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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, 2001
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 _XX_ 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 April 30, 2001.
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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, 2001
(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
DREW INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
--------------------
2001 2000
- --------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales $ 58,894 $ 74,660
Cost of sales 47,029 58,572
-------- --------
GROSS PROFIT 11,865 16,088
Selling, general and administrative expenses 9,090 10,587
-------- --------
OPERATING PROFIT 2,775 5,501
Interest expense, net 1,193 869
-------- --------
INCOME BEFORE INCOME TAXES 1,582 4,632
Provision for income taxes 715 1,872
-------- --------
NET INCOME $ 867 $ 2,760
======== ========
NET INCOME PER COMMON SHARE:
Basic $ .09 $ .25
======== ========
Diluted $ .09 $ .25
======== ========
Weighted average common shares outstanding:
Basic 9,656 11,189
======== ========
Diluted 9,657 11,192
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
3
DREW INDUSTRIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31,
-------------------- December 31,
2001 2000 2000
- --------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARES AND PER
SHARE AMOUNTS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,832 $ 3,507 $ 550
Accounts receivable, trade, less allowances 17,249 19,730 13,451
Inventories (Note 3) 28,249 34,767 33,703
Prepaid expenses and other current assets 4,059 4,179 3,476
--------- --------- ---------
TOTAL CURRENT ASSETS 53,389 62,183 51,180
FIXED ASSETS, net 65,735 55,796 66,301
GOODWILL, net 36,860 45,637 37,240
OTHER ASSETS 3,928 4,525 4,577
--------- --------- ---------
TOTAL ASSETS $ 159,912 $ 168,141 $ 159,298
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, including current maturities
of long-term indebtedness $ 8,657 $ 9,279 $ 8,867
Accounts payable, trade 8,647 12,686 5,435
Accrued expenses and other current
liabilities 13,202 15,676 14,511
--------- --------- ---------
TOTAL CURRENT LIABILITIES 30,506 37,641 28,813
LONG-TERM INDEBTEDNESS (Note 4) 56,130 43,219 58,076
OTHER LONG-TERM LIABILITIES 245 2,110 245
--------- --------- ---------
TOTAL LIABILITIES 86,881 82,970 87,134
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share:
authorized 20,000,000 shares; issued
11,805,754 shares at March 2001;
March 2000 and December 2000 118 118 118
Paid-in capital 24,967 24,967 24,967
Retained earnings 67,413 67,759 66,546
--------- --------- ---------
92,498 92,844 91,631
Treasury stock, at cost - 2,149,325 shares
at March 2001, 699,900 shares at
March 2000 and 2,149,325 shares at
December 2000 (19,467) (7,673) (19,467)
--------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY 73,031 85,171 72,164
--------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 159,912 $ 168,141 $ 159,298
========= ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
4
DREW INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
--------------------
2001 2000
- --------------------------------------------------------------------------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 867 $ 2,760
Adjustments to reconcile net income to
cash flows provided by operating activities:
Depreciation and amortization 2,176 2,105
Loss on disposal of fixed assets 26 4
Changes in assets and liabilities:
Accounts receivable, net (3,798) (8,427)
Inventories 5,454 (1,385)
Prepaid expenses and other assets (210) 138
Accounts payable, accrued expenses and
other current liabilities 1,903 4,864
-------- --------
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES 6,418 59
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,684) (6,399)
Proceeds from sales of fixed assets 704 264
-------- --------
NET CASH FLOWS USED FOR
INVESTING ACTIVITIES (980) (6,135)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and term loan 25,100 14,295
Repayments under line of credit and other borrowings (27,256) (8,149)
Acquisition of treasury stock (1,678)
Exercise of stock options and other 5
-------- --------
NET CASH FLOWS (USED FOR) PROVIDED
BY FINANCING ACTIVITIES (2,156) 4,473
-------- --------
Net increase (decrease) in cash 3,282 (1,603)
Cash and cash equivalents at beginning of period 550 5,110
-------- --------
Cash and cash equivalents at end of period $ 3,832 $ 3,507
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest on debt $ 1,879 $ 1,342
Income taxes (received) $ (11) $ (482)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
5
DREW INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Total
Stock-
Common Treasury Paid-in Retained holders'
Stock Stock Capital Earnings Equity
- --------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARES)
BALANCE - DECEMBER 31, 2000 $ 118 $(19,467) $24,967 $66,546 $72,164
Net income for three months
ended March 31, 2001 867 867
----- -------- ------- ------- -------
BALANCE - MARCH 31, 2001 $ 118 $(19,467) $24,967 $67,413 $73,031
===== ======== ======= ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
6
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, 2000 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, 2001 and 2000.
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
distributes 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, 2000 Annual Report on Form 10-K.
Information relating to segments follows (IN THOUSANDS):
Three Months Ended March 31,
----------------------------
2001 2000
-------- --------
Net sales:
MH segment $ 33,685 $ 50,597
RV segment 25,209 24,063
-------- --------
Total $ 58,894 $ 74,660
======== ========
Operating profit:
MH segment $ 2,230 $ 4,557
RV segment 1,740 2,187
-------- --------
Total segments operating profit 3,970 6,744
Amortization of intangibles (614) (674)
Corporate and other (581) (569)
-------- --------
Operating profit 2,775 5,501
Interest expense, net 1,193 869
-------- --------
Income before income taxes $ 1,582 $ 4,632
======== ========
7
DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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,
2001 2000 2000
------- ------- -------
Finished goods $ 7,004 $10,594 $ 8,637
Work in process 1,745 2,438 1,938
Raw Material 19,500 21,735 23,128
------- ------- -------
Total $28,249 $34,767 $33,703
======= ======= =======
4. LONG-TERM INDEBTEDNESS
Long-term indebtedness consists of the following (in thousands):
March 31,
----------------- December 31,
2001 2000 2000
------- ------- -------
Senior Notes payable at the rate
of $8,000 per annum commencing
January 28, 2001 with interest
payable semiannually at the
rate of 6.95% per annum $32,000 $40,000 $40,000
Notes payable pursuant to a credit
agreement expiring May 15, 2002
consisting of a revolving loan,
not to exceed $30,000; interest
at prime rate or LIBOR plus
1 percent 19,000 6,750 17,700
Term loan due August 1, 2001;
interest at prime rate 5,000
Industrial Revenue Bonds, fixed rate
5.68% to 6.28%, due 2008 through
2015; secured by certain real
estate and equipment 7,279 4,927 7,419
Loans secured by certain real estate
and equipment, due 2011, fixed
rate 8.72% 1,508 1,534
Other 821 290
------- ------- -------
64,787 52,498 66,943
Less current portion 8,657 9,279 8,867
------- ------- -------
Total long-term indebtedness $56,130 $43,219 $58,076
======= ======= =======
Pursuant to both the Senior Notes and the credit facility, which was
increased from $25 million to $30 million during 2000, the Company is required
to maintain minimum net worth and interest and fixed
8
DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
charge coverages and meet certain other financial requirements. Borrowings under
both facilities are secured only by capital stock of the Company's subsidiaries.
The Company pays 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.
On May 1, 2001, the Company refinanced its $5 million term loan with the
proceeds of a $5.5 million loan secured by certain real estate. In addition, the
Company entered into a sale and leaseback transaction for $3.7 million.
5. 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,
------------------
2001 2000
----- ------
Weighted average common shares outstanding - basic 9,656 11,189
Assumed issuance of common stock pertaining to
stock options and warrants 1 3
----- ------
Weighted average common shares outstanding - diluted 9,657 11,192
===== ======
9
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 57 percent of
consolidated net sales for the quarter ended March 31, 2001 and 65 percent of
the annual consolidated net sales for 2000, 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
distributes new tires and refurbishes used axles and tires which it supplies to
producers of manufactured homes. The RV segment, which accounted for 43 percent
of consolidated net sales for the quarter ended March 31, 2001 and 35 percent of
the annual consolidated net sales for 2000, 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.
("LTA") and Coil Clip, Inc. ("Coil Clip") operate entirely within the MH
segment. At March 31, 2001 the Company's subsidiaries operated 41 plants in 18
states and Canada.
RESULTS OF OPERATIONS
Net sales and operating profit are as follows (IN THOUSANDS):
Three Months Ended March 31,
----------------------------
2001 2000
-------- --------
Net sales:
MH segment $ 33,685 $ 50,597
RV segment 25,209 24,063
-------- --------
Total $ 58,894 $ 74,660
======== ========
Operating profit:
MH segment $ 2,230 $ 4,557
RV segment 1,740 2,187
-------- --------
Total segments operating profit 3,970 6,744
Amortization of intangibles (614) (674)
Corporate and other (581) (569)
-------- --------
Total $ 2,775 $ 5,501
======== ========
MH SEGMENT
Net sales of the MH segment decreased 33 percent in the 2001 period from
2000, compared to a 41 percent decrease in the industry-wide production of
manufactured homes for the same period. The Company outperformed the industry
because of market share gains, primarily from sales of its window products.
Sales of refurbished tires and axles by the MH segment declined approximately 50
percent, more than sales of other MH products due to competitive pressures.
10
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
While there has been some reduction in industry-wide inventories of
manufactured homes, and while mortgage interest rates have reportedly declined,
a significant increase in industry-wide production of manufactured homes is not
anticipated until (i) inventory levels are further reduced, (ii) repossessions
return to more normal levels, (iii) credit availability improves, and (iv)
manufactured housing mortgage interest rates decline further.
Operating profit of the MH segment decreased 51 percent in the 2001 quarter
from 2000 primarily as a result of the 33 percent reduction in sales. Gross
margins as a percent of sales were 1.5 percent below last year, as increases in
labor costs, as well as the effect of lower sales on fixed costs, more than
offset reductions in material costs. Due to competitive pressures within the
industry, increased labor and production costs could not be passed on to
customers. 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 these conditions will
continue until the industry recovers.
The Company's tire and axle operations, part of the manufactured housing
products segment, continued to report poor results. Accordingly, the Company
closed two tire and axle factories in January 2001. Although results for March
2001 showed some improvement, this business is being closely monitored. At
December 31, the Company wrote off $6.9 million ($4.4 million after taxes) of
goodwill applicable to this operation.
RV SEGMENT
The recreational vehicle products segment achieved a 5 percent sales
increase in the first quarter of 2001, despite a 24 percent industry-wide
decline in shipments of RV's during this period. The Company significantly
increased its market share in both its RV chassis and its RV window and door
product lines. Five new factories have been opened since early 2000 largely to
accommodate the market share growth of the RV chassis products line.
Industry-wide sales of RV's have been historically closely tied to consumer
confidence levels, which declined in recent months. Some analysts believe the
recent decline in sales by RV producers has also been partly the result of
efforts by retailers to reduce inventory and thus lower their interest costs.
This view is supported by industry retail shipment statistics which are down
somewhat less than production. Recent interest rate cuts by the Federal Reserve
Board should help alleviate this problem.
Operating profit decreased 20 percent on the 5 percent increase in sales,
as lower operating efficiencies at the five new factories reduced the operating
margin of this segment. Production efficiencies are continuing to improve. In
addition, competitive pressures did not allow the Company to pass on production
cost increases to its customers.
11
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
AMORTIZATION OF INTANGIBLES
Amortization of intangibles for the quarter was $60,000 less than the prior
year's quarter, as a result of the $6.9 million writedown of goodwill in the
fourth quarter of 2000.
INTEREST EXPENSE, NET
Interest expense, net increased $324,000 from the 2000 period, as a result
of the increase in debt during the year ended December 2000 expended for five
new factories and $13.5 million for treasury stock, partially offset by savings
resulting from interest rate reductions.
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 Derivative Instruments
and Hedging Activities," which amends some of the provisions of SFAS No. 133.
The Company has adopted the provisions of SFAS No. 133 and SFAS No. 138
effective January 1, 2001. The adoption of these statements does not have a
material impact on the earnings or financial position of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Statements of Cash Flows reflect the following (IN THOUSANDS):
Three Months Ended March 31,
----------------------------
2001 2000
------- -------
Net cash flows provided by operating activities $ 6,418 $ 59
Net cash flows (used for) investment activities $ (980) $(6,135)
Net cash flows (used for) provided by
financing activities $(2,156) $ 4,473
Net cash provided by operations includes a reduction in inventory of $5.5
million in 2001. Inventories increased in the first quarter of 2000 partly
because of the slowdown in sales as well as the anticipated higher inventory
requirement of the expanding RV segment. Since that time, the Company's efforts
to reduce inventories have been successful. Accounts receivable increased
seasonally at March 31, 2001, but the change from December 2000 is less than
normal since the balance at December 2000 was higher than typical as a result of
slower collections at that time.
Cash flows used for investing activities consisted of capital expenditures,
including five factories constructed by LCI in 2000, primarily to accommodate
the expansion of the RV chassis product lines. Capital expenditures for all of
2000 were approximately $22 million, which was funded from the Company's
12
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
revolving line of credit, as well as Industrial Revenue Bonds. Capital
expenditures for 2001, aggregating $1.7 million for the first quarter, are
expected to be $7 to $9 million for all of 2001, which is expected to be funded
from operating cash flow and new financing secured by real estate and equipment.
Cash flows used for financing activities represent a net reduction in debt
of $2.2 million for the first quarter of 2001. 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.
Availability under the Company's line of credit, which was $9.5 million at
March 31, 2001, 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 new financing secured by real estate and
equipment.
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 in 2000,
the Company purchased, on the open market, 190,000 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.
The Company has outstanding $32 million of 6.95 percent, seven year Senior
Notes. Repayment of these notes is $8 million annually, of which the first $8
million payment was made in January 2001.
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, 2001, the Company had no
futures contracts outstanding.
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 and manufacturers, availability and costs of labor, interest rates,
and the availability of retail financing for manufactured homes. In addition,
general
13
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
economic conditions may affect the retail sale of manufactured homes and
RV's.
14
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, 2001, the Company had no
futures contracts outstanding.
The Company is exposed to changes in interest rates primarily as a result
of its financing activities. At March 31, 2001, the Company had $40.8 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 $.4 million per
annum.
The Company also has a $30 million line of credit, as well as a $5 million
term loan that is subject to a variable interest rate. At March 31, 2001, $19.0
million of the line of credit was utilized. Assuming an increase of 100 basis
points in the interest rate for borrowings under these variable rate loans, and
outstanding borrowings of $24.0 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.
15
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, 2001
16
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
Fredric M. Zinn
Principal Financial Officer
May 10, 2001