SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
AUGUST 4, 1999
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
SUNTERRA CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 000-21193 95-4582157
- ---------------------------- ----------------- ----------------------
(STATE OR OTHER JURISDICTION (COMMISSION TITLE (IRS EMPLOYER
OF INCORPORATION) NUMBER) IDENTIFICATION NUMBER)
1781 Park Center Drive
Orlando, Florida 32835
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(Address of Principal Executive Offices)
(407) 532-1000
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(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. OTHER EVENTS
On August 4, 1999, Sunterra Corporation, a Maryland corporation (the
"Company"), issued a press release announcing its second quarter results. 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 August 4, 1999.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SUNTERRA CORPORATION
By: /s/ THOMAS A. BELL
------------------
Name: Thomas A. Bell
Title: Senior Vice President,
General Counsel and Secretary
Dated: August 9, 1999
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ---------- -----------
99 Text of Press Release issued by the Company
dated August 4, 1999.
EXHIBIT 99
[LOGO}
FOR IMMEDIATE RELEASE
Contact: Richard Goodman
Chief Financial Officer
or
Robert C. Weiner
Director of Investor Relations
both at (407) 532-1000
SUNTERRA CORPORATION REPORTS RECORD
SECOND QUARTER AND FIRST HALF RESULTS
SECOND QUARTER REVENUES UP 27%, NET INCOME UP 39%, AND EPS UP 33%
ORLANDO, FLORIDA, AUGUST 4, 1999 - Sunterra Corporation (NYSE: OWN) today
announced record financial performance for the second quarter and six months
ended June 30, 1999.
Second quarter 1999 net income increased by 39% to a record $13.5 million
compared with net income of $9.7 million in the second quarter of 1998. Over the
same period, diluted earnings per share rose 33%, to $0.36 per share from $0.27
per share. A 27% increase in revenues drove the record profitability. Revenues
were $134.5 million in the second quarter of 1999, up from $106.3 million in the
second quarter of 1998. EBITDA for the second quarter of 1999 increased by 24%
to $38.8 million from $31.2 million in the second quarter of 1998.
"Tomorrow has arrived today," said L. Steven Miller, Sunterra's president
and CEO, "with these operating results confirming the success of Club Sunterra,
our highly flexible points-based club model which we introduced and began
rolling out in last year's fourth quarter. At 40% completion of our full rollout
of the Club, our customers have embraced this product, and we are on track to
complete the transition of virtually all our sales to point-based products by
year-end. We can now move into the synergistic phase of compounding our revenue
and profitability growth using our Club as a platform."
"Specifically, as the benefits of operating our company through the Club
compound over the balance of this year and into the new millennium, we will be
able to capitalize on marketing the Club, our industry leading technology
platforms and our internet reservation booking engine to the thousands of
industry resorts, operating companies and vacation property management companies
to affiliate with Club Sunterra," continued Miller. "This strategy will drive
the continued growth of our substantial stream of recurring management, rental
and fee revenues and should also result in synergies to reduce marketing costs
and increase profitability in our core
-MORE-
<PAGE>
Sunterra Corporation Reports Record 1999 Second Quarter and First Half Results
August 4, 1999
Page 2
business. Currently, management fee and rental revenue and other income is the
fastest growing segment of our business, generating $11.2 million in high margin
revenue during the second quarter."
"On the marketing front, we are also experiencing great success with our
trial Encore vacation product. Our Encore programs generated a total of 4,275
transactions of trial vacations, an increase of 69% compared to 2,534 total
transactions in the year-earlier period. Equally important, previous Encore
trials resulted in $5.5 million of Vacation Interests sales in the second
quarter, reflecting a 128% increase versus a year ago.
"And we are continuing to innovate. We are announcing today, the formation
of an exclusive partnership with Short Shopping, a division of Home Shopping
Network, to market and sell Club Sunterra trial memberships and resort vacations
to consumers. The innovative marketing partnership creates a new distribution
channel for both the rental of condominium-style resort accommodations and trial
programs in Club Sunterra. This is the first of a series of new affiliations
which we will be announcing going forward".
"Finally, I want to say that we are very excited to have recently added
three senior executives to our team: Clay Gring, as Chief Operating Officer, who
has a wealth of experience in our industry and was the primary driver of
substantial growth while he was with Fairfield Communities; Bob Childs, Senior
Vice President - Alliances, whom I know both from his excellent contributions
made while he was with RCI and also while he was with Fairfield; and, our new
treasurer, Bob Salterelli, who has an extensive background in treasury and
finance functions."
"Sunterra has built the best team in the industry, we have the best
product, and we have the most advanced operating platform to capitalize on our
exceptionally profitable history and continue our long-term growth," concluded
Miller.
SECOND QUARTER RESULTS
A 27% increase in Vacation Interests sales drove the 27% increase in total
revenues for the second quarter. Vacation Interest sales reached $108.9 million,
up from $86.1 million in the second quarter of 1998. About two-thirds of this
increase was related to higher sales at resorts that also reported sales in the
comparable year-earlier period and about one-third to resorts acquired or
developed during the prior twelve months.
In the second quarter of 1999, points-based sales accounted for 58% of
total Vacation Interests sales, up from 48% in the first quarter of 1999. Our
European, Sunterra Pacific and Japanese points-based clubs accounted for 30% of
total Vacation Interests sales in the second quarter, as they did in the first
quarter. However, points-based Club Sunterra sales substantially increased as a
percentage of total Vacation Interest sales, growing from 18% of total sales in
the first quarter of 1999 to 28% of total sales in the second quarter.
-MORE-
<PAGE>
Sunterra Corporation Reports Record 1999 Second Quarter and First Half Results
August 4, 1999
Page 3
During the second quarter of 1999, Sunterra vacation owner families
increased by 14,000 to 264,000 owner families. This is up 26% from 210,000 owner
families at June 30, 1998. There were 89 resorts in network at the end of the
second quarter of 1999, an increase of four resorts compared to 85 resorts at
the end of year-earlier period.
Resort Management, Rental Fees and Other Income totaled $11.2 million in
the second quarter, up 50% from the second quarter of 1998. The significant
increase reflected substantial increases in rental income, higher resort
management income due to a larger base of managed resorts, and an increase in
commissions from the UK financial institution that directly finances consumers'
purchases of vacation interests in Europe.
EBITDA for the second quarter of 1999 increased by 24% to $38.8 million
from $31.2 million in the second quarter of 1998.
Second quarter income in 1999 included a $1.3 million pretax gain ($0.02
per diluted share) on the sale of approximately $44 million in mortgages
receivable. Excluding this gain, second quarter net income increased by 31%
versus prior year and earnings per share were up 26% to $0.34 per diluted share.
These sales are part of Sunterra's previously announced program of monetizing
mortgages receivable each quarter through the use of off-balance sheet conduits,
securitizations and other vehicles. As a result, net mortgages receivable at the
end of the second quarter were $341.0 million, a decrease of $3.5 million versus
the first quarter and a decrease of $31.7 million from the June 30, 1998 balance
sheet figure.
"The sales of our mortgages receivable and the associated gains are right
in line with the financing strategy that we outlined at the beginning of this
year, and we expect this to continue," commented Richard Goodman, Sunterra's
Chief Financial Officer.
"We are continuing our active program to monetize our mortgages
receivables. As previously announced, at the beginning of May we completed the
securitization of $100 million principal amount of our Vacation Ownership
Receivables-Backed Notes. These were rated "AAA", "A" and "BBB" by Duff &
Phelps, had an average interest rate of 6.66% and were without recourse to
Sunterra. About 85% of these mortgage receivables were receivables that had been
sold into our off-balance sheet Conduit Facility over the prior five months -
and the securitization thus freed up capacity in that Conduit for the additional
sales we made into the Conduit in the second quarter. In the second quarter we
also used our Senior Bank line and another facility in order to convert our
mortgages receivable into cash."
-MORE-
<PAGE>
Sunterra Corporation Reports Record 1999 Second Quarter and First Half Results
August 4, 1999
Page 4
At June 30, 1999, consumer loans serviced by the Company in excess of 60
days past due totaled 6.9% as a percentage of gross mortgages receivable, up
slightly from 6.7% in the comparable period of 1998. Net of inventory
recoveries, these same percentages decrease to 4.7% and 4.5%, respectively. The
Company increased its allowance for doubtful accounts, as a percentage of gross
mortgages receivable, to 6.5% at June 30, 1999 up from 6.3% in the year-earlier
period.
FIRST HALF RESULTS
For the first half of 1999 net income increased by 38% to a record $23.5 million
compared with net income of $17.0 million in the first half of 1998. Over the
same period, earnings per diluted share increased 34% to $0.63 from $0.47.
Revenues increased by 27% to a record $248.8 million in the first half of 1999,
up from $196.0 million in the first half of 1998.
Financial results in the first half of 1999 included a $2.9 million pretax
gain on the sale of $70 million in mortgages receivable. Excluding this gain,
first half net income increased by 28% versus prior year and earnings per share
were up 26% to $0.59 per diluted share.
EBITDA for the first half of 1999 increased by 30% to $71.8 million from
$55.2 million in the first half of 1998.
Sunterra Corporation is the largest international owner and manager of
vacation ownership resorts, with 89 resort locations around the world and more
than 264,000 owner families. In addition, Sunterra manages 19 condominium and
other resorts in Hawaii. The Company's operations consist of (i) marketing and
selling vacation interests, (ii) developing, acquiring and operating vacation
ownership resorts, (iii) financing customers' purchases and (iv) providing
resort rental, management and maintenance services.
This release contains forward-looking statements, which include Sunterra's
expansion plans, future prospects, forecasts and other statements of
expectations. Although management believes these statements are based on
reasonable assumptions, actual results may differ materially from those
expressed in any of our forward looking statements due to, among other things,
factors related to the timing and terms of future acquisitions and the
introduction of Club Sunterra, mortgages receivable financing, integration of
acquired operating companies and resort properties and other factors identified
in Sunterra's filings with the Securities and Exchange Commission, including
those set forth in Parts I and II of Sunterra's Annual Report on Form 10-K for
the year ended December 31, 1998 and in Sunterra's current reports on Forms 10-Q
and Forms 8-K filed during 1999.
- FINANCIAL TABLES FOLLOW -
-MORE-
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SUNTERRA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
($ IN THOUSANDS, UNAUDITED)
JUNE 30,
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1999 1998
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REVENUES:
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Vacation Interests sales $ 108,867 $ 86,055
Interest income 13,055 12,696
Gain on sale of receivables 1,343 --
Resort management, rental fees and other income 11,237 7,500
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TOTAL REVENUES 134,502 106,251
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COSTS AND OPERATING EXPENSES:
- -----------------------------
Vacation Interests cost of sales 27,453 20,181
Advertising, sales and marketing 49,483 38,650
Loan portfolio:
Provision for doubtful accounts 2,688 3,860
Other expenses 1,189 1,087
General and administrative 16,841 11,874
Depreciation and amortization 3,216 2,558
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Total costs and operating expenses 100,870 78,210
========= =========
INCOME FROM OPERATIONS 33,632 28,041
Interest expense 12,210 11,763
Minority interest in profits of consolidated
limited partnerships (51) --
Equity (gain)/loss on investment in joint ventures (631) 210
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INCOME BEFORE PROVISION FOR TAXES 22,104 16,068
Provision for income taxes 8,621 6,266
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Net income before non-recurring item 13,483 9,802
Extraordinary item, net of taxes -- 129
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NET INCOME $ 13,483 $ 9,673
========= =========
NET INCOME-DILUTED $ 14,693 $ 9,673
========= =========
SHARES OUTSTANDING:
- -------------------
Basic 35,920 35,885
Diluted 40,943 36,448
EARNINGS PER SHARE:
- -------------------
Basic $0.38 $0.27
Diluted $0.36 $0.27
<PAGE>
SUNTERRA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED
($ IN THOUSANDS, UNAUDITED)
JUNE 30,
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1999 1998
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REVENUES:
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Vacation Interests sales $201,428 $157,542
Interest income 24,394 24,771
Gain on sale of receivables 2,940 --
Resort management, rental fees and other income 20,025 13,687
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TOTAL REVENUES 248,787 196,000
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COSTS AND OPERATING EXPENSES:
- -----------------------------
Vacation Interests cost of sales 49,905 37,637
Advertising, sales and marketing 92,153 72,377
Loan portfolio:
Provision for doubtful accounts 4,978 6,160
Other expenses 2,086 2,203
General and administrative 31,891 24,065
Depreciation and amortization 6,629 4,656
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Total costs and operating expenses 187,642 147,098
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INCOME FROM OPERATIONS 61,145 48,902
Interest expense 24,300 20,928
Minority interest in profits of consolidated
limited partnerships (61) --
Equity (gain)/loss on investment in joint ventures (1,644) (31)
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INCOME BEFORE PROVISION FOR TAXES 38,550 28,005
Provision for income taxes 15,035 10,922
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Net income before non-recurring item 23,515 17,083
Extraordinary item, net of taxes -- 129
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NET INCOME $ 23,515 $ 16,954
========= =========
NET INCOME - DILUTED $ 25,935 $ 16,954
========= =========
SHARES OUTSTANDING:
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Basic 35,914 35,880
Diluted 40,994 36,580
EARNINGS PER SHARE:
- -------------------
Basic $0.65 $0.47
Diluted $0.63 $0.47
<PAGE>
SUNTERRA CORPORATION
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
JUNE 30, DECEMBER 31,
1999 1998
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(unaudited)
ASSETS:
- -------
Cash and cash equivalents $ 11,618 $ 28,250
Cash in escrow 37,973 25,951
Mortgages receivable, net 341,001 335,982
Other receivables, net 97,058 76,574
Prepaid expense and other assets 26,775 22,031
Investment in joint ventures 22,274 17,876
Real estate and development costs 348,484 336,620
Property and equipment, net 105,507 81,125
Intangible assets, net 95,223 96,723
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TOTAL ASSETS $1,085,913 $1,021,132
========= =========
LIABILITIES AND EQUITY:
- -----------------------
Accounts payable $ 27,801 $ 21,864
Accrued liabilities 80,242 80,242
Income taxes payable 14,946 9,240
Deferred taxes 33,710 30,984
Notes payable 659,226 627,089
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TOTAL LIABILITIES 815,925 769,419
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Stockholders' equity 269,988 251,713
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TOTAL LIABILITIES AND EQUITY $1,085,913 $1,021,132
========= =========
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