National RV Sees ‘Softening’ in Market Demand
Perris, Calif.-based National RV Holdings Inc., parent of National RV Inc. and Country Coach Inc., Thursday (July 28) announced that the company expects to report a loss for its second quarter, ended June 30, due to a “softening of market demand.” National RV in its release blames an industry-wide Class A trend resulting in inventory build-up at both the dealer and manufacturer levels, both of which led to significant discounting.
“The industry and our company faced very difficult conditions during the second quarter,” reported National RV Holding’s CEO Brad Albrechtsen. “The industry-wide softening of wholesale Class A shipments and the inventory build-up at both the dealer and manufacturer level led to significant discounting. Additionally, reduced production rates, implemented to bring our manufacturing output in line with current demand, combined with the model year changeover and new model introductions, caused further pressure on margins due to lower overhead absorption and production inefficiencies.”
As a result of these factors, says Albrechtsen, National RV Holdings expects to report a pre-tax and net loss of between $5.5 million and $6.5 million, or between $0.53 and $0.63 per share, for the second quarter, and a pre-tax and net loss of between $6.5 million and $7.5 million, or between $0.63 and $0.73 per share, for the six months ended June 30, 2005.
“The steps we took to lower production levels and bring them in line with market demand, together with higher dealer discounting, allowed us to reduce our remaining 2005 product to a more manageable level going into the third quarter,” he added in the release. “In addition to lowering production levels, we made reductions in both the salaried and hourly workforce to align our cost structure to these lower operating levels. We anticipate that these efforts will reduce our operating losses going forward. However, due to the uncertainty of the length of the current market downturn and our reduced operating levels, we expect the operating losses to continue into the third and fourth quarters.
“Despite these challenges and difficult market conditions,” Albrechtsen stated, “our 2006 model lineup and new model introductions were very well received by our dealers during a recent dealer seminar. We remain confident that our new dealer initiatives, the 2006 product lineup and our efforts to improve production efficiencies will benefit us when the current market conditions subside.”
The expected second quarter loss, the uncertainty of the length of the current market downturn and recent cumulative losses were among the factors prompting National, which expects to release final second quarter results in early August, to evaluate the need to establish a tax valuation allowance against its deferred tax asset recorded in its December 31, 2004 Form 10-K, which has not yet been filed. The relevant accounting guidance requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized.
“The company’s recent cumulative losses, the downturn in current market conditions and its impact on near term earnings weighed heavily in the company’s overall required assessment,” the release states. “As a result, the company will record a non-cash charge of $8.0 million to establish a full valuation allowance against its December 31, 2004 deferred tax asset. The company expects to record a full valuation allowance on future tax benefits until it can sustain an appropriate level of profitability and until such time the Company would not expect to recognize any significant tax benefits in its future results of operations.”
Additionally, National is currently in the process of renegotiating its credit facility “to alleviate a potential going concern issue as of December 31, 2004.”