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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, 1996 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. |_|
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 17, 1997) was $88,441,534.
The number of shares outstanding of the Registrant's Common Stock, as of the
latest practicable date (March 17, 1997) was 9,151,171 shares of Common Stock,
adjusted for two-for-one split payable March 21, 1997.
Documents Incorporated by Reference
Annual Report to Stockholders for year ended December 31, 1996 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 May
13, 1997 is incorporated by reference into Part III.
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<PAGE>
Item 1. BUSINESS
Introduction
Drew Industries Incorporated ("Drew" or the "Company"), through its
wholly-owned subsidiaries, Kinro, Inc., ("Kinro"), manufactures and markets
aluminum and vinyl windows for manufactured homes, and aluminum windows and
doors for recreational vehicles; and through its wholly-owned subsidiary, Shoals
Supply, Inc. ("Shoals"), manufactures and distributes new axles and chassis
parts, and distributes refurbished axles and new and refurbished tires, for the
manufactured housing industry.
The Company was incorporated under the laws of Delaware on March 20, 1984,
and is the successor to Drew National Corporation, which was incorporated under
the laws of Delaware in 1962. 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., and its
wholly owned subsidiary, Leslie-Locke, Inc. ("Leslie-Locke"), 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, 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 expires on December 31, 1997 but may be extended.
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, and to a lesser extent, manufactures windows for mini buses. 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.
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 also tempers
glass for use in its own windows and for sale to other window manufacturers.
Kinro's line of products is sold by eleven sales personnel, working exclusively
for Kinro and Shoals, to major builders of manufactured housing, such as Clayton
Homes, Inc., Oakwood Homes Corporation and Redman
Page -2-
<PAGE>
Industries, Inc., and to major manufacturers of recreational vehicles such as
Fleetwood Enterprises, Inc., Thor Industries, Inc., and Skyline Corporation.
Kinro's operations are conducted at ten manufacturing and warehouse
facilities located in Mansfield, Texas; Double Springs, Alabama; Liberty, North
Carolina; Thomasville, Georgia; Morraine, Ohio; Goshen (two facilities) and
Elkhart, Indiana; Fontana, California; and Dayton, Tennessee; as well as a
Maquilodora operation in Juarez, Mexico. In addition, Kinro is currently
constructing a third facility in Goshen, Indiana.
Shoals, acquired by the Company in February 1996, manufactures and
distributes new axles and chassis parts, and distributes refurbished axles and
new and refurbished tires, for the manufactured housing industry.
Manufactured homes are transported by producers to dealers via roadway on
steel chassis which are fitted with axles and tires sufficient in number to
support the weight of the home. When the home is installed at the site, the
axles and tires are removed by the dealer. Regulations promulgated by the United
States Housing and Urban Development Authority ("HUD") require the axles to be
inspected after each use and refurbished or, if necessary, replaced. Shoals
purchases from dealers, and repairs and refurbishes, used axles and tires, and
markets the reconditioned axles and tires to producers of manufactured homes. In
addition, Shoals manufactures and distributes new axles and chassis parts, and
distributes new tires, to producers of manufactured homes.
Shoals competes with a number of regional suppliers of refurbished axles
and tires, as well as several manufacturers of new axles, certain of which are
larger than Shoals. Although definitive information is not readily available,
the Company believes that Shoals is among the three largest suppliers of
refurbished axles within the United States. Shoals competes on the basis of
price, customer service, product quality, and reliability.
Raw materials used by Shoals, consisting primarily of fabricated steel
parts for new axles and chassis parts, are either fabricated by Shoals or
purchased from suppliers. Fabricated parts and new tires are readily available
from a number of sources. Used axles and tires, which are refurbished by Shoals,
are purchased from dealers of manufactured homes, and their availability is
subject to competitive pricing.
Shoals products are sold by one sales person, working exclusively for
Shoals, and five of Kinro's sales personnel, to major producers of manufactured
homes in the southeastern and southcentral United States, such as Fleetwood
Enterprises, Inc., Oakwood Homes Corporation and Clayton Homes, Inc. Shoals
operations are conducted at five facilities located in Bear Creek and Phil
Campbell, Alabama; Rockwell, North Carolina; Elm Mott, Texas; and Maynardsville,
Tennessee.
In accordance with regulations promulgated by HUD, refurbished axle
assemblies distributed by Shoals are reconditioned in accordance with a detailed
Quality Control Program formulated by an independent inspection agency. Shoals'
compliance with the Quality Control Program is monitored by the inspection
agency on a monthly basis. All expenses of formulating the program, inspection,
and monitoring are paid for by Shoals. In addition, new and refurbished tires
distributed by Shoals are subject to regulations promulgated by the United
States Department of Transportation Federal Highway Administration and by HUD
relating to weight tolerance, maximum speed, size, and components. Kinro's and
Shoals' operations are also 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.
The Company believes that Kinro and Shoals are currently operating in
compliance with applicable laws and regulations, and does not believe that the
expense of compliance with these laws and regulations, as currently in effect,
will have a material effect on Kinro's or Shoals' capital expenditures, earnings
or competitive position.
Page -3-
<PAGE>
Recent Events
On February 13, 1997, the Company's Board of Directors approved a
two-for-one stock split by means of 100% stock dividend on its Common Stock. The
stock split was effective on March 21, 1997, for stockholders of record on March
4, 1997. Assuming the exercise of all options, prior to the stock split and the
purchase of shares from Edward W. Rose, III discussed below, the Company had
approximately 5,676,000 shares outstanding, and following the stock split and
purchase of shares, the Company has approximately 9,752,000 shares outstanding.
On February 13, 1997, the Company announced that it would purchase from
Edward W. Rose, III, Chairman of the Board of the Company, 800,000 shares of the
Company's Common Stock, representing approximately 15% of the Company's
outstanding stock and 50% of the Company's shares owned by Mr. Rose, at a price
of $26 per share. The purchase price was paid by a short-term promissory note of
the Company in the amount of $20.8 million bearing interest at 7% per annum (the
"Purchase Note").
Before giving effect to the purchase, Mr. Rose owned beneficially and of
record 1,641,740 pre-split shares of the Company's Common Stock, and owned
beneficially a partial interest in an additional 86,200 pre-split shares held in
retirement accounts, representing an aggregate of 32.2% of the Company's
outstanding shares. After giving effect to the purchase and the stock split, Mr.
Rose continues to own beneficially and of record 1,683,480 shares, and continues
to beneficially own a partial interest in the additional 172,400 shares,
representing an aggregate of 20.3% of the Company's outstanding shares. Members
of Mr. Rose's immediate family continue to beneficially own an additional
258,000 shares, in which Mr. Rose disclaims any beneficial interest.
Mr. Rose intends to remain active in management of the Company and to
continue as Chairman of the Board. Mr. Rose's decision to sell a portion of his
shares was motivated by his interest to diversify his investments. The long-term
increase in the price of the Company's stock resulted in Mr. Rose's investment
in the Company constituting a disproportionate share of his net assets. Purchase
of Mr. Rose's shares was advantageous to the Company because the purchase price
was below the market price, and the repurchase was accretive to earnings per
share.
The Company has received a commitment letter from Chase Manhattan bank to
increase Drew's line of credit to $40 million, of which approximately $21
million will be utilized to repurchase Mr. Rose's shares and the balance will be
used for potential acquisitions and working capital.
Employees
The approximate number of persons employed full-time by the Company at
December 31, 1996 was as follows:
Drew....................... 6
Kinro...................... 1,031
Shoals..................... 275
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Total.................. 1,312
=====
None of the Company's or its subsidiaries' employees are represented by a
union. The Company and its subsidiaries believe that relations with its
employees are good.
Page -4-
<PAGE>
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 four and leases six manufacturing and warehouse facilities
consisting of an aggregate of approximately 725,000 square feet, in Mansfield,
Texas; Double Springs, Alabama; Liberty, North Carolina; Thomasville, Georgia;
Morraine, Ohio; Goshen (two facilities) and Elkhart, Indiana; Fontana,
California; and Dayton, Tennessee; and leases its corporate offices in
Arlington, Texas consisting of approximately 8,500 square feet of office space.
Kinro is currently constructing a third manufacturing and warehouse facility,
consisting of 104,000 square feet, on land owned by Kinro in Goshen, Indiana.
Shoals owns one and leases four manufacturing and warehouse facilities
consisting of an aggregate of approximately 200,000 square feet in Bear Creek
and Phil Campbell, Alabama; Rockwell, North Carolina; Elm Mott, Texas; and
Maynardsville, Tennessee.
See Note 10 of Notes to Consolidated Financial Statements with respect to
the Company's lease obligations as of December 31, 1996.
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 6 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 was named as a defendant in certain actions
commenced in connection with these claims, the Company has not been held
responsible, and the Company disclaims any liability for the obligations of
White Metal.
See Note 6 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. 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.
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<PAGE>
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, 1996.
Name Position
Leigh J. Abrams President, Chief Executive Officer and Director of
(Age 54) the Company since March 1984.
Edward W. Rose, III Chairman of the Board of Directors of the Company
(Age 55) since March 1984.
David L. Webster Director of the Company since March 1984.
(Age 61)
James F. Gero Director since May 1992.
(Age 51)
Gene H. Bishop Director since June 1995.
(Age 67)
Fredric M. Zinn Chief Financial Officer of the Company since
(Age 45) January 1986.
Harvey J. Kaplan Secretary and Treasurer of the Company since
(Age 62) March 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;
and ACE Cash Express, Inc. engaged in check cashing services. 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 in February 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
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<PAGE>
companies: Recognition Equipment, Inc., engaged in providing hardware, software
and services to automate work processing systems; American Medical Electronics,
Inc., 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, 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 1996 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,
except that Gene H. Bishop, a director of the Company, inadvertently filed late
with respect to an aggregate of 800 shares of the Common Stock of the Company
purchased for his children.
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 February 26, 1997, there were 2,369 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
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<PAGE>
8, 1995 represent quotations between dealers, without adjustment for retail
mark-up, mark-down or commissions, and do not necessarily represent actual
transactions.
High Low
Calendar 1995
Quarter ended March 31......................... $ 5.25 $ 4.19
Quarter ended June 30.......................... $ 6.56 $ 5.19
Quarter ended September 30..................... $ 6.94 $ 5.75
Quarter ended December 31...................... $ 8.19 $ 6.32
Calendar 1996
Quarter ended March 31 ........................ $ 8.00 $ 6.75
Quarter ended June 30.......................... $ 9.25 $ 7.32
Quarter ended September 30..................... $12.32 $ 8.38
Quarter ended December 31...................... $13.62 $10.62
The closing price per share for the Common Stock on February 26, 1997 was
$13.62.
All of the above prices have been retroactively adjusted to reflect the
two-for-one split effective March 21, 1997 to stockholders of record on March 4,
1997.
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 8 of Notes to Consolidated Financial Statements.
On February 13, 1997, the Company declared a two-for-one stock split by
means of a 100% stock dividend, payable on March 21, 1997 to stockholders of
record on March 4, 1997.
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, 1996.
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 May
13, 1997.
Page -8-
<PAGE>
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, 1996.
(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, 1996.
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<PAGE>
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 24, 1997 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 24, 1997 By:/s/Leigh J. Abrams Director, President and Chief
--------------------- Executive Officer
(Leigh J. Abrams)
March 24, 1997 By:/s/Harvey J. Kaplan Secretary and Treasurer
---------------------
(Harvey J. Kaplan)
March 24, 1997 By:/s/Fredric M. Zinn Chief Financial Officer
---------------------
(Fredric M. Zinn)
March 24, 1997 By:/s/John F. Cupak Controller
---------------------
(John F. Cupak)
March 24, 1997 By:/s/Edward W. Rose, III Director
---------------------
(Edward W. Rose, III)
March 24, 1997 By:/s/David L. Webster Director
---------------------
(David L. Webster)
March 24, 1997 By:/s/James F. Gero Director
---------------------
(James F. Gero)
March 24, 1997 By:/s/Gene H. Bishop Director
---------------------
(Gene H. Bishop)
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<PAGE>
Report of Independent Auditors
The Board of Directors
Drew Industries Incorporated
Under date of February 12, 1997, except for the first paragraph of Note 14,
which is as of March 21, 1997, we reported on the consolidated balance sheets of
Drew Industries Incorporated and subsidiaries as of December 31, 1996 and 1995,
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, 1996, as
contained on pages 10 through 19 in the 1996 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 1996. In connection
with our audits of the aforementioned consolidated financial statements, we also
have audited the related financial statement schedule as listed in Item 14. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement 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 12, 1997
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<PAGE>
DREW INDUSTRIES INCORPORATED AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
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, 1996:
Allowance for doubtful accounts
receivable, trade $ 266 $23 $30(a) $ 11(b) $308
Reserve for liquidation losses -
disposal of businesses 9 9
Reserve for revaluation of loans 334 27 361
Reserve for notes receivable 692 (321) (127)(c) 498
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts
receivable, trade $ 197 $74 $ 5(b) $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)(c) 692
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts
receivable, trade $ 177 $17 $ (3)(b) $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(c) 533
</TABLE>
(a) Represents balance at date of acquisition of Shoals Supply, Inc.
(b) Represents accounts written-off net of recoveries.
(c) Represents write-off of uncollectible portion of notes, net of recoveries.
Page -12-
<PAGE>
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 (Regis tration
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 March 31, 1996.
10.91 Lease between Kinro, Inc. and 1700 Industry Associates, dated April
30, 1987.
10.100 Drew Industries Incorporated Stock Option Plan.
Page -13-
<PAGE>
10.122 Guaranty and Non-competition 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.
Page -14-
<PAGE>
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.
10.159 Stock Purchase and Pledge Agreement and Non-Negotiable Promissory
Note, dated March 7, 1997 by and between Drew Industries Incorporated
and Edward W. Rose, III.
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 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 10.66 is filed herewith.
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.
Page -15-
<PAGE>
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.
Exhibit 10.159 is filed herewith.
13. 1996 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.
Page -16-
DREW
1996 ANNUAL REPORT
Quality Products for
Manufactured Homes
and RV's
[Photograph]
Windows and Doors for RV's
[Photograph]
Windows, axles, tires and chassis parts
for Manufactured Homes
[Photograph]
<PAGE>
[MAP]
Company Profile
- --------------------------------------------------------------------------------
"Drew has committed its financial and managerial resources to maximizing
shareholder value. Our long standing policy of rewarding all levels of
management through incentives based upon operating results sparks the
entrepreneurial spirit that, we believe, is responsible for Drew's record
results and outstanding returns to shareholders."
Drew, through its subsidiaries, Kinro, Inc., and Shoals Supply, Inc., is a
nationwide supplier to the manufactured housing and recreational vehicle
("RV") industries.
Kinro is a leading producer of aluminum and vinyl windows for manufactured
homes, as well as windows and doors for RV's. Many of the producers of
manufactured homes to whom Kinro sells windows also manufacture RV's.
Kinro has ten domestic manufacturing plants in eight states, and has an
eleventh plant under construction, located in geographic areas which
provide access to its major markets.
Shoals, under the management umbrella of Kinro, 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. Shoals operates four plants in four states.
<PAGE>
Financial Highlights
1996 1995 1994
- --------------------------------------------------------------------------------
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------
Net Sales $168,151 $100,084 $ 82,965
- --------------------------------------------------------------------------------
Income From Continuing Operations (a) $ 13,386 $ 7,822 $ 5,570
- --------------------------------------------------------------------------------
Income Per Common Share from
Continuing Operations (a),(b) $ 1.25 $ .79 $ .57
- --------------------------------------------------------------------------------
Working Capital (a) $ 16,124 $ 8,820 $ 6,017
- --------------------------------------------------------------------------------
Stockholders' Equity (a) $ 34,765 $ 16,002 $ 8,072
- --------------------------------------------------------------------------------
Book Value Per Common Share (a),(b) $ 3.24 $ 1.61 $ .82
- --------------------------------------------------------------------------------
(a) 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.
(b) Adjusted retroactively to give effect to two-for-one stock split effective
March 21, 1997.
[The following table was represented by bar graphs in the printed material.]
INCOME FROM
CONTINUING EARNINGS
NET SALES OPERATIONS PER SHARE
(MILLIONS) (MILLIONS) (DOLLARS)
---------- ---------- ----------
1994 $ 83.0 $ 5.6 $0.57
1995 $100.1 $ 7.8 $0.79
1996 $168.2 $13.4 $1.25
DREW INDUSTRIES 1
<PAGE>
Letter to Stockholders
- --------------------------------------------------------------------------------
"Our outstanding results were attained only through the extraordinary efforts of
our dedicated employees and the entrepreneurial spirit at all levels of our
Company. With this in sight, we look optimistically to 1997."
We are pleased to report that 1996 was another outstanding year for Drew:
o Record sales of $168 million - up 68% from 1995.
o Record net income of $13.4 million - up 71% from last year.
o Record per share net income of $1.25 compared with $.79 for last year.
o Return on equity of 53%.
o The acquisition of Shoals Supply in February 1996.
o Bank debt of $3 million at December 31, 1996 despite spending cash of $13
million related to the Shoals Supply acquisition and $6 million for
capital improvements.
o A 95% increase in the price of the Company's common stock to $27.25
(pre-split) on February 26, 1997 from $14.00 at the beginning of 1996.
If this looks similar to last year's letter, it is - except the numbers
are better.
[Photograph]
[Photograph]
Shoals Supply, under the management umbrella of Kinro, is included in our
results for ten and-a-half months and performed better than anticipated. The
acquisition of Shoals helped Drew in several ways: first, Shoals has a strong
earnings capacity, second, the new products strengthen our importance as a
supplier to our customers, and third, the new products provide new sources of
growth. The axle business is highly fragmented and Kinro will introduce Shoals'
products to Kinro's wider distribution network and customer base. As Shoals'
manufacturing capacity is expanded, we look for significant growth.
Kinro had outstanding 1996 results - again. Profits and cash flow were at
record levels. Two new factories were built, providing greater capacity and
permitting the introduction of new manufacturing processes. Kinro is now
producing
<PAGE>
[Photograph]
its own tempered glass and has expanded its vinyl window production with a
"state of the art" vinyl line.
Kinro's 11% sales growth came from both the manufactured housing and RV
divisions. Kinro continues to produce quality products at reasonable prices, and
to provide its customers with superior service. As a result, Kinro enjoys
significant market share for each of its products.
On February 13, 1997 we announced that the Company will split its stock
two-for-one effective March 21, 1997, and that the Company had acquired 800,000
pre-split Drew shares from our Chairman, Edward W. Rose III, at $26 per share,
which was below the market price. Mr. Rose will continue to own 20.3 percent of
the Company's stock and he intends to remain active and to continue as Chairman.
The buyback will be accretive to earnings per share.
We're satisfied - in fact, we're delighted - with our current status.
Basic operations remain strong, our management is the best in the industry, and
we are poised for expansion through internal growth and acquisitions. We will
continue our search for other companies that fit our strategic plans.
We've saved the best for last. Our outstanding results were attained only
through the extraordinary efforts of our dedicated employees and the
entrepreneurial spirit at all levels of our Company. With this in sight, we look
optimistically to 1997.
/s/ Edward W. Rose, III
Edward W. Rose, III
Chairman of the Board
/s/ Leigh J. Abrams
Leigh J. Abrams
President and Chief Executive Officer
DREW INDUSTRIES 3
<PAGE>
About the Company
Drew, through its subsidiaries, Kinro, and Shoals, is a leading supplier
of windows, axles, tires and chassis parts for manufactured homes (81 percent of
sales), as well as windows and doors for recreational vehicles ("RV's") and
windows for mini-buses (19 percent of sales). Both manufactured housing and
recreational vehicles are expected to be solid growth industries in the years
ahead.
[The following table was represented as a pie graph in the printed material.]
1996 Product Sales
MFG. HOUSING - WINDOWS 47%
MFG. HOUSING - AXLES, TIRES AND OTHER 34%
RV AND OTHER - WINDOWS AND DOORS 19%
TOTAL 100%
Drew's record of growth, profitability and strong cash flow results from
the ability to supply quality products and superior service while maintaining
the most efficient and lowest cost production techniques. Drew's strong balance
sheet, the result of both cash flow from operations and asset management, should
enable it to take advantage of future growth opportunities.
Manufactured Housing Industry
A modern manufactured home is an affordable, single family, factory-built
structure, transportable in one or more sections, which bears little resemblance
to the old "trailer" or "mobile home." Single section homes average 1,100 sq.
ft. and multi-section homes over 1,600 sq. ft.
Sales of factory-built homes have steadily taken market share from
site-built homes because they represent the most affordable choice of quality
single family homes. Financing alternatives for buyers, and zoning regulations
are becoming more favorable. Manufactured homes, which cost an average of
$36,000 (excluding land) are built to a stringent national building code.
In 1996 the industry shipped 363,400 homes, up 7 percent from 1995 and 112
percent from 1991. In 1997 shipments are expected to grow to about 380,000
homes, more than 25 percent of single-family housing starts. Growth of Drew's
business is augmented by the continuing trend towards multi-section homes, which
require more windows, axles and tires. Multi-section homes represented 54
percent of 1996 production, versus 47 percent in 1991.
Recreational Vehicle Industry
An RV is, in effect, a traveling home which affords the owner the mobility
to enjoy travel while providing many of the comforts of home. Industry sales of
RV's were 247,500 units in 1996, equal to 1995 and 58 percent above 1991.
Demographic trends continue to favor growth in the RV industry, since typical
first-time RV buyers are in their late 40's or early 50's, the fastest growing
segment of the population. The industry has also recently begun to promote RV's
to younger adults.
[The following table was represented by a bar graph in the printed material.]
Industry Shipments of Mfg. Homes & RV's
(In Thousands)
MFG. HOUSING RV'S
------------ ----
1991 170.7 163.3
1992 210.8 203.4
1993 254.3 227.8
1994 303.9 259.2
1995 339.6 247.0
1996 363.4 247.5
<PAGE>
Our Divisions
- --------------------------------------------------------------------------------
"Drew's record of growth, profitability and strong cash flow results from the
ability to supply quality products and superior service while maintaining the
most efficient and lowest cost production techniques."
Kinro
Kinro's ten strategically located factories supply windows for
manufactured homes, windows and doors for RV's and windows for mini-buses.
Kinro's high market share demonstrates its ability to respond quickly to the
demands of its customers. As a result, Kinro has received numerous awards of
excellence from its customers in recognition of its superior service. Through
internal growth and a series of successful acquisitions, Kinro has expanded its
product line and broadened its geographic territory, enabling it to increase
sales from $10 million in 1980 to over $110 million in 1996.
[Photograph]
Kinro's highly experienced and knowledgeable operating management,
participates in profit incentive plans and a company-wide stock option plan,
which ensure incentive to maximize shareholder value.
Shoals
[Photograph]
Shoals, a supplier of products used to transport manufactured homes, was
acquired in February 1996. Shoals manufactures new axles and chassis parts,
refurbishes used axles, and distributes new and refurbished tires.
Shoals increases the Company's presence in the manufactured housing
industry, making it an even more essential supplier to its customers. The
Company intends to expand Shoals' geographic territory, now primarily in the
south eastern and south central states, both internally and through
strategically selected acquisitions.
Shoals' first year of operations after its acquisition was more successful
than anticipated. With the help of Kinro's management team, sales force and
engineering capabilities, Shoals' sales and profits are expected to continue to
grow.
[Photograph]
DREW INDUSTRIES 5
<PAGE>
Drew Industries Incorporated
Financial Review
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 (81% of sales), (ii) windows
and doors for recreational vehicles ("RV's") (18% of sales) and (iii) to a
lesser extent, windows for mini-buses (1% of sales).
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 ten domestic plants which
provide it with access to its major markets. An eleventh plant is currently
under construction.
Shoals, which was acquired by the Company on February 15, 1996, and is
under the management umbrella of Kinro, 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. Shoals
operates four domestic factories located in four states.
Results of Operations
Net sales, gross margin and operating profit are (in thousands):
Year Ended December 31,
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Net sales $168,151 $100,084 $82,965
Gross profit $ 42,759 $ 27,482 $22,436
Operating profit $ 22,329 $ 12,791 $ 9,149
- --------------------------------------------------------------------------------
Year Ended December 31, 1996 Compared to
Year Ended December 31, 1995
Net sales for the year ended December 31, 1996 increased 68% over last
year. Sales for the current year include Shoals' sales from February 15, 1996,
the date that Shoals was acquired by the Company. Excluding Shoals, the
Company's sales (consisting of Kinro's sales) increased 11% for the year. The
increase in Kinro's net sales resulted both from the sales of manufactured
housing products, which increased 14%, and sales of RV products which increased
5% for the year. Such increases, which exceed the industry-wide increases in
shipments of manufactured homes and RV's, are volume related. 1996 industry-wide
shipments of manufactured homes were 7% higher than last year and shipments of
RV's of the types supplied by Kinro were 1% higher than last year.
Operating profit increased 75% to $22,329,000 for 1996. Included in the
current year's operating profit are the results of Shoals since the date that it
was acquired by the Company. Excluding Shoals, operating profit increased
approximately 40% for 1996 as a result of the 11% increase in net sales and an
improvement in gross profit as a percent of sales. The increase in gross profit
percentage resulted from lower aluminum prices, which have been volatile and, to
a lesser extent, a reduction in labor and overhead costs. Aluminum prices have
increased subsequent to the end of the year. The Company has been purchasing
aluminum futures on the London Metal Exchange to hedge against potential price
increases.
Selling, general and administrative expenses, again excluding Shoals,
increased 20% for 1996 as a result of the increased sales as well as increased
profits upon which incentive compensation is based. Shoals' contribution to the
Company's operating profit was $4.4 million on net sales of $57 million for the
10 1/2 months since its acquisition.
Year Ended December 31, 1995 Compared to
Year Ended December 31, 1994
Net sales for the year ended December 31, 1995 increased 21% over 1994,
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. To a
lesser extent, price increases contributed to the sales growth. Industry-wide
shipments of manufactured homes increased 12% in 1995. 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
profit percentage. 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.
Shared Services Agreement
Pursuant to a Shared Services Agreement, following the Spin-off by the
Company of Leslie Building Products, Inc. on July 29, 1994, the Company and
Leslie Building Products have shared certain administrative functions and
employee services, such as management overview and planning, tax preparation,
financial reporting, coordination of independent audit, stockholder relations,
and
6
<PAGE>
regulatory matters. The Company has been reimbursed by Leslie Building Products
for the fair market value of such services. This Agreement expires on December
31, 1997 and may be extended. The Company charged fees to Leslie Building
Products of $509,000 during 1996, $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 (Expense) Income Net
Net interest expense increased by $460,000 for 1996 from 1995 primarily as
a result of debt incurred for the acquisition of Shoals and the $2.8 million
purchase of treasury stock. Such debt, and the resulting interest costs, were
partially offset by cash flow from operations.
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 subsequent cash flow from operations was invested in
short-term investments resulting in interest income of $144,000 during 1995. 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.
Accounting Changes
In 1996 the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," which 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 is continuing its
historical practice, and provides the necessary additional information in
footnote disclosure. For 1995 and 1996 the effect of the adoption was
immaterial.
Liquidity and Capital Resources
The Company has a $6 million credit agreement with Chase Manhattan Bank
which matures on January 31, 1999 and is secured by the accounts receivable of
the Company. At December 31, 1996, there were outstanding borrowings of
$3,150,000 under the line of credit and available additional borrowings for
general corporate purposes under this line of credit was $2.8 million. As
discussed further below, subsequent to December 31, 1996 the Company received a
commitment to increase 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.
The interest rate is subject to reduction if certain financial targets are
achieved.
The Statements of Cash Flows reflect the following:
Year Ended December 31,
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Net cash flows
provided by
continuing operations $ 11,927 $ 9,593 $ 6,475
Net cash flows (used for)
investment activities $(14,948) $(1,941) $(8,548)
Net cash flows provided
by (used for)
financing activities $ 538 $(4,093) $ 2,392
- --------------------------------------------------------------------------------
Net cash provided by operating activities from continuing operations for
1996, which does not include the balance of the assets and liabilities of Shoals
on February 15, 1996, the date of the acquisition of Shoals, was $11.9 million
compared to $9.6 million for 1995. Accounts receivable decreased $2.2 million in
1996 and increased $1.1 million in 1995 resulting primarily from the timing of
customer payments in late December. Inventories increased $4.6 million in 1996
compared to $.5 million for 1995. Part of the increase in inventories in 1996
was due to a build up in tire purchases. Payables decreased $.3 million and
increased $2.4 million in 1996 and 1995, respectively.
Cash flows used for investing activities in 1996 are primarily the $10
million cost of the Shoals acquisition, as well as capital expenditures. Capital
expenditures approximated $5.8 million in 1996, $1.9 million in 1995 and $1.2
million for 1994. Capital expenditures for 1996 were primarily for the
construction of two new plants and the purchase of related machinery and
equipment. Construction began recently on another plant in Goshen, Indiana which
will be completed in mid 1997. Capital expenditures for 1997 are expected to
range from $4 million to $8 million depending upon expansion projects currently
under review. Such capital expenditures are being funded from borrowings under
the line of credit and cash flow from operations. Cash flows used for investing
activities in 1994 includes Drew's funding of Leslie Building Products of $7.5
million. Leslie Building Products was spun off to the Company's stockholders as
of July 29, 1994.
Cash flows provided by financing activities in 1996 includes the borrowing
of $6 million for the acquisition of Shoals and $.8 million from the exercise of
employee
7
<PAGE>
stock options and the income tax benefits resulting therefrom. These funds
provided were offset by $2.8 million used to reacquire 400,000 shares of
treasury stock and $3.5 million to pay down the Company's loan under its
revolving line of credit. The reacquired shares were originally issued in
connection with the acquisition of Shoals.
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 of these 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. At December 31, 1996 the Company
had no futures contracts outstanding, however, in January 1997 the Company
purchased futures contracts to hedge a portion of its 1997 aluminum
requirements.
Subsequent Event
On February 13, 1997, the Board of Directors declared a two-for-one split
of its Common Stock, payable in the form of a 100 percent stock dividend on
March 21, 1997 to stockholders of record on March 4, 1997.
Simultaneously, the Company announced that it will purchase from Edward W.
Rose, III, Chairman of the Board of Drew, 800,000 pre-split shares of Drew
Common Stock, representing approximately 15 percent of Drew stock outstanding
and 50 percent of Drew shares owned by Mr. Rose, at a purchase price of $26 per
share for an aggregate consideration of $20.8 million. The closing market price
of Drew Common Stock on the American Stock Exchange on February 12, 1997 was
$26.375.
The Company has received a commitment letter from Chase Manhattan Bank to
increase Drew's line of credit to $40 million, of which approximately $21
million will be utilized to repurchase Mr. Rose's shares, and the balance will
be used for potential acquisitions and working capital.
8
<PAGE>
Drew Industries Incorporated
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>
Fiscal Year Four Months
Ended Ended
Year Ended December 31, August 31, December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1992(a)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Data
Net sales $ 168,151 $ 100,084 $ 82,965 $ 67,065 $ 50,703 $ 20,158
===================================================================================================================================
Operating profit $ 22,329 $ 12,791 $ 9,149 $ 7,880 $ 4,679 $ 1,818
===================================================================================================================================
Income from continuing operations before
income taxes and cumulative effect of
change in accounting methods $ 22,003 $ 12,925 $ 9,136 $ 8,519(b) $ 4,327 $ 1,744
Provision for income taxes 8,617 5,103 3,566 2,151(b) 382(c) 699
- -----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
cumulative effect of change in accounting methods 13,386 7,822 5,570 6,368 3,945 1,045
Discontinued operations, net (d) (111) (726) (193) (174)
Cumulative effect of change
in accounting methods 702(e)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 13,386 $ 7,822 $ 5,459 $ 5,642 $ 3,752 $ 1,573
===================================================================================================================================
Income per common share (f):
Income from continuing operations
before cumulative effect of
change in accounting methods $ 1.25 $ .79 $ .57 $ .67 $ .42 $ .11
Discontinued operations, net (.01) (.08) (.02) (.02)
Cumulative effect of
change in accounting methods .08(e)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income per common share $ 1.25 $ .79 $ .56(b) $ .59 $ .40 $ .17
===================================================================================================================================
Financial Data
Working capital $ 16,124 $ 8,820 $ 6,017 $ 17,706 $ 11,948 $ 12,362
Total assets $ 55,260 $ 28,231 $ 22,082 $ 31,664 $ 24,253 $ 24,489
Long-term obligations (g) $ 4,938 $ 311 $ 3,939 $ 2,513 $ 3,569 $ 2,602
Stockholders' equity (h) $ 34,765 $ 16,002 $ 8,072 $ 22,376 $ 14,164 $ 15,751
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Effective December 31, 1992, the Company changed its fiscal year end from
August 31 to December 31.
(b) 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 was based on the source of income in the current year
that is offset by the carryforward. Accordingly, in fiscal 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.
(d) See Note 6 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) Adjusted to give effect to two-for-one stock split effective March 21,
1997.
(g) Includes long-term indebtedness, as well as long-term portion of
obligations under capital leases and long-term portion of postretirement
obligations.
(h) On July 29, 1994, the date of the Spin-off of Leslie Building Products,
Inc., (see Note 6 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.
9
<PAGE>
Drew Industries Incorporated
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net sales (Note 12) $ 168,151 $100,084 $ 82,965
Cost of sales 125,392 72,602 60,529
- ----------------------------------------------------------------------------------------------------
Gross profit 42,759 27,482 22,436
Selling, general and administrative expenses 20,430 14,691 13,287
- ----------------------------------------------------------------------------------------------------
Operating profit 22,329 12,791 9,149
Interest (expense) income, net (326) 134 (13)
- ----------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 22,003 12,925 9,136
Provision for income taxes (Note 9) 8,617 5,103 3,566
- ----------------------------------------------------------------------------------------------------
Income from continuing operations 13,386 7,822 5,570
Discontinued operations, net (Notes 6 and 9) (111)
- ----------------------------------------------------------------------------------------------------
Net income $ 13,386 $ 7,822 $ 5,459
====================================================================================================
Income per common share (Note 11):
Income from continuing operations $ 1.25 $ .79 $ .57
Discontinued operations, net (.01)
- ----------------------------------------------------------------------------------------------------
Net income per common share $ 1.25 $ .79 $ .56
====================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
Drew Industries Incorporated
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------------------------
(In thousands, except shares
and per share amounts)
<S> <C> <C>
ASSETS
Current assets
Cash and short term investments $ 1,545 $ 4,028
Accounts receivable, trade, less allowances of $308 in 1996 and $266 in 1995 (Note 8) 4,924 4,165
Inventories (Note 3) 22,663 11,024
Prepaid expenses and other current assets (Note 9) 2,549 1,521
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 31,681 20,738
Fixed assets, net (Note 4) 10,865 5,594
Goodwill, net (Note 2) 11,582 319
Other assets (Note 9) 1,132 1,580
- ----------------------------------------------------------------------------------------------------------------------
Total assets $ 55,260 $ 28,231
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable, including current maturities of long-term indebtedness and
obligations under capital leases (Notes 8 and 10) $ 276 $ 128
Accounts payable, trade 3,958 3,511
Accrued expenses and other current liabilities (Note 5) 11,323 8,279
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 15,557 11,918
Long-term indebtedness (Note 8) 3,652
Other long-term liabilities (Notes 9 and 10) 1,286 311
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 20,495 12,229
- ----------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 6 and 10)
Stockholders' equity (Notes 11 and 14)
Common stock, par value $.01 per share: authorized 20,000,000 shares;
issued 11,202,946 shares in 1996 and 9,999,288 shares in 1995 112 100
Paid-in capital 17,218 9,053
Retained earnings 20,583 7,197
- ----------------------------------------------------------------------------------------------------------------------
37,913 16,350
Treasury stock, at cost - 479,770 shares in 1996 and 79,750 shares in 1995 (3,148) (348)
- ----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 34,765 16,002
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 55,260 $ 28,231
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE>
Drew Industries Incorporated
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 13,386 $ 7,822 $ 5,570
Adjustments to reconcile income from continuing operations to
cash flows provided by operating activities:
Depreciation and amortization 1,712 797 710
Deferred taxes (297) (259) (316)
Gain on disposal of fixed assets (37) (3) (1)
Changes in assets and liabilities:
Accounts receivable, net 2,188 (1,069) (361)
Inventories (4,623) (515) (2,907)
Prepaid expenses and other assets (74) 400 937
Accounts payable, accrued expenses and other current liabilities (328) 2,420 2,843
- ----------------------------------------------------------------------------------------------------------------------
Net cash flows provided by operating activities
from continuing operations 11,927 9,593 6,475
Net loss from discontinued operations (111)
- ----------------------------------------------------------------------------------------------------------------------
Net cash flows provided by operating activities 11,927 9,593 6,364
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (5,841) (1,944) (1,152)
Acquisition of net assets and business of Shoals Supply, Inc. (9,941)
Proceeds from sales of fixed assets 834 3 142
Net transferred to discontinued operations (7,538)
- ----------------------------------------------------------------------------------------------------------------------
Net cash flows used for investing activities (14,948) (1,941) (8,548)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Acquisition loan from Chase Manhattan Bank 5,982
Proceeds under line of credit with Chase Manhattan Bank
and other borrowings 23,737 9,450 29,480
Repayments under line of credit with Chase Manhattan Bank
and other borrowings (27,228) (13,651) (27,601)
Acquisition of treasury stock (2,800) (333) (15)
Exercise of stock options and other 847 441 528
- ----------------------------------------------------------------------------------------------------------------------
Net cash flows provided by (used for) financing activities 538 (4,093) 2,392
- ----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash (2,483) 3,559 208
Cash and short term investments at beginning of year 4,028 469 261
- ----------------------------------------------------------------------------------------------------------------------
Cash and short term investments at end of year $ 1,545 $ 4,028 $ 469
======================================================================================================================
Supplemental disclosure of cash flows information:
Cash paid during the year for:
Interest on debt $ 285 $ 132 $ 255
Income taxes, net of refunds $ 7,986 $ 4,856 $ 3,750
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE>
Drew Industries Incorporated Consolidated Statements of
Stockholders' Equity
<TABLE>
<CAPTION>
Retained Total
Common Treasury Paid-in Earnings Stockholders'
Stock Stock Capital (Deficit) Equity
===============================================================================================================================
(In thousands, except shares)
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1993 $ 97 $ 28,363 $(6,084) $ 22,376
Net income 5,459 5,459
Issuance of 154,994 shares of common
stock pursuant to stock option plan 2 385 387
Income tax benefit relating to issuance of
common stock pursuant to stock option plan 141 141
Acquisition of 20,000 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 99 (15) 8,613 (625) 8,072
Net income 7,822 7,822
Issuance of 114,536 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 59,750 shares of treasury stock (333) (333)
- -------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1995 100 (348) 9,053 7,197 16,002
Net income 13,386 13,386
Issuance of 113,740 shares of common
stock pursuant to stock option plan 1 427 428
Income tax benefit relating to issuance of
common stock pursuant to stock option plan 249 249
Issuance of 1,089,918 shares of common stock
in connection with the acquisition of the
assets and business of Shoals Supply, Inc. 11 7,489 7,500
Purchase of 400,020 shares of treasury stock (2,800) (2,800)
- -------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1996 $112 $(3,148) $ 17,218 $20,583 $ 34,765
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE>
Drew Industries Incorporated
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 active subsidiaries are
Kinro, Inc. and its subsidiaries ("Kinro"), and Shoals Supply, Inc. and its
subsidiaries ("Shoals"). Kinro manufactures and markets windows for the
manufactured housing industry, and windows and doors for the recreational
vehicle ("RV") industry. Shoals manufactures new axles and chassis parts,
refurbishes used axles, and distributes new and refurbished tires, all of which
are used to transport manufactured homes. All significant intercompany balances
and transactions have been eliminated. On February 13, 1997 the Board of
Directors declared a two-for-one split of its Common Stock, payable in the form
of a 100 percent stock dividend on March 21, 1997 to stockholders of record on
March 4, 1997. Where appropriate, all share and per share amounts included in
the consolidated financial statements and notes thereto have been adjusted
retroactively to give effect to the stock split.
Inventories
Inventories are stated at the lower of cost (using the last-in, first-out
method for Kinro and the first-in, first-out method for Shoals) or market. Cost
includes material, labor and overhead; market is replacement cost or realizable
value after allowance for costs of distribution.
The Company periodically purchases 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
In 1996, the Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," which 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 is continuing its
historical practice, and provides the necessary additional information in
footnote disclosure.
Goodwill
Goodwill is the excess of cost over the fair value of net tangible assets
acquired and is amortized on a straight-line basis primarily over thirty years.
The balance of goodwill at December 31, 1996 primarily relates to the
acquisition of Shoals Supply, Inc. on February 15, 1996.
The Company periodically reviews the value of its goodwill to determine if
an impairment has occurred. The Company measures the potential impairment of
recorded goodwill by the undiscounted value of expected future operating cash
flows in relation to its net capital investment in the subsidiary. Based on its
review, the Company does not believe that an impairment of its goodwill has
occurred.
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.
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. Shoals had 1995 net sales of approximately $56 million.
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 was
financed primarily with $3.2 million of the Company's short-term investments and
a $6 million acquisition loan from Chase Manhattan Bank (formerly Chemical
Bank). On June 28, 1996, the Company paid $2.8 million for the repurchase of
400,000 shares of its Common Stock issued in connection with the acquisition.
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. The following pro
forma condensed
14
<PAGE>
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 amounts):
Pro Forma
Year End December 31,
--------------------------
1996 1995
(unaudited)
- --------------------------------------------------------------------------------
Net sales $175,861 $155,827
================================================================================
Net income $ 13,553 $ 9,425
================================================================================
Net income per common share $ 1.25 $ .86
================================================================================
Average common shares outstanding 10,856 10,984
================================================================================
3. Inventories
Inventories consist of the following (in thousands):
December 31,
--------------------------
1996 1995
- --------------------------------------------------------------------------------
Finished goods $ 6,045 $ 2,147
Work in process 1,810 1,076
Raw materials 14,831 9,163
- --------------------------------------------------------------------------------
22,686 12,386
Adjustment to LIFO cost basis (23) (1,362)
- --------------------------------------------------------------------------------
Total $ 22,663 $ 11,024
================================================================================
4. Fixed Assets
Fixed assets, at cost, consist of the following (in thousands):
December 31, Estimated
------------------------ Useful Life
1996 1995 In Years
- --------------------------------------------------------------------------------
Land $ 479 $ 372
Buildings and improvements 2,964 2,099 8 to 45
Leasehold improvements 745 686 5 to 25
Machinery and equipment 7,943 6,038 5 to 8
Automotive equipment 420 283 2 to 3
Furniture and fixtures 1,019 920 3 to 8
Capitalized real estate leases 925 925 15
Construction in progress 3,078 15
- ----------------------------------------------------------
17,573 11,323
Less accumulated
depreciation and
amortization 6,708 5,729
- ----------------------------------------------------------
Fixed assets, net $10,865 $ 5,594
==========================================================
Depreciation and amortization of fixed assets consists of
(in thousands):
Year Ended December 31,
1996 1995 1994
- --------------------------------------------------------------------------------
Charged to cost of sales $ 908 $554 $472
Charged to selling, general
and administrative
expenses 203 116 114
- --------------------------------------------------------------------------------
$1,111 $670 $586
================================================================================
5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following
(in thousands):
December 31,
------------------------
1996 1995
- --------------------------------------------------------------------------------
Accrued employee compensation $ 3,063 $1,974
Accrued employee benefits 2,291 1,702
Accrued workmen's compensation
and other insurance 2,128 2,039
Income taxes 1,619 940
Accrued expenses and other 2,222 1,624
- --------------------------------------------------------------------------------
Total $11,323 $8,279
================================================================================
6. 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, following the Spin-off, the
Company and Leslie Building Products have shared 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 has been reimbursed by Leslie
Building Products for the fair market value of such services. This Agreement
expires on December 31, 1997 and may be extended. The Company charged fees to
Leslie Building Products of $509,000 during 1996, $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.
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.
15
<PAGE>
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.
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.
7. Retirement and Other Benefit Plans
The Company has a discretionary defined contribution profit sharing plan
covering substantially all eligible employees. The Company contributed $206,000,
$92,000, and $91,000 to this Plan during the years ended December 31, 1996, 1995
and 1994, respectively.
8. Long-term Indebtedness
The Company has a $6 million credit agreement with Chase Manhattan Bank
which matures on January 31, 1999 and is secured by the accounts receivable of
the Company. At December 31, 1996, there were outstanding borrowings of
$3,150,000 under the line of credit and available additional borrowings for
general corporate purposes under this line of credit was $2.8 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 on such borrowings at December 31,
1996 was 8.5%. The interest rate is subject to reduction after one year if
certain financial targets are achieved. 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.
Long-term indebtedness consists of the following (in thousands):
December 31,
------------------------
1996 1995
- --------------------------------------------------------------------------------
Notes payable pursuant to a
credit agreement expiring
January 31, 1999 consisting
of revolving loan, not
to exceed $6,000 $3,150
Acquisition note payable to
seller of Shoals, payable in
quarterly installments of
$44 until February 15, 2001
with interest imputed at
8% per annum 632
- --------------------------------------------------------------------------------
3,782
Less current portion 130
- --------------------------------------------------------------------------------
Total long-term indebtedness $3,652 $ --
================================================================================
9. Income Taxes
The income tax provision (benefit) in the Consolidated Statements of
Income is as follows (in thousands):
Year Ended December 31,
--------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Continuing operations:
Current:
Federal $ 7,429 $ 4,462 $ 3,324
State 1,485 900 558
Deferred:
Federal (200) (245) (233)
State (97) (14) (83)
Total income tax provision
for continuing
operations $ 8,617 $ 5,103 $ 3,566
================================================================================
Discontinued operations $ -- $ -- $ 234
================================================================================
16
<PAGE>
The provision for income taxes differs from the amount computed by
applying the Federal statutory rate to income before income taxes for the
following reasons (in thousands):
Year Ended December 31,
--------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Income tax at Federal
statutory rate $7,701 $4,524 $3,106
State income taxes, net of
Federal income tax benefit 902 576 314
Other 14 3 146
- --------------------------------------------------------------------------------
Provision for income taxes $8,617 $5,103 $3,566
================================================================================
The significant components of deferred income taxes are as follows (in
thousands):
Year Ended December 31,
-------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Asset valuation allowances $ 43 $ (29) $ 57
Depreciation 77 43 8
Inventory (159) (51) (36)
Change in accruals not
currently deductible (368) (359) (452)
Other 110 137 107
- --------------------------------------------------------------------------------
Total $(297) $(259) $(316)
================================================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995 are as follows (in thousands):
December 31,
-----------------------
1996 1995
- --------------------------------------------------------------------------------
Deferred tax assets:
Accounts receivable $ 115 $ 97
Inventories 371 200
Capital leases 61 89
Other asset valuation allowances 139 247
Employee benefits other
than pensions 28 27
Vacation and holiday pay 264 268
Other accruals 1,196 811
- --------------------------------------------------------------------------------
Total deferred tax assets 2,174 1,739
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Fixed assets 309 256
Long-term obligations 64
- --------------------------------------------------------------------------------
Total deferred tax liabilities 373 256
- --------------------------------------------------------------------------------
Net deferred tax asset $1,801 $1,483
================================================================================
The Company concluded that it is more likely than not that the deferred
tax assets at December 31, 1996 will be realized in the ordinary course of
operations based on scheduling of deferred tax liabilities and income from
operating activities.
Net current deferred income tax assets of $1,946,000 are included in
prepaid expenses and other current assets and net non-current deferred tax
liabilities of $145,000 are included in other long-term liabilities in the
Consolidated Balance Sheet at December 31, 1996. At December 31, 1995, net
current deferred income tax assets of $1,376,000 were included in prepaid
expenses and other current assets and net non-current deferred tax assets of
$107,000 were included in other assets in the Consolidated Balance Sheet.
10. 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, 1996 are summarized as follows (in thousands):
Years Capital Operating
- --------------------------------------------------------------------------------
1997 $170 $2,134
1998 99 1,761
1999 1,600
2000 1,509
2001 1,178
Thereafter 758
- --------------------------------------------------------------------------------
Total lease obligations 269 $8,940
======
Less amount representing interest 29
- ----------------------------------------------------------------
Present value of net minimum
lease payments (includes $146
payable within one year) $240
================================================================
Rent expense was $2,522,000, $1,760,000 and $1,621,000 for the years ended
December 31, 1996, 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 periodically purchases
aluminum futures contracts on the London Metal Exchange. At December 31, 1996,
the Company had no futures contracts outstanding. The Company has an employment
contract with one of its employees which expires on December 31, 2001. The
minimum commitments under this contract is $400,000 per annum. In addition, an
arrangement with another employee of the Company provides for incentives to be
paid, based on a percentage of profits as defined.
17
<PAGE>
11. 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 ("ISO") under Section 422 of the Code and
non-qualified stock options ("NQSOs").
Under the Plan, since 1988 Drew's Stock Option Plan Committee has been
authorized to grant options to purchase up to an aggregate of 1,560,000 shares
of Drew's Common Stock, of which options for 177,324 shares have not yet been
granted. 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, as well as the two-for-one stock split
effective March 21, 1997.
Transactions in stock options under this plan are summarized as follows:
Number
Of Shares Option Price
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1993 343,750 $1.44-$ 4.19
Granted 420,000 $4.25-$ 4.94
Replaced in connection
with spin-off (629,600) $1.44-$ 4.94
Granted as replacement
of shares canceled in
connection with spin-off 729,042 $1.24-$ 4.27
Exercised (154,994) $1.24-$ 3.50
Canceled (464) $3.03
- -----------------------------------------------------------
Outstanding at
December 31, 1994 707,734 $1.24-$ 4.94
Granted 10,000 $7.35
Exercised (114,536) $1.24-$ 4.27
- -----------------------------------------------------------
Outstanding at
December 31, 1995 603,198 $1.24-$ 7.35
Granted 169,140 $6.94-$10.75
Exercised (113,740) $1.24-$ 4.27
Canceled (15,442) $3.03-$ 6.94
- -----------------------------------------------------------
Outstanding at
December 31, 1996 643,156
===========================================================
Exercisable at
December 31, 1996 499,826 $1.24-$10.75
===========================================================
Options available for grant
at December 31, 1996 177,324
===========================================================
The Company adopted the disclosure-only option under SFAS No.123,
Accounting for Stock-Based Compensation ("FAS 123"), as of December 31, 1996. If
the accounting provisions of FAS 123 had been adopted as of the beginning of
1996, the effect on 1996 net income and earnings per share would have been
immaterial.
18
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1996 (shares in thousands):
Average
Remaining
Exercise Shares Life Shares
Price Outstanding (Years) Exercisable
- --------------------------------------------------------------------------------
$ 1.24 3,474 .1 3,474
$ 3.02 49,338 1.0 49,338
$ 3.62 23,160 2.0 23,160
$ 3.67 69,480 2.1 69,480
$ 4.26 329,374 2.3 329,374
$ 6.94 143,330 4.1 0
$ 7.35 10,000 4.0 10,000
$10.75 15,000 5.0 15,000
- --------------------------------------------------------------------------------
643,156 499,826
================================================================================
Stock options expire in five years from the date they are granted; options
vest over service periods that range from zero to five years.
Weighted Average Common Shares Outstanding
Net income per common share is based on 10,688,552 shares, 9,894,810
shares and 9,761,418 shares for the years ended December 31, 1996, 1995 and
1994, respectively, the weighted average of common shares outstanding after
giving effect to the stock split effective March 21, 1997. 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.
12. Significant Customers
One customer accounted for 17%, 10%, and 14% of the Company's net sales in
the years ended December 31, 1996, 1995 and 1994, respectively.
13. Quarterly Results of Operations (Unaudited)
Interim unaudited financial information follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996 (a)
Net sales $34,114 $48,330 $44,815 $40,892 $168,151
Gross profit 8,784 11,932 11,127 10,916 42,759
Net income 2,666 3,815 3,680 3,225 13,386
Net income per common share $ .25 $ .35 $ .34 $ .30 $ 1.25
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 $ .21 $ .20 $ .19 $ .18 $ .79
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes results of operations of Shoals Supply, Inc. since its
acquisition by the Company on February 15, 1996.
14. Subsequent Event
On February 13, 1997, the Board of Directors declared a two-for-one split
of its Common Stock, payable in the form of a 100 percent stock dividend on
March 21, 1997 to stockholders of record on March 4, 1997. All share amounts in
this report have been adjusted to reflect this stock split.
Simultaneously, the Company announced that it will purchase from Edward W.
Rose, III, Chairman of the Board of Drew, 800,000 pre-split shares of Drew
Common Stock, representing approximately 15 percent of Drew stock outstanding
and 50 percent of Drew shares owned by Mr. Rose, at a purchase price of $26 per
share for an aggregate consideration of $20.8 million. The closing market price
of Drew Common Stock on the American Stock Exchange on February 12, 1997 was
$26.375 (pre-split).
The Company has received a commitment letter from Chase Manhattan Bank to
increase Drew's line of credit to $40 million, of which approximately $21
million will be utilized to repurchase Mr. Rose's shares, and the balance will
be used for potential acquisitions and working capital.
19
<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, 1996 and 1995, 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, 1996.
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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Stamford, Connecticut
February 12, 1997, except for the first paragraph of Note 14, which is as of
March 21, 1997*
Drew Industries Incorporated
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
--------------------------------
Per Share Market Price Range(1)
A summary of the high and low closing prices of the Company's common stock
on the American Stock Exchange is as follows:
1996 1995
- --------------------------------------------------------------------------------
High Low High Low
Quarter Ended
March 31 $ 8.00 $ 6.75 $ 5.25 $ 4.19
Quarter Ended
June 30 $ 9.25 $ 7.32 $ 6.56 $ 5.19
Quarter Ended
September 30 $12.32 $ 8.38 $ 6.94 $ 5.75
Quarter Ended
December 31 $13.62 $10.62 $ 8.19 $ 6.32
- --------------------------------------------------------------------------------
(1) Adjusted retroactively to give effect to a two-for-one stock split
effective March 21, 1997 to holders of record on March 4, 1997.
The closing price per share for the common stock on February 26, 1997 was
$13.62 and there were 2,369 holders of Drew Common Stock, not including
beneficial owners of shares held in broker and nominee names.
Dividend Information
Drew has not paid any cash dividends on its outstanding shares of Common
Stock. On February 13, 1997, Drew declared a two-for-one stock split by means of
a 100 percent stock dividend, payable on March 21, 1997 to stockholders of
record on March 4, 1997.
20
<PAGE>
Drew Industries Incorporated
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 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 Bishop
Compensation Committee of the Board of Directors
Edward W. Rose, III
James F. Gero
Gene 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
Chase Mellon Shareholder Services
450 West 33rd Street
New York, NY 10001
Executive Offices
200 Mamaroneck Avenue
White Plains, NY 10601
(914) 428-9098
Kinro, Inc.
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
Designed by Curran & Connors, Inc.
<PAGE>
DREW
DREW INDUSTRIES INCORPORATED
200 Mamaroneck Avenue
White Plains, NY 10601
Exhibit 10.66 - EMPLOYMENT AGREEMENT
AGREEMENT made the 31st day of March, 1996, effective as of January
1, 1996, by and between KINRO, Inc. (the "Corporation") and DAVID L. WEBSTER
(the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive is and has been President, Chief Executive
Officer and a Director of the Corporation and of Shoals Supply, Inc., an
affiliate of the Corporation ("Shoals"), and
WHEREAS, it is in the best interests of the Corporation to assure
the continued relationship between the Executive and the Corporation and Shoals
for an extended period of years, and
WHEREAS, the Executive's current Employment Agreement with the
Corporation expires on August 31, 1996 and will be superseded by this Agreement,
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, it is agreed as follows:
FIRST: The Corporation hereby employs the Executive and the
Executive hereby agrees to serve the Corporation and Shoals as President and
Chief Executive Officer of the Corporation and Shoals or in such other office or
capacity with the Corporation and with Shoals, or any subsidiary or affiliate of
the Corporation and Shoals, of substantially equivalent responsibility, dignity
and function as the Board of Directors of the Corporation may direct, under the
terms and conditions of this Agreement. The Executive agrees to continue to
devote substantially all of his time, attention, skills and efforts to the
performance of his duties on behalf of the Corporation, and their subsidiaries
and affiliates, at the principal executive offices of the Corporation in the
State of Texas, provided, however, that the Executive shall at no time be
required to change his residence without his consent.
SECOND: The term of this Agreement shall commence as of January 1, 1996
and shall terminate on December 31, 2001.
THIRD: During the term of this Agreement the Executive shall exert his
best efforts, and, subject to the terms and provisions hereof, shall devote
substantially all of his business time and attention to the business and affairs
of the Corporation, Shoals, and their subsidiaries and affiliates, and will use
his best efforts to promote the interests thereof. Consistent with the
foregoing, the Executive shall not be precluded from giving appropriate
attention to his personal and financial affairs. The Executive shall act in
accordance with the policies of the Corporation and Shoals as determined from
time to time by the Boards of Directors of the Corporation and Shoals, and shall
perform such services as the Boards of Directors may from time to time direct
consistent with this Agreement.
FOURTH: The Corporation agrees to pay the Executive for his services to
the Corporation and Shoals a salary of not less than four hundred thousand
($400,000) dollars per annum, payable according to the customary payroll
practice of the Corporation.
FIFTH: In addition to the salary provided for in Paragraph FOURTH hereof,
and subject to the approval of the Compensation Committee of the Board of
Directors, and the stockholders, of Drew Industries Incorporated, parent of the
Corporation ("Drew"), the Executive shall be entitled to receive, for each year
during the term hereof commencing with the year ending December 31, 1996,
performance-based incentive compensation (the "Bonus"), equal to seven and
three-tenths percent (7.3%) of the amount by which the aggregate earnings before
interest and taxes (without deduction for costs of parent-company administration
or amortization of goodwill) of the Corporation
Page -17-
<PAGE>
and of Shoals exceeds ten million ($10,000,000) dollars; provided, however, that
if, after the date hereof, Drew, Kinro or Shoals acquire additional business
operations, the performance goals pursuant to which the Bonus is paid may be
modified upon agreement between the Executive and the Corporation and subject to
approval of the stockholders of Drew.
SIXTH: Nothing in this Agreement, nor any fixing of compensation in the
form of salary, deferred compensation, securities or otherwise, shall prevent
the Compensation Committee of the Board of Directors from granting to the
Executive (i) payments pursuant to the Drew's discretionary retirement bonus
program, and (ii) additional compensation in the form of cash, salary increases,
deferred compensation, securities or otherwise, subject, however, to the
approval of the stockholders of Drew to the extent that total compensation
exceeds $1,000,000.
SEVENTH: The Executive and his family shall continue to receive medical
coverage at least equivalent, in nature and extent, to the medical coverage
presently in effect, and such other reasonable benefits which he has received
from the Corporation prior to the date hereof.
The Executive agrees to have an annual comprehensive physical
examination at the expense of the Corporation.
The Executive shall be eligible to participate in any pension,
retirement or profit-sharing plan adopted by the Corporation for the benefit of
its Executives. The Executive shall also be entitled to a vacation in each year
during the term hereof of not less than three weeks.
The Corporation agrees to maintain, at no cost to the
Executive, disability insurance providing for weekly payments to the Executive,
in the event the Executive shall fail or be unable to perform his obligations
hereunder, in the amount of not less than $120,000 per year, and up to $240,000
per year if available at reasonable cost to the Corporation. Such payments shall
commence upon termination of salary payments in accordance with Paragraph NINTH
hereof and shall continue for the maximum available term after the commencement
of disability.
During the period of employment hereunder, the Corporation, at
its expense, will make available to the Executive an automobile, together with
gasoline credit cards, to be used in connection with the business of the
Corporation. The Corporation will pay for all maintenance and parking of such
automobile.
EIGHTH: All travel and other expenses incident to the rendering of
services by the Executive hereunder will be paid by the Corporation. If any such
expenses are paid in the first instance by the Executive, the Corporation will
reimburse him therefor on presentation of expense vouchers.
NINTH: If, on account of physical or mental disability, the Executive
shall fail or be unable to fully perform this Agreement for a continuous period
of six (6) months, the Corporation may, at its option, at any time thereafter,
upon thirty (30) days written notice to the Executive, terminate this Agreement
and this Agreement shall come to an end at the end of said notice period as if
such date were the termination date of this Agreement. Notwithstanding the
termination of the period of employment as aforesaid, the Corporation shall (i)
continue to make salary payments provided for in Paragraph FOURTH of this
Agreement to the Executive for a period of six (6) months from said date of
termination; and (ii) pay the Bonus to the Executive proportionately with
respect to the period prior to the date of termination.
In the event of the death of the Executive during the term
hereof, the term of this Agreement shall terminate on the date of death. In such
case, the Corporation shall continue to pay to the heir or designee of the
Executive (i) the salary payments provided for in Paragraph FOURTH hereof which
the Executive would have been entitled to receive for a period of six (6) months
from the date of death of the Executive, (ii) the Bonus, proportionately, with
respect to the period prior to the date of termination. The Corporation agrees
to maintain, at no cost to the Executive, a term life insurance policy or
policies on the life of the Executive during the period of employment hereunder
providing death benefits of at least $500,000, the proceeds of which insurance
shall be payable to beneficiaries designated by the Executive.
The Corporation shall have the right to terminate this
Agreement at any time upon ten (10) days written notice to the Executive in the
event that (i) the Executive has committed a willful material breach of the
Page -18-
<PAGE>
terms of this Agreement, or (ii) the Executive is convicted of any crime
involving moral turpitude. In such event, this Agreement shall come to an end as
of the end of such notice period as if such date were the termination date of
this Agreement.
TENTH: For the term of this Agreement and for a period of eighteen (18)
months after the termination hereof, the Executive shall not (i) directly or
indirectly, undertake or perform any services in or for any other enterprises
that may or would interfere with the due performance of his duties hereunder, or
render services to, engage or participate in, or have any financial interest in,
any business competitive to that of the Corporation or its affiliates or
subsidiaries, nor (ii) divulge to any person, firm, corporation or other entity
any information with respect to the business of the Corporation or its
affiliates or subsidiaries that he may acquire in connection with the
performance of his duties hereunder or may have acquired prior hereto,
including, but not limited to, production methods, manufacturing methods,
arrangements or processes, sales methods or arrangements, customer's lists,
technical data, know-how and other information, whether or not commonly regarded
as proprietary information or trade secrets. For the purposes hereof, a business
shall be deemed competitive if it is conducted in any geographic market area in
which the Corporation or its affiliates or subsidiaries is engaged in business
and involves the sale or distribution of any products or service sold or offered
by the Corporation or its affiliates or subsidiaries or any products or services
similar to, or derived from, the products or services sold or offered by the
Company or its affiliates or subsidiaries.
The Executive agrees that for the duration of this Agreement
and for a period of eighteen (18) months after termination hereof, he shall not
directly or indirectly engage in any business which is competitive with the
business of the Corporation or its affiliates or subsidiaries. For the purposes
hereof, a business shall be deemed competitive if it is conducted in any
geographic market area in which the Corporation or its affiliates or
subsidiaries is engaged in business and involves the sale or distribution of any
products or service sold or offered by the Corporation or its affiliates or
subsidiaries, or any products or services similar to, or derived from, the
products or services sold or offered by the Corporation or its affiliates or
subsidiaries on the date of such termination; and the Executive shall be deemed
directly or indirectly to engage in such business if he participates in such
business, or in any entity engaged in or which owns such business, as an
officer, director, employee, consultant, partner, individual proprietor, manager
or as an investor who has made any loans, contributed to capital stock or
purchased any stock. The foregoing, however, shall not be deemed to prevent the
Executive from investing in securities if such class of securities in which the
investment is so made is listed on a national securities exchange or is of a
company registered under Section 12(g) of the Securities Exchange Act of 1934,
and does not represent in excess of one (1%) per cent of the outstanding
securities of said class.
ELEVENTH: All notices, demands and other communications provided for by
this Agreement shall be in writing and shall be deemed to have been given at the
time when mailed at any general or branch United States Post Office, enclosed in
a registered or certified postpaid envelope addressed to the address of the
respective parties stated below, or to such changed address as such parties may
have fixed by notice:
To the Corporation: Kinro, Inc.
c/o Drew Industries Incorporated
200 Mamaroneck Avenue
White Plains, N.Y. 10601
-with copy to-
Harvey F. Milman, Esq.
Berlack, Israels & Liberman
120 West 45th Street
New York, New York 10036
Page -19-
<PAGE>
To the Executive: David L. Webster
3112 Collard Road
Arlington, Texas 76017
TWELFTH: This Agreement constitutes the whole Agreement between the
parties, and there are no terms other than those contained herein. No variation
hereof shall be deemed valid unless in writing and signed by the parties hereto,
and no discharge of the terms hereof shall be deemed valid unless by full
performance by the parties hereto, or by a writing signed by the parties hereto.
This Agreement shall supersede all other Employment Agreements between the
Executive and the Corporation.
THIRTEENTH: This Agreement shall inure to the benefit of and be binding
upon the Corporation, its successors and assigns, and the Executive, his heirs,
executors, administrators and legal representatives.
FOURTEENTH: This Agreement shall not be terminated, voluntarily or
involuntarily, by the liquidation or dissolution of the Corporation or by the
merger or consolidation of the Corporation with or into another Corporation.
IN WITNESS WHEREOF, the Corporation has caused these presents to be signed
by its duly authorized officer, and its corporate seal to be hereunto affixed,
and the Executive has hereunto set his hand the day and year first above
written.
ATTEST: KINRO, INC.
_________________________ By:_______________________________
WITNESS:
- ------------------------- ----------------------------------
David L. Webster
Page -20-
Exhibit 10.159 - STOCK PURCHASE AND PLEDGE AGREEMENT
THIS STOCK PURCHASE AND PLEDGE AGREEMENT ("Agreement") is made and entered
into this 7th day of March 1997, by and among Edward W. Rose, III ("Seller") and
Drew Industries Incorporated, a Delaware corporation (the "Company").
WHEREAS, Seller is a Director and Chairman of the Board of Directors of
the Company; and
WHEREAS, Seller owns and desires to sell to the Company Eight Hundred
Thousand (800,000) pre-split shares (the "Shares") of the Common Stock, par
value $.01, of the Company and the Company desires to purchase the Shares from
Seller.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and covenants contained herein, the receipt and sufficiency of which
are hereby acknowledged, Seller and the Company hereby agree as follows:
1. PURCHASE AND SALE OF THE SHARES
1.1 Transfer. On and subject to the terms and conditions set forth herein,
and in reliance on the respective representations, warranties and covenants of
the parties contained herein, Seller hereby sells, assigns, transfers, conveys
and delivers the Shares to the Company, and the Company hereby purchases and
acquires the Shares from Seller, for the consideration set forth in paragraph
1.2 hereof.
1.2 Delivery of the Shares and Purchase Price.
(a) The purchase price for the Shares is Twenty Six ($26.00) Dollars
per pre-split share or an aggregate of Twenty Million Eight Hundred Thousand
($20,800,000) Dollars, payable as set forth herein.
(b) Simultaneously with the execution and delivery of this
Agreement, Seller has delivered to Larry L. Schoenbrun, Esq., Gardere & Wynne
L.L.P., 1601 Elm Street, Suite 3000, Dallas, Texas 75201, as agent for Seller
solely for purposes of holding and delivering the Shares in accordance with this
Agreement (the "Agent"), a certificate or certificates representing the Shares
owned by Seller accompanied by an irrevocable stock power relating to the Shares
duly executed by Seller in blank with Seller's signature thereon guaranteed.
(c) Simultaneously with the execution and delivery of this
Agreement, the Company has delivered to Seller a non-negotiable promissory note
of the Company to the order of Seller in the principal amount of Twenty Million
Eight Hundred Thousand ($20,800,000) Dollars in the form annexed hereto as
Exhibit "A" (the "Note").
(d) Payment of the Note shall be secured by a lien on, and security
interest in, the Shares as provided in Section 2 hereof.
(e) Seller will promptly notify the Agent upon receipt of payment of
the Note, and thereupon the Agent will promptly deliver to the Company's
transfer agent, Chase Mellon Shareholder Services L.L.C., Company Items, 85
Challenger Road, Richfield Park, N.J. 07660, Attention: Agnes Martin, telephone:
(201) 296-4266, copy to Nathan Hill via telecopy to (212) 947-7628 or 947-7629,
all the Pledged Collateral (as defined in Section 2 hereof) with instructions to
reissue to the Company a certificate or certificates representing the Shares
purchased hereunder, and to reissue to Seller a certificate representing the
remaining shares of the Company's Common Stock registered in the name of Seller.
Page -21-
<PAGE>
2. SECURITY INTEREST
2.1 Secured Obligations. The Company hereby pledges to Seller, and grants
to Seller a first priority security interest in, and lien on the following
property (the "Pledged Collateral") to secure the prompt payment and performance
in full when due, whether at stated maturity, by acceleration or otherwise, of
the Note and all obligations of the Company existing under the Note and this
Agreement (the "Secured Obligations"):
(a) the Shares and the certificates representing the Shares and any
interest of the Company pertaining to the Shares and all dividends, cash,
options, warrants, rights, instruments and other property or proceeds from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Shares;
(b) all additional shares of stock issuable upon or with respect to
the Shares (which shares shall be deemed to be part of the Shares), and the
certificates representing or evidencing such additional shares and any interest
of the Company in such additional shares, and all dividends, cash, options,
warrants, rights, instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such shares; and
(c) all proceeds of the property described in clauses (a) and/or
(b).
(d) concurrently with the execution hereof, the Company shall
execute and deliver to Seller UCC-1 financing statements in form satisfactory to
Seller to reflect such pledge.
2.2 Voting Rights; Dividends; etc.
(a) As long as no Event of Default (as defined in Section 3 hereof)
shall have occurred and be continuing, Seller shall not be entitled to exercise
any voting and other consensual rights pertaining to the Shares or any part
thereof for any purpose.
(b) (i) any and all stock dividends or instruments and other
property received, receivable or otherwise distributed in exchange for any of
the Shares and (ii) any liquidating dividend in respect of the Shares or any
other distribution or other property received or receivable in respect of a
distribution in liquidation, or upon a merger or consolidation, or in respect of
a disposition of assets other than in the ordinary course of business, or in
connection with any insolvency proceeding, shall be, and shall be forthwith
delivered to the Agent to hold as Pledged Collateral and shall, if received by
the Company, be received in trust for the benefit of Seller, be segregated from
the other property or funds of the Company, and be forthwith delivered to the
Agent as Pledged Collateral in the same form as so received (in the case of
instruments, securities or similar property, together with any necessary
endorsement, stock power or other instrument of transfer).
2.3 Event of Default. Upon exercise by Seller of his remedies provided in
this Agreement following the occurrence and continuation of an Event of Default,
all rights to exercise the voting and other consensual rights the Company would
otherwise be entitled to exercise shall thereupon become vested in Seller and
Seller shall thereupon have the sole right to exercise such voting and other
consensual rights during the continuance of such Event of Default.
2.4 Transfer and Other Liens; Additional Shares. The Company agrees that
it will not (i) sell or otherwise dispose of, or grant any option or warrant
with respect to, any of the Pledged Collateral or (ii) create or permit to exist
any lien upon or with respect to any of the Pledged Collateral, except for the
lien and security interest created by this Agreement.
2.5 Remedies. If an Event of Default shall have occurred and be
continuing, then:
Page -22-
<PAGE>
(a) Seller may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to Seller, all the rights and remedies of a secured party on default under the
Uniform Commercial Code in effect in the State of Texas at that time, and Seller
may also without notice except as specified below, in his sole discretion, sell
the Pledged Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange, broker's board or at any of Seller's offices or
elsewhere, for cash, on credit or for future delivery, and at such price or
prices and upon such other terms as Seller may deem commercially reasonable,
irrespective of the impact of any such sales on the market price of the Pledged
Collateral. Seller may be the purchaser of any or all of the Pledged Collateral
at any such sale and shall be entitled, for the purpose of bidding and making
settlement or payment of the purchase price for all or any portion of the
Pledged Collateral sold at such sale, to use and apply any of the Secured
Obligations as a credit on account of the purchase price of any Pledged
Collateral payable at such sale. Each purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part for the
Company, and the Company hereby waives (to the fullest extent permitted by law)
all rights of redemption, stay and/or appraisal that it now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted. The Company agrees that, to the extent notice of sale shall
be required by law, ten (10) days notice to the Company of the time and place of
any public sale or the time after which any private sale is to be made shall
constitute reasonable notice. Seller shall not be obligated to make any sale of
Pledged Collateral regardless of notice of sale having been given. Seller may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefore, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. The Company hereby waives any
claims against Seller arising by reason of the fact that the price at which any
Pledged Collateral may have been sold at such a private sale was less than the
price that might have been obtained at a public sale, even if Seller accepts the
first offer received and does not offer such Pledged Collateral to more than one
offeree.
(b) The Company recognizes that, by reason of certain prohibitions
contained in applicable federal and state securities laws, Seller may be
compelled, with respect to any sale of all or any part of the Pledged
Collateral, to limit purchasers to those who will agree, among other things, to
acquire such Pledged Collateral for their own account, for investment and not
with a view to the distribution or resale thereof. The Company acknowledges that
any such private sales may be at prices and on terms less favorable to the
Company than those obtainable through a public sale without such restrictions
(including, without limitation, a public offering made pursuant to registration
under the Securities Act of 1933, as amended (the "Securities Act"), and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner and that Seller
shall have no obligation to engage in public sales and no obligation to delay
the sale of any Pledged Collateral for the period of time necessary to permit
the Company to register it for a form of public sale requiring registration
under the Securities Act or under applicable state securities laws, even if the
Company would agree to do so.
(c) If Seller determines to exercise its right to sell any or all of
the Pledged Collateral, then upon written request, the Company shall from time
to time furnish to Seller all such information as Seller may request (A) in
order to determine the number of shares and other instruments included in the
Pledged Collateral that may be sold by Seller as exempt transactions or exempt
securities under the Securities Act and the rules of the Securities and Exchange
Commission thereunder, or under applicable state laws, as the same are from time
to time in effect and (B) in order to otherwise facilitate any such sale.
2.6 Application of Proceeds. Any cash held by Seller as Pledged Collateral
and all cash proceeds received by Seller in respect of any sale of, collection
from, or other realization upon all or any part of the Pledged Collateral
pursuant to the exercise by Seller of his remedies as a secured creditor as
provided in this Agreement shall be applied promptly from time to time by Seller
(in such order as Seller shall in his sole discretion determine) to the payment
of the reasonable fees and expenses of Seller incurred pursuant to this
Agreement and to the payment of the Secured Obligations. Any amounts remaining
after such applications shall be remitted to the Company or as a court of
competent jurisdiction may otherwise direct. If the proceeds of the sale,
collection or other realization of
Page -23-
<PAGE>
or upon the Pledged Collateral are insufficient to cover the cost and expenses
of such sale, collection or realization after the payment in full of the Secured
Obligations, the Company shall remain liable for any deficiency.
2.7 Expenses. Upon exercise by Seller of his remedies provided in this
Agreement following the occurrence and continuation of an Event of Default, the
Company will upon demand pay to Seller the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its counsel and of any
experts and agents, that Seller may incur in connection with (i) the custody of
preservation of, or the sale of, collection from or other realization upon, any
of the Pledged Collateral, (ii) the preservation, exercise or enforcement of any
of the rights of Seller hereunder or (iii) the failure of the Company to perform
or observe any of the provisions hereof.
2.8 Security Interest Absolute. All rights of and Seller's lien and
security interest hereunder, and all obligations of the Company hereunder, shall
be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of this Agreement or the
Note; or
(b) any change in the amount, time, manner or place of payment of,
or in any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Agreement or the
Note.
2.9 Further Obligations. The Company agrees that at any time and from time
to time, at its expense, the Company will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or that Seller may reasonably request, in order to perfect and protect
any security interest granted or purported to be granted hereby or to enable
Seller to exercise and enforce its rights and remedies hereunder with respect to
the Shares.
2.10 Attorney-in-fact. The Company hereby appoints Seller as the Company's
attorney-in-fact, with full authority in the place and stead of the Company and
in the name of the Company or otherwise, from time to time in the discretion of
Seller, to take any action and to execute any instrument which Seller may deem
reasonably necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation, to receive, endorse and collect all instruments
made payable to the Company representing any dividend, interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same. If the Company fails to perform any agreement
contained herein, Seller may perform, or cause performance of, such agreement,
and the expenses of Seller incurred in connection therewith shall be payable by
the Company.
2.11 Seller's Duty of Care. Other than the exercise of reasonable care in
the physical custody of the Pledged Collateral while held by the Secured Party
(or the Agent) hereunder, neither, Seller nor the Agent shall have any
responsibility for, or obligation or duty with respect to, all or any part of
the Pledged Collateral or any matter or proceeding arising out of or relating
thereto, including, without limitation, any obligation or duty to collect any
sums due with respect thereto or to protect or preserve any rights against prior
parties or any other rights pertaining thereto, it being understood and agreed
that the Company shall be responsible for preservation of all rights in the
Pledged Collateral. Without limiting the generality of the foregoing, Seller
shall be conclusively deemed to have exercised reasonable care in the custody of
the Pledged Collateral, if it takes such action, for purposes of preserving
rights in the Pledged Collateral, as the Company may reasonably request in
writing; provided, however, that no refusal failure, omission or delay by Seller
in complying with any such request shall be deemed to be a failure to exercise
reasonable care.
2.12 Distributions. The Company covenants and agrees that the Pledged
Collateral will be treated the same as outstanding shares of capital stock of
the Company with respect to any dividends, cash, options, warrants, rights,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the outstanding capital stock of the Company (i.e., it will treat the Shares
as if they were still outstanding).
Page -24-
<PAGE>
3. EVENTS OF DEFAULT. The term "Events of Default" shall mean any of the
following events:
(a) any representations or warranty made by the Company in or in
connection with this Agreement shall prove to have been false or misleading in
any material respect when made; or
(b) default shall be made in the payment of principal or interest as
provided in the Note, or other amount payable hereunder, when and as the same
shall become due and payable, whether at the scheduled due date thereof or at a
date fixed for prepayment thereof or by acceleration thereof or otherwise; or
(c) (i) any pledge or security interest in favor of Seller granted
hereunder, no longer provides the lien or priority contemplated herein or (ii)
the Company (or any successor thereto or representative thereof) shall claim or
assert that any other right or remedy of Seller hereunder shall not be
enforceable in accordance with its terms, or (iii) default shall be made in the
due observance or performance of any covenant, condition or agreement hereunder
or under the Note; provided, however, a default in the due observation or
performance of a non-monetary covenant, condition or agreement hereunder or
under the Note shall not be considered to be an Event of Default until and
unless Seller shall have given fifteen (15) days' notice of such default to the
Company and such default shall remain uncurred at the end of such 15 day period;
(d) the Company shall (i) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee or liquidator
of itself or of all or a substantial part of its property, (ii) admit in writing
its inability, or be generally unable, to pay its debts as such debts become
due, (iii) make a general assignment for the benefit of its creditors, (iv)
commence a voluntary case under the Federal Bankruptcy Code (as now or hereafter
in effect), (v) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, winding-up, or composition
or adjustment of debts, (vi) fail to have vacated or discontinued in a period of
sixty (60) days, or acquiesce in writing to, any petition filed against it in an
involuntary case under such Bankruptcy Code or (vii) take any action for the
purpose of effecting any of the foregoing; or
(e) a proceeding or case shall be commenced in any court of
competent jurisdiction, seeking (or in any case previously commenced there shall
be sought) (i) the liquidation, reorganization, dissolution, winding-up, or
composition or readjustment of debts, of the Company, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of the Company or of all or
any substantial part of its assets, (iii) similar relief in respect of the
Company or all or any substantial part of its assets under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment
of debts, including, without limitation, under the Federal Bankruptcy Code,
without the consent of the Company and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of the
foregoing shall be entered and continue unstayed and in effect, for a period of
sixty (60) days, or an order for relief against the Company shall be entered in
an involuntary case under such Federal Bankruptcy Code.
4. REPRESENTATIONS AND WARRANTIES.
4.1 Representations and Warranties of Seller. Seller represents and
warrants to, and agrees with, the Company as follows:
(a) Seller has all necessary power and authority to execute, deliver
and perform this Agreement. Neither the execution, delivery or performance of
this Agreement will violate (with or without the giving of notice or the lapse
of time or both) any contract to which Seller is bound or any order, writ,
injunction, judgment or decree to which Seller is a party.
(b) Seller owns the Shares beneficially and of record free and clear
of all mortgages, claims, liens, rights of first refusal or similar rights,
security interests, options, pledges or encumbrances of any kind whatsoever.
Page -25-
<PAGE>
(c) Seller has had access to all of the information with respect to
the Shares that he deems necessary to make a complete evaluation thereof, and
has had the opportunity to question the management of the Company and persons
acting on their behalf concerning the Shares.
(d) Seller acknowledges that the consideration to be paid by the
Company for the Shares hereunder represents a "discount" from the current market
price of the Shares and that the market price for the Shares could increase
substantially.
(e) Seller acknowledges that the Company has relied on the foregoing
representations and warranties and, but for such representations and warranties,
no purchase of the Shares would be made by the Company from Seller.
4.2 Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, Seller as follows:
(a) The Company has all necessary power and authority to execute,
deliver and perform this Agreement, the Note, and to consummate the transactions
contemplated hereby and thereby. Neither the execution, delivery or performance
of this Agreement will violate (with or without the giving of notice or the
lapse of time or both) the Articles of Incorporation or By-laws of the Company
or any contract to which the Company is bound or any order, writ, injunction,
judgment or decree to which the Company is a party, nor does the execution,
delivery or performance of this Agreement require the consent or approval of any
third party or governmental authority;
(b) The Company is acquiring the Shares not with a view to, or in
connection with, any offering, resale, disposition or any distribution thereof
within the meaning of the Securities Act, or any rule or regulation thereunder
(collectively the "Rules"), which offering, resale, disposition or distribution
would be in violation of the Act or any of the Rules;
(c) This Agreement and the Note have been duly authorized, executed
and delivered by the Company, and are the binding and enforceable obligations of
the Company enforceable against it in accordance with their terms;
(d) The Board of Directors of the Company has authorized the
reissuance of the shares of capital stock comprising the Pledged Collateral upon
Seller's exercise of its rights in respect to the Pledged Collateral in
accordance with Section 2.5 hereof. If such Pledged Collateral is sold pursuant
thereto, the shares of capital stock of the Company that constitute all or a
portion of the Pledged Collateral shall be duly and validly authorized, issued
and outstanding, and will be fully paid and non-assessable; and
(e) The pledge by the Company of the Pledged Collateral pursuant to
this Agreement creates a valid and perfected first lien security interest in the
Pledged Collateral, securing the payment and performance of the Secured
Obligations.
(f) The Company acknowledges that Seller has relied on the foregoing
representations and warranties and, but for such representations and warranties,
no sale of the Shares would be made by Seller to the Company.
4.3 Survival of Representations. All representations and warranties made
herein by Seller and by the Company shall survive the purchase and delivery of
the Shares.
Page -26-
<PAGE>
5. NOTICES.
All notices and other communications hereunder shall be in writing and
shall be given (and shall be deemed to have been duly given upon receipt) by
delivery in person, telegram, telex, facsimile or other standard form of
telecommunication, or by registered or certified post-paid mail, return receipt
requested, and addressed as follows, or to such other address as any party may
notify the other in accordance with the provisions hereof:
Seller:
Edward W. Rose, III
Cardinal Investment Company, Inc.
500 Crescent Court, Suite 250
Dallas, Texas 75201
- copy to -
Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Attention: Larry L. Schoenbrun, Esq.
The Company:
Drew Industries Incorporated
200 Mamaroneck Avenue
White Plains, New York 10601
Attention: Leigh J. Abrams, President and Chief Executive Officer
- copy to -
Harvey F. Milman, Esq.
Berlack, Israels & Liberman LLP
120 W. 45th Street
New York, New York 10036
or to such other address as any party shall have specified by notice given in
compliance with this Section 5, and shall be effective upon receipt.
6. ENTIRE AGREEMENT.
This Agreement and the Note constitute the entire agreement between the
parties with respect to the subject matter hereof and can be amended,
supplemented or changed only by a written instrument making specific reference
to this Agreement and duly executed by the party to be bound thereby. This
Agreement supersedes all prior agreements and understandings among the parties
with respect to the transactions contemplated hereby.
7. BINDING EFFECT; BENEFIT.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, legal representatives, successors and
assigns. Nothing contained in this Agreement, express or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
legal representatives, successors and assigns, any rights, remedies or
obligations or liabilities under or by reason of this Agreement.
Page -27-
<PAGE>
8. ASSIGNABILITY.
Neither this Agreement nor any of the rights or obligations hereunder may
be assigned without the prior written consent of the parties hereto and any
attempt to do so shall be of no force or effect.
9. APPLICABLE LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas without regard to the conflict of law principles
thereof. The Company hereby irrevocably submits, in any suit, action or
proceeding arising out of or relating to this Agreement or the Note or any of
the transactions contemplated hereby or thereby, to the jurisdiction of the
United States District Court for the Northern District of Texas and the
jurisdiction of any court of the State of Texas located in Dallas and waives any
and all objections to jurisdiction that it may have under the laws of the State
of Texas or the United States.
10. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument. Executed signature pages to any counterpart instrument
may be detached and affixed to a single counterpart, which single counterpart
with multiple executed signature pages affixed thereto shall constitute the
original counterpart instrument. All of those counterpart pages shall be read as
though one, and they shall have the same force and effect as if all the signers
had executed a single signature page.
11. TAXES
The Company shall pay stock transfer taxes, if any, resulting from the
transaction contemplated herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first written above.
SELLER:
______________________________
Edward W. Rose, III
THE COMPANY:
DREW INDUSTRIES INCORPORATED
By:___________________________
Leigh J. Abrams,
President and Chief Executive Officer
Page -28-
<PAGE>
NON-NEGOTIABLE PROMISSORY NOTE
$20,800,000 March 7, 1997
FOR VALUE RECEIVED, the undersigned, Drew Industries Incorporated, a
Delaware corporation with principal offices at 200 Mamaroneck Avenue, White
Plains, New York 10601 (the "Payor") promises to pay to Edward W. Rose, III (the
"Payee") at the address of the Payee or at such other place as the Payee may
designate in writing, the principal sum of Twenty Million Eight Hundred Thousand
($20,800,000) Dollars, together with interest provided herein.
Payor promises to pay interest from February 14, 1997 on the outstanding
principal balance hereof and on any past due interest at the lesser of (i) the
rate of seven (7%) percent per annum (computed on the basis of the actual number
of days elapsed over a year of 360 days), or (ii) the maximum rate permitted by
law from time to time.
Principal and interest hereunder shall be due and payable on April 14,
1997; provided, however, that the Payor shall have the right, upon written
notice to the Payee, to extend said date to May 14, 1997 if the Payor is engaged
in good faith best efforts to consummate financing with Chase Manhattan Bank,
the proceeds of which will be applied to pay all principal and interest due
hereunder. All payments of principal and interest shall be made in U.S. Dollars
and in immediately available funds.
This Note may be prepaid in whole or in part by the Payor at any time
without premium or penalty of any kind. Prepayments shall be applied first to
accrued but unpaid interest and then to principal.
The Payee shall have the right upon the occurrence of an Event of Default
(as hereafter defined), to accelerate this Note and to declare the entire unpaid
balance hereof and the obligation evidenced hereby, together with interest to
the date of acceleration, immediately due and payable.
No delay or failure on the part of the Payee to exercise any power or
right shall operate as a waiver thereof and such rights and powers shall be
deemed continuous, nor shall failure to exercise any such power or right subject
the Holder to any liability.
The Payor waives grace, presentment for payment, demand, notice of
non-payment of this Note, protest and notice of protest, notice of intention to
accelerate, notice of acceleration, any other notice and diligence in collecting
and bringing suit, and consents that the Payee may extend the time for payment
of any part or the whole of the debt at any time without affecting the rights of
the Payee against the Payor.
All agreements between the Payor and the holder hereof, whether now
existing or hereafter arising and whether written or oral, are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of the maturity hereof, or otherwise, shall the amount paid, or
agreed to be paid, to the holder hereof for the use, forbearance or detention of
the funds advanced pursuant to this Note, or otherwise, or for the payment or
performance of any covenant or obligation contained herein or in any other
document or instrument evidencing, securing or pertaining to this Note exceed
the maximum amount permissible under applicable law. If from any circumstances
whatsoever fulfillment of any provisions hereof or any other document or
instrument exceeds the maximum amount of interest prescribed by law, then ipso
facto, the obligation to be fulfilled shall be reduced to the limit of such
validity, and if from any such circumstances the holder hereof shall ever
receive anything of value deemed interest by applicable law, which would exceed
interest at the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the unpaid principal balance of
this Note or on account of any other principal indebtedness of the Payor to the
holder hereof, and not to the payment of interest, or if such excessive interest
exceeds the unpaid principal balance of this Note and such other indebtedness,
such excess shall be refunded to the Payor. All sums paid, or agreed to be paid,
by the Payor for the use, forbearance or detention of
Page -29-
<PAGE>
the indebtedness of the Payor to the holder of this Note shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full so that the
actual rate of interest on account of such indebtedness is uniform throughout
the term hereof. The terms and provisions of this paragraph shall control and
supersede every other provision of all agreements between the Payor and the
holder hereof.
This Note is subject in all respects to the terms and provisions of the
Stock Purchase and Pledge Agreement, dated the date hereof, between the Payor
and the Payee (the "Agreement"), which Agreement contains, among other things,
provisions for the acceleration of the maturity hereof upon the happening of
certain Events of Default (as defined therein), and the granting of a security
interest to secure the Payor's obligations hereunder. This Note may not be
negotiated, transferred or assigned without the prior written consent of the
Payor.
If the holder of this Note retains an attorney in connection with any
default or to collect, enforce or defend this Note or the Agreement in any
lawsuit or in reorganization, bankruptcy or other proceedings, or if Payor sues
any holder in connection with this Note or the Agreement and does not prevail,
the Payor agrees to pay to the Payee, in addition to any principal and interest
due and unpaid, all reasonable costs and expenses of such proceedings, including
reasonable attorney's fees.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF TEXAS WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT BY LAWS. PAYOR
HEREBY IRREVOCABLY SUBMITS IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS NOTE OR THE AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF TEXAS AND THE JURISDICTION OF ANY COURT OF THE STATE OF
TEXAS LOCATED IN DALLAS AND WAIVES ANY AND ALL OBJECTIONS TO JURISDICTION THAT
IT MAY HAVE UNDER THE LAWS OF THE STATE OF TEXAS OR THE UNITED STATES.
IN WITNESS WHEREOF, and intending to be legally bound, the Payor has
caused this Note to be signed by its President and Chief Executive Officer
pursuant to order of the Board of Directors.
DREW INDUSTRIES INCORPORATED
By:_______________________________
Leigh J. Abrams
President and Chief Executive Officer
Page -30-
EXHIBIT 21-Active Subsidiaries of Registrant
State of
Name Incorporation
---- -------------
Kinro, Inc. Ohio
Kinro Manufacturing, Inc. Delaware
Kinro Holding, Inc. New York
Shoals Supply, Inc. Delaware
Shoals Supply Holding, Inc. New York
Kinro Texas Limited Partnership Texas Partnership
Kinro Tennessee Limited Partnership Tennessee Partnership
Shoals Supply Texas
Limited Partnership Texas Partnership
Shoals Supply Tennessee
Limited Partnership Tennessee Partnership
Page -31-
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 12, 1997, except for
the first paragraph of Note 14, which is as of March 21, 1997, related to the
consolidated balance sheets of Drew Industries Incorporated and subsidiaries as
of December 31, 1996 and 1995 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, 1996, and related financial statement schedule,
appearing and incorporated by reference, in the December 31, 1996, annual report
on Form 10-K of Drew Industries Incorporated.
KPMG Peat Marwick LLP
Stamford, Connecticut
March 28, 1997
Page -32-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,545
<SECURITIES> 0
<RECEIVABLES> 5,232
<ALLOWANCES> 308
<INVENTORY> 22,663
<CURRENT-ASSETS> 31,681
<PP&E> 17,573
<DEPRECIATION> 6,708
<TOTAL-ASSETS> 55,260
<CURRENT-LIABILITIES> 15,557
<BONDS> 0
0
0
<COMMON> 112
<OTHER-SE> 34,653
<TOTAL-LIABILITY-AND-EQUITY> 55,260
<SALES> 168,151
<TOTAL-REVENUES> 168,151
<CGS> 125,392
<TOTAL-COSTS> 145,822
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 326
<INCOME-PRETAX> 22,003
<INCOME-TAX> 8,617
<INCOME-CONTINUING> 13,386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,386
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
</TABLE>
