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 June 30, 2000
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 June 30, 2000, 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
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of
December 31, 1999 and June 30, 2000 (Unaudited) ............................................... 3
Consolidated Statements of Operations and Comprehensive Loss
for the Three and Six Months ended June 30, 1999 and 2000 (Unaudited) ......................... 4
Consolidated Statements of Cash Flows
for the Three Months ended June 30, 1999 and 2000 (Unaudited).................................. 5
Notes to Consolidated Financial Statements (Unaudited) ............................................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................... 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................................... 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................................................... 22
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS....................................................... 22
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................................. 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................. 22
ITEM 5. OTHER INFORMATION .............................................................................. 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................ 22
SIGNATURES.................................................................................................... 23
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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, June 30,
1999 2000
------------------ -----------------
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Assets
Cash and cash equivalents .................................................... $ 8,311 $ 7,098
Vacation Interval receivables and other trade receivables, net................ 61,232 65,488
Inventories .................................................................. 896 725
Refundable Mexican taxes ..................................................... 4,521 2,656
Facilities and office furniture and equipment, net ........................... 5,255 5,285
Land held for vacation ownership development ................................. 24,119 10,328
Land held for sale ........................................................... -- 8,000
Equity investments............................................................ 3,532 3,512
Cost of unsold vacation ownership intervals and related club memberships...... 23,605 23,247
Retained interest in hotel cash flows ........................................ 4,000 4,000
Deferred loan costs, net ..................................................... 7,342 6,633
Prepaid and other assets .................................................... 3,058 3,912
--------- ---------
Total assets ..................................................................... $ 145,871 $ 140,884
========= =========
Liabilities and Shareholders' Investment
Liabilities
Accounts payable and accrued liabilities .................................... $ 14,098 $ 18,099
Notes payable ............................................................... 44,787 45,315
Senior Notes, due 2004, net of unamortized original issue discount of $6,574
and $5,907 at December 31, 1999 and June 30, 2000, respectively............ 93,426 94,093
Taxes payable ............................................................... 1,101 404
Unearned services fees ....................................................... 2,028 4,627
--------- ---------
Total liabilities ............................................................... 155,440 162,538
Commitments and Contingencies
Redeemable Preferred Stock
Pay-in-Kind preferred stock; Par value $.001; 5,000,000 shares authorized,
52,250 shares issued and outstanding at June 30, 2000; aggregate
liquidation preference of $5,460 at June 30, 2000 ......................... 5,143 5,387
Convertible preferred stock; $100 per share liquidation value; 5,775 shares
issued and outstanding at December 31, 1999 ............................... 811 --
--------- ---------
5,954 5,387
Shareholders' Deficit
Common stock; par value $.001; 45,000,000 shares authorized, 10,766,300 shares
issued and outstanding at December 31, 1999 and June 30, 2000.............. 11 11
Additional paid-in capital ................................................... 2,003 1,749
Warrants to purchase, 2,369,962 shares of common stock at December 31, 1999
and June 30, 2000 ......................................................... 9,331 9,331
Accumulated deficit .......................................................... (26,998) (38,160)
Cumulative translation adjustment ............................................ 130 28
--------- ---------
Total shareholders' deficit ...................................................... (15,523) (27,041)
--------- ---------
Total liabilities and shareholders' deficit ...................................... $ 145,871 $ 140,884
========= =========
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 LOSS
(in thousands except per share data)
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
----------------------------- ------------------------------
1999 2000 1999 2000
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Statement of Operations
Revenues
Vacation Interval sales ........................ $ 32,300 $ 35,287 $ 15,258 $ 17,277
Rental and service fee income .................. 4,582 5,552 2,289 3,073
Interest income on Vacation Interval receivables 3,715 4,149 1,638 1,886
Other income ................................... 1,683 1,314 814 634
-------- --------- -------- ---------
Total revenues ............................... 42,280 46,302 19,999 22,870
Costs and Operating Expenses
Cost of Vacation Interval sales................. 8,609 8,453 4,272 4,235
Provision for doubtful accounts ................ 2,518 2,951 1,341 1,531
Advertising, sales and marketing ............... 14,906 15,747 7,381 8,143
Maintenance and energy ......................... 4,931 5,938 2,824 3,114
General and administrative ..................... 5,349 5,583 2,569 2,902
Depreciation ................................... 467 710 243 367
Amortization of goodwill ....................... 1,264 150 168 150
Provision for loss on sale of land held for sale -- 6,200 -- 6,200
-------- --------- -------- ---------
Total costs and operating expenses ........... 38,044 45,732 18,798 26,642
-------- --------- -------- ---------
Operating income (loss)............................ 4,236 570 1,201 (3,772)
Interest expense, net .......................... 8,723 10,652 4,347 5,295
Equity in (gains)/losses on equity investments.. 192 47 96 (29)
Foreign currency exchange losses, net........... 198 996 727 1,774
-------- --------- -------- ---------
Net loss before taxes ............................. (4,877) (11,125) (3,969) (10,812)
Foreign income and asset taxes.................. 726 37 470 (3)
-------- --------- -------- ---------
Net loss before preferred dividends................ (5,603) (11,162) (4,439) (10,809)
Preferred stock dividends ...................... 401 254 194 134
-------- --------- -------- ---------
Net loss available to common shareholders ......... $ (6,004) $ (11,416) $ (4,633) $ (10,943)
======== ========= ======== =========
Net loss per share
(Basic and Diluted)............................ $ (.56) $ (1.06) $ (.43) $ (1.02)
Weighted average number of common shares
(Basic and Diluted)............................ 10,766 10,766 10,766 10,766
Comprehensive Loss
Net loss before preferred stock dividends ......... $ (5,603) $ (11,162) $ (4,439) $ (10,809)
Other comprehensive income:
Foreign currency translation adjustment ........ 185 (102) 120 (85)
-------- --------- -------- ---------
Comprehensive loss ................................ $ (5,418) $ (11,264) $ (4,319) $ (10,894)
======== ========= ======== =========
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)
Six Months Ended
June 30,
-------------------------------------
1999 2000
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Operating activities
Net loss ........................................................................ $ (5,603) $ (11,162)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................. 1,134 1,377
Amortization of deferred loan costs ....................................... 658 760
Amortization of goodwill .................................................. 1,264 150
Provision for loss on sale of land held for sale........................... -- 6,200
Provision for doubtful accounts ........................................... 2,518 2,951
Equity in losses on equity investments .................................... 192 47
Changes in other operating assets and liabilities:
Vacation Interval receivables and other trade receivables ................ (9,674) (7,174)
Cost of unsold vacation ownership intervals and related club memberships . 4,603 2,594
Prepaid and other assets ................................................. (568) (788)
Accounts payable and accrued liabilities ................................. 1,970 (415)
Taxes payable/refundable ................................................. (805) 1,187
Unearned services fees.................................................... 1,650 2,599
-------- ---------
Net cash used in operating activities ........................................... (2,661) (1,674)
Investing activities
Purchase of land and other assets held for vacation ownership development .... (1,617) (404)
Deposit on land held for sale................................................. -- 1,800
Additions to facilities and office furniture and equipment ................... (637) (434)
-------- ---------
Net cash (used in) provided by investing activities ............................. (2,254) 962
Financing activities
Additional bank and other loans, net of related expenses...................... 12,463 14,152
Repayment of bank loans ...................................................... (7,247) (13,783)
Dividend payments on and redemption of preferred stock....................... (500) (813)
-------- ---------
Net cash provided by (used in) financing activities ............................. 4,716 (444)
Decrease in cash and cash equivalents ........................................... (199) (1,156)
Effect of exchange rate changes on cash ......................................... 96 (57)
Cash and cash equivalents, at beginning of the period ........................... 2,960 8,311
-------- ---------
Cash and cash equivalents, at end of the period ................................. $ 2,857 $ 7,098
======== =========
Supplemental disclosures of cash flow information
Cash paid during the period for interest .................................... $ 7,674 $ 9,572
Cash paid (received) during the period for income and asset taxes ........... 1,042 (82)
Non-cash investing activities
Reclassify land held for sale, net of loss provision ........................ $ -- $ 8,000
Non-cash financing activities
Stock dividends accrued and accretion on preferred stock .................. $ 401 $ 254
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)
June 30, 2000
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 (collectively, 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.
Liquidity
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 "Purchase Transaction")
representing net vacation ownership assets of approximately $86.8 million. Prior
to August 18, 1997 the Company did not have significant operations or revenues.
In connection with the Purchase Transactions, the Company borrowed
approximately $83 million and replaced such borrowing with its Senior Notes. At
June 30, 2000, the Company is, and will continue to be, highly leveraged, with
substantial debt service requirements. A significant portion of the Company's
assets is pledged against existing borrowings. The Company has a shareholder's
deficit, has incurred losses since its inception and expects to incur a net loss
for fiscal 2000. To achieve profitable operations, the Company is dependent on a
number of factors, including its ability to reduce its debt service
requirements, to increase its Vacation Interval inventory through development
projects and through the acquisition of existing resort properties, and its
ability to continually sell Vacation Intervals on an economical basis, taking
into account the cost of such intervals and related marketing and selling
expenses. The Company expects that its existing credit capacity combined with
additional credit capacity which must be negotiated during 2000 and 2001 will be
sufficient to enable the Company to meet its debt service obligations, including
interest payments on its Senior Notes through the second quarter of 2001. The
Company also expects to be able to fund capital requirements from anticipated
capital project financings, which have not yet been negotiated. However, should
the Company not be able to successfully negotiate additional credit capacity,
there is no assurance that the Company would be able to meet all of its
short-term debt service obligations. The Company has historically incurred debt
and issued equity securities to fund negative cash flows from operating
activities and to make debt payments on previously incurred debt obligations.
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, 1999, 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 accounting principles generally accepted in the
United States 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 six month periods ended June 30, 1999 and 2000.
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Cimarron Resorts Project Development, Management and Sales Agreement
On May 3, 2000, a newly formed subsidiary of the Company entered into a
Project Development, Management and Sales Agreement whereby the Company assumes
full operating control and management of Cimarron Resorts in Palm Springs,
California from the project owners, Royale Mirage Partners, L.P. ("RMP"). Under
the agreement, the Company is entitled to all revenues from sales of Cimarron
Resorts Vacation Intervals and is responsible for all sales and marketing as
well as management and customer services. The Company has not acquired any
ownership interest in RMP, ownership of the time-share property or assumed any
obligation under the RMP construction loan. The Company purchases Vacation
Intervals from RMP as they are sold by the Company to Vacation Interval
purchasers or are acquired for Company inventory purposes. Also, the Company
will provide development management of project construction. The Company has
acquired sales and administrative assets and assumed payment of unpaid
liabilities. In addition to the price to be paid by the Company for each
interval it acquires from RMP, the Company is obligated to pay RMP as the
Vacation Interval is sold, $575, or on June 30, 2003 the unpaid balance of the
total of all intervals in the first stage, $2,346,000. The Company has recorded
the transaction as a purchase and recorded the $2,346,000 as cost of unsold
inventory to be amortized as the initial 4,080 of Vacation Intervals, or 80
units, of inventory is acquired and sold.
Cimarron Resorts consists of approximately 35 acres of land adjacent to two
18-hole golf courses developed and managed by OB Sports of Seattle, Washington
and when fully developed will consist of 242 two-bedroom condominium units or
12,342 weekly intervals. Forty of such units are under development, and
completed in July 2000. A commitment for a development loan by Textron has been
received by the project owner for the development of the second 40 two-bedroom
units and this construction is expected to begin during late 2000. The Company
has the option to extend its agreement for the next construction stage
consisting of 36 units no later than December 31, 2002 and it may thereafter
exercise its option in succeeding stages of 42, 44 and 40 units on or before
March 31, 2004, June 30, 2005 and September 30, 2006, respectively. The
agreement terminates if an option for any succeeding stage is not selected and
upon the completion of any stage selected but not completed. The Company placed
Cimarron Resorts into its Club Regina operations to be sold as Club Regina
two-bedroom inventory, and for exchange purposes into its planned Raintree
Vacation Club.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 June 30, 1999 financial statements have been
reclassified to conform to the June 30, 2000 presentation, and the Company has
reclassified the December 31, 1999 balance sheet to reflect accrued preferred
stock dividends on cumulative preferred stock as an increase in the value of the
preferred stock and a reduction in the additional paid-in capital.
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.
The following presents the foreign currency exchange gains and loss for the
year 1998, 1999 and 2000 by quarter (in thousands):
Quarterly Gain/(Loss) 1998 1999 2000
--------------------- ------ ------ ------
First Quarter................ $ (829) $ 529 $ 778
Second Quarter............... (1,098) (727) (1,774)
Third Quarter................ (1,824) 443
Fourth Quarter............... (523) 556
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The following table presents the quarterly exchange rates from December,
1998 for the Mexican Peso:
Exchange rates Pesos US Dollar
------------------------------ ------- -----------
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
December 31, 1999............. 9.522 = $1.00
March 31, 2000................ 9.233 = $1.00
June 30, 2000................. 9.954 = $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 June 30, 2000.
Land Held for Vacation Ownership Development
The Company owns 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 this parcel of land. Although preliminary architectural
and engineering planning has commenced, no commitments have been made regarding
this planned expansion project.
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 $0.2 million and $0.3 million was capitalized
during the three and six months ended June 30, 1999 and $0.2 and $0.4 for the
three and six months ended June 30, 2000.
The Company capitalizes interest on expenditures incurred for land and
development when activities have commenced necessary to get the asset ready for
its intended use. The capitalization period ends when the asset is placed in
service or progress to complete the project is substantially suspended.
Loss Per Share
Basic per share results are computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Since the Company has a net loss for all periods reported, no conversion
is assumed as conversion of the Company's warrants and stock options would be
anti-dilutive. The 1,869,962 of Warrants, that could potentially dilute basic
earnings per share in the future, were not included in the computation of
diluted earnings per share because to do so would have been anti-dilutive for
the periods presented.
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Goodwill
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 $4.5
million, to be amortized pro rata as the individual weeks acquired in the
acquisition are sold. Amortization expense was $0.1 million and $1.3 million for
the three and six months ended June 30, 1999, respectively, and goodwill was
fully amortized by the end of 1999. During the second quarter of 2000, $150,000
was expensed as goodwill relating to the final payment to the sellers of amounts
due under a provision relating to achieving specific post-acquisition earnings.
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, June 30,
1999 2000
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Vacation Interval receivables ................................ $ 63,875 $ 68,159
Other trade receivables ...................................... 5,424 6,075
Less - allowances for uncollectible accounts ................. (8,067) (8,746)
-------- --------
Total ................................................ $ 61,232 $ 65,488
======== ========
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Allowances for uncollectible accounts increased by $3.0 million for
additional estimated reserves, and decreased by $2.2 million for receivable
write-offs, net of recoveries during the first six months of 2000.
The Company estimates that at December 31, 1999 and at June 30, 2000,
approximately 53% and 52%, respectively, of all of the Vacation Interval
receivables were U.S. dollar denominated, 31% and 32%, respectively, of Vacation
Interval receivables were denominated in UDIs, an obligation denominated in
pesos which is adjusted for Mexican inflation ("UDI"), 9% and 10% respectively,
of Vacation Interval receivables were denominated in Mexican pesos, and 7% and
6%, respectively, of Vacation Interval receivables were denominated in Canadian
dollars.
NOTE 4. NOTES PAYABLE
Summary of Notes Payable (in thousands) -
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December 31, June 30,
1999 2000
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Notes Payable to Financial Institutions ............................ $ 278 $ 2,248
Cabos West Notes Payable ........................................... 2,350 2,350
Credit Agreement Notes and Loans ................................... 38,772 36,812
Mortgages Payable .................................................. 3,387 3,905
-------- --------
$ 44,787 $ 45,315
======== ========
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Notes Payable to Financial Institutions - The notes payable to financial
institutions at December 31, 1999 had interest payable at 8.5%. In April 2000,
in connection with the Westin units purchased, the Company entered into a note
payable to North Shore Credit Union, due on or before October 2001, with an
interest rate of prime plus 2.5%, which totaled 10% at June, 2000.
Cabos West Notes Payable - On September 17, 1998, in connection with the Cabos
West land purchase, the Company entered into notes payable secured by the land.
The notes bear interest at approximately 10% and are due on demand.
9
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Credit Agreement Notes - The November 1998 amended credit agreement with FINOVA
Capital Corporation includes a receivables based credit facility of $20 million
and a $16.5 million inventory based credit facility. The aggregate borrowing
limit under the credit agreement is $34 million. FINOVA will lend 90% on pledged
notes receivable denominated in United States dollars and held by United States
or Canadian residents. These notes are assigned to the lender and as payments
are received, they are applied to this loan. The outstanding receivables loan
balance bears interest at a fluctuating base rate plus 175 basis points, which
was 10.25% and 11.25% per annum at December 31, 1999 and June 30, 2000,
respectively. The outstanding inventory loan balance bears interest at a
fluctuating base rate plus 225 basis points, which was 10.75% and 11.75% per
annum at December 31, 1999 and June 30, 2000, respectively. Interest under the
notes is due monthly. 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 its most creditworthy commercial borrowers.
Also, the agreement requires the Company to maintain certain minimum financial
ratios including a minimum capital requirement. The receivables line of credit
matures 84 months from the date of the last advance made against it, and the
inventory based credit facility matures on June 30, 2001. As of December 31,
1999 and June 30, 2000, the outstanding balance of the receivables line of
credit was $9,760,000 and $11,010,000, respectively, and of the inventory based
credit facility was $15,159,000 and $11,057,000, respectively.
The November 1999, $10 million receivables loan facility with Textron Financial
Corporation ("Textron") is collateralized by the Company's notes receivable,
with a limit of up to 30% of those notes denominated in Mexican pesos of which
Textron will lend 80% on pledged notes, and the remainder in U.S. dollars on
which Textron will lend 85% on pledged notes. The entire outstanding loan
balance is to be paid in full on or before December 1, 2004. The loan bears a
variable interest rate of the Chase Manhattan Bank prime rate plus 200 basis
points that is adjusted on the first day of each month, with an interest rate of
10.5% and 11.5% as of December 31, 1999 and June 30, 2000, respectively. As of
December 31, 1999 and June 30, 2000, the outstanding balance of the loan
facility was $7,103,000 and $9,384,000, respectively.
The November 1999, $7 million loan agreement with Bancomer is collateralized by
all of the Company's UDI denominated notes receivable. The loan agreement
extends credit to the Company for a fixed 30-month term from November 29, 1999
to May 29, 2002. Furthermore, the agreement requires the Company to pay back the
principal in UDIs in 30 equal monthly installments plus accrued interest in the
U.S. dollar equivalent amount of approximately $233,000 beginning on December
29, 1999. Also, the loan bears simple interest at a rate of 12% per annum, and
as of December 31, 1999 and June 30, 2000, the outstanding balance was
$6,750,000 and $5,361,000, respectively.
Mortgages Payable - Mortgages payable consist of the assignment of specific
Whiski Jack Vacation Interval receivables to related and third party buyers. The
average interest rates were 10.7% and 10.8% at December 31, 1999 and June 30,
2000, respectively. At December 31, 1999 and June 30, 2000, the aggregate
principal amount of mortgages payable to related parties was $1,014,000 and
$1,334,000, respectively. Interest accrues on the mortgages at rates ranging
from prime plus 3% to prime plus 7.75% per annum and is paid in monthly
installments over periods ranging from twelve months to ten years.
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 in three geographic areas; Mexico,
Canada and the United States. The United States operations also include the
operations of a joint venture accounted for on the equity method of accounting.
The Company's reportable segments are based on geographic area. The reportable
segments are managed separately due to their geographic location with managers
focused on improving and expanding each segment's operations. However resource
allocation is not based on individual country results, but based on the best
location for future resorts in order to enhance the Company's overall ability to
sell timeshare under a club concept. Revenues are attributed to countries based
on the location of the vacation ownership resorts.
10
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The following table presents segment information (in thousands):
<TABLE>
<CAPTION>
Corporate
Mexico Canada U.S. (*) and Other Total
--------------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
As of and for the three months ended June 30, 2000:
Revenues from external customers ................ $ 20,024 $ 2,794 $ -- $ 52 $ 22,870
Depreciation and amortization.................... 289 188 24 16 517
Operating income (loss) ......................... (2,591) (70) (474) (637) (3,772)
Income tax expense............................... 33 (36) -- -- (3)
Capital expenditures ............................ 343 162 472 10 987
Corporate
Mexico Canada and Other Total
--------------- ---------- ------------- -----------
As of and for the three months ended June 30, 1999:
Revenues from external customers ................ $ 15,664 $ 4,331 $ 4 $ 19,999
Depreciation and amortization.................... 197 200 14 411
Operating income (loss) ......................... 1,291 865 (955) 1,201
Income tax expense............................... 100 370 -- 470
Capital expenditures ............................ 578 91 435 1,104
Corporate
Mexico Canada U.S. (*) and Other Total
--------------- ---------- ---------- ------------- ------------
As of and for the six months ended June 30, 2000:
Revenues from external customers ................ $ 40,711 $ 5,472 $ -- $ 119 $ 46,302
Depreciation and amortization.................... 578 226 24 32 860
Operating income (loss) ......................... 2,241 73 (474) (1,270) 570
Income tax expense............................... 53 (16) -- -- 37
Total assets (at end of period).................. 120,456 12,337 3,581 4,510 140,884
Capital expenditures ............................ 629 194 472 43 1,338
Corporate
Mexico Canada and Other Total
--------------- ---------- ------------- -----------
As of and for the six months ended June 30, 1999:
Revenues from external customers ................ $ 34,731 $ 7,541 $ 8 $ 42,280
Depreciation and amortization.................... 380 1,322 29 1,731
Operating income (loss) ......................... 5,918 142 (1,824) 4,236
Income tax expense............................... 200 526 -- 726
Total assets (at end of period)................. 119,943 10,671 3,387 134,001
Capital expenditures ............................ 963 156 1,135 2,254
(*) Effective May 3, 2000 the Company formed a new operating subsidiary in the U.S. for the purpose of selling Vacation Intervals.
(See Footnote 1 - Cimarron Resorts Project Development, Management and Sales Agreement)
</TABLE>
Corporate and Other
The amounts shown as an operating loss under the column heading "Corporate
and Other" consist primarily of general and administrative costs that are not
allocated to the segments. Also, the U. S. joint venture is included in
Corporate and Other, after the operating loss, and had equity losses of $0.1
million and equity gains of $20,000 for the three months ended June 30, 1999 and
2000, respectively, and equity losses of $0.2 million and $40,000 for the six
months ended June 30, 1999 and 2000, respectively.
NOTE 6. REDEEMABLE PREFERRED STOCK
Pay-in-Kind 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 (Pay-in-Kind Preferred) plus 500,000 five-year
Warrants to purchase the Company's common stock at $5.00 per share. The
Pay-in-Kind Preferred requires that annual dividends be paid either in cash
equaling 9% of the Pay-in-Kind Preferred's $100 per share Liquidation
Preference, or in an equivalent number of shares of Pay-in-Kind Preferred valued
at the Liquidation Preference.
11
<PAGE>
Furthermore, the Company has the right, at its option to redeem at any time the
Pay-in-Kind Preferred, in whole or in part, but not later than December 1, 2004,
at which time redemption is mandatory upon payment in cash of the Liquidating
Preference and all accrued and unpaid dividends or shares of capital stock
valued at the Liquidating Preference. As of June 30, 2000 the cumulative unpaid
dividends on the Pay-in-Kind Preferred were $0.2 million.
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). During January and February 2000, all shares had been
redeemed. The shares accrued dividends at the rate of 10% per annum and
dividends totaling $0.2 million were paid during first quarter 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.
NOTE 8. DEVELOPMENT AND CONSTRUCTION
The Teton Club, LLC ("Teton Club"), a joint venture between the Company and
the owner and developer of the Teton Village ski area near Jackson Hole,
Wyoming. The Teton Club has financing between FINOVA and the Teton Club
consisting 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. Also,
the agreement requires the Teton Club to maintain certain minimum financial and
operating ratio requirements. 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.
Additionally, the Company is responsible for any working capital deficits at the
Teton Club. As of June 30, 2000, $20.0 million had been drawn on the
construction portion of the financing, and $3.9 million had been drawn on the
working capital portion of the financing.
NOTE 9. SALE OF COZUMEL
The Company entered into a preliminary sales agreement in June 2000 to sell
its investment in Cozumel land. The Company has received a $1.8 million deposit.
The property collateralized certain of the Company's indebtedness and the
Company is negotiating to obtain a collateral release. The Company has
reclassified the Cozumel land to land held for sale and recorded an estimated
provision for a net loss of $6.2 million to reflect the land at its estimated
fair market value. The final loss realized could be increased based on final
negotiations between all parties.
12
<PAGE>
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, 1999, filed by the Company with the Securities and Exchange
Commission and the financial statements and notes thereto contained herein.
COMPARISONS OF THE SIX MONTHS ENDED JUNE 30, 1999 TO THE SIX MONTHS ENDED JUNE
30, 2000.
Segment Results
General. The Company has only one line of business which develops, markets
and operates luxury vacation ownership resorts in three geographic areas;
Mexico, Canada and the United States. The Company's reportable segments are
based on geographic area. The reportable segments are managed separately due to
their geographic location with managers focused on improving and expanding each
segment's operations. However, resource allocation is not based on individual
country results, but based on the best location for future resorts in order to
enhance the Company's overall ability to sell timeshare under a club concept.
Revenues are attributed to countries based on the location of the vacation
ownership resorts. The following presents segment data in thousands:
<TABLE>
<CAPTION>
For the Six Months ended June 30,
------------------------------------------------------------------------------------------
Operating
Net Income Capital
Sales % (Loss) % Expenditures %
------------- --------- ------------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
2000 -
Mexico $ 40,711 87.9% $ 2,241 393.2% $ 629 47.0%
Canada 5,472 11.8% 73 12.8% 194 14.5%
United States -- 0.0% (474) (83.2)% 472 35.3%
Corporate and other 119 0.3% (1,270) (222.8)% 43 3.2%
-------- ------ --------- -------- --------- ------
Total $ 46,302 100.0% $ 570 100.0% $ 1,338 100.0%
======== ====== ========= ======== ======== ======
1999 -
Mexico $ 34,731 82.1% $ 5,918 139.7% $ 963 42.7%
Canada 7,541 17.9% 142 3.4% 156 6.9%
Corporate and other 8 0.0% (1,824) (43.1)% 1,135 50.4%
-------- ------ --------- ------- --------- ------
Total $ 42,280 100.0% $ 4,236 100.0% $ 2,254 100.0%
======== ====== ========= ======= ======== ======
</TABLE>
13
<PAGE>
Mexico's Segment Results - Comparison of the six months ended June 30, 2000
to the six months ended June 30, 1999. Net sales increased $6.0 million, or
17.2%, and operating income decreased $3.7 million or 62.1% during the first
half of 2000. The increases in net sales resulted from an overall increase in
Vacation Interval sales prices and the number of weeks sold. The average price
per week sold increased by $338, or 2.6%, and the number of weeks sold increased
333, or 16.4%. The average price per week sold increased in response to a price
increase beginning the third week of December 1999. The decrease in operating
income results from providing a provision for loss on land held for sale of $6.2
million.
Canada's Segment Results - Comparison of the six months ended June 30, 2000
to the six months ended June 30, 1999. Net sales decreased $2.1 million
primarily as the number of weeks sold decreased 31.1%. The decrease in weeks
sold is reflective of a 32% decrease in tour flow primarily generated from its
telemarketing operations, on-site sales office and owner referrals. However,
operating income decreased by only $69,000 because of a decrease in goodwill of
$1.1 million in the first six months of 2000.
United States' Segment Results - Comparison of the six months ended June
30, 2000 to the six months ended June 30, 1999. The United States operations
consist of the recent acquisition of Cimarron Resorts. The operating loss is
comprised primarily of sales, marketing, advertising and general expenses. (See
Footnote 1- Cimarron Resorts Project Development, Management and Sales
Agreement)
Corporate and other - Comparison of the six months ended June 30, 2000 to
the six months ended June 30, 1999. The $0.5 million decrease in operating loss
is primarily due to the decrease in accounting, tax and other consulting fees.
The operating loss consists primarily of general and administrative costs that
are not allocated to the segments.
Consolidated Results
Comparison of the six months ended June 30, 2000 to the six months ended
June 30, 1999.
The Company believes that the following analysis is helpful to understand
the changes in the activity levels between 1999 and 2000 (in thousands):
<TABLE>
<CAPTION>
Percentage
Increase Increase
Six Months Ended June 30, 1999 2000 (Decrease) (Decrease)
------------ ------------ ------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Vacation Interval sales ............ $ 32,300 $ 35,287 $ 2,987 9.2%
Interest Income on Vacation Interval
receivables, rental and service fee
income, and other income .......... 9,980 11,015 1,035 10.4%
-------- -------- --------
Total ......................... 42,280 46,302 4,022 9.5%
Costs and operating expenses:
Cost of Vacation Interval sales .... 8,609 8,453 (156) (1.8)%
Provision for doubtful accounts..... 2,518 2,951 433 17.2%
Advertising, sales and marketing.... 14,906 15,747 841 5.6%
Maintenance and energy ............. 4,931 5,938 1,007 20.4%
General and administrative.......... 5,349 5,583 234 4.4%
Depreciation and amortization....... 467 710 243 52.0%
Amortization of goodwill............ 1,264 150 (1,114) (88.1)%
Provision for loss on sale of land
held for sale..................... -- 6,200 6,200 100.0%
-------- -------- --------
Total ......................... 38,044 45,732 7,688 20.2%
-------- -------- --------
Operating income ................... $ 4,236 $ 570 $ (3,666) (86.5)%
======== ======== ========
</TABLE>
14
<PAGE>
Vacation Interval sales increased by approximately $3.0 million, or 9.2%,
from approximately $32.3 million for the six months ended June 30, 1999 to
approximately $35.3 million for the six months ended June 30, 2000. Vacation
Interval sales increased as the average price per interval sold increased $228
per interval, or 2.0%, from $12,895 for the six months ended June 30, 1999, to
$13,123 for the six months ended June 30, 2000. This increase was in response to
an approximate 9% net price increase in Mexico beginning in the third week of
December 1999. The increase in interest income on Vacation Interval receivables,
rental and service fee income and other income primarily results from service
fee income increasing due to an increase in the number of members and an
increase in the service fee charged to members in Mexico.
Cost of Vacation Interval sales decreased by approximately $0.1 million, or
1.8%, from approximately $8.6 million for the six months ended June 30, 1999, to
approximately $8.5 million for the six months ended June 30, 2000. The decrease
in cost of sales results from the addition of lower average cost inventory, the
Villa Vera, in Mexico. This addition was the primary factor reducing cost of
sales as a percent of revenue from 27% in the first half of 1999 to 24% in the
comparable 2000 period.
Provision for doubtful accounts increased by approximately $0.4 million, or
17.2%, from approximately $2.5 million for the six months ended June 30, 1999,
to approximately $2.9 million for the six months ended June 30, 2000. This
increase is in response to an increase in customer financing in the first half
of 2000 compared to the prior year first half. 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 $0.8
million, or 5.6%, from approximately $14.9 million for the six months ended June
30, 1999, to approximately $15.7 million for six months ended June 30, 2000. The
acquisition of Cimarron increased advertising, sales and marketing approximately
$0.3 million. Increased sales commissions, sales promotions and marketing
programs associated with higher sales levels contributed to the increase as
well. As a percent of Vacation Interval sales, advertising, sales and marketing
decreased 3%.
Maintenance and energy expenses increased approximately $1.0 million, or
20.4%, from approximately $4.9 million for the six months ended June 30, 1999,
to approximately $5.9 million for the six months ended June 30, 2000. The
increase in expenses was caused by maintenance and energy expenses associated
with the acquisitions of units after the first half of 1999 including Villa Vera
units in Mexico and the Westin units in Whiski Jack.
General and administrative expenses increased approximately $0.2 million,
or 4.4%, from approximately $5.3 million for the six months ended June 30, 1999,
to approximately $5.5 million for the six months ended June 30, 2000. Cimarron
contributed approximately $0.1 million of this increase.
The first six months of 1999 amortization of goodwill relates to the
goodwill resulting from the acquisition of Whiski Jack, which was fully
amortized during 1999, except for the second quarter 2000 final payment to
sellers of $150,000 for achieving specific post-acquisition earnings.
The Company recorded an estimated provision for net loss on land held for
sale in the second quarter of 2000. Its Cozumel property in Mexico will no
longer be used for timeshare development. The Company anticipates the sale of
Cozumel to be finalized in the third quarter of 2000.
Interest expense was approximately $1.9 million more in the first six
months of 2000 as compared to the first six months of 1999 due primarily to
interest costs associated with a higher level of debt outstanding and increased
average interest rates between the periods. Average debt outstanding increased
$25.8 million between periods, while the average interest rates increased from
12.9% to 13.4% for June 1999 and June 2000, respectively.
Foreign currency exchange loss totaled approximately $1.0 million during
the first six months of 2000 compared to a loss of approximately $0.2 million
during the first six months of 1999. The increase in the loss between periods
occurred due to a weaker peso against the U.S. dollar during the six months of
2000 compared to the comparable prior year period.
15
<PAGE>
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 and
inflation in Mexico. In particular, the average monthly peso exchange rate for
the six months ended June 30, 2000 was weaker when compared to the average
monthly peso exchange rate for the six months ended June 30, 1999. The Company
estimates that current period costs settled in Mexican pesos increased by
approximately 3% because of fluctuations in the average peso exchange rate
between periods. In addition, the Company estimates that inflation in Mexico was
approximately 9% since June 1999. 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 THE THREE MONTHS ENDED JUNE 30, 1999 TO THE THREE MONTHS ENDED
JUNE 30, 2000.
Segment Results
<TABLE>
<CAPTION>
For the Three Months ended June 30,
------------------------------------------------------------------------------------------
Operating
Net Income Capital
Sales % (Loss) % Expenditures %
-------------- --------- ------------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
2000 -
Mexico $ 20,024 87.6% $ (2,591) 68.7% $ 343 34.8%
Canada 2,794 12.2% (70) 1.9% 162 16.4%
United States -- 0.0% (474) 12.5% 472 47.8%
Corporate and other 52 0.2% (637) 16.9% 10 1.0%
-------- ------ -------- -------- ------- ------
Total $ 22,870 100.0% $ (3,772) 100.0% $ 987 100.0%
======== ====== ========= ======== ======= ======
1999 -
Mexico $ 15,664 78.3% $ 1,291 107.5% $ 578 52.4%
Canada 4,331 21.7% 865 72.0% 91 8.2%
Corporate and other 4 0.0% (955) (79.5)% 435 39.4%
-------- ------ -------- -------- ------- ------
Total $ 19,999 100.0% $ 1,201 100.0% $ 1,104 100.0%
======== ====== ========= ======== ======= ======
</TABLE>
Mexico's Segment Results - Comparison of the three months ended June 30,
2000 to the three months ended June 30, 1999. Net sales increased $4.4 million,
or 27.8%, and operating income decreased $3.9 million or 300.7% during the
second quarter 2000. The increase in net sales resulted from an overall increase
in the number of weeks sold. The number of weeks sold increased 304, or 33.1%.
The decrease in operating income results from providing a provision for loss on
land held for sale of $6.2 million.
Canada's Segment Results - Comparison of the three months ended June 30,
2000 to the three months ended June 30, 1999. Net sales decreased $1.5 million
primarily as the number of weeks sold decreased 36.8%. The decrease in weeks
sold is reflective of the 40% decrease in tour flow primarily generated from its
tele-marketing operations, on-site sales office and owner referrals. However,
operating income decreased by only $0.9 million because of the decrease in
goodwill in the second quarter of 2000.
United States' Segment Results - Comparison of the three months ended June
30, 2000 to the three months ended June 30, 1999. The United States operations
consist of the recent acquisition of Cimarron Resorts. The operating loss is
comprised primarily of sales, marketing, advertising and general expenses. (See
Footnote 1 - Cimarron Resorts Project Development, Management and Sales
Agreement)
Corporate and other - Comparison of the three months ended June 30, 2000 to
the three months ended June 30, 1999. The operating loss consists primarily of
general and administrative costs that are not allocated to the segments. The
increase in operating income is primarily due to the decrease in accounting, tax
and other consulting fees.
16
<PAGE>
Consolidated Results
Comparison of the three months ended June 30, 2000 to the three months
ended June 30, 1999.
The Company believes that the following analysis is helpful to understand
the changes in the activity levels between 1999 and 2000 (in thousands):
<TABLE>
<CAPTION>
Percentage
Increase Increase
Three Months Ended June 30, 1999 2000 (Decrease) (Decrease)
-------------- ------------- -------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Vacation Interval sales ............ $ 15,258 $ 17,277 $ 2,019 13.2 %
Interest Income on Vacation Interval
receivables, rental and service fee
income, and other income .......... 4,741 5,593 852 18.0%
-------- -------- --------
Total ......................... 19,999 22,870 2,871 14.4%
Costs and operating expenses:
Cost of Vacation Interval sales .... 4,272 4,235 (37) (0.9)%
Provision for doubtful accounts..... 1,341 1,531 190 14.2%
Advertising, sales and marketing.... 7,381 8,143 762 10.3%
Maintenance and energy ............. 2,824 3,114 290 10.3%
General and administrative.......... 2,569 2,902 333 13.0%
Depreciation and amortization....... 243 367 124 51.0%
Amortization of goodwill............ 168 150 (18) (10.7)%
Provision for loss on sale of land
held for sale..................... -- 6,200 6,200 100.0%
-------- -------- --------
Total ......................... 18,798 26,642 7,844 41.7%
-------- -------- --------
Operating income (loss)............. $ 1,201 $ (3,772) $ (4,973) (414.1)%
======== ======== ========
</TABLE>
Vacation Interval sales increased by approximately $2.0 million, or 13.2%,
from approximately $15.3 million for the three months ended June 30, 1999 to
approximately $17.3 million for the three months ended June 30, 2000. Vacation
Interval sales increased primarily as the weeks sold increased 199, or 16.5%,
from 1,204 to 1,403 for the three months ended June 30, 1999 and 2000,
respectively.
Provision for doubtful accounts increased by approximately $0.2 million, or
14.2%, from approximately $1.3 million for the three months ended June 30, 1999,
to approximately $1.5 million for the three months ended June 30, 2000. This
increase is in response to an increase in customer financing in the second
quarter of 2000 compared to the prior year second quarter. 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 $0.7
million, or 10.3%, from approximately $7.4 million for the three months ended
June 30, 1999, to approximately $8.1 million for three months ended June 30,
2000. The acquisition of Cimarron accounted for approximately $0.3 million of
this increase. Increased sales commissions, sales promotions and marketing
programs associated with higher sales levels contributed to the increase as
well. As a percent of sales, advertising, sales and marketing decreased 1.2% for
the three months ending June 30, 2000 compared to the same period in the prior
year.
Maintenance and energy expenses increased approximately $0.3 million, or
10.3%, from approximately $2.8 million for the three months ended June 30, 1999,
to approximately $3.1 million for the three months ended June 30, 2000. The
increase in expenses was caused by acquisitions after the second quarter of 1999
of Villa Vera units in Mexico and Westin units in Whiski Jack.
General and administrative expenses increased approximately $0.3 million,
or 13.0%, from approximately $2.6 million for the three months ended June 30,
1999, to approximately $2.9 million for the three months ended June 30, 2000.
Cimarron accounted for approximately $0.1 million of this increase.
17
<PAGE>
The Company recorded an estimated provision for net loss on land held for
sale in the second quarter of 2000. Its Cozumel property in Mexico will no
longer be used for timeshare development. The Company anticipates the sale of
Cozumel to be finalized in the third quarter of 2000.
Interest expense was approximately $1.0 million more in the second three
months of 2000 as compared to the second three months of 1999 due primarily to
interest costs associated with a higher level of debt outstanding and increased
average interest rates between the periods. Average debt outstanding increased
$25.8 million between periods, while the average interest rates increased from
12.9% to 13.4% for June 1999 and June 2000, respectively.
Foreign currency exchange loss totaled approximately $1.8 million during
the second three months of 2000 compared to a loss of approximately $0.7 million
during the second three months of 1999. The increase in the loss between periods
occurred due to a weaker peso against the U.S. dollar during the three months of
2000 compared to the comparable prior year period.
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 three months ended June 30, 2000 was nearly unchanged when compared to the
average monthly peso exchange rate for the three months ended June 30, 1999. In
addition, the Company estimates that inflation in Mexico was approximately 9%
since June 1999. 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 effects of
inflation.
COMPARISONS OF JUNE 30, 2000 BALANCE SHEET AMOUNTS TO DECEMBER 31, 1999 BALANCE
SHEET AMOUNTS
Vacation Interval receivables and other trade receivables increased
approximately $4.3 million from approximately $61.2 million as of December 31,
1999 to approximately $65.5 million as of June 30, 2000. The increase in
Vacation Interval receivables is related to the increase in the level of sales
financing with approximately 1,000 additional loans. Other trade receivables
increased due to the annual service fee billings during the first half of 2000.
Cost of unsold vacation ownership intervals and related club memberships
(unit inventory) decreased approximately $0.4 million from approximately $23.6
million as of December 31, 1999 to approximately $23.2 million as of June 30,
2000. The sale of units reduced unit inventory by approximately $8.4 million,
which was offset by purchases by Whiski Jack in Canada of approximately $4.3
million, inventory acquisition costs in Cimarron for $2.8 million and the
remainder primarily for reinstatement of inventory from defaulting owners in
Mexico.
Accounts payable and accrued liabilities increased approximately $4.0
million from approximately $14.1 million as of December 31, 1999 to
approximately $18.1 million as of June 30, 2000. The Cimarron operations
increased accounts payable and accrued liabilities by $3.1 million.
Additionally, Mexico received a $1.8 million advance relating to the pending
sale of Cozumel.
Refundable Mexican taxes decreased $1.9 million from $4.5 million to $2.6
million primarily due to receipt of a refund relating to prior year taxes paid.
Unearned service fees increased approximately $2.6 million from
approximately $2.0 million as of December 31, 1999 to approximately $4.6 million
as of June 30, 2000. This balance was higher at the end of June 2000 as compared
to December 1999 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.
Land held for sale at June 30, 2000 relates to the Cozumel land. The
Company is finalizing the sale of the Cozumel land that should be completed
during the third quarter of 2000. The Company reported a provision for loss on
the sale of land held for sale of approximately $6.2 million. The sale of the
Cozumel property was done as the Company determined it would not proceed with a
timeshare development at this site.
18
<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 sales and from
receipt of down payments on financed Vacation Interval sales.
The Company generates cash through principal collected and interest income
from financing Vacation Interval receivables generated through Vacation Interval
sales. Additionally, the Company uses Vacation Interval receivables as
collateral in order to obtain loans. At June 30, 2000, the Company had $68.1
million of Vacation Interval receivables of which approximately (i) 58% of all
of the Vacation Interval receivables were U.S. or Canadian dollar denominated
(ii) 32% of all Vacation Interval receivables were denominated in UDI's, an
obligation denominated in pesos which is adjusted for Mexican inflation, and
(iii) 10% of all Vacation Interval receivables were denominated in pesos.
As of June 30, 2000 and December 31, 1999, the Company had outstanding $100
million of 13% Senior Notes due 2004. Under the FINOVA credit line ("FINOVA"),
$22.1 million and $24.9 million was outstanding with approximate interest rates
of 11.5% and 10.6% at June 30, 2000 and December 31, 1999, respectively. The
Textron credit line had an outstanding balance of $9.4 million and $7.1 million
with interest rates of 11.5% and 10.5% at June 30, 2000 and December 31, 1999,
respectively. The Bancomer loan, which bears an interest rate of 12%, had an
outstanding balance of $5.4 million and $6.8 million at June 30, 2000 and
December 31, 1999, respectively. Financial Institution debt, which bore average
interest rates of 10.6% and 9.6%, had outstanding balances of $4.6 million and
$3.2 million at June 30, 2000 and December 31, 1999, respectively. Mortgages
payable had an outstanding balance of $3.9 million and $3.4 million, with
interest rates of 10.8% and 10.7% at June 30, 2000 and December 31, 1999,
respectively.
The Company's borrowing capacity under the FINOVA credit facility currently
includes a $20 million accounts receivable based credit facility and a $16.5
million inventory based non-revolving line of credit; the combined credit
facility provides an aggregate borrowing limit of $34 million. The Company's
borrowing capacity under the Textron credit facility is $10 million. The Company
estimates that based on Vacation Interval receivables not currently pledged,
approximately $2.0 million at June 30, 2000 was available for borrowing under
the credit facilities, $1.4 million and $0.6 million under the Finova and
Textron lines of credit, respectively.
Additionally, as part of the Teton Club financing arrangement with FINOVA,
the Company is directly obligated for $8.3 million of the construction loan,
$1.9 million of the pre-sale working capital loan and $5.0 million of the
receivables loan, and is also responsible for any working capital deficits at
the Teton Club.
The Company intends to pursue a growth-oriented strategy. From time to
time, the Company may acquire, among other things, additional vacation ownership
properties, resorts and completed vacation ownership units, land upon which
additional vacation ownership resorts may be built (which may require capital
expenditures by the Company) and/or other operations in the vacation ownership
industry. The Company is evaluating certain resort asset acquisition or
development opportunities, but it currently has no contracts or capital
commitments relating to any potential acquisitions or developments other than
those discussed below. However, the Company is actively pursuing financing for
development of the Los Cabos land. In addition, the Company is evaluating
several strategic partnership opportunities, but it likewise has no firm
agreements relating to any such potential strategic partnership opportunities.
To finance its growth strategy, in addition to accessing its lines of
credit, 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 hypothecating 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 Company is required under the credit agreements
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 June 30, 2000, the Company had an inventory of Vacation Interval weeks
of 3,222 in Mexico and 1,397 in Canada. The Company's existing inventory in
Mexico will provide it with approximately nine months of product available for
sale. However, under the Cimarron agreement, Mexico will have available
two-bedroom inventory
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from Cimarron Resorts to sell as Club Regina inventory. This will extend
inventory availability in Mexico to over a year. In Canada, the existing
inventory will provide it with approximately a year and a half of product
available for sale based on historical sales levels. In the U.S., the Cimarron
Resorts project will have access to 4,080 Vacation Interval weeks under stage
one of the project development, management and sales agreement with the project
owner. The Cimarron Resort Vacation Intervals will be available for sale in
Mexico and the U.S. The Company plans to increase its Vacation Interval
inventory through development of additional properties and making acquisitions
in the short term, including developing the Teton Club joint venture, acquiring
intervals under the Cimarron project development, management and sales
agreement, developing its land in Los Cabos, and making acquisitions in Mexico,
the United States and Canada.
The Company believes that its current financial position plus borrowings
available under the credit agreements will satisfy its currently planned 2000
capital expenditures of approximately $10.9 million. The 2000 planned
expenditures include the development activities in Los Cabos and the purchase of
Vacation Interval inventory in Whistler, British Columbia. The Los Cabos
development will require project financing before development can proceed and
the Company is negotiating for such financing with Mexican financial
institutions. However, no commitment has been received from such institutions.
At June 30, 2000, the Company is, and will continue to be, highly
leveraged, with substantial debt service requirements. A significant portion of
the Company's assets is pledged against existing borrowings. The Company has a
shareholder's deficit, has incurred losses since its inception and expects to
incur a net loss for fiscal 2000. To achieve profitable operations, the Company
is dependent on a number of factors, including its ability to reduce its debt
service requirements, to increase its Vacation Interval inventory through
development projects and through the acquisition of existing resort properties,
and its ability to continually sell Vacation Intervals on an economical basis,
taking into account the cost of such intervals and related marketing and selling
expenses. The Company expects that its existing credit capacity combined with
additional credit capacity which must be negotiated during 2000 and 2001 will be
required to enable the Company to meet its debt service obligations, including
interest payments on its Senior Notes through the second quarter of 2001. The
Company also expects to be able to fund capital requirements from anticipated
capital project financings, which have not yet been negotiated. However, should
the Company not be able to successfully negotiate additional credit capacity,
there is no assurance that the Company would be able to meet all of its
short-term debt service obligations. The Company has historically incurred debt
and issued equity securities to fund negative cash flows from operating
activities and to make the payments on previously incurred debt obligations.
In the short-term, the Company is working to increase liquidity through
hypothecation of its receivables. The Company anticipates it will need
approximately $8.2 million in new working capital borrowings over the next 12
months. This will include expanding capacity under its current facilities and,
if necessary, obtaining credit lines from new sources. During the next 12-month
period, the working capital borrowing base, namely timeshare receivables, is
projected to grow by approximately $12.0 million. Emphasis will be placed on the
level of hypothecation of loans from Mexican buyers of Club Regina Vacation
Intervals. These receivables are denominated in US dollars, Mexican pesos and
Mexican UDI's. Currently the Company has a $10 million receivables hypothecation
facility with Textron. The receivable pool, which provides the collateral for
the Textron facility, is large enough to support a loan of approximately $20.5
million at the current Textron advance rate. The Company has begun discussions
with Textron regarding the expansion of this credit facility to $15 or $20
million and anticipates that the facility will be expanded prior to the December
1st, 2000 and June 1st, 2001 Senior Notes interest payments.
On a long-term basis, the Company has debt maturities of $21.5 million,
$2.4 million, $0.2 million, $100.4 and $3.1 million in 2001, 2002, 2003, 2004
and thereafter, respectively. In order to meet obligations in the long-term, the
Company will need to achieve profitable operations, reduce its high leverage
position and expand its current credit facilities. Should the Company not
achieve one or more of these requirements the Company's ability to continue to
operate would be jeopardized.
The Company is working to reduce its high leverage position. The Company
believes that there are several opportunities that may facilitate a capital
restructuring. While the Company intends to continue to pursue such
opportunities, there can be no assurance that a capital restructuring will occur
during the next year.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
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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
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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 August 10, 2000 By: /s/ GEORGE E. ALDRICH
George E. Aldrich
Senior Vice President - Finance and Accounting
(Principal Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description
27.1 -- Financial Data Schedule
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