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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: MARCH 31, 2005

OR

 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE  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
incorporation or organization)		   (I.R.S. Employer
Identification Number)
 

200 Mamaroneck Avenue, White Plains, NY 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 report) N/A

 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
 
Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o
 
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 10,361,664 shares of common stock as of April 29, 2005.


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, 2005
 
(UNAUDITED)
 
 
Page  
   
PART I - FINANCIAL INFORMATION
 
Item 1 - FINANCIAL STATEMENTS
     
CONDENSED CONSOLIDATED STATEMENTS OF INCOME 3  
     
CONDENSED CONSOLIDATED BALANCE SHEETS 4  
     
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 5  
     
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY 6  
     
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7-14  
 
Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS
         OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15-23  
 
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE
         ABOUT MARKET RISK 24  
     
Item 4 - CONTROLS AND PROCEDURES 25  
 
PART II - OTHER INFORMATION
     
Item 1 - LEGAL PROCEEDINGS 26-27  
     
Item 6 - EXHIBITS 27  
     
SIGNATURES 28  
     
EXHIBIT 31.1 - SECTION 302 CEO CERTIFICATION 29  
     
EXHIBIT 31.2 - SECTION 302 CFO CERTIFICATION 30  
     
EXHIBIT 32.1 - SECTION 906 CEO CERTIFICATION 31  
     
EXHIBIT 32.2 - SECTION 906 CFO CERTIFICATION 32  

2


DREW INDUSTRIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
  Three Months Ended
March 31,		  
 
 
   2005    2004   
 
(In thousands, except per share amounts)        
             
Net sales $ 154,546   $ 108,023  
Cost of sales   121,528     83,144  
     Gross profit   33,018     24,879  
Selling, general and administrative expenses   22,606     14,859  
Other income   31     428  
     Operating profit   10,443     10,448  
Interest expense, net   944     625  
     Income before income taxes   9,499     9,823  
Provision for income taxes   3,683     3,831  
     Net income $ 5,816   $ 5,992  
 
Net income per common share:
     Net income:            
         Basic $ .56   $ .58  
         Diluted $ .55   $ .57  
 
Weighted average common shares outstanding:
         Basic   10,363     10,245  
         Diluted   10,662     10,561  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3


DREW INDUSTRIES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31, December 31,
2004		  
 
   
   2005    2004        
 
(In thousands, except shares and per share amount)            
 
ASSETS
Current assets
   Cash and cash equivalents $ 5,543   $ 402   $ 2,424  
   Accounts receivable, trade, less allowances   42,035     29,002     26,099  
   Inventories   74,352     54,900     72,332  
   Prepaid expenses and other current assets   9,996     6,086     10,552  
                   
           Total current assets   131,926     90,390     111,407  
                   
Fixed assets, net   101,184     72,636     99,781  
Goodwill   16,061     12,333     16,755  
Other intangible assets   5,641     4,521     6,070  
Other assets   6,366     2,695     4,040  
           Total assets $ 261,178   $ 182,575   $ 238,053  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
   Notes payable, including current maturities of
     long-term indebtedness $ 3,960   $ 9,878   $ 12,121  
   Accounts payable, trade   27,406     22,716     13,371  
   Accrued expenses and other current liabilities   34,132     23,279     28,711  
                   
           Total current liabilities   65,498     55,873     54,203  
                   
Long-term indebtedness   63,870     23,424     59,303  
Other long-term liabilities   2,317     2,640     2,503  
                   
           Total liabilities   131,685     81,937     116,009  
 
Commitments and Contingencies
 
Stockholders’ equity
   Common stock, par value $.01 per share: authorized
     20,000,000 shares; issued 12,510,389 shares at March 2005;
     12,392,113 shares at March 2004 and 12,459,853 at
     December 2004		   125     124     125  
   Paid-in capital   37,376     33,684     35,914  
   Retained earnings   111,229     86,297     105,413  
   Accumulated other comprehensive income   230           59  
    148,960     120,105     141,511  
   Treasury stock, at cost - 2,149,325 shares   (19,467 )   (19,467 )   (19,467 )
           Total stockholders’ equity   129,493     100,638     122,004  
                   
           Total liabilities and stockholders’ equity $ 261,178   $ 182,575   $ 238,053  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4


DREW INDUSTRIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended
March 31, 		 
 
 
2005   2004  
 
(In thousands)        
 
Cash flows from operating activities:
   Net income $ 5,816   $ 5,992  
   Adjustments to reconcile net income to cash flows provided by (used for)
         operating activities:
     Depreciation and amortization   2,574     2,135  
     Deferred taxes   (1,018 )
     Loss on disposal of fixed assets   73     105  
     Stock-based compensation expense   324     270  
     Changes in assets and liabilities:            
         Accounts receivable, net   (15,936 )   (14,158 )
         Inventories   (2,020 )   (17,589 )
         Prepaid expenses and other assets   681     1,743  
         Accounts payable, accrued expenses and other liabilities   19,160     16,940  
                Net cash flows provided by (used for) operating activities   9,654     (4,562 )
 
Cash flows from investing activities:            
   Capital expenditures   (5,092 )   (3,102 )
    Adjustment to purchase price of previously acquired business   694        
   Proceeds from sales of fixed assets   584     16  
   Other Investments   (36 )  
             
                Net cash flows used for investing activities   (3,850 )   (3,086 )
 
Cash flows from financing activities:            
   Proceeds from line of credit and other borrowings   50,900     24,675  
   Repayments under line of credit and other borrowings   (54,494 )   (26,129 )
   Exercise of stock options   1,138     723  
   Other   (229 )      
             
                Net cash flows used for financing activities   (2,685 )   (731 )
             
                Net increase (decrease) in cash   3,119     (8,379 )
             
Cash and cash equivalents at beginning of period   2,424     8,781  
Cash and cash equivalents at end of period $ 5,543   $ 402  
 
Supplemental disclosure of cash flows information:
   Cash paid during the period for:            
         Interest on debt $ 1,174   $ 971  
         Income taxes, net of refunds $ 257   $ 25  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5


DREW INDUSTRIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
 
Common
Stock		   Paid-in
Capital		   Retained
Earnings		   Accumulated
Other
Comprehensive
Income		   Treasury
Stock		   Total
Stockholders’
Equity		  
 
(In thousands, except shares)                        
                                     
Balance - December 31, 2004 $ 125   $ 35,914   $ 105,413   $ 59   $ (19,467 ) $ 122,044  
 
 
Net income for the three months
   ended March 31, 2005		               5,816     5,816  
Unrealized gain on interest rate
   swap, net of taxes		                 171     171  
           
 
Comprehensive income               5,987  
Issuance of 50,536 shares of
   common stock pursuant to stock
   option plan		         690         690  
Income tax benefit relating to
   issuance of common stock
   pursuant to stock option plan		         448         448  
Stock-based compensation expense         324         324  
 
 
                                     
Balance - March 31, 2005 $ 125   $ 37,376   $ 111,229   $ 230   $ (19,467 ) $ 129,493  
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6


DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

1.             Basis of Presentation

                The Condensed Consolidated Financial Statements include the accounts of Drew Industries Incorporated and its subsidiaries (“Drew” or the “Company”). Drew has no unconsolidated subsidiaries. Drew’s wholly-owned active subsidiaries are Kinro, Inc. and its subsidiaries (“Kinro”), and Lippert Components, Inc. and its subsidiaries (“Lippert”). Drew, through its wholly-owned subsidiaries, supplies a broad array of components for recreational vehicles (“RVs”) and manufactured homes (“MHs”), and to a lesser extent specialty trailers for marine and leisure products. All significant intercompany balances and transactions have been eliminated. Certain prior year balances have been reclassified to conform to current year presentation.

                The Condensed Consolidated Financial Statements presented herein have been prepared by the Company in accordance with the accounting policies described in its December 31, 2004 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 financial position and results of operations as of and for the three month periods ended March 31, 2005 and 2004. All such adjustments are of a normal recurring nature. The Condensed 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 recreational vehicle products segment (the “RV segment”) and the manufactured housing products segment (the “MH segment”). The RV segment, which accounted for 68 percent of consolidated net sales for each of the three month periods ended March 31, 2005 and 2004, manufactures a variety of products used in the production of recreational vehicles, including windows, doors, chassis, chassis parts, slide-out mechanisms and related power units, and electric stabilizer jacks. The RV segment also manufactures specialty trailers for equipment hauling, boats, personal watercraft and snowmobiles. The MH segment, which accounted for 32 percent of consolidated net sales for each of the three month periods ended March 31, 2005 and 2004, manufactures a variety of products used in the construction of manufactured homes and to a lesser extent, modular housing and office units, including vinyl and aluminum windows, chassis, chassis parts, and thermo-formed bath and shower units. Intersegment sales are insignificant. Until the second quarter of 2004, the Company’s RV segment included only recreational vehicle products, however, with the Company’s acquisition of Zieman Manufacturing Company (“Zieman”), the specialty trailer business of Zieman has been added to the RV segment. Other than sales of specialty trailers, which aggregated approximately $7 million in the first quarter of 2005 and $17 million in all of 2004, sales to industries other than manufacturers of RVs and MHs are not significant.

                Decisions concerning the allocation of the Company’s resources are made by the Company’s key executives. 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. Management of debt is considered a corporate function. The accounting policies of the RV and MH segments are the same as those described in Note 1 of Notes to Consolidated Financial Statements, of the Company’s December 31, 2004 Annual Report on Form 10-K.


7


DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Information relating to segments follows (in thousands)
 
Three Months Ended
March 31,
2005 2004
 
 
               
  Net sales:        
       RV segment $ 105,258   $ 73,173  
       MH segment   49,288     34,850  
          Total $ 154,546   $ 108,023  
   
  Operating profit:            
       RV segment $ 8,394   $ 7,859  
       MH segment   3,870     3,612  
          Total segments operating profit   12,264     11,471  
  Amortization of intangibles   (285 )   (205 )
  Corporate and other   (1,567 )   (1,246 )
  Other income   31     428  
          Operating profit $ 10,443   $ 10,448  
 

3.             Inventories

                Inventories are stated 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,
2005 2004 2004