<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 SEPTEMBER 30, 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. 4,956,320 shares of common
stock as of October 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 SEPTEMBER 30, 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 9-12
PART II - OTHER INFORMATION
Not Applicable
SIGNATURES 13
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- -------------------
1995 1994 1995 1994
(In thousands, except per share amounts)
Net sales $75,540 $61,916 $24,747 $20,423
Cost of sales (Note 2) 54,905 44,981 18,113 15,354
------- ------- ------- -------
Gross profit 20,635 16,935 6,634 5,069
Selling, general and administrative
expenses 10,826 9,888 3,560 2,943
------- ------- ------- -------
Operating profit 9,809 7,047 3,074 2,126
Interest income (expense) 25 13 70 (27)
------- ------- ------- -------
Income from continuing operations
before income taxes 9,834 7,060 3,144 2,099
Provision for income taxes 3,837 2,763 1,226 824
------- ------- ------- -------
Income from continuing operations 5,997 4,297 1,918 1,275
Discontinued operations, net (Note 3) (111) 138
------- ------- ------- -------
Net income $ 5,997 $ 4,186 $ 1,918 $ 1,413
======= ======= ======= =======
Net income per common share:
Income from continuing operations $ 1.21 $ .88 $ .39 $ .26
Discontinued operations (Note 3) (.02) .03
------- ------- ------- -------
Net income $ 1.21 $ .86 $ .39 $ .29
======= ======= ======= =======
Weighted average common shares outstanding 4,944 4,867 4,953 4,897
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, September 30, December 31,
1995 1994 1994
(In thousands, except shares and per share amounts)
ASSETS
Current assets
<S> <C> <C> <C>
Cash and short term investments $ 5,822 $ 375 $ 469
Accounts receivable, trade, less
allowance for doubtful accounts 5,088 4,266 3,096
Inventories (Note 2) 9,073 9,652 10,509
Prepaid expenses and other current assets 1,360 1,209 2,014
------- ------- -------
Total current assets 21,343 15,502 16,088
Fixed assets, net 4,507 4,445 4,320
Goodwill, net 165 210 199
Other assets 1,207 2,595 1,475
------- ------- -------
Total assets $27,222 $22,752 $22,082
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable, including current
maturities of long-term debt and
obligations under capital leases $ 136 $ 2,244 $ 701
Accounts payable, trade 3,286 2,642 2,909
Accrued expenses and other current
liabilities 9,341 7,535 6,461
------- ------- -------
Total current liabilities 12,763 12,421 10,071
Long-term indebtedness 2,863 3,500
Long-term obligations under capital leases
and other liabilities 343 618 439
------- ------- -------
Total liabilities 13,106 15,902 14,010
------- ------- -------
Commitments and contingencies (Note 3)
Stockholders' equity (Note 3)
Common stock, par value $.01 per share:
authorized 20,000,000 shares; issued
4,992,354 shares at September 1995,
4,908,381 shares at September 1994 and
4,942,376 shares at December 1994 50 49 49
Paid-in capital 9,042 8,714 8,663
Retained earnings (deficit) 5,372 (1,898) (625)
------- ------- -------
14,464 6,865 8,087
Treasury stock, at cost - 39,850 shares
at September 1995 and 10,000 shares at
September and December 1994 (348) (15) (15)
------- ------- -------
Total stockholders' equity 14,116 6,850 8,072
------- ------- -------
Total liabilities and
stockholders' equity $27,222 $22,752 $22,082
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
------------------
1995 1994
- ------------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Income from continuing operations $ 5,997 $ 4,297
Adjustments to reconcile income from continuing
operations to cash flows provided by
operating activities:
Depreciation and amortization 584 480
Changes in assets and liabilities:
Accounts receivable, net (1,992) (1,531)
Inventories 1,436 (2,050)
Prepaid expenses and other assets 854 325
Accounts payable, accrued expenses and other
current liabilities 3,257 3,650
-------- -------
Net cash flows provided by operating activities
from continuing operations 10,136 5,171
Net loss from discontinued operations (111)
-------- -------
Net cash flows provided by operating activities 10,136 5,060
-------- -------
Cash flows from investing activities:
Capital expenditures (669) (936)
Net cash transferred to discontinued operations (7,429)
-------- -------
Net cash flows used for investing activities (669) (8,365)
-------- -------
Cash flows from financing activities:
Repayments of term loans (161) (354)
Proceeds from line of credit with Chemical Bank 9,450 12,516
Repayments under line of credit with Chemical Bank (13,450) (9,198)
Exercise of stock options 380 470
Acquisition of treasury stock (333) (15)
-------- -------
Net cash flows (used for) provided by
financing activities (4,114) 3,419
-------- -------
Net increase in cash 5,353 114
Cash at beginning of period 469 261
-------- -------
Cash and short term investments at end of period $5,822 $ 375
======== =======
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest on debt $ 130 $ 176
Income taxes $ 3,467 $ 2,250
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Retained Total
Common Treasury Paid-in Earnings Stockholders'
Stock Stock Capital (Deficit) Equity
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except shares)
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1994 $49 $ (15) $8,663 $ (625) $ 8,072
Net income for nine months ended
September 30, 1995 5,997 5,997
Issuance of 49,978 shares of common
stock pursuant to stock option plan 1 254 255
Income tax benefit relating to issuance of
common stock upon exercise of stock options 125 125
Acquisition of 29,850 shares of treasury stock (333) (333)
--- ------ ------ ------ -------
Balance - September 30, 1995 $50 $(348) $9,042 $5,372 $14,116
=== ====== ====== ====== =======
</TABLE>
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 nine month and three month periods ended September
30, 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.
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"), which comprised 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 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. Net sales of Leslie
Building Products prior to the Spin-off were $44,739,000 for the seven months
ended July 29, 1994.
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.
7
<PAGE>
DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In 1994, prior to the Spin-off, the Company made capital contributions to
Leslie Building Products of approximately $7.4 million, including the assumption
by the Company of approximately $5.0 million of Leslie-Locke's debt. The
balance of such debt was retained by Leslie-Locke.
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 provisions 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. 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. The chapter 7 Trustee of White Metal has alleged
that Drew and its affiliated companies obtained tax benefits in excess of $4.5
million solely attributable to the use of White Metal's net operating losses.
The Trustee has demanded payment in an amount equal to the value of the tax
savings achieved. Drew denies any liability for the amount claimed by the
Trustee.
4. Intended Acquisitions
The Company has entered into a letter of intent to acquire Shoals Supply,
Inc. (Bear Creek, Alabama) a privately owned manufacturer and distributor of new
and refurbished axles and chassis parts, and new and used tires. Shoals'
products are sold primarily to the manufactured housing industry. For the year
ended December 31, 1994, Shoals had sales of approximately $48 million.
The total purchase price of $13.5 million will consist of cash at closing
of $6.75 million less existing bank debt of Shoals, and Drew common stock having
a value of $6.75 million. The number of Drew shares to be issued will be based
upon a price formula of Drew stock at the date of closing. To assure a smooth
transition and continuity of management, the former owner of Shoals will serve
as a consultant for five years. In addition, appropriate arrangements will be
made with key employees of Shoals, including the grant of stock options for Drew
common stock at the market price on the date of closing. The Shoals operation
will be under the management supervision of Kinro, Inc., Drew's sole operating
subsidiary which manufactures windows for manufactured homes and windows and
doors for recreational vehicles.
Based upon current levels of Shoals earnings and the anticipated number
of Drew shares to be issued, the acquisition will not be dilutive and should
modestly add to earnings per share for 1996. Drew's cash on hand and its current
bank line of credit will be adequate to finance the acquisition.
Closing of the transaction, which is expected to occur before the end of
1995, is conditional on the completion of due diligence to Drew's satisfaction,
the execution of definitive acquisition agreements and final approval of Drew's
Board of Directors.
In addition, Kinro expects to complete the acquisition, for cash, of Star
Window, Inc., a manufacturer of windows for mini buses, in early November 1995.
Star is located in Elkhart, Indiana and is marginally profitable on sales of
less than $1.0 million. Kinro intends to expand this new line of business.
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 aluminum and vinyl windows for manufactured homes and
aluminum windows and doors for recreational vehicles ("RV's").
Kinro is one of the leading producers of windows for manufactured homes
in the United States and has significant market share for many of its RV window
and door products. Many of the producers of manufactured homes, to whom Kinro
sells windows, also manufacture RV's. Kinro's products are manufactured in
eight 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 increased 22% for both the nine months and quarter ended
September 30, 1995, over the same periods last year. This increase in net sales
resulted primarily from the sales of manufactured housing products which
increased 40% for the three months and 39% for the nine 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. Also contributing to the
increase in net sales were price increases implemented as a result of the
increase in the cost of raw materials. Year-to-date industry-wide shipments of
manufactured homes increased 12%. Kinro's net sales of RV products decreased 3%
for the three months and 9% for the nine months, despite price increases.
Industry-wide shipments of RV's are down approximately 4% for the nine months
and 11% for the three months.
Operating profit increased 39% to $9,834,000 for the nine months ended
September 30, 1995, and increased 45% to $3,074,000 for the quarter ended
September 1995. While material costs as a percentage of sales were slightly
higher in the third quarter of 1995 than in the year earlier period, higher
sales and improved operating efficiencies resulted in a 2% improvement in gross
margin. Selling, general and administrative expenses for the nine months ended
September 30, 1994 include $462,000 of costs relating to the Spin-off of Leslie
Building Products, Inc. ("Leslie Building Products") on July 29, 1994.
Excluding these costs, selling, general and administrative expenses increased
15% for the nine months which is less than the increase in sales since a
substantial portion of these expenses are fixed.
Interest Income (Expense), Net
Despite the assumption of $5 million of Leslie Building Products' debt by
the Company on July 29, 1994, the date of the Spin-off, interest income
(expense), net improved $12,000 for the nine months and $67,000 for the quarter
as a result of operating cash flow.
9
<PAGE>
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
DISCONTINUED OPERATIONS
Effective July 29, 1994, the Company spun off Leslie Building Products,
which comprised 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
operating results of Leslie Building Products and its subsidiaries for the seven
months ended 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.
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 provisions 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. 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. The chapter 7 Trustee of White Metal has alleged
that Drew and its affiliated companies obtained tax benefits in excess of $4.5
million solely attributable to the use of White Metal's net operating losses.
The Trustee has demanded payment in an amount equal to the value of the tax
savings achieved. Drew denies any liability to the Trustee for the amount
claimed.
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. As of
September 30, 1995, there were no outstanding borrowings under this debt
agreement and the Company had short-term investments of $5,041,000. As of
September 30, 1995, the debt agreement provides for maximum borrowings of $6
million. It is anticipated that cash on hand and funds available from the line
of credit will be adequate for the Company's anticipated needs, which includes
approximately $7 million for the intended acquisition of Shoals Supply, Inc. On
March 8, 1996 the maximum revolving loan will be reduced to $4 million until the
maturity date of July 29, 1997. Loans pursuant to this debt agreement are
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.
10
<PAGE>
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The Statements of Cash Flows reflect the following:
Nine Months Ended
September 30,
-----------------
1995 1994
- ------------------------------------------------------------------------------
(In thousands)
Cash flows provided by operating activities $10,136 $ 5,060
Cash flows used for investing activities $ (669) $(8,365)
Cash flows (used for) provided by financing activities $(4,114) $ 3,419
Net cash provided by operating activities for the nine months ended
September 30, 1995 was $10.1 million compared to $5.1 million for the nine
months ended September 30, 1994. Accounts receivable reflect seasonal increases
of $2.0 million and $1.5 million in 1995 and 1994, respectively. Inventories
decreased $1.4 million in 1995 and increased $2.0 million in 1994. Inventories
were unusually high at December 31, 1994 primarily as a result of increased
sales volume and the increase in aluminum prices. Trade payables increased $.4
million in 1995 and $1.0 million in 1994. Accrued expenses increased $2.9
million in 1995 and $2.6 million in 1994. The seasonal increases in accrued
expenses are primarily due to the timing of payments of incentive compensation.
Cash flows used for investing activities in 1994 includes $7.4 million
advanced to Leslie Building Products prior to the July 29, 1994 spin-off.
Cash flows used for financing activities relates primarily to debt
repayments from operating cash flow. Debt was reduced by $4.2 million for the
nine months ended September 30, 1995. Debt was increased $3.0 million for the
nine months ended September 30, 1994 as a result of the assumption of $5.0
million of Leslie-Locke's debt as of July 29, 1994, the date of the spin-off of
Leslie Building Products.
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
nine months ended September 30, 1995, the Company purchased 29,850 shares of
its Common Stock at a cost of $333,000.
11
<PAGE>
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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. In order to hedge the
impact of future 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 and entered into forward purchase
commitments at fixed prices. At September 30, 1995 the Company had outstanding
options for approximately 1.7 million pounds at an aggregate cost of $1.4
million. In addition, the Company had forward purchase commitments for
approximately 2.8 million pounds of aluminum to be delivered over the next three
months, at approximately current market prices.
12
<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
November 6, 1995
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> $781
<SECURITIES> $5,041
<RECEIVABLES> $5,335
<ALLOWANCES> $247
<INVENTORY> $9,073
<CURRENT-ASSETS> $21,343
<PP&E> $10,074
<DEPRECIATION> $5,567
<TOTAL-ASSETS> $27,222
<CURRENT-LIABILITIES> $12,763
<BONDS> 0
0
0
<COMMON> $50
<OTHER-SE> $14,066
<TOTAL-LIABILITY-AND-EQUITY> $27,222
<SALES> $75,540
<TOTAL-REVENUES> $75,540
<CGS> $54,905
<TOTAL-COSTS> $65,731
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $(25)
<INCOME-PRETAX> $9,834
<INCOME-TAX> $3,837
<INCOME-CONTINUING> $5,997
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $5,997
<EPS-PRIMARY> $1.21
<EPS-DILUTED> $1.21
</TABLE>
