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Losses Per Share of $1.63 for the 1999 Fourth Quarter |
ORLANDO, Fla., March 15, 2000 - Sunterra Corporation
(NYSE: OWN) today announced that for the fourth quarter ended December
31,1999, the company recorded a net loss of $58.4 million, and diluted
loss per share of $1.63, compared with net income of $11.5 million, and
diluted earnings per share of 31 cents, in the 1998 quarter. Sales of vacation
ownership interests in the quarter of $97.2 million were down 1% from the
prior year.
The majority of the loss resulted from a $43 million after-tax charge directly and indirectly involving the company�s mortgages receivable. Although the non-cash charge was within the range specified, the earnings are substantially less than the company previously forecasted on January 20, 2000. The principal contributors to this earnings shortfall are: a writedown to net realizable value of certain non-core properties, resulting in a $10 million after-tax charge to earnings; and a $2 million after-tax charge related to capitalized debt costs and to costs associated with acquisitions that have now been terminated. For the full year, the Company reported a net loss of $17.4 million, and diluted loss per share of 48 cents, compared to 1998 net income of $42.8 million, and diluted earnings per share of $1.16. Sales of vacation ownership interests for the year were $423.7 million or 18% ahead of 1998, reflecting the overall strength of Sunterra�s properties in the timeshare marketplace. �We are extremely disappointed with these results and the subsequent deterioration in our market value, � said T. Lincoln Morison, Sunterra�s President and co-Chief Executive Officer. �However, Richard Harrington and I believe that we have made prudent decisions about our balance sheet and changes in our business model that position the company for improved performance in the coming year.� Morison added, �Our priorities for the year are clear: maintaining our liquidity; solidifying the company�s core operations; and rebuilding our momentum.� LIQUIDITY Sunterra reported that it remains in compliance with its public debt covenants, but has exceeded the triggers on several of its credit facilities. The company is involved in continuing discussions with its lenders and has made progress in obtaining waivers and advances. The discussions are ongoing, however, and unless they are successfully concluded, the Company continues to face liquidity risks. At the same time, the Company is in discussions with new sources about
additional receivables financing, including several traditional timeshare
lenders. The Company reported that it has just concluded with Finova Capital
Corp. a $25 million expansion of a $50 million inventory line that was
put
CORE OPERATIONS In addition to reviewing its resort network, the Company has also undertaken
a thorough operational review of its business and instituted a series of
important changes. The most significant of those is a
Co-Chief Executive Officer Richard Harrington said, �I believe in establishing full accountability for operations in the field with the people directly charged with that responsibility. They are closest to the action and in a position to make the quick judgments and take the fast action necessary for success in this business.� Harrington also said that it is his intention to return to Europe as Chairman of Sunterra Europe by April 30 of this year. Harrington will retain his seat on the Sunterra Board of Directors. Mr. Harrington added, �In addition, we have already taken actions that will result in approximately $15 million in annual cash savings through staff reductions and expense controls, both in overhead as well as in sales and marketing. For example, at one of our key resorts we have eliminated the high cost/low efficiency lead and tour generation programs and have focused on driving our highly profitable in-house business.� REBUILD MOMENTUM �To rebuild momentum, we have to provide steady, consistent and focused leadership,� Morison said. �That means regular communication between management and employees and a real, bottom-line focus on performance.� The Company has virtually completed both the introduction of Club Sunterra to its U.S. properties and also the corresponding rollout of the SWORD technology platform that is necessary to support this unique points-based vacation ownership system. At 12/31/99, Sunterra had 291,000 worldwide owners and members. The company owned and operated 88 resorts and managed another 18 properties at year-end. Late in 1999, Sunterra announced its Developer Affiliation program and
introduced two new partners. Under an affiliation agreement with Kosmas
Group International, Sunterra Resorts will manage three Florida resorts
totaling 500 units. In addition, Kosmas has signed a Club Sunterra licensing
agreement to sell Club Sunterra memberships to over 20,000 owners at these
properties. The second affiliation is Ellington at Wachesaw Plantation
East, just south of Myrtle Beach. �These affiliations are a winning
proposition for everyone involved,� Mr. Morison said. �It allows us to
expand our network, add Club members, and increase the resort inventory
in very desirable locations to our existing Club Sunterra members without
making a sizeable capital investment. It also provides a vehicle for independent
developers who want to offer a points-based club to their owners without
the costs associated with club development.�
In speaking about the fourth quarter�s special charges, Richard Goodman, Sunterra�s CFO, said, �there were several elements to the $43 million after-tax charge, including: $27 million related to the writing off of receivables that were either 180 days or more past due or were in default after making only the initial down payment (ie. First Payment Defaults); $6 million related to accrued interest on those mortgages receivable; $4 million related to homeowner�s association receivables; and the balance related to an adjustment in the retained interest in mortgages receivable that were previously sold and the writedown of a receivable from a marketing company that is no longer supplying tours to the company. In addition, the $10 million charge related to the re-evaluation of non-core properties was necessary because these properties will be marketed to prospective buyers as hotels, not timeshare projects as originally developed by the company. Gross mortgages receivable at 12/31/99 were $264 million and the allowance
for bad debts net of estimated recoveries was $20 million, or 7.6%. None
of the mortgages receivable on our balance sheet at year-end were 180 days
or more delinquent because they have all been completely written off�which
was adopted as our policy in the 4th quarter. In addition, all First Payment
Defaults that had been on our balance sheet have also been written off,
and we have taken steps to insure that on a go-forward basis we will be
reversing all First Payment Defaults against sales when they become 60
days overdue.� The $20 million reserve for doubtful accounts is based on
a thorough aging and analysis of all receivables, with progressively larger
reserves taken for receivables that are more delinquent. At 12/31/99, receivables
more than 60 days overdue amounted to 7.1% of gross mortgages receivable.
Cautionary Statement Regarding Forward Looking Information. This release contains forward-looking statements, which include Sunterra�s expansion plans, future prospects, forecasts and other statements of expectations. Although management believes these statements are based on reasonable assumptions, actual results may differ materially from those expressed in any of our forward looking statements due to, among other things, factors related to the timing and terms of future acquisitions and disposals, availability of sufficient liquidity, integration of acquired operating companies and resort properties and other factors identified in Sunterra�s filings with the Securities and Exchange Commission, including those set forth in Parts I and II of Sunterra�s Annual Report on form 10-K for the year ended December 31, 1998 and in Sunterra�s current reports on Forms 10-Q and Forms 8-K filed during 1999. |
Richard Goodman, CFO, Keith Brown, Corporate Development, 407-532-1000, of Sunterra Corporation www.Sunterra.com |