<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 0-13646
DREW INDUSTRIES INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3250533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Mamaroneck Avenue, White Plains, N.Y. 10601
(Address of principal executive offices)
(Zip Code)
(914) 428-9098
Registrant's Telephone Number including Area Code
(Former name, former address and former fiscal year,
if changed since last year)
Indicate by check marks whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities & Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes XX No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 4,933,624 shares of common
stock as of April 24, 1995.
<PAGE>
DREW INDUSTRIES INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS FILED WITH
QUARTERLY REPORT OF REGISTRANT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
(UNAUDITED)
Page
----
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME 3
CONSOLIDATED BALANCE SHEETS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-11
PART II - OTHER INFORMATION
Not Applicable
SIGNATURES 12
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
----------------------------
1995 1994
- - - - - - - -------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net sales $25,363 $19,506
Cost of sales (Note 2) 18,247 13,812
------- -------
Gross profit 7,116 5,694
Selling, general and administrative expenses 3,672 3,314
------- -------
Operating profit 3,444 2,380
Interest income (expense), net (42) 18
------- -------
Income from continuing operations
before income taxes 3,402 2,398
Provision for income taxes 1,333 897
------- -------
Income from continuing operations 2,069 1,501
Discontinued operations, net (Note 3) (597)
------- -------
Net income $ 2,069 $ 904
======= =======
Net income per common share:
Income from continuing operations $ .42 $ .31
Discontinued operations (Note 3) (.12)
------- -------
Net income $ .42 $ .19
======= =======
Weighted average common shares outstanding 4,934 4,841
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
---------------- December 31,
1995 1994 1994
- - - - - - - --------------------------------------------------------------------------------
(In thousands, except shares and per share amounts)
ASSETS
Current assets
Cash $ 245 $ 304 $ 469
Accounts receivable, trade, less allowance for
doubtful accounts 4,910 4,243 3,096
Inventories (Note 2) 10,355 7,968 10,509
Prepaid expenses and other current assets 1,385 848 2,014
Discontinued operations, net (Note 3) 12,780
------- ------- -------
Total current assets 16,895 26,143 16,088
Fixed assets, net 4,273 3,908 4,320
Goodwill, net 188 232 199
Other assets 1,481 3,067 1,475
------- ------- -------
Total assets $22,837 $33,350 $22,082
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable, including current maturities of
long-term debt and obligations under capital
leases $ 169 $ 247 $ 701
Accounts payable, trade 2,994 2,396 2,909
Accrued expenses and other current
liabilities 7,946 6,113 6,461
------- ------- -------
Total current liabilities 11,109 8,756 10,071
Long-term indebtedness (Note 4) 1,200 509 3,500
Long-term obligations under capital leases and
other liabilities 412 695 439
------- ------- -------
Total liabilities 12,721 9,960 14,010
------- ------- -------
Commitments and Contingencies (Note 3)
Stockholders' equity (Note 3)
Common stock, par value $.01 per share:
authorized 20,000,000 shares; issued
4,947,008 shares at March 1995
4,862,806 shares at March 1994 and
4,942,376 shares at December 1994 49 48 49
Paid-in capital 8,692 28,537 8,663
Retained earnings (deficit) 1,444 (5,180) (625)
------- ------- -------
10,185 23,405 8,087
Treasury stock, at cost - 15,700 shares at
March 1995 and 10,000 shares at March and
December 1994 (69) (15) (15)
------- ------- -------
Total stockholders' equity 10,116 23,390 8,072
------- ------- -------
Total liabilities and stockholders' equity $22,837 $33,350 $22,082
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
------------------
1995 1994
- - - - - - - -------------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Income from continuing operations $ 2,069 $ 1,501
Adjustments to reconcile income from continuing
operations cash flows provided by operating
activities:
Depreciation and amortization 191 163
Changes in assets and liabilities:
Accounts receivable, net (1,814) (1,508)
Inventories 154 (366)
Prepaid expenses and other assets 602 257
Accounts payable, accrued expenses and other
current liabilities 1,570 1,982
------- -------
Net cash flows provided by operating activities
from continuing operations 2,772 2,029
Net loss from discontinued operations (597)
------- -------
Net cash flows provided by operating activities 2,772 1,432
------- -------
Cash flows from investing activities:
Capital expenditures (112) (147)
Net cash transferred to discontinued operations (42)
------- -------
Net cash flows used for investing activities (112) (189)
------- -------
Cash flows from financing activities:
Repayments of term loans (559) (60)
Proceeds from line of credit with Chemical Bank 3,900 950
Repayments under line of credit with Chemical Bank (6,200) (2,200)
Exercise of stock options 29 125
Acquisition of treasury stock (54) (15)
------- -------
Net cash flows used for financing activities (2,884) (1,200)
------- -------
Net (decrease) increase in cash (224) 43
Cash at beginning of period 469 261
------- -------
Cash at end of period $ 245 $ 304
======= =======
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest on debt $ 80 $ 46
Income taxes $ 105 $ 88
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Retained Total
Common Treasury Paid-in Earnings Stockholders'
Stock Stock Capital (Deficit) Equity
- - - - - - - --------------------------------------------------------------------------------
(In thousands, except shares)
Balance - December 31, 1994 $49 $(15) $8,663 $ (625) $ 8,072
Net income for three months
ended March 31, 1995 2,069 2,069
Issuance of 4,632 shares of
common stock pursuant to
stock option plan 20 20
Income tax benefit relating
to issuance of common
stock upon exercise of
stock options 9 9
Acquisition of 5,700
shares of treasury stock (54) (54)
--- ---- ------ ------ -------
Balance - March 31, 1995 $49 $(69) $8,692 $1,444 $10,116
=== ==== ====== ====== =======
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The Consolidated Financial Statements presented herein have been
prepared by the Company in accordance with the accounting policies described in
its December 31, 1994 Annual Report on Form 10-K and should be read in
conjunction with the Notes to Consolidated Financial Statements which appear in
that report.
In the opinion of management, the information furnished in this Form
10-Q reflects all adjustments necessary for a fair statement of the results of
operations as of and for the three month periods ended March 31, 1995 and 1994.
All such adjustments are of a normal recurring nature. The Consolidated
Financial Statements have been prepared in accordance with the instructions to
Form 10-Q and therefore do not include some information and notes necessary to
conform with annual reporting requirements. Certain prior year balances have
been reclassified to conform with the current year presentation.
2. Inventories
Inventories are valued at the lower of cost (using the last-in,
first-out method) or market. Cost includes material, labor and overhead; market
is replacement cost or realizable value after allowance for costs of
distribution.
Quarterly inventories valued on the last-in, first-out method are based
on an annual determination of quantities and costs as of the previous year-end.
Therefore, such quarterly inventory valuations are based on estimates.
3. Discontinued Operations
Effective July 29, 1994, the Company spun off Leslie Building Products,
Inc. ("Leslie Building Products"), its home improvement building products
segment, to stockholders on a one-for-one basis (the "Spin-off"). Thereafter
Leslie Building Products became a stand-alone company whose common shares are
publicly traded. The net assets and operating results of Leslie Building
Products and its subsidiaries prior to July 29, 1994 are shown as discontinued
operations in the accompanying Consolidated Financial Statements.
Pursuant to a Shared Services Agreement, for a period of two years
following the Spin-off, the Company and Leslie Building Products will share
certain administrative functions and employee services. The Company will be
reimbursed by Leslie Building Products for the fair market value of such
services. This Agreement may be extended under certain circumstances. Prior to
the Spin-off, such costs were allocated to Leslie Building Products based upon
net sales.
On the date of the Spin-off the Company assumed approximately $5
million of Leslie-Locke's debt. Subsequent to the assumption of debt by the
Company the net assets of Leslie Building Products were $20.3 million.
Accordingly, upon the Spin-off the Company's equity was reduced by $20.3
million.
7
<PAGE>
DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net sales of Leslie Building Products prior to the Spin-off were
$14,933,000 for the three months ended March 31, 1994.
On September 30, 1994, White Metal Rolling and Stamping Corp. ("White
Metal"), Leslie-Locke's discontinued ladder manufacturing subsidiary, filed a
voluntary petition seeking liquidation under the provision of chapter 7 of the
United States Bankruptcy Code. The net liabilities of White Metal of $3.5
million are substantially all accrued product liability costs. White Metal has
minimal assets. While Drew was named as a defendant in certain actions commenced
in connection with these claims, Drew has not been held responsible, and Drew
disclaims any liability for the obligations of White Metal.
4. Long-Term Indebtedness
On July 29, 1994, the Company entered into an $8 million 3 year credit
agreement with Chemical Bank which replaced a prior debt agreement with Chemical
Bank. The new agreement matures on July 29, 1997 and is secured by substantially
all assets of the Company and its subsidiary. Such agreement provided for a term
loan in the original amount of $4 million and a revolving loan not to exceed $4
million. The maximum revolving loan has been increased to $7 million until July
1, 1995 at which time it will be reduced to $6 million, with a further reduction
to $4 million on March 8, 1996 until the maturity date of July 29, 1997. The
term loan was payable in twenty-four monthly payments of $166,667 commencing
September 1, 1994. The term loan balance has been paid in full as of March 31,
1995 as a result of scheduled payments and prepayments.
Interest on this credit agreement is payable at .25% over the prime
rate. In addition, the Company has the option to either fix the rate or convert
a portion of the loan to a Eurodollar loan at 2.25% over the LIBO rate. The
Company must also pay a commitment fee of .25% per annum on the average unused
commitment, payable quarterly in arrears.
Pursuant to the Agreement, the Company is required to maintain minimum
net worth, working capital, and income levels, and meet certain other financial
requirements typical to secured borrowing arrangements. In addition, for the
term of the loan, the Company will be prohibited from declaring or paying
dividends without the prior written consent of the lender. Borrowings under the
line of credit are classified as long-term since such borrowings are less than
an estimate of the minimum amount of borrowings expected to be available during
the subsequent year. At March 31, 1995, available additional borrowings for
general corporate purposes under this line of credit was $5.8 million based upon
the maximum line of credit.
8
<PAGE>
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company, through its wholly-owned subsidiary Kinro, Inc. ("Kinro")
manufactures and markets windows for manufactured housing and windows and doors
for recreational vehicles.
Kinro is one of the leading producers of windows for manufactured homes
in the United States. Kinro also manufactures windows and doors for RV's. Many
of the producers of manufactured homes, to whom Kinro sells windows, also
manufacture RV's. Kinro's products are manufactured in nine plants located in
geographic areas throughout the United States and one subcontract operation in
Juarez, Mexico, which provide it with access to its major markets.
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1995 increased 30% over the
same period last year. This increase in net sales resulted primarily from the
sales of manufactured housing products which increased 44% for the three months.
Such increase is primarily volume related including the growth in sales of
Kinro's new vinyl window along with greater demand for storm windows. Net sales
of the RV division increased 10% for the three months. Contributing to the
increase in net sales were price increases implemented as a result of the
increase in the cost of raw materials. Industry-wide increases were 17% for
shipments of manufactured housing and 10% for shipments of RV's.
Operating profit increased 45% to $3,444,000 for the quarter ended
March 1995. The effect of the increased volume was partially offset by a
decrease in gross margin due to higher aluminum costs. Average aluminum prices
were approximately 50% higher than they were in the 1994 quarter. However, price
increases by Kinro and the recent stabilization of aluminum prices benefited the
first quarter, and should benefit the balance of the year, barring further raw
material price escalations. In order to hedge the impact of price fluctuations
on a portion of its future aluminum raw material requirements, the Company has
periodically purchased aluminum futures contracts on the London Metal Exchange.
Selling, general and administrative expenses increased 11% for the quarter. This
increase is less than the increase in sales since a substantial portion of these
expenses are fixed or, as in the case of incentive compensation, based upon the
profits of the Company.
Interest Income (Expense), Net
Interest income was $30,000 below last year's quarter as a result of
collections of notes receivable arising from the Company's 1986 sales of its
direct-to-consumer merchandising operations. For the quarter, despite the
assumption of $5 million of Leslie Building Products' debt by the Company on
July 29, 1994, interest expense increased only $30,000 as a result of operating
cash flow.
DISCONTINUED OPERATIONS
Effective July 29, 1994, the Company spun off Leslie Building Products,
Inc., ("Leslie Building Products"), its home improvement building products
segment, to stockholders on a one-for-one basis (the "Spin-off"). Thereafter
Leslie Building Products became a stand-alone company whose common shares are
9
<PAGE>
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
publicly traded. The operating results of Leslie Building Products and its
subsidiaries for the quarter ended March 31, 1994 are shown as discontinued
operations in the accompanying Consolidated Financial Statements.
On the date of the Spin-off the Company assumed approximately $5
million of Leslie-Locke's debt. Subsequent to the assumption of debt by the
Company the net assets of Leslie Building Products were $20.3 million.
Accordingly, upon the Spin-off the Company's equity was reduced by this $20.3
million.
Pursuant to a Shared Services Agreement, for a period of two years
following the Spin-off, the Company and Leslie Building Products will share
certain administrative functions and employee services. The Company will be
reimbursed by Leslie Building Products for the fair market value of such
services. This Agreement may be extended under certain circumstances.
On September 30, 1994, White Metal Rolling and Stamping Corp. ("White
Metal"), Leslie-Locke's discontinued ladder manufacturing subsidiary, filed a
voluntary petition seeking liquidation under the provision of chapter 7 of the
United States Bankruptcy Code. The net liabilities of White Metal of $3.5
million are substantially all accrued product liability costs. White Metal has
minimal assets. While Drew was named as a defendant in certain actions commenced
in connection with these claims, Drew has not been held responsible, and Drew
disclaims any liability for the obligations of White Metal.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a debt agreement with Chemical Bank which became
effective July 29, 1994 and replaced a prior debt agreement with Chemical Bank.
The new debt agreement currently provides for maximum borrowings of $7 million
which will be adequate for the Company's anticipated needs. On July 1, 1995 the
maximum revolving loan will be reduced to $6 million with a further reduction to
$4 million on March 8, 1996 until the maturity date of July 29, 1997. The
balance of the loan is $1.2 million at March 31, 1995. The loan is secured by
substantially all of the Company's assets and interest is payable at one quarter
of one percent over the prime rate. In addition, the Company has the option to
either fix the rate or avail itself of a LIBO rate which may reduce the
Company's interest rate.
The Statements of Cash Flows reflect the following:
Three Months Ended
March 31,
------------------
1995 1994
- - - - - - - -------------------------------------------------------------------------------
(In thousands)
Cash flows provided by operating activities from continuing
operations $ 2,772 $ 2,029
Cash flow used for investing activities $ (112) $ (189)
Cash flows used for financing activities $(2,884) $(1,200)
10
<PAGE>
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Net cash provided by operating activities from continuing operations
for the quarter ended March 31, 1995 was $2.8 million compared to $2.0 million
for the quarter ended March 31, 1994. Accounts receivable reflect seasonal
increases of $1.8 million and $1.5 million in 1995 and 1994, respectively.
Inventories did not change significantly in either quarter. Inventories,
however, did increase $2.4 million since March 31, 1994 primarily as a result of
the increased sales volume and the increase in aluminum prices. Payables
increased $1.6 million and $2.0 million in the 1995 and 1994 quarters,
respectively.
Cash flows used for investing activities are primarily capital
expenditures, which were not significant for the 1995 or 1994 quarters.
Cash flows used for financing activities relates to debt repayments
from operating cash flow offset by funds provided by the exercise of employees'
stock options and the income tax benefits provided therefrom. Debt was reduced
by $2.9 million and $1.3 million for the quarters ended March 31, 1995 and 1994,
respectively.
On March 8, 1995, the Board of Directors authorized the repurchase of
up to 500,000 shares of the Company's Common Stock. The purchases will be made
from time to time in the open market or in privately negotiated transactions
during the next twelve months at market prices prevailing at the time of the
purchase. The Company has no commitment or obligation to purchase any minimum
number of shares, and actual purchases will depend upon market conditions. The
repurchase program may be discontinued or suspended at any time. During the
quarter ended March 31, 1995, the Company purchased 5,700 shares of its Common
Stock at a cost of $54,000. In connection with this repurchase program, the
Company's lender had agreed to increase the revolving line of credit by $ 2
million until March 31, 1996.
INFLATION
The prices of raw materials, consisting primarily of aluminum and
glass, are influenced by demand and other factors specific to these commodities
rather than being directly affected by inflationary pressures. Aluminum prices
have been volatile and average prices for the quarter were approximately 50%
higher than they were in the first quarter of 1994. In order to hedge the impact
of future price fluctuations on a portion of its future aluminum raw material
requirements, the Company periodically purchases aluminum futures contracts on
the London Metal Exchange. At March 31, 1995 all of the Company's futures
contracts had been closed out.
11
<PAGE>
DREW INDUSTRIES INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DREW INDUSTRIES INCORPORATED
Registrant
By /s/ Fredric M. Zinn
Fredric M. Zinn
Principal Financial Officer
May 11, 1995
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> $245
<SECURITIES> 0
<RECEIVABLES> $5,137
<ALLOWANCES> $227
<INVENTORY> $10,355
<CURRENT-ASSETS> $16,895
<PP&E> $9,545
<DEPRECIATION> $5,272
<TOTAL-ASSETS> $22,837
<CURRENT-LIABILITIES> $11,109
<BONDS> 0
0
0
<COMMON> $49
<OTHER-SE> $10,067
<TOTAL-LIABILITY-AND-EQUITY> $22,837
<SALES> $25,363
<TOTAL-REVENUES> $25,363
<CGS> $18,247
<TOTAL-COSTS> $21,919
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $42
<INCOME-PRETAX> $3,402
<INCOME-TAX> $1,333
<INCOME-CONTINUING> $2,069
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $2,069
<EPS-PRIMARY> $.42
<EPS-DILUTED> $.42
</TABLE>
