Thousand Trails, Inc.

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Thousand Trails, Inc.

2711 LBJ Freeway, Suite 200
Dallas, Texas
U.S.A.
Telephone: (972) 243-2226
Fax: (972) 488-5008
Web site: http://www.1000trails.com

Public Company
Incorporated: 1991 as USTrails, Inc.
Employees: 839
Sales: $67.9 million (1999)
Stock Exchanges: American
Ticker Symbol: TRV
NAIC: 721211 RV (Recreational Vehicle) Parks and Campgrounds

Thousand Trails, Inc. operates 53 membership-based campgrounds under the Thousand Trails and NACO banners. The company’s camping facilities are located in 17 states and in British Columbia, serving more than 100,000 member customers. In addition, a Thousand Trails subsidiary manages 169 public campgrounds for the U.S. Forest Service.

1970s Origins

Thousand Trails’ history of financial woes began not long after founder Milt Kuolt created the first Thousand Trails campground in 1972 in Chehalis, Washington, a 90-minute drive from Seattle. Kuolt, in his mid-40s at the time, believed he could make his fortune selling campground memberships, a concept grounded on the premise that Americans would flock to secure, affordable, and well-maintained campground sites for their vacations. For the price of a single extended vacation to Hawaii, for instance, Thousand Trails customers could make a down payment on a lifetime membership, entitling them to visit a variety of locations whenever they chose. Kuolt’s immediate need after establishing the first campground was to develop more sites. At each Thousand Trails campground he wanted to establish a suitable mixture of the pristine outdoors and the security and amenities of a private resort. Typically, two-thirds of the acreage included within a campground was left untouched. The remaining third was developed for the member campers. Recreational vehicle sites were created, some with electrical and sewer hookups, sheltered from each other by curtains of trees. Clubhouses were built, serving as activity centers for the member campers, many of whom were retirees, and security measures were taken. The camping complexes were gated, patrolled 24 hours a day by guards.

Providing a controlled environment in a natural setting required considerable development money. Kuolt quickly found himself strapped for cash. In 1976, when Kuolt was in hot pursuit of building his portfolio of camping properties, an opportunity arose that revealed the company’s dire need for money. Kuolt was presented with the chance to buy 199 acres of defaulted property, its mortgage held by a banker who offered to sell it to Kuolt for $ 1 million. Kuolt believed the acreage was worth half the amount, but the banker stipulated that if Thousand Trails acquired the property for $ 1 million, the bank would extend the company a $2.5 million credit line. In an April 11, 1983 interview with Forbes magazine, Kuolt explained that the asking price was unacceptable, but he was forced to agree to the terms because of the precarious financial state of his company: ’ ’My closest advisers pulled me right out of this room and said, ’Kuolt, we don’t give a damn if you push the whole goddamn piece of land into Puget Sound. You sign that goddamn deal with this banker. You need the cash’.”

Kuolt, never reticent in his use of strong language, was forced to capitulate to the banker’s offer, but the $2.5 million credit line did not resolve his company’s financial problems. As the expansion of Thousand Trails continued, Kuolt again found himself in need of capital. In 1979, he took Thousand Trails public, turning to an initial public offering (IPO) for a fresh supply of cash. At the time of the company’s IPO, liabilities exceeded assets by more than $2 million. In his 1983 Forbes interview, Kuolt conceded, “We were technically bankrupt,” but the $5.7 million raised from the IPO relieved the pressure only temporarily. Within a year, Thousand Trails again stood on the brink of financial failure. Marketing expenses had stripped the company of its IPO proceeds. To stay the company’s collapse, Kuolt searched for an institution willing to extend Thousand Trails more credit. In 1980, First National Bank of Bosto emerged as the company’s savior, granting it $10 million of credit, an offer that Kuolt was forced to accept at two percent over the prime rate.

As the 1980s began, Thousand Trails was heavily in debt and suffering from a recurring problem. Escalating operating costs had hamstrung the company, forcing Kuolt to take a new approach to the problem. Instead of treatment, the company needed a cure, which led Kuolt to look at the company’s operation from a more detached, objective view. As befitted his candid, no-holds-barred demeanor, Kuolt cast the finger of blame directly on himself. “You’ve got to pull yourself away and say, now what’s wrong with the company?,” he explained in his 1983 Forbes interview, adding “Well, the goddamn chairman, he’s fouling it up.” Kuolt stepped down from the chairman’s office in 1981, sacrificing himself as a last resort to save Thousand Trails. Later in the year, Kuolt started a new airline company named Horizon Air, while the person he selected to head Thousand Trails grappled with the profound problems hobbling Thousand Trails’ progress.

New Leadership for the 1980s

Jim Jensen, a self-described “new age” manager, moved into Kuolt’s office in 1981. During the previous two years, Jensen had taken a hiatus from corporate life to pursue readings in metaphysics and psychology and to take a trip to Brazil, where he met with a Brazilian psychic who performed psychokinesis, mental telepathy, and telekinesis. Jensen’s avid interest in seeking alternative methods of self-improvement dovetailed with his method of management. Before his two-year self-exploratory sojourn, Jensen had cemented his reputation as an effective leader at Grantree Furniture Rental, the principal subsidiary of Oregon-based Grantree Corp. Instilling what he called “whole brain” communications to his employees, Jensen spearheaded prolific growth. During his six-year term as president and chief operating officer of Grantree Furniture Rental, Jensen transformed the subsidiary from a 183-employee, $6 million-in-sales operation to a $72 million-in-sales enterprise that employed 1,400 workers.

Jensen’s achievements at Grantree Furniture Rental had impressed Kuolt, convincing him that he had found the person capable of resolving Thousand Trails’ fundamental problem. The company was suffering because it consistently spent more money than it collected. Lifetime memberships were priced at an average of $6,000, but the middle-income campers who purchased the memberships usually only made a down payment equal to 40 percent of the full price. The company, which recorded partial payments at the full membership price as revenue on its balance sheet, was spending 45 percent of sales on marketing, rendering it incapable of meeting its cash flow needs. The only way to overcome this obstacle was to borrow money or to sell portions of the company to equity investors, a tactic that could not be used in the long term.

Despite the financial crisis, Jensen pressed ahead with expansion. He inherited 14 campgrounds when he took control in 1981 and over the next two years increased the number of properties to 21. To tide the company over financially, he continued to seek outside sources for infusions of cash, doing what Kuolt had done since the company’s birth. When sales reached $56 million in 1982, Jensen brokered a $25 million credit line from a Phoenix-based, state-regulated savings and loan association named Western Savings. In return, Western Savings gained a 24 percent ownership stake in the company. The credit line from Western Savings was dedicated to property acquisition and development, while commercial credit lines, which amounted to another $25 million in 1983, were used to supply working capital.

Thousand Trails was falling deeper and deeper in debt, but as Jensen looked ahead from his vantage point in 1983, his forecast was optimistic. He believed that within two years, the company’s ever-growing receivables would collect enough in repayments to finally pay down the company’s debt. In the interim, the company was forced to finance its aggressive expansion by continuing to borrow against receivables, further deteriorating its financial health. In 1984, when the company announced a record $19.1 million in earnings, it used $52 million more cash than it produced. The following year, earnings plunged 90 percent to $1.8 million after a considerable number of members dropped out of the company’s system before paying for their full memberships, stripping Thousand Trails of revenue it had prematurely recorded. Marketing expenses at this point were two times greater than down payments, saddling the company with a cash shortage of $55 million. When the first quarter results of 1986 revealed a nearly $2 million loss, expansion came shuddering to a stop. Again, company officials endeavored to reduce marketing costs. Debt by the beginning of 1986 represented 244 percent of shareholders’ equity.

Company Perspectives:

We are different than most campgrounds. How? Why are we better? We’re private. That means our preserves are kept just for members, and their guests. In a way our campgrounds belong to our members, so we work hard for them to create a terrific camping experience. We’ve built the kind of campgrounds that our members want with plenty of resort-style amenities. Members rave about the pools, hiking trails, lodges, lakes, basketball and tennis courts, laundry facilities and more. Some campers may come just for a fun weekend with their families, while others may camp for weeks, touring the country enjoying our hospitality from coast to coast. Our members have full access to all of the premium amenities each time they stay with us.

In 1986 and 1987, Thousand Trails lost a total of $67 million, still unable to generate positive cash flow without the help of financing. The company’s financial performance moderately improved in the late 1980s, but by the beginning of the 1990s it stood on the verge of bankruptcy. The company operated one of the largest of membership campground resort systems in the nation, comprising 39 campgrounds situated in 15 states and in British Columbia, but its financial problems were grave. In 1990, the company obtained financing from only one source, NACO Finance Corp. (NFC), which itself was mired in financial problems. NFC had been created by Southmark Corp. in 1987 to finance some of its subsidiaries, which included Thousand Trails. By 1990, a Southmark subsidiary that owned 68.8 percent of Thousand Trails was in Chapter 11 bankruptcy reorganization, making Thousand Trails’ position that much more untenable.

Fresh Start for the 1990s

For a brief period, a familiar figure emerged as a possible savior for Thousand Trails. Milt Kuolt, who had sold Horizon Air to Alaska Airlines in 1986, had moved on to become chairman of Delta Campground Management Corp., which in November 1990 announced its intention to buy a controlling interest in Thousand Trails from Southmark’s ailing subsidiary, San Jacinto Savings Association of Houston. Kuolt and his company later backed away from the deal, but another deal soon took its place. In 1991, as part of its own Chapter 11 reorganization efforts, NFC acquired National American Corporation (NACO), a manager of timeshare facilities and full service resorts, and 69 percent of Thousand Trails. The new company was named USTrails, Inc., which operated as Thousand Trails’ parent company. USTrails acquired the remaining interest in Thousand Trails in 1994. Two years later, the entire organization was renamed Thousand Trails, Inc.

Against the backdrop of these significant corporate maneuvers, important changes were made in the way Thousand Trails operated. In April 1992, after years of suffering losses from rising marketing costs, the company suspended its sales program. No new campground memberships were sold, and, in fact, by the fall of 1992, the company began helping its members to sell their memberships in the secondary market. By May 1994, the company was ready to renew its marketing efforts and implemented a sales program to build up its membership base. Initially, with USTrails governing Thousand Trails’ operation, memberships were sold on a limited basis, but in May 1995 the company introduced a range of new membership options. Before halting its sales program in 1992, the company sold campground memberships for prices up to $8,000, but in 1995 marketing efforts began focusing on a greater number of membership options, available for a wide range of prices. Membership packages were offered that gave customers the option of using one system, either Thousand Trails or NACO, or both, for prices ranging between $495 and $2,495. By 1996, when all of the entities operated under one corporate banner, the average price paid by members for a membership package was $779.

By 1996, after the final merger that created a multifaceted Thousand Trails, the scope of the company’s operations comprised several networks of properties. Under the Thousand Trails logo, there were 35 campgrounds, complementing the 23 campgrounds operating under the NACO banner. The 58 campgrounds controlled by the company comprised 19,300 campsites, which were used by 81,000 Thousand Trails members and 47,000 NACO members. In addition, a subsidiary named UST Wilderness Management managed 35 public campgrounds for the U.S. Forest Service, a service it began providing in 1994.

By the late 1990s, after years of fitful progress, the company continued to be beleaguered by the realities of its business. By the end of the decade, the number of campgrounds controlled by Thousand Trails had been reduced to 53, scattered among 17 states and British Columbia. Sales were on the wane, as was net income, although the company had recorded ten consecutive quarters of profit by the first quarter of 2000. As Thousand Trails prepared for the future, the emphasis was on increasing its membership base. Toward this end, the company entered into a joint marketing agreement in 1997 with Fleetwood Industries, Inc., the largest U.S. manufacturer of RVs. Under the terms of the arrangement, purchasers of new Fleetwood RVs received temporary Thousand Trails memberships. In another bid to increase sales, Thousand Trails announced in December 1999 that it had signed an agreement to acquire Leisure Time Resorts of America, Inc., which owned and operated ten membership campground resorts in Oregon and Washington. The continued pursuit of property acquisitions and marketing alliances with other leisure-related companies represented the company’s most likely chance to improve its financial performance in the 21st century.

Principal Subsidiaries

National American Corporation; Resort Parks International, Inc.; Thousand Trails (Canada), Inc.; UST Wilderness Management Corporation; Coast Financial Services, Inc.

Principal Competitors

Resorts USA, Inc.; Travel America, Inc.; Affinity Group Holding, Inc.; International Leisure Hosts, Ltd.; Kampgrounds of America, Inc.

Key Dates:

1972:: Milt Kuolt establishes first Thousand Trails campground.
1979:: Thousand Trails completes initial public offering.
1981:: Kuolt steps down as chairman of the company.
1991:: Thousand Trails and NACO are acquired by USTrails, Inc.
1996:: USTrails changes its name to Thousand Trails, Inc.
1999:: Thousand Trails signs agreement to acquire Leisure Time Resorts of America, Inc.