<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 March 31, 1999
Commission File Number 1-14645
THOUSAND TRAILS, INC.
-------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
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
-----------------------------------
</TABLE>
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 May 10, 1999 was 7,852,520.
<PAGE> 2
THOUSAND TRAILS, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1999
and June 30, 1998...........................................................................3
Consolidated Statements of Operations for the nine months
ended March 31, 1999 and March 31, 1998.....................................................4
Consolidated Statements of Operations for the three months
ended March 31, 1999 and March 31, 1998.....................................................5
Consolidated Statement of Stockholders' Equity for the nine months
ended March 31, 1999........................................................................6
Consolidated Statements of Cash Flows for the nine months ended
March 31, 1999 and March 31, 1998...........................................................7
Notes to Consolidated Financial Statements....................................................9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................................15
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................28
Item 5. Other Information............................................................................28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................30
Item 6. Exhibits and Reports on Form 8-K.............................................................30
</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 March 31, June 30,
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,199 $ 13,631
Current portion of receivables, net of allowances and discount of
$1.1 million and $1.1 million 1,275 2,440
Current portion of deferred membership selling expenses 470 538
Current portion of net deferred tax assets 2,800 2,954
Inventory and other current assets 2,424 1,890
---------- ----------
Total Current Assets 8,168 21,453
Restricted cash 1,197 1,171
Receivables, net of allowances and discount of $1.0 million and
$1.6 million 366 1,741
Campground and resort land 13,328 13,338
Buildings and equipment, net of accumulated depreciation of
$16.8 million and $15.0 million 21,035 21,879
Land held for sale 2,860 3,866
Deferred membership selling expenses 1,369 1,087
Net deferred tax assets 5,491 7,046
Other assets 2,335 2,681
---------- ----------
Total Assets $ 56,149 $ 74,262
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,696 $ 2,037
Accrued interest 118 1,805
Other accrued liabilities 5,774 6,410
Current portion of long term debt 2,298
Accrued construction costs 1,888 2,845
Current portion of deferred revenue 20,939 18,851
---------- ----------
Total Current Liabilities 32,713 31,948
Long term debt 8,680 32,973
Deferred revenue 5,397 4,588
Other liabilities 1,874 1,999
---------- ----------
Total Liabilities 48,664 71,508
---------- ----------
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,
7,845,135 and 7,437,803 shares issued and outstanding 78 74
Additional paid-in capital 20,835 20,551
Accumulated deficit subsequent to December 31, 1991, date of
emergence from bankruptcy (13,289) (17,734)
Cumulative currency translation adjustment (139) (137)
---------- ----------
Total Stockholders' Equity 7,485 2,754
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 56,149 $ 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 nine months ended March 31,
-----------------------------------
1999 1998
---------- ----------
<S> <C> <C>
REVENUES
Membership dues $ 27,559 $ 28,065
Other campground/resort revenue 13,169 11,939
Membership and lot sales 2,893 2,929
RPI membership fees 2,662 2,855
Interest income 1,758 1,862
Gain on asset sales 1,104 3,747
Nonrecurring income -- 1,083
Other income 1,968 2,496
---------- ----------
Total Revenues 51,113 54,976
---------- ----------
EXPENSES
Campground/resort operating expenses 29,213 28,018
Selling expenses 2,620 2,347
Marketing expenses 1,475 1,099
RPI membership expenses 1,516 1,576
Corporate member services 947 1,083
Interest expense and amortization 2,628 3,576
General and administrative expenses 6,530 6,310
---------- ----------
Total Expenses 44,929 44,009
---------- ----------
INCOME BEFORE INCOME TAXES 6,184 10,967
INCOME TAXES --
Income tax provision -- current (30) (374)
Income tax provision -- deferred (1,709) --
---------- ----------
(1,739) (374)
---------- ----------
NET INCOME $ 4,445 $ 10,593
========== ==========
NET INCOME PER SHARE -- BASIC $ 0.59 $ 1.43
========== ==========
NET INCOME PER SHARE -- DILUTED $ 0.53 $ 1.26
========== ==========
SHARES USED TO CALCULATE NET INCOME PER SHARE:
Basic 7,550 7,398
========== ==========
Diluted 8,459 8,405
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 4
<PAGE> 5
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 March 31,
------------------------------------
1999 1998
---------- ----------
<S> <C> <C>
REVENUES
Membership dues $ 9,017 $ 9,069
Other campground/resort revenue 2,786 2,600
Membership and lot sales 984 872
RPI membership fees 972 1,153
Interest income 635 685
(Loss) on asset sales (2) (2)
Nonrecurring income -- 588
Other income 524 671
---------- ----------
Total Revenues 14,916 15,636
---------- ----------
EXPENSES
Campground/resort operating expenses 8,384 7,847
Selling expenses 840 805
Marketing expenses 431 473
RPI membership expenses 504 648
Corporate member services 260 381
Interest expense and amortization 591 1,074
General and administrative expenses 2,267 2,159
---------- ----------
Total Expenses 13,277 13,387
---------- ----------
INCOME BEFORE INCOME TAXES 1,639 2,249
INCOME TAXES --
Income tax provision -- current (18) (142)
Income tax provision -- deferred (691) --
---------- ----------
(709) (142)
---------- ----------
NET INCOME $ 930 $ 2,107
========== ==========
NET INCOME PER SHARE -- BASIC $ .12 $ .28
========== ==========
NET INCOME PER SHARE -- DILUTED $ .11 $ .25
========== ==========
SHARES USED TO CALCULATE NET INCOME (LOSS) PER SHARE:
Basic 7,680 7,416
========== ==========
Diluted 8,518 8,395
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 5
<PAGE> 6
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1999
(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 4 284 288
Foreign currency translation
adjustment (2) (2)
Net income for the nine months
ended March 31, 1999 4,445 4,445
--------- --------- --------- --------- ---------
BALANCE, March 31, 1999 $ 78 $ 20,835 $ (13,289) $ (139) $ 7,485
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 6
<PAGE> 7
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended March 31,
-----------------------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Collections of principal on receivables $ 3,332 $ 4,432
Interest received 1,624 1,663
Interest paid (2,661) (854)
General and administrative and corporate member services
costs (7,836) (7,630)
Cash collected from operations 47,888 47,230
Cash from sales of campground memberships and lots at the
point of sale 2,811 2,646
Expenditures for property operations (27,481) (28,016)
Expenditures for sales and marketing (4,286) (3,279)
Expenditures for insurance premiums (1,759) (751)
Payment of income taxes (329) (374)
Termination of indemnification trust 590
Other, net (23) 268
---------- ----------
Net cash provided by operating activities 11,280 15,925
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and HUD-related expenditures (2,424) (1,165)
Proceeds from insurance claims 1,119
Proceeds from asset sales 2,238 6,152
Issuance of Common Stock 288 38
---------- ----------
Net cash provided by investing activities 102 6,144
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under Credit Agreement (13,022) (14,097)
Borrowings under Credit Agreement 24,000
Redemption of PIK Notes (34,792)
Repayment of notes and mortgages (604)
---------- ----------
Net cash used in financing activities (23,814) (14,701)
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,432) 7,368
CASH AND CASH EQUIVALENTS:
Beginning of period 13,631 1,343
---------- ----------
End of period $ 1,199 $ 8,711
========== ==========
</TABLE>
-- continued --
Page 7
<PAGE> 8
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended March 31,
-----------------------------------
1999 1998
---------- ----------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income $ 4,445 $ 10,593
---------- ----------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES --
Depreciation 1,928 1,912
Amortization of interest discount, collection costs and
valuation allowance (258) (393)
Amortization of debt issue costs
Net deferral of sales revenue 585 225
Net deferral of selling expenses (214) (114)
Gain on asset sales (1,104) (3,747)
Deferred income tax provision 1,709
Gain on insurance settlement (588)
Decrease (increase) in restricted cash (26) 271
Decrease in receivables 2,616 3,809
Decrease (increase) in other assets (154) 1,437
Decrease in accounts payable (341) (141)
Increase in accrued interest 282 2,743
Increase in deferred membership dues revenue 2,313 1,047
Decrease in other liabilities (386) (1,497)
Other, net (115) 368
---------- ----------
Total adjustments 6,835 5,332
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 11,280 $ 15,925
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 8
<PAGE> 9
THOUSAND TRAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(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 165 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
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 Mgmt.").
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 "SEC") on September 25, 1998,
as amended by Forms 10-K/A filed with the SEC on October 7, 1998 and April 5,
1999.
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 nine and
three month periods ended March 31, 1999 and 1998, and in the consolidated
balance sheet as of June 30, 1998.
Page 9
<PAGE> 10
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income," on July 1, 1998. 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
following table provides statements of comprehensive income for the nine and
three months ended March 31, 1999 and 1998, as if the statement had been
implemented in the nine and six months ended March 31, 1998 (dollars in
thousands):
<TABLE>
<CAPTION>
For the nine months ended For the three months ended
March 31, March 31,
-------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Income $ 4,445 $ 10,593 $ 930 $ 2,107
Foreign Currency Translation
Adjustment (2) 1 3 8
---------- ---------- ---------- ----------
Comprehensive Income $ 4,443 $ 10,594 $ 933 $ 2,115
========== ========== ========== ==========
</TABLE>
In June 1997, the FASB 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 SFAS No. 128 "Earnings per Share," during the second quarter
of fiscal 1998. SFAS No. 128 replaced the calculation of primary and fully
diluted net income per share with basic and diluted net income per share. Basic
net income per share is computed by dividing net income by the weighted average
number of common shares outstanding, as determined by the treasury stock method.
Diluted net income per share includes the dilutive effects of common stock
equivalents 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.
Page 10
<PAGE> 11
The tables below set forth the information necessary to compute basic and
diluted net income per share for the nine and three month periods ended March
31, 1999 and 1998, 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>
Net Income Per Share For the Nine Months Ended
-------------------------------------------------------
March 31, 1999 March 31, 1998
------------------------- -------------------------
Basic Diluted Basic Diluted
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income $ 4,445 $ 4,445 $ 10,593 $ 10,593
========== ========== ========== ==========
Weighted Average Number of Shares:
Common Stock 7,550 7,550 7,398 7,398
Dilutive Options -- 887 -- 982
Dilutive Warrants -- 22 -- 25
---------- ---------- ---------- ----------
7,550 8,459 7,398 8,405
========== ========== ========== ==========
Net Income Per Share $ .59 $ .53 $ 1.43 $ 1.26
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Net Income Per Share For the Nine Months Ended
-------------------------------------------------------
March 31, 1999 March 31, 1998
------------------------- -------------------------
Basic Diluted Basic Diluted
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income $ 930 $ 930 $ 2,107 $ 2,107
========== ========== ========== ==========
Weighted Average Number of Shares:
Common Stock 7,680 7,680 7,416 7,416
Dilutive Options -- 785 -- 973
Dilutive Warrants -- 53 -- 6
---------- ---------- ---------- ----------
7,680 8,518 7,416 8,395
========== ========== ========== ==========
Net Income Per Share $ .12 $ .11 $ .28 $ .25
========== ========== ========== ==========
</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.
NOTE 2 -- LONG TERM DEBT
PIK NOTES
The Company issued $40.2 million principal amount of 12% Senior Subordinated
Pay-In-Kind Notes Due 2003 ("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
Page 11
<PAGE> 12
principal amount of PIK Notes, respectively, in lieu of cash interest. On
December 15, 1998, the Company redeemed all $34.8 million principal amount of
PIK Notes outstanding, which included the payment of $1.7 million of accrued
interest. The Company funded this redemption with $12.5 million of its existing
cash and $24.0 million of new borrowings under its Credit Agreement with
Foothill (see below).
Pursuant to the terms of the Indenture for the PIK Notes, the holders of the PIK
Notes received from the Company on December 15, 1998 the sum of $1,000, plus
accrued interest from July 15, 1998 to December 15, 1998 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 December 15,
1998, interest ceased to accrue and the holders have no other rights as holder
other than the right to receive the Redemption Price, without further interest,
upon surrender of their certificates representing the PIK Notes.
CREDIT AGREEMENT WITH FOOTHILL
As of June 30, 1998, there were no outstanding borrowings under the Credit
Agreement with Foothill. On October 21, 1998, the Company entered into an
amendment to the Credit Agreement that gave 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 amended Credit Agreement, the first $15.0 million of borrowings bear
interest at prime plus .25% per annum, borrowings over $15.0 million and up to
$25.0 million bear interest at prime plus .50% per annum, and borrowings over
$25.0 million bear interest at prime plus 1.5% per annum, subject to a minimum
interest rate of 9% per annum.
On December 15, 1998, the Company borrowed $24.0 million under the amended
Credit Agreement to partially fund the redemption of the PIK Notes as discussed
above. As a result of subsequent repayments, on March 31, 1999, the Company had
$11.0 million of outstanding borrowings under the amended Credit Agreement, and
it had the ability to borrow an additional $5.0 million for working capital
purposes. The Company's ability to borrow additional amounts to fund its
possible acquisition of members through the purchase of other membership
campground operations expired without being used. All borrowings under the
amended Credit Agreement will mature on January 17, 2003.
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 available borrowing capacity declines as these principal
reductions are made.
Page 12
<PAGE> 13
NOTE 3 -- NONRECURRING INCOME AND CONTINGENCIES
NONRECURRING INCOME
In December 1997, the Company received a refund of $495,000 for deposits made in
previous years to cover workers' compensation claims in excess of those covered
by the standard premium paid by the Company. These deposits were expensed in the
years the deposits were made because the Company anticipated that the deposits
would be used to cover workers' compensation claims.
In January 1998, the Company received proceeds of $1.1 million from insurance
settlements for flood and fire damage at certain campgrounds, and recognized a
gain of $588,000.
Both the refund of workers' compensation deposits and the gain from the
insurance settlement were recorded as nonrecurring income during the nine months
ended March 31, 1998.
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 March 31, 1999 and June 30, 1998, the Company's recorded
liability for estimated losses related to uninsured general liability claims
totaled $1.1 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, 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. Management has reviewed these issues and believes
that they will not have a material adverse impact on the Company's operations or
financial position.
Page 13
<PAGE> 14
Litigation
FOXWOOD PROPERTY OWNERS ASSOCIATION, INC. VS. FOXWOOD CORPORATION, filed on
February 18, 1999, in the Court of Common Pleas of Oconee County, South
Carolina, under Case No. 99-37-CP-88. In this action, the plaintiff brought suit
against a subsidiary of the Company alleging that the defendant owes the
plaintiff in excess of $2.5 million for past due maintenance fees on subdivided
lots owned by the defendant. The defendant denies the claim and is vigorously
defending the lawsuit. Although discovery in this lawsuit has not been
completed, management does not believe that it will have a material adverse
effect upon the Company's operations or financial position.
The Company is involved in certain other 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 nine months ended March 31, 1999 and 1998 (dollars
in thousands):
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
1999 1998
---------- -----------
<S> <C> <C>
Non-cash payment of PIK Note interest (see Note 2)
PIK Notes issued in lieu of cash interest payment $ 1,969 $ 3,610
</TABLE>
Page 14
<PAGE> 15
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 Forms 10-K/A filed
with the SEC on October 7, 1998 and April 5, 1999.
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 March
31, 1999. All of these statements are forward-looking statements made pursuant
to the safe harbor provisions of Section 21E of the Securities Exchange Act of
1934, as amended. These statements are not historical and involve risks and
uncertainties. The Company's actual financial condition, results of operations,
cash flows, and business strategies, 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 competing 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
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<PAGE> 16
from future asset sales will depend principally upon the degree to which the
Company can successfully implement this strategy.
REDEMPTION OF PIK NOTES. On December 15, 1998, the Company redeemed all $34.8
million principal amount of PIK Notes outstanding, which included the repayment
of $1.7 million of accrued interest. The Company funded this redemption with
$12.5 million of its existing cash and $24.0 million of new borrowings under its
Credit Agreement with Foothill.
Pursuant to the terms of the Indenture for the PIK Notes, the holders of the PIK
Notes received from the Company on December 15, 1998 the sum of $1,000, plus
accrued interest from July 15, 1998 to December 15, 1998 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 December 15,
1998, interest ceased to accrue and the holders have no other rights as holder
other than the right to receive the Redemption Price, without further interest,
upon surrender of their certificates representing the PIK Notes.
CASH. On March 31, 1999, the Company had $1.2 million of cash and cash
equivalents, a decrease of $12.4 million from June 30, 1998. During the nine
months ended March 31, 1999, the Company's operating activities produced $11.3
million of cash, its investing activities produced $102,000 of cash, and its
financing activities used $23.8 million of cash to reduce outstanding debt by
$22.0 million, which included the $12.5 million of cash used to partially fund
the redemption of the PIK Notes. The Company's investing activities consisted
principally of proceeds of $2.2 million from the sale of assets and $288,000
from the issuance of common stock, less $2.4 million of capital and HUD-related
expenditures.
With respect to the Company's operating activities, for the nine months ended
March 31, 1999, the principal sources of cash were $47.9 million in dues
collections and other campground and resort revenues, $4.5 million in principal
and interest collections on contracts receivable and invested cash, and $2.8
million in cash collected from sales of campground memberships and lots at the
point of sale. Principal uses of operating cash for the nine months ended March
31, 1999, were $27.5 million in operating expenses, $7.8 million in
administrative expenses (including general and administrative expenses and
corporate member services costs), and $4.3 million in sales and marketing
expenditures.
As of June 30, 1998, there were no outstanding borrowings under the Credit
Agreement with Foothill. On October 21, 1998, the Company entered into an
amendment to the Credit Agreement that gave 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 amended Credit Agreement, the first $15.0 million of borrowings bear
interest at prime plus .25% per annum, borrowings over $15.0 million and up to
$25.0 million bear interest at prime plus .50% per annum, and borrowings over
$25.0 million bear interest at prime plus 1.5% per annum, subject to a minimum
interest rate of 9% per annum.
On December 15, 1998, the Company borrowed $24.0 million under the amended
Credit Agreement to partially fund the redemption of the PIK Notes as discussed
above. As a result of subsequent repayments, on March 31, 1999, the Company had
$11.0 million of outstanding borrowings under the amended Credit Agreement, and
it had the ability to borrow an additional $5.0 million for working capital
purposes. The Company's ability to borrow additional amounts to fund its
possible acquisition of members through the purchase of other membership
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<PAGE> 17
campground operations expired without being used. All borrowings under the
amended Credit Agreement will mature on January 17, 2003.
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 available borrowing capacity declines as these principal
reductions are made.
As of the date of this report, the Company had $11.5 million of outstanding
borrowings under the amended Credit Agreement, and it had the ability to borrow
an additional $3.5 million for working capital purposes. 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. 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.
MATERIAL CHANGES IN FINANCIAL CONDITION
Total assets decreased by $18.1 million during the nine months ended March 31,
1999. Cash decreased by $12.4 million as discussed above. Contracts receivable
decreased by $2.5 million due primarily to $3.3 million in cash collections
partially offset by new financed sales and amortization of the allowances for
interest discount, collection costs, and valuation discount. Inventory and other
current assets increased by $534,000 due primarily to increases in prepaid
property taxes and federal and state income taxes receivable. Buildings and
equipment decreased by $844,000 due primarily to depreciation, partially offset
by capital improvements made at certain campgrounds. Land held for sale
decreased by $1.0 million due to the sale of acreage not related to the
campground operations. Other assets decreased by $346,000 due primarily to
refunds of deposits held by insurance carriers for workers compensation
insurance. Deferred membership selling expenses increased by $214,000.
Total liabilities decreased by $22.8 million during the nine months ended March
31, 1999. Accounts payable and other accrued liabilities decreased by $977,000
due to a lower accrued payroll and other related liabilities at March 31, 1999,
due to the seasonality of the business. The Company's outstanding debt decreased
by $22.0 million during the period due to the redemption of the PIK Notes,
partially offset by borrowings from Foothill to fund the redemption. Accrued
interest declined by $1.7 million. Accrued construction costs decreased by
$957,000 as a result of spending for HUD improvements at a location not related
to the campground operations. Other liabilities decreased by $125,000, primarily
as a result of payments of uninsured general liability claims that arose in
prior years. Offsetting these decreases, deferred revenue increased by $2.9
million, due primarily to the collection of $2.2 million of dues in excess of
dues revenue recognized during the period and a $584,000 net increase in
deferred sales revenue.
MARKET RISK AND INTEREST RATE SENSITIVITY. As noted above, on December 15, 1998,
the Company redeemed all $34.8 million principal amount of PIK Notes
outstanding. The Company funded this redemption with $12.5 million of its
existing cash and $24.0 million of new
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<PAGE> 18
borrowings under the amended Credit Agreement with Foothill. The Company used
substantially all of its invested cash to fund the redemption, which eliminated
any interest rate market risk with respect to cash balances. However, the
borrowings under the amended Credit Agreement accrue interest at rates that
fluctuate with changes in the prime rate and, thus, are subject to interest rate
market risk. In management's opinion, 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.
RESULTS OF OPERATIONS
The following discussion and analysis are based on the historical results of
operations of the Company for the nine and three months ended March 31, 1999 and
1998. The financial information set forth below should be read in conjunction
with the Company's consolidated financial statements included in Item 1.
NINE MONTHS ENDED MARCH 31, 1999 AND 1998
NET INCOME. The Company reported net income of $4.4 million or $.53 per diluted
share on revenues of $51.1 million for the nine months ended March 31, 1999.
This compares with net income of $10.6 million or $1.26 per diluted share on
revenues of $55.0 million for the same period last year. Excluding gains on
asset sales and nonrecurring income, the Company's revenues were approximately
the same in the two periods. Gains on asset sales were $1.1 million in the
current period, compared with $3.7 million in the same period last year. In
addition, the prior period included $1.1 million of nonrecurring income.
However, the Company also incurred higher expenses in the current period,
primarily sales and marketing costs and income tax expense, which contributed to
the decline in net income between the two periods.
The table on the following page shows separately the results of the campground
operations, Wilderness Mgmt., 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 nine months ended March
31, 1999 and 1998.
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THOUSAND TRAILS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
CAMPGROUND OPERATIONS
Membership dues $ 27,559 $ 28,065
Campground revenues 11,389 10,590
Cost of campground revenues (5,295) (4,474)
Operating expenses (22,076) (22,206)
---------- ----------
Contribution from campground operations 11,577 11,975
---------- ----------
SALES
Sales revenues 2,806 2,283
Selling expenses (2,562) (1,900)
Marketing expenses (1,475) (1,099)
---------- ----------
Loss on sales (1,231) (716)
---------- ----------
WILDERNESS MGMT.
Revenues 1,714 910
Expenses (1,490) (744)
---------- ----------
Contribution from Wilderness Mgmt. 224 166
---------- ----------
RESORT PARKS INTERNATIONAL
Revenues 2,662 2,855
Expenses (1,516) (1,576)
---------- ----------
Contribution from RPI 1,146 1,279
---------- ----------
RESORT OPERATIONS
Revenues 147 1,085
Expenses (404) (1,041)
---------- ----------
Contribution (loss) from resort operations (257) 44
---------- ----------
11,459 12,748
---------- ----------
Other income 1,968 2,496
Corporate member services (947) (1,083)
General and administrative expenses (6,530) (6,310)
---------- ----------
OPERATING INCOME BEFORE INTEREST INCOME AND
EXPENSE, GAIN ON ASSET SALES, NONRECURRING
INCOME, AND TAXES 5,950 7,851
---------- ----------
Interest income 1,758 1,862
Interest expense (2,628) (3,576)
Gain on asset sales 1,104 3,747
Nonrecurring income 1,083
---------- ----------
OPERATING INCOME BEFORE TAXES $ 6,184 $ 10,967
========== ==========
</TABLE>
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<PAGE> 20
OPERATING INCOME. During the nine months ended March 31, 1999, the Company's
contribution from operations was $6.0 million, a decrease of $1.9 million from
the $7.9 million for the same period last year. The decrease was due primarily
to a higher loss from sales operations, a lower contribution from the Company's
campground and resort operations, higher general and administrative expenses,
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, nonrecurring income, 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.
These dues 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 $27.6 million for the nine months ended
March 31, 1999, compared with $28.1 million for the same period last year. The
decline in dues revenue was due primarily to the net loss of campground members
during the year, partially offset by the effect of the annual dues increase.
Other campground revenues were $11.4 million for the nine months ended March 31,
1999, compared with $10.6 million for the same period last year. The related
expenses were $5.3 million for the nine months ended March 31, 1999, compared
with $4.5 million for the same period last year. The increase in other
campground revenues in the current period was due primarily to greater emphasis
on ancillary revenue programs at the campgrounds, partially offset by lower
revenues from harvesting timber at certain campgrounds. The increase in expenses
in the current period was due primarily to higher field labor costs and
increases in the costs of goods sold in the ancillary revenue programs.
Campground operating expenses were $22.1 million for the nine months ended March
31, 1999, compared with $22.2 million for the same period last year. The
decrease in expenses in the current period was due primarily to lower
maintenance costs at the campgrounds, partially offset by higher field labor
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 nine months ended March 31, 1999
and 1998, the Company recognized campground membership sales revenues of $2.8
million and $2.3 million, respectively. These amounts include revenues of $2.2
million and $1.8 million, respectively, that were deferred in prior periods.
Moreover, during these same periods, the Company deferred revenues of $2.8
million and $2.0 million, respectively, which will be recognized in future
periods. Sales
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<PAGE> 21
revenues increased in the current period due to the sale of a greater number of
memberships, partially offset by a higher net deferral of sales revenues in the
current period.
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 nine months ended March
31, 1999 and 1998, the Company recognized selling expenses of $2.6 million and
$1.9 million, respectively. These amounts include expenses of $526,000 and
$407,000, respectively, that were deferred in prior periods. Moreover, for these
same periods, the Company deferred expenses of $740,000 and $521,000,
respectively, which will be recognized in future periods.
Selling and marketing expenses exceeded sales revenues by $1.2 million and
$716,000 for the nine months ended March 31, 1999 and 1998, respectively. These
expenses exceeded sales revenues because of the increased marketing activity and
the low volume of sales, which did not cover fixed costs. In addition, the
Company deferred more sales revenues than selling expenses 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 Mgmt. manages 165 public campgrounds for the
US Forest Service. For the nine months ended March 31, 1999, these operations
produced a net contribution of $224,000 on revenues of $1.7 million, compared
with a net contribution of $166,000 on revenues of $910,000 for the same period
last year. The increases in net contribution and revenues between periods was
due primarily 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 campground management operations are included in other
campground/resort revenue and campground/resort operating expenses in the
consolidated statement of operations.
RESORT PARKS INTERNATIONAL. RPI charges its members a fee for a membership that
entitles them to use any of the approximately 325 campgrounds participating in
RPI's reciprocal use system, subject to certain limitations. For the nine months
ended March 31, 1999, RPI's operations produced a net contribution of $1.1
million on revenues of $2.7 million, compared with a net contribution of $1.3
million on revenues of $2.9 million for the same period last year. Although RPI
reduced its operating expenses in the current period, its revenues declined by a
greater amount, which resulted in the decline in the net contribution between
periods.
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RESORT OPERATIONS. The Company's resort operations presently consist of the sale
of residential lots and other miscellaneous real estate at three resorts. For
the nine months ended March 31, 1999, the resort operations produced a loss of
$257,000 on revenues of $147,000, compared with a net contribution of $44,000 on
revenues of $1.1 million for the same period last year. The loss in the current
year was due primarily to expenses to complete required HUD improvements at one
of the resorts. These costs exceeded previous estimates by $230,000. The prior
year results include a bulk sale of lots, and 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 it continues its
efforts to sell the remaining assets it owns at the resorts.
INTEREST INCOME AND EXPENSE. Interest income was $1.8 million for the nine
months ended March 31, 1999, compared with $1.9 million 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 $138,000 and $220,000, respectively. There was only a slight
decline in interest income between periods because, in the current period, the
decrease in interest income from the Company's diminishing portfolio of
contracts receivable was substantially offset by an increase in interest income
from invested cash. 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 as the Company used substantially all of its existing cash in
December to partially fund the redemption of the PIK Notes.
Interest expense was $2.6 million for the nine months ended March 31, 1999,
compared with $3.6 million for the same period last year. The $1.0 million
decrease in interest expense between periods was due primarily to repayments of
outstanding debt during the periods. In the third quarter of fiscal 1998, the
Company repaid all then outstanding borrowings under the Credit Agreement and
all remaining mortgage notes. In addition, on December 15, 1998, the Company
redeemed all $34.8 million principal amount of PIK Notes outstanding. The
redemption of the PIK Notes lowered the Company's outstanding debt and is
expected to lower its interest expense in future periods. However, in contrast
to the interest on the PIK Notes that could be paid in the form of additional
PIK Notes, the 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 $1.1
million for the nine months ended March 31, 1999, compared with $3.7 million for
the same period last year. The decrease in the current period was due to the
timing of asset sales. The gain in the current period resulted primarily from
the sale of acreage not related to the campground operations. Over the next
several years, the Company intends to dispose of the remaining land that it
holds for sale and any campgrounds that are closed as the Company downsizes. 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.
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<PAGE> 23
OTHER INCOME. Other income generally consists of transfer fees received when
existing memberships are transferred in the secondary market without assistance
from the Company, collections on written-off contracts and delinquent dues,
subscription fees received from members who subscribe to the Company's member
magazine, and fees charged to members for making more than five
operator-assisted reservations in a given year. Other income was $2.0 million
for the nine months ended March 31, 1999, compared with $2.5 million for the
same period last year. The decrease between periods was due, in part, to lower
collections on written-off contracts and delinquent dues in the current period.
The Company also had $1.1 million of nonrecurring income in the prior period.
This included $495,000 from a refund of deposits made in previous years to cover
workers' compensation claims in excess of those covered by the standard premium
paid by the Company. These deposits were expensed in the years the deposits were
made because the Company anticipated that the deposits would be used to cover
workers' compensation claims. Nonrecurring income in the prior period also
included a $588,000 gain on an insurance settlement for flood and fire damage at
certain campgrounds.
ADMINISTRATIVE EXPENSES. Administrative expenses, including corporate member
service costs and general and administrative expenses, were $7.5 million for the
nine months ended March 31, 1999, compared with $7.4 million for the same period
last year. The increase in the current period was due primarily to higher legal
fees, partially offset by lower administrative labor costs.
INCOME TAXES. The Company's current provision for income taxes was $30,000 for
the nine months ended March 31, 1999, compared with $374,000 for the same period
last year. The income tax provision was smaller in the current period because of
a reversal of income taxes accrued during the first quarter. This reversal
resulted from the redemption of the PIK Notes in December 1998 which allowed the
Company to deduct the interest previously paid on the PIK Notes in the form of
additional PIK Notes. This deduction reduced the Company's anticipated income
tax liability for the year.
The current provisions for income taxes 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 loss carryforwards,
which were $25.5 million at June 30, 1998.
The Company recorded a deferred tax provision of $1.7 million for the nine
months ended March 31, 1999. 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 that related deferred tax assets are realized.
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<PAGE> 24
THREE MONTHS ENDED MARCH 31, 1999, AND 1998
NET INCOME. The Company reported net income of $930,000 or $.11 per diluted
share on revenues of $14.9 million for the three months ended March 31, 1999.
This compares with net income of $2.1 million or $.25 per diluted share on
revenues of $15.6 million for the same period last year. Although the Company
reduced operating expenses in the current period, its revenues declined by a
greater amount, which resulted in the decline in net income between periods. In
addition, the Company had $588,000 of nonrecurring income in the prior period.
The table on the following page shows separately the results of the campground
operations, Wilderness Mgmt., 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 March
31, 1999 and 1998.
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<PAGE> 25
THOUSAND TRAILS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
CAMPGROUND OPERATIONS
Membership dues $ 9,017 $ 9,069
Campground revenues 2,723 2,526
Cost of campground revenues (1,394) (1,083)
Operating expenses (6,672) (6,608)
----------- -----------
Contribution from campground operations 3,674 3,904
----------- -----------
SALES
Sales revenues 955 804
Selling expenses (824) (641)
Marketing expenses (431) (473)
----------- -----------
Profit (loss) on sales (300) (310)
----------- -----------
WILDERNESS MGMT
Revenues 20 15
Expenses (51) (31)
----------- -----------
Contribution from Wilderness Mgmt (31) (16)
----------- -----------
RESORT PARKS INTERNATIONAL
Revenues 972 1,153
Expenses (504) (648)
----------- -----------
Contribution from RPI 468 505
----------- -----------
RESORT OPERATIONS
Revenues 66 127
Expenses (277) (289)
----------- -----------
Contribution from resort operations (211) (162)
----------- -----------
3,600 3,921
----------- -----------
Other income 524 671
Corporate member services (260) (381)
General and administrative expenses (2,267) (2,159)
----------- -----------
OPERATING INCOME BEFORE INTEREST INCOME AND
EXPENSE, GAIN ON ASSET SALES, NONRECURRING
INCOME, AND TAXES 1,597 2,052
----------- -----------
Interest income 635 685
Interest expense (591) (1,074)
Loss on asset sales (2) (2)
Nonrecurring income -- 588
----------- -----------
OPERATING INCOME BEFORE TAXES $ 1,639 $ 2,249
=========== ===========
</TABLE>
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<PAGE> 26
OPERATING INCOME. During the three months ended March 31, 1999, the Company's
contribution from operations was $1.6 million, a decrease of $500,000 from the
$2.1 million in the same period last year. The decline resulted from a lower
contribution from the Company's campground and resort operations, higher general
and administrative expenses, 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, nonrecurring income, 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. Campground membership dues revenue was $9.0 million for
the three months ended March 31, 1999, compared with $9.1 million for the same
period last year. The slight decline in dues revenue was due primarily to the
net loss of campground members during the year, partially offset by the effect
of the annual dues increase.
Other campground revenues were $2.7 million for the three months ended March 31,
1999, compared with $2.5 million for the same period last year. The related
expenses were $1.4 million for the three months ended March 31, 1999, compared
with $1.1 million for the same period last year. The increase in campground
revenues and related expenses in the current period was due primarily to a
greater emphasis on the ancillary revenue programs at the campgrounds.
Campground operating expenses were $6.7 million for the three months ended March
31, 1999, compared with $6.6 million for the same period last year. The slight
increase resulted from higher field labor and related benefit costs in the
current period.
For the three months ended March 31, 1999 and 1998, the Company recognized
campground membership sales revenues of $955,000 and $804,000, respectively.
These amounts include revenues of $782,000 and $627,000, respectively, that were
deferred in prior periods. Moreover, during these same periods, the Company
deferred revenues of $797,000 and $405,000, respectively, which will be
recognized in future periods. Sales revenues increased in the current period
because unit sales volume was higher than in the prior year, although average
sale prices were lower. This increase was partially offset by a higher net
deferral of sales revenues in the current period.
For the three months ended March 31, 1999 and 1998, the Company recognized
selling expenses of $824,000 and $641,000, respectively. These amounts include
expenses of $186,000, and $143,000, respectively, that were deferred in prior
periods. Moreover, for these same periods, the Company deferred expenses of
$211,000 and $105,000, respectively, which will be recognized in future periods.
Selling and marketing expenses exceeded sales revenues by $300,000 and $310,000
for the three months ended March 31, 1999 and 1998. The expenses exceeded sales
revenue because of the increased marketing activity and the low volume of sales,
which did not cover fixed costs.
CAMPGROUND MANAGEMENT. For the three months ended March 31, 1999, the operations
of Wilderness Mgmt. produced a loss of $31,000 on revenues of $20,000, compared
with a loss of $16,000 on revenues of $15,000 for the same period last year. The
loss increased slightly in the current period because of higher operating costs
related to the additional number of campgrounds under management contracts. The
revenues and expenses related to these operations are included in other
campground/resort revenue and campground/resort operating expenses in the
consolidated statement of operations.
Page 26
<PAGE> 27
RESORT PARKS INTERNATIONAL. For the three months ended March 31, 1999, RPI's
operations produced a net contribution of $468,000 on revenues of $972,000,
compared with a net contribution of $505,000 on revenues of $1.2 million for the
same period last year. Although RPI reduced its operating expenses in the
current period, its revenues declined by a greater amount, which resulted in the
decline in the net contribution between periods.
RESORT OPERATIONS. For the three months ended March 31, 1999, the resort
operations produced a loss of $211,000, compared with a loss of $162,000 for the
same period last year.
INTEREST INCOME AND EXPENSE. Interest income was $635,000 for the three months
ended March 31, 1999, compared with $685,000 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
$39,000 and $86,000, respectively. The decrease in interest income between
periods was due primarily to a decrease in interest earned on the Company's
diminishing portfolio of contracts receivable.
Interest expense was $591,000 for the three months ended March 31, 1999,
compared with $1.1 million for the same period last year. The $583,000 decrease
in interest expense between periods was due primarily to repayments of
outstanding debt during the periods.
GAIN ON ASSET SALES. The Company had no significant sales of assets in the three
months ended March 31, 1999 and 1998.
OTHER INCOME. Other income was $524,000 for the three months ended March 31,
1999, compared with $671,000 for the same period last year. Other income
decreased in the current period due primarily to lower collections on
written-off contracts and delinquent dues.
For the three months ended March 31, 1998, the Company also had $588,000 of
nonrecurring income from an insurance settlement for flood and fire damage at
certain campgrounds.
OTHER EXPENSES. Administrative expenses, including corporate member service
costs and general and administrative expenses, were approximately $2.5 million
for the three months ended March 31, 1999 and 1998.
INCOME TAXES. The Company had a current income tax provision of $18,000 for the
three months ended March 31, 1999, compared with a current income tax provision
of $142,000 for the same period last year. The income tax provision was smaller
in the current period because the Company does not expect to be subject to
federal alternative minimum taxes in the current period. The Company recorded a
deferred tax provision of $691,000 for the three months ended March 31, 1999.
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.
Page 27
<PAGE> 28
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 spent approximately $200,000 during the nine
months ended March 31, 1999 on year 2000 modifications, and currently estimates
that it will spend an additional $25,000 during the remainder of the fiscal year
to make the necessary enhancements to its hardware and software. These
expenditures will not significantly impact the Company's financial position,
operations, or cash flows.
The Company does not presently have a formal contingency plan because it
believes the necessary modifications will be completed in the required
timeframe. However, should it become evident that year 2000 modifications will
not be completed in a timely basis, the Company will explore alternatives to
employ until such time as the year 2000 modifications are completed.
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 March 31, 1999 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," which is incorporated herein by
reference..
ITEM 5. OTHER INFORMATION
The Company's certificate of incorporation contains transfer restrictions on the
Company's common stock that are designed to avoid the limitations on the
Company's use of its net operating loss carryforwards ("NOLs") that would be
imposed if the Company experienced an "ownership change" within the meaning of
the applicable federal income tax regulations. Such restrictions provide the
Company's board of directors the authority to approve transfers that would
otherwise violate the restrictions.
In late March 1999, Carl Marks Strategic Investments, LP ("CM Strategic")
requested the Company's consent to its proposed acquisition of 768,098 shares of
the Company's common stock, and Carl Marks Strategic Investments II, LP ("CM
Strategic II") requested the Company's consent to its proposed acquisition of
450,000 shares of the Company's common stock. The proposed acquisitions,
however, did not involve an "ownership change" for federal income tax purposes.
As a condition to consenting to the proposed acquisitions, the Company required
CM Strategic, CM Strategic II, and their affiliates (collectively, the
"Stockholders") to enter into a Stockholder Agreement, dated April 5, 1999, with
the Company (the "Stockholder Agreement"), a copy of which has been filed as an
exhibit to this report. The Stockholder Agreement limits the ability of the
Stockholders to enter into any Extraordinary Transaction (as defined below) with
the Company by requiring the prior approval of either (a) the board of directors
of the Company (including a majority of Disinterested Directors (as defined
below) or (b) the other stockholders
Page 28
<PAGE> 29
of the Company. In any stockholder vote under clause (b) above, the Stockholders
have agreed to vote or cause to be voted their shares of common stock in the
same proportion as the votes cast by or on behalf of the other stockholders of
the Company on such Extraordinary Transaction. The Stockholder Agreement also
requires the Stockholders (a) to be represented in person or by proxy at all
stockholder meetings considering Extraordinary Transactions and (b) to require
any of their transferees, who as a result of a transfer of shares by the
Stockholders, acquires a majority of the voting securities of the Company, to be
bound by the provisions of the Stockholder Agreement.
The foregoing summary of the Stockholder Agreement is qualified in its entirety
by reference to the copy filed as an exhibit to this report. For purposes of the
foregoing summary of the Stockholder Agreement, the following terms have the
following meanings:
"Disinterested Director" means a director who is not one of the Stockholders and
who does not have a Material Relationship (as defined) with any of the
Stockholders.
"Extraordinary Transaction" means (1) any "Rule 13e-3 transaction" as defined by
Rule 13e-3 of the Securities Exchange Act of 1934, as amended and in effect on
April 5, 1999, or (2) the adoption of any plan or proposal for the liquidation
or dissolution of the Company, or any spin-off or split-up of any kind involving
the Company, in any case (whether pursuant to clause 1 or 2) that was proposed
by or on behalf of the Stockholders.
On April 30, 1999, the Stockholders reported in their amended Schedule 13D filed
under the Securities Exchange Act of 1934 that:
(a) CM Strategic acquired 768,098 shares of the Company's common stock on April
29, 1999, and beneficially owns 3,436,863 shares of common stock (including
194,521 shares issuable upon exercise of certain warrants), which represent
approximately 41.2% of the outstanding shares;
(b) CM Strategic II acquired 450,000 shares of the Company's common stock on
April 29, 1999, and beneficially owns 1,140,481 shares of common stock, which
represent approximately 14.5% of the outstanding shares;
(c) Carl Marks Management Company, LP ("CM Management"), the general partner of
CM Strategic and CM Strategic II, beneficially owns 4,577,344 shares of common
stock (including 194,521 shares issuable upon exercise of certain warrants),
which represent approximately 54.9% of the outstanding shares;
(d) Andrew M. Boas, a general partner of CM Management and a director of the
Company, beneficially owns 4,928,486 shares of common stock (including 194,521
shares issuable upon exercise of certain warrants and 25,000 shares issuable
upon exercise of certain options), which represent approximately 59.0% of the
outstanding shares; and
(e) Robert C. Ruocco, a general partner of CM Management, beneficially owns
4,894,329 shares of common stock (including 194,521 shares issuable upon
exercise of certain warrants), which represent approximately 58.7% of the
outstanding shares.
Page 29
<PAGE> 30
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Foxwood Property Owners Association, Inc. vs. Foxwood Corporation, filed on
February 18, 1999, in the Court of Common Pleas of Oconee County, South
Carolina, under Case No. 99-37-CP-88. In this action, the plaintiff brought suit
against a subsidiary of the Company alleging that the defendant owes the
plaintiff in excess of $2.5 million for past due maintenance fees on subdivided
lots owned by the defendant. The defendant denies the claim and is vigorously
defending the lawsuit. Although discovery in this lawsuit has not been
completed, management does not believe that it will have a material adverse
effect upon the Company's operations or financial position.
The Company is involved in certain other claims and litigation arising in the
normal course of business. Management believes that the eventual outcome of
these claims and litigation will not have a material adverse impact on the
Company's operations or financial position.
ITEM 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 Stockholder Agreement dated April 5, 1999, between the Company
and Carl Marks Management Company, L.P., et. al.
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Date Schedule for the nine and three months ended
March 31, 1999.
</TABLE>
REPORTS ON FORM 8-K
None.
Page 30
<PAGE> 31
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.
<TABLE>
<S> <C>
Date: May 13, 1999 By: /s/ William J. Shaw
---------------------
William J. Shaw
President, Chief Executive Officer
and acting Chief Financial Officer
Date: May 13, 1999 By: /s/ Bryan D. Reed
-------------------
Bryan D. Reed
Chief Accounting Officer
</TABLE>
Page 31
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.1 Stockholder Agreement dated April 5, 1999, between the Company
and Carl Marks Management Company, L.P., et. al.
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Date Schedule for the nine and three months ended
March 31, 1999.
</TABLE>
<PAGE> 1
Exhibit 10.1
Carl Marks Management Company, L.P.
Carl Marks Strategic Investments, L.P.
Carl Marks Strategic Investments II, L.P.
Andrew M. Boas
Robert C. Ruocco
135 East 57th Street
New York, New York 10022
April 5, 1999
Thousand Trails, Inc.
2711 LBJ Freeway, Suite 200
Dallas, TX 75234
Attn: Board of Directors
Re: Stockholder Agreement
Ladies and Gentlemen:
We have requested your consent to our proposed acquisition of up to
1,308,498 shares (the "Shares") of common stock, $.01 par value (the "Common
Stock"), of Thousand Trails, Inc. (together with its subsidiaries, the
"Company") from SC Fundamental Value Fund, LP and SC Fundamental Value BVI, Inc.
and any affiliates thereof. We have requested your consent pursuant to Section
9.2 of the Company's Certificate of Incorporation. We understand that, if
approved, the proposed acquisition of the Shares will result in our holding a
majority of the outstanding shares of Common Stock. In order to induce your
consent to our proposed acquisition of the Shares and to ensure the preservation
of the rights of the other stockholders (the "Minority Stockholders"), we
hereby, jointly and severally, agree as follows:
1. REQUIRED APPROVALS; VOTING. Neither we nor any of our Affiliates
will commence or engage in any Extraordinary Transaction without (a) the
approval of the Extraordinary Transaction by the board of directors of the
Company that includes the affirmative vote of a majority of the Disinterested
Directors or (b) the approval of the stockholders of the Company in which we and
our Affiliates vote in the same proportion as the votes cast by the Minority
Stockholders. If any Extraordinary Transaction is not approved by the
Disinterested Directors pursuant to clause (a), we and any Affiliate who
beneficially owns Voting Securities will, as a stockholder, vote or cause to be
voted all shares of Restricted Stock in the same proportion as the votes cast by
or on behalf of the Minority Stockholders on such Extraordinary Transaction.
2. QUORUM OBLIGATIONS. We and any Affiliate who beneficially owns
Common Stock will, as a stockholder, be present in person or be represented by
proxy at all stockholder meetings of the Company which consider Extraordinary
Transactions so that all shares of Restricted Stock may be counted for the
purpose of determining the presence of a quorum at such meeting.
<PAGE> 2
3. TRANSFER. Neither we nor any of our Affiliates will transfer or
otherwise dispose of shares of Restricted Stock to any Person who, immediately
after acquiring shares of Restricted Stock would, beneficially own or have the
right to vote a majority of the outstanding shares of Common Stock or a majority
of the outstanding shares of Voting Securities unless such transferee agrees in
writing to be bound by this letter agreement and, with respect to all of its
shares of Common Stock and other Restricted Securities, executes such documents,
certificates, or agreements as the Company deems reasonably necessary to
evidence the restrictions provided in this letter agreement. Any purported
transfer of the Restricted Stock in violation of the preceding sentence shall be
void. Except as provided in the first sentence, no transfer or other disposition
of Restricted Stock by us or our Affiliates shall be subject to transfer
restriction under this letter agreement.
4. LEGEND. To assist in effecting the provisions of this letter
agreement, we hereby consent to the placement of the following legend (or a
legend substantially similar thereto) on all certificates representing
Restricted Stock:
The shares represented by this certificate are subject to the
provisions of the Letter Agreement, dated April ___, 1999, among Carl
Marks Management Company, L.P., Carl Marks Strategic Investments, L.P.,
Carl Marks Strategic Investments II, L.P., Andrew M. Boas, Robert C.
Ruocco, and Thousand Trails, Inc., and may not be transferred or
otherwise disposed of except in accordance therewith and only upon such
transferee's agreement to be bound by such letter agreement. Copies of
such letter agreement are on file at the office of the Secretary of
Thousand Trails, Inc.
The Company shall remove such legend promptly upon (i) termination of this
letter agreement, as to all shares of Restricted Stock, and (ii) upon request by
a transferee who acquired such shares of Restricted Stock without restriction
pursuant to the last sentence of Section 3 hereof as to the shares so acquired.
5. STOP TRANSFER ORDER. To assist in effecting the provisions of this
letter agreement, we hereby consent to the entry of a stop transfer order with
the transfer agent or agents of the Company against the transfer of any shares
of Restricted Stock except in compliance with the requirements of this letter
agreement, or if the Company is its own transfer agent with respect to any
shares of Common Stock, to the refusal by the Company to transfer any such
securities except in compliance with the requirements of this letter agreement.
6. REMEDIES. We acknowledge that money damages will not be a sufficient
remedy for any breach of this letter agreement by us or any of our Affiliates
and that the Company is entitled to equitable relief, including injunction and
specific performance, as a remedy for such breach. Such remedies shall not be
deemed to be the exclusive remedies for a breach of this letter agreement, but
shall be in addition to all other remedies available at law or equity.
7. WAIVERS AND AMENDMENTS. No failure or delay by the Company in
exercising any right, power, or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
future exercise thereof or the exercise of any other right, power, or privilege
hereunder. No provision of this letter agreement can be amended without the
specific written consent of the majority of Disinterested Directors.
2
<PAGE> 3
8. TERM. This letter agreement shall continue in full force and effect
for so long as we or any of our Affiliates own or control, directly or
indirectly, shares of Common Stock or any other security convertible into or
exchangeable for or exercisable for the purchase of shares of Common Stock that,
in the aggregate, constitute a majority of the outstanding shares of Common
Stock; provided that this letter agreement shall terminate on the fourth
anniversary of the date hereof.
9. SUCCESSORS AND ASSIGNS. The provisions of this letter agreement
shall irrevocably bind our heirs, executors, personal representatives,
successors, and assigns.
10. GOVERNING LAW. The provisions hereof shall be governed by and
construed in accordance with the laws of Delaware without regard to principles
of conflicts of laws that would apply any other law.
11. DEFINITIONS. "Affiliate" shall mean any Person that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, any of us.
"Associate" shall mean (1) a corporation or organization (other than
the Company) of which we or any of our Affiliates is, directly or indirectly,
the beneficial owner of 20% or more of any class of equity securities, (2) any
trust or other estate in which we or any of our Affiliates has a substantial
beneficial interest or as to which we or any of our Affiliates serves as trustee
or in a similar capacity, and (3) any of our or our Affiliates' relatives or
spouses or any relatives of such spouses, who have the same home as we or any of
our Affiliates.
"Disinterested Director" shall mean a director who is not one of us or
any of our Affiliates and who does not have a Material Relationship with us or
any of our Affiliates.
"Extraordinary Transaction" shall mean (1) any "Rule 13e-3 transaction"
as defined by Rule 13e-3 of the Securities Exchange Act of 1934, as amended and
in effect on the date hereof (the "Securities Exchange Act"), or (2) the
adoption of any plan or proposal for the liquidation or dissolution of the
Company, or any spin-off or split-up of any kind involving the Company, in any
case (whether clause 1 or 2) that was proposed by or on behalf of us or any of
our Affiliates or Associates.
"Material Relationship" shall mean (1) being a member of a "group" (as
defined in Regulation 13D-G of the Securities Exchange Act) with one of us or
any of our Affiliates or Associates with respect to the Common Stock, (2) being
an Associate of one of us or any of our Affiliates, or (3) having a relationship
with us or any of our Affiliates or Associates that would otherwise be required
to be disclosed pursuant to Item 404(b) of Regulation S-K of the Securities
Exchange Act if such person were a nominee or director and if we or any of our
Affiliates or Associates were deemed to be the registrant for definitional
purposes of such item.
"Person" shall mean an individual, a corporation, a partnership, an
association, a joint-stock company, a trust, any unincorporated organization, or
a government or political subdivision thereof.
3
<PAGE> 4
"Restricted Stock" shall mean all shares of Voting Securities
beneficially owned by us or our Affiliates, whether now owned or hereafter
acquired.
"Voting Securities" shall mean shares of Common Stock and any other
securities of the Company entitled to vote generally for the election of
directors, or any security convertible into or exchangeable for or exercisable
for Common Stock or other securities entitled to vote generally for the election
of directors.
[SIGNATURES ON NEXT PAGE]
4
<PAGE> 5
If the foregoing correctly sets forth the agreement of the Company and
us, please so indicate by signing and returning a copy of this letter, whereupon
it shall become a binding agreement between the parties.
Very truly yours,
Carl Marks Management Company, L.P.
By: /s/ Andrew Boas
--------------------------------------------
Andrew Boas, General Partner
Carl Marks Strategic Investments, L.P.
By: Carl Marks Management Company, L.P.
By: /s/ Andrew Boas
--------------------------------------
Andrew Boas, General Partner
Carl Marks Strategic Investments II, L.P.
By: Carl Marks Management Company, L.P.
By: /s/ Andrew Boas
--------------------------------------
Andrew Boas, General Partner
/s/ Andrew Boas
-------------------------------------------------
Andrew M. Boas
/s/ Robert C. Ruocco
-------------------------------------------------
Robert C. Ruocco
ACCEPTED AND AGREED:
Thousand Trails, Inc.
By: /s/ William J. Shaw
-----------------------------------------------
William J. Shaw
Chairman of the Board, President,
and Chief Executive Officer
5
<PAGE> 1
EXHIBIT 11.1
THOUSAND TRAILS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(DOLLARS AND COMMON SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31, 1999 March 31, 1998
---------------- ----------------
<S> <C> <C>
BASIC:
Weighted average number of common shares outstanding 7,550 7,398
================ ================
Net income allocable to common shareholders $ 4,445 $ 10,583
================ ================
Net income per common share -- basic $ 0.59 $ 1.43
================ ================
DILUTED:
Weighted average number of common shares outstanding 7,550 7,398
Weighted average common stock equivalents -
Dilutive options 887 982
Dilutive warrants 22 25
---------------- ----------------
Weighted average number of common shares outstanding 8,459 8,405
================ ================
Net income allocable to common shareholders $ 4,445 $ 10,583
================ ================
Net income per common share -- diluted $ 0.53 $ 1.26
================ ================
</TABLE>
Page 1 of 2
<PAGE> 2
THOUSAND TRAILS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(DOLLARS AND COMMON SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
---------------- ----------------
<S> <C> <C>
BASIC:
Weighted average number of common shares outstanding 7,680 7,416
================ ================
Net income allocable to common shareholders $ 930 $ 2,107
================ ================
Net income per common share -- basic $ 0.12 $ 0.28
================ ================
DILUTED:
Weighted average number of common shares outstanding 7,680 7,416
Weighted average common stock equivalents -
Dilutive options 785 973
Dilutive warrants 53 6
---------------- ----------------
Weighted average number of common shares outstanding 8,518 8,395
================ ================
Net income allocable to common shareholders $ 930 $ 2,107
================ ================
Net income per common share -- diluted $ 0.11 $ 0.25
================ ================
</TABLE>
Page 2 of 2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,199
<SECURITIES> 0
<RECEIVABLES> 1,641
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,168
<PP&E> 21,035
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,149
<CURRENT-LIABILITIES> 32,713
<BONDS> 10,978
0
0
<COMMON> 78
<OTHER-SE> 7,407
<TOTAL-LIABILITY-AND-EQUITY> 56,149
<SALES> 2,893
<TOTAL-REVENUES> 51,113
<CGS> 0
<TOTAL-COSTS> 44,929
<OTHER-EXPENSES> 42,301
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,628
<INCOME-PRETAX> 6,184
<INCOME-TAX> (1,739)
<INCOME-CONTINUING> 4,445
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,445
<EPS-PRIMARY> .59
<EPS-DILUTED> .53
</TABLE>
