<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
Commission File Number 0-19743
THOUSAND TRAILS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 75-2138671
- --------------------------------- ---------------------------------
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
2711 LBJ FREEWAY, SUITE 200, DALLAS, TEXAS 75234
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (972) 243-2228
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of Common Stock, par value $.01, issued and outstanding as
of February 11, 1998 was 7,411,942.
<PAGE> 2
THOUSAND TRAILS, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1997
and June 30, 1997...........................................................................3
Consolidated Statements of Operations for the six months
ended December 31, 1997 and December 31, 1996...............................................4
Consolidated Statements of Operations for the three months
ended December 31, 1997 and December 31, 1996...............................................5
Consolidated Statement of Stockholders' Deficit for the six months ended December 31, 1997....6
Consolidated Statements of Cash Flows for the six months ended
December 31, 1997 and December 31, 1996.....................................................7
Notes to Consolidated Financial Statements....................................................9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................................17
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................29
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders..........................................30
Item 6. Exhibits and Reports on Form 8-K.............................................................30
</TABLE>
Page 2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS December 31, June 30,
1997 1997
-------- --------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,698 $ 1,343
Current portion of receivables, net of allowances and discount of
$1.5 million and $1.7 million 2,679 3,134
Current portion of deferred membership selling expenses 528 478
Inventory and other current assets 3,269 4,078
-------- --------
Total Current Assets 8,174 9,033
Restricted cash 1,349 1,407
Receivables, net of allowances and discount of $2.7 million and
$3.3 million 2,498 4,383
Campground land 13,328 13,359
Lot inventory 128 342
Buildings and equipment, net of accumulated depreciation of
$14.0 million and $12.8 million 22,327 23,211
Land held for sale 5,221 7,382
Deferred membership selling expenses 1,015 913
Other assets 3,305 3,272
-------- --------
Total Assets $ 57,345 $ 63,302
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 1,682 $ 1,864
Accrued interest 1,744 1,693
Other accrued liabilities 6,100 7,485
Current portion of long term debt 2,444 5,864
Accrued construction costs 2,796 2,809
Current portion of deferred revenue 15,700 19,455
-------- --------
Total Current Liabilities 30,466 39,170
Long term debt 32,734 38,230
Deferred revenue 4,425 4,158
Other liabilities 3,390 3,912
-------- --------
Total Liabilities 71,015 85,470
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, $.01 par value, 1,500,000 shares authorized, none
issued or outstanding
Common stock, $.01 par value, 15,000,000 shares authorized, 7,409,442
and 7,383,276 shares issued and outstanding 74 74
Additional paid-in capital 20,521 20,502
Accumulated deficit subsequent to December 31, 1991, date of
emergence from bankruptcy (34,127) (42,613)
Cumulative currency translation adjustment (138) (131)
-------- --------
Total Stockholders' Deficit (13,670) (22,168)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 57,345 $ 63,302
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
Page 3
<PAGE> 4
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended December 31,
-------------------------------------
1997 1996
-------- --------
REVENUES (Restated)
<S> <C> <C>
Membership dues $ 18,996 $ 19,917
Other campground/resort revenue 9,339 10,286
Membership and resort interest sales 2,057 2,179
RPI membership fees 1,702 1,943
Interest income 1,177 1,995
Gain on asset sales 3,749 1,215
Nonrecurring income 495
Other income 1,825 1,887
-------- --------
Total Revenues 39,340 39,422
-------- --------
EXPENSES
Campground/resort operating expenses 20,171 22,268
Selling expenses 1,542 1,751
Marketing expenses 626 635
RPI membership expenses 928 937
Corporate member services 702 812
Interest expense and amortization 2,502 5,078
General and administrative expenses 4,151 4,711
Restructuring costs 1,101
-------- --------
Total Expenses 30,622 37,293
-------- --------
INCOME BEFORE INCOME TAXES 8,718 2,129
Income tax provision (232) (312)
-------- --------
NET INCOME $ 8,486 $ 1,817
======== ========
NET INCOME PER SHARE -- BASIC $ 1.15 $ .26
======== ========
NET INCOME PER SHARE -- DILUTED $ 1.01 $ .25
======== ========
SHARES USED TO CALCULATE NET INCOME PER SHARE:
Basic 7,390 7,063
======== ========
Diluted 8,410 7,277
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
Page 4
<PAGE> 5
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended December 31,
---------------------------------------
1997 1996
-------- --------
REVENUES (Restated)
<S> <C> <C>
Membership dues $ 9,299 $ 10,054
Other campground/resort revenue 2,899 3,193
Membership and resort interest sales 1,036 1,257
RPI membership fees 820 934
Interest income 530 875
Gain on asset sales 329
Nonrecurring income 495
Other income 670 802
-------- --------
Total Revenues 16,078 17,115
-------- --------
EXPENSES
Campground/resort operating expenses 8,440 9,261
Selling expenses 678 878
Marketing expenses 348 295
RPI membership expenses 496 496
Corporate member services 318 323
Interest expense and amortization 1,137 2,623
General and administrative expenses 2,103 2,557
Loss on asset dispositions 47
Restructuring costs 204
-------- --------
Total Expenses 13,520 16,684
-------- --------
INCOME BEFORE INCOME TAXES 2,558 431
Income tax provision (58) (189)
-------- --------
NET INCOME $ 2,500 $ 242
======== ========
NET INCOME PER SHARE -- BASIC $ .34 $ .03
======== ========
NET INCOME PER SHARE -- DILUTED $ .29 $ .03
======== ========
SHARES USED TO CALCULATE NET INCOME PER SHARE:
Basic 7,393 7,383
======== ========
Diluted 8,490 7,739
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
Page 5
<PAGE> 6
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(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, 1997 $ 74 $ 20,502 $(42,613) $ (131) $(22,168)
Issuance of common stock 19 19
Foreign currency translation
adjustment (7) (7)
Net income for the six months ended
December 31, 1997 8,486 8,486
-------- -------- -------- -------- --------
BALANCE, December 31, 1997 $ 74 $ 20,521 $(34,127) $ (138) $(13,670)
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
Page 6
<PAGE> 7
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended December 31,
-------------------------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Collections of principal on receivables $ 3,002 $ 4,246
Interest received 1,050 1,796
Interest paid (669) (7,360)
General and administrative, corporate member services and
restructuring costs (5,222) (7,842)
Cash collected from operations, including deferred dues
revenue 28,851 30,420
Cash from sales of campground memberships and resort
interests at the point of sale 2,085 2,311
Expenditures for property operations (20,702) (22,146)
Expenditures for sales and marketing (2,169) (2,514)
Expenditures for insurance premiums (591) (158)
Payment of income taxes (231) (311)
Reduction of standby letter of credit 1,182
Other, net 50 (47)
-------- --------
Net cash provided by (used in) operating activities 5,454 (423)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and HUD-related expenditures (580) (586)
Proceeds from asset sales 6,115 2,536
Issuance of Common Stock 19
-------- --------
Net cash provided by investing activities 5,554 1,950
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial borrowings under Credit Agreement 32,000
Net repayments under Credit Agreement (10,408) (14,942)
Retirement of Secured Notes (50,169)
Payment of debt issuance costs (3,132)
Repayment of notes and mortgages (245) (284)
-------- --------
Net cash used in financing activities (10,653) (36,527)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 355 (35,000)
CASH AND CASH EQUIVALENTS:
Beginning of period 1,343 37,403
-------- --------
End of period $ 1,698 $ 2,403
======== ========
</TABLE>
-- continued --
Page 7
<PAGE> 8
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended December 31,
-------------------------------------
1997 1996
------- -------
(Restated)
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Net income $ 8,486 $ 1,817
------- -------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED IN
OPERATING ACTIVITIES --
Depreciation 1,287 1,389
Amortization of interest discount, collection costs and
valuation allowance (245) (372)
Net deferral of sales revenue 446 232
Net deferral of selling expenses (152) (73)
Gain on asset sales (3,749) (1,215)
Decrease in restricted cash 58 1,071
Decrease in receivables 2,540 4,144
Decrease in other assets 776 1,158
Decrease in accounts payable (182) (1,304)
Increase (decrease) in accrued interest 1,803 (3,229)
Decrease in other liabilities (5,846) (5,016)
Other, net 232 975
------- -------
Total adjustments (3,032) (2,240)
------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 5,454 $ (423)
======= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
Page 8
<PAGE> 9
THOUSAND TRAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Unaudited)
GENERAL
Thousand Trails, Inc., a Delaware corporation ("Thousand Trails"), and its
subsidiaries (collectively, the "Company") own and operate a system of 54
membership-based campgrounds located in 17 states and British Columbia, Canada.
In addition, the Company provides a reciprocal use program for members of
approximately 340 recreational facilities and manages 48 public campgrounds for
the US Forest Service. Prior to November 21, 1996, the Company also managed
timeshare facilities at eight resorts located in seven states. The campground
business represents the most significant portion of the Company's business
currently comprising 93% of the Company's operating revenues. The reciprocal use
and resort businesses provide the remaining 7%. 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
Thousand Trails, Inc. and the following wholly owned subsidiaries: Coast
Financial Services, Inc., National American Corporation and its subsidiaries
("NACO"), Resort Parks International, Inc. ("RPI"), Thousand Trails (Canada),
Inc., UST Wilderness Management Corporation ("Wilderness"), and until July 16,
1996, Thousand Trails, Inc., a Washington corporation, and its subsidiaries
("Trails"). On July 16, 1996, Trails was merged into the Company.
The accompanying consolidated financial statements of the Company have not been
examined by independent accountants, but in the opinion of management, the
unaudited interim financial statements furnished herein reflect all adjustments,
which are necessary for a fair presentation of the results for the interim
periods. All such adjustments are of a normal recurring nature, except for the
items described in the footnotes to the consolidated financial statements.
This Quarterly Report on Form 10-Q should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended June 30, 1997, filed
with the Securities and Exchange Commission on September 29, 1997.
NOTE 1 -- BASIS OF FINANCIAL STATEMENT PRESENTATION
BASIS OF FINANCIAL STATEMENT PRESENTATION
The Company emerged from proceedings under Chapter 11 of the Bankruptcy Code on
December 31, 1991, pursuant to a confirmed plan of reorganization. Due to the
Company's emergence from bankruptcy, fresh start reporting, as required by AICPA
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code," was reflected as of December 31, 1991 in the
Company's consolidated financial statements. Under fresh start reporting, a new
reporting entity was created and assets and liabilities were restated to reflect
their reorganization value which approximated fair value at the date of
reorganization.
Page 9
<PAGE> 10
All significant intercompany transactions and balances have been eliminated in
the accompanying consolidated financial statements as of and for the six and
three month periods ended December 31, 1997 and 1996, and in the consolidated
balance sheet as of June 30, 1997.
Restatement
During the first quarter of fiscal 1998, the staff of the Securities and
Exchange Commission (the "SEC") informed the Company that the SEC will now
require the Company to recognize revenue from the sale of campground memberships
that do not convey a deeded interest in real estate on a straight-line basis
over the expected life of the memberships sold. This new accounting method
differs from the revenue recognition method historically used by the Company for
over 20 years. Accordingly, to show comparable results for the periods
presented, the accompanying consolidated financial statements for the six and
three month periods ended December 31, 1996, have been restated from those
originally reported to reflect this change in accounting method. The deferral of
historical sales revenues and expenses resulting from this change in accounting
method had no impact on the Company's liquidity or cash flows.
The following table provides selected summarized information illustrating the
effect of the restatement on the Company's consolidated results of operations
for the six and three month periods ended December 31, 1996 (dollars in
thousands):
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, 1996 December 31, 1996
---------------------- -----------------------
As As Originally As As Originally
Restated Reported Restated Reported
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Membership and resort interest sales $ 2,179 $ 2,411 $ 1,257 $ 1,373
Total revenues 39,422 39,654 17,115 17,231
Net income 1,817 1,976 242 321
</TABLE>
Earnings Per Share
In the second quarter of fiscal 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which is
effective for financial statements of public companies issued for periods ending
after December 15, 1997.
Under SFAS 128, the Company reports basic earnings per share rather than primary
earnings per share, and diluted earnings per share rather than fully diluted
earnings per share. The computation of basic earnings per share produces a
higher reported per share amount than primary earnings per share, while the
computation of diluted earnings per share currently produces approximately the
same reported per share amount as fully diluted earnings per share. Basic
net income per share is computed by dividing net income by the weighted average
number of common shares outstanding during the period. Diluted net income per
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.
The tables on the next page set forth the information necessary to compute basic
and diluted net income per share for the six and three month periods ended
December 31, 1997 and 1996, including a summary of the components of the
numerators and denominators of the basic and diluted net income per share
computations for the periods presented (dollars and shares in thousands, except
per share amounts):
Page 10
<PAGE> 11
<TABLE>
<CAPTION>
Net Income Per Share For the Six Months Ended
---------------------------------------------
December 31, 1997 December 31, 1996
------------------ -----------------
Basic Diluted Basic Diluted
------ ------ ------ -------
(Restated)
<S> <C> <C> <C> <C>
Net Income $8,486 $8,486 $1,817 $1,817
====== ====== ====== ======
Weighted Average Number of Shares:
Common Stock 7,390 7,390 7,063 7,063
Dilutive Options 986 214
Dilutive Warrants 34
------ ------ ------ ------
7,390 8,410 7,063 7,277
====== ====== ====== ======
Net Income Per Share $ 1.15 $ 1.01 $ .26 $ .25
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Net Income Per Share For the Three Months Ended
-----------------------------------------------
December 31, 1997 December 31, 1996
------------------ ------------------
Basic Diluted Basic Diluted
------ ------- ------ -------
(Restated)
<S> <C> <C> <C> <C>
Net Income $2,500 $2,500 $ 242 $ 242
====== ====== ====== ======
Weighted Average Number of Shares:
Common Stock 7,393 7,393 7,383 7,383
Dilutive Options 1,033 356
Dilutive Warrants 64
------ ------ ------ ------
7,393 8,490 7,383 7,739
====== ====== ====== ======
Net Income Per Share $ .34 $ .29 $ .03 $ .03
====== ====== ====== ======
</TABLE>
The computations of net income per share for the six and three month periods
ended December 31, 1996, have been restated to reflect the effects of adopting
the new method of accounting for campground membership sales revenues and
expenses (see Note 1) and to reflect the adoption of SFAS 128.
Since inception, the Company has not paid any dividends. The Credit Agreement
between the Company and Foothill Capital Corporation ("Foothill") prohibits the
payment of any cash dividends without the consent of Foothill during the term of
the Credit Agreement. In addition, the Indenture for the Company's 12% Senior
Subordinated Pay-In-Kind Notes Due 2003 ("PIK Notes") prohibits the payment of
any cash dividends until the PIK Notes are repaid.
NOTE 2 -- SECURED NOTE RESTRUCTURING AND LONG TERM DEBT
SECURED NOTE RESTRUCTURING
On July 17, 1996, the Company consummated a restructuring (the "Restructuring")
of its 12% Secured Notes Due 1998 ("Secured Notes"), whereby all of the
$101,458,000 principal amount of Secured Notes outstanding were retired for
$50.2 million of cash, $40.2 million principal amount of PIK Notes, and
3,680,550 shares of common stock. The Restructuring provided
Page 11
<PAGE> 12
the Company with a new capital structure and decreased the Company's outstanding
debt to a level the Company believes it can support under its downsized
operations.
The Restructuring was accounted for as a Troubled Debt Restructuring, whereby
the restructured debt was recorded at the carrying value of the old debt and no
gain or loss was recorded on the transaction. A deferred gain of $303,000
recorded in connection with the Restructuring is being amortized as a reduction
of interest expense using the effective interest method over the term of the PIK
Notes.
The Company incurred $1.1 million of legal expenses and other direct costs
during the six months ended December 31, 1996, in connection with the completion
of the Restructuring.
CREDIT AGREEMENT WITH FOOTHILL
In connection with the Restructuring, the Company entered into the Credit
Agreement with Foothill, under which Foothill made loans to the Company in the
initial amount of $32.0 million. During fiscal 1997, the Company repaid
substantially all of its initial borrowings under the Credit Agreement. On May
16, 1997, the Company and Foothill entered into an amendment to the Credit
Agreement which, among other things, permitted the Company to borrow $12.6
million to repurchase PIK Notes, as discussed below. As a result of such
repurchases of PIK Notes and repayments in the ordinary course of business, as
of December 31, 1997, the Company had a revolving loan under the Credit
Agreement in the maximum amount of $8.8 million, of which $3.7 million was
outstanding and $5.1 million was available for borrowing. In January 1998, the
Company repaid the remaining outstanding balance on the revolving loan.
The Company incurred $3.1 million of costs to obtain the Credit Agreement, which
were capitalized as debt issue costs. In May 1997, the $1.3 million unamortized
balance of these debt issue costs was charged to expense upon amendment of the
Credit Agreement.
PIK NOTES AND PIK NOTE REPURCHASES
In the Restructuring, the Company issued $40.2 million principal amount of PIK
Notes. On January 15, 1997, the Company issued an additional $2.4 million
principal amount of PIK Notes in lieu of cash interest. On June 25, 1997, the
Company repurchased $13.4 million principal amount of PIK Notes at a cost of
$12.6 million, including accrued interest. On July 15, 1997, the Company issued
an additional $1.8 million principal amount of PIK Notes in lieu of cash
interest. As a result of these transactions, as of December 31, 1997, $31.0
million principal amount of PIK Notes were outstanding. On January 15, 1998, the
Company issued an additional $1.9 million principal amount of PIK Notes in lieu
of cash interest.
Page 12
<PAGE> 13
BALANCE SHEET PRESENTATION OF LONG TERM DEBT
Balance sheet presentation of the current and long term components of the
Company's outstanding debt is reflected below, as of December 31, 1997 and June
30, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------- -------
(Unaudited)
<S> <C> <C>
CURRENT PORTION OF LONG TERM DEBT :
Borrowings under Credit Agreement $ 2,389 $ 5,799
Notes and mortgages payable 55 65
------- -------
$ 2,444 $ 5,864
======= =======
LONG TERM DEBT:
Borrowings under Credit Agreement $ 1,300 $ 8,298
PIK Notes, including a deferred gain of $.2 million 31,130 29,393
Notes and mortgages payable 304 539
------- -------
$32,734 $38,230
======= =======
Total long term debt $35,178 $44,094
======= =======
</TABLE>
NOTE 3 -- SALE OF TIMESHARE OPERATIONS
On November 21, 1996, the Company sold its timeshare management operations and
timeshare inventory at eight resorts to a newly formed corporation owned by two
former employees (the "Buyer"). The sales price was $850,000, of which $50,000
was paid in cash at closing with the balance represented by a promissory note in
the principal amount of $800,000. A $300,000 principal installment on the note
was paid in May 1997, and the remaining $500,000 is due on May 15, 1998.
Interest accrues on the note at the rate of 14 1/2% per annum and is payable
with the principal installments. The Buyer may extend payment of $150,000 of the
second principal installment for up to one year, with interest accruing at 20%
per annum. The note is secured by liens on substantially all of the assets of
the Buyer, a pledge of the Buyer's outstanding stock, and the personal
guarantees of the two shareholders of the Buyer.
A deferred gain of $471,000 recorded in connection with this sale is being
recognized on the installment method of accounting as payments on the note are
received. The deferred gain has been netted against the principal amount of the
note. The net amount is included in inventory and other current assets in the
accompanying consolidated balance sheets as of December 31, 1997 and June 30,
1997.
NOTE 4 -- CONTINGENCIES
Self Insurance
The Company is self-insured for general liability losses up to $250,000 per
occurrence, with an annual aggregate exposure to the Company of $1.8 million.
The Company's liability insurance program provides coverage in excess of the
self-insured amounts up to an annual limit of $26.8 million. The Company has
provided a liability for estimated known and unknown claims related to uninsured
general liability risks of $2.0 million at December 31, 1997, which is included
in other liabilities in the accompanying consolidated balance sheet. This
liability is determined based on actuarial estimates.
Page 13
<PAGE> 14
Workers' Compensation Insurance
In December 1997, the Company received a refund of $495,000 for deposits made in
previous years to cover workers' compensation claims in excess of those covered
by the standard premium paid by the Company. These deposits were expensed in the
years the deposits were made because the Company anticipated that the deposits
would be used to cover workers' compensation claims. This refund is presented as
nonrecurring income in the accompanying consolidated statements of operations
for the six and three month periods ended December 31, 1997.
Declining Membership Base
The Company derives a significant portion of its ongoing operating revenue from
its campground members (93%). The Company's membership base has declined
significantly over the past five fiscal years, and net of new sales, the
membership base is presently declining at the rate of approximately 6% per year.
The Company attributes this continuing attrition principally to its aging
membership base, of whom approximately 50% are senior citizens. In addition, the
Company estimates that the memberships sold in recent fiscal years will have an
expected life that is significantly shorter than the expected life of the
memberships previously sold by the Company. To stop the continuing decline in
the Company's membership base, the Company must significantly increase its
campground membership sales over current levels.
Environmental Issues
Certain environmental issues may exist at some of the Company's campgrounds
concerning underground storage tanks, sewage treatment plants and septic
systems, and waste disposal. Management has reviewed these issues and believes
that they will not have a material adverse impact on the Company's operations or
financial position.
Litigation
The Company is involved in certain claims and litigation arising in the normal
course of business. Management believes that the eventual outcome of these
claims and litigation will not have a material adverse impact on the Company's
operations or financial position.
NOTE 5 -- SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of non-cash investing and financing activities required
by Statement of Financial Accounting Standards No. 95 "Statement of Cash Flows"
are presented below for the six months ended December 31, 1997 and 1996 (dollars
in thousands):
<TABLE>
<CAPTION>
Six Months
Ended
December 31,
1997
------------
<S> <C>
Non-cash payment of PIK Note interest (see Note 2)
--------------------------------------------------
PIK Notes issued in lieu of cash interest payment $1,752
</TABLE>
Page 14
<PAGE> 15
<TABLE>
<CAPTION>
Six Months
Ended
December 31,
1996
----------
<S> <C>
Non-cash transactions related to the Restructuring (see Note 2)
---------------------------------------------------------------
Retirement of Secured Notes $(44,181)
Issuance of PIK Notes 40,521
Issuance of common stock 2,990
Write-off of unamortized portion of consent fees 670
Non-cash transactions related to the timeshare sale (see Note 3)
----------------------------------------------------------------
Note receivable from Buyer $ 800
Deferred gain (471)
Book value of timeshare inventory sold (58)
Book value of fixed assets sold (165)
Net receivables written off (156)
</TABLE>
NOTE 6 -- SUMMARIZED FINANCIAL INFORMATION
All of the Company's wholly owned subsidiaries (other than an inconsequential
utility subsidiary) (collectively, the "Subsidiary Guarantors") have fully and
unconditionally guaranteed, on a joint and several basis, the Company's
obligations under the PIK Notes that were issued on July 17, 1996, as well as
the PIK Notes issued in lieu of cash payment of interest (see Note 2).
Set forth on the next page is selected financial information for Thousand
Trails, Inc. ("TTI"), NACO, RPI, and Wilderness, and the eliminations necessary
to arrive at the information for the Company on a consolidated basis as of and
for the periods presented. The financial information as of and for the six and
three month periods ended December 31, 1996, has been restated to reflect a
change in accounting method for the recognition of revenue from campground
membership sales (see Note 1). The assets and operations of Wilderness are not
material and have, therefore, been combined with the balances of RPI for
purposes of this presentation. The Company has not presented separate financial
statements and other disclosures concerning the Subsidiary Guarantors because
management believes such information is not material to investors. This
summarized financial information is presented to provide additional analysis of,
and should be read in conjunction with, the consolidated financial statements of
the Company.
All of the Company's debt and equity interests in the Subsidiary Guarantors have
been pledged by the Company to secure its obligations under the Credit Agreement
with Foothill. In the event of a default and foreclosure under the Credit
Agreement, distributions from, and the assets of, the Subsidiary Guarantors may
not be available to satisfy other obligations of the Company, including the
obligations of the Company to the holders of the PIK Notes.
Page 15
<PAGE> 16
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Six Months Ended December 31,
------------------------------------------------------------------------------
1997 1996
------------------------------------ ------------------------------------
Operating Net Operating Net
Revenues Income(1) Income Revenues Income(1) Income
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
TTI $ 23,896 $ 7,249 $ 8,486 $ 23,770 $ 4,265 $ 1,817
NACO 14,609 1,150 2,354 14,727 597 329
RPI & Wilderness 2,781 956 707 2,722 1,103 538
Eliminations(2) (1,946) (3,061) (3,061) (1,797) (867) (867)
-------- -------- -------- -------- -------- --------
Total $ 39,340 $ 6,294 $ 8,486 $ 39,422 $ 5,098 $ 1,817
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended December 31,
------------------------------------------------------------------------------
1997 1996
------------------------------------ ------------------------------------
Net Net
Operating Income Operating Income
Revenues Income(1) (Loss) Revenues Income(1) (Loss)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
TTI $ 10,705 $ 2,362 $ 2,530 $ 10,580 $ 2,028 $ 210
NACO 5,414 376 (114) 6,079 172 209
RPI & Wilderness 1,049 300 286 980 382 (25)
Eliminations(2) (1,090) (202) (202) (524) (152) (152)
-------- -------- -------- -------- -------- --------
Total $ 16,078 $ 2,836 $ 2,500 $ 17,115 $ 2,430 $ 242
======== ======== ======== ======== ======== ========
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
As of December 31, 1997 As of June 30, 1997
------------------------ ----------------------
Total Total Total Total
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
TTI $ 41,944 $ 55,649 $ 51,733 $ 73,901
NACO 29,351 42,331 29,637 44,972
RPI & Wilderness 7,085 1,681 6,736 2,039
Eliminations(2) (21,035) (28,646) (24,804) (35,442)
-------- -------- -------- --------
Total $ 57,345 $ 71,015 $ 63,302 $ 85,470
======== ======== ======== ========
</TABLE>
- -------------------
(1) Defined as income before interest income and expense, gains on asset sales,
nonrecurring income, restructuring costs and taxes.
(2) Entries to record subsidiaries' results on a consolidated basis.
Page 16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's Annual Report on Form 10-K for the year ended June 30,
1997, filed with the SEC on September 29, 1997.
All capitalized terms used herein have the same meaning as those defined in Item
1 -- Financial Statements.
In this Management's Discussion and Analysis of Financial Condition and Results
of Operations, the Company makes certain statements as to its expected financial
condition, results of operations, cash flows, and business strategies and plans
for periods after December 31, 1997. All of these statements are forward-looking
statements made pursuant to the safe harbor provisions of Section 21E of the
Securities Exchange Act of 1934, as amended. These statements are not historical
and involve risks and uncertainties. The Company's actual financial condition,
results of operations, cash flows, and business strategies and plans for future
periods 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 guests of the Company's efforts to downsize its business, the Company's
success in collecting its contracts receivable and selling assets, and the other
factors affecting the Company's operations described in this report, and in the
Company's Annual Report on Form 10-K for the year ended June 30, 1997.
CHANGE IN ACCOUNTING METHOD
During the first quarter of fiscal 1998, the staff of the Securities and
Exchange Commission (the "SEC") informed the Company that the SEC will now
require the Company to recognize revenue from the sale of campground memberships
that do not convey a deeded interest in real estate on a straight-line basis
over the expected life of the memberships sold. This new accounting method
differs from the revenue recognition method historically used by the Company for
over 20 years. Accordingly, to show comparable results for the periods
presented, the consolidated financial statements for the six and three month
periods ended December 31, 1996, have been restated from those originally
reported to reflect this change in accounting method (see Note 1 to the
consolidated financial statements included in Item 1). The deferral of
historical sales revenues and expenses resulting from this change in accounting
method had no impact on the Company's liquidity or cash flows.
LIQUIDITY AND CAPITAL RESOURCES
CURRENT BUSINESS STRATEGY. The Company's current business strategy is to improve
its campground operations and stabilize its campground membership base through
increased sales and marketing efforts. The Company believes there is a viable
market for campground memberships and that it has a significant opportunity to
compete for campers interested in higher quality facilities and a higher level
of service than is typically available at public campgrounds or competing
private campgrounds. The Company also believes that its flexible membership
products give it a competitive advantage because they offer consumers the
ability to choose the type of membership most suitable to their needs.
Page 17
<PAGE> 18
However, the Company's membership base has been declining. In response to this
decline, the Company has downsized its business by closing and disposing of
campgrounds and decreasing campground operating costs and general and
administrative expenses. The Company intends to continue to downsize its
business while its membership base declines. In this regard, the Company may
close and dispose of additional campgrounds and it will seek to decrease other
expenses. At the same time, the Company intends to expand its sales and
marketing efforts with a view to stopping the membership decline. The Company
believes that the ultimate size of its campground system and the amounts
realized from future asset sales will depend principally upon the degree to
which the Company can successfully implement this strategy.
CASH. On December 31, 1997, the Company had $1.7 million of cash and cash
equivalents, an increase of $355,000 from June 30, 1997. During the six months
ended December 31, 1997, the Company's operating activities produced $5.5
million of cash and asset sales provided cash proceeds of $6.1 million. The
Company used this cash primarily to repay $10.4 million of borrowings under the
Credit Agreement with Foothill and to make capital expenditures totaling
$580,000.
The Company's principal sources of operating cash for the six months ended
December 31, 1997, were $4.1 million in principal and interest collections on
contracts receivable, $28.9 million in dues collections and other campground and
resort revenues, and $2.1 million in cash collected from sales of campground
memberships and lots at the point of sale. Principal uses of operating cash for
the six months ended December 31, 1997, were $20.7 million in operating
expenses, $5.2 million in administrative expenses (including general and
administrative expenses and corporate member services costs), and $2.2 million
in sales and marketing expenditures.
Under the Credit Agreement with Foothill, as of December 31, 1997, the Company
had a revolving loan in the maximum amount of $8.8 million, of which $3.7
million was outstanding and $5.1 million was available for borrowing. The
Company must use all collections of principal and interest on the contracts
receivable and all proceeds from asset sales to reduce borrowings under the
Credit Agreement. In addition, the Company must make specified principal
reductions on these borrowings over time based on a monthly calculation of
eligible contracts receivable and an amortization schedule set forth in the
Credit Agreement. The maximum amount of the revolving loan declines as these
principal reductions are made. The Credit Agreement must be paid in full on July
16, 1999.
In January 1998, the Company repaid the remaining outstanding borrowings under
the revolving loan. The Company anticipates that its cash balances will continue
to increase as it receives the dues revenue from its members during the balance
of fiscal 1998. Although the Company will incur a higher level of operating
expenses during the summer months, it anticipates that it will not be required
to borrow under the revolving loan to fund its working capital needs through
calendar 1998.
Based upon its current business plan, the Company believes that future cash
flows provided from operations, asset sales, and borrowings available under the
revolving loan will be adequate for the Company's operating and other cash
requirements during the remaining term of the Credit Agreement. All cash held by
the Company and its wholly owned subsidiaries is generally deposited in accounts
that are controlled by and pledged to Foothill.
Page 18
<PAGE> 19
MATERIAL CHANGES IN FINANCIAL CONDITION
Total assets decreased by $6.0 million during the six months ended December 31,
1997. Contracts receivable decreased by $2.3 million due primarily to $3.0
million in cash collections partially offset by new financed sales and
amortization of the allowances for interest discount, collection costs, and
valuation discount. Inventory and other current assets decreased by $809,000 due
primarily to amortization of insurance premiums for fiscal 1998 that were paid
in June 1997. Buildings and equipment decreased by $884,000 due primarily to
depreciation, partially offset by capital improvements made at certain
campgrounds. Land held for sale decreased by $2.2 million due primarily to the
sale of certain campgrounds during the period.
Total liabilities decreased by $14.5 million during the six months ended
December 31, 1997. Accounts payable and other accrued liabilities decreased by
$1.6 million because $665,000 was paid to certain states in the second fiscal
quarter for unclaimed property, and accrued payroll and other related
liabilities were lower at December 31, 1997 due to the seasonality of the
business. The Company's outstanding debt decreased by $8.9 million during the
period due to repayments under the Credit Agreement and mortgage notes,
partially offset by the issuance of additional PIK Notes in lieu of cash
interest. Other liabilities decreased by $522,000 primarily as a result of the
payment of recorded liabilities in connection with the sale of certain
campgrounds. In addition, deferred revenue decreased by $3.5 million due to the
recognition of $4.0 million of dues revenue in excess of cash collections during
the period, partially offset by a $446,000 net increase in deferred sales
revenue.
RESULTS OF OPERATIONS
The following discussion and analysis are based on the historical results of
operations of the Company for the six and three month periods ended December 31,
1997 and 1996, as restated (see "Change in Accounting Method"). The deferral of
historical sales revenues and expenses resulting from the change in accounting
method had no impact on the Company's liquidity or cash flows.
The financial information set forth below should be read in conjunction with the
Company's consolidated financial statements included in Item 1.
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
NET INCOME. The Company reported net income of $8.5 million or $1.15 per share
on revenues of $39.3 million for the six months ended December 31, 1997. This
compares with net income of $1.8 million or $.26 per share on revenues of $39.4
million for the same period last year. The Company's results improved in the
current period due primarily to higher gains on asset sales and lower expenses,
principally campground operating costs, general and administrative expenses, and
interest. In addition, $1.1 million of restructuring costs was incurred in the
prior period. Although operating revenues declined in the current period, these
decreases were offset by greater decreases in operating expenses.
The table on the following page shows separately the results of the campground
operations, Resort Parks International, and resort operations, without any
allocation of corporate expenses, as well as corporate expenses and other
revenues and expenses in the aggregate, for the six months ended December 31,
1997 and 1996, as restated (see "Change in Accounting Method").
Page 19
<PAGE> 20
THOUSAND TRAILS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended December 31,
-----------------------------
1997 1996
-------- --------
(Restated)
<S> <C> <C>
CAMPGROUND OPERATIONS
Membership dues $ 18,996 $ 19,917
Campground revenues 8,959 8,428
Cost of campground revenues (4,044) (3,990)
Operating expenses (15,658) (16,259)
-------- --------
Contribution from campground operations 8,253 8,096
-------- --------
SALES
Sales revenues 1,479 1,831
Selling expenses (1,259) (1,518)
Marketing expenses (626) (635)
-------- --------
Loss on sales (406) (322)
-------- --------
RESORT PARKS INTERNATIONAL
Revenues 1,702 1,943
Expenses (928) (937)
-------- --------
Contribution from RPI 774 1,006
-------- --------
8,621 8,780
-------- --------
RESORT OPERATIONS
Revenues 958 2,206
Expenses (752) (2,252)
-------- --------
Contribution (loss) from resort operations 206 (46)
-------- --------
8,827 8,734
-------- --------
Other income 1,825 1,887
Corporate member services (702) (812)
General and administrative expenses (4,151) (4,711)
-------- --------
OPERATING INCOME BEFORE INTEREST INCOME AND
EXPENSE, GAIN ON ASSET SALES, NONRECURRING
INCOME, RESTRUCTURING COSTS, AND TAXES 5,799 5,098
-------- --------
Interest income 1,177 1,995
Interest expense (2,502) (5,078)
Gain on asset sales 3,749 1,215
Nonrecurring income 495
Restructuring costs (1,101)
-------- --------
OPERATING INCOME BEFORE TAXES $ 8,718 $ 2,129
======== ========
</TABLE>
Page 20
<PAGE> 21
OPERATING INCOME. During the six months ended December 31, 1997, the Company
achieved a positive contribution from operations of $5.8 million, an improvement
over the $5.1 million achieved in the same period last year. Although operating
revenues declined in the current period, these decreases were offset by greater
decreases in operating expenses. For this purpose, the contribution from
operations is defined as operating income before interest income and expense,
gain on asset sales, nonrecurring income, restructuring costs, and taxes. See
the table on the previous page for the elements of the contribution from
operations and the Company's operating income before taxes for the historical
periods presented.
CAMPGROUND OPERATIONS. The Company's operations are highly seasonal. The Company
receives the majority of the dues revenue from its members during the winter,
which are recognized as income ratably during the year. However, the Company
incurs a higher level of operating expenses during the summer. In addition, a
majority of the Company's sales and marketing efforts occur during the summer.
Campground membership dues revenue was $19.0 million for the six months ended
December 31, 1997, compared with $19.9 million for the same period last year.
The decline in dues revenue was due primarily to the net loss of campground
members during the year, partially offset by the effect of the annual dues
increase.
Other campground revenues were $9.0 million for the six months ended December
31, 1997, compared with $8.4 million for the same period last year. The related
expenses were approximately $4.0 million for both periods. The increase in other
campground revenues in the current period was due primarily to revenues received
from harvesting timber at certain campgrounds, an increase in overnight fees
from a section of one campground that is open to the public on an overnight fee
basis, and an increase in revenue from the Company's campground management
operations, as discussed below.
Other campground operating expenses were $15.7 million for the six months ended
December 31, 1997, compared with $16.3 million for the same period last year.
The decrease between periods resulted primarily from the closure and sale of
certain campgrounds during fiscal 1997 and the first half of fiscal 1998.
The Company intends to continue to downsize its campground operations while its
membership base declines. In this regard, the Company may close and dispose of
additional campgrounds and it will seek to decrease other expenses. Although the
Company believes that the anticipated changes should result in lower future
operating expenses, no assurance can be given that such changes will not reduce
revenues by an amount in excess of the expense reductions.
The Company recognizes revenue from the sale of campground memberships that do
not convey a deeded interest in real estate on a straight-line basis over the
expected life of the memberships sold (see "Change in Accounting Method"). For
the six months ended December 31, 1997 and 1996, the Company recognized
campground membership sales revenues of $1.5 million and $1.8 million,
respectively. These amounts include revenues of $1.2 million and $953,000,
respectively, that were deferred in prior periods. Moreover, during these same
periods, the Company deferred revenues of $1.6 million and $1.2 million,
respectively, which will be recognized in future periods.
Page 21
<PAGE> 22
Sales revenues declined by $352,000 in the current period. Although revenue from
the sale of new memberships increased on fewer units sold at significantly
higher average sales prices, this increase was more than offset by a decrease in
revenue from the sale of upgrade memberships, and the net deferral of more sales
revenue in the current period.
Although the Company has expanded its sales and marketing efforts with a view to
stopping the decline in its membership base, the sales levels in fiscal 1997 and
the first half of fiscal 1998 did not meet the Company's expectations. In an
effort to improve its membership sales, the Company has been working to increase
the number of prospects that attend its sales presentations. In this regard, the
Company recently entered into a joint marketing arrangement with Fleetwood
Industries, Inc., the largest manufacturer of recreational vehicles ("RVs").
Under this marketing arrangement, purchasers of Fleetwood RVs receive a
temporary membership and are invited to visit one of the Company's campgrounds.
The Company recently entered into a similar marketing arrangement with a major
RV financing company and plans to seek other similar alliances. In addition, the
Company has recently added an outbound telemarketing function at its corporate
office and hired regional marketing managers.
Selling expenses directly related to the sale of campground memberships are
deferred and recognized as expenses on a straight-line basis over the expected
life of the memberships sold. All other selling and marketing costs are
recognized as expenses in the period incurred. For the six months ended December
31, 1997 and 1996, the Company recognized selling expenses of $1.3 million and
$1.5 million, respectively. These amounts include expenses of $265,000 and
$209,000, respectively, that were deferred in prior periods. Moreover, for these
same periods, the Company deferred expenses of $417,000 and $282,000,
respectively, which will be recognized in future periods.
Selling and marketing expenses exceeded sales revenues by $406,000 and $322,000
for the six months ended December 31, 1997 and 1996, respectively. These
expenses exceeded sales revenues because of the increased marketing activity and
the low volume of sales, which did not cover fixed costs. In addition, the
Company deferred more sales revenues than selling expenses during the periods
presented.
The Company's selling and marketing efforts require significant expense, the
majority of which must be expensed in the current period, while the related
sales revenues are generally deferred and recognized on a straight-line basis
over the expected life of the memberships sold. As a consequence, the Company
expects that its selling and marketing expenses will continue to exceed its
campground membership sales revenue. This disparity will increase if the Company
is successful in growing campground membership sales. However, the Company
intends to keep the cash it expends on selling and marketing expenses within a
close relation to the cash it receives from campground membership sales.
The Company must significantly increase its campground membership sales over
current levels in order to stop the continuing decline in the Company's
membership base. The success of the Company's business strategy over the long
term is dependent upon the Company's ability to market new memberships in
sufficient numbers on a cost-effective basis.
Page 22
<PAGE> 23
CAMPGROUND MANAGEMENT. Wilderness, a wholly owned subsidiary of the Company,
manages public campgrounds for the US Forest Service. For the six months ended
December 31, 1997, these operations produced revenues of $895,000 with related
expenses (excluding certain shared administrative costs) of $713,000. This
compares with revenues for the same period last year of $779,000 and related
expenses (excluding certain shared administrative costs) of $683,000. The
increase in revenues and expenses between periods was due to new contracts
entered into in fiscal 1997.
RESORT PARKS INTERNATIONAL. RPI charges its members a fee for a membership that
entitles them to use any of the participating facilities, subject to certain
limitations. For the six months ended December 31, 1997, RPI's operations
produced a net contribution of $774,000 on revenues of $1.7 million, compared
with a contribution of $1.0 million on revenues of $1.9 million for the same
period last year. The decline in results between periods was due to lower
revenues in the current period that were not completely offset by expense
reductions. RPI's revenues have declined as a result of declining sales in the
membership camping industry generally. To maintain its net contribution in the
future, RPI is working to introduce new products to increase its revenues;
however, there is no assurance that it will be successful.
RESORT OPERATIONS. The Company's operations at the resorts presently consist of
the sale of residential lots and the rental of a small number of condominium
units. Historically, the Company also managed the timeshare facilities and sold
timeshare interests at the resorts. On November 21, 1996, the Company sold the
timeshare operations and remaining timeshare inventory at the resorts, which
significantly decreased the revenues and expenses from the resort operations.
For the six months ended December 31, 1997, the resort operations produced a net
contribution of $206,000, compared with a loss of $46,000 for the same period
last year. The improvement in the current period resulted primarily from a bulk
sale of lots that did not require the payment of commissions. The Company does
not expect a positive contribution from the resort operations in the future as
its continues its efforts to sell the remaining assets it owns at the resorts.
These assets consist primarily of approximately 200 residential lots and other
miscellaneous real estate. There is no assurance, however, that the Company will
be able to locate a buyer for any of these assets or that sales on acceptable
terms can be effected.
INTEREST INCOME AND EXPENSE. Interest income was $1.2 million for the six months
ended December 31, 1997, compared with $2.0 million for the same period last
year. During these periods, interest income included amortization of the
allowances for interest and valuation discounts related to the contracts
receivable of $134,000 and $203,000, respectively. The $818,000 decrease in
interest income between periods was due primarily to a decrease in interest
earned on the Company's diminishing portfolio of contracts receivable.
Interest expense was $2.5 million for the six months ended December 31, 1997,
compared with $5.1 million for the same period last year. The $2.6 million
decrease in interest expense between periods was due to a net $46.7 million
reduction in the Company's outstanding debt in July 1996 resulting from the
Restructuring, subsequent repayments of borrowings under the Credit Agreement, a
reduced interest rate on the amended Credit Agreement, and scheduled repayments
of mortgage notes.
The Company repaid the remaining outstanding borrowings under the Credit
Agreement in January 1998, which will cause interest expense to decrease during
the balance of fiscal 1998. In addition, since the Credit Agreement prohibits
the Company from paying cash interest on the
Page 23
<PAGE> 24
PIK Notes, during the remaining term of the Credit Agreement, a significant
portion of the Company's interest expense will represent non-cash interest on
the PIK Notes. The payment-in-kind feature of the PIK Notes will decrease the
Company's cash interest costs during this period. However, the payment-in-kind
feature of the PIK Notes will also increase the principal amount of PIK Notes
outstanding at the rate of 12% per year, compounded semi-annually, which will
increase interest expense in the future and also decrease the rate at which the
Company is able to retire its total debt outstanding.
GAIN ON ASSET SALES. The Company recognized a gain on the sale of assets of $3.7
million for the six months ended December 31, 1997, compared with $1.2 million
for the same period last year. The increase in the current period was due to the
timing of asset sales. During the current period, the Company sold certain
campgrounds and other excess real estate at the campgrounds and resorts. Over
the next several years, the Company intends to dispose of the remaining assets
that it owns at the resorts, any campgrounds that are closed as the Company
downsizes, and other excess acreage associated with the campgrounds. The sale of
campgrounds requires addressing the rights of members associated with such
campgrounds. The impact of these rights is uncertain and could adversely affect
the availability or timing of sale opportunities or the ability of the Company
to realize recoveries from asset sales. In addition, although the Company has
recently been successful in selling assets, no assurance exists that the Company
will be able to locate a buyer for any of the remaining assets or that sales on
acceptable terms can be effected.
OTHER INCOME. Other income generally consists of transfer fees received when
existing memberships are transferred in the secondary market without assistance
from the Company, settlements received on defaulted contracts, subscription fees
received from members who subscribe to the Company's member magazine, and fees
received from members who make more than five operator-assisted reservations in
a given year, rather than use the Company's automated reservation system. Other
income was $1.8 million for the six months ended December 31, 1997, compared
with $1.9 million for the same period last year.
The Company also had $495,000 of nonrecurring income during the current period
resulting from a refund of certain insurance deposits that were made in prior
years. The deposits were expensed in those years because the Company anticipated
that the deposits would be used to cover insurance claims.
OTHER EXPENSES. Administrative expenses, including corporate member service
costs and general and administrative expenses, were $4.9 million for the six
months ended December 31, 1997, compared with $5.5 million for the same period
last year, reflecting the Company's continuing efforts to lower costs.
During the six months ended December 31, 1996, the Company incurred $1.1 million
of restructuring costs in connection with the consummation of the Restructuring.
The Company also incurred $3.1 million of costs in connection with obtaining the
Credit Agreement with Foothill, which were capitalized as debt issue costs. In
May 1997, the $1.3 million unamortized balance of these debt issue costs was
charged to expense upon amendment of the Credit Agreement.
Page 24
<PAGE> 25
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
NET INCOME. The Company reported net income of $2.5 million or $.34 per share on
revenues of $16.1 million for the three months ended December 31, 1997. This
compares with net income of $242,000 or $.03 per share on revenues of $17.1
million for the same period last year. The Company's results improved in the
current period due primarily to lower expenses, principally campground operating
costs, general and administrative expenses, and interest. Although operating
revenues declined in the current period, these decreases were offset by greater
decreases in operating expenses.
The table on the following page shows separately the results of the campground
operations, Resort Parks International, and resort operations, without any
allocation of corporate expenses, as well as corporate expenses and other
revenues and expenses in the aggregate, for the three months ended December 31,
1997 and 1996, as restated (see "Change in Accounting Method").
Page 25
<PAGE> 26
THOUSAND TRAILS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended December 31,
-------------------------------
1997 1996
-------------- ------------
(Restated)
<S> <C> <C>
CAMPGROUND OPERATIONS
Membership dues $ 9,299 $ 10,054
Campground revenues 2,721 2,502
Cost of campground revenues (1,296) (1,317)
Operating expenses (6,932) (7,118)
-------- --------
Contribution from campground operations 3,792 4,121
-------- --------
SALES
Sales revenues 788 1,089
Selling expenses (588) (784)
Marketing expenses (348) (295)
-------- --------
Profit (loss) on sales (148) 10
-------- --------
RESORT PARKS INTERNATIONAL
Revenues 820 934
Expenses (496) (496)
-------- --------
Contribution from RPI 324 438
-------- --------
3,968 4,569
-------- --------
RESORT OPERATIONS
Revenues 426 859
Expenses (302) (920)
-------- --------
Contribution from resort operations 124 (61)
-------- --------
4,092 4,508
-------- --------
Other income 670 802
Corporate member services (318) (323)
General and administrative expenses (2,103) (2,557)
-------- --------
OPERATING INCOME BEFORE INTEREST INCOME AND
EXPENSE, GAIN (LOSS) ON ASSET DISPOSITIONS,
NONRECURRING INCOME, RESTRUCTURING COSTS AND
TAXES 2,341 2,430
-------- --------
Interest income 530 875
Interest expense (1,137) (2,623)
Gain (loss) on asset dispositions 329 (47)
Nonrecurring income 495
Restructuring costs (204)
-------- --------
OPERATING INCOME BEFORE TAXES $ 2,558 $ 431
======== ========
</TABLE>
Page 26
<PAGE> 27
OPERATING INCOME. During the three months ended December 31, 1997, the Company
achieved a positive contribution from operations of $2.3 million, compared with
$2.4 million in the same period last year. Although operating revenues declined
in the current period, these decreases were substantially offset by decreases in
operating expenses. For this purpose, the contribution from operations is
defined as operating income before interest income and expense, gain on asset
sales, nonrecurring income, restructuring costs, and taxes. See the table on the
previous page for the elements of the contribution from operations and the
Company's operating income before taxes for the historical periods presented.
CAMPGROUND OPERATIONS. Campground membership dues revenue was $9.3 million for
the three months ended December 31, 1997, compared with $10.1 million for the
same period last year. The decline in dues revenue was due primarily to the net
loss of campground members during the year, partially offset by the effect of
the annual dues increase.
Other campground revenues were $2.7 million for the three months ended December
31, 1997, compared with $2.5 million for the same period last year. The related
expenses were approximately $1.3 million for both periods. The increase in other
campground revenues in the current period was due primarily to revenues from
harvesting timber at certain campgrounds.
Other campground operating expenses decreased slightly to $6.9 million for the
three months ended December 31, 1997, from $7.1 million for the same period last
year. This decrease resulted primarily from the closure and sale of certain
campgrounds during fiscal 1997 and the first half of fiscal 1998.
For the three months ended December 31, 1997 and 1996, the Company recognized
campground membership sales revenues of $788,000 and $1.1 million, respectively.
These amounts include revenues of $610,000 and $477,000, respectively, that were
deferred in prior periods. Moreover, during these same periods, the Company
deferred revenues of $808,000 and $593,000, respectively, which will be
recognized in future periods.
Sales revenues declined by $301,000 in the current period. Although revenue from
the sale of new memberships increased on fewer units sold at significantly
higher average sales prices, this increase was more than offset by a decrease in
revenue from the sale of upgrade memberships, and the net deferral of more sales
revenue in the current period.
For the three months ended December 31, 1997 and 1996, the Company recognized
selling expenses of $588,000 and $784,000, respectively. These amounts include
expenses of $139,000, and $104,000, respectively, that were deferred in prior
periods. Moreover, for these same periods, the Company deferred expenses of
$207,000 and $141,000, respectively, which will be recognized in future periods.
Selling and marketing expenses exceeded sales revenues by $148,000 for the three
months ended December 31, 1997, while sales revenues exceeded selling and
marketing expenses by $10,000 for the same period last year. The expenses
exceeded sales revenue in the current period because of the increased marketing
activity, and the low volume of sales, which did not cover fixed costs. In
addition, the Company deferred more net sales revenue during the current period.
CAMPGROUND MANAGEMENT. For the three months ended December 31, 1997, the
Company's campground management operations produced revenues of $47,000 with
related expenses (excluding certain shared administrative costs) of $69,000.
This compares with revenues for the same period last year of $47,000 and related
expenses (excluding certain shared administrative
Page 27
<PAGE> 28
costs) of $103,000. These operations generally incur a loss during the second
fiscal quarter due to certain fixed expenses and the seasonal closure of the
campgrounds.
RESORT PARKS INTERNATIONAL. For the three months ended December 31, 1997, RPI's
operations produced a net contribution of $324,000 on revenues of $820,000,
compared with a net contribution of $438,000 on revenues of $934,000 for the
same period last year. The decline in the net contribution in the current period
was due to lower revenues.
RESORT OPERATIONS. For the three months ended December 31, 1997, the resort
operations produced a net contribution of $124,000, compared with a loss of
$61,000 for the same period last year. The improvement in the current period was
due primarily to a bulk sale of lots that did not require the payment of
commissions.
INTEREST INCOME AND EXPENSE. Interest income was $530,000 for the three months
ended December 31, 1997, compared with $875,000 for the same period last year.
During these periods, interest income included amortization of the allowance for
interest discount and valuation allowance related to the contracts receivable of
$68,000 and $94,000, respectively. The $345,000 decrease in interest income
between periods was due primarily to a decrease in interest earned on the
Company's diminishing portfolio of contracts receivable.
Interest expense was $1.1 million for the three months ended December 31, 1997,
compared with $2.6 million for the same period last year. The $1.5 million
decrease in interest expense between periods was due to a net $46.7 million
reduction in the Company's outstanding debt in July 1996 resulting from the
Restructuring, subsequent repayments of borrowings under the Credit Agreement, a
reduced interest rate on the amended Credit Agreement, and scheduled repayments
of mortgage notes.
GAIN (LOSS) ON ASSET DISPOSITIONS. The Company recognized a gain on the sale of
assets of $329,000 for the three months ended December 31, 1997, compared with a
$47,000 loss for the same period last year. The increase in the current period
was due to the timing of asset sales.
OTHER INCOME. Other income was $670,000 for the three months ended December 31,
1997, compared with $802,000 for the same period last year. Other income
decreased in the current period primarily as a result of lower income from
recoveries on canceled contracts and dues.
The Company also had $495,000 of nonrecurring income in the current period
resulting from a refund of certain insurance deposits that were made in prior
years.
OTHER EXPENSES. Administrative expenses, including corporate member service
costs and general and administrative expenses, were $2.4 million for the three
months ended December 31, 1997, compared with $2.9 million for the same period
last year, reflecting the Company's continuing efforts to lower costs.
During the three months ended December 31, 1996, the Company incurred $204,000
of restructuring costs in connection with the consummation of the Restructuring.
Page 28
<PAGE> 29
INFLATION
During the periods presented, the Company's results were not affected materially
by inflation. However, should the rate of inflation increase in the future, the
Company's expenses are likely to increase at a greater rate than it can increase
the annual dues paid by the campground members because the Company cannot
increase the dues on existing contracts of senior citizens and disabled members
who notify the Company of their age or disability and request that their dues be
frozen. At the present time, approximately 35% of the members have requested
that their dues be frozen because of their age or disability.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Page 29
<PAGE> 30
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On November 20, 1997, the Company held its annual meeting of stockholders. As of
the record date for the meeting, the Company had 7,386,776 shares of common
stock outstanding, of which 5,158,008 shares were represented at the meeting in
person or by proxy. The stockholders took the following actions at the meeting.
1. The stockholders elected the six members of the Board of Directors of the
Company who will serve until the next annual meeting of stockholders and
until their successors are elected and qualified. The six directors and the
votes cast for and withheld for each of them were as follows:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- --------------
<S> <C> <C>
Andrew M. Boas 5,157,055 953
William P. Kovacs 5,157,055 953
Donald R. Leopold 5,157,055 953
H. Sean Mathis 5,157,055 953
Douglas K. Nelson 5,157,055 953
William J. Shaw 5,157,055 953
</TABLE>
2. The stockholders ratified the appointment of Arthur Andersen LLP as the
independent certified public accountants for the Company for the fiscal
year ending June 30, 1998. The votes cast for, votes cast against, and
abstentions were as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C>
5,155,111 2,780 117
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following documents are filed as exhibits to this report.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.1 Second Amendment to Loan and Security Agreement dated as of
December 23, 1997, between the Company and Foothill.
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule.
</TABLE>
REPORTS ON FORM 8-K
None.
Page 30
<PAGE> 31
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.
THOUSAND TRAILS, INC.
Date: February 11, 1998 By: s/ Harry J. White, Jr.
---------------------------------------
Harry J. White, Jr.
Vice President, Chief Financial
Officer, and Chief Accounting Officer
Page 31
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.1 Second Amendment to Loan and Security Agreement dated as of
December 23, 1997, between the Company and Foothill.
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
Exhibit 10.1
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THOUSAND TRAILS, INC.
This Second Amendment to Loan and Security Agreement (the "Amendment")
is entered into as of December 23, 1997, by and between FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with an office located at
11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333,
on the one hand, and NATIONAL AMERICAN CORPORATION, a Nevada corporation,
("National American"), THOUSAND TRAILS, INC., a Delaware corporation ("Thousand
Trails"), and the other party borrowers signatory hereto (each, together with
National American and Thousand Trails, individually a "Borrower" and
collectively, jointly and severally, "Borrowers"), on the other hand, in light
of the following facts:
FACTS
FACT ONE: Foothill and Borrowers have previously entered into that
certain Loan and Security Agreement, dated as of July 10, 1996 (as amended and
supplemented, the "Agreement").
FACT TWO: Foothill and Borrowers have agreed to amend the Agreement
as provided herein.
NOW, THEREFORE, Foothill and Borrower hereby amend and supplement the
Agreement as follows:
1. Section 5.1(iv) of the Agreement is amended by deleting "One
Hundred Thousand Dollars ($100,000)" in its entirety and substituting "Two
Hundred Thousand Dollars ($200,000)" in lieu thereof.
2. In the event of a conflict between the terms and provisions of this
Amendment and the terms and provisions of the Agreement, the terms of this
Amendment shall govern. In all other respects, the Agreement, as amended and
supplemented hereby, shall remain in full force and effect.
IN WITNESS WHEREOF, Foothill and Borrower have executed this Amendment
as of the date first written above.
"Foothill"
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: s/ Lisa M. Gonzales
-----------------------------------
Title: Assistant Vice President
--------------------------------
<PAGE> 2
"Borrowers"
NATIONAL AMERICAN CORPORATION,
a Nevada corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
THOUSAND TRAILS, INC.,
a Delaware corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
THOUSAND TRAILS (CANADA) INC.,
a British Columbian corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
TT OFFSHORE, LTD.,
a Virginia corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
BEECH MOUNTAIN LAKES CORPORATION,
a Pennsylvania corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
CAROLINA LANDING CORPORATION,
a South Carolina corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
<PAGE> 3
CARRIAGE MANOR CORPORATION,
a North Carolina corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
CB RESORT CORPORATION,
a Massachusetts corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
CHEROKEE LANDING CORPORATION,
a Tennessee corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
CHIEF CREEK CORPORATION,
a Tennessee corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
COAST FINANCIAL SERVICES, INC.,
a Delaware corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
DIXIE RESORT CORPORATION,
a Mississippi corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
<PAGE> 4
FOXWOOD CORPORATION,
a South Carolina corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
GL LAND DEVELOPMENT CORPORATION,
an Oklahoma corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
LAKE ROYALE CORPORATION,
a North Carolina corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
LAKE TANSI VILLAGE, INC.,
a Tennessee corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
LML RESORT CORPORATION,
an Alabama corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
NATCHEZ TRACE WILDERNESS PRESERVE CORPORATION,
a Tennessee corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
<PAGE> 5
QUAIL HOLLOW PLANTATION CORPORATION,
a Tennessee corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
QUAIL HOLLOW VILLAGE, INC.,
a Pennsylvania corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
RECREATION LAND CORPORATION,
a Pennsylvania corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
RECREATION PROPERTIES, INC.,
a Mississippi corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
RESORT LAND CORPORATION,
an Arkansas corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
RESORT PARKS INTERNATIONAL, INC.,
a Georgia corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
<PAGE> 6
TANSI RESORT, INC.,
a Tennessee corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
THE KINSTON CORPORATION,
a South Carolina corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
THE VILLAS OF HICKORY HILLS, INC.,
a Mississippi corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
WESTERN FUN CORPORATION,
a Texas corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
WESTWIND MANOR CORPORATION,
a Texas corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
WOLF RUN MANOR CORPORATION,
a Pennsylvania corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
<PAGE> 7
UST WILDERNESS MANAGEMENT CORPORATION,
a Nevada corporation
By: s/ Walter B. Jaccard
---------------------------------------------
Title: Vice President
------------------------------------------
<PAGE> 1
Exhibit 11.1
THOUSAND TRAILS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(DOLLARS AND COMMON SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
BASIC:
Weighted average number of common shares outstanding 7,390 7,063
====== ======
Net income allocable to common shareholders $8,486 $1,817
====== ======
Net income per common share -- basic $ 1.15 $ 0.26
====== ======
DILUTED:
Weighted average number of common shares outstanding 7,390 7,063
Weighted average common stock equivalents -
Dilutive options 986 214
Dilutive warrants 34 --
------ ------
Weighted average number of common shares outstanding 8,410 7,277
====== ======
Net income allocable to common shareholders $8,486 $1,817
====== ======
Net income per common share -- diluted $ 1.01 $ 0.25
====== ======
</TABLE>
Note that the calculation for the six and three month periods ended December 31,
1996, has been restated to reflect the change in accounting method adopted by
the Company in fiscal 1997, and retroactively applied to all reporting periods
presented (see Note 1 to the consolidated financial statements included in Item
1 of Part I).
Page 1 of 2
<PAGE> 2
Exhibit 11.1
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
BASIC:
Weighted average number of common shares outstanding 7,393 7,383
====== ======
Net income allocable to common shareholders $2,500 $ 242
====== ======
Net income per common share -- basic $ 0.34 $ 0.03
====== ======
DILUTED:
Weighted average number of common shares outstanding 7,393 7,383
Weighted average common stock equivalents -
Dilutive options 1,033 356
Dilutive warrants 64 --
------ ------
Weighted average number of common shares outstanding 8,490 7,739
====== ======
Net income allocable to common shareholders $2,500 $ 242
====== ======
Net income per common share -- diluted $ 0.29 $ 0.03
====== ======
</TABLE>
Page 2 of 2
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997
<PERIOD-START> JUL-01-1997 JUL-01-1996<F1>
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 1,698 0
<SECURITIES> 0 0
<RECEIVABLES> 5,177 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 8,174 0
<PP&E> 22,327 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 57,345 0
<CURRENT-LIABILITIES> 30,466 0
<BONDS> 35,178 0
0 0
0 0
<COMMON> 74 0
<OTHER-SE> (13,606) 0
<TOTAL-LIABILITY-AND-EQUITY> 57,345 0
<SALES> 2,057 2,179
<TOTAL-REVENUES> 39,340 39,422
<CGS> 0 0
<TOTAL-COSTS> 30,622 37,293
<OTHER-EXPENSES> 28,120 32,215
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,502 5,078
<INCOME-PRETAX> 8,718 2,129
<INCOME-TAX> 232 312
<INCOME-CONTINUING> 8,486 1,817
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,486 1,817
<EPS-PRIMARY> 1.15 .26
<EPS-DILUTED> 1.01 .25
<FN>
<F1> THE FISCAL 1997 FINANCIAL DATA HAS BEEN RESTATED TO REFLECT A CHANGE IN
ACCOUNTING METHOD RETROACTIVELY APPLIED BY THE COMPANY IN FISCAL 1997 (SEE
NOTE 1 TO THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 1).
</FN>
</TABLE>
