SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-22268
NATIONAL R.V. HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0371079
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3411 N. Perris Blvd., Perris, California 92571
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (909) 943-6007
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO __
Indicate by check mark whether the registrant is an accelerated filer.
YES NO X
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at May 4, 2004
Common stock, par value 10,196,396
$.01 per share
NATIONAL R.V. HOLDINGS, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets -
March 31, 2004 and December 31, 2003 3
Consolidated Statements of Operations -
Three Months Ended March 31, 2004 and 2003 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2004 and 2003 5
Notes to Consolidated Financial Statements 6 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
Item 4. Controls and Procedures 20
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
2
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
March 31, December 31,
2004 2003
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents................... $ 1,090 $ 2,059
Restricted cash............................. 250 250
Receivables, less allowance for doubtful
accounts ($89 and $132, respectively)...... 24,886 20,978
Inventories................................. 64,232 51,659
Deferred income taxes....................... 7,955 7,955
Prepaid expenses............................ 2,005 1,658
---------- ---------
Total current assets...................... 100,418 84,559
Property, plant and equipment, net.............. 39,299 40,833
Long-term deferred income taxes................. 3,805 3,805
Other........................................... 1,157 1,252
---------- ---------
$ 144,679 $ 130,449
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........... 13 19
Accounts payable............................ 26,879 14,101
Accrued expenses............................ 21,540 20,770
--------- ---------
Total current liabilities................. 48,432 34,890
Long-term accrued expenses...................... 7,588 7,569
--------- ---------
Total liabilities............................... 56,020 42,459
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000 shares
authorized, 4,000 issued and outstanding..... - -
Common Stock, $.01 par value, 25,000,000
shares authorized, 10,190,230 and 10,190,230
issued and outstanding, respectively......... 102 102
Additional paid-in capital...................... 36,463 36,463
Retained earnings............................... 52,094 51,425
--------- ---------
Total stockholders' equity................ 88,659 87,990
--------- ---------
$ 144,679 $ 130,449
========= =========
See Notes to Consolidated Financial Statements.
3
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months
Ended March 31,
2004 2003
---------- ----------
Net sales.............................. $ 110,438 $ 78,101
Cost of goods sold..................... 103,151 80,188
---------- ----------
Gross profit (loss)................ 7,287 (2,087)
---------- ----------
Selling expenses....................... 3,621 3,130
General and administrative expenses.... 2,587 2,120
---------- ----------
Operating income (loss)............ 1,079 (7,337)
Interest expense....................... 62 167
Other income........................... (48) (2)
---------- ----------
Income (loss) before income taxes.. 1,065 (7,502)
Provision (benefit) for income taxes... 396 (2,776)
---------- ----------
Net income (loss)................ $ 669 $ (4,726)
========== ==========
Earnings (loss) per common share:
Basic............................ $ 0.07 $ (0.48)
Diluted.......................... $ 0.06 $ (0.48)
Weighted average number of shares.
Basic............................ 10,190 9,832
Diluted.......................... 10,334 9,832
See Notes to Consolidated Financial Statements.
4
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months
Ended March 31,
2004 2003
---------- ----------
Cash flows from operating activities:
Net income (loss)............................. $ 669 $ (4,726)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation................................ 989 982
Gain on asset disposal...................... (46) -
Changes in assets and liabilities:
Increase in trade receivables............. (3,908) (19,432)
(Increase) decrease in inventories........ (12,573) 8,264
Decrease in income taxes receivable....... - (2,449)
(Increase) decrease in prepaid expenses... (347) 741
Increase in accounts payable.............. 12,778 10,775
Increase (decrease) in accrued expenses... 789 (204)
Increase in deferred income taxes......... - (370)
--------- ---------
Net cash used in operating activities...... (1,649) (6,419)
--------- ---------
Cash flows from investing activities:
Decrease in other assets...................... 95 341
Proceeds from sale of assets.................. 1,932 -
Purchase of property, plant and equipment..... (1,341) (479)
--------- ---------
Net cash provided by (used in) investing
activities................................ 686 (138)
--------- ---------
Cash flows from financing activities:
Net advances under line of credit............. - 3,578
Increase in book overdraft.................... - 2,980
Principal payments on long-term debt.......... (6) (5)
--------- ---------
Net cash (used in) provided by financing
activities................................ (6) 6,553
--------- ---------
Net decrease in cash............................ (969) (4)
Cash, beginning of year......................... 2,059 14
--------- ---------
Cash, end of period............................. $ 1,090 $ 10
========= =========
See Notes to Consolidated Financial Statements.
5
NATIONAL R.V. HOLDINGS, INC.
PART I, ITEM 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - GENERAL
In the opinion of National R.V. Holdings, Inc. (collectively, with its
subsidiaries National R.V., Inc. (NRV) and Country Coach, Inc. (CCI) referred to
herein as the "Company"), the accompanying unaudited consolidated financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial position,
results of operations and cash flows for all periods presented. Results for the
interim periods are not necessarily indicative of the results for an entire year
and the financial statements do not include all of the information and footnotes
required by generally accepted accounting principles. These financial statements
should be read in conjunction with the financial statements and notes thereto
contained in the Company's latest annual report on Form 10-K. Certain
reclassifications, none of which affected net loss or retained earnings, have
been made to prior period amounts to conform to current period presentation.
NOTE 2 - HISTORY OF RECENT LOSSES
The Company experienced a net profit in the first quarter of 2004 of $0.7
million compared to a net loss of $4.7 million during the same period last year.
However, the Company had net losses totaling $8.3 million and $21.4 million for
the years ended December 31, 2003 and 2002, respectively. Continued losses could
reduce the Company's liquidity and cause the Company to reduce its expenditures
on capital improvements, machinery and equipment, and research and development.
This could have a negative effect on the Company's ability to maintain
production schedules, manufacture products of high quality, and develop and
manufacture new products that will achieve market acceptance. This could, in
turn, have a negative impact on the Company's sales and earnings. If the Company
suffers additional losses, the Company may be unable to implement its business
and financial strategies or meet its obligations when due. The Company's losses
in 2003 and 2002 were mainly caused by (i) excess manufacturing capacity and
related fixed costs caused by continued low production levels, (ii) continued
significant discounting to wholesale distributors in 2002 and the first half of
2003, (iii) the recognition of the complete impairment of the Company's goodwill
in 2002, (iv) high warranty costs in 2002 and (v) a workers' compensation
reserve increase in 2002 and continued high workers' compensation costs in 2003.
In spite of a profitable first quarter in 2004 and a profitable fourth quarter
in 2003, there are no assurances that the conditions that have resulted in the
Company's losses in 2003 and 2002 will not continue through 2004 and beyond.
As of March 31, 2004, the Company had a deferred tax asset of $11.8 million
related to the tax benefit of operating loss carryforwards. Realization is
dependent on generating sufficient taxable income prior to expiration of the
loss carryforwards. Although realization is not assured, management believes it
is more likely than not that all of the deferred tax asset will be realized. The
amount of the deferred tax asset considered realizable however, could be reduced
in the near term if estimates of future taxable income during the carryforward
period are reduced.
6
NOTE 3 - STOCK BASED COMPENSATION
The Company has stock option plans that enable it to offer equity
participation to employees, officers, and directors as well as certain
non-employees. Stock options may be granted as incentive or nonqualified
options.
The Company has four fixed option plans that reserve shares of common stock
for issuance to executives, key employees, consultants, and directors. The
Company has also issued fixed options outside of such plans pursuant to
individual stock option agreements. Options granted to non-employee directors
generally vest immediately upon grant and generally expire five to ten years
from the date of grant. Options granted to employees, including employee
directors, generally vest in three equal annual installments and expire five to
ten years from the date of grant. The price of the options granted pursuant to
these plans will not be less than 100 percent of the market value of the shares
on the date of grant. There were 236,500 options granted in the first quarter of
2004 and there were no options granted during 2003.
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" (SFAS 148), which amends SFAS Statement 123, "Accounting for
Stock-Based Compensation." As permitted by SFAS 148, the Company continues to
measure compensation cost in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations, but provides pro forma disclosures of net income and earnings
per share as if the fair-value method had been applied. The following table
illustrates the effect on net income (loss) and earnings (loss) per share if the
Company had applied the fair value recognition provisions to stock-based
employee compensation:
All amounts in thousands except per share amounts
Three Months
Ended March 31,
2004 2003
---- ----
Net income (loss) - as reported................. $ 669 $ (4,726)
Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related
tax effects.................................... 122 108
-------- ---------
Pro forma net income (loss)..................... $ 547 $ (4,834)
======== =========
Basic earnings (loss) per share - as reported... $ 0.07 $ (0.48)
Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related
tax effects.................................... 0.02 0.01
-------- ---------
Basic earnings (loss) per share - pro forma..... $ 0.05 $ (0.49)
======== =========
Diluted earnings (loss) per share - as reported.. $ 0.06 $ (0.48)
Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related
tax effects..................................... 0.01 0.01
-------- ---------
Diluted earnings (loss) per share - pro forma.... $ 0.05 $ (0.49)
======== =========
7
The weighted-average fair value of the stock options has been estimated on
the date of grant using the Black-Scholes option-pricing model. The
weighted-average fair value of stock options and the assumptions used to
calculate weighted-average fair value are listed below for new grants during the
quarter ended March 31, 2004. There were no new stock option grants during the
quarter ended March 31, 2003.
Quarter Ended
March 31, 2004
--------------
Dividend yield............. 0.0%
Expected volitality........ 279.0%
Risk-free interest rate.... 2.74%
Expected lives............. 4 years
NOTE 4 - SUPPLEMENTAL BALANCE SHEET INFORMATION
Inventories consist of the following:
March 31, December 31,
2004 2003
-------- --------
Finished goods........ $ 8,654 $ 8,957
Work-in-process....... 31,068 22,142
Raw materials......... 16,487 13,902
Chassis............... 8,023 6,658
-------- --------
Total inventories..... $ 64,232 $ 51,659
======== ========
Accrued expenses consist of the following:
March 31, December 31,
Current accrued expenses: 2004 2003
----------- ------------
Workers' compensation self-insurance reserve... $ 3,034 $ 3,561
Warranty reserve............................... 8,363 8,312
Payroll and other accrued expenses............. 10,143 8,897
----------- -----------
Total current accrued expenses............... $ 21,540 $ 20,770
=========== ===========
Long-term accrued expenses:
Workers' compensation self-insurance reserve... $ 6,534 $ 6,499
Warranty reserve............................... 332 348
Deferred compensation expense.................. 722 722
----------- -----------
Total long-term accrued expenses............. $ 7,588 $ 7,569
=========== ===========
8
NOTE 5 - CREDIT FACILITY
The Company has an asset-based revolving credit facility of $15 million
with UPS Capital Corporation (UPSC). This credit facility expires August 2005.
The Company has reserved $0.3 million from the line-of-credit for one month's
rent on the CCI facility. The remaining $14.7 million is available for general
corporate working capital needs and capital expenditures. Amounts borrowed under
the revolving credit facility bear interest at the prime rate listed in the Wall
Street Journal plus 0.75 percentage points. The credit facility contains, among
other provisions, certain financial covenants, including net worth requirements.
At March 31, 2004, the Company had no outstanding loans under the line-of-credit
and the Company was not in default with any covenants of its loan agreement with
UPSC.
NOTE 6 - EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net earnings (loss)
by the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if
options were exercised or converted into common stock. Shares attributable to
the exercise of outstanding options that are anti-dilutive are excluded from the
calculation of diluted loss per share.
Three Months
Ended March 31,
2004 2003
---- ----
Net income (loss)...................... $ 669 $ (4,726)
========== ==========
Basic weighted average common shares
outstanding........................... 10,190 9,832
Effect of dilutive stock options....... 144 -
---------- ----------
Diluted weighted average common shares
outstanding........................... 10,334 9,832
========== ==========
Basic earnings (loss) per share........ $ 0.07 $ (0.48)
========== ==========
Diluted earnings (loss) per share...... $ 0.06 $ (0.48)
========== ==========
Excluded from the computation of diluted earnings per share are outstanding
common stock options with an exercise price greater than the average market
price of the common shares as of March 31, 2004 and March 31, 2003. For the
quarters ended March 31, 2004 and 2003, excluded from the computation of diluted
earnings per share were stock options to purchase 265,300 shares and 1,572,583
shares, respectively.
NOTE 7 - COMMITMENTS AND GUARANTEES
As is customary in the industry, the Company generally agrees with its
dealers' lenders to repurchase any unsold RVs in certain circumstances. Although
the Company's maximum potential exposure under these agreements approximated
$102 million at March 31, 2004, as with accounts receivable, the risk of loss
was spread over numerous dealers and lenders and was further reduced by the
resale value of the RVs which the Company would be required to repurchase.
Losses under these agreements have not been material in the past and management
does not believe that any future losses under such agreements will have a
material adverse effect on the Company's consolidated financial position or
results of operations.
9
The Company's warranty reserve is established based on its best estimate of
the amounts necessary to settle future and existing claims on products sold as
of the balance sheet date. The Company records an estimate for future
warranty-related costs based on recent actual warranty claims. Also, the
Company's recall reserve is established, as necessary, based on management's
estimate of the cost per unit to remedy the problem and the estimated number of
units that will ultimately be brought in for the repair.
Product Warranty
(in thousands)
Three Months Ended March 31, 2004
Beginning Ending
Balance Additions Deductions Balance
--------- --------- ---------- -------
Warranty reserve March 31,2004... $ 8,660 $ 3,146 $ 3,111 $ 8,695
======= ======= ======= =======
10
NATIONAL R.V. HOLDINGS, INC.
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Disclosure Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that forward-looking statements are inherently
uncertain. Actual performance and results may differ materially from that
projected or suggested herein due to certain risks and uncertainties including,
without limitation, potential fluctuations in the Company's operating results;
continuation of losses; seasonality and economic conditions; dependence on
certain dealers and concentration of dealers in certain regions; dependence on
chassis suppliers; potential liabilities under repurchase agreements;
competition; government regulation; warranty claims; and product liability.
Certain risks and uncertainties that could cause actual results to differ
materially from that projected or suggested are set forth in the Company's
filings with the Securities and Exchange Commission (the "SEC") and the
Company's public announcements, copies of which are available from the SEC or
from the Company upon request. The Company undertakes no obligation to revise or
update publicly any forward looking statements for any reason.
Operating Performance
Continual effort to improve the safety of the workforce and decrease its
workers' compensation costs resulted in an approximate $0.8 million reduction in
workers' compensation costs in the first quarter of 2004 compared to the first
quarter of 2003. Continued reductions are part of the strategy throughout 2004
though workers' compensation costs continue to be a challenge in California. The
Company has undertaken significant safety programs to address these costs and
the Company is being more proactive in the handling of its claims. In addition
to these measures which are helping considerably, the Company believes that the
Company's workers' compensation costs should be further reduced by recent state
reforms.
Other factors leading to the improvement in gross profit margin percentage
from last year's first quarter include higher production levels, reduced
discounting, reduced warranty costs and production efficiencies, partially
offset by various items including a change in product mix to include more
products with lower margins. Both National RV and Country Coach have increased
production during the quarter-ended March 31, 2004. As the Company experiences
better capacity utilization, the Company should see additional improvement in
gross margins throughout 2004.
Improved turn-rates and a reduction in aged dealer lot inventories have
played a key role in the overall performance improvement of the Company
comparing the first quarter of 2004 to the same period last year. As new and
revitalized products come on-line, the Company has seen a rise in wholesale
deliveries and improvement in the Company's annual Class A retail market share,
from 6.2% for the first three months of 2003 to 7.5% for the first three months
of 2004. Stronger product offerings and the resulting increase in demand have
significantly reduced the need to discount the Company's products.
11
Looking Forward
Many of the same objectives the Company addressed last year remain in place
for the current year. Aggressive product development, cost containment, and
increased customer satisfaction are three of those objectives.
In the first quarter of 2004, Country Coach debuted three of its new 2005
model year offerings, the Inspire and the completely redesigned Magna and custom
Affinity. The remaining 2005 offerings for Country Coach and for National RV
will be introduced during the summer.
The Company is continually trying to contain its costs specifically in the
warranty cost and workers' compensation cost areas. The Company continues to
focus on improving the quality of its motorhomes resulting in decreased warranty
costs. Also, the Company has instituted a number of safety programs which have
already resulted in measurably reduced workers' compensation costs. The Company
expects further progress in containing its costs as it continues to implement
lean manufacturing concepts.
The Company is continually striving to improve its customer support by
improving club support, telephone support for owners and dealers, and parts
fulfillment. The Company utilizes various techniques such as surveys and focus
groups to ensure that it is improving in the area of customer satisfaction.
Another key initiative is enhanced training programs for the Company's
workforce, service centers, dealers, and consumers. The Company has already
undertaken efforts in the areas of safety; and with new distance learning
capabilities, the Company is looking forward to broadcasting its training
programs directly to dealers and service providers, driving the movement for
increased customer satisfaction in areas of technical maintenance. In addition,
factory training programs are giving the Company's customers a basis for
self-diagnostics and a better understanding of the equipment they are operating.
The outlook for the industry as a whole continues to be strong. The
Recreational Vehicle Industry Association's (RVIA) market expansion campaign, GO
RVing, is fostering greater awareness and garnering media attention.
Critical Accounting Policies
The Company's discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses for each period.
The following represents a summary of the Company's critical accounting
policies, defined as those policies that the Company believes are: i) the most
important to the portrayal of the Company's financial condition and results of
operations, and ii) that require the Company's most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effects of matters that are inherently uncertain.
Valuation of Long-Lived Assets. The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset might not be recoverable. If indicators of
impairment were present, the Company would evaluate the carrying value of
property and equipment, in relation to estimates of future undiscounted cash
flows of the underlying business, which are based on judgment and assumptions.
Warranty Reserve. The Company's warranty reserve is established based on
its best estimate of the amounts necessary to settle future and existing claims
on products sold as of the balance sheet date. The Company records an estimate
for future warranty-related costs based on recent actual warranty claims. Also,
the Company's recall reserve is established, as necessary, based on management's
estimate of the cost per unit to remedy the problem and the estimated number of
units that will ultimately be brought in for the repair. While the Company's
warranty costs have historically been within its expectations and the provisions
established, the Company cannot guarantee that it will continue to experience
the same warranty costs that it has in the past. A significant increase in
dealer shop rates, the cost of parts or the frequency of claims could have a
material adverse impact on the Company's operating results for the period or
periods in which such claims or additional costs materialize.
12
Revenue Recognition. The Company recognizes revenue in accordance with SEC
Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements,
or SAB 104. SAB 104 requires that four basic criteria must be met before revenue
can be recognized: i) persuasive evidence of an arrangement exists, ii) delivery
has occurred and title and the risks and rewards of ownership have been
transferred to the customer, iii) the price is fixed and determinable, and iv)
collectibility is reasonably assured. Assuming that all of the above criteria
were satisfied, motorhome and towables sales are recorded by the Company when
accepted by the dealer.
Legal Proceedings. The Company is currently involved in certain legal
proceedings and has accrued its estimate of the probable costs for the
resolution of these claims. This estimate has been developed in consultation
with counsel handling the Company's defense in these matters and is based upon
an analysis of potential results, assuming a combination of litigation and
settlement strategies.
Deferred Tax Asset. As of March 31, 2004, the Company had a deferred tax
asset of $11.8 million. Realization is dependent on generating sufficient
taxable income prior to expiration of the loss carryforwards. Although
realization is not assured, management believes it is more likely than not that
all of the deferred tax asset will be realized. The amount of the deferred tax
asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
Valuation of Inventory. Inventory is valued at the lower of cost (estimated
using the first-in, first-out method) or market. The Company periodically
evaluates the carrying value of inventories and maintains an allowance for
excess and obsolescence to adjust the carrying value as necessary to the lower
of cost or market or to amounts on hand to meet expected demand in the near
term. Unfavorable changes in estimates of obsolete inventory would result in an
increase in the allowance and a decrease in gross profit.
Workers' Compensation Reserve. The Company's workers' compensation reserve
is established based on its best estimate of the amounts necessary to settle
future and existing employee workers' compensation claims as of the balance
sheet date. The Company records an estimate for future workers' compensation
related costs based on historical workers' compensation claims paid. Even though
the Company's workers' compensation costs have been growing during the past
several years, the Company cannot provide assurance that these costs will
continue at these levels, increase or decrease, in the near term. A significant
change in California workers' compensation legislation, the cost of claims or
the frequency of claims could have a material adverse impact on the Company's
operating results for the period or periods in which such claims or additional
costs materialize.
13
Liquidity and Capital Resources
The Company's primary sources of liquidity are internally generated cash
from operations and available borrowings under its credit facility. At March 31,
2004, the Company had working capital of $52.0 million compared to $49.7 million
at December 31, 2003. This increase of $2.3 million was primarily due to a $12.6
million increase in inventory and a $3.9 million increase in accounts
receivable, partially offset by a $12.8 million increase in accounts payable and
a $1.0 million decrease in cash. Both the increase in accounts payable and the
increase in inventory are due to the Company's purchasing and production
increases to meet the market demand for its products. During the first three
months of 2004, the Company used cash in its operations of $1.6 million,
compared to $6.4 million of cash used in its operations during the first three
months of 2003.
Net cash provided by investing activities was $0.7 million for the three
months ended March 31, 2004. This represents primarily the $1.9 million of
proceeds from the sale of real property in Florida, partially offset by $1.3
million in purchases of property, plant and equipment, including another piece
of real property in Florida.
Net cash used in financing activities was $6,000 for the three months ended
March 31, 2004. This represents principal payments on long-term debt.
The Company's consolidated financial statements have been presented on the
basis that it will continue as a going-concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has suffered net losses of $8.3 million, $21.4 million
and $11.5 million for the years ended December 31, 2003, 2002 and 2001,
respectively. For the year ended December 31, 2003, the Company provided cash
from operating activities totaling $7.2 million and used cash from operating
activities of $4.4 million and $12.6 million for the years ended December 31,
2002 and 2001, respectively.
The Company has funded its financial needs primarily through operations and
its existing line of credit. At March 31, 2004, the Company had cash and cash
equivalents of $1.1 million (excluding restricted cash totaling $0.3 million
dollars required to secure a letter-of-credit in connection with one of the
Company's insurance policies), working capital of $52.0 million, and $14.7
million available under the credit facility. The Company remains dependent upon
its ability to obtain outside financing either through the issuance of
additional shares of its common stock or through borrowings until it achieves
sustained profitability through a combination of increased sales and improved
product margins.
The Company has an asset-based revolving credit facility of $15 million
with UPS Capital Corporation (UPSC). This credit facility expires August 2005.
The Company has reserved $0.3 million from the line-of-credit for one month's
rent on the CCI facility. The remaining $14.7 million is available for general
corporate working capital needs and capital expenditures. Amounts borrowed under
the revolving credit facility bear interest at the prime rate listed in the Wall
Street Journal plus 0.75 percentage points. The credit facility contains, among
other provisions, certain financial covenants, including net worth requirements.
At March 31, 2004, the Company had no outstanding advances under the
line-of-credit and the Company was not in default with any covenants of its loan
agreement with UPSC.
Management is focused on continuing to improve liquidity through certain
initiatives throughout 2004 including: i) further reduction of warranty costs,
ii) increased facility utilization and iii) a reduction of workers' compensation
costs.
14
The Company believes the combination of internally generated funds, working
capital, and unused borrowing availability will be sufficient to meet the
Company's planned capital and operational requirements for at least the next 12
months. Should the Company require further capital resources during the next 12
months, it would most likely address such requirement through a combination of
sales of equity securities, sales of excess properties, and/or additional debt
financings. If circumstances changed, and additional capital was needed, no
assurance can be given that the Company would be able to obtain such additional
capital resources.
If unexpected events occur requiring the Company to obtain additional
capital and it is unable to do so, it then might attempt to preserve its
available resources by deferring the creation or satisfaction of various
commitments, deferring the introduction of various products or entry into
various markets, or otherwise scaling back its operations. If the Company were
unable to raise such additional capital or defer certain costs as described
above, such inability would have an adverse effect on the financial position,
results of operations, cash flows and prospects of the Company.
Results of Operations
The following table sets forth for the periods indicated the percentage of
net sales represented by certain items reflected in the Company's Consolidated
Statements of Operations:
Percentage of Net Sales
Three Months Ended
March 31,
2004 2003
--------- --------
Net sales............................ 100.0% 100.0%
Cost of goods sold................... 93.4 102.7
--------- --------
Gross profit (loss)................ 6.6 (2.7)
Selling expenses..................... 3.3 4.0
General and administrative expenses.. 2.3 2.7
--------- --------
Operating income (loss)............ 1.0 (9.4)
Interest expense..................... 0.1 0.2
Other income......................... (0.1) (0.0)
--------- --------
Income (loss) before income taxes.. 1.0 (9.6)
Provision (benefit) for income taxes. 0.4 (3.5)
--------- --------
Net income (loss).................. 0.6% (6.1)%
========= ========
15
Quarter Ended March 31, 2004 Compared to Quarter Ended March 31, 2003
(Amounts in tables are in thousands, except percentages)
Net sales
Three Months
Ended March 31,
Percent Change
--------------------------
2004 2003
---- ----
Net sales.................. $110,438 41.4% $ 78,101
as a percent of net sales.. 100.0% 100.0%
Net sales of $110.4 million for the quarter ended March 31, 2004 represent
an increase of $32.3 million or 41.4% from the same quarter last year. First
quarter wholesale unit shipments of diesel motorhomes were 293, up 24% from 237
units during the same period last year. Quarterly shipments of gas motorhomes
were 499, up 50% from 332 units during the same period last year. Quarterly
shipments of towable products were 315, down 19% from 390 units last year.
Revenues in the quarter for National RV were $63.3 million, up 19% from
$53.4 million for the first quarter of last year. Revenues in the quarter for
Country Coach were $46.7 million, up 85% from $25.2 million for the first
quarter of last year. The increase in net sales is mainly attributable to the
introduction of the Country Coach Inspire after the first quarter of 2003, the
introduction of NRV's Tropi-Cal late in the first quarter of 2003, and an
overall increase in the demand for the Company's other products.
Gross profit margin
Three Months
Ended March 31,
Percent Change
--------------------------
2004 2003
---- ----
Gross profit margin......... 6.6% N/A (2.7)%
The primary factors that led to a 6.6% gross profit margin for the first
quarter of 2004 compared to a (2.7)% gross margin for the same period last year,
were higher production levels, reduced discounting, reduced warranty costs,
reduced workers' compensation costs and production efficiencies, partially
offset by various items including a change in product mix to include more
products with lower margins.
Selling expenses
Three Months
Ended March 31,
Percent Change
--------------------------
2004 2003
---- ----
Selling expenses............ 3,621 15.7% 3,130
as a percent of net sales... 3.3% 4.0%
Selling expenses totaled $3.6 million or 3.3% of net sales for the first
quarter of 2004 compared to $3.1 million or 4.0% of net sales for the same
quarter last year. Additionally, for the three months ended March 31, 2004,
selling expenses increased by 15.7% compared to the same period last year. Sales
costs increased mainly due to increased sales commissions resulting from higher
sales. However, as a percentage of net sales, selling expenses decreased due to
a concerted effort by management to control expenditures.
16
General and administrative expenses
Three Months
Ended March 31,
Percent Change
--------------------------
2004 2003
---- ----
General and administrative expenses... 2,587 22.0% 2,120
as a percent of net sales............. 2.3% 2.7%
General and administrative expenses totaling $2.6 million for the quarter
ended March 31, 2004 were up $0.5 million compared to the same period last year.
However, as a percentage of net sales, general and administrative expenses
decreased to 2.3% from 2.7% for the same period last year as a result of
increased sales over which to spread the fixed general and administrative costs
during the first quarter of 2004. The increase in general and administrative
expenses is mainly due to the accrual of a new incentive program as well as
increased information technology personnel expenses and increased expenses
related to compliance with the Sarbanes-Oxley Act.
Interest expense
Three Months
Ended March 31,
Percent Change
--------------------------
2004 2003
---- ----
Interest expense............ 62 (62.9)% 167
as a percent of net sales... 0.1% 0.2%
Interest expense for the three months ended March 31, 2004 and 2003 was
$0.1 million and $0.2 million, respectively. As a percentage of net sales,
interest expense for these same periods was 0.1% and 0.2%, respectively. The
reduction in interest expense is attributable to a reduction in the use of the
$15 million line of credit when comparing the first quarter of 2004 to the same
period last year.
Other income
Three Months
Ended March 31,
Percent Change
--------------------------
2004 2003
---- ----
Other income................ 48 100.0% 2
as a percent of net sales... 0.1% 0.0%
Other income for the first quarter of 2004 is primarily the result of the
sale of real property in Florida. Other income in the first quarter of 2003 is
comprised of interest income earned on cash in the Company's general bank
account. As a percentage of net sales, the amount is not material.
17
Provision (benefit) for income taxes
Three Months
Ended March 31,
Percent Change
--------------------------
2004 2003
---- ----
Provision (benefit) for income taxes.. 396 N/A (2,776)
as a percent of net sales............. 0.4% (3.5)%
The income tax provision for the first quarter of 2004 was $0.4 million
compared to an income tax benefit totaling $2.8 million for the same period last
year. The effective tax rate for the three months ended March 31, 2004 was 37.2%
and was 37.0% for the same period last year.
18
NATIONAL R.V. HOLDINGS, INC.
PART I, ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no significant financial instruments. The Company has not
entered into any derivative financial instruments. The Company does not have any
significant foreign currency exposure because it does not transact business in
foreign currencies. However, the Company is exposed to market risk as a result
of interest rate changes (Interest Rate Risk). Interest rate risk relates
primarily to cash investments in money market funds. Cash balances invested in
these funds are insignificant and consequently, interest rate risk is minimal.
19
NATIONAL R.V. HOLDINGS, INC.
PART I, ITEM 4 - CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's reports
under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to the Company's management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure based closely on the definition of "disclosure controls and
procedures" in Exchange Act Rule 13a-15(e) and 15d-15(e). In designing and
evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives.
As of the end of the quarter covered by this Report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and the
Company's Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on the
foregoing, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures were effective.
As discussed in the Company's 10-K filed with the SEC on March 30, 2004, to
strengthen its inventory costing controls, the Company began performing a full
quarterly physical count of its inventory with this quarter ended March 31,
2004.
Other than the already mentioned full quarterly physical inventory count,
there have been no changes in the Company's internal controls over financial
reporting during the fiscal quarter covered by this report that have materially
affected, or are reasonably likely to materially affect, the Company's internal
controls over financial reporting.
20
NATIONAL R.V. HOLDINGS, INC.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
31.1 Certification of Chief Executive Officer pursuant to Section 301
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 301
of the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
B. Form 8-K
(1) On February 17, 2004, the Company filed a Current Report on Form 8-K
furnishing under Item 9 the Company's financial results for the
fourth quarter and year ended December 31, 2003.
(2) On February 27, 2004, the Company filed a Current Report on Form 8-K
disclosing under Item 5 Other Events, that Robert Lee, retired
as the Chief Executive Officer of the Company's Country Coach
subsidiary, but will assist Country Coach as a consultant and will
remain as a director of the Company.
21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL R.V. HOLDINGS, INC.
(Registrant)
Date: May 12, 2004 By /s/ MARK D. ANDERSEN
-----------------------
Mark D. Andersen
Chief Financial Officer
(Principal Accounting and
Financial Officer)
22