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Press Release: Sunterra Corporation
November 20, 2003
LAS VEGAS, NV -- Sunterra Corporation (OTC Bulletin Board: SNRR), which held its first investor earnings call in
over three years Nov. 17, noted that a number of investors were unable to participate during the live call and
web cast and is providing a instant replay number for the convenience of those interested in listening to the call.
Interested parties may dial 1-888-568-0051 (toll-free) or 402-530-7758 (for toll or international callers) to review
the entire call, including management's presentation, comments and participant questions.
During the call, there was a question regarding the consolidated effective tax rate of Sunterra Corporation (hereafter
referred to as "Sunterra" or the "Company"). To clarify, Sunterra is currently not a taxpayer
in the United States due to large NOL carryforwards from prior years. Our European subsidiary has historically
been a taxpayer at an effective tax rate of approximately thirty-percent.
As there were items requiring correction in the tables sent out with the original and later press release, the
Company also wished to reissue the full discussion and related tables, to ensure that all parties had the correct
information. This information follows and comprises the remainder of this release.
Third Quarter 2003
Sunterra earned net income of $4.3 million or $0.21 per share, in the three months ended September 2003. This compares
to a combined $327.3 million in the prior year. Results for the third quarter 2003 included a $1.4 million impairment
charge for the write-down of certain long-lived assets under SFAS 144. The prior year balance includes $239.2 million
of gains on settlement and cancellation of debt and pre-petition liabilities and $112.7 million of fresh start
adjustments, in connection with the Company's emergence from bankruptcy in July 2002. Excluding these items, the
three-month net loss of the combined Predecessor (debtor-in-possession) entity for the one-month ended July 31,
2002 and the Successor (post emergence from bankruptcy) entity for the two months ended September 30, 2002 would
have been $24.6 million.
Total revenues continued the trend of earlier quarters, rising from a combined $81.1 million for the three months
ended September 30, 2002 to $86.0 million for the same period in the current year, an increase of $4.9 million
or 6.0%. Domestic operations produced three-month revenues of $55.6 million, up from $53.1 million in the third
quarter of 2002. Our foreign operations logged $30.5 million of total revenue in the 2003 third quarter, compared
to $28.1 million in 2002.
On a consolidated basis, Vacation Interest revenues improved to $63.8 million from $54.9 million for the quarters
ended September 30, 2003 and 2002, respectively. Our domestic resorts produced $38.6 million and $31.7 million,
respectively, for these periods and our foreign operations generated $25.2 million and $23.2 million, respectively.
Sunterra's third quarter Earnings Before Interest, Taxes, Depreciation and Amortization, Reorganization and Restructuring
(EBITDAR -- See attached table for reconciliation of net income to EBITDAR) increased 200.4%, or $11.1 million,
from $5.5 million in the third quarter 2002 to $16.6 million in 2003. This information is provided because management
uses it to monitor and assess the Company's performance and believes this information to be helpful to investors
in understanding and evaluating the Company. Management believes these results are reflective of the cost-reduction
and process improvement initiatives implemented as part our restructuring, as well as increased effectiveness by
the sales team and increasing consumer awareness of vacation ownership products.
Nicholas Benson, President and Chief Executive Officer of Sunterra, commented that the third quarter results were
"yet another indicator that Sunterra has followed through on our restructuring plans and will continue to
improve our results and our value to all of our stakeholders."
Year-to-Date Results
The Company's net income for the nine months ended September 30, 2003 was $2.8 million, compared to a combined
$314.3 million in the prior year. The 2002 amount includes $253.9 million of gains on settlement and cancellation
of debt and pre-petition liabilities and $112.7 million of fresh start adjustments, in connection with the Company's
emergence from bankruptcy in July 2002. Excluding these items, the nine-month net loss of the combined Predecessor
entity for the seven-months ended July 31, 2002 and the Successor entity for the two months ended September 30,
2002 would have been $52.3 million.
Sunterra generated $228.4 million in consolidated revenues in the first three quarters of 2003, an increase of
$15.9 million or 7.5% over the prior year. Overall revenues for domestic operations increased $8.6 million or 6.2%,
to $147.1 million for the nine months ended September 30, 2003 compared to $138.5 million for the same period in
2002. For the same periods, revenues from foreign operations increased $7.3 million or 9.8%, to $81.3 million for
2003 compared to $74.0 million in 2002.
Consolidated Vacation Interest revenues were $160.7 million and $137.0 million for the nine months ended September
30, 2003 and 2002, respectively, equating to a current year increase of $23.7 million or 17.3%, over the 2002 period.
Our domestic operations realized a $17.4 million or 22.6% increase in the current year, posting $94.4 million in
Vacation Interest revenues for the first three quarters of 2003, compared to a combined $77.0 million for the same
period in 2002. Our European team generated $66.3 million of Vacation Interest revenues in the nine months ended
September 30, 2003, up $6.3 million or 10.4%, from the comparable 2002 period results of $60.0 million.
Similar to the third quarter results, the Company posted a $20.7 million or 126.5%, increase in nine-month EBITDAR,
from $16.4 million for the combined 2002 nine months to $37.1 million for the same period in 2003. This information
is provided because management uses it to monitor and assess the Company's performance and believes this information
to be helpful to investors in understanding and evaluating the Company. Similar to the second quarter results,
the improvements are related to our sales and marketing initiatives (which helped to drive Vacation Interest revenues
$23.7 million higher in the first nine months of 2003), emergence from reorganization, several restructuring initiatives
that streamlined administrative costs and lowered vendor outlays and efficiencies gained from the consolidation
of the Company's offices to Las Vegas, Nevada.
Sunterra Corporation is one of the world's largest vacation ownership companies, with over 315,000 vacation owner
families and 87 affiliated resort locations in the continental United States, Europe, the Caribbean, Hawaii and
Mexico. A copy of this press release announcing our earnings will be available in the Investor Relations section
of our website at www.sunterra.com .
NOTE - FORWARD-LOOKING STATEMENTS: This press release contains "forward- looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, regarding, among other things, our operations outlook,
business strategy, prospects and financial position. These statements contain the words "believe," "anticipate,"
"estimate," "expect," "project," "intend," "may," "will,"
and similar words. These forward-looking statements are not guarantees of future performance, and involve known
and unknown risks, uncertainties and other factors that may cause our actual results to be materially different
from any future results expressed or implied by such forward-looking statements. Important factors that could cause
our actual results to differ materially from the results anticipated by the forward looking statements are contained
in our Annual Report on Form 10-K under "Risk Factors" including, without limitation, to matters arising
from our emergence from proceedings under Chapter 11 of the Bankruptcy Code. Any or all of these factors could
cause our actual results and financial or legal status for future periods to differ materially from those expressed
or referred to in any forward-looking statement. All written or oral forward-looking statements attributable to
us are expressly qualified in their entirety by these cautionary statements. Forward-looking statements speak only
as of the date on which they are made.
As a result of adopting fresh-start reporting upon emerging from Chapter 11 status, the Company's financial statements
are not comparable with those prepared before August 1, 2002 (the date of emergence for accounting purposes), including
the historical consolidated financial statements included herein, and as such, share amounts and per share data
are not presented for periods prior to August 1, 2002.
References to "Predecessor" refer to the Company through July 31, 2002. References to "Successor"
refer to the Company on and after August 1, 2002.
For purposes of management's discussion and analysis, the results of operations for the three months ended September
30, 2003 have been compared to the combined results of operations for the two months ended September 30, 2002 (Successor)
and the month ended July 31, 2002 (Predecessor). Similarly, the nine months ended September 30, 2003 have been
compared to the combined results of operations for two months ended September 30, 2002 (Successor) and the seven
months ended July 31, 2002 (Predecessor). The following tables show the 2003 periods in comparison to the combined
corresponding 2002 periods and are presented solely for use in comparative analysis of results of operations and
to complement management's discussion and analysis.
SUNTERRA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(in '000's, except per share data)
(Unaudited)
Pro Forma Pro Forma
Combined Combined
Successor & Successor &
Successor Predecessor Successor Predecessor
THREE MONTHS ENDED NINE MONTHS ENDED
09/30/2003 09/30/2002 09/30/2003 09/30/2002
REVENUES
Vacation Interest $63,794 $54,853 $160,690 $137,021
Resort rental 1,585 3,090 7,335 9,942
Management services 8,481 7,531 22,491 22,363
Interest 6,282 7,411 18,789 21,773
Other 5,911 8,259 19,097 21,450
Total revenues 86,053 81,144 228,402 212,549
COSTS AND OPERATING EXPENSES
Vacation Interest cost
of sales 11,839 12,075 29,711 29,637
Advertising, sales
and marketing 32,647 33,211 90,631 86,340
Maintenance fee
and subsidy 3,466 3,865 10,309 8,956
Provision for
doubtful accounts
and loan losses 2,126 2,133 3,832 5,080
Loan portfolio 2,767 3,570 8,124 10,039
General and
administrative 17,465 22,290 52,426 60,084
Depreciation and
amortization 2,746 2,904 8,406 9,733
Interest 6,875 4,969 18,529 13,105
Reorganization, net (497) (333,132) (664) (327,719)
Restructuring 17 1,576 1,008 2,241
Impairment of assets 1,400 -- 1,400 --
Total costs and
operating expenses 80,851 (246,539) 223,712 (102,504)
Income from investments
in joint ventures 1,068 1,445 2,475 3,615
Income before provision
for income taxes 6,270 329,128 7,165 318,668
Provision for
income taxes 1,991 1,796 4,383 4,402
Net income $4,279 $327,332 $2,782 $314,266
Net income per share:
Basic and Diluted $0.21 $0.14
Weighted Average number
of common and common
equivalent shares
- Basic and Diluted 20,000 20,000
SUNTERRA CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
(in '000's)
Successor
09/30/03 12/31/02
(Unaudited)
ASSETS
Cash and cash equivalents $25,249 $22,960
Cash in escrow and restricted cash 46,902 50,999
Mortgages and contracts receivable, net 177,215 180,588
Retained interests in mortgages and
contracts receivable sold 19,063 18,089
Due from related parties 5,750 1,840
Other receivables, net 26,036 19,754
Prepaid expenses and other assets 41,285 36,331
Assets held for sale 2,289 14,038
Investment in joint ventures 20,950 30,503
Real estate and development costs, net 126,602 133,676
Property and equipment, net 70,541 69,162
Intangible and other assets, net 153,915 154,312
Total assets $715,797 $732,252
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings under line of credit agreements $227,010 $240,065
Accounts payable 8,409 12,502
Accrued liabilities 84,519 85,635
Income taxes payable 4,354 5,922
Deferred revenue 96,783 99,666
Notes payable 4,640 4,136
Total liabilities 425,715 447,926
Commitments and contingencies
Stockholders' equity
Common stock 180 180
Additional paid-in capital 296,714 296,714
Accumulated deficit (11,541) (14,323)
Accumulated other comprehensive income 4,729 1,755
Total stockholders' equity 290,082 284,326
Total liabilities and stockholders' equity $715,797 $732,252
SUNTERRA CORPORATION
RECONCILIATION OF CONSOLIDATED NET INCOME TO CONSOLIDATED EBITDAR
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(in '000's)
(Unaudited)
Pro Forma
Combined
Successor &
Successor Predecessor
THREE MONTHS ENDED
09/30/2003 09/30/2002
Net income as reported $4,279 $327,332
Interest expense, including amortization
of deferred financing fees 6,875 4,969
Provision for income taxes 1,991 1,796
Depreciation and amortization
of fixed assets 2,746 2,904
Amortization of capitalized loan
origination costs and portfolio premium 451 192
Reorganization, net (497) (333,132)
Restructuring 17 1,576
Net gains on dispositions of
property and equipment (628) (99)
Impairments of assets 1,400 --
EBITDAR $16,634 $5,538
Pro Forma
Combined
Successor &
Successor Predecessor
NINE MONTHS ENDED
09/30/2003 09/30/2002
Net income as reported $2,782 $314,266
Interest expense, including amortization
of deferred financing fees 18,529 13,105
Provision for income taxes 4,383 4,402
Depreciation and amortization
of fixed assets 8,406 9,733
Amortization of capitalized loan
origination costs and portfolio premium 1,857 525
Reorganization, net (664) (327,719)
Restructuring 1,008 2,241
Net gains on dispositions of
property and equipment (610) (176)
Impairments of assets 1,400 --
EBITDAR $37,091 $16,377
Source: Sunterra Corporation