<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: JUNE 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. 4,954,837 shares of common
stock as of July 26, 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 JUNE 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)
Six Months Ended Three Months Ended
June 30, June 30,
-------------- --------------
1995 1994 1995 1994
(In thousands, except per share amounts)
Net sales $50,793 $41,493 $25,430 $21,987
Cost of sales (Note 2) 36,792 29,627 18,545 15,815
------- ------- ------- -------
Gross profit 14,001 11,866 6,885 6,172
Selling, general and administrative
expenses 7,266 6,945 3,594 3,631
------- ------- ------- -------
Operating profit 6,735 4,921 3,291 2,541
Interest expense (income), net 45 (40) 3 (22)
------- ------- ------- -------
Income from continuing operations
before income taxes 6,690 4,961 3,288 2,563
Provision for income taxes 2,611 1,939 1,278 1,042
------- ------- ------- -------
Income from continuing operations 4,079 3,022 2,010 1,521
Discontinued operations, net (Note 3) (249) 348
------- ------- ------- -------
Net income $ 4,079 $ 2,773 $ 2,010 $ 1,869
======= ======= ======= =======
Net income per common share:
Income from continuing operations $ .83 $ .62 $ .41 $ .31
Discontinued operations (Note 3) (.05) .07
------- ------- ------- -------
Net income $ .83 $ .57 $ .41 $ .38
======= ======= ======= =======
Weighted average common shares outstanding 4,940 4,853 4,946 4,866
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
June 30, June 30, June 30 December 31,
1995 1994(Note3) 1994 1994
(In thousands, except shares and per share amounts)
ASSETS
Current assets
<S> <C> <C> <C> <C>
Cash and short term investments $ 1,323 $ 559 $ 559 $ 469
Accounts receivable, trade, less
allowance for doubtful accounts 4,992 4,838 4,838 3,096
Inventories (Note 2) 9,636 9,100 9,100 10,509
Prepaid expenses and other current assets 1,453 1,154 1,154 2,014
Discontinued operations, net (Note 3) 14,818
------- ------- ------- -------
Total current assets 17,404 15,651 30,469 16,088
Fixed assets, net 4,556 3,945 3,945 4,320
Goodwill, net 176 221 221 199
Other assets 1,368 2,629 2,629 1,475
------- ------- ------- -------
Total assets $23,504 $22,446 $37,264 $22,082
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable, including current
maturities of long-term debt and
obligations under capital leases $ 151 $ 1,912 $ 245 $ 701
Accounts payable, trade 2,171 2,580 2,580 2,909
Accrued expenses and other current
liabilities 8,545 7,964 7,922 6,461
------- ------- ------- -------
Total current liabilities 10,867 12,456 10,747 10,071
Long-term indebtedness 3,584 286 3,500
Long-term obligations under capital leases
and other liabilities 380 657 657 439
------- ------- ------- -------
Total liabilities 11,247 16,697 11,690 14,010
------- ------- ------- -------
Commitments and contingencies (Note 3)
Stockholders' equity (Note 3)
Common stock, par value $.01 per share:
authorized 20,000,000 shares; issued
4,974,221 shares at June 1995,
4,904,281 shares at June 1994 and
4,942,376 shares at December 1994 49 49 49 49
Paid-in capital 8,888 9,026 28,851 8,663
Retained earnings (deficit) 3,454 (3,311) (3,311) (625)
------- ------- ------- -------
12,391 5,764 25,589 8,087
Treasury stock, at cost - 21,700 shares
at June 1995 and 10,000 shares at June
and December 1994 (134) (15) (15) (15)
------- ------- ------- -------
Total stockholders' equity 12,257 5,749 25,574 8,072
------- ------- ------- -------
Total liabilities and
stockholders' equity $23,504 $22,446 $37,264 $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)
Six Months Ended
June 30,
-------------
1995 1994
(In thousands)
Cash flows from operating activities:
Income from continuing operations $ 4,079 $ 3,022
Adjustments to reconcile income from continuing
operations to cash flows provided by operating
activities:
Depreciation and amortization 385 319
Changes in assets and liabilities:
Accounts receivable, net (1,896) (2,103)
Inventories 873 (1,498)
Prepaid expenses and other assets 626 370
Accounts payable, accrued expenses and other
current liabilities 1,346 3,975
-------- --------
Net cash flows provided by operating activities
from continuing operations 5,413 4,085
Net loss from discontinued operations (249)
-------- --------
Net cash flows provided by operating activities 5,413 3,836
-------- --------
Cash flows from investing activities:
Capital expenditures (556) (310)
Net cash transferred to discontinued operations (2,080)
-------- --------
Net cash flows used for investing activities (556) (2,390)
-------- --------
Cash flows from financing activities:
Repayments of term loans (109) (123)
Proceeds from line of credit with Chemical Bank 9,450 3,150
Repayments under line of credit with Chemical Bank (13,450) (4,600)
Exercise of stock options 225 440
Acquisition of treasury stock (119) (15)
-------- --------
Net cash flows used for financing activities (4,003) (1,148)
-------- --------
Net increase in cash 854 298
Cash at beginning of period 469 261
-------- --------
Cash and short term investments at end of period $ 1,323 $ 559
======== ========
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest on debt $ 114 $ 80
Income taxes $ 1,921 $ 684
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 six months ended June 30, 1995 4,079 4,079
Issuance of 31,845 shares of common stock
pursuant to stock option plan 141 141
Income tax benefit relating to issuance of
common stock upon exercise of stock options 84 84
Acquisition of 11,700 shares of treasury stock (119) (119)
----- ----- ------ ------ -------
Balance - June 30, 1995 $ 49 $(134) $8,888 $3,454 $12,257
===== ===== ====== ====== =======
</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 six month and three month periods ended June 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 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.
In 1994, prior to the Spin-off, the Company made capital contributions to
Leslie Building Products of approximately $7.6 million, including the assumption
by the Company of approximately $5.0 million of
7
<PAGE>
DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Leslie-Locke's debt. The balance of such debt was retained by Leslie-Locke.
The Pro Forma Balance Sheet of the Company as of June 30, 1994 reflects such
assumption of debt as well as the reduction in equity and net assets of
discontinued operations as if the Spin-off had been effective as of June 30,
1994.
Net sales of Leslie Building Products prior to the Spin-off were
$37,488,000 and $22,555,000 for the six and three months ended June 30, 1994,
respectively.
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.
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 housing and
aluminum windows and doors for recreational vehicles.
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 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 increased 22% and 16% for the six months and quarter ended June
30, 1995, respectively, over the same periods last year. This increase in net
sales resulted primarily from the sales of manufactured housing products which
increased 38% 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. Also 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 shipments of manufactured homes increased 13%. Net
sales of RV products were flat for the six months and decreased 10% for the
three months, despite price increases. Industry-wide shipments of RV's are up 1%
for the six months and down 13% for the quarter ended June 30, 1995.
Operating profit increased 37% to $6,735,000 for the six months ended
June 30, 1995, and increased 30%, to $3,291,000 for the quarter ended June
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 40% higher than they were in the 1994 period. However, price
increases by Kinro and the recent stabilization of aluminum prices benefited
the period, 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 and entered into forward purchase commitments at fixed prices.
Selling, general and administrative expenses for the six months and three
months ended June 30, 1994 include $462,000 and $350,000 respectively, 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 12% for the six months and 10% for the
quarter. These increases are less than the increases in sales since a
substantial portion of these expenses are fixed.
Interest Expense (Income), 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 expense, net
increased only $85,000 for the six months and $25,000 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 six months and quarter ended June 30, 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 (a wholly-owned subsidiary of Leslie Building Products) 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 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.
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 June 30, 1995, there were no outstanding borrowings under this debt
agreement and the Company had short-term investments of $850,000. As of June
30, 1995, the debt agreement 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. 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:
Six Months Ended
June 30,
----------------
1995 1994
---------------------------------------------------------------------
(In thousands)
Cash flows provided by operating activities $ 5,413 $ 3,836
Cash flows used for investing activities $ (556) $ (2,390)
Cash flows used for financing activities $ (4,003) $ (1,148)
Net cash provided by operating activities for the six months ended
June 30, 1995 was $5.4 million compared to $3.8 million for the six months
ended June 30, 1994. Accounts receivable reflect seasonal increases of $1.9
million and $2.1 million in 1995 and 1994, respectively. Inventories decreased
$.9 million in 1995 and increased $1.5 million in 1994. Inventories were
unusually high at December 31, 1994 primarily as a result of the increased
sales volume and the increase in aluminum prices. Changes in trade payables
substantially matched the changes in inventory. Accrued expenses increased
$2.1 million in 1995 and $3.0 million in 1994. The greater seasonal increase
in 1994 was primarily due to the timing of payments of taxes and incentive
compensation.
Cash flows used for investing activities are primarily capital
expenditures, which were not unusual for the 1995 or 1994 periods.
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 $4.1 million and $1.6 million for the six months ended June 30, 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
six months ended June 30, 1995, the Company purchased 11,700 shares of its
Common Stock at a cost of $119,000. In connection with this repurchase
program, the Company's revolving line of credit was increased by $ 2 million
until March 8, 1996.
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. Aluminum prices have
been volatile and average prices for the quarter were approximately 40% higher
than they were in the 1994 period. 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 June 30, 1995 all of the Company's futures contracts had been
closed out and the Company had forward purchase commitments for approximately
3.5 million pounds of aluminum to be delivered over the next six 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
August 10, 1995
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> $473
<SECURITIES> $850
<RECEIVABLES> $5,230
<ALLOWANCES> $238
<INVENTORY> $9,636
<CURRENT-ASSETS> $17,404
<PP&E> $9,989
<DEPRECIATION> $5,433
<TOTAL-ASSETS> $23,504
<CURRENT-LIABILITIES> $10,867
<BONDS> 0
0
0
<COMMON> $49
<OTHER-SE> $12,208
<TOTAL-LIABILITY-AND-EQUITY> $23,504
<SALES> $50,793
<TOTAL-REVENUES> $50,793
<CGS> $36,792
<TOTAL-COSTS> $44,058
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $45
<INCOME-PRETAX> $6,690
<INCOME-TAX> $2,611
<INCOME-CONTINUING> $4,079
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $4,079
<EPS-PRIMARY> $.83
<EPS-DILUTED> $.83
</TABLE>
