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ORLANDO, Fla., Feb. 10, 1999 - Sunterra Corporation
(NYSE: OWN) today announced record financial performance for the three
months and year ended December 31, 1998. Fourth quarter 1998 net income,
before cumulative effect of change in accounting principle, increased by
26.5% to a record $12.9 million, or $0.35 per diluted share, compared with
recurring net income of $10.2 million, or $0.28 per diluted share in the
fourth quarter of 1997. Revenues increased by 43.6% over this same period
to a record $126.9 million in the fourth quarter of 1998 from $88.4 million
in the fourth quarter of 1997.
For the 1998 full year, net income, before cumulative effect of change in accounting principle and extraordinary item, increased by 37.9% to $44.4 million, or $1.20 per diluted share, from recurring income of $32.2 million, or $0.89 per diluted share in 1997. Revenues increased by 33.3% for the year to $450.0 million in 1998 from $337.7 million in 1997. Two weeks ago, the Company announced certain fourth quarter items -- a gain on sale of mortgages receivable, consolidation charges, the write-down of certain assets and the cumulative effect of change in accounting principle. Excluding all these items, net income was $12.6 million, or $0.34 per diluted share in the fourth quarter of 1998, and $43.4 million, or $1.18 per diluted share for the year ended December 31, 1998. L. Steven Miller, Sunterra's President and CEO, reviewed the year as
follows: "Sunterra's record
fourth quarter sales and earnings performance marks our tenth consecutive
quarter of increasing value for our shareholders since the Company went
public in August 1996. 1998 was an important year in the development of
Sunterra, with major accomplishments on several key business drivers:
Fourth Quarter Results Gains in three areas drove the 43.6% increase in total revenues for the fourth quarter. First, vacation interval/point sales increased by 39.3% to $98.6 million in 1998 from $70.8 million in 1997, reflecting sales increases both in existing resorts ($15.6 million) as well as in resorts acquired since the fourth quarter of 1997 ($12.2 million). Second, other income more than doubled to $9.1 million from $4.3 million, reflecting a significant increase in the recurring resort management fees paid by Sunterra's growing member base and rental revenues generated from the Company's larger base of resorts. Third, included in fourth quarter revenues in 1998 was the $5.7 million pretax gain on the sale of $79 million of mortgages receivable into the $100 million Conduit Facility we established in the fourth quarter; there was no such sale in the comparable prior year period. The operating margin in the fourth quarter of 1998 was 25.0% compared with 24.9% in the comparable prior year period. The operating margin in the fourth quarter of 1998 includes a $5.1 million pretax charge for the consolidation of functions to our Orlando headquarters and the write-down of certain assets and a $5.7 million pretax gain on the sale of mortgages receivable to the Conduit Facility. Excluding the effect of these items on both profits and revenues, the operating margin in the fourth quarter of 1998 was 25.7% compared with 24.9% in the fourth quarter of 1997. Cost of sales, as a percentage of vacation ownership sales, declined slightly to 24.1% in the fourth quarter of 1998 from 24.2% in the fourth quarter of 1997. By contrast, advertising, sales and marketing expenses, as a percentage of vacation ownership sales, increased to 46.6% from 45.2% in the comparable period of 1997. This increase primarily resulted from a mix-shift to European sales which have higher sales expenses (but lower cost of product), lower sales efficiencies connected with the launch of Club Sunterra, and the start-up of four new off-site sales locations. EBITDA for the fourth quarter of 1998 increased by 62.2% to $39.9 million from $24.6 million in the fourth quarter of 1997. EBITDA margins increased to 28.3% from 27.8% over this same period, excluding the above referenced mortgages receivable gain, consolidation charges and the write-down of certain assets. Fourth quarter 1998 net interest expense increased to $9.8 million, $5.4 million higher than in the fourth quarter of 1997, primarily reflecting: additional borrowings that funded acquisition and development costs; the financing of an increase in our mortgages receivable portfolio prior to the sale at year-end of $79 million of these mortgages receivable into the Conduit Facility; and lower capitalized interest. At December 31, 1998, net mortgages receivable were $336.0 million, a reduction of $50.9 million from $386.9 million at September 30, 1998 -- and up by only $4.3 million from $331.7 million at year-end 1997. Consumer loans in excess of 60 days past due, including defaulted loans and loans in the deed-in-lieu process at December 31, 1998, were 7.4%, as a percentage of gross mortgages receivable, up from 6.8% at December 31, 1997. Net of inventory recoveries, these same percentages would decrease to 4.6% and 4.3%, respectively. These year-to-year variances entirely reflect a slight shift in the mix of mortgages receivable due to the year-end sale of mortgages into the Conduit Facility. The Company's allowance for doubtful accounts, as a percentage of gross mortgages receivable, was 6.4% at December 31, 1998, versus 6.3% in the quarter ended September 30, 1998. There were non-recurring items in the fourth quarters of both 1998 and 1997. As previously announced, as a result of the AICPA's Statement of Position 98-5 (SOP 98-5) "Reporting on the Costs of Start-up Activities," the Company incurred a $1.5 million non-cash after-tax cumulative adjustment for the period ending December 31, 1998. Net income for the fourth quarter of 1997 included a non-cash after-tax charge of $6.0 million resulting from the change in tax status of an acquired enterprise to a "C" Corporation for federal income tax purposes. Reported net income of $0.31 per diluted share in the fourth quarter of 1998 and $0.12 per diluted share in the fourth quarter of 1997 includes these non-recurring items. Full-Year Results For the year ended December 31, 1998, total revenues increased 33.3% to $450.0 million from $337.7 million in 1997. Factors which contributed to the increase in year over year revenues include a 27.9% increase in the sale of vacation points and intervals to $359.4 million from $281.1 million, a 22.4% increase in interest income to $52.5 from $42.9 million, a $6.7 million gain on the sale of mortgages receivable, and a 126.8% increase in other income to $31.3 million from $13.8 million, primarily due to dramatic increases in recurring resort management fees and rental revenues across Sunterra's larger base of resorts. Operating margins significantly improved to 26.1% from 22.7% in the year earlier period, excluding a gain on sale of mortgages receivable, the consolidation charges and the write-down of certain assets in 1998, and the merger related costs in 1997. Cost of sales, as a percentage of vacation ownership sales, declined to 23.8% from 25.4% in 1997, primarily as a result of a higher mix of European sales, which have lower product cost, but higher sales costs. This was also the primary factor in advertising, sales and marketing expenses, as a percentage of vacation ownership sales, increasing to 45.6% from 45.1% in the year ago period. EBITDA for 1998 increased 59.5% to $136.2 million from $85.4 million in 1997, reflecting EBITDA margins of 30.3% and 25.3%, respectively. Excluding the above referenced mortgages receivable gain, consolidation charges, and the write-down of certain assets in 1998 and the merger-related costs in 1997, EBITDA margins increased to 29.2% in 1998 from 25.3% in 1997. Net interest expense increased 95.5% to $43.8 million from $22.4 million in the year ended December 31, 1997. The increase primarily reflects additional borrowings over the year to support continuing development and acquisitions, as well as mortgage financings associated with increased sales of vacation points and intervals. Sunterra Corporation is the world's largest vacation ownership company, with 87 resort locations around the world, two new resorts under construction and more than 240,000 owner families. This release contains forward-looking statements, which include Sunterra's expansion plans, future prospects and other forecasts and statements of expectations. Actual results may differ materially from those expressed in any forward looking statements made by Sunterra due to, among other things, factors related to the timing and terms of future acquisitions and the introduction of Club Sunterra, mortgages receivable financing, integration of acquired operating companies and resort properties and those factors identified in Sunterra's filings with the Securities and Exchange Commission, including those set forth in Items 1 and 2 of Sunterra's Annual Report on Form 10-K for the year ended December 31, 1997, and current reports on Form 8-K, and Forms 10-Q for the periods ending March 31, 1998 and June 30, 1998 and September 30, 1998. |
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Also See: | L. Steven Miller Appointed CEO and President at Sunterra Corp / Sept 1998 |