================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number: 0-13646
DREW INDUSTRIES INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3250533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Mamaroneck Avenue, White Plains, N.Y. 10601
(Address of principal executive offices)
(Zip Code)
(914) 428-9098
Registrant's Telephone Number including Area Code
(Former name, former address and former fiscal year,
if changed since last year)
Indicate by check marks whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities & Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes |XX| No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 9,155,810 shares of common
stock as of April 30, 1997.
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<PAGE>
DREW INDUSTRIES INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS FILED WITH
QUARTERLY REPORT OF REGISTRANT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
(UNAUDITED)
- -------------------------------------------------------------------------------
Page
----
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME 3
CONSOLIDATED BALANCE SHEETS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 10-13
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
Item 6 14
SIGNATURES 15
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
- -------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net sales $41,628 $34,114
Cost of sales (Note 3) 31,465 25,576
------- -------
Gross profit 10,163 8,538
Selling, general and administrative expenses 5,096 4,342
------- -------
Operating profit 5,067 4,196
Interest expense, net 299 47
------- -------
Income before income taxes 4,768 4,149
Provision for income taxes 1,822 1,632
------- -------
Net income $ 2,946 $ 2,517
======= =======
Net income per common share $ .30 $ .24
======= =======
Weighted average common shares outstanding 9,938 10,478
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31,
---------------- December 31,
1997 1996 1996
- -----------------------------------------------------------------------------------------------------
(In thousands, except shares and per share amounts)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short term investments $ 287 $ 1,015 $ 1,545
Accounts receivable, trade, less allowance for
doubtful accounts 8,714 9,188 4,924
Inventories (Note 3) 19,957 18,163 22,686
Prepaid expenses and other current assets 2,546 1,688 2,549
-------- -------- -------
Total current assets 31,504 30,054 31,704
Fixed assets, net 12,929 8,227 10,865
Goodwill, net (Note 2) 11,483 12,070 11,582
Other assets 1,063 1,172 1,132
-------- -------- -------
Total assets $ 56,979 $ 51,523 $55,283
======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable, including current maturities of long-
term debt and other long-term liabilities $ 6,224 $ 661 $ 276
Accounts payable, trade 4,904 6,238 3,958
Accrued expenses and other current liabilities 11,650 10,248 11,332
-------- -------- -------
Total current liabilities 22,778 17,147 15,566
Long-term indebtedness (Note 4) 15,777 5,592 3,652
Other long-term liabilities 1,266 1,633 1,286
-------- -------- -------
Total liabilities 39,821 24,372 20,504
-------- -------- -------
Commitments and Contingencies (Note 5)
Stockholders' equity (Note 3)
Common stock, par value $.01 per share: authorized
20,000,000 shares; issued
11,230,948 shares at March 1997;
11,144,786 shares at March 1996 and
11,202,946 shares at
December 1996 112 112 112
Paid-in capital 17,451 16,845 17,218
Retained earnings 23,543 10,542 20,597
-------- -------- -------
41,106 27,499 37,927
Treasury stock, at cost - 2,079,770 shares at March 1997; 79,750
shares at March 1996 and 479,770 shares at December 1996 (23,948) (348) (3,148)
-------- -------- -------
Total stockholders' equity 17,158 27,151 34,779
-------- -------- -------
Total liabilities and stockholders' equity $ 56,979 $ 51,523 $55,283
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1997 1996
- -------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,946 $ 2,517
Adjustments to reconcile net income to
cash flows provided by operating activities:
Depreciation and amortization 424 343
Changes in assets and liabilities (excluding acquisition):
Accounts receivable, net (3,790) (2,059)
Inventories 2,729 1,048
Prepaid expenses and other assets 41 402
Accounts payable, accrued expenses and other current liabilities 1,254 1,058
-------- --------
Net cash flows provided by operating activities 3,604 3,309
-------- --------
Cash flows from investing activities:
Capital expenditures (2,358) (1,763)
Acquisition of net assets and business of Shoals Supply, Inc. (9,856)
-------- --------
Net cash flows used for investing activities (2,358) (11,619)
-------- --------
Cash flows from financing activities:
Acquisition loan from Chase Manhattan Bank 5,982
Proceeds from line of credit with Chase Manhattan Bank 9,125 1,850
Repayments under line of credit with Chase Manhattan Bank (11,825) (2,832)
Repayments of term loans (79) (30)
Exercise of stock options 251 304
Other 24 23
-------- --------
Net cash flows provided by (used for) financing activities (2,504) 5,297
-------- --------
Net decrease in cash (1,258) (3,013)
Cash and short-term investments at beginning of period 1,545 4,028
-------- --------
Cash and short-term investments at end of period $ 287 $ 1,015
======== ========
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest on debt $ 82 $ 17
Income taxes $ 738 $ 317
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Total
Common Treasury Paid-in Retained Stockholders'
Stock Stock Capital Earnings Equity
- -------------------------------------------------------------------------------------------------------------
(In thousands, except shares)
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1996 $112 $ (3,148) $17,218 $20,597 $34,779
Net income for three months ended
March 31, 1997 2,946 2,946
Issuance of 28,002 shares of common stock
pursuant to stock option plan 174 174
Income tax benefit relating to issuance of
common stock upon exercise of stock options 77 77
Expenses of two-for-one split of common stock (18) (18)
Purchase of 1,600,000 shares of treasury stock (20,800) (20,800)
---- -------- ------- ------- -------
Balance - March 31, 1997 $112 $(23,948) $17,451 $23,543 $17,158
==== ======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The Consolidated Financial Statements presented herein have been
prepared by the Company in accordance with the accounting policies described in
its December 31, 1996 Annual Report on Form 10-K and should be read in
conjunction with the Notes to Consolidated Financial Statements which appear in
that report.
In the opinion of management, the information furnished in this Form
10-Q reflects all adjustments necessary for a fair statement of the results of
operations as of and for the three month periods ended March 31, 1997 and 1996.
All such adjustments are of a normal recurring nature. The Consolidated
Financial Statements have been prepared in accordance with the instructions to
Form 10-Q and therefore do not include some information and notes necessary to
conform with annual reporting requirements. Certain prior year expenses and
balances have been restated to conform with the current year presentation.
2. Acquisition
On February 15, 1996, the Company acquired the assets and business of
Shoals Supply, Inc., ("Shoals"), a privately-owned Alabama corporation which is
a supplier of products used to transport manufactured homes. Shoals manufactures
new axles and chassis parts, refurbishes used axles, and distributes new and
refurbished tires.
The consideration for the acquisition was 1,089,918 shares of common
stock of the Company having a value of $7.5 million, cash of $1.6 million 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 has been accounted for as a purchase. The aggregate
purchase price has been allocated to the underlying assets and liabilities based
upon their respective estimated fair values at the date of acquisition. The
excess of purchase price over the fair value of the net assets acquired
("goodwill") is $11,757,000, which is being amortized over 30 years.
The results of the acquired business have been included in the Company's
consolidated statements of income beginning February 16, 1996.
Shoals had 1996 net sales of $65 million, of which $57 million was for
the 10 1/2 months since Shoals was acquired by the Company. The following pro
forma condensed consolidated results of operations assumes that the acquisition
had occurred at the beginning of 1996. 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
Three Months Ended
March 31, 1996
--------------
(unaudited)
Net sales $ 41,824
========
Net income $ 2,684
========
Net income per common share $ .24
========
Average common shares outstanding 11,024
========
7
<PAGE>
DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Inventories
Inventories are valued at the lower of cost or market. Cost includes
material, labor and overhead; market is replacement cost or realizable value
after allowance for costs of distribution.
During the first quarter of 1997, the Company adopted the FIFO method to
value inventories for which the LIFO method had previously been utilized for
determining cost. The FIFO method will better measure the current value of such
inventories, provide a more appropriate matching of revenues and expenses, and
conform all inventories of the Company to the same accounting method.
Additionally, the change will enhance the comparability of the Company's
financial statements by changing to the predominant method utilized in its
industry.
The Company applied this change retroactively which resulted in an
increase in retained earnings of $828,000 at January 1, 1996 and $14,000 at
January 1, 1997.
The impact on net income for the three months ended March 31, 1996 was a
reduction of $149,000 or $.01 per share.
4. Long-Term Indebtedness
At March 31, 1997, there were outstanding borrowings of $450,000 under
the Company's $15 million credit agreement with The Chase Manhattan Bank which
matures on January 31, 1999 and is secured by the accounts receivable of the
Company.
On February 14, 1997, the Company purchased 1.6 million of its common
shares from the Company's Chairman of the Board for $20.8 million. The Company
issued a short-term promissory note, bearing interest at 7% per annum, in
payment for such shares. In connection therewith, the Company received a
commitment letter from The Chase Manhattan Bank to replace its line of credit
with a $40 million credit facility of which approximately $21 million will be
utilized to pay the promissory note for the purchase of the shares and the
balance will be available for working capital and acquisitions. Accordingly
$14.9 million of the promissory note has been classified as long-term at March
31, 1997.
5. Contingencies
Effective July 29, 1994, the Company spun off to its stockholders Leslie
Building Products, Inc. and its subsidiary, Leslie-Locke, Inc. ("Leslie-Locke")
the Company's former home improvement building products segment.
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
8
<PAGE>
DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 May 7, 1996, the Company and its subsidiary, Kinro, Inc., and Leslie
Building Products, Inc. and its subsidiary, Leslie-Locke, were served with a
summons and complaint in an adversary proceeding commenced by the chapter 7
trustee of White Metal. The complaint, which appears to allege several duplicate
claims, seeks damages in the aggregate amount of $10.6 million plus attorneys
fees, of which up to approximately $8.4 million is sought, jointly and
severally, from the Company, Kinro, Leslie Building Products and Leslie-Locke.
The proceeding is based principally upon the trustee's allegations, previously
disclosed by the Company, that the Company and its affiliated companies obtained
tax benefits attributable to the use of White Metal's net operating losses. The
trustee seeks to recover the purported value of the tax savings achieved, which
appears to be approximately $7.5 million. Management believes that the trustee's
allegations are without merit and have no basis in fact. In addition, the
trustee alleges that White Metal made certain payments to the Company which were
preferential and are recoverable by White Metal, in the approximate amount of
$900,000. The Company denies liability for any such amount and is vigorously
defending against the allegations. However, an estimate of potential loss, if
any, cannot be made at this time. The Company believes that it has sufficient
accruals for the defense of this proceeding and that such defense will not have
a material adverse impact on the Company's financial condition or results of
operations.
9
<PAGE>
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company, through its wholly-owned subsidiaries Kinro, Inc. ("Kinro")
and Shoals Supply, Inc. ("Shoals"), manufactures and markets (i) windows, axles,
tires and chassis parts for manufactured housing, (ii) windows and doors for
recreational vehicles ("RV's") and (iii) to a lesser extent, windows for
mini-buses.
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 eleven domestic plants
which provide it with access to its major markets. A twelfth facility is
currently under construction.
Shoals, which was acquired by Drew on February 15, 1996, and is under
the management umbrella of Kinro, manufactures new axles and chassis parts,
refurbishes used axles, and distributes new and refurbished tires. Shoals
operates four domestic factories located in four states.
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1997 increased 22% over the
same period last year. The 1996 quarter's sales include Shoals sales from
February 15, 1996, the date that Shoals was acquired by the Company. On a pro
forma basis, assuming that Shoals had been acquired on January 1, 1996, first
quarter 1997 net sales approximated last year's first quarter sales. Sales of
manufactured housing products increased 4% on a pro forma basis for the three
months. Such increase, which compares to a 4% industry-wide decline in shipments
of manufactured homes, is volume related including the continuing growth in
sales of Kinro's new vinyl window. The decline in industry shipments is
partially offset by the continuing growth of double-wide units resulting in
only a .5% decrease in floor shipments. Each section of a manufactured home
represents a floor. Net sales of the RV division decreased 10% for the three
months compared to a 5% industry-wide increase in shipments of RV's. There has
been no significant loss of RV accounts by Kinro, however, the Company's RV
operations are concentrated in the Midwest where industry shipments were
affected by severe weather conditions.
Operating profit increased 21% to $5,096,000 for the quarter ended March
1997. Included in the 1996 quarter's operating profit are the results of Shoals
for only the month and a half since acquisition. Gross profit percentage for the
1997 quarter is slightly below last year partially because of approximately
$300,000 of startup costs in 1997 attributable to Kinro's new plant in Dayton,
Tennessee which produces vinyl windows. In addition, the current year includes
Shoals, which operates at a lower gross profit percentage than Kinro, for the
entire three months while Shoals was only included for 1-1/2 months in the 1996
quarter. Shoals' selling general and administrative expenses, however, are lower
than Kinro's. Selling, general and administrative expenses increased 17% for the
quarter compared to the 22% increase in sales.
Interest Expense, Net
Interest expense, net increased $252,000 over the 1996 quarter's
interest, primarily a result of the debt incurred in connection with the
purchase of 1.6 million shares of the Company's stock from the Company's
chairman on February 14, 1997. In addition, debt attributable to the purchase of
Shoals was
10
<PAGE>
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
outstanding for only a month and a half in the 1996 quarter. Such increases
interest expense were offset by the savings from debt reduction resulting from
operating cash flow.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $15 million credit agreement with Chase Manhattan Bank
which matures on January 31, 1999 and is secured by the accounts receivable of
the Company. At March 31, 1997, there were outstanding borrowings of $450,000
under the line of credit. Available additional borrowings for general corporate
purposes under this line of credit were $14.5 million. 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. The interest rate is subject to reduction after one year if certain
financial targets are achieved.
On February 14, 1997, the Company purchased 1.6 million shares of its
common stock from the Company's Chairman of the Board for $20.8 million. The
Company issued a short-term promissory note, bearing interest at 7% per annum,
in payment for such shares. In connection therewith, the Company received a
commitment letter from The Chase Manhattan Bank to replace its line of credit
with a $40 million credit facility of which approximately $21 million will be
utilized to pay the promissory note for the purchase of the shares and the
balance will be available for working capital and acquisitions.
The Statements of Cash Flows reflect the following:
Three Months Ended
March 31,
-------------------
1997 1996
- -------------------------------------------------------------------------------
(In thousands)
Cash flows provided by operating activities $ 3,604 $ 3,309
Cash flow used for investing activities $(2,358) $(11,619)
Cash flows provided by (used for) financing activities $(2,504) $ 5,297
Net cash provided by operating activities for the quarter ended March
31, 1997 was $3.6 million compared to $3.3 million for the quarter ended March
31, 1996, which does do not include the balance of the assets and liabilities of
Shoals on February 15, 1996, the date of the acquisition of Shoals. Accounts
receivable reflect seasonal increases of $3.8 million and $2.1 million in 1997
and 1996, respectively. Inventories were reduced $2.7 million in 1997 partially
as a result of the reduction of the inventory of tires which was higher than
typical at December 1996. Payables increased $1.2 million and $1.1 million in
the 1997 and 1996 quarters, respectively.
Capital expenditures for the 1997 quarter are $2.4 million and are
expected to approximate $6 to $8 million for the full year. Cash flows used for
investing activities for the 1996 quarter are primarily the cost of the Shoals
acquisition as well as capital expenditures, which were $1.8 million.
11
<PAGE>
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Cash flows used for financing activities in the 1997 quarter includes
debt reduction of $2.8 million offset by $.3 million of proceeds from the
exercise of employees' stock options.
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 May 7, 1996, the Company and its subsidiary, Kinro, Inc., and Leslie
Building Products, Inc. and its subsidiary, Leslie-Locke, were served with a
summons and complaint in an adversary proceeding commenced by the chapter 7
trustee of White Metal. The complaint, which appears to allege several duplicate
claims, seeks damages in the aggregate amount of $10.6 million plus attorneys
fees, of which up to approximately $8.4 million is sought, jointly and
severally, from the Company, Kinro, Leslie Building Products and Leslie-Locke.
The proceeding is based principally upon the trustee's allegations, previously
disclosed by the Company, that the Company and its affiliated companies obtained
tax benefits attributable to the use of White Metal's net operating losses. The
trustee seeks to recover the purported value of the tax savings achieved, which
appears to be approximately $7.5 million. Management believes that the trustee's
allegations are without merit and have no basis in fact. In addition, the
trustee alleges that White Metal made certain payments to the Company which were
preferential and are recoverable by White Metal, in the approximate amount of
$900,000. The Company denies liability for any such amount and is vigorously
defending against the allegations. However, an estimate of potential loss, if
any, cannot be made at this time. The Company believes that it has sufficient
accruals for the defense of this proceeding and that such defense will not have
a material adverse impact on the Company's financial condition or results of
operations.
INFLATION
The prices of raw materials, consisting primarily of aluminum, steel,
glass and tires, are influenced by demand and other factors specific to these
commodities rather than being directly affected by inflationary pressures.
Prices of certain commodities have historically been volatile. In order to hedge
the impact of future price fluctuations on a portion of its future aluminum raw
material requirements, the Company periodically purchases aluminum futures
contracts on the London Metal Exchange. The Company currently has futures
contracts for 3.6 million pounds at an aggregate cost of $2.6 million, which is
approximately current market value.
SUBSEQUENT EVENT
On May 6, 1997, the Company's subsidiary, Shoals Supply, Inc., acquired
the assets and business of Pritt Tire and Axle, Inc. of Bristol, Indiana. Pritt,
which refurbishes axles and tires used in the transportation of manufactured
homes, will be operated as an additional branch of Shoals. Pritt sales for 1996
12
<PAGE>
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
were $10.7 million. This acquisition furthers the Company's goal to expand
Shoals' territory from a southeast regional manufacturer to a national
manufacturer.
The purchase price consisted of cash of $4,450,000 and a three year
warrant to purchase 40,000 shares of the common stock of the Company at $11.00
per share. The acquisition is accretive to the Company's earnings. In a separate
transaction, Shoals will acquire, from the former owner of Pritt, the
manufacturing facility utilized by Pritt.
13
<PAGE>
Drew Industries Incorporated
Part II - Other Information
Item 6 - Exhibit 18
Letter re: Change in Accounting Principles
14
<PAGE>
DREW INDUSTRIES INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DREW INDUSTRIES INCORPORATED
Registrant
By /s/ Fredric M. Zinn
------------------------
Fredric M. Zinn
Principal Financial Officer
May 12, 1997
15
May 6, 1997
Drew Industries Incorporated
200 Mamaroneck Avenue
White Plains, NY 10601
Gentlemen:
We have been furnished with a copy of Form 10-Q of Drew Industries Incorporated
for the three months ended March 31, 1997, and have read the Company's
statements contained in Note 3 to the condensed financial statements included
therein. As stated in Note 3, the Company changed its method of accounting for
certain inventories from the last-in first-out (LIFO) method to the first-in
first-out (FIFO) method, and states that the newly adopted accounting principle
is preferable in the circumstances because it better measures the current value
of such inventories, provides a more appropriate matching of revenues and
expenses, and conforms all inventories of the Company to the same accounting
method. Additionally, the change will enhance the comparability of the Company's
financial statements by changing to the predominant method utilized in its
industry. In accordance with your request, we have reviewed and discussed with
Company officials the circumstances and business judgment and planning upon
which the decision to make this change in the method of accounting was based.
We have not audited any financial statements of Drew Industries Incorporated as
of any date or for any period subsequent to December 31, 1996, nor have we
audited the information set forth in the aforementioned Note 3 to the condensed
financial statements; accordingly, we do not express an opinion concerning the
factual information contained therein.
With regard to the aforementioned accounting change, authoritative criteria have
not been established for evaluating the preferability of one acceptable method
of accounting over another acceptable method. However, for purposes of Drew
Industries Incorporated's compliance with the requirements of the Securities and
Exchange Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's business
judgment and planning, we concur that the newly adopted method of accounting is
preferable in the Company's circumstances.
Very truly yours,
KPMG Peat Marwick LLP
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 287
<SECURITIES> 0
<RECEIVABLES> 9,033
<ALLOWANCES> 319
<INVENTORY> 19,957
<CURRENT-ASSETS> 31,504
<PP&E> 19,917
<DEPRECIATION> 6,988
<TOTAL-ASSETS> 56,979
<CURRENT-LIABILITIES> 22,778
<BONDS> 0
0
0
<COMMON> 112
<OTHER-SE> 40,994
<TOTAL-LIABILITY-AND-EQUITY> 56,979
<SALES> 41,628
<TOTAL-REVENUES> 41,628
<CGS> 31,465
<TOTAL-COSTS> 36,561
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 299
<INCOME-PRETAX> 4,768
<INCOME-TAX> 1,822
<INCOME-CONTINUING> 2,946
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,946
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
