Jason Lippert, president and CEO of Lippert Components and Kinro, subsidiaries of Drew Industires Inc., sees evidences of an upturn in the RV industry.
“We’re glad to leave behind the very slow winter months, when many of our customers closed for extended periods,” said Lippert, whose observation was contained at the end of a financial release filed today (April 24) by the parent company. In that quarter, Lippert and Kinro incurred approximately $4 million in extra expenses due to plant consolidations, staff reductions, higher bad debts and obsolete inventory and tooling, he noted.
“In recent weeks we have also experienced an increase in demand for our products, which has helped us improve production efficiencies,” he said. “While it’s too soon to know whether this will continue, it is encouraging to see our facilities producing more and have our employees working more consistent hours.”
He added that Drew is beginning “to realize the benefits of synergies between Lippert Components and Kinro – in terms of increased efficiencies, reduced costs, product development and coordinated sales efforts. We’re extremely proud of the way our management team and all our employees have responded to the very difficult economic conditions, and we are confident in their ability to position Drew to continue to outperform the industries we serve.”
In the release, Drew, based in White Plains, N.Y., stated that it expects operating results for the quarter ended March 31 to reflect a material, non-cash goodwill impairment charge. The company is in the process of finalizing the charge, but it is anticipated to include all or substantially all of the goodwill recorded on the company’s consolidated balance sheet, which totaled $45 million. If, subject to final review, the entire goodwill balance is written-off, the impairment charge would be approximately $29 million, net of taxes, or $1.36 per share.
“The impairment charge is non-cash, and will not affect our operations, liquidity, cash flows, or the company’s borrowing availability under its line of credit and shelf-loan facility,” said Fred Zinn, Drew’s president and CEO. “In the first quarter we generated significant cash flow, increasing our cash balances by $6 million, to more than $14 million at March 31. We also reduced total debt by over $2 million in the first quarter, to less than $7 million. We expect to continue to have strong cash flow over the coming quarters. After giving effect to the impairment charge, our stockholders’ equity will remain well over $200 million, and in this economy, maintaining a strong balance sheet will continue to be a primary focus of our entire management team.”
“The non-cash impairment charge is largely the result of uncertainties in the economy, and in the RV and manufactured housing industries,” said Joe Giordano, Drew CFO and treasurer. “Another key factor in the evaluation of goodwill is the discount rate used to determine the present value of projected cash flows. Since the end of 2008, the discount rate required for this calculation has increased substantially, contributing to the reduction in the fair value of our projected cash flows, which is one basis of our goodwill evaluation.”
Drew will report its full first quarter results on May 4.