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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2004
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-22268
NATIONAL R.V. HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0371079
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3411 N. Perris Blvd., Perris, California 92571
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (909) 943-6007
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.
YES X NO __
Indicate by check mark whether the registrant is an accelerated filer.
YES __ NO X
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 04, 2004
Common stock, par value 10,225,505
$.01 per share
NATIONAL R.V. HOLDINGS, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2004 and December 31, 2003 3
Consolidated Statements of Operations -
Three and Six Months Ended June 30, 2004 and 2003 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2004 and 2003 5
Notes to Consolidated Financial Statements 6 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 19
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
Item 4. Controls and Procedures 21
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 23
Signature 24
2
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
June 30, December 31,
2004 2003
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents................... $ 363 $ 2,059
Restricted cash............................. 250 250
Receivables, less allowance for doubtful
accounts ($93 and $132, respectively)...... 31,172 20,978
Inventories................................. 63,859 51,659
Deferred income taxes....................... 7,955 7,955
Prepaid expenses............................ 1,993 1,658
---------- ---------
Total current assets...................... 105,592 84,559
Property, plant and equipment, net.............. 39,362 40,833
Long-term deferred income taxes................. 3,805 3,805
Other........................................... 1,231 1,252
---------- ---------
$ 149,990 $ 130,449
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........... $ 7 $ 19
Accounts payable............................ 27,131 14,101
Accrued expenses............................ 23,666 20,770
--------- ---------
Total current liabilities................. 50,804 34,890
Long-term accrued expenses...................... 7,946 7,569
--------- ---------
Total liabilities............................... 58,750 42,459
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000 shares
authorized, 4,000 issued and outstanding..... - -
Common Stock, $.01 par value, 25,000,000
shares authorized, 10,201,671 and 10,190,230
issued and outstanding, respectively......... 102 102
Additional paid-in capital...................... 36,557 36,463
Retained earnings............................... 54,581 51,425
--------- ---------
Total stockholders' equity................ 91,240 87,990
--------- ---------
$ 149,990 $ 130,449
========= =========
3
See Notes to Consolidated Financial Statements.
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
---- ---- ---- ----
Net sales............................$126,408 $ 73,471 $ 236,846 $ 151,572
Cost of goods sold................... 115,738 73,907 218,889 154,094
-------- -------- --------- ---------
Gross profit (loss)............... 10,670 (436) 17,957 (2,522)
Selling expenses..................... 3,262 2,952 6,883 6,085
General and administrative expenses.. 3,286 1,958 5,873 4,077
-------- -------- --------- ---------
Operating income (loss)........... 4,122 (5,346) 5,201 (12,684)
Interest expense..................... 16 58 78 224
Other expense (income)............... 1 (3) (47) (5)
-------- -------- --------- ---------
Income (loss) before income taxes. 4,105 (5,401) 5,170 (12,903)
Provision (benefit) for income taxes. 1,618 (1,999) 2,014 (4,775)
-------- -------- --------- ---------
Net income (loss).................$ 2,487 $ (3,402) $ 3,156 $ (8,128)
======== ======== ========= =========
Earnings (loss) per common share:
Basic............................$ 0.24 $ (0.35) $ 0.31 $ (0.83)
Diluted..........................$ 0.24 $ (0.35) $ 0.30 $ (0.83)
Weighted average number of shares:
Basic............................ 10,197 9,832 10,194 9,832
Diluted.......................... 10,440 9,832 10,377 9,832
See Notes to Consolidated Financial Statements.
4
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months
Ended June 30,
2004 2003
---- ----
Cash flows from operating activities:
Net income (loss)............................ $ 3,156 $ (8,128)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating
activities:
Depreciation................................ 1,935 1,974
Gain on asset disposal...................... (45) -
Changes in assets and liabilities:
Increase in trade receivables.............. (10,194) (1,194)
(Increase) decrease in inventories......... (12,200) 9,456
Decrease in income taxes receivable........ - 7,015
(Increase) decrease in prepaid expenses.... (335) 569
Increase in accounts payable............... 13,030 5,769
Increase (decrease) in accrued expenses.... 3,273 (1,049)
Increase in deferred income taxes.......... - (4,517)
--------- ----------
Net cash (used in) provided by operating
activities................................. (1,380) 9,895
--------- ----------
Cash flows from investing activities:
Decrease in other assets..................... 21 340
Proceeds from sale of assets................. 1,932 -
Purchases of property, plant and equipment... (2,351) (729)
--------- ----------
Net cash used in investing activities....... (398) (389)
--------- ----------
Cash flows from financing activities:
Net payments on line of credit............... - (4,943)
Decrease in book overdraft................... - (943)
Principal payments on long-term debt......... (12) (11)
Proceeds from exercise of stock options...... 94 -
--------- ---------
Net cash provided by (used in) financing
activities.................................. 82 (5,897)
--------- ---------
Net (decrease) increase in cash................ (1,696) 3,609
Cash, beginning of period...................... 2,059 14
--------- ---------
Cash, end of period............................ $ 363 $ 3,623
========= =========
See Notes to Consolidated Financial Statements.
5
NATIONAL R.V. HOLDINGS, INC.
PART I, ITEM 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - GENERAL
In the opinion of National R.V. Holdings, Inc. (collectively, with its
subsidiaries National R.V., Inc. (NRV) and Country Coach, Inc. (CCI) referred to
herein as the "Company"), the accompanying unaudited consolidated financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial position,
results of operations and cash flows for all periods presented. Results for the
interim periods are not necessarily indicative of the results for an entire year
and the financial statements do not include all of the information and footnotes
required by generally accepted accounting principles. These financial statements
should be read in conjunction with the financial statements and notes thereto
contained in the Company's latest annual report on Form 10-K. Certain
reclassifications, none of which affected net loss or retained earnings, have
been made to prior period amounts to conform to current period presentation.
NOTE 2 - HISTORY OF RECENT LOSSES
The Company experienced a net profit in the first six months of 2004 of
$3.2 million compared to a net loss of $8.1 million during the same period last
year. However, the Company had net losses totaling $8.3 million and $21.4
million for the years ended December 31, 2003 and 2002, respectively. Continued
losses could reduce the Company's liquidity and cause the Company to reduce its
expenditures on capital improvements, machinery and equipment, and research and
development. This could have a negative effect on the Company's ability to
maintain production schedules, manufacture products of high quality, and develop
and manufacture new products that will achieve market acceptance. This could, in
turn, have a negative impact on the Company's sales and earnings. The Company's
losses in 2003 and 2002 were mainly caused by (i) excess manufacturing capacity
and related fixed costs caused by continued low production levels, (ii)
continued significant discounting to wholesale distributors in 2002 and the
first half of 2003, (iii) the recognition of the complete impairment of the
Company's goodwill in 2002, (iv) high warranty costs in 2002 and (v) a workers'
compensation reserve increase in 2002 and continued high workers' compensation
costs in 2003. In spite of profitable first and second quarters in 2004 and a
profitable fourth quarter in 2003, there are no assurances that the conditions
that have resulted in the Company's losses in 2003 and 2002 will not continue
through 2004 and beyond.
As of June 30, 2004, the Company had a deferred tax asset of $11.8 million
which includes the tax benefit of operating loss carryforwards of $7.1 million.
Realization is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized. The amount of the deferred tax asset considered
realizable however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
NOTE 3 - STOCK BASED COMPENSATION
The Company has stock option plans that enable it to offer equity
participation to employees, officers, and directors as well as certain
non-employees. Stock options may be granted as incentive or nonqualified
options.
6
The Company has four fixed option plans that reserve shares of common stock
for issuance to executives, key employees, consultants, and directors. The
Company has also issued fixed options outside of such plans pursuant to
individual stock option agreements. Options granted to non-employee directors
generally vest immediately upon grant and generally expire five to ten years
from the date of grant. Options granted to employees, including employee
directors, generally vest in three equal annual installments and expire five to
ten years from the date of grant. The price of the options granted pursuant to
these plans will not be less than 100 percent of the market value of the shares
on the date of grant. There were 24,000 options granted during the second
quarter of 2004 and 236,500 options granted in the first quarter of 2004, and
there were no options granted during 2003.
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" (SFAS 148), which amends SFAS Statement 123, "Accounting for
Stock-Based Compensation." As permitted by SFAS 148, the Company continues to
measure compensation cost in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations, but provides pro forma disclosures of net income and earnings
per share as if the fair-value method had been applied. The following table
illustrates the effect on net income (loss) and earnings (loss) per share if the
Company had applied the fair value recognition provisions to stock-based
employee compensation:
All amounts in thousands except per share amounts
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Net income (loss) - as reported..$ 2,487 $ (3,402) $ 3,156 $ (8,128)
Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects.................... $ 170 $ (83) $ 289 $ (190)
-------- -------- -------- --------
Pro forma net income (loss)..... $ 2,317 $ (3,485) $ 2,867 $ (8,318)
======== ======== ======== ========
Basic earnings (loss) per share
as reported..................... $ 0.24 $ (0.35) $ 0.31 $ (0.83)
Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects................... $ 0.01 $ - $ 0.03 $ 0.02
-------- -------- -------- --------
Basic earnings (loss) per share
pro forma..................... $ 0.23 $ (0.35) $ 0.28 $ (0.85)
======== ======== ======== ========
Diluted earnings (loss) per share
as reported..................... $ 0.24 $ (0.35) $ 0.30 $ (0.83)
Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects.................... $ 0.02 $ - $ 0.02 $ 0.02
-------- -------- -------- ---------
Diluted earnings (loss) per share
pro forma...................... $ 0.22 $ (0.35) $ 0.28 $ (0.85)
======== ======== ======== ========
The weighted-average fair value of the stock options has been estimated on
the date of grant using the Black-Scholes option-pricing model. The
weighted-average fair value of stock options and the assumptions used to
calculate weighted-average fair value are listed below for new grants during the
six months ended June 30, 2004. There were no new stock option grants during the
six months ended June 30, 2003.
7
Quarter Ended
June 30, 2004
--------------
Dividend yield............. 0.0%
Expected volatility........ 279.1%
Risk-free interest rate.... 3.45%
Expected lives............. 4 years
NOTE 4 - SUPPLEMENTAL BALANCE SHEET INFORMATION
Inventories consist of the following (in thousands):
June 30, December 31,
2004 2003
-------- --------
Finished goods........ $ 7,941 $ 8,957
Work-in-process....... 31,367 22,142
Raw materials......... 18,083 13,902
Chassis............... 6,468 6,658
-------- --------
Total inventories..... $ 63,859 $ 51,659
======== ========
Accrued expenses consist of the following (in thousands):
June 30, December 31,
Current accrued expenses: 2004 2003
-------- --------
Workers' compensation self-insurance reserve... $ 3,163 $ 3,561
Warranty reserve............................... 8,589 8,312
Payroll and other accrued expenses............. 11,914 8,897
-------- --------
Total current accrued expenses............... $ 23,666 $ 20,770
======== ========
Long-term accrued expenses:
Workers' compensation self-insurance reserve... $ 6,921 $ 6,499
Warranty reserve............................... 306 348
Deferred compensation.......................... 719 722
-------- --------
Total long-term accrued expenses............. $ 7,946 $ 7,569
======== ========
8
NOTE 5 - CREDIT FACILITY
The Company has an asset-based revolving credit facility of $15 million
with UPS Capital Corporation (UPSC). This credit facility expires August 2005.
The Company has reserved $0.3 million from the line-of-credit for one month's
rent on the CCI facility. The remaining $14.7 million is available for general
corporate working capital needs and capital expenditures. Amounts borrowed under
the revolving credit facility bear interest at the prime rate listed in the Wall
Street Journal plus 0.75 percentage points. The credit facility contains, among
other provisions, certain financial covenants, including net worth requirements.
At June 30, 2004, the Company had no outstanding loans under the line-of-credit
and the Company was not in default with any covenants of its loan agreement with
UPSC.
NOTE 6 - EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net earnings (loss)
by the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if
options were exercised or converted into common stock. Shares attributable to
the exercise of outstanding options that are anti-dilutive are excluded from the
calculation of diluted loss per share.
All amounts in thousands except per share amounts
Three Months Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
---- ---- ---- ----
Net income (loss)...................... $ 2,487 $ (3,402) $ 3,156 $ (8,128)
======== ======== ======= ========
Basic weighted average common shares
outstanding........................... 10,197 9,832 10,194 9,832
Effect of dilutive stock options....... 243 - 183 -
-------- -------- ------- --------
Diluted weighted average common shares
outstanding........................... 10,440 9,832 10,377 9,832
======== ======== ======= ========
Basic earnings (loss) per share........ $ 0.24 $ (0.35) $ 0.31 $ (0.83)
======== ======== ======= ========
Diluted earnings (loss) per share...... $ 0.24 $ (0.35) $ 0.30 $ (0.83)
======== ======== ======= ========
Excluded from the computation of diluted earnings per share are outstanding
common stock options with an exercise price greater than the average market
price of the common shares as of June 30, 2004 and June 30, 2003. For the
quarters ended June 30, 2004 and 2003, excluded from the computation of diluted
earnings per share were stock options to purchase 12,000 shares and 1,639,000
shares, respectively. Also for the six months ended June 30, 2004 and 2003,
excluded from the computation of diluted earnings per share were stock options
to purchase 227,000 shares and 1,538,000 shares, respectively.
9
NOTE 7 - COMMITMENTS AND GUARANTEES
As is customary in the industry, the Company generally agrees with its
dealers' lenders to repurchase any unsold RVs in certain circumstances. Although
the Company's maximum potential exposure under these agreements approximated
$111 million at June 30, 2004, as with accounts receivable, the risk of loss was
spread over numerous dealers and lenders and was further reduced by the resale
value of the RVs which the Company would be required to repurchase. Losses under
these agreements have not been material in the past and management does not
believe that any future losses under such agreements will have a material
adverse effect on the Company's consolidated financial position or results of
operations.
The Company's warranty reserve is established based on its best estimate of
the amounts necessary to settle future and existing claims on products sold as
of the balance sheet date. The Company records an estimate for future
warranty-related costs based on recent actual warranty claims. Also, the
Company's recall reserve is established, as necessary, based on management's
estimate of the cost per unit to remedy the problem and the estimated number of
units that will ultimately be brought in for the repair.
Six Months Ended June 30, 2004
Beginning Ending
Balance Additions Deductions Balance
--------- --------- ---------- -------
Warranty reserve June 30,2004.... $ 8,660 $ 6,389 $ 6,154 $ 8,895
======= ======= ======= =======
10
NATIONAL R.V. HOLDINGS, INC.
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Disclosure Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that forward-looking statements are inherently
uncertain. Actual performance and results may differ materially from that
projected or suggested herein due to certain risks and uncertainties including,
without limitation, potential fluctuations in the Company's operating results;
continuation of losses; seasonality and economic conditions; dependence on
certain dealers and concentration of dealers in certain regions; dependence on
chassis suppliers; potential liabilities under repurchase agreements;
competition; government regulation; warranty claims; and product liability.
Certain risks and uncertainties that could cause actual results to differ
materially from that projected or suggested are set forth in the Company's
filings with the Securities and Exchange Commission (the "SEC") and the
Company's public announcements, copies of which are available from the SEC or
from the Company upon request. The Company undertakes no obligation to revise or
update publicly any forward looking statements for any reason.
Overview
For the second quarter of 2004, the Company's net income increased to $2.5
million compared to a loss of $3.4 million for the same quarter last year. The
second quarter's earnings per diluted share were $0.24 compared to a loss per
diluted share of $0.35 for the second quarter of 2003. Net income for the six
months ended June 30, 2004 was $3.2 million or $0.30 per diluted share compared
to a loss in the same period of 2003 of $8.1 million or $0.83 per diluted share.
Net sales for the second quarter increased to $126.4 million from $73.5 million
for the second quarter of 2003, an increase of 72%, and a 14% increase over the
first quarter of 2004. The Company's improved results were driven by strong
demand for its products as well as progress made by the Company in its gross
margins. The Company's results for the first two quarters of 2004 have also
benefited from a healthy economy and strong industry demand.
Operating Performance
Continual effort to improve the safety of the workforce and decrease its
workers' compensation costs resulted in an approximate $0.6 million reduction in
workers' compensation costs for the second quarter of 2004 compared to the
second quarter of 2003. Continued reductions are part of the strategy throughout
2004 though workers' compensation costs continue to be a challenge in
California. The Company has undertaken significant safety programs to address
these costs and the Company is being more proactive in the handling of its
claims. In addition to these measures, which are helping considerably, the
Company believes that its workers' compensation costs should be further reduced
by recent state reforms.
Other factors leading to the improvement in gross profit margin percentage
from last year's second quarter include higher production levels, reduced
discounting and reduced warranty costs, partially offset by various items
including a change in product mix to include more products with lower margins.
Both National RV and Country Coach have increased production during the six
months-ended June 30, 2004. As the Company experiences better capacity
utilization, the Company should see additional improvement in gross margins
throughout 2004.
11
As new and revitalized products come on-line, the Company has seen a rise
in wholesale deliveries and an improvement in Class A retail market share, from
5.9% for the first five months of 2003 to 6.9% for the first five months of
2004. Stronger product offerings and the resulting increase in demand have
significantly reduced the need to discount the Company's products.
Looking Forward
Many of the same objectives the Company addressed last year remain in place
for the current year. Aggressive product development, cost containment, and
increased customer satisfaction are three of those objectives.
In the second quarter of 2004, Country Coach added to their 2005 model year
offerings with the debut of the completely re-designed Allure. The remaining
2005 offerings for Country Coach will be released in the third quarter. National
RV introduced most of its model year 2005 offerings during the second quarter of
2004.
Cost containment remains a high priority specifically in the warranty and
workers' compensation cost areas. The Company continues to focus on improving
the quality of its motorhomes resulting in decreased warranty costs. Also, the
Company has instituted a number of safety programs, which have already resulted
in measurably reduced workers' compensation costs. The Company expects further
progress in containing its costs as it continues to implement lean manufacturing
concepts.
The Company is continually striving to improve its customer support by
improving club support, telephone support for owners and dealers, and parts
fulfillment. The Company utilizes various techniques such as surveys and focus
groups to ensure that it is improving in the area of customer satisfaction.
Another key initiative is enhanced training programs for the Company's
workforce, service centers, dealers, and consumers. The Company has already
undertaken efforts in the areas of safety; with new distance learning
capabilities, the Company is looking forward to broadcasting its service
training programs directly to dealers and service providers, driving the
movement for increased customer satisfaction in areas of technical maintenance.
In addition, factory training programs are giving the Company's customers a
basis for self-diagnostics and a better understanding of the equipment they are
operating.
The outlook for the industry as a whole continues to be strong. The
Recreational Vehicle Industry Association's (RVIA) market expansion campaign, GO
RVing, is fostering greater awareness and garnering media attention.
Critical Accounting Policies
The Company's discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses for each period.
12
The following represents a summary of the Company's critical accounting
policies, defined as those policies that the Company believes are: i) the most
important to the portrayal of the Company's financial condition and results of
operations, and ii) that require the Company's most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effects of matters that are inherently uncertain.
Valuation of Long-Lived Assets. The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset might not be recoverable. If indicators of
impairment were present, the Company would evaluate the carrying value of
property and equipment, in relation to estimates of future undiscounted cash
flows of the underlying business, which are based on judgment and assumptions.
Warranty Reserve. The Company's warranty reserve is established based on
its best estimate of the amounts necessary to settle future and existing claims
on products sold as of the balance sheet date. The Company records an estimate
for future warranty-related costs based on recent actual warranty claims. Also,
the Company's recall reserve is established, as necessary, based on management's
estimate of the cost per unit to remedy the problem and the estimated number of
units that will ultimately be brought in for the repair. While the Company's
warranty costs have historically been within its expectations and the provisions
established, the Company cannot guarantee that it will continue to experience
the same warranty costs that it has in the past. A significant increase in
dealer shop rates, the cost of parts or the frequency of claims could have a
material adverse impact on the Company's operating results for the period or
periods in which such claims or additional costs materialize.
Revenue Recognition. The Company recognizes revenue in accordance with SEC
Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements,
or SAB 104. SAB 104 requires that four basic criteria must be met before revenue
can be recognized: i) persuasive evidence of an arrangement exists, ii) delivery
has occurred and title and the risks and rewards of ownership have been
transferred to the customer, iii) the price is fixed and determinable, and iv)
collectibility is reasonably assured. Assuming that all of the above criteria
were satisfied, motorhome and towables sales are recorded by the Company when
accepted by the dealer.
Legal Proceedings. The Company is currently involved in certain legal
proceedings and has accrued its estimate of the probable costs for the
resolution of these claims. This estimate has been developed in consultation
with counsel handling the Company's defense in these matters and is based upon
an analysis of potential results, assuming a combination of litigation and
settlement strategies.
Deferred Tax Asset. As of June 30, 2004, the Company had a deferred tax
asset of $11.8 million which includes the tax benefit of operating loss
carryforwards of $7.1 million. Realization is dependent on generating sufficient
taxable income prior to expiration of the loss carryforwards. Although
realization is not assured, management believes it is more likely than not that
all of the deferred tax asset will be realized. The amount of the deferred tax
asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
Valuation of Inventory. Inventory is valued at the lower of cost (estimated
using the first-in, first-out method) or market. The Company periodically
evaluates the carrying value of inventories and maintains an allowance for
excess and obsolescence to adjust the carrying value as necessary to the lower
of cost or market or to amounts on hand to meet expected demand in the near
term. Unfavorable changes in estimates of obsolete inventory would result in an
increase in the allowance and a decrease in gross profit.
13
Workers' Compensation Reserve. The Company's workers' compensation reserve
is established based on its best estimate of the amounts necessary to settle
future and existing employee workers' compensation claims as of the balance
sheet date. The Company records an estimate for future workers' compensation
related costs based on historical workers' compensation claims paid. Even though
the Company's workers' compensation costs have been growing during the past
several years these costs have declined in 2004 and, the Company cannot provide
assurance that these costs will continue at these levels, increase or decrease,
in the near term. A significant change in California workers' compensation
legislation, the cost of claims or the frequency of claims could have a material
adverse impact on the Company's operating results for the period or periods in
which such claims or additional costs materialize.
Liquidity and Capital Resources
The Company's primary sources of liquidity are internally generated cash
from operations and available borrowings under its credit facility. At June 30,
2004, the Company had working capital of $54.8 million compared to $49.7 million
at December 31, 2003. This increase of $5.1 million was primarily due to a $12.2
million increase in inventory and a $10.2 million increase in accounts
receivable, partially offset by a $13.0 million increase in accounts payable and
a $2.9 million increase in current accrued expenses. Both the increase in
accounts payable and the increase in inventory are due to the Company's
purchasing and production increases to meet the market demand for its products.
During the first six months of 2004, the Company used cash in its operations of
$1.4 million, compared to $9.9 million of cash provided by its operations during
the first six months of 2003.
Net cash used in investing activities was $0.4 million for the six months
ended June 30, 2004. This is primarily comprised of $2.4 million in purchases of
property, plant, and equipment, partially offset by proceeds of $1.9 million
from the sale of real property in Florida.
Net cash provided by financing activities was $82,000 for the six months
ended June 30, 2004. This represents proceeds from the exercise of stock
options, partially offset by principal payments on long-term debt.
The Company's consolidated financial statements have been presented on the
basis that it will continue as a going-concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has suffered net losses of $8.3 million, $21.4 million
and $11.5 million for the years ended December 31, 2003, 2002 and 2001,
respectively. For the year ended December 31, 2003, the Company provided cash
from operating activities totaling $7.2 million and used cash in operating
activities of $4.4 million and $12.6 million for the years ended December 31,
2002 and 2001, respectively.
The Company has funded its financial needs primarily through operations and
its existing line of credit. At June 30, 2004, the Company had cash and cash
equivalents of $0.4 million (excluding restricted cash totaling $0.3 million
dollars required to secure a letter-of-credit in connection with one of the
Company's insurance policies), working capital of $54.8 million, and $14.7
million available under the credit facility. The Company remains dependent upon
its ability to obtain outside financing either through the issuance of
additional shares of its common stock or through borrowings until it achieves
sustained profitability through a combination of increased sales and improved
product margins.
14
The Company has an asset-based revolving credit facility of $15 million
with UPS Capital Corporation (UPSC). This credit facility expires August 2005.
The Company has reserved $0.3 million from the line-of-credit for one month's
rent on the CCI facility. The remaining $14.7 million is available for general
corporate working capital needs and capital expenditures. Amounts borrowed under
the revolving credit facility bear interest at the prime rate listed in the Wall
Street Journal plus 0.75 percentage points. The credit facility contains, among
other provisions, certain financial covenants, including net worth requirements.
At June 30, 2004, the Company had no outstanding advances under the
line-of-credit and the Company was not in default with any covenants of its loan
agreement with UPSC.
Management is focused on continuing to improve liquidity through certain
initiatives throughout 2004 including: i) further reduction of warranty costs,
ii) increased facility utilization and iii) a reduction of workers' compensation
costs.
The Company believes the combination of internally generated funds, working
capital, and unused borrowing availability will be sufficient to meet the
Company's planned capital and operational requirements for at least the next 12
months. Should the Company require further capital resources during the next 12
months, it would most likely address such requirements through a combination of
sales of equity securities, sales of excess properties, and/or additional debt
financings. If circumstances changed, and additional capital was needed, no
assurance can be given that the Company would be able to obtain such additional
capital resources.
If unexpected events occur requiring the Company to obtain additional
capital and it is unable to do so, it then might attempt to preserve its
available resources by deferring the creation or satisfaction of various
commitments, deferring the introduction of various products or entry into
various markets, or otherwise scaling back its operations. If the Company were
unable to raise such additional capital or defer certain costs as described
above, such inability would have an adverse effect on the financial position,
results of operations, cash flows and prospects of the Company.
Results of Operations
The following table sets forth for the periods indicated the percentage of
net sales represented by certain items reflected in the Company's Consolidated
Statements of Operations:
As a percentage of net sales
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2004 2003 2004 2003
---- ---- ---- ----
Net sales............................... 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold...................... 91.6 100.6 92.4 101.7
----- ----- ----- -----
Gross profit (loss)................... 8.4 (0.6) 7.6 (1.7)
Selling expenses........................ 2.5 4.0 2.9 4.0
General and administrative expenses..... 2.6 2.6 2.5 2.7
----- ----- ----- -----
Operating income (loss)............... 3.3 (7.2) 2.2 (8.4)
Interest expense........................ 0.0 0.1 0.0 0.1
Other expense (income).................. 0.0 (0.0) (0.0) (0.0)
----- ----- ----- -----
Income (loss) before income taxes..... 3.3 (7.3) 2.2 (8.5)
Provision (benefit) for income taxes.... 1.3 (2.7) 0.9 (3.1)
----- ----- ----- -----
Net income (loss)..................... 2.0 % (4.6)% 1.3 % (5.4)%
===== ===== ===== =====
15
Three and Six Months Ended June 30, 2004 Compared to the Three and Six Months
Ended June 30, 2003
(Amounts in tables are in thousands, except percentages)
Net sales
Three Months Six Months
Ended June 30, Ended June 30,
Percent Change Percent Change
---------------------- ------------------------
2004 2003 2004 2003
---- ---- ---- ----
Net sales................... $126,408 72.1% $73,471 $236,846 56.3% $151,572
as a percent of net sales... 100.0% 100.0% 100.0% 100.0%
Net sales of $126.4 million for the quarter ended June 30, 2004 represent
an increase of $52.9 million or 72.1% from the same quarter last year. Second
quarter wholesale unit shipments of diesel motorhomes were 443, up 103% from 218
units during the same period last year. Quarterly shipments of gas motorhomes
were 369, up 26% from 293 units during the same period last year. Quarterly
shipments of towable products were 314, down 34% from 475 units last year.
Net sales of $236.8 million for the six months ended June 30, 2004
represent an increase of $85.3 million or 56.3% from the same period last year.
Wholesale unit shipments of diesel motorhomes were 736, up 62% from 455 units
during the same period last year. Wholesale unit shipments of gas motorhomes
were 868, up 39% from 625 units during the same period last year. Wholesale unit
shipments of towable products were 629, down 27% from 865 units during the first
six months of 2003.
Revenues in the quarter for National RV were $69.4 million, up 41% from
$49.1 million for the second quarter of last year. Revenues in the quarter for
Country Coach were $57.0 million, up 135% from $24.3 million for the second
quarter of last year. Revenues during the first six months for National RV were
$132.8 million, up 31% from $101.7 million during the first six months of 2003.
Revenues during the first six months for Country Coach were $104.0 million, up
108% from $49.9 million during the first six months of 2003. The increase in net
sales is mainly attributable to strong sales of National RV's Tropi-Cal which
was first introduced in the first quarter of 2003 and of Country Coach's Inspire
which was introduced in the second quarter of 2003, as well as an overall
increase in the demand for the Company's other products. The Company also
benefited from a healthy economy and strong industry demand.
Gross profit margin
Three Months Six Months
Ended June 30, Ended June 30,
Percent Change Percent Change
---------------------- ------------------------
2004 2003 2004 2003
---- ---- ---- ----
Gross profit margin......... 8.4 % N/A (0.6) % 7.6 % N/A (1.7) %
The gross profit margin for the second quarter of 2004 was 8.4% compared to
a (0.6)% gross margin for the same period last year. For the first six months of
2004, the gross profit margin was 7.6% compared to a (1.7)% gross profit margin
for the same period last year. The primary factors that led to such improved
gross margins were higher production levels, reduced discounting, product price
increases, reduced workers' compensation costs, and reduced warranty costs,
partially offset by various items including a change in product mix to include
more products with lower margins.
16
Selling expenses
Three Months Six Months
Ended June 30, Ended June 30,
Percent Change Percent Change
---------------------- ------------------------
2004 2003 2004 2003
---- ---- ---- ----
Selling expenses............ 3,262 10.5% 2,952 6,883 13.1% 6,085
as a percent of net sales... 2.5% 4.0% 2.9% 4.0%
Selling expenses increased $0.3 million or 10.5% for the three months ended
June 30, 2004 over the same period last year. Selling expenses for the six
months ended June 30, 2004 increased $0.8 million or 13.1% over the same period
last year. Sales costs increased mainly due to increased sales commissions
resulting from higher sales. However, as a percentage of net sales, selling
expenses decreased due higher sales over which to spread the fixed selling
expenses.
General and administrative expenses
Three Months Six Months
Ended June 30, Ended June 30,
Percent Change Percent Change
---------------------- ------------------------
2004 2003 2004 2003
---- ---- ---- ----
General and administrative
expenses................... 3,286 67.8% 1,958 5,873 44.1% 4,077
as a percent of net sales... 2.6% 2.6% 2.5% 2.7%
General and administrative expenses totaling $3.3 million for the quarter
ended June 30, 2004 were up $1.3 million compared to the same period last year.
For the first six months of 2004, general and administrative expenses were $5.9
million, representing an increase of $1.8 million compared to the same period
last year. The increase in general and administrative expenses is due to the
accrual of a new employee incentive program, as well as increased expenses
related to compliance with the Sarbanes-Oxley Act, increased information
technology personnel expenses, and increased training (safety and other)
expenses.
17
Interest expense
Three Months Six Months
Ended June 30, Ended June 30,
Percent Change Percent Change
---------------------- ------------------------
2004 2003 2004 2003
---- ---- ---- ----
Interest expense............ 16 (72.4)% 58 78 (65.2)% 224
as a percent of net sales... 0.0% 0.1% 0.0% 0.1%
Interest expense for the three months ended June 30, 2004 and 2003 was
$0.02 million and $0.1 million, respectively. For the first six months of 2004,
interest expense was $0.1 million compared to $0.2 million for the same period
last year. The reduction in interest expense is attributable to a reduction in
the use of the $15 million line of credit when comparing the second quarter of
2004 to the same period last year. As a percentage of net sales, interest
expense for these periods was immaterial.
Other expense (income)
Three Months Six Months
Ended June 30, Ended June 30,
Percent Change Percent Change
---------------------- ------------------------
2004 2003 2004 2003
---- ---- ---- ----
Other expense (income)...... 1 N/A (3) (47) N/A (5)
as a percent of net sales... 0.0% (0.0)% (0.0)% (0.0)%
Other expense and income for the second quarter of 2004 and 2003 was
immaterial. Other income for the six months ended June 30, 2004 was mainly the
gain on the sale of real property in Florida, with the remaining amount
comprised of interest income earned on cash in the Company's bank account. As a
percentage of net sales, the amount is immaterial.
18
Provision (benefit) for income taxes
Three Months Six Months
Ended June 30, Ended June 30,
Percent Change Percent Change
---------------------- ------------------------
2004 2003 2004 2003
---- ---- ---- ----
Provision (benefit) for
income taxes................ 1,618 N/A (1,999) 2,014 N/A (4,775)
as a percent of net sales... 1.3% (2.7)% 0.9% (3.1)%
The effective tax rate for the three and six months ending June 30, 2004
was 39.4% and 39.0% respectively, compared to 37.0% for the same periods last
year. The increase in the effective tax rate for the three and six months ending
June 30, 2004 was the result of a higher Federal tax rate, related to projected
increases in annual pre-tax profit, and increased state tax rates and
obligations.
19
NATIONAL R.V. HOLDINGS, INC.
PART I, ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no significant financial instruments. The Company has not
entered into any derivative financial instruments. The Company does not have any
significant foreign currency exposure because it does not transact business in
foreign currencies. However, the Company is exposed to market risk as a result
of interest rate changes (Interest Rate Risk). Interest rate risk relates
primarily to cash investments in money market funds. Cash balances invested in
these funds are insignificant and consequently, interest rate risk is minimal.
20
NATIONAL R.V. HOLDINGS, INC.
PART I, ITEM 4 - CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's reports
under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to the Company's management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure based closely on the definition of "disclosure controls and
procedures" in Exchange Act Rule 13a-15(e) and 15d-15(e). In designing and
evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives.
As of the end of the quarter covered by this Report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and the
Company's Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on the
foregoing, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures were effective.
There have been no changes in the Company's internal controls over
financial reporting during the fiscal quarter covered by this report that have
materially affected, or are reasonably likely to materially affect, the
Company's internal controls over financial reporting.
21
NATIONAL R.V. HOLDINGS, INC.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 21, 2004, the Company held its 2004 Annual Meeting of Stockholders
(the "Annual Meeting"). The matters voted upon at the Annual Meeting and the
votes cast for such matters were as follows:
1. The Company's stockholders elected Robert B. Lee and Gregory McCaffery
as Class II directors. Voting for the nominees was as follows: Robert
B. Lee; 8,993,333 shares FOR and 1,024,490 shares WITHHELD; and
Gregory McCaffery; 9,278,833 shares FOR and 738,990 shares WITHHELD.
The Company's other continuing Directors are: Doy B. Henley, Bradley
C. Albrechtsen and James B. Roszak.
2. The Company's stockholders approved the appointment of
PricewaterhouseCoopers LLP as the Company's auditor for the current
fiscal year. For the appointment of PricewaterhouseCoopers LLP as the
Company's auditor, the vote was 9,292,183 shares FOR; 722,740 shares
AGAINST and 2,900 shares ABSTAINING.
22
NATIONAL R.V. HOLDINGS, INC.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Exchange Act.
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Exchange Act.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
B. Form 8-K
(1) On April 27, 2004, the Company filed a Current Report on Form 8-K
dated April 27, 2004 furnishing under Item 12 the Company's
financial results for the first quarter of 2004.
(2) On May 17, 2004, the Company filed a Current Report on Form 8-K
dated May 13, 2004 disclosing under Item 5 Other Events, that
Joseph W. Hansen was appointed the Company's new Chief Financial
Officer and that Thomas J. Martini was appointed the Company's
new Corporate Treasurer. Both positions were previously held by
Mark D. Andersen who was recently promoted to Executive Vice
President of the Company's Country Coach subsidiary.
23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL R.V. HOLDINGS, INC.
(Registrant)
Date: August 06, 2004 By /s/ JOSEPH W. HANSEN, Esq.
Joseph W. Hansen
Chief Financial Officer
(Principal Accounting and
Financial Officer)
24