================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 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. 11,105,854 shares of common
stock as of May 1, 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 MARCH 31, 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 10-13
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 14
PART II - OTHER INFORMATION
Not applicable
SIGNATURES 15
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
----------------------------
2000 1999
- --------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net sales $74,660 $85,887
Cost of sales 58,572 67,614
------- -------
Gross profit 16,088 18,273
Selling, general and administrative expenses 10,587 10,717
------- -------
Operating profit 5,501 7,556
Interest expense, net 869 1,003
------- -------
Income before income taxes 4,632 6,553
Provision for income taxes 1,872 2,611
------- -------
Net income $ 2,760 $ 3,942
======= =======
Net income per common share:
Basic $ .25 $ .35
======= =======
Diluted $ .25 $ .34
======= =======
Weighted average common shares outstanding:
Basic 11,189 11,396
======= =======
Diluted 11,192 11,475
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
DREW INDUSTRIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31,
---------------- December 31,
2000 1999 1999
- -----------------------------------------------------------------------------------------------------------
(In thousands, except shares and per share amounts)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,507 $ 4,731 $ 5,110
Accounts receivable, trade, less allowances 19,730 18,437 11,303
Inventories (Note 3) 34,767 30,513 33,382
Prepaid expenses and other current assets 4,179 4,528 4,390
--------- --------- ---------
Total current assets 62,183 58,209 54,185
Fixed assets, net 55,796 44,114 51,028
Goodwill, net 45,637 47,437 46,087
Other assets 4,525 5,448 4,744
--------- --------- ---------
Total assets $ 168,141 $ 155,208 $ 156,044
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable, including current maturities of
long-term indebtedness $ 9,279 $ 788 $ 1,717
Accounts payable, trade 12,686 10,264 6,391
Accrued expenses and other current liabilities 15,676 17,723 17,107
--------- --------- ---------
Total current liabilities 37,641 28,775 25,215
Long-term indebtedness (Note 4) 43,219 51,747 44,630
Other long-term liabilities 2,110 1,665 2,110
--------- --------- ---------
Total liabilities 82,970 82,187 71,955
--------- --------- ---------
Commitments and Contingencies (Note 5)
Stockholders' equity
Common stock, par value $.01 per share: authorized
20,000,000 shares; issued 11,805,754 shares at March 2000;
11,793,000 shares at March 1999 and 11,805,754 shares at
December 1999 118 118 118
Paid-in capital 24,967 24,765 24,967
Retained earnings 67,759 51,750 64,999
--------- --------- ---------
92,844 76,633 90,084
Treasury stock, at cost - 699,900 shares at March 2000, 301,500
shares at March 1999 and 509,300 shares at December 1999 (7,673) (3,612) (5,995)
--------- --------- ---------
Total stockholders' equity 85,171 73,021 84,089
--------- --------- ---------
Total liabilities and stockholders' equity $ 168,141 $ 155,208 $ 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>
Three Months Ended
March 31,
------------------
2000 1999
- --------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,760 $ 3,942
Adjustments to reconcile net income to
cash flows provided by operating activities:
Depreciation and amortization 2,105 1,956
Loss on disposal of fixed assets 4 15
Changes in assets and liabilities:
Accounts receivable, net (8,427) (4,878)
Inventories (1,385) 4,887
Prepaid expenses and other assets 138 1,484
Accounts payable, accrued expenses and other current liabilities 4,864 2,715
-------- --------
Net cash flows provided by operating activities 59 10,121
-------- --------
Cash flows from investing activities:
Capital expenditures (6,399) (2,320)
Proceeds from sales of fixed assets 264 114
-------- --------
Net cash flows used for investing activities (6,135) (2,206)
-------- --------
Cash flows from financing activities:
Proceeds from line of credit 14,295 17,000
Repayments under line of credit and other borrowings (8,149) (23,198)
Acquisition of treasury stock (1,678) (1,508)
Exercise of stock options and other 5 1,832
-------- --------
Net cash flows provided by (used for) financing activities 4,473 (5,874)
-------- --------
Net (decrease) increase in cash (1,603) 2,041
Cash and cash equivalents at beginning of period 5,110 2,690
-------- --------
Cash and cash equivalents at end of period $ 3,507 $ 4,731
======== ========
Supplemental disclosure of cash flows information: Cash paid during the period
for:
Interest on debt $ 1,342 $ 1,603
Income taxes (received) $ (482) $ (777)
</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 Earnigns 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 three months ended
March 31, 2000 2,760 2,760
Purchase of 190,600 shares of treasury stock (1,678) (1,678)
------- ------- ------- ------- -------
Balance - March 31, 2000 $ 118 $(7,673) $24,967 $67,759 $85,171
======= ======= ======= ======= =======
</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 three month periods ended March 31, 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):
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
Net sales:
MH segment $ 50,597 $ 67,465
RV segment 24,063 18,422
-------- --------
Total $ 74,660 $ 85,887
======== ========
Operating profit:
MH segment $ 4,557 $ 6,945
RV segment 2,187 1,973
-------- --------
Total segments operating profit 6,744 8,918
Amortization of intangibles (674) (673)
Corporate and other (569) (689)
-------- --------
Operating profit 5,501 7,556
Interest expense, net 869 1,003
-------- --------
Income before income taxes $ 4,632 $ 6,553
======== ========
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):
March 31,
----------------- December 31,
2000 1999 1999
---- ---- ----
Finished goods $10,594 $ 8,685 $10,494
Work in process 2,438 2,059 2,123
Raw Material 21,735 19,769 20,765
------- ------- -------
Total $34,767 $30,513 $33,382
======= ======= =======
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 $25 million credit facility 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
8
<PAGE>
DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 $6.8 million at March 31, 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 three months ended March 31, 2000. Borrowings under both
facilities are secured only by capital stock of the Company's subsidiaries.
5 Other
In September 1994, White Metal Rolling and Stamping Corp. ("White Metal"),
a former indirect subsidiary of the Company, filed a voluntary petition seeking
liquidation under the provisions of chapter 7 of the United States Bankruptcy
Code. The liabilities of White Metal were primarily product liability claims,
and related costs, resulting from its discontinued ladder manufacturing
business. 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, along with other defendants, was served with
a summons and complaint in an adversary proceeding commenced by the chapter 7
trustee of White Metal (the "Adversary Proceeding"). Pursuant to a Consent Order
Settling and Compromising Claims, dated January 27, 2000 (the "Settlement"), by
and among the trustee, on behalf of White Metal, Sears Roebuck & Co., Inc.
("Sears"), White Metal's largest creditor, and the defendants, the parties
agreed to settle the Adversary Proceeding in consideration for payment by the
defendants to White Metal's estate in the aggregate amount of $672,000, of which
$186,500 was paid by the Company. The defendants, the trustee and Sears agreed
to release each other, and their respective affiliates. In connection with the
Settlement, the Adversary Proceeding was terminated.
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):
Three Months Ended
March 31,
------------------
2000 1999
---- ----
Weighted average common shares outstanding - basic 11,189 11,396
Assumed issuance of common stock pertaining to
stock options and warrants 3 79
------ ------
Weighted average common shares outstanding - diluted 11,192 11,475
====== ======
9
<PAGE>
DREW INDUSTRIES INCORPORATED
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 68
percent of the 2000 quarter's consolidated net sales 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 32 percent
of the 2000 quarter's consolidated net sales 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 March 31, 2000 the Company's
subsidiaries operated 39 plants in 18 states.
RESULTS OF OPERATIONS
Net sales and operating profit are as follows (in thousands):
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
Net sales:
MH segment $ 50,597 $ 67,465
RV segment 24,063 18,422
-------- --------
Total $ 74,660 $ 85,887
======== ========
Operating profit:
MH segment $ 4,557 $ 6,945
RV segment 2,187 1,973
-------- --------
Total segments operating profit 6,744 8,918
Amortization of intangibles (674) (673)
Corporate and other (569) (689)
-------- --------
Total $ 5,501 $ 7,556
======== ========
MH Segment
Net sales of the MH segment decreased 25 percent in the 2000 period from
1999, compared to a 21 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.
10
<PAGE>
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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 credit requirements coupled with
rising interest rates, have slowed retail sales of manufactured homes. It is
anticipated that conditions in the manufactured housing industry will continue
to adversely impact Drew's sales for the balance of 2000, as the manufactured
housing industry reduces its inventory of unsold homes. The industry decline in
production of manufactured homes commenced in the middle of 1999. Accordingly,
year-to-year comparisons of the Company's MH sales in the second half of 2000
are expected to show less pronounced declines.
Operating profit of the MH segment decreased 34 percent in the 2000 period
from 1999 primarily as a result of the reduction in sales. Gross margins as a
percent of sales were slightly improved over last year. 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 higher material costs, increasing labor costs in certain areas
and higher interest rates will adversely affect operating results in the near
term.
RV Segment
Net sales of the RV segment increased 31 percent in the 2000 period 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 10 percent increase in shipments reported by the RV industry.
Operating profit increased only 11 percent on the 31 percent increase in
sales, as startup costs resulting from the continuing expansion of the RV
chassis product line, as well as higher labor costs, reduced the operating
margin of this segment.
Amortization of Intangibles, Corporate and Other
Amortization of intangibles for the quarter was equal to the prior year's
quarter. Corporate and other expenses decreased $120,000 largely as a result of
losses on aluminum hedging contracts in 1999.
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 $53,000 in
the 2000 quarter and $45,000 in the 1999 quarter. These fees reduce selling,
general and administrative expenses.
Interest Expense, Net
Interest expense, net decreased $134,000 from the 1999 period, as a result
of the reduction in debt during the year ended December 1999.
11
<PAGE>
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
New Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 133 - "Accounting
for Derivative Instruments and Hedging Activities" establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that entities recognize all derivatives as either assets or liabilities and
measure the instruments at fair value. The accounting for changes in fair value
of a derivative depends upon the intended use of such derivative. SFAS No, 133
is effective for fiscal years beginning after June 15, 2000. The Company is
still evaluating the effect of SFAS No. 133 on the financial statements and
disclosure requirements.
LIQUIDITY AND CAPITAL RESOURCES
The Statements of Cash Flows reflect the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Net cash flows provided by operating activities $ 59 $ 10,121
Net cash flows (used for) investment activities $ (6,135) $ (2,206)
Net cash flows provided by (used for) financing activities $ 4,473 $ (5,874)
</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 quarter of 2000 compared to a
decrease in last year's first quarter partly because of the slowdown in sales as
well as the higher inventory requirement of the expanding RV segment.
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. Capital expenditures for
2000 are expected to approximate $25 million, which will be funded from cash
flow from operations, as well as Industrial Revenue Bonds.
Cash flows provided by financing activities for the first quarter of 2000
included increases in debt of approximately $6.1 million offset by $1.7 million
used to acquire treasury stock. Cash flows used for financing activities for
1999 included reductions in debt of approximately $6.2 million, and $1.5 million
used to acquire treasury stock, offset by $1.8 million from the exercise of
stock options. Availability under the Company's line of credit is adequate to
finance the Company's working capital and capital expenditure requirements.
However, the Company expects to fund a portion of its current year capital
expenditures with Industrial Revenue Bonds.
In September 1994, White Metal Rolling and Stamping Corp. ("White Metal"),
a former indirect subsidiary of the Company, filed a voluntary petition seeking
liquidation under the provisions of chapter 7 of the United States Bankruptcy
Code. The liabilities of White Metal were primarily product liability claims,
and related costs, resulting from its discontinued ladder manufacturing
business. While Drew was named as a
12
<PAGE>
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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, along with other defendants, was served with
a summons and complaint in an adversary proceeding commenced by the chapter 7
trustee of White Metal (the "Adversary Proceeding"). Pursuant to a Consent Order
Settling and Compromising Claims, dated January 27, 2000 (the "Settlement"), by
and among the trustee, on behalf of White Metal, Sears Roebuck & Co., Inc.
("Sears"), White Metal's largest creditor, and the defendants, the parties
agreed to settle the Adversary Proceeding in consideration for payment by the
defendants to White Metal's estate in the aggregate amount of $672,000, of which
$186,500 was paid by the Company. The defendants, the trustee and Sears agreed
to release each other, and their respective affiliates. In connection with the
Settlement, the Adversary Proceeding was terminated.
On May 1, 2000, the Company announced a tender offer to acquire up to
500,000 shares of its common stock at $8.00 per share, net to the seller in
cash, subject to the terms and conditions set forth in the Offer to Purchase
which was subsequently mailed to current stockholders. On April 28, 2000, the
last trading day prior to the announcement, the closing market price for the
Company's Common Stock was $7.0625 per share.
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 March 31, 2000, the Company had
futures contracts outstanding for approximately 3.9 million pounds of aluminum
at costs aggregating approximately $.3 million above market value.
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, and interest rates. In addition,
general economic conditions may affect the retail sale of manufactured homes and
RV's.
13
<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 March 31, 2000, the Company had
futures contracts outstanding for approximately 3.9 million pounds of aluminum
at costs aggregating approximately $.3 million above market value.
The Company is exposed to changes in interest rates primarily as a result
of its financing activities. At March 31, 2000, the Company had $45.7 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
capitalize on 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 $25 million line of credit that is subject to a
variable interest rate. At March 31, 2000, $6.8 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 $6.8
million, future cash flows would be affected by less than $.1 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.
14
<PAGE>
DREW INDUSTRIES INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DREW INDUSTRIES INCORPORATED
Registrant
By /s/ Fredric M. Zinn
--------------------------------
Fredric M. Zinn
Principal Financial Officer
May 10, 2000
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,507
<SECURITIES> 0
<RECEIVABLES> 20,429
<ALLOWANCES> 699
<INVENTORY> 34,767
<CURRENT-ASSETS> 62,183
<PP&E> 73,625
<DEPRECIATION> 17,829
<TOTAL-ASSETS> 168,141
<CURRENT-LIABILITIES> 37,641
<BONDS> 0
0
0
<COMMON> 118
<OTHER-SE> 85,053
<TOTAL-LIABILITY-AND-EQUITY> 168,141
<SALES> 74,660
<TOTAL-REVENUES> 74,660
<CGS> 58,572
<TOTAL-COSTS> 69,159
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 869
<INCOME-PRETAX> 4,632
<INCOME-TAX> 1,872
<INCOME-CONTINUING> 2,760
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,760
<EPS-BASIC> .25
<EPS-DILUTED> .25
</TABLE>
