SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
For the fiscal year ended April 30, 1997
SUBMITTED PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------------------
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
----------------------------
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 June 23,
1997, was approximately $22,563,000. As of June 23, 1997, 5,753,200 shares of
the registrant's Common Stock were outstanding of which 4,297,798 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.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
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<S> <C> <C>
ITEM PAGE
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PART I
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............................27
PART III
10. Directors and Executive Officers of the Registrant..............................................................27
11. Management Remuneration.........................................................................................27
12. Security Ownership of Certain Beneficial Owners and Management..................................................27
13. Certain Relationships and Related Party Transactions............................................................27
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................................28
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K contains "forward-looking statements" which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in the forward-looking statements as a result
of certain factors, including those set forth in Exhibit 99 of this Annual
Report on Form 10-K.
General
Cruise America, Inc. believes it is one of the largest companies 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 91 additional rental and/or sales
locations across the United States and Canada. At April 30, 1997, the Company
operated a total of 16 Hub offices, 76 Satellite offices, and a rental fleet of
2,810 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, 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 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 for the year ended April 30, 1997 represents approximately
44% of total revenue.
The amounts of revenues, income and identifiable assets attributable to the
Company's foreign operations is set forth in Note 10 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 76
Satellite offices across North America. The Company's peak rental fleet in the
year ended April 30, 1997 consisted of 3,773 RVs, of which 2,631 were
motorhomes, 861 were truck campers, 158 were motorcycles and 123 were sport
utility vehicles, vans and buses. 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 up 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 microwave ovens.
Cruise America motorhomes and truck campers are as easy to drive as a car with
no special license requirements. All motorhomes and truck campers are equipped
with automatic transmission, power steering and power brakes. Most 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, Ford, Fleetwood, Damon, Four Winds, Winnebago, Honda, Triumph and
individual Harley-Davidson dealers. The Company believes it enjoys excellent
relationships with its suppliers, most of which have been suppliers to the
Company for many years.
1
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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.
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, 1997, 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, 1997, the Company operated 76 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.
2
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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.
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.
3
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Competition
The Company believes it is one of the largest companies 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.
Employees
As of April 30, 1997, the Company had 363 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, and Oakland, subject to
mortgages of $2,228,000.
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 1997.
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.
1997 1996
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Quarter Ended High Low High Low
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July 31, 1996 and 1995 8 6 1/8 5 3/8 4 3/8
October 31, 1996 and 1995 6 11/16 5 7/16 5 5/8 4 5/8
January 31, 1997 and 1996 5 5/8 4 7/8 5 15/16 4 15/16
April 30, 1997 and 1996 5 3/16 4 1/2 7 1/8 5 1/8
As of April 30, 1997, there were 216 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 7 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, which
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. 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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1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Selected Statement of Operations
Data:
Rental Revenue $ 53,764 44,319 36,842 40,537 45,686
Sales 41,856 43,569 48,476 55,540 61,077
-------- -------- ------- ------- -------
Total Revenue 95,620 87,888 85,318 96,077 106,763
Gross Profit from Operations 33,968 29,535 27,037 21,108 26,273
Net Earnings (Loss) $ 2,713 1,006 185 (3,101) (800)
Earnings (Loss) Per Share $ .46 .17 .03 (.55) (.14)
Shares Used in Calculation 5,869 5,859 5,694 5,630 5,543
Selected Balance Sheet Data
(end of period):
Rental Vehicles, Net $ 73,965 63,518 51,315 46,474 70,755
Total Assets 107,224 95,695 89,378 89,762 105,372
Total Rental Vehicle Financing 49,480 40,284 30,622 25,356 50,950
Long-Term Debt, excluding current
installments 13,771 19,412 23,892 28,432 8,937
Stockholders' Equity $ 26,064 23,462 22,329 22,064 24,761
Selected Operating Data:
Rental Fleet - Peak 3,773 3,099 2,710 4,015 4,019
Rental Fleet - End of Period 2,810 2,366 1,884 1,790 3,158
Total Rental Centers 92 86 84 95 86
Rental Vehicles Sold 1,538 1,692 1,494 1,807 2,111
Revenue Days1 571,903 462,783 370,144 456,256 477,745
</TABLE>
1 Revenue days is calculated as the total number of days that all fleet
vehicles were rented during the period.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains "forward-looking statements" which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in the forward-looking statements as a result of certain
factors, including those set forth in Exhibit 99 of this Annual Report on Form
10-K. The following discussion also should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto included elsewhere
in this Annual Report on Form 10-K.
The Company's profits are derived principally from its rental business. For the
years ended April 30, 1997 and 1996, 90% 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, 1997 compared to the year ended April 30, 1996.
Rental Revenue increased 21% to $53,764,000 in 1997 from $44,319,000 in 1996. A
revenue day increase of 24% was offset slightly by a 2% decline in revenue per
day. A larger fleet along with an increase in vehicle utilization produced the
increase in revenue days.
Sales decreased 4% to $41,856,000 in 1997 from $43,569,000 in 1996. Increased
rental vehicle sales were offset by declines in new and used vehicle sales,
especially in the California market, due to a continuing industry-wide slowdown
in demand.
Cost of Rentals as a percentage of Rental Revenue was 43% in 1997 compared to
44% in 1996. This improvement was due to an increase in utilization, offset in
part by a slight decline in rental rates.
Cost of Sales as a percentage of Sales was 92% in 1997 compared to 90% in 1996.
The primary cause of this increase was an increase in the percentage of lower
margin rental vehicle sales as a percentage of Total Sales.
Gross Profit from Operations as a percentage of Total Revenue was 36% in 1997
compared to 34% in 1996. This resulted from higher margin rental revenue
increasing as a percentage of Total Revenue.
Interest Expense was $7,430,000 in 1997 compared to $7,279,000 in 1996, a 2%
increase. This was due to higher average debt levels partially offset by lower
average interest rates.
Selling, General and Administrative Expenses as a percentage of total revenues
was 24% in both 1997 and 1996.
Income Tax Expense in 1997 represented a 29% effective tax rate compared to 26%
in 1996. See note 6 to the Consolidated Financial Statements.
7
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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 6 to the consolidated financial statements.
Liquidity and Capital Resources
As of April 30, 1997, the Company had a working capital deficit in the amount of
$6,257,000. 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 deficit. The Company believes that, during fiscal 1998, 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 $120,000,000 to finance rental
vehicle purchases, of which approximately $71,000,000 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, 1998 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.
Recent Accounting Pronouncement
In February, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings Per Share" ("Statement 128").
Statement 128 established standards for computing and presenting earnings per
share ("EPS"), and supersedes APB Opinion No. 15. Statement 128 replaces primary
EPS with basic EPS and requires dual presentation of basic and diluted EPS.
Statement 128 is effective for annual and interim periods ending after December
15, 1997. Earlier adoption is not permitted. After adoption all prior period EPS
data
8
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shall be restated to conform to Statement 128. Basic and diluted EPS, as
calculated under Statement 128 would have been $.47 and $.46 for the fiscal year
ended April 30, 1997.
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 have been
passed on to the consumer. Higher interest rates and construction costs would
increase the cost of acquiring and opening new locations.
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 1,038 vehicles for the year ended April 30, 1997 from
four hub locations and one satellite location in Canada. Financial information
regarding Canadian operations is included in Note 10 to the Consolidated
Financial Statements.
9
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Independent Auditors' Report
The Board of Directors
Cruise America, Inc.:
We have audited the accompanying consolidated balance sheets of Cruise America,
Inc., and subsidiaries as of April 30, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended April 30, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Phoenix, Arizona
June 26, 1997
10
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CRUISE AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S
<TABLE>
<CAPTION>
April 30,
------------------------------------------------
Current Assets: 1997 1996
------------------------------------------------
<S> <C> <C>
Cash and Cash Equivalents..................................................... $ 4,029 2,341
Accounts Receivable, Net...................................................... 5,897 4,056
Inventories................................................................... 11,909 11,752
Prepaid Expenses and Other Current Assets..................................... 1,067 889
--------------- ---------------
Total Current Assets................................................. 22,902 19,038
--------------- ---------------
Rental Vehicles............................................................... 92,463 79,094
Less Accumulated Depreciation................................................. 18,498 15,576
--------------- ---------------
Net Rental Vehicles.................................................. 73,965 63,518
--------------- ---------------
Property and Equipment........................................................ 14,408 17,426
Less Accumulated Depreciation................................................. 6,467 6,916
--------------- ---------------
Net Property and Equipment........................................... 7,941 10,510
--------------- ---------------
Deposits and Other Assets..................................................... 2,416 2,629
--------------- ---------------
$ 107,224 95,695
--------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
11
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CRUISE AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
April 30,
------------------------------------------------
Current Liabilities: 1997 1996
------------------------------------------------
<S> <C> <C>
Floor Plan Contracts.......................................................... $ 3,665 2,245
Current Installments of Rental Vehicle Financing.............................. 13,014 10,723
Current Installments of Long-Term Debt........................................ 4,128 3,023
Accounts Payable and Accrued Expenses......................................... 2,704 1,980
Customer Deposits............................................................. 5,648 4,605
--------------- ---------------
Total Current Liabilities............................................ 29,159 22,576
--------------- ---------------
Rental Vehicle Financing, Excluding Current Installments...................... 36,466 29,561
Long-Term Debt, Excluding Current Installments................................ 13,771 19,412
Deferred Income Taxes......................................................... 1,764 684
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,
5,753,000 and 5,740,000 issued and outstanding at April 30, 1997
and 1996, respectively........................................................ 58 57
Additional Paid-in Capital.................................................... 24,993 24,953
Retained Earnings (Deficit)................................................... 1,811 (902)
Translation Adjustment........................................................ (798) (646)
--------------- ---------------
Total Stockholders' Equity........................................... 26,064 23,462
Contingencies.................................................................
--------------- ---------------
$ 107,224 95,695
--------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
<TABLE>
<CAPTION>
Year Ended April 30,
---------------------------------------------------------
1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C>
Rental Revenue........................................................... $ 53,764 44,319 36,842
Sales.................................................................... 41,856 43,569 48,476
---------------- -------------- ---------------
Total Revenue................................................... 95,620 87,888 85,318
---------------- -------------- ---------------
Cost of Rentals.......................................................... 23,168 19,279 15,623
Cost of Sales............................................................ 38,484 39,074 42,658
---------------- -------------- ---------------
Total Costs..................................................... 61,652 58,353 58,281
---------------- -------------- ---------------
Gross Profit from Operations............................................. 33,968 29,535 27,037
Interest Expense......................................................... 7,430 7,279 6,035
Selling, General and Administrative Expenses............................. 22,741 20,897 20,779
---------------- -------------- ---------------
Earnings Before Income Taxes............................................. 3,797 1,359 223
Income Tax Expense ...................................................... 1,084 353 38
---------------- -------------- ---------------
Net Earnings ............................................................ 2,713 1,006 185
---------------- -------------- ---------------
Net Earnings per Share (Primary and Fully Diluted)....................... .46 .17 .03
---------------- -------------- ---------------
Shares Used in Calculation............................................... 5,869 5,859 5,694
---------------- -------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
YEARS ENDED APRIL 30, 1995, 1996 AND 1997
<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, 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
----------- ----------- -------------- -------------- --------------- -------------
Exercise of Stock Options.... 13 1 40 -- -- 41
Translation Adjustment
for Foreign Operations....... -- -- -- -- (152) (152)
Net Earnings................. -- -- -- 2,713 -- 2,713
----------- ----------- -------------- -------------- --------------- -------------
Balance April 30, 1997....... 5,753 58 24,993 1,811 (798) 26,064
----------- ----------- -------------- -------------- --------------- -------------
</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,
------------------------------------------------------
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Earnings......................................................... $ 2,713 1,006 185
Depreciation and Amortization........................................ 13,474 11,675 9,453
Deferred Income Taxes................................................ 1,084 372 44
Gain on Sale of Rental Vehicles...................................... (1,286) (1,448) (1,122)
Gain on Sale of Property and Equipment............................... (479) -- (108)
Increase in Net Accounts Receivable.................................. (1,841) (495) (697)
Decrease (Increase) in Inventories................................... (157) 5,483 4,365
(Decrease) Increase in Floor Plan Contract........................... 1,420 1,536 (4,622)
Increase (Decrease) in Accounts Payable and Accrued Expenses......... 724 (62) (149)
Decrease in Income Taxes Payable..................................... -- (20) (5)
Increase (Decrease) in Customer Deposits............................. 1,043 (1,775) 2,012
Other, Net........................................................... (551) (336) 51
------------- ------------- -------------
Net Cash Provided by Operating Activities............................ 16,144 15,936 9,407
------------- ------------- -------------
Cash Flows from Financing Activities:
Proceeds from Rental Vehicle Borrowing............................... 57,924 46,651 41,628
Repayment of Rental Vehicle Borrowing................................ (48,728) (36,989) (36,362)
Repayment of Long-Term Borrowing..................................... (4,536) (4,529) (3,195)
Exercise of Stock Options............................................ 41 138 --
------------- ------------- -------------
Net Cash Provided by Financing Activities............................ 4,701 5,271 2,071
------------- ------------- -------------
Cash Flows from Investing Activities:
Purchase of Rental Vehicles.......................................... (52,033) (46,986) (34,058)
Proceeds from Rental Vehicle Sales................................... 30,280 25,471 21,797
Purchase of Property and Equipment................................... (598) (632) (195)
Proceeds from Sale of Property and Equipment......................... 2,981 1 245
(Increase) Decrease in Deposits and Other Assets..................... 213 189 (437)
------------- ------------- -------------
Net Cash Used in Investing Activities................................ (19,157) (21,957) (12,648)
------------- ------------- -------------
Increase (Decrease) in Cash and Cash Equivalents........................... 1,688 (750) (1,170)
Cash and Cash Equivalents Beginning of Year................................ 2,341 3,091 4,261
------------- ------------- -------------
Cash and Cash Equivalents End of Year...................................... $ 4,029 2,341 3,091
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1995, 1996 AND 1997
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, 1997 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) Stock-Based Compensation
The Company applies APB Opinion No. 25 in accounting for its stock options and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
impact on the Company's net earnings would not have been material.
17
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(n) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of, on May
1, 1996. The Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows (undiscounted and without
interest) expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. Adoption of this Statement did not have a
material impact on the Company's financial position, results of operations, or
liquidity.
(o) 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.
(p) Earnings Per Share
Earnings per share computations are based upon the earnings applicable to common
shares and the average number of shares of common stock outstanding and dilutive
common stock equivalents (stock options) outstanding.
(q) 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, Receivables, Accounts Payable, Accrued
Liabilities and Customer Deposits
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.
18
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Inventories and Floor Plan Contracts
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
April 30,
-----------------------------------------
1997 1996
-----------------------------------------
<S> <C> <C>
New Vehicles.................................................... $ 5,289 4,676
Used Vehicles................................................... 3,222 4,304
Parts, Accessories, Kits and Other.............................. 3,398 2,772
---------------- -----------------
$11,909 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 (8.5% at April 30, 1997) plus .25% at April 30,
1997 and 1996. Interest expense on floor plan contracts amounted to $265,000,
$257,000 and $483,000 for the years ended April 30, 1997, 1996 and 1995,
respectively.
Unused floor plan contracts as of April 30, 1997 were approximately $2,000,000.
3. 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 (in thousands):
<TABLE>
<CAPTION>
April 30,
-------------------------------------
1997 1996
-------------------------------------
<S> <C> <C>
Various Notes under rental vehicle lines of credit; interest rates ranging from
U.S. prime (8.5% at April 30, 1997) to U.S. prime plus 2%, to Canadian
prime plus 1%; due in monthly installments, expiring at various times
through April 2001 or at the time of sale of the related vehicle.................. $ 49,480 40,284
Less Current Installments............................................................... 13,014 10,723
-------------- -------------
Rental Vehicle Financing, Excluding Current Installments................................ $ 36,466 29,561
-------------- -------------
</TABLE>
Interest expense on rental vehicle financing was $5,144,000, $4,546,000 and
$2,807,000 for the years ended April 30, 1997, 1996 and 1995, respectively.
The Company's rental vehicle lines of credit are renewed annually. Unused rental
vehicle lines of credit as of April 30, 1997 were approximately $71,000,000.
19
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Property and Equipment
A summary of property and equipment, at cost, less accumulated depreciation and
amortization, follows (in thousands):
<TABLE>
<CAPTION>
April 30,
--------------------------------- ------------------------------------
1997 1996 Estimated Useful Lives
---------------------------------- ------------------------------------
<S> <C> <C> <C>
Land................................................. $ 4,520 5,952
Buildings and Improvements........................... 4,107 5,822 15 - 20 years
Service Vehicles..................................... 110 117 3 - 5 years
Shop Equipment....................................... 835 864 5 years
Office Furniture and Equipment....................... 4,198 4,074 5 - 10 years
Leasehold Improvements............................... 638 597 Amortized over life of lease
------------- -------------
$ 14,408 17,426
Less Accumulated Depreciation and Amortization....... 6,467 6,916
------------- -------------
Net Property and Equipment........................... $ 7,941 10,510
------------- -------------
</TABLE>
Depreciation and amortization expense on property and equipment is charged to
selling, general and administrative expenses and amounted to $665,000, $643,000
and $668,000 for the years ended April 30, 1997, 1996 and 1995, respectively.
Gain on sale of property and equipment was $479,000 and $108,000 for the years
ended April 30, 1997 and 1995, respectively, and is included as a reduction of
selling, general and administrative expenses.
5. Long-Term Debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
April 30,
-----------------------------------------
1997 1996
-----------------------------------------
<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...................................................... $ 1,500 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)............................................ 14,286 17,143
Various notes ranging from 9% to 10.94% due in monthly
installments expiring at various times through February
2004 (a)........................................................... 2,228 2,458
---------------- -----------------
Total Long-Term Debt..................................................... $ 18,014 22,601
Less unamortized discount on 9.0% Senior Notes........................... 115 166
Less current installments................................................ 4,128 3,023
---------------- -----------------
Long-Term Debt, excluding current installments........................... $ 13,771 19,412
---------------- -----------------
</TABLE>
(a) Secured by property having a net book value of approximately $2,914,000
and $5,356,000 at April 30, 1997 and 1996, respectively.
20
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aggregate maturities on long-term debt are as follows (in thousands):
1998............................. $ 4,128
1999............................. 5,210
2000............................. 2,874
2001............................. 2,876
2002............................. 2,878
Thereafter....................... 48
---------------
Total $18,014
---------------
Interest expense on long-term debt amounted to $2,021,000, $2,476,000 and
$2,745,000 for the years ended April 30, 1997, 1996 and 1995, respectively.
At April 30, 1997, the Company is in compliance with all debt covenants
associated with the various financing agreements outstanding.
6. Income Taxes
Income tax expense is composed of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C>
Current Tax Expense:
Federal............................................. -- -- 20
State and Foreign................................... -- -- --
--------------- --------------- ---------------
-- -- 20
--------------- --------------- ---------------
Deferred Tax Expense (Benefit):
Federal............................................. $ (200) 126 228
State and Foreign................................... 1,284 227 (210)
--------------- --------------- ---------------
1,084 353 18
--------------- --------------- ---------------
Total Income Tax Expense.................................. $ 1,084 353 38
--------------- --------------- ---------------
</TABLE>
21
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax expense attributable to earnings before income taxes for the years
ended April 30, 1997, 1996 and 1995, differed from the amounts computed by
applying the U.S. Federal Income Tax rate of 34 percent as a result of the
following:
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense........................... $ 1,275 462 76
State taxes, net of Federal benefit....................... 175 63 10
Foreign taxes in excess of expected tax rate.............. 121 20 (21)
Change in valuation allowance............................. (487) (170) (24)
Amortization of goodwill and life insurance............... -- 1 (11)
Other, net................................................ -- (23) 8
--------------- --------------- ---------------
$ 1,084 353 38
--------------- --------------- ---------------
</TABLE>
At April 30, 1997, 1996 and 1995, 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.
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,
----------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C>
Deferred Tax Assets:
Net Operating Loss Carryforwards........................... $ 6,834 8,544 7,990
Investment Tax Credit Carryforwards........................ 540 540 540
Alternative Minimum Tax Credit Carryforwards............... 106 106 106
--------------- ---------------- -----------------
Total Gross Deferred Tax Assets............................ 7,480 9,190 8,636
Less Valuation Allowance................................... (441) (928) (1,098)
--------------- ---------------- -----------------
Net Deferred Tax Assets.................................... 7,039 8,262 7,538
--------------- ---------------- -----------------
Deferred Tax Liability - Depreciation............................ 8,803 8,946 7,850
--------------- ---------------- -----------------
Net Deferred Tax Liability................................. $ 1,764 684 312
--------------- ---------------- -----------------
</TABLE>
Included in deferred income taxes for fiscal 1997 and 1996 are reductions in the
deferred tax asset valuation allowance of $487,000 and $170,000, respectively.
The reductions resulted from three successive years of operating earnings
generated by the Company,
22
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
which increased the portion of the gross deferred tax asset that the Company
believes would more likely than not be realized.
At April 30, 1997, the Company has net operating loss carryforwards for U.S.
Federal income tax purposes of $17,492,000 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
$164,000 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 $540,000 which are available to reduce future Federal
income taxes, if any, through 2001.
7. 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, 1997, 419,100 options are outstanding at exercise
prices of $3.00 to $5.50 per share, expiring at various times through October
2006. Options may be granted through October 27, 1997, the date of the Plan's
expiration. Options are granted at fair market value as of the date of grant.
The following table summarizes the status of the Plan:
<TABLE>
<CAPTION>
-------------------------------------------------
Number of Option
Options Price
-------------------------------------------------
<S> <C> <C>
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
Granted........................................................... 90,000 $ 5.50
Exercised......................................................... 13,400 $ 3.00
Terminated........................................................ -- --
-----------------
Outstanding at April 30, 1997 (all but 45,000 exercisable).............. 419,100 $ 3.00 - 5.50
-----------------
</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, which warrants expire on March 15,
2002.
23
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
(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.
8. Sales
The following is a summary of sales and cost of sales (in thousands):
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C>
Sales:
Rental Vehicle Sales....................................... $ 30,280 25,471 21,797
New Vehicles............................................... 5,690 9,735 13,826
Used Vehicles.............................................. 3,854 6,082 10,977
Parts, Service, Accessories and Other...................... 2,032 2,281 1,876
--------------- ---------------- -----------------
$ 41,856 43,569 48,476
--------------- ---------------- -----------------
Cost of Sales:
Rental Vehicle Sales....................................... 28,994 24,023 20,674
New Vehicles............................................... 4,951 8,417 11,686
Used Vehicles.............................................. 2,991 4,907 9,031
Parts, Service, Accessories and Other...................... 1,548 1,727 1,267
--------------- ---------------- -----------------
$ 38,484 39,074 42,658
--------------- ---------------- -----------------
Gross Profit..................................................... $ 3,372 4,495 5,818
--------------- ---------------- -----------------
</TABLE>
9. 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 $1,058,000, $1,036,000 and $1,263,000
for the years ended April 30, 1997, 1996 and 1995, respectively.
24
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Minimum annual rental commitments under these leases as of April 30, 1997 are as
follows (in thousands):
1998............................. $ 974
1999............................. 767
2000............................. 515
2001............................. 375
2002............................. 301
Thereafter....................... 235
---------------
Total $ 3,167
---------------
10. 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 $40,000 for each of
the policy years ended October 1997, 1996 and 1995.
(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 statements of the Company taken as a whole.
(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,
----------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C>
Identifiable Assets.............................................. $ 19,244 17,120 12,644
Total Revenue.................................................... 25,499 19,163 15,486
Earnings (Loss) Before Income Taxes.............................. 2,952 486 (493)
Foreign Currency Transaction Gain (Loss)......................... 4 (30) (54)
</TABLE>
25
<PAGE>
CRUISE AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Supplemental Disclosures of Cash Flow Information (in thousands):
<TABLE>
<CAPTION>
Year Ended April 30,
1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C>
Cash Paid During the Year for:
Interest on Borrowings..................................... $ 7,396 7,151 6,304
</TABLE>
26
<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 1997.
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 73 Chairman of the Board of Directors
Randall Smalley 47 President and Chief Executive Officer
Robert A. Smalley, Jr. 48 Executive Vice President and Chief Operating Officer
Eric R. Bensen 42 Chief Financial Officer and Secretary
</TABLE>
The information regarding directors required by Item 401 of Regulation S-K will
be set forth in the Company's definitive proxy statement for the 1997 annual
meeting of shareholders, which will be filed with the Securities and Exchange
Commission not later than 120 days after April 30, 1997, and is incorporated
herein by this reference.
ITEM 11. MANAGEMENT REMUNERATION
The information required by Item 402 of Regulation S-K will be set forth in the
Company's definitive proxy statement for the 1997 annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission
not later than 120 days after April 30, 1997, 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 definitive proxy statement for the 1997 annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission
not later than 120 days after April 30, 1997, and is incorporated herein by this
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
Not applicable.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of this Report
1. The following financial statements are incorporated by reference in
Item 8:
<TABLE>
<CAPTION>
Page in this
Financial Statement Report
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Independent Auditors' Report............................................................................ 10
Consolidated Balance Sheets as of April 30, 1997 and 1996............................................... 11, 12
Consolidated Statements of Operations for each of the years in the three-year period ended
April 30, 1997.................................................................................... 13
Consolidated Statements of Stockholders' Equity for each of the years in the
three-year period ended April 30, 1997............................................................ 14
Consolidated Statements of Cash Flows for each of the years in the three-year period ended
April 30, 1997.................................................................................... 15
Notes to Consolidated Financial Statements.............................................................. 16 - 26
</TABLE>
Information required by other schedules has either been incorporated in the
financial statements and accompanying notes, or is not applicable to the
Company.
28
<PAGE>
3. The following exhibits are filed with this Report or incorporated by
reference:
<TABLE>
<CAPTION>
Page Number or Incorporation by
Reference to the
Exhibit Description Document Listed Below
- ------------------------------------------------------------------------------------------------------------------------------
<C> <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, 1996 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
23 Consent of KPMG Peat Marwick LLP 31
99 Statement Regarding Forward-Looking Statements 32
</TABLE>
(b) Reports on Form 8-K filed during the quarter ended April 30, 1994. 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
29
<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
June 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on June 26, 1997, by the following persons on behalf of the
registrant and in the capacities indicated.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Signature Title
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>
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 June 26, 1997, relating to the consolidated balance sheets of
Cruise America, Inc. and subsidiaries as of April 30, 1997 and 1996, 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, 1997, which
report appears in the April 30, 1997 Annual Report on Form 10-K of Cruise
America, Inc.
Phoenix, Arizona
July 18, 1997
31
<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-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<EXCHANGE-RATE> 1
<CASH> 4,029
<SECURITIES> 0
<RECEIVABLES> 5,897
<ALLOWANCES> 0
<INVENTORY> 11,909
<CURRENT-ASSETS> 22,902
<PP&E> 106,871
<DEPRECIATION> 24,965
<TOTAL-ASSETS> 107,224
<CURRENT-LIABILITIES> 29,159
<BONDS> 50,237
0
0
<COMMON> 58
<OTHER-SE> 26,006
<TOTAL-LIABILITY-AND-EQUITY> 107,224
<SALES> 41,856
<TOTAL-REVENUES> 95,620
<CGS> 38,484
<TOTAL-COSTS> 61,652
<OTHER-EXPENSES> 22,741
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,430
<INCOME-PRETAX> 3,797
<INCOME-TAX> 1,084
<INCOME-CONTINUING> 2,713
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,713
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
EXHIBIT 99
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Company's Form 10-K, any Form 10-Q, any Form 8-K, or any other written or
oral statements made by or on behalf of the Company, may include forward-looking
statements which reflect the Company's current views with respect to future
events and financial performance. Generally, the words "believe," "expect,"
"anticipate," "intends," "forecast," "project" and similar expressions identify
forward-looking statements. Forward-looking statements made by or on behalf of
the Company are subject to uncertainties and other factors that could cause the
Company's actual results to differ materially from those anticipated in the
forward-looking statements. The uncertainties and other factors include, but are
not limited to, those described under the Risk Factors listed below (many of
which have been discussed in prior SEC filings by the Company). Though the
Company has attempted to list the factors it believes to be important to its
business, the Company wishes to caution investors that other factors may prove
to be important in affecting the Company's business or results of operations.
New factors emerge from time to time and it is not possible for management to
predict all of such factors, nor can it assess the impact of each such factor on
the Company's business or the extent to which any factor, or combination of
factors, may cause the Company's actual results to differ materially from those
anticipated in the forward-looking statements.
Investors are further cautioned not to place undue reliance on any
forward-looking statements as they speak only of the Company's view as of the
date the statement was made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
RISK FACTORS
General Economic Conditions
The Company's sales and rental businesses are affected by general economic
conditions, including employment rates, prevailing interest rates and other
economic conditions affecting disposable consumer income generally. While the
Company's modular motorhome concept has lessened the Company's reliance on the
sales portion of the business, weakness in the economy could still have an
adverse effect on the Company's sales and rental businesses.
Geographic Concentration
The Company operates Hub rental and sales offices from 16 locations in the
United States and Canada. The Company also operates over 76 Satellite rental
centers, which are independently owned businesses that contract to rent the
Company's RVs. Although the geographic diversity of the Company's operations
lessens the impact of an economic downturn in any single region, the Company's
business could be adversely affected by economic conditions in particular
regions. The Company's most significant geographic concentrations of business
are in Canada, California, the Rocky Mountain corridor, the Pacific Northwest
(including Alaska) and the Southeastern United States.
Competition
The Company competes in the rental and sales of RVs with several firms, some of
which operate in multiple locations. In addition, in most markets in which the
Company operates there are local competitors that operate from 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 also competes with
other leisure and vacation activities, many of which are more visible and
familiar than the Company's product. Among other things, increased competition
could cause downward pressure on rental rates, decreased sales prices and lower
margins.
32
<PAGE>
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. This is caused principally because a
significant majority of the demand for RV rentals occurring during the summer
months. The Company's purchases of RVs 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 the Company's business, the Company believes
that quarterly comparisons of the results of operations during any fiscal year
are not necessarily meaningful and that results for any one fiscal quarter
should not be relied upon as an indication of future performance.
Dependence Upon Key Personnel
The Company's future success will depend upon the continued services of the
Company's senior management as well as the Company's ability to attract
additional members to its management team as and when necessary. The unexpected
loss of the service of any of the Company's key management personnel, or its
inability to attract new management when necessary, could have a material
adverse effect upon the Company. The Company has entered into employment
agreements (which include limited non-competition provisions) with certain of
its officers.
Regulation, Supervision, and Licensing
The Company's operations are subject to ongoing regulation, supervision and
licensing under various federal, state, provincial and local statutes,
ordinances and regulations. The Company believes it is in substantial compliance
with such laws. There can be no assurance, however, that the Company will be
able to remain in compliance with such laws, and any such failure could have a
material adverse effect on the operations of the Company. In addition, the
adoption of additional statutes and regulations, changes in the interpretation
of existing statutes and regulations, or the Company's entrance into
jurisdictions with more stringent regulatory requirements could have a material
adverse effect on the Company's business.
Currency Fluctuations
A significant portion of the Company's rental business is derived from
international tourists visiting North America. The majority of the Company's
international rental customers come from Europe, with others coming from
Australia, Africa and Asia. The exchange rates between the currencies of the
country of origin and the country of destination (the United States or Canada)
has an impact on the cost of the customer's vacation. Fluctuations in these
exchange rates could materially effect the amount of business the Company
derives from international customers.
Fuel Pricing and Availability
The Company's business, the rental and sales of RVs, is automotive in nature and
as such is dependent upon the availability of fuel. A decrease in the
availability of gasoline and the inability of the Company to convert its
vehicles to alternative fuels could have a material adverse effect on the
Company's business. Historically, increases in the price of gasoline have not
had a material impact on the Company's business, as long as there was no
concurrent decline in availability. However, future increases in the price of
gasoline could have a material effect on the Company's business.
Insurance Risk
The Company maintains a $15 million umbrella insurance policy insuring against
third party claims as a result of its rental and dealership operations. Each
claim is subject to a $250,000 self insured retention for which the Company is
liable. The frequency and severity of claims, as well as the availability and
cost of such insurance could adversely affect the Company's results of
operations. Management closely monitors these claims and historically has
experienced reasonable claims expense. There can be no assurance that this low
claims experience will continue, nor is there any assurance that umbrella
coverage will continue to be available at economic costs, if at all.
33
<PAGE>
Environmental Risks
The nature of any automotive business involves the handling of hazardous wastes
such as motor oil, fuel, paint and other chemicals. The Company seeks to adhere
to all existing laws and regulations for use, containment, record keeping and
disposal. Noncompliance with or changes to environmental regulations could
adversely affect the Company's business.
Dependence on External Financing
The Company has borrowed, and will continue to borrow, substantial amounts to
fund its operations from banks and other lenders. The Company's current
financings are under various notes and lines of credit with various terms,
renewal dates and numerous covenants that limit the Company's ability to
undertake certain transactions, require it to meet specified financial ratios,
and require it to comply with all laws relating to the Company's business. There
can be no assurance that the Company will be able to continue to satisfy the
terms and conditions of the various credit facilities and notes, or that credit
lines will be extended beyond their current expiration dates. Although the
Company believes that it is currently in compliance with the terms and
conditions of its borrowing agreements, a default thereunder could have a
material adverse effect on the Company's financial condition and results of
operations.
Suppliers
The Company is dependent upon various manufacturers for new vehicles and
chassis. Labor disruptions, strikes or other events affecting the manufacturers'
ability to deliver their products could adversely affect the Company's business.
Implementation of New Business Strategies
In recent periods, the Company has implemented certain new business strategies,
including the conversion to the use of modular motorhomes. The Company
anticipates that the use of modular motorhomes will enable it to extend the life
of the coach component of its motorhomes, enable it to reduce the purchase of
new complete RVs and reduce holding costs accordingly. The Company believes that
the cost savings associated with this program will more than offset the
resulting reduction in sales and gross profit from the resale of motorhomes,
although there can be no assurance in this regard. In addition, in an attempt to
offset the seasonality of its core RV sales and rental business, the Company has
begun the rental of shuttle buses, motorcycles and other specialty vehicles and
may pursue other business opportunities along these lines. The rental of these
vehicles requires distinct marketing and sales programs, and there can be no
assurance that these strategies will be successful in offsetting the seasonality
typically experienced by the Company.
Factors Inhibiting Takeover
The existence of the Company's outstanding preferred stock purchase rights,
which become exercisable after, among other events, 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, as well as certain provisions of the Company's
Articles of Incorporation, Bylaws and Florida law, may delay, defer or prevent a
takeover attempt that a shareholder might consider in its best interest. The
Preferred Stock purchase rights, when exercisable, entitle the holders to
purchase Preferred Stock of the Company or, under certain circumstances,
securities of the Company or the acquiring entity, having a market value of
twice the exercise price. The Company's Articles authorize the Board to
determine the rights, preferences, privileges and restrictions of unissued
series of Preferred Stock, without any vote or action by the Company's
shareholders. Thus, the Board could authorize and issue shares of Preferred
Stock with voting or conversion rights that could adversely affect the voting or
other rights of holders of the Company's Common Stock or may have the effect of
delaying, deferring or preventing a change of control of the Company. The
Company's Bylaws establish certain advance notice procedures for nomination of
candidates for election as directors and for shareholder proposals to be
considered at annual shareholders' meetings. The Company is also subject to (i)
the Florida Control Share Act, which generally provides that shares acquired in
excess of certain specified thresholds will not possess any voting
34
<PAGE>
rights unless such voting rights are approved by a majority vote of the
corporation's disinterested shareholders, and (ii) the Florida Fair Price Act,
which generally requires supermajority approval by disinterested directors or
shareholders of certain specified transactions between a corporation and holders
of more than 10 percent of the outstanding shares of the corporation (or their
affiliates).
Possible Volatility of Stock Prices
The market price of the Company's common stock could be subject to significant
fluctuations in response to such factors as, among others, variations in the
anticipated or actual results of operations of the Company or other companies in
the RV sales and rental industry, changes in conditions affecting the economy or
the stock market generally or in the market for stocks in the Company's industry
group, analyst reports or general trends in the industry or related industries.
35
