<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
MARCH 31, 1996
Commission File Number 0-19743
USTRAILS INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
NEVADA 75-2138671
- --------------------------------- --------------------------------
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
2711 LBJ FREEWAY, SUITE 200, DALLAS, TEXAS 75234
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (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 that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
The number of shares of Common Stock, par value $.01, issued and outstanding as
of May 13, 1996 was 3,702,726.
<PAGE>
USTRAILS INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1996
and June 30, 1995.............................................. 3
Consolidated Statements of Operations for the nine months
ended March 31, 1996 and March 31, 1995........................ 4
Consolidated Statements of Operations for the three months
ended March 31, 1996 and March 31, 1995........................ 5
Consolidated Statement of Stockholders' Deficit
for the nine months ended March 31, 1996....................... 6
Consolidated Statements of Cash Flows for the nine months ended
March 31, 1996 and March 31, 1995.............................. 7
Notes to Consolidated Financial Statements....................... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 33
Item 6. Exhibits and Reports on Form 8-K............................. 33
Page 2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
USTRAILS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS March 31, June 30,
------ 1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 36,255 $ 50,596
Current portion of receivables,
net of allowance and discount
of $3.1 million and $5.3 million 4,566 5,376
Accounts and dues receivable, net 662 3,017
Inventory and other current assets 2,684 2,353
-------- ---------
Total Current Assets 44,167 61,342
Restricted cash 3,022 1,629
Receivables, net of allowance and discount of
$5.7 million and $11.4 million 10,975 13,322
Campground real estate 13,466 15,331
Resort real estate 1,218 1,352
Buildings and equipment, net of accumulated
depreciation of $9.7 million and $8.4 million 27,838 32,039
Land held for sale 6,979 8,341
Other assets 2,666 2,530
-------- ---------
Total Assets $110,331 $ 135,886
======== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable $ 1,425 $ 3,740
Accrued interest on Secured Notes 2,573 7,008
Other accrued liabilities 8,020 8,140
Current portion of long-term debt ---
Secured Notes, net of discount of $1.3 million
and $.2 million 17,363 18,398
Notes payable 1,039 3,537
Accrued construction costs 3,159 3,454
Deferred membership dues revenue 19,790 18,622
-------- ---------
Total Current Liabilities 53,369 62,899
Secured Notes, net of discount of $6.9 million
and $11.7 million 75,928 97,092
Notes payable 884 1,216
Other liabilities 3,825 4,500
-------- ---------
Total Liabilities 134,006 165,707
-------- ---------
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) (41,138) (47,288)
Cumulative currency translation adjustment (123) (119)
-------- ---------
Total Stockholders' Deficit (23,675) (29,821)
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $110,331 $ 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 nine months ended March 31,
-----------------------------------
1996 1995
--------------- --------------
<S> <C> <C>
REVENUES
Membership dues $ 29,956 $ 31,073
Other campground/resort revenue 16,641 17,112
Membership and resort interest sales 2,798 3,159
RPI membership fees 3,438 3,585
Interest income 5,146 7,536
Gain on asset dispositions 4,004 499
Other income 3,280 1,951
Nonrecurring income 4,714 3,718
----------- ---------
Total Revenues 69,977 68,633
----------- ---------
EXPENSES
Campground/resort operating expenses 37,235 41,431
Selling expenses 2,397 1,831
Provision for doubtful accounts 16 16
Cost of sales 134 469
Marketing expenses 929 1,621
RPI membership expenses 1,709 2,052
Corporate member services 1,235 1,594
Interest expense and amortization of
debt discount and consent fees 13,399 15,686
General and administrative expenses 8,073 8,875
Restructuring costs 79 573
------------ ---------
Total Expenses 65,206 74,148
------------ ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 4,771 (5,515)
Income tax provision (11) (215)
------------ ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 4,760 (5,730)
Extraordinary gain on debt repurchase 1,390
------------ ---------
NET INCOME (LOSS) $6,150 ($5,730)
============ =========
PRIMARY AND FULLY DILUTED NET INCOME
(LOSS) PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $1.29 ($1.55)
EXTRAORDINARY ITEM .37
------------ ---------
NET INCOME (LOSS) $1.66 ($1.55)
============ =========
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 March 31,
------------------------------------
1996 1995
---------------- -----------------
<S> <C> <C>
REVENUES
Membership dues $ 9,913 $10,212
Other campground/resort revenue 3,687 4,173
Membership and resort interest sales 877 634
RPI membership fees 1,204 1,203
Interest income 1,742 2,633
Gain on asset dispositions 3,086 21
Other income 1,073 577
Nonrecurring income 4,714 3,718
------- -------
Total Revenues 26,296 23,171
------- -------
EXPENSES
Campground/resort operating expenses 10,070 11,932
Selling expenses 689 499
Provision for doubtful accounts 5 2
Cost of sales 37 108
Marketing expenses 266 745
RPI membership expenses 536 656
Corporate member services 331 579
Interest expense and amortization
of debt discount and consent fees 4,358 5,282
General and administrative expenses 3,112 3,096
Restructuring costs 79 18
------- -------
Total Expenses 19,483 22,917
------- -------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 6,813 254
Income tax provision (168) (58)
------- -------
INCOME BEFORE EXTRAORDINARY ITEM 6,645 196
Extraordinary gain on debt repurchase 1,390
------- -------
NET INCOME $ 8,035 $ 196
======= =======
PRIMARY AND FULLY DILUTED NET INCOME PER SHARE:
INCOME BEFORE EXTRAORDINARY ITEM $1.80 $.05
EXTRAORDINARY ITEM .37
------- -------
NET INCOME $2.17 $.05
======= =======
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 NINE MONTHS ENDED MARCH 31, 1996
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Foreign
Additional Currency
Common Paid-In Accumulated Translation
Stock Capital Deficit Adjustment Total
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 1995 $ 37 $ 17,549 ($47,288) ($119) ($29,821)
Foreign currency translation
adjustment (4) (4)
Net income for the nine months
ended March 31, 1996 6,150 6,150
---- -------- -------- ----- --------
BALANCE, March 31, 1996 $ 37 $ 17,549 ($41,138) ($123) ($23,675)
==== ======== ======== ===== ========
</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 nine months ended March 31,
-----------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Collections of principal on receivables $ 9,092 $ 12,430
Interest received on receivables 4,807 7,241
Interest paid (14,404) (15,728)
General and administrative,corporate member
services and restructuring costs (9,674) (12,873)
Cash collected from operations, including
deferred revenue 57,156 56,533
Cash from sales of memberships and resort
interests at the point of sale 2,633 2,975
Expenditures for property operations (38,027) (40,267)
Expenditures for sales and marketing (3,416) (3,730)
Expenditures for insurance premiums (3,005) (3,943)
Payment of income taxes (11) (216)
Deposit made to secure standby letter (1,500)
of credit
Other, net 100 (3)
-------- --------
Net cash provided by operating activities 3,751 2,419
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and HUD-related expenditures (954) (4,572)
Proceeds from asset sales 7,048 722
-------- --------
Net cash provided by (used in) investing
activities 6,094 (3,850)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Mandatory redemption of Secured Notes (18,599)
Repurchase of Secured Notes (5,275)
Repayment of notes payable (312) (323)
Retirement of capital lease (381)
-------- --------
Net cash used in financing activities (24,186) (704)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (14,341) (2,135)
CASH AND CASH EQUIVALENTS:
Beginning of period 50,596 50,059
-------- --------
End of period $ 36,255 $ 47,924
======== ========
</TABLE>
-Continued-
Page 7
<PAGE>
USTRAILS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended March 31,
-----------------------------------
1996 1995
--------------- ----------------
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income (loss) $ 6,150 ($5,730)
------- -------
ADJUSTMENTS TO RECONCILE NET
INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES --
Depreciation 2,163 1,902
Provision for doubtful accounts, net (4,130) (441)
of adjustments
Cost of sales 134 469
Amortization of interest yield, collection
costs and valuation allowance (856) (1,123)
Amortization of debt discount and consent
fees 3,409 3,713
Gain on asset dispositions (4,004) (499)
Reversal of contingent liabilities (568) (2,721)
Extraordinary gain on Secured Note (1,390)
repurchase
Reduction of allowance for collection
costs (540)
Increase in restricted cash (1,393) (159)
Decrease in receivables 9,143 12,394
Decrease (increase) in other assets 899 (898)
Decrease in accounts payable (2,315) (272)
Decrease in accrued interest on (4,435) (3,803)
Secured Notes
Increase in deferred membership dues 1,168 1,753
revenue
Decrease in other liabilities (227) (1,691)
Other, net 3 65
------- -------
Total adjustments (2,399) 8,149
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,751 $ 2,419
======= =======
</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
MARCH 31, 1996
(Unaudited)
GENERAL
USTrails Inc. and its subsidiaries (the "Company") own and operate a system of
58 membership-based campgrounds located in 19 states and British Columbia,
Canada. In addition, the Company manages timeshare facilities and owns certain
real estate at eight full service resorts located in seven states and owns and
operates the resort amenities at one of these locations. The Company also
provides a reciprocal use program for members of approximately 330 recreational
facilities. The campground business represents the most significant portion of
the Company's business comprising 82% of the Company's operating revenues in the
first nine months of fiscal 1996. The full service resort and reciprocal use
businesses provided the remaining 18%. 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 reflect all adjustments
which are necessary for a fair presentation of the results for the interim
periods. All such adjustments are of a normal recurring nature, except for the
items described in Notes 2, 4, 5 and 6.
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
nine month periods ended March 31, 1996 and 1995, and in the consolidated
balance sheet at June 30, 1995. Certain prior period 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 income per common share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding, as determined
by the treasury stock method, whereby proceeds, if any, from the assumed
exercise of common stock equivalents, would be used to purchase shares at
current market prices. Net loss per common share is computed based on weighted
average common shares outstanding only. Warrants outstanding as well as common
stock equivalents that would be assumed to be outstanding are excluded from the
net loss per common share computation as they would be anti-dilutive. 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 -- RECEIVABLES
CONTRACTS RECEIVABLE
Allowance for Doubtful Accounts
- -------------------------------
At March 31, 1996, the Company reduced the allowance for doubtful accounts on
the contracts receivable related to the campgrounds and full service resorts by
$5.1 million. At March 31, 1995, the Company reduced the allowance for doubtful
accounts on the contracts receivable related to the full service resorts by
$457,000. The adjustments were made because the cancellation rate on these
contracts receivable has decreased, and the Company has experienced lower
contract losses than originally anticipated. These amounts are included in
nonrecurring income in the accompanying consolidated statements of operations.
The allowance for doubtful accounts is an estimate of the receivables that will
cancel in the future and is determined based on historical cancellation rates
and other factors deemed relevant to the analysis. The Company does not
presently anticipate any further adjustments to the allowance for doubtful
accounts on the contracts receivable related to either its campgrounds or full
service resorts. However, the allowance and the rate at which the Company
provides for future losses on its contracts receivable could be increased or
decreased in the future based on the Company's actual collection experience.
Allowance for Future Collection Costs
- -------------------------------------
At March 31, 1995, the Company reduced the allowance for future collection costs
related to the contracts receivable by $540,000 because the estimated cost to
collect the remaining receivables was less than the amount estimated when the
allowance was recorded. This amount has been included in nonrecurring income in
the accompanying consolidated statements of operations for the three and nine
month periods ended March 31, 1995. The remaining allowance balance is being
amortized as a reduction of general and administrative expenses based on cash
collected on the related portfolio.
Repurchase of Receivables Owned by a Third Party
- ------------------------------------------------
On March 22, 1995, the Company completed the purchase of $3.0 million of
contracts receivable from a third party effective as of June 30, 1994, for a
purchase price of $1.6 million. On March 22, 1995, the Company received
contracts receivable with a gross balance of $2.0 million and $1.0 million in
cash representing principal and interest collections on the receivables from
June 30, 1994 to March 22, 1995. The Company recorded the $2.0 million gross
balance of the receivables net of an allowance for doubtful accounts of $523,000
and a purchase price discount of $550,000. The purchase price discount is being
amortized over the remaining term of the contracts receivable. The Company also
reversed a $2.7 million contingent liability relating to these contracts
receivable as discussed below.
These contracts receivable had previously been sold by NACO to the third party.
In connection with this sale, a portion of the purchase price was withheld as a
dealer holdback against which
Page 10
<PAGE>
the purchaser could offset canceled and delinquent contracts receivable. As of
March 22, 1995, the canceled and delinquent contracts receivable charged against
the dealer holdback had consumed it and a deficiency of $2.7 million existed.
Although the Company took the position that it was not liable for the deficiency
based upon the terms of certain agreements and releases with the third party,
the Company had recorded a contingent liability for the amount of the
deficiency. When the Company repurchased the contracts receivable, this
contingent liability was released. As a result, the Company reversed the $2.7
million recorded liability and included this amount in nonrecurring income in
the accompanying consolidated statements of operations for the three and nine
month periods ended March 31, 1995.
MEMBERSHIP DUES RECEIVABLE
At March 31, 1996, the Company recorded a provision for uncollectible membership
dues receivable of $1.0 million related to certain aged dues accounts that were
determined to be uncollectible at March 31, 1996. The charge is included as a
reduction to nonrecurring income in the accompanying consolidated statements of
operations for the three and nine month periods ended March 31, 1996.
NOTE 3 -- GAIN ON ASSET DISPOSITIONS
The Company recognized a gain on the disposition of assets of $4.0 million and
$499,000 for the nine months ended March 31, 1996 and 1995, respectively. The
gain in the current nine month period resulted primarily from the sale of the
common amenities at one of the full service resorts and two non-operating
campgrounds, and the disposition of two operating campgrounds that were
abandoned. The sale of common amenities at the full service resort generated
net proceeds of $4.3 million, and a gain of $2.2 million. The gain in the prior
period resulted primarily from the sale of excess acreage at certain of the
campgrounds and resorts.
NOTE 4 -- RESTRUCTURING COSTS
The Company incurred $79,000 of restructuring expenses during the nine months
ended March 31, 1996, related to its current efforts to recapitalize or
reorganize (see Note 5). The Company incurred $573,000 of restructuring
expenses during the nine months ended March 31, 1995, related to the relocation
of certain administrative functions to Dallas, Texas.
NOTE 5 -- 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 March 31, 1996, the Company had insurance policies which provide
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 $1.7 million at March 31, 1996, which is included in
other liabilities in the accompanying consolidated balance sheet. This
liability is determined based on actuarial estimates.
Workers' Compensation Insurance
- -------------------------------
In fiscal 1996, the Company improved its method of determining workers'
compensation premiums, whereby it no longer records the cost of such premiums
based on estimates that are subject to potential audit adjustments at year end.
As a result, at March 31, 1996, the Company reversed its recorded contingent
liability related to workers' compensation premium audits. The $568,000
reversal is included in nonrecurring income in the accompanying consolidated
statements of operations for the three and nine month periods ended March 31,
1996.
Page 11
<PAGE>
Membership Base
- ---------------
The Company derives a significant portion of its ongoing operating revenue from
its campground members (82% in the first nine months of fiscal 1996). The
Company's membership base has declined from 167,000 at December 31, 1991 to
131,000 at March 31, 1996 (22%), and the membership base is expected to decline
at the rate of approximately 8% per annum 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 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.
Bonus Accrual
- -------------
Under the terms of his employment agreement, the Company's Chief Executive
Officer has the right to elect, at his option, to receive a one-time bonus based
on increases in the value of the Company's outstanding securities at the time he
elects to receive the bonus. As a result, at March 31, 1996, the Company
recorded a $530,000 contingent liability related to the vested portion of this
bonus, which was then 50% vested. As of the date of this report, the Company's
Chief Executive Officer has not elected to receive the one-time bonus. The
$530,000 charge is included in general and administrative expense in the
accompanying consolidated statements of operations for the three and nine month
periods ended March 31, 1996.
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 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.
Page 12
<PAGE>
Johnnie Lacy v. Thousand Trails, Inc., Civil Action No. C-96 00441, filed
- -------------------------------------
February 1, 1996, in the United States District Court for the Northern District
of California. In this action, which purports to be a class action, the
plaintiff alleges that a subsidiary of the Company has failed to comply with the
Americans with Disabilities Act and related California statutes with respect to
certain of its campgrounds. The plaintiff alleges that the Company's subsidiary
has failed to remove barriers to access by persons with disabilities where such
barrier removal is readily achievable. The plaintiff seeks unspecified damages
and injunctive relief. Although this case is still in the early stages of
development, management does not believe that it will have a material adverse
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. At March 31, 1996, the Company had outstanding debt of $103.4
million (excluding trade payables and the discount on the Secured Notes) and an
equity deficit of $23.7 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, results of operations, and
business needs 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.
During the third quarter of fiscal 1996, the Company and a committee (the
"Committee") of certain holders of the Secured Notes jointly retained a
financial advisor to advise them on recapitalization and reorganization
alternatives for the Company. The Company intends to attempt to negotiate a
recapitalization or reorganization with the Committee prior to July 15, 1996;
however, there is no assurance that the Company will be able to reach any
agreement with the Committee. The Company may reorganize in a proceeding under
Chapter 11 of the Bankruptcy Code if it cannot reach an agreement with the
Committee, or if it reaches an agreement with the Committee that can only be
implemented through a bankruptcy reorganization.
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 6 -- EXTRAORDINARY ITEM
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 recognized a gain of $1.4 million on these transactions,
which is presented as an extraordinary item in the consolidated statements of
operations for the three and nine month periods ended March 31,
Page 13
<PAGE>
1996. 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.
NOTE 7 -- 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 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
guarantees could be unenforceable, in whole or in part. The Company believes
that its subsidiaries received adequate financial and other benefits for their
guarantees 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 March 31, 1996, totaled $27.4 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 owed 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, 56 of the
Company's 58 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 two of the Company's
operating campgrounds, certain leasehold 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 campgrounds and three of Trails' 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
Page 14
<PAGE>
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 implementation 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 nine month periods ended March 31, 1996 and 1995. The
operating results of RPI 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 15
<PAGE>
NATIONAL AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended March 31, Three months ended March 31,
--------------------------- ----------------------------
1996 1995 1996 1995
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES
Campground membership dues $ 9,629 $10,454 $ 3,191 $ 3,495
Other campground/resort revenue --
Campgrounds 4,693 4,572 775 769
Resorts 5,446 5,984 1,551 1,881
------- ------- ------- -------
10,139 10,556 2,326 2,650
------- ------- ------- -------
Membership and resort interest sales 1,412 2,349 421 431
Interest income 939 1,323 317 421
Gain on asset dispositions 3,562 506 3,058 33
Other income 2,401 2,254 784 838
Nonrecurring income 3,922 3,178 3,922 3,178
------- ------- ------- -------
Total Revenue 32,004 30,620 14,019 11,046
------- ------- ------- -------
EXPENSES
Operating expenses --
Campgrounds 11,805 13,502 3,168 3,859
Resorts 5,942 6,357 1,751 1,805
------- ------- ------- -------
17,747 19,859 4,919 5,664
------- ------- ------- -------
Selling expenses 956 1,167 245 316
Provision for doubtful accounts 11 11 5 2
Cost of sales 134 407 37 96
Marketing expenses 214 682 51 330
Interest expense 3,755 3,423 1,218 1,093
Corporate member services 275 394 80 114
General and administrative expenses 4,345 4,912 1,612 1,866
Restructuring costs 200 5
------- ------- ------- -------
Total Expenses 27,437 31,055 8,167 9,486
------- ------- ------- -------
Income (Loss) Before Taxes 4,567 (435) 5,852 1,560
Provision for income taxes (72) (81) (242) (24)
------- ------- ------- -------
Net Income (Loss) $ 4,495 ($516) $ 5,610 $ 1,536
======= ======= ======= =======
</TABLE>
Page 16
<PAGE>
THOUSAND TRAILS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended March 31, Three months ended March 31,
--------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Campground membership dues $20,327 $21,009 $ 6,722 $6,847
Other campground revenue 5,939 6,179 1,350 1,519
Membership sales 1,386 810 456 203
Interest income 2,420 2,764 896 905
Gain on asset dispositions 438 23
Other income 1,732 1,101 591 293
Nonrecurring income 792 792
------- ------- ------- ------
Total Revenue 33,034 31,863 10,830 9,767
------- ------- ------- ------
EXPENSES
Operating expenses 18,975 21,499 5,115 6,303
Selling expenses 1,441 664 444 183
Provision for doubtful accounts 5 5
Cost of sales 62 12
Marketing expenses 715 939 215 415
Interest expense 108 348 1 106
Corporate member services 960 1,200 251 465
General and administrative expenses 3,411 3,534 1,300 1,181
Restructuring costs 303
------- ------- ------- ------
Total Expenses 25,615 28,554 7,326 8,665
------- ------- ------- ------
Income Before Taxes 7,419 3,309 3,504 1,102
Provision for income taxes (2,467) (1,823) (1,624) (739)
------- ------- ------- ------
Net Income $ 4,952 $ 1,486 $ 1,880 $ 363
======= ======= ======= ======
</TABLE>
Page 17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's Annual Report on Form 10-K for the year ended June 30,
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
$50.5 million, decreased its annualized operating expenses by $44.1 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.
During fiscal 1996, the Company also stabilized its operations, and it presently
expects to achieve a positive contribution from operations for the full fiscal
year as discussed below. However, despite these improvements, the Company is
still experiencing net losses, excluding nonrecurring and extraordinary items,
and negative cash flow from operating activities, excluding 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 eleven
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 131,000 at March 31, 1996 (22%), and the
membership base is expected to decline at the rate of approximately 8% per annum
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 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 nine months ended March 31, 1996, the
- -----------------------------
Company had a positive contribution from operations (defined below) of $4.4
million, compared with a negative contribution of $1.0 million for the same
period last year. The improvement in the current period
Page 18
<PAGE>
resulted primarily from cost reduction measures implemented during the last
quarter of fiscal 1995 and during fiscal 1996, which reduced general and
administrative and campground operating expenses. The Company presently expects
to have a positive contribution from operations of $4.0 million to $4.5 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, nonrecurring items, taxes and extraordinary
items. See the tables on pages 29 and 30 for the elements of the positive
contribution from operations and the Company's operating income (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 the campground membership base,
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 in 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's interest expense exceeds its interest
income by a significant amount. This negative interest spread was $8.3 million
for the nine months ended March 31, 1996, and at the current level of
operations, is expected to total approximately $10.8 million for fiscal 1996.
REQUIRED RECAPITALIZATION OR REORGANIZATION. The Company is highly leveraged.
At March 31, 1996, the Company had outstanding debt of $103.4 million (excluding
trade payables and the discount on the Secured Notes) and an equity deficit of
$23.7 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, results of operations, and business needs 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 a recapitalization or
reorganization of the Company and its subsidiaries will be required by no later
than fiscal 1997.
During the third quarter of fiscal 1996, the Company and a committee (the
"Committee") of certain holders of the Secured Notes jointly retained a
financial advisor to advise them on recapitalization and reorganization
alternatives for the Company. The Company intends to attempt to negotiate a
recapitalization or reorganization with the Committee prior to July 15, 1996;
however, there is no assurance that the Company will be able to reach any
agreement with
Page 19
<PAGE>
the Committee. The Company may reorganize in a proceeding under
Chapter 11 of the Bankruptcy Code if it cannot reach an agreement with the
Committee, or if it reaches an agreement with the Committee that can only be
implemented through a bankruptcy reorganization.
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.
CASH. On March 31, 1996, the Company had $36.3 million of cash and cash
equivalents, a decrease of $14.3 million during the nine 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 $5.3 million was
used to repurchase Secured Notes in January 1996 (see Extraordinary Item below).
These expenditures were partially offset by proceeds of $7.0 million from the
sale of assets, and $3.8 million provided by operating activities.
The Company's principal sources of operating cash for the nine months were $13.9
million in principal and interest collections on receivables and $57.2 million
in dues collections and other campground and resort revenues. Principal uses of
operating cash for the nine months were $38.0 million in operating expenses,
$9.7 million in general and administrative expenses (including corporate member
services costs), $3.0 million in insurance premiums, and $14.4 million in
interest payments, principally related to the Secured Notes.
Excluding $9.1 million of principal collections on its contracts receivable, the
Company had negative cash flow from operating activities of $5.3 million for the
nine months ended March 31, 1996. In addition, the Company estimates that its
overall cash flow for fiscal 1996 will be negative because of the $18.6 million
used to make the mandatory redemption of Secured Notes in July 1995, the
$5.3 million used to repurchase Secured Notes in January 1996, 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.
Management anticipates the following significant expenditures during the
remainder of the fiscal year (in millions):
<TABLE>
<CAPTION>
<S> <C>
. Balloon payment on first mortgage
on campground $ .8
. Capital improvements, maintenance,
and repairs for campground operations 1.1
. Capital improvements to fulfill
HUD obligations and to facilitate
the sale of resort assets .4
. Selling and marketing efforts 1.7
----
$4.0
====
</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 $3.4 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.
Page 20
<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 5.3% at March 31, 1996.
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 $25.6 million during the nine months ended March 31,
1996. Cash decreased by $14.3 million as discussed above. Contracts receivable
decreased by $3.2 million due primarily to $9.1 million in cash collections
offset by a $5.1 million adjustment made at March 31, 1996 to reduce the
allowance for doubtful accounts, and $856,000 related to the amortization of the
allowances for interest discount and collection costs and valuation allowance.
Accounts and dues receivable declined by $2.4 million due primarily to (i) a
$1.0 million adjustment made at March 31, 1996 to increase the allowance for
doubtful accounts related to dues receivable, (ii) the receipt of certain
payroll tax refunds during the period, and (iii) the timing of dues collections.
Campground and resort properties decreased by a total of $7.6 million due
primarily to (i) the sale of the common amenities at one resort, (ii) the sale
of two non-operating campgrounds and certain other real estate, (iii) the
abandonment of two operating campgrounds, and (iv) depreciation during the
period. These decreases were partially offset by a $1.4 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 $31.7 million during the nine months ended March
31, 1996. Secured Notes decreased by $22.2 million as a result of the mandatory
redemption of $18.6 million of Secured Notes in July 1995 and repurchase of $7.4
million of Secured Notes in January 1996, partially offset by amortization of
the discount during the period. Notes payable decreased by $2.8 million due to
scheduled repayments and the abandonment of two campgrounds which were subject
to nonrecourse obligations totaling $2.5 million. Accounts payable decreased by
$2.3 million due primarily to the seasonal nature of the Company's operations,
the significant marketing activity during Spring 1995, and the expenditure of
funds during Spring 1995 for capital improvements under the TTN Alliance
Program. Accrued interest on the Secured Notes declined by $4.4 million due to
the timing of the semi-annual interest payments, the mandatory redemption of
Secured Notes in July 1995, and the repurchase of Secured Notes in January 1996.
These decreases were partially offset by deferred membership dues revenue, which
increased by $1.2 million due to cash collections in excess of revenue
recognized during the period.
Page 21
<PAGE>
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995
NET INCOME (LOSS). The Company reported net income of $8.0 million or $2.17
per share on revenues of $26.3 million for the three months ended March 31,
1996. This compares with net income of $196,000 or $.05 per share on revenues
of $23.2 million for the same period last year. The results for the current
period include a $1.4 million extraordinary gain on the repurchase of Secured
Notes, and $4.7 million of nonrecurring income consisting of $4.1 million from a
net reduction in the allowance for doubtful accounts related to contracts and
dues receivable, and $568,000 from the reversal of a contingent liability. The
current period results also include $79,000 of restructuring costs related to
the Company's current efforts to recapitalize or reorganize. The results for
the prior period include $3.7 million of nonrecurring income consisting of
$2.7 million from the reversal of a contingent liability and $1.0 million from
reductions in the allowances for doubtful accounts and collection costs. The
prior period results also include $18,000 of restructuring costs related to the
relocation of certain administrative functions to Dallas, Texas.
Excluding the extraordinary gain, nonrecurring income, and restructuring costs,
the Company would have had net income of $2.0 million for the three months ended
March 31, 1996, compared with a net loss of $3.5 million for the same period
last year. The improvement in the current period was due primarily to gains
from asset dispositions, and decreases in campground operating costs and
interest expense.
Page 22
<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 March 31, 1996:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1996
---------------------------------
Campgrounds Resorts Total
----------- ------- -------
<S> <C> <C> <C>
CAMPGROUND/RESORT OPERATIONS
Membership dues $ 9,913 $ 9,913
Other campground/resort revenues 2,136 $ 1,551 3,687
Campground ancillary expenses (1,063) (1,063)
Other operating expenses (7,256) (1,751) (9,007)
------- ------- -------
Profit (loss) on campground/resort operations 3,730 (200) 3,530
------- ------- -------
SALES
Memberships 559 559
Resort interests 318 318
------- ------- -------
Total sales 559 318 877
------- ------- -------
Selling costs (549) (182) (731)
Marketing expenses (266) (266)
------- ------- -------
Total expenses (815) (182) (997)
------- ------- -------
Profit (loss) on sales (256) 136 (120)
------- ------- -------
RESORT PARKS INTERNATIONAL
Fee income 1,204 1,204
Cost of operations (536) (536)
------- ------- -------
RPI net contribution 668 668
------- ------- -------
$ 4,142 ($64) 4,078
------- ------- -------
Other income 1,073
Corporate member services (331)
General and administrative expenses (3,112)
-------
OPERATING INCOME BEFORE INTEREST INCOME AND
EXPENSE, GAIN ON ASSET DISPOSITIONS,
RESTRUCTURING COSTS, NONRECURRING INCOME,
TAXES AND EXTRAORDINARY ITEM 1,708
-------
Interest income 1,742
Interest expense and amortization of
debt discount and consent fees (4,358)
Gain on asset dispositions 3,086
Restructuring costs (79)
Nonrecurring income 4,714
-------
OPERATING INCOME BEFORE TAXES
AND EXTRAORDINARY ITEM $ 6,813
=======
</TABLE>
Page 23
<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 March 31, 1995:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1995
----------------------------------
Campgrounds Resorts Total
----------- --------- -------
<S> <C> <C> <C>
CAMPGROUND/RESORT OPERATIONS
Membership dues $10,212 $ 10,212
Other campground/resort revenues 2,292 $ 1,881 4,173
Campground ancillary expenses (1,043) (1,043)
Operating expenses (9,084) (1,805) (10,889)
------- ------- --------
Profit on campground/resort operations 2,377 76 2,453
------- ------- --------
SALES
Memberships 275 275
Resort interests 359 359
------- ------- --------
Total sales 275 359 634
------- ------- --------
Selling costs (356) (253) (609)
Marketing expenses (745) (745)
------- ------- --------
Total expenses (1,101) (253) (1,354)
------- ------- --------
Profit (loss) on sales (826) 106 (720)
------- ------- --------
RESORT PARKS INTERNATIONAL
Fee income 1,203 1,203
Cost of operations (656) (656)
------- ------- --------
RPI net contribution 547 547
------- ------- --------
$ 2,098 $ 182 2,280
======= ======= --------
Other income 577
Corporate member services (579)
General and administrative expenses (3,096)
--------
OPERATING LOSS BEFORE INTEREST INCOME AND
EXPENSE, GAIN ON ASSET DISPOSITIONS,
RESTRUCTURING COSTS, NONRECURRING
INCOME AND TAXES (818)
--------
Interest income 2,633
Interest expense and amortization of
debt discount and consent fees (5,282)
Gain on asset dispositions 21
Restructuring costs (18)
Nonrecurring income 3,718
--------
OPERATING INCOME BEFORE TAXES $ 254
========
</TABLE>
Page 24
<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
March 31, 1996, compared with $10.2 million for the same period last year. The
decrease is mainly attributable to a decline in the membership base.
Other campground revenues decreased slightly to $2.1 million for the three
months ended March 31, 1996, compared with $2.3 million for the same period last
year, due primarily to the closure of two campgrounds during the second quarter
of fiscal 1996 and inclement weather in certain areas during the current period.
The related campground ancillary expenses were approximately $1.0 million for
the three month periods ended March 31, 1996 and 1995.
Other campground operating expenses decreased by $1.8 million to $7.3 million
for the three months ended March 31, 1996, 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 the
third quarter of fiscal 1996, the Company announced that it would permanently
close two additional campgrounds. In addition, in the third quarter of fiscal
1996, the Company sold two of its non-operating campgrounds, and eliminated the
carrying costs associated with them, which were approximately $333,000 per 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 the use of one campground to the
entire system of campgrounds. In addition, the new membership products offer
the consumer a choice of annual dues levels ranging from $198 for 15 nights of
use to $998 for up to 365 nights of use.
During the nine months ended March 31, 1996, the Company sold 1,892 new
memberships at an average sales price of $952 and an average annual dues level
of $310. 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 8% more
sales reservations during the current year period, compared with the same period
last year, and 15% of the people making reservations purchased a membership
during the current year period, compared with 5% during the same period last
year. Similarly, the percentage of people who purchased a membership after
attending a sales presentation increased to 33% 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 $559,000 for the three months ended
March 31, 1996, compared with $275,000 for the same period last year, reflecting
a higher volume of new membership sales at a lower average price in the current
period. The Company's selling and marketing expenses exceeded its sales revenue
by $256,000 and $826,000,
Page 25
<PAGE>
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 62,000 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
US Forest Service. As of March 31, 1996, Wilderness Management had entered into
management contracts covering 35 campgrounds containing a total of 1,436
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 March 31, 1996, the Company
lost $21,000 on revenues of $14,000 from these operations, compared with a loss
of $55,000 on revenues of $6,000 for the same period last year. The campground
management operations generally incur a loss during the third 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 small
positive net contribution for the full fiscal year.
FULL SERVICE RESORT OPERATIONS. The direct operating expenses of the full
service resorts exceeded revenues by $200,000 for the three months ended March
31, 1996, compared with a positive contribution from operations of $76,000 for
the same period last year. The decline in the current period was due primarily
to the timing of dues billings and receipt of the corresponding management fees
which were slightly delayed in the current period, and the sale of the common
amenities at one of the resorts in the third quarter of fiscal 1996, which
resulted in lower amenity fee income. Timeshare management operations produced
a net contribution of $288,000 for the three months ended March 31, 1996,
compared with a net contribution of $336,000 for the same period last year, due
primarily to the timing of dues billings as mentioned above.
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 $318,000 and $359,000 for the three months ended March 31, 1996 and 1995,
respectively. 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 57% of sales for the three months
ended March 31, 1996, compared with 70% of sales for the same period last year.
The decrease in the percentage in the current period was due primarily to the
sale of a group of lots at one of the resorts in the current period which were
sold without a sales commission. As of March 31, 1996, there were approximately
1,700 timeshare weeks available for sale out of a total of 32,000.
In February 1996, the Company sold the common amenities at one of the full
service resorts for net proceeds of $4.3 million, and recognized a gain of $2.2
million. The Company presently plans to dispose of a substantial portion of the
remaining resort assets over the next several years.
Page 26
<PAGE>
However, 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.
RESORT PARKS INTERNATIONAL. RPI produced a net contribution of $668,000 during
the three months ended March 31, 1996, compared with $547,000 for the same
period last year, due primarily to cost reductions in the current period. 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 $2.6 million for the three months ended March 31, 1996 and 1995.
The Company anticipates that, at the current level of operations, the negative
interest spread will total approximately $10.8 million for fiscal 1996.
Interest income decreased by $891,000 for the three months ended March 31, 1996,
compared with the same period last year, due primarily to a decrease in interest
earned on the Company's diminishing portfolio of contracts receivable and an
$11.7 million decrease in the cash balance between years.
Interest expense decreased by $924,000 for the three months ended March 31,
1996, compared with the same period last year, due primarily to the $18.6
million mandatory redemption of Secured Notes in July 1995, the repurchase of
Secured Notes in January 1996, and scheduled repayments of notes payable.
GAIN ON ASSET DISPOSITIONS. The Company recognized a gain on the disposition of
assets of $3.1 million for the three months ended March 31, 1996, compared with
$21,000 for the same period last year. The gain in the current period resulted
primarily from the sale of the common amenities at one of the full service
resorts and two non-operating campgrounds. The sale of common amenities at the
full service resort generated net proceeds of $4.3 million, and a gain of $2.2
million. The gain in the prior period resulted primarily from the sale of
excess acreage at certain of the campgrounds and resorts. 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.
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 has implemented a new automated reservation system and,
effective June 1, 1996, intends to begin charging members for making more than
five operator-assisted reservations in a given year. Other income was $1.1
million for the three months ended March 31, 1996, compared with $577,000 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 and dues as a
result of increased use of outside collection agencies.
NONRECURRING INCOME. Nonrecurring income was $4.7 million for the three months
ended March 31, 1996, compared with $3.7 million for the same period last year.
Nonrecurring income for the current period includes $4.1 million resulting from
the net reduction in the allowance for doubtful accounts related to contracts
and dues receivable, and $568,000 from the reduction of a contingent liability.
Nonrecurring income for the prior period includes $2.7 million from the reversal
of a contingent liability, and $1.0 million resulting from reductions in the
allowances for doubtful accounts and collection costs. See Notes 2 and 5 to the
consolidated financial statements included in Item 1.
OTHER EXPENSES. General and administrative expenses were approximately $3.1
million for the three months ended March 31, 1996 and 1995. General and
administrative expenses for the current period reflect cost reductions
implemented in the last quarter of fiscal 1995 and first
Page 27
<PAGE>
quarter of fiscal 1996 that were partially offset by a $530,000 contingent
liability recorded at March 31, 1996 for the vested portion of a bonus the
Company's Chief Executive Officer has the right to receive under his employment
agreement. See Note 5 to the consolidated financial statements included in
Item 1.
Corporate member services costs were $331,000 for the three months ended March
31, 1996, compared with $579,000 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 $79,000 of restructuring expenses during the three months
ended March 31, 1996, related to its current efforts to recapitalize or
reorganize. The Company incurred $18,000 of restructuring expenses during the
three months ended March 31, 1995, related to the relocation of certain
administrative functions to Dallas, Texas.
EXTRAORDINARY ITEM. 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 recognized a gain of $1.4 million on
these transactions, which is 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.
Nine Months Ended March 31, 1996 and 1995
NET INCOME (LOSS). The Company reported net income of $6.2 million or $1.66
per share on revenues of $70.0 million for the nine months ended March 31, 1996.
This compares with a net loss of $5.7 million or $1.55 per share on revenues of
$68.6 million for the same period last year. The results for the current period
include a $1.4 million extraordinary gain on the repurchase of Secured Notes and
$4.7 million of nonrecurring income consisting of $4.1 million from the net
reduction in the allowance for doubtful accounts related to contracts and dues
receivable, and $568,000 from the reversal of a contingent liability. The
current period results also include $79,000 of restructuring costs related to
the Company's efforts to recapitalize or reorganize. The results for the prior
period include $3.7 million of nonrecurring income consisting of $2.7 million
from the reversal of a contingent liability and $1.0 million from reductions in
the allowances of doubtful accounts and collection costs. The prior period
results also include $573,000 for restructuring expenses related to the
relocation of certain administrative functions to Dallas, Texas.
Excluding the extraordinary gain, nonrecurring income, and restructuring costs,
the Company would have had net income of $125,000 for the nine months ended
March 31, 1996, compared with a net loss of $8.8 million for same period last
year. The improvement in the current period was due primarily to gains from
asset sales, and decreases in expenses, principally campground operating costs,
general and administrative expenses and interest.
Page 28
<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 nine months ended March 31, 1996:
<TABLE>
<CAPTION>
Nine Months Ended March 31, 1996
--------------------------------
Campgrounds Resorts Total
----------- ------- --------
<S> <C> <C> <C>
CAMPGROUND/RESORT OPERATIONS
Membership dues $ 29,956 $ 29,956
Other campground/resort revenues 11,195 $ 5,446 16,641
Campground ancillary expenses (5,681) (5,681)
Operating expenses (25,612) (5,942) (31,554)
-------- ------- --------
Profit (loss) on campground/resort
operations 9,858 (496) 9,362
-------- ------- --------
SALES
Memberships 1,780 1,780
Resort interests 1,018 1,018
-------- ------- --------
Total sales 1,780 1,018 2,798
-------- ------- --------
Selling costs (1,872) (675) (2,547)
Marketing expenses (929) (929)
-------- ------- --------
Total expenses (2,801) (675) (3,476)
-------- ------- --------
Profit (loss) on sales (1,021) 343 (678)
RESORT PARKS INTERNATIONAL
Fees 3,438 3,438
Cost of operations (1,709) (1,709)
-------- ------- --------
RPI net contribution 1,729 1,729
-------- ------- --------
$ 10,566 ($153) 10,413
======== ======= --------
Other income 3,280
Corporate member services (1,235)
General and administrative expenses (8,073)
--------
OPERATING INCOME BEFORE INTEREST
INCOME AND EXPENSE, GAIN ON
ASSET DISPOSITIONS, RESTRUCTURING
COSTS, NONRECURRING INCOME, TAXES AND
EXTRAORDINARY ITEM 4,385
--------
Interest income 5,146
Interest expense and amortization of
debt discount and consent fees (13,399)
Gain on asset dispositions 4,004
Restructuring costs (79)
Nonrecurring income 4,714
--------
OPERATING INCOME BEFORE TAXES
AND EXTRAORDINARY ITEM $ 4,771
========
</TABLE>
Page 29
<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 nine months ended March 31, 1995:
<TABLE>
<CAPTION>
Nine Months Ended March 31, 1995
--------------------------------
Campgrounds Resorts Total
----------- ------- --------
<S> <C> <C> <C>
CAMPGROUND/RESORT OPERATIONS
Membership dues $ 31,073 $ 31,073
Other campground/resort revenues 11,128 $ 5,984 17,112
Campground ancillary expenses (5,454) (5,454)
Operating expenses (29,620) (6,357) (35,977)
--------- ------- --------
Profit (loss) on campground/resort 7,127 (373) 6,754
operations --------- ------- --------
SALES
Memberships 1,331 1,331
Resort interests 1,828 1,828
--------- ------- --------
Total sales 1,331 1,828 3,159
--------- ------- --------
Selling costs (1,250) (1,066) (2,316)
Marketing expenses (1,621) (1,621)
--------- ------- --------
Total expenses (2,871) (1,066) (3,937)
--------- ------- --------
Profit (loss) on sales (1,540) 762 (778)
--------- ------- --------
RESORT PARKS INTERNATIONAL
Fees 3,585 3,585
Cost of operations (2,052) (2,052)
--------- ------- --------
RPI net contribution 1,533 1,533
--------- ------- --------
$ 7,120 $ 389 7,509
========= ======= --------
Other income 1,951
Corporate member services (1,594)
General and administrative expenses (8,875)
--------
OPERATING LOSS BEFORE INTEREST INCOME
AND EXPENSE, GAIN ON ASSET DISPOSITIONS,
RESTRUCTURING COSTS, NONRECURRING ITEMS
AND TAXES (1,009)
--------
Interest income 7,536
Interest expense and amortization of
debt discount and consent fees (15,686)
Gain on asset dispositions 499
Restructuring costs (573)
Nonrecurring income 3,718
--------
OPERATING LOSS BEFORE TAXES ($5,515)
========
</TABLE>
Page 30
<PAGE>
CAMPGROUND OPERATIONS. Campground membership dues revenue was $30.0 million for
the nine months ended March 31, 1996, compared with $31.1 million for the same
period last year. The decrease in the current period resulted primarily from a
decline in the membership base.
Other campground revenues were approximately $11.1 million for the nine months
ended March 31, 1996 and 1995. The related campground ancillary expenses were
$5.7 million for the nine months ended March 31, 1996, compared with $5.5
million for the same period last year.
Other campground operating expenses were $25.6 million for the nine months ended
March 31, 1996, compared with $29.6 million for the same period last year. The
$4.0 million decrease in the current period was due primarily to the operational
changes made at the campgrounds in fiscal 1996, including the closure of four
campgrounds and reductions in service levels at certain campgrounds.
Campground membership sales revenue was $1.8 million for the nine months ended
March 31, 1996, compared with $1.3 million for the same period last year. The
increase in the current period reflects a higher volume of new membership sales
at lower average prices. Although the Company's results are improving, its
selling and marketing expenses exceeded its sales revenue by $1.0 million and
$1.5 million, 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 nine months ended March 31, 1996, the Company's
campground management operations generated a net contribution of $49,000 on
revenues of $596,000, compared with a loss of $103,000 on revenues of $399,000
for the same period last year, due primarily to an expansion of the campground
management operations.
FULL SERVICE RESORT OPERATIONS. The direct operating expenses of the full
service resorts exceeded revenues by $496,000 for the nine months ended March
31, 1996, compared with $373,000 for the same period last year. The decline in
the current period was due primarily to the timing of dues billings and receipt
of the corresponding management fees which were slightly delayed in the current
period, and the sale of the common amenities at one of the resorts in the third
quarter of fiscal 1996, which resulted in lower amenity fee income. Timeshare
management operations produced a net contribution of $455,000 for the nine
months ended March 31, 1996, compared with a net contribution of $548,000 for
the same period last year, due primarily to the timing of dues billings as
mentioned above.
Timeshare and lot sales were $1.0 million for the nine months ended March 31,
1996, compared with $1.8 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 66% and 58% of sales for the nine months ended
March 31, 1996 and 1995, 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 $1.7 million for
the nine months ended March 31, 1996, compared with $1.5 million for the same
period last year, due primarily to cost reductions in the current period.
NEGATIVE INTEREST SPREAD. Interest expense exceeded interest income by
$8.3 million for the nine months ended March 31, 1996, compared with $8.2
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 and lower cash balances declined at a
faster rate than interest expense on debt.
Page 31
<PAGE>
Interest income decreased by $2.4 million for the nine months ended March 31,
1996, compared with the same period last year, principally due to a decrease in
interest earned on the Company's diminishing portfolio of contracts receivable,
and an $11.7 million decrease in the cash balance between years. Interest
expense decreased by $2.3 million for the nine months ended March 31, 1996,
compared with the same period last year, due primarily to the redemption of
Secured Notes in July 1995, the repurchase of Secured Notes in January 1996, and
scheduled repayments of notes payable.
GAIN ON ASSET DISPOSITIONS. The Company recognized a gain on the disposition of
assets of $4.0 million for the nine months ended March 31, 1996, compared with
$499,000 for the same period last year. The gain in the current period resulted
primarily from the sale of the common amenities at one of the full service
resorts and two non-operating campgrounds, and the disposition of two operating
campgrounds that were abandoned. The sale of common amenities at the full
service resort generated net proceeds of $4.3 million, and a gain of $2.2
million. The gain in the prior period resulted primarily from the sale of
excess acreage at certain of the campgrounds and resorts.
OTHER INCOME. Other income was $3.3 million for the nine months ended
March 31, 1996, compared with $2.0 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 and dues as a result of increased use of
outside collection agencies.
NONRECURRING INCOME. Nonrecurring income for the current period includes $4.1
million resulting from the net reduction in the allowance for doubtful accounts
related to contracts and dues receivable and $568,000 from the reduction of a
contingent liability. Nonrecurring income for the prior period includes
$2.7 million from the reversal of a contingent liability and $1.0 million from a
reduction in the allowances for doubtful accounts and collection costs. See
Notes 2 and 5 to the consolidated financial statements included in Item 1.
OTHER EXPENSES. General and administrative expenses were $8.1 million for the
nine months ended March 31, 1996, compared with $8.9 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, partially offset by a $530,000 contingent liability recorded at
March 31, 1996 for the vested portion of a bonus the Company's Chief Executive
Officer has the right to receive under his employment agreement. See Note 5 to
the consolidated financial statements included in Item 1.
Corporate member services costs were $1.2 million for the nine months ended
March 31, 1996, compared with $1.6 million for the same period last year,
reflecting cost-cutting measures implemented during the fall of 1995.
The Company incurred $79,000 of restructuring expenses during the nine months
ended March 31, 1996, related to its current efforts recapitalize or reorganize.
The Company incurred $573,000 of restructuring expenses during the nine months
ended March 31, 1995, related to the relocation of certain administrative
functions to Dallas, Texas.
EXTRAORDINARY ITEM. 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 recognized a gain of $1.4 million on
these transactions, which is presented as an extraordinary item in the
consolidated statements of operations.
Page 32
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Johnnie Lacy v. Thousand Trails, Inc., Civil Action No. C-96 00441, filed
- -------------------------------------
February 1, 1996, in the United States District Court for the Northern District
of California. In this action, which purports to be a class action, the
plaintiff alleges that a subsidiary of the Company has failed to comply with the
Americans with Disabilities Act and related California statutes with respect to
certain of its campgrounds. The plaintiff alleges that the Company's subsidiary
has failed to remove barriers to access by persons with disabilities where such
barrier removal is readily achievable. The plaintiff seeks unspecified damages
and injunctive relief. Although this case is still in the early stages of
development, management does not believe that it will have a material adverse
effect upon the Company's operations or financial position.
For additional information concerning certain developments in legal proceedings
involving the Company, refer to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1995, filed with the SEC on February 9, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following documents are filed as exhibits to this report.
Exhibit
Number Description
- ------- -----------------------
27.1 Financial Data Schedule
REPORTS ON FORM 8-K
The Company did not file any Current Reports on Form 8-K during the three months
ended March 31, 1996.
Page 33
<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: May 13, 1996 By: /s/ Harry J. White, Jr.
--------------------------------------------
Harry J. White, Jr.
Vice President, Chief Financial Officer, and
Chief Accounting Officer
Page 34
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1995
<PERIOD-START> JUL-01-1995 JUL-01-1994
<PERIOD-END> MAR-31-1996 MAR-31-1995
<CASH> 36,255 0
<SECURITIES> 0 0
<RECEIVABLES> 15,541 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 44,167 0
<PP&E> 27,838 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 110,331 0
<CURRENT-LIABILITIES> 53,369 0
<BONDS> 95,214 0
0 0
0 0
<COMMON> 37 0
<OTHER-SE> (23,589) 0
<TOTAL-LIABILITY-AND-EQUITY> 110,331 0
<SALES> 2,798 3,159
<TOTAL-REVENUES> 69,977 68,633
<CGS> 134 469
<TOTAL-COSTS> 65,206 74,148
<OTHER-EXPENSES> 51,657 57,977
<LOSS-PROVISION> 16 16
<INTEREST-EXPENSE> 13,399 15,686
<INCOME-PRETAX> 4,771 (5,515)
<INCOME-TAX> 11 215
<INCOME-CONTINUING> 4,760 (5,730)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 1,390 0
<CHANGES> 0 0
<NET-INCOME> 6,150 (5,730)
<EPS-PRIMARY> 1.66 (1.55)
<EPS-DILUTED> 1.66 (1.55)
</TABLE>
