-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CDkC8biEQkXbcGfiH3R/MP+YX865+K2KsCh2UGQx4fMk7aqZrbCI1dvW6HtCW1cY AgtS2RAAaNJ/UurpcVjwcg== 0000950134-99-008455.txt : 19990927 0000950134-99-008455.hdr.sgml : 19990927 ACCESSION NUMBER: 0000950134-99-008455 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990924 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THOUSAND TRAILS INC /DE/ CENTRAL INDEX KEY: 0001024124 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS, ROOMING HOUSE, CAMPS & OTHER LODGING PLACES [7000] IRS NUMBER: 752138671 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14645 FILM NUMBER: 99716813 BUSINESS ADDRESS: STREET 1: 2711 LBJ FREEWAY STREET 2: SUITE 200 CITY: DALLAS STATE: TX ZIP: 75234 BUSINESS PHONE: 9722432228 MAIL ADDRESS: STREET 1: 2711 LBJ FREEWAY STREET 2: SUITE 200 CITY: DALLAS STATE: TX ZIP: 75234 FORMER COMPANY: FORMER CONFORMED NAME: NEW THOUSAND TRAILS INC DATE OF NAME CHANGE: 19961002 10-K 1 FORM 10-K FOR YEAR ENDED JUNE 30, 1999 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1999 Commission file number 1-14645 THOUSAND TRAILS, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 75-2138671 - --------------------------------------- ------------------------------------- (State or other jurisdiction of (I.R.S. employer identification no.) incorporation or organization) 2711 LBJ FREEWAY, SUITE 200, DALLAS, TX 75234 - --------------------------------------- ------------------------------------- (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (972) 243-2228 ------------------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - --------------------------------------- ------------------------------------- COMMON STOCK, PAR VALUE $.01 PER SHARE AMERICAN STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE
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 ------- ------- Page 1 2 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] At September 24, 1999, the latest practicable date, the aggregate market value of voting common stock of the Registrant held by nonaffiliates was $13.7 million. At September 24, 1999, there were 7,972,228 shares of Common Stock, $.01 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III (Items 10-13) is incorporated by reference from the Registrant's definitive Proxy Statement for the Registrant's 1999 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission (the "SEC") pursuant to Regulation 14A. Page 2 3 INDEX TO ANNUAL REPORT ON FORM 10-K
Page ---- PART I Item 1. Business.............................................................................4 Item 2. Properties..........................................................................13 Item 3. Legal Proceedings...................................................................16 Item 4. Submission of Matters to a Vote of Security-Holders.................................16 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..............................................................17 Item 6. Selected Financial Data.............................................................20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..............................................22 Item 7A. Quantitative and Qualitative Disclosures About Market Risk..........................39 Item 8. Financial Statements and Supplementary Data.........................................40 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..............................................75 PART III Item 10. Directors and Executive Officers of the Registrant..................................76 Item 11. Executive Compensation..............................................................76 Item 12. Security Ownership of Certain Beneficial Owners and Management...................................................................76 Item 13. Certain Relationships and Related Transactions......................................76 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................................77 Signature Page .......................................................................................85
Page 3 4 PART I ITEM 1. BUSINESS OVERVIEW GENERAL. Thousand Trails, Inc., a Delaware corporation, and its subsidiaries (the "Company") own and operate a system of 53 membership-based campgrounds located in 17 states and British Columbia, Canada, serving 106,000 members as of June 30, 1999. Through its subsidiaries, the Company also provides a reciprocal use program for members of approximately 300 recreational facilities and manages 169 public campgrounds for the US Forest Service. The Company's principal executive office is located at 2711 LBJ Freeway, Suite 200, Dallas, Texas 75234, its telephone number is (972) 243-2228, and its home page on the Internet is www.thousandtrails.com. The Company entered the membership campground business in 1991 with the acquisition of 100% of the capital stock of National American Corporation, a Nevada corporation (collectively with its subsidiaries, "NACO") and 69% of the capital stock of Thousand Trails, Inc., a Washington corporation (collectively with its subsidiaries, "Trails"). The Company subsequently increased its ownership in Trails to 100% and merged Trails into the Company. Prior to acquiring NACO and Trails, the Company purchased contracts receivable generated by them from the sale of campground memberships on the installment basis. The Company was incorporated in 1984, NACO was incorporated in 1967, and Trails was incorporated in 1969. In 1996, the Company, then known as USTrails Inc., reincorporated in the state of Delaware and changed its name to Thousand Trails, Inc. 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 or the possible acquisition of members through the purchase of other membership campground operations. The Company believes there is a viable market for campground memberships and that it has a significant opportunity to compete for campers interested in higher quality facilities and a higher level of service than is typically available at public campgrounds or competing private campgrounds. The Company also believes that it may be possible to acquire members through the purchase of other membership campground operations, many of whom are experiencing financial difficulties. The Company's membership base has been declining. In response to this decline, the Company has downsized its business by closing and disposing of campgrounds and decreasing campground operating costs and general and administrative expenses. The Company intends to continue to keep the size of its campground system in an appropriate relation to the size of its membership base. In this regard, if the membership continues to decline, the Company may close and dispose of additional campgrounds and it will seek to decrease other expenses. At the same time, the Company intends to expand its sales and marketing efforts with a view to stopping the membership decline. The Company also intends to explore the possible acquisition of members through the purchase of other membership campground organizations. The Company believes that the ultimate size of its Page 4 5 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. CAMPGROUND OPERATIONS CAMPGROUNDS. The Company and its subsidiaries own and operate a network of 53 membership-based campgrounds located in 17 states and British Columbia, Canada. The Company owns and operates a network of 32 of these campgrounds under the Thousand Trails logo, and NACO owns and operates a network of 21 of these campgrounds under the NACO logo. The 53 campgrounds contain a total of approximately 9,700 acres and 17,700 campsites. Members using the campgrounds may bring their own recreational vehicles ("RVs"), tents or other sleeping equipment, rent travel trailers or cabins located at the campgrounds or visit for the day. As of June 30, 1999, there were approximately 70,000 campground members in the Thousand Trails system and 36,000 campground members in the NACO system. However, approximately 40% of the NACO campground members and approximately 58% of the Thousand Trails campground members possess the right to use the campgrounds in both networks. The largest percentage of campground members reside in California (approximately 37%). Large numbers of campground members also reside in Florida, Oregon, Texas, and Washington. Memberships provide the member's family access to the Company's network of campgrounds, but do not convey a deeded interest in the campgrounds with the exception of six campgrounds in which members received deeded undivided interests in the campground. A member also does not possess the right to use a specific campsite, trailer, or cabin, or the right to control further development or operation of a campground. In the six campgrounds in which members have received deeded undivided interests, the Company retains the entire fee interest in the common amenities, such as the lodge, recreational facilities, and other buildings, and an undivided interest in the campsites to the extent the interest has not been sold to the members. Depending upon member usage, the campgrounds are open year-round or on a seasonal basis. The campgrounds feature campsites with electrical, water, and in some cases, sewer connections for RVs, restroom and shower facilities, rental trailers or cabins, and other recreational amenities. At each campground, a manager and staff provide security, maintenance, and recreational programs that vary by location. The Company derives other campground revenue from renting trailers, cabins, and sports equipment to members, selling food and other items to members from convenience stores located at the campgrounds, and providing the members access to laundry facilities and game machines. The Company also charges members a fee for storing recreational vehicles and providing food service. EXISTING MEMBERSHIP. At June 30, 1999, the Company had 106,000 campground members. The majority of these members have been members for over 10 years. 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 5% per year. The Company attributes this continuing decline principally to its aging membership base, of whom approximately 50% are senior citizens. In addition, the Company estimates that the Page 5 6 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 its membership base, the Company must significantly increase its campground membership sales over current levels or acquire members through the purchase of other membership campground operations. MEMBERSHIP SALES. The Company's membership sales declined significantly in the early 1990's due to increasing marketing costs and other factors. Over the past five years, the Company has been rebuilding its sales and marketing organization with a view to stopping the decline in its membership base. Although the Company's membership sales have increased, the level of sales has not met 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, in fiscal 1997, the Company entered into a joint marketing arrangement with Fleetwood Industries, Inc. ("Fleetwood"), 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. Purchasers of new Fleetwood RVs accounted for approximately 10% of sales in fiscal 1999 and 1998. In the fourth quarter of fiscal 1998, the Company entered into a similar marketing arrangement with a major RV financing company and it plans to seek other similar alliances. The Company has also recently entered into reciprocal sales agreements with two other companies in an effort to increase sales. The Company's current membership products offer the consumer a choice of membership options ranging from the use of approximately five campgrounds in a defined geographic region to the entire system of campgrounds with sales prices ranging from $1,995 to $4,995. The Company currently requires a down payment of at least $495 (at least 25% of the sales price prior to January 1999) and will finance the balance for periods of up to 36 months. In addition to the sales price, the memberships require payment of annual dues, which averaged $352 on new sales in fiscal 1999. During fiscal 1999, 1998, and 1997, the Company sold approximately 4,200, 2,900, and 3,400 new memberships, respectively. The average sales price was $1,254 in fiscal 1999, $1,164 in fiscal 1998, and $707 in fiscal 1997. The Company has the capacity to sell approximately 71,000 additional new campground memberships in the future, assuming the sale of ten memberships for each existing campsite. Further downsizing of the Company's business would reduce this capacity. Most memberships are transferable with payment of a transfer fee to the Company. The membership contracts, however, prohibit the sale of a membership for a profit. MARKETING. The Company believes that camping is a popular and growing activity in the United States. The Company believes this is reflected in sales of RVs and camping equipment as well as campground use. Moreover, the Company believes the aging of the baby boomers will have a positive effect on sales of RVs and camping equipment, and lead to more family camping. While most campers use national or state parks, the Company believes 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 believes that many campers are "amenity" campers, whose needs match the benefits provided by the Company's campgrounds, such as pools, lodges, Page 6 7 sport courts, and recreational activities. The Company believes that the needs of amenity campers are not being met by underfunded national and state campgrounds. In addition, the Company believes that it can differentiate its campgrounds and services from other campgrounds by emphasizing the quality of its facilities and the benefits and services available at its campgrounds. DUES. The Company's campground members, including members who own a deeded undivided interest in a campground, pay annual dues ranging generally from $100 to $600. The annual dues collected from campground members constitute general revenue of the Company. The Company uses the dues to fund its operating expenses, including corporate expenses and the maintenance and operation of the campgrounds. However, the membership agreements do not require the Company to use the dues for any specific purpose. The average annual dues paid by the Company's campground members was $357 for fiscal 1999, $351 for fiscal 1998, and $344 for fiscal 1997. The increases resulted primarily from the annual increase in dues implemented by the Company in accordance with the terms of the membership agreements. In addition, the Company's new members generally pay annual dues at a higher level than the older members retiring from the system. The membership agreements generally permit the Company to increase annually the amount of each member's dues by either (i) the percentage increase in the consumer price index ("CPI") or (ii) the greater of 10% or the percentage increase in the CPI. The Company, however, may not increase the dues on existing contracts of senior citizens and disabled members who notify the Company of their age or disability and request that their dues be frozen. At the present time, approximately 35% of the members have requested that their dues be frozen because of their age or disability. The Company estimates that approximately 50% of the campground members are senior citizens eligible to request that their dues be frozen. The Company is unable to estimate when or if a significant number of these members will request that their dues be frozen in the future. MAINTENANCE AND IMPROVEMENTS. The Company makes annual capital and maintenance expenditures to maintain and improve the campgrounds. During fiscal 1999, the Company spent $4.8 million on major maintenance, repairs, and capital improvements at the campgrounds and anticipates that it will spend an additional $5.2 million on such items in fiscal 2000. The Company may be required to spend greater amounts on such items in future years as the facilities age. RESORT PARKS INTERNATIONAL. NACO members and holders of dual-system memberships, which permit the member to use the campgrounds in both the NACO and Thousand Trails systems, may join a reciprocal program operated by Resort Parks International, Inc. ("RPI"), a wholly owned subsidiary of the Company. The RPI program offers members reciprocal use of approximately 300 participating recreational facilities. Members of these participating facilities pay a fee to RPI that entitles them to use any of the participating facilities, subject to the limitation that they cannot use an RPI facility located within 125 miles of their home facility. As of June 30, 1999, there were approximately 77,000 RPI members, of which approximately 59,000 were members of campgrounds that are not affiliated with the Company. CAMPGROUND MANAGEMENT. UST Wilderness Management Corporation ("Wilderness Management"), a wholly owned subsidiary of the Company, manages 169 public Page 7 8 campgrounds for the US Forest Service containing a total of 3,850 campsites. Pursuant to its management contracts with the US Forest Service, Wilderness Management incurs the expenses of operating the campgrounds and receives the related revenues, net of a fee paid to the US Forest Service. These management contracts typically have five-year terms. SEGMENT FINANCIAL INFORMATION Segment financial information for the campground, reciprocal use, and campground management operations is set forth in Note 14 to the consolidated financial statements included in Item 8. ASSET SALES During fiscal 1999, 1998, and 1997, the Company sold certain of its real estate assets and received proceeds of $2.2 million, $8.6 million, and $4.7 million, respectively. During this three-year period, the Company sold various properties at resorts not related to its campground operations. In addition, the Company sold several campgrounds, excess acreage, and unused buildings and trailers. Over the next several years, the Company intends to dispose of the remaining land that it holds for sale, any campgrounds that are closed if the Company downsizes, and other undeveloped, excess acreage associated with the campgrounds. The sale of campgrounds requires addressing the rights of members associated with such campgrounds. The impact of these rights is uncertain and could adversely affect the availability or timing of sale opportunities or the ability of the Company to realize recoveries from asset sales. In addition, although the Company has successfully sold assets during the past several years, no assurance exists that the Company will be able to locate a buyer for any of the remaining assets or that sales on acceptable terms can be effected. When there are outstanding borrowings under the Credit Agreement (as amended, the "Credit Agreement"), between the Company and Foothill Capital Corporation ("Foothill"), all proceeds from asset sales must be paid to Foothill and applied to reduce such borrowings. CONTRACTS RECEIVABLE Prior to April 1992, the Company sold substantially all of its campground memberships on the installment basis, creating a portfolio of contracts receivable. This portfolio has declined significantly as the Company has collected the outstanding contracts receivable. Since April 1992, the Company has sold only a limited number of campground memberships on an installment basis. However, during fiscal 1999, the Company financed the sale of approximately 24% of the new campground memberships, and the portfolio of contracts receivable may grow if sales volume increases and new members elect to finance their purchase. Otherwise, the portfolio of contracts receivable will continue to decline. Interest accrues on the unpaid balance of the contracts receivable at fixed rates, which vary depending upon the size of the down payment and the length of the contract. The contracts receivable bear interest at rates ranging generally from 9.5% to 16%, with a weighted average stated interest rate of 13% as of June 30, 1999. Monthly installment payments range generally from $34 to $207 over the term of the contracts receivable, which can be up to ten years. The terms of most newer contracts receivable, however, have averaged two years or less. Page 8 9 At June 30, 1999, 97% of the campground members had paid for their membership in full, and the remaining outstanding contracts receivable had an average remaining term of 15 months. As of June 30, 1999, the Company owned contracts receivable with an aggregate principal balance of $3.4 million (see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Contracts Receivable " in Item 7). When there are outstanding borrowings under the Credit Agreement between the Company and Foothill, all collections on the contracts receivable, including principal, interest, and fees, must be paid to Foothill and applied to reduce such borrowings. SEASONALITY The Company experiences its most significant demand for working capital between May and October of each year, which period coincides with the highest level of operating expenses. During the summer, operating expenses increase significantly because the peak usage of the campgrounds requires seasonal workers and increased maintenance and operating expenses. In addition, the majority of the Company's sales and marketing efforts occur during the spring and summer. On the other hand, most dues collection activity for campground members occurs during the months of November through April, which is a period of relatively lower expenses. GOVERNMENT REGULATION To operate its campgrounds, the Company must comply with major discretionary permits or approvals issued by local governments under local zoning ordinances, master plans for shoreline use, and state environmental policy statutes. The Company has complied in all material respects with the discretionary permits and approvals regulating its existing operations. In addition, to construct improvements at its campgrounds, the Company has usually been required to obtain permits that are typically non-discretionary and routinely issued such as building and sanitary sewage permits. The Company has generally resolved problems concerning the issuance of such permits through design, operating, or engineering solutions negotiated with local government officials. The Company's campgrounds are also subject to a variety of federal and state environmental statutes and regulations. Environmental issues may exist at some of the campgrounds concerning underground storage tanks, sewage treatment plants and septic systems, and waste disposal. Management believes that these issues will not have a material adverse impact on the Company's operations or financial position, as the Company has conducted environmental testing to identify and correct a number of these problems, and has removed substantially all underground storage tanks. The Company does not possess insurance or indemnification agreements with respect to any environmental liability that it may incur. Most of the states in which the Company does business have laws regulating campground membership sales. These laws generally require comprehensive disclosure to prospective purchasers, and give purchasers the right to rescind their purchase for three-to-five days after the date of sale. Some states have laws requiring the Company to register with a state agency and obtain a permit to market. Page 9 10 In some states, including California, Oregon, and Washington, laws place limitations on the ability of the owner of a campground to close the campground unless the members at the campground receive access to a comparable campground. In these states, members from campgrounds that have been closed by the Company were reassigned to other campgrounds located in the same general area as the closed campgrounds. The impact of the rights of members under these laws is uncertain and could adversely affect the implementation of, and the benefits or recoveries that may be available from, additional downsizing of the Company's business. The government authorities regulating the Company's activities have broad discretionary power to enforce and interpret the statutes and regulations that they administer, including the power to enjoin or suspend sales activities, require or restrict construction of additional facilities, and revoke licenses and permits relating to business activities. The Company monitors its sales presentations and debt collection activities to control practices that might violate consumer protection laws and regulations or give rise to consumer complaints. The Company believes that it has conducted its sales programs and debt collection activities in substantial compliance with all applicable federal and state laws and regulations. Certain consumer rights and defenses that vary from jurisdiction to jurisdiction may affect the Company's portfolio of contracts receivable. Examples of such laws include state and federal consumer credit and truth-in-lending laws requiring the disclosure of finance charges, and usury and retail installment sales laws regulating permissible finance charges. The Company believes that it has complied in all material respects with these laws. In certain states, as a result of government regulations and provisions in certain of the membership agreements, the Company is prohibited from selling more than 10 memberships per campsite. At the present time, these restrictions do not preclude the Company from selling memberships in any state. However, these restrictions may limit the Company's ability to downsize by closing campgrounds and reassigning members to other campgrounds. In addition, membership agreements or understandings, or governmental interpretations thereof, may limit the Company's ability to expand or modify the type of business activities conducted at the campgrounds. In a decision to which the Company was not a party, the Mississippi Supreme Court ruled that the Mississippi Timeshare Rules apply to the sale of campground memberships in Mississippi. The Company has discussed the ramifications of this decision with the Mississippi state agency responsible for the administration of these rules. The Company does not believe that the agency will require the Company to rescind any sales of campground memberships because of the decision; however, the agency has the power to do so. The Company has sold $15.9 million of campground memberships in Mississippi. COMPETITION Based on an internally conducted analysis, the Company estimates there are approximately 15,000 privately owned campgrounds in the United States today, of which approximately 500 are membership campgrounds. The balance of the campgrounds are generally open to the public and usually charge fees based on the length of stay. The 500 membership campgrounds have approximately 400,000 members, of which 106,000 are the Company's members. This information was derived from a review of publicly available directories of campgrounds, including those of the Company's competitors. During this analysis, the Page 10 11 Company identified duplicative directory entries and compiled an estimate of the total number of campgrounds and members. Several companies compete directly with the Company's campground operations. For example, Resorts USA, Inc., which does business as Outdoor World, sells memberships to its system of 14 campgrounds, Travel America, Inc. (formerly All Seasons Resorts, Inc. and Thousand Adventures, Inc.) sells memberships to its system of 37 campgrounds, and Leisure Time Resorts, Inc. sells memberships to its system of ten campgrounds. Other companies or individuals operate the balance of the membership campgrounds. The Company's direct competitors generally offer their members reciprocal use of other campgrounds through affiliations. Over the past several years, many of the Company's direct competitors have experienced financial difficulties, and several competitors have filed for bankruptcy. The vast majority of the campgrounds in the United States are operated for the public by Federal, state, and local governments. Although these public campgrounds are used by most campers, in recent years, many of these public campgrounds have experienced overcrowding and increased user fees. The Company's campgrounds also compete indirectly with timeshare resorts and other types of recreational land developments that do not involve camping. The Company's campground operations compete on the basis of location and the quality of facilities and services offered at the campgrounds. The Company believes 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 (see "Marketing"). Wilderness Management competes directly with approximately four other companies in bidding for contracts to manage public campgrounds for the US Forest Service. Wilderness Management currently has contracts to manage 169 of the approximately 3,000 campgrounds operated for the US Forest Service by private companies. Coast to Coast Resorts, RPI's primary competitor and the largest reciprocal use system, has approximately 400 affiliated campgrounds and more than 225,000 members. Both RPI and Coast to Coast Resorts operate vacation clubs offering travel and lodging discounts and services to their members. Page 11 12 EMPLOYEES As of June 30, 1999, the Company had 732 full-time employees and 107 part-time employees. Due to the seasonal nature of the Company's business, the Company has a greater number of employees during the summer months. As of June 30, 1999, the Company had 1,087 seasonal employees. The Company does not have any collective bargaining agreements with its employees and considers its relations with employees to be satisfactory. Page 12 13 ITEM 2. PROPERTIES OFFICES. The Company leases office space at 2711 LBJ Freeway, Suite 200, Dallas, Texas 75234. NACO leases office space at 2325 Highway 90, Gautier, Mississippi 39553. RPI leases office space at 3711 Long Beach Blvd., Suite 110, Long Beach, California 90807. CAMPGROUNDS. The Company currently operates 53 campgrounds in 17 states and British Columbia, Canada. The locations of these campgrounds are shown on the map on page 14. The amenities presently available at each campground are listed on the chart on page 15. The Company owns 52 of these campgrounds and leases the LaConner campground and portions of the Lake Tawakoni and Snowflower campgrounds. The Company has sold undivided interests to members at six of the campgrounds. Of the 53 campgrounds, 30 operate all year, 10 operate year-round but provide only limited services during the off-season, and 12 operate seasonally only. One campground is temporarily closed due to flood damage. ENCUMBRANCES. The Company has granted liens on substantially all of its assets to secure its obligations under the Credit Agreement between the Company and Foothill. As of the date of this report the Company had outstanding borrowings of $11.6 million under the Credit Agreement (see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7). All of the Company's subsidiaries (other than an immaterial utility subsidiary) have fully and unconditionally guaranteed, on a joint and several basis, the Company's obligations under the Credit Agreement, and subject to certain limitations, have granted liens on substantially all of their assets to secure their guarantees. Some states, including California, Oregon, and Washington, have nondisturbance statutes that place limitations on the ability of the owner of a campground to sell or close, or a lienholder to foreclose a lien on, a campground. In certain states, these statutes permit sale, closure, or foreclosure if the holders of related memberships receive access to a comparable campground. The mortgages on the Company's campgrounds that were granted to secure the Company's obligations under the Credit Agreement contain similar nondisturbance provisions. As a consequence, although the Company may be able to sell or close some of its campgrounds as it has done in the past, a sale or closure of significant numbers of campgrounds would likely be limited by state law or the membership contracts themselves, and a foreclosure of liens on significant numbers of campgrounds would also likely be limited. The impact of the rights of members under these laws and nondisturbance provisions is uncertain and could adversely affect the availability or timing of sale opportunities or the ability of the Company or lienholder to realize recoveries from asset sales. OTHER. The Company owns less than 100 residential lots and other miscellaneous real estate at three resorts not related to its campground operations, and various other parcels of undeveloped real estate, that it intends to sell over time. Page 13 14 THOUSAND TRAILS, INC. CAMPGROUNDS [A MAP OF THE UNITED STATES OF AMERICA WITH PLOT POINTS DEPICTING THOUSAND TRAILS AND NACO CAMPGROUND LOCATIONS APPEARS HERE]
o THOUSAND TRAILS CAMPGROUNDS o NACO CAMPGROUNDS --------------------------- ---------------- BRITISH COLUMBIA TEXAS WASHINGTON INDIANA Cultus Lake Medina Lake Birch Bay Indian Lakes* Lake Conroe Little Diamond WASHINGTON Colorado River Rainier VIRGINIA LaConner Lake Whitney Long Beach Virginia Landing* Mount Vernon Lake Texoma Chehalis Lake Tawakoni OREGON NEW JERSEY Leavenworth South Jetty Chestnut Lakes MICHIGAN OREGON Saint Clair CALIFORNIA Bend Lake Minden Pacific City INDIANA Russian River Horseshoe Lakes Snowflower CALIFORNIA Turtle Beach Lake of the Springs OHIO Yosemite Morgan Hill Wilmington Windsor San Benito Kenissee Lake Rancho Oso Soledad Canyon Wilderness Lakes Idyllwild PENNSYLVANIA Pio Pico Hershey TEXAS Oakzanita Springs Bay Landing* Palm Springs VIRGINIA Lynchburg MISSISSIPPI NEVADA Chesapeake Bay Indian Point Las Vegas NORTH CAROLINA SOUTH CAROLINA ARIZONA Forest Lake Carolina Landing* * Some members of Verde Valley these six campgrounds TENNESSEE own a deeded, FLORIDA Natchez Trace* undivided interest in Orlando Cherokee Landing* campsites at their campground.
Page 14 15
- --------------------------------------------------------------------------------------------------------------------------------- CAMPGROUND FAMILY FACILITIES AND TENT ADULT CENTER/ AMENITIES ACREAGE RV SITES SITES LODGE PAVILION POOL - --------------------------------------------------------------------------------------------------------------------------------- Thousand Trails - --------------------------------------------------------------------------------------------------------------------------------- Bend 93 300 10 1 1 2 - --------------------------------------------------------------------------------------------------------------------------------- Chehalis 306 278 1 1 2 - --------------------------------------------------------------------------------------------------------------------------------- Chesapeake Bay 280 373 19 1 1 2 - --------------------------------------------------------------------------------------------------------------------------------- Colorado River 217 128 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Cultus Lake 14 185 12 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Forest Lake 205 294 12 1 1 2 - --------------------------------------------------------------------------------------------------------------------------------- Hershey 196 310 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Horseshoe Lakes 202 118 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Idyllwild 181 287 38 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Kenisee Lake 159 83 10 1 1 - --------------------------------------------------------------------------------------------------------------------------------- LaConner 106 313 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Lake Conroe 130 285 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Lake Of The Springs 176 541 12 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Lake Tawakoni 300 318 1 1 1 2 - --------------------------------------------------------------------------------------------------------------------------------- Lake Texoma 198 319 2 1 1 2 - --------------------------------------------------------------------------------------------------------------------------------- Lake Whitney 253 244 3 1 1 2 - --------------------------------------------------------------------------------------------------------------------------------- Las Vegas 11 217 2 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Leavenworth 279 275 1 1 2 - --------------------------------------------------------------------------------------------------------------------------------- Lynchburg 150 223 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Medina Lake 260 387 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Morgan Hill 62 317 28 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Mount Vernon 185 248 3 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Oakzanita Springs 118 121 30 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Orlando 269 734 1 1 2 - --------------------------------------------------------------------------------------------------------------------------------- Pacific City 105 305 1 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Palm Springs 28 392 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Pio Pico 182 453 12 1 1 2 - --------------------------------------------------------------------------------------------------------------------------------- San Benito 200 517 51 1 1 2 - --------------------------------------------------------------------------------------------------------------------------------- Soledad Canyon 230 809 9 1 1 2 - --------------------------------------------------------------------------------------------------------------------------------- Saint Clair 110 110 8 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Verde Valley 300 333 6 2 1 - --------------------------------------------------------------------------------------------------------------------------------- Wilmington 109 125 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- NACO - --------------------------------------------------------------------------------------------------------------------------------- Bay Landing 305 257 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Birch Bay 30 215 8 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Carolina Landing 119 193 1 2 - --------------------------------------------------------------------------------------------------------------------------------- Cherokee Landing 55 341 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Chestnut Lake 31 179 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Indian Lakes 545 1202 50 2 1 3 - --------------------------------------------------------------------------------------------------------------------------------- Indian Point 11 157 1 2 - --------------------------------------------------------------------------------------------------------------------------------- Lake Minden 97 162 161 1 - --------------------------------------------------------------------------------------------------------------------------------- Little Diamond 200 541 100 1 4 1 - --------------------------------------------------------------------------------------------------------------------------------- Long Beach 17 120 20 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Natchez Trace 623 561 1 2 - --------------------------------------------------------------------------------------------------------------------------------- Rainier 107 609 300 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Rancho Oso 310 118 50 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Russian River 42 125 30 1 - --------------------------------------------------------------------------------------------------------------------------------- Snowflower 720 248 10 1 - --------------------------------------------------------------------------------------------------------------------------------- South Jetty 60 162 10 1 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Turtle Beach 39 72 120 - --------------------------------------------------------------------------------------------------------------------------------- Virginia Landing 339 210 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Wilderness Lakes 74 523 5 1 1 2 - --------------------------------------------------------------------------------------------------------------------------------- Windsor 17 95 25 1 1 - --------------------------------------------------------------------------------------------------------------------------------- Yosemite Lakes 387 379 131 1 - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- CAMPGROUND TRAILERS FACILITIES AND TENNIS ATHLETIC VEHICLE RESTROOMS/ (SEASONAL HORSESHOE AMENITIES COURT COURT STORAGE SHOWERS AVAILABILITY) PITS - ---------------------------------------------------------------------------------------------------------------------------------- Thousand Trails - ---------------------------------------------------------------------------------------------------------------------------------- Bend 2 1 1 6 17 4 - ---------------------------------------------------------------------------------------------------------------------------------- Chehalis 2 2 1 8 9 7 - ---------------------------------------------------------------------------------------------------------------------------------- Chesapeake Bay 1 1 1 4 45 6 - ---------------------------------------------------------------------------------------------------------------------------------- Colorado River 1 1 1 2 10 4 - ---------------------------------------------------------------------------------------------------------------------------------- Cultus Lake 2 2 1 4 5 2 - ---------------------------------------------------------------------------------------------------------------------------------- Forest Lake 2 1 1 3 16 4 - ---------------------------------------------------------------------------------------------------------------------------------- Hershey 1 1 1 3 38 4 - ---------------------------------------------------------------------------------------------------------------------------------- Horseshoe Lakes 2 1 1 2 11 4 - ---------------------------------------------------------------------------------------------------------------------------------- Idyllwild 3 1 6 28 4 - ---------------------------------------------------------------------------------------------------------------------------------- Kenisee Lake 1 1 2 2 - ---------------------------------------------------------------------------------------------------------------------------------- LaConner 1 1 6 15 6 - ---------------------------------------------------------------------------------------------------------------------------------- Lake Conroe 2 2 1 4 32 8 - ---------------------------------------------------------------------------------------------------------------------------------- Lake Of The Springs 1 2 1 12 36 8 - ---------------------------------------------------------------------------------------------------------------------------------- Lake Tawakoni 1 1 5 24 8 - ---------------------------------------------------------------------------------------------------------------------------------- Lake Texoma 1 1 6 12 6 - ---------------------------------------------------------------------------------------------------------------------------------- Lake Whitney 1 1 1 5 21 8 - ---------------------------------------------------------------------------------------------------------------------------------- Las Vegas 2 1 3 2 - ---------------------------------------------------------------------------------------------------------------------------------- Leavenworth 4 2 1 8 5 5 - ---------------------------------------------------------------------------------------------------------------------------------- Lynchburg 2 6 1 5 5 7 - ---------------------------------------------------------------------------------------------------------------------------------- Medina Lake 1 1 4 34 4 - ---------------------------------------------------------------------------------------------------------------------------------- Morgan Hill 1 1 1 7 23 4 - ---------------------------------------------------------------------------------------------------------------------------------- Mount Vernon 1 1 6 5 4 - ---------------------------------------------------------------------------------------------------------------------------------- Oakzanita Springs 1 1 2 16 4 - ---------------------------------------------------------------------------------------------------------------------------------- Orlando 2 1 7 30 6 - ---------------------------------------------------------------------------------------------------------------------------------- Pacific City 2 1 5 18 12 - ---------------------------------------------------------------------------------------------------------------------------------- Palm Springs 1 1 4 19 4 - ---------------------------------------------------------------------------------------------------------------------------------- Pio Pico 5 3 8 17 12 - ---------------------------------------------------------------------------------------------------------------------------------- San Benito 1 1 7 28 4 - ---------------------------------------------------------------------------------------------------------------------------------- Soledad Canyon 2 3 1 14 52 13 - ---------------------------------------------------------------------------------------------------------------------------------- Saint Clair 1 3 14 2 - ---------------------------------------------------------------------------------------------------------------------------------- Verde Valley 1 2 3 15 8 - ---------------------------------------------------------------------------------------------------------------------------------- Wilmington 1 2 1 2 13 2 - ---------------------------------------------------------------------------------------------------------------------------------- NACO - ---------------------------------------------------------------------------------------------------------------------------------- Bay Landing 1 1 2 6 - ---------------------------------------------------------------------------------------------------------------------------------- Birch Bay 1 3 13 2 - ---------------------------------------------------------------------------------------------------------------------------------- Carolina Landing 2 1 1 4 4 - ---------------------------------------------------------------------------------------------------------------------------------- Cherokee Landing 1 1 1 3 3 - ---------------------------------------------------------------------------------------------------------------------------------- Chestnut Lake 1 1 16 2 - ---------------------------------------------------------------------------------------------------------------------------------- Indian Lakes 2 2 1 5 8 - ---------------------------------------------------------------------------------------------------------------------------------- Indian Point 1 2 3 1 - ---------------------------------------------------------------------------------------------------------------------------------- Lake Minden 1 1 3 15 2 - ---------------------------------------------------------------------------------------------------------------------------------- Little Diamond 1 1 5 4 3 - ---------------------------------------------------------------------------------------------------------------------------------- Long Beach 1 2 6 2 - ---------------------------------------------------------------------------------------------------------------------------------- Natchez Trace 1 1 5 1 - ---------------------------------------------------------------------------------------------------------------------------------- Rainier 1 1 10 14 8 - ---------------------------------------------------------------------------------------------------------------------------------- Rancho Oso 1 1 3 20 4 - ---------------------------------------------------------------------------------------------------------------------------------- Russian River 4 10 2 - ---------------------------------------------------------------------------------------------------------------------------------- Snowflower 1 11 6 3 - ---------------------------------------------------------------------------------------------------------------------------------- South Jetty 1 5 14 3 - ---------------------------------------------------------------------------------------------------------------------------------- Turtle Beach 1 2 2 - ---------------------------------------------------------------------------------------------------------------------------------- Virginia Landing 1 3 2 - ---------------------------------------------------------------------------------------------------------------------------------- Wilderness Lakes 1 1 1 8 32 6 - ---------------------------------------------------------------------------------------------------------------------------------- Windsor 1 1 7 3 - ---------------------------------------------------------------------------------------------------------------------------------- Yosemite Lakes 1 1 8 22 4 - ---------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- CAMPGROUND CHILDREN'S FACILITIES AND PLAY TRADING MINIATURE SHUFFLE AMENITIES AREA POST GOLF BOARD SPA - ------------------------------------------------------------------------------------------------------------------- Thousand Trails - ------------------------------------------------------------------------------------------------------------------- Bend 2 1 1 1 - ------------------------------------------------------------------------------------------------------------------- Chehalis 1 1 1 1 1 - ------------------------------------------------------------------------------------------------------------------- Chesapeake Bay 3 1 1 2 1 - ------------------------------------------------------------------------------------------------------------------- Colorado River 2 1 1 1 1 - ------------------------------------------------------------------------------------------------------------------- Cultus Lake 2 1 2 - ------------------------------------------------------------------------------------------------------------------- Forest Lake 2 1 1 2 2 - ------------------------------------------------------------------------------------------------------------------- Hershey 1 1 1 - ------------------------------------------------------------------------------------------------------------------- Horseshoe Lakes 10 1 2 - ------------------------------------------------------------------------------------------------------------------- Idyllwild 3 1 1 2 - ------------------------------------------------------------------------------------------------------------------- Kenisee Lake 2 1 1 1 - ------------------------------------------------------------------------------------------------------------------- LaConner 3 1 1 3 1 - ------------------------------------------------------------------------------------------------------------------- Lake Conroe 2 1 1 2 1 - ------------------------------------------------------------------------------------------------------------------- Lake Of The Springs 3 1 1 1 - ------------------------------------------------------------------------------------------------------------------- Lake Tawakoni 2 1 1 8 2 - ------------------------------------------------------------------------------------------------------------------- Lake Texoma 2 1 1 2 2 - ------------------------------------------------------------------------------------------------------------------- Lake Whitney 2 1 1 2 1 - ------------------------------------------------------------------------------------------------------------------- Las Vegas 1 1 1 1 - ------------------------------------------------------------------------------------------------------------------- Leavenworth 2 1 1 4 - ------------------------------------------------------------------------------------------------------------------- Lynchburg 2 1 1 2 1 - ------------------------------------------------------------------------------------------------------------------- Medina Lake 3 1 1 4 1 - ------------------------------------------------------------------------------------------------------------------- Morgan Hill 3 1 1 4 - ------------------------------------------------------------------------------------------------------------------- Mount Vernon 2 1 1 1 1 - ------------------------------------------------------------------------------------------------------------------- Oakzanita Springs 3 1 1 2 1 - ------------------------------------------------------------------------------------------------------------------- Orlando 2 1 1 16 1 - ------------------------------------------------------------------------------------------------------------------- Pacific City 2 1 1 1 - ------------------------------------------------------------------------------------------------------------------- Palm Springs 1 2 1 - ------------------------------------------------------------------------------------------------------------------- Pio Pico 3 1 1 8 2 - ------------------------------------------------------------------------------------------------------------------- San Benito 4 1 1 6 2 - ------------------------------------------------------------------------------------------------------------------- Soledad Canyon 7 1 1 8 1 - ------------------------------------------------------------------------------------------------------------------- Saint Clair 2 1 1 1 - ------------------------------------------------------------------------------------------------------------------- Verde Valley 3 1 2 1 - ------------------------------------------------------------------------------------------------------------------- Wilmington 2 1 2 1 - ------------------------------------------------------------------------------------------------------------------- NACO - ------------------------------------------------------------------------------------------------------------------- Bay Landing 1 1 1 4 - ------------------------------------------------------------------------------------------------------------------- Birch Bay 1 1 - ------------------------------------------------------------------------------------------------------------------- Carolina Landing 1 1 1 - ------------------------------------------------------------------------------------------------------------------- Cherokee Landing 1 1 1 2 - ------------------------------------------------------------------------------------------------------------------- Chestnut Lake 1 1 1 2 - ------------------------------------------------------------------------------------------------------------------- Indian Lakes 3 1 1 2 - ------------------------------------------------------------------------------------------------------------------- Indian Point 1 1 1 - ------------------------------------------------------------------------------------------------------------------- Lake Minden 1 1 - ------------------------------------------------------------------------------------------------------------------- Little Diamond 3 1 2 - ------------------------------------------------------------------------------------------------------------------- Long Beach 2 1 1 - ------------------------------------------------------------------------------------------------------------------- Natchez Trace 4 1 1 - ------------------------------------------------------------------------------------------------------------------- Rainier 2 1 1 - ------------------------------------------------------------------------------------------------------------------- Rancho Oso 1 1 1 - ------------------------------------------------------------------------------------------------------------------- Russian River - ------------------------------------------------------------------------------------------------------------------- Snowflower 1 2 - ------------------------------------------------------------------------------------------------------------------- South Jetty 1 1 2 - ------------------------------------------------------------------------------------------------------------------- Turtle Beach 1 1 - ------------------------------------------------------------------------------------------------------------------- Virginia Landing 2 1 1 2 - ------------------------------------------------------------------------------------------------------------------- Wilderness Lakes 2 1 1 3 3 - ------------------------------------------------------------------------------------------------------------------- Windsor 1 1 - ------------------------------------------------------------------------------------------------------------------- Yosemite Lakes 1 1 1 1 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------ CAMPGROUND BOAT FACILITIES AND LAUNCH/ LAUNDRY CABINS/ AMENITIES VOLLEYBALL MARINA FACILITY LODGING - ------------------------------------------------------------------------------------------------------------ Thousand Trails - ------------------------------------------------------------------------------------------------------------ Bend 1 1 7 - ------------------------------------------------------------------------------------------------------------ Chehalis 1 1 4 - ------------------------------------------------------------------------------------------------------------ Chesapeake Bay 1 1 1 18 - ------------------------------------------------------------------------------------------------------------ Colorado River 2 1 1 - ------------------------------------------------------------------------------------------------------------ Cultus Lake 1 1 - ------------------------------------------------------------------------------------------------------------ Forest Lake 1 1 18 - ------------------------------------------------------------------------------------------------------------ Hershey 1 1 - ------------------------------------------------------------------------------------------------------------ Horseshoe Lakes 1 1 - ------------------------------------------------------------------------------------------------------------ Idyllwild 1 3 4 - ------------------------------------------------------------------------------------------------------------ Kenisee Lake 1 1 - ------------------------------------------------------------------------------------------------------------ LaConner 1 1 1 17 - ------------------------------------------------------------------------------------------------------------ Lake Conroe 2 1 2 - ------------------------------------------------------------------------------------------------------------ Lake Of The Springs 1 1 1 3 - ------------------------------------------------------------------------------------------------------------ Lake Tawakoni 2 1 1 - ------------------------------------------------------------------------------------------------------------ Lake Texoma 1 1 1 18 - ------------------------------------------------------------------------------------------------------------ Lake Whitney 2 1 - ------------------------------------------------------------------------------------------------------------ Las Vegas 3 - ------------------------------------------------------------------------------------------------------------ Leavenworth 1 2 8 - ------------------------------------------------------------------------------------------------------------ Lynchburg 2 1 - ------------------------------------------------------------------------------------------------------------ Medina Lake 2 1 1 - ------------------------------------------------------------------------------------------------------------ Morgan Hill 1 1 - ------------------------------------------------------------------------------------------------------------ Mount Vernon 1 1 - ------------------------------------------------------------------------------------------------------------ Oakzanita Springs 1 1 - ------------------------------------------------------------------------------------------------------------ Orlando 1 1 4 - ------------------------------------------------------------------------------------------------------------ Pacific City 1 1 4 - ------------------------------------------------------------------------------------------------------------ Palm Springs 3 - ------------------------------------------------------------------------------------------------------------ Pio Pico 2 2 - ------------------------------------------------------------------------------------------------------------ San Benito 2 1 - ------------------------------------------------------------------------------------------------------------ Soledad Canyon 4 1 - ------------------------------------------------------------------------------------------------------------ Saint Clair 1 1 2 - ------------------------------------------------------------------------------------------------------------ Verde Valley 1 1 - ------------------------------------------------------------------------------------------------------------ Wilmington 1 1 - ------------------------------------------------------------------------------------------------------------ NACO - ------------------------------------------------------------------------------------------------------------ Bay Landing 1 1 1 19 - ------------------------------------------------------------------------------------------------------------ Birch Bay 1 1 - ------------------------------------------------------------------------------------------------------------ Carolina Landing 1 1 18 - ------------------------------------------------------------------------------------------------------------ Cherokee Landing 1 1 30 - ------------------------------------------------------------------------------------------------------------ Chestnut Lake 1 1 - ------------------------------------------------------------------------------------------------------------ Indian Lakes 3 1 3 54 - ------------------------------------------------------------------------------------------------------------ Indian Point 1 1 1 16 - ------------------------------------------------------------------------------------------------------------ Lake Minden 1 1 - ------------------------------------------------------------------------------------------------------------ Little Diamond 2 1 1 1 - ------------------------------------------------------------------------------------------------------------ Long Beach 1 - ------------------------------------------------------------------------------------------------------------ Natchez Trace 1 1 1 58 - ------------------------------------------------------------------------------------------------------------ Rainier 1 1 - ------------------------------------------------------------------------------------------------------------ Rancho Oso 2 2 - ------------------------------------------------------------------------------------------------------------ Russian River 1 1 - ------------------------------------------------------------------------------------------------------------ Snowflower 1 1 4 - ------------------------------------------------------------------------------------------------------------ South Jetty 1 1 - ------------------------------------------------------------------------------------------------------------ Turtle Beach 1 1 1 - ------------------------------------------------------------------------------------------------------------ Virginia Landing 1 1 1 19 - ------------------------------------------------------------------------------------------------------------ Wilderness Lakes 1 4 - ------------------------------------------------------------------------------------------------------------ Windsor 1 - ------------------------------------------------------------------------------------------------------------ Yosemite Lakes 1 2 32 - ------------------------------------------------------------------------------------------------------------
Page 15 16 ITEM 3. LEGAL PROCEEDINGS Foxwood Property Owners Association, Inc. vs. Foxwood Corporation, filed on February 18, 1999, in the Court of Common Pleas of Oconee County, South Carolina, under Case No. 99-37-CP-88. In this action, the plaintiff brought suit against a subsidiary of the Company alleging that the defendant owes the plaintiff in excess of $2.5 million for past due maintenance fees on subdivided lots owned by the defendant. The defendant denies the claim and is vigorously defending the lawsuit. Although discovery in this lawsuit has not been completed, management does not believe that it will have a material adverse effect upon the Company's operations or financial position. The Company is involved in certain claims and litigation arising in the normal course of business. Management believes that the eventual outcome of these claims and litigation will not have a material adverse impact on the Company's financial position, operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS None. Page 16 17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET AND TRADING. The Company's common stock (the "Common Stock") has been publicly traded on the American Stock Exchange under the symbol TRV since December 4, 1998. Prior thereto, the Common Stock was publicly traded in the over-the-counter market under the symbol TRLS from November 20, 1996 through December 4, 1998, and under the symbol USTQ from 1992 through November 20, 1996. Historically, the Common Stock has not traded every day and the trading volume has often been small, such that the Common Stock may not be deemed to be traded in an established public trading market. The following table sets forth for the fiscal periods indicated, the high and low bid quotations as quoted through the NASD OTC Bulletin Board System through December 3, 1998, and the high and low sales prices as reported on the American Stock Exchange thereafter. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. [A CHART WITH PLOT POINTS DEPICTING THE HIGH AND LOW BID QUOTATIONS FOR EACH OF THE FOUR FISCAL QUARTERS OF 1998 AND 1999 APPEARS HERE]
1999 1998 ------------------------ ------------------- High Low High Low ------- ------- ----- ------ First Quarter 5 1/8 3 5/8 3 1/8 2 1/8 Second Quarter 5 13/16 3 5/8 5 3/8 3 1/8 Third Quarter 5 1/4 4 13/16 4 1/2 3 1/4 Fourth Quarter 4 7/8 4 1/4 4 1/4 3 1/2
As of September 24, 1999, the Company's Common Stock was held by 87 holders of record. Moreover, security position listings available to the Company listed approximately 450 beneficial holders of Common Stock. ABSENCE OF DIVIDENDS. Since inception, the Company has not paid any dividends. The Credit Agreement prohibits the payment of any cash dividends on the Common Stock without the consent of Foothill, until the Credit Agreement is terminated. TRANSFER RESTRICTIONS. The Company's Common Stock is subject to transfer restrictions designed to avoid an "ownership change" within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended ("the Code"). These transfer restrictions are designed to help assure that the Company's substantial net operating loss carryforwards ("NOLs"), which are estimated to total $27.4 million at June 30, 1999, will continue to be available to offset future taxable income. Section 382 of the Code limits the use of NOLs and other tax benefits by a company that has undergone an ownership change. Such restrictions are set forth in Article IX of the Company's Restated Certificate of Incorporation. Article IX generally restricts, until June 30, 2011 (or earlier in certain Page 17 18 events), direct or indirect transfer of Common Stock that would without the approval of the Board of Directors of the Company (i) increase to more than 4.75% the percentage ownership of Common Stock of any person who at any time during the preceding three-year period did not own more than 4.75% of the Common Stock, (ii) increase the percentage of Common Stock owned by any person that during the preceding three-year period owned more than 4.75% of the Common Stock, or by any group of persons treated as a "5 Percent Shareholder" (as defined in the Code but substituting "4.75%" for "5 Percent"), or (iii) cause an "ownership change" of the Company. Article IX provides that any direct or indirect transfer of Common Stock in violation of Article IX is void ab initio as to the purported transferee, and the purported transferee will not be recognized as the owner of shares acquired in violation of Article IX for any purpose, including for purposes of voting and receiving dividends or other distributions in respect of Common Stock. Any shares purportedly acquired in violation of Article IX will be transferred to a trustee who will be required to sell them. Generally, the transfer restrictions contain several exceptions. For example, the restrictions will not prevent a transfer if, in the determination of the Board of Directors of the Company, the transfer does not result in any greater aggregate increase in Common Stock ownership by 5% shareholders. Also, the restrictions will not prevent a transfer if the purported transferee obtains the approval of the Board of Directors of the Company, which approval shall be granted or withheld in the sole and absolute discretion of the Board of Directors, after considering all facts and circumstances including, but not limited to, future events deemed by the Board of Directors to be relevant. Finally, the transfer restrictions only apply with respect to the amount of Common Stock purportedly transferred in excess of the threshold established in the transfer restrictions. These transfer restrictions (i) may have the effect of impeding the attempt of a person or entity to acquire a significant or controlling interest in the Company, (ii) may render it more difficult to effect a merger or similar transaction even if such transaction is favored by a majority of the stockholders, and (iii) may serve to make a change in management more difficult. The purpose of the transfer restrictions is to preserve tax benefits, however, not to insulate the Company or management from change. The Company believes the tax benefits of the transfer restrictions outweigh any anti-takeover effect they may have. The application of these transfer restrictions to any particular stockholder will depend on the stockholder's ownership of Common Stock, determined after applying numerous attribution rules prescribed by the Code and related regulations, and will also depend on the history of trading of the Common Stock. As a result, stockholders are urged to consult their tax advisors with respect to any planned purchase or sale of Common Stock. RECENT SALES OF UNREGISTERED SECURITIES. In December 1991, the Company issued warrants to acquire 194,521 shares of Common Stock at $4.24 per share. In June 1992, the Company issued warrants to acquire 290,314 shares of Common Stock at $4.24 per share. The warrants were issued in transactions exempt from registration under the Securities Act of 1933, as amended. In such transactions, the warrants were issued to creditors of the company who were sophisticated, and the warrants were subject to appropriate restrictions on their transfer. In June 1999, the holders of certain of these warrants exercised them and acquired a total of 244,308 shares of Common Stock in transactions exempt under Section 4(2) of such Act. The Company received proceeds of $1,230,931 from the exercise of these Page 18 19 warrants, which it used to reduce borrowings under its Credit Agreement with Foothill. 237,219 of these warrants expired on June 30, 1999 without being exercised. Page 19 20 ITEM 6. SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICAL DATA)
For the year ended June 30, ---------------------------------------------------------- 1999 1998 1997 1996(1) 1995(1) -------- -------- -------- -------- -------- (Restated) (Restated) STATEMENT OF OPERATIONS DATA: Total revenue $ 67,925 $ 75,509 $ 77,181 $ 91,022 $ 91,392 Membership dues 36,455 37,330 39,945 39,924 41,175 Other campground/resort revenues 17,954 16,475 17,906 22,288 23,506 Membership and lot sales 4,085 3,894 3,477 3,013 4,074 Interest income 2,068 2,635 3,726 6,756 9,935 Interest expense and amortization 2,957 4,599 9,084 17,693 20,960 Income (loss) from operations before taxes, minority interest and extraordinary item 7,915 15,716 7,169 (240) (11,573) Extraordinary gain on debt repurchases -- -- -- 1,390 -- Net income (loss) 5,571 24,879 6,799 1,109 (11,828) Dividends paid (2) -- -- -- -- -- Dividends paid per share (2) -- -- -- -- -- Income (loss) per share data-basic (3): Income (loss) before extraordinary item .73 3.36 .94 (.08) (3.19) Extraordinary item -- -- -- .38 -- Net income (loss) .73 3.36 .94 .30 (3.19) Weighted average shares 7,630 7,407 7,223 3,703 3,703 Income (loss) per share data-diluted (3): Income (loss) before extraordinary item .66 2.96 .88 (.08) (3.19) Extraordinary item -- -- -- .38 -- Net income (loss) .66 2.96 .88 .30 (3.19) Weighted average shares 8,475 8,398 7,704 3,721 3,703 BALANCE SHEET DATA (AT END OF YEAR): Cash and cash equivalents 2,197 13,631 1,343 37,403 50,596 Receivables, net 2,184 4,181 7,517 13,219 18,698 Campground properties 36,941 37,991 42,764 46,309 51,960 Resort properties 75 1,092 1,530 2,902 5,736 Total assets 56,804 74,262 63,302 111,631 137,517 PIK Notes, including deferred gain -- 32,973 29,393 -- -- Borrowings under Credit Agreement 10,887 -- 14,097 -- -- Secured Notes, net of discount -- -- -- 94,350 115,490 Other notes payable -- -- 604 1,102 4,753 Long term debt 8,787 32,973 38,230 66,922 98,308 Stockholders' equity (deficit) 9,648 2,754 (22,168) (31,952) (33,054) STATISTICAL DATA (AT END OF YEAR): Number of operating campgrounds 53 53 55 58 60 Number of campsites 17,700 17,700 18,400 19,300 19,400 Number of members 106,000 111,000 120,000 128,000 136,000 Average annual dues per member $357 $351 $344 $335 $329 Average cost per camper night $ 17.62 $ 18.23 $ 18.13 $ 18.03 $ 19.69
(1) The historical Selected Financial Data has been restated for the fiscal years indicated because for fiscal 1997 the Company changed its accounting method 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 (see Note 2 to the consolidated financial statements included in Item 8). Page 20 21 (Footnotes continued) (2) During the periods presented, the Company has been prohibited from paying any cash dividends by the indentures governing its Secured Notes and PIK Notes, and by the Credit Agreement with Foothill. (3) As part of a restructuring of the Company, on July 17, 1996, the Company issued 3,680,550 additional shares of Common Stock, which represent 45% of the shares of Common Stock currently outstanding. Page 21 22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In this Management's Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this report, the Company makes certain statements as to its expected financial condition, results of operations, cash flows, and business strategies, plans, and conditions for periods after June 30, 1999. All of these statements are forward-looking statements made pursuant to the safe harbor provisions of Section 21 (E) of the Securities Exchange Act of 1934, as amended. These statements are not historical and involve risks and uncertainties. The Company's actual financial condition, results of operations, cash flows, and business strategies, plans, and conditions for future periods may differ materially due to several factors, including but not limited to the Company's ability to control costs, campground market conditions and other factors affecting the Company's sales and marketing plan, the actual rate of decline in the campground membership base, the actual use of the campgrounds by members and guests, the effects on members and guests of the Company's efforts to downsize its business, the Company's success in collecting its contracts receivable and selling assets, and the other factors affecting the Company's operations described in this report. LIQUIDITY AND CAPITAL RESOURCES CURRENT BUSINESS STRATEGY. The Company's current business strategy is to improve its campground operations and stabilize its campground membership base through increased sales and marketing efforts or the possible acquisition of members through the purchase of other membership campground operations. The Company believes there is a viable market for campground memberships and that it has a significant opportunity to compete for campers interested in higher quality facilities and a higher level of service than is typically available at public campgrounds or competing private campgrounds. The Company also believes that it may be possible to acquire members through the purchase of other membership campground operations, many of whom are experiencing financial difficulties. The Company's membership base has been declining. In response to this decline, the Company has downsized its business by closing and disposing of campgrounds and decreasing campground operating costs and general and administrative expenses. The Company intends to continue to keep the size of its campground system in an appropriate relation to the size of its membership base. In this regard, if the membership base continues to decline, the Company may close and dispose of additional campgrounds and it will seek to decrease other expenses. At the same time, the Company intends to expand its sales and marketing efforts with a view to stopping the membership decline. The Company also intends to explore the possible acquisition of members through the purchase of other membership campground organizations, many of whom are experiencing financial difficulties. 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. DEBT RESTRUCTURINGS. In July 1996, the Company consummated a restructuring of its 12% Secured Notes Due 1998 (the "Secured Notes") whereby all of the $101,458,000 principal amount of Secured Notes outstanding were retired. This restructuring provided the Company with a new capital structure and decreased the Company's outstanding debt to a level the Page 22 23 Company believes it can support under its downsized operations. As part of this restructuring, the Company issued $40.2 million principal amount of 12% Senior Subordinated Pay-In-Kind Notes Due 2003 ("PIK Notes") and 3,680,550 shares of Common Stock, and it entered into the Credit Agreement with Foothill (see "Borrowings"). On December 15, 1998, the Company redeemed all $34.8 million principal amount of PIK Notes outstanding and paid $1.7 million of accrued interest thereon. The Company funded this redemption with $12.5 million of its existing cash and $24.0 million of new borrowings under the Credit Agreement with Foothill. CASH. On June 30, 1999, the Company had approximately $2.2 million of cash and cash equivalents, a decrease of $11.4 million during fiscal 1999. During the year, the Company's operating activities produced $11.8 million of cash, its investing activities used $0.7 million of cash, and its financing activities used $22.6 million of cash. The Company's financing activities reduced outstanding debt by $22.0 million, including the $12.5 million of cash used to partially fund the redemption of the PIK Notes, and were partially offset by proceeds of $1.3 million from the issuance of Common Stock. The Company's investing activities consisted of $2.2 million in proceeds from the sale of assets, less $1.7 million spent on capital improvements at the campgrounds and $1.2 million of HUD-related expenditures. With respect to the Company's operating activities, for fiscal 1999, the principal sources of cash were $61.6 million from operations, $6.1 million in principal and interest collections on contracts receivable and invested cash, and $4.4 million from sales of campground memberships and lots. Principal uses of operating cash for fiscal 1999 were $40.3 million in operating expenses, $10.2 million in administrative expenses (including general and administrative expenses and corporate member services costs), and $6.2 million in sales and marketing expenditures. During fiscal 1997 and the first-half of fiscal 1998, the Company repaid all of its original borrowings under the Credit Agreement with Foothill. On October 21, 1998, the Company entered into an amendment to the Credit Agreement that gave the Company the flexibility to borrow up to $5.0 million for working capital purposes and additional amounts to use to redeem the PIK Notes and for the possible acquisition of members through the purchase of other membership campground operations. Under the amended Credit Agreement, the first $15.0 million of borrowings bear interest at prime plus .25% per annum, borrowings over $15.0 million and up to $25.0 million bear interest at prime plus .50% per annum, and borrowings over $25.0 million bear interest at prime plus 1.5% per annum, subject to a minimum interest rate of 9% per annum (reduced to 7% per annum in June 1999). On December 15, 1998, the Company borrowed $24.0 million under the amended Credit Agreement to partially fund the redemption of the PIK Notes as discussed above. As a result of subsequent repayments, on June 30, 1999, the Company had $10.9 million of outstanding borrowings under the amended Credit Agreement, and it had the ability to borrow an additional $4.0 million for working capital purposes. The Company's ability to borrow up to an additional $10.0 million to fund its possible acquisition of members through the purchase of other membership campground operations will expire on December 31, 1999. All borrowings under the amended Credit Agreement will mature on January 17, 2003. Under the terms of the amended Credit Agreement, the Company must use all collections of principal and interest on the contracts receivable and all proceeds from asset sales to reduce Page 23 24 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 available borrowing capacity declines as these principal reductions are made. As of the date of this report, the Company had $11.6 million of outstanding borrowings under the amended Credit Agreement, and it had the ability to borrow an additional $3.3 million for working capital purposes. Based upon its current business plan, the Company believes that future cash flows provided from operations, asset sales, and borrowings available under the amended Credit Agreement will be adequate for the Company's operating and other cash requirements. While any borrowings are outstanding under the amended Credit Agreement, all cash held by the Company and its wholly owned subsidiaries will generally be deposited in accounts that are controlled by and pledged to Foothill. CONTRACTS RECEIVABLE. As of June 30, 1999, the Company on a consolidated basis owned $3.4 million of contracts receivable related to the sale of campground memberships and lots (see "Contracts Receivable" in Item 1). Because of low interest rates available in the marketplace during fiscal 1999, 1998, and 1997, some members chose to prepay their accounts, and the Company received principal payments of $723,000, $1.1 million, and $1.6 million, respectively, in excess of scheduled payments. The Company may continue to experience such prepayments in the future, although at a decreasing rate as the contracts receivable portfolio continues to decline. Allowance for Doubtful Accounts The Company's allowance for doubtful accounts was 30% of gross contracts receivable at June 30, 1999, compared with 31% of gross contracts receivable at June 30, 1998 and 1997. The cancellation rate as a percentage of average contracts receivable was 8% for fiscal 1999, compared with 8% for fiscal 1998 and 7% for fiscal 1997. In fiscal 1999, 1998, and 1997, the Company reduced the allowance for doubtful accounts on the contracts receivable by $886,000, $1.0 million, and $1.2 million, respectively. These adjustments were made because the Company experienced lower contract losses than anticipated in these years. The allowance for doubtful accounts is an estimate of the contracts receivable that will cancel in the future and is determined based on historical cancellation rates and other factors deemed relevant to the analysis. Prior to fiscal 1996, the Company's historic cancellation rates ranged as high as 16.7%. By fiscal 1996, the Company's cancellation rates appeared to stabilize at approximately 8%. The Company reduced the allowance for doubtful accounts to 30% of the portfolio for such fiscal year after applying the then-current cancellation rate to the maturities of the then-outstanding portfolio and taking into account the higher historical cancellation rates and the uncertainties associated with its strategy of reducing the size of the campground system. In 1997, 1998, and 1999, the cancellation rates were essentially unchanged. However, the contracts receivable portfolio also declined faster than projected primarily because collections each year exceeded estimates. As a result, using the same methodology and considering the same factors deemed relevant to the analysis as in 1996, the Company reduced the allowance to approximately 31% of the portfolio in 1997 and 1998 and 30% in 1999. Page 24 25 The Company does not presently anticipate any further adjustments to the allowance for doubtful accounts on the contracts receivable. 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. Other Allowances In connection with the purchase of NACO and Trails, the Company recorded an allowance for interest discount to increase to 14.75% the weighted average yield on the contracts receivable then owned by NACO and Trails. The allowance for interest discount is being amortized using the effective interest method over the respective terms of the contracts. Additionally, in connection with the purchase of NACO and Trails and the Company's bankruptcy reorganization in 1991, the Company recorded an allowance for future collection costs, which is being amortized as a reduction of general and administrative expenses based on cash collected on the related portfolio. The Company also purchased contracts receivable from certain third parties and recorded a valuation allowance to record the contracts receivable at the purchase price. This valuation allowance is being amortized as an increase to interest income over the respective terms of the contracts. Change in Receivables The net balance of contracts receivable decreased by $2.0 million during fiscal 1999, due primarily to $4.2 million in cash collections on contracts receivable, offset by new financed sales, an $886,000 reduction in the allowance for doubtful accounts, and scheduled amortization of the allowances for interest discount, collection costs, and valuation discount. CAMPGROUND AND RESORT PROPERTIES. The Company's campground properties consist of land, buildings, and other equipment used in administration and operations as well as land held for sale. Campground properties decreased by $1.0 million in fiscal 1999 due primarily to $2.6 million of depreciation on property and equipment, partially offset by $1.7 million of capital expenditures. The Company makes annual capital and maintenance expenditures to maintain and improve the campgrounds. During fiscal 1999, the Company spent $4.8 million on major maintenance, repairs, and improvements at the campgrounds. The Company anticipates that it will spend an additional $5.2 million on such items in fiscal 2000, which will be funded by existing cash and cash provided by operations. The Company may be required to spend greater amounts on such items in future years as the facilities age. During the periods presented, the Company's resort properties consisted of lot inventory, buildings and equipment used in operations, and land held for sale at resorts not related to the campground operations. Resort properties decreased by $1.0 million in fiscal 1999, due primarily to the sale of excess acreage at one resort and the sale of lots in the normal course of business. Over the past several years, the Company has been selling the assets it owns at these resorts. During fiscal 1999, the Company spent approximately $1.2 million fulfilling obligations created by reports that it filed with the Department of Housing and Urban Development ("HUD") at one resort not related to the campground operations. The Company was required to expense $230,000 of these costs because they exceeded previous estimates by this amount. At June 30, 1999, the Company had a $1.9 million liability for HUD obligations at another Page 25 26 resort not related to the campground operations, which remain substantially incomplete. A person who purchased a lot when a HUD report was in effect may allege that the failure to make timely improvements constitutes a breach of his or her agreement with the Company and could seek damages from the Company or rescission of the lot purchase. Approximately 60 persons purchased lots from the Company when HUD reports in effect described improvements that the Company has not yet constructed. An insignificant number of persons have asserted claims against the Company for the failure to make these improvements. OTHER ASSETS. Other current assets increased by $158,000 during fiscal 1999. The increase was due to increases of $347,000 in income taxes receivable and $236,000 in inventory, partially offset by a $250,000 decrease in deposits and a $155,000 decrease in prepaid insurance. Income taxes receivable increased because estimated tax payments were made in fiscal 1999 before the Company redeemed the PIK Notes. Prior to the redemption, the Company deferred deducting interest expense on the PIK Notes because interest was paid by issuing additional PIK Notes. Upon the redemption of the PIK Notes, the Company deducted the interest expense that had been deferred and the estimated tax payments became refundable. Other assets decreased by $323,000 in fiscal 1999 due primarily to the refund of workers compensation deposits from earlier policy years. BORROWINGS. On June 30, 1999, the Company had $10.9 million of borrowings outstanding under the Credit Agreement with Foothill. Of these borrowings, $2.1 million are considered current for accounting purposes because the amended Credit Agreement requires the Company to use all collections of principal and interest on the contracts receivable and all proceeds from asset sales to reduce borrowings under the Credit Agreement. Credit Agreement with Foothill In connection with the restructuring of the Secured Notes, the Company entered into the Credit Agreement with Foothill, under which Foothill made term loans to the Company totaling $13.0 million, and agreed to make revolving loans to the Company in the maximum amount of $25.0 million. The Credit Agreement originally had a three-year term expiring in July 1999. During fiscal 1997 and the first-half of fiscal 1998, the Company repaid all of its original borrowings under the Credit Agreement. In October 1998, the Company entered into an amendment to the Credit Agreement that gave the Company the flexibility to borrow up to $5.0 million for working capital purposes and additional amounts to use to redeem the PIK Notes and for the possible acquisition of members through the purchase of other membership campground operations. Under the amended Credit Agreement, the first $15.0 million of borrowings bear interest at prime plus .25% per annum, borrowings over $15.0 million and up to $25.0 million bear interest at prime plus .50% per annum, and borrowings over $25.0 million bear interest at prime plus 1.5% per annum, subject to a minimum interest rate of 9% per annum (reduced to 7% per annum in June 1999). In December 1998, the Company borrowed $24.0 million under the amended Credit Agreement to partially fund the redemption of the PIK Notes as discussed above. As a result of subsequent repayments, on June 30, 1999, the company had $10.9 million of outstanding borrowings under the amended Credit Agreement, and it had the ability to borrow an Page 26 27 additional $4.0 million for working capital purposes. The Company's ability to borrow up to an additional $10.0 million to fund its possible acquisition of members through the purchase of other membership campground operations will expire on December 31, 1999. All borrowings under the amended Credit Agreement will mature on January 17, 2003. The Company's ability to borrow under the amended Credit Agreement for working capital and other purposes is subject to continued compliance by the Company with the financial covenants and other requirements of the amended Credit Agreement, including certain covenants respecting minimum earnings before interest, taxes, depreciation and amortization, and minimum tangible net worth. The amended Credit Agreement prohibits the Company from borrowing from other sources in significant amounts except for equipment purchases. The Company has granted liens on substantially all of its assets to secure its obligations under the amended Credit Agreement. In addition, the Company's subsidiaries other than an immaterial utility subsidiary have guaranteed the Company's obligations under the amended Credit Agreement and, subject to certain limitations, have granted liens on substantially all of their assets to secure their guarantees. The amended Credit Agreement limits the type of investments in which the Company may invest its available cash, resulting in a relatively low yield. PIK Notes In the restructuring of the Secured Notes, the Company issued $40.2 million principal amount of PIK Notes. In January 1997, the Company issued an additional $2.4 million principal amount of PIK Notes as interest. In June 1997, the Company repurchased $13.4 million principal amount of PIK Notes at a cost of $12.6 million, including accrued interest. The Company made these repurchases at an average price of $897 per $1,000 of principal amount in a Dutch auction available to all holders of PIK Notes. A gain of $1.2 million was recognized on this transaction. In July 1997, January 1998, and July 1998, the Company issued an additional $1.7 million, $1.9 million, and $2.0 million, respectively, of principal amount of PIK Notes in lieu of cash interest. In December 1998, the Company redeemed all $34.8 million principal amount of PIK Notes outstanding and paid $1.7 million of accrued interest. The Company funded this redemption with $12.5 million of its existing cash and $24.0 million of new borrowings under its Credit Agreement with Foothill. DEFERRED REVENUES AND EXPENSES. Deferred revenues of $24.7 million and $23.4 million at June 30, 1999 and 1998, respectively, include $14.4 million and $14.8 million, respectively, of membership dues collections which relate to future periods, $8.5 million and $6.9 million, respectively, of campground membership sales revenues to be recognized in future periods, and other deferred revenues related primarily to RPI's operations. Deferred membership selling expenses of $2.1 million and $1.6 million at June 30, 1999 and 1998, respectively, represent incremental direct selling costs to be recognized in future periods. GENERAL LIABILITY INSURANCE. Commencing July 1, 1998, the Company obtained insurance covering general liability losses up to an annual limit of $27.0 million, with no self-insured deductible. Prior to this date, the Company's insurance program covered general liability losses up to an annual limit of $26.8 million, but required the Company to pay the first $250,000 per occurrence, with an annual aggregate exposure of $2.0 million. The Company has provided a liability for estimated known and unknown claims related to uninsured general liability risks based on actuarial estimates. In fiscal 1998, the Company reduced this Page 27 28 liability by $858,000 because the estimated losses were less than the recorded liability. This adjustment amount is included in nonrecurring income. At June 30, 1999 and 1998, the Company's recorded liability for estimated losses related to uninsured general liability claims totaled $1.1 million and $1.2 million, respectively. PROPERTY INSURANCE. In fiscal 1998, the Company received proceeds of $1.1 million from insurance settlements for flood and fire damage at certain campgrounds, and recognized a gain of $588,000, which was recorded as nonrecurring income. EMPLOYEE HEALTH INSURANCE. The Company provides medical and dental benefits for its employees under employee benefit plans (collectively, the "Plans") that are funded primarily through employer and employee contributions. The Company has purchased stop loss insurance that protects the Plans against claims in excess of set policy amounts. The Company has provided a liability for estimated uninsured claims of $907,000 and $828,000 at June 30, 1999 and 1998, respectively. This liability is based on actuarial estimates of amounts needed to fund expected uninsured claims, as well as premium payments and administrative costs of the Plans. WORKERS' COMPENSATION INSURANCE. Commencing July 1, 1998, the Company obtained insurance covering workers' compensation claims with no self-insured deductible. Prior to this date, the Company's insurance program required the Company to pay up to $250,000 per occurrence and to deposit funds with the insurance company to pay claims in excess of the estimated claims that were covered by the amounts originally paid by the Company. These deposits were generally expensed in the years the deposits were made because the Company anticipated that the deposits would be used to cover claims. However, during fiscal 1997, the Company determined that it was entitled to refunds of $865,000 in future periods for deposits made in previous years. At June 30, 1997, the Company recorded the refundable amount as an asset, resulting in nonrecurring income of $865,000. In fiscal 1998, the Company received refunds totaling $1.3 million for other deposits expensed in previous years, which were recorded as nonrecurring income. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. The Financial Accounting Standards Board (the "FASB") has issued several accounting pronouncements that were effective for the Company in either fiscal 1998 or fiscal 1999. The Company adopted SFAS No. 128, "Earnings Per Share," in the second quarter of fiscal 1998, which modified the Company's net income per share calculation and required restatement of prior period calculations. The Company adopted SFAS No. 130, "Reporting Comprehensive Income," in the first quarter of fiscal 1999, and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," and SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits," at the end of fiscal 1999. The adoption of these statements did not have a material impact on the Company's consolidated financial statements. The FASB has issued SFAS No. 133, "Accounting for Derivative and Similar Financial Instruments for Hedging Activities," which is not expected to have a material impact on the Company's financial position, when adopted, because the Company does not currently use derivative instruments. The FASB has also issued SFAS No. 134, "Accounting for Mortgage-Backed Securities," which, when adopted, is not expected to have a material impact on the Company's disclosures, financial conditions, or operations. Page 28 29 MARKET RISK. In 1997, the SEC issued new rules (Item 305 of Regulation S-K), which require disclosure of material risks, as defined in Item 305, related to market risk sensitive financial instruments. As defined, the Company currently has market risk sensitive instruments related to interest rates. The Company does not have significant exposure to changing interest rates on invested cash, which declined from $12.0 million at June 30, 1998 to zero at June 30, 1999. The Company invests available cash in certificates of deposit and investment grade commercial paper that have maturities of three months or less. As a result, the interest rate market risk implicit in these investments at any given time is low, as the investments mature within three months. The Company had $3.4 million of contracts receivable at June 30, 1999, which have a weighted average stated interest rate of 13% and an average remaining term of 15 months. The Company does not have significant exposure to changing interest rates related to the contracts receivable because the interest rates on the contracts receivable are fixed. As of June 30, 1999, the Company had $10.9 million of outstanding borrowings under the Credit Agreement with Foothill, which accrue interest at rates that fluctuate with changes in the prime rate (see "Borrowings - Credit Agreement with Foothill"). Under the Credit Agreement, the Company could borrow an additional $4.0 million for working capital purposes and up to an additional $10.0 million to use for the possible acquisition of members through the purchase of other membership campground operations. The Company has exposure to changing interest rates related to the Credit Agreement because increases in interest rates would increase the Company's interest expense on these borrowings. The Company has not undertaken any actions to cover interest rate market risk and is not a party to any interest rate market risk management activities. The Company also receives revenues from its Canadian subsidiary and exchanges them into US Dollars at exchange rates that fluctuate with market conditions; however, such revenues are not material to the Company's operations. INTEREST RATE SENSITIVITY. A hypothetical ten percent change in market interest rates over the next year would not materially impact the Company's earnings or cash flow. At the level of borrowings in place at June 30, 1999, a hypothetical ten percent change in market interest rates over the next year would increase the Company's interest expense by approximately $100,000. A hypothetical ten percent change in market interest rates would not have a material effect on the fair value of the Company's contracts receivable, its borrowings under the Credit Agreement with Foothill, or its short-term cash investments. RESULTS OF OPERATIONS The following discussion and analysis are based on the historical results of operations of the Company for the years ended June 30, 1999, 1998, and 1997. The financial information set forth below should be read in conjunction with the Company's consolidated financial statements included in Item 8. NET INCOME. For the year ended June 30, 1999, the Company reported net income of $5.6 million or $0.66 per diluted share on revenues of $67.9 million. This compares with net income of $24.9 million or $2.96 per diluted share on revenues of $75.5 million for the year Page 29 30 ended June 30, 1998, and net income of $6.8 million or $0.88 per diluted share on revenues of $77.2 million for the year ended June 30, 1997. Excluding the impact of gains on assets sales, nonrecurring income, and the income tax provision, the Company's revenues declined only slightly in fiscal 1999, compared with fiscal 1998, while its expenses remained approximately the same. The fiscal 1999 results include an income tax provision of $2.3 million and gains on asset sales of $1.1 million, compared with the fiscal 1998 results, which include an income tax benefit of $9.2 million, gains on asset sales of $5.3 million, and nonrecurring income of $2.8 million. The income tax benefit in fiscal 1998 resulted from a $10.0 million reduction in the valuation allowance for the Company's net deferred tax assets. The results for fiscal 1997 include $1.5 million of nonrecurring income, $1.1 million of restructuring costs related to the restructuring of the Secured Notes, and $132,000 of nonrecurring expenses. The table on the following page shows separately the results of the campground operations, Wilderness Management's operations, and RPI's operations, without any allocation of corporate expenses, as well as corporate expenses and other revenues and expenses in the aggregate, for the years ended June 30, 1999, 1998, and 1997. Page 30 31 THOUSAND TRAILS, INC. AND SUBSIDIARIES SUMMARY OF OPERATING RESULTS (Dollars in thousands)
Year ended June 30, ------------------------------------------ 1999 1998 1997 ------- ------- ------- CAMPGROUND OPERATIONS Membership dues $36,455 $37,330 $39,945 Campground revenues 15,585 14,634 14,208 Cost of campground revenues (7,401) (6,317) (6,665) Operating expenses (29,998) (30,686) (32,375) ------- ------- ------- Contribution from campground operations 14,641 14,961 15,113 ------- ------- ------- SALES Sales revenues 3,959 3,227 2,892 Selling expenses (3,712) (2,646) (2,654) Marketing expenses (2,046) (1,700) (1,383) ------- ------- ------- Loss on sales (1,799) (1,119) (1,145) ------- ------- ------- WILDERNESS MANAGEMENT Revenues 2,271 1,321 1,094 Expenses (2,135) (1,509) (1,022) ------- ------- ------- Contribution from Wilderness Management 136 (188) 72 ------- ------- ------- RESORT PARKS INTERNATIONAL Revenues 3,576 4,035 4,086 Expenses (1,963) (2,132) (1,978) ------- ------- ------- Contribution from RPI 1,613 1,903 2,108 ------- ------- ------- Other income 2,682 3,083 3,673 Corporate member services (1,253) (1,472) (1,532) General and administrative expenses (8,964) (8,640) (10,100) Other (243) 95 (29) ------- ------- ------- INCOME BEFORE INTEREST INCOME AND EXPENSE, GAIN ON ASSET SALES, REDUCTION IN THE ALLOWANCE FOR DOUBTFUL ACCOUNTS, NONRECURRING INCOME AND EXPENSES, RESTRUCTURING COSTS, AND TAXES 6,813 8,623 8,160 ------- ------- ------- Interest income 2,068 2,635 3,726 Interest expense (2,957) (4,599) (9,084) Gain on asset sales 1,105 5,287 2,892 Reduction in allowance for doubtful accounts 886 1,000 1,232 Nonrecurring income 2,770 1,476 Nonrecurring expenses (132) Restructuring costs (1,101) ------- ------- ------- INCOME BEFORE TAXES $ 7,915 $15,716 $ 7,169 ======= ======= =======
Page 31 32 OPERATING INCOME. During the year ended June 30, 1999, the Company achieved a positive contribution from operations of $6.8 million, compared with $8.6 million and $8.2 million in the years ended June 30, 1998 and 1997, respectively. Operating income declined in fiscal 1999, compared with fiscal 1998 and 1997, because of small declines in the contributions from campground operations and RPI, an increase in sales and marketing expenses as a percentage of sales, HUD-related expenditures made at one resort, and a slight decline in other income. For this purpose, the contribution from operations is defined as income before interest income and expense, gain on asset sales, reduction in the allowance for doubtful accounts, nonrecurring income and expenses, restructuring costs, and taxes. See the table on page 31 for the elements of the contribution from operations and the Company's 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 $36.5 million for the year ended June 30, 1999, compared with $37.3 and $39.9 million for the years ended June 30, 1998 and 1997, respectively. Dues revenue declined in fiscal 1999 and 1998, compared with the prior year, because of the net loss of campground members each year. These declines were partially offset by the effect of the annual dues increase. Campground revenues were $15.6 million for the year ended June 30, 1999, compared with $14.6 million and $14.2 million for the years ended June 30, 1998 and 1997, respectively. The related expenses were $7.4 million, $6.3 million, and $6.7 million for fiscal 1999, 1998, and 1997, respectively. The increase in campground revenues in fiscal 1999 was due primarily to greater emphasis on ancillary revenue programs at the campgrounds, partially offset by lower revenues from harvesting timber at selected campgrounds. The increase in related expenses in fiscal 1999 was primarily due to higher labor costs. The increase in campground revenues in fiscal 1998 was due primarily to modest increases in rental and other service fees at certain campgrounds and revenues from harvesting timber. Campground operating expenses were $30.0 million for the year ended June 30, 1999, compared with $30.7 million for the year ended June 30, 1998 and $32.4 million for the year ended June 30, 1997. The decrease in expenses in fiscal 1999 was due primarily to lower maintenance costs at the campgrounds, partially offset by higher field labor costs. The decrease in expenses in fiscal 1998 was due primarily to the closure and disposition of campgrounds and to operational changes made at the campgrounds in fiscal 1998 and 1997. The Company intends to continue to keep the size of its campground system in an appropriate relation to the size of its membership base. In this regard, if the membership base continues to decline, the Company may close and dispose of additional campgrounds and it will seek to decrease other expenses. 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. Page 32 33 The Company recognizes revenue from the sale of campground memberships that do not convey a deeded interest in real estate on a straight-line basis over the expected life of the memberships sold. For the years ended June 30, 1999, 1998, and 1997, the Company recognized campground membership sales revenues of $4.0 million, $3.2 million, and $2.9 million, respectively. These amounts include revenues of $3.1 million, $2.5 million, and $1.7 million, respectively, that were deferred in prior periods. Moreover, for fiscal 1999, 1998, and 1997, the Company deferred revenues of $4.6 million, $3.1 million, and $2.1 million, respectively, which will be recognized in future periods. The increase in sales revenues resulted primarily from the Company's increased sales and marketing efforts during the past three fiscal years. The Company has expanded its sales and marketing efforts with a view to stopping the decline in its membership base. Although the Company's membership sales revenues have increased, the level of sales has not met the Company's expectations. In an effort to improve its membership sales, the Company has focused its sales efforts primarily on guests referred by existing members and customers referred by RV dealers and RV manufacturers, who management believes are more likely to purchase memberships. 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 years ended June 30, 1999, 1998, and 1997, the Company recognized selling expenses of $3.7 million, $2.6 million, and $2.7 million, respectively. These amounts include expenses of $730,000, $560,000, and $358,000, respectively, that were deferred in prior periods. Moreover, for fiscal 1999, 1998, and 1997, the Company deferred expenses of $1.2 million, $794,000, and $505,000, respectively, which will be recognized in future periods. Although the Company's sales results are improving, selling and marketing expenses exceeded sales revenues by $1.8 million, $1.1 million, and $1.1 million, for the years ended June 30, 1999, 1998, and 1997, respectively. These expenses exceeded sales revenue because of the increased marketing activity, and the relatively low volume of sales, which did not cover fixed costs. In addition, the Company deferred more sales revenues than selling expenses in each of 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 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 revenues. This disparity will increase as the Company grows campground membership sales. The Company's selling and marketing efforts during the past three fiscal years have not produced the level of sales needed to stop the continuing decline in the Company's membership base. If the Company is not able to significantly increase its campground membership sales over current levels or acquire members through the purchase of other membership campground operations, the membership base will continue to decline, which will further decrease the Company's revenues. Further decreases in revenues that are not offset by sufficient expense reductions could have a material adverse impact on the Company's business and results of operations. Page 33 34 CAMPGROUND MANAGEMENT. Wilderness Management, a wholly owned subsidiary of the Company, manages 169 public campgrounds for the US Forest Service. For the year ended June 30, 1999, these operations produced revenues of $2.3 million with related expenses (excluding certain shared administrative costs) of $2.1 million. This compares with revenues for fiscal 1998 of $1.3 million and related expenses (excluding certain shared administrative costs) of $1.5 million, and revenues for fiscal 1997 of $1.1 million and related expenses (excluding certain shared administrative costs) of $1.0 million. The increase in revenues and expenses between years was due primarily to new contracts entered into in these periods. The loss in fiscal 1998 was due to start-up costs incurred in connection with new management contracts entered into in the Spring of 1998, which significantly increased the number of campgrounds managed. RESORT PARKS INTERNATIONAL. RPI charges its members a fee for a membership that entitles them to use any of the campgrounds participating in RPI's reciprocal use system, subject to certain limitations. For the year ended June 30, 1999, RPI's operations produced a net contribution of $1.6 million, compared with $1.9 million for the year ended June 30, 1998, and $2.1 million for the year ended June 30, 1997. The decline in results from year to year was due primarily to a decrease in revenues between periods. RPI's revenues have declined over the three year period as a result of declining sales in the membership camping industry. During this period, however, RPI has been able to maintain its positive contribution by reducing its expenses. To maintain its 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. OTHER INCOME. Other income generally consists of transfer fees received when existing memberships are transferred in the secondary market without assistance from the Company, collections on written-off contracts and delinquent dues, subscription fees received from members who subscribe to the Company's member magazine, and fees charged to members for making more than five operator-assisted reservations in a given year. Other income was $2.7 million for the year ended June 30, 1999, compared with $3.1 million for the year ended June 30, 1998, and $3.7 million for the year ended June 30, 1997. The decrease between years is directly related to lower fees and other income received from the declining contracts receivables portfolio and shrinking membership base. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were $9.0 million for the year ended June 30, 1999, compared with $8.6 million for the year ended June 30, 1998, and $10.1 million for the year ended June 30, 1997. General and administrative costs increased in fiscal 1999 as a result of costs incurred to explore new business opportunities. The lower costs in fiscal 1998 were due primarily to personnel reductions in various administrative departments, lower legal fees, and reduced depreciation, as certain of the Company's corporate assets have been fully depreciated. General and administrative expenses include costs related to collecting the contracts receivable and membership dues of $2.1 million, $2.2 million, and $2.4 million for the years ended June 30, 1999, 1998, and 1997, respectively. These collection costs were reduced by $136,000, $229,000, and $314,000, respectively, as a result of the amortization of the allowance for collection costs related to the contracts receivable (see "Liquidity and Capital Resources -- Contracts Receivable"). The Company anticipates that these costs will Page 34 35 continue to decrease as the contracts receivable portfolio declines further; however, costs could increase if the volume of financed new sales increases. CORPORATE MEMBER SERVICES. Corporate member services include the reservation and member support services performed at the corporate office, as well as the costs incurred to produce the Company's member magazine. These costs were $1.3 million for the year ended June 30, 1999, compared with $1.5 million for the years ended June 30, 1998 and 1997. The decrease in costs in fiscal 1999 was due primarily to reductions in personnel. INTEREST INCOME AND EXPENSE. Interest income declined to $2.1 million for the year ended June 30, 1999, from $2.6 million for the year ended June 30, 1998 and $3.7 million for the year ended June 30, 1997. The decrease in fiscal 1999 and 1998 was due primarily to a decrease in interest earned on the Company's diminishing portfolio of contracts receivable, partially offset by an increase in interest earned on higher cash balances. Also included in interest income is amortization of the allowance for interest discount and valuation allowance related to the contracts receivable, of which $181,000 was amortized during fiscal 1999, $293,000 was amortized during fiscal 1998, and $379,000 was amortized during fiscal 1997 (see "Liquidity and Capital Resources -- Contracts Receivable"). The interest discount and valuation allowances are expected to be fully amortized by June 30, 2000. Interest expense decreased by $1.6 million for the year ended June 30, 1999, compared with the prior year, due primarily to the redemption of the PIK Notes on December 15, 1998 and subsequent reductions in the borrowings under the Credit Agreement with Foothill which were used to partially fund the redemption. The Company reduced its outstanding debt, including accrued interest on the PIK Notes, by $23.9 million during fiscal 1999. At June 30, 1999, the Company's borrowings under the Credit Agreement were $10.9 million. Interest expense will continue to decline in the future if the Company is able to continue to reduce borrowings under the Credit Agreement. However, the Company's ability to reduce such borrowings will be limited if new members elect to finance their memberships, and borrowings would likely increase if the Company successfully acquires new members through the purchase of other membership campground operations. Interest expense decreased by $4.5 million in fiscal 1998, from the prior year, due primarily to the repayment of $14.7 million of outstanding debt during the year. Interest expense for the year ended June 30, 1999, includes amortization of the deferred gain related to the PIK Notes, which reduced interest expense by $150,000, including $138,000 in deferred gain which had not been amortized when the PIK Notes were redeemed. Interest expense for the year ended June 30, 1998 includes $30,000 in amortization of the deferred gain. Interest expense for the year ended June 30, 1997 includes (i) amortization of debt issue costs incurred in connection with obtaining the Credit Agreement in July 1996, which increased interest expense by $1.8 million, and (ii) amortization of the deferred gain related to the PIK Notes, which reduced interest expense by $39,000. The remaining unamortized balance of the debt issue costs and a portion of the deferred gain were eliminated in connection with an amendment of the Credit Agreement and repurchase of PIK Notes at the end of fiscal 1997. GAINS ON ASSET SALES. During the years ended June 30, 1999, 1998, and 1997, the Company sold certain of its real estate assets and recognized related gains of $1.1 million, $5.3 million, and $2.9 million, respectively. The differences between years were due to the timing of asset Page 35 36 sales. During this three-year period, the Company sold various properties at resorts not related to the campground operations. In addition, the Company sold several campgrounds, excess acreage, and unused buildings and trailers. Over the next several years, the Company intends to dispose of the remaining land that it holds for sale, any campgrounds that are closed if the Company downsizes, and other undeveloped, excess acreage associated with the campgrounds. The sale of campgrounds requires addressing the rights of members associated with such campgrounds. The impact of these rights is uncertain and could adversely affect the availability or timing of sale opportunities or the ability of the Company to realize recoveries from asset sales. In addition, although the Company has successfully sold assets during the past three years, no assurance exists that the Company will be able to locate a buyer for any of the remaining assets or that sales on acceptable terms can be effected. REDUCTION IN THE ALLOWANCE FOR DOUBTFUL ACCOUNTS. In fiscal 1999, 1998, and 1997, the Company reduced the allowance for doubtful accounts on the contracts receivable by $886,000, $1.0 million, and $1.2 million, respectively. These adjustments were made because the Company experienced lower contract losses than anticipated in these years (see "Liquidity and Capital Resources -- Contracts Receivable"). NONRECURRING INCOME. Nonrecurring income was $2.8 million and $1.5 million for the years ended June 30, 1998, and 1997, respectively. Nonrecurring income for fiscal 1998 consisted of $858,000 from a reduction in certain insurance reserves, $1.3 million from the refund of insurance deposits made in prior years, and a $588,000 gain on insurance settlements for flood and fire damage at certain campgrounds. Nonrecurring income for fiscal 1997 consisted of $1.5 million from a reduction in certain insurance reserves. Prior to 1996, the Company's workers' compensation insurance premium was subject to an experience audit and retroactive adjustment. Historically, this audit required payment of an additional retroactive premium. Therefore, a liability would be recorded based on the historical amounts the Company was required to pay. At year end 1996, however, the Company changed its workers' compensation insurance program such that its premiums would not be adjusted retroactively. The then-existing recorded contingent liability of $799,000 was accordingly reversed. Prior to fiscal 1997, due to the Company's financial condition, its insurance carrier required deposits in an amount to cover, in part, the additional retroactive premium historically experienced. The Company had expensed these deposits principally because the historical experience audit results required it to pay an additional premium in excess of the deposits. In addition, the Company's insurance carrier experienced financial difficulties, which called into question the Company's ability to recover prior years' deposits even if owed. During fiscal 1997, the Company's insurance carrier determined that it had excess amounts on deposit for premiums as much as five years earlier and returned $865,000 to the Company. The Company recorded this as non-recurring income in fiscal 1997. In fiscal 1998, the Company received refunds of $1.3 million for workers' compensation insurance deposits, which were also recorded as non-recurring income. The Company reduced its insurance reserves for its self-insured employee health insurance program by $611,000 in fiscal 1997. These reserves had been based on an actuarial analysis for employee pools of similar size. As the claims history developed, the Company experienced a lower claims history than expected. In fiscal 1997, the Company's reserve exceeded its claims history by $1 million. The Company determined the actuarial-based reserve to be excessive. Accordingly, the Company reduced its reserve by $611,000 to Page 36 37 eliminate the excess of the amounts accrued for the two previous fiscal years over the amount of actual claims. In fiscal 1998, the Company received an insurance settlement for flood and fire damage at certain campgrounds, which amount was $588,000 in excess of the Company's basis in the damaged assets and the cost of repair. This was recorded as nonrecurring income. In fiscal 1998, the Company retained an actuarial firm to analyze its general liability insurance reserves. On the basis of such analysis, the Company determined that its recorded liabilities for anticipated losses under its uninsured deductible were excessive by $858,000 and reduced the reserves. NONRECURRING EXPENSES AND RESTRUCTURING COSTS. In fiscal 1997, the Company had $132,000 of nonrecurring expenses. On May 16, 1997, the Company and Foothill entered into an amendment to the Credit Agreement that significantly modified its original terms. The Company incurred debt issue costs of $3.1 million to obtain the original Credit Agreement, which were capitalized and were being amortized as additional interest expense over the life of the Credit Agreement. However, because of the substantial modifications made to the original Credit Agreement, this amendment of the Credit Agreement was accounted for as an extinguishment of debt and the remaining $1.3 million unamortized balance of the original debt issue costs was charged to expense. This $1.3 million expense was reduced by a $1.2 million gain resulting from repurchasing PIK Notes at a discount. In fiscal 1997, the Company also incurred $1.1 million of costs in connection with the restructuring of the Secured Notes (see "Liquidity and Capital Resources - Debt Restructurings"). INCOME TAXES. The Company's current provision for income taxes was $40,000, $837,000, and $370,000 for the years ended June 30, 1999, 1998, and 1997, respectively. The provision for fiscal 1999 relates primarily to state income taxes payable in the various states where the Company conducts its operations. The provisions for fiscal 1998 and 1997 include amounts for federal alternative minimum taxes, as well as amounts for state income taxes. With the exception of the alternative minimum tax amounts, the Company does not have federal income taxes payable on a consolidated basis due to its net operating tax loss carryforwards, which are estimated to total $27.4 million at June 30, 1999, and expire in years 2009 through 2014. Prior to net operating loss deductions, the Company had a taxable loss of $1.9 million in fiscal 1999 and taxable income of $22.8 million and $4.6 million in fiscal 1998 and 1997, respectively. The tax provision for the year ended June 30, 1999 also includes a net deferred tax provision of $2.3 million, which consists of $2.7 million in deferred income tax expense and a $401,000 deferred income tax benefit resulting from a reduction in the valuation allowance for the Company's net deferred tax assets. The tax provision for the year ended June 30, 1998 also includes a $10.0 million deferred income tax benefit resulting from a reduction in the valuation allowance for the Company's net deferred tax assets (see Note 7 to the consolidated financial statements included in Item 8). The adjustment will have no effect on current or future income tax payments, but will result in higher future tax provisions in the periods the related deferred tax assets are realized. The Company reduced the valuation allowance in fiscal 1998 because it expects to generate sufficient taxable income over the next five years to realize the net deferred tax asset. No increases in current levels of income Page 37 38 are required to do so. Although the Company has experienced a declining membership base, it does not expect the net effect of such decline to prevent the realization of the net deferred tax asset over such period. INFLATION. During the past three fiscal years, the Company's results have not been affected materially by inflation. However, should the rate of inflation increase in the future, the Company's expenses are likely to increase at a greater rate than it can increase the annual dues paid by 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 (see "Campground Operations - Dues"). IMPACT OF YEAR 2000. Based on recent assessments, the Company has determined that it must modify certain software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The Company presently believes that by modifying existing software, the Company's computer systems will not experience material operational problems as a result of the year 2000 issue. However, if such modifications are not made, or are not timely completed, the year 2000 issue could have a material adverse impact on the operations of the Company. The most significant disruption would impact member billings and collections and campground reservations. In addition, although the Company does not have any significant suppliers whose timely compliance would impact the Company, the Company utilizes a number of financial institutions that are highly dependent upon the proper function of their computer systems. The Company's depository and treasury functions could be disrupted if these financial institutions do not become year 2000 compliant within the required timeframe. The Company will primarily utilize internal resources to modify existing software to address the year 2000 issue. The Company anticipates completing the year 2000 project by November 15, 1999. These modifications, if timely completed, will avoid any material impact on its operating systems. The Company spent approximately $215,000 during the year ended June 30, 1999 on year 2000 modifications, and estimates that it will spend an additional $50,000 to make the necessary modifications to its software. These expenditures will not significantly impact the Company's financial position, operations, or cash flows. The Company does not presently have a formal contingency plan because it believes the necessary modifications will be completed in the required timeframe. However, should it become evident that the year 2000 modifications will not be completed on a timely basis, the Company will explore alternatives to employ until such time as the year 2000 modifications are completed. The costs of the project and the date on which the Company believes it will complete the year 2000 modifications are based on management's best estimates which were derived utilizing numerous assumptions of future events. However, there can be no assurance that these estimates and timetable will be achieved, and actual results could differ materially from those anticipated. Page 38 39 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK A derivative financial instrument includes futures, forwards, interest rate swaps, option contracts, and other financial instruments with similar characteristics. The Company currently does not have any derivative financial instruments. However, the Company does have other financial instruments containing market risk. Management believes that the market risk associated with the Company's financial instruments as of June 30, 1999 is not significant. The information required by Item 305 of S-K is contained in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the headings "Market Risk" and "Interest Rate Sensitivity." Page 39 40 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements Index Page ---- Report of Independent Public Accountants..............................................................41 Consolidated Balance Sheets -- June 30, 1999 and 1998.................................................42 Consolidated Statements of Operations for the years ended June 30, 1999, 1998 and 1997.......................................................................43 Consolidated Statements of Shareholders' Equity (Deficit) for the years ended June 30, 1999, 1998 and 1997...................................................44 Consolidated Statements of Cash Flows for the years ended June 30, 1999, 1998 and 1997.....................................................................45 Notes to Consolidated Financial Statements............................................................47 Financial Statement Schedule: Schedule II -- Valuation and Qualifying Accounts.............................................74
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. Page 40 41 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Thousand Trails, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of Thousand Trails, Inc. (a Delaware corporation) and subsidiaries (the "Company") as of June 30, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for each of the three years in the period ended June 30, 1999. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Thousand Trails, Inc. and subsidiaries as of June 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplemental Schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. s/ Arthur Andersen LLP Dallas, Texas September 3, 1999 Page 41 42 THOUSAND TRAILS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
June 30, ----------------------------- ASSETS 1999 1998 ------- ------- CURRENT ASSETS Cash and cash equivalents $ 2,197 $13,631 Current portion of receivables, net of allowances and discount of $.7 million in 1999 and $1.1 million in 1998 1,402 2,440 Current portion of deferred membership selling expenses 693 538 Current portion of net deferred tax assets 2,061 2,954 Other current assets 2,048 1,890 ------- ------- Total Current Assets 8,401 21,453 Restricted cash 1,240 1,171 Receivables, net of allowances and discount of $.5 million in 1999 and $1.6 million in 1998 782 1,741 Campground land 13,200 13,338 Buildings and equipment, net of accumulated depreciation of $17.5 million in 1999 and $15.0 million in 1998 20,829 21,879 Land held for sale 2,987 3,866 Deferred membership selling expenses 1,372 1,087 Net deferred tax assets 5,635 7,046 Other assets 2,358 2,681 ------- ------- Total Assets $56,804 $74,262 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 1,666 $ 2,037 Accrued interest 110 1,805 Other accrued liabilities 6,148 6,410 Current portion of long term debt 2,100 Accrued construction costs 1,888 2,845 Current portion of deferred revenue 19,098 18,851 ------- ------- Total Current Liabilities 31,010 31,948 Long term debt 8,787 32,973 Deferred revenue 5,627 4,588 Other liabilities 1,732 1,999 ------- ------- Total Liabilities 47,156 71,508 ------- ------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock, $.01 par value, 1,500,000 shares authorized, none issued and outstanding Common Stock, $.01 par value, 15,000,000 shares authorized, 8,096,128 and 7,437,083 shares issued and outstanding in 1999 and 1998, respectively, after deducting 3,200 shares held in Treasury in 1999 81 74 Additional paid-in capital 21,869 20,551 Accumulated deficit subsequent to December 31, 1991, date of emergence from bankruptcy (12,163) (17,734) Accumulated other comprehensive loss (139) (137) ------- ------- Total Shareholders' Equity 9,648 2,754 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $56,804 $74,262 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. Page 42 43 THOUSAND TRAILS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars and shares in thousands, except per share amounts)
For the years ended June 30, ---------------------------------------------- 1999 1998 1997 -------- -------- -------- REVENUES Membership dues $ 36,455 $ 37,330 $ 39,945 Other campground/resort revenue 17,954 16,475 17,906 Membership and lot sales 4,085 3,894 3,477 RPI membership fees 3,576 4,035 4,086 Interest income 2,068 2,635 3,726 Gain on asset sales 1,105 5,287 2,892 Nonrecurring income 2,770 1,476 Other income 2,682 3,083 3,673 -------- -------- -------- Total Revenues 67,925 75,509 77,181 -------- -------- -------- EXPENSES Campground/resort operating expenses 39,926 39,152 42,860 Selling expenses 3,787 3,098 3,074 Marketing expenses 2,046 1,700 1,383 RPI membership expenses 1,963 2,132 1,978 Corporate member services 1,253 1,472 1,532 Interest expense and amortization 2,957 4,599 9,084 General and administrative expenses 8,964 8,640 10,100 Reduction in allowance for doubtful accounts (886) (1,000) (1,232) Restructuring costs and nonrecurring expenses 1,233 -------- -------- -------- Total Expenses 60,010 59,793 70,012 -------- -------- -------- INCOME BEFORE INCOME TAXES 7,915 15,716 7,169 Income tax provision - current (40) (837) (370) Income tax benefit (expense) - deferred (2,304) 10,000 -------- -------- -------- NET INCOME $ 5,571 $ 24,879 $ 6,799 ======== ======== ======== NET INCOME PER SHARE - BASIC $ .73 $ 3.36 $ .94 ======== ======== ======== NET INCOME PER SHARE - DILUTED $ .66 $ 2.96 $ .88 ======== ======== ======== SHARES USED TO CALCULATE NET INCOME PER SHARE: BASIC 7,630 7,407 7,223 ======== ======== ======== DILUTED 8,475 8,398 7,704 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Page 43 44 THOUSAND TRAILS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (Dollars in thousands)
Common Stock Accumulated --------------------------- Additional Other Number of Paid-In Accumulated Comprehensive Shares Amount Capital Deficit Loss Total --------- ------- ---------- ----------- ------------- ------- Balance, June 30, 1996 (restated) 3,702,726 37 17,549 (49,412) (126) (31,952) Issuance of common shares in restructuring of Secured Notes 3,680,550 37 2,953 2,990 Other Comprehensive Loss (5) (5) Net income 6,799 6,799 --------- Comprehensive Income 6,794 --------- ---------- ---------- ---------- ---------- --------- Balance, June 30, 1997 7,383,276 74 20,502 (42,613) (131) (22,168) Issuance of common shares from exercises of options and warrants 53,807 49 49 Other Comprehensive Loss (6) (6) Net income 24,879 24,879 --------- Comprehensive Income 24,873 --------- ---------- ---------- ---------- ---------- --------- Balance, June 30, 1998 7,437,083 74 20,551 (17,734) (137) 2,754 Issuance of common shares from exercises of options and warrants 662,245 7 1,332 1,339 Purchase of treasury stock (3,200) (14) (14) Other Comprehensive Loss (2) (2) Net income 5,571 5,571 --------- Comprehensive Income 5,569 --------- ---------- ---------- ---------- ---------- --------- Balance, June 30, 1999 8,096,128 $ 81 $ 21,869 $ (12,163) $ (139) $ 9,648 ========= ========== ========== ========== ========== =========
The accompanying notes are an integral part of these consolidated financial statements. Page 44 45 THOUSAND TRAILS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
For the years ended June 30, ---------------------------------------------- 1999 1998 1997 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Collections of principal on receivables $ 4,167 $ 5,760 $ 7,978 Interest received 1,909 2,371 3,407 Interest paid (2,988) (822) (8,107) General and administrative, corporate member services and restructuring costs (10,233) (10,123) (14,061) Cash collected from operations, including deferred revenue 61,590 62,353 65,894 Cash from sales of memberships and lots at the point of sale 4,424 3,703 3,705 Expenditures for property operations (38,269) (37,908) (40,872) Expenditures for sales and marketing (6,151) (4,742) (4,472) Expenditures for insurance premiums (2,038) (772) (1,706) Payment of income taxes (507) (700) (370) Reduction of letter of credit 1,500 Other, net (69) 236 (345) -------- -------- -------- Net cash provided by operating activities 11,835 19,356 12,551 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital and HUD-related expenditures (2,935) (2,085) (1,046) Proceeds from asset sales 2,246 8,550 4,663 Proceeds from insurance settlements 1,119 -------- -------- -------- Net cash provided by (used in) investing activities (689) 7,584 3,617 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net repayments under Credit Agreement (13,113) (14,097) (30,543) Repayments of notes and mortgages (604) (384) Borrowings under Credit Agreement 24,000 44,640 Retirement of Secured Notes (50,169) Retirement of PIK Notes (34,792) Payment of debt issue costs (3,132) Repurchase of long term debt (12,640) Purchase of Treasury Stock (14) Issuance of Common Stock 1,339 49 -------- -------- -------- Net cash used in financing activities (22,580) (14,652) (52,228) -------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,434) 12,288 (36,060) CASH AND CASH EQUIVALENTS: Beginning of year 13,631 1,343 37,403 -------- -------- -------- End of year $ 2,197 $ 13,631 $ 1,343 ======== ======== ========
(continued) Page 45 46 THOUSAND TRAILS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (continued)
For the years ended June 30, ---------------------------------------------- 1999 1998 1997 -------- -------- -------- RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income $ 5,571 $ 24,879 $ 6,799 -------- -------- -------- ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES- Depreciation 2,604 2,538 3,195 Amortization of interest yield, collection costs and valuation allowance (316) (523) (693) Amortization of PIK Note deferred gain (150) (30) (39) Amortization of debt issue costs, debt discount and consent fees 1,809 Gain on asset sales (1,105) (5,287) (2,892) Net deferral of sales revenues 1,522 640 465 Net deferral of selling expenses (441) (234) (147) Reduction of bad debt allowances, net (886) (1,000) (1,232) Reduction of insurance reserves (858) (611) Increase in insurance deposits (865) Gain on insurance settlements (588) Reduction of deferred tax valuation allowance (10,000) Deferred tax provision 2,304 Net loss on debt restructurings 132 CEO bonus payment (1,270) Decrease (increase) in restricted cash (69) 236 1,505 Decrease in receivables 2,929 4,773 7,592 Decrease in other assets 139 2,843 767 Increase (decrease) in other liabilities (462) 1,300 (2,077) Other, net 195 667 113 -------- -------- -------- Total adjustments 6,264 (5,523) 5,752 -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 11,835 $ 19,356 $ 12,551 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Page 46 47 THOUSAND TRAILS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- NATURE OF OPERATIONS Thousand Trails, Inc., a Delaware corporation, and its subsidiaries (the "Company") own and operate a system of 53 membership-based campgrounds located in 17 states and British Columbia, Canada. In addition, the Company provides a reciprocal use program for members of approximately 300 recreational facilities and manages 169 public campgrounds for the US Forest Service. Operating revenues consist primarily of membership dues received from campground members, fee revenue from members of the reciprocal use program, management fees from the campground management operations, and guest fees and revenues received from the campground and other operations. The accompanying consolidated financial statements include the accounts of Thousand Trails, Inc. and the following wholly owned subsidiaries: Coast Financial Services, Inc. ("Coast"), National American Corporation and its subsidiaries ("NACO"), Resort Parks International, Inc. ("RPI"), Thousand Trails (Canada), Inc., and UST Wilderness Management Corporation ("Wilderness Management"). In 1991, the Company acquired 100% of the capital stock of NACO and 69% of the capital stock of Thousand Trails, Inc., a Washington corporation ("Trails"). The Company subsequently increased its ownership in Trails to 100% and merged Trails into the Company. The acquisitions of NACO and Trails were accounted for as a purchase with the purchase price being allocated to the assets acquired and liabilities assumed based on their estimated fair value on the date of acquisition. RPI was a wholly owned subsidiary of NACO until 1992 when it became a direct subsidiary of the Company. Wilderness Management commenced operations in 1994 and Coast commenced operations in 1997. The Company emerged from proceedings under Chapter 11 of the Bankruptcy Code on December 31, 1991, pursuant to a confirmed plan of reorganization. Due to the Company's emergence from bankruptcy, the Company adopted fresh start reporting, under which a new reporting entity was created and assets and liabilities were restated to reflect their reorganization value which approximated fair value at the date of reorganization. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition The Company sells campground memberships pursuant to membership contracts that give purchasers the right to use one or more of the Company's campgrounds, but do not convey a deeded interest in the campgrounds. Until 1990, the Company also sold campground memberships that gave purchasers an undivided fractional interest in one of six campgrounds. A membership requires the payment of an upfront membership fee and permits the member's family to use one or more of the Company's campgrounds for an initial period, subject to renewal each year upon payment of annual dues. The Company also sell residential lots at three resorts not related to the campground operations. Page 47 48 The Company has offered financing on certain campground memberships for a period of up to 36 months with a down payment of at least 25% of the sales price. Beginning in January 1999, the minimum down payment was changed to $495, regardless of the sales price. The Company has also offered financing on the sale of lots for periods up to five years with a down payment of at least 10% of the sales price. However, during the periods presented, the majority of the Company's campground membership and lot sales were not financed for more than two years. Sales revenue from the sale of lots and campground memberships that convey a deeded interest in real estate is recognized upon execution of a sales contract and receipt of a down payment of at least 10% of the sales price. Historically, sales revenue from the sale of campground memberships that do not convey a deeded interest in real estate was recognized in the same manner. However, the Staff of the Securities and Exchange Commission (the "SEC") required the Company to change its accounting method, beginning with fiscal 1997, to recognize sales 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. In addition, costs directly related to the sale of such campground memberships are deferred and recognized as selling expenses on a straight-line basis over the expected life of the memberships sold. The annual dues paid by the campground members are used to fund the Company's operating expenses, including corporate expenses and the maintenance and operation of the campgrounds. The membership contracts generally permit the Company to increase annually the amount of each member's dues by either (i) the percentage increase in the consumer price index ("CPI") or (ii) the greater of 10% or the percentage increase in the CPI. The Company, however, may not increase the dues on existing contracts of senior citizens and disabled members who notify the Company of their age or disability and request that their dues be frozen. At the present time, approximately 35% of the members have requested that their dues be frozen because of their age or disability. The Company estimates that approximately 50% of the campground members are senior citizens eligible to request that their dues be frozen. The Company is unable to estimate when or if a significant number of these members will request that their dues be frozen in the future. Annual dues are recognized as revenue ratably over 12 months as services are provided, and are recorded net of an allowance to provide for uncollectible amounts. Dues paid in advance are deferred as unearned revenue. Cash and Cash Equivalents The Company considers demand accounts and short-term investments with maturities of three months or less when purchased to be cash equivalents. Restricted Cash Restricted cash generally consists of deposits to collateralize performance bonds and letters of credit in the ordinary course of business. Receivables Prior to June 30, 1991, the Company purchased contracts receivable from NACO and Trails and recorded them at the selling company's carrying value. In connection with the Company's acquisition of NACO and Trails and its emergence from bankruptcy in 1991, the Company recorded the contracts receivable at their fair value. As a result, the contracts then owned by NACO and Trails were recorded net of an allowance for interest discount to Page 48 49 increase the weighted average yield on the contracts to 14.75%, the current market yield at the time of the acquisition. The allowance for interest discount is being amortized using the effective interest method over the respective terms of the contracts. In addition, the Company recorded an allowance for future costs associated with the collection of the contracts receivable portfolio. This allowance is being amortized as a reduction of general and administrative expense based on cash collected on the related portfolio. The Company has also recorded a valuation allowance in connection with purchases of contracts receivable from third parties, to record the contracts receivable at the purchase price. The valuation allowance is being amortized over the respective terms of the contracts as an increase to interest income. Interest income is recognized on purchased contracts receivable based upon the effective yield at which they were purchased and on other contacts receivable at their stated rates based on the outstanding principal balances. Allowance for Doubtful Accounts The Company provides an allowance for future cancellations of contracts receivable. The allowance is based on management's estimate of future contract cancellations considering the Company's historical cancellation rates as well as other factors deemed relevant to the analysis. The allowance is reviewed on a periodic basis with changes in management's estimates recognized in the period known. The Company presently believes that the allowance for doubtful accounts is adequate. However, if cancellations occur at a different rate than is presently anticipated, it may be necessary for the Company to revise its estimates and increase or decrease the allowance, which would affect the Company's operating results and financial condition. Campground Land and Lot Inventory Campground land and lot inventory are recorded at the lower of cost or estimated net realizable value. While the Company sold campground memberships that conveyed an undivided interest in the campground property, the related campground property was charged to cost of sales based on the total number of memberships available for sale at the campground. Buildings, Equipment and Depreciation Buildings and equipment are recorded at cost. The costs of betterments and improvements which extend the useful life of the asset are capitalized whereas the costs of maintenance and repairs which do not extend the useful life of the asset are expensed in the period incurred. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets which range from three to thirty years. Consent Fees In fiscal 1994, to obtain an amendment of the Indenture for the 12% Secured Notes Due 1998, the Company paid aggregate cash consent fees which were capitalized and amortized over the term of the notes. The remaining unamortized balance of the consent fees was eliminated when these notes were retired in a restructuring that was completed on July 17, 1996 (see Note 6). Income Taxes The Company recognizes certain revenues and expenses in periods which differ for tax and financial reporting purposes. Page 49 50 Principles of Consolidation All significant intercompany transactions and balances have been eliminated in the accompanying consolidated financial statements as of and for the years ended June 30, 1999, 1998 and 1997. Use of Estimates The accompanying consolidated financial statements were prepared in conformity with generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Reclassifications Certain prior year amounts have been reclassified to conform with the current year presentation. Comprehensive Income Statement of Financial Accounting Standards ("SFAS") No. 130 requires the Company to classify items of other comprehensive income by their nature in its financial statements and to display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of its consolidated balance sheet. Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners, and includes certain items that were historically reported directly through equity as well as net income reported on the income statement. Currently, the Company's only item of other comprehensive income is its foreign currency translation adjustment. The Company translates the balance sheet of its Canadian subsidiary into US dollars at exchange rates in effect as of the balance sheet date. Profit and loss accounts are translated monthly at exchange rates in effect at that time. The following table provides statements of comprehensive income for the years ended June 30, 1999 and 1998, as if the statement had been implemented for the year ended June 30, 1998 (dollars in thousands):
For the year ended June 30, --------------------------- 1999 1998 ------ ------- Net Income $5,571 $24,879 Foreign Currency Translation Adjustment (2) (6) ------ ------- Comprehensive Income $5,569 $24,873 ====== =======
Net Income Per Share SFAS No. 128 replaced the calculation of primary and fully diluted net income per share with basic and diluted net income per share. Unlike primary net income per share, basic net income per share excludes any dilutive effects of common stock equivalents. Diluted earnings per share is similar to the previously reported fully diluted earnings per share and is computed by dividing net income by the weighted average number of common and common Page 50 51 equivalent shares outstanding, as determined by the treasury stock method. Net income per share amounts for all periods have been restated and presented to conform to the SFAS No. 128 requirements. The table below sets forth the information necessary to compute basic and diluted net income per share for the years ended June 30, 1999, 1998 and 1997, including a summary of the components of the numerators and denominators of basic and diluted net income per share computations for the periods presented (dollars and shares in thousands, except per share amounts):
Net Income Per Share for the years ended June 30, ----------------------------------------------- 1999 1998 1997 -------- ------- --------- Net Income $ 5,571 $24,879 $ 6,799 ======= ======= ======= Weighted Average Number of Shares - Basic 7,630 7,407 7,223 Dilutive Options 824 975 480 Dilutive Warrants 21 16 1 ------- ------- ------- Weighted Average Number of Shares - Diluted 8,475 8,398 7,704 ======= ======= ======= Net Income Per Share - Basic $ .73 $ 3.36 $ .94 ======= ======= ======= Net Income Per Share - Diluted $ .66 $ 2.96 $ .88 ======= ======= =======
Page 51 52 NOTE 3 -- RECEIVABLES CONTRACTS RECEIVABLE The components of contracts receivable as of June 30, 1999 and 1998, are summarized as follows (dollars in thousands):
June 30, ------------------------ 1999 1998 ------- ------- Contracts receivable -- Memberships/undivided interests $ 3,337 $ 6,425 Lots 80 401 ------- ------- 3,417 6,826 Allowance for doubtful accounts (1,027) (2,136) Allowance for interest discount (98) (234) Allowance for collection costs (98) (234) Valuation allowance (33) (78) ------- ------- 2,161 4,144 Interest receivable 23 37 ------- ------- $ 2,184 $ 4,181 ======= =======
Contracts Receivable Contracts receivable bear interest at rates which range generally from 9.5% to 16%, with a weighted average stated rate of 13% at June 30, 1999 and 1998. The obligor's weighted average equity in the contracts receivable at June 30, 1999 and 1998, was 80% and 75%, respectively. As of June 30, 1999, 97% of the campground members and 99% of the purchasers of lots had paid for their membership or lot in full. The Company has no obligation to refund moneys received or to provide further services to purchasers in the event a contract is canceled for the purchaser's nonperformance of contractual obligations. Contracts receivable related to undivided interests and lot sales are secured by deeds of trust on the related real estate. The Company does not require campground members to provide collateral or other security for related contracts receivable. Allowance for Doubtful Accounts In fiscal year 1999, 1998 and 1997, the Company reduced the allowance for doubtful accounts on the contracts receivable by $886,000, $1.0 million and $1.2 million, respectively. These adjustments were made because the Company experienced lower contract losses than anticipated in these years. The allowance for doubtful accounts is an estimate of the contracts receivable 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. 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. Page 52 53 Allowance for Interest Discount The allowance for interest discount had a remaining balance of $98,000 and $234,000 at June 30, 1999 and 1998, respectively. Amortization of the allowance for interest discount totaled $136,000, $221,000 and $267,000 for the years ended June 30, 1999, 1998 and 1997, respectively, which increased interest income. Allowance for Collection Costs The allowance for collection costs had a remaining balance of $98,000 and $234,000 at June 30, 1999 and 1998, respectively. Amortization of the allowance for collection costs totaled $136,000, $230,000 and $314,000 for the years ended June 30, 1999, 1998 and 1997, respectively, which decreased general and administrative expense. Valuation Allowance The valuation allowance had a balance of $33,000 and $78,000 at June 30, 1999 and 1998, respectively. Amortization of the valuation allowance totaled $45,000, $72,000 and $112,000 for the years ended June 30, 1999, 1998 and 1997, respectively, which increased interest income. At June 30, 1999, scheduled future receipts on contracts receivable are as follows (dollars in thousands):
Memberships and Undivided Interests Lots Total ------------- ------ ------ 2000 $2,069 $ 43 $2,112 2001 945 24 969 2002 287 10 297 2003 21 1 22 2004 6 1 7 Thereafter 9 1 10 ------ ------ ------ Total $3,337 $ 80 $3,417 ====== ====== ======
The Company operates 53 campgrounds located in 17 states and British Columbia, Canada. The largest volume of campground membership sales occurred at campgrounds located in California, and that is where the largest percentage of campground members reside (approximately 37%). As of June 30, 1999, the Company's contracts receivable from members who purchased memberships in the state of California totaled approximately $1.4 million. Page 53 54 NOTE 4 -- CAMPGROUND AND RESORT PROPERTIES Campground properties consisted of the following as of June 30, 1999 and 1998 (dollars in thousands):
June 30, ------------------------- 1999 1998 -------- -------- Land held for sale $ 2,917 $ 2,790 Campground land at campgrounds where right-to-use memberships are sold 11,129 11,257 Campground land at campgrounds where undivided interests were sold 2,071 2,071 Property and equipment 38,171 36,507 Construction in progress 149 319 Accumulated depreciation (17,496) (14,953) -------- -------- $ 36,941 $ 37,991 ======== ========
The Company sells campground memberships that give members the right to use one or more of the Company's campgrounds but do not convey a deeded interest in the campgrounds. Until 1990, the Company also sold campground memberships that gave members a deeded undivided interest in one of six campgrounds. At the six campgrounds where undivided interests were sold, the Company is not required to seek the consent of the campground members to sell or encumber the Company's interest in the campgrounds. The campground properties are encumbered by certain borrowings as described in Note 6. Resort properties consisted of the following as of June 30, 1999 and 1998 (dollars in thousands):
June 30, -------------------------- 1999 1998 ------- ------- Land held for sale $ 70 $ 1,076 Lot inventory 10 Property and equipment 7 7 Accumulated depreciation (2) (1) ------- ------- $ 75 $ 1,092 ======= =======
Page 54 55 NOTE 5 -- DEFERRED REVENUE AND DEFERRED SELLING EXPENSES Deferred revenue was comprised of the following as of June 30, 1999 and 1998 (dollars in thousands):
June 30, ------------------------ 1999 1998 ------- ------- Deferred revenue -- Campground membership sales $ 8,464 $ 6,943 Campground membership dues 14,574 14,771 Other 1,687 1,725 ------- ------- $24,725 $23,439 ======= =======
Components of the change in deferred membership selling expenses and deferred membership sales revenue are as follows (dollars in thousands):
For the years ended June 30, --------------------------------- 1999 1998 1997 ------- ------- ------- Deferred membership selling expenses, beginning of year $ 1,625 $ 1,391 $ 1,244 Deferred 1,170 794 505 Recognized (730) (560) (358) ------- ------- ------- Net change 440 234 147 ------- ------- ------- Deferred membership selling expenses, end of year $ 2,065 $ 1,625 $ 1,391 ======= ======= ======= Deferred membership sales revenue, beginning of year $ 6,943 $ 6,303 $ 5,838 Deferred 4,609 3,100 2,131 Recognized (3,088) (2,460) (1,666) ------- ------- ------- Net change 1,521 640 465 ------- ------- ------- Deferred membership sales revenue, end of year $ 8,464 $ 6,943 $ 6,303 ======= ======= =======
NOTE 6 -- LONG TERM DEBT SECURED NOTES In July 1996, the Company consummated a restructuring of its 12% Secured Notes Due 1998 (the "Secured Notes") whereby all of the $101,458,000 principal amount of Secured Notes outstanding were retired. This restructuring provided 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. As part of this restructuring, the Company issued $40.2 million principal amount of 12% Senior Subordinated Pay-In-Kind Notes Due 2003 ("PIK Notes") and 3,680,550 shares of Common Stock, and it entered into the Credit Agreement with Foothill. Page 55 56 The original principal amount of Secured Notes was recorded net of a discount, to reduce the carrying value of the Secured Notes to their estimated fair value as of December 31, 1991, the fresh start reporting date. The discount resulted in an effective interest yield of 18% for the Secured Notes. The remaining unamortized balance of this discount was eliminated when the Secured Notes were retired. The restructuring of the Secured Notes 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 was amortized as a reduction of interest expense using the effective interest method over the term of the PIK Notes. Upon redemption of the PIK Notes in December 1998, the remaining deferred gain of $138,000 was recorded as a reduction of interest expense (see PIK Notes and PIK Note Repurchases below). The Company incurred $1.1 million of costs in fiscal 1997 in connection with the consummation of the restructuring of the Secured Notes. CREDIT AGREEMENT WITH FOOTHILL In connection with the restructuring of the Secured Notes, the Company entered into the Credit Agreement with Foothill Capital Corporation ("Foothill"), under which Foothill made term loans to the Company totaling $13.0 million and agreed to make revolving loans to the Company in the maximum amount of $25.0 million. The Credit Agreement originally had a three-year term expiring in July 1999. During fiscal 1997 and the first-half of fiscal 1998, the Company repaid all of its initial borrowings under the Credit Agreement, which totaled $32.0 million. In May 1997, the Company and Foothill entered into an amendment to the Credit Agreement which significantly modified its original terms. The Company had incurred debt issue costs of $3.1 million related to obtaining the original Credit Agreement, which were capitalized and were being amortized as additional interest expense over the life of the loans. However, because of the substantial modifications made to the original Credit Agreement, this amendment of the Credit Agreement was accounted for as an extinguishment of debt and the remaining $1.3 million unamortized balance of the original debt issue costs was charged to expense. In October 1998, the Company entered into an amendment to the Credit Agreement that gave the Company the flexibility to borrow up to $5.0 million for working capital purposes and additional amounts to use to redeem the PIK Notes and for the possible acquisition of members through the purchase of other membership campground operations. Under the amended Credit Agreement, the first $15.0 million of borrowings bear interest at prime plus .25% per annum, borrowings over $15.0 million and up to $25.0 million bear interest at prime plus .50% per annum, and borrowings over $25.0 million bear interest at prime plus 1.5% per annum, subject to a minimum interest rate of 9% per annum (reduced to 7% per annum on June 1, 1999). In December 1998, the Company borrowed $24.0 million under the amended Credit Agreement to partially fund the redemption of the PIK Notes as discussed below. As a result of subsequent repayments, on June 30, 1999, the Company had $10.9 million of outstanding borrowings under the amended Credit Agreement, and it had the ability to borrow an Page 56 57 additional $4.0 million for working capital purposes. The Company's ability to borrow up to an additional $10.0 million to fund its possible acquisition of members through the purchase of other membership campground operations will expire on December 31, 1999. All borrowings under the amended Credit Agreement will mature on January 17, 2003. The Company's ability to borrow under the amended Credit Agreement for working capital and other purposes is subject to continued compliance by the Company with the financial covenants and other requirements of the amended Credit Agreement, including certain covenants respecting minimum earnings before interest, taxes, depreciation and amortization, and minimum tangible net worth. The amended Credit Agreement prohibits the Company from borrowing from other sources in significant amounts except for equipment purchases. The Company has granted liens on substantially all of its assets to secure its obligations under the amended Credit Agreement. In addition, the Company's subsidiaries other than an immaterial utility subsidiary have guaranteed the Company's obligations under the amended Credit Agreement and, subject to certain limitations, have granted liens on substantially all of their assets to secure their guarantees. PIK NOTES AND PIK NOTE REPURCHASES In the restructuring of the Secured Notes, the Company issued $40.2 million principal amount of PIK Notes which bore interest at (i) 17 1/2% per annum through January 15, 1998, and (ii) 12% per annum thereafter. Interest on the PIK Notes was due semiannually on January 15th and July 15th and was payable in the form of additional PIK Notes until after July 15, 2000, unless all borrowings under the Credit Agreement were paid in full on or before such date. In June 1997, the Company repurchased $13.4 million principal amount of PIK Notes at a cost of $12.6 million, including accrued interest. The Company made these repurchases at an average price of $897 per $1,000 of principal amount in a Dutch auction available to all holders of PIK Notes. The Company borrowed the $12.6 million it used for these repurchases under the Credit Agreement. Because the Credit Agreement was amended in May 1997 primarily to provide the funding for these PIK Note repurchases, the $1.2 million gain resulting from the PIK Note repurchases was netted with the $1.3 million loss arising from the amendment of the Credit Agreement discussed above. The net $132,000 loss is presented as a nonrecurring expense in the accompanying consolidated statement of operations. In December 1998, the Company redeemed all $34.8 million principal amount of PIK Notes outstanding and paid $1.7 million of accrued interest. The Company funded this redemption with $12.5 million of its existing cash and $24.0 million of new borrowings under the Credit Agreement with Foothill. Page 57 58 BALANCE SHEET PRESENTATION Balance sheet presentation of the current and long term components of the Company's outstanding debt as of June 30, 1999 and 1998, is reflected below (dollars in thousands):
June 30, June 30, 1999 1998 ------- ------- CURRENT PORTION OF LONG TERM DEBT: Borrowings under Credit Agreement $ 2,100 -- ======= ======= LONG TERM DEBT: Borrowings under Credit Agreement $ 8,787 -- PIK Notes, including deferred gain of $.2 million -- $32,973 ------- ------- $ 8,787 $32,973 ======= ======= Total debt $10,887 $32,973 ======= =======
NOTE 7 -- INCOME TAXES The Company and its subsidiaries have entered into tax sharing agreements, pursuant to which they file federal income tax returns on a consolidated basis and allocate tax benefits and liabilities as provided in the agreements. The agreements provide generally that a subsidiary will reimburse or be reimbursed by the Company in an amount equal to 100% of any tax amounts that would have been due or refundable, calculated as if the subsidiary were a stand-alone taxpayer. The differences, expressed as a percentage of pretax income, between statutory and effective federal income tax rates are as follows:
For the years ended June 30, ------------------------------- 1999 1998 1997 ----- ----- ----- Statutory tax rate 34.0% 34.0% 34.0% Provision for state income taxes -- 2.7 3.5 Alternative minimum taxes -- 2.6 1.7 Deferred tax provision (benefit) 29.6 (63.6) -- Unrecorded net operating loss (34.0) (34.0) (34.0) ----- ----- ----- Effective tax rate 29.6% (58.3%) 5.2% ===== ===== =====
At June 30, 1999, the Company had estimated net operating tax loss carryforwards ("NOL's") of $27.4 million, expiring in years 2009 through 2014, as follows (dollars in thousands):
Year ending Amount June 30, expiring ----------- -------- 2009 $ 3,736 2010 16,147 2011 5,656 2014 1,878 ------- $27,417 =======
Page 58 59 The components of deferred income taxes as of June 30, 1999 and 1998 were as follows (dollars in thousands):
June 30, ---------------------- 1999 1998 -------- -------- DEFERRED TAX ASSETS: Net operating loss carryforwards (NOL's) $ 9,322 $ 9,136 Membership sales 2,175 1,818 Alternative minimum tax credit carryover 552 526 Deferred gain on Secured Note restructuring -- 658 PIK Note interest -- 2,862 Unpaid expenses 1,938 2,257 Restructuring costs 1,384 1,508 Deferred revenue 486 487 Bad debt provision 172 -- Other 306 350 -------- -------- 16,335 19,602 -------- -------- DEFERRED TAX LIABILITIES: Property basis differences (2,720) (2,814) Purchase discount amortization (112) (195) Bad debt provision (201) -------- -------- (2,832) (3,210) -------- -------- Net Deferred Tax Assets Before Valuation Allowance 13,503 16,392 Valuation Allowance (5,807) (6,392) -------- -------- Net Deferred Tax Assets After Valuation Allowance $ 7,696 $ 10,000 ======== ========
SFAS No. 109, which provides guidance on reporting for income taxes, requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Prior to fiscal 1998, the Company provided a valuation allowance for the amount by which deferred tax assets exceeded deferred tax liabilities. However, the Company periodically assesses the realizability of its deferred tax assets and considers whether it is more likely than not that the tax benefits will be realized. The ultimate realization of the deferred tax assets is dependent upon the Company having future taxable income during the periods in which the NOL's may be utilized and other deferred tax assets become deductible. At the end of fiscal 1998, management's assessment, which considered scheduled reversals of deferred tax assets and liabilities, projected future taxable income, and the carryforward periods of the Company's NOL's, was that it is more likely than not that the Company will realize the benefits of a significant portion of the net deferred tax assets. As a result, at June 30, 1998, the Company reduced the valuation allowance by $10.0 million, resulting in net deferred tax assets after valuation allowance of $10.0 million. The ultimate realization of these income tax benefits will require aggregate taxable income of approximately $29.4 million during the carryforward period. In fiscal 1999, the Company recognized $2.7 million in deferred tax expense and reduced the valuation allowance by $401,000, resulting in net deferred tax assets of $7.7 million as of June 30, 1999. The valuation allowance was reduced as a result of the current tax deductions provided by the PIK Note redemption. Prior to the redemption, the Company deferred deducting the interest expense on the PIK Notes for tax purposes because interest was paid by issuing additional PIK Notes. The valuation allowance associated with the PIK Note interest deductions was reduced after the redemption because the Company determined that it is more likely than not that it will realize the tax benefits of those deductions. Page 59 60 Management believes that it is more likely than not that the Company will generate taxable income sufficient to realize the net deferred tax assets after valuation allowance based upon the current estimates of future taxable income. No increases in current levels of income are required to do so. Although the Company has experienced a declining membership base, it does not expect the net effect of such decline to prevent the realization of the net deferred tax assets over such period. However, if the Company is unable to generate sufficient taxable income in the future through operating results, increases in the valuation allowance will be required through a charge to expense. On the other hand, if the Company achieves sufficient profitability to utilize a greater portion of the deferred tax assets, the valuation allowance will be further reduced through a credit to income. NOTE 8 -- COMMITMENTS AND CONTINGENCIES COMMITMENTS Lease Commitments The Company leases equipment and facilities under non-cancelable operating leases with terms in excess of one year. At June 30, 1999, the Company's future obligations under non-cancelable operating leases were as follows (dollars in thousands):
Year ending June 30, Amount ----------- ------ 2000 $823 2001 624 2002 276 2003 117 2004 110
Accrued Construction Costs The Company had recorded liabilities of $1.9 million and $2.8 million as of June 30, 1999 and 1998, respectively, for amounts necessary to complete improvements provided in registration statements filed with the US Department of Housing and Urban Development at resorts not related to the campground operations. The costs of such improvements are based upon engineering estimates and are classified as a current liability in the accompanying consolidated balance sheets. CONTINGENCIES General Liability Insurance Commencing July 1, 1998, the Company obtained insurance covering general liability losses up to an annual limit of $27.0 million, with no self-insured deductible. Prior to this date, the Company's insurance covered general liability losses up to an annual limit of $26.8 million, but required the Company to pay the first $250,000 per occurrence, with an annual aggregate exposure of $2.0 million. The Company has provided a liability for estimated known and unknown claims related to uninsured general liability risks based on actuarial estimates. In fiscal 1998, the Company reduced this liability by $858,000 because the estimated losses were less than the recorded liability. This amount is included in nonrecurring income in the accompanying consolidated statement of operations. At June 30, 1999 and 1998, the Company's recorded liability for estimated losses related to uninsured general liability Page 60 61 claims totaled $1.1 million and $1.2 million, respectively, which is included in other liabilities in the accompanying consolidated balance sheets. Property Insurance In fiscal 1998, the Company received proceeds of $1.1 million from insurance settlements for flood and fire damage at certain campgrounds. The Company recognized a gain of $588,000 from these settlements, which is included in nonrecurring income in the accompanying consolidated statement of operations. Employee Health Insurance The Company has employee benefit plans that are funded primarily through employer and employee contributions (see Note 13). Workers' Compensation Insurance Commencing July 1, 1998, the Company obtained insurance covering workers' compensation claims with no self-insured deductible. Prior to this date, the Company's insurance program required the Company to pay up to $250,000 per occurrence and to deposit funds with the insurance company to pay claims in excess of the estimated claims that were covered by the amounts originally paid by the Company. These deposits were generally expensed in the years the deposits were made because the Company anticipated that the deposits would be used to cover claims. However, during fiscal 1997, the Company determined that it was entitled to refunds of $865,000 in future periods for deposits made in previous years. At June 30, 1997, the Company recorded the refundable amount as an asset, resulting in nonrecurring income of $865,000. In fiscal 1998, the Company received refunds totaling $1.3 million for other deposits expensed in previous years, which were recorded as nonrecurring income. Declining Membership Base The Company derives a significant portion of its ongoing operating revenue from its campground members (92% in fiscal 1999). The Company's membership base has declined significantly over the past five fiscal years, and, net of new sales, the membership base is presently declining at the rate of approximately 5% per year. The Company attributes this continuing decline 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 or acquire members through the purchase of other membership campground operations. Environmental Issues Environmental issues may exist at some of the Company's campgrounds concerning underground storage tanks, sewage treatment plants and septic systems, and waste disposal. Management has reviewed these issues and believes that they will not have a material adverse impact on the Company's operations or financial position. Litigation Foxwood Property Owners Association, Inc. vs. Foxwood Corporation, filed on February 18, 1999, in the Court of Common Pleas of Oconee County, South Carolina, under Case No. 99-37-CP-88. In this action, the plaintiff brought suit against a subsidiary of the Company Page 61 62 alleging that the defendant owes the plaintiff in excess of $2.5 million for past due maintenance fees on subdivided lots owned by the defendant. The defendant denies the claim and is vigorously defending the lawsuit. Although discovery in this lawsuit has not been completed, management does not believe that it will have a material adverse effect upon the Company's operations or financial position. The Company is involved in certain claims and litigation arising in the normal course of business. Management believes that the eventual outcome of these claims and litigation will not have a material adverse impact on the Company's operations or financial position. NOTE 9 -- SHAREHOLDERS' EQUITY The Company issued 3,702,726 shares of Common Stock in connection with its emergence from bankruptcy in December 1991. The Company issued an additional 3,680,550 shares of Common Stock in the restructuring of the Secured Notes in July 1996 (see Note 6). During fiscal 1998 and fiscal 1999, the Company issued 53,807 and 662,245 additional shares of Common Stock, respectively, upon the exercise of stock options and warrants. During fiscal 1999, the Company purchased 3,200 shares of Common Stock. Transfer of the Common Stock is subject to transfer restrictions that are described below. Transfer of Common Stock is subject to restrictions designed to avoid an "ownership change" within the meaning of section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). Such restrictions are set forth in Article IX of the Company's Restated Certificate of Incorporation. Article IX generally restricts, until June 30, 2011 (or earlier in certain events), direct or indirect transfer of Common Stock that would without the approval of the board of directors of the Company (i) increase to more than 4.75% the percentage ownership of Common Stock of any person who at any time during the preceding three-year period did not own more than 4.75% of the Common Stock, (ii) increase the percentage of Common Stock owned by any person that during the preceding three-year period owned more than 4.75% of the Common Stock, or by any group of persons treated as a "5 Percent Shareholder" (as defined in the Code but substituting "4.75%" for "5 Percent"), or (iii) cause an "ownership change" of the Company. Article IX provides that any direct or indirect transfer of Common Stock in violation of Article IX is void ab initio as to the purported transferee, and the purported transferee will not be recognized as the owner of shares acquired in violation of Article IX for any purpose, including for purposes of voting and receiving dividends or other distributions in respect of Common Stock. Any shares purportedly acquired in violation of Article IX will be transferred to a trustee who will be required to sell them. The Company's Restated Certificate of Incorporation provides for the issuance of 15,000,000 shares of Common Stock, par value of $.01 per share. In addition, the Company's Restated Certificate of Incorporation provides for the issuance of 1,500,000 shares of preferred stock, par value $.01 per share, none of which have been issued to date. The Company has granted stock options to the Company's CEO and other key employees and non-employee directors (see Note 12). Since inception, the Company has not paid any dividends. The Credit Agreement prohibits the payment of any cash dividends on the Common Stock without the consent of Foothill until the Credit Agreement is terminated. Page 62 63 NOTE 10 -- SUPPLEMENTAL CASH FLOW INFORMATION Supplemental disclosures of non-cash investing and financing activities required by SFAS No. 95, "Statement of Cash Flows," are presented below for the years ended June 30, 1999, 1998 and 1997 (dollars in thousands):
1999 1998 1997 -------- ------ -------- Non-cash transactions related to restructuring (see Note 6) 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 asset sale(1) Note receivable from buyer $ 800 Deferred gain (471) Book value of assets sold (223) Net receivables written off (156) Non-cash payments of PIK Note interest PIK Notes issued in lieu of cash interest payment $ 1,969 $3,610 $ 2,372
(1) On November 21, 1996, the Company sold the timeshare management operations and timeshare inventory at eight resorts not related to the campground operations. The sales price was $850,000, of which $50,000 was paid in cash at closing and the balance was represented by an $800,000 promissory note that was paid in full in June 1998. A deferred gain of $471,000 was recorded in connection with the sale, which was recognized on the installment method of accounting as payments on the note were received. Page 63 64 NOTE 11 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires an entity to disclose the estimated fair value of its financial instrument assets and liabilities. Significant estimates and present value calculations were used by the Company for purposes of this disclosure. The estimated fair values of the Company's financial instruments as of June 30, 1999 and 1998, as well as their carrying amounts as reported in the accompanying consolidated balance sheets, are as follows (dollars in thousands):
June 30, 1999 June 30, 1998 ---------------------- --------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- FINANCIAL ASSETS: Cash and Cash Equivalents $ 2,197 $ 2,197 $ 13,631 $ 13,631 Restricted Cash 1,240 1,240 1,171 1,171 Contracts Receivable 3,440 6,863 Less: allowances and discount (1,256) (2,682) -------- -------- 2,184 2,250 4,181 4,300 FINANCIAL LIABILITIES: Borrowings under Credit Agreement 10,887 10,887 -- -- PIK Notes -- -- 32,973 30,690
The following methods and assumptions were used to estimate the fair value of each class of the Company's financial instruments as of June 30, 1999 and 1998, for which it is practical to estimate that value. Cash and Cash Equivalents and Restricted Cash The carrying amount approximates fair value because of the short maturity of these instruments. Borrowings under Credit Agreement The carrying amount approximates fair value because the borrowings under the Credit Agreement bear a market rate of interest. Contracts Receivable The fair value of contracts receivable was estimated by discounting the future cash flows using the current rates at which the Company estimates a similar loan portfolio would be purchased by a willing third party, after considering risk factors regarding collectibility and future collection costs. Page 64 65 PIK Notes The fair value of the PIK Notes as of June 30, 1998, was estimated based on quotes from securities industry professionals. Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values. Additionally, lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated values. The Company did not have any financial instruments as of the balance sheet dates presented that were held for trading purposes. NOTE 12 -- STOCK OPTIONS AND WARRANTS STOCK OPTIONS CEO Options At their annual meeting in November 1996, the stockholders of the Company approved the grant to the Company's CEO of options to purchase 664,495 shares of Common Stock at $0.69 per share. These options are 100% vested and are exercisable for a period of ten years while the CEO is in the employ of the Company, subject to certain exceptions. The exercise of the options, however, is subject to restrictions designed to prevent an "ownership change" for federal tax purposes (see Note 9). As of the date of this report, 244,927 of these options have been exercised. 1991 Employee Plan Effective December 31, 1991, the Company adopted the 1991 Employee Stock Incentive Plan (the "1991 Employee Plan") to enable the Company and its subsidiaries to attract, retain and motivate their officers, employees and directors. Awards under the 1991 Employee Plan may take various forms, including (i) shares of Common Stock, (ii) options to acquire shares of Common Stock ("Options"), (iii) securities convertible into shares of Common Stock, (iv) stock appreciation rights, (v) phantom stock or (vi) performance units. Options granted under the 1991 Employee Plan may be (i) incentive stock options ("ISOs"), which have certain tax benefits and restrictions, or (ii) non-qualified stock options ("Non-qualified Options"), which do not have any tax benefits and have few restrictions. The Compensation Committee or, in certain circumstances, the Board of Directors may grant awards under the 1991 Employee Plan until December 30, 2001. The recipient of an award duly granted on or prior to such date may thereafter exercise or settle it in accordance with its terms, although the Company may not issue any shares of Common Stock pursuant to any award after December 30, 2011. The Board of Directors may amend or terminate the 1991 Employee Plan at any time and in any manner, provided that (i) an amendment or termination may not affect an award previously granted without the recipient's consent, and (ii) an amendment will not be effective until the stockholders approve it if any national securities exchange or securities association that lists any of the Company's securities requires stockholder approval or if Rule 16b-3 requires stockholder approval. The Company reserved 291,780 shares of Common Stock for issuance under the 1991 Employee Plan. In September 1995, the Company granted key employees ISOs covering Page 65 66 140,000 shares with an exercise price of $.625 per share, and in January 1996, the Company granted non-employee directors Non-qualified Options to purchase 20,000 shares with an exercise price of $.81 per share. In September 1996, the Company granted key employees ISOs covering 60,000 shares and one non-employee director Non-qualified Options covering 5,000 shares, each with an exercise price of $.80 per share. In November 1996, the Company granted non-employee directors Non-qualified Options covering 20,000 shares with an exercise price of $1.08 per share. In November 1997, the Company granted non-employee directors Non-Qualified Options covering 20,000 shares with an exercise price of $3.71 per share. In May 1999, the Company granted key employees ISOs covering 17,866 shares and non-employee directors Non-qualified Options covering 21,415 shares, each with an exercise price of $4.25 per share. To date, options for 186,781 shares are outstanding under the 1991 Employee Plan and options for 104,999 shares have been exercised. 171,781 of the outstanding options are fully vested and the remaining 15,000 options will vest at a rate of 33 1/3% per year, commencing May 2000. The options have a term of 10 years from the date of grant. 1993 Employee Plan On December 2, 1993, the Company adopted the 1993 Stock Option and Restricted Stock Purchase Plan (the "1993 Employee Plan") in order to enable the Company and its subsidiaries to attract, retain, and motivate their officers and employees. Awards under the 1993 Employee Plan are restricted to (i) awards of the right to purchase shares of Common Stock ("Stock Awards"), or (ii) awards of Options, which may be either ISOs or Non-Qualified Options. The purchase price for any Stock Awards and the exercise price for any Non-Qualified Options may be less than the fair market value of the Common Stock on the date of grant. The exercise price of any ISOs may not be less than the fair market value of the Common Stock on the date of grant. The Compensation Committee or, in certain circumstances, the Board of Directors may grant awards under the 1993 Employee Plan until October 20, 2003. The termination of the 1993 Employee Plan, however, will not alter or impair any rights or obligations under any award previously granted under the plan. The Board of Directors may amend or terminate the 1993 Employee Plan at any time and in any manner, provided that (i) an amendment or termination may not affect an award previously granted without the recipient's consent, (ii) an amendment will not be effective until the stockholders approve it if any national securities exchange or securities association that lists any of the Company's securities requires stockholder approval or if Rule 16b-3 requires stockholder approval and (iii) the stockholders must approve any amendment decreasing the minimum exercise price specified in the plan for any ISO granted thereunder. The Company reserved 285,919 shares of Common Stock for issuance under the 1993 Employee Plan. The 1993 Employee Plan, however, limits the number of shares of Common Stock with respect to which awards can be made in any calendar year to any one participant to 200,000 shares. In May 1996, the Company granted key employees ISOs covering 95,000 shares with an exercise price of $.59 per share. In September 1996, the Company granted key employees ISOs covering 175,000 shares with an exercise price of $.80 per share. In May 1999, the Company granted key employees ISOs covering 18,364 shares at an exercise price of $4.25 per share. To date, options for 180,417 shares are outstanding under the 1993 Employee Plan and options for 106,000 shares have been exercised. 165,417 of the options are fully vested, the remaining 15,000 options will vest at Page 66 67 a rate of 33 1/3% beginning May 2000. The options have a term of 10 years from the date of grant. Director Plan On December 2, 1993, the Company adopted the 1993 Director Stock Option Plan (the "Director Plan"), which provides for the grant of Non-Qualified Options to non-employee directors of the Company. The Company reserved 50,000 shares of Common Stock for issuance under the Director Plan. In January 1995, the non-employee directors of the Company were granted Non-Qualified Options covering 20,000 shares with an exercise price of $.79 per share. In November 1996, the non-employee directors of the Company were granted Non-qualified Options covering 25,000 shares with an exercise price of $1.08 per share. In November 1997, the non-employee directors of the Company were granted Non-Qualified Options covering 5,000 shares with an exercise price of $3.71 per share. To date, options for 40,000 shares are outstanding under the Director Plan, all of which are vested, and options for 10,000 shares have been exercised. The options have a term of 10 years from the date of grant. The Director Plan was a "formula plan," pursuant to which each non-employee director automatically received a grant of Non-Qualified Options to purchase 5,000 shares of Common Stock on the day immediately after each annual meeting of the stockholders at which directors are elected, beginning with the annual meeting held in December 1993. If on any such day, the number of shares of Common Stock remaining available for issuance under the Director Plan was insufficient for the grant of the total number of Non-qualified Options to which all participants would otherwise be entitled, each participant received Non-qualified Options to purchase a proportionate number of the available number of remaining shares. The exercise price of each Non-Qualified Option is equal to the fair market value on the date of grant of such Option as determined under the Director Plan. Generally, the Director Plan specifies that such fair market value is the average trading price of the Common Stock during the period beginning 45 days before the date of grant and ending 15 days before the date of grant. SFAS 123 Disclosures SFAS 123, "Accounting for Stock-Based Compensation," was effective for the Company beginning in fiscal 1997. SFAS 123 defines a fair value method of accounting for employee stock options which provides for compensation cost to be charged to results of operations at the grant date. The Company has adopted the disclosure-only provisions of SFAS 123 and follows the accounting treatment prescribed by Accounting Pronouncement Bulletin Opinion No. 25 ("APB 25") in accounting for stock options issued to its employees and directors. Accordingly, no compensation cost was recognized in connection with the grant of options during the periods presented. Had compensation cost for the stock options issued been based on the fair value of the options at the grant dates, consistent with SFAS 123, the Company's net income and net income per share (diluted) for the years ended June 30, 1999, 1998 and 1997, would have been $5.5 million or $.65 per share, $24.8 million or $2.95 per share, and $6.4 million or $.83 per share, respectively. Pro forma results under SFAS 123 in the years presented are not likely to be representative of future pro forma results because, for example, additional awards may be made in future years. Page 67 68 Set forth below is a summary of awards of stock options made by the Company during the years ended June 30, 1999, 1998 and 1997, and awards outstanding as of the end of those years:
Years ended June 30, -------------------------------------------------------------------------- 1999 1998 1997 ---------------------- ---------------------- ---------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price --------- -------- --------- -------- --------- -------- Options outstanding, beginning of year 1,191,495 $ .78 1,224,495 $ .71 295,000 $ .78 Options granted 55,698 $4.25 25,000 $3.71 949,495 $ .74 Options canceled (5,000) $ .63 (7,501) $ .63 (20,000) $2.75 Options exercised (410,427) $ .71 (50,499) $ .70 --------- --------- --------- Options outstanding, end of year 831,766 $1.05 1,191,495 $ .78 1,224,495 $ .71 ========= ========= ========= Options exercisable, end of year 801,766 $ .83 1,152,332 $ .79 1,131,171 $ .72 ========= ========= ========= Shares available for grant, end of year -- n/a 50,200 n/a 67,699 n/a ========= ========= =========
The weighted-average fair value of stock options granted by the Company during the years ended June 30, 1999, 1998 and 1997, was $1.74, $.78, and $.38, respectively. The value of each option grant was estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: (1) a risk-free interest rate of 5.82% for fiscal 1999, 5.41% for fiscal 1998, and 6.19% for fiscal 1997, (2) an expected life of three years for fiscal 1999, 1998 and 1997, (3) expected volatility of 52.58% for fiscal 1999, 54.56% for fiscal 1998, and 72.5% for fiscal 1997, and (4) no dividend yield, as the Company has not paid any dividends since inception. The Credit Agreement substantially limits the payment of cash dividends. The following table summarizes information about the Company's stock options outstanding as of June 30, 1999:
Options Outstanding Options Exercisable ------------------------------------------------- -------------------------------- Weighted-Average Number Remaining Weighted-Average Number Weighted-Average Range of Outstanding Contractual Exercise Exercisable Exercise Prices at 6/30/99 Life Price at 6/30/99 Price -------- ----------- ---------------- ---------------- ----------- ---------------- OPTION PLANS: $.59 - $3.71 356,500 5.88 years $ .75 356,500 $ .75 $4.25 55,698 9.88 years $ 4.25 25,698 $ 4.25 CEO OPTIONS: $.69 419,568 8.08 years $ .69 419,568(1) $ .69 ------- ------- 831,766 7.22 years $ .95 801,766 $ .83 ======= =======
(1) As previously discussed, the options granted to the Company's CEO, although 100% vested, are subject to restrictions designed to prevent an "ownership change" for federal tax purposes. Page 68 69 WARRANTS In December 1991, the Company issued warrants to acquire 194,521 shares of Common Stock at $4.24 per share, all of which were exercised during fiscal 1999. In June 1992, the Company issued warrants to acquire 290,314 shares of Common Stock at $4.24 per share, of which 3,308 were exercised during fiscal 1998 and 49,787 were exercised during fiscal 1999. The remaining 237,219 warrants expired on June 30, 1999 without being exercised. In March 1994, the Company issued warrants to acquire 10,170 shares of Common Stock at $1.625 per share, of which 7,510 were exercised during fiscal 1999. The remaining 2,660 warrants expired on March 31, 1999 without being exercised. NOTE 13 -- EMPLOYEE BENEFIT PLANS Flexible Benefits Plan Trust Fund Effective July 1, 1992, the Company established a trust (the "Trust") to fund the Company's employee benefit plans (collectively, the "Plans"). The Plans include the Company's medical plan, dental plan, disability plan, life insurance plan, and accidental death and dismemberment plan and any other employee welfare benefit plan permissible under Section 3(1) of the Employee Retirement Income Security Act of 1974. The Company has adopted a flexible benefits plan established pursuant to Section 125 of the Code to furnish eligible employees with a choice of receiving cash or certain statutory taxable or non-taxable benefits under the Plans. The medical and dental benefits provided to the Company's employees under the Plans are funded primarily through employer and employee contributions to the Trust. In addition, the Company has purchased stop loss insurance which protects the Plans against claims in excess of set policy amounts. The Company has provided a liability for estimated future claims of $907,000 and $828,000 at June 30, 1999 and 1998, respectively, which is included in other liabilities in the accompanying consolidated balance sheets. This liability is based on actuarial estimates of amounts needed to fund expected claims, as well as premium payments and administrative costs of the Plans. The Company from time-to-time makes contributions to the Trust, which are irrevocable. Trust assets may not revert to or inure to the benefit of the Company. Neither the Company, administrator, nor trustee is responsible for the adequacy of the Trust. While the trustee has virtual plenary authority to manage and invest trust assets, the trustee is required to use trust assets and income exclusively to provide benefits under the Plans and to defray reasonable expenses of administering the Plans. Employees Savings Trust Effective July 1, 1994, the Company adopted the Thousand Trails, Inc. Employees Savings Trust (the "401(k) Plan") for the purpose of establishing a contributory employee savings plan exempt under Section 401(k) of the Code. An eligible employee participating in this plan may contribute up to 15% of his or her annual salary, subject to certain limitations. In addition, the Company may make discretionary matching contributions as determined annually by the Company. The Company made matching contributions totaling $106,000 for the year ended June 30, 1999, and has committed to make matching contributions for the calendar year ended December 31, 1999, in an amount equal to 45% of the voluntary contributions made by each participant, up to 4% of the participant's annual compensation Page 69 70 (or a maximum of 1.8% of the participant's annual compensation). Employer contributions are subject to a seven-year vesting schedule. Non-Qualified Deferred Compensation Plan Effective April 23, 1998, the Company established the Thousand Trails, Inc. Non-Qualified Deferred Compensation Plan (the "Non-Qualified Plan") for the purpose of establishing a deferred compensation plan for certain "highly compensated" employees of the Company. An eligible employee participating in this plan may contribute up to 10% of his or her annual salary subject to certain limitations. In addition, the Company may make discretionary matching contributions determined solely at the discretion of the Company. The Company made matching contributions of approximately $7,000 for the year ended June 30, 1999, and has committed to make matching contributions for the calendar year ended December 31, 1999, in an amount equal to 45% of the combined voluntary contributions to the Non-Qualified Plan and 401(k) Plan made by each participant, up to 4% of the participant's annual compensation (or a maximum of 1.8% of the participants annual compensation). Employer contributions are fully vested at the time the contributions are made. Employee Stock Purchase Plan. Effective August 1, 1999, the Company adopted the Thousand Trails, Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan") to give employees and non-employee directors of the Company an opportunity to purchase Common Stock through payroll deductions. Under the terms of the Stock Purchase Plan, participants may defer between 1% and 10% of their annual compensation, which is used to purchase shares of Common Stock on a semi-annual basis. The purchase price paid by participants is 85% of the closing price of the Common Stock as reported by the American Stock Exchange on the date of purchase. The Company pays the other 15% of the purchase price, plus commissions, and the other costs of administering the Stock Purchase Plan. NOTE 14 -- INDUSTRY SEGMENT INFORMATION Effective in fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for reporting information on operating segments and related matters. The Company has three reportable segments: campgrounds, RPI, and Wilderness Management. The campground segment generates a majority of the Company's operating revenues. These three segments offer different products and services. The campgrounds segment operates a network of 53 membership-based campgrounds in 17 states and British Columbia, Canada. Operations within the campground segment include (i) the sale of memberships entitling the member to use campground facilities, (ii) the sale of undivided interests related to fee simple sales of interests in campground facilities, and (iii) net revenues earned from operations at the campgrounds. Separate information regarding Canadian campground operations is not presented as revenues and identifiable assets related to the Canadian operations are less than 10% of the related consolidated amounts for the periods presented. RPI sells memberships that allow members to use any of the recreational facilities participating in RPI's reciprocal use system, subject to certain limitations. Operating revenue consists of the annual membership fees paid by members. Page 70 71 Wilderness Management manages 169 public campgrounds for the US Forest Service. Operating revenue consists of the campsite usage fees paid by people staying at the public campgrounds. The Company evaluates performance based upon the income before taxes for each business segment. Identifiable assets are those assets used exclusively in the operations of each business segment.
Year ended June 30, 1999 ------------------------ Wilderness Corporate Campgrounds RPI Management and Other Consolidated ----------- -------- ---------- --------- ------------ Operating revenues $ 52,040 $ 3,576 $ 2,271 $ 98 $ 57,985 Sales 3,959 126 4,085 Income (loss) before income taxes 12,842 1,613 136 (6,676) 7,915 Identifiable assets 45,446 361 322 10,675 56,804 Depreciation expense 2,265 19 17 303 2,604 Capital expenditures 1,475 4 1,456 2,935
Year ended June 30, 1998 ------------------------ Wilderness Corporate Campgrounds RPI Management and Other Consolidated ----------- -------- ---------- --------- ------------ Operating revenues $51,964 $ 4,035 $ 1,321 $ 520 $57,840 Sales 3,227 667 3,894 Income (loss) before income taxes 13,842 1,903 (188) 159 15,716 Identifiable assets 48,229 263 352 25,418 74,262 Depreciation expense 2,158 26 11 343 2,538 Capital expenditures 1,666 11 38 370 2,085
Year ended June 30, 1997 ------------------------ Wilderness Corporate Campgrounds RPI Management and Other Consolidated ----------- -------- ---------- --------- ------------ Operating revenues $54,153 $ 4,086 $ 1,094 $ 2,604 $61,937 Sales 2,892 585 3,477 Income (loss) before income taxes 13,968 2,108 72 (8,979) 7,169 Identifiable assets 58,349 277 327 4,349 63,302 Depreciation expense 2,654 26 8 507 3,195 Capital expenditures 784 19 32 211 1,046
NOTE 15 -- INDEMNIFICATION ARRANGEMENTS Under its By-laws, the Company must indemnify its present and former directors and officers for the damages and expenses that they incur in connection with threatened or pending actions, suits or proceedings arising because of their status as directors and officers, provided that they acted in good faith and in a manner that they reasonably believed to be in or not opposed to the best interests of the Company (or with respect to any criminal action or Page 71 72 proceeding, provided that they had no reasonable cause to believe that their conduct was unlawful). In connection with this indemnification obligation, the Company has entered into indemnification agreements with its directors and officers. The Company must advance funds to these individuals to enable them to defend any such threatened or pending action, suit or proceeding. The Company cannot release such funds, however, until it receives an undertaking by or on behalf of the requesting individual to repay the amount if a court of competent jurisdiction ultimately determines that such individual is not entitled to indemnification. In connection with this obligation, the Company established trusts to reimburse present and former directors and officers for any indemnifiable damages and expenses that they might incur and to advance defense funds to them. In 1991, the Company contributed $800,000 to the trusts. In fiscal 1998, the trusts were partially terminated, and a portion of the trust assets were distributed to the Company. The remaining assets totaled $832,000 at June 30, 1999, and are included in other assets in the accompanying consolidated balance sheets. The trusts were terminated in July 1999, and the trust assets were distributed to the Company. NACO also contributed $200,000 to a trust that was established to reimburse NACO directors and officers for any indemnifiable damages and expenses that they might incur and to advance defense funds to them. This trust was terminated in fiscal 1998 and the trust assets were distributed to the Company. NOTE 16 -- SELECTED QUARTERLY FINANCIAL DATA The following table summarizes the unaudited consolidated quarterly results of operations for fiscal 1999 and 1998 (in thousands, except per share amounts):
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- Fiscal 1999 Total revenues $20,461 $15,736 $14,916 $16,812 Total expenses (before taxes) 18,253 13,399 13,277 15,081 Net income 1,462 2,053 930 1,126 Net income per share-basic .20 .27 .12 .14 Net income per share-diluted .17 .24 .11 .13 Shares used to calculate net income per share: Basic 7,458 7,512 7,680 7,871 Diluted 8,433 8,425 8,518 8,526 Fiscal 1998 Total revenues $23,262 $16,078 $15,636 $20,533 Total expenses (before taxes) 17,102 13,520 13,387 15,784 Net income 5,986 2,500 2,107 14,286 Net income per share-basic .82 .34 .28 1.92 Net income per share-diluted .72 .29 .25 1.70 Shares used to calculate net income per share: Basic 7,386 7,393 7,415 7,435 Diluted 8,330 8,468 8,396 8,399
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 Page 72 73 the summer. In addition, a majority of the Company's sales and marketing efforts occur during the summer. During the first quarter of 1998, the Company recorded gains of $3.4 million on the sale of various campgrounds. During the fourth quarter of 1998, the Company included in income a $10.0 million deferred income tax benefit resulting from a reduction in the valuation allowance for the Company's net deferred tax assets. The Company adopted SFAS No. 128, "Earnings Per Share," in the second quarter of fiscal 1998, which modified the Company's earnings per share calculation and required restatement of prior period calculations. SFAS No. 128 replaced the calculation of primary and fully diluted net income per share set forth in Accounting Principles Board Opinion No. 15 ("APB No. 15") with basic and diluted net income per share. Unlike primary net income per share, basic net income per share excludes any dilutive effects of common stock equivalents. Diluted net income per share is similar to the previously reported fully diluted net income per share and 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. The following table provides the information necessary to reconcile primary and fully diluted net income per share reported by the Company in its Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, prior to adoption of SFAS No. 128, with basic and diluted net income per share utilizing SFAS No. 128 (dollars and shares in thousands, except per share amounts):
For the quarter ended September 30, 1997 ------------------------------------------------------- APB No. 15 SFAS No. 128 -------------------------- ------------------------ Net income Net income Net income Net income per share - per share - per share - per share - primary fully diluted basic diluted ----------- ------------- ----------- ---------- Net income $5,986 $5,986 $5,986 $5,986 ====== ====== ====== ====== Weighted average number of shares outstanding 7,386 7,386 7,386 7,386 Dilutive options 902 1,021 939 Dilutive warrants 5 6 5 ------ ------ ------ ------ Weighted average number of shares-diluted 8,293 8,413 n/a 8,330 ====== ====== ====== ====== Net income per share .72 .71 .82 .72 ====== ====== ====== ======
Page 73 74 SCHEDULE II THOUSAND TRAILS, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (Dollars in thousands)
Balance at Valuation and qualifying accounts beginning of Balance at deducted from assets Year ended year Additions Deductions end of year - --------------------------------- ---------- ------------ --------- ---------- ----------- Allowance for doubtful 6/30/99 $ 2,136 $ 186 $ 1,295 (a) $ 1,027 accounts 6/30/98 3,855 86 1,805 (a) 2,136 6/30/97 6,290 35 2,470 (a) 3,855 Allowance for uncollectible 6/30/99 $ 3,429 $ 1,607 $ 2,437 $ 2,599 dues receivable 6/30/98 3,568 2,626 2,765 3,429 6/30/97 4,666 3,215 4,313 3,568 Allowance for interest discount, 6/30/99 $ 546 $ 0 $ 317 $ 229 collection costs and valuation 6/30/98 1,069 0 523 546 discount 6/30/97 1,762 0 693 1,069 Deferred tax valuation 6/30/99 $ 6,392 $ 0 $ 585 (b) $ 5,807 allowance 6/30/98 21,961 0 15,569 (b) 6,392 6/30/97 25,220 0 3,259 21,961
(a) Includes a reduction in the allowance for doubtful accounts of $886, $1,000, and $1,232 in fiscal 1999, 1998 and 1997, respectively. (b) Includes a reduction in the deferred tax valuation allowance of $10,000 in fiscal 1998 and $401 in fiscal 1999. Page 74 75 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Page 75 76 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item will be included under the captions "Proposal I - Election of Directors," "Board of Directors," "Executive Officers," and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Registrant's definitive Proxy Statement for the Registrant's 1999 Annual Meeting of Stockholders, which will be filed with the SEC pursuant to Regulation 14A, and is hereby incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be included under the caption "Executive Compensation" in the Registrant's definitive Proxy Statement for the Registrant's 1999 Annual Meeting of Stockholders, which will be filed with the SEC pursuant to Regulation 14A, and is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item will be included under the caption "Security Ownership" in the Registrant's definitive Proxy Statement for the Registrant's 1999 Annual Meeting of Stockholders, which will be filed with the SEC pursuant to Regulation 14A, and is hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item will be included under the caption "Certain Transactions" in the Registrant's definitive Proxy Statement for the Registrant's 1999 Annual Meeting of Stockholders, which will be filed with the SEC pursuant to Regulation 14A, and is hereby incorporated by reference. Page 76 77 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS The following documents are filed as part of this Report: Report of Independent Public Accountants for the years ended June 30, 1999, 1998 and 1997. Consolidated Balance Sheets as of June 30, 1999 and 1998. Consolidated Statements of Operations for the years ended June 30, 1999, 1998 and 1997. Consolidated Statements of Stockholders' Equity for the years ended June 30, 1999, 1998 and 1997. Consolidated Statements of Cash Flows for the years ended June 30, 1999, 1998 and 1997. Notes to Consolidated Financial Statements. Schedule II - Valuation and Qualifying Accounts (b) REPORTS ON FORM 8-K The Company did not file any Current Reports on Form 8-K during the quarter ended June 30, 1999. (c) EXHIBITS The following documents are filed or incorporated by reference as exhibits to this report:
Exhibit Number Description ------- ----------- 2.1 Agreement and Plan of Merger, dated as of October 1, 1996, between the Company and USTrails Inc. (predecessor in interest to the Company) (incorporated by reference to the proxy statement/prospectus filed with the the SEC on October 3, 1996 as part of the Registration Statement on Form S-4, Registration Statement No. 333-13339, File No. 1-14645 (the "S-4 Registration Statement").
Page 77 78 3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to the proxy statement/prospectus filed with the SEC on October 3, 1996 as part of the S-4 Registration Statement). 3.2 Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Form 8-B filed by the Company with the SEC on November 27, 1996, File No. 1-14645). 4.1 Registration Rights Agreement, dated as of June 12, 1992, regarding the Company's Additional Series Secured Notes and the shares of Common Stock issuable upon the exercise of certain warrants (incorporated by reference to Exhibit 4.4 of the Company's Current Report on Form 8-K filed with the SEC on June 25, 1992, File No. 1-14645). 10.1 Loan and Security Agreement, dated as of July 10, 1996, between the Company and Foothill Capital Corporation (incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645). 10.2 First Amendment to Loan and Security Agreement, dated as of May 16, 1997, between the Company and Foothill Capital Corporation (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K filed with the SEC on July 8, 1997, File No. 1-14645). 10.3 Second Amendment to Loan and Security Agreement dated as of December 23, 1997, between the Company and Foothill (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997, File No. 1-14645). 10.4 Third Amendment to Loan and Security Agreement dated as of January 5, 1998, between the Company and Foothill Capital Corporation (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, File No. 1-14645). 10.5 Fourth Amendment to Loan and Security Agreement, dated as of June 10, 1998, between the Company and Foothill (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended June 30, 1998, File No. 1-14645). 10.6 Fifth Amendment to Loan and Security Agreement, dated as of September 15, 1998, between the Company and Foothill (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 1-14645).
Page 78 79 10.7 Sixth Amendment to Loan and Security Agreement, dated as of October 21, 1998, between the Company and Foothill (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 1-14645). 10.8 Seventh Amendment to Loan and Security Agreement, dated as of June 1, 1999, between the Company and Foothill. 10.9 Secured Promissory Note (Account Note), dated July 10, 1996, between the Company and Foothill Capital Corporation (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645). 10.10 Secured Promissory Note (Term Note), dated July 10, 1996, between the Company and Foothill Capital Corporation (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645). 10.11 Form of Pledge and Security Agreement, dated as of July 10, 1996, between the Company and Foothill Capital Corporation, and schedule of documents substantially identical to the form of Pledge and Security Agreement (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645). 10.12 Consent and First Amendment to Pledge and Security Agreement, dated as of October 31, 1997, between certain subsidiaries of the Company and Foothill Capital Corporation (incorporated by reference to exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, File No. 1-14645). 10.13 Form of Mortgage, dated as of July 10, 1996, to grant liens to Foothill Capital Corporation to secure the Company's obligations under the Credit Agreement with Foothill, and schedule of documents substantially identical to the form of Mortgage (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645). 10.14 The Company's 1991 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year ended June 30, 1992, File No. 1-14645). 10.15 Amendment No. 1 to the Company's 1991 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, File No. 1-14645).
Page 79 80 10.16 The Company's 1993 Stock Option and Restricted Stock Purchase Plan (incorporated by reference to Exhibit 10.22 to the Company's Registration Statement No. 33-73284 on Form S-2, originally filed with the SEC on December 22, 1993, File No. 1-14645). 10.17 Amendment No. 1 to the Company's 1993 Stock Option and Restricted Stock Purchase Plan (incorporated by reference to Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, File No. 1-14645). 10.18 The Company's 1993 Director Stock Option Plan (incorporated by reference to Exhibit 10.23 to the Company's Registration Statement No. 33-73284 on Form S-2, originally filed with the SEC on December 22, 1993, File No. 1-14645). 10.19 Amendment No. 1 to the Company's 1993 Director Stock Option Plan (incorporated by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, File No. 1-14645). 10.20 Stock Option Agreement, dated as of August 1, 1996, between the Company and William J. Shaw (incorporated by reference to Exhibit 10.26 to the Form 8-B filed by the Company with the SEC on November 27, 1996, File No. 1-14645). 10.21 Assumption of Obligations, dated as of November 20, 1996, by the Company assuming the obligations of USTrails under the USTrails Inc. 1991 Employee Stock Incentive Plan, as amended; the USTrails Inc. 1993 Stock Option and Restricted Stock Purchase Plan, as amended; the USTrails Inc. 1993 Director Stock Option Plan, as amended; Warrant Certificates originally issued on December 31, 1991, June 12, 1992, and March 2, 1994 to May 16, 1995; and the Stock Option Agreement, dated as of August 1, 1996, between USTrails and William J. Shaw (incorporated by reference to Exhibit 10.27 to the Form 8-B filed by the Company with the SEC on November 27, 1996, File No. 1-14645). 10.22 Employment Agreement, dated as of May 11, 1995, between the Company and William J. Shaw, and related Standby Letter of Credit, dated September 22, 1995, issued by The Bank of California, N.A., for the benefit of Mr. Shaw, and Letter, dated September 20, 1995, from The Wyatt Company, regarding Mr. Shaw's Employment Agreement (incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended June 30, 1995, File No. 1-14645).
Page 80 81 10.23 Letter dated June 29, 1996, from William J. Shaw to the Company, regarding Mr. Shaw's election to receive the Enterprise Bonus payable under his Employment Agreement, and Letter, dated July 8, 1996, from Deloitte & Touche LLP, regarding the computation of the amount of the Enterprise Bonus payable to Mr. Shaw under his Employment Agreement (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645). 10.24 Amendment dated as of December 10, 1998 to the Employment Agreement between the Company and William J. Shaw (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998, File No. 1-14645). 10.25 Amended and Restated Employment Agreement, dated as of September 10, 1992, among the Company, NACO, RPI, and William F. Dawson (incorporated by reference to Exhibit 10.49 to the Company's Annual Report on Form 10-K for the year ended June 30, 1993, File No. 1-14645), and Letter, dated December 1, 1995, from RPI to William F. Dawson, regarding certain compensation arrangements (incorporated by reference to Exhibit 10.4 to the Company's Quarterly on From 10-Q for the quarter ended December 31, 1995, File No. 1-14645). 10.26 Amended and Restated Employment Agreement, dated as of December 2, 1992, among the Company, NACO, and Walter B. Jaccard (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, File No. 1-14645), and amendment dated November 15, 1994 (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended June 30, 1995, File No. 1-14645), and amendment dated December 7, 1995 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995, File No. 1-14645). 10.27 Employment Agreement, dated as of August 31, 1995, between the Company and R. Gerald Gelinas (incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the year ended June 30, 1995, File No. 1-14645). 10.28 Agreement, dated as of October 27, 1997, between the Company and Bryan D. Reed. 10.29 Indemnification Agreement, dated as of February 18, 1992, between the Company and Andrew Boas (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended June 30, 1992, File No. 1-14645), and schedule of substantially identical Indemnification Agreements (incorporated by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K for the year ended June 30, 1995, File No. 1-14645).
Page 81 82 10.30 Indemnification Agreement, dated as of September 1, 1995, between Trails and William J. Shaw, and schedule of substantially identical Indemnification Agreements (incorporated by reference to Exhibit 10.36 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645). 10.31 Indemnification Agreement, dated as of September 1, 1995, between NACO and William J. Shaw, and schedule of substantially identical Indemnification Agreements (incorporated by reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645). 10.32 Indemnification Agreement, dated as of May 8, 1991, between the Company and Donald W. Hair, and schedule of substantially identical Indemnification Agreements (incorporated by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645). 10.33 Indemnification Agreement, dated as of November 20, 1996, between the Company and William J. Shaw and schedule of substantially identical Indemnification Agreements (incorporated by reference to Exhibit 10.39 to the Company's Registration Statement No. 333-19357 on Form S-1, originally filed with the SEC on January 7, 1997, File No. 1-14645). 10.34 Grantor Trust Agreement, dated as of September 30, 1991, between Union Bank of California, N.A. (formerly known as The Bank of California, N.A., and referred to herein as "Union Bank"), and Trails (incorporated by reference from Trails' Annual Report on Form 10-K for the year ended June 30, 1992, File No. 1-14645). 10.35 Supplement to Grantor Trust Agreement, dated as of November 20, 1996, by the Company in favor of Union Bank (incorporated by reference to Exhibit 10.44 to the Company's Registration Statement No. 333-19357 on Form S-1, originally filed with the SEC on January 7, 1997, File No. 1-14645). 10.36 Supplement No. 3 to Grantor Trust Agreement, dated as of May 18, 1999, between the Company and a majority of the persons presently named as beneficiaries under the Grantor Trust Agreement, dated as of September 30, 1991, as supplemented, between the Company and Union Bank of California, N.A., as Trustee. 10.37 Grantor Trust Agreement, dated May 8, 1991, between the Company and Texas Commerce Bank, N.A. ("Texas Bank") (incorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the year ended June 30, 1992, File No. 1-14645).
Page 82 83 10.38 Supplement and Succession Agreement to Grantor Trust Agreement, dated as of October 13, 1992, among Union Bank, Texas Bank, the Company, and certain beneficiaries under the Grantor Trust Agreement (incorporated by reference to Exhibit 10.51 to the Company's Registration Statement No. 33-571261 on Form S-2, originally filed with the SEC on January 15, 1993, File No. 1-14645). 10.39 Supplement to Grantor Trust Agreement, dated as of November 20, 1996, by the Company in favor of Union Bank (incorporated by reference to Exhibit 10.43 to the Form 8-B filed by the Company with the SEC on November 27, 1996, File No. 1-14645). 10.40 Supplement No. 2 to Grantor Trust Agreement, dated as of January 22, 1998, between the Company and a majority of the persons presently named as beneficiaries under the Grantor Trust Agreement, dated as of May 8, 1991, as supplemented, between the Company and Union Bank of California, N.A., as Trustee (incorporated by reference to exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, File No. 1-14645). 10.41 Supplement No. 3 to Grantor Trust Agreement, dated as of May 18, 1999, between the Company and a majority of the persons presently named as beneficiaries under the Grantor Trust Agreement, dated as of May 8, 1991, as supplemented, between the Company and Union Bank of California, N.A., as Trustee. 10.42 Trust Agreement, dated as of July 22, 1992, establishing the Company's Flexible Benefits Plan Trust Fund (incorporated by reference to Exhibit 10.45 to the Company's Annual Report on Form 10-K for the year ended June 30, 1992, File No. 1-14645). 10.43 Thousand Trails, Inc. Employee Savings Trust, dated as of July 1, 1994, between the Company and its subsidiaries and The Bank of California, N.A., as trustee (incorporated by reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K for the year ended June 30, 1994, File No. 1-14645). 10.44 Agreement for the Thousand Trails, Inc. Non-Qualified Deferred Compensation Plan, effective April 23, 1998 (incorporated by reference to Exhibit 10.56 to the Company's Annual Report on Form 10-K for the year ended June 30, 1998, File No. 1-14645). 10.45 Agreement for the Thousand Trails, Inc. Employee Stock Purchase Plan, effective as of August 1, 1999 (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8, filed with the SEC on July 22, 1999).
Page 83 84 10.46 Tax Allocation Agreement, dated as of September 10, 1992, between the Company and RPI (incorporated by reference to Exhibit 99.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, File No. 1-14645). 10.47 Tax Allocation Agreement, dated as of July 1, 1991, between the Company and NACO (incorporated by reference to Exhibit 10.44 to the Company's Annual Report on Form 10-K for the year ended June 30, 1994, File No. 1-14645). 10.48 Tax Allocation Agreement, dated as of October 29, 1993, between the Company and Wilderness Management (incorporated by reference to Exhibit 10.46 to the Company's Annual Report on Form 10-K for the year ended June 30, 1994, File No. 1-14645). 10.49 Stockholder Agreement dated April 5, 1999, between the Company and Carl Marks Management Company, L.P., et. al. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, File No. 1-14645). 10.50 Sample form of current Membership Contract. 11.1 Statement re: Computation of Per Share Earnings. 21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-K for the year ended June 30, 1998, File No. 1-14645). 23.1 Consent of Arthur Andersen LLP. 27.1 Financial Data Schedule as of and for the year ended June 30, 1999.
Page 84 85 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. (Registrant) Date: September 24, 1999 By: /s/ William J. Shaw ------------------- William J. Shaw Chairman of the Board, President, Chief Executive Officer, and acting Chief Financial Officer Date: September 24, 1999 By: /s/ Bryan D. Reed ----------------- Bryan D. Reed Chief Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ Andrew M. Boas Director September 24, 1999 - ----------------------------- Andrew M. Boas /s/ William P. Kovacs Director September 24, 1999 - ----------------------------- William P. Kovacs /s/ Donald R. Leopold Director September 24, 1999 - ----------------------------- Donald R. Leopold /s/ H. Sean Mathis Director September 24, 1999 - ----------------------------- H. Sean Mathis /s/ Douglas K. Nelson Director September 24, 1999 - ----------------------------- Douglas K. Nelson /s/ William J. Shaw Chairman of September 24, 1999 - ----------------------------- the Board William J. Shaw
Page 85 86 EXHIBIT INDEX
Exhibit Number Description ------- ----------- 2.1 Agreement and Plan of Merger, dated as of October 1, 1996, between the Company and USTrails Inc. (predecessor in interest to the Company) (incorporated by reference to the proxy statement/prospectus filed with the the SEC on October 3, 1996 as part of the Registration Statement on Form S-4, Registration Statement No. 333-13339, File No. 1-14645 (the "S-4 Registration Statement"). 3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to the proxy statement/prospectus filed with the SEC on October 3, 1996 as part of the S-4 Registration Statement). 3.2 Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Form 8-B filed by the Company with the SEC on November 27, 1996, File No. 1-14645). 4.1 Registration Rights Agreement, dated as of June 12, 1992, regarding the Company's Additional Series Secured Notes and the shares of Common Stock issuable upon the exercise of certain warrants (incorporated by reference to Exhibit 4.4 of the Company's Current Report on Form 8-K filed with the SEC on June 25, 1992, File No. 1-14645). 10.1 Loan and Security Agreement, dated as of July 10, 1996, between the Company and Foothill Capital Corporation (incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645). 10.2 First Amendment to Loan and Security Agreement, dated as of May 16, 1997, between the Company and Foothill Capital Corporation (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K filed with the SEC on July 8, 1997, File No. 1-14645). 10.3 Second Amendment to Loan and Security Agreement dated as of December 23, 1997, between the Company and Foothill (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997, File No. 1-14645).
87 10.4 Third Amendment to Loan and Security Agreement dated as of January 5, 1998, between the Company and Foothill Capital Corporation (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, File No. 1-14645). 10.5 Fourth Amendment to Loan and Security Agreement, dated as of June 10, 1998, between the Company and Foothill (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended June 30, 1998, File No. 1-14645). 10.6 Fifth Amendment to Loan and Security Agreement, dated as of September 15, 1998, between the Company and Foothill (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 1-14645). 10.7 Sixth Amendment to Loan and Security Agreement, dated as of October 21, 1998, between the Company and Foothill (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 1-14645). 10.8 Seventh Amendment to Loan and Security Agreement, dated as of June 1, 1999, between the Company and Foothill. 10.9 Secured Promissory Note (Account Note), dated July 10, 1996, between the Company and Foothill Capital Corporation (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645). 10.10 Secured Promissory Note (Term Note), dated July 10, 1996, between the Company and Foothill Capital Corporation (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645). 10.11 Form of Pledge and Security Agreement, dated as of July 10, 1996, between the Company and Foothill Capital Corporation, and schedule of documents substantially identical to the form of Pledge and Security Agreement (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645).
88 10.12 Consent and First Amendment to Pledge and Security Agreement, dated as of October 31, 1997, between certain subsidiaries of the Company and Foothill Capital Corporation (incorporated by reference to exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, File No. 1-14645). 10.13 Form of Mortgage, dated as of July 10, 1996, to grant liens to Foothill Capital Corporation to secure the Company's obligations under the Credit Agreement with Foothill, and schedule of documents substantially identical to the form of Mortgage (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645). 10.14 The Company's 1991 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year ended June 30, 1992, File No. 1-14645). 10.15 Amendment No. 1 to the Company's 1991 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, File No. 1-14645). 10.16 The Company's 1993 Stock Option and Restricted Stock Purchase Plan (incorporated by reference to Exhibit 10.22 to the Company's Registration Statement No. 33-73284 on Form S-2, originally filed with the SEC on December 22, 1993, File No. 1-14645). 10.17 Amendment No. 1 to the Company's 1993 Stock Option and Restricted Stock Purchase Plan (incorporated by reference to Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, File No. 1-14645). 10.18 The Company's 1993 Director Stock Option Plan (incorporated by reference to Exhibit 10.23 to the Company's Registration Statement No. 33-73284 on Form S-2, originally filed with the SEC on December 22, 1993, File No. 1-14645). 10.19 Amendment No. 1 to the Company's 1993 Director Stock Option Plan (incorporated by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, File No. 1-14645). 10.20 Stock Option Agreement, dated as of August 1, 1996, between the Company and William J. Shaw (incorporated by reference to Exhibit 10.26 to the Form 8-B filed by the Company with the SEC on November 27, 1996, File No. 1-14645).
89 10.21 Assumption of Obligations, dated as of November 20, 1996, by the Company assuming the obligations of USTrails under the USTrails Inc. 1991 Employee Stock Incentive Plan, as amended; the USTrails Inc. 1993 Stock Option and Restricted Stock Purchase Plan, as amended; the USTrails Inc. 1993 Director Stock Option Plan, as amended; Warrant Certificates originally issued on December 31, 1991, June 12, 1992, and March 2, 1994 to May 16, 1995; and the Stock Option Agreement, dated as of August 1, 1996, between USTrails and William J. Shaw (incorporated by reference to Exhibit 10.27 to the Form 8-B filed by the Company with the SEC on November 27, 1996, File No. 1-14645). 10.22 Employment Agreement, dated as of May 11, 1995, between the Company and William J. Shaw, and related Standby Letter of Credit, dated September 22, 1995, issued by The Bank of California, N.A., for the benefit of Mr. Shaw, and Letter, dated September 20, 1995, from The Wyatt Company, regarding Mr. Shaw's Employment Agreement (incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended June 30, 1995, File No. 1-14645). 10.23 Letter dated June 29, 1996, from William J. Shaw to the Company, regarding Mr. Shaw's election to receive the Enterprise Bonus payable under his Employment Agreement, and Letter, dated July 8, 1996, from Deloitte & Touche LLP, regarding the computation of the amount of the Enterprise Bonus payable to Mr. Shaw under his Employment Agreement (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645). 10.24 Amendment dated as of December 10, 1998 to the Employment Agreement between the Company and William J. Shaw (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998, File No. 1-14645). 10.25 Amended and Restated Employment Agreement, dated as of September 10, 1992, among the Company, NACO, RPI, and William F. Dawson (incorporated by reference to Exhibit 10.49 to the Company's Annual Report on Form 10-K for the year ended June 30, 1993, File No. 1-14645), and Letter, dated December 1, 1995, from RPI to William F. Dawson, regarding certain compensation arrangements (incorporated by reference to Exhibit 10.4 to the Company's Quarterly on From 10-Q for the quarter ended December 31, 1995, File No. 1-14645).
90 10.26 Amended and Restated Employment Agreement, dated as of December 2, 1992, among the Company, NACO, and Walter B. Jaccard (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, File No. 1-14645), and amendment dated November 15, 1994 (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended June 30, 1995, File No. 1-14645), and amendment dated December 7, 1995 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995, File No. 1-14645). 10.27 Employment Agreement, dated as of August 31, 1995, between the Company and R. Gerald Gelinas (incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the year ended June 30, 1995, File No. 1-14645). 10.28 Agreement, dated as of October 27, 1997, between the Company and Bryan D. Reed. 10.29 Indemnification Agreement, dated as of February 18, 1992, between the Company and Andrew Boas (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended June 30, 1992, File No. 1-14645), and schedule of substantially identical Indemnification Agreements (incorporated by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K for the year ended June 30, 1995, File No. 1-14645). 10.30 Indemnification Agreement, dated as of September 1, 1995, between Trails and William J. Shaw, and schedule of substantially identical Indemnification Agreements (incorporated by reference to Exhibit 10.36 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645). 10.31 Indemnification Agreement, dated as of September 1, 1995, between NACO and William J. Shaw, and schedule of substantially identical Indemnification Agreements (incorporated by reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645). 10.32 Indemnification Agreement, dated as of May 8, 1991, between the Company and Donald W. Hair, and schedule of substantially identical Indemnification Agreements (incorporated by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996, File No. 1-14645).
91 10.33 Indemnification Agreement, dated as of November 20, 1996, between the Company and William J. Shaw and schedule of substantially identical Indemnification Agreements (incorporated by reference to Exhibit 10.39 to the Company's Registration Statement No. 333-19357 on Form S-1, originally filed with the SEC on January 7, 1997, File No. 1-14645). 10.34 Grantor Trust Agreement, dated as of September 30, 1991, between Union Bank of California, N.A. (formerly known as The Bank of California, N.A., and referred to herein as "Union Bank"), and Trails (incorporated by reference from Trails' Annual Report on Form 10-K for the year ended June 30, 1992, File No. 1-14645). 10.35 Supplement to Grantor Trust Agreement, dated as of November 20, 1996, by the Company in favor of Union Bank (incorporated by reference to Exhibit 10.44 to the Company's Registration Statement No. 333-19357 on Form S-1, originally filed with the SEC on January 7, 1997, File No. 1-14645). 10.36 Supplement No. 3 to Grantor Trust Agreement, dated as of May 18, 1999, between the Company and a majority of the persons presently named as beneficiaries under the Grantor Trust Agreement, dated as of September 30, 1991, as supplemented, between the Company and Union Bank of California, N.A., as Trustee. 10.37 Grantor Trust Agreement, dated May 8, 1991, between the Company and Texas Commerce Bank, N.A. ("Texas Bank") (incorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the year ended June 30, 1992, File No. 1-14645). 10.38 Supplement and Succession Agreement to Grantor Trust Agreement, dated as of October 13, 1992, among Union Bank, Texas Bank, the Company, and certain beneficiaries under the Grantor Trust Agreement (incorporated by reference to Exhibit 10.51 to the Company's Registration Statement No. 33-571261 on Form S-2, originally filed with the SEC on January 15, 1993, File No. 1-14645). 10.39 Supplement to Grantor Trust Agreement, dated as of November 20, 1996, by the Company in favor of Union Bank (incorporated by reference to Exhibit 10.43 to the Form 8-B filed by the Company with the SEC on November 27, 1996, File No. 1-14645).
92 10.40 Supplement No. 2 to Grantor Trust Agreement, dated as of January 22, 1998, between the Company and a majority of the persons presently named as beneficiaries under the Grantor Trust Agreement, dated as of May 8, 1991, as supplemented, between the Company and Union Bank of California, N.A., as Trustee (incorporated by reference to exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, File No. 1-14645). 10.41 Supplement No. 3 to Grantor Trust Agreement, dated as of May 18, 1999, between the Company and a majority of the persons presently named as beneficiaries under the Grantor Trust Agreement, dated as of May 8, 1991, as supplemented, between the Company and Union Bank of California, N.A., as Trustee. 10.42 Trust Agreement, dated as of July 22, 1992, establishing the Company's Flexible Benefits Plan Trust Fund (incorporated by reference to Exhibit 10.45 to the Company's Annual Report on Form 10-K for the year ended June 30, 1992, File No. 1-14645). 10.43 Thousand Trails, Inc. Employee Savings Trust, dated as of July 1, 1994, between the Company and its subsidiaries and The Bank of California, N.A., as trustee (incorporated by reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K for the year ended June 30, 1994, File No. 1-14645). 10.44 Agreement for the Thousand Trails, Inc. Non-Qualified Deferred Compensation Plan, effective April 23, 1998 (incorporated by reference to Exhibit 10.56 to the Company's Annual Report on Form 10-K for the year ended June 30, 1998, File No. 1-14645). 10.45 Agreement for the Thousand Trails, Inc. Employee Stock Purchase Plan, effective as of August 1, 1999 (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8, filed with the SEC on July 22, 1999). 10.46 Tax Allocation Agreement, dated as of September 10, 1992, between the Company and RPI (incorporated by reference to Exhibit 99.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, File No. 1-14645). 10.47 Tax Allocation Agreement, dated as of July 1, 1991, between the Company and NACO (incorporated by reference to Exhibit 10.44 to the Company's Annual Report on Form 10-K for the year ended June 30, 1994, File No. 1-14645).
93 10.48 Tax Allocation Agreement, dated as of October 29, 1993, between the Company and Wilderness Management (incorporated by reference to Exhibit 10.46 to the Company's Annual Report on Form 10-K for the year ended June 30, 1994, File No. 1-14645). 10.49 Stockholder Agreement dated April 5, 1999, between the Company and Carl Marks Management Company, L.P., et. al. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, File No. 1-14645). 10.50 Sample form of current Membership Contract. 11.1 Statement re: Computation of Per Share Earnings. 21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-K for the year ended June 30, 1998, File No. 1-14645). 23.1 Consent of Arthur Andersen LLP. 27.1 Financial Data Schedule as of and for the year ended June 30, 1999.
EX-10.8 2 7TH AMENDMENT TO SECURITY & LOAN AGREEMENT 1 EXHIBIT 10.8 SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT This Seventh Amendment to Loan and Security Agreement ("Amendment") is entered into as of June 1, 1999 by and among FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), on the one hand, and NATIONAL AMERICAN CORPORATION, a Nevada corporation ("NACO"), THOUSAND TRAILS, INC., a Delaware corporation ("Trails"), and the other party borrowers signatory hereto (each, together with NACO and Trails, individually a "Borrower" and collectively, jointly and severally, "Borrowers"), on the other hand, in light of the following: RECITALS FACT ONE: Borrowers, or their predecessors in interest, and Foothill have previously entered into that certain Loan and Security Agreement, dated as of July 10, 1996 (as amended and modified, the "Loan Agreement"). FACT TWO: Borrowers have requested that Foothill modify the provisions thereof to, among other things, reduce the minimum interest chargeable under the Agreement. FACT THREE: Borrowers and Foothill desire to amend the Loan Agreement as provided for herein. AGREEMENT NOW, THEREFORE, Borrowers and Foothill hereby amend and supplement the Loan Agreement as follows: 1. DEFINITIONS. All initially capitalized terms used in this Amendment shall have the meanings given to them in the Loan Agreement unless specifically defined herein. 2. AMENDMENT. 2.1 Section 1.1 of the Loan Agreement is hereby amended by deleting the definition of Revolving Maximum Amount and substituting the following in its place and stead: "Revolving Maximum Amount" means Twenty-Eight Million Four Hundred Thirty-Five Thousand Dollars ($28,435,000), which such amount is permanently reduced to lower amounts by the greater of (y) the sum of (1) an amount equal to the aggregate net cash proceeds of all sales of Collateral pursuant to Section 5.4 (other than the last paragraph thereof), or as otherwise approved by Foothill, which occur after June 10, 1998; plus (2) 100% of Account collections, once the Term Note has been fully secured by cash; or (z) the amount set forth below opposite the applicable date of reduction: 1 2 6/30/1999 - $3,544,000 12/31/1999 - $7,108,000 6/30/2000 - $10,662,000 12/31/2000 - $14,216,000 6/30/2001 - $17,770,000 12/31/2001 - $21,324,000 6/30/2002 - $24,878,000 1/17/2003 - $28,435,000:
Provided, however, there shall be no reductions in the Revolving Maximum Amount as called for in provisions (y)(1) and (2) called for above for any sales or collections which occur between June 10, 1998 and the earlier to occur of the following: (i) the completion of the purchase by Borrower of the PIK Notes, or (ii) the purchase of the stock of AIC, or (iii) March 31, 1999. 2.2 Section 3.5(c) of the Loan Agreement is hereby amended by deleting said provision in its entirety, and substituting the following in its place and stead; "(a) Minimum Interest. In no event shall the rate of interest chargeable hereunder be less than seven percent (7%) per annum. To the extent that interest accrued hereunder at the rate set forth herein (including the minimum interest rate) would yield less than the foregoing minimum amount, the interest rate chargeable hereunder for the period in question automatically shall be deemed increased to that rate that would result in the minimum amount of interest being accrued and payable hereunder." 2.3 Section 4.5 of the Loan Agreement is hereby amended by deleting said provision in its entirety, and substituting the following in its place and stead; "2.4 Early Termination or Paydown by Borrower. Borrower has the option, at any time upon thirty (30) days prior written notice to Foothill, to terminate this Agreement by paying to Foothill, in cash, the Obligations, together with a premium (the "Early Paydown Premium") payable in the following events, as follows: (A) if the termination results from a refinancing or recapitalization of any Borrower, or any portion of the funds used to pay-off the Obligations directly or indirectly result from borrowed money, the Early Paydown Premium shall be equal to the greater of: (a) the total interest owing for the immediately preceding six (6) month period; or (b) (i) Five Hundred Thousand Dollars ($500,000) if terminated during calendar year 1999, (ii) Four Hundred Thousand Dollars ($400,000) if terminated during calendar year 2000, (iii) Three Hundred Thousand Dollars ($300,000) if terminated during calendar year 2001, or (iv) Two Hundred Thousand Dollars ($200,000) if terminated during calendar years 2002 or 2003. 2 3 (B) if the termination results from a complete paydown using funds generated from Borrower's business operations, or in connection with a Change of Control, the Early Paydown Premium shall be equal to the greater of: (a) the total interest owing for the immediately preceding six (6) month period; or (b) (i) Two Hundred and Fifty Thousand Dollars ($250,000) if terminated during calendar year 1999, (ii) Two Hundred Thousand Dollars ($200,000) if terminated during calendar year 2000, (iii) One Hundred and Fifty Thousand Dollars ($150,000) if terminated during calendar year 2001, or (iv) One Hundred Thousand Dollars ($100,000) if terminated during calendar years 2002 or 2003." 2.4 Section 4.8(b) of the Loan Agreement is hereby amended by deleting said provision in its entirety, and substituting the following in its place and stead: "(b) The purchase of the stock of AIC shall occur on or before December 31, 1999." 2.5 Section 8.13 of the Loan Agreement is hereby amended by deleting said provision in its entirety, and substituting the following in its place and stead; "8.13 Investments. Directly or indirectly make or acquire any beneficial interest in (including stock, partnership interest, or other securities of), or make any loan, advance, or capital contribution in excess of One Hundred Thousand Dollars ($100,000) in any fiscal year, to, any Person not a Borrower, except (i) payments as contemplated by the By-Law Amendment referred to in Section 8.11, and (ii) investments in Cash Equivalents. Notwithstanding the prior sentence, Thousand Trails, Inc. shall be permitted to purchase up to $100,000 worth of Thousand Trails, Inc. stock per month at a price which is not greater than the market price for such stock on such dates. Provided that Borrower has availability under the Revolving Maximum Amount and provided that all other conditions under the Loan Agreement have been satisfied, Borrower shall be permitted to use the proceeds of Revolving Advances to purchase such stock. Borrower shall be able to cumulate the $100,000 monthly cap on repurchases of its own stock, so that any unused allowed sums can be carried over into successive months, with a maximum carryover allowed amount of $500,000. Commencing July 31, 1999, the maximum carryover allowed amount shall be increased to $600,000, and such maximum amount shall increase by an additional $100,000 each successive month-end until the maximum carryover allowed amount equals $1,000,000." 3. LIMITED WAIVER WITH RESPECT TO SECTION 8.7. Foothill hereby waives the negative covenant contained in Section 8.7 solely to the extent to allow Trails to establish a wholly owned corporation, OWC Acquisition Corporation, a Delaware corporation, to facilitate Borrower's possible acquisition of the assets of Outdoor World Corporation, a Pennsylvania corporation, which is contemplated in accordance with the terms of that certain letter of intent issued by Foothill to Borrower contemporaneously herewith. 4. REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Foothill that all of Borrower's representations and warranties set forth in the Loan Agreement are true, complete and accurate in all material respects as of the date hereof (except to the extent that such representations and warranties relate solely to an earlier date). 3 4 5. NO DEFAULTS. Borrower hereby affirms to Foothill that no Event of Default has occurred and is continuing as of the date hereof. 6. CONDITION PRECEDENT. The effectiveness of this Amendment is expressly conditioned upon receipt by Foothill of an executed copy of this Amendment and the fulfillment, to the satisfaction of Foothill and Foothill's counsel, of each of the following conditions precedent: 6.1 Each Borrower shall be a corporation in good standing in the jurisdiction of its incorporation and qualified to do business in any other jurisdiction where such qualification is required by law. 6.2 Borrower shall have paid to Foothill all of Foothill's out-of-pocket expenses relating to this Amendment, including, but not limited to, search fees, title search and insurance fees, filing and recording fees, examination and appraisal fees, internal transaction charges, and attorneys fees and expenses. 7. LIMITED EFFECT. In the event of a conflict between the terms and provisions of this Amendment and the terms and provisions of the Loan Agreement, the terms and provisions of this Amendment shall govern. In all other respects, the Loan Agreement, as amended and supplemented hereby, shall remain in full force and effect. 8. WAIVER. The waiver of certain provisions of the Loan Agreement as provided in this Amendment which, inter alia, allows Trails to create a wholly owned subsidiary shall constitute a one time waiver only, and Foothill shall have the right to require strict compliance with all of the provisions of the Loan Agreement in the future. 9. BROKERS' FEES. Any brokerage commission or finder's fees payable in connection with the financing arrangement contemplated hereby will be payable by Borrowers and not by Foothill. Borrowers and Foothill each represent and warrant to the other that they have not incurred any obligation for a brokerage commission or a finder's fee. Borrowers hereby indemnify Foothill and hold Foothill harmless from and against any claim of any broker or finder arising out of the financing arrangement described above or any commitment relating thereto. 10. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed and delivered shall be deemed to be an original. All such counterparts, taken together, shall constitute but one and the same Amendment. This Amendment shall become effective upon the execution of a counterpart of this Amendment by each of the parties hereto. 11. COMPLETE AGREEMENT; NO ORAL MODIFICATIONS. This Amendment embodies the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior proposals, negotiations, or agreements whether written or oral, relating to the subject matter hereof. This Amendment may not be modified, amended, supplemented, or otherwise changed, except by a document in writing signed by the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above. 4 5 "FOOTHILL" FOOTHILL CAPITAL CORPORATION, a California corporation By: /s/ Katy J. Brooks --------------------------------- Title: Vice President ----------------------------- "BORROWERS" NATIONAL AMERICAN CORPORATION, a Nevada corporation By: /s/ Walter B. Jaccard --------------------------------- Title: Vice President ----------------------------- THOUSAND TRAILS, INC., a Delaware corporation, f/k/a USTrails, Inc., a Nevada corporation, and New 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 ----------------------------- 5 6 CAROLINA LANDING CORPORATION, a South Carolina corporation By: /s/ Walter B. Jaccard --------------------------------- Title: Vice President ----------------------------- CARRIAGE MANOR CORPORATION, a North Carolina 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 ----------------------------- 6 7 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 ----------------------------- 7 8 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., f/k/a Shorewood Corporation, a Georgia corporation By: /s/ Walter B. Jaccard --------------------------------- Title: Vice President ----------------------------- 8 9 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 ----------------------------- UST WILDERNESS MANAGEMENT CORPORATION, a Nevada corporation By: /s/ Walter B. Jaccard --------------------------------- Title: Vice President ----------------------------- 9 EX-10.28 3 AGREEMENT, DATED AS OF OCTOBER 27, 1997 1 EXHIBIT 10.28 October 27, 1997 Bryan Reed 2903 Champlin Ct. Richardson, TX 75082 Dear Bryan: If your employment is terminated by the Company for any reason other than cause (as defined below) within one year following a Change of Control (as defined below), the Company shall pay you severance compensation equal to six months of your base salary. This severance compensation shall be in addition to any severance compensation to which you may be entitled under the Company's Employee Severance Pay Plan. The severance compensation payable under the terms of this letter will be paid to you in a lump sum within 30 days following the termination of your employment or bi-weekly in accordance with the Company's standard payroll practice, at your election. For purposes hereof, "cause" shall mean termination of your employment because of: (i) your conviction for or plea of nolo contendere to any felony or crime involving moral turpitude, (ii) your commission of an act of dishonesty or breach of duty in connection with your employment by the Company, (iii) misconduct on your part in connection with your employment by the Company, (iv) your failure to execute lawful policies of the Company, (v) chronic alcoholism or any other form of addiction to drugs on your part, or (vi) your failure, refusal or inability to adequately perform your duties as an employee, as determined by the Company in its sole discretion. For purposes hereof, a "Change of Control" shall mean the first to occur of the following events: (i) a change of control of the Company of the type required to be disclosed in a proxy statement pursuant to Item 6(e) (or any successor provision) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); (ii) a reorganization, merger, or consolidation of the Company the consummation of which results in the outstanding securities of the Company being exchanged for or converted into cash, property, and/or securities not issued by the Company; (iii) the date of the first public announcement that any person or entity, together with all Affiliates and Associates (as such capitalized terms are defined in Rule 12-b2 promulgated under the Exchange Act) of such person or entity, shall have become the Beneficial Owner (as defined in Rule 13d-3 promulgated under the Exchange Act) of voting securities of the Company representing 50% or more of the voting power of the Company, provided, however, that the terms "person" and "entity," as used in this clause, shall not include any person who is currently a director or officer of the Company or their respective Affiliates and Associates, or (iv) approval by both the Board of Directors and the stockholders of the Company of a sale of substantially all of the property and assets of 2 the Company; or (v) approval by both the Board of Directors and the stockholders of the Company of the dissolution or liquidation of the Company. Notwithstanding anything in this letter to the contrary, to receive severance compensation under the terms of this letter, you must sign an election form which releases the Company and its Affiliates and Associates from all claims or liabilities of any kind relating to your employment with the Company or the termination thereof. Furthermore, you are not entitled to severance compensation under the terms of this letter, (i) if you voluntarily resign or retire, (ii) if your employment is terminated for cause, (iii) if your employment is terminated because of your death or disability or (iv) if you fail or refuse to return to work after a leave of absence. Sincerely, /s/ William J. Shaw William J. Shaw President and Chief Executive Officer cc: Human Resources EX-10.36 4 SUPPLEMENT NO. 3 TO GRANTOR TRUST AGREEMENT 1 EXHIBIT 10.36 SUPPLEMENT NO. 3 TO GRANTOR TRUST AGREEMENT THIS SUPPLEMENT NO. 3 TO GRANTOR TRUST AGREEMENT (this "Supplement") is made and entered into as of the 18th day of May, 1999, by THOUSAND TRAILS, INC., a Delaware corporation (the "Company"), and a majority of the persons presently named as beneficiaries under the Grantor Trust Agreement, dated as of September 30, 1991 (the "Trust Agreement"), between the Company and UNION BANK OF CALIFORNIA, N. A., as Trustee (the "Trustee"). RECITALS A. The Company, as the successor to Thousand Trails, Inc., a Washington corporation, entered into the Trust Agreement to provide, among other things, for the funding of its indemnification obligations to its directors and officers under indemnification agreements, its constituent instruments, and applicable law. B. Pursuant to Section 12 of the Trust Agreement, the Company and a majority of the persons presently named as beneficiaries under the Trust Agreement desire to provide for the termination of the trust created by the Trust Agreement (the "Trust") and for the distribution to the Company of all of the assets in the Trust as of June 30, 1999. C. There is no litigation or other proceeding pending or threatened with respect to any Claim (as defined in the Trust Agreement) and no beneficiary under the Trust Agreement has given notice that any Claim is likely to be asserted in the future on the grounds of evidence known to or suspected by such beneficiary. AGREEMENTS NOW, THEREFORE, the Company and a majority of the persons presently named as beneficiaries under the Trust Agreement, intending to be legally bound, hereby agrees as follows: 1. Pursuant to Section 12 of the Trust Agreement, the Company and the twelve (12) persons signing below, who represent a majority of the twenty-three (23) persons presently named as beneficiaries under the Trust Agreement, hereby agree and consent to the termination of the Trust as of June 30, 1999, and to the distribution to the Company of all of the assets in the Trust as of June 30, 1999. For this purpose, the Trustee is authorized and directed to (a) determine the market value of the assets in the Trust as of June 30, 1999, and (b) liquidate and distribute to the Company an amount equal to one hundred percent (100%) of the market value of the assets in the Trust as of June 30, 1999. 2 IN WITNESS WHEREOF, this Supplement has been executed and delivered as of the date first above written. THOUSAND TRAILS, INC. By: /s/William J. Shaw ----------------------------- William J. Shaw President and Chief Executive Officer - 2 - 3 AGREEMENT AND CONSENT OF BENEFICIARIES The undersigned, a beneficiary of the Trust Agreement referred to in the Supplement No. 3 to Grantor Trust Agreement attached hereto (the "Supplement"), hereby acknowledges receipt of, and consents and agrees to, the terms of the Supplement. Dated: May 18, 1999 /s/ Andrew M. Boa ------------------------ ------------------------ Andrew M. Boas Dated: May 18, 1999 /s/ R. Gerald Gelinas ------------------------ ------------------------ R. Gerald Gelinas Dated: May 18, 1999 /s/ Kenneth E. Hendrycy ------------------------ ------------------------ Kenneth E. Hendrycy Dated: May 18, 1999 /s/ Donald R. Hair ------------------------ ------------------------ Donald R. Hair Dated: May 18, 1999 /s/ Walter B. Jaccard ------------------------ ------------------------ Walter B. Jaccard Dated: May 18, 1999 /s/ Kenneth E. Hendrycy ------------------------ ------------------------ William P. Kovacs Dated: May 18, 1999 /s/ Donald R. Leopold ------------------------ ------------------------ Donald R. Leopold Dated: May 18, 1999 /s/ H. Sean Mathis ------------------------ ------------------------ H. Sean Mathis Dated: May 18, 1999 /s/ David A. McCrum ------------------------ ------------------------ David A. McCrum Dated: May 18, 1999 /s/ Douglas K. Nelson ------------------------ ------------------------ Douglas K. Nelson Dated: May 18, 1999 /s/ William J. Shaw ------------------------ ------------------------ William J. Shaw Dated: May 18, 1999 /s/ Harry J. White, Jr. ------------------------ ------------------------ Harry J. White, Jr.
- 3 - EX-10.41 5 SUPPLEMENT NO. 3 TO GRANTOR TRUST AGREEMENT 1 Exhibit No. 10.41 SUPPLEMENT NO. 3 TO GRANTOR TRUST AGREEMENT THIS SUPPLEMENT NO. 3 TO GRANTOR TRUST AGREEMENT (this "Supplement") is made and entered into as of the 18th day of May, 1999, by THOUSAND TRAILS, INC., a Delaware corporation (the "Company"), and a majority of the persons presently named as beneficiaries under the Grantor Trust Agreement, dated as of May 8, 1991, as supplemented (the "Trust Agreement"), between the Company and UNION BANK OF CALIFORNIA, N. A., as Trustee (the "Trustee"). RECITALS A. The Company, as the successor to USTrails Inc., a Nevada corporation formerly known as NACO Finance Corporation, entered into the Trust Agreement to provide, among other things, for the funding of its indemnification obligations to its directors and officers under indemnification agreements, its constituent instruments, and applicable law. B. Pursuant to Section 12 of the Trust Agreement, the Company and a majority of the persons presently named as beneficiaries under the Trust Agreement desire to provide for the termination of the trust created by the Trust Agreement (the "Trust") and for the distribution to the Company of all of the assets in the Trust as of June 30, 1999. C. There is no litigation or other proceeding pending or threatened with respect to any Claim (as defined in the Trust Agreement) and no beneficiary under the Trust Agreement has given notice that any Claim is likely to be asserted in the future on the grounds of evidence known to or suspected by such beneficiary. AGREEMENTS NOW, THEREFORE, the Company and a majority of the persons presently named as beneficiaries under the Trust Agreement, intending to be legally bound, hereby agrees as follows: 1. Pursuant to Section 12 of the Trust Agreement, the Company and the ten (10) persons signing below, who represent a majority of the nineteen (19) persons presently named as beneficiaries under the Trust Agreement, hereby agree and consent to the termination of the Trust as of June 30, 1999, and to the distribution to the Company of all of the assets in the Trust as of June 30, 1999. For this purpose, the Trustee is authorized and directed to (a) determine the market value of the assets in the Trust as of June 30, 1999, and (b) liquidate and distribute to the Company an amount equal to one hundred percent (100%) of the market value of the assets in the Trust as of June 30, 1999. -1- 2 IN WITNESS WHEREOF, this Supplement has been executed and delivered as of the date first above written. THOUSAND TRAILS, INC. By: /s/ William J. Shaw --------------------------- William J. Shaw President and Chief Executive Officer -2- 3 AGREEMENT AND CONSENT OF BENEFICIARIES The undersigned, a beneficiary of the Trust Agreement referred to in the Supplement No. 3 to Grantor Trust Agreement attached hereto (the "Supplement"), hereby acknowledges receipt of, and consents and agrees to, the terms of the Supplement. Dated: May 18, 1999 /s/ Andrew M. Boas ------------ -------------------------------- Andrew M. Boas Dated: May 18, 1999 /s/ R. Gerald Gelinas ------------ -------------------------------- R. Gerald Gelinas Dated: May 18, 1999 /s/ Kenneth E. Hendrycy ------------ -------------------------------- Kenneth E. Hendrycy Dated: May 18, 1999 /s/ Walter B. Jaccard ------------ -------------------------------- Walter B. Jaccard Dated: May 18, 1999 /s/ William P. Kovacs ------------ -------------------------------- William P. Kovacs Dated: May 18, 1999 /s/ Donald R. Leopold ------------ -------------------------------- Donald R. Leopold Dated: May 18, 1999 /s/ H. Sean Mathis ------------ -------------------------------- H. Sean Mathis Dated: May 18, 1999 /s/ David A. McCrum ------------ -------------------------------- David A. McCrum Dated: May 18, 1999 /s/ Douglas K. Nelson ------------ -------------------------------- Douglas K. Nelson Dated: May 18, 1999 /s/ William J. Shaw ------------ -------------------------------- William J. Shaw
-3- EX-10.50 6 SAMPLE FORM OF CURRENT MEMBERSHIP CONTRACT 1 EXHIBIT 10.50 Member Name: Member #: ---------------------------------- ------------------ MEMBERSHIP AGREEMENT (NATIONAL MEMBERSHIP) RETAIL INSTALLMENT CONTRACT 1. DEFINITION OF TERMS. "You" and "your" refer to the individual purchaser or purchasers who have signed this Agreement. "We", "us", and "our" refer to Thousand Trails, Inc. ("Trails") and National American Corporation and its subsidiaries ("NACO"). "Disclosure Statement" means the booklet containing information on our membership program that was attached to this Agreement and delivered to you at the time of your purchase. "Preserves" mean the recreational campground resorts owned or operated by Trails and the recreational campground resorts owned or operated by NACO for the benefit of their respective memberships. "Member Rules" mean the rules and other terms set forth in our Campground Directory, which govern the use of the preserves by our members. A copy of our Campground Directory was delivered to you at the time of your purchase. In the event of any conflict between the terms of this Agreement and the Member Rules, the terms of this Agreement shall control. 2. WHAT YOU ARE PURCHASING. You are purchasing a NATIONAL CAMPING MEMBERSHIP, which entitles you to use all Trails and NACO preserves on the terms set forth herein. The preserves that are currently available for use by members are described in the Disclosure Statement. The initial term of your membership is three (3) years following the date of your purchase. After this initial term, the term of your membership will automatically renew for additional one-year periods ("renewal terms" herein) unless you notify us in writing of your desire to terminate your membership at least 60 days prior to the expiration of the initial term or renewal term, as the case may be. 3. TERMS OF MEMBERSHIP. During the term of your membership, you are entitled to use all preserves that are designated by Trails and/or NACO as available for use by members, subject to the following: You must use the preserves in accordance with this Agreement and the Member Rules. We have Member Rules regarding, among other things: (a) advance reservation or first-come, first-choice space arrangements; (b) length of stay; (c) frequency of use; (d) charges for benefits or services, including rental units, pet fees, food services, goods purchased, gasoline, and other services made available by us from time to time; (e) restrictions on guest visits, including number of guests allowed and guest fees; (f) length of season for use of the preserves; (g) hours of operation of facilities; (h) use of preserves by non-members in connection with programs sponsored by us, including without limitation, our marketing and sales programs, SuperHost group rentals, charitable functions, community groups and other public use scheduled so as not to conflict with member use; and (i) such other matters and restrictions on use as may be reasonably necessary to ensure maximum availability of any preserve for use by our membership as a whole. We reserve the right, in our sole discretion, to add, modify, or delete Member Rules from time to time as we may deem appropriate. Please consult the current Member Rules if you have questions regarding use of the preserves. Your membership entitles you to unlimited day use and unlimited overnight camping in your own recreational vehicle or tent (subject to length of stay restrictions) at the preserves. You may stay at one preserve up to 14 consecutive nights at a time. If you stay at any preserve for more than four consecutive nights, you must wait for seven nights before you stay again at ANY preserve. You may make reservations to use the preserves 90 days in advance of your intended date of arrival. It is your responsibility to use the preserves in a safe and reasonable manner and to observe the Member Rules. You are also responsible for the conduct of your children and guests and you are liable for all damages caused by the negligent or reckless use, or intentional misuse, of the preserves by you or your children. The location of, and facilities and amenities at, all of Trails' and NACO's preserves are described in the Disclosure Statement and are subject to change by Trails and NACO. Preserves and facilities may be added to or subtracted from those which existed at the time of Page 1 2 execution of this Agreement. Trails and NACO are under no obligation to increase the number of or improve existing preserves. Trails and NACO reserve the right to sell memberships with rights and privileges different from your membership. Your membership constitutes merely a contractual license to use the facilities provided by Trails and/or NACO from time to time at the preserves where you have membership rights. Such preserves and facilities are subject to change as provided in this Agreement and your membership does not constitute an interest in, is not secured by, and does not entitle you to any recourse against any real property of Trails or NACO, nor are you entitled to vote on any aspect relating to the businesses of Trails or NACO or to share in any of the profits of the businesses of Trails or NACO. The application and use of all amounts paid by you under this Agreement, including your purchase price and annual dues, is within our sole discretion. You may not possess, hold, or own more than one membership in either Trails or NACO, and if you acquire more than one membership under any circumstances, we will terminate all memberships held by you in excess of one. 4. TRANSFERABILITY. Your National Membership is transferable, subject to the following limitations. A National Membership: (a) may only be resold for a price which does not exceed the price paid by you for your membership plus a reasonable transfer fee as set forth below; (b) may be transferred only if the purchase price for your membership is paid in full and your annual dues are current at the time of transfer; and (c) may be transferred only if your transferee agrees to accept the rate of annual dues and use fees charged by us on new sales of similar memberships and the Member Rules in effect at the time of transfer. A National Membership cannot be divided and, if you transfer one, or if one is transferred by operation of law, as in the event of divorce, inheritance, descent, or attachment, all membership privileges must be transferred together. In connection with any transfer of a National Membership, we will charge a reasonable transfer fee, which is currently $250 if the membership is transferred to a member of your immediate family and $750 if the membership is transferred to anyone who is not a member of your immediate family. For purposes of this Agreement, the members of your immediate family are your lineal ascendants and descendants (i.e., your parents and grandparents and your children and grandchildren). A transfer may be effected only with our prior written consent, which we will not unreasonably withhold. A transfer will not become effective until: (a) you and your prospective transferee have represented to us in writing that the transfer is in compliance with the foregoing terms; and (b) your prospective transferee has entered into a new membership agreement. We will not purchase your membership and we can provide no assurance that we will be able to locate a buyer for your membership in the event it is transferable and you decide to sell it. In addition to our sale of new memberships in company sales programs, we currently offer a resale program pursuant to which we attempt to resell previously-owned memberships on behalf of the selling member. In order to participate in our resale program, the selling member must have paid the purchase price of his membership in full and must be current on his annual dues. We reserve the right to modify or discontinue our resale program at any time without further notice and without incurring any legal liability for the modification or discontinuation. You may not transfer or sell your membership or assign, rent, loan, or otherwise alienate your membership, temporarily or permanently, in any manner other than as provided in this section. Any transfer in violation of this prohibition shall be null and void. In the event of any dispute over ownership of your membership, we may, without liability to any person and without releasing you from your financial obligations to us, suspend and refuse membership privileges to all persons claiming rights to the membership until they have resolved the dispute in a manner satisfactory to us and communicated the resolution to us in writing. 5. DEFAULT AND REMEDIES. Time is of the essence of this Agreement and any of the following events will be "an event of default": (a) Your failure to make any payment under this Agreement when due, including but not limited to the payment of the application fee, purchase price, finance charge, and annual dues, or (b) The falsity of any representation made by you in this Agreement or your credit application, or (c) A material breach by you of any provision of this Agreement or the Member Rules. Should any "event of default" occur, we may immediately suspend your membership rights. In addition, upon the occurrence of any "event of default", we may, upon 30 days' written notice to you, declare the entire unpaid principal balance of the purchase price, together with the finance charge and annual dues accrued to the date of default, immediately due and payable. Moreover, we may Page 2 3 continue to collect annual dues from you as they accrue for the balance of the initial term or renewal term, as the case may be. In the alternative, we may, upon the occurrence of any "event of default", and upon 30 days' written notice to you, terminate this Agreement and your membership. If we terminate this Agreement and your membership because of your default, which we may, but are not required to do, we shall have all remedies provided by law. If any payment required by this Agreement is not made in full within ten days of its due date, you agree to pay us a late charge in the amount set forth in paragraphs 11 and 12. In addition, where permitted by law, reasonable collection charges will be imposed if any payment required by this Agreement is not made in full within 30 days of its due date and collection efforts are made. If permitted by law, a reasonable fee will also be imposed for processing any check or other payment that is returned unpaid. If this Agreement is referred to an attorney for collection after your default, or if a legal action is commenced to enforce or declare the meaning of any provision of this Agreement, the prevailing party will be awarded its reasonable attorney's fees and costs, including fees and costs incurred in both trial and appellate courts. 6. ASSIGNMENT. We may sell or assign this Agreement, and any such assignment may vest in our assignee all of our right, title, and interest in this Agreement, and all payments required to be made by you under this Agreement may be required to be paid to such assignee. No transfer, extension, or assignment of any interest under this Agreement will release you from your obligation to make all payments required under this Agreement. 7. CREDIT APPLICATION AND REPORTING. If this Agreement provides for an installment purchase, the Agreement may be rescinded by us, in our sole discretion, unless your application for credit is approved by our corporate office. If your credit application is not approved, we will notify you in writing within 30 days. You agree that we may from time to time seek and receive credit related information about you from others such as stores, other creditors, and credit reporting agencies. You also agree that we may furnish on a regular basis credit and experience information regarding your account to others seeking that information. You represent that all information supplied to us is true, that you are of legal age, that the address set forth on page 4 of this Agreement is your permanent residence address, and that you are acquiring this membership solely for the personal enjoyment of you and your family. 8. MISCELLANEOUS. This Agreement contains the entire agreement between you and us. No waiver or modification of any of the terms or conditions of this Agreement shall be effective unless in writing and signed by you and an authorized representative of our corporate office. The terms of this Agreement will benefit and bind the respective heirs, executors, administrators, legal representatives, successors, assigns, and transferees of the parties. Any provision of this Agreement which proves to be invalid, void, or illegal will not affect, impair, or invalidate any other provision of this Agreement and such other provisions will remain in full force and effect. 9. APPLICATION FEE. An application fee of $150.00, plus applicable taxes, is payable as set forth in section 11. This application fee is designed to cover the costs we incur in processing your membership application and related paperwork, setting up your membership in our computer system, and issuing you a membership card that works with our CIS system. 10. PURCHASE PRICE. The purchase price for your membership is $_______________, plus applicable taxes, and is payable as set forth in section 11. Page 3 4 11. METHOD OF PAYMENT. (CHECK ONLY ONE AND INITIAL.) _________________ [ ] I desire to pay the total application fee and purchase (Buyer's Initials) price for my membership of $_____________________________ in full on the day of purchase. _________________ [ ] I desire to pay the total application fee and purchase (Buyer's Initials) price for my membership in installments, as follows: (IF CHECKED, COMPLETE THE BALANCE OF SECTION 11.) If you are financing, a cash down payment of $______________ is due on the day of purchase. The remaining balance of $__________________ will accrue interest on the declining principal balance at the rate of 14.9% per annum, and will be payable in [ ] 12 (twelve), [ ] 24 (twenty-four), or [ ] 36 (thirty-six) equal consecutive monthly installments of $___________________ each, including interest. These payments will commence on the __ day of ________________, 19__, and will continue on the same day of each month thereafter until the principal balance and accrued interest thereon are paid in full. All payments are stated and must be made in U.S. Dollars.
- ---------------------------------------------------------------------------------------------------------------------------------- ANNUAL PERCENTAGE RATE FINANCE CHARGE AMOUNT FINANCED TOTAL OF PAYMENTS TOTAL SALE PRICE The cost of your credit The dollar amount the The amount of credit The amount you will have The total cost of your as a yearly rate. credit will cost you. provided to you or on paid after you have paid purchase on credit your behalf. all payments as including your down scheduled. payment of $ ------------------ % $ $ $ $ - -------------- ---------------- ------------------ ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------------- Your payment schedule will be: Number of Payments: ---------------------------------- Amount of Monthly Payment: $ ------------------------ Payments are due monthly beginning: ------------------------- LATE CHARGE: If a payment is late by ten or more days, you will be charged 5% of the delinquent installment or $5.00, whichever is less. PREPAYMENT: If you pay off early, you will not have to pay a penalty. See the other provisions of this Agreement for additional information about nonpayment, default, our right to accelerate the maturity of this obligation, and prepayment. - ----------------------------------------------------------------------------------------------------------------------------------
ITEMIZATION OF THE AMOUNT FINANCED: (1) Application Fee $ --------------- (2) Purchase Price of Your Membership $ --------------- (3) Less Down Payment $ --------------- (4) Amount Financed (Sum of items 1 & 2, less item 3) $ --------------- Page 4 5 12. ANNUAL DUES. During the initial term and each renewal term of your membership, you agree to pay us annual dues in the amount of $349.00 per year. Applicable taxes, if any, will be added to your annual dues. BY SIGNING THIS AGREEMENT, YOU ARE MAKING A LEGAL COMMITMENT TO PAY ANNUAL DUES FOR A MINIMUM OF THREE YEARS. Your annual dues will be prorated for the period from the date of this Agreement through December 31 of the year in which this Agreement is executed. Thereafter, your annual dues are payable in full on or before January 1 of each year. As a convenience, you may pay the annual dues in two semi-annual installments or four quarterly installments. Each of the installment payments will be subject to a processing fee in an amount set by us. This processing fee, which is subject to increase, is currently $5 for each installment payment. If payment of your annual dues is late by ten or more days, you will be assessed a late charge in the maximum amount permitted for late charges under the retail installment sales law in effect in the state of your residence. Your annual dues are stated and must be paid in U.S. Dollars. DUES INCREASES. The amount of your annual dues may be increased each year, upon thirty (30) days advance written notice, by the percentage increase in the Consumer Price Index for the calendar year prior to the year for which the increase is being made. Consumer Price Index means the consumer price index for all urban consumers as reported by the United States Department of Labor, Bureau of Labor Statistics. Page 5 6 NOTICE ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER. NOTICE TO THE BUYER: (1) DO NOT SIGN THIS AGREEMENT BEFORE YOU READ IT OR IF IT CONTAINS ANY BLANK SPACES TO BE FILLED IN. (2) YOU ARE ENTITLED TO A COMPLETELY FILLED IN COPY OF THIS AGREEMENT. (3) YOU CAN PREPAY THE FULL AMOUNT DUE UNDER THIS AGREEMENT AT ANY TIME. (4) IF YOU DESIRE TO PAY OFF IN ADVANCE THE FULL AMOUNT DUE, THE AMOUNT WHICH IS OUTSTANDING WILL BE FURNISHED UPON REQUEST. (5) EACH PERSON SIGNING THIS AGREEMENT AS A MEMBER SHALL BE JOINTLY AND SEVERALLY LIABLE FOR ALL OF YOUR OBLIGATIONS. (6) YOU ACKNOWLEDGE THAT YOU HAVE READ AND RECEIVED A COPY OF THIS AGREEMENT, THE DISCLOSURE STATEMENT AND OUR CAMPGROUND DIRECTORY. YOUR INITIALS / ------------------------------ IF YOU HAVE BEEN PERSONALLY SOLICITED, AND YOUR AGREEMENT OR OFFER TO PURCHASE IS MADE AT A PLACE OTHER THAN OUR PLACE OF BUSINESS, YOU MAY CANCEL THIS AGREEMENT AS SET FORTH BELOW. YOU, THE BUYER, MAY CANCEL THIS TRANSACTION AT ANY TIME PRIOR TO MIDNIGHT OF THE THIRD BUSINESS DAY AFTER THE DATE OF THIS TRANSACTION. SEE THE ATTACHED NOTICE OF CANCELLATION FORM FOR AN EXPLANATION OF THIS RIGHT. CHECK ONE: APPLICABLE [ ] NOT APPLICABLE [ ] EVEN IF THE FOREGOING RIGHT OF CANCELLATION IS NOT APPLICABLE, YOU MAY CANCEL THIS AGREEMENT AS SET FORTH BELOW. NOTICE OF CANCELLATION YOU MAY CANCEL THIS CONTRACT, WITHOUT ANY PENALTY OR OBLIGATION, WITHIN THREE BUSINESS DAYS FROM THE DATE THE CONTRACT IS EXECUTED. TO CANCEL THIS CONTRACT, MAIL OR DELIVER A SIGNED AND DATED COPY OF THIS CANCELLATION NOTICE OR A COPY OF THIS CONTRACT IF IT CONTAINS THE CANCELLATION INSTRUCTIONS, OR ANY OTHER WRITTEN NOTICE, OR SEND A TELEGRAM TO THOUSAND TRAILS, INC., AT 2711 LBJ FREEWAY, SUITE 200, DALLAS, TEXAS 75234; ATTENTION: CONTRACT PROCESSING, NOT LATER THAN MIDNIGHT OF . - -------------------------------- (Date) I HEREBY CANCEL THIS TRANSACTION . --------------------------------------- (Date) -------------------------------- (Purchaser's Signature) WITH THE NOTICE OF CANCELLATION, OR SEPARATELY IF A TELEGRAM IS SENT, YOU MUST RETURN THE ORIGINAL MEMBERSHIP CAMPING CONTRACT, MEMBERSHIP CARD AND ALL OTHER EVIDENCE OF MEMBERSHIP TO THE SELLER. YOU SHOULD PROMPTLY RETURN THESE DOCUMENTS WITH THE NOTICE OF CANCELLATION, OR SEPARATELY IF A TELEGRAM IS SENT. FAILURE TO SEND THE DOCUMENTS PROMPTLY COULD DELAY YOUR REFUND. YOU SHOULD RETAIN FOR YOUR RECORDS ONE COPY OF THE CANCELLATION NOTICE, OR A CARBON OF THE CONTRACT WHEN IT PROVIDES THE CANCELLATION INFORMATION, OR OTHER WRITING SHOWING INTENT TO CANCEL. MAILING BY ORDINARY MAIL IS ADEQUATE BUT CERTIFIED MAIL RETURN RECEIPT REQUESTED IS RECOMMENDED. Page 6 7 NAME: ADDRESS: ------------------------------- ----------------------------------- CITY: STATE: ZIP: -------------------------------- ------------- ------------------- EXECUTED THIS DAY OF 19 ------------------------ ---------------------------- ----
Membership Campground Operator: - ------------------------------------------------ Purchaser's Signature ----------------------------------------------------- 2711 LBJ Freeway, Suite 200 Dallas, Texas 75234 - ------------------------------------------------ Purchaser's Name (please print) - ------------------------------------------------ ----------------------------------------------------- Purchaser's Signature Authorized Signature - ------------------------------------------------ ----------------------------------------------------- Purchaser's Name (please print) Preserve
Page 7 EX-11.1 7 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 THOUSAND TRAILS, INC. STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (DOLLARS AND COMMON SHARES IN THOUSANDS)
Year Ended Year Ended Year Ended June 30, 1999 June 30, 1998 June 30, 1997 --------------- --------------- --------------- BASIC: Weighted average number of common shares outstanding 7,630 7,407 7,223 =============== =============== =============== Net income allocable to common shareholders $ 5,571 $ 24,879 $ 6,799 =============== =============== =============== Net income per common share -- basic $ 0.73 $ 3.36 $ 0.94 =============== =============== =============== DILUTED: Weighted average number of common shares outstanding 7,630 7,407 7,223 Weighted average common stock equivalents - Dilutive options 824 975 480 Dilutive warrants 21 16 1 --------------- --------------- --------------- Weighted average number of common shares outstanding 8,475 8,398 7,704 =============== =============== =============== Net income allocable to common shareholders $ 5,571 $ 24,879 $ 6,799 =============== =============== =============== Net income per common share -- diluted $ 0.66 $ 2.96 $ 0.88 =============== =============== ===============
EX-23.1 8 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated September 3, 1999, included in the Thousand Trails, Inc. (the "Company") Form 10-K for the year ended June 30, 1999, into previously filed registration statements covering the Company's 1991 Employee Stock Incentive Plan, 1993 Stock Option and Restricted Stock Purchase Plan, 1993 Director Stock Option Plan, 1999 Employee Stock Purchase Plan, and the Stock Option Agreement dated as of August 1, 1996, between the Company and William J. Shaw. /s/ Arthur Andersen LLP - -------------------------------- Dallas, Texas September 3, 1999 EX-27.1 9 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS JUN-30-1999 JUL-01-1998 JUN-30-1999 2,197 0 2,184 0 0 8,401 20,829 0 56,804 31,010 10,887 0 0 81 9,567 56,804 4,085 67,925 0 60,010 57,053 0 2,957 7,915 (2,344) 5,571 0 0 0 5,571 .73 .66
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