SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended July 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-16448
HOLIDAY RV SUPERSTORES, INC.
I.R.S. # 59-1834763
State of Incorporation: Delaware
Sand Lake West Executive Park
7851 Greenbriar Parkway
Orlando, Florida 32819
(407) 363-9211
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
--- ---
As of August 31, 2000, Holiday RV Superstores, Inc. had outstanding
7,339,300 of Common Stock, par value $.01 per share.
<PAGE>
TABLE OF CONTENTS
Item Page
Part I
Financial Information
1. Consolidated Condensed Balance Sheets................................... 3
Consolidated Condensed Statements of Operations......................... 5
Consolidated Condensed Statements of Cash Flows......................... 6
Notes to Consolidated Condensed Financial
Statements......................................................... 8
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 11
3. Quantitative and Qualitative Disclosures about Market Risk.............. 17
Part II
Other Information
6. Exhibits and Reports on Form 8-K........................................ 18
2
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PART I
ITEM I.
HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
--------------------------------------------------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
07/31/00 10/31/99
(Unaudited)
----------- -----------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $4,618,454 $9,119,264
Contracts in transit 2,749,738 1,889,721
Accounts receivable:
Trade 2,133,273 170,431
Other 161, 084 568,106
Inventories 57,393,926 28,755,779
Prepaid expenses 266,938 60,587
Refundable income taxes 433,152 100,868
Deferred income taxes 177,000 177,000
----------- ----------
Total Current Assets 67,933,565 40,841,756
Property and Equipment,
less accumulated depreciation 12,025,345 4,598,477
Other Assets,
Goodwill, less accumulated amortization 6,186,845 ---
Other 810,332 177,272
Noncurrent Deferred Income Taxes 117,000 117,000
----------- -----------
TOTAL ASSETS $87,073,087 $45,734,505
=========== ===========
</TABLE>
3
<PAGE>
HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
7/31/00 10/31/99
(Unaudited)
----------- -----------
Current Liabilities:
<S> <C> <C>
Floor plan contracts $50,147,305 $23,673,241
Accounts payable 2,581,695 410,732
Customer deposits 185,758 111,519
Accrued expenses and other current liabilities 1,996,704 1,690,760
Current portion of capital lease obligations 100,111 69,161
Current portion of notes payable-real property 139,938 ---
Current portion of deferred gain on leaseback
transaction 48,626 ---
Notes payable 1,274,355 ---
----------- -----------
Total Current Liabilities 56,474,492 25,955,413
Long Term Obligations:
Capital leases,
less current portion 322,157 155,730
Notes-real property,
less current portion 6,938,291 ---
Deferred gain on leaseback transaction,
less current portion 437,639 ---
----------- -----------
Total Long Term Obligations 7,698,087 155,730
Convertible Sellers Notes 3,231,920 ---
----------- -----------
Total Liabilities 67,404,499 26,111,143
Stockholders' Equity:
Preferred stock $.01 par; shares
authorized 2,000,000; issued 0 --- ---
Common stock $.01 par; shares authorized
23,000,000; issued 7,640,000 and 7,505,000 76,400 75,050
Additional paid-in capital 5,737,201 5,184,370
Retained earnings 14,396,642 14,905,597
Treasury stock, 300,700 shares at cost (541,655) (541,655)
----------- -----------
Total Stockholders' Equity 19,668,588 19,623,362
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $87,073,087 $45,734,505
=========== ===========
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
4
<PAGE>
HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
07/31/00 07/31/99 07/31/00 07/31/99
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales and Service Revenue $38,565,943 $19,696,900 $122,454,344 $64,137,964
Cost of Sales And Service 31,509,100 16,162,894 101,777,358 53,285,431
----------- ----------- ----------- -----------
Gross Profit 7,056,843 3,534,006 20,676,986 10,852,533
Selling, General And
Administrative Expenses 6,348,376 2,610,363 18,044,471 7,800,928
----------- ----------- ----------- -----------
Income from operations 708,467 923,643 2,632,515 3,051,605
Interest Income 47,318 150,069 183,186 400,801
Interest Expense (1,477,019) (258,261) (3,519,656) (847,573)
Gain on the Sale of Asset --- --- --- 316,747
----------- ----------- ----------- -----------
Income (loss) before income
tax (benefit) (721,234) 815,451 (703,955) 2,921,580
Income Taxes (Benefit) (252,200) 318,000 (195,000) 1,139,400
----------- ----------- ----------- -----------
Net (Loss) Income ($469,034) $497,451 ($508,955) $1,782,180
=========== =========== =========== ===========
Basic (Loss) Earnings per
Common Share ($0.06) $0.07 ($0.07) $0.25
=========== =========== =========== ===========
Diluted (Loss) Earnings Per
Common Share ($0.06) $0.07 ($0.07) $0.24
=========== =========== =========== ===========
Weighted Average Number of Shares-Basic 7,339,300 7,186,500 7,274,000 7,181,900
=========== =========== =========== ===========
Weighted Average Number of Shares-Diluted 7,339,300 7,354,700 7,274,000 7,300,400
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
5
<PAGE>
HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JULY 31
2000 1999
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from customers $121,624,746 $64,421,705
Cash paid to suppliers and employees (117,899,556) (60,220,442)
Interest received 183,186 400,801
Interest paid (3,030,791) (826,166)
Income taxes paid (28,084) (1,112,037)
------------ ------------
Net cash provided by operating activities 849,501 2,663,861
Cash flows from investing activities:
Purchase of property, plant and equipment (2,430,547) (715,080)
Proceeds from the sale-leaseback of property 2,115,048 1,199,151
Acquisition of dealerships, net of cash acquired (6,462,598) ---
------------ ------------
Net cash (used in) provided by investing activities (6,778,097) 484,071
Cash flows from financing activities:
Treasury stock purchases --- (108,876)
Repayment of capital lease obligations (51,152) (41,613)
Proceeds from notes on real property 2,200,000 ---
Proceeds from notes payable 3,802,361 ---
Repayment of notes to payable (4,769,823) ---
Proceeds from the issuance of common stock from
exercise of options 246,400 36,250
------------ ------------
Net cash provided by (used in) financing activities 1,427,786 (114,239)
------------ ------------
Net (decrease) increase in cash and cash equivalents (4,500,810) 3,033,693
Cash and cash equivalents, beginning of period 9,119,264 7,441,806
------------ ------------
Cash and cash equivalents, end of quarter $4,618,454 $10,475,499
============ ============
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
6
<PAGE>
HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS-CONTINUED
--------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JULY 31
2000 1999
----------- -----------
Reconciliation of net (loss) income to net cash
Provided by operating activities:
<S> <C> <C>
Net (loss) income $(508,955) $1,782,180
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 626,439 234,458
Amortization of deferred compensation --- 937
Gain on disposal of property and equipment --- (316,747)
Stock option compensation expense 242,773 ---
Changes in assets and liabilities, net of effect of
acquisitions
(Increases) decreases in:
Contracts in transit (514,758) 214,264
Accounts receivable (389,079) 86,959
Refundable income taxes (332,284) ---
Inventories (3,351,529) (1,134,951)
Other assets 1,549,161 11,252
Floor plan contracts 3,536,308 1,555,022
Accounts payable 242,606 300,944
Customer deposits 74,239 (17,482)
Accrued expenses
and income taxes payable (325,420) (52,975)
----------- -----------
Net cash provided by operating activities $ 849,501 $ 2,663,861
=========== ===========
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
7
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1.
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q, and do not include all of the
information and disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto included in Holiday RV Superstores, Inc.'s
(Holiday) annual report on Form 10-K for the fiscal year ended October 31, 1999.
In the opinion of management, the accompanying financial statements include all
adjustments, consisting only of normal recurring adjustments and accruals, and
inter-company eliminations necessary to summarize fairly Holiday's financial
position and results of operations. Due to the seasonality of Holiday's business
and other economic factors, the results of operations for nine months ended July
31, 2000 are not necessarily indicative of results to be expected for the fiscal
year.
NOTE 2. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
July 31, 2000 October 31, 1999
------------- ----------------
<S> <C> <C>
New RV $39,701,303 $20,922,867
New Marine & Other 2,263,571 1,503,756
Used RV 11,946,765 4,543,606
Used Marine & Other 763,600 209,276
Parts and Accessories 2,718,687 1,576,274
----------- -----------
$57,393,926 $28,755,779
=========== ===========
</TABLE>
NOTE 3. SALE-LEASEBACK
On July 27, 2000, Holiday sold its Bakersfield, California dealership
facility for $2.1 million, which was $486,000 over its carrying value at the
time of sale. Concurrently with the sale, Holiday entered into a lease
arrangement for the dealership facility with the purchaser for an annual lease
payment of $233,400 through 2010. The gain from the sale is being recognized
over the term of the lease.
NOTE 4. ACQUISITIONS
On November 11, 1999, Holiday acquired 100% of the issued and outstanding
stock of County Line Select Cars, Inc., Ocala, Florida. The total purchase price
paid to the County Line shareholders was $6.5 million, consisting of $5.0
million cash and $1.5 million in notes convertible into Holiday's common stock.
In connection with the County Line acquisition, the Company repaid $1.6 million
of loans outstanding to the former County Line shareholders. Holiday also
granted options on 38,000 shares of Holiday stock to each of the two County Line
shareholders, at then market price, for future employment services to Holiday.
The acquisition has been accounted for under the purchase method of
8
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
accounting, which resulted in the recognition of approximately $4.4 million in
goodwill, to be amortized over 20 years on a straight-line basis.
On March 1, 2000, Holiday acquired 100% of the issued and outstanding stock
of Little Valley Auto & RV Sales, Inc., Prosperity, West Virginia. The total
purchase price paid to the Little Valley shareholders was $3.4 million,
consisting of $1.7 million cash and $1.7 million in a note convertible into
Holiday common stock. The acquisition has been accounted for under the purchase
method of accounting which resulted in the recognition of approximately $1.7
million in goodwill, to be amortized over 20 years on a straight-line basis.
The following unaudited pro-forma summary presents the consolidated results
of operations of Holiday as if the acquisitions had occurred at the beginning of
periods presented herein. This presentation is for informational purposes only
and does not purport of being indicative of what would have occurred had the
acquisition been made as of these dates or of results which may occur in the
future.
NINE MONTHS ENDED
7/31/00 7/31/99
------- -------
Revenue $127,738,000 $125,157,000
Net (Loss) Income (541,000) 1,927,000
Diluted (Loss) Earnings Per Share $ (0.07) $ 0.26
On January 11, 2000, Holiday acquired all of the land and buildings related
to the operations of County Line Select Cars, Inc. from County Line's former
shareholders. The total purchase price was $6.5 million, with the sellers
providing first mortgage financing for $5.0 million. The mortgage has a 10-year
term at an interest rate of 9.5% per annum, with principal and interest payable
monthly based on a 20-year amortization.
On March 17, 2000 Holiday entered into a lease with and acquired from Luke
Potter Winnebago, Winter Garden, Florida, inventory and selected operating
assets, in connection with the relocation of its Orlando, Florida dealership.
On July 10, 2000, Holiday entered into a stock purchase agreement with Hall
Enterprise, Inc., and Tommy R. Hall for the purchase of 100% of the issued and
outstanding stock of Hall Enterprises, Inc., a dealership in Lexington,
Kentucky. The closing of the purchase is expected to be completed by September
30, 2000.
NOTE 5. ACQUISITION DEBT
In connection with the acquisition of County Line Select Cars, Inc.,
Holiday issued two $750,000 notes to the former shareholders of County Line. The
notes have a three-year term and were issued at
9
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
an interest rate of 8.25% per annum. Payments of interest only are due
quarterly, with the full principal balance due no later than three years from
issuance. The notes are convertible, at the option of the holder, into common
stock of Holiday at a fixed conversion price per share, at any time after two
years from the date of issuance.
In connection with the acquisition of Little Valley Auto & RV Sales, Inc.,
Holiday issued a note to the former shareholders of Little Valley in the amount
of $1.73 million. The note has a three-year term and was issued at an interest
rate of 7.5% per annum. Payments of interest only are due quarterly, with the
full principal balance no later than three years from issuance. The note is
convertible, at the option of the holder, into common stock of Holiday at a
fixed conversion price per share, at anytime after two years from the date of
issuance.
Holiday borrowed $1.6 million from Doerge Capital Management in connection
with the Little Valley acquisition. The interest rate was 15.0% per annum.
Holiday paid $66,000 in loan fees to the lender and issued to the lender
warrants to purchase 22,000 shares of Holiday common stock at then market price.
The warrants are for five years and have a one-year vesting period.
Approximately $29,000 in value has been ascribed to the warrants using a
Black-Scholes pricing model and the value has been recognized as consulting
expense by Holiday. Principal and interest were due 90 days from funding. The
loan has been repaid in full by Holiday. David J. Doerge, a member of Holiday's
Board of Directors, is President of Doerge Capital Management.
On May 11, 2000, Holiday borrowed $1.0 million from Armando Alonso
principally to repay acquisition-related debt. The interest rate was 6.75% per
annum. Holiday paid $36,000 in loan fees to the lender and issued to the lender
warrants to purchase 10,000 shares of common stock of Holiday at then market
price. The loan principal and interest was paid in full by Holiday in August,
2000. Mr. Alonso is a Senior Vice President of Holiday and a former shareholder
of County Line Select Cars, Inc.
NOTE 6. STOCK OPTIONS AND WARRANTS
Holiday granted stock options during the nine months ended July 31, 2000 to
eleven of its executives for a total of 741,000 shares. The grants were made
pursuant to Holiday's 1999-Stock Option Plan and the 1999 Stock Compensation
Program.
On April 13, 2000 Holiday entered into a financial consulting and
investment agreement with Schneider Securities, Inc. for a term of one year.
Compensation for these services consists of $20,000 payable upon execution of
the agreement and $60,000 in installments over the remaining term of the
agreement. In addition, Holiday issued to Schneider Securities warrants to
purchase up to 350,000 shares of Holiday stock as follows: 150,000 shares at
$5.00 per share; 100,000 shares at $7.50 per share; and 100,000 shares at $10.00
per share. The warrants have a one-year vesting period and a term of five years.
Approximately $360,000 has been ascribed to the warrants using a Black-Scholes
pricing model and this value is being recognized as consulting expense by
Holiday over the warrants vesting period.
10
<PAGE>
The results of operations for the nine months period ended July 31, 2000
includes approximately $244,000 of expense for stock options granted and
warrants issued.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements.
These forward-looking statements may generally be identified by introductions
such as "outlook" for an upcoming period of time, or words and phrases such as
"should," "expects," "hopes," "plans," "anticipates," "projected," "believes,"
"forward-looking" (or variants of those words and phrases) or similar language
indicating the expression of an opinion or view concerning the future. Holiday
cautions investors that any forward-looking statements made by or on behalf of
Holiday are subject to uncertainties and other factors that could cause actual
results to differ materially from such statements. The uncertainties and other
factors include, but are not limited to, the factors listed in Holiday's Form
10-K for the year ended October 31, 1999 (many of which have been discussed in
prior SEC filings by Holiday). Though Holiday has attempted to list the factors
it believes to be important to its business, Holiday wishes to caution investors
that other factors might prove to be important in affecting Holiday's results of
operations. New factors, such as its new website users, emerge from time to time
and it is not possible for management to predict all of such factors, nor can
management assess the impact of each factor on the business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from forward-looking statements.
Investors are further cautioned not to place undue reliance on any
forward-looking statements as they speak only of Holiday's view as of the date
the statement was made. Holiday undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events, or otherwise.
General
Holiday is a multi-store dealership chain engaged in the retail sales,
financing, and service of recreation vehicles, or RVs, boats and other
recreation vehicles. Currently Holiday operates 13 retail centers, five in
Central and North Central Florida, two in the Gulf Coast areas of Tampa and Ft.
Myers, Florida, one in Spartanburg, South Carolina, two in California's central
valley cities of Roseville and Bakersfield, one in Las Cruces, New Mexico, one
in Prosperity, West Virginia, and one in Wytheville, Virginia.
Holiday intends to capitalize on the anticipated demand and upon the
consolidation opportunities available in the highly fragmented recreation
vehicle dealership industry by acquiring additional dealers and improving their
performance and profitability through the implementation of Holiday's operating
strategies. The primary acquisition focus is on well-established recreation
vehicle and marine dealers with strong leadership in key geographic markets not
currently served by the operating subsidiaries, particularly geographic markets
with strong demographics. Holiday is also considering opportunities within its
existing markets when operating and marketing efficiencies can be obtained by
the addition of more dealerships. Holiday may expand its range of product lines
and its market penetration by acquiring dealers that distribute recreation
vehicle product lines different from those currently offered by Holiday.
11
<PAGE>
As a result of the considerable industry experience and relationships of
Holiday's management team, Holiday believes it is well positioned to identify
and evaluate acquisition candidates and assess their growth prospects, the
quality of their management teams, their local reputation with customers, and
the suitability of their locations. Holiday believes it is regarded as an
attractive acquirer by dealers because of (1) Holiday's historical performance
and the experience and reputation of its management team within the industry;
(2) Holiday's decentralized operating strategy, which enables the managers of an
acquired dealer to continue their involvement in dealership operations; (3) the
ability of management and employees of an acquired dealer to participate in
Holiday's growth and expansion through potential stock ownership and career
advancement opportunities; (4) the ability to offer liquidity to the owners of
acquired dealers through the receipt of stock or cash.
Holiday launched a national branding strategy in December 1999 to
consolidate and rebrand the various operating names of its subsidiaries under a
new tradename: Recreation USA. The new tradename better reflects Holiday's
corporate identity and solidifies its acquisitions under a single, recognizable
brand that will be memorable with customers. While the new tradename was phased
in during fiscal 2000 Holiday and its subsidiaries operated under multiple
tradenames, including the original tradename, Holiday RV Superstores, and its
acquired dealerships, including County Line RV/Recreation USA and Little Valley
RV/Recreation USA. This strategy capitalized on the "brand name equity" of the
acquired dealerships while the Recreation USA tradename was gaining recognition.
The rebranding of the existing dealerships to Recreation USA has been completed
for acquired dealerships to date, and Holiday intends to continue to use this
strategy of a phased-in transition when acquiring new dealerships.
On November 11, 1999 Holiday purchased 100% of the outstanding common stock
of County Line Select Cars, Inc., based in Ocala, Florida. County Line's annual
revenue was approximately $70 million prior to the acquisition. The County Line
purchase established a leadership position in Florida by expanding the number of
dealerships in Florida from three to eight. The acquisition also strengthened
Holiday's depth of management by establishing Holiday's first regional office.
On March 1, 2000, Holiday purchased 100% of the outstanding stock of Little
Valley Auto & RV Sales, Inc. Little Valley has two dealerships, one in
Prosperity, West Virginia and one in Wytheville, Virginia. Little Valley's
annual revenue was approximately $13 million prior to the acquisition. The
Little Valley purchase expands Holiday's platform in the Mid-Atlantic states.
The quality and experience of management and the historical profitability of its
operations fell well within Holiday's acquisition criteria.
On July 10, 2000, Holiday executed a stock purchase agreement to purchase
100% of the outstanding stock of Hall Enterprises, Inc. Hall Enterprises
operates a dealership in Lexington, Kentucky, with annual revenue of
approximately $13 million in 1999. This acquisition will expand Holiday's
Mid-Atlantic States region to four dealerships. The closing is expected by
September 30, 2000 and will bring Holiday's total operating dealerships to 14.
E Commerce
In fiscal 2000, Holiday unveiled a comprehensive e-commerce strategy and
its new website, www.RecUSA.com The business-to-consumer (B2C) website is a
"virtual dealership" designed to complement Holiday's brick and mortar.
Consumers can buy and sell RVs and boats, obtain online
12
<PAGE>
financing and insurance information, receive quotes on trade-ins, order parts
and determine service availability at the site.
Material Changes in Financial Condition
Certain current accounts materially changed during the period. These
changes are a result of normal seasonality of the business and the impact of
recent acquisitions except as discussed in the liquidity and capital resources
section of this report.
Liquidity and Capital Resources
Holiday's cash needs are primarily for its strategic acquisitions, and to a
lesser degree to support operations, including non-floored inventory for resale
and slower sales period liquidity. These cash needs have historically been
financed with cash on hand. Changes in Holiday's new inventory and partial
changes in used inventory are financed by floor plan credit facilities.
During the period ended July 31, 2000, Holiday's cash flows continued to
increase reflecting the activities of the County Line acquisition and the Little
Valley acquisition. However, net cash provided by operating activities decreased
to $850 thousand from $2.6 million the prior year primarily due to a decrease in
operating income. Increases in inventories of $3.4 million were primarily
financed by increased floor plan of $3.5 million.
Investing activities used a net of $6.8 million cash, $6.5 million to
purchase dealerships, and $2.4 million for purchase of property, plant and
equipment, primarily for building the relocated Spartanburg, S.C. dealership.
The sale and leaseback of the Bakersfield dealership facility provided $2.1
million cash.
Financing activities provided net cash of $1.4 million. Financing sources
were $2.2 million from a real property mortgage on the new Spartanburg
dealership and $3.8 million of notes payable. Cash was used to retire $4.8
million in notes payable.
Net use of cash from all activities was $4.5 million which reduced cash and
cash equivalents to $4.6 million as of July 31, 2000, compared to $9.1 million
as of October 31, 1999.
Working capital decreased to $11.5 million from $14.9 million the prior
year, primarily due to a decrease in current assets resulting from cash used for
acquisitions.
Holiday's principal long-term commitments, as of July 31, 2000, consist of
obligations under operating leases.
Holiday also has a contingent liability to repay a portion of agency
commission, or referral fees, received from lending institutions. Such amounts
are earned and recorded by Holiday for referring customers for financing, and
are subject to partial chargebacks if the loan is paid off or foreclosed in a
specific period of time, usually limited to the first six months of the term, if
the chargeback amount exceeds reserves retained by the lender. Holiday records
commission income based upon the amount earned less allowances for chargebacks.
In determining the allowance, Holiday takes into consideration the current and
predicted future economic conditions, the effects of changes in consumer
interest rates, and the aging of referred customer loans to estimate potential
chargebacks.
13
<PAGE>
Holiday's growth strategies are dependent upon obtaining adequate financing
for the purchase of recreation vehicle and marine dealerships. Holiday's
management is currently evaluating various sources of capital, its cost, and its
ultimate effect on Holiday's capitalization. In April 2000 Holiday engaged
Schneider Securities to assist in the evaluation of financing alternatives and
to advise Holiday on financial matters.
Holiday had $19.6 million available under floor plan lines of credit for
financing new and used inventories as of July 31, 2000. In August, 2000, Holiday
secured an additional $10 million credit line increasing Holiday's total line
with Bank of America to $44.5 million. This increase is primarily for flooring
inventory related to future acquisitions.
Holiday's management believes it can obtain additional debt financing at
reasonable cost for its expansion. Two of the dealership properties owned by
Holiday are not mortgaged. Management is currently considering mortgage
financing, or a sale-leaseback arrangement, from which the proceeds could be
used for expansion of operations or acquisitions.
Holiday intends to continue the use of its common stock, either by initial
payment or by issuing debt convertible to common stock, as one form of partial,
or complete payment for acquisitions. At the option of the noteholders, the
convertible sellers' notes could be converted into Holiday common stock at fixed
conversion prices. However, management does not expect a dilutive effect on the
common stockholders of Holiday as a result of issuing such common stock.
On January 7, 2000, a special shareholder meeting approved seven items
recommended by Holiday's board. Among the items, two could provide Holiday with
additional capital raising opportunities. Holiday's authorized common shares
were increased from 10 million to 23 million shares. Secondly, Holiday was
authorized to issue up to two million shares of preferred stock. Management
feels both of these items are necessary to continue Holiday's expansion.
During the next 12 months it may be necessary to issue additional common
stock, additional debt convertible to common stock, or preferred stock that
could be converted to common stock, to fund Holiday's expansion. However,
management believes the issuance of additional common stock or preferred stock
convertible to common stock will be anti-dilutive to its shareholders.
Results of Operations
Results of operations for the three months ended July 31, 2000, compared to
the three months ended July 31, 1999.
Sales and service revenue increased 96% to $38.6 million from $19.7
million, primarily due to revenue from the newly acquired dealerships in fiscal
2000. Of the increase, $16.6 million, or 89%, was from newly acquired County
Line and Little Valley dealerships. In spite of the negative impact of increased
gas prices and interest rates on customer traffic starting in the first quarter
of fiscal 2000, Holiday was able to increase comparable store (stores owned both
periods) sales by 11%, or $2.5 million. Management continues to respond to these
market conditions with a concentrated focus on aggressive promotions, improved
product mix and improved service. On a proforma comparable basis (all stores for
the comparable periods) sales and service revenue increased by $940,000 or 2.5%.
Gross profit increased 100% to $7.1 million from $3.5 million primarily due
to gross profit from the newly acquired dealerships in fiscal 2000. As a
percentage of revenue, gross margin increased to
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18.3% from 17.9% primarily as a result of increased margins in parts and
services. Management implemented a strategy to position Holiday to increase
revenue from sources with higher gross margins, primarily parts and service, in
early fiscal 2000. As a result, parts and service revenue increased, on a
proforma comparable basis (all stores for comparable periods) by 16%, or
$528,000.
Selling, general and administrative (SG&A) expenses increased 143%, or $3.7
million to $6.3 million, primarily due to $2.7 million in SG&A expenses for the
newly acquired dealerships. Approximately $1 million of the total SG&A increase
was due to expenses associated with (1) building an infrastructure for Holiday's
current and future expansion, (2) acquisition related expenses, and (3)
improving shareholder relations. Management expects the infrastructure building
and acquisition related expenses will have a significantly lower impact in the
future on total SG&A expenses as revenue from acquisitions increase and the
integration of new acquired business are completed.
Operating income decreased 23% to $708 thousand from $924 thousand.
Operating income, as a percent of revenue, decreased to 1.8% from 4.7%.
Interest expense increased 472% to $1.5 million from $258 thousand. The
increase was primarily due to increased inventory levels resulting from acquired
dealerships, accounting for approximately 56% of the total increase. Higher
interest rates, on floor plan balances, accounted for 24% of the increase, 15%
was for interest on acquisition-related debt, and 5% was for mortgage interest.
Income before income taxes decreased 188% to a loss of $721 thousand from
an income of $815 thousand.
The combined federal and state tax benefit rate was 35% compared to a tax
rate of 39% the prior year. The combined benefit rate varies from the statutory
rate due to increased non-deductible expenses for tax, primarily goodwill.
Net income decreased 195% to a loss of $469 thousand from an income of $497
thousand. The net loss, as a percentage of revenue, was negative 1.2% compared
to the prior year net income as a percent of revenue, of 2.5%.
Earnings per share were a loss of 6 cents per both basic and diluted common
share. The prior year, earnings were 7 cents per both basic and diluted common
share.
Results of operations for the nine months ended July 31, 2000, compared to
the nine months ended July 31, 1999.
Sales and service revenue increased 91% to $122.5 million from $64.1
million primarily due to revenue from the newly acquired dealerships in fiscal
2000. Of the increase, $54.1 million, or 93% was from the newly acquired County
Line and Little Valley dealerships. In spite of the negative impact of increased
gas prices and interest rates on customer traffic, Holiday was able to increase
comparable store (stores owned both periods) sales by $4.4 million or 7.5%.
Management has responded to these market conditions with a new focus on
aggressive promotion, improved product mix and service. On a proforma basis (all
stores comparable periods) sales and service increased 2.1%.
Gross profit increased 91% to $20.7 million from $10.9 million primarily
due to gross profit from the newly acquired dealerships in fiscal 2000. As a
percent of revenue, gross margin remained the same, 16.9%. Management
implemented a strategy in early fiscal 2000 to position Holiday to increase its
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overall gross margin by increasing revenue from sources with higher gross
margins primarily parts and service. As a result, parts and service revenue
increased, on a proforma comparable basis (all stores for comparable periods) by
14%, or $1.2 million, and the overall gross margin increased from 16.3% for the
quarter ended January 31, 2000, to 16.9% for the nine months ended July 31,
2000.
Selling and general administrative (SG&A) expense increased 131%, or $10.2
million to $18.0 million, primarily due to $7.5 million in SG&A expenses for the
newly acquired dealerships. Approximately $2.2 million of the increase was due
to expenses associated with (1) building an infrastructure for Holiday's current
and future expansion, (2) acquisition related expenses and (3) improving
shareholder communications. Expenses to promote the new tradename "Recreation
USA" and the relocation of two dealerships also impacted SG&A, but to a lesser
degree. Management expects the infrastructure building and the acquisition
related types of expenses to continue but that these expenses will have a
significantly lower impact in the future on total SG&A expenses as revenue from
acquisitions increases and the integration of acquired business are completed.
Operating income decreased 14% to $2.6 million from $3.1 million. As a
percent of revenue, operating income decreased to 2.1% from 4.8%.
Interest expense increased 315% to $3.5 million from $848 thousand. The
increase was primarily due to increased inventory levels resulting from acquired
dealerships, accounting for approximately 64% of the total increase. Higher
interest rates, on floor plain balances, accounted for 18% of the increase, 12%
was for interest on acquisition related debt, and 6% was for mortgage interest.
Income before income taxes decreased 124% to a loss of $704 thousand
compared to an income of $2.9 million.
The federal and state tax benefit rate was 28% compared to a tax rate of
39% the prior year. The combined benefit rate varies from the statutory rate due
to increased non-deductible expenses for tax, primarily goodwill.
Net income decreased 129% to a loss of $509 thousand compared to an income
of $1.8 million. The net loss, as a percent of revenue, was negative 0.4%
compared to the prior year net income as a percent of revenue of 2.8%.
Earnings per basic and diluted common share were a loss of 7 cents. The
prior year, earnings were 25 cents per basic share and 24 cents per diluted
share.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange. To date, Holiday's revenue from operations has
exclusively been denominated in United States dollars. The recreation vehicle
and boat products that Holiday sold to date have been priced in United States
dollars and all our sales in the fiscal year 1998 and 1999 and the first six
months of fiscal 2000 have been denominated in United States dollars. In the
future, Holiday may acquire recreation vehicle or boat products that are priced
in currencies other than the United States dollar and Holiday may expand sales
operations outside the United States. If either of these events occurs,
fluctuations in the values of the respective currencies in which Holiday
purchases or sells could adversely affect Holiday. Due to the constantly
changing currency exposures and the volatility of currency exchange rates, there
can be no assurance that Holiday would not experience currency losses in the
future, nor can Holiday predict the effect of exchange rate fluctuations upon
future operating
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results. In the event Holiday conducts transactions in currencies other than the
United States dollar, management intends to carefully evaluate Holiday's
currency management policies. If management deems it appropriate, Holiday may
consider hedging a portion of a currency exposure in the future.
Interest Rates. Holiday invests its surplus cash in financial instruments
consisting principally of overnight bank repurchase agreements with fixed rates
of interest. Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Holiday's overnight repurchase investments have some of the
characteristics of floating rate securities, since the rates are subject to
change each business day. Due in part to these factors, Holiday's future
investment income may fall short of expectations due to changes in interest
rates. If in the future Holiday invest in longer term fixed rate investments
Holiday may suffer losses in principal if forced to sell securities, which have
seen a decline in market value due to changes in interest rates. Holiday faces
interest rate risk exposure on our floor plan financing since the rates on such
debt fluctuates with prevailing market rates and this debt is substantial in
relation to Holiday's asset base. Holiday may also face interest rate risk
exposure in connection with debt issued in connection with our acquisition
strategy.
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PART II
OTHER INFORMTION
There is no information to report under Items 1, 2, 3, 4, or 5 of Part II
of this report.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
See the Exhibit Index on page 20.
Reports on Form 8-K
Holiday filed no reports on Form 8-K for the three months ended July 31,
2000.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date HOLIDAY RV SUPERSTORES, INC.
----
/S/ Ronald G. Huneycutt
------------------------------
September 13, 2000 Ronald G. Huneycutt, President
Chief Executive Officer
/S/ Gary Rodney
------------------------------
September 13, 2000 Gary Rodney, Vice President
Chief Financial Officer
Principle Accounting Officer
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Exhibit Index
Exhibit No. Description
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27.1 Financial Data Schedule - For EDGAR filed copy only
20
