National R.V. Holdings, Inc. Announces Financial Results
PERRIS, Calif., March 7 -- National R.V. Holdings, Inc. , a leading manufacturer of recreational vehicles, today announced preliminary, unaudited financial results for its fourth quarter and year ended December 31, 2005.
Net sales grew to $106.5 million in the fourth quarter of 2005, up 5% from $101.9 million in the fourth quarter of 2004. For the year ended December 31, 2005, net sales increased 6%, to $463.6 million, up from $436.8 million in 2004.
The Company reported a net loss of $7.0 million for the fourth quarter of 2005 and $19.8 million for the 2005 fiscal year, compared to a net loss of $12.7 million for the fourth quarter of 2004 and $9.5 million for the 2004 fiscal year. These figures correspond to a net loss of $0.68 per diluted share for the fourth quarter of 2005 and $1.92 per diluted share for the year, compared to a net loss of $1.24 per diluted share for the fourth quarter of 2004 and $0.93 per diluted share for the 2004 fiscal year. During the fourth quarter of 2004 the Company established a full valuation allowance of $11.2 million against its deferred tax asset and recorded the corresponding non-cash charge in its December 31, 2004 fourth quarter and fiscal year financial results. As a result of the full tax valuation allowance established in 2004, the 2005 fourth quarter and full fiscal year results do not include an income tax benefit.
Wholesale unit shipments of diesel motorhomes for the quarter ended December 31, 2005 were 324, down 2% from 329 units shipped during the same period last year. Shipments of gas motorhomes for the fourth quarter of 2005 were 308, up 21% compared to the 254 gas units sold during the same period last year. The increase in sales of the Company's gas motorhomes more than offset the decline in diesel sales. Total unit shipments for the fourth quarter of 2005 were 632 units, an increase of 8% over the fourth quarter of 2004. By comparison, according to the Recreation Vehicle Industry Association, industry-wide shipments of Class A motorhomes were down 26% in the fourth quarter, compared to the same quarter in 2004.
For the year ended December 31, 2005, the Company's wholesale unit shipments of diesel motorhomes were 1,411, up 2% from 1,380 units during 2004. Wholesale unit shipments of gas motorhomes were 1,381 for the twelve months of 2005, down 13% from 1,588 units shipped during 2004. The Company's combined diesel and gas Class A motorhome shipments were down 6% in 2005 compared to 2004, while the average selling price increased 13% to $166,000, compared to $147,000 in 2004, leading to the 6% increase in net sales for the year. Industry-wide, shipments of Class A motorhomes were down 18% in 2005 compared to 2004.
The gross profit margin for the quarter ended December 31, 2005 was 1.9% compared to 6.3% for the same period last year. For the year ended December 31, 2005, the gross profit margin was 2.6% compared to 7.1% for the year ended December 31, 2004. The lower gross margins in 2005 were caused by higher sales incentives resulting from a weakening Class A market, increased spending on engineering and product development, higher material handling costs, higher mid-year manufacturing costs as the Company's work-in-process inventories increased, multiple weeks of shutdowns, and finally, higher warranty costs driven by higher rates and costs of settlement of claims on older highline coaches than experienced by the Company in the past.
Operating expenses for the fourth quarter of 2005 declined 3% to $8.3 million, or 7.8% of net sales, compared to $8.6 million, or 8.4% of net sales, for the fourth quarter of 2004. For the year, operating expenses were $30.1 million, or 6.5% of net sales, which compares to $25.9 million, or 5.9% of net sales, for the prior year, an increase of 16%. Contributing to the higher operating costs in 2005 were higher selling and marketing expenses, including new marketing programs.
"Although the economic environment continues to make the market for class A motorhomes challenging, we are encouraged by several developments. NVH booked record sales for 2005 -- we believe this is a direct result of our great products, which are designed to provide the most desirable features at competitive price points, our growing number of dealer partners, and our loyal, expanding customer base," stated Brad Albrechtsen, National R.V. Holdings' president and chief executive officer. "Significant investments in product development seem to be paying off as declines in market share during the first half of the year were more than offset by gains in the second half. Though mostly offset by some large warranty claim settlements on older coaches in the fourth quarter, and by an extra week shut down at our Country Coach division, our cost reduction and efficiency efforts substantially lowered manufacturing costs during the quarter.
"We still have work to do. We are simultaneously evaluating strategic alternatives while continuing our efforts to become profitable. Despite industry shipments declining 16% in the fourth quarter compared to the third, resulting in the lowest quarterly shipments in more than a decade, our growing market share combined with our cost-cutting efforts are increasing our confidence in being profitable in 2006. With a full quarter of benefit from our cost cutting at our National RV division in place, we expect the division to be near break-even in the first quarter. However, these improvements will not be sufficient to fully cover our corporate overhead. Accordingly, we expect to have a substantially reduced loss in Q1, but still expect to be profitable for the year. Beyond that, we believe with our costs and efficiency issues under control, we are well positioned for expanding profitability when the market recovers."
"During the fourth quarter," explained Tom Martini, National R. V. Holdings' chief financial officer, "we continued to focus on improving our cash flow by moving out finished goods and lowering our inventory levels. In the fourth quarter, inventories declined by $15.0 million compared to the third quarter of 2005. We continue to monitor production rates carefully to ensure a tighter connection to retail activity. On a sequential basis, accounts payable increased by $2.4 million during the fourth quarter, a result of the timing of materials delivery. The inventory reduction and the increase in accounts payable were the primary drivers resulting in reduced borrowings against our line of credit of $10.1 million compared to the third quarter of 2005, bringing the outstanding balance to $12.1 million at year end."
Recent Events Restatement of Prior Period Results
The Company is in the latter stages of finalizing its 2005 financial statements for inclusion in its Form 10-K and of completing its assessment of its internal controls over financial reporting, which is also required for the Form 10-K. While undergoing this process, the Company determined that its Country Coach division amortized certain leasehold improvements over a period in excess of the lease term for the related lease. The correction of this error will require a restatement of prior periods. The use of the incorrect useful life on these leasehold improvements caused a cumulative understatement of leasehold improvement amortization expense of $0.41 million at December 31, 2004. As a result of this restatement, the restated cost of goods sold, selling and general and administrative combined annual expense will be increased by $0.07 million in 2004, $0.05 million in 2003, and $0.04 million in 2002. Additionally, stockholders' equity at January 1, 2002 will be reduced by $0.14 million as a result of this restatement.
Status of Sarbanes-Oxley Section 404 Assessment
In connection with its review of the Company's 2005 financial information and assessing its internal controls over financial reporting, the Company concluded that there was a material weakness in its internal control over financial reporting at the Company's Country Coach division. The Company will report this material weakness in its Form 10-K, as of December 31, 2005. This material weakness will be reported substantially as follows:
Insufficient personnel resources, supervision and training within its accounting function -- The Company did not maintain effective controls over the financial reporting process at its Country Coach division and the related corporate oversight because of insufficient personnel resources, supervision and training within the accounting function. This material weakness resulted in the restatement of the consolidated financial statements to correct an error related to the amortization of leasehold improvements. In addition, this material weakness resulted in audit adjustments to the 2005 annual consolidated financial statements affecting inventory, accounts payable, accrued liabilities, accumulated depreciation and amortization, and the related income statement accounts, primarily cost of goods sold, selling, and general and administrative. Additionally, this control deficiency could result in misstatements in the aforementioned accounts that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Management's report on internal controls over financial reporting as of December 31, 2004, was included in the Company's 2004 Form 10-K. In the report, management concluded that there were six material weaknesses as follows:
1. Insufficient personnel resources and technical expertise within its
accounting function.
2. Revenue recognition.
3. Accounting for sales incentives.
4. Accounting for income taxes.
5. Physical inventory process.
6. Unrestricted access to programs and data.
In response, the Company undertook several remedial actions in 2005, including the reorganization of its accounting personnel and increased technical expertise within the accounting function, discontinued deferred payment arrangements, increased training of all personnel involved in the physical inventory process, the correction of access rights of information technology personnel and users with accounting and reporting responsibilities, and the implementation of additional control procedures. As a result of the effects of these remedial actions, management has determined that material weaknesses 2 through 6 listed above have been fully remediated and no longer represent material weaknesses. The Company has also concluded that material weakness 1 -- Insufficient personnel resources and technical expertise within its accounting function -- has not been fully remediated, as a result of the control deficiencies discovered during the 2005 year-end audit at the Country Coach division discussed above.
NYSE Continued Listing Plan Approved
As announced previously, the Company was notified by the New York Stock Exchange (NYSE) in the fourth quarter of 2005 that it had failed to meet the NYSE's minimum acceptable continued listing criteria. The NYSE required that NVH submit a plan demonstrating how it intends to meet and comply with the continued listing standards.
The required plan was submitted to the NYSE and the Company was recently notified of its approval and acceptance by the NYSE. As a result, the Company's common stock will continue to be listed on the NYSE pending quarterly reviews by the NYSE's listing and compliance committee to ensure progress relative to the plan.
"We are expecting a return to profitability in 2006 and expect to attain the levels of equity and/or market capitalization required by the NYSE to continue to be a listed company," stated Albrechtsen.
About National R.V. Holdings, Inc.
National R.V. Holdings, Inc., through its two wholly owned subsidiaries, National RV, Inc. (NRV) and Country Coach, Inc. (CCI), is one of the nation's leading producers of motorized recreation vehicles. NRV is located in Perris, California where it produces Class A gas and diesel motor homes under model names Dolphin, Islander, Sea Breeze, Surf Side, Tradewinds and Tropi-Cal. CCI is located in Junction City, Oregon where it produces high-end Class A diesel motor homes under the model names Affinity, Allure, Inspire, Intrigue, and Magna, and bus conversions under the Country Coach Prevost brand.
The accompanying notes are an integral part of the consolidated financial statements.
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three-Months Ended Twelve-Months Ended
December 31, December 31,
As restated As restated
2005 2004 2005 2004
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $106,527 $101,860 $463,609 $436,813
Cost of goods sold 104,498 95,481 451,699 405,858
Gross profit 2,029 6,379 11,910 30,955
Selling expenses 4,013 3,317 15,302 11,616
General and
administrative
expenses 4,313 4,981 14,802 13,626
Other expense -- 258 -- 632
Operating income
(loss) (6,297) (2,177) (18,194) 5,081
Interest expense 509 197 1,492 327
Other expense (income) 52 (18) (20) (90)
Income (loss) from
continuing
operations before
income taxes (6,858) (2,356) (19,666) 4,844
Provision for income
taxes 181 10,343 181 13,161
Loss from continuing
operations (7,039) (12,699) (19,847) (8,317)
Loss from discontinued
operations -- -- -- 2,155
Gain from sale of
discontinued
operations -- -- -- (281)
Benefit for income
taxes -- -- -- (737)
Net loss from
discontinued
operations -- -- -- (1,137)
Net loss $(7,039) $(12,699) $(19,847) $(9,454)
Basic loss per
common share:
Continuing
operations $(0.68) $(1.24) $(1.92) $(0.81)
Discontinued
operations $-- $-- $-- $(0.12)
Total $(0.68) $(1.24) $(1.92) $(0.93)
Weighted average
number of shares:
Basic 10,339 10,251 10,338 10,217
Diluted 10,339 10,251 10,338 10,217
The accompanying notes are an integral part of the consolidated financial statements.
NATIONAL R.V. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Twelve-Months Ended
December 31,
As restated
2005 2004
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $(19,847) $(9,454)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 3,890 3,905
Bad debt expense 270 32
Reserve and write down of inventories 1,767 1,280
Loss on asset disposal 59 391
Tax benefit related to exercise
of stock options -- 254
Deferred income tax provision -- 11,894
Changes in assets and liabilities:
Decrease (increase) in receivables (1,748) 970
Decrease (increase) in inventories 10,725 (27,279)
Decrease (increase) in prepaid expenses 459 (1,266)
Increase in accounts payable 3,157 2,511
Increase in accrued expenses 2,500 972
Net cash provided by (used in) operating
activities 1,232 (15,790)
Cash flows from investing activities:
Decrease (increase) in other assets 10 (86)
Decrease (increase) in restricted cash 50 (1)
Repayments on note receivable 2,213 469
Proceeds from sale of assets 84 3,601
Proceeds from sale of discontinued operations -- 500
Purchase of property, plant and equipment (4,604) (4,914)
Net cash used in investing activities (2,247) (431)
Cash flows from financing activities:
Net advances (payments) on line of credit (631) 12,690
Deferred financing costs (236) --
Increase in book overdraft 1,779 803
Principal payments on capital leases (37) (8)
Principal payments on long-term debt -- (19)
Proceeds from issuance of common stock 140 707
Net cash provided by financing activities 1,015 14,173
Net decrease in cash and cash equivalents -- (2,048)
Cash and cash equivalents, beginning of year 11 2,059
Cash and cash equivalents, end of year $11 $11
Supplementary cash flow information:
Reclassification of inventory for
operating lease $394 $--
Acquisition of fixed assets on lease $27 $--
The accompanying notes are an integral part of the consolidated financial statements.