable to related parties...................... -- (15,074,000)
Proceeds from senior subordinated notes........................... 200,000,000 --
Proceeds from convertible subordinated notes...................... 138,000,000 --
Redemption of redeemable preferred stock.......................... -- (1,073,000)
Net proceeds from public equity offering.......................... 52,926,000 74,658,000
Proceeds from exercise of common stock options.................... 1,932,000 --
Acquisition of minority limited partners' interests............... -- (6,751,000)
(Distributions to) contributions from minority limited partners... (1,526,000) 1,501,000
Proceeds from employee stock purchase plan........................ 45,000 --
Equity distributions.............................................. (738,000) (14,218,000)
------------- -------------
Net cash provided by financing activities.............................. 262,381,000 71,549,000
------------- -------------
Net increase in cash and cash equivalents......................... 106,041,000 3,672,000
Effect of exchange rates on cash and cash equivalents............. (429,000) (39,000)
Cash and cash equivalents, beginning of period.................... 20,757,000 20,030,000
------------- -------------
Cash and cash equivalents, end of period............................... $ 126,369,000 $ 23,663,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period................................... $ 13,476,000 $ 17,366,000
Taxes paid (received) during the period........................... $ 9,452,000 $ 1,883,000
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 6
SIGNATURE RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BACKGROUND
The consolidated financial statements have been presented using
pooling-of-interests accounting to give effect to the AVCOM, PRG and LSI Mergers
as of the earliest period presented (See note 5). These statements should be
read in conjunction with the Company's audited supplemental consolidated
financial statements and notes thereto contained in Signature Resorts, Inc.'s
(the "Company's") Current Report on Form 8-K/A (file no. 000-21193) filed on
October 10, 1997, which gives effect to pooling of interests accounting
treatment for the AVCOM, PRG and LSI Mergers. The accounting policies used in
preparing the unaudited consolidated financial statements contained herein are
the same as those described in the aforementioned current report.
The unaudited consolidated financial statements contained herein 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 nine months ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997.
NOTE 2 -- COMMON STOCK SPLIT
On October 27, 1997, the Company completed a 3 for 2 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 3 for 2 stock
split.
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 September 30,
1997 and 1996, basic EPS would have been $0.20 and $0.15, respectively, and
diluted EPS would have been $0.20 and $0.14, respectively. For the nine months
ended September 30, 1997 and 1996, basic EPS would have been $0.43 and $0.63
respectively, and diluted EPS would have been $0.42 and $0.63, 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 3/4% Convertible Subordinated Notes
due 2007 (the "Convertible Notes") and its offering
5
<PAGE> 7
SIGNATURE RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(together with the Convertible Notes the "Concurrent Offerings") of 2.4 million
newly-issued shares of its Common Stock (together with its secondary offering of
3.6 million 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 $30.417 per share, subject to adjustment under certain
circumstances as stated in the related indenture. The proceeds to the Company
from the sale of the 2.4 million newly-issued shares of Common Stock offered by
the Company and from the sale of the $138.0 million aggregate principal amount
of 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.
In August 1997, the Company consummated its private placement offering (the
"Senior Subordinated Notes Offering"), of $200.0 million aggregate principal
amount of its 9 3/4% 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 7/8% per annum. After deducting underwriters discount and
expenses, the net proceeds to the Company were $191.0 million.
NOTE 5 -- MERGERS AND ACQUISITIONS
On February 7, 1997, the Company consummated its acquisition by merger (the
"AVCOM Merger") of AVCOM International, Inc. ("AVCOM"). AVCOM is the parent
company of All Seasons Resorts, Inc., 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 1,324,554 shares of the Company's
Common Stock. The Company also assumed $68.3 million in long-term debt. The
Company has accounted for the AVCOM Merger under the pooling-of-interests method
of accounting for business combinations.
On May 15, 1997, the Company consummated its acquisition by merger (the
"PRG Merger") of 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 3,601,844 shares of the
Company's Common Stock and assumption of $58.4 million in long-term debt. 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 development land near the two resorts. The
Company has accounted for the PRG Merger under the pooling-of-interests method
of accounting for business combinations.
On August 28, 1997, the Company consummated its acquisition by merger (the
"LSI Merger") of LSI Group Holdings, Plc ("LSI") a United Kingdom based
developer, owner and operator of a points based vacation club with 11 vacation
ownership resorts located in England, Spain and Austria. The LSI Merger was
consummated through the issuance of 1,996,401 shares of the Company's Common
Stock and cash consideration of approximately $1.0 million and the assumption of
$0.5 million in long-term debt. The Company has accounted for the LSI Merger
under the pooling-of-interests method of accounting for business combinations.
As a result of the AVCOM, PRG and LSI Mergers, the Company recorded
one-time charges to earnings of $4.1 million and $10.0 million, respectively,
for the three and nine months ended September 30, 1997. These charges included
fees and expenses payable to financial advisors, legal fees, accounting fees and
other transaction expenses related to the mergers.
6
<PAGE> 8
SIGNATURE RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Total revenues and net income contributed by the Company before giving
effect to the AVCOM, PRG and LSI Mergers, as well as by each of AVCOM, PRG and
LSI on a stand alone basis for the three and nine months ended September 30,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Total revenue:
Company................. $47,266,000 $24,801,000 $119,218,000 $ 63,732,000
AVCOM................... 22,858,000 13,287,000 64,520,000 32,986,000
PRG..................... 12,251,000 10,340,000 34,258,000 37,285,000
LSI..................... 11,859,000 7,369,000 31,289,000 18,899,000
----------- ----------- ------------ ------------
Total revenue... $94,234,000 $55,797,000 $249,285,000 $152,902,000
=========== =========== ============ ============
Net income (loss):
Company................. $ 2,882,000 $ 3,697,000 $ 8,463,000 $ 10,061,000
AVCOM................... 3,304,000 (1,472,000) 5,532 ,000 (1,433,000)
PRG..................... 2,062,000 1,149,000 622,000 5,424,000
LSI..................... (1,084,000) 735,000 650,000 1,895,000
----------- ----------- ------------ ------------
Total net
income........ $ 7,164,000 $ 4,109,000 $ 15,267,000 $ 15,947,000
=========== =========== ============ ============
</TABLE>
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 July 28, 1997, the Company announced that a partnership of which it is a
managing general partner had entered into a definitive agreement to acquire the
Embassy Suites Resort at Kaanapali Beach, Maui, Hawaii for approximately $78.0
million. 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.
NOTE 6 -- SUBSEQUENT EVENTS
On November 7, 1997, the Company consummated its acquisition (the "VI
Acquisition") of Vacation Internationale, Ltd. ("VI"), a Bellevue, Washington
based developer and operator of a points based vacation club with 21 vacation
ownership resort locations in the United States, Mexico and Canada. The Company
acquired 100% of the capital stock of VI for a purchase price of $8 million in
cash and promissory notes and the assumption of $16.3 million in long-term debt.
The VI Acquisition will be accounted for under the purchase method of accounting
for business combinations.
7
<PAGE> 9
SIGNATURE RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
On October 10, 1997, the Company consummated its acquisition (the "Marc
Acquisition") of Marc Hotels & Resorts, Inc. ("Marc Resorts"), a Hawaii based
management company which manages 22 resort locations in Hawaii. The Marc
Acquisition was consummated through the issuance of 212,717 shares of the
Company's Common Stock. The Marc Acquisition will be accounted for under the
purchase method of accounting for business combinations.
On October 29, 1997, the Company announced the execution of a definitive
agreement to acquire the European vacation ownership business of Global
Development, Ltd. and certain of its affiliated companies (the "Global Group")
for cash consideration of approximately $18 million. 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 will be
accounted for under the purchase method of accounting for business combinations.
The Company will assume no long-term debt as part of this transaction. The
Company's agreement to acquire the Global Group's European vacation ownership
business is subject to the satisfaction of customary closing conditions and is
anticipated to close by January 1998.
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 1997 to the three months
ended September 30, 1996. During the three months ended September 30, 1997, the
Company achieved total revenue of $94.2 million compared to $55.8 million during
the three months ended September 30, 1996, an increase of $38.4 million, or 69%.
This increase was primarily due to a 71% increase in interval sales to 5,134
intervals sold during the three months ended September 30, 1997 from 3,006
intervals sold during the comparable period of 1996 and a 79% increase in
interest income. Point sales at the Company's European resorts during the third
quarter of 1997 increased 35% to 50,160 points sold during the third quarter of
1997 from 37,200 points sold during the comparable period of 1996. The increase
in intervals and points sold was the result of strong sales trends at the
Company's resorts as well as the Company recording sales for the first time at
the Embassy Vacation Resort at Lake Tahoe, Scottsdale Villa Mirage Resort and
The Ridge at Sedona Golf Resort, all either acquired or developed by the Company
subsequent to the third quarter of 1996. The average sales price of intervals
sold at the Company's resorts increased 1% to $13,576 for the three months ended
September 30, 1997 from $13,443 for the comparable period of 1996. The average
sales price of intervals sold 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 18% to $204 during the third quarter of 1997 from $173 during
the third quarter of 1996.
Interest income for the third quarter of 1997 increased $5.1 million, or
79%, from the comparable period of 1996 as a result of increases in mortgages
receivable and interest income from investments which increased by $1.9 million
during the third quarter of 1997 as a result of interest income received from
the invested proceeds from the Senior Subordinated Notes Offering. Gross
mortgages receivable increased to $315.2 million at September 30, 1997 from
$204.8 million at September 30, 1996, an increase of $110.4 million, or 54%.
Other income increased by $0.5 million, or 22%, to $2.8 million for the
three months ended September 30, 1997 from $2.3 million for the comparable
period of 1996 due to increases in rental and management income.
Total costs and operating expenses for the three months ended September 30,
1997 increased by $27.0 million, or 53%, to $77.6 million from $50.6 million for
the comparable period of 1996. Excluding non-recurring charges related to merger
and acquisition costs and resort property valuation allowance, total costs and
operating expenses increased 48% over the comparable period of 1996. Excluding
these non-recurring charges, total costs and operating expenses decreased to 78%
of total revenue in the third quarter of 1997 from 89% of total revenue in the
third quarter of 1996.
Advertising, sales and marketing expenses increased 57% to $35.7 million
for the three months ended September 30, 1997 from $22.7 million for the three
months ended September 30, 1996. As a percentage of vacation interval and point
sales, advertising, sales and marketing expenses improved to 45% for the three
months ended September 30, 1997 from 48% for the comparable period of 1996.
Reductions in advertising, sales and marketing expenses resulted from
elimination of duplicative 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.
Interest expense-treasury decreased to $2.9 million during the three months
ended September 30, 1997 from $3.7 million during the three months ended
September 30, 1996, as a result of the Company's use of the proceeds from the
Concurrent Offerings and the Senior Subordinated Notes Offering to finance
mortgages receivable.
Other loan portfolio expenses increased $0.1 million during the three
months ended September 30, 1997 to $1.1 million from $1.0 million during the
comparable period of 1996. As a percentage of gross mortgages receivable, other
loan portfolio expenses decreased to 0.4% during the third quarter of 1997 from
0.5% during the comparable period of 1996.
The provision for doubtful accounts increased $1.0 million during the three
months ended September 30, 1997 to $2.3 million from $1.3 million during the
comparable period of 1996. The allowance for doubtful
9
<PAGE> 11
accounts as a percentage of gross mortgages receivable decreased to 6.5% at
September 30, 1997 from 6.8% at September 30, 1996. The mortgages receivable
delinquency rate (past due by 60 or more days) was 3.6% at September 30, 1997.
At September 30, 1997, the Company had an additional 1.8% of its consumer loans
in default. Typically such loans are 120 days past due and the Company has
commenced foreclosure, deed-in-lieu or bankruptcy procedures to recover the
underlying asset.
General and administrative expenses increased to $10.2 million for the
three months ended September 30, 1997 from $7.6 million for the three months
ended September 30, 1996, an increase of 34%. However, as a percentage of total
revenue, general and administrative expenses decreased to 11% for the three
months ended September 30, 1997 from 14% for the three months ended September
30, 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 $0.3 million, or 23%, to $1.6
million during the three months ended September 30, 1997 from $1.3 million
during the three months ended September 30, 1996, reflecting increased
depreciation and amortization from capital expenditures.
Interest expense-other, reported net of $1.5 million and $1.6 million in
capitalized interest for the three months ended September 30, 1997 and 1996,
respectively, increased $3.2 million, or 291%, to $4.3 million for the three
months ended September 30, 1997 from $1.1 million for the comparable period of
1996. The increase was due primarily to 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 of $4.1 million and $0.8 million for the
three months ended September 30, 1997 and 1996, respectively, increased to $16.4
million for the three months ended September 30, 1996, an increase of 242% from
$4.8 million in the comparable period of 1996,.
An extraordinary item of $0.2 million, net of income taxes, was charged to
net income for the three months ended September 30, 1997 as a result of the
early retirement of notes payable to financial institutions.
Provision (benefit) for income taxes changed from a benefit of $0.1 million
for the three months ended September 30, 1996 to an expense of $4.9 million for
the three months ended September 30, 1997. The increase in income taxes is a
result of the change in the Company's status to a C corporation subsequent to
its initial public offering in August of 1996. 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. The 1996 tax benefit results from
the recognition of AVCOM's operating loss carryforwards.
Net income, before extraordinary item and non-recurring charges (net of
taxes) was $9.9 million for the three months ended September 30, 1997, an
increase of $5.3 million, or 115%, from $4.6 million for the three months ended
September 30, 1996. Assuming the Company was taxed as a C corporation for the
three months ended September 30, 1996 at a 40% tax rate, net income before
extraordinary item and non-recurring charges (net of taxes) would have been $2.9
million for the three months ended September 30, 1996 compared to $9.9 million
for the three months ended September 30, 1997, an increase of 241%. Reported net
income was $7.2 million for the three months ended September 30, 1997, an
increase of $3.1 million, or 76%, from $4.1 million for the comparable period of
1996.
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
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<PAGE> 12
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, sale 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.
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
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<PAGE> 13
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.
LIQUIDITY AND CAPITAL RESOURCES
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.
In August 1997, the Company consummated its private placement offering of
$200.0 million of Senior Subordinated Notes at a price of 99.234% of the
principal amount for an effective yield of 9 7/8%. After deducting underwriters'
discounts and expense, 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.
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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 the nine months ended September 30, 1997 and 1996, cash used in
operating activities was $41.7 million and $13.8 million, respectively. Cash
used in operating activities increased during the nine months ended September
30, 1997 primarily due to the payment of AVCOM's accounts payable and accrued
liabilities and the financing of the Company's acquisition and development of
the Westin Vacation Club at St. John, U.S. Virgin Islands.
Net cash used in investing activities for the nine months ended September
30, 1997 and 1996 was $114.6 million and $54.1 million, respectively. For the
nine months ended September 30, 1997, the change in net mortgage receivables was
$37.2 million higher than during the comparable period in 1996 due to an
increase in vacation intervals sold. In addition, net cash used in investing
activities also reflects the payments of $6.0 million in underwriting discounts
and expenses associated with the Company's Concurrent Offerings and Senior
Subordinated Notes Offering.
For the nine months ended September 30, 1997 and 1996, net cash provided by
financing activities was $262.4 million and $71.5 million, respectively. The
increase in cash provided by financing activities during the nine months ended
September 30, 1997 was due to proceeds from the Concurrent Offerings consummated
in February 1997 and the August 1997 Senior Subordinated Notes Offering, a
reduction in proceeds from notes payable to financial institutions of $109.0
million, offset by increases in payments to financial institutions of $46.2
million. The Company is currently evaluating the acquisition and/or development
of a number of resort properties and of completed vacation intervals as
inventory. In addition, the Company is currently evaluating several vacation
ownership asset, management and operating company acquisitions to integrate into
or to expand the operations of the Company.
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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.
MERGER WITH AVCOM INTERNATIONAL, INC.
On February 7, 1997, the Company consummated the AVCOM Merger, acquiring
100% of the capital stock of AVCOM in exchange for the issuance of 1,324,554
shares of the Company's Common Stock, representing on a pro forma basis
approximately 4.4% 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 of
approximately $32.2 million. The Company also assumed approximately $68.3
million in long-term debt in the AVCOM Merger. The Company has accounted for the
AVCOM Merger under the pooling-of-interests method of accounting for business
combinations.
Transaction costs relating to the negotiation, preparation 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, accounting fees and other transaction related
expenses. 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, acquiring 100% of
the capital stock of PRG in exchange for the issuance of 3,601,844 shares of the
Company's Common Stock, representing on a pro forma basis approximately 10.7% 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
PRG merger were valued at approximately $59.1 million. The Company also assumed
approximately $58.4 million in long-term 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 of 1997 for charges related to the PRG
Merger including fees and expenses payable to financial advisors, legal fees,
accounting fees 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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MERGER WITH LSI GROUP HOLDINGS PLC
On August 28, 1997, the Company consummated the LSI Merger, acquiring 100%
of LSI's capital stock in exchange for the issuance of 1,996,401 shares of the
Company's Common Stock, representing on a pro forma basis approximately 5.6% of
the Company's Common Stock outstanding following such acquisition. Based upon
the closing price of the Common Stock on August 28, 1997, the 1,996,401 shares
issued in the LSI Merger were valued at approximately $48.2 million. In addition
to the Common Stock issued in the LSI Merger, the Company also assumed $0.5
million in long-term debt and paid cash consideration of approximately $1.0
million to an 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, preparation, and
consummation of the LSI Merger and the combination of certain operations of the
Company and LSI resulted in a one-time charge to the Company's earnings of $4.1
million in the third quarter of 1997. This charge includes the fees and expenses
payable to financial advisors, legal fees, accounting fees and other transaction
related expenses. However, 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.
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PART II -- OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Acquisition of Vacation Internationale, Ltd. On November 7, 1997, the
Company consummated its acquisition of 100% of the capital stock of Vacation
Internationale, Ltd. ("VI") for approximately $8.0 million in cash and
promissory notes and the assumption of approximately $16.3 million of long-term
indebtedness. Founded in 1974, VI is a Bellevue, Washington based developer and
operator of vacation ownership resorts. Its Vacation Time Share Program includes
21 owned, managed or affiliated resorts in the Western United States, Hawaii,
Mexico and Canada. The acquired assets include VI's approximately $12.8 million
mortgages receivable portfolio. Vacation Internationale's club program allows
its approximately 31,000 member families to use their annual allotments of
points as a currency to reserve each year the specific resort, season, unit type
and length of stay at any of the club's 21 resorts. The VI acquisition will be
accounted for using the purchase method of accounting for business combinations.
Pending Acquisition of European Vacation Ownership Business of Global
Development Ltd. On October 29, 1997, the Company announced the execution of a
definitive agreement to acquire the European vacation ownership business of
Global Development Ltd. and certain of its affiliated companies (the "Global
Group") through an asset purchase for cash consideration of approximately $18
million. The Global Group has 13 resort locations in France (3), United Kingdom
(4), Austria (1), mainland Spain (1), and the Canary Islands (4). The Company
will assume no long-term debt as part of this transaction, but will assume
approximately $7.0 million in current liabilities and acquire assets valued at
approximately $15.8 million. The Company's agreement to acquire the Global
Group's European vacation ownership business is subject to the satisfaction of
customary closing conditions. The asset purchase will be accounted for using the
purchase method of accounting.
Three-for-Two Common Stock Split. 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 (the "Record Date")
received one additional share of Common Stock for every two shares owned on the
Record Date. Fractional shares were paid in cash.
Acquisition of Marc Hotels & Resorts. On October 10, 1997, the Company
consummated its acquisition (the "Marc Acquisition") of Hawaii-based Marc Hotels
& Resorts, Inc. ("Marc Resorts"), acquiring 100% of the capital stock of Marc
Resorts in exchange for the issuance of 212,717 shares of the Company's Common
Stock. Marc Resorts manages 22 resort locations on Hawaii's five major islands.
The Marc Acquisition will be accounted for using the purchase method of
accounting for business combinations.
Creation of Sunterra Resorts Brand. On September 24, 1997, the Company
announced the creation of "Sunterra Resorts," the Company's new flagship brand
of vacation ownership resorts. Initially, 19 formerly non-branded properties
will assume the Sunterra Resorts name and will become the Company's third
vacation ownership brand in North America, joining the Embassy Vacation Resorts
and Westin Vacation Club brands. The introduction of the Sunterra Resorts brand
marks the first step in the evolution of the Company's planned "Club Sunterra"
points-based vacation club. The Company plans to continue its introduction of
the Sunterra brand to its owner families and the traveling public during 1997
and by year-end 1998 intends to create Club Sunterra, a complete points-based
vacation club with multiple worldwide products, internal exchange and flexible
lengths of stay.
Agreement with Westin Hotels & Resorts. The Company's exclusive Agreement
(the "Westin Agreement") with Westin Hotels & Resorts ("Westin") 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
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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 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; 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.
Pending Acquisition of Embassy Suites at Kaanapali Beach, Maui. On July 28,
1997, the Company announced that a partnership of which it is a managing general
partner had entered into a definitive agreement to acquire Embassy Suites Resort
at Kaanapali Beach, Maui, Hawaii (the "Kaanapali Acquisition") for approximately
$78 million. 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(a) 1.1 Purchase Agreement dated as of August 5, 1997 by and among
Signature Resorts, Inc. and the several Initial Purchasers named
therein relating to the 9 3/4% Senior Subordinated Notes of
Signature Resorts, Inc. due 2007 (incorporated by reference to
Exhibit 1.1 to the Registrant's Registration Statement on Form
S-1/S-3 (File No. 333-30285)).
2.4 Amendment to the Agreement for Purchase and Sale of the Entire
Issued Share Capital of LSI Group Holdings plc dated as of
August 28, 1997 between Signature Resorts, Inc. and shareholders
of LSI Group Holdings plc (incorporated by reference to Exhibit
2.2 to Registrant's Current Report on Form 8-K filed with the
Commission on September 12, 1997).
4.2 Indenture dates as of August 1, 1997 by and between Signature
Resorts, Inc. and Norwest Bank Minnesota, National Association,
as trustee, for the 9 3/4% Senior Subordinated Notes due 2007 of
Signature Resorts, Inc. (incorporated by reference to Exhibit
4.2 to the Registrant's Registration Statement on Form S-1/S-3
(File No. 333-30285)).
10.10 Registration Rights Agreement dated as of August 28, 1997 by and
among Signature Resorts, Inc., Ian K. Ganney and Richard
Harrington (incorporated by reference to Exhibit 10.10 to the
Registrant's Registration Statement on Form S-1/S-3 (File No.
333-30285)).
10.11 Registration Rights Agreement dated as of August 8, 1997 by and
among Signature Resorts, Inc. and the persons named therein
relating to the 9 3/4% Senior Subordinated Notes due 2007 of
Signature Resorts, Inc. (incorporated by reference to Exhibit
10.11 to the Registrant's Registration Statement on Form S-1/S-3
(File No. 333-30285)).
10.12 Amended Consulting Agreement dated as of August 1, 1997 by and
between Signature Resorts, Inc., Resort Services, Inc. and Dr.
Kay F. Gow and Robert T. Gow (incorporated by reference to
Exhibit 10.12 to the Registrant's Registration Statement on Form
S-1/S-3 (File No. 333-30285)).
27.1 Financial Data Schedule
</TABLE>
(b) (1) Amended Current Report on Form 8-K/A, dated May 15, 1997,
filed with the Commission on July 29, 1997, reporting pro forma financial
information of the Company and historical financial
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information of Plantation Resorts Group, Inc., including consolidated
balance sheets of Plantation Resorts Group, Inc. as of December 31, 1996
and 1995 and March 31, 1997 and consolidated statements of income, equity
and cash flows for each of the three years ended December 31, 1996 and the
three months ended March 31, 1997 and 1996, including notes thereto.
(2) Current Report on Form 8-K, dated May 15, 1997, filed with the
Commission on September 9, 1997, reporting consolidated and restated
historical and pro forma financial information of the Company and
historical financial information of LSI Group Holdings Plc, including
consolidated balance sheets of the Company as of December 31, 1996 and
1995, consolidated statements of income, equity and cash flows of the
Company for each of the three years ended December 31, 1996, consolidated
profit and loss accounts, cash flow statements, statements of total
recognized gains and losses, note of historical cost profits and losses and
reconciliation of movements in shareholders funds of LSI Group Holdings Plc
for the three years ended December 31, 1996, consolidated balance sheets of
LSI Group Holdings Plc as of December 31, 1995 and 1996, in each case
including notes thereto.
(3) Current Report on Form 8-K, dated August 28, 1997, filed with the
Commission on September 12, 1997, reporting the consummation of the
Company's acquisition of LSI Group Holdings Plc.
(4) Current Report on Form 8-K, dated September 29, 1997, filed with
the Commission on October 3, 1997, reporting the Company's announced 3 for
2 stock split in the form of a common stock dividend payable on October 27,
1997.
(5) Amended Current Report on Form 8-K/A, dated May 15, 1997, filed
with the Commission on October 10, 1997, reporting consolidated and
restated historical and pro forma financial information of the Company and
historical financial information of LSI Group Holdings Plc, including
consolidated balance sheets of the Company as of December 31, 1996 and
1995, consolidated statements of income, equity and cash flows of the
Company for each of the three years ended December 31, 1996, supplemental
consolidated balance sheets of the Company as of June 30, 1997 and December
31, 1996 and 1995, supplemental consolidated statements of income, equity
and cash flows of the Company for each of the six month periods ended June
30, 1997 and 1996 and the three years ended December 31, 1996, consolidated
profit and loss accounts, cash flow statements, statements of total
recognized gains and losses, note of historical cost profits and losses and
reconciliation of movements in shareholders funds of LSI Group Holdings Plc
for the three years ended December 31, 1996, consolidated balance sheets of
LSI Group Holdings Plc as of December 31, 1995 and 1996, in each case
including notes thereto.
(6) Amended Current Report on Form 8-K/A, dated May 15, 1997, filed
with the Commission on October 22, 1997, containing the Company's revised
financial data schedule.
(7) Current Report on Form 8-K, dated October 23, 1997, filed with the
Commission on October 24, 1997, reporting the Company's third quarter 1997
earnings.
18
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 14, 1997 By: /s/ MICHAEL A. DEPATIE
------------------------------------
Michael A. Depatie
Director, Executive Vice President,
and Chief Financial Officer
(Principal Financial Officer)
Dated: November 14, 1997 By: /s/ DEWEY W. CHAMBERS
------------------------------------
Dewey W. Chambers
Vice President and Treasurer
19
<PAGE> 21
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1997 DEC-31-1996
<CASH> 134,100,000 22,469,000
<SECURITIES> 0 0
<RECEIVABLES> 315,173,000 232,846,000
<ALLOWANCES> 20,331,000 17,328,000
<INVENTORY> 174,991,000 142,870,000
<CURRENT-ASSETS> 0 0
<PP&E> 30,062,000 14,612,000
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 711,028,000 445,884,000
<CURRENT-LIABILITIES> 0 0
<BONDS> 445,864,000 236,122,000
0 0
0 0
<COMMON> 356,000 330,000
<OTHER-SE> 195,072,000 126,095,000
<TOTAL-LIABILITY-AND-EQUITY> 711,028,000 445,884,000
<SALES> 210,261,000 182,300,000
<TOTAL-REVENUES> 249,285,000 219,847,000
<CGS> 54,317,000 48,218,000
<TOTAL-COSTS> 149,074,000 137,258,000
<OTHER-EXPENSES> 49,741,000 50,104,000
<LOSS-PROVISION> 6,013,000 8,311,000
<INTEREST-EXPENSE> 18,037,000 17,245,000
<INCOME-PRETAX> 26,420,000 6,929,000
<INCOME-TAX> 10,387,000 (4,105,000)
<INCOME-CONTINUING> 16,033,000 11,034,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 766,000 0
<CHANGES> 0 0
<NET-INCOME> 15,267,000 11,034,000
<EPS-PRIMARY> 0.42 0.40
<EPS-DILUTED> 0.42 0.40
</TABLE>
