Jim Hammil leaving Roadtrek/Hymer?

[rowiebowie]

Originally Posted by ClassB4Me

Not only are you an experienced professional and a new RT owner but a knife juggler as well.

Expect to be 'lambasted' for speculating on what is happening at EHG NA. I would like to agree with you on all points, BUT my flame resistant suit is not back from the cleaners. Brace for impact!!!! /s

-- The financial issues were very likely discovered by Thor while doing their due diligence.

-- I imagine (am guessing) that after it was discovered, they raised with EHG. Within days of the suspensions of the senior exec's, Thor announced they were carving out EHGNA.

-- I understand there could be many reasons for this but really think its unlikely that at the 11th hour they decided they didn't want the No American ops.

-- What they very likely didn't want was the potential liabilities that would come along with that business.

-- They are probably willing to carve out EHGNA from the deal, because its the only way they could sell the rest of the business.

-- I'd be very surprised if there aren't significant financial issues at RT.

-- Having fictitious employees on the payroll as has been reported in the press (and I believe also fictitious vendors as well) is a major breach in controls. Implies cash was leaving the company and going into the hands of .... the wrong people. Also, no cash is generated from fictitious sales .... and in the end, its all about the cash.

-- So, I'm guessing here, but I'd be surprised if there isn't a serious cash crunch at RT.

Again, I don't have any specific information. Consider this speculation if you like.

Nice of you to already outline it for him.
.

[RossWilliams]

"They could have decided that much sooner and before doing the deal. "

Only if the Hymer was willing to do the deal that way. It seems unlikely they would want to sell the family business and hang on to a subsidiary.

"What they very likely didn't want was the potential liabilities that would come along with that business. "

Agreed. But Thor also explicitly stated that the strategic purpose of the deal was to expand to Europe and that dumping off EHNA wouldn't effect that goal.

"What EHG seems to be doing right now is stopping production"

There is no evidence they have stopped production at Roadtrek. The production shutdown is at the facility producing Hymer and Carado in North America, the European brands Thor is presumably getting in the deal when it closes tomorrow.

"They are probably willing to carve out EHGNA from the deal, because its the only way they could sell the rest of the business."

Or the best way. We have no way to know what their options were. Clearly this was not their first choice.

"no cash is generated from fictitious sales"

Right. So how and why do you book fictitious sales of fictitious vehicles without any money to put in the bank? One answer would be by paying fictitious employees and invoices with the fictitious cash. The books balance and so do your cash accounts. And your sales numbers look good.

If Hymer NA does have cash problems, the deal with Thor certainly seems to offer the owners the opportunity to solve them. The real question is whether Roadtrek is a viable business. I see no reason to think it isn't. Of course the "reporting problems" may show otherwise.

[Learning]

Originally Posted by Glamper

@Learning - Did you see the SEC filing I posted yesterday? Would section below referring to 'existing contracts' mean existing warranties would be honored? In which case you are OK? Press release coming Friday morning with more details.

JAN 29 Thor Industries, Inc. (NYSE: THO) today announces that the closing of its pending acquisition of the Erwin Hymer Group (EHG) is anticipated to occur on February 1, 2019. Thor also announces changes to the financial terms of the stock purchase agreement with EHG resulting from the exclusion of its North American operations from the transaction. Thor and the sellers continue to work to finalize discussions to exclude EHG's North American operations from Thor's purchase of EHG, including appropriate revisions to the terms of the stock purchase agreement. The modifications are expected to include a purchase price reduction of €170 million. The size of Thor’s previously syndicated term loan facility will be reduced by an equal amount. Additionally, it is expected that there will be a reduction of €180 million in obligations of EHG that Thor would have otherwise assumed under the terms of the original stock purchase agreement. The equity consideration component of the purchase price is not anticipated to change. After the closing, EHG would continue to be obligated on its existing contractual obligations related to the North American businesses, but otherwise will not assume any obligations or liabilities of those businesses under the terms of the stock purchase agreement. The negotiated adjustments to the stock purchase agreement are expected to be made within the terms of the Company's committed acquisition debt financing agreements.

Yes, I saw this before I posted, thanks. Very much appreciate your posting it as otherwise I wouldn't have seen it. Not sure yet what this means .... Personally I am not presuming to think they are assuming warranty or other liabilities of EHGNA. In my opinion / speculation, that's why they carved out EHGNA. My guess would be that, as I believe someone else has previously said, it would be contractual obligations that the parent co (EHG) has with EHGNA and that could be any number of things. The attorneys carefully craft the language and I don't believe its possible to know at this time what it really means. Maybe we'll be enlightened tomorrow with the press release (or filings) on the closing of the transaction.

[booster]

This may be a really dumb question, but oh well.


Does the "EHG after the closing" refer to Thor or not? Is EHG going to retain their name or does that go to Thor also? I have been assuming that it meant EHG was going to stay EHG and sell off all the divisions except NA, but maybe the entire EHG name and all is going to Thor, minus the NA division. How that really is would totally make a difference in the quote that is highlighted.

[Learning]

Originally Posted by RossWilliams

"They could have decided that much sooner and before doing the deal. "

Only if the Hymer was willing to do the deal that way. It seems unlikely they would want to sell the family business and hang on to a subsidiary.

"What they very likely didn't want was the potential liabilities that would come along with that business. "

Agreed. But Thor also explicitly stated that the strategic purpose of the deal was to expand to Europe and that dumping off EHNA wouldn't effect that goal.

"What EHG seems to be doing right now is stopping production"

There is no evidence they have stopped production at Roadtrek. The production shutdown is at the facility producing Hymer and Carado in North America, the European brands Thor is presumably getting in the deal when it closes tomorrow.

"They are probably willing to carve out EHGNA from the deal, because its the only way they could sell the rest of the business."

Or the best way. We have no way to know what their options were. Clearly this was not their first choice.

"no cash is generated from fictitious sales"

Right. So how and why do you book fictitious sales of fictitious vehicles without any money to put in the bank? One answer would be by paying fictitious employees and invoices with the fictitious cash. The books balance and so do your cash accounts. And your sales numbers look good.

If Hymer NA does have cash problems, the deal with Thor certainly seems to offer the owners the opportunity to solve them. The real question is whether Roadtrek is a viable business. I see no reason to think it isn't. Of course the "reporting problems" may show otherwise.

OK, right up front, want to say this is simply speculation on my part. I think I've been pretty clear about that. All of this is academic. You raise possibilities and they certainly could be viable as well.

Responding to a couple of your points - re: the fictitious sales .... I think you are really trying hard to be objective and fair to the situation by not presuming anything bad is happening. And I think that's great and I'm open to that possibility. But it feels to me that something bad is happening based on Thor carving out EHGNA at the very last minute, the reports of fictitious employees / vendors, and senior execs who are the face of the business being suspended. I believe / guess that the fictitious sales are fictitious because they have been reported as a sale but the vans were not actually completed and delivered. Again speculation, but the press has reported employees saying vans were removed from the premises when auditors came around. One possible reason, I don't know this obviously, would be that those vans were "reported" as delivered and "sold". A possible scenario is that they actually hadn't been at that time. Again, I don't pretend to know this ...... What I do know as fact though is that I ordered and put a down payment on my van in Fall 2017 and did not receive it until Jan 2019. And was never given a reason to my satisfaction along the way of what was causing the delay.

And on Hymer needing to agree to carve out the North American business to get the deal done, I agree. Its probably unlikely that Thor would have tried to carve out EHGNA when the deal was originally negotiated and Hymer wouldn't have agreed to it anyway (at that time). Thor had no real reason to try to carve it out; they would be getting what they strategically wanted and would take EHGNA as a part of acquiring the EHG businesses they really wanted. But, after financial issues were identified and reported on, and executives were suspended, Thor was able to negotiate to carve EHGNA out and EHG accepted it. It seems to me that this wouldn't be EHG's preference but in order to get the rest of the transaction done, they accepted that deal.

I'm very interested, and hopeful, in seeing if the filings tomorrow might be able to provide us with more fact and less guessing. I think all of us want to get out of the speculation business. But I expect that we really won't be getting more clarity for awhile still.

[Learning]

Originally Posted by booster

This may be a really dumb question, but oh well.


Does the "EHG after the closing" refer to Thor or not? Is EHG going to retain their name or does that go to Thor also? I have been assuming that it meant EHG was going to stay EHG and sell off all the divisions except NA, but maybe the entire EHG name and all is going to Thor, minus the NA division. How that really is would totally make a difference in the quote that is highlighted.

My assumption is that since EHG is being acquired, that what the attorneys are referring to is the EHG post-acquisition (which would be owned by Thor). But it all depends on the structure of the deal and I certainly don't know what that structure is. Maybe others do, but I do not. I think we all need more information to truly understand how this will work.

[<<B-Guy>>]

Originally Posted by RossWilliams

"

There is no evidence they have stopped production at Roadtrek. The production shutdown is at the facility producing Hymer and Carado in North America, the European brands Thor is presumably getting in the deal when it closes tomorrow.

.

Ross,

From yesterday's latest video from "Cary on Vagabond" (They have an RT Zion I believe). It appears they are at the large "B" dealer in Gainesville Fla and just had a new lithium battery installed under warranty.

They were told by the dealer (several brands I think including RT) that they were fortunate to have gotten it as an inventory is now underway no no parts being shipped out to dealers for warranty work for the next week or more.

I think this is discussed around 10:00 in this 12:00 video.

https://www.youtube.com/watch?v=xhZnvk8p-EQ

Not sure if that means production is stopped at the RT plant as well as at
Hymer - can production continue when an inventory of this sort is being performed?

Brian.

[<<B-Guy>>]

Thor press release

https://ir.thorindustries.com/press-...n/default.aspx


Not much indication as to what will be the situation with EHGNA. Not surprising I suppose since this is a Thor press release.

Brian.

[angelmroman]

Already Posted

[RossWilliams]

That video from Cary is a day old, so I clearly spoke too soon when I said "the dealer lied". I would be annoyed if I needed warranty work, but not particularly alarmed. I have no idea what is involved in spinning off a subsidiary as its own company when its owner has been sold but it has to be complicated. Doing it with less than a month of planning or even consideration and with the top management suspended and the former parent company is now part of a competitor who your own owners have a large stake in ... I think we can expect some disruptions.

[RossWilliams]

Well, the numbers would indicate that Hymer NA's valuation in the original agreement was at least $350 million. Thor took $170 million in cash off the table and lost $180 million in liabilities. I assume that $180 million includes whatever expected value they place on their warranty obligations.

[avanti]

Originally Posted by RossWilliams

That video from Cary is a day old, so I clearly spoke too soon when I said "the dealer lied". I would be annoyed if I needed warranty work, but not particularly alarmed.

Just hypothetically, what would be an example of something that would alarm you?

[RossWilliams]

" I believe / guess that the fictitious sales are fictitious because they have been reported as a sale but the vans were not actually completed and delivered."

I agree that is the most likely what happened. What no one seems to be able to suggest is how fictitious sales of fictitious vehicles provided real cash and the opportunity for someone to steal it. Instead of providing a way to make real cash disappear, it required booking fictitious cash from the fictitious sale.


"employees saying vans were removed from the premises when auditors came around."

Which eliminates the most likely possibility for making money from fictitious sales. You could sell the real inventory on the side.

On the other hand, booking fictitious cash to fictitious expenses would solve the bookkeeping problem. But it would also create real cash flow problems. Which might explain the delays in fulfilling orders.

Hymer has never said anything about "financial" irregularities. They used the term "reporting" irregularities. That may be a euphemism, like "suspending" employees could be for firing them. But it could just be an accurate description of the problem. And inflated or uncertain sales figures would certainly be enough for Thor to back off buying them.

[wincrasher]

Originally Posted by RossWilliams

Well, the numbers would indicate that Hymer NA's valuation in the original agreement was at least $350 million. Thor took $170 million in cash off the table and lost $180 million in liabilities. I assume that $180 million includes whatever expected value they place on their warranty obligations.

That's as good a guess as any, but I doubt they valued it that high. Considering the Goodwill drops to zero, or even negative with the fraud.

Generally you value based on a multiple of earnings.

The liabilities are probably mostly pension liabilities plus debt from the new facility builds. Since these aren't automated assembly lines, I scratch my head on getting to a very big number on that.

So lets say we can calculate on earnings. Say they clear $10k per unit. If they build 1500 units, that's $15 million in profits, probably $150M in gross revenue. That would be pretty healthy if they had no debt.

Probably what spooked Thor was not these figures. It's the unknown legal exposure. That number could get quite large if a fraud is proven. It also tells us that they didn't want NA badly enough - that the operation was along for the ride, not what they were buying EHG for.

[RossWilliams]

" It also tells us that they didn't want NA badly enough - that the operation was along for the ride, not what they were buying EHG for. "

I agree and they have said as much. I kind of wonder what would have happened to Roadtrek in the same company with Airstream Class B's. They seem too close for comfort with each cannibalizing the others sales. But that REALLY is pure speculation.

[wincrasher]

Originally Posted by RossWilliams

" I believe / guess that the fictitious sales are fictitious because they have been reported as a sale but the vans were not actually completed and delivered."

I agree that is the most likely what happened. What no one seems to be able to suggest is how fictitious sales of fictitious vehicles provided real cash and the opportunity for someone to steal it. Instead of providing a way to make real cash disappear, it required booking fictitious cash from the fictitious sale.


"employees saying vans were removed from the premises when auditors came around."

Which eliminates the most likely possibility for making money from fictitious sales. You could sell the real inventory on the side.

On the other hand, booking fictitious cash to fictitious expenses would solve the bookkeeping problem. But it would also create real cash flow problems. Which might explain the delays in fulfilling orders.

Hymer has never said anything about "financial" irregularities. They used the term "reporting" irregularities. That may be a euphemism, like "suspending" employees could be for firing them. But it could just be an accurate description of the problem. And inflated or uncertain sales figures would certainly be enough for Thor to back off buying them.

It could very well be that the inflated sales figures and the cash flows did not match up, hence the discovery. You'd expect expenses to go up commensurately, but that may be how they covered it with fake payroll. Normally in manufacturing, you have all kinds of pay incentives to executives based on production targets. So that may be the incentive for inventing VIN numbers. It's just amazingly difficult to keep a scam like this going for very long - you'd want to leave town with the money before the SITF.

[ClassB4Me]

Originally Posted by RossWilliams

Hymer has never said anything about "financial" irregularities. They used the term "reporting" irregularities. That may be a euphemism, like "suspending" employees could be for firing them.

For background, have you worked for a large corporate institution with a strong governance function?


Hymer has never said anything about "financial" irregularities.
Whenever you have people's careers (reputations) and freedom at stake, most communication is passed through legal as to not open up the company to defamation lawsuits in the future. Public statements (language) are carefully crafted / reviewed until conclusive evidence is reached.

There is no doubt auditors (may have started with due-diligence auditors) saw irregularities and started reviewing official reports and ledgers looking to answer discrepancies.

The fact the senior EHG NA managers were suspended (and not allowed to stay on site) is a clear sign that material information (that could possibly up-end the Thor acquisition) was discovered let alone concerned German EHG management.

You seem to be struggling mightily to explain-away conditions that those in professional roles recognize as suspect.

One last comment: There is a general playbook that is followed in situations like this and probably has it's roots from the investigation Eve performed when those extra apples went missing and Adam appeared guilty as sin.

[RossWilliams]

I don't get alarmed that easily. How about an announcement by Hymerthey were not accepting new orders for Roadtreks. If I owned a Carado or Hymer, I would be alarmed if Thor announced they were no longer going to be available in North America.

Short of that, there are going to be all sorts of opportunities for folks who have an interest in alarming people. There are a bunch of questions out there and every time one is answered, whatever the answer reason can be found why it is cause for alarm.

[RossWilliams]

"It's just amazingly difficult to keep a scam like this going for very long - you'd want to leave town with the money before the SITF. "

No, its impossible to keep going once you "leave town". Its also amazingly stupid if your only incentive was financial. I think a more likely motivation is a combination of ego and insecurity. They wanted to show success. If they boosted sales in the future, they could sell off the excess inventory, trim the excess expenses, increase profits and no one would be the wiser.

[ponti33602]

My observation/belief over the last 30+ years (since the 80's....) is that exec's total compensation became too heavily incentive based. It drives them to be short-term focused than how to lead the company over the long run.

They know they only have a 5-7 year runway and can work only to maximize that period of time to get huge bonus' and stock incentives. I would rather give them a much larger salary that will drive their behavior to want to hang on to a job for an extended period of time and they will make better decisions for the business......just my opinion obviously.