SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A1
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
DREW INDUSTRIES INCORPORATED
(Exact name of registrant in charter)
AMENDMENT NO. 1
Delaware 0-13646 13-3250533
- --------------------------------------------------------------------------------
(State or other (Commission File No.) (I.R.S. Employer
Jurisdiction of Identification No.)
incorporation
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K dated
October 7, 1997 as set forth in the attached hereto:
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits
a) Financial statements of business acquired
b) Pro forma financial information
c) Exhibits
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Drew Industries Incorporated
(Registrant)
/s/ Fredric M. Zinn
---------------------------
By Fredric M. Zinn
Principal Financial Officer
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
a) Financial Statements of business acquired
Lippert Components, Inc.
A) Independent Auditors' Report;
B) Balance Sheets as of September 30, 1997 and 1996;
C) Statements of Income for the years ended September
30, 1997, 1996 and 1995;
D) Statements of Stockholders' Equity for the years
ended September 30, 1997, 1996 and 1995;
E) Statements of Cash Flows for the years ended
September 30, 1997, 1996 and 1995
F) Notes to Financial Statements
LIPPERT COMPONENTS, INC.
Alma, Michigan
Annual Financial Statements
and
Auditor's Report
September 30, 1997
TABLE OF CONTENTS
Page
----
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2-3
Income Statement 4
Statement of Stockholders' Equity 5
Statement of Cash Flows 6-7
Notes to Financial Statements 8-17
[Letterhead of Yeo & Yeo]
Independent Auditor's Report
Board of Directors
Lippert Components, Inc.
Alma, Michigan
We have audited the accompanying balance sheets of Lippert Components, Inc. as
of September 30, 1997 and 1996, and the related statements of income,
stockholders' equity and cash flows for each of the years in the three year
period ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lippert Components, Inc. as of
September 30, 1997 and 1996, and and the results of its operations and its cash
flows for each of the years in the three year period ended September 30, 1997 in
conformity with generally accepted accounting principles.
/s/ Yeo & Yeo P.C.
CERTIFIED PUBLIC ACCOUNTANTS
November 24, 1997
-1-
Lippert Components, Inc.
Balance Sheet
September 30, 1997 and 1996
================================================================================
1997 1996
----------- -----------
Assets (Restated)
Current Assets
Cash $ 1,772,538 $ 2,561,099
Current portion of contracts receivable 2,400 14,875
Accounts and notes receivable
Trade - net of allowance for doubtful accounts
of $ 231,310 and $ 300,600, respectively 5,550,481 7,214,401
Other receivables 48,445 209,477
Inventories 5,371,280 4,749,296
Prepaids and other current assets 241,169 106,660
Deferred income taxes 778,231 528,260
----------- -----------
Total current assets 13,764,544 15,384,068
----------- -----------
Property and equipment
At cost, less accumulated depreciation of
$ 6,015,633 and $ 4,770,017 respectively 12,559,044 10,453,989
----------- -----------
Other assets
Contracts receivable - net of current portion 21,273 23,765
Cash surrender value life insurance -- 314,411
Covenants not to compete - net of accumulated
amortization of $ 925,277 and $ 551,110 respectively 2,487,223 2,861,390
Other intangible assets - net of accumulated
amortization of $ 46,982 and $18,571 respectively 509,551 399,269
----------- -----------
Total other assets 3,018,047 3,598,835
----------- -----------
Total assets $29,341,635 $29,436,892
=========== ===========
See Accompanying Notes to Financial Statements
"continued"
-2-
Lippert Components, Inc.
Balance Sheet
September 30, 1997 and 1996
================================================================================
1997 1996
----------- -----------
(Restated)
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 2,121,754 $ 923,826
Current portion of notes payable 250,000 1,021,853
Accrued compensation 718,469 1,239,493
Accrued retirement benefits 377,490 314,706
Accrued worker's compensation insurance 1,324,102 1,469,517
Federal income taxes payable 577,855 1,342,364
Other accrued expenses 959,608 1,158,084
----------- -----------
Total current liabilities 6,329,278 7,469,843
Long-term liabilities
Notes payable - net of current portion 458,312 2,787,432
Deferred income taxes 187,988 48,041
----------- -----------
Total liabilities 6,975,578 10,305,316
----------- -----------
Stockholders' equity
Common stock, no par value, $ .34 stated value
per share; 80,000 shares authorized, 36,503
shares issued and outstanding 12,411 12,411
Additional paid in capital 261,886 261,886
Retained earnings 22,091,760 18,857,279
----------- -----------
Total stockholders' equity 22,366,057 19,131,576
----------- -----------
Total liabilities and stockholders' equity $29,341,635 $29,436,892
=========== ===========
See Accompanying Notes to Financial Statements
-3-
Lippert Components, Inc.
Income Statement
Year Ended September 30, 1997, 1996 and 1995
================================================================================
1997 1996 1995
------------ ------------- -------------
(Restated) (Restated)
Net manufacturing sales $ 99,296,370 $ 107,122,071 $ 103,875,567
Cost of sales 79,427,244 85,503,398 85,796,556
------------ ------------- -------------
Gross profit on sales 19,869,126 21,618,673 18,079,011
------------ ------------- -------------
Operating expenses
Transportation 3,184,277 3,055,347 2,721,973
General and administrative 4,149,484 3,540,333 2,746,814
------------ ------------- -------------
Total operating expenses 7,333,761 6,595,680 5,468,787
------------ ------------- -------------
Manufacturing income 12,535,365 15,022,993 12,610,224
Corporate expenses 6,248,464 5,929,217 5,372,289
------------ ------------- -------------
Operating income 6,286,901 9,093,776 7,237,935
------------ ------------- -------------
Other income (expense)
Financial income 229,659 184,126 168,414
Interest expense (208,553) (365,677) (172,838)
Gain on sale of assets 26,589 76,151 2,358
Other 37,284 34,900 50,646
------------ ------------- -------------
Total other income (expense) 84,979 (70,500) 48,580
------------ ------------- -------------
Income before income tax 6,371,880 9,023,276 7,286,515
------------ ------------- -------------
Provision for income taxes
Current 2,614,256 3,821,374 2,867,840
Deferred (110,024) (310,367) (7,499)
------------ ------------- -------------
Total provision for income taxes 2,504,232 3,511,007 2,860,341
------------ ------------- -------------
Net income $ 3,867,648 $ 5,512,269 $ 4,426,174
============ ============= =============
Net income per common share $ 105.95 $ 151.01 $ 121.26
============ ============= =============
See Accompanying Notes to Financial Statements
-4-
Lippert Components, Inc.
Statement of Stockholders' Equity
September 30, 1997, 1996 and 1995
================================================================================
Additional
Common Paid-in Retained
Stock Capital Earnings
-------- --------- ------------
Balance - September 30, 1994 $ 20,126 $ 424,683 $ 12,979,184
Prior period adjustment (Note 14) -- -- (187,136)
-------- --------- ------------
Restated balance - September 30, 1994 20,126 424,683 12,792,048
Net income for the year - restated (Note 14) -- -- 4,426,174
Stock redemption (7,715) (162,797) (3,873,212)
-------- --------- ------------
Restated balance - September 30, 1995 12,411 261,886 13,345,010
Net income for the year - restated (Note 14) -- -- 5,512,269
-------- --------- ------------
Restated balance - September 30, 1996 12,411 261,886 18,857,279
Net income for the year -- -- 3,867,648
Dividends -- -- (633,167)
-------- --------- ------------
Balance - September 30, 1997 $ 12,411 $ 261,886 $ 22,091,760
======== ========= ============
See Accompanying Notes to Financial Statements
-5-
Lippert Components, Inc.
Statement of Cash Flows
Year Ended September 30, 1997, 1996 and 1995
================================================================================
1997 1996 1995
----------- ----------- -----------
(Restated) (Restated)
Cash flows from operating activities
Net income $ 3,867,648 $ 5,512,269 $ 4,426,174
Adjustment to reconcile net income to net
cash provided by operating activities
Amortization 402,578 358,015 153,333
Depreciation 1,429,341 1,103,424 726,416
Deferred taxes (110,024) (310,367) (7,499)
(Gain) on sale of assets (26,589) (76,151) (2,358)
Increase in Officers Life Insurance (55,439) (72,145) (37,958)
(Increase) decrease in:
Trade receivables 1,663,920 (1,550,428) (948,902)
Inventory (621,984) 1,068,307 (699,695)
Prepaids and other current assets (134,509) 1,969 (18,853)
Increase (decrease) in:
Accounts payable 1,197,928 (540,199) (433,109)
Accrued expenses (1,566,640) 1,540,496 634,095
----------- ----------- -----------
Net cash provided by operating activities 6,046,230 7,035,190 3,791,644
----------- ----------- -----------
Cash flows from investing activities
Net (increase) decrease of non-trade receivables (12,285) 107,630 30,205
Payments received on contracts receivable 14,967 8,584 32,522
Proceeds received from sale of fixed assets 50,661 211,673 18,450
Acquisition of property and equipment (3,648,468) (4,114,448) (2,903,266)
Payment for other intangible assets (138,693) (417,840) --
Payment for covenant not to compete -- (62,500) (2,000,000)
----------- ----------- -----------
Net cash used by investing activities (3,733,818) (4,266,901) (4,822,089)
----------- ----------- -----------
Cash flows from financing activities
Payments on long-term debt (3,100,973) (955,194) (307,284)
----------- ----------- -----------
Net increase (decrease) in cash (788,561) 1,813,095 (1,337,729)
Cash at beginning of year 2,561,099 748,004 2,085,733
----------- ----------- -----------
Cash at end of year $ 1,772,538 $ 2,561,099 $ 748,004
=========== =========== ===========
See Accompanying Notes to Financial Statements
"continued"
-6-
Lippert Components, Inc.
Statement of Cash Flows
Year Ended September 30, 1997, 1996 and 1995
================================================================================
1997 1996 1995
----------- ----------- ----------
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 208,553 $ 365,677 $ 172,838
=========== =========== ==========
Income taxes $ 3,551,824 $ 3,128,432 $2,743,574
=========== =========== ==========
Noncash investing and financing activities:
Debt incurred to purchase noncompete agreement $ $ 1,000,000 $ --
=========== =========== ==========
Debt incurred to redeem common stock $ $ -- $3,859,264
=========== =========== ==========
Note receivable forgiven to redeem common stock $ -- $ -- $ 184,460
=========== =========== ==========
Cash value of Officers Life Insurance
distributed as a dividend $ 369,850 $ -- $ --
=========== =========== ==========
Note receivable officer eliminated through dividends $ 173,317 $ -- $ --
=========== =========== ==========
Real estate distributed as a dividend $ 90,000 $ -- $ --
=========== =========== ==========
See Accompanying Notes to Financial Statements
-7-
Lippert Components, Inc.
Notes to Financial Statement
September 30, 1997
================================================================================
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The financial statements include the accounts of the Company and all of its
divisions. All significant intracompany accounts and transactions have been
eliminated. The following is a summary of the more significant accounting
policies.
Nature of Business
The Company primarily fabricates and assembles steel components for sale to
manufacturers of mobile homes.
Use of Estimates
Management uses estimates and assumptions in preparing the financial statements
in accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses.
Management has recorded estimated liabilities for workers compensation claims
which are in excess of amounts reserved by the insurance carrier. These
additional accruals were approximately $ 550,000 and $ 700,000 for the years
ended September 30, 1997 and 1996, respectively. It is at least reasonably
possible that a change in this estimate will occur in the near term.
Cash Equivalents
For the purpose of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon prior
experience and management's assessment of the collectibility of existing
specific accounts.
Inventories
Inventories are stated at lower of cost (first-in, first-out method) or market.
Cost of labor and factory overhead included in finished goods are priced
substantially on the basis of actual costs incurred.
-8-
Lippert Components, Inc.
Notes to Financial Statement
September 30, 1997
================================================================================
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - continued
Property and Equipment
Property and equipment are stated at cost. Major replacements and additions are
charged to the property accounts while maintenance and repairs which do not
improve or extend the lives of the respective assets are expensed currently.
Upon sale or retirement of properties the related cost and accumulated
depreciation are removed from the accounts. Property and equipment is
depreciated over the estimated useful lives primarily on the straight-line basis
for financial reporting purposes. For income tax purposes, depreciation is
calculated primarily on accelerated methods.
Intangible Assets
Intangible assets subject to amortization include non-competition agreements and
goodwill. The agreements are being amortized on a straight-line basis over their
terms of five to 10 years and goodwill on a straight-line basis over 15 years.
Reclassifications
Certain reclassifications have been made to the September 30, 1996 and 1995,
comparative totals to conform to the September 30, 1997, presentation. Such
reclassifications had no effect on reported net income.
-9-
Lippert Components, Inc.
Notes to Financial Statement
September 30, 1997
================================================================================
NOTE 2 - CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash deposits and trade accounts receivable.
Cash deposits in excess of federally insured limits are subject to the risk that
the financial institution will not pay when the cash is requested. As of
September 30, 1997, the Company had deposits in excess of insurance coverage in
the amount of $ 4,368,539.
Lippert Components, Inc. manufactures and sells component parts for the
manufactured housing industry in the United States east of the Rocky Mountains.
The Company grants credit to customers, substantially all of whom are producers
of manufactured housing located in the vicinity of their operating locations. At
September 30, 1997, the Company has extended credit to regular customers
(trade-receivables) in the amount of $ 5,781,791.
NOTE 3 - INVENTORIES
Inventories consists of:
September 30,
1997 1996
---------- ----------
Raw materials and parts $4,272,279 $3,655,112
Finished goods 1,099,001 1,094,184
---------- ----------
Total inventories $5,371,280 $4,749,296
========== ==========
-10-
Lippert Components, Inc.
Notes to Financial Statement
September 30, 1997
================================================================================
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following: Estimated
September 30, Useful Life
1997 1996 in Years
------------ ------------ --------
Land $ 801,087 $ 721,643
Buildings and improvements 8,824,682 7,056,850 10 to 39
Machinery and equipment 6,115,600 5,774,994 3 to 10
Furniture and fixtures 1,141,076 375,330 3
Autos, trucks and trailers 1,628,249 1,231,206 3 to 5
Leasehold improvements 63,983 63,983 3 to 10
------------ ------------
18,574,677 15,224,006
Less: accumulated depreciation (6,015,633) (4,770,017)
------------ ------------
$ 12,559,044 $ 10,453,989
============ ============
Depreciation expense is as follows:
Year Ended September 30,
1997 1996 1995
---------- ---------- --------
Charged to cost of sales $1,211,208 $1,039,170 $694,555
Charged to general and
administrative 71,551 20,462 9,179
Charged to corporate expenses 146,582 43,792 22,682
---------- ---------- --------
$1,429,341 $1,103,424 $726,416
========== ========== ========
NOTE 5 - REVOLVING LINE OF CREDIT
The Company has an $ 8,000,000 revolving line of credit with Citizens Bank which
was unused at September 30, 1997. The interest rate is variable, based upon the
Bank's prime commercial borrowing rate, adjusted daily. Under terms of the
agreement, the Company is required to maintain minimum net worth and working
capital levels, and restricts loans to officers, employees, or directors in
excess of $ 500,000. The Company is also required to maintain a minimum balance
of $ 175,000 in a checking account with the bank.
-11-
Lippert Components, Inc.
Notes to Financial Statement
September 30, 1997
================================================================================
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
1997 1996
----------- -----------
Note payable individual, pertaining to a
noncompetition agreement, with monthly
payments of $ 4,167, plus interest at a
rate equal to Citizens Bank's posted prime
rate, adjusted on a monthly basis (8.50% at
September 30, 1997) due January, 1999 $ 58,333 $ 112,500
Note payable individual, with monthly payments
of $ 64,321, plus interest at 1% over Wall Street
Journal posted prime, adjusted quarterly. This
note, due May 2000, was paid off early -- 2,830,127
Note payable, individual, pertaining to a
noncompetition agreement, with monthly payments
of $ 16,667, plus interest at a rate equal to the Wall
Street Journal posted prime, adjusted quarterly (8.50%
at September 30, 1997) due January 2001 649,979 866,658
----------- -----------
708,312 3,809,285
Less: current portion (250,000) (1,021,853)
----------- -----------
Long-term debt $ 458,312 $ 2,787,432
=========== ===========
Estimated maturities on long-term debt during the next five years are as
follows:
Year Ending
September 30,
-------------
1998 $ 250,000
1999 208,333
2000 200,000
2001 49,979
2002 -
---------
$ 708,312
=========
-12-
Lippert Components, Inc.
Notes to Financial Statement
September 30, 1997
================================================================================
NOTE 7 - OPERATING LEASES
The Company leases land, buildings and equipment under long-term lease
agreements. Generally the Company is required to pay executory costs such as
property taxes, maintenance and insurance. Rental expense for operating leases
for the years ended September 30, 1997, 1996 and 1995 was $ 644,552, $ 630,101
and $ 596,763, respectively.
Subsequent to year end the assets previously leased from Jado Enterprises (Note
8) were acquired by the Company at a purchase price of $ 1,000,000.
Future minimum lease payments required under the operating leases that have
initial or remaining non-cancelable lease terms in excess of one year as of
September 30, 1997 are as follows:
Year Ending
September 30,
-------------
1998 $ 164,949
1999 47,511
2000 --
NOTE 8 - RELATED PARTY TRANSACTIONS
The majority shareholder of the Company owns 100% of Jado Enterprises. The
Company has fifty-four operating leases with Jado Enterprises as of September
30, 1997. Lease expense for the years ended September 30, 1997, 1996 and 1995
was $ 324,485, $ 323,775, and $ 338,120, respectively.
NOTE 9 - MAJOR CUSTOMERS
The Company made sales to two major customers which represented approximately
31%, 33%, and 34% of the Company's net sales in the years ended September 30,
1997, 1996 and 1995, respectively.
-13-
Lippert Components, Inc.
Notes to Financial Statement
September 30, 1997
================================================================================
NOTE 10 - RETIREMENT PLAN
The Company's defined contribution retirement plan, which covers substantially
all employees, provides for the Company to match 25% of eligible employee
contributions up to 5% of employee compensation. For the years ended September
30, 1997, 1996 and 1995 the Company made additional discretionary contributions
to the plan. Payments upon retirement or termination of employment are based on
vested amounts credited to individual accounts. Retirement plan expense for the
years ended September 30, 1997, 1996 and 1995 was $ 466,110, $ 417,541, and $
373,817, respectively.
NOTE 11 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held for
trading purposes. The Company estimates that the fair value of all financial
instruments at September 30, 1997, does not differ materially from the aggregate
carrying values of its financial instruments recorded in the accompanying
balance sheet. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies.
NOTE 12 - SELF-INSURANCE
The Company has a partially self-insured employee benefit plan to provide health
care coverage for its employees. There is a maximum amount of $ 35,000 per year,
per employee and an aggregate amount of $ 774,746 per year that the Company can
be responsible for. A stop-loss insurance policy covers all claims in excess of
the above amounts.
The Company also partially self-insures its workers compensation liability.
Insurance coverage is maintained for individual losses which exceed $ 250,000,
and cumulative liability losses in excess of $ 700,000, per year. The Company
remains obligated under its former retrospective liability policy for future
losses as a result of accidents which occurred during the previous policy years.
Management believes they have provided for all claims incurred in the
accompanying financial statements.
-14-
Lippert Components, Inc.
Notes to Financial Statement
September 30, 1997
================================================================================
NOTE 13 - INCOME TAXES
The provision for income taxes consists of the following:
Year Ended September 30,
1997 1996 1995
Current Deferred Current Deferred Current Deferred
----------- ----------- ----------- ----------- ----------- -------
Federal $ 2,072,855 $ (93,521) $ 3,219,690 $ (263,811) $ 2,468,870 $(6,374)
State 541,401 (16,503) 601,684 (46,556) 398,970 (1,125)
----------- ----------- ----------- ----------- ----------- -------
$ 2,614,256 $ (110,024) $ 3,821,374 $ (310,367) $ 2,867,840 $(7,499)
=========== =========== =========== =========== =========== =======
A reconciliation of the provision for income taxes with the statutory rate
follows:
Year Ended September 30,
1997 1996 1995
------------------- ----------------- -----------------
Statutory provision for
federal income tax $ 2,166,439 34.0% $3,067,914 34.0% $2,477,415 34.0%
State taxes, net of
federal tax benefits 346,433 5.4% 366,384 4.1% 262,578 3.6%
Other items, net (8,640) (0.1%) 76,709 0.8% 120,348 1.7%
------------------- ----------------- -----------------
$ 2,504,232 39.3% $3,511,007 38.9% $2,860,341 39.3%
=================== ================= =================
The following temporary differences give rise to the net deferred tax asset at
September 30, 1997 and 1996.
1997 1996
--------- ---------
Deferred tax assets
Accounts receivable $ 92,524 $ 120,240
Inventory 70,138 56,360
Accrued expenses 615,569 351,660
Intangible assets 157,220 99,556
--------- ---------
Total deferred tax assets 935,451 627,816
--------- ---------
Deferred tax liabilities
Fixed assets (345,208) (146,429)
Installment sales -- (1,168)
--------- ---------
Total deferred tax liabilities (345,208) (147,597)
--------- ---------
Net deferred tax assets $ 590,243 $ 480,219
========= =========
-15-
Lippert Components, Inc.
Notes to Financial Statement
September 30, 1997
================================================================================
NOTE 13 - INCOME TAXES (concluded)
The components giving rise to the net deferred tax asset (liability) described
above have been included in the accompanying balance sheets as of September 30,
1997 and 1996 as follows:
1997 1996
--------- ---------
Current assets $ 778,231 $ 528,260
Noncurrent liabilities (187,988) (48,041)
--------- ---------
Net deferred tax assets $ 590,243 $ 480,219
========= =========
NOTE 14 - PRIOR PERIOD ADJUSTMENT
As a result of an Internal Revenue Service audit in the current year, the
federal income tax liability for the years ended September 30, 1994, 1995 and
1996 were increased. This adjustment, and other changes, not material to the
financial statements, are shown as prior period items. The changes to retained
earnings at September 30, 1994 are summarized below:
Retained earnings as previously reported $ 12,979,184
Elimination of inter-company profits
from inventory (103,207)
Understatement of deferred tax asset 24,353
Under accrual of employee benefits (46,000)
Under accrual of federal income tax liability (62,282)
------------
As restated - September 30, 1994 $ 12,792,048
============
The above changes also required the following adjustments to the financial
statements for the years ended September 30, 1996 and 1995, as follows:
September 30,
1996 1995
----------- -----------
Net income as previously reported $ 5,534,340 $ 4,502,081
Elimination of inter-company profits
from inventory (8,325) 8,360
Under accrual of income tax expense (336,213) (85,392)
Understatement of deferred tax assets 345,467 1,125
Under accrual of employee benefits (23,000) --
----------- -----------
Net income as adjusted $ 5,512,269 $ 4,426,174
=========== ===========
-16-
Lippert Components, Inc.
Notes to Financial Statement
September 30, 1997
================================================================================
NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES
At September 30, 1997, the Company had outstanding letters of credit totaling $
400,000, issued in conjunction with a deductible retrospective worker's
compensation program.
The Company is party to routine legal proceedings and litigation arising in the
ordinary course of business. In the opinion of management, the outcome of such
actions will have no material impact on the Company's financial condition and
results of operations.
NOTE 16 - SUBSEQUENT EVENTS
Subsequent to year end, all the shares of capital stock of Lippert Components,
Inc. were acquired by Drew Industries Incorporated, a Delaware Corporation. On
the acquisition date, October 7, 1997, Lippert Components, Inc. merged with and
into Lippert Acquisition Corp., a subsidiary of Drew Industries, and the
separate existence of Lippert Components, Inc., ceased to exist. Lippert
Acquisition Corporation has obtained ownership and possesses all the rights,
privileges, immunities, powers, purposes, property (real and personal) and all
other assets of Lippert Components, Inc. and has assumed and become liable for
all the liabilities and obligations of Lippert Components. Inc.
-17-
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
b) Pro forma financial information
The unaudited pro forma financial information gives effect to
the acquisition of Lippert Components, Inc. by Drew Industries
Incorporated. The acquisition is being accounted for as a
purchase.
The unaudited pro forma financial information has been
prepared on the following basis:
o The unaudited pro forma combined statements of
income assume that the acquisition was completed
as of the beginning of the period presented.
o The unaudited pro forma combined balance sheet
assumes that the acquisition was completed as of
the balance sheet date.
PRO FORMA COMBINED STATEMENT OF INCOME
Year Ended December 31,1996 (a)
(Unaudited)
(In thousands, except share and per share amounts)
Drew Lippert
Industries Components, Pro Forma Pro Forma
Incorporated(b) Inc. Adjustments Combined
------------ ---------- ----------- ---------
Net sales $168,151 $107,122 $275,273
Cost of sales 126,731 85,503 ($ 54) (3,5) 212,180
--------- -------- ------- ---------
Gross profit 41,420 21,619 54 63,093
Selling, general and administrative
expenses 20,430 12,414 (738) (1,2,4) 32,106
--------- -------- ------- ---------
Operating profit 20,990 9,205 792 30,987
Interest income (expense), net (326) (182) (1,913) (6) (2,421)
--------- -------- ------- ---------
Income before Income taxes 20,664 9,023 (1,121) 28,566
Provision for income taxes 8,092 3,511 (6) (7) 11,597
--------- -------- ------- ---------
Net Income $ 12,572 $ 5,512 ($1,115) $ 16,969
========= ======== ======= =========
Net Income per common share $ 1.18 $ 1.35
========= =========
Weighted average common shares
outstanding 10,689 12,612
========= =========
- ----------
(a) Reflects operations of Drew Industries Incorporated ("Drew") for the year
ended December 31, 1996, and the operations of Lippert Components, Inc.
("Lippert") for the year ended September 30, 1996.
(b) During the first quarter of 1997, Drew adopted the FIFO method to value
inventories for which the LIFO method had previously been utilized for
determining cost. Drew applied this change retroactively which resulted in
a decrease in net income for 1996 of $814,000 ($.07 per share).
PRO FORMA COMBINED STATEMENT OF INCOME
Nine Months Ended September 30, 1997 (c)
(Unaudited)
(In thousands, except share and per share amounts)
Drew Lippert
Industries Components, Pro Forma Pro Forma
Incorporated Inc.(d) Adjustments Combined
------------ ---------- ----------- ---------
Net sales $ 142,011 $ 72,393 $ 214,404
Cost of sales 109,678 57,814 ($ 49) (3,5) 167,443
--------- -------- ------- ---------
Gross profit 32,333 14,579 49 46,961
Selling, general and administrative
expenses 16,422 9,855 (421) (1,2,4) 25,856
--------- -------- ------- ---------
Operating profit 15,911 4,724 470 21,105
Interest income (expense), net (1,496) (11) (1,435) (6) (2,942)
--------- -------- ------- ---------
Income before income taxes 14,415 4,713 (965) 18,163
Provision for income taxes 5,449 1,852 (88) (7) 7,213
--------- -------- ------- ---------
Net income $ 8,966 $ 2,861 ($ 877) $ 10,950
========= ======== ======= =========
Net income per common share $ 0.95 $ 0.96
========= =========
Weighted average common shares
outstanding 9,468 11,391
========= =========
- ----------
(c) Reflects operations of Drew Industries Incorporated ("Drew") for the nine
months ended September 30, 1997, and the operations of Lippert Components,
Inc. ("Lippert") for the nine months ended June 30, 1997.
(d) The operating results of Lippert are net of nonrecurring pretax charges
for compensation and other start-up costs, aggregating approximately
$300,000.
PRO FORMA COMBINED BALANCE SHEET
September 30, 1997
(Unaudited)
(In thousands, except share and per share amounts)
Drew Lippert
Industries Components, Pro Forma Pro Forma
Incorporated Inc. Adjustments Combined
------------ ---------- ----------- ---------
ASSETS
Current assets
Cash and short term investments $ 1,242 $ 1,773 ($ 1,500) (10) $ 1,515
Accounts receivable, trade, net 9,947 5,550 15,497
Inventories 22,293 5,371 27,664
Prepaid expenses and other current assets 3,913 1,071 4,984
-------- -------- -------- --------
Total current assets 37,395 13,765 (1,500) 49,660
Fixed assets, net 19,840 12,559 4,671 (3,8) 37,070
Goodwill, net 14,512 510 29,170 (8,9) 44,192
Other assets 1,549 2,508 (2,593) (8) 1,464
-------- -------- -------- --------
Total assets $ 73,296 $ 29,342 $ 29,748 $132,386
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable, including current maturies of $ 5,297 $ 250 $ 974 (9) $ 6,521
long-term debt and other long-term liabilities
Accounts payable, trade 5,498 2,122 7,620
Accrued expenses and other current liabilities 13,956 3,957 1,243 (8) 19,156
-------- -------- -------- --------
Total current liabilities 24,751 6,329 2,217 33,297
Long-term indebtedness 24,971 459 24,526 (9,10) 49,956
Other long-term liabilities 368 188 23 (8) 579
-------- -------- -------- --------
Total liabilities 50,090 6,976 26,766 83,832
-------- -------- -------- --------
Stockholders' equity
Common stock, no par value; $.34 stated value
per share 12 (12) (9) 0
Common stock, par value, $.01 per share (e) 112 (1) (9) 111
Paid-in capital 17,479 262 1,139 (9) 18,880
Retained earnings 29,563 22,092 (22,092) (9) 29,563
-------- -------- -------- --------
47,154 22,366 (20,966) 48,554
Treasury stock, at cost (f) (23,948) 23,948 (9) 0
-------- -------- -------- --------
Total stockholders' equity 23,206 22,366 2,982 48,554
-------- -------- -------- --------
Total liabilities and stockholders' equity $ 73,296 $ 29,342 $ 29,748 $132,386
======== ======== ======== ========
- ----------
(e) Drew common stock; authorized 20,000,000 shares, prior to the acquisition
11.235,580 shares issued, subsequent to the acquisition 11.078,041 shares
issued and 230,769 shares held in escrow pending the results of an
earn-out.
(f) Drew treasury stock, at cost, 2,079,770 shares prior to the acquisition,
1.923,231 of which were issued upon the acquisition, and 156.539 of which
(along with 74.230 newly issued shares) are held in escrow pending the
results of an earn-out.
Pro Forma Adjustments:
1) To record amortization of goodwill, at the rate of $989,000 per year for
30 years. Such amortization is not deductible for tax purposes.
2) To eliminate the $1,388,000 excess in fiscal 1996, and $861,000 excess for
the nine months ended June 30. 1997, of compensation and benefits of the
former owners of Lippert over the amounts to be payable pursuant a new
employment agreement.
3) Operating profit of $193,000 in fiscal 1996, and $145,000 in the nine
months ended June 30, 1997, of the leasing company which solely leased
equipment to Lippert, and which was previously owned by certain of the
former owners of Lippert. Drew acquired these assets, which had a fair
market value of $609.000, simultaneously with Drew's acquisition of
Lippert.
4) To eliminate amortization of $339,000 in fiscal 1996, and $302.000 in the
nine months ended June 30. 1997, of intangible assets previously recorded
by Lippert. Such intangible assets were deemed to have a zero fair market
value.
5) To increase depreciation of fixed assets by $139,000 in fiscal 1996, and
$104,000 in the nine months ended June 30. 1997. based upon the fair
market values and useful lives of fixed assets acquired.
6) Interest on debt incurred in connection with the acquisition.
7) To adjust the provision for income taxes to the pro forma calculation of
the provision for income taxes.
8) To record closing costs and adjust the assets and liabilities of Lippert
to their fair market values at the date of of acquisition, including (i)
an increase in fixed assets of $4,062,000, (ii) a decrease in previously
recorded goodwill of $510,000, (iii) a decrease in other assets of
$2,593,000, (iv) an increase in accrued liabilities of $1,243,000, and (v)
a decrease in other long-term liabilities of $23,000.
9) To (i) record the acquisition price of $52,348,000, including the issuance
of 1,923,231 shares of Drew common stock with a value of $25,348,000 and
the cash payment of $27,000,000, (ii) record goodwill of $29,680,000,
representing the excess of the cost of Lippert over the fair market value
of the net assets acquired, and (iii) eliminate the equity of Lippert. An
additional 230,769 shares of Drew common stock may be issuable subject to
the attainment, by Lippert, of $750,000 of operating profits from its
newly obtained recreational vehicle chassis business, during the period
from April 1, 1998 to March 31, 1999. The issuance of any such shares will
increase the purchase price, based upon the fair market value of the
shares at the time of their issuance, and therefore increase goodwill.
10) To utilize Lippert's cash to repay a portion of the debt incurred in
connection with Drew's acquisition of Lippert.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
c) Exhibits
Consent of Independent Auditors
Consent of Independent Auditors
The Board of Directors
Drew Industries Incorporated:
We consent to the incorporation by reference in the registration statements
(Nos. 33-26260, 33-2052, and 33-4957) on Form S-3 and (No. 33-88582) on Form S-8
of Drew Industries Incorporated of our report dated November 24, 1997, with
respect to the balance sheets of Lippert Components, Inc. as of September 30,
1997 and 1996, and the related statements of income, stockholders equity, and
cash flows for each of the years in the three year period ended September 30,
1997, which report appears in the Form 8-K of Drew Industries Incorporated dated
October 7, 1997.
YEO & YEO, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Alma, Michigan
December 16, 1997