<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
Commission File Number 0-19743
THOUSAND TRAILS, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 75-2138671
- ------------------------------- -------------------------------
(State or Other Jurisdiction (IRS Employer Identification
of Incorporation or No.)
Organization)
2711 LBJ FREEWAY, SUITE 200, DALLAS, TEXAS 75234
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (972) 243-2228
--------------
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
--- ---
The number of shares of Common Stock, par value $.01, issued and outstanding
as of November 12, 1997 was 7,392,776.
<PAGE>
THOUSAND TRAILS, INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
<C> <S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1997
and June 30, 1997............................................ 3
Consolidated Statements of Operations for the three months
ended September 30, 1997 and September 30, 1996.............. 4
Consolidated Statement of Stockholders' Deficit for the three
months ended September 30, 1997.............................. 5
Consolidated Statements of Cash Flows for the three months
ended September 30, 1997 and September 30, 1996.............. 6
Notes to Consolidated Financial Statements.................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 21
Item 6. Exhibits and Reports on Form 8-K.............................. 21
</TABLE>
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS September 30, June 30,
------ 1997 1997
------------- --------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 958 $ 1,343
Current portion of receivables, net of allowances and
discount of $1.5 million and $1.7 million 2,961 3,134
Accounts and dues receivable, net 276 542
Current portion of deferred membership selling
expenses 511 478
Inventory and other current assets 3,660 3,536
------------- --------
Total Current Assets 8,366 9,033
Restricted cash 1,861 1,407
Receivables, net of allowances and discount of
$3.0 million and $3.3 million 3,326 4,383
Campground land 13,359 13,359
Lot inventory 194 342
Buildings and equipment, net of accumulated
depreciation of $13.4 million and $12.8 million 22,851 23,211
Land held for sale 5,221 7,382
Deferred membership selling expenses 964 913
Other assets 3,290 3,272
------------- --------
Total Assets $ 59,432 $ 63,302
============= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable $ 1,399 $ 1,864
Accrued interest 898 1,693
Other accrued liabilities 7,664 7,485
Current portion of long term debt 3,367 5,864
Accrued construction costs 2,809 2,809
Current portion of deferred revenue 13,973 19,455
------------- --------
Total Current Liabilities 30,110 39,170
Long term debt 37,606 38,230
Deferred revenue 4,287 4,158
Other liabilities 3,612 3,912
------------- --------
Total Liabilities 75,615 85,470
------------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, $.01 par value, 1,500,000 shares
authorized, none issued or outstanding
Common stock, $.01 par value, 15,000,000 shares
authorized, 7,386,776 and 7,383,276 shares issued
and outstanding 74 74
Additional paid-in capital 20,505 20,502
Accumulated deficit subsequent to December 31, 1991,
date of emergence from bankruptcy (total deficit
eliminated $51,752) (36,627) (42,613)
Cumulative currency translation adjustment (135) (131)
------------- --------
Total Stockholders' Deficit (16,183) (22,168)
------------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 59,432 $ 63,302
============= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
--------------------------
1997 1996
-------- ---------
<S> <C> <C>
REVENUES (Restated)
Membership dues $ 9,697 $ 9,863
Other campground/resort revenue 6,440 7,093
Membership and resort interest sales 1,021 922
RPI membership fees 882 1,009
Interest income 647 1,120
Gain on asset sales 3,420 1,262
Other income 1,155 1,085
------- ---------
Total Revenues 23,262 22,354
------- ---------
EXPENSES
Campground/resort operating expenses 11,731 13,007
Selling expenses 864 873
Marketing expenses 278 340
RPI membership expenses 432 441
Corporate member services 384 489
Interest expense and amortization 1,365 2,455
General and administrative expenses 2,048 2,154
Restructuring costs 897
------- ---------
Total Expenses 17,102 20,656
------- ---------
INCOME BEFORE INCOME TAXES 6,160 1,698
Income tax provision (174) (123)
------- ---------
NET INCOME $ 5,986 $ 1,575
======= =========
PRIMARY AND FULLY DILUTED NET INCOME PER SHARE $ .72 $ .23
======= =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 8,293 6,801
======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Foreign
Additional Currency
Common Paid-In Accumulated Translation
Stock Capital Deficit Adjustment Total
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 1997 $74 $20,502 ($42,613) ($131) ($22,168)
Issuance of common stock 3 3
Foreign currency
translation adjustment (4) (4)
Net income for the three
months ended
September 30, 1997 5,986 5,986
------ ---------- ----------- ----------- --------
BALANCE, September 30,
1997 $74 $20,505 ($36,627) ($135) ($16,183)
====== ========== =========== =========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
--------------------------
1997 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Collections of principal on receivables $ 1,549 $ 2,152
Interest received 584 1,001
Interest paid (437) (6,885)
General and administrative,
corporate member services and
restructuring costs (2,558) (4,354)
Cash collected from operations,
including deferred dues revenue 12,807 13,615
Cash from sales of campground
memberships and resort interests
at the point of sale 1,043 998
Expenditures for property operations (11,555) (11,262)
Expenditures for sales and marketing (1,103) (1,148)
Expenditures for insurance premiums (533) (102)
Payment of income taxes (175) (123)
Reduction of standby letter of credit 1,182
Other, net (456)
---------- -----------
Net cash used in operating activities (834) (4,926)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Issuance of Common Stock 3
Capital and HUD-related expenditures (338) (343)
Proceeds from asset sales 5,649 2,078
---------- -----------
Net cash provided by investing activities 5,314 1,735
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial borrowings under Credit
Agreement 32,000
Net repayments under Credit
Agreement (4,856) (9,655)
Payment of debt issuance costs (3,132)
Retirement of Secured Notes (50,169)
Repayment of notes and mortgages (9) (199)
---------- -----------
Net cash used in financing activities (4,865) (31,155)
---------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (385) (34,346)
CASH AND CASH EQUIVALENTS:
Beginning of period 1,343 37,403
---------- -----------
End of period $ 958 $ 3,057
========== ===========
</TABLE>
-- continued --
Page 6
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
--------------------------
1997 1996
------------ -----------
(Restated)
<S> <C> <C>
RECONCILIATION OF NET INCOME
TO NET CASH USED IN OPERATING
ACTIVITIES:
Net income $ 5,986 $ 1,575
------------ -----------
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH USED IN
OPERATING ACTIVITIES--
Depreciation 647 701
Amortization of interest
discount, collection costs
and valuation allowance (125) (201)
Net deferral of sales revenue 246 116
Net deferral of selling expenses (84) (36)
Gain on asset sales (3,420) (1,262)
Decrease (increase) in
restricted cash (454) 1,338
Decrease in receivables 1,332 2,213
Decrease in other assets 124 558
Increase (decrease) in
accounts payable (465) 13
Increase (decrease) in
accrued interest 957 (4,423)
Decrease in other liabilities (5,720) (5,781)
Other, net 142 263
------------ -----------
Total adjustments (6,820) (6,501)
------------ -----------
NET CASH USED IN OPERATING
ACTIVITIES $ (834) $ (4,926)
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 7
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
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. In addition, the Company provides a reciprocal use program for members
of approximately 350 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. 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"). On July 16, 1996, Trails was merged into the Company.
The accompanying consolidated financial statements of the Company have not
been examined by independent accountants, but in the opinion of management,
the unaudited interim financial statements furnished herein reflect all
adjustments which are necessary for a fair presentation of the results for the
interim periods. All such adjustments are of a normal recurring nature, except
for the items described in the footnotes to the consolidated financial
statements.
This Quarterly Report on Form 10-Q should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended June 30, 1997, filed
with the Securities and Exchange Commission on September 29, 1997.
NOTE 1--BASIS OF FINANCIAL STATEMENT PRESENTATION
BASIS OF FINANCIAL STATEMENT PRESENTATION
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 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 three
month periods ended September 30, 1997 and 1996, and in the consolidated
balance sheet at June 30, 1997.
Page 8
<PAGE>
Restatement
- -----------
During the three months ended September 30, 1997, 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 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 for the
three months ended September 30, 1996, 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.
The following table provides selected summarized information illustrating the
effect of the restatement on the Company's consolidated results of operations
for the three months ended September 30, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1996
----------------------
As As Originally
Restated Reported
-------- -------------
<S> <C> <C>
Membership and resort interest sales $ 922 $ 1,038
Total revenues 22,354 22,470
Net income 1,575 1,655
</TABLE>
Earnings Per 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.
Since inception, the Company has not paid any dividends. The Credit Agreement
between the Company and Foothill Capital Corporation ("Foothill") prohibits
the payment of any cash dividends without the consent of Foothill until the
borrowings under the Credit Agreement are repaid. In addition, the Indenture
for the Company's 12% Senior Subordinated Pay-In-Kind Notes Due 2003 ("PIK
Notes") prohibits the payment of any cash dividends until the PIK Notes are
repaid.
NOTE 2--SECURED NOTE RESTRUCTURING AND LONG TERM DEBT
SECURED NOTE RESTRUCTURING
On July 17, 1996, the Company consummated a restructuring (the
"Restructuring") of its 12% Secured Notes Due 1998 ("Secured Notes"), whereby
all of the $101,458,000 principal amount of Secured Notes outstanding were
retired for $50.2 million of cash, $40.2 million principal amount of PIK
Notes, and 3,680,550 shares of common stock. 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 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.
The Company incurred $897,000 of legal expenses and other direct costs during
the three months ended September 30, 1996, in connection with the completion
of the Restructuring.
Page 9
<PAGE>
CREDIT AGREEMENT WITH FOOTHILL
In connection with the Restructuring, the Company entered into the Credit
Agreement with Foothill, under which Foothill made loans to the Company in the
initial amount of $32.0 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, among other things, permitted the Company to borrow $12.6
million to repurchase PIK Notes, as discussed below. As a result of such
repurchases of PIK Notes and repayments in the ordinary course of business, as
of September 30, 1997, the Company had a revolving loan under the Credit
Agreement in the maximum amount of $11.4 million, of which $9.2 million was
outstanding and $2.2 million was available for borrowing.
PIK NOTES AND PIK NOTE REPURCHASES
In the Restructuring, the Company issued $40.2 million principal amount of PIK
Notes. On January 15, 1997, the Company issued an additional $2.4 million
principal amount of PIK Notes in lieu of cash interest. 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. On July 15, 1997, the Company
issued an additional $1.8 million principal amount of PIK Notes in lieu of
cash interest. As a result of these transactions, as of September 30, 1997, a
total of $31.0 million principal amount of PIK Notes were outstanding.
BALANCE SHEET PRESENTATION OF LONG TERM DEBT
Balance sheet presentation of the current and long term components of the
Company's outstanding debt is reflected below, as of September 30, 1997 and
June 30, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- --------
(Unaudited)
<S> <C> <C>
CURRENT PORTION OF LONG TERM DEBT :
Borrowings under Credit Agreement $ 3,298 $ 5,799
Notes and mortgages payable 69 65
------------- --------
$ 3,367 $ 5,864
============= ========
LONG TERM DEBT:
Borrowings under Credit Agreement $ 5,943 $ 8,298
PIK Notes, including a deferred gain of $.2 million 31,137 29,393
Notes and mortgages payable 526 539
------------- --------
$37,606 $38,230
============= ========
Total long term debt $40,973 $44,094
============= ========
</TABLE>
NOTE 3--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 $1.8 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 at September 30, 1997, which
is included in other liabilities in the accompanying consolidated balance
sheet. This liability is determined based on actuarial estimates.
Page 10
<PAGE>
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 attrition
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 4--SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of non-cash investing and financing activities
required by Statement of Financial Accounting Standards No. 95 "Statement of
Cash Flows" are presented below for the three months ended September 30, 1997
and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
Three Months
Ended
September 30,
1997
-------------
<S> <C>
Non-cash payment of PIK Note interest (see Note 2)
--------------------------------------------------
PIK Notes issued in lieu of cash interest payment $ 1,752
Three Months
Ended
September 30,
1996
-------------
<S> <C>
Non-cash transactions related to the Restructuring
(see Note 2)
--------------------------------------------------
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
</TABLE>
NOTE 5--SUMMARIZED FINANCIAL INFORMATION
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 2).
Set forth below is selected financial information for 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
periods presented. The financial information
Page 11
<PAGE>
as of and for the three months ended September 30, 1996, has been restated to
reflect a change in accounting method for the recognition of revenue from
campground membership sales (see Note 1). The assets and operations of
Wilderness Management are not material and have, therefore, been combined with
the balances of RPI for purposes of this presentation. 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. This summarized financial information is 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
have been pledged by the Company to secure its obligations under the Credit
Agreement with Foothill. 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.
<TABLE>
<CAPTION>
As of and for the three months ended September 30, 1997
--------------------------------------------------------------
(Dollars in thousands)
(Unaudited)
---------------------------------------------------------------
RPI and Elimi-
TTI NACO Wilderness nations Total
----------- ----------- -------------------------- -----------
<S> <C> <C> <C> <C> <C>
Total assets $ 43,233 $ 30,250 $ 6,858 $ (20,909) $ 59,432
Total liabilities 59,566 43,117 1,741 (28,809) 75,615
Revenues 13,191 9,195 1,732 (856) 23,262
Operating income before
interest income and
expense, gain on asset
sales and taxes 4,887 774 656 (2,859) 3,458
Net income 5,956 2,468 421 (2,859) 5,986
<CAPTION>
As of and for the three months ended September 30, 1996
--------------------------------------------------------------
(Dollars in thousands)
(Unaudited)
---------------------------------------------------------------
RPI and Elimi-
TTI NACO Wilderness nations Total
----------- ----------- -------------------------- -----------
(Restated)
<S> <C> <C> <C> <C> <C>
Total assets $ 57,969 $ 30,809 $ 6,268 $ (20,967) $ 74,079
Total liabilities 83,791 48,050 2,381 (32,745) 101,477
Revenues 13,190 8,695 1,742 (1,273) 22,354
Operating income before
interest income and
expense, gain on asset
sales, restructuring
costs and taxes 2,237 425 721 (715) 2,668
Net income 1,607 120 563 (715) 1,575
</TABLE>
Page 12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's Annual Report on Form 10-K for the year ended June
30, 1997, filed with the SEC on September 29, 1997.
All capitalized terms used herein have the same meaning as those defined in
Item 1--Financial Statements.
In this Management's Discussion and Analysis of Financial Condition and
Results of Operations, the Company makes certain statements as to its expected
financial condition, results of operations, cash flows, and business
strategies and plans for periods after September 30, 1997. All of these
statements are forward-looking statements made pursuant to the safe harbor
provisions of Section 21E 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, and in the
Company's Annual Report on Form 10-K for the year ended June 30, 1997.
CHANGE IN ACCOUNTING METHOD
During the three months ended September 30, 1997, 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 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 consolidated financial statements for the three months
ended September 30, 1996, 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 1). 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. During the three months ended September 30, 1997, the Company
achieved a positive contribution from operations of $3.5 million, an
improvement over the $2.7 million achieved in the same period last year. For
this purpose, the contribution from operations is defined as operating income
before interest income and expense, gain on asset sales, restructuring costs,
and taxes. See the table on page 16 for the elements of the contribution from
operations and the Company's operating income before taxes 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
Page 13
<PAGE>
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 been declining. 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 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.
CASH. On September 30, 1997, the Company had $958,000 of cash and cash
equivalents, a decrease of $385,000 from June 30, 1997. During the three
months ended September 30, 1997, the Company's operating activities used
$834,000, the Company made capital expenditures totaling $338,000, and the
Company made repayments under the Credit Agreement with Foothill totaling $4.9
million. These expenditures were substantially offset by $5.6 million of
proceeds from asset sales. The Company generally experiences negative cash
flow from operating activities during the first quarter of its fiscal year
because of the seasonal nature of its operations. The Company receives the
majority of the dues revenue from its members during the winter, while
incurring 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.
The Company's principal sources of operating cash for the three months ended
September 30, 1997, were $2.1 million in principal and interest collections on
contracts receivable, $12.8 million in dues collections and other campground
and resort revenues, and $1.0 million in cash collected from sales of
campground memberships and lots at the point of sale. Principal uses of
operating cash for the three months ended September 30, 1997, were $11.6
million in operating expenses, $2.6 million in administrative expenses
(including general and administrative expenses and corporate member services
costs), and $1.1 million in sales and marketing expenditures.
Under the Credit Agreement with Foothill, as of September 30, 1997, the
Company had a revolving loan in the maximum amount of $11.4 million, of which
$9.2 million was outstanding and $2.2 million was available for borrowing. 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 November 12, 1997, only $1.9 million was available for borrowing under
the revolving loan. However, as the Company receives the dues revenue from its
members during the winter months, these funds will be applied to reduce
borrowings under the revolving loan, which will increase availability. 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.
Page 14
<PAGE>
MATERIAL CHANGES IN FINANCIAL CONDITION
Total assets decreased by $3.9 million during the three months ended September
30, 1997. Cash decreased by $385,000 as discussed above. Contracts receivable
decreased by $1.2 million due primarily to $1.5 million in cash collections
partially offset by new financed sales and amortization of the allowances for
interest discount, collection costs, and valuation discount. Buildings and
equipment decreased by $360,000 due primarily to depreciation, and land held
for sale decreased by $2.2 million due primarily to the sale of certain
campgrounds during the period.
Total liabilities decreased by $9.9 million during the three months ended
September 30, 1997. Accounts payable decreased by $465,000 due primarily to
the seasonal nature of the business. Accrued interest declined by $795,000 due
primarily to the issuance on July 15, 1997, of $1.8 million of PIK Notes in
lieu of cash interest, partially offset by $774,000 of non-cash interest
accruing on the PIK Notes for the period from July 16, 1997, through September
30, 1997. The Company's outstanding debt decreased by $3.1 million during the
period due to repayments on the Credit Agreement and mortgage notes, partially
offset by additional the PIK Notes issued in lieu of cash interest. In
addition, deferred revenue decreased by $5.4 million due to the recognition of
$5.6 million of dues revenue in excess of cash collections during the period,
partially offset by a $246,000 net increase in deferred sales revenue.
RESULTS OF OPERATIONS
The following discussion and analysis are based on the historical results of
operations of the Company for the three month periods ended September 30, 1997
and 1996, 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 1.
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NET INCOME. The Company reported net income of $6.0 million or $.72 per share
on revenues of $23.3 million for the three months ended September 30, 1997.
This compares with net income of $1.6 million or $.23 per share on revenues of
$22.4 million for the same period last year. The Company's results improved in
the current period due primarily to higher gains on asset sales and lower
expenses, principally campground operating costs and interest. In addition,
$897,000 of restructuring costs were incurred in the prior period. Although
operating revenues declined in the current period, these decreases were offset
by greater decreases in operating expenses.
The table on the following 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 three months ended September
30, 1997 and 1996, as restated (see "Change in Accounting Method").
Page 15
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
-------------------------------------
1997 1996
---------------- -------------------
(Restated)
<S> <C> <C>
CAMPGROUND OPERATIONS
Membership dues $ 9,697 $ 9,863
Campground revenues 6,238 5,926
Cost of campground revenues (2,748) (2,673)
Operating expenses (8,726) (9,141)
---------------- -------------------
Contribution from campground operations 4,461 3,975
---------------- -------------------
SALES
Sales revenues 691 742
Selling expenses (671) (734)
Marketing expenses (278) (340)
---------------- -------------------
Loss on sales (258) (332)
---------------- -------------------
RESORT PARKS INTERNATIONAL
Revenues 882 1,009
Expenses (432) (441)
---------------- -------------------
Contribution from RPI 450 568
---------------- -------------------
4,653 4,211
---------------- -------------------
RESORT OPERATIONS
Revenues 532 1,346
Expenses (450) (1,331)
---------------- -------------------
Contribution from resort operations 82 15
---------------- -------------------
4,735 4,226
---------------- -------------------
Other income 1,155 1,085
Corporate member services (384) (489)
General and administrative expenses (2,048) (2,154)
---------------- -------------------
OPERATING INCOME BEFORE INTEREST INCOME
AND EXPENSE, GAIN ON ASSET SALES,
RESTRUCTURING COSTS AND TAXES 3,458 2,668
---------------- -------------------
Interest income 647 1,120
Interest expense (1,365) (2,455)
Gain on asset sales 3,420 1,262
Restructuring costs (897)
---------------- -------------------
OPERATING INCOME BEFORE TAXES $ 6,160 $ 1,698
================ ===================
</TABLE>
Page 16
<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 $9.7 million for the three months ended
September 30, 1997, compared with $9.9 million for the same period last year.
The decline in dues revenue was due primarily to the net loss of campground
members during the year, partially offset by the effect of the annual dues
increase.
Other campground revenues were $6.2 million for the three months ended
September 30, 1997, compared with $5.9 million for the same period last year.
The increase in other campground revenues in the current period was due
primarily to an increase in overnight fees from a section of one campground
that is open to the public on an overnight fee basis, and an increase in
revenue from the Company's campground management operations, as discussed
below. The related expenses were approximately $2.7 million for both periods.
Other campground operating expenses decreased by $415,000 to $8.7 million for
the three months ended September 30, 1997, from $9.1 million for the same
period last year. This decrease resulted primarily from the closure and sale
of certain campgrounds during fiscal 1997 and the three months ended September
30, 1997.
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. Although
the Company believes that the sale of campgrounds and other anticipated
changes should result in lower future operating expenses, 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 three months ended September 30, 1997 and 1996, the Company recognized
campground membership sales revenues of $691,000 and $742,000, respectively.
These amounts include revenues of $561,000, and $476,000, respectively, that
were deferred in prior periods. Moreover, during these same periods, the
Company deferred revenues of $807,000 and $592,000, respectively, which will
be recognized in future periods.
Sales revenues declined in the current period due primarily to the net
deferral of more revenue in the current period. Excluding the net effect of
the deferral of sales revenues, sales in the current period increased slightly
over sales in the same period last year due primarily to a higher average
sales price. The higher average sales price in the current period resulted
from a recent price increase and the discontinuation of one lower-priced
membership, and certain special promotions that were offered in the prior
period.
Although the Company has expanded its sales and marketing efforts with a view
to stopping the decline in its membership base, the sales levels in fiscal
1997 and the first quarter of fiscal 1998 did not met 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, the Company recently entered into a joint
marketing arrangement with Fleetwood Industries, Inc., the largest
manufacturer of recreational vehicles ("RVs"). Under this marketing
arrangement, purchasers of Fleetwood RVs receive a temporary membership and
are invited to visit one of the Company's campgrounds. In addition, the
Company has entered into a similar marketing agreement with a major RV
financing company, and plans to seek other similar alliances.
Page 17
<PAGE>
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 three months ended
September 30, 1997 and 1996, the Company recognized selling expenses of
$671,000 and $734,000, respectively. These amounts include expenses of
$126,000, and $105,000, respectively, that were deferred in prior periods.
Moreover, for these same periods, the Company deferred expenses of $210,000
and $141,000, respectively, which will be recognized in future periods.
Although the Company's sales results are improving, selling and marketing
expenses exceeded sales revenues by $258,000 and $332,000 for the three months
ended September 30, 1997 and 1996, 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 revenue than selling expense during 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 generally 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 revenue. This disparity will increase if the
Company is successful in growing 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 public campgrounds for the US Forest Service. For the three
months ended September 30, 1997, these operations produced revenues of
$848,000 with related expenses (excluding certain shared administrative costs)
of $644,000. This compares with revenues for the same period last year of
$732,000 and related expenses (excluding certain shared administrative costs)
of $580,000. The increase in revenues and expenses between periods is due to
new contracts entered into in fiscal 1997.
RESORT PARKS INTERNATIONAL. RPI charges its members a fee for a membership
that entitles them to use any of the participating facilities, subject to
certain limitations. For the three months ended September 30, 1997, RPI's
operations produced a net contribution of $450,000 on revenues of $882,000,
compared with a contribution of $568,000 on revenues of $1.0 million for the
same period last year. The decline in results between periods is due to lower
revenues in the current period that were not completely offset by expense
reductions. RPI's revenues have declined as a result of declining sales in the
membership camping industry generally. 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. The Company's operations at the resorts presently consist
of the sale of residential lots and the rental of a small number of
condominium units. Prior to November 21, 1996, the Company also managed the
timeshare facilities and sold timeshare interests at the resorts. The sale of
these timeshare operations on November 21, 1996, significantly decreased the
revenues and expenses from the resort operations.
For the three months ended September 30, 1997, the resort operations produced
a net contribution of $82,000, compared with a net contribution of $15,000 for
the same period last year. The Company does not expect a positive contribution
from the resort operations in the future as its continues its efforts to sell
the remaining assets it owns at the resorts. These assets
Page 18
<PAGE>
consist primarily of approximately 200 residential lots and other
miscellaneous real estate. There is no assurance, however, that the Company
will be able to locate a buyer for any of these assets or that sales on
acceptable terms can be effected.
INTEREST INCOME AND EXPENSE. Interest income was $647,000 for the three months
ended September 30, 1997, compared with $1.1 million for the same period last
year. During these periods, interest income included amortization of the
allowance for interest discount and valuation allowance related to the
contracts receivable of $125,000 and $201,000, respectively. The $473,000
decrease in interest income between periods was due primarily to a decrease in
interest earned on the Company's diminishing portfolio of contracts
receivable.
Interest expense was $1.4 million for the three months ended September 31,
1997, compared with $2.5 million for the same period last year. The $1.1
million decrease in interest expense between periods was due to a net $46.7
million reduction in the Company's outstanding debt in July 1996 resulting
from the Restructuring, subsequent repayments of borrowings under the Credit
Agreement, a reduced interest rate on the amended Credit Agreement, and
scheduled repayments of notes and mortgages payable.
Interest expense is expected to continue to decrease during the balance of
fiscal 1998 due to the continued repayment of borrowings under the Credit
Agreement. In addition, since the Company is prohibited from paying cash
interest on the PIK Notes until the borrowings under the Credit Agreement with
Foothill are repaid, during the repayment period, a significant portion of the
Company's interest expense will represent non-cash interest on the PIK Notes.
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 increase the principal amount of PIK Notes outstanding at
the rate of 12% per year, compounded semi-annually, which will increase
interest expense in the future and also decrease the rate at which the Company
is able to retire its total debt outstanding.
GAIN ON ASSET SALES. The Company recognized a gain on the sale of assets of
$3.4 million for the three months ended September 30, 1997, compared with $1.3
million for the same period last year. The increase in the current period was
due to the timing of asset sales. During the current period, the Company sold
certain campgrounds and other excess real estate at the campgrounds and
resorts. Over the next several years, the Company intends to dispose of the
remaining assets that it owns at the resorts, any campgrounds that are closed
as the Company downsizes, and other 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 recently been successful in selling assets, 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 generally consists of transfer fees received when
existing memberships are transferred in the secondary market without
assistance from the Company, settlements received on defaulted contracts,
subscription fees received from members who subscribe to the Company's member
magazine, and fees received from members who make more than five operator-
assisted reservations in a given year, rather than use the Company's automated
reservation system. Other income was approximately $1.1 million for the three
month periods ended September 30, 1997 and 1996.
OTHER EXPENSES. Administrative expenses, including corporate member service
costs and general and administrative expenses, were $2.4 million for the three
months ended September 30, 1997, compared with $2.6 million for the same
period last year, reflecting the Company's continuing efforts to lower costs.
During the three months ended September 30, 1996, the Company incurred
$897,000 of restructuring costs in connection with the consummation of the
Restructuring. The Company
Page 19
<PAGE>
also incurred $3.1 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 issue costs was charged to expense upon
amendment of the Credit Agreement.
INFLATION. During the periods presented, the Company's results were not
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.
NEW ACCOUNTING PRONOUNCEMENT. In February 1997, the the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," ("SFAS 128"), which establishes standards for computing
and presenting earnings per share for entities with publicly held common
stock. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Earlier application
is not permitted. Accordingly, the Company will adopt SFAS 128 in the second
quarter of fiscal 1998. Under SFAS 128, the Company will report basic and
diluted earnings per common share (as defined in SFAS 128) rather than primary
and fully diluted earnings per common share. Had SFAS 128 been in effect for
the first quarter of fiscal 1998, the Company would have reported basis
earnings per common share (as defined in SFAS 128) of $.82 rather than primary
earnings per common share of $.72. Diluted earnings per common share of $.72
would have been reported which approximates fully diluted earnings per common
share.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Page 20
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. 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 the representative of
the class. On November 4, 1997, the Court gave final approval of the
settlement agreement following a "fairness hearing." 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,
commencing May 1998, until the campgrounds comply fully with the ADA. The
settlement agreement also requires the Company to pay $10,500 to the
representative of the class of plaintiffs, $10,000 to a disability rights
foundation, and $39,500 to the plaintiffs' attorneys. Management does not
believe that the settlement agreement will have a material adverse impact on
the Company's operations or financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following documents are filed as exhibits to this report.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule.
</TABLE>
REPORTS ON FORM 8-K
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.
Page 21
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
s/Harry J. White, Jr.
Date: November 13, 1997 By: __________________________________________
Harry J. White, Jr.
Vice President, Chief Financial Officer,
and Chief Accounting Officer
Page 22
<PAGE>
Exhibit 11.1
------------
THOUSAND TRAILS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(DOLLARS AND COMMON SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1997 1996
------------- --------------
(Restated)
<S> <C> <C>
PRIMARY:
Weighted average number of common shares outstanding 7,386 6,743
Weighted average common stock equivalents (vested options granted
under the Company's employee and director stock option plans and
warrants) 907 58
------------- -------------
Weighted average number of common shares outstanding 8,293 6,801
============= =============
Net income allocable to common shareholders $ 5,986 $ 1,575
============= =============
Primary net income per common share $ 0.72 $ 0.23
============= =============
FULLY DILUTED:
Weighted average number of common shares outstanding 7,386 6,743
Weighted average common stock equivalents (options granted under
the Company's employee and director stock option plans and
warrants) 1,027 189
------------- -------------
Weighted average number of common shares outstanding 8,413 6,932
============= =============
Net income allocable to common shareholders $ 5,986 $ 1,575
============= =============
Fully diluted net income per common share $ 0.71 $ 0.23
============= =============
</TABLE>
Note that the calculation for the three months ended September 30, 1996, has
been restated to reflect the change in accounting method adopted by the Company
in fiscal 1997, and retroactively applied to all reporting periods presented
(see Note 1 to the consolidated financial statements included in Item 1 of Part
I).
Page 1 of 1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997
<PERIOD-START> JUL-01-1997 JUL-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 958 0
<SECURITIES> 0 0
<RECEIVABLES> 6,287 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 8,366 0
<PP&E> 22,851 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 59,432 0
<CURRENT-LIABILITIES> 30,110 0
<BONDS> 40,973 0
0 0
0 0
<COMMON> 74 0
<OTHER-SE> (16,122) 0
<TOTAL-LIABILITY-AND-EQUITY> 59,432 0
<SALES> 1,021 922
<TOTAL-REVENUES> 23,262 23,262
<CGS> 0 0
<TOTAL-COSTS> 17,102 20,656
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,365 2,455
<INCOME-PRETAX> 6,160 1,698
<INCOME-TAX> 174 123
<INCOME-CONTINUING> 6,160 1,698
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,986 1,575
<EPS-PRIMARY> .72 .23
<EPS-DILUTED> .72 .23
<FN>
THE FISCAL 1997 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 1 OF PART I).
</FN>
</TABLE>
