================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 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 August 4, 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 JUNE 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>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------------- --------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 153,812 $ 175,096 $ 79,152 $ 89,209
Cost of sales 121,497 135,474 62,925 67,860
--------- ---------- --------- --------
Gross profit 32,315 39,622 16,227 21,349
Selling, general and administrative expenses 21,724 22,662 11,137 11,945
--------- ---------- --------- --------
Operating profit 10,591 16,960 5,090 9,404
Interest expense, net 1,879 1,860 1,010 857
--------- ---------- --------- --------
Income before income taxes 8,712 15,100 4,080 8,547
Provision for income taxes 3,568 6,061 1,696 3,450
--------- ---------- --------- --------
Net income $ 5,144 $ 9,039 $ 2,384 $ 5,097
========= ========== ========= ========
Net income per common share:
Basic $ .47 $ .79 $ .22 $ .44
========= ========== ========= ========
Diluted $ .47 $ .79 $ .22 $ .44
========= ========== ========= ========
Weighted average common shares outstanding:
Basic 10,946 11,424 10,743 11,468
========= ========== ========= ========
Diluted 10,949 11,475 10,745 11,490
========= ========== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 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 $ 2,752 $ 6,685 $ 5,110
Accounts receivable, trade, less allowances 20,830 17,757 11,303
Inventories (Note 3) 38,654 30,614 33,382
Prepaid expenses and other current assets 4,395 4,653 4,390
---------- --------- ----------
Total current assets 66,631 59,709 54,185
Fixed assets, net 62,571 45,928 51,028
Goodwill, net 45,035 46,987 46,087
Other assets 4,406 5,214 4,744
---------- --------- ----------
Total assets $ 178,643 $ 157,838 $ 156,044
========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable, including current maturities of
long-term indebtedness $ 9,344 $ 794 $ 1,717
Accounts payable, trade 14,393 11,420 6,391
Accrued expenses and other current liabilities 16,888 20,846 17,107
---------- --------- ----------
Total current liabilities 40,625 33,060 25,215
Long-term indebtedness (Note 4) 60,147 45,547 44,630
Other long-term liabilities 2,110 1,665 2,110
---------- --------- ----------
Total liabilities 102,882 80,272 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 June 2000;
11,801,430 shares at June 1999 and 11,805,754 shares at
December 1999 118 118 118
Paid-in capital 24,967 24,823 24,967
Retained earnings 70,143 56,847 64,999
---------- --------- ----------
95,228 81,788 90,084
Treasury stock, at cost - 2,149,325 shares at June 2000, 350,000
shares at June 1999 and 509,300 shares at December 1999 (Note 5) (19,467) (4,222) (5,995)
---------- --------- ----------
Total stockholders' equity 75,761 77,566 84,089
---------- --------- ----------
Total liabilities and stockholders' equity $ 178,643 $ 157,838 $ 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>
Six Months Ended
June 30,
---------------------------
2000 1999
-------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,144 $ 9,039
Adjustments to reconcile net income to
cash flows provided by operating activities:
Depreciation and amortization 4,265 3,954
Loss on disposal of fixed assets 326 323
Changes in assets and liabilities:
Accounts receivable, net (9,527) (4,198)
Inventories (5,272) 4,786
Prepaid expenses and other assets (247) 1,299
Accounts payable, accrued expenses and other current liabilities 7,936 6,994
-------- --------
Net cash flows provided by operating activities 2,625 22,197
-------- --------
Cash flows from investing activities:
Capital expenditures (14,953) (5,846)
Proceeds from sales of fixed assets 298 264
-------- --------
Net cash flows used for investing activities (14,655) (5,582)
-------- --------
Cash flows from financing activities:
Proceeds from line of credit 52,470 17,550
Repayments under line of credit and other borrowings (29,683) (29,948)
Acquisition of treasury stock (13,472) (2,118)
Exercise of stock options and other 357 1,896
-------- --------
Net cash flows provided by (used for) financing activities 9,672 (12,620)
-------- --------
Net (decrease) increase in cash (2,358) 3,995
Cash and cash equivalents at beginning of period 5,110 2,690
-------- --------
Cash and cash equivalents at end of period $ 2,752 $ 6,685
======== ========
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest on debt $ 1,885 $ 1,798
Income taxes $ 1,580 $ 3,030
</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>
Balance - December 31, 1999 $ 118 $ (5,995) $ 24,967 $ 64,999 $ 84,089
Net income for six months ended
June 30, 2000 5,144 5,144
Purchase of 1,640,025 shares of treasury stock (13,472) (13,472)
------- ------------ --------- -------- ----------
Balance - June 30, 2000 $ 118 $ (19,467) $ 24,967 $ 70,143 $ 75,761
======= =========== ========= ======== =========
</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 six and three month periods ended June 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>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------------- ---------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
MH segment $ 103,083 $ 135,983 $ 52,486 $ 68,518
RV segment 50,729 39,113 26,666 20,691
----------- ----------- ----------- -----------
Total $ 153,812 $ 175,096 $ 79,152 $ 89,209
=========== =========== =========== ===========
Operating profit:
MH segment $ 8,426 $ 15,259 $ 3,869 $ 8,314
RV segment 4,684 4,422 2,497 2,449
----------- ----------- ----------- -----------
Total segments operating profit 13,110 19,681 6,366 10,763
Amortization of intangibles (1,347) (1,347) (673) (674)
Corporate and other (1,172) (1,374) (603) (685)
----------- ----------- ----------- -----------
Operating profit 10,591 16,960 5,090 9,404
Interest expense, net 1,879 1,860 1,010 857
----------- ----------- ----------- -----------
Income before income taxes $ 8,712 $ 15,100 $ 4,080 $ 8,547
=========== =========== =========== ===========
</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):
<TABLE>
<CAPTION>
June 30,
--------------------------- December 31,
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Finished goods $ 110,502 $ 8,957 $ 10,494
Work in process 2,296 2,181 2,123
Raw Material 25,856 19,476 20,765
--------- --------- ---------
Total $ 38,654 $ 30,614 $ 33,382
========= ========= =========
</TABLE>
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 Eurodollar 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 $23.6 million at June
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 six months ended June 30, 2000. Borrowings under both
facilities are secured only by capital stock of the Company's subsidiaries.
5 Treasury Stock Purchases
On May 1, 2000, the Company made a tender offer for up to 500,000 shares
of its Common Stock at $8.00 per share. On May 31, 2000, such offer was
increased to 1.3 million shares. Pursuant to the Offer to Purchase, the Company
was entitled to purchase up to an additional two percent of its outstanding
stock, or an aggregate potential purchase of 1,522,000 shares. The offer expired
on June 13, 2000 and on June 16, 2000 the Company purchased all properly
tendered an aggregate of 1,449,425 shares at a cost of $11.9 million including
expenses. Earlier this year, the Company purchased, in 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.
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>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------------- ---------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding - basic 10,946 11,424 10,743 11,468
Assumed issuance of common stock
pertaining to stock options and warrants 3 51 2 22
--------- --------- --------- ---------
Weighted average common shares
outstanding - diluted 10,949 11,475 10,745 11,490
========= ========= ========= =========
</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 67
percent of consolidated net sales for the six months ended June 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
33 percent of consolidated net sales for the six months ended June 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 June 30, 2000 the Company's
subsidiaries operated 39 plants in 18 states.
RESULTS OF OPERATIONS
Net sales and operating profit are as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------------- ---------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
MH segment $ 103,083 $ 135,983 $ 52,486 $ 68,518
RV segment 50,729 39,113 26,666 20,691
----------- ----------- ---------- ----------
Total $ 153,812 $ 175,096 $ 79,152 $ 89,209
=========== =========== ========== ==========
Operating profit:
MH segment $ 8,426 $ 15,259 $ 3,869 $ 8,314
RV segment 4,684 4,422 2,497 2,449
----------- ----------- ---------- ----------
Total segments operating profit 13,110 19,681 6,366 10,763
Amortization of intangibles (1,347) (1,347) (673) (674)
Corporate and other (1,172) (1,374) (603) (685)
----------- ----------- ---------- -----------
Operating profit 10,591 16,960 5,090 9,404
Interest expense, net 1,879 1,860 1,010 857
----------- ----------- ---------- ----------
Total $ 8,712 $ 15,100 $ 4,080 $ 8,547
=========== =========== ========== ==========
</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 24 percent in the six months
ended June 30, 2000, and 23 percent in the second quarter, from the same periods
last year, compared to a 23 percent decrease in the industry- wide production of
manufactured homes. Sales of refurbished axles and tires by the MH segment
declined more than sales of other MH products due to competitive pressures.
The industry decline in production of manufactured homes had been
anticipated, as the producers of manufactured homes have closed factories and
reduced production schedules because of excess inventories of homes at dealers
and manufacturers. In addition, tightened mortgage credit requirements coupled
with rising interest rates, have slowed retail sales of manufactured homes,
while home repossessions have increased. It is anticipated that conditions in
the manufactured housing industry will continue to adversely impact Drew's sales
for the balance of 2000 and into early 2001, as the manufactured housing
industry reduces its inventory of unsold homes.
Operating profit of the MH segment decreased 45 percent in the first
half of 2000 and 53 percent in the second quarter period from the same periods
in 1999 primarily as a result of the reduction in sales, which caused a
reduction of about $6 million in operating profits in the six months. In
addition, increases in the cost of labor and services could not be fully passed
on to customers due to competition. 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. Plant consolidation costs of about
$.8 million also impacted operating profit. 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 will
be lower in the future, it is expected that until the manufactured housing
industry recovers, operating margins are unlikely to significantly improve.
RV Segment
Net sales of the RV segment increased 30 percent in the first half
of 2000 and 29 percent in the second quarter as a result of the expansion of the
Company's RV chassis product line as well as the continuing growth of the RV
window line. Such increase is substantially higher than the 2 percent increase
in shipments reported by the RV industry for January to June 2000. Industry
sales of towable RV's, the primary market for the Company's RV products, have
remained strong, but industry shipments for the second quarter were one percent
below last year's high second quarter levels. Industry sales of motor homes
declined recently due to excess retail inventory and the end of the model year.
Operating profit increased only 6 percent for the six month period,
as startup costs of $.7 million resulting from the continuing expansion of the
RV chassis product line, as well as higher labor and material costs, reduced the
operating margin of this segment. Operating profit of this segment was up only
two percent in the second quarter for the same reasons.
11
<PAGE>
DREW INDUSTRIES INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Amortization of Intangibles, Corporate and Other
Amortization of intangibles for the six months and second quarter
was equal to the prior year. Corporate and other expenses decreased $202,000
largely as a result of lower incentive compensation expense.
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 $105,000 in the first six months of 2000 and $72,000 in the first six months
of 1999. These fees reduce selling, general and administrative expenses.
Interest Expense, Net
Interest expense, net increased $19,000 for the six month period and
$153,000 for the second quarter as a result of increases in debt to fund capital
expenditures, the purchase of shares of the Company's common stock, and the
increase in inventory as described below.
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.
12
<PAGE>
DREW INDUSTRIES INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
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 $ 2,625 $ 22,197
Net cash flows (used for) investment activities $ (14,655) $ (5,582)
Net cash flows provided by (used for) financing activities $ 9,672 $ (12,620)
</TABLE>
Net cash provided by net income was 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 first half of 2000 compared to a
decrease in last year's first half partly because of the slowdown in sales as
well as the higher inventory requirement of the expanding RV segment which added
three plants since last June. The Company has implemented a plan to reduce
inventories over the next three to six months.
Cash flows used for investing activities consisted of capital
expenditures, including five factories being constructed by LCI, primarily to
accommodate the expansion of the RV chassis product lines. Such capital
expenditures were funded by cash flows from operations, and borrowings under the
Company's line of credit. Capital expenditures for 2000 are expected to
approximate $25 million, which are expected to be funded from cash flow from
operations, as well as approximately $10 million of Industrial Revenue Bonds and
real estate loans.
Cash flows provided by financing activities for the first half 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 $12 million, and $2 million
used to acquire treasury stock, offset by $2 million from the exercise of stock
options. Availability under the Company's line of credit and Industrial Revenue
Bonds and real estate loans is adequate to finance the Company's working capital
and capital expenditure requirements.
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.
13
<PAGE>
DREW INDUSTRIES INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
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 June 30, 2000, the Company had
futures contracts outstanding for approximately 2.8 million pounds of aluminum
at costs aggregating approximately $.1 million above market value.
As described above, operating profits have been adversely affected by
increases in labor rates 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.
14
<PAGE>
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 June 30, 2000, the Company had
futures contracts outstanding for approximately 2.8 million pounds of aluminum
at costs aggregating approximately $.1 million above market value.
The Company is exposed to changes in interest rates primarily as a result
of its financing activities. At June 30, 2000, the Company had $46 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.
The Company also has a $30 million line of credit that is subject to a
variable interest rate. At June 30, 2000, $23.6 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 $23.6
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
August 4, 2000
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