EXHIBIT 13
DREW
DREW INDUSTRIES INCORPORATED
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[PICTURE APPEARS HERE]
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Quality Products for Recreational Vehicles and Manufacured Homes
2002 ANNUAL REPORT
DREW
Corporate Profile
DREW, through its wholly-owned subsidiaries, Kinro, Inc., and Lipert Components,
Inc., is a leading national supplier of a wide variety of components for
recreational vehicles and manufactured homes. Drew manufactures windows, doors,
chassis, chassis parts, RV slide-ous systems, and bath and shower units.
Drew sell to nearly all of the leading producers of both RVs and manufactured
homes and is a market share leader in may of its product categories. Drew's
2,800 employees, at 40 facilities in the United States and one in Canada,
provide customers with outsanding service and quality products at competitive
prices, while maintaining the highest operating efficiencies.
The management of Drew is commited to ethically and responsibly, and to
providing full and accurate disclosure to the Company's stockholders, employees
and other stakeholders.
Average Drew Sales Per Average Drew Sale Per
Recreation Vhecile Manufactured Home
Shipped by Industry Produced by Industry
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$202 $242 $338 $419 $550 $525 $548 $606 $763 $916
1998 1999 2000 2001 2002 1998 1999 2000 2001 2002
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Drew Industries Incorporated
Financial Highlights
The following selected financial data should be read in conjunction with the
consolidated financial statements and related notes thereto included herein:
Years Ended December 31,
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(In thousands, except per share amounts) 2002 2001 2000 1999 1998
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Operating Data
Net sales $ 325,431 $ 254,770 $ 253,129 $ 268,951 $255,038
Operating profit $ 29,213 $ 20,345 $ 17,067 $ 33,269 $ 26,754
Income from continuing operations before
income taxes $ 25,647 $ 16,194 $ 13,646 $ 30,595 $ 23,676
Provision for income taxes 9,883 6,364 5,652 12,105 9,340
Income from continuing operations $ 15,764 $ 9,830 $ 7,994 $ 18,490 $ 14,336
Discontinued operations(1) (200) (896) (6,447)(2) (1,299) 881
Cumulative effect of change in accounting
principle for goodwill (30,162)
Net income (loss) $ (14,598) $ 8,934 $ 1,547 $ 17,191 $ 15,217
Net income (loss) per common share:
Income from continuing operations:
Basic $ 1.61 $ 1.02 $ .77 $ 1.62 $ 1.28
Diluted $ 1.57 $ 1.02 $ .77 $ 1.62 $ 1.26
Discontinued operations:
Basic $ (.02) $ (.10) $ (.62) $ (.11) $ .08
Diluted $ (.02) $ (.10) $ (.62) $ (.11) $ .08
Cumulative effect of change in accounting
principle for goodwill:
Basic $ (3.08)
Diluted $ (3.01)
Net income (loss):
Basic $ (1.49) $ .92 $ .15 $ 1.51 $ 1.36
Diluted $ (1.46) $ .92 $ .15 $ 1.51 $ 1.34
Financial Data
Working capital $ 24,067 $ 12,816 $ 23,400 $ 42,669 $ 45,074
Total assets $ 145,396 $ 156,975 $ 159,298 $ 156,044 $154,425
Long-term obligations $ 39,102 $ 43,936 $ 58,275 $ 46,451 $ 59,612
Stockholders' equity $ 70,104 $ 81,210 $ 72,164(3) $ 84,089 $ 68,762
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(1) Refers to the operations of the Company's discontinued axle and tire
refurbishing operation.
(2) After a non-cash charge of $6.9 million in 2000 to reflect an impairment
related to the Company's axle and tire refurbishing operation.
(3) In 2000, the Company purchased treasury stock for $13.5 million.
Equity Per Common Share
(in dollars)
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$6.06 $7.44 $7.47 $8.40 $7.06
1998 1999 2000 2001 2002
Year End Bebt to
EBITDA* Ratio
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1.8 1.1 2.6 1.9 1.3
1998 1999 2000 2001 2002
Year End Debt to
Equity Ratio
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0.9 0.6 0.9 0.7 0.7
1998 1999 2000 2001 2002
*EBITDA is operating profit plus depreciation, amortization and goodwill
impariment charges.
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2002 Annual Report page one
letter to stockholders
Drew Industries posted record sales and substantially higher earnings for 2002.
We made significant gains in sales and market share in both our recreational
vehicle (RV) and manufactured housing (MH) segments, and we continued our
unbroken streak of profitability since these two industries became our sole
focus in 1994.
Net sales grew 28 percent to $325 million in 2002. Sales of our RV products
segment grew 59 percent to $171 million for the year, outpacing RV industry
growth of 21 percent. Our MH products segment sales increased 5 percent even
though homes produced by the MH industry declined by 13 percent. More
dramatically, Drew's income from continuing operations reached $15.8 million, or
$1.57 per share, up 60 percent from last year. Our ability to drive profit
improvement at twice the rate of sales reflects the strength of our operations
and our people. Key factors that played a role in our accelerating profit in
2002 included:
o Continued market share gains in both our RV and MH operating segments
o Tight control of costs, coupled with sound purchasing policies for raw
materials
o Efficiency improvements through new technology and state-of-the-art
equipment
o New factories in Alabama, Oregon and Indiana
o The acquisition of a small RV chassis manufacturer
o Growth of sales of new products, including RV slide-out systems
o The sale and discontinuation of the axle and tire refurbishing business
Partially as a result of these accomplishments, the market capitalization of our
stock increased from 2001 levels and Drew was added to the Russell 2000 index in
July 2002. We were also able to attract analyst coverage for Drew by The Red
Chip Review, which specializes in small capitalization stocks. This is the first
time in several years that an analyst is covering Drew, and we expect this
development, coupled with our decision to retain the investor relations firm of
Lambert, Edwards & Associates, Inc., to increase Wall Street interest in the
"Drew success story."
Calendar 2002 was also notable for a number of operating milestones for Drew.
For the first time, sales of our RV products segment exceeded those of our MH
products segment, due to market share gains, new product introductions,
strategic acquisitions and capacity expansion. Operating profit of the RV
segment was just under 50 percent of consolidated segment operating profit.
Drew's RV products segment continued to produce outstanding results as this
segment's operating profit increased 76 percent to $16.2 million.
During 2002, Drew opened a new RV factory in Portland, Oregon, the Company's
fifth factory serving the rapidly expanding West Coast market, and our third on
the West Coast in the last three years. In addition, in September 2002, we
converted a money-losing axle and tire refurbishing facility in Bristol, Indiana
to the production of profitable RV windows and doors. As our newer RV product
factories ramp up to full production, their contribution to operating profit is
expected to increase. Drew also acquired a towable RV chassis business with
annual sales of $7 million, which has been integrated into our existing RV
chassis factories without incurring additional fixed overhead cost.
Patent litigation against Drew involving our new RV slide-out systems was
recently settled through a licensing agreement. As a result, we anticipate
increased sales of this highly popular component for the RV industry.
RV industry shipments for 2002 grew at a double-digit percentage rate bolstered
by low interest rates, strong demographics and consumers' growing preference for
domestic family vacations. Trad i tionally, demand for RVs is strongest from the
over-50 age group, which is the fastest growing segment of the population. This
fact, plus increasing RV sales to the 35-50 age group, thanks to an
industry-wide "Go RVing" awareness and advertising campaign, and the
continuation of favorable interest rates, bode well for a solid RV market for
the foreseeable future.
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Drew Industries Incorporated page two
Despite a prolonged MH industry slump since the peak year of 1998 when 373,000
new homes were produced, Drew's MH products segment has been profitable every
quarter. Industry production for 2002 fell to approximately 168,000 homes, a
decline of 55 percent since 1998. In comparison, Drew's MH segment sales
decreased only 21 percent over the same four year period.
Through market share gains and increased sales of higher quality and higher
priced vinyl windows, Drew's MH segment sales for 2002 increased 5 percent to
$154.3 million, despite a 13 percent decline for the industry, and this
segment's operating profit increased 6 percent to $16.9 million.
We are particularly proud of the growth in our MH segment despite difficult MH
industry conditions, including limited credit availability, excessive
repossessions, and high interest rate spreads between conventional mortgages and
MH mortgages. We remain optimistic about the long-term prospects for the MH
industry because manufactured homes have improved dramatically in appearance and
quality, and represent a significant cost advantage over site-built homes.
Other activities in our MH segment during 2002 included replacing a
60,000-square-foot leased factory in Alabama with a new 109,000-square-foot
owned factory in the same town. In addition to an aluminum window line, Drew
added a new vinyl window line to this MH factory because of increased demand for
these products despite the decline in the MH industry. When the MH industry
finally recovers, Drew will be in a position to capture a large share of the
industry growth.
The success achieved in our MH segment despite a down market in manufactured
housing, and our RV segment's ability to outpace a strong and growing RV market,
are indicative of our efforts to run the business conservatively, yet take
advantage of growth opportunities.
In the first quarter of 2002, Drew adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets," and recorded, as of
January 1, 2002, an after tax charge of $30.2 million, or $3.01 per share, for
impairment of goodwill associated with the Company's acquisitions. The charge,
which resulted primarily from the declines in the manufactured housing industry,
did not affect cash or operations.
We continued to generate strong cash flow from operations in 2002 enabling us to
reduce debt while investing in new facilities and equipment and completing a
strategic acquisition. Our debt was $49 million at December 31, 2002, down from
$53 million a year earlier, despite a $12 million increase in inventory due to
higher sales. In January 2003, we made the third scheduled annual payment of $8
million on our Senior Notes, reducing those borrowings to $16 million.
We are extremely pleased that our strategies and hard work produced impressive
results for 2002. Our emphasis on meeting the real-time needs of our customers
is paying off in higher sales and profitability and continued market share
gains. We remain optimistic that we can continue to build on this momentum in
2003 and grow our top and bottom lines ahead of the industries we serve.
As always, we thank our operating management teams and their dedicated
employees, whose experience and efforts enable Drew to achieve excellent
results, despite extremely difficult hurdles.
[PICTURES OF Edward W. Rose, III & Leigh J. Abrams]
/s/ Edward W. Rose, III
Edward W. Rose, III
Chairman of the Board
/s/ Leigh J. Abrams
Leigh J. Abrams
President and Chief Executive Officer
Drew Industries Incorporated
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2002 Annual Report page three
QUALITY PRODUCTS FOR RECREATIONAL VEHICLES
AND MANUFACTURED HOMES
Strong Growth Prospects
Highly respected and experienced
management, a consistent approach
for long-term appreciation, and
favorable demographic trends,
provide DREW with the opportunity
and ability to achieve sustained growth.
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Drew Industries Incorporated page four
Our Markets and Industries
Recreational vehicles provide a comfortable, economical and safe way for
families to vacation and explore the United States, and the flexibility to
travel when and where they want. Nearly 7 million families in the United States
now own an RV, and many thousands more enjoy these benefits by renting RVs.
RVs are available in a wide range of sizes and price ranges, from small,
economical folding camping trailers, to large travel trailers and luxurious
motor homes that provide all the comforts and conveniences of home. Many RVs are
equipped with slide-out expansion rooms designed to provide extra space while
the RV is parked.
Demographic trends favor continued growth in the RV industry, as demand for RVs
has historically been strongest among the 50 and over age group, the fastest
growing segment of the population. By the year 2010, there will be about 46
million households in this category, an increase of 25 percent from the year
2000. The national "Go RVing" awareness and advertising campaign, sponsored by
the Recreational Vehicle Industry Association ("RVIA"), has been extremely
successful in attracting younger buyers, ages 35 to 50, to the benefits of
RVing.
Industry shipments of RVs reached 311,000 units in 2002, 21 percent more than in
2001, and the RVIA recently projected that RV shipments will continue to
increase in 2003.
Manufactured homes come in a wide range of appealing styles and sizes, and are
often situated in modern, attractive communities. The typical manufactured home
has 3 or more bedrooms, central air conditioning, and more than 1,500 square
feet of living space. Today's manufactured homes are no longer the old "mobile
homes" of the 1970s, situated in trailer parks.
Manufactured housing can offer both quality and value, as these homes are built
entirely within a factory-controlled environment, in accordance with strict
federally regulated building codes and stringent quality controls. In 2001, the
average cost of a manufactured home was less than $32 per square foot, a value
which cannot be approached by typical site-built homes.
In recent years, the production of manufactured homes has declined
substantially, due to high levels of repossessed homes, excessive inventories,
and scarce financing. However, tighter credit standards by lenders in recent
years, significant inventory reductions by retail dealers and manufacturers, and
the increasing use of more secure land/home financing and conventional
mortgages, bode well for a sustained recovery in this industry.
Approximately 22 million people live in nearly 10 million manufactured homes
across the United States, and in the long-term, many millions more are expected
to recognize that manufactured homes provide quality, affordable housing, and
the opportunity to realize their dream of home ownership.
Industry Shipments--
Recreational Vehicles
(in thousands of units)
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293 321 300 257 311
1998 1999 2000 2001 2002
Industry Production
Manufactured Housing
(in thousands of homes)
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373 349 251 193 168
1998 1999 2000 2001 2002
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2002 Annual Report page five
Our Products
Recreational Vehicle Products Segment Drew manufactures windows, doors, chassis
and chassis slide-out systems for RVs at 24 facilities in the United States and
one in Canada. Our products are sold to nearly all of the leading national
producers of RVs.
Sales of RV products increased 59 percent in 2002, to $171 million, and now
represent more than half of our total sales. Each RV product line achieved
outstanding growth this year, as we substantially exceeded industry growth
through increased market share, new product introductions, and a strategic
acquisition. In particular, our new slide-out system products, introduced in
December 2001, have been extremely well accepted by our customers, and
experienced rapid growth in 2002.
Our RV segment has grown consistently during the last 5 years. In 1998, the
average RV produced in the United States contained about $200 of Drew's
products; by 2002 this had grown to $550 per RV, giving Drew the potential to
grow substantially as the RV industry expands.
To accommodate this increased demand and market share gains, we have opened 16
new RV products facilities in the last five years, including two facilities in
2002. As these new facilities improve their operating efficiencies, we
anticipate that they will make significant contributions to Drew's overall
profitability.
More importantly, the profitability improvement in the RV segment of 76 percent
outpaced sales growth, with segment operating profit margin reaching 9.4 percent
of sales, compared to 8.6 percent in 2001.
Manufactured Housing Products Segment Drew produces windows, chassis, chassis
parts, and bathtub and shower enclosures for manufactured homes, at 24
facilities across the United States. As in our RV segment, these facilities are
located near our customers to minimize delivery costs and maximize customer
service.
Since 1998, industry production of manufactured homes has declined by 55
percent, however Drew has offset much of this industry decline through increased
market share. In 2002, Drew's sales of manufactured housing products increased 5
percent, despite a 13 percent decline in industry production, and our profit
margin improved, largely due to the continued growth of our vinyl window product
line, and the June 2001 acquisition of Better Bath, which added bathtub and
shower enclosures to our product offerings.
To meet the increasing demand for our vinyl window products, the Company built a
new 109,000 square foot facility in Alabama, to replace a much smaller leased
facility. The new facility houses a new vinyl window production line, in
addition to the aluminum window line moved from the former facility.
Selective capacity additions and strategic acquisitions like these, as well as
stringent controls over costs and attention to the needs of our customers, will
enable Drew's manufactured housing segment to grow rapidly and profitably once
the manufactured housing industry stabilizes and then begins to recover.
Segment Sales
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53% Recreational Vehicles
47% Manufactured Housing
Segment Operating Profit
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49% Recreational Vehicles
51% Manufactured Housing
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Drew Industries Incorporated page six
QUALITY PRODUCTS FOR RECREATIONAL VEHICLES
AND MANUFACTURED HOMES
New Products, Market Share Growth,
and Strategic Acquisitions
Both our RV and Manufactured Housing
products segments outperformed the
industries they serve because of the
consistency of our strategy and the
dedication of our employees,
who pay attention to the needs of our customers.
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2002 Annual Report page seven
Our Goal is to Enhance Stockholder Value
The strategies we follow to achieve this goal have been consistent:
o Satisfy customer needs.
Our success over the past decade stems largely from the ability of
operating management to respond quickly to the changing needs of
customers, with quality products, outstanding service and reasonable
prices.
o Emphasize profitability.
While we continue to seek growth through increased market share and
acquisitions, management remains focused on properly evaluating the
long-term profit potential of expansion opportunities.
o Align management incentives with stockholder interests.
Drew has a longstanding policy of rewarding operating management and
employees with profit incentive programs and stock option plans designed
to align the motivation of our employees with the interests of our
stockholders.
Drew also encourages management to maintain significant ownership of the
Company. Directors, officers and other key executives own nearly 40% of
Drew's common shares, helping to ensure that the interests of stockholders
and management are the same.
Drew's management and Board of Directors are committed to achieving our
goal by following these strategies while maintaining the highest level of
integrity, and dealing responsibly with our stockholders, customers,
employees and other stakeholders.
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Facilities Coast to Coast
[USA MAP APPEARS HERE]
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Drew Industries Incorporated page eight
Management's Discussion and Analysis of Financial Condition
and Results of Operations
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 53 percent of
consolidated sales in 2002, manufactures a variety of products used in the
production of recreational vehicles, including windows, doors, chassis, chassis
parts and chassis slide-out systems. The MH segment, which accounted for 47
percent of consolidated sales in 2002, manufactures a variety of components used
in the construction of manufactured homes, including aluminum and vinyl windows
and screens, chassis, chassis parts and thermo-formed bath and shower units. The
RV segment and the MH segment primarily sell their products to the producers of
recreational vehicles and manufactured homes. 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 continuing operations are performed through its two primary
operating subsidiaries, Kinro, Inc. ("Kinro") and Lippert Components, Inc.
("LCI"), which have operations in both the RV and MH segments. At December 31,
2002 the Company's subsidiaries operated 40 plants in 18 states and one plant in
Canada.
On June 1, 2001, the Company's subsidiary, Kinro, acquired the assets and
business of the Better Bath division of Kevco, Inc. Better Bath manufactures and
sells thermo-formed bath and shower units for the manufactured housing industry
and had sales of approximately $27.7 million in 2000 and $22.3 million in 2001,
including $13.2 million in the seven months after its acquisition by the
Company. The results of the acquired business have been included in the
Company's consolidated statements of income beginning June 1, 2001. The
acquisition has been accounted for as a purchase. The aggregate purchase price
of approximately $10.2 million has been allocated to the underlying assets based
upon their respective estimated fair values. The excess of purchase price over
the fair value of net assets acquired ("goodwill") was approximately $3.1
million. The Company has not recorded any impairment of this goodwill.
In January 2001, Lippert Tire and Axle, Inc. ("LTA"), the Company's now
discontinued axle and tire refurbishing subsidiary, closed two of its five
factories, and in July 2001, a third such operation was sold. In September 2002,
the Company converted one of its two remaining axle and tire refurbishing
facilities to an RV window production facility. The last axle and tire
refurbishing operation was sold in January 2003 for a small gain. Accordingly,
the axle and tire refurbishing operation is classified as discontinued
operations at December 31, 2002 and prior years results were reclassified to
conform to such presentation.
Industry Background
The RV industry reported a 21 percent increase in shipments in 2002, after a
two year downturn during which industry shipments declined 20 percent. The
Company's RV segment, as well as the entire RV industry, has been bolstered by
low interest rates and by the increased preference for domestic vacations rather
than foreign air travel. Increasing RV sales are also being driven by positive
demographics, as demand for RV's is strongest from the over 50 population, which
is the fastest growing segment of the population. In recent years, the
Recreation Vehicle Industrial Association started an advertising campaign to
attract customers in the 35 to 54 age group. In the last four years, the number
of RV's owned by those 35 to 54 grew faster than all other age groups.
While we believe retail demand for manufactured homes has remained fairly
steady in recent years, limited credit availability, high interest rate spreads
between conventional mortgages on site built homes and loans for manufactured
homes, and excessive repossessions of homes, remain problems for the industry.
It has been estimated that approximately 90,000 manufactured homes were
repossessed in each of the last three years, far in excess of typical
repossession levels. In addition, it is estimated that inventories of new homes
held by dealers and manufacturers were reduced by approximately 25,000 homes in
2002. As a result of these factors and general economic conditions, industry
production of manufactured homes fell to 168,500 homes in 2002, down 13 percent
from 2001, and 55 percent less than the industry peak of 373,000 homes in 1998.
Industry projections for 2003 production range between 150,000 and 172,000
manufactured homes. The increase in land/home and conventional mortgages for
manufactured homes, compared to higher cost and less secure chattel loans, is
expected to partially mitigate the limited availability of chattel loans for
manufactured homes. As a result of market share gains and efficiency
improvements, Drew's manufactured housing segment has remained profitable
throughout this extended industry-wide slump. Long-term prospects for
manufactured housing are still favorable because it provides quality, affordable
housing which the country needs.
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2002 Annual Report page nine
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
RESULTS OF OPERATIONS
Net sales and operating profit are as follows (in thousands):
Year Ended December 31,
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2002 2001 2000
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Net sales:
RV segment $ 171,094 $ 107,504 $ 101,172
MH segment 154,337 147,266 151,957
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Total $ 325,431 $ 254,770 $ 253,129
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Operating profit:
RV segment $ 16,162 $ 9,208 $ 6,853
MH segment 16,900 15,940 14,919
Amortization of intangibles (746) (2,591) (2,404)
Corporate and other (3,103) (2,212) (2,301)
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Total $ 29,213 $ 20,345 $ 17,067
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Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
RV Segment
The RV segment achieved a 59 percent net sales increase in 2002, as a result
of industry growth and a significant increase in the market share of both its RV
chassis and its RV window and door product lines. In addition, the introduction
of slide-out systems and related components to the RV chassis product line was a
major contribution to the segment's sales increase, accounting for sales of
approximately 10 percent of segment net sales. The sales gains of the RV segment
far exceeded the 21 percent increase in industry-wide shipments of RV's in 2002.
Long-term growth in the RV industry is still highly likely for the reasons
described in "Industry Background" above.
In August 2002, the Company acquired the business and certain assets of the
RV chassis division of Elkhart, Indiana-based Quality Frames, Inc., with chassis
sales of approximately $7 million. Production of these chassis was moved to the
Company's existing manufacturing facilities. In addition, the Company is also
selling other products to these new customers.
Operating profit of the RV segment increased $7.0 million (76 percent) in
2002 over 2001. This increase is primarily attributable to the increase in
sales. The segment's profit margin increased to 9.4 percent for 2002 from 8.6
percent for 2001, primarily because of the effect of fixed costs and higher
sales as well as improved operating efficiencies of this fast growing segment,
which more than offset the effect of the higher steel costs experienced in the
second half of 2002. There were no significant selling price increases in 2001
and 2002.
MH Segment
Net sales of the MH segment increased 5 percent in 2002, despite the 13
percent decline in industry-wide production of manufactured homes. Excluding
sales of the Better Bath operation, acquired in June 2001, sales of this segment
increased 1 percent in 2002. The Company outperformed the industry primarily
because of market share gains from sales of its high-end vinyl window products.
In early October 2002, the Company expanded its capacity in order to accommodate
the increased demand for these vinyl window products.
The operating profit margin of the MH segment increased slightly to 11.0
percent in 2002 from 10.8 percent in 2001. The 2002 results were enhanced by the
improved operating profit margin achieved by Better Bath, partially as a result
of reduced product costs, and lower selling, general and administrative costs.
This improvement in operating profit margins by Better Bath, was partially
offset by substantial increases in certain steel costs, primarily as a result of
new import tariffs. Steel costs in early 2003 remain significantly higher than
during the comparable period in 2002. The Company has had some success in
passing a portion of these increases on to its customers. Also, labor costs
increased on the Company's fast growing vinyl window product line as a result of
capacity constraints, which have been alleviated by the addition of a new
production line in Alabama, opened in October 2002. Higher sales caused selling,
general and administrative expenses to increase, but such costs were stable as a
percentage of sales. Included in selling, general and administrative costs in
2002 is a charge of $.5 million relating to the chapter 11 filing of Oakwood
Homes. As of December 31, 2002, the Company had fully reserved the $.8 million
pre-bankruptcy receivable from this customer. The Company continues to sell to
Oakwood Homes pursuant to authorization of the Bankruptcy Court.
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Drew Industries Incorporated page ten
Amortization of Intangibles
Amortization of intangibles decreased $1,845,000 for the year 2002 from the
prior year, primarily as a result of the Company's adoption of Statement of
Financial Accounting Standards No. 142, which requires that goodwill and
intangible assets with indefinite lives no longer be amortized, but rather be
tested for impairment at least annually.
The following schedule shows pro forma net income for the year ended
December 31, 2001, excluding goodwill amortization expense (in thousands, except
per share data):
Year Ended December 31, 2001
----------------------------
Earnings Per Share
Net -------------------
Income Basic Diluted
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Income from continuing operations, as reported $ 9,830 $ 1.02 $ 1.02
Goodwill amortization expense, net of taxes 1,623 .17 .16
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Pro forma income from continuing operations $11,453 $ 1.19 $ 1.18
====================================================================================
During the first quarter of 2002, in accordance with the goodwill impairment
provisions of SFAS No. 142, the Company identified its reporting units and
allocated its assets and liabilities, including goodwill, to its reporting
units. In addition, the Company had a valuation of certain of its reporting
units done by an independent appraiser, as of January 1, 2002, to assist the
Company in determining if there had been an impairment in the goodwill of any of
such reporting units. Based on this appraisal and additional analyses performed
by the Company, it was determined that there had been an impairment of goodwill
in two reporting units. As a result, the Company recorded an impairment charge
of $32,905,000 offset by a tax benefit of $2,743,000. Such charge has been
recorded as a cumulative effect of change in accounting principle.
A substantial portion of the impairment charge related to the 1997
acquisition of LCI. At the time of that acquisition, LCI was primarily involved
in the MH segment, and was just beginning its RV products business. Since that
time the MH industry has declined substantially causing a reduction in LCI's MH
sales and profits. During the same period, LCI's RV business has grown very
substantially in both sales and profits.
As of November 30, 2002, the Company reevaluated the fair value of the
remaining goodwill, which had a book value of $7.0 million, and determined that
no additional impairment had occurred.
Corporate and Other
Corporate and other expenses for the year 2002, were $891,000 higher than
last year, as a result of increases in incentive compensation based upon higher
profits, higher professional fees for special projects, a new investor relations
program, and increased insurance and benefit costs.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
RV Segment
The downturn in the RV industry, which began in 2000, continued in 2001 with
shipments decreasing 14 percent. Fourth quarter industry sales were impacted by
the events of September 11, as consumer confidence, a barometer of the RV
industry, was severely affected.
Sales of the Company's RV segment for 2001 increased 6 percent to $108
million, compared to an industry-wide decline of 14 percent in RV shipments,
reflecting the continuation of the Company's market share growth. Sales
increases were achieved in all product categories.
Operating profit of the RV segment increased $2.4 million (34 percent) for
the year. This increase was attributable to the increase in sales as well as a
reduction in steel costs, after an increase in such costs in 2000. In 2000, this
segment incurred startup costs as a result of the opening of five new facilities
to produce RV chassis. Operating efficiencies in this segment's RV chassis line
improved in 2001, although less than expected because of the decline in the RV
industry, which hampered sales growth of RV chassis. Selling, general and
administrative costs increased proportionately to the sales increase. The
segment's profit margin increased to 8.6 percent of sales for 2001, compared to
6.8 percent in 2000.
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2002 Annual Report page eleven
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
MH Segment
In 2001, sales of the Company's MH segment decreased 3 percent to $147
million. Excluding sales of the Better Bath operation, which has been included
in the Company's consolidated statement of income since its acquisition on June
1, 2001, net sales of the MH segment decreased only 12 percent for the year
2001, compared to a 23 percent decline in industry-wide production of
manufactured homes, reflecting the Company's market share growth.
Operating profit of the MH segment increased by 7 percent as a result of the
acquisition of Better Bath. Excluding the operating results of Better Bath,
operating profit for the MH segment in 2001 was approximately the same as the
year 2000 despite the reduction in sales. Material costs continued to be
relatively stable in 2001, except for steel, which declined 5 to 11 percent,
depending on the product, after rising in 2000. Improved operating efficiencies
in 2001 partly offset the effect of fixed costs and lower sales. Selling,
general and administrative expenses were down in dollar terms but not as a
percentage of sales, because of fixed costs. There were no significant selling
price increases in the years 2000 and 2001.
Amortization of Intangibles, Corporate and Other
Amortization of intangibles for 2001 of $2,591,000 was $187,000 more than
2000, partially as a result of additions resulting from the acquisition of
Better Bath in June 2001.
Corporate and other expenses for 2001 were approximately the same as 2000.
Interest Expense, Net
Interest expense, net decreased $.6 million to $3.6 million in 2002, as a
result of debt reduction. Approximately $43.1 million of the Company's debt of
$48.8 million at December 31, 2002 is subject to fixed interest rates.
Interest expense increased $.4 million to $4.3 million in 2001 as a result
of the capitalization of $.4 million of interest in 2000. The average debt
balance for 2001 was only slightly higher than 2000. Mortgage debt of $13
million added during 2001 is subject to a higher interest rate than the
Company's line of credit debt, which declined since 2000.
Provision for Income Taxes
The effective tax rate for the year 2002 was approximately 38.5% compared to
39.3% in 2001 and 41.4% in 2000. The higher rate in 2000 resulted from the
impact of permanent differences on lower pretax income.
Discontinued Operations
The axle and tire refurbishing business of LTA has not performed well over
the past several years, primarily due to increased competition and the decline
in the manufactured housing industry, which severely affected operating margins.
At the end of the third quarter of 2000, the Company announced that it was
studying whether goodwill and fixed assets related to this business had been
impaired. Based upon this evaluation, it was determined that goodwill had been
impaired resulting in a non-cash charge of $6,897,000 in the fourth quarter of
2000. In January 2001, the axle and tire refurbishing business closed two of its
five factories and in July 2001, a third such operation was sold. In September
2002, the Company converted one of its two remaining axle and tire refurbishing
facilities to an RV window production facility. The last axle and tire
refurbishing operation was sold in January 2003 at a small gain. As a result,
the axle and tire refurbishing business of LTA is classified as discontinued
operations in the Consolidated Financial Statements pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" adopted by the Company effective January 1,
2002.
LTA continues to own a factory in Texas which was previously utilized in its
axle and tire refurbishing business. This factory is being leased to the
purchaser of the LTA's Texas operation. Since it is not probable that this
factory will be sold within one year, it is not considered as held for sale
under SFAS No.144, and is not included in discontinued operations in the
Consolidated Financial Statements.
The proceeds from the disposition of all other significant assets of LTA's
axle and tire refurbishing business, consisting primarily of inventory and
accounts receivable, have been collected in January 2003.
The discontinued axle and tire refurbishing business had previously been
included in the Company's MH segment, and had revenues of $11.2 million, $14.7
million and $34.6 million, in 2002, 2001 and 2000, respectively.
- --------------------------------------------------------------------------------
Drew Industries Incorporated page twelve
Recently Adopted and New Accounting Standards
As of April 1, 2002, the Company adopted the fair value method of accounting
for stock options contained in SFAS No. 123,"Accounting for Stock-Based
Compensation," which is considered the preferable method of accounting for
stock-based employee compensation. During the transition period, the Company
will be utilizing the prospective method under SFAS No. 148 "Accounting for
Stock-Based Compensation--Transition and Disclosures." All employee stock
options granted after January 1, 2002 have been expensed over the stock option
vesting period based on fair value, determined using the Black-Scholes
option-pricing method, at the date the options are granted, resulting in a
$10,000 charge to operations for the year ended December 31, 2002, relating to
options for 20,000 shares granted in December 2002.
Historically, the Company had applied the "disclosure only" option of SFAS
No. 123. Accordingly, no compensation cost has been recognized for previously
granted stock options. Had the Company previously adopted this new accounting
policy, diluted earnings per share would have been reduced by $.04 for 2002,
$.04 for 2001 and $.03 for 2000.
Effective January 1, 2002, the Company adopted the provisions of SFAS No.
141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 be accounted for using the purchase method of accounting. It also
specifies criteria that intangible assets acquired in a purchase combination
must meet to be recognized apart from goodwill. SFAS No. 142 requires that the
useful lives of all existing intangible assets be reviewed and adjusted if
necessary. It also requires that goodwill and intangible assets with indefinite
lives no longer be amortized, but rather be tested for impairment at least
annually. Other intangible assets will continue to be amortized over their
useful lives and reviewed for impairment in accordance with SFAS No. 144.
In accordance with SFAS No. 142, the Company stopped amortizing goodwill
effective January 1, 2002, and recorded an impairment charge of $30.2 million,
net of taxes, as described above. The Company has reassessed the useful lives of
its intangible assets as required by SFAS No. 142 and determined that the
existing useful lives are reasonable. During the first quarter, the Company also
reviewed the classification of its intangible assets and goodwill in accordance
with SFAS No. 141 and has reclassified $574,000 of other assets to goodwill.
As a result of the allocation of the goodwill and the recognition of the
impairment charge, goodwill by reportable segment is as follows (in thousands):
--------------------------------------
MH Segment RV Segment Total
- --------------------------------------------------------------------------------------
Balance--December 31, 2001 $ 33,354 $ 4,949 $ 38,303
Reclassification of other intangible assets 505 69 574
- --------------------------------------------------------------------------------------
Balance--January 1, 2002 33,859 5,018 38,877
Impairment charge (30,698) (2,207) (32,905)
Current year acquisition 1,071 1,071
- --------------------------------------------------------------------------------------
Balance--December 31, 2002 $ 3,161 $ 3,882 $ 7,043
======================================================================================
In August 2001, the FASB issued SFAS No.143, "Accounting for Asset
Retirement Obligations." SFAS No.143 requires companies to record a liability
for asset retirement obligations associated with the retirement of long-lived
assets. Such liabilities should be recorded at fair value in the period in which
a legal obligation is created, which typically would be upon acquisition or
completion of construction. The provisions of SFAS No. 143 are effective for
fiscal years beginning after June 15, 2002. The Company is in the process of
reviewing the impact of SFAS No.143.
Also in August 2001, the FASB issued SFAS No.144, which supercedes SFAS
No.121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS No. 144 retains the fundamental provision of
SFAS No.121 related to the recognition and measurement of the impairment of
long-lived assets to be held and used and the measurement of long-lived assets
to be disposed of, but excludes goodwill from its scope and provides additional
guidance on the accounting for long-lived assets held for sale. The provisions
of SFAS No.144
- --------------------------------------------------------------------------------
2002 Annual Report page thirteen
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
are effective for fiscal years beginning after December 15, 2001. Accordingly,
the Company adopted the provisions of SFAS No. 144 effective January 1, 2002. In
accordance with SFAS No. 144, the Company has reclassified its axle and tire
refurbishing business to discontinued operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring)." The principal difference between SFAS No.
146 and EITF 94-3 relates to the recognition of a liability for a cost
associated with an exit or disposal activity. SFAS No. 146 requires that a
liability be recognized for those costs only when the liability is incurred. A
commitment to an exit or disposal plan no longer will be a sufficient basis for
recording a liability for those activities. The provisions of SFAS No. 146 are
effective for exit or disposal activities initiated after December 31, 2002. The
Company is currently in compliance with existing accounting requirements and
will adopt the provisions of SFAS No. 146 effective January 1, 2003.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires the guarantor
to recognize a liability for the non-contingent component of a guarantee; that
is, the obligation to stand ready to perform in the event that specified
triggering events or conditions occur. The initial measurement of this liability
is the fair value of the guarantee at its inception. The recognition of the
liability is required even if it is not probable that payments will be required
under the guarantee or if the guarantee was issued with a premium payment or as
part of a transaction with multiple elements. FIN 45 also requires additional
disclosures related to guarantees. The recognition measurement provisions of FIN
45 are effective for all guarantees entered into or modified after December 31,
2002. FIN 45 also requires additional disclosures related to guarantees in
interim and annual financial statements. The Company anticipates no impact from
the adoption of FIN 45 since the Company has no guarantees of the obligations of
others.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." FIN 46 requires existing unconsolidated variable
interest entities (VIEs) to be consolidated by their primary beneficiaries if
the entities do not effectively disperse risks among the parties involved. FIN
46 applies immediately to VIEs created after January 31, 2003 and to VIEs in
which an enterprise obtains an interest after that date. For VIEs in which an
enterprise holds a variable interest that was acquired before February 1, 2003,
FIN 46 applies for periods beginning after June 15, 2003. The Company has no
unconsolidated VIEs and therefore its consolidated financial statements are in
compliance with the requirements of FIN 46 at December 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows provided by operating activities of $12.2 million in 2002 was
adequate to fund the Company's investing activities.
The Statements of Cash Flows reflect the following (in thousands):
Year Ended December 31,
---------------------------------------
2002 2001 2000
- -------------------------------------------------------------------------------------------------------
Net cash flows provided by operating activities $ 12,200 $ 28,166 $ 9,856
Net cash flows (used for) investment activities $(12,013) $(17,141) $(21,460)
Net cash flows (used for) provided by financing activities $ (1,062) $(10,060) $ 7,093
Net cash flows from operating activities of $12.2 million for 2002 were
approximately $16.0 million lower than such cash flows in 2001, despite the $6.6
million increase in income before the cumulative effect of change in accounting
principle for goodwill. The lower net cash flows from operating activities in
the current year is primarily attributable to:
a) An increase in accounts receivable due to the increase in sales over the
prior year. Days sales outstanding of receivables were the same at December
2002 as they were at December 2001.
- --------------------------------------------------------------------------------
Drew Industries Incorporated page fourteen
b) An increase in inventories this year compared to a decline in inventories in
the prior year. The decline in the prior year resulted from a concerted
effort to reduce inventories at all locations. Inventories at December 31,
2002 are up 46 percent from December 31, 2001 compared to a 26 percent
increase in sales in the fourth quarter. The difference is partially
attributable to strategic buying of certain raw materials. The inventory
increase is substantially all in raw materials; there is only approximately
a two week supply of finished goods on hand at December 31, 2002, and
December 31, 2001.
c) The above items were partially offset by the increase in accounts payable,
accrued expenses and other current liabilities resulting primarily from the
timing of payment due dates and purchases. Trade payables increased in
proportion to the increase in inventories. Accruals for incentive
compensation based upon profits (affecting in excess of 150 employees) were
$1.8 million higher than at December 2001.
In 2001, net cash flows from operating activities were $28.2 million. This
included a $6.2 million reduction in inventories as a result of management's
successful efforts to increase inventory turnover. The accounts receivable
reduction of $4.1 million was attributable to the timing of collections.
Cash flows used for investing activities for 2002 of $12.0 million include
capital expenditures of $10.5 million as well as $2.1 million for acquisitions.
Capital expenditures for 2002 were funded by cash flow from operations and a new
$2.8 million Industrial Development Bond, which partially financed the
construction of a larger factory and related equipment to replace a leased
facility to provide additional capacity for the Company's rapidly growing vinyl
window line. Capital expenditures for 2001 were $8.2 million, offset by $2.5
million of asset sales. Investing activities for 2001 include $10.4 million
relating to the acquisition of Better Bath. Capital expenditures for 2003 are
expected to approximate $8.5 million.
Cash flows used for financing activities for 2002 include a net decrease in
debt of $4.5 million offset by $3.3 million received from the exercise of
employee stock options. For 2001, new borrowings of $13.3 million secured by
real estate and equipment, were more than offset by a net reduction of $26.7
million of other debt. Also, in 2001 the Company improved its liquidity by
raising $3.7 million from the sale and leaseback of equipment.
The Company had $22.5 million of availability under its $30 million line of
credit at December 31, 2002, which is adequate to finance the Company's
anticipated working capital and capital expenditure requirements. However, the
Company may fund a portion of its future year capital expenditures with new
financing secured by real estate and equipment. The Company is in compliance
with all of its debt covenants and expects to remain in compliance throughout
2003.
At December 31, 2002, the Company had outstanding $24 million of 6.95
percent, seven year Senior Notes which originally aggregated $40 million.
Repayment of these notes is $8 million annually, of which the first two payments
were made in January 2002 and 2001. A third scheduled payment of $8 million was
made in January 2003.
Future commitments relating to the Company's contractual obligations at
December 31, 2002 are as follows (in thousands):
-----------------------------------------------------------
2003 2004 2005 After 2005 Total
- -------------------------------------------------------------------------------------
Long-term debt $ 9,993 $13,053 $ 9,973 $15,786 $48,805
Operating leases 3,650 2,317 1,085 899 7,951
Employment contracts 956 636 1,592
- -------------------------------------------------------------------------------------
Total $14,599 $16,006 $11,058 $16,685 $58,348
=====================================================================================
- --------------------------------------------------------------------------------
2002 Annual Report page fifteen
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
During 2002, LCI was a defendant in two related actions. In the first
action, Plaintiffs alleged that LCI infringed certain United States patents
owned by plaintiffs in connection with LCI's manufacture and sale of operating
mechanisms for recreational vehicle slide-out systems and that LCI breached a
confidentiality agreement. In the second action, Plaintiffs alleged that LCI
hired plaintiff's former employees for the purpose of accessing confidential
business information relating to plaintiffs business and operations. On February
28, 2003, both actions were terminated and dismissed in accordance with a
settlement agreement providing for a non-exclusive license in favor of LCI for
the life of the slide-out patents. Royalties will be payable by LCI on an annual
declining percentage of sales of slide-out systems produced by LCI, with an
annual minimum royalty of $1,000,000 for fiscal 2002 and annual minimum
royalties of $1,250,000 for fiscal years 2003 through 2006. Aggregate royalties
from 2007 through the expiration of the patents will not exceed $5 million.
CONTINGENCIES
LCI is a defendant in an action entitled SteelCo, Inc. vs. Lippert
Components, Inc. and DOES 1 through 20, inclusive commenced in the Superior
Court of the State of California, County of San Bernardino, San Bernardino
District, on July 16, 2002.
Plaintiff alleges that LCI violated certain provisions of the California
Business and Professions Code (Sec. 17000 et. seq.) by allegedly selling chassis
and component parts below LCI's costs, engaging in acts intended to destroy
competition, wrongfully interfering with plaintiff's economic advantage, and
engaging in unfair competition. Plaintiff seeks damages in an unspecified
amount, treble damages, punitive damages, costs and expenses incurred in the
proceeding and injunctive relief.
LCI is vigorously defending against the allegations in the complaint, and
has asserted counterclaims against Plaintiff. The case is in discovery.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are discussed in Note 1 to the
consolidated financial statements. We believe that the following are critical
accounting policies:
Inventories
Inventories are stated at the lower of cost or market value. In determining
inventory cost, we use the first-in, first-out method. If we used the last-in,
first-out method, the results of operations and the value of inventory could be
significantly different, however, it is not practical to calculate the
difference.
Stock Options
As of April 1, 2002, we adopted the fair value method of accounting for
stock options contained in Statement of Financial Accounting Standards ("SFAS")
No. 123 "Accounting for Stock-Based Compensation," which is considered the
preferable method of accounting for stock options. As a result, the fair value
of all employee stock options granted after January 1, 2002 is being charged
against our earnings over the period of time during which the options vest. To
determine fair value, we use a method known as the Black-Scholes option-pricing
method. Fair value is determined as of the date the option is granted.
The fair value of options granted before January 1, 2002 is not being
charged against our earnings since we are using the prospective method, as
allowed under SFAS No. 148 "Accounting for Stock-Based Compensation--Transition
and Disclosures."
In past years, we used the "disclosure only" option of SFAS No. 123.
Therefore, no compensation cost was charged against our earnings for stock
options granted before January 1, 2002.
If we had charged compensation cost of options granted prior to January 1,
2002 to earnings, by using the prospective method under SFAS No. 148, our
results of operations would have been different, as described in Note 11 to the
consolidated financial statements.
- --------------------------------------------------------------------------------
Drew Industries Incorporated page sixteen
USE OF ESTIMATES
The preparation of these financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an ongoing basis, the Company evaluates its
estimates, including those related to product returns, bad debts, inventories,
intangible assets, income taxes, warranty obligations, insurance obligations,
lease termination obligations, post-retirement benefits, and contingencies and
litigation. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other resources. Actual results may differ from these estimates under different
assumptions or conditions.
INFLATION
The prices of raw materials, consisting primarily of aluminum, vinyl, steel,
glass and ABS resin, 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. The Company purchased no futures
contracts in 2002 and 2001, and at December 31, 2002 and 2001, the Company had
no futures contracts outstanding. The Company experienced modest increases in
its labor costs in 2002 and 2001.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
This report contains certain statements, including the Company's plans and
expectations regarding its operating strategies, products, and costs, and its
views of the prospects of the recreational vehicle and manufactured housing
industries, which are forward-looking statements and are made pursuant to the
safe harbor provisions of the Securities Litigation Reform Act of 1995. These
forward-looking statements reflect the Company's views, at the time such
statements were made, with respect to the Company's future plans, objectives,
events, and financial results such as revenues, expenses, income, earnings per
share, capital expenditures, and other financial items. Forward-looking
statements are not guarantees of future performance; they are subject to risks
and uncertainties. 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.
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 aluminum, vinyl,
steel, glass, and ABS resin), availability of retail and wholesale financing for
manufactured homes, availability and costs of labor, inventory levels of
retailers and manufacturers, the financial condition of our customers, interest
rates, and adverse weather conditions impacting retail sales. In addition,
general economic conditions and consumer confidence may affect the retail sale
of recreational vehicles and manufactured homes.
- --------------------------------------------------------------------------------
2002 Annual Report page seventeen
Consolidated Statements of Income
(In thousands, except per share amounts)
Year Ended December 31,
------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Net sales $ 325,431 $ 254,770 $ 253,129
Cost of sales 246,844 194,309 197,723
- ---------------------------------------------------------------------------------------------------------------------
Gross profit 78,587 60,461 55,406
Selling, general and administrative expenses 49,374 40,116 38,339
- ---------------------------------------------------------------------------------------------------------------------
Operating profit 29,213 20,345 17,067
Interest expense, net 3,566 4,151 3,421
- ---------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes
and cumulative effect of change in accounting principle 25,647 16,194 13,646
Provision for income taxes 9,883 6,364 5,652
- ---------------------------------------------------------------------------------------------------------------------
Income from continuing operations before cumulative effect
of change in accounting principle 15,764 9,830 7,994
Discontinued operations (net of tax benefits of $102 in 2002,
$503 in 2001 and $3,623 in 2000) (200) (896) (6,447)
- ---------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in accounting principle 15,564 8,934 1,547
Cumulative effect of change in accounting principle for goodwill
(net of taxes of $2,743) (30,162)
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (14,598) $ 8,934 $ 1,547
=====================================================================================================================
Income (loss) per common share:
Income from continuing operations before cumulative
effect of change in accounting principle:
Basic $ 1.61 $ 1.02 $ .77
=====================================================================================================================
Diluted $ 1.57 $ 1.02 $ .77
=====================================================================================================================
Discontinued operations, net of taxes:
Basic $ (.02) $ (.10) $ (.62)
=====================================================================================================================
Diluted $ (.02) $ (.10) $ (.62)
=====================================================================================================================
Cumulative effect of change in accounting principle
for goodwill, net of taxes:
Basic $ (3.08)
=====================================================================================================================
Diluted $ (3.01)
=====================================================================================================================
Net income (loss):
Basic $ (1.49) $ .92 $ .15
=====================================================================================================================
Diluted $ (1.46) $ .92 $ .15
=====================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
Drew Industries Incorporated page eighteen
Consolidated Balance Sheets
(In thousands, except shares and per share amounts)
December 31,
---------------------------
2002 2001
- ------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and short-term investments $ 316 $ 1,191
Accounts receivable, trade, less allowances of
$1,354 in 2002 and $676 in 2001 12,969 10,493
Inventories 37,143 25,526
Prepaid expenses and other current assets 8,618 4,219
Discontinued operations 1,211 3,216
- ------------------------------------------------------------------------------------------
Total current assets 60,257 44,645
Fixed assets, net 74,041 69,651
Goodwill, net 7,043 38,303
Other intangible assets 814 1,073
Other assets 3,241 3,303
- ------------------------------------------------------------------------------------------
Total assets $ 145,396 $ 156,975
- ------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable, including current maturities
of long-term indebtedness $ 9,993 $ 9,630
Accounts payable, trade 7,998 5,868
Accrued expenses and other current liabilities 17,699 15,295
Discontinued operations 500 1,036
- ------------------------------------------------------------------------------------------
Total current liabilities 36,190 31,829
Long-term indebtedness 38,812 43,691
Other long-term liabilities 290 245
- ------------------------------------------------------------------------------------------
Total liabilities 75,292 75,765
- ------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity
Common stock, par value $.01 per share: authorized
20,000,000 shares; issued 12,084,788 shares in 2002
and 11,820,078 shares in 2001 121 118
Paid-in capital 28,568 25,079
Retained earnings 60,882 75,480
- ------------------------------------------------------------------------------------------
89,571 100,677
Treasury stock, at cost--2,149,325 shares in 2002 and 2001 (19,467) (19,467)
- ------------------------------------------------------------------------------------------
Total stockholders' equity 70,104 81,210
- ------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 145,396 $ 156,975
==========================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
2002 Annual Report page nineteen
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
----------------------------------------
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net (loss) income $(14,598) $ 8,934 $ 1,547
Adjustments to reconcile net (loss) income to cash flows
provided by operating activities:
Cumulative effect of change in accounting principle
for goodwill, net of taxes 30,162
Discontinued operations, net 200 896 6,447
- ------------------------------------------------------------------------------------------------------------------
Income from continuing operations 15,764 9,830 7,994
Provision for doubtful accounts 837 181 357
Depreciation and amortization 7,332 8,332 8,381
Deferred taxes 1,748 (37) (2,180)
Loss on disposal of long-lived assets 125 156 273
Deferred compensation 83
Changes in assets and liabilities:
Accounts receivable, net (3,313) 3,430 (2,975)
Inventories (11,501) 4,244 (3,647)
Prepaid expenses and other assets (4,542) (692) 91
Accounts payable, accrued expenses and other
current liabilities 4,534 1,516 (3,458)
- ------------------------------------------------------------------------------------------------------------------
Net cash flows provided by continuing
operating activities 11,067 26,960 4,836
Loss from discontinued operations (200) (896) (6,447)
Changes in discontinued operations 1,333 2,102 11,467
- ------------------------------------------------------------------------------------------------------------------
Net cash flows provided by operating activities 12,200 28,166 9,856
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (10,538) (8,194) (21,785)
Acquisitions of companies' net assets and businesses (2,070) (11,492)
Sale of axle and tire refurbishing facility 1,850
Proceeds from sales of fixed assets 595 695 325
- ------------------------------------------------------------------------------------------------------------------
Net cash flows used for investing activities (12,013) (17,141) (21,460)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from line of credit 74,600 61,900 88,995
Proceeds from loans secured by real estate and equipment 2,750 13,316 4,561
Proceeds from sale and leaseback of equipment 3,700
Repayments under line of credit and other borrowings (81,866) (88,598) (73,041)
Acquisition of treasury stock (13,472)
Exercise of stock options 3,348 112
Other 106 (490) 50
- ------------------------------------------------------------------------------------------------------------------
Net cash flows (used for) provided by financing activities (1,062) (10,060) 7,093
- ------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash (875) 965 (4,511)
Cash and cash equivalents at beginning of year 1,191 226 4,737
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 316 $ 1,191 $ 226
==================================================================================================================
Supplemental disclosure of cash flows information:
Cash paid during the year for:
Interest on debt $ 3,895 $ 4,567 $ 4,103
Income taxes, net of refunds $ 10,038 $ 4,998 $ 3,653
==================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
Drew Industries Incorporated page twenty
Consolidated Statements of Stockholders' Equity
(In thousands, except shares)
------------------------------------------------------------------
Total
Common Treasury Paid-in Retained Stockholders'
Stock Stock Capital Earnings Equity
- ----------------------------------------------------------------------------------------------------------------------
Balance--December 31, 1999 $ 118 $ (5,995) $24,967 $64,999 $84,089
Net income 1,547 1,547
Purchase of 1,640,025 shares of treasury stock (13,472) (13,472)
- ----------------------------------------------------------------------------------------------------------------------
Balance--December 31, 2000 118 (19,467) 24,967 66,546 72,164
Net income 8,934 8,934
Purchase of 14,324 shares of common stock
pursuant to stock option plan 99 99
Income tax benefit relating to issuance of
common stock pursuant to stock option plan 13 13
- ----------------------------------------------------------------------------------------------------------------------
Balance--December 31, 2001 118 (19,467) 25,079 75,480 81,210
Net (loss) (14,598) (14,598)
Issuance of 264,710 shares of common stock
pursuant to stock option plan 3 2,877 2,880
Income tax benefit relating to issuance of
common stock pursuant to stock option plan 468 468
Deferred stock compensation expense and other 144 144
- ----------------------------------------------------------------------------------------------------------------------
Balance--December 31, 2002 $ 121 $(19,467) $28,568 $60,882 $70,104
======================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
2002 Annual Report page twenty-one
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Consolidated Financial Statements include the accounts of Drew
Industries Incorporated and its subsidiaries. There are no unconsolidated
subsidiaries. Drew's wholly-owned active subsidiaries are Kinro, Inc. and its
subsidiaries ("Kinro") and Lippert Components, Inc. and its subsidiaries
("LCI"). Drew, through its wholly-owned subsidiaries, supplies a broad array of
components for recreational vehicles and manufactured homes. All significant
intercompany balances and transactions have been eliminated. Certain prior year
balances may have been reclassified to conform to current presentation.
Manufactured products include aluminum and vinyl windows, doors, chassis,
chassis parts and slide-out systems, and bath and shower units. The axle and
tire refurbishing business of Lippert Tire and Axle, Inc. ("LTA"), the Company's
wholly-owned subsidiary, has been discontinued. The last of LTA's operations was
sold in January 2003.
Approximately 53 percent of the Company's sales in 2002 were made by its
recreational vehicles products segment and 47 percent were made by its
manufactured housing products segment. At December 31, 2002, the Company
operated 40 plants in 18 states and one plant in Canada.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents. Investments,
which consist of government-backed money market funds are recorded at cost which
approximates market value.
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.
The Company periodically purchases commodity futures to hedge the impact of
future price fluctuations on a portion of its aluminum raw material
requirements. No such commodity futures were purchased in 2002 or 2001. Gains
and losses on such futures contracts are deferred until recognized in income as
a component of cost of sales when the finished products are sold. Cash flow from
such futures contracts are included in operating activities in the Consolidated
Statements of Cash Flows.
Fixed Assets
Fixed assets are depreciated principally on a straight-line basis over the
estimated useful lives of properties and equipment. Leasehold improvements and
leased equipment are amortized over the shorter of the lives of the leases or
the underlying assets. Amortization of assets recorded under capital leases is
included in depreciation expense. Maintenance and repairs are charged to
operations as incurred; significant betterments are capitalized.
Income Taxes
The Company and its subsidiaries file a consolidated Federal income tax
return. The Company's subsidiaries generally file separate state income tax
returns on the same basis as the Federal income tax return.
Goodwill and Other Intangible Assets
Effective January 1, 2002, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that
all business combinations initiated after June 30, 2001 be accounted for using
the purchase method of accounting. It also specifies criteria that intangible
assets acquired in a purchase combination must meet to be recognized apart from
goodwill. SFAS No. 142 requires that the useful lives of all existing intangible
assets be reviewed and adjusted if necessary. It also requires that goodwill and
intangible assets with indefinite lives no longer be amortized, but rather be
tested for impairment at least annually. Other intangible assets will continue
to be amortized over their useful lives and reviewed for impairment in
accordance with SFAS No. 144, "Accounting for the Impairment of Long-Lived
Assets to Be Disposed Of."
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Drew Industries Incorporated page twenty-two
In accordance with SFAS No. 142, the Company stopped amortizing goodwill
effective January 1, 2002. The Company has reassessed the useful lives of its
intangible assets as required by SFAS No. 142 and determined that the existing
useful lives are reasonable. Prior to the adoption of SFAS No. 142, goodwill was
amortized on a straight-line basis primarily over twenty to thirty years. The
Company periodically reviewed the value of its goodwill to determine if an
impairment had occurred. The Company measured the potential impairment of
recorded goodwill by the undiscounted value of expected future operating cash
flows in relation to the goodwill and other long-lived assets of the subsidiary.
Impairment of Long-Lived Assets
SFAS No. 144 provides a single accounting model for long-lived assets to be
disposed of. SFAS No. 144 also changes the criteria for classifying an asset as
held for sale; and broadens the scope of businesses to be disposed of that
qualify for reporting as discontinued operations and changes the timing of
recognizing losses on such operations. The Company adopted SFAS No. 144 on
January 1, 2002.
In accordance with SFAS No. 144, long-lived assets, such as fixed assets and
purchased intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset. Assets to be disposed of are
separately presented in the balance sheet and reported at the lower of the
carrying amount or fair value less costs to sell, and are no longer depreciated.
The assets and liabilities of a disposed group classified as held for sale would
be presented separately in the appropriate asset and liability sections of the
balance sheet.
Goodwill and intangible assets not subject to amortization are tested
annually for impairment, and are tested for impairment more frequently if events
and circumstances indicate that the asset might be impaired. An impairment loss
is recognized to the extent that the carrying amount exceeds the asset's fair
value.
Prior to the adoption of SFAS No. 144, the Company accounted for long-lived
assets in accordance with SFAS No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of."
Stock Options
As of April 1, 2002, the Company adopted the fair value method of accounting
for stock options contained in SFAS No. 123, "Accounting for Stock-Based
Compensation," which is considered the preferable method of accounting for
stock-based employee compensation. All employee stock options granted after
January 1, 2002 have been expensed over the stock option vesting period based on
fair value, determined using the Black-Scholes option-pricing method, at the
date the options were granted. During the transition period, the Company will be
utilizing the prospective method under Statement of Financial Accounting
Standard No. 148, "Accounting for Stock-Based Compensation--Transition and
Disclosures."
Historically, the Company had applied the "disclosure only" option of SFAS
No. 123. Accordingly, no compensation cost has been recognized for stock options
granted prior to January 1, 2002.
Revenue Recognition
Revenue is recognized upon shipment of goods to customers.
Shipping and Handling Costs
The Company records shipping and handling costs within selling, general and
administrative expenses. Such costs aggregated $13,473,000, $11,289,000 and
$10,296,000 in 2002, 2001 and 2000, respectively.
Use of Estimates
The preparation of these financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an ongoing basis,
- --------------------------------------------------------------------------------
2002 Annual Report page twenty-three
Notes to Consolidated Financial Statements (Continued)
the Company evaluates its estimates, including those related to product returns,
bad debts, inventories, intangible assets, income taxes, warranty obligations,
insurance obligations, lease termination obligations, post-retirement benefits,
and contingencies and litigation. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other resources. Actual results may differ from these
estimates under different assumptions or conditions.
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 manufactures a variety of products
used in the production of recreational vehicles, including windows, doors,
chassis and slide-out systems. The MH segment manufactures a variety of products
used in the construction of manufactured homes, including aluminum and vinyl
windows, chassis and chassis parts, and bath and shower units. The RV segment
and the MH segment primarily sell their products to the producers of
recreational vehicles and manufactured homes. 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 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.
Information relating to segments follows (in thousands):
-----------------------------------------------------------------------------------
Segments
------------------------------------ Corporate
RV MH Total and Other Intangibles Total
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2002
Revenues from external customers (a) $171,094 $154,337 $325,431 $ 325,431
Segment operating profit 16,162 16,900 33,062 $ (3,103) $ (746) 29,213
Segment assets (b) 61,320 62,804 124,124 12,543 8,729 145,396
Expenditures for long-lived assets (c) 3,781 7,475 11,256 16 11,272
Depreciation and amortization 2,618 4,048 6,666 257 409 7,332
Year ended December 31, 2001
Revenues from external customers (a) $107,504 $147,266 $254,770 $ 254,770
Segment operating profit 9,208 15,940 25,148 $ (2,212) $ (2,591) 20,345
Segment assets (b) 46,755 58,866 105,621 10,290 41,064 156,975
Expenditures for long-lived assets (c) 4,129 9,329 13,458 13,458
Depreciation and amortization 2,315 4,146 6,461 258 1,613 8,332
Year ended December 31, 2000
Revenues from external customers (a) $101,172 $151,957 $253,129 $ 253,129
Segment operating profit 6,853 14,919 21,772 $ (2,011) $ (2,694) 17,067
Segment assets (b) 51,663 56,177 107,840 11,787 39,671 159,298
Expenditures for long-lived assets (c) 14,083 7,688 21,771 14 21,785
Depreciation and amortization 1,979 4,661 6,640 234 1,507 8,381
- ---------------------------------------------------------------------------------------------------------------------------------
(a) One customer of the RV segment accounted for 20 percent, 15 percent and 11
percent of the Company's consolidated net sales and another customer of
both segments accounted for 12 percent, 12 percent and 13 percent of the
Company's consolidated net sales in the years ended December 31, 2002,
2001, and 2000, respectively.
(b) Segment assets include accounts receivable, inventory and fixed assets.
Corporate and other assets include cash and cash equivalents, prepaid
expenses and other current assets, discontinued operations, deferred taxes
and other assets, excluding intangible assets. Intangibles include goodwill
and deferred charges which are not considered in the measurement of each
segment's performance.
(c) Segment expenditures for long-lived assets include capital expenditures and
fixed assets purchased as part of the acquisition of companies and
businesses. The Company purchased $734,000 and $5,264,000 of fixed assets
as part of the acquisitions of businesses in 2002 and 2001, respectively.
Expenditures for other long-term assets, such as goodwill and other
intangible assets, are not included in the segment since they are not
considered in the measurement of each segment's performance.
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Drew Industries Incorporated page twenty-four
3. ACQUISITIONS, GOODWILL, INTANGIBLE ASSETS AND DISCONTINUED OPERATIONS
Acquisition of Better Bath
On June 1, 2001, the Company's subsidiary, Kinro, acquired the assets and
business of the Better Bath division of Kevco, Inc. Better Bath manufactures and
sells thermo-formed bath and shower units for the manufactured housing industry
and had sales of approximately $27.7 million in 2000, and $22.3 million in 2001,
including $13.2 million in the seven months since its acquisition by the
Company.
The acquisition has been accounted for as a purchase. The aggregate purchase
price of approximately $10.2 million has been allocated to the underlying assets
based upon their respective estimated fair values. The excess of purchase price
over the fair value of net assets acquired ("goodwill") was approximately $3.1
million, which, prior to the adoption of SFAS No. 142, was being amortized over
20 years. The Company has not recorded any impairment of this goodwill. The
results of the acquired business have been included in the Company's
consolidated statements of income beginning June 1, 2001.
The following unaudited pro forma condensed consolidated results of
operations assumes that the acquisition had occurred at the beginning of 2000.
The unaudited pro forma data below is not necessarily indicative of the future
results of operations of the combined operation (in thousands, except per share
amounts):
Pro Forma Year December 31,
----------------------------
2001 2000
- --------------------------------------------------------------------
Net sales $263,803 $280,867
====================================================================
Income from continuing operations $ 10,031 $ 8,987
- --------------------------------------------------------------------
Income per common share:
Income from continuing operations:
Basic $ 1.04 $ .87
Diluted $ 1.04 $ .87
Average common shares outstanding:
Basic 9,661 10,348
Diluted 9,666 10,348
Other Acquisitions
In 2002, the Company acquired, for $1.4 million, the business of a
manufacturer of RV chassis, which had approximately $7 million of annual sales.
Production for these newly acquired accounts has been integrated into the
Company's existing factories. In 2001, the Company also acquired, for an
aggregate of $1.4 million, the businesses of two small manufacturers of RV
chassis, which added new customers, and manufacturing facilities closer to
existing customers. The manufacturing facility of one of those businesses was
originally leased, then purchased in 2002.
Goodwill and Intangible Assets
Goodwill was $7,043,000 at December 31, 2002. At December 31, 2001, goodwill
of $38,303,000 was net of amortization of $6,772,000. Amortization of goodwill
was $1,613,000 and $1,797,000 for the years ended December 31, 2001 and 2000,
respectively. In accordance with SFAS No. 142, the Company stopped amortizing
goodwill effective January 1, 2002. The Company has reassessed the useful lives
of its intangible assets as required by SFAS No. 142 and determined that the
existing useful lives are reasonable. In accordance with SFAS No. 141, the
Company reclassified certain intangible assets to goodwill since they can no
longer be recognized apart from goodwill. The amortization of such assets was
$322,000 and $303,000 for the years ended December 31, 2001 and 2000,
respectively.
Other intangible assets of $814,000 in 2002 and $1,073,000 in 2001 consist
solely of non-compete agreements, which are amortized over 5 to 7 years, and are
net of accumulated amortization of $1,666,000 at December 31, 2002 and
- --------------------------------------------------------------------------------
2002 Annual Report page twenty-five
Notes to Consolidated Financial Statements (Continued)
$1,257,000 at December 31, 2001. Amortization expense related to intangible
assets (excluding goodwill) amounted to $409,000, $373,000 and $357,000 for
2002, 2001 and 2000, respectively. Estimated amortization expense for the next
five fiscal years is as follows: $426,000 (2003), $196,000 (2004), $69,000
(2005), $66,000 (2006) and $46,000 (2007).
During the first quarter of 2002, in accordance with the goodwill impairment
provisions of SFAS No. 142, the Company identified its reporting units and
allocated its assets and liabilities, including goodwill, to its reporting
units. In addition, the Company had a valuation of certain of its reporting
units done by an independent appraiser, as of January 1, 2002, to assist the
Company in determining if there had been an impairment in the goodwill of any of
such reporting units. Based on this appraisal and additional analyses performed
by the Company, it was determined that there had been an impairment of goodwill
in two reporting units. As a result, the Company recorded an impairment charge
of $32,905,000 offset by a tax benefit of $2,743,000. Such charge has been
recorded as a cumulative effect of change in accounting principle in 2002.
As a result of the allocation of the goodwill and the recognition of the
impairment charge, goodwill by reportable segment is as follows (in thousands):
MH Segment RV Segment Total
- -----------------------------------------------------------------------------------------
Balance--December 31, 2001 $ 33,354 $ 4,949 $ 38,303
Reclassification of other intangible assets 505 69 574
- -----------------------------------------------------------------------------------------
Balance--January 1, 2002 33,859 5,018 38,877
Impairment charge (30,698) (2,207) (32,905)
Current year acquisition 1,071 1,071
- -----------------------------------------------------------------------------------------
Balance--December 31, 2002 $ 3,161 $ 3,882 $ 7,043
=========================================================================================
The Company has elected to perform its annual goodwill impairment procedures
for all of its reporting units as of November 30. During the fourth quarter of
2002 the Company updated its carrying value calculations and fair value
estimates for each of its reporting units as of November 30, 2002. Based on the
comparison of the carrying values to the estimated fair values, the Company has
concluded that no additional goodwill impairment exists. The Company will update
its review as of November 30, 2003, or sooner, if events occur or circumstances
change that could reduce the fair value of a reporting unit below its carrying
value.
The following is a reconciliation to adjust previously reported annual
financial information to exclude goodwill amortization expense (in thousands
except per share amounts):
Year Ended December 31,
-----------------------
2001 2000
- --------------------------------------------------------------------------
Income from continuing operations, as reported $ 9,830 $7,994
Goodwill amortization expense, net of taxes 1,623 1,515
- --------------------------------------------------------------------------
Adjusted income from continuing operations $11,453 $9,509
- --------------------------------------------------------------------------
Income per share (basic and diluted):
As reported $ 1.02 $ .77
Adjusted $ 1.18 $ .92
Discontinued Operations
The axle and tire refurbishing business of LTA has not performed well over
the past several years, primarily due to increased competition and the decline
in the manufactured housing industry, which severely affected operating margins.
At the end of the third quarter of 2000, the Company announced that it was
studying whether goodwill and fixed assets related to this business had been
impaired. Based upon this evaluation, it was determined that goodwill had been
impaired resulting in a non-cash charge of $6,897,000 in the fourth quarter of
2000. In January 2001, the axle and tire refurbishing business closed two of its
five factories and in July 2001, a third such operation was sold. In September
2002, the Company converted one of its two remaining tire and axle refurbishing
facilities to an RV window production facility. The last axle and tire
refurbishing operation was sold in January 2003 at a small gain. As a result,
the axle and
- --------------------------------------------------------------------------------
Drew Industries Incorporated page twenty-six
tire refurbishing business is classified as discontinued operations in the
Consolidated Financial Statements pursuant to SFAS No. 144, adopted by the
Company effective January 1, 2002.
Discontinued operations consists of the following at December 31, 2002
(in thousands):
Cash $ 122
Accounts receivable 271
Inventories 604
Prepaid expenses and other current assets 100
Fixed assets 107
Deferred changes and other assets 7
- ---------------------------------------------------------
Total assets 1,211
- ---------------------------------------------------------
Accounts payable 129
Accrued liabilities 371
- ---------------------------------------------------------
Total liabilities 500
- ---------------------------------------------------------
Discontinued operations, net $ 711
=========================================================
LTA continues to own a factory in Texas which was previously utilized in its
axle and tire refurbishing business. This factory is being leased to the
purchaser of the LTA's Texas operation. Since it is not probable that this
factory will be sold within one year, it is not considered as held for sale
under SFAS No.144, and is not included in discontinued operations in the
Consolidated Financial Statements.
The proceeds from the disposition of all other significant assets of LTA's
axle and tire refurbishing business, consisting primarily of inventory and
accounts receivable, have been collected in January 2003 and resulted in a small
gain.
The discontinued axle and tire refurbishing business had previously been
included in the Company's MH segment, and had revenues of $11.2 million, $14.7
million and $37.1 million, in 2002, 2001 and 2000, respectively.
4. INVENTORIES
Inventories consist of the following (in thousands):
December 31,
----------------------------
2002 2001
- --------------------------------------------------------------------------------
Finished goods $ 7,681 $ 6,259
Work in process 1,408 1,449
Raw materials 28,054 17,818
- --------------------------------------------------------------------------------
Total $37,143 $25,526
================================================================================
5. FIXED ASSETS
Fixed assets, at cost, consist of the following (in thousands):
December 31,
- -------------------------------------------------------------------------- Estimated Useful
2002 2001 Life in Years
- ----------------------------------------------------------------------------------------------
Land $ 6,883 $ 7,132
Buildings and improvements 53,360 50,030 10 to 39
Leasehold improvements 1,464 1,413 2 to 11
Machinery and equipment 35,838 30,073 3 to 10
Transportation equipment 2,568 2,080 3 to 7
Furniture and fixtures 3,775 3,361 3 to 10
Construction in progress 1,041 75
- ------------------------------------------------------------------------------
104,929 94,164
Less accumulated depreciation and amortization 30,888 24,513
- ------------------------------------------------------------------------------
Fixed assets, net $ 74,041 $ 69,651
==============================================================================
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2002 Annual Report page twenty-seven
Notes to Consolidated Financial Statements (Continued)
Depreciation and amortization of fixed assets consists of (in thousands):
Year Ended December 31,
---------------------------------
2002 2001 2000
- ----------------------------------------------------------------------
Charged to cost of sales $5,604 $4,944 $4,697
Charged to selling, general and
administrative expenses 694 678 953
- ----------------------------------------------------------------------
Total $6,298 $5,622 $5,650
======================================================================
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following (in
thousands):
December 31,
-------------------------------
2002 2001
- ------------------------------------------------------------------------------
Accrued employee compensation and fringes $ 7,612 $ 6,705
Income taxes 1,047 1,742
Insurance 1,886 1,205
Accrued expenses and other 7,154 5,643
- ------------------------------------------------------------------------------
Total $17,699 $15,295
==============================================================================
7. RETIREMENT AND OTHER BENEFIT PLANS
The Company has discretionary defined contribution profit sharing plans
covering substantially all eligible employees. The Company contributed
$1,142,000, $596,000 and $794,000 to these Plans during the years ended December
31, 2002, 2001 and 2000, respectively. The increase in contributions in 2002 was
primarily due to the timing of the payment of contributions.
8. LONG-TERM INDEBTEDNESS
Long-term indebtedness consists of the following (in thousands):
December 31,
------------------------
2002 2001
- ------------------------------------------------------------------------------------------------------------------
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 $24,000 $32,000
Notes payable pursuant to a Credit Agreement expiring October 15, 2005 consisting
of a revolving loan, not to exceed $30,000; interest at prime rate or LIBOR plus a
rate margin based upon the Company's performance (a) 2,900 200
Industrial Revenue Bonds, interest rates at December 31, 2002, 3.52% to 6.28%,
due 2008 through 2017; secured by certain real estate and equipment 8,871 6,846
Real estate mortgage payable at the rate of $70 per month with a balloon payment of
$3,371 in May 2006, interest at 9.03% per annum 4,894 5,268
Other loans secured by certain real estate and equipment, due 2006 to 2016,
primarily fixed rates of 7.25% to 8.72% 8,140 9,007
- ------------------------------------------------------------------------------------------------------------------
48,805 53,321
Less current portion 9,993 9,630
- ------------------------------------------------------------------------------------------------------------------
Total long-term indebtedness $38,812 $43,691
==================================================================================================================
(a) As of December 31, 2002, the Company's Restated and Amended Credit Agreement
(the "Restated Agreement"), was amended to extend the expiration date of the
notes payable pursuant to the Credit Agreement to October 15, 2005 and
increase maximum borrowings from $25 million to $30 million. Pursuant to the
performance schedule, the interest rate on LIBOR loans is LIBOR plus 1.5
percent at December 31, 2002.
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Drew Industries Incorporated page twenty-eight
Pursuant to the Senior Notes, the Credit Agreement, and certain of the other
loan agreements, the Company is required to maintain minimum net worth and
interest and fixed charge coverages and meet certain other financial
requirements. The Company is in compliance with all such requirements.
Borrowings under the Senior Notes and the Credit Agreement are secured only by
capital stock of the Company's subsidiaries.
The Company pays a commitment fee, accrued at the rate of 3 1/48 of 1
percent per annum, on the daily unused amount of the revolving line of credit.
The approximate amount of maturities of long-term indebtedness (in
thousands) are:
2004 $10,152
2005 12,873
2006 4,792
2007 1,111
2008 2,658
2009 to 2013 4,908
2014 to 2018 2,318
- ------------------------------------------------------------------------------
Total $38,812
==============================================================================
The Company believes the interest rates on instruments similar to its debt
approximate the rates paid by the Company. Therefore, the book value of such
debt approximates fair value at December 31, 2002 and December 31, 2001.
9. INCOME TAXES
The income tax provision in the Consolidated Statements of Income is as
follows (in thousands):
Year Ended December 31,
------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Current:
Federal $7,137 $ 5,706 $ 7,083
State 998 574 873
Deferred:
Federal 1,475 111 (2,216)
State 273 (27) (88)
- --------------------------------------------------------------------------------
Total income tax provision $9,883 $ 6,364 $ 5,652
================================================================================
The provision for income taxes differs from the amount computed by applying
the Federal statutory rate to income before income taxes for the following
reasons (in thousands):
Year Ended December 31,
------------------------------------
2002 2001 2000
- -----------------------------------------------------------------------------------------------
Income tax at Federal statutory rate $8,976 $ 5,668 $ 4,776
State income taxes, net of Federal income tax benefit 826 356 510
Non-deductible expenses 79 465 453
Other 2 (125) (87)
- -----------------------------------------------------------------------------------------------
Provision for income taxes $9,883 $ 6,364 $ 5,652
===============================================================================================
- --------------------------------------------------------------------------------
2002 Annual Report page twenty-nine
Notes to Consolidated Financial Statements (Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2002 and 2001 are as follows (in thousands):
December 31,
-------------------------
2002 2001
- ---------------------------------------------------------------------------------
Deferred tax assets:
Accounts receivable $ 452 $ 222
Inventories 683 686
Goodwill and other assets 4,454 3,033
Accrued insurance 349 551
Employee benefits 793 858
Other accruals 867 743
Sale and leaseback 288 111
- ---------------------------------------------------------------------------------
Total deferred tax assets 7,886 6,204
- ---------------------------------------------------------------------------------
Deferred tax liabilities:
Fixed assets 3,805 3,059
- ---------------------------------------------------------------------------------
Net deferred tax asset $4,081 $3,145
================================================================================
The Company concluded that it is more likely than not that the deferred tax
assets at December 31, 2002 will be realized in the ordinary course of
operations based on scheduling of deferred tax liabilities and income from
operating activities.
Tax benefits on stock option exercises of $468,000 and $13,000 were credited
directly to stockholders' equity for 2002 and 2001, respectively.
Net deferred income tax assets are classified in the Consolidated Balance
Sheets as follows (in thousands):
December 31,
---------------------
2002 2001
- --------------------------------------------------------------------------------
Prepaid expenses and other current assets $3,214 $3,013
Other assets 867 132
- --------------------------------------------------------------------------------
$4,081 $3,145
================================================================================
Included in prepaid expenses and other current assets is a Federal income
tax refund receivable of $1,742,000 at December 31, 2002.
10. COMMITMENTS AND CONTINGENCIES
Leases
The Company's lease commitments are primarily for real estate and vehicles.
The significant real estate leases provide for renewal options and periodic
rental adjustments to reflect price index changes and require the Company to pay
for property taxes and all other costs associated with the leased property. Most
vehicle leases provide for contingent payments based upon miles driven and other
factors.
Future minimum lease payments under operating leases at December 31, 2002
are summarized as follows
(in thousands):
2003 $3,650
2004 2,317
2005 1,085
2006 588
2007 256
Thereafter 55
- --------------------------------------------------------------------------------
Total lease obligations $7,951
================================================================================
Included in the above table are commitments regarding a $3,700,000 sale and
leaseback of equipment made during 2001. The Company has an option to repurchase
such equipment for $1,554,000 in 2004.
- --------------------------------------------------------------------------------
Drew Industries Incorporated page thirty
Rent expense was $4,608,000, $4,256,000 and $3,140,000 for the years ended
December 31, 2002, 2001 and 2000, respectively.
In order to hedge the impact of future price fluctuations on a portion of
its aluminum raw material requirements, the Company periodically purchases
aluminum futures contracts on the London Metal Exchange. At December 31, 2002
and 2001, the Company had no futures contracts outstanding and had no futures
purchases during 2002 or 2001.
The Company has employment contracts with two of its employees and four
consultants, which expire on various dates through December 2004. The minimum
commitments under these contracts are $956,000 in 2003 and $636,000 in 2004. In
addition, the contracts with the two employees, and an arrangement with one
other employee of the Company provide for incentives to be paid, based on a
percentage of profits as defined.
11. STOCKHOLDERS' EQUITY
Stock-Based Awards
In May 2002, the Company's Stockholders voted to adopt the Drew Industries
Incorporated 2002 Equity Award and Incentive Plan (the "2002 Equity Plan"), to
replace the prior Stock Option Plan ("Prior Plan"). Pursuant to the 2002 Equity
Plan, the Company may grant its directors, employees, and consultants, Drew
Common Stock-based awards, such as options and restricted or deferred stock. The
number of shares of Common Stock reserved for awards was 850,000 plus the 70,666
shares that remained available for grant under the Prior Plan.
The 2002 Equity Plan provides for the grant of stock options that qualify as
incentive stock options under Section 422 of the Internal Revenue Code, and
non-qualified stock options.
Under the 2002 Equity Plan, as under the Prior Plan, the Compensation
Committee ("the Committee") determines the period for which each stock option
may be exercisable, but in no event may a stock option be exercisable more than
10 years from the date of grant thereof. The number of shares available under
the 2002 Equity Plan, and the exercise price of options granted under the 2002
Equity Plan, are subject to adjustments that may be made by the Committee to
reflect stock splits, stock dividends, recapitalization, mergers, or other major
corporate action.
The exercise price for options granted under the 2002 Equity Plan shall be
at least equal to 100 percent of the fair market value of the shares subject to
such option on the date of grant. The exercise price may be paid in cash or in
shares of Drew Common Stock. Options granted under the 2002 Equity Plan become
exercisable in annual installments as determined by the Committee.
In 2002, pursuant to the 2002 Equity Plan, the Company awarded 4,604
deferred stock units to certain directors in lieu of cash fees earned by such
directors. The number of deferred stock units awarded was determined by dividing
115% of the fee earned by the closing price of the Common Stock on the date the
fees were earned. The deferral period is generally two years from the date of
the election to defer, unless extended.
- --------------------------------------------------------------------------------
2002 Annual Report page thirty-one
Notes to Consolidated Financial Statements (Continued)
Transactions in stock options and deferred stock units under the 2002 Equity
Plan and the Prior Plan are summarized as follows:
Deferred Stock Units Stock Options
---------------------------- --------------------------------
Number Stock Price at Number of
of Shares Date of Issuance Option Shares Option Price
- --------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1999 943,734
Granted 15,000 $ 5.68
Expired (10,000) $ 7.35
Canceled (42,000) $ 8.81-$12.50
- --------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2000 906,734
Granted 262,500 $ 9.10-$ 9.25
Exercised (14,324) $ 6.94
Canceled (33,000) $ 8.82-$12.50
Expired (15,000) $ 10.75
- --------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2001 1,106,910
Issued 4,604 $13.74-$16.30
Granted 20,000 $ 15.75
Exercised (264,710) $ 5.68-$12.48
==============================================================================================================
Outstanding at December 31, 2002 4,604 $13.74-$16.30 862,200 $5.68-$15.75
==============================================================================================================
Exercisable at December 31, 2002 440,600 $ 5.68-$15.75
The number of shares available for granting awards under the 2002 Equity
Plan was 896,062 at December 31, 2002. The number of shares available for awards
under the Prior Plan was 70,666 and 285,166 at December 31, 2001 and 2000,
respectively.
As of April 1, 2002, the Company adopted the fair value method of accounting
for stock options contained in SFAS No. 123,"Accounting for Stock-Based
Compensation," which is considered the preferable method of accounting for
stock-based employee compensation. During the transition period, the Company
will be utilizing the prospective method under SFAS No. 148,"Accounting for
Stock-Based Compensation--Transition and Disclosures." All employee stock
options granted after January 1, 2002 have been expensed over the stock option
vesting period based on fair value, determined using the Black-Scholes
option-pricing method, at the date the options were granted, resulting in a
$10,000 charge to operations for the year ended December 31, 2002, relating to
options for 20,000 shares granted in December 2002.
Historically, the Company had applied the "disclosure only" option of SFAS
No. 123. Accordingly, no compensation cost has been recognized for previously
granted stock options, but, for disclosure purposes, the fair value of each
option grant is estimated on the date of the grant using the Black-Scholes
option-pricing model. The weighted average assumptions used for grants included
no dividend yields, risk free interest rates of 5.0 percent, assumed expected
volatilities of 33.0 percent, 33.0 percent and 29.4 percent for 2002, 2001 and
2000, respectively, and expected lives of five years.
- --------------------------------------------------------------------------------
Drew Industries Incorporated page thirty-two
If compensation cost for the Company's stock option plan had been recognized
in the income statement based upon the fair value method, income from continuing
operations would have been reduced to the pro forma amounts indicated below:
Year Ended December 31,
--------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------------------------------
Income from continuing operations (in thousands):
As reported $ 15,764 $ 9,830 $ 7,994
Pro forma $ 15,378 $ 9,417 $ 7,679
Earnings per share (basic):
As reported $ 1.61 $ 1.02 $ .77
Pro forma $ 1.57 $ .97 $ .74
Earnings per share (diluted):
As reported $ 1.57 $ 1.02 $ .77
Pro forma $ 1.54 $ .97 $ .74
The following table summarizes information about stock options outstanding
at December 31, 2002:
Option Shares Option Remaining Shares
Exercise Price Outstanding Life (Years) Exercisable
- --------------------------------------------------------------------------------
$ 5.68 15,000 3.0 15,000
$ 8.81 248,200 2.9 118,600
$ 9.10 240,900 5.0 42,900
$ 9.20 15,000 2.0 15,000
$ 9.25 15,000 4.0 15,000
$ 9.31 150,000 2.0 90,000
$11.63 16,800 2.3 3,600
$11.79 15,000 1.0 15,000
$12.13 122,300 0.9 122,300
$12.50 4,000 1.6 3,200
$15.75 20,000 6.0 0
Outstanding stock options expire in five to six years from the date they are
granted; options vest over service periods that range from zero to five years.
Treasury Stock
In accordance with authorizations of the Board of Directors, 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 the year 2000, the Company
purchased, on the open market, 190,600 shares of its common stock at an average
cost of $8.80 per share.
Weighted Average Common Shares Outstanding
The following reconciliation details the denominator used in the computation
of basic and diluted earnings per share:
Year Ended December 31,
--------------------------------------------
2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding for basic earnings per share 9,789,513 9,660,501 10,347,725
Common stock equivalents pertaining to:
Stock options and deferred stock units 219,114 5,368 687
- -----------------------------------------------------------------------------------------------------------------
Total for diluted shares 10,008,627 9,665,869 10,348,412
=================================================================================================================
The numerator is constant for both the basic and diluted earnings per share
calculations.
- --------------------------------------------------------------------------------
2002 Annual Report page thirty-three
Notes to Consolidated Financial Statements (Continued)
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Interim unaudited financial information follows (in thousands, except per
share amounts):
-----------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2002
Net sales $ 72,187 $ 85,718 $ 89,217 $ 78,309 $ 325,431
Gross profit 18,048 21,507 21,112 17,920 78,587
Income from continuing operations 3,649 4,807 4,691 2,617 15,764
Discontinued operations (117) (40) 9 (52) (200)
Cumulative effect of change in
accounting principle (30,080) -- -- (82) (30,162)
Net income (loss) (26,548) 4,767 4,700 2,483 (14,598)
Net income per common share:
Income from continuing operations
Basic .38 .49 .48 .26 1.61
Diluted .37 .48 .47 .26 1.57
Discontinued operations
Basic (.01) -- -- -- (.02)
Diluted (.01) -- -- -- (.02)
Cumulative effect of change in
accounting principle
Basic (3.11) -- -- (.01) (3.08)
Diluted (3.05) -- -- (.01) (3.01)
Net income (loss)
Basic (2.74) .49 .48 .25 (1.49)
Diluted (2.69) .48 .47 .25 (1.46)
-----------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2001
Net sales $ 54,617 $ 66,416 $ 72,181 $ 61,556 $ 254,770
Gross profit 11,678 16,092 17,681 15,010 60,461
Income from continuing operations 1,159 3,003 3,446 2,222 9,830
Discontinued operations (291) (34) (451) (120) (896)
Net income 868 2,969 2,995 2,102 8,934
Net income per common share:
Income from continuing operations
Basic .12 .31 .36 .23 1.02
Diluted .12 .31 .36 .23 1.02
Discontinued operations
Basic (.03) -- (.05) (.01) (.10)
Diluted (.03) -- (.05) (.01) (.10)
Net income
Basic .09 .31 .31 .22 .92
Diluted .09 .31 .31 .22 .92
The sum of per share amounts for the four quarters may not equal the total
per share amounts for the year as a result of changes in the average number of
shares outstanding.
13. SUBSEQUENT EVENT
During 2002, LCI was a defendant in two related actions. In the first
action, Plaintiffs alleged that LCI infringed certain United States patents
owned by plaintiffs in connection with LCI's manufacture and sale of operating
mechanisms for recreational vehicle slide-out systems and that LCI breached a
confidentiality agreement. In the second action, Plaintiffs alleged that LCI
hired plaintiff's former employees for the purpose of accessing confidential
business information relating to plaintiffs business and operations. On February
28, 2003, both actions were terminated and dismissed in accordance with a
settlement agreement providing for a non-exclusive license in favor of LCI for
the life of the slide-out patents. Royalties will be payable by LCI on an annual
declining percentage of sales of slide-out systems produced by LCI, with an
annual minimum royalty of $1,000,000 for fiscal 2002 and annual minimum
royalties of $1,250,000 for fiscal years 2003 through 2006. Aggregate royalties
from 2007 through the expiration of the patents will not exceed $5 million.
- --------------------------------------------------------------------------------
Drew Industries Incorporated page thirty-four
Independent Auditors' Report
The Board of Directors and Stockholders
Drew Industries Incorporated:
We have audited the accompanying consolidated balance sheets of Drew
Industries Incorporated and subsidiaries as of December 31, 2002 and 2001, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 2002.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Drew
Industries Incorporated and subsidiaries as of December 31, 2002 and 2001, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted SFAS No. 142, "Goodwill and Other Intangible Assets" as of January 1,
2002.
/s/ KPMG LLP
Stamford, Connecticut
February 11, 2003, except as to Note 13, which is as of February 28, 2003.
Management's Responsibility for Financial Statements
The management of the Company has prepared and is responsible for the
consolidated financial statements and related financial information included in
this report. These consolidated financial statements were prepared in accordance
with accounting principles generally accepted in the United States of America,
which are consistently applied and appropriate in the circumstances. These
consolidated financial statements necessarily include amounts determined using
management's best judgements and estimates. Such estimates, which are evaluated
on an ongoing basis, are based on historical experience and other factors
believed to be reasonable under the circumstances.
The Company maintains accounting and other control systems which provide
reasonable assurance that assets are safeguarded and that the books and records
reflect the authorized transactions of the Company. Although accounting controls
are designed to achieve this objective, it must be recognized that errors or
irregularities may occur. In addition, it is necessary to assess and consider
the relative costs and the expected benefits of the internal accounting
controls.
The Company's independent auditors, KPMG LLP, provide an independent,
objective review of the consolidated financial statements and underlying
transactions. They perform such tests and other procedures as they deem
necessary to express an opinion on the financial statements. The report of KPMG
LLP accompanies the consolidated financial statements.
/s/ LEIGH J. ABRAMS /s/ FREDRIC M. ZINN
President and Chief Executive Officer Executive Vice President and
Chief Financial Officer
- --------------------------------------------------------------------------------
2002 Annual Report page thirty-five
Per Share Market Price Range
The Company's common stock is traded on the American Stock Exchange. A
summary of the high and low closing prices of the Company's common stock on the
American Stock Exchange is as follows:
2002 2001
---------------- ----------------
High Low High Low
- -----------------------------------------------------------------------------
Quarter Ended March 31 $14.98 $10.90 $ 7.38 $4.75
Quarter Ended June 30 $17.03 $11.50 $ 7.50 $5.05
Quarter Ended September 30 $16.90 $13.50 $ 9.98 $7.70
Quarter Ended December 31 $16.47 $15.25 $10.75 $8.55
=============================================================================
The closing price per share for the common stock on March 7, 2003 was $15.25
and there were 828 holders of Drew Common Stock, not including beneficial owners
of shares held in broker and nominee names.
Dividend Information
Drew has not paid any cash dividends on its outstanding shares of Common
Stock.
Forward-Looking Statements and Risk Factors
This report contains certain statements, including the Company's plans and
expectations regarding its operating strategy, products and costs, and its views
of the prospects of the recreational vehicle and manufactured housing
industries, which are forward-looking statements and are made pursuant to the
safe harbor provisions of the Securities Litigation Act of 1995. These
forward-looking statements reflect the Company's views, at the time such
statements were made, with respect to the Company's future plans, objectives,
events and financial results, such as revenues, expenses, income, earnings per
share, capital expenditures, and other financial items. Forward-looking
statements are not guarantees of future performance; they are subject to risks
and uncertainties. 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.
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 aluminum, vinyl,
steel, glass, and ABS resin), availability of retail and wholesale financing for
manufactured homes, availability and costs of labor, inventory levels of
retailers and manufacturers, the financial condition of our customers, interest
rates, and adverse weather conditions impacting retail sales. In addition,
general economic conditions and consumer confidence may affect the retail sale
of manufactured homes and RVs.
- --------------------------------------------------------------------------------
Drew Industries Incorporated page thirty-six
[PHOTO OMITTED]
Corporate Information
BOARD OF DIRECTORS
Edward W. Rose, III(1)
Chairman of the Board of
Drew Industries Incorporated
President of Cardinal
Investment Company
James F. Gero(1)
Chairman and Chief Executive Officer of
Sierra Technologies, Inc.
Gene Bishop(1)
Retired Bank Executive
Frederick B. Hegi, Jr.(1)
Founding Partner
Wingate Partners
Leigh J. Abrams
President and Chief Executive Officer of
Drew Industries Incorporated
L. Douglas Lippert
Chairman of Lippert Components, Inc.
David L. Webster
Chairman, President and Chief Executive Officer
of Kinro, Inc.
(1) Member of Audit Committee, Compensation Committee, and Governance and
Nominating Committee of the Board of Directors
CORPORATE OFFICERS
Leigh J. Abrams
President and Chief Executive Officer
Fredric M. Zinn
Executive Vice President and
Chief Financial Officer
Harvey J. Kaplan
Treasurer and Secretary
John F. Cupak
Controller
FORM 10-K
A copy of the Annual Report on Form 10-K as filed by the Corporation with the
Securities and Exchange Commission is available upon request, without charge, by
writing to:
Secretary
Drew Industries Incorporated
200 Mamaroneck Avenue
White Plains, NY 10601
GENERAL COUNSEL
Harvey F. Milman, Esq.
Phillips Nizer LLP
666 Fifth Avenue
New York, NY 10103-0084
INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
KPMG LLP
Stamford Square
3001 Summer Street
Stamford, CT 06905
TRANSFER AGENT
AND REGISTRAR
American Stock Transfer
& Trust Company
59 Maiden Lane
New York, NY 10038
(212) 936-5100
(800) 937-5449
Website: www.amstock.com
EXECUTIVE OFFICES
200 Mamaroneck Avenue
White Plains, NY 10601
(914) 428-9098
Website: www.drewindustries.com
E-mail: drew@drewindustries.com
KINRO, INC.
Better Bath, a division of Kinro, Inc.
David L. Webster
Chairman, President and Chief Executive Officer
Corporate Headquarters
4381 Green Oaks Boulevard West
Arlington, TX 76016
(817) 483-7791
LIPPERT COMPONENTS, INC.
Lippert Tire and Axle, Inc.
Coil Clip, Inc.
L. Douglas Lippert
Chairman
Jason Lippert
President and Chief Executive Officer
Corporate Headquarters
2375 Tamiami Trail North, Suite 110
Naples, FL 34103
(941) 659-2005
CORPORATE GOVERNANCE
Copies of the Company's Governance Principles, and the Charters of the Audit,
Compensation, and Governance and Nominating Committees are on the Company's
website, and are available upon request, without charge, by writing to:
Secretary
Drew Industries Incorporated
200 Mamaroneck Avenue
White Plains, NY 10601
TOP PHOTO (FROM LEFT TO RIGHT): Gene H. Bishop, James F. Gero, Frederick
B. Hegi, Edward W. Rose, III, Leigh J.
Abrams, David L. Webster, L. Douglas Lippert.
- --------------------------------------------------------------------------------
2002 Annual Report
[DREW LOGO]
DREW INDUSTRIES INCORPORATED
200 Mamaroneck Avenue
White Plains, NY 10601
www.drewindustries.com