<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period of ________ to ________
Commission File Number 1-14645
THOUSAND TRAILS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 75-2138671
- ------------------------------------------- ---------------------------------
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
2711 LBJ FREEWAY, SUITE 200, DALLAS, TEXAS 75234
- --------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code: (972) 243-2228
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of Common Stock, par value $.01, issued and outstanding as
of May 12, 2000, was 7,980,592.
<PAGE> 2
THOUSAND TRAILS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000
and June 30, 1999..................................................3
Consolidated Statements of Operations for the nine months ended
March 31, 2000 and March 31, 1999..................................4
Consolidated Statements of Operations for the three months ended
March 31, 2000 and March 31, 1999..................................5
Consolidated Statement of Shareholders' Equity for the nine months
ended March 31, 2000...............................................6
Consolidated Statements of Cash Flows for the nine months ended
March 31, 2000 and March 31, 1999..................................7
Notes to Consolidated Financial Statements.............................9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................16
Item 3. Quantitative and Qualitative Disclosures About Market Risk............28
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................29
</TABLE>
Page 2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS March 31, June 30,
2000 1999
----------- --------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 2,217 $ 2,197
Current portion of receivables, net of allowances and discount of $.9 million
and $.7 million, respectively 1,659 1,402
Current portion of deferred membership selling expenses 951 693
Current portion of net deferred tax assets 3,538 2,061
Other current assets 2,234 2,048
-------- --------
Total Current Assets 10,599 8,401
Restricted cash 1,199 1,240
Receivables, net of allowances and discount of $1.0 million and $.5 million,
respectively 3,286 782
Campground land 22,853 13,200
Buildings and equipment, net of accumulated depreciation of $19.4 million and
$17.5 million, respectively 22,782 20,829
Land held for sale 2,965 2,987
Deferred membership selling expenses 2,428 1,372
Net deferred tax assets -- 5,635
Other assets 746 2,358
-------- --------
Total Assets $ 66,858 $ 56,804
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,861 $ 1,666
Accrued interest 118 110
Other accrued liabilities 6,046 6,148
Current portion of long term debt 2,943 2,100
Accrued construction cost 1,888 1,888
Current portion of deferred revenue 22,578 19,098
-------- --------
Total Current Liabilities 35,434 31,010
Long term debt 8,683 8,787
Deferred revenue 9,163 5,627
Deferred tax credit 226 --
Other liabilities 1,436 1,732
-------- --------
Total Liabilities 54,942 47,156
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,500,000 shares authorized, none issued or
outstanding
Common stock, $.01 par value, 15,000,000 shares authorized, 7,980,592 and
8,096,128 shares issued and outstanding, respectively, after deducting
190,736 and 3,200 shares held in Treasury, respectively 80 81
Additional paid-in capital 21,080 21,869
Accumulated deficit subsequent to December 31, 1991, date of emergence from
bankruptcy (9,107) (12,163)
Accumulated other comprehensive loss (137) (139)
-------- --------
Total Shareholders' Equity 11,916 9,648
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 66,858 $ 56,804
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 3
<PAGE> 4
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended March 31,
-----------------------------------
2000 1999
-------- --------
<S> <C> <C>
REVENUES
Membership contracts originated $ 7,733 $ 3,391
Change in deferred revenue (4,446) (585)
-------- --------
Membership sales revenue 3,287 2,806
Membership dues 27,719 27,559
Other campground revenue 13,820 13,169
RPI membership fees 2,681 2,662
Interest income 1,034 1,588
Gain on asset sales 16 1,104
Other income 2,282 2,225
-------- --------
Total Revenues 50,839 51,113
-------- --------
EXPENSES
Campground operating expenses 30,123 29,213
Membership origination costs 3,976 2,776
Change in deferred origination costs (1,313) (214)
Marketing expenses 2,605 1,475
RPI membership expenses 1,386 1,516
Corporate member services 982 947
Interest expense and amortization 1,099 2,628
General and administrative expenses 6,875 6,588
-------- --------
Total Expenses 45,733 44,929
-------- --------
INCOME BEFORE INCOME TAXES 5,106 6,184
INCOME TAXES --
Income tax provision - current (648) (30)
Income tax provision - deferred (1,402) (1,709)
-------- --------
(2,050) (1,739)
NET INCOME $ 3,056 $ 4,445
======== ========
NET INCOME PER SHARE -- BASIC $ .38 $ .59
======== ========
NET INCOME PER SHARE -- DILUTED $ .35 $ .53
======== ========
SHARES USED TO CALCULATE NET INCOME PER SHARE:
Basic 7,981 7,550
======== ========
Diluted 8,605 8,459
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 4
<PAGE> 5
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
2000 1999
-------- --------
<S> <C> <C>
REVENUES
Membership contracts originated $ 3,961 $ 971
Change in deferred revenue (2,774) (16)
-------- --------
Membership sales revenue 1,187 955
Membership dues 9,691 9,017
Other campground revenue 3,033 2,786
RPI membership fees 1,064 972
Interest income 381 465
Loss on asset sales (6) (2)
Other income 654 723
-------- --------
Total Revenues 16,004 14,916
-------- --------
EXPENSES
Campground operating expenses 8,877 8,384
Membership origination costs 1,827 850
Change in deferred origination costs (943) (26)
Marketing expenses 971 431
RPI membership expenses 420 504
Corporate member services 308 260
Interest expense and amortization 429 591
General and administrative expenses 2,622 2,283
-------- --------
Total Expenses 14,511 13,277
-------- --------
INCOME BEFORE INCOME TAXES 1,493 1,639
INCOME TAXES --
Income tax provision - current (337) (18)
Income tax provision - deferred (288) (691)
-------- --------
(625) (709)
NET INCOME $ 868 $ 930
======== ========
NET INCOME PER SHARE -- BASIC $ .11 $ .12
======== ========
NET INCOME PER SHARE -- DILUTED $ .10 $ .11
======== ========
SHARES USED TO CALCULATE NET INCOME PER SHARE:
Basic 7,981 7,680
======== ========
Diluted 8,580 8,518
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 5
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THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2000
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Accumulated Comprehensive
Stock Capital Deficit Loss Total
----- ---------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1999 $81 $21,869 $(12,163) $(139) $ 9,648
Issuance of common stock 1 61 -- -- 62
Purchase of Treasury Stock (2) (850) -- -- (852)
Other Comprehensive Income -- -- -- 2 2
Net income for the nine months ended
March 31, 2000 -- -- 3,056 -- 3,056
-------
Comprehensive Income 3,058
--- ------- -------- ----- -------
Balance, March 31, 2000 $80 $21,080 $ (9,107) $(137) $11,916
=== ======= ======== ===== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 6
<PAGE> 7
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended March 31,
-----------------------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Collections of principal on receivables $ 2,488 $ 3,332
Interest received 935 1,624
Interest paid (1,099) (2,661)
General and administrative and corporate member services costs (8,876) (7,836)
Cash collected from operations, including deferred revenue 50,484 47,888
Cash from sales of memberships 4,913 2,685
Expenditures for property operations (29,588) (27,481)
Expenditures for sales and marketing (6,563) (4,286)
Expenditures for insurance premiums (1,783) (1,759)
Refund (payment) of income taxes 55 (329)
Other, net 881 103
-------- --------
Net cash provided by operating activities 11,847 11,280
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and HUD-related expenditures (982) (2,424)
Acquisition of Leisure Time (7,727) --
Proceeds from asset sales 59 2,238
-------- --------
Net cash used in investing activities (8,650) (186)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of PIK Notes -- (34,792)
Net borrowings under Credit Agreement 385 10,978
Purchase of Treasury Stock (852) --
Payment of notes and mortgages (2,772) --
Issuance of Common Stock 62 288
-------- --------
Net cash used in financing activities (3,177) (23,526)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 20 (12,432)
CASH AND CASH EQUIVALENTS
Beginning of period 2,197 13,631
-------- --------
End of period $ 2,217 $ 1,199
======== ========
</TABLE>
-- continued --
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<PAGE> 8
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended March 31,
-----------------------------------
2000 1999
-------- --------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net Income $ 3,056 $ 4,445
-------- --------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES --
Depreciation 1,970 1,928
Amortization of interest yield, collection costs and
valuation allowance (172) (258)
Change in deferred sales revenue 4,446 585
Change in deferred membership origination costs (1,313) (214)
Gain on asset sales (16) (1,104)
Deferred income tax provision 1,402 1,709
Decrease (increase) in restricted cash 386 (26)
Decrease (increase) in receivables (53) 2,616
Decrease (increase) in other assets 1,687 (154)
Decrease in accounts payable (662) (341)
Increase in accrued interest 8 282
Increase in deferred membership dues revenue 2,571 2,313
Decrease in other liabilities (2,085) (386)
Other, net 622 (115)
-------- --------
Total adjustments 8,791 6,835
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 11,847 $ 11,280
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 8
<PAGE> 9
THOUSAND TRAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
NOTE 1 -- NATURE OF OPERATIONS
Thousand Trails, Inc., a Delaware corporation, and its subsidiaries
(collectively, the "Company") own and operate 63 membership-based campgrounds
located in 17 states and British Columbia, Canada. In addition, the Company
provides a reciprocal use program for members of approximately 300 recreational
facilities and manages 169 public campgrounds for the US Forest Service.
Operating revenues consist primarily of membership dues received from campground
members, fee revenue from members of the reciprocal use program, management fees
from the campground management operations, and guest fees and revenues received
from the campground and other operations.
The accompanying consolidated financial statements include the accounts of
Thousand Trails, Inc. and the following wholly owned subsidiaries: Coast
Financial Services, Inc., National American Corporation ("NACO"), Resort Parks
International, Inc. ("RPI"), Thousand Trails (Canada), Inc., Thousand Trails
Management Services, Inc. ("Trails Management," which was formerly known as UST
Wilderness Management Corporation), and, commencing December 16, 1999, Leisure
Time Resorts of America, Inc. (See Note 2 - Business Combination).
This Quarterly Report on Form 10-Q should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended June 30, 1999, filed
with the Securities and Exchange Commission (the "SEC") on September 24, 1999.
The Company emerged from proceedings under Chapter 11 of the Bankruptcy Code on
December 31, 1991, pursuant to a confirmed plan of reorganization. Due to the
Company's emergence from bankruptcy, the Company adopted fresh start reporting,
under which a new reporting entity was created and assets and liabilities were
restated to reflect their reorganization value which approximated fair value at
the date of reorganization.
All significant intercompany transactions and balances have been eliminated in
the accompanying consolidated financial statements as of and for the nine and
three month periods ended March 31, 2000 and 1999, and in the consolidated
balance sheet as of June 30, 1999.
Reclassification
Certain reclassifications have been made to prior period information to conform
to the current period presentation.
NOTE 2 -- BUSINESS COMBINATION
On December 16, 1999, the Company acquired all of the outstanding capital stock
of Albertsen Investment Corporation, Inc. ("AIC"), a Washington corporation. AIC
was the holding company owning Leisure Time Resorts of America, Inc., a
Washington corporation ("Leisure Time"), which owns and operates 10 membership
campgrounds in Washington and Oregon serving approximately 16,000 members. In
February 2000, AIC was merged into Leisure Time, and Leisure Time is the sole
surviving entity. Leisure Time will continue to operate a separate system of
campgrounds from the Company's other membership-based campground systems.
Page 9
<PAGE> 10
The purchase price for the stock of Leisure Time was approximately $7.7 million
in cash, after post-closing adjustments based on the balance sheet of Leisure
Time as of the closing date. In connection with the acquisition, the Company
also paid in full all of the outstanding real estate debt on Leisure Time's
campgrounds, which totaled approximately $2.3 million.
The acquisition of AIC was accounted for as a purchase transaction; accordingly,
operating results for AIC and Leisure Time are reported from the date of
acquisition. No goodwill was recorded on the acquisition because the purchase
price did not exceed the estimated values of the identifiable assets received
less liabilities assumed.
Set forth below are unaudited pro forma combined results of operations for the
Company based on the assumption that the acquisition of AIC was completed on
July 1, 1999 (in thousands, except for per share data):
<TABLE>
<CAPTION>
For the nine months ended
March 31, 2000
-------------------------
(Unaudited)
<S> <C>
Revenues $53,755
Net income 548
Diluted income per common share $ .06
</TABLE>
NOTE 3 -- COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130 requires the
Company to classify items of other comprehensive income by their nature in its
financial statements and to display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of its consolidated balance sheet. Comprehensive
income includes all changes in equity during a period except those resulting
from investments by owners and distributions to owners, as well as net income
reported on the income statement. Currently, the Company's only item of other
comprehensive income is its foreign currency translation adjustment. The
following table provides statements of comprehensive income for the nine and
three months ended March 31, 2000 and 1999 (dollars in thousands):
<TABLE>
<CAPTION>
For the nine months ended For the three months ended
March 31, March 31,
------------------------- --------------------------
2000 1999 2000 1999
------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Income $ 3,056 $ 4,445 $ 868 $ 930
Foreign Currency Translation
Adjustment 2 (2) -- 3
------- ------- ------- -------
Comprehensive Income $ 3,058 $ 4,443 $ 868 $ 933
======= ======= ======= =======
</TABLE>
Page 10
<PAGE> 11
NOTE 4 -- SEGMENT REPORTING
SFAS No. 131 requires the Company to report information for its operating
segments, which are: campgrounds, RPI, and Trails Management. The campground
segment generates a majority of the Company's operating revenues. Each segment
is differentiated by the products or services it offers.
The campgrounds segment consists of 63 membership-based campgrounds in 17 states
and British Columbia, Canada. Operations within the campground segment include
(i) the sale of memberships entitling the member to use campground facilities,
(ii) the sale of undivided interests related to fee simple sales of interests in
campground facilities, and (iii) net revenues earned from operations at the
campgrounds. Separate information regarding Canadian campground operations is
not presented as revenues and identifiable assets related to the Canadian
operations are less than 10% of the related consolidated amounts for the periods
presented.
RPI sells memberships that allow members to use any of the recreational
facilities participating in RPI's reciprocal use system, subject to certain
limitations. Operating revenue consists of annual membership fees paid by
members.
Trails Management manages 169 public campgrounds for the US Forest Service.
Operating revenue consists of the campsite usage fees paid by customers staying
at the public campgrounds.
The Company evaluates performance based upon the income before income taxes for
each business segment.
<TABLE>
<CAPTION>
Nine months ended March 31, 2000
----------------------------------------------------------------------------------
Trails Corporate
Campgrounds RPI Management and Other Consolidated
----------- --- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues $39,639 $2,681 $1,835 $65 $44,220
Membership sales revenue 3,287 -- -- -- 3,287
Income (loss) before
income taxes 9,330 1,295 101 (5,620) 5,106
</TABLE>
<TABLE>
<CAPTION>
Nine months ended March 31, 1999
----------------------------------------------------------------------------------
Trails Corporate
Campgrounds RPI Management and Other Consolidated
----------- --- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues $38,948 $2,662 $1,714 $66 $43,390
Membership sales revenue 2,806 -- -- -- 2,806
Income (loss) before
income taxes 10,346 1,146 224 (5,532) 6,184
</TABLE>
Page 11
<PAGE> 12
<TABLE>
<CAPTION>
Three months ended March 31, 2000
----------------------------------------------------------------------------------
Trails Corporate
Campgrounds RPI Management and Other Consolidated
----------- --- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues $12,686 $1,064 $12 $26 $13,788
Membership sales revenue 1,187 -- -- -- 1,187
Income (loss) before
income taxes 3,272 644 (97) (2,326) 1,493
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31, 1999
----------------------------------------------------------------------------------
Trails Corporate
Campgrounds RPI Management and Other Consolidated
----------- --- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues $11,740 $972 $20 $43 $12,775
Membership sales revenue 955 -- -- -- 955
Income (loss) before
income taxes 3,374 468 (31) (2,172) 1,639
</TABLE>
NOTE 5 -- NET INCOME PER SHARE
SFAS No. 128 requires the Company to report basic and diluted net income per
share. The table below sets forth the information necessary to compute basic and
diluted net income per share for the nine and three months ended March 31, 2000
and 1999, including a summary of the components of the numerators and
denominators of the basic and diluted net income per share computations for the
periods presented (dollars and shares in thousands, except per share amounts):
<TABLE>
<CAPTION>
For the nine months ended For the three months ended
March 31, March 31,
------------------------- --------------------------
2000 1999 2000 1999
------ ------ ------ ------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Income $3,056 $4,445 $ 868 $ 930
====== ====== ====== ======
Weighted Average Number of
Shares - Basic 7,981 7,550 7,981 7,680
Dilutive Options 624 887 599 785
Dilutive Warrants -- 22 -- 53
------ ------ ------ ------
Weighted Average Number of
Shares - Diluted 8,605 8,459 8,580 8,518
====== ====== ====== ======
Net Income Per Share - Basic $ .38 $ .59 $ .11 $ .12
====== ====== ====== ======
Net Income Per Share - Diluted $ .35 $ .53 $ .10 $ .11
====== ====== ====== ======
</TABLE>
Since inception, the Company has not paid any dividends. The credit agreement
("Credit Agreement") between the Company and Foothill Capital Corporation
("Foothill") prohibits the payment of any cash dividends, without the consent of
Foothill, until the Credit Agreement is terminated.
Page 12
<PAGE> 13
NOTE 6 -- LONG TERM DEBT
CREDIT AGREEMENT WITH FOOTHILL
In January 1998, the Company repaid all outstanding borrowings under the Credit
Agreement with Foothill, and it had no outstanding borrowings under the Credit
Agreement until December 1998, when it borrowed $24.0 million to partially fund
the redemption of the Company's 12% Senior Subordinate Pay-In-Kind Notes ("PIK
Notes") as discussed below. Under the Credit Agreement, the first $15.0 million
of borrowings bear interest at prime plus .25% per annum and borrowings over
$15.0 million and up to $25.0 million bear interest at prime plus .50% per
annum, subject to a minimum interest rate of 9% per annum (reduced to 7% per
annum in June 1999).
On December 10, 1999, the Company entered into an amendment to the Credit
Agreement relating to the Company's purchase of the stock of AIC. On December
16, 1999, the Company borrowed $10 million under the amended Credit Agreement to
pay the cash purchase price for such stock of approximately $7.7 million and to
pay in full all of the outstanding real estate debt on Leisure Time's
campgrounds, which totaled approximately $2.3 million. As of the date of this
report, the Company has repaid most of the funds that it borrowed for this
acquisition.
On March 31, 2000, the Company had $11.3 million of outstanding borrowings under
the amended Credit Agreement, and it had the ability to borrow an additional
$4.8 million for working capital purposes. All borrowings under the amended
Credit Agreement will mature on January 17, 2003.
The Company's ability to borrow under the amended Credit Agreement for working
capital 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.
PIK NOTES AND PIK NOTE REPURCHASES
The Company issued $40.2 million principal amount of PIK Notes in a
restructuring of its debt in July 1996. In January 1997, the Company issued an
additional $2.4 million principal amount of PIK Notes in lieu of cash interest.
In June 1997, the Company repurchased $13.4 million principal amount of PIK
Notes at a cost of $12.6 million, including accrued interest. In July 1997,
January 1998, and July 1998, the Company issued an additional $1.7 million, $1.9
million, and $2.0 million principal amount of PIK Notes, respectively, in lieu
of cash interest. In December 1998, the Company redeemed all $34.8 million
principal amount of PIK Notes
Page 13
<PAGE> 14
outstanding and paid $1.7 million of accrued interest. The Company funded this
redemption with $12.5 million of its existing cash and $24.0 million of new
borrowings under the Credit Agreement with Foothill.
NOTE 7 -- CONTINGENCIES
General Liability Insurance
Commencing July 1, 1998, the Company obtained insurance covering general
liability losses up to an annual limit of $27.0 million, with no self-insured
deductible. Prior to this date, the Company's insurance covered general
liability losses up to an annual limit of $26.8 million, but required the
Company to pay the first $250,000 per occurrence, with an annual aggregate
exposure of $2.0 million. The Company has provided a liability for estimated
known and unknown claims related to uninsured general liability risks based on
actuarial estimates. As of March 31, 2000 and June 30, 1999, the Company's
recorded liability for estimated losses related to uninsured general liability
claims totaled approximately $719,000 and $1.1 million, respectively, which is
included in other liabilities in the accompanying consolidated balance sheets.
Declining Membership Base
The Company derives a significant portion of its ongoing operating revenue from
its campground members (92% in fiscal 1999). The Company's membership base has
declined over the past five fiscal years. Although the acquisition of Leisure
Time increased the size of the membership base, the Company expects that,
notwithstanding new sales, the membership base will continue to decline at the
rate of approximately 5% per year. The Company attributes this attrition
principally to its aging membership base, of whom approximately 50% are senior
citizens. Moreover, the Company estimates that the memberships sold in recent
fiscal years will have an expected life that is shorter than the expected life
of the memberships previously sold by the Company. To stop the continuing
decline in the Company's membership base, the Company must increase its
campground membership sales over current levels or acquire members through the
purchase of other membership campground organizations, such as its acquisition
of Leisure Time.
Environmental Issues
Certain environmental issues may exist at some of the Company's campgrounds
concerning underground storage tanks, sewage treatment plants and septic
systems, and waste disposal. Management has reviewed these issues and believes
that they will not have a material adverse impact on the Company's operations or
financial position.
Litigation
Foxwood Property Owners Association, Inc. vs. Foxwood Corporation, filed on
February 18, 1999 in the Court of Common Pleas of Oconee County, South Carolina,
under Case No. 99-37-CP-88. In this action, the plaintiff brought suit against a
subsidiary of the Company alleging that the defendant owes the plaintiff in
excess of $2.5 million for past due maintenance fees on subdivided lots owned by
the defendant. The defendant denies the claim and is vigorously defending the
lawsuit. Although discovery in this lawsuit has not been completed, management
does not believe that it will have a material adverse impact on the Company's
operations or financial position.
The Company is involved in certain claims and litigation arising in the normal
course of business. Management believes that the eventual outcome of these
claims and litigation will not have a material adverse impact on the Company's
operations or financial position.
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<PAGE> 15
NOTE 8 -- SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of non-cash investing and financing activities required
by SFAS No. 95 "Statement of Cash Flows" are presented below for the nine months
ended March 31, 2000 and 1999 (dollars in thousands):
<TABLE>
<CAPTION>
Nine months ended March 31,
---------------------------
2000 1999
---------- ----------
<S> <C> <C>
Non-cash payment of PIK Note interest (see Note 6)
PIK Notes issued in lieu of cash interest payment $ -- $1,969
</TABLE>
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<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's Annual Report on Form 10-K for the year ended June 30,
1999, filed with the SEC on September 24, 1999.
All capitalized terms used herein have the same meaning as those defined in Item
1 -- Financial Statements.
In this Management's Discussion and Analysis of Financial Condition and Results
of Operations, and elsewhere in this report, the Company makes certain
statements as to its expected financial condition, results of operations, cash
flows, and business strategies, plans and conditions for periods after March 31,
2000. 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, the Company's success in acquiring members
through the purchase of other membership campground operations, and the other
factors affecting the Company's operations described in this report.
LIQUIDITY AND CAPITAL RESOURCES
CURRENT BUSINESS STRATEGY. The Company's current business strategy is to improve
its campground operations and stabilize its campground membership base through
increased sales and marketing efforts and the acquisition of members through the
purchase of other campground membership 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 has also acquired members through the
purchase of Leisure Time as discussed below, and it believes it may be possible
to acquire additional members through the purchase of other membership
campground operations, many of whom are experiencing financial difficulties.
Over the past several years, the Company's membership base has been declining.
In response to this decline, the Company has downsized its business by closing
and disposing of campgrounds and decreasing campground operating costs and
general and administrative expenses. The Company intends to continue to keep the
size of its campground system in an appropriate relation to the size of its
membership base. In this regard, if the membership base continues to decline,
the Company may close and dispose of additional campgrounds and it will seek to
decrease other expenses. At the same time, the Company intends to expand its
sales and marketing efforts with a view to stopping the membership decline. The
Company has also acquired members through the purchase of Leisure Time, and it
intends to explore the possible acquisition of additional members through the
purchase of other membership campground organizations. The Company believes that
the ultimate size of its campground system and the
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<PAGE> 17
amounts realized from future asset sales will depend principally upon the degree
to which the Company can successfully implement this strategy.
ACQUISITION OF LEISURE TIME. On December 16, 1999, the Company acquired all of
the outstanding capital stock of AIC, which was the holding company owning
Leisure Time. Leisure Time owns and operates 10 membership campgrounds in
Washington and Oregon serving approximately 16,000 members. In February 2000,
AIC was merged into Leisure Time, and Leisure Time is the sole surviving entity.
Leisure Time will continue to operate a separate system of campgrounds from the
Company's other membership-based campground systems.
The purchase price for the stock of AIC was approximately $7.7 million in cash
after adjustments based on the balance sheet of Leisure Time as of the closing
date. In connection with the acquisition, the Company also paid in full all of
the outstanding real estate debt on Leisure Time's campgrounds, which totaled
approximately $2.3 million. The Company borrowed the funds for the stock
purchase and debt repayment under its Credit Agreement with Foothill. As of the
date of this report, the Company has repaid most of the funds that it borrowed
for this acquisition.
At the date of acquisition, the principal assets of Leisure Time consisted of
its 10 membership-based campgrounds and related improvements and personal
property, approximately 16,000 members, and approximately $2.7 million of
contracts receivable. The assets and liabilities of Leisure Time are included in
the Company's consolidated balance sheets as of March 31, 2000, and the
operating results of Leisure Time are included in the operating results of the
Company commencing December 16, 1999. The Company believes the acquisition of
Leisure Time will not have a material impact on the Company's earnings in fiscal
2000 and will be accretive to earnings beginning in fiscal 2001, as it reduces
expenses by consolidating administrative functions and implementing other cost
saving measures. However, because Leisure Time's members and campgrounds are
similar to the Company's, the increase in members resulting from the acquisition
is not expected to affect the overall rate at which the Company's membership
base is declining.
CASH. On March 31, 2000, the Company had $2.2 million of cash and cash
equivalents, an increase of $20,000 from June 30, 1999. During the nine months
ended March 31, 2000, the Company's operating activities generated $11.8 million
of cash, its investing activities used $8.7 million of cash, and its financing
activities used $3.2 million of cash. The Company's investing activities
consisted of the purchase of the stock of AIC for $7.7 million in cash and
$982,000 in capital expenditures at the campgrounds. The Company's financing
activities consisted primarily of net borrowings of $385,000 under the Credit
Agreement with Foothill, repayments of $2.8 million of real estate debt on
Leisure Time's campgrounds and other Leisure Time debt, and the purchase of
190,736 shares of the Company's common stock for a total of $852,000.
With respect to the Company's operating activities, for the nine months ended
March 31, 2000, the principal sources of operating cash were $50.5 million from
operations, $3.4 million in principal and interest collections on contracts
receivable, $5.0 million from sales of campground memberships and lots, and
$834,000 from the termination of a grantor trust established to reimburse
directors and officers for any indemnifiable damages and expenses they might
incur. Principal uses of operating cash for the nine months ended March 31,
2000, were $29.6 million in operating expenses, $8.9 million in administrative
expenses (including general and administrative expenses and corporate members
services costs), $6.6 million in membership origination costs and marketing
expenses, and $1.8 million in insurance premiums.
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<PAGE> 18
In January 1998, the Company repaid all outstanding borrowings under the Credit
Agreement with Foothill, and it had no outstanding borrowings under the Credit
Agreement until December 1998, when it borrowed $24.0 million to partially fund
the redemption of the PIK Notes (see Note 6 to the consolidated financial
statements included in Item 1). Under the Credit Agreement, the first $15.0
million of borrowings bear interest at prime plus .25% per annum and borrowings
over $15.0 million and up to $25.0 million bear interest at prime plus .50% per
annum, subject to a minimum interest rate of 9% per annum (reduced to 7% per
annum in June 1999).
On December 10, 1999, the Company entered into an amendment to the Credit
Agreement relating to the Company's purchase of the stock of AIC. On December
16, 1999, the Company borrowed $10 million under the amended Credit Agreement to
pay the cash purchase price for such stock of approximately $7.7 million and to
pay in full all of the outstanding real estate debt on Leisure Time's
campgrounds, which totaled approximately $2.3 million. As of the date of this
report, the Company has repaid most of the funds that it borrowed in December
1999 for the Leisure Time acquisition.
On March 31, 2000, the Company had $11.3 million of outstanding borrowings under
the amended Credit Agreement, and it had the ability to borrow an additional
$4.8 million for working capital purposes. All borrowings under the amended
Credit Agreement will mature on January 17, 2003.
Under the terms of the amended Credit Agreement, the Company must use all
collections of principal and interest on the contracts receivable and all
proceeds from asset sales to reduce borrowings under the Credit Agreement. In
addition, the Company must make specified principal reductions on these
borrowings over time based on a monthly calculation of eligible contracts
receivable and an amortization schedule set forth in the Credit Agreement. The
maximum amount of the revolving loan declines as these principal reductions are
made.
As of the date of this report, the Company had $9.3 million of outstanding
borrowings under the amended Credit Agreement, and it had the ability to borrow
an additional $5.0 million for working capital purposes. Based upon its current
business plan, the Company believes that future cash flows provided from
operations, asset sales, and borrowings available under the amended Credit
Agreement will be adequate for the Company's operating and other cash
requirements. While any borrowings are outstanding under the amended Credit
Agreement, all cash held by the Company and its wholly owned subsidiaries will
generally be deposited in accounts that are pledged and controlled by Foothill.
MATERIAL CHANGES IN FINANCIAL CONDITION
Total assets increased by $9.8 million during the nine months ended March 31,
2000. Cash increased by $20,000 as discussed above. Contracts receivable
increased by $2.8 million due primarily to the acquisition of Leisure Time's
$2.7 million portfolio. Cash collections of $2.5 million on the existing
portfolio were offset by new financed sales and amortization of the allowances
for interest discount, collection costs, and valuation discount. Campground land
increased by $9.7 million due to the acquisition of Leisure Time's campgrounds.
Buildings and equipment increased by $2.0 million due primarily to the
acquisition of Leisure Time's campgrounds and capital improvements made at
certain campgrounds, partially offset by depreciation. Other assets decreased by
$1.6 million due primarily to the termination of the grantor trust agreement
discussed above, and the release of prior year workers' compensation
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<PAGE> 19
deposits that were applied to current year premiums. Net deferred tax assets
declined by $4.4 million in the current period due primarily to $3.0 million in
deferred tax liabilities that were recorded in connection with the acquisition
of Leisure Time. Additionally, the Company recognized $1.4 million in deferred
tax expense in the current period.
Total liabilities increased by $7.8 million during the nine months ended March
31, 2000, primarily as a result of a $7.0 million increase in deferred revenue
related to membership sales and dues. Deferred sales revenue increased by $4.4
million due to increases in membership contracts originated, and deferred dues
revenue increased by $2.2 million because dues collected during the period
exceeded dues revenue recognized. Long term debt increased by $385,000,
resulting primarily from additional borrowings of $10 million to fund the
acquisition of Leisure Time, less subsequent repayments. Accounts payable
increased by $195,000 due to the timing of payments.
MARKET RISK AND INTEREST RATE SENSITIVITY. As noted above, as of March 31, 2000,
the Company had $11.3 million of outstanding borrowings under the Credit
Agreement with Foothill, and it had the ability to borrow an additional $4.8
million for working capital purposes. (see "Liquidity and Capital Resources -
Cash"). The borrowings under the Credit Agreement accrue interest at rates that
fluctuate with changes in the prime rate and the Company, therefore, has
exposure to changing interest rates because increases in interest rates would
increase the Company's interest expense on these borrowings.
A hypothetical ten percent change in market interest rates over the next year
would not materially impact the Company's earnings or cash flow. At the level of
borrowings in place as of March 31, 2000, a hypothetical ten percent change in
market interest rates over the next year would increase the Company's interest
expense by approximately $115,000. 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, its borrowings under the Credit Agreement with
Foothill, 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 nine and three months ended March 31, 2000 and
1999. The financial information set forth below should be read in conjunction
with the Company's consolidated financial statements included in Item 1.
NINE MONTHS ENDED MARCH 31, 2000 AND 1999
NET INCOME. The Company reported net income of $3.1 million or $.35 per diluted
share on revenues of $50.8 million for the nine months ended March 31, 2000.
This compares with net income of $4.4 million or $.53 per diluted share on
revenues of $51.1 million for the same period last year. Revenues were lower in
the current period primarily because the prior year's results included $1.1
million in gains on asset sales. In addition, interest income was lower this
year by $554,000 due to lower levels of invested cash and reductions in the
contracts receivable portfolio. Due to reductions in debt levels, the Company's
interest costs were also lower during the current period by $1.5 million.
However, the unfavorable impact from the net deferral of sales revenues and
expenses was $2.8 million higher in the current period reflecting an increase in
the level of sales activity, and income tax expense was $311,000 higher in the
current period because the Company recognized a tax benefit in the prior period
upon redemption of the PIK Notes.
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<PAGE> 20
The table set forth below shows separately the results of the campground
operations, Trails Management, and Resort Parks International, without any
allocation of corporate expenses, as well as corporate expenses and other
revenues and expenses in the aggregate, for the nine months ended March 31, 2000
and 1999.
THOUSAND TRAILS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
---------------------------
2000 1999
-------- --------
<S> <C> <C>
CAMPGROUND OPERATIONS
Membership dues $ 27,719 $ 27,559
Campground revenues 11,920 11,389
Cost of campground revenues (5,652) (5,295)
Operating expenses (22,676) (22,076)
-------- --------
Contribution from campground operations 11,311 11,577
-------- --------
SALES
Membership contracts originated 7,733 3,391
Change in deferred revenue (4,446) (585)
-------- --------
Membership sales revenue 3,287 2,806
Membership origination costs (3,976) (2,776)
Change in deferred origination costs 1,313 214
Marketing expenses (2,605) (1,475)
-------- --------
Loss on sales (1,981) (1,231)
-------- --------
TRAILS MANAGEMENT
Revenues 1,835 1,714
Expenses (1,734) (1,490)
-------- --------
Contribution from Trails Management 101 224
-------- --------
RESORT PARKS INTERNATIONAL
Revenues 2,681 2,662
Expenses (1,386) (1,516)
-------- --------
Contribution from RPI 1,295 1,146
-------- --------
Other income 2,084 2,138
Corporate member services (982) (947)
General and administrative expense (6,703) (6,530)
Other 30 (257)
-------- --------
INCOME BEFORE INTEREST INCOME AND EXPENSE,
GAIN ON ASSET SALES AND TAXES 5,155 6,120
-------- --------
Interest income 1,034 1,588
Interest expense (1,099) (2,628)
Gain on asset sales 16 1,104
-------- --------
INCOME BEFORE TAXES $ 5,106 $ 6,184
======== ========
</TABLE>
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<PAGE> 21
OPERATING INCOME. During the nine months ended March 31, 2000, the Company's
contribution from operations was $5.2 million, approximately $900,000 less than
the $6.1 million achieved in the same period last year. The decline was due
primarily to declines in the contribution from campground operations, a higher
loss from sales operations, and a decline in the contribution from Trails
Management. For this purpose, the contribution from operations is defined as
income before interest income and expenses, gains on asset sales, and taxes. See
the table on the previous page for the elements of the contribution from
operations and the Company's operating income before taxes for the 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 summer.
Commencing December 16, 1999, the operating results of Leisure Time are included
in the operating results of the Company.
Campground membership dues revenue was $27.7 million for the nine months ended
March 31, 2000, compared with $27.6 million for the same period last year. The
increase in dues revenue was due primarily to the addition of $1.0 in dues paid
by the members of Leisure Time and the effect of the annual dues increase,
partially offset by the loss of campground members during the year.
Other campground revenues were $11.9 million for the nine months ended March 31,
2000, compared with $11.4 million for the same period last year. The related
expenses were $5.7 million for the nine months ended March 31, 2000, compared
with $5.3 million for the same period last year. The increase in the current
period resulted primarily from a greater emphasis on ancillary revenue programs
at the campgrounds.
Campground operating expenses were $22.7 million for the nine months ended March
31, 2000 compared with $22.1 million for the same period last year. In the
current period, the campground operating expenses related to Leisure Time's
campgrounds were $540,000. In addition, the Company also experienced an increase
in maintenance expenses in the current period.
The Company intends 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.
For the nine months ended March 31, 2000 and 1999, the Company originated
membership contracts of $7.7 million and $3.4 million, respectively. During the
current period, the Company sold fewer units at higher average sales prices,
compared with the prior period, and also originated contracts totaling $2.2
million from an upgrade program at Leisure Time's campgrounds involving its
existing members.
The Company recognizes revenue from the sale of campground memberships that do
not convey a deeded interest in real estate on a straight-line basis over the
expected life of the memberships sold. For the nine months ended March 31, 2000
and 1999, the Company recognized campground membership sales revenues of $3.3
million and $2.8 million, respectively.
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Membership sales revenue includes revenues of $2.7 million and $2.2 million,
respectively, that were deferred in prior periods. Moreover, during these same
periods, the Company deferred revenues of $7.1 million and $2.8 million,
respectively, which will be recognized in future periods. In the current period,
the Company recognized $63,000 in sales revenue related to Leisure Time.
Selling expenses directly related to the sale of campground memberships are
deferred and recognized as expenses on a straight-line basis over the expected
life of the memberships sold. All other selling and marketing costs are
recognized as expenses in the period incurred. For the nine months ended March
31, 2000 and 1999, the Company recognized selling expenses of $2.7 million and
$2.6 million, respectively. These amounts include expenses of $652,000 and
$526,000, respectively, that were deferred in prior periods. Moreover, for these
same periods, the Company deferred expenses of $2.0 million and $740,000,
respectively, which will be recognized in future periods. In the current period,
the Company recognized selling and marketing expenses related to Leisure Time of
$288,000.
Although the Company's sales results are improving, selling and marketing
expenses exceeded sales revenues by $2.0 million and $1.2 million for the nine
months ended March 31, 2000 and 1999, respectively. These expenses exceeded
sales revenues primarily because the Company deferred more sales revenues than
selling expenses. In addition, in the prior period, these expenses exceeded
sales revenues, in part, because the relatively low volume of sales did not
cover fixed costs.
The Company's selling and marketing efforts require significant expense, the
majority of which must be expensed in the current period, while the related
sales revenues are generally deferred and recognized on a straight-line basis
over the expected life of the memberships sold. As a consequence, the Company
expects that its selling and marketing expenses will continue to exceed its
campground membership sales revenue. This disparity will increase as the Company
grows campground membership sales.
The Company's selling and marketing efforts have not produced the level of sales
needed to stop the continuing decline in the Company's membership base. If the
Company is not able to increase its campground membership sales over the current
levels or acquire members through the purchase of other membership campground
operations, the membership base will decline in the future, which will decrease
the Company's revenues. 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. Trails Management, a wholly owned subsidiary of the
Company, manages 169 public campgrounds for the US Forest Service. For the nine
months ended March 31, 2000, these operations produced a net contribution of
$101,000 on revenues of $1.8 million, compared with a net contribution of
$224,000 on revenues of $1.7 million for the same period last year. The increase
in revenues between periods was due to new contracts entered into in the spring
of 1999, which increased the number of campgrounds managed. The start-up costs
from these new contracts caused the decline in the net contribution between
periods. The revenues and expenses related to the Company's campground
management operations are included in other campground revenue and campground
operating expenses in the consolidated statement of operations.
RESORT PARKS INTERNATIONAL. RPI charges its members a fee for a membership that
entitles them to use any of the campgrounds participating in RPI's reciprocal
use system, subject to certain
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<PAGE> 23
limitations. For the nine months ended March 31, 2000, RPI's operations produced
a net contribution of $1.3 million, on revenues of $2.7 million, compared with a
contribution of $1.1 million on revenues of $2.7 million for the same period
last year. While operating revenue remained constant, operating expenses
declined during the current period, resulting in an increase in contribution
between the two periods. The decrease in operating expenses in the current
period was due primarily to lower communication costs and a decrease in the cost
of operating supplies, partially offset by an increase in labor costs. RPI is
working to introduce new products to increase its revenues and maintain its
contribution margin; however, there is no assurance that these efforts will be
successful.
INTEREST INCOME AND EXPENSE. Interest income declined to $1.0 million for the
nine months ended March 31, 2000, from $1.6 million for the same period last
year. The decrease in the current period was due primarily to decreases in the
interest earned on the Company's portfolio of contracts receivable and invested
cash. Most of the Company's invested cash was used to redeem the PIK Notes in
December 1998. Also included in interest income is the amortization of the
allowances for interest and valuation discount related to the contracts
receivable of $97,000 and $138,000, respectively. As the Company's portfolio of
contracts receivable increased with the acquisition of Leisure Time, in the
short term, the interest earned on the Company's portfolio of contracts
receivable will increase compared with historical levels. However, in the long
term, the interest earned on the Company's portfolio of contracts receivable is
expected to decrease in the future as the portfolio declines.
Interest expense decreased by $1.5 million for the nine months ended March 31,
2000, compared with the same period last year, due primarily to the redemption
of the PIK Notes in December 1998. This decrease was partially offset by an
increase in interest expense incurred under the Credit Agreement as a result of
the borrowings used to fund the acquisition of Leisure Time.
GAIN ON ASSET SALES. The Company recognized a gain of $16,000 on asset sales for
the nine months ended March 31, 2000, compared with $1.1 million for the same
period last year. The gain in the prior year resulted primarily from a sale of
undeveloped acreage not related to the campground operations. Over the next
several years, the Company intends to dispose of the remaining land it holds for
sale, the campgrounds that are closed if 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 made.
OTHER INCOME. Other income generally consists of fees charged other companies
for servicing their accounts receivable, fees charged members when they transfer
their membership in the secondary market without assistance from the Company,
fees charged members for the Company's member magazine, fees charged members for
making more than five operator-assisted reservations in a given year,
collections on written-off contracts and delinquent dues, and lot sales. Other
income was $2.1 million for the nine months ended March 31, 2000 and 1999.
OTHER EXPENSES. Administrative expenses, including corporate member service
costs and general and administrative expenses, were $7.7 million for the nine
months ended March 31, 2000, compared with $7.5 million for the same period last
year. The increase in the
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<PAGE> 24
current period was due primarily to higher labor and other operating costs that
were partially offset by decreases in third-party legal fees. Administrative
expenses directly related to Leisure Time were $187,000.
INCOME TAXES. The Company's current provision for income taxes was $648,000 for
the nine months ended March 31, 2000, compared with $30,000 for the same period
last year. The provision was higher in the current period, in part, because the
Company recognized a tax benefit upon the redemption of the PIK Notes. The
current provisions for these periods include amounts for federal alternative
minimum taxes and state income taxes payable in the various states where the
Company conducts its operations. With the exception of federal alternative
minimum taxes, the Company does not have federal income taxes payable on a
consolidated basis due to its net operating tax loss carryforwards, which were
$27.6 million at June 30, 1999.
The Company recorded a deferred tax provision of $1.4 million for the nine
months ended March 31, 2000, compared to $1.7 million for the same period last
year. The Company will continue to record a deferred tax provision in future
periods as the related deferred tax assets are realized. The deferred tax
provision will not affect current or future income tax payments.
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NET INCOME. The Company reported net income of $868,000 or $.10 per diluted
share on revenues of $16.0 million for the three months ended March 31, 2000.
This compares with net income of $930,000 or $.11 per diluted share on revenues
of $14.9 million for the same period last year. During the current period,
revenues from Leisure Time were $1.2 million. In addition, the unfavorable
impact from the net deferral of sales revenues and expenses was $1.8 million
higher in the current period, reflecting a higher level of sales activity.
The table on the following page shows separately the results of the campground
operations, Trails Management, and Resort Parks International, without any
allocation of corporate expenses, as well as corporate expenses and other
revenues and expenses in the aggregate, for the three months ended March 31,
2000 and 1999.
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<PAGE> 25
THOUSAND TRAILS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
------- -------
<S> <C> <C>
CAMPGROUND OPERATIONS
Membership dues $ 9,691 $ 9,017
Campground revenues 2,995 2,723
Cost of campground revenues (1,511) (1,394)
Operating expenses (7,235) (6,672)
------- -------
Contribution from campground operations 3,940 3,674
------- -------
SALES
Membership contracts originated 3,961 971
Change in deferred revenue (2,774) (16)
------- -------
Membership sales revenue 1,187 955
Membership origination costs (1,827) (850)
Change in deferred origination costs 943 26
Marketing expenses (971) (431)
------- -------
Loss on sales (668) (300)
------- -------
TRAILS MANAGEMENT
Revenues 12 20
Expenses (109) (51)
------- -------
Loss from Trails Management (97) (31)
------- -------
RESORT PARKS INTERNATIONAL
Revenues 1,064 972
Expenses (420) (504)
------- -------
Contribution from RPI 644 468
------- -------
Other income 588 694
Corporate member services (308) (260)
General and administrative expense (2,555) (2,267)
Other 3 (211)
------- -------
INCOME BEFORE INTEREST INCOME AND EXPENSE,
GAIN ON ASSET SALES AND TAXES 1,547 1,767
------- -------
Interest income 381 465
Interest expense (429) (591)
Gain on asset sales (6) (2)
------- -------
INCOME BEFORE TAXES $ 1,493 $ 1,639
======= =======
</TABLE>
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OPERATING INCOME. During the three months ended March 31, 2000, the Company's
contribution from operations was $1.5 million compared with $1.8 million for the
same period last year. The decrease was due primarily to increased general and
administrative expenses and a higher loss from sales operations, partially
offset by an increase in the contribution from campground operations and RPI.
For this purpose, the contribution from operations is defined as operating
income before interest income and expense, gain on asset sales, and taxes. See
the table on the previous page for the elements of the contribution from
operations and the Company's operating income before taxes for the historical
periods presented.
CAMPGROUND OPERATIONS. Campground membership dues revenue was $9.7 million for
the three months ended March 31, 2000, compared with $9.0 million for the same
period last year. The increase in dues revenue was due primarily to the addition
of $900,000 in dues paid by the members of Leisure Time and the effect of the
annual dues increase, partially offset by the loss of campground members during
the year.
Campground revenues were $3.0 million for the three months ended March 31, 2000,
compared with $2.7 million for the same period last year. The related expenses
were $1.5 million for the three months ended March 31, 2000, compared with $1.4
million for the same period last year.
The increase in the current period resulted primarily from a greater emphasis on
ancillary revenue programs at the campgrounds.
Campground operating expenses were $7.2 million for the three months ended March
31, 2000, compared with $6.7 million for the same period last year. In the
current period, the campground operating expenses related to Leisure Time's
campgrounds were $493,000.
For the three months ended March 31, 2000 and 1999, the Company originated
membership contracts of $4.0 million and $971,000, respectively. During the
current period, the Company sold fewer units at higher average sales prices,
compared with the prior period, and also originated contracts totaling $2.2
million from an upgrade program at Leisure Time's campgrounds involving its
existing members.
For the three months ended March 31, 2000 and 1999, recognized campground
membership sales revenues of $1.2 million and $955,000, respectively. Membership
sales revenues include revenues of $1.0 million and $782,000, respectively, that
were deferred in prior periods. Moreover, during these same periods, the Company
deferred revenues of $3.8 million and $798,000, respectively, which will be
recognized in future periods. In the current period, the Company recognized
$46,000 in sales revenue related to Leisure Time.
For the three months ended March 31, 2000 and 1999, the Company recognized
selling expenses of $884,000 and $824,000, respectively. These amounts include
expenses of $248,000 and $185,000, respectively, that were deferred in prior
periods. Moreover, for these same periods, the Company deferred expenses of $1.2
million and $211,000, respectively, which will be recognized in future periods.
In the current period, selling and marketing expenses related to Leisure Time
were $288,000.
Selling and marketing expenses exceeded sales revenues by $668,000 and $300,000
for the three months ended March 31, 2000 and 1999, respectively. These expenses
exceeded sales revenue primarily because the Company deferred more sales revenue
than selling expenses. In addition, in the prior period, these expenses exceeded
sales revenue, in part, because the relatively low volume of sales did not cover
fixed costs.
Page 26
<PAGE> 27
CAMPGROUND MANAGEMENT. For the three months ended March 31, 2000, the operations
of Trails Management produced a loss of $97,000 on revenues of $12,000, compared
with a loss of $31,000 on revenues of $20,000 for the same period last year. The
campground management operations generally incur a loss during the third fiscal
quarter due to fixed expenses and the seasonal closure of the campgrounds. The
increase in operating expenses in the current period resulted primarily from
increases in insurance costs and labor expenses. The revenues and expenses
related to these operations are included in other campground revenue and
campground operating expenses in the consolidated statement of operations.
RESORT PARKS INTERNATIONAL. For the three months ended March 31, 2000, RPI's
operations produced a net contribution of $644,000 on revenues of $1.1 million,
compared with a net contribution of $468,000 on revenues of $972,000 for the
same period last year. The improvement over the prior year was due primarily to
increased revenues from membership renewals, combined with a slight decrease in
operating expenses.
INTEREST INCOME AND EXPENSE. Interest income was $381,000 for the three months
ended March 31, 2000, compared with $465,000 for the same period last year.
During these periods, interest income included amortization of the allowances
for interest and valuation discount related to the contracts receivable
portfolio of $25,000 and $39,000 respectively. The decrease in interest income
in the current period was due primarily to a decrease in the interest earned on
the Company's portfolio of contracts receivable.
Interest expense was $429,000 for the three months ended March 31, 2000,
compared with $591,000 for the same period last year. The decrease in interest
expense between periods was due primarily to lower interest rates and fees
associated with the Credit Agreement in the current period.
GAIN ON ASSET SALES. The Company did not recognize a material gain on the sale
of assets for the three months ended March 31, 2000 and 1999.
OTHER INCOME. Other income was $588,000 for the three months ended March 31,
2000, compared with $694,000 for the same period last year. The decrease between
periods resulted primarily from a $110,000 insurance settlement received in the
prior period for fire damage at one campground.
OTHER EXPENSES. Administrative expenses, including corporate member service
costs and general and administrative expenses, were $2.9 million for the three
months ended March 31, 2000, compared with $2.5 million for the same period last
year. The increase in the current period was due primarily to higher labor and
other operating costs. Administrative expenses directly related to Leisure Time
were $154,000.
INCOME TAXES. The Company had a current income tax expense of $337,000 for the
three months ended March 31, 2000, compared with $18,000 for the same period
last year. The Company recorded a deferred tax provision of $288,000 and
$691,000 for the three months ended March 31, 2000, and 1999, respectively.
Page 27
<PAGE> 28
INFLATION. During the past several fiscal years, the Company's results have not
been affected materially by inflation. However, should the rate of inflation
increase in the future, the Company's expenses are likely to increase at a
greater rate than it can increase the annual dues paid by campground members
because the Company can 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.
IMPACT OF YEAR 2000. The Company's computer systems have not experienced
operational problems as a result of the year 2000 issue, and the Company does
not expect to experience material problems in the future. In addition, the
Company has not experienced any disruptions in its relationships with financial
institutions and other vendors arising from the year 2000 issue.
The Company spent approximately $50,000 during the nine months ended March 31,
2000 completing the modification of software necessary to make its computer
systems year 2000 compliant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company currently does not have any derivative financial instruments.
However, the Company does have other financial instruments that contain market
risk. Management believes that the market risk associated with the Company's
financial instruments as of March 31, 2000 is not significant. The information
required by Item 305 of Regulation S-K is contained in Item 2 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
the heading "Market Risk and Interest Rate Sensitivity."
Page 28
<PAGE> 29
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following documents are filed as exhibits to this report.
Exhibit
Number Description
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule as of March 31, 2000.
REPORTS ON FORM 8-K
The Company did not file any Current Reports on Form 8-K during the quarter
ended March 31, 2000.
Page 29
<PAGE> 30
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
THOUSAND TRAILS, INC.
Date: May 12, 2000 By: /s/ William J. Shaw
--------------------------------------
William J. Shaw
President and Chief Executive Officer
Date: May 12, 2000 By: /s/ Bryan D. Reed
--------------------------------------
Bryan D. Reed
Chief Financial and Accounting Officer
Page 30
<PAGE> 31
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule as of March 31, 2000.
</TABLE>
<PAGE> 1
EXHIBIT 11.1
THOUSAND TRAILS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(Dollars and common shares in thousands)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
BASIC:
Weighted average number of common shares outstanding 7,981 7,550
====== ======
Net income allocable to common shareholders $3,056 $4,445
====== ======
Net income per common share -- basic $ 0.38 $ 0.59
====== ======
DILUTED:
Weighted average number of common shares outstanding 7,981 7,550
Weighted average common stock equivalents -
Dilutive options 624 887
Dilutive warrants -- 22
------ ------
Weighted average number of common shares outstanding 8,605 8,459
====== ======
Net income allocable to common shareholders $3,056 $4,445
====== ======
Net income per common share -- diluted $ 0.35 $ 0.53
====== ======
</TABLE>
Page 1 of 1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 2,217
<SECURITIES> 0
<RECEIVABLES> 4,945
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,599
<PP&E> 22,782
<DEPRECIATION> 0
<TOTAL-ASSETS> 66,858
<CURRENT-LIABILITIES> 35,434
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 11,836
<TOTAL-LIABILITY-AND-EQUITY> 66,858
<SALES> 3,287
<TOTAL-REVENUES> 50,839
<CGS> 0
<TOTAL-COSTS> 45,733
<OTHER-EXPENSES> 44,634
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,099
<INCOME-PRETAX> 5,106
<INCOME-TAX> (2,050)
<INCOME-CONTINUING> 3,056
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,056
<EPS-BASIC> 0.38
<EPS-DILUTED> 0.35
</TABLE>
