<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For quarter ended July 31, 1996
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Commission file number 0-17517
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Sea Pines Associates, Inc.
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(Exact name of registrant as specified in its charter)
South Carolina 57-0845789
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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<S> <C>
32 Greenwood Drive
Hilton Head Island, South Carolina 29928
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(Address of principal executive offices) (Zip Code)
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(803) 785-3333
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(Registrant's telephone number, including area code)
No Change
---------
(Former name, former address and former fiscal year,
if changed since last report.)
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.
Yes X No
-
The number of shares outstanding of the registrant's common stock as of July
31, 1996 was 1,842,525.
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INDEX TO FORM 10-Q
FOR SEA PINES ASSOCIATES, INC.
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Page
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PART I - FINANCIAL INFORMATION
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Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as
of July 31, 1996 and October 31, 1995 3 - 4
Condensed Consolidated Statements of Operations for
the Nine Months Ended July 31, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows
for the Nine Months ended July 31, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7 - 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 11
PART II - OTHER INFORMATION
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Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 12
Item 3 - Defaults Upon Senior Securities 12
Item 4 - Submission of Matters To A Vote of
Security Holders 12
Item 5 - Other Information 12-13
Item 6 - Exhibits and Reports on Form 8-K 13
Signatures 14
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SEA PINES ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
July 31, October 31,
1996 1995
ASSETS (Unaudited) (Note)
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents:
Unrestricted $ 85 $ 330
Restricted 2,129 1,638
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2,214 1,968
Short-term investments - 475
Accounts and notes receivable, net of allowance for
doubtful accounts of $34 and $30 at July 31, 1996
and October 31, 1995, respectively 1,335 1,856
Inventories (Note 2) 714 749
Prepaid expenses 392 201
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Total current assets 4,655 5,249
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PROPERTY AND EQUIPMENT:
Operating properties and properties under development, net (Note 3) 23,873 30,593
TidePointe health care facility under construction 6,109 3,195
Properties held for future development 7,047 7,166
Asset held for sale, net of impairment loss 1,500 -
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Total property and equipment 38,529 40,954
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OTHER ASSETS:
Real estate brokerage intangibles, net of accumulated
amortization of $1,146 and $1,048 at July 31, 1996
and October 31, 1995, respectively 164 262
Deferred loan fees, net 56 78
Deferred income taxes - 2,662
Investment in TidePointe Partners 761 831
Note receivable from TidePointe Part 1,659 1,538
Other, net 79 132
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Total other assets 2,719 5,503
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$45,903 $51,706
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</TABLE>
Note: The condensed consolidated balance sheet at October 31, 1995 has been
derived from the audited financial statements at that date but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See accompanying notes.
-3-
<PAGE> 4
SEA PINES ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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<CAPTION>
July 31, October 31,
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) (Note)
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<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,474 $ 2,301
Advance deposits 2,034 1,446
Line of credit with bank 1,300 1,300
Income taxes payable 40 13
Current portion of deferred revenue 358 858
Current maturities of long-term debt 766 713
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Total current liabilities 7,972 6,631
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Long-term debt 17,426 17,902
Due to TidePointe Partners 6,109 3,195
Deferred revenue on equity club - 13,276
Other deferred revenue 40 61
Other liabilities - 645
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Total liabilities 31,547 41,710
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Commitments and contingencies
SHAREHOLDERS' EQUITY:
Series A cumulative preferred stock, no par value,
2,000,000 shares authorized; 1,228,350 shares
issued and outstanding (liquidation preference $9,335,460) 7,219 8,105
Series B junior cumulative preferred stock, no par
value, 3,000 shares authorized; none issued
or outstanding - -
Common stock, 23,000,000 shares authorized;
1,842,525 shares issued and outstanding 2,166 2,166
Retained earnings (deficit) 4,971 (275)
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Total shareholders' equity 14,356 9,996
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $45,903 $51,706
======= =======
</TABLE>
Note: The condensed consolidated balance sheet at October 31, 1995 has been
derived from the audited financial statements at that date but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See accompanying notes.
-4-
<PAGE> 5
SEA PINES ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
July 31, July 31,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
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<S> <C> <C> <C> <C>
REVENUES $10,491 $10,225 $26,675 $24,102
COST AND EXPENSES:
Cost of revenues 7,039 7,495 18,914 18,150
Sales and marketing expenses 434 479 1,489 1,446
General and administrative expenses 974 857 2,888 2,663
Depreciation and amortization 382 488 1,350 1,430
------- ------- ------- -------
Total costs and expenses 8,829 9,319 24,641 23,689
------- ------- ------- -------
Operating income 1,662 906 2,034 413
OTHER INCOME (EXPENSE):
Interest income 46 8 137 22
Interest expense (351) (322) (1,090) (949)
Gain on Country Club turnover 7,747 0 7,747 0
Loss on Carolina Center asset held for sale (810) 0 (810) 0
Equity loss from TidePointe Partners (18) 0 (70) 0
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Total other income (expense) 6,614 (314) 5,914 (927)
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Income (loss) before income taxes 8,276 592 7,948 (514)
Income tax benefit (provision) (2,814) (201) (2,702) 175
------- ------- ------- -------
Net income (loss) 5,462 391 5,246 (339)
Preferred stock dividend requirement (222) (222) (667) (667)
------- ------- ------- -------
Net income (loss) attributable to common stock $ 5,240 $ 169 $ 4,579 ($1,006)
======= ======= ======= =======
Per share of common stock
Net income (loss) $ 2.84 $ 0.09 $ 2.48 ($0.55)
======= ======= ======= =======
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See accompanying notes.
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<PAGE> 6
SEA PINES ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
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<CAPTION>
Nine Months Ended
July 31,
1996 1995
(Unaudited) (Unaudited)
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVTIES:
Net Income (loss) $5,246 ($339)
Adjustments to reconcile net Income (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,350 1,430
Increase (decrease) in deferred revenue (567) 195
Increase in allowance for doubtful accounts 4 5
Loss on Carolina Center asset held for sale 810 -
Gain on Country Club turnover (7,747) -
Decrease (increase) in deferred income taxes 2,662 (175)
Changes in current assets and liabilities:
Decrease in accounts receivable 517 537
Decrease in inventories 35 15
Increase in prepaid expenses (191) (179)
(Increase) decrease in other assets 70 (181)
Increase in accounts payable and accrued expenses 195 692
(Decrease) increase in other liabilities (645) 31
Increase in advance deposits 588 316
Increase (decrease) in income taxes payable 27 (167)
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Net cash provided by operating activities 2,354 2,180
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CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in short term investments 475 (50)
Capital expenditures and property acquisitions (1,493) (3,440)
TidePointe health care facility under construction (2,914) (1,488)
Additions to note receivable from TidePointe Partners - (152)
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Net cash used in investing activities (3,932) (5,130)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of debt (523) (477)
Additions to long-term debt 100 1,300
Additions to short-term debt - 1,400
Additions to advance from TidePointe Partners 2,914 1,488
Dividends paid (667) (667)
Principal payments under capital lease obligations - (38)
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Net cash provided by financing activities 1,824 3,006
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Net Increase in cash and cash equivalents 246 56
Cash and cash equivalents at beginning of period 1,968 1,847
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Cash and cash equivalents at end of period $2,214 $1,903
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</TABLE>
See accompanying notes.
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SEA PINES ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND OCTOBER 31, 1995
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the nine month
period ended July 31, 1996 are not necessarily indicative of the results that
may be expected for the year ended October 31, 1996. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the year ended October 31,
1995.
NOTE 2 - INVENTORIES
Inventories consist of the following (amounts in thousands):
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July 31, October 31,
1996 1995
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Merchandise $ 635 $ 651
Supplies, parts and accessories 35 35
Food and beverages 9 33
Other 35 30
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$ 714 $ 749
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7
<PAGE> 8
NOTE 3 - OPERATING PROPERTIES AND PROPERTIES UNDER DEVELOPMENT
Operating properties and properties under development consist of the following
(amounts in thousands):
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<CAPTION>
July 31, October 31,
1996 1995
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Land and land improvements $19,713 $22,624
Buildings 6,316 9,271
Machinery and equipment 4,985 6,324
Construction in progress 813 1,460
Property held under capital leases 251 251
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32,078 39,940
Less - Accumulated depreciation (8,205) (9,347)
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$23,873 $30,593
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</TABLE>
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
As of July 31, 1996 the Company's operations are conducted primarily through
two wholly owned subsidiaries. Sea Pines Company, Inc. operates all of the
resort assets, including three resort golf courses, a 28 court racquet club, a
home and villa rental management business, retail sales outlets, food service
operations and other resort recreational facilities. Sea Pines Real Estate
Company, Inc. is an independent real estate brokerage firm with eleven offices
located in the Hilton Head Island area.
On May 1, 1996, the Company consummated a turnover of the operations and assets
of the Sea Pines Country Club to the equity members. Effective with the
turnover, the Club has complete and total responsibility for the operation and
control of the Club including all physical assets and all "risks and rewards"
of ownership. The Club has entered into a one year administrative services
contract with the Company to provide certain accounting, human resources,
maintenance, landscaping and information services for fixed monthly fees
expected to be equal to or in excess of the estimated costs of such services.
The Company and the Club have agreed that the Company will have the right to
market and sell the remaining unissued 152 equity memberships of the Club.
This transaction will not have a material effect on current year cash flow,
however it has had a major impact on 1996 net income as all deferred income,
$13,230,000, from the sale of Country Club memberships, net of the book value
of assets turned over, $5,483,000, has been recognized, based on the criteria
established in Statement of Financial Accounting Standards No. 66, Accounting
For Sales Of Real Estate. This has produced a one time increase in net income
of approximately $5,113,000 in the third quarter of 1996. In future years this
turnover is expected to have a positive impact of approximately $200,000
annually on pre-tax income due to eliminating the cost of operating the Club.
In settlement of a pending legal matter (See Part II - Item 1 Legal
Proceedings) the Company has recognized an impairment loss of $810,000 on the
pending sale of the Carolina Center, an office complex owned by the Company.
The Company, through its wholly owned subsidiary, Sea Pines/TidePointe, Inc.,
owns a 17.5% general partnership interest in TidePointe Partners. TidePointe
Partners is a General Partnership which is developing and constructing a
continuing care retirement community on Hilton Head Island, South Carolina.
TidePointe is currently under construction and Phase I is expected to be
completed by November 1996. Sea Pines Senior Living Center, Inc., a wholly
owned subsidiary of the Company, is currently developing the health care
facility located within the TidePointe community. Upon completion and approval
by the South Carolina Department of Health and Environmental Control, it is
anticipated that TidePointe Partners will exercise an option to purchase this
facility.
9
<PAGE> 10
Liquidity and Capital Resources
Cash and short term investments decreased by $1,440,000 during the third
quarter of 1996 and totaled $2,214,000 at July 31, 1996, of which $2,129,000
was restricted. The Company's working capital deficit increased by $313,000 in
the third quarter resulting in a working capital deficit of $3,145,000 at July
31, 1996. These decreases in cash and working capital resulted from the
reduction of short term investments which were transferred to the equity
members of the Sea Pines Country Club effective with the turnover and from the
use of cash generated by operations to partially fund capital projects and
capital purchases during the quarter.
The Company maintains a $2.5 million seasonal line of credit used to meet cash
requirements during the Company's off- season. As of July 31, 1996, the
outstanding balance on the line of credit totaled $1.3 million. In addition to
the seasonal line of credit, the Company maintains a $12 million revolving
credit facility used for capital investments in business lines consistent with
the Company's operations. As of July 31, 1996, the outstanding balance on the
revolving credit facility totaled $6.1 million.
At its December 1995 Board of Directors meeting, the Company declared a cash
dividend to holders of Series A Cumulative Preferred Stock of $0.722 per share.
This dividend is payable in equal quarterly installments of approximately
$0.181 per share, the first three installments were paid on January 15, 1996,
April 15, 1996 and July 15, 1996. The last quarterly installment will be paid
on October 15, 1996 to shareholders of record on the first day of October.
Results of Operations for 1996 as Compared with 1995
The Company reported a consolidated net income for the third quarter ended July
31, 1996 of $5,462,000. This includes the net gain on the Country Club
Turnover of $5,113,000 and the net loss on the disposition of the Carolina
Center of $534,000. Excluding these items the consolidated net income for the
third quarter was $883,000, a 125% increase from the consolidated net income of
$391,000 reported for the third quarter of 1995. Consolidated revenues during
the third quarter totalled $10,491,000 as compared to $10,225,000 reported for
the third quarter of 1995. The 1995 revenue contains $886,000 of Country Club
revenue not included in the 1996 revenue due to the Country Club turnover.
These increases in consolidated revenues and net income are attributable to
increases in real estate brokerage revenues and revenues from golf operations.
Resort revenues increased during the third quarter from $7,142,000 in 1995 to
$8,024,000 in 1996, a 12.3% increase. This increase in resort revenue is
attributable to increased golf revenues resulting primarily from golf play on
the newly renovated Ocean Golf Course. The course had been closed for a major
renovation from December 5, 1994 to September 17, 1995.
10
<PAGE> 11
Real Estate brokerage revenues increased by $269,000 or 12.2% to $2,467,000
during the third quarter ended July 31, 1996 from the same period last year.
This increase in real estate revenues is indicative of the strong brokerage
sales the Company has experienced in 1996 as compared to the prior year. Based
on the level of sales under contract which are scheduled to close during the
fourth quarter, management believes that this trend will continue for the
fourth quarter of 1996.
Cost of revenues decreased by $456,000 or 6.1% during the third quarter of 1996
as compared to the same period last year. This decrease is due primarily to
the elimination of the operating expenses associated with the Sea Pines Country
Club. Sales and marketing expenses decreased by $45,000 or 9.4% during the
third quarter of 1996 as compared to the third quarter of 1995. This decrease
results from the acceleration of certain media placements in the first half of
1996 which occurred in the third quarter of 1995.
General and administrative expenses increased by $117,000 or 13.6% in 1996 as
compared to the same period in 1995. The increase results from an increase in
legal fee expenses which were partially offset by payroll cost savings as a
result of the Company's cost reduction plan it implemented during the first
quarter of 1996.
Interest expense on the Company's long-term debt increased by $29,000, or 9.0%,
in the third quarter of 1996 as compared with the same period in 1995. This
increase was the result of increased debt levels as additional borrowings were
required for the Ocean Course renovation project and other capital
expenditures.
Business Outlook and Recent Developments
The Company is continuing construction of the health care facility located
within the TidePointe continuing care retirement community. The scheduled
completion date of the health care facility has been delayed by construction
delays of the overall community. The current anticipated completion date is
December 1996 at an estimated total cost of approximately $8,000,000. As of
July 31, 1996 costs and accrued interest totalled $6,109,000. TidePointe
Partners has advanced the Company $6,109,000 for such construction and has
committed to advance the Company the remaining funds required to construct,
equip and begin operating the health care facility. TidePointe Partners also
has an option to purchase the health care facility exercisable only after
completion of construction, licensing, commencement of operations and approval
of South Carolina Department Of Health And Environmental Control. The Company
expects to sell the health care facility to TidePointe Partners, or to actively
seek other buyers, after the regulatory approval is obtained.
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Asset Management Associates, Inc. vs. Sea Pines Company, Inc.
and Sea Pines Associates, Inc.
The Summons and Complaint in the above matter was filed
at the Beaufort County Court of Common Pleas September 19,
1994. The legal dispute relates to Sea Pines Company, Inc.'s
exercise of a right of repurchase by Sea Pines Company, Inc. on
the Carolina Center (former Sea Pines Welcome Center site) in
July 1994 for $1,050,000. The Plaintiff is a third party
beneficiary of the contract of sale of which Sea Pines Company,
Inc. exercised its right of repurchase.
Since the 1994 purchase, the Company has spent approximately
$1,000,000 in renovation to the facility in addition to the
original purchase price.
The Company has agreed to an out of court settlement
with the Plaintiff where the Plaintiff will purchase the
Carolina Center (and assume all tenant leases) from the Company
under the following terms:
Purchase Price: $1,500,000
Financing: Sea Pines Company, Inc. will finance the
purchase for 15 years at 7 1/2% interest.
Additional Terms: Sea Pines Company, Inc. to pay Asset
Management Associates, Inc. $225,000 at
closing.
Closing Date: On or before October 31, 1996.
As a result of the settlement of this matter the Company
has recognized a loss of $810,000 ($534,000 net of tax) during
the third quarter of 1996 on the pending disposition of the
Carolina Center.
The Company is not currently involved in any other litigation
which it believes will materially and adversely affect its
financial condition or results of operations.
12
<PAGE> 13
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters To A Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27-Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K:
None
13
<PAGE> 14
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.
SEA PINES ASSOCIATES, INC.
Date: September 12, 1996 Charles W. Flynn
------------------ ----------------
Charles W. Flynn
Chairman
Date: September 12, 1996 Thomas C. Morton
------------------ ----------------
Thomas C. Morton
Treasurer
14
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENT CONTAINED IN THE JULY 31, 1996 FORM 10Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH JULY 31, 1996 FORM 10Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 2,214
<SECURITIES> 0
<RECEIVABLES> 1,335
<ALLOWANCES> 34
<INVENTORY> 714
<CURRENT-ASSETS> 4,655
<PP&E> 46,734
<DEPRECIATION> 8,205
<TOTAL-ASSETS> 45,903
<CURRENT-LIABILITIES> 7,972
<BONDS> 0
0
7,219
<COMMON> 2,166
<OTHER-SE> 4,971
<TOTAL-LIABILITY-AND-EQUITY> 14,356
<SALES> 26,675
<TOTAL-REVENUES> 26,675
<CGS> 10,918
<TOTAL-COSTS> 18,914
<OTHER-EXPENSES> 5,727
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,090
<INCOME-PRETAX> 7,948
<INCOME-TAX> 2,702
<INCOME-CONTINUING> 5,246
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,246
<EPS-PRIMARY> 2.48
<EPS-DILUTED> 2.48
</TABLE>
