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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
November 4, 1998
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Date of report (Date of earliest event reported)
SUNTERRA CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
Maryland 000-21193 95-4582157
(State or other Jurisdiction Commission Title (IRS Employer
of Incorporation) Number) Identification Number)
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1875 SOUTH GRAND STREET, SUITE 650
SAN MATEO, CALIFORNIA 94402
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(Address of Principal Executive Offices)
(650) 312-7171
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
On November 4, 1998, Sunterra Corporation, a Maryland corporation (the
"Company"), issued a press release announcing its third quarter earnings. A
copy of the press release is attached as exhibit 99 hereto and is incorporated
herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) EXHIBITS
Exhibit 99 - Text of Press Release issued by the Company dated
November 4, 1998.
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Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SUNTERRA CORPORATION
By: /s/ THOMAS A. BELL
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Name: Thomas A. Bell
Title: Senior Vice President and
General Counsel
Dated: November 10, 1998
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EXHIBIT INDEX
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99 Text of Press Release issued by the Company dated November 4, 1998
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[SUNTERRA LOGO]
FOR IMMEDIATE RELEASE
Contact: Steve Miller At the Financial Relations Board:
Chief Executive Officer Lise Needham (general information)
(407) 532-1000 Elaine Asher (analyst contact)
(415) 986-1591
James Noyes
Chief Operating Officer
(407) 532-1000
SUNTERRA CORPORATION REPORTS RECORD THIRD QUARTER RESULTS
TOTAL REVENUES UP 35%; NET INCOME UP 44% AND EPS UP 41%
ORLANDO, FLORIDA, NOVEMBER 4, 1998 -- Sunterra Corporation, (NYSE: OWN)
today announced record financial performance for the three months ended
September 30, 1998.
Steve Miller, the Company's new CEO and President, commented, "Since
joining the company in October, I have become increasingly confident that
combining Sunterra's high quality, worldwide portfolio premier vacation
ownership resorts into Club Sunterra, its innovative points based vacation
ownership and reservation club, is the best approach to capitalize on the
immense opportunity available today."
Total revenues for the third quarter were $127.1 million, up 35% from
$94.2 million in the third quarter of 1997. Vacation ownership revenues
increased 29% to $103.3 million from $79.9 in the third quarter of 1997,
including a 172% increase in vacation points sales in the 1998 third quarter.
Interest income increased 23% in the third quarter of 1998 to $14.2
million, up from $11.5 million in the 1997 third quarter. Gain on sale of
mortgages receivable totaled $1.0 million, which included a cash gain of $0.6
million and a non-cash gain of $0.4 million. There were no sales of mortgages
receivable in the comparable period of 1997. Other income increased 204% to
$8.5 million, up from $2.8 million reported a year earlier, reflecting a
significant increase in the recurring resort management fee revenues paid by
Sunterra's growing member base.
Net income for the third quarter of 1998 increased 44% to $14.3 million,
up from recurring net income of $9.9 million in the third quarter last year.
On a diluted per share basis, net income increased 41% to 38 cents in the 1998
third quarter, up from recurring net income of 27 cents per share in the 1997
third quarter. EBITDA for the third quarter of 1998 increased 58% to $41.1
million from EBITDA of $26.1 million for the third quarter of 1997. EBITDA
margins increased to 32.4% in the third quarter of 1998, up from 27.6% for the
comparable period of 1997.
-MORE-
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Sunterra Corporation Reports Record Third Quarter Results
November 4, 1998
Page 2
Recurring net income for the third quarter of 1997 excludes $4.1 million
($2.5 million, net of taxes) for merger related expenses and $0.4 million ($0.2
million, net of taxes) for an extraordinary loss related to the early
retirement of indebtedness, a total of 7 cents per share.
Total costs and operating expenses improved to 72.5% of total revenue
during the third quarter, compared with 78.0% in the 1997 third quarter,
causing the operating margin to increase by 25%, from 22.0% of revenue to
27.5% of revenue. As a result, third quarter income from operations increased
69.1% to $35.0 million, up from $20.7 million in the 1997 third quarter. Cost
of sales as a percentage of vacation ownership revenue declined to 23.5% from
24.5% in the third quarter of 1997, principally due to continued strong sales
in Europe where acquisition costs have been favorable.
"For the ninth consecutive quarter since going public, we have delivered
record year over year performances in revenues, net income and earnings per
share,'' said Miller. "Our strong third quarter results reflect a substantial
increase in recurring management fee income from acquired resorts, continuing
improvement in operations at acquired companies and increased sales efficiency
at mature resorts."
"During the quarter, we introduced Club Sunterra to our existing ownership
base, converted mortgages receivable into cash thereby managing our debt levels
and strengthened our senior management team," Miller continued. "We are
confident Club Sunterra will generate recurring revenues and meaningful margin
improvement over time."
"During the quarter, we acquired a $69.1 million portfolio of mortgages
receivable from HTD in connection with our $77.5 million cash purchase of the
Ridge Tahoe project and sold without recourse $101.9 million of mortgages
receivable in three transactions, generating $82.2 million in cash and repaying
$17.5 million in debt," Miller added. "By turning these receivables into cash,
we have eliminated our default risk and reduced our debt balances. As a result
of the cash generated and debt retired in these sales, our net mortgages
receivable balance increased only $14.2 million and our total debt increased by
$1.5 million over the second quarter of 1998. The completion of these
transactions demonstrates a ready and willing market to purchase our receivables
at prices of book value or above. Having completed two of these transactions in
a volatile market environment, we view our portfolio as a reliable source of low
cost capital giving us financial flexibility to support continued growth,"
Miller concluded.
At September 30, 1998, gross mortgages receivable were $413.0 million, up
from $397.7 million at June 30, 1998. The Company's allowance for doubtful
accounts as a percentage of gross mortgages receivable was 6.3%, unchanged from
the quarter ended June 30, 1998.
Delinquent consumer loans at September 30, 1998 were 4.4% as a percentage
of gross mortgages receivable, down from 4.5% at September 30, 1997 and up from
4.2% at June 30, 1998. Consumer loans are considered delinquent if scheduled
payments are more than 60 days past due. In addition, the Company had commenced
deed-in-lieu of foreclosure or foreclosure proceedings on 2.5% of its consumer
loans as of September 30, 1998, as compared to 2.4% as of June 30, 1998.
- MORE -
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Sunterra Corporation Reports Record Third Quarter Results
November 4, 1998
Page 3
On an actual sales basis, vacation ownership sales increased 27% to $105.6
million in the third quarter of 1998, up from $82.9 million in the third quarter
of 1997. Actual sales for the period do not include percentage of completion
adjustments and other GAAP required adjustments.
At comparable resorts on a GAAP basis, total interval revenues increased
11%, the number of intervals sold increased 6% and the average price per
interval sold increased 4%. At comparable resorts on an actual basis, total
interval revenues increased 6%, the number of intervals sold increased 3% and
the average price per interval sold increased 3%.
Sunterra Corporation is the world's largest vacation ownership company,
with 87 resort locations around the world and more than 210,000 owner families.
This release contains forward-looking statements, which include Sunterra's
expansion plans, future prospects and other forecasts and statements of
expectations. Actual results might differ materially from those expressed in
any forward looking statements made by Sunterra due to, among other things,
factors related to the timing and terms of future acquisitions and the
introduction of Club Sunterra, mortgage receivables financing, integration of
acquired operating companies and resort properties and those factors identified
in Sunterra's filings with the Securities and Exchange Commission, including
those set forth in Items 1 and 2 of Sunterra's Annual Report on Form 10-K for
the year ended December 31, 1997.
- FINANCIAL TABLES FOLLOW -
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Sunterra Corporation Reports Record Third Quarter Results
November 4, 1998
Page 4
SUNTERRA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
($ IN THOUSANDS, UNAUDITED)
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<CAPTION>
SEPTEMBER 30
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1998 1997
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Revenues:
Vacation ownership sales $103,292 $79,915
Interest income 14,208 11,488
Gain on sale of receivables 1,032 --
Other income 8,520 2,831
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TOTAL REVENUES 127,052 94,234
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Costs and Operating Expenses:
Vacation ownership cost of sales 24,291 19,579
Advertising, sales and marketing 45,472 35,718
Loan portfolio:
Interest expense--treasury 1,743 2,939
Other expenses 727 1,145
Provision for doubtful accounts 3,252 2,278
General and administrative 13,182 10,231
Depreciation and amortization 3,409 1,604
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Total costs and operating expenses 92,076 73,494
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INCOME FROM OPERATIONS 34,976 20,740
Interest expense--other, net 11,416 4,304
Equity loss on investment in JV 38 6
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INCOME BEFORE PROVISION FOR TAXES 23,522 16,430
Provision for income taxes 9,173 6,572
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Net income before nonrecurring items 14,349 9,858
Merger costs, net of taxes -- 2,446
Extraordinary item, net of taxes -- 248
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NET INCOME $ 14,349 $ 7,164
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NET INCOME--DILUTED $ 15,559 $ 7,164
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Shares outstanding:
Basic 35,888 35,562
Diluted 40,793 36,480
Earnings per share--before extraordinary item:
Basic $ 0.40 $ 0.21
Diluted $ 0.38 $ 0.20
Earnings per share:
Basic $ 0.40 $ 0.20
Diluted $ 0.38 $ 0.20
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Sunterra Corporation Reports Record Third Quarter Results
November 4, 1998
Page 5
SUNTERRA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED
($ IN THOUSANDS, UNAUDITED)
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<CAPTION> SEPTEMBER 30
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1998 1997
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Revenues:
Vacation ownership sales $260,834 $210,261
Interest income 38,979 29,529
Gain on sale of receivables 1,032 --
Other income 22,207 9,495
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TOTAL REVENUES 323,052 249,285
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Costs and Operating Expenses:
Vacation ownership cost of sales 61,928 54,317
Advertising, sales and marketing 117,849 94,757
Loan portfolio:
Interest expense-treasury 5,919 10,877
Other expenses 2,930 4,457
Provision for doubtful accounts 9,412 6,013
General and administrative 37,247 30,793
Depreciation and amortization 8,219 4,269
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Total costs and operating expenses 243,504 205,483
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INCOME FROM OPERATIONS 79,548 43,802
Interest expense-other, net 28,014 7,160
Minority interest in profits of LP -- 123
Equity loss on investment in JV 7 126
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INCOME BEFORE PROVISION FOR TAXES 51,527 36,393
Provision for income taxes 20,095 14,376
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Net income before nonrecurring items 31,432 22,017
Merger costs, net of taxes -- 5,984
Extraordinary loss, net of taxes 129 766
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NET INCOME $ 31,303 $ 15,267
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NET INCOME - DILUTED $ 34,933 $ 15,267
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Shares outstanding:
Basic 35,888 35,081
Diluted 41,357 35,853
Earnings per share - before extraordinary item:
Basic $0.88 $0.46
Diluted $0.85 $0.45
Earnings per share:
Basic $0.87 $0.44
Diluted $0.84 $0.42
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Sunterra Corporation Reports Record Third Quarter Results
November 4, 1998
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SUNTERRA CORPORATION
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS, UNAUDITED)
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SEPTEMBER 30, DECEMBER 31,
1998 1997
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ASSETS:
Cash and cash equivalents $ 58,180 $ 38,487
Cash in escrow 27,440 9,485
Mortgages receivable, net 386,889 331,735
Due from related parties 22,929 25,576
Other receivables, net 32,741 17,669
Income tax receivable -- 4,719
Prepaid expense and other assets 22,832 13,047
Investment in joint ventures 21,942 15,657
Real estate and development costs 303,350 219,299
Property and equipment, net 68,939 35,024
Intangible assets, net 95,556 50,447
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TOTAL ASSETS $1,040,798 $761,145
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LIABILITIES AND EQUITY:
Accounts payable $ 18,814 $ 25,196
Accrued liabilities 75,566 68,047
Due to related parties -- 1,032
Income taxes payable 9,000 --
Deferred taxes 28,585 23,752
Notes payable 668,755 435,208
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TOTAL LIABILITIES 800,720 553,235
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Stockholders' equity 240,078 207,910
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TOTAL LIABILITIES AND EQUITY $1,040,798 $761,145
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Sunterra Corporation Reports Record Third Quarter Results
November 4, 1998
Page 7
SUNTERRA CORPORATION
EBITDA RECONCILIATION
THREE AND NINE MONTHS ENDED
($ IN THOUSANDS, UNAUDITED)
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THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
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1998 1997 1998 1997
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Net Income $14,349 $7,164 $31,303 $15,267
Interest expense - treasury 1,743 2,939 5,919 10,877
Interest expense - other 11,416 4,304 28,014 7,160
Capitalized interest expense
included in cost of sales 1,025 775 2,587 2,159
Income taxes 9,173 6,572 20,095 14,376
Non-recurring costs, net of tax -- 2,694 129 6,750
Depreciation and amortization 3,409 1,604 8,219 4,269
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EBITDA $41,115 $26,052 $96,266 $60,858
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