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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
Commission file number 0-19743
THOUSAND TRAILS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 75-2138671
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2711 LBJ FREEWAY, SUITE 200, DALLAS, TX 75234
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 243-2228
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR
VALUE $.01 PER SHARE
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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At September 19, 1997, the latest practicable date, the aggregate market value
of voting common stock of the Registrant held by nonaffiliates was $12.5
million.
At September 19, 1997, there were 7,386,776 shares of Common Stock, $.01 par
value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10-13) is incorporated by reference
from the Registrant's definitive Proxy Statement for the Registrant's 1997
Annual Meeting of Stockholders, which will be filed with the Securities and
Exchange Commission (the "SEC") pursuant to Regulation 14A.
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INDEX TO
ANNUAL REPORT ON FORM 10-K
Page
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PART I
Item 1. Business............................................ 4
Item 2. Properties.......................................... 11
Item 3. Legal Proceedings................................... 15
Item 4. Submission of Matters to a Vote of Security-Holders. 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................ 16
Item 6. Selected Financial Data............................ 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 21
Item 8. Financial Statements and Supplementary Data........ 36
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 76
PART III
Item 10. Directors and Executive Officers of the Registrant 77
Item 11. Executive Compensation............................ 77
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................... 77
Item 13. Certain Relationships and Related Transactions.... 77
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................... 78
Signature Page................................................ 88
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PART I
ITEM 1. BUSINESS
OVERVIEW
GENERAL. Thousand Trails, Inc., a Delaware corporation ("Thousand Trails"), is
the successor by merger to USTrails Inc., a Nevada corporation ("USTrails").
Thousand Trails and its subsidiaries (the "Company") own and operate a system of
55 membership-based campgrounds located in 17 states and British Columbia,
Canada, serving 120,000 members as of June 30, 1997. Through its subsidiaries,
the Company also provides a reciprocal use program for members of approximately
380 recreational facilities and manages 48 public campgrounds for the US Forest
Service. The Company's principal executive office is located at 2711 LBJ
Freeway, Suite 200, Dallas, Texas 75234, and its telephone number is (972) 243-
2228.
The Company entered the membership campground business on June 30, 1991, with
the acquisition of 100% of the capital stock of National American Corporation, a
Nevada corporation (collectively with its subsidiaries, "NACO") and 69% of the
capital stock of Thousand Trails, Inc., a Washington corporation (collectively
with its subsidiaries, "Trails"). The Company subsequently increased its
ownership in Trails to 100% through a tender offer and merger and, on July 16,
1996, Trails was merged into the Company. Prior to acquiring NACO and Trails,
the Company purchased contracts receivable generated by them from the sale of
campground memberships on the installment basis. The Company was incorporated
in 1984, NACO was incorporated in 1967, and Trails was incorporated in 1969.
On November 20, 1996, the Company, then known as USTrails, reincorporated in the
state of Delaware and changed its name to Thousand Trails, Inc. The
reincorporation was effected through a merger with a newly formed wholly owned
subsidiary of USTrails that was approved by USTrails' stockholders at their
annual meeting.
CURRENT BUSINESS STRATEGY. The Company's current business strategy is to
improve its campground operations and stabilize its campground membership base
through increased sales and marketing efforts. The Company believes there is a
viable market for campground memberships and that it has a significant
opportunity to compete for campers interested in higher quality facilities and a
higher level of service than is typically available at public campgrounds or
competing private campgrounds. The Company also believes that its flexible
membership products give it a competitive advantage because it offers consumers
the ability to choose the type of membership most suitable to their needs.
However, the Company's membership base has declined over the past five fiscal
years and, accordingly, the Company has downsized its business by closing and
disposing of campgrounds and decreasing campground operating costs and general
and administrative expenses. The Company intends to continue to downsize its
business while its membership base declines. In this regard, the Company will
likely close and dispose of additional campgrounds and it will seek to decrease
other expenses. At the same time, the Company intends to expand its sales and
marketing efforts with a view to stopping the membership decline. The Company
believes that the ultimate size of its campground system and the amounts
realized from future asset sales will depend principally upon the degree to
which the Company can successfully implement this strategy.
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DEBT RESTRUCTURING. On July 17, 1996, the Company consummated a restructuring
of its outstanding debt (see "Liquidity and Capital Resources - Debt
Restructuring" in Item 7). This restructuring provided the Company with a new
capital structure and decreased the Company's outstanding debt to a level the
Company believes it can support under its downsized operations.
CAMPGROUND OPERATIONS
CAMPGROUNDS. The Company and its subsidiaries own and operate a network of 55
membership-based campgrounds located in 17 states and British Columbia, Canada.
The Company owns and operates a network of 34 of these campgrounds under the
Thousand Trails logo, and NACO owns and operates a network of 21 of these
campgrounds under the NACO logo. The 55 campgrounds contain a total of
approximately 10,200 acres and 18,400 campsites.
Members using the campgrounds may bring their own recreational vehicles ("RVs"),
tents or other sleeping equipment, or rent travel trailers or cabins located at
the campgrounds or visit for the day. As of June 30, 1997, there were
approximately 77,000 campground members in the Thousand Trails system and 43,000
campground members in the NACO system. However, approximately 35% of the NACO
campground members and approximately 52% of the Thousand Trails campground
members possess the right to use the campgrounds in both networks. The largest
percentage of campground members reside in California (approximately 37%).
Large numbers of campground members also reside in Florida, Oregon, Texas, and
Washington.
Memberships provide the member's family access to the Company's network of
campgrounds, but do not convey a deeded interest in the campgrounds with the
exception of six campgrounds in which members received deeded undivided
interests in the campground. A member also does not possess the right to use a
specific campsite, trailer, or cabin, or the right to control further
development or operation of a campground.
Depending upon member usage, the campgrounds are open year-round or on a
seasonal basis. The campgrounds feature campsites with electrical, water, and
in some cases, sewer connections for RVs, restroom and shower facilities, rental
trailers or cabins, and other recreational amenities. At each campground, a
manager and staff provide security, maintenance, and recreational programs that
vary by location.
The Company derives other campground revenue from renting trailers, cabins, and
sports equipment to members, selling food and other items to members from
convenience stores located at the campgrounds, and providing the members access
to laundry facilities and game machines. The Company also charges members a fee
for storing recreational vehicles and providing food service.
EXISTING MEMBERSHIP. At June 30, 1997, the Company had 120,000 campground
members. The majority of these members have been members for over 10 years.
The Company's membership base has declined significantly over the past five
fiscal years and, net of new sales, the membership base is presently declining
at the rate of approximately 6% per year. The Company attributes this
continuing decline principally to its aging membership base, of whom
approximately 50% are senior citizens. In addition, the Company estimates that
the memberships sold in recent fiscal years will have an expected life that is
significantly shorter than the expected life of the memberships previously sold
by the Company. To stop the continuing decline in its membership base, the
Company must significantly increase its campground membership sales over current
levels.
MEMBERSHIP SALES. As noted above, the majority of the Company's existing
members have been members for over 10 years. The Company's membership sales
declined significantly in the early 1990's due to increasing marketing costs and
other factors. In April 1992, the Company suspended the sale of new campground
memberships because its
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sales program was operating at a loss and with negative cash flow. In the fall
of 1992, the Company began to assist campground members desiring to sell their
memberships in the secondary market. During fiscal 1994, the Company determined
that it should increase its sales and marketing efforts in order to replenish
its declining campground membership base, and it began selling new campground
memberships on a limited basis. In May 1995, the Company introduced new
membership products and significantly increased its sales and marketing efforts.
In recent years, the Company has focused its membership sales efforts primarily
on guests referred by existing members and customers referred by RV dealers and
RV manufacturers, whom management believes are more likely to purchase
memberships.
The Company's current membership products offer the consumer a choice of
membership options ranging from the use of one campground to the entire system
of campgrounds with prices ranging from $695 to $2,995. In addition, the
membership products offer a choice of annual dues levels ranging from $329 for
30 nights of use to $1,095 for up to 365 nights of use. The member is charged a
nightly fee for camping more days than are included in the dues option selected.
During fiscal 1997 and 1996, the Company sold approximately 3,400 and 3,100 new
memberships, respectively. The average sales price was $707 in fiscal 1997 and
$779 in fiscal 1996, and the average annual dues level was $332 in fiscal 1997
and $306 in fiscal 1996. During the past two fiscal years, the Company offered
financing for sales with prices of $895 or higher. The Company required a down
payment of at least 25% of the sales price and would finance the balance over a
period of up to 12 months. In August 1997, the Company began offering financing
on certain memberships for periods of up to 36 months. The Company estimates
that the memberships sold in recent fiscal years will have an expected life that
is significantly shorter than the expected life of the memberships previously
sold by the Company.
The Company has the capacity to sell approximately 67,000 additional new
campground memberships in the future, assuming the sale of ten memberships for
each existing campsite. Further downsizing of the Company's business would
reduce this capacity.
MARKETING. The Company's research indicates that camping is a popular and
growing activity in the United States. Camping was the second largest
participant sport/activity in the United States in 1995 with 23% of all
households camping at least once a year. Sales of camping equipment totaled
$1.5 billion annually in 1995 and 1996. In addition, although RV sales were
flat in 1995 and 1996, a recent study by the University of Michigan Survey
Research Center reported that RV sales revenues are expected to grow 4% annually
for at least the next 10 years. Moreover, the Company believes the aging of the
baby boomers will have a positive effect on sales of camping equipment and RVs,
and lead to further growth in family camping. The Company's campgrounds are
located in markets containing approximately 25% of all camping households in the
United States.
While most campers use national or state parks, the Company believes that it has
a significant opportunity to compete for campers interested in higher quality
facilities and a higher level of service than is typically available at public
campgrounds or competing private campgrounds. Based on the Company's research,
approximately 35% of campers are "amenity" campers, whose needs match the
benefits provided by the Company's campgrounds, such as pools, lodges, sport
courts, and recreational activities. The Company believes the needs of amenity
campers are not being met by underfunded national and state campgrounds. In
addition, the Company believes that it can differentiate its campgrounds and
services from other campgrounds by emphasizing the quality of its facilities and
the benefits and services available at its campgrounds.
DUES. The Company's campground members currently pay annual dues ranging from
$100 to $1,095. The annual dues collected from campground members constitute
general revenue of the Company. The Company uses the dues to fund its operating
expenses, including corporate expenses and the maintenance and operation of the
campgrounds.
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However, the membership agreements do not require the Company to use the dues
for any specific purpose.
The average annual dues paid by the Company's campground members was $344 for
the year ended June 30, 1997, $335 for the year ended June 30, 1996, and $329
for the year ended June 30, 1995. The increases resulted primarily from the
annual increase in dues implemented by the Company in accordance with the terms
of the membership agreements. In addition, the Company's new members generally
pay annual dues at a higher level than the older members retiring from the
system.
The membership agreements generally permit the Company to increase annually the
amount of each member's dues by either (i) the percentage increase in the
consumer price index ("CPI") or (ii) the greater of 10% or the percentage
increase in the CPI. The Company, however, may not increase the dues on
existing contracts of senior citizens and disabled members who notify the
Company of their age or disability and request that their dues be frozen. At
the present time, approximately 35% of the members have requested that their
dues be frozen because of their age or disability. The Company estimates that
approximately 50% of the campground members are senior citizens eligible to
request that their dues be frozen. The Company is unable to estimate when or if
a significant number of these members will request that their dues be frozen in
the future.
MAINTENANCE AND IMPROVEMENTS. The Company's campgrounds require annual capital
and maintenance expenditures, which have been deferred, in part, as a result of
general cost-cutting measures. During fiscal 1997, the Company spent $4.6
million on major maintenance, repairs, and improvements at the campgrounds and
anticipates that it will spend an additional $4.3 million on similar costs in
fiscal 1998.
RESORT PARKS INTERNATIONAL. NACO members and holders of dual-system
memberships, which permit the member to use the campgrounds in both the NACO and
Thousand Trails systems, may join a reciprocal program operated by Resort Parks
International, Inc. ("RPI"), a wholly owned subsidiary of the Company. The RPI
program offers members reciprocal use of approximately 380 participating
recreational facilities. Members of these participating facilities pay a fee to
RPI that entitles them to use any of the participating facilities, subject to
the limitation that they cannot use an RPI facility located within 125 miles of
their home facility. As of June 30, 1997, there were approximately 89,000 RPI
members, of which approximately 67,000 were members of campgrounds that are not
affiliated with the Company.
CAMPGROUND MANAGEMENT. During fiscal 1994, UST Wilderness Management
Corporation ("Wilderness Management"), a wholly owned subsidiary of the Company,
began to manage public campgrounds for the US Forest Service. As of June 30,
1997, Wilderness Management had entered into management contracts covering 48
campgrounds containing a total of 1,700 campsites. Pursuant to these contracts,
Wilderness Management incurs the expenses of operating the campgrounds and
receives the related revenues, net of a fee paid to the US Forest Service.
These management contracts typically have terms ranging from one to five years.
RESORT OPERATIONS
Over the past several years, NACO has been selling the assets it owns at eight
resorts located in seven states. NACO currently owns and operates the resort
amenities at one of these locations. NACO's other interest in the resorts
presently consists of approximately 580 residential lots and other miscellaneous
real estate that NACO intends to sell over the next several years.
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SEGMENT FINANCIAL INFORMATION
Segment financial information for the campgrounds and resorts is set forth in
Note 16 to the consolidated financial statements included in Item 8.
ASSET SALES
During fiscal 1997, 1996, and 1995, the Company sold certain of its real estate
assets and received proceeds of $4.7 million, $7.2 million, and $1.1 million,
respectively. During this three-year period, the Company sold the timeshare
operations at the resorts, the country club and golf operations at certain
resorts, and various other properties at the resorts. In addition, the Company
sold or otherwise disposed of several campgrounds and sold excess acreage
associated with certain campgrounds. Subsequent to year-end, the Company sold
additional campgrounds for which it received proceeds of $4.5 million. Over the
next several years, the Company intends to dispose of its remaining assets at
the resorts, any campgrounds that are closed as the Company downsizes, and other
undeveloped, excess acreage associated with the campgrounds. The sale of
campgrounds requires addressing the rights of members associated with such
campgrounds. The impact of these rights is uncertain and could adversely affect
the availability or timing of sale opportunities or the ability of the Company
to realize recoveries from asset sales. In addition, although the Company has
successfully sold assets during the past three years, no assurance exists that
the Company will be able to locate a buyer for any of the remaining assets or
that sales on acceptable terms can be effected.
Under the Credit Agreement (as amended, the "Credit Agreement"), between the
Company and Foothill Capital Corporation ("Foothill"), all proceeds from asset
sales must be paid to Foothill and applied to reduce outstanding borrowings
under the Credit Agreement.
CONTRACTS RECEIVABLE
Prior to April 1992, the Company sold substantially all of its campground
memberships and resort interests on the installment basis, creating a portfolio
of contracts receivable. This portfolio has declined significantly over the
past five fiscal years as the Company has collected the outstanding contracts
receivable. Since April 1992, the Company has sold only a limited number of
campground memberships and resort interests on an installment basis and, as a
result, the portfolio of contracts receivable will continue to decline.
Interest accrues on the unpaid balance of the contracts receivable at fixed
rates, which vary depending upon the size of the down payment and the length of
the contract. The contracts receivable bear interest at rates ranging from 9.5%
to 16%, with a weighted average stated interest rate of 13% as of June 30, 1997.
Monthly installment payments range from $41 to $170 over the term of the
contracts receivable, which can be up to ten years. The terms of most newer
contracts receivable, however, have averaged two years or less. At June 30,
1997, approximately 96% of the campground members and purchasers of resort
interests had paid for their membership or resort interest in full, and the
remaining outstanding contracts receivable had an average remaining term of
approximately two years.
As of June 30, 1997, the Company owned contracts receivable with an aggregate
principal balance of $12.4 million, consisting of $7.9 million of contracts
receivable associated with the Thousand Trails campgrounds, $3.3 million of
contracts receivable associated with the NACO campgrounds, $1.1 million of
contracts receivable associated with the resorts, and $113,000 of contracts
receivable associated with SoPac Resort Properties, Inc., a former affiliate.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Contracts Receivable " in Item 7.
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Under the Credit Agreement between the Company and Foothill, all collections on
the contracts receivable, including principal, interest, and fees, must be paid
to Foothill and applied to reduce outstanding borrowings under the Credit
Agreement.
SEASONALITY
The Company experiences its most significant demand for working capital between
May and October of each year, which period coincides with the highest level of
operating expenses. During the summer, operating expenses increase
significantly because the peak usage of the campgrounds requires seasonal
workers and increased maintenance and operating expenses. In addition, the
majority of the Company's sales and marketing efforts occur during the spring
and summer. On the other hand, most dues collection activity for campground
members occurs during the months of November through April, which is a period of
relatively lower expenses.
GOVERNMENT REGULATION
To operate its campgrounds, the Company must comply with major discretionary
permits or approvals issued by local governments under local zoning ordinances,
master plans for shoreline use, and state environmental policy statutes. The
Company has complied in all material respects with the discretionary permits and
approvals regulating its existing operations.
In addition, to construct improvements at its campgrounds, the Company has
usually been required to obtain permits that are typically non-discretionary and
routinely issued such as building and sanitary sewage permits. The Company has
generally resolved problems concerning the issuance of such permits through
design, operating, or engineering solutions negotiated with local government
officials.
The Company's campgrounds are also subject to a variety of federal and state
environmental statutes and regulations. Certain environmental issues may exist
at some of the campgrounds concerning underground storage tanks, sewage
treatment plants and septic systems, and waste disposal. Management believes
that these issues will not have a material adverse impact on the Company's
operations or financial position, as the Company has conducted environmental
testing to identify and correct a number of these problems, and has removed
substantially all of the underground storage tanks. The Company does not
possess insurance or indemnification agreements with respect to any
environmental liability that it may incur.
Most of the states in which the Company does business have laws regulating
campground membership, timeshare, and lot sales. These laws generally require
comprehensive disclosure to prospective purchasers, and give purchasers the
right to rescind their purchase for three-to-five days after the date of sale.
Some states have laws requiring the Company to register with a state agency and
obtain a permit to market.
In some states, including California, Oregon, and Washington, laws place
limitations on the ability of the owner of a campground to close the campground
unless the members at the campground receive access to a comparable campground.
In these states, members from campgrounds that have been closed by the Company
were reassigned to other campgrounds located in the same general area as the
closed campgrounds. The impact of the rights of members under these laws is
uncertain and could adversely affect the implementation of, and the benefits or
recoveries that may be available from, additional downsizing of the Company's
business.
The government authorities regulating the Company's activities have broad
discretionary power to enforce and interpret the statutes and regulations that
they administer, including the power to enjoin or suspend sales activities,
require or restrict construction of additional
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facilities, and revoke licenses and permits relating to business activities. The
Company monitors its sales presentations and debt collection activities to
control practices that might violate consumer protection laws and regulations or
give rise to consumer complaints. The Company believes that it has conducted its
sales programs and debt collection activities in substantial compliance with all
applicable federal and state laws and regulations.
Certain consumer rights and defenses that vary from jurisdiction to jurisdiction
may affect the Company's portfolio of contracts receivable. Examples of such
laws include state and federal consumer credit and truth-in-lending laws
requiring the disclosure of finance charges, and usury and retail installment
sales laws regulating permissible finance charges. The Company believes that it
has complied in all material respects with these laws.
In certain states, as a result of government regulations and provisions in
certain of the membership agreements, the Company is prohibited from selling
more than 10 memberships per campsite. At the present time, these restrictions
do not preclude the Company from selling memberships in any state. However,
these restrictions may limit the Company's ability to downsize by closing
campgrounds and reassigning members to other campgrounds.
In a decision to which the Company was not a party, the Mississippi Supreme
Court ruled that the Mississippi Timeshare Rules apply to the sale of campground
memberships in Mississippi. The Company has discussed the ramifications of this
decision with the Mississippi state agency responsible for the administration of
these rules. The Company does not believe that the agency will require the
Company to rescind any sales of campground memberships because of the decision;
however, the agency has the power to do so. The Company has sold $15.9 million
of campground memberships in Mississippi.
COMPETITION
There are approximately 46,000 campgrounds in the United States today, of which
approximately 500 are membership campgrounds. The balance of the campgrounds
are generally open to the public and usually charge fees based on the length of
stay. The 500 membership campgrounds have approximately 400,000 members, of
which 120,000 are the Company's members.
Several companies compete directly with the Company's campground operations.
For example, Resorts USA, Inc., which does business as Outdoor World, sells
memberships to its system of 14 campgrounds, Travel America, Inc. (formerly All
Seasons Resorts, Inc. and Thousand Adventures, Inc.) sells memberships to its
system of 38 campgrounds, and Leisure Time Resorts, Inc. sells memberships to
its system of nine campgrounds. Other companies or individuals operate the
balance of the membership campgrounds. The Company's direct competitors
generally offer their members reciprocal use of other campgrounds through
affiliations. Over the past several years, many of the Company's direct
competitors have experienced financial difficulties, and several competitors
have filed for bankruptcy.
The vast majority of the campgrounds in the United States are operated for the
public by Federal, state, and local governments. Although these public
campgrounds are used by most campers, in recent years, many of these public
campgrounds have experienced overcrowding and increased user fees. The
Company's campgrounds also compete indirectly with timeshare resorts and other
types of recreational land developments that do not involve camping.
The Company's campground operations compete on the basis of location and the
quality of facilities and services offered at the campgrounds. The Company
believes it has a significant opportunity to compete for campers interested in
higher quality facilities and a
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higher level of service than is typically available at public campgrounds or
competing private campgrounds (see "Marketing").
The operations of Wilderness Management compete directly with approximately five
other companies in bidding for contracts to manage public campgrounds for the US
Forest Service. The Company currently has contracts to manage 48 campgrounds
for the US Forest Service out of a total of 760 such campgrounds operated by
private companies.
Coast to Coast Resorts, RPI's primary competitor and the largest reciprocal use
system, has approximately 350 affiliated campgrounds and in excess of 250,000
members. Both RPI and Coast to Coast Resorts operate vacation clubs offering
travel and lodging discounts and services to their members.
EMPLOYEES
As of June 30, 1997, the Company had 1,289 full-time equivalent employees. Due
to the seasonal nature of the Company's business, the Company has a greater
number of employees during the summer months. The Company does not have any
collective bargaining agreements with its employees and considers its relations
with employees to be satisfactory.
ITEM 2. PROPERTIES
OFFICES. The Company leases office space at 2711 LBJ Freeway, Suite 200,
Dallas, Texas 75234. NACO leases office space at 2325 Highway 90, Gautier,
Mississippi 39553. RPI leases office space at 3711 Long Beach Blvd., Suite
110, Long Beach, California 90807.
CAMPGROUNDS. The Company currently operates 55 campgrounds in 17 states and
British Columbia, Canada. The locations of these campgrounds are shown on the
map on page 13. The amenities presently available at each campground are
indicated on the chart on page 14. The Company owns 54 of these campgrounds and
leases the LaConner campground and a portion of the Lake Tawakoni campground.
The Company has sold undivided interests to members at six of the campgrounds.
Of the 55 campgrounds, 26 operate all year, 22 operate all year, but provide
only limited services during the off-season, and seven operate seasonally only.
ENCUMBRANCES. The Company has granted liens on substantially all of its assets
to secure its obligations under the Credit Agreement between the Company and
Foothill. Under the Credit Agreement, Foothill has agreed to make revolving
loans to the Company in the maximum amount of $12.2 million as of September 19,
1997. Total outstanding borrowings under the Credit Agreement were $8.8 million
as of such date. All of the Company's subsidiaries (other than an immaterial
utility subsidiary) (collectively, the "Subsidiary Guarantors") have fully and
unconditionally guaranteed, on a joint and several basis, the Company's
obligations under the Credit Agreement, and subject to certain limitations, have
granted liens on substantially all of their assets to secure their guarantees.
NACO has also granted liens, subject to certain limitations, on substantially
all of its assets to secure the repayment of its indebtedness to the Company,
which totaled $28.2 million at June 30, 1997. These security interests were
subordinated to the security interests securing the guarantees of the Credit
Agreement. The indebtedness that these security interests secure, however, is
pledged by the Company to Foothill to secure its obligations under the Credit
Agreement, and these security interests have been collaterally assigned to
Foothill. Furthermore, the subsidiaries of NACO each guaranteed their parent's
indebtedness to the
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Company and granted security interests in substantially all of their assets to
secure such guarantees.
The Subsidiary Guarantors have also fully and unconditionally guaranteed, on a
joint and several basis, the Company's obligations under the Senior Subordinated
Pay-In-Kind Notes Due 2003 (the "PIK Notes") that were issued on July 17, 1996,
as well as the PIK Notes issued in lieu of cash payment of interest. The PIK
Notes are presently unsecured. However, upon payment in full of all of the
Company's obligations under the Credit Agreement with Foothill, the PIK Notes
will be secured by the same assets as then secure the Credit Agreement other
than cash and cash equivalents and other assets required to secure any
refinancing or replacement of the borrowings provided by the Credit Agreement
for working capital purposes. This replacement credit facility may be secured by
substantially all of the assets of the Company and its subsidiaries other than
certain excluded assets, provided it does not exceed $10.0 million in principal
amount.
One of the Thousand Trails campgrounds and two of the NACO campgrounds are also
subject to mortgages in favor of the party from whom the property was purchased.
Some states, including California, Oregon, and Washington, have nondisturbance
statutes that place limitations on the ability of the owner of a campground to
sell or close, or a lienholder to foreclose a lien on, a campground. In certain
states, these statutes permit sale, closure, or foreclosure if the holders of
related memberships receive access to a comparable campground. The mortgages on
the Company's campgrounds that were granted to secure the Company's obligations
under the Credit Agreement, and any mortgages on the Company's campgrounds that
are granted in the future to secure the Company's obligations under the PIK
Notes, contain or will contain similar nondisturbance provisions. As a
consequence, although the Company may be able to sell or close some of its
campgrounds as it has done in the past, a sale or closure of significant numbers
of campgrounds would likely be limited by state law or the membership contracts
themselves, and foreclosure of the campground liens in such significant numbers
would also likely be limited. The impact of the rights of members under these
laws and nondisturbance provisions is uncertain and could adversely affect the
availability or timing of sale opportunities or the ability of the Company or
lienholder to realize recoveries from asset sales.
OTHER. The Company owns approximately 580 residential lots and other
miscellaneous real estate at eight resorts located in seven states, and various
other parcels of undeveloped real estate, that it intends to sell over time.
Page 12
<PAGE>
THOUSAND TRAILS, INC.
CAMPGROUNDS
[A MAP OF THE UNITED STATES OF AMERICA WITH PLOT POINTS DEPICTING
THOUSAND TRAILS AND NACO CAMPGROUND LOCATIONS APPEARS HERE]
THOUSAND TRAILS CAMPGROUNDS NACO CAMPGROUNDS
--------------------------- ----------------
BRITISH COLUMBIA TEXAS WASHINGTON INDIANA
- ---------------- ----- ---------- -------
Cultus Lake Medina Lake Birch Bay Indian Lakes
Galveston Island Little Diamond
WASHINGTON Lake Conroe Rainier VIRGINIA
- ---------- Colorado River Long Beach --------
LaConner Lake Whitney Virginia Landing
Mount Vernon Lake Texoma OREGON
Chehalis Lake Tawakoni ------ NEW JERSEY
Leavenworth South Jetty ----------
MICHIGAN Chestnut Lakes
OREGON -------- CALIFORNIA
- ------ St. Clair ----------
Bend Lake Minden
Pacific City INDIANA Russian River
------- Snowflower
CALIFORNIA Horseshoe Lakes Turtle Beach
- ---------- Yosemite
Donner Pass OHIO Windsor
Lake of the Springs ---- Rancho Oso
Morgan Hill Wilmington Wilderness Lakes
San Benito Kenissee Lake
Soledad Canyon TEXAS
Idyllwild PENNSYLVANIA ------
Pio Pico ------------ Bay Landing
Oakzanita Springs Hershey
Palm Springs MISSISSIPPI
VIRGINIA -----------
NEVADA -------- Indian Point
- ------ Lynchburg
Las Vegas Chesapeake Bay SOUTH CAROLINA
--------------
ARIZONA NORTH CAROLINA Carolina Landing
- ------- --------------
Verde Valley Forest Lake TENNESSEE
---------
FLORIDA Natchez Trace
- ------- Cherokee Landing
Orlando
Page 13
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CAMPGROUND FAMILY TRAILERS
FACILITIES AND ACREAGE RV TENT ADULT CENTER/ POOL TENNIS ATHLETIC VEHICLE RESTROOMS (SEASONAL
AMENITIES SITES SITES LODGES PAVILION COURT COURT STORAGE SHOWERS AVAILABILITY
- ------------------------------------------------------------------------------------------------------------------------------------
Thousand Trails
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bend 93 300 10 1 1 2 2 1 1 6 17
- ------------------------------------------------------------------------------------------------------------------------------------
Chehalis 306 278 1 1 2 2 2 1 8 9
- ------------------------------------------------------------------------------------------------------------------------------------
Chesapeake Bay 280 373 19 1 1 2 1 1 1 4 50
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado River 217 128 1 1 1 1 1 1 2 10
- ------------------------------------------------------------------------------------------------------------------------------------
Cultus Lake 14 216 12 1 1 1 2 2 1 4 5
- ------------------------------------------------------------------------------------------------------------------------------------
Donner Pass 360 414 6 1 2 2 1 8 18
- ------------------------------------------------------------------------------------------------------------------------------------
Forest Lake 205 294 12 1 1 2 2 1 1 3 14
- ------------------------------------------------------------------------------------------------------------------------------------
Galveston Island 85 122 1 1 1 1 1 10
- ------------------------------------------------------------------------------------------------------------------------------------
Hershey 196 310 1 1 1 1 1 1 3 38
- ------------------------------------------------------------------------------------------------------------------------------------
Horseshoe Lakes 202 118 1 1 2 1 1 2 10
- ------------------------------------------------------------------------------------------------------------------------------------
Idyllwild 181 287 38 1 1 1 3 1 6 35
- ------------------------------------------------------------------------------------------------------------------------------------
Kenisee Lake 159 110 10 1 1 1 1 2 8
- ------------------------------------------------------------------------------------------------------------------------------------
LaConner 106 313 1 1 1 1 6 18
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Conroe 130 285 1 1 1 2 2 1 4 25
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Of The Springs 176 541 12 1 1 1 1 2 1 12 25
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Tawakoni 300 318 1 1 1 2 1 1 5 30
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Texoma 198 319 2 1 1 2 1 1 6 34
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Whitney 253 244 3 1 1 2 1 1 1 5 22
- ------------------------------------------------------------------------------------------------------------------------------------
Las Vegas 11 217 2 1 1 2 1 3 10
- ------------------------------------------------------------------------------------------------------------------------------------
Leavenworth 279 275 1 1 2 4 2 1 8 7
- ------------------------------------------------------------------------------------------------------------------------------------
Lynchburg 150 223 1 1 1 2 6 1 5 20
- ------------------------------------------------------------------------------------------------------------------------------------
Medina Lake 260 387 1 1 1 1 1 4 34
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Hill 62 317 28 1 1 1 1 1 1 7 27
- ------------------------------------------------------------------------------------------------------------------------------------
Mount Vernon 185 248 3 1 1 1 1 1 6 4
- ------------------------------------------------------------------------------------------------------------------------------------
Oakzanita Springs 148 135 30 1 1 1 1 1 2 15
- ------------------------------------------------------------------------------------------------------------------------------------
Orlando 269 734 1 1 2 2 1 7 30
- ------------------------------------------------------------------------------------------------------------------------------------
Pacific City 105 305 1 1 1 1 2 1 5 16
- ------------------------------------------------------------------------------------------------------------------------------------
Palm Springs 28 392 1 1 1 1 1 4 24
- ------------------------------------------------------------------------------------------------------------------------------------
Pio Pico 182 500 12 1 1 2 5 3 8 20
- ------------------------------------------------------------------------------------------------------------------------------------
San Benito 200 517 51 1 1 2 1 1 7 32
- ------------------------------------------------------------------------------------------------------------------------------------
Soledad Canyon 230 809 9 1 1 2 2 3 1 14 45
- ------------------------------------------------------------------------------------------------------------------------------------
Saint Clair 110 96 8 1 1 1 1 3 13
- ------------------------------------------------------------------------------------------------------------------------------------
Verde Valley 300 333 6 2 1 1 2 3 12
- ------------------------------------------------------------------------------------------------------------------------------------
Wilmington 109 125 1 1 1 1 2 1 2 10
- ------------------------------------------------------------------------------------------------------------------------------------
NACO
- ------------------------------------------------------------------------------------------------------------------------------------
Bay Landing 305 257 1 1 1 1 2 24
- ------------------------------------------------------------------------------------------------------------------------------------
Birch Bay 30 215 8 1 1 1 1 3 8
- ------------------------------------------------------------------------------------------------------------------------------------
Carolina Landing 119 193 1 2 2 1 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
Cherokee Landing 55 341 1 1 1 1 1 3
- ------------------------------------------------------------------------------------------------------------------------------------
Chestnut Lake 31 179 1 1 1 1 1 23
- ------------------------------------------------------------------------------------------------------------------------------------
Indian Lakes 545 1088 50 2 1 3 2 2 1 5 12
- ------------------------------------------------------------------------------------------------------------------------------------
Indian Point 11 157 1 2 1 2 3
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Minden 97 162 161 1 1 1 1 3 13
- ------------------------------------------------------------------------------------------------------------------------------------
Little Diamond 200 541 100 1 4 1 1 1 5 4
- ------------------------------------------------------------------------------------------------------------------------------------
Long Beach 17 120 20 1 1 1 2 6
- ------------------------------------------------------------------------------------------------------------------------------------
Natchez Trace 623 561 1 2 1 1 5
- ------------------------------------------------------------------------------------------------------------------------------------
Rainier 107 609 300 1 1 1 1 10 9
- ------------------------------------------------------------------------------------------------------------------------------------
Rancho Oso 310 219 50 1 1 1 1 1 3 25
- ------------------------------------------------------------------------------------------------------------------------------------
Russian River 42 125 30 1 4 7
- ------------------------------------------------------------------------------------------------------------------------------------
Snowflower 720 248 10 1 1 11 7
- ------------------------------------------------------------------------------------------------------------------------------------
South Jetty 60 162 10 1 1 1 1 5 18
- ------------------------------------------------------------------------------------------------------------------------------------
Turtle Beach 39 72 120 1 2 6
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia Landing 339 262 1 1 1 3 10
- ------------------------------------------------------------------------------------------------------------------------------------
Wilderness Lakes 74 523 5 1 1 2 1 1 1 8 34
- ------------------------------------------------------------------------------------------------------------------------------------
Windsor 17 95 25 1 1 1 1 8
- ------------------------------------------------------------------------------------------------------------------------------------
Yosemite Lakes 387 379 131 1 1 1 8 33
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CAMPGROUND CHILDREN'S BOAT
FACILITY AND HORSESHOE PLAY TRADING MINIATURE SHUFFLE LAUNCH/ LAUNDRY CABINS/
AMENITIES PITS AREA POST GOLF BOARD SPA VOLLEYBALL MARINA FACILITY LODGING
- ------------------------------------------------------------------------------------------------------------------------------------
Thousand Trails
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bend 4 2 1 1 1 1 1 7
- ------------------------------------------------------------------------------------------------------------------------------------
Chehalis 7 1 1 1 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Chesapeake Bay 6 3 1 1 2 1 1 1 1 18
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado River 4 2 1 1 1 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Cultus Lake 2 2 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Donner Pass 6 2 1 8 1 1 1 6
- ------------------------------------------------------------------------------------------------------------------------------------
Forest Lake 4 2 1 1 2 2 1 1 18
- ------------------------------------------------------------------------------------------------------------------------------------
Galveston Island 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Hershey 4 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Horseshoe Lakes 4 10 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Idyllwild 4 3 1 1 2 1 3 4
- ------------------------------------------------------------------------------------------------------------------------------------
Kenisee Lake 2 2 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
LaConner 6 3 1 1 3 1 1 1 1 17
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Conroe 8 2 1 1 2 1 2 1 2
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Of The Springs 8 3 1 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Tawakoni 8 2 1 1 8 2 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Texoma 6 2 1 1 2 2 1 1 1 18
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Whitney 8 2 1 1 2 1 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
Las Vegas 2 1 1 1 1 3
- ------------------------------------------------------------------------------------------------------------------------------------
Leavenworth 5 2 1 1 4 1 2 8
- ------------------------------------------------------------------------------------------------------------------------------------
Lynchburg 7 2 1 1 2 1 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
Medina Lake 4 3 1 1 4 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Hill 4 3 1 1 4 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Mount Vernon 4 2 1 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Oakzanita Springs 4 3 1 1 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Orlando 6 2 1 1 16 1 1 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
Pacific City 12 2 1 1 1 1 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
Palm Springs 4 1 2 1 3
- ------------------------------------------------------------------------------------------------------------------------------------
Pio Pico 12 3 1 1 8 2 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
San Benito 4 4 1 1 6 2 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
Soledad Canyon 13 7 1 1 8 1 4 1
- ------------------------------------------------------------------------------------------------------------------------------------
Saint Clair 2 2 1 1 1 1 1 2
- ------------------------------------------------------------------------------------------------------------------------------------
Verde Valley 8 3 1 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Wilmington 2 2 1 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
NACO
- ------------------------------------------------------------------------------------------------------------------------------------
Bay Landing 6 1 1 1 4 1 1 1 34
- ------------------------------------------------------------------------------------------------------------------------------------
Birch Bay 2 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Carolina Landing 4 1 1 1 1 1 18
- ------------------------------------------------------------------------------------------------------------------------------------
Cherokee Landing 3 1 1 1 2 1 1 30
- ------------------------------------------------------------------------------------------------------------------------------------
Chestnut Lake 2 1 1 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Indian Lakes 8 3 1 1 2 3 1 3 54
- ------------------------------------------------------------------------------------------------------------------------------------
Indian Point 1 1 1 1 1 1 1 16
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Minden 2 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Little Diamond 3 3 1 2 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Long Beach 2 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Natchez Trace 1 4 1 1 1 1 1 58
- ------------------------------------------------------------------------------------------------------------------------------------
Rainier 8 2 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Rancho Oso 4 1 1 1 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
Russian River 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Snowflower 3 1 2 1 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
South Jetty 3 1 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Turtle Beach 2 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia Landing 2 2 1 1 2 1 1 1 19
- ------------------------------------------------------------------------------------------------------------------------------------
Wilderness Lakes 6 2 1 1 3 3 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
Windsor 3 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Yosemite Lakes 4 1 1 1 1 1 2 32
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 14
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Johnnie Lacy v. Thousands Trails, Inc., Civil Action No C-96 004411, filed
- -------------------------------------
February 1, 1996, in the United States District Court for the Northern District
of California. In this action, the plaintiffs allege that the Company's
campgrounds in California fail to comply with the Americans with Disabilities
Act and related California statutes (collectively, the "ADA"). On July 23,
1997, the Court certified a class of plaintiffs and tentatively approved a
settlement agreement between the Company and representatives of the class. The
settlement agreement requires the Company to bring its campgrounds in California
into compliance with the ADA by spending $75,000 on such campgrounds every 18
months until they comply fully with the ADA. The settlement agreement also
requires the Company to pay $10,500 to the individual representative of the
class of plaintiffs, $10,000 to a disability rights foundation, and $39,500 to
the plaintiffs' attorneys. The settlement agreement is not binding on the
parties until it is approved by the Court following a "fairness" hearing, which
is tentatively scheduled to be held on November 4, 1997. Assuming it is
approved by the Court, management does not believe that the settlement agreement
will have a material adverse impact on the Company's operations or financial
position.
The Company is involved in certain claims and litigation arising in the normal
course of business. Management believes that the eventual outcome of these
claims and litigation will not have a material adverse impact on the Company's
operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
Page 15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
REINCORPORATION MERGER. On November 20, 1996, the Company, then known as
USTrails, reincorporated in the state of Delaware and changed its name to
Thousand Trails, Inc. The reincorporation was effected through a merger (the
"Merger") with a newly formed wholly owned subsidiary of USTrails that was
approved by USTrails' stockholders at their annual meeting. In the Merger, each
share of USTrails common stock, par value $.01 per share ("USTrails Common
Stock"), outstanding prior to the Merger was converted into one share of the
Company's common stock, par value $.01 per share ("Common Stock"), and each
outstanding stock option, warrant, or other right to purchase or receive
USTrails Common Stock was converted into a similar stock option, warrant, or
other right to acquire Common Stock. The principal purposes of the Merger were
to implement the transfer restrictions described below and to change the
Company's state of incorporation to Delaware.
MARKET AND TRADING. From 1992 through November 20, 1996, the USTrails Common
Stock was publicly traded in the over-the-counter market under the symbol USTQ.
Since the Merger on November 20, 1996, the Common Stock has been publicly traded
in the over-the-counter market under the symbol TRLS. As the Common Stock does
not trade every day and the trading volume is often small, the Common Stock may
not be deemed to be traded in an established public trading market. The
following chart and table set forth for the fiscal periods indicated, the high
and low bid quotations as quoted through the NASD OTC Bulletin Board and the
National Quotation Bureau's Pink Sheets. Such quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
[A CHART WITH PLOT POINTS DEPICTING THE HIGH AND LOW BID QUOTATIONS
FOR EACH OF THE FOUR FISCAL QUARTERS OF 1996 AND 1997 APPEARS HERE]
<TABLE>
<CAPTION>
High Bid Low Bid
-------- -------
<S> <C> <C>
1996: First Quarter 5/8 1/4
Second Quarter 5/8 1/4
Third Quarter 3/4 1/4
Fourth Quarter 5/8 1/4
1997: First Quarter 1 1/8 1/2
Second Quarter 1 5/16 15/16
Third Quarter 1 31/32 1 5/16
Fourth Quarter 2 7/16 1 3/4
</TABLE>
Page 16
<PAGE>
As of September 19, 1997, the Company's Common Stock was held by 118 holders of
record. Moreover, security position listings available to the Company listed
approximately 700 beneficial holders of Common Stock.
ABSENCE OF DIVIDENDS. Since inception, the Company has not paid any dividends.
The Credit Agreement with Foothill prohibits the payment of any cash dividends
on the Common Stock, without the consent of Foothill, until the borrowings under
the Credit Agreement are repaid. In addition, the Indenture for the PIK Notes
prohibits the payment of any cash dividends on the Common Stock until the PIK
Notes are repaid.
TRANSFER RESTRICTIONS. The Company's Common Stock is subject to transfer
restrictions designed to avoid an "ownership change" within the meaning of
Section 382 of the Internal Revenue Code of 1986, as amended ("the Code").
These transfer restrictions are designed to help assure that the Company's
substantial net operating loss carryforwards ("NOLs"), which are estimated to
total $47.9 million at June 30, 1997, will continue to be available to offset
future taxable income. Section 382 of the Code limits the use of NOLs and other
tax benefits by a company that has undergone an ownership change.
Such restrictions are set forth in Article IX of the Company's Restated
Certificate of Incorporation. Article IX generally restricts, until June 30,
2011 (or earlier in certain events), direct or indirect transfer of Common Stock
that would without the approval of the Board of Directors of the Company (i)
increase to more than 4.75% the percentage ownership of Common Stock of any
person who at any time during the preceding three-year period did not own more
than 4.75% of the Common Stock, (ii) increase the percentage of Common Stock
owned by any person that during the preceding three-year period owned more than
4.75% of the Common Stock, or by any group of persons treated as a "5 Percent
Shareholder" (as defined in the Code but substituting "4.75%" for "5 Percent"),
or (iii) cause an "ownership change" of the Company. Article IX provides that
any direct or indirect transfer of Common Stock in violation of Article IX is
void ab initio as to the purported transferee, and the purported transferee will
not be recognized as the owner of shares acquired in violation of Article IX for
any purpose, including for purposes of voting and receiving dividends or other
distributions in respect of Common Stock. Any shares purportedly acquired in
violation of Article IX will be transferred to a trustee who will be required to
sell them.
Generally, the transfer restrictions contain several exceptions. For example,
the restrictions will not prevent a transfer if, in the determination of the
Board of Directors of the Company, the transfer does not result in any greater
aggregate increase in Common Stock ownership by 5% shareholders. Also, the
restrictions will not prevent a transfer if the purported transferee obtains the
approval of the Board of Directors of the Company, which approval shall be
granted or withheld in the sole and absolute discretion of the Board of
Directors, after considering all facts and circumstances including, but not
limited to, future events deemed by the Board of Directors to be relevant.
Finally, the transfer restrictions only apply with respect to the amount of
Common Stock purportedly transferred in excess of the threshold established in
the transfer restrictions.
These transfer restrictions (i) may have the effect of impeding the attempt of a
person or entity to acquire a significant or controlling interest in the
Company, (ii) may render it more difficult to effect a merger or similar
transaction even if such transaction is favored by a majority of the
stockholders, and (iii) may serve to make a change in management more difficult.
The purpose of the transfer restrictions is to preserve tax benefits, however,
not to insulate the Company or management from change. The Company believes the
tax benefits of the transfer restrictions outweigh any anti-takeover effect they
may have.
The application of these transfer restrictions to any particular stockholder
will depend on the stockholder's ownership of Common Stock, determined after
applying numerous
Page 17
<PAGE>
attribution rules prescribed by the Code and related regulations, and will also
depend on the history of trading of the Common Stock. As a result, stockholders
are urged to consult their tax advisors with respect to any planned purchase or
sale of Common Stock.
RECENT SALES OF UNREGISTERED SECURITIES. On July 17, 1996, the Company
consummated a restructuring (the "Restructuring") of its 12% Secured Notes due
1998 (the "Secured Notes") whereby all of the $101,458,000 principal amount of
Secured Notes outstanding were retired. As part of the Restructuring, the
Company issued $40,218,000 principal amount of PIK Notes and 3,680,550 shares of
Common Stock, and paid $32,716,000 in cash, plus accrued interest on the Secured
Notes, in exchange for $81,790,000 in principal amount of Secured Notes. The PIK
Notes and Common Stock were acquired by exchanging Secured Noteholders, all of
whom confirmed their status as "accredited investors," in an exchange that met
the requirements of Rule 506 under Regulation D under the Securities Act of
1933, as amended. The PIK Notes were guaranteed by the Subsidiary Guarantors. On
January 15, 1997, the Company issued to the holders of the PIK Notes an
additional $2.4 million principal amount of PIK Notes as interest.
At the time of the Restructuring, the Company agreed to file registration
statements with respect to the resale by exchanging Secured Noteholders of the
Common Stock and PIK Notes received by them in the Restructuring. The Common
Stock was registered in October 1996 in connection with the Company's
reincorporation merger. The resale of the PIK Notes is covered by a
registration statement in which a majority of the exchanging Secured Noteholders
are participating.
Page 18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICAL DATA)
The following historical Selected Financial Data has been restated for all
periods presented because the Company has changed its accounting method to
recognize revenue from the sale of campground memberships that do not convey a
deeded interest in real estate on a straight-line basis over the expected life
of the memberships sold (see Note 1 to the consolidated financial statements
included in Item 8).
<TABLE>
<CAPTION>
For the year ended June 30,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- --------
(Restated) (Restated) (Restated) (Restated)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue $ 78,413 $ 91,022 $ 91,392 $101,697 $ 97,620
Campground membership dues 39,945 39,924 41,175 43,200 39,555
Other campground/resort revenues 17,906 22,288 23,506 23,524 26,856
Membership and resort interest sales 3,477 3,013 4,074 4,750 3,858
Interest income 3,726 6,756 9,935 12,202 16,345
Interest expense 9,084 17,693 20,960 21,446 22,249
Income (loss) from operations before
taxes, minority interest and
Extraordinary item 7,169 (240) (11,573) (5,338) (10,124)
Extraordinary gain on debt repurchases - 1,390 - 671 2,507
Net income (loss) 6,799 1,109 (11,828) (5,417) (7,925)
Dividends paid (1) - - - - -
Earnings (loss) per share data (2):
Income (loss) before extraordinary item .89 (.08) (3.19) (1.64) (2.82)
Extraordinary item - .38 - .18 .68
Net income (loss) .89 .30 (3.19) (1.46) (2.14)
Weighted average shares 7,658 3,703 3,703 3,703 3,702
BALANCE SHEET DATA:
(AT END OF YEAR)
Cash and cash equivalents (3) 1,343 37,403 50,596 50,596 44,359
Receivables, net 7,517 13,219 18,698 32,585 57,731
Campground properties 42,764 46,309 51,960 49,761 48,359
Resort properties 1,530 2,902 5,736 6,612 11,252
Total assets 63,302 111,631 137,517 149,546 171,595
PIK Notes, including deferred gain 29,393 - - - -
Borrowings under Credit Agreement 14,097 - - - -
Secured Notes, net of discount - 94,350 115,490 110,854 115,389
Other notes payable 604 1,102 4,753 5,503 7,558
Stockholders' equity (deficit) (22,168) (31,952) (33,054) (21,240) (15,750)
STATISTICAL DATA:
(AT END OF YEAR)
Number of operating campgrounds 55 58 60 62 65
Number of campsites 18,400 19,300 19,400 20,000 20,400
Number of members 120,000 128,000 136,000 149,000 157,000
Average annual dues per member $ 344 $ 335 $ 329 $ 315 $ 290
Average cost per camper night $18.13 $18.03 $19.69 $ 18.36 $ 17.29
</TABLE>
(continued)
Page 19
<PAGE>
(continued)
FOOTNOTES
(1) During the periods presented, the Company has been prohibited from paying
any cash dividends by the indentures governing its Secured Notes and PIK
Notes and the Credit Agreement with Foothill.
(2) As part of a restructuring of the Company, on July 17, 1996, the Company
issued 3,680,550 additional shares of Common Stock, which represent
approximately 50% of the shares of Common stock currently outstanding.
(3) During the periods presented, the Company has generally been required to
deposit its cash, other than that required for operations, in accounts that
were pledged for the benefit of the holders of the Secured Notes or, after
July 17, 1996, for the benefit of Foothill.
Page 20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In this Management's Discussion and Analysis of Financial Condition and Results
of Operations, and elsewhere in this report, the Company makes certain
statements as to its expected financial condition, results of operations, cash
flows, and business strategies and plans for periods after June 30, 1997. All
of these statements are forward-looking statements made pursuant to the safe
harbor provisions of Section 21 (E) of the Securities Exchange Act of 1934, as
amended. These statements are not historical and involve risks and
uncertainties. The Company's actual financial condition, results of operations,
cash flows, and business strategies and plans for future periods may differ
materially due to several factors, including but not limited to the Company's
continued ability to control costs and implement its sales and marketing plan,
the actual rate of decline in the campground membership base, the actual use of
the campgrounds by members and guests, the effects on members and guests of the
Company's efforts to downsize its business, the Company's success in collecting
its contracts receivable and selling assets, and the other factors affecting the
Company's operations described in this report.
CHANGE IN ACCOUNTING METHOD
Subsequent to year-end, the Staff of the Securities and Exchange Commission (the
"SEC") informed the Company that the SEC will now require the Company to
recognize revenue from the sale of campground memberships that do not convey a
deeded interest in real estate on a straight-line basis over the expected life
of the memberships sold. This accounting method differs from the revenue
recognition method historically used by the Company for over 20 years.
Accordingly, to show comparable results for the periods presented, the
consolidated financial statements included in Item 8 have been restated from
those originally reported to reflect this change in accounting method (see Note
1 to the consolidated financial statements included in Item 8). The deferral of
historical sales revenues and expenses resulting from this change in accounting
method had no impact on the Company's liquidity or cash flows.
LIQUIDITY AND CAPITAL RESOURCES
STABILIZED OPERATIONS. During fiscal 1996, the Company stabilized its
operations, which it had been seeking to accomplish for several years. In
fiscal 1997, the Company achieved a positive contribution from operations of
$8.2 million, an improvement over the $4.1 million achieved in fiscal 1996 (as
restated). For this purpose, the contribution from operations is defined as
operating income (loss) before interest income and expense, gain on asset
dispositions, restructuring costs, nonrecurring income and expenses, taxes, and
extraordinary item. See the table on page 29 for the elements of the
contribution from operations and the Company's operating income (loss) before
taxes and extraordinary item for the historical periods presented.
CURRENT BUSINESS STRATEGY. The Company's current business strategy is to
improve its campground operations and stabilize its campground membership base
through increased sales and marketing efforts. The Company believes there is a
viable market for campground memberships and that it has a significant
opportunity to compete for campers interested in higher quality facilities and a
higher level of service than is typically available at public campgrounds or
competing private campgrounds. The Company also believes that its flexible
membership products give it a competitive advantage because they offer consumers
the ability to choose the type of membership most suitable to their needs.
However, the Company's membership base has declined over the past five fiscal
years. In response to this decline, the Company has downsized its business by
closing and disposing of campgrounds and decreasing campground operating costs
and general and administrative expenses. The Company intends to continue to
downsize its business while its
Page 21
<PAGE>
membership base declines. In this regard, the Company will likely close and
dispose of additional campgrounds and it will seek to decrease other expenses.
At the same time, the Company intends to expand its sales and marketing efforts
with a view to stopping the membership decline. The Company believes that the
ultimate size of its campground system and the amounts realized from future
asset sales will depend principally upon the degree to which the Company can
successfully implement this strategy.
DEBT RESTRUCTURING. On July 17, 1996, the Company consummated the Restructuring
of the Secured Notes whereby all of the $101,458,000 principal amount of Secured
Notes outstanding were retired. The Restructuring provided the Company with a
new capital structure and decreased the Company's outstanding debt to a level
the Company believes it can support under its downsized operations. The Secured
Notes were issued in the Company's 1991 bankruptcy reorganization and in a 1992
restructuring of a subsidiary's debt.
In the Restructuring, the Company purchased $10,070,000 in aggregate principal
amount of Secured Notes pursuant to a tender offer for $780 per $1,000 principal
amount, and exchanged $81,790,000 in aggregate principal amount of Secured Notes
pursuant to a private exchange offer for, in each case per $1,000 in principal
amount: $400 in cash, $492 in principal amount of PIK Notes, and 45 shares of
Common Stock. The remaining $9,598,000 in aggregate principal amount of Secured
Notes were redeemed at 100% of principal amount, plus accrued interest. In
connection with the Restructuring, the Company entered into the Credit Agreement
with Foothill.
CASH. On June 30, 1997, the Company had approximately $1.3 million of cash and
cash equivalents, a decrease of $36.1 million during fiscal 1997. The Company's
cash declined primarily because $28.6 million was used to retire Secured Notes
and pay legal and other costs related to the Restructuring (including accrued
interest), and $30.5 million was used to repay borrowings under the Credit
Agreement with Foothill. See Borrowings. These expenditures were partially
offset by proceeds of $4.7 million from the sale of assets, and $12.6 million
provided by operating activities.
In the Restructuring, $50.2 million of cash was paid to the holders of the
Secured Notes as full or partial consideration for the retirement of the Secured
Notes, and $6.2 million of cash was paid to the holders of the Secured Notes for
the semi-annual interest due July 15, 1996, and additional interest through the
date of the Restructuring. In addition, $1.1 million of cash was used to pay
the costs of the Restructuring, and $3.1 million of cash was used to pay the
costs of obtaining the Credit Agreement with Foothill. The Company funded these
cash payments with $28.6 million of its cash and $32.0 million of new borrowings
under the Credit Agreement with Foothill.
On June 25, 1997, the Company repurchased $13.4 million principal amount of PIK
Notes in a Dutch auction for a total cost of $12.6 million, which the Company
funded through borrowings in that amount under the Credit Agreement with
Foothill.
The Company's principal sources of operating cash for the year were $11.4
million in principal and interest collections on contracts receivable and
invested cash, and $65.9 million in dues collections and other campground
revenues. Principal uses of operating cash for fiscal 1997 consisted of $40.9
million in operating expenses, $14.1 million in general and administrative
expenses (including corporate member services and restructuring costs), $4.5
million in sales and marketing expenses, $1.7 million in insurance premiums, and
$8.1 million in interest payments, $6.2 million of which related to the Secured
Notes that were retired in the Restructuring. During fiscal 1997, the Company
also spent $1.0 million on capital expenditures and HUD-related improvements,
and made $384,000 in principal payments on mortgages and other notes.
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<PAGE>
Under the Credit Agreement with Foothill, as of June 30, 1997, the Company had
an outstanding term loan totaling $28,000 and a revolving loan in the maximum
amount of $19.3 million, of which $14.1 million was outstanding and $5.2 million
was available for borrowing. Under the Credit Agreement, the Company must use
all collections of principal and interest on the contracts receivable and all
proceeds from asset sales to reduce borrowings under the Credit Agreement. In
addition, the Company must make specified principal reductions on these
borrowings over time based on a monthly calculation of eligible contracts
receivable and an amortization schedule set forth in the Credit Agreement. The
maximum amount of the revolving loan declines as these principal reductions are
made. The Credit Agreement must be paid in full on July 16, 1999.
As of September 19, 1997, the outstanding loans under the Credit Agreement had
been reduced to a total of $8.8 million, and $3.4 million was available for
borrowing. Based upon its current business plan, the Company believes that
future cash flows provided from operations, asset sales, and borrowings
available under the revolving loan will be adequate for the Company's operating
and other cash requirements during the remaining term of the Credit Agreement.
All cash held by the Company and its wholly owned subsidiaries is generally
deposited in accounts that are controlled by and pledged to Foothill.
CONTRACTS RECEIVABLE. As of June 30, 1997, the Company on a consolidated basis
owned $12.4 million of contracts receivable related to the sale of campground
memberships and resort interests. See "Contracts Receivable" in Item 1.
Because of low interest rates available in the marketplace during fiscal 1997,
1996, and 1995, some members chose to prepay their accounts, and the Company
received principal payments of $1.6 million, $2.5 million, and $3.3 million,
respectively, in excess of scheduled payments. The Company may continue to
experience such prepayments in the future, although at a decreasing rate as the
contracts receivable portfolio continues to decline.
Allowance for Doubtful Accounts
- -------------------------------
The Company's allowance for doubtful accounts was 31% of gross contracts
receivable at June 30, 1997, compared with 30% of gross contracts receivable at
June 30, 1996, and 39% at June 30, 1995. The overall cancellation rate as a
percentage of gross contracts receivable was 7% for fiscal 1997, compared with
8% for fiscal 1996 and 1995. In fiscal 1997, 1996, and 1995, the Company
reduced the allowance for doubtful accounts on the contracts receivable by $1.2
million, $5.1 million, and $457,000, respectively. These adjustments were made
because the Company experienced lower contract losses than anticipated in these
years.
The allowance for doubtful accounts is an estimate of the contracts receivable
that will cancel in the future and is determined based on historical
cancellation rates and other factors deemed relevant to the analysis. The
Company does not presently anticipate any further adjustments to the allowance
for doubtful accounts on the contracts receivable. However, the allowance and
the rate at which the Company provides for future losses on its contracts
receivable could be increased or decreased in the future based on the Company's
actual collection experience.
Other Allowances
- ----------------
In connection with the purchase of NACO and Trails, the Company recorded an
allowance for interest discount of $3.9 million to increase to 14.75% the
weighted average yield on the contracts receivable then owned by NACO and
Trails. Additionally, in connection with the purchase of NACO and Trails and
the Company's bankruptcy reorganization in 1991, the Company recorded an
allowance of $7.5 million for future collection costs, which is being applied to
reduce future general and administrative expenses. In fiscal 1995, the Company
reduced the allowance for future collection costs related to the contracts
receivable by $540,000 more than the scheduled amortization amount because the
estimated cost to collect the remaining contracts receivable was less than the
amount estimated when
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<PAGE>
the allowance was recorded. The allowance is continuing to be amortized as a
reduction of general and administrative expenses based on cash collected on the
related portfolio.
Repurchase of Receivables Owned by Third Party
- ----------------------------------------------
On March 22, 1995, the Company purchased $3.0 million of contracts receivable
from a third party, effective as of June 30, 1994, for $1.6 million. The
Company received contracts receivable with a gross balance of $2.0 million and
$1.0 million in cash representing principal and interest collections on the
contracts receivable from July 1, 1994 to March 22, 1995. The Company recorded
the $2.0 million gross balance of the contracts receivable net of an allowance
for doubtful accounts of $523,000 and a valuation allowance of $550,000. The
valuation allowance is being amortized over the remaining term of the contracts
receivable.
These contracts receivable had previously been sold by NACO to the third party.
In connection with this sale, a portion of the purchase price was withheld as a
dealer holdback against which the purchaser could offset canceled and delinquent
contracts receivable. As of March 22, 1995, the canceled and delinquent
contracts receivable charged against the dealer holdback had consumed it and a
deficiency of $2.7 million existed. Although the Company took the position that
it was not liable for the deficiency based upon the terms of certain agreements
and releases with the third party, the Company had recorded a contingent
liability for the amount of the deficiency. When the Company repurchased the
contracts receivable, this contingent liability was released, and the Company
reversed the $2.7 million recorded liability.
Changes in Receivables
- ----------------------
The net balance of contracts receivable decreased by $5.7 million during fiscal
1997, due primarily to $8.0 million in cash collections on contracts receivable,
offset by a reduction of $1.2 million in the allowance for doubtful accounts,
new financed sales, and scheduled amortization of the allowances for interest
discount, collection costs, and valuation discount.
CAMPGROUND AND RESORT PROPERTIES. The Company's campground properties consist
of land, buildings, and other equipment used in administration and operations as
well as land held for sale. Campground properties decreased by $3.5 million in
fiscal 1997, primarily as a result of the sale of several campgrounds and
certain other real estate, and depreciation on property and equipment.
The Company's campgrounds require annual capital and maintenance expenditures, a
portion of which has been deferred. During fiscal 1997 and 1996, the Company
spent $4.6 million and $4.0 million, respectively, on major maintenance,
repairs, and improvements at the campgrounds.
During the periods presented, the Company's resort properties consisted of
timeshare and lot inventory, buildings and equipment used in operations, and
land held for sale. Resort properties decreased by $1.4 million in fiscal 1997,
due primarily to the sale of the timeshare operations at the resorts, the golf
operations at one of the resorts, excess acreage and buildings at certain
resorts, and lots in the normal course of business. Over the past several
years, the Company has been selling the assets it owns at the resorts.
At June 30, 1997, the Company had obligations to spend $2.8 million in
connection with reports that it filed with the Department of Housing and Urban
Development ("HUD"). Although certain of these HUD obligations remain
substantially incomplete, during fiscal 1997 and 1996, the Company spent
$212,000 and $300,000, respectively, in fulfilling these obligations. A person
who purchased a lot when a particular HUD report was in effect may allege that
the failure to make timely improvements constitutes a breach of his or her
agreement with the Company and could seek damages from the Company or rescission
of the lot purchase. Approximately 1,400 persons purchased lots from the
Company when
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<PAGE>
the HUD reports in effect described improvements that the Company has not yet
constructed. An insignificant number of persons have asserted claims against the
Company for the failure to make these improvements.
BORROWINGS. On June 30, 1997, the Company had outstanding $44.1 million of
debt, which consisted of $14.1 million of borrowings under the Credit Agreement,
$29.2 million principal amount of PIK Notes plus a deferred gain of $180,000,
and $604,000 in outstanding mortgages and other notes.
On June 30, 1996, the Company had outstanding $101.5 million principal amount of
Secured Notes which were retired in full on July 17, 1996, in the Restructuring
for a combination of cash, PIK Notes, and Common Stock (see "Debt Restructuring"
above). The Restructuring was accounted for as a Troubled Debt Restructuring,
whereby the restructured debt was recorded at the carrying value of the old
debt, and no gain or loss was recorded on the transaction.
Credit Agreement with Foothill
- ------------------------------
In connection with the Restructuring, the Company entered into the Credit
Agreement with Foothill, under which Foothill made term loans to the Company
totaling $13.0 million, and agreed to make revolving loans to the Company in the
maximum amount of $25.0 million, provided that the aggregate borrowings under
the Credit Agreement at any one time could not exceed $35.0 million. During
fiscal 1997, the Company repaid substantially all of its initial borrowings
under the Credit Agreement.
On May 16, 1997, the Company and Foothill entered into an amendment to the
Credit Agreement which significantly modified its original terms. The amendment
reduced the maximum availability under the revolving portion of the Credit
Agreement to $20.0 million, decreased the interest rate payable thereunder from
prime plus 2 3/4% per annum to prime plus 1 1/2% per annum, and reduced or
eliminated certain fees. The amendment also permitted the Company to borrow up
to $12.0 million to repurchase the principal amount of PIK Notes, and up to
$750,000 to pay accrued interest on the PIK Notes repurchased. Because of the
substantial modifications made to the original Credit Agreement, the amendment
of the Credit Agreement was accounted for as an extinguishment of debt and the
remaining unamortized balance of the original debt issue costs of $1.3 million
was charged to expense.
The Company must use all collections of principal and interest on the contracts
receivable, which are estimated to be $4.7 million in fiscal 1998, and all
proceeds from asset sales to reduce borrowings under the Credit Agreement. In
addition, the Company must make specified principal reductions on these
borrowings over time based on a monthly calculation of eligible contracts
receivable and an amortization schedule set forth in the agreement. The maximum
amount of the revolving loan declines as these principal reductions are made.
The remaining borrowings under the Credit Agreement must be paid in full on July
16, 1999. Availability of such working capital is subject to continued
compliance by the Company with the financial covenants and other requirements of
the Credit Agreement, including certain covenants respecting minimum earnings
before interest, taxes, depreciation and amortization, and minimum tangible net
worth. The Credit Agreement prohibits the Company from borrowing from other
sources in significant amounts except for equipment purchases.
PIK Notes
- ---------
In the Restructuring, the Company issued $40.2 million principal amount of PIK
Notes that do not require the cash payment of interest until fiscal 2001 and
mature on July 15, 2003 without earlier scheduled principal payments. On
January 15, 1997, the Company issued an additional $2.4 million principal amount
of PIK Notes as interest.
Page 25
<PAGE>
On June 25, 1997, the Company repurchased $13.4 million principal amount of PIK
Notes at a cost of $12.6 million, including accrued interest. The Company made
these repurchases at an average price of $897 per $1,000 of principal amount in
a Dutch auction available to all holders of PIK Notes. A gain of $1.2 million
was recognized on this transaction. At June 30, 1997, a total of $29.2 million
principal amount of PIK Notes were outstanding.
The Indenture for the PIK Notes provides holders of PIK Notes with the right to
have their notes repurchased at 101% of principal amount, plus interest, in the
event of a Change of Control (as defined). The Indenture also requires the
Company to apply certain asset sale proceeds to the retirement of the PIK Notes
in certain circumstances, subject to the rights of Foothill to repayment in
connection with asset sales. The Indenture does not contain financial
covenants, but it does prohibit the Company from borrowing from other sources in
significant amounts except for the Credit Agreement with Foothill, a $10.0
million replacement working capital facility, and equipment purchases.
The Company is not permitted to pay cash interest on the PIK Notes until the
borrowings under the Credit Agreement are repaid in full. As a result, the
principal amount of PIK Notes outstanding will increase at the rate of 12% per
year, compounded semi-annually, at least until the borrowings under the Credit
Agreement are repaid in full. The payment-in-kind feature of the PIK Notes will
decrease the Company's cash interest costs over this period. However, the
payment-in-kind feature of the PIK Notes will also decrease the rate at which
the Company is able to retire its total debt outstanding.
All of the Company's debt and equity interests in the Subsidiary Guarantors has
been pledged by the Company to secure its obligations under the Credit
Agreement. In the event of a default and foreclosure under the Credit
Agreement, distributions from, and the assets of, the Subsidiary Guarantors may
not be available to satisfy other obligations of the Company, including the
obligations of the Company to the holders of the PIK Notes.
DEFERRED REVENUES AND EXPENSES. Deferred revenues of $23.6 million and $23.4
million at June 30, 1997 and 1996, respectively, include $15.6 million and $15.9
million, respectively, of membership dues collections which relate to future
periods, $6.3 million and $5.8 million, respectively, of campground membership
sales revenues to be recognized in future periods, and other deferred revenues
related primarily to the resort operations. Deferred membership selling expenses
of $1.4 million and $1.2 million at June 30, 1997 and 1996, respectively,
represent incremental direct selling costs to be recognized in future periods.
SELF INSURANCE. The Company is self-insured for general liability losses up to
$250,000 per occurrence, with an annual aggregate exposure to the Company of
$2.0 million. The Company's liability insurance program provides coverage in
excess of the self-insured amounts up to an annual limit of $26.8 million. The
Company has provided a liability for estimated known and unknown claims related
to uninsured general liability risks of $2.0 million and $1.6 million at June
30, 1997 and 1996, respectively. This liability is determined based on actuarial
estimates.
The medical and dental benefits provided to the Company's employees under the
Company's employee benefit plans (collectively, the "Plans") are funded
primarily through employer and employee contributions. In addition, the Company
has purchased a stop loss insurance policy which protects the Plans against
claims in excess of set policy amounts. The Company has provided a liability for
estimated future claims of $1.4 million and $1.8 million at June 30, 1997 and
1996, respectively. This liability is based on actuarial estimates of amounts
needed to fund expected claims, as well as premium payments and administrative
costs of the Plans. During fiscal 1997, the Company determined that its actual
claims experience for certain previous years was significantly below the
estimates for those years. As a result, the Company reduced its liability for
estimated future claims, which resulted in nonrecurring income of $611,000.
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<PAGE>
WORKERS' COMPENSATION INSURANCE. During fiscal 1997, the Company determined
that it is entitled to refunds in future periods of $865,000 for deposits made
in previous years to cover workers' compensation claims in excess of those
covered by the standard premium paid by the Company. These deposits were
expensed in the years the deposits were made because the Company anticipated
that the deposits would be used to cover workers' compensation claims. At June
30, 1997, the Company recorded the refundable amount as an asset, resulting in
nonrecurring income of $865,000. The refundable amount is included in other
assets in the accompanying consolidated balance sheet at June 30, 1997.
In fiscal 1996, the Company changed its method of determining workers'
compensation premiums, whereby it no longer records the cost of such premiums
based on estimates that are subject to potential audit adjustments at year end.
As a result, in fiscal 1996, the Company reversed its recorded contingent
liability related to workers' compensation premium audits. The $799,000
reversal amount is included in nonrecurring income in the accompanying
consolidated statement of operations.
NEW ACCOUNTING STANDARDS. The Financial Accounting Standards Board (the "FASB")
has recently issued several accounting pronouncements that are effective for the
Company in either fiscal 1997 or fiscal 1998. The adoption of certain of these
accounting pronouncements in fiscal 1997 did not have a material impact on the
Company's financial statements for fiscal 1997, and the Company anticipates that
the one accounting pronouncement to be adopted in fiscal 1998 will not have a
material impact on the Company's financial statements for fiscal 1998 (see Note
1 to the Company's consolidated financial statements included in Item 8).
RESULTS OF OPERATIONS
The following discussion and analysis are based on the historical results of
operations of the Company for the years ended June 30, 1997, 1996, and 1995, as
restated (see "Change in Accounting Method"). The deferral of historical sales
revenues and expenses resulting from the change in accounting method had no
impact on the Company's liquidity or cash flows.
The financial information set forth below should be read in conjunction with the
Company's consolidated financial statements included in Item 8.
NET INCOME (LOSS). For the year ended June 30, 1997, the Company reported net
income of $6.8 million or $.89 per share on revenues of $78.4 million. This
compares with net income of $1.1 million or $.30 per share on revenues of $91.0
million for the year ended June 30, 1996, and a net loss of $11.8 million or
$3.19 per share on revenues of $91.4 million for the year ended June 30, 1995.
Excluding extraordinary gains, nonrecurring income and expenses, and
restructuring costs, the Company would have had net income of $5.3 million for
fiscal 1997, compared with a net loss of $2.8 million for fiscal 1996, and a net
loss of $14.5 million for fiscal 1995. Excluding these items, the Company's
results improved in the current fiscal year, despite declining revenues, due
primarily to decreases in expenses, principally campground operating costs and
interest.
The results for fiscal 1997 include $2.7 million of nonrecurring income
consisting of a $1.2 million reduction in the allowance for doubtful accounts
and a $1.5 million reduction in certain insurance reserves. The fiscal 1997
results also include $1.1 million of restructuring costs related to the
Restructuring and $132,000 of nonrecurring expenses representing the net loss
resulting from the amendment of the Credit Agreement and the repurchase of PIK
Notes.
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<PAGE>
The results for fiscal 1996 include a $1.4 million extraordinary gain on the
repurchase of Secured Notes and $5.9 million of nonrecurring income consisting
of $5.1 million from a reduction in the allowance for doubtful accounts and
$799,000 from the reversal of a contingent liability. The fiscal 1996 results
also include $1.1 million of restructuring costs related to the Company's
efforts to restructure the Secured Notes, and $2.3 million of other nonrecurring
expenses consisting of a $1.0 million charge to record a provision for certain
uncollectible membership dues receivable and a $1.3 million charge to accrue a
one-time bonus for the Company's Chief Executive Officer.
The results for fiscal 1995 include $3.7 million of nonrecurring income
consisting of $1.0 million from reductions in the allowances for doubtful
accounts and collection costs and $2.7 million from the reversal of a contingent
liability. The fiscal 1995 results also include $637,000 of restructuring costs
incurred in connection with the relocation of the Company's corporate office to
Dallas, Texas, and $437,000 of other nonrecurring expenses representing
severance payments made to certain management employees who left the Company in
the fourth quarter of fiscal 1995.
The table on the next page shows separately the results of the campground
operations, Resort Parks International, and resort operations, without any
allocation of corporate expenses, as well as corporate expenses and other
revenues and expenses in the aggregate, for the years ended June 30, 1997, 1996,
and 1995, as restated (see "Change in Accounting Method").
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<PAGE>
<TABLE>
<CAPTION>
(dollars in thousands)
Year ended June 30,
--------------------------------
1997 1996 1995
-------- -------- --------
(Restated) (Restated)
CAMPGROUND OPERATIONS
<S> <C> <C> <C>
Membership dues $ 39,945 $ 39,924 $ 41,175
Campground revenues 15,302 15,313 15,411
Cost of campground revenues (7,608) (7,726) (8,150)
Operating expenses (32,454) (35,211) (40,236)
-------- -------- --------
Contribution from campground operations 15,185 12,300 8,200
-------- -------- --------
SALES
Sales revenues 2,892 1,656 1,626
Selling expenses (2,654) (3,094) (1,736)
Marketing expenses (1,383) (1,294) (3,639)
-------- -------- --------
Loss on sales (1,145) (2,732) (3,749)
-------- -------- --------
RESORT PARKS INTERNATIONAL
Revenues 4,086 4,579 4,845
Expenses (1,978) (2,237) (2,727)
-------- -------- --------
Contribution from RPI 2,108 2,342 2,118
-------- -------- --------
16,148 11,910 6,569
-------- -------- --------
RESORT OPERATIONS
Revenues 3,189 8,332 10,543
Expenses (3,218) (8,297) (10,125)
-------- -------- --------
Contribution (loss) from resort
operations (29) 35 418
-------- -------- --------
16,119 11,945 6,987
-------- -------- --------
Other income 3,673 4,479 3,485
Corporate member services (1,532) (1,843) (2,200)
General and administrative expenses (10,100) (10,473) (12,118)
-------- -------- --------
OPERATING INCOME (LOSS) BEFORE INTEREST
INCOME AND EXPENSE, GAIN ON ASSET
DISPOSITIONS, NONRECURRING INCOME AND
EXPENSES, RESTRUCTURING COSTS, TAXES
AND EXTRAORDINARY ITEM 8,160 4,108 (3,846)
-------- -------- --------
Interest income 3,726 6,756 9,935
Interest expense (9,084) (17,693) (20,960)
Gain on asset dispositions 2,892 4,038 658
Nonrecurring income 2,708 5,945 3,714
Nonrecurring expenses (132) (2,270) (437)
Restructuring costs (1,101) (1,124) (637)
-------- -------- --------
OPERATING INCOME (LOSS) BEFORE TAXES
AND EXTRAORDINARY ITEM $ 7,169 $ (240) $(11,573)
======== ======== ========
</TABLE>
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<PAGE>
CAMPGROUND OPERATIONS. The Company's operations are highly seasonal. The
Company receives the majority of the dues revenue from its members during the
winter, which are recognized as income ratably during the year. However, the
Company incurs a higher level of operating expenses during the summer. In
addition, a majority of the Company's sales and marketing efforts occur during
the summer.
Campground membership dues revenue was $39.9 million for the years ended June
30, 1997 and 1996, compared with $41.2 million for the year ended June 30, 1995.
Dues revenue declined in fiscal 1996 due primarily to the net loss of campground
members during the year, partially offset by the annual dues increase. In
fiscal 1997, the effect of the annual dues increase substantially offset the net
loss of members during the year.
Campground revenues were $15.3 million for the years ended June 30, 1997 and
1996, compared with $15.4 million for the year ended June 30, 1995. The expenses
associated with these campground revenues were $7.6 million, $7.7 million, and
$8.2 million for fiscal 1997, 1996, and 1995, respectively. The continuing
improvement in the contribution from these programs resulted primarily from
better expense control in fiscal 1997 and 1996.
Campground operating expenses were $32.5 million for the year ended June 30,
1997, compared with $35.2 million for the year ended June 30, 1996, and $40.2
million for the year ended June 30, 1995. The continuing reduction in expenses
between years was due primarily to the closure and disposition of campgrounds
and to operational changes made at the campgrounds in fiscal 1996 and 1997. In
fiscal 1996, the Company closed and disposed of several campgrounds, reduced
campground management and personnel, and changed to seasonal operations at
campgrounds with low usage during off-season periods. In fiscal 1997, the
Company closed and disposed of several additional campgrounds and lengthened the
off-season for the campgrounds with seasonal closures. The lower operating
expenses in fiscal 1997 also reflect the full effects of the personnel
reductions made in fiscal 1996. In addition, the Company incurred lower
insurance and maintenance costs in fiscal 1997 compared with the prior periods.
Insurance costs decreased due to the lower number of campgrounds and personnel
and the Company's continued efforts to reduce insurance claims. Furthermore,
maintenance costs were lower in fiscal 1997 compared with fiscal 1996 due to
expenditures made in fiscal 1996 to refurbish rental trailers.
The Company intends to continue to downsize its campground operations while its
membership base declines. The Company will likely close and dispose of
additional campgrounds and it will seek to decrease other expenses. Subsequent
to year-end, the Company sold additional campgrounds for net proceeds of $4.5
million. The sale of these campgrounds and other anticipated changes should
result in lower operating expenses in fiscal 1998, but no assurance can be given
that such changes will not reduce revenues by an amount in excess of the expense
reductions.
The Company recognizes revenue from the sale of campground memberships that do
not convey a deeded interest in real estate on a straight-line basis over the
expected life of the memberships sold (see "Change in Accounting Method"). For
the years ended June 30, 1997, 1996, and 1995, the Company recognized campground
membership sales revenues of $2.9 million, $1.7 million, and $1.6 million,
respectively. These amounts include revenues of $1.7 million, $1.1 million, and
$854,000, respectively, that were deferred in prior periods. Moreover, for
fiscal 1997, 1996, and 1995, the Company deferred revenues of $2.1 million, $2.1
million, and $1.0 million, respectively, which will be recognized in future
periods.
The increase in sales revenues resulted primarily from the Company's increased
sales and marketing efforts during the past three fiscal years. The Company has
expanded its sales and marketing efforts with a view to stopping the decline in
its membership base.
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<PAGE>
Although the Company's membership sales revenues have increased, the level of
sales in fiscal 1997 did not meet the Company's expectations. In an effort to
improve its membership sales, the Company has been working to increase the
number of prospects that attend its sales presentations. In this regard, in
fiscal 1997, the Company entered into a joint marketing arrangement with
Fleetwood Industries, Inc., the largest manufacturer of RVs. Under this
marketing arrangement, commencing in June 1997, purchasers of Fleetwood RVs
receive a temporary membership and are invited to visit one of the Company's
campgrounds. In the future, the Company intends to pursue joint marketing
relationships with other companies.
Selling expenses directly related to the sale of campground memberships are
deferred and recognized as expenses on a straight-line basis over the expected
life of the memberships sold. All other selling and marketing costs are
recognized as expenses in the period incurred. For the years ended June 30,
1997, 1996, and 1995, the Company recognized selling expenses of $2.7 million,
$3.1 million, and $1.7 million, respectively. These amounts include expenses of
$358,000, $235,000, and $172,000, respectively, that were deferred in prior
periods. Moreover, for fiscal 1997, 1996, and 1995, the Company deferred
expenses of $505,000, $481,000, and $219,000, respectively, which will be
recognized in future periods.
Although the Company's sales results are improving, selling and marketing
expenses exceeded sales revenues by $1.1 million, $2.7 million, and $3.7 million
for the years ended June 30, 1997, 1996, and 1995, respectively. These expenses
exceeded sales revenue because of the increased marketing activity, and the low
volume of sales, which did not cover fixed costs. In addition, the Company
deferred more sales revenues than selling expenses in each of the periods
presented.
The Company's selling and marketing efforts require significant expense, the
majority of which must be expensed in the current period, while the related
sales revenues are deferred and recognized on a straight-line basis over the
expected life of the memberships sold. As a consequence, the Company expects
that its selling and marketing expenses will continue to exceed its campground
membership sales revenues. This disparity will increase as the Company grows
campground membership sales. However, the Company intends to keep the cash it
expends on selling and marketing expenses within a close relation to the cash it
receives from campground membership sales.
The Company must significantly increase its campground membership sales over
current levels in order to stop the continuing decline in the Company's
membership base. The success of the Company's business strategy over the long
term is dependent upon the Company's ability to market new memberships in
sufficient numbers on a cost-effective basis.
CAMPGROUND MANAGEMENT. Wilderness Management, a wholly owned subsidiary of the
Company, manages 48 public campgrounds for the US Forest Service. For the year
ended June 30, 1997, these operations produced revenues of $1.1 million with
related expenses (excluding certain shared administrative costs) of $1.0
million. This compares with revenues for fiscal 1996 of $853,000 and related
expenses (excluding certain shared administrative costs) of $831,000, and
revenues for fiscal 1995 of $589,000 and related expenses (excluding certain
shared administrative costs) of $665,000. The increase in revenues and expenses
between years was due primarily to new contracts entered into in fiscal 1997 and
1996.
RESORT PARKS INTERNATIONAL. RPI charges its members a fee for a membership that
entitles them to use any of the campgrounds participating in RPI's reciprocal
use system, subject to certain limitations. For the year ended June 30, 1997,
RPI's operations produced a net contribution of $2.1 million, compared with $2.3
million for the year ended June 30, 1996, and $2.1 million for the year ended
June 30, 1995. RPI's revenues have
Page 31
<PAGE>
declined over the three year period as a result of declining sales in the
membership camping industry generally. During this period, however, RPI has been
able to maintain its positive contribution by reducing its expenses. To maintain
its net contribution in the future, RPI is working to introduce new products to
increase its revenues; however, there is no assurance that it will be
successful.
RESORT OPERATIONS. During the last five years, the Company sold a substantial
portion of the assets it owned at eight resorts. In fiscal 1997, the sale of
resort assets produced cash proceeds totaling $1.7 million plus notes receivable
of $1.1 million. This compares with cash proceeds of $5.0 million in fiscal
1996, and $902,000 in fiscal 1995. The differences between years was due to the
timing of asset sales. As the resort assets were sold, the revenues and
expenses from the resort operations decreased accordingly. The Company's
present operations at the resorts are limited primarily to the sale of
residential lots.
During the year ended June 30, 1997, the resort operations produced a net
negative contribution of $29,000, compared with a net positive contribution of
$35,000 and $418,000 for the years ended June 30, 1996 and 1995, respectively.
The Company expects a negative contribution from the resort operations in the
future as it continues its efforts to sell the remaining assets it owns at the
resorts. These assets consist primarily of approximately 580 residential lots
and other miscellaneous real estate. The Company presently plans to dispose of
the remaining assets that it owns at the resorts over the next several years.
However, there is no assurance that the Company will be able to locate a buyer
for any of the remaining resort assets or that sales on acceptable terms can be
effected.
INTEREST INCOME AND EXPENSE. Interest income decreased by $3.0 million and $3.2
million for the years ended June 30, 1997 and 1996, respectively, from the
previous year, due primarily to a decrease in interest earned on the Company's
diminishing portfolio of contracts receivable, and a decrease in interest earned
on lower cash balances. Also included in interest income is amortization of the
allowance for interest discount and valuation allowance related to the contracts
receivable, of which $379,000 was amortized during fiscal 1997 and $607,000 was
amortized in fiscal 1996 and fiscal 1995 (see "Liquidity and Capital Resources -
Contracts Receivable").
Interest expense decreased by $8.6 million for the year ended June 30, 1997,
from the previous year, due primarily to a net $50.9 million reduction in the
Company's outstanding debt resulting from the Restructuring and subsequent
repayments under the Credit Agreement, the repurchase of $7.4 million principal
amount of Secured Notes in January 1996, a $2.5 million reduction in mortgage
notes payable due to the abandonment of two operating campgrounds in the Fall of
1995, and scheduled repayments of notes payable. Interest expense decreased by
$3.3 million for the year ended June 30, 1996, from the previous year, due
primarily to a mandatory redemption of $18.6 million of Secured Notes in July
1995, the repurchase of Secured Notes in January 1996, the $2.5 million
reduction in mortgage notes payable in the Fall of 1995, and scheduled
repayments of notes payable.
Interest expense for the year ended June 30, 1997, includes (i) amortization of
debt issue costs incurred in connection with obtaining the Credit Agreement in
July 1996, which increased interest expense by $1.8 million, and (ii)
amortization of the deferred gain related to the PIK Notes, which reduced
interest expense by $39,000. The remaining unamortized balance of the debt
issue costs and a portion of the deferred gain were eliminated in connection
with the amendment of the Credit Agreement and repurchase of PIK Notes at the
end of fiscal 1997.
Interest expense for fiscal 1996 and 1995 includes amortization of the discount
on the Secured Notes, which increased interest expense by $4.2 million and $4.6
million in these years, respectively. The discount on the Secured Notes was
recorded to reduce the
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<PAGE>
carrying value of the Secured Notes to their estimated fair value on the date of
issuance. On July 17, 1996, the unamortized balance of this discount was
eliminated in connection with the retirement of the Secured Notes in the
Restructuring.
Interest expense is expected to continue to decrease in fiscal 1998 due to the
repurchase of PIK Notes in June 1997, and continued repayment of borrowings
under the Credit Agreement. Since the Company is prohibited from making cash
interest payments on the PIK Notes until all borrowings under the Credit
Agreement are repaid, during this period, a significant portion of the Company's
interest expense will represent non-cash interest. Moreover, during this
period, the principal amount of PIK Notes outstanding will increase at the rate
of 12% per year, compounded semi-annually, which will increase interest expense
in the future.
GAINS ON ASSET SALES. During the years ended June 30, 1997, 1996, and 1995, the
Company sold certain of its real estate assets and recognized related gains of
$2.9 million, $4.0 million, and $658,000, respectively. The differences between
years was due to the timing of asset sales. During this three-year period, the
Company sold the timeshare operations at the resorts, the country club and golf
operations at certain resorts, and various other properties at the resorts. In
addition, the Company sold or otherwise disposed of several campgrounds and sold
excess acreage associated with certain campgrounds. Subsequent to year-end, the
Company sold additional campgrounds for which it recognized related gains of
$3.2 million. Over the next several years, the Company intends to dispose of
the remaining assets it owns at the resorts, any campgrounds that are closed as
the Company downsizes, and other undeveloped, excess acreage associated with the
campgrounds. The sale of campgrounds requires addressing the rights of members
associated with such campgrounds. The impact of these rights is uncertain and
could adversely affect the availability or timing of sale opportunities or the
ability of the Company to realize recoveries from asset sales. In addition,
although the Company has successfully sold assets during the past three years,
no assurance exists that the Company will be able to locate a buyer for any of
the remaining assets or that sales on acceptable terms can be effected.
OTHER INCOME. Other income consists principally of transfer fees received when
existing memberships are transferred in the secondary market without assistance
from the Company, collections on written-off contracts, subscription fees
received from members who subscribe to the Company's member magazine, and
beginning in fiscal 1997, fees charged to members for making more than five
operator-assisted reservations in a given year.
Other income was $3.7 million for the year ended June 30, 1997, compared with
$4.5 million for the year ended June 30, 1996, and $3.5 million for the year
ended June 30, 1995. Other income was higher in fiscal 1996, compared with the
other years, because in fiscal 1996 the Company increased it use of outside
collection agencies to collect on written-off contracts, which resulted in a
one-time increase in such collections.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$10.1 million for the year ended June 30, 1997, compared with $10.5 million for
the year ended June 30, 1996, and $12.1 million for the year ended June 30,
1995. During fiscal 1997, the Company's continued efforts to lower
administrative costs were partially offset by higher legal fees incurred in
connection with the Company's reincorporation merger, the registration of the
PIK Notes, and the formation of a new wholly owned subsidiary to provide debt
collection services for third parties. The decrease in fiscal 1996 from the
prior year was due primarily to cost reductions implemented in the last quarter
of fiscal 1995 and the first quarter of fiscal 1996.
General and administrative expenses include costs related to collecting the
contracts receivable and membership dues of $2.4 million, $3.0 million, and $3.1
million for the
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<PAGE>
years ended June 30, 1997, 1996, and 1995, respectively. These collection costs
were reduced by $314,000, $513,000, and $854,000, respectively, as a result of
the amortization of the allowance for collection costs related to the contracts
receivable ("see "Liquidity and Capital Resources - Contracts Receivable"). The
Company anticipates that these costs will continue to decrease as the contracts
receivable portfolio continues to decline.
CORPORATE MEMBER SERVICES. Corporate member services include the reservation
and member support services performed at the corporate office, as well as the
costs incurred to produce the Company's member magazine. These costs were $1.5
million for the year ended June 30, 1997, compared with $1.8 million for the
year ended June 30, 1996, and $2.2 million for the year ended June 30, 1995.
The decrease in costs between periods reflects the Company's continued efforts
to reduce administrative costs.
NONRECURRING INCOME. Nonrecurring income was $2.7 million, $5.9 million, and
$3.7 million for the years ended June 30, 1997, 1996, and 1995, respectively.
Nonrecurring income for fiscal 1997 consists of $1.2 million from a reduction in
the allowance for doubtful accounts related to the contracts receivable and $1.5
million from a reduction of certain insurance reserves (see "Liquidity and
Capital Resources - Self Insurance and Workers' Compensation Insurance").
Nonrecurring income for fiscal 1996 consists of $5.1 million from a reduction in
the allowance for doubtful accounts related to the contracts receivable and
$799,000 from the reversal of a contingent liability. Nonrecurring income for
fiscal 1995 consists of $1.0 million from reductions in the allowances for
doubtful accounts and collection costs related to the contracts receivable and
$2.7 million from the reversal of a contingent liability.
NONRECURRING EXPENSES. Nonrecurring expenses were $132,000, $2.3 million, and
$437,000 for the years ended June 30, 1997, 1996, and 1995, respectively.
Nonrecurring expenses for fiscal 1997 consist of a $1.3 million loss resulting
from expensing unamortized debt issue costs upon significantly modifying the
Credit Agreement, reduced by a $1.2 million gain resulting from repurchasing PIK
Notes at a discount (see "Liquidity and Capital Resources-Debt Restructuring").
Nonrecurring expenses for fiscal 1996 consist of a $1.0 million charge to record
a provision for certain uncollectible membership dues receivable and a $1.3
million charge to accrue a one-time bonus for the Company's Chief Executive
Officer (see "Accrued Bonus" below). Nonrecurring expenses for fiscal 1995
represent severance payments made to certain management employees who left the
Company in the fourth quarter of fiscal 1995.
ACCRUED BONUS. The employment agreement between the Company and its Chief
Executive Officer ("CEO") provided that the CEO would receive a one-time bonus
equal to between 4% and 6% of the amount by which the enterprise value of the
Company (including the value of its debt and equity securities) exceeded $75
million at the time the CEO elected to receive the bonus. The bonus would have
been adversely affected by the consummation of the Restructuring. As a result,
on June 29, 1996, the CEO exercised his right to receive the bonus, which
entitled the CEO to $1,270,589. In accordance with the agreement, $952,927 of
the bonus was paid on July 9, 1996, and the remaining $317,662 was paid in May
1997. The Company obtained an irrevocable standby letter of credit on which the
CEO could draw this bonus if the Company failed to pay the bonus after receiving
a request from the CEO. The letter of credit was secured by a $1.5 million cash
deposit, which was subsequently reduced to $317,662 after the payment of the
initial bonus amount, and released in February 1997. The Company accrued the
entire amount of the bonus at June 30, 1996.
RESTRUCTURING COSTS. In fiscal 1997, the Company incurred $1.1 million of costs
in connection with the consummation of the Restructuring. The Company also
incurred $3.1 million of costs in connection with obtaining the Credit Agreement
with Foothill, which were capitalized as debt issue costs. In May 1997, the
unamortized balance of these debt
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<PAGE>
issue costs of $1.3 million was charged to expense upon amendment of the Credit
Agreement, as previously discussed in Nonrecurring Expenses above.
During the year ended June 30, 1996, the Company incurred $1.1 million of
restructuring costs related to its efforts to restructure the Secured Notes.
During the year ended June 30, 1995, the Company incurred $922,000 of costs
related to expanding its Dallas office and hiring and training new employees.
$637,000 of these costs were expensed as restructuring costs, and $285,000 of
these costs were capitalized. The Company moved its administrative offices to
Dallas during fiscal 1994.
INCOME TAXES. The Company's provision for income taxes was $370,000, $41,000,
and $255,000 for the years ended June 30, 1997, 1996, and 1995, respectively.
The provision for fiscal 1997 includes amounts related to federal alternative
minimum taxes, as well as amounts related to state income taxes payable in the
various states where the Company conducts its operations. The provisions for
fiscal 1996 and 1995 relate primarily to state income taxes. With the exception
of the alternative minimum tax amounts, the Company does not have federal income
taxes payable on a consolidated basis due to its net operating tax loss
carryforwards, which are estimated to total $47.9 million at June 30, 1997, and
expire in years 2007 through 2011.
EXTRAORDINARY ITEM. The $1.4 million extraordinary gain in fiscal 1996 resulted
from a repurchase of Secured Notes in January 1996.
INFLATION. During the past three fiscal years, the Company's results have not
been affected materially by inflation. However, should the rate of inflation
increase in the future, the Company's expenses are likely to increase at a
greater rate than it can increase the annual dues paid by the campground members
because the Company cannot increase the dues on existing contracts of senior
citizens and disabled members who notify the Company of their age or disability
and request that their dues be frozen. At the present time, approximately 35%
of the members have requested that their dues be frozen because of their age or
disability (see "Campground Operations - Dues").
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements Index
---------------------------------------
Page
----
Report of Independent Public Accountants................... 37
Consolidated Balance Sheets - June 30, 1997 and 1996....... 38
Consolidated Statements of Operations for the years ended
June 30, 1997, 1996 and 1995............................. 39
Consolidated Statements of Stockholders' Deficit
for the years ended June 30, 1997, 1996 and 1995......... 40
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1996 and 1995............................. 41
Notes to Consolidated Financial Statements................. 43
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts... 75
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
Page 36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Thousand Trails, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Thousand Trails,
Inc. (formerly USTrails Inc.) and subsidiaries (the "Company") as of June 30,
1997 and June 30, 1996, as restated (see Note 1) and the related consolidated
statements of operations, stockholders' deficit and cash flows for the two years
ended June 30, 1996 and 1995, as restated and for the year ended June 30, 1997.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Thousand Trails, Inc. and
subsidiaries as of June 30, 1997 and June 30, 1996, as restated, and the results
of their operations and their cash flows for each of the two years ended June
30, 1996 and 1995, as restated and for the year ended June 30, 1997, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a required part of the
basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in our audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
Dallas, Texas
September 11, 1997
Page 37
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30,
--------------------
ASSETS 1997 1996
------ -------- ---------
CURRENT ASSETS (Restated)
<S> <C> <C>
Cash and cash equivalents $ 1,343 $ 37,403
Current portion of receivables, net of
allowances and discount of $1.7
million in 1997 and $2.7 million in
1996 3,134 4,270
Accounts and dues receivable, net 542 522
Current portion of deferred membership
selling expenses 478 357
Inventory and other current assets 3,536 4,672
-------- --------
Total Current Assets 9,033 47,224
Restricted cash 1,407 2,912
Receivables, net of allowances and
discount of $3.3 million in 1997 and
$5.4 million in 1996 4,383 8,949
Campground land 13,359 14,101
Lot and timeshare inventory 342 1,159
Buildings and equipment, net of
accumulated depreciation of
$12.8 million in 1997 and $10.4
million in 1996 23,211 27,130
Land held for sale 7,382 6,821
Deferred membership selling expenses 913 887
Other assets 3,272 2,448
-------- --------
Total Assets $ 63,302 $111,631
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable $ 1,864 $ 3,030
Accrued interest 1,693 5,617
Other accrued liabilities 7,485 9,329
Current portion of long term debt 5,864 28,530
Accrued construction costs 2,809 3,154
Current portion of deferred revenue 19,455 19,265
-------- --------
Total Current Liabilities 39,170 68,925
Long term debt 38,230 66,922
Deferred revenue 4,158 4,172
Other liabilities 3,912 3,564
-------- --------
Total Liabilities 85,470 143,583
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, $.01 par value,
1,500,000 shares authorized, none
issued and outstanding
Common Stock, $.01 par value,
15,000,000 shares authorized,
7,383,276 and 3,702,726 shares issued
and outstanding 74 37
Additional paid-in capital 20,502 17,549
Accumulated deficit subsequent to
December 31, 1991, date of emergence
from bankruptcy (42,613) (49,412)
Cumulative foreign currency translation
adjustment (131) (126)
-------- --------
Total Stockholders' Deficit (22,168) (31,952)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 63,302 $111,631
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 38
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended June 30,
--------------------------------
1997 1996 1995
-------- ---------- ----------
REVENUES (Restated) (Restated)
<S> <C> <C> <C>
Membership dues $39,945 $39,924 $ 41,175
Other campground/resort revenue 17,906 22,288 23,506
Membership and resort interest sales 3,477 3,013 4,074
RPI membership fees 4,086 4,579 4,845
Interest income 3,726 6,756 9,935
Gain on asset dispositions 2,892 4,038 658
Nonrecurring income 2,708 5,945 3,714
Other income 3,673 4,479 3,485
------- ------- --------
Total Revenues 78,413 91,022 91,392
------- ------- --------
EXPENSES
Campground/resort operating expenses 42,860 50,308 57,097
Selling expenses 3,074 4,020 3,150
Marketing expenses 1,383 1,294 3,639
RPI membership expenses 1,978 2,237 2,727
Corporate member services 1,532 1,843 2,200
Interest expense and amortization 9,084 17,693 20,960
General and administrative expenses 10,100 10,473 12,118
Nonrecurring expenses 132 2,270 437
Restructuring costs 1,101 1,124 637
------- ------- --------
Total Expenses 71,244 91,262 102,965
------- ------- --------
INCOME (LOSS) BEFORE TAXES AND
EXTRAORDINARY ITEM 7,169 (240) (11,573)
Income tax provision (370) (41) (255)
------- ------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM 6,799 (281) (11,828)
Extraordinary gain on debt repurchases 1,390
------- ------- --------
NET INCOME (LOSS) $ 6,799 $ 1,109 $(11,828)
======= ======= ========
PRIMARY AND FULLY DILUTED NET INCOME
(LOSS) PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ .89 $ (.08) $ (3.19)
EXTRAORDINARY ITEM .38
------- ------- --------
NET INCOME (LOSS) $ .89 $ .30 $ (3.19)
======= ======= ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 7,658 3,703 3,703
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 39
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Dollars in thousands)
<TABLE>
<CAPTION>
Cumulative
Common Stock Foreign
----------------- Additional Currency
Number of Paid-In Accumulated Translation
Shares Amount Capital Deficit Adjustment Total
--------- ------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994
(restated) 3,702,726 $ 37 $17,549 $(38,693) $(133) $(21,240)
Foreign currency
translation adjustment 14 14
Net loss (restated) (11,828) (11,828)
--------- ---- ------- -------- ----- --------
Balance, June 30, 1995
(restated) 3,702,726 37 17,549 (50,521) (119) (33,054)
Foreign currency
translation adjustment (7) (7)
Net income (restated) 1,109 1,109
--------- ---- ------- -------- ----- --------
Balance, June 30, 1996
(restated) 3,702,726 37 17,549 (49,412) (126) (31,952)
Issuance of common shares
in Restructuring 3,680,550 37 2,953 2,990
Foreign currency
translation adjustment (5) (5)
Net income 6,799 6,799
--------- ---- ------- -------- ----- --------
Balance, June 30, 1997 7,383,276 $74 $20,502 $(42,613) $(131) $(22,168)
========= ==== ======= ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 40
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended June 30,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Collections of principal on receivables $ 7,978 $ 12,251 $ 16,678
Interest received 3,407 6,202 9,270
Interest paid (8,107) (14,545) (15,873)
General and administrative, corporate
member services and restructuring costs (14,061) (13,827) (18,233)
Cash collected from operations,
including deferred revenue 65,894 73,220 77,231
Cash from sales of memberships and
resort interests at the point of sale 3,705 3,789 4,036
Expenditures for property operations (40,872) (49,627) (56,768)
Expenditures for sales and marketing (4,472) (5,370) (5,645)
Expenditures for insurance premiums (1,706) (5,176) (4,553)
Payment of income taxes (370) (41) (256)
Reduction of (deposit made to secure)
standby letter of credit 1,500 (1,500)
Other, net (345) 221
-------- -------- --------
Net cash provided by operating
activities 12,551 5,597 5,887
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and HUD-related expenditures (1,046) (1,022) (5,732)
Proceeds from asset sales 4,663 7,239 1,132
-------- -------- --------
Net cash provided by (used in)
investing activities 3,617 6,217 (4,600)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial borrowings under Credit
Agreement 44,640
Net repayments under Credit Agreement (30,543)
Payment of debt issue costs (3,132)
Retirement of Secured Notes (50,169)
Repurchase of PIK Notes/Secured Notes (12,640) (5,275)
Mandatory redemption of Secured Notes (18,599)
Repayments of notes and mortgages (384) (1,133) (750)
-------- -------- --------
Net cash used in financing activities (52,228) (25,007) (750)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (36,060) (13,193) 537
CASH AND CASH EQUIVALENTS:
Beginning of year 37,403 50,596 50,059
-------- -------- --------
End of year $ 1,343 $ 37,403 $ 50,596
======== ======== ========
</TABLE>
(continued)
Page 41
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
For the years ended June 30,
------------------------------
1997 1996 1995
-------- -------- --------
RECONCILIATION OF NET INCOME (LOSS) TO (Restated) (Restated)
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 6,799 $ 1,109 $(11,828)
------- ------- --------
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES-
Depreciation 3,195 2,866 2,591
Amortization of interest yield,
collection costs and valuation
allowance (693) (1,120) (1,461)
Amortization of PIK Note deferred gain
and debt issue costs 1,770
Amortization of debt discount and
consent fees 4,565 5,060
Gain on asset dispositions (2,892) (4,038) (658)
Net loss resulting from amendment of
Credit Agreement and repurchase of
PIK Notes 132
Extraordinary gain on debt repurchases (1,390)
Net deferral of sales revenues and
selling expenses 318 728 107
Reduction of allowances for doubtful
accounts, net (1,232) (4,146) (457)
Reduction of insurance excesses (1,476) (799)
Reversal of contingent liability (2,717)
CEO bonus accrual 1,270
Reduction of allowance for collection
costs (540)
Decrease (increase) in restricted cash 1,505 (1,283) (404)
Decrease in receivables 7,592 11,721 16,322
Decrease (increase) in other assets 767 (747) 29
Decrease in other liabilities (3,347) (3,354) (633)
Other, net 113 215 476
------- ------- --------
Total adjustments 5,752 4,488 17,715
------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $12,551 $ 5,597 $ 5,887
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 42
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
Thousand Trails, Inc., a Delaware corporation ("Thousand Trails"), is the
successor by merger to USTrails Inc., a Nevada corporation ("USTrails") (see
Note 3). Thousand Trails and its subsidiaries (the "Company") own and operate a
system of 55 membership-based campgrounds located in 17 states and British
Columbia, Canada. In addition, the Company provides a reciprocal use program
for members of approximately 380 recreational facilities and manages 48 public
campgrounds for the US Forest Service. Prior to November 21, 1996, the Company
also managed timeshare facilities at eight resorts located in seven states (see
Note 6). The Company currently owns certain real estate at these resorts and
owns and operates the resort amenities at one of these locations. The campground
business represents the most significant portion of the Company's business
comprising 89% of the Company's operating revenues in fiscal 1997. The
reciprocal use and resort businesses provided the remaining 11%. Operating
revenues consist primarily of membership dues received from campground members,
fee revenue from members of the reciprocal use program, and management fees,
guest fees and other fees and revenues received from the campground and resort
operations.
The accompanying consolidated financial statements include the accounts of
Thousand Trails, Inc. and the following wholly owned subsidiaries: National
American Corporation and its subsidiaries ("NACO"), Resort Parks International,
Inc. ("RPI"), Thousand Trails (Canada), Inc., UST Wilderness Management
Corporation ("Wilderness Management"), and until July 16, 1996, Thousand Trails,
Inc., a Washington corporation, and its subsidiaries ("Trails"). The Company
acquired 100% of the capital stock of NACO and 69% of the capital stock of
Trails on June 30, 1991. The Company subsequently increased its ownership in
Trails to 100% through a tender offer and merger and, on July 16, 1996, Trails
was merged into the Company. The acquisitions of NACO and Trails were accounted
for as a purchase with the purchase price being allocated to the assets acquired
and liabilities assumed based on their estimated fair value on the date of
acquisition. RPI was a wholly owned subsidiary of NACO until September 10, 1992,
when it became a direct subsidiary of the Company. Wilderness Management
commenced operations in January 1994.
The Company emerged from proceedings under Chapter 11 of the Bankruptcy Code on
December 31, 1991, pursuant to a confirmed plan of reorganization. Due to the
Company's emergence from bankruptcy, "fresh start reporting," as required by
AICPA Statement of Position ("SOP") 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," was reflected as of December 31, 1991
in the Company's consolidated financial statements. Under fresh start
reporting, a new reporting entity was created and assets and liabilities were
restated to reflect their reorganization value which approximated fair value at
the date of reorganization.
All significant intercompany transactions and balances have been eliminated in
the accompanying consolidated financial statements as of and for the years ended
June 30, 1997, 1996 and 1995.
The accompanying consolidated financial statements were prepared in conformity
with generally accepted accounting principles ("GAAP"). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Page 43
<PAGE>
New Accounting Pronouncements
- -----------------------------
In March 1995, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS 121") which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted SFAS 121 in the first quarter of fiscal 1997, and the adoption
did not have a material impact on the Company's operations or financial
position.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") effective for fiscal years beginning after December
15, 1995. SFAS 123 defines a fair value method of accounting for employee stock
options which provides for compensation cost to be charged to results of
operations at the grant date. The Company intends to continue to account for
stock-based compensation under Accounting Pronouncement Bulletin Opinion No. 25
("APB 25") as allowed under SFAS 123, while providing additional disclosure
required under SFAS 123 (see Note 14).
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities", which provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The Company adopted this statement,
which is effective for transactions occurring after December 31, 1996, in its
consolidated financial statements for the year ended June 30, 1997.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share". SFAS No.
128 establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock. This statement is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. Earlier application is not permitted. The
Company does not anticipate that the adoption of this standard will have a
material impact on the Company's financial statements.
Restatement
- -----------
Subsequent to year-end, the staff of the Securities and Exchange Commission (the
"SEC") informed the Company that the SEC will now require the Company to
recognize revenue from the sale of campground memberships that do not convey a
deeded interest in real estate on a straight-line basis over the expected life
of the memberships sold. The staff of the SEC has indicated that it will
require all membership-based campground registrants selling similar memberships
to change to this method of accounting.
The Company's campground memberships provide the member with access to an
established network of membership-based campgrounds in return for an initial
upfront membership fee (which in certain instances may be financed) and annual
dues. The member's right to use the Company's campgrounds generally continues
as long as the annual dues are paid. Since inception, the Company has
recognized revenue from initial membership fees at the time of sale, while
recognizing revenue from the annual dues ratably over the year of provided
service. Under the new accounting method, revenue from initial membership fees
is deferred and recognized on a straight-line basis over the expected life of
the memberships sold.
This new accounting method differs from the revenue recognition method
historically used by the Company for over 20 years. Accordingly, to show
comparable results for the periods presented, the accompanying consolidated
financial statements have been restated from those originally reported to
reflect this change in accounting method. The deferral of historical sales
revenues and expenses resulting from this change in accounting method had no
impact on the Company's liquidity or cash flows.
Page 44
<PAGE>
The following table provides selected summarized information illustrating the
effect of the restatement on the Company's consolidated financial position and
results of operations for the years ended June 30, 1996 and 1995 (dollars in
thousands):
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
------------------------ ------------------------
As As
As Originally As Originally
Restated Reported Restated Reported
-------- ----------- -------- ----------
<S> <C> <C> <C> <C>
FINANCIAL POSITION:
Campground land $ 14,101 $ 13,468 $ 15,964 $ 15,331
Deferred selling expenses -
Current 357 - 235 -
Long term 887 - 763 -
-------- --------
Total 1,244 998
Deferred revenue -
Current 19,265 17,599 19,764 18,622
Long term 4,172 3,722
-------- -------- -------- ---------
Total 23,437 17,599 23,486 18,622
Stockholders' Equity (Deficit) (31,952) (27,991) (33,054) (29,821)
RESULTS OF OPERATIONS:
Membership and resort interest sales 3,013 3,987 4,074 4,228
Total revenues 91,022 91,996 91,392 91,546
Income (loss) before extraordinary item (281) 447 (11,828) (11,923)
Net income (loss) 1,109 1,837 (11,828) (11,923)
Net income (loss) per common share .30 .50 (3.19) (3.22)
</TABLE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
- -------------------
The Company sells campground memberships pursuant to membership contracts that
give purchasers the right to use one or more of the Company's campgrounds, but
do not convey a deeded interst in the campgounds. Until 1990, the Company also
sold campground memberships that gave purchasers an undivided fractional
interest in one of six campgrounds. A membership requires the payment of an
upfront membership fee and permits the member's family to use one or more of the
Company's campgrounds for an initial period, subject to renewal each year upon
payment of annual dues.
Resort interest sales have historically included interval ownerships
("timeshares") that gave purchasers exclusive use of fully furnished vacation
homes in weekly intervals and fee simple ownership of lots located at the
resorts. Resort interest sales are currently limited to sales of lots as the
timeshare operations and timeshare inventory were sold in November 1996 (see
Note 6).
The Company has offered financing on certain campground memberships for a period
of up to 12 months with a down payment of 25% of the sales price, and has
offered financing on the sale of resort interests for periods up to five years
with a down payment of at least 10% of the sales price. However, during the
periods presented, the majority of the Company's campground membership and
resort interest sales were not financed.
Sales revenue from the sale of resort interests and campground memberships that
convey a deeded interest in real estate is recognized upon execution of a sales
contract and receipt of a down payment of at least 10% of the sales price.
Historically, sales revenue from the sale of campground memberships that do not
convey a deeded interest in real estate was recognized in
Page 45
<PAGE>
the same manner. However, as discussed above, the staff of the SEC has required
the Company to change its accounting method to recognize sales revenue from the
sale of campground memberships that do not convey a deeded interest in real
estate on a straight-line basis over the expected life of the memberships sold.
In addition, costs directly related to the sale of such campground memberships
are deferred and recognized as selling expenses on a straight-line basis over
the expected life of the memberships sold.
The annual dues paid by the campground members are used to fund the Company's
operating expenses, including corporate expenses and the maintenance and
operation of the campgrounds. The membership contracts generally permit the
Company to increase annually the amount of each member's dues by either (i) the
percentage increase in the consumer price index ("CPI") or (ii) the greater of
10% or the percentage increase in the CPI. The Company, however, may not
increase the dues on existing contracts of senior citizens and disabled members
who notify the Company of their age or disability and request that their dues be
frozen. At the present time, approximately 35% of the members have requested
that their dues be frozen because of their age or disability. The Company
estimates that approximately 50% of the campground members are senior citizens
eligible to request that their dues be frozen. The Company is unable to
estimate when or if a significant number of these members will request that
their dues be frozen in the future. Annual dues are recognized as revenue
ratably over 12 months as services are provided, and are recorded net of an
allowance to provide for uncollectible amounts. Dues paid in advance are
deferred as unearned revenue.
Cash and Cash Equivalents
- -------------------------
The Company considers demand accounts and short-term investments with maturities
of nine months or less when purchased to be cash equivalents.
Restricted Cash
- ---------------
Restricted cash generally consists of deposits to collateralize performance
bonds and letters of credit in the ordinary course of business.
Receivables
- -----------
Prior to June 30, 1991, the Company purchased contracts receivable from NACO,
Trails and SoPac Resort Properties, Inc. ("SoPac"), a former affiliate (the
"Selling Companies"). The Company recorded the contracts receivable at the
Selling Company's carrying value net of a discount to reflect the current market
yield at the time of acquisition of NACO and Trails. Interest income is
recognized on purchased contracts receivable based upon the effective yield at
which they were purchased and on other contacts receivable at their stated rates
based on the outstanding principal balances.
Allowance for Doubtful Accounts
- -------------------------------
The Company provides an allowance for future cancellations of contracts
receivable. The allowance is based on management's estimate of future contract
cancellations considering the Company's historical cancellation rates as well as
other factors deemed relevant to the analysis. The allowance is reviewed on a
periodic basis with changes in management's estimates recognized in the period
known. The Company presently believes that the allowance for doubtful accounts
is adequate. However, if cancellations occur at a different rate than is
presently anticipated, it may be necessary for the Company to revise its
estimates and increase or decrease the allowance, which would affect the
Company's operating results and financial condition.
Allowance for Interest Discount
- -------------------------------
In connection with the acquisition of NACO and Trails, the Company recorded an
allowance for interest discount to increase to 14.75% the weighted average yield
on the contracts receivable then owned by NACO and Trails. The interest
discount is being amortized using the effective interest method over the
respective terms of the contracts.
Page 46
<PAGE>
Allowance for Collection Costs
- ------------------------------
In connection with the Company's acquisition of NACO and Trails and its
emergence from bankruptcy in 1991, the Company recorded an allowance for future
costs associated with the collection of the contracts receivable portfolio. The
allowance is being amortized as a reduction to general and administrative
expenses based on cash collected on the related portfolio.
Valuation Allowance
- -------------------
In connection with purchases of contracts receivable from third parties, the
Company recorded a valuation allowance to record the contracts receivable at the
purchase price. The allowance is being amortized as an increase to interest
income over the respective terms of the contracts.
Campground Land and Timeshare and Lot Inventory
- -----------------------------------------------
Campground land and timeshare and lot inventory are recorded at the lower of
cost or estimated net realizable value. The remaining timeshare inventory was
sold in November 1996. Prior to November 1996, the timeshare inventory was
charged to cost of sales based on the value of a timeshare week sold in relation
to total sellable weeks at the property. Similarly, while the Company sold
campground memberships that conveyed an undivided interest in the campground
property, the related campground property was charged to cost of sales based on
the total number of memberships available for sale at the campground. In
connection with the restatement (see Note 1), the land underlying the Company's
operating campgrounds was recaptioned as "campground land."
Buildings, Equipment and Depreciation
- -------------------------------------
Buildings and equipment are recorded at cost. The costs of betterments and
improvements which extend the useful life of the asset are capitalized whereas
the costs of maintenance and repairs which do not extend the useful life of the
asset are expensed in the period incurred. Depreciation is recorded using the
straight-line method over the estimated useful lives of the assets which range
from three to thirty years.
Consent Fees
- ------------
In fiscal 1994, to obtain an amendment of the Indenture for the 12% Senior
Secured Notes Due 1998 (the "Secured Notes"), the Company paid aggregate cash
consent fees of $1.6 million to the holders of the Secured Notes who consented
to the amendment. The consent fees were capitalized, and through fiscal 1996,
were amortized on the effective interest method over the remaining term of the
Secured Notes. The remaining unamortized balance of the consent fees was
eliminated when the Secured Notes were retired in a restructuring (the
"Restructuring") that was completed on July 17, 1996 (see Note 8).
Discount on Secured Notes
- -------------------------
In connection with the issuance of the Secured Notes, a discount was recorded to
reduce the carrying value of the Secured Notes to their estimated fair value as
of December 31, 1991, the fresh start reporting date. The discount resulted in
an effective interest yield of 18% for the Secured Notes, and through fiscal
1996, was being amortized as additional interest expense using the effective
interest method over the term of the Secured Notes. The remaining unamortized
balance of this discount was eliminated when the Secured Notes were retired in
the Restructuring on July 17, 1996 (see Note 8).
Income Taxes
- ------------
The Company recognizes certain revenues and expenses in periods which differ for
tax and financial reporting purposes.
Net Income (Loss) Per Common Share
- ----------------------------------
Net income per common share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding, as determined
by the treasury stock method, whereby proceeds, if any, from the assumed
exercise of common stock equivalents, would be used to purchase shares at
current market prices. Net loss per common share is computed based on weighted
average common shares outstanding only. Warrants
Page 47
<PAGE>
outstanding as well as common stock equivalents that would be assumed
outstanding are excluded from the net loss per common share computation as they
would be anti-dilutive.
As part of the Restructuring, on July 17, 1996, the Company issued an aggregate
of 3,680,550 shares of common stock as partial consideration for the retirement
of the Secured Notes (see Note 8). These shares represent approximately 50% of
the shares of common stock currently outstanding.
Foreign Currency Translation Adjustments
- ----------------------------------------
The Company translates the balance sheet of its Canadian subsidiary into US
dollars at exchange rates in effect as of the balance sheet date. Profit and
loss accounts are translated monthly at exchange rates in effect at that time.
NOTE 3 - REINCORPORATION MERGER
On November 20, 1996, the Company, then known as USTrails, reincorporated in the
state of Delaware and changed its name to Thousand Trails, Inc. The
reincorporation was effected through a merger (the "Merger") with a newly formed
wholly owned subsidiary of USTrails that was approved by USTrails' stockholders
at their annual meeting. In the Merger, each share of USTrails common stock,
par value $.01 per share ("USTrails Common Stock"), outstanding prior to the
Merger was converted into one share of the Company's common stock, par value
$.01 per share ("Common Stock"), and each outstanding stock option, warrant or
other right to purchase or receive USTrails Common Stock was converted into a
similar stock option, warrant or other right to acquire Common Stock. The
principal purposes of the Merger were to implement certain transfer restrictions
on the Common Stock (see Note 11) and to change USTrails' state of incorporation
to Delaware.
NOTE 4 - RESTRUCTURING COSTS
In fiscal 1997, the Company incurred $1.1 million of costs in connection with
the consummation of the Restructuring (see Note 8), which are presented as
restructuring costs in the accompanying consolidated statement of operations.
In connection with the Restructuring, the Company also incurred $3.1 million of
costs to obtain a Credit Agreement (the "Credit Agreement") with Foothill
Capital Corporation ("Foothill"), which were capitalized as debt issue costs in
fiscal 1997. In May 1997, the unamortized balance of these debt issue costs of
$1.3 million was charged to expense upon amendment of the Credit Agreement (see
Note 8).
In fiscal 1996, the Company incurred $1.1 million of restructuring costs related
to its efforts to restructure the Secured Notes. In fiscal 1995, the Company
incurred $922,000 of costs related to expanding its Dallas office and hiring and
training new employees. $637,000 of these costs are included in restructuring
costs in the accompanying consolidated statement of operations, and $285,000 of
these costs were capitalized and are included in buildings and equipment in the
accompanying consolidated balance sheets. The Company moved its administrative
offices to Dallas during fiscal 1994.
Page 48
<PAGE>
NOTE 5 - RECEIVABLES
CONTRACTS RECEIVABLE
Contracts receivable are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-----------------
1997 1996
------- -------
<S> <C> <C>
Contracts receivable -
Memberships/undivided interests $11,293 $18,689
Timeshares and lots 1,069 2,440
------- -------
12,362 21,129
Allowance for doubtful accounts (3,855) (6,290)
Allowance for interest discount (455) (722)
Allowance for collection costs (464) (778)
Valuation allowance (150) (262)
------- -------
7,438 13,077
Interest receivable 79 142
------- -------
$ 7,517 $13,219
======= =======
</TABLE>
Contracts Receivable
- --------------------
Contracts receivable bear interest at rates which generally range from 9.5% to
16%, with a weighted average stated rate of 13% and 12.9% at June 30, 1997 and
1996, respectively. The obligor's weighted average equity in the contracts
receivable at June 30, 1997 and 1996, was 70% and 65%, respectively. As of June
30, 1997, approximately 96% of the campground members and purchasers of resort
interests had paid for their membership or resort interest in full.
The Company has no obligation to refund moneys received or to provide further
services to purchasers in the event a contract is canceled for the purchaser's
nonperformance of contractual obligations. Contracts receivable related to
undivided interests, lot sales and timeshare interests are secured by deeds of
trust on the related real estate. The Company does not require campground
members to provide collateral or other security for related contracts
receivable.
Repurchase of Receivables From a Third Party
- --------------------------------------------
On March 22, 1995, the Company purchased $3.0 million of contracts receivable
from a third party, effective as of June 30, 1994, for $1.6 million. The
Company received contracts receivable with a gross balance of $2.0 million and
$1.0 million in cash representing principal and interest collections on the
contracts receivable from June 30, 1994 to March 22, 1995. The Company recorded
the $2.0 million gross balance of the contracts receivable net of an allowance
for doubtful accounts of $523,000 and a purchase price discount of $550,000.
These contracts receivable had previously been sold by NACO to the third party.
In connection with this sale, a portion of the purchase price was withheld as a
dealer holdback against which the purchaser could offset canceled and delinquent
contracts receivable. As of March 22, 1995, the canceled and delinquent
contracts receivable charged against the dealer holdback had consumed it and a
deficiency of $2.7 million existed. Although the Company took the position that
it was not liable for the deficiency based upon the terms of certain agreements
and releases with the third party, the Company had recorded a contingent
liability for the amount of the deficiency. When the Company repurchased the
contracts receivable, this contingent liability was released. As a result, the
Company reversed the $2.7 million recorded liability and included this amount in
nonrecurring income in the accompanying consolidated statement of operations.
Page 49
<PAGE>
Allowance for Doubtful Accounts
- -------------------------------
In fiscal 1997, 1996 and 1995, the Company reduced the allowance for doubtful
accounts on the contracts receivable by $1.2 million, $5.1 million and $457,000,
respectively. These amounts are included in nonrecurring income in the
accompanying consolidated statements of operations. These adjustments were made
because the Company experienced lower contract losses than anticipated in these
years.
The allowance for doubtful accounts is an estimate of the contracts receivable
that will cancel in the future and is determined based on historical
cancellation rates and other factors deemed relevant to the analysis. The
Company does not presently anticipate any further adjustments to the allowance
for doubtful accounts on the contracts receivable. However, the allowance and
the rate at which the Company provides for future losses on its contracts
receivable could be increased or decreased in the future based on the Company's
actual collection experience.
Allowance for Interest Discount
- -------------------------------
The allowance for interest discount had a remaining balance of $455,000 and
$722,000 at June 30, 1997 and 1996, respectively. Amortization of the allowance
for interest discount totaled $267,000, $357,000 and $486,000 for the years
ended June 30, 1997, 1996 and 1995, respectively, which increased interest
income.
Allowance for Collection Costs
- ------------------------------
The allowance for collection costs had a remaining balance of $464,000 and
$778,000 at June 30, 1997 and 1996, respectively. Amortization of the allowance
for collection costs totaled $314,000, $513,000 and $854,000 for the years ended
June 30, 1997, 1996 and 1995, respectively, which decreased general and
administrative expenses. In fiscal 1995, the Company reduced the allowance for
future collection costs by $540,000 more than the normal accrual because the
estimated future cost to collect the remaining contracts receivable was less
than the amount anticipated when the allowance was recorded. This amount is
included in nonrecurring income in the accompanying consolidated statement of
operations.
Valuation Allowance
- -------------------
The valuation allowance had a balance of $150,000 and $262,000 at June 30, 1997
and 1996, respectively. Amortization of the valuation allowance totaled
$112,000, $250,000 and $121,000 for the years ended June 30, 1997, 1996 and
1995, respectively, which increased interest income.
At June 30, 1997, scheduled future receipts on contracts receivable are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Memberships
and Undivided Timeshares
Interests and Lots Total
------------- ---------- -------
<S> <C> <C> <C>
1998 $ 4,171 $ 556 $ 4,727
1999 3,452 284 3,736
2000 2,470 138 2,608
2001 1,025 58 1,083
2002 135 25 160
Thereafter 40 8 48
------- ------ -------
Total $11,293 $1,069 $12,362
======= ====== =======
</TABLE>
The Company operates 55 campgrounds located in 17 states and British Columbia,
Canada. The largest volume of campground membership sales occurred at
campgrounds located in California, and that is where the largest percentage of
campground members reside (approximately 37%). As of June 30, 1997, the
Company's contracts receivable from
Page 50
<PAGE>
members who purchased memberships in the state of California totaled
approximately $4.9 million.
MEMBERSHIP DUES RECEIVABLE
In fiscal 1996, the Company increased the allowance for uncollectible dues by
$1.0 million, related to certain aged dues accounts that were determined
uncollectible in fiscal 1996. This charge is included in nonrecurring expenses
in the accompanying consolidated statement of operations.
NOTE 6 - CAMPGROUND AND RESORT PROPERTIES
Campground properties consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-------------------
1997 1996
-------- --------
(Restated)
<S> <C> <C>
Land held for sale $ 6,211 $ 5,339
Campground land at campgrounds where
right-to-use memberships are sold 11,288 12,030
Campground land at campgrounds where
undivided interests were sold 2,071 2,071
Property and equipment 35,826 37,138
Construction in progress 172 67
Accumulated depreciation (12,804) (10,336)
-------- --------
$ 42,764 $ 46,309
======== ========
</TABLE>
The Company sells campground memberships that give members the right to use one
or more of the Company's campgrounds but do not convey a deeded interest in the
campgrounds. Until 1990, the Company also sold campground memberships that gave
members a deeded undivided interest in one of six campgrounds. At the six
campgrounds where undivided interests were sold, the Company is not required to
seek the consent of the campground members to sell or encumber the Company's
interest in the campgrounds.
Resort properties consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-----------------
1997 1996
------ ------
<S> <C> <C>
Land held for sale $1,171 $1,482
Timeshare and lot inventory 342 1,159
Property and equipment 23 311
Construction in progress 24
Accumulated depreciation (6) (74)
------ ------
$1,530 $2,902
====== ======
</TABLE>
The campground and resort properties are encumbered by certain borrowings as
described in Note 8.
Over the past several years, the Company has been selling the assets it owns at
the resorts. On November 21, 1996, the Company sold its timeshare management
operations and timeshare
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<PAGE>
inventory at the resorts to a newly formed corporation owned by two former
employees (the "Buyer"). The sales price was $850,000, of which $50,000 was paid
in cash at closing with the balance represented by a promissory note in the
principal amount of $800,000. The first principal installment on the note of
$300,000 was paid by its due date of May 15, 1997, and the remaining $500,000 is
due on May 15, 1998. Interest accrues on the note at the rate of 14 1/2% per
annum and is payable with the principal installments. The Buyer may extend
payment of $150,000 of the second principal installment for up to one year, with
interest accruing at 20% per annum. The note is secured by liens on
substantially all of the assets of the Buyer, a pledge of the Buyer's
outstanding stock, and the personal guarantees of the two shareholders of the
Buyer.
A deferred gain of $471,000 recorded in connection with this sale is being
recognized on the installment method of accounting as payments on the note are
received. The deferred gain has been netted against the principal amount of the
note. The net amount is included in inventory and other assets in the
accompanying consolidated balance sheet as of June 30, 1997.
NOTE 7 - DEFERRED REVENUE AND SELLING EXPENSES
Deferred revenue is summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-------------------
1997 1996
------- ---------
Deferred Revenue - (Restated)
<S> <C> <C>
Campground membership sales $ 6,303 $ 5,838
Membership dues 15,611 15,889
Other 1,699 1,710
------- -------
$23,613 $23,437
======= =======
</TABLE>
Components of the change in deferred membership selling expenses and deferred
membership sales revenue are as follows (dollars in thousands):
<TABLE>
<CAPTION>
For the years ended June 30,
-------------------------------
1997 1996 1995
------- ------- ------
(Restated) (Restated)
<S> <C> <C> <C>
Deferred Membership Selling Expenses,
beginning of year $ 1,244 $ 998 $ 951
Deferred 505 481 219
Recognized (358) (235) (172)
------- ------- ------
Net change 147 246 47
------- ------- ------
Deferred Membership Selling Expenses,
end of year $ 1,391 $ 1,244 $ 998
======= ======= ======
Deferred Membership Sales Revenue,
beginning of year $ 5,838 $ 4,864 $4,710
Deferred 2,131 2,116 1,008
Recognized (1,666) (1,142) (854)
------- ------- ------
Net change 465 974 154
------- ------- ------
Deferred Membership Sales Revenue,
end of year $ 6,303 $ 5,838 $4,864
======= ======= ======
</TABLE>
Page 52
<PAGE>
NOTE 8 - LONG TERM DEBT
SECURED NOTES
At June 30, 1996, the Company had outstanding $101.5 million principal amount of
Secured Notes, which were retired in full on July 17, 1996 (see "Secured Note
Restructuring" below). The original principal amount of the Secured Notes was
recorded net of a discount to yield an effective interest rate of 18%. During
the years ended June 30, 1996 and 1995, $4.2 million and $4.6 million,
respectively, of this discount was amortized as additional interest expense.
The Secured Notes bore interest at 12% per annum, payable semi-annually on
January 15 and July 15 of each year. The Company was required to redeem $18.6
million in principal amount of Secured Notes on each of July 15, 1995, 1996 and
1997, with the remaining unpaid principal due at maturity on July 15, 1998. The
Secured Notes were secured by substantially all of the assets of the Company.
On July 15, 1995, the Company made the mandatory redemption of $18.6 million
principal amount of Secured Notes. On January 31, 1996, the Company repurchased
$7.4 million principal amount of Secured Notes from unrelated sellers for $5.3
million, including accrued interest. The Company recognized a gain of $1.4
million on this transaction, which is presented as an extraordinary item in the
accompanying consolidated statement of operations. No taxes were provided as
cancellation of debt income is not included in taxable income to the extent that
the Company's liabilities exceeded the value of its assets immediately prior to
the acquisition of the Secured Notes.
SECURED NOTE RESTRUCTURING
On July 17, 1996, the Company consummated the Restructuring of the Secured
Notes, whereby all of the $101,458,000 principal amount of Secured Notes
outstanding were retired. In the Restructuring, the Company purchased
$10,070,000 in aggregate principal amount of Secured Notes pursuant to a tender
offer for $780 per $1,000 principal amount, and exchanged $81,790,000 in
aggregate principal amount of Secured Notes pursuant to a private exchange offer
for, in each case per $1,000 in principal amount: $400 in cash, $492 in
principal amount of 12% Senior Subordinated Pay-In-Kind Notes Due 2003 ("PIK
Notes") and 45 shares of Common Stock. The remaining $9,598,000 in aggregate
principal amount of Secured Notes were redeemed at 100% of principal amount,
plus accrued interest. In connection with the Restructuring, the Company
entered into the Credit Agreement with Foothill.
The Restructuring was accounted for as a Troubled Debt Restructuring, whereby
the restructured debt was recorded at the carrying value of the old debt and no
gain or loss was recorded on the transaction. A deferred gain of $303,000
recorded in connection with the Restructuring is being amortized as a reduction
of interest expense using the effective interest method over the term of the PIK
Notes.
CREDIT AGREEMENT WITH FOOTHILL
In connection with the Restructuring, the Company entered into the Credit
Agreement with Foothill, under which Foothill made term loans to the Company
totaling $13.0 million, and agreed to make revolving loans to the Company in the
maximum amount of $25.0 million, provided that the aggregate borrowings under
the Credit Agreement at any one time could not exceed $35.0 million. During
fiscal 1997, the Company repaid substantially all of its initial borrowings
under the Credit Agreement.
The Company incurred debt issue costs of $3.1 million related to obtaining the
original Credit Agreement. These costs, which were capitalized, included
prepaid interest, legal costs, financial advisory fees and other direct costs of
obtaining the loans.
Page 53
<PAGE>
On May 16, 1997, the Company and Foothill entered into an amendment to the
Credit Agreement which significantly modified its original terms. The amendment
reduced the maximum availability under the revolving portion of the Credit
Agreement to $20.0 million, decreased the interest rate payable thereunder from
prime plus 2 3/4% per annum to prime plus 1 1/2% per annum, and reduced or
eliminated certain fees. The amendment also permitted the Company to borrow up
to $12.0 million to repurchase the principal amount of PIK Notes, and up to
$750,000 to pay accrued interest on the PIK Notes repurchased. As a result of
such amendment and repurchases of PIK Notes (see discussion below), as of June
30, 1997, the Company had an outstanding term loan totaling $28,000 and a
revolving loan in the maximum amount of $19.3 million, of which $14.1 million
was outstanding and $5.2 million was available for borrowing. Because of the
substantial modifications made to the original Credit Agreement, the amendment
of the Credit Agreement was accounted for as an extinguishment of debt and the
remaining unamortized balance of the original debt issue costs of $1.3 million
was charged to expense and recorded as a loss on extinguishment of debt. This
$1.3 million charge has been presented as a nonrecurring expense in the
accompanying consolidated statement of operations, offsetting a $1.2 million
gain resulting from the PIK Note repurchases, as further discussed below.
The Company must use all collections of principal and interest on the contracts
receivable, which are estimated to be $4.7 million in fiscal 1998, and all
proceeds from asset sales to reduce borrowings under the Credit Agreement. In
addition, the Company must make specified principal reductions on these
borrowings over time based on a monthly calculation of eligible contracts
receivable and an amortization schedule set forth in the agreement. The maximum
amount of the revolving loan declines as these principal reductions are made.
The remaining borrowings under the Credit Agreement must be paid in full on July
16, 1999. Availability of such working capital is subject to continued
compliance by the Company with the financial covenants and other requirements of
the Credit Agreement, including certain covenants respecting minimum earnings
before interest, taxes, depreciation and amortization, and minimum tangible net
worth. The Credit Agreement prohibits the Company from borrowing from other
sources in significant amounts except for equipment purchases.
The Company has granted liens on substantially all of its assets to secure its
obligations under the Credit Agreement. In addition, the Company's subsidiaries
other than an immaterial utility subsidiary have guaranteed the Company's
obligations under the Credit Agreement and, subject to certain limitations, have
granted liens on substantially all of their assets to secure their guarantees.
PIK NOTES AND PIK NOTE REPURCHASES
In the Restructuring, the Company issued $40.2 million principal amount of PIK
Notes which mature on July 15, 2003. The PIK Notes bear interest at (i) 17 1/2%
per annum through January 15, 1998 (the "Initial Period"), and (ii) 12% per
annum thereafter. Upon issuance, the holders of the PIK Notes were paid prepaid
interest in the amount of $40.59 per $1,000 of principal amount (the "Prepaid
Interest") representing the incremental 5 1/2% per annum of interest during the
Initial Period. With the exception of the Prepaid Interest, interest on the PIK
Notes is due semiannually on January 15 and July 15 and is payable in the form
of additional PIK Notes (the "Secondary Notes") as long as borrowings remain
outstanding under the Credit Agreement. After the borrowings under the Credit
Agreement are repaid in full, the Company has the option to issue Secondary
Notes in lieu of cash payment of interest through July 15, 2000. After July 15,
2000, interest on the PIK Notes must be paid in cash.
On June 25, 1997, the Company repurchased $13.4 million principal amount of PIK
Notes at a cost of $12.6 million, including accrued interest. The Company made
these repurchases at an average price of $897 per $1,000 of principal amount in
a Dutch auction available to all holders of PIK Notes. The Company borrowed the
$12.6 million it used for these repurchases under the amended Credit Agreement.
Because the Credit Agreement was amended primarily to provide the funding for
the PIK Note repurchases, the $1.2 million gain resulting from the PIK Note
repurchases was netted with the $1.3 million loss on the debt extinguishment
discussed
Page 54
<PAGE>
above. The net $132,000 loss has been presented as a nonrecurring expense in the
accompanying consolidated statement of operations.
The Indenture for the PIK Notes provides holders of PIK Notes with the right to
have their notes repurchased at 101% of principal amount plus interest in the
event of a Change of Control (as defined). The Indenture also requires the
Company to apply certain asset sales proceeds to the retirement of the PIK Notes
in certain circumstances, subject to the rights of Foothill to repayment in
connection with asset sales. The Indenture does not contain financial
covenants, but it does prohibit the Company from borrowing from other sources in
significant amounts except for the Credit Agreement with Foothill, a $10.0
million replacement working capital facility and equipment purchases.
The PIK Notes were guaranteed by the Company's subsidiaries other than an
immaterial utility subsidiary and are presently unsecured. However, upon
payment in full of all of the Company's obligations under the Credit Agreement,
the PIK Notes will be secured by the same assets as then secure the Credit
Agreement other than cash and cash equivalents and other assets required to
secure any refinancing or replacement of the borrowings provided by the Credit
Agreement for working capital purposes. This replacement credit facility may be
secured by substantially all of the assets of the Company and its subsidiaries
other than certain excluded assets, provided it does not exceed $10.0 million in
principal amount. The mortgages on the Company's campgrounds that were granted
to secure the Company's obligations under the Credit Agreement, and any
mortgages on the Company's campgrounds that are granted in the future to secure
the Company's obligations under the PIK Notes, contain or will contain
nondisturbance provisions designed to protect the rights of the campground
members.
NOTES AND MORTGAGES PAYABLE
Notes and mortgages payable consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-------------
1997 1996
------ ------
<S> <C> <C>
Real estate mortgages, interest payable
at fixed rates ranging from 7.0% to
12% due through May 2012 $ 381 $ 867
Note payable with interest at
escalating rates ranging from 8.9% to
10.4%, semi-annual payments due
through February 2008 223 235
----- ------
$ 604 $1,102
===== ======
</TABLE>
Real estate mortgages totaling $2.5 million were eliminated in connection with
the abandonment of two operating campgrounds in the Fall of 1995.
Page 55
<PAGE>
BALANCE SHEET PRESENTATION
Balance sheet presentation of the current and long term components of the
Company's outstanding debt is reflected below, as of June 30, 1997 and 1996
(dollars in thousands):
<TABLE>
<CAPTION>
June 30,
----------------
1997 1996
------- -------
<S> <C> <C>
CURRENT PORTION OF LONG TERM DEBT:
Borrowings under Credit Agreement $ 5,799
Secured Notes, net of discount of $7.1
million $28,264
Notes and mortgages payable 65 266
------- -------
$ 5,864 $28,530
======= =======
LONG TERM DEBT:
Borrowings under Credit Agreement $ 8,298
PIK Notes, including deferred gain of
$.2 million 29,393
Secured Notes $66,086
Notes and mortgages payable 539 836
------- -------
$38,230 $66,922
======= =======
Total long term debt $44,094 $95,452
======= =======
</TABLE>
The following table presents scheduled maturities of the principal amount of the
Company's outstanding debt as of June 30, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Year ending
June 30, Amount
----------------------- -------
<S> <C>
1998 $ 5,864
1999 7,123
2000 1,334
2001 94
2002 50
Thereafter 29,449
-------
43,914
Deferred gain 180
-------
$44,094
=======
</TABLE>
NOTE 9 - INCOME TAXES
The Company and its subsidiaries have entered into tax sharing agreements,
pursuant to which they file federal income tax returns on a consolidated basis
and allocate tax benefits and liabilities as provided in the agreements. The
agreements generally provide that a subsidiary will reimburse or be reimbursed
by the Company in an amount equal to 100% of any tax amounts that would have
been due or refundable, calculated as if the subsidiary were a stand-alone
taxpayer.
Page 56
<PAGE>
[CAPTION]
The differences, expressed as a percentage of pretax loss, between statutory and
effective federal income tax rates are as follows:
<TABLE>
<CAPTION>
For the years ended June 30,
----------------------------
1997 1996 1995
------- ------ -------
(Restated) (Restated)
<S> <C> <C> <C>
Statutory tax rate 34.0% 34.0% (34.0)%
Provision for state income taxes 3.5 3.6 2.2
Alternative minimum taxes 1.7
Unrecordable net operating loss (34.0) (34.0) 34.0
------ ------ ------
Effective tax rate 5.2% 3.6% 2.2%
====== ====== ======
</TABLE>
At June 30, 1997, the Company had an estimated net operating tax loss
carryforward of $47.9 million, expiring in years 2007 through 2011, as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Year Ending Amount
June 30, Expiring
----------- --------
<S> <C>
2007 $ 9,006
2008 5,897
2009 11,215
2010 16,147
2011 5,655
--------
$ 47,920
========
</TABLE>
Components of deferred income taxes are as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
--------------------
1997 1996
-------- --------
(Restated)
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Property Basis Differences ($2,717) ($2,872)
Purchase Discount Amortization (160) (342)
Bad Debt Provision (2,017) (1,956)
-------- --------
(4,894) (5,170)
-------- --------
DEFERRED TAX ASSETS:
Membership sales 1,670 1,562
Secured Note Offering Costs and
Consent Fee Amortization 81 305
Deferred Gain on Secured Notes 788 1,231
PIK Note Interest 1,572
Unpaid Expenses 3,454 4,387
Restructuring Costs 1,675 1,936
Deferred Revenue 553 536
Net Operating Loss 17,022 19,917
Other 40 516
-------- --------
26,855 30,390
-------- --------
Net Deferred Tax Asset 21,961 25,220
Valuation Account (21,961) (25,220)
-------- --------
Net Deferred Tax Asset $ 0 $ 0
======== ========
</TABLE>
Page 57
<PAGE>
SFAS No. 109, which provides guidance on reporting for income taxes, requires
the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. The Company has recorded a valuation
allowance for the amount by which deferred tax assets exceed deferred
liabilities and, as a result, the Company has not recorded any liability or
asset for deferred taxes as of June 30, 1997 or 1996.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Lease Commitments
- -----------------
The Company leases equipment and facilities under non-cancelable operating
leases with terms in excess of one year. At June 30, 1997, the Company's future
obligations under non-cancelable operating leases were as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Year ending
June 30, Amount
----------- ------
<S> <C>
1998 $730
1999 565
2000 262
2001 125
2002 108
</TABLE>
Accrued Construction Costs
- --------------------------
At June 30, 1997, the Company had a recorded liability of $2.8 million for
amounts necessary to complete certain improvements at the resorts as provided in
registration statements filed with the US Department of Housing and Urban
Development. The costs of such improvements are based upon engineering
estimates and are classified as a current liability in the accompanying
consolidated balance sheets.
CEO Bonus Accrual
- -----------------
The employment agreement between the Company and its Chief Executive Officer
("CEO") provided that the CEO would receive a one-time bonus equal to between 4%
and 6% of the amount by which the enterprise value of the Company (including the
value of its debt and equity securities) exceeded $75.0 million at the time the
CEO elected to receive the bonus. The bonus would have been adversely affected
by the consummation of the Restructuring. As a result, on June 29, 1996, the
CEO exercised his right to receive the bonus and became entitled to $1,270,589,
of which $952,927 was paid on July 9, 1996 and $317,662 was paid on May 11,
1997. The Company obtained an irrevocable standby letter of credit on which the
CEO could draw payment if the Company failed to pay the bonus after receiving a
request from the CEO. The letter of credit was secured by a $1.5 million cash
deposit, which was reduced to $317,662 after the payment of the initial bonus
amount, and released in February 1997. The Company accrued the entire amount of
the bonus at June 30, 1996, which is included in nonrecurring expenses in the
Company's consolidated statement of operations.
CONTINGENCIES
Self Insurance
- --------------
The Company is self-insured for general liability losses up to $250,000 per
occurrence, with an annual aggregate exposure to the Company of $2.0 million.
The Company's liability insurance program provides coverage in excess of the
self-insured amounts up to an annual limit of $26.8 million. The Company has
provided a liability for estimated known and unknown claims related to uninsured
general liability risks of $2.0 million and $1.6 million at June 30, 1997 and
1996, respectively, which is included in other liabilities in the accompanying
consolidated balance sheets. This liability is determined based on actuarial
estimates.
Page 58
<PAGE>
The Company also has employee benefit plans that are funded primarily through
employer and employee contributions (see Note 15).
Workers' Compensation Insurance
- -------------------------------
During fiscal 1997, the Company determined that it is entitled to refunds of
$865,000 in future periods for deposits made in previous years to cover workers'
compensation claims in excess of those covered by the standard premium paid by
the Company. These deposits were expensed in the years the deposits were made
because the Company anticipated that the deposits would be used to cover
workers' compensation claims. At June 30, 1997, the Company recorded the
refundable amount as an asset, resulting in nonrecurring income of $865,000.
The refundable amount is included in other assets in the accompanying
consolidated balance sheet as of June 30, 1997.
In fiscal 1996, the Company changed its method of determining workers'
compensation premiums, whereby it no longer records the cost of such premiums
based on estimates that are subject to potential audit adjustments at year-end.
As a result, in fiscal 1996, the Company reversed its recorded contingent
liability related to workers' compensation premium audits. The $799,000
reversal amount is included in nonrecurring income in the accompanying
consolidated statement of operations.
Declining Membership Base
- -------------------------
The Company derives a significant portion of its ongoing operating revenue from
its campground members (89% in fiscal 1997). The Company's membership base has
declined significantly over the past five fiscal years, and net of new sales,
the membership base is presently declining at the rate of approximately 6% per
year. The Company attributes this continuing decline principally to its aging
membership base, of whom approximately 50% are senior citizens. In addition,
the Company estimates that the memberships sold in recent fiscal years will have
an expected life that is significantly shorter than the expected life of the
memberships previously sold by the Company. To stop the continuing decline in
the Company's membership base, the Company must significantly increase its
campground membership sales over current levels.
Environmental Issues
- --------------------
Certain environmental issues may exist at some of the Company's campgrounds
concerning underground storage tanks, sewage treatment plants and septic
systems, and waste disposal. Management has reviewed these issues and believes
that they will not have a material adverse impact on the Company's operations or
financial position.
Litigation
- ----------
The Company is involved in certain claims and litigation arising in the normal
course of business. Management believes that the eventual outcome of these
claims and litigation will not have a material adverse impact on the Company's
operations or financial position.
NOTE 11 - STOCKHOLDERS' EQUITY (DEFICIT)
USTrails issued 3,702,726 shares of USTrails Common Stock in connection with its
emergence from bankruptcy on December 31, 1991. USTrails issued an additional
3,680,550 shares of USTrails Common Stock in the Restructuring on July 17, 1996
(see Note 8). Upon the completion of the Company's reincorporation merger on
November 20, 1996, the former USTrails Common Stock was exchanged for the
Company's Common Stock (see Note 3). Transfer of the Common Stock is subject to
transfer restrictions that are described below.
Transfer of Common Stock is subject to restrictions designed to avoid an
"ownership change" within the meaning of section 382 of the Internal Revenue
Code of 1986, as amended (the "Code"). Such restrictions are set forth in
Article IX of the Company's Restated Certificate of Incorporation. Article IX
generally restricts, until June 30, 2011 (or earlier in certain events),
Page 59
<PAGE>
direct or indirect transfer of Common Stock that would without the approval of
the board of directors of the Company (i) increase to more than 4.75% the
percentage ownership of Common Stock of any person who at any time during the
preceding three-year period did not own more than 4.75% of the Common Stock,
(ii) increase the percentage of Common Stock owned by any person that during the
preceding three-year period owned more than 4.75% of the Common Stock, or by any
group of persons treated as a "5 Percent Shareholder" (as defined in the Code
but substituting "4.75%" for "5 Percent"), or (iii) cause an "ownership change"
of the Company. Article IX provides that any direct or indirect transfer of
Common Stock in violation of Article IX is void ab initio as to the purported
transferee, and the purported transferee will not be recognized as the owner of
shares acquired in violation of Article IX for any purpose, including for
purposes of voting and receiving dividends or other distributions in respect of
Common Stock. Any shares purportedly acquired in violation of Article IX will be
transferred to a trustee who will be required to sell them.
The Company's Restated Certificate of Incorporation provides for the issuance of
15,000,000 shares of Common Stock, par value of $.01 per share. In addition,
the Company's Restated Certificate of Incorporation provides for the issuance of
1,500,000 shares of preferred stock, par value $.01 per share, none of which
have been issued to date.
On December 31, 1991, the Company issued warrants to acquire 194,521 shares of
Common Stock at $4.24 per share. These warrants expire on June 30, 1999. In
June 1992, the Company issued warrants to acquire 290,314 shares of Common Stock
at $4.24 per share. These warrants expire on June 30, 1999. In March 1994, the
Company issued warrants to acquire 10,170 shares of Common Stock at $1.625 per
share. These warrants expire on March 31, 1999. To date, none of these
warrants have been exercised. The Company has also granted stock options to the
Company's CEO, other key employees, and non-employee directors (see Note 14).
Since inception, the Company has not paid any dividends. The Indenture for the
Secured Notes, which was discharged in the Restructuring on July 17, 1996,
prohibited the Company from paying any cash dividends on the Common Stock until
the Secured Notes were repaid. In addition, the Credit Agreement with Foothill
prohibits the payment of any cash dividends on the Common Stock without the
consent of Foothill until the borrowings under the Credit Agreement are repaid,
and the Indenture for the PIK Notes prohibits the payment of any cash dividends
on the Common Stock until the PIK Notes are repaid.
Page 60
<PAGE>
NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of non-cash investing and financing activities required
by SFAS No. 95 "Statement of Cash Flows" are presented below for the years ended
June 30, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
1997
--------
Non-cash transactions related to the
Restructuring (see Note 8)
----------------------------------------
<S> <C>
Retirement of Secured Notes $(44,181)
Issuance of PIK Notes 40,521
Issuance of Common Stock 2,990
Write-off of unamortized portion of
consent fees 670
Non-cash transactions related to the
timeshare sale (see Note 6)
----------------------------------------
Note receivable from Buyer $ 800
Deferred gain (471)
Book value of timeshare inventory sold (58)
Book value of fixed assets sold (165)
Net receivables written off (156)
Non-cash payment of PIK Note interest
----------------------------------------
PIK Notes issued in lieu of cash
interest payment $ 2,372
1996
--------
Abandonment of two operating
campgrounds and elimination of related
nonrecourse obligations (see Note 8) $ 2,518
</TABLE>
The Company did not have any non-cash investing or financing activities during
the year ended June 30, 1995.
Page 61
<PAGE>
NOTE 13 - DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
an entity to disclose the estimated fair value of its financial instrument
assets and liabilities. Significant estimates and present value calculations
were used by the Company for purposes of this disclosure. The estimated fair
values of the Company's financial instruments at June 30, 1997 and 1996, as well
as their carrying amounts as reported in the accompanying consolidated balance
sheets, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------- ------- -------- -------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and Cash Equivalents
$ 1,343 $ 1,343 $37,403 $37,403
Restricted Cash 1,407 1,407 2,912 2,912
Contracts Receivable 12,441 21,271
Less: allowances and discount (4,924) (8,052)
------- -------
7,517 7,500 13,219 13,600
FINANCIAL LIABILITIES:
Secured Notes, net of discount - - 94,350 80,743
Borrowings under Credit Agreement 14,097 14,097 - -
PIK Notes 29,393 26,204 - -
Notes and Mortgages 604 604 1,102 1,000
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of the Company's financial instruments at June 30, 1997 and 1996, for
which it is practical to estimate that value.
Cash and Cash Equivalents, Restricted Cash and Borrowings under Credit Agreement
- --------------------------------------------------------------------------------
The carrying amount approximates fair value because of the short maturity of
these instruments.
Contracts Receivable
- --------------------
The fair value of contracts receivable was estimated by discounting the future
cash flows using the current rates at which the Company estimates a similar loan
portfolio would be purchased by a willing third party, after considering risk
factors regarding collectibility and future collection costs.
Secured Notes
- -------------
The fair value of the Secured Notes was estimated using (i) $18.6 million for
the mandatory redemption of Secured Notes due on July 15, 1996, and for the
balance, (ii) quoted market prices for the Company's securities at the balance
sheet date. These quoted prices may not represent actual transactions.
Page 62
<PAGE>
PIK Notes
- ---------
The fair value of the PIK Notes is estimated using the weighted average price
the Company paid to repurchase PIK Notes on June 25, 1997, in a Dutch auction.
Notes and Mortgages
- -------------------
The fair value of notes and mortgages is estimated based on the borrowing rates
currently available for bank loans with similar terms and average maturities.
Changes in assumptions or estimation methodologies may have a material effect on
these estimated fair values. Additionally, lack of uniform valuation
methodologies introduces a greater degree of subjectivity to these estimated
values.
The Company did not have any financial instruments as of the balance sheet dates
presented that were held for trading purposes.
NOTE 14 - STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
CEO Options
- -----------
Upon consummation of the Restructuring, on August 1, 1996, the Company's CEO was
granted options to purchase 664,495 shares of Common Stock at $0.69 per share.
The grant of these options was approved by the Company's stockholders at their
annual meeting. These options are 100% vested and are exercisable for a period
of ten years while the CEO is in the employ of the Company, subject to certain
exceptions. The exercise of the options, however, is subject to restrictions
designed to prevent an "ownership change" for federal tax purposes (see Note
11). To date, none of these options have been exercised.
1991 Employee Plan
- ------------------
Effective December 31, 1991, the Company adopted the 1991 Employee Stock
Incentive Plan (the "1991 Employee Plan") to enable the Company and its
subsidiaries to attract, retain and motivate their officers, employees and
directors. Awards under the 1991 Employee Plan may take various forms,
including (i) shares of Common Stock, (ii) options to acquire shares of Common
Stock ("Options"), (iii) securities convertible into shares of Common Stock,
(iv) stock appreciation rights, (v) phantom stock or (vi) performance units.
Options granted under the 1991 Employee Plan may be (i) incentive stock options
("ISOs"), which have certain tax benefits and restrictions, or (ii) non-
qualified stock options ("Non-qualified Options"), which do not have any tax
benefits and have few restrictions.
The Compensation Committee, or in certain circumstances, the Board of Directors
may grant awards under the 1991 Employee Plan until December 30, 2001. The
recipient of an award duly granted on or prior to such date may thereafter
exercise or settle it in accordance with its terms, although the Company may not
issue any shares of Common Stock pursuant to any award after December 30, 2011.
The Board of Directors may amend or terminate the 1991 Employee Plan at any time
and in any manner, provided that (i) an amendment or termination may not affect
an award previously granted without the recipient's consent, and (ii) an
amendment will not be effective until the stockholders approve it if any
national securities exchange or securities association that lists any of the
Company's securities requires stockholder approval or if Rule 16b-3 requires
stockholder approval.
The Company reserved 291,780 shares of Common Stock for issuance under the 1991
Employee Plan. In fiscal 1993, the Company granted 285,000 ISOs to key
employees with an exercise price of $2.50 per share. Of these 285,000 ISOs,
190,000 were canceled in fiscal 1995 and fiscal 1996 as a result of employees
leaving the Company, and the remaining 95,000 were canceled in fiscal 1996 in
connection with the grant of replacement options issued under
Page 63
<PAGE>
the 1993 Stock Option and Restricted Stock Purchase Plan discussed below. In
September 1995, the Company granted key employees ISOs covering 140,000 shares
with an exercise price of $.625 per share, and in January 1996, the Company
granted certain non-employee directors Non-qualified Options to purchase 20,000
shares with an exercise price of $.81 per share. In September 1996, the Company
granted key employees ISOs covering 60,000 shares and one non-employee director
Non-qualified Options covering 5,000 shares, each with an exercise price of $.80
per share. In November 1996, the Company granted certain non-employee directors
Non-qualified Options covering 20,000 shares, each with an exercise price of
$1.08 per share. To date, 245,000 options are outstanding under the 1991
Employee Plan and none have been exercised. 105,000 of these options are fully
vested, and 140,000 of these options are 66 2/3% vested. All of the outstanding
options are fully vested, and they have a term of 10 years from the date of
grant.
1993 Employee Plan
- ------------------
On December 2, 1993, the Company adopted the 1993 Stock Option and Restricted
Stock Purchase Plan (the "1993 Employee Plan") in order to enable the Company
and its subsidiaries to attract, retain and motivate their officers and
employees. Awards under the 1993 Employee Plan are restricted to (i) awards of
the right to purchase shares of Common Stock ("Stock Awards"), or (ii) awards of
Options, which may be either ISOs or Non-Qualified Options. The purchase price
for any Stock Awards and the exercise price for any Non-Qualified Options may be
less than the fair market value of the Common Stock on the date of grant. The
exercise price of any ISOs may not be less than the fair market value of the
Common Stock on the date of grant.
The Compensation Committee, or in certain circumstances, the Board of Directors
may grant awards under the 1993 Employee Plan until October 20, 2003. The
termination of the 1993 Employee Plan, however, will not alter or impair any
rights or obligations under any award previously granted under the plan.
The Board of Directors may amend or terminate the 1993 Employee Plan at any time
and in any manner, provided that (i) an amendment or termination may not affect
an award previously granted without the recipient's consent, (ii) an amendment
will not be effective until the stockholders approve it if any national
securities exchange or securities association that lists any of the Company's
securities requires stockholder approval or if Rule 16b-3 requires stockholder
approval and (iii) the stockholders must approve any amendment decreasing the
minimum exercise price specified in the plan for any ISO granted thereunder.
The Company reserved 285,919 shares of Common Stock for issuance under the 1993
Employee Plan. The 1993 Employee Plan, however, limits the number of shares of
Common Stock with respect to which awards can be made in any calendar year to
any one participant to 200,000 shares. In May 1996, the Company granted 95,000
ISOs under the 1993 Employee Plan at an exercise price of $.59 per share,
contingent upon the termination of an equal number of ISOs granted under the
1991 Employee Plan at an exercise price of $2.50 per share. In September 1996,
the Company granted key employees ISOs covering 175,000 shares with an exercise
price of $.80 per share. To date, 266,500 options are outstanding under the
1993 Employee Plan and 3,500 options have been exercised. All of the
outstanding options are fully vested, and they have a term of 10 years from the
date of grant.
Director Plan
- -------------
On December 2, 1993, the Company adopted the 1993 Director Stock Option Plan
(the "Director Plan"), which provides for the grant of Non-Qualified Options to
non-employee directors of the Company. The Company reserved 50,000 shares of
Common Stock for issuance under the Director Plan. In January 1995, the non-
employee directors of the Company were granted Non-Qualified Options covering
20,000 shares with an exercise price of $.79 per share. In November 1996, the
non-employee directors of the Company were granted Non-qualified Options
covering 25,000 shares with an exercise price of $1.08 per share. Prior to this
grant, after approval by the Board of Directors, four of the non-employee
Page 64
<PAGE>
directors had voluntarily terminated options for 20,000 shares that were granted
in December 1994 with an exercise price of $2.75 per share. To date, 45,000
options are outstanding under the Director Plan and none have been exercised.
All of these options are fully vested, and they have a term of 10 years from the
date of grant.
The Director Plan is designed to be a "formula plan," pursuant to which each
non-employee director will automatically receive a grant of Non-Qualified
Options to purchase 5,000 shares of Common Stock on the day immediately after
each annual meeting of the stockholders at which directors are elected,
beginning with the annual meeting held in December 1993. If on any such day,
the number of shares of Common Stock remaining available for issuance under the
Director Plan is insufficient for the grant of the total number of Non-qualified
Options to which all participants would otherwise be entitled, each participant
will receive Non-qualified Options to purchase a proportionate number of the
available number of remaining shares. The exercise price of each Non-Qualified
Option is required to be equal to the fair market value on the date of grant of
such Option as determined under the Director Plan. Generally, the Director Plan
specifies that such fair market value is the average trading price of the Common
Stock during the period beginning 45 days before the date of grant and ending 15
days before the date of grant.
SFAS 123 Disclosures
- --------------------
As allowed under SFAS 123, the Company follows the accounting treatment
prescribed by APB 25 in accounting for stock options issued to its employees and
directors. Accordingly, no compensation cost was recognized in connection with
the grant of options during the periods presented. Had compensation cost for
the stock options issued been based on the fair value at the grant dates for
those issuances consistent with SFAS 123, the Company's net income and earnings
per share for the years ended June 30, 1997 and 1996, would have been $6.4
million or $.79 per share, and $1.0 million or $.29 per share, respectively.
Pro forma results under SFAS 123 in fiscal 1997 and 1996 are not likely to be
representative of future pro forma results because, for example, additional
awards may be made in future years.
Set forth below is a summary of awards of stock options made by the Company for
the years ended June 30, 1997, 1996 and 1995, and awards outstanding as of the
end of those years:
<TABLE>
<CAPTION>
Years ended June 30,
---------------------------------------------------------------------------------
1997 1996 1995
------------------------- ---------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ----------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 295,000 $ .78 291,000 $2.40 310,000 $2.52
Options granted 949,495 .74 255,000 .63 20,000 .79
Options canceled (20,000) 2.75 (251,000) 2.50 (39,000) 2.50
Options exercised -- -- --
--------- -------- --------
Options outstanding, end
of year 1,224,495 .71 295,000 .78 291,000 2.40
========= ======== ========
Options exercisable, end
of year 1,131,171 .72 155,000 .92 208,984 2.37
========= ======== ========
Shares available for
grant, end of year 67,699 n/a 332,699 n/a 336,699 n/a
========= ======== ========
</TABLE>
Page 65
<PAGE>
The weighted-average fair value of stock options granted by the Company during
the years ended June 30, 1997 and 1996 was $.38 and $.37, respectively. The
value of each option grant is estimated on the date of grant using the Black-
Scholes option pricing model with the following weighted-average assumptions:
(1) a risk-free interest rate of 6.19% for fiscal 1997 and 6.66% for fiscal
1996, (2) an expected life of three years for fiscal 1997 and four years for
fiscal 1996, (3) expected volatility of 72.5% for fiscal 1997 and 71.58% for
fiscal 1996, and (4) no dividend yield, as the Company has not paid any
dividends since inception, and both the Credit Agreement and the Indenture for
the PIK Notes prohibit or substantially limit the payment of cash dividends.
The following table summarizes information about the Company's stock options
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- -----------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding at Contractual Exercise Exercisable at Exercise
Prices 6/30/97 Life Price 6/30/97 Price
--------- -------------- ------------- ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
OPTION PLANS:
$.59 - $1.08 560,000 8.83 years $.74 466,676 $.77
CEO OPTIONS:
$.69 664,495 9.08 years $.69 664,495/1/ $.69
------------ ------------
1,224,495 8.97 years $.71 1,131,171 $.72
============ ===========
</TABLE>
/1/ As previously discussed, the options granted to the Company's CEO, although
100% vested, are subject to restrictions designed to prevent an "ownership
change" for federal tax purposes.
WARRANTS
On December 31, 1991, the Company issued warrants to acquire 194,521 shares of
Common Stock at $4.24 per share. These warrants expire on June 30, 1999. In
June 1992, the Company issued warrants to acquire 290,314 shares of Common Stock
at $4.24 per share. These warrants expire on June 30, 1999. In March 1994, the
Company issued warrants to acquire 10,170 shares of Common Stock at $1.625 per
share. These warrants expire on March 31, 1999. To date, 494,922 warrants are
outstanding and none have been exercised.
The following table summarizes information about the Company's warrants
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
--------------------------------------------------- --------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Outstanding at Contractual Exercise Exercisable Exercise
Price 6/30/97 Life Price at 6/30/97 Price
--------- -------------- ----------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$4.24 484,835 2 years $ 4.24 484,835 $ 4.24
$1.625 10,170 1.75 years $1.625 10,170 $1.625
</TABLE>
Page 66
<PAGE>
NOTE 15 - EMPLOYEE BENEFIT PLANS
Flexible Benefits Plan Trust Fund
- ---------------------------------
Effective July 1, 1992, the Company established a trust to fund the Company's
employee benefit plans (the "Trust Fund"). The benefit plans (collectively, the
"Plans") include the Company's medical plan, dental plan, disability plan, life
insurance plan, and accidental death and dismemberment plan, and any other
employee welfare benefit plan permissible under Section 3(1) of the Employee
Retirement Income Security Act of 1974. The Company has adopted a flexible
benefits plan established pursuant to Section 125 of the Code to furnish
eligible employees with a choice of receiving cash or certain statutory taxable
or non-taxable benefits under the above benefit plans.
The medical and dental benefits provided to the Company's employees under the
Plans are funded primarily through employer and employee contributions to the
Trust Fund. In addition, the Company has purchased a stop loss insurance policy
which protects the Plans against claims in excess of set policy amounts. The
Company has provided a liability for estimated future claims of $1.4 million and
$1.8 million at June 30, 1997 and 1996, respectively, which is included in other
liabilities in the accompanying consolidated balance sheets. This liability is
based on actuarial estimates of amounts needed to fund expected claims, as well
as premium payments and administrative costs of the Plans. During fiscal 1997,
the Company determined that its actual claims experience for certain previous
years was significantly below the estimates for those years. As a result, the
Company reduced its liability for its estimated future claims by $611,000, which
is reflected as nonrecurring income in the accompanying consolidated statement
of operations for the year ended June 30, 1997.
The Company from time-to-time makes contributions to the Trust Fund, which are
irrevocable. Trust assets may not revert to or inure to the benefit of the
Company. Neither the Company, administrator, nor trustee is responsible for the
adequacy of the Trust Fund.
While the trustee has virtual plenary authority to manage and invest trust
assets, the trustee is required to use trust assets and income exclusively to
provide benefits under the Plans and to defray reasonable expenses of
administering the Plans.
Employees Savings Trust
- ------------------------
Effective July 1, 1994, the Company adopted the Thousand Trails, Inc. Employees
Savings Trust for the purpose of establishing a contributory employee savings
plan exempt under Section 401(k) of the Code. An eligible employee
participating in this plan may contribute up to 10% of his or her annual salary,
subject to certain limitations. In addition, the Company may make discretionary
matching contributions as determined annually by the Company. The Company made
matching contributions totaling $154,000 for the year ended June 30, 1997, and
has committed to make matching contributions for the year ended June 30, 1998,
in an amount equal to 45% of the voluntary contributions made by each
participant, up to 4% of the participant's annual compensation (or a maximum of
1.8% of the participant's annual compensation). Employer contributions are
subject to a seven-year vesting schedule.
NOTE 16 - INDUSTRY SEGMENT INFORMATION
The Company's operations are classified into two business segments: campgrounds
and resorts. Operations within the campground segment include (i) the sale of
memberships which entitle the member to use certain campground facilities, (ii)
the sale of undivided interests related to fee simple sales of interests in
campground facilities, (iii) net revenues earned from the reciprocal use program
conducted by RPI, (iv) net revenues earned from operations at the campgrounds,
and (v) net fees earned from the management of campgrounds owned by third
parties. The Company's resort operations have historically included the sale of
timeshare interests in fully furnished vacation homes, management of the
timeshare facilities, and the sale of lots at certain resorts. In November
1996, the Company sold the timeshare operations and timeshare inventory at the
resorts. The Company's current operations at the resorts consist of
Page 67
<PAGE>
the sale of lots at certain resorts and the operation of the common amenities at
one resort which are not material to the Company's consolidated operations. The
Company has sold significant resort assets in the last three years and plans to
dispose of the remaining resort assets over the next several years.
Operating earnings by business segment are defined as membership dues and other
operating revenue less operating expenses. Sales are separately identified.
Income and expenses not allocated to business segments include interest income,
interest expense, corporate administrative costs, and other income and expenses.
Identifiable assets are those assets used exclusively in the operations of each
business segment. Industry segment information is not presented for the year
ended June 30, 1997, because revenues and identifiable assets related to the
resort operations during that year are less than 10% of the related consolidated
amounts. Separate information regarding the Canadian operations is not
presented as revenues and identifiable assets related to the Canadian operations
for the periods presented are less than 10% of the related consolidated amounts.
The following tables show sales, operating earnings (loss) and other financial
information by industry segment for the years ended June 30, 1996 and 1995, as
restated to reflect a change in accounting method for the recognition of revenue
from campground membership sales (see Note 1) (in thousands):
<TABLE>
<CAPTION>
Year ended June 30, 1996
-------------------------------------------------------------
Campground Resort Corporate and
Operations Operations Other Consolidated
------------ ----------- ------------- --------------
(Restated)
<S> <C> <C> <C> <C>
Operating revenues $59,816 $6,975 $ 66,791
Sales 1,656 1,357 3,013
Operating earnings (loss) 11,910 35 ($12,185) (240)
Identifiable assets 66,953 4,705 39,973 111,631
Depreciation 2,209 123 534 2,866
Capital expenditures 621 366 35 1,022
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30, 1995
-------------------------------------------------------------
Campground Resort Corporate and
Operations Operations Other Consolidated
------------ ----------- ------------- --------------
(Restated)
<S> <C> <C> <C> <C>
Operating revenues $61,431 $8,095 $ 69,526
Sales 1,626 2,448 4,074
Operating earnings (loss) 6,569 418 ($18,560) (11,573)
Identifiable assets 76,564 9,012 51,941 137,517
Depreciation 1,940 165 486 2,591
Capital expenditures 3,984 998 750 5,732
</TABLE>
NOTE 17 - INDEMNIFICATION ARRANGEMENTS
Under its By-laws, the Company must indemnify its present and former directors
and officers for the damages and expenses that they incur in connection with
threatened or pending actions, suits or proceedings arising because of their
status as directors and officers, provided that they acted in good faith and in
a manner that they reasonably believed to be in or not opposed to the best
interests of the Company (or with respect to any criminal action or proceeding,
provided that they had no reasonable cause to believe that their conduct was
unlawful). In connection with this indemnification obligation, the Company has
entered into indemnification agreements with its directors and officers.
Page 68
<PAGE>
The Company must advance funds to these individuals to enable them to defend any
such threatened or pending action, suit or proceeding. The Company cannot
release such funds, however, until it receives an undertaking by or on behalf of
the requesting individual to repay the amount if a court of competent
jurisdiction ultimately determines that such individual is not entitled to
indemnification. In connection with this obligation, the Company and Trails
established trusts (the "Indemnification Trusts") that will reimburse their
present and former directors and officers for any indemnifiable damages and
expenses that they incur and that will advance to them defense funds. In 1991,
the Company and Trails contributed $500,000 and $300,000, respectively, to the
Indemnification Trusts. Pursuant to the trust agreements, interest on the trust
estates will become part of the trust estates. The Indemnification Trusts will
terminate on the earlier of (i) the execution by a majority of the beneficiaries
of a written instrument terminating the trusts, (ii) the exhaustion of the
entire trust estates, or (iii) the expiration of ten years from the
establishment of the trusts. The Indemnification Trusts may not terminate,
however, if there is pending or threatened litigation with respect to a claim by
a beneficiary against the Indemnification Trusts, until (i) a final judgment in
such proceeding, (ii) the execution and delivery of a statement by such
beneficiary that assertion of a threatened claim is unlikely, or (iii) the
expiration of all applicable statutes of limitations. The Company possesses a
residuary interest in the trust estates upon termination of the Indemnification
Trusts. NACO also has indemnification obligations to its directors and
officers. In connection therewith, NACO contributed $200,000 to a trust. This
trust will reimburse NACO directors and certain officers for any indemnifiable
damages and expenses that they incur and will advance defense funds to them.
The trust assets, which totaled $1.4 million at June 30, 1997, are included in
other assets in the accompanying consolidated balance sheets.
NOTE 18 - CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
All of the Company's wholly owned subsidiaries (other than an inconsequential
utility subsidiary) (collectively, the "Subsidiary Guarantors") have fully and
unconditionally guaranteed, on a joint and several basis, the Company's
obligations under the PIK Notes that were issued on July 17, 1996, as well as
the PIK Notes issued in lieu of cash payment of interest (see Note 8).
The following condensed consolidating balance sheets and statements of
operations present the financial position and results of operations of the
Company ("TTI"), NACO, RPI and Wilderness Management, and the eliminations
necessary to arrive at the information for the Company on a consolidated basis,
as of and for the years presented. Such financial information has been restated
to reflect a change in accounting method for the recognition of revenues from
campground membership sales (see Note 1). Prior to July 16, 1996, when Trails
was merged into the Company, Trails was a separate corporation. Therefore, the
financial position and results of operations of Trails as of and for the years
ended June 30, 1996 and 1995, have been presented in a separate column. The
assets and operations of Wilderness Management are not material and have
therefore been combined with the balances of RPI. The Company has not
presented separate financial statements and other disclosures concerning the
Subsidiary Guarantors because management believes such information is not
material to investors. These condensed consolidating financial statements are
presented to provide additional analysis of, and should be read in conjunction
with, the consolidated financial statements of the Company.
All of the Company's debt and equity interests in the Subsidiary Guarantors has
been pledged by the Company to secure its obligations under the Credit
Agreement. In the event of a default and foreclosure under the Credit
Agreement, distributions from, and the assets of, the Subsidiary Guarantors may
not be available to satisfy other obligations of the Company, including the
obligations of the Company to the holders of the PIK Notes.
Page 69
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI AND ELIMI-
TTI NACO WILDERNESS(e) NATIONS TOTAL
---------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS -
Cash and cash equivalents $ 787 $ 484 $ 72 $ 1,343
Current portion of receivables, net 2,768 438 $ (72)a 3,134
Accounts and dues receivable, net 232 310 542
Other current assets 2,104 2,670 6,328 (7,088)b 4,014
-------- -------- ------ -------- --------
Total current assets 5,891 3,902 6,400 (7,160) 9,033
Receivables, net 3,812 699 (128)a 4,383
Notes receivable from affiliates 28,154 (28,154)c
Real estate and property, net 20,943 23,254 97 44,294
Investment in subsidiaries (10,638) 10,638d
Other assets 3,571 1,782 239 5,592
-------- -------- ------ -------- --------
Total assets $ 51,733 $ 29,637 $6,736 $(24,804) $ 63,302
======== ======== ====== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES -
Accounts payable and accrued
liabilities $ 7,259 $ 3,575 $ 408 $ (200)a $ 11,042
Due to affiliates 6,685 403 (7,088)b
Current portion of long term debt 5,844 20 5,864
Accrued construction costs 2,809 2,809
Deferred revenue 11,913 6,324 1,218 19,455
-------- -------- ------ -------- --------
Total current liabilities 31,701 12,728 2,029 (7,288) 39,170
Notes payable to parent 28,154 (28,154)c
Long term debt 37,874 356 38,230
Other liabilities 4,326 3,734 10 8,070
-------- -------- ------ -------- --------
Total liabilities 73,901 44,972 2,039 (35,442) 85,470
-------- -------- ------ -------- --------
STOCKHOLDERS' EQUITY (DEFICIT) (22,168) (15,335) 4,697 10,638 (22,168)
-------- -------- ------ -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 51,733 $ 29,637 $6,736 $(24,804) $ 63,302
======== ======== ====== ======== ========
</TABLE>
a Entry to eliminate the dealer holdback liability to subsidiaries.
b Entry to eliminate other intercompany accounts.
c Entry to eliminate intercompany debt.
d Entry to record subsidiaries' results on a consolidated basis.
e Includes Wilderness Management assets of $375,000.
Page 70
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1996
(Restated)
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI AND ELIMI-
TTI TRAILS NACO WILDERNESS(e) NATIONS TOTAL
--------- -------- ------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS -
Cash and cash equivalents $ 37,298 $ 16 $ 89 $ 37,403
Current portion of receivables, net 1,921 $ 2,108 375 $ (134)a 4,270
Accounts and dues receivable, net 211 311 522
Other current assets 2,031 22,786 1,830 5,388 (27,006)b 5,029
-------- ------- ------- ------ -------- --------
Total current assets 41,250 25,105 2,532 5,477 (27,140) 47,224
Receivables, net 2,252 5,713 1,203 (219)a 8,949
Notes receivable from affiliates 29,417 (29,417)c
Real estate and property, net 104 22,704 26,323 80 49,211
Investment in subsidiaries 17,121 (17,121)d
Other assets 2,421 2,035 1,592 199 6,247
-------- ------- ------- ------ -------- --------
Total assets $ 92,565 $55,557 $31,650 $5,756 $(73,897) $111,631
======== ======= ======= ====== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES -
Accounts payable and accrued
liabilities $ 6,077 $ 7,969 $ 4,486 $ 753 $ (1,309)a $ 17,976
Due to affiliates 23,748 1,571 378 (25,697)b
Current portion of long term debt 28,264 232 34 28,530
Accrued construction costs 3,154 3,154
Deferred revenue 11,782 6,307 1,176 19,265
-------- ------- ------- ------ -------- --------
Total current liabilities 58,089 19,983 15,552 2,307 (27,006) 68,925
Notes payable to parent 1 29,416 (29,417)c
Long term debt 66,086 346 490 66,922
Other liabilities 353 4,058 3,678 (353)a 7,736
-------- ------- ------- ------ -------- --------
Total liabilities 124,528 24,388 49,136 2,307 (56,776) 143,583
-------- ------- ------- ------ -------- --------
STOCKHOLDERS' EQUITY (DEFICIT) (31,963) 31,169 (17,486) 3,449 (17,121) (31,952)
-------- ------- ------- ------ -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 92,565 $55,557 $31,650 $5,756 $(73,897) $111,631
======== ======= ======= ====== ======== ========
</TABLE>
a Entry to eliminate the dealer holdback liability to subsidiaries.
b Entry to eliminate other intercompany accounts.
c Entry to eliminate intercompany debt.
d Entry to record subsidiaries' results on a consolidated basis.
e Includes Wilderness Management assets of $325,000.
Page 71
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI AND ELIMI-
TTI NACO WILDERNESS(d) NATIONS TOTAL
------- ------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES
Membership dues and other
campground/resort revenue $35,243 $21,514 $1,094 $57,851
Membership and resort interest sales 2,090 1,387 3,477
Interest income 5,318 1,093 $(2,685)a 3,726
Income from subsidiaries 3,400 (3,400)b
Other income 4,959 5,349 4,086 (1,035)c 13,359
------- ------- ------ ------- -------
Total Revenue 51,010 29,343 5,180 (7,120) 78,413
------- ------- ------ ------- -------
EXPENSES
Campground/resort operating
expenses 24,431 17,408 1,021 42,860
Selling and marketing 2,898 1,559 (2,685)a 4,457
Interest expense 9,130 2,639 (1,035)c 9,084
General and administrative 6,000 5,135 10,100
Restructuring costs 1,101 1,101
Other expenses 1,258 406 1,978 3,642
------- ------- ------ ------- -------
Total Expenses 44,818 27,147 2,999 (3,720) 71,244
------- ------- ------ ------- -------
Operating income 6,192 2,196 2,181 (3,400) 7,169
Income tax (provision) benefit 607 (44) (933) (370)
------- ------- ------ ------- -------
Net Income $ 6,799 $ 2,152 $1,248 $(3,400) $ 6,799
======= ======= ====== ======= =======
</TABLE>
a Entry to eliminate intercompany interest.
b Entry to record subsidiaries' results on a consolidated basis.
c Entry to eliminate servicing fee income earned on affiliate receivable
portfolios.
d Includes Wilderness Management revenues and expenses of $1.1 million
and $1.0 million, respectively.
Page 72
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
(Restated)
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI AND ELIMI-
TTI TRAILS NACO WILDERNESS(d) NATIONS TOTAL
------- -------- ------- ------------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Membership dues and other
campground/resort revenue $34,911 $26,481 $ 820 $62,212
Membership and resort interest sales 1,444 1,569 3,013
Interest income $ 6,445 3,446 1,219 267 $ (4,621)a 6,756
Income from subsidiaries 8,526 (8,526)b
Other income 66 4,669 10,977 4,585 (1,256)c 19,041
------- -------- ------- ------- -------- -------
Total Revenue 15,037 44,470 40,246 5,672 (14,403) 91,022
------- -------- ------- ------- -------- -------
EXPENSES
Campground/resort operating
expenses 25,647 23,865 796 50,308
Selling and marketing 3,504 1,810 5,314
Interest expense 17,346 146 4,822 (4,621)a 17,693
General and administrative 1,604 3,813 6,312 (1,256)c 10,473
Restructuring costs 1,124 1,124
Other expenses 3,721 392 2,237 6,350
------- -------- ------- ------- -------- -------
Total Expenses 20,074 36,831 37,201 3,033 (5,877) 91,262
------- -------- ------- ------- -------- -------
Operating income (loss) (5,037) 7,639 3,045 2,639 (8,526) (240)
Income tax (provision) benefit 4,756 (3,471) (77) (1,249) (41)
Extraordinary gain 1,390 1,390
------- -------- ------- ------- -------- -------
Net Income $ 1,109 $ 4,168 $ 2,968 $ 1,390 $ (8,526) $ 1,109
======= ======= ======= ======= ======== ========
</TABLE>
a Entry to eliminate intercompany interest.
b Entry to record subsidiaries' results on a consolidated basis.
c Entry to eliminate servicing fee income earned on affiliate receivable
portfolios.
d Includes Wilderness Management revenues and expenses of $826,000 and
$796,000, respectively.
Page 73
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995
(Restated)
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI AND ELIMI-
TTI TRAILS NACO WILDERNESS(d) NATIONS TOTAL
------- ------- -------- ------------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Membership dues and other
campground/resort revenue $36,261 $28,385 $ 554 $ (519)b $ 64,681
Membership and resort interest sales 1,009 3,065 4,074
Interest income $ 8,509 3,961 1,698 188 (4,421)a 9,935
Other income 660 1,891 7,155 4,845 (1,849)c 12,702
------- ------- -------- ------- ------- --------
Total Revenue 9,169 43,122 40,303 5,587 (6,789) 91,392
------- ------- -------- ------- ------- --------
EXPENSES
Campground/resort operating expenses 29,789 27,214 613 (519)b 57,097
Selling and marketing 3,393 3,396 6,789
Interest expense 20,370 449 4,562 (4,421)a 20,960
General and administrative 2,239 4,777 6,951 (1,849)c 12,118
Restructuring costs 124 308 205 637
Loss from subsidiaries 831 (831)b
Other expenses 2,104 534 2,726 5,364
------- ------- -------- ------- ------- --------
Total Expenses 23,564 40,820 42,862 3,339 (7,620) 102,965
------- ------- -------- ------- ------- --------
Operating income (loss) (14,395) 2,302 (2,559) 2,248 831 (11,573)
Income tax (provision) benefit 2,567 (1,656) (38) (1,128) (255)
------- ------- -------- ------- ------- --------
Net Income (Loss) $(11,828) $ 646 $(2,597) $ 1,120 $ 831 $(11,828)
======== ======= ======= ======= ======= =========
</TABLE>
a Entry to eliminate intercompany interest.
b Entry to record subsidiaries' results on a consolidated basis.
c Entry to eliminate servicing fee income earned on affiliate receivable
portfolios.
d Includes Wilderness Management revenues and expenses of $554,000 and
$613,000, respectively.
Page 74
<PAGE>
SCHEDULE II
THOUSAND TRAILS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance at the Balance at
Valuation and qualifying beginning of the end of
accounts deducted from assets Year ended the year Additions Deductions the year
- -------------------------------- ------------ -------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts 6/30/97 $ 6,290 $ 35 $2,470 a $ 3,855
6/30/96 13,806 24 7,540 a 6,290
6/30/95 17,495 546 b 4,235 a 13,806
Allowance for uncollectible dues 6/30/97 $ 4,666 $3,215 $4,313 $ 3,568
receivable 6/30/96 4,008 4,754 c 4,096 4,666
6/30/95 4,611 4,400 5,003 4,008
Allowance for interest discount, 6/30/97 $ 1,762 $0 $ 693 $ 1,069
collection costs and valuation 6/30/96 2,882 0 1,120 1,762
discount 6/30/95 4,333 550 d 2,001 e 2,882
Deferred tax valuation allowance 6/30/97 $25,220 $0 $3,259 $21,961
(as restated) 6/30/96 19,441 5,779 0 25,220
6/30/95 16,679 2,762 0 19,441
</TABLE>
a Includes a reduction in the allowance for doubtful accounts of $1,232;
$5,146, and $457 in fiscal 1997, 1996 and 1995, respectively.
b Includes an addition to the allowance for doubtful accounts of $523
recorded in connection with the repurchase of contracts receivable from
a third party.
c Includes an increase in the allowance for uncollectible dues receivable
of $1,000.
d Represents a valuation allowance of $550 recorded in connection with the
repurchase of contracts receivable from a third party.
e Includes a reduction in the allowance for collection costs of $540.
Page 75
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Page 76
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be included under the captions
"Proposal I - Election of Directors," "Board of Directors," "Executive
Officers," and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Registrant's definitive Proxy Statement for the Registrant's 1997 Annual Meeting
of Stockholders, which will be filed with the SEC pursuant to Regulation 14A,
and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included under the caption
"Executive Compensation" in the Registrant's definitive Proxy Statement for the
Registrant's 1997 Annual Meeting of Stockholders, which will be filed with the
SEC pursuant to Regulation 14A, and is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item will be included under the caption
"Security Ownership" in the Registrant's definitive Proxy Statement for the
Registrant's 1997 Annual Meeting of Stockholders, which will be filed with the
SEC pursuant to Regulation 14A, and is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included under the caption
"Certain Transactions" in the Registrant's definitive Proxy Statement for the
Registrant's 1997 Annual Meeting of Stockholders, which will be filed with the
SEC pursuant to Regulation 14A, and is hereby incorporated by reference.
Page 77
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) FINANCIAL STATEMENTS
The following documents are filed as part of this Report:
Report of Independent Public Accountants for the years ended June 30, 1997,
1996 and 1995.
Consolidated Balance Sheets as of June 30, 1997 and 1996.
Consolidated Statements of Operations for the years ended June 30, 1997,
1996 and 1995.
Consolidated Statements of Stockholders' Deficit for the years ended June
30, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended June 30, 1997,
1996 and 1995.
Notes to Consolidated Financial Statements.
Schedule II Valuation and Qualifying Accounts
(b) REPORTS ON FORM 8-K
The Company did not file any Current Reports on Form 8-K during the quarter
ended June 30, 1997. However, on July 8, 1997, the Company filed a Current
Report on Form 8-K relating to its repurchase of $13.4 million principal amount
of PIK Notes on June 25, 1997. The Company made these repurchases in a Dutch
auction available to all holders of PIK Notes.
(c) EXHIBITS
The following documents are filed or incorporated by reference as exhibits to
this report:
Exhibit
Number Description
------- -----------
2.1 Plan of Reorganization of the Company (which was
formerly known as NACO Finance Corporation), dated
October 15, 1991, as supplemented (incorporated by
reference to Exhibit 2.1 to the Company's Annual Report
on Form 10-K for the year ended June 30, 1992, File No.
0-19743).
2.2 Exchange Agreement, dated as of June 11, 1992, between
the Company and certain holders of Trails' 14 5/8%
Senior Subordinated Notes (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K
filed with the SEC on June 25, 1992, File No. 0-19743).
Page 78
<PAGE>
2.3 Agreement and Plan of Merger, dated as of August 2,
1993, among the Company, Trails Acquisition, Inc., and
Trails, as amended (incorporated by reference to Exhibit
(c)(1) to the Rule 13E-3 Transaction Statement on
Schedule 13E-3 that the Company, Trails Acquisition,
Inc., and Trails originally filed with the SEC on
December 2, 1993).
2.4 Offer to Purchase for Cash the Company's 12% Secured
Notes due 1998 and Additional Series 12% Secured Notes
due 1998 by the Company, dated June 5, 1996 (the "Offer
to Purchase") (incorporated by reference to Exhibit 99.2
to the Company's Current Report on Form 8-K filed with
the SEC on June 7, 1996, File No. 0-19743).
2.5 Supplement to the Offer to Purchase, dated June 21, 1996
(incorporated by reference to Exhibit 2.5 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
2.6 Private Placement Memorandum by the Company offering to
exchange the Company's 12% Secured Notes due 1998 and
Additional Series 12% Secured Notes due 1998 to certain
holders of such notes, dated June 28, 1996 (the "Private
Placement Memorandum") (incorporated by reference to
Exhibit 2.6 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1996, File No. 0-19743).
2.7 Letter of Transmittal pertaining to the transmittal of
the Company's 12% Secured Notes Due 1998 and Additional
Series 12% Secured Notes Due 1998 by certain holders of
such notes pursuant to the exchange offer made by the
Company in the Private Placement Memorandum
(incorporated by reference to Exhibit 2.7 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
2.8 Supplement to the Private Placement Memorandum, dated
July 15, 1996 (incorporated by reference to Exhibit 2.8
to the Company's Annual Report on Form 10-K for the year
ended June 30, 1996, File No. 0-19743).
2.9 Agreement and Plan of Merger, dated as of October 1,
1996, between the Company and USTrails (predecessor in
interest to the Company) (incorporated by reference to
the proxy statement/prospectus filed with the the SEC on
October 3, 1996 as part of the Registration Statement on
Form S-4, Registration Statement No. 333-13339, File No.
0-19743 (the "S-4 Registration Statement").
2.10 Offer to Purchase for Cash the Company's 12% Senior
Subordinated Pay-In-Kind Notes due 2003, dated as of
May 20, 1997 (incorporated by reference to Exhibit 99.1
to the Company's Current Report on Form 8-K filed with
the SEC on July 8, 1997, File No. 0-19743).
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to the proxy
statement/prospectus filed with the SEC on October 3,
1996 as part of the S-4 Registration Statement).
3.2 Amended and Restated By-laws of the Company
(incorporated by reference to Exhibit 3.2 to the Form 8-
B filed by the Company with the SEC on November 27,
1996, File No. 0-19743).
Page 79
<PAGE>
4.1 Form of Reorganization Warrant Certificate to purchase
shares of Common Stock and schedule of substantially
identical warrants (incorporated by reference to Exhibit
4.7 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1992, File No. 0-19743).
4.2 Letter Agreement, dated March 19, 1993, between the
Company and Carl Marks Strategic Investments, LP
(incorporated by reference to Exhibit 4.18 to the
Company's Registration Statement No. 33-571261 on Form
S-2, originally filed with the SEC on January 15, 1993,
File No. 0-19743).
4.3 Form of Warrant Certificate to purchase shares of Common
Stock issued pursuant to the Exchange Agreement with
certain holders of Trails' indebtedness (incorporated by
reference to Exhibit 4.3 to the Company's Current Report
on Form 8-K filed with the SEC on June 25, 1992, File
No. 0-19743) and schedule of substantially identical
warrants (incorporated by reference to Exhibit 4.15 to
the Company's Annual Report on Form 10-K for the year
ended June 30, 1992, File No. 0-19743).
4.4 Warrant Agency Agreement, dated as of March 2, 1994,
between the Company and Shawmut Bank Connecticut,
National Association, as Warrant Agent (incorporated by
reference to Exhibit 4.4 to the Company's Current Report
on Form 8-K filed with the SEC on April 11, 1994, File
No. 0-19743).
4.5 Registration Rights Agreement, dated as of December 31,
1991, regarding the Company's Secured Notes and other
securities (incorporated by reference to Exhibit 4.8 to
the Company's Annual Report on Form 10-K for the year
ended June 30, 1992, File No. 0-19743).
4.6 Registration Rights Agreement, dated as of June 12,
1992, regarding the Company's Additional Series Secured
Notes and the shares of Common Stock issuable upon the
exercise of certain warrants (incorporated by reference
to Exhibit 4.4 of the Company's Current Report on Form
8-K filed with the SEC on June 25, 1992, File No. 0-
19743).
4.7 Indemnification Agreement, dated as of January 14, 1993,
between the Company and the selling security holders
under Registration Statement No. 33-571261 (incorporated
by reference to Exhibit 10.44 to the Company's
Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993, File
No. 0-19743).
4.8 Indenture, dated as of July 17, 1996, among the Company,
Fleet National Bank as Trustee, and certain other
parties described therein, pertaining to the Company's
Senior Subordinated Pay-In-Kind Notes Due 2003
(incorporated by reference to Exhibit 4.36 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
4.9 Form of Senior Subordinated Pay-In-Kind Note Due 2003
(incorporated by reference to Exhibit 4.37 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
4.10 Registration Rights Agreement, dated as of July 17,
1996, between the Company and Fleet National Bank as
Trustee (incorporated by reference to Exhibit 4.38 to
the Company's Annual Report on Form 10-K for the year
ended June 30, 1996, File No. 0-19743).
Page 80
<PAGE>
10.1 Credit Agreement, dated as of December 31, 1991,
between the Company and NACO (incorporated by reference
to Exhibit 10.27 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992, File No. 0-
19743).
10.2 First Amendment to Credit Agreement, dated as of May
20, 1993, between the Company and NACO (incorporated by
reference to Exhibit 10.48 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1993,
File No. 0-19743).
10.3 Second Amendment to Credit Agreement, dated as of
November 10, 1994, between the Company and NACO
(incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1995, File No. 0-19743).
10.4 Amended and Restated Promissory Note, dated as of
November 10, 1994, pursuant to which the Company
provides a $40,000,000 revolving credit facility to
NACO (incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1995, File No. 0-19743).
10.5 Amended and Restated Promissory Note, dated as of
November 10, 1994, pursuant to which the Company
provided a $10,765,000 term loan to NACO (incorporated
by reference to Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.6 Guaranty, dated as of December 31, 1991, pursuant to
which the subsidiaries of NACO guaranteed certain
amounts that NACO owes the Company (incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement No. 33-73284 on Form S-2, originally filed
with the SEC on December 22, 1993, File No. 0-19743).
10.7 Release From Guaranty, dated as of May 31, 1993, among
certain subsidiaries of the Company, the Company, and
Shawmut Bank Connecticut, National Association, as
Trustee (incorporated by reference to Exhibit 10.56 to
the Company's Registration Statement No. 33-571261 on
Form S-2, originally filed with the SEC on January 15,
1993, File No. 0-19743).
10.8 Release under Credit Agreement and Security Agreement,
dated as of May 31, 1993, among certain subsidiaries of
the Company, the Company, and Shawmut Bank Connecticut,
National Association, as Trustee (incorporated by
reference to Exhibit 10.57 to the Company's
Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993, File
No. 0-19743).
10.9 Security Agreement, dated as of December 31, 1991,
pursuant to which NACO granted to the Company a
security interest in substantially all of its personal
and real property including the pledge of NACO's stock
in its subsidiaries as required by the credit agreement
between the Company and NACO (incorporated by reference
to Exhibit 10.31 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992, File No. 0-
19743).
Page 81
<PAGE>
10.10 First Supplement and Amendment to Security Agreement,
dated as of May 20, 1993, among NACO and certain of its
subsidiaries, RPI, the Company, and Shawmut Bank
Connecticut, National Association, as Trustee
(incorporated by reference to Exhibit 10.53 to the
Company's Registration Statement No. 33-571261 on Form
S-2, originally filed with the SEC on January 15, 1993,
File No. 0-19743).
10.11 Form of Mortgage from NACO and its subsidiaries to the
Company pursuant to the credit agreement between the
Company and NACO (incorporated by reference to Exhibit
10.32 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1992, File No. 0-19743), and
schedule of documents substantially identical to the
Form of Mortgage (incorporated by reference to Exhibit
10.55 to the Company's Registration Statement No. 33-
571261 on Form S-2, originally filed with the SEC on
January 15, 1993, File No. 0-19743).
10.12 Form of First Amendment to Mortgage from NACO and its
subsidiaries to the Company amending certain terms of a
Mortgage that previously granted a beneficial security
interest in certain property to the Company pursuant to
the credit agreement between the Company and NACO, and
schedule of documents substantially identical to the
Form of First Amendment to Mortgage (incorporated by
reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.13 Loan and Security Agreement, dated as of July 10, 1996,
between the Company and Foothill Capital Corporation
(incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.14 First Amendment to Loan and Security Agreement, dated
as of May 16, 1997, between the Company and Foothill
Capital Corporation (incorporated by reference to
Exhibit 99.2 to the Company's Current Report on Form 8-
K filed with the SEC on July 8, 1997, File No. 0-
19743).
10.15 Secured Promissory Note (Account Note), dated July 10,
1996, between the Company and Foothill Capital
Corporation (incorporated by reference to Exhibit 10.20
to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996, File No. 0-19743).
10.16 Secured Promissory Note (Term Note), dated July 10,
1996, between the Company and Foothill Capital
Corporation(incorporated by reference to Exhibit 10.21
to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996, File No. 0-19743).
10.17 Form of Pledge and Security Agreement, dated as of July
10, 1996, between the Company and Foothill Capital
Corporation, and schedule of documents substantially
identical to the form of Pledge and Security Agreement
(incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
Page 82
<PAGE>
10.18 Form of Mortgage, dated as of July 10, 1996, to grant
liens to Foothill Capital Corporation to secure the
Company's obligations under the Credit Agreement with
Foothill, and schedule of documents substantially
identical to the form of Mortgage (incorporated by
reference to Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1996,
File No. 0-19743).
10.19 Form of Assignment of Indebtedness and Mortgage, dated
as of July 10, 1996, transferring the liens securing
certain indebtedness that NACO owes to the Company to
Foothill Capital Corporation under the Credit Agreement
with Foothill, and schedule of documents substantially
identical to the form of Assignment of Indebtedness and
Mortgage (incorporated by reference to Exhibit 10.24 to
the Company's Annual Report on Form 10-K for the year
ended June 30, 1996, File No. 0-19743).
10.20 Form of Subordination Agreement, dated as of July 10,
1996, between the Company and Foothill Capital
Corporation, subordinating the security interests under
the credit agreement between the Company and NACO to
the security interests under the Credit Agreement with
Foothill, and schedule of documents substantially
identical to the form of Subordination Agreement
(incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.21 The Company's 1991 Employee Stock Incentive Plan
(incorporated by reference to Exhibit 10.40 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1992, File No. 0-19743).
10.22 Amendment No. 1 to the Company's 1991 Employee Stock
Incentive Plan (incorporated by reference to Exhibit
10.8 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, File No. 0-
19743).
10.23 The Company's 1993 Stock Option and Restricted Stock
Purchase Plan (incorporated by reference to Exhibit
10.22 to the Company's Registration Statement No. 33-
73284 on Form S-2, originally filed with the SEC on
December 22, 1993, File No. 0-19743).
10.24 Amendment No. 1 to the Company's 1993 Stock Option and
Restricted Stock Purchase Plan (incorporated by
reference to Exhibit 10.9 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1996, File No. 0-19743).
10.25 The Company's 1993 Director Stock Option Plan
(incorporated by reference to Exhibit 10.23 to the
Company's Registration Statement No. 33-73284 on Form
S-2, originally filed with the SEC on December 22,
1993, File No. 0-19743).
10.26 Amendment No. 1 to the Company's 1993 Director Stock
Option Plan (incorporated by reference to Exhibit 10.10
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996, File No. 0-19743).
Page 83
<PAGE>
10.27 Stock Option Agreement, dated as of August 1, 1996,
between the Company and William J. Shaw (incorporated
by reference to Exhibit 10.26 to the Form 8-B filed by
the Company with the SEC on November 27, 1996, File No.
0-19743).
10.28 Assumption of Obligations, dated as of November 20,
1996, by the Company assuming the obligations of
USTrails under the USTrails Inc. 1991 Employee Stock
Incentive Plan, as amended; the USTrails Inc. 1993
Stock Option and Restricted Stock Purchase Plan, as
amended; the USTrails Inc. 1993 Director Stock Option
Plan, as amended; Warrant Certificates originally
issued on December 31, 1991, June 12, 1992, and March
2, 1994 to May 16, 1995; and the Stock Option
Agreement, dated as of August 1, 1996, between USTrails
and William J. Shaw (incorporated by reference to
Exhibit 10.27 to the Form 8-B filed by the Company with
the SEC on November 27, 1996, File No. 0-19743).
10.29 Employment Agreement, dated as of May 11, 1995, between
the Company and William J. Shaw, and related Standby
Letter of Credit, dated September 22, 1995, issued by
The Bank of California, N.A., for the benefit of Mr.
Shaw, and Letter, dated September 20, 1995, from The
Wyatt Company, regarding Mr. Shaw's Employment
Agreement (incorporated by reference to Exhibit 10.25
to the Company's Annual Report on Form 10-K for the
year ended June 30, 1995, File No. 0-19743).
10.30 Letter dated June 29, 1996, from William J. Shaw to the
Company, regarding Mr. Shaw's election to receive the
Enterprise Bonus payable under his Employment
Agreement, and Letter, dated July 8, 1996, from
Deloitte & Touche LLP, regarding the computation of the
amount of the Enterprise Bonus payable to Mr. Shaw
under his Employment Agreement (incorporated by
reference to Exhibit 10.30 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1996,
File No. 0-19743).
10.31 Amended and Restated Employment Agreement, dated as of
September 10, 1992, among NACO, Trails, RPI, and
William F. Dawson (incorporated by reference to Exhibit
10.49 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1993, File No. 0-19743), and
Letter, dated December 1, 1995, from RPI to William F.
Dawson, regarding certain compensation arrangements
(incorporated by reference to Exhibit 10.4 to the
Company's Quarterly on From 10-Q for the quarter ended
December 31, 1995, File No. 0-19743).
10.32 Amended and Restated Employment Agreement, dated as of
December 2, 1992, among the Company, NACO, Trails, and
Walter B. Jaccard (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1992, File No. 0-19743),
and amendment dated November 15, 1994 (incorporated by
reference to Exhibit 10.30 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743), and amendment dated December 7, 1995
(incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995, File No. 0-19743).
Page 84
<PAGE>
10.33 Amended and Restated Employment Agreement, dated as of
October 21, 1993, between the Company and Harry J.
White, Jr. (incorporated by reference to Exhibit 99.3
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, File No. 0-19743),
and amendment dated December 7, 1996 (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31,
1995, File No. 0-19743).
10.34 Employment Agreement, dated as of August 31, 1995,
between the Company and R. Gerald Gelinas (incorporated
by reference to Exhibit 10.32 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.35 Indemnification Agreement, dated as of February 18,
1992, between the Company and Andrew Boas (incorporated
by reference to Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1992,
File No. 0-19743), and schedule of substantially
identical Indemnification Agreements (incorporated by
reference to Exhibit 10.33 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.36 Indemnification Agreement, dated as of September 1,
1995, between Trails and William J. Shaw, and schedule
of substantially identical Indemnification Agreements
(incorporated by reference to Exhibit 10.36 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.37 Indemnification Agreement, dated as of September 1,
1995, between NACO and William J. Shaw, and schedule of
substantially identical Indemnification Agreements
(incorporated by reference to Exhibit 10.37 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.38 Indemnification Agreement, dated as of May 8, 1991,
between the Company and Donald W. Hair, and schedule of
substantially identical Indemnification Agreements
(incorporated by reference to Exhibit 10.38 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.39 Indemnification Agreement, dated as of November 20,
1996, between the Company and William J. Shaw and
schedule of substantially identical Indemnification
Agreements (incorporated by reference to Exhibit 10.39
to the Company's Registration Statement No. 333-19357
on Form S-1, originally filed with the SEC on January
7, 1997, File No. 0-19743).
10.40 Lease, dated February 24, 1994, as amended, between
Carter-Crowley Properties, Inc. as lessor, and the
Company as lessee, relating to the Company's offices in
Dallas, Texas (incorporated by reference to Exhibit
10.35 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1994, File No. 0-19743).
10.41 Lease, dated October 7, 1987, as amended, between Hardy
Court Shopping Center, Inc. as lessor, and NACO as
lessee, relating to NACO's offices in Gautier,
Mississippi (incorporated by reference to Exhibit 10.36
to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994, File No. 0-19743).
Page 85
<PAGE>
10.42 Grantor Trust Agreement, dated as of September 30,
1991, between Union Bank of California, N.A. (formerly
known as The Bank of California, N.A., and referred to
herein as "Union Bank"), and Trails (incorporated by
reference from Trails' Annual Report on Form 10-K for
the year ended June 30, 1992, File No. 0-9246).
10.43 Supplement to Grantor Trust Agreement, dated as of
November 20, 1996, by the Company in favor of Union
Bank (incorporated by reference to Exhibit 10.44 to the
Company's Registration Statement No. 333-19357 on Form
S-1, originally filed with the SEC on January 7, 1997,
File No. 0-19743).
10.44 Grantor Trust Agreement, dated as of September 30,
1991, between The Bank of California, N.A. and NACO
(incorporated by reference to Exhibit 10.43 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1992, File No. 0-19743).
10.45 Grantor Trust Agreement, dated May 8, 1991, between the
Company and Texas Commerce Bank, N.A. ("Texas Bank")
(incorporated by reference to Exhibit 10.41 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1992, File No. 0-19743).
10.46 Supplement and Succession Agreement to Grantor Trust
Agreement, dated as of October 13, 1992, among Union
Bank, Texas Bank, the Company, and certain
beneficiaries under the Grantor Trust Agreement
(incorporated by reference to Exhibit 10.51 to the
Company's Registration Statement No. 33-571261 on Form
S-2, originally filed with the SEC on January 15, 1993,
File No. 0-19743).
10.47 Supplement No. 2 to Grantor Trust Agreement, dated as
of November 20, 1996, by the Company in favor of Union
Bank (incorporated by reference to Exhibit 10.43 to the
Form 8-B filed by the Company with the SEC on November
27, 1996, File No. 0-19743).
10.48 Trust Agreement, dated as of July 22, 1992,
establishing the Company's Flexible Benefits Plan Trust
Fund (incorporated by reference to Exhibit 10.45 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1992, File No. 0-19743).
10.49 Thousand Trails, Inc. Employee Savings Trust, dated as
of July 1, 1994, between the Company and its
subsidiaries and The Bank of California, N.A., as
trustee (incorporated by reference to Exhibit 10.42 to
the Company's Annual Report on Form 10-K for the year
ended June 30, 1994, File No. 0-19743).
10.50 Tax Allocation Agreement, dated as of September 10,
1992, between the Company and RPI (incorporated by
reference to Exhibit 99.6 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1993, File No. 0-19743).
10.51 Tax Allocation Agreement, dated as of July 1, 1991,
between the Company and NACO (incorporated by reference
to Exhibit 10.44 to the Company's Annual Report on Form
10-K for the year ended June 30, 1994, File No. 0-
19743).
Page 86
<PAGE>
10.52 Tax Allocation Agreement, dated as of October 29, 1993,
between the Company and Wilderness Management
(incorporated by reference to Exhibit 10.46 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1994, File No. 0-19743).
10.53 Exchange Agent Agreement, dated as of March 29, 1994,
among the Company, Trails, and American Stock Transfer
& Trust Company (incorporated by reference to Exhibit
99.1 to the Company's Current Report on Form 8-K filed
with the SEC on April 11, 1994, File No. 0-19743).
10.54 Sample form of current Membership Contract.
11.1 Statement re: Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
Page 87
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THOUSAND TRAILS, INC.
(Registrant)
Date: September 29, 1997 By: s/William J. Shaw
-------------------------------------
William J. Shaw
Chairman of the Board, President
and Chief Executive Officer
Date: September 29, 1997 By: s/Harry J. White, Jr.
-------------------------------------
Harry J. White, Jr.
Vice President, Chief Accounting Officer,
Chief Financial Officer, and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
s/Andrew M. Boas Director September 29, 1997
- ----------------------
Andrew M. Boas
s/William P. Kovacs Director September 29, 1997
- ----------------------
William P. Kovacs
s/Donald R. Leopold Director September 29, 1997
- ----------------------
Donald R. Leopold
s/H. Sean Mathis Director September 29, 1997
- ----------------------
H. Sean Mathis
s/Douglas K. Nelson Director September 29, 1997
- ----------------------
Douglas K. Nelson
s/William J. Shaw Chairman of September 29, 1997
- ---------------------- the Board
William J. Shaw
Page 88
<PAGE>
EXHIBIT 10.54
Member Name:_________________________ Member #:__________________________
MEMBERSHIP AGREEMENT
(New Camping Memberships)
RETAIL INSTALLMENT CONTRACT
1. DEFINITION OF TERMS. "You" and "your" refer to the individual purchaser or
purchasers who have signed this Agreement. "We", "us", and "our" refer to
Thousand Trails, Inc. ("Trails") and National American Corporation and its
subsidiaries ("NACO"). "Disclosure Statement" means the booklet containing
information on our membership program that was attached to this Agreement and
delivered to you at the time of your purchase. "Preserves" mean the
recreational campground resorts owned or operated by Trails and the recreational
campground resorts owned or operated by NACO for the benefit of their respective
memberships. "Member Rules" mean the rules and other terms set forth in our
Campground Directory, which govern the use of the preserves by our members. A
copy of our Campground Directory was delivered to you at the time of your
purchase.
2. WHAT YOU ARE PURCHASING.
A. TYPE OF MEMBERSHIP. You are purchasing the membership indicated below
(CHECK ONLY ONE AND INITIAL):
__________ [_] NATIONAL MEMBERSHIP (entitles you to use all Trails and NACO
preserves).
(Buyer's Initials)
__________ [_] WESTERN ZONE MEMBERSHIP (entitles you to use all Trails and
NACO preserves in the Western Zone).
(Buyer's Initials)
__________ [_] EASTERN ZONE MEMBERSHIP (entitles you to use all Trails and
NACO preserves in the Eastern Zone).
(Buyer's Initials)
__________ [_] INTRODUCTORY MEMBERSHIP (entitles you to use all Trails and
NACO preserves in the _________________________ region).
[INSERT NAME OF ONE REGION]
(Buyer's Initials)
The preserves that are currently available for use by members, and the
boundaries of the Western Zone, the Eastern Zone, and the five regions, are
described in the Disclosure Statement. You may use only the preserves that
are specifically included in the type of membership you purchase.
The initial term of your membership is three (3) years following the date of
your purchase. After this initial term, the term of your membership will
automatically renew for additional one-year periods ("renewal terms" herein)
unless you notify us in writing of your desire to terminate your membership at
least 60 days prior to the expiration of the initial term or renewal term, as
the case may be.
B. UPGRADE PRIVILEGES. You may upgrade your membership at any time to a new
membership entitling you to use a greater number of preserves. To upgrade
your membership, you must pay the purchase price of the new membership, and
agree to accept the rate of annual dues and use fees, charged by us for the
new membership at the time of upgrade. When you upgrade your membership, we
will deduct from the purchase price of the new membership the full amount of
the purchase price that you paid for this membership.
3. TERMS OF MEMBERSHIP. During the term of your membership, you are entitled
to use all preserves that are designated by Trails and/or NACO as available for
use by members and included in your membership, subject to the following:
You must use the preserves in accordance with this Agreement and the Member
Rules. We have Member Rules regarding, among other things: (a) advance
notification or first-come, first-choice space arrangements; (b) length of stay;
(c) frequency of use; (d) charges for benefits or services, including rental
units, pet fees, food services, goods purchased, gasoline, and other services
made available by us from time to time; (e) restrictions on guest visits,
including number of guests allowed and guest fees; (f) length of season for use
of the preserves; (g) hours of operation of facilities; (h) use of preserves by
non-members in connection with programs sponsored by us, including without
limitation, our marketing and sales programs, SuperHost group rentals,
charitable functions, community groups and other public use scheduled so as not
to conflict with member use; and (i) such other matters and restrictions on use
as may be reasonably necessary to ensure maximum availability of any preserve
for use by our membership as a whole. We reserve the right, in our sole
discretion, to add, modify, or delete Member Rules from time to time as we may
deem appropriate. Please consult the current Member Rules if you have questions
regarding use of the preserves.
It is your responsibility to use the preserves in a safe and reasonable manner
and to observe the Member Rules. You are also responsible for the conduct of
your children and guests and you are liable for all damages caused by the
negligent or reckless use, or intentional misuse, of the preserves by you or
your children.
The location of, and facilities and amenities at, all of Trails' and NACO's
preserves are described in the Disclosure Statement and are subject to change by
Trails and NACO. Preserves and facilities may be added to or subtracted from
those which existed at the time of execution of this Agreement. Trails and NACO
are under no obligation to increase the number of or improve existing preserves.
Trails and NACO reserve the right to sell memberships with rights and privileges
different from your membership.
Your membership constitutes merely a contractual license to use the facilities
provided by Trails and/or NACO from time to time at the preserves where you have
membership rights. Such preserves and facilities are subject to change as
provided in this Agreement and your membership does not constitute an interest
in, is not secured by, and does not entitle you to any recourse against any real
property of Trails or NACO, nor are you entitled to vote on any aspect relating
to the businesses of Trails or NACO or to share in any of the profits of the
businesses of Trails or NACO. The application and use of all amounts paid by
you under this Agreement, including your purchase price and annual dues, is
within our sole discretion.
You may not possess, hold, or own more than one membership in either Trails or
NACO, and if you acquire more than one membership under any circumstances, we
will terminate all memberships held by you in excess of one.
Page 1 of 4
<PAGE>
Member Name:_________________________ Member #:__________________________
4. TRANSFERABILITY. Unless you purchase a National Membership, your membership
is not transferable in any manner, and any transfer in violation of this
prohibition shall be null and void. If you purchase a National Membership, your
National Membership is transferable, subject to the following limitations. A
National Membership: (a) may only be resold for a price which does not exceed
the price paid by you for your membership plus a reasonable transfer fee as set
forth below; (b) may be transferred only if the purchase price for your
membership is paid in full and your annual dues are current at the time of
transfer; and (c) may be transferred only if your transferee agrees to accept
the rate of annual dues and use fees charged by us on new sales of similar
memberships and the Member Rules in effect at the time of transfer. A National
Membership cannot be divided and, if you transfer one, or if one is transferred
by operation of law, as in the event of divorce, inheritance, descent, or
attachment, all membership privileges must be transferred together.
In connection with any transfer of a National Membership, we will charge a
reasonable transfer fee, which is currently $750. A transfer may be effected
only with our prior written consent, which we will not unreasonably withhold. A
transfer will not become effective until: (a) you and your prospective
transferee have represented to us in writing that the transfer is in compliance
with the foregoing terms; and (b) your prospective transferee has entered into a
new membership agreement.
We will not purchase your membership and we can provide no assurance that we
will be able to locate a buyer for your membership in the event it is
transferable and you decide to sell it. In addition to our sale of new
memberships in company sales programs, we currently offer a resale program
pursuant to which we attempt to resell previously-owned memberships on behalf of
the selling member. In order to participate in our resale program, the selling
member must have paid the purchase price of his membership in full and must be
current on his annual dues. We reserve the right to modify or discontinue our
resale program at any time without further notice and without incurring any
legal liability for the modification or discontinuation.
You may not transfer or sell your membership or assign, rent, loan, or otherwise
alienate your membership, temporarily or permanently, in any manner other than
as provided in this section. Any transfer in violation of this prohibition
shall be null and void. In the event of any dispute over ownership of your
membership, we may, without liability to any person and without releasing you
from your financial obligations to us, suspend and refuse membership privileges
to all persons claiming rights to the membership until they have resolved the
dispute in a manner satisfactory to us and communicated the resolution to us in
writing.
5. DEFAULT AND REMEDIES. Time is of the essence of this Agreement and any of
the following events will be "an event of default":
(a) Your failure to make any payment under this Agreement when due,
including but not limited
to the payment of the application fee, purchase price, finance charge,
and annual dues, or
(b) The falsity of any representation made by you in this Agreement or your
credit application, or
(c) A material breach by you of any provision of this Agreement or the
Member Rules.
Should any "event of default" occur, we may immediately suspend your membership
rights. In addition, upon the occurrence of any "event of default", we may,
upon 30 days' written notice to you, declare the entire unpaid principal balance
of the purchase price, together with the finance charge and annual dues accrued
to the date of default, immediately due and payable. Moreover, we may continue
to collect annual dues from you as they accrue for the balance of the initial
term or renewal term, as the case may be. In the alternative, we may, upon the
occurrence of any "event of default", and upon 30 days' written notice to you,
terminate this Agreement and your membership. If we terminate this Agreement
and your membership because of your default, which we may, but are not required
to do, we shall have all remedies provided by law. If any payment required by
this Agreement is not made in full within ten days of its due date, you agree to
pay us a late charge in the amount set forth in paragraphs 11 and 12. In
addition, where permitted by law, reasonable collection charges will be imposed
if any payment required by this Agreement is not made in full within 30 days of
its due date and collection efforts are made. If permitted by law, a reasonable
fee will also be imposed for processing any check or other payment that is
returned unpaid. If this Agreement is referred to an attorney for collection
after your default, or if a legal action is commenced to enforce or declare the
meaning of any provision of this Agreement, the prevailing party will be awarded
its reasonable attorney's fees and costs, including fees and costs incurred in
both trial and appellate courts.
6. ASSIGNMENT. We may sell or assign this Agreement, and any such assignment
may vest in our assignee all of our right, title, and interest in this
Agreement, and all payments required to be made by you under this Agreement may
be required to be paid to such assignee. No transfer, extension, or assignment
of any interest under this Agreement will release you from your obligation to
make all payments required under this Agreement.
7. CREDIT APPLICATION AND REPORTING. If this Agreement provides for an
installment purchase, the Agreement may be rescinded by us, in our sole
discretion, unless your application for credit is approved by our corporate
office. If your credit application is not approved, we will notify you in
writing within 30 days. You agree that we may from time to time seek and
receive credit related information about you from others such as stores, other
creditors, and credit reporting agencies. You also agree that we may furnish on
a regular basis credit and experience information regarding your account to
others seeking that information. You represent that all information supplied to
us is true, that you are of legal age, that the address set forth on page 4 of
this Agreement is your permanent residence address, and that you are acquiring
this membership solely for the personal enjoyment of you and your family.
8. MISCELLANEOUS. This Agreement contains the entire agreement between you and
us. No waiver or modification of any of the terms or conditions of this
Agreement shall be effective unless in writing and signed by you and an
authorized representative of our corporate office. The terms of this Agreement
will benefit and bind the respective heirs, executors, administrators, legal
representatives, successors, assigns, and transferees of the parties. Any
provision of this Agreement which proves to be invalid, void, or illegal will
not affect, impair, or invalidate any other provision of this Agreement and such
other provisions will remain in full force and effect.
9. APPLICATION FEE. An application fee of $150.00, plus applicable taxes, is
payable as set forth in Section 11. This application fee is designed to cover
the costs we incur in processing your membership application and related
paperwork, setting up your membership in our computer system, and issuing you a
membership card that works with our CIS system.
10. PURCHASE PRICE. The purchase price of your membersip is $____________, plus
applicable taxes, and is payable as set forth in Section 11.
Page 2 of 4
<PAGE>
Member Name:_________________________ Member #:__________________________
11. METHOD OF PAYMENT. (CHECK ONLY ONE AND INITIAL)
__________ [_] I desire to pay the total application fee and purchase price for
my membership of $_______________ in full on the day of purchase.
(Buyer's Initials)
__________ [_] I desire to pay the total application fee and purchase price for
my membership in installments, as follows: (IF CHECKED, COMPLETE
THE BALANCE OF SECTION 11)
(Buyer's Initials)
If you are financing, a cash down payment of $________________ is due on the day
of purchase. The remaining balance of $________________ will accrue interest on
the declining principal balance at the rate of 14.9% per annum, and will be
payable in [_] 12 (twelve), [_] 24 (twenty-four), or [_] 36 (thirty-six) equal
consecutive monthly installments of $________________ each, including interest.
These payments will commence on the ___ day of __________, 19__, and will
continue on the same day of each month thereafter until the principal balance
and accrued interest thereon are paid in full. All payments are stated and must
be made in U.S. Dollars.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL PERCENTAGE RATE FINANCE CHARGE AMOUNT FINANCED TOTAL OF PAYMENTS TOTAL SALE PRICE
<S> <C> <C> <C> <C>
The cost of your credit The dollar amount the The amount of credit The amount you will have The total cost of your
as a yearly rate. credit will cost you. provided to you or on paid after you have paid purchase on credit
your behalf. all payments as including your down
scheduled. payment of
$______________
______________% $ ______________ $_______________ $_______________ $______________
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Your payment schedule will be: Number of Payments: ___________________
Amount of Monthly Payment: $___________________
Payments are due monthly beginning: ___________
LATE CHARGE: If a payment is late by ten or more days, you will be charged 5% of
the delinquent installment or $5.00, whichever is less.
PAC PLAN: The interest rate disclosed above will automatically increase by 3%
(which is the maximum increase) in the event any one of the following occurs:
(a) you discontinue participation in our preauthorized check (PAC) plan, (b)
your financial institution is unable to participate, or (c) we discontinue your
participation for a reasonable cause. The interest rate will not increase above
17.9%. An increase in the interest rate would increase your monthly payment by
not more than $2.00.
PREPAYMENT: If you pay off early, you will not have to pay
a penalty. See the other provisions of this Agreement for additional information
about nonpayment, default, our right to accelerate the maturity of this
obligation, and prepayment.
- --------------------------------------------------------------------------------
ITEMIZATION OF THE AMOUNT FINANCED:
(1) Application Fee $_______________
(2) Purchase Price of Your Membership $_______________
(3) Less Down Payment $_______________
(4) Amount Financed (Sum of items 1 & 2, less item 3) $_______________
12. DUES. During the initial term and each renewal term of your membership, you
agree to pay us annual dues in the amount set forth below for the dues option
("Dues Option") you select. (CHECK ONLY ONE AND INITIAL). Applicable taxes, if
any, will be added to your annual dues. You may change from one Dues Option to
another Dues Option one time for each calendar year, provided that you give us
written notice of your desire to change options no later than November 1 of the
year prior to the year for which you desire the change to be effective.
__________ [_] ADVENTURER: 30 NIGHTS FOR $329 PER YEAR (entitles you to
(Buyer's Initials) camp overnight at the preserves included in your membership
for a total of 30 nights in a calendar year and also
includes unlimited day use of these preserves).
__________ [_] EXPLORER: 50 NIGHTS FOR $441 PER YEAR (entitles you to camp
(Buyer's Initials) overnight at the preserves included in your membership for a
total of 50nights in a calendar year and also includes
unlimited day use of these preserves).
__________ [_] TRAILBLAZER: 90 NIGHTS FOR $759 PER YEAR (entitles you to
(Buyer's Initials) camp overnight at the preserves included in your membership
for a total of 90 nights in a calendar year and also
includes unlimited day use of these preserves).
__________ [_] ON THE ROAD: UNLIMITED USE FOR $1,095 PER YEAR (entitles you
(Buyer's Initials) to unlimited overnight camping at the preserves included in
your membership (subject to length of stay restrictions for
any one preserve) and to unlimited day use of these
preserves).
BY SIGNING THIS AGREEMENT, YOU ARE MAKING A LEGAL COMMITMENT TO PAY ANNUAL DUES
FOR A MINIMUM OF THREE YEARS.
Your annual dues will be prorated for the period from the date of this Agreement
through December 31 of the year in which this Agreement is executed.
Thereafter, your annual dues are payable in full on or before January 1 of each
year. As a convenience, you may pay the annual dues in two semi-annual
installments or four quarterly installments. Each of the installment payments
will be subject to a processing fee in an amount set by us. This processing
fee, which is subject to increase, is currently $5 for each installment payment.
If payment of your annual dues is late by ten or more days, you will be assessed
a late charge in the maximum amount permitted for late charges under the retail
installment sales law in effect in the state of your residence. Your annual dues
are stated and must be paid in U.S. Dollars.
Page 3 of 4
<PAGE>
Member Name:_________________________ Member #:__________________________
DUES INCREASES. The amount of annual dues payable under each Dues Option may be
increased each year, upon thirty (30) days advance written notice, by the
percentage increase in the Consumer Price Index for the calendar year prior to
the year for which the increase is being made. Consumer Price Index means the
consumer price index for all urban consumers as reported by the United States
Department of Labor, Bureau of Labor Statistics.
Use Fees. If you desire to camp overnight for more nights than are included in
the Dues Option you select, you agree to pay a use fee equal to (i) $16.00 per
additional night if you are camping in your own recreational vehicle, or (ii)
$12.00 per additional night if you are camping in a tent. The terms
"recreational vehicleO and OtentO are defined in the Member Rules. The amount
of these use fees may be increased from time to time by the cumulative
percentage increase in the Consumer Price Index since the date of the last
increase. If you rent a trailer or cabin during your stay, this use fee will be
included in the rental fee for the trailer or cabin. The stated amount of the
use fees include any applicable taxes.
NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS
AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR
SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY
HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.
NOTICE TO THE BUYER: (1) DO NOT SIGN THIS AGREEMENT BEFORE YOU READ IT OR IF IT
CONTAINS ANY BLANK SPACES TO BE FILLED IN. (2) YOU ARE ENTITLED TO A COMPLETELY
FILLED IN COPY OF THIS AGREEMENT. (3) YOU CAN PREPAY THE FULL AMOUNT DUE UNDER
THIS AGREEMENT AT ANY TIME. (4) IF YOU DESIRE TO PAY OFF IN ADVANCE THE FULL
AMOUNT DUE, THE AMOUNT WHICH IS OUTSTANDING WILL BE FURNISHED UPON REQUEST. (5)
EACH PERSON SIGNING THIS AGREEMENT AS A MEMBER SHALL BE JOINTLY AND SEVERALLY
LIABLE FOR ALL OF YOUR OBLIGATIONS. (6) YOU ACKNOWLEDGE THAT YOU HAVE READ AND
RECEIVED A COPY OF THIS AGREEMENT, THE DISCLOSURE STATEMENT AND OUR CAMPGROUND
DIRECTORY .
YOUR INITIALS____________/______________
IF YOU HAVE BEEN PERSONALLY SOLICITED, AND YOUR AGREEMENT OR OFFER TO PURCHASE
IS MADE AT A PLACE OTHER THAN OUR PLACE OF BUSINESS, YOU MAY CANCEL THIS
AGREEMENT AS SET FORTH BELOW.
YOU, THE BUYER, MAY CANCEL THIS TRANSACTION AT ANY TIME PRIOR TO MIDNIGHT OF THE
THIRD BUSINESS DAY AFTER THE DATE OF THIS TRANSACTION. SEE THE ATTACHED NOTICE
OF CANCELLATION FORM FOR AN EXPLANATION OF THIS RIGHT.
CHECK ONE: APPLICABLE [_] NOT APPLICABLE [_]
EVEN IF THE FOREGOING RIGHT OF CANCELLATION IS NOT APPLICABLE, YOU MAY CANCEL
THIS AGREEMENT AS SET FORTH BELOW.
NOTICE OF CANCELLATION
YOU MAY CANCEL THIS CONTRACT, WITHOUT ANY PENALTY OR OBLIGATION, WITHIN THREE
BUSINESS DAYS FROM THE DATE THE CONTRACT IS EXECUTED. TO CANCEL THIS CONTRACT,
MAIL OR DELIVER A SIGNED AND DATED COPY OF THIS CANCELLATION NOTICE OR A COPY OF
THIS CONTRACT IF IT CONTAINS THE CANCELLATION INSTRUCTIONS, OR ANY OTHER WRITTEN
NOTICE, OR SEND A TELEGRAM TO THOUSAND TRAILS, INC., AT 2711 LBJ FREEWAY, SUITE
200, DALLAS, TEXAS 75234; ATTENTION: CONTRACT PROCESSING, NOT LATER THAN
MIDNIGHT OF
___________________________________ .
(Date)
I HEREBY CANCEL THIS TRANSACTION _______________________________.
(Date)
_______________________________
(Purchaser's Signature)
WITH THE NOTICE OF CANCELLATION, OR SEPARATELY IF A TELEGRAM IS SENT, YOU MUST
RETURN THE ORIGINAL MEMBERSHIP CAMPING CONTRACT, MEMBERSHIP CARD AND ALL OTHER
EVIDENCE OF MEMBERSHIP TO THE SELLER. YOU SHOULD PROMPTLY RETURN THESE
DOCUMENTS WITH THE NOTICE OF CANCELLATION, OR SEPARATELY IF A TELEGRAM IS SENT.
FAILURE TO SEND THE DOCUMENTS PROMPTLY COULD DELAY YOUR REFUND. YOU SHOULD
RETAIN FOR YOUR RECORDS ONE COPY OF THE CANCELLATION NOTICE, OR A CARBON OF THE
CONTRACT WHEN IT PROVIDES THE CANCELLATION INFORMATION, OR OTHER WRITING SHOWING
INTENT TO CANCEL. MAILING BY ORDINARY MAIL IS ADEQUATE BUT CERTIFIED MAIL
RETURN RECEIPT REQUESTED IS RECOMMENDED.
NAME: ________________________________ ADDRESS:_________________________________
CITY: _____________________________ STATE: ______________________ZIP: __________
EXECUTED THIS ____________________ DAY OF _________________ 19____
Membership Campground Operator:
__________________________________
Purchaser's Signature _________________________________________
2711 LBJ Freeway, Suite 200
Dallas, Texas 75234
__________________________________
Purchaser's Name (please print)
__________________________________ _________________________________________
Purchaser's Signature Authorized Signature
__________________________________ _________________________________________
Purchaser's Name (please print) Preserve
Page 4 of 4
<PAGE>
Exhibit 11.1
------------
THOUSAND TRAILS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(DOLLARS AND COMMON SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
June 30, June 30, June 30,
1997 1996 1995
---------- ---------- ----------
(Restated) (Restated)
<S> <C> <C> <C>
PRIMARY:
Weighted average number of common shares outstanding 7,222 3,703 3,703
Weighted average common stock equivalents 436 --- ---
------ ------ --------
Weighted average number of common shares outstanding 7,658 3,703 3,703
====== ====== ========
Income (loss) before extraordinary item $6,799 $ (281) $(11,828)
Extraordinary item --- 1,390 ---
------ ------ --------
Net income (loss) allocable to common shareholders $6,799 $1,109 $(11,828)
====== ====== ========
Income (loss) before extraordinary item $ .89 $ (.08) $ (3.19)
Extraordinary item --- .38 ---
------ ------ --------
Primary net income (loss) per common share $ .89 $ .30 $ (3.19)
====== ====== ========
FULLY DILUTED:
Weighted average number of common shares outstanding 7,222 3,703 3,703
Weighted average common stock equivalents 344 --- ---
------ ------ --------
Weighted average number of common shares outstanding 7,566 3,703 3,703
====== ====== ========
Income (loss) before extraordinary item $6,799 $ (281) $(11,828)
Extraordinary item --- 1,390 ---
------ ------ --------
Net income (loss) allocable to common shareholders $6,799 $1,109 $(11,828)
====== ====== ========
Income (loss) before extraordinary item $ .89 $ (.08) $ (3.19)
Extraordinary item --- 0.38 ---
------ ------ --------
Fully diluted net income (loss) per common share $ .89 $ .30 $ (3.19)
====== ====== ========
</TABLE>
Note that the calculation of per share earnings for the years ended June 30,
1996 and 1995, have been restated to reflect the change in accounting method
adopted by the Company in fiscal 1997 to recognize revenue from the sale of
campground memberships that do not convey a deeded interest in real estate on
a straight-line basis over the expected life of the memberships sold.
Page 1 of 1
<PAGE>
Exhibit 21.1
------------
SUBSIDIARIES OF THE REGISTRANT
The corporations listed below in bold type are the direct wholly owned
subsidiaries of the Registrant as of the date of this filing. Listed below
National American Corporation in regular type are its direct and indirect wholly
owned subsidiaries.
COAST FINANCIAL SERVICES, INC.
NATIONAL AMERICAN CORPORATION
Beech Mountain Lakes Corporation
Carolina Landing Corporation
Carriage Manor Corporation
Cherokee Landing Corporation
Chief Creek Corporation
Dixie Resort Corporation
Foxwood Corporation
G.L. Land Development Corporation
Lake Royale Corporation
Lake Tansi Village, Inc.
LML Resort Corporation
Natchez Trace Wilderness Preserve Corporation
Quail Hollow Plantation Corporation
Quail Hollow Village, Inc.
Recreation Land Corporation
Recreation Properties, Inc.
Resort Land Corporation
Tansi Resort, Inc.
The Kinston Corporation
The Villas of Hickory Hills, Inc.
Western Fun Corporation
Westwind Manor Corporation
Wolf Run Manor Corporation
RESORT PARKS INTERNATIONAL, INC.
THOUSAND TRAILS (CANADA), INC.
TT OFFSHORE LTD.
UST WILDERNESS MANAGEMENT CORPORATION
YUBA INVESTMENT COMPANY
<PAGE>
Exhibit 23.1
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As independent public accountants, we hereby consent to the incorporation by
reference of our report dated September 11, 1997, included in the Thousand
Trails, Inc. (the "Company") Form 10-K for the year ended June 30, 1997, and to
all references to our Firm included in the registration statements covering the
Company's 1991 Employee Stock Incentive Plan, 1993 Stock Option and Restricted
Stock Purchase Plan, the 1993 Director Stock Option Plan, and the Stock Option
Agreement dated as of August 1, 1996, between the Company and William J. Shaw.
/s/ Arthur Andersen LLP
Dallas, Texas
September 29, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1996 JUL-01-1995
<PERIOD-END> JUN-30-1997 JUN-30-1996<F1>
<CASH> 1,343 37,403
<SECURITIES> 0 0
<RECEIVABLES> 7,517 13,219
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 9,142 47,285
<PP&E> 23,893 27,130
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 63,302 111,631
<CURRENT-LIABILITIES> 39,586 69,165
<BONDS> 44,094 95,452
0 0
0 0
<COMMON> 74 37
<OTHER-SE> (22,111) (31,863)
<TOTAL-LIABILITY-AND-EQUITY> 63,302 111,631
<SALES> 3,477 3,013
<TOTAL-REVENUES> 78,413 91,022
<CGS> 0 0
<TOTAL-COSTS> 71,244 91,262
<OTHER-EXPENSES> 62,160 73,569
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 9,084 17,693
<INCOME-PRETAX> 7,169 1,150
<INCOME-TAX> 370 41
<INCOME-CONTINUING> 6,799 1,109
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 1,390
<CHANGES> 0 0
<NET-INCOME> 6,799 1,109
<EPS-PRIMARY> .89 .30
<EPS-DILUTED> .89 .30
<FN>
<F1> The fiscal 1996 financial data has been restated to reflect a change in
accounting method retroactively applied by the Company in fiscal 1997 (see Note
1 to the consolidated financial statements included in Item 8).
</FN>
</TABLE>
