FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 2000
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ........ to .........
Commission file number: 0-22268
NATIONAL R.V. HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0371079
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3411 N. Perris Blvd.
Perris, California 92571
(909) 943-6007
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at July 20, 2000
----- ----------------------------
Common stock, par value 9,662,636
$.01 per share
<PAGE>
NATIONAL R.V. HOLDINGS, INC.
INDEX
PAGE
PART 1 - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheet -
September 30, 2000 and December 31, 1999 3
Consolidated Statement of Income -
Three and Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 2000 and 1999 5
Consolidated Statement of Changes in Stockholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
Exhibit 99.1 Factors that May Affect Future Operating Results 14-17
2
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<TABLE>
<CAPTION>
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(In thousands except shares)
<S> <C> <C>
September 30, December 31,
2000 1999
(Unaudited)
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 10,456 $ 20,301
Trade receivables, less allowance for
doubtful accounts of $199 21,054 22,473
Inventories 64,704 68,187
Deferred income taxes 6,489 5,610
Prepaid expenses 2,011 1,439
---------- ---------
Total current assets 104,714 118,010
Goodwill 6,642 6,952
Property, plant and equipment, net 42,480 33,167
Other 1,276 1,085
---------- ---------
$ 155,112 $ 159,214
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current
portion of long-term debt $ 20 $ 20
Accounts payable 10,316 11,167
Accrued expenses 16,346 14,908
--------- ---------
Total current liabilities 26,682 26,095
Deferred income taxes 2,603 2,470
Long-term debt 69 84
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, 10,595,536 and 10,588,886
issued, respectively 106 106
Additional paid-in capital 47,800 47,768
Retained earnings 93,113 82,691
Less cost of treasury stock - 932,900 shares ( 15,261) -
--------- --------
Total stockholders' equity 125,758 130,565
--------- --------
$ 155,112 $ 159,214
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
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<TABLE>
<CAPTION>
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share data)
(Unaudited)
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Net sales $ 86,652 $ 108,947 $ 266,431 $ 317,267
Cost of goods sold 76,460 89,333 232,709 263,520
--------- --------- --------- ---------
Gross profit 10,192 19,614 33,722 53,747
Selling expenses 3,669 3,079 10,176 8,403
General and administrative expenses 2,044 1,648 6,920 5,382
Amortization of intangibles 103 103 310 310
--------- --------- --------- ---------
Operating income 4,376 14,784 16,316 39,652
Other expense (income):
Interest expense 1 - 3 28
Interest income ( 156) ( 381) ( 637) ( 974)
Other 7 11 28 ( 373)
--------- --------- --------- ---------
Income before income taxes 4,524 15,154 16,922 40,971
Provision for income taxes 1,791 6,134 6,500 16,369
--------- --------- --------- ---------
Net income $ 2,733 $ 9,020 $ 10,422 $ 24,602
Earnings per common share:
Basic $0.29 $0.86 $1.07 $2.37
Diluted $0.28 $0.82 $1.03 $2.20
Weighted average number of shares:
Basic 9,585 10,448 9,770 10,392
Diluted 9,847 11,054 10,146 11,185
</TABLE>
See Notes to Consolidated Financial Statements
4
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<TABLE>
<CAPTION>
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<S> <C> <C>
Nine Months Ended
September 30,
----------------------------------
2000 1999
---------- -----------
Cash flows from operating activities:
Net income $ 10,422 $ 24,602
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 2,341 1,781
Amortization of intangibles 310 310
Loss (gain) on asset disposal 28 ( 387)
Tax benefit related to exercise of stock options - 900
Decrease (increase) in trade receivables 1,419 ( 1,485)
Decrease (increase) in inventories 3,483 ( 11,877)
Increase in prepaid expenses ( 572) ( 2,391)
(Decrease) increase in accounts payable ( 851) 10,625
Increase in accrued expenses 1,438 4,811
Increase in deferred income taxes ( 746) ( 730)
---------- -----------
Net cash provided by operating activities 17,272 26,159
Cash flows from investing activities:
Increase in other assets ( 191) ( 68)
Purchases of property, plant and equipment ( 11,682) ( 7,094)
Return of investment in Dune Jet Services, LP - 2,912
---------- -----------
Net cash used in investing activities ( 11,873) ( 4,250)
Cash flows from financing activities:
Principal payments on long-term debt ( 15) ( 1,756)
Proceeds from issuance of common stock 32 857
Purchase of treasury stock ( 15,261) -
---------- -----------
Net cash used in financing activities ( 15,244) ( 899)
Net (decrease) increase in cash ( 9,845) 21,010
Cash and cash equivalents - beginning of period 20,301 10,446
---------- -----------
Cash and cash equivalents - end of period $ 10,456 $ 31,456
========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
5
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<TABLE>
<CAPTION>
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands except shares)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred Common Stock Paid-in Retained Treasury Stock
Stock Shares Amount Capital Earnings Shares Amount Total
------- ----------- ------ ---------- --------- -------- --------- ----------
Balance, December 31,
1999 $ - 10,588,886 $ 106 $ 47,768 $ 82,691 - $ - $ 130,565
Common Stock issued
under option plan 6,650 - 32 32
Purchase of
Treasury Stock 932,900 ( 15,261) ( 15,261)
Net income 10,422 10,422
------- ----------- ------ ---------- --------- -------- --------- ----------
Balance, September 30,
2000 $ - 10,595,536 $ 106 $ 47,800 $ 93,113 932,900 $( 15,261) $ 125,758
======= =========== ====== ========== ========= ======== ========= ==========
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
NATIONAL R.V. HOLDINGS, INC.
PART I, ITEM 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - GENERAL
In the opinion of National R.V. Holdings, Inc. (collectively, with its
subsidiaries National R.V., Inc., and Country Coach, Inc. referred to herein as
the "Company"), the accompanying unaudited consolidated financial statements
contain all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the financial position, results of
operations and cash flows for all periods presented. Results for the interim
periods are not necessarily indicative of the results for an entire year and the
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles. These financial statements
should be read in conjunction with the financial statements and notes thereto
contained in the Company's latest annual report on Form 10-K.
NOTE 2 - INVENTORIES
Inventories consist of the following:
September 30, December 31,
2000 1999
(Unaudited)
------------- --------------
Finished goods $ 19,353,000 $ 12,315,000
Work-in-process 20,375,000 18,274,000
Raw materials 14,449,000 14,027,000
Chassis 10,527,000 23,571,000
------------ ------------
$ 64,704,000 $ 68,187,000
============ ============
7
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NATIONAL R.V. HOLDINGS, INC.
PART 1, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Disclosure Regarding Forward Looking Statements
-----------------------------------------------
Statements contained in this Quarterly Report on Form 10-Q 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 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; potential liabilities under repurchase agreements;
competition; government regulation; warranty claims and product liability;
dependence on certain dealers and concentration of dealers in certain regions;
and the integration by the Company of acquired businesses and the management of
growth. Certain risks and uncertainties that could cause actual results to
differ materially from that projected or suggested are set forth below.
Additional information concerning risks and uncertainties 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.
Liquidity and Capital Resources
-------------------------------
At September 30, 2000, the Company had working capital of $78.0 million
compared to $91.9 million at December 31, 1999.
Net cash provided by operating activities was $17.3 million for the
nine months ended September 30, 2000 compared to $26.2 million for the same
period in 1999. The change was primarily due to a $14.2 million decrease in net
income.
Cash used in investing activities was $11.9 million for the nine months
ended September 30, 2000 compared to $4.3 million for the comparable period last
year. The change was due to a $4.6 million increase in capital expenditures
primarily related to the new towables plant under construction at the Perris,
California facility in the current year, and to a $2.9 million distribution in
respect of the liquidation of the Company's limited partnership interest in Dune
Jet Services, L.P. received by the Company in March 1999.
Cash used in financing activities was $15.2 million for the nine months
ended September 30, 2000 compared to $0.9 million for the comparable period last
year. The difference was primarily the result of the $15.3 million spent by the
Company in its stock repurchase program for the repurchase of 932,900 shares in
the first quarter of 2000.
The Company believes that the combination of internally generated
funds, existing capital and funds available from its existing credit facility,
will be sufficient to meet the Company's planned capital and operational
requirements for at least the next 24 months.
8
<PAGE>
NATIONAL R.V. HOLDINGS, INC.
PART 1, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations
---------------------
Net sales of $86.7 million for the quarter ended September 30, 2000
represent a decrease of $22.3 million or 20.5% from the same quarter last year.
For the nine months ended September 30, 2000, net sales of $266.4 million
represent a decrease of $50.8 million, or 16.0% compared to the same period last
year.
Wholesale shipments of the Company's gas motorhome products were down
39% from 630 units for the third quarter last year to 382 units this year.
Shipments of the Company's motorhomes built on diesel chassis declined just 3%
to 356 units for the third quarter compared to 367 last year--reflecting an
industry-wide trend favoring the higher-priced diesel units. Accordingly, while
total motorhome unit sales declined 26%, revenues from such sales were down 21%.
Class "A" motorhome sales continue to represent approximately 95% of the
Company's revenue.
Unit sales of the Company's towable products increased 68% to 129 units
from 77 units for the third quarter last year. The increase is the result of the
introduction of the Company's first entry-level towable products as well as an
increase in shipments of fifth-wheel products. Revenues from towable sales
increased 33% for the third quarter over the same quarter last year.
For the nine months ended September 30, 2000, the Company shipped 1,021
coaches on diesel chassis, 22 fewer than last year. The unit decrease was offset
by an increase in the average price of diesel products of 2% to $165,814,
resulting in unchanged net sales from diesel products for the nine months. Unit
shipments of the Company's gas products decreased by 770 to 1,252 due to lower
retail demand. The average price of gas motorhomes also increased 2% to $67,200.
Revenue from the sale of gas units decreased 37%. Unit sales of the Company's
towable products increased 20% to 360 units compared to 300 units in the first
nine months of 1999. The average price of these units decreased 1% to $35,900,
due to the introduction of the entry-level towable products. The average price
of towable sales will continue to decline as more entry-level products are
introduced.
In addition to the reduction in total unit shipments for the quarter
and nine months ended September 30, 2000, continued product discounting also
unfavorably impacted net sales.
Cost of goods sold for the quarter ended September 30, 2000 decreased
to $76.5 million, a 14.4% decrease from the comparable quarter last year. The
decrease was due to the decrease in sales, partially offset by a one-time charge
to warranty expense of $900,000 related to voluntary recalls initiated by the
Company's Country Coach subsidiary to replace tires and wheels on approximately
85 units.
9
<PAGE>
NATIONAL R.V. HOLDINGS, INC.
PART 1, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Cost of goods sold for the first nine months of 2000 decreased by $30.8
million to $232.7 million, or 11.7% compared to the same period in 1999. The
decrease was the result of reduced sales partially offset by $1.9 million in
one-time charges to warranty expense resulting from a voluntary offer by the
Company to correct a weight distribution issue earlier in the year as well as
the tire and wheel issues referred to above. As a result of the discounting
indicated above, a sales rebate program carried out during the second quarter,
as well as the $1.9 million in warranty charges, the gross profit margin
decreased to 12.7% for the nine-month period as compared to 16.9% for the same
period last year.
Selling expenses for the three months ended September 30, 2000
increased to $3.7 million or 19.2% from the same period last year. For the nine
months ended September 30, 2000, selling expenses increased to $10.2 million or
21.1% compared to last year. The increase for the three and nine month periods
was due to increased wholesale and retail sales incentives and the Company's
increased presence at industry shows and rallies. As a percentage of net sales,
selling expenses increased to 3.8%, from 2.6% for the same period last year.
General and administrative expenses for the three months ended
September 30, 2000 increased to $2.0 million or 24.0% from the same quarter last
year. For the nine months ended September 30, 2000, general and administrative
expenses increased to $6.9 million or 28.6% from last year. The increase was
primarily due to higher compensation, increased headcount, and administrative
and technology costs. As a percentage of net sales, general and administrative
expenses increased to 2.6% from 1.7% for the same nine-month period last year.
This is due to the fact that many of the general and administrative expenses are
fixed in nature and as sales decrease, these expenses increase as a percentage
of sales.
Other income for the three and nine months ended September 30, 2000
decreased to $0.1 million and $0.6 million, from $0.4 million and $1.3 million,
respectively, for the same periods last year. The decreases are due primarily to
the fact that last year included a gain on the liquidation of the Dune Jet
Services, LP as indicated above. In addition, lower average invested cash
balances resulted in reduced interest income.
Provision for income taxes for the three and nine months ended
September 30, 2000 decreased to $1.8 million and $6.5 million, respectively. The
effective tax rate for the nine months ended September 30, 2000 was 38.4%
compared to 39.9% for the same period last year. The decrease in the effective
tax rate was due to a benefit arising from usage of a capital loss carryover.
As a result, net income for the second quarter of 2000 decreased to
$2.7 million, 3.2% of net sales, compared to $9.0 million, or 8.3% of net sales,
for the same period last year. Net income for the first nine months of 2000
decreased to $10.4 million, or 3.9% of net sales, compared to $24.6 million, or
7.8% of net sales, for the same period last year.
10
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NATIONAL R.V. HOLDINGS, INC.
PART 1, ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk
Information about market risks for the nine months ended September 30, 2000
does not differ materially from that discussed under Item 7A of the registrant's
Annual Report on Form 10-K for the year ended December 31, 1999.
11
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit 99.1 Factors that May Affect Future Operating Results and
Financial Condition
B. Reports on Form 8-K
None
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL R.V. HOLDINGS, INC.
(Registrant)
Date: November 8, 2000 By /s/ BRADLEY C. ALBRECHTSEN
-----------------------------
Bradley C. Albrechtsen
Chief Financial Officer (Principal
Accounting and Finance Officer)
13
<PAGE>
Exhibit 99.1
Factors that May Affect Future Operating Results and Financial Condition
------------------------------------------------------------------------
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS The Company's net sales, gross
margin and operating results may fluctuate significantly from period to period
due to factors such as the mix of products sold, the ability to utilize and
expand manufacturing resources efficiently, material shortages, the introduction
and consumer acceptance of new models offered by the Company, competition, the
addition or loss of dealers, the timing of trade shows and rallies, and factors
affecting the recreational vehicle industry as a whole, such as cyclicality and
seasonality. In addition, the Company's overall gross margin on its products may
decline in future periods to the extent the Company increases its sales of lower
gross margin towable products or if the mix of motor coaches sold shifts to
lower gross margin units. Due to the relatively high selling prices of the
Company's products (in particular, its High-Line Class A motor coaches), a
relatively small variation in the number of recreational vehicles sold in any
quarter can have a significant effect on sales and operating results for that
quarter.
CYCLICALITY AND SEASONALITY The RV industry has been characterized by cycles of
growth and contraction in consumer demand, reflecting prevailing economic
conditions which affect disposable income for leisure-time activities. Concerns
about the availability and price of gasoline, decreases in consumer confidence,
increases in interest rates and reductions in available financing have had, and
may in the future have, an adverse impact on RV sales. Seasonal factors, over
which the Company has no control, also have an effect on the demand for the
Company's products. Demand in the RV industry declines over the winter season,
while sales are generally highest during the spring and summer months.
EXPANSION OF MANUFACTURING FACILITIES In 1999, the Company purchased additional
land in Perris, California, Junction City, Oregon, and Hillsborough County,
Florida for planned expansion of manufacturing and service facilities. There can
be no assurance that such facilities or future additional facilities will be
able to meet the manufacturing needs of the Company or that the Company will be
able to attract and retain qualified technical, supervisory and manufacturing
personnel required in order to operate such facilities in an effective and
efficient manner.
DEPENDENCE ON CERTAIN DEALERS; CONCENTRATION OF DEALERS IN CERTAIN REGIONS
Although no one dealer accounted for more than 10% of the Company's net sales
during the year ended December 31, 1999, the Company's top ten dealers accounted
for approximately 43% and 44% of the Company's sales during the years ended
December 31, 1999 and 1998, respectively. The loss by the Company of one or more
of these dealers could have a material adverse effect on the Company's financial
condition and results of operations. In addition, a significant portion of the
Company's sales is from dealers located in states in the western part of the
United States. Consequently, a general downturn in economic conditions or other
material events in such region could materially adversely affect the Company's
sales.
DEPENDENCE ON CHASSIS SUPPLIERS One of the principal components used in the
manufacture of motorhomes and bus conversions is the chassis and bus shell,
respectively, which include the engine, drive train and other operating
components. Although Country Coach manufactures chassis used in certain of its
products, the Company obtains the required chassis for most of its Class A
motorhomes from a limited number of manufacturers and the required bus shells
from Prevost Corporation. Prevost is the only manufacturer of bus shells used in
the Company's bus conversions and there is only one other manufacturer of bus
shells in North America. As is standard in the industry, arrangements with such
suppliers permit them to terminate their relationship with the Company at any
time. Lead times for the delivery of chassis frequently exceed five weeks, and
the RV industry as a whole has from time to time experienced temporary shortages
of chassis. If any of the Company's suppliers were to discontinue the
manufacture of chassis utilized by the Company in the manufacture of its Class A
motorhomes, materially reduce their availability to the RV industry in general
or limit or terminate their availability to the Company in particular, the
business and financial condition of the Company could be materially and
adversely affected.
POTENTIAL LIABILITIES UNDER REPURCHASE AGREEMENTS As is common in the industry,
the Company enters into repurchase agreements with the financing institutions
used by its dealers to finance their purchases. These agreements obligate the
Company to purchase a dealer's inventory under certain circumstances in the
event of a default by the dealer to its lender. The risk of loss, however, is
spread over many dealers and is further reduced by the resale value of the RVs
that the Company would be required to repurchase. Although losses under these
agreements have not been significant in the past, if the Company were obligated
to repurchase a significant number of RVs in the future, it could result in
losses and a reduction in new RV sales. The Company's contingent obligations
under repurchase agreements vary from period to period and totaled approximately
$104.5 million as of December 31, 1999.
COMPETITION The Company competes with numerous manufacturers, many of which have
multiple product lines of RVs, are larger and have substantially greater
financial and other resources than the Company. According to an industry source,
the two largest motorhome manufacturers had sales aggregating 39.8% of
industry-wide retail unit sales of Class A motorhomes for the year ended
December 31, 1999. In addition, sales of used RVs provide competition to RV
manufacturers.
GOVERNMENT REGULATION The Company is subject to federal, state and local
regulations governing the manufacture and sale of their products, including 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 Motor Vehicle
Act authorizes the National Highway Traffic Safety Administration ("NHTSA") to
require a manufacturer to recall and repair vehicles which contain certain
hazards or defects. The Company has from time to time instituted voluntary
recalls of certain motorhome units, none of which has had a material adverse
effect on the Company. Future recalls of the Company's vehicles, voluntary or
involuntary, however, could have a material adverse effect on the Company. The
Company is also subject to federal and numerous state consumer protection and
unfair trade practice laws and regulations relating to the sale, transportation
and marketing of motor vehicles, including so-called "Lemon Laws."
Federal and state laws and regulations also impose upon vehicle operators
various restrictions on the weight, length and width of motor vehicles,
including trucks and motorhomes, that may be operated in certain jurisdictions
or on certain roadways. As a result of these restrictions, certain models of
motorhomes manufactured by the Company's Country Coach subsidiary may not be
legally operated in certain jurisdictions or on certain roadways. Certain
jurisdictions also prohibit the sale of vehicles exceeding length restrictions.
Enforcement of these laws and related customer complaints to date has been
limited. The Company is unable to predict reliably the extent of future
enforcement of these laws, the extent future enforcement might lead to customer
complaints, or the extent to which Country Coach may choose or be required to
provide some customer remedy, such as repurchasing or exchanging motorhomes, as
a result of such complaints. If current enforcement efforts and related
complaints were to increase significantly from their current levels, the cost of
resolving such complaints, particularly should the resolution of complaints
require repurchasing, refurbishing, and reselling of motorhomes, could have a
material financial effect on the Company.
Amendments and changes in enforcement with respect to these laws and regulations
and the implementation of new laws and regulations could significantly increase
the costs of manufacturing, purchasing, operating or selling the Company's
products and could have a material adverse effect on the Company's business,
results of operations and financial condition. The failure of the Company to
comply with these present or future laws or regulations could result in fines
imposed on the Company, civil and criminal liability, or suspension of
operations, any of which could have a material adverse effect on the Company.
The Company's manufacturing operations are subject to a variety of federal and
state environmental regulations relating to the use, generation, storage,
treatment, emissions, and disposal of hazardous materials and wastes and noise
pollution. Such laws and regulations are becoming more stringent, and it is
likely that future amendments to these environmental statutes and additional
regulations promulgated thereunder will be applicable to the Company, its
manufacturing operations and its products in the future. The failure of the
Company to comply with present or future regulations could result in fines being
imposed on the Company, civil and criminal liability, suspension of operations,
alterations to the manufacturing process or costly cleanup or capital
expenditures.
WARRANTY CLAIMS AND PRODUCT LIABILITY The Company is subject to warranty claims
in the ordinary course of its business. Although the Company maintains reserves
for such claims, which to date have been adequate, there can be no assurance
that warranty expense levels will remain at current levels or that such reserves
will continue to be adequate. A large number of warranty claims exceeding the
Company's current warranty expense levels could have a material adverse effect
on the Company's results of operations and financial condition.
The Company maintains product liability insurance with coverage in amounts which
management believes is reasonable. To date, the Company has been successful in
obtaining product liability insurance on terms the Company considers acceptable.
Given the nature of the Company's business, product liability in excess of the
Company's insurance coverage, if incurred, could have a material adverse effect
on the Company.
INTEGRATION OF ACQUIRED BUSINESSES; MANAGEMENT OF GROWTH One of the Company's
objectives is to acquire businesses in the RV industry or related areas.
Successfully accomplishing this goal depends upon a number of factors, including
the Company's ability to find suitable acquisition candidates, negotiate
acquisitions on acceptable terms, retain key personnel of the acquired entities,
hire and train other competent managers, and effectively and profitably
integrate the operations of the acquired businesses into the Company's existing
operations. The process of integrating acquired businesses may require a
significant amount of resources and management attention, which could
temporarily detract attention from the day-to-day business of the Company. The
Company's ability to manage its growth effectively will require it to continue
to improve its operational, financial and management information systems and
controls, and to attract, retain, motivate and manage employees effectively. The
failure of the Company to manage growth in its business effectively could have a
material adverse effect on the financial condition and results of operations of
the Company.
ANTITAKEOVER PROVISIONS Certain provisions of the Company's Certificate of
Incorporation, as well as Delaware corporate law and the Company's Stockholder
Rights Plan (the "Rights Plan"), may be deemed to have anti-takeover effects and
may delay, defer or prevent a takeover attempt that a stockholder might consider
in its best interest. Such provisions also may adversely affect prevailing
market prices for the Common Stock. Certain of such provisions allow the
Company's Board of Directors to issue, without additional stockholder approval,
preferred stock having rights senior to those of the Common Stock. In addition,
the Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which prohibits the Company from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed matter.
In August 1996, the Company adopted the Rights Plan, pursuant to which holders
of the Common Stock received a distribution of rights to purchase additional
shares of Common Stock, which rights become exercisable upon the occurrence of
certain events.
