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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 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.
IRS Employer ID No. 200 East Broward Blvd., Suite 920 State of Incorporation
59-1834763 Fort Lauderdale, FL 33301 Delaware
(954) 522-9903
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
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 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. [X] Yes [ ] No
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 a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates as of February
7, 2001, was approximately $12,000,000. As of February 7, 2001, Holiday RV
Superstores, Incorporated had outstanding 7,904,300 shares of Common Stock.
Documents incorporated by reference
Portions of the definitive proxy statement for the Company's 2001 Annual Meeting
of Shareholders are incorporated by reference in Part III of this Form 10-K.
TABLE OF CONTENTS
Item Page
- ---- ----
PART I
1. Business 3
2. Properties 11
3. Legal Proceedings 12
4. Submission of Matters to a Vote of Security Holders 12
PART II
5. Market for the Registrants Common Equity and
Related Stockholder Matters 11
6. Selected Financial Data 12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
7A. Quantitative and Qualitative Disclosure About Market Risk 24
8. Financial Statements and Supplementary Data 25
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 25
PART III
10. Directors and Executive Officers of the Registrant 25
11. Executive Compensation 25
12. Security Ownership of Certain Beneficial Owners 25
13. Certain Relationships and Related Party Transactions 25
PART IV
14. Exhibits, Financial Statement Schedules, and Report on Form 8-K 25
HOLIDAY RV SUPERSTORES, INC.
PART I
ITEM 1. BUSINESS
GENERAL
Holiday RV Superstores, Inc. is a multi-store chain engaged in the retail
sales, financing, and service of recreation vehicles, or RVs, and other
recreation vehicles. Holiday currently operates 14 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, one in Wytheville, Virginia, and one in Lexington,
Kentucky. Holiday operates on a fiscal year beginning on the first day of
November and ending on the last day of October. References herein to "Holiday,"
"we," "us" or "our" refers to Holiday RV Superstores, Inc. and consolidated
subsidiaries unless the context specifically requires otherwise.
RECREATION VEHICLE INDUSTRY
The recreation vehicle industry is a $16 billion a year industry in the
United States. The RV industry caters to the travel and leisure time needs of
an estimated 30 million RV enthusiasts through the sale and service of
recreation vehicles. The Recreation Vehicle Industry Association (RVIA) lists
the number of new RVs shipped to dealers as follows:
Manufacturer shipments of new RVs to Dealers
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
New RV shipments 321,200 292,700 254,500 247,500 247,000
Industry Outlook
According to industry data, the average RV owner is 49, owns a home, is
married, has a household income of $47,000, has no children living at home, and
buys an RV in order to travel.
One in ten American families in the United States owns a recreation
vehicle, amounting to over nine million owners and an estimated 30 million RV
travelers. Projections by the RVIA indicate that RV ownership should increase
21% from 8.6 million households in 1997 to an estimated 10.4 million households
in 2010. This projection is based primarily on a large number of the "Baby
Boomers" reaching their peak earnings (and likewise, vacation) years. The U.S.
Census Bureau confirms the expected high growth of the Baby Boomers segment of
the U.S. population. Additional information regarding RV industry demographics
is listed under "Customer Base", listed later in this Item 1.
The RV industry has recognized the Baby Boomer opportunity and embarked in
the spring of 1997, on a highly publicized national market expansion program.
This program is aimed at showing the lifestyle appeal of RVing to the Baby
Boomers. The campaign slogan "Go RVing" accurately portrays the industry in a
very favorable light, offering solitude, family time and the opportunity to slow
down and reconnect with the world around us.
PRINCIPAL PRODUCTS AND SERVICES
Our principal products and services for the last three years are listed
below, by major revenue source, as a percentage of total revenue.
Principal products or services as a Percentage of Total Revenue
Principle product or service 2000 1999 1998
- ----------------------------------- ------ ------ ------
New and used vehicles and boats 90.7 88.7 87.0
Service, parts and accessories 6.1 7.7 9.3
Other, net 3.3 3.6 3.7
------ ------ ------
Total revenue 100.0 100.0 100.0
------ ------ ------
New and used vehicles and boats
The types of RVs that we sell consist primarily of travel trailers and
towables or fifth wheels, motorized self-propelled units, built on automotive
chassis, or motorized vehicles, which are powered by gasoline or diesel motors.
Towables: travel trailers, including fifth-wheel travel trailers, folding
camping trailers and truck campers--a recreation camping unit
designed to be loaded onto, or affixed to, the bed of a chassis of a
truck
Motorized: consist of self-propelled units built on automotive chassis or
motorized vehicles powered by gasoline or diesel motors - 3 classes,
A, B & C
1. Class A - Conventional motor homes: the manufacturer
constructs class A's on a chassis that already has the engine
and drive components
2. Class B - Van Campers: panel-type vans to which the
manufacturer adds sleeping facilities, kitchen and toilet
facilities, fresh water storage, 110 volt hook-up and other
items
3. Class C - Mini-motor Homes: built on an automated
manufactured van frame with an attached cab section, or on an
automotive manufactured cab and chassis. The manufacturer
completes the body section containing the living area and
attaches it to the cab section. For the van conversion, the
manufacturer modifies a completed van chassis aesthetically
or decoratively in appearance for transportation and
recreational purposes.
Currently, there are many manufacturers of both towable and motorized RVs.
Although there are several sources for manufactured conventional vans, there are
only four major manufacturers in the United States supplying chassis with engine
and drive components to the RV manufacturers: Workhorse Custom Chassis, Ford
Motor Company, Freightliner Corporation and Spartan Motors Corporation. Ford
Motor Company is the largest supplier of chassis to RV manufacturers.
Fuel consumption for motorized RVs has improved substantially over the last
several years. Diesel engines are growing in popularity over gasoline engines,
primarily in the larger bus-type vehicles.
Service, parts and accessories
Service remains central to our mission of becoming the RV industry's first
national brand. Recognizing that poor service continues to top the list of
consumer complaints, we have made a commitment to provide reliable, quality
service at all of our 14 retail locations. We enjoy a first-mover advantage in
this untapped niche and plan to introduce a branded service product along the
lines of the Mr. Goodwrench(R) chain of automotive repair facilities.
Service historically provides higher margins than sales of new and used
vehicles and accessories. We plan to focus on growing sales of such higher-
margin products as service, insurance and financing. We also plan to introduce
key components of our service strategy, including a brand name, at key industry
events throughout fiscal 2001. This focus on service will further distinguish us
from our competitors.
We maintain service facilities, which are fully equipped to handle
virtually any type of RV. We are a factory designated chassis warranty service
center of Gillig, Chevrolet Division of General Motors, Freightliner Motors,
Workhorse, and Spartan Motors, which reimburse us for such warranty services.
Four of our locations, Spartanburg, Las Cruces, Prosperity and Wytheville, are
fully equipped to repair all brands of boats and motors sold.
Our service facilities are equipped to make engine and drive train repairs,
as well as repairs to refrigerators, ovens and ranges, air conditioning systems,
plumbing and electrical systems of each RV it sells. In addition, we are an
authorized service center for most manufacturers of RV components.
We maintain service agreements with most RV and marine companies. These
companies provide us with service agreements, which allow us to purchase parts
and obtain technical assistance needed to repair and service their vehicles,
boats and equipment. We also have a supply of propane gas for resale at all
locations, and provide sewage dump stations for RV waste evacuation.
The parts department of each retail center supports our sales and service
functions. In addition, each retail center stocks accessory items, usually sold
to RV owners, and maintains a computerized point-of-purchase inventory control
and customer tracking system. The Spartanburg, Las Cruces, Prosperity and
Wytheville centers maintain inventories of marine parts and accessories for
marine products sold.
GROWTH STRATEGIES
Same-store revenue growth
We expect to grow our revenue via increases in same-store sales due to
growth of the Baby Boomers segment of the population (See "Industry Outlook"
near the beginning of this Item 1).
Strategic acquisitions
We intend to capitalize upon the significant consolidation opportunities
available in the highly fragmented RV industry by acquiring additional dealers
and improving their performance and profitability through the implementation of
our operating strategies.
Our acquisition focus will be in the following areas:
1. Well-established RV dealers in geographic markets not currently
served by our operating subsidiaries, particularly in areas with
strong demographics.
2. Dealers that, while located in attractive geographic markets,
have not been able to realize favorable market share or
profitability and that can benefit substantially from our systems
and operating strategies.
3. Dealers in the markets that we currently operate when operating
and marketing efficiencies can be obtained by the addition of
dealerships.
We may expand our range of product lines and our market penetration by acquiring
dealers that distribute RV product lines which are different than we currently
offer. As a result of the considerable industry experience and relationships of
our management team, we believe we are 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. We believe that we are regarded as an attractive acquirer of
dealers because of:
1. Our historical performance and the experience and reputation of
our management team within the industry;
2. Our decentralized operating strategy, which enables the managers
of an acquired dealer to continue their involvement in the
dealership operations;
3. The ability of management and employees of an acquired dealer to
participate in our growth and expansion through potential stock
ownership and career development opportunities; and
4. Our ability to offer liquidity to the owners of acquired dealers
through the receipt of publicly traded stock or cash.
Recent acquisitions
COUNTY LINE ACQUISITION. The first acquisition was completed on November
11, 1999, when we purchased 100% of the outstanding common stock of County Line
Select Cars, Inc. from its shareholders, Armando Alonso and Francisco Alonso.
County Line's annual revenue was approximately $70 million prior to the
acquisition. The County Line purchase has helped us establish a leadership
position in Florida by expanding the number of dealerships in Florida from three
to seven. The acquisition has also strengthened our depth of management. The
total purchase price paid to the shareholders for the common stock was $6.5
million, consisting of $5.0 million cash and $1.5 million in notes convertible
into Holiday common stock. In addition, we advanced $1.6 million in cash to
repay existing loans from the shareholders to County Line. The notes are
convertible after two years at a conversion price of $7.50 per share of Holiday
common stock. Prior to the acquisition, County Line operated five RV
dealerships in the Florida locations of Clermont, Inverness and Ocala(2). The
product mix for County Line is similar to ours. Both companies sell popularly
priced motorhomes and towable RVs.
LUKE POTTER ASSET PURCHASE. On March 17, 2000, Holiday entered into a real
estate lease with and acquired inventory and selected operating assets from
Luke Potter Winnebago in Winter Garden, Florida, in connection with the
relocation of its Orlando, Florida dealership.
LITTLE VALLEY ACQUISITION. On March 1, 2000, we 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 our platform in the Mid-Atlantic
States. The quality of management and the historical profitability of its
operations fell well within our acquisition criteria. The total purchase price
paid to the shareholders was $3.4 million, consisting of $1.7 million cash and
$1.7 million in a note convertible into Holiday common stock. The note is
convertible after two years at a conversion price of $7.50 per share of Holiday
common stock. Prior to the acquisition, Little Valley sold boats, motorcycles
and all terrain vehicles. We intend to continue these operations as part of our
national chain of RV and boat sales and service centers.
HALL ENTERPRISES ACQUISITION. On October 31 2000, we purchased 100% of
the outstanding stock of Hall Enterprises, Inc. The total purchase paid was
$1.3 million and consisted of 300,000 shares of unregistered Holiday common
stock. Holiday may be required to pay additional contingent consideration
of up to 100,000 shares of Holiday common stock if certain pre-tax earnings
levels are achieved in fiscal 2001 and 2002. Hall Enterprises, Inc.
consisted of one dealership in Lexington, Kentucky. Hall's annual revenue
was approximately $12 million prior to the acquisition. This acquisition
expands our Mid-Atlantic dealerships from three to four.
Agreements for future acquisitions
EMERALD COAST. On October 5, 2000, we signed an agreement to purchase
Emerald Coast RV Center, Inc., the largest independent full-service
retailer on the Gulf Coast with annual revenue in excess of $40 million.
The addition of Emerald Coast's four dealerships in Florida and Alabama
will strengthen our presence in the Southeast market. Emerald Coast
operates four full-service repair centers utilizing state-of-the-art repair
equipment and staffed by certified service technicians. It is authorized to
handle warranty and insurance repairs as well as installations for most RV
manufacturers and chassis makers. We expect the acquisition to be completed
with a combination of cash, stock and convertible notes.
VILLAGE RV. On October 24, 2000, we signed a definitive agreement,
subject to due diligence, to purchase Village RV, Inc., one of the largest
independent, full-service RV dealerships in California with annual revenues
of approximately $45 million. Village RV has received numerous customer
service awards, including the Circle of Excellence Award from Winnebago and
the Commitment to Excellence Gold Medal Award from Skyline, for the past
five years. The dealership offers state-of-the-art service facilities
operated by factory-trained technicians and remains dedicated to providing
the highest level of service in California.
Number of dealerships
Fiscal Year ended October 31,
2000 1999 1998 1997 1996
-----------------------------------------------
Open at beginning of year 7 7 8 8 8
Opened during year - - - - -
Acquired during year 7 - - - -
Closed during year - - 1 - -
------- ------ ------ ------ ------
Open at end of year 14 7 7 8 8
MARKETING
We launched a national branding strategy in December 1999 to
consolidate and rebrand the various operating names of our subsidiaries
under the new trade name: Recreation USA. The new trade name better
reflects our corporate identity and solidifies our acquisitions under a
single, recognizable brand that will be memorable with customers. While we
phased in the Recreation USA trade name in fiscal 2000, we operated under
multiple trade names, including:
1. Recreation USA
2. Holiday RV Superstores: the original name used by all dealerships
owned by Holiday until October 1999;
3. County Line RV/Recreation USA: the trade name of the five
dealerships acquired in November 1999 as part of the County Line
RV acquisition;
4. Little Valley RV/Recreation USA: the trade name of the two
dealerships acquired in March 2000 as part of the Little Valley
acquisition; and
5. Hall's Campers/Recreation USA: the trade name of the dealership
acquired in October 2000.
This strategy capitalized on the "brand name equity" of the acquired
dealerships while the Recreation USA trade name was gaining recognition. The
rebranding of the existing dealerships to Recreation USA has been completed for
acquired dealerships to date, and we intend to continue to use this strategy of
a phased in transition when acquiring new dealerships.
ADVERTISING AND PROMOTIONS
Recreation USA has a year-round advertising campaign utilizing newspaper,
magazines, direct mail, billboards, an extensive Internet website and yellow
pages. Recreation USA uses national consumer magazines to increase brand
awareness and company recognition of its ever-growing network of RV dealerships.
On-lot promotions and off-lot consumer shows, organized by trade groups and
private companies, supplement the advertising program. Recreation USA
participates in 35 to 40 consumer RV shows and rallies annually, attended by up
to 40,000 consumers each. Recreation USA also promotes smaller product shows at
RV parks in which it targets existing RV owners in its markets. Recreation USA
also promotes off-site product shows in connection with well-known mass
merchandisers. Recreation USA utilizes the services of professional advertising
and public relations firms to assist in implementing the advertising, promotion
and public relations campaign.
E-COMMERCE
We envision the establishment of a first-class web presence as one of five
objectives that comprise the core of our strategic vision. Our presence has
continually evolved from its humble beginnings as www.holidayrv.com, a business
-----------------
information site that contained price quote access creating prospective leads,
all news releases, and all of Holiday's filings with the SEC. Our first major
enhancement was launched in May, 1999 as www.RecUSA.com, which upgraded our
--------------
information site to a business-to-consumer site introducing the industry's first
"virtual dealership" online. Using RecUSA.com, consumers can browse through our
new and used inventory, receive a trade-in quote, choose financing, insurance,
and schedule service for their RV or boat. Purchases through Holiday's Internet
sites can be delivered anywhere through Holiday's nationwide locations.
RecUSA.com also features an online parts and accessories catalog that allows
consumers to purchase RV supplies, camping equipment, houseware, hardware and
other accessories online along with special product and service discounts that
are only available on the Internet.
Our web presence is designed to complement our nationwide dealership
network by providing one easy access point of information and many geographic
points of delivery. Some of our customers conduct research on the Internet
before coming into one of our dealerships to finalize this big-ticket decision.
We sell RVs to a part of the nearly 15,000 people that visit www.RecUSA.com each
--------------
month to research our inventory, order parts and accessories and learn more
about Recreation USA and the RV experience. We believe Holiday has one of the
most comprehensive e-commerce efforts in the industry and expects Internet sales
to increase significantly as a result of www.RecUSA.com.
--------------
CUSTOMER BASE
Our customer base demographic characteristics varies from dealership to
dealership, but primarily are represented by the following tables*.
RV OWNERSHIP RATES BY AGE GROUPS** RV OWNERSHIP RATES BY INCOME GROUP**
Percent of Percent of
Age of householder Ownership Income of householder Ownership
- ---------------------- ------------ ------------------------- ------------
18-24 3.6% $15,000- 3.8%
25-34 6.2% $15,000 - 24,999 7.5%
35-44 9.4% $25,000 - 34,999 8.9%
45-54 12.8% $35,000 - 49,999 13.4%
55-64 16.4% $50,000 - 74,999 13.2%
65-74 11.6% $75,000+ 9.0%
75+ 5.5%
*We obtained this information from THE RV CONSUMER; A DEMOGRAPHIC PROFILE; A
University of Michigan Study, RVIA. The tables summarize findings from the
----
fifth national survey of RV ownership sponsored by RVIA.
**Of the population that falls into this group, this % owns RVs.
No one customer accounted for more than 10% of our revenues for fiscal 2000
or in prior years. Therefore, we are not dependent on a few major customers,
the loss of which would have a material adverse effect on us.
MANUFACTURERS
We currently market approximately 90 brands of RVs and 13 brands of
recreational boats. We purchase approximately 32% of our RVs from Fleetwood
Enterprises, Inc., 15% from Winnebago Industries, 15% from Thor Industries, Inc.
and the rest from a number of other manufacturers including National RV
Holdings, Inc., SMC Corporation, Western Recreational Vehicles, Inc., Forest
River, Inc., Rexall Industries, Inc., Gulfstream Coach, Inc., Bayliner Marine
Corporation, Mariah Boats, Inc., and Sea Ray Boats, Inc. In our opinion, the
loss of any one brand of new RVs would not materially effect us. However, the
loss of all the brands sold by any of three largest manufacturers, Fleetwood
Enterprises, Inc., Winnebago Industries, and Thor Industries, Inc., would have a
material effect on our sales. We feel the loss of all brands from any of these
three manufacturers to be highly unlikely. Dealer representation decisions for
manufactured brands are made at the manufacturers' plants on a brand-by-brand
basis, rather than centrally at our corporate headquarters.
FLOOR PLAN FINANCING
Substantially all new and used vehicles and boats held in inventory are
pledged as security under floor plan contracts with financial institutions.
Under these contracts, the sale of a pledged vehicle to a consumer requires
payment to the lender in the amount, or release price, attributable to that
vehicle under the floor plan contract. Manufacturers have their respective
repurchase agreements in force for new vehicles with financial institutions with
limited repurchase indemnification to the lenders against any default by us
under the floor plan contracts. We believe our floor plan financing arrangement
is standard in the industry. We are currently renegotiating our floor plan
agreements with our lenders but there are no assurances that we will be
successful.
EMPLOYEE RELATIONS
As of October 31, 2000, 1999, and 1998, we had 351, 195 and 193 full-time
employees respectively. We have no contracts of collective bargaining
agreements with labor unions and have never experienced work stoppages. We
consider our employee relations to be good. We maintain internal training
programs at every level and have a well-developed internal quality control
program and customer satisfaction feedback system for all of our dealerships.
We maintain a nation-wide recruitment program for sales, service and management
personnel. Support personnel are usually hired from the local labor force.
Factory training programs are available to our employees and we generally take
full advantage of these programs by sending our employees to the manufacturer-
supervised schools. Most full time employees are provided with paid annual
vacations, medical and hospitalization insurance premium reimbursement, sick
leave, paid holidays, stock grants and other fringe benefits. After one year of
employment, employees are eligible to participate in the profit sharing and
401(k) investment plans.
Employee Stock Option program
On October 24, 2000, we announced plans to initiate an incentive stock
option plan for our employees. We anticipate awarding approximately 500,000
stock options during the first phase of the incentive program. All employees
with more than one year of service will be eligible to receive options. We
received authorization for the plan from shareholders in January 2000, and have
reserved three million shares of common stock for the incentive stock options.
We will base the number of options employees receive on their responsibilities
and roles within the Company.
SEASONALITY
Although the RV business is a year-round business in our markets, the RV
industry is seasonal. We have significantly higher sales in the second quarter
of our fiscal year, and significantly lower sales in our first and fourth
quarters. During slack seasons at a particular retail center, we reduce
inventory of both new and used RVs and introduce other cutbacks in operations,
reducing the impact of the seasonality on the results of operations. A
substantial portion of our expenses are fixed, therefore, operating income tends
to be lower in the first and fourth quarters of our fiscal year and higher in
the second quarter.
COMPETITION AND BUSINESS RISK
Based upon statistics supplied by the RVIA, the RV industry in North
America includes approximately 3,500 RV dealers and 190 vehicle manufacturers.
Competition in the sales of new and used RVs is intense. We compete with a
large number of retailers, some of which operating in more than one location,
although most of our competitors operate from a single location. We believe we
are one of the most competitive RV dealers in the nation, offering approximately
100 brands of new recreation vehicles and new boats, supported by an extensive
coast to coast service network of facilities that is unique in the industries we
serve.
Significant competitive factors in the RV sale and service industry include
vehicle availability, price, service, reliability, quality of service, and
convenience. We are of the opinion that we are competitive in all factors
listed above. Nevertheless, we anticipate that we will continue to face strong
competition in the future.
The RV business is heavily dependent upon the availability and terms of
financing for the retail purchase of its products. Consequently, changes in
interest rates and the tightening or loosening of credit by government agencies
and financial institutions have dramatically affected our business in the past
and are likely to do so in the future. The RV business is also negatively
impacted by general economic down-turns and the increase of fuel costs.
REGULATION
Compliance by the Company with federal, state and local laws and
regulations, including, without limitation, environmental protection laws, has
not had, and is not expected to have, a material effect on capital expenditures,
earnings or the competitive position of the Company.
INSURANCE COVERAGE
Historically, we have had little difficulty in obtaining insurance coverage
for our dealership operations. We have obtained the insurance annually on a
competitive bid basis, at what we believe to be reasonable premium rates. The
applicable premium rates have been increasing slightly; however, we do not
believe that these increases will have a material adverse effect on our business
in the foreseeable future.
ITEM 2. PROPERTIES
FACILITY AND LOCATION
The following table sets forth the location, premise size, and building
square footage for our properties as of October 31, 2000.
OWNED AND LEASED PROPERTIES USED IN OPERATIONS
APPROXIMATE APPROXIMATE
BUILDING SIZE PREMISE SIZE
SQARE FEET ACRES LANDLORD / OWNER APPROXIMATE LOCATION
------------- ------------- -------------------- --------------------------------
RETAIL OPERATIONS
- ------------------------
Owned
Spartanburg, SC 34,000 20.0 Holiday Adjacent to Interstate 26
Clermont, FL 27,148 15.2 Holiday Adjacent to U.S. Highway 27
Inverness, FL 5,936 1.5 Holiday Adjacent to U.S. Highway 44
Las Cruces, NM 14,000 7.0 Holiday Adjacent to Interstate 10
Ocala North, FL 6,856 17.9 Holiday Adjacent to U.S. Highway 441
Ocala South, FL 2,774 7.8 Holiday Adjacent to U.S. Highway 27
Tampa, FL 13,000 5.2 Holiday 3.5 miles from Interstate 4 & 75
Lease
Ft Myers, FL 17,300 3.6 minority shareholder On Highway 41, 3 miles from city
Prosperity, WV 62,450 5.5 minority shareholder Adjacent to Interstate 77
Roseville, CA 24,000 3.6 3rd party Adjacent to Interstate 80
Bakersfield, CA 17,400 6.9 3rd party Adjacent to State Rd 99
Whytheville, VA 11,250 3.0 3rd party Exit 80 off Interstate 81
Lexington, KY 20,000 5.0 minority shareholder 2.5 miles from Interstate 75
Winter Garden, FL 30,000 5.0 3rd party 2.5 miles from Interstate 4
EXECUTIVE OFFICES
- ------------------------
Leased
Ft Lauderdale, FL 4,500 n/a 3rd party 5 miles from Interstate 95
Orlando, FL 3,750 n/a 3rd party .25 mile from the Interstate 4
Our leases generally provide for initial lease terms ranging from five to
ten years with renewals at the Company's option. As current leases expire, we
believe that we will be able either to obtain lease renewals if desired for
present store locations, or to obtain leases for equivalent or better locations
in the same general area.
The land and buildings of most the facilities we own were subject to
mortgages with aggregate balances of approximately $7 million as of October 31,
2000.
We believe that our facilities are adequate for the foreseeable future for
the business carried on at most locations. In Fiscal 2000, our former
dealership in Greer, SC was relocated to a new facility in Spartanburg, SC.
Properties in Bakersfield, Las Cruces, Spartanburg, Clermont, Ocala South, and
Ocala North have room for limited expansion.
ITEM 3. LEGAL PROCEEDINGS
We are a party to various legal proceedings arising from the ordinary
course of our operations. We believe, based upon the opinion of our legal
counsel, that none of these proceedings, individually or in the aggregate, will
result in a material adverse effect on our consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted, during the fourth quarter of the fiscal year
covered by this report, to a vote of security holders through the solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our common stock trades on the National Market System of the Nasdaq Stock
Market, under the symbol RVEE. As of February 7, 2001, there were 432 holders
of record and approximately 1469 beneficial shareholders of our common stock.
The table below gives the market high and low closing sale prices of our
common stock for the quarters in the fiscal years ended October 31, 2000 and
1999, as reported on the Nasdaq Stock Market.
MARKET PRICE
2000 1999
------------------------- -------------------------
QUARTER ENDED HIGH LOW HIGH LOW
- -------------- ----------- ---------- ---------- ---------
January 31 7.1250 3.6250 2.4375 2.0313
April 30 6.7500 4.0000 4.0000 2.1250
July 31 5.5000 3.6250 4.5625 3.0625
October 31 5.0937 3.8175 5.6563 3.5000
Holiday has never declared or paid cash dividends on our common stock, and
we do not currently intend to pay cash dividends in the foreseeable future.
Earnings and other cash resources will continue to be used in the expansion of
our business.
On November 11, 1999, Holiday issued $1.5 million in notes convertible at
the option of the holder into common stock in connection with the acquisition of
County Line Select Cars, Inc. The notes are convertible after two years at a
conversion price of $7.50 per share.
On March 1, 2000, Holiday issued a $1.7 million note convertible at the
option of the holder into common stock in connection with the acquisition of
Little Valley Auto and RV Sales Inc. The note is convertible at after two years
at a conversion price of $7.50 per share.
On October 31, 2000, Holiday issued 300,000 shares of unregistered common
stock in connection with the acquisition of Hall Enterprises, Inc.
ITEM 6. SELECTED FINANCIAL DATA
Fiscal year ended October 31 (1)
(in thousands, except earnings per share)
SELECTED STATEMENT
OF INCOME DATA: 2000(3) 1999 1998 1997 1996(2)
---------- --------- --------- --------- ----------
Revenue............................................ $ 152,367 $ 81,396 $ 74,294 $ 68,007 $ 74,764
Cost of sales...................................... 127,374 67,369 61,099 55,260 61,562
Gross profit....................................... 24,993 14,027 13,195 12,747 13,202
Selling, general and administrative expenses....... 25,032 10,292 9,611 9,548 9,929
--------- --------- --------- --------- ---------
Income from operations............................. (39) 3,735 3,584 3,199 3,273
Interest income.................................... 118 555 517 480 393
Interest expense................................... (5,095) (1,134) (1,363) (1,381) (1,505)
Gain (loss) on sale of fixed assets................ 36 319 (1) (19)
--------- --------- --------- --------- ---------
Income (loss) before taxes......................... (4,980) 3,475 2,737 2,279 2,161
Income taxes (benefit)............................. (1,775) 1,321 1,044 892 829
--------- --------- --------- --------- ---------
Net income (loss).................................. $ (3,205) $ 2,154 $ 1,693 $ 1,387 $ 1,332
========= ========= ========= ========= =========
Basic and diluted earnings (loss) per
common share....................................... $ (0.42) $ 0.30 $ 0.23 $ 0.19 $ 0.18
========= ========= ========= ========= =========
Weighted average number of common shares
outstanding (basic)................................ $ 7,592 $ 7,184 $ 7,302 $ 7,434 $ 7,524
Cash dividends paid per common share............... $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
As of October 31 (1)
(in thousands, except per share and operating data)
SELECTED BALANCE SHEET DATA:
2000(3) 1999 1998 1997 1996(2)
------- ------- ------- ------- -------
Working capital........................... $ 9,025 $14,886 $13,381 $11,932 $10,449
Inventories............................... 59,982 28,756 23,952 20,713 23,171
Total assets.............................. 90,186 45,735 37,740 33,979 34,411
Floor plan contracts...................... 53,884 23,673 18,083 15,805 17,504
Long term debt............................ 11,691 156 221 286 346
Total liabilities......................... 71,808 26,111 20,232 17,796 19,639
Total stockholders' equity................ 18,378 19,623 17,508 16,183 14,773
Tangible net worth........................ 10,657 19,503 17,319 15,925 14,446
Book value per common share............... 2.42 2.72 2.40 2.17 1.99
OPERATING DATA
Number of dealerships..................... 14 7 7 8 8
Number of RVs and boats sold.............. 4,199 2,404 2,380 2,565 2,954
________________________________________________________________________________
(1) See Management's Discussion and Analysis of Financial Condition and Results
of operations.
(2) Includes first full year of operating results from new dealership acquired
in October 1995 in New Mexico.
(3) Includes 11.5 months of activity for County Line, acquired on November 11,
1999 and eight months of activity for Little Valley, acquired on March 1,
2000. See Management's Discussion and Analysis of Financial Condition and
results of operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
This annual report on Form 10K includes forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements reflect our current views with respect to future
events and financial performance. The words "believe", "project,"
"anticipates," "estimates," "expects," "most likely," "intends," and similar
expressions, identify forward looking statements.
Any forward-looking statement that we make or is made on behalf of us is
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 described below. Though we have
attempted to list the factors we believe to be important to our business, other
factors may prove to be important in affecting our operating results. New
factors emerge from time to time and it is not possible for us to predict all of
such factors, nor can we 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.
We caution you further not to place undue reliance on any forward looking
statements, as they speak only of our view as of the date the statement was
made. We undertake no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise.
GENERAL
We are a multi-store dealership chain engaged in the retail sales,
financing, and service of recreation vehicles, or RVs, boats and other
recreation vehicles. Currently, we operate 14 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, one in Wytheville, Virginia, and one in Lexington,
Kentucky.
Our growth depends primarily on our ability to acquire new stores. We
intend to capitalize on the anticipated demand and upon the consolidation
opportunities available in the highly fragmented RV industry by acquiring
additional dealers and improving their performance and profitability through the
implementation of our operating strategies. Our primary acquisition focus is on
well-established RV and marine dealers with strong leadership roles in key
geographic markets with strong demographics. We are also considering
opportunities within our existing markets when operating and marketing
efficiencies can be obtained by the addition of more dealerships. We may expand
our range of product lines and our market penetration by acquiring dealers that
distribute RV product lines different from those currently offered by us.
We intend to grow rapidly in fiscal 2001, primarily through the acquisition
of RV dealerships. Our growth strategy involves significant risks. We began our
growth strategy in fiscal 2000 by acquiring seven dealerships.
During Fiscal 2000, we made three acquisitions.
1. The first acquisition occurred on November 11, 1999, when we acquired
County Line Select Cars, Inc., an Ocala, Florida based four-dealership
RV sales and service company. Prior to the acquisition, County Line's
annual revenue was approximately $70 million.
2. The second acquisition occurred on March 1, 2000, when we acquired
Little Valley RV Sales, Inc., a two-dealership RV sales and service
company, with one dealership located in Prosperity, West Virginia, and
the other located in Wytheville, Virginia. Prior to the acquisition,
Little Valley's annual revenue was approximately $13 million.
3. The final acquisition occurred on October 31, 2000, when we acquired
Hall Enterprises, Inc., a one dealership sales and service company in
Lexington, Kentucky. Prior to the acquisition, Hall's annual revenue
was approximately $12 million.
During October 2000 we signed agreements to acquire two additional
dealerships.
1. On October 5, 2000, we signed an agreement to purchase Emerald Coast
RV Center, Inc., the largest independent full-service retailer on the
Gulf Coast with annual revenue in excess of $40 million. The addition
of Emerald Coast's four dealerships in Florida and Alabama will
strengthen our presence in the Southeast market.
2. On October 24, 2000, we signed a definitive agreement, subject to due
diligence, to purchase Village RV, Inc., one of the largest
independent, full-service RV dealerships in California with annual
revenues of approximately $45 million.
Acquisitions have a significant effect on our operating results and
financial position and cause substantial fluctuations in our quarterly and
yearly operating results. We have accounted for all of our acquisitions using
the purchase method of accounting and, as a result, do not include in our
financial statements the results of operations of the acquired company prior to
the date we acquired it. Any goodwill of an acquisition is amortized over a 20-
year period.
We intend to make acquisitions depending upon, among other things, the
availability of suitable acquisition opportunities and our ability to finance
these transactions. Our success in these acquisitions will depend on our
financial strength at the time of acquisition, our ability to hire and retain
qualified employees and our ability to identify markets in which we can
successfully sell our products. In addition, once we identify a store that meets
our criteria, our success will depend on our ability to sell the store's
remaining inventory, to convert the store to a Recreation USA store and to
attract new customers to the store after the conversion. Our inability to meet
our planned growth potential will severely impact our business, operating
results and financial condition.
Our growth also depends on same store growth. Over the next 10 years we
expect double-digit sales growth from same stores. This projection is based
primarily on a large number of the Baby Boomers reaching their peak earnings
(and likewise, vacation) years. The U.S. Census Bureau confirms the expected
high growth of the Baby Boomers segment of the U.S. population.
We launched a national branding strategy in December 1999 to consolidate
and rebrand the various operating names of our subsidiaries under a new trade
name: Recreation USA. The new trade name better reflects our corporate identity
and solidifies our acquisitions under a single, recognizable brand that will be
memorable with customers.
Management envisions the establishment of a first-class web presence as one
of five objectives that comprise the core of our strategic vision. Our presence
has continually evolved from its humble beginnings as www.holidayrv.com, a
-----------------
business information site that contained price quote access creating prospective
leads, all news releases, and all of Holiday's filings with the SEC. Our first
major enhancement was launched in May, 1999 as www.RecUSA.com, which upgraded
--------------
our information site to a business-to-consumer site introducing the industry's
first "virtual dealership" online. Using RecUSA.com, consumers can browse
through our new and used inventory, receive a trade-in quote, choose financing,
insurance, and schedule service for their RV or boat. Purchases through
Holiday's Internet sites can be delivered anywhere through
Holiday's nationwide locations. RecUSA.com also features an online parts and
accessories catalog that allows consumers to purchase RV supplies, camping
equipment, houseware, hardware and other accessories online along with special
product and service discounts that are only available on the Internet. We
believe Holiday has one of the most comprehensive e-commerce efforts in the
industry and expect Internet sales to increase significantly as a result of
www.RecUSA.com.
- --------------
RESULTS OF OPERATIONS
We have summarized for the periods presented, certain selected income
statement data as a percentage of total net revenues:
FISCAL YEAR
ENDED OCTOBER 31,
---------------------------
2000 1999 1998
-------- ------- ------
Total revenue 100.0% 100.0% 100.0%
Cost of sales 83.6% 82.8% 82.2%
-------- ------- ------
Gross profit 16.4% 17.2% 17.8%
Selling, general and administrative expense 16.4% 12.6% 12.9%
-------- ------- ------
Income from operations 0.0% 4.6% 4.8%
Interest expense, net 3.3% 0.7% 1.1%
Gain (loss) on the sale of fixed assets 0.0% 0.4% 0.0%
Income tax provision (benefit) -1.2% 1.6% 1.4%
-------- ------- ------
Net income (loss) -2.1% 2.6% 2.3%
======== ======= ======
Number of stores at end of period 14 7 7
Results of operations for fiscal 2000 compared to fiscal 1999
SALES AND SERVICE REVENUE increased 87% to $152.4 million in fiscal 2000
from $81.4 million in fiscal 1999, primarily due to revenue from the newly
acquired dealerships in fiscal 2000. Of the increase, $66.7 million, or 94%, was
from newly acquired County Line and Little Valley dealerships. In spite of the
negative impact of higher interest rates, increasing fuel prices and a declining
stock market on customer traffic starting in the first quarter of fiscal 2000,
we were able to increase comparable store (stores owned both periods) sales by
6%, or $4.3 million. We continue to respond to these market conditions with a
concentrated focus on aggressive promotions, improved product mix, improved
stocking levels, and improved service. On a pro forma comparable basis (all
stores for the comparable periods) sale and service revenue decreased by
approximately $338,000 or 0.2%.
We expect revenue to increase significantly in Fiscal 2001, primarily due to
our expansion.
We expect our some store sales to fluctuate from the impact of:
1. Changes in competition within each market we operate;
2. Movement in interest rates;
3. General market conditions in the areas in which our stores are located;
and
4. Our acquisition of new dealerships in the same general market of our
existing dealerships.
5. Those risk factors set forth below.
Coming off a record-setting 1999, RV industry analysts predicted that
sales would increase 3 to 4 percent during 2000, yet industry shipments for the
first 11 months of the year show the entire sector was down about 5.3 percent.
Motorhomes, which led sales growth during 1999, declined nearly 14 percent.
Higher interest rates, increasing fuel prices and a declining stock market
dampened consumer confidence in 2000.
Although we expect our existing stores to have sales growth and to remain
profitable, we expect most of our sales growth to come from newly added store
locations and may not be able to continue to grow or purchase new store
locations at a sufficiently rapid pace or on terms and conditions favorable to
us.
GROSS PROFIT increased 78% to $25.0 million in fiscal 2000 from $14.0
million in 1999, primarily due to gross profit from the newly acquired
dealerships in fiscal 2000. Gross margin decreased to 16.4% from 17.2%,
primarily as a result of our decision to sell inventory at a lower cost in order
to remain competitive. This decrease was offset by increased margins in parts
and services, which increased to 44.9% from 44.1%. This was the result of our
strategy to become the RV industry's first national brand. On a pro forma
comparable basis (all stores for comparable periods), total gross profit
decreased by $1.4 million, or 4.7%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) increased 143%, or
$14.7 million in fiscal 2000 to $25.0 million from $10.3 million in fiscal 1999,
primarily due to $10.2 million in SG&A for the newly acquired dealerships.
Approximately $3.2 million of the increase was due to expenses associated with
(1) building an infrastructure for our current and future expansion, (2)
acquisition related expenses and (3) improving shareholder communications.
Expenses to promote the new trade name "Recreation USA" and the relocation of
two dealerships also impacted SG&A. We expect the infrastructure building and
the acquisition related types of expense to continue but these expenses will
have a significantly lower impact in the future on total SG&A as revenue from
acquisitions increases and the integration of acquired businesses are completed.
In fiscal 2000 there was a loss from operations of $39,000. This was $3.8
million less than the $3.7 million income from operations earned in fiscal 1999.
Operating income as a percent of revenue decreased to 0.0% from 4.6%.
INTEREST EXPENSE increased 363% to $5.1 million in fiscal 2000 from $1.1
million in fiscal 1999. The increase was primarily due to increased inventory
levels, resulting from acquired dealerships, accounting for approximately 59% of
the total increase. Higher interest rates on floor plan balances, accounted for
25% of the increase, 10% was for interest on acquisition related debt, and 6%
was for mortgage interest.
The FEDERAL AND STATE INCOME TAX BENEFIT rate was 36% in fiscal 2000
compared to a tax rate of 38% in fiscal 1999. The combined benefit rate varies
from the statutory rate due to increased non-deductible expenses for tax,
primarily goodwill. See note 11 of the notes to the consolidated financial
statements for components of the income taxes and the reconciliation of the
provision for income taxes to the federal statutory rates.
Results of operations for fiscal 1999 compared to fiscal 1998
SALES AND SERVICE REVENUE increased 9.6% to $81.4 million in fiscal 1999
from $74.3 million in fiscal 1998, primarily due to a 12% increase in the
average selling price of new vehicles. We experienced a continued trend from
fiscal 1998 as a result of which we focused on increasing the sale of higher
priced motorhomes and boats, targeting diesel motorhomes having greater
potential higher dollar gross profits. We believe the diesel market will
continue to grow
and offer opportunity to increase revenue. On a same store basis, without the
Atlanta dealership, which sold in December 1998, sales and service revenue
increased 13.4%. Parts and service revenue, without Atlanta, was the same.
COST OF SALES AND SERVICE as a percentage of revenue increased to 80.8% in
fiscal 1999 from 82.2% in fiscal 1998.
GROSS PROFIT increased 6.3% to $14.0 million in fiscal 1999 from $13.2
million in fiscal 1998. As a percentage of revenue, gross profit decreased to
17.2% from 17.8%. This decline was primarily due to the amount of gross profit
contributed by parts and service to our total gross profit, which typically have
a gross profit of 46% and 48%, and an increase in the gross profit contributed
by agency commissions, new and used sales, which typically, in the aggregate,
have a gross profit of 13% to 14%. Agency commissions and gross profit from the
sale of new and used vehicles and boats, in the aggregate, represented 77% of
our total gross profit, compared to 72% in the prior year. Agency commissions,
alone, represented 17% of our total gross profit compared to 18% in the prior
year. In both years, agency commissions and gross profit from the sale of new
and used vehicles and boats, in the aggregate, represent the majority of our
gross profit.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES increased 7.1% to $10.3
million in fiscal 1999 from $9.6 million in fiscal 1998. On a same store basis,
SG&A increased 14.8% primarily due to increased selling expenses related to
increased revenue and personnel expense increase. As a percent of revenue, SG&A
decreased to 12.6% from 12.9%.
INCOME FROM OPERATIONS increased 4.2% to $3.7 million in fiscal 1999 from
$3.6 million in fiscal 1998.
INTEREST INCOME increased 7% to $555 thousand in fiscal 1999 from $517
thousand in fiscal 1998. Interest expense decreased 17% to $1.1 million from
$1.4 million, due to fees received in connection with the floor plan arrangement
in fiscal 1999, not received in fiscal 1998.
As a percentage of revenue, INCOME BEFORE INCOME TAXES increased to 4.3% in
fiscal 1999 from 3.7% in fiscal 1998. The combined Federal and State effective
income tax rate was 38.0% in fiscal 1999 compared to 38.1% in fiscal 1998.
Income tax rates varied from statutory rates due to state income taxes.
NET INCOME increased 27.2% to $2.1 million in fiscal 1999 from $1.7 million
in fiscal 1998. As a percentage of revenue, net income increased to 2.7% in
fiscal 1999 compared to 2.3% in fiscal 1998.
Basic and diluted earnings per share were 30 cents in fiscal 1999 compared
to 23 cents in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our cash needs are primarily for our 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 or with occasional borrowings from Deorge Capital
Management, a company controlled by one of our board members. Changes in our new
inventory and partial changes in used inventory are financed by floor plan
credit facilities.
CASH FLOWS FROM OPERATIONS. During the year ended October 31, 2000, our
cash flows continued to increase reflecting the activities of the County Line
acquisition and the Little Valley acquisition. However, net cash of $497,000 was
used by operating activities in fiscal 2000, compared to positive cash flows
from operations of $2.2 million in the prior year, primarily
due to a decrease in operating income. Increases in inventories of $1.5 million
were primarily financed by increased floor plan contracts of $3.7 million.
CASH FLOWS FROM INVESTING. Investing activities used a net of $6.9 million
cash, $6.2 million to purchase dealerships, and $3.4 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. Capital expenditures for property and equipment, not
including amounts for business acquisitions, are expected to be approximately
$700,000 in fiscal 2001.
CASH FLOWS FROM FINANCING. Financing activities provided net cash of
$472,000. Financing sources were $2.2 million from a real property mortgage on
the new Spartanburg dealership and $3.9 million of notes payable. Cash was used
to retire $5.8 million in notes payable.
Net use of cash from all activities was $6.9 million, which reduced cash
and cash equivalents to $2.2 million from $9.1 million the prior year.
WORKING CAPITAL. Working capital decreased to $9.0 million from $14.9
million the prior year, primarily due to cash used for acquisitions in fiscal
2000.
PRINCIPAL LONG-TERM COMMITMENTS. Holiday's principal long-term commitments,
as of October 31, 2000, consist of operating leases and notes payable, including
$3.2 million in convertible notes payable due to former owners of acquired
businesses.
Holiday's growth strategies are dependent upon obtaining adequate financing
for the purchase of RV and marine dealerships. We are currently evaluating
various sources of capital, its cost, and its ultimate effect on our
capitalization.
Holiday had $70,900,000 available under floor plan lines of credit for
financing new and used inventories as of October 31, 2000. We are currently
renegotiating our floor plan agreements with our lenders (see note 2 of the
financial statements).
We believe we can obtain additional debt financing at reasonable cost for
our expansion. Two of the dealership properties that we own are not mortgaged.
We are currently considering mortgage financing, or a sale-leaseback
arrangement, from which the proceeds could be used for expansion of operations
or acquisitions.
We intend to continue the use of common stock as currency for acquisitions,
either by initial payment or by issuing debt convertible to common stock, as one
form of partial payment for acquisitions.
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 our expansion.
Our inability to obtain adequate financing, at reasonable cost, would
prevent us from meeting our planned growth and potentially will severely impact
our business operating results and financial condition.
INFLATION. We believe that increases in the cost of new vehicles and boats
that may result from increases in cost of products purchased from our
manufacturers can be offset by higher resale prices for used retail vehicles and
boats as well as higher retail prices for new vehicles and boats, although there
may be a lag in our ability to pass such increases on to our customers.
Historically, increases in operating costs are passed on to the consumer
when the market allows. We believe that our business has not been significantly
affected by inflation, despite increased chassis and manufacturer conversion
costs experienced. However, significant increases in interest rates may
materially and adversely affect purchases of RVs generally and our results of
operations and prospects.
RECENT ACCOUNTING PRONOUNCEMENTS. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Investments and Hedging Activities" ("SFAS No. 133")
which establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. SFAS No. 133, as extended by SFAS
No. 137 and amended by SFAS No. 138, is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. Historically, Holiday has not
entered into derivatives contracts to hedge existing risks or for speculative
purposes. Accordingly, Holiday does not expect adoption of SFAS No. 133 to have
a material effect on its financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101), which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements of all public registrants. The provisions of SAB
101 are effective for transactions beginning in Holiday's fiscal year 2001.
Holiday does not expect the adoption of SAB 101 to have a material effect on
Holiday's financial statements.
We are affected by general economic conditions and our sales are interest rate
sensitive
Our sales are affected by general economic conditions, including employment
rates, prevailing interest rates, inflation, and other economic conditions
affecting disposable consumer income generally. Weakness in the economy
and volatility or declines in the stock market could have a material adverse
effect on our business. The majority of our customers purchasing vehicles and
boats finance their purchase. Increases in consumer interest rates could have an
adverse effect on our ability to sell vehicles and boats. Furthermore, a general
increase in commercial interest rates would increase the rates paid by us on our
floor plan contracts, thereby adversely effecting Holiday's operating income.
We depend on strong sales in our second fiscal quarter
Our business, and the recreational vehicle industry in general, is very
seasonal. Our strongest sales period begins in January, because many recreation
vehicle shows are held in that month. Strong sales demand continues from
February through the summer months. Of our average annual net sales over the
last three years, approximately 30% occurred in the quarter ending April 30.
With the exception of our store locations in Florida, our sales are generally
much lower in the quarter ending January 31. Because of the difference in sales
in the warm spring and summer months versus the cold fall and winter months, if
our sales in the months of February through July are significantly lower than we
expect, we may not earn profits or we may lose money and have a net loss. This
experience may materially and adversely affected us.
Our growth depends primarily on our ability to acquire new stores
We intend to grow rapidly, primarily through the acquisition of recreation
vehicle dealerships. Our growth strategy involves significant risks. We expect
our comparable store sales to fluctuate from the impact of (i) changes in
competition within each market we operate, (ii) the movement in interest rates,
(iii) the general market conditions in the areas in which our stores are
located, and (iv) when we acquire new dealerships in the same general market of
our existing dealerships. Although we expect our existing stores to have sales
growth and to remain profitable, we expect most of our sales growth to come from
newly added store locations and we may not be able to continue to grow or
purchase new store locations at a sufficiently rapid pace or on terms and
conditions favorable to us.
We intend to make acquisitions depending upon, among other things, the
availability of suitable acquisition opportunities and our ability to finance
these transactions. Our success in these acquisitions will depend on our
financial strength at the time of acquisition, our ability to hire and retain
qualified employees and our ability to identify markets in which we can
successfully sell our products. In addition, once we identify a store that meets
our criteria, our success will depend on our ability to sell the store's
remaining inventory, to convert the store to a Recreation USA store and to
attract new customers to the store after the conversion. Our inability to meet
our planned growth potential will severely impact our business, operating
results and financial condition.
Our success will depend on how well we manage our growth
We have very recently begun a period of rapid growth and, consequently, we
have spent much time and effort in acquiring new stores. Although we believe
that our systems, procedures and controls are adequate to support our growth, we
cannot assure that this is the case and we believe that as we integrate our
first acquisitions, we will need to make changes to these systems, procedures
and controls. In addition, our growth will impose substantial added
responsibilities on our existing senior management including the need to
identify recruit and integrate new senior level managers. Management may not be
able to oversee the growth efficiently or to implement effectively our growth
and operating strategies. Our inability to manage our growth would result in a
significant and severe financial impact on our business, operating results and
financial condition.
We rely on several key manufacturers for almost all of our inventory purchases
Our success depends, to a significant extent, on continued relationships
with two major manufacturers from which we purchase approximately 46% of our new
products. Cancellation or modification of the dealer agreements with these two
manufacturers could have material adverse effect on our revenue. However, the
loss of all the brands sold by these major manufacturers is highly unlikely.
Dealer representation decisions for manufacturer brands are made at the
manufacturer's plants on a brand-by-brand basis, rather than centrally at each
respective manufacturers corporate headquarters. We currently purchase over 103
brands of RVs and boats from over 15 manufacturers.
We may not be able to respond effectively to the significant competition we face
We operate in very competitive conditions. We must compete generally with
other businesses trying to sell discretionary consumer products and also face
intense competition from other recreation vehicle dealers for customers, quality
products, store locations and RV show space. We rely heavily on RV shows to
generate sales. If we are limited in or prevented from participating in RV
shows in our markets or in markets we are targeting, this limited participation
could have a negative effect on us.
Within our industry, our main competitors are single-and-multiple location
RV dealers. We compete with other dealers based on the quality of available
products, the price and value of the products and customer service. To a lesser
extent, we also compete with national specialty RV stores, catalog retailers,
sporting good stores and mass merchants, especially with respect to parts and
accessories. We face significant competition in the markets where we currently
operate and in the markets we plan to enter. We believe that the trend in the
RV industry is for manufacturers to include more features as standard equipment
on RVs and for other dealers to offer packages comparable to our packages. Some
of our competitors, especially those that sell RV accessories, are large
national or regional chains that have substantially greater financial, marketing
and other resources than we do.
Our Substantial Indebtedness Could Restrict Our Operations and Make Us more
Vulnerable to Adverse Economic Conditions
We have had and will continue to have a significant amount of indebtedness.
Our growth strategy may require us to secure significant additional capital. Our
future capital requirements will depend upon the size, timing and the structure
of future acquisitions and our working capital. Any borrowings to finance
future operations, asset purchases or acquisitions could make us more vulnerable
to a downturn in our operating results, a downturn in economic conditions or
increases in interest rates on portions of debt that have variable interest
rates.
Our ability to make payments on our indebtedness depends on our ability to
generate cash flow in the future. If our cash flow from operations is
insufficient to meet debt service requirements, we could be required to sell
additional equity securities, refinance our obligations or dispose of assets in
order to meet our debt service requirements. In addition, our credit
arrangements generally contain financial and operational covenants and other
restrictions with which we must comply. Adequate financing may not be available
if and when we meet it or may not be available on terms acceptable to us. Our
failure to achieve required financial and other covenants or to obtain
sufficient financing on favorable terms and conditions could have a material
adverse effect on our business, financial condition and results of operations
and prospectus.
We may issue additional securities in connection with acquisitions that may
dilute our current shareholders and impact our earnings per share
If we choose to finance future acquisitions in whole or in part through the
issuance of common stock or debt instruments convertible into our common stock,
our existing shareholders could experience dilution and our earnings per share
could also be impacted by the issuance of additional shares of capital stock in
connection with those acquisitions.
Achieving our growth strategy is subject to obtaining adequate financing
Holiday's growth strategies are dependent upon obtaining adequate financing
for the purchase of recreation vehicle and marine dealerships. Financing must be
obtained for floor plan of new and used vehicles, purchase (or purchase and
lease-back) of real properties for dealerships operations, acquisition of common
stock from selling shareholders, working capital, and other capital needs. Our
inability to obtain adequate financing, at reasonable cost, would prevent us
from meeting our planned growth and potentially will severely impact our
business operating results and financial condition.
Much of our income is from financing, insurance and extended service contracts,
which is dependent on third-party lenders and insurance companies
We receive a substantial part of our gross profit from the fees we receive
from banks and other lending companies. If our customers desire to borrow money
to finance the purchase of their RV, we help the customers obtain the financing
by referring them to certain banks that have offered to provide financing for RV
purchases. The bank or other lending company pays a fee to us for each loan that
they are able to provide as a result of our referral.
When we sell RVs we generally also offer our customers the opportunity to
purchase (i) service contract that provide additional warranty coverage on their
RV or some of its parts after the manufacturer's original warranty expires, and
(ii) various types of insurance policies that will provide money to pay a
customer's RV loan if the customer dies or is physically disabled. We sell these
products as a broker for unrelated companies that specialize in these type of
issues, and we are paid a fee for each product that we sell.
Agency commission fees run approximately 18% of our total gross profit.
This arrangement carries several potential risks. For example, the lenders we
arrange financing through may decide to lend to our customers directly rather
than to work through us. If the customer goes directly to the bank to apply for
a loan to purchase their RV we would not receive a fee for referral. Second,
the lenders we currently refer customers to may change the criteria or terms
they use to make loan decisions, which could reduce the number of customers that
we can refer. Also, our customers may use the Internet or other electronic
methods to find financing alternatives. If either of these events occur, we
would lose a significant portion of our income and profit.
If our products are defective, we could be sued
Because we sell, service and custom package RVs, motors and other RV
equipment, we may be exposed to lawsuits for personal injury and property damage
if any of our products are defective and cause personal injuries or property
damage. Manufacturers that we purchase product from generally maintain product
and general liability insurance and we carry third-party product liability
insurance. We have avoided any significant liability for these risks in the
past. However, if a situation arises in which a claim is not covered under our
insurance policy or is covered under our policy but exceeds the policy limits,
it could have a significant and material adverse effect on our financial
condition.
Our stock price may be volatile
The price of our common stock may be highly volatile for several reasons.
First, a limited number of shares of our stock are owned by the public. This may
affect trading patterns which generally occur when a greater number of shares
are traded. Second, the quarterly variations in our operating results, as
discussed above, may result in the increase or decrease of our stock price.
Third, independent parties may release information regarding pending
legislation, analysts' estimates or general economic or market conditions that
effect the price of our stock. Also, our stock price may be affected by the
demand and the market performance of small capitalization stocks. Any of these
situations may have a significant effect on the price of our common stock or our
ability to raise additional equity.
Our operations are widespread and our services will depend on effective and
centralized management
We depend on all of our revenue and most of our income from satellite
retail sales and service centers. These centers are geographically widespread
throughout the continental U.S. making it difficult for our top management to
have a presence in all the centers on a regular basis. As a result, we are
highly dependent upon each center's management for the on-going operation of
each respective center. Turnover of managerial personnel at any center usually
has an adverse effect on the sales and profitability of the center. Turnover of
managerial personnel at several of our centers could have a material adverse
effect on our sales and profitability.
Our sales are dependent on fuel pricing and availability
Our business is automotive in nature and as such is dependent upon the
availability of fuel. A decrease in the availability of gasoline and our
inability to convert our vehicles to alternative fuels could have a material
adverse effect on our business. Historically, increases in the price of gasoline
have not had a material impact on our business, as long as there was no
concurrent decline in availability. However, future significant increases in the
price of gasoline or decreases in availability would have a material effect on
our business.
Our operations are subject to extensive regulation, supervision, and licensing
under various federal, state, and local statutes, ordinances, and regulations
While we believe that we maintain all requisite licenses and permits and
are in compliance with all applicable federal, state, and local regulations,
there can be no assurance that we will be able to maintain all requisite
licenses and permits. The failure to satisfy those and other regulatory
requirements could have a material adverse effect on our business, financial
condition, and results of operations. The adoption of more stringent statutes
and regulations, changes in the interpretation of existing statutes and
regulations, or our entrance into jurisdictions with more stringent regulatory
requirements could curtail some of our operations, deny us the opportunity to
operate in certain locations, or restrict products or services offered by us.
Various federal, state, and local regulatory agencies, including the
Occupational Safety and Health Administration, the United States Environmental
Protection Agency, and similar federal and local agencies, have jurisdiction
over the operation of our dealerships, repair facilities, and other operations
with respect to matters such as consumer protection, workers' safety, and laws
regarding protection of the environment, including air, water, and soil.
As with vehicle dealerships generally, and parts and service operations in
particular, our business involves the use, handling, storage, and contracting
for recycling or disposal of hazardous or toxic substances or wastes, including
environmentally sensitive materials, such as motor oil, waste motor oil and
filters, transmission fluid, antifreeze, freon, waste paint and lacquer thinner,
batteries, solvents, lubricants, degreasing agents, gasoline, and diesel fuels,
and other chemicals.
Accordingly, we are subject to regulation by federal, state, and local
authorities establishing requirements for the use, management, handling, and
disposal of these materials and health and environmental quality standards, and
related liability thereto, and providing penalties for violations of those
standards. We are also subject to laws, ordinances, and regulations governing
investigation and remediation of contamination at facilities we operate to which
we send hazardous or toxic substances or wastes for treatment, recycling, or
disposal. Noncompliance with or changes to these requirements could adversely
affect our business.
We do not believe we have any material environmental liabilities or that
compliance with environmental laws, ordinances, and regulations will,
individually or in the aggregate, have a material adverse effect on us. However,
soil contamination has been known to exist at certain properties owned or leased
by us. We have also been required and may in the future be required to remedy
soil contamination, or remove aboveground and underground storage tanks
containing hazardous substances or wastes. We monitor soil and groundwater as
required by applicable state and federal guidelines. In addition, it has been
our practice and will be our practice to have the shareholders of the acquired
dealers indemnify us for specific environmental issues identified on
environmental site assessments performed by us as part of the acquisitions.
Our customers and potential customers are subject to federal, state and
local statutes, ordinances and regulations regarding the ownership of recreation
vehicles and boats. The adoption of more stringent statutes, ordinances and
regulations effecting the consumer ownership of recreation vehicles or boats,
could have an adverse effect on our ability to sell our products
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE. To date, our revenue from operations has exclusively been
denominated in United States dollars. The RV and boat products that we have sold
to date have been priced in United States dollars and all of our sales in the
fiscal years 2000 and 1999, and 1998, have been denominated in United States
dollars. In the future, we may acquire RV or boat products that are priced in
currencies other than the United States dollar and we may expand sales
operations outside the United States. If either of these events occurs,
fluctuations in the values of the respective currencies in which we purchase or
sell could adversely affect us. Due to the constantly changing currency
exposures and the volatility of currency exchange rates, there can be no
assurance that we will not experience currency losses in the future, nor can we
predict the effect of exchange rate fluctuations upon future operating results.
In the event we conduct transactions in currencies other than the United States
dollar, we intend to carefully evaluate our currency management policies. If we
deem it appropriate, we may consider hedging a portion of any currency exposure
in the future.
INTEREST RATES. We invest our 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. Our 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, our future investment
income may fall short of expectations due to changes in interest rates. If in
the future we invest in longer term fixed rate investments, we may suffer losses
in principal if forced to sell securities, which have seen a decline in market
value due to changes in interest rates. We face 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 our asset base. We may
also face interest rate risk exposure in connection with debt issued in
connection with our acquisition strategy.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to Part II, Item 8, is submitted as a separate section of this
form 10-K.
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 2000.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 401 and 405 of Regulation S-K is set forth
in our definitive proxy statement which will be filed with the Securities and
Exchange Commission not later than 120 days after October 31, 2000, and by this
reference is incorporated herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is set forth in our
definitive proxy statement which will be filed with the Securities and Exchange
Commission not later than 120 days after October 31, 2000, and by this reference
is incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K is set forth in our
definitive proxy statement which will be filed with the Securities and Exchange
Commission not later than 120 days after October 31, 2000, and by this reference
is incorporated herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 404 of Regulation S-K is set forth in our
definitive proxy statement which will be filed with the Securities and Exchange
Commission not later than 120 days after October 31, 2000, and by this reference
is incorporated herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements - The financial statements are filed as a
separate section of this Form 10-K
(a)(2) Financial Statement Schedules - All information required by
Schedules called for under Regulation S-X is either not applicable
or included in the Consolidated Financial Statements or Notes
thereto.
(a)(3) Exhibits - The Exhibits filed as part of this Form 10-K are listed
on the Index to Exhibits appearing on page 29.
(b) Reports on form 8-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
HOLIDAY RV SUPERSTORES, INCORPORATED
Registrant
By: /s/ Ronald G. Huneycutt
Ronald G. Huneycutt, President,
Chief Executive Officer
DATED: February 13, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities as indicated.
Signature Title Date
/s/ Michael S. Riley Chairman of the February 13, 2001
- -----------------------
Michael S. Riley Board of Directors
/s/ Ronald G. Huneycutt President, Chief Executive February 13, 2001
- -----------------------
Ronald G. Huneycutt Officer, Director (Principal
Executive Officer)
Director February 13, 2001
- -----------------------
David J. Doerge
/s/ William Curtis Director February 13, 2001
- -----------------------
William Curtis
Director February 13, 2001
- -----------------------
Lee Iacocca
/s/ David A. Kamm Director February 13, 2001
- -----------------------
David A. Kamm
Director February 13, 2001
- -----------------------
Lee B. Sanders
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
3.1 Articles of Incorporation[1]
3.2 Amendment to Articles of Incorporation[1]
3.3 Amendment to Articles of Incorporation[1][2]
3.4 By-Laws[1][2]
3.5 Amendment in the Entirety of By-Laws[1][2]
3.6 Amendment to By-Laws[1][2]
3.7 Agreement and Plan of Merger between Holiday RV
Superstores, Incorporated, a Florida corporation and
Holiday RV Superstores, Inc., a Delaware corporation
[11]
3.8 Restated Certificate of Incorporation of Holiday RV
Superstores, Inc., a Delaware corporation [11]
4.1 Form of Common Stock Certificate of the Company[1]
10.1 1987 Incentive Stock Option Plan [1]
10.2 Form of Restrictive Stock Bonus Agreement for Officers
and Employees [1]
10.3 Form of Restrictive Stock Bonus Agreement for
Directors[1]
10.4 Form of Restrictive Stock Bonus Agreement for Harvey M.
Alper[1]
10.5 Underwriting Agreement between Thomas James Associates,
Inc. and the Company dated November 10, 1987[3]
10.6 Asset Purchase Agreement between Registrant and
Ledford's RV and Marine World, Inc., James David
Ledford and Mary Beth Ledford, Robert Lee Ledford and
Joan Reeves Ledford, dated January 12, 1990[4]
10.7 Lease agreement between James Ledford and Mary Beth
Ledford, husband and wife, and Registrant dated
February 12, 1990[4]
10.8 Indemnification Agreement between Registrant and Newton
C. Kindlund dated November 17, 1990[5]
10.9 Indemnification Agreement between Registrant and Joanne
M. Kindlund dated November 17, 1990[5]
10.10 Indemnification Agreement between Registrant and
W. Hardee McAlhaney dated November 17, 1990[5]
10.11 Indemnification Agreement between Registrant and
Franklin J. Hitt dated November 17, 1990[5]
10.12 Indemnification Agreement between Registrant and
Lawrence H. Katz dated November 17, 1990[5]
10.13 Indemnification Agreement between Registrant and James
P. Williams dated November 17, 1990[5]
10.14 Indemnification Agreement between Registrant and Avie
N. Abramowitz dated November 17, 1990[5]
10.15 Indemnification Agreement between Registrant and Paul
G. Clubbe dated November 17, 1990[5]
10.16 Asset Purchase Agreement between Registrant and Venture
Out Recreation Vehicles - Roseville, Venture Out
Recreation Vehicles - Bakersfield, G. Lee Fitzgerald
and Bruce M. Fitzgerald dated July 21, 1994[6]
10.17 Agreement of Sublease between Registrant and Venture
Out, dated July 31, 1994[6]
10.18 Assignment of Lease between Registrant and Venture Out
Properties, dated July 31, 1994[6]
10.19 Lease between Registrant, Newton C. Kindlund and Joanne
Kindlund dated November 1, 1994[6]
10.20 Lease agreement between Newton c. Kindlund Revocable
Property Trust and the Registrant, dated May 1, 1997,
for the lease of real property in Ft. Myers, Florida[7]
10.21 Lease agreement between Newton C. Kindlund Revocable
Property Trust and the Registrant, dated May 1, 1997,
for the lease of real property in Ft. Myers, Florida[7]
10.22 Asset Purchase Agreement between Registrant and County
Line Select Cars, Inc., and The Persons Named Therein
dated November 11, 1999[8]
10.23 Stock Purchase Agreement between the Registrant, Little
Valley Auto and RV Sales, Inc., Ernest Davis, Jr. and
Lori A. Davis dated March 1, 2000 [9]
10.24 Stock Purchase Agreement between Registrant, Hall
Enterprises, Inc., a Kentucky corporation and Tommy R.
Hall dated July 10, 2000 [10]
21.1 Subsidiaries of Registrant
23.1 Consent of Independent Auditors
- -------------
[1] Incorporated by reference to the Exhibits to the Registration Statement on
Form S-18 filed by the Registrant on September 14, 1987, and which became
effective on October 27, 1987 (File No. 33-17190-A).
[2] Incorporated by reference to the Exhibits to the Registration Statement on
Form 8-A filed by Registrant on December 22, 1987, and which became
effective December 28, 1987 (File No. 0-16448).
[3] Incorporated by reference to the Exhibits to the Annual Report on Form 10-K
filed by the Registrant on January 28, 1988.
[4] Incorporated by reference to the Exhibits to the Annual Report on Form 8-K
filed by the Registrant on February 27, 1990.
[5] Incorporated by reference to the Exhibits to the Annual Report on Form 10-K
filed by the Registrant on January 27, 1992.
[6] Incorporated by reference to the Exhibits to the Annual Report on Form 10-K
filed by the Registrant on January 26, 1995.
[7] Incorporated by reference to the Exhibits to the Annual Report on Form 10-K
filed by the registrant on January 27, 1998.
[8] Incorporated by reference to the Exhibits to the Report on Form 8-K/A filed
by the Registrant on January 25, 2000.
[9] Incorporated by reference to the Exhibits to the Report on Form 8-K/A filed
by the Registrant on May 15, 2000
[10] Incorporated by reference to the Exhibits to the Report on Form 8-K filed
by the Registrant on November 14, 2000
[11] Incorporated by reference to the Exhibits to the Annual Report on Form 10-K
filed by the Registrant on January 15, 2001.
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
AS OF OCTOBER 31, 2000 AND 1999
AND FOR THE YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998
HOLIDAY RV SUPERSTORES, INCORPORATED
AND SUBSIDIARIES
ORLANDO, FLORIDA
Holiday RV
Superstores,
Incorporated
Financial Statements
Years Ended October 31, 2000 and 1999
Holiday RV Superstores, Incorporated
Table of Contents
- --------------------------------------------------------------------------------
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements:
Balance Sheets F-3
Statements of Operations F-4
Statements of Shareholders' Equity F-5
Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
Report of Independent Certified Public Accountants
Shareholders and Board of Directors of
Holiday RV Superstores, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of Holiday RV
Superstores, Inc. and its subsidiaries at October 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended October 31, 2000 in conformity with accounting principals
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principals used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 2 and 9
to the financial statements, the Company does not have a definitive agreement in
place with its primary floor plan lender to cover their floor plan financing
requirements. Additionally, the Company has incurred a significant net loss in
fiscal 2000 and has net outflows from operations that may require additional
funding. These circumstances raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The financial statements do not include any
adjustments that result from the outcome of this uncertainty.
January 26, 2001, except as to Notes 2 and 9
for which the date is February 12, 2001
F-2
HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31,
----------------------------
Assets 2000 1999
----------------------------
Current assets:
Cash and cash equivalents $ 2,215,352 $ 9,119,264
Accounts receivable
Trade and contracts in transit 3,104,774 2,234,980
Other 1,338,352 393,278
Inventories, net 59,981,771 28,755,779
Prepaid expenses 443,696 60,587
Refundable income taxes 1,399,793 100,868
Deferred income taxes 658,981 177,000
------------ ------------
Total current assets 69,142,719 40,841,756
Property and equipment, net 12,418,047 4,598,477
Other assets
Goodwill, net of accumulated amortization
of $266,440 7,662,958
Other 754,530 177,272
Noncurrent deferred income taxes 207,967 117,000
------------ ------------
Total assets $ 90,186,221 $ 45,734,505
============ ============
Liabilities and Shareholders' Deficit
Current liabilities:
Floor plan notes payable $ 53,884,241 $ 23,673,241
Accounts payable 1,190,140 410,732
Customer deposits 405,678 111,519
Accrued expenses and other current liabilities 3,834,868 1,690,760
Current portion of capital lease obligation 113,798 69,161
Current portion of LIFO tax liability 250,451
Current portion of notes payable 389,944
Current portion of deferred gain on leaseback transaction 48,626
------------ ------------
Total current liabilities 60,117,746 25,955,413
Long-term capital lease obligation, less current portion 218,381 155,730
LIFO tax liability, less current portion 751,354
Long-term notes payable, less current portion 7,063,574
Deferred gain on leaseback transaction, less current portion 425,482
Long-term notes payable
Convertible notes payable 3,231,920
------------ ------------
Total liabilities 71,808,457 26,111,143
------------ ------------
Commitments and Contingencies
Shareholders' equity
Preferred stock $.01 par; shares
authorized 2,000,000; issued 0
Common stock, $.01 par, shares authorized
23,000,000; issued 7,940,000 and 7,505,000 79,400 75,050
Additional paid-in capital 7,139,197 5,184,370
Retained earnings 11,700,822 14,905,597
Treasury stock, 300,700 shares at cost (541,655) (541,655)
------------ ------------
Total shareholders' equity 18,377,764 19,623,362
------------ ------------
Total liabilities and shareholders' equity $ 90,186,221 $ 45,734,505
============ ============
See accompanying notes
F-3
HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED OCTOBER 31,
-----------------------------------------------
2000 1999 1998
------------- ------------- -------------
Sales and service revenue
Vehicle and marine $ 138,155,081 $ 72,240,919 $ 64,605,771
Service, parts and accessories 9,240,171 6,233,791 6,929,335
Other, net 4,972,094 2,921,580 2,758,486
------------- ------------- -------------
Total sales and service revenue 152,367,346 81,396,290 74,293,592
------------- ------------- -------------
Cost of sales and service
Vehicles and marine 122,284,905 63,883,910 57,448,166
Service, parts and accessories 5,089,500 3,485,500 3,650,216
------------- ------------- -------------
Total cost of sales and service 127,374,405 67,369,410 61,098,382
------------- ------------- -------------
Gross profit 24,992,941 14,026,880 13,195,210
Selling, general and administrative expenses 25,031,909 10,291,795 9,611,398
------------- ------------- -------------
Income from operations (38,968) 3,735,085 3,583,812
Other income (expense):
Interest income 117,788 554,557 517,200
Interest expense (5,094,560) (1,133,687) (1,362,946)
------------- ------------- -------------
Total other income (expense) (4,976,772) (579,130) (845,746)
------------- ------------- -------------
Gain (loss) on sale of fixed assets 35,845 318,820 (950)
------------- ------------- -------------
Income (loss) before income taxes (4,979,895) 3,474,775 2,737,116
Income taxes (benefit) (1,775,120) 1,321,000 1,044,000
------------- ------------- -------------
Net income (loss) $ (3,204,775) $ 2,153,775 $ 1,693,116
============= ============= =============
Basic and diluted earnings (loss)
per common share $ (0.42) $ 0.30 $ 0.23
============= ============= =============
See accompanying notes.
F-4
HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998
Common Stock Additional Treasury Stock
--------------------- Paid-in Retained ---------------------- Deferred
Shares Amount Capital Earnings Shares Amount Compensation
----------- -------- ----------- ------------ --------- ----------- ------------
Balance at October 31, 1997 7,465,000 $ 74,650 $ 5,112,271 $ 11,058,706 31,300 $ (50,193) $ (12,421)
Net income for the year 1,693,116
Treasury shares repurchased 220,400 (379,905)
Amortization of deferred
compensation 11,484
----------- -------- ----------- ------------ --------- ----------- -----------
Balance at October 31, 1998 7,465,000 74,650 5,112,271 12,751,822 251,700 (430,098) (937)
Net income for the year 2,153,775
Exercise of common stock
options 40,000 400 72,100
Return of unvested
restricted bonus stock 2,500 (2,681)
Treasury shares repurchased 46,500 (108,876)
Amortization of deferred
compensation 937
----------- -------- ----------- ------------ --------- ----------- -----------
Balance at October 31, 1999 7,505,000 75,050 5,184,371 14,905,597 300,700 (541,655) -
Net loss for the year (3,204,775)
Exercise of common stock options 135,000 1,350 234,316
Stock option compensation expense 72,290
Options and warrants issued to lenders
and consultants 308,220
Tax benefit of incentive stock options 65,000
Shares issued for acquisition 300,000 3,000 1,275,000
----------- -------- ----------- ------------ --------- ----------- -----------
Balance at October 31, 2000 7,940,000 $ 79,400 $ 7,139,197 $ 11,700,822 300,700 $ (541,655) $ -
=========== ======== =========== ============ ========= =========== ===========
See accompanying notes.
F-5
HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31,
-------------------------------------------------
2000 1999 1998
Cash Flows from Operating Activities:
Cash received from customers $ 153,156,135 $ 80,483,810 $ 73,696,488
Cash paid to suppliers and employees (149,027,563) (76,283,283) (71,061,594)
Interest received 338,155 554,557 517,200
Interest paid (4,935,418) (1,123,323) (1,366,031)
Income taxes paid (28,084) (1,420,505) (1,221,056)
------------- ------------- -------------
Net cash (used) provided by operating activities (496,775) 2,211,256 565,007
------------- ------------- -------------
Cash Flows from Investing Activities:
Purchase of property and equipment (3,418,066) (1,613,022) (116,188)
Proceeds from the sale of property and equipment 616,416 1,173,348 500
Proceeds from the sale-leaseback of property 2,102,891
Payments for businesses acquired, net of cash (6,180,770) -- --
------------- ------------- -------------
Net cash used in investing activities (6,879,529) (439,674) (115,688)
------------- ------------- -------------
Cash Flows from Financing Activities:
Treasury stock purchase -- (108,876) (379,905)
Repayment of capital lease obligations (78,944) (57,748) (58,926)
Proceeds from notes payable 3,921,358
Repayments of notes payable (5,802,020)
Proceeds from the exercised stock options 231,998 72,500
Proceeds from notes on real property 2,200,000
------------- ------------- -------------
Net cash provided by (used in) financing activities 472,392 (94,124) (438,831)
------------- ------------- -------------
Net increase (decrease) in Cash and Cash Equivalents (6,903,912) 1,677,458 10,488
Cash and Cash Equivalents, beginning of year 9,119,264 7,441,806 7,431,318
------------- ------------- -------------
Cash and Cash Equivalents, end of year $ 2,215,352 $ 9,119,264 $ 7,441,806
============= ============= =============
See accompanying notes
F-6
HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
YEARS ENDED OCTOBER 31,
-----------------------------------------
RECONCILIATION OF NET (LOSS) INCOME TO NET 2000 1999 1998
-----------------------------------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net (loss) income $(3,204,775) $ 2,153,775 $ 1,693,116
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 803,546 317,840 354,612
Stock option compensation and warrant issuance 380,510 -- --
Amortization of deferred compensation -- 937 11,484
Return of unvested deferred compensation -- (2,681)
Deferred income taxes (337,896) (24,000) (52,000)
Income tax benefit (1,437,224) -- --
Gain (loss) on disposal of property and equipment 35,845 (318,820) 950
Changes in assets and liabilities, net of effect of acquisitions:
(Increases) decreases in:
Accounts receivable (162,940) (838,628) (640,888)
Refundable income taxes (28,084) (75,505) (27,363)
Inventories (1,520,326) (4,804,059) (3,238,976)
Prepaid expenses (168,814) (37,587) (23,000)
Other assets 1,334,654 (45,968) (7,974)
Increases (decreases) in:
Floor plan contracts 3,650,002 5,589,760 2,278,035
Accounts payable (1,254,625) 101,551 58,555
Customer deposits 294,159 (73,851) 43,784
Accrued expenses 1,119,193 268,492 212,365
Income taxes payable (97,693)
----------- ----------- -----------
Net cash provided by (used in) operating activities $ (496,775) $ 2,211,256 $ 565,007
=========== =========== ===========
See accompanying notes.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 2000,
1999 AND 1998
1. ORGANIZATION AND NATURE OF BUSINESS
Holiday RV Superstores, Inc. and its wholly-owned subsidiaries ("Holiday,"
"The Company", "we," "us" or "our") is a multi-state retail chain of dealerships
engaged in the retail sales, financing, and service of recreation vehicles, or
RVs, and other recreation vehicles under the name "Recreation USA" in the
Southeastern United States, West Virginia, Virginia, Kentucky, New Mexico and
California. Each dealership offers a full line of new and used RVs and each
dealership maintains a parts, service and body repair facility. Recreational
boats are carried at selected dealerships. Holiday also has a subsidiary,
Holiday RV Assurance Corporation, an insurance agency that receives commissions
on the sale of insurance policies to RV owners from a variety of insurance
companies.
Holiday's dealerships have historically experienced, and we expect its
dealerships to continue to experience, seasonal fluctuations in revenues with a
larger percentage of revenues typically being realized in the second quarter of
our fiscal year. In addition, our results can be significantly affected by the
timing of acquisitions and the integration of acquired stores into our
operations.
Effective November 11, 1999, Holiday acquired all of the outstanding
capital stock of County Line Select Cars, Inc. for a cash price of $5.0 million
and $1.5 million in notes convertible into Holiday common stock (see note 4).
On March 1, 2000, Holiday acquired all of the outstanding stock of Little
Valley Auto & RV Sales, Inc. for a cash price of $1.7 million and $1.7 million
in a note convertible into Holiday common stock (see note 4).
On October 31, 2000, Holiday purchased all of the outstanding stock of
Hall Enterprises, Inc. The total purchase price paid was $1.3 million and
consisted of 300,000 shares of Holiday common stock (see note 4).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of Holiday RV Superstores, Inc. and its wholly-owned
subsidiaries, which include Holiday RV Rental/Leasing, Inc., Holiday RV
Superstores of South Carolina, Inc., Holiday RV Superstores West, Inc., Holiday
RV Superstores of New Mexico, Inc., Holiday RV Assurance Corporation, County
Line Select Cars, Inc., Little Valley Auto & RV Sales, Inc., and Hall
Enterprises, Incorporated. All intercompany accounts and transactions have been
eliminated in consolidation.
BASIS OF PRESENTATION. The accompanying Consolidated Financial Statements
have been prepared on a going concern basis which contemplate continuity of
operations, realization of assets, and liquidation of liabilities in the
ordinary course of business and do not reflect adjustments that might result if
the Company is unable to continue as a going concern.
As more fully discussed in Note 9, the Company's primary floorplan
agreement has been terminated effective January 31, 2001 to be replaced by a new
agreement which the parties are still negotiating. As the floor plan financing
arrangement with this primary lender is expected to be reduced from prior
borrowing levels, the Company is also in the process of negotiating additional
floor plan financing arrangements with other lenders. While the Company has
retained the ability to floorplan its inventory through a forebearance agreement
with the primary lender, failure to come to terms with their primary lender
and/or obtain sufficient floor plan financing could have a material adverse
effect on the business and the Company's ability to continue as a going concern.
Additionally, the Company incurred a net loss of $3.2 million in fiscal
2000 and incurred net cash outflows from operations of approximately $497,000 in
fiscal 2000. While management believes that revenues, profits and cash flows
from operations should improve in fiscal 2001, the Company may be required to
obtain additional outside funding to fund operating deficits. Management
believes that additional financing will be made available to support the
Company's liquidity requirements and that certain costs and expenditures could
be reduced further should additional funding not be available. Failure to
generate sufficient revenues, raise additional capital or reduce certain
discretionary spending could have a material adverse effect on the Company's
ability to continue as a going concern and to achieve its intended business
objectives.
F-8
CASH AND CASH EQUIVALENTS. Holiday considers all highly liquid debt
instruments with a maturity of three months or less at the time of purchase to
be cash equivalents. Cash and cash equivalents consist of checking accounts,
money market funds and overnight repurchase agreements.
INVENTORIES. Inventories are valued at the lower of cost or market. New
and used vehicles are accounted for using specific identification. Cost of
parts and accessory inventories is determined by the first-in, first-out (FIFO)
method.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Depreciation is computed over the estimated useful lives of the assets by the
straight-line method for financial reporting purposes. Amortization of
leasehold improvements is computed using the straight-line method over the
estimated useful lives of the assets or the term of the lease, whichever is
shorter. The estimated useful lives of the property and equipment range from 3
to 31 years. Maintenance and repairs are charged to expense as incurred. The
carrying amount and accumulated depreciation of assets which are sold or retired
are removed from the amount and accumulated depreciation of assets which are
sold or retired are removed from the accounts in the year of disposal and any
resulting gain or loss is included in the results of operations.
INTANGIBLE ASSETS. Intangible assets include costs in excess of
identifiable assets acquired (goodwill) and costs allocable to the estimated
fair value of a covenant not to compete arrangement. Goodwill is being
amortized using the straight-line method over 20 years. The covenant not to
compete is being amortized over its contractual life using the straight-line
method.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets,
including property and equipment and intangible assets, are reviewed for
impairment whenever events or changes in business circumstances indicate the
carrying value of the assets may not be recoverable. Impairment losses are
recognized if expected future cash flows of the related assets are less than
their carrying values.
INCOME TAXES. Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes currently
due plus deferred taxes resulting from temporary differences. The temporary
differences result from differences in the carrying value of assets and
liabilities for tax and financial reporting purposes. The deferred tax assets
and liabilities represent the future tax consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
REVENUE RECOGNITION. Retail sales and related costs of vehicles, parts
and service are recognized in operations upon delivery of products or services
to customers or, in the case of RVs, when the title passes to the customer.
STOCK-BASED COMPENSATION. Holiday accounts for stock option grants and
other forms of employee stock-based compensation in accordance with the
requirements of Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES ("APB 25"), and related interpretations. APB 25 requires
compensation cost for stock-based compensation plans to be recognized based on
the difference, if any, between the fair market value of the stock on the date
of grant and the option exercise price. Holiday provides the disclosure
requirements of Statement of Financial Accounting Standards No.123, ACCOUNTING
FOR STOCK BASED COMPENSATION ("SFAS 123") and related interpretations. Stock-
based awards to non-employees are accounted for under the provisions of SFAS
123.
LOSS PER COMMON SHARE. Basic earnings (loss) per common share is
calculated by dividing net income (loss) by the weighted average number of
shares outstanding. Diluted earnings (loss) per common share is based upon the
weighted average number of shares outstanding, plus the effects of potentially
dilutive common shares consisting of stock options and warrants. For the year
ended October 31, 2000, options to purchase 430,923 shares of common stock and
warrants to purchase 382,000 shares of common stock were excluded from the
calculation of loss per share since their inclusion would be antidilutive (Note
9).
F-9
A reconciliation of the weighted average number of shares outstanding
used in the computation of basic and diluted earnings (loss) per share is as
follows:
OCTOBER 31,
--------------------------------
2000 1999 1998
--------- --------- ---------
Basic
Weighted average number of common
shares outstanding 7,592,397 7,184,200 7,301,500
========= ========= =========
Diluted
Weighted average number of common
shares outstanding 7,592,397 7,184,200 7,301,500
Dilutive stock options and
convertible notes - 120,500 46,200
--------- --------- ---------
7,592,397 7,304,700 7,347,700
========= ========= =========
ADVERTISING. Advertising costs, included in selling, general and
administrative expenses, are expensed as incurred. Advertising costs were
approximately $2,679,000, $1,046,000 and $1,003,000 for the years ended October
31, 2000, 1999 and 1998, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts of financial
instruments including cash and cash equivalents, accounts receivable and
payable, accrued and other current liabilities and current maturities of long-
term debt approximate fair value due to their short maturity. Based on
borrowing rates currently available to the Company for loans with similar terms,
the carrying value of notes payable and capital lease obligations approximate
fair value.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified from
previous presentations to conform to 2000 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Investments and Hedging Activities" ("SFAS No. 133")
which establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. SFAS No. 133, as extended by SFAS
No. 137 and amended by SFAS No. 138, is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. Historically, Holiday has not
entered into derivatives contracts to hedge existing risks or for speculative
purposes. Accordingly, Holiday does not expect adoption of SFAS No. 133 to have
a material effect on its financial statements.
F-10
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101), which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements of all public registrants. The provisions of SAB
101 are effective for transactions beginning in the Holiday's fiscal year 2001.
Holiday does not expect the adoption of SAB 101 to have a material effect on the
Holiday's financial statements.
3. SUPPLEMENTAL CASH FLOW INFORMATION
The following table summarizes Holiday's non-cash investing and financing
transactions:
FISCAL YEAR ENDED
OCTOBER 31,
--------------------------------
2000 1999 1998
---------- ------- ------
Decrease in deferred compensation
from return of unvested, restricted
bonus stock $ - $ 2,861 $ -
Construction expenses included in
accrued expenses - 50,566 -
Common stock issued for business
acquisitions 1,278,000 - -
Mortgage notes payable assumed in
connection with acquisition of
building and land 5,010,864 - -
Convertible notes payable issued in
connection with business acquisitions 3,231,920 - -
4. ACQUISITIONS
On November 11, 1999 the Company acquired 100% of the issued and
outstanding stock of County Line Select Cars, Inc. 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 the Company's common stock. The
acquisition has been accounted for under the purchase method of accounting,
which resulted in the recognition of approximately $4.8 million in goodwill, to
be amortized over 20 years on a straight-line basis. Operations of County Line
are included in the accompanying consolidated statement of operations beginning
November 12, 1999. On January 11, 2000, the Company 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 $5.0 million, with the
sellers providing first mortgage financing for the entire purchase. 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 1, 2000, Holiday acquired 100% of the issued and outstanding
stock of Little Valley Auto & RV Sales, Inc. ("Little Valley"), 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. Operations of Little Valley are included in the
accompanying consolidated statement of operations beginning March 1, 2000.
F-11
On October 31, 2000 Holiday acquired 100% of the issued and outstanding
stock of Hall's Enterprises, Inc. ("Hall"), Lexington, Kentucky. The total
purchase price paid to Hall's shareholders was $1.3 million, paid with Holiday
common stock. Holiday may be required to pay additional contingent
consideration of up to 100,000 shares of Holiday common stock if certain pre-tax
earnings levels are achieved in fiscal 2001 and 2002. The acquisition has been
accounted for under the purchase method of accounting, which resulted in the
recognition of approximately $1.3 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 County Line, Little Valley and Hall
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 acquisitions been made as of
these dates or of results which may occur in the future.
Fiscal year ended October 31,
-------------------------------
2000 1999
------------- ------------
(unaudited) (unaudited)
Revenue $171,505,000 $171,843,000
Net income (loss) (3,335,000) 2,637,000
Basic and diluted earnings (loss) per share $ (0.44) $ 0.37
On March 17, 2000 Holiday entered into a lease with and acquired from Luke
Potter Winnebago inventory and selected operating assets, in connection with the
relocation of its Orlando, Florida dealership.
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 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 due 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. In
connection with the loan, Holiday issued to the lender, warrants to purchase
22,000 shares of Holiday common stock at the then market price. The warrants
have a five-year term and vest in one year. Approximately $29,000 in value has
been ascribed to the warrants using the 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. A member of Holiday's Board of Directors, is president of Doerge
Capital Management.
On May 11, 2000, Holiday borrowed $1.0 million from an officer of Holiday,
principally to repay acquisition-related debt. The interest rate was 6.75% per
annum. Holiday paid $36,000 in loan fees to
F-12
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.
5. OTHER BANK DEBT
Holiday has various term notes outstanding with banks with an aggregate
principal balance of $2,500,947 at October 31, 2000. Each have monthly payments
of interest or principal and interest and mature at various times through May
2005. The notes are collateralized by real property or by other assets of the
Company.
Future principal maturities of term loans and acquisition debt (note 4) as
of October 31, 2000 are as follows:
Year ending October 31,
2001 $ 389,944
2002 1,652,313
2003 1,897,718
2004 174,459
2005 177,463
Thereafter 6,393,541
-----------
Total $10,685,438
===========
6. INVENTORIES
Inventories are summarized as follows:
OCTOBER 31,
-------------------------------
2000 1999
----------- -----------
New Vehicles $43,190,901 $20,922,867
New Marine 1,337,623 1,503,756
Used Vehicles 12,620,666 4,543,606
Used Marine 494,064 209,276
Parts and accessories 2,338,517 1,576,274
----------- -----------
$59,981,771 $28,755,779
----------- -----------
F-13
7. PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
OCTOBER 31,
--------------------------
2000 1999
----------- -----------
Land $ 3,477,690 $ 2,058,451
Buildings and leasehold improvements 7,735,968 1,921,124
Machinery and shop equipment 1,642,662 207,564
Office equipment and furniture 1,051,481 856,884
Vehicles 396,341 132,460
Construction in progress - 875,799
----------- -----------
14,304,142 6,052,282
Less accumulated depreciation
and amortization (1,886,095) (1,453,805)
----------- -----------
$12,418,047 $ 4,598,477
----------- -----------
Depreciation expense for the years ended October 31, 2000, 1999 and 1998
was $484,691, $248,960 and $285,732, respectively.
8. 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 the 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.
9. FLOORPLAN CONTRACTS
Holiday finances substantially all new and used inventories through floor
plan financing arrangements. Substantially all new and used vehicles and boats
held in inventory are pledged as collateral under floor plan contracts. Floor
plan contracts are due upon sale of the related vehicle. The agreements, as
amended, limit Holiday's ability to pay dividends to stockholders, make advances
to affiliates and repurchase its stock.
In November 2000, the Company was notified by its primary lender that they
intended to renegotiate certain provisions of the floorplan financing agreement.
To initiate such renegotiations, the lender exercised their 60-day termination
notice provision of the agreement to be effective January 31, 2001, and provided
a new agreement to be effective February 1, 2001. The parties were unable to
come to an agreement by that date and entered into a forebearance agreement
which provides for the extension of terms and vehicle financing arrangements
while the parties continue to negotiate. There can be no assurance that the
Company will come to terms with their primary lender or obtain sufficient
alternative floor plan financing (See Note 2).
During fiscal 1999, Holiday received fees in connection with its floor
plan arrangement. These fees are being amortized to reduce interest expense over
the term of the arrangement (3 years). The amount amortized to interest expense
for the years ended October 31, 2000 and 1999 were approximately $338,000 and
$253,000, respectively.
F-14
Maximum borrowings available under the contracts were $70.9 million as of
October 31, 2000. The following summarizes certain information about the
borrowings under the floor plan contracts:
OCTOBER 31,
-------------------------
2000 1999
----------- -----------
Maximum amount outstanding at
any month end $58,217,207 $23,673,241
Average amount outstanding during the period $51,887,893 $20,979,096
Weighted average interest rate during the period 8.14% 6.58%
Weighted average interest rate at the
end of the period 8.79% 6.80%
10. STOCK OPTIONS AND WARRANTS
The Company's 1999 Stock Option Plan ("Plan") provides for the issuance of
up to 500,000 shares of common stock to regular full-time employees. The Plan
allows for the issuance of either non-qualified or incentive stock options. The
option exercise price shall be no less than 100% of the fair market value per
share of common stock on the date of grant, except that such price must be at
least 110% of the fair market value for employees who own more than 10% of the
outstanding shares of the Company. In the case of non-qualified options, the
exercise price shall generally be the fair market value, although the
Compensation Committee of the Board of Directors may grant options with exercise
prices less than fair market value. The options are exercisable, as determined
by the Committee, over a period of time, but not more than ten years from the
date of grant, and will be subject to such other terms and conditions as the
Committee may determine.
During fiscal year 2000, the Company's 1999 Stock Compensation Program
(the "Stock Compensation Program") was approved by the Company's shareholders.
The Stock Compensation Program shall be administrated by the Company's Board of
Directors, and provides for the issuance of up to 3,000,000 shares of common
stock to employees and non-employees. Awards under the Stock Compensation
Program shall be issued under the general provisions of the Stock Option Program
and are exercisable, as determined by the Company's Board of Directors, over a
period of time, but not more than ten years from the date of grant. Options
granted under the Plan may be incentive stock options or non-qualified stock
options. Stock purchase rights and stock appreciation rights may also be granted
under the Plan. The exercise price of incentive stock options and non-qualified
options shall be no less than 100% and 85%, respectively, of the fair market
values of Holiday's common stock on the grant date.
F-15
The following table summarizes the activity of Holiday's stock option plans:
Weighted Average
Number of Exercise Price
Options Per Share
---------- ---------------
Options outstanding, October 31, 1997 300,000 $ 1.77
Granted - -
Exercised - -
Forfeited - -
----------
Options outstanding, October 31, 1998 300,000 1.77
Granted 410,000 3.21
Exercised (40,000) 1.81
Forfeited - -
----------
Options outstanding, October 31, 1999 670,000 2.11
Granted 1,016,000 5.55
Exercised (135,000) 1.83
Cancelled (205,000) 3.64
----------
Options outstanding, October 31, 2000 1,346,000 $ 4.47
At October 31, 2000, the 1,346,000 options outstanding under all stock option
plans are summarized in the following table:
Options Outstanding Options Exercisable
- ------------------------------------------------------ ------------------------
Weighted Weighted
Weighted Average Average
Range of Average Exercise Exercise
Exercise Number Remaining Price Number Price
Prices Outstanding Life (1) Per Share Exercisable Per Share
- --------- ----------- --------- --------- ----------- ----------
$1.70 - $2.55 125,000 4.25 $1.70 125,000 $1.70
$2.56 - $3.83 150,000 7.56 $3.32 150,000 $3.32
$3.84 - $5.74 781,000 7.53 $4.50 584,333 $4.46
$5.75 - $8.61 290,000 9.39 $6.18 180,000 $5.88
----------- -----------
Total 1,346,000 1,019,333
=========== ===========
(1) Average remaining contractual life in years
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 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 under the Black-Scholes option pricing model and
this value is being recognized as consulting expense by Holiday over the
warrants vesting period. None of these warrants have been exercised as of
October 31, 2000.
F-16
Certain options were granted in fiscal 2000 at an exercise price below fair
value of the common shares on the date of grant. Holiday recognized
approximately $73,000 of expense in connection with this grant.
The weighted average fair value of the options granted in 2000 was $1.30 per
share. Had compensation expense been determined based upon the fair value of the
options at their grant dates in accordance with SFAS 123, the net loss for
fiscal 2000 would have been increased by approximately $1,491,000.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions:
Average discount rate 5.50%
Volatility 31%
Average expense option life 10 years
11. INCOME TAXES
The components of income taxes (benefit) are as follows (rounded to nearest
thousand):
OCTOBER 31,
--------------------------------------------------
2000 1999 1998
----------- ---------- ----------
Current:
Federal $(1,302,000) $1,106,000 $ 913,000
State (135,000) 241,000 183,000
----------- ---------- ----------
(1,437,000) 1,347,000 1,096,000
----------- ---------- ----------
Deferred
Federal (302,000) (35,000) (34,000)
State (36,000) 9,000 (18,000)
----------- ---------- ----------
(338,000) (26,000) (52,000)
----------- ---------- ----------
Total income taxes $(1,775,000) $1,321,000 $1,044,000
----------- ---------- ----------
The components of deferred tax assets and liabilities consist of the
following (rounded to nearest thousand):
OCTOBER 31,
---------------------
2000 1999
--------- ---------
Deferred tax assets:
Accrued warranty $ 91,000 $ -
Property and equipment 63,000 44,000
State NOL carryover 124,000 -
Non-compete agreement 73,000 73,000
Inventory 379,000 136,000
Deferred finance income 118,000 22,000
Accrued vacation 17,000 17,000
Other 2,000 2,000
--------- ---------
Total deferred tax assets 867,000 294,000
Less current deferred tax assets (659,000) (177,000)
--------- ---------
Long-term deferred tax assets $ 208,000 $ 117,000
--------- ---------
F-17
The following summary reconciles differences from taxes at the federal
statutory rate with the effective rate:
OCTOBER 31,
---------------------------------------------
2000 1999
---------------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT
Income taxes (benefits) at
statutory rate $(1,693,000) 34.0% $1,181,000 34.0%
State income taxes, net of
federal benefit (113,000) 2.3% 165,000 4.7%
Other 31,000 -0.6% (25,000) 7.0%
----------- ------- ---------- ------
Income taxes (benefits) at
effective rates $(1,775,000) 35.7% $1,321,000 38.0%
----------- ------- ---------- ------
12.EMPLOYEE BENEFIT PLANS
Holiday has a Profit-Sharing and Employee Investment Plan which covers
substantially all employees meeting certain minimum age and service
requirements. Employee contributions to the investment plan may, at Holiday's
discretion, be matched 25% up to a maximum employee contribution of 6% of the
employee's compensation. Also, at Holiday's discretion, a profit-sharing
contribution may be made. Company contributions to the plan, included in
selling, general and administrative expenses, were approximately $58,133,
$113,000 and $98,000 for the years ended October 31, 2000, 1999 and 1998,
respectively.
EMPLOYEE STOCK PURCHASE PLAN. Employees of the Company who are employed for
at least five consecutive months in any calendar year, are employed at least
twenty hours per week, and own less than 5% of the common stock, may purchase
common stock at a 15% discount of fair market value.
13. CAPITAL AND OPERATING LEASE COMMITMENTS
CAPITAL LEASE. Holiday leases computer equipment under agreements, which
are classified as capital leases. Upon expiration of each of the leases, Holiday
will have an option to purchase the computer equipment for a nominal amount. The
equipment is included in property and equipment in the amount of approximately
$250,000 net of accumulated amortization of $410,439 and $331,000 at October 31,
2000 and 1999, respectively.
OPERATING LEASE. Holiday conducts its operations from leased facilities
including land and buildings in Winter Garden and Fort Myers, Florida; Roseville
and Bakersfield, California; Prosperity, West Virginia; Wytheville, Virginia and
Lexington, Kentucky. The leases expire on various dates from 2000 through 2010,
with most including renewal options.
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As of October 31, 2000, the future minimum lease payments under
noncancellable capital and operating leases with initial or remaining terms of
one year or more are as follows:
CAPITAL OPERATING
LEASE LEASES
-------- ------------
Year ending October 31,
2001 $145,612 $1,119,096
2002 138,066 1,065,845
2003 46,415 1,046,327
2004 41,455 1,046,327
2005 28,552 1,046,327
-------- -----------
Total minimum lease payments $400,100 $5,323,922
===========
Less amount representing interest 67,921
--------
Present value of mimimum lease payments $332,179
Less current portion 113,798
--------
Long-term capital lease obligation $218,381
========
Holiday's rental expense under operating leases for the fiscal years ended
October 31, 2000, 1999 and 1998 was $652,683, $531,468 and $527,645,
respectively.
14. RELATED PARTY TRANSACTIONS
Holiday paid $395,000, $203,000 and $203,000 to related parties for
facility rent (Note 13) during the years ended October 31, 2000, 1999 and 1998,
respectively.
15. COMMITMENTS AND CONTINGENCIES
CONCENTRATION OF CREDIT RISK. Holiday's financial instruments that are
exposed to concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. Holiday places its funds with high credit
quality institutions. At times, the monies may be in excess of the FDIC or other
insurance limits. With regard to receivables, Holiday routinely assesses the
financial strength and collectibility of its customers and, as a consequence,
believes that its accounts receivable risk is limited.
Holiday relies on several manufacturers as suppliers for its product lines.
Approximately 47%, 49% and 58% of Holiday's new vehicle sales for the years
ended October 31, 2000, 1999 and 1998, respectively, consists of vehicles
purchased from the same two manufacturers. In the opinion of management, the
loss of any one brand of new RV would not materially affect Holiday. However,
the loss of all brands sold by either of the two largest manufacturers would
have a material effect on the company's sales. Management feels the loss of all
brands from either of these two manufacturers to be highly unlikely.
CONSULTING AGREEMENTS. On June 30, 1999, Holiday entered into two separate
consulting agreements with the former principal shareholders to assist the
company in corporate administration activities. These consulting agreements are
for a two-year period. During the term of these agreements, Holiday shall pay
each consultant a total of $130,000 in fees, payable in monthly installments. In
addition, each consultant was granted options to purchase 40,000 shares of
common stock at an exercise price of $3.21 per share (see note 10). The options
have a five-year term. Holiday has recognized consulting expense of $82,000 for
the fiscal year ended October 31, 2000 based upon the Black Scholes option
pricing model valuation of these options. The consultants are also entitled to
certain benefits and the reimbursement of expenses incurred.
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THIRD-PARTY FINANCING. Holiday uses third-party banks and/or finance
companies to assist its customers in locating financing for vehicle purchases.
Holiday refers customer to one or more of these third-party financing sources
and earns a referral fee if the third-party lender consummates a loan contract
with the customer. These contracts represent third-party financing, and Holiday
provides no underwriting or credit approval services for the lender. Holiday's
referral fees are a commission and are typically based upon the difference
between the interest rate the customer pays under the contract with the lender
and an interest rate designated by the lender. At no time does Holiday service
or guarantee the collection of these loans or receivables. Holiday could be
charged back the commission by the lender if the loan is paid off or foreclosed
in a specified period of time, usually limited to the first six months of the
term, and if the chargeback exceeds reserves retained by the lender.
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results for the fiscal
years ended October 31, 2000 and October 31, 1999.
Fiscal 2000 Quarter
-------------------------------------------------------------
First Second Third Fourth
-------- -------- -------- --------
(Dollars in thousands, except per share data)
Revenue $ 34,039 $ 49,850 $ 38,566 $ 29,913
Gross Profit 5,535 8,085 7,057 4,316
Net income (loss) (193) 153 (469) (2,696)
Basic and diluted earnings (loss)
per common share (a) (0.03) 0.02 (0.06) (0.36)
Fiscal 1999 Quarter
-------------------------------------------------------------
First Second Third Fourth
-------- -------- -------- --------
(Dollars in thousands, except per share data)
Revenue $ 18,183 $ 26,258 $ 19,697 $ 17,258
Gross Profit 3,071 4,248 3,534 3,174
Net income (loss) 442 843 497 372
Basic and diluted earnings (loss)
per common share (a) 0.06 0.12 0.07 0.05
(a) Calculated independently for each period, and consequently, the sum of the
quarters may differ from annual amount.
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