A Leading National Supplier of a Wide Variety of
Components for RV’s and Manufactured Homes
Drew Industries (NYSE:DW)
2003
A Leading National Supplier of a Wide Variety of
Components for RV’s and Manufactured Homes
2003
Forward Looking Statements
This presentation contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities for existing products, plans and objectives of management, markets for the Company’s common stock and other matters. Statements in this press release that are not historical facts are “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act and Section 27A of the Securities Act. Forward- looking statements, including, without limitation those relating to our future business prospects, revenues and income, wherever they occur in this press release, are necessarily estimates reflecting the best judgment of our senior management, at the time such statements were made, and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by forward- looking statements. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. You should consider forward-looking statements, therefore, in light of various important factors, including those set forth in this presentation .
There are a number of factors, many of which are beyond the Company’s control, which could cause actual results and events to differ materially from those described in the forward-looking statements. These factors include pricing pressures due to competition, raw material costs (particularly steel, vinyl, aluminum, glass and ABS resin), availability of retail and wholesale financing for manufactured homes, availability and costs of labor, inventory levels of retailers and manufacturers, levels of repossessed manufactured homes, the financial condition of our customers, interest rates, price and availability of gasoline, the outcome of litigation and zoning regulations affecting manufactured homes. In addition, national and regional economic conditions and consumer confidence may affect the retail sale of recreational vehicles and manufactured homes.
About Drew Industries
A leading national
manufacturer of quality
components for
Recreational Vehicles (RV)
and Manufactured Homes
(MH)
Drew’s Companies
Kinro, Inc. – Acquired 1980
(including Better Bath)
Aluminum windows for RVs
Doors for RVs
Aluminum and vinyl windows and screens
for MHs
Bath and shower units for MHs and RVs
Lippert Components, Inc. – Acquired 1997
(including Zieman Manufacturing)
Chassis and chassis parts for RVs and MHs
Slide out mechanisms for RVs
Leveling devices for RVs
Axles for towable RVs
Steps for RVs
Specialty trailers for boats, personal
watercraft and equipment hauling
Drew’s Products
RV Chassis and Chassis Parts:
$174 million
MH Chassis &
Chassis
Parts: $78
million
MH Windows
& Screens:
$85 million
RV Windows & Doors:
$102 million
12 Months Ended June 30, 2005
Sales - $599 million
Other: $38
million
MH Bath
Products: $18
million
Specialty
Trailers:
$28 million
RV Slide-outs: $76
million
Drew’s Segments
Revenues (LTM 6/05 - $599 million)
Segment Operating Profit
(LTM 6/05 - $52 million)
LTM 6/05 (last 12 months ended June 20, 2005) revenues and segment operating profit equal those
results for the second half of 2004 and the first half of 2005.
RV
66%
MH
34%
MH
38%
RV
62%
Supplier to Industry Leaders
Outstanding customer service and national coverage, with 51 production
facilities (approximately 2.9 million sq. ft.), make us a key partner with our
customers.
Supply most of the Leading Producers of RVs and MHs:
Both RV and MH
Fleetwood (NYSE:FLE)
Skyline (NYSE: SKY)
RV
Coachmen (NYSE: COA)
Forest River (privately owned – being acquired by Berkshire Hathaway)
Monaco Coach (NYSE: MNC)
Pilgrim (privately owned)
Thor (NYSE:THO)
MH
Champion (NYSE: CHB)
Clayton (owned by Berkshire Hathaway)
Oakwood Homes (owned by Clayton)
Palm Harbor (Nasdaq: PHHM)
Business Strategy
Increase sales and profitability through:
Market share growth
New product introductions
Strategic acquisitions
This strategy accomplished through:
Outstanding customer service
Motivating management through profit incentives and
training programs
Maintaining highly efficient factories by optimizing
production through state-of-the-art manufacturing
technology and methods
Drew’s Management Team
Innovative &
Experienced
Management
Highly respected and experienced
management:
Drew
Lei gh Abrams, CEO, 35+ years
Fred Zinn, CFO, 24+ years
Kinro
David Webster, CEO, Chairman,
30+ years
Lippert
Doug Lippert, Chairman, 30+
years
Jason Lippert, CEO, 12+ years
Excellent management training
and incentive programs
Content Per Vehicle - RV
Peak potential is
$2,200 to $2,500
per RV
Operating
profit margin 11.3% 6.8% 8.6% 9.4% 11.3% 9.2%(a) 8.2%(a)
(a) Margin in 2004 and 2005 impacted by increases in steel and other costs.
Excludes sales of specialty trailers
Content Per Home - MH
Peak potential is
$2,600 to $3,000
per home
Operating
Profit margin 15.5% 9.8% 10.8% 11.0% 10.7% 10.1%(a) 9.9%(a)
(a)
Margin in 2004 and 2005 impacted by increases in steel costs and an adverse jury
award in a work place injury lawsuit.
New Product Introductions
Sales of slide-out mechanisms for towable RVs
introduced in 2002, grew to over $75 million in the
12 months ended June 2005. Recently introduced
slide-out for motorhomes.
Increased market penetration for 11 new, innovative
products developed by LTM, which was acquired in
July 2003.
Expanded specialty trailer products through the May
2004 acquisition of Zieman. Consists of specialty
trailers for boats, personal watercraft and equipment
hauling.
Zieman on West Coast. Recently expanded
into Indiana. Potential to expand nationally.
Organic Growth
Total market for new products is over
$600 million
New Product Introductions (Continued)
Acquired 2 patents through the acquisition of Venture Welding,
expanding our MH chassis manufacturing capabilities
Cold “Cambering”
Basement Chassis
Recently introduced a wide variety of RV products
These developments achieved through cooperation with
our customers and our extensive R&D efforts and
acquisitions
Organic Growth
New Product Introductions
2%
$150 million
Axles for specialty trailers
0%
$25 million
Thermoformed exterior parts
20%-30%
$10 million
Steps for towables
15%
$200 million
Specialty trailers
<5%
$30 million
Bath products for RVs
5%-10%
$80 million
Axles for towables
<5%
$65 million
Leveling devices for motorhomes
25%
$65 million
Slide-out mechanisms for motorhomes
Current
Shares
Market
Potential
Acquisition Criteria
Complementary to our core RV and MH
markets
Target less than 6 times pro forma EBITDA
Immediately accretive
Seek to acquire products or technologies
that we can introduce through our
nationwide customer base and factory
network; become a more extensive supplier
to our customers
Drew is a disciplined and patient acquirer
Strategic
Acquisitions
Acquisition History
Strategic
Acquisitions
2001 – Better Bath
Bath and shower products
for MH. Annual sales of
$20 million
July 2003 – LTM Manufacturing
Slide-out systems, specialty slide-out
storage trays and decks, and electric
stabilizer jacks for RVs. Annual sales
of $4 million
Oct 2003 – ET&T Frames
Primarily specialty trailer units.
Annual sales of $7 million
May 2004 – Zieman
RV, MH and specialty
trailers. Annual sales
of over $40 million
Each of our RV and MH acquisitions has
expanded geographic markets or
broadened product lines
2002 – Quality Frames
RV chassis. Annual sales
of $7 million
11 Acquisitions
1980 - 2001
May 2005 - Venture
MH Chassis. Annual sales
of $18 million
Zieman Acquisition – May 2004
Purchase price of $20.7 million plus
assumption of $5.2 million of debt
Zieman Operating Results:
Immediately accretive
Sales for 2003 of about $40 million
About half Specialty Trailers
About half RV and MH Chassis
Expands RV and MH chassis on West Coast
Plan to take specialty trailers nationwide
Sales for 12 months after acquisition have
been over $60 million
Strategic
Acquisitions
Venture Acquisition – May 2005
Strategic
Acquisitions
Purchase price of approximately $18.5 million,
or less than 6 times pro forma EBITDA
Venture Operating Results:
Immediately accretive
Pro forma sales of approximately $18 million
Primarily MH chassis
Increases market share in MH chassis
Includes two important patents
Competitive advantage
Consolidating production to increase efficiencies
Investments
Innovative &
Experienced
Management
Kinro and Lippert have
extensive R&D departments
Since January 1997:
Invested over $110 million in
plant and equipment
Invested over $135 million for
acquisitions
Invested $40 million for stock
repurchases at an average price
of $5.37 per share
These investments have been
accretive to earnings
RVs - Industry Shipments
(Thousands of Vehicles)
254
293
321
300
257
311
321
370
Travel Trailers and 5th Wheel RVs
(1)
Includes approximately 13,000 RVs purchased by FEMA for emergency
shelter for 2004 hurricane victims.
RV Market
RV Categories
Towable RVs - 81% of industry unit sales
and about 40% of industry dollar sales
Motorhomes - 19% of industry unit sales and
about 60% of industry retail dollar sales
Since 1995, the travel trailer and 5th wheel
towable segment of the RV market has grown
at an annual rate of 8.6%, more than twice as
fast as motorhomes
We currently supply primarily to towable
RVs – our goal is to increase sales of
motorhome products
Strong Growth
Prospects
Growth In RV Market
Positive Demographic Trends
Primary owners of RVs are 50 and over
According to census reports, there are
expected to be 20 million more people
over 50 in the next 10 years
Industry Advertising Campaign
Target Market 35 and over
RV Vacations Strengthen Family Ties
Post 9/11 Air Travel Fears
Low Interest Rates - interest often tax
deductible
Strong Growth
Prospects
MH - Industry Production
171
211
254
304
340
363
353
373
349
(Thousands of Homes)
131
168
193
251
47%
47%
49%
49%
52%
59%
61%
65%
70%
75%
78%
80%
131
47%
74%
(1)
Includes 3,000 to 5,000 MHs purchased by FEMA for emergency
shelter for 2004 hurricane victims.
Manufactured Housing (MH) Market
10 million manufactured homes
across the U.S.
Improved quality and image
should drive MH growth
Industry production down 65%
since 1998, but Drew’s sales
are down much less
Drew’s MH segment remained
profitable every quarter since
the downturn began in 1998
Strong Growth
Prospects
MH: Strong Future
Strong Growth
Prospects
Demographics - 1st time home buyers
and retirees
Affordability: Significant cost advantage
over site-built homes
MH - $34 per sq. ft. compared to $79 per
sq. ft. for site-built homes
Improved Quality in conjunction with
Land Ownership Leads to Home Value
Appreciation
At or Near Bottom of Downturn and
Headed Up.
MH: Return to Growth in 2005
Signs of Improvement in the
Manufactured Housing Industry
Low inventory levels at retail dealers
Slowing of repossessions
Improved lending practices have
made new loans more secure
Berkshire Hathaway acquired
Clayton, Oakwood and 21st
Mortgage; raised more than $4 billion
for MH financing
Strong Growth
Prospects
Drew’s Ownership and Governance
Ownership by Executives and
Directors aligns our interest with other
stockholders; Insiders own 22%,
including Drew’s Chairman with 12%
of shares and Chairman of Lippert
with 6% of shares
Innovative &
Experienced
Management
Drew’s Corporate Governance Program –
ranked in the 100th percentile of all Russell
3000 Companies by Institutional Shareholder
Services
Financial Performance
The price of Drew’s common stock is 8
times the price as of December 31, 2000
Drew has 21 million shares outstanding
and a market capitalization in excess of
$500 million
(Dec 31 unless noted)
Stock Price History
Drew effected a 2-for-1 stock split on 9/7/05 to holders of record on 8/19/05
Operating Results
Full Year Operating Results
($ in millions, except EPS)
Financial
Performance
2002
(1)
2003
2004
(3)
Sales
$325.4
$353.1
$530.9
Operating Profit
$ 29.2
$ 34.3
$ 44.0
% Sales
9.0%
9.7%
8.3%
Net Income
(1)
$ 15.6
$
19.4
$
25.1
Diluted EPS
(1)
EBITDA
(2)
$
.
78
$
36.5
$
.
94
$
42.1
$
1
.
18
$
53.3
(1)
Before accounting charge for goodwill impairment of $30.2 million in 2002 ($1.51 per share).
(2)
EBITDA is operating profit plus depreciation and amortization.
(3)
Results in 2004 were impacted by i) a charge related to litigation that reduced operating profit by $1.5 million
and reduced net income by $945,000, or $.04 per diluted share, and ii) severe increases in steel prices.
(4)
Adjusted retroactively for 2 for 1 stock split of 9/7/05.
Results By Segment
Years Ended December 31,
($ in millions)
Financial
Performance
See Press Release dated February 15, 2005 for a reconciliation to consolidated results.
200
3
200
4
Net sales
RV Segment
MH Segment
$219.5
$
1
33.6
$
347.6
$
183.3
+
5
8
%
+
37
%
Operating Profit
RV Segment
MH Segment
$
24.8
$
14.4
$
31.8
$
1
8.5
(a)
+
28
%
+29
%
Operating Profit as a
P
ercentage of Net Sales
RV Segment
MH Segment
11.3
%
1
0.7
%
9.2
%
1
0.1
%
(a)
(a)
After $1.9 million charge related to litigation, less reduction in incentive compensation.
Operating Results
Six Months Ended June 30,
($ in millions, except EPS)
Financial
Performance
200
4
200
5
(a)
Sales
$
249.7
$
317.6
+
27
%
Operating Profit
$
24.6
$
25.6
+4%
% Sales
9.9
%
8.1
%
Net Income
$
14.1
$
14.5
+2
%
Diluted EPS
$
.
67
$
.
68
+1
%
(a)
2005 first half results were impacted by charges related to litigation that reduced operating
profit by $2.1 million and reduced net income by $1.3 million, or $.06 per diluted share
(b)
Adjusted retroactively for 2 for 1 stock split of 9/7/05.
Results By Segment
Six Months Ended June 30,
($ in millions)
Financial
Performance
200
4
200
5
Net sales
RV Segment
MH Segment
$167.0
$
82.7
$
216.3
$
101.3
+
30
%
+
22
%
Operating Profit
RV Segment
MH Segment
$
18.3
$
9.1
$
18.9
(a)
$
10.5
(b)
+
4
%
+16
%
Operating Profit as a
P
ercentage of Net Sales
RV Segment
MH Segment
10.9
%
1
0.9
%
8.7
%
(a)
10.3
%
(b)
(a) After $0.5 million charge related to litigation, less reduction in incentive compensation.
(b) After $2.1 million charge related to litigation, less reduction in incentive compensation.
See Press Release dated July 26, 2005 for a reconciliation to consolidated results.
Balance Sheet
($ in millions, except percents)
Financial
Performance
12/31/03
12/31/04
6
/30
/05
Total assets
$ 160
$ 238
$
2
84
Total debt
$
42
$
71
$
81
Stockholders’ equity
$ 94
$ 122
$ 1
42
RATIOS
Days sales in
a
ccts receivabl
e
(1)
Inventory turns
(2)
19 days
7.3 turns
21 days
5.6 turns
25
days
6.8
turns
(1)
Days sales in accounts receivable is the most recent month’s sales divided by accounts receivable,
net, at the end of the period.
(2)
Inventory turns is cost of goods sold for the latest quarter divided by average inventory for the
quarter.
Financial Strength
Financial
Performance
(1) Based on income from continuing operations.
(2) EBITDA is operating profit plus depreciation and amortization.
12/30/02
12/31/03
12/31/04
LTM 6
/05
Return on Equity
(1)
24
%
24%
23
%
21
%
Return on Assets
(1)
11
%
13
%
12
%
1
0
%
Total Debt to Equity
0.7
0.4
0.6
0.
6
Total Debt to EBITDA
(2)
1.3
0.8
1.3
1.
5
Peer Comparison
10%
6%
11.1
20.7
Spartan (SPAR)
-53%
-3%
13.6
N/A
Fleetwood (FLE)
20%
11%
14.7
20.9
Drew (DW)
ROE
ROA
Forward
P/E
Trailing
P/E
6%
5%
14.2
24.5
Monaco (MNC)
26%
6%
15.0
46.7
Champion (CHB)
23%
15%
12.8
15.3
Thor (THO)
13.2
14.8
Winnebago (WGO)
33%
15%
Source: Capital IQ, September 19, 2005, except forward P/E, which is provided by Thomson
Financial.
Financial
Performance
Summary
Why is Drew a Good Investment
Highly experienced and motivated management
Outstanding customer service
Low-cost producer
Continued product line expansion
History of successful strategic acquisitions
History of strong operating profit and cash flow
Strong Balance Sheet
Highly experienced and motivated management
Thank You
Analyst coverage
BB&T Capital Markets -John Diffendal (615) 340-8284
Morgan Joseph - Richard Paget: (212) 218-3894
Sidoti & Company LLC – Scott Stember: (212) 453-7017
For more information contact:
Leigh J. Abrams, President and CEO
914-428-9098
leigh@drewindustries.com
Fredric M. Zinn, Executive VP and CFO
914-428-9098
fred@drewindustries.com
Or visit: www@drewindustries.com