SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
For the fiscal year ended April 30, 1996
SUBMITTED PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Cruise America, Inc.
11 West Hampton Avenue
Mesa, Arizona 85210-5258
Telephone: (602) 464-7300
Commission File No. 1-9471
I.R.S. No. 59-1403609
State of Incorporation: Florida
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section (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 and 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
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The aggregate market value of voting stock held by non-affiliates as of July 5,
1996, was approximately $33,479,000. As of July 5, 1996, 5,741,068 shares of the
registrant's Common Stock were outstanding of which 4,251,356 were held by
non-affiliates of the registrant.
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. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the Registrant's proxy materials to be filed with the
Securities and Exchange Commission has been incorporated by reference in Part
III of this Annual Report on Form 10-K.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
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PART I
<S> <C> <C>
1. Business.........................................................................................................1
2. Properties.......................................................................................................4
3. Legal Proceedings................................................................................................4
4. Submission of Matters to a Vote of Security Holders..............................................................4
PART II
5. Market for Registrant's Common Stock and Related Stockholder Matters.............................................5
6. Selected Financial and Operating Data............................................................................6
7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................7
8. Financial Statements and Supplementary Data.....................................................................11
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure............................28
PART III
10. Directors and Executive Officers of the Registrant..............................................................28
11. Management Remuneration.........................................................................................28
12. Security Ownership of Certain Beneficial Owners and Management..................................................28
13. Certain Relationships and Related Party Transactions............................................................28
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................................29
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
General
Cruise America, Inc. is the largest company in North America specializing in the
rental and sale of Recreational Vehicles (RVs). The Company began sales and
rental operations in Miami, Florida in 1972, with an initial strategy to locate
rental centers in metropolitan gateway cities which are destinations for large
numbers of domestic and international travelers. Since that time, the Company
has established 85 additional rental and/or sales locations across the United
States and Canada. At April 30, 1996, the Company operated a total of 16 Hub
offices, 70 Satellite offices, and a rental fleet of 2,366 recreational vehicles
across North America.
RV rentals provide the consumer with the benefits of use without the burdens of
ownership, and make Recreational Vehicle vacations available to a broad range of
consumers. RVs combine transportation, lodging, and cooking facilities at a cost
which the Company believes provides an economical alternative to automobile
travel and related hotel and restaurant expenses. Additionally, recent
technological advances, including more aerodynamic design, lighter weight
construction and fuel-efficient engines, have substantially increased the
fuel-efficiency of RVs. The Company also rents and sells motorcycles and vans
from selected locations.
Besides rentals, the Company sells new and used RVs (including vehicles retired
from the rental fleet) from its Hub offices. The sales effort is marketed under
the name RV DEPOT and currently represents approximately 50% of total revenue.
The amounts of revenues, income and identifiable assets attributable to the
Company's foreign operations is set forth in Note 11 to Consolidated Financial
Statements included elsewhere in this Form 10-K.
Cruise America Rental System
Cruise America rents a wide variety of RVs at each of its 16 Hub and 70
Satellite offices across North America. The Company's peak rental fleet in the
year ended April 30, 1996 consisted of 3,099 RVs, of which 2,219 were
motorhomes, 759 were truck campers, 82 were motorcycles and 39 were vans and
trailers. The majority of vehicles available for rent were current model, one or
two year old vehicles.
Cruise America's RVs include a wide range of sizes from 18 to 31 feet. Cruise
America motorhomes and truck campers are fully self contained with kitchen and
bath facilities, heat and air conditioning as well as comfortable sleeping
arrangements. Most motorhomes have electric generators and many have microwave
ovens. Cruise America RVs are as easy to drive as a car with no special license
requirements. All vehicles are equipped with automatic transmission, power
steering and power brakes. Most vehicles also have cruise control.
Over the years, the Company's use of rental vehicles that can easily be disposed
of after the peak summer rental season has increased significantly. The Company
also began in the Spring of 1993 to purchase motorhomes that are designed such
that the coach portion can be easily removed from the old chassis and placed on
a new chassis. These two changes in the rental fleet are designed to reduce
maintenance and holding costs and increase the service life of the vehicles.
Virtually the entire rental fleet is now made up of these specially designed
RVs.
The Company purchases its rental fleet from several manufacturers, including
Chevrolet, Fleetwood, Damon, Four Winds, Holiday Rambler, Coachmen and
Winnebago. The Company believes it enjoys excellent relationships with its
suppliers, most of which have been suppliers to the Company for many years. The
Company believes, if the need arose, that it could equip its fleet with RVs from
other suppliers without any material adverse effect on its operations. Most of
the Company's rental vehicles are pledged as security under financing agreements
with banks and other financial institutions.
1
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Subject to certain deductible amounts and retention limits, the Company
maintains coverage to insure against claims based upon personal injury, property
damage and loss of Company property in connection with its business and
operations. In light of current insurance costs and the Company's experience,
the Company believes that its policy limits provide sufficient coverage and the
deductible amounts are reasonable.
Hub Offices
At April 30, 1996, the Company operated Hub offices from 16 locations in the
United States and Canada. Each office consists of full service rental
operations, new, used and fleet RV sales, fleet maintenance, and vehicle
storage. In addition, each Hub office provides management and marketing support
and other services to the Satellite offices within its respective service area.
Among the factors which the Company considers significant in the selection of
locations for Hub offices are population, demographics, proximity to major
airports, vacation destinations and favorable economic conditions within the
potential service area for the rental and sale of RVs.
Satellite Offices
At April 30, 1996, the Company operated 70 Satellite rental centers, called
Dealers. Dealers are independently owned and operated businesses that contract
to rent the Company's RVs. Typically, the Dealer also is engaged in a
complementary business such as car, truck or equipment rentals, or RV sales. The
Satellite office operator provides the facilities and all personnel for the
rental operation and is paid a commission on the rental revenue generated. The
Company provides each Dealer with vehicles, maintenance, service, forms,
supplies, advertising and management support.
Fleet Planning and Management
Fleet management is accomplished through the coordination of reservations, fleet
purchasing, fleet distribution, fleet sales, marketing and the motorhome
rechassis/refurbish operation. Information derived from each of these areas is
used to establish a fleet plan designed to maximize vehicle utilization.
Reservation information from local, central and international reservations is
used to schedule vehicle requirements and demands. This information is also used
to schedule routine maintenance and to establish pricing and one-way surcharges
in order to control vehicle utilization and availability. Expansion of the
rental fleet and the timing of vehicle purchases, as well as the distribution of
rental vehicles among rental centers, are determined in part by historical
reservation demand and anticipated demand as expressed to management by travel
wholesalers and travel agents.
Vehicle purchases are generally scheduled so that new vehicles are delivered
according to anticipated rental demand. The Company encourages one-way vehicle
flow into the sunbelt locations in the fall and into the snowbelt locations in
the spring.
Vehicles from the fleet are sold at all Hub locations. Fleet sales are
controlled at the Company's headquarters. Because fleet sales are seasonal and
regionalized, the Company maintains a wide selection of RVs during the peak
selling months in order to maximize sales.
Customer Service
The Company believes strongly in familiarizing the customer in all aspects of RV
usage. Each customer is given a full demonstration prior to rental as well as
extensive written instructions. Multilingual personnel are retained at major
gateway markets to assist foreign language speaking customers. On the road,
customers have access to 24- hour toll-free lines for assistance.
2
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All vehicles are cleaned, inspected and serviced prior to pickup, and detailed
quality control procedures are used to assure that vehicles are properly
prepared and maintained. The Company makes available to rental customers luggage
storage, kitchen supplies and utensils, linens, airport pickup and maps.
Advertising and Promotion
The Company's objective is to provide quality rental services at competitive
prices to both domestic and international customers. Rental services are
marketed directly to the consumer and through tour operators and travel agents.
The Company's rental marketing program is designed to level out rental demand
throughout the year in order to maximize vehicle utilization.
The Company's rental services are marketed internationally by commissioned
general sales agents and by approximately 300 travel wholesalers in their
brochures and related travel media in approximately 25 countries. The Company
also engages in direct advertisement in several foreign markets. Currently, the
Company's rental programs are featured in North American destination travel
brochures published in many countries throughout the world.
The Company also promotes its rental programs through travel agents, airlines,
automobile clubs and other targeted marketing groups. The Company has been a
participating sponsor in various fund raising and sporting events. In addition,
the Company offers special motorhome vacations and discounted rates designed to
stimulate business in the off-season.
The Company also conducts a balanced domestic advertising program for sales and
rentals, which includes advertisements in telephone directories, print media,
industry trade media, local newspaper displays, classified advertising and other
select publications. To a lesser extent, the Company advertises on radio and
television and through direct mail promotions. The Company also promotes its
products and services at RV shows, travel trade and consumer shows and other
special events.
Reservations
The Company's reservations department maintains toll-free customer telephone
service across the United States and Canada. The international reservations
department receives, confirms, processes and invoices international
reservations. Domestically, the reservations department also performs customer
credit qualification procedures and processes travel agent requests and
bookings.
Vehicle Service and Parts
The Company maintains or has access to fully-equipped service facilities at each
office to support its rental fleet. In addition, the Company's Mesa, Arizona
office maintains a retail service department, which is equipped to handle the
repair of virtually any type of RV. The parts department supports the rental,
sales and service functions of the Company, and also provides support to the Hub
and Satellite rental centers by stocking parts that are not readily available.
In addition, the parts department stocks accessory items usually sold to RV
owners. The parts department conducts mail order sales, both foreign and
domestic, for scarce or specialized RV parts. Parts are sold at both wholesale
and retail.
Competition
The Company is the largest company in North America that specializes in the
rental and sale of RVs. The Company competes with other leisure and vacation
activities, many of which are more visible and familiar than the Company's
product. The Company competes in the rental and sale of RVs with several firms,
some of which operate in multiple locations. In addition, there are local
competitors that operate in single locations. Significant competitive factors in
the RV rental and sales industry include price, service, reliability, quality of
product, convenience, the ability to offer one-way rentals and vehicle
availability. The Company believes that it is competitive in all of these
categories.
3
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Employees
As of April 30, 1996, the Company had 311 full-time employees. The Company has
no contracts or collective bargaining agreements with labor unions and has never
experienced work stoppages. The Company's management considers its relations
with employees to be excellent.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Mesa, Arizona. The
Company owns facilities in Mesa, Miami, Denver, Los Angeles and Oakland. The
Mesa, Miami, and Los Angeles facilities are subject to mortgages of $2,458,000.
The Company leases its facilities at each of its other Hub rental centers
pursuant to operating leases expiring at various times through the year 2004.
ITEM 3. LEGAL PROCEEDINGS
On May 14, 1987, one of the Company's concession operators commenced a lawsuit
entitled Altman's America, et. al. v. American Land Cruisers of California,
Incorporated, et. al. in the Superior Court of the State of California for the
County of Los Angeles. The action arose out of a claim for an alleged wrongful
termination by the Company of a sublease agreement. This case has been tried
twice. The first trial resulted in a judgement in the amount of approximately
$3.5 million. That judgement was reversed on appeal and remanded for retrial.
The second trial resulted in judgements for the plaintiffs in the amount of
$235,000 and a judgement for the Company of $634,000, which equaled a net
judgement for the Company of $399,000. On July 18, 1996, the Appellate Court
reduced the total amount due to the Company by approximately $400,000 and
remanded the case for retrial. The Company intends to pursue all means to defeat
the case.
The Company is a party to various other claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, the
disposition of these matters will not have a material adverse effect on the
financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
There were no matters which were brought to a vote of security holders during
the fourth quarter of fiscal 1996.
4
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the American Stock Exchange under the
symbol RVR. The following table sets forth, for the periods indicated, the high
and low sales prices as reported by the American Stock Exchange.
1995 1996
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Quarter Ended High Low High Low
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July 31, 1994 and 1995 3 3/4 2 3/8 5 3/8 4 3/8
October 31, 1994 and 1995 3 1/2 2 3/8 5 5/8 4 5/8
January 31, 1995 and 1996 3 13/16 2 7/16 5 15/16 4 15/16
April 30, 1995 and 1996 4 11/16 3 3/8 7 1/8 5 1/8
As of April 30, 1996, there were 224 holders of record, not including security
position listings.
The Company has not paid cash dividends since 1982. The Company anticipates that
for the foreseeable future its earnings will be retained for use in its business
and no cash dividends will be paid on its Common Stock. Declaration of dividends
in the future will remain within the discretion of the Company's Board of
Directors, which will review its dividend policy from time to time on the basis
of the Company's financial condition, capital requirements, cash flow,
profitability, business outlook and other factors. The Company currently is
restricted from paying cash dividends under the terms of some of its financing
agreements. See Note 8 to the Consolidated Financial Statements.
5
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ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
(In thousands except per share data and Selected Operating Data)
The selected consolidated financial data presented below under the captions
"Selected Statement of Operations Data" and "Selected Balance Sheet Data" has
been derived from the consolidated financial statements of the Company. The
information below should be read in conjunction with "Management's Discussion
and Analysis of Consolidated Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company (including the notes
thereto).
<TABLE>
<CAPTION>
Year Ended April 30,
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1992 1993 1994 1995 1996
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<S> <C> <C> <C> <C> <C>
Selected Statement of Operations
Data:
Rental Revenue $ 44,562 45,686 40,537 36,842 44,319
Sales 30,901 61,077 55,540 48,476 43,569
--------------- ------------- ------------- ------------- -------------
Total Revenue 75,463 106,763 96,077 85,318 87,888
Gross Profit from Operations 24,765 26,273 21,108 27,037 29,535
Net Earnings (Loss) $ (512) (800) (3,101) 185 1,006
Earnings (Loss) Per Share $ (.09) (.14) (.55) .03 .17
Shares Used in Calculation 5,539 5,543 5,630 5,694 5,859
Selected Balance Sheet Data
(end of period):
Rental Vehicles, Net 80,020 70,755 46,474 51,315 63,518
Total Assets 110,163 105,372 89,762 89,378 95,695
Total Rental Vehicle Financing 60,803 50,950 25,356 30,622 40,284
Long-Term Debt, excluding current
installments 10,218 8,937 28,432 23,892 19,412
Stockholders' Equity $ 25,914 24,761 22,064 22,329 23,462
Selected Operating Data:
Rental Fleet - Peak 3,544 4,019 4,015 2,710 3,099
Rental Fleet - End of Period 3,430 3,158 1,790 1,884 2,366
Total Rental Centers 108 86 95 84 86
Rental Vehicles Sold 977 2,111 1,807 1,494 1,692
Revenue Days1 471,045 477,745 456,256 370,144 462,783
</TABLE>
(1) Revenue days is calculated as the total number of days that all fleet
vehicles were rented during the period.
6
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's profits are derived principally from its rental business. For the
years ended April 30, 1995 and 1996, 78% and 85%, respectively, of the Company's
gross profit from operations was from rentals. The Company's sales business also
contributes to its profits, but the gross margins in the sales business are
substantially less than in the rental business. The Company augments its rental
vehicle sales at retail with wholesale sales and has developed fleet repurchase
arrangements with fleet manufacturers. The Company has also developed the
ability to replace the chassis portion of the motorhome fleet which extends the
vehicle's life and reduces the Company's reliance on sales to achieve fleet
turnover. The rental business is seasonal, with recreational travel and tourism
being highest in the summer months. Rental revenue in the summer months (May
through October) represents the majority of rental revenue for the 12 month
operating cycle. Certain rental costs are variable such as depreciation, but
many rental costs are fixed such as interest, licenses and insurance. Because of
these seasonal characteristics the Company historically reports net losses in
the months from November through April and reports net earnings during the
period from May through October. Owing to the seasonality of its rental
business, the results of any interim period are not necessarily indicative of
the results which might be expected for a full year.
Results of Operations
For the year ended April 30, 1996 compared to the year ended April 30, 1995.
Rental Revenue increased to $44,319,000 in 1996, from $36,842,000 in 1995, a 20%
increase. A 25% improvement in revenue days more than offset a 4% reduction in
revenue per day. The improvement in revenue days was due to an increase in
utilization as well as a larger fleet.
Sales in 1996 were $43,569,000 compared to $48,476,000 in 1995, a 10% decline.
An increase in rental vehicle sales was more than offset by a decrease in new
and used vehicle sales which have been affected by an industry-wide slowdown in
demand beginning in fiscal 1995.
Cost of Rentals as a percentage of Rental Revenue was 44% in 1996 compared to
42% in 1995. This slight increase was due primarily to a reduction in revenue
per day while variable costs increased with volume.
Cost of Sales as a percentage of Sales was 90% in 1996 compared to 88% in 1995.
This increase was due to a shift in sales mix toward lower margin rental vehicle
sales and away from higher margin new and used vehicle sales.
Gross Profit from Operations as a percentage of Total Revenue was 34% in 1996
compared to 32% in 1995. This improvement is due to an increase in higher margin
Rental Revenue as a percentage of Total Revenue.
Interest Expense in 1996 was $7,279,000 compared to $6,035,000 in 1995, as a
result of higher interest rates and higher average debt levels.
Selling, General and Administrative Expenses were $20,897,000 in 1996 compared
to $20,779,000 in 1995. This slight increase was mainly the result of personnel
costs related to the Company's headquarters operations. Selling, General and
Administrative Expenses as a percentage of total revenues was 24% in both 1996
and 1995.
Income tax expense in 1996 represented a 26% effective tax rate compared to 17%
in 1995. See note 7 to the consolidated financial statements.
For the year ended April 30, 1995 compared to the year ended April 30, 1994.
Rental Revenue decreased to $36,842,000 in 1995, from $40,537,000 in 1994, a 9%
decline. An 11% increase in revenue per day was more than offset by a 19%
reduction in revenue days. The volume decline was primarily due to severe
discounting by competitors at a time when the Company was raising rates.
7
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Sales in 1995 were $48,476,000 compared to $55,540,000 in 1994, a decrease of
13%. The Company's ability to extend the service life of rental vehicles by
replacing the chassis impacted sales volume by limiting the need to turn the
fleet as often. New vehicle sales also declined as a result of an industry-wide
slowdown from the prior year.
Cost of Rentals as a percentage of Rental Revenue was 42% in 1995 compared to
61% in 1994. Included in Cost of Rentals in 1994 is a one time charge of
$3,452,000 to revalue vehicles retired from the fleet. Without this charge, cost
of rentals would have been 52% in 1994. The improvement in 1995 was mainly due
to lower costs of maintenance and other variable costs associated with the 19%
reduction in rental volume at the same time the Company raised rates by 11%.
Cost of Sales as a percentage of Sales was 88% compared to 91% in 1994.
Improvements were seen in Rental Vehicle, New and Used Vehicle Sales as the
Company's reduced need to sell fleet vehicles resulted in a significant shift
away from lower margin sales at wholesale.
Gross Profit from Operations as a percentage of Total Revenue was 32% in 1995 up
from 22% in 1994. The percentage in 1994 would have been 26% without the one
time charge to cost of rentals of $3,452,000 to revalue vehicles retired from
the fleet. Gross profit percentage improvements were seen across the board.
Interest Expense in 1995 was $6,035,000 compared to $5,031,000 in 1994, as a
result of higher interest rates.
Selling, General and Administrative Expenses increased to $20,779,000 in 1995
from $19,826,000 in 1994. This was mainly as a result of increased advertising
expenditures as well as a slight increase in personnel costs related to the
Company's headquarters operations.
Income tax expense in 1995 represented a 17% effective tax rate compared to a
benefit of 17% in 1994. See note 7 to the consolidated financial statements.
Liquidity and Capital Resources
As of April 30, 1996, the Company had a working capital deficiency in the amount
of $3,538,000. The Company's working capital, as presented, includes a
significant amount of Rental Vehicle Financing. The Company's working capital
does not, however, include any of the related assets; Rental Vehicles, even
though the Company historically sells a significant number of Rental Vehicles
each year. If the related assets were included in the presentation, the Company
would not have a working capital deficiency. The Company believes that, during
fiscal 1997, cash generated from operations and financing available from banks
and vehicle manufacturers will be sufficient for its capital and operating
needs. The Company currently has lines of credit totaling $109,000,000 to
finance rental vehicle purchases, of which approximately $69,000,000 is unused.
Interest rates on these lines range from U.S. prime to U.S. prime plus 2% for
U.S. based vehicles and Canadian prime plus 1% for Canadian based vehicles. The
Company is required to make monthly principal curtailments of 1.5% of the
outstanding balances of its lines of credit. It is anticipated that borrowings
under current financing arrangements will increase to finance the purchase of
additional rental vehicles during the first quarter of fiscal year ended April
30, 1997 as the Company prepares for the peak summer rental season. The Company
presently anticipates that future purchases of new rental vehicles will be
financed primarily with funds available under lines of credit from financial
institutions and manufacturers, but the Company may seek additional debt or
equity financing in the future.
Other Matters
The Company believes that its business has not been significantly affected by
inflation. The Company believes that increases in the cost of new rental
vehicles resulting from inflation will be offset by higher resale values for
used rental vehicles. Historically, increases in operating costs are passed on
to the consumer. Higher interest rates and construction costs would increase the
cost of acquiring and opening new locations.
8
<PAGE>
The Company's wholly owned subsidiary, Cruise Canada, Inc. was incorporated in
October 1987 and began operations in 1988. Cruise Canada, Inc. operated a peak
fleet of approximately 886 vehicles for the year ended April 30, 1996 from four
hub locations and one satellite location in Canada. Financial information
regarding Canadian operations is included in Note 11 to the Consolidated
Financial Statements.
9
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Independent Auditors' Report
The Board of Directors and Stockholders
Cruise America, Inc.:
We have audited the accompanying consolidated balance sheets of Cruise America,
Inc. and subsidiaries as of April 30, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended April 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements 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 Cruise America, Inc.
and subsidiaries as of April 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended April 30, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Phoenix, Arizona
July 25, 1996
10
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
A S S E T S
April 30,
-------------------------------------
Current Assets: 1995 1996
-------------------------------------
<S> <C> <C>
Cash and Cash Equivalents..................................................... $ 3,091 2,341
Accounts Receivable, Net...................................................... 3,561 4,056
Inventories................................................................... 17,235 11,752
Prepaid Expenses and Other Current Assets..................................... 837 889
--------------- ---------------
Total Current Assets................................................. 24,724 19,038
--------------- ---------------
Rental Vehicles............................................................... 63,713 79,094
Less Accumulated Depreciation................................................. 12,398 15,576
--------------- ---------------
Net Rental Vehicles.................................................. 51,315 63,518
--------------- ---------------
Property and Equipment........................................................ 16,795 17,426
Less Accumulated Depreciation................................................. 6,274 6,916
--------------- ---------------
Net Property and Equipment........................................... 10,521 10,510
--------------- ---------------
Deposits and Other Assets..................................................... 2,818 2,629
--------------- ---------------
$ 89,378 95,695
--------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
April 30,
-------------------------------------
Current Liabilities: 1995 1996
-------------------------------------
<S> <C> <C>
Floor Plan Contracts.......................................................... $ 709 2,245
Current Installments of Rental Vehicle Financing.............................. 7,394 10,723
Current Installments of Long-Term Debt........................................ 3,072 3,023
Accounts Payable and Accrued Expenses......................................... 2,042 1,980
Customer Deposits............................................................. 6,380 4,605
Income Taxes Payable.......................................................... 20 --
--------------- ---------------
Total Current Liabilities............................................ 19,617 22,576
--------------- ---------------
Rental Vehicle Financing, Excluding Current Installments...................... 23,228 29,561
Long-Term Debt, Excluding Current Installments................................ 23,892 19,412
Deferred Income Taxes......................................................... 312 684
Stockholders' Equity:
Preferred Stock $1.00 par value; 1,000,000 shares authorized, none
issued or outstanding......................................................... -- --
Common Stock $.01 par value, 15,000,000 shares authorized, 5,694,000 and
5,740,000 issued and outstanding at April 30, 1995 and 1996, respectively..... 57 57
Additional Paid-in Capital.................................................... 24,815 24,953
Accumulated Deficit........................................................... (1,908) (902)
Translation Adjustment........................................................ (635) (646)
--------------- ---------------
Total Net Stockholders' Equity....................................... 22,329 23,462
Contingencies.................................................................
--------------- ---------------
$ 89,378 95,695
--------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
12
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CRUISE AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------------
1994 1995 1996
----------------------------------------------
<S> <C> <C> <C>
Rental Revenue............................................................. $ 40,537 36,842 44,319
Sales...................................................................... 55,540 48,476 43,569
------------- ------------- -------------
Total Revenue..................................................... 96,077 85,318 87,888
------------- ------------- -------------
Cost of Rentals............................................................ 24,608 15,623 19,279
Cost of Sales.............................................................. 50,361 42,658 39,074
------------- ------------- -------------
Total Costs....................................................... 74,969 58,281 58,353
------------- ------------- -------------
Gross Profit from Operations............................................... 21,108 27,037 29,535
Interest Expense........................................................... 5,031 6,035 7,279
Selling, General and Administrative Expenses............................... 19,826 20,779 20,897
------------- ------------- -------------
Earnings (Loss) Before Income Taxes........................................ (3,749) 223 1,359
Income Tax Expense (Benefit)............................................... (648) 38 353
Net Earnings (Loss)........................................................ $ (3,101) 185 1,006
Net Earnings (Loss) per Share (Primary and Fully Diluted).................. $ (.55) .03 .17
Shares Used in Calculation................................................. 5,630 5,694 5,859
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
YEARS ENDED APRIL 30, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
Common Stock
---------------------------- Additional Retained
Number Paid-in Earnings Translation
of Shares Amount Capital (Deficit) Adjustment Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance April 30, 1993....... 5,545 55 23,834 1,008 (136) 24,761
----------- ----------- -------------- -------------- --------------- -------------
Stock Issuance............... 149 2 706 -- -- 708
Warrants..................... -- -- 275 -- -- 275
Translation Adjustment
for Foreign Operations....... -- -- -- -- (579) (579)
Net Loss..................... -- -- -- (3,101) -- (3,101)
----------- ----------- -------------- -------------- --------------- -------------
Balance April 30, 1994....... 5,694 57 24,815 (2,093) (715) 22,064
----------- ----------- -------------- -------------- --------------- -------------
Translation Adjustment
for Foreign Operations....... -- -- -- -- 80 80
Net Earnings................. -- -- -- 185 -- 185
----------- ----------- -------------- -------------- --------------- -------------
Balance April 30, 1995....... 5,694 57 24,815 (1,908) (635) 22,329
----------- ----------- -------------- -------------- --------------- -------------
Exercise of Stock Options.... 46 -- 138 -- -- 138
Translation Adjustment
for Foreign Operations....... -- -- -- -- (11) (11)
Net Earnings................. -- -- -- 1,006 -- 1,006
----------- ----------- -------------- -------------- --------------- -------------
Balance April 30, 1996....... 5,740 57 24,953 (902) (646) 23,462
----------- ----------- -------------- -------------- --------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------------------
1994 1995 1996
----------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Earnings (Loss).................................................. $ (3,101) 185 1,006
Depreciation and Amortization........................................ 10,523 9,453 11,675
Deferred Income Taxes (Benefit)...................................... (664) 44 372
One Time Revaluation Charge.......................................... 3,452 -- --
Gain on Sale of Rental Vehicles...................................... (1,288) (1,122) (1,448)
Gain on Sale of Property and Equipment............................... (3) (108) --
Decrease (Increase) in Net Accounts Receivable....................... 1,538 (697) (495)
Decrease in Inventories 6,926 4,365 5,483
(Decrease) Increase in Floor Plan Contract........................... (1,717) (4,622) 1,536
Decrease in Accounts Payable and Accrued Expenses.................... (1,208) (149) (62)
Increase (Decrease) in Income Taxes Payable.......................... 16 (5) (20)
Increase (Decrease) in Customer Deposits............................. (2,370) 2,012 (1,775)
Other, Net........................................................... (511) 51 (336)
------------- ------------- -------------
Net Cash Provided by Operating Activities............................ 11,593 9,407 15,936
------------- ------------- -------------
Cash Flows from Financing Activities:
Proceeds from Rental Vehicle Borrowing............................... 40,586 41,628 46,651
Repayment of Rental Vehicle Borrowing................................ (66,180) (36,362) (36,989)
Proceeds from Long-Term Borrowing.................................... 21,549 -- --
Repayment of Long-Term Borrowing..................................... (2,649) (3,195) (4,529)
Exercise of Stock Options............................................ -- -- 138
------------- ------------- -------------
Net Cash Provided by (Used in) Financing Activities.................. (6,694) 2,071 5,271
------------- ------------- -------------
Cash Flows from Investing Activities:
Purchase of Rental Vehicles.......................................... (33,716) (34,058) (46,986)
Proceeds from Rental Vehicle Sales................................... 27,825 21,797 25,471
Purchase of Property and Equipment................................... (1,751) (195) (632)
Proceeds from Sale of Property and Equipment......................... 4 245 1
(Increase) Decrease in Deposits and Other Assets..................... (1,302) (437) 189
------------- ------------- -------------
Net Cash Used in Investing Activities................................ (8,940) (12,648) (21,957)
------------- ------------- -------------
Decrease in Cash and Cash Equivalents...................................... (4,041) (1,170) (750)
Cash and Cash Equivalents Beginning of Year................................ 8,302 4,261 3,091
------------- ------------- -------------
Cash and Cash Equivalents End of Year...................................... $ 4,261 3,091 2,341
------------- ------------- -------------
Non-Cash Investing and Financing Activities:
Issuance of Common Stock in Connection with Property
Acquisition..................................................... $ 708 -- --
------------- ------------- -------------
Issuance of Warrants in Connection with Senior Notes................. $ 275 -- --
------------- ------------- -------------
Transfer of Vehicles from Rental Vehicles to Inventory............... $ 22,075 -- --
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1994, 1995 AND 1996
1. Summary of Significant Accounting Policies
(a) Organization and Principles of Consolidation
The consolidated financial statements include the accounts of Cruise America,
Inc. (the "Company") and its wholly owned subsidiaries which operate
Recreational Vehicle rental and sales centers throughout North America.
All significant intercompany transactions have been eliminated in consolidation.
(b) Inventories
Inventories of new and used vehicles held for sale are valued at the lower of
cost or market using specific identification. Parts and accessories are valued
at the lower of cost (first-in, first-out basis) or market.
(c) Rental Vehicles, Property and Equipment and Depreciation
Property and Equipment are stated at cost. Depreciation of property and
equipment is provided using the straight-line method over the estimated useful
lives of the assets. Repairs and maintenance on property and equipment are
charged to operations as costs are incurred. Costs incurred for major renewals
and betterments are capitalized. Gains and losses on sales of property and
equipment are recorded in Selling, General and Administrative expenses.
Rental Vehicles are stated at cost, net of volume purchase discounts.
Depreciation of rental vehicles is based on either mileage or the straight line
method depending on the category of vehicle. Repairs and maintenance on rental
vehicles are charged to operations as costs are incurred and are included in
Cost of Rentals.
(d) Income Taxes
The Company and its Subsidiaries file consolidated U.S. Federal and State income
tax returns. Cruise Canada, Inc., a foreign corporation, files Canadian Federal
and Provincial income tax returns.
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(e) Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
16
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(f) Reclassifications
For comparative purposes, certain amounts have been reclassified to conform with
April 30, 1996 financial statement presentation.
(g) Revenue Recognition
Rental Revenue is recognized as earned, on an accrual basis. Revenue from sales
operations is recognized as earned at the time of delivery of a vehicle or at
the time service is performed.
(h) Vendor Allowances
In addition to volume purchase discounts received from motorhome manufacturers
which are recorded as a reduction to vehicle cost, the Company receives
advertising subsidies and marketing allowances from certain vendors. These
subsidies and allowances are recorded as earned as a reduction to the related
costs.
(i) Finance Commissions
The Company discounts retail installment receivables related to the sale of new,
used and rental vehicles with financial institutions on a nonrecourse basis.
Finance income is recorded on an accrual basis and is included in Sales revenue.
Under the terms of the arrangements with some of these financial institutions,
the Company is contingently liable to repay a portion of such finance income in
the event of prepayment or repossession.
(j) Foreign Currency
The Company's foreign operation uses the local currency as its functional
currency. The impact of currency fluctuation is included in stockholders' equity
as a translation adjustment. The Company recognizes transaction gains and losses
on intercompany loans and debt arrangements denominated in currencies other than
the Subsidiary's functional currency. These gains and losses are reported in
Selling, General and Administrative expenses.
(k) Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consisted primarily of trade receivables. Credit risk on trade
receivables is minimized as a result of the large and diversified nature of the
Company's customer base. Although the Company receives significant vendor
allowances from manufacturers, there have been no credit losses related to these
suppliers.
(l) Self Insurance
The Company participates in insurance programs that contain a self-insured
retention. The Company estimates its liability for the self-insured portions of
the risks covered by such programs and accrues appropriate amounts.
(m) Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" (SFAS No. 121). SFAS No. 121 becomes effective for fiscal years
beginning after December 15, 1995. The Company is currently assessing the impact
of SFAS No. 121 on its consolidated financial statements.
17
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 is
effective for transactions entered into in fiscal years beginning after December
15, 1995. The Company is currently assessing the impact of SFAS No. 123 on its
consolidated financial statements.
(n) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(o) Earnings (Loss) Per Share
Earnings (loss) per share computations are based upon the earnings (loss)
applicable to common shares and the average number of shares of common stock
outstanding and, for 1996, dilutive common stock equivalents (stock options)
outstanding.
(p) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 (SFAS 107) "Disclosures
about Fair Value of Financial Instruments" requires that the Company disclose
estimated fair values for its financial statements.
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of these instruments.
Receivables, Accounts Payable and Accrued Liabilities
The carrying amount approximates fair value because of the short-term
maturity of these instruments.
Floor Plan Contracts, Rental Vehicle Financing and Long-Term Debt
The carrying value of the Company's debt approximates fair value as the
present value of future cash flows of each instrument approximate rates
currently offered to the Company for similar debt instruments of
comparable maturities by the Company's lenders.
2. Inventories and Floor Plan Contracts
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
April 30,
---------------------------------------
1995 1996
---------------------------------------
<S> <C> <C>
New Vehicles.................................................... $ 7,522 4,676
Used Vehicles................................................... 7,058 4,304
Parts, Accessories, Kits and Other.............................. 2,655 2,772
---------------- -----------------
$17,235 11,752
---------------- -----------------
</TABLE>
All new vehicles that are financed, are pledged as security under floor plan
contracts with banks and other financial institutions. Floor plan contracts are
due upon the sale of the related vehicle or one year. Interest rates on floor
plan contracts are at U.S. prime at April 30, 1995 and 1996. Interest expense on
floor plan contracts amounted to $483,000, $483,000 and $257,000 for the years
ended April 30, 1994, 1995 and 1996, respectively.
18
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unused floor plan contracts as of April 30, 1996 were approximately $4,200,000.
During the third quarter of fiscal 1994, the Company made a strategic decision
to permanently retire a segment of older vehicles from its rental fleet. This
decision is consistent with the Company's ongoing goal to maintain its position
as the industry leader by operating the newest rental fleet in the industry. The
retired vehicles have been transferred to the Company's RV DEPOT sales division
for refurbishing where needed and for sale at retail and at wholesale. In
conjunction with this retirement, the Company has transferred vehicles having a
net book value of $22,075,000 into sales inventory and has taken a one time
charge of $3,452,000 to adjust the carrying value of the vehicles for
disposition and to cover any refurbishing costs needed. The one time charge is
included in Cost of Rentals. The decrease in inventories for the year ended
April 30, 1994 in the Consolidated Statements of Cash Flows is net of the
transfer in of vehicles.
3. Rental Vehicles
The following is a summary of Rental Vehicles and the related accumulated
depreciation (in thousands):
<TABLE>
<CAPTION>
Rental Vehicles
---------------------------------------------------------------------------------------------
Balance at
Beginning of Balance at
Year Additions at Cost Retirements End of Year
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended:
April 30, 1994 $ 91,810 33,716 70,223 55,303
April 30, 1995 55,303 34,058 25,648 63,713
April 30, 1996 63,713 46,986 31,605 79,094
Accumulated Depreciation
---------------------------------------------------------------------------------------------
Balance at Additions at
Beginning of Charged to Cost of Balance at
Year Rentals Retirements End of Year
---------------------------------------------------------------------------------------------
Year Ended:
April 30, 1994 $ 21,055 9,768 21,994 8,829
April 30, 1995 8,829 8,542 4,973 12,398
April 30, 1996 12,398 10,760 7,582 15,576
</TABLE>
19
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Rental Vehicle Financing
Most rental vehicles are pledged as security under financing agreements with
banks and other financial institutions. The following is a summary of rental
vehicle financing:
<TABLE>
<CAPTION>
April 30,
---------------------------------
1995 1996
---------------------------------
(in thousands)
<S> <C> <C>
Various Notes; interest rates ranging from U.S. prime to U.S. prime
plus 2%, to Canadian prime plus 1%; due in monthly installments, expiring at
various times through April 2000 or at the time of sale of the related vehicle.... $30,622 40,284
Less Current Installments............................................................... 7,394 10,723
-------------- -------------
Rental Vehicle Financing, Excluding Current Installments................................ $23,228 29,561
-------------- -------------
</TABLE>
Interest expense on rental vehicle financing was $3,576,000, $2,807,000 and
$4,546,000 for the years ended April 30, 1994, 1995 and 1996, respectively.
The Company's rental vehicle lines of credit are renewed annually. Unused rental
vehicle lines of credit as of April 30, 1996 were approximately $69,000,000.
5. Property and Equipment
A summary of property and equipment, at cost, less accumulated depreciation and
amortization, follows:
<TABLE>
<CAPTION>
April 30,
---------------------------------
1995 1996 Estimated Useful Lives
--------------------------------- ------------------------------------
(in thousands)
<S> <C> <C> <C>
Land................................................. $ 5,952 5,952
Buildings and Improvements........................... 5,721 5,822 15 - 20 years
Service Vehicles..................................... 96 117 3 - 5 years
Shop Equipment....................................... 769 864 5 years
Office Furniture and Equipment....................... 3,667 4,074 5 - 10 years
Leasehold Improvements............................... 590 597 Amortized over life of lease
------------- -------------
$16,795 17,426
Less Accumulated Depreciation and Amortization....... 6,274 6,916
------------- -------------
Net Property and Equipment........................... $10,521 10,510
------------- -------------
</TABLE>
Depreciation and amortization expense on property and equipment is charged to
selling, general and administrative expenses and amounted to $755,000, $668,000
and $643,000 for the years ended April 30, 1994, 1995 and 1996, respectively.
20
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long Term Debt
<TABLE>
<CAPTION>
Long-term debt consists of the following:
April 30,
-------------------------------------
1995 1996
-------------------------------------
(in thousands)
<S> <C> <C>
9.9% Unsecured Senior Notes due in annual installments of
$1,500,000 through May 15, 1998, plus interest, payable
semi-annually...................................................... $ 4,500 3,000
9.0% Senior Notes due in annual installments of $2,857,143
beginning March 15, 1996 through March 15, 2002, plus
interest, payable semi-annually (effective interest rate
9.375% net of discount)............................................ 20,000 17,143
Various notes ranging from 9% to 10.94% due in monthly
installments expiring at various times through February
2004 (a)........................................................... 2,686 2,458
---------------- -----------------
Total Long-Term Debt..................................................... $27,186 22,601
Less unamortized discount on 9.0% Senior Notes........................... 222 166
Less current installments................................................ 3,072 3,023
---------------- -----------------
Long-Term Debt, excluding current installments........................... $23,892 19,412
---------------- -----------------
(a) Secured by property having a net book value of approximately $9,079,000 and $5,356,000 at April 30, 1995
and 1996, respectively.
</TABLE>
Aggregate maturities on long-term debt are as follows (in thousands):
1997............................. $ 3,023
1998............................. 5,623
1999............................. 5,210
2000............................. 2,874
2001............................. 2,876
Thereafter....................... 2,995
---------------
Total $22,601
---------------
Interest expense on long-term debt amounted to $972,000, $2,745,00 and
$2,476,000 for the years ended April 30, 1994, 1995 and 1996, respectively.
At April 30, 1996, the Company is in compliance with all debt covenants
associated with the various financing agreements outstanding.
21
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Income Taxes
Income tax expense (benefit) is composed of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------------------------------
1994 1995 1996
----------------------------------------------------------------
Current Tax Expense:
<S> <C> <C> <C>
Federal......................................... $ 25 20 --
State and Foreign............................... -- -- --
--------------- --------------- ----------------
25 20 --
--------------- --------------- ----------------
Deferred Tax Expense (Benefit):
Federal......................................... $ (818) 228 126
State and Foreign............................... 145 (210) 227
--------------- --------------- ----------------
(673) 18 353
--------------- --------------- ----------------
Total Income Tax Expense (Benefit).................... $ (648) 38 353
--------------- --------------- ----------------
</TABLE>
Income tax expense (benefit) attributable to income (loss) before income taxes
for the years ended April 30, 1994, 1995 and 1996, differed from the amounts
computed by applying the U.S. Federal Income Tax rate of 34 percent as a result
of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------------------------------
1994 1995 1996
----------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)................. $(1,275) 76 462
State taxes, net of Federal benefit (expense)............. (176) 10 63
Foreign taxes in excess of expected tax rate.............. 28 (21) 20
Change in valuation allowance............................. 731 (24) (170)
Amortization of goodwill and life insurance............... 43 (11) 1
Other, net................................................ 1 8 (23)
--------------- --------------- ---------------
$ (648) 38 353
--------------- --------------- ---------------
</TABLE>
At April 30, 1994, 1995 and 1996, the deferred income tax liability reflects the
impact of temporary differences between the amount of assets and liabilities for
financial reporting purposes and such amounts for tax purposes. The most
significant type of temporary difference that gives rise to a deferred tax
liability is tax over book depreciation, offset partially by tax over book gains
on the sale of assets.
22
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
April 30,
---------------------------------------------------------
1994 1995 1996
---------------------------------------------------------
<S> <C> <C> <C>
Deferred Tax Assets:
Net Operating Loss Carryforwards........................... $ 9,175 7,990 8,544
Investment Tax Credit Carryforwards........................ 540 540 540
Alternative Minimum Tax Credit Carryforwards............... 92 106 106
--------------- ---------------- -----------------
Total Gross Deferred Tax Assets............................ 9,807 8,636 9,190
Less Valuation Allowance................................... (1,074) (1,098) (928)
--------------- ---------------- -----------------
Net Deferred Tax Assets.................................... 8,733 7,538 8,262
--------------- ---------------- -----------------
Deferred Tax Liability:
Depreciation............................................... 9,001 7,850 8,946
--------------- ---------------- -----------------
Total Gross Deferred Tax Liability......................... 9,001 7,850 8,946
--------------- ---------------- -----------------
Net Deferred Tax Liability................................. $ 268 312 684
--------------- ---------------- -----------------
</TABLE>
The valuation allowance for deferred tax assets as of May 1, 1995 was
$1,098,000. The net change in the total valuation allowance for the year ended
April 30, 1996 was a decrease of $170,000.
At April 30, 1996, the Company has net operating loss carryforwards for U.S.
Federal income tax purposes of $16,900,000 which are available to offset future
U.S. Federal taxable income, if any, through 2010. Cruise Canada has net
operating loss carryforwards for Canadian Federal income tax purposes of
$4,700,000 which are available to offset taxable income in Canada, if any,
through 2003.
The Company also has investment tax credit carryforwards for Federal income tax
purposes of approximately $409,000 which are available to reduce future Federal
income taxes, if any, through 2001.
8. Common and Preferred Stock
(a) Common Stock
The Company's 1987 Stock Option Plan has 500,000 shares of common stock
reserved, and as of April 30, 1996, 342,500 options are outstanding at exercise
prices of $3.00 per share, expiring at various times through October 2004.
Options may be granted through October 27, 1997, the date of the Plan's
expiration.
23
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the status of the Plan:
<TABLE>
<CAPTION>
--------------------------------------------
Number of Option
Options Price
--------------------------------------------
<S> <C> <C>
Outstanding at April 30, 1993 (all exercisable)...................... 410,500 $ 4.75 - 8.00
Granted........................................................ -- --
Exercised...................................................... -- --
Terminated..................................................... 15,500 $ 4.75 - 8.00
----------------
Outstanding at April 30, 1994 (all exercisable)...................... 395,000 $ 4.75 - 8.00
Granted........................................................ -- --
Exercised...................................................... -- --
Terminated..................................................... 6,500 $ 3.00
----------------
Outstanding at April 30, 1995 (all exercisable)...................... 388,500 $ 3.00
Granted........................................................ -- --
Exercised...................................................... 46,000 $ 3.00
Terminated..................................................... -- --
----------------
Outstanding at April 30, 1996 (all exercisable)...................... 342,500 $ 3.00
----------------
</TABLE>
On October 6, 1994, the Company repriced options granted pursuant to the
Company's 1987 Stock Option Plan, at $3.00 per share, the fair value at the date
of repricing.
Currently, the Company is restricted from issuing cash dividends and making
certain other investments by a covenant to the 9.9% Unsecured Senior Notes and
the 9% Senior Notes. In conjunction with the issuance of the $20 million 9.0%
Senior Notes in the fourth quarter of fiscal 1994, the Company issued to the
note holders immediately exercisable warrants to purchase 166,000 shares of
common stock at a per share price of $5.75.
On March 8, 1989, the Board of Directors of the Company declared a dividend of
one preferred stock purchase right for each share of common stock outstanding on
March 23, 1989. The rights become exercisable only after a person or group
acquires 20 percent or more, or makes a tender or exchange offer for 30 percent
or more, of the Company's common stock or is declared adverse to the Company by
the Board of Directors. When exercisable, each right entitles the holder to
purchase, at an exercise price of $20, one one-hundredth of a share of Series A
Junior Participating Preferred Stock or, under certain circumstances, securities
of the Company or the acquiring entity having a market value of twice the
exercise price. The rights expire on March 8, 1999, if not previously redeemed
by the Company at a redemption price of $.01 per right.
During 1994, the Company relocated its corporate offices from leased space in
Miami, Florida to an owned operating facility in Mesa, Arizona. The relocation
moves the corporate staff closer geographically to where the majority of the
Company's business is derived. The new Mesa facility was purchased for
approximately $2,200,000. The cost was funded with a $1,500,000 loan and
$700,000 in common stock of the Company. The land and building were recorded at
cost which was considered equal to the value of the cash received plus the fair
market value of the stock on the transaction date.
24
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) Preferred Stock
Pursuant to the Company's Articles of Incorporation, the Board of Directors of
the Company is authorized to issue in series, without further shareholder
approval, 1,000,000 shares of $1.00 par value preferred stock. The Board of
Directors is authorized to fix the particular designations, powers, preferences,
rights (including voting rights), qualifications and restrictions of each
series. The Board of Directors designated 200,000 shares of the preferred stock
as Series A Junior Participating Preferred Stock for issuance upon exercise of
the rights described in paragraph (a), above.
9. Sales
The following is a summary of sales and cost of (in thousands):
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------------------------
1994 1995 1996
----------------------------------------------------------
<S> <C> <C> <C>
Sales:
Rental Vehicle Sales....................................... $ 27,825 21,797 25,471
New Vehicles............................................... 15,780 13,826 9,735
Used Vehicles.............................................. 10,465 10,977 6,082
Parts, Service, Accessories and Other...................... 1,470 1,876 2,281
--------------- ---------------- -----------------
$ 55,540 48,476 43,569
--------------- ---------------- -----------------
Cost of Sales:
Rental Vehicle Sales....................................... 26,537 20,674 24,023
New Vehicles............................................... 13,817 11,686 8,417
Used Vehicles.............................................. 9,282 9,031 4,907
Parts, Service, Accessories and Other...................... 725 1,267 1,727
--------------- ---------------- -----------------
$ 50,361 42,658 39,074
--------------- ---------------- -----------------
Gross Profit..................................................... $ 5,179 5,818 4,495
--------------- ---------------- -----------------
</TABLE>
10. Commitments
The Company leases its facilities at 11 of its locations under operating leases
expiring at various times through 2004. Rent expense, included in Selling,
General and Administrative expenses, was $1,592,000, $1,263,000 and $1,036,000
for the years ended April 30, 1994, 1995 and 1996, respectively.
Minimum annual rental commitments under these leases as of April 30, 1996 are as
follows (in thousands):
1997............................. $ 984
1998............................. 762
1999............................. 658
2000............................. 401
2001............................. 202
Thereafter....................... 520
---------------
Total $3,527
---------------
25
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Other Matters
(a) During 1984, the Company entered into a redemption agreement with Robert
A. Smalley (Chairman), which provides that upon the death of Robert A.
Smalley, the Company, upon the request of his personal representative will
purchase up to $1,000,000 of the common stock of the Company from his
estate at the average bid price for a period of 60 days prior to his
death. The obligation has been funded by an insurance policy on the life
of Robert A. Smalley in the amount of $1,000,000. The policy has been paid
for by the Company and the premiums were approximately $43,000, $40,000,
and $40,000 for the policy years ended October 1994, 1995 and 1996,
respectively.
(b) On May 14, 1987, one of the Company's concession operators commenced a
lawsuit entitled Altman's America, et. al. v. American Land Cruisers of
California, Incorporated, et. al. in the Superior Court of the State of
California for the County of Los Angeles. The action arose out of a claim
for an alleged wrongful termination by the Company of a sublease
agreement. This case has been tried twice. The first trial resulted in a
judgement in the amount of approximately $3.5 million. That judgement was
reversed on appeal and remanded for retrial. The second trial resulted in
judgements for the plaintiffs in the amount of $235,000 and a judgement
for the Company of $634,000, which equaled a net judgement for the Company
of $399,000. On July 18, 1996 the Appellate Court reduced the total amount
due to the Company by approximately $400,000 and remanded the case for
retrial. The Company intends to pursue all means to defeat the case.
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management,
the disposition of these matters will not have a material adverse effect
on the financial condition of the Company or results of operations.
(c) Foreign Operations
Included in the consolidated financial statements are the following amounts
related to the Company's operations in Canada (in thousands):
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------------------------------
1994 1995 1996
--------------------------------------------------------
<S> <C> <C> <C>
Identifiable Assets.............................................. $ 12,391 12,644 17,120
Total Revenue.................................................... 16,991 15,486 19,163
Earnings (Loss) Before Income Taxes.............................. 714 (493) 486
Foreign Currency Transaction (Loss).............................. (28) (54) (30)
</TABLE>
26
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Supplemental Disclosures of Cash Flow Information (in thousands):
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------------------------------------
1994 1995 1996
-------------------------------------------------------------------
<S> <C> <C> <C>
Cash Paid During the Year for:
Interest on Borrowings................................. $ 5,136 6,304 7,151
</TABLE>
27
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no change of accountants or reported disagreements on any matter
of accounting principles or procedures or financial statement disclosure in
fiscal 1996.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Title
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert A. Smalley 72 Chairman of the Board of Directors
Randall Smalley 46 President and Chief Executive Officer
Robert A. Smalley 47 Executive Vice President and Chief Operating Officer
Eric R. Bensen 42 Chief Financial Officer and Secretary
</TABLE>
The information regarding directors as required by Item 401 of Regulation S-K is
set forth in the Company's proxy statement which will be filed with the
Securities and Exchange Commission not later than 120 days after April 30, 1996,
and is incorporated herein by this reference.
ITEM 11. MANAGEMENT REMUNERATION
The information required by Item 402 of Regulation S-K is set forth in the
Company's proxy statement which will be filed with the Securities and Exchange
Commission not later than 120 days after April 30, 1996, and is incorporated
herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by Item 403 of Regulation S-K is set forth in the
Company's proxy statement which will be filed with the Securities and Exchange
Commission not later than 120 days after April 30, 1996, and is incorporated
herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
The information regarding certain relationships and related transactions as
required by Item 404 of Regulation S-K is set forth in the Company's proxy
statement which will be filed with the Securities and Exchange Commission not
later than 120 days after April 30, 1996, and is incorporated herein by this
reference.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of this Report
<TABLE>
<CAPTION>
1. The following financial statements are incorporated by reference in Item 8:
Page in this
Financial Statement Report
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Independent Auditors' Report............................................................................ 10
Consolidated Balance Sheets as of April 30, 1995 and 1996............................................... 11, 12
Consolidated Statements of Operations for each of the years in the three-year period ended
April 30, 1996.................................................................................... 13
Consolidated Statements of Changes in Stockholders' Equity for each of the years in the
three-year period ended April 30, 1996............................................................ 14
Consolidated Statements of Cash Flows for each of the years in the three-year period ended
April 30, 1996.................................................................................... 15
Notes to Consolidated Financial Statements.............................................................. 16 - 27
</TABLE>
Information required by other schedules has either been incorporated in the
financial statements and accompanying notes, or is not applicable to the
Company.
29
<PAGE>
<TABLE>
<CAPTION>
3. The following exhibits are filed with this Report or incorporated by reference:
Page Number or Incorporation by
Reference to the
Exhibit Description Document Listed Below
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Articles of Incorporation Registration Statement No. 33-36643
3.2 Amended and Restated Bylaws Current Report on Form 8-K, event of
March 8, 1989
4.1 Note Agreement, dated May 1, 1988, between the December 31, 1988 Form 10-K
Company and various holders
4.2 Rights Agreement dated as of March 8, 1989, between Current Report on Form 8-K, event of
the Company and Mellon Securities Trust Company March 8, 1989
4.3 Note and Warrant Purchase Agreement dated as of April 30, 1994 Form 10-K
April 26, 1994 between the Company and Teachers
Insurance and Annuity Association of America
(includes forms of Note and Warrant Agreement)
10.1 Section 303 Stock Redemption Agreement, dated Registration Statement No. 33-6848,
October 25, 1984, between the Company and Robert A. effective August 13, 1986
Smalley
10.2 Form of Indemnification Agreement between the March 31, 1989 Form 10-Q
Company and its Directors and Executive Officers
10.3 Executive Compensation Plans and Arrangements;
10.3(a) Form of Amended and Restated Employment April 30, 1995 Form 10-K
Agreements between the Company and Robert A.
Smalley, Robert A. Smalley, Jr., Randall S. Smalley,
and Eric R. Bensen
10.3(b) 1987 Stock Option Plan December 31, 1988 Form 10-K
22 Subsidiaries of the Registrant April 30, 1993 Form 10-K
24 Consent of KPMG Peat Marwick LLP 32
</TABLE>
(b) Reports on Form 8-K filed during the quarter ended April 30, 1996. NONE
(c) The exhibits to this Report are listed in Item 14 (a) 3.
(d) The financial statement schedules required by Regulation S-X which are
excluded from the Annual Report to Stockholders by Rule 14a-3(b) (1). NONE
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, Cruise America, Inc., has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Cruise America, Inc.
Randall Smalley
--------------------------------
By: Randall Smalley, President
July 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on July 26, 1996, by the following persons on behalf of the
registrant and in the capacities indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Signature Title
<S> <C>
Robert A. Smalley Chairman
- -------------------------------
Randall Smalley Director, President and Chief Executive Officer
- -------------------------------
Robert A. Smalley, Jr. Director, Executive Vice President and Chief Operating Officer
- -------------------------------
Eric R. Bensen Director, Vice President and Chief Financial Officer
- -------------------------------
Fred A. Mudgett Director
- -------------------------------
Dr. Edward R. Annis Director
- -------------------------------
</TABLE>
31
EXHIBIT 24
----------
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors and Stockholders
Cruise America, Inc.:
We consent to incorporation by reference in the Registration Statements (No.
33-36643) on Form S-4 and (No. 33-20775) on Form S-8 of Cruise America, Inc. of
our report dated July 25, 1996, relating to the consolidated balance sheets of
Cruise America, Inc. and subsidiaries as of April 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended April 30, 1996, which
report appears in the April 30, 1996 Annual Report on Form 10-K of Cruise
America, Inc.
KPMG Peat Marwick LLP
Phoenix, Arizona
July 25, 1996
32
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000733775
<NAME> CRUISE AMERICA, INC.
<MULTIPLIER> 1,000
<CURRENCY> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,341
<SECURITIES> 0
<RECEIVABLES> 4,056
<ALLOWANCES> 0
<INVENTORY> 11,752
<CURRENT-ASSETS> 19,038
<PP&E> 96,520
<DEPRECIATION> 22,492
<TOTAL-ASSETS> 95,695
<CURRENT-LIABILITIES> 22,576
<BONDS> 0
0
0
<COMMON> 57
<OTHER-SE> 23,405
<TOTAL-LIABILITY-AND-EQUITY> 95,695
<SALES> 43,569
<TOTAL-REVENUES> 87,888
<CGS> 39,074
<TOTAL-COSTS> 58,353
<OTHER-EXPENSES> 20,897
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,279
<INCOME-PRETAX> 1,359
<INCOME-TAX> 353
<INCOME-CONTINUING> 1,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,006
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
