"In those days," he says, "I couldn't borrow the price of a dried grape. I was laughed out of nearly every bank in Seattle. At least once a month, every friend I had told me to bankrupt the company because I couldn't make it."
According to Kuolt, the kind folks at the Canadian Imperial Bank didn't want to lend him any more money because they weren't entirely sure they were going to collect on his original loan. "I was late on the payments," he says, "and they told me I was a 'problem' loan." Nor were other banks eager to part with their funds. This idea of "right to use" rather than "pride of ownership" needed to ripen on the vine a little longer. Kuolt says banks were also troubled by the dependability of the receivables that would eventually repay the loan. Today, with the average price of a membership hovering around $5,000, 67% of all new members choose to pay in installments with a 20% down payment, financing the balance at rates between 15% to 18% over an average term of four years. As the company's ability to police these receivables has improved, the provision for doubtful accounts declined to a point where it is now less than 2% of total membership sales. But in 1975, that same figure was 8%, and it was based on only three years of experience. "I've mostly found bankers to be pompous bastards," Kuolt says. "Hell, some of them wouldn't even come out to the office to look around."
Kuolt struck out against the indignity of it all with a long, desperate combination of jabs and hooks, a Joe Frazier style of financing -- keep coming, keep swinging, don't let up. "Nothing so-phisticated," he says, "just hard grubbing in the street." Every week, Kuolt would take a bunch of receivables down to a local consumer finance company that would set up a bad debt reserve of 15% of the total value of the receivables and give Kuolt the difference in cash.Then Kuolt would drive back to Chehalis or some other preserve and pay bills.
Membership receivables were also used to acquire property. Mel Kays says that the differences in financing arrangements then and now clearly demonstrate Thousand Trails's improved financial stability. "In those days we had to conserve cash," Kays says, "so we typically put down 3% to 5% as a cash down payment and then pledged some receivables to get the down payment up to 15%. Then we worked out a deal where we would pay off the balance with a monthly combination of some cash and more receivables. We'd do development to the extent there was anything left over."
In 1975, this method was used to acquire Thousand Trails's second preserve, a partially developed campground in Leavenworth, Wash. In contrast to the murky past, Kays points to the November 1980 acquisition of an 84-acre site at San Jose, Calif. -- a $1.6-million chunk gobbled up for $250,000 down and a note for the balance at 11% over seven years. "Before, a seller would've been nervous as hell to take back a note," he says.
THOUSAND TRAILS: STATYING AHEAD OF THE DEBT
Year ended December 31 1976 1977 1978 1979 1980
Sale of memberships ($ mil.) 1.2 7.7 14.3 21.4 34.0
Fully diluted earnings (loss) (.11) .55 .66 1.17 1.42
per share
Current assets ($ mil.) .5 1.7 2.8 8.0 7.6
Current liabilities ($ mil.) .8 1.7 5.0 7.0 7.8
Total assets ($ mil.) 3.6 7.9 17.2 34.3 52.6
Long-term debt ($ mil.) 3.5 4.1 7.0 17.5 20.5
Shareholder's equity
($ mil.) (.1) 1.0 3.0 7.1 14.1
Debt/equity ratio -- 4.1 2.3 2.5 1.5
Memberships sold 614 2,826 4,263 5,581 7,704
Average price of
membership $1,900 2,725 3,375 3,825 4,400
In and around the receivables financing, Kuolt wove an intricate web of supplementary loans with friends, relatives, and various acquaintances. "There was a lot of Mickey Mouse financing going on," Kuolt says, "but we did what we had to -- $100,000 here, $40,000 there. We probably raised $3 million to $4 million that way."
Milton and Lucile Clarke were passing the time quietly inside the clubhouse, a long, high-roofed wooden structure bordered at one end by the pool and at the other by a general store called The Trading Post. Milton is 63, a retired cab driver from Portland. He and Lucile have been Thousand Trails members for 10 months. Lucile says they used to go to state parks, but got fed up with "the carrying on. We have security here," she says, "It's perfect for us."
By 1975, Kuolt and his cash flow machine appeared to be making some progress. True, there was an operating loss of $49,000, but there were also two preserves, 583 members, and sales of $353,000. The contraption had yet to kick over, though, and Kuolt sorely needed to hear even a faint spark of ignition. It sputtered to life the very next year.
By year end 1976, memberships had doubled and, aided by a higher membership price, sales tripled past the $1-million mark for the first time. The powerful propellant behind this sudden burst was a high-octane blend of two more preserves and 40 go-getting salespeople. "It was a turning point for us," Kuolt says. "For one thing, the public saw that we now had four preserves, and that obviously made a membership more attractive. For another thing, we were able to hire Rich Toohey as sales, manager."
