Exhibit 99.2
Keystone RV Company
Financial Statements
Years ended December 31, 2000, 1999, and 1998
CONTENTS
Reports of Independent Auditors..............................................1
Financial Statements
Balance Sheets...............................................................3
Statements of Income.........................................................5
Statements of Shareholders' Equity (Deficit) and Redeemable Preferred Stock..6
Statements of Cash Flows.....................................................7
Notes to Financial Statements................................................8
Report of Independent Auditors
Board of Directors
Keystone RV Company
We have audited the accompanying balance sheets of Keystone RV Company as of
December 31, 2000 and 1999, and the related statements of income, shareholders'
equity (deficit) and redeemable preferred stock, and cash flows for the years
then ended. 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. The financial statements of Keystone RV Company
for the year ended December 31, 1998 were audited by other auditors, whose
report dated January 18, 1999 expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Keystone RV Company at December
31, 2000 and 1999, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States.
/s/ Ernst & Young LLP
February 16, 2001, except as to
Note 12, as to which the
date is November 9, 2001
1
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
KEYSTONE RV COMPANY
Goshen, Indiana
We have audited the statements of income, shareholders' equity (deficit) and
redeemable preferred stock, and cash flows of KEYSTONE RV COMPANY for the year
ended December 31, 1998. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of KEYSTONE RV
COMPANY for the year ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States of America.
/s/ McGladrey & Pullen, LLP
Elkhart, Indiana
January 18, 1999
2
Keystone RV Company
Balance Sheets
DECEMBER 31,
2000 1999
---------------------------
Assets
Current assets:
Cash $ 450 $ 200
Accounts receivable:
Trade, less allowance for doubtful
accounts (2000--$110,000; 1999--$20,000) 21,467,563 8,560,900
Other 1,277,807 527,811
---------------------------
22,745,370 9,088,711
Inventories 15,562,347 7,268,031
Prepaid expenses 419,034 220,862
Deferred income taxes 1,290,525 545,162
---------------------------
Total current assets 40,017,726 17,122,966
Property and equipment:
Land and improvements 508,874 423,080
Leasehold improvements 419,441 186,801
Machinery and equipment 2,782,729 1,532,398
---------------------------
Total cost 3,711,044 2,142,279
Accumulated depreciation and amortization 801,481 405,771
---------------------------
Property--net 2,909,563 1,736,508
Goodwill less accumulated amortization of $71,117 1,528,883 -
Other assets 268,993 309,027
---------------------------
Total assets $44,725,165 $19,168,501
===========================
3
DECEMBER 31,
2000 1999
------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to redeemed shareholders $ 500,000 $ 1,000,000
Current maturities of long-term debt 3,000,000 3,000,446
Excess of outstanding checks over bank balance 5,395,336 1,217,582
Accounts payable 11,935,688 4,134,423
Accrued expenses:
Income taxes 2,522,460 763,515
Compensation and related items 871,003 365,340
Warranty costs 2,147,854 797,986
Other 2,592,414 1,307,511
------------------------------
Total current liabilities 28,964,755 12,586,803
Long-term debt, less current portion 9,885,000 7,750,000
Deferred income taxes 133,707 90,132
Commitments and contingencies
Series A redeemable preferred stock, $.01 par value
(stated at redemption value of $100 per share
plus accrued dividends): authorized--1,000,000 shares;
issued and outstanding--99,000 shares 11,413,243 10,601,320
Series B redeemable convertible preferred stock, $.01 par value
(stated at redemption value): authorized--1,000,000
shares; issued and outstanding--13,564 shares 16,490,094 2,186,587
Shareholders' equity (deficit):
Common stock, $.01 par value:
Authorized--10,000,000 shares; issued and outstanding--
(2000--14,275; 1999--14,695);
shares subscribed--(2000--496; 1999--0) 148 147
Additional paid-in capital 824,198 805,721
Stock subscriptions and shareholder notes receivable (241,654) -
Retained earnings (deficit) (22,744,326) (14,852,209)
------------------------------
Total shareholders' equity (deficit) (22,161,634) (14,046,341)
------------------------------
Total liabilities and shareholders' equity (deficit) $ 44,725,165 $ 19,168,501
==============================
See accompanying notes.
4
Keystone RV Company
Statements of Income
YEAR ENDED DECEMBER 31,
2000 1999 1998
---------------------------------------------------
Net sales $ 255,683,796 $ 140,174,714 $ 74,790,013
Cost of goods sold 225,841,369 121,473,988 65,356,031
---------------------------------------------------
Gross profit 29,842,427 18,700,726 9,433,982
Selling, general, and administrative expenses 15,736,121 7,205,914 4,404,225
---------------------------------------------------
Operating income 14,106,306 11,494,812 5,029,757
Other income (expense):
Interest income 42,063 31,351 22,960
Interest expense (1,117,176) (917,184) (110,279)
Loss from investment in and
write off of notes receivable from
DK Investments, LLC - (220,933) (122,076)
Other (74,885) (316,013) -
---------------------------------------------------
(1,149,998) (1,422,779) (209,395)
---------------------------------------------------
Income before income taxes 12,956,308 10,072,033 4,820,362
Provision for income taxes 5,232,995 3,610,851 -
---------------------------------------------------
Net income $ 7,723,313 $ 6,461,182 $ 4,820,362
===================================================
See accompanying notes.
5
Keystone RV Company
Statements of Shareholders' Equity (Deficit) and Redeemable Preferred Stock
Years ended December 31, 2000, 1999, and 1998
SHAREHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------------------------------
STOCK
SUBSCRIPTIONS
AND
COMMON STOCK ADDITIONAL SHAREHOLDER RETAINED
-------------------------- PAID-IN NOTES EARNINGS
VOTING NONVOTING CAPITAL RECEIVABLE (DEFICIT)
--------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $893,332 $ 50,000 $ 40,000 $ - $ 1,765,017
Net income - - - - 4,820,362
Dividends - - - - (3,291,493)
--------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 893,332 50,000 40,000 - 3,293,886
Net income - - - - 6,461,182
Dividends on common stock - - - - (325,446)
Distributions to shareholders and repurchase
of stock in connection with recapitalization (893,222) (50,000) 56,668 - (21,493,924)
Issuance of common stock 37 - 709,053 - -
Issuance of Series A
redeemable preferred stock - - - - -
Issuance of Series B redeemable
convertible preferred stock - - - - -
Accrued dividends on preferred stock - - - - (708,400)
Accretion of increase in value
of redeemable convertible preferred stock - - - - (2,079,507)
--------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 147 - 805,721 - (14,852,209)
Net income - - - - 7,723,313
Repurchase of stock in
connection with recapitalization - - - - (500,000)
Purchase of treasury stock - - - - -
Issuance of treasury stock
and additional common stock 1 - 18,477 (241,654) -
Accrued dividends on preferred stock - - - - (820,489)
Accretion of increase in value
of redeemable convertible preferred stock - - - - (14,294,941)
--------------------------------------------------------------------------------
Balance at December 31, 2000 $ 148 $ - $ 824,198 $(241,654) $ (22,744,326)
================================================================================
SHAREHOLDERS' EQUITY (DEFICIT)
-------------------------------------
REDEEMABLE
REDEEMABLE CONVERTIBLE
TREASURY PREFERRED PREFERRED
STOCK TOTAL STOCK STOCK
-----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $ - $ 2,748,349 $ - $ -
Net income - 4,820,362 - -
Dividends - (3,291,493) - -
-----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 - 4,277,218 - -
Net income - 6,461,182 - -
Dividends on common stock - (325,446) - -
Distributions to shareholders and repurchase
of stock in connection with recapitalization - (22,380,478) - -
Issuance of common stock - 709,090 - -
Issuance of Series A
redeemable preferred stock - - 9,900,000 -
Issuance of Series B redeemable
convertible preferred stock - - - 100,000
Accrued dividends on preferred stock - (708,400) 701,320 7,080
Accretion of increase in value
of redeemable convertible preferred stock - (2,079,507) - 2,079,507
-----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 - (14,046,341) 10,601,320 2,186,587
Net income - 7,723,313 - -
Repurchase of stock in
connection with recapitalization - (500,000) - -
Purchase of treasury stock (344,000) (344,000) - -
Issuance of treasury stock
and additional common stock 344,000 120,824 - -
Accrued dividends on preferred stock - (820,489) 811,923 8,566
Accretion of increase in value
of redeemable convertible preferred stock - (14,294,941) - 14,294,941
-----------------------------------------------------------------------
Balance at December 31, 2000 $ - $(22,161,634) $11,413,243 $16,490,094
=======================================================================
See accompanying notes.
6
Keystone RV Company
Statements of Cash Flows
YEAR ENDED DECEMBER 31,
2000 1999 1998
-----------------------------------------------------
OPERATING ACTIVITIES
Net income $ 7,723,313 $ 6,461,182 $ 4,820,362
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 522,138 263,142 117,870
Gain on sale of fixed assets (10,107) - -
Deferred income taxes (701,788) (455,030) -
Loss from investment in and write off of
notes receivable from DK Investments, LLC - 220,933 122,076
Other non-cash expenses - 201,758 -
Change in operating assets and liabilities:
Receivables (13,656,659) (3,327,947) (3,852,125)
Inventories (4,276,014) (3,365,644) (2,298,866)
Prepaid expenses (198,172) (147,620) 23,792
Excess of outstanding checks over bank balance 4,177,754 (637,783) -
Accounts payable 7,801,265 2,781,891 830,312
Accrued expenses 3,140,434 1,256,201 906,982
Accrued income taxes 1,758,945 763,515 -
Other assets 1,135 (77,575) (42,151)
-----------------------------------------------------
Net cash provided by operating activities 6,282,244 3,937,023 628,252
INVESTING ACTIVITIES
Purchase of operating division (5,896,672) - -
Investment in DK Investments, LLC - - (25,000)
Issuance of notes receivable - (221,427) (244,542)
Purchase of property and equipment (1,479,129) (721,257) (915,724)
Proceeds from sale of property and equipment 182,429 - -
-----------------------------------------------------
Net cash used in investing activities (7,193,372) (942,684) (1,185,266)
FINANCING ACTIVITIES
Net borrowings on revolving credit agreements 2,135,000 10,060,000 1,496,147
Principal payments on long-term debt (446) (318,649) 690,000
Payments on debt issuance cost - (191,467) 319,133
Proceeds from issuance of preferred stock - 10,000,000 (6,289)
Proceeds from sale of treasury
shares and issuance of common stock 120,824 509,090 -
Purchase of treasury shares (344,000) - -
Payments for recapitalization and redemption of common stock (1,000,000) (21,380,478) -
Payments of dividends - (1,672,835) (1,944,104)
-----------------------------------------------------
Net cash provided by (used in) financing activities 911,378 (2,994,339) 554,887
-----------------------------------------------------
Net increase (decrease) in cash 250 - (2,127)
Cash at beginning of year 200 200 2,327
-----------------------------------------------------
Cash at end of year $ 450 $ 200 $ 200
=====================================================
See accompanying notes.
7
Keystone RV Company
Notes to Financial Statements
December 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
Keystone RV Company (the Company) manufactures recreational vehicle products for
sale to customers throughout the United States and Canada, generally on terms of
15 days or normal floor-plan arrangements.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH
The Company maintains cash with two financial institutions in amounts which, at
times, may be in excess of FDIC insurance limits.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
DEPRECIATION
Depreciation of property and equipment is computed by the straight-line method
over the estimated useful lives (ranging from 3 to 15 years) of the assets.
Maintenance and repairs are charged to expense as incurred.
INVESTMENTS
The Company had a 47.4% investment in a recreational vehicle dealership, DK
Investments, LLC (DK), an unconsolidated affiliate which was accounted for under
the equity method. During 1999, DK ceased operations and was liquidated in 2000.
As of December 31, 1999, the Company had written off any remaining investment in
or receivable from DK.
WARRANTY EXPENSE
The Company accrues an estimated liability for warranty expense at the time the
warranted products are sold.
8
Keystone RV Company
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLES AND LONG-LIVED ASSETS
Goodwill is being amortized using the straight-line method over fifteen years.
The Company re-evaluates intangibles and long-lived assets based on fair values
or undiscounted operating cash flows whenever significant events or changes
occur which might impair recovery of recorded costs, and it writes down recorded
costs of the assets to fair value when recorded costs, prior to impairment, are
higher.
REVENUE RECOGNITION
The Company generally manufactures products based on the specific orders from
customers and generally ships completed products only after receiving credit
approval from financial institutions. Revenue is recognized upon shipment.
Charges for the delivery of products to customers are reported as revenue. Costs
to ship products to customers are reported as part of cost of goods sold.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables, accounts payable, notes payable to
redeemed shareholders, short-term debt, long-term debt, redeemable preferred
stock, and accruals that meet the definition of a financial instrument
approximate fair value.
RECLASSIFICATIONS
Certain items in the 1999 and 1998 financial statements have been reclassified
to conform to the 2000 presentation. These reclassifications had no effect on
net income.
9
Keystone RV Company
Notes to Financial Statements (continued)
2. RECAPITALIZATION
In February 1999, the Company effected a leveraged recapitalization whereby the
Company (1) redeemed common stock of existing shareholders, (2) entered into a
revolving line of credit of $25,000,000 (see Note 4), and (3) issued shares of
common stock to certain members of management and preferred stock to Summit
Partners (see Note 5).
In connection with the redemption of common stock, the shareholders received a
special dividend distribution approximately equal to their undistributed S
Corporation earnings and then redeemed a substantial portion of the common
shares issued and outstanding. Total consideration paid to the shareholders in
1999 was $20,372,738. The terms of the redemption agreement required that
additional consideration of up to $1,500,000 be paid to the redeeming
shareholders if the Company achieved certain earnings targets in 1999 and 2000.
The Company achieved the 1999 and 2000 earnings targets and therefore, in
accordance with the agreement, the additional consideration of $1,500,000 has
been recorded.
3. INVENTORIES
Major classifications of inventories are as follows:
DECEMBER 31
2000 1999
----------------- ----------------
Raw materials $ 8,495,243 $ 4,585,373
Work-in-process 1,266,263 1,098,641
Finished goods 5,800,841 1,584,017
----------------- ----------------
$ 15,562,347 $ 7,268,031
================= ================
10
Keystone RV Company
Notes to Financial Statements (continued)
4. DEBT
Long-term debt is as follows:
DECEMBER 31
2000 1999
-----------------------------
Revolving line of credit loan $ 12,885,000 $ 10,750,000
Other - 446
-----------------------------
12,885,000 10,750,446
Less current maturities 3,000,000 3,000,446
-----------------------------
$ 9,885,000 $ 7,750,000
=============== =============
Aggregate maturities of long-term debt are as follows:
2001 $ 3,000,000
2004 9,885,000
The Company has a revolving line of credit agreement with a bank totaling
$22,500,000, of which $12,885,000 was outstanding at December 31, 2000. The
agreement matures on January 31, 2004 and substantially all assets of the
Company are pledged as collateral to the revolving line of credit.
Interest is payable on amounts borrowed under the revolving line of credit at,
based on the election of the Company, the prime rate or LIBOR plus a factor up
to 2.25%, based on the Company's funded debt ratio as defined. The interest rate
on borrowings under the agreement was 8.98% at December 31, 2000.
The terms of the agreement require the Company to, among other things, meet
minimum cash flow, interest coverage, and leverage ratio requirements. The
agreement also has restrictive covenants limiting repurchase of stock,
dividends, additional investments, acquisitions, additional debt, fixed asset
additions and disposals, sale and leasebacks, and leases. As of December 31,
2000, the Company was in compliance with these requirements.
At December 31, 2000, the Company had letters of credit outstanding of $400,000.
11
Keystone RV Company
Notes to Financial Statements (continued)
5. SHAREHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
In February 1999, the Company issued 3,674 new shares of Class A Common Stock,
99,000 shares of Series A Redeemable Preferred Stock ("Series A Preferred
Stock") and 13,564 shares of Series B Redeemable Convertible Preferred Stock
("Series B Preferred Stock"). During 2000, the Company purchased 1,413 shares of
common stock as treasury shares and reissued those treasury shares plus 76 new
common shares.
The Series A Preferred Stock accrues dividends at 8% and is redeemable, at the
option of the holder, beginning February 11, 2005 at cost plus accrued
dividends. The Series B Preferred Stock accrues dividends at 8% and is
redeemable, at the option of the holder, beginning February 11, 2005 at the
higher of (a) cost plus accrued dividends or (b) fair market value. In addition,
under certain circumstances such as a liquidity event or a default pursuant to
the provisions of the Stock Purchase and Redemption Agreement, the holders of
the Series A and B Preferred Stock may require redemption at an earlier date.
The terms of the Stock Purchase and Redemption Agreement require the Company to,
among other things, meet certain financial covenants and limit capital
expenditures, investments, and dividends while the Series A and Series B
Preferred Stock is outstanding. The preferred shares have liquidation amounts
equal to the redemption amounts stated above and have liquidation preference
over any common shares outstanding.
Each share of the Series B Preferred Stock has voting rights equal to one share
of Class A Common Stock. In addition, each share of the Series B Preferred Stock
is convertible at any time by the holder into .6926 shares of Class A Common
Stock.
In accordance with United States generally accepted accounting principles, the
carrying value of the Series B Preferred Stock has been increased based on
changes in the fair market value and has been shown as a liability. Accordingly,
during the years ended December 31, 1999 and 2000, the Company recorded a charge
to retained earning (deficit) of $1,979,507 and $14,294,941, respectively, for
the increase in the value of the Series B Preferred Stock.
The Company has reserved for issuance enough Class A Common Stock to provide for
any shares that may be required for exercise of stock options or conversion of
the Series B Preferred Stock.
12
Keystone RV Company
Notes to Financial Statements (continued)
6. INCOME TAXES
The Company operated as an S Corporation from August 29, 1995 through February
12, 1999, when its S Corporation election was terminated. As a result, the
Company was not subject to federal or, in most instances, state income taxes
during this period since income was taxed directly to the shareholders.
Accordingly, the Company's provision for income taxes in the historical
statements of income is substantially less than the level of income tax expense
that the Company is subject to as a C Corporation subsequent to February 12,
1999.
Components of the provision for income taxes are as follows:
YEAR ENDED DECEMBER 31
2000 1999 1998
----------------------------------------
Currently payable:
Federal $ 4,784,269 $ 3,224,415 $ -
State 1,150,514 841,466 -
----------------------------------------
5,934,783 4,065,881 -
Deferred:
Federal (565,943) (366,951) -
State (135,845) (88,079) -
----------------------------------------
(701,788) (455,030) -
----------------------------------------
$ 5,232,995 $ 3,610,851 $ -
========================================
The provision for income taxes differs from the amounts that would be provided
based on the statutory federal tax as follows:
YEAR ENDED DECEMBER 31
2000 1999 1998
----------------------------------------
Tax provision at statutory
federal income tax rate $ 4,534,708 $ 3,525,212 $ 1,638,923
State income tax provision,
net of federal benefit 659,535 489,709 -
S Corporation earnings prior
to conversion to C Corporation - (248,075) (1,638,923)
Deferred tax credit recognized
upon conversion to C Corporation - (284,060) -
Other 38,752 128,065 -
----------------------------------------
$ 5,232,995 $ 3,610,851 $ -
========================================
13
Keystone RV Company
Notes to Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
Deferred income taxes result from temporary differences between the amounts of
assets and liabilities reported for financial reporting purposes and income tax
purposes. Significant components of the Company's deferred tax assets and
liabilities are as follows:
DECEMBER 31,
2000 1999
--------------------------
Current deferred tax assets:
Warranty costs $ 778,758 $ 341,139
Dealer incentives 466,203 183,175
Other 45,564 20,848
--------------------------
1,290,525 545,162
Noncurrent deferred tax liability--
Property basis (133,707) (90,132)
--------------------------
Net deferred tax asset $ 1,156,818 $ 455,030
=========== ===========
7. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) plan for the benefit of all full-time employees.
The Company's contributions are discretionary and are limited to amounts
deductible for federal income tax purposes. Amounts expensed for the plan were
approximately $150,000, $45,000, and $25,000 for the years ended December 31,
2000, 1999, and 1998, respectively.
8. STOCK OPTIONS
In February 1999, the Company granted to the chief executive officer of the
Company a nonqualified option to purchase 725 shares of Class A Common Stock at
an exercise of $193 per share. The option vests immediately and expires after
ten years.
In December 2000, the Company granted an employee and a director of the Company
nonqualified options to purchase a total of 223 shares of Class A Common Stock
at an exercise of $1,754 per share. The options vest 25% each year over a four
year period and expire after ten years.
No options have been exercised or forfeited, or have expired during 1999 or 2000
and, therefore, options for a total of 748 shares remain outstanding at December
31, 2000.
14
Keystone RV Company
Notes to Financial Statements (continued)
8. STOCK OPTIONS (CONTINUED)
The Company follows the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees", and related interpretations, in
accounting for its stock options which require compensation expense of stock
options to be recognized only if the market price of the underlying stock
exceeds to the exercise price on the date of grant. Accordingly, the Company has
not recognized compensation expense for its stock options granted.
Pro forma information regarding net income is required by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS
123) and has been determined as if the Company had accounted for its stock
options under the fair value method of that Statement. The fair value for these
options was estimated as of the date of grant using a "minimum value" method
acceptable for nonpublic companies. Pro forma net income, reported as if
compensation expense had been recognized under the fair value provisions of FAS
123 for these options, was $7,705,313 and $6,638,182 for the years ended
December 31, 2000 and 1999, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities under 15 noncancelable agreements which expire
at various dates through 2010, and which require annual rentals varying from
$22,000 to $349,800 plus the payment of normal maintenance, insurance, and
property taxes on the property. The Company has the option on certain leases to
purchase the property at the end of the lease term at its fair market value.
Rental expense included in the statements of income for the years ended December
31, 2000, 1999, and 1998 is $1,621,653, $810,601, and $442,630, respectively.
The total minimum rental commitment under these leases at December 31, 2000 is
as follows:
2001 $ 1,773,672
2002 1,176,736
2003 1,139,616
2004 1,139,616
2005 674,664
Thereafter 1,838,196
-----------------
$ 7,742,500
=================
15
Keystone RV Company
Notes to Financial Statements (continued)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In connection with the wholesale floor-plan financing of recreational vehicles,
the Company has entered into repurchase agreements with lending institutions in
the amount of approximately $72,000,000 at December 31, 2000 and $38,500,000 at
December 31, 1999. Such agreements are customary in the recreational vehicle
industry and the Company's exposure to loss under such agreements is limited by
the resale value of the inventory, which is required to be repurchased. Losses
incurred under such arrangements in 2000 were approximately $635,000, the
majority of which was associated with one dealer. In 1999, any such losses were
immaterial.
The Company is involved in various litigation generally incidental to normal
operations. In the opinion of management, the resolution of pending litigation
is not expected to have a material effect on financial condition, results of
operations or liquidity of the Company.
10. ACQUISITION OF DAMON CORPORATION TOWABLE DIVISION
On April 28, 2000 the Company acquired certain assets of the towable division of
Damon Corporation for cash of $5,896,672. The acquisition has been accounted for
using the purchase method and the results of operations of the acquired
operations have been included in the financial statements since the acquisition
date. The Company has recorded inventory and fixed assets at fair market value
resulting in goodwill of $1,600,000, which is being amortized over fifteen
years.
16
Keystone RV Company
Notes to Financial Statements (continued)
11. CASH FLOWS INFORMATION
Supplemental information relative to the statements of cash flows for the years
ended December 31, 2000, 1999, and 1998, is as follows:
Supplemental disclosures of cash flows information:
2000 1999 1998
------------------------------------------
Supplemental disclosures of cash flows information:
Cash payments for interest $1,029,755 $ 705,000 $ 110,000
Cash payments for income taxes 4,175,835 3,302,000 -
Supplemental schedule of noncash financing activities:
Issuance of common stock and stock
subscriptions 241,654 200,000 -
Issuance of notes receivable and
stock subscriptions
receivable to shareholders 241,654 - -
Issuance of notes payable
to redeemed shareholders 500,000 1,000,000 -
Accrued dividends--preferred stock 820,489 708,400 -
Dividends declared but unpaid--
common stock - - 1,348,000
12. SUBSEQUENT EVENT
On November 9, 2001, the Company was acquired by Thor Industries, Inc. (Thor)
for approximately $143 million in cash and stock.
17
Keystone RV Company
Financial Statements (Unaudited)
Nine months ended September 30, 2001 and 2000
CONTENTS
Financial Statements (Unaudited)
Balance Sheet (Unaudited)..................................................1
Statements of Income (Unaudited)...........................................3
Statements of Cash Flows (Unaudited).......................................4
Notes to Financial Statements (Unaudited)..................................5
Keystone RV Company
Balance Sheet
(Unaudited)
September 30, 2001
ASSETS
Current assets:
Cash $ 2,717,530
Accounts receivables:
Trade, less allowance for doubtful accounts of $361,421 30,811,953
Other 1,063,090
-----------
31,875,043
Inventories 15,024,162
Prepaid expenses 276,225
Deferred income taxes 3,887,525
-----------
Total current assets 53,780,485
Property and equipment:
Land and improvements 844,343
Leasehold improvements 528,830
Machinery and equipment 3,211,414
-----------
Total cost 4,584,587
Accumulated depreciation and amortization 1,224,648
-----------
Property--net 3,359,939
Goodwill, less accumulated amortization of $151,124 1,448,876
Other assets 253,819
-----------
5,062,634
Total assets $58,843,119
===========
1
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 16,816,848
Accrued expenses:
Income taxes 9,323,081
Compensation and related items 2,193,116
Warranty costs 8,189,774
Other 2,574,719
------------
Total current liabilities 39,097,538
Deferred income taxes 171,707
Commitments and contingencies
Series A redeemable preferred stock, $.01 par value
(stated at redemption value of $100 per share plus accrued dividends)
authorized--1,000,000 shares; issued and outstanding--99,000 shares 12,015,191
Series B redeemable convertible preferred stock, $.01 par value
(stated at redemption value)
authorized--1,000,000 shares; issued and outstanding--13,564 shares 50,846,797
Shareholders' equity (deficit):
Common stock, $.01 par value:
Authorized--10,000,000 shares
Issued and outstanding--(14,027) 140
Additional paid-in capital 642,965
Retained earnings (deficit) (43,931,219)
------------
Total shareholders' equity (deficit) (43,288,114)
------------
Total liabilities and shareholders' equity (deficit) $ 58,843,119
============
See accompanying notes.
2
Keystone RV Company
Statements of Income
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
2001 2000
--------------------------------
Net sales $ 312,830,472 $ 188,304,210
Cost of goods sold 275,686,128 165,498,152
--------------------------------
Gross profit 37,144,344 22,806,058
Selling, general, and administrative expenses 13,468,574 10,536,130
--------------------------------
Operating income 23,675,770 12,269,928
Other income (expense):
Interest income 42,908 39,103
Interest expense (490,445) (787,030)
Other (132,334) (170,947)
--------------------------------
(579,871) (918,874)
--------------------------------
Income before income taxes 23,095,899 11,351,054
Provision for income taxes 9,324,144 4,586,000
--------------------------------
Net income $ 13,771,755 $ 6,765,054
================================
See accompanying notes.
3
Keystone RV Company
Statements of Cash Flows
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
2001 2000
------------------------------
OPERATING ACTIVITIES
Net income $ 13,771,755 $ 6,765,054
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 532,348 339,322
Gain on sale of fixed assets - (10,107)
Deferred income taxes (2,559,000) (646,000)
Change in operating assets and liabilities:
Receivables (9,129,673) (11,609,448)
Inventories 538,185 (6,093,995)
Prepaid expenses 142,809 (65,557)
Excess of outstanding checks over bank balance (5,395,336) 5,682,378
Accounts payable 4,881,160 5,990,197
Accrued expenses 7,346,348 1,418,304
Accrued income taxes 6,800,621 2,802,800
Other assets (14,006) 1,135
------------------------------
Net cash provided by operating activities 16,915,211 4,574,083
INVESTING ACTIVITIES
Purchase of operating division - (5,896,672)
Purchase of property and equipment (873,543) (1,353,968)
Proceeds from sale of property and equipment - 182,429
------------------------------
Net cash used in investing activities (873,543) (7,068,211)
FINANCING ACTIVITIES
Net proceeds (payments) on revolving credit agreements (12,885,000) 3,700,000
Principal payments on long-term debt - (446)
Proceeds from sale of treasury shares
and issuance of common stock 181,239 138,824
Purchase of treasury shares (120,827) (344,000)
Payments for recapitalization and redemption of common stock (500,000) (1,000,000)
------------------------------
Net cash provided by (used in) financing activities (13,324,588) 2,494,378
------------------------------
Net increase in cash 2,717,080 250
Cash at beginning of period 450 200
------------------------------
Cash at end of period $ 2,717,530 $ 450
==============================
See accompanying notes.
4
Keystone RV Company
Notes to Financial Statements
(Unaudited)
September 30, 2001
1. BASIS OF PRESENTATION
The financial statements of Keystone RV Company (Company) for the nine months
ended September 30, 2001 and 2000 and related footnote information are unaudited
and have been prepared on the same basis as the audited financial statements. In
the opinion of management, the interim unaudited financial statements included
all adjustments, consisting of only normal recurring adjustments, necessary for
a fair presentation of the results of these interim periods. The results for the
nine months ended September 30, 2001 are not necessarily indicative of the
operating results to be expected for the entire year.
2. INVENTORIES
Major classifications of inventories as of September 30, 2001 are as follows:
Raw materials $ 12,541,063
Work-in-process 1,540,593
Finished goods 942,506
--------------
Total inventories $ 15,024,162
==============
3. CASH FLOWS INFORMATION
Supplemental information relative to the statements of cash flows for the nine
months ended September 30, 2001 and 2000 is as follows:
5
Keystone RV Company
Notes to Financial Statements (continued)
(Unaudited)
3. CASH FLOWS INFORMATION (CONTINUED)
Supplemental disclosures of cash flows information:
(UNAUDITED)
2001 2000
----------------------------------
Supplemental disclosures of cash flows information:
Cash payments for interest 688,599 701,548
Cash payments for income taxes 5,082,524 4,182,696
Supplemental schedule of noncash financing activities:
Issuance of common stock and stock subscriptions - 241,654
Issuance of notes receivable and
stock subscriptions receivable to shareholders - 241,654
Issuance of notes payable to redeemed shareholders - 500,000
Accrued dividends--preferred stock 608,882 616,044
4. SUBSEQUENT EVENT
On November 9, 2001, the Company was acquired by Thor Industries, Inc. (Thor)
for approximately $143 million in cash and stock.
5. SERIES B PREFERRED SHARES
In accordance with United States generally accepted accounting principles, the
carrying value of the Series B Preferred Stock has been increased based on
changes in the fair market value and has been shown as a liability. Accordingly,
during the nine months ended September 30, 2001, the Company recorded a charge
to retained earnings (deficit) of $36,529,276 for the increase in the value of
the Series B Preferred Stock.
For purposes of these financial statements, the estimated value of the Series B
Preferred Stock of $50,846,797 at September 30, 2001 is based upon the
consideration paid to the holders of the Series B Preferred Shares in the
acquisition of the Company on November 9, 2001 discussed in Note 4.
6
Keystone RV Company
Notes to Financial Statements (continued)
(Unaudited)
6. SHAREHOLDER LITIGATION
The Company is involved in litigation with a former employee whose employment
was terminated in July, 2001. The dispute relates to the appropriate repurchase
price for the employee's common shares of the Company under a shareholder
agreement. The Company has deposited in escrow with the court the full amount of
the repurchase price it believes to be appropriate under the Shareholder
Agreement. Further payment, if any, required in the matter will be provided from
amounts escrowed in connection with the acquisition of the Company by Thor.
7. NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statements
of Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the FASB Statements. Other intangible assets
will continue to be amortized over their useful lives. The Company has not yet
determined what the effect of the new pronouncement will have on its financial
statements.
In August, 2001, the FASB issued Statement of Financial Accounting Standards No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, which
addresses financial accounting and reporting for the impairment of long-lived
assets to be held and used, and of long-lived assets and components of an entity
to be disposed of. This statement is effective for fiscal years beginning after
December, 2001 and the Company has not yet determined what effect, if any,
adoption will have on its financial statements.
7