UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
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Commission File Number: 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)
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Nevada 76-0549149
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10000 Memorial Drive, Suite 480
Houston, Texas 77024
(Address of principal executive offices, including zip code)
(713) 613-2800
(Registrant's telephone number, including area code)
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. Yes [X] No [ ]
As of September 30, 1999, the Registrant had 10,766,300 shares of Common
Stock outstanding and Warrants to purchase 2,369,962 shares of Common Stock.
*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. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of
December 31, 1998 and September 30, 1999 (Unaudited) ........................................... 3
Consolidated Statements of Operations and Comprehensive Loss
for the Nine and Three Months ended September 30, 1998 and 1999 (Unaudited) .................... 4
Consolidated Statements of Cash Flows
for the Nine Months ended September 30, 1998 and 1999 (Unaudited)............................... 5
Notes to Consolidated Financial Statements (Unaudited) .............................................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................................................ 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................... 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................................ 17
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................................................ 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................................................. 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................. 17
ITEM 5. OTHER INFORMATION ............................................................................... 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................. 17
SIGNATURES.................................................................................................... 18
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
(Unaudited)
December 31, September 30,
1998 1999
-------------- --------------
<S> <C> <C>
Assets
Cash and cash equivalents ............................................... $ 2,960 $ 4,364
Vacation Interval receivables and other trade receivables, net........... 51,835 62,427
Inventories ............................................................. 775 1,040
Refundable Mexican taxes ................................................ 3,488 4,266
Office furniture and equipment .......................................... 3,046 3,535
Land held for vacation ownership development ............................ 22,170 22,934
Equity investments....................................................... 2,949 3,311
Cost of unsold vacation ownership intervals and related club memberships 27,606 20,368
Retained interest in hotel cash flows ................................... 4,000 4,000
Deferred loan costs, net ................................................ 7,413 6,854
Goodwill, net .......................................................... 1,240 --
Prepaid and other assets ............................................... 2,185 3,157
-------- --------
Total assets ................................................................ $129,667 $136,256
======== ========
Liabilities and Shareholders' Investment
Liabilities
Accounts payable and accrued liabilities ............................... $ 11,850 $ 18,324
Notes payable .......................................................... 17,135 25,762
Senior Notes, due 2004, net of unamortized original issue
discount of $7,907 and $6,907 respectively ........................... 92,093 93,093
Taxes payable .......................................................... 1,618 1,358
Unearned services fees .................................................. 2,028 2,538
-------- --------
Total liabilities .......................................................... 124,724 141,075
Commitments and Contingencies
Redeemable Preferred Stock
Par value $.001; 5,000,000 shares authorized, 50,000 shares issued and
outstanding at September 30, 1999; Aggregate liquidation preference:
$5,000,000 at September 30, 1999 ..................................... -- 4,910
Shareholders' Investment
Preferred Stock; par value $.001; 5,000,000 shares authorized,
37,500 shares issued and outstanding at December 31, 1998............. -- --
Convertible Preferred Stock; $100 per share liquidation value;
20,775 and 10,775 shares issued and outstanding at December 31, 1998
and September 30, 1999, respectively.................................. 2,078 1,078
Common stock; par value $.001; 45,000,000 shares authorized, shares
issued and outstanding 10,766,300 at December 31, 1998 and
September 30, 1999 ................................................... 11 11
Additional paid-in capital .............................................. 7,371 3,621
Warrants to purchase, 1,869,962 and 2,369,962 shares of common stock at
December 31, 1998 and September 30, 1999 ............................. 9,331 9,331
Accumulated deficit ..................................................... (13,737) (23,835)
Cumulative translation adjustment ....................................... (111) 65
-------- --------
Total shareholders' investment (deficit)..................................... 4,943 (9,729)
-------- --------
Total liabilities and shareholders' investment .............................. $129,667 $136,256
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
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RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands except per share data)
(Unaudited) (Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------ ------------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Statement of Operations
Revenues
Vacation Interval sales ........................ $ 39,836 $ 48,620 $ 13,324 $ 16,320
Rental and service fee income .................. 6,783 7,430 2,343 2,408
Interest income on Vacation Interval receivables 4,125 5,459 1,256 1,744
Other income ................................... 2,163 1,842 739 460
-------- -------- -------- --------
Total revenues ............................... 52,907 63,351 17,662 20,932
Costs and Operating Expenses
Cost of Vacation Interval sales................. 8,988 13,029 3,137 4,420
Provision for doubtful accounts ................ 3,238 3,759 1,153 1,241
Advertising, sales and marketing ............... 16,504 22,225 5,932 7,482
Maintenance and energy ......................... 6,114 8,122 2,161 3,191
General and administrative ..................... 7,788 8,570 2,934 2,919
Depreciation ................................... 333 732 114 266
Amortization of goodwill ....................... 677 1,265 677 --
-------- -------- -------- --------
Total costs and operating expenses ........... 43,642 57,702 16,108 19,519
-------- -------- -------- --------
Operating income .................................. 9,265 5,649 1,554 1,413
Interest expense, net .......................... 11,042 13,320 3,803 4,597
Equity in losses on equity investments.......... 24 577 12 385
Foreign currency exchange (gains)/losses, net... 3,751 (245) 1,824 (443)
-------- -------- -------- --------
Net loss before taxes ............................. (5,552) (8,003) (4,085) (3,126)
Foreign income and asset taxes.................. 900 935 300 209
-------- -------- -------- --------
Net loss before preferred dividends ............... (6,452) (8,938) (4,385) (3,335)
Preferred stock dividends ...................... 464 544 155 143
-------- -------- -------- --------
Net loss available to common shareholders ......... $ (6,916) $ (9,482) $ (4,540) $ (3,478)
======== ======== ======== ========
Net loss per share
(Basic and Diluted)............................ $ (.64) $ (.88) $ (.42) $ (.32)
Weighted average number of common shares
(Basic and Diluted)............................ 10,749 10,766 10,766 10,766
Comprehensive Loss
Net loss before preferred stock dividends ......... $ (6,452) $ (8,938) $ (4,385) $ (3,335)
Other comprehensive income:
Foreign currency translation adjustment ........ (25) 176 (25) (9)
-------- -------- -------- --------
Comprehensive loss ................................ $ (6,477) $ (8,762) $ (4,410) $ (3,344)
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
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RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
-----------------------------------
1998 1999
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<S> <C> <C>
Operating activities
Net loss .................................................................. $ (6,452) $ (8,938)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ........................................... 3,014 4,003
Provision for doubtful accounts ......................................... 3,238 3,759
Equity in losses on equity investments .................................. 24 577
Changes in other operating assets and liabilities:
Vacation Interval receivables and other trade receivables ............... (9,394) (14,146)
Reimbursement receivable from Starwood Lodging Corporation .............. 1,877 --
Inventories ............................................................. 19 (230)
Cost of unsold vacation ownership intervals and related club memberships 6,113 7,235
Prepaid and other assets ................................................ (1,140) (1,398)
Accounts payable and accrued liabilities ................................ 3,171 6,359
Taxes payable/refundable ................................................ 671 (1,066)
Unearned services fees .................................................. 67 509
-------- --------
Net cash provided by (used in) operating activities .......................... 1,208 (3,336)
Investing activities
Purchase of vacation ownership business, net of cash acquired ............. (875) --
Purchase of land and other assets held for vacation ownership development . (8,202) (1,702)
Additions to office furniture and equipment ............................... (2,035) (1,142)
-------- --------
Net cash used in investing activities ........................................ (11,112) (2,844)
Financing activities
Additional bank and other loans ........................................... 6,000 17,995
Repayment of bank loans ................................................... (121) (9,507)
Redemption of convertible preferred stock ................................. -- (1,000)
Capital contributions ..................................................... 361 --
-------- --------
Net cash provided by financing activities .................................... 6,240 7,488
Increase (Decrease) in cash and cash equivalents ............................. (3,664) 1,308
Effect of exchange rate changes on cash ...................................... (472) 96
Cash and cash equivalents, at beginning of the period ........................ 8,995 2,960
-------- --------
Cash and cash equivalents, at end of the period .............................. $ 4,859 $ 4,364
======== ========
Supplemental disclosures of cash flow information
Cash paid during the period for interest .................................. $ 7,150 $ 8,372
Cash paid during the period for income and asset taxes .................... 683 2,664
Non-cash activities
Dividends paid in-kind upon preferred stock exchange ...................... -- $ 1,160
The accompanying notes are an integral part of these financial statements.
</TABLE>
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RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 1999
NOTE 1. GENERAL INFORMATION
General
The financial statements include the accounts of Raintree Resorts
International, Inc., a Nevada corporation, (the "Ultimate Parent") and all of
its wholly owned subsidiaries (the "Company"). The Company develops, markets,
and operates vacation ownership resorts in North America with resorts in Mexico,
Canada and the United States. The Company's headquarters are located in Houston,
Texas with administrative offices in Mexico City, Mexico and Whistler, British
Columbia, Canada.
Organizational Structure
On August 18, 1997, Raintree Resorts International, Inc. (formerly Club
Regina Resorts, Inc.) 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, the
Regina Resorts and Westin Hotels, was segregated such that each 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 ("Vacation 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 acquired the assets and assumed certain
liabilities of Whiski Jack Resorts Ltd. ("Whiski Jack") for approximately $6.6
million. The acquisition was accounted for as a purchase and, accordingly, the
results of operations are included in the financial statements only for the
periods subsequent to the date of acquisition. 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 $4.2
million, to be amortized pro rata as the individual weeks acquired in the
acquisition are sold. Amortization expense, which has been fully amortized since
June 30, 1999, was $1.3 million for the nine months ended September 30, 1999.
In connection with the Purchase Transactions, the Company borrowed
approximately $83 million and replaced such borrowing with its Senior Notes. The
Company is, and will continue to be, highly leveraged, with substantial debt
service requirements. The Company has incurred losses since its inception and
expects to incur a net loss for fiscal 1999. To achieve profitable operations
the Company is dependent upon a number of factors, including its ability to
increase its Vacation Interval inventory on an economical basis through
development projects or through the acquisition of existing resort properties.
The Company expects, although no assurance can be made, that its credit
capacity, and its ability to obtain capital financing, as well as the Company's
anticipated results of operations, will be sufficient to fund its capital
requirements during the next twelve months.
Basis of Presentation
The information contained in the following notes to the accompanying
consolidated financial statements is condensed from that which would appear in
the annual audited financial statements. Accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements and related notes thereto contained in the
Form 10-K Annual Report for the year ended December 31, 1998, filed by the
Company with the Securities and Exchange Commission.
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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 presentation of the results for the three- and nine-month
periods ended September 30, 1998 and 1999.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Foreign Currency Fluctuations
The Company maintains its Mexican accounting records and prepares its
financial statements for its Mexican subsidiaries in Mexican pesos. The Mexican
pesos are translated to U.S. dollars for financial reporting purposes using the
U.S. dollar as the functional currency, and exchange gains and losses are
reported in income and expense. The net gains and losses are primarily related
to the increases or declines in the value of the peso to the U.S. dollar during
such periods. As a result, the Company had a net exchange loss for the nine
months ended September 30, 1998, of $3.8 million, and a net exchange gain for
the corresponding nine months in 1999 of $0.3 million.
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Exchange rates Pesos US Dollar
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<S> <C> <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
December 31, 1998...................................................... 9.865 = $1.00
March 31, 1999......................................................... 9.516 = $1.00
June 30, 1999.......................................................... 9.488 = $1.00
September 30, 1999..................................................... 9.358 = $1.00
</TABLE>
The future valuation of the Mexican peso related to the U.S. dollar cannot
be determined, estimated or projected.
Cash and Cash Equivalents
The Company considers demand accounts and short-term investments with
maturities of three months or less when purchased to be cash equivalents. Cash
and cash equivalents include $1.4 million in restricted funds at September 30,
1999.
Land Held for Vacation Ownership Development
The Company owns a parcel of undeveloped beachfront property located in
Cozumel, Mexico and a parcel of land adjacent to its Regina Resort located in
Cabo San Lucas, Mexico. The Company plans to construct additional vacation
ownership facilities on these parcels of land. Although preliminary
architectural and engineering planning has commenced, no commitments have been
made regarding these planned expansion projects. While preliminary architectural
and engineering planning continues on the Cabo San Lucas property, further work
on the Cozumel property will likely occur in late 2000 or later.
Land held for vacation ownership development includes the cost of land, and
additionally, development costs and capitalized interest. Interest related to
these developmental properties of $0.7 million and $1.7 million was capitalized
for the three and nine months ended September 30, 1998, and $0.2 million and
$0.5 million for the three and nine months ended September 30, 1999.
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Loss Per Share
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share also includes the assumed conversion of all
securities, such as options, warrants, convertible debt and convertible
preferred stock, if dilutive. Since the Company has a net loss for the three and
nine months ended September 30, 1998 and September 30, 1999, no conversion is
assumed during these periods as conversion of the Company's warrants and stock
options would be anti-dilutive. Additionally, the convertible preferred stock is
convertible only upon the consummation of an initial public offering and is,
therefore, not included in weighted average number of common shares.
Proforma Financial Information
The following unaudited pro forma consolidated results of operations for
the nine months and three months ended September 30, 1998 assume the Whiski Jack
acquisition occurred as of January 1, 1998 (in thousands, except per share
data):
<TABLE>
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Nine Months Three Months
Ended September 30, Ended September 30,
1998 1998
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<S> <C> <C>
Net revenues ........................................ $ 58,595 $ 21,548
Net loss ............................................ (8,474) (3,734)
Net loss available to common shareholders ........... (8,938) (3,877)
Basic and diluted loss per common share ............. (.83) (.36)
</TABLE>
The pro forma adjustments include the pre-acquisition results of Whiski
Jack for the period from January 1, 1998 to July 24, 1998, the acquisition date.
The adjustments include the amortization of goodwill generated from the
acquisition, interest expense on the debt assumed to be issued to finance the
purchase, and the effect of the acquisition on income taxes. The pro forma
amounts are based upon certain assumptions and estimates and do not reflect any
benefit from economies that might have been achieved from combined operations.
The pro forma results do not necessarily represent results, which would have
occurred if the acquisition had taken place at the beginning of the period
presented, nor are they indicative of the results that will be obtained in the
future.
NOTE 3. VACATION INTERVAL RECEIVABLES AND OTHER TRADE RECEIVABLES
Vacation Interval receivables and other trade receivables were as follows
(in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
-------------- --------------
<S> <C> <C>
Vacation Interval receivables ....................................... $ 53,563 $ 62,507
Service fee receivables ............................................. 1,047 1,247
Other trade receivables ............................................. 4,787 7,275
Less - allowances for uncollectible accounts ........................ (7,562) (8,602)
-------- --------
Total ....................................................... $ 51,835 $ 62,427
======== ========
</TABLE>
Allowances for uncollectible accounts increased by $3.7 million for
additional estimated reserves, and decreased by $2.7 million for cancellation of
contracts and receivable write-offs during the first nine months of 1999.
The Company estimates that at December 31, 1998 and at September 30, 1999,
approximately 57% and 51%, respectively, of all of the Vacation Interval
receivables were U.S. dollar denominated, 28% and 31%, respectively, of Vacation
Interval receivables were denominated in UDIs, an obligation denominated in
pesos which is adjusted for Mexican inflation ("UDI"), 10% during both periods
of Vacation Interval receivables were denominated in Mexican pesos, and 5% and
7%, respectively, of Vacation Interval receivables were denominated in Canadian
dollars.
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NOTE 4. NOTES PAYABLE
Notes Payable were as follows (in thousands):
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December 31, September 30,
1998 1999
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Notes Payable to a Bank ............................................. $ 276 $ 203
Cabos West Notes Payable ........................................... 5,000 2,350
Credit Agreement Notes .............................................. 9,086 19,913
Mortgages Payable ................................................... 2,773 3,296
-------- --------
$ 17,135 $ 25,762
======== ========
</TABLE>
Credit Agreement Notes - The FINOVA Capital Corporation ("FINOVA") credit
agreement provides a receivables based credit facility of $20 million and a
non-revolving $13.5 million inventory based facility. Together, the receivable
and the inventory portions of the facility provide for an aggregate borrowing
limit of $32 million and limits the use of proceeds to acquisitions,
development, working capital, and repayment of existing obligations, and
requires that the Company maintain certain minimum financial ratios. The
outstanding loan balance of the receivables based credit facility bears interest
at a fluctuating base rate plus 175 points, which at September 30, 1999, was
10.0% per annum. The inventory loan bears interest at a fluctuating base rate
plus 225 points which at September 30, 1999, was 10.5% per annum. The
fluctuating base rate is the "Corporate Base" rate of Citibank, N.A., New York,
which the bank publicly announces from time to time, and is a rate charged by
the bank to it's most creditworthy commercial borrowers. The inventory loan
provides for borrowings in two installments that are collateralized and secured
by Company-owned rights representing ownership of unsold weekly intervals.
Amounts of the two advances and the monthly repayments are based on formulas
utilizing the number of unsold timeshare interests, the average number of
timeshare interests sold per month and average sales price per interval sold.
The inventory loan will mature on the earlier of April 30, 2001, or 24 months
from the date of the first advance.
NOTE 5. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
The Company has only one line of business, which develops, markets and
operates luxury vacation ownership resorts. The Company has operations in three
geographic areas. The following is a breakdown of revenues and assets by
geographic area (in thousands):
<TABLE>
<CAPTION>
Three Months Three Months
Ended September 30, 1998 Ended September 30, 1999
------------------------------------------- -------------------------------------------
Mexico Canada U.S. Total Mexico Canada U.S. Total
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from external customers . $ 15,863 $ 1,514 $ 285 $ 17,662 $ 16,730 $ 4,198 $ 4 $ 20,932
Operating income (loss) .......... 3,292 (817) (921) 1,554 1,299 548 (434) 1,413
Capital expenditures ............. 7,526 56 29 7,611 720 63 3 786
Nine Months Nine Months
Ended September 30, 1998 Ended September 30, 1999
------------------------------------------- -------------------------------------------
Mexico Canada U.S. Total Mexico Canada U.S. Total
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Revenues from external customers . $ 49,987 $ 1,514 $ 1,406 $ 52,907 $ 51,461 $ 11,878 $ 12 $ 63,351
Operating income (loss) .......... 11,649 (817) (1,567) 9,265 7,217 690 (2,258) 5,649
Capital expenditures ............. 9,951 56 230 10,237 1,683 219 1,138 3,040
Total assets (at end of period) .. 113,624 11,941 7,344 132,909 121,465 10,719 4,072 136,256
</TABLE>
Revenues are attributed to countries based on the location of the vacation
ownership resorts.
9
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NOTE 6. SHAREHOLDERS' INVESTMENT
Preferred Stock
On July 1, 1999, all 37,500 shares of the Class A Preferred Stock of the
Company were exchanged for 50,000 shares of a new class of Pay-in-Kind
Redeemable Preferred Stock (Redeemable Preferred Stock) plus 500,000 five-year
Warrants to purchase the Company's common stock at $5.00 per share.
Additionally, as of July 1, 1999, the Class A Preferred Stock had cumulative
unpaid dividends totaling approximately $1.2 million that were deemed
paid-in-kind as part of the Exchange. The Redeemable Preferred Stock requires
that annual dividends be paid either in cash equalling 9% of the Redeemable
Preferred Stocks' $100 per share Liquidation Preference, or in an equivalent
number of shares of Redeemable Preferred Stock valued at the Liquidation
Preference. Furthermore, the Redeemable Preferred Stock is redeemable at any
time before December 1, 2004, at which time redemption is mandatory.
Convertible Preferred Stock
In connection with the purchase of Whiski Jack, the Company issued 20,775
shares of redeemable convertible preferred stock (Convertible Preferred Stock)
through its wholly owned subsidiary, Raintree Resorts International Canada, Ltd.
(Raintree Canada). As of September 30, 1999, 10,775 shares were outstanding. The
shares accrue dividends at the rate of 10% per annum and cumulative unpaid
dividends totaled $0.2 million at September 30, 1999. As a condition of the
Convertible Preferred Stock, the Company redeemed 5,000 shares ($0.5 million) on
April 1, 1999 and July 31, 1999, and subsequent to the end of the quarter ended
September 30, 1999, $0.5 million on October 31, 1999. The Company will redeem
$0.5 million on or before January 31, 2000 and the balance on or before April
30, 2000.
NOTE 7. CONTINGENCIES AND COMMITMENTS
General
The Company is subject to various claims arising in the ordinary course of
business, and is a party to various legal proceedings, which constitute ordinary
routine litigation incidental to the Company's business. In the opinion of
management, all such matters are either adequately covered by insurance or are
not expected to have a material adverse effect on the Company.
Villa Vera Acquisitions
The Company has executed a letter of intent and has made an advance payment
of $0.5 million to acquire the land and facilities of the Villa Vera Hotel &
Racquet Club (the "Villa Vera") in Acapulco, Mexico. The purchase price,
estimated at $7.4 million, includes the cost of renovation and conversion that
will enable the Company to use the facilities for its intended purpose. Closing
of this acquisition is expected in late 1999.
Canadian Condominium Acquisitions
The Company has committed to purchase 19 condominium units in Whistler,
British Columbia at an aggregate purchase price of $3.7 million. Deposits of
$0.5 million have been paid as of September 30, 1999, with the balance to be
paid during 2000, or thereafter, based on completion of construction and
transfer of ownership.
NOTE 8. DEVELOPMENT AND CONSTRUCTION
The Teton Club, LLC ("Teton Club"), a joint venture between the Company and
JHSC Properties, Inc., finalized during July, 1999 the financing for the
construction of the Teton Club's 37 condominium units. The financing between
FINOVA and the Teton Club consists of $33.3 million for construction financing,
$7.5 million for pre-sale working capital requirements and $20 million for
receivables financing. The receivable financing is a hypothecation
line-of-credit and will be used to repay the construction and pre-sale loans and
to fund operating expenses. As part of the financing arrangement, the Company is
directly obligated for $8.3 million of the construction loan, $1.9 million of
the pre-sale working capital loan and $5 million of the receivables loan. As of
September 30, 1999, $4.3 million had been drawn on the construction portion of
the financing, and $1.1 had been drawn on the working capital portion of the
financing.
10
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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 Form 10-K Annual Report for the year
ended December 31, 1998, 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 NINE MONTHS ENDED
SEPTEMBER 30, 1999.
The comparisons of results presented below include the results of
operations of Whiski Jack, which was acquired on July 24, 1998. The variations
noted for Whiski Jack are due to the reporting of post-acquisition partial-year
results for the period subsequent to the date of acquisition.
Vacation Interval sales increased by approximately $8.8 million, or 22.1%,
from approximately $39.8 million for the nine months ended September 30, 1998 to
approximately $48.6 million for the nine months ended September 30, 1999. The
acquisition of Whiski Jack contributed approximately $8.5 million of this
increase. In Mexico, Vacation Interval sales increased by approximately $0.3
million, or 0.7%.
The number of intervals sold in Mexico increased from 3,151 for the nine
months ended September 30, 1998, to 3,360 for the nine months ended September
30, 1999. The average price per interval sold in Mexico decreased $307 per
interval, or 2.6%, from $11,785 for the nine months ended September 30, 1998, to
$11,478 for the nine months ended September 30, 1999. The decreases in the
average price per interval sold is a result of a decrease in the number of
higher priced prime and holiday season intervals owned by the Company for sale.
In Mexico, substantially all prime season intervals have been sold, and only 33%
of the one-bedroom and 17% of the two-bedroom holiday interval inventory remains
unsold.
Rental and service fee income increased approximately $0.6 million, or
9.5%, from approximately $6.8 million for the nine months ended September 30,
1998 to approximately $7.4 million for the nine months ended September 30, 1999.
The acquisition of Whiski Jack contributed approximately $1.4 million of this
increase. In Mexico, rental and service fee income decreased by approximately
$0.8 million, or 11.4%. This decrease was due to a higher rate of occupancy by
members during the first nine months of 1999 compared to the first nine months
of 1998 that resulted in fewer rooms available for rent.
Interest income on Vacation Interval receivables increased by approximately
$1.4 million, or 32.3%, from approximately $4.1 million for the nine months
ended September 30, 1998, to approximately $5.5 million for the nine months
ended September 30, 1999. This increase in interest income is due to the
corresponding increase in the Mexican Vacation Interval receivables of
approximately $7.6 million from approximately $50.8 million at September 30,
1998, to approximately $58.4 million at
11
<PAGE>
September 30, 1999, and additional interest income of $0.3 million associated
with the additional Vacation Interval receivables acquired in the acquisition of
Whiski Jack.
Cost of Vacation Interval sales increased by approximately $4.0 million, or
45.0%, from approximately $9.0 million for the nine months ended September 30,
1998, to approximately $13.0 million for the nine months ended September 30,
1999. The acquisition of Whiski Jack accounted for approximately $2.9 million of
this increase. In Mexico, cost of vacation interval sales increased
approximately $1.1 million, or 13.6%, from approximately $8.7 million for the
nine months ended September 30, 1998, to approximately $9.8 million for the nine
months ended September 30, 1999. This increase in Mexico was primarily due to
the Company's response to market demand for specific unit types. During the
period, the Company did not at all times adequately possess the type of units
for sale that were in demand, and as a result, the Company packaged certain
units in order to meet such demand. This increased the related cost of vacation
interval sales since the packaged units sell at a comparatively lower price
resulting in a higher allocated cost.
Provision for doubtful accounts increased by approximately $0.6 million, or
16.1%, from approximately $3.2 million for the nine months ended September 30,
1998, to approximately $3.8 million for the nine months ended September 30,
1999. The Company computes a provision for doubtful accounts to achieve a
balance sheet reserve of around 12% of Vacation Interval receivables. The
Company believes that this reserve provides adequate coverage of default risk
under current market conditions.
Advertising, sales and marketing expense increased approximately $5.7
million, or 34.7%, from approximately $16.5 million for the nine months ended
September 30, 1998, to approximately $22.2 million for the nine months ended
September 30, 1999. The acquisition of Whiski Jack contributed approximately
$3.1 million of this increase. In Mexico, the advertising, sales and marketing
expenses increased approximately $2.6 million as a result of greater overall
selling and marketing efforts during the first nine months of 1999. The
increased sales and marketing efforts are primarily due to the relatively lower
level of availability of higher demand, and therefore higher priced, prime and
holiday season interval inventory as compared to the level of unsold inventory
represented by lower demand time periods. Additionally, in 1999, the Company
incurred $0.7 million in costs associated with establishing product branding.
Maintenance and energy expenses increased approximately $2.0 million, or
32.8%, from approximately $6.1 million for the nine months ended September 30,
1998, to approximately $8.1 million for the nine months ended September 30,
1999. The acquisition of Whiski Jack increased maintenance and energy expenses
by approximately $1.1 million. In Mexico, maintenance and energy expenses
increased approximately $0.9 million primarily due to an increase of
approximately 5,000 additional members between the two comparable periods.
General and administrative expenses increased approximately $0.8 million,
or 10.0%, from approximately $7.8 million for the nine months ended September
30, 1998, to approximately $8.6 million for the nine months ended September 30,
1999. This increase resulted from the acquisition of Whiski Jack.
The first nine months of 1999 amortization of goodwill relates to the
goodwill resulting from the acquisition of Whiski Jack, which was fully
amortized as of the second quarter of 1999.
Interest expense was approximately $2.3 million more in the first nine
months of 1999 as compared to the first nine months of 1998 due primarily to a
higher level of debt outstanding between the periods, which increased from
$105.3 million at September 30, 1998 to $118.9 million at September 30, 1999,
and also due to a decrease in interest capitalized on land held for vacation
ownership development.
Foreign currency exchange gain totaled approximately $0.2 million during
the first nine months of 1999 compared to a loss of approximately $3.8 million
during the first nine months of 1998. The decrease in loss between periods
occurred due to a stronger peso against the U.S. dollar during the first nine
months of 1999 compared to a weakening peso in the comparable prior year period.
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 periodic peso devaluation. The UDI inflation adjustments are
expected to offset the long-term effect of peso devaluation on UDI receivables
but may not offset losses in the near term. The amount of UDI inflation
adjustments, which is included under interest income on vacation interval
receivables, was approximately $1.3 million during the first nine months of 1998
and approximately $1.4 million during the first nine months of 1999.
12
<PAGE>
COMPARISONS OF THE THREE MONTHS ENDED SEPTEMBER 30, 1998 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1999.
The comparisons of results presented below include the results of
operations of Whiski Jack, which was acquired on July 24, 1998. The variations
noted for Whiski Jack are due to the reporting of post-acquisition partial-year
results for the period subsequent to the date of acquisition.
Vacation Interval sales increased by approximately $3.0 million or 22.5%,
from approximately $13.3 million for the three months ended September 30, 1998
to approximately $16.3 million for the three months ended September 30, 1999.
The acquisition of Whiski Jack contributed approximately $2.3 million this
increase. In Mexico, vacation interval sales increased by approximately $0.7
million, or 5.5%.
The number of intervals sold in Mexico increased from 987 for the three
months ended September 30, 1998, to 1,042 for the three months ended September
30, 1999. The average price per interval sold in Mexico decreased $392 per
interval, or 3.2%, from $12,223 for the three months ended September 30, 1998,
to $11,831 for the three months ended September 30, 1999. See the discussion of
the decrease in the average price per interval above in the comparison for the
nine months.
Rental and service fee income increased approximately $0.1 million, or
2.8%, from approximately $2.3 million for the three months ended September 30,
1998 to approximately $2.4 million for the three months ended September 30,
1999. The increase due to the acquisition of Whiski Jack of approximately $0.3
million was offset by $0.2 million of decreases in Mexico. See the discussion of
this decrease in Mexico above in the comparison for the nine months.
Interest income on Vacation Interval receivables increased by approximately
$0.4 million, or 39.0%, from approximately $1.3 million for the three months
ended September 30, 1998, to approximately $1.7 million for the three months
ended September 30, 1999. This increase in interest income is associated with
the Mexican Vacation Interval receivables increasing by approximately $7.6
million from approximately $50.8 million at September 30, 1998, to approximately
$58.4 million at September 30, 1999, and additional interest income of $0.1
million associated with the additional Vacation Interval receivables acquired in
the acquisition of Whiski Jack.
Cost of Vacation Interval sales increased by approximately $1.3 million, or
40.9%, from approximately $3.1 million for the three months ended September 30,
1998, to approximately $4.4 million for the three months ended September 30,
1999. The acquisition of Whiski Jack contributed $0.7 million of this increase.
In Mexico, Cost of Vacation Interval sales increased $0.6 million, or 20.1%. For
additional detail, see also the discussion of cost of Vacation Interval sales
for the nine months ended September 30, 1998 and 1999 above.
Advertising, sales and marketing expense increased approximately $1.6
million, or 26.1%, from approximately $5.9 million for the three months ended
September 30, 1998, to approximately $7.5 million for the three months ended
September 30, 1999. The acquisition of Whiski Jack contributed approximately
$0.7 million of this increase. In Mexico, the advertising, sales and marketing
expenses increased approximately $1.0 million as a result of greater overall
selling and marketing efforts during the third quarter of 1999. The increased
sales and marketing efforts are primarily due to the reduction in availability
of higher demand prime and holiday season interval inventory.
Maintenance and energy expenses increased approximately $1.0 million, or
47.7%, from approximately $2.2 million for the three months ended September 30,
1998, to approximately $3.2 million for the three months ended September 30,
1999. The acquisition of Whiski Jack increased maintenance and energy expenses
by approximately $0.2 million. In Mexico, maintenance and energy expenses
increased approximately $0.8 million, or 39.7%. For additional detail, see also
the discussion of cost of maintenance and energy expenses for the nine months
ended September 30, 1998 and 1999 above.
General and administrative expenses were unchanged from prior year third
quarter. The additional general and administrative expenses from the acquisition
of Whiski Jack of approximately $0.2 million were offset by decreases in
third-party professional services.
Interest expense was approximately $0.8 million more during the three months
ended September 30, 1999 as compared to the similar three months of 1998 due
primarily to a higher level of debt outstanding, up $13.6 million between the
periods, and due to a marginal decrease in interest capitalized on land held for
vacation ownership development.
13
<PAGE>
Foreign currency exchange gains totaled approximately $0.4 million for the
three months ended September 30, 1999, compared to a loss of approximately $1.8
million during the three months ended September 30, 1998. The decrease between
periods occurred due to the peso strengthening against the U.S. dollar during
the third quarter of 1999 compared the peso weakening against the US dollar
during the comparable prior year period. The amount of UDI inflation
adjustments, which is included in interest income on vacation interval
receivables, was approximately $0.3 million for the three months ended September
30, 1998 and 1999.
MEXICO'S INFLATION AND CURRENCY CHANGES
Management believes that in interpreting the comparisons of operational
results discussed above, two factors are of importance: currency exchange rates
and inflation. Changes in costs between prior year and current year periods
could be the result of increases or decreases in the peso exchange rate or
inflation in Mexico. In particular, the average monthly peso exchange rate for
the nine months ended September 30, 1999 weakened when compared to the average
monthly peso exchange rate for the nine months ended September 30, 1998. The
Company estimates that current period costs decreased by approximately 8-9%
because of fluctuations in the average peso exchange rate between periods. In
addition, the Company estimates that inflation in Mexico was approximately 15%.
Expenditures in Mexico for advertising, sales and marketing, maintenance and
energy, and for general and administrative expenses are primarily settled in
pesos, and were negatively impacted by the combined effects of inflation and
peso changes.
COMPARISONS OF SEPTEMBER 30, 1999 BALANCE SHEET AMOUNTS TO DECEMBER 31, 1998
BALANCE SHEET AMOUNTS
Vacation Interval receivables and other trade receivables increased
approximately $10.6 million from approximately $51.8 million as of December 31,
1998 to approximately $62.4 million as of September 30, 1999. The increase was
attributable to an increase in the level of sales financing with approximately
800 additional loans, UDI inflation adjustments of $1.4 million and the annual
service fee billing issued during the first quarter of 1999.
Equity investments increased $0.4 million from approximately $2.9 million
as of December 31, 1998 to approximately $3.3 million as of September 30, 1999.
The increase was primarily attributable to the Company's investment in the Teton
Club. The Company and its joint venture partner contributed cash for operations
prior to the Teton Club closing on its construction and working capital
financing.
Cost of unsold vacation ownership intervals and related club memberships
(unit inventory) decreased approximately $7.2 million from approximately $27.6
million as of December 31, 1998 to approximately $20.4 million as of September
30, 1999. The sale of units reduced unit inventory by approximately $10.5
million, which was offset by purchases by Whiski Jack in Canada of approximately
$3.3 million and the remainder primarily for reinstatement of inventory
previously sold in Mexico.
Accounts payable and accrued liabilities increased approximately $6.4
million from approximately $11.9 million as of December 31, 1998 to
approximately $18.3 million as of September 30, 1999. The variance is caused by
an increase in the refurbishment reserve of $1.0 million, an increase in accrued
interest payable of $3.5 million, and an overall increase in accounts payable.
Unearned service fees increased approximately $0.5 million from
approximately $2.0 million as of December 31, 1998 to approximately $2.5 million
as of September 30, 1999. This balance was higher at the end of September, 1999
as compared to December, 1998 because a majority of the related fees are
typically invoiced at the beginning of each year and then earned during the
remainder of that year.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash for operations primarily from the sale of
Vacation Intervals, receipt of payments on the Vacation Interval receivables,
and the receipt of service fees charged to members. With respect to the sale of
Vacation Intervals, the Company generates cash from all-cash purchases and from
receipt of down payments on financed Vacation Intervals. The Company also
generates cash from financing Vacation Interval sales and receiving
14
<PAGE>
principal and interest payments. Additionally, the Company uses Vacation
Interval receivables as collateral in order to obtain loans.
At September 30, 1999, the Company has $118.9 million of debt outstanding,
an increase of $13.6 million as compared to year end 1998. Debt outstanding
consisted primarily of $100 million in Senior Notes payable, $19.9 million drawn
on the FINOVA Accounts Receivable credit facility and Inventory Loan, $2.4
million in a Cabos West note payable, and $3.3 million in mortgage notes
payable.
The Company's borrowing capacity under the FINOVA credit facility currently
includes a $20 million accounts receivable based credit facility and a $13.5
million inventory based non-revolving line of credit; the combined credit
facility provides an aggregate borrowing limit of $32 million.
Furthermore, the Company is currently finalizing collateral-based borrowing
facilities with two financial institutions totaling approximately $17.0 million.
The underlying collateral will include Peso, UDI and U.S. Dollar denominated
receivables due from Mexican citizens and not pledged under the FINOVA
agreement. The proceeds will be used to pay the Senior Notes interest due on
December 1, 1999, and for other Company purposes.
At September 30, 1999, the Company had an inventory of approximately 3,800
weeks in Mexico and over 500 weeks in Canada. The Company believes its existing
inventory will provide it with approximately nine months of product available
for sale under existing or planned marketing programs. The Company plans to
increase its Vacation Interval inventory through development of additional
properties and by making acquisitions in the short term, by purchasing the Villa
Vera, by acquiring condominiums in Whistler, British Columbia, and by developing
the Teton Club joint venture. In addition, the Company plans to add Vacation
Interval inventory in the long term by developing its land in Los Cabos and in
Cozumel, and by making acquisitions in Mexico, the United States and Canada.
To finance its growth, in addition to accessing the lines of credit with
FINOVA, the Company may from time to time consider issuing debt, equity or other
securities, entering into traditional construction financing or credit
agreements, entering into joint venture or development agreements with respect
to its undeveloped property, or factoring additional Vacation Interval
receivables. The Company is highly leveraged and, under the Indenture, there are
limitations on the Company's ability to borrow funds and to make certain equity
investments. Additionally, the FINOVA credit agreement requires the Company to
maintain certain financial covenants, including minimum equity levels.
Accordingly, there can be no assurance that the Company will be able to use debt
to finance any expansion plans beyond its plans to finance its current
commitments.
At September 30, 1999, the Company is, and will continue to be, highly
leveraged, with substantial debt service requirements. The Company has incurred
losses since its inception and expects to incur a net loss for fiscal 1999. To
achieve profitable operations the Company is dependent upon a number of factors,
including its ability to increase its Vacation Interval inventory on an
economical basis through development projects or through the acquisition of
existing resort properties. The Company expects, although no assurance can be
made, that its credit capacity, and its ability to obtain capital financing, as
well as the Company's anticipated results of operations, will be sufficient to
fund its capital requirements and debt service obligations during the next
twelve months.
IMPACT OF YEAR 2000
In Mexico, the Company uses Resort Computer Corporation's ("RCC") software
to manage its vacation ownership operations, including marketing activities,
sales presentations, contract management, collections, member reservations and
hotel operations. 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 completed installing a new financial
system to be used in conjunction with the operating system. This system is also
Year 2000 compliant.
In Canada and in the United States, the Company's financial and operating
systems are Year 2000 compliant. Management believes that after due assessment
under current circumstances, there exists no material risk in this regard.
Additionally, the Company has initiated discussions with all significant
suppliers including the Westin Hotels in Mexico. No significant Year 2000 issues
have been identified. The Company believes that there are no significant
15
<PAGE>
Year 2000 issues, which conclusion is based on a comprehensive study of this
issue. Accordingly, management has concluded that no significant costs will be
incurred to address the issue.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
16
<PAGE>
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
None
ITEM 5. OTHER INFORMATION
None
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
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities 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.
CR RESORTS CAPITAL, S. DE R.L. DE C.V.
Date: November 12, 1999 By: /s/ GEORGE E. ALDRICH
----------------------------------------------
George E. Aldrich
Senior Vice President - Finance and Accounting
(Principal Accounting Officer)
18
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27.1 Financial Data Schedule
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
RAINTREE RESORTS INTERNATIONAL, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE
PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH AND (B) FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1999.
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