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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 15, 2000
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 File Number) (IRS Employer
of incorporation) Identification No.)
1781 PARK CENTER DRIVE
ORLANDO, FLORIDA 32835
"WWW.SUNTERRA.COM"
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(Address of Principal Executive Offices)
407-532-1000
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
See press release dated May 15, 2000 entitled " SUNTERRA CORP. REPORTS
LOSS OF $0.43 FOR THE FIRST QUARTER OF 2000 AND PROVIDES LIQUIDITY WARNING"
attached hereto as Exhibit 99.
ITEM 7 FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits
EXHIBIT NO. DESCRIPTION PAGE NO.
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99 Press release dated May 15, 2000 3
entitled "Sunterra Corp. Reports Loss
Per Share of $0.43 for the First Quarter
of 2000 and provides liquidity warning"
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 hereunto duly authorized.
SUNTERRA CORPORATION
(Registrant)
Date: May 15,2000 By:/s/ RICHARD GOODMAN
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Richard Goodman
CFO
Page 2 of 7
EXHIBIT 99
FOR IMMEDIATE RELEASE Contact: Lin Morison
CEO
407-532-1000 or
Richard Goodman
CFO
407-532-1000
SUNTERRA CORP. REPORTS LOSS PER SHARE OF $0.43 FOR THE FIRST QUARTER OF 2000 AND
PROVIDES LIQUIDITY WARNING
ORLANDO, FLORIDA (MAY 15, 2000) - Sunterra Corporation (NYSE:OWN) today
reported a net after-tax loss of $15.6 million, and a diluted loss per share of
$0.43, for the first quarter of 2000. This compares with a net profit of $10.0
million and earnings per diluted share of $0.27 in the comparable year-earlier
period.
The first quarter results included both a $3.8 million after-tax charge
for severance and other expenses related to the first quarter restructuring of
headquarters and U.S. operations, as well as a $1.8 million after-tax write-down
of an asset based on bids received as part of the sale of certain non-core
assets.
In this context, the company reported several important events related
to its outstanding notes and credit lines. First, the company did not make
today's scheduled payment of $6.475 million on its $140 million in senior notes;
however, there is a 30 day cure period before this becomes an event of default.
In addition, the decline in the company's net worth as a result of the quarter's
net loss has resulted in violations of net worth and net worth-related covenants
in its senior bank credit facility, pre-sale line and inventory line. Moreover,
the company did not make the mandatory pay down on May 1st of $4.0 million under
the senior bank credit facility and $1.1 million on the pre-sale line, which has
resulted in an event of default under these agreements. At the current time, the
company does not have waivers on these violations.
Furthermore, although the company began funding against a newly opened
$25 million mortgages receivables warehouse facility in April, that facility is
now closed to any further take-downs because a related proposal to open a $100
million facility for the non-recourse sale of mortgages receivables was recently
withdrawn.
Currently, therefore, there is no availability under any of the
company's existing credit facilities and cash on hand is also very limited. The
company is actively pursuing alternatives to maintain liquidity, including the
sale of major assets. However, if these initiatives are not successful -- and
there is no assurance they will be -- then the company is unlikely to be able to
continue operations.
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<PAGE>
At the same time that it is seeking additional sources of liquidity,
the company is in discussions with banks and financial institutions to seek
waivers of the violations of its existing credit agreements and to obtain their
agreement not to pursue various remedies in the event of default on these
facilities, including declaring the entire indebtedness due and payable.
However, the company can give no assurance that such an agreement can be reached
or what the terms of such an agreement would be. Additionally, an uncured event
of default under these credit facilities and indentures could trigger a default
under other agreements to which the company is a party, including the senior
notes, senior subordinated notes and convertible subordinated notes. An event of
default under any of these agreements could materially adversely affect the
company by, among other things, causing all of the company's indebtedness to
become immediately due and payable.
RESULTS FOR Q1 2000
Revenues for the first quarter of $98.1 million were down 14% from the
first quarter of the prior year, primarily as a result of a 12% drop in vacation
ownership interests sales from $92.6 million to $81.6 million. This decrease
reflected the company's decision to eliminate certain high volume but very low
margin tour flow sources in the Florida and Northwest markets as well as the
closing down of sales lines in Latin America. During the past couple of months,
the company has initiated programs to develop more profitable tour sources
throughout its system.
A key factor in the weak operating results for the first quarter was
advertising, sales and marketing expenses, which were 60.2% of vacation
ownership interest sales, significantly above the comparable figure of 46.1% in
the first quarter of 1999. This increase was the result of a combination of
factors including: the impact of fixed marketing costs against lower sales
levels; high telemarketing costs; high costs per tour in certain markets; and
weak advance tour bookings coming into the first quarter.
G&A expense increased by $3.7 million from prior year, reflecting
higher legal expenses, Club Sunterra related operating costs, and information
technology costs, the fact that the reduced staffing and other savings
initiatives impacted results for only part of the quarter, and the inclusion in
1999's first quarter of certain favorable insurance and other settlements.
Depreciation and amortization expense increased to $6.1 million in the
first quarter from $3.4 million in the year-earlier period as a result of the
amortization of SWORD, the comprehensive technology platform which the company
completed at the end of 1999.
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Net interest expense increased by $2.7 million versus the comparable
prior year period because of the higher level of borrowings as well as the $1.1
million decrease in capitalized interest expense as a result of lower capital
spending.
In terms of the company's balance sheet, gross mortgages receivable at
March 31, 2000, were $268 million and the allowance for bad debts, net of
estimated recoveries, was $19.4 million or 7.2%, down from 7.6% at year-end
1999. The allowance is based on the same type of analysis as at year-end 1999,
with progressively larger reserves taken for receivables that are increasingly
delinquent and with all mortgages receivables that are more than 180 days
overdue being written off. During the quarter the company wrote off $2.8 million
in mortgages receivable, net of recoveries. Mortgages receivable in excess of 60
days past due at March 31, 2000, were 6.3% as a percentage of gross mortgages
receivable, down from 7.1% at Dec. 31, 1999.
Sunterra Corporation is the largest international owner and manager of
vacation ownership resorts, with 90 resort locations around the world and about
300,000 worldwide owners and members. In addition, Sunterra currently manages 17
third party condominiums 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.
Cautionary Statement Regarding Forward-Looking Information. This
release contains forward-looking statements, which include Sunterra's 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 current liquidity
situation, actions that our lenders may take as a result of our violations of
debt-related covenants and conditions, our ability to quickly obtain sufficient
additional funding and re-establish credit availability, the success of our
restructuring efforts, the timing and terms of future acquisitions and
disposals, the 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, 1999 and in
Sunterra's Quarterly Reports on Form 10-Q and current reports on Form 8-K filed
during 1999.
- FINANCIAL TABLES TO FOLLOW-
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SUNTERRA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
($ IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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2000 1999
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<S> <C> <C>
REVENUES:
Vacation Interests sales $ 81,573 $ 92,561
Interest income 9,731 11,339
(Loss) gain on sale of receivables (139) 1,597
Other income 6,967 8,788
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TOTAL REVENUES 98,132 114,285
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COSTS & OPERATING EXPENSES:
Vacation Interests cost of sales 20,806 22,452
Advertising, sales and marketing 49,071 42,670
Provision for doubtful accounts 2,794 2,290
Loan portfolio expenses 2,758 897
General and administrative 18,706 15,050
Depreciation and amortization 6,076 3,413
Restructuring costs and asset write-downs 8,876 --
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Total costs & operating expenses 109,087 86,772
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(LOSS) INCOME FROM OPERATIONS (10,955) 27,513
Interest expense - net 14,798 12,090
Minority interest in loss of consolidated limited partnerships (29) (10)
Equity gain on investment in joint ventures (983) (1,013)
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(LOSS) INCOME BEFORE (BENEFIT) PROVISION FOR TAXES (24,741) 16,446
(Benefit) provision for income taxes (9,154) 6,414
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NET (LOSS) INCOME ($ 15,587) $ 10,032
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SHARES OUTSTANDING:
Basic 35,975 35,908
Diluted 35,975 40,986
(LOSS) EARNINGS PER SHARE:
Basic ($ 0.43) $ 0.28
Diluted ($ 0.43) $ 0.27
</TABLE>
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SUNTERRA CORPORATION
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
MARCH 31, DECEMBER 31,
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2000 1999
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(UNAUDITED)
ASSETS:
Cash and cash equivalents $ 20,737 $ 24,838
Cash in escrow and restricted cash
34,403 29,735
Mortgages receivable, net 249,091 244,018
Retained interests 46,345 46,274
Due from related parties 14,167 11,550
Other receivables, net 71,960 64,202
Income tax refund receivable -- 2,315
Prepaid expenses and other assets 23,941 20,421
Investment in joint ventures 20,399 19,274
Real estate and development costs 367,783 363,534
Property and equipment, net 134,846 130,321
Intangible assets, net 104,237 101,928
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TOTAL ASSETS $1,087,909 $1,058,410
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 42,823 $ 30,483
Accrued liabilities 109,727 96,936
Income taxes payable 37 --
Deferred taxes 10,667 18,243
Notes payable 711,654 681,960
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TOTAL LIABILITIES 874,908 827,622
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Stockholders' equity 213,001 230,788
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,087,909 $1,058,410
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