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 March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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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 March 31, 1999, the Registrant had 10,766,300 shares of Common Stock
outstanding and Warrants to purchase 1,869,962 shares of Common Stock at $0.01
per share.
*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 March 31, 1999 (Unaudited) ............................................... 3
Consolidated Statements of Operations and Comprehensive Income
for the Three Months ended March 31, 1998 and March 31, 1999 (Unaudited) ....................... 4
Consolidated Statements of Cash Flows
for the Three Months ended March 31, 1998 and March 31, 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........................................14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.................................................................................14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.........................................................14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................................14
ITEM 5. OTHER INFORMATION ................................................................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................................14
SIGNATURES.....................................................................................................15
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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, March 31,
1998 1999
---------------- ----------------
<S> <C> <C>
Assets
Cash and cash equivalents ............................................... $ 2,960 $ 5,779
Vacation Interval receivables and other trade receivables, net........... 51,835 59,424
Inventories ............................................................. 775 769
Refundable Mexican taxes ................................................ 3,488 3,923
Office furniture and equipment .......................................... 3,046 3,127
Land held for vacation ownership development ............................ 22,170 22,353
Equity investments....................................................... 2,949 3,554
Cost of unsold vacation ownership intervals and related club memberships 27,606 24,629
Retained interest in hotel cash flows ................................... 4,000 4,000
Deferred loan costs, net ................................................ 7,413 7,102
Goodwill, net .......................................................... 1,240 477
Prepaid and other assets ............................................... 2,185 2,577
-------- --------
Total assets ................................................................ $129,667 $137,714
======== ========
Liabilities and Shareholders' Investment
Liabilities
Accounts payable and accrued liabilities ............................... $ 11,850 $ 17,714
Notes payable .......................................................... 17,135 16,878
Senior Notes, due 2004, net of unamortized original issue
discount of $7,907 and $7,573, respectively .......................... 92,093 92,427
Taxes payable .......................................................... 1,618 1,369
Unearned services fees .................................................. 2,028 5,482
-------- --------
Total liabilities .......................................................... 124,724 133,870
Commitments and Contingencies
Shareholders' Investment
Preferred stock; par value $.001; 5,000,000 shares authorized, shares
issued and outstanding 37,500 at December 31, 1998
and March 31, 1999.................................................... -- --
Convertible preferred stock; $100 per share liquidation value;
20,775 shares issued and outstanding at December 31, 1998
and March 31, 1999.................................................... 2,078 2,078
Common stock; par value $.001; 45,000,000 shares authorized, shares
issued and outstanding 10,766,300 at December 31, 1998
and March 31, 1999 ................................................... 11 11
Additional paid-in capital .............................................. 7,371 7,371
Warrants to purchase 1,869,962 shares of common stock.................... 9,331 9,331
Accumulated deficit ..................................................... (13,737) (14,901)
Cumulative translation adjustment ....................................... (111) (46)
-------- --------
Total shareholders' investment .............................................. 4,943 3,844
-------- --------
Total liabilities and shareholders' investment .............................. $129,667 $137,714
======== ========
The accompanying notes are an integral part of these financial statements.
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RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands except share and per share data)
(Unaudited)
Three Months Ended
March 31,
-------------------------------------
1998 1999
---------------- -----------------
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Statement of Operations
Revenues
Vacation Interval sales ...................................................... $ 14,123 $ 17,042
Rental and service fee income ................................................ 2,493 2,495
Interest income on Vacation Interval receivables ............................. 1,564 2,077
Other income ................................................................. 883 733
-------- --------
Total revenues ............................................................ 19,063 22,347
Costs and Operating Expenses
Cost of Vacation Interval sales .............................................. 3,147 4,337
Provision for doubtful accounts .............................................. 1,224 1,177
Advertising, sales and marketing ............................................. 5,283 7,443
Maintenance and energy ....................................................... 1,789 2,107
General and administrative ................................................... 2,126 2,928
Depreciation ................................................................. 80 224
Amortization of goodwill ..................................................... -- 1,096
-------- --------
Total costs and operating expenses ........................................ 13,649 19,312
-------- --------
Operating income ............................................................... 5,414 3,035
Interest expense, net ........................................................ 3,622 4,376
Equity in losses from joint venture .......................................... -- 96
Foreign currency exchange (gains) losses, net ................................ 829 (529)
-------- --------
Net income (loss) before taxes ................................................. 963 (908)
Foreign income and asset taxes ............................................... 297 256
-------- --------
Net income (loss) before preferred dividends ................................... 666 (1,164)
Preferred stock dividends .................................................... 155 207
-------- --------
Net income (loss) available to common shareholders ............................. $ 511 $ (1,371)
======== ========
Income (loss) per share
Basic ........................................................................ $ .05 $ (.13)
Diluted ...................................................................... .04 (.13)
Weighted average number of common shares:
Basic ........................................................................ 10,701,300 10,766,300
Diluted ...................................................................... 12,668,105 10,766,000
Comprehensive Income
Net income (loss) before preferred stock dividends ............................. $ 666 $ (1,164)
Other comprehensive income:
Foreign currency translation adjustment ...................................... -- 65
-------- --------
Comprehensive income (loss) .................................................... $ 666 $ (1,099)
======== ========
The accompanying notes are an integral part of these financial statements.
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RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
March 31,
-------------------------------------
1998 1999
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Operating activities
Net income (loss) ......................................................... $ 666 $ (1,164)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ........................................... 364 1,979
Provision for doubtful accounts ......................................... 1,224 1,177
Equity in joint venture losses .......................................... -- 96
Changes in other operating assets and liabilities:
Vacation Interval receivables and other trade receivables ............... (9,530) (8,702)
Inventories ............................................................. (27) 6
Cost of unsold vacation ownership intervals and related club memberships 4,688 2,953
Prepaid and other assets ................................................ 1,333 (398)
Accounts payable and accrued liabilities ................................ 1,672 5,538
Taxes payable/refundable ................................................ 221 (694)
Unearned services fees .................................................. 2,554 3,454
-------- --------
Net cash provided by operating activities..................................... 3,165 4,245
Investing activities
Purchase of land and other assets held for vacation ownership development . (730) (885)
Additions to office furniture and equipment ............................... (665) (265)
-------- --------
Net cash used in investing activities ........................................ (1,395) (1,150)
Financing activities
Additional bank and other loans ........................................... -- 2,027
Repayment of bank and shareholder loans ................................... -- (2,333)
-------- --------
Net cash used in financing activities ........................................ -- (306)
Increase in cash and cash equivalents ........................................ 1,769 2,789
Effect of exchange rate changes on cash ...................................... -- 30
Cash and cash equivalents, at beginning of the period ........................ 9,005 2,960
-------- --------
Cash and cash equivalents, at end of the period .............................. $ 10,775 $ 5,779
======== ========
Supplemental disclosures of cash flow information
Cash paid during the period for interest .................................. $ 422 $ 366
Cash paid during the period for income and asset taxes .................... 1,753 628
The accompanying notes are an integral part of these financial statements.
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RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 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 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 ("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 was $1.1 million for the quarter
ended March 31, 1999.
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.
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 interim periods ended
March 31, 1998 and 1999.
6
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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.
Certain items in the March 31, 1998 financial statements have been
reclassified to conform with the March 31, 1999 presentation.
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 as well as
translation gains and losses are reported in income and expense. The resulting
net exchange and translation gains (losses) for the three months ended March 31,
1998 and 1999 were $(829,000) and $529,000, respectively. 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 these periods as follows:
Exchange rates Pesos US Dollar
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
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 $1.3 million in restricted funds at March 31, 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 of $0.5
million and $0.1 million during the three months ended March 31, 1998 and 1999,
respectively, was capitalized related to these developmental properties.
Earnings (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
months ended March 31, 1999, no conversion is assumed during that period as
conversion of the Company's warrants and stock options would be anti-dilutive.
Additionally, the Preferred Stock and Convertible Preferred Stock are
convertible only upon the consummation of an initial public offering and are,
therefore, not included in weighted average number of common shares.
7
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The following is a reconciliation of the numerator and denominator for
basic and diluted earnings per share (in thousands, except shares and per share
data):
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Three Months Ended
March 31,
-------------------------------------
1998 1999
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Numerator - Basic and Diluted:
Income (loss) available to common shareholders .......................... $ 511 $ (1,371)
Denominator:
Basic - weighted average number of common shares ........................ 10,701,300 10,766,300
Adjustments:
Warrants associated with Senior Notes ................................ 1,869,962 --
Common stock options ................................................. 97,143 --
---------- ----------
Diluted ................................................................ 12,668,405 10,766,300
Earnings (loss) per share
Basic.................................................................... $ .05 $ (.13)
Diluted.................................................................. $ .04 $ (.13)
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Proforma Financial Information
The following unaudited pro forma consolidated results of operations for
the three months ended March 31, 1998 assume the Whiski Jack acquisition
occurred as of January 1, 1998 (in thousands, except per share data):
Three Months
Ended March 31,
1998
------------------
Net revenues ........................................ $ 21,536
Net loss ............................................ (168)
Net loss available to common shareholders ........... (323)
Basic and diluted loss per common share ............. (0.03)
The pro forma adjustments include the pre-acquisition results of Whiski
Jack for the period from January 1, 1998 to March 31, 1998. 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 each of the periods 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):
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December 31, March 31,
1998 1999
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Vacation Interval receivables ................................ $ 53,563 $ 57,759
Service fee receivables ...................................... 1,047 3,369
Other trade receivables ...................................... 4,787 5,627
Less - allowances for uncollectible accounts ................. (7,562) (7,331)
---------- ----------
Total ................................................ $ 51,835 $ 59,424
========== ==========
</TABLE>
Allowances for uncollectible accounts increased by $1,177 for additional
estimated reserves, and decreased by $1,408 for cancellation of contracts and
receivable write-offs during the first three months of 1999.
8
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The Company estimates that at December 31, 1998, and at March 31, 1999,
approximately 57% and 53%, respectively, of all of the Vacation Interval
receivables were U.S. dollar denominated, 28% and 30%, respectively, of Vacation
Interval receivables were denominated in UDIs, an obligation denominated in
pesos which is adjusted for Mexican inflation ("UDI"), 10% and 10%,
respectively, of Vacation Interval receivables were denominated in Mexican
pesos, and 5% and 7%, respectively, of Vacation Interval receivables were
denominated in Canadian dollars.
NOTE 4. NOTES PAYABLE
Notes Payable were as follows (in thousands):
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December 31, March 31,
1998 1999
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Notes Payable to a Bank ...................................... $ 276 $ 422
Cabos West Notes Payable .................................... 5,000 4,000
Credit Agreement Notes ....................................... 9,086 9,657
Mortgages Payable ............................................ 2,773 2,799
---------- ----------
$ 17,135 $ 16,878
========== ==========
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Credit Agreement Notes - The November 1998 FINOVA Capital Corporation
("FINOVA")credit agreement provides a receivables based credit facility of $20
million. The Company and FINOVA are also finalizing the non-revolving $13.5
million inventory based portion of the facility, and anticipate its completion
by mid-May 1999. Together, the receivable and the inventory portions of the
facility will provide for an aggregate borrowing limit of $32 million.
Furthermore, it will limit the use of proceeds to acquisitions, development,
working capital, and repayment of existing obligations, and will require 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 March 31, 1999, was 9.5% per annum. The
inventory loan will bear interest at a fluctuating base rate plus 225 points.
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
will provide 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 will be based
on formulas involving 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
In July 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information," was
issued. SFAS No. 131 requires certain financial and supplementary information to
be disclosed on an annual and interim basis for each reportable segment of an
enterprise. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997.
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):
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United
Mexico Canada States Total
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As of and for the three months ended March 31, 1999:
Revenues from external customers ........................ $ 19,067 $ 3,276 $ 4 $ 22,347
Operating income (loss) ................................. 4,627 (723) (869) 3,035
Total assets ............................................ 123,729 10,392 3,593 137,714
Capital expenditures .................................... 385 65 700 1,150
As of and for the three months ended March 31, 1998:
Revenues from external customers ........................ $ 18,488 $ -- $ 575 $ 19,063
Operating income (loss) ................................. 5,846 -- (432) 5,414
Total assets ............................................ 112,841 -- 13,241 126,082
Capital expenditures .................................... 1,275 -- 120 1,395
</TABLE>
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Revenues are attributed to countries based on the location of the vacation
ownership resorts.
NOTE 6. SHAREHOLDERS' INVESTMENT
Preferred Stock
The Class A Preferred Stock (Class A Preferred) provides for preferential
annual dividends at 16.5%. The dividend rate increases to 20% after August 18,
2002. Cumulative unpaid dividends accrue dividends, on a quarterly basis, at the
rate of 12% per year when the preferred dividends have been declared and remain
unpaid. Cumulative unpaid dividends totaled approximately $1 million at March
31, 1999. No cash dividends are required to be paid prior to an initial public
offering of the Company's common stock or the sale of the Company. Upon an
initial public offering or stock merger by the Company, the Company may redeem,
based on a formula, all cumulative dividends in exchange for either cash or
stock of the Company.
Convertible Preferred Stock
In connection with the purchase of Whiski Jack, the Company issued 20,775
shares of redeemable convertible preferred stock (Convertible Preferred) through
its wholly owned subsidiary, Raintree Resorts International Canada, Ltd.
(Raintree Canada). The preferred shares accrue dividends at the rate of 10% per
annum and cumulative unpaid dividends totaled $144,000 at March 31, 1999. As a
condition of the Convertible Preferred, the Company is redeeming the Convertible
Preferred in installments of $0.5 million quarterly beginning April 1, 1999.
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 $6.7 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 22 condominium units in Whistler,
British Columbia at an aggregate purchase price of $4.2 million. Deposits of
$0.4 million have been paid as of March 31, 1999, with the balance to be paid
during 1999, or thereafter, based on completion of construction and transfer of
ownership.
NOTE 8. SUBSEQUENT EVENT
The Teton Club, LLC ("Teton Club"), a joint venture between the Company and
JHSC Properties, Inc., is in the process of finalizing 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 presale 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 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.
Although certain documentation is still pending, the promissory notes and
mortgage have been executed and construction commenced in early May 1999.
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 THREE MONTHS ENDED MARCH 31, 1998 TO THE THREE MONTHS ENDED
MARCH 31, 1999.
Vacation Interval sales increased by approximately $2.9 million or 20.6%,
from approximately $14.1 million for the three months ended March 31, 1998 to
approximately $17.0 million for the three months ended March 31, 1999. The
acquisition of Whiski Jack contributed approximately $2.6 million of this
increase. In Mexico vacation interval sales increased slightly by approximately
$0.3 million, or 2.1%, from approximately $14.1 million for the three months
ended March 31, 1998 to approximately $14.4 million for the three months ended
March 31, 1999.
The number of intervals sold in Mexico increased from 1,073 for the three
months ended March 31, 1998, to 1,107 for the three months ended March 31, 1999.
The average price per interval sold in Mexico decreased $254 per interval, or
2.0%, from $13,018 for the three months ended March 31, 1998, to $12,764 for the
three months ended March 31, 1999.
Rental and service fee income increased marginally to approximately $2.5
million for the three months ended March 31, 1999. The acquisition of Whiski
Jack contributed approximately $0.5 million. In Mexico, rental and service fee
income decreased by approximately $0.5 million, or 25%. 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 three months of 1998. The lower rate
resulted from a one-time fee program at lower rates that was available during
the first quarter of 1998 but not available in 1999.
Interest income on Vacation Interval receivables increased by approximately
$0.5 million, or 31.2%, from approximately $1.6 million for the three months
ended March 31, 1998, to approximately $2.1 million for the three months ended
March 31, 1999. This increase in interest income is associated with the Mexican
Vacation Interval receivables increasing by approximately $7.7 million from
approximately $46.7 million at March 31, 1998, to approximately $54.4 million at
March 31, 1999, or 16.5%, and additional interest income associated with the
additional Vacation Interval receivables of $3.3 million acquired in the
acquisition of Whiski Jack.
Cost of Vacation Interval sales increased by approximately $1.2 million, or
38.7%, from approximately $3.1 million for the three months ended March 31,
1998, to approximately $4.3 million for the three months ended March 31, 1999.
The acquisition of Whiski Jack accounted for approximately $0.9 million of this
increase. In Mexico, cost of vacation interval sales increased approximately
$0.3 million, or 10.0%, from approximately $3.0 million for the three months
ended March 31, 1998, to approximately $3.3 million for the three months ended
March 31, 1999.
11
<PAGE>
Advertising, sales and marketing expense increased approximately $2.1
million, or 39.6%, from approximately $5.3 million for the three months ended
March 31, 1998, to approximately $7.4 million for the three months ended March
31, 1999. The acquisition of Whiski Jack contributed approximately $1.1 million
of this increase. In Mexico, the advertising, sales and marketing expenses
increased approximately $1.0 million, as a result of overall greater selling and
marketing efforts during the first quarter of 1999.
Maintenance and energy expenses increased approximately $0.3 million, or
16.7%, from approximately $1.8 million for the three months ended March 31,
1998, to approximately $2.1 million for the three months ended March 31, 1999.
The acquisition of Whiski Jack increased maintenance and energy expenses by
approximately $0.4 million.
General and administrative expenses increased approximately $0.8 million,
or 38.1%, from approximately $2.1 million for the three months ended March 31,
1998, to approximately $2.9 million for the three months ended March 31, 1999.
The acquisition of Whiski Jack increased general and administrative expenses
approximately $0.4 million. In Mexico, the general and administrative expenses
increases of approximately $0.4 million related to increases in incentives to
personnel and the costs related to increased financing activity.
The first quarter 1999 amortization of goodwill relates to the acquisition
of Whiski Jack. The goodwill is being amortized as the units acquired in the
acquisition are sold.
Interest expense was approximately $0.8 million more in the first three
months of 1999 as compared to the first three months of 1998 due primarily to a
higher level of debt outstanding, up $15.9 million between the periods and a
decrease in interest capitalized.
Foreign currency exchange gains totaled approximately $0.5 million during
the first three months of 1999 compared to a loss of approximately $0.8 million
during the first three months of 1998. The gain occurred due to the
strengthening of the peso against the U.S. Dollar from 9.865 at December 31,
1998 to 9.516 at March 31, 1999, a change of 3.5%. The loss occurred due to the
weakening of the peso against the U.S. Dollar from 8.083 at December 31, 1997 to
8.517 at March 31, 1998, a change of 5.4%. 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 $0.7 million during the first three months of 1998 and
approximately $0.8 million during the first three months of 1999.
COMPARISONS OF MARCH 31, 1999 BALANCE SHEET AMOUNTS TO DECEMBER 31, 1998 BALANCE
SHEET AMOUNTS
Vacation Interval receivables and other trade receivables increased
approximately $7.6 million, or 14.6% from approximately $51.8 million as of
December 31, 1998 to approximately $59.4 million as of March 31, 1999. The
increase was attributable to the annual service fee billing sent out during the
first quarter and an increase in the level of sales financing.
Accounts payable and accrued liabilities increased approximately $5.9
million, or 50.0%, from approximately $11.8 million as of December 31, 1998 to
approximately $17.7 million as of March 31, 1999. The acquisition of Whiski Jack
resulted in an increase of approximately $1.1 million. Furthermore, at December
31, 1998, only one month of Senior Note interest was accrued versus four months
at March 31, 1999, an increase of $4.3 million.
Unearned service fees increased approximately $3.5 million, or 175.0%, from
approximately $2.0 million as of December 31, 1998 to approximately $5.5 million
as of March 31, 1999. This balance was higher at the end of March 1999 as
compared to December 1998 because a majority of the related fees are typically
invoiced at the beginning of the year and then earned during the remainder of
that year.
12
<PAGE>
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 the
receipt of down payments on financed Vacation Intervals. The Company generates
cash from financing Vacation Interval sales based on principal payments and the
interest charged on Vacation Interval receivables. Additionally, the Company
uses Vacation Interval receivables as collateral in order to obtain loans.
At March 31, 1999, the Company has $116.9 million of debt outstanding, a
decrease of $0.3 million as compared to year end 1999. Debt outstanding
consisted primarily of $100 million of Senior Notes, $9.7 million under the
FINOVA credit facility, $4.0 million Cabos West note payable, and $2.8 million
mortgage notes payable to a bank. In addition to such debt, the Company has $2.1
million of redeemable convertible preferred stock which the Company will begin
redeeming in installments of $0.5 million April 1, 1999, and quarterly
thereafter.
The Company's borrowing capacity under the FINOVA credit facility will be
expanded with the finalization of the inventory based non-revolving line of
credit. The Company anticipates finalizing this $13.5 million
inventory-financing portion of the FINOVA credit agreement by mid-May 1999.
This, along with the existing $20 million accounts receivable based credit
facility, will complete the FINOVA credit agreement.
At March 31, 1999, the Company had an inventory of 5,377 weekly intervals
in Mexico and 504 weekly intervals in Canada. Accordingly, the Company believes
its existing inventory will provide it with approximately one year 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 making acquisitions in the short term, by purchasing
the Villa Vera, acquiring condominiums in Whistler, British Columbia, developing
the Teton Club joint venture, developing its land in Los Cabos, developing its
land in Cozumel, and 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 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 March 31, 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 acquisition of existing resort
properties. The Company expects that its credit capacity, including the planned
inventory financing portion, 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 through the year 1999.
13
<PAGE>
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
By written consent the Shareholders of Raintree Resorts International, Inc.
(i) elected two directors, Walker G. Harman and Robert M. Werle, to hold office
until the next annual meeting of Shareholders and until their respective
successors are duly elected and qualified and (ii) ratified the selection of
Arthur Andersen, LLP as the Company's independent accountants for the fiscal
year ending December 31, 1999. No votes were cast against the two matters and
more than 90% of the total outstanding shares were voted in favor.
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
14
<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: May 10, 1999 By: /s/ George E. Aldrich
--------------------------------------------
George E. Aldrich
Senior Vice President - Finance and Accounting
(Principal Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------------------
27.1 -- Financial Data Schedule
16
<PAGE>
<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 MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH (B) FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1999.
</LEGEND>
<CIK> 0001058736
<NAME> RAINTREE RESORTS INTERNATIONAL, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1.000
<CASH> 5,779
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<RECEIVABLES> 66,755
<ALLOWANCES> (7,331)
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<TOTAL-ASSETS> 137,714
<CURRENT-LIABILITIES> 29,318
<BONDS> 92,427
0
2,078
<COMMON> 11
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<SALES> 17,042
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<CGS> 4,337
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<OTHER-EXPENSES> 3,847
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<INCOME-PRETAX> (908)
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