Monday, July 10, 2006



RV Business
Monday, July 10, 2006

The following is an in-depth story published July 9 by The Register-Guard, Junction City, Ore., outlining the challenges faced by Perris, Calif.-based National RV Holdings Inc. over the past several years. The Register-Guard recounted the firm’s string of quarters operating in the red and a recent takeover bid, while also examining its turnaround strategy. The company is parent to motorhome builders Country Coach Inc., Junction City, and Perris-based National RV.

Since Brad Albrechtsen took over as president and CEO of National RV Holdings in September 2001, the company has done two things with remarkable consistency: Build RVs and lose money.

Under Albrechtsen's leadership, the company has built 12,052 motorhomes. And it has posted losses totaling $70.1 million while running in the red in 15 of 19 quarters.

Now, National RV appears to be approaching a crossroads.

Sometime in the next month or two, National RV executives are expected to announce a deal that could change the look of the company.

They've been purposely vague about the options, which range from raising capital to merging with or selling out to another company.

But one thing is clear: Continuing to lose money is not an option,

Albrechtsen said in an interview with The Register-Guard.

"Ongoing losses are not acceptable," he said. "Whatever has to be done will be done to ensure the company does not continue to lose money."

And whatever happens to the company holds implications for Lane County's economy.

The Country Coach plant in Junction City employs more than 1,700 workers, making it one of the largest local private-sector manufacturing operations.

National RV's crisis comes as the RV industry as a whole is experiencing one of its cyclical slumps.

The makers of Class A motorhomes – those that typically sell from $60,000 to $400,000 – are shipping about 8,000 vehicles a quarter this year, down from 12,000 vehicles a quarter in 2004, he said.

Takeover bid apparently dead

National RV has been caught in a losing cycle for years, making it a target of a recent takeover bid by one of its own board members.

In November, board member Bob Lee, founder of Country Coach, and Los Angeles investment banker Bryant Riley offered $92 million for National RV, saying the company was "steadily approaching insolvency."

The board rejected the offer, calling it an opportunistic bid that

undervalued the company.

Albrechtsen said the Lee-Riley bid appears to be dead. He said he has not heard anything about it since the bid expired Dec. 31.

But he said Riley, a major shareholder with more than a 10 percent stake in the company, has asked to be kept informed and included as a potential party in whatever options the company explores.

Riley did not return messages seeking comment.

Lee, who owns 5.6% of the company's stock, said in an interview that he doesn't know what's going on behind the scenes at National RV, but that he remains concerned with the company's finances.

"I wish I knew," he said. "I don't know what's going on. I have no control - I'm one vote."

Albrechtsen said Riley's and Lee's concern about insolvency "was a legitimate concern."

With the large losses the company piled up in 2005, "it was very appropriate for shareholders to be concerned about dwindling capital and the company's ability to continue to operate," Albrechtsen said.

But Albrechtsen remains hopeful the company is turning things around. After losing $7 million in the fourth quarter of 2005, it lost $2 million in the first quarter of 2006, which he said was "evidence that significant changes had taken place and improvement was happening."

"With the much smaller losses, and the opportunity to be profitable in 2006, that fear of ultimate insolvency subsides a bit," he said.

Financial adviser on board

When National RV rejected the Riley-Lee bid, it hired the Spartan Group, a financial adviser.

Albrechtsen said the Spartan Group is providing National RV with information about possible moves. He expects the board to make a decision sometime this summer.

"We have to avoid giving the inappropriate impression that we're on the verge of selling the company," he said. "That's not the case. It's one of many alternatives."

The bottom of a down cycle is not the time to be selling, he said. And realistically, the company would be "hard-pressed" to make an acquisition to grow, he said.

National RV operates two divisions: National RV, which makes motorhomes ranging from $90,000 to $274,000 at its plant in Perris, Calif., and Country Coach, which makes motorhomes ranging from $250,000 to $1.2 million at its Junction City plant.

Country Coach also builds Prevost bus conversions, which sell for about $1.3 million, at a plant on Airport Road in Eugene.

The National RV division has been losing money, and its Perris plant has been operating at less than full capacity.

Country Coach, meanwhile, is operating at full capacity, and is adding 200 more employees to its payroll this summer as it rolls out two new models to its line of RVs.

The Country Coach division could be an attractive asset for major RV makers such as Winnebago and Thor, neither of which makes high-end motor coaches.

Big borrower

National RV Holdings' most recent quarterly earnings report, for the first quarter of 2006, sheds some light on the company's precarious financial status. To stay in business through March 31, 2007, the company will rely on its ability to borrow money, the report said.

"The company's ability to meet its obligations beyond March 2007 is dependent on its ability to generate positive cash flows from operations and is dependent on continued borrowings under its line of credit," the company added.

If National RV is unable to turn a profit, or finds its existing line of credit won't cover its obligations, the company may need to look at alternatives, including taking out long-term loans using its real estate as collateral, the company said.

The bottom line: "While the company believes that it could successfully complete the alternative plans, if necessary, there can be no assurance that such alternatives would be available on acceptable terms and conditions or that the company would be successful in its implementation of such plans."

Translation: We're pretty sure we can stay in business, but we can't guarantee it.

National RV's stock price has been trading in single digits for the past year, ranging from $4 a share to $8.35 a share. It peaked in April 2004 at $18.50 a share.

It's largest institutional stockholder, Fidelity Management & Research, sold $151,200 shares in March, leaving it with 1,023,000 shares.

National RV has a $40 million credit line, but is restricted to borrowing $24 million to $32 million because it has not met certain financial requirements imposed by the lenders, the quarterly report said. Albrechtsen told analysts in a May conference call that the company has $10 million to $12 million available on the credit line as of March 31.

Albrechtsen said the company relies on credit because it has wide fluctuations in capital. For instance, it might spend $10 million to build up its inventory for an RV show or rally, then get the cash back when it sells those vehicles.

Long history of losses

National RV's losing ways date to 2001. In 2000, the company was doing well. It reported $10 million in profits. Stockholder equity was $125.3 million.

Since then, National RV has lost $70.1 million, and stockholder equity has plunged 52%, to $59.7 million.

Albrechtsen, a certified public accountant, joined National R.V. as assistant controller.

He was promoted to controller in 1993 and was named chief financial officer and treasurer in 1999. In September 2001, the board elevated him to president and CEO.

National RV lost $12.5 million in 2001, when "the company and the industry were in a steep downward decline," Albrechtsen said.

The company lost $19.9 million in 2002, $8.5 million in 2003, $9.5 million in 2004 and $19.8 million last year.

The company had four straight profitable quarters, from the fourth quarter of 2003 to the third quarter of 2004, and made an operating profit of $5 million in 2004, but then began losing money again in 2005.

"Unfortunately, we didn't get to a place where we were strong enough in 2004 to sustain that profitability when the market took another dive," Albrechtsen said.

The National RV division, in particular, "responded poorly," building too many vehicles, which in turn forced the company to offer steep discounts in order to sell its products, he said.

"It was a difficult year," he said.

The National RV division has had five presidents in five years, but Albrechtsen said the current president, Les Southwick, hired last fall, is turning the division around.

Things were looking up for the National RV division until a fiberglass debacle hit this April, he said.

About 60 National RV coaches were built with bad fiberglass siding that dissolved the Styrofoam insulation to which it was attached, he said.

Each motorhome had to be virtually rebuilt and repainted, requiring some 700 hours of repair time. Building one from scratch takes 800 to 900 hours, Albrechtsen said.

"It was a big punch in the gut to a division that had come a long ways," Albrechtsen said. "It's not a small problem."

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