**FORM 10-K**

 

**UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**(MarkOne)**
| **ý** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF  THE SECURITIES EXCHANGE ACT OF 1934**     |
|------------|---------------------------------------------------------------------------------------------------------|
|       |                                                                                                    |
| ** ** | **For the year ended December 31, 2004**                                                           |
|       |                                                                                                    |
| **or**     |
|       |                                                                                                    |
| **o**      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
| ** ** | ** **                                                                                              |
| ** ** | **Commission  file number 001-12085**                                                                   |

 

**NATIONAL R.V. HOLDINGS, INC.**

(Exact name of registrant as specified in its charter)

 
| **Delaware**                                                    | ** ** | **No. 33-0371079**              |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer Identification No.) |
|                                                            |       |                                 |
| **3411 N. Perris Blvd., Perris, California**                    | ** ** | **92571**                            |
| (Address of principal executive offices)                        |       | (Zip Code)                           |

 

**(951) 943-6007**

(Registrant’s telephone number, including area code)

 

 

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 registeredpursuant to Section 12(g) of the Act: **None**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

Yes  ý         No o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Act).

Yes  ý         No o

 

Aggregate market value(based upon the closing sale price) of the voting stock held by nonaffiliatedstockholders of Registrant as of June 30, 2004 was approximately$142,200,709.

 

The number of shares outstandingof the Registrant’s common stock, as of September 22, 2005, were10,339,484.

 

Documents Incorporated ByReference:  **None.**

 

 

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****EXPLANATORY NOTE****

 

****RESTATEMENT OF PRIOR PERIODS****

 

In addition to providing financial statements and other required informationfor the fiscal year ended December 31, 2004, this Annual Report on Form 10-Kalso includes restated consolidated financial statements for the fiscal yearsended December 31, 2003 and 2002, as discussed in Note 2 to the Company’sconsolidated financial statements. The Company’s previously issued financialstatements for each of these periods should not be relied upon.

 

The Company is restating the consolidated financial statements for thefiscal years ended December 31, 2003 and 2002 in this Form 10-K forthe following items:

 

##### ***•***                  Correction of accounting for dealersales incentives

##### ***•***                  Correction of allowance for doubtfulaccounts methodology

•                  Correction of workers’ compensationreserve methodology

 

As of a result of these restatements, thedisclosures in the following items related to the years ended December 31,2003 and 2002 have likewise been updated:

 

Part II – Item 6 – Selected Financial Data

 

Part II – Item 7 – Management’s Discussionand Analysis of Financial Condition and Results of Operations

 

Part II – Item 8 – Financial Statements andSupplementary Data

 

The restatement of the quarterly periods for2004 and 2003 are included in Note 18 (Quarterly Consolidated Financial Data)to the Company’s consolidated financial statements.

 

Concurrently with filing this Form 10-K,the Company is filing with the SEC the Form 10-Q/A for the third quarterof 2004 to reflect the correction of accounting for dealer sales incentives, tocorrectly recognize revenue for a limited number of motorhomes sold in thethird quarter of 2004, and to correctly state the gain on the sale of theCompany’s travel trailer business at the end of the third quarter of 2004. TheCompany will include these restatements for the first and second quarters of2004 with the filing of its Quarterly Reports on Form 10-Q for the firstand second quarters of 2005. No amendments have been made to the Company’spreviously filed Quarterly Reports on Form 10-Q for the quarters ended March 31,2004 and June 30, 2004, and therefore they should not be relied upon.

 

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**TABLE OF CONTENTS**

** **
| **PART I**                                                                                                             | **4**  |
|-----------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                        |   |
| Item 1. Business                                                                                                            | 4      |
| Item 2. Properties                                                                                                          | 11     |
| Item 3. Legal Proceedings                                                                                                   | 11     |
| Item 4. Submission of  Matters to a Vote of Security Holders                                                                | 11     |
|                                                                                                                        |   |
| **PART II**                                                                                                            | **12** |
|                                                                                                                        |   |
| Item 5. Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities | 12     |
| Item 6. Selected Financial Data                                                                                             | 12     |
| Item 7. Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         | 14     |
| Item 7A.  Quantitative and Qualitative Disclosures About Market Risk                                                        | 32     |
| Item 8.  Financial Statements and Supplementary Data                                                                        | 33     |
| Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial  Disclosure                              | 33     |
| Item 9A.  Controls and Procedures                                                                                           | 33     |
| Item 9B. Other  Information                                                                                                 | 36     |
|                                                                                                                        |   |
| **PART III**                                                                                                           | **37** |
|                                                                                                                        |   |
| Item 10.  Directors and Executive Officers of the Registrant                                                                | 37     |
| Item 11.  Executive Compensation                                                                                            | 39     |
| Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related  Stockholder Matters                   | 42     |
| Item 13.  Certain Relationships and Related Transactions                                                                    | 44     |
| Item 14.  Principal Accountant Fees and Services                                                                            | 44     |
|                                                                                                                        |   |
| **PART IV**                                                                                                            | **45** |
|                                                                                                                        |   |
| Item 15.  Exhibits and Financial Statement Schedules                                                                        | 45     |
| SIGNATURES                                                                                                                  | 47     |
| Report of  Independent Registered Public Accounting Firm                                                                    | 48     |
| CONSOLIDATED  BALANCE SHEETS                                                                                                | 51     |
| CONSOLIDATED  STATEMENTS OF OPERATIONS                                                                                      | 52     |
| CONSOLIDATED  STATEMENTS OF CASH FLOWS                                                                                      | 53     |
| CONSOLIDATED  STATEMENTS OF STOCKHOLDERS’ EQUITY                                                                       | 54     |
| NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS                                                                                 | 55     |
| SCHEDULE II  – CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS                                                     | 72     |

 

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# PART I

#  

## Item 1. Business

##  

### **General**

### ** **

National R.V. Holdings, Inc.(the “Company”) through its two wholly-owned subsidiaries, National RV, Inc.(“NRV”) and Country Coach, Inc. (“CCI”), is one of the nation’s leadingproducers of motorized recreational vehicles, often referred to as RVs ormotorhomes. The Company’s product line consists of 11 models of motorhomes with59 floorplans across numerous price ranges. From its Perris, Californiafacility, NRV designs, manufactures and markets Class A gas and dieselmotorhomes under model names Dolphin, Sea Breeze, Islander, Tradewinds andTropi-Cal. From its Junction City, Oregon facility, CCI designs, manufacturesand markets high-end (Highline) Class A diesel motorhomes under the modelnames Affinity, Allure, Inspire, Intrigue, and Magna, and bus conversions underthe Country Coach Prevost brand. NRV began manufacturing RVs in 1964 and CCIhas been manufacturing RVs since 1973. Based upon retail registrations in 2004,the Company, through its subsidiaries, is the sixth largest domesticmanufacturer of Class A motorhomes selling motorhomes through a network ofapproximately 98 dealer locations in 32 states and 3 Canadian provinces.

 

The Company wasincorporated in Delaware in 1988. As used herein, the term “Company” refers toNational R.V. Holdings, Inc., NRV and CCI unless the context otherwiserequires.

 

The Company’sheadquarters are located at 3411 N. Perris Blvd., Perris, California 92571, andits telephone number is (951) 943-6007. National R.V. Holdings, Inc.’sInternet website address is www.nrvh.com. The Company’s annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K, andamendments to those reports filed or furnished pursuant to section 13(a) or15(d) of the Exchange Act are available free of charge through the Company’swebsite as soon as reasonably practicable after they are electronically filedwith, or furnished to, the Securities and Exchange Commission.

 

### **Motorized RecreationalVehicle Industry Overview**

### ** **

#### **Products**

Motorhomes areself-powered RVs built on a motor vehicle chassis. The interior typicallyincludes 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 thatthey can be lived in without being attached to utilities. Motorhomes aregenerally categorized into, A, B and C classes based upon standards establishedby the Recreational Vehicle Industry Association (the “RVIA”). Class Amotorhomes are constructed on a medium-duty to heavy-duty truck chassis, whichincludes the engine, drive train and other operating components. Retail pricesfor Class A motorhomes range from $40,000 to $1,400,000, with the majorityin the $40,000 to $250,000 range. Highline motorhomes, which are a subsetof Class A motorhomes, generally range in retail price from $250,000 to $1,400,000.Class C motorhomes are built on a van or pick-up truck chassis, whichincludes an engine, drive-train components and a finished cab section, andgenerally range in retail price from $40,000 to $70,000. Class Bmotorhomes are van campers, which generally contain fewer features than Class Aor Class C motorhomes.

 

The Company, on September 24,2004, sold its travel trailer business assets to Weekend Warrior, a privatelyowned, California-based ramp-trailer manufacturer. The sale was designed to allowthe Company to further concentrate its efforts and resources on its growingmotorhome business.

 

#### **Trends and Demographics**

According to the RVIA’swholesale statistics, total Class A motorhome industry unit sales in 2004increased 11.6% to 46,300 from 41,500 in 2003. The aggregate wholesale value ofthe Class A motorhome industry’s 2004 shipments was approximately $5.7billion. The average wholesale price of Class A motorhomes increased 7.2%in 2004 to $123,406 from $115,067 in 2003.

 

While overall unit shipmentshave increased over the past five years, the RV industry’s manufacturing basehas remained relatively constant. Between 1998 and 2004, the number of Class Amotorhome manufacturers decreased from 27 to 24. In addition, during thisperiod, the aggregate retail market share of the ten largest Class Amotorhome manufacturers increased from 92.5% to 94.5%.

 

RVs are purchased for avariety of purposes, including camping, visiting family and friends,sightseeing, vacationing and enjoying outdoor activities and sporting events.According to a 2001 University of Michigan study, approximately 6.9

 

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million households (or7.6% of all households) in the United States owned RVs in 2001, up from 6.4million in 1997, 5.8 million in 1993 and 5.8 million in 1988. In addition, thestudy indicated that 59% of all current RV owners and 31% of all former RVowners plan to purchase another RV in the future. This study further indicatedthat 67% of all future RV purchases will be used RVs (RVIA and market sharestatistics reflect new product sales only) with 32% of these used RVs olderthan 15 years.

 

Based on the study doneby the University of Michigan, ownership of RVs reaches its highest level amongthose Americans aged 55 to 64, with 13.7% of households in this category owningRVs. According to the University of Michigan study, the number of households inthis group, which constitutes the Company’s primary target market, is projectedto grow by 6.4 million households, or 45% from 2001 to 2010 as compared tototal growth of 10.5 million households, or 10.0%. Baby Boomers are defined asthose born between the years 1946 and 1964, and thus the leading edge of theBaby Boomer generation began turning 50 in 1996. This generation is expected tobe more affluent and retire earlier than past generations. As Baby Boomersenter and travel through the important 50 to 65 age group for RV sales, theCompany believes that they represent the potential for a secular uptrend in theRV industry. Additionally, the RVIA’s “Go RVing” campaign has been successfulin bringing in new and younger buyers.

 

As motorhomes haveincreased in popularity due, in part, to the entry of the Baby Boomergeneration into the target market, the purchasers of these products have grownmore sophisticated in their tastes. The Company believes that as a result,customers have demanded more value for their money, and brand recognition andloyalty have become increasingly important. These trends have favored companiesthat can deliver quality, value and reliability on a sustained basis.

 

### **RecentDevelopments**

### ** **

During the past threeyears, the Company has experienced net losses. These losses, combined with a build-up in inventory, which are primarilythe result of lower sales volumes related to recent market declines in the RVindustry, have negatively impacted the Company’s liquidity.  In response to these conditions, the Companyhas implemented initiatives to increase sales volumes through new product andfloorplan introductions and the addition of new dealers, to reduce allcategories of inventory, to re-balance head counts to current retailsales-supported production levels, to improve manufacturing efficiencies, andto further reduce manufacturing and other overhead costs.

 

The Company has incurrednet losses of $9.3 million, $8.4 million and $19.9 million for the years ended December 31,2004, 2003 and 2002, respectively.  TheCompany has used cash from operating activities of $15.8 million and $4.8million for the years ended December 31, 2004 and 2002, respectively, andprovided cash from operating activities of $8.1 million for the year ended December 31,2003.  The Company’s 2004 results giveeffect to the establishment of a full valuation allowance in the amount of$11.1 million against the Company’s net deferred tax asset as of the end of2004.  Recent cumulative losses, thedownturn in current market conditions and its impact on near term earningsoutweighed other factors including the long carryforward periods and led theCompany to conclude that it was more likely than not that its recorded netdeferred tax assets will not be realized resulting in the full valuationallowance against the net deferred tax asset as of December 31, 2004.

 

### **Business Development and Strategy**

### ** **

The Company’s businessdevelopment and operating strategy is to deliver high quality, innovativeproducts that offer superior value to enhance the Company’s position as one ofthe nation’s leading manufacturers of RVs. This strategy focuses on the followingkey elements: (i) building upon and promoting recognition of the Company’sbrand names; (ii) offering the highest value products at multiple pricepoints to appeal to first time and repeat buyers; (iii) utilizingvertically integrated manufacturing processes; and (iv) capitalizing onthe Company’s reputation to expand its presence in the Highline market.

 

###### *Building upon and Promoting Recognition of the Company’s Brand Names*

The Company believes thatits brand names and historical reputation for manufacturing quality productswith excellent value have fostered strong consumer awareness of the Company’sproducts and have contributed to its overall growth during the past decade. TheCompany intends to capitalize on its brand name recognition in order toincrease its sales and market share, facilitate the introduction of newproducts and enhance its dealer network.

 

###### *Offering the Highest Value Products at Multiple Price Points to Appealto First Time and Repeat Buyers*

The Company currentlyoffers 11 distinct models of RVs with 59 floor plans, which are available in avariety of lengths, color schemes and interior designs and range in suggestedretail price from $96,000 to $1,339,000. Each model is

 

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intended to attractcustomers seeking an RV within their price range by offering value superior tocompetitive products from other manufacturers. RVIA data indicates that mostnew motorhome purchasers have previously owned a recreational vehicle, and theCompany’s models are positioned to address the demands of these repeatcustomers as well as first time buyers.

 

###### *Utilizing Vertically Integrated Manufacturing Processes*

The Company designs andmanufactures a significant number of the components used in the assembly of itsproducts, rather than purchasing them from third parties. The Company believesthat its vertically integrated manufacturing processes allow it to achieve costsavings and better quality control. The Company’s in-house research anddevelopment staff and on-site component manufacturing departments enable theCompany to ensure a timely supply of necessary products and to respond rapidlyto market changes.

 

###### *Capitalizing on the Company’s Reputation to Expand its Presence in theMarket*

The Company’s NRV productofferings compete in the most common and competitive price points in the RVindustry. Through continued product development, a focus on quality andstrategic pricing, NRV has maintained demand for its products in 2004 and seeksto increase demand for its products with the reintroduction of the popularTradewinds and Islander diesel products in early 2005, as well as throughtargeting the expansion of its dealer body. The Company’s CCI product offeringsfocus exclusively on the Highline segment of the Class A motorhome market.According to the 2004 year-end Statistical Surveys publication, a provider ofindustry information concerning retail sales, the Company’s Highline marketshare increased to 8.7% in 2004 from 5.7% in 2003. The Highline market segmentof the industry, which represents all motorhomes with a retail price startingat $250,000 or above, includes more models than in previous years. There-design of the entire CCI product line during the past two years contributedto increases in turn rates and demand for CCI’s products. The Company isactively seeking to expand its share of this market by capitalizing on itsestablished reputation, developing new products of superior quality whilereducing its costs, expanding its production capacity in order to target themarket’s growing population, expanding its dealer network, and satisfying thedesire of many current RV owners to purchase more upscale vehicles.

 

#### **Products**

The Company’s productstrategy is to offer the highest value RVs across a wide range of retail pricesin order to appeal to a broad range of potential customers and to capture thebusiness of brand-loyal repeat purchasers who tend to trade up with each newpurchase. NRV currently manufactures Class A motorhomes under the **Dolphin, Sea Breeze, Islander, Tradewindsand Tropi-Cal** brand names. CCI currently manufactures Highline Class Amotorhomes under the brand names including **Affinity, Allure, Intrigue, Inspire**, and **Magna**, all of which are built onthe CCI manufactured DynoMax chassis. CCI also manufactures bus conversionsunder the **Country Coach Prevost**name.

 

The Company’s motorhomesare designed to offer all the comforts of home within a 281 to 440 square footarea. Accordingly, the interior of the recreational vehicle is designed to maximizeuse of available space. The Company’s products are designed with six generalareas, which are integrated to form comfortable and practical mobileaccommodations. The six areas are the driver’s compartment, living room,kitchen, dining room, bathroom and bedroom. In many models, the Company offersup to four “slide-outs”, which compartments can be expanded to createadditional living space when the motorhome is parked. For each model, theCompany offers a variety of interior layouts and designs, as well as exteriorgraphic and paint schemes.

 

The Company’s productsare offered with a wide range of accessories and options and manufactured withhigh-quality materials and components. Certain of the Company’s Highlinemotorhomes can be customized to a purchaser’s specifications. Each vehicle isequipped with a wide range of kitchen and bathroom appliances, audio and videoelectronics, communication and systems monitoring devices, furniture, climatecontrol systems and storage spaces.

 

##### ***Country CoachPrevost XLII Conversion***

This completelycustomized bus is built on the 45’ LeMirage XLII Prevost chassis. Fully custominteriors on this coach are complemented by multi-color custom exteriorgraphics with clear coat. The coach offers custom modifications, state-of-the-artcustomized Crestron electronics, in-motion satellite dish, GPS navigationsystem, concealable color back-up monitor, computerized touch pad switching,computerized air leveling, and large, often concealable LCD high definitiontelevision monitors. Slide room floorplans expand the interior living space.Suggested retail prices for **theCountry Coach Prevost XLII Conversion** double-slide start at$1,310,000. The **Country Coach PrevostConversion** was introduced in 1983.

 

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##### ***Affinity***

The **Affinity** is available in 40’, 42’and 45’ lengths with up to four modular floorplans and is powered by theCaterpillar C-13 525 HP engine teamed with Allison’s 4000MH transmission. Sleekbody styling, a one-piece windshield, 84-inch interior height and manystate-of-the-art entertainment and convenience features characterize thisproduct. The **Affinity** isbuilt on the DynoMax chassis manufactured by CCI, and features independentfront suspension, Anti-lock Braking System (ABS) brakes, front disc brakes,sway bar and liftable tag axle. The Affinity is available in two models, the730 and the 770LX, and offers varying degrees of customization, includingfloorplan modification and custom interior/exterior schemes. Modular slide-outfloorplan combinations with up to four slide rooms offer significantopportunities for personalization. Suggested retail prices for the **Affinity** start at $650,000. The **Affinity** was introduced in 1990.

 

##### ***Magna***

The **Magna** is available in 40’, 42’ and45’ lengths with three floorplans, each offering up to four slide rooms. The **Magna** is built on the DynoMaxchassis and features independent front suspension and a Caterpillar C-13 525 HPdiesel engine teamed with Allison’s 4000MH transmission. Six designer coordinatedinterior packages or the optional custom interior package complement thefiberglass exterior with six exterior paint color packages. Suggested retailprices for the **Magna**startat $554,000. The **Magna** wasintroduced in 1991.

 

##### ***Intrigue***

The **Intrigue** features a one piecewindshield, taller interior height, and sleek euro body styling. This coach isbuilt on the DynoMax chassis and features independent front suspension, ABSbrakes, and a sway bar. It is available in 40’, 42’ and 45’ lengths. Thisdiesel pusher is powered by the 400 HP Cummins ISL diesel engine, or theoptional Caterpillar C–13 525 HP diesel engine. The fiberglass exteriorfeatures painted exterior graphics including full body paint with completeclear coat protection. Custom crafted cabinetry is standard in each of thefloorplans, and up to four modular slide rooms are available with eachfloorplan. Suggested retail prices for the **Intrigue** start at $422,000. The **Intrigue** was introduced in 1994.

 

##### ***Allure***

The **Allure** is available in 34’, 37’, 40’and 42’ lengths, is built on the DynoMax chassis and is powered by aCaterpillar 400 HP C-9 diesel engine teamed with Allison’s 3000MH transmission.The fiberglass exterior, with its painted graphics, including full body paint,complete clear coat protection and bus-style aerodynamics, is complemented byfour designer coordinated interior packages. Four slide-out arrangements areavailable on most floorplans. Suggested retail prices for the **Allure** start at $297,000. The **Allure** was introduced in 1995.

 

##### ***Inspire***

The **Inspire** is available in 36’ and 40’lengths with up to four slide rooms in certain configurations, is built on theDynoMax chassis and is powered by the Caterpillar 400 HP C-9 diesel enginepaired with an Allison 3000MH transmission. The **Inspire** offers an 85” interior height, and features high-enddiesel coach elements like independent front suspension. Suggested retailprices for the **Inspire** startat $255,000. The **Inspire** wasintroduced in 2003.

 

##### ***Islander***

The 40’ Islander is abus-style diesel pusher built on the Spartan Mountain Master GT chassis,offering considerable strength in addition to features like a 400 HP CumminsISL diesel engine, independent front suspension, and a new higher 85” ceiling.The **Islander** features largetriple and quad slide models that add to the living space. This motorhomereceives intricate full exterior paint designs, in addition to interiorappointments like OptimaLeatherTM, upgraded electronics and several interiorupgrades. Suggested retail prices for the **Islander** start at $269,000. The **Islander** debuted in 1999, but was not built for model-year2005. It is being reintroduced in 2005 for model-year 2006.

 

##### ***Tradewinds***

The 40’ **Tradewinds** is a bus-style dieselpusher built on the Freightliner XC raised rail chassis, offering considerablestrength in addition to features like a 370 HP Cummins ISL diesel engine,Allison MH3000 transmission, and a new higher 85” ceiling. The **Tradewinds** features large three andfour slide rooms that add to the already spacious living space. This motorhomereceives intricate full exterior paint designs, in addition to interiorappointments like OptimaLeatherTM, upgraded electronics and several interiorupgrades. Suggested retail prices for the **Tradewinds** start at $237,000. The **Tradewinds** debuted in 1997, but was not built for model-year2005. It is being reintroduced in 2005 for model-year 2006.

 

##### ***Tropi-Cal***

The **Tropi-Cal** is a competitively priceddiesel pusher built on the Freightliner XC-Series Chassis. The 35’, 37’,and 39’ **Tropi-Cal** floorplansfeature two, three, and four slide-outs and include expansive basement storage,excellent cargo

 

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carrying capacities andcomfortable, convenient layouts. The **Tropi-Cal**offers a distinctive vinyl graphics package and a partial and full paintoption. The **Tropi-Cal**capitalizes on brand loyalty earned since the original nameplate introductionin the early 1990s. Suggested retail prices for the **Tropi-Cal** start at $168,000. The **Tropi-Cal** was originally introduced as a gasoline motorhome in1994 and made its debut as a diesel pusher in 2002.

 

##### ***Dolphin***

The **Dolphin** is available in fivefloorplans, and was built exclusively on Workhorse’s W-22 and W-24 gas-poweredchassis in 2004, although versions will be available on Ford chassis in 2005.These models are full-basement, bus-style motorhomes with up to three slides.The **Dolphin LX** is anupgraded **Dolphin**, offeringcertain distinct features, exterior styling and floorplans often reserved forhigher-priced diesel motorhomes. Many optional **Dolphin** features become standard on the **Dolphin LX**, and the LX featuresmany items not available on the standard **Dolphin**. The **Dolphin**products are produced in 32’ to 38’ lengths. Suggested retail prices for the**Dolphin** start at $123,000. The Class A**Dolphin** motorhome was firstintroduced in 1985. However, the **Dolphin**brand dates back to 1963.

 

##### ***Sea Breeze***

The **Sea Breeze** is a moderately priced,bus-style motorhome, offered on a Ford gas-powered chassis. A full-heightmotorhome, the **Sea Breeze** offersconsiderable basement storage. The **SeaBreeze** features Corian® countertops, power heated side-view mirrors,deluxe trim and heated water and waste holding tanks. The **Sea Breeze** offers floorplansranging from 30’ to 35’ in length. Also offered under the **Sea Breeze** name is the **Sea Breeze** LX built on theWorkhorse W-22 chassis. The **SeaBreeze** LX offers many upgrades not available in the standard **Sea Breeze**. The **Sea Breeze LX** models are producedin 31’ to 35’ lengths. Suggested retail prices for the **Sea Breeze** start at $96,000. The Class A **Sea Breeze** product was introducedin 1992.

 

#### **Planned Product Introductions**

During 2005, the Companyplans to introduce new floorplans in its existing products to target certainmarket niches not previously represented. The Company unveiled a brand newre-designed Dolphin product early this summer. The Dolphin was re-designed fromthe ground up, incorporating several innovative industry trends such as the “bigbox” house and aggressive new front and rear caps. In addition, the Companyplans to introduce an entry-level gas motorhome in the fall.  The product will target first time Class Amotorhome buyers. In addition, the Company launched a completely re-designedIntrigue motorcoach in March 2005. This re-design features new exteriorstyling, large quad-slide floorplans, taller interiors and upgradedappointments. Throughout much of the Company’s product offerings, model changewill herald new and updated interior and exterior color schemes, and newfloorplans will be debuted throughout the calendar year.

 

### **Distribution and Marketing**

### ** **

The Company markets NRVproducts through a network of approximately 72 Class A dealer locations in30 states and 3 Canadian provinces. These dealers generally carry all or aportion of NRV’s product lines along with competitors’ products. The Companymarkets CCI products through 30 dealer locations in 17 states. Overall, theCompany markets its NRV and CCI products through a network of approximately 98dealer locations in 32 states and 3 Canadian provinces. CCI utilizes a limiteddealer network for its Highline motorhomes due to the high level of knowledgeneeded by the dealer sales people and the tendency of Highline customers tomake destination-type purchases at shows and rallies. The Company believes thateach of the CCI dealers has significant experience with top-of-the-lineproducts and has outstanding facilities and service programs.

 

The Company generallypromotes its products through product support at dealer locations, productbrochures, plant tours and product walk-throughs on DVD, attendance at tradeand consumer shows, direct mail promotions, company web sites, live planttours, corporate newsletters, press releases, promotional appearances, tradeand consumer magazine advertising, RV owner rallies that include limited freeservice, and its in-house magazine publications. From time to time, the Companyalso offers dealer incentives. In addition, to help promote customersatisfaction and brand loyalty, the Company sponsors NRV and CCI clubs forowners of the Company’s products. The clubs publish newsletters on a monthly orquarterly basis and organize RV rallies and other activities. The Companycontinually seeks consumer preference input from several sources, includingdealers, RV owners and the Company’s sales representatives and, in response,the Company implements changes in the design, decor and features of itsproducts. The Company’s website also offers an extensive listing of the Company’smodels, floor plans and features, including “virtual tours” of some models.

 

Most of the Company’smotorhome sales are made on terms requiring payment within 15 business days orless of the dealer’s receipt of the unit. Most dealers finance all, orsubstantially all, of the purchase price of their inventory under floor planarrangements with banks or finance companies under which the lender pays theCompany directly. Dealers typically are not required to commence loanrepayments to such lenders for a period of at least six months. The loan is

 

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collateralized by a lienon the vehicle. Consistent with industry practice, the Company has entered intorepurchase agreements with these lenders. In general, the repurchase agreementsrequire the Company to repurchase a unit if the dealer defaults on the financedunit. Upon a dealer default, the agreements generally require the Company torepurchase RVs at the election of the lender provided certain conditions aremet, such as repossession of the RV by the lender, the RV being new and unusedand the time elapsed between invoice date and demand for repurchase being nolonger than a specified period which is typically 18 months or less. At December 31,2004, the Company’s maximum potential repurchase obligation under theseagreements was approximately $132 million. The risk of loss under suchagreements is spread over numerous dealers and lenders and is further reducedby the resale value of the motorhomes the Company would be required torepurchase. The Company’s losses under these agreements have not been materialin the past and management does not believe that any future losses under suchagreements will have a material adverse effect on the Company’s consolidatedfinancial position, results of operations, or cash flows.

 

Many finance companiesand banks provide retail financing to purchasers of RVs. Certain provisions ofthe U.S. tax laws applicable to second residences, including the deductibilityof mortgage interest and the exclusion of gain on a qualifying sale, currentlyapply to motorhomes used as qualifying residences.

 

#### **Manufacturing Facilities and Production**

The Company owns andoperates manufacturing and customer service facilities in Perris, Californiaand Junction City, Oregon. NRV products are designed and manufactured infacilities encompassing 607,000 square feet located on approximately 49 acresin Perris. In addition, NRV leases 97,000 square feet of the total 607,000square feet to Weekend Warrior, a privately owned, California-based ramptrailer manufacturer, as part of the September 2004 sale of the Towablesdivision. This lease is expected to continue for twelve months from theeffective date of the agreement. CCI products are designed and manufactured infacilities encompassing 436,000 square feet located on approximately 71 acresin Junction City.

 

The Company’s vehiclesare built by integrating manufacturing and assembly line processes. The Companygenerally operates one production shift for most assembly activities. TheCompany believes that the vertically integrated manufacturing systems andprocesses it has developed enable it to efficiently and consistently producehigh-quality products.

 

Among other items, theCompany fabricates, molds and finishes fiberglass to produce its front-end andrear-end caps, manufactures its own walls and roofs, assembles sub-floors andmolds plastic components. In addition to assembling its vehicles and installingvarious options and accessories, the Company manufactures the majority of theinstalled amenities such as cabinetry, draperies, showers and bathtubs. Afterpurchasing the basic chair and sofa frames, the Company also fabricates much ofthe furniture used in its motorhomes. The Company believes that bymanufacturing these components on site, rather than purchasing them from thirdparties, it achieves cost savings, better quality control and timely supply ofnecessary components. Chassis for certain of the Company’s coaches, plumbingfixtures, floor coverings, hardware and appliances are purchased in finishedform from various suppliers.

 

The Company purchases theprincipal raw materials and certain other components used in the production ofits RVs from third parties. Other than the chassis and chassis components,these components and raw materials typically have short delivery lead times.All materials are generally available from numerous sources, and the Companyhas not experienced any significant shortages of raw materials or components.

 

#### **Arrangements with Chassis Suppliers**

The Company’s NRVsubsidiary purchases gasoline-powered chassis that are manufactured by FordMotor Company and Workhorse Custom Chassis, and rear engine diesel-poweredchassis from Freightliner Custom Chassis Corporation and Spartan MotorCorporation. The Company’s CCI subsidiary manufactures its own chassis, theDynoMax, which is used as the base upon which all CCI motorhomes are built,except for the Country Coach Prevost bus conversions, which utilize a Prevostbus shell. The Company generally maintains a one to two month production supplyof a chassis in inventory. If any of the Company’s present chassismanufacturers were to cease manufacturing or otherwise reduce the availabilityof their chassis, the business of the Company could be materially and adverselyaffected. The industry, as a whole, from time to time, experiences short-termshortages of chassis.

 

#### **Product Development**

The Company utilizesresearch and development staff that concentrates on product development andenhancements. New ideas are presented to the staff from management and arederived from a variety of sources, including sales representatives, dealers andconsumers. The staff utilizes computer-aided design equipment and techniques toassist in the

 

9

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development of newproducts and floor plans and to analyze suggested modifications of existingproducts and features. After the initial step of development, prototype modelsfor new products are constructed and refined. In the case of modifications tocertain features, new molds for various parts, such as front-end caps, storagedoors, and dashes are produced and tested. New product prototypes are producedboth off-line as well as directly on the production line. The Company believesthat the maintenance of an in-house research and development staff enables theCompany to respond rapidly to ongoing shifts in consumer tastes and demands.Total research, development and engineering expenses were $7.8 million, $6.7million and $5.4 million for the years ended December 31, 2004, 2003 and2002, respectively, of which research and development expenses alone were $1.5million, $2.1 million and $1.4 million, respectively.

 

#### **Backlog**

The Company’s backlog oforders was $135 million as of December 31, 2004 and $119 million as of December 31,2003. Backlog orders are those orders with either a dealer purchase order orsome other form of dealer commitment to purchase a unit. All backlog orders aresubject to cancellation or postponement at the option of the dealer withoutpenalty, and therefore, backlog should not be used as a measure of futuresales. To the extent not canceled or postponed, the Company expects its backlogto be filled within 75 to 100 days.

 

#### **Competition**

The motorhome market isintensely competitive, with a number of other manufacturers selling productsthat compete with those of the Company. According to Statistical Surveys, Inc.,the three leading manufacturers accounted for approximately 55.8% and 55.7% oftotal retail units sold in the Class A motorhome market during 2004 and2003, respectively. These companies and certain other competitors havesubstantially greater financial and other resources than the Company. Sales ofused motorhomes also compete with the Company’s products. The Company competeson the basis of value, quality, price and design. According to StatisticalSurveys, Inc., the Company’s Class A retail market share of newproduct unit sales was 6.6%, 6.1%, and 5.5% in 2004, 2003, and 2002,respectively.

 

#### **Regulation**

The Company is subject tofederal, state and local regulations governing the manufacture and sale of itsproducts, including the provisions of the National Traffic and Motor VehicleSafety Act (the “Motor Vehicle Act”), the Transportation Recall Enhancement,Accountability and Documentation Act (the “TREAD” Act) and the Federal MotorVehicle Safety Standards (“FMVSS”). Certain states require approval of coachdesigns and provide certification tags proving compliance before coaches can besold into that state. The Motor Vehicle Act authorizes the National HighwayTraffic Safety Administration (“NHTSA”) to require a manufacturer to recall andrepair vehicles that contain safety defects or fail to comply with the FMVSS.In addition, the Company has, from time to time, instituted voluntary recallsof certain motorhomes. Future recalls of the Company’s products, if any, couldhave a material adverse effect on the Company. The Company is also subject tosome federal and state consumer protection and unfair trade practice laws andregulations relating to the sale, transportation and marketing of motorvehicles, including so-called “Lemon Laws.” Federal and state laws andregulations also impose upon vehicle operators various restrictions on theweight, length and width of motor vehicles, including trucks and motorhomes,that may be operated in certain jurisdictions or on certain roadways. Certainjurisdictions also prohibit the sale of vehicles exceeding length restrictions.Amendments and changes in enforcement with respect to these laws andregulations and the implementation of new laws and regulations couldsignificantly increase the costs of manufacturing, purchasing, operating orselling the Company’s products and could have a material adverse effect on theCompany’s business, results of operations and financial condition.

 

The Company relies uponcertifications from chassis manufacturers with respect to compliance of theCompany’s vehicles with all applicable emission control standards. The RVIA, ofwhich the Company is a member, has promulgated stringent standards for qualityand safety. Each of the units manufactured by the Company has a RVIA sealplaced upon it to certify that such standards have been met.

 

Federal and stateauthorities have various environmental control standards relating to air,water, and noise pollution and hazardous waste generation and disposal thataffect the business and operations of the Company. The Company believes thatits facilities and products comply in all material respects with applicableenvironmental regulations and standards. The Company is also subject to theregulations promulgated by the Occupational Safety and Health Administration (“OSHA”),which regulate workplace health and safety. Representatives of OSHA and theRVIA periodically inspect the Company’s plants.

 

#### **Product Warranty**

The Company providesretail purchasers of its motorhomes with a limited warranty against defects inmaterials and workmanship. Excluded from the Company’s warranties are chassismanufactured by third parties and other components,

 

10

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typically those that arewarranted by the Company’s suppliers of these items. Service covered bywarranty must be performed at either the Company’s in-house service facilitiesor any of its dealers or other authorized service centers. The basic warrantyterms are as follows:

 

•                  CCI motorhomes – One year basic, fiveyears structural

•                  NRV motorhomes – One year basic, fiveyears structural

•                  DynoMax chassis – Two years basic,five years structural

 

#### **Trademarks and Patents**

The Company hasregistered NRV’s **Dolphin, DuraFrame,Duraslide, Islander, Marlin, Palisades, Sea Breeze, Sea View National R.V.(Logo), Sea View, Surf Side, Tradewinds, and Tropi-Cal** trademarks, andCCI’s **Affinity, Allure, Concept,Country Camper, Country Coach, Country Coach Destinations, DynoMax, Great Room,Inspire, Intrigue, Magna, and Max** trademarks and believes they arematerial to the Company’s business. The Company has additional trademarks filedand pending registration. In addition, the Company has four patents covering RVsub-floors, exterior doors, and stow-away beds.

 

#### **Employees**

As of December 31,2004, the Company employed a total of 2,844 people, of which 2,275 wereinvolved in manufacturing, 208 in service, 145 in administration, 143 in research,development and engineering, and 73 in sales and marketing. None of the Company’spersonnel are represented by labor unions. The Company considers its relationswith its personnel to be good.

 

## Item 2. Properties

##  

The Company owns andoperates manufacturing facilities in Perris, California and Junction City,Oregon. NRV products are designed and manufactured in facilities encompassing607,000 square feet located on approximately 49 acres in Perris. In addition,NRV leases 97,000 square feet, of the total 607,000 square feet, to WeekendWarrior, a privately owned, California-based ramp trailer manufacturer, as partof the September 2004 sale of the Towables division. This lease isexpected to continue for twelve months from the effective date of the agreement.CCI products are designed and manufactured in facilities encompassing 436,000square feet located on approximately 71 acres in Junction City. A portion ofCCI’s facilities representing 325,000 square feet is being leased under anagreement expiring in October 2005. The Company has the option to extendthe CCI lease agreement for an additional five-year period. In addition, thebuilding where CCI’s bus conversions are manufactured representing 27,000square feet is being leased under a one-year agreement expiring in November 2005.The Company has the option to renew the lease at the end of each lease year. InMarch 2004, the Company sold a 10-bay service and parts distributioncenter in Lakeland, Florida and subsequently moved this service and parts centerto a new facility in the same general area to minimize its invested capital.

 

The Company believes thatpresent facilities are well maintained and in good condition. While the Perris,California facilities are sufficient to meet the NRV production needs,management is currently evaluating the need to expand its CCI capacity. As aresult, in August 2004, the Company entered into an agreement to acquirefor $3.0 million approximately 73 acres of land adjacent to the CCI facility.The closing of the purchase is subject to customary closing conditions and isexpected to occur in 2006.

 

## Item 3. LegalProceedings

##  

The Company is involvedin legal proceedings in the ordinary course of business, including a variety ofwarranty, “lemon law” and product liability claims typical in the recreationvehicle industry. With respect to product liability claims, the Company’sinsurance policies cover, in whole or in part, defense costs and liabilitycosts for personal injury or property damage (excluding damage to Companymotorhomes). While it is impossible to estimate with certainty the ultimatelegal and financial liability with respect to this litigation, management is ofthe opinion that while the final resolution of any such litigation may have animpact on the Company’s consolidated results for a particular reporting period,the ultimate disposition of such litigation will not have any material adverseeffect on the Company’s financial position, results of operations or liquidity.

 

## Item 4. Submission ofMatters to a Vote of Security Holders

##  

None.

 

11

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# PART II

#  

## Item 5. Market forRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities

##  

The Company’s CommonStock, par value $.01 per share (the “Common Stock”), has been trading on theNew York Stock Exchange under the symbol NVH since December 14, 1998. Formore than four years prior to that the Company’s Common Stock traded on theNASDAQ National Market under the symbol NRVH.

 

| **2004**       | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------|------------|----------|------------|---------|------------|
| First Quarter  |       | $        | 15.80      |    | $          | 9.40 |   |
| Second Quarter |       | 18.50    |       | 11.63   |       |
| Third Quarter  |       | 16.25    |       | 11.98   |       |
| Fourth Quarter |       | 12.99    |       | 8.64    |       |
|           |       |     |       |    |       |
| **2003**       | ** ** | **High** | ** ** | **Low** | ** ** |
| First Quarter  |       | $        | 7.36       |    | $          | 4.68 |   |
| Second Quarter |       | 5.28     |       | 3.79    |       |
| Third Quarter  |       | 8.70     |       | 5.27    |       |
| Fourth Quarter |       | 12.02    |       | 8.02    |       |

 

On September 22,2005, the last reported sales price for the Common Stock quoted on the New YorkStock Exchange was $5.49 per share. As of September 22, 2005, there wereapproximately 61 record holders of Common Stock. Such number does not includepersons whose shares are held of record by a bank, brokerage house or clearingagency, but does include such banks, brokerage houses and clearing agencies.

 

### **Dividends**

### ** **

The Company has not paidany cash dividends or distributions on its Common Stock and has no intention todo so in the foreseeable future. The Company presently intends to retainearnings for general corporate purposes, including business expansion, capitalexpenditures and possible acquisitions. The declaration and payment of futuredividends will be at the sole discretion of the Board of Directors and willdepend on the Company’s profitability, financial condition, capital needs,future prospects and other factors deemed relevant by the Board of Directors.The Company’s current credit agreement with UPS Capital Corporation restrictsthe declaration and payment of dividends. See “Management’s Discussion andAnalysis of Financial Condition and Results of Operations – Liquidity andCapital Resources.”

 

#### **Issuer Purchases of Equity Securities**

There were no purchasesby the Company of its Common Stock during the quarter ended December 31,2004 nor does the Company have outstanding any publicly announced repurchaseprogram.

 

#### **Unregistered Sales of Equity Securities**

During the fiscal yearended December 31, 2004, the Company sold no equity securities of theCompany, which were not registered under the Securities Act of 1933, asamended.

 

## Item 6. SelectedFinancial Data

##  

The following selectedconsolidated financial data should be read in conjunction with the Company’sconsolidated financial statements and the notes thereto, and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”contained elsewhere herein. The selected financial data of all prior periodshave been restated to reclassify revenues and expenses of the travel trailerbusiness as a discontinued operation, as further discussed in Note 16 to theaccompanying consolidated financial statements, and to correct other errors discussedbelow in Note 3 to the selected consolidated financial information table.

 

12

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SELECTED CONSOLIDATED FINANCIAL INFORMATION

(In thousands, except per share and unit amounts)

 
| ** **                                                                                                            | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                            | ** ** | ** **                        | ** ** | **As Restated** | ** ** | **As Restated** | ** ** | **As Restated** | ** ** | **As Restated** | ** ** |
| **Consolidated Statements of Operations Data:**                                                                       | ** ** | **2004**                          | ** ** | **2003 (3)** | ** ** | **2002 (3)** | ** ** | **2001 (3)** | ** ** | **2000 (3)** | ** ** |
| Net sales                                                                                                             |       | $                                 | 436,813    |   | $ | 312,548 |   | $ | 267,920 |   | $ | 249,250 |   | $ | 330,063 |   |
| Cost of goods  sold                                                                                                   |       | 405,799                           |       | 306,293 |   | 269,789 |   | 247,163 |   | 293,155 |   |
| Gross profit (loss)                                                                                                   |       | 31,014                            |       | 6,255 |   | (1,869 | ) | 2,087 |   | 36,908 |   |
| Selling expenses                                                                                                      |       | 11,614                            |       | 9,498 |   | 10,924 |   | 10,365 |   | 10,970 |   |
| General and  administrative expenses                                                                                  |       | 13,622                            |       | 7,463 |   | 7,427 |   | 8,103 |   | 8,863 |   |
| Other expense                                                                                                         |       | 632                               |       | — |   | — |   | — |   | — |   |
| Amortization of  intangibles                                                                                          |       | —                            |       | — |   | — |   | 413 |   | 413 |   |
| Impairment of  goodwill (1)                                                                                           |       | —                            |       | — |   | 6,126 |   | — |   | — |   |
| Operating income (loss)                                                                                               |       | 5,146                             |       | (10,706 | ) | (26,346 | ) | (16,794 | ) | 16,662 |   |
| Interest expense                                                                                                      |       | 327                               |       | 399 |   | 357 |   | 107 |   | 5 |   |
| Other income                                                                                                          |       | (90                               | )          | (6 | ) | (117 | ) | (527 | ) | (1,206 | ) |
| Loss (gain) on  disposal of land and equipment                                                                        |       | —                            |       | (1 | ) | (355 | ) | (71 | ) | 136 |   |
| Income (loss) from continuing operations before  income taxes and cumulative effect of change in accounting principle |       | 4,909                             |       | (11,098 | ) | (26,231 | ) | (16,303 | ) | 17,727 |   |
| Provision  (benefit) for income taxes                                                                                 |       | 13,027                            |       | (4,112 | ) | (7,699 | ) | (6,150 | ) | 6,747 |   |
| Loss (income) from continuing operations before  cumulative effect of change in accounting principle                  |       | (8,118                            | )          | (6,986 | ) | (18,532 | ) | (10,153 | ) | 10,980 |   |
| Loss from  discontinued operations                                                                                    |       | 2,155                             |       | 2,301 |   | 2,212 |   | 3,712 |   | 96 |   |
| Gain from sale  of discontinued operations                                                                            |       | (281                              | )          | — |   | — |   | — |   | — |   |
| Benefit for  income taxes                                                                                             |       | (737                              | )          | (853 | ) | (847 | ) | (1,400 | ) | (37 | ) |
| Loss from  discontinued operations, net of taxes                                                                      |       | (1,137                            | )          | (1,448 | ) | (1,365 | ) | (2,312 | ) | (59 | ) |
| Loss (income) before cumulative effect of accounting  change                                                          |       | (9,255                            | )          | (8,434 | ) | (19,897 | ) | (12,465 | ) | 10,921 |   |
| Cumulative effect of change in accounting principle,  net of tax (2)                                                  |       | —                            |       | — |   | — |   | — |   | (1,213 | ) |
| Net (loss) income                                                                                                     |       | $                                 | (9,255     | ) | $ | (8,434 | ) | $ | (19,897 | ) | $ | (12,465 | ) | $ | 9,708 |   |
| Basic (loss)  earnings per common share:                                                                              |       |                              |       |   |   |   |   |   |   |   |   |
| Continuing operations                                                                                                 |       | $                                 | (0.79      | ) | $ | (0.71 | ) | $ | (1.89 | ) | $ | (1.05 | ) | $ | 1.13 |   |
| Discontinued operations                                                                                               |       | (0.12                             | )          | (0.14 | ) | (0.14 | ) | (0.24 | ) | (0.01 | ) |
| Cumulative effect of accounting change                                                                                |       | —                            |       | — |   | — |   | — |   | (0.12 | ) |
| Net (loss) income                                                                                                     |       | $                                 | (0.91      | ) | $ | (0.85 | ) | $ | (2.03 | ) | $ | (1.29 | ) | $ | 1.00 |   |
| Diluted (loss)  earnings per common share:                                                                            |       |                              |       |   |   |   |   |   |   |   |   |
| Continuing operations                                                                                                 |       | $                                 | (0.79      | ) | $ | (0.71 | ) | $ | (1.89 | ) | $ | (1.05 | ) | $ | 1.09 |   |
| Discontinued operations                                                                                               |       | (0.12                             | )          | (0.14 | ) | (0.14 | ) | (0.24 | ) | (0.01 | ) |
| Cumulative effect of accounting change                                                                                |       | —                            |       | — |   | — |   | — |   | (0.12 | ) |
| Net (loss) income                                                                                                     |       | $                                 | (0.91      | ) | $ | (0.85 | ) | $ | (2.03 | ) | $ | (1.29 | ) | $ | 0.96 |   |
| Weighted average number of common shares  outstanding:                                                                |       |                              |       |   |   |   |   |   |   |   |   |
| Basic                                                                                                                 |       | 10,217                            |       | 9,900 |   | 9,788 |   | 9,683 |   | 9,743 |   |
| Diluted                                                                                                               |       | 10,217                            |       | 9,900 |   | 9,788 |   | 9,683 |   | 10,086 |   |
| **Other  Data:**                                                                                                      |       |                              |       |   |   |   |   |   |   |   |   |
| Class A  units sold                                                                                              |       | 2,968                             |       | 2,417 |   | 1,919 |   | 1,957 |   | 2,852 |   |

 
| ** **                                 | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | ** **            | ** ** | **As Restated** | ** ** | **As Restated** | ** ** | **As Restated** | ** ** | **As Restated** | ** ** |
| **Consolidated Balance Sheet Data:**       | ** ** | **2004**              | ** ** | **2003 (3)** | ** ** | **2002 (3)** | ** ** | **2001 (3)** | ** ** | **2000 (3)** | ** ** |
| Total assets                               |       | $                     | 140,642    |   | $ | 130,449 |   | $ | 142,233 |   | $ | 170,670 |   | $ | 155,940 |   |
| Working capital                            |       | 49,097                |       | 49,669 |   | 55,941 |   | 64,098 |   | 75,637 |   |
| Long-term debt  (including capital leases) |       | 185                   |       | — |   | 19 |   | 43 |   | 64 |   |
| Stockholders’  equity                 |       | 79,696                |       | 87,990 |   | 94,259 |   | 112,981 |   | 124,867 |   |
|                                            |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1) The impairmentof goodwill was attributable to the adoption of Statement of FinancialAccounting Standards No. 142, effective January 1, 2002.

(2) The cumulativeeffect of change in accounting principle was attributable to the adoption ofStaff Accounting Bulletin No. 101, effective January 1, 2000.

(3) The prior periodselected financial data presented in the table above have been restated forthree correcting adjustments described below. These adjustments are alsodiscussed below and under “Restatement Due to Correction of Errors” in Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations.

 

13

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### **Correction of accounting fordealer sales incentives**

### ** **

The financial statementsreflect the restatement of certain dealer sales incentives, which includerebates and floorplan interest reimbursement paid to dealers to promote thesale of the product and retail incentives paid directly to dealer retailsalespersons to promote the sale of the product and the return of sale andwarranty information. The 2003, 2002, 2001 and 2000 selected financial datapresented in this Form 10-K have been restated to reclassify these retailsales incentives from selling expenses to a reduction of revenue as required byEmerging Issues Task Force (“EITF”) Issue No. 01-09, “Accounting forConsideration Given by a Vendor to a Customer (including a Reseller) of theVendor’s Products”. Net sales, gross profit and selling expenses were reducedby $1.7 million in 2003, $2.5 million in 2002, $2.6 million in 2001 and $2.5million in 2000. This adjustment had no impact on net (loss) income aspreviously reported.

 

### **Correction of allowance fordoubtful accounts methodology**

### ** **

During 2003, the Companychanged its methodology for calculating its allowance for doubtful accountsfrom a method of providing an allowance for the estimated cost of one motorhomeat each of its divisions to a specific reserve methodology that reserves 100%of invoices greater than 120 days past due and all other accounts notconsidered collectible. The total reduction to the reserve of $0.15 millionresulting from this change in methodology was initially recorded in 2003 as achange in estimate, but should have been recorded as a correction of an error.Accounting Principles Board Opinion No. 20, Accounting Changes, statesthat a change from an accounting principlethat is not generally accepted to one that is generally accepted is acorrection of an error. The allowance for doubtful accounts methodology used bythe Company prior to 2003 is not a generally accepted method and as such, theCompany now believes the 2002 financial statements should have been restated atthe time the Company changed its methodology. General and administrativeexpenses were increased by $0.15 million in 2003 and decreased by the sameamount in 2002 as a result of this restatement.

 

### **Correction of workers’compensation reserve methodology**

### ** **

The 2002 financialstatements have been restated to correct an error related to the workers’compensation self-insurance reserve. During 2002, the Company changed itsmethodology for calculating workers’ compensation self-insurance reserves to anactuarial based method involving an incurred but not reported (IBNR) claimsanalysis from the specific reserve method previously recorded in 2001 and prioryears. The total charge to increase the reserve of $4.2 million was initiallyrecorded in 2002. The Company treated the charge as a revision of an estimate,but should have treated it as a correction of an error, and restated prioryears. The restated cost of goods sold was reduced by $1.8 million in 2002 andincreased by $1.2 million and $0.3 million in 2001 and 2000, respectively. Theloss from discontinued operations was reduced by $0.5 million in 2002 and wasincreased by $0.4 million and $0.1 million in 2001 and 2000, respectively. Additionally,stockholders’ equity at January 1, 2000 was reduced by $0.2 million as aresult of this restatement.

 

## Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations

##  

### **Forward Looking Statements**

### ** **

This Annual Report on Form 10-Kcontains forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Investors are cautioned thatforward-looking statements are inherently uncertain. Actual performance andresults may differ materially from that projected or suggested herein due tocertain risks and uncertainties including, without limitation, potentialfluctuations in the Company’s operating results; any material weaknesses in theCompany’s internal control over financial reporting or any failure to implementrequired new or improved controls; resumption of losses; seasonality andeconomic conditions; dependence on certain dealers and concentration of dealersin certain regions; dependence on chassis suppliers; potential liabilities underrepurchase agreements; competition; government regulation; warranty claims; andproduct liability claims. Certain risks and uncertainties that could causeactual results to differ materially from that projected or suggested are setforth below under “Factors That May Affect Future Operating Performance”and in the Company’s filings with the Securities and Exchange Commission (the “SEC”)and the Company’s public announcements, copies of which are available from theSEC or from the Company upon request. The Company undertakes no obligation torevise or update publicly any forward looking statements for any reason.

 

14

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### **Executive Overview**

### ** **

During the past threeyears, the Company has experienced net losses. These losses, combined with a build-up in inventory, which are primarilythe result of lower sales volumes related to recent market declines in the RVindustry, have negatively impacted the Company’s liquidity.  In response to these conditions, the Companyhas implemented initiatives to increase sales volumes through new product andfloorplan introductions and the addition of new dealers, to reduce allcategories of inventory, to re-balance head counts to current retailsales-supported production levels, to improve manufacturing efficiencies, andto further reduce manufacturing and other overhead costs.

 

In 2004 the Company had anet loss of $9.3 million or $0.91 per share, compared to its net loss of $8.4million or $0.85 per share in 2003. The Company’s 2004 results give effect tothe establishment of a full valuation allowance in the amount of $11.1 millionagainst the Company’s net deferred tax asset as of the end of 2004. Recentcumulative losses, the downturn in current market conditions and its impact on nearterm earnings outweighed other factors including the long carryforward periodsand the Company’s forecasted long-term profitability and led the Company toconclude that it was more likely than not that its recorded net deferred taxassets will not be realized resulting in the full valuation allowance againstthe net deferred tax asset as of December 31, 2004.

 

In 2004, the Companyimproved its gross margins by 510 basis points from 2.0% in 2003 to 7.1% in2004. The Company also finished the year with a 9.4% increase in market share,the third largest annual market share percent increase of the top ten Class Amanufacturers as reported by Statistical Surveys, Inc. Key to the Company’simprovement in 2004 were new and enhanced product offerings, and improvingprofit margins driven by various cost-reduction and efficiency initiatives withreduced workers’ compensation and warranty costs being two of the mostsignificant cost-reduction areas. Additionally, 2004 had the benefit of a fullyear of the new Inspire product sales which was a significant factor in theCompany’s overall increase in sales over 2003.

 

In addition, during thethird quarter, the Company sold its Travel Trailer business, which it recordedas a discontinued operation. The sale was designed to allow the Company tofurther concentrate its efforts and resources on its growing motorhomebusiness. For the years ended December 31, 2004, 2003 and 2002, theCompany recorded net losses from discontinued operations of $1.1 million, $1.4million and $1.4 million, respectively. The net loss on discontinued operationsfor the year ended December 31, 2004 included a pre-tax gain on the saleof the Travel Trailer business of $0.3 million.

 

### **Product Development**

### ** **

Both NRV and CCI releasedre-designed products in 2004. At NRV, the Tradewinds and the Islander, whichwere introduced in December 2004, are diesel products efficiently built onthe same production line as the gas products. At CCI, the re-designed Magna andAffinity were introduced in the spring of 2004.

 

In evaluating existingproducts at CCI, the Company set to work revitalizing its Highline products.These efforts resulted in a significant improvement in CCI’s motorhome productturn and a significant annual increase in its overall market share. NRV experienceda market share increase in its Tropi-Cal and Sea Breeze products.

 

New floorplans withtriple and quad slides together with interior and exterior product enhancementshave proven very successful in the marketplace. Management believes that focusingon the customer and providing great products that support the customer’slifestyle will drive future growth for the Company.

 

### **Operating Performance**

### ** **

Continual effort toimprove the safety of the workforce and decrease its workers’ compensationcosts resulted in an approximate $3.0 million reduction in workers’compensation costs for the year ended 2004 compared to 2003. The Company hasundertaken significant safety programs to address these costs and the Companyis being more proactive in the handling of its claims. In addition to thesemeasures, which are helping, the Company believes that its workers’compensation costs should be further reduced by recent state reforms. Otherfactors leading to the improvement in gross profit margin percentage from lastyear include higher sales, increased production levels at both NRV and CCI,price increases, and reduced discounting, partially offset by productioninefficiencies.

 

As the Company hasintroduced new and revitalized products it has seen a rise in wholesaledeliveries and an improvement in Class A retail market share, to 6.6% in2004 from 6.1% in 2003. Both the industry and the Company have experienced ashift to the more profitable diesel versus gas product lines. Stronger productofferings and the resulting

 

15

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increase in demand havereduced the need to discount many of the Company’s products through most of2004 though there can be no assurance that future demand and competitiveconditions will not cause the Company to increase discounts in future periods.

 

### **Looking Ahead**

### ** **

Many of the sameobjectives the Company addressed last year remain in place for the currentyear, including aggressive product development, cost containment, and increasedcustomer satisfaction. In addition, the Company will focus on increasing itsdealer body in 2005 with particular emphasis on the midwest, northeast, andeast coast.

 

The 2004 fourth quartersaw the release of the remaining 2005 model year offerings. NRV introduced there-designed Tradewinds and Islander diesel-powered products at the industry’sannual tradeshow in early December 2004. These two diesel products, whichbegan to hit the market in meaningful numbers in the second quarter of 2005,represent significant additions to the Company’s offerings given the relativestrength of the Class A motorhome diesel segment.

 

Cost containment remainsa high priority, specifically in the manufacturing cost areas, warranty, andworkers’ compensation. The Company continues to focus on improving the qualityof its motorhomes resulting in decreased warranty costs as a percentage of netsales. Also, the Company has instituted a number of safety programs, which haveresulted in measurably reduced workers’ compensation costs. The Company expectsfurther progress in containing its costs as it continues to implement leanmanufacturing concepts. Both NRV and CCI have recently staffed full-timemanufacturing engineers to assist in driving efficiency gains.

 

The Company iscontinually striving to increase its customer support by improving clubsupport, telephone support for owners and dealers, and parts fulfillment. TheCompany utilizes various techniques such as surveys and focus groups to ensurethat it is improving in the area of customer satisfaction.

 

A renewed focus on dealeracquisition and enhanced training programs for the Company’s workforce, servicecenters, dealers, and consumers are also key initiatives. The Company hasalready undertaken efforts in the areas of safety; with new distance learningcapabilities, the Company is looking forward to broadcasting its servicetraining programs directly to dealers and service providers, driving themovement for increased customer satisfaction in areas of technical maintenance.In addition, factory-training programs are providing the Company’s customers abasis for self-diagnostics and a better understanding of the equipment they areoperating.

 

The Recreational VehicleIndustry Association’s (RVIA) market expansion campaign, GO RVing, now in itseighth year, is fostering greater awareness and garnering media attention.Though RVIA expects substantial growth for the industry in the long-term ordecade ahead, RVIA expects a decline in the industry in the near term or eachof the years 2005 and 2006.

 

This analysis of theCompany’s financial condition and operating results should be read inconjunction with the accompanying consolidated financial statements includingthe notes thereto.

 

### **Critical Accounting Policies**

### ** **

The Company’s discussionand analysis of its financial condition and results of operations are basedupon its consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the UnitedStates.  The Company has performed anevaluation of its ability to continue as a going concern and believes it hassufficient financial resources to fund its operations through at least December 31,2005. Accordingly, the consolidated financial statements have been preparedassuming the Company will continue as a going concern, which contemplates therealization of the assets and the satisfaction of liabilities in the normalcourse of business.  The preparation ofthese financial statements requires the Company to make estimates and judgmentsthat affect the reported amount of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amount of revenues and expenses for each period.

 

The following representsa summary of the Company’s critical accounting policies, defined as thosepolicies that the Company believes are: i) the most important to the portrayalof the Company’s financial condition and results of operations, and ii) thatrequire the Company’s most difficult, subjective or complex judgments, often asa result of the need to make estimates about the effects of matters that areinherently uncertain.

 

16

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#### **Valuation of Long-Lived Assets**

####  

Effective the firstquarter of fiscal 2003, the Company adopted SFAS No. 144, “Accounting forthe Impairment or Disposal of Long-Lived Assets.” In accordance with SFAS No. 144,the Company assesses the fair value and recoverability of its long-lived assetswhenever events and circumstances indicate the carrying value of an asset maynot be recoverable from estimated future cash flows expected to result from itsuse and eventual disposition. In doing so, the Company makes assumptions andestimates regarding future cash flows and other factors. The fair value of thelong-lived assets is dependent upon the forecasted performance of the Company’sbusiness and the overall economic environment. When the Company determines thatthe carrying value of the long-lived assets may not be recoverable, it measuresimpairment based upon a forecasted discounted cash flow method. The followingtable provides the estimated useful lives used for each asset type:

 

| Computer software / hardware         |   | 3 – 5 years |   |
|--------------------------------------|--------|------------------|--------|
| Furniture and  fixtures              |   | 7 years          |   |
| Machinery and  equipment             |   | 7 years          |   |
| Buildings and  building improvements |   | 40 years         |   |

 

#### **Warranty Reserve**

The Company’s warrantyreserve is established based on its best estimate of the amounts necessary tosettle future and existing claims on products sold as of the balance sheet date.The Company records an estimate for future warranty-related costs based onrecent actual warranty claims and historical experience. Also, the Company’srecall reserve is established, as necessary, based on management’s estimate ofthe cost per unit to remedy a recall problem and the estimated number of unitsthat will ultimately be brought in for the repair. In addition, from time totime, the Company is involved in warranty or “lemon law” litigation arising outof its operations in the normal course of business. To date, the number of suchmatters as a percentage of sales is low and the aggregate cost to the Companyfor these actions have not been material. While the Company’s warranty costshave historically been within its expectations and the provisions established,the Company cannot guarantee that it will continue to experience the samewarranty costs that it has in the past. A significant increase in dealer shoprates, the cost of parts or the frequency of claims could have a materialadverse impact on the Company’s operating results for the period or periods inwhich such claims or additional costs materialize.

 

#### **Revenue Recognition**

The Company recognizesrevenue in accordance with SEC Staff Accounting Bulletin No. 104, RevenueRecognition in Financial Statements, or SAB 104. SAB 104 requires that fourbasic criteria must be met before revenue can be recognized: i) persuasiveevidence of an arrangement exists, ii) delivery has occurred and title and therisks and rewards of ownership have been transferred to the customer, iii) theprice is fixed and determinable, and iv) collectibility is reasonably assured.During the fourth quarter of 2004, NRV began delivering motorhomes to itscustomers through independent third party carriers. Title and risks of rewardsof ownership are transferred to a customer upon delivery of a motorhome to athird party carrier. When all of the above criteria are satisfied, motorhomesales are generally recorded by NRV at the time the motorhomes are delivered toan independent third party carrier and are recorded by CCI, which does notdeliver its motorhomes through an independent third party carrier, whenaccepted by the dealer.

 

In addition, as is commonthroughout the RV industry, the Company offers incentives to its dealers in theform of discounts and floorplan interest reimbursement programs, rebate andholdback programs, and retail sales incentives paid to dealer retailsalespersons. The Company recognizes and records the costs of these incentivesin accordance with Emerging Issue Task Force (EITF) No. 01-09, “Accountingfor Consideration Given by a Vendor to a Customer (Including a Reseller of theVendor’s Products)”.

 

Discounts and floorplaninterest reimbursement programs are offered to dealers on purchases of certainunits during dealer or other trade show events. The Company will occasionallyalso offer these programs to its dealers to sell slower-moving units. TheCompany recognizes the cost of these programs as a reduction of revenue andgenerally records the cost of discounts when the associated revenue isrecognized.

 

Rebate and holdbackprograms involve payments by the Company to the dealer based on either apercentage of the net invoice price or a predetermined amount based on themodel of the coach sold by the dealer. The dealer incentive program varies bydealer. Not all dealers participate. The purpose of the program is to providean additional incentive to the dealer to promote sales of the product. The dealers earn the incentive upon the wholesalepurchase of the unit from the Company. The Company recognizes theseincentives as a reduction of revenue and records the cost of these incentiveswhen the associated revenue is recognized.

 

17

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TheCompany often pays retail sales incentives directly to dealer retailsalespersons to promote the sale of the product and the return of sale andwarranty information. This information assists in providing sales and marketingdata to the Company. The Company recognizes the cost of such retail salesincentives as a reduction of revenue and records the cost of such retail salesincentives when the associated revenue is recognized.

 

Cooperative advertisingarrangements exist through which dealers receive a certain allowance of the totalpurchases from the Company if certain qualitative advertising criteria are metand if specified amounts are spent on the advertisements. A dealer mustmaintain documentation of all advertising performed that includes the Company’sproducts and provide that documentation to the Company upon request. Becausethe Company receives an identifiable advertising benefit from the dealer, theCompany recognizes the cost of cooperative advertising as a selling expense andrecords the cost of cooperative advertising when the units are sold to thedealers.

 

#### **Legal Proceedings**

The Company is involvedin legal proceedings in the ordinary course of business, including a variety ofwarranty, “lemon law” and product liability claims typical in the recreationvehicle industry. With respect to product liability claims, the Company’sinsurance policies cover, in whole or in part, defense costs and liabilitycosts for personal injury or property damage (excluding damage to Companymotorhomes). While it is impossible to estimate with certainty the ultimatelegal and financial liability with respect to this litigation, management is ofthe opinion that while the final resolution of any such litigation may have animpact on the Company’s consolidated results for a particular reporting period,the ultimate disposition of such litigation will not have any material adverseeffect on the Company’s financial position, results of operations or liquidity.

 

#### **Income Taxes**

As part of the process ofpreparing its consolidated financial statements, the Company estimates itsincome taxes in each of the taxing jurisdictions in which the Company operates.This process involves estimating actual current tax expense together withassessing any temporary differences resulting from the different treatment ofcertain items, such as the timing for recognizing revenues and expenses, fortax and financial reporting purposes. These differences may result in deferredtax assets and liabilities, which are included in the consolidated balancesheet. The Company is required to assess the likelihood that its net deferredtax assets, which include net operating loss carryforwards and temporarydifferences that are expected to be deductible in future years, will berecoverable from future taxable income or other tax planning strategies.Statement of Financial Accounting Standards (“SFAS”) No. 109 “Accountingfor Income Taxes” (“SFAS 109”) requires that a valuation allowance beestablished when it is more likely than not that its recorded net deferred taxassets will not be realized.  Indetermining whether a valuation allowance is necessary, the Company is requiredto take into account all positive and negative evidence with regard to theutilization of a deferred tax asset, including the Company’s past earningshistory, market conditions, management profitability forecasts, the characterand jurisdiction of such earnings, unsettled circumstances that, if unfavorablyresolved, would adversely affect utilization of a deferred tax asset, carrybackand carryforward periods, and tax strategies that could potentially enhance thelikelihood of realization of a net deferred tax asset.  SFAS No. 109 further states that it isdifficult to conclude that a valuation allowance is not needed when there isnegative evidence such as cumulative losses in recent years. Recent cumulativelosses, the downturn in current market conditions and its impact on near termearnings outweighed other factors including the long carryforward periods andlead the Company to conclude that it was more likely than not that its recordednet deferred tax assets will not be realized resulting in the full valuationallowance against the net deferred tax asset as of December 31, 2004.    As a result, the Company has recorded anon-cash charge of $11.1 million to establish a full valuation allowanceagainst its December 31, 2004 net deferred tax asset.  The Company expects to record a fullvaluation allowance on future tax benefits until it can sustain an appropriatelevel of profitability and until such time, the Company would not expect torecognize any significant tax benefits in its future results of operations.During 2004, the Company’s income tax expense was $12.3 million ($13.0 millionfor continuing operations partially offset by a $0.7 million income tax benefitfor discontinued operations) as a result of the Company’s full valuationallowance.

 

The provision for taxliabilities involves evaluations and judgments of uncertainties in theinterpretation of complex tax regulations by various taxing authorities. Insituations involving tax related uncertainties, the Company provides for taxliabilities when it determines it is probable and estimable that additionaltaxes may be due. As additional information becomes available, or theseuncertainties are resolved with the taxing authorities, revisions to theseliabilities may be required, resulting in additional provision for or benefitfrom income taxes in the consolidated statement of operations in the periodsuch determination is made.

 

18

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#### **Valuation of Inventory**

Inventoryis valued at the lower of cost (estimated using the first-in, first-out method)or market. The Company periodically evaluates the carrying value of inventoriesand maintains a reserve for excess and obsolescence to adjust the carryingvalue as necessary to the lower of cost or market or to amounts on hand to meetexpected demand in the near term. Specifically, service and slow-moving partsnot being used in the manufacture of current model year motorhomes are reviewedby the Company to determine which can be used in production, which can be usedfor future service and warranty repairs of customer-owned motorhomes, and whichcan be returned to suppliers for full or partial credit. In addition, priormodel year finished good motorhomes are evaluated by the Company and the valueof those motorhomes is adjusted to an estimated market value based on acombination of the National Automobile Dealers Association Guide and theCompany’s general industry knowledge. The inventory reserves are reviewed eachfiscal quarter and revisions are made as necessary. Unfavorable changes inobsolete inventory estimates would result in an increase in the inventoryreserve and a decrease in gross profit.

 

#### **Workers’ Compensation Reserve**

The Company’s workers’compensation reserve is established based on its best estimate of the amountsnecessary to settle future and existing employee workers’ compensation claimsincurred as of the balance sheet date. The Company records a reserve estimatefor future workers’ compensation related costs based on the Company’shistorical workers’ compensation claims paid history using an actuarialincurred but not reported (IBNR) approach. Even though the Company’s workers’compensation costs declined during 2004, the Company cannot provide assurancethat these costs will continue at these levels, increase or decrease, in thenear term. A significant change in California workers’ compensationlegislation, the cost of claims or the frequency of claims could have amaterial adverse impact on the Company’s operating results for the period orperiods in which such claims or additional costs materialize.

 

#### **Allowance for Doubtful Accounts**

TheCompany provides an allowance for doubtful accounts on its accounts receivablefor estimated losses resulting from the inability of its dealers to makerequired payments. The current methodology takes into consideration the dealerfinancing arrangement, where payment on motorhomes is pre-approved prior toshipment with payment made directly from the dealer’s third party financesource to the Company within 15 business days from the date of shipment. Thisarrangement significantly reduces the risk of loss from the sale of motorhomes.Parts receivables represent a minimal portion of the total accounts receivable.The Company uses a specific reserve methodology and currently reserves 100% ofinvoices greater than 120 days old. Additionally, the Company reviews all otheraccounts for collectibility and those not considered collectible are reservedfor as deemed appropriate. There is no expectation that this methodology willchange in the near term; however, to the extent any of the assumptions shouldchange in the future, the Company will reassess the methodology and make anynecessary adjustments.

 

#### **Restatement Due to Correction of Errors**

The prior periodfinancial statements presented in this Annual Report on Form 10-K havebeen restated for three correcting adjustments. These adjustments are discussedin more detail below. (See also Note 2 of Notes to Consolidated FinancialStatements contained in Item 8, “Financial Statements and Supplementary Data.”)

 

##### ***Correction ofaccounting for dealer sales incentives***

The financial statementsreflect the restatement of certain dealer sales incentives, which includerebates and floorplan interest reimbursement paid to dealers to promote thesale of the product and retail incentives paid directly to dealer retailsalespersons to promote the sale of the product and the return of sale and warrantyinformation. The 2003 and 2002 statements of operations have been restated toreclassify these sales incentives from selling expenses to a reduction ofrevenue, as required by Emerging Issues Task Force (“EITF”) Issue No. 01-09,“Accounting for Consideration Given by a Vendor to a Customer (including aReseller) of the Vendor’s Products”. Net sales, gross profit and sellingexpenses were reduced by $1.7 million in 2003 and $2.5 million in 2002. Thisadjustment had no impact on net (loss) income as previously reported.

 

##### ***Correction ofallowance for doubtful accounts methodology***

During 2003, the Companychanged its methodology for calculating its allowance for doubtful accountsfrom a method of providing an allowance for the estimated cost of one motorhomeat each of its divisions to a specific reserve methodology that reserves 100%of invoices greater than 120 days past due and all other accounts notconsidered collectible. The total reduction to the reserve of $0.15 millionresulting from this change in methodology was initially recorded in 2003 as achange in estimate, but should have been recorded as a correction of an error.Accounting Principles Board Opinion No. 20, Accounting Changes, statesthat a change from an accounting principlethat is not generally accepted to one that is generally accepted is acorrection of an error. The allowance for doubtful accounts methodology used bythe Company

 

19

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priorto 2003 is not a generally accepted method and as such, the Company nowbelieves the 2002 financial statements should have been restated at the timethe Company changed its methodology. General and administrative expenseswere increased by $0.15 million in 2003 and decreased by the same amount in2002 as a result of this restatement.

 

##### ***Correction ofworkers’ compensation reserve methodology***

The 2002 financialstatements have been restated to correct an error related to the workers’compensation self-insurance reserve. During 2002, the Company changed its methodologyfor calculating workers’ compensation self-insurance reserves to an actuarialbased method involving an incurred but not reported (IBNR) claims analysis fromthe specific reserve method previously recorded in 2001 and prior years. Thetotal charge to increase the reserve of $4.2 million was initially recorded in2002. The Company treated the charge as a revision of an estimate, but shouldhave treated it as a correction of an error, and restated prior years. Therestated 2002 cost of goods sold was reduced by $1.8 million and the loss fromdiscontinued operations was reduced by $0.5 million to allocate these workers’compensation costs to the appropriate years.

 

The above notedrestatements did not result in a restatement of the consolidated balance sheetas of December 31, 2003.  Theconsolidated statements of operations and cash flows for the years ended December 31,2003 and 2002 have been restated as follows (in thousands, except per shareamounts):

 
| ** **                                                                          | ** ** | **As Previously  Reported  2003** | ** ** | **As Restated  2003** | ** ** | **As Previously  Reported  2002** | ** ** | **As Restated  2002** | ** ** |
|-------------------------------------------------------------------------------------|------------|-----------------------------------|------------|-----------------------|------------|-----------------------------------|------------|-----------------------|------------|
| **Statement  of Operations**                                                        |       |                              |       |                  |       |                              |       |                  |       |
| Net sales                                                                           |       | $                                 | 314,286    |                  | $          | 312,548                           |       | $                     | 270,373    |   | $ | 267,920 |   |
| Cost of goods sold                                                                  |       | 306,293                           |       | 306,293               |       | 271,551                           |       | 269,789               |       |
| Gross profit (loss)                                                                 |       | 7,993                             |       | 6,255                 |       | (1,178                            | )          | (1,869                | )          |
| Selling expenses                                                                    |       | 11,236                            |       | 9,498                 |       | 13,377                            |       | 10,924                |       |
| General and administrative expense                                                  |       | 7,314                             |       | 7,463                 |       | 7,576                             |       | 7,427                 |       |
| Operating loss                                                                      |       | (10,557                           | )          | (10,706               | )          | (28,257                           | )          | (26,346               | )          |
| Loss from discontinued operations                                                   |       | (2,301                            | )          | (2,301                | )          | (2,769                            | )          | (2,212                | )          |
| Net loss                                                                            |       | $                                 | (8,340     | )                     | $          | (8,434                            | )          | $                     | (21,422    | ) | $ | (19,897 | ) |
|                                                                                |       |                              |       |                  |       |                              |       |                  |       |
| Net loss per share:                                                                 |       |                              |       |                  |       |                              |       |                  |       |
| Basic                                                                               |       | $                                 | (0.84      | )                     | $          | (0.85                             | )          | $                     | (2.19      | ) | $ | (2.03 | ) |
| Diluted                                                                             |       | $                                 | (0.84      | )                     | $          | (0.85                             | )          | $                     | (2.19      | ) | $ | (2.03 | ) |
|                                                                                |       |                              |       |                  |       |                              |       |                  |       |
| **Statement of Cash Flows**                                                         |       |                              |       |                  |       |                              |       |                  |       |
| Net loss                                                                            |       | $                                 | (8,340     | )                     | $          | (8,434                            | )          | $                     | (21,422    | ) | $ | (19,897 | ) |
| Increase in deferred income tax benefit                                             |       | (5,388                            | )          | (5,443                | )          | (2,574                            | )          | (1,631                | )          |
| Decrease (increase) in receivables                                                  |       | (11,212                           | )          | (11,063               | )          | 6,428                             |       | 6,279                 |       |
| (Decrease) increase in accrued expenses                                             |       | (225                              | )          | (225                  | )          | 6,814                             |       | 4,495                 |       |
| Net cash (used in) provided by operating activities                                 |       | 8,131                             |       | 8,131                 |       | (4,779                            | )          | (4,779                | )          |
| Net cash used in investing activities                                               |       | (1,793                            | )          | (1,793                | )          | (1,556                            | )          | (1,556                | )          |
| Net cash provided by (used in) financing activities                                 |       | (4,293                            | )          | (4,293                | )          | 6,327                             |       | 6,327                 |       |
|                                                                                |       |                              |       |                  |       |                              |       |                  |       |
| **Adjustment to Stockholders’ Equity as of January 1,  2002**             |       |                              |       |                  |       |                              |       |                  |       |
| Opening stockholders’ equity, at January 1,  2002, as previously reported |       |                              |       |                  |       |                              |       | $                     | 114,412    |   |
| Workers’ compensation                                                          |       |                              |       |                  |       |                              |       | (1,431                | )          |
| Opening stockholders’ equity, at January 1,  2002, as restated            |       |                              |       |                  |       |                              |       | $                     | 112,981    |   |

 

20

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### **Results of Operations**

### ** **

The following table setsforth for the periods indicated the percentage of net sales represented bycertain items reflected in the Company’s Consolidated Statement of Operations,prior periods have been restated to reclassify revenues and expenses of thetravel trailer business as a discontinued operation, as further discussed inNote 16 to the accompanying financial statements:

 
| ** **                                                    | ** ** | **Percentage of Net Sales  Years Ended  December 31,** | ** ** |
|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                    | ** ** | **2004**                                                    | ** ** | **Restated  2003 (1)** | ** ** | **Restated  2002 (1)** | ** ** |
|                                                          |       |                                                        |       |   |   |   |   |
| Net sales                                                     |       | 100.0                                                       | %          | 100.0 | % | 100.0 | % |
| Cost of goods sold                                            |       | 92.9                                                        |       | 98.0 |   | 100.7 |   |
| Gross profit (loss)                                           |       | 7.1                                                         |       | 2.0 |   | (0.7 | ) |
| Selling expenses                                              |       | 2.7                                                         |       | 3.0 |   | 4.1 |   |
| General and administrative expenses                           |       | 3.1                                                         |       | 2.4 |   | 2.8 |   |
| Other expense                                                 |       | 0.1                                                         |       | 0.0 |   | 0.0 |   |
| Impairment of goodwill                                        |       | 0.0                                                         |       | 0.0 |   | 2.3 |   |
| Operating income (loss)                                       |       | 1.2                                                         |       | (3.4 | ) | (9.9 | ) |
| Interest expense                                              |       | 0.1                                                         |       | 0.1 |   | 0.1 |   |
| Other income                                                  |       | (0.0                                                        | )          | (0.0 | ) | (0.2 | ) |
| Income (loss) from continuing operations before  income taxes |       | 1.1                                                         |       | (3.5 | ) | (9.8 | ) |
| Provision (benefit) for income taxes                          |       | 3.0                                                         |       | (1.3 | ) | (2.9 | ) |
| Loss from continuing operations                               |       | (1.9                                                        | )          | (2.2 | ) | (6.9 | ) |
| Loss from discontinued operations before income tax  benefit  |       | 0.4                                                         |       | 0.8 |   | 0.8 |   |
| Benefit for income taxes of discontinued operations           |       | (0.2                                                        | )          | (0.3 | ) | (0.3 | ) |
| Net loss from discontinued operations                         |       | (0.2                                                        | )          | (0.5 | ) | (0.5 | ) |
| Net loss                                                      |       | (2.1                                                        | )          | (2.7 | ) | (7.4 | ) |

 

----

(1) The informationin the table with respect to the fiscal years ended December 31, 2003 and December 31,2002 reflects the restatement described in “Restatement Due to Correction of Errors” on page 19 of Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operationsand in Note 2 of Notes to Consolidated Financial Statements contained in Item8, “Financial Statements and Supplementary Data”.

 

### **Year Ended December 31,2004 Compared to Year Ended December 31, 2003**

 

##### ***Amounts in tablesare in thousands, except percentages***

 

The discussion belowcomparing the results for the fiscal years ended December 31, 2004 and2003 reflects the restatement described in “Restatement Due to Correction ofErrors” on page 19 of Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations and in Note 2 of Notes toConsolidated Financial Statements contained in Item 8, “Financial Statementsand Supplementary Data”.

 

#### **Net sales**

 

| ** **                 | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|----------------------------|------------|------------------------------------------------------------|------------|
| ** **                 | ** ** | **2004**                                                   | ** ** | ** ** | ** ** | **As Restated  2003** | ** ** |
| Net sales                  |       | $                                                          | 436,813    |   | 39.8 | % | $ | 312,548 |   |
| as a percent of  net sales |       | 100.0                                                      | %          |   |   | 100.0 | % |
|                            |            |                                                            |            |  |  |  |  |  |  |

 

21

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Net sales of $436.8million for the year ended December 31, 2004 represent an increase of$124.3 million, or 39.8%, from the same period last year. Annual wholesale unitshipments of diesel motorhomes were 1,380, up 33.3% from 1,035 units during thesame period last year. Annual shipments of gas motorhomes were 1,588, up 14.9%from 1,382 units during the same period last year.

 

The increase in net salesis mainly attributable to strong sales of CCI’s Inspire and Magna product linesand NRV’s Tropi-Cal, as well as an overall increase in the demand for theCompany’s Highline and other products. The Company also benefited from ahealthy economy and an 11.6% increase in the industry-wide wholesale Class Amotorhome sales in 2004.

 

#### **Gross profit margin**

 

| ** **           | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|----------------------|------------|------------------------------------------------------------|------------|
| ** **           | ** ** | **2004**                                                   | ** ** | ** ** | ** ** | **As Restated  2003** | ** ** |
| Gross profit  margin |       | 7.1                                                        | %          | 255.0 | % | 2.0 | % |

 

 

The gross profit marginfor 2004 was 7.1% (or a $31.0 million gross profit) compared to a 2.0% grossmargin (or a $6.3 million gross profit) for the same period last year. Theprimary factors that led to the improved gross margins were higher productionlevels, reduced workers’ compensation costs, product price increases andreduced discounting, partially offset by production inefficiencies.

 

#### **Selling expenses**

 

| ** **                 | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|----------------------------|------------|------------------------------------------------------------|------------|
| ** **                 | ** ** | **2004**                                                   | ** ** | ** ** | ** ** | **As Restated  2003** | ** ** |
| Selling expenses           |       | $                                                          | 11,614     |   | 22.3 | % | $ | 9,498 |   |
| as a percent of  net sales |       | 2.7                                                        | %          |   |   | 3.0 | % |
|                            |            |                                                            |            |  |  |  |  |  |  |

 

Selling expensesincreased $2.1 million, or 22.3%, for the year 2004 over the same period lastyear. Selling expenses for 2004 increased mainly due to increased salescommissions, marketing, and rally and show expenses resulting from highersales. However, as a percentage of net sales, selling expenses decreased due tohigher sales over which to spread the fixed selling expenses.

 

#### **General and administrative expenses**

 

| ** **                           | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|--------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                           | ** ** | **2004**                                                   | ** ** | ** ** | ** ** | **As Restated  2003** | ** ** |
| General and  administrative expenses |       | $                                                          | 13,622     |   | 82.5 | % | $ | 7,463 |   |
| as a percent of  net sales           |       | 3.1                                                        | %          |   |   | 2.4 | % |
|                                      |            |                                                            |            |  |  |  |  |  |  |

 

General andadministrative expenses totaling $13.6 million for 2004 were up $6.2 million,or 82.5%, compared to the same period last year. The increase in general andadministrative expenses is due to increased expenses related to compliance withthe Sarbanes-Oxley Act, higher audit fees, increased personnel expenses, and anemployee bonus program. The cost for outside consultants and fees from theindependent registered public accounting firm to comply with the Sarbanes-OxleyAct was approximately $1.8 million of the total increase in general andadministrative expenses for 2004.

 

22

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#### **Other expense**

 

| ** **                 | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|----------------------------|------------|------------------------------------------------------------|------------|
| ** **                 | ** ** | **2004**                                                   | ** ** | ** ** | ** ** | **2003** | ** ** |
| Other expense              |       | $                                                          | 632        |   | 100.0 | % | $ | — |   |
| as a percent of  net sales |       | 0.1                                                        | %          |   |   | 0.0 | % |
|                            |            |                                                            |            |  |  |  |  |  |  |

 

Other expense for 2004was primarily the loss on the sale of the real property in Florida totaling$0.3 million and the impairment of an emissions control system totaling $0.3million.

 

#### **Interest expense**

 

| ** **                 | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|----------------------------|------------|------------------------------------------------------------|------------|
| ** **                 | ** ** | **2004**                                                   | ** ** | ** ** | ** ** | **2003** | ** ** |
| Interest expense           |       | $                                                          | 327        |   | (18.0 | )% | $ | 399 |   |
| as a percent of  net sales |       | 0.1                                                        | %          |   |   | 0.1 | % |
|                            |            |                                                            |            |  |  |  |  |  |  |

 

Interest expense for 2004totaling $0.3 million decreased over last year due to reduced averageborrowings on the line-of-credit. As a percentage of net sales, interestexpense for 2004 remained unchanged at 0.1% compared to 2003. Interest expenserepresents the interest and fees paid on the Company’s credit facility.

 

#### **Other income**

 

| ** **                 | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|----------------------------|------------|------------------------------------------------------------|------------|
| ** **                 | ** ** | **2004**                                                   | ** ** | ** ** | ** ** | **2003** | ** ** |
| Other income               |       | $                                                          | (90        | ) | 100.0 | % | $ | (7 | ) |
| as a percent of  net sales |       | (0.0                                                       | )%         |   |   | (0.0 | )% |
|                            |            |                                                            |            |  |  |  |  |  |  |

 

The individual componentsof other income during 2004 and 2003 are immaterial.

 

#### **Provision (benefit) for income taxes**

 

| ** **                            | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|---------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                            | ** ** | **2004**                                                   | ** ** | ** ** | ** ** | **As Restated  2003** | ** ** |
| Provision (benefit)  for income taxes |       | $                                                          | 13,027     |   | N/A |   | $ | (4,112 | ) |
| as a percent of  net sales            |       | 3.0                                                        | %          |   |   | (1.3 | )% |
|                                       |            |                                                            |            |  |  |  |  |  |  |

 

The overalleffective tax rate for 2004 was 404.9%, compared to 37.1% for the same periodlast year. The 2004 effective tax rate gives effect to a charge to establish afull valuation allowance in the amount of $11.1 million against the Company’snet deferred tax asset as of the end of 2004. SFAS No. 109 requires that avaluation allowance be established when it is more likely than not that itsrecorded net deferred tax asset will not be realized.  In determining whether a valuation allowanceis required, the Company must take into account all positive and negativeevidence with regard to the utilization of a deferred tax asset. SFAS No. 109further states that it is difficult to conclude that a valuation allowance isnot needed when there is negative evidence such as cumulative losses in recentyears. Recent cumulative losses, the downturn in current market conditions andits impact on near term earnings outweighed other factors including the longcarryforward periods and led the Company to conclude that it was more likelythan not that its recorded net deferred tax

 

23

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assets will not berealized resulting in the full valuation allowance against the net deferred taxasset as of December 31, 2004. As a result, the Company has recorded anon-cash charge of $11.1 million to establish a full valuation allowanceagainst its December 31, 2004 net deferred tax asset.  The Company expects to record a fullvaluation allowance on future tax benefits until it can sustain an appropriatelevel of profitability and until such time, the Company would not expect torecognize any significant tax benefits in its future results of operations.During 2004, the Company’s income tax expense was $13.0 million as a result ofthe Company’s full valuation allowance.

 

#### **Net loss from discontinued operations**

 

| ** **                             | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|----------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                             | ** ** | **2004**                                                   | ** ** | ** ** | ** ** | **2003** | ** ** |
| Net loss from  discontinued operations |       | $                                                          | (1,137     | ) | (21.5 | )% | $ | (1,448 | ) |
| as a percent of  net sales             |       | (0.2                                                       | )%         |   |   | (0.5 | )% |
|                                        |            |                                                            |            |  |  |  |  |  |  |

 

On September 24,2004, the Company sold its Travel Trailer business assets to Weekend Warrior, aprivately owned, California-based ramp-trailer manufacturer. The net loss fromdiscontinued operations for 2004 totaled $1.1 million compared to a net loss of$1.4 million for the same period last year. The net loss from discontinuedoperations for the year ended December 31, 2004 included a pre-tax gain onthe sale of $0.3 million.

 

### **Year Ended December 31,2003 Compared to Year Ended December 31, 2002**

### ** **

##### ***Amounts in tablesare in thousands, except percentages***

#####  

The discussion belowcomparing the results for the fiscal years ended December 31, 2003 and2002 reflects the restatement described in “Restatement Due to a Correction ofErrors” on page 19 of Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations and in Note 2 of Notes toConsolidated Financial Statements contained in Item 8, “Financial Statementsand Supplementary Data”.

 

#### **Net sales**

 

| ** **                 | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|----------------------------|------------|------------------------------------------------------------|------------|
| ** **                 | ** ** | **As Restated  2003**                                      | ** ** | ** ** | ** ** | **As Restated  2002** | ** ** |
| Net sales                  |       | $                                                          | 312,548    |   | 16.7 | % | $ | 267,920 |   |
| as a percent of  net sales |       | 100.0                                                      | %          |   |   | 100.0 | % |
|                            |            |                                                            |            |  |  |  |  |  |  |

 

Netsales of $312.5 million for the year ended December 31, 2003 represent anincrease of $44.6 million, or 16.7%, from 2002. Annual wholesale unit shipmentsof diesel motorhomes were 1,035, up 6.3% from 974 units sold during 2002.Annual shipments of gas motorhomes were 1,382, up 46.2% from 945 units soldduring 2002.

 

#### **Gross profit (loss) margin**

 

| ** **                  | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|-----------------------------|------------|------------------------------------------------------------|------------|
| ** **                  | ** ** | **As Restated  2003**                                      | ** ** | ** ** | ** ** | **As Restated  2002** | ** ** |
| Gross profit  (loss) margin |       | 2.0                                                        | %          | N/A |   | (0.7 | )% |

 

The primary factors, thatled to a 2.0% gross profit margin (or a $6.3 million gross profit) for 2003compared to a (0.7)% gross loss (or a $1.9 million gross loss) for 2002, werereduced warranty costs, reduced discounting, higher production and salesvolumes, and reduced workers’ compensation costs. The Company improved thequality of its products resulting

 

24

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in reduced warranty costsof approximately $4.4 million. The Company significantly reduced inventorylevels during 2003, which allowed management to reduce the amounts of discountsgiven to its dealers.

 

#### **Selling expenses**

 

| ** **                 | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|----------------------------|------------|------------------------------------------------------------|------------|
| ** **                 | ** ** | **As Restated  2003**                                      | ** ** | ** ** | ** ** | **As Restated  2002** | ** ** |
| Selling expenses           |       | $                                                          | 9,498      |   | (13.1 | )% | $ | 10,924 |   |
| as a percent of  net sales |       | 3.0                                                        | %          |   |   | 4.1 | % |
|                            |            |                                                            |            |  |  |  |  |  |  |

 

Selling expensestotaled  $9.5 million or 3.0% of netsales for 2003 compared to $10.9 million or 4.1% of net sales for 2002.Additionally for 2003, selling expenses, as a percentage of net sales decreasedin 2003 to 3.0% from 4.1% in 2002. Sales costs decreased due to concertedefforts by management to reduce advertising, giveaways and sales commissions.

 

#### **General and administrative expenses**

 

| ** **                           | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|--------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                           | ** ** | **2003**                                                   | ** ** | ** ** | ** ** | **2002** | ** ** |
| General and  administrative expenses |       | $                                                          | 7,463      |   | 0.5 | % | $ | 7,427 |   |
| as a percent of  net sales           |       | 2.4                                                        | %          |   |   | 2.8 | % |
|                                      |            |                                                            |            |  |  |  |  |  |  |

 

General andadministrative expenses totaling $7.5 million during 2003 declined by 0.5%compared to $7.4 million during 2002. As a percentage of net sales, general andadministrative expenses decreased in 2003 to 2.4% from 2.8% in 2002 as a resultof improved sales during 2003. In addition, 2002 reflected the $0.6 millionimpact of an employment related legal settlement reached in that year, whichsettlement was the primary reason for the reduction in general andadministrative expenses from 2002 to 2003.

 

#### **Impairment of goodwill**

 

| ** **                 | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|----------------------------|------------|------------------------------------------------------------|------------|
| ** **                 | ** ** | **2003**                                                   | ** ** | ** ** | ** ** | **2002** | ** ** |
| Impairment of  goodwill    |       | $                                                          | —     |   | (100.0 | )% | $ | 6,126 |   |
| as a percent of  net sales |       | 0.0                                                        | %          |   |   | 2.3 | % |
|                            |            |                                                            |            |  |  |  |  |  |  |

 

The Company recognizedthe complete impairment of goodwill during the year 2002.

 

As of December 31,2001, the Company had a net goodwill balance of $6.1 million related to the1996 acquisition of its subsidiary CCI. The Company adopted SFAS 142 effective January 1,2002. In connection with this adoption, the Company completed its transitionalgoodwill impairment test that resulted in no goodwill impairment as of January 1,2002. However, as of September 30, 2002, certain factors and events pertainingto the Company, triggered the need for the Company to perform another goodwillimpairment test. These factors and events included a relatively sudden declinein the Company’s retail demand, a severe drop in the profitability of theCompany’s products, and a severe drop in the Company’s stock price resultingfrom a third quarter pre-announcement of the Company’s expectation of asignificant third quarter loss. The critical factors the Company considered inits September 30, 2002 goodwill impairment testing were the severe drop inthe Company’s three-week average stock price following the announcement of theCompany’s expected third quarter loss and the significant decline in the fairvalue of CCI based on poor third quarter results and a resulting drop inexpected future CCI operating results and thus a significant decline in thefair value of CCI. Based on these factors, combined with management’s beliefthat there was significant value in unrecognized intangible assets, managementconcluded that the implied fair value of the goodwill was zero. Accordingly, animpairment loss was recognized for the amount of the goodwill during thequarter ended September 30, 2002.

 

25

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#### **Interest expense**

 

| ** **                 | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|----------------------------|------------|------------------------------------------------------------|------------|
| ** **                 | ** ** | **2003**                                                   | ** ** | ** ** | ** ** | **2002** | ** ** |
| Interest expense           |       | $                                                          | 399        |   | 11.8 | % | $ | 357 |   |
| as a percent of  net sales |       | 0.1                                                        | %          |   |   | 0.1 | % |
|                            |            |                                                            |            |  |  |  |  |  |  |

 

Interest expense for 2003totaling $0.4 million was flat compared to 2002. As a percentage of net sales,interest expense for 2003 remained unchanged at 0.1% compared to 2002. Interestexpense represents the interest and fees paid on the Company’s credit facility.

 

#### **Other income**

 

| ** **                 | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|----------------------------|------------|------------------------------------------------------------|------------|
| ** **                 | ** ** | **2003**                                                   | ** ** | ** ** | ** ** | **2002** | ** ** |
| Other income               |       | $                                                          | (7         | ) | (98.5 | )% | $ | (472 | ) |
| as a percent of  net sales |       | (0.0                                                       | )%         |   |   | (0.2 | )% |
|                            |            |                                                            |            |  |  |  |  |  |  |

 

Other income in 2003 ismainly comprised of interest income earned on cash in the Company’s generalbank account. As a percentage of net sales the amount is not material. Otherincome during 2002 is primarily the result of the sale of the Company’sairplane.

 

#### **Benefit for income taxes**

 

| ** **                 | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|----------------------------|------------|------------------------------------------------------------|------------|
| ** **                 | ** ** | **2003**                                                   | ** ** | ** ** | ** ** | **As Restated  2002** | ** ** |
| Benefit for  income taxes  |       | $                                                          | (4,112     | ) | (46.6 | )% | $ | (7,699 | ) |
| as a percent of  net sales |       | (1.3                                                       | )%         |   |   | (2.9 | )% |
|                            |            |                                                            |            |  |  |  |  |  |  |

 

The benefits for incometaxes for the years ended 2003 and 2002 were $4.1 million and $7.7 million,respectively. The benefits for income taxes on a percentage of sales basis forthe years ended 2003 and 2002 were (1.3)% and (2.9)% respectively. Theeffective tax rate for 2003 was 37.1%, while the effective tax rate for 2002,excluding the impairment of goodwill was 38.3%. The federal rate used to adjustthe deferred taxes decreased by 1% in 2003 compared to 2002.

 

#### **Net loss from discontinued operations**

 

| ** **                             | ** ** | **Twelve Months Ended  December 31,  Percent Change** | ** ** |
|----------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                             | ** ** | **2003**                                                   | ** ** | ** ** | ** ** | **2002** | ** ** |
| Net loss from  discontinued operations |       | $                                                          | (1,448     | ) | 6.1 | % | $ | (1,365 | ) |
| as a percent of  net sales             |       | (0.5                                                       | )%         |   |   | (0.5 | )% |
|                                        |            |                                                            |            |  |  |  |  |  |  |

 

The net loss from discontinuedoperations for 2003 totaled $1.4 million compared to a net loss of $1.4 millionfor 2002. The loss represents the loss from the towables operations during 2003and 2002.

 

26

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### **Liquidity and CapitalResources**

### ** **

The Company has incurrednet losses of $9.3 million, $8.4 million and $19.9 million for the years ended December 31,2004, 2003 and 2002, respectively.  TheCompany has used cash from operating activities of $15.8 million and $4.8million for the years ended December 31, 2004 and 2002, respectively, andprovided cash from operating activities of $8.1 million for the year ended December 31,2003.  The RV industry has beenhistorically cyclical and subject to downturns during periods of weak economicconditions.  With rising fuel prices andcontinued economic uncertainty, the Company experienced a further decline indemand for products in 2005.  Theseconditions lead the Company to assess its short-term liquidity needs and plansto achieve profitability.

 

During 2004, the Companyfinanced its operations primarily through its existing working capital and itsline-of-credit with UPS Capital Corporation (UPSC). On December 31, 2004,the Company had working capital of $49.1 million compared to $49.7 million at December 31,2003. Cash and cash equivalents was $0.01 million at December 31, 2004.This decrease of $0.6 million was primarily due to line of credit borrowings of$12.7 million, a $6.7 million reduction in current deferred income taxes, a $2.5million increase in accounts payable, a $2.0 million decrease in cash, and a$1.5 million increase in current accrued expenses, mostly offset by a $23.2million increase in inventory and a $2.2 million increase in note receivable.During 2004, the Company used cash in its operations of $15.8 million which wasdue primarily to a $27.3 million increase in inventories ($2.8 million of whichwas sold to Weekend Warrior as part of the Travel Trailer business sales) and a$9.3 million net loss, partially offset by an $11.8 million deferred income taxprovision, which is primarily due to the Company recording an $11.1 millionvaluation allowance against deferred tax assets, $3.8 million in depreciation,a $2.5 million increase in accounts payable, and a $1.3 million inventorywrite-down.  For the year ended December 31,2004, net cash used in investing activities was $0.4 million, which reflects$4.9 million of capital expenditures, with the single largest expenditure beingthe purchase of the Florida service center totaling $0.8 million. Theseexpenditures were mostly offset by the proceeds from the sale of assetstotaling $3.6 million, with the largest single sale of assets being the sale ofthe Florida property totaling $1.9 million, by the proceeds from the sale ofdiscontinued operations totaling $0.5 million, and by the note receivablerepayments of $0.5 million. Net cash provided by financing activities was $14.2million, mainly due to the advances on the line of credit totaling $12.7million, an increase in book overdraft of $0.8 million and $0.7 million inproceeds from issuance of common stock through the exercise of stock options.

 

At December 31,2004, the Company had an asset-based revolving credit facility of $15 millionwith UPSC which was scheduled to expire in August 2005.  At December 31, 2004, the Company hadoutstanding loans under the line-of-credit totaling $12.7 million and theCompany was not in default with any covenants as of this date.  On August 12, 2005, the originalfacility was replaced by a new three-year asset-based revolving credit facilitywith UPSC and Wells Fargo Bank for $25 million, with the Company having theoption, subject to certain conditions, of increasing the revolver in $5 millionincrements up to a total credit facility of $40 million.   On September 29, 2005, the Companyeffected such an increase in the amount of the credit facility from $25 millionto $30 million.  The new credit facilityis collateralized by all of the Company’s assets other than real estate.  Borrowing availability is based on eligibleaccounts receivable and inventory.  Thefacility also includes a requirement to maintain a blocked account arrangement,whereby remittances from the Company’s customers reduce the debtoutstanding.  The new credit facilitycontains, among other provisions, certain financial covenants, including fundeddebt to EBITDA, and a fixed charge coverage ratio. If these financial covenants are not met, the Company’s availabilityunder the credit facility will be reduced. The Company did not meet these financial covenants as of August 31,2005 and currently does not expect to meet them until September 30, 2006.  Until these covenants are met, theCompany’s borrowing availability under its $40 million facility will be limitedto an amount between $27 to $32 million, depending on eligible inventory andaccounts receivable.  Initial amounts borrowed under the revolvingcredit facility bear interest at the prime rate listed in the Wall StreetJournal plus 0.50 percentage points and may be subsequently adjusted down basedon a trailing twelve month funded debt to EBITDA calculation.  At December 31, 2004 the interest rateon the outstanding borrowings under the line-of-credit was 6.00%. The weightedaverage interest rate for the borrowings under the line-of-credit during theyear ended December 31, 2004 was 5.49%. The weighted average interest ratefor the borrowings on the line-of-credit during the year ended December 31,2003 was 4.96%.

 

Management’s plan toachieve operational profitability includes continuing or starting a variety ofinitiatives to improve its earnings and working capital position, including: i)new product introductions in the fourth quarter of 2005 with additional newproduct and floor plan introductions in the first half of 2006, ii) new dealeradditions to fill open market areas or replace under-performing dealers, iii)reductions in all categories of inventory, iv) head count re-balancings tocurrent retail sales-supported production levels, v) engineering reviews ofmaterial components for the removal of non-value added items to reduce bothmaterial and assembly costs, vi) continued thorough motorhome inspections toimprove quality and to more timely report failures, and vii) manufacturing costreductions resulting from the continued implementation of lean manufacturingconcepts.

 

27

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In order to fund on-goingoperations through at least December 31, 2005, the Company remainsdependent upon its ability to utilize outside financing through borrowings onits line-of-credit until it achieves sustained operational profitabilitythrough a combination of increased sales, cost reductions and improved productmargins.  After consideration of therestrictions of the borrowing capacity noted above, the Company believes it hassufficient financial resources to fund its operations through at least December 31,2005.  However, the Company’s ability tomeet its obligations beyond 2005 is dependent on its ability to generatepositive cash flows from operations and is dependent on continued borrowingsunder its line of credit.  If managementis unable to achieve its operational profitability plan or unforeseen eventsoccur and its existing line of credit is insufficient to allow the Company tomeet its obligations, the Company may need to implement alternative plans thatcould include long-term financing collateralized by real estate (which ispresently unencumbered) or obtaining additional debt financing, additionalreductions in operating costs, deferral of capital expenditures, and furtherreductions in working capital.  While theCompany believes that it could successfully complete the alternative plans, ifnecessary, there can be no assurance that such alternatives would be availableon acceptable terms and conditions or that the Company would be successful inits implementation of such plans.

 

The following is a schedule atDecember 31, 2004 of the Company’s known contractual obligations:

 
| **(in thousands)**          | ** ** | ** ** | ** ** | **Less than** | ** ** | **1 – 3** | ** ** | **4 - 5** | ** ** | **After**   | ** ** |
|-----------------------------|------------|------------|------------|---------------|------------|----------------|------------|-----------|------------|-------------|------------|
| **Contractual obligations** | ** ** | **Total**  | ** ** | **1 Year**    | ** ** | **Years**      | ** ** | **Years** | ** ** | **5 Years** | ** ** |
| Operating leases            |       | $          | 1,404      |          | $          | 1,302          |       | $         | 84         |        | $          | 18 |   | $ | — |   |
| Capital leases              |       | 320        |       | 66            |       | 132            |       | 122       |       | —      |       |
|                        |       | $          | 1,724      |          | $          | 1,368          |       | $         | 216        |        | $          | 140 |   | $ | — |   |

 
| **(in thousands)**             | ** ** | ** ** | ** ** | **Less than** | ** ** | **1 – 3** | ** ** | **4 - 5** | ** ** | **After**   | ** ** |
|--------------------------------|------------|------------|------------|---------------|------------|----------------|------------|-----------|------------|-------------|------------|
| **Commercial commitments**     | ** ** | **Total**  | ** ** | **1 Year**    | ** ** | **Years**      | ** ** | **Years** | ** ** | **5 Years** | ** ** |
| Revolving credit facility      |       | $          | 12,690     |          | $          | 12,690         |       | $         | —     |        | $          | — |   | $ | — |   |
| Letter of credit (Wells Fargo) |       | 250        |       | 250           |       | —         |       | —    |       | —      |       |
|                           |       | $          | 12,940     |          | $          | 12,940         |       | $         | —     |        | $          | — |   | $ | — |   |

 

As further discussed inNote 11 to the Company’s consolidated financial statements included in this Form 10-K,the Company generally agrees with its dealers’ lenders to repurchase any unsoldRVs in the event of various circumstances. The Company’s maximum potential exposureunder these agreements approximated $132 million at December 31, 2004. Aswith receivables, the risk of loss under the repurchase agreements was spreadover a number of dealers and lenders and was reduced by the resale value of theRVs, which the Company would be required to repurchase. Losses under theseagreements have not been material in the past and management does not believethat any future losses under such agreements will have a material adverseeffect on the Company’s consolidated financial position, results of operations,or cash flows.

 

In August 2004, theCompany entered into an agreement to acquire approximately 73 acres of landadjacent to its Country Coach, Inc. facility in Junction City, Oregon for$3 million.  The Company paid a depositof $0.1 million in 2004.  The closing ofthe purchase is subject to customary closing conditions and is expected tooccur in 2006.

 

### **Effects of Inflation**

### ** **

Higher steel andpetroleum prices during 2004, while partially passed along to customers in theform of surcharges, had an adverse effect on the Company’s profitmargins—particularly in the latter part of the year. Such adverse effects havecontinued through August 2005 and are projected for the remainder offiscal 2005.

 

### **Recent AccountingPronouncements**

### ** **

In November 2004,the FASB issued Statement of Financial Accounting Standards (SFAS) No. 151,“Inventory Costs-an Amendment of ARB No. 43, Chapter 4.” SFAS No. 151requires that accounting for items such as idle facility expense, freight,handling costs, and wasted materials (spoilage) be recognized as current periodcharges regardless of whether they meet the criterion of “so abnormal.” Inaddition, this Statement requires that allocation of fixed production overheadsto the costs of conversion be based on the normal capacity of the productionfacilities. This Statement is effective for inventory costs incurred duringfiscal years beginning after June 15, 2005. The provision of thisStatement shall be applied prospectively. The Company has not determined theimpact that adoption of this standard will have on its consolidated financialstatements.

 

28

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In December 2004,the FASB issued FSP 109-1, “Application of FASB Statement No. 109,Accounting for Income Taxes, to the Tax Deduction on Qualified ProductionActivities Provided by the American Jobs Creation Act of 2004.” The AmericanJobs Creation Act, or AJCA, introduces a special 9% tax deduction on qualifiedproduction activities. FAS 109-1 clarifies that this tax deduction should beaccounted for as a special tax deduction in accordance with Statement 109. FSP109-1 is effective upon its issuance. The adoption of FSP 109-1 did not have amaterial impact on the Company’s consolidated financial statements.

 

In December 2004, the FASB issued FASBStaff Position No. FAS 109-2, or FAS 109-2, “Accounting and DisclosureGuidance for the Foreign Earnings Repatriation Provision within the AmericanJobs Creations Act of 2004.” The AJCA introduces a limited time 85% dividendsreceived deduction on the repatriation of certain foreign earnings to a U.S.taxpayer (repatriation provision), provided certain criteria are met. FAS No. 109-2provides accounting and disclosure guidance for the repatriation provision. Toachieve the deduction, the repatriation must occur by the end of 2005. TheCompany has not completed its analysis and does not expect to be able to make adecision on the amount of such repatriations, if any, until the fourth quarterof 2005. Among other things, the decision will depend on the level of earningsoutside the United States, the debt level between the Company’s U.S. andnon-U.S. affiliates, and administrative guidance from the Internal RevenueService.

 

In December 2004,the FASB issued SFAS No. 123 (revised 2004),”Share-Based Payment” (SFAS No. 123R),which replaces SFAS No. 123, “Accounting for Stock-Based Compensation,”(SFAS 123) and supercedes APB Opinion No. 25, “Accounting for StockIssued to Employees.” SFAS No. 123R requires all share-based payments toemployees, including grants of employee stock options, to be recognized in thefinancial statements based on their fair values beginning with the first annualperiod after June 15, 2005, with early adoption encouraged. The pro formadisclosures previously permitted under SFAS 123 no longer will be analternative to financial statement recognition. The Company is required toadopt SFAS No. 123R in the first calendar quarter of 2006, beginning January 1,2006. Under SFAS No. 123R, the Company must determine the appropriate fairvalue model to be used for valuing share-based payments, the amortizationmethod for compensation cost and the transition method to be used at date ofadoption. The transition methods include modified prospective and modified retrospectiveadoption options. Under the modified retrospective option, prior periods may berestated either as of the beginning of the year of adoption or for all periodspresented. The modified prospective method requires that compensation expensebe recorded for all unvested stock options and restricted stock at thebeginning of the first quarter of adoption of SFAS No. 123R, while themodified retrospective method would record compensation expense for allunvested stock options and restricted stock beginning with the first periodrestated. The Company is evaluating the requirements of SFAS 123R. TheCompany has not yet determined the method of adoption or the effect of adoptingSFAS No. 123R, and the Company has not determined whether the adoptionwill result in amounts that are similar to the current pro forma disclosuresunder SFAS No. 123.

 

In June 2005, theFASB issued SFAS No. 154, “Accounting Changes and Error Corrections—areplacement of APB No. 20 and FAS No. 3” (“SFAS 154”). SFAS 154provides guidance on the accounting for and reporting of accounting changes anderror corrections. It establishes, unless impracticable, retrospectiveapplication as the required method for reporting a change in accountingprinciple in the absence of explicit transition requirements specific to thenewly adopted accounting principle. SFAS 154 also provides guidance fordetermining whether retrospective application of a change in accountingprinciple is impracticable and for reporting a change when retrospective applicationis impracticable. The correction of an error in previously issued financialstatements is not an accounting change. However, the reporting of an errorcorrection involves adjustments to previously issued financial statementssimilar to those generally applicable to reporting an accounting changeretrospectively. Therefore, the reporting of a correction of an error byrestating previously issued financial statements is also addressed by SFAS 154.SFAS 154 is required to be adopted in fiscal years beginning after December 15,2005. The Company does not believe that adoption of this standard will have animpact on its consolidated financial statements.

 

### **Risk Factors that May AffectFuture Operating Results**

### ** **

#### **Potential Fluctuations in Operating Results**

The Company’s net sales,gross margin and operating results may fluctuate significantly from period toperiod due to factors such as the mix of products sold, the level ofdiscounting employed on the Company’s products, the ability to utilize orexpand manufacturing resources efficiently, material shortages, theintroduction and consumer acceptance of new models offered by the Company,competition, warranty expense, the addition or loss of dealers, the timing oftrade shows and rallies, and factors affecting the recreational vehicleindustry as a whole, such as cyclicality and seasonality. In

 

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addition, the Company’soverall gross margin will be affected by shifts in the type of models sold. Dueto the relatively high selling prices of many of the Company’s motorhome models(in particular, its Highline Class A motor coaches), a relatively smallvariation in the number of motorhomes sold in any quarter can have asignificant effect on sales and operating results for that quarter.

 

#### **Continuation of Losses**

####  

TheCompany has had net losses totaling $9.3 million and $8.4 million and $19.9million for the years ended December 31, 2004, 2003 and 2002,respectively.  Continued losses couldreduce the Company’s liquidity and cause the Company to reduce its expenditureson capital improvements, machinery and equipment, and research anddevelopment.  This could have a negativeeffect on the Company’s ability to maintain production schedules, manufactureproducts of high quality, and develop and manufacture new products that willachieve market acceptance.  This could inturn, have a negative impact on sales and earnings.  If the Company continues to suffer losses,the Company could be unable to implement its business and financial strategiesor meet its obligations when due.  TheCompany’s loss in 2004 was the result of recording a non-cash charge of $11.1million to establish a full valuation allowance against its December 31,2004 net deferred tax asset.  The Company’slosses in 2003 and 2002 were mainly caused by (i) excess manufacturingcapacity and related fixed costs caused by continued low production levels, (ii) continuedsignificant discounting to wholesale distributors in 2002 and the first half of2003, (iii) the recognition of the complete impairment of the Company’sgoodwill in 2002, (iv) high warranty costs in 2002 and (v) a workers’compensation reserve increase in 2002 and continued high workers’ compensationcosts in 2003.  There are no assurancesthat the conditions that have resulted in the Company’s losses in the past willnot continue through 2005 and beyond.

 

#### **Failure to Maintain an Effective Internal Control Over FinancialReporting**

Effective internalcontrol over financial reporting is necessary for the Company to providereliable financial reports and effectively prevent fraud. If the Company cannotprovide reliable financial reports or prevent fraud, the Company’s brand andoperating results could be harmed. As reported in this Form 10-K, theCompany has identified, and may in the future identify, areas of the Company’sinternal control over financial reporting that need improvement. Because of thematerial weaknesses in the Company’s internal control over financial reportingas of December 31, 2004, the Company and the Company’s independentregistered public accountants concluded that the Company’s internal controlover financial reporting was not effective as of the 2004 year-end. The Companyexpects to devote significant resources to remediate and improve its internalcontrol over financial reporting. The Company cannot be certain that thesemeasures will ensure that the Company implements and maintains adequateinternal control over financial reporting in the future. In addition to the material weaknesses identifiedas of December 31, 2004, significant deficiencies in the Company’sinternal control over financial reporting were also identified and thosesignificant deficiencies if not corrected, could become material weaknesses inthe future. Any failure to implement required new or improved controls,or difficulties encountered in their implementation, could harm the Company’soperating results or cause the Company to fail to meet its reportingobligations. Failure to maintain an effective system of internal controls couldalso cause investors to lose confidence in the Company’s reported financialinformation, which could have a negative effect on the trading price of theCompany’s stock.

 

#### **Cyclicality, Seasonality and Economic Conditions**

The RV industry has beencharacterized by cycles of growth and contraction in consumer demand,reflecting prevailing economic conditions, which affect disposable income forleisure-time activities. Concerns about the availability and price of gasoline,decreases in consumer confidence, inflation, increases in interest rates andreductions in available financing have had, and may in the future have, anadverse impact on RV sales. Seasonal factors, over which the Company has nocontrol, also have an effect on the demand for the Company’s products. Demandin the RV industry declines over the winter season, while sales are generallyhighest during the spring and summer months.

 

#### **Dependence on Certain Dealers and Concentration of Dealers in CertainRegions**

For the year ended December 31,2004, three dealers accounted for 14%, 12%, and 11% respectively, of theCompany’s annual net sales. Also, the Company’s top ten dealers accounted forapproximately 72%, 66% and 59% of the Company’s annual net sales during theyears ended December 31, 2004, 2003 and 2002, respectively. The loss bythe Company of one or more of these dealers could have a material adverseeffect on the Company’s financial condition and results of operations. Inaddition, a significant portion of the Company’s sales is from dealers locatedin states in the western part of the United States. Consequently, a generaldownturn in economic conditions or other material events in the western regioncould materially adversely affect the Company’s sales.

 

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#### **Dependence on Chassis Suppliers**

One of the principalcomponents used in the manufacture of motorhomes is the chassis, which includesthe engine, drive train and other operating components. Although CCImanufactures chassis used in its products, the Company obtains the requiredchassis for its NRV Class A motorhomes from a limited number ofmanufacturers. As is standard in the industry, arrangements with such supplierspermit them to terminate their relationship with the Company at any time. Leadtimes for the delivery of chassis frequently exceed five weeks and the RVindustry as a whole has from time to time experienced temporary shortages ofchassis. The Company’s outside chassis suppliers accounted for approximately55% of the total chassis purchased or manufactured during 2004. If any of theCompany’s suppliers were to discontinue the manufacture of chassis utilized bythe Company in the manufacture of its Class A motorhomes, materiallyreduce their availability to the RV industry in general or limit or terminatetheir availability to the Company in particular, the business and financialcondition of the Company could be materially and adversely affected.

 

#### **Potential Liabilities Under Repurchase Agreements**

Mostof the Company’s motorhome sales are made on terms requiring payment within 15business days or less of the dealer’s receipt of the unit. Most dealers financeall, or substantially all, of the purchase price of their inventory under floorplan arrangements with banks or finance companies under which the lender paysthe Company directly. Dealers typically are not required to commence loanrepayments to such lenders for a period of at least six months. The loan iscollateralized by a lien on the motorhome. Consistent with industry practice,the Company has entered into repurchase agreements with these lenders. Ingeneral, the repurchase agreements require the Company to repurchase a unit ifthe dealer defaults on the financed unit. Upon a dealer default, the agreementsgenerally require the Company to repurchase RVs at the election of the lenderprovided certain conditions are met, such as repossession of the RV by thelender, the RV being new and unused and the time elapsed between invoice dateand demand for repurchase being no longer than a specified period which istypically 18 months or less. The Company’s maximum potential exposure underthese agreements was approximately $132 million at December 31, 2004. Aswith accounts receivable, the risk of loss under the repurchase agreements isspread over a number of dealers and lenders and is reduced by the resale valueof the RVs, which the Company would be required to repurchase. Losses underthese agreements have not been material in the past and management does notbelieve that any future losses under such agreements will have a materialadverse effect on the Company’s consolidated financial position, results ofoperations, or cash flows.

 

#### **Competition**

The Company competes withnumerous manufacturers, many of which have multiple product lines of RVs, whichare larger and have substantially greater financial and other resources thanthe Company. According to Statistical Surveys, Inc., the three largestmotorhome manufacturers had sales aggregating 55.8% of industry-wide retailunit sales of Class A motorhomes for the year ended December 31,2004. In addition, sales of used RVs provide competition to RV manufacturers.

 

#### **Government Regulation**

The Company is subject tofederal, state and local regulations governing the manufacture and sale oftheir products, including the provisions of the National Traffic and MotorVehicle Safety Act (the “Motor Vehicle Act”), the Transportation RecallEnhancement, Accountability and Documentation Act (the “TREAD” Act) and theFederal Motor Vehicle Safety Standards (“FMVSS”). Certain states requireapproval of coach designs and provide certification tags proving compliancebefore coaches can be sold into that state. The Motor Vehicle Act authorizesthe National Highway Traffic Safety Administration (“NHTSA”) to require amanufacturer to recall and repair vehicles that contain safety defects or failto comply with the FMVSS. In addition, the Company has, from time to time,instituted voluntary recalls of certain motorhome units. Future recalls of theCompany’s products, if any, could have a material adverse effect on theCompany. The Company is also subject to some federal and state consumerprotection and unfair trade practice laws and regulations relating to the sale,transportation and marketing of motor vehicles, including so-called “LemonLaws.”

 

Federal and state lawsand regulations also impose upon vehicle operators various restrictions on theweight, length and width of motor vehicles, including trucks and motorhomes,that may be operated in certain jurisdictions or on certain roadways. As aresult of these restrictions, certain models of motorhomes manufactured by theCompany’s CCI subsidiary may not be legally operated in certain jurisdictionsor on certain roadways. Certain jurisdictions also prohibit the sale ofvehicles exceeding length restrictions. Enforcement of these laws and relatedcustomer complaints to date has been limited. The Company is unable to reliablypredict the extent of future enforcement of these laws, the extent futureenforcement might lead to customer complaints, or the extent to which CCI maychoose or be required to provide some customer remedy, such as repurchasing orexchanging motorhomes, as a result of such complaints. If current enforcementefforts and related complaints were to increase significantly from theircurrent levels, the cost of resolving such complaints, particularly should theresolution of complaints require repurchasing, refurbishing, and reselling ofmotorhomes, could have a material adverse financial effect on the Company.

 

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Amendments and changes inenforcement with respect to these laws and regulations and the implementationof new laws and regulations could significantly increase the costs ofmanufacturing, purchasing, operating or selling the Company’s products andcould have a material adverse effect on the Company’s business, results ofoperations and financial condition. The failure of the Company to comply withthese present or future laws or regulations could result in fines imposed onthe Company, civil and criminal liability, or suspension of operations, any ofwhich could have a material adverse financial effect on the Company.

 

The Company’smanufacturing operations are subject to a variety of federal and stateenvironmental 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 thatfuture amendments to these environmental statutes and additional regulationspromulgated thereunder will be applicable to the Company, its manufacturingoperations and its products in the future. The failure of the Company to complywith present or future regulations could result in fines being imposed on theCompany, civil and criminal liability, suspension of operations, alterations tothe manufacturing process or costly cleanup or capital expenditures.

 

#### **Warranty Claims**

The Company is subject towarranty claims in the ordinary course of its business. Although the Companymaintains reserves for such claims, which to date have been adequate, there canbe no assurance that warranty expense levels will remain at current levels orthat such reserves will continue to be adequate. A large number of warrantyclaims exceeding the Company’s current warranty expense levels could have amaterial adverse effect on the Company’s results of operations, financialcondition, and cash flows.

 

#### **Product Liability**

The Company is involvedin legal proceedings in the ordinary course of business, including a variety ofwarranty, “lemon law” and product liability claims typical in the recreationvehicle industry. With respect to product liability claims, the Company’sinsurance policies cover, in whole or in part, defense costs and liabilitycosts for personal injury or property damage (excluding damage to Companymotorhomes). The Company cannot be certain that its insurance coverage will besufficient to cover all future claims against it. Any increase in the frequencyand size of these claims, as compared to the Company’s experience in prioryears, may cause the premiums that the Company is required to pay for insuranceto rise significantly. It may also increase the amounts the Company pays inpunitive damages, which may not be covered by the Company’s insurance. Thesefactors may have a material adverse effect on the Company’s results ofoperations and financial condition. In addition, if these claims rise to alevel of frequency or size that is significantly higher than similar claimsmade against the Company’s competitors, the Company’s reputation and businesswill be harmed.

 

#### **Antitakeover Provisions**

Certain provisions of theCompany’s Certificate of Incorporation, as well as Delaware corporate law andthe Company’s Stockholder Rights Plan (the “Rights Plan”), may be deemed tohave anti-takeover effects and may delay, defer or prevent a takeover attemptthat a stockholder might consider in its best interest. Such provisions alsomay adversely affect prevailing market prices for the Common Stock. Certain ofsuch provisions allow the Company’s Board of Directors to issue, withoutadditional stockholder approval, preferred stock having rights senior to thoseof the Common Stock. In addition, the Company is subject to the anti-takeoverprovisions of Section 203 of the Delaware General Corporation Law, whichprohibits the Company from engaging in a “business combination” with an “interestedstockholder” for a period of three years after the date of the transaction inwhich the person became an interested stockholder, unless the businesscombination is approved in a prescribed manner. In August 1996, theCompany adopted the Rights Plan, pursuant to which holders of the Common Stockreceived a distribution of rights to purchase additional shares of CommonStock, which rights become exercisable upon the occurrence of certain events.

 

## Item 7A. Quantitativeand Qualitative Disclosures About Market Risk

##  

The Company has nosignificant financial instruments. The Company has not entered into anyderivative financial instruments. The Company does not have any significantforeign currency exposure because it does not transact business in foreigncurrencies. However, the Company is exposed to interest rate changes relatedprimarily to cash borrowings on the Company’s credit facility. The weightedaverage interest rate for the borrowings on the credit facility during the yearended December 31, 2004 was 5.49%. For every 0.25% increase in interestrates, the Company would expect a quarterly increase in interest expense ofapproximately $0.63 for each $1,000 borrowed.

 

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## Item 8. FinancialStatements and Supplementary Data

##  

The information requiredby this item is contained in the financial statements listed in Item 15(a) underthe caption “Consolidated Financial Statements.”

 

## Item 9. Changes in andDisagreements With Accountants on Accounting and Financial Disclosure

##  

There have been nochanges in or disagreements with accountants on accounting or financialdisclosure matters.

 

## Item 9A. Controls andProcedures

##  

### **Disclosure Controls andProcedures**

### ** **

The Company maintainsdisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in the Company’s reports under the Securities ExchangeAct of 1934, as amended (the “Exchange Act”), is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules andforms, and that such information is accumulated and communicated to management,including the Company’s Chief Executive Officer (“CEO”) and Chief FinancialOfficer (“CFO”), as appropriate, to allow timely decisions regarding requireddisclosure. In designing and evaluating the disclosure controls and procedures,management recognized that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving thedesired control objectives, as the Company’s are designed to do, and managementnecessarily was required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

 

In connection with thepreparation of this Annual Report on Form 10-K, as of December 31,2004, an evaluation was performed under the supervision and with theparticipation of the Company’s management, including the CEO and CFO, of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures (as defined in Rule 13a-15(e) under the Exchange Act).Based on, and as of the date of, this evaluation, the Company’s CEO and CFOconcluded that the Company’s disclosure controls and procedures were noteffective at the reasonable assurance level as of December 31, 2004,because of the material weaknesses described below and because of an inabilityto file the Annual Report on Form 10-K within the statutory time period.

 

**Management’sReport on Internal Control over Financial Reporting**

Management of the Company is responsible for establishing andmaintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) underthe Exchange Act. The Company’s internal control over financial reporting is aprocess designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.

 

Management has assessedthe effectiveness of the Company’s internal control over financial reporting asof December 31, 2004. In making its assessment of internal control overfinancial reporting, management used the criteria set forth by the Committee ofSponsoring Organizations of the Treadway Commission (“COSO”) in *Internal Control — Integrated Framework*.

 

A material weakness is acontrol deficiency, or a combination of control deficiencies, that results inmore than a remote likelihood that a material misstatement of the annual orinterim financial statements will not be prevented or detected.  As of December 31, 2004, we identifiedthe following material weaknesses in the Company’s internal control overfinancial reporting:

 

*1.**                   Insufficientpersonnel resources and technical expertise within its accounting function.*The Company did not maintain effective controls over the financial reportingprocess at its NRV division and at corporate because of insufficient personnelresources and technical expertise within the accounting function.  This material weakness contributed to thefollowing individual material weaknesses: (a) errors in the preparation and review of schedules andreconciliations supporting certain general ledger account balances.  As a result, errors were not detected incertain accrued liability accounts, including sales and marketing, warranty,legal and workers’ compensation, and the related income statement accounts,including cost of goods sold, selling and general and administrative expensesat the NRV division; (b) inadequate financial statement disclosures,primarily related to the sale of a division and capital leases were notidentified by the corporate accounting staff; and  (c) accounting cutoff errors primarily relatedto marketing accrued

 

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expensesand an inability to properly and timely account for capital leases entered intoduring the year were not identified at the NRV division.  This control deficiency resulted in auditadjustments to the 2004 annual consolidated financial statements affectingaccrued liabilities, property, plant and equipment, and the related incomestatement accounts, primarily cost of goods sold, selling, general andadministrative, amortization and interest. Insufficient personnel resources and technical expertise alsocontributed to the material weaknesses discussed in 2, 3, 4 and 5 below.  Additionally, these control deficienciescould result in misstatements in the aforementioned accounts that would resultin a material misstatement to the annual or interim consolidated financialstatements that would not be prevented or detected.

 

*2.**                   RevenueRecognition*– The Company did not maintain effective controls over thetiming of the revenue recognition related to the sale of certain motorhomes atits NRV division. Specifically, under a deferred payment arrangement theCompany held the manufacturer’s certificate of origin as security for payment.This control deficiency resulted in the restatement of the Company’s thirdquarter 2004 consolidated financial statements to correct the timing of revenuerecognition. This control deficiency also resulted in audit adjustments to the2004 annual consolidated financial statements. Additionally, this controldeficiency could result in a misstatement of revenue and deferred revenue thatwould result in a material misstatement to the annual or interim consolidatedfinancial statements that would not be prevented or detected.

 

*3.*                   *Accounting for Sales Incentives*- The Company did notmaintain effective controls over the accounting for sales incentives.  Specifically, certain sales incentiveprograms which are paid directly to dealers or dealers’ sales representativeswere improperly classified as selling expenses and should have been classifiedas a reduction of revenue.  This controldeficiency resulted in the restatement of the Company’s 2003 and 2002 consolidatedfinancial statements.  This controldeficiency also resulted in audit adjustments to the 2004 annual consolidatedfinancial statements.  Additionally, thiscontrol deficiency could result in a misstatement of revenue and sellingexpenses that would result in a material misstatement to the annual or interimconsolidated financial statements that would not be prevented or detected.

 

*4.**                   Accounting forIncome Taxes -*The Company did not maintain effective controls over thedetermination and reporting of the provision for income taxes and relateddeferred income tax balances. Specifically, the Company did not maintaineffective controls to review and monitor the accuracy of the valuationallowance as well as other components of the income tax provision calculationsand related deferred income taxes.  Thiscontrol deficiency resulted in an audit adjustment to the fourth quarter 2004annual consolidated financial statements. Additionally, this control deficiency could result in a misstatement ofthe income tax provision or related deferred income tax balances that wouldresult in a material misstatement to the annual or interim consolidatedfinancial statements that would not be prevented or detected.

 

*5.**                   Physicalinventory process* - The Company did not maintain effective controls overthe accuracy of the physical inventory process at its NRV division.Specifically, the NRV division did not have controls to ensure all of theindividuals involved in the physical inventory count were properly trained andsupervised and that discrepancies between quantities counted and the accountingrecords were properly investigated. Further, the NRV division did not havecontrols to ensure the accounting records were adjusted to reflect the actualquantities counted during the physical inventory process.  This control deficiency resulted in an auditadjustment to the fourth quarter 2004 annual consolidated financialstatements.   Additionally, this controldeficiency could result in a misstatement of inventory and cost of goods soldthat would result in a material misstatement to the annual or interimconsolidated financial statements that would not be prevented of detected.

 

*6.**                   Unrestrictedaccess to programs and data* - The Company did not maintain effectivecontrols over access to certain financial application programs and data at itsNRV division. Specifically, there were instances in which informationtechnology personnel and users with accounting and reporting responsibilitieshad access to financial accounting application programs and data that wasincompatible with their functional business requirements.  Further, the activities of these individualswere not subject to independent monitoring. These control deficiencies appliedto certain systems and processes including the financial statement preparation,human resources, payroll, purchasing, receiving and revenue and billing.  These control deficiencies did not result inan adjustment to the 2004 interim or annual consolidated financial statements.However, these control deficiencies could result in a misstatement to financialstatement accounts that would result in a material misstatement to the annualor interim consolidated financial statements that would not be prevented ordetected.

 

Because of these materialweaknesses, management has concluded that the Company did not maintaineffective internal control over financial reporting as of December 31,2004, based on criteria established in *Internal Control –Integrated Framework*issued by the Committee of Sponsoring Organizationsof the Treadway Commission (“COSO”).

 

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The Company’s independentregistered public accounting firm, PricewaterhouseCoopers LLP, has auditedmanagement’s assessment of the effectiveness of the Company’s internal controlover financial reporting as stated in their report which appears on page 48of this Annual Report on Form 10-K.

 

#### **Remediation of Material Weaknesses**

####  

As of the filing date ofthis report, the Company has not fully remediated the material weaknesses inthe Company’s internal control over financial reporting as of December 31,2004.  However, during fiscal year 2005,management has taken a number of steps that it believes will impact theeffectiveness of our internal control over our financial reporting includingthe following:

 

**1.****              *Insufficientpersonnel resources and technical expertise within its accounting function*

 

Management has assessedthe organization of its accounting personnel and the technical expertise withinthe accounting function.  As a result,the Company has established an accounting function at the parent companylevel.  The NRV divisional controller waspromoted to Corporate Controller and will be responsible for setting andestablishing accounting policies for the Company and its two divisions inaccordance with generally accepted accounting principles (“GAAP”) andguidelines required by the Securities and Exchange Commission (“SEC”).  To assist the Corporate Controller, theCompany has also promoted an individual to a newly created position of Managerof Financial Reporting. In addition, the Company has subscribed to an on-lineresearch tool to assist this group in staying abreast of new accountingpronouncements, proper accounting disclosure and also research technical accountingissues relating to the Company’s ongoing business transactions.  At the NRV division, the Company has hired anew Controller and Accounting Manager.

 

2.               *Revenue Recognition*

 

Effective April 1,2005, the NRV division discontinued the deferred payment arrangement underwhich it held the manufacturer’s certificate of origin as security forpayment.  During the second quarter of2005, the NRV division revised its quarterly closing procedures to strengthenits review of any new agreements or other terms to determine whether therelated transactions are accounted for in the proper period.

 

3.               *Accounting for Sales Incentives*

 

Effective May 31,2005, the Company changed its method of accounting for sales incentive programsthat are paid directly to the dealer sales representatives.  These sales incentives are now classified asa reduction of revenue rather than as a selling expense.  These sales incentives were restated for allyears presented in the fiscal year 2004 Form 10-K and have been properlyclassified in the first and second quarters of fiscal year 2005. As more fullydiscussed in 1 above, the Company has increased its personnel and expertisewithin the accounting function. In addition, the Company has revised itsquarterly closing procedures to strengthen its review of all existing salesincentive programs to ensure they are accounted for properly.

 

*4.**              Accountingfor Income Taxes*

 

As more fullydiscussed in 1 above, the Company has recently increased its personnel andtechnical expertise within the accounting function.  In addition, the Company revised itsquarterly closing procedures to strengthen its review of the income taxprovision to ensure the accuracy of the components of the income tax provisionand related deferred income taxes.

 

*5.**              Physicalinventory process*

 

Beginning with the firstquarter of 2005, management increased its training of all personnel involved inthe physical inventory process at the NRV division, particularly thoseindividuals performing the data entry function.   Additionally, the physical inventory reportwas revised such that any inventory item, which does not include acorresponding item number, will result in an exception-requiring follow-up bymanagement.  In addition, the NRV divisionhas implemented enhanced review procedures by senior management of thereconciliation process between the quantities obtained from the physicalinventory tags and the quantities obtained from the updated perpetual inventoryreport.

 

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6.               *Unrestricted access to programs and data*

 

The NRV division hascorrected access rights for known instances in which information technologypersonnel and users with accounting and reporting responsibilities had accessto financial accounting applications programs and data that was incompatiblewith their functional business requirements. The NRV division is also in the process of refining and developingongoing processes to ensure that proper access rights are granted, reviewed andmaintained in a timely manner.

 

The Company believes thatit will be able to improve its disclosure controls and procedures and remedythe material weaknesses and additional control deficiencies identified as partof its assessment process. Notwithstanding the Company’s remediation efforts,because of the inherent limitations in a cost-effective control system,misstatements due to error or fraud may occur and not be detected.

 

#### **Changes in Internal Control over Financial Reporting**

####  

Except as otherwisediscussed herein, there have been no changes in the Company’s internal controlover financial reporting during the most recently completed fiscal quarter thathas materially affected, or is reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

## Item 9B. OtherInformation

##  

On December 1, 2004,the Company entered into an amendment to its credit facility with UPSC in orderto temporarily increase the credit line from $15 million to $20 million for 90days. On February 28, 2005, the Company entered into an additionalamendment with UPSC which extended such increase in its line of credit amountthrough April 15, 2005. On April 21, 2005, UPSC extended the initialterm of the credit facility from August 28, 2005 to January 31, 2006and permanently increased the line of credit from $15 million to $20 million. Acopy of these loan modifications are filed as Exhibits 10.10, 10.11, and 10.12to this Form 10-K.

 

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# PART III

#  

## Item 10. Directors andExecutive Officers of the Registrant

##  

The executive officersand directors of the Company are as follows:

 
| **Name**                | ** ** | **Age** | ** ** | **Position**                                     |
|-------------------------|------------|---------|------------|--------------------------------------------------|
| Doy B. Henley           |       | 75      |       | Chairman of the  Board (1)                       |
| Bradley C.  Albrechtsen |       | 42      |       | President, Chief  Executive Officer and Director |
| Robert B. Lee           |       | 66      |       | Director                                         |
| Gregory  McCaffery      |       | 52      |       | Director (1)                                     |
| James B. Roszak         |       | 63      |       | Director (1)                                     |
| Thomas J.  Martini      |       | 57      |       | Chief Financial  Officer                         |
| Jonathan C. Corn        |       | 41      |       | Vice President -  General Counsel                |

 

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(1)          Memberof the Audit Committee, Compensation Committee and Nominating/CorporateGovernance Committee.

 

### **Executive Officers andDirectors**

### ** **

DOY B. HENLEY. Mr. Henleyhas served as Chairman of the Board since September 2001 and has been adirector of the Company since February 1998. Mr. Henley is a Class IIIdirector whose term expires in 2006. Mr. Henley is chief executive officerof Henley Properties, a private real estate management company. Mr. Henleywas a founder and, from 1966 to 1997, had been the Chairman and Chief ExecutiveOfficer of Aeromil Engineering Company, a computer-automated manufacturing firmengaged in the production of complex machined titanium track systems andstructural components for the aerospace industry. Mr. Henley also serveson the Board of Chapman University and The Salvation Army Advisory Board.

 

BRADLEY C. ALBRECHTSEN. Mr. Albrechtsenhas been President, Chief Executive Officer and a director since September 2001,Chief Financial Officer and Treasurer of the Company from April 1999 to September 2001and Assistant Secretary from January 1999 to September 2001. Mr. Albrechtsenserved as the Company’s Controller from 1993 through April 1999 and asAssistant Controller prior to 1993. Mr. Albrechtsen is a Class Idirector whose term expires at the 2005 Annual Meeting. Mr. Albrechtsen isa certified public accountant with six years of public accounting experience,including three years at Arthur Young & Co. (the predecessor of Ernst &Young).

 

ROBERT B. LEE. Mr. Leehas been a director of the Company since November 1996 and is presently aconsultant to the Company’s Country Coach, Inc. subsidiary (“Country Coach”).Mr. Lee has also been President and Chief Operating Officer of the Companyfrom April 2001 to September 2001 and co-Chief Executive Officer fromMarch 2001 to April 2001. Mr. Lee is a Class II directorwhose term expires in 2007. Mr. Lee founded Country Coach in 1973 andserved as Chairman and Chief Executive Officer of Country Coach from 1973 to July 2000,President of Country Coach from September 2002 through October 2003and CEO of Country Coach from October 2003 through February 2004. Mr. Leeserved as a consultant to the Company from September 2001 to December 31,2001, and also served in that role from July 2000 to March 2001.

 

GREGORY McCAFFERY. Mr. McCafferyhas been a director of the Company since February 1998. Mr. McCafferyis a Class II director whose term expires in 2007. Mr. McCaffery is afounder and president of, and since 1984 has operated, McCaffery Homebuilders,a builder of custom homes located in Orange Country, California.

 

JAMES B. ROSZAK. Mr. Roszak has been a director of the Companysince June 2003 and is a Class III director whose term expires in2006. Mr. Roszak was employed by the Life Insurance Division ofTransamerica Corporation, a financial services organization engaged in lifeinsurance, commercial lending, leasing and real estate services, from June 1962through his retirement as President of such division in June 1997. Mr. Roszakalso served as interim Chief Executive Officer and a director of buy.com, anInternet retailer, from February 2001 through August 2001.

 

THOMAS J. MARTINI. Mr. Martiniwas named Chief Financial Officer in May 2005 and has served as Treasurersince joining the Company in March 2004. Prior to joining the Company, Mr. Martiniwas Vice President and Treasurer for Coachmen Industries, Inc., a publiclytraded recreational vehicle manufacturer, from March 2001 to December 2003.From February 1991 to March 2001, Mr. Martini served as ChiefFinancial Officer of Miller Building Systems, Inc., a manufacturer ofcommercial and institutional buildings, that was publicly traded prior to itsacquisition in 2000 by Coachmen Industries, Inc. From 1978 to 1991, Mr. Martiniheld a number of senior financial management positions for severalmanufacturing organizations. Mr. Martini is a certified public accountant.

 

37

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JONATHAN C. CORN. Mr. Cornhas been Vice President - General Counsel since April 2002, and GeneralCounsel since December 2001. Mr. Corn is an attorney who received hislaw degree from Georgetown University Law Center in 1991. Prior to joining theCompany, Mr. Corn practiced law in San Diego. His firm, Corn &Associates, P.C., was a specialty firm focused on the representation of RVmanufacturers and dealers.

 

### **Audit Committee**

### ** **

The Board of Directorshas a standing Audit Committee. The Audit Committee currently consists of Messrs. DoyHenley, Gregory McCaffery and James Roszak (chairman). The Board has determinedthat all members of the Audit Committee are independent directors under the rules ofthe NYSE and each of them meets the financial literacy and sophisticationrequirements under the rules of the NYSE. The Board has determined that Mr. Roszakqualifies as an “audit committee financial expert” as defined by the rules ofthe Securities and Exchange Commission. The purpose of the Audit Committee isto oversee the accounting and financial reporting processes of the Company andaudits of its financial statements. The responsibilities of the Audit Committeeinclude appointing and providing the compensation of the independentaccountants to conduct the annual audit of the Company’s accounts, reviewingthe scope and results of the independent audits, reviewing and evaluatinginternal accounting policies, and approving all professional services to beprovided to the Company by its independent accountants.

 

### **Communication with Directors**

### ** **

Stockholders who wish tocommunicate with the entire Board, the non-management Directors as a group orthe Chairs of any of the Board committees may do so telephonically by calling800-864-5307 or by mail c/o Corporate Secretary, National R.V. Holdings, Inc.,3411 N. Perris Blvd, Perris, CA 92571. Communications are distributed to theBoard, or to any individual Director or Directors as appropriate, depending onthe facts and circumstances outlined in the communication. In that regard, theBoard of Directors has requested that certain items that are unrelated to theduties and responsibilities of the Board should be excluded, such as spam, jobinquiries, business solicitations or product inquiries. In addition, materialthat is unduly hostile, threatening, illegal or similarly unsuitable will beexcluded, with the provision that any communication that is filtered out mustbe made available to any Director upon request.

 

### **Code of Business Conduct andEthics**

### ** **

The Company has adopted awritten code of conduct and ethics (the “Code”) which is applicable to all ofthe Company’s officers, directors and employees, including the Company’s ChiefExecutive Officer and Chief Financial Officer (collectively, the “SeniorOfficers”). In accordance with the rules and regulations of the Securitiesand Exchange Commission and the rules of the New York Stock Exchange, acopy of the Code has been posted on the Company’s website athttp://www.nrvh.com. The Company intends to disclose any changes in or waiversfrom the Code applicable to any Senior Officers on its website or by filing a Form 8-K.

 

### **Section 16(a) BeneficialOwnership Reporting Compliance**

### ** **

Based solely upon areview of the copies of the forms furnished to the Company, or writtenrepresentations from certain reporting persons, the Company believes thatduring the year ended December 31, 2004, all filing requirementsapplicable to its officers and directors were complied with by such individualsexcept for the following: (1) Mr. Bradley Albrechtsen did not timelyfile a Form 4 in connection with a stock option grant; (2) Mr. JonathanC. Corn did not timely file a Form 4 in connection with a stock optiongrant; and (3) Mr. Joseph W. Hansen, the Company’s former ChiefFinancial Officer, did not timely file a Form 3 upon becoming ChiefFinancial Officer and a Form 4 in connection with a stock option grant.

 

38

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## Item 11. ExecutiveCompensation

##  

The following table setsforth all compensation awarded to, earned by or paid to each of the Company’scurrent or former executive officers named below (the “Named Executive Officers”)for the Company’s fiscal periods as specified below:

 
| ** **                       | ** ** | ** **                        | ** ** | **Annual Compensation** | ** ** | **Long Term  Compensation** | ** ** | **All Other  Compensation**       | ** ** |
|----------------------------------|------------|-----------------------------------|------------|-------------------------|------------|-----------------------------|------------|-----------------------------------|------------|
| **Name and  Principal Position** | ** ** | **Year Ended  December 31,** | ** ** | **Salary**              | ** ** | **Bonus**                   | ** ** | **Other Annual Compensation (1)** | ** ** | **Options/SARs** | ** ** | ** ** | ** ** |
| Bradley C. Albrechtsen           |       | 2004                              |       | $                       | 265,000    |                        | —     |                              | —     |   | 50,000 |   | — |   |
| President and  Chief             |       | 2003                              |       | $                       | 220,000    |                        | —     |                              | —     |   | — |   | — |   |
| Executive  Officer               |       | 2002                              |       | $                       | 220,000    |                        | —     |                              | —     |   | — |   | $ | 3,600 | (2) |
|                             |       |                              |       |                    |       |                        |       |                              |       |   |   |   |   |
| Joseph W. Hansen                 |       | 2004                              |       | $                       | 135,944    |                        | —     |                              | $          | 3,683 | (4) | 10,000 |   | — |   |
| Former Chief  Financial          |       |                              |       |                    |       |                        |       |                              |       |   |   |   |   |
| Officer (3)                      |       |                              |       |                    |       |                        |       |                              |       |   |   |   |   |
|                             |       |                              |       |                    |       |                        |       |                              |       |   |   |   |   |
| Mark D. Andersen                 |       | 2004                              |       | $                       | 182,043    |                        | $          | 11,250                            |       | — |   | 10,000 |   | $ | 3,593 | (6) |
| Former Chief  Financial          |       | 2003                              |       | $                       | 159,998    |                        | $          | 1,000                             |       | — |   | — |   | $ | 3,254 | (6) |
| Officer (5)                      |       | 2002                              |       | $                       | 143,228    |                        | —     |                              | —     |   | — |   | $ | 5,422 | (6) |
|                             |       |                              |       |                    |       |                        |       |                              |       |   |   |   |   |
| Jonathan C. Corn                 |       | 2004                              |       | $                       | 212,000    |                        | —     |                              | —     |   | 10,000 |   | — |   |
| Vice  President/General          |       | 2003                              |       | $                       | 212,000    |                        | —     |                              | —     |   | — |   | — |   |
| Counsel                          |       | 2002                              |       | $                       | 200,000    |                        | —     |                              | —     |   | — |   | — |   |
|                             |       |                              |       |                    |       |                        |       |                              |       |   |   |   |   |
| Robert B. Lee  (7)               |       | 2004                              |       | $                       | 79,345     |                        | $          | 224,090                           |       | — |   | — |   | — |   |
|                             |       | 2003                              |       | $                       | 200,000    |                        | —     |                              | —     |   | — |   | — |   |
|                             |       | 2002                              |       | $                       | 210,000    |                        | —     |                              | —     |   | — |   | — |   |
|                                  |            |                                   |            |                         |            |                             |            |                                   |            |  |  |  |  |  |  |  |  |

 

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(1)          Exceptas may be indicated below, the aggregate amount of all perquisites and otherpersonal benefits paid to each Named Individual is not greater than either$50,000 or 10% of the total of the annual salary and bonus reported for eithersuch executive.

(2)          Representsthe annual premium paid pursuant to the Company’s SERP Deferred CompensationPlan.

(3)          Mr. Hansenjoined the Company as Chief Financial Officer in April 2004 and resignedin May 2005.

(4)          Representsreimbursement for relocation expenses.

(5)          Mr. Andersenserved as the Company’s Chief Financial Officer from October 2001 through April 2004,after which time Mr. Andersen became Executive Vice President of theCompany’s Country Coach, Inc. subsidiary.

(6)          Representsthe amounts of the Company’s matching contribution under the Country Coach401(k) plan.

(7)          Mr. Lee,a director of the Company, retired as an executive officer of the Company in February 2004,after which he became a consultant to the Company pursuant to the consultingarrangement described below under “Employment and Consulting Agreements”.

 

### **Compensation CommitteeInterlock and Insider Participation**

### ** **

Compensation decisionsduring the fiscal year ended December 31, 2004 were made by the Company’sCompensation Committee and by the Board of Directors, which included Bradley C.Albrechtsen, President and Chief Executive Officer of the Company. Mr. Albrechtsendid not participate in Board deliberations or voting concerning hiscompensation. No executive officer of the Company serves on the board ofdirectors or compensation committee of any entity that has one or moreexecutive officers serving on the Company’s Board of Directors. No member of theCompensation Committee is, or ever has been, an employee or officer of theCompany.

 

#### **Employment and Consulting Agreements**

Thomas J. Martini, theCompany’s Chief Financial Officer, is a party to an employment agreement withthe Company dated March 16, 2004 entered into at the time Mr. Martiniwas hired as the Company’s Treasurer. Mr. Martini was appointed ChiefFinancial Officer in May 2005 following the resignation of the Company’sthen Chief Financial Officer. This agreement provides for an employment at-willarrangement and can be terminated by the Company or Mr. Martini at anytime. Effective with his appointment as Chief Financial Officer, Mr. Martini’ssalary was adjusted to $200,000 per year. Under the agreement, Mr. Martiniis entitled to certain standard employee benefits pursuant to such agreement.

 

Joseph W. Hansen, theCompany’s former Chief Financial Officer, was a party to an employmentagreement with the Company dated April 30, 2004. This agreement providedfor an employment at-will arrangement and could be terminated by the Company orMr. Hansen at any time. Under Mr. Hansen’s agreement, he served asthe Company’s Chief Financial Officer with a base salary of $200,000 per year.Under the agreement, the Company granted Mr. Hansen an option to purchase10,000 shares of the Company’s common stock. Mr. Hansen was alsoentitled to certain employee benefits pursuant to such agreement.

 

39

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Jonathan C. Corn, theCompany’s Vice President - General Counsel, is a party to an employmentagreement with the Company dated November 5, 2001. This agreement providesfor an employment at-will arrangement and can be terminated by the Company or Mr. Cornat any time. Under Mr. Corn’s agreement, he serves as the Company’sGeneral Counsel.

 

In February 2004,Robert B. Lee retired as chief executive officer of the Company’s Country Coachsubsidiary. In connection with Mr. Lee’s retirement from such executiveposition, Mr. Lee entered into a consulting agreement with Country Coach,pursuant to which Mr. Lee agreed to assist Country Coach as a consultant. Mr. Lee’sresponsibilities include assisting Country Coach in the evaluation and testingof Country Coach’s products. In 2004, Mr. Lee was paid a fee of $5,000 permonth and also received a bonus of $224,090 pursuant to a provision entitling Mr. Leeto a bonus based on the operating profits of Country Coach in 2004. Mr. Lee’sconsulting agreement has been renewed for 2005. In 2005, Mr. Lee willreceive a fee of $5,000 per month and will not be entitled to a bonus. Mr. Lee’sconsulting agreement can be terminated at any time by the Company or by Mr. Lee.

 

Other than the agreementsdescribed above, the Company is not presently a party to an employment orconsulting agreement with any of its executive officers nor were any suchagreements in effect during the fiscal year ended December 31, 2004.

 

#### **Director Compensation**

Effective January 1,2003, outside Directors (Directors excluding Messrs. Albrechtsen and Lee)receive an annual Director retainer of $30,000, an in-person per meeting fee of$1,000 and a telephone meeting fee of $500. In addition, the Chairman of theBoard of Directors is entitled to an additional annual fee of $30,000, membersof a Board committee are entitled to an annual fee of $3,000 and the AuditCommittee Chairman is entitled to an additional annual fee of $10,000. Messrs. Albrechtsenand Lee do not receive any additional compensation for acting as Directors.Directors are also entitled to receive reimbursement for traveling costs andother out-of-pocket expenses incurred in attending Board meetings.

 

#### **Stock Option Plans**

####  

##### ***1995 Stock OptionPlan***

In September 1995,the Company adopted and approved the 1995 Stock Option Plan (the “1995 OptionPlan”). The 1995 Option Plan is designed to serve as an incentive for retainingqualified and competent directors, employees and consultants. The 1995 OptionPlan provides for the award of options to purchase up to 225,000 shares ofCommon Stock, of which 40,833 shares were subject to outstanding options as of December 31,2004. The 1995 Option Plan is administered by the Compensation Committee of theBoard of Directors. The Compensation Committee has, subject to the provisionsof the 1995 Option Plan, full authority to select Company individuals eligibleto participate in such plan, including officers, directors (whether or notemployees) and consultants. The 1995 Option Plan provides for the awarding ofincentive stock options (as defined in Section 422 of the Code) andnon-incentive stock options. Options granted pursuant to the 1995 Option Planwill have such vesting schedules and expiration dates as the CompensationCommittee shall establish in connection with each participant in the 1995Option Plan, which terms shall be reflected in an option agreement executed inconnection with the granting of the option. During the year ended December 31,2004, no options were granted under the 1995 Option Plan.

 

##### ***1996 Stock OptionPlan***

In October 1996, theCompany’s Board of Directors adopted and approved the 1996 Stock Option Plan(the “1996 Option Plan”). The 1996 Option Plan is designed to serve as anincentive for retaining qualified and competent directors, employees andconsultants. The 1996 Option Plan provides for the award of options to purchaseup to 675,000 shares of Common Stock, of which 172,500 shares were subject tooutstanding options as of December 31, 2004. The 1996 Option Plan isadministered by the Compensation Committee of the Board of Directors. TheCompensation Committee has, subject to the provisions of the 1996 Option Plan,full authority to select Company individuals eligible to participate in suchplan, including officers, directors (whether or not employees) and consultants.The 1996 Option Plan provides for the awarding of incentive stock options (asdefined in Section 422 of the Code) and non-incentive stock options.Options granted pursuant to the 1996 Option Plan will have such vestingschedules and expiration dates as the Compensation Committee shall establish inconnection with each participant in the 1996 Option Plan, which terms shall bereflected in an option agreement executed in connection with the granting ofthe option. During the year ended December 31, 2004, no options weregranted under the 1996 Option Plan.

 

40

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##### ***1997 Stock OptionPlan***

In June 1997, theCompany’s Board of Directors adopted and approved the 1997 Stock Option Plan(the “1997 Option Plan”). The 1997 Option Plan is designed to serve as an incentivefor retaining qualified and competent directors, employees and consultants. The1997 Option Plan provides for the award of options to purchase up to 900,000shares of Common Stock, of which 318,750 shares were subject to outstandingoptions as of December 31, 2004. The 1997 Option Plan is administered bythe Board of Directors or, at its option, a committee of the Board ofDirectors. The Board (or a designated committee) has, subject to the provisionsof the 1997 Option Plan, full authority to select Company individuals eligibleto participate in such plan, including officers, directors (whether or notemployees) and consultants. The 1997 Option Plan provides for the awarding ofincentive stock options (as defined in Section 422 of the Code) and non-incentivestock options. Options granted pursuant to the 1997 Option Plan will have suchvesting schedules and expiration dates as the Board (or a designated committee)shall establish in connection with each participant in the 1997 Option Plan,which terms shall be reflected in an option agreement executed in connectionwith the granting of the option. During the year ended December 31, 2004,no options were granted under the 1997 Option Plan.

 

##### ***1999 Stock OptionPlan***

The Company’s Board ofDirectors adopted and approved the 1999 Stock Option Plan in April 1999and the amended and restated 1999 Stock Option Plan in April 2000 andagain in April 2001 (together, the “1999 Option Plan”). The 1999 OptionPlan is designed to serve as an incentive for retaining qualified and competentdirectors, employees and consultants. The 1999 Option Plan provides for theaward of options to purchase up to 1,150,000 shares of Common Stock, of which585,796 shares were subject to outstanding options as of December 31,2004. The 1999 Option Plan is administered by the Compensation Committee. TheCompensation Committee has, subject to the provisions of the 1999 Option Plan,full authority to select Company individuals eligible to participate in suchplan, including officers, directors (whether or not employees) and consultants.The 1999 Option Plan provides for the awarding of incentive stock options (asdefined in Section 422 of the Code) and non-incentive stock options.Options granted pursuant to the 1999 Option Plan will have such vestingschedules and expiration dates as the Compensation Committee shall establish inconnection with each participant in the 1999 Option Plan, which terms shall bereflected in an option agreement executed in connection with the granting ofthe option. During the year ended December 31, 2004, 260,500 options weregranted under the 1999 Option Plan.

 

***Options Granted During Fiscal Year Ended December 31, 2004***

The following table setsforth certain information concerning options granted during the fiscal yearended December 31, 2004 to the Named Executive Officers.

 
| ** **                 | ** ** | ** **           | ** ** | **Individual Grants**                                                        | ** ** | ** **                           | ** ** | **Potential realizable value at** | ** ** |
|----------------------------|------------|----------------------|------------|------------------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------------|------------|
| **Name**                   | ** ** | **Options  Granted** | ** ** | **Percent of total  options/SARs granted  to employees in  fiscal year (2)** | ** ** | **Exercise  or base  price  ($/Sh)** | ** ** | **Expiration date**               | ** ** | **assumed annual rates of stock** | ** ** |
| **price appreciation for** |
| **option term (1)**        |
| **5% ($)**                 | ** ** | **10% ($)**          |
| Bradley C.  Albrechtsen    |       | 50,000               |       | 19.2                                                                         | %          | 9.50                                 |       | 2/14/14                           |       | 298,725 |   | 757,028 |   |
| Joseph W. Hansen           |       | 10,000               |       | 3.8                                                                          | %          | 12.495                               |       | 5/17/14                           |       | 78,580 |   | 199,138 |   |
| Mark D. Andersen           |       | 10,000               |       | 3.8                                                                          | %          | 9.50                                 |       | 2/14/14                           |       | 59,745 |   | 151,406 |   |
| Jonathan C. Corn           |       | 10,000               |       | 3.8                                                                          | %          | 9.50                                 |       | 2/14/14                           |       | 59,745 |   | 151,406 |   |
| Robert B. Lee              |       | 0                    |       | —                                                                       |       | —                               |       | —                            |       | — |   | — |   |

 

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(1)   The 5% and 10%assumed annual rates of appreciation are mandated by rules of theSecurities and Exchange Commission and do not reflect estimates or projectionsof future Common Stock prices. There can be no assurance that the amountsreflected in this table will be achieved.

(2)   This percentage isbased on the total number of options granted to the Company’s employees duringthe year ended December 31, 2004. All options granted to the NamedExecutive Officers vest in three equal annual installments on the first, secondand third anniversaries of the date of grant.

 

41

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##### ***Option Values***

The following table setsforth, as of December 31, 2004, the number of options and the value ofexercised and unexercised options held by the Named Executive Officers.

 
| ** **              | ** ** | **Shares Acquired** | ** ** | ** **         | ** ** | **Number of Unexercised Options  at December 31, 2004** | ** ** | **Value of Unexercised  in-the-money Options at  December 31, 2004 ($) (1)** | ** ** |
|-------------------------|------------|---------------------|------------|--------------------|------------|--------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| **Name**                | ** ** | **in Exercise (#)** | ** ** | **Value Realized** | ** ** | **Exercisable**                                              | ** ** | **Unexercisable**                                                                 | ** ** | **Exercisable** | ** ** | **Unexercisable** | ** ** |
| ** **              | ** ** | ** **          | ** ** | **($)**            | ** ** | ** **                                                   | ** ** | ** **                                                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Bradley C.  Albrechtsen |       | 0                   |       | 0                  |       | 45,667                                                       |       | 33,333                                                                            |       | 17,987 |   | 4,333 |   |
| Joseph W. Hansen        |       | 0                   |       | 0                  |       | 0                                                            |       | 10,000                                                                            |       | 0 |   | 0 |   |
| Mark D. Andersen        |       | 0                   |       | 0                  |       | 23,084                                                       |       | 6,666                                                                             |       | 8,908 |   | 867 |   |
| Jonathan C. Corn        |       | 0                   |       | 0                  |       | 3,334                                                        |       | 6,666                                                                             |       | 433 |   | 867 |   |
| Robert B. Lee           |       | 0                   |       | 0                  |       | 35,000                                                       |       | 0                                                                                 |       | 22,600 |   | 0 |   |

 

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(1)   On December 31,2004, the last trading day of the year 2004, the last reported sales price forthe Common Stock on the New York Stock Exchange was $9.63.

 

## Item 12. SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters

##  

### **Share Ownership Table**

### ** **

The following table setsforth as of September 1, 2005 the number and percentage of shares ofCommon Stock held by (i) each of the Named Executive Officers anddirectors of the Company, (ii) all persons who are known by the Company tobe the beneficial owners of, or who otherwise exercise voting or dispositivecontrol over, five percent or more of the Company’s outstanding Common Stockand (iii) all of the Company’s present executive officers and directors asa group:

 
| **Beneficial Owner**                                                | ** ** | **Common Stock  Owned(1)** | ** ** | **Percentage of  Outstanding** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------|------------|--------------------------------|------------|
| Bradley C.  Albrechtsen (2)                                         |       | 36,579                     |       |                           | *          |
|                                                                |       |                       |       |                           |       |
| Joseph W. Hansen  (3)                                               |       | —                     |       |                           | *          |
|                                                                |       |                       |       |                           |       |
| Jonathan C. Corn  (4)                                               |       | 3,333                      |       |                           | *          |
|                                                                |       |                       |       |                           |       |
| Mark D. Andersen  (5)                                               |       | 17,437                     |       |                           | *          |
|                                                                |       |                       |       |                           |       |
| Doy B. Henley  (6)                                                  |       | 9,000                      |       |                           | *          |
|                                                                |       |                       |       |                           |       |
| Robert B. Lee  (7)                                                  |       | 562,906                    |       | 5.6                            | %          |
|                                                                |       |                       |       |                           |       |
| Gregory  McCaffery (8)                                              |       | 9,162                      |       |                           | *          |
|                                                                |       |                       |       |                           |       |
| James B. Roszak                                                     |       | 5,000                      |       |                           | *          |
|                                                                |       |                       |       |                           |       |
| FMR Group (9)                                                       |       | 1,035,000                  |       | 10.0                           | %          |
|                                                                |       |                       |       |                           |       |
| Bryant R. Riley  (10)                                               |       | 838,100                    |       | 8.1                            | %          |
|                                                                |       |                       |       |                           |       |
| Amalgamated  Gadget, L.P. (11)                                      |       | 759,700                    |       | 7.3                            | %          |
|                                                                |       |                       |       |                           |       |
| Dimensional Fund  Advisors Inc. (12)                                |       | 735,600                    |       | 7.1                            | %          |
|                                                                |       |                       |       |                           |       |
| Brandes  Investment Partners, LP (13)                               |       | 696,850                    |       | 6.7                            | %          |
|                                                                |       |                       |       |                           |       |
| Gary N. Siegler  (14)                                               |       | 690,470                    |       | 6.4                            | %          |
|                                                                |       |                       |       |                           |       |
| Muhlenkamp &  Company (15)                                 |       | 519,000                    |       | 5.0                            | %          |
|                                                                |       |                       |       |                           |       |
| All executive  officers and directors as a group (7 in number) (16) |       | 627,647                    |       | 6.0                            | %          |

 

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*                                         Lessthan one percent.

 

42

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(1)          Exceptas otherwise indicated, the persons named in the table have sole voting andinvestment power with respect to the shares of Common Stock shown asbeneficially owned by them.

(2)          Includes31,667 shares underlying outstanding options exercisable immediately or within60 days.

(3)          InMay 2005, Mr. Hansen resigned as the Company’s Chief FinancialOfficer.

(4)          Includes3,333 shares underlying outstanding option exercisable immediately or within 60days.

(5)          Includes15,583 shares underlying outstanding option exercisable immediately or within60 days and 150 shares owned by Mr. Andersen’s wife.

(6)          Includes8,000 shares underlying outstanding options exercisable immediately or within60 days.

(7)          Includes15,000 shares underlying options exercisable immediately or within 60 days.Also, includes 136,870 shares of Common Stock owned by Mr. Lee’s wife, Mrs. TerryN. Lee, for which Mr. Lee disclaims beneficial ownership.

(8)          Includes8,000 shares underlying outstanding options exercisable immediately or within60 days.

(9)          Asreported in an Amendment No. 4 to Schedule 13G filed with the SEC onbehalf of FMR Group and certain affiliated parties on February 14, 2005.

(10)          Asreported in a Schedule 13G filed with the SEC by Bryant R. Riley andcertain affiliated parties on August 23, 2005.

(11)          Asreported in an Amendment No. 2 to Schedule 13G filed with the SEC byAmalgamated Gadget LP on February 12, 2004.

(12)          Asreported in an Amendment No. 4 to Schedule 13G filed with the SEC byDimensional Fund Advisors Inc. on February 9, 2005.

(13)          Asreported in Amendment No. 2 to Schedule 13G filed with the SEC byBrandes Investment Partners, LP and certain affiliated parties on February 14,2005.

(14)          Asreported in an Amendment No. 18 to Schedule 13D filed with the SEC onJanuary 4, 2002. Includes (i) 514,044 shares underlying outstandingoptions held by Mr. Siegler exercisable immediately or within 60 days, (ii) 42,057shares of Common Stock owned by The Gary N. Siegler Foundation, which shares Mr. Siegleris deemed to beneficially own, and (iii) 143,274 shares of Common Stockowned by certain other entities, which shares Mr. Siegler is deemed tobeneficially own because Mr. Siegler controls dispositive and voting powerfor the shares owned by such entities. Also, reflects the exercise by Mr. Sieglerin 2004 of options to acquire 56,669 shares of Common Stock and the expirationin 2004 of certain options held by Mr. Siegler.

(15)          Asreported in a Schedule 13G filed with the SEC on behalf of Muhlenkamp &Company, Inc. on June 6, 2005.

(16)          Includesthe shares underlying stock options reported in notes 2, 4, 6, 7 and 8 above,as well as 1,667 shares underlying outstanding options held by Thomas J.Martini who was appointed Chief Financial Officer in May 2005.

 

### **Equity Plan Information**

### ** **

The following tablesummarizes the Company’s equity compensation plan information as of December 31,2004. Information is included for both equity compensation plans approved bythe Company’s stockholders and equity compensation plans not approved by theCompany’s stockholders.

 
| **Plan Category**                                                   | ** ** | **(a) Common shares  to be issued upon  exercise of  outstanding options,  warrants,  and rights** | ** ** | **(b) Weighted-  average exercise  price of  outstanding  options, warrants,  and rights** | ** ** | **(c) Common shares  available for future  issuance under equity  compensation plans  (excluding securities  reflected in column (a))** | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans approved by Company  stockholders (1)     |       | 1,117,879                                                                                               |       | $                                                                                               | 6.29       |                                                                                                                                         | 858,226    |   |
|                                                                |       |                                                                                                    |       |                                                                                            |       |                                                                                                                                         |       |
| Equity compensation plans not approved by Company  stockholders (2) |       | 16,500                                                                                                  |       | 10.14                                                                                           |       | —                                                                                                                                       |       |
|                                                                |       |                                                                                                    |       |                                                                                            |       |                                                                                                                                         |       |
| Totals:                                                             |       | 1,134,379                                                                                               |       | $                                                                                               | 10.08      |                                                                                                                                         | 858,226    |   |

 

----

(1)          Pleasesee “Item 11. Executive Compensation - Stock Option Plans” for a description ofthese plans.

(2)          Theonly outstanding options not previously approved by the Company’s stockholderswere granted in September 1995 and October 1996 pursuant to separatestock option agreements with several directors and employees of the Company atexercise prices of $3.75 and $9.33, respectively. Such options had terms of 5or 10 years.

 

43

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## Item 13. Certain Relationshipsand Related Transactions

##  

Mr. Robert B. Lee,currently a director of the Company and a consultant to the Company’s CountryCoach subsidiary and formerly also an executive officer of the Company, is apartner in a joint venture which is a party to a lease agreement with CountryCoach. Pursuant to the agreement, Country Coach leases from the joint venture aparcel of property constituting a majority of Country Coach’s manufacturingfacilities. During the year ended December 31, 2004, the Company paid$1.35 million under the lease agreement. The lease agreement calls for futurepayments totaling approximately $1.1 million through October 31, 2005. Inaddition, the Company has a five-year renewal option on this lease agreement.

 

Heller Ehrman LLP, a lawfirm in which Mr. Stephen M. Davis, the Secretary of the Company and adirector through June 2004, is a shareholder, performed legal services forthe Company for which it collected fees of approximately $0.2 million in theyear ended December 31, 2004.

 

## Item 14. PrincipalAccountant Fees and Services

##  

PricewaterhouseCoopersLLP served as the Company’s independent public accountant for the fiscal yearsending December 31, 2004 and 2003. The following table sets forth the feesincurred by the Company for the services of PricewaterhouseCoopers LLP in 2004and 2003.

 

| ** **            | ** ** | **Fees** | ** ** |
|-----------------------|------------|----------|------------|
| **Services Rendered** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Audit Fees (1)        |       | $        | 1,880,411  |   | $ | 251,160 |   |
| Audit Related Fees    |       | 0        |       | 0 |   |
| Tax Fees (2)          |       | 11,397   |       | 19,761 |   |
| All Other Fees        |       | 0        |       | 0 |   |
|                       |            |          |            |  |  |  |  |

 

----

(1)   For professional servicesrendered for the audit of the Company’s annual financial statements, and thereviews of the financial statements included in the Company’s Forms 10-Q forfiscal years 2004 and 2003.

(2)   For 2004 and 2003,tax services for tax compliance and planning.

 

The Audit Committee ofthe Company’s Board of Directors has concluded that the provision of non-auditservices listed above is compatible with maintaining the independence ofPricewaterhouseCoopers LLP. The Audit Committee has delegated to the Chair ofthe Audit Committee the authority to pre-approve future audit-related andnon-audit services not prohibited by law to be performed by the Company’sindependent auditors and associated fees, provided that the Chair shall reportany decision to pre-approve such audit-related or non-audit services and feesto the full Audit Committee at its next regular meeting.

 

44

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# PART IV

#  

## Item 15. Exhibits andFinancial Statement Schedules

 
| (a)    | List of  Documents filed as part of this Report                         |   |
|--------|-------------------------------------------------------------------------|--------|
|   |                                                                    |   |
| 1.     | Consolidated  financial statements:                                     |   |
|   | REPORT OF INDEPENDENT  REGISTERED PUBLIC ACCOUNTING FIRM                |   |
|   | CONSOLIDATED  BALANCE SHEETS                                            |   |
|   | CONSOLIDATED  STATEMENTS OF OPERATIONS                                  |   |
|   | CONSOLIDATED  STATEMENTS OF CASH FLOWS                                  |   |
|   | CONSOLIDATED  STATEMENTS OF STOCKHOLDERS’ EQUITY                   |   |
|   | NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS                             |   |
|   |                                                                    |   |
| 2.     | Financial statement  schedule                                           |   |
|   | SCHEDULE II  – CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS |   |

 

Allother schedules are omitted because they are not applicable or the requiredinformation is shown in the financial statements or notes thereto.

 

3.               Exhibitsand Exhibit Descriptions

 
| 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  |   | 1993 Stock  Option Plan. (1)                                                                                                                          |
| 10. | 2  |   | 1993 Stock  Option Plan. (2)                                                                                                                          |
| 10. | 3  |   | 1995 Stock  Option Plan. (3)                                                                                                                          |
| 10. | 4  |   | Rights Plan  Agreement with Continental Stock Transfer & Trust Company. (4)                                                                  |
| 10. | 5  |   | 1996 Stock  Option Plan. (5)                                                                                                                          |
| 10. | 6  |   | 1997 Stock  Option Plan. (6)                                                                                                                          |
| 10. | 7  |   | 1999 Stock  Option Plan. (7)                                                                                                                          |
| 10. | 8  |   | Loan and  Security Agreement dated as of August 28, 2002 between the Company, NRV,  CCI and UPS Capital Corporation, as lender. (8)              |
| 10. | 9  |   | Loan and  Security Agreement number 2, dated as of September 24, 2004 between the  Company, NRV, CCI and UPS Capital Corporation, as lender. (9) |
| 10. | 10 |   | Loan and  Security Agreement number 3, dated as of December 01, 2004 between the  Company, NRV, CCI and UPS Capital Corporation, as lender.      |
| 10. | 11 |   | Loan and  Security Agreement number 4, dated as of February 28, 2005 between the  Company, NRV, CCI and UPS Capital Corporation, as lender.      |
| 10. | 12 |   | Loan and  Security Agreement number 5, dated as of April 21, 2005 between the  Company, NRV, CCI and UPS Capital Corporation, as lender.         |
| 10. | 13 |   | Form of the  Company’s Stock Option Grant Agreement.                                                                                        |
| 10. | 14 |   | CCI Bus Facility  Lease Agreement between Sterling Pacific and CCI dated as of November 6,  2003.                                                |
| 10. | 15 |   | Lee Joint  Venture Real Property Lease Agreement between CCI and the Lee Joint Venture  dated as of October 12, 1995.                            |
| 10. | 16 |   | Lee Joint  Venture Real Property Lease Agreement Amendment between the Company and the  Lee Joint Venture dated as of November 2, 1999.          |
| 10. | 17 |   | Lee Joint  Venture Real Property Lease Renewal Agreement between CCI and the Lee Joint  Venture dated as of January 2, 2001.                     |
| 10. | 18 |   | Employment  Agreement between Joseph W. Hansen and the Company dated as of April 30,  2004.                                                      |
| 10. | 19 |   | Consulting  Agreement between Robert B. Lee and the Company dated as of January 18,  2005.                                                       |
| 10. | 20 |   | Employment  Agreement between Jonathan Corn and the Company dated November 5, 2001.                                                              |
| 10. | 21 |   | Employment  Agreement between Thomas J. Martini and the Company dated May 11, 2005.                                                              |
| 21. | 1  |   | List of  Subsidiaries. (6)                                                                                                                            |
| 23. | 1  |   | Consent of  Independent Registered Public Accounting Firm.                                                                                            |
| 31. | 1  |   | Rule 13a-14(a) Certification  of Principal Executive Officer.                                                                               |
| 31. | 2  |   | Rule 13a-14(a) Certification  of Principal Financial Officer.                                                                               |
| 32. | 1  |   | Certifications  Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906  of the Sarbanes-Oxley Act of 2002.                  |

 

45

----

 

----

(1)          Previouslyfiled as an exhibit to the Company’s Registration Statement on Form S-1filed on August 16, 1993 (File No. 33-67414) as amended by Amendment No. 1thereto filed on September 22, 1993 and Amendment No. 2 thereto filedon September 29, 1993.

(2)          Previouslyfiled as an exhibit to the Company’s Registration Statement on Form S-1filed on December 15, 1993 (File No. 33-72954).

(3)          Previouslyfiled as an exhibit to the Company’s Form 10-K for the seven months ended December 31,1995 filed on March 27, 1996.

(4)          Incorporatedby reference from Form 8-A declared effective on August 26, 1996.

(5)          Incorporatedby reference from the Company’s Form 10-K for the year ended December 31,1996.

(6)          Incorporatedby reference from the Company’s Form 10-K for the year ended December 31,1997.

(7)          Incorporatedby reference from the Company’s Form 10-K for the year ended December 31,2001.

(8)          Incorporatedby reference from the Company’s Form 8-K dated August 29, 2002.

(9)          Incorporatedby reference from the Company’s Form 10-Q dated September 30, 2004.

 

46

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## SIGNATURES

##  

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
|                         | NATIONAL R.V.  HOLDINGS, INC.               |
|------------------------------|---------------------------------------------|
|                         |                                        |
| Dated: October 5,  2005 | By                                          | /s/ Thomas J.  Martini |   |
|                         |                                        | Thomas J.  Martini, |
|                         |                                        | Chief Financial  Officer |
|                         | (Principal  Accounting and Finance Officer) |
|                              |                                             |  |  |  |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

 

 
| **Signature** | ** **              | **Capacity in Which Signed** | ** **                                    | **Date**                 |
|---------------|-------------------------|------------------------------|-----------------------------------------------|--------------------------|
|          |                    |                         |                                          |                     |
| /s/           | Doy B. Henley           |                         |                                          | Chairman of the  Board   |   | October 5, 2005 |
|          | Doy B. Henley           |                         |                                          |                     |   |
|          |                    |                         |                                          |                     |
| /s/           | Bradley C.  Albrechtsen |                         |                                          | Chief Executive  Officer |   | October 5, 2005 |
|          | Bradley C.  Albrechtsen |                         | and President  (Principal Executive Officer)  |                     |   |
|          |                    |                         |                                          |                     |
| /s/           | Thomas J.  Martini      |                         |                                          | Chief Financial  Officer |   | October 5, 2005 |
|          | Thomas J.  Martini      |                         | (Principal  Accounting and Financial Officer) |                     |   |
|          |                    |                         |                                          |                     |
| /s/           | Robert B. Lee           |                         |                                          | Director                 |   | October 5, 2005 |
|          | Robert B. Lee           |                         |                                          |                     |   |
|          |                    |                         |                                          |                     |
| /s/           | Greg McCaffery          |                         |                                          | Director                 |   | October 5, 2005 |
|          | Greg McCaffery          |                         |                                          |                     |   |
|          |                    |                         |                                          |                     |
| /s/           | James B. Roszak         |                         |                                          | Director                 |   | October 5, 2005 |
|          | James B. Roszak         |                         |                                          |                     |   |
|               |                         |                              |                                               |                          |  |  |  |  |  |  |  |

 

47

----

 

## **REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

##  

To the Board of Directorsand Stockholders of

 

National R.V. Holdings, Inc.:

 

We have completed anintegrated audit of National R.V. Holdings, Inc.’s 2004 consolidatedfinancial statements and of its internal control over financial reporting as ofDecember 31, 2004 and audits of its 2003 and 2002 consolidated financialstatements in accordance with the standards of the Public Company AccountingOversight Board (United States). Our opinions, based on our audits, are presentedbelow.

 

Consolidated financial statements and financial statementschedule

 

In our opinion, theconsolidated financial statements listed in the index appearing under Item15(a)(1) present fairly, in all material respects, the financial positionof National R.V. Holdings, Inc. and its subsidiaries at December 31,2004 and 2003, and the results of their operations and their cash flows foreach of the three years in the period ended December 31, 2004 inconformity with accounting principles generally accepted in the United Statesof America. In addition, in our opinion, the financial statement schedule listedin the index appearing under Item 15(a)(2) presents fairly, in allmaterial respects, the information set forth therein when read in conjunctionwith the related consolidated financial statements. These financial statementsand financial statement schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements and financial statement schedule based on our audits. Weconducted our audits of these statements in accordance with the standards ofthe Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An audit offinancial statements includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

 

As discussed in Note 2 tothe accompanying consolidated financial statements, the Company has restatedits 2002 and 2003 consolidated financial statements.

 

Internal control over financial reporting

 

Also, we have auditedmanagement’s assessment, included in Management’s Report on Internal ControlOver Financial Reporting appearing under Item 9A, that National R.V. Holdings, Inc.  did not maintain effective internal controlover financial reporting as of December 31, 2004, because (1) theCompany had insufficient personnel resources and technical expertise within itsaccounting function, which contributed to the following individual materialweaknesses:  (a) errors in thepreparation and review of schedules and reconciliations supporting certaingeneral ledger account balances; (b) inadequate financial statementdisclosures, primarily related to the sale of a division and capital leases;and  (c) accounting cutoff errorsprimarily related to marketing accrued expenses and an inability to properlyand timely account for capital leases entered into during the year at the NRVdivision, (2) the Company’s NRV division did not maintain effectivecontrols over the timing of the revenue recognition related to the sale ofcertain motorhomes, (3) the Company did not maintain effective controlsover the accounting for sales incentives, (4) the Company did not maintaineffective controls over the determination and reporting of the provision forincome taxes and related deferred income tax balances, (5) the Company didnot maintain effective controls over the accuracy of the physical inventoryprocess at its NRV division, and (6) the Company did not maintaineffective controls over access to certain financial application programs anddata at its NRV division based on criteria established in “*InternalControl - Integrated Framework”*issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO).  The Company’s management is responsible formaintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting.Our responsibility is to express opinions on management’s assessment and on theeffectiveness of the Company’s internal control over financial reporting basedon our audit.

 

We conducted our audit ofinternal control over financial reporting in accordance with the standards ofthe Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether effective internal control over financial reporting was maintained inall material respects. An audit of internal control over financial reportingincludes obtaining an understanding of internal control over financialreporting, evaluating management’s assessment, testing and evaluating thedesign and operating effectiveness of internal control, and performing suchother procedures as we consider necessary in the circumstances. We believe thatour audit provides a reasonable basis for our opinions.

 

48

----

 

A company’s internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generally acceptedaccounting principles. A company’s internal control over financial reportingincludes those policies and procedures that (i) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (ii) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or dispositionof the company’s assets that could have a material effect on the financialstatements.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

A material weakness is acontrol deficiency, or combination of control deficiencies, that results inmore than a remote likelihood that a material misstatement of the annual orinterim financial statements will not be prevented or detected. The followingmaterial weaknesses have been identified and included in management’s assessment.

 

*1.**                   Insufficientpersonnel resources and technical expertise within its accounting function.*The Company did not maintain effective controls over the financial reportingprocess at its NRV division and at corporate because of insufficient personnelresources and technical expertise within the accounting function.  This material weakness contributed to thefollowing individual material weaknesses: (a) errors in the preparation and review of schedules andreconciliations supporting certain general ledger account balances.  As a result, errors were not detected incertain accrued liability accounts, including sales and marketing, warranty,legal and workers’ compensation, and the related income statement accounts,including cost of goods sold, selling and general and administrative expensesat the NRV division; (b) inadequate financial statement disclosures,primarily related to the sale of a division and capital leases were notidentified by the corporate accounting staff; and  (c) accounting cutoff errors primarilyrelated to marketing accrued expenses and an inability to properly and timelyaccount for capital leases entered into during the year were not identified atthe NRV division.  This control deficiencyresulted in audit adjustments to the 2004 annual consolidated financialstatements affecting accrued liabilities, property, plant and equipment, andthe related income statement accounts, primarily cost of goods sold, selling,general and administrative, amortization and interest.  Insufficient personnel resources andtechnical expertise also contributed to the material weaknesses discussed in 2,3, 4 and 5 below.  Additionally, thesecontrol deficiencies could result in misstatements in the aforementionedaccounts that would result in a material misstatement to the annual or interimconsolidated financial statements that would not be prevented or detected.

 

*2.**                   RevenueRecognition*– The Company did not maintain effective controls over thetiming of the revenue recognition related to the sale of certain motorhomes atits NRV division. Specifically, under a deferred payment arrangement theCompany held the manufacturer’s certificate of origin as security for payment.This control deficiency resulted in the restatement of the Company’s thirdquarter 2004 consolidated financial statements to correct the timing of revenuerecognition. This control deficiency also resulted in audit adjustments to the2004 annual consolidated financial statements. Additionally, this controldeficiency could result in a misstatement of revenue and deferred revenue thatwould result in a material misstatement to the annual or interim consolidatedfinancial statements that would not be prevented or detected.

 

*3.*                   *Accounting for Sales Incentives*- The Company did notmaintain effective controls over the accounting for sales incentives.  Specifically, certain sales incentiveprograms which are paid directly to the dealer or dealers sales representativeswere improperly classified as selling expenses and should have been classifiedas a reduction of revenue.  This controldeficiency resulted in the restatement of the Company’s 2003 and 2002consolidated financial statements.  Thiscontrol deficiency also resulted in audit adjustments to the 2004 annualconsolidated financial statements. Additionally, this control deficiency could result in a misstatement ofrevenue and selling expenses that would result in a material misstatement tothe annual or interim consolidated financial statements that would not beprevented or detected.

 

49

----

 

*4.**                   Accounting forIncome Taxes -*The Company did not maintain effective controls over thedetermination and reporting of the provision for income taxes and relateddeferred income tax balances. Specifically, the Company did not maintaineffective controls to review and monitor the accuracy of the valuationallowance as well as other components of the income tax provision calculationsand related deferred income taxes.  Thiscontrol deficiency resulted in an audit adjustment to the fourth quarter 2004annual consolidated financial statements. Additionally, this control deficiency could result in a misstatement ofthe income tax provision or related deferred income tax balances that wouldresult in a material misstatement to the annual or interim consolidatedfinancial statements that would not be prevented or detected.

 

*5.**                   Physicalinventory process* - The Company did not maintain effective controls overthe accuracy of the physical inventory process at its NRV division.Specifically, the NRV division did not have controls to ensure all of theindividuals involved in the physical inventory count were properly trained andsupervised and that discrepancies between quantities counted and the accountingrecords were properly investigated. Further, the NRV division did not havecontrols to ensure the accounting records were adjusted to reflect the actualquantities counted during the physical inventory process.  This control deficiency resulted in an auditadjustment to the fourth quarter 2004 annual consolidated financialstatements.   Additionally, this controldeficiency could result in a misstatement of inventory and cost of goods soldthat would result in a material misstatement to the annual or interim consolidatedfinancial statements that would not be prevented of detected.

 

*6.**                   Unrestrictedaccess to programs and data* - The Company did not maintain effectivecontrols over access to certain financial application programs and data at itsNRV division. Specifically, there were instances in which informationtechnology personnel and users with accounting and reporting responsibilitieshad access to financial accounting application programs and data that wasincompatible with their functional business requirements.  Further, the activities of these individualswere not subject to independent monitoring. These control deficiencies appliedto certain systems and processes including the financial statement preparation,human resources, payroll, purchasing, receiving and revenue and billing.  These control deficiencies did not result inan adjustment to the 2004 interim or annual consolidated financial statements.However, these control deficiencies could result in a misstatement to financialstatement accounts that would result in a material misstatement to the annualor interim consolidated financial statements that would not be prevented ordetected.

 

These material weaknesseswere considered in determining the nature, timing, and extent of audit testsapplied in our audit of the 2004 consolidated financial statements, and ouropinion regarding the effectiveness of the Company’s internal control overfinancial reporting does not affect our opinion on those consolidated financialstatements.

 

In our opinion,management’s assessment that National R.V. Holdings, Inc. did not maintaineffective internal control over financial reporting as of December 31,2004, is fairly stated, in all material respects, based on criteria establishedin **Internal Control - IntegratedFramework** issued by the COSO. Also, in our opinion, because of theeffects of the material weaknesses described above on the achievement of theobjectives of the control criteria, National R.V. Holdings, Inc. has notmaintained effective internal control over financial reporting as of December 31,2004, based on criteria established in **InternalControl - Integrated Framework** issued by the COSO.

 

PricewaterhouseCoopersLLP

Orange County, California

October 6, 2005

 

50

----

 

**NATIONAL R.V. HOLDINGS, INC**.

## CONSOLIDATED BALANCESHEETS

##  

(in thousands, exceptshare and per share amounts)

 
| ** **                                                                                                                  | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                  | ** ** | **2004**              | ** ** | **2003** | ** ** |
| ASSETS                                                                                                                      |       |                  |       |   |   |
| Current assets:                                                                                                             |       |                  |       |   |   |
| Cash and cash equivalents                                                                                                   |       | $                     | 11         |   | $ | 2,059 |   |
| Restricted cash                                                                                                             |       | 251                   |       | 250 |   |
| Receivables, less allowance for doubtful accounts  ($137 and $132, respectively)                                            |       | 19,976                |       | 20,978 |   |
| Inventories                                                                                                                 |       | 74,826                |       | 51,659 |   |
| Deferred income taxes                                                                                                       |       | 1,294                 |       | 7,955 |   |
| Note receivable                                                                                                             |       | 2,213                 |       | — |   |
| Prepaid expenses                                                                                                            |       | 2,924                 |       | 1,658 |   |
| Total current assets                                                                                                        |       | 101,495               |       | 84,559 |   |
| Property, plant and equipment, net                                                                                          |       | 37,809                |       | 40,833 |   |
| Long-term deferred income taxes                                                                                             |       | —                |       | 3,805 |   |
| Other                                                                                                                       |       | 1,338                 |       | 1,252 |   |
|                                                                                                                        |       | $                     | 140,642    |   | $ | 130,449 |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                   |       |                  |       |   |   |
| Current liabilities:                                                                                                        |       |                  |       |   |   |
| Accounts payable                                                                                                            |       | $                     | 16,612     |   | .$14,101 |   |
| Accrued expenses                                                                                                            |       | 22,242                |       | 20,770 |   |
| Line of credit                                                                                                              |       | 12,690                |       | — |   |
| Book overdraft                                                                                                              |       | 803                   |       | — |   |
| Current portion of long-term debt                                                                                           |       | —                |       | 19 |   |
| Current portion of capital leases                                                                                           |       | 51                    |       | — |   |
| Total current liabilities                                                                                                   |       | 52,398                |       | 34,890 |   |
| Long-term accrued expenses                                                                                                  |       | 7,069                 |       | 7,569 |   |
| Deferred income taxes                                                                                                       |       | 1,294                 |       | — |   |
| Long-term portion of capital leases                                                                                         |       | 185                   |       | — |   |
| Total liabilities                                                                                                           |       | 60,946                |       | 42,459 |   |
| Commitments and contingencies (Note 12)                                                                                     |       |                  |       |   |   |
| 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, 10,302,109 and 10,190,230 issued and outstanding, respectively |       | 103                   |       | 102 |   |
| Additional paid-in capital                                                                                                  |       | 37,423                |       | 36,463 |   |
| Retained earnings                                                                                                           |       | 42,170                |       | 51,425 |   |
| Total stockholders’ equity                                                                                             |       | 79,696                |       | 87,990 |   |
|                                                                                                                        |       | $                     | 140,642    |   | $ | 130,449 |   |

 

See Notes to Consolidated Financial Statements.

 

51

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### **NATIONAL R.V. HOLDINGS, INC.**

## CONSOLIDATEDSTATEMENTS OF OPERATIONS

##  

(in thousands, exceptshare and per share amounts)

 
| ** **                                                    | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                    | ** ** | **2004**                         | ** ** | **As Restated  2003** | ** ** | **As Restated  2002** | ** ** |
| Net sales                                                     |       | $                                | 436,813    |   | $ | 312,548 |   | $ | 267,920 |   |
| Cost of goods sold                                            |       | 405,799                          |       | 306,293 |   | 269,789 |   |
| Gross profit (loss)                                           |       | 31,014                           |       | 6,255 |   | (1,869 | ) |
| Selling expenses                                              |       | 11,614                           |       | 9,498 |   | 10,924 |   |
| General and administrative expenses                           |       | 13,622                           |       | 7,463 |   | 7,427 |   |
| Other expense                                                 |       | 632                              |       | — |   | — |   |
| Impairment of goodwill                                        |       | —                           |       | — |   | 6,126 |   |
| Total operating expenses                                      |       | 25,868                           |       | 16,961 |   | 24,477 |   |
| Operating income (loss)                                       |       | 5,146                            |       | (10,706 | ) | (26,346 | ) |
| Interest expense                                              |       | 327                              |       | 399 |   | 357 |   |
| Other income                                                  |       | (90                              | )          | (7 | ) | (472 | ) |
| Income (loss) from continuing operations before  income taxes |       | 4,909                            |       | (11,098 | ) | (26,231 | ) |
| Provision (benefit) for income taxes                          |       | 13,027                           |       | (4,112 | ) | (7,699 | ) |
| Loss from continuing operations                               |       | (8,118                           | )          | (6,986 | ) | (18,532 | ) |
| Loss from discontinued operations                             |       | 2,155                            |       | 2,301 |   | 2,212 |   |
| Gain from sale of discontinued operations                     |       | (281                             | )          | — |   | — |   |
| Income taxes related to discontinued operations               |       | (737                             | )          | (853 | ) | (847 | ) |
| Loss from discontinued operations, net of taxes  (Note 16)    |       | (1,137                           | )          | (1,448 | ) | (1,365 | ) |
| Net loss                                                      |       | $                                | (9,255     | ) | $ | (8,434 | ) | $ | (19,897 | ) |
|                                                          |       |                             |       |   |   |   |   |
| Basic and diluted loss per common share:                      |       |                             |       |   |   |   |   |
| Continuing operations                                         |       | $                                | (0.79      | ) | $ | (0.71 | ) | $ | (1.89 | ) |
| Discontinued operations                                       |       | (0.12                            | )          | (0.14 | ) | (0.14 | ) |
| Total                                                         |       | $                                | (0.91      | ) | $ | (0.85 | ) | $ | (2.03 | ) |
| Weighted average number of shares:                            |       |                             |       |   |   |   |   |
| Basic                                                         |       | 10,217                           |       | 9,900 |   | 9,788 |   |
| Diluted                                                       |       | 10,217                           |       | 9,900 |   | 9,788 |   |

 

See Notes to Consolidated Financial Statements.

 

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### **NATIONAL R.V. HOLDINGS, INC.**

## CONSOLIDATEDSTATEMENTS OF CASH FLOWS

##  

(in thousands)

 
| ** **                                                                                 | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                 | ** ** | **2004**                         | ** ** | **As Restated  2003** | ** ** | **As Restated  2002** | ** ** |
|                                                                                       |       |                             |       |   |   |   |   |
| Cash flows from operating activities:                                                      |       |                             |       |   |   |   |   |
| Net loss                                                                                   |       | $                                | (9,255     | ) | $ | (8,434 | ) | $ | (19,897 | ) |
| Adjustments to reconcile net loss to net cash (used  in) provided by operating activities: |       |                             |       |   |   |   |   |
| Depreciation and amortization                                                              |       | 3,840                            |       | 3,952 |   | 3,936 |   |
| Bad debt expense                                                                           |       | 32                               |       | 63 |   | 121 |   |
| Provision for excess and obsolete inventories                                              |       | 1,280                            |       | 673 |   | — |   |
| Impairment of goodwill                                                                     |       | —                           |       | — |   | 6,126 |   |
| Loss (gain) on asset disposal                                                              |       | 391                              |       | (1 | ) | (355 | ) |
| Tax benefit related to exercise of stock options                                           |       | 254                              |       | 550 |   | 105 |   |
| Deferred income tax provision (benefit)                                                    |       | 11,760                           |       | (5,443 | ) | (1,631 | ) |
| Changes in assets and liabilities:                                                         |       |                             |       |   |   |   |   |
| Increase in restricted cash                                                                |       | (1                               | )          | (250 | ) | — |   |
| Decrease (increase) in receivables                                                         |       | 970                              |       | (11,063 | ) | 6,279 |   |
| (Increase) decrease in inventories                                                         |       | (27,279                          | )          | 20,200 |   | 12,853 |   |
| Decrease (increase) in income taxes receivable                                             |       | —                           |       | 7,015 |   | (327 | ) |
| (Increase) decrease in prepaid expenses                                                    |       | (1,266                           | )          | 476 |   | (487 | ) |
| Increase (decrease) in accounts payable                                                    |       | 2,511                            |       | 618 |   | (15,997 | ) |
| Increase (decrease) in accrued expenses                                                    |       | 972                              |       | (225 | ) | 4,495 |   |
| Net cash (used in) provided by operating activities                                        |       | (15,791                          | )          | 8,131 |   | (4,779 | ) |
| Cash flows from investing activities:                                                      |       |                             |       |   |   |   |   |
| Increase in other assets                                                                   |       | (86                              | )          | (239 | ) | (1 | ) |
| Proceeds from sale of property, plant and equipment                                        |       | 3,601                            |       | 14 |   | 2,859 |   |
| Proceeds from sale of discontinued operation                                               |       | 500                              |       | — |   | — |   |
| Note receivable repayments                                                                 |       | 469                              |       | — |   | — |   |
| Purchase of property, plant, and equipment                                                 |       | (4,914                           | )          | (1,568 | ) | (4,414 | ) |
| Net cash used in investing activities                                                      |       | (430                             | )          | (1,793 | ) | (1,556 | ) |
| Cash flows from financing activities:                                                      |       |                             |       |   |   |   |   |
| Net advances under (payments on) line of credit                                            |       | 12,690                           |       | (4,943 | ) | 4,943 |   |
| Increase (decrease) in book overdraft                                                      |       | 803                              |       | (943 | ) | 335 |   |
| Principal payments on long-term debt                                                       |       | (19                              | )          | (22 | ) | (21 | ) |
| Principal payments on capital leases                                                       |       | (8                               | )          | — |   | — |   |
| Proceeds from issuance of common stock                                                     |       | 707                              |       | 1,615 |   | 1,070 |   |
| Net cash provided by (used in) financing activities                                        |       | 14,173                           |       | (4,293 | ) | 6,327 |   |
| Net (decrease) increase in cash                                                            |       | (2,048                           | )          | 2,045 |   | (8 | ) |
| Cash, beginning of year                                                                    |       | 2,059                            |       | 14 |   | 22 |   |
| Cash, end of year                                                                          |       | $                                | 11         |   | $ | 2,059 |   | $ | 14 |   |

 

The Company paid interestof $0.3 million, $0.4 million and $0.4 million and the Company paid incometaxes of $0.6 million, $0.1 million, and $0.1 million in 2004, 2003, and 2002,respectively. The Company received $0.5 million in cash and a $2.7 million notereceivable from the sale of its Towables division in 2004. In addition, theCompany incurred $0.2 million of capital lease obligations in 2004.

 

See Notes to Consolidated Financial Statements.

 

53

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### **NATIONAL R.V. HOLDINGS, INC.**

## CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY

##  

(in thousands)

 
| ** **                                               | ** ** | **Common Stock** | ** ** | **Additional  Paid-In** | ** ** | **Retained** | ** ** | ** **   | ** ** |
|----------------------------------------------------------|------------|------------------|------------|-------------------------|------------|--------------|------------|--------------|------------|
| ** **                                               | ** ** | **Shares**       | ** ** | **Amount**              | ** ** | **Capital**  | ** ** | **Earnings** | ** ** | **Total** | ** ** |
| Balance, December 31, 2001, as previously  reported |       | 9,718            |       | $                       | 97         |         | $          | 33,128       |       | $ | 81,187 |   | $ | 114,412 |   |
| Adjustments to stockholders’ equity (Note 2)        |       |             |       |                    |       |         |       | (1,431       | )          | (1,431 | ) |
| Balance, December 31, 2001, as restated             |       | 9,718            |       | 97                      |       | 33,128       |       | 79,756       |       | 112,981 |   |
| Common stock issued under option plans                   |       | 114              |       | 1                       |       | 1,069        |       |         |       | 1,070 |   |
| Tax benefit related to exercise of stock options         |       |             |       |                    |       | 105          |       |         |       | 105 |   |
| Net loss, as restated                                    |       |             |       |                    |       |         |       | (19,897      | )          | (19,897 | ) |
| Balance, December 31, 2002, as restated             |       | 9,832            |       | 98                      |       | 34,302       |       | 59,859       |       | 94,259 |   |
| Common stock issued under option plans                   |       | 358              |       | 4                       |       | 1,611        |       |         |       | 1,615 |   |
| Tax benefit related to exercise of stock options         |       |             |       |                    |       | 550          |       |         |       | 550 |   |
| Net loss, as restated                                    |       |             |       |                    |       |         |       | (8,434       | )          | (8,434 | ) |
| Balance, December 31, 2003                          |       | 10,190           |       | 102                     |       | 36,463       |       | 51,425       |       | 87,990 |   |
| Common stock issued under option plans                   |       | 112              |       | 1                       |       | 706          |       |         |       | 707 |   |
| Tax benefit related to exercise of stock options         |       |             |       |                    |       | 254          |       |         |       | 254 |   |
| Net loss                                                 |       |             |       |                    |       |         |       | (9,255       | )          | (9,255 | ) |
| Balance, December 31, 2004                          |       | 10,302           |       | $                       | 103        |         | $          | 37,423       |       | $ | 42,170 |   | $ | 79,696 |   |

 

See Notes to Consolidated Financial Statements.

 

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### **NATIONAL R.V. HOLDINGS, INC.**

## NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

##  

#### **1. Description of Business**

National R.V. Holdings, Inc.(the Company) operates in one business segment that designs, manufactures, andmarkets motorhomes through its wholly-owned subsidiaries, National R.V., Inc.(NRV) and Country Coach, Inc. (CCI). The RVs are marketed primarily in theUnited States by NRV under the Dolphin, Islander, Sea Breeze, Tradewinds andTropi-Cal brand names and by CCI under brand names including Affinity, Allure,Inspire, Intrigue, Magna and Prevost by Country Coach.

 

#### **2. Restatement of Prior Periods**

The prior periodfinancial statements included herein have been restated for three correctingadjustments. These adjustments are discussed in more detail below.

 

##### ***Correction ofaccounting for dealer sales incentives***

The financial statementsreflect the restatement of certain dealer sales incentives, which includerebates and floorplan interest reimbursement paid to dealers to promote thesale of the product and retail incentives paid directly to dealer retailsalespersons to promote the sale of the product and the return of sale andwarranty information. The 2003 and 2002 statements of operations have beenrestated to reclassify these sales incentives from selling expenses to areduction of revenue, as required by Emerging Issues Task Force (“EITF”) Issue No. 01-09,“Accounting for Consideration Given by a Vendor to a Customer (including aReseller) of the Vendor’s Products”. Net sales, gross profit and sellingexpenses were reduced by $1.7 million in 2003 and $2.5 million in 2002. Thisadjustment had no impact on net (loss) income as previously reported.

 

##### ***Correction ofallowance for doubtful accounts methodology***

During 2003, the Companychanged its methodology for calculating its allowance for doubtful accountsfrom a method of providing an allowance for the estimated cost of one motorhomeat each of its divisions to a specific reserve methodology that reserves 100%of invoices greater than 120 days past due and all other accounts notconsidered collectible. The total reduction to the reserve of $0.15 millionresulting from this change in methodology was initially recorded in 2003 as achange in estimate, but should have been recorded as a correction of an error.Accounting Principles Board Opinion No. 20, Accounting Changes, statesthat a change from an accounting principle that is not generally accepted toone that is generally accepted is a correction of an error. The allowance fordoubtful accounts methodology used by the Company prior to 2003 is not agenerally accepted method and as such, the Company now believes the 2002financial statements should have been restated at the time the Company changedits methodology. General and administrative expenses were increased by $0.15million in 2003 and decreased by the same amount in 2002 as a result of thisrestatement.

 

##### ***Correction ofworkers’ compensation reserve methodology***

The 2002 financialstatements have been restated to correct an error related to the workers’compensation self-insurance reserve. During 2002, the Company changed itsmethodology for calculating workers’ compensation self-insurance reserves to anactuarial based method involving an incurred but not reported (IBNR) claimsanalysis from the specific reserve method previously recorded in 2001 and prioryears. The total charge to increase the reserve of $4.2 million was initiallyrecorded in 2002. The Company treated the charge as a revision of an estimate,but should have treated it as a correction of an error, and restated prioryears. The restated 2002 cost of goods sold was reduced by $1.8 million and theloss from discontinued operations was reduced by $0.5 million to allocate theseworkers’ compensation costs to the appropriate years.

 

55

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The above notedrestatements did not result in a restatement of the consolidated balance sheetas of December 31, 2003. The consolidated statements of operations andcash flows for the years ended December 31, 2003 and 2002 have beenrestated as follows (in thousands, except per share amounts):

 
| ** **                                                                          | ** ** | **As Previously Reported  2003** | ** ** | **As Restated  2003** | ** ** | **As Previously Reported  2002** | ** ** | **As Restated  2002** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------------------|------------|-----------------------|------------|----------------------------------|------------|-----------------------|------------|
| **Statement of Operations**                                                         |       |                             |       |                  |       |                             |       |                  |       |
| Net sales                                                                           |       | $                                | 314,286    |                  | $          | 312,548                          |       | $                     | 270,373    |   | $ | 267,920 |   |
| Cost of goods sold                                                                  |       | 306,293                          |       | 306,293               |       | 271,551                          |       | 269,789               |       |
| Gross profit (loss)                                                                 |       | 7,993                            |       | 6,255                 |       | (1,178                           | )          | (1,869                | )          |
| Selling expenses                                                                    |       | 11,236                           |       | 9,498                 |       | 13,377                           |       | 10,924                |       |
| General and administrative expense                                                  |       | 7,314                            |       | 7,463                 |       | 7,576                            |       | 7,427                 |       |
| Operating loss                                                                      |       | (10,557                          | )          | (10,706               | )          | (28,257                          | )          | (26,346               | )          |
| Loss from discontinued operations                                                   |       | (2,301                           | )          | (2,301                | )          | (2,769                           | )          | (2,212                | )          |
| Net loss                                                                            |       | $                                | (8,340     | )                     | $          | (8,434                           | )          | $                     | (21,422    | ) | $ | (19,897 | ) |
|                                                                                |       |                             |       |                  |       |                             |       |                  |       |
| Net loss per share:                                                                 |       |                             |       |                  |       |                             |       |                  |       |
| Basic                                                                               |       | $                                | (0.84      | )                     | $          | (0.85                            | )          | $                     | (2.19      | ) | $ | (2.03 | ) |
| Diluted                                                                             |       | $                                | (0.84      | )                     | $          | (0.85                            | )          | $                     | (2.19      | ) | $ | (2.03 | ) |
|                                                                                |       |                             |       |                  |       |                             |       |                  |       |
| **Statement of Cash Flows**                                                         |       |                             |       |                  |       |                             |       |                  |       |
| Net loss                                                                            |       | $                                | (8,340     | )                     | $          | (8,434                           | )          | $                     | (21,422    | ) | $ | (19,897 | ) |
| Increase in deferred income tax benefit                                             |       | (5,388                           | )          | (5,443                | )          | (2,574                           | )          | (1,631                | )          |
| Decrease (increase) in receivables                                                  |       | (11,212                          | )          | (11,063               | )          | 6,428                            |       | 6,279                 |       |
| (Decrease) increase in accrued expenses                                             |       | (225                             | )          | (225                  | )          | 6,814                            |       | 4,495                 |       |
| Net cash (used in) provided by operating activities                                 |       | 8,131                            |       | 8,131                 |       | (4,779                           | )          | (4,779                | )          |
| Net cash used in investing activities                                               |       | (1,793                           | )          | (1,793                | )          | (1,556                           | )          | (1,556                | )          |
| Net cash provided by (used in) financing activities                                 |       | (4,293                           | )          | (4,293                | )          | 6,327                            |       | 6,327                 |       |
|                                                                                |       |                             |       |                  |       |                             |       |                  |       |
| **Adjustment to Stockholders’ Equity as of January 1,  2002**             |       |                             |       |                  |       |                             |       |                  |       |
| Opening stockholders’ equity, at January 1,  2002, as previously reported |       |                             |       |                  |       |                             |       | $                     | 114,412    |   |
| Workers’ compensation, net of tax                                              |       |                             |       |                  |       |                             |       | (1,431                | )          |
| Opening stockholders’ equity, at January 1,  2002, as restated            |       |                             |       |                  |       |                             |       | $                     | 112,981    |   |

 

### **3. Summary of SignificantAccounting Policies**

### ** **

#### **BASIS OF PRESENTATION**

The consolidatedfinancial statements of the Company include the accounts of National R.V.Holdings, Inc., NRV, and CCI. As further discussed in Note 16, theoperating results of the travel trailer division have been reclassified as adiscontinued operation for all periods presented. All significant intercompanytransactions have been eliminated in consolidation.

 

#### **USE OF ESTIMATES**

Management is required tomake certain estimates and assumptions in order to prepare consolidatedfinancial statements in conformity with generally accepted accountingprinciples. Such estimates and assumptions affect the reported amounts ofassets, liabilities, revenues and expenses and disclosure of contingent assetsand liabilities in the financial statements and accompanying notes. The Company’smost significant estimates relate to workers’ compensation, warranty accruals,

 

56

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the valuation ofinventory, and the realization of the Company’s deferred tax assets. Theestimation process required to prepare the Company’s consolidated financialstatements requires assumptions to be made about future events and conditions,and as such, is inherently subjective and uncertain. Actual results may differfrom estimates.

 

#### **CASH AND CASH EQUIVALENTS**

Cash and cash equivalentsinclude deposits in banks and short-term investments with original maturitiesof three months or less. Restricted cash consists of a deposit required tocollateralize a letter of credit in connection with one of the Company’sinsurance policies. The Company expects the deposit will no longer be requiredsometime in 2005. Accordingly, this amount has been classified as current.

 

#### **FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS**

The Company’s financialinstruments consist primarily of cash and cash equivalents, receivables,accounts payable, and accrued expenses. The carrying amounts of cash and cashequivalents, receivables, accounts payable and accrued expenses approximatetheir respective fair values due to their relatively short maturities. TheCompany also had an outstanding letter of credit in the amount of $0.3 million,which collateralizes one of the Company’s surety bonds.

 

#### **ALLOWANCE FOR DOUBTFUL ACCOUNTS**

TheCompany provides an allowance for doubtful accounts on its accounts receivablefor estimated losses resulting from the inability of its dealers to makerequired payments. The current methodology takes into consideration the dealerfinancing arrangement, where payment on motorhomes is pre-approved prior toshipment with payment made directly from the dealer’s third party financesource to the Company within 15 business days from the date of shipment. Thisarrangement significantly reduces the risk of loss from the sale of motorhomes.Parts receivables represent a minimal portion of the total accounts receivable.The Company uses a specific reserve methodology and currently reserves 100% ofinvoices greater than 120 days old. Additionally, the Company reviews all otheraccounts for collectibility and those not considered collectible are reservedfor as deemed appropriate.

 

#### **INVENTORIES**

Inventory is valued atthe lower of cost (estimated using the first-in, first-out method) or market.The Company periodically evaluates the carrying value of inventories andmaintains an allowance for excess and obsolescence to adjust the carrying valueas necessary to the lower of cost or market or to amounts on hand to meetexpected demand in the near term.

 

#### **PROPERTY, PLANT AND EQUIPMENT**

Property, plant andequipment are stated at cost, less accumulated depreciation. Major renewals andimprovements are capitalized, while routine maintenance and repairs areexpensed as incurred. The Company also capitalizes computer software costs thatmeet both the definition of internal-use software and defined criteria forcapitalization in accordance with Statement of Position No. 98-1, “Accountingfor the Cost of Computer Software Developed or Obtained for Internal Use.” Atthe time properties are retired from service, the cost and accumulateddepreciation are removed from the respective accounts.

 

Depreciation expense iscomputed principally on the straight-line method, over estimated useful livesof the related assets. In addition, the Company does not estimate a salvagevalue for any of its property, plant, and equipment. The following tableprovides the estimated useful lives used for each asset type:

 
| Computer software / hardware         |   | 3 – 5 years |   |
|--------------------------------------|--------|------------------|--------|
| Furniture and  fixtures              |   | 7 years          |   |
| Machinery and  equipment             |   | 7 years          |   |
| Buildings and  building improvements |   | 40 years         |   |

 

#### **CONCENTRATIONS**

Financial instruments,which subject the Company to credit risk, consist primarily of tradereceivables from dealerships which receivables are approved by the dealers’lenders prior to shipment. The Company generally does not require collateralfrom its customers. Such credit risk is considered by management to be limiteddue to the Company’s broad customer base, and terms requiring most of thedealers’ lenders to pay the Company directly fifteen business days or lessafter the dealers’ receipt of the unit. For the year ended December 31,2004, three dealers accounted for 14%, 12%, and 11%, respectively, of theCompany’s net sales. In addition, the Company’s top ten dealers accounted forapproximately 72%, 66% and 59% of net sales for the years ended December 31,2004, 2003, and 2002, respectively. At December 31, 2004, three dealersaccounted for 24%, 20%, and 14% respectively, of the Company’s tradereceivables.

 

57

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The Company currentlybuys certain key components of its products from limited suppliers. Although thereare a limited number of manufacturers of these key components, managementbelieves that other suppliers could provide similar key components oncomparable terms. A change in suppliers, however, could cause a delay inmanufacturing and a possible loss of sales, which would adversely, affectoperating results.

 

The Company’s NRVsubsidiary purchases gasoline-powered chassis that are manufactured by FordMotor Company and Workhorse Custom Chassis, and rear engine diesel-poweredchassis from Freightliner Custom Chassis Corporation and Spartan MotorCorporation. The Company’s CCI subsidiary manufactures its own chassis, theDynoMax, which is used as the base upon which all CCI motorhomes are built,except for the Country Coach Prevost bus conversions, which utilize a Prevostbus shell. The Company generally maintains a one to two month production supplyof a chassis in inventory. If any of the Company’s present chassismanufacturers were to cease manufacturing or otherwise reduce the availabilityof their chassis, the business of the Company could be materially and adverselyaffected.

 

#### **LIQUIDITY AND CAPITAL RESOURCES**

The Company has incurrednet losses of $9.3 million, $8.4 million and $19.9 million for the years ended December 31,2004, 2003 and 2002, respectively.  TheCompany has used cash from operating activities of $15.8 million and $4.8million for the years ended December 31, 2004 and 2002, respectively, andprovided cash from operating activities of $8.1 million for the year ended December 31,2003. The RV industry has been historically cyclical and subject to downturnsduring periods of weak economic conditions. With rising fuel prices and continued economic uncertainty, the Companyexperienced a further decline in demand for products in 2005.  These conditions lead the Company to assessits short-term liquidity needs and plans to achieve profitability.

 

During 2004, the Companyfinanced its operations primarily through its existing working capital and itsline-of-credit with UPS Capital Corporation (UPSC). At December 31, 2004,the Company had an asset-based revolving credit facility of $15 million withUPSC which was scheduled to expire in August 2005.  At December 31, 2004, the Company hadoutstanding loans under the line-of-credit totaling $12.7 million and theCompany was not in default with any covenants as of this date.  On August 12, 2005, the originalfacility was replaced by a new three-year asset-based revolving credit facilitywith UPSC and Wells Fargo Bank for $25 million, with the Company having theoption, subject to certain conditions, of increasing the revolver in $5 millionincrements up to a total credit facility of $40 million.   On September 29, 2005, the Companyeffected such an increase in the amount of the credit facility from $25 millionto $30 million.  The new credit facilityis collateralized by all of the Company’s assets other than real estate.  Borrowing availability is based on eligibleaccounts receivable and inventory.  Thefacility also includes a requirement to maintain a blocked account arrangement,whereby remittances from the Company’s customers reduce the debtoutstanding.  The new credit facilitycontains, among other provisions, certain financial covenants, including fundeddebt to EBITDA, and a fixed charge coverage ratio. If these financial covenants are not met, the Company’s availabilityunder the credit facility will be reduced. The Company did not meet these financial covenants as of August 31,2005 and currently does not expect to meet them until September 30, 2006.  Until these covenants are met, theCompany’s borrowing availability under its $40 million facility will be limitedto an amount between $27 to $32 million, depending on eligible inventory andaccounts receivable.  Initial amountsborrowed under the revolving credit facility bear interest at the prime ratelisted in the Wall Street Journal plus 0.50 percentage points and may besubsequently adjusted down based on a trailing twelve month funded debt toEBITDA calculation.   At December 31,2004 the interest rate on the outstanding borrowings under the line-of-creditwas 6.00%. The weighted average interest rate for the borrowings under theline-of-credit during the year ended December 31, 2004 was 5.49%. Theweighted average interest rate for the borrowings on the line-of-credit duringthe year ended December 31, 2003 was 4.96%.

 

Management’s plan toachieve operational profitability includes continuing or starting a variety ofinitiatives to improve its earnings and working capital position, including: i)new product introductions in the fourth quarter of 2005 with additional newproduct and floor plan introductions in the first half of 2006, ii) new dealeradditions to fill open market areas or replace under-performing dealers, iii)reductions in all categories of inventory, iv) head count re-balancings tocurrent retail sales-supported production levels, v) engineering reviews ofmaterial components for the removal of non-value added items to reduce bothmaterial and assembly costs, vi) continued thorough motorhome inspections toimprove quality and to more timely report failures, and vii) manufacturing costreductions resulting from the continued implementation of lean manufacturingconcepts.

 

In order to fund on-goingoperations through at least December 31, 2005, the Company remainsdependent upon its ability to utilize outside financing through borrowings onits line-of-credit until it achieves sustained operational profitabilitythrough a combination of increased sales, cost reductions and improved productmargins. After consideration of the restrictions of the borrowing capacitynoted above, the Company believes it has sufficient financial resources to fundits operations through at least December 31, 2005.  However, the Company’s ability to meet itsobligations beyond 2005 is dependent on its ability to generate positive cashflows from operations and is dependent on continued borrowings under

 

58

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its line of credit.  If management is unable to achieve itsoperational profitability plan or unforeseen events occur and its existing lineof credit is insufficient to allow the Company to meet its obligations, theCompany may need to implement alternative plans that could include long-termfinancing collateralized by real estate (which is presently unencumbered) orobtaining additional debt financing, additional reductions in operating costs,deferral of capital expenditures, and further reductions in workingcapital.  While the Company believes thatit could successfully complete the alternative plans, if necessary, there canbe no assurance that such alternatives would be available on acceptable termsand conditions or that the Company would be successful in its implementation ofsuch plans.

 

#### **REVENUE RECOGNITION**

The Company recognizesrevenue in accordance with SEC Staff Accounting Bulletin No. 104, RevenueRecognition in Financial Statements, or SAB 104. SAB 104 requires that fourbasic criteria must be met before revenue can be recognized: i) persuasive evidenceof an arrangement exists, ii) delivery has occurred and title and the risks andrewards of ownership have been transferred to the customer, iii) the price isfixed and determinable, and iv) collectibility is reasonably assured. Duringthe fourth quarter of 2004, NRV began delivering motorhomes to its customersthrough independent third party carriers. Title and risks of rewards ofownership are transferred to a customer upon delivery of a motorhome to a thirdparty carrier. When all of the above criteria are satisfied, motorhome salesare generally recorded by NRV at the time the motorhomes are delivered to anindependent third party carrier and are recorded by CCI, which does not deliverits motorhomes through an independent third party carrier, when accepted by thedealer.

 

In addition, as is commonthroughout the RV industry, the Company offers incentives to its dealers in theform of discounts and floorplan interest reimbursement programs, rebate andholdback programs, and retail sales incentives paid to dealer retailsalespersons. The Company recognizes and records the costs of these incentivesin accordance with Emerging Issue Task Force (EITF) No. 01-09, “Accountingfor Consideration Given by a Vendor to a Customer (Including a Reseller of theVendor’s Products)”.

 

Discounts and floorplaninterest reimbursement programs are offered to dealers on purchases of certainunits during dealer or other trade show events. The Company will occasionallyalso offer these programs to its dealers to sell slower-moving units. TheCompany recognizes the cost of discounts as a reduction of revenue and recordsthe cost of these programs when the associated revenue is recognized.

 

Rebate and holdbackprograms involve payments by the Company to the dealer based on either apercentage of the net invoice price or a predetermined amount based on themodel of the coach sold by the dealer. The dealer incentive program varies bydealer. Not all dealers participate. The purpose of the program is to providean additional incentive to the dealer to promote sales of the product. The dealers earn the incentive upon the wholesalepurchase of the unit from the Company. The Company recognizes theseincentives as a reduction of revenue and records the cost of these incentiveswhen the associated revenue is recognized.

 

TheCompany often pays retail sales incentives directly to dealer retailsalespersons to promote the sale of the product and the return of sale andwarranty information. This information assists in providing sales and marketingdata to the Company. The Company recognizes the cost of such retail salesincentives as a reduction of revenue and records the cost of such retail salesincentives when the associated revenue is recognized.

 

Cooperative advertisingarrangements exist through which dealers receive a certain allowance of thetotal purchases from the Company if certain qualitative advertising criteriaare met and if specified amounts are spent on the advertisements. A dealer mustmaintain documentation of all advertising performed that includes the Company’sproducts and provide that documentation to the Company upon request. Becausethe Company receives an identifiable advertising benefit from the dealer, theCompany recognizes the cost of cooperative advertising as a selling expense andrecords the cost of cooperative advertising when the units are sold to thedealers.

 

#### **ADVERTISING AND SALES PROMOTION COSTS**

The Company expensesadvertising costs as incurred. For the years ended December 31, 2004,2003, and 2002, advertising and sales promotion costs, including cooperativeadvertising, were approximately $4.1 million, $3.5 million, and $5.4 million,respectively.

 

#### **SHIPPING AND HANDLING COSTS**

Charges for shipping andhandling are included as a component of revenue. The Company records shippingand handling costs in costs of goods sold. Shipping and handling costs recordedwere $4.3 million, $3.7 million, and $3.3 million in 2004, 2003, and 2002,respectively.

 

59

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#### **LONG-LIVED ASSETS**

Effective the firstquarter of fiscal 2003, the Company adopted SFAS No. 144, “Accounting forthe Impairment or disposal of Long-Lived Assets.” In accordance with SFAS No. 144,the Company assesses the fair value and recoverability of its long-lived assetswhenever events and circumstances indicate the carrying value of an asset maynot be recoverable from estimated future cash flows expected to result from itsuse and eventual disposition. In doing so, the Company makes assumptions andestimates regarding future cash flows and other factors. The fair value of thelong-lived assets is dependent upon the forecasted performance of the Company’sbusiness and the overall economic environment. When it determines that thecarrying value of the long-lived assets may not be recoverable, it measuresimpairment based upon a forecasted discounted cash flow method.

 

#### **RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES**

Research, development andengineering expenses are expensed as incurred and are included in cost of goodssold and consist of normal improvements to models and model year changes. Totalresearch, development and engineering expenses were $7.8 million, $6.7 millionand $5.4 million for the years ended December 31, 2004, 2003 and 2002,respectively, of which research and development expenses alone were $1.5million, $2.1 million, and $1.4 million, respectively.

 

#### **INCOME TAXES**

As part of the process ofpreparing its consolidated financial statements, the Company estimates itsincome taxes in each of the taxing jurisdictions in which it operates. Thisprocess involves estimating the Company’s actual current tax expense togetherwith assessing any temporary differences resulting from the different treatmentof certain items, such as the timing for recognizing revenues and expenses, fortax and financial reporting purposes. These differences may result in deferredtax assets and liabilities.

 

The provision for taxliabilities involves evaluations and judgments of uncertainties in theinterpretation of complex tax regulations by various taxing authorities. Insituations involving tax related uncertainties the Company provides for taxliabilities unless the Company considers it probable and estimable thatadditional taxes will not be due. As additional information becomes available,or these uncertainties are resolved with the taxing authorities, revisions tothese liabilities may be required, resulting in additional provision for orbenefit from income taxes in the Company’s consolidated statements ofoperations.

 

#### **RECLASSIFICATIONS**

Other than therestatement adjustments discussed in Note 2, certain reclassifications, none ofwhich affected net income or retained earnings, have been made to prior yearamounts to conform to the current year presentation.

 

#### **RECENT ACCOUNTING PRONOUNCEMENTS**

In November 2004,the FASB issued Statement of Financial Accounting Standards (SFAS) No. 151,“Inventory Costs-an Amendment of ARB No. 43, Chapter 4.” SFAS No. 151requires that accounting for items such as idle facility expense, freight, handlingcosts, and wasted materials (spoilage) be recognized as current period chargesregardless of whether they meet the criterion of “so abnormal.” In addition,this Statement requires that allocation of fixed production overheads to thecosts of conversion be based on the normal capacity of the productionfacilities. This Statement is effective for inventory costs incurred duringfiscal years beginning after June 15, 2005. The provision of thisStatement shall be applied prospectively. The Company has not determined theimpact that adoption of this standard will have on its consolidated financialstatements.

 

In December 2004,the FASB issued FSP 109-1, “Application of FASB Statement No. 109,Accounting for Income Taxes, to the Tax Deduction on Qualified ProductionActivities Provided by the American Jobs Creation Act of 2004.” The AmericanJobs Creation Act, or AJCA, introduces a special 9% tax deduction on qualifiedproduction activities. FAS 109-1 clarifies that this tax deduction should beaccounted for as a special tax deduction in accordance with Statement 109. FSP109-1 is effective upon its issuance. The adoption of FSP 109-1 did not have amaterial impact on the Company’s consolidated financial statements.

 

In December 2004, the FASB issued FASB StaffPosition No. FAS 109-2, or FAS 109-2, “Accounting and Disclosure Guidancefor the Foreign Earnings Repatriation Provision within the American JobsCreations Act of 2004.” The AJCA introduces a limited time 85% dividendsreceived deduction on the repatriation of certain foreign earnings to a U.S.taxpayer (repatriation provision), provided certain criteria are met. FAS No. 109-2provides accounting and disclosure guidance for the repatriation provision. Toachieve the deduction, the repatriation must occur by the end of 2005. The

 

60

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Company has not completed its analysis and doesnot expect to be able to make a decision on the amount of such repatriations,if any, until the fourth quarter of 2005. Among other things, the decision willdepend on the level of earnings outside the United States, the debt levelbetween the Company’s U.S. and non-U.S. affiliates, and administrative guidancefrom the Internal Revenue Service.

 

In December 2004,the FASB issued SFAS No. 123 (revised 2004),”Share-Based Payment” (SFAS No. 123R),which replaces SFAS No. 123, “Accounting for Stock-Based Compensation,”(SFAS 123) and supercedes APB Opinion No. 25, “Accounting for StockIssued to Employees.” SFAS No. 123R requires all share-based payments toemployees, including grants of employee stock options, to be recognized in thefinancial statements based on their fair values beginning with the first annualperiod after June 15, 2005, with early adoption encouraged. The pro formadisclosures previously permitted under SFAS 123 no longer will be analternative to financial statement recognition. The Company is required toadopt SFAS No. 123R in the first calendar quarter of 2006, beginning January 1,2006. Under SFAS No. 123R, the Company must determine the appropriate fairvalue model to be used for valuing share-based payments, the amortizationmethod for compensation cost and the transition method to be used at date ofadoption. The transition methods include modified prospective and modifiedretrospective adoption options. Under the modified retrospective option, priorperiods may be restated either as of the beginning of the year of adoption orfor all periods presented. The modified prospective method requires thatcompensation expense be recorded for all unvested stock options and restrictedstock at the beginning of the first quarter of adoption of SFAS No. 123R,while the modified retrospective method would record compensation expense forall unvested stock options and restricted stock beginning with the first periodrestated. The Company is evaluating the requirements of SFAS 123R. TheCompany has not yet determined the method of adoption or the effect of adoptingSFAS No. 123R, and the Company has not determined whether the adoptionwill result in amounts that are similar to the current pro forma disclosuresunder SFAS No. 123.

 

In June 2005, theFASB issued SFAS No. 154, “Accounting Changes and Error Corrections—areplacement of APB No. 20 and FAS No. 3” (“SFAS 154”). SFAS 154provides guidance on the accounting for and reporting of accounting changes anderror corrections. It establishes, unless impracticable, retrospectiveapplication as the required method for reporting a change in accountingprinciple in the absence of explicit transition requirements specific to thenewly adopted accounting principle. SFAS 154 also provides guidance fordetermining whether retrospective application of a change in accountingprinciple is impracticable and for reporting a change when retrospectiveapplication is impracticable. The correction of an error in previously issuedfinancial statements is not an accounting change. However, the reporting of anerror correction involves adjustments to previously issued financial statementssimilar to those generally applicable to reporting an accounting changeretrospectively. Therefore, the reporting of a correction of an error byrestating previously issued financial statements is also addressed by SFAS 154.SFAS 154 is required to be adopted in fiscal years beginning after December 15,2005. The Company does not believe that adoption of this standard will have animpact on its consolidated financial statements.

 

#### **STOCK-BASED COMPENSATION**

The Company has stockoption plans that enable it to offer equity participation to employees,officers, and directors as well as certain non-employees. Stock options may begranted as incentive or nonqualified options. The Company has four fixed optionplans that reserve shares of common stock for issuance to executives, keyemployees, consultants, and directors. The Company has also issued fixedoptions outside of such plans pursuant to individual stock option agreements.Options granted to non-employee directors generally vest immediately upon grantand expire five to ten years from the date of grant. Options granted toemployees, including employee directors, generally vest in three equal annualinstallments and expire five to ten years from the date of grant. The price ofthe options granted pursuant to these plans will not be less than 100 percentof the market value of the shares on the date of grant. There were 260,500options granted during 2004, and there were no options granted during 2003 and2002.

 

The Company has adoptedthe provisions of Statement of Financial Accounting Standards No. 148, “Accountingfor Stock-Based Compensation - Transition and Disclosure” (SFAS 148), whichamends SFAS Statement 123, “Accounting for Stock-Based Compensation.” Aspermitted by SFAS 148, the Company continues to measure compensation cost inaccordance with Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees” (APB 25) and related interpretations, butprovides pro forma disclosures of net loss and loss per share as if thefair-value method had been applied.

 

61

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The following tableillustrates the effect on net loss and loss per share if the Company hadapplied the fair value recognition provisions to stock-based employeecompensation (in thousands, except per share amounts):

 
| ** **                                                                                                                            | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                            | ** ** | ** **                       | ** ** | **As Restated** | ** ** | **As Restated** | ** ** |
| ** **                                                                                                                            | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** |
| Loss from continuing operations                                                                                                       |       | $                                | (8,118     | ) | $ | (6,986 | ) | $ | (18,532 | ) |
| Loss from discontinued operations                                                                                                     |       | (1,137                           | )          | (1,448 | ) | (1,365 | ) |
| Net loss – as reported                                                                                                           |       | (9,255                           | )          | (8,434 | ) | (19,897 | ) |
| Total stock-based employee compensation expense  determined under fair value based method for all awards, net of related tax  effects |       | 569                              |       | 298 |   | 820 |   |
| Pro forma net loss                                                                                                                    |       | $                                | (9,824     | ) | $ | (8,732 | ) | $ | (20,717 | ) |
|                                                                                                                                  |       |                             |       |   |   |   |   |
| Basic and diluted loss per share, as reported                                                                                         |       |                             |       |   |   |   |   |
| Continuing operations                                                                                                                 |       | $                                | (0.79      | ) | $ | (0.71 | ) | $ | (1.89 | ) |
| Discontinued operations                                                                                                               |       | (0.12                            | )          | (0.14 | ) | (0.14 | ) |
| Total basic loss per share                                                                                                            |       | (0.91                            | )          | (0.85 | ) | (2.03 | ) |
| Total stock-based employee compensation expense  determined under fair value based method for all awards, net of related tax  effects |       | 0.05                             |       | 0.03 |   | 0.09 |   |
| Basic and diluted loss per share pro forma                                                                                            |       | $                                | (0.96      | ) | $ | (0.88 | ) | $ | (2.12 | ) |

 

The weighted-average fairvalue of the stock options has been estimated on the date of grant using theBlack-Scholes option-pricing model. The weighted-average fair value of stockoptions and the assumptions used to calculate weighted-average fair value arelisted below for new grants during the year ended December 31, 2004.

 
| Dividend yield           |   | 0.0     | %      |
|--------------------------|--------|---------|--------|
| Expected  volatility     |   | 279.1   | %      |
| Risk-free  interest rate |   | 3.45    | %      |
| Expected lives           |   | 4 Years |   |

 

#### **LOSS PER SHARE**

Basic loss per share iscomputed by dividing net loss by the weighted average number of common sharesoutstanding for the period. Diluted loss per share reflects the potentialdilution that could occur if securities to issue common stock were exercised orconverted into common stock. Shares attributable to the exercise of outstandingoptions that are anti-dilutive are excluded from the calculation of dilutedloss per share. No adjustments were made to reported net loss in thecomputation of loss per share.

 
| ** **                                                     | ** ** | **December 31, (in  thousands)** | ** ** |
|----------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                     | ** ** | **2004**                              | ** ** | **2003** | ** ** | **2002** | ** ** |
| Weighted average shares outstanding – basic               |       | 10,217                                |       | 9,900 |   | 9,788 |   |
| Weighted average shares outstanding – diluted             |       | 10,217                                |       | 9,900 |   | 9,788 |   |
| Outstanding options excluded as impact would be  anti-dilutive |       | 166                                   |       | 130 |   | 353 |   |

 

### **4. Inventories**

 

Inventories consist ofthe following:

 
| ** **      | ** ** | **December 31, (in  thousands)** | ** ** |
|-----------------|------------|---------------------------------------|------------|
| ** **      | ** ** | **2004**                              | ** ** | **2003** | ** ** |
| Finished goods  |       | $                                     | 16,379     |   | $ | 8,957 |   |
| Work-in-process |       | 35,388                                |       | 22,142 |   |
| Raw materials   |       | 18,398                                |       | 13,902 |   |
| Chassis         |       | 4,661                                 |       | 6,658 |   |
|            |       | $                                     | 74,826     |   | $ | 51,659 |   |

 

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### **5. Property, Plant andEquipment**

 

Major classes ofproperty, plant and equipment consist of the following:

 
| ** **                         | ** ** | **December 31, (in  thousands)** | ** ** |
|------------------------------------|------------|---------------------------------------|------------|
| ** **                         | ** ** | **2004**                              | ** ** | **2003** | ** ** |
| Land                               |       | $                                     | 8,514      |   | $ | 10,400 |   |
| Buildings                          |       | 24,810                                |       | 25,091 |   |
| Machinery and  equipment           |       | 20,209                                |       | 19,688 |   |
| Office equipment                   |       | 7,771                                 |       | 7,512 |   |
| Assets under  capital lease        |       | 245                                   |       | — |   |
|                               |       | 61,549                                |       | 62,691 |   |
| Less accumulated  depreciation     |       | (23,740                               | )          | (21,858 | ) |
| Property, plant and equipment, net |       | $                                     | 37,809     |   | $ | 40,833 |   |

 

The Company sold real property in Florida during 2004 totaling $3.9million and recorded impairments of an emissions control system and a paintbooth totaling $0.3 million and $0.1 million, respectively.

 

### **6. Goodwill**

 

Effective January 1,2002, the Company adopted the provisions of SFAS No. 142, “Goodwill andOther Intangible Assets.” SFAS 142 eliminated the amortization of goodwill.Instead, goodwill was reviewed for impairment upon adoption and would bereviewed at least annually thereafter. Continued losses and a significantsustained decline in the Company’s stock price triggered a goodwill impairmentreview during the third quarter of 2002. As a result of this impairment test,the Company recorded a non-cash charge of $6.1 million during the quarter endedSeptember 30, 2002, which represented the entire amount of goodwillrecorded as of that date.

 

### **7. Accrued Expenses**

 

Accrued expenses consistof the following:

 
| ** **                                         | ** ** | **December 31, (in  thousands)** | ** ** |
|----------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                         | ** ** | **2004**                              | ** ** | **2003** | ** ** |
| Current accrued  expenses:                         |       |                                  |       |   |   |
| Workers’  compensation self-insurance reserve |       | $                                     | 2,720      |   | $ | 3,561 |   |
| Warranty reserve                                   |       | 8,330                                 |       | 8,312 |   |
| Payroll and  other accrued expenses                |       | 11,192                                |       | 8,897 |   |
| Total current accrued expenses                     |       | $                                     | 22,242     |   | $ | 20,770 |   |
|                                               |       |                                  |       |   |   |
| Long-term  accrued expenses:                       |       |                                  |       |   |   |
| Workers’  compensation self-insurance reserve |       | $                                     | 6,151      |   | $ | 6,499 |   |
| Warranty reserve                                   |       | 175                                   |       | 348 |   |
| Deferred  compensation                             |       | 743                                   |       | 722 |   |
| Total long-term accrued expenses                   |       | $                                     | 7,069      |   | $ | 7,569 |   |

 

### **8. Product Warranties**

### ** **

The Company’s warrantyreserve is established based on its best estimate of the amounts necessary tosettle future and existing claims on products sold as of the balance sheetdate. The Company records an estimate for future warranty-related costs basedon recent actual warranty claims and historical experience. Also, the Company’srecall reserve is established, as necessary, based on management’s bestestimate of the cost per unit to remedy the recalled item and the estimatednumber of units that will ultimately be brought in for the repair. In addition,from time to time, the Company is involved in warranty or “lemon law”litigation arising out of its operations in the normal course of business. Thenumber of such matters as a percentage of sales is low and the aggregate costto the Company for these actions have not been material. While the Company’swarranty costs have historically been within its expectations and theprovisions established, a significant increase in dealer shop rates, the costof parts or the frequency of claims could have a material adverse impact on theCompany’s operating results for the period or periods in which such claims oradditional costs materialize and result in a change in estimate of warrantyreserves in that period.

 

63

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The changes in thecarrying amount of the Company’s total product warranty liability for the yearsended December 31, 2004, 2003, and 2002 were as follows:

 

Product Warranty

 

(in thousands)

 
| ** **             | ** ** | **Beginning** | ** ** | ** **    | ** ** | ** **     | ** ** | **Ending**  | ** ** |
|------------------------|------------|---------------|------------|---------------|------------|----------------|------------|-------------|------------|
| ** **             | ** ** | **Balance**   | ** ** | **Additions** | ** ** | **Deductions** | ** ** | **Balance** | ** ** |
| Warranty Reserve  2004 |       | $             | 8,660      |          | $          | 12,899         |       | $           | 13,054     |   | $ | 8,505 |   |
| Warranty Reserve  2003 |       | 11,840        |       | 10,053        |       | 13,233         |       | 8,660       |       |
|                        |            |               |            |               |            |                |            |             |            |  |  |  |  |

 

### **9. Debt and Credit Agreements**

 
| ** **                                         | ** ** | **December 31, (in  thousands)** | ** ** |
|----------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                         | ** ** | **2004**                              | ** ** | **2003** | ** ** |
| Current:                                           |       |                                  |       |   |   |
| Revolving line  of credit                          |       | $                                     | 12,690     |   | $ | — |   |
|                                               |       |                                  |       |   |   |
| Long-term debt:                                    |       |                                  |       |   |   |
| Note payable –  City of Junction City, Oregon |       |                                  |       | 19 |   |
| Capital lease  obligations (see Note 12)           |       | 236                                   |       | — |   |
| Less payments due within one year                  |       | (51                                   | )          | (19 | ) |
| Long-term debt                                     |       | 185                                   |       | — |   |
| Total debt                                         |       | $                                     | 12,875     |   | $ | — |   |

 

At December 31,2004, the Company had an asset-based revolving credit facility of $15 million withUPSC which was scheduled to expire in August 2005.  At December 31, 2004, the Company hadoutstanding loans under the line-of-credit totaling $12.7 million and theCompany was not in default with any covenants as of this date.  On August 12, 2005, the originalfacility was replaced by a new three-year asset-based revolving credit facilitywith UPSC and Wells Fargo Bank for $25 million, with the Company having theoption, subject to certain conditions, of increasing the revolver in $5 millionincrements up to a total credit facility of $40 million.   On September 29, 2005, the Companyeffected such an increase in the amount of the credit facility from $25 millionto $30 million.  The new credit facilityis collateralized by all of the Company’s assets other than real estate.  Borrowing availability is based on eligibleaccounts receivable and inventory.  Thefacility also includes a requirement to maintain a blocked account arrangement,whereby remittances from the Company’s customers reduce the debt outstanding.  The new credit facility contains, among otherprovisions, certain financial covenants, including funded debt to EBITDA, and afixed charge coverage ratio. If thesefinancial covenants are not met, the Company’s availability under the creditfacility will be reduced.  The Companydid not meet these financial covenants as of August 31, 2005 and currentlydoes not expect to meet them until September 30, 2006.  Until these covenants are met, the Company’sborrowing availability under its $40 million facility will be limited to anamount between $27 to $32 million, depending on eligible inventory and accountsreceivable.  Initial amounts borrowedunder the revolving credit facility bear interest at the prime rate listed inthe Wall Street Journal plus 0.50 percentage points and may be subsequentlyadjusted down based on a trailing twelve month funded debt to EBITDAcalculation.   At December 31, 2004the interest rate on the outstanding borrowings under the line-of-credit was6.00%. The weighted average interest rate for the borrowings under theline-of-credit during the year ended December 31, 2004 was 5.49%. Theweighted average interest rate for the borrowings on the line-of-credit duringthe year ended December 31, 2003 was 4.96%.

 

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### **10. Income Taxes**

 

The components of theprovision (benefit) for income taxes were as follows:

 
| ** **                                  | ** ** | **December 31, (in  thousands)** | ** ** |
|---------------------------------------------|------------|---------------------------------------|------------|
| ** **                                  | ** ** | **2004**                              | ** ** | **2003** | ** ** | **2002** | ** ** |
| Current  (refundable) payable:              |       |                                  |       |   |   |   |   |
| Federal                                     |       | $                                     | 28         |   | $ | (167 | ) | $ | (7,167 | ) |
| State                                       |       | 249                                   |       | 94 |   | 147 |   |
|                                        |       | 277                                   |       | (73 | ) | (7,020 | ) |
| Deferred:                                   |       |                                  |       |   |   |   |   |
| Federal                                     |       | 7,929                                 |       | (4,177 | ) | (308 | ) |
| State                                       |       | 4,084                                 |       | (715 | ) | (1,218 | ) |
|                                        |       | 12,013                                |       | (4,892 | ) | (1,526 | ) |
| Total provision  (benefit) for income taxes |       | $                                     | 12,290     |   | $ | (4,965 | ) | $ | (8,546 | ) |

 

Deferred income taxes arerecorded based upon differences between the financial statement and tax basisof assets and liabilities. Temporary differences that give rise to deferredincome tax assets and liabilities at December 31, 2004 and 2003 were asfollows:

 
| ** **                                                | ** ** | **December 31, (in  thousands)** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                | ** ** | **2004**                              | ** ** | **2003** | ** ** |
| Accrued expenses                                          |       | $                                     | 4,611      |   | $ | 5,221 |   |
| NOL carryforward                                          |       | 387                                   |       | 2,734 |   |
| Valuation  allowance                                      |       | (3,704                                | )          | — |   |
| Deferred income tax assets – current                 |       | $                                     | 1,294      |   | $ | 7,955 |   |
|                                                      |       |                                  |       |   |   |
| Accrued expenses                                          |       | $                                     | 1,785      |   | $ | 2,242 |   |
| Fixed assets                                              |       | (3,290                                | )          | (2,802 | ) |
| NOL carryforward                                          |       | 7,585                                 |       | 4,365 |   |
| Valuation  allowance                                      |       | (7,374                                | )          | — |   |
| Deferred income tax assets (liabilities) – long-term |       | $                                     | (1,294     | ) | $ | 3,805 |   |

 

As of December 31,2004, the Company has a current deferred tax asset of $1.3 million and along-term deferred tax liability of $1.3 million resulting from a non-cashcharge of $11.1 million the Company recorded to establish a full valuationallowance against its December 31, 2004 net deferred tax asset. Thefederal operating loss carryforwards of $14.0 million will expire in the year2023.  Statement of Financial AccountingStandards (“SFAS”) No. 109 “Accounting for Income Taxes” (“SFAS 109”)requires that a valuation allowance be established when it is more likely thannot that its recorded net deferred tax assets will not be realized.  In determining whether a valuation allowanceis required, the Company must take into account all positive and negativeevidence with regard to the utilization of a deferred tax asset, including theCompany’s past earnings history, market conditions, management profitabilityforecasts, the character and jurisdiction of such earnings, unsettledcircumstances that, if unfavorably resolved, would adversely affect utilizationof a deferred tax asset, carryback and carryforward periods, and tax strategiesthat could potentially enhance the likelihood of realization of a deferred taxasset.  SFAS No. 109 further statesthat it is difficult to conclude that a valuation allowance is not needed whenthere is negative evidence such as cumulative losses in recent years.  Recent cumulative losses, the downturn incurrent market conditions and its impact on near term earnings lead the Companyto conclude that it was more likely than not that its recorded net deferred taxasset will not be realized resulting in the full valuation against the netdeferred tax asset as of December 31, 2004. As a result, the Company hasrecorded a non-cash charge of $11.1 million to establish a full valuationallowance against its net deferred tax asset as of December 31, 2004.  The Company expects to record a fullvaluation allowance on future tax benefits until it can sustain an appropriatelevel of profitability and until such time, the Company would not expect torecognize any significant tax benefits in its future results of operations.

 

65

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A reconciliation of thestatutory U.S. federal income tax rate to the Company’s effective income taxrate is as follows:

 
| ** **                                                          | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                          | ** ** | **2004**              | ** ** | **2003** | ** ** | **2002** | ** ** |
| Statutory rate                                                      |       | 34.0                  | %          | (34.0 | )% | (35.0 | )% |
| State taxes, net of federal taxes                                   |       | 5.5                   |       | (4.2 | ) | (4.7 | ) |
| Amortization of intangibles not deductible for  income tax purposes |       | 0.0                   |       | 0.0 |   | 6.9 |   |
| Disallowed state loss carryforwards                                 |       | 0.0                   |       | 0.8 |   | 0.9 |   |
| Other                                                               |       | 0.4                   |       | 0.3 |   | 1.9 |   |
| Valuation allowance                                                 |       | 365.0                 |       | 0.0 |   | 0.0 |   |
|                                                                |       | 404.9                 | %          | (37.1 | )% | (30.0 | )% |

 

### **11. Recourse on DealerFinancing**

### ** **

Most of the Company’smotorhome sales are made on terms requiring payment within 15 business days orless of the dealer’s receipt of the unit. Most dealers finance all, orsubstantially all, of the purchase price of their inventory under floor planarrangements with banks or finance companies under which the lender pays theCompany directly. Dealers typically are not required to commence loanrepayments to such lenders for a period of at least six months. The loan iscollateralized by a lien on the motorhome. Consistent with industry practice,the Company has entered into repurchase agreements with these lenders. Ingeneral, the repurchase agreements require the Company to repurchase a unit ifthe dealer defaults on the financed unit. Upon a dealer default, the agreementsgenerally require the Company to repurchase RVs at the election of the lenderprovided certain conditions are met, such as repossession of the RV by thelender, the RV being new and unused and the time elapsed between invoice dateand demand for repurchase being no longer than a specified period which istypically 18 months or less. The Company’s maximum potential exposure underthese agreements approximated $132 million at December 31, 2004. As withreceivables, the risk of loss under the repurchase agreements was spread over anumber of dealers and lenders and was reduced by the resale value of the RVs,which the Company would be required to repurchase. Losses under theseagreements have not been material in the past and management does not believethat any future losses under such agreements will have a material adverseeffect on the Company’s consolidated financial position, results of operations,or cash flows.

 

### **12. Commitments andContingencies**

### ** **

The Company leases someof its copy machines under capital lease agreements. The Company has no othercapital lease agreements. In addition, the Company leases a majority of its CCImanufacturing facilities under two non-cancelable operating lease agreementswhich agreements, expiring by the end of November 2005, represent most ofthe operating lease payment commitments. In addition, the Company has theoption to extend one of its non-cancelable operating lease agreements,representing all of the leased manufacturing facilities other than the busconversion manufacturing facility, for an additional five-year period. Theremainder of the operating lease agreements are for machinery and equipment.

 

The Company hascommitments under certain capital and non-cancelable operating leaseagreements. The future minimum capital and operating lease payments, as of December 31,2004, are as follows:

 
| ** **                         | ** ** | **Capital  Leases** | ** ** | **Non-cancelable  Operating  Leases** | ** ** |
|------------------------------------|------------|---------------------|------------|---------------------------------------|------------|
| 2005                               |       | $                   | 66         |                                  | $          | 1,302 |   |
| 2006                               |       | 66                  |       | 53                                    |       |
| 2007                               |       | 66                  |       | 31                                    |       |
| 2008                               |       | 66                  |       | 10                                    |       |
| 2009 and  thereafter               |       | 56                  |       | 8                                     |       |
| Total minimum  lease payments      |       | 320                 |       | $                                     | 1,404      |   |
| Less amount  representing interest |       | 84                  |       |                                  |       |
| Capital lease  obligations         |       | $                   | 236        |                                  |       |   |

 

Rent expense, fromnon-cancelable operating lease obligations, for each of the years ended December 31,2004, 2003, and 2002 was approximately $1.4 million.

 

66

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In addition, the Companyin August 2004 entered into an agreement to acquire, for $3 million,approximately 73 acres of land adjacent to its Country Coach, Inc.facility in Junction City, Oregon. The Company paid a deposit of $0.1 million.The closing of the purchase is subject to customary closing conditions and isexpected to occur in 2006. The Company believes the combination of internallygenerated funds and unused borrowing availability will be sufficient to meetthis obligation.

 

Furthermore, from time totime, the Company is involved in warranty or “lemon law” litigation arising outof its operations in the normal course of business. While insurance coverage isnot available for such matters, the number of such matters as a percentage ofsales is low. To date, aggregate costs to the Company for these actions havenot been material.

 

### **13. Stockholders’ Equity**

 

#### **Preferred Stock**

The Board of Directorshas authority to issue 5,000 shares of $0.01 par value Preferred Stock.Currently there are 4,000 Preferred Shares issued and outstanding with thefollowing terms: i) the Preferred Shares are not entitled to receive anydividends, ii) the Preferred Stock has no voting rights, iii) upon liquidation,either voluntary or involuntary, the preferred stockholders are entitled toreceive out of the assets of the corporation that are available fordistribution, $0.01 per share, and iv) the Preferred Stock is redeemable at thesole discretion of the Company.

 

#### **Common Stock Options**

The Company has stockoption plans that enable it to offer equity participation to employees,officers, and directors as well as certain non-employees. Stock options may begranted as incentive or nonqualified options.

 

The Company has fourfixed option plans that reserve shares of common stock for issuance toexecutives, key employees, consultants, and directors. The Company has alsoissued fixed options outside of such plans pursuant to individual stock optionagreements. Options granted to non-employee directors generally vestimmediately upon grant and generally expire five to ten years from the date ofgrant. Options granted to employees, including employee directors, generallyvest in three equal annual installments and expire five to ten years from thedate of grant. The price of the options granted pursuant to these plans willnot be less than 100 percent of the market value of the shares on the date ofgrant. There were 260,500 options granted during 2004, and there were nooptions granted during 2003 and 2002. The exercise of certain of these stockoptions represents a tax benefit for the Company which has been reflected as areduction of income taxes payable and an increase to additional paid-in-capitalamounting to $0.3 million in 2004, $0.6 million in 2003, and $0.1 million in2002.

 

67

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Information regardingthese option plans and option agreements for 2004, 2003, and 2002 is as follows(shares in thousands):

 
| ** **                             | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise Price  Per Share** | ** ** |
|----------------------------------------|------------|------------|------------|--------------------------------------------------|------------|
| Outstanding at December 31,  2001 |       | 2,301      |       | $                                                | 11.40      |   |
| Granted                                |       | —     |       | —                                           |       |
| Expired or forfeited                   |       | (153       | )          | 15.11                                            |       |
| Exercised                              |       | (132       | )          | 9.84                                             |       |
| Outstanding at December 31,  2002 |       | 2,016      |       | $                                                | 11.22      |   |
| Granted                                |       | —     |       | —                                           |       |
| Expired or forfeited                   |       | (332       | )          | 13.62                                            |       |
| Exercised                              |       | (397       | )          | 4.79                                             |       |
| Outstanding at December 31,  2003 |       | 1,287      |       | $                                                | 12.58      |   |
| Granted                                |       | 261        |       | 9.79                                             |       |
| Expired or forfeited                   |       | (302       | )          | 21.91                                            |       |
| Exercised                              |       | (112       | )          | 6.32                                             |       |
| Outstanding at December 31,  2004 |       | 1,134      |       | $                                                | 10.08      |   |

 

The following tablesummarizes information for those options that are outstanding and exercisableas of December 31, 2004:

 
| ** **                             | ** ** | **Options Outstanding**               | ** ** | **Options Exercisable**                             | ** ** |
|----------------------------------------|------------|---------------------------------------|------------|-----------------------------------------------------|------------|
| **Exercise Prices**                    | ** ** | **Number of  Shares (in  thousands)** | ** ** | **Weighted  Average  Remaining  Contractual  Life** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Number of  Shares (in  thousands)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| $  3.75  - $  3.75 |       | 50                                    |       | 0.74                                                |       | $ | 3.75 |   | 50 |   | $ | 3.75 |   |
| $  8.50  - $  8.50 |       | 127                                   |       | 0.90                                                |       | 8.50 |   | 127 |   | 8.50 |   |
| $  9.33  - $  9.33 |       | 180                                   |       | 1.75                                                |       | 9.33 |   | 180 |   | 9.33 |   |
| $  9.50  - $  9.50 |       | 227                                   |       | 9.10                                                |       | 9.50 |   | 0 |   | 9.50 |   |
| $10.05 - $10.05                        |       | 3                                     |       | 9.15                                                |       | 10.05 |   | 0 |   | 10.05 |   |
| $10.08 - $10.08                        |       | 319                                   |       | 2.42                                                |       | 10.08 |   | 319 |   | 10.08 |   |
| $10.43 - $10.43                        |       | 3                                     |       | 9.16                                                |       | 10.43 |   | 0 |   | 10.43 |   |
| $12.50 - $12.50                        |       | 24                                    |       | 9.38                                                |       | 12.50 |   | 0 |   | 12.50 |   |
| $12.83 - $12.83                        |       | 189                                   |       | 1.78                                                |       | 12.83 |   | 189 |   | 12.83 |   |
| $26.81 - $26.81                        |       | 12                                    |       | 4.39                                                |       | 26.81 |   | 12 |   | 26.81 |   |
|                                   |       | 1,134                                 |       | 3.51                                                |       | $ | 10.08 |   | 877 |   | $ | 10.16 |   |

 

The number of exercisableoptions outstanding at December 31, 2004, 2003 and 2002 under these planswere 877,129, 1,219,269 and 1,769,590 shares, respectively, at weighted averageprices of $10.16, $12.57 and $11.20 per share, respectively.

 

### **14. Defined ContributionPlans**

### ** **

The Company maintains two401(K) plans serving the NRV and CCI subsidiaries. Substantially all of theCompany’s full-time employees are covered under the plans, which allow forcontributions by the employee as well as contributions by the Company. TheCompany contributes a match of between 20% and 50% of the first 4% to 5% of anemployee’s wages, plus other discretionary amounts as approved by the Board ofDirectors and may be in the form of cash or the Company’s common stock. Companycontributions in 2004, 2003, and 2002 were $0.4 million, $0.4 million, and $0.6million, respectively.

 

68

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### **15. Related PartyTransactions**

 

Mr. Robert B. Lee, adirector of the Company, is a partner in a joint venture that is a party to alease agreement with the Company. Pursuant to the agreement, the Company leasesfrom the joint venture a parcel of property constituting a majority of CCI’smanufacturing facilities. During the years ended December 31, 2004, 2003,and 2002, the Company paid $1.35 million, $1.32 million, and $1.31 million,respectively, under the lease agreement. The lease agreement calls for futurepayments totaling approximately $1.1 million through October 31, 2005. Theescalations are based on the Consumer Price Index. In addition, there is afive-year renewal option on this lease agreement.

 

Heller Ehrman LLP, a lawfirm in which Mr. Stephen M. Davis, the current Secretary of the Companyand a Company director until June 2004, is a partner, performed legalservices for the Company. Fees paid the law firm were $0.2 million, $0.2million, and $0.3 million during the years ended December 31, 2004, 2003,and 2002, respectively.

 

### **16. Discontinued Operations**

### ** **

On September 24,2004, the Company sold its travel trailer business assets to Weekend Warrior, aprivately owned, California-based ramp-trailer manufacturer. The sale wasdesigned to allow the Company to further concentrate its efforts and resourceson its growing motorhome business. The total selling price of the business was$3.2 million. The sale included inventory totaling $2.8 million and equipmenttotaling $0.1 million. Weekend Warrior paid $0.5 million at closing with thebalance to be paid in ten equal monthly payments. The note receivable has beenrecorded in the accompanying consolidated balance sheets net of $0.04 millionof an unamortized discount for imputed interest. Furthermore, a payment of 1%of monthly sales for other assets and trademarks will be made on a monthlybasis over a twelve-month period ending October 10, 2005 with a minimumdue of $0.3 million which has been recorded in note receivables in theaccompanying consolidated balance sheets. The Company also entered into asublease agreement, which allows Weekend Warrior to lease a portion of theCompany’s facilities for up to twelve months. For the years ended December 31,2004, 2003, and 2002, the Company’s net sales from discontinued operations were$14.7 million, $27.7 million, and $29.9 million, respectively. In addition, forthe years ended December 31, 2004, 2003, and 2002, the Company recordednet losses from discontinued operations of $1.1 million, $1.4 million, and $1.4million, respectively. The 2004 net loss from discontinued operations includeda pre-tax gain on the sale of the discontinued operations of $0.3 million.

 

### **17. Subsequent Events**

### ** **

As more fully discussedin Note 3, the Company executed a new three-year asset-based revolving creditfacility on August 12, 2005 with UPSC and Wells Fargo Bank for $25million, with the Company having the option, subject to certain conditions, ofincreasing the revolver in $5 million increments up to a total credit facilityof $40 million. On September 29, 2005, the Company effected such an increase inthe amount of the credit facility from $25 million to $30 million.

 

### **18. Quarterly ConsolidatedFinancial Data (unaudited)**

### ** **

The Company hasdetermined that a restatement of its quarterly financial data is required forthe following items:

 

The Company determinedthat its treatment of revenue recognition relating to the sale of a limitednumber of motorhomes in the third and fourth quarters of 2004 under a deferredpayment arrangement in which the Company held the manufacturer’s certificate oforigin as security for payment was incorrect. Revenues of approximately $4.5million previously recognized in the third quarter of 2004 should have beenrecognized in the fourth quarter of 2004. Additionally, revenues of $3.3million related to motorhomes shipped in the fourth quarter of 2004 under thisarrangement were deferred until 2005. These deferred payment arrangements werelimited to transactions in the third and fourth quarters of 2004. Effective in January 2005,the Company no longer enters into transactions with such deferred paymentarrangements.

 

During 2004, the Companysold its travel trailer business assets and the financial statements have beenrestated to reclassify revenues and expenses of the travel trailer business asa discontinued operation as further discussed in Note 16 to the ConsolidatedFinancial Statements. In connection with this sale, the Company determined thatthe gain it recognized on the sale of its travel trailer business at the end ofthe third quarter 2004 was overstated by $0.06 million for the implied interestportion of the note receivable.

 

In addition, as furtherdiscussed in Note 2 to the Consolidated Financial Statements, the quarterlyconsolidated financial data have been restated to reclassify certain dealersales incentives from selling expenses to a reduction in revenue and to accountfor a $0.15 million reduction in the allowance for doubtful accounts, recordedin 2003, as a correction of an error resulting in fourth quarter 2003 generaland administrative expenses increasing by $0.15 million and 2002 general andadministrative expenses decreasing by the same amount.

 

69

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The following tablesummarizes these restatements in the quarterly data for fiscal 2004:

(in thousands, except pershare amounts)

 
| ** **                                                | ** ** | **2004 Quarter Ended** | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|
| ** **                                                | ** ** | **March 31**      | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                                                | ** ** | **As**                 | ** ** | ** ** | ** ** | **As** | ** ** | ** ** | ** ** | **As** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                | ** ** | **Previously**         | ** ** | **As** | ** ** | **Previously** | ** ** | **As** | ** ** | **Previously** | ** ** | **As** | ** ** | ** ** | ** ** |
| ** **                                                | ** ** | **Reported**           | ** ** | **Restated** | ** ** | **Reported** | ** ** | **Restated** | ** ** | **Reported** | ** ** | **Restated** | ** ** | ** ** | ** ** |
| Net sales                                                 |       | $                      | 103,784    |   | $ | 103,146 |   | $ | 119,736 |   | $ | 119,282 |   | $ | 117,457 |   | $ | 112,525 |   | $ | 101,860 |   |
| Gross profit                                              |       | 7,732                  |       | 7,094 |   | 10,058 |   | 9,604 |   | 8,785 |   | 7,919 |   | 6,397 |   |
| Income (loss) from continuing operations                  |       | $                      | 1,217      |   | $ | 1,217 |   | $ | 2,349 |   | $ | 2,349 |   | $ | 1,051 |   | $ | 844 |   | $ |  (12,528 | ) |
| (Loss) income from discontinued operations, net of  taxes |       | (548                   | )          | (548 | ) | 138 |   | 138 |   | (695 | ) | (727 | ) | — |   |
| Net income (loss)                                         |       | $                      | 669        |   | $ | 669 |   | $ | 2,487 |   | $ | 2,487 |   | $ | 356 |   | $ | 117 |   | $ |  (12,528 | ) |
|                                                      |       |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings (loss) per common share:                   |       |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing operations                                     |       | $                      | 0.12       |   | $ | 0.12 |   | $ | 0.23 |   | $ | 0.23 |   | $ | 0.10 |   | $ | 0.08 |   | $ |  (1.22 | ) |
| Discontinued operations                                   |       | (0.05                  | )          | (0.05 | ) | 0.01 |   | 0.01 |   | (0.07 | ) | (0.07 | ) | — |   |
| Total                                                     |       | $                      | 0.07       |   | $ | 0.07 |   | $ | 0.24 |   | $ | 0.24 |   | $ | 0.03 |   | $ | 0.01 |   | $ |  (1.22 | ) |
|                                                      |       |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings (loss) per common share:                 |       |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing operations                                     |       | $                      | 0.12       |   | $ | 0.12 |   | $ | 0.23 |   | $ | 0.23 |   | $ | 0.10 |   | $ | 0.08 |   | $ |  (1.22 | ) |
| Discontinued operations                                   |       | (0.06                  | )          | (0.06 | ) | 0.01 |   | 0.01 |   | (0.07 | ) | (0.07 | ) | — |   |
| Total                                                     |       | $                      | 0.06       |   | $ | 0.06 |   | $ | 0.24 |   | $ | 0.24 |   | $ | 0.03 |   | $ | 0.01 |   | $ |  (1.22 | ) |
|                                                      |       |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of shares:                        |       |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                     |       | 10,190                 |       | 10,190 |   | 10,197 |   | 10,197 |   | 10,222 |   | 10,222 |   | 10,251 |   |
| Diluted                                                   |       | 10,334                 |       | 10,334 |   | 10,440 |   | 10,440 |   | 10,426 |   | 10,426 |   | 10,251 |   |

 

70

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The following tablesummarizes these restatements in the quarterly data for fiscal 2003:

(in thousands, except pershare amounts)

 
| ** **                                                | ** ** | **2003 Quarter Ended** | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|
| ** **                                                | ** ** | **March 31**      | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                                                | ** ** | **As**                 | ** ** | ** ** | ** ** | **As** | ** ** | ** ** | ** ** | **As** | ** ** | ** ** | ** ** | **As** | ** ** | ** ** | ** ** |
| ** **                                                | ** ** | **Previously**         | ** ** | **As** | ** ** | **Previously** | ** ** | **As** | ** ** | **Previously** | ** ** | **As** | ** ** | **Previously** | ** ** | **As** | ** ** |
| ** **                                                | ** ** | **Reported**           | ** ** | **Restated** | ** ** | **Reported** | ** ** | **Restated** | ** ** | **Reported** | ** ** | **Restated** | ** ** | **Reported** | ** ** | **Restated** | ** ** |
| Net sales                                                 |       | $                      | 71,563     |   | $ | 71,030 |   | $ | 64,776 |   | $ | 64,208 |   | $ | 84,640 |   | $ | 84,365 |   | $ | 93,307 |   | $ | 92,945 |   |
| Gross (loss) profit                                       |       | (2,004                 | )          | (2,537 | ) | (650 | ) | (1,218 | ) | 3,884 |   | 3,609 |   | 6,763 |   | 6,401 |   |
| (Loss) income from continuing operation                   |       | $                      | (4,432     | ) | $ | (4,432 | ) | $ | (3,238 | ) | $ | (3,238 | ) | $ | (370 | ) | $ | (370 | ) | $ | 1,148 |   | $ | 1,054 |   |
| (Loss) income from discontinued operations, net of  taxes |       | (294                   | )          | (294 | ) | (164 | ) | (164 | ) | (317 | ) | (317 | ) | (673 | ) | (673 | ) |
| Net (loss) income                                         |       | $                      | (4,726     | ) | $ | (4,726 | ) | $ | (3,402 | ) | $ | (3,402 | ) | $ | (687 | ) | $ | (687 | ) | $ | 475 |   | $ | 381 |   |
|                                                      |       |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic (loss) earnings per common share:                   |       |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing operations                                     |       | $                      | (0.45      | ) | $ | (0.45 | ) | $ | (0.33 | ) | $ | (0.33 | ) | $ | (0.04 | ) | $ | (0.04 | ) | $ | 0.11 |   | $ | 0.10 |   |
| Discontinued operations                                   |       | (0.03                  | )          | (0.03 | ) | (0.02 | ) | (0.02 | ) | (0.03 | ) | (0.03 | ) | (0.06 | ) | (0.06 | ) |
| Total                                                     |       | $                      | (0.48      | ) | $ | (0.48 | ) | $ | (0.35 | ) | $ | (0.35 | ) | $ | (0.07 | ) | $ | (0.07 | ) | $ | 0.05 |   | $ | 0.04 |   |
|                                                      |       |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted (loss) earnings per common share:                 |       |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing operations                                     |       | $                      | (0.45      | ) | $ | (0.45 | ) | $ | (0.33 | ) | $ | (0.33 | ) | $ | (0.04 | ) | $ | (0.04 | ) | $ | 0.11 |   | $ | 0.10 |   |
| Discontinued operations                                   |       | (0.03                  | )          | (0.03 | ) | (0.02 | ) | (0.02 | ) | (0.03 | ) | (0.03 | ) | (0.06 | ) | (0.06 | ) |
| Total                                                     |       | $                      | (0.48      | ) | $ | (0.48 | ) | $ | (0.35 | ) | $ | (0.35 | ) | $ | (0.07 | ) | $ | (0.07 | ) | $ | 0.05 |   | $ | 0.04 |   |
|                                                      |       |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of shares:                        |       |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                     |       | 9,832                  |       | 9,832 |   | 9,832 |   | 9,832 |   | 9,835 |   | 9,835 |   | 10,095 |   | 10,095 |   |
| Diluted                                                   |       | 9,832                  |       | 9,832 |   | 9,832 |   | 9,832 |   | 9,835 |   | 9,835 |   | 10,201 |   | 10,201 |   |

 

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## SCHEDULE II –CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

 

For the yearsended December 31, 2004, 2003 and 2002

 
| ** **                                                      | ** ** | ** **     | ** ** | **Additions**  | ** ** | ** **     | ** ** | ** **     | ** ** |
|-----------------------------------------------------------------|------------|----------------|------------|----------------|------------|----------------|------------|----------------|------------|
| ** **                                                      | ** ** | **Balance at** | ** ** | **charged to** | ** ** | ** **     | ** ** | **Balance at** | ** ** |
| ** **                                                      | ** ** | **beginning**  | ** ** | **costs and**  | ** ** | ** **     | ** ** | **end of**     | ** ** |
| ** **                                                      | ** ** | **of period**  | ** ** | **expenses**   | ** ** | **Deductions** | ** ** | **Period**     | ** ** |
| Year ended December 31, 2004                               |       |           |       |           |       |           |       |           |       |
| Allowance for doubtful accounts                                 |       | $              | 132,000    |           | $          | 32,000         |       | $              | 27,000     |   | $ | 137,000 |   |
| Inventory reserve                                               |       | 673,000        |       | 1,280,000      |       | 160,000        |       | 1,793,000      |       |
| Income tax valuation allowance                                  |       | 0              |       | 11,078,000     |       | 0              |       | 11,078,000     |       |
| Workers’ compensation self-insurance reserve               |       | 10,060,000     |       | 2,893,000      |       | 4,082,000      |       | 8,871,000      |       |
| Warranty reserve                                                |       | 8,660,000      |       | 12,899,000     |       | 13,054,000     |       | 8,505,000      |       |
|                                                            |       | $              | 19,525,000 |           | $          | 28,182,000     |       | $              | 17,323,000 |   | $ | 30,384,000 |   |
| Year ended December 31, 2003                               |       |           |       |           |       |           |       |           |       |
| Allowance for doubtful accounts, as restated                    |       | $              | 127,000    |           | $          | 63,000         |       | $              | 58,000     |   | $ | 132,000 |   |
| Inventory reserve                                               |       | 0              |       | 673,000        |       | 0              |       | 673,000        |       |
| Workers’ compensation self-insurance reserve               |       | 7,794,000      |       | 5,892,000      |       | 3,626,000      |       | 10,060,000     |       |
| Warranty reserve                                                |       | 11,840,000     |       | 10,053,000     |       | 13,233,000     |       | 8,660,000      |       |
|                                                            |       | $              | 19,761,000 |           | $          | 16,681,000     |       | $              | 16,917,000 |   | $ | 19,525,000 |   |
|                                                            |       |           |       |           |       |           |       |           |       |
| Year ended December 31, 2002                               |       |           |       |           |       |           |       |           |       |
| Allowance for doubtful accounts, as restated                    |       | $              | 224,000    |           | $          | 121,000        |       | $              | 218,000    |   | $ | 127,000 |   |
| Workers’ compensation self-insurance reserve, as  restated |       | 5,747,000      |       | 4,870,000      |       | 2,823,000      |       | 7,794,000      |       |
| Warranty reserve                                                |       | 13,016,000     |       | 14,485,000     |       | 15,661,000     |       | 11,840,000     |       |
|                                                            |       | $              | 18,987,000 |           | $          | 19,476,000     |       | $              | 18,702,000 |   | $ | 19,761,000 |   |

 

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