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, 1998
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:
Common Stock, par value $.01 per share New York Stock Exchange
(Title of class) (Name of each Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
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 23, 1999 was
approximately $202,223,415.
The number of shares outstanding of the Registrant's common stock, as of March
23, 1999, was 10,356,972.
Documents Incorporated by Reference: Part III incorporates by reference portions
of the National R.V. Holdings, Inc. Proxy Statement for the 1999 Annual Meeting
of Stockholders.
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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 208 dealer locations in 38 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. 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 be
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lived 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 1998 increased 15.0% to 292,700 from 254,500 in 1997. The
aggregate wholesale value of these 1998 shipments was $6.7 billion, with Class A
motorhomes comprising $3.3 billion or 48.7% of the total and fifth-wheel travel
trailers comprising $1.1 billion or 17.0% of the total. Unit shipments of Class
A motorhomes in 1998 increased 14.1% to 42,900 from 37,600 in 1997. The average
wholesale price of Class A motorhomes increased in 1998 to $75,754 from $69,925
in 1997. Unit shipments of fifth-wheel travel trailers increased 7.0% in 1998 to
56,500 from 52,800 in 1997. The average wholesale price of fifth-wheel travel
trailers increased in 1998 8.4% to $20,119 from $18,558 in 1997.
While overall unit shipments have increased over the past five years,
the RV industry's manufacturing base has undergone a consolidation. Between 1992
and 1998, the number of Class A motorhome manufacturers declined from 45 to 25.
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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 92.5%.
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 8.6 million households (or 9.8% of all households) in the United
States owned RVs in 1997, up from 8.2 million in 1993, 7.7 million in 1988 and
5.8 million in 1980. In addition, the study indicated that 67% of all current RV
owners and 25% of all former RV owners plan to purchase another RV in the
future. This study further indicated that 65% of RVs purchased are used (RVIA
and market share statistics reflect new product sales only) with more than 34%
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 16.4% of households in this category owning RVs. The number of
households in this group, which constitutes the Company's primary target market,
is projected to grow by 8.0 million households, or 63% from 1997 to 2010 as
compared to total growth of 14.9 million households, or 14.9%. 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
integrated manufacturing processes; (iv) capitalizing on the Company's
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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 twelve 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 $42,000 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, 1998, the Company was the third largest manufacturer of Highline
motorhomes, with approximately 14.8% of this market, up from 12.1% in 1997. 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
population and satisfy the desire of many current RV owners to purchase more
upscale vehicles.
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Identifying and Acquiring Related Businesses Serving Niche Markets. As
illustrated by the Company's 1996 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, Sea View and Surf Side 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. Built on the 40' and 45' LeMirage XL
or the H3-45 VIP chassis, the Country Coach Prevost Conversion combines creative
floor plans with fully custom interiors and stunning one-of-a kind exteriors.
Among its many features are computerized touch pad switching, computerized air
leveling, and a voice synthesized monitoring system. Slide-out floor plans
provide expanded living space in a conversion with every imaginable comfort or
amenity. Suggested retail prices start at $659,000. The Country Coach Prevost
Conversion was introduced in 1979.
Concept. Completely custom and all-electric, the 40' and 45' wide-body
bus-style Concept is built from the ground up on the DynoMax chassis and is
powered by a 500 horsepower Detroit Diesel Series 60 engine. The Concept's
Pentium computer-driven digital dash features a Global Positioning System (GPS).
Alpha and Omega floorplans incorporate fully custom interior schemes and
Euro-styled Vitricor or laminate cabinetry. Suggested retail prices start at
$525,910. The Concept was introduced in 1988.
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Affinity. Built on the DynoMax chassis, the 38', 40' and new 42' models
feature the CAT 455 horsepower C-12 engine. The wide-body, bus-style Affinity
offers 12 exterior color combinations (or choose custom colors) with seven
custom graphic schemes. Galley slide floor plans are available. Six designer
coordinated interior schemes (or customize) are offered with 13 floor plan
combinations. The 42' Affinity with a liftable tag axle and dual-slide floor
plan, the Bed & Breakfast, debuted in the 1999 model year. Suggested retail
prices start at $361,200. The Affinity was introduced in 1991.
Magna. In 36', 38' and 40' lengths, the wide-body, bus-style Magna is
built on the DynoMax diesel-powered chassis featuring the Cummins 350 horsepower
engine or CAT C-10 385 horsepower engine. Over 15 floor plan combinations and
six designer coordinated interior packages (modify or completely customize)
complement the 12 exterior color combinations (or choose custom exterior
graphics). Full size living room slides and new galley slides maximize interior
living. Suggested retail prices start at $272,450. The Magna was introduced in
1991.
Intrigue. The wide-body, bus-style Intrigue, in 32", 36' and 40'
lengths, is built on the DynoMax chassis and is powered by the Cummins 330 or
350 horsepower engine. It features custom crafted cabinetry with three color
coordinated interior packages and 23 floor plan arrangements. Full size living
room slides and new galley slides are available. Suggested retail prices start
at $191,100. The Intrigue was introduced in 1994.
Allure. This entry level wide-body Highline motorcoach, in 32', 36' and
40' lengths, is built on the DynoMax chassis. The Allure is powered by the
Cummins 275 or 330 horsepower engine and features painted graphics, clear coat
and bus-style aerodynamics. Offering three designer coordinated interior
packages and 17 floor plan combinations, the Allure is available with full size
living room slides and galley slides. Suggested retail prices start at $161,950.
The Allure was introduced in 1995.
Tradewinds. The Tradewinds is available in three floorplans on a diesel
powered chassis. These models are full-basement wide-body, bus-style motorhomes.
All models have automatic slide-out features that expand the interior of the
motorhome and add approximately 36 square feet of additional living space. All
models are produced in 36 foot lengths and are available with a choice of oak or
walnut interiors. Suggested retail prices range from $145,000 to $147,000.
Dolphin. The Dolphin is available in seven floorplans on a gas-powered
chassis. These models are full-basement wide-body, bus-style motorhomes. All
models have automatic slide-out features that expand the interior of the
motorhome and add approximately 36 square feet of additional living space. The
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Dolphin models are produced in 33 to 37 foot lengths and have suggested retail
prices that range from $90,000 to $100,000.
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 seven floorplans on a gas-powered
chassis and produced in 33 to 37 foot lengths. All 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 $93,000 to $104,000.
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 $66,000 to $75,000. The Sea Breeze was introduced in May
1992.
Sea View. The Sea View is available in four floorplans on a gas-powered
chassis. These models are full-basement wide-body, bus-style motorhomes. All
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 34 foot lengths and have suggested retail
prices that range from $82,000 to $87,000.
Surf Side. The Surf Side is available in one floorplan on a
gas-powered chassis. This full-basement wide-body, bus-style motorhome is 31
feet long and has a suggested retail price of $65,000.
Sea Breeze Fifth-Wheel Travel Trailer. The Sea Breeze fifth-wheel
travel trailer comes in eight floorplans equipped similar to a Sea Breeze
motorhome. All floorplans feature standard living room and bedroom slide-out
sections and are produced in 29 to 37 foot lengths. Suggested retail prices
range from $42,000 to $51,000.
Planned Product Introductions
During 1999, NRV will develop a 40 foot Highline galley slide motorhome
built on a Country Coach DynoMax chassis with a retail price of approximately
$200,000. A new Tradewinds model will be developed on a Spartan chassis. A
slide-out floorplan will be developed in the narrow-body Sea Breeze line.
During 1999, CCI will develop a new generation Prevost bus conversion
with a "double-slide" floorplan.
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Distribution and Marketing
The Company markets NRV products through a network of 188 dealer
locations in 38 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 20 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, 1998,
the Company's contingent liability under these agreements was approximately
$88.3 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
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gain on a qualifying sale, currently apply to motorhomes and travel trailers
used as qualifying residences.
Manufacturing Facilities and Production
NRV owns and operates a 400,000 square foot manufacturing facility
located on approximately 30 acres in Perris, California. NRV owns another 19
acres of land in Perris 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.
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Product Development
The Company utilizes a combined research and development staff of 93
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
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 $3,050,000, $2,711000 and $1,077,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
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 manufactures its own chassis, the DynoMax, which is used as the base
upon which all 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.
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Backlog
The Company's backlog of orders was $168.8 million as of February 28,
1999 and $98.4 million as of February 28, 1998. All backlog orders are subject
to cancellation. To the extent not canceled, the Company expects that its
backlog as of February 28, 1999 will be filled within 60 days at NRV and one
year at CCI 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 42.1% and 45.0% of total retail units sold in the Class A
motorhome market during 1998 and 1997, 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, 7.8% in 1997, and 8.2% in 1998.
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
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and disposal which affect the business and operations of the Company. California
environmental emission regulations limit the amount of fiberglass which the
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 $5.8 million at December 31, 1998,
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, 1999, the Company employed a total of 1,903 people,
of which 1,678 were involved in manufacturing, 66 in administration, 93 in
research and development and 66 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
<PAGE>
Item 2. Properties
The Company owns and operates a 400,000 square foot manufacturing
facility located on approximately 30 acres in Perris, California utilized by
NRV. The Company owns another 19 acres of land in Perris that will be used for
future expansion. During 1998, the Company purchased 10 acres of land and a
110,000 sq. ft. production facility in Junction City, Oregon previously held
under lease by CCI. The Company also leases and operates manufacturing
facilities totaling 276,000 square feet located on approximately 30 acres in
Junction City, Oregon utilized by CCI. The Company believes that present
facilities are well maintained and in good condition. The plants are currently
operating at approximately 70% 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
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
On December 14, 1998, the Company's Common Stock, par value $.01 per
share (the "Common Stock"), began trading on the New York Stock Exchange under
the symbol NVH, and prior to such date traded on 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 July 1998, the Company declared a 3-for-2
stock split paid on July 24, 1998. 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.
1998 High Low
First Quarter $ 29.69 $ 16.94
Second Quarter 30.81 21.38
Third Quarter 33.67 17.56
Fourth Quarter 28.00 13.13
1997 High Low
First Quarter $ 10.00 $ 8.31
Second Quarter 10.75 7.69
Third Quarter 14.56 10.06
Fourth Quarter 22.75 12.69
On March 22, 1999, the last reported sales price for the Common Stock
quoted on the New York Stock Exchange was $22.94 per share. As of March 22,
1999, there were 83 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
<PAGE>
Item 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except per share and unit amounts)
<TABLE>
<CAPTION>
Seven Months
Years Ended Ended Fiscal Years Ended
December 31, December 31, May 31,
------------------------------------------- ------------ ----------------------
1998 1997 1996 1995 1995 1995 1994
--------- ---------- --------- ------------ ------------ --------- ------------
(Unaudited) (5)
Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $360,326 $ 285,951 $137,101 $ 89,397 $ 53,062 $ 81,379 $ 71,749
Cost of sales 302,098 245,763 118,643 78,089 46,864 70,459 62,115
--------- ---------- --------- ------------ ------------ --------- ------------
Gross profit 58,228 40,188 18,458 11,308 6,198 10,920 9,634
Selling expenses 11,154 9,518 4,209 2,643 1,586 2,399 2,019
General and administrative expenses 6,586 5,649 2,899 2,455 1,233 2,243 1,706
Amortization of intangibles (1) 413 413 80 - - - 278
--------- ---------- --------- ------------ ------------ --------- ------------
Operating income 40,075 24,608 11,270 6,210 3,379 6,278 5,631
Interest (income) expense, net (280) 222 111 3 (15) (8) 281
Other financing related costs 213 113 149 178 136 132 233
Gain on early extinguishment of debt - - - - - - (226)
Gain on sale of land and equipment - - - - - (23) (1)
--------- ---------- --------- ------------ ------------ --------- ------------
Income before income taxes and extraordinary item 40,142 24,273 11,010 6,029 3,258 6,177 5,344
Provision for income taxes 16,033 9,767 4,405 2,387 1,324 2,443 2,212
--------- ---------- --------- ------------ ------------ --------- ------------
Net income before extraordinary items 24,109 14,506 6,605 3,642 1,934 3,734 3,132
Loss on investment in marketable equity securities - - - (958) - (958) -
Gain on early extinguishment of debt - - - 342 342 - -
--------- ---------- --------- ------------ ------------ --------- ------------
Net income $ 24,109 $ 14,506 $ 6,605 $ 3,026 $ 2,276 $ 2,776 $ 3,132
Basic earnings per common share:
Income before extraordinary items $ 2.35 $ 1.55 $ 0.92 $ 0.51 $ 0.28 $ 0.51 $ 0.52
Extraordinary items - - - (0.09) 0.05 (0.13) -
--------- ---------- --------- ------------ ------------ --------- ------------
Net income $ 2.35 $ 1.55 $ 0.92 $ 0.42 $ 0.33 $ 0.38 $ 0.52
Diluted earnings per common share:
Income before extraordinary items $ 2.11 $ 1.40 $ 0.84 $ 0.50 $ 0.27 $ 0.49 $ 0.51
Extraordinary items - - - (0.09) 0.04 (0.12) -
--------- ---------- --------- ------------ ------------ --------- ------------
Net income $ 2.11 $ 1.40 $ 0.84 $ 0.41 $ 0.31 $ 0.37 $ 0.51
Weighted average number of common shares outstanding:
Basic 10,263 9,365 7,190 7,070 6,915 7,290 6,006
Diluted 11,423 10,390 7,887 7,268 7,301 7,544 6,078
Other Data:
Class A units sold 3,652 3,039 2,042 1,504 905 1,476 1,413
Class C units sold (2) - - - - - - 143
Fifth-Wheel Travel Trailers sold 410 258 210 299 132 217 -
Balance Sheet Data:
Total assets (3) $ 117,739 $ 87,204 $ 68,050 $ 34,308 $ 34,308 $ 41,592 $ 45,972
Working capital 63,480 39,271 29,553 15,080 15,080 15,482 17,695
Long-term debt (4) 1,700 6,703 7,272 7,034 7,034 16,282 16,629
Stockholders' equity 94,489 60,958 45,532 18,625 18,625 18,389 19,585
</TABLE>
15
<PAGE>
(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.
(5) In 1995, the Company changed its fiscal year end from May 31 to
December 31.
16
<PAGE>
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.
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
Years Ended
December 31,
-----------------------------
1998 1997 1996
-------- -------- -------
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales 83.8 86.0 86.5
-------- -------- -------
Gross profit 16.2 14.0 13.5
Selling 3.1 3.3 3.1
General and administrative 1.9 2.0 2.1
Amortization of intangibles 0.1 0.1 0.1
-------- -------- -------
Operating income 11.1 8.6 8.2
Interest (income) expense, net (0.1) 0.1 0.1
Other financing related costs 0.1 0.0 0.1
-------- -------- -------
Income before income taxes 11.1 8.5 8.0
Provision for income taxes 4.4 3.4 3.2
-------- -------- -------
Net income 6.7 5.1 4.8
17
<PAGE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales in 1998 increased by $74.4 million, or 26.0%, from 1997.
NRV's sales of Class A motorhomes increased 558 units, or 22.0%, in 1998 to
3,097 units compared to 2,539 units in 1997, and the average sales price
increased 5.3% reflecting strong demand for higher-priced motorhomes with
slide-out rooms. Sales of fifth-wheel travel trailers increased 152 units, or
58.9%, in 1998 to 410 units compared to 258 units in 1997. CCI's unit sales
increased 55 units, or 11.0%, in 1998 to 555 units compared to 500 units in
1997.
Cost of goods sold in 1998 increased by $56.3 million, or 22.9%, from
1997 resulting primarily from increased net sales. Gross profit margin was 16.2%
in 1998 compared to 14.0% in 1997. The increase resulted primarily from
manufacturing efficiencies realized from operating at a higher production level.
Selling expenses in 1998 increased by $1.6 million, or 17.2%, from 1997
primarily due to the increase in net sales. As a percentage of net sales,
selling expenses decreased to 3.1% in 1998 from 3.3% in 1997.
General and administrative expenses in 1998 increased by $0.9 million,
or 16.6%. As a percentage of net sales, general and administrative expenses
decreased to 1.9% in 1998 from 2.0% in 1997.
Amortization of intangibles were $0.4 million in 1998 and 1997.
As a result of the foregoing, operating income in 1998 increased by
$15.5 million, or 62.9%, to $40.0 million. As a percentage of net sales,
operating income increased to 11.1% in 1998 from 8.6% in 1997.
Other expenses (income), which includes net interest expense and other
financing related costs, decreased by $402,000 to $67,000 of income in 1998 from
$335,000 of expense in 1997. The change was primarily due to a $321,000 increase
in interest income resulting from increased cash balances.
As a result of the foregoing, income before income taxes in 1998
increased $15.9 million, or 65.4%, from 1997 to $40.1 million. As a percentage
of net sales, income before income taxes increased to 11.1% from 8.5% in 1997.
Provision for income taxes in 1998 and 1997 was $16.0 million and $9.8
million, respectively, representing a $6.2 million increase. The effective tax
rate in 1998 was 39.9% compared to 40.2% in 1997.
18
<PAGE>
As a result of the foregoing, net income increased $9.6 million, or
66.2%, to $24.1 million from $14.5 million in 1997. As a percentage of net
sales, net income increased to 6.7% from 5.1% in 1997.
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 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 (income), 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.
19
<PAGE>
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.
Liquidity and Capital Resources
During 1998, the Company financed its operations primarily through its
existing cash and income from operations. At December 31, 1998, the Company had
working capital of $63.5 million compared to $39.3 million at December 31, 1997.
This increase of $24.2 million was primarily due to a $6.9 million increase in
cash, $9.3 million increase in accounts receivable, and a $9.3 million increase
in inventory, partially offset by a $2.5 million increase in accrued expenses.
The increase in accrued expenses was due primarily to a $1.8 million increase in
warranty reserve and a $1.1 million increase in workers' compensation reserve.
Net cash provided by operating activities was $15.6 million for the year ended
December 31, 1998.
During the year ended December 31, 1998, net cash used in investing
activities was $6.7 million and includes $6.4 million of capital expenditures,
related primarily to $1.6 million of building improvements at NRV and the
exercise of a $2.1 million real estate purchase option at CCI.
During the twelve months ended December 31, 1998, net cash used by
financing activities was $2.0 million due mainly to a $5.3 million reduction in
long-term debt partially offset by proceeds from the exercise of Company stock
options and warrants.
As of December 31, 1998, the Company had short-term debt of $0.2
million and long-term debt of $1.7 million. Short-term debt consisted of current
maturities of the Company's long-term debt. At December 31, 1998, long-term debt
consisted primarily of the Company's industrial development revenue bond issue
used for the 1985 construction of the NRV facility.
The Company and its subsidiaries have 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
20
<PAGE>
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 covenants. At December
31, 1998, no amounts were outstanding under these revolving credit facilities.
On March 23, 1999, the Company received $2.55 million as a partial
distribution in respect of its limited partnership interest in Dune Jet
Services, L.P. See Note 11 to the Consolidated Financial Statements.
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.
Year 2000 Date Conversion
An issue affecting the Company and most other companies is whether
computer systems and applications will recognize and process the year 2000 and
beyond. The Company is in the process of assessing and implementing necessary
changes for all areas of the Company's business which could be impacted; these
include such areas as business computer systems, dealership systems, plant floor
equipment, end-user computing, financial institutions and suppliers.
Based on assessments completed to date and compliance plans in process,
the Company does not expect that the year 2000 issue will have a material effect
on its business operations, consolidated financial condition, cash flows, or
results of operations. However, if appropriate modifications are not made by the
Company's suppliers or dealers on a timely basis, or if the Company's actual
costs or timing for the year 2000 date conversion differ materially from its
present estimates, the Company's operations and financial results could be
significantly adversely affected.
Forward Looking Statements
Statements contained in this Form 10-K that are not historical facts
are 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
21
<PAGE>
materially from that projected or suggested herein due to certain risks and
uncertainties including, without limitation, the cyclical nature of the
recreational vehicle industry; seasonality and potential fluctuations in the
Company's operating results; the Company's dependence on chassis suppliers; the
integration by the Company of acquired businesses and the management of growth;
potential liabilities under repurchase agreements; competition; government
regulation; product liability; dependence on key personnel and dependence on
certain dealers and concentration of dealers in certain regions. Additional
information concerning certain risks and uncertainties that could cause actual
results to differ materially from that projected or suggested may be identified
from time to time in the Company's filings with the Securities and Exchange
Commission (SEC) and the Company's public announcements, copies of which are
available from the SEC or from the Company upon request.
Item 7A. 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.
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
22
<PAGE>
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 1999 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission not later than 120 days
after December 31, 1998, 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 1999 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission not later than 120 days
after December 31, 1998, 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 1999 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission not later than 120 days
after December 31, 1998, 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 1999 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission not later than 120 days
after December 31, 1998, which information is incorporated herein by reference.
23
<PAGE>
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, 1998 and 1997
Consolidated Statements of Income for the years ended
December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997, and 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule VIII - Valuation and Qualifying Accounts
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)
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)
24
<PAGE>
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)
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)
25
<PAGE>
10.24 Second Amendment to Ford Authorized Converter Pool Agreement, effective
August 14, 1995 between the NRV and Ford Motor Company. (5)
10.25 1995 Stock Option Plan. (5)
10.26 Payment terms with Freightliner Custom Chassis Corporation. (5)
10.27 Third Amendment to Employment Agreement, dated October 31,1996, between
the Company and Wayne M. Mertes. (7)
10.28 Rights Plan Agreement with Continental Stock Transfer & Trust Company.
(6)
10.29 Employment Agreement dated November 6, 1996, between CCI and Robert B.
Lee. (7)
10.30 1996 Stock Option Plan. (7)
10.31 Revolving Credit Agreement, dated as of July 28, 1997, between the
Company and Union Bank of California, N.A. (8)
10.32 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)
10.33 1997 Stock Option Plan (9)
10.34 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. (9)
10.35 Fourth Amendment to Employment Agreement, dated October 31,1998,
between the Company and Wayne M. Mertes.
21.1 List of Subsidiaries. (9)
23.1 Consent of PricewaterhouseCoopers LLP
99 Forward Looking Statements. (10)
- ---------------
(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.
(9) Incorporated by reference from the Company's Form 10-K for the year
ended December 31, 1997.
26
<PAGE>
(10) Incorporated by reference from the Company's Form 10-Q for the nine
months ended September 30, 1998.
27
<PAGE>
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 29, 1999 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 29, 1999
Gary N. Siegler
/s/ Wayne M. Mertes Chief Executive Officer March 29, 1999
Wayne M. Mertes and Director (Principal
Executive Officer)
/s/ Robert B. Lee Director March 29, 1999
Robert B. Lee
/s/ Kenneth W. Ashley Chief Financial Officer (Principal March 29, 1999
Kenneth W. Ashley Accounting and Financial Officer)
/s/ Stephen M. Davis Director and Secretary March 29, 1999
Stephen M. Davis
/s/ Neil H. Koffler Director March 29, 1999
Neil H. Koffler
/s/ Doy B. Henley Director March 29, 1999
Doy B. Henley
/s/ Greg McCaffery Director March 29, 1999
Greg McCaffery
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, 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.
Los Angeles, CA
February 12, 1999
F-1
<PAGE>
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1998 1997
------------------- -------------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 10,446,000 $ 3,542,000
Receivables, less allowance for doubtful accounts
($188,000 and $180,000, respectively) 20,719,000 11,388,000
Inventories 46,832,000 37,543,000
Deferred income taxes 3,883,000 2,741,000
Prepaid expenses 809,000 1,375,000
------------------- -------------------
Total current assets 82,689,000 56,589,000
Goodwill - net 7,365,000 7,778,000
Property, plant and equipment, net 24,341,000 19,817,000
Other 3,344,000 3,020,000
------------------- -------------------
$117,739,000 $ 87,204,000
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 166,000 $ 554,000
Accounts payable 8,771,000 9,006,000
Accrued expenses 10,272,000 7,758,000
------------------- -------------------
Total current liabilities 19,209,000 17,318,000
Deferred income taxes 2,341,000 2,225,000
Long-term debt 1,700,000 6,703,000
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000 shares
authorized, 4,000 issued and outstanding - -
Common Stock, $.01 par value, 25,000,000 shares
authorized, 10,322,837 and 9,467,034 issued and
outstanding, respectively 103,000 63,000
Additional paid-in capital 44,645,000 35,263,000
Retained earnings 49,741,000 25,632,000
------------------- -------------------
Total stockholders' equity 94,489,000 60,958,000
------------------- -------------------
$117,739,000 $ 87,204,000
=================== ===================
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE>
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net sales $360,326,000 $285,951,000 $137,101,000
Cost of goods sold 302,098,000 245,763,000 118,643,000
------------------ ------------------ ------------------
Gross profit 58,228,000 40,188,000 18,458,000
------------------ ------------------ ------------------
Selling expenses 11,154,000 9,518,000 4,209,000
General and administrative expenses 6,586,000 5,649,000 2,899,000
Amortization of intangibles 413,000 413,000 80,000
------------------ ------------------ ------------------
Total operating expenses 18,153,000 15,580,000 7,188,000
------------------ ------------------ ------------------
Operating income 40,075,000 24,608,000 11,270,000
Other expenses (income):
Interest income (434,000) (113,000) (246,000)
Interest expense 154,000 335,000 357,000
Other financing related costs 213,000 113,000 149,000
------------------ ------------------ ------------------
Total other expenses (income) (67,000) 335,000 260,000
------------------ ------------------ ------------------
Income before income taxes 40,142,000 24,273,000 11,010,000
Provision for income taxes 16,033,000 9,767,000 4,405,000
------------------ ------------------ ------------------
Net income $24,109,000 $14,506,000 $ 6,605,000
================== ================== ==================
Earnings per common share:
Basic $ 2.35 $ 1.55 $ 0.92
Diluted $ 2.11 $ 1.40 $ 0.84
Weighted average number of shares:
Basic 10,263,157 9,364,574 7,190,003
Diluted 11,423,471 10,389,640 7,887,104
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------------------------------------
1998 1997 1996
----------------- ---------------- -----------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $24,109,000 $14,506,000 $ 6,605,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,880,000 1,322,000 516,000
Amortization of intangibles 413,000 413,000 80,000
Tax benefit related to exercise of stock options 6,021,000 - -
Changes in assets and liabilities:
(Increase) decrease in receivables (9,331,000) (5,866,000) 2,567,000
Increase in inventories (9,289,000) (3,528,000) (6,249,000)
Decrease (increase) in prepaid expenses 566,000 (143,000) (251,000)
(Decrease) increase in accounts payable (235,000) 1,270,000 (1,421,000)
Increase in accrued expenses 2,514,000 4,020,000 13,000
Decrease in deferred income taxes (1,026,000) (959,000) (350,000)
----------------- ---------------- -----------------
Net cash provided by operating activities 15,622,000 11,035,000 1,510,000
Cash flows from investing activities:
Payment for CCI acquisition costs - - (437,000)
Increase in other assets (324,000) (2,885,000)
Capital expenditures (6,404,000) (5,597,000) (5,141,000)
----------------- ---------------- -----------------
Net cash used by investing activities (6,728,000) (8,482,000) (5,578,000)
Cash flows from financing activities:
Decrease in line of credit - (1,400,000) (9,965,000)
Net proceeds from restricted funds - 1,210,000 3,637,000
Principal payments on long-term debt (5,391,000) (560,000) (160,000)
Proceeds from issuance of common stock 3,401,000 1,140,000 12,255,000
Purchase of treasury stock - (220,000) (953,000)
----------------- ---------------- -----------------
Net cash (used) provided by financing activities (1,990,000) 170,000 4,814,000
----------------- ---------------- -----------------
Net increase in cash 6,904,000 2,723,000 746,000
Cash, beginning of year 3,542,000 819,000 73,000
----------------- ---------------- -----------------
Cash, end of year $10,446,000 $ 3,542,000 $ 819,000
================= ================ =================
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Common Stock Paid-In Retained Treasury Stock
Stock Shares Amount Capital Earnings Shares Amount Total
---------- --------- ------- ----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ - 8,332,704 $56,000 $21,043,000 $ 4,521,000 (1,083,330) $(6,995,000) $18,625,000
Common stock issued
under option plan 30,565 - 83,000 - - 83,000
Common stock issued
upon exercise of warrants 529,400 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 397,659 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 $ - 9,290,328 $62,000 $34,344,000 $11,126,000 - $ - $45,532,000
Common stock issued
under option plan 54,681 - 183,000 183,000
Common stock issued
upon exercise of warrants 122,025 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 $ - 9,467,034 $63,000 $35,263,000 $25,632,000 - $ - $60,958,000
Stock split - 3-for-2 31,000 (31,000) -
Common stock issued
under option plan 797,517 8,000 3,158,000 3,166,000
Common stock issued
upon exercise of warrants 58,286 1,000 234,000 235,000
Tax benefit related to
exercise of stock options 6,021,000 6,021,000
Net income 24,109,000 24,109,000
---------- --------- ------- ----------- ---------- ----------- ------------ -----------
Balance, December 31, 1998 $ - 10,322,837 $103,000 $44,645,000 $49,741,000 - $ - $94,489,000
========== ========== ======== =========== =========== =========== ============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
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, Tradewinds, and
Sea View brand names and by CCI under brand names including Concept, Affinity,
Magna, Intrigue, and Allure.
The preparation of financial statements in accordance with generally accepted
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 are 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
$3,050,000, $2,711,000 and $1,077,000 for the years ended December 31, 1998,
1997 and 1996, respectively.
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.
SEGMENTS
The Company operates in one reportable segment: the manufacturing, wholesale
distribution, and service of recreational vehicles. The Company does not have
operations outside the United States.
F-6
<PAGE>
1. (Continued)
INCOME 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. All common stock information set
forth in the consolidated financial statements and notes thereto has been
retroactively adjusted to reflect the 3-for-2 stock split paid in 1998.
The difference in the shares used to determine basic and diluted EPS is as
follows:
Year Ended
December 31,
----------------------------------------------------
1998 1997 1996
------------------ ------------------ --------------
Shares used for basic 10,263,157 9,364,574 7,190,003
Dilutive effect of:
Stock options 1,151,889 997,859 644,322
Warrants 8,425 27,207 52,779
------------------ ------------------ --------------
Shares used for diluted 11,423,471 10,389,640 7,887,104
================== ================== ==============
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 consist of the following:
December 31,
1998 1997
------------------ -------------------
Finished goods $ 11,112,000 $ 10,751,000
Work-in-process 13,815,000 12,769,000
Raw materials 12,477,000 11,747,000
Chassis 9,428,000 2,276,000
------------------ -------------------
$ 46,832,000 $ 37,543,000
================== ===================
4. Property, Plant and Equipment
Major classes of property, plant and equipment consist of the following:
December 31,
1998 1997
------------------ -------------------
Land $ 3,442,000 $ 3,310,000
Buildings 15,289,000 11,825,000
Machinery and equipment 9,073,000 7,501,000
Office equipment 4,241,000 3,082,000
------------------ -------------------
32,045,000 25,718,000
Less accumulated depreciation (7,704,000) (5,901,000)
------------------ -------------------
Property, plant and equipment, net $ 24,341,000 $ 19,817,000
================== ===================
F-7
<PAGE>
5. Accrued Expenses
Accrued expenses consist of the following:
December 31,
1998 1997
---------------- -----------------
Workers compensation self-insurance reserve $ 1,494,000 $ 402,000
Motorhome warranty reserve 5,824,000 4,036,000
Payroll and other accrued expenses 2,954,000 2,334,000
Income taxes - 986,000
---------------- -----------------
$ 10,272,000 $ 7,758,000
================ =================
6. Debt and Credit Agreements
Debt consists of the following:
December 31,
1998 1997
------------------ -------------------
Industrial revenue bonds
4.6%, due 1998-2003 $ 1,742,000 $ 1,888,000
Paid in full in 1998 - 4,700,000
Other borrowings 124,000 669,000
------------------ -------------------
1,866,000 7,257,000
Less payments due within one year 166,000 554,000
------------------ -------------------
$ 1,700,000 $ 6,703,000
================== ===================
The Company and its subsidiaries have two separate, revolving credit facilities
aggregating $40 million with Union Bank of California. A $20 million credit
facility is available to finance potential acquisitions. NRV and CCI jointly
have a separate $20 million credit facility which is available for general
corporate and working capital needs and capital expenditures. Amounts borrowed
under the credit facilities 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 $165,900 in 1999, $166,500 in 2000,
$167,100 in 2001, $167,700 in 2002 and $1,199,100 in 2003 and thereafter.
7. Income Taxes
The components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1998 1997 1996
----------------- --------------- ---------------
Currently Payable:
<S> <C> <C> <C>
Federal $13,837,000 $8,765,000 $3,686,000
State 3,173,000 1,954,000 1,048,000
----------------- --------------- ---------------
17,010,000 10,719,000 4,734,000
Deferred:
Federal (750,000) (796,000) (305,000)
State (227,000) (156,000) (24,000)
----------------- --------------- ---------------
(977,000) (952,000) (329,000)
----------------- --------------- ---------------
Total provision for income taxes $16,033,000 $9,767,000 $4,405,000
================= =============== ===============
</TABLE>
F-8
<PAGE>
7. (Continued)
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, 1998 and 1997 were as follows:
December 31,
------------------------------------
1998 1997
----------------- ---------------
Accrued expenses $3,293,000 $2,357,000
State income taxes 590,000 384,000
----------------- ---------------
Deferred income tax assets $3,883,000 $2,741,000
================= ===============
Fixed assets $1,767,000 $1,697,000
Other 574,000 528,000
----------------- ---------------
Deferred income tax liabilities $2,341,000 $2,225,000
================= ===============
A reconciliation of the statutory U.S. federal income tax rate to the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1998 1997 1996
----------------- --------------- ---------------
<S> <C> <C> <C>
Statutory rate 35.0 % 34.0 % 34.0 %
State taxes, net of federal benefit 4.7 4.8 6.1
Amortiztion of intangibles not
deductible for income tax purposes 1.0 1.7 0.6
Other (0.8) (0.3) (0.7)
----------------- --------------- ---------------
39.9 % 40.2 % 40.0 %
================= =============== ===============
</TABLE>
Cash paid for income taxes was $16,114,000, $9,439,000 and $4,971,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
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 $88,300,000 at December 31, 1998, 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:
1999 $ 1,190,000
2000 1,020,000
2001 12,000
2002 7,000
2003 7,000
-------------------
$ 2,236,000
===================
F-9
<PAGE>
10. Stock Options and Warrants
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. The exercise of stock options represents a tax benefit for
the Company which has been reflected as a reduction of income taxes payable and
an increase to additional paid-in-capital amounting to $6,021,000 in 1998.
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 1997 and 1998, the Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income As reported $ 24,109,000 $ 14,506,000 $6,605,000
Pro forma 23,595,000 12,566,000 5,891,000
Basic earnings per share As reported 2.35 1.55 0.92
Pro forma 2.30 1.34 0.82
Diluted earnings per share As reported 2.11 1.40 0.84
Pro forma 2.06 1.21 0.75
</TABLE>
The fair value of options granted during 1996 and 1997 were estimated on the
date of grant using the Cox Rubinstein binomial option-pricing model with the
following weighted-average assumptions used for grants:
Year Ended December 31,
1997 1996
- -------------------------------------------------------------------------------
Dividend yield 0% 0%
Expected volatility 51.1% 50.8%
Risk-free interest rate 6.4% 6.3%
Expected lives 5-10 years 5-10 years
F-10
<PAGE>
10. (Continued)
Information regarding these option plans and option agreements for 1998, 1997
and 1996 is as follows:
Weighted
Average
Options Exercise
Outstanding Price
- -------------------------------------------------------------------------------
Outstanding at December 31, 1995 1,208,438 $ 3.55
Granted 670,500 9.81
Expired or canceled - -
Exercised (30,595) 2.71
-----------------------------------
Outstanding at December 31, 1996 1,848,343 5.84
Granted 900,000 10.08
Expired or canceled - -
Exercised (54,681) 3.12
-----------------------------------
Outstanding at December 31, 1997 2,693,662 7.31
Granted - -
Expired or canceled - -
Exercised (856,205) 5.55
-----------------------------------
Outstanding at December 31, 1998 1,837,457 $ 8.16
===================================
<TABLE>
<CAPTION>
Average Weighted
Grant Options Options Exercise Remaining
Date Authorized Outstanding Exercisable Price Life (Years)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9/20/93 450,000 158,750 158,750 $ 2.667 4.8
12/3/93 348,750 101,250 101,250 4.613 5.0
12/30/94 199,688 136,544 136,544 3.330 5.7
9/28/95 225,000 102,658 102,658 3.750 5.9
10/2/1996-11/06/96 675,000 495,100 284,100 9.875 5.4
6/4/97 900,000 811,655 211,655 10.083 7.0
All others 236,625 31,500 24,000 5.732 2.9
-------------------------------------------------
3,035,063 1,837,457 1,018,957 8.155 6.0
=================================================
</TABLE>
The weighted average fair value of options granted during 1997 and 1996 was
$6.10 and $4.20, respectively.
At December 31, 1998, there were 15,631 warrants outstanding to a financial
advisor at a price of $10.73. The warrants are due to expire on December 2,
2001.
11. Related Party Transactions
Through December 31, 1998, the Company was a party to 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. The Advisory Agreement terminated effective December
31, 1998. Pursuant to the Advisory Agreement, the Affiliate 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.
F-11
<PAGE>
11. (Continued)
Fees incurred under the Advisory Agreement in 1998 and under a prior advisory
agreement in 1997 and 1996 between the Company and the Affiliate totaled
$231,000, $220,000 and $150,000 for the fiscal years ended December 31, 1998,
1997 and 1996, respectively. In addition, a Chairman's salary and bonus of
$190,000 for 1998, $205,000 for 1997, and $180,000 for 1996 in the aggregate
were paid to Mr. Siegler. 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 a joint venture which is a party to a
lease agreement with the Company's CCI subsidiary. Pursuant to the agreement,
CCI leases from the joint venture a parcel of property constituting a majority
CCI's manufacturing facilities. During the year ended December 31, 1998, the
Company paid $1,134,000 under the lease agreement. The lease agreement calls for
future payments of $1,159,000 annually, adjusted 3% annually for inflation,
through October 31, 2000. In addition, Mr. Lee is a partner in another joint
venture which in 1998 leased to CCI a separate parcel containing manufacturing
facilities used by CCI (the "Acquired Property"). During fiscal 1998, the
Company paid $334,000 in rent under the lease agreement for the Acquired
Property. On October 8, 1998, the Company purchased the Acquired Property from
Mr. Lee's joint venture for $2,100,000 pursuant to the exercise of a purchase
option contained in the lease agreement for such property.
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, 1998.
F-12
<PAGE>
NATIONAL R.V. HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance at
beginning costs end of
of period and expenses Deductions Period
Twelve months ended December 31, 1998
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 180,000 $ 19,664 $ 11,664 $ 188,000
Workers compensation self-insurance reserve 402,000 3,608,907 2,516,907 1,494,000
Motorhome warranty reserve 4,036,000 10,018,529 8,230,529 5,824,000
----------------- ---------------- ---------------- ----------------
$ 4,618,000 $13,647,100 $10,759,100 $ 7,506,000
Twelve months ended December 31, 1997
Allowance for doubtful accounts $ 177,000 $ 12,842 $ 9,842 $ 180,000
Workers compensation self-insurance reserve 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 reserve 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
</TABLE>
F-13
<PAGE>
Exhibit 10.35
FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT, dated as of
October 31, 1998 (this "Amendment"), by and between WAYNE MERTES (the
"Executive") and NATIONAL R.V. HOLDINGS, INC., a Delaware corporation (the
"Company").
W I T N E S S E T H
WHEREAS, the Executive and National R.V., Inc., a California
corporation and a wholly-owned subsidiary of the Company ("NRV"), have
previously entered into an Employment Agreement, dated as of October 29, 1991,
as amended by the Amendment to Employment Agreement, dated as of July 2, 1993,
the Second Amendment to Employment Agreement, dated as of May 23, 1994 and the
Third Amendment to Employment Agreement, dated as of October 31, 1996 (as so
amended, the "Employment Agreement"), which, by its terms, is scheduled to
terminate on October 31, 1998; and
WHEREAS, the Employment Agreement was assigned by NRV to the
Company pursuant to that certain Assignment Agreement, dated as of September 29,
1993, with the consent of the Executive;
WHEREAS, the Executive and the Company wish to hereby amend
the Employment Agreement in order to extend the term of the Employment Agreement
an additional two years until October 31, 2000 and to amend certain other terms.
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, and intending to be legally bound hereby, the
parties hereto agree to amend the Employment Agreement as follows:
I. Amendment to Employment Agreement. The Employment Agreement
shall be amended, effective October 31, 1998, as follows:
(a) Section 3(a) shall be amended by deleting the year "1996"
on the second line thereof and substituting in lieu thereof the year "2000";
<PAGE>
(b) Section 3(c) shall be amended by deleting the year "1996"
on the sixteenth line thereof and substituting in lieu thereof the year "2000";
and
(c) Section 4(a) shall be amended by deleting it in its
entirety and substituting in lieu thereof the following:
During the Term of Employment, the Company shall pay to
Executive as compensation for Executive's services hereunder,
$260,000 per year, in equal monthly installments, plus an
incentive bonus equal to 20% of Defined Income earned in
excess of $5,392,000 with respect to each fiscal year of the
Company during the Term of Employment, provided that such
incentive bonus shall not exceed $230,000 for any fiscal year
of the Company ending December 31, 1998 or thereafter.
(d) There shall be added to the Employment Agreement a new Section 4(d) which
shall read in its entirety as follows:
The Company shall provide Executive with a split dollar life
insurance policy in the face amount of $2,950,000 and an
annual premium not greater than $150,000 per year for five
years. The Company and the Executive agree that the Company
shall own the cash value of the policy and that the Company
will be entitled to withdraw from the policy $92,601 per annum
until the aggregate premiums paid by the Company to the
insurance carrier are repaid. To insure the repayment to the
Company of the aggregate premiums paid by the Company, the
parties agree that upon the death of the Executive, the
Company shall be entitled to receive from the policy's death
benefits the greater of the aggregate premiums not theretofore
repaid to the Company and the then cash value of the insurance
policy. The parties agree to enter into any necessary
agreements with the insurance carrier to reflect the
foregoing.
II. Miscellaneous.It is understood and agreed that, as
amendment by the amendments set forth in Part I above, the Employment Agreement
is in all respects ratified and confirmed and, as so amended, shall remain in
full force and effect; and that, except for said amendments, no other
modification of any of the terms of the Employment Agreement shall be deemed
effected by the execution of this Amendment. This Amendment shall be governed
and construed and enforced in accordance with the laws of the State of
California. This Amendment may be executed and accepted on separate
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as
of the day and year first above written.
EXECUTIVE:
----------------------------
Wayne Mertes
NATIONAL R.V. HOLDINGS, INC.
By:_________________________
Name:
Title:
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-41905) of National R.V. Holdings, Inc. of our
report dated February 12, 1999, appearing on page F-1 of this Form 10-K.
PricewaterhouseCoopers LLP
Los Angeles, California
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,446
<SECURITIES> 0
<RECEIVABLES> 20,907
<ALLOWANCES> 188
<INVENTORY> 46,832
<CURRENT-ASSETS> 82,689
<PP&E> 32,045
<DEPRECIATION> 7,704
<TOTAL-ASSETS> 117,739
<CURRENT-LIABILITIES> 19,209
<BONDS> 1,700
0
0
<COMMON> 103
<OTHER-SE> 94,386
<TOTAL-LIABILITY-AND-EQUITY> 117,739
<SALES> 360,326
<TOTAL-REVENUES> 360,326
<CGS> 302,098
<TOTAL-COSTS> 302,098
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 154
<INCOME-PRETAX> 40,142
<INCOME-TAX> 16,033
<INCOME-CONTINUING> 24,109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,109
<EPS-PRIMARY> 2.35
<EPS-DILUTED> 2.11
</TABLE>
