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 THE QUARTERLY PERIOD ENDED JUNE 30, 1997
Commission File Number:
333-264
Exact name of Registrant as specified in its charter:
South Seas Properties Company Limited Partnership
State or other Jurisdiction of incorporation or organization:
Ohio
I.R.S. Employer Identification Number:
59-2541464
Address of Principal Executive Offices:
12800 University Drive, Suite 350
Fort Myers, FL 33907
Registrant's Telephone Number, including Area Code:
(941) 481-5600
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. X YES NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
YES NO
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
FORM 10-Q
JUNE 30, 1997
INDEX
PAGE NO.
COVER LETTER
PART I
ITEM 1
FINANCIAL INFORMATION
Consolidated Balance Sheets at
June 30, 1997 and 1996 and
December 31, 1996 1
Consolidated Statements of Operations
for the Three Months and Six Months Ended
June 30, 1996 and 1997 2
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 1996 and 1997 3-4
Notes to Consolidated Financial Statements 5-7
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-14
PART II
OTHER INFORMATION 15
SIGNATURES 16
EXHIBITS:
EXHIBIT 10 - AMENDMENT #1 TO MANAGEMENT EQUITY PLAN
EXHIBIT 11- FIRST AMENDMENT (SEASIDE) TO AMENDED AND
RESTATED LOAN AGREEMENT
EXHIBIT 12 - SEASIDE CONSOLIDATED, AMENDED AND RESTATED
REVOLVING CREDIT NOTICE
EXHIBIT 13 - AMENDED AND RESTATED MORTGAGE AND SECURITY
AGREEMENT AND NOTICE AND AGREEMENT OF FUTURE ADVANCE
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
EXHIBIT 99 - CALCULATION OF WEIGHTED AVERAGE
UNITS OUTSTANDING
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(unaudited)
June 30 Dec. 31,
1997 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,207 $6,459
Restricted cash 200 201
Restricted marketable securities - -
Accounts receivable, trade 3,951 6,743
Receivables from affiliates 160 543
Inventories 1,671 1,677
Prepaid expenses and other 1,680 1,637
Total current assets 9,869 17,260
PROPERTY, PLANT AND EQUIPMENT, net 86,142 79,904
LOAN COSTS, net 5,307 5,660
GOODWILL, net 7,124 6,440
OTHER ASSETS 2,447 1,778
Total assets $110,889 $111,042
LIABILITIES AND PARTNERS' CAPITAL
DEFICIENCY
CURRENT LIABILITIES
Current maturities of notes
and mortgages payable $ 1,975 $1,750
Current obligations under
capital leases 240 265
Accounts payable 3,337 4,410
Accrued expenses 7,156 4,940
Customer deposits 2,727 4,976
Deferred revenue 1,129 1,585
Total current liabilities 16,564 17,926
NOTES AND MORTGAGES PAYABLE, less
current maturities 59,334 65,357
BONDS PAYABLE 43,500 43,500
LONG-TERM OBLIGATIONS UNDER
CAPITAL LEASES, less current
obligations 522 631
OTHER LONG-TERM OBLIGATIONS 1,304 1,305
COMMITMENTS AND CONTINGENCIES - -
PARTNERSHIP UNITS SUBJECT TO REDEMPTION 825 825
MINORITY INTERESTS 42 27
PARTNERS' CAPITAL DEFICIENCY (11,202) (18,529)
Total liabilities and
partners' capital
deficiency $110,889 $111,042
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per unit data)
(unaudited)
Three Months Six Months
Ended June 30 Ended June 30
1997 1996 1997 1996
Revenues
Rooms $18,502 $17,275 $43,383 $40,125
Food and beverage 5,117 4,667 11,088 10,395
Retail 1,728 1,728 3,945 3,828
Golf 950 767 2,074 1,785
Spa and fitness 678 654 1,375 1,424
Other 4,186 4,312 9,011 9,509
Total revenues 31,161 29,403 70,876 67,066
Expenses
Rooms 4,267 3,882 8,793 8,025
Food and beverage 3,814 3,581 8,137 7,602
Retail 1,307 1,218 2,767 2,598
Golf 248 299 581 537
Spa and fitness 383 384 750 786
Other 1,816 1,748 3,561 3,477
Condominium lease and rental expenses 4,831 5,004 10,933 11,106
Sales and marketing 2,189 1,805 4,061 3,842
Maintenance and grounds 1,322 1,233 2,707 2,561
General and administrative -
resort properties 4,698 4,193 9,676 8,764
General and administrative -
corporate overhead 778 979 1,690 1,835
Depreciation and amortization 2,129 1,837 4,134 3,716
Interest expense 2,446 2,829 5,071 5,382
Total expenses 30,228 28,992 62,861 60,231
Income before non-operating items 933 411 8,015 6,835
Net gain on disposal/sale of
fixed assets 2 - 2 4
Minority interests (9) (9) (31) (31)
Net income $ 926 $ 402 $7,986 $6,808
Net income per unit, primary $ .20 $ .09 $ 1.80 $ 1.58
Net income per unit, fully diluted $ .20 $ .09 $ 1.19 $ 1.23
Weighted average units outstanding 4,427 4,331 4,427 4,320
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Page 1 of 2
(In Thousands)
(unaudited)
Six Months
Ended June 30
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and others $ 70,883 $ 66,053
Cash paid to suppliers, employees and affiliates (53,327) (52,672)
Interest paid (5,181) (7,235)
Net cash provided by operating
activities 12,375 6,146
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures/purchase of assets (3,935) (3,531)
Proceeds from sale of assets 2 4
Loans to affiliates, net of repayments 57 -
Purchase of resort property assets (3,411) -
Change in restricted cash/marketable securities 1 2,450
Net cash used by investing
activities (7,286) (1,077)
CASH FLOWS FROM FINANCING ACTIVITIES:
Draws under line of credit 1,500 -
Proceeds from long-term debt 43,500
Deferred loan costs (228) (3,627)
Principal payments, long-term debt (876) (16,343)
Principal payments, under capital
lease obligations (62) (528)
Principal payments, bonds payable - (12,998)
Distributions to partners (659) (610)
Distributions to minority unit holders (16) (17)
Principal payments under revolving lines
of credit (9,000) (11,885)
Proceeds from the issuance of limited partner
units - 487
Net cash used by
financing activities (9,341) (2,021)
Net (decrease)/increase in cash (4,252) 3,048
Cash and cash equivalents, beginning of period 6,459 7,340
Cash and cash equivalents, end of period $ 2,207 $10,388
(continued)
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Page 2 of 2
(In Thousands)
(unaudited)
Six Months
Ended June 30
1997 1996
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 7,986 $6,808
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation/amortization expense 4,134 3,716
Gain on sale of fixed assets (2) (4)
Minority interest 31 31
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable, net 2,809 1,492
Inventories 6 64
Prepaid expenses and other assets (848) (1,112)
Increase (decrease) in:
Accounts payable (1,116) 825
Accrued expenses 2,177 (2,524)
Customer deposits (2,346) (2,505)
Deferred revenues (456) (645)
Total adjustments 4,389 (662)
Net cash provided by operating activities $12,375 $6,146
Supplemental schedule of noncash investing and financing activities:
In January, 1997 South Seas acquired the Seaside Inn on Sanibel Island,
Florida for $6.5 million. In connection with the acquisition, South Seas
assumed liabilities of $2.5 million.
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all
adjustments necessary (consisting of only normal
recurring adjustments) to present fairly South Seas
Properties Company Limited Partnership ("South Seas")
consolidated financial position as of June 30, 1997 and
December 31, 1996 and the consolidated results of its
operations for the three and six months then ended and
its consolidated cash flows for the six months ended
June 30, 1996 and 1997. The results of operations for
the six month period ended June 30, 1997 are not
indicative of the results to be expected for the full
year due to the seasonality of the business operation.
For further information, refer to the audited
consolidated financial statements and notes thereto,
included in South Seas' 10-K report. Certain amounts in
the financial statements have been reclassified to
conform with the current presentation. These
reclassifications had no effect on the results of
operations previously reported. The consolidated
balance sheet at December 31, 1996 has been derived from
the audited financial statements at that date but does
not include all disclosures required by generally
accepted accounting principles. Refer to South Seas
annual 10-K report for complete footnote disclosure.
Note 2. Computation of Earnings Per Unit
Primary earnings per unit of partnership interests are
computed based on the weighted average number of
partnership unit equivalents (unit options, if
applicable) outstanding of 4.43 million and 4.33
million, for the three months ended June 30, 1997 and
1996, respectively, and 4.43 million and 4.32 million
for the six months ended June 30, 1997 and 1996,
respectively. The computation of fully diluted earnings
per unit assumed conversion of the 10% convertible
subordinated notes due April 2003, accordingly, net
earnings were increased by interest expense on the
subordinated notes. For the 1997 and 1996 fully diluted
earnings per unit computation, units were computed to be
8.57 million and 6.46 million for the six months ended
June 30, 1997 and 1996, respectively. For the three
months ended June 30, 1997 and fully diluted earnings
per unit is the same as primary earnings per unit
because such calculation is anti-dilutive for those
periods.
Note 3. Impact of Recently Issued Accounting Standards
In February, 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("FAS 128"), which becomes
effective for South Seas for the year ended December 31,
1997. FAS 128 replaces the presentation of primary
earnings per unit with a presentation of basic earnings
per unit which excludes dilution and is computed by
dividing income available to partnership unit holders by
the weighted average number of partnership units
outstanding for the period. Diluted earnings per unit
reflect the potential dilution that would occur if
securities or other contracts to issue units were
exercised or converted into units or resulted in the
issuance of units that then shared in the earnings of
the entity. Diluted earnings per unit is computed
similarly to fully diluted earnings per unit pursuant to
Accounting Principles Board Opinion No. 15, "Earnings
Per Share." FAS 128 also requires dual presentation of
basic and diluted earnings per unit on the face of the
income statement for all entities with complex capital
structures and requires a reconciliation of the
numerator and denominator of the basic earnings per unit
computation to the numerator and denominator of the
diluted earnings per unit comparison. The
implementation of FAS 128 is not expected to have a
material impact on South Seas' reported results of
operations.
In addition, during 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about
Capital Structure" ("FAS 129"), No. 130, "Reporting
Comprehensive Income" ("FAS 130"), and No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131"). FAS 129 consolidates the
existing requirements relating to disclosure of certain
information about an entity's capital structure. FAS 130
establishes standards for reporting comprehensive income
to present a measure of all changes in equity that
result from renegotiated transactions and other economic
events of the period other than transactions with owners
in their capacity as owners. Comprehensive income is
defined as the change in equity of a business enterprise
during a period from transactions and other events and
circumstances from nonowner sources and includes net
income. FAS 131 specifies revised guidelines for
determining an entity's operating segments and the type
and level of financial information to be disclosed. FAS
131 requires that management identify operating segments
based on the way that management disaggregates the
entity for making internal operating decisions. These
financial accounting standards are effective for fiscal
years beginning after December 31, 1997. Management has
not determined what impact these standards, when
adopted, will have on South Seas' financial statements.
Note 4.
On January 6, 1997 South Seas purchased from an
affiliated limited partnership, real and personal
property used in the operation of a 32 unit motel
(Seaside Inn) on Sanibel Island, Florida for $6.5
million. In connection with the acquisition, South Seas
assumed liabilities of $2.5 million. Unaudited revenues
and net income for the Seaside Inn for the year ended
December 31, 1996 were $1.4 million and $43,000,
respectively.
The balance of the purchase price was made via a cash
payment of $3.4 million which was allocated as follows
(in thousands):
Cash payment $3,411
Allocated to:
Fixed assets $5,574
Goodwill 912
Current assets and liabilities, net (134)
Debt assumed (2,505)
Repayment of advance from South Seas (326)
Down payment (100)
Other (10)
$3,411
Note 5. Seaside Inn Revolving Credit Line
In May, 1997, South Seas amended and increased the $2.5
million loan held by Barnett Bank, N.A. secured by the
Seaside Inn to a $3.5 million revolving credit note and
caused Barnett to assign the loan to Credit Lyonnais,
New York Branch, Barnett Bank, N.A. and Finova Capital
Corporation (collectively, the "Lender") and to pledge
the Seaside Inn to the Lender for security. The amount
available under this line was $923,000 as of June 30,
1997.
Note 6. Revolving Credit Line
In connection with the $40 million revolving line of
credit with Credit Lyonnais, New York Branch, South Seas
had available $20.4 million at June 30, 1997. South
Seas applies surplus seasonal working capital or draws
working capital based on seasonal needs to reduce or
increase the outstanding revolving loan balance.
PART I -FINANCIAL INFORMATION
Item 2 -MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction
with "Selected Historical Financial Data," "Selected
Consolidated Financial Data" and the audited consolidated
financial statements for South Seas and the notes thereto
appearing in the annual 10-K report for the year ended
December 31, 1996.
GENERAL
South Seas is one of the largest owners and operators of
upscale beachfront destination resorts and hotels in Florida.
South Seas owns, leases and/or manages 10 resort and
recreational properties. Included are seven owned resort and
hotel properties, one 18 hole golf course, and one managed
resort property, all located on Sanibel, Captiva, Estero and
Marco Islands off Florida's gulf coast (collectively referred
to as the "Properties"). South Seas, through its 99% owned
subsidiary, South Seas Resorts Company Limited Partnership
("Management Company"), also operates under a lease
arrangement a resort and spa located on Tampa Bay, Florida.
The Properties are designed to appeal to families, leisure
travelers and business groups. The Properties range in size
and style from the 552-unit South Seas Plantation resort on
Captiva Island, to the 269 unit, 11 story Marco Island
Radisson, to the 30-unit Song of the Sea Inn, a bed-and-breakfast
located on Sanibel Island. By offering a wide
variety of price points and vacation experiences, South Seas
is able to appeal to a broad section of the vacation market.
The Properties offer a combined total of approximately 1,700
condominium and hotel units, consisting of approximately
2,300 guest rooms, including luxurious beach homes, fully
equipped condominiums, suites, cottages and hotel rooms.
South Seas also owns and operates The Dunes Golf and Tennis
Club on Sanibel Island, which features an 18-hole, par 70
golf course, seven soft surface tennis courts, full banquet
and restaurant facilities and other amenities. Guests
staying at any of the Properties have access to the amenities
and vacation activities offered at all of the Properties.
South Seas believes that this feature, combined with the
Properties' attractive locations, enhances customer
satisfaction and guests' perceptions of value.
SEASONALITY
Properties owned or operated by South Seas are affected by
normally recurring seasonal patterns. Room rates are
substantially higher and occupancy is somewhat higher during
the months of January, February, March and April than during
the remainder of the year. Approximately 45% of South Seas'
revenues is earned in the first four months of each year.
Accordingly, South Seas' typically reports lower revenue and
net income in the second, third and fourth calendar quarters.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30,
1997 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1996
Revenues. Revenues consist principally of room rentals,
food and beverage sales, retail sales, spa and fitness
revenues, and golf course operations. Other revenue includes
marina operations, long distance telephone charges, fees for
the use of recreation facilities, commissions from realty
sales, interest income and other miscellaneous items.
Revenues for the three months ended June 30, 1997 increased
by approximately $1.8 million, or 6.0% over the prior period.
Rooms revenues increased by approximately $1.2 million, or
7.1% over the prior period. Approximately $402,000, or 32.8%
of the increase represents room revenues attributable to the
Seaside Inn (acquired January 6, 1997). Room revenues at
resorts owned throughout both periods ("Comparable Resorts")
increased by approximately $825,000 or 4.7%. The increase in
room revenues at Comparable Resorts resulted from an increase
in the average daily rate ("ADR") and an increase in the
percentage of occupancy. ADR at Comparable Resorts was
$190.35 for 1997, compared to $185.51 in 1996, an increase of
$4.84, or 2.6%. Occupancy percentage at Comparable Resorts
increased to 75.2% for the three months ended June 30, 1997
from 74.2% for the same period in 1996. The increase in ADR
reflects South Seas' efforts to maximize revenue per
available room ("REVPAR"), during peak demand periods.
During the three months ended June 30, 1997, REVPAR for
Comparable Resorts increased $5.61 or 4.1% over the same
period in 1996. The Seaside Inn had an occupancy percentage
of 85.0%, ADR of $162.21 and REVPAR of $137.93 during the
three months ended June 30, 1997.
Food and beverage revenues for the three months ended June
30, 1997 increased by $450,000, or 9.6% over the same period
in 1996. Approximately $157,000 or 34.9% of the increase was
due to increased food and beverage sales at Safety Harbor
Resort and Spa ("Safety Harbor"). South Seas entered into a
lease arrangement on the Safety Harbor in June 1995.
Management believed it was a property with significant
"up-side" potential. After a substantial investment in capital
improvements (over $2.6 million since lease inception),
combined with a highly motivated and experienced management
team, dramatic improvements in results of operations have
been realized at the resort over 1996.
Other revenues for the three months ended June 30, 1997
decreased by $125,000, or 2.9% from the prior period.
Revenues recognized at the renovated Dunes Golf & Tennis Club
were approximately $241,000 higher than the prior year. In
1996, all annual membership and initiation fees were
recognized in full at the time of receipt. This policy was
consistent with the terms of the non-refundable fees.
Although these fees are still non-refundable, in 1997,
management elected to defer and recognize membership and
initiation fees pro-rata over the calendar year. This
increase was offset by a decrease in the revenues at the
corporate level of $304,000, primarily due to lower interest
income of $185,000 (excess funds now used to pay down the
revolving credit line) and lower management fees of $23,000
(due to the acquisition of the Seaside Inn, and those fees
being eliminated in consolidation).
Expenses. Total expenses for the three months ended June
30, 1997 increased by approximately $1.2 million, or 4.2%
over the prior period. As a percentage of revenues, expenses
decreased from 98.6% to 97.0%. Analysis of major financial
line items follows:
Room expenses for the three months ended June 30, 1997
increased by $385,000 or 9.9% over the prior period. Rooms
expenses at Comparable Resorts increased $306,000 or 7.9%
over the same period last year. As a percentage of rooms
revenues, rooms expenses increased slightly from 22.5% to
23.1%, primarily due to the additional staff position of
yield manager.
Sales and marketing costs for the three months ended June
30, 1997 increased by $384,000 or 21.3% over the prior
period. As a percentage of total revenues, sales and
marketing increased from 6.0% in the three months ended June
30, 1996 to 7.0% for the three months ended June 30, 1997.
The increase in both dollars and as a percent of revenues was
a result of direct mail and media initiatives executed within
the second quarter designed to drive late end of second
quarter and third quarter revenues (June through September).
General and administrative expense for the three months
ended June 30, 1997 increased by $304,000, or 5.8% over the prior
period. Approximately $79,000 or 25.9% of the total increase
were associated with the Seaside Inn. As a percentage of
revenues, general and administrative expense remained
constant at 17.6%.
Depreciation and amortization expense for the three months
ended June 30, 1997 increased by $292,000 or 15.9% over the
prior period. As a percentage of revenues, depreciation and
amortization expense increased from 6.3% at June 30, 1996 to
6.8% at June 30, 1997. The increase in dollars is primarily a
result of depreciation on recent renovations and capital
improvements as well as $46,000 (or 15.8% of the total
increase)attributable to the Seaside Inn acquisition, and
increased amortization of loan costs.
Net Income. As a result of the foregoing factors, net
income for the three months ended June 30, 1997 increased by
$524,000 or 130.3% compared to the prior period. The Seaside
Inn contributed $134,000 or 25.6% of the total increase.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996
Revenues. Revenues consist principally of room rentals,
food and beverage sales, retail sales, spa and fitness
revenues, and golf course operations. Other revenue includes
marina operations, long distance telephone charges, fees for
the use of recreation facilities, commissions from realty
sales, interest income and other miscellaneous items.
Revenues for the six months ended June 30, 1997 increased by
$3.8 million, or 5.7% over the prior period.
Rooms revenues increased by approximately $3.3 million, or
8.1% over the prior period. Approximately $977,000 or 30.0%
of the increase represents room revenues attributable to the
Seaside Inn (acquired January 6, 1997). Dramatic improvements
were also realized at Safety Harbor, growth in occupancy from
39.7% for the six months ended June 30, 1996 to an occupancy
percentage of 71.9% for the same period in 1997, produced
increased rooms revenues of $930,000.
Room revenues at Comparable Resorts increased by
approximately $2.3 million or 5.7%. The increase in room
revenues at Comparable Resorts resulted from an increase in
the ADR and an increase in the percentage of occupancy. ADR
at Comparable Resorts was $220.14 for 1997, compared to
$215.43 in 1996, an increase of $4.71 or 2.2%. Occupancy
percentage at Comparable Resorts increased to 78.8% for the
six months ended June 30, 1997 from 75.6% for the same period
in 1996. The increase in ADR reflects South Seas' efforts to
maximize REVPAR, during peak demand periods. During the six
months ended June 30, 1997, REVPAR for Comparable Resorts
increased $10.57 or 6.5% over the same period in 1996. The
Seaside Inn had an occupancy percentage of 88.5%, ADR of
$190.56 and REVPAR of $168.62 during the six months ended
June 30, 1997.
Food and beverage revenues for the six months ended June
30, 1997 increased by $693,000, or 6.7% over the same period
in 1996. Approximately $367,000 or 53.0% of the increase was
due to increased food and beverage sales at Safety Harbor.
South Seas entered into a lease arrangement on the Safety
Harbor in June 1995. Management believed it was a property
with significant "up-side" potential. After a substantial
investment in capital improvements (over $2.6 million since
lease inception), combined with a highly motivated and
experienced management team, dramatic improvements in results
of operations have been realized at the resort over 1996.
Other revenues for the six months ended June 30, 1997
decreased by $498,000, or 5.2% from the prior period.
Revenues recognized at the renovated Dunes Golf & Tennis Club
were approximately $403,000 lower than the prior year. In
1996, all annual membership and initiation fees were
recognized in full at the time of receipt. This policy was
consistent with the terms of the non-refundable fees.
Although these fees are still non-refundable, in 1997,
management elected to defer and recognize membership and
initiation fees pro-rata over the calendar year. An
additional decrease in the revenues at the corporate level of
$458,000 was primarily due to lower interest income of
$259,000 (excess funds now used to pay down the revolving
credit line) and lower management fees of $55,000 (due to the
acquisition of the Seaside Inn, and those fees being
eliminated in consolidation). These decreases were offset by
improvements in other revenues at South Seas Plantation of
$150,000 (due primarily to incentive income earned on lease
programs) and $265,000 at Safety Harbor (due to significant
increases in occupancy).
Expenses. Total expenses for the six months ended June
30, 1997 increased by $2.6 million, or 4.4% over the prior
period. As a percentage of revenues, expenses decreased from
89.8% to 88.7%. Analysis of major financial line items
follows:
Room expenses for the six months ended June 30, 1997
increased by $768,000 or 9.6% over the prior period. Rooms
expenses at Comparable Resorts increased $602,000 or 7.5%
over the same period last year. As a percentage of rooms
revenues, rooms expenses increased slightly from 20.0% to
20.3%, primarily due to the additional position of yield
manager.
Sales and marketing costs for the six months ended June
30, 1997 increased by $219,000 or 5.7% over the prior period.
As a percentage of total revenues, sales and marketing
remained constant at 5.7% for both periods.
General and administrative expense for the six months
ended June 30, 1997 increased by $767,000, or 7.2% over the prior
period. Approximately $172,000 or 22.4% of the total increase
was associated with the Seaside Inn. As a percentage of
revenues, general and administrative expense increased
slightly from 15.8% in 1996 to 16.0% in 1997.
Depreciation and amortization expense for the six months
ended June 30, 1997 increased by $418,000 or 11.3% over the
prior period. As a percentage of revenues, depreciation and
amortization expense increased from 5.5% at June 30, 1996 to
5.8% at June 30, 1997. The increase in dollars is primarily a
result of depreciation on recent renovations and capital
improvements as well as $93,000 (or 22.2% of the total
increase)attributable to the Seaside Inn acquisition, and
increased amortization of loan costs.
Net Income. As a result of the foregoing factors, net
income for the six months ended June 30, 1997 increased by
$1.2 million or 17.3% compared to the prior period. The
Seaside Inn contributed $409,000 or 34.7% of the total
increase.
LIQUIDITY AND CAPITAL RESOURCES
South Seas has historically financed its operations and
capital expenditures with cash generated from operations,
bank borrowings, borrowings from private investors, corporate
bonds and short-term credit facilities.
On March 28, 1996, South Seas completed the public
offering of
$43,500,000 of its 10% subordinated notes as offered in the
Form S-1 Registration Statement ("Notes Offering"). The
terms of the Notes provided for the payment of interest
monthly at 10%, and with no principal reduction until
maturity on April 15, 2003.
The Notes are non-callable during the first four years of
the term then become redeemable, in whole or in part, at the
option of South Seas at various redemption prices (108.24% to
112.62% of principal) during or after the year 2000.
Subsequent to the occurrence of certain events, the holders
of Notes will be offered the opportunity to convert the Notes
at an exchange rate of $12 per partnership unit (subject to
adjustment in certain circumstances). Upon the stated
maturity of the Notes, holders of Notes will be offered the
opportunity to convert the Notes at an exchange rate of
$10.50 per unit (subject to adjustment in certain
circumstances).
South Seas believes that cash generated by operations,
together with the proceeds from the Notes Offering will be
adequate to meet its working capital, debt service and
capital expenditure requirements through 1997. South Seas'
outstanding indebtedness, together with the Notes, places
certain debt service obligations on the partnership. South
Seas intends to pursue resort and/or hotel acquisitions and
to a lesser extent development opportunities in order to
achieve growth in its portfolio of properties. A portion of
the expenditures associated with this growth strategy will be
funded with cash generated from operations and proceeds from
the Notes Offering. South Seas believes that it may be
necessary to obtain additional debt or equity capital in
order to accommodate its plan for growth and expansion in
1997 and future periods.
South Seas anticipates that implementation of its growth
strategy referred to in the preceding paragraph will require
it to obtain additional debt or equity financing. The amount
of additional financing required by South Seas in order to
implement its growth strategy will depend on several factors,
including the purchase price and renovation costs associated
with acquisitions and South Seas' available cash resources at
the time of a particular transaction. Although there can be
no assurance as to South Seas' ability to obtain financing in
the amounts it requires on commercially reasonable terms, if
at all, South Seas believes that, based upon its current
financial condition and results of operations, such financing
will be available to it. South Seas' inability to obtain
additional financing could have a material adverse effect on
its results of operations, financial condition and future
prospects. The indenture places restrictions on the amount
of additional Funded Indebtedness (as defined in the
prospectus delivered in connection with the Notes Offering)
that South Seas may incur.
In December, 1996, South Seas obtained an irrevocable,
transferable letter of credit in an amount not to exceed
$3.26 million, for use as a replacement for a reserve fund
established in connection with the Notes Offering. No
amounts had been drawn as of June 30, 1997.
In March, 1997, South Seas retained an investment banking
firm to advise the partnership on various strategic financial
alternatives, to realize its' growth plan and enhance its
equity value. As of the filing of this report, South Seas,
together with their investment bankers, have completed their
initial evaluation of the company's operations. Several
alternatives have been outlined and are currently under
review.
On June 30, 1997, South Seas had cash and cash equivalents
of approximately $2.2 million, and restricted cash of
$200,000. Cash and cash equivalents decreased by $4.2
million during the six months ended June 30, 1997.
Cash flow from operations was approximately $12.4 million
for the six months ended June 30, 1997 as compared to $6.1
million in the prior period. Cash flow from operations was
negatively impacted by a $2.1 million increase in interest
paid during 1996. This significant increase in interest paid
was attributed to the early retirement of numerous notes,
bonds and accrued interest thereon with the proceeds from the
public offering. South Seas' other major source of cash in
the 1996 period was proceeds of $43.5 million (from the Notes
Offering). In addition to funding its operating activities,
South Seas' major uses of cash during the 1996 period were
principal payments on outstanding debt of approximately $41.7
million (primarily through proceeds of the Notes Offering),
capital expenditures and asset purchases of approximately
$3.5 million, and distributions to partners of approximately
$610,000. In 1997, South Seas' major uses of cash included
payments under the revolving line of credit of $9.0 million,
the purchase of the Seaside Inn (net of liabilities assumed)
of $3.4 million, and capital expenditures of $3.9 million. At
June 30, 1997, South Seas had a combined availability under
their two revolving lines of credit of $21.3 million.
South Seas is not currently a party to any legal
proceeding which, in Management's opinion, is likely to have
a material adverse effect on its operating results or
financial position.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February, 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("FAS 128"), which becomes
effective for South Seas for the year ended December 31,
1997. FAS 128 replaces the presentation of primary earnings
per unit with a presentation of basic earnings per unit which
excludes dilution and is computed by dividing income
available to partnership unit holders by the weighted average
number of partnership units outstanding for the period.
Diluted earnings per unit reflect the potential dilution that
would occur if securities or other contracts to issue units
were exercised or converted into units or resulted in the
issuance of units that then shared in the earnings of the
entity. Diluted earnings per unit is computed similarly to
fully diluted earnings per unit pursuant to Accounting
Principles Board Opinion No. 15, "Earnings Per Share." FAS
128 also requires dual presentation of basic and diluted
earnings per unit on the face of the income statement for all
entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic
earnings per unit computation to the numerator and
denominator of the diluted earnings per unit comparison. The
implementation of FAS 128 is not expected to have a material
impact on South Seas' reported results of operations.
In addition, during 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No.
129, "Disclosure of Information about Capital Structure"
("FAS 129"), No. 130, "Reporting Comprehensive Income" ("FAS
130"), and No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"). FAS 129
consolidates the existing requirements relating to disclosure
of certain information about an entity's capital structure.
FAS 130 establishes standards for reporting comprehensive
income to present a measure of all changes in equity that
result from renegotiated transactions and other economic
events of the period other than transactions with owners in
their capacity as owners. Comprehensive income is defined as
the change in equity of a business enterprise during a period
from transactions and other events and circumstances from
nonowner sources and includes net income. FAS 131 specifies
revised guidelines for determining an entity's operating
segments and the type and level of financial information to
be disclosed. FAS 131 requires that management identify
operating segments based on the way that management
disaggregates the entity for making internal operating
decisions. These financial accounting standards are effective
for fiscal years beginning after December 31, 1997.
Management has not determined what impact these standards,
when adopted, will have on South Seas' financial statements.
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Change in Partnership Units
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit I - Weighted Average Units Outstanding
(b) Reports on Form 8-K
Not applicable
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
SIGNATURES
JUNE 30, 1997
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.
ROBERT M. TAYLOR RICHARD E. KRICHBAUM
CHAIRMAN OF T&T RESORTS, L.C. VICE PRESIDENT OF FINANCE
GENERAL PARTNER OF S.S. RESORT MANAGEMENT L.C.
SOUTH SEAS PROPERTIES GENERAL PARTNER OF
COMPANY LIMITED PARTNERSHIP SOUTH SEAS RESORTS
(SIGNATURE) COMPANY, L.P.
AUGUST 14, 1997 (SIGNATURE)
AUGUST 14, 1997
TIMOTHY R. BOGOTT VIRGINIA S. BROOKS
PRESIDENT CORPORATE CONTROLLER
S.S. RESORT MANAGEMENT, L.C. S.S. RESORTMANAGEMENT,
GENERAL PARTNER OF SOUTH SEAS L.C.
RESORTS COMPANY, L.P. GENERAL PARTNER OF SOUTH
(SIGNATURE) SEAS RESORTS COMPANY, L.P.
AUGUST 14, 1997 (SIGNATURE)
AUGUST 14, 1997