SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
[ ] 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
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SUNTERRA CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 95-4582157
- ------------------------ -------------------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
1781 PARK CENTER DRIVE
ORLANDO, FLORIDA 32835
----------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
(407) 532-1000
---------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Sunterra.com
-----------------------------
(REGISTRANT'S WEBSITE ADDRESS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Number of shares of common stock outstanding of the issuer's Common Stock,
par value $0.01 per share as of August 13, 1999: 35,932,284.
<PAGE>
SUNTERRA CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three and six
months ended June 30, 1999 and June 30, 1998 .................... 3
Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998................................................ 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and June 30, 1998............................ 5
Notes to the Consolidated Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................. 17
Item 6. Exhibits and Reports on Form 8-K.................................... 18
Signatures................................................................... 19
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUNTERRA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three and Six Months Ended June 30, 1999 and 1998
(Amounts in thousands except per share data, unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Vacation Interests sales ..................... $ 108,867 86,055 $ 201,428 $ 157,542
Interest income .............................. 13,055 12,696 24,394 24,771
Gain on sales of mortgages receivable ........ 1,343 -- 2,940 --
Other income ................................. 11,237 7,500 20,025 13,687
--------- ------ --------- ---------
Total revenues ........................ 134,502 106,251 248,787 196,000
--------- ------ --------- ---------
Costs and Operating Expenses:
Vacation Interests cost of sales ............. 27,453 20,181 49,905 37,637
Advertising, sales and marketing ............. 49,483 38,650 92,153 72,377
Loan portfolio:
Provision for doubtful accounts ............ 2,688 3,860 4,978 6,160
Other expenses ............................. 1,189 1,087 2,086 2,203
General and administrative ................... 16,841 11,874 31,891 24,065
Depreciation and amortization ................ 3,216 2,558 6,629 4,656
--------- ------ --------- ---------
Total costs and operating expenses .... 100,870 78,210 187,642 147,098
--------- ------ --------- ---------
Income from operations ....................... 33,632 28,041 61,145 48,902
Interest expense, net of capitalized
interest of $2,565, $1,855, $5,021 and
$3,508 for the three months ended June
30, 1999 and 1998 and the six months
ended June 30, 1999 and 1998, respectively . 12,210 11,763 24,300 20,928
Equity (gain) loss on investment in joint
ventures ................................... (631) 210 (1,644) (31)
Minority interest in income of consolidated
limited partnership ........................ (51) -- (61) --
--------- ------ --------- ---------
Income before provision for income taxes
and extraordinary item ................... 22,104 16,068 38,550 28,005
Provision for income taxes ................... 8,621 6,266 15,035 10,922
--------- ------ --------- ---------
Income before extraordinary item ............. 13,483 9,802 23,515 17,083
Extraordinary item, net of taxes ............. -- 129 -- 129
--------- ------ --------- ---------
Net income ................................. $ 13,483 $9,673 $ 23,515 $ 16,954
--------- ------ --------- ---------
Earnings per share:
Basic: ................................... $ 0.38 $0.27 $ 0.65 $ 0.47
Diluted: ................................. $ 0.36 $0.27 $ 0.63 $ 0.47
Weighted average number of common
shares outstanding ................... 35,920 35,885 35,914 35,880
Weighted average number of common and
potentially dilutive common shares
outstanding .......................... 40,943 36,448 40,994 36,580
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
SUNTERRA CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share and per share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Cash and cash equivalents...................................... $ 11,618 $ 28,250
Cash in escrow and restricted cash ............................ 37,973 25,951
Mortgages receivable, net of an allowance of $23,638
and $22,869 at June 30, 1999 and December 31, 1998,
respectively ............................................. 341,001 335,982
Other receivables, net ........................................ 97,058 76,574
Prepaid expenses and other assets ............................. 26,775 22,031
Investment in joint ventures .................................. 22,274 17,876
Real estate and development costs ............................. 350,510 336,620
Property and equipment, net ................................... 105,507 81,125
Intangible assets, net ........................................ 95,223 96,723
---------- ----------
Total assets......................................... $1,087,939 $1,021,132
========== ==========
LIABILITIES AND STOCKHOLDERS' 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
---------- -----------
Total liabilities ................................... 815,925 769,419
---------- -----------
Stockholders' equity:
Preferred stock (25,000,000 shares authorized; none
issued or outstanding) ...................................... -- --
Common stock ($0.01 par value,50,000,000 shares authorized;
35,926,205 and 35,902,671 outstanding at June 30, 1999 and
December 31, 1998, respectively) ............................ 359 359
Additional paid-in capital .................................... 163,500 163,290
Retained earnings ............................................. 110,096 86,581
Accumulated other comprehensive (loss) income ................. (1,941) 1,483
---------- -----------
Total stockholders' equity .......................... 272,014 251,713
---------- -----------
Total liabilities and stockholders' equity........... $1,087,939 $ 1,021,132
========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
SUNTERRA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, unaudited)
SIX MONTHS ENDED
JUNE 30,
------------------------
1999 1998
---------- -----------
Operating activities:
Net income .......................................... $ 23,515 $ 16,954
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ..................... 6,629 4,656
Provision for doubtful accounts ................... 4,978 6,160
Amortization of capitalized financing costs ....... 2,153 1,155
Equity gain on investment in joint ventures ....... (1,644) (31)
Minority interest in income of consolidated limited
partnership ..................................... (61) --
Gain on sales of mortgages receivable ............. (2,940) --
Proceeds from sales of mortgages receivable ....... 58,075 --
Changes in operating assets and liabilities:
Cash in escrow and restricted cash ................ (12,022) (16,371)
Mortgages receivable .............................. (79,160) (40,384)
Prepaid expenses and other assets ................. (4,744) (4,453)
Real estate and development costs ................. (18,640) (51,933)
Other receivables, net ............................ (3,073) (13,110)
Accounts payable and accrued liabilities .......... 5,934 (2,173)
Income taxes payable .............................. 5,706 8,886
Deferred taxes .................................... 2,726 4,011
--------- ---------
Net cash used in operating activities ............... (12,568) (86,633)
--------- ---------
Investing activities:
Cash paid for acquisition of subsidiaries ......... -- (41,068)
Property and equipment ............................ (24,218) (23,745)
Intangible assets ................................. (5,058) (18,095)
Investment in joint ventures ...................... (2,754) --
--------- ---------
Net cash used in investing activities ............. (32,030) (82,908)
--------- ---------
Financing activities:
Proceeds from notes payable ....................... 32,386 102,239
Payments on notes payable ......................... (25,926) (39,784)
Proceeds from publicly issued debentures .......... -- 140,000
Proceeds from Senior Bank Credit Facility, net of
debt issuance costs ........................... 47,325 155,568
Payments on Senior Bank Credit Facility ........... (21,648) (140,568)
Other ............................................. 210 184
--------- ---------
Net cash provided by financing activities ........... 32,347 217,639
--------- ---------
Net (decrease) increase in cash and cash equivalents (12,251) 48,098
Effect of exchange rates on cash and cash equivalents (4,381) (193)
Cash and cash equivalents, beginning of period ...... 28,250 38,487
--------- ---------
Cash and cash equivalents, end of period ............ $ 11,618 $ 86,392
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest .............................. $ 27,152 $ 22,848
Cash paid for taxes, net of tax refunds ............. $ 6,401 $ 512
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
SUNTERRA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 -- Background
The operations of Sunterra Corporation (formerly Signature Resorts, Inc.)
and its wholly-owned subsidiaries (the "Company") consist of (i) marketing and
selling vacation ownership interests at its resort locations and off-site sales
centers, which entitle the buyer to use a fully-furnished accommodation,
generally for a one-week period each year ("Vacation Intervals"), and vacation
points which may be redeemed for occupancy rights at participating resort
locations ("Vacation Points," and together with Vacation Intervals, "Vacation
Interests"), (ii) acquiring, developing and operating vacation ownership
resorts, (iii) providing consumer financing to individual purchasers for the
purchase of Vacation Interests and (iv) providing rental management and
maintenance services for which it receives fees paid by the resorts' homeowners'
associations.
The Company offers points-based vacation ownership systems in North America
through Club Sunterra, through which members may vacation at any resort in the
Club Sunterra network by utilizing their annual allotment of points ("Sun
Options") as a vacation currency, and through the Vacation Time Share Program
(the "VTS Program"). The Company also offers points-based vacation ownership
systems in Europe through the Grand Vacation Club ("GVC") and in Japan through
Sunterra Japan Vacation Club ("SJVC"). By the end of 1999, the Company
anticipates that it will complete the transition of virtually all Vacation
Interests sales to points-based products.
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 the six months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. Certain reclassifications were made to the 1998 accompanying consolidated
financial statements to conform to the 1999 presentation.
Note 2 -- Earnings Per Share
Basic earnings per share was calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share was calculated by dividing net income available to common
stockholders after assumed conversion of dilutive securities by the sum of the
weighted average number of common shares outstanding plus all additional common
shares that would have been outstanding if potentially dilutive common shares
had been issued. The following table reconciles the number of shares utilized in
the earnings per share calculations for the three and six months ended June 30,
1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------- ------- ------- -------
(amounts in thousands)
<S> <C> <C> <C> <C>
Net income ............................................................... $13,483 $ 9,673 $23,515 $16,954
Interest on convertible notes, net of
taxes (a) .............................................................. 1,210 -- 2,420 --
------- ------- ------- -------
Net income available to common
stockholders after assumed conversion of
dilutive securities(a) ................................................. $14,693 $ 9,673 $25,935 $16,954
======= ======= ======= =======
Weighted average number of common shares
used in basic EPS ....................................................... 35,920 35,885 35,914 35,880
Effect of dilutive convertible notes (a) ................................. 4,537 -- 4,537 --
Effect of dilutive stock options ......................................... 486 563 543 700
------- ------- ------- -------
Weighted average number of common shares and
dilutive potential common shares
used in diluted EPS(a) .................................................. 40,943 36,448 40,994 36,580
======= ======= ======= =======
</TABLE>
(a) The potential effect on net income and on common stock shares related to
the Company's 5 3/4% Convertible Subordinated Notes due 2007 have not been
included in the calculation of net income or weighted average number of
common shares and dilutive potential common shares outstanding used in
diluted EPS for the three and six months ended June 30, 1998 because the
effect would be anti-dilutive. The Convertible Subordinated Notes may be
converted into shares of common stock at a conversion price of $30.417 per
share at any time prior to maturity.
6
<PAGE>
Note 3 - Gain on Sale of Mortgages Receivable
In the second quarter of 1999, the Company recognized a pretax gain of
$1.3 million, net of expenses, on the sale of $44.4 million of mortgages
receivable, comprised of (1) $17.4 million of mortgages receivable which were
sold into the Company's $100.0 million Mortgages Receivable Conduit Facility
("Conduit Facility"); (2) $16.2 million of mortgages receivable which were part
of the 1999-A Securitization (defined below); and (3) $10.8 million of mortgages
receivable which were sold to a finance company.
Under the terms of the Conduit Facility, the Company sells mortgages
receivable through a wholly-owned special purpose entity at 95% of face value,
without recourse to Sunterra. The Company then retains 100% of the excess spread
over the commercial rate plus 0.60%.
In May 1999 the Company completed the sale through a Securitization of $100
million principal amount of its Vacation Ownership Receivables-Backed Notes
1999-A (the "1999-A Securitization"). These fixed rate Notes were issued at
94% of the $106.8 million outstanding mortgages receivable principal balances
and bear interest at a weighted average rate of 6.66%. The 1999-A Securitization
generated approximately $97 million in cash (after funding a reserve account and
paying transaction expenses), which Sunterra used to repay a portion of amounts
outstanding on the $100 million Conduit Facility and $117.5 million Senior Bank
Credit Facility. Of the $106.8 million mortgages receivable included in the
1999-A Securitization, all but $16.2 million had previously been sold into the
Company's Conduit Facility during the fourth quarter of 1998 or the first
quarter of 1999. The receivables had an 8 year weighted average remaining life
and a weighted average interest rate of 15%.
During the second quarter of 1999, the Company also sold to a finance
company $10.8 million of gross mortgages receivable for $10.3 million in cash in
two separate transactions. The Company sold these receivables at 97% of par
value with a 50% participation in the remaining interest spread. The receivables
had an 8 year weighted average remaining life and a weighted average interest
rate of 15%.
During the first quarter of 1999, the Company recognized a pretax gain of
$1.6 million, net of expenses, on the sale of $25.9 million of mortgages
receivable into the $100 million Conduit Facility. The receivables had a 9 year
weighted average remaining life and a weighted average interest rate of 15%.
As a result of the 1999-A Securitization and the sales of mortgages
receivable into the Conduit Facility and the sales of mortgages receivable to a
finance company, the Company generated retained interests of $15.1 million.
Retained interests are valued by the Company assuming a 10% average gross
default rate (before recoveries), a 15% average prepayment rate, and an 18%
discount rate, as deemed appropriate by the Company depending on the size, terms
and conditions of each separate sales transaction. The retained interests are
classified as held for sale based on management's intent and the existence of
prepayment options.
7
<PAGE>
Note 4 - Comprehensive Income
Comprehensive income includes all changes in equity (net assets) during a
period from non-owner sources. The reconciliation of net income to comprehensive
net income is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(amounts in thousands)
<S> <C> <C> <C> <C>
Net income ................................. $ 13,483 $ 9,673 $ 23,515 $ 16,954
Unrealized (loss) gain on available for
sale securities ............................ (577) -- 957 --
Foreign currency translation adjustments ... (1,815) 10 (4,381) (193)
-------- -------- -------- --------
Total comprehensive income $ 11,091 $ 9,683 $ 20,091 $ 16,761
======== ======== ======== ========
</TABLE>
Note 5 - Segment and Geographic Information
The Company operates in one industry segment, which includes the marketing,
sales, financing and management of vacation ownership resorts, and two
geographic segments. The Company's areas of operation outside the United States
include Mexico, Canada, Netherlands Antilles, United Kingdom, Japan, Italy,
Spain, Portugal, Austria and France. The Company's management evaluates
performance of each segment based on profit or loss from operations before
income taxes not including extraordinary items and cumulative effect of change
in accounting principles. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies (see Note 2
of the Company's Annual Report on Form 10-K for the year ended December 31,
1998). The Company's customers are not concentrated in any specific geographic
region and no single customer accounts for a significant amount of the Company's
sales.
Information about the Company's operations in different geographic
locations is shown below:
<TABLE>
<CAPTION>
UNITED STATES FOREIGN TOTAL
------------- ----------- ----------
(amounts in thousands)
<S> <C> <C> <C>
Three months ended June 30, 1999
Total revenues ........................ $ 100,971 $ 33,531 $ 134,502
Income before provision for income
taxes ................................. 16,231 5,873 22,104
Three months ended June 30, 1998
Total revenues ........................ $ 76,877 $ 29,374 $ 106,251
Income before provision for income
taxes ................................. 11,350 4,718 16,068
Six months ended June 30, 1999
Total revenues ........................ $ 186,339 $ 62,448 $ 248,787
Income before provision for income
taxes ................................. 28,079 10,471 38,550
Identifiable assets ................... 1,006,450 81,489 1,087,939
Six months ended June 30, 1998
Total revenues ........................ $ 143,616 $ 52,384 $ 196,000
Income before provision for income
taxes ................................. 20,244 7,761 28,005
Identifiable assets ................... 944,795 68,006 1,012,801
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1999 TO THE THREE MONTHS
ENDED JUNE 30, 1998
Total revenues for the three months ended June 30, 1999 were $134.5 million
compared with $106.3 million in the three months ended June 30, 1998, an
increase of $28.2 million, or 27%. Vacation Interests sales increased 27% in the
second quarter of 1999, to $108.9 million from $86.1 million in the second
quarter of 1998. The increase in Vacation Interests sales reflects an increased
number of purchases of Vacation Interests at the Company's resorts and the
recording of Vacation Interests sales resulting from the acquisition of Harich
Tahoe Developments and its subsidiaries ("HTD"), which were acquired in July
1998 (the "HTD Acquisition"), and Sunterra Japan, which began sale operations in
December 1998.
Included in Vacation Interests sales in the second quarter of 1999 are
approximately $30.8 million of Vacation Points sales from Club Sunterra, the
Company's new points-based vacation ownership system that was implemented at
certain North American resorts and off-site sales locations beginning the fourth
quarter of 1998.
Interest income increased slightly to $13.1 million in the second quarter
of 1999 from $12.7 million in the second quarter of 1998. The average mortgage
receivable note carries a 14.6% interest rate and is fully amortized over a
weighted average period of nine years.
During the second quarter of 1999, the Company recorded a $1.3 million
pre-tax gain on the sales of $44.4 million mortgages receivable. These sales
were part of the Company's program of monetizing mortgages receivable through
the use of off-balance sheet conduits, securitizations and other vehicles. The
Company did not sell mortgages receivable during the second quarter of 1998.
Other income, which includes resort management and rental fees, increased
50% during the second quarter of 1999 to $11.2 million from $7.5 million in the
second quarter of 1998, reflecting: higher rental income; increases in
management income in both Europe and the U.S., primarily as a result of a larger
base of managed resorts; and an increase in commissions from the UK financial
institution that directly finances our consumers' purchase of vacation interests
in Europe. Other income was 8.4% of total revenues for the second quarter of
1999, compared with 7.1% in the second quarter of 1998.
As a percentage of Vacation Interests sales, Vacation Interests cost of
sales increased to 25.2% for the second quarter of 1999 from 23.5% for the
second quarter of 1998 due to the mix of inventory sold. Vacation Interests cost
of sales increased 36% to $27.5 million in the second quarter of 1999 from $20.2
million in the second quarter of 1998.
As a percentage of Vacation Interests sales, advertising, sales and
marketing expenses increased slightly to 45.5% during the second quarter of 1999
from 44.9% during the second quarter of 1998, reflecting slightly higher costs
at the resorts implementing Club Sunterra. Advertising, sales and marketing
expenses increased 28% to $49.5 million during the second quarter of 1999 from
$38.7 million in the second quarter of 1998.
The provision for doubtful accounts decreased to $2.7 million in the second
quarter of 1999 from $3.9 million in the second quarter of 1998, due to the
reduction of the Company's long term default risk as a result of the $70.3
million of mortgages receivable that were originated and sold in the first half
of 1999.
The allowance for doubtful accounts as a percentage of gross mortgages
receivable increased to 6.5% at June 30, 1999, up from 6.3% at June 30, 1998.
Consumer loans serviced by the Company in excess of 60 days past due, including
defaulted loans and loans in the deed-in-
9
<PAGE>
lieu process at June 30, 1999, were 6.9%, as a percentage of gross mortgages
receivable, slightly higher than 6.7% at June 30, 1998. Net of inventory
recoveries, these same percentages decrease to 4.7% and 4.5%, respectively.
Other loan portfolio expenses, which are primarily costs incurred in
servicing the Company's loan portfolio, increased to $1.2 million in the second
quarter of 1999, from $1.1 million in the second quarter of 1998. As a
percentage of total revenues, other loan portfolio expenses were 0.9% for the
second quarter of 1999, compared to 1.0% for the second quarter of 1998.
As a percentage of total revenues, general and administrative expenses
increased to 12.5% in the second quarter of 1999 from 11.2% in the second
quarter of 1998. General and administrative expenses increased 42% to $16.8
million during the second quarter of 1999 from $11.9 million during the second
quarter of 1998. The increase in general and administrative expenses was due
primarily to the investments made in the Company's infrastructure relating to
the transition to Club Sunterra, additions of middle and senior management,
acquisition of additional resorts, and Y2K expenses.
Depreciation and amortization increased $0.7 million, or 26%, to $3.2
million in the second quarter of 1999 from $2.6 million in the second quarter of
1998. As a percentage of revenues, depreciation and amortization was 2.4% for
both the second quarter of 1999 and the second quarter of 1998. The increase in
depreciation and amortization was driven by the amortization of goodwill
associated with the Company's Sunterra Pacific, Global and HTD Acquisitions as
well as additional depreciation expense reflecting a larger base of depreciable
assets from the prior year period, including hardware and software costs and
other infrastructure additions.
Interest expense, net of capitalized interest, increased $0.4 million, to
$12.2 million for the second quarter of 1999 from $11.8 million for the second
quarter of 1998. The increase was due primarily to increases in debt from the
Company's privately placed, on-balance sheet asset-backed securitization issued
in June 1998.
Income before provision for income taxes increased 38% to $22.1 million in
the second quarter of 1999 from $16.1 million in the second quarter of 1998.
The Company's income tax rate was 39% for both the three month periods
ending June 30, 1999 and 1998, resulting in net income of $13.5 million for the
three months ended June 30, 1999, a 39% increase over $9.7 million for the three
months ended June 30, 1998.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 TO THE SIX MONTHS ENDED
JUNE 30, 1998
Total revenues for the six months ended June 30, 1999 were $248.8 million
compared with $196.0 million in the six months ended June 30, 1998, an increase
of $52.8 million, or 27%. Vacation Interests sales increased 28% in the first
half of 1999, to $201.4 million from $157.5 million in the first half of 1998.
The increase in Vacation Interests sales reflects an increased number of
purchases of Vacation Interests at the Company's resorts and the recording of
Vacation Interests sales resulting from the HTD Acquisition, which was
consummated in July 1998 and Sunterra Japan, which began sales operations in
December 1998.
Included in Vacation Interests sales in 1999 are approximately $47.4
million of Vacation Points sales from Club Sunterra, the Company's new
points-based vacation ownership system that was implemented at certain North
American resorts and off-site sales locations beginning the fourth quarter of
1998.
Interest income decreased 2% to $24.4 million in the first half of 1999
from $24.8 million in the first half of 1998, reflecting the decrease in net
mortgages receivable to $341.0 million at June 30, 1999, from $372.7 million at
June 30, 1998. The average mortgage receivable note carries a 14.6% interest
rate and is fully amortized over a weighted average period of nine years.
During the first half of 1999, the Company recorded a $2.9 million pre-tax
gain on the sale of $70.3 million mortgages receivable. These sales were part of
the Company's program of monetizing mortgages receivable through the use of
off-balance sheet conduits, securitizations and other vehicles. The Company did
not sell mortgages during the first half of 1998.
10
<PAGE>
Other income, which includes resort management and rental fees, increased
46% during the first six months of 1999 to $20.0 million from $13.7 million in
the first six months of 1998, reflecting: higher rental income; increases in
management income in both Europe and the U.S., primarily as a result of a larger
base of managed resorts; and an increase in commissions from the UK financial
institution that directly finances our consumers' purchase of vacation interests
in Europe. Other income was 8.0% of total revenues for the first six months of
1999, compared with 7.0% in the first six months of 1998.
As a percentage of Vacation Interests sales, Vacation Interests cost of
sales increased to 24.8% for the first half of 1999 from 23.9% for the first
half of 1998 due to the mix of inventory sold. Vacation Interests cost of sales
increased 33% to $49.9 million in the first half of 1999 from $37.6 million in
the first half 1998.
As a percentage of Vacation Interests sales, advertising, sales and
marketing expenses improved to 45.7% during the first half of 1999 from 45.9%
during the first half of 1998, reflecting the continued reduction of
advertising, sales and marketing costs at many of the Company's mature resorts,
offset by slightly higher costs at the resorts implementing Club Sunterra.
Advertising, sales and marketing expenses increased 27% to $92.2 million during
the first half of 1999 from $72.4 million in the first half of 1998.
The provision for doubtful accounts decreased to $5.0 million for the first
half of 1999, compared to $6.2 million for the first half of 1998, due to the
reduction of the Company's long term default risk as a result of the $70.3
million of mortgages receivable that were originated and sold in the first half
of 1999.
The allowance for doubtful accounts as a percentage of gross mortgages
receivable increased to 6.5% at June 30, 1999, up from 6.3% at June 30, 1998.
Consumer loans serviced by the Company in excess of 60 days past due, including
defaulted loans and loans in the deed-in-lieu process at June 30, 1999, were
6.9%, as a percentage of gross mortgages receivable, slightly higher than 6.7%
at June 30, 1998. Net of inventory recoveries, these same percentages decrease
to 4.7% and 4.5%, respectively.
Other loan portfolio expenses, which are primarily costs incurred in
servicing the Company's loan portfolio, decreased to $2.1 million in the first
six months of 1999, from $2.2 million in the first six months of 1998. As a
percentage of total revenues, other loan portfolio expenses were 0.8% for the
first six months of 1999, compared to 1.1% for the first six months of 1998.
As a percentage of total revenues, general and administrative expenses
increased to 12.8% in the first six months of 1999 from 12.3% in the first six
months of 1998. General and administrative expenses increased 33% to $31.9
million during the first six months of 1999 from $24.1 million during the first
six months of 1998. The increase in general and administrative expenses was due
primarily to investments made in the Company's infrastructure relating to the
transition to Club Sunterra, additions of middle and senior management,
acquisition of additional resorts, and Y2K expenses.
Depreciation and amortization increased $2.0 million, or 42%, to $6.6
million in the first six months of 1999 from $4.7 million in the first six
months of 1998. As a percentage of revenues, depreciation and amortization
increased to 2.7% for the first six months of 1999 from 2.4% during the first
six months of 1998. The increase in depreciation and amortization was driven by
the amortization of goodwill associated with the Company's Sunterra Pacific,
Global and HTD Acquisitions as well as additional depreciation expense
reflecting a larger base of depreciable assets from the prior year period,
including hardware and software costs and other infrastructure additions.
Interest expense, net of capitalized interest, increased $3.4 million, to
$24.3 million for the first half of 1999 from $20.9 million for the first half
of 1998. The increase was due primarily to increases in debt from public
securities offerings and from the Company's privately placed, on-balance sheet
asset-backed securitization issued in June 1998.
Income before provision for income taxes and extraordinary item increased
38% to $38.6 million in the first half of 1999 from $28.0 million in the first
half of 1998.
The Company's income tax rate was 39% for both the six month periods ended
June 30, 1999 and 1998, resulting in net income of $23.5 million for the six
months ended June 30, 1999, a 39% increase over $17.0 million for the six months
ended June 30, 1998.
11
<PAGE>
YEAR 2000
BACKGROUND
The Company uses software that will be affected by the date change in the
year 2000 and recognizes that the arrival of the year 2000 poses challenges that
will require modifications of portions of its software to enable it to function
properly. As the year 2000 approaches, date sensitive systems may recognize the
year 2000 as 1900, or not at all. This may cause systems to process critical
financial and operational information incorrectly. This is generally referred to
as the Year 2000 issue. If this situation occurs, the potential exists for
computer system failures or miscalculations by computer programs, which could
disrupt operations.
APPROACH
The Company has named a Year 2000 project manager, reporting to the
Company's Vice President and Chief Information Officer, to coordinate the
Company's response to the Year 2000 issue. The Company has established a Year
2000 program office at its headquarters in Orlando, Florida, to handle all
customer requests for compliance, survey, and other general information related
to its Year 2000 programs. The Company has initiated a Year 2000 project (the
"Project") designed to identify and assess the risks associated with its
information systems, products, operations and infrastructure, suppliers and
customers that are not Year 2000 compliant, and to develop, implement, and test
remediation and contingency plans to mitigate these risks throughout the
Company's offices and resort locations.
STATUS
As part of an enterprise-wide process, the Company has begun integrating
resorts to a common platform. The Company is replacing a substantial portion of
its existing information systems with a fully integrated, enterprise information
system. The vendor of the financial portion of this system has not warranted it
to be Year 2000 compliant. The Company is undergoing compliance testing of this
application with an expected completion date of September 30, 1999. Testing
completed to date indicates the application will continue to function correctly
on and after January 1, 2000.
During the second quarter, the Company identified the remaining mission
critical applications, 14 in total. Thirteen applications have undergone
compliance testing, of which six are considered to be Year 2000 compliant and
the remaining seven are undergoing remediation. The other application is being
analyzed.
The mission critical facility inventory, such as air conditioners and
health and safety items have been identified for the resorts. Although the
Company believes 97% of these items are Year 2000 compliant, it is currently
re-certifying manufacturers' disclosures statements. The remaining 3% are
expected be retired, replaced or upgraded before the end of the third quarter
1999.
It is the Company's goal to have the Project completed for mission critical
systems by November 1999. Based upon the analysis conducted to date, the Company
believes the mission critical systems at the Company's offices and resort
locations will be compliant by November 1999.
The Company is in the process of standardizing its platform with regard to
its hardware and desktop technology. The Company has identified possible
failures in 8% of its PCs and is currently assessing the resolution.
12
<PAGE>
The Year 2000 project encompasses the following phases:
PHASE 1 -- PLANNING AND AWARENESS
The Company has defined Year 2000 compliance and developed a project plan
and budget to provide organizational awareness of Year 2000 compliance,
globally. The Year 2000 Office provides monthly progress reports to the
Company's senior management and ongoing communication throughout and across all
business units. This phase is complete.
PHASE 2 - INVENTORY
In the Inventory Phase, the Company established a Year 2000 repository,
which contains mission critical automated systems or inventory elements and
electronic partners and interfaces. The Company is assessing known business and
technical risks associated with identified systems and has assigned a business
priority to each system or inventory element assessed to date. Resulting from a
second quarter internal audit, the Company is undergoing the capture of
additional mission critical facility inventory with an anticipated completion
date of August 30, 1999.
PHASE 3 -- DETAILED ASSESSMENT
The Company believes the facility items identified to date as non-compliant
are minimal to the overall business operations and customer satisfaction. The
assessment process of whether or not to repair, replace or retire the specific
affected systems is in progress. The Year 2000 Office has begun the
re-certification of previously disclosed compliance statements for mission
critical inventory elements. The Company is undergoing an assessment of their
electronic partnerships with external vendors. Expected completion date is
August 30, 1999.
PHASE 4 - RESOLUTION
In this phase, the Company will implement resolution decisions and define
system level go/no go decision criteria. The Company will attempt to obtain and
apply any needed commercial off the shelf (COTS) Year 2000 resolution products
as applicable. Remediation is underway for seven non-compliant customized
applications. Anticipated completion date for this phase is October 31, 1999.
PHASE 5 - TEST PLANNING
The Company has established a Year 2000 Purchasing Policy and Change
Management process to reduce non-compliant solutions from reaching production
operations. Test planning has been completed for known mission critical
applications. As part of the testing methodology for internal applications, the
Company tests for critical dates such as, but not limited to, December 31, 1999,
January 1, 2000, January 3, 2000, and February 29, 2000. In addition, scripts
are executed in a test environment, which reflects the years 1999, 2000 and
2004.
The Company is in the process of formulating its contingency plans to
mitigate any potential business disruptions. The selection of action will depend
on the criticality of the inventory element or system and available solution
alternatives. The anticipated completion date of the plan is October 31, 1999.
PHASE 6 -- TEST EXECUTION
The Year 2000 office established a formal mirror test environment to test
for compliance and if necessary, conduct regression testing. Included in this
phase is the involvement of end users in test execution and user signoff for
each compliant application. The company is currently coordinating electronic
testing with its third party vendors and electronic partners. Anticipated
completion date for this phase is October 31, 1999.
PHASE 7 - DEPLOYMENT
This phase involves deploying systems into the production environment,
staging appropriate bridges and data conversion for deployment, verifying that
contingency plans are in place, coordination with third parties and electronic
partners and executing final system validation. All remediated systems will be
deployed through the standard change control process by October 31, 1999.
13
<PAGE>
PHASE 8 -- FOLLOW-UP
In the Follow-up Phase, the Company intends to regulate continued Year
2000 compliance throughout its worldwide operations and develop procedures to
minimize the impact of compliance efforts on its business operations.
COSTS
The Company expects that the expenditures relating to Year 2000 issues will
be funded from operating cash flows and will not exceed the established budget
of $2.75 million. To date, the Company has incurred approximately $1.2 million
in costs associated with Year 2000 issues. The preliminary estimate of costs
includes administrative expenses, testing, and hardware/software/facility
replacement costs. The Company will capitalize and depreciate the cost of any
replacement equipment and software over the expected useful life of the assets.
The Company is expensing as incurred all costs related to software modification,
as well as all costs associated with the Company's administration of the
Project. Costs of remediation and/or replacement related to equipment and
systems owned by the various homeowners' associations for which the Company is
the manager will be borne by those homeowners' associations.
RISKS
The Company utilizes computer systems in many aspects of its business and
is continuing to evaluate Year 2000-related risks and to design and implement
corrective actions. The risks associated with the Year 2000 problem are complex
and can be difficult to identify and to address. Even if the Company, in a
timely manner, completes all of its assessments, identifies and tests plans it
believes to be adequate, and develops contingency plans believed to be adequate,
some problems may not be identified or corrected in time to prevent material
adverse consequences to the Company.
The Project is currently in the Inventory, Assessment, Testing and
Resolution phases. The Company believes that its greatest potential risks for
Year 2000 issues are associated with its information systems and systems
embedded in its operations and infrastructure. The Company is in the process of
determining the extent of contingency planning that may be required. The Company
has not yet completed its assessments, developed remediation plans for all
problems, developed contingency plans, or completely implemented or tested any
of its remediation plans; therefore, the Company is not yet in a position to
state the total cost of remediation of all Year 2000 issues. As the Year 2000
project continues, the Company may discover additional Year 2000 problems, may
not be able to develop, implement, or test remediation or contingency plans, or
may find that the costs of these activities exceed current expectations and
become material. While the worst case scenario entails the loss of one or more
of its mission critical applications, the Company has backup systems that do not
require computer applications.
In many cases, the Company is relying on assurances from vendors and
service providers that their systems will be Year 2000 compliant. The Company is
exposed to the risk that one or more of its vendors or service providers could
experience Year 2000 problems that impact the ability of such vendor or service
provider to provide goods and services. To date, the Company is not aware of any
vendor or service provider Year 2000 issue that the Company believes would have
a material adverse impact on the Company's operations. The Company is currently
identifying and mailing compliance questionnaires to all mission critical
vendors and anticipates this research to be completed by September 30, 1999.
However, the Company has no means of ensuring that its vendors or service
providers will be Year 2000 ready. The inability of vendors or service providers
to complete their Year 2000 resolution processes in a timely manner could
materially adversely affect the Company's business or results of operations.
Widespread disruptions in the national or international economy, including
disruptions affecting the financial markets, or certain industries such as
commercial or investment banks, resulting from Year 2000 issues, could also have
a material adverse impact on the Company. The likelihood and effect of such
disruptions is not determinable at this time.
The foregoing information concerning Year 2000 matters is as of July
30, 1999.
14
<PAGE>
Readers are cautioned that forward-looking statements contained in this
Year 2000 discussion should be read in conjunction with the Company's
disclosures regarding forward-looking statements contained in the final
paragraph of Management's Discussion and Analysis of Financial Condition and
Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash from (i) cash sales and cash down payments from
sales of Vacation Interests,(ii)sales of the Company's mortgages receivable
through its Conduit Facility, asset-backed securitizations or whole loan sales ,
(iii) hypothecation of its mortgages receivable through its Senior Bank Credit
Facility, (iv) principal payments and customer prepayments of principal from its
mortgages receivable portfolio, (v) interest from its mortgages receivable
portfolio, (vi)rental of unsold Vacation Interests, and (vii) receipt of
management, reservations and points-based vacation club fees.
For the six months ended June 30, 1999, cash used in operations was $12.6
million, compared to cash used in operations of $86.6 million for the six months
ended June 30, 1998. Excluding investment in real estate and development costs
of $68.5 million and $89.6 million respectively, cash provided by operations was
$55.9 million for the six months ended June 30, 1999, compared to cash provided
by operations of $3.0 million for the six months ended June 30, 1998.
During the second quarter of 1999, the Company continued its program of
monetizing mortgages receivable through the use of off-balance sheet conduits,
securitizations, and other vehicles. The Company sold $43.3 million of mortgages
receivable through the Conduit Facility in the first six months of 1999. During
the three year term of the Conduit Facility, the Company intends to sell
mortgages receivable through a wholly-owned special purpose entity at 95% of
face value. On these sales, the Company will pay interest at the commercial
paper rate plus 0.60% and retain 100% of the excess interest spread. These sales
will be without recourse to the Company for defaults experienced by the
mortgages receivable portfolios. The Company also sold $10.8 million of gross
mortgages receivable for $10.3 million in cash in two separate transactions. The
Company sold these receivables at 97% of par value with a 50% participation in
the remaining interest spread.
In May 1999, the Company completed the securitization of $100 million
principal amount of its Vacation Ownership Receivables-Backed Notes 1999-A (the
"1999-A Securitization"). These fixed rate Notes were issued at 94% of the
$106.8 million outstanding mortgages receivable principal balances, bear
interest at a weighted average rate of 6.66%, and are without recourse to
Sunterra. Included in the 1999-A Securitization were $90.6 million mortgages
receivable which had been previously sold into the Company's off-balance sheet
Conduit Facility during the fourth quarter of 1998 or the first quarter of 1999.
The securitization generated approximately $97 million in cash (after funding a
reserve account and paying transaction expenses), which Sunterra used to repay
a portion of amounts outstanding on the $100 million Conduit Facility and the
$117.5 million Senior Bank Credit Facility.
As of June 30, 1999 the Company had approximately $76.8 million available
on its Senior Bank Credit Facility and $80.2 million on its Conduit Facility.
The Company also had available approximately $241.2 million of unencumbered
mortgages receivable.
During the first six months of 1999, the Company spent $24.2 million for
property and equipment, primarily for the development of computer systems for
property and Club Sunterra management systems; and $68.5 million for expansion
and development activities at the Company's resort locations. The Company funded
these activities through (i) an increase of $31.0 million in notes payable, (ii)
borrowings on the Senior Bank Credit Facility and (iii) the sale of $70.3
million of mortgages receivable. The Company expects to incur approximately $32
million over the remainder of 1999 on real estate and development projects.
However, the Company has not made any binding commitments for such planned
construction beyond the projects on which it has currently initiated
development.
The Company believes that, with respect to its current operations, the
Senior Bank Credit Facility and the Conduit Facility, together with cash on hand
and cash generated from
15
<PAGE>
operations, future borrowings, or the sale or securitization of receivables,
will be sufficient to meet the Company's working capital and capital expenditure
needs for the next twelve months. However, depending upon conditions in the
capital and other financial markets, the Company's growth, development and
expansion plans, and other factors, 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, refinance debt, finance mortgages receivable or
meet other operational needs. Any debt incurred or issued by the Company may be
secured or unsecured, may bear interest at fixed or variable rates and may be
subject to such terms, as management deems prudent. As of June 30, 1999, the
Company was in compliance with all applicable covenants in its debt agreements.
The indentures for the Company's Senior notes and Senior Subordinated Notes
contain certain covenants that, among other things, limit and/or condition the
ability of the Company and its related subsidiaries to (i) incur additional
indebtedness, (ii) pay dividends or make other distributions with respect to
capital stock of the Company and its restricted subsidiaries, (iii) create
certain liens, (iv) sell certain assets of the company or its restricted
subsidiaries and (v) enter into certain mergers and consolidations. In addition,
certain of the Company's Senior Indebtedness, contain other and more restrictive
covenants that, among other things, restrict and/or condition the following: the
making of investments, loans, and advances and the paying of dividends and other
restricted payments; the incurrence of additional indebtedness; the granting of
liens, other than certain permitted liens; mergers, consolidations and sales of
all or a substantial part of the company's business or property; the sales of
assets; and the making of capital expenditures.
Certain of the Company's Senior Indebtedness, including the Senior Bank
Credit Facility, also require the Company to maintain certain financial ratios,
including interest coverage, leverage and fixed charge ratios.
The preceding discussion should be read in conjunction with the financial
statements and notes included elsewhere in this Form 10-Q. The preceding
Management's Discussion and Analysis of Financial Condition and Results of
Operations may contain forward looking statements, which include the Company's
growth and expansion plans, financing plans, future prospects and other
forecasts and 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,
future acquisitions and other factors identified in the Company's filings with
the Securities and Exchange Commission, including those set forth in Parts I and
II of the Company's Annual Report on Form 10-K for the year ended December 31,
1998 and in the Company's Current Reports on Forms 8-K filed in 1999.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
The Company's total revenues denominated in a currency other than U.S.
dollars for the six months ended June 30, 1999 (primarily revenues derived from
the United Kingdom and Japan) were approximately 21% of total revenues. The
Company's net assets maintained in a functional currency other than U.S. dollars
at June 30, 1999 (primarily assets located in western Europe and Japan) were
approximately 7% of total net assets. The effects of changes in foreign currency
exchange rates has not historically been significant to the Company's operations
or net assets.
Interest Rate Risk
As of June 30, 1999, the Company had fixed interest rate debt of
approximately $562.4 million and floating interest rate debt of approximately
$96.8 million. The floating interest rates are based upon the prevailing LIBOR
rate or the prevailing prime interest rate for the Company's Senior Bank Credit
Facility and endpaper debt, respectively. For floating rate debt, interest rate
changes do not generally affect the market value of debt but do impact future
earnings and cash flows, assuming other factors are held constant. Conversely,
for fixed rate debt, interest rate changes do affect the market value of debt
but do not impact earnings or cash flows. A hypothetical one-percentage change
in the prevailing LIBOR, prime or commercial
16
<PAGE>
paper rate would impact after-tax earnings of the Company by less than $0.6
million per year. A similar change in the interest rate would impact the total
fair value of the Company's fixed rate debt, excluding the Convertible Notes, by
approximately $22 million. The conversion feature to Common Stock makes it
impractical to estimate the effect of a change in interest rates on the
Company's Convertible Notes. There is a high correlation between the fair value
of the Convertible Notes and the Company's Common Stock.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 23, 1999 the Florida Attorney General's office issued a Subpoena to
Produce Records without deposition to Sunterra Corporation. The basis for this
subpoena is an investigation rather than a legal proceeding, although a legal
proceeding could result from this investigation.
The investigation related to possible violations and unfair and deceptive
trade practices regarding the solicitation of prospective purchasers for resort
properties. The investigation pertains to the criteria by which some groups are
offered financial incentives to tour our resorts while other groups are not
offered those incentives.
In May 1999, Sunterra Corporation modified its marketing policy. Our
revised policy clearly states that Sunterra Corporation does not base any
decisions on race, color, national origin (ancestry), religion, sex, age,
handicap (disability), marital status or familial status.
The current review by the Florida Attorney General's office stems from our
PAST marketing policies not our current policy. Unknown to the Florida Attorney
General, our current target marketing policy was distributed and implementation
was in process PRIOR to any such investigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company submitted to stockholder vote and its stockholders approved the
following items at the Company's Annual Meeting of the Stockholders held on
Friday, May 14, 1999:
(a) Election of four directors of the Company:
<TABLE>
<CAPTION>
NAME CLASS TERM EXPIRES VOTES FOR WITHHELD AUTHORITY
- ---- ----- ------------ --------- ------------------
<S> <C> <C> <C> <C>
L. Steven Miller I 2000 28,208,453 100,587
Adam Aron III 2002 28,225,037 84,003
Sanford Climan III 2002 28,230,686 78,354
Osamu Kaneko III 2002 28,206,081 102,959
</TABLE>
In addition to the four directors listed above, the terms of the following six
directors continued after the meeting: J. Taylor Crandall, Joshua Friedman,
Andrew Jody Gessow, Steven C. Kenninger, W. Leo Kiely, III and James E. Noyes.
(b) Amendment of the Company's Amended and Restated 1996 Equity
Participation Plan to increase the number of shares authorized for
issuance thereunder, by a vote of 19,219,109 "for", 9,077,308 "against"
and 12,623 "abstain".
(c) Ratification of the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31,
1999, by a vote of 28,288,310 "for", 9,845 "against" and 10,885
"abstain".
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K
Current Report on Form 8-K, dated May 5, 1999 filed with the
Securities and Exchange Commission on May 11, 1999, announcing the
Company's first quarter 1999 results.
18
<PAGE>
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.
SUNTERRA CORPORATION
BY: /s/ RICHARD GOODMAN
-------------------------------------
Richard Goodman
Executive Vice President,
And Chief Financial Officer
(Principal Financial Officer)
Dated: August 13, 1999
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 49,591
<SECURITIES> 0
<RECEIVABLES> 364,639
<ALLOWANCES> 23,638
<INVENTORY> 350,510
<CURRENT-ASSETS> 0
<PP&E> 105,507
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,087,939
<CURRENT-LIABILITIES> 0
<BONDS> 478,000
0
0
<COMMON> 359
<OTHER-SE> 271,655
<TOTAL-LIABILITY-AND-EQUITY> 1,087,939
<SALES> 201,428
<TOTAL-REVENUES> 248,787
<CGS> 49,905
<TOTAL-COSTS> 142,058
<OTHER-EXPENSES> 38,901
<LOSS-PROVISION> 4,978
<INTEREST-EXPENSE> 24,300
<INCOME-PRETAX> 38,550
<INCOME-TAX> 15,035
<INCOME-CONTINUING> 23,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,515
<EPS-BASIC> 0.65
<EPS-DILUTED> 0.63
</TABLE>
