UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 September 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
Page
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of
December 31, 1999 and September 30, 2000 (Unaudited) .......................................... 3
Consolidated Statements of Operations and Comprehensive Loss
for the Three and Nine Months ended September 30, 1999 and 2000 (Unaudited) ................... 4
Consolidated Statements of Cash Flows
for the Nine Months ended September 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...................................... 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................................................... 21
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS....................................................... 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................................. 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................. 21
ITEM 5. OTHER INFORMATION .............................................................................. 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................ 21
SIGNATURES.................................................................................................... 22
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
(Unaudited)
December 31, September 30,
1999 2000
------------------ -----------------
<S> <C> <C>
Assets
Cash and cash equivalents .................................................... $ 8,311 $ 3,282
Vacation Interval receivables and other trade receivables, net................ 61,232 74,617
Inventories .................................................................. 896 800
Refundable Mexican taxes ..................................................... 4,521 2,380
Facilities,office furniture and equipment, net ............................... 5,255 5,300
Land held for vacation ownership development ................................. 24,119 10,354
Property held for sale ....................................................... -- 1,517
Equity investments............................................................ 3,532 240
Cost of unsold vacation ownership intervals and related club memberships...... 23,605 16,423
Retained interest in hotel cash flows ........................................ 4,000 4,000
Deferred loan costs, net ..................................................... 7,342 6,105
Exclusivity agreementand other intangibles ................................... -- 2,815
Prepaid and other assets .................................................... 3,058 4,039
--------- ---------
Total assets ..................................................................... $ 145,871 $ 131,872
========= =========
Liabilities and Shareholders' Investment
Liabilities
Accounts payable and accrued liabilities .................................... $ 14,098 $ 21,099
Notes payable ............................................................... 44,787 42,028
Senior Notes, due 2004, net of unamortized original issue discount of $6,574
and $5,268 at December 31, 1999 and September 30, 2000, respectively....... 93,426 89,232
Taxes payable ............................................................... 1,101 215
Unearned services fees ....................................................... 2,028 3,207
--------- ---------
Total liabilities ............................................................... 155,440 155,781
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 September 30, 2000; aggregate
liquidation preference of $5,578 at September 30, 2000 .................... 5,143 5,509
Convertible preferred stock; $100 per share liquidation value; 5,775 shares
issued and outstanding at December 31, 1999 ............................... 811 --
--------- ---------
5,954 5,509
Shareholders' Deficit
Common stock; par value $.001; 45,000,000 shares authorized, 10,766,300 shares
issued and outstanding at December 31, 1999 and September 30, 2000......... 11 11
Additional paid-in capital ................................................... 2,003 1,627
Warrants to purchase, 2,369,962 shares of common stock at December 31, 1999
and September 30, 2000 .................................................... 9,331 9,331
Accumulated deficit .......................................................... (26,998) (40,359)
Cumulative translation adjustment ............................................ 130 (28)
--------- ---------
Total shareholders' deficit ...................................................... (15,523) (29,418)
--------- ---------
Total liabilities and shareholders' deficit ...................................... $ 145,871 $ 131,872
========= =========
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)
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------------- ------------------------------
1999 2000 1999 2000
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Statement of Operations
Revenues
Vacation Interval sales ........................ $ 48,620 $ 55,529 $ 16,320 $ 20,242
Rental and service fee income .................. 6,749 8,142 2,167 2,590
Interest income on Vacation Interval receivables 5,459 6,213 1,744 2,064
Other income ................................... 2,309 2,014 626 700
-------- --------- -------- ---------
Total revenues ............................... 63,137 71,898 20,857 25,596
Costs and Operating Expenses
Cost of Vacation Interval sales................. 13,029 13,175 4,420 4,722
Provision for doubtful accounts ................ 3,759 4,671 1,241 1,720
Advertising, sales and marketing ............... 22,471 25,010 7,565 9,263
Maintenance and energy ......................... 8,122 9,418 3,191 3,480
General and administrative ..................... 8,110 8,926 2,761 3,343
Depreciation ................................... 733 1,093 266 383
Amortization of goodwill ....................... 1,264 150 -- --
Loss on sale of propert -- 7,249 -- 1,049
-------- --------- -------- ---------
Total costs and operating expenses ........... 57,488 69,692 19,444 23,960
-------- --------- -------- ---------
Operating income .................................. 5,649 2,206 1,413 1,636
Interest expense, net .......................... 13,320 15,824 4,597 5,172
Equity in (gains)/losses on equity investments.. 577 1,106 385 1,059
Foreign currency exchange (gains)/losses, net... (245) 241 (443) (755)
-------- --------- -------- ---------
Net loss before taxes ............................. (8,003) (14,965) (3,126) (3,840)
Foreign income and asset taxes.................. 935 (583) 209 (620)
-------- --------- -------- ---------
Net loss before taxes extraordinary gain .......... (8,938) (14,382) (3,335) (3,220)
Extinguishment of debt, net of taxes ........... -- 1,021 -- 1,021
-------- --------- -------- ---------
Net loss before preferred dividends................ (8,938) (13,361) (3,335) (2,199)
Preferred stock dividends ...................... (544) (376) (143) (122)
-------- --------- -------- ---------
Net loss available to common shareholders ......... $ (9,482) $ (13,737) $ (3,478) $ (2,321)
======== ========= ======== =========
Net loss per share before extraordinary gain
(Basic and Diluted)............................ $ (0.75) $ (1.17) $ (0.28) $ (0.26)
Net loss per share
(Basic and Diluted)............................ $ (0.75) $ (1.09) $ (0.28) $ (0.18)
Weighted average number of common shares
(Basic and Diluted)............................ 12,636 12,636 12,636 12,636
Comprehensive Loss
Net loss before preferred stock dividends ......... $ (8,938) $ (13,361) $ (3,335) $ (2,199)
Other comprehensive income:
Foreign currency translation adjustment ........ 176 (158) (9) (56)
-------- --------- -------- ---------
Comprehensive loss ................................ $ (8,762) $ (13,519) $ (3,344) $ (2,255)
======== ========= ======== =========
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)
Nine Months Ended
September 30,
-------------------------------------
1999 2000
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<S> <C> <C>
Operating activities
Net loss ........................................................................ $ (8,938) $ (13,361)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................. 1,733 2,081
Amortization of deferred loan costs ....................................... 1,006 1,064
Amortization of goodwill .................................................. 1,264 150
Loss on sale of land held for sale......................................... -- 7,249
Gain on extinguishment of debt ............................................ -- (1,571)
Provision for doubtful accounts ........................................... 3,759 4,671
Equity in losses on equity investments .................................... 577 1,106
Changes in other operating assets and liabilities:
Vacation Interval receivables and other trade receivables ................ (14,146) (18,277)
Cost of unsold vacation ownership intervals and related club memberships . 7,005 7,098
Prepaid and other assets ................................................. (952) (1,577)
Accounts payable and accrued liabilities ................................. 6,359 3,954
Taxes payable/refundable ................................................. (1,066) 1,271
Unearned services fees.................................................... 509 1,180
-------- ---------
Net cash used in operating activities ........................................... (2,890) (4,962)
Investing activities
Purchase of land and other assets held for vacation ownership development .... (1,702) (694)
Proceeds from sale of property................................................ -- 8,273
Additions to facilities, office furniture and equipment ...................... (1,142) (841)
-------- ---------
Net cash (used in) provided by investing activities ............................. (2,844) 6,738
Financing activities
Additional bank and other loans, net of related expenses...................... 17,549 18,849
Repayment of bank loans ...................................................... (9,507) (24,761)
Dividend payments on and redemption of preferred stock........................ (1,000) (813)
-------- ---------
Net cash provided by (used in) financing activities ............................. 7,042 (6,725)
Increase (decrease) in cash and cash equivalents ................................ 1,308 (4,949)
Effect of exchange rate changes on cash ......................................... 96 (80)
Cash and cash equivalents, at beginning of the period ........................... 2,960 8,311
-------- ---------
Cash and cash equivalents, at end of the period ................................. $ 4,364 $ 3,282
======== =========
Supplemental disclosures of cash flow information
Cash paid during the period for interest .................................... $ 8,372 $ 11,212
Cash paid (received) during the period for income and asset taxes ........... 2,664 (26)
Non-cash financing activities
Stock dividends accrued and accretion on preferred stock..................... $ 544 $ 376
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
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RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 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
September 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
shareholders' deficit, has incurred losses since its inception and expects to
incur a net loss for fiscal 2000 and 2001. 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 third 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 unless it liquidated assets and
reduced the size of its operations. 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/A 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 nine month periods ended September 30, 1999 and 2000.
6
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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 will record the gross
receipts from the sale of Vacation Intervals since the Company is required to
indemnify RMP for any sale that is cancelled and take ownership of the Vacation
Interval. 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. Should the cost of construction exceed RMP's construction loan borrowing
capacity, the Company would be required to assume such liabilities.
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. The Company will also provide development management of project
construction. The Company has acquired sales and administrative assets of $0.6
million and assumed payment of unpaid liabilities of $1.1 million with the
excess of the liabilities assumed over the assets acquired recorded as an
intangible asset. Under the agreement, the Company is required to pay RMP
$2,346,000 and has recorded this as an accrued liability and an intangible asset
(Exclusivity Agreement). The Company will repay the RMP obligation by payment of
$575 for each interval it acquires from RMP or on June 30, 2003, the unpaid
balance of the $2,346,000. Even if the Company is unable to sell all Vacation
Intervals in the first phase by June 30, 2003, any remaining balance will still
be due to RMP. The Company will recognize the expense associated with these
intangible assets through amortization to cost of sales equal to the greater of
(1) the aggregate amortization based on equal monthly charges through June 30,
2003, or (2) the aggregate amortization based on a ratable per Vacation Interval
charge for each of the 4,080 Vacation Intervals to be sold in the first phase.
The Company has recorded the transaction as a purchase. At September 30, 2000,
the Company has not acquired any inventory from RMP.
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 were 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 early 2001. 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 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 September 30, 1999 financial statements have been
reclassified to conform to the September 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.
New Accounting Pronouncements
On December 3, 1999, the Securities and Exchange Commission staff issued
Staff Accounting Bulletin No. 101 (SAB 101). The staff deferred the
implementation date of SAB 101 until no later than the fourth quarter of fiscal
years beginning after December 15, 1999. SAB 101 reflects the basic principle of
revenue recognition in existing U.S. generally accepted accounting principles.
SAB 101 does not supersede any existing authoritative literature. Management has
reviewed the staff's views presented in SAB 101 and does not believe the
adoption of SAB 101 will have a material impact on the financial position or
results of operations of the Company.
7
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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) 443 755
Fourth Quarter............... (523) 556
The following table presents the quarterly exchange rates from December 1998 for
the Mexican Peso:
Exchange Rates Pesos U.S. 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
September 30, 2000............ 9.429 = $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 $1.7 million in restricted funds at September 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 $0.5 million was capitalized
during the three and nine months ended September 30, 1999 and $0.2 and $0.7 for
the three and nine months ended September 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.
8
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Impairment of Long-Lived Assets and Identifiable Intangibles
The Company periodically evaluates its long-lived assets and identifiable
intangibles for impairment. If upon evaluation the Company's management believes
that the cost of one of its assets may be impaired, the Company will (a)
evaluate the extent to which that cost is recoverable by comparing the future
undiscounted cash flows estimated to be associated with that asset to that
asset's carrying amount and (b) write down that carrying amount to market value
or discounted cash flows value to the extent necessary.
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. Additionally, shares issuable for little or no consideration are
considered common shares and are included in the computation of basic earnings
per share ("EPS"). On December 5, 1997, in conjunction with the issue of Senior
Notes, the Company issued warrants to purchase 1,869,962 shares of common stock
at a conversion price of $.01 per share. Since the 1,869,962 common shares
issuable under the Senior Notes warrants can be purchased for little or no cash
consideration and these warrants were fully vested upon issuance, they are
included in the computation of basic EPS as of the date they were issued.
At September 30, 2000, the Company had outstanding 600,500 stock options
with a weighted-average exercise price of $4.50 per share, 500,000 common stock
warrants with an exercise price of $5.00 per share and preferred stock with
$5,578,000 of Liquidation Preference convertible upon redemption at the
Company's option into shares of common stock valued at the Liquidation
Preference. These warrants, common stock options and preferred stock were not
included in diluted EPS as the exercise prices exceeded the estimated fair value
of common stock. The Senior Notes warrants were included in both the computation
of basic and diluted EPS.
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 $1.3 million for the nine months
ended September 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):
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
----------------- ----------------
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Vacation Interval receivables ................................ $ 63,875 $ 76,808
Other trade receivables ...................................... 5,424 7,429
Less - allowances for uncollectible accounts ................. (8,067) (9,620)
-------- --------
Total ................................................ $ 61,232 $ 74,617
======== ========
</TABLE>
Allowances for uncollectible accounts increased by $4.7 million for
additional estimated reserves, and decreased by $3.1 million for receivable
write-offs, net of recoveries during the first nine months of 2000.
The Company estimates that at December 31, 1999 and at September 30, 2000,
approximately 53% and 47%, respectively, of all of the Vacation Interval
receivables were U.S. dollar denominated, 31% and 36%, respectively, of Vacation
Interval receivables were denominated in UDIs, an obligation denominated in
pesos which is adjusted for Mexican inflation ("UDI"), 9% and 11% respectively,
of Vacation Interval receivables were denominated in Mexican pesos, and 7% and
6%, respectively, of Vacation Interval receivables were denominated in Canadian
dollars.
9
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NOTE 4. NOTES PAYABLE
Summary of Notes Payable (in thousands) -
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<CAPTION>
December 31, September 30,
1999 2000
------------ -----------
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Notes Payable to Financial Institutions ............................ $ 278 $ 2,184
Cabos West Notes Payable ........................................... 2,350 2,350
Credit Agreement Notes and Loans ................................... 38,772 33,636
Mortgages Payable .................................................. 3,387 3,858
-------- --------
$ 44,787 $ 42,028
======== ========
</TABLE>
Notes Payable to Financial Institutions - The notes payable to financial
institutions at December 31, 1999 had interest payable at 8.5%. In April 2000,
the Company entered into a note payable to North Shore Credit Union, in
connection with the Westin units purchased due on or before October 2001, with
an interest rate of prime plus 2.5%, which totaled 10.0% at September 30, 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.
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,
Canadian and Mexican residents (Mexican obligors limited to 15% of total
receivables pledged). 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 September 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 September 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 September 30, 2000, the outstanding balance of the receivables line
of credit was $9,760,000 and $12,880,000, respectively, and of the inventory
based credit facility was $15,159,000 and $8,081,000, 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. Textron will lend 80% on these pledged notes, and the remainder in U.S.
dollars on which Textron will lend 85%. 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 September 30, 2000, respectively. As of
December 31, 1999 and September 30, 2000, the outstanding balance of the loan
facility was $7,103,000 and $8,410,000, respectively.
The November 1999 $7 million loan agreement with Bancomer is collateralized
by the Company's UDI denominated notes receivable. The collateral maintained by
the Company equals 2.5 times the outstanding borrowings under the loan. 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. As of December 31, 1999 and September 30, 2000, the
outstanding balance was $6,750,000 and $4,265,000, 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 10.5% at December 31, 1999 and September
30, 2000, respectively. At December 31, 1999 and September 30, 2000, the
aggregate principal
10
<PAGE>
amount of mortgages payable to related parties was $1,014,000 and $1,274,709,
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 using 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.
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
September 30, 2000:
Revenues from external customers ................ $ 22,797 $ 2,627 $ -- $ 172 $ 25,596
Depreciation and amortization.................... 285 40 42 16 383
Operating income (loss) ......................... 2,917 (189) (570) (522) 1,636
Income tax expense............................... (452) (168) -- -- (620)
Capital expenditures ............................ 462 143 14 77 696
Corporate
Mexico Canada and Other Total
--------------- ---------- ------------- -----------
As of and for the three months ended
September 30, 1999:
Revenues from external customers ................ $ 16,730 $ 4,123 $ 4 $ 20,857
Depreciation and amortization.................... 216 35 15 266
Operating income (loss) ......................... 1,534 548 (669) 1,413
Income tax expense............................... -- 209 -- 209
Capital expenditures ............................ 524 63 3 590
Corporate
Mexico Canada U.S. (*) and Other Total
--------------- ---------- ---------- ------------- ------------
As of and for the nine months ended
September 30, 2000:
Revenues from external customers ................ $ 63,508 $ 8,099 $ -- $ 291 $ 71,898
Depreciation and amortization.................... 863 226 66 48 1,243
Operating income (loss) ......................... 5,158 (116) (1,044) (1,792) 2,206
Income tax expense............................... (399) (184) -- -- (583)
Total assets (at end of period).................. 112,694 12,720 3,619 2,839 131,872
Capital expenditures ............................ 1,091 337 17 120 1,565
Corporate
Mexico Canada and Other Total
--------------- ---------- ------------- -----------
As of and for the nine months ended
September 30, 1999:
Revenues from external customers ................ $ 51,461 $ 11,664 $ 12 $ 63,137
Depreciation and amortization.................... 596 1,357 44 1,997
Operating income (loss) ......................... 7,217 690 (2,258) 5,649
Income tax expense............................... 200 735 -- 935
Total assets (at end of period)................. 121,465 10,719 4,072 136,256
Capital expenditures ............................ 1,487 219 1,138 2,844
(*) 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>
11
<PAGE>
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 $0.4
million and of $1.1 million for the three months ended September 30, 1999 and
2000, respectively, and equity losses of $0.6 million and $1.1 million for the
nine months ended September 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. 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. At
December 31, 1999, the Company elected to pay dividends by issuing 2,250 shares
of the Pay-in-Kind Preferred valued at the Liquidation Preference. As of
September 30, 2000, the cumulative unpaid dividends on the Pay-in-Kind Preferred
were $0.4 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 were 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"), is a joint venture between the Company
and the owner and developer of the Teton Village area near Jackson Hole,
Wyoming. The Teton Club has a financing commitment from FINOVA consisting of
$33.3 million for construction financing, $7.5 million for pre-sale working
capital requirements and $20.0 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 25% of the construction loan, the pre-sale working
capital loan and the receivables loan to the extent of nonpayment by the Teton
Club. Additionally, the Company is responsible for any working capital deficits
at the Teton Club. As of September 30, 2000, the Teton Club had drawn $25.0
million on the construction portion of the financing, and $5.3 million on the
working capital portion of the financing.
12
<PAGE>
NOTE 9. LOSS ON SALE OF PROPERTY HELD FOR SALE
The Company finalized the sale of its investment in Cozumel land and sold
other property during third quarter 2000. The Company received total
consideration of $8.3 million and recognized a net loss of $7.2 million. The
Company anticipates selling the remaining property held for sale at September
30, 2000 during early 2001 and does not anticipate any further losses on such
sales.
NOTE 10. EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT
During the third quarter of 2000, the Company repurchased $5.5 million
Senior Notes for $3.3 million. After adjusting the associated debt discount and
deferred loan costs, the Company recorded an extraordinary gain of $1.0 million,
net of related tax effects of $0.6 million. Since the Company is in a net loss
position for tax purposes, the tax charge related to the gain on extinguishments
of debt results in an equal tax benefit to tax expense before extraordinary
items.
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/A 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 NINE MONTHS ENDED SEPTEMBER 30, 1999 TO THE NINE MONTHS ENDED
SEPTEMBER 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.
13
<PAGE>
The following presents segment data in thousands:
<TABLE>
<CAPTION>
For the Nine Months ended September 30,
------------------------------------------------------------------------------------------
Operating
Net Income Capital
Sales % (Loss) % Expenditures %
------------- --------- ------------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
2000 -
Mexico $ 63,508 88.3% $ 5,158 233.8% $ 1,091 69.7%
Canada 8,099 11.3% (116) (5.3)% 337 21.5%
United States -- 0.0% (1,044) (47.3)% 17 1.1%
Corporate and other 291 0.4% (1,792) (81.2)% 120 7.7%
-------- ------ --------- ------- --------- ------
Total $ 71,898 100.0% $ 2,206 100.0% $ 1,565 100.0%
======== ====== ========= ======= ======== ======
1999 -
Mexico $ 51,461 81.5% $ 7,217 127.8% $ 1,487 52.3%
Canada 11,664 18.5% 690 12.2% 219 7.7%
Corporate and other 12 0.0% (2,258) (40.0)% 1,138 40.0%
-------- ------ --------- ------- --------- ------
Total $ 63,137 100.0% $ 5,649 100.0% $ 2,844 100.0%
======== ====== ========= ======= ======== ======
</TABLE>
Mexico's Segment Results - Comparison of the nine months ended September
30, 2000 to the nine months ended September 30, 1999. Net sales increased $12.0
million, or 23.4%, and operating income decreased $2.0 million or 28.5% for the
nine months ending September 30, 2000. The increase in net sales resulted from
an overall increase in the number of Vacation Interval weeks sold. The number of
weeks sold increased 838, or 28.5%. The decrease in operating income results
from the loss on sale of property of $7.2 million.
Canada's Segment Results - Comparison of the nine months ended September
30, 2000 to the nine months ended September 30, 1999. Net sales decreased $3.6
million primarily as the number of weeks sold decreased 40.8%. The decrease in
weeks sold is reflective of a 30% decrease in tour flow primarily generated from
its telemarketing operations, on-site sales office and owner referrals. However,
operating income decreased by only $0.8 million because of a decrease in
goodwill amortization of $1.1 million in the first nine months of 2000 and due
to costs associated with Vacation Intervals sales decreasing along with sales.
United States' Segment Results - Comparison of the nine months ended
September 30, 2000 to the nine months ended September 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 nine months ended September 30,
2000 to the nine months ended September 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 nine months ended September 30, 2000 to the nine months
ended September 30, 1999.
Vacation Interval sales increased by approximately $6.9 million, or 14.2%,
from approximately $48.6 million for the nine months ended September 30, 1999 to
approximately $55.5 million for the nine months ended September 30, 2000.
Vacation Interval sales increased as the number of weeks sold increased by 518,
or 13.9%, from 3,721 for the nine months ended September 30, 1999 to 4,239 for
the nine months ended September 30, 2000.
Rental and service fee income increased by $1.4 million, or 20.6% for the
nine months ended September 30, 2000 compared to the comparable prior year
period. The increase results from an increase of approximately 3,500 new members
paying service fees during the first nine months of 2000 compared to the
comparable prior year period.
Interest income on Vacation Interval receivables increased by $0.8 million
or 13.8% for the nine months ended September 30, 2000 compared to the comparable
prior year period. The increase results from the higher amount of
14
<PAGE>
Vacation Interval receivables outstanding during the first nine months of 2000
compared to the comparable prior year period.
Provision for doubtful accounts increased by approximately $0.9 million, or
24.3%, from approximately $3.8 million for the nine months ended September 30,
1999, to approximately $4.7 million for the nine months ended September 30,
2000. This increase is in response to an increase in customer financing for the
first nine months compared to the same nine months of the prior year. 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 $2.5
million, or 11.3%, from approximately $22.5 million for the nine months ended
September 30, 1999, to approximately $25.0 million for nine months ended
September 30, 2000. The acquisition of Cimarron increased advertising, sales and
marketing approximately $0.6 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 $1.3 million, or
16.0%, from approximately $8.1 million for the nine months ended September 30,
1999, to approximately $9.4 million for the nine months ended September 30,
2000. The increase in expenses was caused by maintenance and energy expenses
associated with the acquisitions of units after the first nine months of 1999
including Villa Vera units in Mexico and the Westin units in Whiski Jack.
General and administrative expenses increased approximately $0.8 million,
or 10.1%, from approximately $8.1 million for the nine months ended September
30, 1999, to approximately $8.9 million for the nine months ended September 30,
2000. The Company's new operations at Cimarron resorts accounted for
approximately $0.3 million of this increase. Additionally, in Mexico higher
costs resulted from general inflation and an increase in revenues. As a
percentage of revenue, general and administrative costs were nearly unchanged
between periods.
Depreciation expense increased by $0.4 million or 49.1% during the nine
months ended September 30, 2000 compared to the comparable prior year period.
The increase primarily relates to depreciation associated with assets acquired
in conjunction with the December 1999 Villa Vera Hotel and Racquet Club
acquisition and increased investments in computer equipment.
For the first nine months of 1999, amortization of goodwill relates to the
goodwill resulting from the acquisition of Whiski Jack, which was fully
amortized during 1999. During for the second quarter 2000, a final payment was
made to the sellers of $150,000 for achieving specific post-acquisition
earnings, which was expensed during the period.
The Company finalized the sale of its Cozumel property and certain other
property held for sale in Mexico in the third quarter 2000 and recorded a loss
of $7.2 million.
Interest expense was approximately $2.5 million more in the first nine
months of 2000 as compared to the first nine 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
$21.9 million between periods, while the average interest rates increased from
13.0% to 13.3% for September 1999 and September 2000, respectively.
Foreign currency exchange loss was approximately $0.2 million during the
first nine months of 2000 compared to a gain of approximately $0.2 million
during the first nine months of 1999. The increase in the loss between periods
occurred due to a weaker peso against the U.S. dollar during the nine months of
2000 compared to the comparable prior year period.
The Company purchased $5.5 million face value of Senior Notes which
resulted in an extraordinary gain of $1.0 million, net of tax.
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
15
<PAGE>
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 nine months ended September 30, 2000 strengthened when compared to the
average monthly peso exchange rate for the nine months ended September 30, 1999.
The Company estimates that current period costs settled in Mexican pesos
increased by approximately 2% because of fluctuations in the average peso
exchange rate between periods. In addition, the Company estimates that inflation
in Mexico was approximately 9% since September 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 SEPTEMBER 30, 1999 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 2000.
Segment Results
The following presents segment data in thousands:
<TABLE>
<CAPTION>
For the Three Months ended September 30,
------------------------------------------------------------------------------------------
Operating
Net Income Capital
Sales % (Loss) % Expenditures %
------------- --------- ------------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
2000 -
Mexico $ 22,797 89.1% $ 2,917 178.3% $ 462 66.4%
Canada 2,627 10.3% (189) (11.6)% 143 20.5%
United States -- 0.0% (570) (34.8)% 14 2.0%
Corporate and other 172 0.6% (522) (31.9)% 77 11.1%
-------- ------ --------- -------- --------- ------
Total $ 25,596 100.0% $ 1,636 100.0% $ 696 100.0%
======== ====== ========= ======== ======== ======
1999 -
Mexico $ 16,730 80.2% $ 1,534 108.5% $ 524 88.8%
Canada 4,123 19.8% 548 38.8% 63 10.7%
Corporate and other 4 0.0% (669) (47.3)% 3 0.5%
-------- ------ --------- ------- --------- ------
Total $ 20,857 100.0% $ 1,413 100.0% $ 590 100.0%
======== ====== ========= ======= ======== ======
</TABLE>
Mexico's Segment Results - Comparison of the three months ended September
30, 2000 to the three months ended September 30, 1999. Net sales increased $6.0
million, or 36.2%, and operating income increased $1.6 million or 124.5% during
the third quarter 2000. The increase in net sales resulted from an overall
increase in the number of weeks sold. The number of weeks sold increased 505, or
55.5%. The increase in operating income results from the addition of lower
average cost inventory, the Villa Vera in Mexico, which occurred in the last
quarter of 1999.
Canada's Segment Results - Comparison of the three months ended September
30, 2000 to the three months ended September 30, 1999. Net sales decreased $1.5
million primarily as the number of weeks sold decreased 49.0%. The decrease in
weeks sold is reflective of the 30% decrease in tour flow primarily generated
from its telemarketing operations, on-site sales office and owner referrals.
However, operating income decreased by only $0.7 million due to costs associated
with Vacation Intervals sales decreasing along with sales.
United States' Segment Results - Comparison of the three months ended
September 30, 2000 to the three months ended September 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 September 30,
2000 to the three months ended September 30, 1999. The operating loss consists
primarily of general and administrative costs that are not allocated to the
segments. The decrease in operating loss is primarily due to an increase
in other income.
16
<PAGE>
Consolidated Results
Comparison of the three months ended September 30, 2000 to the three months
ended September 30, 1999.
Vacation Interval sales increased by approximately $3.9 million, or 24.0%,
from approximately $16.3 million for the three months ended September 30, 1999
to approximately $20.2 million for the three months ended September 30, 2000.
Vacation Interval sales increased primarily as the weeks sold increased 355, or
29.2%, from 1,216 to 1,571 for the three months ended September 30, 1999 and
2000, respectively.
Rental and service fee income increased $0.4 million or 19.5% for the three
months ended September 30, 2000 when compared to the comparable prior year
period. This increase results from an increase of approximately 3,500 new
members paying service fees during the three months ended September 30, 2000
when compared to the comparable prior year period.
Interest income on Vacation Interval receivables increased by $0.3 million
or 18.3% for the three months ended September 30, 2000 when compared to the
comparable prior year period. The increase results from the higher amount of
Vacation Interval receivables outstanding for the three months ended September
30, 2000 when compared to the comparable prior year period.
Provision for doubtful accounts increased by approximately $0.5 million, or
38.6%, from approximately $1.2 million for the three months ended September 30,
1999, to approximately $1.7 million for the three months ended September 30,
2000. This increase is in response to an increase in customer financing in the
third quarter of 2000 compared to the prior year third 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 $1.7
million, or 22.4%, from approximately $7.6 million for the three months ended
September 30, 1999, to approximately $9.3 million for three months ended
September 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 1.1% for the three months ending September 30, 2000 compared to the
same period in the prior year.
Maintenance and energy expenses increased approximately $0.3 million, or
9.1%, from approximately $3.2 million for the three months ended September 30,
1999, to approximately $3.5 million for the three months ended September 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 $0.6 million,
or 21.1%, from approximately $2.7 million for the three months ended September
30, 1999, to approximately $3.3 million for the three months ended September 30,
2000. The Company's new operations at Cimarron Resorts accounted for
approximately $0.2 million of this increase. Additionally, in Mexico higher
costs resulted from general inflation and an increase in revenue. As a
percentage of revenue, general and administrative costs were nearly unchanged
between periods.
Depreciation expense increased by $0.1 million or 44.0% for the three
months ended September 30, 2000 when compared to the comparable prior year
period. The increase primarily relates to depreciation associated with assets
acquired in conjunction with the December 1999 Villa Vera Hotel and Racquet Club
acquisition and increased investments in computer equipment.
The Company finalized the sale of its Cozumel property and certain other
property held for sale in Mexico in the third quarter 2000 and recorded an
additional loss of $1.0 million.
Interest expense was approximately $0.6 million more in the third quarter
of 2000 as compared to the third quarter 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 $17.0
million between periods, while the average interest rates increased from 13.0%
to 13.3% for September 1999 and September 2000, respectively.
17
<PAGE>
Foreign currency exchange gain totaled approximately $0.8 million during
the third quarter of 2000 compared to a gain of approximately $0.4 million
during the third quarter of 1999. The increase in the gain between periods
occurred due to a stronger peso against the U.S. dollar during the three months
of 2000 compared to the comparable prior year period.
The Company purchased $5.5 million face value of Senior Notes, which
resulted in an extraordinary gain of $1.0 million, net of tax.
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 September 30, 2000 was nearly unchanged when compared to
the average monthly peso exchange rate for the three months ended September 30,
1999. The Company estimates that inflation in Mexico was approximately 9% since
September 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 SEPTEMBER 30, 2000 BALANCE SHEET AMOUNTS TO DECEMBER 31, 1999
BALANCE SHEET AMOUNTS
Vacation Interval receivables and other trade receivables increased
approximately $13.4 million from approximately $61.2 million as of December 31,
1999 to approximately $74.6 million as of September 30, 2000. The increase in
Vacation Interval receivables is related to the increase in the level of sales
financing with approximately 1,600 additional loans. Other trade receivables
increased due to the annual service fee billings in the first quarter of 2000 as
well as an increase in the number of members being billed.
Cost of unsold vacation ownership intervals and related club memberships
(unit inventory) decreased approximately $7.1 million from approximately $23.6
million as of December 31, 1999 to approximately $16.5 million as of September
30, 2000. The sale of units reduced unit inventory by approximately $13.1
million, which was offset by purchases by Whiski Jack in Canada of approximately
$4.7 million, and the remainder primarily from reinstatement of inventory from
defaulting owners in Mexico.
Exclusivity agreement and other intangibles were recorded in the second
quarter in conjunction with entering into the Cimarron Resorts Project
Development, Management and Sales Agreement with Royale Mirage Partners, L.P.
See Footnote 1 "GENERAL INFORMATION - Cimarron Resorts Project Development,
Management and Sales Agreement" for a discussion of this transaction.
Refundable Mexican taxes decreased $2.1 million from $4.5 million to $2.4
million primarily due to receipt of a refund relating to prior period taxes
paid.
Accounts payable and accrued liabilities increased approximately $7.0
million from approximately $14.1 million as of December 31, 1999 to
approximately $21.1 million as of September 30, 2000. The Cimarron operations
increased accounts payable and accrued liabilities by $3.1 million.
Additionally, accrued interest payable increased by $3.2 million due to the one
month accrued interest on the Senior Notes at December 1999 compared to the four
months accrued at September 30, 2000.
Unearned service fees increased approximately $1.2 million from
approximately $2.0 million as of December 31, 1999 to approximately $3.2 million
as of September 30, 2000. This balance was higher because a majority of the
related fees are typically invoiced at the beginning of each year and then
earned throughout the year.
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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 September 30, 2000, the Company had
$76.8 million of Vacation Interval receivables of which approximately (i) 53% of
all of the Vacation Interval receivables were U.S. or Canadian dollar
denominated (ii) 36% of all Vacation Interval receivables were denominated in
UDI's, an obligation denominated in pesos which is adjusted for Mexican
inflation, and (iii) 11% of all Vacation Interval receivables were denominated
in pesos.
As of September 30, 2000 and December 31, 1999, the Company had outstanding
$94.5 million and $100 million, respectively, of 13% Senior Notes due 2004.
Under the FINOVA credit line ("FINOVA"), $21.0 million and $24.9 million was
outstanding with approximate interest rates of 11.4% and 10.6% at September 30,
2000 and December 31, 1999, respectively. The Textron credit line had an
outstanding balance of $8.4 million and $7.1 million with interest rates of
11.5% and 10.5% at September 30, 2000 and December 31, 1999, respectively. The
Bancomer loan, which bears an interest rate of 12%, had an outstanding balance
of $4.3 million and $6.8 million at September 30, 2000 and December 31, 1999,
respectively. Financial Institution debt, which bore average interest rates of
10.8% and 9.6%, had outstanding balances of $4.5 million and $2.6 million at
September 30, 2000 and December 31, 1999, respectively. Mortgages payable had an
outstanding balance of $3.9 million and $3.4 million, with average interest
rates of 11.2% and 10.5% at September 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 $3.7 million at September 30, 2000 was available for borrowing
under the credit facilities, $2.0 million and $1.7 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 25% of the outstanding borrowing or, $7.6
million at September 30, 2000 under the construction loan, the pre-sale working
capital loan and the receivables loan. The Company is also responsible for any
working capital deficits at the Teton Club.
The Company pursues a growth-oriented strategy. From time to time, the
Company acquires, 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. 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.
In addition to accessing its lines of credit to finance its growth
strategy, 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 September 30, 2000, the Company had remaining developed inventory of
Vacation Interval weeks of 1,951 at Club Regina and 1,267 at Whiski Jack, or 8%
and 12.4%, respectively, of total weeks available. Club Regina will have
available two-bedroom inventory from Cimarron Resorts to sell as Club Regina
inventory. Including the Vacation Interval inventory to be made available for
sales by Club Regina effective as of July 2000 under the
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Cimarron Resorts Project Development, Management and Sales Agreement, the
remaining Vacation Interval inventory of total weeks for Club Regina would have
been 12% as of September 30, 2000. 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 September 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
shareholders' deficit, has incurred losses since its inception and expects to
incur a net loss for fiscal 2000 and 2001. 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 third 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. 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 unless it liquidated assets and reduced size of its
operations. 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 $20.0 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. 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 $23.1 million at the current Textron advance rate. The Company has
begun discussions with Textron regarding the expansion of this credit facility
to $20.0 million and anticipates that the facility will be expanded prior to the
December 1st, 2000 Senior Notes' interest payment.
On a long-term basis, the Company has debt maturities of $25.8 million,
$2.1 million, $0.2 million, $94.9 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 and is currently discussing several options with financial
institutions and others. 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.
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: November 13, 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
<PAGE>
