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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
COMMISSION FILE NO. 000-24331
RAINTREE RESORTS INTERNATIONAL, INC.
CR RESORTS CAPITAL S. de R. L. de C.V.*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 76-0549149
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10000 MEMORIAL
SUITE 480
HOUSTON, TEXAS 77024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(713) 613-2800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATED 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 TWELVE 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 [ ]
As of September 30, 1998, there were outstanding 10,772,428 shares of
common stock, par value $0.001 per share, of the Registrant. *CR Resorts
Capital, S. de R. L. de C. V., a subsidiary of Raintree Resorts International,
Inc., is a co-registrant, formed under the laws of the United Mexican States
(Mexican tax identification number CRC 970811E5A).
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RAINTREE RESORTS INTERNATIONAL, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION............................................................................... 3
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of September 30, 1998 (Unaudited) and December
31, 1997...................................................................................... 3
Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 1998 (Unaudited) and September 30, 1997................................... 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 (Unaudited) and September 30, 1997 .................................. 5
Consolidated Statements of Comprehensive Income for the Three and Nine Months
Ended September 30, 1998 (Unaudited) and September 30, 1997 6
Notes to Consolidated Financial Statements......................................................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................................... 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................... 20
PART II. OTHER INFORMATION.................................................................................. 20
Item 1. Legal Proceedings.......................................................................... 20
Item 2. Changes in Securities and Use of Proceeds.................................................. 20
Item 3. Defaults Upon Senior Securities............................................................ 20
Item 4. Submission of Matters to a Vote of Security Holders........................................ 20
Item 5. Other Information.......................................................................... 20
Item 6. Exhibits and Reports on Form 8-K........................................................... 21
SIGNATURES.................................................................................................. 22
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
RAINTREE RESORTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPT. 30, DEC. 31,
1998 1997
(UNAUDITED)
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents 4,265 8,995
Restricted Cash 1,047 --
Vacation interval receivables and other trade receivables, net 52,358 39,952
Reimbursements receivable from Starwood Lodging Corporation for shared
acquisition costs -- 1,877
Inventories 945 964
Taxes receivable 2,261 3,372
Fixed assets, net 3,383 1,518
Land held for vacation ownership development 20,882 12,680
Investment in a 50% held company, at cost less the company's share of 2,451 2,475
losses
Cost of unsold vacation ownership intervals and related club memberships 28,060 31,612
Investment in hotel agreement 4,000 4,000
Deferred loan costs, net 6,915 7,900
Goodwill, net 3,597 --
Prepaid and other assets 2,745 1,175
------- -------
TOTAL ASSETS 132,909 116,520
LIABILITIES
Accounts payable and accrued liabilities 15,431 7,654
Notes payable to a bank 2,584 1,000
Notes payable to a third party 5,000 --
Mortgages payable 2,543 --
Senior notes and interest due 2004, net of unamortized original issue 95,172 90,780
discount
Taxes payable 557 975
Unearned service fees 2,560 3,059
------- -------
TOTAL LIABILITIES 123,847 103,468
SHAREHOLDERS' INVESTMENT
Common stock, par value $.001, 45,000,000 shares authorized 10,701,000 11 11
and 10,772,428 shares issued and outstanding at December 31, 1997 and
September 30, 1998, respectively
Preferred stock, par value $.001, 5,000,000 shares authorized, 37,500 shares 1 1
issued and outstanding at December 31, 1997 and September 30, 1998
10% redeemable convertible preferred stock, $100 per share liquidation 2,078 --
value, 0 and 20,775 shares issued and outstanding at December 31, 1997
and September 30, 1998, respectively
Additional paid-in capital 7,546 7,045
Stock subscription receivable (140) --
Common stock warrants to purchase 1,869,962 common shares 9,331 9,331
Cumulative translation adjustment 25 --
Accumulated deficit (9,790) (3,336)
-------- --------
TOTAL SHAREHOLDERS' INVESTMENT 9,062 13,052
-------- --------
TOTAL LIABILITIES & SHAREHOLDERS' INVESTMENT 132,909 116,520
</TABLE>
3
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RAINTREE RESORTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1998 1997 1998 1997
ACTUAL PRO FORMA ACTUAL PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Vacation interval sales $ 39,836 $ 37,029 $ 13,325 $ 12,339
Rental and service fee income 6,783 8,800 2,343 2,165
Interest income on vacation interval 4,125 3,378 1,256 1,162
receivables
Other 2,163 2,303 739 1,285
------------ ------------ ------------ ------------
TOTAL REVENUES 52,907 51,510 17,663 16,951
COST AND OPERATING EXPENSES:
Cost of vacation interval sales 8,988 8,288 3,137 2,976
Provision for doubtful accounts 3,238 3,379 1,153 1,126
Advertising, sales and marketing 16,504 14,812 5,932 5,002
Maintenance and energy 6,114 5,697 2,161 1,949
Mexican taxes - VAT -- 2,728 -- 906
General & Administrative 7,788 4,436 2,935 1,466
------------ ------------ ------------ ------------
TOTAL COST & OPERATING EXPENSES 42,632 39,340 15,318 13,425
------------ ------------ ------------ ------------
OPERATING INCOME 10,275 12,170 2,345 3,526
FINANCING EXPENSES:
Interest Expense - Cash 9,038 10,179 3,135 3,393
Interest Expense - Non Cash 999 999 333 333
Amortization of deferred loan cost 1,005 855 335 285
Depreciation 333 61 114 22
Amortization of goodwill 677 -- 677 --
------------ ------------ ------------ ------------
TOTAL FINANCING EXPENSES 12,052 12,094 4,594 4,033
Foreign currency exchange losses 3,775 308 1,836 254
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES (5,552) (232) (4,085) (761)
TAXES:
US income taxes -- -- -- --
Canadian taxes -- -- -- --
Mexican IMPAC taxes 900 900 300 300
------------ ------------ ------------ ------------
TOTAL TAXES 900 900 300 300
NET LOSS BEFORE PREFERRED DIVIDENDS (6,452) (1,132) (4,385) (1,061)
Preferred Dividends 464 465 155 155
------------ ------------ ------------ ------------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS (6,916) (1,597) (4,540) (1,216)
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,748,619 10,100,000 10,772,428 10,100,000
BASIC AND DILUTED NET LOSS PER SHARE (0.64) (0.16) (0.42) (0.12)
</TABLE>
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RAINTREE RESORTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
----------------------
1998 1997
------- -------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net loss before preferred (6,452) (1,132)
dividends
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,337 12
Provision for doubtful accounts 3,238 768
Amortization of goodwill 677 --
Equity loss in 50% held company 24 --
Changes in operating assets and liabilities:
Restricted Cash (594) --
Vacation interval receivables and other trade receivables (9,394) 149
Reimbursements receivable from Starwood Lodging Corporation 1,877 --
Inventories 19 --
Mexican taxes receivable 1,111 --
Cost of unsold vacation ownership intervals 6,113 --
Prepaid and other assets (1,140) (2,595)
Accounts payable and accrued liabilities 3,171 1,261
Taxes payable (440) (266)
Unearned service fees 67 503
------- -------
Net cash provided by operations 614 (1,300)
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of Vacation Ownership business, net of cash acquired (875) (85,482)
Purchase of land held for vacation ownership development (8,202) --
Additions to fixed assets (2,035) --
------- -------
Net cash used in investing activities (11,112) (85,482)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Capital contributions 361 14
Additional note payable 5,000
Proceeds from shareholder loans -- 4,900
Proceeds from issuance of mortgages payable (121)
Proceeds from issuance of notes payable to a bank in -- 82,954
connection with the purchase of the Club Regina Resorts
Additional bank loans 1,000 --
------- -------
Net cash provided by financing activities 6,240 87,868
Effect of exchange rate changes on cash (472) --
CHANGE IN CASH AND CASH EQUIVALENTS (DECREASE) (4,730) 1,086
Cash and cash equivalents at the beginning of the period 8,995 2,056
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 4,265 3,142
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid 7,150 --
Income Taxes Paid 683 350
</TABLE>
5
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RAINTREE RESORTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1997 1997
1998 PRO 1998 PRO
ACTUAL FORMA ACTUAL FORMA
<S> <C> <C> <C> <C>
Net Income (Loss) $(6,452) $(1,132) $(4,385) $(1,061)
Other Comprehensive Loss:
Foreign Currency Translation (25) -- (25) --
Adjustment
Comprehensive Income (Loss) $(6,477) $(1,132) $(4,410) $(1,061)
------- ------- ------- -------
</TABLE>
6
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RAINTREE RESORTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 1 - ORGANIZATIONAL STRUCTURE AND BASIS OF PRESENTATION:
On August 18, 1997, Raintree Resorts International, Inc. (formerly Club
Regina Resorts, Inc.) (the "Company"), purchased all of the stock of Desarrollos
Turisticos Regina S. de R.L. de C.V. and its subsidiaries (the "Predecessor
Business") representing net vacation ownership assets of approximately $86.8
million. Concurrent with the purchase, the real property of the Predecessor
Business was segregated into condominium regimes so that the Regina Resorts and
Westin Hotels would be able to be owned by separate companies. The Westin Hotels
were then sold by the Company to an affiliate of Starwood Lodging Trust and
Starwood Lodging Corporation (collectively "Starwood"). These transactions are
referred to as the "Purchase Transactions." As a result of these Purchase
Transactions, the Company owns and operates three luxury Mexican vacation
ownership resorts in Cancun, Puerto Vallarta and Cabo San Lucas, Mexico. The
Company's principal operations consist of (1) acquiring and developing vacation
ownership resorts, (2) marketing and selling vacation ownership intervals, (3)
providing consumer financing for the purchase of vacation ownership intervals at
its resorts, and (4) managing the operations of its resorts. Prior to August 18,
1997 the Company did not have significant operations or revenues.
On July 24, 1998, the Company, through a wholly owned subsidiary, Raintree
Resorts International Canada Ltd. ("Raintree Canada"), purchased Whiski Jack
Resorts, Ltd. and it's affiliates (collectively, "Whiski Jack"). Whiski Jack has
been engaged in the vacation ownership business for over 18 years in Whistler,
British Columbia, Canada. Whiski Jack had revenues of approximately $9.9 million
and earnings of approximately $0.2 million for the year ended December 31, 1997.
The total purchase price of Whiski Jack was approximately $6.6 million which
included a debt repayment of approximately $2.4 million on behalf of Whiski
Jack. A portion of the purchase price was paid through the issuance of 20,775
shares of 10% redeemable convertible preferred stock in Raintree Canada (the
"Raintree Convertible Preferred"). This Raintree Convertible Preferred has a
liquidation preference of $100 per share and accrues dividends at the rate of
10% per annum. As part of this transaction Raintree Canada has pledged all of
the common stock of Whiski Jack Resorts, Ltd. to the former owners of Whiski
Jack. The purchase agreement also contemplates that the sellers may be paid
additional consideration based upon the increase of 1998 pro forma earnings of
Whiski Jack over 1997 pro forma earnings.
The information contained in the following notes to the accompanying
financial statements is condensed from that which would appear in the annual
audited financial statements. Accordingly, the financial statements included
herein should be reviewed in conjunction with the financial statements and
related notes thereto contained in the Prospectus contained in the Registration
Statement on Form S-4 (File No. 333-49065) filed by the Company with the
Securities and Exchange Commission earlier this year.
The condensed consolidated financial statements included herein have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). Pursuant to such regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The Company believes the presentation and disclosures
herein are adequate to make the information not misleading. The financial
statements reflect all elimination entries and normal adjustments that are
necessary for a fair
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presentation of the results for the interim periods ended September 30, 1998 and
September 30, 1997.
Basis of Presentation
The summary unaudited financial data is for the three and nine-month
periods ended September 30, 1997 and September 30, 1998. The September 30, 1997
data represents pro forma information. The pro forma information for the three
and nine-month periods ended September 30, 1997 includes adjustments that the
Company considers necessary for a fair presentation of the results of the
operations for these periods. The pro forma financial data presents only the
vacation ownership segment of the Predecessor Business acquired on August 18,
1997. No proforma adjustments have been included for Whiski Jack as the
acquisition of Whiski Jack has been accounted for using the purchase method of
accounting. The results of Whiski Jack for the three month period ended
September 30, 1997, on a pro forma basis, would have included revenues of
approximately $2.2 million and net income after taxes of approximately $0.3
million. Operating results for the three and nine-month periods ended September
30, 1997 are not necessarily indicative of the results that may be expected for
the entire year. The September 30, 1998 data represents actual results for the
period with the results of Whiski Jack included from July 24, 1998, the date of
the acquisition, forward.
Certain items in the December 31, 1997 financial statements have been
reclassified to conform to the September 30, 1998 presentation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Restricted Cash
The Company has trust funds associated with its Whiski Jack properties.
These funds represent cash received prior to closing and title transfer. These
funds are held in a trust account and are not available for use by the Company.
These funds are substantially offset by trust liabilities included under
accounts payable and accrued liabilities in the balance sheet.
Land Held for Vacation Ownership Development
The Company owns a parcel of undeveloped beach front property located in
Cozumel, Mexico. In addition the Company owns parcels of land adjacent to its
Regina Resort located in Cabo San Lucas, Mexico. The Company acquired one of the
parcels of land adjacent to its Regina resort during the third quarter of 1998
for a total purchase price of $6.7 million. The Company is actively pursuing
development of additional vacation ownership facilities on these parcels of
land. Interest expense totaling approximately $2.2 million has been capitalized
related to these developmental properties.
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Costs of Unsold Vacation Ownership Intervals and Related Club Memberships
In Mexico the Company is the beneficiary of trusts, which in turn hold fee
simple title to the three Regina Resorts. The Company allocates acquisition
costs related to these Resorts, to the extent that such vacation ownership
interests (the "Vacation Intervals") related thereto were unsold, within the
balance sheet as "Cost of unsold vacation ownership intervals and related club
memberships." At December 31, 1997 and September 30, 1998, the Company held
rights for approximately 12,600 and 9,400 annual and biannual Vacation
Intervals, respectively.
Trust rights for the Mexican properties are carried at the lower of
carrying amount or fair value less cost to sell. Fair value is estimated by
discounting estimated future net cash flow from the sale of such rights.
In Canada the Company sells vacation interval ownership properties on a
weekly interval basis under a fee simple title arrangement. The Company reports
its costs related to these properties at the lower of cost or market, within the
balance sheet as "Cost of unsold vacation ownership intervals and related club
memberships". At September 30, 1998 the Company held title to properties
totaling approximately 400 weeks.
Goodwill
On July 24, 1998 the Company acquired the assets and assumed certain
liabilities of Whiski Jack for approximately $6.6 million. The acquisition was
accounted for as a purchase and, accordingly, the purchase price has been
allocated to the assets and liabilities assumed based upon the fair values at
the date of acquisition. The excess purchase price over the fair values of the
net assets acquired has been recorded as goodwill, totaling approximately $4.3
million, to be amortized pro rata as the individual weeks acquired in the
acquisition are sold.
Translation of Foreign Currency
The Company maintains its Mexican accounting records and prepares its
financial statements for its Mexican subsidiaries in Mexican Pesos. The balance
sheet accounts of the Mexican subsidiaries have been remeasured into U.S.
dollars since Mexico has been deemed to be a highly inflationary economy. The
Company's stated sales prices are dollar denominated as are a significant amount
of its Vacation Interval contracts receivable. Additionally, the Company's debt
is US Dollar denominated. Accordingly, the Mexican Pesos are translated to US
Dollars for financial reporting purposes using the US Dollar as the functional
currency and exchange gains and losses as well as translation gains and losses
are reported in income and expense. The resulting net exchange and translation
loss for the period January 1, 1998 through September 30, 1998 was $3,775,000.
This net loss was primarily related to the change in the exchange rate of the
Peso to the U.S. Dollar during the period January 1, 1998 through September 30,
1998 as follows:
<TABLE>
<CAPTION>
EXCHANGE RATES PESOS U.S. DOLLAR
- -------------- ------ -----------
<S> <C> <C>
December 31, 1997............... 8.083 = $ 1.00
March 31, 1998.................. 8.517 = $ 1.00
June 30, 1998................... 9.041 = $ 1.00
September 30, 1998.............. 10.112 = $ 1.00
</TABLE>
The Company maintains its Canadian accounting records and prepares its
financial statements for its
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Canadian subsidiaries in Canadian Dollars. The balance sheet accounts of the
Canadian subsidiaries have been remeasured into US Dollars. Accordingly, the
Canadian Dollars are translated to US Dollars for financial reporting purposes
using the US Dollar as the basis for reporting translation gains and losses. The
resulting net translation gains and losses are reported as required in the
equity section of the balance sheet under the caption "cumulative translation
adjustment" as Canada is not considered a highly inflationary economy.
The future valuation of the Mexican Peso and the Canadian Dollar related
to the US Dollar cannot be determined, estimated or projected.
Whiski Jack Acquisition
The acquisition of Whiski Jack occurred as of July 24, 1998. The following
information represents the pro forma results for the year ended December 31,
1997 and the 9 months ended September 30, 1998. These results have been adjusted
to include the effect of specific accounting adjustments that restate the
operating results as if the acquisition had occurred as of the beginning of each
of these periods. The most significant of these adjustments is goodwill.
Whiski Jack Resorts Ltd.
Summary Statement of Operations
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 Pro December 31, 1997
Forma Pro Forma
----------------------- -----------------
<S> <C> <C>
Total revenues 6,083 9,873
Operating income (183) 818
Goodwill amortization 1,107 3,167
Net income (loss) (1,290) (2,349)
Basic and diluted loss per share (0.12) (0.23)
</TABLE>
Comprehensive Income
Comprehensive income is defined by Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income, and is net income plus direct
adjustments to stockholders' equity. The cumulative translation adjustment of
the Company's Canadian foreign subsidiaries is the only such direct adjustment
applicable to the Company.
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NOTE 3 - 1997 LONG TERM INCENTIVE PLAN
On August 18, 1997, the Board of Directors and the Company's stockholders
approved the Company's 1997 Long Term Incentive Plan (the "Plan"). The purpose
of the Plan is to provide directors, officers, key employees, consultants and
other service providers with additional incentives by increasing their ownership
interest in the Company. Individual awards under the Plan may take the form of
one or more of (i) either incentive stock options or non-qualified stock
options; (ii) stock appreciation rights; (iii) restricted or deferred stock;
(iv) dividend equivalents and (v) other awards not otherwise provided for, the
value of which is based in whole or in part upon the value of the common stock.
The maximum number of shares of common stock that may be subject to
outstanding awards, determined immediately after the grant of any award, may not
exceed the greater of 808,000 shares or 8% of the aggregate number of shares of
common stock outstanding.
At September 30, 1998, stock options covering 485,000 common shares had
been granted to employees of the Company under this plan with an exercise price
of $5.00 to $7.70 per common share representing their fair value or greater than
fair value of the common shares, as determined by the Board of Directors, at the
date of grant. These options are generally exercisable over a period of ten
years from the date of grant. No compensation expense has been recorded related
to these options.
NOTE 4 - SHAREHOLDERS' INVESTMENT
No additional shares of common stock in the Company were issued during the
third quarter of 1998. The Company did issue 20,775 shares of redeemable
convertible preferred stock through its wholly owned subsidiary, Raintree
Canada. These shares are redeemable with a liquidation preference of $100 per
share. These preferred shares accrue dividends at the rate of 10% per annum,
which dividends are required to be paid quarterly beginning on October 31, 1998.
If the Company has not satisfied certain conditions prior to November 1, 1998
and prior to April 1, 1999, the Raintree Canada Convertible Preferred will be
redeemable by the holders thereof in installments of $500,000 beginning April 1,
1999, and thereafter quarterly. If the conditions are met, the Raintree Canada
Convertible Preferred will automatically convert into shares of exchangeable
preferred of Raintree Canada, based on the price of the Company's Common Stock,
if publicly traded. Each share of Raintree Canada Exchangeable Preferred cannot
be transferred and will only be exchangeable for one share of the Company's
Common Stock.
NOTE 5 - EARNINGS (LOSS) PER SHARE
Basic loss per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted loss per share also includes the dilutive effect of the assumed
conversion of all securities, such as options, warrants, and convertible debt.
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The following is a reconciliation of basic and diluted loss per share:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
NINE MONTHS NINE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER SEPTEMBER SEPTEMBER 30, SEPTEMBER 30,
30, 1998 30, 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic and Diluted:
Loss available to common shareholders $ (6,916,000) $ (1,597,000) $ (4,540,000) $ (1,216,000)
------------ ------------ ------------ ------------
Basic 10,748,619 10,100,000 10,772,428 10,100,000
Adjustments:
Warrants associated with Senior Notes 1,869,962 -- 1,869,962 --
Common stock options (vested) 117,500 -- 117,500 --
------------ ------------ ------------ ------------
Diluted 12,736,081 10,100,000 12,759,890 10,100,000
Loss per share:
Basic - weighted average number of common $ (0.64) $ (0.16) $ (0.42) $ (0.12)
shares
Diluted $ (0.64) $ (0.16) $ (0.42) $ (0.12)
</TABLE>
The assumed conversion of the Company's preferred stock is not included in
the calculation of diluted earnings per share since it is antidilutive and since
it is only convertible upon the consummation of an initial public offering.
NOTE 6 - PENDING ACQUISITIONS
The Company has agreed to acquire the land and facilities of the Villa
Vera Hotel & Racquet Club (the "Villa Vera") for approximately $6.5 million. The
Villa Vera is located in Acapulco, Mexico and has 74 hotel units, 57 of which
the Company is having converted into vacation ownership units that should
increase the Company's inventory by approximately 4,000 Vacation Intervals.
These Vacation Intervals are expected to be priced on average slightly lower
than the Company's intervals at the current Regina Resorts. The Company
estimates this conversion will cost approximately $1.6 million which will be
paid by the seller. The Villa Vera has been operating on a limited basis during
the year ended December 31, 1997 and its revenues and net loss for 1997 were
approximately $400,000 and $400,000 respectively. The closing of this
transaction will occur during the fourth quarter of 1999 following completion of
the conversion of the facility.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
the Company's expectations and beliefs concerning future events that involve
risks and uncertainties, including those associated with the effects of (i)
international, national and regional economic conditions and conditions in the
international tourism and vacation ownership markets, (ii) the Company's
capacity to integrate acquisitions that it has made, and (iii) the availability
of capital resources necessary for the Company to execute its business strategy.
Investors are cautioned that all forward-looking statements involve risks and
uncertainty. Discussions containing such forward-looking statements may be found
in the material set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" as well as elsewhere herein.
Actual results may differ materially from those projected in the forward-looking
statements. Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this report will prove to be
accurate. Important factors that could cause actual results to differ materially
from the Company's expectations are disclosed in this report. Considering the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved. The following discussion should be read in
conjunction with the Financial Statements of Raintree Resorts International,
Inc. and related notes thereto, the management's discussion and analysis related
thereto, all of which are included in the Registration Statement on Form S-4
filed by the Company with the Securities and Exchange Commission and the
financial statements and notes thereto contained herein.
COMPARISONS OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 TO THE PRO FORMA NINE
MONTHS ENDED SEPTEMBER 30, 1997
[The pro forma financial data presents only the vacation ownership
segment of the Predecessor Business acquired on August 18, 1997. No pro forma
adjustments have been included for Whiski Jack as the acquisition of Whiski
Jack has been accounted for using the purchase method of accounting.]
Vacation interval sales increased by approximately $2.8 million, or 7.6%,
from approximately $37.0 million for the nine months ended September 30, 1997 to
approximately $39.8 million for the nine months ended September 30, 1998. The
acquisition of Whiski Jack contributed approximately $1.2 million of this
increase. In Mexico vacation interval sales increased by approximately $1.6
million, or 4.4%, from approximately $37.0 million for the nine months ended
September 30, 1997 to approximately $38.7 million for the nine months ended
September 30, 1998. The primary reason for this increase in Mexico was the
implementation of new marketing programs combined with the opening of two new
sales offices during the first nine months of 1998. The revenue increase
occurred despite the fact that the number of intervals sold were negatively
impacted by the change in the Mexican VAT tax laws effective January 1, 1998
whereby the sale of vacation intervals became subject to either a 10% or 15%
VAT. The increase in intervals sold in the first six months of 1998 also was
negatively impacted due to a decrease in the level of tourism in each of the
Mexican resort destinations where the Regina resorts are located due to a milder
winter in the U.S. and Canada. In the third quarter of 1998 vacation interval
sales decreased due to the uncertain economic climate in Mexico and throughout
the world. Additionally, interval sales in the third quarter of 1998 were
negatively impacted due to a hurricane in Los Cabos, a strong tropical storm in
Cancun and significant flooding in Puerto Vallarta.
The number of intervals sold in Mexico decreased by 142, or 4.3%, from
3,293 for the nine months ended September 30, 1997 to 3,151 for the nine months
ended September 30, 1998. The average price per interval sold in Mexico
decreased $76 per interval, or 0.6%, from $11,852 for the nine months ended
September 30, 1997 to
13
<PAGE> 14
$11,776 for the nine months ended September 30, 1998. This decrease in price per
interval sold was mostly attributable to the decrease in average selling price
due to the Company's absorption of part of the taxes arising from the VAT tax
law change, however, the total gross sales value per interval sold (vacation
interval sales price plus VAT billed) has increased $1,243 or 10.5% from $11,852
per interval sold for the period ended September 30, 1997 to a gross value of
$13,095 per interval sold for the period ended September 30, 1998.
Rental and service fee income decreased by approximately $2.1 million, or
22.9%, from approximately $8.8 million for the nine months ended September 30,
1997 to approximately $6.8 million for the nine months ended September 30, 1998.
The acquisition of Whiski Jack contributed approximately $0.2 million to offset
the decrease in this category. In Mexico rental and service fee income decreased
by approximately $2.3 million, or 25.6%, from approximately $8.8 million for the
nine months ended September 30, 1997 to approximately $6.5 million for the nine
months ended September 30, 1998. The decrease was due in part to the rental of
units to Westin at an average rate lower than that experienced by the Company
during the first nine months of 1997. The rate negotiated with Starwood would
have been higher except that a one-time fee of $1.25 million was also negotiated
with Starwood ($885,000 in the first nine months of 1998). This fee was
recognized in other income. Rental and service fee income was also negatively
impacted because the negotiated agreement with Starwood precludes the Company
from renting the remaining unsold units to transient vacationers other than Club
Regina members and their guests and guests secured through marketing and
promotional programs. Finally, increased usage by a larger owner base resulted
in fewer unsold units available for rental to guests of members or for use in
marketing promotions.
Interest income on vacation receivables increased by approximately $0.7
million, or 20.3%, from approximately $3.4 million for the nine months ended
September 30, 1997 to approximately $4.1 million for the nine months ended
September 30, 1998. This increase is due primarily to Mexican receivables
increasing by approximately $5.5 million from approximately $42.6 million at
September 30, 1997 to approximately $48.1 million on September 30, 1998.
Other revenues decreased by approximately $0.1 million, or 6.1%, from
approximately $2.3 million for the nine months ended September 30, 1997 to
approximately $2.2 million for the nine months ended September 30, 1998. The
acquisition of Whiski Jack contributed approximately $0.1 million to offset the
decrease in this category. In Mexico other revenues decreased by approximately
$0.2 million, or 9.0%, from approximately $2.3 million for the nine months ended
September 30, 1997 to approximately $2.1 million for the nine months ended
September 30, 1998. This decrease was due to expenses associated with the
startup of new theme store locations in Mexico.
Cost of vacation interval sales increased by approximately $0.7 million,
or 8.4%, from approximately $8.3 million for the nine months ended September 30,
1997 to approximately $9.0 million for the nine months ended September 30, 1998.
The acquisition of Whiski Jack accounted for approximately $0.4 million of this
increase. In Mexico cost of vacation interval sales increased approximately $0.3
million, or 3.7%, from approximately $8.3 million for the nine months ended
September 30, 1997 to approximately $8.6 million for the nine months ended
September 30, 1998. This increase was primarily attributable to a change in the
mix of intervals sold.
Advertising, sales and marketing expenses increased approximately $1.7
million, or 11.4%, from approximately $14.8 million for the nine months ended
September 30, 1997 to approximately $16.5 million for the nine months ended
September 30, 1998. The acquisition of Whiski Jack contributed approximately
$0.7 million of this increase. In Mexico advertising, sales and marketing
expenses increased approximately $1.0
14
<PAGE> 15
million, or 7.1%, from approximately $14.8 million for the nine months ended
September 30, 1997 to approximately $15.8 million for the nine months ended
September 30, 1998. This increase was directly related to the opening of new
sales offices in Mexico and was consistent with the overall increase in vacation
interval sales noted previously in Mexico of 4.4%.
Maintenance and energy expenses increased approximately $0.4 million, or
7.3%, from approximately $5.7 million for the nine months ended September 30,
1997 to approximately $6.1 million for the nine months ended September 30, 1998.
The acquisition of Whiski Jack contributed approximately $0.2 million of this
increase. In Mexico maintenance and energy expenses increased approximately $0.2
million, or 3.8%, from approximately approximately $5.7 million for the nine
months ended September 30, 1997 to approximately $5.9 million for the nine
months ended September 30, 1998. As a percentage of total revenue, maintenance
and energy expenses remained relatively constant at slightly over 11% of total
revenues. The increase in operations, maintenance and energy expenses was due to
higher overall occupancy in the Vacation Interval units for the nine months
ended September 30, 1998 compared to the nine months ended September 30, 1997.
The Company realized Mexican VAT tax savings of approximately $2.7 million
during the first nine months of 1998 as compared to the first nine months of
1997. This savings is a result of VAT tax law changes that went into effect
January 1, 1998 which allow the Company to recover all VAT taxes paid. This VAT
tax law change now subjects intervals sold to the collection of VAT taxes. These
VAT taxes collected are used to offset all VAT taxes paid by the Company for
goods and services procured.
General and administrative expenses increased approximately $3.4 million,
or 75.6%, from approximately $4.4 million for the nine months ended September
30, 1997 to approximately $7.8 million for the nine months ended September 30,
1998. Primary causes of this increase included: 1) approximately $0.4 million
related to Whiski Jack, 2) approximately $900,000 resulted from increased
compensation of certain key executives, plus an increase in the number of
executive, administrative and temporary personnel in Mexico and the U.S. to
support an active development program and an administrative operation
independent of the prior owner, 3) increased legal and accounting fees of
approximately $700,000, 4) approximately $688,000 related to the payment of an
administrative service fee to an investment banking firm, and 5) approximately
$200,000 resulted from various external consulting fees. The Company implemented
cost reduction measures, primarily reducing headcount, in August 1998 to reduce
these costs by approximately $150,000 per month.
Interest expense was approximately approximately $1.1 million less in the
first nine months of 1998 as compared to the first nine months of 1997 due
primarily to the capitalization of interest expenses associated with the land
development in Cozumel and Los Cabos during the first nine months of 1998.
Depreciation expense totaled approximately $333,000 in the first nine
months of 1998 versus approximately $61,000 in the first nine months of 1997.
This increase was due primarily to leasehold improvements associated with the
relocation of the Mexico City headquarters during the first quarter of 1998
combined with the implementation of new RCC software, which is the main
operations software used by the company.
15
<PAGE> 16
Foreign currency exchange losses totaled approximately $3.8 million during
the first nine months of 1998 compared to approximately $0.3 million during the
first nine months of 1997. The value of the peso decreased from 8.08 per US
Dollar at December 31, 1997 to 10.11 per US Dollar at September 30, 1998, or
25.1%, causing the large exchange loss in 1998. The Company maintains a
portfolio of UDI receivables (receivables denominated in an alternate Mexican
currency that is adjusted for inflation on a daily basis) to partially offset
the peso devaluation. These inflation adjustments should offset the long-term
effect of the peso devaluation but do not offset the short-term losses as have
occurred during the first nine months of 1998. The amount of UDI inflation
adjustments, which is included under Interest income on vacation interval
receivables was approximately $1.3 million during both the first nine months of
1998 and approximately $1.2 million during the first nine months of 1997. The
reason the translation loss was limited to approximately $0.3 million during the
first nine months of 1997 was that during this period of 1997 the peso decreased
nominally in value from 7.85 per US$ to 7.82 per US$, or a 0.4% reduction.
COMPARISONS OF THE THREE MONTHS ENDED SEPTEMBER 30, 1998 TO THE PRO FORMA THREE
MONTHS ENDED SEPTEMBER 30, 1997:
[The pro forma financial data presents only the vacation ownership
segment of the Predecessor Business acquired on August 18, 1997. No pro forma
adjustments have been included for Whiski Jack as the acquisition of Whiski
Jack has been accounted for using the purchase method of accounting.]
Vacation interval sales increased by approximately $1.0 million, or 8.0%,
from approximately $12.3 million for the three months ended September 30, 1997
to approximately $13.3 million for the three months ended September 30, 1998.
The acquisition of Whiski Jack more than accounted for this entire increase with
approximately $1.2 million in vacation interval sales during the third quarter
of 1998. In Mexico vacation interval sales decreased by approximately $0.2
million, or 1.5%, from approximately $12.4 million for the three months ended
September 30, 1997 to approximately $12.2 million for the three months ended
September 30, 1998. The decrease in Mexican vacation interval sales were due to
the uncertain economic climate in Mexico and throughout the world in the third
quarter and the effects of a hurricane in Los Cabos, a strong tropical storm in
Cancun and serious flooding in Puerto Vallarta. Additionally, vacation interval
sales continued to be negatively impacted by the change in the VAT tax laws
effective January 1, 1998 whereby the sale of Vacation Intervals became subject
to either a 10% or 15% VAT. The decrease in intervals sold during the third
quarter, as was the case in the first six months of 1998, also was caused by a
decrease in the level of tourism in each of the resort destinations where the
Regina resorts are located.
Rental and service fee income increased by approximately $0.1 million, or
8.2%, from approximately $2.2 million for the three months ended September 30,
1997 to approximately $2.3 million for the three months ended September 30,
1998. The acquisition of Whiski Jack more than accounted for this entire
increase with approximately $0.2 million of service fee income in the third
quarter of 1998. In Mexico rental and service fee income decreased by
approximately $0.1 million, or 3.8%, from approximately $2.4 million for the
three months ended September 30, 1997 to approximately $2.3 million for the
three months ended September 30, 1998. The decrease was due in part to the
rental of units to Westin at an average rate lower than that experienced by the
Company during the third quarter of 1997. The rate negotiated with Starwood
would have been higher except that a one-time fee of $1.25 million was also
negotiated with Starwood ($156,250 in the second quarter of 1998). This fee was
recognized in other income. Rental and service fee income was also negatively
impacted because the negotiated agreement with Starwood precludes the Company
from renting the remaining unsold units to transient vacationers other than Club
Regina members and their guests and guests secured through marketing and
promotional programs. Finally, increased usage by a larger owner base resulted
in fewer unsold units available for rental to guests of members or for use in
marketing promotions.
16
<PAGE> 17
Interest income on vacation interval receivables increased by
approximately $0.1 million, or 8.1%, from approximately $1.2 million for the
three months ended September 30, 1997 to approximately $1.3 million for the
three months ended September 30, 1998. This increase is due to Mexican
receivables increasing by approximately $5.5 million from approximately $42.6
million at September 30, 1997 to approximately $48.1 million on September 30,
1998.
Other revenues decreased by approximately $0.5 million, or 57.5% from
approximately $1.3 million for the three months ended September 30, 1997 to
approximately $0.8 million for the three months ended September 30, 1998. This
decrease was primarily due to increased expenses associated with the opening of
new theme store locations in Mexico.
Cost of vacation interval sales increased by approximately $0.2 million,
or 5.4%, from approximately $2.9 million for the three months ended September
30, 1997 to approximately $3.1 million for the three months ended September 30,
1998. The acquisition of Whiski Jack contributed approximately $0.4 million in
additional cost of vacation interval sales during the third quarter of 1998. In
Mexico cost of vacation interval sales decreased by approximately $0.2 million,
or 7.8%, from approximately $3.0 million for the three months ended September
30, 1997 to approximately $2.8 million for the three months ended September 30,
1998. This decrease was due to the 1.5% decrease in vacation interval sales
noted earlier and a change in the mix of intervals sold during the third quarter
of 1998 versus the second quarter of 1997.
Advertising, sales and marketing expenses increased approximately $0.9
million, or 18.6%, from approximately $5.0 million for the three months ended
September 30, 1997 to approximately $5.9 million for the three months ended
September 30, 1998. The acquisition of Whiski Jack resulted in approximately
$0.6 million in additional advertising, sales and marketing costs in the third
quarter of 1998. In Mexico advertising, sales and marketing expenses increased
approximately $0.3 million, or 5.7%, from approximately $5.0 million for the
three months ended September 30, 1997 to approximately $5.3 million for the
three months ended September 30, 1998. This increase was directly related to the
cost of operating two new sales offices in Mexico during the third quarter of
1998 as compared to the third quarter of 1997.
Maintenance and energy costs increased approximately $0.2 million, or
10.9%, from approximately $2.0 million for the three months ended September 30,
1997 to approximately $2.2 million for the three months ended September 30,
1998. The acquisition of Whiski Jack accounted for this entire increase during
the third quarter of 1998. In Mexico maintenance and energy costs remained
unchanged at approximately $2.0 million for both the third quarter of 1998 and
third quarter of 1997.
The Company realized Mexican VAT tax savings of approximately $1.0 million
during the third quarter of 1998, in which no VAT was recorded, as compared to
the third quarter of 1997. This savings is a result of Mexican VAT tax law
changes that went into effect January 1, 1998 which allow the company to recover
all VAT taxes paid. This VAT tax law change now subjects intervals sold to the
collection of VAT taxes. These VAT taxes collected are used to offset all VAT
taxes paid by the Company for goods and services procured.
General and administrative costs increased approximately $1.4 million, or
slightly over 100%, from approximately approximately $1.5 million for the three
months ended September 30, 1997 to approximately $2.9 million for the three
months ended September 30, 1998. Whiski Jack contributed approximately $0.4
million of this increase during the third quarter of 1998. In Mexico general and
administrative expenses increased approximately $1.1 million, or 74.3%, from
approximately $1.5 million for the three months ended
17
<PAGE> 18
September 30, 1997 to approximately $2.6 million for the three months ended
September 30, 1998. Primary causes of this increase in Mexico included: 1)
approximately $350,000 resulting from increased compensation of certain key
executives, plus an increase in the number of executive, administrative and
temporary personnel in Mexico and the US to support an active development
program and an administrative operation independent of the prior owner, 2) legal
and accounting fees, which totaled approximately $400,000 during the third
quarter of 1998, and 3) approximately $100,000 in various external consulting
fees. The Company implemented cost reduction measures, primarily reducing
headcount, in August 1998 to reduce these costs by approximately $150,000 per
month.
Interest expense was approximately $0.3 million more in the third quarter
of 1998 as compared to the third quarter of 1997 due primarily to interest
expenses associated with the acquisition of Whiski Jack on July 24, 1998.
Depreciation expense totaled $114,000 in the third quarter of 1998 versus
$22,000 in the third quarter of 1997. This increase was due primarily to
leasehold improvements associated with the relocation of the Mexico City
headquarters during the first quarter of 1998 combined with the implementation
of new RCC software, which is the main operations software used by the company.
Foreign currency translation and exchange losses totaled approximately
$1.8 million during the third quarter of 1998 compared to a translation and
exchange loss totaling approximately $0.3 million during the third quarter of
1997. The value of the peso decreased from 9.04 per US Dollar at June 30, 1998
to 10.11 per US Dollar at September 30, 1998, or 11.8%, directly causing the
large translation and exchange loss in the third quarter of 1998. The Company
maintains a portfolio of UDI receivables (receivables denominated in an
alternate Mexican currency that is adjusted for inflation on a daily basis) to
help offset the peso devaluation. These inflation adjustments are intended to
offset the long-term effect of the peso devaluation but do not offset the
short-term losses as have occurred during the third quarter and throughout most
of the year in 1998. The amount of UDI inflation adjustments, which is included
under Interest income on vacation interval receivables was approximately $0.3
million in the third quarter of 1998 as compared to approximately $0.2 million
in the third quarter of 1997. The reason the exchange and translation loss was
limited to approximately $0.3 million during this period of 1997 was that the
peso increased minimally in value during the third quarter of 1997 from 7.96 per
US Dollar to 7.82 per US Dollar, or a 1.8% improvement.
COMPARISONS OF SEPTEMBER 30, 1998 BALANCE SHEET AMOUNTS TO DECEMBER 31, 1997
BALANCE SHEET AMOUNTS
Vacation interval receivables and other trade receivables increased
approximately $12.4 million, or 31.1%, from approximately $40.0 million for the
period ended December 31, 1997 to approximately $52.4 million for the period
ended September 30, 1998. The acquisition of Whiski Jack contributed
approximately $3.5 million of this increase. The balance of the increase,
totaling approximately $8.9, was directly attributable to financing of vacation
interval receivables as a part of the normal course of the Company's business in
Mexico.
Land held for vacation ownership development increased approximately $8.2
million, or 64.7%, from approximately $12.7 million for the period ended
December 31, 1997 to approximately $20.9 million for the
18
<PAGE> 19
period ended September 30, 1998. The acquisition of a parcel of land adjacent to
the Company's property in Cabo San Lucas contributed $6.7 million to this
increase. The remainder of this increase, approximately $1.5 million, was
directly related to the capitalization of interest expense associated with these
properties that are actively under development.
Accounts payable and accrued liabilities increased approximately $7.7 million,
or 101.6%, from approximately $7.7 million for the period ended December 31,
1997 to approximately $15.4 million for the period ended September 30, 1998. The
acquisition of Whiski Jack resulted in an increase of approximately $8.6
million. The remainder of the Company's accounts payable and accrued liabilities
decreased by $0.9 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash for operations from the sale of vacation
intervals, financing activities related to the sale of vacation intervals,
rental of unsold vacation interval units to Starwood, and from the receipt of
service fees charged to vacation interval owners. With respect to the sale of
vacation intervals, the Company generates cash from the receipt of down payments
and payments on account from new vacation interval owners acquiring vacation
intervals. The Company generates profits related to financing of vacation
interval sales based on the interest charged on the vacation interval
receivables. At September 30, 1998 approximately (i) 60.6% of all of the
vacation interval receivables were U.S. dollar denominated and had a weighted
average interest rate of 12.83%, (ii) 27.5% of all vacation interval receivables
were denominated in UDI's, an obligation denominated in pesos which is adjusted
for Mexican inflation, and had a weighted average interest rate of 37.2%, and
(iii) 11.9% of all Vacation Interval receivables were denominated in pesos and
had a weighted average interest rate of 22.16%.
At October 31, 1998 the Company had $105.8 million of debt outstanding as
follows: (i) $100.0 million of 13% Senior Notes due 2004 (the "Senior Notes"),
(ii) $2.0 million outstanding under the Company's certain notes outstanding in
favor of Bancomer Sociedad Anonima de Capital Variable, Institucion de Banca
Multiple, Grupo Fianciero ("Bancomer") which bear interest at 11.5%, (iii) $1.7
million of debt bearing interest at 10% related to the Whiski Jack acquisition,
and, (iv) $5 million of debt bearing interest at 10% secured by property located
adjacent to the Company's holdings in Cabo San Lucas. The amounts under the
Bancomer notes are due no later than four years from August of 1998. The debt
described in clause (iii) is non-recourse and is owed by "Unrestricted
Subsidiaries" (as defined in the indenture governing the senior notes). In
addition to such debt, through an Unrestricted Subsidiary, the Company has
20,775 shares of 10% redeemable convertible preferred stock (the "Raintree
Canada Convertible Preferred"), with a liquidation preference of $100 per share,
outstanding. The Raintree Canada Convertible Preferred accrues dividends at the
rate of 10% per annum, payable quarterly beginning October 31, 1998. At the
Raintree Canada Convertible Preferred holder's option, the Raintree Canada
Convertible Preferred will be redeemable by the holders thereof in installments
of $500,000 beginning April 1, 1999, and thereafter quarterly. Each share of
Raintree Canada Convertible Preferred cannot be transferred and will only be
exchangeable for one share of the Company's common stock.
19
<PAGE> 20
The Company requires funds to finance capital improvements and the
expansion, acquisition and development of vacation ownership resorts and to
finance customer purchases of vacation intervals. To finance current capital
programs and the interest payments on it's debt obligations, including the
Senior Notes, the Company intends to rely on cash generated from operations,
borrowing capacity available under a $20.0 million line of credit with Bancomer,
the remaining proceeds of the senior notes, and possible additional construction
financing. The timing, size and success of additional financing cannot be
assured.
The Company believes that its current financial position is sufficient to
meet the Company's working capital and capital expenditure needs for the
immediate future. However, depending upon conditions in the capital markets and
other factors, the Company will, from time to time, consider the issuance of
debt, equity or other securities, the proceeds of which would be used to finance
acquisitions, to refinance debt or for general corporate purposes. The Company
believes that its' properties are adequately covered by insurance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
IMPACT OF YEAR 2000
The Company currently uses or is in the process of converting to Resort
Computer Corporation's (a division of RCI) ("RCC") software to manage all of
its vacation ownership operations in North America. In contrast with
traditional software run on mainframe systems, the RCC software was
developed in the late 1980's, and has been Year 2000 compliant since 1994.
The Company has studied and analyzed all other internal software in use by
the Company to assure compliance with Year 2000 requirements. Additionally,
the Company has reviewed Year 2000 compliance issues with all significant
suppliers including the Westin Hotels. No significant Year 2000 issues have
been identified in any of these studies. Accordingly, the Company believes
there are no significant Year 2000 issues and that this conclusion is based
on a
20
<PAGE> 21
comprehensive study of this issue. Accordingly, management has
concluded that no significant costs will be incurred to address this issue.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following is a list of exhibits filed as part of this quarterly report.
EXHIBIT NO. DESCRIPTION
3.1 Certificate of Designations of Class B Preferred Stock of the
Company
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants, Raintree Resorts International, Inc. and CR Resorts Capital S. de
R.L. de C.V., have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
RAINTREE RESORTS INTERNATIONAL,
INC.
Date: November _______, 1998 /s/ George D. Stroesenreuther
----------------------------------
George D. Stroesenreuther
Senior Vice President-Finance and
Accounting
(Principal Accounting Officer)
CR RESORTS CAPITAL S. DE R. L. DE
C.V.
Date: November _______, 1998 /s/ George D. Stroesenreuther
----------------------------------
George D. Stroesenreuther
Senior Vice President-Finance and
Accounting
(Principal Accounting Officer)
22
<PAGE> 23
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Certificate of Designations of Class B Preferred Stock of the
Company
27.1 Financial Data Schedule.
<PAGE> 1
EXHIBIT 3.1
RAINTREE RESORTS INTERNATIONAL, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATION, OPTIONAL AND OTHER SPECIAL RIGHTS OF PREFERRED STOCK
AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
PREFERRED STOCK, CLASS B
----------
Pursuant to Section 78.1955 of the Nevada General Corporation Law
----------
Raintree Resorts International, Inc. (the Company), a corporation
organized and existing under the Nevada General Corporation Law (the NGCL), does
hereby certify that its Board of Directors (the Board), pursuant to a meeting,
duly called and held on September 10, 1998, duly adopted the following
resolution, which resolution remains in full force and effect as of the date
hereof:
WHEREAS, the Board is authorized, within the limitations and
restrictions stated in the Articles of Incorporation, to fix by resolution or
resolutions the designation of each class and series of the preferred stock and
the powers, preferences and relative participating, optional or other special
rights and qualifications, limitations or restrictions thereof, including,
without limiting the generality of the foregoing, such provisions as may be
desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution or resolutions of the Board under the
NGCL;
WHEREAS, as of the date of this resolution, no shares of Class B
Preferred (defined below) have been issued by the Company; and
WHEREAS, it is the desire of the Board, pursuant to its authority as
aforesaid, to authorize and fix the term of a class of preferred stock and the
number of shares constituting such class:
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such
series of preferred stock on the terms and with the provisions herein set forth:
(a) Designation and Amount. One preferred share, par value $.001,
is hereby constituted as a series of preferred shares of the
Company which shall be designated as the "Class B Special
Voting Preferred Share" (the Class B Preferred Share), the
<PAGE> 2
preferences and relative, optional and other special rights of
which and the qualifications, limitations or restrictions of
which shall be as set forth herein.
(b) Dividends and Distributions. The holder of the Series B
Preferred Share shall not be entitled to receive any portion
of any dividend or distribution at any time.
(c) Voting Rights. The holder of the Class B Preferred Share shall
have the following voting rights:
(i) The Class B Preferred Share shall entitle the holder
thereof to an aggregate number of votes equal to the
number of Exchangeable Shares (Exchangeable Shares)
of Raintree Resorts International Canada Limited, a
British Columbia corporation, outstanding from time
to time which are not owned by the Company or any of
its direct or indirect subsidiaries.
(ii) Except as otherwise provided herein or by law, the
holder of the Class B Preferred Share and the holders
of common stock shall vote together as one class on
all matters submitted to a vote of shareholders of
the Company.
(iii) Except as set forth herein, the holder of the Class B
Preferred Share shall have no special voting rights,
and its consent shall not be required (except to the
extent it is entitled to vote with holders of common
stock as set forth herein) for taking any corporate
action.
(d) Additional Provisions.
(i) The Holder of the Class B Preferred Share is entitled
to exercise the voting rights attendant thereto in
such manner as such holder desires.
(ii) At such time as (A) the Class B Preferred Share
entitles its holder to a number of votes equal to
zero because there are no Exchangeable Shares of
Raintree Canada outstanding which are not owned by
the Company or any of its direct or indirect
subsidiaries, and (B) there is no share of stock,
debt, option or other agreement, obligation or
commitment of Raintree Canada which could by its
terms require Raintree Canada to issue any
Exchangeable Shares to any person other than the
Company or any of its direct or indirect
subsidiaries, then the Series B Preferred Share shall
thereupon be retired and cancelled promptly
thereafter. Such share shall upon its cancellation,
and upon the taking of any action required by
applicable law, become an authorized but unissued
preferred share and may be reissued as part of a new
series of preferred shares to be created by
resolution or resolutions of the Board of Directors,
subject to the conditions and restrictions on
issuance set forth herein.
(e) Reacquired Share. If the Class B Preferred Share
should be purchased or otherwise acquired by the
Company in any manner whatsoever, then the Class B
Preferred Share shall be retired and cancelled
promptly after the
2
<PAGE> 3
acquisition thereof. Such share shall upon its
cancellation, and upon the taking of any action
required by applicable law, become an authorized but
unissued preferred share to be created by resolution
or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth
herein.
(f) Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the
Company, the holder of the Class B Preferred Share
shall not be entitled to any portion of any
distribution.
(g) No Redemption or Conversion. The Class B Preferred
Share shall not be redeemable or convertible.
IN WITNESS WHEREOF, CLUB REGINA RESORTS, INC. has caused this
certificate to be made under the seal of the Company signed by its Vice
President--Corporate Planning and Development and Secretary, respectively, and
acknowledged by its Senior Vice President--Corporate Planning and Development on
September 17, 1998.
RAINTREE RESORTS INTERNATIONAL, INC.
By:
-----------------------------------
Brian R. Tucker,
Senior Vice President--
Corporate Planning and Development
By:
-----------------------------------
Bea Robertson, Secretary
ACKNOWLEDGMENT:
RAINTREE RESORTS INTERNATIONAL, INC.
By:
-------------------------------------
Brian R. Tucker, Senior Vice President--
Corporate Planning and Development
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on September 17, 1998, by
Brian R. Tucker, Senior Vice President--Corporate Planning and Development, of
RAINTREE RESORTS INTERNATIONAL, INC., a Nevada corporation, on behalf of said
corporation.
-------------------------------------------
Notary Public in and for The State of Texas
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) RAINTREE
RESORTS INTERNATIONAL, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
(B) FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998.
</LEGEND>
<RESTATED>
<CIK> 0001058737
<NAME> RAINTREE RESORTS INTERNATIONAL, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,063
<SECURITIES> 2,249
<RECEIVABLES> 58,602
<ALLOWANCES> (6,244)
<INVENTORY> 945
<CURRENT-ASSETS> 60,876
<PP&E> 3,791
<DEPRECIATION> (408)
<TOTAL-ASSETS> 132,909
<CURRENT-LIABILITIES> 26,132
<BONDS> 97,715
0
2,079
<COMMON> 11
<OTHER-SE> 6,972
<TOTAL-LIABILITY-AND-EQUITY> 132,909
<SALES> 39,836
<TOTAL-REVENUES> 52,907
<CGS> 8,988
<TOTAL-COSTS> 30,406
<OTHER-EXPENSES> 5,790
<LOSS-PROVISION> 3,238
<INTEREST-EXPENSE> 10,037
<INCOME-PRETAX> (5,552)
<INCOME-TAX> 900
<INCOME-CONTINUING> (6,452)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,452)
<EPS-PRIMARY> (0.64)
<EPS-DILUTED> (0.64)
</TABLE>
