<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 January 31, 1997
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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)
32 Greenwood Drive
Hilton Head Island, South Carolina 29928
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(Address of principal executive offices) (Zip Code)
(803) 785-3333
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(Registrant's telephone number, including area code)
No Change
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(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
January 31, 1997 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 January 31, 1997 and October 31, 1996 3 - 4
Condensed Consolidated Statements of Operations for
the Three Months Ended January 31, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows
for the Three Months ended January 31, 1997 and 1996 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
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
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SEA PINES ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
January 31, October 31,
1997 1996
ASSETS (Unaudited) (Note)
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents:
Unrestricted ($ 338) $ 232
Restricted 1,600 1,196
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1,262 1,428
Accounts and notes receivable, net of allowance for
doubtful accounts of $27 at January 31, 1997
and October 31, 1996 632 1,029
Current portion of notes receivable 457 344
Income taxes refundable 461 --
Inventories (Note 2) 623 733
Prepaid expenses 319 293
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Total current assets 3,754 3,827
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Notes receivable other 1,623 1,617
Notes receivable and accrued interest from
TidePointe Partners 1,735 1,694
Investment in TidePointe Partners 750 809
Deferred loan fees, net 41 49
Other assets, net 91 91
Real estate brokerage intangibles, net of accumulated
amortization of $1,212 and $1,179 at January 31, 1997
and October 31, 1996, respectively 98 131
Real estate assests
Construction in progress 8,477 8,113
Operating properties, net 22,801 22,879
Properties held for future development 7,047 7,047
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38,325 38,039
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TOTAL ASSETS $ 46,417 $46,257
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</TABLE>
Note: The condensed consolidated balance sheet at October 31, 1996 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
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SEA PINES ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
January 31, October 31,
1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) (Note)
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<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,877 $ 2,037
Advance deposits 1,844 1,223
Line of credit with bank 2,175 775
Income taxes payable -- 142
Current portion of deferred revenue 425 371
Current maturities of long-term debt 802 783
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Total current liabilities 7,123 5,331
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Long-term debt 18,510 18,719
Due to TidePointe Partners 7,376 7,073
Other deferred revenue 270 214
Deferred income taxes 412 412
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Total liabilities 33,691 31,749
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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) 7,218 7,218
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 3,342 5,124
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Total shareholders' equity 12,726 14,508
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $46,417 $46,257
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</TABLE>
Note: The condensed consolidated balance sheet at October 31, 1996 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
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SEA PINES ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Quarter Ended
January 31,
1997 1996
(Unaudited) (Unaudited)
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<S> <C> <C>
REVENUES $ 4,889 $ 5,336
COST AND EXPENSES:
Cost of revenues 3,988 4,341
Sales and marketing expenses 601 452
General and administrative expenses 918 1,165
Depreciation and amortization 374 484
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Total costs and expenses 5,881 6,442
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Operating loss (992) (1,106)
OTHER INCOME (EXPENSE):
Equity in loss of TidePointe Partners (59) --
Interest income 71 47
Interest expense (376) (373)
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Total other expense (364) (326)
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Loss before income taxes (1,356) (1,432)
Income tax benefit 461 487
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Net loss (895) (945)
Preferred stock dividend requirement (222) (222)
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Net loss attributable to common stock ($1,117) ($1,167)
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Per share of common stock
Net loss ($ 0.61) ($ 0.63)
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</TABLE>
See accompanying notes.
5
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SEA PINES ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1997 1996
(Unaudited) (Unaudited)
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVTIES:
Net loss ($ 895) ($ 945)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 374 484
Increase (decrease) in deferred revenue 110 (41)
Increase (decrease) in allowance for doubtful
accounts -- --
Increase in deferred income taxes (461) (487)
Equity in loss of TidePointe Partners 59 --
Changes in current assets and liabilities:
Decrease in accounts and notes receivable 278 477
Decrease in inventories 110 29
Increase in prepaid expenses (26) (115)
Decrease in other assets 41 38
Decrease in accounts payable and accrued expenses (825) (977)
Increase in other liabilities -- 32
Increase in advance deposits 621 339
Decrease in income taxes payable (142) (13)
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Net cash used in operating activities (756) (1,179)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short term investments -- (25)
Capital expenditures and property acquisitions (660) (962)
Additions to note receivable from TidePointe Partners (41) (41)
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Net cash used in investing activities (701) (1,028)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of debt (190) (172)
Additions to long-term debt -- 100
Additions to short-term debt 1,400 1,200
Additions to advance from TidePointe Partners 303 524
Dividends paid (222) (222)
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Net cash provided by financing activities 1,291 1,430
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Net decrease in cash and cash equivalents (166) (777)
Cash and cash equivalents at beginning of period 1,428 1,968
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Cash and cash equivalents at end of period $ 1,262 $ 1,191
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</TABLE>
See accompanying notes.
6
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SEA PINES ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND OCTOBER 31, 1996
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 three month period
ended January 31, 1997 are not necessarily indicative of the results that may be
expected for the year ended October 31, 1997. 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, 1996.
NOTE 2 - INVENTORIES
Inventories consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
January 31, October 31,
1997 1996
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Merchandise $544 $654
Supplies, parts and accessories 35 35
Food and beverages 8 11
Other 36 33
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$623 $733
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</TABLE>
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NOTE 3 - OPERATING PROPERTIES
Operating properties consist of the following (amounts in thousands):
January 31, October 31,
1997 1996
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Land and land improvements $19,739 $19,712
Buildings 6,469 6,432
Machinery and equipment 5,231 5,034
Property held under capital leases 251 251
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31,690 31,429
Less - Accumulated depreciation (8,889) (8,550)
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$22,801 $22,879
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8
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The discussion in this Report includes forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in Management's
Discussion and Analysis of Financial Condition and Results of Operations in item
II below, as well as those discussed elsewhere in this Report.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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 ten offices serving Hilton Head
Island and its neighboring communities.
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.
Phase I construction including the clubhouse, spa and two villa buildings
substantially complete and sales contracts on 67 units of the total 206 units in
Phase I had closed as of January 31, 1997.
Sea Pines Senior Living Center, Inc., a wholly owned subsidiary of the Company,
completed construction in February 1997 of the health care facility located
within the TidePointe community. In February 1997 the facility received its
operating licenses from the South Carolina Department of Health and
Environmental Control and began accepting patients. TidePointe Partners has an
option to purchase the health care facility and is currently undertaking the
steps necessary to exercise its option. The Company anticipates that a transfer
will occur during the 1997 fiscal year.
On May 1, 1996 the Company turned over the operations and assets of the Sea
Pines Country Club to the equity members as contemplated by the May 1990 Equity
Offering Agreement. Effective with this transfer, the Club obtained control of
all of its physical assets and assumed complete and total responsibility for its
operations and all the other risks and rewards of ownership. Results of Club
operations through the turnover date are included in the Company's Consolidated
Financial Statements.
Liquidity and Capital Resources
The Company's financial results from its resort operations and real estate
brokerage activities experience fluctuations by season. The period from November
through March has historically been the Company's low resort revenue and real
estate sales season and
9
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the period from April through October has been the Company's high season.
Therefore, significant decreases in the Company's liquidity, cash resources and
working capital are expected during the first fiscal quarter.
Cash and short term investments decreased by $166,000 during the first quarter
of 1997 and totaled $1,262,000 at January 31, 1997, of which $1,600,000 was
restricted. The Company's working capital deficit increased by $1,865,000 in the
first quarter resulting in a working capital deficit of $3,369,000 at January
31, 1997. These reductions in cash and working capital are consistent with the
seasonal nature of the Company's operations.
The Company maintains a $2.5 million seasonal line of credit used to meet cash
requirements during the Company's off-season. As of January 31, 1997, the
outstanding balance on the line of credit totaled $2.175 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 January 31, 1997, the outstanding balance on the
revolving credit facility totaled $7.6 million.
At its December 1996 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 of which was paid on January 15, 1997. Additional quarterly
installments will be paid on April 15, 1997, July 15, 1997 and October 15, 1997
to shareholders of record on the first day of each of those months.
Results of Operations for 1997 as Compared with 1996
The Company reported a consolidated net loss during the first quarter of 1997 of
$895,000. The consolidated net loss reported during the first quarter of 1996
was $945,000. These losses reflect the seasonal nature of the Company's resort
operations. Losses during the first quarter are anticipated and are consistent
with previous year's operating results.
Consolidated revenues during the three months ended January 31, 1997 totaled
$4,889,000, a 8.4% decrease over consolidated revenue reported during the three
months ended January 31, 1996 of $5,336,000. The consolidated revenue for 1996
includes revenue from the Sea Pines Country Club of $868,000. The Club was
turned over to the members effective May 1, 1996 and accordingly 1997 does not
include results of Club operations. Resort revenues increased 6% during the
first quarter from $2,618,000 in 1996 to $2,776,000 in 1997.
Real estate brokerage revenues increased by $362,000, or 19.6%, to $2,113,000
during the first quarter ended January 31, 1997 from the same period last year.
This increase in real estate revenues results from two factors. First, it is
indicative of the continued
10
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strong brokerage sales the Company has experienced, and second, it reflects
brokerage revenues on additional closings at Phase I of the Sea Crest, a new
condominium project on Hilton Head Island.
Cost of revenues decreased by $353,000, or 8.1% during the first quarter of 1997
compared to the same period last year. This decrease results primarily from the
elimination of costs associated with the Sea Pines Country Club. The elimination
of these costs were partially offset by revenue volume increases in the Real
Estate Company.
Sales and marketing expenses increased by $149,000 or 33% during the first
quarter of 1997 over the same period last year. This increase is attributable to
the acceleration of certain collateral materials and media placements into the
first quarter of 1997.
General and administrative expenses decreased by $247,000 or 21.2% from the same
period last year. This decrease is due primarily to approximately $240,000 in
one time severance costs recorded in 1996.
Interest expense on the Company's long-term debt remained relatively constant at
$376,000 and $373,000 during the first quarter of 1997 and 1996 respectively.
Business Outlook and Recent Developments
In February 1997 the Company completed construction of the health care facility
located within the TidePointe continuing care retirement community at a total
cost of approximately $8,000,000. As of January 31, 1997, costs and accrued
interest totaled approximately $7,376,000. TidePointe Partners has advanced the
Company $7,376,000 for such construction and has committed to advance the
Company the remaining funds required to finish and operate the facility. In
February 1997 the facility received it's operating licenses from the South
Carolina Department of Health and Environmental Control and began accepting
patients. TidePointe Partners has an option to purchase the health care facility
and is currently undertaking the steps necessary to exercise its option. The
Company anticipates that a transfer will occur during the 1997 fiscal year.
The Company is in the final planning stages for construction of a new conference
center in Harbour Town, adjacent to the Harbour Town Clubhouse. The facility
will include approximately 15,000 square feet and contain a ballroom, meeting
space and catering kitchen facilities. Management believes this facility will
enhance the Company's existing facilities and enable the Company to be more
competitive in attracting small group meetings and other functions to Sea Pines.
Construction will begin upon final governmental approvals and is anticipated to
take approximately one year to complete.
11
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a defendant in a lawsuit filed in November 1995 in
Beaufort County, South Carolina by Grey Point Associates, Inc. and its
principals relating to a contractual relationship. The suit alleges
breach of contract and seeks unspecified damages. The Company has
answered the suit and filed a counter-claim for unspecified damages.
Discovery has not yet commenced. The Company intends to defend its
position vigorously and pursue its counter-claim against the plaintiff,
however, neither the Company or its legal counsel can form an opinion
as to the outcome of this matter at this time.
The Company is not currently involved in any other litigation which it
believes will have a material and adverse affect on its financial
condition or results of operations.
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
12
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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: March 14, 1997 /s/ Charles W. Flynn
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Charles W. Flynn
Chairman
Date: March 14, 1997 /s/ Thomas C. Morton
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Thomas C. Morton
Treasurer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE JANUARY 31,
1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
JANUARY 31, 1997 FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 1,262
<SECURITIES> 0
<RECEIVABLES> 632
<ALLOWANCES> 27
<INVENTORY> 623
<CURRENT-ASSETS> 3,754
<PP&E> 47,214
<DEPRECIATION> 8,889
<TOTAL-ASSETS> 46,417
<CURRENT-LIABILITIES> 7,123
<BONDS> 0
0
7,218
<COMMON> 2,166
<OTHER-SE> 3,342
<TOTAL-LIABILITY-AND-EQUITY> 46,417
<SALES> 4,889
<TOTAL-REVENUES> 4,889
<CGS> 3,988
<TOTAL-COSTS> 3,988
<OTHER-EXPENSES> 1,893
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 364
<INCOME-PRETAX> (1,356)
<INCOME-TAX> (461)
<INCOME-CONTINUING> (895)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
