<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For quarterly period ended April 30, 2000
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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
------------------------------- ------------------------------------
(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)
(843) 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 April
30, 2000 was 3,545,400.
<PAGE> 2
INDEX TO FORM 10-Q
FOR SEA PINES ASSOCIATES, INC.
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as
of April 30, 2000 and October 31, 1999 3 - 4
Condensed Consolidated Statements of Operations for
the Six Months Ended April 30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows
for the Six Months ended April 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7 - 10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 15
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 15
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 16
Item 2 - Changes in Securities and Use of Proceeds 16
Item 3 - Defaults Upon Senior Securities 16
Item 4 - Submission of Matters To Vote of
Security Holders 16 - 17
Item 5 - Other Information 17
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE> 3
SEA PINES ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
(UNAUDITED) (NOTE)
------- -------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents:
Unrestricted $ -- $ 662
Restricted 4,435 2,380
------- -------
4,435 3,042
Accounts and notes receivable, net of allowance for
doubtful accounts of $58 and $41 at April 30, 2000 and
October 31, 1999, respectively 2,456 1,189
Income tax refund receivable 346 346
Current portion of notes receivable 56 373
Inventories (Note 2) 758 737
Prepaid expenses 359 140
------- -------
Total current assets 8,410 5,827
Notes receivable, less current portion 1,247 1,687
Deferred income taxes -- 83
Deferred financing costs, net 136 36
Other assets, net 75 78
------- -------
1,458 1,884
Real estate assets
Construction in progress 6,040 6,575
Operating properties, net 31,399 23,765
Properties held for future development 4,623 4,623
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42,062 34,963
------- -------
Total assets $51,930 $42,674
======= =======
</TABLE>
Note: The condensed consolidated balance sheet at October 31, 1999 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.
<PAGE> 4
SEA PINES ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
(UNAUDITED) (NOTE)
------- -------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 6,113 $ 3,300
Advance deposits 3,900 2,155
Current portion of deferred revenue 68 537
Income tax payable 40 --
Current maturities of long-term debt 400 400
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Total current liabilities 10,521 6,392
Long-term debt 25,733 19,483
Deferred revenue 768 905
Company-obligated redeemable preferred securities of a
subsidiary trust holding solely the Junior Subordinated
Debentures 2,480 --
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Total liabilities 39,502 26,780
Commitments and contingencies
Shareholders' equity: (Note 5)
Series A cumulative preferred stock, no par
value, 2,000,000 shares authorized; 220,900
shares and 1,228,350 shares issued and
outstanding at April 30, 2000 and October 31,
1999, respectively (liquidation preference
$1,678,840 and $9,335,460) 1,294 7,218
Series B junior cumulative preferred stock, no
par value, 20,000 shares authorized; none
issued or outstanding -- --
Common stock, 23,000,000 shares authorized;
3,545,400 shares and 1,842,525 shares issued
and outstanding at April 30, 2000 and October
31, 1999, respectively 7,343 2,166
Retained earnings 3,791 6,510
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Total shareholders' equity 12,428 15,894
------- -------
Total liabilities and shareholders' equity $51,930 $42,674
======= =======
</TABLE>
Note: The condensed consolidated balance sheet at October 31, 1999 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.
<PAGE> 5
SEA PINES ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
2000 1999 2000 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 15,219 $ 13,395 $ 22,643 $ 19,939
Cost and expenses:
Cost of revenues 9,660 7,999 16,697 13,754
Sales and marketing expenses 888 922 1,393 1,245
General and administrative
expenses 1,968 1,987 2,980 2,796
Depreciation and amortization 373 306 707 606
-------- -------- -------- --------
Total costs and expenses 12,889 11,214 21,777 18,401
-------- -------- -------- --------
Income from operations 2,330 2,181 866 1,538
Other income (expense):
Interest income 32 28 61 61
Interest expense (304) (312) (607) (620)
Exchange offer costs (195) -- (195) --
-------- -------- -------- --------
Total other expense (467) (284) (741) (559)
-------- -------- -------- --------
Income before income taxes 1,863 1,897 125 979
Income tax provision 633 645 42 333
-------- -------- -------- --------
Net income 1,230 1,252 83 646
Preferred stock dividend
requirement (40) (223) (262) (445)
-------- -------- -------- --------
Net income (loss) attributable to
common stock $ 1,190 $ 1,029 $ (179) $ 201
======== ======== ======== ========
Per share of common stock
Net income (loss) $ 0.34 $ 0.56 $ (0.07) $ 0.11
======== ======== ======== ========
</TABLE>
See accompanying notes.
<PAGE> 6
SEA PINES ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
2000 1999
(UNAUDITED) (UNAUDITED)
------- -------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 83 $ 646
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 707 606
Deferred revenue (606) (146)
Allowance for doubtful accounts 17 --
Deferred income taxes 83 --
Changes in assets and liabilities:
Restricted cash (2,055) (2,519)
Accounts and notes receivable (527) (300)
Inventories (21) 33
Prepaid expenses (219) (200)
Other assets (97) 29
Accounts payable and accrued expenses 2,187 974
Advance deposits 1,745 1,773
Income taxes payable 40 220
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Net cash provided by operating activities 1,337 1,116
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Cash Flows from Investing Activities:
Capital expenditures and property acquisitions (7,806) (2,917)
------- -------
Net cash used in investing activities (7,806) (2,917)
------- -------
Cash Flows from Financing Activities:
Additional borrowing on long-term debt 6,250 1,341
Borrowings on line of credit -- 314
Dividends paid (443) (445)
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Net cash provided by financing activities 5,807 1,210
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Net decrease in unrestricted cash and cash equivalents (662) (591)
Unrestricted cash and cash equivalents at beginning of
period 662 591
------- -------
Unrestricted cash and cash equivalents at end of period $ 0 $ 0
======= =======
</TABLE>
See accompanying notes.
<PAGE> 7
SEA PINES ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000 AND OCTOBER 31, 1999
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 six month period ended April 30, 2000
are not necessarily indicative of the results that may be expected for the year
ended October 31, 2000. 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, 1999.
NOTE 2 - INVENTORIES
Inventories consist of the following (amounts in thousands):
April 30, October 31,
2000 1999
---- ----
Merchandise $608 $628
Supplies, parts and accessories 35 37
Food and beverages 84 44
Other 31 28
---- ----
$758 $737
==== ====
<PAGE> 8
NOTE 3 - OPERATING PROPERTIES
Operating properties consist of the following (amounts in thousands):
April 30, October 31,
2000 1999
-------- --------
Land and land Improvements $ 21,430 $ 19,047
Buildings 13,890 8,466
Machinery and equipment 7,827 7,308
-------- --------
43,147 34,821
Less - Accumulated depreciation (11,748) (11,056)
-------- --------
$ 31,399 $ 23,765
======== ========
NOTE 4 - EARNINGS PER SHARE
Income (loss) per share of common stock is calculated by dividing net income or
loss after preferred stock dividend requirements by the weighted average number
of outstanding shares of common stock. Furthermore, basic and diluted earnings
per share are identical for all periods presented. Potentially diluted
securities consist of additional shares of common stock issuable when the stock
rights become exercisable. These contingently issuable shares have not been
included in basic or diluted earnings per share as the stock rights are not yet
exercisable.
NOTE 5 - PREFERRED STOCK EXCHANGE OFFERING
Effective February 1, 2000, the Company completed its Exchange Offer pursuant to
the December 21, 1999 Exchange Offer Prospectus. The Exchange Offer allowed
holders of the Company's Series A Preferred Stock to exchange each preferred
share for either 2 1/2 shares of the Company's common stock or an equivalent
number of new 9.5% Company-obligated redeemable preferred securities of a
subsidiary trust holding solely the Junior Subordinated Debentures ("Trust
Preferred Securities") issued by Sea Pines Associates Trust I. Holders of
approximately 56% of the preferred stock exchanged their shares for Common
Stock. Holders of approximately 26% of the preferred stock exchanged their
shares for the new Trust Preferred Security.
In conjunction with the Exchange Offer, the Company declared a cash dividend of
$0.722 per share to be paid only to holders of record of Series A Preferred
Stock who exchanged shares of Series A Preferred Stock in the Exchange Offer.
This dividend will be paid in four approximately equal quarterly installments on
April 17, 2000, July 17, 2000, October 17, 2000 and January 15, 2001.
Holders of approximately 18% of the Series A Preferred Stock did not exchange
their shares. The Company incurred approximately $287,000 in professional fees
and other
<PAGE> 9
costs relating to this transaction. Costs of $195,000 were expensed in the
second quarter 2000 relating to the Common Stock Exchange. The remaining costs
of $92,000 were capitalized as deferred financing costs and will be amortized
over the 30-year life of the Trust Preferred Securities.
The Trust Preferred Securities bear interest at 9.5% per annum with payments due
quarterly, nine months in arrears. The first interest payment is payable January
31, 2001. The Trust Preferred Securities mature on January 31, 2030. The Company
has the right to redeem the Trust Preferred Securities on or after January 31,
2003 in whole or any time in part, from time to time as specified in the
indenture agreement. The Trust Preferred Securities are subordinate in right of
payment to all senior debt of the Company.
NOTE 6 - BUSINESS SEGMENT INFORMATION
The Company has two reportable business segments. The Company's reportable
segments are organized by the type of operations and include: (1) resort
activities, including home and villa management operations, golf course
operations, food and beverage operations, and various other recreational
activities; and (2) real estate brokerage for buyers and sellers of real estate
in the Hilton Head Island, South Carolina, area.
The Company evaluates performance and allocates resources based on earnings
before interest, depreciation and other non-cash items. The accounting policies
of the reportable segment are the same as those described in the summary of
significant accounting policies (Note 1). All intercompany transactions between
segments have been eliminated upon consolidation.
<PAGE> 10
NOTE 6 - BUSINESS SEGMENT INFORMATION (continued)
Segment information as of and for the quarter and six months ended April 30,
2000 and 1999 are as follows: (Dollars in Thousands)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
2000 1999 2000 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Resort $ 10,412 $ 8,620 $ 13,816 $ 11,624
Real estate brokerage 4,807 4,775 8,827 8,315
-------- -------- -------- --------
$ 15,219 $ 13,395 $ 22,643 $ 19,939
======== ======== ======== ========
Interest expense:
Resort $ 304 $ 312 $ 607 $ 620
======== ======== ======== ========
Depreciation and amortization expense:
Resort $ 359 $ 295 $ 680 $ 586
Real estate brokerage 14 11 27 20
-------- -------- -------- --------
$ 373 $ 306 $ 707 $ 606
======== ======== ======== ========
Segment income before income taxes:
Resort $ 1,483 $ 1,237 $ (468) $ 31
Real estate brokerage 380 660 593 948
-------- -------- -------- --------
$ 1,863 $ 1,897 $ 125 $ 979
======== ======== ======== ========
Identifiable assets:
Resort $ 49,063 $ 40,077 $ 49,063 $ 40,077
Real estate brokerage 2,867 2,525 2,867 2,525
-------- -------- -------- --------
$ 51,930 $ 42,602 $ 51,930 $ 42,602
======== ======== ======== ========
</TABLE>
<PAGE> 11
PART I
THIS REPORT ON FORM 10-Q AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME
BY THE COMPANY OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THOSE
STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT
EXPECTATIONS OF THE COMPANY AND MEMBERS OF ITS MANAGEMENT TEAM, AS WELL AS THE
ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. PROSPECTIVE INVESTORS ARE
CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS.
IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS INCLUDE THOSE SET
FORTH IN THIS REPORT, AS WELL AS THOSE CONTAINED IN THE SAFE HARBOR COMPLIANCE
STATEMENT FOR FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1 TO THIS REPORT
ON FORM 10-Q, WHICH FACTORS ARE HEREBY INCORPORATED BY REFERENCE. THE COMPANY
UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO
REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES
TO FUTURE OPERATING RESULTS OVER TIME.
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 racquet club facility, 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 fourteen offices serving Hilton Head
Island and its neighboring communities.
Results of Operations for 2nd Quarter 2000 as Compared with 2nd Quarter 1999
Consolidated revenues during the three months ended April 30, 2000
totaled $15,219,000, a 13.6% increase over consolidated revenues reported during
the three months ended April 30, 1999 of $13,395,000.
The Company reported consolidated net income during the second quarter
of 2000 of $1,230,000, a 1.8% decrease over the 1999 second quarter net income
of $1,252,000. The second quarter of 2000 includes start-up costs of the
Company's new food and beverage operations. Prior to June 1999, the food and
beverage operations were leased to outside operators. Additional expense
increases relate to increased
<PAGE> 12
conference sales and marketing efforts relating to the Company's new Conference
Center which opened April 1, 2000 and the Company's new Inn currently under
construction. These increased expenses were budgeted and expected. In addition
approximately $195,000 in costs associated with the exchange offer were expensed
in the second quarter of 2000.
Resort revenues during the second quarter of 2000 increased by
$1,791,000 or 21.9% over second quarter 1999 resort revenues. The Company
attributes the increase in resort revenues to an increase in lodging revenue
partially generated from the increase of available units on the Company's rental
program and increased food and beverage sales resulting from the change in
operating procedures.
Real estate brokerage revenues increased by $33,000, or .6%, to
$4,808,000 during the quarter ended April 30, 2000 as compared with the same
period last year. This increase in real estate revenues reflects both the
continued strength in market demand and continued appreciation in property
values within the Hilton Head Island market area.
Cost of revenues increased by $1,661,000, or 20.8%, during the second
quarter of 2000 compared to the same period last year. This increase is
attributable to the volume increase in real estate brokerage sales and lodging
rental revenues. The average commission paid to the Company's agents as a
percentage of revenue has increased from 71.53% in 1999 to 72.34% in 2000.
Sales and marketing expenses decreased by $34,000, or 3.7%, during the
second quarter of 2000 as compared to the same period last year. This decrease
resulted from the timing of certain printed marketing materials and media
advertising expenses which were incurred in the first quarter rather than the
second quarter in fiscal year 2000.
General and administrative expenses remained relatively constant at
$1,968,000 and $1,987,000 for the second quarter of 2000 and 1999, respectively.
Interest income remained relatively constant at $32,000 and $28,000 for
the second quarter of 2000 and 1999, respectively.
Interest expense on the Company's debt decreased $8,000 or 2.6% from
the same period last year. The Company capitalized approximately $125,000 in
interest during the second quarter 2000 relating to the construction of the Inn,
Conference Center and Racquet Club projects. Long-term debt increased by
$5,250,000 during the second quarter 2000 as a result of construction draws on
the revolving line of credit for these projects.
<PAGE> 13
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 lowest resort revenue
and real estate sales season and the period from April through October has
historically been the Company's highest season.
Cash and cash equivalents increased by $1,393,000 during the second
quarter of 2000 and totaled $4,435,000 at April 30, 2000, all of which was
restricted. The Company's working capital deficit decreased by $2,912,000 in the
second quarter resulting in a working capital deficit of $2,106,000 at April 30,
2000. The increases in cash and working capital are consistent with the seasonal
nature of the Company's operations.
Under a Master Credit Agreement with its principal corporate lender,
the Company maintains a term loan, a revolving line of credit and a seasonal
line of credit. Available funds under these facilities total $40,933,000 of
which $26,133,000 was outstanding at April 30, 2000.
The term loan in the principal sum of $18,500,000 matures on October
31, 2008. As of April 30, 2000, $18,133,000 was outstanding under the term loan.
The $18,300,000 revolving line of credit is maintained by the Company
primarily to fund its capital projects. The bank has approved $15,000,000 of the
line for use in the construction of the Company's inn, conference center and
racquet club renovations. The remaining $3,300,000 has been approved for use in
the Harbour Town Golf Links renovation. As of April 30, 2000, $8,000,000 was
outstanding under the revolving line of credit.
The seasonal line of credit in the amount of $4,500,000 is designed to
meet cash requirements during the Company's off-season winter months. As of
April 30, 2000, the seasonal line of credit had no outstanding balance.
Preferred stock dividends are declared and paid one year in arrears. At
its December 13, 1999 Board of Directors meeting, the Company declared a cash
dividend to holders of record on January 4, 2000, April 3, 2000, July 3, 2000
and October 2, 2000 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 two of which were paid on January 17, 2000 and April 17,
2000. Additional quarterly installments will be paid on July 17, 2000 and
October 17, 2000, to shareholders of record on July 3, 2000 and October 2, 2000,
respectively, and represents the accrued dividend for the fiscal year ended
October 31, 1999. Declared, but unpaid, amounts are recorded as dividends
payable. In conjunction with the Exchange Offer, the Company also declared a
cash dividend of $0.722 per share to be paid only to holders of record of Series
A Preferred Stock who exchanged shares of Series A Preferred Stock in the
Exchange Offer. This dividend will be paid in four approximately equal quarterly
installments on April 17, 2000, July 17, 2000, October 17, 2000 and January 15,
2001.
<PAGE> 14
Business Outlook and Recent Developments
The Company has entered into construction contracts and has commenced
construction on The Inn at Harbour Town and the court reconstruction phase of
the Sea Pines Racquet Club renovation. The Harbour Town Conference Center was
substantially completed on April 1, 2000. Construction contracts signed to date
total approximately $12,539,000. Total construction costs are estimated at
$17,230,000 for all three projects. As of April 30, 2000, total combined
construction costs incurred to date are $10,756,000.
The Harbour Town Conference Center is a 16,000 square-foot conference
facility adjacent to the existing Harbour Town Clubhouse. Total construction
costs are estimated at $5,471,000. As of April 30, 2000, $5,413,000 has been
spent. Construction of the conference center was completed on April 1, 2000.
The Inn at Harbour Town will be a 47,000 square-foot facility featuring
60 inn rooms and will be adjacent to and provide views of the Harbour Town Golf
Links. Total construction costs are estimated at $10,576,000. As of April 30,
2000, $4,377,000, has been spent. Completion is scheduled for the fall of 2000.
Additionally, the Company completed work on Phase I of the Sea Pines
Racquet Club renovation. Phase I includes a complete reconfiguration and
reconstruction of the tennis court facilities and surrounding area. Total
construction costs of Phase I have been estimated at $1,184,000. As of April 30,
2000 $966,000 has been spent. Phase II of the project includes a permanent 3,800
square-foot facility containing an expanded pro shop, club offices and meeting
room. The cost of Phase II is estimated at $900,000 although no firm start date
has been determined.
The Company began a major renovation of the Harbour Town Golf Links in
May 2000 with an estimated construction cost of $3,162,000. As of April 30,
2000, $283,000 has been spent. During the construction and grow-in period, the
course will be closed for approximately nine months, reopening for play in the
second quarter of 2001. This course closing will result in lower revenues during
this period.
The Family Circle Cup, a tier-one women's professional tennis
tournament, has announced its move to Charleston after the April 2000
tournament. Sea Pines has hosted the event since its inception in 1973. While
the Company regrets the change in venue, it believes the move will have a
minimal impact on its ongoing operations. The tournament has been held during
the height of the spring tourism season, and the Company believes that
tournament revenues can be replaced during this period with additional social
and group lodging revenue. It is, however, difficult to measure any impact that
might result from the loss of the extensive media coverage and exposure provided
during the tournament.
Effective February 1, 2000, the Company completed its Exchange Offer
pursuant to the December 21, 1999 Exchange Offer Prospectus. The Exchange Offer
allowed holders of the Company's Series A Preferred Stock to exchange each
preferred share for either 2 1/2 shares of the Company's common stock or an
equivalent number of new 9.5% Company-obligated redeemable preferred securities
of a subsidiary trust holding solely the Junior Subordinated Debentures ("Trust
Preferred Securities")
<PAGE> 15
issued by Sea Pines Associates Trust I. The purpose of the Exchange Offer was to
refinance Series A Preferred Stock. Holders of approximately 56% of the
preferred stock exchanged their shares for Common Stock. Holders of
approximately 26% of the preferred stock exchanged their shares for the new
Trust Preferred Security. This refinancing benefits the Company in two ways: (i)
to the extent shares of Series A Preferred Stock were exchanged for the Trust
Preferred Securities, the Company will be able to deduct interest payable on
these Junior Subordinated Debentures for income tax purposes, while dividends on
shares of Series A Preferred Stock were not tax deductible, and (ii) to the
extent shares of Series A Preferred Stock were exchanged for Common Stock, which
do not currently pay a dividend, the Company's quarterly cash payment obligation
will be eliminated.
As a result of the exchange, the Company's annual Preferred Stock dividend
payment requirement will decrease by $727,000. Interest payments on the new
Trust Preferred Securities will require $152,000 of annual cash flow, including
approximately $79,000 in income tax savings. Because the Preferred Stock
dividend is paid in arrears, the Company will continue to make quarterly
payments on all Preferred Stock shares until January 15, 2001, when the dividend
for the period ended January 31, 2000 (the date of the Preferred Stock exchange)
will be paid. Holders of approximately 18% of the Series A Preferred Stock did
not exchange their shares and hence the Company will continue to incur and pay
dividends on these shares, which will amount to an annual payout of $159,490,
unless these shares are otherwise retired. The Company incurred $287,000 in
professional fees and other costs relating to this transaction. Costs of
$195,000 were expensed in the second quarter relating to the Common Stock
Exchange. The remaining costs of $92,000 were capitalized as deferred financing
costs and will be amortized over the 30-year life of the Trust Preferred
Securities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
During the six months ended April 30, 2000, there were no material
changes to the quantitative and qualitative disclosures about market risks
presented in the Company's Annual Report on Form 10-K for the year ended October
31, 1999.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material changes in any of the legal proceedings
discussed in the Company's 1999 Annual Report on Form 10-K, except as discussed
below. See Item 3 "Legal Proceedings" of Form 10-K for a complete discussion.
In December 1999, the Company executed a settlement agreement relating
to a lawsuit in which the plaintiffs claimed ownership to numerous parcels of
real property and certain personal property. The Company received quit claim
deeds from the plaintiffs for all material parcels of real property and all of
the personal property involved in the lawsuit. The lawsuit has been settled with
no adverse financial effect on the Company.
<PAGE> 16
The Company is subject to other claims and suits in the ordinary course
of business. In management's opinion, such currently pending legal proceedings
and claims and suits against the Company will not, in the aggregate, have a
material adverse effect on the Company.
Item 2. Changes in Securities and Use of Proceeds
Effective February 1, 2000, the Company completed an exchange offer
pursuant to which holders of the Company's Series A Preferred Stock
(the "Preferred Stock") exchanged 681,150 shares of Preferred Stock for
1,702,875 shares of Common Stock and 326,300 shares of Preferred Stock
for 326,300 shares of 9.5% Trust Preferred Securities issued by Sea
Pines Associates Trust I, a Delaware business trust in which the
Company owns all the outstanding Common Securities. These transactions
were undertaken in reliance upon the exemption from the registration
requirements of the Securities Act of 1933, as amended, afforded by
Section 3(a)(9), as exchanges of securities by the Company with its
existing shareholders. No commissions were paid in connection with such
exchanges.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters To A Vote of Security Holders
a) The Annual Meeting of Shareholders of the Company was held at 3:00
p.m. (EST) on March 16, 2000.
b) The following Directors of the Company were elected during the
Annual Meeting:
Affirmative Abstaining
Votes Votes
----------- ----------
Paul B. Barringer, II 1,268,625 10,500
Norman P. Harberger 1,269,375 9,750
Michael E. Lawrence 1,267,125 12,000
Thomas C. Morton 1,273,125 6,000
John A. Norlander 1,273,125 6,000
Perry M. Parrott, Jr. 1,273,125 6,000
Robert W. Siler 1,271,625 7,500
<PAGE> 17
The following Directors' terms of office as Directors of the Company
continued after the Annual Meeting:
Angus Cotton
Ralph L. Dupps, Jr.
P.R. Easterlin, Jr.
Charles W. Flynn
James L. Gray
John G. McGarty
Arthur P. Sundry
Joseph E. Vercellotti
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
See attached Exhibit Index
(b) Reports on Form 8-K
None
<PAGE> 18
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: June 14, 2000 Norman P. Harberger
------------- -------------------
Norman P. Harberger
Chairman (duly authorized officer)
Date: June 14, 2000 Thomas C. Morton
------------- ----------------
Thomas C. Morton
Treasurer (principal financial officer)
<PAGE> 19
EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Exhibit No.
-----------
3(a) Articles of Incorporation of Registrant
(Incorporated by reference to Exhibit 3
to Registration Statement on Form 10
filed March 1, 1989)
3(b) Articles of Amendment to Articles of
Incorporation of Registrant (Incorporated
by reference to Exhibit 3(b) to the
Registrants' Form 10-K for the fiscal
year ended December 31, 1989 filed on
January 29, 1990)
3(c) Articles of Amendment to Articles of Incorporation of
Registrant (Incorporated by reference to Exhibit 3(c)
to Form 10-K filed January 26, 1994)
3(d) Amended Bylaws of Registrant Revised October 25, 1999
(Incorporated by reference to Exhibit 3(d) to Form
10-K filed January 27, 2000)
4(a) First Amended and Restated Right Agreement
between Sea Pines Associates, Inc. and
EquiServe Trust Company, NA dated as of
August 23, 1993 and Amended and Restated
as of July 20, 1999 (Incorporated by reference
To Form 8A12G/A filed August 8, 1999)
4(b) Certificate of Trust of Sea Pines Associates Trust I
dated December 14, 1999
4(c) Trust Agreement dated December 14, 1999 by
Sea Pines Associates, Inc.
4(d) Junior Subordinated Indenture dated
February 1, 2000 between Sea Pines
Associates, Inc. and First Union National Bank
4(e) Guarantee Agreement dated February 1, 2000
between Sea Pines Associates, Inc.
and First Union National Bank
<PAGE> 20
Exhibit No.
-----------
4(f) Amended and Restated Trust Agreement
dated February 1, 2000 by
Sea Pines Associates, Inc.
10(a) Adjustable Rate Promissory Note between Sea Pines
Company, Inc. and Carolina Center Building
Corp. dated October 31, 1996 (Incorporated by
reference to Exhibit 10(t) to Form 10-K filed
January 29, 1997)
10(b) Mortgage Assignment and Security Agreement
between Sea Pines Company, Inc. and
Carolina Center Building Corp. date
October 31, 1996 (Incorporated by reference to
Exhibit 10(u) to Form 10-K filed January 29, 1997)
10(c) Master Credit Agreement dated as of October 31, 1998
between Sea Pines Associates, Inc. and Sea Pines
Company, Inc. and Wachovia Bank, N.A.
(Incorporated by reference to Exhibit 10 (l) to
Form 10-K filed January 29, 1999)
10(d) Amended and Restated Term Note between Sea Pines
Associates, Inc. and Sea Pines Company, Inc. and
Wachovia Bank, N.A. in the principal sum of
$18,500,000 dated October 31, 1998 with respect
to the Credit Agreement in 10(c) above.
(Incorporated by reference to Exhibit 10(m) to Form
10-K filed January 29, 1999)
10(e) Amended and Restated Revolving Line of Credit Note between
Sea Pines Associates, Inc. and Sea Pines Company,
Inc. and Wachovia Bank, N.A. in the principal sum of
$15,000,000 dated October 31, 1998 with respect to
the Credit Agreement in 10(c) above. (Incorporated by
reference to Exhibit 10(n) to Form 10-K filed January
29, 1999)
10(f) Amended and Restated Seasonal Line of Credit Note between
Sea Pines Associates, Inc. and Sea Pines Company,
Inc. and Wachovia Bank, N.A. in the principal sum of
$2,500,000 dated October 31, 1998 with respect to the
Credit Agreement in 10(c) above. (Incorporated by
reference to Exhibit 10(o) to Form 10-K filed January
29, 1999)
<PAGE> 21
Exhibit No.
-----------
10(g) Mortgage Modification and Restatement Agreement dated
October 31, 1998 between Sea Pines Associates, Inc.
and Sea Pines Company, Inc. and Wachovia Bank,
N.A. with respect to the note in 10(d) above.
(Incorporated by reference to Exhibit 10(m) to
Form 10-K filed January 29, 1999)
10(h) Mortgage Modification and Restatement Agreement dated
October 31, 1998 between Sea Pines Associates, Inc.
and Sea Pines Company, Inc. and Wachovia Bank,
N.A. with respect to the note in 10(e) above.
(Incorporated by reference to Exhibit 10(q) to
Form 10-K filed January 29, 1999)
10(i) Mortgage Modification and Restatement Agreement dated
October 31, 1998 between Sea Pines Associates, Inc.
and Sea Pines Company, Inc. and Wachovia Bank,
N.A. with respect to the note in 10(f) above.
(Incorporated by reference to Exhibit 10 (r) to
Form 10-K filed January 29, 1999)
10(j) Swap Transaction confirmation between Sea Pines Company,
Inc. and Wachovia Bank, N.A. dated September 30, 1998.
(Incorporated by reference to Exhibit 10(s) to
Form 10-K filed January 29, 1999)
10(k) License and Use Agreement dated June 30, 1998 between Sea
Pines Company, Inc. and CC-Hilton Head, Inc. (Incorporated by
reference to Exhibit 10(t) to Form 10-K filed January 29,
1999)
10(l) Asset Purchase Agreement dated July 31, 1997 between
Sea Pines Senior Living Center, Inc. and
The Rogers Center, L.L.C. (Incorporated by reference to
Exhibit 10(w) to Form 10-K filed February 13, 1998)
10(m) First Master Credit Agreement Modification Agreement
dated October 31, 1999 between Sea Pines Associates,
Inc. and Sea Pines Company, Inc. and Wachovia Bank, NA
(Incorporated by reference to Exhibit 10(m) to Form 10-K filed
January 27, 2000)
<PAGE> 22
Exhibit No.
-----------
10(n) First Revolving Line of Credit Modification Agreement
dated October 31, 1999 between Sea Pines Associates,
Inc. and Sea Pines Company, Inc. and Wachovia Bank, NA
(Incorporated by reference to Exhibit 10(n) to Form 10-K filed
January 27, 2000)
10(o) First Seasonal Line of Credit Note Modification Agreement
dated December 20, 1999 between Sea Pines Associates,
Inc. and Sea Pines Company, Inc. and Wachovia Bank, NA
(Incorporated by reference to Exhibit 10(o) to Form 10-K filed
January 27, 2000)
10(p) First Term Note Modification Agreement dated December 20, 1999
between Sea Pines Associates, Inc. and Sea Pines Company,
Inc. and Wachovia Bank, NA (Incorporated by reference to
Exhibit 10(p) to Form 10-K filed January 27, 2000)
10(q) Standard Form of Agreement between Owner and Contractor dated
June 17, 1999 between Sea Pines Company, Inc. and Harden
Fraser Construction, Inc. (Incorporated by reference to
Exhibit 10(q) to Form 10-K filed January 27, 2000)
27 Financial Data Schedules (for SEC use only)
99.1 Safe Harbor Disclosure
