<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
DECEMBER 31, 1995
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: (214)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 than 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 February 9, 1996 was 3,702,726.
Page 1 of 42 sequentially numbered pages.
Exhibit Index is at page 34.
<PAGE>
USTRAILS INC.
<TABLE>
<CAPTION>
INDEX
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1995
and June 30, 1995.............................................................3
Consolidated Statements of Operations for the six
months ended December 31, 1995 and December 31, 1994..........................4
Consolidated Statements of Operations for the three
months ended December 31, 1995 and December 31, 1994..........................5
Consolidated Statement of Stockholders' Deficit
for the six months ended December 31, 1995....................................6
Consolidated Statements of Cash Flows for the six months
ended December 31, 1995 and December 31, 1994.................................7
Notes to Consolidated Financial Statements.....................................9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................31
Item 4. Submission of Matters to a Vote of Security-Holders...........................31
Item 6. Exhibits and Reports on Form 8-K..............................................32
</TABLE>
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
USTRAILS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS December 31, June 30,
------ 1995 1995
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $30,105 $50,596
Current portion of receivables, net of allowance and discount of
$4.7 million and $5.3 million 4,043 5,376
Accounts and dues receivable, net 1,868 3,017
Inventory and other current assets 3,582 2,353
------------ ------------
Total Current Assets 39,598 61,342
Restricted cash 2,963 1,629
Receivables, net of allowance and discount of $10.1 million and
$11.4 million 8,953 13,322
Campground real estate 13,700 15,331
Resort real estate 1,255 1,352
Buildings and equipment, net of accumulated depreciation of
$9.7 million and $8.4 million 30,515 32,039
Land held for sale 7,985 8,341
Other assets 2,539 2,530
------------ ------------
Total Assets $107,508 $135,886
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable $2,152 $3,740
Accrued interest on Secured Notes 5,985 7,008
Other accrued liabilities 6,843 8,140
Current portion of long-term debt--
Secured Notes, net of discount of $3.0 million and $.2 million 22,933 18,398
Notes payable 1,069 3,537
Accrued construction costs 3,184 3,454
Deferred membership dues revenue 15,507 18,622
------------ ------------
Total Current Liabilities 57,673 62,899
Secured Notes, net of discount of $6.9 million and $11.7 million 76,022 97,092
Notes payable 922 1,216
Other liabilities 4,593 4,500
------------ ------------
Total Liabilities 139,210 165,707
------------ ------------
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,
3,702,726 shares issued and outstanding 37 37
Additional paid-in capital 17,549 17,549
Accumulated deficit subsequent to December 31, 1991, date of
emergence from bankruptcy (total deficit eliminated $51,752) (49,173) (47,288)
Cumulative currency translation adjustment (115) (119)
------------ ------------
Total Stockholders' Deficit (31,702) (29,821)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $107,508 $135,886
============ ============
</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 six months ended December 31,
-------------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
REVENUES
Membership dues $20,043 $20,861
Other campground/resort revenue 12,954 12,939
Membership and resort interest sales 1,921 2,525
RPI membership fees 2,234 2,382
Interest income 3,404 4,903
Gain on asset dispositions 918 478
Other income 2,207 1,374
-------------- --------------
Total Revenues 43,681 45,462
-------------- --------------
EXPENSES
Campground/resort operating expenses 27,165 29,499
Selling expenses 1,708 1,332
Provision for doubtful accounts 11 14
Cost of sales 97 361
Marketing expenses 663 876
RPI membership expenses 1,173 1,396
Corporate member services 904 1,015
Interest expense and amortization of debt discount
and consent fees 9,041 10,404
General and administrative expenses 4,941 5,779
Restructuring costs 555
-------------- --------------
Total Expenses 45,723 51,231
-------------- --------------
LOSS BEFORE INCOME TAXES (2,042) (5,769)
Income tax (provision) benefit 157 (157)
-------------- --------------
NET LOSS ($1,885) ($5,926)
============== ==============
PRIMARY AND FULLY DILUTED NET LOSS PER SHARE ($.51) ($1.60)
============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 3,703 3,703
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4
<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 December 31,
---------------------------------------
1995 1994
---------------- ----------------
<S> <C> <C>
REVENUES
Membership dues $9,917 $10,405
Other campground/resort revenue 4,113 3,973
Membership and resort interest sales 560 1,276
RPI membership fees 1,034 1,109
Interest income 1,629 2,417
Gain on asset dispositions 662 448
Other income 905 691
---------------- ----------------
Total Revenues 18,820 20,319
---------------- ----------------
EXPENSES
Campground/resort operating expenses 10,563 12,862
Selling expenses 756 577
Provision for doubtful accounts 2 7
Cost of sales 37 157
Marketing expenses 210 441
RPI membership expenses 621 629
Corporate member services 359 556
Interest expense and amortization of debt discount
and consent fees 4,431 5,167
General and administrative expenses 2,529 2,708
Restructuring costs 340
---------------- ----------------
Total Expenses 19,508 23,444
---------------- ----------------
LOSS BEFORE INCOME TAXES (688) (3,125)
Income tax provision (16) (55)
---------------- ----------------
NET LOSS ($704) ($3,180)
================ ================
PRIMARY AND FULLY DILUTED NET LOSS PER SHARE ($.19) ($.86)
================ ================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 3,703 3,703
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5
<PAGE>
USTRAILS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995
(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, 1995 $37 $17,549 ($47,288) ($119) ($29,821)
Foreign currency translation
adjustment 4 4
Net loss for the six months ended
December 31, 1995 (1,885) (1,885)
------------- ------------- ------------- ------------- -------------
BALANCE, December 31, 1995 $37 $17,549 ($49,173) ($115) ($31,702)
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 6
<PAGE>
USTRAILS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended December 31,
-------------------------------------
1995 1994
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Collections of principal on receivables $6,434 $9,348
Interest received on receivables 3,028 4,220
Interest paid (7,757) (7,957)
General and administrative, corporate member services and
restructuring costs (6,466) (8,486)
Cash collected from operations, including deferred revenue 34,843 34,787
Cash from sales of memberships and resort interests
at the point of sale 1,816 2,231
Expenditures for property operations (27,338) (27,082)
Expenditures for sales and marketing (2,486) (2,221)
Expenditures for insurance premiums (2,926) (3,624)
Refund (payment) of income taxes 120 (157)
Deposit made to secure standby letter of credit (1,500)
Other, net 394 (214)
---------------- ----------------
Net cash provided by (used in) operating activities (1,838) 845
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and HUD-related expenditures (637) (3,376)
Proceeds from asset sales 827 670
---------------- ----------------
Net cash provided by (used in) investing activities 190 (2,706)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Mandatory redemption of Secured Notes (18,599)
Repayment of notes payable (244) (202)
---------------- ----------------
Net cash used in financing activities (18,843) (202)
---------------- ----------------
DECREASE IN CASH AND CASH EQUIVALENTS (20,491) (2,063)
CASH AND CASH EQUIVALENTS:
Beginning of period 50,596 50,059
---------------- ----------------
End of period $30,105 $47,996
================ ================
</TABLE>
-continued-
Page 7
<PAGE>
USTRAILS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended December 31,
-------------------------------------
1995 1994
---------------- ----------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Net loss ($1,885) ($5,926)
---------------- ----------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES --
Depreciation 1,444 1,251
Provision for doubtful accounts 11 14
Cost of sales 97 361
Amortization of interest yield, collection costs and
valuation allowance (578) (775)
Amortization of debt discount and consent fees 2,252 2,422
Gain on asset dispositions (918) (478)
Increase in restricted cash (1,334) (161)
Decrease in receivables 6,269 9,274
Increase in other assets (277) (1,313)
Increase (decrease) in accounts payable (1,588) 689
Decrease in accrued interest on Secured Notes (1,023)
Decrease in deferred membership dues revenue (3,115) (2,254)
Decrease in other liabilities (1,204) (2,331)
Other 11 72
---------------- ----------------
Total adjustments 47 6,771
---------------- ----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ($1,838) $845
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 8
<PAGE>
USTRAILS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(Unaudited)
GENERAL
USTrails Inc. and its subsidiaries (the "Company") own and operate a system of
60 membership-based campgrounds located in 20 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 330 recreational
facilities. The campground business represents the most significant portion of
the Company's business comprising 80% of the Company's operating revenues in
fiscal 1996. The full service resort and reciprocal use businesses provided the
remaining 20%. 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 its wholly owned subsidiaries, National American Corporation
and its subsidiaries ("NACO"), Thousand Trails, Inc. and its subsidiaries
("Trails"), Shorewood Corporation, which does business as Resort Parks
International ("RPI"), and UST Wilderness Management Corporation ("Wilderness
Management").
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 reflects 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
item described in Note 2.
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, 1995, filed
with the Securities and Exchange Commission ("SEC") on September 28, 1995.
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 ("SOP") 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 and
six month periods ended December 31, 1995 and 1994, and in the consolidated
balance sheet at June 30, 1995. Certain prior amounts in the consolidated
financial statements have been reclassified to conform to the current period
presentation.
Effective July 1, 1995, the Company made the decision to discontinue its
practice of amortizing campground real estate by recording a cost of sales
charge in connection with new campground membership sales. The Company will
discontinue this practice as long as the number of
Page 9
<PAGE>
membership cancellations exceeds the number of new memberships sold, and the
Company's membership base continues to decline.
Net loss per common share is computed based on weighted average common shares
outstanding. 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 antidilutive. The Indenture governing the Company's
12% Secured Notes Due 1998 and Additional Series 12% Secured Notes Due 1998
(collectively, the "Secured Notes") prohibits the payment of dividends and,
accordingly, no dividends were paid during the periods presented.
NOTE 2 -- RESTRUCTURING COSTS
The Company incurred $555,000 in restructuring expenses during the six months
ended December 31, 1994, related to the relocation of certain administrative
functions to Dallas, Texas.
NOTE 3 -- CONTINGENCIES AND GOING CONCERN
CONTINGENCIES
Self Insurance
- --------------
During the year ended June 30, 1994, the Company began to self-insure general
liability losses up to $250,000 per occurrence, with an annual aggregate of $2.8
million. As of December 31, 1995, the Company had insurance policies which
provided excess coverage up to $27 million per occurrence and aggregate. The
Company has provided a liability for estimated known and unknown claims related
to uninsured general liability risks of $2.0 million at December 31, 1995, which
is included in other liabilities in the accompanying consolidated balance
sheets. This liability is determined based on actuarial estimates.
Membership Base
- ---------------
The Company derives a significant portion of its ongoing operating revenue from
its campground members (80% in fiscal 1996). The Company's membership base has
declined from 167,000 at December 31, 1991 to 133,000 at December 31, 1995
(20%), and the membership base is expected to decline at the rate of
approximately 8% during the balance of fiscal 1996. The Company attributes this
decline to its older membership base and to the Company's low level of
membership sales during the period. During the last two fiscal years, the
Company has increased its sales and marketing efforts in an attempt to replenish
the Company's membership base. However, unless the Company is able to
significantly increase its campground membership sales from current levels its
membership sales base will continue to decrease. Although the issue is not free
from doubt, the Company believes that its declining membership base will
stabilize over the next few years at a level substantially below the current
level as it begins to realize results from its sales and marketing efforts.
Environmental Issues
- --------------------
Certain environmental issues may exist at some of the Company's campground and
resort properties concerning underground storage tanks and waste disposal, and
development of properties classified as "wetland" areas. Management has
reviewed these issues and has determined that no significant effect is
anticipated on the Company's operations or financial position.
Litigation
- ----------
Oregon and California Attorney General Matters. During fiscal 1994, the
- -----------------------------------------------
Attorneys General of Oregon and California threatened to commence lawsuits
against the Company as a result of its practice of charging a cancellation fee
in connection with the cancellation of paid-in-full memberships. The Attorneys
General alleged that paid-in-full memberships may be terminated by the member at
any time by simply giving notice to the Company, and that it is an unlawful
trade practice for the Company to insist upon payment of a cancellation fee. In
September 1994, the Company agreed to change its practice and no longer require
a cancellation fee. The
Page 10
<PAGE>
Company has entered into an Assurance of Voluntary Compliance with the Oregon
Attorney General regarding its cancellation policy. The Company has negotiated a
preliminary agreement with the California Attorney General which provides that
the Company will enter into a consent judgment regarding its cancellation
policy and also refund certain amounts to members. This preliminary agreement is
subject to negotiation of definitive documentation. Management does not believe
that the resolution of these matters will have a material adverse effect upon
the Company's operations or financial position.
During the second quarter of fiscal 1996, the California Attorney General also
threatened to commence a lawsuit against the Company as a result of its closure
of two campgrounds in California during the quarter. The Attorney General
alleged that the Company failed to provide a comparable substitute campground as
required by California law. The Company is presently attempting to negotiate a
settlement of this matter with the Attorney General. Although these discussions
are at an early stage , management does not believe that the resolution of this
matter will have a material adverse effect upon the Company's operations or
financial position.
The Company is involved in certain other litigation and is subject to certain
claims arising from the normal course of business. Management believes that the
eventual outcome of these matters will not have a material adverse effect on the
Company's operations or financial position.
GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. However, the Company is
highly leveraged. As of December 31, 1995, the Company had outstanding debt of
$110.8 million (excluding trade payables and the discount on the Secured Notes)
and an equity deficit of $31.7 million. In addition, since the Company's
emergence from bankruptcy, the Company's earnings have been insufficient to
cover its fixed charges. Based upon its current business plan, the Company
believes that its future cash flow will be insufficient to enable it to repay
the balance of its outstanding Secured Notes at maturity on July 15, 1998.
Moreover, no assurance exist that the Company's future cash flow and results of
operations will enable it to make the mandatory redemptions of Secured Notes
required by the Indenture on July 15, 1996 and 1997. In addition, the Company
presently expects that it will default under the financial covenants in the
Indenture for the Secured Notes at the September 30, 1996 measurement date,
unless a waiver is obtained. Consequently, the Company believes that a
recapitalization or reorganization of the Company and its subsidiaries will be
required by no later than fiscal 1997. The Company presently intends to discuss
recapitalization and reorganization alternatives with the holders of its Secured
Notes prior to June 30, 1996.
Any recapitalization or reorganization would likely dilute substantially or
could eliminate the interests of the holders of the Company's common stock.
There is no assurance that the Company will be able to accomplish a timely
recapitalization or reorganization, or that the terms of a recapitalization or
reorganization would be favorable to the holders of the Company's securities.
This uncertainty raises substantial doubt about the Company's ability to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
NOTE 4 -- NACO AND TRAILS
The Company has granted, subject to certain limitations, security interests in
substantially all of its assets, including the capital stock of its
subsidiaries, to secure the Secured Notes. In addition, all of the Company's
subsidiaries, other than an immaterial utility subsidiary, have guaranteed the
obligations of the Company under the Secured Notes and, subject to certain
limitations, have granted security interests in substantially all of their
assets to secure their guarantees. A guarantee by a subsidiary of the obligation
of its parent may be voided, in whole or in part, if the creditors of the
subsidiary, a trustee in bankruptcy of the subsidiary, or the subsidiary itself
as the debtor-in-possession in bankruptcy, determine that, among other things,
the subsidiary received
Page 11
<PAGE>
less than reasonably equivalent value in exchange for the guarantee and the
subsidiary was insolvent on the date the guarantee was made or became insolvent
as a result of the guarantee. Creditors of these companies could contend that
the guarantees and grants of security interests were not supported by sufficient
consideration, and could therefore contend that some or all of the guaranteed
could be unenforceable, in whole of in part. The Company believes that its
subsidiaries received adequate financial and other benefits for their guaranteed
and security interests.
NACO and Trails have also granted liens, subject to certain limitations, on
substantially all of their assets to secure the repayment of their respective
indebtedness to the Company. These liens were subordinated to the security
interests securing the guarantees of the Secured Notes. The indebtedness that
these security interests secure, however, was pledged by the Company under the
Indenture to secure the Secured Notes, and these security interests were
collaterally assigned to the Indenture trustee. Such liens, however, are only
enforceable to the extent of the underlying indebtedness secured thereby, which
at December 31, 1995, totaled $35.5 million for NACO and $1,000 for Trails.
Furthermore, the subsidiaries of NACO and Trails, other than an immaterial
utility subsidiary, each guaranteed their respective parent's indebtedness to
the Company and granted, subject to certain limitations, security interests in
substantially all of their assets to secure such guarantees. As discussed above,
these guarantees and liens are also subject to a risk that they may be
unenforceable, in whole or in part.
The assets subject to the liens of the Indenture include (i) the capital stock
of the Company's subsidiaries, including NACO and its subsidiaries, RPI, Trails
and its subsidiaries other than an immaterial utility subsidiary, and Wilderness
Management, (ii) the campgrounds and the common amenities at one resort owned by
the Company's subsidiaries, together with related improvements, trailers,
equipment, and certain other tangible personal property located thereat to the
extent existing mortgages do not prohibit such liens, (iii) the closed
campgrounds and other real estate that the Company's subsidiaries own and are in
the process of selling, (iv) the contracts receivable that the Company and each
of its subsidiaries own,(v) all indebtedness owned to the Company by its
subsidiaries, together with all related liens, and, (vi) substantially all of
the cash balances of the Company and each of its subsidiaries. Currently, 57 of
the Company's 60 operating campgrounds and the common amenities at one resort
are subject to the liens of the Indenture. However, certain specified assets are
excluded from the liens of the Indenture, including certain leaseholds
interests, rights and franchises that would become void if mortgaged or pledged,
certain vehicles, trailers, and movable equipment, certain cash in restricted
accounts, and the stock and assets of one immaterial utility subsidiary.
Three of NACO's campground and three of Trail's campgrounds are also subject to
mortgages in favor of the party from whom NACO or Trails purchased the property.
Some states, including California, Oregon and Washington, have nondisturbance
statutes that place limitations on the ability of the owner of a campground to
close the campground or a lienholder to foreclose its lien. In certain states,
these statutes permit the owner of a campground to close the campground or a
lienholder to foreclose its lien if the holders of memberships at the campground
receive access to a comparable campground. The mortgages on the Company's
campgrounds that were granted to secure the Company's obligations under the
Indenture, and the mortgages on the Company's campgrounds that were granted to
secure NACO's and Trails' indebtedness to the Company, contain nondisturbance
provisions that limit the ability of the lienholder to foreclose its lien unless
the holders of the related memberships receive access to a comparable
campground. The impact of the rights of members under these laws and non-
disturbance provisions is uncertain and could adversely affect the
implementations of, and the benefits or recoveries that may be available from,
any "down-sizing" of the Company's business, whether through operations, upon
foreclosure, or in a reorganization.
Set forth below are condensed consolidated statements of operations of NACO and
Trails for the three and six month periods ended December 31, 1995 and 1994. The
operating results of RPI
Page 12
<PAGE>
are apparent in the Company's accompanying consolidated statements of
operations. The operating results of Wilderness Management are not material and,
therefore, are not presented.
These condensed consolidated statements of operations are presented to provide
additional analysis of, and should be read in conjunction with, the consolidated
financial statements of the Company.
Page 13
<PAGE>
NATIONAL AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended December 31, Three months ended December 31,
------------------------------ -------------------------------
1995 1994 1995 1994
---------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Campground membership dues $6,438 $6,959 $3,179 $3,481
Other campground/resort revenue --
Campgrounds 3,918 3,803 1,006 935
Resorts 3,895 4,103 1,561 1,587
---------- -------------- ------------- -------------
7,813 7,906 2,567 2,522
---------- -------------- ------------- -------------
Membership and resort interest sales 991 1,918 297 1,012
Interest income 622 902 293 419
Gain on asset dispositions 504 473 247 445
Other income 1,617 1,416 773 720
---------- -------------- ------------- -------------
Total Revenue 17,985 19,574 7,356 8,599
---------- -------------- ------------- -------------
EXPENSES
Operating expenses--
Campgrounds 8,637 9,643 3,096 4,097
Resorts 4,191 4,552 1,819 2,079
---------- -------------- ------------- -------------
12,828 14,195 4,915 6,176
---------- -------------- ------------- -------------
Selling expenses 711 851 294 385
Provision for doubtful accounts 6 9 1 4
Cost of sales 97 311 37 127
Marketing expenses 163 352 53 178
Interest expense 2,537 2,330 1,323 1,145
Corporate member services 195 280 80 142
General and administrative expenses 2,733 3,046 1,361 1,360
Restructuring costs 195 129
---------- -------------- ------------- -------------
Total Expenses 19,270 21,569 8,064 9,646
---------- -------------- ------------- -------------
Loss Before Taxes (1,285) (1,995) (708) (1,047)
Income tax (provision) benefit 170 (57) (11) (36)
---------- -------------- ------------- -------------
Net Loss ($1,115) ($2,052) ($719) ($1,083)
========== ============== ============= =============
</TABLE>
Page 14
<PAGE>
THOUSANDS TRAILS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended December 31, Three months ended December 31,
--------------------------------- -----------------------------------
1995 1994 1995 1994
---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
REVENUES
Campground membership dues $13,605 $14,162 $6,738 $7,054
Other campground revenue 4,589 4,660 1,507 1,439
Membership sales 930 607 263 264
Interest income 1,524 1,859 836 892
Gain on asset dispositions 415 5 415 3
Other income 1,141 803 429 397
---------------- -------------- -------------- ----------------
Total Revenue 22,204 22,096 10,188 10,049
---------------- -------------- -------------- ----------------
EXPENSES
Operating expenses 13,860 15,196 5,579 6,691
Selling expenses 997 481 462 192
Provision for doubtful accounts 5 5 1 3
Cost of sales 50 30
Marketing expenses 500 524 157 263
Interest expense 107 242 29 119
Corporate member services 709 735 279 414
General and administrative expenses 2,111 2,346 1,079 1,164
Restructuring costs 310 199
---------------- -------------- -------------- ----------------
Total Expenses 18,289 19,889 7,586 9,075
---------------- -------------- -------------- ----------------
Income Before Taxes 3,915 2,207 2,602 974
Provision for income taxes (843) (1,084) (333) (590)
---------------- -------------- -------------- ----------------
Net Income $3,072 $1,123 $2,269 $384
================ ============== ============== ================
</TABLE>
Page 15
<PAGE>
NOTE 5 -- SUBSEQUENT EVENTS
On January 31, 1996, the Company repurchased $7.4 million principal amount of
Secured Notes from unrelated sellers for $5.3 million, including accrued
interest. The Company will recognize a gain of $1.4 million on this
transaction in the third fiscal quarter of 1996, which will be presented as an
extraordinary item in the consolidated statements of operations. The Company
does not believe that it will have to provide for any taxes in connection with
these transactions. The repurchase of the Secured Notes will be applied to
reduce the Company's repayment requirement at maturity. Following the
repurchase, the Company had outstanding $101.4 million principal amount of
Secured Notes.
Page 16
<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 of Form 10-K for the year ended June 30,
1995, filed with the SEC on September 28, 1995.
All capitalized terms, as used herein, have the same meaning as those defined in
Item 1 -- Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
CONTINUING LOSSES AND NEGATIVE CASH FLOW. Since emerging from bankruptcy on
December 31, 1991, the Company has decreased its total indebtedness by $44.7
million, decreased its annualized operating expenses by $45.0 million (39%), and
implemented the TTN Alliance Program under which certain campground members
voluntarily increased their annual dues by an aggregate of $2.1 million. Despite
these improvements, the Company is still experiencing net losses and negative
operating cash flow, which is the cash flow from operating activities before the
principal collections on the contracts receivable portfolio. Through fiscal
1996, the Company has funded this cash flow deficiency with the collections from
the contracts receivable portfolio, which the Company is no longer replenishing
materially.
The Company has attempted to reverse its losses and negative operating cash flow
primarily by reducing expenses and attempting to increase revenues from its
existing membership base. The Company began instituting cost reduction measures
in fiscal 1992. These measures have included deferring maintenance at the
campgrounds and resorts, restructuring the sales and marketing departments,
laying off sales and marketing employees, consolidating departments, and
reducing staffing levels. In addition, the Company has removed nine campgrounds
from the system. The Company has also reduced service levels at the campgrounds
and changed to seasonal operations at certain campgrounds.
In addition to these cost-reduction measures, the Company has focused on ways to
increase ongoing revenue through member dues and ancillary revenue. In fiscal
1993 and 1994, the Company increased the dues of certain members because the
dues had not been increased in the past to the extent permitted, and also
implemented the TTN Alliance Program mentioned above, which increased annual
dues revenue by an aggregate of $2.1 million. The Company has also attempted to
expand its ancillary sources of revenue at the campgrounds.
DECLINING MEMBERSHIP BASE. The Company's membership base has declined from
167,000 at December 31, 1991 to 133,000 at December 31, 1995 (20%), and
membership base is expected to decline at the rate of approximately 8% during
the balance of fiscal 1996. The Company attributes this decline to its older
membership base and to the Company's low level of membership sales during the
period. During the last two fiscal years, the Company has increased its sales
amd marketing efforts in an attempt to replenish the Company's membership base.
However, unless the Company is able to significantly increase its campground
membership sales from current levels, its membership base will continue to
decrease. Although the issue is not free from doubt, the Company believes that
its declining membership base will stabilize over the next few years at a level
substantially below the current level as the Company begins to realize results
from its sales and marketing efforts.
CURRENT OPERATING STRATEGY. For the six months ended December 31, 1995, the
Company had a positive contribution from operations (defined below) of $2.7
million, compared with a negative contribution of $191,000 for the same period
last year. The improvement in the current period resulted primarily from cost
reduction measures implemented during the last quarter of fiscal 1995 and fiscal
1996, which reduced general and administrative and campground operating
expenses. The Company presently expects to have a positive contribution from
operations of
Page 17
<PAGE>
approximately $4.0 million for fiscal 1996. 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 27 and 28 for the elements of the positive contribution from
operations and the Company's operating loss before taxes for the historical
periods involved. The Company's expectation as to the contribution from
operations for the remainder of fiscal 1996 is a forward-looking statement made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statement is not historical and involves risks and
uncertainties. The actual contribution from operations may differ materially due
to several factors, including but not limited to the Company's continued ability
to control costs and implement its sales and marketing plan, the actual rate of
decline in campground membership, the actual use of the campgrounds by members
and guests, the effects on members and others of the Company's stated efforts to
recapitalize or reorganize, and the other factors affecting the Company's
operations described in this report and the Company's Annual Report on Form 10-K
for the year ended June 30, 1995.
The Company's current strategy is to continue to improve its ongoing operations,
attempt to replenish its campground membership base through increased sales and
marketing efforts, and determine the appropriate level at which ongoing
operations should be continued. In this regard, the Company intends to "down-
size" its business by implementing additional cost reduction measures as its
membership base continues to decline. These cost reduction measures will likely
include the closure and disposition of additional campgrounds, additional
reductions in service levels at certain campgrounds, and decreased general and
administrative expenses. The disposition of campgrounds not included in a down-
sized business 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. These cost reduction
measures, and the possibility of campground dispositions, may adversely affect
the collectibility of the dues and contracts receivable and accelerate the rate
at which the Company is losing members.
NEGATIVE INTEREST SPREAD. The Company is highly leveraged and its interest
expense exceeds its interest income by a significant amount. This negative
interest spread was $5.6 million for the six months ended December 31, 1995, and
at the current level of operations, is expected to total approximately $11.1
million for fiscal 1996.
REQUIRED RECAPITALIZATION OR REORGANIZATION. The Company is highly leveraged. As
of December 31, 1995, the Company had outstanding debt of $110.8 million
(excluding trade payables and the discount on the Secured Notes) and an equity
deficit of $31.7 million. In addition, since the Company's emergence from
bankruptcy, the Company's earnings have been insufficient to cover its fixed
charges. Based upon its current business plan, the Company believes that its
future cash flow will be insufficient to enable it to repay the balance of its
outstanding Secured Notes at maturity on July 15, 1998. Moreover, no assurance
exists that the Company's future cash flow and results of operations will enable
it to make the mandatory redemptions of Secured Notes required by Indenture on
July 15, 1996 and 1997. In addition, the Company presently expects that it will
default under the financial covenants in the Indenture for the Secured Notes at
the September 30, 1996 measurement date, unless a waiver is obtained.
Consequently, the Company believes a recapitalization or reorganization of the
Company and its subsidiaries will be required by no later than fiscal 1997. The
Company presently intends to discuss recapitalization and reorganization
alternatives with the holders of its Secured Notes prior to June 30, 1996.
Any recapitalization or reorganization would likely dilute substantially or
could eliminate the interests of the holders of the Company's common stock.
There is no assurance that the Company will be able to accomplish a timely
recapitalization or reorganization, or that the terms of a recapitalization or
reorganization would be favorable to the holders of the Company's securities.
Page 18
<PAGE>
CASH. On December 31, 1995, the Company had $30.1 million of cash and cash
equivalents, a decrease of $20.5 million during the six month period. The
Company's cash declined primarily because $18.6 million was used to make a
mandatory redemption of Secured Notes on July 15, 1995, and $1.8 million was
used in operating activities.
The Company's principal sources of operating cash for the six months were $9.5
million in principal and interest collections on receivables and $34.8 million
in dues collections and other campground and resort revenues. Principal uses of
operating cash for the six months were $27.3 million in operating expenses, $6.5
million in general and administrative expenses (including corporate member
services costs), $2.9 million in insurance premiums, and $7.8 million in
interest payments, principally related to the Secured Notes.
Excluding $6.4 million of principal collections on its contracts receivable, the
Company had cash flow from operations of (i) negative $14.3 million for the
three months ended September 30, 1995, (ii) positive $6.0 million for the three
months ended December 31, 1995, and (iii) negative $8.3 million for the combined
six month period. The Company generally experiences negative cash flow during
the first fiscal quarter due to the timing of its receipt of member dues, the
seasonal nature of its operations, and the mandatory redemption and semi-annual
interest payment related to the Secured Notes. The Company estimates that its
overall cash flow for fiscal 1996 will be negative because of the $18.6 million
used for the mandatory redemption of Secured Notes in July 1995, and the semi-
annual interest payments on the Secured Notes. Receivable collections will
continue to be used to fund the Company's negative cash flow from operations
during the current fiscal year. In the long term, however, because new
membership sales are not materially replenishing the contracts receivable, the
Company will be unable to cover negative cash flow through receivable
collections, which will continue to decline.
On January 31, 1996, the Company repurchased $7.4 million principal amount of
Secured Notes from unrelated sellers for $5.3 million, including accrued
interest. The Company will recognize a gain of $1.4 million on this transaction
in the third fiscal quarter of 1996, which will be presented as an extraordinary
item in the consolidated statements of operations. The Company does not believe
that it will have to provide for any taxes in connection with these
transactions. The repurchase of the Secured Notes will be applied to reduce the
Company's repayment requirement at maturity. Following this repurchase, the
Company had outstanding $101.4 million principal amount of Secured Notes.
Management anticipates the following significant expenditures during the
remainder of the fiscal year (in millions):
<TABLE>
<S> <C>
. Repurchase of Secured Notes on January 31, 1996 $5.3
. Semi-annual interest payment on the Secured Notes on
January 15, 1996 6.5
. Capital improvements, maintenance, and repairs for
campground operations 2.6
. Capital improvements to fulfil HUD obligations and to
facilitate the sale of resort assets .4
. Selling and marketing efforts 2.5
-----------
$17.3
===========
</TABLE>
In addition, the Company expects to incur significant restructuring costs in
connection with any recapitalization or reorganization. All of these
expenditures will be funded primarily from the Company's cash reserves and
collections of principal and interest on its contracts receivable, which
collections are estimated to be approximately $7 million for the remainder of
fiscal 1996.
Moreover, on July 15, 1996, the Company will be required to redeem an additional
$18.6 million of Secured Notes and make a $6.1 million semi-annual interest
payment on the Secured Notes. There is no assurance that the Company will have
funds to make these payments.
Page 19
<PAGE>
The Indenture limits the type of investments in which the Company may invest its
available cash, resulting in a relatively low yield. Investments of cash had a
weighted average yield of 5.75% at December 31, 1995.
Under the terms of the Indenture, cash that the Company and its subsidiaries
hold other than for operations, is generally deposited in accounts that are
pledged for the benefit of the holders of the Secured Notes. Prior to certain
defaults concerning nonpayment of principal or interest or failure to comply
with certain material covenants, including the financial covenants, the
Indenture permits the Company to withdraw money from these accounts and deposit
such money in an operating account for use in the Company's business. Should
such a default exist, the Indenture prohibits the Company from making
withdrawals from these accounts, except withdrawals used for the payment of
Secured Notes, withdrawals used for the payment of certain insurance premiums,
and a one-time withdrawal in an amount equal to $5.0 million, minus the amount
of funds in the operating account. The latter withdrawal would be insufficient
to sustain continued operations.
MATERIAL CHANGES IN FINANCIAL CONDITION
Total assets decreased by $28.4 million during the six months ended December 31,
1995. Cash decreased by $20.5 million as discussed above. Contracts receivable
decreased by $5.7 million due primarily to $6.4 million in cash collections
offset by $578,000 related to the amortization of the allowances for interest
discount and collection costs and valuation allowance. Accounts and dues
receivable declined by $1.1 million due primarily to the receipt of certain
payroll tax refunds during the period, and the timing of dues collections.
Campground and resort properties decreased by a total of $3.6 million due
primarily to the sale of certain real estate, the abandonment of two campgrounds
during the second fiscal quarter, and depreciation during the period. These
decreases were partially offset by (i) a $1.2 million increase in inventory and
other current assets resulting primarily from insurance premiums for fiscal 1996
that were paid in the first quarter, and (ii) a $1.3 million increase in
restricted cash resulting primarily from a $1.5 million cash deposit made to
obtain a standby letter of credit that secures the obligations of the Company
under the employment agreement with the Company's Chief Executive Officer.
Total liabilities decreased by $26.5 million during the six months ended
December 31, 1995. Secured Notes decreased by $16.5 million as a result of the
$18.6 million mandatory redemption of Secured Notes in July 1995, partially
offset by amortization of the discount during the period. Notes payable
decreased by $2.8 million due to the abandonment of the two campgrounds
mentioned above, which were subject to nonrecourse obligations totaling $2.5
million, and scheduled repayments of notes payable. Accounts payable decreased
by $1.6 million, due primarily to the seasonal nature of the Company's
operations, and accrued interest on the Secured Notes declined by $1.0 million
due to the mandatory redemption of Secured Notes in July 1995. In addition,
deferred membership dues revenue declined by $3.1 million due to revenue
recognized in excess of cash collections during the period.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three Months Ended December 31, 1995 and 1994
NET LOSS. The Company reported a net loss of $704,000 or $.19 per share on
revenues of $18.8 million for the three months ended December 31, 1995. This
compares with a net loss of $3.2 million or $.86 per share on revenues of $20.3
million for the same period last year. Although revenues declined during the
current period, there were greater decreases in expenses, principally campground
operating costs and interest, which were primarily responsible for the
improvement in results. The Company expects to report a net loss for fiscal
1996.
Page 20
<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 December 31, 1995:
<TABLE>
<CAPTION>
Three Months Ended December 31, 1995
----------------------------------------------------
Campgrounds Resorts Total
----------------- ----------------- --------------
<S> <C> <C> <C>
CAMPGROUND/RESORT OPERATIONS
Membership dues $9,917 $9,917
Other campground/resort revenues 2,552 $1,561 4,113
Campground ancillary expenses (1,436) (1,436)
Other operating expenses (7,308) (1,819) (9,127)
----------------- ----------------- --------------
Profit (loss) on campground/resort operations 3,725 (258) 3,467
----------------- ----------------- --------------
SALES
Memberships 347 347
Resort interests 213 213
----------------- ----------------- --------------
Total sales 347 213 560
----------------- ----------------- --------------
Selling costs (616) (179) (795)
Marketing expenses (210) (210)
----------------- ----------------- --------------
Total expenses (826) (179) (1,005)
----------------- ----------------- --------------
Profit (loss) on sales (479) 34 (445)
----------------- ----------------- --------------
RESORT PARKS INTERNATIONAL
Fee income 1,034 1,034
Cost of operations (621) (621)
----------------- ----------------- --------------
RPI net contribution 413 413
----------------- ----------------- --------------
$3,659 ($224) 3,435
================= ================= --------------
Other income 905
Corporate member services (359)
General and administrative expenses (2,529)
--------------
OPERATING INCOME BEFORE INTEREST INCOME AND
EXPENSE, GAIN ON ASSET DISPOSITIONS AND TAXES 1,452
--------------
Interest income 1,629
Interest expense and amortization of debt discount
and consent fees (4,431)
Gain on asset dispositions 662
--------------
OPERATING LOSS BEFORE TAXES ($688)
==============
</TABLE>
Page 21
<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 December 31, 1994:
<TABLE>
<CAPTION>
Three Months Ended December 31, 1994
------------------------------------------------
Campgrounds Resorts Total
--------------- --------------- -------------
<S> <C> <C> <C>
CAMPGROUND/RESORT OPERATIONS
Membership dues $10,405 $ 10,405
Other campground/resort revenues 2,386 $1,587 3,973
Campground ancillary expenses (1,676) (1,676)
Operating expenses (9,107) (2,079) (11,186)
--------------- --------------- -------------
Profit (loss) on campground/resort operations 2,008 (492) 1,516
--------------- --------------- -------------
SALES
Memberships 499 499
Resort interests 777 777
--------------- --------------- -------------
Total sales 499 777 1,276
--------------- --------------- -------------
Selling costs (374) (367) (741)
Marketing expenses (441) (441)
--------------- --------------- -------------
Total expenses (815) (367) (1,182)
--------------- --------------- -------------
Profit (loss) on sales (316) 410 94
--------------- --------------- -------------
RESORT PARKS INTERNATIONAL
Fee income 1,109 1,109
Cost of operations (629) (629)
--------------- --------------- -------------
RPI net contribution 480 480
--------------- --------------- -------------
$2,172 ($82) 2,090
=============== =============== -------------
Other income 691
Corporate member services (556)
General and administrative expenses (2,708)
-------------
OPERATING LOSS BEFORE INTEREST INCOME AND EXPENSE, GAIN
ON ASSET DISPOSITIONS, RESTRUCTURING COSTS AND TAXES (483)
-------------
Interest income 2,417
Interest expense and amortization of debt discount
and consent fees (5,167)
Gain on asset dispositions 448
Restructuring costs (340)
-------------
OPERATING LOSS BEFORE TAXES ($3,125)
=============
</TABLE>
PAGE 22
<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. Historically, the
majority of the Company's sales and marketing efforts have occurred during the
summer.
Campground membership dues revenue was $9.9 million for the three months ended
December 31, 1995, compared with $10.4 million for the same period last year.
The decrease is mainly attributable to a decline in the membership base.
Other campground revenues increased slightly to $2.6 million for the three
months ended December 31, 1995, compared with $2.4 million for the same period
last year. The related campground ancillary expenses decreased to $1.4 million
for the three months ended December 31, 1995, from $1.7 million for the same
period last year.
Other campground operating expenses decreased by $1.8 million to $7.3 million
for the three months ended December 31, 1995, from $9.1 million for the same
period last year. This decrease resulted primarily from the operational changes
made at the campgrounds in the fall of 1995, which included the closure of two
campgrounds and reductions in service levels at certain campgrounds. In
addition, in February 1996, the Company sold one of its non-operating
campgrounds, and eliminated the carrying costs associated with it, which were
approximately $327,000 per year. The operational changes and campground sale
should result in lower operating expenses for fiscal 1996, compared with the
prior year.
In April 1992, the Company suspended the sale of new campground memberships
because its sales program was operating at a loss and with negative cash flow.
In the fall of 1992, the Company began to assist campground members desiring to
sell their memberships in the secondary market. During fiscal 1994, as part of
its focus on ongoing revenues from campground operations, the Company determined
that it should increase its sales and marketing efforts in order to replenish
its campground membership base. As a result, in May 1994, the Company instituted
a new sales program under which it began selling new campground memberships on a
limited basis. In May 1995, the Company introduced new membership products, and
it significantly increased its sales and marketing efforts for the summer of
1995. The new membership products offer the consumer a choice of membership
options ranging from use of one campground to the entire system of campgrounds.
In addition, the new membership products offer the consumer a choice of annual
dues level ranging from $198 for 15 nights of use to $998 for up to 365 nights
of use.
During the summer and fall of 1995 (June through December), the Company sold
1,676 new memberships at an average sales price of $848 and an average annual
dues level of $293. Although the volume of membership sales was low, it was
almost four times greater than the number of comparable memberships sold during
the same period last year. In addition, the Company believes that it has
improved the efficiency of its sales processes. For example, the Company
generated 6% more sales reservations during the summer and fall of 1995,
compared with the same period last year, and 17% of the people making
reservations purchased a membership during the summer and fall of 1995, compared
with 6% during the same period last year. Similarly, the percentage of people
who purchased a membership after attending a sales presentation increased to 31%
from historical levels of 10%. Given these improvements in its sales processes,
the Company believes that it may be able to increase the level of membership
sales in the future.
Campground membership sales revenue was $347,000 for the three months ended
December 31, 1995, compared with $499,000 for the same period last year,
reflecting a higher volume of new membership sales in the current period, but at
lower average prices. The Company's selling and marketing expenses exceeded its
sales revenue by $479,000 and
Page 23
<PAGE>
$316,000, respectively, during the two periods. These expenses exceeded revenues
due to the low volume of sales and the increased sales and marketing efforts
discussed above.
The Company's marketing efforts require significant expense, and there is no
assurance that they will produce additional revenues. Consequently, in the
short-term, the Company expects its sales and marketing efforts to continue to
adversely affect its results.
Effective July 1, 1995, the Company made the decision to discontinue its
practice of amortizing campground real estate by recording a cost of sales
charge in connection with new campground membership sales. The Company will
discontinue this practice as long as the number of membership cancellations
exceeds the number of new memberships sold, and the Company's membership base
continues to decline.
The Company has the capacity to sell approximately 61,000 additional new
memberships in the future, assuming the sale of ten memberships for each
campsite. Any down-sizing of the Company's business would reduce this capacity.
CAMPGROUND MANAGEMENT. During fiscal 1994, a wholly owned subsidiary of the
Company, Wilderness Management, began to manage public campgrounds for the U.S.
Forest Service. As of December 31, 1995, Wilderness Management had entered into
management contracts covering 26 campgrounds containing a total of 1,002
campsites. Pursuant to these contracts, the Company incurs the expenses of
operating the campgrounds and receives the related revenues, net of a fee paid
to the Forest Service. For the three months ended December 31, 1995, the Company
lost $40,000 on revenues of $41,000 from these operations, compared with a loss
of $132,000 on revenues of $15,000 for the same period last year. The campground
management operations generally incur a loss during the second fiscal quarter
due to certain fixed expenses and the seasonal closure of the campgrounds.
However, the Company presently anticipates that these operations will result in
a positive net contribution for the full fiscal year.
FULL SERVICE RESORT OPERATIONS. The direct operating expenses of the full
service resorts exceeded revenues by $258,000 for the three months ended
December 31, 1995, compared with $492,000 for the same period last year. The
improvement in results is primarily due to increased amenity fee income at one
resort in the current period as a result of improved collection efforts, and
reduced administrative costs. Timeshare management operations produced a net
contribution of $45,000 for the three months ended December 31, 1995, compared
with a net contribution of $72,000 for the same period last year.
Since June 1992, 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 $213,000 for the three months ended December 31, 1995, compared with
$777,000 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 were 84% of
sales for the three months ended December 31, 1995, compared with 47% of sales
for the same period last year, reflecting the impact of the lower sales volume
in the current period combined with certain fixed selling costs. As of December
31, 1995, there were approximately 1,700 timeshare weeks available for sale out
of a total of 32,000.
The Company presently plans to dispose of a substantial portion of the remaining
resort assets over the next several years, and currently has a contract to sell
the country club and golf operations at one resort which, if completed, will
result in a gain of approximately $2.0 million. The sale transaction is
scheduled to close in February 1996, although it is not assured. In addition, no
assurance exists that the Company will be able to locate a buyer for any of the
remaining resort assets or that sales on acceptable terms can be effected.
Page 24
<PAGE>
RESORT PARKS INTERNATIONAL. RPI produced a net contribution of $413,000 during
the three months ended December 31, 1995, compared with $480,000 for the same
period last year. RPI members pay a fee to RPI that entitles them to use any of
the participating facilities, subject to certain limitations.
NEGATIVE INTEREST SPREAD. Interest expense exceeded interest income by
approximately $2.8 million for the three months ended December 31, 1995 and
1994. The Company anticipates that, at the current level of operations, the
negative interest spread will total approximately $11.1 million for fiscal 1996.
Interest income decreased by $788,000 for the three months ended December 31,
1995, 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 the cash balance between years.
Interest expense decreased by $736,000 for the three months ended December 31,
1995, compared with the same period last year, due primarily to the $18.6
million mandatory redemption of Secured Notes in July 1995, and scheduled
repayments of notes payable. Interest expense will decrease further in the
future as a result of the repurchase of $7.4 million principal amount of Secured
Notes in January 1996.
GAIN ON ASSET DISPOSITIONS. The Company recognized a gain on the disposition of
assets of $662,000 for the three months ended December 31, 1995, compared with
$448,000 for the same period last year. The increase in the current period
relates primarily to the timing of asset sales. Over the next several years, the
Company intends to dispose of a substantial portion of its remaining assets at
the full service resorts, any campgrounds that are closed as the Company down-
sizes, and other undeveloped land and excess acreage associated with the
campgrounds. The Company currently has contracts to sell the country club and
golf operations at one of the full service resorts for $4.8 million and one
additional non-operating campground for $1.0 million. These transactions are
expected to close in fiscal 1996, although this is not assured.
OTHER INCOME. Other income generally consists of transfer fees received when
existing memberships are transferred in the secondary market without assistance
from the Company, settlements received on defaulted contracts, and subscription
fees received from members who subscribe to the Company's member magazine. In
addition, the Company may begin charging members for making more than five
reservations in a given year.
Other income was $905,000 for the three months ended December 31, 1995, compared
with $691,000 for the same period last year. The increase in the current period
was due primarily to an increase in income from recoveries on canceled contracts
as a result of increased use of outside collection agencies.
OTHER EXPENSES. General and administrative expenses were $2.5 million for the
three months ended December 31, 1995, compared with $2.7 million for the same
period last year. The decrease in the current period was due primarily to cost
reductions implemented in the last quarter of fiscal 1995 and first quarter of
fiscal 1996. Corporate member services costs were $359,000 for the three months
ended December 31, 1995, compared with $556,000 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 $340,000 in restructuring expenses during the three months
ended December 31, 1994, related to the relocation of certain administrative
functions to Dallas, Texas.
Page 25
<PAGE>
Six Months Ended December 31, 1995 and 1994
NET LOSS. The Company reported a net loss of $1.9 million or $.51 per share on
revenues $43.7 million for the six months ended December 31, 1995. This compares
with a net loss of $5.9 million or $1.60 per share on revenues of $45.5 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 26
<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 six months ended December 31, 1995:
<TABLE>
<CAPTION>
Six Months Ended December 31, 1995
---------------------------------------------------------
Campgrounds Resorts Total
--------------- ---------------- ----------------
<S> <C> <C> <C>
CAMPGROUND/RESORT OPERATIONS
Membership dues $20,043 $20,043
Other campground/resort revenues 9,059 $3,895 12,954
Campground ancillary expenses (4,618) (4,618)
Operating expenses (18,356) (4,191) (22,547)
--------------- ---------------- ----------------
Profit (loss) on campground/resort operations 6,128 (296) 5,832
--------------- ---------------- ----------------
SALES
Memberships 1,221 1,221
Resort interests 700 700
--------------- ---------------- ----------------
Total sales 1,221 700 1,921
--------------- ---------------- ----------------
Selling costs (1,323) (493) (1,816)
Marketing expenses (663) (663)
--------------- ---------------- ----------------
Total expenses (1,986) (493) (2,479)
--------------- ---------------- ----------------
Profit (loss) on sales (765) 207 (558)
--------------- ---------------- ----------------
RESORT PARKS INTERNATIONAL
Fees 2,234 2,234
Cost of operations (1,173) (1,173)
--------------- ---------------- ----------------
RPI net contribution 1,061 1,061
--------------- ---------------- ----------------
$6,424 ($89) 6,335
=============== ================ ----------------
Other income 2,207
Corporate member services (904)
General and administrative expenses (4,961)
----------------
OPERATING INCOME BEFORE INTEREST INCOME AND
EXPENSE, GAIN ON ASSET DISPOSITIONS AND TAXES 2,677
----------------
Interest income 3,404
Interest expense and amortizaton of debt discount
and consent fees (9,041)
Gain on asset dispositions 918
----------------
OPERATING LOSS BEFORE TAXES ($2,042)
================
</TABLE>
Page 27
<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 six months ended December 31, 1994:
<TABLE>
<CAPTION>
Six Months Ended December 31, 1994
--------------------------------------------------
Campgrounds Resorts Total
-------------- --------------- -------------
<S> <C> <C> <C>
CAMPGROUND/RESORT OPERATIONS
Membership dues $20,861 $20,861
Other campground/resort revenues 8,836 $4,103 12,939
Campground ancillary expenses (4,411) (4,411)
Operating expenses (20,536) (4,552) (25,088)
-------------- --------------- -------------
Profit (loss) on campground/resort operations 4,750 (449) 4,301
-------------- --------------- -------------
SALES
Memberships 1,056 1,056
Resort interests 1,469 1,469
-------------- --------------- -------------
Total sales 1,056 1,469 2,525
-------------- --------------- -------------
Selling costs (894) (813) (1,707)
Marketing expenses (876) (876)
-------------- --------------- -------------
Total expenses (1,770) (813) (2,583)
-------------- --------------- -------------
Profit (loss) on sales (714) 656 (58)
-------------- --------------- -------------
RESORT PARKS INTERNATIONAL
Fees 2,382 2,382
Cost of operations (1,396) (1,396)
-------------- --------------- -------------
RPI net contribution 986 986
-------------- --------------- -------------
$5,022 $207 5,229
============== =============== -------------
Other income 1,374
Corporate member services (1,015)
General and administrative expenses (5,779)
-------------
OPERATING LOSS BEFORE INTEREST INCOME AND EXPENSE,
GAIN ON ASSET DISPOSITIONS, RESTRUCTURING COSTS
AND TAXES (191)
-------------
Interest income 4,903
Interest expense and amortization of debt
discount and consent fees (10,404)
Gain on asset dispositions 478
Restructuring costs (555)
-------------
OPERATING LOSS BEFORE TAXES ($5,769)
=============
</TABLE>
Page 28
<PAGE>
CAMPGROUND OPERATIONS. Campground membership dues revenue was $20.0 million for
the six months ended December 31, 1995, compared with $20.9 for the same period
last year. The decrease in the current period resulted primarily from a decline
in the membership base.
Other campground revenues increased to $9.1 million for the six months ended
December 31, 1995, from $8.8 million for the same period last year. The increase
in the current period was due primarily to higher guest fees and other related
revenue resulting from the Company's increased marketing activities and higher
revenues from the Company's campground management operations (see discussion
below). The related campground ancillary expenses were $4.6 million for the six
months ended December 31, 1995, compared with $4.4 million for the same period
last year.
Other campground operating expenses were $18.4 million for the six months ended
December 31, 1995, compared with $20.5 million for the same period last year.
The $2.2 million decrease in the current period was due primarily to the
operational changes made at the campgrounds in the fall of 1995, including the
closure of two campgrounds and reductions in service levels at certain
campgrounds.
Campground membership sales revenue was $1.2 million for the six months ended
December 31, 1995, compared with $1.1 million for the same period last year. The
slight increase in the current period reflects a higher volume of new membership
sales in the current period, but at lower average prices. Although the Company's
results are improving, its selling and marketing expenses exceeded its sales
revenue by $765,000 and $714,000, respectively, in the two periods. These
expenses exceeded sales revenue because of the increased marketing activity, and
the low volume of sales in both periods which did not cover fixed costs.
CAMPGROUND MANAGEMENT. For the six months ended December 31, 1995, the Company's
campground management operations generated a net contribution of $71,000 on
revenues of $582,000, compared with a loss of $48,000 on revenues of $393,000
for the same period last year.
FULL SERVICE RESORT OPERATIONS. The direct operating expenses of the full
service resorts exceeded revenues by $296,000 for the six months ended December
31, 1995, compared with $449,000 for the same period last year. The improvement
during the current period resulted primarily from increased amenity fee income
at one resort in the current period as a result of improved collection efforts,
and reduced administrative costs. Timeshare management operations produced a net
contribution of $242,000 for the six months ended December 31, 1995, compared
with a net contribution of $213,000 for the same period last year.
Timeshare and lot sales were $700,000 for the six months ended December 31,
1995, compared with $1.5 million 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 were 70% and 55% of sales for the six months ended December 31,
1995 and 1994, respectively. The higher percentage in the current period
reflects the lower sales volume in the current period combined with certain
fixed selling costs.
RESORT PARKS INTERNATIONAL. RPI produced a net contribution of $1.1 million for
the six months ended December 31, 1995, compared with $986,000 for the same
period last year.
NEGATIVE INTEREST SPREAD. Interest expense exceeded interest income by $5.6
million for the six months ended December 31, 1995, compared with $5.5 million
for the same period last year. The negative interest spread increased slightly
in the current period primarily because interest income from the diminishing
contracts receivable portfolio declined at a faster rate than interest expense
on debt.
Page 29
<PAGE>
Interest income decreased by $1.5 million for the six months ended December 31,
1995, compared with the same period last year, principally due to a decrease in
interest earned on the Company's receivables portfolio resulting from a decline
in principal balances. Interest expense decreased by $1.4 million for the six
months ended December 31, 1995, compared with the same period last year, due
primarily to the redemption of Secured Notes in July 1995 and scheduled
repayments of notes payable.
GAIN ON ASSET DISPOSITIONS. The Company recognized a gain on the disposition of
assets of $918,000 for the six months ended December 31, 1995, compared with
$478,000 for the same period last year. The decline in the current period
relates primarily to the timing of asset sales.
OTHER INCOME. Other income was $2.2 million for the six months ended December
31, 1995, compared with $1.4 million for the same period last year. The increase
in the current period was due primarily to an increase in income from recoveries
on canceled contracts as a result of increased use of outside collection
agencies.
OTHER EXPENSES. General and administrative expenses were $5.0 million for the
six months ended December 31, 1995, compared with $5.8 million for the same
period last year. The decrease in the current period was due primarily to cost
reductions implemented in the last quarter of fiscal 1995 and first quarter of
fiscal 1996.
Corporate member services costs were $904,000 for the six months ended December
31, 1995, compared with $1.0 million for the same period last year, reflecting
cost-cutting measures implemented during the fall of 1995, partially offset by
higher costs during the first fiscal quarter of 1996, related to producing the
Company's member magazine.
The Company incurred $555,000 in restructuring expenses during the six months
ended December 31, 1994, related to the relocation of certain of its
administrative functions to Dallas, Texas.
Page 30
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Property Owners Association, et. al. v. Beech Mountain Lakes Resorts Corp., et.
- -------------------------------------------------------------------------------
al., Civil Action No. 3:92-CV-01597, filed on November 10, 1992, in the Unites
- ---
States District Court for the Middle District of Pennsylvania. In this action,
the plaintiffs brought suit against a subsidiary of NACO and certain other
defendants alleging that the defendants made certain misrepresentations with
respect to the common areas and infrastructure in NACO's Beech Mountain resort.
The Company has entered into a settlement agreement with respect to this
lawsuit, and the lawsuit was dismissed with prejudice on January 30, 1996. The
settlement of this claim did not require any monetary payment on the part of the
Company.
Pennsylvania Attorney General Matter. During fiscal 1989, approximately 325
- ------------------------------------
purchasers at NACO's Treasure Lake resort complained to the Pennsylvania
Attorney General that they were subjected to abrasive sales practices and
misrepresentations at the time they purchased their resort interests from NACO
and were later harassed during the collection of their accounts. In fiscal 1990,
NACO entered into an Assurance of Voluntary Compliance with the Pennsylvania
Attorney General regarding these complaints. The Assurance Voluntary Compliance
provided for arbitration of the complaints and payment by NACO of $21,000 to
satisfy awards granted pursuant to the arbitration process. As of the date of
this report, most of these complaints had been resolved through the arbitration
process. The resolution of these claims did not have a material adverse effect
upon the Company's operations or financial position.
Oregon and California Attorney General Matters. During fiscal 1994, the
- ----------------------------------------------
Attorneys General of Oregon and California threatened to commence lawsuits
against the Company as a result of its practice of charging a cancellation fee
in connection with the cancellation of paid-in-full memberships. The Attorneys
General alleged that paid-in-full memberships may be terminated by the member
at any time by simply giving notice to the Company, and that it is an unlawful
trade practice for the Company to insist upon payment of a cancellation fee. In
September 1994, the Company agreed to change its practice and no longer require
a cancellation fee. The Company has entered into an Assurance of Voluntary
Compliance with the Oregon Attorney General regarding its cancellation policy.
The Company has negotiated a preliminary agreement with the California Attorney
General which provides that the Company will enter into a consent judgement
regarding its cancellation policy and also refund certain amounts to members.
This preliminary agreement is subject to negotiation of definitive
documentation. Managements does not believe that the resolution of these matters
will have a material adverse effect upon the Company's operations or financial
position.
During the second quarter of fiscal 1996, the California Attorney General also
threatened to commence a lawsuit against the Company as a result of its closure
of two campgrounds in California during the quarter. The Attorney General
alleged that the Company failed to provide a comparable substitute campground
as required by California law. The Company is presently attempting to negotiate
a settlement of this matter with the Attorney General. Although these
discussions are at an early stage, management does not believe that the
resolution of this matter will have a material adverse effect upon the Company's
operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On December 7, 1995, the Company held its annual meeting of stockholders. As of
the record date for the meeting, the Company had 3,702,726 shares of common
stock outstanding, of which 3,341,208 shares were represented at the meeting by
proxy. The stockholders took the following actions at the meeting.
1. The stockholders elected the six members of the Board of Directors of the
Company who will serve until the next annual meeting of shareholders and
until their successors are
Page 31
<PAGE>
elected and qualified. The six directors and the votes cast for and
withheld for each of them were as follows:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- --------------
<S> <C> <C>
Andrew M. Boas 3,340,315 893
William P. Kovacs 3,340,315 893
Donald R. Leopold 3,340,315 893
H. Sean Mathis 3,340,315 893
Douglas K. Nelson 3,340,315 893
William J. Shaw 3,340,315 893
</TABLE>
2. The stockholders ratified the appointment of Arthur Anderson LLP as the
independent certified public accountants for the Company for the fiscal
year ending June 30, 1996. The votes cast for, votes cast against, and
abstentions were as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C>
3,339,503 1,000 705
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following documents are filed as exhibits to this report.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.1 Amendment, dated December 7, 1995, to Amended and Restated
Employment Agreement between the Company and Walter B. Jaccard.
10.2 Amendment, dated December 7, 1995, to Amended and Restated
Employment Agreement between the Company and Harry J. White, Jr.
10.3 Letter agreement, dated November 9, 1995, between the Company and
Kenneth E. Hendrycy, regarding certain compensation arrangements.
10.4 Letter, dated December 1, 1995, from RPI to William F. Dawson and
Richard D. Kemp, regarding certain compensation arrangements.
27.1 Financial Data Schedule
</TABLE>
REPORTS ON FORM 8-K
The Company did not file any Current Reports on Form 8-K during the three months
ended December 31, 1995.
Page 32
<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: February 9, 1996 By: /s/ Harry J. White, Jr.
-------------------------------------
Harry J. White, Jr.
Vice President, Chief Financial Officer, and
Chief Accounting Officer
Page 33
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Description Page
- --- ----------- ----
<S> <C> <C>
10.1 Amendment, dated December 7, 1995, to Amended and 35
Restated Employment Agreement between the Company and
Walter B. Jaccard.
10.2 Amendment, dated December 7, 1995, to Amended and 37
Restated Employment Agreement between the Company and
Harry J. White, Jr.
10.3 Letter agreement, dated November 9, 1995, between the 38
Company and Kenneth E. Hendrycy, regarding certain
compensation arrangements.
10.4 Letter, dated December 1, 1995, from RPI to William F. 39
Dawson and Richard D. Kemp, regarding certain compensation
arrangements.
27.1 Financial Data Schedule 42
</TABLE>
Page 34
<PAGE>
Exhibit 10.1
AMENDMENT TO
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amendment to Amended and Restated Employment Agreement is made as of
December 7, 1995, between USTrails Inc., a Nevada corporation ("USTrails"),
Thousand Trails, Inc., a Washington corporation ("Thousand Trails"), and
National American Corporation, a Nevada corporation ("NACO") (which corporations
are sometimes referred to herein collectively as the "Corporations"), and Walter
B. Jaccard, a resident of Woodinville, Washington (the "Executive").
The Executive and Thousand Trails and NACO entered into an Employment
Agreement dated as of September 21, 1989. This Employment Agreement was amended
and restated as of December 3, 1992, by the Executive and Thousand Trails, NACO,
and USTrails, and further amended by the parties as of November 18, 1994 (as so
amended and restated, the "Employment Agreement"). Pursuant to the Employment
Agreement, the Executive was employed as Vice President, General Counsel, and
Secretary of Thousand Trails and USTrails, and as Vice President and Assistant
Secretary of NACO. The Board of Directors of the Corporations (the "Boards")
recognize the Executive's contribution to the growth and success of the
Corporations.
The Boards desire to amend the Employment Agreement to make certain changes
in the Executive's employment arrangements with the Corporations.
The Executive is willing to commit himself to serve the Corporations on the
terms set forth in the Employment Agreement as amended herein.
Accordingly, in consideration of the mutual agreements herein contained,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Corporations and the Executive agree that the
Employment Agreement is hereby amended as set forth herein.
SECTION 1. Amendments. The references to "six (6) months" in the
----------
first paragraph of Section 7, and in Section 8.1(a) and Section 8.1(b), are
hereby changed to "twelve (12) months."
SECTION 2. Ratification. Except as amended herein, the terms of the
------------
Employment Agreement are hereby ratified and shall continue in full force and
effect.
Executed as of the date first written above.
USTRAILS INC.
By: /s/ William J. Shaw
----------------------------------------
William J. Shaw, Chief Executive Officer
(continued)
Page 1 of 2
<PAGE>
THOUSAND TRAILS, INC.
By: /s/ William J. Shaw
----------------------------------------
William J. Shaw, Chief Executive Officer
NATIONAL AMERICAN CORPORATION
By: /s/ William J. Shaw
----------------------------------------
William J. Shaw, Chief Executive Officer
EXECUTIVE
/s/ Walter B. Jaccard
-------------------------------------------
Walter B. Jaccard
Page 2 of 2
<PAGE>
Exhibit 10.2
AMENDMENT TO
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amendment to Amended and Restated Employment Agreement is made as of
December 7, 1995, between USTrails Inc., a Nevada Corporation (the
"Corporation"), and Harry J. White, Jr., a resident of Arlington, Texas (the
"Executive").
The Executive and the Corporation entered into an Employment Agreement
dated as of June 8, 1992, which was amended and restated as of October 21, 1993
(as so amended and restated, the "Employment Agreement"). Pursuant to the
Employment Agreement, the Executive was employed as Vice President and Chief
Financial Officer of the Corporation and its subsidiaries, Thousand Trails,
Inc., a Washington Corporation ("TRAILS"), and National American Corporation, a
Nevada Corporation ("NACO"). The Board of Directors of the Corporation (the
"Board") recognizes the Executive's contribution to the growth and success of
the Corporation.
The Board desires to amend the Employment Agreement to make certain changes
in the Executive's employment arrangements with the Corporation.
The Executive is willing to commit himself to serve the Corporation on the
terms set forth herein.
Accordingly, in consideration of the mutual agreements herein contained,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Corporation and the Executive agree that the
Employment Agreement is hereby amended as set forth herein.
SECTION 1. Amendments. The references to "six (6) months" in the first
----------
paragraph of Section 7, and in Section 8.1(a) and Section 8.1(b), are hereby
changed to "twelve (12) months."
SECTION 2. Ratification. Except as amended herein, the terms of the
------------
Employment Agreement are hereby ratified and shall continue in full force and
effect.
Executed as of the date first written above.
USTRAILS INC.
By: /s/ William J. Shaw
----------------------------------------
William J. Shaw, Chief Executive Officer
EXECUTIVE
/s/ Harry J. White, Jr.
-------------------------------------------
Harry J. White, Jr.
<PAGE>
EXHIBIT 10.3
(Thousand Trails, Inc. National American Corporation ("NACO") letterhead appears
here)
November 9, 1995
Kenneth E. Hendrycy
5200 Keller Springs Road, #237
Dallas, Texas 75248
Dear Ken:
We have agreed that, for fiscal 1996, you will be paid an asset sales
incentive, in addition to your base salary, as follows:
$3,500 for each $1,000,000 in assets sales other than sales in the ordinary
course; plus
If the cumulative proceeds from assets sales for fiscal 1996 equals or
exceeds the budget amount of $9,657,000, than an additional $1,500 for each
$1,000,000 in asset sales;
Provided, however, that the total assets sales incentive that will be paid to
you for fiscal 1996 shall not exceed $50,000.
At my sole discretion, you may receive an additional asset sales incentive at
the end of the fiscal year based on my assessment of the actual asset sales
achieved during the fiscal year.
Please confirm your understanding of our agreement by signing this letter in
the space provided below and returning it to me.
Sincerely,
/s/ William J. Shaw
----------------------------
William J. Shaw
Chief Executive Officer
Acknowledged and agreed:
/s/ Kenneth E. Hendrycy
- ---------------------------
Kenneth E. Hendrycy
<PAGE>
EXHIBIT 10.4
(USTrails Letterhead appears here)
February 7, 1996
William F. Dawson
Richard D. Kemp
Resort Parks International
3711 Long Beach Blvd., Suite 110
Long Beach, CA 90807
Dear Bill and Dick:
For the fiscal year ending June 30, 1996, your compensation will consist
of the following:
(1) A base salary of (i) $14,145.83 per month (gross) for Bill Dawson, and (ii)
$11,400.00 per month (gross) for Dick Kemp. The car allowance that you
received previously has been included as part of your base salary and will
no longer be paid to you separately.
(2) In addition to your base salary, you will receive incentive compensation
in an amount equal to sixteen per cent (16%) of the amount by which the
Operating Income (hereinafter defined) of Shorewood Corporation, dba Resort
Parks International ("RPI") for the year ending June 30, 1996, exceeds the
Operating Income of RPI for the year ending June 30, 1995. This incentive
compensation will be divided equally between the two of you.
(a) A Statement of Operations for RPI for the year ending June 30, 1995,
is attached as Exhibit A. The Operating Income of RPI for the year ended
June 30, 1995, was $2,275,257.
(b) "Operating Income" of RPI shall mean Operating Revenues (hereinafter
defined) less Operating Expenses (hereinafter defined).
(c) "Operating Revenues" shall mean all revenues received or accrued by
RPI, except those specific revenues described below, and shall include
without limitation (i) the initial fees, renewal fees, and other fees paid
by members of RPI's reciprocal network, including members who are also
members of Thousand Trails or NACO, (ii) the initial fees, renewal fees,
and other fees paid by members of RPI's Vacation Club, including members
who are also members of Thousand Trails or NACO, (iii) revenues from sales
of usage cards and directories, (iv) fees paid by resorts for affiliation
with RPI's reciprocal network, (v) fees paid by RPI members for reservation
services, and (vi) other miscellaneous revenues. The term "Operating
Revenues" shall not include Allocated Interest Income, as determined by the
Chief Financial Officer of RPI.
<PAGE>
William F. Dawson
Richard D. Kemp
February 7, 1996
Page 2
(d) "Operating Expenses" shall mean all expenses incurred or accrued by
RPI, except those specific expenses described below, and shall include
without limitation, (i) the cost of directories and other materials for
RPI's reciprocal network, (ii) the cost of materials for RPI's Vacation
Club, (iii) marketing expenses, (iv) labor and related expenses, (v)
telecommunication expenses, (vi) travel and entertainment expenses, (vii)
the cost of operating supplies, (viii) rental expenses, (ix) depreciation
and amortization expenses, and (x) other miscellaneous expenses. The term
"Operating Expenses" shall not include federal or state income taxes or the
incentive compensation paid to Bill Dawson and Dick Kemp.
(e) The amount of your incentive compensation shall be calculated by the
Chief Financial Officer of RPI and paid to you by RPI within sixty (60)
days after June 30, 1996.
(f) The Board of Directors of RPI reserves the right to resolve any
disagreements relating to the calculation of your incentive compensation.
Sincerely,
/s/ William J. Shaw
For the Board of Directors of
Shorewood Corporation
<PAGE>
RESORT PARKS INTERNATIONAL
STATEMENT OF OPERATIONS
ACTUAL TWELVE MONTHS ENDED JUNE 30, 1995
BUDGET TWELVE MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
1995 1996
ACTUAL BUDGET
------------ ------------
<S> <C> <C>
RPI Membership Fees:
Affiliate Members-Initial Fee $540,804 $500,582
Members-Renewals 3,173,248 3,532,958
TTN Members 104,365 54,000
------------ ------------
3,818,417 4,087,540
------------ ------------
Vacation Club Membership Fees:
Affiliate Members 423,024 399,960
TTN Members 7,850 2,400
------------ ------------
430,874 402,360
------------ ------------
Usage Card Sales 250,603 190,893
Directory Sales 99,077 96,721
Affiliation Fees 15,845 18,000
Reservation Income 150,890 166,404
Other Revenues 79,297 94,800
------------ ------------
OPERATING REVENUES 4,845,003 5,056,718
------------ ------------
Cost of Directories 654,319 1,042,044
Cost of Vacation Club Materials 71,178 161,227
Marketing Expense 252,874 202,304
Labor and Related Expenses 1,024,928 1,084,709
Communications 260,246 216,000
Travel & Entertainment 51,193 74,800
Operating Supplies 55,349 45,600
Rental Expense 96,496 89,460
Other Operating Expenses 74,229 46,320
Reservation System 0 0
Depreciation and Amortization 28,934 28,800
------------ ------------
OPERATING EXPENSES 2,569,746 2,991,264
------------ ------------
OPERATING INCOME $2,275,257 $2,065,454
============ ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1995
<PERIOD-START> JUL-01-1995 JUL-01-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<CASH> 30,105 0
<SECURITIES> 0 0
<RECEIVABLES> 12,996 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 39,598 0
<PP&E> 30,515 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 107,508 0
<CURRENT-LIABILITIES> 57,673 0
<BONDS> 100,946 0
37 0
0 0
<COMMON> 0 0
<OTHER-SE> (31,624) 0
<TOTAL-LIABILITY-AND-EQUITY> 107,508 0
<SALES> 1,921 2,525
<TOTAL-REVENUES> 43,681 45,462
<CGS> 97 361
<TOTAL-COSTS> 45,723 51,231
<OTHER-EXPENSES> 36,574 40,452
<LOSS-PROVISION> 11 14
<INTEREST-EXPENSE> 9,041 10,404
<INCOME-PRETAX> (2,042) (5,769)
<INCOME-TAX> 157 (157)
<INCOME-CONTINUING> (1,885) (5,926)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,885) (5,926)
<EPS-PRIMARY> (.51) (1.60)
<EPS-DILUTED> (.51) (1.60)
</TABLE>
