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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number: 0-13646
DREW INDUSTRIES INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3250533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Mamaroneck Avenue, White Plains, N.Y. 10601
(Address of principal executive offices)
(Zip Code)
(914) 428-9098
Registrant's Telephone Number including Area Code
(Former name, former address and former fiscal year,
if changed since last year)
Indicate by check marks whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities & Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 9,656,429 shares of common
stock as of October 30, 2000.
================================================================================
<PAGE>
DREW INDUSTRIES INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS FILED WITH
QUARTERLY REPORT OF REGISTRANT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
(UNAUDITED)
===========================================
Page
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME 3
CONSOLIDATED BALANCE SHEETS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-9
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10-14
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 15
PART II - OTHER INFORMATION
Not applicable
SIGNATURES 16
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------ ---------------------
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $228,727 $254,799 $74,915 $79,703
Cost of sales 183,086 196,438 61,589 60,964
-------- -------- ------- -------
Gross profit 45,641 58,361 13,326 18,739
Selling, general and administrative expenses 32,166 33,450 10,442 10,788
-------- -------- ------- -------
Operating profit 13,475 24,911 2,884 7,951
Interest expense, net 2,753 2,644 874 784
-------- -------- ------- -------
Income before income taxes 10,722 22,267 2,010 7,167
Provision for income taxes 4,552 8,898 984 2,837
-------- -------- ------- -------
Net income $ 6,170 $ 13,369 $ 1,026 $ 4,330
======== ======== ======= =======
Net income per common share:
Basic $ .58 $ 1.17 $ .11 $ .38
======== ======== ======= =======
Diluted $ .58 $ 1.17 $ .11 $ .38
======== ======== ======= =======
Weighted average common shares outstanding:
Basic 10,559 11,402 9,656 11,376
======== ======== ======= =======
Diluted 10,561 11,438 9,657 11,389
======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30,
-------------------- December 31,
2000 1999 1999
----------------------------------------------------------------------------------------------------
(In thousands, except shares and per share amounts)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,891 $ 5,262 $ 5,110
Accounts receivable, trade, less allowances 19,393 19,391 11,303
Inventories (Note 3) 35,941 31,483 33,382
Prepaid expenses and other current assets 3,977 4,755 4,390
-------- -------- --------
Total current assets 61,202 60,891 54,185
Fixed assets, net 67,201 46,926 51,028
Goodwill, net 44,586 46,537 46,087
Other assets 4,194 4,964 4,744
-------- -------- --------
Total assets $177,183 $159,318 $156,044
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable, including current maturities of
long-term indebtedness $ 9,341 $ 802 $ 1,717
Accounts payable, trade 11,929 9,794 6,391
Accrued expenses and other current liabilities 16,730 21,036 17,107
-------- -------- --------
Total current liabilities 38,000 31,632 25,215
Long-term indebtedness (Note 4) 60,286 45,344 44,630
Other long-term liabilities 2,110 1,665 2,110
-------- -------- --------
Total liabilities 100,396 78,641 71,955
-------- -------- --------
Commitments and Contingencies
Stockholders' equity Common stock, par value $.01 per
share: authorized 20,000,000 shares; issued 11,805,754
shares at September 2000; 11,801,430 shares at
September 1999 and 11,805,754 shares at December 1999 118 118 118
Paid-in capital 24,967 24,823 24,967
Retained earnings 71,169 61,177 64,999
-------- -------- --------
96,254 86,118 90,084
Treasury stock, at cost - 2,149,325 shares at September
2000, 450,000 shares at September 1999 and 509,300
shares at December 1999 (Note 5) (19,467) (5,441) (5,995)
-------- -------- --------
Total stockholders' equity 76,787 80,677 84,089
-------- -------- --------
Total liabilities and stockholders' equity $177,183 $159,318 $156,044
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
2000 1999
-----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,170 $ 13,369
Adjustments to reconcile net income to
cash flows provided by operating activities:
Depreciation and amortization 6,574 6,029
Loss on disposal of fixed assets 325 256
Changes in assets and liabilities:
Accounts receivable, net (8,090) (5,832)
Inventories (2,559) 3,917
Prepaid expenses and other assets 92 1,144
Accounts payable, accrued expenses and other current liabilities 5,314 5,558
-------- --------
Net cash flows provided by operating activities 7,826 24,441
-------- --------
Cash flows from investing activities:
Capital expenditures (21,196) (8,138)
Proceeds from sales of fixed assets 343 303
-------- --------
Net cash flows used for investing activities (20,853) (7,835)
-------- --------
Cash flows from financing activities:
Proceeds from Industrial Revenue Bond 2,000
Proceeds from line of credit 76,895 17,550
Repayments under line of credit and other borrowings (55,973) (30,148)
Acquisition of treasury stock (13,472) (3,337)
Exercise of stock options and other 358 1,901
-------- --------
Net cash flows provided by (used for) financing activities 9,808 (14,034)
-------- --------
Net (decrease) increase in cash (3,219) 2,572
Cash and cash equivalents at beginning of period 5,110 2,690
-------- --------
Cash and cash equivalents at end of period $ 1,891 $ 5,262
======== ========
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest on debt $ 4,052 $ 3,324
Income taxes $ 3,535 $ 6,579
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Total
Common Treasury Paid-in Retained Stockholders'
Stock Stock Capital Earnings Equity
-----------------------------------------------------------------------------------------------------------------
(In thousands, except shares)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1999 $ 118 $ (5,995) $ 24,967 $ 64,999 $ 84,089
Net income for nine months ended September 30, 2000 6,170 6,170
Purchase of 1,640,025 shares of treasury stock (13,472) (13,472)
-------- -------- -------- -------- --------
Balance - September 30, 2000 $ 118 $(19,467) $ 24,967 $ 71,169 $ 76,787
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The Consolidated Financial Statements presented herein have been
prepared by the Company in accordance with the accounting policies described in
its December 31, 1999 Annual Report on Form 10-K and should be read in
conjunction with the Notes to Consolidated Financial Statements which appear in
that report.
In the opinion of management, the information furnished in this Form
10-Q reflects all adjustments necessary for a fair statement of the results of
operations as of and for the nine and three month periods ended September 30,
2000 and 1999. All such adjustments are of a normal recurring nature. The
Consolidated Financial Statements have been prepared in accordance with the
instructions to Form 10-Q and therefore do not include some information and
notes necessary to conform with annual reporting requirements.
2. Segment Reporting
The Company has two reportable operating segments, the manufactured
housing products segment (the "MH segment") and the recreational vehicle
products segment (the "RV segment"). The MH segment manufactures a variety of
products used in the construction of manufactured homes, including windows and
screens, chassis and chassis parts, axles, and galvanized roofing. The MH
segment also imports new tires and refurbishes used axles and tires which it
supplies to producers of manufactured homes. The RV segment manufactures a
variety of products used in the production of recreational vehicles, including
windows, doors and chassis. The MH segment and the RV segment primarily sell
their products to the producers of manufactured homes and recreational vehicles,
respectively. Each segment also supplies related products to other industries,
but sales of these products represent less than 5 percent of the segment's net
sales. The Company has only an insignificant amount of intersegment sales.
Decisions concerning the allocation of the Company's resources are made
by the presidents of the Company's operating subsidiaries and the president of
Drew. This group evaluates the performance of each segment based upon segment
profit or loss, defined as income before interest, amortization of intangibles
and income taxes. The accounting policies of the MH and RV segments are the same
as those described in Note 1 of Notes to Consolidated Financial Statements, of
the Company's December 31, 1999 Annual Report on Form 10-K.
7
<PAGE>
DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Information relating to segments follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
MH segment $ 150,579 $ 195,709 $ 47,496 $ 59,726
RV segment 78,148 59,090 27,419 19,977
--------- --------- --------- ---------
Total $ 228,727 $ 254,799 $ 74,915 $ 79,703
========= ========= ========= =========
Operating profit:
MH segment $ 11,322 $ 22,148 $ 2,896 $ 6,889
RV segment 6,025 6,680 1,341 2,258
--------- --------- --------- ---------
Total segments operating profit 17,347 28,828 4,237 9,147
Amortization of intangibles (2,020) (2,020) (673) (673)
Corporate and other (1,852) (1,897) (680) (523)
--------- --------- --------- ---------
Operating profit 13,475 24,911 2,884 7,951
Interest expense, net 2,753 2,644 874 784
--------- --------- --------- ---------
Income before income taxes $ 10,722 $ 22,267 $ 2,010 $ 7,167
========= ========= ========= =========
</TABLE>
3. Inventories
Inventories are valued at the lower of cost (using the first-in, first-out
method) or market. Cost includes material, labor and overhead; market is
replacement cost or realizable value after allowance for costs of distribution.
Inventories consist of the following (in thousands):
September 30,
-------------------- December 31,
2000 1999 1999
---- ---- ----
Finished goods $ 9,291 $ 9,007 $ 10,494
Work in process 2,155 2,136 2,123
Raw Material 24,495 20,340 20,765
------- ------- --------
Total $35,941 $31,483 $33,382
======= ======= =======
8
<PAGE>
DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Long-Term Indebtedness
The Company has $40 million of 6.95 percent, seven year Senior Notes
issued in a private placement in January 1998, payable $8 million annually
beginning January 2001. The Company also has a credit facility, which was
increased from $25 million to $30 million in June 2000, with interest payable at
the prime rate, with an option to convert a portion of the borrowings under the
credit facility to a loan at 1 percent over the LIBO rate. Furthermore, the
Company is required to pay a commitment fee, accrued at the rate of 3/8 of 1
percent per annum, on the daily unused amount of the revolving line of credit.
The balance under this line of credit is $22.2 million at September 30, 2000.
Pursuant to both the Senior Notes and the credit facility, the Company
is required to maintain minimum net worth and interest and fixed charge
coverages and meet certain other financial requirements. All of such
requirements have been met for the nine months ended September 30, 2000.
Borrowings under both facilities are secured only by capital stock of the
Company's subsidiaries.
In July 2000, the Company received funds from an Industrial Revenue Bond
of $2 million which is payable over fifteen years with interest at 6.15% per
annum.
5. Treasury Stock Purchases
On June 16, 2000, the Company purchased 1,449,425 shares of its common
stock at $8.00 per share, net to the sellers in cash, or an aggregate of $11.8
million including expenses, pursuant to a self-tender offer. Earlier this year,
the Company purchased, on the open market, 190,600 shares of its Common Stock at
an average cost of $8.80 per share. The Company used its line of credit to
purchase such shares. The line of credit was increased from $25 million to $30
million to accommodate the purchase of shares.
6. Weighted Average Common Shares Outstanding
Net income per diluted common share reflects the dilution of the
weighted average common shares by the assumed issuance of common stock
pertaining to stock options and warrants. The numerator, which is equal to net
income, is constant for both the basic and diluted earnings per share
calculations. Weighted average common shares outstanding - diluted is calculated
as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding - basic 10,559 11,402 9,656 11,376
Assumed issuance of common stock
pertaining to stock options and warrants 2 36 1 13
-------- ------- ------- -------
Weighted average common shares
outstanding - diluted 10,561 11,438 9,657 11,389
======== ======= ======= =======
</TABLE>
9
<PAGE>
DREW INDUSTRIES INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company has two reportable operating segments, the manufactured
housing products segment (the "MH segment") and the recreational vehicle
products segment (the "RV segment"). The MH segment, which accounted for 66
percent of consolidated net sales for the nine months ended September 30, 2000
and 76 percent of the annual consolidated net sales for 1999, manufactures a
variety of products used in the construction of manufactured homes, including
windows and screens, chassis and chassis parts, axles, and galvanized roofing.
The MH segment also imports new tires and refurbishes used axles and tires which
it supplies to producers of manufactured homes. The RV segment, which accounted
for 34 percent of consolidated net sales for the nine months ended September 30,
2000 and 24 percent of the annual consolidated net sales for 1999, manufactures
a variety of products used in the production of recreational vehicles, including
windows, doors and chassis. The MH segment and the RV segment primarily sell
their products to the producers of manufactured homes and recreational vehicles,
respectively. Each segment also supplies related products to other industries,
but sales of these products represent less than 5 percent of the segment's net
sales.
The Company's operations are performed through its four primary
operating subsidiaries. Kinro, Inc. ("Kinro") and Lippert Components, Inc.
("LCI") have operations in both the MH and RV segments, while Lippert Tire and
Axle, Inc. (formerly known as Shoals Supply, Inc.) ("LTA") and Coil Clip, Inc.
("Coil Clip") operate entirely within the MH segment. At September 30, 2000 the
Company's subsidiaries operated 42 plants in 18 states and Canada.
RESULTS OF OPERATIONS
Net sales and operating profit are as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
MH segment $ 150,579 $ 195,709 $ 47,496 $ 59,726
RV segment 78,148 59,090 27,419 19,977
--------- --------- --------- ---------
Total $ 228,727 $ 254,799 $ 74,915 $ 79,703
========= ========= ========= =========
Operating profit:
MH segment $ 11,322 $ 22,148 $ 2,896 $ 6,889
RV segment 6,025 6,680 1,341 2,258
--------- --------- --------- ---------
Total segments operating profit 17,347 28,828 4,237 9,147
Amortization of intangibles (2,020) (2,020) (673) (673)
Corporate and other (1,852) (1,897) (680) (523)
--------- --------- --------- ---------
Operating profit 13,475 24,911 2,884 7,951
Interest expense, net 2,753 2,644 874 784
--------- --------- --------- ---------
Income before income taxes $ 10,722 $ 22,267 $ 2,010 $ 7,167
========= ========= ========= =========
</TABLE>
10
<PAGE>
DREW INDUSTRIES INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
MH Segment
Net sales of the MH segment decreased 23 percent in the nine months
ended September 30, 2000, and 20 percent in the third quarter, from the same
periods last year, compared to a 25 percent decrease in the industry-wide
production of manufactured homes.
During the third quarter the slump in the manufactured housing industry,
which began in the spring of 1999, continued. Although some progress has
reportedly been made in reducing the inventory of homes held by both the
manufacturers and retail dealers, an oversupply persists. The more troubling
problem in the manufactured housing industry appears to be tighter credit
standards applied by mortgage lenders, which has occurred as a result of higher
rates of defaults, along with a lack of availability of mortgage credit. The
Company does not anticipate any significant increase in industry-wide sales of
manufactured homes until credit availability improves, and the inventory of
homes declines further.
Operating profit of the MH segment decreased $11 million (49 percent) in
the nine months of 2000, and $4 million (58 percent) in the third quarter, from
the same periods in 1999 primarily as a result of the reduction in sales. This
decline in sales resulted in a reduction of operating profits of approximately
$8 million for the nine months and $2 million for the quarter. In addition,
increases in the cost of labor and services could not be fully passed on to
customers due to competition. For the nine month period, plant consolidation,
start-up costs and related production inefficiencies of about $1.0 million for
the nine months and $.2 million for the quarter also impacted operating profit.
Selling, general and administrative expenses were down in dollar terms, however,
they increased as a percentage of sales due to the effect of lower sales on
fixed costs. It is anticipated that lower sales, higher labor costs in certain
areas and higher interest rates will continue to adversely affect operating
results in the near term. While start -up costs are expected to be lower in the
future, it is anticipated that until the manufactured housing industry recovers,
operating margins are unlikely to significantly improve.
As previously disclosed, Drew's axle and tire operation has not
performed well over the past several years. This is due primarily to increased
competition which has severely affected operating margins. The third quarter was
particularly hard hit by the poor operating results of this operation. As a
result, the Company is studying whether the $8 million of goodwill and $3
million of fixed assets related to the five facilities of the axle and tire
operation, have been impaired and, if so, to what extent. This goodwill is being
amortized over 30 years at the rate of approximately $300,000 per year.
Depreciation of the fixed assets aggregate approximately $400,000 per year.
During the fourth quarter the Company expects to complete its evaluation and may
write off all or a portion of these long-lived assets.
RV Segment
Net sales of the RV segment increased 32 percent in the nine months of
2000, and 37 percent in the third quarter, as a result of the expansion of the
Company's RV chassis product line as well as the continuing
11
<PAGE>
DREW INDUSTRIES INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
growth of the RV window line. Such increase is substantially higher than
industry statistics which are flat for the nine months and down 10 percent for
the third quarter. Industry sales of towable RV's, the primary market for the
Company's RV products increased 4 percent for the nine months but decreased 5
percent for the third quarter.
Operating profit of the RV segment decreased for the nine and three
month periods despite the increased sales. Such reduction in operating profit
was largely due to plant consolidation, startup costs and related production
inefficiencies of $1.7 million and $1.0 million for the nine month and three
month periods, respectively. Excluding these start-up and related costs,
operating profit of this segment for the nine month period was 10 percent of net
sales in 2000 compared to 11 percent in 1999. For the third quarter, such
results were 8 percent in 2000 compared to 11 percent in 1999. This decline
resulted largely from increased material and labor costs that could not be
passed on to customers.
Amortization of Intangibles, Corporate and Other
Amortization of intangibles for the nine months and second quarter was
equal to the prior year. Corporate and other expenses decreased $45,000 for the
nine months as lower incentive compensation expenses were partially offset by
aluminum hedging losses. Corporate and other expenses increased $157,000 for the
quarter, primarily as a result of aluminum hedging losses partially offset by
lower incentive compensation expenses.
Shared Services Agreement
Pursuant to a Shared Services Agreement, following the spin-off by the
Company of LBP, Inc. on July 29, 1994, the Company and LBP have shared certain
administrative functions and employee services, such as management overview and
planning, acquisition searches, tax preparation, financial reporting,
coordination of independent audit, stockholder relations, and regulatory
matters. The Company has been reimbursed by LBP for the fair market value of
such services. This Agreement has been extended and now expires on December 31,
2000 and may be further extended. The Company charged fees to LBP of $144,000 in
the first nine months of 2000 and $108,000 in the first nine months of 1999.
These fees reduce selling, general and administrative expenses.
Interest Expense, Net
Interest expense, net increased $109,000 for the nine month period and
$90,000 for the quarter as a result of increases in debt to fund capital
expenditures as well as the purchase of shares of the Company's common stock,
offset by $395,000 of interest costs that were capitalized during the
construction of the Company's five new facilities.
12
<PAGE>
DREW INDUSTRIES INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities ." In June 1999, the FASB issued
SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133" which delays the
effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. In
June 2000, the FASB issued SFAS No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" which amends some of the provisions
of FASB 133. The Company plans to adopt the provisions of SFAS 133 and SFAS 138
in the first quarter of 2001. The Company is in the process of determining what
the effect of SFAS 133 and SFAS 138 will be on earnings and financial position.
LIQUIDITY AND CAPITAL RESOURCES
The Statements of Cash Flows reflect the following (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
---- ----
<S> <C> <C>
Net cash flows provided by operating activities $ 7,826 $ 24,441
Net cash flows (used for) investment activities $(20,853) $ (7,835)
Net cash flows provided by (used for) financing activities $ 9,808 $(14,034)
</TABLE>
Net cash provided by net income was partially offset by changes in
operating assets in 2000. In addition to seasonal changes in operating assets,
days sales in accounts receivable increased, although no significant
delinquencies were experienced. Inventories increased in the nine months of 2000
compared to a decrease in last year's period partly because of the slowdown in
sales as well as the higher inventory requirement of the expanding RV segment.
The Company has reduced inventories by $2.7 million in this year's third
quarter, and inventory reduction efforts continue.
Cash flows used for investing activities consisted of capital
expenditures, including five factories constructed by LCI, primarily to
accommodate the expansion of the RV chassis product lines. Capital expenditures
for 2000 are expected to approximate $25 million, which are being funded from
cash flow from operations and borrowings under the Company's line of credit, as
well as approximately $8 to $12 million of real estate loans. Funds from
Industrial Revenue Bonds of $2 million were received in July 2000 and the
remainder of the real estate loans are expected to be received over the next six
months. Capital expenditures for the year 2001 are expected to aggregate less
than $10 million.
Cash flows provided by financing activities for the nine months of 2000
included increases in debt of approximately $23 million offset by $13 million
used to acquire treasury stock. Cash flows used for financing activities for
1999 included reductions in debt of approximately $13 million, and $3 million
used to acquire
13
<PAGE>
DREW INDUSTRIES INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
treasury stock, offset by $2 million from the exercise of stock options.
Availability under the Company's line of credit and anticipated real estate
loans are expected to be adequate to finance the Company's working capital and
capital expenditure requirements, as well as the $8 million payment on the
Company's Senior Notes due on January 28, 2001.
On June 16, 2000, the Company purchased 1,449,425 shares of its common
stock at $8.00 per share, net to the sellers in cash, or an aggregate of $11.8
million including expenses, pursuant to a self-tender offer. Earlier this year,
the Company purchased, on the open market, 190,600 shares of its Common Stock at
an average cost of $8.80 per share. The Company used its line of credit to
purchase such shares. The line of credit was increased from $25 million to $30
million to accommodate the purchase of shares.
INFLATION
The prices of raw materials, consisting primarily of aluminum, vinyl,
steel, glass and tires, are influenced by demand and other factors specific to
these commodities rather than being directly affected by inflationary pressures.
Prices of certain commodities have historically been volatile. In order to hedge
the impact of future price fluctuations on a portion of its future aluminum raw
material requirements, the Company periodically purchases aluminum futures
contracts on the London Metal Exchange. At September 30, 2000, the Company had
no futures contracts outstanding.
As described above, operating profits have been adversely affected by
increases in labor rates and other costs which could not be fully passed on to
customers due to competition.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
This report contains certain statements, including the Company's plans
regarding its operating strategy, its products, costs, and performance and its
views of industry prospects, which could be construed to be forward looking
statements within the meaning of the Securities Exchange Act of 1934. These
statements reflect the Company's current views with respect to future plans,
events and financial performance.
The Company has identified certain risk factors which could cause actual
plans and results to differ substantially from those included in the forward
looking statements. These factors include pricing pressures due to competition,
raw material costs (particularly aluminum, vinyl, steel, glass, and tires),
adverse weather conditions impacting retail sales, inventory adjustments by
retailers, availability and costs of labor, interest rates and mortgage credit
conditions. In addition, general economic conditions may affect the retail sale
of manufactured homes and RV's.
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DREW INDUSTRIES INCORPORATED
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk in the normal course of its
operations due to its purchases of certain commodities, and its investing and
financing activities.
Certain raw materials, particularly aluminum, vinyl, steel, glass and
tires are subject to price volatility. While effective hedges for most of these
raw materials are not available, the Company periodically purchases aluminum
futures contracts to hedge the impact of future price fluctuations on a portion
of its aluminum raw material requirements. At September 30, 2000, the Company
had no futures contracts outstanding.
The Company is exposed to changes in interest rates primarily as a
result of its financing activities. At September 30, 2000, the Company had $47
million of fixed rate debt. Assuming a decrease of 100 basis points in the
interest rate for borrowings of a similar nature, which the Company becomes
unable to take advantage of in the short-term as a result of the structure of
its fixed rate financing, future cash flows would be affected by approximately
$.5 million per annum. However, the Company believes that current market rates
for borrowings of a similar nature are higher than the rates on the Company's
fixed rate debt.
The Company also has a $30 million line of credit that is subject to a
variable interest rate. At September 30, 2000, $22 million of this line of
credit was utilized. Assuming an increase of 100 basis points in the interest
rate for borrowings under this line of credit, and outstanding borrowings of $22
million, future cash flows would be affected by $.2 million per annum.
In addition, the Company is exposed to changes in interest rates as a
result of temporary investments in government backed money market funds,
however, such investing activity is not material to the Company's financial
position, results of operations, or cash flow.
If the actual change in interest rates is substantially different than
100 basis points, the net impact of interest rate risk on the Company's cash
flow may be materially different than that disclosed above.
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DREW INDUSTRIES INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DREW INDUSTRIES INCORPORATED
Registrant
By /s/ Fredric M. Zinn
---------------------------
Fredric M. Zinn
Principal Financial Officer
November 8, 2000
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