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
NOVEMBER 3, 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
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(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 November 3, 1999, Sunterra Corporation, a Maryland corporation (the
"Company"), issued a press release announcing its third 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 November
3, 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: November 4, 1999
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
99 Press Release dated November 3, 1999.
EXHIBIT 99
[LOGO]
FOR IMMEDIATE RELEASE
Contact: Richard Goodman At The Financial Relations Board
Chief Financial Officer Joann Mahaffey (general information)
(407)532-1000 Allison Parker (analyst contact)
(415)986-1591
SUNTERRA CORPORATION REPORTS RECORD
THIRD QUARTER RESULTS
THIRD QUARTER REVENUES UP 21%, NET INCOME UP 22%, AND DILUTED EPS UP 21%
ORLANDO, FLORIDA, November 3, 1999 - Sunterra Corporation (NYSE: OWN) today
announced record revenues and net income for the third quarter, building on its
record first half performance.
Third quarter revenues were up 21% to a record $153 million, fueled by
a 21% increase in vacation ownership interest sales. This top line growth
generated a 22% rise in net income and a 21% increase in diluted earnings per
share. Net income for the quarter reached $17.5 million versus $14.3 million in
the comparable year-earlier period, and diluted EPS was $0.46 per share, up from
$0.38 last year.
"Our third quarter performance was very strong across the board,"
commented L. Steven Miller, Sunterra's President and CEO. "We had solid top line
growth; and with cost of sales and advertising/sales/marketing costs within
target ranges, we were able to generate commensurate bottom line growth even as
we continued to invest in the infrastructure required to build Club Sunterra."
"The roll-out of Club Sunterra continues on schedule. We are currently
introducing Club Sunterra at key locations in the West, including Sedona and
Scottsdale, and will have the entire network on points-based sales by year-end.
The sales force is enthusiastic and the comparable year-over-year sales
increases indicate that our customers are as well."
"In addition to providing our customers with an enhanced offering, Club
Sunterra also serves as a flexible, points-based platform on which we can expand
our relationship with existing customers and provide entry points for potential
new customers -- in part through wide-ranging affiliations with other
travel-related companies," continued Miller. "For example, in the third quarter
we announced our participation in American Airlines AADVANTAGE Program. We also
announced an agreement with MemberWorks that
-MORE-
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Sunterra Corporation Reports Record 1999 Third Quarter Results
November 3, 1999
Page 2
includes a unique package of entertainment, dining, travel and other leisure
lifestyle benefits, called Sunterra Privileges. We have also developed
points-based trial programs for customers whom we are soliciting for the first
time. We began selling these through the largest Century 21 franchisee, located
in the Midwest, and are launching a similar program in Texas with a major
franchisee of another nationally recognized real estate broker. Looking ahead,
we will be announcing further major tie-ins during the fourth quarter of this
year - all with the objective of significantly broadening the base of active
vacationers who rely on the Sunterra brand to fulfill their vacation needs, and
in the process generating increasing levels of recurring revenue."
"The ultimate opportunity to broaden our reach obviously relates to the
internet, and `Sunterra.com' is clearly the industry's most advanced and
user-friendly web site. Not only can anyone take a virtual tour of each of our
70 resorts and obtain information about Club Sunterra member benefits and
special programs, but all consumers can also instantly fulfill reservations for
mini-vacations and rental specials directly on-line with credit card
information. Indeed, we're using our web-based technology to develop private
label booking engines that will handle on-line booking for Sunterra resorts at
other travel-related sites, such as Vacationspot.com. In addition, the data base
applications of this technology allow us to conduct fully automated lead
generation and lead management programs on the web."
"The combination of all these efforts supports our strategic plan to
substantially expand the community of Club Sunterra vacationers, increase
efficiencies and reduce costs in our lead generation activities, drive recurring
revenues in new and existing business lines, and continue strong growth not only
in our vacation interest sales but in the income we derive from our property
management and rental businesses as well," concluded Miller.
THIRD QUARTER RESULTS
Revenues increased 21% from $127 million to $153 million in the
quarter. This growth primarily reflected a 21% increase in Vacation Ownership
Interest sales, which grew to $125 million from $103 million in the comparable
year-earlier period. About three-quarters of this $22 million increase related
to higher sales at resorts open in the comparable year earlier period and about
one-quarter to resorts acquired or developed during the prior twelve months.
This internal growth reflects the wide acceptance of Club Sunterra at our
existing resorts where we have introduced it this year. Growth was fueled
largely by a 22% increase in transactions.
Other income was up 18% for the quarter, primarily related to strong
increases in management fees and rental income as well as to membership revenue
from Club Sunterra. The growth would have been significantly higher except for
the adverse impact of Hurricane Floyd on rental revenue during September.
<PAGE>
Sunterra Corporation Reports Record 1999 Third Quarter Results
November 3, 1999
Page 3
The number of Sunterra vacation owner families reached 273,000 at
September 30, 1999, up 21% from approximately 225,000 owners twelve months
earlier. There were 90 operating resorts at the end of the third quarter, 3 more
than the year-earlier period. The company is currently in active construction at
16 of our existing locations and is completing a new resort in San Diego that
will be opening in the first quarter of next year. In addition, in mid-October
we acquired our first property in Germany. It is located in the foothills of the
Bavarian Alps, approximately 45 minutes driving time from Munich.
During the third quarter, the Company reported a pretax gain of $2.5
million on the sale of about $72 million of mortgages receivable, most of which
were sold into our off-balance sheet conduit as part of our continuing program
of monetizing the sales that we finance for our customers. In the comparable
year-earlier period, there was a $1.0 million gain on sale of mortgages
receivable. The quarter-over-quarter net positive P&L impact from mortgages
receivable sales was more than offset, however, by the lower than expected
current quarter vacation ownership sales and rental revenues as a result of
Hurricane Floyd, which reduced diluted EPS by about 3 cents. Excluding both the
gains on the mortgages receivable as well as the effect of the Hurricane, net
income was up 25% and diluted EPS 22% and from quarter to quarter.
The $72 million in third quarter mortgages receivable sales, together
with $70 million of first-half sales into conduits, securitizations and other
vehicles, resulted in an $11 million decrease in net mortgages receivable since
the beginning of the year (from $336 million to $325 million) even though there
was a 25% increase in sales for the nine months ended September 30, 1999.
At the end of the third quarter, mortgages serviced by the Company
(including securitized mortgages) in excess of 60 days past due totaled 6.4% as
a percentage of gross mortgages receivable, down from 6.9% in the comparable
year-earlier period. Net of inventory recoveries, these percentages are 4.4% and
4.7%, respectively. The allowance for doubtful accounts as a percentage of gross
mortgages receivable was 6.4%, up from 6.3% a year ago.
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30
Revenues were up 24% for the first nine months of the year to a record
$402 million, primarily reflecting a 25% increase in vacation ownership interest
sales to $327 million and a 36% increase in Other Income on the strength of
higher management, rental, membership and other fees.
The strong revenue growth fueled a 31% increase in net income - from
$31.3 million in the first nine months of 1998 to $41.0 million in the first
nine months of this
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Sunterra Corporation Reports Record 1999 Third Quarter Results
November 3, 1999
Page 4
year. Over this same period, diluted earnings per share grew by 30% from $0.84
per share to $1.09 per share.
Sunterra Corporation is the largest international owner and manager of
vacation ownership resorts, with 90 resort locations around the world and
273,000 owner families. In addition, Sunterra manages 18 third-party condominium
and other resorts in Hawaii. The Company's operations consist of (i) marketing
and selling vacation interests, (ii) developing, acquiring and operating
vacation ownership resorts, (iii) financing customers' purchases and (iv)
providing resort rental, management and maintenance services.
This release contains forward-looking statements, which include
Sunterra's expansion plans, future prospects, forecasts and other statements of
expectations. Although management believes these statements are based on
reasonable assumptions, actual results may differ materially from those
expressed in any of our forward looking statements due to, among other things,
factors related to the timing and terms of future acquisitions and the
introduction of Club Sunterra, mortgages receivable financing, integration of
acquired operating companies and resort properties and other factors identified
in Sunterra's filings with the Securities and Exchange Commission, including
those set forth in Parts I and II of Sunterra's Annual Report on Form 10-K for
the year ended December 31, 1998 and in Sunterra's current reports on Forms 10-Q
and Forms 8-K filed during 1999.
- FINANCIAL TABLES FOLLOW -
<PAGE>
Sunterra Corporation Reports Record 1999 Third Quarter Results
November 3, 1999
Page 5
SUNTERRA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
($ IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1999 1998
- ------------------------------------------------------------------------------ ----------
<S> <C> <C>
REVENUES:
Vacation Interests sales $ 125,122 $ 103,292
Interest income 15,438 14,208
Gain on sale of receivables 2,501 1,032
Other income 10,084 8,520
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TOTAL REVENUES 153,145 127,052
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COSTS & OPERATING EXPENSES:
Vacation Interests cost of sales 31,820 24,291
Advertising, sales and marketing 57,734 45,472
Loan portfolio:
Provision for doubtful accounts 2,144 3,252
Other expenses 1,944 727
General and administrative 16,462 13,182
Depreciation and amortization 4,259 3,258
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Total costs & operating expenses 114,363 90,182
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INCOME FROM OPERATIONS 38,782 36,870
Interest expense 10,831 13,310
Minority interest in profits of consolidated limited partnerships 3 --
Equity (gain)/loss on investment in joint ventures (744) 38
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INCOME BEFORE PROVISION FOR TAXES 28,692 23,522
Provision for income taxes 11,189 9,173
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Net income before nonrecurring items 17,503 14,349
Extraordinary item, net of taxes -- --
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NET INCOME $ 17,503 $ 14,349
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NET INCOME - DILUTED $ 18,713 $ 15,559
========= =========
SHARES OUTSTANDING:
Basic 35,932 35,888
Diluted 41,055 40,793
EARNINGS PER SHARE -- BEFORE EXTRAORDINARY ITEM:
Basic $ 0.49 $ 0.40
Diluted $ 0.46 $ 0.38
EARNINGS PER SHARE:
Basic $ 0.49 $ 0.40
Diluted $ 0.46 $ 0.38
</TABLE>
<PAGE>
Sunterra Corporation Reports Record 1999 Third Quarter Results
November 3, 1999
Page 6
SUNTERRA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED
($ IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1999 1998
- ----------------------------------------------------------------------------- ---------
<S> <C> <C>
REVENUES:
Vacation Interests sales $ 326,550 $ 260,834
Interest income 39,832 38,979
Gain on sale of receivables 5,441 1,032
Other income 30,109 22,207
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TOTAL REVENUES 401,932 323,052
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COSTS & OPERATING EXPENSES:
Vacation Interests cost of sales 81,725 61,928
Advertising, sales and marketing 149,887 117,849
Loan portfolio:
Provision for doubtful accounts 7,122 9,412
Other expenses 4,030 2,930
General and administrative 48,353 37,247
Depreciation and amortization 10,888 7,914
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Total costs & operating expenses 302,005 237,280
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INCOME FROM OPERATIONS 99,927 85,772
Interest expense 35,131 34,238
Minority interest in profits of consolidated limited partnerships (58) --
Equity (gain)/loss on investment in joint ventures (2,388) 7
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INCOME BEFORE PROVISION FOR TAXES 67,242 51,527
Provision for income taxes 26,224 20,095
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Net income before nonrecurring items 41,018 31,432
Extraordinary item, net of taxes -- 129
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NET INCOME $ 41,018 $ 31,303
========= =========
NET INCOME - DILUTED $ 44,648 $ 34,933
========= =========
SHARES OUTSTANDING:
Basic 35,920 35,888
Diluted 40,958 41,357
EARNINGS PER SHARE -- BEFORE EXTRAORDINARY ITEM:
Basic $ 1.14 $ 0.88
Diluted $ 1.09 $ 0.85
EARNINGS PER SHARE:
Basic $ 1.14 $ 0.87
Diluted $ 1.09 $ 0.84
</TABLE>
<PAGE>
Sunterra Corporation Reports Record 1999 Third Quarter Results
November 3, 1999
Page 7
SUNTERRA CORPORATION
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1999 1998
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(unaudited)
ASSETS:
Cash and cash in escrow $ 46,436 $ 54,201
Mortgages receivable, net 325,157 335,982
Retained interests 46,904 12,518
Receivables and other assets 90,634 86,087
Investment in joint ventures 23,231 17,876
Real estate and development costs 355,727 336,620
Property and equipment, net 116,338 81,125
Intangible assets, net 95,387 96,723
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TOTAL ASSETS $1,099,814 $1,021,132
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LIABILITIES AND EQUITY:
Accounts payable $ 30,743 $ 21,864
Accrued liabilities 83,926 80,242
Income taxes payable 7,452 9,240
Deferred taxes 47,124 30,984
Notes payable 635,503 627,089
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TOTAL LIABILITIES 804,748 769,419
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Stockholders' equity 295,066 251,713
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TOTAL LIABILITIES AND EQUITY $1,099,814 $1,021,132
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