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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED) OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the year ended December 31, 1997
Commission file number 0-22268
NATIONAL R.V. HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware No. 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
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share NASDAQ
(Title of class) (Name of each Exchange on which registered)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value (based upon the closing sale price) of the voting stock
held by nonaffiliated stockholders of Registrant as of March 18, 1998 was
approximately $129,985,192.
The number of shares outstanding of the Registrant's common stock, as of March
18, 1998, was 6,490,639.
Documents Incorporated by Reference: Part III incorporates by reference portions
of the National R.V. Holdings, Inc. Proxy Statement for the 1998 Annual Meeting
of Stockholders.
PART I
Item 1. Business of the Registrant
General
National R.V. Holdings, Inc. (the "Company") is one of the nation's
leading manufacturers of Class A motorhomes. Through its National R.V., Inc
("NRV") subsidiary, the Company designs, manufactures and markets Class A
motorhomes and fifth-wheel travel trailers under brand names including Dolphin,
Sea Breeze, Tropi-Cal, Tradewinds, and Sea View. Through its Country Coach, Inc.
("CCI") subsidiary, the Company designs, manufactures and markets high-end
(Highline) Class A motorhomes and bus conversions under brand names including
Concept, Affinity, Magna, Intrigue and Allure. The Company, which began
manufacturing recreational vehicles ("RVs") in 1964, is the fifth largest
domestic manufacturer of Class A motorhomes and sells its motorhomes through a
network of 183 dealer locations in 39 states, Canada and Europe.
The Company was incorporated in Delaware in 1988. NRV was incorporated
in California in 1970 and its predecessor was organized in 1964. In May 1989,
affiliates of Siegler, Collery & Co., a New York-based investment firm ("Siegler
Collery"), through the Company, acquired all of the common stock of NRV. CCI was
incorporated in Oregon in 1973. In November 1996, the Company acquired all the
common stock of CCI. As used herein, the term "Company" refers to National R.V.
Holdings, Inc., NRV and CCI unless the context otherwise requires.
The Company's headquarters are located at 3411 N. Perris Blvd.,
Perris, California 92571, and its telephone number is (909) 943-6007.
Recreational Vehicle Industry Overview
Products
Based upon standards established by the Recreational Vehicle Industry
Association (the "RVIA"), RVs are commonly classified into three main
categories: (i) motorhomes, composed of Class A, B and C types; (ii) towables,
composed of fifth-wheel travel trailers, conventional travel trailers, truck
campers and folding camping trailers, and (iii) van conversions.
Motorhomes. Motorhomes are self-powered RVs built on a motor vehicle
chassis. The interior typically includes a driver's area and kitchen, bathroom,
dining and sleeping areas. Motorhomes are self-contained, with their own power
generation, heating, cooking, refrigeration, sewage holding and water storage
facilities, so that they can belived in without being attached to utilities.
Motorhomes are generally categorized into A, B and C classes. Class A motorhomes
are constructed on a medium-duty truck chassis, which includes the engine, drive
train and other operating components. Retail prices for Class A motorhomes
generally range from $40,000 to $150,000. Highline motorhomes, which are a
subset of Class A motorhomes, generally range in retail price from $160,000 to
$1,000,000. Class C motorhomes are built on a van or pick-up truck chassis,
which includes an engine, drive-train components and a finished cab section, and
generally range in retail price from $40,000 to $70,000. Class B motorhomes are
van campers, which generally contain fewer features than Class A or Class C
motorhomes.
Towables. Towables are non-motorized RVs. Fifth-wheel travel trailers,
similar to motorhomes in features and use, are constructed with a raised forward
section that attaches to the bed of a pick-up truck. This allows a bi-level
floor plan and generally more living space than conventional travel trailers.
Fifth-wheel travel trailers are typically less expensive than motorhomes and
range in retail price from $15,000 to $80,000. Conventional travel trailers are
similar to fifth-wheel travel trailers but do not have the raised forward
section. Truck campers have many of the amenities found on travel trailers and
slide into the bed of a pickup truck. Folding camping trailers contain fewer
features than other towables and are constructed with collapsible "tent"
sidewalls which fold for easy towing.
Van Conversions. Van conversions are automotive vans converted by van
upfitters to include such features as entertainment centers, comfortable
seating, window treatments and lighting.
Trends and Demographics
According to the RVIA's wholesale statistics, RV unit sales (excluding
van conversions) in 1997 increased 2.8% to 254,500 from 247,500 in 1996. The
aggregate wholesale value of these 1997 shipments was $5.5 billion, with Class A
motorhomes comprising $2.6 billion or 47.7% of the total and fifth-wheel travel
trailers comprising $1.0 billion or 17.8% of the total. Unit shipments of Class
A motorhomes in 1997 increased 3.0% to 37,600 from 36,500 in 1996. The average
wholesale price of Class A motorhomes increased in 1997 to $69,925 from $63,172
in 1996. Unit shipments of fifth-wheel travel trailers increased in 1997 8.9% to
52,800 from 48,500 in 1996. The average wholesale price of fifth-wheel travel
trailers increased in 1997 2.3% to $18,558 from $18,138 in 1996.
While overall unit shipments have increased over the past five years,
the RV industry's manufacturing base has undergone a consolidation. Between 1992
and 1997, the number of Class A motorhome manufacturers declined from 45 to 24.
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In addition, during this period, the aggregate retail market share of the ten
largest Class A motorhome manufacturers increased from 82.5% to 93.0%.
RVs are purchased for a variety of purposes, including camping,
visiting family and friends, sightseeing, vacationing and enjoying outdoor
activities and sporting events. According to a University of Michigan study,
approximately 8.2 million households (or 9.6% of all households) in the United
States owned RVs in 1993, up from 7.7 million households in 1988 and 5.8 million
households in 1980. In addition, the study indicated that 68% of all current RV
owners and 43% of all former RV owners plan to purchase another RV in the
future. This study further indicated that 75% of RVs purchased are used (RVIA
and market share statistics reflect new product sales only) with more than 29%
of these used RVs older than 15 years. The eventual scrappage of these older
units is expected to result in an increasing proportion of new product sales
over the next ten years.
Ownership of RVs reaches its highest level among those Americans aged
55 to 64, with 16.0% of households in this category owning RVs. The number of
Americans in this group, which constitutes the Company's primary target market,
is projected to grow 38.7% from 1996 to 2005 as compared to 7.8% for the overall
population. Baby Boomers are defined as those born between the years 1946 and
1964, and thus the leading edge of the Baby Boomer generation began turning 50
in 1996. This generation is expected to be more affluent and retire earlier than
past generations. As Baby Boomers enter and travel through the important 50 to
65 age group for RV sales, they represent the potential for a secular uptrend in
the RV industry.
As motorhomes have increased in popularity due, in part, to the entry
of the Baby Boomer generation into the target market, the purchasers of these
products have grown more sophisticated in their tastes. The Company believes
that as a result, customers have demanded more value for their money, and brand
recognition and loyalty have become increasingly important. These trends have
favored companies that can deliver quality, value and reliability on a sustained
basis.
Business Development and Strategy
The Company's business development and operating strategy is to deliver
high quality, innovative products that offer superior value to enhance the
Company's position as one of the nation's leading manufacturers of RVs. This
strategy focuses on the following key elements: (i) building upon and exploiting
recognition of the Company's brand names; (ii) offering the highest value
products at multiple price points to appeal to first time and repeat buyers;
(iii) expanding its manufacturing capacity and continuing to utilize vertically
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integrated manufacturing processes; (iv) capitalizing on the Company's
reputation to expand its presence in the Highline market; and (v) identifying
and acquiring related businesses serving niche markets.
Building upon and Exploiting Recognition of the Company's Brand Names.
The Company believes that its brand names and reputation for manufacturing
quality products with excellent value have fostered strong consumer awareness of
the Company's products and have contributed to the growth of its net sales and
market share. The Company intends to capitalize on its brand name recognition in
order to increase its sales and market share, facilitate the introduction of new
products and enhance its dealer network.
Offering the Highest Value Products at Multiple Price Points to Appeal
to First Time and Repeat Buyers. The Company currently offers ten distinct lines
of RVs, which are available in a variety of lengths, floorplans, color schemes
and interior designs and range in suggested retail price from $40,000 to
$1,000,000. Each model is intended to attract customers seeking an RV within
their price range by offering value superior to competitive products from other
manufacturers. RVIA data indicates that most motorhome purchasers have
previously owned a recreational vehicle, and the Company's models are positioned
to address the demands of these repeat customers as well as first time buyers.
Expanded Manufacturing Capacity and Vertically Integrated Manufacturing
Processes. The Company has expanded its manufacturing facilities in order to
increase its production flexibility and substantially increase overall
production volume to meet demand and anticipated growth. The Company designs and
manufactures a significant number of the components used in the assembly of its
products, rather than purchasing them from third parties. The Company believes
that its vertically integrated manufacturing processes allow it to achieve cost
savings and better quality control. In addition, the Company's in-house research
and development staff and on-site component manufacturing departments enable the
Company to ensure a timely supply of necessary products and to respond rapidly
to market changes.
Capitalizing on the Company's Reputation to Expand its Presence in the
Highline Market. The Company's Country Coach product offerings focus exclusively
on the Highline segment of the Class A motorhome market. The Company has a
strong market share in the Highline segment. For the twelve months ended
December 31, 1997, the Company was the fourth largest manufacturer of Highline
motorhomes, with approximately 12.1% of this market, up from 9.3% in 1996. The
Company is actively seeking to expand its share of this market by capitalizing
on its established reputation, continuing to offer superior products and
expanding its production capacity in order to target the market's growing
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population and satisfy the desire of many current RV owners to purchase more
upscale vehicles.
Identifying and Acquiring Related Businesses Serving Niche Markets. As
illustrated by the Company's recent acquisition of Country Coach, the Company
plans to expand its business through the strategic acquisition of targeted
businesses in the RV industry and related areas. The Company will target
acquisitions which it believes will result in expansion of the Company's product
lines and/or enhancement of operating efficiencies.
Business
Products
The Company's product strategy is to offer the highest value RVs across
a wide range of retail prices to appeal to a broad range of potential customers
and to capture the business of brand-loyal repeat purchasers who tend to trade
up with each new purchase. The Company's National RV subsidiary currently
manufactures Class A motorhomes under its Dolphin, Sea Breeze, Tropi-Cal,
Tradewinds and Sea View brand names and a line of fifth-wheel travel trailers
under the Sea Breeze brand name. The Company's Country Coach subsidiary
currently manufactures Highline motorhomes under the Concept, Affinity, Magna,
Intrigue and Allure brand names and bus conversions under the Country Coach
Prevost Conversion brand name.
The Company's products are offered with a wide range of accessories and
options and manufactured with high-quality materials and components. Certain of
the Company's Highline motorhomes can be customized to a particular purchaser's
specifications. Each vehicle is equipped with a wide range of kitchen and
bathroom appliances, audio and video electronics, communication devices,
furniture, climate control systems and storage spaces.
Country Coach Prevost Conversion. The Country Coach Prevost Conversion
is a completely customized home on wheels, built on a diesel-powered bus chassis
and produced in 40 and 45 foot lengths. The Country Coach Prevost Conversion is
available in customized floorplans including a model featuring an expansive
slide-out room that adds 35 square feet of living area. Suggested retail prices
range from approximately $650,000 to $1,000,000. The Country Coach Prevost
Conversion was introduced in 1979.
Concept. The Concept is a wide-body bus-style motorhome, offering
virtually all the features and amenities of a bus conversion, including
customization and a diesel-powered chassis. Among its many features, the Concept
has a Pentium computer-driven digital dash featuring a Global Positioning System
(GPS). The Concept is available in three floorplans and is produced in 40 and 45
5
foot lengths. The Concept, as with all the Company's Highline motorhomes,
provides substantial under coach ("basement') storage in insulated, carpeted
storage bays. Suggested retail prices range from approximately $523,000 to
$552,000. The Concept was introduced in 1988.
Affinity. The Affinity is a wide-body bus-style motorhome, built on a
diesel powered chassis. The Affinity is a luxury model specially engineered for
a longer wheel base, shorter front and rear overhang and a lower center of
gravity. The Affinity is available in 48 floorplan combinations and is produced
in 38 and 40 foot lengths. Suggested retail prices range from approximately
$345,000 to $403,000. The Affinity was introduced in 1991.
Magna. The Magna is a wide-body, bus-style motorhome, built on a diesel
powered chassis. The Magna is available with a slide-out room feature that
expands the interior of the motorhome and adds approximately 32 square feet of
additional living space. The Magna is available in 36 floorplan combinations and
is produced in 36, 38 and 40 foot lengths. Suggested retail prices range from
approximately $270,000 to $290,000. The Magna was introduced in 1991.
Intrigue. The Intrigue is a wide-body bus-style motorhome built on the
DynoMax diesel-powered chassis built by CCI. The Intrigue is available in 20
floorplan combinations and is produced in 32, 36 and 40 foot lengths. One model
features an expansive slide-out room that adds 32 square feet of living area.
Suggested retail prices range from approximately $185,000 to $211,000. The
Intrigue was introduced in 1994.
Allure. The Allure is a wide-body bus-style motorhome built on the
DynoMax diesel-powered chassis built by CCI. The Allure is available in 15
floorplan combinations and is produced in 32, 36, and 40 foot lengths. One model
features an expansive slide-out room that adds 32 square feet of living area.
The Allure is positioned as the Company's entry-level Highline motorhome.
Suggested retail prices range from approximately $158,000 to $180,000. The
Allure was introduced in 1995.
Tradewinds. The Tradewinds is available in two floorplans on a diesel
powered chassis. These models are full-basement wide-body, bus-style motorhomes.
Both models have automatic slide-out features that expand the interior of the
motorhome and add approximately 36 square feet of additional living space. Both
models are produced in 36 foot lengths and are available with a choice of oak or
walnut interiors. Suggested retail prices range from $139,000 to $142,000.
Dolphin. The Dolphin is available in four floorplans on a gas-powered
chassis. These models are full-basement wide-body, bus-style motorhomes. Three
models have automatic slide-out features that expand the interior of the
motorhome and add approximately 36 square feet of additional living space. The
Dolphin models are produced in 33 to 36 foot lengths and have suggested retail
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prices that range from $78,000 to $92,000.
Tropi-Cal. The Tropi-Cal is a wide-body bus-style motorhome outfitted
similar to the Dolphin with certain distinct features, exterior styling and
floorplans. The Tropi-Cal is available in four floorplans on a gas-powered
chassis and produced in 33 to 36 foot lengths. Three models have an automatic
slide-out feature that expands the interior of the motorhome and adds
approximately 36 square feet of additional living space.
Suggested retail prices range from approximately $84,000 to $94,000.
Sea Breeze. The Sea Breeze is a moderately-priced, bus-style motorhome,
built on a gas-powered chassis. The Sea Breeze has lower exterior height,
offering partial basement storage. A premium model is produced under the
"Limited" name and has as standard features Corian countertops, power heated
side-view mirrors, deluxe trim and heated water and waste holding tanks. The Sea
Breeze is produced in 29, 31 and 33 foot lengths. Suggested retail prices range
from approximately $64,000 to $72,000. The Sea Breeze was introduced in May
1992.
Sea View. The Sea View is available in three floorplans on a
gas-powered chassis. These models are full-basement wide-body, bus-style
motorhomes. All three models have automatic slide-out features that expand the
interior of the motorhome and add approximately 36 square feet of additional
living space. The Sea View models are produced in 31 to 33 foot lengths and have
suggested retail prices that range from $77,000 to $78,000.
Sea Breeze Fifth-Wheel Travel Trailer. The Sea Breeze fifth-wheel
travel trailer comes in six floorplans equipped similar to a Sea Breeze
motorhome. All floorplans feature standard living room and bedroom slide-out
sections and are produced in 30 to 37 foot lengths. Suggested retail prices
range from $42,000 to $51,000.
Planned Product Introductions
During 1998, NRV will develop a 40 foot Highline galley slide motorhome
built on a Country Coach Dynomax chassis with a retail price of $200,000. A 38
foot Tropi-Cal will be developed with a galley slide-out and bedroom slide-out
and a retail price of $105,000. A 32 foot triple slide fifth-wheel travel
trailer will be developed with a retail price of $46,000.
During 1998, CCI will begin building all of its motorhomes on its
Dynomax chassis. Galley slide-outs, with a tested and proven exclusive Country
Coach design, will be available on all models.
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Distribution and Marketing
The Company markets NRV products through a network of 165 dealer
locations in 39 states, Canada and Europe. These dealers generally carry all or
a portion of NRV's product lines along with competitors' products. The Company
markets CCI products through 18 dealer locations. CCI utilizes a limited dealer
network for its Highline motorhomes due to the selling expertise required and
the tendency of Highline customers to make destination-type purchases. The
Company believes that each of the CCI dealers has significant experience with
top-of-the-line products and has demonstrated high standards for service.
The Company generally promotes its products through visits to dealers,
attendance at industry shows, direct mail promotions, corporate newsletters,
press releases, trade and consumer magazine advertising and RV owner rallies.
From time to time, the Company also offers dealer or consumer incentives. In
addition, to help promote customer satisfaction and brand loyalty, the Company
sponsors Dolphin and Country Coach International clubs for owners of the
Company's products. The clubs publish newsletters and magazines on a monthly or
quarterly basis and organize RV rallies and other activities. The Company
continually seeks consumer preference input from several sources, including
dealers, RV owners and the Company's sales representatives and, in response, the
Company implements changes in the design, decor and features of its products.
Substantially all of the Company's motorhome sales are made on terms
requiring payment within 15 days or less of the dealer's receipt of the unit.
Most dealers finance all, or substantially all, of the purchase price of their
inventory under "floor plan" arrangements with banks or finance companies under
which the lender pays the Company directly. Dealers typically are not required
to commence loan repayments to such lenders for a period of at least six months.
The loan is collateralized by a lien on the vehicle. Consistent with industry
practice, the Company has entered into repurchase agreements with these lenders.
In general, the repurchase agreements provide that the Company is required to
repurchase a unit after the unit is financed and if the "floor plan" lender has
repossessed the unit. Certain of these agreements limit the Company's liability
to 12 to 18 months after the date of invoice of the unit. At December 31, 1997,
the Company's contingent liability under these agreements was approximately
$74.5 million. The risk of loss under such agreements is spread over numerous
dealers and lenders and is further reduced by the resale value of the motorhomes
the Company would be required to repurchase. The Company's losses under these
agreements have not been material in the past.
Many finance companies and banks provide retail financing to
purchasers of RVs. Certain provisions of the U.S. tax laws applicable to second
residences, including the deductibility of mortgage interest and the deferral of
gain on a qualifying sale, currently apply to motorhomes and travel trailers
used as qualifying residences.
8
Manufacturing Facilities and Production
NRV owns and operates a 354,000 square foot manufacturing facility
located on approximately 30 acres in Perris, California. NRV owns another 13
acres of land to be used for future expansion. CCI leases and operates
manufacturing facilities totaling 386,000 square feet located on approximately
40 acres in Junction City, Oregon.
The Company's vehicles are built by integrating manufacturing and
assembly line processes. The Company has designed and built its own fabricating
and assembly equipment and molds for a substantial portion of its manufacturing
processes. The Company believes that its vertically integrated manufacturing
systems and processes which it has developed enable it to efficiently produce
high-quality products.
Among other items, the Company fabricates, molds and finishes
fiberglass to produce its front and rear-end components, manufactures its own
walls and roofs, assembles sub-floors and molds plastic components. In addition
to assembling its vehicles and installing various options and accessories, the
Company manufactures the majority of the installed amenities such as cabinetry,
draperies, showers and bathtubs. After purchasing the basic chair and sofa
frames, the Company also manufactures most of the furniture used in its
motorhomes. The Company believes that by manufacturing these components on site,
rather than purchasing them from third parties, the Company achieves cost
savings, better quality control and timely supply of necessary components.
Chassis, plumbing fixtures, floor coverings, hardware and appliances are
purchased in finished form from various suppliers. Due to California
environmental emission restrictions on the amount of fiberglass that the Company
can fabricate, third parties manufacture certain fiberglass parts using the
Company's molds.
The Company currently operates one production shift. Capacity
increases can be achieved by adding a second shift.
The Company purchases the principal raw materials and certain other
components used in the production of its RVs from third parties. Other than the
chassis, these components and raw materials typically have short delivery lead
times. With the exception of the chassis, these materials, including plywood,
lumber and plastic, are generally available from numerous sources, and the
Company has not experienced any significant shortages of raw materials or
components.
Product Development
The Company utilizes a combined research and development staff of 60
employees who concentrate on product development and enhancements. New ideas are
presented to the staff from management and are derived from a variety of
sources, including sales representatives, dealers and consumers. The staff
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utilizes computer-aided design equipment and techniques to assist in the
development of new products and floor plans and to analyze suggested
modifications of existing products and features. After the initial step of
development, prototype models for new products are constructed and refined. In
the case of modifications to certain features, new molds for various parts, such
as front-end caps and storage doors, are produced and tested. Upon completion
and acceptance of the prototypes, the new products or components are integrated
into the production process. The Company believes that the maintenance of an
in-house research and development staff enables the Company to respond rapidly
to ongoing shifts in consumer tastes and demands. Research and development
expenses were $2,711000 and $1,077,000 for the years ended December 31, 1997 and
1996, respectively, $423,000 for the seven months ended December 31, 1995, and
$780,000 for the fiscal year ended May 31, 1995.
Arrangements with Chassis Suppliers
NRV purchases chassis which are manufactured by Ford Motor Company and
the Chevrolet Motor Division of General Motors Corporation pursuant to
agreements with finance companies affiliated with such suppliers. NRV has a
finance agreement with Freightliner Custom Chassis Corporation for the purchase
of diesel pusher chassis. The chassis supplied by Freightliner Custom Chassis
Corporation is the only rear engine diesel-powered chassis used by NRV in its
motorhomes, although other manufacturers of rear engine diesel-powered chassis
exist. CCI purchases chassis from Gillig and, also manufactures its own chassis,
the DynoMax, which is used as the base upon which the Allure and Intrigue
motorhomes are built. The Company takes advantage of cash discounts, for payment
upon delivery, that are generally provided for in the agreements. Such financing
agreements generally provide that the Company must pay for a chassis in full
prior to making any alterations or additions to the chassis. The agreements
further provide that either party may terminate the agreement at any time. In
the event of such termination, the Company may incur certain financing and other
costs in order to maintain an adequate supply of chassis. The Company generally
maintains a one to two month production supply of a chassis in inventory. If any
of the Company's present chassis manufacturers were to cease manufacturing or
otherwise reduce the availability of their chassis, the business of the Company
could be adversely affected. The industry, as a whole, from time to time
experiences short-term shortages of chassis. During 1998, NRV expects to
experience a shortage of diesel powered chassis, used on its Tradewinds line,
due to a shortage of transmissions. NRV will be allocated 12 chassis per week
through the end of the second quarter. The shortage is expected to be resolved
by the end of the year and is not expected to have a material adverse impact on
the Company's results of operations.
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Backlog
The Company's backlog of motorhome orders was $98.4 million as of
February 28, 1998 and $59.9 million as of February 28, 1997. All backlog orders
are subject to cancellation. To the extent not canceled, the Company expects
that its backlog as of February 28, 1998 will be filled within 60 days of such
date.
Competition
The motorhome market is intensely competitive, with a number of other
manufacturers selling products which compete with those of the Company.
According to Statistical Surveys, Inc., the two leading manufacturers accounted
for approximately 45.0% and 44.3% of total retail units sold in the Class A
motorhome market during 1997 and 1996, respectively. These companies and certain
other competitors have substantially greater financial and other resources than
the Company. Sales of used motorhomes also compete with the Company's products.
The Company competes on the basis of value, quality, price and design. According
to Statistical Surveys, Inc., the Company's Class A retail market share of new
product sales has increased from 1.9% in 1992 to 3.4% in 1993, 4.0% in 1994,
4.2% in 1995, 6.1% in 1996, and 7.8% in 1997.
Regulation
The Company is subject to the provisions of the National Traffic and
Motor Vehicle Safety Act (the "Motor Vehicle Act") and the safety standards for
RVs and components which have been promulgated thereunder by the Department of
Transportation. The regulations that have been promulgated under the Motor
Vehicle Act permit the National Highway Traffic Safety Administration (the
"NHTSA") to require a manufacturer to remedy vehicles containing defects related
to motor vehicle safety or vehicles which fail to conform to all applicable
federal motor vehicle safety standards. The Motor Vehicle Act also provides for
the recall and repair of vehicles which contain certain hazards or defects. In
addition, the Company has from time to time instituted voluntary recalls of
certain motorhome units, none of which have had a material adverse effect on the
Company.
The Company relies upon certifications from chassis manufacturers with
respect to compliance of the Company's vehicles with all applicable emission
control standards. The RVIA, of which the Company is a member, has promulgated
stringent standards for quality and safety. Each of the units manufactured by
the Company has a RVIA seal placed upon it to certify that such standards have
been met.
Federal and state authorities have various environmental control
standards relating to air, water, noise pollution and hazardous waste generation
and disposal which affect the business and operations of the Company. California
environmental emission regulations limit the amount of fiberglass which the
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Company may fabricate. The Company believes that its facilities and products
comply in all material respects with applicable environmental regulations and
standards. The Company is also subject to the regulations promulgated by the
Occupational Safety and Health Administration ("OSHA"), which regulates
workplace health and safety. The Company's plant is periodically inspected by
representatives of OSHA and the RVIA.
Product Warranty
The Company provides retail purchasers of its motorhomes with a
limited warranty against defects in materials and workmanship, excluding the
chassis and certain specified components which are separately warranted by the
Company's suppliers. Service covered by warranty must be performed at either the
Company's in-house service facility or any of its dealers or other authorized
service centers. The warranty period covers the lesser of one year or 18,000
miles. The Company's warranty reserve was $4.0 million at December 31, 1997,
which the Company believes sufficient to cover warranty claims.
Trademarks
NRV's Dolphin, Tropi-Cal, Sea Breeze, Tradewinds, Sea View, Dura
Frame, and CCI's Affinity, Magna, Intrigue, Allure, and Great Room trademarks
are registered with the United States Patent and Trademark Office and are
material to the Company's business. The Company does not rely upon any material
patents or licenses in the conduct of its business.
Legal Proceedings and Insurance
From time to time, the Company is involved in certain litigation
arising out of its operations in the normal course of business. Accidents
involving personal injuries and property damage occur from time to time in the
use of RVs. The Company maintains product liability insurance in amounts deemed
adequate by management. To date, aggregate costs to the Company for product
liability actions have not been material. The Company believes that there are no
claims or litigation pending, the outcome of which could have a material adverse
effect on the financial position of the Company.
Employees
As of February 28, 1998, the Company employed a total of 1,740 people,
of which 1,597 were involved in manufacturing, 35 in administration, 60 in
research and development and 48 in sales and marketing. None of the Company's
personnel are represented by labor unions. The Company considers its relations
with its personnel to be good.
12
Item 2. Properties
NRV owns and operates a 354,000 square foot manufacturing facility
located on approximately 30 acres in Perris, California. NRV owns 13 acres of
land that will be used for future expansion. CCI leases and operates
manufacturing facilities totaling 386,000 square feet located on approximately
40 acres in Junction City, Oregon. The Company believes that present facilities
are well maintained and in good condition. The plants are currently operating at
approximately 60% capacity.
Item 3. Legal Proceedings
There are no material legal proceedings to which the Company is a
party.
Item 4. Submission of Matters to a Vote of Security Holders
None.
13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock, par value $.01 per share (the "Common
Stock"), has been quoted on the Nasdaq Stock Market's National Market (the
"Nasdaq National Market") under the symbol NRVH since September 30, 1993. Prior
to that time, there was no public market for the Common Stock. In April 1996,
the Company declared a 3-for-2 stock split paid on May 16, 1996. The following
table sets forth, for the calendar quarters indicated, the high and low sale
prices for the Common Stock as furnished by the Nasdaq National Market after
giving retroactive effect to such 3-for-2 stock dividend.
1997 High Low
First Quarter $ 15 $ 12 1/2
Second Quarter 16 1/8 11 1/2
Third Quarter 21 7/8 15 1/8
Fourth Quarter 34 1/8 19
1996 High Low
First Quarter $ 10 9/16 $ 6 11/16
Second Quarter 14 13/16 10 5/16
Third Quarter 15 8 5/8
Fourth Quarter 17 1/8 13 1/4
On March 18, 1998, the last reported sales price for the Common Stock
quoted on the Nasdaq National Market was $29.00 per share. As of March 18, 1998,
there were 79 record holders of Common Stock. Such number does not include
persons whose shares are held of record by a bank, brokerage house or clearing
agency, but does include such banks, brokerage houses and clearing agencies.
Dividends
The Company has not paid any cash dividends or distributions on its
Common Stock and has no intention to do so in the foreseeable future. The
Company presently intends to retain earnings for general corporate purposes,
including business expansion, capital expenditures and possible acquisitions.
The declaration and payment of future dividends will be at the sole discretion
of the Board of Directors and will depend on the Company's profitability,
financial condition, capital needs, future prospects and other factors deemed
relevant by the Board of Directors. The ability of the Company to declare and
pay dividends is restricted by the Revolving Credit Agreement, dated as of July
28, 1997, between the Company and Union Bank of California, N.A., which
prohibits the payment of dividends in cash or property unless the Company
satisfies certain financial tests set forth therein. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources."
14
Item 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except per share and unit amounts)
Seven Months
Years Ended Ended
December 31, December 31, Fiscal Years Ended May 31,
1997 1996 1995 1995 1995 1994 1993
Operations Data: (Unaudited)
Net sales $ 285,95$ 137,101$ 89,397 $ 53,062 $ 81,379 $ 71,749 $ 45,772
Cost of sales 245,763 118,643 78,089 46,864 70,459 62,115 40,514
------- ------- ------ ------ ------ ------ ------
Gross profit 40,188 18,458 11,308 6,198 10,920 9,634 5,258
Selling expenses 9,518 4,209 2,643 1,586 2,399 2,019 1,543
General and administrative expenses 5,649 2,899 2,455 1,233 2,243 1,706 1,504
Amortization of intangibles (1) 413 80 - - - 278 278
------- ------- ------ ------ ------ ------ ------
Operating income (loss) 24,608 11,270 6,210 3,379 6,278 5,631 1,933
Interest expense, net 222 111 3 (15) (8) 281 545
Other financing related costs 113 149 178 136 132 233 267
Gain on early extinguishment of debt - - - - - (226) -
(Gain) loss on sale of land and equipment - - - - (23) (1) 1
------- ------- ------ ------ ------ ------ ------
Income (loss) before income taxes and extraordinary item 24,273 11,010 6,029 3,258 6,177 5,344 1,120
Provision (benefit) for income taxes 9,767 4,405 2,387 1,324 2,443 2,212 207
------- ------- ------ ------ ------ ------ ------
Net income (loss) before extraordinary items 14,506 6,605 3,642 1,934 3,734 3,132 913
Loss on investment in marketable equity securities - - (958) - (958) - -
Gain on early extinguishment of debt - - 342 342 - - -
------- ------- ------ ------ ------ ------ ------
Net income (loss) $ 14,506$ 6,605$ 3,026 $ 2,276 $ 2,776 $ 3,132 $ 913
Basic earnings per common share:
Income before extraordinary items $ 2.32 $ 1.38 $ 0.77 $ 0.42 $ 0.77 $ 0.78 $ 0.41
Extraordinary items - - (0.13) 0.07 (0.20) - -
------- ------- ------ ------ ------ ------ ------
Net income $ 2.32 $ 1.38 $ 0.64 $ 0.49 $ 0.57 $ 0.78 $ 0.41
Diluted earnings per common share:
Income before extraordinary items $ 2.09 $ 1.26 $ 0.75 $ 0.40 $ 0.74 $ 0.77 $ 0.36
Extraordinary items - - (0.13) 0.07 (0.19) - -
------- ------- ------ ------ ------ ------ ------
Net income $ 2.09 $ 1.26 $ 0.62 $ 0.47 $ 0.55 $ 0.77 $ 0.36
Weighted average number of common shares outstanding:
Basic 6,243 4,793 4,713 4,610 4,860 4,004 2,252
Diluted 6,926 5,258 4,845 4,812 5,029 4,052 2,502
Other Data:
Class A units sold 3,039 2,042 1,504 905 1,476 1,413 851
Class C units sold (2) - - - - - 143 335
Fifth-Wheel Travel Trailers sold 258 210 299 132 217 - -
Balance Sheet Data:
Total assets (3) $ 87,204$ 68,050$ 34,308 $ 34,308 $ 41,592 $ 45,972 $ 37,416
Working capital 39,271 29,553 15,080 15,080 15,482 17,695 8,368
Long-term debt (4) 6,703 7,272 7,034 7,034 16,282 16,629 24,367
Stockholders' equity 60,958 45,532 18,625 18,625 18,389 19,585 2,338
15
(1) Reflects the amortization of the costs relating to the acquisition of
NRV by the Company, on May 26, 1989 (the "Acquisition") and goodwill
related to the acquisition of CCI on November 6, 1996, over five and
twenty years, respectively, from May 26, 1989. The Acquisition was
accounted for as a purchase transaction.
(2) The Company ceased manufacturing Class C motorhomes in January 1994
(3) Includes a $13.8 million restricted cash account funded by the Company
at the time of the Acquisition, which was reduced to $13.5 million at
the time of a restructuring effected in 1991, to secure $13.5 million
of notes (the "Secured Sellers' Notes") issued by the Company to the
sellers of NRV. The restricted cash was used to pay the notes in full
on September 1, 1995.
(4) Includes the Secured Sellers' Notes.
16
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This analysis of the Company's financial condition and operating
results should be viewed in conjunction with the accompanying financial
statements including the notes thereto.
General
On November 6, 1996, the Company acquired all shares of capital stock
of CCI through the issuance of 543,806 shares of Common Stock valued at $9.0
million. Net assets acquired included the assumption of $10.1 million of debt.
The purchase price exceeded the fair value of net assets acquired by $8,191,000,
recorded as goodwill and is being amortized over 20 years.
In December 1996, the Company completed a private placement of
900,000 shares of Common Stock resulting in $10.9 million of net proceeds to
the Company.
In 1995, the Company changed its fiscal year end from May 31 to
December 31.
17
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 Statement of Income:
Percentage of Net Sales
Seven Months Fiscal Year
Years Ended Ended Ended
December 31, December 31, May 31,
1997 1996 1995 1995 1995
(Unaudited)
Net sales 100.0 100.0 100.0 100.0 100.0
Cost of sales 86.0 86.5 87.4 88.3 86.6
----- ----- ----- ----- -----
Gross profit 14.0 13.5 12.6 11.7 13.4
Selling 3.3 3.1 3.0 3.0 2.9
General and administrative 2.0 2.1 2.7 2.3 2.8
Amortization of intangibles 0.1 0.1 - - -
----- ----- ----- ----- -----
Operating income 8.6 8.2 6.9 6.4 7.7
Interest expense, net 0.1 0.1 - - -
Other financing related costs 0.0 0.1 0.2 0.3 0.1
Gain on early extinguishment of debt - - - - -
----- ----- ----- ----- -----
Income before income taxes and extraordinary item 8.5 8.0 6.7 6.1 7.6
Provision for income taxes 3.4 3.2 2.7 2.5 3.0
----- ----- ----- ----- -----
Income before extraordinary item 5.1 4.8 4.0 3.6 4.6
Extraordinary loss on sale of marketable equity securities - - (1.1) - (1.2)
Extraordinary gain on early extinguishment of debt - - 0.4 0.7 -
----- ----- ----- ----- -----
Net income 5.1 4.8 3.3 4.3 3.4
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales in 1997 increased by $148.9 million, or 108.6%, from 1996.
This increase resulted primarily from a 431 unit sales increase at CCI, acquired
in November 1996, from 69 units in 1996 to 500 units in 1997. NRV's sales of
Class A motorhomes increased 565 units in 1997 to 2,539 units compared to 1,974
units in 1996, and the average sales price increased 17.7% reflecting strong
demand for higher-priced motorhomes with slide-out rooms. Sales of fifth-wheel
travel trailers increased 48 units in 1997 to 258 units compared to 210 units in
1996.
Cost of goods sold in 1997 increased by $127.1 million or 107.1% from
1996 resulting primarily from increased net sales. Gross profit margin was 14.0%
in 1997 compared to 13.5% in 1996. The increase resulted primarily from
manufacturing efficiencies realized from operating at a higher production level.
Selling expenses in 1997 increased by $5.3 million or 126.1% from 1996
primarily due to including a full year of expense at CCI compared to only two
18
months in 1996. Increases at NRV were due to commissions resulting from the
increase in net sales and increased promotional costs. As a percentage of net
sales, selling expenses increased to 3.3% in 1997 from 3.1% in 1996. CCI incurs
higher selling costs which is typical in the highline motorhome market.
General and administrative expenses in 1997 increased by $2.8 million
or 94.9% due to including a full year of expense at CCI compared to only two
months in 1996. As a percentage of net sales, general and administrative
expenses decreased to 2.0% in 1997 from 2.1% in 1996.
Amortization of intangibles increased $0.3 million in 1997 to $0.4
million from $0.1 million in 1996, with a full year of amortization expense from
the CCI acquisition compared to only two months in 1996.
As a result of the foregoing, operating income in 1997 increased by
$13.3 million, or 118.4%, to $24.6 million. As a percentage of net sales,
operating income increased to 8.6% in 1997 from 8.2% in 1996.
Other expenses, which includes net interest expense and other financing
related costs, increased by $75,000, or 28.8%, to $335,000 in 1997 from $260,000
in 1996.
As a result of the foregoing, income before income taxes in 1997
increased $13.3 million, or 120.5% from 1996 to $24.3 million. As a percentage
of net sales, income before income taxes increased to 8.5% from 8.0% in 1996.
Provision for income taxes in 1997 and 1996 was $9.8 million and $4.4
million, respectively, representing a $5.4 million increase. The effective tax
rate in 1997 was 40.2% compared to 40.0% in 1996.
As a result of the foregoing, net income increased $7.9 million, or
119.6%, to $14.5 million from $6.6 million in 1996. As a percentage of net
sales, net income increased to 5.1% from 4.8% in 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995(Unaudited)
Net sales in 1996 increased by $47.7 million, or 53.4% from 1995. This
increase resulted primarily from a 538 unit increase in the sales of the
Company's Class A motorhomes, offset somewhat by an 89 unit decrease in
Fifth-Wheel Travel Trailers. In addition, the net sales increase was due
partially to new model year unit price increases implemented in 1996. The
remaining increase resulted from a change in the product mix of its Class A
motorhomes, with the Company selling 587 more of its more expensive units with
the slide-out feature in 1996 than in 1995.
19
Cost of goods sold in 1996 increased by $40.6 million or 51.9% from
1995 resulting primarily from increased net sales. Gross profit margin was 13.5%
in 1996 compared to 12.6% in 1995. The increase resulted primarily from
manufacturing efficiencies realized from operating at a higher production level.
Selling expenses in 1996 increased by $1.6 million or 59.3% from 1995
primarily due to commissions resulting from the increase in net sales and
increases in promotional costs. As a percentage of net sales, selling expenses
increased to 3.1% in 1996 from 3.0% in 1995.
General and administrative expenses in 1996 increased by $0.4 million
or 18.1% from 1995. As a percentage of net sales, general and administrative
expenses decreased to 2.1% in 1996 from 2.7% in 1995.
Amortization of intangibles increased $80,000 in 1996 due to the CCI
acquisition.
As a result of the foregoing, operating income in 1996 increased by
$5.1 million, or 81.5%, to $11.3 million. As a percentage of net sales,
operating income increased to 8.2% in 1996 from 6.9% in 1995.
Other expenses, which includes net interest expense and other financing
related costs, increased by $79,000, or 43.6%, to $260,000 from $181,000 in
1995.
As a result of the foregoing, income before income taxes and
extraordinary items in 1996 increased $5.0 million, or 82.6% from 1995 to $11.0
million. As a percentage of net sales, income before income taxes and
extraordinary items increased to 8.0% from 6.7% in 1995.
Provision for income taxes in 1995 and 1996 was $2.4 million and $4.4
million, respectively, representing a $2.0 million increase. The effective tax
rate in 1996 was 40.0% compared to 39.6% in 1995.
As a result, income before extraordinary items increased $3.0 million,
or 81.4%, to $6.6 million from $3.6 million in 1995. As a percentage of net
sales, income before extraordinary items increased to 4.8% from 4.0% in 1995.
The Company incurred a $958,000 extraordinary loss on its investment in
marketable equity securities in 1995. In September 1995, the Company redeemed
$13,500,000 of outstanding promissory notes due January 15, 1998, resulting in
an after-tax gain of $342,000.
20
As a result, net income increased $3.6 million, or 118.3% to $6.6
million from $3.0 million in 1995. As a percentage of net sales, net income
increased to 4.8% from 3.3% in 1995.
Seven Months Ended December 31, 1995 Compared to Seven Months Ended December 31,
1994 (Unaudited)
On December 26, 1995, the Company changed its year end from May 31 to
December 31. Results of operations for the seven month periods ended December
31, 1995 and 1994 are not necessarily indicative of operating results expected
for a full (12 month) year.
Net sales for the seven months ended December 31, 1995 increased by
$8.0 million or 17.8% from the seven months ended December 31, 1994. This
increase resulted primarily from a 28 and 82 unit increase in the sales of the
Company's Class A motorhomes and fifth-wheel travel trailers, respectively. In
addition, the net sales increase was due partially to August 1995 unit price
increases on the Company's Class A motorhomes. The remaining increase resulted
from a change in the product mix of its Class A motorhomes, with the Company
selling a substantially higher proportion of its more expensive Dolphin
motorhome for the seven months ended December 31, 1995 than for the same period
last year.
Cost of goods sold for the seven months ended December 31, 1995
increased by $7.5 million or 19.1% from the seven months ended December 31, 1994
resulting primarily from increased net sales. Gross profit margin for the seven
months ended December 31, 1995 was 11.7% compared to 12.7% for the same period
last year. The decrease was due mainly to fiberglass rework that resulted from
overuse of molds when increasing the rate of production to handle the strong
demand for 1996 models. New molds have been made to handle the increased
production rate.
Selling expenses for the seven months ended December 31, 1995 increased
by $243,000 or 18.1% from the seven months ended December 31, 1994 primarily due
to commissions resulting from the increase in net sales and increases in
promotional costs. As a percentage of net sales, selling expenses were 3.0%
unchanged from the comparable period last year.
General and administrative expenses for the seven months ended December
31, 1995 increased by $313,000 or 34.0% from the seven months ended December 31,
1994 primarily due to the annual management bonuses falling in the month of
December, the end of the short period, rather than the normal month of May, the
last month in the fiscal year. As a percentage of net sales, general and
administrative expenses increased to 2.3% from 2.0% during the comparable period
last year.
21
As a result of the foregoing, operating income for the seven months
ended December 31, 1995 decreased by $67,000 or 1.9% from the seven months ended
December 31, 1994. As a percentage of net sales, operating income decreased to
6.4% from 7.7% during the comparable period last year.
Other expenses, which includes net interest expense and other financing
related costs, increased by $81,000, to $121,000 from $40,000 last year. The
increase was due mainly to lower earnings on invested funds as the $13.5 million
of restricted funds was used to retire the related obligations to previous
owners.
As a result of the foregoing, income before income taxes and
extraordinary item for the seven months ended December 31, 1995 decreased by
$148,000 or 4.3% from the seven months ended December 31, 1994. As a percentage
of net sales, income before income taxes and extraordinary item decreased to
6.1% from 7.6% during the comparable period last year.
Provision for income taxes for the seven months ended December 31, 1995
and 1994 was $1.3 million and $1.4 million, respectively. The effective tax rate
for the seven months ended December 31, 1995 and 1994 was 40.7% and 40.5%,
respectively.
As a result, income before extraordinary item decreased $92,000, or
4.5%, to $1.9 million for the seven months ended December 31, 1995 from $2.0
million for the comparable period last year. As a percentage of net sales,
income before extraordinary item decreased to 3.6% from 4.5% during the
comparable period last year.
On September 1, 1995, the Company redeemed $13,500,000 of outstanding
promissory notes due January 15, 1998, resulting in an after-tax gain of
$342,000. The promissory notes were issued to the previous owners of the
Company's wholly-owned operating subsidiary in connection with its acquisition
in 1989, and were collateralized by a $13,500,000 restricted cash account of the
Company. Funds from such restricted cash account were used for the redemption.
As a result, net income increased $250,000, or 12.3%, to $2.3 million
for the seven months ended December 31, 1995 from $2.0 million for the
comparable period last year. As a percentage of net sales, net income decreased
to 4.3% from 4.5% during the comparable period last year.
Liquidity and Capital Resources
During 1997, the Company financed its operations primarily through its
existing cash, income from operations and its credit facility. At December 31,
1997, the Company had working capital of $39.3 million compared to $29.6 million
at December 31, 1996. This increase of $9.7 million was primarily due to a $2.7
million increase in cash, $5.9 million increase in accounts receivable, and a
22
$3.5 million increase in inventory, partially offset by a $1.3 million increase
in accounts payable and $3.9 million increase in accrued expenses. The increase
in accrued expenses was due primarily to a $2.2 million increase in warranty
reserve resulting from increased unit sales, a revision in the computation of
the estimate for NRV, and additional reserve for the chassis produced at CCI.
Net cash provided by operating activities was $11.0 million for the year ended
December 31, 1997.
During the year ended December 31, 1997, net cash used in investing
activities was $8.5 million and includes $5.6 million of capital expenditures,
related primarily to the new building construction at NRV and building
refurbishing at CCI, and $2.7 million of expenditures related to the acquisition
of a limited partnership interest in Dune Jet Services, L.P., a Delaware limited
partnership formed for the purposes of acquiring and operating an airplane for
the partners' business uses and for third-party charter flights. The general
partner of the Partnership is Dune Jet Services, Inc., a Delaware corporation,
the sole stockholder of which is the Company's Chairman, Mr. Gary N. Siegler.
During the twelve months ended December 31, 1997, net cash provided by
financing activities was $0.2 million.
As of December 31, 1997, the Company had short-term debt of $0.6
million and long-term debt of $6.7 million. Short-term debt consisted of current
maturities of the Company's long-term debt. At December 31, 1997, long-term debt
consisted primarily of the Company's two industrial development revenue bond
issues. The first issue ($2.0 million original principal amount) was for the
1985 construction of the NRV facility. The second issue ($5.0 million original
principal amount) was used for the construction of a new 154,000 square foot
facility at NRV completed in 1997. In February 1998, the Company determined that
it had exceeded a capital expenditure limitation contained in the loan agreement
and certain related agreements governing the Company's 1995 industrial revenue
bond issue (the "Bond Agreements"), of which approximately $4,700,000 was
outstanding at December 31, 1997. As a result, the Bond Agreements require that
the Company prepay such debt in full at an amount equal to 100% of the principal
amount of such debt plus accrued interest. The Company has delivered the
prepayment notice required by the Bond Agreements and is scheduled to prepay
such debt in April 1998.
During 1997, the Company and its subsidiaries entered into two separate
revolving credit facilities aggregating $40 million with Union Bank of
California (the "Bank"). The Company's $20 million credit facility will be
available to finance potential acquisitions. The Company's two subsidiaries, NRV
and CCI, jointly entered into a separate $20 million credit facility which will
be available for general corporate and working capital needs and capital
expenditures. Amounts borrowed under the credit facilities will bear interest at
the Bank's prime rate or at a LIBOR-based rate. Both credit facilities are
secured by substantially all of the assets of the Company and its subsidiaries
23
and contain, among other provisions, certain financial covenants, including net
worth and debt covenants. At December 31, 1997, no amounts were outstanding
under these revolving credit facilities.
During the year ended December 31, 1997, the Company incurred capital
expenditures of $5.6 million related mainly to the completion of the new
facility at NRV and the refurbishing of a building at CCI, and equipment
required for each of these buildings. The Company anticipates that it will incur
capital expenditures of approximately $3.0 million in 1998.
The Company believes that the combination of internally generated
funds, existing capital and funds available from its existing credit facilities,
will be sufficient to meet the Company's planned capital and operational
requirements for at least the next 24 months.
Effects of Inflation
Management does not believe that inflation has had a significant impact
on the Company's results of operations for the periods presented.
Forward Looking Statements
This Form 10-K contains certain forward-looking statements which may
involve certain risks and uncertainties. The actual results may differ
materially from the results anticipated in these forward-looking statements as a
result of various risks and uncertainties. Potential risks and uncertainties
include but are not limited to such factors as the strength and competitive
pricing of the RV industry, changes in the availability and pricing of credit,
demand for and acceptance of the Company's products, the success of planned
marketing and promotional campaigns, and other risks identified in documents
filed by the Company with the Securities and Exchange Commission.
Item 8. Financial Statements and Supplementary Data
Financial information required by this item is attached to this report
beginning on page F-1 and is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable
24
PART III
Item 10. Directors and Officers of the Registrant.
The information required for this Item will be set forth in the
Company's definitive Proxy Statement for its 1998 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission not later than 120 days
after December 31, 1997, which information is incorporated herein by reference.
Item 11. Executive Compensation
The information required for this Item will be set forth in the
Company's definitive Proxy Statement for its 1998 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission not later than 120 days
after December 31, 1997, which information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required for this Item will be set forth in the
Company's definitive Proxy Statement for its 1998 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission not later than 120 days
after December 31, 1997, which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Party Transactions.
The information required for this Item will be set forth in the
Company's definitive Proxy Statement for its 1998 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission not later than 120 days
after December 31, 1997, which information is incorporated herein by reference.
25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.
(a) List of Documents filed as part of this Report
1. Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Operations for the twelve
months ended December 31, 1997 and 1996,
seven months ended December 31, 1995, and
the fiscal year ended May 31, 1995
Consolidated Statements of Cash Flows for the twelve
months ended December 31, 1997 and 1996,
seven months ended December 31, 1995, and
the fiscal year ended May 31, 1995
Consolidated Statements of Stockholders' Equity for the
twelve months ended December 31, 1997
and 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule VIII - Valuation and Qualifying Accounts
Schedule IX - Short-Term Borrowings
3. Exhibits
(b) Reports on Form 8-K:
None
Designation
of Exhibit Description of Exhibit
3.1 The Company's Restated Certificate of Incorporation. (2)
3.2 The Company's By-laws. (2)
26
4.1 Specimen-Certificate of Common Stock. (1)
10.1 Loan Agreement, dated as of December 1, 1985, between NRV
and The Industrial Development Authority of the County of
Riverside (the "Authority"). (1)
10.2 Security Agreement, dated as of December 1, 1985, by and among
NRV, the Authority and Union Bank. (1)
10.3 Pledge and Security Agreement, dated as of December 1, 1985,
between NRV and Union Bank. (1)
10.4 Employment Agreement, dated as of October 29, 1991, between NRV
and Wayne Mertes. (1)
10.5 Amendment to Employment Agreement, dated as of July 1, 1993,
between NRV and Wayne Mertes. (1)
10.6 Agreement, dated October 4, 1988, between NRV and
Ford Motor Company. (1)
10.7 Pool Company Wholesale Finance Plan Application for Wholesale
Financing and Security Agreement, dated June 26, 1990, between
NRV and Ford Motor Credit Company ("Ford Credit"). (1)
10.8 Continuing Guaranty of the Company for the benefit of Ford Credit. (1)
10.9 Inventory Loan and Security Agreement, dated October 14, 1988,
between NRV and General Motors Acceptance Corporation ("GMAC"). (1)
10.10 Amendment to Inventory Loan and Security Agreement, effective as of
November 19, 1991, between NRV and GMAC. (1)
10.11 Agreement, effective September 27, 1991, between NRV and Chevrolet
Motor Division, General Motors Corporation. (1)
10.12 National R.V. Holdings, Inc. 1993 Stock Option Plan. (1)
10.13 Stock Purchase Agreement, dated as of October 11, 1991, by and
among the Company, Wayne Mertes and Michael Butler. (1)
10.14 National R.V. Holdings, Inc. 1993 Option Plan. (2)
10.15 Second Amendment to Employment Agreement, dated May 23, 1993, between
the Company and Wayne Mertes. (3)
10.16 First Amendment to Loan Agreement between Industrial Development
Authority of the County of Riverside and NRV dated February 1, 1995.(4)
10.17 First Amendment to Letter of Credit and Reimbursement Agreement
between NRV and Union Bank dated as of December 1, 1993. (4)
10.18 Ford Authorized Converter Pool Agreement dated June 12, 1990, between
NRV and Ford Motor Company. (4)
10.19 First Amendment to Ford Authorized Converter Pool Agreement between NRV
and Ford Motor Company effective July 1, 1990. (4)
10.20 Second Amendment to Ford Authorized Converter Pool Agreement between
NRV and Ford Motor Company dated June 30, 1994. (4)
10.21 Motor Home Manufacturers Incentive Agreement dated June 30, 1994,
between NRV and Chevrolet Motor Division, General Motors
Corporation. (4)
27
10.22 Addendum to Agreement for Wholesale Financing between NRV and ITT
Commercial Finance Corp. dated July 8, 1993. (4)
10.23 Loan Agreement, dated as of December 1, 1995, between NRV and
California Economic Development Financing Authority. (5)
10.24 Reimbursement Agreement, dated as of December 1, 1995, between NRV and
Union Bank. (5)
10.25 Remarketing agreement, dated as of December 1, 1995, between NRV and
Rauscher Pierce Refsnes, Inc. (5)
10.26 Tax Regulator Agreement, dated as of December 1, 1995, between NRV,
the California Economic Development Financing Authority, and First
Trust of California. (5)
10.27 Pledge and Security Agreement, dated as of December 1, 1995, between
NRV and Union Bank. (5)
10.28 Security Agreement, dated as of December 1, 1995, between NRV and Union
Bank. (5)
10.29 Second Construction Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing, dated as of December 1, 1995, between NRV
and Chicago Title Insurance Company. (5)
10.30 Second Amendment to Ford Authorized Converter Pool Agreement, effective
August 14, 1995 between the NRV and Ford Motor Company. (5)
10.31 1995 Stock Option Plan. (5)
10.32 Payment terms with Freightliner Custom Chassis Corporation. (5)
10.33 Third Amendment to Employment Agreement, dated October 31,1996, between
the Company and Wayne M. Mertes. (7)
10.34 Rights Plan Agreement with Continental Stock Transfer & Trust
Company. (6)
10.35 Employment Agreement dated November 6, 1996, between CCI and Robert B.
Lee. (7)
10.36 1996 Stock Option Plan. (7)
10.37 Revolving Credit Agreement, dated as of July 28, 1997, between the
Company and Union Bank of California, N.A. (8)
10.38 Revolving Credit Agreement, dated as of July 28, 1997, among National
R.V., Inc. and Country Coach, Inc. and Union Bank of California,
N.A. (8)
10.39 Letter Agreement, dated January 23, 1998, between the Company and 712
Advisory Services, Inc.
10.40 1997 Stock Option Plan
10.41 Second Amended and Restated Agreement of Limited Partnership
Agreement of Dune Jet Services, L.P. dated as of July 9, 1997 between
Dune Jet Services, Inc. and the Company.
21.1 List of Subsidiaries.
99 Forward Looking Statements - Incorporated by reference from Form 10-Q
for the Quarter ended September 30, 1996.
- ---------------
28
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 filed on August 16, 1993 (File No. 33-67414) as amended by
Amendment No. 1 thereto filed on September 22, 1993 and Amendment No. 2
thereto filed on September 29, 1993.
(2) Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 filed on December 15, 1993 (File No. 33-72954).
(3) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 filed on June 7, 1994 (File No. 33-79900).
(4) Previously filed as an exhibit to the Company's Form 10-K for the
year ended May 31, 1995 filed on August 28, 1995.
(5) Previously filed as an exhibit to the Company's Form 10-K for the
seven months ended December 31, 1995 filed on March 27, 1996.
(6) Incorporated by reference from Form 8-A declared effective on
August 26, 1996.
(7) Incorporated by reference from the Company's Form 10-K for the year
ended December 31, 1996.
(8) Incorporated by reference from the Company's Form 10-Q for the nine
months ended September 30, 1997.
29
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, thereunto duly authorized.
NATIONAL R.V. HOLDINGS, INC.
Dated: March 27, 1998 By /s/ Wayne M. Mertes
---------------------
Wayne M. Mertes,
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Capacity in Which Signed Date
/s/ Gary N. Siegler Chairman of the Board March 27, 1998
- -----------------------
Gary N. Siegler
/s/ Wayne M. Mertes Chief Executive Officer March 27, 1998
- ----------------------- and Director (Principal
Wayne M. Mertes Executive Officer)
/s/ Robert B. Lee Director March 27, 1998
- -----------------------
Robert B. Lee
/s/ Kenneth W. Ashley Chief Financial Officer (Principal March 27, 1998
- ----------------------- Accounting and Financial Officer)
Kenneth W. Ashley
/s/ Stephen M. Davis Director and Secretary March 27, 1998
- -----------------------
Stephen M. Davis
/s/ Neil H. Koffler Director and Assistant Secretary March 27, 1998
- -----------------------
Neil H. Koffler
/s/ Doy B. Henley Director March 27, 1998
- -----------------------
Doy B. Henley
/s/ Greg McCaffery Director March 27, 1998
- -----------------------
Greg McCaffery
30
REPORT OF INDEPENDENT ACCOUNTANTS
February 13, 1998
To the Board of Directors
and Shareholders of
National R.V. Holdings, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of National
R.V. Holdings, Inc. and its subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years ended
December 31, 1997 and 1996, the seven months ended December 31, 1995 and the
year ended May 31, 1995, in conformity with generally accepted accounting
principles. 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 generally accepted auditing standards 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 principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Los Angeles, CA
F-1
1
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
December 31,
1997 1996
ASSETS
Current assets:
Cash and cash equivalents $ 3,542,000 $ 819,000
Receivables, less allowance for doubtful accounts
($180,000 and $177,000, respectively) 11,388,000 5,522,000
Inventories 37,543,000 34,015,000
Deferred income taxes 2,741,000 1,384,000
Prepaid expenses 1,375,000 1,232,000
------------ ------------
Total current assets 56,589,000 42,972,000
Goodwill - net 7,778,000 8,191,000
Restricted funds - 1,210,000
Property, plant and equipment, net 19,817,000 15,542,000
Other 3,020,000 135,000
------------ ------------
$ 87,204,000 $ 68,050,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ - $ 1,400,000
Current portion of long-term debt 554,000 545,000
Accounts payable 9,006,000 7,736,000
Accrued expenses 7,758,000 3,738,000
------------ ------------
Total current liabilities 17,318,000 13,419,000
Deferred income taxes 2,225,000 1,827,000
Long-term debt 6,703,000 7,272,000
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000 shares
authorized 4,000 issued and outstanding - -
Common Stock, $.01 par value, 10,000,000 shares
authorized 63,000 62,000
Additional paid-in capital 35,263,000 34,344,000
Retained earnings 25,632,000 11,126,000
------------ ------------
Total stockholders' equity 60,958,000 45,532,000
------------ ------------
$ 87,204,000 $ 68,050,000
============ ============
See Notes to Consolidated Financial Statements
F - 2
2
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED STATEMENT OF INCOME
Seven Months Year
Year Ended Ended Ended
December 31, December 31, May 31,
1997 1996 1995 1995
Net sales $285,951,000 $137,101,000 $ 53,062,000 $81,379,000
Cost of goods sold 245,763,000 118,643,000 46,864,000 70,459,000
------------ ------------ ------------ -----------
Gross profit 40,188,000 18,458,000 6,198,000 10,920,000
------------ ------------ ------------ -----------
Selling expenses 9,518,000 4,209,000 1,586,000 2,399,000
General and administrative expenses 5,649,000 2,899,000 1,233,000 2,243,000
Amortization of intangibles 413,000 80,000 - -
------------ ------------ ------------ -----------
Total operating expenses 15,580,000 7,188,000 2,819,000 4,642,000
------------ ------------ ------------ -----------
Operating income 24,608,000 11,270,000 3,379,000 6,278,000
Other expenses (income):
Investment income (113,000) (246,000) (248,000) (669,000)
Interest expense 335,000 357,000 233,000 661,000
Other financing related costs 113,000 149,000 136,000 109,000
------------ ------------ ------------ -----------
Total other expenses 335,000 260,000 121,000 101,000
------------ ------------ ------------ -----------
Income before income taxes and
extraordinary items 24,273,000 11,010,000 3,258,000 6,177,000
Provision for income taxes 9,767,000 4,405,000 1,324,000 2,443,000
------------ ------------ ------------ -----------
Income before extraordinary items 14,506,000 6,605,000 1,934,000 3,734,000
Extraordinary loss on investment in
marketable equity securities, no tax effect - - - (958,000)
Extraordinary gain on early extinguishment
of debt, net of income taxes of $234,000 - - 342,000 -
------------ ------------ ------------ -----------
Net income $ 14,506,000 $ 6,605,000 $ 2,276,000 $ 2,776,000
============ ============ ============ ===========
Earnings per common share - basic
Income before extraordinary items $ 2.32 $ 1.38 $ 0.42 $ 0.77
Extraordinary items - - 0.07 (0.20)
------------ ------------ ------------ -----------
Net income $ 2.32 $ 1.38 $ 0.49 $ 0.57
Earnings per common share - diluted
Income before extraordinary items $ 2.09 $ 1.26 $ 0.40 $ 0.74
Extraordinary items - - 0.07 (0.19)
------------ ------------ ------------ -----------
Net income $ 2.09 $ 1.26 $ 0.47 $ 0.55
Weighted average number of shares:
Basic 6,243,049 4,793,335 4,609,953 4,860,422
============ ============ ============ ===========
Diluted 6,926,426 5,258,069 4,867,236 5,028,707
============ ============ ============ ===========
See Notes to Consolidated Financial Statements
F-3
3
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Seven Months Year
Year Ended Ended Ended
December 31, December 31, May 31,
1997 1996 1995 1995
Cash flows from operating activities:
Net income $14,506,000 $ 6,605,000 $ 2,276,000 $2,776,000
Adjustments to reconcile net income to
net cash provided by operating activities,
net of effect of acquisition:
Depreciation 1,322,000 516,000 283,000 382,000
Amortization of intangibles 413,000 80,000 - -
Amortization of deferred financial income - - (62,000) (247,000)
Loss on investment in marketable
equity securities - - - 958,000
Gain on early extinguishment of debt - - (576,000) -
(Increase) decrease in receivables (5,866,000) 2,567,000 (2,148,000) (39,000)
(Increase) decrease in inventories (3,528,000) (6,249,000) 688,000 (2,909,000)
(Increase) decrease in prepaid expenses (143,000) (251,000) 128,000 (175,000)
Increase (decrease) in accounts payable 1,270,000 (1,421,000) 631,000 (3,669,000)
Increase (decrease) in accrued expenses 4,020,000 13,000 (116,000) (116,000)
(Decrease) increase in deferred income taxes (959,000) (350,000) 305,000 373,000
----------- ---------- ---------- ----------
Net cash provided (used) by
operating activities 11,035,000 1,510,000 1,409,000 (2,666,000)
Cash flows from investing activities:
Proceeds from (investment in) marketable
equity securities - - 134,000 (382,000)
Payment for CCI acquisition costs - (437,000) - -
Increase in other assets (2,885,000)
Capital expenditures (5,597,000) (5,141,000) (727,000) (1,721,000)
----------- ---------- ---------- ----------
Net cash used by investing activities (8,482,000) (5,578,000) (593,000) (2,103,000)
Cash flows from financing activities:
(Decrease) increase in line of credit (1,400,000) (9,965,000) 900,000 1,000,000
Net proceeds from restricted funds 1,210,000 3,637,000 8,653,000 # -
Proceeds from revenue bonds - - 5,000,000 -
Repayments of obligations to previous owners - - (13,500,000) -
Principal payments on long-term debt (560,000) (160,000) (64,000) (77,000)
Proceeds from issuance of common stock 1,140,000 12,255,000 811,000 15,000
Purchase of treasury stock (220,000) (953,000) (2,851,000) (4,144,000)
Decrease in unsecured subordinated notes - - - (11,000)
----------- ---------- ---------- ----------
Net cash provided (used) by
financing activities 170,000 4,814,000 (1,051,000) (3,217,000)
----------- ---------- ---------- ----------
Net increase (decrease) in cash 2,723,000 746,000 (235,000) (7,986,000)
Cash, beginning of year 819,000 73,000 308,000 8,294,000
----------- ---------- ---------- ----------
Cash, end of year $ 3,542,000 $ 819,000 $ 73,000 $ 308,000
=========== ========== ========== ==========
See Notes to Consolidated Financial Statements
F-4
4
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Preferred Common Stock Paid-In Retained Treasury Stock
Stock Shares Amount Capital Earnings Shares Amount Total
Balance, December 31, 1995 $ - 5,555,163 $56,000 $21,043,000 $ 4,521,000 (1,083,330) $(6,995,000) $18,625,000
Common stock issued
under option plan 20,377 - 83,000 83,000
Common stock issued
upon exercise of warrants 352,933 3,000 1,282,000 1,285,000
Purchase of treasury stock (95,370) (953,000) (953,000)
Acquisition of CCI 5,643,000 543,806 3,357,000 9,000,000
Private placement of stock 265,106 3,000 6,293,000 634,894 4,591,000 10,887,000
Net income 6,605,000 6,605,000
---- --------- ------- ----------- ----------- --------- ---------- -----------
Balance, December 31, 1996 $ - 6,193,579 $62,000 $34,344,000 $11,126,000 - $ - $45,532,000
Common stock issued
under option plan 36,454 - 183,000 183,000
Common stock issued
upon exercise of warrants 81,350 1,000 736,000 12,400 220,000 957,000
Purchase of treasury stock (12,400) (220,000) (220,000)
Net income 14,506,000 14,506,000
---- --------- ------- ----------- ----------- --------- ---------- -----------
Balance, December 31, 1997 $ - 6,311,383 $63,000 $35,263,000 $25,632,000 - $ - $60,958,000
==== ========= ======= =========== =========== ========= ========== ===========
See Notes to Consolidated Financial Statements
F-5
5
NATIONAL R.V. HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
National R.V. Holdings, Inc. (the Company) manufactures recreational vehicles
("RVs") through its wholly-owned subsidiaries, National R.V., Inc. (NRV) and
Country Coach, Inc. (CCI). The RVs are marketed primarily in the United States
by NRV under the Dolphin, Sea Breeze, Tropi-Cal ,and Tradewinds brand names and
by CCI under brand names including Concept, Affinity, Magna, Intrigue, and
Allure.
The preparation of financial statements in accordance with generally acceptable
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. Management believes that the
estimates included in the financial statements are reasonable based on the facts
and circumstances known to them at the time of preparation.
CONSOLIDATION
The consolidated financial statements of the Company include the accounts of
National R.V Holdings, Inc., NRV, and CCI. All significant intercompany
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include deposits in banks and short-term investments
with original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost generally
determined by the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets ranging from 31 to 39 years for buildings and 5 to 7
years for machinery and equipment.
AMORTIZATION OF INTANGIBLE ASSETS
Goodwill related to the acquisition of CCI is being amortized on the
straight-line basis over a twenty-year period.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are charged to operations as incurred and are
included in cost of goods sold. Research and development expenses were $2,711000
and $1,077,000 for the years ended December 31, 1997 and 1996, respectively,
$423,000 for the seven months ended December 31, 1995, and $780,000 for the
fiscal year ended May 31, 1995.
INCOME TAXES
The Company provides for income taxes using an asset and liability approach.
Under this method deferred tax assets and liabilities are computed using
statutory rates for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns.
F-6
6
1. (Continued)
INCOME PER SHARE
As of December 31, 1997 the Company adopted and applied retroactively, the new
accounting standard for computing income per share. Under the new requirements,
historically reported "primary" and "fully diluted" earnings per share have been
replaced with "basic" and "diluted" earnings per share.
Basic earnings per share is based upon the weighted average number of common
shares outstanding during a period. Diluted earnings per share is based upon the
weighted average number of common shares plus the incremental dilutive effect of
the securities convertible to Common Stock.
The following is a reconciliation of the shares use to determine basic and
diluted EPS:
Seven Months Year
Year Ended Ended Ended
December 31, December 31, May 31,
1997 1996 1995 1995
Shares used for basic 6,243,049 4,793,335 4,609,953 4,860,422
Dilutive effect of:
Stock options 665,239 429,548 206,823 102,556
Warrants 18,138 35,186 50,460 21,252
Convertible notes 44,477
--------- --------- --------- ---------
Shares used for diluted 6,926,426 5,258,069 4,867,236 5,028,707
========= ========= ========= =========
2. Acquisition
On November 6, 1996, the Company acquired all shares of Capital Stock of CCI
through the issuance of 543,806 shares of Common Stock valued at $9.0 million.
Net assets acquired included the assumption of $10.1 million of debt. The
acquisition of CCI was accounted for as a purchase and the results of operations
of CCI have been included since the acquisition date. The purchase price
resulted in recording goodwill of $8,191,000.
3. Inventories
Inventories consisted of the following:
December 31,
1997 1996
Finished goods $ 10,751,000 $ 8,116,000
Work-in-process 12,769,000 11,000,000
Raw materials 11,747,000 7,987,000
Chassis 2,276,000 6,912,000
------------ ------------
$ 37,543,000 $ 34,015,000
============ ============
F-7
7
4. Property, Plant and Equipment
Major classes of property, plant and equipment consist of the following:
December 31,
1997 1996
Land $ 3,310,000 $ 2,387,000
Construction in progress - 4,955,000
Buildings 11,825,000 5,853,000
Machinery and equipment 7,501,000 4,852,000
Office equipment 3,082,000 2,074,000
------------ ------------
25,718,000 20,121,000
Less accumulated depreciation (5,901,000) (4,579,000)
------------ ------------
Property, plant and equipment, net $ 19,817,000 $ 15,542,000
============ ============
5. Accrued Expenses
Accrued expenses consists of the following:
December 31,
1997 1996
Workers' compensation self-insurance reserve $ 402,000 $ 347,000
Motorhome warranty reserve 4,036,000 1,840,000
Payroll and other accrued expenses 3,320,000 1,551,000
---------- ----------
$7,758,000 $3,738,000
========== ==========
6. Debt and Credit Agreements
Debt consists of the following:
December 31,
1997 1996
Revolving credit agreements
8.50%, expires 1999 $ - $1,400,000
Industrial revenue bonds
5.10%, due 1998-2003 1,888,000 2,034,000
4.05%, due 1998-2020 4,700,000 5,000,000
Other borrowings 669,000 783,000
----------- ----------
7,257,000 9,217,000
Less payments due within one year 554,000 1,945,000
----------- ----------
$6,703,000 $7,272,000
=========== ==========
On July 28, 1997, the Company and its subsidiaries entered into two separate,
revolving credit facilities aggregating $40 million with Union Bank of
California. The Company's $20 million credit facility will be available to
finance potential acquisitions. The Company's two subsidiaries, NRV and CCI,
jointly have a separate $20 million credit facility which will be available for
general corporate and working capital needs and capital expenditures. Amounts
borrowed under the credit facilities will bear interest at the Bank's prime rate
or at a LIBOR-based rate. Both credit facilities are secured by substantially
all of the assets of the Company and its subsidiaries and contain, among other
provisions, certain financial covenants, including net worth and debt ratios.
NRV's buildings and property are pledged as collateral for the industrial
revenue bonds
Debt maturities over the next five years are $554,000 in 1998, $562,000 in 1999,
$571,000 in 2000, $581,000 in 2001 and $592,000 in 2002.
F-8
8
7. Income Taxes
The components of the provision for income taxes were as follows:
December 31, May 31,
1997 1996 1995 1995
Currently Payable:
Federal $8,765,000 $3,686,000 $ 886,000 $1,829,000
State 1,954,000 1,048,000 372,000 519,000
---------- --------- --------- ---------
10,719,000 4,734,000 1,258,000 2,348,000
Deferred:
Federal (796,000) (305,000) 63,000 63,000
State (156,000) (24,000) 3,000 32,000
---------- --------- --------- ---------
(952,000) (329,000) 66,000 95,000
---------- --------- --------- ---------
Total provision for income taxes $9,767,000 $4,405,000 $1,324,000 $2,443,000
========== ========== ========= =========
Deferred income taxes are recorded based upon differences between the financial
statement and tax basis of assets and liabilities and available carryforwards.
Temporary differences and carryforwards which give rise to deferred income tax
assets and liabilities at December 31, 1997 and 1996 were as follows:
December 31,
1997 1996
Accrued expenses $2,357,000 $1,138,000
State income taxes 384,000 246,000
---------- ----------
Deferred income tax assets $2,741,000 $1,384,000
========== ==========
Fixed assets $1,697,000 $1,275,000
Other 528,000 552,000
---------- ----------
Deferred income tax liabilities $2,225,000 $1,827,000
========== ==========
A reconciliation of the statutory U.S. federal income tax rate to the Company's
effective income tax rate is as follows:
December 31, May 31,
1997 1996 1995 1995
Statutory rate 34.0% 34.0% 34.0% 34.0%
State taxes, net of federal benefit 4.8 6.1 6.2 5.9
Amortiztion of intangibles not
deductible for income tax purposes 1.7 0.6
Other (0.3) 0.7) 0.5 (0.4)
---- ---- ---- ----
40.2% 40.0% 40.7% 39.5%
Cash paid for income taxes was $9,439,000 and $4,971,000 for the years ended
December 31, 1997 and 1996, respectively, and $1,285,000 for the seven months
ended December 31, 1995, and $2,031,000 for the fiscal year ended May 31, 1995.
F-9
9
8. Recourse on Dealer Financing
As is customary in the industry, the Company generally agrees with its dealers'
lenders to repurchase any unsold RVs if the dealers become insolvent within one
year of the purchase of such RVs. Although the total contingent liability under
these agreements approximates $74,500,000 at December 31, 1997, as with accounts
receivable, the risk of loss is spread over numerous dealers and lenders and is
further reduced by the resale value of the coaches which the Company would be
required to repurchase. Losses under these agreements have not been significant
in the past and management believes that any future losses under such agreements
will not have a significant effect on the consolidated financial position or
results of operations of the Company.
9. Commitments and Contingencies
The Company is involved in litigation arising in the ordinary course of
business. In the opinion of management, based in part on the advice of outside
counsel, these matters will not have a material adverse effect on the Company's
financial position or results of operations.
The Company has commitments under certain non-cancelable operating leases as
follows:
1998 $ 1,577,000
1999 1,622,000
2000 1,463,000
2001 86,000
2002 8,000
-----------
$ 4,756,000
===========
10. Stockholders' Equity
On August 20, 1996, the Company's Board of Directors adopted a Shareholder
Rights Plan. Pursuant to the Plan, the Company declared a dividend to be made to
stockholders of record on September 4, 1996 of one Series B Participating
Preferred Share Purchase right for each outstanding share of the Company's
Common Stock. No rights will be distributed until a purchaser acquires, or
announces its intent or attempts to acquire, at least 15 percent of the
Company's Common Stock.
At December 31, 1997, there were 62,501 warrants outstanding to financial
advisors and consultants at prices ranging from $9.33 to $16.09. Expiration
dates range from August 31, 1999 to December 1, 2001.
11. Stock Options
The Company has five fixed option plans which reserve shares of common stock for
issuance to executives, key employees and directors. The Company has also issued
fixed options outside of such plans pursuant to individual stock option
agreements. Options granted to non-employee and employee directors vested
immediately upon grant and generally expire ten years from the date of grant.
Options granted to employees vest in three equal annual installments and expire
five 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.
No compensation cost has been recognized for the stock option plans in the
financial statements. Had compensation cost for the Company's stock option plans
and individual option agreements been determined based on the fair value rather
than market value at the grant date for awards under those plans and agreements
during 1996 and 1997, the Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated below:
F-10
10
11. (Continued)
Year Ended December 31,
1997 1996
Net income As reported $ 14,506,000 $ 6,605,000
Pro forma $ 11,040,000 $ 4,672,000
Basic earnings per share As reported $ 2.32 $ 1.38
Pro forma $ 1.77 $ 0.97
Diluted earnings per share As reported $ 2.09 $ 1.26
Pro forma $ 1.59 $ 0.89
Shares
Basic 6,243,049 4,793,335
Weighted 6,927,713 5,258,069
The fair value of each option granted is estimated on the date of grant using
the Cox Rubinstein binomial option-pricing model with the following
weighted-average assumptions used for grants: 1997 and 1996 dividend yield of
0.0%; expected volatility of 50.8% in 1997 and 51.1% in 1996; risk-free interest
rate ranging from 6.38% to 6.49% in 1997 and 5.875% to 6.5% in 1996; and
expected lives ranging from 5 to 10 years.
Information regarding these option plans and option agreements for 1997 and 1996
is as follows:
Weighted
Average
1997 Exercise 1996
Shares Price Shares
Outstanding, beginning of year 1,232,228 $ 8.757 805,625
Exercised (36,454) 4.682 (20,397)
Granted 600,000 15.125 447,000
Outstanding, end of year 1,795,774 $ 10.967 1,232,228
Option price range at end of year $4.00 to 15.63 $4.00 to 15.63
Option price range for exercised shares $4.00 to 6.92 $4.00 to 5.00
Options available for grant at end of year 79,349 79,349
Weighted-average fair value of options
granted during year $ 9.266 $ 6.359
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1997:
Average Weighted
Grant Options Options Exercise Remaining
Date Authorized Outstanding Exercisable Price Life (Years)
9/20/93 300,000 211,649 211,649 4.000 5.4
12/3/93 232,500 147,300 147,300 6.920 5.3
12/30/94 129,375 124,075 124,075 5.000 6.1
9/28/95 150,000 136,000 90,000 5.625 6.5
10/2/1996-11/06/96 450,000 422,000 140,667 14.760 5.9
6/4/97 600,000 600,000 - 15.125 7.7
All others 157,750 157,750 132,083 8.398 5.1
F-11
11
12. Related Party Transactions
The Company has a financial advisory agreement dated January 23, 1998 (the
"Advisory Agreement") with 712 Advisory Services, Inc., an affiliate (the
"Affiliate") of the Chairman of the Company, Mr. Gary N. Siegler. Mr. Neil H.
Koffler, a director of the Company, is also an employee of the Affiliate.
Pursuant to the Advisory Agreement, the Affiliate has agreed to provide advice
and consultation concerning financial and related matters, including, among
other things, with respect to private financings, public offerings,
acquisitions, commercial banking relations and other business ventures. The
Advisory Agreement has an initial term ending December 31, 1998 and is
automatically renewable for additional periods of one year unless either party
elects to terminate prior to the conclusion of any year. The Advisory Agreement
provides that the Affiliate shall be paid fees at the rate of $230,625 per
annum. In the event of certain "changes of control" events relating to the
Company, the Affiliate is entitled to immediate payment of the remaining unpaid
annual fee through the end of the calendar year in which the change of control
occurs. Fees paid under a prior advisory agreement between the Company and the
Affiliate totaled $220,000 and $150,000 for the fiscal years ended December 31,
1997 and 1996, respectively, $75,000 for the seven months ended December 31,
1995 and $150,000 for the fiscal year ended December 31, 1995. In addition, a
Chairman's salary and bonus of $190,000 in the aggregate were payable to Mr.
Siegler for the year ended December 31, 1997 and $180,000 in the aggregate was
paid for the year ended December 31, 1996. During 1996, an additional $385,000
was paid to the Affiliate for financial advisory services rendered in connection
with the Company's acquisition of CCI.
In September 1997, the Company acquired, for $2.75 million, a limited
partnership interest in Dune Jet Services, L.P. (the "Partnership"), a Delaware
limited partnership formed for the purposes of acquiring and operating an
airplane for the partners' business uses and for third-party charter flights
(the "Aircraft"). The general partner of the Partnership is Dune Jet Services,
Inc. ("DJ Services"), a Delaware corporation, the sole stockholder of which is
the Company's Chairman, Mr. Siegler. DJ Services contributed $1.55 million for
its general partnership interest and an additional $3.25 million for a separate
limited partnership interest. The Aircraft has been partially financed by a
$4.25 million loan from a third party financing source, the repayment of which
loan is personally guaranteed by Mr. Siegler. Pursuant to the Partnership's
limited partnership agreement and operating agreement terms, the Company, as a
limited partner, has the right to use the Aircraft for business purposes for its
pro rata share of 800 hours per year, at a rate modestly above the variable cost
of operating the Aircraft. Hours not used by the partners will be available for
charter flights at market rates. Profits and losses of the Partnership are
generally allocated in accordance with the partners' respective capital
contributions, except that depreciation is allocated to the general partner, and
distributions to the partners will be made in the same ratios as the allocations
of profits and losses. Pursuant to the partnership agreement, DJ Services is
entitled to reimbursement for expenses and indemnification from the Partnership
for acting in its capacity as general partner. Other than the purchase of its
partnership interest, the Company has made no other payments with respect to the
Partnership.
Mr. Robert B. Lee, a director of the Company and the Chairman and Chief
Executive Officer of CCI, is a partner in two joint ventures which are parties
to lease agreements with the Company's CCI subsidiary. Pursuant to these
agreements, CCI leases from the joint ventures two parcels of property
constituting CCI's entire manufacturing facilities. During the year ended
December 31, 1997, the Company paid $1,486,000 under such lease agreements. The
lease agreements call for future payments of $1,543,000 annually, adjusted 3%
annually for inflation, through 2001.
Werbel & Carnelutti, a law firm in which Mr. Stephen M. Davis, the Secretary and
a director of the Company, is a partner, performed legal services for the
Company during the year ended December 31, 1997.
F-12
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NATIONAL R.V. HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1997, 1996 and 1995
Additions
Balance at charged to Balance at
beginning costs end of
of period and expenses Deductions Period
Twelve months ended December 31, 1997
Allowance for doubtful accounts $ 177,000 $ 12,842 $ 9,842 $ 180,000
Workers' compensation self-insurance 347,000 1,087,921 1,032,921 402,000
Motorhome warranty reserve 1,840,000 8,004,383 5,808,383 4,036,000
---------- ---------- ---------- ----------
$2,364,000 $9,105,146 $6,851,146 $4,618,000
Twelve months ended December 31, 1996
Allowance for doubtful accounts $ 40,000 $ 206,520 $ 69,520 $ 177,000
Workers' compensation self-insurance 317,000 793,300 763,300 347,000
Motorhome warranty reserve 445,000 2,062,084 667,084 1,840,000
---------- ---------- ---------- ----------
$ 802,000 $3,061,904 $1,499,904 $2,364,000
Seven months ended December 31, 1995
Allowance for doubtful accounts $ 40,000 $ - $ - $ 40,000
Workers' compensation self-insurance 314,000 333,448 330,448 317,000
Motorhome warranty reserve 342,000 763,629 660,629 445,000
---------- ---------- ---------- ----------
$ 696,000 $1,097,077 $ 991,077 $ 802,000
F-13
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NATIONAL R.V. HOLDINGS, INC.
SHORT-TERM BORROWINGS
Maximum Average Weighted
amount amount average
Balance Interest outstanding outstanding interest rate
Category of aggregate at end of rate end during the during the during the
short-term borrowings period of period period period (1) period (2)
Twelve months ended
December 31, 1997
Line of credit with
financial institution - 8.50% $4,330,000 $923,957 8.40%
Twelve months ended
December 31, 1996
Line of credit with
financial institution $1,400,000 8.25% $9,500,000 - 8.30%
Seven months ended
December 31, 1995
Line of credit with
financial institution $1,900,000 8.50% $1,900,000 $485,714 8.75%
__________
(1) The average amount outstanding during the period was computed by dividing
the total of the month-end outstanding principal balances by 12.
(2) Average interest rate calculated using interest rates at the beginning and
end of the period.
F-14
14