SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year End Commission File Number
December 31, 1995 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)
Registrant's Telephone Number including Area Code: (914) 428-9098
Securities Registered pursuant to Section 12(b) of the Act: None
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Check mark indicates 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 for 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 X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of voting stock (Common Stock, $.01 par value) held by
non-affiliates of Registrant (computed by reference to the closing price as of
March 19, 1996) was $51,890,861.
The number of shares outstanding of the Registrant's Common Stock, as of the
latest practicable date (March 19, 1996) was 5,532,518 shares of Common Stock.
Documents Incorporated by Reference
Annual Report to Stockholders for year ended December 31, 1995 is incorporated
by reference into Items 6, 7 and 8 of Part II.
Proxy Statement with respect to Annual Meeting of Stockholders to be held on
April 18, 1996 is incorporated by reference into Part III.
Item 1. BUSINESS
Introduction
Drew Industries Incorporated ("Drew" or the "Company"), through its
wholly-owned subsidiary, Kinro, Inc., manufactures and markets aluminum and
vinyl windows for manufactured homes, and aluminum and vinyl windows and doors
for recreational vehicles.
See "Recent Events" for a discussion of the Company's February 1996
acquisition of Shoals Supply, Inc. which manufactures and distributes new and
refurbished axles and tires, and new chassis parts, for the manufactured housing
industry.
The Company's principal executive and administrative offices are
located at 200 Mamaroneck Avenue, White Plains, New York, 10601; telephone
number (914) 428-9098.
In connection with the spin-off of Leslie Building Products, Inc. by
the Company, which was effective on July 29, 1994, the Company and Leslie
Building Products entered into a Shared Services Agreement. Pursuant to the
Shared Services Agreement, for a period of two years following the spin-off, the
Company and Leslie Building Products agreed to share certain administrative
functions and employee services, such as management overview and planning, tax
preparation, financial reporting, coordination of independent audit, stockholder
relations, and regulatory matters. The Company is reimbursed by Leslie Building
Products for the fair market value of such services. The Shared Services
Agreement may be extended under certain circumstances.
BUSINESS OF THE COMPANY
Kinro, acquired by the Company in October 1980, initially manufactured
only aluminum primary and storm windows for the manufactured housing industry.
Since 1982, Kinro acquired additional manufacturers of aluminum windows for
manufactured housing and manufacturers of doors and windows for recreational
vehicles, and developed its own capacity to manufacture screens for its window
products. In 1993, Kinro commenced production of vinyl windows in addition to
aluminum windows.
Each of the businesses acquired by Kinro expanded Kinro's geographic
market and product line, and, in certain instances, added manufacturing
facilities. All manufacturing, distribution and administrative functions of the
acquired businesses were integrated with those of Kinro. Although definitive
information is not readily available, the Company believes that the two leading
manufacturers of windows for manufactured housing within the United States are
Kinro and Philips Industries, Inc., and that there are approximately 10
significant suppliers of windows and doors for the recreational vehicle
industry, several of which are substantially larger than Kinro.
In November 1995, Kinro acquired the assets and business of Star Window
(Elkhart, Indiana), a privately-owned manufacturer of windows for mini buses
with pre-acquisition annual revenues of less than $1 million. The acquisition of
Star Window represents a new product line for Kinro. Kinro intends to expand the
operations of Star Window in a new facility currently being built in Goshen,
Indiana, which will also be utilized to expand Kinro's existing operations.
Raw materials used by Kinro, consisting of extruded aluminum, glass,
vinyl and various adhesive and insulating components, are readily available from
a number of sources. Kinro, through the Company, maintains an aluminum hedging
program under which it purchases futures contracts on the London Metals Exchange
to hedge the prices of a portion of its anticipated aluminum requirements.
Kinro's operations consist primarily of fabricating and assembling the
components into the finished windows, doors and screens. Kinro's line of
products is sold by eight sales personnel, working exclusively for Kinro, to
major builders of manufactured housing, such as Clayton Homes, Inc., Oakwood
Homes Corporation and Redman Industries, Inc., and to major manufacturers of
recreational vehicles such as Fleetwood Enterprises, Inc., Thor Industries,
Inc., and Skyline Corporation.
Kinro's operations are subject to certain federal, state and local
regulatory requirements relating to the use, storage, discharge and disposal of
hazardous chemicals used during their manufacturing processes. Kinro believes
that it is currently operating in compliance with applicable regulations and
does not believe that costs of compliance with these laws and regulations will
have a material effect upon its capital expenditures, earnings or competitive
position.
Recent Events
Pursuant to an Asset Purchase Agreement, dated February 15, 1996 (the
"Agreement"), the Company acquired substantially all the assets and the
business, and assumed certain liabilities, of Shoals Supply, Inc., a
privately-owned Alabama corporation, which manufactures and distributes new and
refurbished axles and fires, and new chasis parts, for the manufactured housing
industry. Simultaneously, the Company assigned all its rights and obligations
pursuant to the Agreement to Shoals Acquisition Corp., a wholly-owned subsidiary
of the Company, the name of which was changed to Shoals Supply, Inc. ("Shoals").
The transaction was consummated on February 15, 1996 (the "Closing Date"). For
1995, the acquired operations had revenues of approximately $57,000,000.
The consideration for the acquired assets and business consisted of
544,959 restricted shares of the Company's Common Stock, par value $0.01 per
share, valued at $7,500,000, which are subject to certain registration rights,
cash in the amount of $1,225,000, and a five-year note in the principal amount
of $760,000. In addition, the Company assumed $7,449,459 of the existing bank
debt of the acquired operations, which the Company discharged on the Closing
Date, and certain other operating liabilities. The consideration was based upon
the fair value of the net assets and business acquired.
The Company issued to certain key employees of Shoals options to
purchase an aggregate of 72,070 shares of the Company's Common Stock, at a
purchase price of $13.875 per share, exercisable 20% each year during the
five-year period commencing on the Closing Date, unless terminated or
accelerated upon termination of employment.
Simultaneously with the acquisition, the Company, Shoals and Kinro,
Inc., a wholly-owned subsidiary of the Company, entered into a Guaranty and
Security Agreement, dated as of the Closing Date, with Chemical Bank (the
"Bank"), pursuant to which Shoals borrowed the principal amount of $5,981,672,
which, together with $3,225,000 of the Company's own funds, was utilized to
consummate the acquisition and discharge the existing bank debt of the acquired
operations. The loan is secured by substantially all the assets of the Company,
Shoals and Kinro, and is guaranteed by the Company and Kinro. The loan matures
on May 15, 1996. The Company anticipates that the loan will be refinanced at
that time.
Interest on the loan is payable to the Bank, at maturity, at the rate
of, at Shoals' option, (a) the Bank's Prime Rate plus 1/4 of 1%, or (b) a fixed
rate offered from time to time by the Bank, or (c) an adjusted Eurodollar rate
plus 2.25%. Shoals also paid certain additional fees and charges relating to the
loan.
On March 8, 1995, the Board of Directors authorized the repurchase of
up to 500,000 shares of the Company's Common Stock. Purchases were made from
time to time in the open market or in privately negotiated transactions at
market prices prevailing at the time of purchase. The Company had no commitment
or obligation to purchase any minimum number of shares. The Company purchased
29,850 shares, and the repurchase program terminated on March 7, 1995.
Employees
The approximate number of persons employed full-time by the Company at
December 31, 1995 was as follows:
Drew........................ 6
Kinro....................... 1,034
-----
Total........... 1,040
=====
None of the Company's or Kinro's employees are represented by a union.
The Company and Kinro believe that relations with its employees are good.
Item 2. PROPERTIES
Drew leases its principal executive offices in White Plains, New York,
consisting of approximately 2,800 square feet of office space.
Kinro owns two and leases six manufacturing and warehouse facilities
consisting of an aggregate of approximately 593,000 square feet, in Mansfield,
Texas; Double Springs, Alabama; Liberty, North Carolina; Thomasville, Georgia;
Morraine, Ohio; Syracuse and Elkhart, Indiana; Fontana, California; and Goshen,
Indiana; and leases its corporate offices in Arlington, Texas consisting of
approximately 8,500 square feet of office space. Kinro is currently constructing
a second manufacturing and warehouse facility, consisting of 52,000 square feet,
on land owned by Kinro in Goshen, Indiana.
See Note 9 of Notes to Consolidated Financial Statements with respect
to the Company's lease obligations as of December 31, 1995.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings which, in the
opinion of Management, could have a material adverse effect on the Company or
its consolidated financial position.
See Note 5 of Notes to Consolidated Financial Statements with respect
to certain product liability claims pending against White Metal Rolling and
Stamping Corp. ("White Metal"), a subsidiary of Leslie-Locke, arising in
connection with the ladder manufacturing business formerly conducted by White
Metal. Although the Company and Leslie-Locke were named as defendants in certain
actions commenced in connection with these claims, neither the Company nor
Leslie-Locke has been held responsible, and the Company and Leslie-Locke
disclaim any liability for the obligations of White Metal.
See Note 5 of Notes to Consolidated Financial statements with respect
to the filing by White Metal, on September 30, 1994, of a voluntary petition
seeking liquidation under the provisions of chapter 7 of the United States
Bankruptcy Code. The chapter 7 Trustee of White Metal has alleged that the
Company and its affiliated entities 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 on behalf of White Metal in an amount equal to
the value of the tax savings achieved. The Company denies any liability for the
amount claimed by the Trustee and intends to vigorously defend this claim.
Management believes it has substantial and meritorious defenses, however, an
estimate of potential loss, if any, cannot be made at this time.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following tables set forth certain information with respect to the
Directors and Executive Officers of the Company as of December 31, 1995.
Name Position
---- --------
Leigh J. Abrams President, Chief Executive Officer and Director of
(Age 53) the Company since March 1984.
Edward W. Rose, III Chairman of the Board of Directors of the Company
(Age 54) since March 1984.
David L. Webster Director of the Company since March 1984.
(Age 60)
James F. Gero Director since May 1992.
(Age 50)
Gene H. Bishop Director since June 1995.
(Age 66)
Fredric M. Zinn Chief Financial Officer of the Company since
(Age 44) January 1986.
Harvey J. Kaplan Secretary and Treasurer of the Company since March
(Age 61) 1984.
LEIGH J. ABRAMS has also been President, Chief Executive Officer and a
Director of Leslie Building Products since July 1994.
EDWARD W. ROSE, III, for more than the past five years, has been
President and principal stockholder of Cardinal Investment Company, Inc., an
investment firm. Mr. Rose also serves as Co-Managing General Partner of the
Texas Rangers Baseball Team and as a director of the following public companies:
Osprey Holding, Inc., previously engaged in selling computer software for
hospitals; ACE Cash Express, Inc. engaged in check cashing services; and as a
trustee of Liberte Investors Inc., engaged in construction, development loans
and investments. Since July 1994, Mr. Rose has been Chairman of the Board of
Leslie Building Products.
DAVID L. WEBSTER, since November 1980, has been President and Chief
Executive Officer of Kinro, Inc., a subsidiary of the Company, and Chairman of
Kinro, Inc. since November 1984. Mr. Webster has also been President and Chief
Executive Officer of Shoals Supply, Inc., a subsidiary of the Company, since its
acquisition on February 15, 1996.
JAMES F. GERO, since March 1992, has been Chairman and Chief Executive
Officer of Sierra Technologies, Inc., a manufacturer of defense systems
technologies. From July 1987 to October 1989, Mr. Gero was Chairman and Chief
Executive Officer of Varo, Inc., a manufacturer of defense electronics, and from
1985 to 1987, Mr. Gero was President and Chief Executive Officer of Varo, Inc.
Mr. Gero also serves as a director of the following public companies:
Recognition Equipment, Inc., a publicly-owned company engaged in providing
hardware, software and services to automate work processing systems; American
Medical Electronics, Inc., a publicly-owned company engaged in manufacturing and
distributing orthopedic and neurosurgical medical devices; and Spar Aerospace
Ltd., engaged in space robotics, communications equipment and aerospace products
and services. Since July 1994, Mr. Gero has been a Director of Leslie Building
Products.
GENE H. BISHOP, from March 1975 until July 1990, was Chief Executive
Officer of MCorp, a bank holding company, and from October 1990 to November
1991, was Vice Chairman and Chief Financial Officer of Lomas Financial
Corporation, a financial services company. From November 1991 until his
retirement in October 1994, Mr. Bishop served as Chairman and Chief Executive
Officer of Life Partners Group, Inc., a life insurance holding company, of which
he continues to serve as a director. Mr. Bishop also serves as a director of the
following publicly-owned companies: First USA, Inc., engaged in the credit card
business; Liberte Investors Inc., engaged in real estate loans and investments;
Southwest Airlines Co., a regional airline; and Southwestern Public Service
Company, a public utility.
FREDRIC M. ZINN has also been Chief Financial Officer of Leslie
Building Products since July 1994. Mr. Zinn is a Certified Public Accountant.
HARVEY J. KAPLAN has also been Secretary and Treasurer of Leslie
Building Products since July 1994. Mr. Kaplan is a Certified Public Accountant.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who beneficially own
more than ten percent of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the American Stock Exchange. Officers, directors and greater than
ten-percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
Based on its review of the copies of such forms received by it, the
Company believes that during 1995 all such filing requirements applicable to its
officers and directors (the Company not being aware of any ten percent holder
during 1995 other than Edward W. Rose, III a Director) were complied with.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Per Share Market Price Information
The Common Stock of the Company is traded on the American Stock
Exchange (symbol: DW). On March 19, 1996, there were 2,473 holders of record of
the Common Stock. The Company estimates that 2,000 to 4,000 additional
stockholders own shares of its Common Stock held in the name of Cede & Co. and
other broker and nominee names.
The table below sets forth, for the periods indicated, the range of
high and low closing prices per share for the Common Stock as reported by the
American Stock Exchange since February 8, 1995, and by the National Association
of Securities Dealers ("NASD") prior to February 8, 1995. The prices set forth
below for the period prior to February 8, 1995 represent quotations between
dealers, without adjustment for retail mark-up, mark-down or commissions, and do
not necessarily represent actual transactions. Prices subsequent to July 28,
1994 reflect the Spin-off of Leslie Building Products.
High Low
Calendar 1994
Quarter ended March 31 ....... $11.25 $ 8.38
Quarter ended June 30 ....... $11.00 $ 9.75
Quarter ended September 30 ....... $11.00 $ 8.25
Quarter ended December 31 ....... $ 9.00 $ 8.25
Calendar 1995
Quarter ended March 31 ....... $10.50 $ 8.38
Quarter ended June 30 ....... $13.13 $10.38
Quarter ended September 30 ....... $13.88 $11.50
Quarter ended December 31 ....... $16.38 $12.63
The closing price per share for the Common Stock on March 19, 1996 was
$14.375.
Dividend Information
The Company has not paid any cash dividends on its Common Stock. Future
dividend policy with respect to the Common Stock will be determined by the Board
of Directors of the Company in light of prevailing financial needs and earnings
of the Company and other relevant factors.
The Company's dividend policy is subject to restrictions contained in
financing agreements relating to its secured line of credit, which provide that
dividends upon the Common Stock may be payable only with the consent of the
lender. See Note 7 of Notes to Consolidated Financial Statements.
Item 6. SELECTED FINANCIAL DATA, Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, and Item 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA, are incorporated by reference to Selected Financial
Data, Financial Review, and Consolidated Financial Statements and Notes to
Consolidated Financial Statements, respectively, in the Company's Annual Report
to Stockholders for the year ended December 31, 1995.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Part III of Form 10-K is incorporated by reference to the Company's
Proxy Statement with respect to its Annual Meeting of Stockholders to be held on
April 18, 1996.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES and REPORTS ON FORM 8-K
(a) Documents Filed
(1) Financial Statements. The Consolidated Financial Statements of
the Company and its subsidiaries are incorporated by reference
to the Consolidated Financial Statements and Notes to
Consolidated Financial Statements in the Company's Annual
Report to Stockholders for the year ended December 31, 1995.
(2) Schedules. Schedule II - Valuation and Qualifying Accounts.
(3) Exhibits. See "List of Exhibits" at the end of this report
incorporated herein by reference.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed during the quarter ended
December 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DREW INDUSTRIES INCORPORATED
Date: March 20, 1996 By: /s/ Leigh J. Abrams
-------------------
Leigh J. Abrams, President
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and dates indicated.
Each person whose signature appears below hereby authorizes Leigh J.
Abrams and Harvey J. Kaplan, or either of them, to file one or more amendments
to the Annual Report on Form 10-K which amendments may make such changes in such
Report as either of them deems appropriate, and each such person hereby appoints
Leigh J. Abrams and Harvey J. Kaplan, or either of them, as attorneys-in-fact to
execute in the name and on behalf of each such person individually, and in each
capacity stated below, such amendments to such Report.
Date Signature Title
- ---- --------- -----
March 20, 1996 By: /s/ Leigh J. Abrams Director, President and Chief
(Leigh J. Abrams) Executive Officer
March 20, 1996 By: /s/ Harvey J. Kaplan Secretary and Treasurer
(Harvey J. Kaplan)
March 20, 1996 By: /s/ Fredric M. Zinn Chief Financial Officer
(Fredric M. Zinn)
March 20, 1996 By: /s/ John F. Cupak Controller
(John F. Cupak)
March 20, 1996 By: /s/ Edward W. Rose, III Director
(Edward W. Rose,III)
March 20, 1996 By: /s/ David L. Webster Director
(David L. Webster)
March 20, 1996 By: /s/ James F. Gero Director
(James F. Gero)
March 20, 1996 By: /s/ Gene H. Bishop Director
(Gene H. Bishop)
EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
- ------- ----------- -------------
3. Articles of Incorporation and By-laws.
3.1 Drew Industries Incorporated Restated Certificate of
Incorporation.
3.2 Drew Industries Incorporated By-laws, as amended.
Exhibit 3.1 is incorporated by reference to Exhibit III to the Proxy
Statement-Prospectus constituting Part I of the Drew National Corporation and
Drew Industries Incorporated Registration Statement on Form S-14 (Registration
No. 2-94693).
Exhibit 3.2 is incorporated by reference to the Exhibit bearing the same
number included in the Annual Report of Drew Industries Incorporated on Form
10-K for the fiscal year ended August 31, 1985.
10. Material Contracts.
10.27 Lease between Kinro, Inc. and Robert A. White and Larry B.
White, dated June 1, 1979, as amended.
10.39 Leases between Robert A. White, Larry B. White and Kinro,
Inc. dated July 25, 1983, as amended.
10.47 Registration Agreement among Drew Industries Incorporated
and the Leslie-Locke Shareholders dated August 28, 1985.
10.49 Loan and Pledge Agreements between Drew Industries
Incorporated and Robert S. Sandlin, Ralph C. Pepper and
James S. Roach, respectively, dated August 28, 1985.
10.56 Agreement by and between Drew Industries Incorporated and
Invest, Inc., dated October 16, 1986.
10.57 Security Agreement by and among Drew Industries Incorporated,
Invest, Inc. and Carsons of Atlanta, Inc., dated October
16, 1986.
10.58 Pledge and Security Agreement by and between Drew Industries
Incorporated and Invest, Inc., dated October 16, 1986.
10.59 Secured Promissory Note in the amount of $795,000 of Invest,
Inc., dated October 16, 1986.
10.66 Employment Agreement by and between Kinro, Inc. and David L.
Webster, dated July 31, 1986, effective September 1, 1986.
10.91 Lease between Kinro, Inc. and 1700 Industry Associates, dated
April 30, 1987.
10.100 Drew Industries Incorporated Stock Option Plan.
10.122 Guaranty and Noncompetition Agreement given by Drew
Industries Incorporated and Leslie-Locke, Inc., in favor of
R.D. Werner Co., Inc., dated as of November 23, 1990.
10.134 Letter, dated April 28, 1988, from Drew Industries
Incorporated to Leigh J. Abrams confirming compensation
arrangement.
10.135 Description of split-dollar life insurance plan for certain
executive officers.
10.139 Guaranty Agreement between Drew Industries, Inc. and BBT
dated June 21, 1993.
10.140 Credit Agreement dated as of July 30, 1993 among Drew
Industries Incorporated, Kinro, Inc., Leslie-Locke, Inc. and
Chemical Bank.
10.141 $15,000,000 Revolving Note of Kinro, Inc. to Chemical Bank
dated July 30, 1993.
10.142 $15,000,000 Revolving Note of Leslie-Locke, Inc. to Chemical
Bank dated July 30, 1993.
10.143 Pledge and Security Agreement dated as of July 30, 1993
between Drew Industries Incorporated and Chemical Bank.
10.144 Patent and Trademark Security Assignment (As Collateral)
dated as of July 30, 1993 between Kinro, Inc. and Chemical
Bank.
10.145 $15,000,000 Intercompany Notes from Drew Industries
Incorporated to Kinro, Inc. and Leslie-Locke, Inc., and from
Kinro, Inc. and Leslie-Locke, Inc. to Drew Industries
Incorporated dated July 30, 1993.
10.146 Form of Plan and Agreement of Distribution between Leslie
Building Products, Inc. and Drew Industries Incorporated
dated July 29, 1994.
10.147 Form of Shared Services Agreement between Leslie Building
Products, Inc. and Drew Industries Incorporated dated
July 29, 1994.
10.148 Form of Tax Matters Agreement between Leslie Building Products,
Inc. and Drew Industries Incorporated dated July 29, 1994.
10.149 Credit Agreement dated July 29, 1994 among Drew Industries
Incorporated, Kinro, Inc. and Chemical Bank.
10.150 Pledge Agreement dated as of July 29, 1994 made by Drew
Industries Incorporated in favor of Chemical Bank.
10.151 Asset Purchase Agreement, dated February 15, 1996, by and
among Shoals Supply, Inc., Lecil V. Thomas, and Drew
Industries Incorporated.
10.152 Non-Negotiable Promissory Note, dated February 15, 1996, of
Shoals Acquisition Corp., to the order of Shoals Supply, Inc.
in the principal amount of $760,000, guaranteed by Drew
Industries Incorporated.
10.153 Bill of Sale, dated February 15, 1996 by and between Shoals
Supply, Inc. and Drew Industries Incorporated.
10.154 Registration Rights Agreement, dated February 15, 1996, by and
among Drew Industries Incorporated, Shoals Supply, Inc., and
Lecil V. Thomas.
10.155 Consulting and Non-Competition Agreement, dated February 15,
1996, by and between Drew Industries Incorporated and Lecil V.
Thomas.
10.156 Leases, dated February 15, 1996, between Thomas Family
Partnership, Ltd. and Shoals Acquisition Corp.
10.157 Employment Bonus Agreements, dated February 15, 1996, by and
between Shoals Supply, Inc. and the employees named therein.
10.158 Assignment, dated February 15, 1996, by and among Shoals Supply,
Inc., Lecil V. Thomas and Drew Industries Incorporated.
Exhibit 10.27 is incorporated by reference to the Exhibits bearing the same
number indicated on the Registration Statement of Drew National Corporation on
Form S-1 (Registration No. 2-72492).
Exhibit 10.39 is incorporated by reference to the Exhibit included in the
Annual Report of Drew National Corporation on Form 10-K for the fiscal year
ended August 31, 1983.
Exhibits 10.47 and 10.49 are incorporated by reference to the Exhibits
included in the Company's Current Report on Form 8-K dated September 6, 1985.
Exhibits 10.56-10.59 and 10.66 are incorporated by reference to the
Exhibits bearing the same numbers included in the Company's Annual Report on
Form 10-K for the fiscal year ended August 31, 1987.
Exhibit 10.91 is incorporated by reference to the Exhibits bearing the same
numbers included in the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1987.
Exhibit 10.100 is incorporated by reference to Exhibit A to the Proxy
Statement of the Company dated May 10, 1995.
Exhibit 10.122 is incorporated by reference to the Exhibits included in the
Company's Current Report on Form 8-K, dated November 28, 1990.
Exhibits 10.123-10.130 are incorporated by reference to the Exhibits
included in the Company's Current Report on Form 8-K dated December 23, 1991.
Exhibits 10.131 and 10.132 are incorporated by reference to the Exhibits
included in Amendment No. 5 on Form 8, dated October 20, 1992, to the Company's
Current Report on Form 8-K dated January 9, 1987.
Exhibit 10.134 is incorporated by reference to the Exhibit bearing the same
number included in the Company's Transition Report on Form 10-K for the period
September 1, 1992 to December 31, 1993.
Exhibit 10.135 is incorporated by reference to the Exhibit bearing the same
number included in the Company's Transition Report on Form 10-K for the period
September 1, 1992 to December 31, 1993.
Exhibits 10.139-10.145 are incorporated by reference to the Exhibits
bearing the same number included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1993.
Exhibits 10.146-10.148 are incorporated by reference to the Exhibits
bearing numbers 10.1, 10.3 and 10.4, respectively, included in Post-Effective
amendment No. 1 on Form 10/A, dated August 30, 1994, to the Registration
Statement of Leslie Building Products, Inc. on Form 10 (Registration No.
0-24094).
Exhibits 10.149 and 10.150 are incorporated by reference to the Exhibits
bearing the same numbers included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
Exhibits 10.151 - 10.158 are incorporated by reference to the Exhibits
included in the Company's Current Report on Form 8-K dated February 29, 1996.
13. 1995 Annual Report to Stockholders.
Exhibit 13 is filed herewith. ____________
21. Subsidiaries
Exhibit 21 is filed herewith. ____________
23. Consent of Independent Auditors.
Exhibit 23 is filed herewith. ____________
24. Powers of Attorney.
Powers of Attorney of persons signing this Report are
included as part of this Report.
27. Financial Data Schedule
Exhibit 27 is filed herewith and included in the EDGAR
document only.
Report of Independent Auditors
The Board of Directors
Drew Industries Incorporated
Under date of February 19, 1996, we reported on the consolidated balance sheets
of Drew Industries Incorporated and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1995 as contained on pages 13 through 26 in the 1995 annual report to
stockholders. These consolidated financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for the year 1995.
In connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related schedule as listed in Item 14. This
schedule is the responsibility of the company's management. Our responsibility
is to express an opinion on this schedule based on our audits.
In our opinion, such schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
Stamford, Connecticut
February 19, 1996
<TABLE>
<CAPTION>
DREW INDUSTRIES INCORPORATED AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- ------------------------- -------- --------
Additions
-------------------------
Balance At Charged To Charged To Balance At
Beginning Costs and Other End
Of Period Expenses Accounts Deductions Of Period
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts
receivable, trade $197 $ 74 $ 5(a) $266
Reserve for liquidation losses -
disposal of businesses 9 9
Reserve for revaluation of loans 319 15 334
Reserve for notes receivable 533 46 (113)(b) 692
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts
receivable, trade $177 $ 17 $ (3)(a) $197
Reserve for liquidation losses -
disposal of businesses 9 9
Reserve for revaluation of loans 304 15 319
Reserve for notes receivable 564 144 175(b) 533
YEAR ENDED DECEMBER 31, 1993
Allowance for doubtful accounts
receivable, trade $135 $ 37 $ (5)(a) $177
Reserve for liquidation losses -
disposal of businesses 9 9
Reserve for revaluation of loans 620 27 343(c) 304
Reserve for notes receivable 780 144 360(b) 564
</TABLE>
- ------------
(a) Represents accounts written-off net of recoveries.
(b) Represents writeoff of uncollectible portion of notes, net of recoveries
(c) Represents a $180,000 increase in valuation of loans as a result of sale of
collateral and a reduction in the reserve of $163,000 as a result of a
foreclosure.
<PAGE>
QUALITY PRODUCTS FOR MANUFACTURED HOMES AND RV'S
DREW INDUSTRIES INCORPORATED
[LOGO]
ANNUAL REPORT 1995
<PAGE>
Kinro Manufactured Housing Products
[ILLUSTRATION]
A drawing of an aluminum or vinyl window and manufactured homes appears here in
the printed document.
Recreational Vehicle Products
[ILLUSTRATION]
A drawing of recreational vehicles appears here in the printed document.
The February 15, 1996 acquisition of Shoals Supply adds axles, tires and chassis
parts for the manufactured housing industry to our product lines.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Fiscal Year
Year Ended December 31, Ended August 31,(a)
------------------------------ -------------------
(In thousands, except per share amounts) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $100,084 $82,965 $67,065 $50,703 $41,855
Income From Continuing Operations(b) $ 7,822 $ 5,570 $ 6,368(c) $ 3,945 $ 2,069
Income Per Common Share from Continuing
Operations(b) $ 1.58 $ 1.14 $ 1.34(c) $ .85 $ .44
Working Capital(b) $ 8,820 $ 6,017 $17,706 $11,948 $10,763
Stockholders' Equity(b) $ 16,002 $ 8,072 $22,376 $14,164 $10,383
Book Value Per Common Share(b) $ 3.23 $ 1.64 $ 4.62 $ 3.03 $ 2.23
</TABLE>
(a) Effective December 31, 1992, the Company changed its year end from August
31 to December 31.
(b) On July 29, 1994, the Company spun off to stockholders its wholly-owned
subsidiary, Leslie Building Products. The results of Leslie Building
Products prior to the Spin-off are reflected as discontinued operations in
the accompanying Consolidated Financial Statements. On the date of the
Spin-off the net assets of Leslie Building Products was $20.3 million.
Accordingly, upon the Spin-off the Company's equity was reduced by $20.3
million.
(c) Includes income of $1,609,000 ($.34 per share) relating to a refund of
prior years' Federal income taxes and interest thereon.
Net Sales Income From Continuing Operations
In millions In millions
[BAR GRAPH] [BAR GRAPH]
1995 $100 1995 $7.8
1994 $83 1994 $5.6
1993 $67 1993 $6.4(c)
1992 $51 1992 $3.9
1991 $42 1991 $2.1
Earnings Per Share From Continuing Operations
In dollars
[BAR GRAPH]
1995 $1.58
1994 $1.14
1993 $1.34(c)
1992 $.85
1991 $.44
1
DREW INDUSTRIES INCORPORATED
<PAGE>
CORPORATE GOAL
Drew has committed its financial and managerial resources to maximizing
shareholder value. Through the efforts of its employees, the Company has become
a leading nationwide supplier to the manufactured housing and recreational
vehicle industries. The management team of Kinro, Inc., Drew's operating
subsidiary, is motivated to maintain an entrepreneurial spirit, operating
autonomously within the corporate strategy and financial framework developed in
conjunction with Drew's executive staff.
Per Share Market Price Range
A summary of the high and low closing prices of the Company's common
stock, on the American Stock Exchange from February 8, 1995 and on the NASDAQ
National Market prior to that date, is as follows:
1995 1994
---------------- ---------------
High Low High Low
- -----------------------------------------------------------------
Quarter Ended March 31 $10.50 $ 8.38 $11.25 $8.38
Quarter Ended June 30 $13.13 $10.38 $11.00 $9.75
Quarter Ended September 30 $13.88 $11.50 $11.00 $8.25
Quarter Ended December 31 $16.38 $12.63 $ 9.00 $8.25
The closing price per share for the common stock on March 5, 1996 was
$15.38 and there were 2,473 holders of Drew Common Stock, not including
beneficial owners of shares held in broker and nominee names. Prices subsequent
to July 28, 1994 give effect to the share for share Spin-off of Leslie Building
Products.
Dividend Information
Drew has not paid any dividends on its outstanding shares of Common Stock.
2
DREW INDUSTRIES INCORPORATED
<PAGE>
OPERATIONS
Kinro, Inc. - Manufactured Housing and Recreational Vehicle Products
Kinro, Drew's operating subsidiary, is one of the leading producers of
(i) aluminum and vinyl windows for manufactured homes and (ii) windows and doors
for recreational vehicles ( "RV's" ). Many of the producers of manufactured
homes, to whom Kinro sells windows, also manufacture RV's. Kinro has eight
domestic manufacturing plants located in geographic areas which provide it with
access to its major markets, and a Maquila-dora operation in Juarez, Mexico.
The February 15, 1996 acquisition of Shoals Supply adds axles, tires and
chassis parts for the manufactured housing industry to our product lines, and
expands our production capabilities by the addition of five plants in four
states.
Plant Locations
[MAP]
The Kinro and Shoals Supply locations listed below are displayed on a map of the
United States and represented by a diamond and circle, respectively, in the
printed document.
Number of Locations
-------------------
Shoals
Kinro Supply
----- ------
Alabama 1 2
California 1 -
Georgia 1 -
Indiana 2 -
North Carolina 1 1
Ohio 1 -
Tennessee - 1
Texas 1 -
Mexico 1 -
3
DREW INDUSTRIES INCORPORATED
<PAGE>
LETTER TO STOCKHOLDERS
March 6, 1996
The past year was truly outstanding for Drew and we are pleased to report the
following:
o Record sales of $100 million - up 21% from 1994.
o Record net income of $7.8 million - up 42% from last year.
o Record per share net income of $1.58 compared to $1.14 income from
continuing operations for last year.
o No bank debt at December 31, 1995. Short-term investments of $3.6
million at December 31, 1995, compared to $4.1 million of bank debt
last year-end.
o Return on equity of 65%.
o More than a 90% increase in the Company's market value since our listing
on the American Stock Exchange on February 8, 1995.
o The acquisition of Shoals Supply, Inc. (which was announced in September
1995) was completed on February 15, 1996. Results for 1995 do not
include Shoals.
o The acquisition of Star Windows in November 1995.
Shoals Supply, Inc. (Bear Creek, Alabama), a privately-owned company,
manufactures, refurbishes and distributes new and used axles and tires and
chassis parts, to manufacturers of manufactured homes. Shoals operates five
locations in four states, and had 1995 sales of approximately $57 million. On a
pro forma basis with Shoals, Drew's revenues for 1995 would have been $157
million and earnings per share would have been $1.72.
The purchase price for the net assets and business of Shoals, consists of
approximately 545,000 shares of Drew Common Stock (10% of Drew's outstanding
shares) valued at $7.5 million, and cash and a note of approximately $2.0
million. In addition, Drew assumed $7.5 million of Shoals' bank debt and certain
other operating liabilities. Approximately $11 million of goodwill will be
recorded on this acquisition. The acquisition is expected to be non-dilutive and
should add modestly to 1996 earnings per share.
Shoals will be under the management umbrella of David L. Webster, President
and CEO of Kinro, Inc., Drew's wholly-owned subsidiary engaged in the
manufacture of aluminum and vinyl windows for use in manufactured homes, and
windows and doors for use in recreational vehicles. Kinro, based in Arlington,
Texas, operates eight domestic factories and a Maquilodora operation in Juarez,
Mexico.
Shoals will expand Kinro's presence in the manufactured housing industry by
making Kinro an even more essential supplier to its customers. This should
further our success as a low cost supplier offering superior service and quality
products. Shoals, like Kinro, is an outstanding company that has won awards of
excellence from its customers.
4
DREW INDUSTRIES INCORPORATED
<PAGE>
LETTER TO STOCKHOLDERS
Star Window (Elkhart, Indiana), with sales of less than $1 million, was
acquired in November 1995 for $300,000 cash. The Star Window line represents
Kinro's initial entry into the niche window market for mini buses. Kinro is
currently building a second Goshen, Indiana factory and will have Star occupy a
portion of the premises with the remainder of the facility being used to expand
Kinro's capacity. We expect to increase Star's market share.
In addition to Kinro's growth through acquisitions, 1995 represented a
continuation of Kinro's internal growth and extraordinary results. Sales broke
the $100 million mark for the first time and market share improved. The
manufactured housing industry reported growth of 12% to 341,000 homes while
Kinro's product sales to the manufactured housing industry increased 36%.
Manufactured housing sales now represents 70% of Kinro's sales, up from 62% last
year. Much of this increase relates to higher sales of Kinro's relatively new
vinyl window as well as price increases to cover higher raw material costs. The
RV industry experienced an interruption of the rapid growth during the last
several years with sales of RV's declining 5% to 247,000 units. Kinro's sales of
RV products decreased 4% during 1995.
Kinro's eight factories, and in particular those facilities which supply
products for manufactured housing, are nearing full capacity. In anticipation of
future growth, Kinro expanded its Goshen #1 factory during 1994 as indicated
above and is building Goshen #2 during 1996. In addition, Kinro will build
another factory during 1996 for use by the manufactured housing division
principally to increase its capacity to produce vinyl windows. Kinro continues
to improve its product line in both quality and function, and aims to offer
superior service to its customers.
Our long standing policy of rewarding all levels of management through
incentives based upon operating results sparks the entrepreneurial spirit that,
in our opinion, is responsible for the record results of Drew. We anticipate
benefitting from this trend in 1996.
/s/ Edward W. Rose, III
Edward W. Rose, III
Chairman
/s/ Leigh J. Abrams
Leigh J. Abrams
President and Chief Executive Officer
5
DREW INDUSTRIES INCORPORATED
<PAGE>
ABOUT THE COMPANY
Kinro is a leading supplier to both the manufactured housing and RV
industries. Approximately 70% of Kinro's 1995 product sales are for manufactured
homes, industry shipments of which have doubled since 1991 to 341,000 homes in
1995. The acquisition of Shoals Supply, which had 1995 sales of approximately
$57 million, makes Kinro an even more essential supplier to its customers in the
manufactured housing industry. Kinro also has a significant market share in the
products it supplies to the RV industry, which has strong demographics for
future growth. Shipments of RV's increased more than 50% from 1991 through 1994,
then fell slightly to 247,000 units in 1995.
Kinro's record of growth, profitability and strong cash flow results from
its ability to supply high quality products and superior service while
maintaining the most efficient and lowest cost production techniques. Kinro
responds quickly to the demands of its customers and has been an industry leader
in meeting the strict quality and safety standards for its products.
Kinro's customers include the most highly regarded companies in the
manufactured housing and RV industries, Kinro has received numerous awards of
excellence from its customers in recognition of its superior service.
Manufactured Housing Industry
A manufactured home is an affordable single family, factory-built
structure, transportable in one or more sections, for use as a dwelling with or
without a permanent foundation and includes plumbing, heating, air-conditioning
and electrical systems. The homesite is often improved with lawns and other
landscaping. Modern manufactured housing bears little resemblance to the old
"trailer" or "mobile homes". These factory-built homes may come with peak and
slanted roofs, cathedral ceilings, sky-lights, storm windows, wood siding, and
fireplaces.
- --------------------------------------------------------------------------------
Kinro Product Sales
1995 Sales - $100 million
[PIE CHART]
Mfg. Housing 70%
RV Products 30%
- --------------------------------------------------------------------------------
Sales of factory-built homes have steadily gained market share from
site-built homes because they represent the most affordable choice of single
family homes. Also, financing alternatives for buyers of manufactured homes, as
well as zoning regulations, are becoming more favorable. Many more families
qualify for a mortgage for a manufactured home which is usually less than half
the price of a site-built home. As a result of the high cost of site-built homes
and related mortgage costs, the American dream of ownership of a conventional
home has become too expensive for many people, and manufactured housing has
become the only affordable home. Manufactured homes, which have an average price
of around $35,000 (excluding land) are built to a stringent national building
code developed and administered by the U.S. Department of Housing and Urban
Development (HUD).
6
DREW INDUSTRIES INCORPORATED
<PAGE>
ABOUT THE COMPANY
Recreational Vehicle Industry
An RV is, in effect, a traveling home which affords the owner the mobility
to enjoy travel while providing all the comforts of home.
RV's are available in a wide range of sizes and styles, which are
classified into three main categories:
o Towables with average prices ranging from $4,000 to $20,000.
o Motor Homes with prices ranging from an average of $30,000 to more than
$100,000.
o Van Conversions which are customizations of the standard van chassis and
have average prices of around $25,000.
Kinro's products are used in towables and to a lesser extent in motor
homes. They are not used in vans.
- --------------------------------------------------------------------------------
Industry Shipments of Mfg. Homes & RV's
(In thousands)
[BAR GRAPH]
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Mfg. Homes 171 211 254 304 341
RV's 170 203 228 259 247
- --------------------------------------------------------------------------------
U.S. demographic trends continue to favor the RV industry. The typical
first-time RV buyer is in his or her late 40's or early 50's, which is the most
rapidly expanding age group in the U.S. Moreover, the last sales peak for RV's
was in the 1970's and since the average life of an RV is 15 to 20 years, there
will be fewer used RV's available in the coming years to satisfy demand, thus
providing further impetus for new sales.
7
DREW INDUSTRIES INCORPORATED
<PAGE>
FINANCIAL REVIEW
The Company, through its wholly-owned subsidiary Kinro, Inc. ("Kinro")
manufactures and markets windows for manufactured housing and mini buses, as
well as 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 eight plants located in
geographic areas throughout the United States and a Maquiladora operation in
Juarez, Mexico, which provide it with access to its major markets.
On February 15, 1996, the Company completed the acquisition of the assets
and business of Shoals Supply, Inc., ("Shoals"), a privately-owned Alabama
corporation which manufactures, refurbishes and distributes new and used axles,
tires, chassis components and related products and services for the manufactured
housing industry. Shoals had 1995 net sales of approximately $57 million.
On July 29, 1994, the Company spun off Leslie Building Products, Inc., its
home improvement building products segment, ("Leslie Building Products"), to
shareholders on a one-for-one basis (the "Spin-off"). Thereafter Leslie Building
Products became a stand-alone company whose common shares are publicly traded.
On the date of the Spin-off 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.
Results of Operations
Net sales, gross margin and operating profit are (in thousands):
Year Ended December 31,
----------------------------
1995 1994 1993
---- ---- ----
Net sales $100,084 $82,965 $67,065
Gross profit $ 27,482 $22,436 $19,223
Operating profit $ 12,791 $ 9,149 $ 7,880
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales for the year ended December 31, 1995 increased 21% over last
year, resulting from a 35% increase in the sales of manufactured housing
products. 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. In order to hedge the
impact of price fluctuations on a portion of its future aluminum raw material
requirements, the Company has been purchasing aluminum futures on the London
Metals Exchange. Industry-wide shipments of manufactured homes increased 12%.
Kinro's net sales of RV products decreased 4% for the year, despite price
increases, following the trend of industry-wide shipments of RV's, which were
down approximately 5% for the year.
Operating profit increased 40% to $12,791,000 for 1995. While material
costs as a percentage of sales were higher in 1995 than in 1994, higher sales
and improved operating efficiencies resulted in a slight improvement in gross
margin. Selling, general and administrative expenses for 1994 included $462,000
of costs relating to the Spin-off of Leslie Building Products on July 29, 1994.
Excluding these costs, selling, general and administrative expenses for 1995
increased 15% which is less than the increase in sales since a substantial
portion of these expenses are fixed costs which do not fluctuate with sales.
8
DREW INDUSTRIES INCORPORATED
<PAGE>
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Net sales for the year ended December 31, 1994, increased 24% over 1993 as
a result of the continued improvement in both the RV industry and the
manufactured housing industry as well as increased market share. Net sales of RV
products increased 20% over 1993 compared to a 14% industry-wide increase for
the year. Net sales to the manufactured housing industry were 26% above 1993,
which is higher than industry-wide statistics which reflect an increase of 20%.
Operating profit increased 16% to $9,149,000 for the year ended December
1994. The effect of the increased volume on operating profit was partially
offset by (i) $462,000 of expenses relating to the Spin-off of Leslie Building
Products and to the write-off of deferred financing costs and (ii) a 1.7
percentage point decrease in gross margin due to higher aluminum costs. Aluminum
prices at December 31, 1994 were approximately 70% higher than they were in
January 1994. In order to hedge the impact of price fluctuations on a portion of
its future aluminum raw material requirements, the Company purchased aluminum
futures contracts on the London Metal Exchange. Selling, general and
administrative expenses increased 17% for the year, which is substantially 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. In addition, selling, general and administrative expenses includes
the $462,000 of expenses related to the Spin-off of Leslie Building Products and
to the write-off of deferred financing costs, noted above.
Shared Services Agreement
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, such as management
overview and planning, tax preparation, financial reporting, coordination of
independent audit, stockholder relations, and regulatory matters. 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. The
Company charged fees to Leslie Building Products of $588,000 during 1995 and
$889,000 during 1994 including $340,000 pursuant to the Shared Services
Agreement for the five months subsequent to the Spin-off. These fees are
included in selling, general and administrative expenses.
Interest Income (Expense), Net
Net interest income increased by $147,000 for 1995 from 1994 primarily as
a result of operating cash flow. Interest expense on the Company's debt to its
secured lender was $81,000 compared to $141,000 for 1994. Such debt was paid off
on June 1, 1995 and cash flow from operations since then was invested in
short-term investments resulting in interest income of $144,000. The Company
earned additional interest income of $134,000 for 1995 and $251,000 for 1994
primarily from the notes receivable and the related cash collateral account
arising from the Company's 1986 sales of its direct-to-consumer merchandising
operations.
Net interest income decreased by $652,000 for 1994 from 1993 primarily
because 1993 includes $745,000 of interest income on a Federal income tax
refund. Due to lower average debt as a result of operating cash flow, interest
expense on the Company's debt to its secured lender was $141,000 compared to
$178,000 for 1993 despite the assumption of $5 million of Leslie Building
Products' debt by the Company upon the Spin-off. The Company earned interest
income of $251,000 for 1994 and $213,000 (excluding the interest on the tax
refund) for 1993 from the notes receivable and the related cash collateral
account arising from the Company's 1986 sales of its direct-to-consumer
merchandising operations.
Income Taxes
Pursuant to a tax sharing agreement between the Company and Leslie Building
Products, through July 29, 1994, the Company allocated Federal income taxes to
Leslie Building Products based upon its income and generally provided state
income taxes on a separate return basis. Any benefit recognized by the Drew
consolidated group associated with losses by Leslie Building Products was
allocated to Leslie Building Products.
In June 1993, the Company received a tax refund from the Internal Revenue
Service in the amount of $1,142,000, plus interest of $745,000. The refund, for
which the Company had applied in February 1991, had not been recorded by the
Company in prior fiscal years since it was subject to audit by the Internal
Revenue Service. The tax portion of the refund of $1,142,000 ($.24 per share)
was recorded as a reduction of income tax expense and the interest of $745,000
($.10 per share, after applicable tax provision) was recorded as interest
income.
9
DREW INDUSTRIES INCORPORATED
<PAGE>
Accounting Changes
In 1995 the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". The effect of the adoption was immaterial.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", effective for years beginning after December 15,
1995, permits companies either to adopt a new method of accounting for employee
stock options and similar equity instruments or to continue following the
historical accounting method with supplemental pro forma disclosures. The
Company will continue its historical practice, and provide the necessary
additional information when it adopts the standard in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $6 million 3 year credit agreement with Chemical Bank
which matures on July 29, 1997 and is secured by substantially all assets of the
Company and its subsidiary. Interest 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. At December 31,
1995, there were no outstanding borrowings under the line of credit. In
addition, the Company had short-term investments of $3.6 million at December 31,
1995.
The Statements of Cash Flows reflect the following (in thousands):
Year Ended December 31,
---------------------------
1995 1994 1993
---- ---- ----
Net cash flows provided by
continuing operations $ 9,593 $ 6,475 $ 7,525
Net cash flows (used for)
investment activities $(2,274) $(8,563) $(6,986)
Net cash flows (used for)
provided by financing activities $(3,760) $ 2,407 $ 366
Net cash provided by operating activities from continuing operations for
1995 was $9.6 million compared to $6.5 million for 1994. Accounts receivable
rose 35% in 1995 and 13% in 1994 resulting primarily from the increase in
sales. Inventories increased $.5 million (5%) in 1995 compared to $2.9 million
(38%) for 1994. The increase in inventories in 1994 was intentional in view of
conditions in the aluminum market. Payables increased $2.4 million and $2.8
million in 1995 and 1994, respectively.
Capital expenditures approximated $1.9 million in 1995, $1.2 million for
1994 and $1.9 million in 1993. Capital expenditures are expected to increase to
approximately $7 million in 1996 primarily as a result of the opening of two new
facilities. Such capital expenditures are expected to be funded from borrowings
under the line of credit and cash flow from operations. Cash flows used for
investing activities in 1994 and 1993 includes Drew's funding of Leslie Building
Products of $7.5 million and $5.1 million, respectively. Leslie Building
Products was spun off to the Company's stockholders as of July 29, 1994.
Cash flows used for financing activities in 1995 includes the repayment of
the Company's secured debt of $4 million, offset by $.4 million from the
exercise of employee stock options and the income tax benefits resulting
therefrom.
10
DREW INDUSTRIES INCORPORATED
<PAGE>
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.
On August 9, 1995 the chapter 7 Trustee of White Metal 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 alleged tax
savings achieved. Management denies any liability for the amount claimed by the
Trustee and intends to vigorously defend this claim. Management believes it has
substantial and meritorious defenses, however, an estimate of potential loss, if
any, cannot be made at this time.
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 1995, the Company
purchased 29,875 shares of treasury stock at a cost of $333,000.
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 had
been volatile and at December 31, 1994 were approximately 70% higher than they
were in January 1994. Prices have been relatively stable in the second half of
1995. In order to hedge the impact of future price fluctuations on a portion of
its future aluminum raw material requirements, the Company has purchased
aluminum futures contracts on the London Metal Exchange. At December 31, 1995
the Company had futures contracts for 1.7 million pounds at an aggregate cost
of $1.4 million, which is approximately current market value. In addition, the
Company had forward purchase commitments for approximately 3.0 million pounds
of aluminum to be delivered over the next four months, at approximately current
market prices.
SUBSEQUENT EVENT - ACQUISITION
On February 15, 1996, the Company completed the acquisition of the assets
and business of Shoals Supply, Inc., ("Shoals"), a privately-owned Alabama
corporation which manufactures, refurbishes and distributes new and used axles,
tires, chassis components and related products and services for the manufactured
housing industry. Shoals had 1995 net sales of approximately $57 million.
The consideration for the acquisition was 544,959 shares of common stock of
Drew Industries having a value of $7.5 million, cash at closing of $1,225,000,
and a note for $760,000 payable over 5 years. In addition, the Company assumed
$7.5 million of Shoals' bank debt and certain operating liabilities. The
acquisition was financed with $3,225,000 of the Company's short-term investments
and a $6 million acquisition loan from Chemical Bank, which is expected to be
refinanced within 90 days.
The acquisition will be accounted for as a purchase. The aggregate purchase
price will be allocated to the underlying assets and liabilities based upon
their respective estimated fair values at the date of acquisition. Based on
preliminary estimates which will be finalized at a later date, the excess of
purchase price over the fair value of the net assets acquired ("goodwill") was
approximately $11 million, which will be amortized over 30 years.
The results of the acquired business will be included in the Company's
consolidated statements of income beginning February 16, 1996. On an unaudited
pro forma basis, assuming that the acquisition had occurred at the beginning of
1995, the Company would have had net income of $9,423,000 ($1.72 per share) on
sales of $156,833,000. Such unaudited pro forma data is not necessarily
indicative of the future results of operations of the combined operations.
11
DREW INDUSTRIES INCORPORATED
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the consolidated financial statements and related notes thereto included herein
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
Four Months
Fiscal Year Ended Ended
Year Ended December 31, Ended August 31, December 31,
-------------------------------- ------------------- ------------
1995 1994 1993 1992 1991 1992(a)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Operating Data
Net sales $100,084 $82,965 $67,065 $50,703 $41,855 $20,158
======= ======= ======= ======= ======= =======
Operating profit $ 12,791 $ 9,149 $ 7,880 $ 4,679 $ 2,980 $ 1,818
======= ======= ======= ======= ======= =======
Income from continuing operations before
income taxes and cumulative effect of
change in accounting methods $ 12,925 $ 9,136 $ 8,519(b) $ 4,327 $ 2,258 $ 1,744
Provision for income taxes 5,103 3,566 2,151(b) 382(c) 189(c) 699(b)
------- ------- ------- ------- ------- -------
Income from continuing operations before
cumulative effect of change in
accounting methods 7,822 5,570 6,368 3,945 2,069 1,045
Discontinued operations, net(d) (111) (726) (193) (326) (174)
Cumulative effect of change in accounting
methods 702(e)
------- ------- ------- ------- ------- -------
Net income $ 7,822 $ 5,459 $ 5,642 $ 3,752 $ 1,743 $ 1,573
======= ======= ======= ======= ======= =======
Income per common share:
Income from continuing operations before
cumulative effect of change in
accounting methods $ 1.58 $ 1.14 $ 1.34 $ .85 $ .44 $ .22
Discontinued operations, net (.02) (.15) (.05) (.07) (.03)
Cumulative effect of change in
accounting methods .15(e)
------- ------- ------- ------- ------- -------
Net income per common share $ 1.58 $ 1.12 $ 1.19 $ .80 $ .37 $ .34
======= ======= ======= ======= ======= =======
Financial Data
Working capital $ 8,820 $ 6,017 $17,706 $11,948 $10,763 $12,362
Total assets $28,231 $22,082 $31,664 $24,253 $20,436 $24,489
Long-term obligations(f) $ 311 $ 3,939 $ 2,513 $ 3,569 $ 5,632 $ 2,602
Stockholders' equity(g) $16,002 $ 8,072 $22,376 $14,164 $10,383 $15,751
</TABLE>
(a) Effective December 31, 1992, the Company changed its fiscal year end from
August 31 to December 31.
(b) The Company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("Statement 109") as of September 1, 1992,
the beginning of its four month transition period. The cumulative effect of
this change in accounting for income taxes resulted in the recognition of
income of $748,000. Pursuant to Statement 109, a benefit was recorded for
net operating loss carryforwards, consequently, a full Federal income tax
provision was required for the four months ended December 31, 1992 and
thereafter. In 1993 the Company received Federal income tax refunds of
$1,142,000, as well as interest thereon of $745,000.
(c) Under the provisions of Statement of Financial Accounting Standards No. 96
("Statement 96"), the classification of the tax benefit of a net operating
loss carryforward is based on the source of income in the current year that
is offset by the carryforward. Accordingly, in fiscal 1991 and 1992, the
Company's net operating loss carryforward was used to entirely offset its
provision for Federal income taxes, subject to the limitations of the
alternative minimum tax in fiscal 1992.
(d) See Note 5 of Notes to Consolidated Financial Statements.
(e) Represents cumulative adjustments to give effect to the adoption of the
following Statement(s) of Financial Accounting Standards ("SFAS") as of
September 1, 1992:
SFAS No. 106 (Postretirement benefits) $(46,000)
SFAS No. 109 (Income taxes) 748,000
--------
Total cumulative effect of change in accounting methods $702,000
========
(f) Includes long-term indebtedness, as well as long-term portion of
obligations under capital leases and long-term portion of postretirement
obligations.
(g) On July 29, 1994, the date of the Spin-off of Leslie Building Products,
Inc., (see Note 5 of Notes to Consolidated Financial Statements), 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.
12
DREW INDUSTRIES INCORPORATED
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
------------------------------
1995 1994 1993
---- ---- ----
(In thousands, except per share amounts)
Net sales (Note 11) $100,084 $82,965 $67,065
Cost of sales 72,602 60,529 47,842
-------- ------- -------
Gross profit 27,482 22,436 19,223
Selling, general and administrative expenses 14,691 13,287 11,343
-------- ------- -------
Operating profit 12,791 9,149 7,880
Interest income (expense), net (Note 8) 134 (13) 639
-------- ------- -------
Income from continuing operations before
income taxes 12,925 9,136 8,519
Provision for income taxes (Note 8) 5,103 3,566 2,151
-------- ------- -------
Income from continuing operations 7,822 5,570 6,368
Discontinued operations, net (Notes 5 and 8) (111) (726)
-------- ------- -------
Net income $ 7,822 $ 5,459 $ 5,642
======== ======= =======
Income per common share (Note 10):
Income from continuing operations $ 1.58 $ 1.14 $ 1.34
Discontinued operations, net (.02) (.15)
-------- ------- -------
Net income per common share $ 1.58 $ 1.12 $ 1.19
======== ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
13
DREW INDUSTRIES INCORPORATED
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31,
------------------
1995 1994
---- ----
(In thousands, except shares and per share amounts)
ASSETS
Current assets
Cash and short term investments $ 4,028 $ 469
Accounts receivable, trade, less allowances of $266 in
1995 and $197 in 1994 4,165 3,096
Inventories (Note 2) 11,024 10,509
Prepaid expenses and other current assets (Note 8) 1,521 2,014
------- -------
Total current assets 20,738 16,088
Fixed assets, net (Note 3) 5,594 4,320
Goodwill, net 319 199
Other assets 1,580 1,475
------- -------
Total assets (Note 7) $28,231 $22,082
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable, including current maturities of
long-term indebtedness and obligations under capital
leases (Notes 7 and 9) $ 128 $ 701
Accounts payable, trade 3,511 2,909
Accrued expenses and other current
liabilities (Notes 4 and 8) 8,279 6,461
------- -------
Total current liabilities 11,918 10,071
Long-term indebtedness (Note 7) 3,500
Other long-term liabilities (Note 9) 311 439
------- -------
Total liabilities 12,229 14,010
------- -------
Commitments and contingencies (Notes 5 and 9)
Stockholders' equity (Note 10)
Common stock, par value $.01 per share: authorized
20,000,000 shares; issued 4,999,644 shares in 1995 and
4,942,376 shares in 1994 50 49
Paid-in capital 9,103 8,663
Retained earnings (deficit) 7,197 (625)
------- -------
16,350 8,087
Treasury stock, at cost--39,875 shares in 1995 and
10,000 shares in 1994 (348) (15)
------- -------
Total stockholders' equity 16,002 8,072
------- -------
Total liabilities and stockholders' equity $28,231 $22,082
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
14
DREW INDUSTRIES INCORPORATED
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-------------------------------
1995 1994 1993
---- ---- ----
(In thousands)
Cash flows from operating activities:
Income from continuing operations $ 7,822 $ 5,570 $ 6,368
Adjustments to reconcile income from
continuing operations to cash flows
provided by operating activities:
Depreciation and amortization 797 710 592
Deferred taxes (259) (316) 92
Loss (gain) on disposal of fixed assets (3) (1) 2
Changes in assets and liabilities:
Accounts receivable, net (1,069) (361) (570)
Inventories (515) (2,907) (41)
Prepaid expenses and other assets 400 937 (85)
Accounts payable, accrued expenses and
other current liabilities 2,420 2,843 1,167
-------- -------- -------
Net cash flows provided by operating
activities from continuing operations 9,593 6,475 7,525
Net loss from discontinued operations (111) (726)
-------- -------- -------
Net cash flows provided by operating
activities 9,593 6,364 6,799
-------- -------- -------
Cash flows from investing activities:
Capital expenditures (1,944) (1,152) (1,901)
Net transferred to discontinued operations (7,538) (5,086)
Acquisition of treasury stock (333) (15)
Proceeds from sales of fixed assets 3 142 1
-------- -------- -------
Net cash flows used for investing
activities (2,274) (8,563) (6,986)
-------- -------- -------
Cash flows from financing activities:
Proceeds from line of credit with Chemical
Bank and other borrowings 9,450 29,480 5,800
Repayments under line of credit with Chemical
Bank and other borrowings (13,651) (27,601) (4,329)
Net change in borrowings under prior secured
revolving line of credit (2,088)
Exercise of stock options and other 441 528 983
-------- -------- -------
Net cash flows (used for) provided by
financing activities (3,760) 2,407 366
-------- -------- -------
Net increase in cash 3,559 208 179
Cash and short term investments at
beginning of year 469 261 82
-------- -------- -------
Cash and short term investments at end
of year $ 4,028 $ 469 $ 261
======== ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
15
DREW INDUSTRIES INCORPORATED
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Year Ended December 31,
-------------------------------
1995 1994 1993
---- ---- ----
(In thousands)
Supplemental disclosure of cash flows
information:
Cash paid during the year for:
Interest on debt $ 132 $ 255 $ 264
Income taxes, net of refunds $ 4,856 $ 3,750 $ 1,094
Borrowings under prior revolving line
of credit $31,445
Loan repayments under prior revolving
line of credit $33,533
The accompanying notes are an integral part of these consolidated financial
statements.
16
DREW INDUSTRIES INCORPORATED
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Retained Total
(In thousands, Common Treasury Paid-in Earnings Stockholders'
except shares) Stock Stock Capital (Deficit) Equity
------ -------- ------- --------- -------------
Balance--December 31, 1992 $47 $ 27,430 $(11,726) $ 15,751
Net income 5,642 5,642
Issuance of 165,625 shares
of common stock pursuant
to stock option plan 1 478 479
Income tax benefit relating
to issuance of common
stock pursuant to stock
option plan 464 464
Other 40 40
--- -------- -------- --------
Balance--December 31, 1993 48 28,412 (6,084) 22,376
Net income 5,459 5,459
Issuance of 77,497 shares
of common stock pursuant
to stock option plan 1 386 387
Income tax benefit relating
to issuance of common
stock pursuant to stock
option plan 141 141
Acquisition of 10,000 shares
of treasury stock $ (15) (15)
Spin-off of Leslie Building
Products, Inc. common stock
to stockholders as of
July 29, 1994 (20,276) (20,276)
--- ----- -------- -------- --------
Balance--December 31, 1994 49 (15) 8,663 (625) 8,072
Net income 7,822 7,822
Issuance of 57,268 shares
of common stock pursuant
to stock option plan 1 289 290
Income tax benefit
relating to issuance of
common stock pursuant
to stock option plan 151 151
Acquisition of 29,875
shares of treasury stock (333) (333)
--- ----- -------- -------- --------
Balance--December 31, 1995 $50 $(348) $ 9,103 $ 7,197 $ 16,002
=== ===== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
17
DREW INDUSTRIES INCORPORATED
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Consolidated Financial Statements include the accounts of Drew
Industries Incorporated and its subsidiaries. Drew's sole active subsidiary is
Kinro, Inc. ("Kinro") which manufactures and markets windows for the
manufactured housing industry and windows and doors for the recreational vehicle
("RV") industry. All significant intercompany balances and transactions have
been eliminated.
Inventories
Inventories are stated 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.
The Company has purchased commodity futures to hedge the impact of future
price fluctuations on a portion of its aluminum raw material requirements. Gains
and losses on such futures contracts are deferred until recognized in income as
a component of cost of sales when the finished products are sold. Cash flow from
such futures contracts are included in operating activities in the Consolidated
Statements of Cash Flows.
Fixed Assets
Fixed assets are depreciated principally on a straight-line basis over the
estimated useful lives of properties and equipment. Leasehold improvements and
leased equipment are amortized over the shorter of the lives of the leases or
the underlying assets. Amortization of assets recorded under capital leases is
included in depreciation expense. Maintenance and repairs are charged to
operations as incurred; significant betterments are capitalized.
Income Taxes
The Company and its subsidiaries file a consolidated Federal income tax
return. The Company's subsidiaries generally file separate state income tax
returns on the same basis as the Federal income tax return.
Accounting Changes
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("FAS 121") in 1995. The effect of the adoption of FAS 121 was
immaterial.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
18
DREW INDUSTRIES INCORPORATED
<PAGE>
2. INVENTORIES
Inventories consist of the following (in thousands):
December 31,
-----------------
1995 1994
---- ----
Finished goods $ 2,147 $ 1,965
Work in process 1,076 1,123
Raw materials 9,163 8,285
------- -------
12,386 11,373
Adjustment to LIFO cost basis (1,362) (864)
------- -------
Total $11,024 $10,509
======= =======
3. FIXED ASSETS
Fixed assets, at cost, consist of the following (in thousands):
December 31, Estimated
----------------- Useful Life
1995 1994 In Years
---- ---- -----------
Land $ 372 $ 372
Buildings and improvements 2,099 1,926 8 to 45
Leasehold improvements 686 679 5 to 25
Machinery and equipment 6,038 4,672 5 to 8
Automotive equipment 283 238 2 to 3
Furniture and fixtures 920 635 3 to 8
Capitalized real estate leases 925 925 15
------- ------
11,323 9,447
Less accumulated depreciation
and amortization 5,729 5,127
------- ------
Fixed assets, net $ 5,594 $4,320
======= ======
Depreciation and amortization of fixed assets consists of (in thousands):
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
Charged to cost of sales $554 $472 $381
Charged to selling, general
and administrative expenses 116 114 120
---- ---- ----
$670 $586 $501
==== ==== ====
4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
December 31,
---------------
1995 1994
---- ----
Accrued employee compensation $1,974 $1,767
Accrued employee benefits 1,702 1,701
Accrued workmen's compensation and other insurance 2,039 1,544
Income taxes 940 583
Accrued expenses and other 1,624 866
------ ------
Total $8,279 $6,461
====== ======
19
DREW INDUSTRIES INCORPORATED
<PAGE>
5. DISCONTINUED OPERATIONS
On April 19, 1994, the Board of Directors of the Company approved a plan to
transfer the stock of Leslie-Locke, Inc. ("Leslie-Locke"), its home improvement
building products segment, to Leslie Building Products, Inc. ("Leslie Building
Products"), Drew's newly formed subsidiary, and to spin off Leslie Building
Products common stock to stockholders on a one-for-one basis (the "Spin-off").
The transfer of the stock of Leslie-Locke to Leslie Building Products became
effective May 10, 1994 and the Spin-off of Leslie Building Products common stock
to stockholders became effective July 29, 1994. Thereafter Leslie Building
Products became a stand-alone company whose common shares are publicly traded.
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, such as management
overview and planning, tax preparation, financial reporting, coordination of
independent audit, stockholder relations, and regulatory matters. 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. The
Company charged fees to Leslie Building Products of $588,000 during 1995 and
$889,000 during 1994 including $340,000 pursuant to the Shared Services
Agreement for the five months subsequent to the Spin-off.
Pursuant to a tax sharing agreement between the Company and Leslie Building
Products, through July 29, 1994, the Company allocated Federal income taxes to
Leslie Building Products based upon its income and generally provided state
income taxes on a separate return basis. Any benefit recognized by the Drew
consolidated group associated with losses by Leslie Building Products was
allocated to Leslie Building Products.
As a result of the Spin-off, 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.
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.
Net sales of Leslie Building Products prior to the Spin-off were
$44,639,000 for the seven months ended July 29, 1994 and $63,689,000 for the
year ended December 31, 1993.
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.
On August 9, 1995 the chapter 7 Trustee of White Metal 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 alleged tax
savings achieved. Management denies any liability for the amount claimed by the
Trustee and intends to vigorously defend this claim. Management believes it has
substantial and meritorious defenses, however, an estimate of potential loss, if
any, cannot be made at this time.
6. RETIREMENT AND OTHER BENEFIT PLANS
The Company has a discretionary defined contribution profit sharing plan
covering substantially all eligible employees. The Company contributed $92,000,
$91,000, and $111,000 to this Plan during the years ended December 31, 1995,
1994 and 1993, respectively.
20
DREW INDUSTRIES INCORPORATED
<PAGE>
7. LONG-TERM INDEBTEDNESS
The Company has a $6 million credit agreement with Chemical Bank which
matures on July 29, 1997 and is secured by substantially all assets of the
Company and its subsidiary. At December 31, 1995, there were no outstanding
borrowings under the line of credit. Interest 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. 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 in
1994 were classified as long-term since such borrowings were less than an
estimate of the minimum amount of borrowings expected to be available during the
subsequent year.
Long-term indebtedness consists of the following (in thousands):
December 31,
----------------
1995 1994
---- ----
Notes payable pursuant to a credit agreement
expiring July 29, 1997 consisting of:
Note payable due in monthly installments of
$167 (Paid in full in 1995) $ $ 500
Revolving loan, not to exceed $6,000 in 1995
and $5,000 in 1994, due in 1997 3,500
Other 89
----- ------
4,089
Less current portion 589
----- ------
Total long-term indebtedness $ -- $3,500
===== ======
8. INCOME TAXES
The income tax provision (benefit) in the Consolidated Statements of Income is
as follows (in thousands):
Year Ended December 31,
--------------------------
1995 1994 1993
---- ---- ----
Continuing operations:
Current:
Federal $4,462 $3,324 $1,423
State 900 558 634
Deferred:
Federal (245) (233) 128
State (14) (83) (34)
------ ------ ------
Total income tax provision for
continuing operations $5,103 $3,566 $2,151
====== ====== ======
Discontinued operations $ -- $ 234 $ (274)
====== ====== ======
21
DREW INDUSTRIES INCORPORATED
<PAGE>
The provision for income taxes differs from the amount computed by applying
the Federal statutory rate (34%) to income before taxes for the following
reasons (in thousands):
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
Income tax at Federal statutory rate $4,395 $3,106 $2,896
State income taxes, net of Federal income tax benefit 585 314 396
Surtaxes 40
Change in estimate of prior year's tax liability (30) (13)
Amortization and write-off of purchase adjustments on
acquired companies and other non-deductible expenses 113 146 16
Refund of prior years' Federal tax (1,142)
Other (2)
------ ------ ------
Provision for income taxes $5,103 $3,566 $2,151
====== ====== ======
The significant components of deferred income taxes are as follows (in
thousands):
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
Utlization of net operating loss carryforward $ 309
Alternative minimum tax credit carryforward 120
Asset valuation allowances $ (29) $ 57 (137)
Depreciation 43 8 (186)
Inventory (51) (36) (80)
Change in accruals not currently deductible (359) (452) 123
Other 137 107 (55)
----- ----- -----
Total $(259) $(316) $ (94)
===== ===== =====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1994 are as follows (in thousands):
December 31,
------------------
1995 1994
---- ----
Deferred tax assets:
Accounts receivable $ 97 $ 73
Inventories 200 149
Capital leases 89 105
Other asset valuation allowances 247 259
Employee benefits other than pensions 27 27
Vacation and holiday pay 268 269
Other accruals 811 570
------ ------
Total deferred tax assets 1,739 1,452
Deferred tax liability:
Fixed assets 256 228
------ ------
Net deferred tax asset $1,483 $1,224
====== ======
The Company concluded that it is more likely than not that the deferred tax
assets at December 31, 1995 will be realized in the ordinary course of
operations based on scheduling of deferred tax liabilities and income from
operating activities.
22
DREW INDUSTRIES INCORPORATED
<PAGE>
Deferred income tax benefits of $1,376,000 are included in prepaid expenses
and other current assets and $107,000 are included in other assets in the
Consolidated Balance Sheets at December 31, 1995. At December 31, 1994, deferred
income tax benefits of $1,061,000 were included in prepaid expenses and other
current assets and $163,000 were included in other assets in the Consolidated
Balance Sheets.
In 1993, the Company received Federal income tax refunds of $1,142,000 plus
interest of $745,000. No benefit had previously been recorded for the refunds,
or the interest thereon, since the refunds were subject to audit by the Internal
Revenue Service.
9. COMMITMENTS AND CONTINGENCIES
Leases
The Company's lease commitments are primarily for real estate and vehicles.
The significant real estate leases provide for renewal options and periodic
rental adjustments to reflect price index changes and require the Company to pay
for property taxes and all other costs associated with the leased property. The
interest rate on the capital leases is 13.5%. Most vehicle leases provide for
contingent payments based upon miles driven and other factors.
Future minimum lease payments under capital and operating leases at
December 31, 1995 are summarized as follows (in thousands):
Years Capital Operating
- ----- ------- ---------
1996 $170 $1,365
1997 170 1,241
1998 99 881
1999 678
2000 490
Thereafter 713
---- ------
Total lease obligations 439 $5,368
Less amount representing interest 70 ======
----
Present value of net minimum lease payments
(includes $128 payable within one year) $369
====
Rent expense was $1,760,000 and $1,621,000 for the years ended December 31,
1995 and 1994, respectively.
Other
In order to hedge the impact of future price fluctuations on a portion of
its aluminum raw material requirements, the Company has purchased aluminum
futures contracts on the London Metal Exchange for 1.7 million pounds at an
aggregate cost of $1.4 million. At December 31, 1995, the market value of
outstanding aluminum futures contracts approximated the aggregate cost of such
contracts.
The Company has an employment contract with one of its employees which
expires in 1996 and is expected to be renewed. The approximate minimum
commitments under this contract is $83,000 in 1996. In addition, an arrangement
with another employee of the Company provides for incentives to be paid, based
on a percentage of profits as defined.
23
DREW INDUSTRIES INCORPORATED
<PAGE>
10. STOCKHOLDERS' EQUITY
Stock Options and Warrants
In June 1995, the stockholders approved amendments to the Drew Industries
Incorporated 1988 Non-Qualified Stock Option Plan and restated it as the Drew
Industries Incorporated Stock Option Plan (the "Plan"). Pursuant to the Plan,
the Company may grant its directors and/or key employees options to purchase
Drew common stock. The Plan provides for the grant of stock options that qualify
as incentive stock options ("ISOs") under Section 422 of the Code and
non-qualified stock options ("NQSOs")
Under the Plan, Drew's Stock Option Plan Committee is authorized to grant
options to purchase up to an aggregate of 780,000 shares of Drew's common stock.
The Committee will determine the period for which each stock option may be
exercisable, but in no event may a stock option be exercisable more than 10
years from the date of grant thereof. The number of shares available under the
Plan, and the exercise price of options granted under the Plan, are subject to
adjustments that may be made by the Committee to reflect stock splits, stock
dividends, recapitalization, mergers, or other major corporate action.
The exercise price for options granted under the Plan shall be determined
by the Committee in its sole discretion; provided, however, in the case of an
ISO granted to an optionee, the exercise price shall be at least equal to 100%
of the fair market value of the shares subject to such option on the date of
grant. The exercise price may be paid in cash or in shares of Drew Common Stock.
Options granted under the Plan become exercisable in annual installments as
determined by the Committee.
Under the terms of the Plan, the number of shares that each holder of
options was entitled to purchase as well as the option price was adjusted to
reflect the dilution of the shares resulting from the Spin-off of Leslie
Building Products, as of July 29, 1994.
Transactions in stock options under this Plan are summarized as follows:
Number
Of Shares Option Price
--------- ------------
Outstanding at December 31, 1992 335,500 $2.88 - $ 7.00
Granted 10,000 $ 8.38
Exercised (165,625) $2.88 - $ 2.90
Canceled (8,000) $2.88 - $ 7.00
--------
Outstanding at December 31, 1993 171,875 $2.88 - $ 8.38
Granted 210,000 $8.50 - $ 9.88
Replaced in connection with spin-off (314,800) $2.88 - $ 9.88
Granted as replacement of shares canceled
in connection with spin-off 364,521 $2.48 - $ 8.53
Exercised (77,497) $2.48 - $ 7.00
Canceled (232) $ 6.05
--------
Outstanding at December 31, 1994 353,867 $2.48 - $ 9.88
Granted 5,000 $14.00
Exercised (57,268) $2.48 - $ 8.53
--------
Outstanding at December 31, 1995 301,599 $2.48 - $14.00
========
Exercisable at December 31, 1995 174,227 $2.48 - $14.00
========
Options available for grant at December 31, 1995 165,511
========
24
DREW INDUSTRIES INCORPORATED
<PAGE>
Weighted Average Common Shares Outstanding
Net income per common share is based on 4,947,405 shares, 4,880,709 shares
and 4,756,498 shares for the years ended December 31, 1995, 1994, and 1993,
respectively, the weighted average of common shares outstanding. Fully diluted
earnings per share is not presented as there are no outstanding securities of
the Company that have not been considered in the calculation of primary earnings
per share.
11. SIGNIFICANT CUSTOMERS
One customer accounted for 10%, 14% and 17% of the Company's net sales in
the years ended December 31, 1995, 1994 and 1993, respectively.
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Interim unaudited financial information follows (in thousands, except per share
amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
Year Ended December 31, 1995
Net sales $25,363 $25,430 $24,747 $24,544 $100,084
Gross profit 7,116 6,885 6,634 6,847 27,482
Net income 2,069 2,010 1,918 1,825 7,822
Net income per common share .42 .41 .39 .37 1.58
Year Ended December 31, 1994
Net sales $19,506 $21,987 $20,423 $21,049 $ 82,965
Gross profit 5,694 6,172 5,069 5,501 22,436
Income from continuing operations,
net of taxes(a) 1,501 1,521 1,275 1,273 5,570
Discontinued operations, net of
tax benefits (597) 348 138 (111)
Net income 904 1,869 1,413 1,273 5,459
Income per common share:
Income from continuing
operations(a) .31 .31 .26 .26 1.14
Discontinued operations (.12) .07 .03 (.02)
Net income .19 .38 .29 .26 1.12
(a) Income from continuing operations for 1994 includes after tax charges of
$282,000 related to the Spin-off of Leslie Building Products, Inc. and to
the write-off of deferred finance costs, of which approximately $214,000 is
included in the second quarter.
25
DREW INDUSTRIES INCORPORATED
<PAGE>
13. SUBSEQUENT EVENT - ACQUISITION (UNAUDITED)
On February 15, 1996, the Company completed the acquisition of the assets
and business of Shoals Supply, Inc., ("Shoals"), a privately-owned Alabama
corporation which manufactures, refurbishes and distributes new and used axles,
tires, chassis components and related products and services for the manufactured
housing industry. Shoals had 1995 net sales of approximately $57 million.
The consideration for the acquisition was 544,959 shares of common stock of
Drew having a value of $7.5 million, cash at closing of $1,225,000, and a note
for $760,000 payable over 5 years. In addition, the Company assumed $7.5 million
of Shoals' bank debt and certain operating liabilities. The acquisition was
financed with $3,225,000 of the Company's short-term investments and a $6
million acquisition loan from Chemical Bank, which is expected to be refinanced
within 90 days.
The acquisition will be accounted for as a purchase. The aggregate purchase
price will be allocated to the underlying assets and liabilities based upon
their respective estimated fair values at the date of acquisition. Based on
preliminary estimates which will be finalized at a later date, the excess of
purchase price over the fair value of the net assets acquired ("goodwill") was
approximately $11 million, which will be amortized over 30 years.
The results of the acquired business will be included in the Company's
consolidated statements of income beginning February 16, 1996. The following pro
forma condensed consolidated results of operations, however, assumes that the
acquisition had occurred at the beginning of 1995. The unaudited pro forma data
below is not necessarily indicative of the future results of operations of the
combined operations (in thousands, except per share amount):
Pro Forma
Year End
December 31, 1995
(unaudited)
Net sales $156,833
========
Net income $ 9,423
========
Net income per common share $ 1.72
========
Average common shares outstanding 5,492
========
26
DREW INDUSTRIES INCORPORATED
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Drew Industries Incorporated:
We have audited the accompanying consolidated balance sheets of Drew
Industries Incorporated and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Drew
Industries Incorporated and subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Stamford, Connecticut
February 19, 1996
Management's Responsibility for Financial Statements
The management of the Company has prepared and is responsible for the
consolidated financial statements and related financial information included in
this report. These consolidated financial statements were prepared in accordance
with generally accepted accounting principles which are consistently applied and
appropriate in the circumstances. These consolidated financial statements
necessarily include amounts determined using management's best judgements and
estimates.
The Company maintains accounting and other control systems which provide
reasonable assurance that assets are safeguarded and that the books and records
reflect the authorized transactions of the Company. Although accounting controls
are designed to achieve this objective, it must be recognized that errors or
irregularities may occur. In addition, it is necessary to assess and consider
the relative costs and the expected benefits of the internal accounting
controls.
The Company's independent auditors, KPMG Peat Marwick LLP, provide an
independent, objective review of the consolidated financial statements and
underlying transactions. They perform such tests and other procedures as they
deem necessary to express an opinion on the financial statements. The report of
KPMG Peat Marwick LLP accompanies the consolidated financial statements.
/s/ Leigh J. Abrams
Leigh J. Abrams
President and Chief Executive Officer
/s/ Fredric M. Zinn
Fredric M. Zinn
Chief Financial Officer
27
DREW INDUSTRIES INCORPORATED
<PAGE>
CORPORATE INFORMATION
Board of Directors
Edward W. Rose, III
Chairman of the Board of Drew Industries Incorporated
President of Cardinal Investment Company
James F. Gero
Chairman and Chief Executive Officer of Sierra Technologies, Inc.
Gene H. Bishop
Retired Bank Executive
Leigh J. Abrams
President and Chief Executive Officer of Drew Industries Incorporated
David L. Webster
President and Chief Executive Officer of Kinro, Inc. and Shoals Supply, Inc.
Audit Committee of the Board of Directors
Edward W. Rose, III, Chairman
James F. Gero
Gene H. Bishop
Compensation Committee of the Board of Directors
Edward W. Rose, III
James F. Gero
Gene H. Bishop
Corporate Officers
Leigh J. Abrams
President and Chief Executive Officer
Fredric M. Zinn
Chief Financial Officer
Harvey J. Kaplan
Treasurer and Secretary
John F. Cupak
Controller
General Counsel
Harvey F. Milman, Esq.
Berlack, Israels & Liberman LLP
120 West 45th Street
New York, NY 10036
Independent Certified Public Accountants
KPMG Peat Marwick LLP
Stamford Square
3001 Summer Street
Stamford, CT 06905
Transfer Agent and Registrar
Chemical Mellon
Shareholder Services, L.L.C.
450 West 33rd Street
New York, NY 10001
Executive Offices
200 Mamaroneck Avenue
White Plains, NY 10601
(914) 428-9098
Kinro, Inc. and Shoals Supply, Inc.
David L. Webster,
President and Chief Executive Officer
Corporate Headquarters
4381 Green Oaks Boulevard West
Arlington, TX 76016
(817) 483-7791
Form 10-K
A copy of the Annual Report on Form 10-K as filed by the Corporation with the
Securities and Exchange Commission is available upon request, without charge,
by writing to:
Treasurer
Drew Industries Incorporated
200 Mamaroneck Avenue
White Plains, NY 10601
28
DREW INDUSTRIES INCORPORATED
EXHIBIT 21-Active Subsidiaries of Registrant
State of
Name Incorporation
---- -------------
Kinro, Inc. Ohio
Shoals Supply, Inc. Delaware
EXHIBIT 23 - Consent of Independent Auditors
The Board of Directors
Drew Industries Incorporated
We consent to incorporation by reference in the registration statements (Nos.
33-26260, 33-2052, and 33-4957) on Form S-3 and (No. 33-88582) on Form S-8 of
Drew Industries Incorporated of our reports dated February 19, 1996, relating to
the consolidated balance sheets of Drew Industries Incorporated and subsidiaries
as of December 31, 1995 and 1994 and the related consolidated statements of
income, stockholders' equity and cash flows and related schedule for each of the
years in the three-year period ended December 31, 1995 appearing and
incorporated by reference, in the annual report on Form 10-K of Drew Industries
Incorporated for the year ended December 31, 1995.
KPMG PEAT MARWICK LLP
Stamford, Connecticut
March 20, 1996
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<FISCAL-YEAR-END> DEC-31-1995
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