SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Second Quarter Ended October 31, 1997
Commission File No. 1-9471
---------------------------------------------------------
CRUISE AMERICA, INC.
State of Florida I.R.S. No. 59-1403609
11 West Hampton Avenue
Mesa, Arizona 85210-5258
Telephone: (602) 464-7300
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 twelve (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
ninety (90) days.
YES X No
--------- ---------
Common Stock, $.01 Par Value
As of October 31, 1997, 5,783,059 shares of the registrants common stock were
outstanding of which 4,377,963 were held by non-affiliates of the
registrant.
<PAGE>
TABLE OF CONTENTS
-----------------
CRUISE AMERICA, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q for the
Period Ended October 31, 1997
ITEM PAGE
- --------------------------------------------------------------------------------
PART I
FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets................................1
Condensed Consolidated Statements of Operations......................3
Condensed Consolidated Statements of Cash Flows......................4
Notes to Condensed Consolidated Financial Statements.................5
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................7
PART II
OTHER INFORMATION
1. LEGAL PROCEEDINGS...................................................10
2. CHANGES IN SECURITIES AND USE OF PROCEEDS...........................10
6. EXHIBITS AND REPORTS ON FORM 8-K....................................10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CRUISE AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
A S S E T S
(In thousands)
Unaudited
------------------------
10/31/97 4/30/97
------------------------
Current Assets:
Cash and Cash Equivalents...................... $ 4,835 4,029
Accounts Receivable, Net....................... 8,308 5,897
Inventories.................................... 12,588 11,909
Prepaid Expenses and Other Current Assets...... 1,417 1,067
------------ --------
Total Current Assets.................. 27,148 22,902
------------ --------
Rental Vehicles................................ 111,191 92,463
Less Accumulated Depreciation.................. 21,011 18,498
------------ --------
Net Rental Vehicles................... 90,180 73,965
------------ --------
Property and Equipment......................... 14,943 14,408
Less Accumulated Depreciation.................. 6,777 6,467
------------ --------
Net Property and Equipment............ 8,166 7,941
------------ --------
Deposits and Other Assets...................... 2,803 2,416
------------ --------
$128,297 107,224
------------ --------
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands except share data)
<TABLE>
<CAPTION>
Unaudited
-------------------------------
10/31/97 4/30/97
------------- ---------------
<S> <C> <C>
Current Liabilities:
Floor Plan Contracts.......................................................... $ 4,169 3,665
Current Installments of Rental Vehicle Financing.............................. 19,953 13,014
Current Installments of Long-Term Debt........................................ 4,512 4,128
Accounts Payable and Accrued Expenses......................................... 3,108 2,704
Customer Deposits............................................................. 516 5,648
Litigation Accrual............................................................ 10,000 --
------------- ---------------
Total Current Liabilities............................................ 42,258 29,159
------------- ---------------
Rental Vehicle Financing, Excluding Current Installments...................... 40,619 36,466
Long-Term Debt, Excluding Current Installments................................ 12,198 13,771
Deferred Income Taxes......................................................... 3,917 1,764
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,
5,783,000 and 5,753,000 issued and outstanding at October 31, 1997
and April 30, 1997 respectively............................................... 58 58
Additional Paid-in Capital.................................................... 25,081 24,993
Retained Earnings............................................................. 5,126 1,811
Translation Adjustment........................................................ (960) (798)
------------- ---------------
Total Net Stockholders' Equity....................................... 29,305 26,064
Contingencies.................................................................
------------- ---------------
$128,297 107,224
------------- ---------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------- -----------------------------------
10/31/97 10/31/96 10/31/97 10/31/96
------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Rental Revenue...................................... $23,571 22,108 49,730 46,271
Sales............................................... 19,602 11,485 26,517 18,318
------------- -------------- -------------- ---------------
Total Revenue.............................. 43,173 33,593 76,247 64,589
------------- -------------- -------------- ---------------
Cost of Rentals..................................... 9,982 9,023 18,034 16,597
Cost of Sales....................................... 18,667 10,978 24,349 16,784
------------- -------------- -------------- ---------------
Total Costs................................ 28,649 20,001 42,383 33,381
------------- -------------- -------------- ---------------
Gross Profit from Operations........................ 14,524 13,592 33,864 31,208
Interest Expense.................................... 1,991 2,076 3,922 3,967
Selling, General and Administrative Expenses........ 6,990 6,177 14,474 12,856
Unusual Item; Litigation Accrual.................... 10,000 -- 10,000 --
------------- -------------- -------------- ---------------
Earnings (Loss) Before Income Taxes................. (4,457) 5,339 5,468 14,385
Income Tax Expense (Benefit) ....................... (1,420) 1,658 2,153 4,468
Net Earnings (Loss)................................. ($3,037) 3,681 3,315 9,917
Earnings (Loss) per Share (Primary and Fully
Diluted)............................................ ($.51) .62 .56 1.67
Shares Used in Calculation.......................... 6,000 5,924 6,000 5,924
------------- -------------- -------------- ---------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------
10/31/97 10/31/96
-------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Earnings......................................................... $ 3,315 9,917
Unusual Item: Litigation Accrual..................................... 10,000 --
Depreciation and Amortization........................................ 9,597 8,921
Increase in Deferred Income Taxes.................................... 2,153 4,468
Gain on Sale of Rental Vehicles...................................... (982) (471)
Decrease (Increase) in Accounts Receivable, Net...................... (2,411) 67
Decrease (Increase) in Inventories................................... (679) 303
Increase in Accounts Payable and Accrued Expenses.................... 404 1,945
Increase in Floor Plan Contracts..................................... 504 670
Decrease in Customer Deposits........................................ (5,132) (3,826)
Other, Net........................................................... (966) (711)
-------------- ---------------
Net Cash Provided by Operating Activities............................ 15,803 21,283
-------------- ---------------
Cash Flows from Financing Activities:
Proceeds from Rental Vehicle Borrowing............................... 45,416 44,990
Repayment of Rental Vehicle Borrowing................................ (34,324) (30,113)
Repayment of Long-Term Borrowing..................................... (1,189) (101)
Exercise of Stock Options............................................ 88 40
-------------- ---------------
Net Cash Provided by Financing Activities............................ 9,991 14,816
-------------- ---------------
Cash Flows from Investing Activities:
Purchase of Rental Vehicles.......................................... (45,057) (46,596)
Proceeds from Rental Vehicle Sales................................... 20,604 11,933
Purchase of Property and Equipment................................... (535) (247)
-------------- ---------------
Net Cash Used in Investing Activities................................ (24,988) (34,910)
-------------- ---------------
Increase in Cash and Cash Equivalents...................................... 806 1,189
Cash and Cash Equivalents at April 30...................................... 4,029 2,341
-------------- ---------------
Cash and Cash Equivalents at October 31.................................... $ 4,835 3,530
-------------- ---------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED OCTOBER 31, 1997
NOTE 1.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all the adjustments (principally consisting of
normal recurring accruals) necessary to present fairly the financial position of
Cruise America, Inc. and Subsidiaries (the Company) as of October 31, 1997, and
the results of operations for the six month periods ended October 31, 1996 and
1997.
Certain items in the prior year financial statements have been reclassified to
conform with the current period presentations.
NOTE 2.
Supplemental Disclosures of Cash Flow Information (in thousands):
Six Months Ended
------------------------------------
10/31/97 10/31/96
-------------- --------------
Cash paid during the period for:
Interest on Borrowings $ 3,802 3,690
-------------- --------------
NOTE 3.
In October 1997, a California jury awarded damages of approximately $7.4 million
against the Company in the lawsuit entitled Altman's America, et al. v. American
Land Cruisers of California, et al. The judgment included a $2.6 million award
of punitive damages. In addition, in November 1997, the court awarded
plaintiff's counsel fees and expenses of $2.5 million. The Company believes the
jury verdict is unjust and that the damages awarded are inappropriate and
excessive. The Company intends to vigorously pursue a reversal of the jury
decision or the elimination of the damages awarded through the California Court
of Appeal. The action rose out of a claim for an alleged wrongful termination by
the Company of a sublease agreement with one of its former concession operators.
The lawsuit has been pending since May 1987 and has been tried twice previously.
The first trial resulted in a judgment for the plaintiff of approximately $3.5
million that was reversed on appeal and remanded for retrial. The second trial
resulted in a net judgment for the Company of $399,000, which was reduced on
appeal and again remanded for a retrial. Pending appeal, the Company has taken a
one-time charge to establish an accrual of $10 million for damages in its second
fiscal quarter, which ended October 31, 1997. This one-time charge will
adversely affect the Company's results of operations for the three and six month
periods ended October 31, 1997.
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.
NOTE 4.
On November 25, 1997, the Company, Budget Group, Inc., a Delaware corporation
("Budget"), and CA Acquisition Corporation, a newly formed Florida corporation
and wholly owned subsidiary of Budget ("Sub"), entered into a Plan
5
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
and Agreement of Merger dated as of November 25, 1997, pursuant to which Sub
will merge with and into the Company (the "Merger"), with the Company thereafter
becoming a wholly owned subsidiary of Budget.
See Item 2, "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations -- Recent Developments -- Pending Merger"
for additional information regarding the Merger.
6
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2
CRUISE AMERICA, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
Six Months Ended October 31, 1997
This Quarterly Report on Form 10-Q contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in the forward-looking statement as a result
of certain factors, including those set forth in Exhibit 99 of the Company's
Annual Report on Form 10-K for
April 30, 1997.
RECENT DEVELOPMENTS
Pending Merger
On November 25, 1997, the Company, Budget Group, Inc., a Delaware corporation
("Budget"), and CA Acquisition Corporation, a newly formed Florida corporation
and wholly owned subsidiary of Budget ("Sub"), entered into a Plan and Agreement
of Merger dated as of November 25, 1997 (the "Merger Agreement"), pursuant to
which Sub will merge with and into the Company (the "Merger"), with the Company
thereafter becoming a wholly owned subsidiary of Budget.
Pursuant to the terms of the Merger Agreement, each share of the Company's
common stock, $.01 par value per share (the "Cruise America Common Stock"),
outstanding immediately prior to the effective time (the "Effective Time") of
the Merger will be converted into the right to receive .28073 of a share of
Budget's Class A common stock, $.01 par value per share (the "Budget Common
Stock"), and cash, without interest, in lieu of fractional shares.
It is intended that the Merger will qualify as a tax-free reorganization under
368(a) of the Internal Revenue Code of 1986, as amended, for federal income tax
purposes.
Consummation of the Merger is subject to various conditions, including: (i)
receipt of the approval of the holders of a majority of the outstanding shares
of Cruise America Common Stock; (ii) expiration of early termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended; (iii) receipt of certain tax and legal opinions; and (iv) listing,
subject to notice of issuance, on the New York Stock Exchange of the shares of
Budget Common Stock to be issued in the Merger.
The Merger Agreement and the Merger will be submitted for approval at a special
meeting of the shareholders (the "Special Meeting") of the Company. Prior
thereto, Budget will file a registration statement (including a prospectus that
will serve as a proxy statement for the Special Meeting) with the Securities and
Exchange Commission to register under the Securities Act of 1933, as amended,
the shares of Budget Common Stock to be issued to the Company's shareholders in
connection with the Merger.
In connection with the Merger Agreement, certain of the Company's shareholders,
namely, Robert A. Smalley (Chairman of the Board of the Company), Randall S.
Smalley (President and Chief Executive Officer of the Company), Robert A.
Smalley, Jr. (Executive Vice President and Chief Operating Officer of the
Company), and Sally Smalley DiLuncente, who beneficially own or control in the
aggregate approximately 30% of the outstanding shares of Cruise America Common
Stock, have executed Irrevocable Proxy Agreements (the "Irrevocable Proxy
Agreements") appointing Budget, with full power of substitution, as proxy holder
to represent their shares at the Special Meeting and to vote in favor of
approval of the Merger.
7
<PAGE>
In connection with the execution of the Merger Agreement and the Irrevocable
Proxy Agreements, the Company amended the Rights Agreement, dated as of March 8,
1989 (as amended, the "Rights Agreement"), between the Company and ChaseMellon
Shareholder Services, LLC (formerly Mellon Securities Trust Company), as rights
agent, so that: (i) execution of such agreements and consummation of the Merger
and the other transactions contemplated thereby did not and will not cause the
Rights (as such term is defined in the Rights Agreement) to be triggered or
become exercisable; and (ii) the Rights Agreement will terminate at the
Effective Time.
The foregoing summary of the Merger is qualified in its entirety by reference to
the text of the Merger Agreement, Amendment No. 1 to the Rights Agreement and
Budget's Press Release dated November 25, 1997, which are attached hereto as
Exhibit 2.1, 4.1 and 99.1, respectively, and are incorporated herein by
reference.
Contested Litigation
In October 1997, a California jury awarded damages of approximately $7.4 million
against the Company in the lawsuit entitled Altman's America, et al. v. American
Land Cruisers of California, et al. The judgment included a $2.6 million award
of punitive damages. In addition, in November 1997, the court awarded
plaintiff's counsel fees and expenses of $2.5 million. The Company believes the
jury verdict is unjust and that the damages awarded are inappropriate and
excessive. The Company intends to vigorously pursue a reversal of the jury
decision or the elimination of the damages awarded through the California Court
of Appeal. The action rose out of a claim for an alleged wrongful termination by
the Company of a sublease agreement with one of its former concession operators.
The lawsuit has been pending since May 1987 and has been tried twice previously.
The first trial resulted in a judgment for the plaintiff of approximately $3.5
million that was reversed on appeal and remanded for retrial. The second trial
resulted in a net judgment for the Company of $399,000, which was reduced on
appeal and again remanded for a retrial. Pending appeal, the Company has taken a
one-time charge to establish an accrual of $10 million for damages in its second
fiscal quarter, which ended October 31, 1997. This one-time charge will
adversely affect the Company's results of operations for the three and six month
periods ended October 31, 1997.
SEASONALITY
The Company's business is seasonal. In the first and second fiscal quarters, the
Company historically records profits. In the third and fourth quarters, the
Company historically records losses. The Company's purchases of motorhomes for
the rental fleet are also seasonal, with the majority of purchases being made in
the first and fourth fiscal quarters. Due to the seasonality of rental and sales
operations, certain accounts fluctuate from quarter to quarter.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 1997, the Company had current liabilities in excess of current
assets in the amount of $15,110,000. The Company's working capital, as
presented, includes a significant portion of Rental Vehicle Financing. The
Company's working capital does not, however, include any portion of the related
assets--Rental Vehicles, even though a significant portion of these vehicles are
expected to be sold during the year through the Company's normal fleet rotation.
The Company estimates that if these assets were classified as current assets,
the Company would not have a working capital deficit.
The Company believes that, during the next year, cash generated from operations
and financing available from banks and other financial institutions will be
sufficient for its capital and operating needs.
SIX MONTHS ENDED OCTOBER 31, 1997 AS COMPARED WITH
SIX MONTHS ENDED OCTOBER 31, 1996
Rental Revenue for the six months ended October 31, 1997 was $49,730,000
compared to $46,721,000 for the six months ended October 31, 1996. This 6%
increase was due primarily to a 4% increase in average revenue per day as well
as a 2% increase in revenue days. The increase in revenue days was due to a 5%
increase in average fleet size offset in part by a decrease in utilization to
70% in 1997 from 72% in 1996.
8
<PAGE>
Sales for the six months ended October 31, 1997, were $26,517,000, compared to
$18,318,000, for the same period a year ago. During 1997, the Company focused on
reducing its peak fleet as quickly as possible after the summer
in order to reduce holding costs over the last six months of the fiscal year.
Cost of Rentals as a percentage of Rental Revenue was 36% in 1997 and 1996. An
increase in average revenue per day was offset by slightly lower fleet
utilization.
Cost of Sales as a percentage of Sales was 92% for the six months ended October
31, 1997 and 1996. A shift in mix toward lower margin Rental Vehicle Sales was
offset by increased margins on New and Used as well as Rental Vehicle Sales.
Interest Expense for the six months ended October 31, 1997, was $3,922,000
compared to $3,967,000 in 1996. Higher Rental Vehicle Financing was offset by
lower average interest rates.
Selling, General and Administrative Expenses as a percentage of Total Revenue
was 19% in 1997 compared to 20% in 1996. Increased expenses were offset by
increases in Rental and Sales Revenue.
THREE MONTHS ENDED OCTOBER 31, 1997 AS COMPARED WITH
THREE MONTHS ENDED OCTOBER 31, 1996
Rental Revenue for the quarter ended October 31, 1997 was $23,571,000 compared
to $22,108,000 for the quarter ended October 31, 1996. This increase was due
primarily to a 4% increase in average revenue per day and a 2% increase in
revenue days. Revenue days increased due to an increase in utilization to 70% in
1997 from 68% in
1996.
Sales for the quarter ended October 31, 1997 were $19,602,000 compared to
$11,485,000 in 1996. During 1997, the Company focused on reducing its peak fleet
as quickly as possible after the summer in order to reduce holding costs over
the last six months of the fiscal year.
Cost of Rentals as a percentage of Rental Revenue was 42% in 1997 compared to
41% in 1996. Economies generated by a slight increase in utilization were offset
by slightly higher maintenance costs.
Cost of Sales as a percentage of Sales was 95% in 1997 compared to 96% in 1996.
A shift in mix toward lower margin Rental Vehicle Sales was offset by increased
margins on New and Used as well as Rental Vehicle Sales.
Interest Expense for the quarter ended October 31, 1997 was $1,991,000 compared
to $2,076,000 in 1996. Lower interest rates were mostly offset by higher Rental
Vehicle Financing during the period.
Selling, General and Administrative Expenses as a percentage of Total Revenue
was 16% in 1997 compared to 18% in 1996. Increased expenses were offset by
increases in Rental and Sales Revenue.
9
<PAGE>
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Reference is made to Item 2, "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations--Recent
Developments--Contested Litigation" of Part I of this Report on Form 10-Q.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
Reference is made to Item 2, "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations--Recent
Developments--Pending Merger" of Part I of this Report on Form 10-Q.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
2.1* Plan and Agreement of Merger dated as of November 25, 1997,
among Budget Group, Inc., CA Acquisition Corporation and
Cruise America, Inc. (incorporated by reference to Exhibit 2.1
in the Company's Current Report on Form 8-K dated December 5,
1997 (the "Form 8-K")).
4.1* Form of Amendment No. 1 to Rights Agreement dated as of March
8, 1989 between Cruise America, Inc. and ChaseMellon
Shareholder Services, LLC (formerly Mellon Securities Trust
Company) (incorporated by reference to Exhibit 4.1 in the Form
8-K).
27.1 Financial Data Schedule (for SEC use only).
99.1* Press Release of Budget Group, Inc. dated November 25, 1997
(incorporated by reference to Exhibit 99.1 in the Form 8-K).
B. Reports on Form 8-K
During the quarter ended October 31, 1997, the Company filed a Current Report on
Form 8-K dated October 3, 1997, concerning Item 5, with the Securities and
Exchange Commission on October 13, 1997.
* Incorporated by reference.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRUISE AMERICA, INC.
December 11, 1997 Eric R. Bensen
---------------------------
Eric R. Bensen
Vice President
Chief Financial Officer
December 11, 1997 Randall Smalley
---------------------------
Randall Smalley
President
Chief Executive Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1
<CASH> 4,835
<SECURITIES> 0
<RECEIVABLES> 8,308
<ALLOWANCES> 0
<INVENTORY> 12,588
<CURRENT-ASSETS> 27,148
<PP&E> 126,134
<DEPRECIATION> 27,788
<TOTAL-ASSETS> 128,297
<CURRENT-LIABILITIES> 42,258
<BONDS> 52,817
0
0
<COMMON> 58
<OTHER-SE> 29,247
<TOTAL-LIABILITY-AND-EQUITY> 128,297
<SALES> 26,517
<TOTAL-REVENUES> 49,730
<CGS> 24,349
<TOTAL-COSTS> 42,383
<OTHER-EXPENSES> 24,474
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,922
<INCOME-PRETAX> 5,468
<INCOME-TAX> 2,153
<INCOME-CONTINUING> 3,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,315
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
