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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A (AMENDMENT NO. 2)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
Commission file number 0-19743
THOUSAND TRAILS, INC.
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(Exact name of registrant as specified in its charter)
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DELAWARE 75-2138671
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
2711 LBJ FREEWAY,
SUITE 200, DALLAS, TX 75234
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 243-2228
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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NONE NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR
VALUE $.01 PER SHARE
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in
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definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ X ]
At September 15, 1998, the latest practicable date, the aggregate market value
of voting common stock of the Registrant held by nonaffiliates was $16.1
million.
At September 15, 1998, there were 7,503,208 shares of Common Stock, $.01 par
value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10-13) is incorporated by reference
from the Registrant's definitive Proxy Statement for the Registrant's 1998
Annual Meeting of Stockholders, which was filed on October 27, 1998, with the
Securities and Exchange Commission (the "SEC") pursuant to Regulation 14A.
Explanatory Note: This Amendment No. 2 to Form 10-K amends Item 1 Business; Item
2 Properties; Item 6 Selected Financial Data; and Item 7 Management's Discussion
and Analysis of Financial Condition and Results of Operation. This amendment
provides added detail in response to comments received from the Securities and
Exchange Commission.
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ITEM 1. BUSINESS
OVERVIEW
GENERAL. Thousand Trails, Inc., a Delaware corporation ("Thousand Trails"), is
the successor by merger to USTrails Inc., a Nevada corporation ("USTrails").
Thousand Trails and its subsidiaries (the "Company") own and operate a system of
53 membership-based campgrounds located in 17 states and British Columbia,
Canada, serving 111,000 members as of June 30, 1998. Through its subsidiaries,
the Company also provides a reciprocal use program for members of approximately
325 recreational facilities and manages 130 public campgrounds for the US Forest
Service. The Company's principal executive office is located at 2711 LBJ
Freeway, Suite 200, Dallas, Texas 75234, its telephone number is (972) 243-2228,
and its home page on the Internet is www.1000trails.com.
The Company entered the membership campground business on June 30, 1991, with
the acquisition of 100% of the capital stock of National American Corporation, a
Nevada corporation (collectively with its subsidiaries, "NACO") and 69% of the
capital stock of Thousand Trails, Inc., a Washington corporation (collectively
with its subsidiaries, "Trails"). The Company subsequently increased its
ownership in Trails to 100% through a tender offer and merger and, on July 16,
1996, Trails was merged into the Company. Prior to acquiring NACO and Trails,
the Company purchased contracts receivable generated by them from the sale of
campground memberships on the installment basis. The Company was incorporated in
1984, NACO was incorporated in 1967, and Trails was incorporated in 1969. On
November 20, 1996, the Company, then known as USTrails, reincorporated in the
state of Delaware and changed its name to Thousand Trails, Inc.
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 that 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 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
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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 will depend principally upon the degree
to which the Company can successfully implement this strategy.
DEBT RESTRUCTURING. On July 17, 1996, the Company consummated a restructuring of
its outstanding debt (see "Liquidity and Capital Resources - Debt Restructuring"
in Item 7). This restructuring provided the Company with a new capital structure
and decreased the Company's outstanding debt to a level the Company believes it
can support under its downsized operations.
CAMPGROUND OPERATIONS
CAMPGROUNDS. The Company and its subsidiaries own and operate a network of 53
membership-based campgrounds located in 17 states and British Columbia, Canada.
The Company owns and operates a network of 32 of these campgrounds under the
Thousand Trails logo, and NACO owns and operates a network of 21 of these
campgrounds under the NACO logo. The 53 campgrounds contain a total of
approximately 9,700 acres and 17,700 campsites.
Members using the campgrounds may bring their own recreational vehicles ("RVs"),
tents or other sleeping equipment, or rent travel trailers or cabins located at
the campgrounds or visit for the day. As of June 30, 1998, there were
approximately 73,000 campground members in the Thousand Trails system and 38,000
campground members in the NACO system. However, approximately 38% of the NACO
campground members and approximately 54% of the Thousand Trails campground
members possess the right to use the campgrounds in both networks. The largest
percentage of campground members reside in California (approximately 37%). Large
numbers of campground members also reside in Florida, Oregon, Texas, and
Washington.
Memberships provide the member's family access to the Company's network of
campgrounds, but do not convey a deeded interest in the campgrounds with the
exception of six campgrounds in which members received deeded undivided
interests in the campground. A member also does not possess the right to use a
specific campsite, trailer, or cabin, or the right to control further
development or operation of a campground.
In the six campgrounds in which members have received deeded undivided
interests, the Company retains the entire fee interest in the common amenities,
such as the lodge, recreational facilities, and other buildings, and an
undivided interest in the campsites to the extent the interest has not been sold
to the members.
Depending upon member usage, the campgrounds are open year-round or on a
seasonal basis. The campgrounds feature campsites with electrical, water, and in
some cases, sewer connections for RVs, restroom and shower facilities, rental
trailers or cabins, and other recreational amenities. At each campground, a
manager and staff provide security, maintenance, and recreational programs that
vary by location.
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The Company derives other campground revenue from renting trailers, cabins, and
sports equipment to members, selling food and other items to members from
convenience stores located at the campgrounds, and providing the members access
to laundry facilities and game machines. The Company also charges members a fee
for storing recreational vehicles and providing food service.
EXISTING MEMBERSHIP. At June 30, 1998, the Company had 111,000 campground
members. The majority of these members have been members for over 10 years. The
Company's membership base has declined significantly over the past five fiscal
years and, net of new sales, the membership base is presently declining at the
rate of approximately 6% per year (excluding 1,800 members lost in connection
with the sale of two campgrounds in fiscal 1998). The Company attributes this
continuing decline principally to its aging membership base, of whom
approximately 50% are senior citizens. In addition, the Company estimates that
the memberships sold in recent fiscal years will have an expected life that is
significantly shorter than the expected life of the memberships previously sold
by the Company. To stop the continuing decline in its membership base, the
Company must significantly increase its campground membership sales over current
levels.
MEMBERSHIP SALES. As noted above, the majority of the Company's existing members
have been members for over 10 years. The Company's membership sales declined
significantly in the early 1990's due to increasing marketing costs and other
factors. In April 1992, the Company suspended the sale of new campground
memberships because its sales program was operating at a loss and with negative
cash flow. In the fall of 1992, the Company began to assist campground members
desiring to sell their memberships in the secondary market. During fiscal 1994,
the Company determined that it should increase its sales and marketing efforts
in order to replenish its declining campground membership base, and it began
selling new campground memberships on a limited basis. In May 1995, the Company
introduced new membership products and significantly increased its sales and
marketing efforts. In recent years, the Company has focused its membership sales
efforts primarily on guests referred by existing members and customers referred
by RV dealers and RV manufacturers, who management believes are more likely to
purchase memberships.
The Company's current membership products offer the consumer a choice of
membership options ranging from the use of one campground to the entire system
of campgrounds with prices ranging from $1,595 to $2,995. In addition, the
membership products offer a choice of annual dues levels ranging from $199 for
14 nights of use to $1,200 for up to 365 nights of use. The member is charged a
nightly fee for camping more days than are included in the dues option selected.
During fiscal 1998 and 1997, the Company sold approximately 2,900 and 3,400 new
memberships, respectively. The average sales price was $1,164 in fiscal 1998 and
$707 in fiscal 1997, and the average annual dues level was $377 in fiscal 1998
and $332 in fiscal 1997. During the past two fiscal years, the Company offered
financing for certain of its higher priced sales. The Company required a down
payment of at least 25% of the sales price and would finance the balance for
periods of up to 36 months. The Company estimates that the memberships sold in
recent fiscal years will have an expected life that is significantly shorter
than the expected life of the memberships previously sold by the Company.
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The Company has the capacity to sell approximately 66,000 additional new
campground memberships in the future, assuming the sale of ten memberships for
each existing campsite. Further downsizing of the Company's business would
reduce this capacity.
Most memberships are transferable with payment of a transfer fee to the Company.
The membership contracts, however, prohibit the sale of a membership for a
profit.
MARKETING. The Company believes that camping is a popular and growing activity
in the United States. The Company believes this is reflected in sales of
recreational vehicles and camping equipment as well as campground use. Moreover,
the Company believes the aging of the baby boomers will have a positive effect
on sales of camping equipment and RVs, and lead to more family camping.
While most campers use national or state parks, the Company believes that it has
a significant opportunity to compete for campers interested in higher quality
facilities and a higher level of service than is typically available at public
campgrounds or competing private campgrounds. The Company believes that many
campers are "amenity" campers, whose needs match the benefits provided by the
Company's campgrounds, such as pools, lodges, sport courts, and recreational
activities. The Company believes the needs of amenity campers are not being met
by underfunded national and state campgrounds. In addition, the Company believes
that it can differentiate its campgrounds and services from other campgrounds by
emphasizing the quality of its facilities and the benefits and services
available at its campgrounds.
DUES. The Company's campground members, including members who own a deeded
undivided interest in a campground, currently pay annual dues ranging generally
from $100 to $600. The annual dues collected from campground members constitute
general revenue of the Company. The Company uses the dues to fund its operating
expenses, including corporate expenses and the maintenance and operation of the
campgrounds. However, the membership agreements do not require the Company to
use the dues for any specific purpose.
The average annual dues paid by the Company's campground members was $351 for
the year ended June 30, 1998, $344 for the year ended June 30, 1997, and $335
for the year ended June 30, 1996. The increases resulted primarily from the
annual increase in dues implemented by the Company in accordance with the terms
of the membership agreements. In addition, the Company's new members generally
pay annual dues at a higher level than the older members retiring from the
system.
The membership agreements generally permit the Company to increase annually the
amount of each member's dues by either (i) the percentage increase in the
consumer price index ("CPI") or (ii) the greater of 10% or the percentage
increase in the CPI. The Company, however, may not increase the dues on existing
contracts of senior citizens and disabled members who notify the Company of
their age or disability and request that their dues be frozen. At the present
time, approximately 35% of the members have requested that their dues be frozen
because of their age or disability. The Company estimates that approximately 50%
of the campground members are senior citizens eligible to request that their
dues be frozen. The Company is unable to estimate
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when or if a significant number of these members will request that their dues be
frozen in the future.
MAINTENANCE AND IMPROVEMENTS. The Company makes annual capital and maintenance
expenditures to maintain and improve the campgrounds. During fiscal 1998, the
Company spent $5.2 million on major maintenance, repairs, and capital
improvements at the campgrounds and anticipates that it will spend an additional
$4.7 million on such items in fiscal 1999. The Company may be required to spend
greater amounts on such items in future years as the facilities age.
RESORT PARKS INTERNATIONAL. NACO members and holders of dual-system memberships,
which permit the member to use the campgrounds in both the NACO and Thousand
Trails systems, may join a reciprocal program operated by Resort Parks
International, Inc. ("RPI"), a wholly owned subsidiary of the Company. The RPI
program offers members reciprocal use of approximately 325 participating
recreational facilities. Members of these participating facilities pay a fee to
RPI that entitles them to use any of the participating facilities, subject to
the limitation that they cannot use an RPI facility located within 125 miles of
their home facility. As of June 30, 1998, there were approximately 96,000 RPI
members, of which approximately 80,000 were members of campgrounds that are not
affiliated with the Company.
CAMPGROUND MANAGEMENT. UST Wilderness Management Corporation ("Wilderness
Management"), a wholly owned subsidiary of the Company, manages 130 public
campgrounds for the US Forest Service containing a total of 3,300 campsites.
Pursuant to its management contracts with the US Forest Service, Wilderness
Management incurs the expenses of operating the campgrounds and receives the
related revenues, net of a fee paid to the US Forest Service. These management
contracts typically have five year terms.
RESORT OPERATIONS
Over the past several years, NACO has been selling the assets it owns at eight
resorts located in seven states. NACO's interest in the resorts presently
consists of approximately 100 residential lots and other miscellaneous real
estate that NACO intends to sell over the next several years.
SEGMENT FINANCIAL INFORMATION
Segment financial information for the campground and resort operations is set
forth in Note 14 to the consolidated financial statements included in Item 8.
ASSET SALES
During fiscal 1998, 1997, and 1996, the Company sold certain of its real estate
assets and received proceeds of $8.6 million, $4.7 million, and $7.2 million,
respectively. During this three-year period, the Company sold the timeshare
operations at the resorts, the country club and golf operations at one resort,
and various other properties at the resorts. In addition, the Company sold or
otherwise disposed of various campgrounds and sold unused buildings
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and trailers, and excess acreage. Over the next several years, the Company
intends to dispose of its remaining assets at the resorts, any campgrounds that
are closed as the Company downsizes, and other undeveloped, excess acreage
associated with the campgrounds. The sale of campgrounds requires addressing the
rights of members associated with such campgrounds. The impact of these rights
is uncertain and could adversely affect the availability or timing of sale
opportunities or the ability of the Company to realize recoveries from asset
sales. In addition, although the Company has successfully sold assets during the
past 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
effected.
When there are outstanding borrowings under the Credit Agreement (as amended,
the "Credit Agreement"), between the Company and Foothill Capital Corporation
("Foothill"), all proceeds from asset sales must be paid to Foothill and applied
to reduce such borrowings.
CONTRACTS RECEIVABLE
Prior to April 1992, the Company sold substantially all of its campground
memberships and resort interests on the installment basis, creating a portfolio
of contracts receivable. This portfolio has declined significantly over the past
five fiscal years as the Company has collected the outstanding contracts
receivable. Since April 1992, the Company has sold only a limited number of
campground memberships and resort interests on an installment basis and, as a
result, the portfolio of contracts receivable will continue to decline.
Interest accrues on the unpaid balance of the contracts receivable at fixed
rates, which vary depending upon the size of the down payment and the length of
the contract. The contracts receivable bear interest at rates ranging generally
from 9.5% to 16%, with a weighted average stated interest rate of 13% as of June
30, 1998. Monthly installment payments range generally from $34 to $223 over the
term of the contracts receivable, which can be up to ten years. The terms of
most newer contracts receivable, however, have averaged two years or less. At
June 30, 1998, 97% of the campground members and 99% of the purchasers of resort
interests had paid for their membership or resort interest in full, and the
remaining outstanding contracts receivable had an average remaining term of 19
months.
As of June 30, 1998, the Company owned contracts receivable with an aggregate
principal balance of $6.8 million, consisting of $6.4 million of contracts
receivable associated with the campgrounds and $401,000 of contracts receivable
associated with the resorts (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Contracts Receivable " in Item
7).
When there are outstanding borrowings under the Credit Agreement between the
Company and Foothill, all collections on the contracts receivable, including
principal, interest, and fees, must be paid to Foothill and applied to reduce
such borrowings.
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SEASONALITY
The Company experiences its most significant demand for working capital between
May and October of each year, which period coincides with the highest level of
operating expenses. During the summer, operating expenses increase significantly
because the peak usage of the campgrounds requires seasonal workers and
increased maintenance and operating expenses. In addition, the majority of the
Company's sales and marketing efforts occur during the spring and summer. On the
other hand, most dues collection activity for campground members occurs during
the months of November through April, which is a period of relatively lower
expenses.
GOVERNMENT REGULATION
To operate its campgrounds, the Company must comply with major discretionary
permits or approvals issued by local governments under local zoning ordinances,
master plans for shoreline use, and state environmental policy statutes. The
Company has complied in all material respects with the discretionary permits and
approvals regulating its existing operations.
In addition, to construct improvements at its campgrounds, the Company has
usually been required to obtain permits that are typically non-discretionary and
routinely issued such as building and sanitary sewage permits. The Company has
generally resolved problems concerning the issuance of such permits through
design, operating, or engineering solutions negotiated with local government
officials.
The Company's campgrounds are also subject to a variety of federal and state
environmental statutes and regulations. Certain environmental issues may exist
at some of the campgrounds concerning underground storage tanks, sewage
treatment plants and septic systems, and waste disposal. Management believes
that these issues will not have a material adverse impact on the Company's
operations or financial position, as the Company has conducted environmental
testing to identify and correct a number of these problems, and has removed
substantially all of the underground storage tanks. The Company does not possess
insurance or indemnification agreements with respect to any environmental
liability that it may incur.
Most of the states in which the Company does business have laws regulating
campground membership and lot sales. These laws generally require comprehensive
disclosure to prospective purchasers, and give purchasers the right to rescind
their purchase for three-to-five days after the date of sale. Some states have
laws requiring the Company to register with a state agency and obtain a permit
to market.
In some states, including California, Oregon, and Washington, laws place
limitations on the ability of the owner of a campground to close the campground
unless the members at the campground receive access to a comparable campground.
In these states, members from campgrounds that have been closed by the Company
were reassigned to other campgrounds located in the same general area as the
closed campgrounds. The impact of the rights of members under these laws is
uncertain and could adversely affect the implementation of, and the benefits or
recoveries that may be available from, additional downsizing of the Company's
business.
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The government authorities regulating the Company's activities have broad
discretionary power to enforce and interpret the statutes and regulations that
they administer, including the power to enjoin or suspend sales activities,
require or restrict construction of additional facilities, and revoke licenses
and permits relating to business activities. The Company monitors its sales
presentations and debt collection activities to control practices that might
violate consumer protection laws and regulations or give rise to consumer
complaints. The Company believes that it has conducted its sales programs and
debt collection activities in substantial compliance with all applicable federal
and state laws and regulations.
Certain consumer rights and defenses that vary from jurisdiction to jurisdiction
may affect the Company's portfolio of contracts receivable. Examples of such
laws include state and federal consumer credit and truth-in-lending laws
requiring the disclosure of finance charges, and usury and retail installment
sales laws regulating permissible finance charges. The Company believes that it
has complied in all material respects with these laws.
In certain states, as a result of government regulations and provisions in
certain of the membership agreements, the Company is prohibited from selling
more than 10 memberships per campsite. At the present time, these restrictions
do not preclude the Company from selling memberships in any state. However,
these restrictions may limit the Company's ability to downsize by closing
campgrounds and reassigning members to other campgrounds. In addition,
membership agreements or understandings, or governmental interpretations
thereof, may limit the Company's ability to expand or modify the type of
business activities conducted at the campgrounds.
In a decision to which the Company was not a party, the Mississippi Supreme
Court ruled that the Mississippi Timeshare Rules apply to the sale of campground
memberships in Mississippi. The Company has discussed the ramifications of this
decision with the Mississippi state agency responsible for the administration of
these rules. The Company does not believe that the agency will require the
Company to rescind any sales of campground memberships because of the decision;
however, the agency has the power to do so. The Company has sold $15.9 million
of campground memberships in Mississippi.
COMPETITION
Based on an internally conducted analysis, the Company estimates there are
approximately 15,000 privately owned campgrounds in the United States today, of
which approximately 500 are membership campgrounds. The balance of the
campgrounds are generally open to the public and usually charge fees based on
the length of stay. The 500 membership campgrounds have approximately 400,000
members, of which 111,000 are the Company's members. This information was
derived from a review of publicly available directories of campgrounds,
including those of the Company's competitors. During this analysis, the Company
identified duplicative directory entries and compiled an estimate of the total
number of campgrounds and members.
Several companies compete directly with the Company's campground operations. For
example, Resorts USA, Inc., which does business as Outdoor World, sells
memberships to its system of 14
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campgrounds, Travel America, Inc. (formerly All Seasons Resorts, Inc. and
Thousand Adventures, Inc.) sells memberships to its system of 37 campgrounds,
and Leisure Time Resorts, Inc. sells memberships to its system of ten
campgrounds. Other companies or individuals operate the balance of the
membership campgrounds. The Company's direct competitors generally offer their
members reciprocal use of other campgrounds through affiliations. Over the past
several years, many of the Company's direct competitors have experienced
financial difficulties, and several competitors have filed for bankruptcy.
The vast majority of the campgrounds in the United States are operated for the
public by Federal, state, and local governments. Although these public
campgrounds are used by most campers, in recent years, many of these public
campgrounds have experienced overcrowding and increased user fees. The Company's
campgrounds also compete indirectly with timeshare resorts and other types of
recreational land developments that do not involve camping.
The Company's campground operations compete on the basis of location and the
quality of facilities and services offered at the campgrounds. The Company
believes it has a significant opportunity to compete for campers interested in
higher quality facilities and a higher level of service than is typically
available at public campgrounds or competing private campgrounds (see
"Marketing").
Wilderness Management competes directly with approximately four other companies
in bidding for contracts to manage public campgrounds for the US Forest Service.
Wilderness Management currently has contracts to manage 130 of the approximately
3,000 campgrounds operated for the US Forest Service by private companies.
Coast to Coast Resorts, RPI's primary competitor and the largest reciprocal use
system, has approximately 370 affiliated campgrounds and more than 250,000
members. Both RPI and Coast to Coast Resorts operate vacation clubs offering
travel and lodging discounts and services to their members.
EMPLOYEES
As of June 30, 1998, the Company had 1,355 full-time equivalent employees. Due
to the seasonal nature of the Company's business, the Company has a greater
number of employees during the summer months. The Company does not have any
collective bargaining agreements with its employees and considers its relations
with employees to be satisfactory.
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ITEM 2. PROPERTIES
OFFICES. The Company leases office space at 2711 LBJ Freeway, Suite 200, Dallas,
Texas 75234. NACO leases office space at 2325 Highway 90, Gautier, Mississippi
39553. RPI leases office space at 3711 Long Beach Blvd., Suite 110, Long Beach,
California 90807.
CAMPGROUNDS. The Company currently operates 53 campgrounds in 17 states and
British Columbia, Canada. The locations of these campgrounds are shown on the
map on page 14. The amenities presently available at each campground are listed
on the chart on page 15. The Company owns 52 of these campgrounds and leases the
LaConner campground and portions of the Lake Tawakoni and Snowflower
campgrounds. The Company has sold undivided interests to members at six of the
campgrounds. Of the 53 campgrounds, 25 operate all year, 21 operate year-round
but provide only limited services during the off-season, and seven operate
seasonally only.
ENCUMBRANCES. The Company has granted liens on substantially all of its assets
to secure its obligations under the Credit Agreement between the Company and
Foothill. The Company repaid all outstanding borrowings under the Credit
Agreement in January 1998, and it had no outstanding borrowings under the Credit
Agreement as of the date of this report. However, the Company has entered into
an amendment to the Credit Agreement that will provide the Company the
flexibility to borrow up to $35.0 million (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 7). All of
the Company's subsidiaries (other than an immaterial utility subsidiary)
(collectively, the "Subsidiary Guarantors") have fully and unconditionally
guaranteed, on a joint and several basis, the Company's obligations under the
Credit Agreement, and subject to certain limitations, have granted liens on
substantially all of their assets to secure their guarantees.
NACO has also granted liens, subject to certain limitations, on substantially
all of its assets to secure the repayment of its indebtedness to the Company,
which totaled approximately $28.0 million as of the date of this report. These
security interests were subordinated to the security interests securing the
guarantees of the Credit Agreement. The indebtedness that these security
interests secure, however, is pledged by the Company to Foothill to secure its
obligations under the Credit Agreement, and these security interests have been
collaterally assigned to Foothill. Furthermore, the subsidiaries of NACO each
guaranteed their parent's indebtedness to the Company and granted security
interests in substantially all of their assets to secure such guarantees.
The Subsidiary Guarantors have also fully and unconditionally guaranteed, on a
joint and several basis, the Company's obligations under the Senior Subordinated
Pay-In-Kind Notes Due 2003 (the "PIK Notes") that were issued on July 17, 1996,
as well as the PIK Notes issued in lieu of cash payment of interest. The PIK
Notes are presently unsecured and will remain unsecured until the amended Credit
Agreement terminates on July 17, 2002. 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
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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. Upon
the termination of the amended Credit Agreement, the PIK Notes will be secured
by the same assets as then secure the amended Credit Agreement other than cash
and cash equivalents and other assets required to secure a new Working Capital
Replacement Facility, which may provide borrowings for working capital purposes
only up to $10.0 million in principal amount. Any new Working Capital
Replacement Facility may be secured by substantially all of the assets of the
Company and its subsidiaries other than certain excluded assets.
Some states, including California, Oregon, and Washington, have nondisturbance
statutes that place limitations on the ability of the owner of a campground to
sell or close, or a lienholder to foreclose a lien on, a campground. In certain
states, these statutes permit sale, closure, or foreclosure if the holders of
related memberships receive access to a comparable campground. The mortgages on
the Company's campgrounds that were granted to secure the Company's obligations
under the Credit Agreement, and any mortgages on the Company's campgrounds that
are granted in the future to secure the Company's obligations under the PIK
Notes, contain or will contain similar nondisturbance provisions. As a
consequence, although the Company may be able to sell or close some of its
campgrounds as it has done in the past, a sale or closure of significant numbers
of campgrounds would likely be limited by state law or the membership contracts
themselves, and a foreclosure of liens on significant numbers of campgrounds
would also likely be limited. The impact of the rights of members under these
laws and nondisturbance provisions is uncertain and could adversely affect the
availability or timing of sale opportunities or the ability of the Company or
lienholder to realize recoveries from asset sales.
OTHER. The Company owns approximately 100 residential lots and other
miscellaneous real estate at eight resorts located in seven states, and various
other parcels of undeveloped real estate, that it intends to sell over time.
Page 13
<PAGE> 14
THOUSAND TRAILS, INC.
CAMPGROUNDS
[MAP]
<TABLE>
<CAPTION>
+ THOUSAND TRAILS CAMPGROUNDS o NACO CAMPGROUNDS
- ----------------------------- ------------------
<S> <C> <C> <C>
BRITISH COLUMBIA TEXAS WASHINGTON INDIANA
Cultus Lake Medina Lake Birch Bay Indian Lakes*
Lake Conroe Little Diamond
WASHINGTON Colorado River Rainier VIRGINIA
LaConner Lake Whitney Long Beach Virginia Landing*
Mount Vernon Lake Texoma
Chehalis Lake Tawakoni OREGON NEW JERSEY
Leavenworth South Jetty Chestnut Lakes
MICHIGAN
OREGON Saint Clair CALIFORNIA
Bend Lake Minden
Pacific City INDIANA Russian River
Horseshoe Lakes Snowflower
CALIFORNIA Turtle Beach
Lake of the Springs OHIO Yosemite
Morgan Hill Wilmington Windsor
San Benito Kenissee Lake Rancho Oso
Soledad Canyon Wilderness Lakes
Idyllwild PENNSYLVANIA
Pio Pico Hershey TEXAS
Oakzanita Springs Bay Landing*
Palm Springs VIRGINIA
Lynchburg MISSISSIPPI
NEVADA Chesapeake Bay Indian Point
Las Vegas
NORTH CAROLINA SOUTH CAROLINA
ARIZONA Forest Lake Carolina Landing* * Some members of
Verde Valley these six campgrounds
TENNESSEE own a deeded,
FLORIDA Natchez Trace* undivided interest in
Orlando Cherokee Landing* campsites at their
campground.
</TABLE>
Page 14
<PAGE> 15
<TABLE>
<CAPTION>
CAMPGROUND FACILITIES ACREAGE RV SITES TENT ADULT FAMILY POOL TENNIS ATHLETIC VEHICLE REST- TRAILERS HORSE-
AND AMENITIES SITES LODGE CENTER/ COURT COURT STORAGE ROOMS/ (SEASONAL SHOE
PAVILION SHOWERS AVAIL- PITS
ABILITY)
- -----------------------------------------------------------------------------------------------------------------------------------
THOUSAND TRAILS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BEND 93 300 10 1 1 2 2 1 1 6 17 4
- -----------------------------------------------------------------------------------------------------------------------------------
CHEHALIS 306 278 1 1 2 2 2 1 8 9 7
- -----------------------------------------------------------------------------------------------------------------------------------
CHESAPEAKE BAY 280 373 19 1 1 2 1 1 1 4 45 6
- -----------------------------------------------------------------------------------------------------------------------------------
COLORADO RIVER 217 128 1 1 1 1 1 1 2 10 4
- -----------------------------------------------------------------------------------------------------------------------------------
CULTUS LAKE 14 185 12 1 1 1 2 2 1 4 5 2
- -----------------------------------------------------------------------------------------------------------------------------------
FOREST LAKE 205 294 12 1 1 2 2 1 1 3 16 4
- -----------------------------------------------------------------------------------------------------------------------------------
HERSHEY 196 310 1 1 1 1 1 1 3 38 4
- -----------------------------------------------------------------------------------------------------------------------------------
HORSESHOE LAKES 202 118 1 1 2 1 1 2 11 4
- -----------------------------------------------------------------------------------------------------------------------------------
IDYLLWILD 181 287 38 1 1 1 3 1 6 35 4
- -----------------------------------------------------------------------------------------------------------------------------------
KENISEE LAKE 159 83 10 1 1 1 1 2 2
- -----------------------------------------------------------------------------------------------------------------------------------
LACONNER 106 313 1 1 1 1 6 18 6
- -----------------------------------------------------------------------------------------------------------------------------------
LAKE CONROE 130 285 1 1 1 2 2 1 4 21 8
- -----------------------------------------------------------------------------------------------------------------------------------
LAKE OF THE SPRINGS 176 541 12 1 1 1 1 2 1 12 36 8
- -----------------------------------------------------------------------------------------------------------------------------------
LAKE TAWAKONI 300 318 1 1 1 2 1 1 5 22 8
- -----------------------------------------------------------------------------------------------------------------------------------
LAKE TEXOMA 198 319 2 1 1 2 1 1 6 17 6
- -----------------------------------------------------------------------------------------------------------------------------------
LAKE WHITNEY 253 244 3 1 1 2 1 1 1 5 22 8
- -----------------------------------------------------------------------------------------------------------------------------------
LAS VEGAS 11 217 2 1 1 2 1 3 2
- -----------------------------------------------------------------------------------------------------------------------------------
LEAVENWORTH 279 275 1 1 2 4 2 1 8 5 5
- -----------------------------------------------------------------------------------------------------------------------------------
LYNCHBURG 150 223 1 1 1 2 6 1 5 5 7
- -----------------------------------------------------------------------------------------------------------------------------------
MEDINA LAKE 260 387 1 1 1 1 1 4 34 4
- -----------------------------------------------------------------------------------------------------------------------------------
MORGAN HILL 62 317 28 1 1 1 1 1 1 7 24 4
- -----------------------------------------------------------------------------------------------------------------------------------
MOUNT VERNON 185 248 3 1 1 1 1 1 6 5 4
- -----------------------------------------------------------------------------------------------------------------------------------
OAKZANITA SPRINGS 118 121 30 1 1 1 1 1 2 13 4
- -----------------------------------------------------------------------------------------------------------------------------------
ORLANDO 269 734 1 1 2 2 1 7 33 6
- -----------------------------------------------------------------------------------------------------------------------------------
PACIFIC CITY 105 305 1 1 1 1 2 1 5 18 12
- -----------------------------------------------------------------------------------------------------------------------------------
PALM SPRINGS 28 392 1 1 1 1 1 4 35 4
- -----------------------------------------------------------------------------------------------------------------------------------
PIO PICO 182 453 12 1 1 2 5 3 8 24 12
- -----------------------------------------------------------------------------------------------------------------------------------
SAN BENITO 200 517 51 1 1 2 1 1 7 28 4
- -----------------------------------------------------------------------------------------------------------------------------------
SOLEDAD CANYON 230 809 9 1 1 2 2 3 1 14 53 13
- -----------------------------------------------------------------------------------------------------------------------------------
SAINT CLAIR 110 110 8 1 1 1 1 3 13 2
- -----------------------------------------------------------------------------------------------------------------------------------
VERDE VALLEY 300 333 6 2 1 1 2 3 16 8
- -----------------------------------------------------------------------------------------------------------------------------------
WILMINGTON 109 125 1 1 1 1 2 1 2 13 2
- -----------------------------------------------------------------------------------------------------------------------------------
NACO
- -----------------------------------------------------------------------------------------------------------------------------------
BAY LANDING 305 257 1 1 1 1 2 6
- -----------------------------------------------------------------------------------------------------------------------------------
BIRCH BAY 30 215 8 1 1 1 1 3 13 2
- -----------------------------------------------------------------------------------------------------------------------------------
CAROLINA LANDING 119 193 1 2 2 1 1 4 4
- -----------------------------------------------------------------------------------------------------------------------------------
CHEROKEE LANDING 55 341 1 1 1 1 1 3 3
- -----------------------------------------------------------------------------------------------------------------------------------
CHESTNUT LAKE 31 179 1 1 1 1 1 16 2
- -----------------------------------------------------------------------------------------------------------------------------------
INDIAN LAKES 545 1202 50 2 1 3 2 2 1 5 8
- -----------------------------------------------------------------------------------------------------------------------------------
INDIAN POINT 11 157 1 2 1 2 3 1
- -----------------------------------------------------------------------------------------------------------------------------------
LAKE MINDEN 97 162 161 1 1 1 3 15 2
- -----------------------------------------------------------------------------------------------------------------------------------
LITTLE DIAMOND 200 541 100 1 4 1 1 1 5 4 3
- -----------------------------------------------------------------------------------------------------------------------------------
LONG BEACH 17 120 20 1 1 1 2 6 2
- -----------------------------------------------------------------------------------------------------------------------------------
NATCHEZ TRACE 623 561 1 2 1 1 5 1
- -----------------------------------------------------------------------------------------------------------------------------------
RAINIER 107 609 300 1 1 1 1 10 10 8
- -----------------------------------------------------------------------------------------------------------------------------------
RANCHO OSO 310 118 50 1 1 1 1 1 3 4
- -----------------------------------------------------------------------------------------------------------------------------------
RUSSIAN RIVER 42 125 30 1 4 10 2
- -----------------------------------------------------------------------------------------------------------------------------------
SNOWFLOWER 720 248 10 1 1 11 7 3
- -----------------------------------------------------------------------------------------------------------------------------------
SOUTH JETTY 60 162 10 1 1 1 1 5 15 3
- -----------------------------------------------------------------------------------------------------------------------------------
TURTLE BEACH 39 72 120 1 2 2
- -----------------------------------------------------------------------------------------------------------------------------------
VIRGINIA LANDING 339 210 1 1 1 3 2
- -----------------------------------------------------------------------------------------------------------------------------------
WILDERNESS LAKES 74 523 5 1 1 2 1 1 1 8 34 6
- -----------------------------------------------------------------------------------------------------------------------------------
WINDSOR 17 95 25 1 1 1 1 7 3
- -----------------------------------------------------------------------------------------------------------------------------------
YOSEMITE LAKES 387 379 131 1 1 1 8 24 4
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CAMPGROUND FACILITIES CHILD- TRADING MINI- SHUFFLE SPA VOLLEY- BOAT LAUNDRY CABINS/
AND AMENITIES REN'S POST ATURE BOARD BALL LAUNCH/ FACILITY LODGING
PLAY GOLF MARINA
AREA
- -----------------------------------------------------------------------------------------------------------
THOUSAND TRAILS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BEND 2 1 1 1 1 7
- -----------------------------------------------------------------------------------------------------------
CHEHALIS 1 1 1 1 1 1 1 4
- -----------------------------------------------------------------------------------------------------------
CHESAPEAKE BAY 3 1 1 2 1 1 1 1 18
- -----------------------------------------------------------------------------------------------------------
COLORADO RIVER 2 1 1 1 1 2 1 1
- -----------------------------------------------------------------------------------------------------------
CULTUS LAKE 2 1 2 1 1
- -----------------------------------------------------------------------------------------------------------
FOREST LAKE 2 1 1 2 2 1 1 18
- -----------------------------------------------------------------------------------------------------------
HERSHEY 1 1 1 1 1
- -----------------------------------------------------------------------------------------------------------
HORSESHOE LAKES 10 1 2 1 1
- -----------------------------------------------------------------------------------------------------------
IDYLLWILD 3 1 1 2 1 3 4
- -----------------------------------------------------------------------------------------------------------
KENISEE LAKE 2 1 1 1 1 1
- -----------------------------------------------------------------------------------------------------------
LACONNER 3 1 1 3 1 1 1 1 17
- -----------------------------------------------------------------------------------------------------------
LAKE CONROE 2 1 1 2 1 2 1 2
- -----------------------------------------------------------------------------------------------------------
LAKE OF THE SPRINGS 3 1 1 1 1 1 1 3
- -----------------------------------------------------------------------------------------------------------
LAKE TAWAKONI 2 1 1 8 2 2 1 1
- -----------------------------------------------------------------------------------------------------------
LAKE TEXOMA 2 1 1 2 2 1 1 1 18
- -----------------------------------------------------------------------------------------------------------
LAKE WHITNEY 2 1 1 2 1 2 1
- -----------------------------------------------------------------------------------------------------------
LAS VEGAS 1 1 1 1 3
- -----------------------------------------------------------------------------------------------------------
LEAVENWORTH 2 1 1 4 1 2 8
- -----------------------------------------------------------------------------------------------------------
LYNCHBURG 2 1 1 2 1 2 1
- -----------------------------------------------------------------------------------------------------------
MEDINA LAKE 3 1 1 4 1 2 1 1
- -----------------------------------------------------------------------------------------------------------
MORGAN HILL 3 1 1 4 1 1
- -----------------------------------------------------------------------------------------------------------
MOUNT VERNON 2 1 1 1 1 1 1
- -----------------------------------------------------------------------------------------------------------
OAKZANITA SPRINGS 3 1 1 2 1 1 1
- -----------------------------------------------------------------------------------------------------------
ORLANDO 2 1 1 16 1 1 1 4
- -----------------------------------------------------------------------------------------------------------
PACIFIC CITY 2 1 1 1 1 1 4
- -----------------------------------------------------------------------------------------------------------
PALM SPRINGS 1 2 1 3
- -----------------------------------------------------------------------------------------------------------
PIO PICO 3 1 1 8 2 2 2
- -----------------------------------------------------------------------------------------------------------
SAN BENITO 4 1 1 6 2 2 1
- -----------------------------------------------------------------------------------------------------------
SOLEDAD CANYON 7 1 1 8 1 4 1
- -----------------------------------------------------------------------------------------------------------
SAINT CLAIR 2 1 1 1 1 1 2
- -----------------------------------------------------------------------------------------------------------
VERDE VALLEY 3 1 2 1 1 1
- -----------------------------------------------------------------------------------------------------------
WILMINGTON 2 1 2 1 1 1
- -----------------------------------------------------------------------------------------------------------
NACO
- -----------------------------------------------------------------------------------------------------------
BAY LANDING 1 1 1 4 1 1 1 19
- -----------------------------------------------------------------------------------------------------------
BIRCH BAY 1 1 1 1
- -----------------------------------------------------------------------------------------------------------
CAROLINA LANDING 1 1 1 1 1 18
- -----------------------------------------------------------------------------------------------------------
CHEROKEE LANDING 1 1 1 2 1 1 30
- -----------------------------------------------------------------------------------------------------------
CHESTNUT LAKE 1 1 1 2 1 1
- -----------------------------------------------------------------------------------------------------------
INDIAN LAKES 3 1 1 2 3 1 3 54
- -----------------------------------------------------------------------------------------------------------
INDIAN POINT 1 1 1 1 1 1 16
- -----------------------------------------------------------------------------------------------------------
LAKE MINDEN 1 1 1 1
- -----------------------------------------------------------------------------------------------------------
LITTLE DIAMOND 3 1 2 2 1 1 1
- -----------------------------------------------------------------------------------------------------------
LONG BEACH 2 1 1 1
- -----------------------------------------------------------------------------------------------------------
NATCHEZ TRACE 4 1 1 1 1 1 58
- -----------------------------------------------------------------------------------------------------------
RAINIER 2 1 1 1 1
- -----------------------------------------------------------------------------------------------------------
RANCHO OSO 1 1 1 2 2
- -----------------------------------------------------------------------------------------------------------
RUSSIAN RIVER 1 1
- -----------------------------------------------------------------------------------------------------------
SNOWFLOWER 1 2 1 1 4
- -----------------------------------------------------------------------------------------------------------
SOUTH JETTY 1 1 2 1 1
- -----------------------------------------------------------------------------------------------------------
TURTLE BEACH 1 1 1 1 1
- -----------------------------------------------------------------------------------------------------------
VIRGINIA LANDING 2 1 1 2 1 1 1 19
- -----------------------------------------------------------------------------------------------------------
WILDERNESS LAKES 2 1 1 3 3 1 4
- -----------------------------------------------------------------------------------------------------------
WINDSOR 1 1 1
- -----------------------------------------------------------------------------------------------------------
YOSEMITE LAKES 1 1 1 1 1 2 32
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Page 15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICAL DATA)
The following historical Selected Financial Data has been restated for the
fiscal years indicated because for fiscal 1997 the Company changed its
accounting method to recognize revenue from the sale of campground memberships
that do not convey a deeded interest in real estate on a straight-line basis
over the expected life of the memberships sold (see Note 1 to the consolidated
financial statements included in Item 8).
<TABLE>
<CAPTION>
For the year ended June 30,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(Restated) (Restated) (Restated)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue $ 76,509 $ 78,413 $ 91,022 $ 91,392 $ 101,697
Campground membership dues 37,330 39,945 39,924 41,175 43,200
Other campground/resort revenues 16,475 17,906 22,288 23,506 23,524
Membership and resort interest sales 3,894 3,477 3,013 4,074 4,750
Interest income 2,635 3,726 6,756 9,935 12,202
Interest expense 4,599 9,084 17,693 20,960 21,446
Income (loss) from operations before taxes,
minority interest and extraordinary item 15,716 7,169 (240) (11,573) (5,338)
Extraordinary gain on debt repurchases -- -- 1,390 -- 671
Net income (loss) 24,879 6,799 1,109 (11,828) (5,417)
Dividends paid (1) -- -- -- -- --
Dividends paid per share (1) -- -- -- -- --
Income (loss) per share data-basic (2):
Income (loss) before extraordinary item 3.36 .94 (.08) (3.19) (1.64)
Extraordinary item -- -- .38 -- .18
Net income (loss) 3.36 .94 .30 (3.19) (1.46)
Weighted average shares 7,407 7,223 3,703 3,703 3,703
Income (loss) per share data-diluted (2):
Income (loss) before extraordinary item 2.96 .88 (.08) (3.19) (1.64)
Extraordinary item -- -- .38 -- .18
Net income (loss) 2.96 .88 .30 (3.19) (1.46)
Weighted average shares 8,398 7,704 3,721 3,703 3,703
BALANCE SHEET DATA (AT END OF YEAR):
Cash and cash equivalents 13,631 1,343 37,403 50,596 50,596
Receivables, net 4,181 7,517 13,219 18,698 32,585
Campground properties 37,991 42,764 46,309 51,960 49,761
Resort properties 1,092 1,530 2,902 5,736 6,612
Total assets 74,262 63,302 111,631 137,517 149,546
PIK Notes, including deferred gain 32,973 29,393 -- -- --
Borrowings under Credit Agreement -- 14,097 -- -- --
Secured Notes, net of discount -- -- 94,350 115,490 110,854
Other notes payable -- 604 1,102 4,753 5,503
Long term debt 32,973 38,230 66,922 98,308 115,877
Stockholders' equity (deficit) 2,754 (22,168) (31,952) (33,054) (21,240)
STATISTICAL DATA (AT END OF YEAR):
Number of operating campgrounds 53 55 58 60 62
Number of campsites 17,700 18,400 19,300 19,400 20,000
Number of members 111,000 120,000 128,000 136,000 149,000
Average annual dues per member $ 351 $ 344 $ 335 $ 329 $ 315
Average cost per camper night $ 18.23 $ 18.13 $ 18.03 $ 19.69 $ 18.36
</TABLE>
(continued)
Page 16
<PAGE> 17
FOOTNOTES
(1) During the periods presented, the Company has been prohibited from paying
any cash dividends by the indentures governing its Secured Notes and PIK
Notes, and by the Credit Agreement with Foothill.
(2) As part of a restructuring of the Company, on July 17, 1996, the Company
issued 3,680,550 additional shares of Common Stock, which represent 49%
of the shares of Common Stock currently outstanding.
Page 17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In this Management's Discussion and Analysis of Financial Condition and Results
of Operations, and elsewhere in this report, the Company makes certain
statements as to its expected financial condition, results of operations, cash
flows, and business strategies, plans, and conditions for periods after June 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.
CHANGE IN ACCOUNTING METHOD
During the first quarter of fiscal 1998, the Staff of the Securities and
Exchange Commission (the "SEC") informed the Company that the SEC will now
require the Company, commencing with fiscal 1997, to recognize revenue from the
sale of campground memberships that do not convey a deeded interest in real
estate on a straight-line basis over the expected life of the memberships sold.
This new accounting method differs from the revenue recognition method
historically used by the Company for over 20 years. Accordingly, to show
comparable results for the periods presented, the consolidated statement of
operations for the year ended June 30, 1996, has been restated from that
originally reported to reflect this change in accounting method (see Note 1 to
the consolidated financial statements included in Item 8). The deferral of
historical sales revenues and expenses resulting from this change in accounting
method has no impact on the Company's liquidity or cash flows.
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 that 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
Page 18
<PAGE> 19
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 will depend
principally upon the degree to which the Company can successfully implement this
strategy.
DEBT RESTRUCTURING. On July 17, 1996, the Company consummated a restructuring
(the "Restructuring") of its 12% Secured Notes Due 1998 (the "Secured Notes")
whereby all of the $101,458,000 principal amount of Secured Notes outstanding
were retired. The Restructuring provided the Company with a new capital
structure and decreased the Company's outstanding debt to a level the Company
believes it can support under its downsized operations. The Secured Notes were
issued in the Company's 1991 bankruptcy reorganization and in a 1992
restructuring of a subsidiary's debt.
In the Restructuring, the Company purchased $10,070,000 in aggregate principal
amount of Secured Notes pursuant to a tender offer for $780 per $1,000 principal
amount, and exchanged $81,790,000 in aggregate principal amount of Secured Notes
pursuant to a private exchange offer for, in each case per $1,000 in principal
amount: $400 in cash, $492 in principal amount of PIK Notes, and 45 shares of
Common Stock. The remaining $9,598,000 in aggregate principal amount of Secured
Notes were redeemed at 100% of principal amount, plus accrued interest. In
connection with the Restructuring, the Company entered into the Credit Agreement
with Foothill (see "Borrowings").
CASH. On June 30, 1998, the Company had approximately $13.6 million of cash and
cash equivalents, an increase of $12.3 million during fiscal 1998. The Company's
primary sources of cash included $19.4 million provided by operations, $8.6 from
the sale of assets, and $1.1 million from the settlement of insurance claims.
Significant offsetting reductions to cash included $14.7 million of principal
repayments on the Company's outstanding debt and $2.1 million of capital
expenditures.
The Company's principal sources of operating cash for the year included $62.4
million of cash collected from operations, including dues collections, other
campground revenues, RPI membership fees, other operating revenues, and $1.3
million of insurance deposit refunds related to prior years. The Company also
received $5.8 million in principal collections on contracts receivable, $2.4
million in interest on contracts receivable and invested cash, and $3.7 million
from the sale of memberships and lots. The principal uses of operating cash for
fiscal 1998 were $37.9 million in operating expenses, $10.1 million in general
and administrative expenses (including corporate member services costs), and
$4.7 million in sales and marketing expenses. During fiscal 1998, the Company
also spent $2.1 million on capital improvements at the campgrounds, and made
principal payments on mortgages and other notes totaling $604,000.
The Company repaid all outstanding borrowings under the Credit Agreement in
January 1998, and it had no outstanding borrowings under the Credit Agreement as
of June 30, 1998, and as of
Page 19
<PAGE> 20
the date of this report. However, the Company has entered into an amendment to
the Credit Agreement that will provide the Company the flexibility to borrow up
to $35.0 million (see "Borrowings - Credit Agreement with Foothill").
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 Credit Agreement.
CONTRACTS RECEIVABLE. As of June 30, 1998, the Company on a consolidated basis
owned $6.8 million of contracts receivable related to the sale of campground
memberships and resort interests (see "Contracts Receivable" in Item 1). Because
of low interest rates available in the marketplace during fiscal 1998, 1997, and
1996, some members chose to prepay their accounts, and the Company received
principal payments of $1.1 million, $1.6 million, and $2.5 million,
respectively, in excess of scheduled payments. The Company may continue to
experience such prepayments in the future, although at a decreasing rate as the
contracts receivable portfolio continues to decline.
Allowance for Doubtful Accounts
The Company's allowance for doubtful accounts was 31% of gross contracts
receivable at June 30, 1998, compared with 31% of gross contracts receivable at
June 30, 1997, and 30% at June 30, 1996. The cancellation rate as a percentage
of average contracts receivable was 8% for fiscal 1998, compared with 7% for
fiscal 1997 and 8% for fiscal 1996. In fiscal 1998, 1997, and 1996, the Company
reduced the allowance for doubtful accounts on the contracts receivable by $1.0
million, $1.2 million, and $5.1 million, respectively. These adjustments were
made because the Company experienced lower contract losses than anticipated in
these years.
The allowance for doubtful accounts is an estimate of the contracts receivable
that will cancel in the future and is determined based on historical
cancellation rates and other factors deemed relevant to the analysis. Prior to
fiscal 1996, the Company's historic cancellation rates ranged as high as 16.7%.
By fiscal 1996, the Company's cancellation rates appeared to stabilize at
approximately 8%. The Company reduced the allowance for doubtful accounts to
30% of the portfolio for such fiscal year after applying the then-current
cancellation rate to the maturities of the then-outstanding portfolio and
taking into account the higher historical cancellation rates and the
uncertainties associated with its strategy of reducing the size of the
campground system.
In 1997 and 1998, the cancellation rates were essentially unchanged. However,
the contracts receivable portfolio also declined faster than projected
primarily because collections each year exceeded estimates. As a result, using
the same methodology and considering the same factors deemed relevant to the
analysis as in 1996, the Company reduced the allowance to approximately 31% of
the portfolio in each year.
The Company does not presently anticipate any further adjustments to the
allowance for doubtful accounts on the contracts receivable. However, the
allowance and the rate at which the Company provides for future losses on its
contracts receivable could be increased or decreased in the future based on the
Company's actual collection experience.
Other Allowances
In connection with the purchase of NACO and Trails, the Company recorded an
allowance for interest discount to increase to 14.75% the weighted average yield
on the contracts receivable then owned by NACO and Trails. The allowance for
interest discount is being amortized using the effective interest method over
the respective terms of the contracts. Additionally, in connection with the
purchase of NACO and Trails and the Company's bankruptcy reorganization in 1991,
the Company recorded an allowance for future collection costs, which is being
amortized as a reduction of general and administrative expenses based on cash
collected on the related portfolio. The Company also purchased contracts
receivable from certain third parties and recorded a valuation allowance to
record the contracts receivable at the purchase price. This
Page 20
<PAGE> 21
valuation allowance is being amortized as an increase to interest income over
the respective terms of the contracts.
Change in Receivables
The net balance of contracts receivable decreased by $3.3 million during fiscal
1998, due primarily to $5.8 million in cash collections on contracts receivable,
offset by new financed sales, a $1.0 million reduction in the allowance for
doubtful accounts, and scheduled amortization of the allowances for interest
discount, collection costs, and valuation discount.
CAMPGROUND AND RESORT PROPERTIES. The Company's campground properties consist of
land, buildings, and other equipment used in administration and operations as
well as land held for sale. Campground properties decreased by $4.8 million in
fiscal 1998, primarily as a result of the sale of several campgrounds and
certain other real estate, and depreciation on property and equipment. The
decrease was partially offset by $2.1 million of capital expenditures.
The Company makes annual capital and maintenance expenditures to maintain and
improve the campgrounds. During fiscal 1998, the Company spent $5.2 million on
major maintenance, repairs, and improvements at the campgrounds. The Company
anticipates that it will spend an additional $4.7 million on such items in
fiscal 1999, which will be funded by existing cash or cash provided by
operations. The Company may be required to spend greater amounts on such items
in future years as the facilities age.
During the periods presented, the Company's resort properties consisted of lot
inventory, buildings and equipment used in operations, and land held for sale.
Resort properties decreased by $438,000 in fiscal 1998, due primarily to the
bulk sale of lots at one of the resorts, the sale of excess acreage and
buildings at certain resorts, and the sale of lots in the normal course of
business. Over the past several years, the Company has been selling the assets
it owns at the resorts.
At June 30, 1998, the Company had obligations to spend $2.8 million in
connection with reports that it filed with the Department of Housing and Urban
Development ("HUD"). Although certain of these HUD obligations remain
substantially incomplete, the Company plans to spend approximately $1.0 million
in fiscal 1999 in fulfilling these obligations, which will be funded by existing
cash or cash provided by operations. A person who purchased a lot when a
particular HUD report was in effect may allege that the failure to make timely
improvements constitutes a breach of his or her agreement with the Company and
could seek damages from the Company or rescission of the lot purchase.
Approximately 1,400 persons purchased lots from the Company when the HUD reports
in effect described improvements that the Company has not yet constructed. An
insignificant number of persons have asserted claims against the Company for the
failure to make these improvements.
OTHER ASSETS. Other current assets decreased by $2.2 million during fiscal 1998.
The decrease was due partially to the repayment of a note receivable arising
from the sale of the resort timeshare operations (see Note 4 to the consolidated
financial statements included in Item 8). In addition, in fiscal 1999, the
Company will begin paying insurance premiums monthly rather than annually, which
resulted in a $1.6 million decrease in prepaid insurance between years.
Page 21
<PAGE> 22
Other assets decreased by $591,000 in fiscal 1998 due primarily to the partial
termination of the Company's Indemnification Trusts (see Note 15 to the
consolidated financial statements included in Item 8).
BORROWINGS. On June 30, 1998, the Company had outstanding $33.0 million of long
term debt, which consisted of $32.8 million principal amount of PIK Notes plus a
deferred gain of $150,000. The PIK Notes were issued in the Restructuring (see
"Debt Restructuring" above). The Restructuring was accounted for as a Troubled
Debt Restructuring, whereby the restructured debt was recorded at the carrying
value of the old debt, and no gain or loss was recorded on the transaction.
During fiscal 1998, the Company repaid all of the outstanding borrowings under
the Credit Agreement totaling $14.1 million and all of the outstanding mortgage
notes totaling $604,000.
Credit Agreement with Foothill
In connection with the Restructuring, the Company entered into the Credit
Agreement with Foothill, under which Foothill made term loans to the Company
totaling $13.0 million, and agreed to make revolving loans to the Company in the
maximum amount of $25.0 million, provided that the aggregate borrowings under
the Credit Agreement at any one time could not exceed $35.0 million. The Credit
Agreement originally had a three year term expiring on July 16, 1999. During
fiscal 1997, the Company repaid substantially all of its initial borrowings
under the Credit Agreement, which totaled $32.0 million.
On May 16, 1997, the Company and Foothill entered into an amendment to the
Credit Agreement which significantly modified its original terms. The amendment
reduced the maximum availability under the revolving portion of the Credit
Agreement to $20.0 million, decreased the interest rate payable thereunder from
prime plus 2 3/4% per annum to prime plus 1 1/2% per annum, and reduced or
eliminated certain fees. The amendment also permitted the Company to borrow up
to $12.8 million to repurchase PIK Notes and to pay the accrued interest on the
PIK Notes repurchased. The Company incurred debt issue costs of $3.1 million to
obtain the original Credit Agreement, which were capitalized and were being
amortized as additional interest expense over the life of the Credit Agreement.
However, because of the substantial modifications made to the original Credit
Agreement, the amendment of the Credit Agreement was accounted for as an
extinguishment of debt and the remaining $1.3 million unamortized balance of the
original debt issue costs was charged to expense.
The Company repaid all outstanding borrowings under the Credit Agreement in
January 1998, and it had no outstanding borrowings under the Credit Agreement as
of June 30, 1998, and as of the date of this report. However, the Company has
entered into an amendment to the Credit Agreement that, when it becomes
effective, will provide 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 for
the possible purchase of securities. 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 July 17, 2002. However, if the Company has not
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<PAGE> 23
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. The amendment of the Credit
Agreement will become effective upon the satisfaction of customary conditions.
The Company's ability to borrow under the amended Credit Agreement for working
capital and other purposes is subject to continued compliance by the Company
with the financial covenants and other requirements of the amended Credit
Agreement, including certain covenants respecting minimum earnings before
interest, taxes, depreciation and amortization, and minimum tangible net worth.
The amended Credit Agreement prohibits the Company from borrowing from other
sources in significant amounts except for equipment purchases.
The Company has granted liens on substantially all of its assets to secure its
obligations under the amended Credit Agreement. In addition, the Company's
subsidiaries other than an immaterial utility subsidiary have guaranteed the
Company's obligations under the amended Credit Agreement and, subject to certain
limitations, have granted liens on substantially all of their assets to secure
their guarantees.
The amended 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 6% at June 30, 1998.
PIK Notes
In the Restructuring, the Company issued $40.2 million principal amount of PIK
Notes that do not require the cash payment of interest until fiscal 2001 and
mature on July 15, 2003 without earlier scheduled principal payments.
On January 15, 1997, the Company issued an additional $2.4 million principal
amount of PIK Notes as interest. On June 25, 1997, the Company repurchased $13.4
million principal amount of PIK Notes at a cost of $12.6 million, including
accrued interest. The Company made these repurchases at an average price of $897
per $1,000 of principal amount in a Dutch auction available to all holders of
PIK Notes. A gain of $1.2 million was recognized on this transaction. On July
15, 1997, January 15, 1998, and July 15, 1998, the Company issued an additional
$1.7 million, $1.9 million, and $2.0 million, respectively, of principal amount
of PIK Notes as interest.
The Indenture for the PIK Notes provides holders of PIK Notes with the right to
have their notes repurchased at 101% of principal amount, plus interest, in the
event of a Change of Control (as defined). The Indenture also requires the
Company to apply certain asset sale proceeds to the retirement of the PIK Notes
in certain circumstances, subject to the rights of Foothill to repayment in
connection with asset sales. The Indenture does not contain financial covenants,
but it does prohibit the Company from borrowing from other sources in
significant amounts
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except for the Credit Agreement with Foothill, a $10.0 million Working Capital
Replacement Facility, and equipment purchases.
Interest on the PIK Notes is payable in the form of additional PIK Notes until
after July 15, 2000, unless all borrowings under the amended Credit Agreement
are paid in full on or before such date. If all borrowings under the amended
Credit Agreement are paid in full on or before July 15, 2000, the Company has
the option to issue additional PIK Notes in lieu of cash interest through July
15, 2000. After July 15, 2000, interest on the PIK Notes must be paid in cash.
While the Company pays interest in the form of additional PIK Notes, the
principal amount of PIK Notes outstanding will increase at the rate of 12% per
year, compounded semi-annually. The payment-in-kind feature of the PIK Notes
will decrease the Company's cash interest costs during this period. However, the
payment-in-kind feature of the PIK Notes will also decrease the rate at which
the Company is able to retire its total debt outstanding.
All of the Company's debt and equity interests in the Subsidiary Guarantors has
been pledged by the Company to secure its obligations under the Credit
Agreement. In the event of a default and foreclosure under the Credit Agreement,
distributions from, and the assets of, the Subsidiary Guarantors may not be
available to satisfy other obligations of the Company, including the obligations
of the Company to the holders of the PIK Notes.
DEFERRED REVENUES AND EXPENSES. Deferred revenues of $23.4 million and $23.6
million at June 30, 1998 and 1997, respectively, include $14.8 million and $15.6
million, respectively, of membership dues collections which relate to future
periods, $6.9 million and $6.3 million, respectively, of campground membership
sales revenues to be recognized in future periods, and other deferred revenues
related primarily to RPI's operations. Deferred membership selling expenses of
$1.6 million and $1.4 million at June 30, 1998 and 1997, respectively, represent
incremental direct selling costs to be recognized in future periods.
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 program 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. In fiscal 1998, the
Company reduced this liability by $858,000 because the estimated losses were
less than the recorded liability. This adjustment amount is included in
nonrecurring income. At June 30, 1998 and 1997, the Company's recorded liability
for estimated losses related to uninsured general liability claims totaled $1.2
million and $2.0 million, respectively.
PROPERTY INSURANCE. In fiscal 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.
EMPLOYEE HEALTH INSURANCE. The Company provides medical and dental benefits for
its employees under employee benefit plans (collectively, the "Plans") that are
funded primarily through employer and employee contributions. The Company has
purchased stop loss insurance
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that protects the Plans against claims in excess of set policy amounts. The
Company has provided a liability for estimated uninsured claims of $828,000 and
$1.4 million at June 30, 1998 and 1997, respectively. This liability is based on
actuarial estimates of amounts needed to fund expected uninsured claims, as well
as premium payments and administrative costs of the Plans.
WORKERS' COMPENSATION INSURANCE. Commencing July 1, 1998, the Company obtained
insurance covering workers' compensation claims with no self-insured deductible.
Prior to this date, the Company's insurance program required the Company to pay
up to $250,000 per occurrence and to deposit funds with the insurance company to
pay claims in excess of the estimated claims that were covered by the amounts
originally paid by the Company. These deposits were generally expensed in the
years the deposits were made because the Company anticipated that the deposits
would be used to cover claims. However, during fiscal 1997, the Company
determined that it was entitled to refunds of $865,000 in future periods for
certain deposits made in previous years. At June 30, 1997, the Company recorded
the refundable amount as an asset, resulting in nonrecurring income of $865,000.
In fiscal 1998, the Company received refunds totaling $1.3 million for certain
other deposits expensed in previous years, which were recorded as nonrecurring
income.
NEW ACCOUNTING STANDARDS. The Financial Accounting Standards Board (the "FASB")
recently issued several accounting pronouncements that are effective for the
Company in either fiscal 1998 or fiscal 1999. The Company adopted SFAS No. 128,
"Earnings Per Share" in the second quarter of fiscal 1998, which modified the
Company's net income per share calculation and required restatement of prior
period calculations. SFAS No. 130, "Reporting Comprehensive Income", is
effective for the Company in the first quarter of fiscal 1999, and SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" and SFAS
No. 132, "Employers' Disclosures About Pensions and Other Postretirement
Benefits", are effective for the Company at the end of fiscal 1999. The Company
does not expect the adoption of these statements to have a material impact on
its consolidated financial statements.
MARKET RISK. In 1997, the Securities and Exchange Commission issued new rules
(Item 305 of Regulation S-K), which require disclosure of material risks, as
defined in Item 305, related to market risk sensitive financial instruments. As
defined, the Company currently has market risk sensitive instruments related to
interest rates.
The Company does not have significant exposure to changing interest rates on
invested cash, which was $12.0 million at June 30, 1998. The Company invests
available cash in certificates of deposit and investment grade commercial paper
that have maturities of three months or less. As a result, the interest rate
market risk implicit in these investments at June 30, 1998, is low, as the
investments mature within three months.
The Company had $6.8 million of contracts receivable at June 30, 1998, which
have a weighted average stated interest rate of 13% and an average remaining
term of 19 months. The Company does not have significant exposure to changing
interest rates related to the contracts receivable because the interest rates on
the contracts receivable are fixed.
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The Company had $32.8 million of PIK Notes at June 30, 1998, which bear interest
at 12% per annum and mature in 2003. The Company does not have significant
exposure to changing interest rates related to the PIK Notes because the
interest rate on the PIK Notes is fixed.
The Company also has the amended Credit Agreement with Foothill that provides
the Company the flexibility to borrow up to $35.0 million at interest rates that
fluctuate with changes in the prime rate (see "Borrowings Credit Agreement with
Foothill"). Although the Company has exposure to changing interest rates related
to the Credit Agreement, the Company had no outstanding borrowings under the
Credit Agreement as of June 30, 1998, and as of the date of this report.
The Company has not undertaken any actions to cover interest rate market risk
and is not a party to any interest rate market risk management activities.
The Company also receives revenues from its Canadian subsidiary and exchanges
them into US Dollars at exchange rates that fluctuate with market conditions;
however, such revenues are not material to the Company's operations.
INTEREST RATE SENSITIVITY. A hypothetical ten percent change in market interest
rates over the next year would not materially impact the Company's earnings or
cash flow as the interest rates on the Company's long term debt are fixed and
its cash investments are short term. A hypothetical ten percent change in market
interest rates would not have a material effect on the fair value of the
Company's contracts receivable, PIK Notes, or its short term cash investments.
RESULTS OF OPERATIONS
The following discussion and analysis are based on the historical results of
operations of the Company for the years ended June 30, 1998, 1997, and 1996, as
restated (see "Change in Accounting Method"). The financial information set
forth below should be read in conjunction with the Company's consolidated
financial statements included in Item 8.
NET INCOME. For the year ended June 30, 1998, the Company reported net income of
$24.9 million or $3.36 per share on revenues of $76.5 million. This compares
with net income of $6.8 million or $.94 per share on revenues of $78.4 million
for the year ended June 30, 1997, and net income of $1.1 million or $.30 per
share on revenues of $91.0 million for the year ended June 30, 1996.
Excluding extraordinary gains, nonrecurring income and expenses, and
restructuring costs, the Company would have had net income of $11.1 million for
fiscal 1998, compared with net income of $5.3 million for fiscal 1997, and a net
loss of $2.8 million for fiscal 1996. Excluding these items, the Company's
results improved in the current fiscal year, despite declining revenues, due
primarily to decreases in expenses, principally campground operating costs,
general and administrative expenses, and interest.
The results for fiscal 1998 include $3.8 million of nonrecurring income from a
$1.0 million reduction in the allowance for doubtful accounts, an $858,000
reduction in certain insurance reserves, a $1.3 million refund of insurance
deposits expensed in prior years, and a $588,000 gain on insurance settlements
for flood and fire damage at certain campgrounds. In addition, the
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results for fiscal 1998 include a $10.0 million deferred income tax benefit
resulting from a reduction in the valuation allowance for the Company's net
deferred tax assets. This adjustment will have no effect on 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, which will decrease
net income.
The results for fiscal 1997 include $2.7 million of nonrecurring income from a
$1.2 million reduction in the allowance for doubtful accounts and a $1.5 million
reduction in certain insurance reserves. The fiscal 1997 results also include
$1.1 million of restructuring costs related to the Restructuring and $132,000 of
nonrecurring expenses representing the net loss resulting from the amendment of
the Credit Agreement and the repurchase of PIK Notes.
The results for fiscal 1996 include a $1.4 million extraordinary gain from the
repurchase of Secured Notes and $5.9 million of nonrecurring income consisting
of $5.1 million from a reduction in the allowance for doubtful accounts and
$799,000 from the reversal of a contingent liability. The fiscal 1996 results
also include $1.1 million of restructuring costs related to the Company's
efforts to restructure the Secured Notes, and $2.3 million of other nonrecurring
expenses consisting of a $1.0 million charge to record a provision for certain
uncollectible membership dues receivable and a $1.3 million charge to accrue a
one-time bonus for the Company's Chief Executive Officer.
The table on the next page shows separately the results of the campground
operations, RPI's operations, and the resort operations, without any allocation
of corporate expenses, as well as corporate expenses and other revenues and
expenses in the aggregate, for the years ended June 30, 1998, 1997, and 1996, as
restated (see "Change in Accounting Method").
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THOUSAND TRAILS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------------
1998 1997 1996
-------- -------- --------
(Restated)
<S> <C> <C> <C>
CAMPGROUND OPERATIONS
Membership dues $ 37,330 $ 39,945 $ 39,924
Campground revenues 15,955 15,302 15,313
Cost of campground revenues (7,718) (7,608) (7,726)
Operating expenses (30,794) (32,454) (35,211)
-------- -------- --------
Contribution from campground operations 14,773 15,185 12,300
-------- -------- --------
SALES
Sales revenues 3,227 2,892 1,656
Selling expenses (2,646) (2,654) (3,094)
Marketing expenses (1,700) (1,383) (1,294)
-------- -------- --------
Loss on sales (1,119) (1,145) (2,732)
-------- -------- --------
RESORT PARKS INTERNATIONAL
Revenues 4,035 4,086 4,579
Expenses (2,132) (1,978) (2,237)
-------- -------- --------
Contribution from RPI 1,903 2,108 2,342
-------- -------- --------
15,557 16,148 11,910
-------- -------- --------
RESORT OPERATIONS
Revenues 1,186 3,189 8,332
Expenses (1,091) (3,218) (8,297)
-------- -------- --------
Contribution (loss) from resort operations 95 (29) 35
-------- -------- --------
15,652 16,119 11,945
-------- -------- --------
Other income 3,083 3,673 4,479
Corporate member services (1,472) (1,532) (1,843)
General and administrative expenses (8,640) (10,100) (10,473)
-------- -------- --------
OPERATING INCOME BEFORE INTEREST INCOME AND
EXPENSE, GAIN ON ASSET SALES, NONRECURRING
INCOME AND EXPENSES, RESTRUCTURING COSTS, TAXES
AND EXTRAORDINARY ITEM 8,623 8,160 4,108
-------- -------- --------
Interest income 2,635 3,726 6,756
Interest expense (4,599) (9,084) (17,693)
Gain on asset sales 5,287 2,892 4,038
Nonrecurring income 3,770 2,708 5,945
Nonrecurring expenses (132) (2,270)
Restructuring costs (1,101) (1,124)
-------- -------- --------
OPERATING INCOME (LOSS) BEFORE TAXES AND
EXTRAORDINARY ITEM $ 15,716 $ 7,169 ($ 240)
======== ======== ========
</TABLE>
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OPERATING INCOME. During the year ended June 30, 1998, the Company achieved a
positive contribution from operations of $8.6 million, an improvement over the
$8.2 million and $4.1 million achieved in the years ended June 30, 1997 and
1996, respectively. For this purpose, the contribution from operations is
defined as operating income before interest income and expense, gain on asset
sales, restructuring costs, nonrecurring income and expenses, taxes, and
extraordinary item. See the table on page 33 for the elements of the
contribution from operations and the Company's operating income (loss) before
taxes and extraordinary item for the historical periods presented.
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 $37.3 million for the year ended June 30,
1998, compared with $39.9 million for the years ended June 30, 1997 and 1996.
Dues revenue declined in fiscal 1998 due primarily to the net loss of 9,000
campground members during the year which included the loss of 1,800 members in
connection with the sale of two campgrounds. This decline was partially offset
by the effect of the annual dues increase. In fiscal 1997, the effect of the
annual dues increase substantially offset the decline in dues revenue caused by
the net loss of members during the year.
Campground revenues were $16.0 million for the year ended June 30, 1998,
compared with $15.3 million for the years ended June 30, 1997 and 1996. The
related expenses were $7.7 million, $7.6 million, and $7.7 million for fiscal
1998, 1997, and 1996, respectively. The increase in campground revenues in
fiscal 1998 was due primarily to modest increases in rental and other service
fees at certain campgrounds and proceeds received from harvesting timber at
selected campgrounds.
Campground operating expenses were $30.8 million for the year ended June 30,
1998, compared with $32.5 million for the year ended June 30, 1997, and $35.2
million for the year ended June 30, 1996. The continuing reduction in expenses
between years was due primarily to the closure and disposition of campgrounds
and to operational changes made at the campgrounds in these periods. In fiscal
1996, the Company closed and disposed of several campgrounds, reduced campground
management and personnel, and changed to seasonal operations at campgrounds with
low usage during off-season periods. In fiscal 1997, the Company closed and
disposed of several additional campgrounds and lengthened the off-season for the
campgrounds with seasonal closures. In fiscal 1998, the Company sold several
additional campgrounds and closed one campground.
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.
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The Company recognizes revenue from the sale of campground memberships that do
not convey a deeded interest in real estate on a straight-line basis over the
expected life of the memberships sold (see "Change in Accounting Method"). For
the years ended June 30, 1998, 1997, and 1996, the Company recognized campground
membership sales revenues of $3.2 million, $2.9 million, and $1.7 million,
respectively. These amounts include revenues of $2.5 million, $1.7 million, and
$1.1 million, respectively, that were deferred in prior periods. Moreover, for
fiscal 1998, 1997, and 1996, the Company deferred revenues of $3.1 million, $2.1
million, and $2.1 million, respectively, which will be recognized in future
periods.
The increase in sales revenues resulted primarily from the Company's increased
sales and marketing efforts during the past three fiscal years. The Company has
expanded its sales and marketing efforts with a view to stopping the decline in
its membership base. Although the Company's membership sales revenues have
increased, the level of sales in fiscal 1998 did not meet the Company's
expectations. In an effort to improve its membership sales, the Company has been
working to increase the number of prospects that attend its sales presentations.
In this regard, in fiscal 1997, the Company entered into a joint marketing
arrangement with Fleetwood Industries, Inc. ("Fleetwood"), the largest
manufacturer of recreational vehicles ("RVs"). Under this marketing arrangement,
purchasers of Fleetwood RVs receive a temporary membership and are invited to
visit one of the Company's campgrounds. Purchasers of new Fleetwood RVs
accounted for approximately 10% of sales in fiscal 1998. In the fourth quarter
of fiscal 1998, the Company entered into a similar marketing arrangement with a
major RV financing company and it plans to seek other similar alliances. The
Company has also recently entered into reciprocal sales agreements with two
other companies in an effort to increase sales.
Selling expenses directly related to the sale of campground memberships are
deferred and recognized as expenses on a straight-line basis over the expected
life of the memberships sold. All other selling and marketing costs are
recognized as expenses in the period incurred. For the years ended June 30,
1998, 1997, and 1996, the Company recognized selling expenses of $2.6 million,
$2.7 million, and $3.1 million, respectively. These amounts include expenses of
$560,000, $358,000, and $235,000, respectively, that were deferred in prior
periods. Moreover, for fiscal 1998, 1997, and 1996, the Company deferred
expenses of $794,000, $505,000, and $481,000, respectively, which will be
recognized in future periods.
Although the Company's sales results are improving, selling and marketing
expenses exceeded sales revenues by $1.1 million, $1.1 million, and $2.7 million
for the years ended June 30, 1998, 1997, and 1996, respectively. These expenses
exceeded sales revenue because of the increased marketing activity, and the low
volume of sales, which did not cover fixed costs. In addition, the Company
deferred more sales revenues than selling expenses in each of the periods
presented.
The Company's selling and marketing efforts require significant expense, the
majority of which must be expensed in the current period, while the related
sales revenues are deferred and recognized on a straight-line basis over the
expected life of the memberships sold. As a consequence, the Company expects
that its selling and marketing expenses will continue to exceed its campground
membership sales revenues. This disparity will increase as the Company grows
campground membership sales.
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The Company's selling and marketing efforts during the past three fiscal years
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 Management, a wholly owned subsidiary of the
Company, manages 130 public campgrounds for the US Forest Service. For the year
ended June 30, 1998, these operations produced revenues of $1.3 million with
related expenses (excluding certain shared administrative costs) of $1.5
million. This compares with revenues for fiscal 1997 of $1.1 million and related
expenses (excluding certain shared administrative costs) of $1.0 million, and
revenues for fiscal 1996 of $853,000 and related expenses (excluding certain
shared administrative costs) of $831,000. The increase in revenues and expenses
between years was due primarily to new contracts entered into in these periods.
The loss in fiscal 1998 was due to start-up costs incurred in connection with
new management contracts entered into in the Spring of 1998, which significantly
increased the number of campgrounds managed.
RESORT PARKS INTERNATIONAL. RPI charges its members a fee for a membership that
entitles them to use any of the campgrounds participating in RPI's reciprocal
use system, subject to certain limitations. For the year ended June 30, 1998,
RPI's operations produced a net contribution of $1.9 million, compared with $2.1
million for the year ended June 30, 1997, and $2.3 million for the year ended
June 30, 1996. The decline in results in fiscal 1998 was due primarily to the
decrease in revenues between periods and costs incurred in fiscal 1998 to
provide directories to new members recently gained through a new program. RPI's
revenues have declined over the three year period as a result of declining sales
in the membership camping industry generally. During this period, however, RPI
has been able to maintain its positive contribution by reducing its expenses. To
maintain its contribution in the future, RPI is working to introduce new
products to increase its revenues; however, there is no assurance that it will
be successful.
RESORT OPERATIONS. During the last five years, the Company sold a substantial
portion of the assets it owned at eight resorts. In fiscal 1998, the sale of
resort assets produced cash proceeds totaling $1.2 million. This compares with
cash proceeds of $1.7 million plus notes receivable of $1.1 million in fiscal
1997, and cash proceeds of $5.0 million in fiscal 1996. The differences between
years were due to the timing of asset sales. As the resort assets were sold, the
revenues and expenses from the resort operations decreased accordingly. The
Company's present operations at the resorts are limited primarily to the sale of
residential lots.
During the year ended June 30, 1998, the resort operations produced a positive
contribution of $95,000, compared with a negative contribution of $29,000 for
the year ended June 30, 1997, and a positive contribution of $35,000 for the
year ended June 30, 1996. The Company expects a minimal contribution from the
resort operations in the future as it continues its efforts to sell the
remaining assets it owns at the resorts. These assets consist of approximately
100 residential lots and other miscellaneous real estate. There is no assurance
that the Company will be able to locate a buyer for any of the remaining resort
assets or that sales on acceptable terms can be effected.
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OTHER INCOME. Other income consists principally of transfer fees received when
existing memberships are transferred in the secondary market without assistance
from the Company, collections on written-off contracts, subscription fees
received from members who subscribe to the Company's member magazine, and
beginning in fiscal 1997, fees charged to members for making more than five
operator-assisted reservations in a given year.
Other income was $3.1 million for the year ended June 30, 1998, compared with
$3.7 million for the year ended June 30, 1997, and $4.5 million for the year
ended June 30, 1996. Other income was higher in fiscal 1996, compared with the
other years, because in fiscal 1996 the Company increased its use of outside
collection agencies to collect on written-off contracts, which resulted in a
one-time increase in such collections. The decrease between years is directly
related to lower fees and other income received from the declining contracts
receivables portfolio and shrinking membership base.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$8.6 million for the year ended June 30, 1998, compared with $10.1 million for
the year ended June 30, 1997, and $10.5 million for the year ended June 30,
1996. General and administrative costs continued to decline as a result of the
Company's continued efforts to reduce administrative costs. The lower costs in
fiscal 1998 were due primarily to personnel reductions in various administrative
departments, lower legal fees, and reduced depreciation, as certain of the
Company's corporate assets have been fully depreciated. In fiscal 1997, the
Company's lower costs were partially offset by legal fees incurred in connection
with the Company's reincorporation merger and the registration of the PIK Notes.
General and administrative expenses include costs related to collecting the
contracts receivable and membership dues of $2.2 million, $2.4 million, and $3.0
million for the years ended June 30, 1998, 1997, and 1996, respectively. These
collection costs were reduced by $229,000, $314,000, and $513,000, respectively,
as a result of the amortization of the allowance for collection costs related to
the contracts receivable (see "Liquidity and Capital Resources -- Contracts
Receivable"). The Company anticipates that these costs will continue to decrease
as the contracts receivable portfolio declines further.
CORPORATE MEMBER SERVICES. Corporate member services include the reservation and
member support services performed at the corporate office, as well as the costs
incurred to produce the Company's member magazine. These costs were $1.5 million
for the years ended June 30, 1998 and 1997, compared with $1.8 million for the
year ended June 30, 1996. The decrease in costs between fiscal 1996 and fiscal
1997 reflects efficiencies implemented in producing the Company's member
magazine.
INTEREST INCOME AND EXPENSE. Interest income decreased by $1.1 million and $3.0
million for the years ended June 30, 1998 and 1997, respectively, from the
previous year. The decrease in fiscal 1998 was due primarily to a decrease in
interest earned on the Company's diminishing portfolio of contracts receivable,
partially offset by an increase in interest earned on higher cash balances. The
decrease in fiscal 1997 was due to a decrease in interest earned on the
contracts receivable, and a decrease in interest earned on lower cash balances.
Also included in interest income is amortization of the allowance for interest
discount and valuation allowance related to the contracts receivable, of which
$293,000 was amortized during fiscal 1998, $379,000 was
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amortized in fiscal 1997, and $607,000 was amortized in fiscal 1996 (see
"Liquidity and Capital Resources -- Contracts Receivable").
Interest expense decreased by $4.5 million for the year ended June 30, 1998,
from the previous year, due primarily to the repayment of $14.7 million of
outstanding debt during the year, which included the repayment of all
outstanding borrowings under the Credit Agreement with Foothill and all
outstanding mortgage notes. As of the date of this report, the Company's only
outstanding debt was $34.8 million principal amount of PIK Notes. While the
Company pays interest on the PIK Notes in the form of the issuance of additional
PIK Notes, a significant portion of the Company's interest expense will
represent non-cash interest. However, the principal amount of PIK Notes
outstanding will increase at the rate of 12% per year, compounded semi-annually,
which will increase interest expense in the future.
Interest expense decreased by $8.6 million for the year ended June 30, 1997,
from the previous year, due primarily to a net $50.9 million reduction in the
Company's outstanding debt resulting from the Restructuring, subsequent
repayments under the Credit Agreement, and scheduled repayments of mortgage
notes. In addition, the Company repurchased $7.4 million principal amount of
Secured Notes in January 1996, and reduced mortgage notes by $2.5 million in the
Fall of 1995 in connection with the abandonment of two operating campgrounds,
which also contributed to the reduction in outstanding debt and the decrease in
interest expense.
Interest expense for the year ended June 30, 1998, includes amortization of the
deferred gain related to the PIK Notes, which reduced interest expense by
$30,000. Interest expense for the year ended June 30, 1997 includes (i)
amortization of debt issue costs incurred in connection with obtaining the
Credit Agreement in July 1996, which increased interest expense by $1.8 million,
and (ii) amortization of the deferred gain related to the PIK Notes, which
reduced interest expense by $39,000. The remaining unamortized balance of the
debt issue costs and a portion of the deferred gain were eliminated in
connection with the amendment of the Credit Agreement and repurchase of PIK
Notes at the end of fiscal 1997. Interest expense for fiscal 1996 includes
amortization of the discount on the Secured Notes, which increased interest
expense by $4.2 million. The discount on the Secured Notes was recorded to
reduce the carrying value of the Secured Notes to their estimated fair value on
the date of issuance. On July 17, 1996, the unamortized balance of this discount
was eliminated in connection with the retirement of the Secured Notes in the
Restructuring.
GAINS ON ASSET SALES. During the years ended June 30, 1998, 1997, and 1996, the
Company sold certain of its real estate assets and recognized related gains of
$5.3 million, $2.9 million, and $4.0 million, respectively. The differences
between years were due to the timing of asset sales. During this three-year
period, the Company sold the timeshare operations at the resorts, the country
club and golf operations at one resort, and various other properties at the
resorts. In addition, the Company sold or otherwise disposed of several
campgrounds and sold unused buildings and trailers and excess acreage associated
with certain campgrounds. Over the next several years, the Company intends to
dispose of the remaining assets it owns at the resorts, any campgrounds that are
closed as the Company downsizes, and other undeveloped, excess acreage
associated with the campgrounds. The sale of campgrounds requires addressing the
rights of members associated with such campgrounds. The impact of these rights
is uncertain and could adversely affect the availability or timing of sale
opportunities or the ability of the Company to
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realize recoveries from asset sales. In addition, although the Company has
successfully sold assets during the past three years, no assurance exists that
the Company will be able to locate a buyer for any of the remaining assets or
that sales on acceptable terms can be effected.
NONRECURRING INCOME. Nonrecurring income was $3.8 million, $2.7 million, and
$5.9 million for the years ended June 30, 1998, 1997, and 1996, respectively.
Nonrecurring income for fiscal 1998 consists of $1.0 million from a reduction in
the allowance for doubtful accounts related to the contracts receivable,
$858,000 from a reduction in certain insurance reserves, $1.3 million from the
refund of insurance deposits made in prior years, and a $588,000 gain on
insurance settlements for flood and fire damage at certain campgrounds.
Nonrecurring income for fiscal 1997 consists of $1.2 million from a reduction in
the allowance for doubtful accounts related to the contracts receivable and $1.5
million from a reduction in certain insurance reserves. Nonrecurring income for
fiscal 1996 consists of $5.1 million from a reduction in the allowance for
doubtful accounts related to the contracts receivable and $799,000 from the
reversal of a contingent liability.
Prior to 1996, the Company's workers' compensation insurance premium was subject
to an experience audit and retroactive adjustment. Historically, this audit
required payment of an additional retroactive premium. Therefore, a liability
would be recorded based on the historical amounts the Company was required to
pay. At year end 1996, however, the Company changed its workers' compensation
insurance program such that its premiums would not be adjusted retroactively.
The then-existing recorded contingent liability of $799,000 was accordingly
reversed. Prior to fiscal 1997, due to the Company's financial condition, its
insurance carrier required deposits in an amount to cover, in part, the
additional retroactive premium historically experienced. The Company had
expensed these deposits principally because the historical experience audit
results required it to pay an additional premium in excess of the deposits. In
addition, the Company's insurance carrier experienced financial difficulties,
which called into question the Company's ability to recover prior years'
deposits even if owed. During fiscal 1997, the Company's insurance carrier
determined that it had excess amounts on deposit for premiums as much as five
years earlier and returned $865,000 to the Company. The Company recorded this as
non-recurring income in fiscal 1997. In fiscal 1998, the Company received
refunds of $1.3 million for workers' compensation insurance deposits. These were
also recorded as non-recurring income.
The Company reduced its insurance reserves for its self-insured employee health
insurance program by $611,000 in fiscal 1997. These reserves had been based on
an actuarial analysis for employee pools of similar size. As the claims history
developed, the Company experienced a lower claims history than expected. In
fiscal 1997, the Company's reserve exceeded its claims history by $1 million.
The Company determined the actuarial-based reserve to be excessive. Accordingly,
the Company reduced its reserve by $611,000 to eliminate the excess of the
amounts accrued for the two previous fiscal years over the amount of actual
claims.
In fiscal 1998, the Company received an insurance settlement for flood and fire
damage at certain campgrounds, which amount was $588,000 in excess of the
Company's basis in the damaged assets and the cost of repair. This was recorded
as nonrecurring income.
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In fiscal 1998, the Company retained an actuarial firm to analyze its general
liability insurance reserves. On the basis of such analysis, the Company
determined that its recorded liabilities for anticipated losses under its
uninsured deductible were excessive by $858,000 and reduced the reserves.
NONRECURRING EXPENSES. Nonrecurring expenses were $132,000 and $2.3 million for
the years ended June 30, 1997 and 1996, respectively. Nonrecurring expenses for
fiscal 1997 consist of a $1.3 million loss resulting from expensing unamortized
debt issue costs upon significantly modifying the Credit Agreement in May 1997,
reduced by a $1.2 million gain resulting from repurchasing PIK Notes at a
discount (see "Liquidity and Capital Resources-Borrowings"). Nonrecurring
expenses for fiscal 1996 consist of a $1.0 million charge to record a provision
for certain uncollectible membership dues receivable and a $1.3 million charge
to accrue a one-time bonus for the Company's Chief Executive Officer that was
due under his employment agreement (see Note 8 to the accompanying consolidated
financial statements included in Item 8).
RESTRUCTURING COSTS. In fiscal 1997, the Company incurred $1.1 million of costs
in connection with the consummation of the Restructuring. The Company also
incurred $3.1 million of costs in connection with obtaining the Credit Agreement
with Foothill, which were capitalized as debt issue costs. In May 1997, the
unamortized balance of these debt issue costs of $1.3 million was charged to
expense upon amendment of the Credit Agreement (see "Liquidity and Capital
Resources-Borrowings").
During the year ended June 30, 1996, the Company incurred $1.1 million of
restructuring costs related to its efforts to restructure the Secured Notes.
INCOME TAXES. The Company's current provision for income taxes was $837,000,
$370,000, and $41,000 for the years ended June 30, 1998, 1997, and 1996,
respectively. The provisions for fiscal 1998 and 1997 include amounts for
federal alternative minimum taxes, as well as amounts for state income taxes
payable in the various states where the Company conducts its operations. The
provision for fiscal 1996 relates primarily to state income taxes. With the
exception of the alternative minimum tax amounts, the Company does not have
federal income taxes payable on a consolidated basis due to its net operating
tax loss carryforwards, which are estimated to total $26.9 million at June 30,
1998, and expire in years 2009 through 2011. Prior to net operating loss
deductions, the Company had taxable income (losses) of $22.8 million, $4.6
million, and ($5.6 million) in fiscal years 1998, 1997, and 1996, respectively.
The tax provision for the year ended June 30, 1998, also includes a $10.0
million deferred income tax benefit resulting from a reduction in the valuation
allowance for the Company's net deferred tax assets (see Note 7 to the
consolidated financial statements included in Item 8). The adjustment will have
no effect on current or future income tax payments, but will result in higher
future tax provisions in the periods the related deferred tax assets are
realized. The Company reduced the valuation allowance because it expects to
generate sufficient taxable income over the next five years to realize the net
deferred tax asset. No increases in current levels of income are required to do
so. Although the Company has experienced a declining membership base, it does
not expect the net effect of such decline to prevent the realization of the net
deferred tax asset over such period.
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EXTRAORDINARY ITEM. The $1.4 million extraordinary gain in fiscal 1996 resulted
from a repurchase of Secured Notes in January 1996.
INFLATION. During the past three fiscal years, the Company's results have not
been affected materially by inflation. However, should the rate of inflation
increase in the future, the Company's expenses are likely to increase at a
greater rate than it can increase the annual dues paid by the campground members
because the Company cannot increase the dues on existing contracts of senior
citizens and disabled members who notify the Company of their age or disability
and request that their dues be frozen. At the present time, approximately 35% of
the members have requested that their dues be frozen because of their age or
disability (see "Campground Operations - Dues").
IMPACT OF YEAR 2000. Based on recent assessments, the Company has determined
that it must modify certain software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The Company
presently believes that by modifying existing software, the Company's computer
systems will not experience material operational problems as a result of the
year 2000 issue. However, if such modifications are not made, or are not timely
completed, the year 2000 issue could have a material adverse impact on the
operations of the Company. The most significant disruption would impact member
billings and collections and campground reservations. In addition, although the
Company does not have any significant suppliers whose timely compliance would
impact the Company, the Company utilizes a number of financial institutions that
are highly dependent upon the proper function of their computer systems. The
Company's depository and treasury functions could be disrupted if these
financial institutions do not become year 2000 compliant within the required
timeframe.
The Company will primarily utilize internal resources to modify existing
software to address the year 2000 issue. The Company anticipates completing the
year 2000 project by December 31, 1998, which, if timely completed, will avoid
any material impact on its operating systems. The Company currently estimates
that it will cost approximately $100,000 to make the necessary modifications to
its software, which 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 the
year 2000 modifications will not be completed on a timely basis, the Company
will explore alternatives to employ until such time as the year 2000
modifications are completed.
The costs of the project and the date on which the Company believes it will
complete the year 2000 modifications are based on management's best estimates
which were derived utilizing numerous assumptions of future events. However,
there can be no assurance that these estimates and timetable will be achieved,
and actual results could differ materially from those anticipated.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THOUSAND TRAILS, INC.
(Registrant)
Date: April 5, 1999 By: /s/ William J. Shaw
-----------------------------------------
William J. Shaw
Chairman of the Board, President,
Chief Executive Officer, and acting
Chief Financial Officer
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