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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): MARCH 15, 2000
SUNTERRA CORPORATION
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(Exact name of registrant as specified in its charter)
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MARYLAND 000-21193 95-4582157
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(State or other jurisdiction (Commission File Number) (IRS Employer Identification No.)
of incorporation)
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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)
Page 1 of 4
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ITEM 5. OTHER EVENTS.
See press release dated March 15, 2000 entitled "Sunterra Corp. Reports
Losses per Share of $1.63 for the 1999 Fourth Quarter; and $.48 for the Full
Year" 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 March 15, 2000
entitled "Sunterra Corp. Reports Losses
per Share of $1.63 for the 1999 Fourth
Quarter; and $.48 for the Full Year."
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: March 15,2000 By /s/ RICHARD GOODMAN
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Richard Goodman
Executive Vice President-Finance
and Administration and Chief
Financial Officer
EXHIBIT 99
FOR IMMEDIATE RELEASE CONTACT: RICHARD GOODMAN
CFO
407-532-1000 OR
KEITH BROWN
CORPORATE DEVELOPMENT
407-532-1000 OR
MICHAEL SITRICK
SITRICK AND COMPANY
310-788-2850
SUNTERRA CORP. REPORTS LOSSES PER SHARE OF $1.63 FOR THE 1999 FOURTH QUARTER;
AND $.48 FOR THE FULL YEAR
ORLANDO, FLORIDA, March 15, 2000 - SUNTERRA CORPORATION (NYSE:OWN) TODAY
ANNOUNCED THAT FOR THE FOURTH QUARTER ENDED DECEMBER 31,1999, THE COMPANY
RECORDED A NET LOSS OF $58.4 MILLION, AND DILUTED LOSS PER SHARE OF $1.63,
COMPARED WITH NET INCOME OF $11.5 MILLION, AND DILUTED EARNINGS PER SHARE OF 31
CENTS, IN THE 1998 QUARTER. SALES OF VACATION OWNERSHIP INTERESTS IN THE QUARTER
OF $97.2 MILLION WERE DOWN 1% FROM THE PRIOR YEAR.
THE MAJORITY OF THE LOSS RESULTED FROM A $43 MILLION AFTER-TAX CHARGE DIRECTLY
AND INDIRECTLY INVOLVING THE COMPANY'S MORTGAGES RECEIVABLE. ALTHOUGH THE
NON-CASH CHARGE WAS WITHIN THE RANGE SPECIFIED, THE EARNINGS ARE SUBSTANTIALLY
LESS THAN THE COMPANY PREVIOUSLY FORECASTED ON JANUARY 20, 2000.
THE PRINCIPAL CONTRIBUTORS TO THIS EARNINGS SHORTFALL ARE: A WRITEDOWN TO NET
REALIZABLE VALUE OF CERTAIN NON-CORE PROPERTIES, RESULTING IN A $10 MILLION
AFTER-TAX CHARGE TO EARNINGS; AND A $2 MILLION AFTER-TAX CHARGE RELATED TO
CAPITALIZED DEBT COSTS AND TO COSTS ASSOCIATED WITH ACQUISITIONS THAT HAVE NOW
BEEN TERMINATED.
FOR THE FULL YEAR, THE COMPANY REPORTED A NET LOSS OF $17.4 MILLION, AND DILUTED
LOSS PER SHARE OF 48 CENTS, COMPARED TO 1998 NET INCOME OF $42.8 MILLION, AND
DILUTED EARNINGS PER SHARE OF $1.16. SALES OF VACATION OWNERSHIP INTERESTS FOR
THE YEAR WERE $423.7 MILLION OR 18% AHEAD OF 1998, REFLECTING THE OVERALL
STRENGTH OF SUNTERRA'S PROPERTIES IN THE TIMESHARE MARKETPLACE.
"WE ARE EXTREMELY DISAPPOINTED WITH THESE RESULTS AND THE SUBSEQUENT
DETERIORATION IN OUR MARKET VALUE, " SAID T. LINCOLN MORISON, SUNTERRA'S
PRESIDENT AND CO-CHIEF EXECUTIVE OFFICER. "HOWEVER, RICHARD HARRINGTON AND I
BELIEVE THAT
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SUNTERRA CORPORATION
MARCH 15, 2000
PAGE 2
WE HAVE MADE PRUDENT DECISIONS ABOUT OUR BALANCE SHEET AND CHANGES IN OUR
BUSINESS MODEL THAT POSITION THE COMPANY FOR IMPROVED PERFORMANCE IN THE COMING
YEAR." MORISON ADDED, "OUR PRIORITIES FOR THE YEAR ARE CLEAR: MAINTAINING OUR
LIQUIDITY; SOLIDIFYING THE COMPANY'S CORE OPERATIONS; AND REBUILDING OUR
MOMENTUM."
LIQUIDITY
SUNTERRA REPORTED THAT IT REMAINS IN COMPLIANCE WITH ITS PUBLIC DEBT COVENANTS,
BUT HAS EXCEEDED THE TRIGGERS ON SEVERAL OF ITS CREDIT FACILITIES. THE COMPANY
IS INVOLVED IN CONTINUING DISCUSSIONS WITH ITS LENDERS AND HAS MADE PROGRESS IN
OBTAINING WAIVERS AND ADVANCES. THE DISCUSSIONS ARE ONGOING, HOWEVER, AND UNLESS
THEY ARE SUCCESSFULLY CONCLUDED, THE COMPANY CONTINUES TO FACE LIQUIDITY RISKS.
AT THE SAME TIME, THE COMPANY IS IN DISCUSSIONS WITH NEW SOURCES ABOUT
ADDITIONAL RECEIVABLES FINANCING, INCLUDING SEVERAL TRADITIONAL TIMESHARE
LENDERS. THE COMPANY REPORTED THAT IT HAS JUST CONCLUDED WITH FINOVA CAPITAL
CORP. A $25 MILLION EXPANSION OF A $50 MILLION INVENTORY LINE THAT WAS PUT IN
PLACE LAST YEAR. IN ADDITION, THE COMPANY HAS AGREED WITH FINOVA ON A $25
MILLION REVOLVING MORTGAGES RECEIVABLE LINE AND A $100 MILLION TAKE-OUT FACILITY
FOR THE NON-RECOURSE SALE OF MORTGAGES RECEIVABLE.
MR. MORISON COMMENTED, "WE ARE WORKING CLOSELY WITH OUR FINANCING SOURCES TO
CREATE A VIABLE FINANCING PLAN AND WE HAVE INSTITUTED A NUMBER OF MAJOR
INITIATIVES IN ORDER TO CONSERVE AND GENERATE CASH. THESE INCLUDE: A SIGNIFICANT
CUTBACK OF SPENDING ON NEW INVENTORY; THE TERMINATION OF SEVERAL ACQUISITIONS
THAT WERE IN THE PIPELINE; AND THE POSTPONEMENT OF ANY FURTHER WORK ON OUR
ORLANDO HEADQUARTERS/CALL CENTER WHICH WE HAD EXPECTED TO MOVE INTO IN THE
MIDDLE OF THE YEAR. IN ADDITION, FOLLOWING A COMPREHENSIVE REVIEW OF THE
COMPANY'S CURRENT DISTRIBUTION SYSTEM, WE HAVE MADE THE DECISION TO SELL CERTAIN
NON-STRATEGIC ASSETS. THESE ACTIONS, TOGETHER WITH STAFF REDUCTIONS ALREADY
ANNOUNCED AND THE FINANCING INITIATIVES DISCUSSED ABOVE, ARE EXPECTED TO PROVIDE
THE NECESSARY LIQUIDITY FOR THIS YEAR."
CORE OPERATIONS
IN ADDITION TO REVIEWING ITS RESORT NETWORK, THE COMPANY HAS ALSO UNDERTAKEN A
THOROUGH OPERATIONAL REVIEW OF ITS BUSINESS AND INSTITUTED A SERIES OF IMPORTANT
CHANGES. THE MOST SIGNIFICANT OF THOSE IS A REORGANIZATION OF THE U.S. BUSINESS
UNDER CHARLES C. FREY, A COMPANY VETERAN, AS PRESIDENT, SUNTERRA USA. THE
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SUNTERRA CORPORATION
MARCH 15, 2000
PAGE 3
COMPANY'S U.S. RESORT NETWORK HAS BEEN DIVIDED INTO SEVEN GEOGRAPHIC REGIONS,
EACH LED BY A SEASONED GENERAL MANAGER, WITH COMPLETE P&L AUTHORITY FOR HIS
REGION. THIS PARALLELS THE STRUCTURE OF THE COMPANY'S SUCCESSFUL EUROPEAN
OPERATION.
CO-CHIEF EXECUTIVE OFFICER RICHARD HARRINGTON SAID, "I BELIEVE IN ESTABLISHING
FULL ACCOUNTABILITY FOR OPERATIONS IN THE FIELD WITH THE PEOPLE DIRECTLY CHARGED
WITH THAT RESPONSIBILITY. THEY ARE CLOSEST TO THE ACTION AND IN A POSITION TO
MAKE THE QUICK JUDGMENTS AND TAKE THE FAST ACTION NECESSARY FOR SUCCESS IN THIS
BUSINESS." HARRINGTON ALSO SAID THAT IT IS HIS INTENTION TO RETURN TO EUROPE AS
CHAIRMAN OF SUNTERRA EUROPE BY APRIL 30 OF THIS YEAR. HARRINGTON WILL RETAIN HIS
SEAT ON THE SUNTERRA BOARD OF DIRECTORS.
MR. HARRINGTON ADDED, "IN ADDITION, WE HAVE ALREADY TAKEN ACTIONS THAT WILL
RESULT IN APPROXIMATELY $15 MILLION IN ANNUAL CASH SAVINGS THROUGH STAFF
REDUCTIONS AND EXPENSE CONTROLS, BOTH IN OVERHEAD AS WELL AS IN SALES AND
MARKETING. FOR EXAMPLE, AT ONE OF OUR KEY RESORTS WE HAVE ELIMINATED THE HIGH
COST/LOW EFFICIENCY LEAD AND TOUR GENERATION PROGRAMS AND HAVE FOCUSED ON
DRIVING OUR HIGHLY PROFITABLE IN-HOUSE BUSINESS."
REBUILD MOMENTUM
"TO REBUILD MOMENTUM, WE HAVE TO PROVIDE STEADY, CONSISTENT AND FOCUSED
LEADERSHIP," MORISON SAID. "THAT MEANS REGULAR COMMUNICATION BETWEEN MANAGEMENT
AND EMPLOYEES AND A REAL, BOTTOM-LINE FOCUS ON PERFORMANCE."
THE COMPANY HAS VIRTUALLY COMPLETED BOTH THE INTRODUCTION OF CLUB SUNTERRA TO
ITS U.S. PROPERTIES AND ALSO THE CORRESPONDING ROLLOUT OF THE SWORD TECHNOLOGY
PLATFORM THAT IS NECESSARY TO SUPPORT THIS UNIQUE POINTS-BASED VACATION
OWNERSHIP SYSTEM. AT 12/31/99, SUNTERRA HAD 291,000 WORLDWIDE OWNERS AND
MEMBERS. THE COMPANY OWNED AND OPERATED 88 RESORTS AND MANAGED ANOTHER 18
PROPERTIES AT YEAR-END.
LATE IN 1999, SUNTERRA ANNOUNCED ITS DEVELOPER AFFILIATION PROGRAM AND
INTRODUCED TWO NEW PARTNERS. UNDER AN AFFILIATION AGREEMENT WITH KOSMAS GROUP
INTERNATIONAL, SUNTERRA RESORTS WILL MANAGE THREE FLORIDA RESORTS TOTALING 500
UNITS. IN ADDITION, KOSMAS HAS SIGNED A CLUB SUNTERRA LICENSING AGREEMENT TO
SELL CLUB SUNTERRA MEMBERSHIPS TO OVER 20,000 OWNERS AT THESE PROPERTIES. THE
SECOND AFFILIATION IS ELLINGTON AT WACHESAW PLANTATION EAST, JUST SOUTH OF
MYRTLE BEACH.
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SUNTERRA CORPORATION
MARCH 15, 2000
PAGE 4
"THESE AFFILIATIONS ARE A WINNING PROPOSITION FOR EVERYONE INVOLVED," MR.
MORISON SAID. "IT ALLOWS US TO EXPAND OUR NETWORK, ADD CLUB MEMBERS, AND
INCREASE THE RESORT INVENTORY IN VERY DESIRABLE LOCATIONS TO OUR EXISTING CLUB
SUNTERRA MEMBERS WITHOUT MAKING A SIZEABLE CAPITAL INVESTMENT. IT ALSO PROVIDES
A VEHICLE FOR INDEPENDENT DEVELOPERS WHO WANT TO OFFER A POINTS-BASED CLUB TO
THEIR OWNERS WITHOUT THE COSTS ASSOCIATED WITH CLUB DEVELOPMENT."
SEPARATELY, THE COMPANY ALSO OPENED A NEW PROPERTY IN SAN DIEGO'S HISTORIC
GASLAMP DISTRICT. ANOTHER NEW PROPERTY WAS OPENED BY SUNTERRA'S EUROPEAN
SUBSIDIARY IN GERMANY, JUST OUTSIDE OF MUNICH. BOTH OF THESE BEGAN SALES IN THE
FIRST QUARTER OF 2000.
"TAKEN TOGETHER," MR. MORISON SAID, "I BELIEVE THESE ACTIONS WILL MAKE SUNTERRA
A LEANER, STRONGER AND MORE COHESIVE ORGANIZATION THAT IS READY TO PARTICIPATE
FULLY IN THE INDUSTRY'S GROWTH AND REASSERT ITSELF AS THE MARKET LEADER."
FINANCIAL DETAIL
IN SPEAKING ABOUT THE FOURTH QUARTER'S SPECIAL CHARGES, RICHARD GOODMAN,
SUNTERRA'S CFO, SAID, "THERE WERE SEVERAL ELEMENTS TO THE $43 MILLION AFTER-TAX
CHARGE, INCLUDING: $27 MILLION RELATED TO THE WRITING OFF OF RECEIVABLES THAT
WERE EITHER 180 DAYS OR MORE PAST DUE OR WERE IN DEFAULT AFTER MAKING ONLY THE
INITIAL DOWN PAYMENT (IE. FIRST PAYMENT DEFAULTS); $6 MILLION RELATED TO ACCRUED
INTEREST ON THOSE MORTGAGES RECEIVABLE; $4 MILLION RELATED TO HOMEOWNER'S
ASSOCIATION RECEIVABLES; AND THE BALANCE RELATED TO AN ADJUSTMENT IN THE
RETAINED INTEREST IN MORTGAGES RECEIVABLE THAT WERE PREVIOUSLY SOLD AND THE
WRITEDOWN OF A RECEIVABLE FROM A MARKETING COMPANY THAT IS NO LONGER SUPPLYING
TOURS TO THE COMPANY. IN ADDITION, THE $10 MILLION CHARGE RELATED TO THE
RE-EVALUATION OF NON-CORE PROPERTIES WAS NECESSARY BECAUSE THESE PROPERTIES WILL
BE MARKETED TO PROSPECTIVE BUYERS AS HOTELS, NOT TIMESHARE PROJECTS AS
ORIGINALLY DEVELOPED BY THE COMPANY.
GROSS MORTGAGES RECEIVABLE AT 12/31/99 WERE $264 MILLION AND THE ALLOWANCE FOR
BAD DEBTS NET OF ESTIMATED RECOVERIES WAS $20 MILLION, OR 7.6%. NONE OF THE
MORTGAGES RECEIVABLE ON OUR BALANCE SHEET AT YEAR-END WERE 180 DAYS OR MORE
DELINQUENT BECAUSE THEY HAVE ALL BEEN COMPLETELY WRITTEN OFF - WHICH WAS ADOPTED
AS OUR POLICY IN THE 4TH QUARTER. IN ADDITION, ALL FIRST PAYMENT DEFAULTS THAT
HAD BEEN ON OUR BALANCE SHEET HAVE ALSO BEEN WRITTEN OFF, AND WE HAVE TAKEN
STEPS TO INSURE THAT ON A GO-FORWARD BASIS WE WILL BE REVERSING ALL FIRST
PAYMENT DEFAULTS AGAINST SALES WHEN THEY BECOME 60 DAYS OVERDUE."
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SUNTERRA CORPORATION
MARCH 15, 2000
PAGE 5
THE $20 MILLION RESERVE FOR DOUBTFUL ACCOUNTS IS BASED ON A THOROUGH AGING AND
ANALYSIS OF ALL RECEIVABLES, WITH PROGRESSIVELY LARGER RESERVES TAKEN FOR
RECEIVABLES THAT ARE MORE DELINQUENT. AT 12/31/99, RECEIVABLES MORE THAN 60 DAYS
OVERDUE AMOUNTED TO 7.1% OF GROSS MORTGAGES RECEIVABLE.
SUNTERRA CORPORATION IS THE LARGEST INTERNATIONAL OWNER AND MANAGER OF VACATION
OWNERSHIP RESORTS, WITH 88 RESORT LOCATIONS AROUND THE WORLD AND OVER 291,000
WORLDWIDE OWNERS AND MEMBERS. IN ADDITION, SUNTERRA CURRENTLY MANAGES 18 THIRD
PARTY CONDOMINIUM AND OTHER RESORTS IN HAWAII. THE COMPANY'S OPERATIONS CONSIST
OF (I) MARKETING AND SELLING VACATION INTERESTS, (II) DEVELOPING, ACQUIRING AND
OPERATING VACATION OWNERSHIP RESORTS, (III) FINANCING CUSTOMERS' PURCHASES AND
(IV) PROVIDING RESORT RENTAL, MANAGEMENT AND MAINTENANCE SERVICES. SUNTERRA
OPERATES ONLINE AT WWW.SUNTERRA.COM.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION. THIS RELEASE
CONTAINS FORWARD-LOOKING STATEMENTS, WHICH INCLUDE SUNTERRA'S EXPANSION PLANS,
FUTURE PROSPECTS, FORECASTS AND OTHER STATEMENTS OF EXPECTATIONS. ALTHOUGH
MANAGEMENT BELIEVES THESE STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS, ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY OF OUR FORWARD LOOKING
STATEMENTS DUE TO, AMONG OTHER THINGS, FACTORS RELATED TO THE TIMING AND TERMS
OF FUTURE ACQUISITIONS AND DISPOSALS, AVAILABILITY OF SUFFICIENT LIQUIDITY,
INTEGRATION OF ACQUIRED OPERATING COMPANIES AND RESORT PROPERTIES AND OTHER
FACTORS IDENTIFIED IN SUNTERRA'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THOSE SET FORTH IN PARTS I AND II OF SUNTERRA'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IN SUNTERRA'S
CURRENT REPORTS ON FORMS 10-Q AND FORMS 8-K FILED DURING 1999.
FINANCIAL STATEMENTS ATTACHED
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CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
DECEMBER 31,
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1999 1998
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ASSETS:
Cash and cash in escrow $ 54,573 $ 54,201
Mortgages receivable, net 244,018 335,982
Retained interests 46,274 12,518
Receivables and other assets 96,173 86,087
Income tax refund receivable 2,315 --
Investment in joint ventures 19,274 17,876
Real estate and development costs 363,534 336,620
Property and equipment, net 130,321 81,125
Intangible assets, net 101,928 96,723
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TOTAL ASSETS $1,058,410 $1,021,132
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LIABILITIES AND EQUITY:
Accounts payable $ 30,483 $ 21,864
Accrued liabilities 96,936 80,242
Income taxes payable -- 9,240
Deferred taxes 18,243 30,984
Notes payable 681,960 627,089
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TOTAL LIABILITIES 827,622 769,419
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Stockholders' equity 230,788 251,713
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TOTAL LIABILITIES AND EQUITY $1,058,410 $1,021,132
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