National R.V. Holdings Announces Status Update on Supplier Issue and Other Matters

PERRIS, Calif., July 14 -- National R.V. Holdings, Inc. , the owner of leading RV manufacturers National RV, Inc. (NRV) and Country Coach, Inc. (CCI), today announced that just three months after NRV discovered a serious defect in the fiberglass sidewall material used on approximately 70 motorhomes, it has repaired and sold most of the affected units. The Company also announced it has filed suit against the sidewall supplier to recover all associated damages.

When it has sold affected units, the Company has disclosed that the unit has been repaired and customers and dealers of NRV should feel confident that any unit purchased from the Company, including the affected units, meet the Company's extraordinarily high quality standards. None of the Company's units manufactured by CCI have been affected by this fiberglass issue.

The Company had announced on its first quarter earnings call in May that it no longer believed it would reach its previously stated goal of profitability in the second quarter due to the discovery of the fiberglass defects at NRV. At the time, the Company was unable to quantify the expected impact of the problem, either to earnings or cash flows. Nearly 70 units ended up needing their sidewalls replaced, about two-thirds of which were completed by June 30th. As of the date of this release, about one third of the units still need to be repainted and shipped. The Company believes the impact to earnings in the second quarter related to this issue will exceed $5 million and includes the actual cost to repair the units, the discounts required to sell the units, the costs of shutdowns and other inefficiencies, and other costs associated with dealing with the issue. Costs to complete and ship the remaining units will affect the Company's July and third quarter results as well, though to a lesser degree. The impact to cash flows in the short term is believed to exceed $13 million.

On June 29th, NRV filed a verified complaint in Riverside County Superior Court against Crane Composites, Inc. and Crane Co., the manufacturer and parent company, respectively, of the defective fiberglass for breach of contract, breach of warranty, misrepresentation, and other causes of action. "This complaint is an appropriately aggressive response to the damages inflicted on NRV by the actions of these defendants," stated Jon Corn, the Company's Vice President and General Counsel.

"The temporary impact to cash flows of this supplier issue, an issue which we believe has been experienced by other manufacturers of recreational vehicles, has been significant to NRV," stated Brad Albrechtsen, the Company's Chief Executive Officer. "However, the extent of the problem has been contained as all but three of the affected units will be repaired and shipped by the end of this month. We were successful in catching all but a handful of units before they shipped and have retrieved and repaired the few motorhomes that did leave the factory. We have since changed the supplier of this material. Following the FMCA show and corresponding pre-rallies in August, we expect borrowings to begin to decrease substantially," stated Albrechtsen.

In response to the 18% decline in overall industry Class A shipments, NRV has reduced production from 40-45 units per week down to 35 per week, and has adjusted personnel and other costs accordingly. However, sales of CCI's highline products remain largely unaffected by the general industry decline and CCI plans to increase production from approximately 16 units per week to 20 during the third quarter as it rolls out its two new products.

"Consistent with our commitment to be profitable regardless of market conditions, NRV has further reduced costs by more than $2 million per year, and we believe that NRV is appropriately resized to be a positive contributor to this enterprise," stated Albrechtsen. "We are also pleased with the continued strength of the highline business in general, but even more so by the strong performance of the Country Coach products in this difficult market. We are pleased that both NRV and CCI have increased market share over the last two years. We believe that with NRV's effective containment of the costs it incurred as a result of the defective fiberglass, with the continued strength of the highline business, and with the further cost reductions at NRV's facilities, we will be approaching profitability in the third quarter," continued Albrechtsen.

The Company also announces that it expects to record a reserve of $1.0 to $1.5 million dollars in the second quarter to address a concern it has about tires used on some of its highline coaches built between 1995 and 2000. The Company is seeking to recover most of those costs from the tire manufacturer.

In addition, the Company is in the process of exploring financing opportunities to replace a significant portion of the existing working capital line of credit with long-term debt, increasing financial flexibility.

Albrechtsen concluded "The Company has growing market share, strong, well-established brand names, great dealer networks, and some of the best employees in the industry. Certainly the losses of the past combined with the temporary strain on liquidity caused by this recent fiberglass issue have been challenging, but the most difficult part is behind us now, and if we are able to secure the anticipated additional long-term capital it will give us considerable breathing room on our line of credit. We came into the year promising to be profitable by the second quarter; we are going to miss that due to the fiberglass and tire issues, but employees, suppliers, dealers, customers and shareholders should take comfort in knowing that we will continue to produce the industry's best motorhomes and that we will do so on a profitable basis."

Finally, the Company announced that it expects to report its results for the second quarter the second week of August.

About National R.V. Holdings, Inc.

National R.V. Holdings, Inc., through its two wholly owned subsidiaries, National RV, Inc. (NRV) and Country Coach, Inc. (CCI), is one of the nation's leading producers of motorized recreation vehicles. NRV is located in Perris, California where it produces Class A gas and diesel motor homes under model names Dolphin, Islander, Pacifica, Sea Breeze, Surf Side, Tradewinds and Tropi-Cal. CCI is located in Junction City, Oregon where it produces high-end Class A diesel motor homes under the model names Affinity, Allure, Inspire, Intrigue, and Magna, and bus conversions under the Country Coach Prevost brand.