<PAGE> 1
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, 1998
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 No.)
of Incorporation or 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 9, 1998 was 7,511,708.
<PAGE> 2
THOUSAND TRAILS, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1998
and June 30, 1998...........................................................................3
Consolidated Statements of Operations for the three months ended
September 30, 1998 and September 30, 1997...................................................4
Consolidated Statement of Stockholders' Equity for the three months
ended September 30, 1998....................................................................5
Consolidated Statements of Cash Flows for the three months ended
September 30, 1998 and September 30, 1997...................................................6
Notes to Consolidated Financial Statements....................................................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................................14
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................23
PART II. OTHER INFORMATION
Item 5. Other Information............................................................................23
Item 6. Exhibits and Reports on Form 8-K.............................................................24
</TABLE>
Page 2
<PAGE> 3
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,
------ 1998 1998
------------- --------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 12,966 $ 13,631
Current portion of receivables, net of allowances and discount of
$1.3 million and $1.1 million 2,094 2,440
Current portion of deferred membership selling expenses 546 538
Current portion of net deferred tax assets 2,727 2,954
Other current assets 1,452 1,890
-------- --------
Total Current Assets 19,785 21,453
Restricted cash 1,117 1,171
Receivables, net of allowances and discount of $1.2 million and $1.6 million 1,390 1,741
Campground and resort land 13,328 13,338
Buildings and equipment, net of accumulated depreciation of
$15.6 million and $15.0 million 21,624 21,879
Land held for sale 3,866 3,866
Deferred membership selling expenses 1,258 1,087
Net deferred tax assets 6,788 7,046
Other assets 2,452 2,681
-------- --------
Total Assets $ 71,608 $ 74,262
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 2,371 $ 2,037
Accrued interest 870 1,805
Other accrued liabilities 6,060 6,410
Accrued construction costs 2,338 2,845
Current portion of deferred revenue 13,564 18,851
-------- --------
Total Current Liabilities 25,203 31,948
Long term debt 34,935 32,973
Deferred revenue 5,172 4,588
Other liabilities 2,040 1,999
-------- --------
Total Liabilities 67,350 71,508
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,500,000 shares authorized, none issued or
outstanding
Common stock, $.01 par value, 15,000,000 shares authorized, 7,503,208 and
7,437,083 shares issued and outstanding 75 74
Additional paid-in capital 20,595 20,551
Accumulated deficit subsequent to December 31, 1991, date of emergence
from bankruptcy (16,272) (17,734)
Cumulative foreign currency translation adjustment (140) (137)
-------- --------
Total Stockholders' Equity 4,258 2,754
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 71,608 $ 74,262
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
<PAGE> 4
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,
----------------------------------------
1998 1997
-------- --------
<S> <C> <C>
REVENUES
Membership dues $ 9,340 $ 9,697
Other campground/resort revenue 7,567 6,440
Membership and resort interest sales 978 1,021
RPI membership fees 969 882
Interest income 623 647
Gain on asset sales 88 3,420
Other income 896 1,155
-------- --------
Total Revenues 20,461 23,262
-------- --------
EXPENSES
Campground/resort operating expenses 12,554 11,731
Selling expenses 988 864
Marketing expenses 582 278
RPI membership expenses 532 432
Corporate member services 381 384
Interest expense and amortization 1,078 1,365
General and administrative expenses 2,138 2,048
-------- --------
Total Expenses 18,253 17,102
-------- --------
INCOME BEFORE INCOME TAXES 2,208 6,160
INCOME TAXES --
Income tax provision - current (261) (174)
Income tax provision - deferred (485)
-------- --------
(746) (174)
NET INCOME $ 1,462 $ 5,986
======== ========
NET INCOME PER SHARE -- BASIC $ .20 $ .81
======== ========
NET INCOME PER SHARE -- DILUTED $ .17 $ .72
======== ========
SHARES USED TO CALCULATE NET INCOME PER SHARE:
Basic 7,459 7,386
======== ========
Diluted 8,413 8,330
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4
<PAGE> 5
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(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, 1998 $ 74 $ 20,551 ($ 17,734) ($ 137) $ 2,754
Issuance of common stock 1 44 45
Foreign currency translation
adjustment (3) (3)
Net income for the three months
ended September 30, 1998 1,462 1,462
---- -------- --------- ------ -------
Balance, September 30, 1998 $ 75 $ 20,595 ($ 16,272) ($ 140) $ 4,258
==== ======== ========= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5
<PAGE> 6
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Collections of principal on receivables $ 1,235 $ 1,549
Interest received 577 584
Interest paid (51) (437)
General and administrative and corporate member
services costs (2,473) (2,558)
Cash collected from operations, including deferred
dues revenue 13,688 12,807
Cash from sales of campground memberships and
lots at the point of sale 1,190 1,043
Expenditures for property operations (11,254) (11,555)
Expenditures for sales and marketing (1,682) (1,103)
Expenditures for insurance premiums (720) (533)
Payment of income taxes (273) (175)
Other, net 54 (456)
---------- ----------
Net cash provided by (used in) operating activities 291 (834)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and HUD-related expenditures (1,078) (338)
Proceeds from asset sales 77 5,649
Issuance of Common Stock 45 3
---------- ----------
Net cash provided by (used in) investing activities (956) 5,314
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under Credit Agreement -- (4,856)
Repayment of notes and mortgages -- (9)
---------- ----------
Net cash used in financing activities -- (4,865)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (665) (385)
CASH AND CASH EQUIVALENTS:
Beginning of period 13,631 1,343
---------- ----------
End of period $ 12,966 $ 958
========== ==========
</TABLE>
-- continued --
Page 6
<PAGE> 7
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Net income $ 1,462 $ 5,986
---------- ----------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES --
Depreciation 644 647
Amortization of interest discount, collection costs and
valuation allowance (106) (125)
Net deferral of sales revenue 652 246
Net deferral of selling expenses (179) (84)
Gain on asset sales (88) (3,420)
Deferred income tax provision 485 --
(Increase) decrease in restricted cash 54 (454)
Decrease in receivables 796 1,332
Decrease in other assets 716 124
Increase (decrease) in accounts payable 334 (465)
Increase in accrued interest 1,034 957
Decrease in other liabilities (5,664) (5,720)
Other, net 151 142
---------- ----------
Total adjustments (1,171) (6,820)
---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 291 ($ 834)
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 7
<PAGE> 8
THOUSAND TRAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
GENERAL
Thousand Trails, Inc., a Delaware corporation, and its subsidiaries
(collectively, the "Company") own and operate a system of 53 membership-based
campgrounds located in 17 states and British Columbia, Canada. In addition, the
Company provides a reciprocal use program for members of approximately 325
recreational facilities and manages 130 public campgrounds for the US Forest
Service. The campground business represents the most significant portion of the
Company's business comprising 99% of the Company's operating revenues in fiscal
1998. Operating revenues consist primarily of membership dues received from
campground members, fee revenue from members of the reciprocal use program,
management fees from the campground management operations, and, guest fees and
other revenues received from the campground and other operations.
The accompanying consolidated financial statements include the accounts of
Thousand Trails, Inc. and the following wholly owned subsidiaries: Coast
Financial Services, Inc. ("Coast"), National American Corporation and its
subsidiaries ("NACO"), Resort Parks International, Inc. ("RPI"), Thousand Trails
(Canada), Inc. and UST Wilderness Management Corporation ("Wilderness").
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, 1998, filed
with the Securities and Exchange Commission (the "SFC") on September 25, 1998,
as amended by a Form 10-K/A filed with the SEC on October 7, 1998.
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, the Company adopted fresh start reporting,
under which 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, 1998 and 1997, and in the consolidated balance sheet
as of June 30, 1998.
Page 8
<PAGE> 9
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 requires the Company to classify items of other comprehensive
income by their nature in its financial statements and to display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of its
consolidated balance sheet. Comprehensive income includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners, and includes certain items that were historically
reported directly through equity as well as net income reported on the income
statement. Currently, the Company's only item of other comprehensive income is
its foreign currency translation adjustment. The Company adopted SFAS No. 130 on
July 1, 1998. The following table provides statements of comprehensive income
for the three months ended September 30, 1998 and 1997, as if the statement had
been implemented in the three months ended September 30, 1997 (dollars in
thousands):
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1998 1997
----------- ----------
(Unaudited)
<S> <C> <C>
Net Income $ 1,462 $ 5,986
Foreign Currency Translation Adjustment (3) (4)
---------- -----------
Comprehensive Income $ 1,459 $ 5,982
========== ===========
</TABLE>
In June 1997, the FASB also issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which establishes standards for the way
that public companies report information about operating segments and related
disclosures in annual and interim financial statements. In February 1998, the
FASB issued SFAS No. 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits," which revises employers' disclosures about pension and
other postretirement benefit plans. These statements are effective for the
Company commencing at the end of fiscal 1999. The Company does not anticipate a
material impact from the adoption of these statements.
Net Income Per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") during the second quarter of fiscal 1998. SFAS
128 replaced the calculation of primary and fully diluted net income per share
with basic and diluted net income per share. Unlike primary net income per
share, basic net income per share excludes any dilutive effects of common stock
equivalents. Diluted net income per share is similar to the previously reported
fully diluted net income per share and 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. Net income per share amounts for the
three months ended September 30, 1997, have been restated and presented to
conform to the SFAS 128 requirements.
Page 9
<PAGE> 10
The tables below set forth the information necessary to compute basic and
diluted net income per share for the three months ended September 30, 1998 and
1997, including a summary of the components of the numerators and denominators
of the basic and diluted net income per share computations for the periods
presented (dollars and shares in thousands, except per share amounts):
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1998 1997
---------- -----------
<S> <C> <C>
Net Income $ 1,462 $ 5,986
======== ========
Weighted Average Number of Shares - Basic 7,459 7,386
Dilutive Options 948 939
Dilutive Warrants 6 5
-------- --------
Weighted Average Number of Shares - Diluted 8,413 8,330
======== ========
Net Income Per Share - Basic $ .20 $ .81
======== ========
Net Income Per Share - Diluted $ .17 $ .72
======== ========
</TABLE>
Since inception, the Company has not paid any dividends. The Credit Agreement
("Credit Agreement") between the Company and Foothill Capital Corporation
("Foothill") prohibits the payment of any cash dividends without the consent of
Foothill during the term of the Credit Agreement. 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.
Reclassifications
Certain reclassifications have been made to prior period information to conform
to the current period presentation.
NOTE 2 -- LONG TERM DEBT
PIK NOTES AND PIK NOTE REPURCHASES
The Company issued $40.2 million principal amount of PIK Notes in a
restructuring of its debt in July 1996. 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, January 15, 1998, and July 15, 1998, the Company issued an
additional $1.8 million, $1.9 million, and $2.0 million principal amount of PIK
Notes, respectively, in lieu of cash interest. As a result of these
transactions, the Company had $34.8 million principal amount of PIK Notes
outstanding as of September 30, 1998.
CREDIT AGREEMENT WITH FOOTHILL
In January 1998, the Company repaid all outstanding borrowings under the Credit
Agreement with Foothill, and it had no outstanding borrowings under the Credit
Agreement as of September
Page 10
<PAGE> 11
30, 1998 and as of the date of this report. However, the Company has entered
into an amendment to the Credit Agreement that provides the Company the
flexibility to borrow up to $5.0 million for working capital purposes and up to
an additional $30.0 million to use to redeem the PIK Notes (see Note 6) and for
the possible acquisition of members through the purchase of other membership
campground operations. Under the amended Credit Agreement, the first $15.0
million of borrowings will bear interest at prime plus .25% per annum,
borrowings over $15.0 million and up to $25.0 million will bear interest at
prime plus .50% per annum, and borrowings over $25.0 million will bear interest
at prime plus 1.5% per annum. All borrowings under the amended Credit Agreement
will mature on January 17, 2003. However, if the Company has not repaid in full
or otherwise retired all of the PIK Notes by July 15, 2000, all borrowings
under the amended Credit Agreement in excess of $10.0 million will mature on
July 15, 2000, and up to $10.0 million of borrowings under the amended Credit
Agreement will be refinanced on such date and thereafter be available to the
Company for working capital purposes only. This $10.0 million working capital
facility will then become the Working Capital Replacement Facility defined in
the Indenture for the PIK Notes and will be secured by substantially all of the
assets of the Company.
NOTE 3 -- CONTINGENCIES
General Liability Insurance
Commencing July 1, 1998, the Company obtained insurance covering general
liability losses up to an annual limit of $27.0 million, with no self-insured
deductible. Prior to this date, the Company's insurance covered general
liability losses up to an annual limit of $26.8 million, but required the
Company to pay the first $250,000 per occurrence, with an annual aggregate
exposure of $2.0 million. The Company has provided a liability for estimated
known and unknown claims related to uninsured general liability risks based on
actuarial estimates. At September 30, 1998 and June 30, 1998, the Company's
recorded liability for estimated losses related to uninsured general liability
claims totaled $1.3 million and $1.2 million, respectively, which is included in
other liabilities in the accompanying consolidated balance sheets.
Declining Membership Base
The Company derives a significant portion of its ongoing operating revenue from
its campground members (92% in fiscal 1998). 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, in
fiscal 1998, the Company transferred 1,775 members at two campgrounds to the
entity that purchased the campgrounds from the Company. Moreover, 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 or acquire members in another manner, such
as through the purchase of other membership campground organizations. There is
no assurance that the Company will be successful in these efforts.
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.
Page 11
<PAGE> 12
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, 1998 and 1997
(dollars in thousands):
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Non-cash payment of PIK Note interest (see Note 2)
--------------------------------------------------
PIK Notes issued in lieu of cash interest payment $ 1,969 $ 1,752
</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 in July 1996, as well as
the PIK Notes issued in lieu of cash payment of interest (see Note 2).
Set forth on the next page is selected financial information for Thousand
Trails, Inc. ("TTI"), NACO, RPI, Wilderness, and Coast, and the eliminations
necessary to arrive at the information for the Company on a consolidated basis
as of and for the periods presented. The assets and operations of Wilderness and
Coast 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.
Page 12
<PAGE> 13
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Three Months Ended September 30,
-----------------------------------------------------------------------------------------
1998 1997
---------------------------------------- -----------------------------------------
Operating Net Operating Net
Revenues Income(1) Income Revenues Income(1) Income
--------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
TTI $ 12,662 $ 2,112 $ 1,462 $ 13,191 $ 4,887 $ 5,956
NACO 6,986 357 75 9,195 774 2,468
RPI, Wilderness & 2,582 804 623 1,732 656 421
Coast
Eliminations(2) (1,769) (698) (698) (856) (2,859) (2,859)
--------- -------- -------- --------- -------- --------
Total $ 20,461 $ 2,575 $ 1,462 $ 23,262 $ 3,458 $ 5,986
========= ======== ======== ========= ======== ========
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
As of September 30, 1998 As of June 30, 1998
--------------------------------- ----------------------------------
Total Total Total Total
Assets Liabilities Assets Liabilities
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
TTI $ 51,600 $ 53,063 $ 52,603 $ 55,570
NACO 30,215 40,742 31,847 42,449
RPI, Wilderness & 3,210 1,924 2,849 2,186
Coast
Eliminations(2) (13,417) (28,379) (13,037) (28,697)
--------- --------- --------- ---------
Total $ 71,608 $ 67,350 $ 74,262 $ 71,508
========= ========= ========= =========
</TABLE>
- -----------------------
(1) Defined as income before interest income and expense, gain on asset sales,
and taxes.
(2) Entries to record subsidiaries' results on a consolidated basis.
NOTE 6 -- SUBSEQUENT EVENT
On November 10, 1998, the Company called for redemption on December 15, 1998
(the "Redemption Date"), all $34.8 million principal amount of PIK Notes
outstanding at face value plus accrued interest. The Company will fund this
redemption with approximately $10 million of its existing cash and approximately
$27 million of new borrowings under the amended Credit Agreement. Pursuant to
the terms of the Indenture for the PIK Notes, the holders of the PIK Notes will
receive from the Company on the Redemption Date the sum of $1,000, plus accrued
interest from July 15, 1998 to the Redemption Date of $50.00 for each $1,000
principal amount of PIK Notes, for a total price of $1,050.00 for each $1,000
principal amount of PIK Notes (the "Redemption Price"). On the Redemption Date,
interest will cease to accrue and the holders will have no other rights as
holders other than the right to receive the Redemption Price, without further
interest, upon surrender of their certificates representing the PIK Notes.
Page 13
<PAGE> 14
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,
1998, filed with the SEC on September 25, 1998, as amended by a Form 10-K/A
filed with the SEC on October 7, 1998.
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, and elsewhere in this report, the Company makes certain
statements as to its expected financial condition, results of operations, cash
flows, and business strategies, plans, and conditions for periods after
September 30, 1998. 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, plans, and
conditions for future periods may differ materially due to several factors,
including but not limited to the Company's ability to control costs, campground
market conditions and other factors affecting the Company's 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.
LIQUIDITY AND CAPITAL RESOURCES
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 or the possible acquisition of members
through the purchase of other membership campground operations. 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 it may
be possible to acquire members through the purchase of other membership
campground operations, many of whom are experiencing financial difficulties.
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 keep the size of its campground
system in an appropriate relation to the size of its membership base. In this
regard, if the membership base continues to decline, the Company may 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 also intends to
explore the possible acquisition of members through the purchase of other
membership campground organizations. The Company believes that the ultimate size
of its campground system and the amounts realized from future asset sales
Page 14
<PAGE> 15
will depend principally upon the degree to which the Company can successfully
implement this strategy.
CASH. On September 30, 1998, the Company had $13.0 million of cash and cash
equivalents, a decrease of $665,000 from June 30, 1998. During the three months
ended September 30, 1998, the Company's primary source of cash was $291,000
provided by operating activities. The significant offsetting reduction to cash
was $1.1 million of capital and HUD-related expenditures. The Company
experiences lower 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, 1998, were $13.7 million in dues collections and other campground
and resort revenues, $1.8 million in principal and interest collections on
contracts receivable, and $1.2 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, 1998, were $11.3 million
in operating expenses, $2.5 million in administrative expenses (including
general and administrative expenses and corporate member services costs), and
$1.7 million in sales and marketing expenditures.
In January 1998, the Company repaid all outstanding borrowings under the Credit
Agreement, and it had no outstanding borrowings under the Credit Agreement as
of September 30, 1998 and as of the date of this report. However, the Company
has entered into an amendment to the Credit Agreement that provides the Company
the flexibility to borrow up to $5.0 million for working capital purposes and
up to an additional $30.0 million to use to redeem the PIK Notes and for the
possible acquisition of members through the purchase of other membership
campground operations. Under the terms of the amended Credit Agreement, the
first $15.0 million of borrowings will bear interest at prime plus .25% per
annum, borrowings over $15.0 million and up to $25.0 million will bear interest
at prime plus .50% per annum, and borrowings over $25.0 million will bear
interest at prime plus 1.5% per annum. All borrowings under the amended Credit
Agreement will mature on January 17, 2003. However, if the Company has not
repaid in full or otherwise retired all of the PIK Notes by July 15, 2000, all
borrowings under the amended Credit Agreement in excess of $10.0 million will
mature on July 15, 2000, and up to $10.0 million of borrowings under the
amended Credit Agreement will be refinanced on such date and thereafter be
available to the Company for working capital purposes only. This $10.0 million
working capital facility will then become the Working Capital Replacement
Facility defined in the Indenture for the PIK Notes and will be secured by
substantially all of the assets of the Company, as discussed below.
Under the terms of the amended 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.
On November 10, 1998, the Company called for redemption on December 15, 1998,
all $34.8 million principal amount of PIK Notes outstanding at face value plus
accrued interest.
Page 15
<PAGE> 16
The Company will fund this redemption with approximately $10 million of its
existing cash and approximately $27 million of new borrowings under the amended
Credit Agreement (see "Item 5. Other Information").
Based upon its current business plan, the Company believes that future cash
flows provided from operations, asset sales, and borrowings available under the
amended Credit Agreement will be adequate for the Company's operating and other
cash requirements during the remaining term of the amended Credit Agreement.
While any borrowings are outstanding under the amended Credit Agreement, all
cash held by the Company and its wholly owned subsidiaries will generally be
deposited in accounts that are controlled by and pledged to Foothill.
The Credit Agreement limits the type of investments in which the Company may
invest its available cash, resulting in a relatively low yield. Investments of
cash had a weighted average yield of 5.6% at September 30, 1998.
MATERIAL CHANGES IN FINANCIAL CONDITION
Total assets decreased by $2.7 million during the three months ended September
30, 1998. Cash decreased by $665,000 as discussed above. Contracts receivable
decreased by $697,000 due primarily to $1.2 million in cash collections
partially offset by new financed sales and amortization of the allowances for
interest discount, collection costs, and valuation discount. Other current
assets decreased by $438,000 due primarily to lower dues receivable and
inventory due to the seasonal nature of the business. Buildings and equipment
decreased by $255,000 due primarily to depreciation, partially offset by capital
improvements made at certain campgrounds. Other assets decreased by $229,000 due
primarily to the release of certain prior year insurance deposits that were
applied to current year insurance payments.
Total liabilities decreased by $4.2 million during the three months ended
September 30, 1998. Accrued interest declined by $935,000 due to the timing of
the semi-annual interest payments on the PIK Notes paid in the form of
additional PIK Notes. Accrued construction costs decreased by $507,000 as a
result of HUD-related improvements made at one of the resorts during the period.
Deferred revenue decreased by $4.7 million due primarily to the recognition of
$5.4 million of dues revenue in excess of dues collected during the period,
partially offset by a $652,000 net increase in deferred sales revenue.
Offsetting these decreases, the Company's outstanding debt increased by $2.0
million during the period due to the issuance of additional PIK Notes in lieu of
cash interest.
MARKET RISK AND INTEREST RATE SENSITIVITY. As noted above, the Company has
called for redemption on December 15, 1998 all $34.8 million principal amount of
PIK Notes outstanding at face value plus accrued interest. The Company will
fund this redemption with approximately $10 million of its existing cash and
approximately $27 million of new borrowings under the amended Credit Agreement
(see "Item 5. Other Information"). The Company will use substantially all of
its invested cash to fund the redemption, which will eliminate any interest
rate market risk with respect to cash balances. However, the borrowings under
the amended Credit Agreement will increase the Company's interest rate market
risk, as such borrowings will be subject to interest rates that fluctuate with
changes in the prime rate. In management's opinion, after giving effect to the
redemption of the PIK Notes, a hypothetical ten percent change in market
interest rates over the next year would not have a material effect on the fair
value of the Company's contracts receivable, long term debt, or cash balances.
Page 16
<PAGE> 17
RESULTS OF OPERATIONS
The following discussion and analysis are based on the historical results of
operations of the Company for the three months ended September 30, 1998 and
1997. 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, 1998 AND 1997
NET INCOME. The Company reported net income of $1.5 million or $.20 per share on
revenues of $20.5 million for the three months ended September 30, 1998. This
compares with net income of $6.0 million or $.81 per share on revenues of $23.3
million for the same period last year. Excluding gains on asset sales, the
Company's revenues increased by $531,000 in the current period. Gains on asset
sales were $88,000 in the current period, compared with $3.4 million in the same
period last year. However, the Company also incurred higher expenses in the
current period, primarily sales and marketing expenses and taxes.
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,
1998 and 1997.
Page 17
<PAGE> 18
THOUSAND TRAILS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
CAMPGROUND OPERATIONS
Membership dues $ 9,340 $ 9,697
Campground revenues 7,549 6,238
Cost of campground revenues (3,531) (2,748)
Operating expenses (8,980) (8,726)
---------- ----------
Contribution from campground operations 4,378 4,461
---------- ----------
SALES
Sales revenues 940 691
Selling expenses (959) (671)
Marketing expenses (582) (278)
---------- ----------
Loss on sales (601) (258)
---------- ----------
RESORT PARKS INTERNATIONAL
Revenues 969 882
Expenses (532) (432)
---------- ----------
Contribution from RPI 437 450
---------- ----------
4,214 4,653
---------- ----------
RESORT OPERATIONS
Revenues 56 532
Expenses (72) (450)
---------- ----------
Contribution (loss) from resort operations (16) 82
---------- ----------
4,198 4,735
---------- ----------
Other income 896 1,155
Corporate member services (381) (384)
General and administrative expenses (2,138) (2,048)
---------- ----------
OPERATING INCOME BEFORE INTEREST INCOME AND
EXPENSE, GAIN ON ASSET SALES, AND TAXES 2,575 3,458
---------- ----------
Interest income 623 647
Interest expense (1,078) (1,365)
Gain on asset sales 88 3,420
---------- ----------
OPERATING INCOME BEFORE TAXES $ 2,208 $ 6,160
========== ==========
</TABLE>
Page 18
<PAGE> 19
OPERATING INCOME. During the three months ended September 30, 1998, the
Company's contribution from operations was $2.6 million, $883,000 less than the
$3.5 million achieved in the same period last year. The decline was due
primarily to a higher loss from sales operations and a decrease in other income.
For this purpose, the contribution from operations is defined as operating
income before interest income and expense, gain on asset sales, and taxes. See
the table on the previous page for the elements of the contribution from
operations and the Company's operating income before taxes for the historical
periods presented.
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 $9.3 million for the three months ended
September 30, 1998, compared with $9.7 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.
Campground revenues were $7.5 million for the three months ended September 30,
1998, compared with $6.2 million for the same period last year. The related
expenses were $3.5 million for the three months ended September 30, 1998,
compared with $2.7 million for the same period last year. The increase in
campground revenues and related expenses in the current period was primarily a
result of increased revenues from the Company's campground management operations
and an increase in site fees and other ancillary revenues at the campgrounds.
The ancillary revenues increased as a result of higher usage at the campgrounds
during the summer of 1998 compared with the prior summer.
Campground operating expenses were $9.0 million for the three months ended
September 30, 1998, compared with $8.7 million for the same period last year.
The current period expenses were higher primarily due to timing differences for
certain costs.
The Company intends to continue to keep the size of its campground system in an
appropriate relation to the size of its membership base. In this regard, if the
membership base continues to decline, the Company may close and dispose of
additional campgrounds and it will seek to decrease other expenses. Although the
Company believes that the 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. For the three months ended September 30,
1998 and 1997, the Company recognized campground membership sales revenues of
$940,000 and $691,000, respectively. These amounts include revenues of $701,000
and $561,000, respectively, that were deferred in prior periods. Moreover,
during these same periods, the Company deferred revenues of $1.4 million and
$808,000, respectively, which will be recognized in future periods. Sales
revenues increased in the current period due to increases in new member sales at
higher average sales prices partially offset by a higher net deferral of sales
revenues in the current period.
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<PAGE> 20
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, 1998 and 1997, the Company recognized selling expenses of $959,000
million and $671,000, respectively. These amounts include expenses of $164,000
and $126,000, respectively, that were deferred in prior periods. Moreover, for
these same periods, the Company deferred expenses of $343,000 and $210,000,
respectively, which will be recognized in future periods.
Selling and marketing expenses exceeded sales revenues by $601,000 and $258,000
for the three months ended September 30, 1998 and 1997, respectively. These
expenses exceeded sales revenues because of the increased marketing activity and
low volume of sales, which did not cover fixed costs. In addition, the Company
deferred more sales revenues than selling expenses 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.
The Company's selling and marketing efforts have not produced the level of sales
needed to stop the continuing decline in the Company's membership base. If the
Company is not able to significantly increase its campground membership sales
over current levels, the membership base will continue to decline, which will
further decrease the Company's revenues. Further decreases in revenues that are
not offset by sufficient expense reductions could have a material adverse impact
on the Company's business and results of operations.
CAMPGROUND MANAGEMENT. Wilderness, a wholly owned subsidiary of the Company,
manages 130 public campgrounds for the US Forest Service. For the three months
ended September 30, 1998, these operations produced revenues of $1.7 million
with related expenses (excluding certain shared administrative costs) of $1.2
million. This compares with revenues for the same period last year of $848,000
and related expenses (excluding certain shared administrative costs) of
$644,000. The increase in revenues and expenses between periods is due to new
contracts entered into in the spring of 1998, which significantly increased the
number of campgrounds managed. The revenues and expenses related to the
Company's campground management operations are included in other
campground/resort revenue and campground/resort operating expenses in the
consolidated statement of operations, and in campground revenues and cost of
campground revenues in the table on page 18.
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 three months ended September
30, 1998, RPI's operations produced a net contribution of $437,000 on revenues
of $969,000, compared with a contribution of $450,000 on revenues of $882,000
for the same period last year. RPI is working to introduce new products to
increase its revenues and maintain its contribution margin; however, there is no
assurance that it will be successful.
Page 20
<PAGE> 21
RESORT OPERATIONS. The Company's operations at the resorts presently consist of
the sale of residential lots. For the three months ended September 30, 1998, the
resort operations produced a loss of $16,000 on revenues of $56,000, compared
with a net contribution of $82,000 on revenues of $532,000 for the same period
last year. The prior year results included revenues and expenses related to
selling property and managing the amenities at one resort. The amenities
previously managed by the Company were transferred to the resort's property
owners' association during fiscal 1998. 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
consist primarily of approximately 100 residential lots and other miscellaneous
real estate.
INTEREST INCOME AND EXPENSE. Interest income was $623,000 for the three months
ended September 30, 1998, compared with $647,000 for the same period last year.
During these periods, interest income included amortization of the allowances
for interest and valuation discounts related to the contracts receivable of
$61,000 and $66,000, respectively. During the current period, a decrease in
interest earned on the Company's diminishing portfolio of contracts receivable
was substantially offset by higher interest earned on invested cash, resulting
in only a slight decrease in interest income between periods. The interest
earned on the Company's portfolio of contracts receivable will continue to
decrease in the future as the portfolio declines. In addition, the interest
earned on invested cash will be significantly lower in future periods after the
Company uses substantially all of its existing cash to partially fund the
redemption of the PIK Notes (see "Item 5. Other Information").
Interest expense was $1.1 million for the three months ended September 30, 1998,
compared with $1.4 million for the same period last year. The $287,000 decrease
in interest expense between periods was due primarily to repayments of
borrowings under the Credit Agreement and mortgage notes during fiscal 1998.
The Company repaid all outstanding borrowings under the Credit Agreement and its
remaining mortgage notes in the third quarter of fiscal 1998. In addition, the
Company has called for redemption on December 15, 1998 all $34.8 million
principal amount of PIK Notes outstanding at face value plus accrued interest.
The Company will fund this redemption with approximately $10 million of its
existing cash and approximately $27 million of new borrowings under the amended
Credit Agreement. The Company anticipates that the redemption of the PIK Notes
will lower its outstanding debt and its interest expense in future periods.
However, interest on the borrowings under the amended Credit Agreement must be
paid in cash on a monthly basis.
GAIN ON ASSET SALES. The Company recognized a gain on the sale of assets of
$88,000 for the three months ended September 30, 1998, compared with $3.4
million for the same period last year. The decrease in the current period was
due to the timing of asset sales. 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 successfully sold assets during the
past several 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
made.
Page 21
<PAGE> 22
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 and delinquent
dues, and subscription fees received from members who subscribe to the Company's
member magazine. Other income was $896,000 for the three months ended September
30, 1998, compared with $1.2 million for the same period last year. The decrease
between periods was due primarily to lower recoveries on canceled contracts and
delinquent dues in the current period.
OTHER EXPENSES. Administrative expenses, including corporate member service
costs and general and administrative expenses, were $2.5 million for the three
months ended September 30, 1998, compared with $2.4 million for the same period
last year. The slight increase in costs was due primarily to higher legal fees
in the current period.
INCOME TAXES. The Company's current provision for income taxes was $261,000 for
the three months ended September 30, 1998, compared with $174,000 for the same
period last year. The current provisions for these periods include amounts for
federal alternative minimum taxes and state income taxes payable in the various
states where the Company conducts its operations. With the exception of federal
alternative minimum taxes, the Company does not have federal income taxes
payable on a consolidated basis due to its net operating tax loss carryforwards,
which were estimated to total $26.9 million at June 30, 1998.
The Company recorded a deferred tax provision of $485,000 for the three months
ended September 30, 1998. At June 30, 1998, the Company reduced the valuation
allowance related to its net deferred tax assets by $10.0 million because
management determined it was more likely than not that the Company would realize
the benefits of a significant portion of the net deferred tax assets. The net
deferred tax assets had previously been fully reserved. The Company will
continue to record a deferred tax provision in future periods as the related
deferred tax assets are realized. The deferred tax provision will not affect
current or future income tax payments, but will result in higher tax provisions
in the future in the periods the related deferred tax assets are realized.
INFLATION. During the past several 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.
IMPACT OF YEAR 2000. Based on recent assessments, the Company has determined
that it must modify certain software and replace certain hardware so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. The Company has begun making the internal software modifications
and anticipates completing the year 2000 project by June 30, 1999. These
modifications, if timely completed, will avoid any material impact on its
operating systems. The Company currently estimates that it will cost
approximately $265,000 to make the necessary enhancements to its hardware and
software, which will not significantly impact the Company's financial position,
operations, or cash flows.
Page 22
<PAGE> 23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company currently does not have any derivative financial instruments.
However, the Company does have other financial instruments that contain market
risk. Management believes that the market risk associated with the Company's
financial instruments as of September 30, 1998 is not significant. The
information required by Item 305 of S-K is contained in Item 2 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
the heading "Market Risk and Interest Rate Sensitivity."
ITEM 5. OTHER INFORMATION
On November 10, 1998, the Company called for redemption on December 15, 1998
(the "Redemption Date"), all $34.8 million principal amount of PIK Notes
outstanding at face value plus accrued interest. The Company will fund this
redemption with approximately $10 million of its existing cash and approximately
$27 million of new borrowings under the amended Credit Agreement. Pursuant to
the terms of the Indenture for the PIK Notes, the holders of the PIK Notes will
receive from the Company on the Redemption Date the sum of $1,000, plus accrued
interest from July 15, 1998 to the Redemption Date of $50.00 for each $1,000
principal amount of PIK Notes, for a total price of $1,050.00 for each $1,000
principal amount of PIK Notes (the "Redemption Price"). On the Redemption Date,
interest will cease to accrue and the holders will have no other rights as
holders other than the right to receive the Redemption Price, without further
interest, upon surrender of their certificates representing the PIK Notes.
The Company anticipates that the redemption of the PIK Notes will lower it
outstanding debt and its interest expense in future periods. However, interest
on the borrowings under the amended Credit Agreement must be paid in cash on a
monthly basis.
Page 23
<PAGE> 24
PART II. OTHER INFORMATION
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
------- -----------
<S> <C>
10.1 Fifth Amendment to Loan and Security Agreement dated as of
September 15, 1998, between the Company and Foothill.
10.2 Sixth Amendment to Loan and Security Agreement dated as of
October 21, 1998, between the Company and Foothill.
10.3 Fourth Amendment to Credit Agreement dated as of June 10, 1998,
between the Company and NACO.
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule for the three months ended September
30, 1998.
27.2 Restated Financial Data Schedule for the three months ended
September 30, 1997.
</TABLE>
REPORTS ON FORM 8-K
None.
Page 24
<PAGE> 25
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.
Date: November 10, 1998 By: /s/ William J. Shaw
----------------------------------
William J. Shaw
President, Chief Executive Officer
and acting Chief Financial Officer
Date: November 10, 1998 By: /s/ Bryan Reed
----------------------------------
Bryan Reed
Chief Accounting Officer
Page 25
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.1 Fifth Amendment to Loan and Security Agreement dated as of
September 15, 1998, between the Company and Foothill.
10.2 Sixth Amendment to Loan and Security Agreement dated as of
October 21, 1998, between the Company and Foothill.
10.3 Fourth Amendment to Credit Agreement dated as of June 10, 1998,
between the Company and NACO.
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule for the three months ended September 30, 1998.
27.2 Restated Financial Data Schedule for the three months ended
September 30, 1997.
</TABLE>
Page 26
<PAGE> 1
EXHIBIT 10.1
FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Fifth Amendment to Loan and Security Agreement
("Amendment") is entered into as of September 15, 1998, by and among FOOTHILL
CAPITAL CORPORATION, a California corporation ("Foothill"), on the one hand, and
NATIONAL AMERICAN CORPORATION, a Nevada corporation ("NACO"), THOUSAND TRAILS,
INC., a Delaware corporation ("Trails"), and the other party borrowers signatory
hereto (each, together with NACO and Trails, individually a "Borrower" and
collectively, jointly and severally, "Borrowers"),on the other hand, in light of
the following:
R E C I T A L S
FACT ONE: Borrowers, or their predecessors in interest, and
Foothill have previously entered into that certain Loan and Security Agreement,
dated as of July 10, 1996 (as amended and modified, the "Loan Agreement").
FACT TWO: Borrowers and Foothill desire to amend the Loan
Agreement as provided for herein.
A G R E E M E N T
NOW, THEREFORE, Borrowers and Foothill hereby amend and
supplement the Loan Agreement as follows:
1. DEFINITIONS. All initially capitalized terms used in
this Amendment shall have the meanings given to them in the Loan Agreement
unless specifically defined herein.
2. AMENDMENT.
2.1 Foothill hereby agrees that it shall not charge
Borrowers the three (3) Business Day clearance charge provided for in Section
3.6 of the Agreement on any receipt of payments received from the period of
March 15, 1998 through November 15, 1998 except for receipts from the sales of
Real Property. After November 15, 1998, Foothill shall charge the three (3)
Business Day clearance charge on all receipts as provided for in Section 3.6 of
the Agreement.
2.2 Foothill hereby waives the requirement that
Borrower pay to Foothill the Unused Line Fee provided for in Section 3.8 (d) of
the Agreement from the period of June 10, 1998 through November 15, 1998. After
November 15, 1998, Borrower shall pay to Foothill the Unused Line Fee provided
for in Section 3.8 (d) of the Agreement.
1
<PAGE> 2
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms
to Foothill that all of Borrower's representations and warranties set forth in
the Loan Agreement are true, complete and accurate in all material respects as
of the date hereof (except to the extent that such representations and
warranties relate solely to an earlier date).
4. NO DEFAULTS. Borrower hereby affirms to Foothill that
no Event of Default has occurred and is continuing as of the date hereof.
5. LIMITED EFFECT. In the event of a conflict between the
terms and provisions of this Amendment and the terms and provisions of the Loan
Agreement, the terms and provisions of this Amendment shall govern. In all other
respects, the Loan Agreement, as amended and supplemented hereby, shall remain
in full force and effect.
6. WAIVER. The waiver of certain provisions of the Loan
Agreement as provided in this Amendment shall constitute a one time waiver only
and Foothill shall have the right to require strict compliance with all of the
provisions of the Loan Agreement in the future.
7. BROKERS' FEES. Any brokerage commission or finder's
fees payable in connection with the financing arrangement contemplated hereby
will be payable by Borrowers and not by Foothill. Borrowers and Foothill each
represent and warrant to the other that they have not incurred any obligation
for a brokerage commission or a finder's fee. Borrowers hereby indemnify
Foothill and hold Foothill harmless from and against any claim of any broker or
finder arising out of the financing arrangement described above or any
commitment relating thereto.
8. COUNTERPARTS; EFFECTIVENESS. This Amendment may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original. All such counterparts, taken together, shall constitute but one and
the same Amendment. This Amendment shall become effective upon the execution of
a counterpart of this Amendment by each of the parties hereto.
2
<PAGE> 3
9. COMPLETE AGREEMENT; NO ORAL MODIFICATIONS. This
Amendment embodies the entire agreement between the parties hereto with respect
to the subject matter hereof and supersedes all prior proposals, negotiations,
or agreements whether written or oral, relating to the subject matter hereof.
This Amendment may not be modified, amended, supplemented, or otherwise changed,
except by a document in writing signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first set forth above.
"FOOTHILL"
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Katy J. Brooks
-----------------------------------
Title: Assistant Vice President
"BORROWERS"
NATIONAL AMERICAN CORPORATION,
a Nevada corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
THOUSAND TRAILS, INC.,
a Delaware corporation, f/k/a USTrails, Inc.,
a Nevada corporation, and New Thousand Trails,
Inc., a Delaware corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
3
<PAGE> 4
THOUSAND TRAILS (CANADA) INC.,
a British Columbian corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
TT OFFSHORE, LTD,
a Virginia corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
BEECH MOUNTAIN LAKES CORPORATION,
a Pennsylvania corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
CHEROKEE LANDING CORPORATION,
a Tennessee corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
CHIEF CREEK CORPORATION,
a Tennessee corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
4
<PAGE> 5
COAST FINANCIAL SERVICES, INC.,
a Delaware corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
DIXIE RESORT CORPORATION,
a Mississippi corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
FOXWOOD CORPORATION,
a South Carolina corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
GL LAND DEVELOPMENT CORPORATION,
an Oklahoma corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
LAKE ROYALE CORPORATION,
a North Carolina corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
5
<PAGE> 6
LAKE TANSI VILLAGE, INC.,
a Tennessee corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
LML RESORT CORPORATION,
an Alabama corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
NATCHEZ TRACE WILDERNESS PRESERVE
CORPORATION, a Tennessee corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
QUAIL HOLLOW PLANTATION
CORPORATION, a Tennessee corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
6
<PAGE> 7
QUAIL HOLLOW VILLAGE, INC.,
a Pennsylvania corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
RECREATION LAND CORPORATION,
a Pennsylvania corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
RECREATION PROPERTIES, INC.,
a Mississippi corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
RESORT LAND CORPORATION,
an Arkansas corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
RESORT PARKS INTERNATIONAL, INC.,
a Georgia corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
7
<PAGE> 8
TANSI RESORT, INC.,
a Tennessee corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
THE KINSTON CORPORATION,
a South Carolina corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
THE VILLAS OF HICKORY HILLS, INC.,
a Mississippi corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
WESTERN FUN CORPORATION,
a Texas corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
WESTWIND MANOR CORPORATION,
a Texas corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
8
<PAGE> 9
WOLF RUN MANOR CORPORATION,
a Pennsylvania corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
UST WILDERNESS MANAGEMENT
CORPORATION, a Nevada corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
9
<PAGE> 1
EXHIBIT 10.2
SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Sixth Amendment to Loan and Security Agreement
("Amendment") is entered into as of October 21, 1998, by and among FOOTHILL
CAPITAL CORPORATION, a California corporation ("Foothill"), on the one hand, and
NATIONAL AMERICAN CORPORATION, a Nevada corporation ("NACO"), THOUSAND TRAILS,
INC., a Delaware corporation ("Trails"), and the other party borrowers signatory
hereto (each, together with NACO and Trails, individually a "Borrower" and
collectively, jointly and severally, "Borrowers"), on the other hand, in light
of the following:
R E C I T A L S
FACT ONE: Borrowers, or their predecessors in interest, and
Foothill have previously entered into that certain Loan and Security Agreement,
dated as of July 10, 1996 (as amended and modified, the "Loan Agreement").
FACT TWO: Borrowers have requested that Foothill modify its
previous consent to allow Borrowers to purchase additional PIK Notes and to
provide a working capital line of credit which Borrower shall not be required to
repay until January 17, 2003.
FACT THREE: Borrowers and Foothill desire to amend the Loan
Agreement as provided for herein.
A G R E E M E N T
NOW, THEREFORE, Borrowers and Foothill hereby amend and
supplement the Loan Agreement as follows:
1. DEFINITIONS. All initially capitalized terms used in
this Amendment shall have the meanings given to them in the Loan Agreement
unless specifically defined herein.
1
<PAGE> 2
2. AMENDMENT.
2.1 Section 1.1 of the Loan Agreement is hereby
amended by deleting the definition of Revolving Maximum Amount and substituting
the following in its place and stead:
"Revolving Maximum Amount" means Thirty-Five Million Dollars
($35,000,000), which such amount is permanently reduced to lower
amounts by the greater of (y) the sum of (1) an amount equal to the
aggregate net cash proceeds of all sales of Collateral pursuant to
Section 5.4 (other than the last paragraph thereof), or as otherwise
approved by Foothill, which occur after June 10, 1998; plus (2) 100% of
Account collections, once the Term Note has been fully secured by cash;
or (z) the amount set forth below opposite the applicable date of
reduction:
6/30/1999 - $4,500,000
12/31/1999 - $9,000,000
6/30/2000 - $13,500,000
7/15/2000 - $35,000,000; provided that if Borrower has paid in
full or otherwise retired all PIK Notes by July 15,
2000, the reduction scheduled for such date shall
not occur and the following amounts shall apply on
the following dates of reduction:
12/31/2000 - $18,000,000
6/30/2001 - $22,500,000
12/31/2001 - $27,000,000
6/30/2002 - $31,500,000
1/17/2003 - $35,000,000:
Provided, however, there shall be no reductions in the Revolving
Maximum Amount as called for in provisions (y)(1) and (2) called for
above for any sales or collections which occur between June 10, 1998
and the earlier to occur of the following: (i) the completion of the
purchase by Borrower of the PIK Notes, or (ii) the purchase of the
stock of AIC, or (iii) March 31, 1999.
2.2 Section 4.3 of the Loan Agreement is hereby
amended so that the term ends on January 17, 2003 instead of July 17, 2002 as is
currently provided for in the Loan Agreement.
2
<PAGE> 3
2.3 Section 4.8(b) of the Loan Agreement is hereby
amended to change the date therein from September 12, 1998 to March 31, 1999.
2.4 The following shall be added to the end of
Section 8.13 of the Loan Agreement: "Commencing with the first $4,500,000
reduction in the Revolving Maximum Amount, as required in the definition
thereof, Borrower shall be able to cumulate the $50,000 monthly cap on
repurchases of its own stock, so that any unused allowed sums can be carried
over into successive months, with a maximum carryover allowed amount of
$250,000. Thereafter, with each $4,500,000 reduction in the Revolving Maximum
Amount, the carry-over cap shall increase by an additional $250,000 for each
such $4,500,000 reduction, until the maximum carry-over amount is $1,000,000."
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms
to Foothill that all of Borrower's representations and warranties set forth in
the Loan Agreement are true, complete and accurate in all material respects as
of the date hereof (except to the extent that such representations and
warranties relate solely to an earlier date).
4. NO DEFAULTS. Borrower hereby affirms to Foothill that
no Event of Default has occurred and is continuing as of the date hereof.
5. CONDITION PRECEDENT. The effectiveness of this
Amendment is expressly conditioned upon receipt by Foothill of an executed copy
of this Amendment and the fulfillment, to the satisfaction of Foothill and
Foothill's counsel, of each of the following conditions precedent:
5.1 Borrower shall execute and have recorded in the
appropriate county amendments to mortgages/deeds of trust on all of the real
property which secures the Loan Agreement. The form of all of the documents
required in this section shall be comparable to the documents that Borrower has
already executed in the past related to amendments to mortgages/deeds of trust
and new mortgages/deeds of trust.
5.2 Foothill obtains title insurance endorsements
on real property included within 10 existing policies of title insurance
(evidencing no further encumbrances or liens), all in form and substance and in
amounts required by Foothill in its sole and absolute discretion. Foothill shall
determine which 10 policies of title insurance they will receive endorsements or
new policies. These may be the policies with the highest insured values.
Foothill shall obtain commitments for title insurance (but shall not purchase
new policies) for all of the properties located in Texas evidencing that there
exists no further encumbrances or liens from the date that Foothill received
policies of title insurance on such properties.
5.3 Each Borrower shall be a corporation in good
standing in the jurisdiction of its incorporation and qualified to do business
in any other jurisdiction where such qualification is required by law.
3
<PAGE> 4
5.4 Borrower and Foothill shall have entered into
an amendment to the security documents in form and substance reasonably
satisfactory to Foothill and Foothill's counsel containing usual and customary
provisions for a transaction of this type. All other documents and legal matters
in connection with this Amendment shall have been entered into and delivered,
consistent with (but not limited to) prior amendments to the Loan Agreement.
5.5 Foothill shall have received such opinions of
Borrower's counsel as Foothill shall reasonably require, which opinion(s) shall
be satisfactory to Foothill and its counsel as to both form and substance. Such
opinions shall include opinions as to Borrower's corporate existence, Borrower's
power and authority to enter into this Amendment and other documents and the
validity and binding effect of this Amendment and the other documents entered
into in connection herewith.
5.6 Borrower shall have paid to Foothill all of
Foothill's out-of-pocket expenses relating to this Amendment, including, but not
limited to, search fees, title search and insurance fees, filing and recording
fees, examination and appraisal fees, internal transaction charges, and
attorneys fees and expenses.
6. LIMITED EFFECT. In the event of a conflict between the
terms and provisions of this Amendment and the terms and provisions of the Loan
Agreement, the terms and provisions of this Amendment shall govern. In all other
respects, the Loan Agreement, as amended and supplemented hereby, shall remain
in full force and effect.
7. WAIVER. The waiver of certain provisions of the Loan
Agreement as provided in this Amendment which, inter alia, allows Borrower to
purchase the stock of AIC and to purchase PIK Notes shall constitute a one time
waiver only, and Foothill shall have the right to require strict compliance with
all of the provisions of the Loan Agreement in the future.
8. BROKERS' FEES. Any brokerage commission or finder's
fees payable in connection with the financing arrangement contemplated hereby
will be payable by Borrowers and not by Foothill. Borrowers and Foothill each
represent and warrant to the other that they have not incurred any obligation
for a brokerage commission or a finder's fee. Borrowers hereby indemnify
Foothill and hold Foothill harmless from and against any claim of any broker or
finder arising out of the financing arrangement described above or any
commitment relating thereto.
9. COUNTERPARTS; EFFECTIVENESS. This Amendment may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original. All such counterparts, taken together, shall constitute but one and
the same Amendment. This Amendment shall become effective upon the execution of
a counterpart of this Amendment by each of the parties hereto.
4
<PAGE> 5
10. COMPLETE AGREEMENT; NO ORAL MODIFICATIONS. This
Amendment embodies the entire agreement between the parties hereto with respect
to the subject matter hereof and supersedes all prior proposals, negotiations,
or agreements whether written or oral, relating to the subject matter hereof.
This Amendment may not be modified, amended, supplemented, or otherwise changed,
except by a document in writing signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first set forth above.
"FOOTHILL"
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Katy J. Brooks
-------------------------------------
Title: Assistant Vice President
"BORROWERS"
NATIONAL AMERICAN CORPORATION,
a Nevada corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
THOUSAND TRAILS, INC.,
a Delaware corporation, f/k/a USTrails, Inc.,
a Nevada corporation, and New Thousand Trails,
Inc., a Delaware corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
5
<PAGE> 6
THOUSAND TRAILS (CANADA) INC.,
a British Columbian corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
TT OFFSHORE, LTD,
a Virginia corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
BEECH MOUNTAIN LAKES CORPORATION,
a Pennsylvania corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
CHEROKEE LANDING CORPORATION,
a Tennessee corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
CHIEF CREEK CORPORATION,
a Tennessee corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
6
<PAGE> 7
COAST FINANCIAL SERVICES, INC.,
a Delaware corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
DIXIE RESORT CORPORATION,
a Mississippi corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
FOXWOOD CORPORATION,
a South Carolina corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
GL LAND DEVELOPMENT CORPORATION,
an Oklahoma corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
LAKE ROYALE CORPORATION,
a North Carolina corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
7
<PAGE> 8
LAKE TANSI VILLAGE, INC.,
a Tennessee corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
LML RESORT CORPORATION,
an Alabama corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
NATCHEZ TRACE WILDERNESS PRESERVE
CORPORATION, a Tennessee corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
QUAIL HOLLOW PLANTATION CORPORATION, a
Tennessee corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
8
<PAGE> 9
QUAIL HOLLOW VILLAGE, INC.,
a Pennsylvania corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
RECREATION LAND CORPORATION,
a Pennsylvania corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
RECREATION PROPERTIES, INC.,
a Mississippi corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
RESORT LAND CORPORATION,
an Arkansas corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
RESORT PARKS INTERNATIONAL, INC.,
a Georgia corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
9
<PAGE> 10
TANSI RESORT, INC.,
a Tennessee corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
THE KINSTON CORPORATION,
a South Carolina corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
THE VILLAS OF HICKORY HILLS, INC.,
a Mississippi corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
WESTERN FUN CORPORATION,
a Texas corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
WESTWIND MANOR CORPORATION,
a Texas corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
10
<PAGE> 11
WOLF RUN MANOR CORPORATION,
a Pennsylvania corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
UST WILDERNESS MANAGEMENT CORPORATION,
a Nevada corporation
By: /s/ Walter B. Jaccard
-------------------------------------
Name: Walter B. Jaccard
Title: Vice President
11
<PAGE> 1
EXHIBIT 10.3
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment")
dated as of June 10, 1998, is between NATIONAL AMERICAN CORPORATION, a Nevada
corporation ("Borrower") and THOUSAND TRAILS, INC., a Delaware corporation and
the successor by merger to USTrails Inc., a Nevada corporation ("Lender").
WHEREAS, Borrower and Lender entered into a Credit Agreement,
dated as of December 31, 1991 (the "Original Credit Agreement");
WHEREAS, Borrower and Lender amended the Original Credit
Agreement pursuant to the First Amendment to Credit Agreement dated as of June
30, 1993, the Second Amendment to Credit Agreement dated as of November 10,
1994, and the Third Amendment to Credit Agreement dated as of July 1, 1996
(together with the Original Credit Agreement, the "Credit Agreement");
WHEREAS, Borrower and Lender wish to amend the Credit
Agreement in certain respects;
NOW, THEREFORE, in consideration of the foregoing recitals and
the covenants and agreements contained herein, the parties hereto agree as
follows:
1. Definitions. Capitalized terms not defined herein shall
have the meaning ascribed to them in the Credit Agreement.
2. Amendment of Section 1.01.30. Section 1.01.30 of the
Credit Agreement is hereby amended and restated in its entirety to read as
follows:
"Section 1.01.30 "MATURITY DATE" means the earlier of March
31, 2003, or the date the Term Loan shall become due and payable pursuant
to Section 6.01.
3. Amendment of Section 1.01.42. Section 1.01.42 of the
Credit Agreement is hereby amended and restated in its entirety to read as
follows:
1.01.42 "TERMINATION DATE" means the earliest of March 31,
2003, or the date of termination in whole of the commitment to make
Revolving Credit Loans pursuant to Section 2.03 or Section 6.01.
4. Amendment of Loan Documents and Further Assurances. If
requested by Lender, Borrower shall execute and deliver such documents and other
instruments, and make such filings and take such action, including amendment of
the Mortgages and other Loan Documents to secure Borrower's obligations under
the Credit Agreement as amended hereby and to ratify and confirm the liens and
security interests granted by the other Loan Documents.
5. Effect on the Loan Documents. Except as expressly
amended or modified by this Amendment, the Credit Agreement and the other Loan
Documents are in
1
<PAGE> 2
EXHIBIT 10.3
all respects ratified and confirmed and all terms, conditions and provisions of
the Credit Agreement and the other Loan Documents shall remain in full force and
effect.
6. Headings. The section headings herein are for
convenience only and shall not affect the construction hereof.
7. Binding Effect. This Amendment shall be binding upon
and inure to the benefit of the Borrower and Lender and their respective
successors and assigns.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER THE APPLICABLE
PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
9. FINAL AGREEMENT OF THE PARTIES. THIS AMENDMENT,
TOGETHER WITH THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS, CONSTITUTES A
"LOAN AGREEMENT" FOR THE PURPOSES OF SECTION 26.02(A) OF THE TEXAS BUSINESS AND
COMMERCE CODE, AND REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first written above.
BORROWER: NATIONAL AMERICAN CORPORATION
By: /s/ David A. McCrum
--------------------------------
Name: David A. McCrum
Title: Vice President
LENDER: THOUSAND TRAILS, INC.
By: /s/ Walter B. Jaccard
--------------------------------
Name: Walter B. Jaccard
------------------------------
Title: Vice President
-----------------------------
2
<PAGE> 3
EXHIBIT 10.3
ACCEPTED AND AGREED TO WITH RESPECT TO THE GUARANTY AND SECURITY AGREEMENT, AS
OF THE DATE FIRST ABOVE WRITTEN.
NACO SUBSIDIARIES:
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, INC.
LAKE ROYALE CORPORATION
LAKE TANSI CORPORATION
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 FUND CORPORATION
WESTWIND MANOR CORPORATION
WOLF RUN MANOR CORPORATION
By: /s/ David A. McCrum
------------------------------------
Name: David A. McCrum
----------------------------------
Title: Vice President
---------------------------------
ACKNOWLEDGED:
FOOTHILL CAPITAL CORPORATION,
as assignee of the indebtedness owed to
Lender under the Credit Agreement
By: /s/ Katy J. Brooks
------------------------------------
Name: Katy J. Brooks
----------------------------------
Title: Vice President
---------------------------------
3
<PAGE> 1
EXHIBIT 11.1
THOUSAND TRAILS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(DOLLARS AND COMMON SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1998 1997
------------- -------------
(Restated)
<S> <C> <C>
BASIC:
Weighted average number of common shares outstanding 7,459 7,386
========= =========
Net income allocable to common shareholders $ 1,462 $ 5,986
========= =========
Net income per common share -- basic $ 0.20 $ 0.81
========= =========
DILUTED:
Weighted average number of common shares outstanding 7,459 7,386
Weighted average common stock equivalents -
Dilutive options 948 939
Dilutive warrants 6 5
--------- ---------
Weighted average number of common shares outstanding 8,413 8,330
========= =========
Net income allocable to common shareholders $ 1,462 $ 5,986
========= =========
Net income per common share -- diluted $ 0.17 $ 0.72
========= =========
</TABLE>
Note that the calculation for the three months ended September 30, 1997, has
been restated to reflect the adoption of Statement of Financial Accounting
Standards No. 128, "Earnings per Share".
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 12,966
<SECURITIES> 0
<RECEIVABLES> 3,484
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,785
<PP&E> 21,624
<DEPRECIATION> 0
<TOTAL-ASSETS> 71,608
<CURRENT-LIABILITIES> 25,203
<BONDS> 34,935
0
0
<COMMON> 75
<OTHER-SE> 4,323
<TOTAL-LIABILITY-AND-EQUITY> 71,608
<SALES> 978
<TOTAL-REVENUES> 20,461
<CGS> 0
<TOTAL-COSTS> 18,253
<OTHER-EXPENSES> 17,175
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,078
<INCOME-PRETAX> 2,208
<INCOME-TAX> (746)
<INCOME-CONTINUING> 2,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,462
<EPS-PRIMARY> .20
<EPS-DILUTED> .17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 958
<SECURITIES> 0
<RECEIVABLES> 6,287
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,366
<PP&E> 22,851
<DEPRECIATION> 0
<TOTAL-ASSETS> 59,432
<CURRENT-LIABILITIES> 30,110
<BONDS> 40,973
0
0
<COMMON> 74
<OTHER-SE> (16,122)
<TOTAL-LIABILITY-AND-EQUITY> 59,432
<SALES> 1,021
<TOTAL-REVENUES> 23,262
<CGS> 0
<TOTAL-COSTS> 17,102
<OTHER-EXPENSES> 15,737
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,365
<INCOME-PRETAX> 6,160
<INCOME-TAX> 174
<INCOME-CONTINUING> 6,160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,986
<EPS-PRIMARY> .81
<EPS-DILUTED> .72<F1>
<FN>
<F1>THE FINANCIAL DATA FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 HAS BEEN
RESTATED TO REFLECT BASIC AND DILUTED EARNINGS PER SHARE.
</FN>
</TABLE>
