<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1996
Commission File Number 0-19743
USTRAILS INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
NEVADA 75-2138671
- ------------------------------------- ---------------------------------------
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
2711 LBJ FREEWAY, SUITE 200, DALLAS, TEXAS 75234
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (972) 243-2228
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
The number of shares of Common Stock, par value $.01, issued and outstanding as
of November 8, 1996 was 7,383,276.
<PAGE>
USTRAILS INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1996
and June 30, 1996............................................ 3
Consolidated Statements of Operations for the three months
ended September 30, 1996 and September 30, 1995.............. 4
Consolidated Statement of Stockholders' Deficit
for the three months ended September 30, 1996................ 5
Consolidated Statements of Cash Flows for the three months
ended September 30, 1996 and September 30, 1995............... 6
Notes to Consolidated Financial Statements..................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 12
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities................................ 20
Item 5. Other Information.............................................. 20
Item 6. Exhibits and Reports on Form 8-K............................... 20
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
USTRAILS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS September 30, June 30,
------ 1996 1996
------------- ---------
<S> <C> <C>
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 3,057 $ 37,403
Current portion of receivables, net of
allowances and discount of
$2.5 million and $2.7 million 3,928 4,270
Accounts and dues receivable, net 399 522
Inventory and other current assets 3,896 4,672
-------- ---------
Total Current Assets 11,280 46,867
Restricted cash 1,574 2,912
Receivables, net of allowances and
discount of $5.0 million and
$5.4 million 7,275 8,949
Campground real estate 13,452 13,468
Resort real estate 664 1,159
Buildings and equipment, net of
accumulated depreciation of
$10.9 million and $10.4 million 26,184 27,130
Land held for sale 6,476 6,821
Other assets 5,261 2,448
-------- ---------
Total Assets $ 72,166 $ 109,754
======== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable $ 3,043 $ 3,030
Accrued interest 1,194 5,617
Other accrued liabilities 8,771 9,329
Current portion of long term debt 4,395 28,530
Accrued construction costs 2,989 3,154
Deferred membership dues revenue 12,130 17,599
-------- --------
Total Current Liabilities 32,522 67,259
Long term debt 59,366 66,922
Other liabilities 3,635 3,564
-------- --------
Total Liabilities 95,523 137,745
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, $.01 par value,
1,500,000 shares authorized, none
issued or outstanding
Common stock, $.01 par value,
15,000,000 shares authorized,
7,383,276 and 3,702,726 shares
issued and outstanding 74 37
Additional paid-in capital 20,502 17,549
Accumulated deficit subsequent to
December 31, 1991, date of
emergence from bankruptcy
(total deficit eliminated $51,752) (43,796) (45,451)
Cumulative currency translation
adjustment (137) (126)
-------- --------
Total Stockholders' Deficit (23,357) (27,991)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 72,166 $109,754
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Page 3
<PAGE>
USTRAILS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1996 1995
------- -------
<S> <C> <C>
REVENUES
Membership dues $ 9,863 $10,126
Other campground/resort revenue 7,093 8,841
Membership and resort interest sales 1,038 1,361
RPI membership fees 1,009 1,200
Interest income 1,120 1,775
Gain on asset dispositions 1,262 256
Other income 1,085 1,302
------- -------
Total Revenues 22,470 24,861
------- -------
EXPENSES
Campground/resort operating expenses 13,007 16,602
Selling expenses 888 952
Provision for doubtful accounts 4 9
Cost of sales 17 60
Marketing expenses 340 453
RPI membership expenses 441 552
Corporate member services 489 545
Interest expense and amortization 2,455 4,610
General and administrative expenses 2,154 2,432
Restructuring costs 897
------- -------
Total Expenses 20,692 26,215
------- -------
INCOME (LOSS) BEFORE INCOME TAXES 1,778 (1,354)
Income tax (provision) benefit (123) 173
------- -------
NET INCOME (LOSS) $ 1,655 ($1,181)
======= =======
PRIMARY AND FULLY DILUTED NET INCOME
(LOSS) PER SHARE $.25 ($.32)
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 6,732 3,703
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Page 4
<PAGE>
USTRAILS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Foreign
Additional Currency
Common Paid-In Accumulated Translation
Stock Capital Deficit Adjustment Total
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 1996 $37 $17,549 ($45,451) ($126) ($27,991)
Issuance of common stock in
Restructuring 37 2,953 2,990
Foreign currency translation
adjustment (11) (11)
Net income for the three months
ended September 30, 1996 1,655 1,655
--- ------- -------- ----- --------
BALANCE, September 30, 1996 $74 $20,502 ($43,796) ($137) ($23,357)
=== ======= ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 5
<PAGE>
USTRAILS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1996 1995
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Collections of principal on
receivables $ 2,152 $ 3,420
Interest received 1,001 1,608
Interest paid (6,885) (7,753)
General and administrative, corporate
member services and restructuring
costs (4,354) (3,358)
Cash collected from operations,
including deferred revenue 13,615 16,493
Cash from sales of memberships and
resort interests at the point of sale 998 1,272
Expenditures for property operations (11,262) (17,076)
Expenditures for sales and marketing (1,148) (1,472)
Expenditures for insurance premiums (102) (2,628)
Payment of income taxes (123) (18)
Reduction of (deposit made) to secure
standby letter of credit 1,182 (1,500)
Other, net 97
-------- --------
Net cash used in operating activities (4,926) (10,915)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and HUD-related expenditures (343) (363)
Proceeds from asset sales 2,078 337
-------- --------
Net cash provided by (used in) 1,735 (26)
-------- --------
investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial borrowings under Credit 32,000
Agreement
Net repayments under Credit Agreement (9,655)
Payment of debt issuance costs (3,132)
Retirement of Secured Notes (50,169)
Mandatory redemption of Secured Notes (18,599)
Repayment of notes and mortgages (199) (127)
-------- --------
Net cash used in financing activities (31,155) (18,726)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (34,346) (29,667)
CASH AND CASH EQUIVALENTS:
Beginning of period 37,403 50,596
-------- --------
End of period $ 3,057 $ 20,929
======== ========
</TABLE>
-- continued --
Page 6
<PAGE>
USTRAILS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1996 1995
------------------ -----------------
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO
NET CASH USED IN OPERATING ACTIVITIES:
Net income (loss) $ 1,655 ($1,181)
------- --------
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH USED IN
OPERATING ACTIVITIES --
Depreciation 701 718
Provision for doubtful accounts 4 9
Cost of sales 17 100
Amortization of interest discount,
collection costs and
valuation allowance (201) (312)
Amortization of debt issue costs and
deferred gain 253
Amortization of consent fees 1,144
Gain on asset dispositions (1,262) (256)
Decrease (increase) in restricted cash 1,338 (1,406)
Decrease in receivables 2,213 3,327
Decrease (increase) in other assets 558 (819)
Increase (decrease) in accounts
payable 13 (2,012)
Decrease in accrued interest (4,423) (4,287)
Decrease in deferred membership dues
revenue (5,352) (6,176)
Increase (decrease) in other
liabilities (429) 235
Other, net (11) 1
------- --------
Total adjustments (6,581) (9,734)
------- --------
NET CASH USED IN OPERATING ACTIVITIES ($4,926) ($10,915)
======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 7
<PAGE>
USTRAILS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
GENERAL
USTrails Inc. and its subsidiaries (the "Company") own and operate a system of
58 membership-based campgrounds located in 19 states and British Columbia,
Canada. In addition, the Company manages timeshare facilities and owns certain
real estate at eight full service resorts located in seven states and owns and
operates the resort amenities at one of these locations. The Company also
provides a reciprocal use program for members of approximately 320 recreational
facilities. The campground business represents the most significant portion of
the Company's business comprising 83% of the Company's operating revenues in
fiscal 1996. The full service resort and reciprocal use businesses provided the
remaining 17%. Operating revenues consist primarily of membership dues received
from campground members, fee revenue from members of the reciprocal use program,
and management fees, guest fees and other fees and revenues received from the
campground and resort operations.
The accompanying consolidated financial statements include the accounts of
USTrails Inc. and the following wholly owned subsidiaries: National American
Corporation and its subsidiaries ("NACO"), Shorewood Corporation, which does
business as Resort Parks International ("RPI"), UST Wilderness Management
Corporation ("Wilderness Management"), and until July 16, 1996, Thousand Trails,
Inc. and its subsidiaries. On July 16, 1996, Thousand Trails, Inc. was merged
into the Company.
The accompanying consolidated financial statements of the Company have not been
examined by independent accountants, but in the opinion of management, the
unaudited interim financial statements furnished herein reflect all adjustments
which are necessary for a fair presentation of the results for the interim
periods. All such adjustments are of a normal recurring nature, except for the
items described in the footnotes to the consolidated financial statements.
This Quarterly Report on Form 10-Q should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended June 30, 1996, filed
with the Securities and Exchange Commission on September 26, 1996.
NOTE 1 -- BASIS OF FINANCIAL STATEMENT PRESENTATION
The Company emerged from proceedings under Chapter 11 of the Bankruptcy Code on
December 31, 1991, pursuant to a confirmed plan of reorganization. Due to the
Company's emergence from bankruptcy, fresh start reporting, as required by AICPA
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code," was reflected as of December 31, 1991 in the
Company's consolidated financial statements. Under fresh start reporting, a new
reporting entity was created and assets and liabilities were restated to reflect
their reorganization value which approximated fair value at the date of
reorganization.
All significant intercompany transactions and balances have been eliminated in
the accompanying consolidated financial statements as of and for the three month
periods ended September 30, 1996 and 1995, and in the consolidated balance sheet
at June 30, 1996. Certain prior period amounts in the consolidated financial
statements have been reclassified to conform to the current period presentation.
Net income per common share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding, as determined
by the treasury stock method, whereby proceeds, if any, from the assumed
exercise of common stock equivalents, would be used to purchase shares at
current market prices. Net loss per common
Page 8
<PAGE>
share is computed based on weighted average common shares outstanding only.
Warrants outstanding as well as common stock equivalents that would be assumed
to be outstanding are excluded from the net loss per common share computation as
they would be anti-dilutive. As part of the Restructuring discussed in Note 2,
on July 17, 1996, the Company issued an aggregate of 3,680,550 shares of common
stock as partial consideration for the retirement of the Secured Notes. These
shares represent approximately 50% of the shares of common stock currently
outstanding.
Since inception, the Company has not paid any dividends. The Credit Agreement
between the Company and Foothill Capital Corporation ("Foothill") prohibits the
payment of any cash dividends without the consent of Foothill until the
borrowings under the Credit Agreement are repaid. In addition, the Indenture
for the 12% Senior Subordinated PIK Notes Due 2003 ("PIK Notes") prohibits the
payment of any cash dividends until the PIK Notes are repaid.
NOTE 2 -- SECURED NOTE RESTRUCTURING AND LONG TERM DEBT
SECURED NOTE RESTRUCTURING
At June 30, 1996, the Company had outstanding $101.5 million principal amount of
Secured Notes. At that time, there was a substantial risk that the resources
available to the Company would be insufficient to cover its continuing operating
needs and the mandatory sinking fund and interest payments due on the Secured
Notes on July 15, 1996. In addition, the Company faced default under the
financial covenants in the Indenture for the Secured Notes if waivers were not
obtained by September 30, 1996. On July 17, 1996, however, the Company
consummated a restructuring (the "Restructuring"), in which all of the Secured
Notes were retired. The Restructuring provided a new capital structure for the
Company. This new capital structure includes $40.2 million principal amount of
PIK Notes that do not require the cash payment of interest until fiscal 2001, do
not contain financial covenants, and mature on July 15, 2003 without earlier
scheduled principal payments. The new capital structure also includes the
Credit Agreement with Foothill that, in addition to financing $32.0 million of
the retirement of the Secured Notes and related costs, provides the Company with
a working capital facility which reduces in availability through final maturity
on July 16, 1999. Availability of such working capital is subject to continued
compliance by the Company with the financial covenants, amortization schedule,
and other requirements of the Credit Agreement, including certain covenants
respecting minimum earnings before interest, taxes, depreciation and
amortization, and minimum tangible net worth. As part of the Restructuring, the
Company also issued an aggregate of 3,680,550 shares of common stock as partial
consideration for the retirement of the Secured Notes. These shares represent
approximately 50% of the shares of common stock currently outstanding.
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. As a result, the $40.2 million
principal amount of PIK Notes issued in the Restructuring was recorded with a
deferred gain of $303,000. This deferred gain is being amortized as a reduction
of interest expense using the effective interest method over the term of the
notes.
The Company incurred $897,000 of legal expenses and other direct costs in
connection with the completion of the Restructuring which have been presented as
restructuring costs in the accompanying consolidated statement of operations for
the three months ended September 30, 1996. In addition, the Company incurred
debt issuance costs of $3.1 million, including $570,000 of prepaid interest,
related to obtaining the Credit Agreement with Foothill. These costs, which
include legal costs, financial advisory fees and other direct costs of obtaining
the loans, were capitalized and are reflected in other assets in the
accompanying consolidated balance sheet at September 30, 1996, and are being
amortized over the term of the Credit Agreement.
Page 9
<PAGE>
BALANCE SHEET PRESENTATION OF LONG TERM DEBT
Balance sheet presentation of the current and long term components of the
Company's outstanding debt is reflected below, as of September 30, 1996 and June
30, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- --------
<S> <C> <C>
CURRENT PORTION OF LONG TERM DEBT:
Borrowings under Credit Agreement $ 4,189
Secured Notes, net of discount of $7.1
million $28,264
Notes and mortgages payable 206 266
------- -------
$ 4,395 $28,530
======= =======
LONG TERM DEBT:
Borrowings under Credit Agreement $18,156
PIK Notes, including deferred gain of
$.3 million 40,513
Secured Notes $66,086
Notes and mortgages payable 697 836
------- -------
$59,366 $66,922
======= =======
Total long term debt $63,761 $95,452
======= =======
</TABLE>
NOTE 3 -- CONTINGENCIES
Self Insurance
- --------------
The Company is self-insured for general liability losses up to $250,000 per
occurrence, with an annual aggregate of $2.8 million. As of September 30, 1996,
the Company had insurance policies which provide excess coverage up to $27.0
million per occurrence and aggregate. The Company has provided a liability for
estimated known and unknown claims related to uninsured general liability risks
of $1.7 million at September 30, 1996, which is included in other liabilities in
the accompanying consolidated balance sheet. This liability is determined based
on actuarial estimates.
CEO Bonus Accrual and Stock Options
- -----------------------------------
The employment agreement between the Company and its Chief Executive Officer
("CEO") provided that the CEO would receive a one-time bonus equal to between 4%
and 6% of the amount by which the enterprise value of the Company (including the
value of its debt and equity) exceeded $75.0 million at the time he elected to
receive the bonus. The bonus would have been adversely affected by the
consummation of the Restructuring. As a result, on June 29, 1996, the CEO
exercised his right to receive the bonus. The CEO is entitled to $1,270,589, of
which $952,927 was paid on July 9, 1996. The additional $317,662 will be
payable on May 11, 1997, provided that the CEO is employed by the Company on
that date. The Company accrued the entire amount of the bonus at June 30, 1996.
The Company obtained an irrevocable standby letter of credit on which the CEO
may draw payment if the Company fails to pay any portion of the bonus after
receiving a request from the CEO. A $1.5 million cash deposit securing this
letter of credit was subsequently reduced to $317,662 after payment of the
initial bonus amount.
After consummation of the Restructuring, the Company's CEO was granted, subject
to stockholder approval, options to purchase 664,495 shares of the Company's
common stock at $0.69 per share. If approved, the options will be immediately
exercisable for a period of ten years while the CEO is in the employ of the
Company, subject to certain exceptions. The exercise of the options, however,
will be subject to restrictions designed to reduce the likelihood of an
"ownership change" for federal tax purposes.
Page 10
<PAGE>
Declining Membership Base
- -------------------------
The Company derives a significant portion of its ongoing operating revenue from
its campground members (83% in fiscal 1996). The Company's membership base has
declined significantly during the past several years and is presently declining
at the rate of approximately 8% per year. The Company attributes this
continuing decline principally to its aging membership base, of whom
approximately 50% are senior citizens. The Company must significantly increase
its campground membership sales over current levels in order to stop the
continuing decline in the Company's membership base. As a result, the success
of the Company's business strategy over the long term is dependent upon the
Company's ability to market new memberships in sufficient numbers on a cost-
effective basis.
Environmental Issues
- --------------------
Certain environmental issues may exist at some of the Company's campgrounds and
resorts 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
- ----------
Johnnie Lacy v. Thousands Trails, Inc., Civil Action No C-96 004411, filed
- -------------------------------------
February 1, 1996, in the United States District Court for the Northern District
of California. In this action, which purports to be a class action, the
plaintiff alleges that the Company has failed to comply with the Americans with
Disabilities Act and related California statutes with respect to certain of its
campgrounds. The plaintiff alleges that the Company has failed to remove
barriers to access by persons with disabilities where such barrier removal is
readily achievable. The plaintiff seeks unspecified damages and injunctive
relief. Although this case is still in the early stages of development,
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.
NOTE 4 -- SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of non-cash investing and financing activities required
by Statement of Financial Accounting Standards No. 95 "Statement of Cash Flows"
are presented below for the three months ended September 30, 1996 (dollars in
thousands):
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Non-cash transactions related to the
Restructuring
------------------------------------
Retirement of Secured Notes ($44,181)
Issuance of PIK Notes 40,521
Issuance of Common Stock 2,990
Write-off of Unamortized Portion of
Consent Fees 670
</TABLE>
The Company did not have any non-cash investing or financing activities during
the three months ended September 30, 1995.
Page 11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with 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,
1996, filed with the SEC on September 26, 1996.
All capitalized terms, as used herein, have the same meaning as those defined in
Item 1 -- Financial Statements.
In this Management's Discussion and Analysis of Financial Condition and Results
of Operations, the Company makes certain statements as to its expected financial
condition, results of operations, and cash flows for periods after September 30,
1996. All of these statements are forward-looking statements made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These statements are not historical and involve risks and uncertainties.
The Company's actual financial condition, results of operations, and cash flows
for future periods may differ materially due to several factors, including but
not limited to the Company's ability to control costs and implement its sales
and marketing plan, the actual rate of decline in the campground membership
base, the actual use of the campgrounds by members and guests, the effects on
members and guests of the Company's stated efforts to downsize its business, the
Company's success in collecting its contracts receivable and selling assets, and
the other factors affecting the Company's operations described in this report,
and in the Company's Annual Report on Form 10-K for the year ended June 30,
1996.
LIQUIDITY AND CAPITAL RESOURCES
STABILIZED OPERATIONS. Since reorganizing under Chapter 11 on December 31,
1991, the Company's annualized operating revenues have decreased by $21.3
million (23%). Over the same period, the Company has decreased its annualized
operating expenses by $43.7 million (38%), and implemented a program under which
certain campground members voluntarily increased their annual dues by an
aggregate of $2.1 million. During this period, the Company has concentrated on
increasing continuing revenues and decreasing continuing expenses. The Company
has closed eleven campgrounds and has changed other campgrounds to seasonal
operations, reduced staff, consolidated its administrative functions, deferred
maintenance, and reduced service levels. The Company has also disposed of
certain campgrounds and other non-core assets. However, the Company's
membership base has declined significantly during this period, and the
membership base is presently declining at the rate of approximately 8% per year.
The Company attributes this continuing decline principally to its aging
membership base, approximately 50% of whom are senior citizens.
During fiscal 1996, the Company stabilized its operations, which it had been
seeking to accomplish since emerging from Chapter 11 proceedings in 1991, and
achieved a positive contribution from operations of $4.8 million. For the three
months ended September 30, 1996, the Company had a positive contribution from
operations of $2.7 million, compared with $1.2 million for the same period last
year. For this purpose, the contribution from operations is defined as
operating income before interest income and expense, gain on asset dispositions,
restructuring costs, and taxes. See the tables on pages 15 and 16 for the
elements of the contribution from operations and the Company's operating income
(loss) before taxes for the periods presented.
CURRENT BUSINESS STRATEGY. The Company's current strategy is to improve its
campground operations, stabilize its campground membership base through
increased sales and marketing efforts, and determine the appropriate level for
its ongoing campground operations. The Company has conducted an extensive
marketing study, redesigned its membership products, and developed a sales and
marketing operation. Consistent with this strategy, the Company intends to
downsize its business by implementing additional cost reduction measures while
its
Page 12
<PAGE>
membership base declines. These cost reduction measures will likely include
the closure and disposition of additional campgrounds and decreases in general
and administrative expenditures. The disposition of campgrounds will require
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 disposition opportunities or the ability of the Company to realize
recoveries from asset dispositions. Moreover, the possibility of additional
campground dispositions may adversely affect the collection of dues and
contracts receivable from members.
CASH. On September 30, 1996, the Company had $3.1 million of cash and cash
equivalents, a decrease of $34.3 million during the three month period. The
Company's cash declined primarily because $28.4 million was used to retire
Secured Notes and pay legal and other costs related to the Restructuring, and
$9.7 million was used to repay borrowings under the Credit Agreement with
Foothill. These expenditures were partially offset by $2.1 million of proceeds
from asset sales.
In the Restructuring, $50.2 million of cash was paid to the holders of the
Secured Notes as full or partial consideration for the retirement of the Secured
Notes, and $6.2 million of cash was paid to the holders of the Secured Notes for
the semi-annual interest due July 15, 1996, and additional interest through the
date of the Restructuring. In addition, $897,000 of cash was used to pay for
expenses related to the Restructuring, and $3.1 million of cash was used to pay
the costs of obtaining the Credit Agreement with Foothill. The Company funded
these cash payments with $28.4 million of its cash and $32.0 million of new
borrowings under the Credit Agreement with Foothill.
The Company's principal sources of operating cash for the three months ended
September 30, 1996, were $3.2 million in principal and interest collections on
receivables and $13.6 million in dues collections and other campground and
resort revenues. Principal uses of operating cash for the three months ended
September 30, 1996, were $11.3 million in operating expenses, $4.4 million in
general and administrative expenses (including corporate member services and
restructuring costs), $1.1 million in sales and marketing expenditures, and $6.9
million in interest payments, $6.2 million of which was related to the Secured
Notes that were retired in the Restructuring.
Under the Credit Agreement with Foothill, as of September 30, 1996, the Company
had outstanding term loans totaling $10.7 million, and a revolving loan in the
maximum amount of $23.4 million, of which $11.6 million was outstanding and
$11.8 million was available for borrowing. Under the 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. The Credit Agreement must be paid in full on July
16, 1999. During the balance of fiscal 1997, the Company is required to make
mandatory principal reductions under the term loans in the aggregate amount of
$4.2 million, funded from collections of principal and interest on the contracts
receivable. All cash held by the Company and its wholly owned subsidiaries is
generally deposited in accounts that are controlled by and pledged to Foothill.
MATERIAL CHANGES IN FINANCIAL CONDITION
Total assets decreased by $37.6 million during the three months ended September
30, 1996. Cash decreased by $34.3 million as discussed above. Contracts
receivable decreased by $2.0 million due primarily to $2.2 million in cash
collections offset by $201,000 related to the amortization of the allowances for
interest discount and collection costs and valuation allowance. Inventory and
other current assets decreased by $776,000 due primarily to the amortization of
insurance premiums for fiscal 1997 that were paid in June 1996. Campground and
resort properties decreased by a total of $1.8 million due primarily to the sale
of three campgrounds
Page 13
<PAGE>
and certain other real estate at the campgrounds and resorts, and depreciation
during the period. In addition, restricted cash decreased by $1.3 million
resulting primarily from the payment of a one-time bonus to the Company's Chief
Executive Officer under the terms of his employment agreement with the Company.
These decreases were offset by a $2.8 million increase in other assets, due
primarily to $3.1 million of debt issuance costs incurred in connection with
obtaining the Credit Agreement with Foothill, reduced by amortization during the
period.
Total liabilities decreased by $42.2 million during the three months ended
September 30, 1996. The Company's total outstanding debt decreased by $31.7
million due primarily to the retirement of $101.5 million principal amount of
Secured Notes in the Restructuring, partially offset by the related borrowings
under the Credit Agreement and issuance of $40.2 million principal amount of PIK
Notes. Accrued interest declined by $4.4 million due to the $6.2 million of
interest paid on the Secured Notes in July 1996, partially offset by $1.0
million of non-cash interest accruing on the PIK Notes, which amount will be
added to the outstanding principal of the PIK Notes. In addition, deferred
membership dues revenue declined by $5.5 million due to revenue recognized in
excess of cash collections during the period.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995
NET INCOME (LOSS). The Company reported net income of $1.7 million or $.25 per
share on revenues of $22.5 million for the three months ended September 30,
1996. This compares with a net loss of $1.2 million or $.32 per share on
revenues of $24.9 million for the same period last year. Although revenues
declined during the current period, there were greater decreases in expenses,
principally campground operating costs, general and administrative expenses, and
interest, which were primarily responsible for the improvement in results.
Page 14
<PAGE>
The following table summarizes the operating results of the Company's
campgrounds (including Wilderness Management), full service resorts, and RPI,
excluding allocations of corporate overhead and other revenues and expenses, for
the three months ended September 30, 1996:
<TABLE>
<CAPTION>
Three Months Ended September 30, 1996
-------------------------------------
Campgrounds Resorts Total
----------- ------- -----------
<S> <C> <C> <C>
CAMPGROUND/RESORT OPERATIONS
Membership dues $ 9,863 $ 9,863
Other campground/resort revenues 5,926 $ 1,166 7,092
Campground ancillary expenses (2,673) (2,673)
Other operating expenses (9,141) (1,192) (10,333)
------- ------- --------
Profit (loss) on campground/resort
operations 3,975 (26) 3,949
------- ------- --------
SALES
Memberships 858 858
Resort interests 180 180
------- ------- --------
Total sales 858 180 1,038
------- ------- --------
Selling costs (770) (139) (909)
Marketing expenses (340) (340)
------- ------- --------
Total expenses (1,110) (139) (1,249)
------- ------- --------
Profit (loss) on sales (252) 41 (211)
------- ------- --------
RESORT PARKS INTERNATIONAL
Fee income 1,009 1,009
Cost of operations (441) (441)
------- ------- --------
RPI net contribution 568 568
------- ------- --------
$ 4,291 $ 15 4,306
======= ======= --------
Other income 1,085
Corporate member services (489)
General and administrative expenses (2,154)
--------
OPERATING INCOME BEFORE INTEREST INCOME
AND EXPENSE, GAIN ON ASSET DISPOSITIONS,
RESTRUCTURING COSTS, AND TAXES 2,748
-------
Interest income 1,120
Interest expense and amortization of
debt issuance costs and deferred gain (2,455)
Gain on asset dispositions 1,262
Restructuring costs (897)
-------
OPERATING INCOME BEFORE TAXES $ 1,778
=======
</TABLE>
Page 15
<PAGE>
The following table summarizes the operating results of the Company's
campgrounds (including Wilderness Management), full service resorts, and RPI,
excluding allocations of corporate overhead and other revenues and expenses, for
the three months ended September 30, 1995:
<TABLE>
<CAPTION>
Three Months Ended September 30, 1995
-------------------------------------
Campgrounds Resorts Total
----------- -------- ----------
<S> <C> <C> <C>
CAMPGROUND/RESORT OPERATIONS
Membership dues $ 10,126 $ 10,126
Other campground/resort revenues 6,507 $ 2,334 8,841
Campground ancillary expenses (3,182) (3,182)
Operating expenses (11,048) (2,372) (13,420)
-------- ------- --------
Profit (loss) on campground/resort
operations 2,403 (38) 2,365
-------- ------- --------
SALES
Memberships 874 874
Resort interests 487 487
-------- ------- --------
Total sales 874 487 1,361
-------- ------- --------
Selling costs (707) (314) (1,021)
Marketing expenses (453) (453)
-------- ------- --------
Total expenses (1,160) (314) (1,474)
-------- ------- --------
Profit (loss) on sales (286) 173 (113)
-------- ------- --------
RESORT PARKS INTERNATIONAL
Fee income 1,200 1,200
Cost of operations (552) (552)
-------- ------- --------
RPI net contribution 648 648
-------- ------- --------
$ 2,765 $ 135 2,900
======== ======= --------
Other income 1,302
Corporate member services (545)
General and administrative expenses (2,432)
--------
OPERATING INCOME BEFORE INTEREST INCOME
AND EXPENSE, GAIN ON ASSET
DISPOSITIONS, AND TAXES 1,225
--------
Interest income 1,775
Interest expense and amortization of
debt discount and consent fees (4,610)
Gain on asset dispositions 256
--------
OPERATING LOSS BEFORE TAXES ($1,354)
========
</TABLE>
Page 16
<PAGE>
CAMPGROUND OPERATIONS. The Company's operations are highly seasonal. The
Company receives the majority of the dues revenue from its members during the
winter, which are recognized as income ratably during the year. However, the
Company incurs a higher level of operating expenses during the summer. In
addition, a majority of the Company's sales and marketing efforts occur during
the summer.
Campground membership dues revenue was $9.9 million for the three months ended
September 30, 1996, compared with $10.1 million for the same period last year.
The decline in dues revenue was due primarily to the net loss of campground
members, partially offset by the effect of the annual dues increase.
Other campground revenues were $5.9 million for the three months ended September
30, 1996, compared with $6.5 million for the same period last year. The related
campground ancillary expenses were $2.7 million for the three months ended
September 30, 1996, compared with $3.2 million for the same period last year.
The decreases in campground revenues and the related campground ancillary
expenses were due primarily to the closure of four campgrounds during fiscal
1996 and reductions in service levels at certain other campgrounds.
Other campground operating expenses decreased by $1.9 million to $9.1 million
for the three months ended September 30, 1996, from $11.0 million for the same
period last year. This decrease resulted primarily from the operational changes
made at the campgrounds in fiscal 1996, which included reducing campground
management and personnel, closing and disposing of four campgrounds, and
changing to seasonal operations at additional campgrounds with low usage during
off-season periods.
During the balance of fiscal 1997, the Company intends to continue to evaluate
its campground operations to determine the appropriate level for such
operations, and it expects to implement additional cost reduction measures while
its membership base declines. These cost reduction measures will likely include
the closure and disposition of additional campgrounds.
Campground membership sales revenue was $858,000 for the three months ended
September 30, 1996, compared with $874,000 for the same period last year. For
these same periods, selling and marketing expenses as a percentage of sales were
129% and 133%, respectively. The Company's marketing efforts require
significant expense, and in the short term, the Company expects that its selling
and marketing expenses will continue to exceed its campground membership sales
revenue. The Company must significantly increase its campground membership
sales over current levels in order to stop the continuing decline in the
Company's membership base. The Company is working to increase the number of
prospects that attend its sales presentations, which has not met the Company's
expectations in fiscal 1997. Because the Company intends to keep its selling
and marketing expenses within a close relation to sales revenue, it is relying
principally upon member and RV dealer referrals to increase the number of sales
prospects in the future. The success of the Company's business strategy over
the long term is dependent upon the Company's ability to market new memberships
in sufficient numbers on a cost-effective basis.
CAMPGROUND MANAGEMENT. Wilderness Management, a wholly owned subsidiary of the
Company, manages public campgrounds for the US Forest Service. For the three
months ended September 30, 1996, these operations produced revenues of $733,000
with related expenses (excluding certain shared administrative costs) of
$580,000. This compares with revenues for the same period last year of $541,000
and related expenses (excluding certain shared administrative costs) of
$430,000.
RESORT OPERATIONS. The Company's resort operations are currently limited
primarily to timeshare management and timeshare and lot sales. The direct
operating expenses of the resort operations exceeded revenues by $26,000 for the
three months ended September 30, 1996, compared with $38,000 for the same period
last year. For the three months ended
Page 17
<PAGE>
September 30, 1996, the revenues from the Company's timeshare management
operations exceeded the related expenses (excluding certain shared
administrative costs) by $56,000, compared with $122,000 for the same period
last year. The net contribution declined because of a decrease in the management
fee the Company charges certain timeshare associations, which is based on the
amount of dues collected, and lower dues collections.
The Company has been selling its timeshare and lot inventory at substantially
reduced prices in order to reduce the carrying costs on the unsold inventory,
increase management fees, and eliminate the Company's requirement to pay dues to
the timeshare associations on unsold units. Timeshare and lot sales were
$180,000 for the three months ended September 30, 1996, compared with $487,000
for the same period last year. The decrease in the current period resulted from
the Company having less desirable inventory available for sale and fewer
existing timeshare owners who had not been contacted previously about purchasing
an additional timeshare. The related selling expenses as a percentage of sales
(including cost of sales and bad debt expense) were 77% for the three months
ended September 30, 1996, compared with 64% of sales for the same period last
year. The percentage was higher in the current period because of the lower
sales volume and certain fixed selling costs.
The Company presently plans to dispose of the remaining assets that it owns at
the resorts over the next several years. The Company is currently negotiating
to sell its timeshare management operations to certain employees. If this sale
is consummated, it will significantly reduce both the revenues and expenses from
the resort operations. There is no assurance that the Company will be able to
consummate this sale. Moreover, there is no assurance that the Company will be
able to locate a buyer for any of the other resort assets or that sales on
acceptable terms can be effected.
RESORT PARKS INTERNATIONAL. RPI charges its members a fee for a membership that
entitles them to use any of the participating facilities, subject to certain
limitations. For the three months ended September 30, 1996, RPI's operations
produced a net contribution of $568,000, compared with $648,000 for the same
period last year, due primarily to a decrease in revenues, which was only
partially offset by expense reductions. RPI'S revenues have declined as a
result of declining sales in the membership camping industry generally.
INTEREST INCOME AND EXPENSE. Interest income decreased by $655,000 for the
three months ended September 30, 1996, compared with the same period last year,
due primarily to a decrease in interest earned on the Company's diminishing
portfolio of contracts receivable and a $17.9 million decrease in cash between
years.
Interest expense decreased by $2.2 million for the three months ended September
30, 1996, compared with the same period last year, due primarily to the net
$31.7 million reduction in the Company's outstanding debt resulting from the
Restructuring, a $2.5 million reduction in mortgage notes due to the abandonment
of two operating campgrounds in the Fall of 1995, and scheduled repayments of
notes payable.
As a result of the Restructuring, interest expense is expected to decrease
significantly for fiscal 1997 compared with fiscal 1996 due to the reduction in
the total amount of debt outstanding. Moreover, since the Company is prohibited
from paying cash interest on the PIK Notes until the borrowings under the Credit
Agreement with Foothill are repaid, during the repayment period, a substantial
portion of the Company's interest expense will represent non-cash interest on
the PIK Notes. The payment-in-kind feature of the PIK Notes will decrease the
Company's cash interest costs over this period. However, the payment-in-kind
feature of the PIK Notes will also increase the principal amount of PIK Notes
outstanding at the rate of 12% per year, compounded semi-annually, which will
increase interest expense in the future and also decrease the rate at which the
Company is able to retire its total debt outstanding.
GAIN ON ASSET DISPOSITIONS. The Company recognized a gain on the disposition of
assets of $1.3 million for the three months ended September 30, 1996, compared
with $256,000 for the same
Page 18
<PAGE>
period last year. The gain in the current period resulted primarily from the
sale of three campgrounds and certain other real estate at the campgrounds and
resorts. Over the next several years, the Company intends to dispose of the
remaining assets that it owns at the resorts, any campgrounds that are closed as
the Company downsizes, and other undeveloped land and excess acreage associated
with the campgrounds. However, no assurance exists that the Company will be able
to locate a buyer for these assets or that sales on acceptable terms can be
effected.
OTHER INCOME. Other income generally consists of transfer fees received when
existing memberships are transferred in the secondary market without assistance
from the Company, settlements received on defaulted contracts, subscription fees
received from members who subscribe to the Company's member magazine, and fees
received from members who make more than five operator-assisted reservations in
a given year, rather than use the Company's automated reservation system. For
the three months ended September 30, 1996, other income was $1.1 million,
compared with $1.3 million for the same period last year.
OTHER EXPENSES. General and administrative expenses were $2.2 million for the
three months ended September 30, 1996, compared with $2.4 million for the same
period last year, reflecting the Company's continuing efforts to lower its
administrative costs.
Corporate member services costs were $489,000 for the three months ended
September 30, 1996, compared with $545,000 for the same period last year. The
decrease in the current period was due primarily to staff reductions and other
cost-cutting measures implemented during the Fall of 1995.
The Company incurred $897,000 of restructuring costs during the three months
ended September 30, 1996, related to the Restructuring. In addition, the
Company incurred debt issuance costs of $3.1 million, including $570,000 of
prepaid interest, related to obtaining the Credit Agreement with Foothill.
These costs, which include legal costs, financial advisory fees, and other
direct costs of obtaining the loans, were capitalized and are reflected in other
assets in the Company's consolidated balance sheet as of September 30, 1996.
Page 19
<PAGE>
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
In light of the then pending Restructuring, the Company withheld the $6.1
million interest payment and the $18.6 million sinking fund payment due on the
Secured Notes on July 15, 1996. As a consequence, when the Restructuring was
consummated on July 17, 1996, the Company paid to the holders of the Secured
Notes, interest at the applicable default rate from July 16, 1996 to July 17,
1996, in the total amount of $124,000. In the Restructuring, 100% of the
outstanding Secured Notes were retired (See "Secured Note Restructuring" in Note
2 to the consolidated financial statements in Part I, Item 1 of this report).
ITEM 5. OTHER INFORMATION
At the 1996 Annual Meeting of Stockholders to be held on November 19, 1996, the
stockholders of the Company will be asked to approve a merger (the
"Reincorporation Merger") between the Company and a newly formed, wholly owned
subsidiary of the Company ("New Trails") incorporated in Delaware. The
Reincorporation Merger is being proposed by the Company (a) to include certain
transfer restrictions on the common stock of New Trails issued in the
Reincorporation Merger, which restrictions are designed to help assure that the
Company's substantial net operating loss carryforwards will continue to be
available to offset future taxable income, and (b) to change the Company's state
of incorporation from Nevada to Delaware and to change its name to Thousand
Trails, Inc. The purpose of the transfer restrictions to be implemented by the
Reincorporation Merger is to extend the existing transfer restrictions affecting
approximately 85% of the Company's common stock to the approximately 15% of the
Company's common stock not already subject to such restrictions, and to extend
the duration of such restrictions to correspond to the period during which the
Company is entitled to use its net operating loss carryforwards, that is, until
2011.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following documents are filed as exhibits to this report.
Exhibit
Number Description
- ------- -----------
2.1 Offer to Purchase for Cash the Company's 12% Secured Notes due 1998 and
Additional Series 12% Secured Notes due 1998 by the Company, dated June
5, 1996 (the "Offer to Purchase") (incorporated by reference to Exhibit
99.2 to the Company's Current Report on Form 8-K filed with the SEC on
June 7, 1996).
2.2 Supplement to the Offer to Purchase, dated June 21, 1996 (incorporated by
reference to Exhibit 2.5 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1996).
2.3 Private Placement Memorandum by the Company offering to exchange the
Company's 12% Secured Notes due 1998 and Additional Series 12% Secured
Notes due 1998 to certain holders of such notes, dated June 28, 1996 (the
"Private Placement Memorandum") (incorporated by reference to Exhibit 2.6
to the Company's Annual Report on Form 10-K for the year ended June 30,
1996).
Page 20
<PAGE>
2.4 Letter of Transmittal pertaining to the transmittal of the Company's 12%
Secured Notes Due 1998 and Additional Series 12% Secured Notes Due 1998
by certain holders of such notes pursuant to the exchange offer made by
the Company in the Private Placement Memorandum (incorporated by
reference to Exhibit 2.7 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1996).
2.5 Supplement to the Private Placement Memorandum, dated July 15, 1996
(incorporated by reference to Exhibit 2.8 to the Company's Annual Report
on Form 10-K for the year ended June 30, 1996).
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's Annual Report
on Form 10-K for the year ended June 30, 1992).
3.2 Amended and Restated By-Laws of the Company (as amended on July 15, 1996)
(incorporated by reference to Exhibit 3.2 to the Company's Annual Report
on Form 10-K for the year ended June 30, 1996).
4.1 Indenture, dated as of July 17, 1996, among the Company, Fleet National
Bank as Trustee, and certain other parties described therein, pertaining
to the Company's Senior Subordinated Pay-In-Kind Notes Due 2003
(incorporated by reference to Exhibit 4.36 to the Company's Annual Report
on Form 10-K for the year ended June 30, 1996).
4.2 Form of Senior Subordinated Pay-In-Kind Note Due 2003 (incorporated by
reference to Exhibit 4.37 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1996).
4.3 Registration Rights Agreement, dated as of July 17, 1996, between the
Company and Fleet National Bank as Trustee (incorporated by reference to
Exhibit 4.38 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1996).
10.1 Loan and Security Agreement, dated as of July 10, 1996, between the
Company and Foothill Capital Corporation (incorporated by reference to
Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1996).
10.2 Secured Promissory Note (Account Note), dated July 10, 1996, between the
Company and Foothill Capital Corporation (incorporated by reference to
Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1996).
10.3 Secured Promissory Note (Term Note), dated July 10, 1996, between the
Company and Foothill Capital Corporation (incorporated by reference to
Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1996).
10.4 Form of Pledge and Security Agreement, dated as of July 10, 1996, between
the Company and Foothill Capital Corporation, and schedule of documents
substantially identical to the form of Pledge and Security Agreement
(incorporated by reference to Exhibit 10.22 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1996).
Page 21
<PAGE>
10.5 Form of Mortgage, dated as of July 10, 1996, to grant liens to Foothill
Capital Corporation to secure the Company's obligations under the Credit
Agreement with Foothill, and schedule of documents substantially
identical to the form of Mortgage (incorporated by reference to Exhibit
10.23 to the Company's Annual Report on Form 10-K for the year ended June
30, 1996).
10.6 Form of Assignment of Indebtedness and Mortgage, dated as of July 10,
1996, transferring the liens securing certain indebtedness that NACO owes
to the Company to Foothill Capital Corporation under the Credit Agreement
with Foothill, and schedule of documents substantially identical to the
form of Assignment of Indebtedness and Mortgage (incorporated by
reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1996).
10.7 Form of Subordination Agreement, dated as of July 10, 1996, between the
Company and Foothill Capital Corporation, subordinating the security
interests under the credit agreement between the Company and NACO to the
security interests under the Credit Agreement with Foothill, and schedule
of documents substantially identical to the form of Subordination
Agreement (incorporated by reference to Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1996).
10.8 Amendment No. 1 to the Company's 1991 Employee Stock Incentive Plan.
10.9 Amendment No. 1 to the Company's 1993 Stock Option and Restricted Stock
Purchase Plan.
10.10 Amendment No. 1 to the Company's 1993 Director Stock Option Plan.
27.1 Financial Data Schedule.
REPORTS ON FORM 8-K
On July 25, 1996, the Company filed a current report on Form 8-K relating to the
consummation of the Restructuring pursuant to which all of the outstanding
Secured Notes were retired.
Page 22
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
USTRAILS INC.
Date: November 12, 1996 By: /s/ Harry J. White, Jr.
----------------------------------
Harry J. White, Jr.
Vice President, Chief Financial Officer,
and Chief Accounting Officer
Page 23
<PAGE>
EXHIBIT 10.8
AMENDMENT NO. 1 TO
1991 EMPLOYEE STOCK INCENTIVE PLAN
WHEREAS, in connection with its emergence from Chapter 11 proceedings under
the United States Bankruptcy Code in 1991, USTrails, Inc., a Nevada corporation
(the "Company") adopted the 1991 Employee Stock Incentive Plan (the "1991
Employee Plan");
WHEREAS, on September 12, 1996, the Board of Directors of the Company
approved the amendment of Section 6(a) of the 1991 Employee Plan as provided
herein;
NOW, THEREFORE, Section 6(a) of the 1991 Employee Plan is hereby amended in
its entirety to read as set forth below:
"6(a) This Plan shall be administered by the Board or by a committee
(the "Committee") of the Board composed solely of two or more "non-employee
directors" as defined under the amended version of Rule 16b-3 promulgated
by the Securities and Exchange Commission ("SEC") in SEC Release No.
34-37261, dated May 31, 1996. The Committee may be appointed from time to
time by, and shall serve at the pleasure of, the Board. When the Board is
administering the Plan, references herein to "the Committee" shall refer to
the Board."
Dated as of September 12, 1996.
/s/ WALTER B. JACCARD
-----------------------------------------------
Walter B. Jaccard, Corporate Secretary
<PAGE>
EXHIBIT 10.9
AMENDMENT NO. 1 TO
1993 STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
WHEREAS, on December 2, 1993, USTRails, Inc., a Nevada corporation (the
"Company") adopted the 1993 Stock Option and Restricted Stock Purchase Plan (the
"1993 Employee Plan");
WHEREAS, on September 12, 1996, the Board of Directors of the Company
approved the amendment of Section 5.1 of the 1993 Employee Plan as provided
herein;
NOW, THEREFORE, Section 5.1 of the 1993 Employee Plan is hereby amended in
its entirety to read as set forth below:
"5.1 Administration. The Plan shall be administered by the Board of
--------------
Directors or by a committee (the "Committee") of the Board of Directors
composed solely of two or more "non-employee directors" as defined under the
amended version of Rule 16b-3 promulgated by the Securities and Exchange
Commission ("SEC") in SEC Release No. 34-37261, dated May 31, 1996. The
Committee may be appointed from time to time by, and shall serve at the
pleasure of, the Board of Directors. When the Board of Directors is
administering the Plan, references herein to "the Committee" shall refer to
the Board of Directors."
Dated as of September 12, 1996.
/s/ WALTER B. JACCARD
-----------------------------------------------
Walter B. Jaccard, Corporate Secretary
<PAGE>
EXHIBIT 10.10
AMENDMENT NO. 1 TO
1993 DIRECTOR STOCK OPTION PLAN
WHEREAS, on December 2, 1993, USTrails, Inc., a Nevada corporation (the
"Company") adopted the 1993 Director Stock Option Plan (the "1993 Director
Plan");
WHEREAS, on September 12, 1996, the Board of Directors of the Company
approved the amendment of Section 5.1 of the 1993 Employee Plan as provided
herein;
NOW, THEREFORE, Section 5.1 of the 1993 Director Plan is hereby amended in
its entirety to read as set forth below:
"5.1 Administration. The Plan shall be administered by the Board of
--------------
Directors or by a committee (the "Committee") of the Board of Directors
composed solely of two or more "non-employee directors" as defined under the
amended version of Rule 16b-3 promulgated by the Securities and Exchange
Commission ("SEC") in SEC Release No. 34-37261, dated May 31, 1996. The
Committee may be appointed from time to time by, and shall serve at the
pleasure of, the Board of Directors. When the Board of Directors is
administering the Plan, references herein to "the Committee" shall refer to
the Board of Directors."
Dated as of September 12, 1996.
/s/ WALTER B. JACCARD
-----------------------------------------------
Walter B. Jaccard, Corporate Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1996 JUL-01-1995
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 3,057 0
<SECURITIES> 0 0
<RECEIVABLES> 11,203 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 11,280 0
<PP&E> 26,184 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 72,166 0
<CURRENT-LIABILITIES> 32,522 0
<BONDS> 63,761 0
0 0
0 0
<COMMON> 74 0
<OTHER-SE> (23,294) 0
<TOTAL-LIABILITY-AND-EQUITY> 72,166 0
<SALES> 1,038 1,361
<TOTAL-REVENUES> 22,470 24,861
<CGS> 17 60
<TOTAL-COSTS> 20,692 26,215
<OTHER-EXPENSES> 18,216 21,536
<LOSS-PROVISION> 4 9
<INTEREST-EXPENSE> 2,455 4,610
<INCOME-PRETAX> 1,778 (1,354)
<INCOME-TAX> 123 (173)
<INCOME-CONTINUING> 1,655 (1,181)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,655 (1,181)
<EPS-PRIMARY> .25 (.32)
<EPS-DILUTED> .25 (.32)
</TABLE>
