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 June 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 9,657,086
$.01 per share
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NATIONAL R.V. HOLDINGS, INC.
INDEX
PAGE
PART 1 - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheet -
June 30, 2000 and December 31, 1999 3
Consolidated Statement of Income -
Three and Six Months Ended June 30, 2000 and 1999 4
Consolidated Statement of Cash Flows -
Six Months Ended June 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 4. Submission of Matters to a Vote to Security Holders 12
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>
June 30, Dec. 31,
2000 1999
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents ....................... $ 6,556 $ 20,301
Trade receivables, less allowance for
doubtful accounts of $199 ................... 17,167 22,473
Inventories ..................................... 75,149 68,187
Deferred income taxes ........................... 6,489 5,610
Prepaid expenses ................................ 1,745 1,439
--------- ---------
Total current assets ........................ 107,106 118,010
Goodwill ............................................. 6,746 6,952
Property, plant and equipment, net ................... 39,042 33,167
Other ................................................ 1,241 1,085
--------- ---------
$ 154,135 $ 159,214
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: .................................
Current portion of long-term debt ............... $ 20 $ 20
Accounts payable ................................ 10,342 11,167
Accrued expenses ................................ 18,092 14,908
--------- ---------
Total current liabilities ................... 28,454 26,095
Deferred income taxes ................................ 2,603 2,470
Long-term debt ....................................... 74 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, 10,589,986 and 10,588,886 issued,
respectively ..................................... 106 106
Additional paid-in capital ......................... 47,779 47,768
Retained earnings .................................. 90,380 82,691
Less cost of treasury stock - 932,900 shares ....... (15,261) --
--------- ---------
Total stockholders' equity ...................... 123,004 130,565
--------- ---------
$ 154,135 $ 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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Net sales ......................... $ 74,524 $ 105,338 $ 179,779 $ 208,320
Cost of goods sold ................ 67,071 87,959 156,249 174,187
--------- --------- --------- ---------
Gross profit ............. 7,453 17,379 23,530 34,133
Selling expenses .................. 3,137 2,612 6,507 5,324
General and administrative expenses 2,440 1,826 4,876 3,734
Amortization of intangibles ....... 104 104 207 207
--------- --------- --------- ---------
Operating income ......... 1,772 12,837 11,940 24,868
Other expense (income):
Interest expense ............. 1 6 2 28
Interest income .............. ( 227) ( 428) ( 481) ( 593)
Other ........................ 13 ( 380) 21 ( 384)
--------- --------- --------- ---------
Income before income taxes 1,985 13,639 12,398 25,817
Provision for income taxes ........ 792 5,378 4,709 10,235
--------- --------- --------- ---------
Net income ............... $ 1,193 $ 8,261 $ 7,689 $ 15,582
========= ========= ========= =========
Earnings per common share:
Basic $0.12 $0.80 $0.78 $1.50
Diluted $0.12 $0.74 $0.75 $1.38
Weighted average number of shares:
Basic 9,657 10,378 9,845 10,364
Diluted 10,044 11,189 10,294 11,251
</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>
Six Months Ended
June 30,
2000 1999
---- ----
Cash flows from operating activities:
Net income ........................................... $ 7,689 $ 15,582
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense ........................... 1,472 1,130
Amortization of intangibles .................... 207 207
Loss (gain) on asset disposal .................. 20 ( 380)
Tax benefit related to exercise of stock options - 471
Decrease in trade receivables .................. 5,305 3,919
Increase in inventories ........................ ( 6,962) ( 6,042)
Increase in prepaid expenses ................... ( 306) ( 213)
(Decrease) increase in accounts payable ........ ( 825) 8,269
Increase in accrued expenses ................... 3,184 5,163
Decrease in deferred income taxes .............. ( 746) ( 729)
---------- ---------
Net cash provided by operating activities ... 9,039 27,377
Cash flows from investing activities:
(Increase) decrease in other assets ................ ( 156) 21
Purchases of property, plant and equipment ......... ( 7,368) ( 5,712)
Investment in Dune Jet Services, LP - 2,912
---------- ---------
Net cash used in investing activities ....... ( 7,524) ( 2,779)
Cash flows from financing activities:
Principal payments on long-term debt ............... ( 10) ( 1,752)
Proceeds from issuance of common stock ............. 11 472
Purchase of treasury stock ......................... ( 15,261) -
--------- ---------
Net cash used in financing activities ....... ( 15,260) ( 1,280)
--------- ---------
Net (decrease) increase in cash ...................... ( 13,745) 23,318
Cash and cash equivalents - beginning of period ...... 20,301 10,446
--------- ---------
Cash and cash equivalents - end of period ............ $ 6,556 $ 33,764
========= =========
</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 1,100 - 11 11
Purchase of
Treasury Stock 932,900 ( 15,261) ( 15,261)
Net income 7,689 7,689
------ ---------- ------ -------- -------- --------- ---------- ----------
Balance, June 30, 2000 $ - 10,589,986 $ 106 $ 47,779 $ 90,380 932,900 $( 15,259) $ 123,004
====== ========== ====== ======== ======== ========= ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
6
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PART I, ITEM 1
NATIONAL R.V. HOLDINGS, INC.
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:
<TABLE>
<S> <C> <C>
June 30, December 31,
2000 1999
(Unaudited)
Finished goods ............. $ 20,104,000 $ 12,315,000
Work-in-process ............ 26,159,000 18,274,000
Raw materials .............. 15,426,000 14,027,000
Chassis .................... 13,460,000 23,571,000
------------ ------------
$ 75,149,000 $ 68,187,000
============ ============
</TABLE>
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 June 30, 2000, the Company had working capital of $78.7 million
compared to $91.9 million at December 31, 1999.
Net cash provided by operating activities was $9.0 million for the six
months ended June 30, 2000 compared to $27.4 million for the same period in
1999. The change was due primarily to a $7.9 million decrease in net income, and
a modest decrease in accounts payable compared to a significant increase in the
prior year.
Cash used in investing activities was $7.5 million for the six months ended
June 30, 2000 compared to $2.8 million for the comparable period last year. The
change was due primarily to a $1.7 million increase in capital expenditures
related to the new towables plant under construction at the Perris, California
facility in the current year, and to a $2.55 million distribution in respect of
the liquidation of the Company's limited partnership interest in Dune Jet
Services, L.P. received in March 1999.
Cash used in financing activities was $15.3 million for the six months
ended June 30, 2000 compared to $1.3 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
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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 (Continued)
Results of Operations
---------------------
Net sales of $74.5 million for the quarter ended June 30, 2000 represent a
decrease of $30.8 million or 29.3% from the same quarter last year. For the six
months ended June 30, 2000, net sales of $179.8 million represent a decrease of
$28.5 million, or 13.7% compared to the same period last year. The Company
shipped 665 coaches on diesel chassis during the first six months, 11 less than
last year for the same period. The unit decrease was offset by an increase
average price of diesel products of 6% to $168,500, resulting in a 4% increase
in net sales from diesel products. The increase in diesel motorhome revenue was
offset by a decrease in sales of the Company's gas products by 522 units to 870
due to lower retail sales. The average price of gas motorhomes increased 3% to
$67,000. Unit sales of the Company's fifth-wheel travel trailers increased 4%,
to 231 units compared to 223 units in the first six months of 1999. The average
price of these units increased 9% to $39,600.
In addition to the reduction in total unit shipments for the quarter and
six months ended June 30, 2000, net sales were also unfavorably impacted by
product discounting and by a sales rebate program initiated by the Company
during the second quarter. The rebate program was adopted to help sales of prior
model-year products from dealer lots and to stimulate new orders of Company
products.
Cost of goods sold for the quarter ended June 30, 2000 decreased to
$67.1 million, a 23.7% decrease from the comparable quarter last year. The
decrease was due to the decrease in sales. Cost of goods sold for the first six
months of 2000 decreased to $156.2 million, or 10.3% compared to the same period
in 1999. The decrease was the result of reduced sales offset somewhat by a $1.0
million one-time charge to warranty expense recorded in the first quarter
resulting from a voluntary offer by the Company to correct a weight distribution
issue identified on certain of the Company's "highline" motor coaches. As a
result of the discounting and the sales rebate program indicated above, as well
as the $1.0 million warranty charge, the gross profit margin decreased to 13.1%
for the six-month period as compared to 16.4% for the same period last year.
Selling expenses for the three months ended June 30, 2000 increased to
$3.1 million or 20.1% from the same period last year. For the six months ended
June 30, 2000, selling expenses increased to $6.5 million or 22.2% compared to
last year. The increase was primarily due to increased sales incentives and
certain costs related to setting up new dealers for the Company's "highline"
coaches. As a percentage of net sales, selling expenses increased to 3.6%, from
2.6% for the same period last year.
General and administrative expenses for the three months ended June 30,
2000 increased to $2.4 million or 33.6% from the same quarter last year. For the
six months ended June 30, 2000, general and administrative expenses increased to
$4.9 million or 30.6% from last year. The increase was primarily due to higher
compensation and related costs. As a percentage of net sales, general and
administrative expenses increased to 2.7% from 1.8% for the same period last
9
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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 (Continued)
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 six months ended June 30, 2000 decreased
to $0.2 million and $0.5 million, from $0.8 million and $0.9, 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.
As a result of the foregoing, income before taxes decreased to $2.0
million, or 85.4% from the same period last year. For the six months ended June
30, 2000, income before taxes decreased to $12.4 million, or 52.0% from the same
period last year. As a percentage of net sales, year-to-date income before taxes
decreased to 6.9% from 12.4% for the same period last year.
Provision for income taxes for the three and six months ended June 30,
2000 decreased to $0.8 million and $4.7 million, respectively. The effective tax
rate for the six months ended June 30, 2000 was 38.0% compared to 39.6% 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
$1.2 million, 1.6% of net sales, compared to $8.3 million, or 7.8% of net sales,
for the same period last year. Net income for the first half of 2000 decreased
to $7.7 million, or 4.3% of net sales, compared to $15.6 million, or 7.5% 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 six months ended June 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 12, 2000, the Company held its 2000 Annual Meeting of
stockholders (the "Annual Meeting"). The matters voted upon at the Annual
Meeting and the votes cast for such matters were as follows:
1. The Company's stockholders elected Doy B. Henley and Neil H.
Koffler as Class III Directors to serve until the 2003 Annual
Meeting. Voting for the nominees for director was as follows:
Doy B. Henley; 8,295,674 shares FOR and 46,659 shares
WITHHELD; and Neil H. Koffler; 8,295,674 shares FOR and 46,659
shares WITHHELD.
2. The Company's stockholders approved an amendment of the
Company's 1999 Stock Option Plan to increase the number of
shares of Common Stock eligible for issuance from 400,000 to
800,000. For the approval of the amendment to the 1999 Stock
Option Plan, the vote was 6,548,431 shares FOR; 1,776,127
shares AGAINST; and 17,775 shares ABSTAINING.
3. The Company's stockholders approved the appointment of
PricewaterhouseCoopers LLP, as the Company's auditor for the
current fiscal year. For the appointment of
PricewaterhouseCoopers LLP as the Company's auditor, the vote
was 8,304,355 shares FOR; 31,668 shares AGAINST; and 6,310
shares ABSTAINING.
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
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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: July 20, 2000 By /s/ BRADLEY C. ALBRECHTSEN
-----------------------------
Bradley C. Albrechtsen
Chief Financial Officer
(Principal Accounting and
Finance Officer)
13
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Exhibit 99.1
Factors that May Affect Future Operating Results
------------------------------------------------
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. 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
14
<PAGE>
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 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.
In March, 2000, the Company's Country Coach subsidiary received a notice from
NHTSA which indicated that NHTSA is conducting a review of a safety recall by
Country Coach in 1999 concerning certain motorhomes equipped with a slide galley
option and requested certain information about motorhomes with slide out
sections manufactured by Country Coach. Country Coach has responded fully to
NHTSA's request. At this time, it is not possible to ascertain what action NHTSA
may take with respect to such a review, or what impact, if any, that the review
may have on the Company's financial condition or results of operations. 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
numerous state consumer protection laws and regulations relating to the
operation of motor vehicles, including so-called "Lemon Laws."
15
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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, potential civil and criminal liability, suspension of
production or operations, alterations to the manufacturing process or costly
cleanup or capital expenditures.
WARRANTY CLAIMS AND PRODUCT LIABILITY 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.
16
