x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
Delaware
|
13-3250533
|
|
(State
or other jurisdiction
of
incorporation or organization) |
(I.R.S.
Employer
Identification Number) |
Page
|
|||
PART I - FINANCIAL INFORMATION | |||
Item 1 - FINANCIAL STATEMENTS | |||
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
|
3
|
||
CONDENSED CONSOLIDATED BALANCE SHEETS |
4
|
||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
5
|
||
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY |
6
|
||
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
7-15
|
||
Item
2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
16-26
|
||
Item
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
|
27
|
||
Item 4 - CONTROLS AND PROCEDURES |
28
|
||
PART II - OTHER INFORMATION | |||
Item 1 - LEGAL PROCEEDINGS |
29-31
|
||
Item 6 - EXHIBITS |
31
|
||
SIGNATURES |
32
|
||
EXHIBIT 31.1 - SECTION 302 CEO CERTIFICATION |
33
|
||
EXHIBIT 31.2 - SECTION 302 CFO CERTIFICATION |
34
|
||
EXHIBIT 32.1 - SECTION 906 CEO CERTIFICATION |
35
|
||
EXHIBIT 32.2 - SECTION 906 CFO CERTIFICATION |
36
|
Three
Months Ended
March 31, |
|||||||
2006
|
2005
|
||||||
(In thousands, except per share amounts) | |||||||
Net
sales
|
$
|
208,461
|
$
|
154,546
|
|||
Cost
of sales
|
164,760
|
121,528
|
|||||
Gross
profit
|
43,701
|
33,018
|
|||||
Selling,
general and administrative expenses
|
26,573
|
22,606
|
|||||
Other
income
|
574
|
31
|
|||||
Operating
profit
|
17,702
|
10,443
|
|||||
Interest
expense, net
|
1,119
|
944
|
|||||
Income
before income taxes
|
16,583
|
9,499
|
|||||
Provision
for income taxes
|
6,378
|
3,683
|
|||||
Net
income
|
$
|
10,205
|
$
|
5,816
|
|||
|
|||||||
Net
income per common share:
|
|||||||
Basic
|
$
|
.47
|
$
|
.28
|
|||
Diluted
|
$
|
.47
|
$
|
.27
|
|||
|
|||||||
Weighted
average common shares outstanding:
|
|||||||
Basic
|
21,567
|
20,726
|
|||||
Diluted
|
21,898
|
21,324
|
March
31,
|
December
31,
|
|||||||||
2006
|
2005
|
2005
|
||||||||
(In thousands, except shares and per share amount) | ||||||||||
ASSETS
|
||||||||||
Current
assets
|
||||||||||
Cash
and cash equivalents
|
$
|
9,174
|
$
|
5,543
|
$
|
5,085
|
||||
Accounts
receivable, trade, less allowances
|
46,406
|
42,035
|
33,583
|
|||||||
Inventories
|
102,245
|
74,352
|
100,617
|
|||||||
Prepaid
expenses and other current assets
|
9,977
|
9,996
|
11,812
|
|||||||
Total
current assets
|
167,802
|
131,926
|
151,097
|
|||||||
Fixed
assets, net
|
123,465
|
101,184
|
116,828
|
|||||||
Goodwill
|
24,713
|
16,061
|
22,118
|
|||||||
Other
intangible assets
|
10,769
|
5,641
|
10,652
|
|||||||
Other
assets
|
6,724
|
6,366
|
6,733
|
|||||||
Total
assets
|
$
|
333,473
|
$
|
261,178
|
$
|
307,428
|
||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||
Current
liabilities
|
||||||||||
Notes
payable, including current maturities of
|
||||||||||
long-term
indebtedness
|
$
|
10,948
|
$
|
3,960
|
$
|
11,140
|
||||
Accounts
payable, trade
|
31,999
|
27,406
|
26,404
|
|||||||
Accrued
expenses and other current liabilities
|
38,683
|
34,132
|
37,407
|
|||||||
Total
current liabilities
|
81,630
|
65,498
|
74,951
|
|||||||
Long-term
indebtedness
|
69,750
|
63,870
|
62,093
|
|||||||
Other
long-term liabilities
|
2,444
|
2,317
|
2,675
|
|||||||
Total
liabilities
|
153,824
|
131,685
|
139,719
|
|||||||
Commitments
and Contingencies
|
||||||||||
Stockholders'
equity
|
||||||||||
Common
stock, par value $.01 per share: authorized 30,000,000 shares;
issued
|
||||||||||
23,675,761
shares at March 2006; 22,871,453 shares at March 2005 and
|
||||||||||
23,625,793
at December 2005
|
237
|
229
|
236
|
|||||||
Paid-in
capital
|
49,349
|
37,272
|
47,655
|
|||||||
Retained
earnings
|
149,220
|
111,229
|
139,015
|
|||||||
Accumulated
other comprehensive income
|
310
|
230
|
270
|
|||||||
|
199,116
|
148,960
|
187,716
|
|||||||
Treasury
stock, at cost - 2,149,325 shares
|
(19,467
|
)
|
(19,467
|
)
|
(19,467
|
)
|
||||
Total
stockholders' equity
|
179,649
|
129,493
|
167,709
|
|||||||
Total
liabilities and stockholders' equity
|
$
|
333,473
|
$
|
261,178
|
$
|
307,428
|
Three
Months Ended
March 31, |
|||||||
2006
|
2005
|
||||||
(In thousands) | |||||||
Cash
flows from operating activities:
|
|||||||
Net
income
|
$
|
10,205
|
$
|
5,816
|
|||
Adjustments
to reconcile net income to cash flows provided by
|
|||||||
operating
activities:
|
|||||||
Depreciation
and amortization
|
3,531
|
2,574
|
|||||
Deferred
taxes
|
1,050
|
(1,018
|
)
|
||||
Loss
on disposal of fixed assets
|
246
|
73
|
|||||
Stock-based
compensation expense
|
656
|
324
|
|||||
Changes
in assets and liabilities:
|
|||||||
Accounts
receivable, net
|
(12,386
|
)
|
(15,936
|
)
|
|||
Inventories
|
(988
|
)
|
(2,020
|
)
|
|||
Prepaid
expenses and other assets
|
1,182
|
681
|
|||||
Accounts
payable, accrued expenses and other liabilities
|
6,023
|
19,160
|
|||||
Net
cash flows provided by operating activities
|
9,519
|
9,654
|
|||||
Cash
flows from investing activities:
|
|||||||
Capital
expenditures
|
(9,674
|
)
|
(5,092
|
)
|
|||
Acquisition
of businesses
|
(4,264
|
)
|
694
|
||||
Proceeds
from sales of fixed assets
|
14
|
584
|
|||||
Other
Investments
|
--
|
(36
|
)
|
||||
Net
cash flows used for investing activities
|
(13,924
|
)
|
(3,850
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Proceeds
from line of credit and other borrowings
|
61,425
|
50,900
|
|||||
Repayments
under line of credit and other borrowings
|
(53,960
|
)
|
(54,494
|
)
|
|||
Exercise
of stock options
|
1,039
|
1,138
|
|||||
Other
|
(10
|
)
|
(229
|
)
|
|||
Net
cash flows provided by (used for) financing
activities
|
8,494
|
(2,685
|
)
|
||||
Net
increase in cash
|
4,089
|
3,119
|
|||||
Cash
and cash equivalents at beginning of period
|
5,085
|
2,424
|
|||||
Cash
and cash equivalents at end of period
|
$
|
9,174
|
$
|
5,543
|
|||
Supplemental
disclosure of cash flows information:
|
|||||||
Cash
paid during the period for:
|
|||||||
Interest
on debt
|
$
|
1,010
|
$
|
1,174
|
|||
Income
taxes, net of refunds
|
$
|
126
|
$
|
257
|
|
|
Common
Stock
|
|
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income
|
|
Treasury
Stock
|
|
Total
Stockholders’
Equity
|
|||||||
(In
thousands, except shares)
|
|||||||||||||||||||
Balance
- December 31, 2005
|
$
|
236
|
$
|
47,655
|
$
|
139,015
|
$
|
270
|
$
|
(19,467
|
)
|
$
|
167,709
|
||||||
Net
income for the three months
ended
March 31, 2006
|
|
|
10,205
|
10,205
|
|||||||||||||||
Unrealized
gain on interest rate swap, net of
taxes |
|
|
40
|
40
|
|||||||||||||||
Comprehensive
income
|
|
10,245 | |||||||||||||||||
Issuance
of 49,968 shares of common stock
pursuant
to stock option plan
|
1
|
758
|
|
759
|
|||||||||||||||
Income
tax benefit relating to issuance
of
common stock pursuant to stock option plan
|
|
280
|
280
|
||||||||||||||||
Stock-based
compensation expense
|
|
656
|
656 | ||||||||||||||||
Balance
- March 31, 2006
|
$
|
237
|
$
|
49,349
|
$
|
149,220
|
$
|
310
|
$
|
(19,467
|
)
|
$
|
179,649
|
Three
Months Ended
March
31,
|
|||||||
2006
|
2005
|
||||||
Net
sales:
|
|||||||
RV
segment
|
$
|
149,416
|
$
|
105,258
|
|||
MH
segment
|
59,045
|
49,288
|
|||||
Total
|
$
|
208,461
|
$
|
154,546
|
|||
Operating
profit:
|
|||||||
RV
segment
|
$
|
12,832
|
$
|
8,394
|
|||
MH
segment
|
6,633
|
3,870
|
|||||
Total
segments operating profit
|
19,465
|
12,264
|
|||||
Amortization
of intangibles
|
(430
|
)
|
(285
|
)
|
|||
Corporate
and other
|
(1,907
|
)
|
(1,567
|
)
|
|||
Other
income
|
574
|
31
|
|||||
Operating
profit
|
$
|
17,702
|
$
|
10,443
|
Net
tangible assets acquired
|
$
|
919
|
||
Identifiable
intangible assets
|
750
|
|||
Goodwill
|
2,595
|
|||
Total
cash consideration
|
$
|
4,264
|
March
31,
|
December
31,
|
|||||||||
2006
|
2005
|
2005
|
||||||||
Finished
goods
|
$
|
17,763
|
$
|
12,369
|
$
|
16,140
|
||||
Work
in process
|
3,662
|
2,228
|
3,256
|
|||||||
Raw
material
|
80,820
|
59,755
|
81,221
|
|||||||
Total
|
$
|
102,245
|
$
|
74,352
|
$
|
100,617
|
March
31,
|
December
31,
|
|||||||||
2006
|
2005
|
2005
|
||||||||
Senior
Promissory Notes payable at the rate of $1,000 per quarter on January
29,
April 29, July 29 and October 29, with
interest payable quarterly at the rate of 5.01 percent per annum,
final
payment to be made on April 29, 2010
|
$
|
17,000
|
$
|
—
|
$
|
18,000
|
||||
Notes
payable pursuant to a Credit Agreement expiring June 30, 2009 consisting
of a line of credit, not to exceed $70,000 at March
31, 2006, and $60,000 at March 31, 2005 and December 31, 2005;
interest at
prime rate or LIBOR plus a
rate margin based upon the Company's performance
|
41,000
|
41,000
|
31,425
|
|||||||
Industrial
Revenue Bonds, interest rates at March 31, 2006 of 4.98% to 6.28%,
due
2008 through 2017;
secured
by certain real estate and equipment
|
9,087
|
10,574
|
9,416
|
|||||||
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
|
3,415
|
3,917
|
3,544
|
|||||||
Other
loans primarily secured by certain real estate and equipment, due
2009 to
2011, with fixed
interest
rates of 5.18% to 7.75%
|
7,061
|
7,864
|
7,510
|
|||||||
Other
loans primarily secured by certain real estate and equipment, due
2006 to
2016, with
variable
interest rates of 6.25% to 7.75%
|
3,135
|
4,475
|
3,338
|
|||||||
80,698
|
67,830
|
73,233
|
||||||||
Less
current portion
|
10,948
|
3,960
|
11,140
|
|||||||
Total
long-term indebtedness
|
$
|
69,750
|
$
|
63,870
|
$
|
62,093
|
|
|
Three
Months Ended
March
31,
|
|||
|
|
2006
|
|
2005
|
|
Weighted
average shares outstanding for basic
earnings per share
|
|
21,567
|
|
20,726
|
|
Common
stock equivalents pertaining to stock options
|
|
331
|
|
598
|
|
|
|||||
Weighted
average shares outstanding for diluted earnings per share
|
|
21,898
|
|
21,324
|
|
Net
income as reported
|
$
|
5,816
|
||
Add:
Stock-based employee compensation expense
included
in reported net income, net of related tax effects
|
156
|
|||
Deduct:
Total stock-based employee compensation expense determined under
fair
value
method
for all awards, net of related tax effects
|
(174
|
)
|
||
Pro
forma net income
|
$
|
5,798
|
||
Net
income per common share:
|
||||
Basic
- as reported
|
$
|
.28
|
||
Basic
- pro forma
|
$
|
.27
|
||
Diluted
- as reported
|
$
|
.28
|
||
Diluted
- pro forma
|
$
|
.27
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(in years) |
Aggregate
Intrinsic
Value
(in thousands)
|
|||||
Outstanding
at January 1, 2006
|
1,578,460
|
$
|
17.78
|
||||||||||
Exercised
|
(39,100
|
)
|
9.74
|
||||||||||
Outstanding
at March 31, 2006
|
1,539,360
|
$
|
17.99
|
4.1
|
$
|
27,034
|
|||||||
Exercisable
at March 31, 2006
|
385,560
|
$
|
10.12
|
3.0
|
$
|
9,805
|
Three
Months Ended
March
31,
|
|||||||
|
2006
|
2005
|
|||||
Net
sales:
|
|||||||
RV
segment
|
$
|
149,416
|
$
|
105,258
|
|||
MH
segment
|
59,045
|
49,288
|
|||||
Total
|
$
|
208,461
|
$
|
154,546
|
|||
Operating
profit:
|
|||||||
RV
segment
|
$
|
12,832
|
$
|
8,394
|
|||
MH
segment
|
6,633
|
3,870
|
|||||
Total
segments operating profit
|
19,465
|
12,264
|
|||||
Amortization
of intangibles
|
(430
|
)
|
(285
|
)
|
|||
Corporate
and other
|
(1,907
|
)
|
(1,567
|
)
|
|||
Other
income
|
574
|
31
|
|||||
Operating
profit
|
$
|
17,702
|
$
|
10,443
|
§
|
Net
sales for the first quarter of 2006 increased $54 million (35 percent)
from the first quarter of 2005. The increase in net sales in 2006
consisted of organic growth of about $31-$37 million (20-24 percent),
sales price increases of $4-$6 million, sales growth of about $3
million
due to acquisitions, and sales of components for ELUs purchased by
the
Federal Emergency Management Agency (“FEMA”) of approximately $10-$14
million.
|
§
|
Net
income for the first quarter of 2006 increased 75 percent from the
first
quarter of 2005, greater than the 35 percent increase in net sales
due
to:
|
· |
The
favorable impact on the first quarter of 2006 of spreading fixed
costs
over a larger sales base.
|
· |
The
negative impact on the first quarter of 2005 results of charges of
$2.6
million ($1.3 million after taxes and the direct impact on incentive
compensation) related to legal proceedings. See Part II, Item 1 -
Legal
Proceedings, of this Quarterly Report on Form 10-Q for a description
of
legal proceedings.
|
· |
The
negative impact on the first quarter of 2005 results of the write-off
of
capitalized project costs related to certain intellectual property
rights
which had a book value of approximately
$500,000.
|
· |
Start-up
losses in 2006 of approximately $1.1 million ($0.5 million after
taxes and
the direct impact on incentive compensation) related to recently
opened
facilities, as compared to start up losses of $0.4 million ($0.2
million
after taxes and the direct impact on incentive compensation) in the
first
quarter of 2005. The Company expects to incur further start-up costs
during the second quarter of 2006, although less than in the first
quarter
of 2006.
|
§
|
On
March 10, 2006, the Company acquired certain assets and the business
of
California-based SteelCo., Inc. SteelCo. manufactures chassis and
components for RVs and manufactured housing, and had annual sales
for the
year ended November 30, 2005 of approximately $8 million. The purchase
price was $4.5 million which was funded by the Company’s line of credit.
The Company intends to integrate SteelCo.’s business into Lippert’s
existing facilities in California. In connection with the transaction,
Lippert and SteelCo. terminated litigation pending between
them.
|
§
|
On
March 20, 2006, the Company announced that it has agreed in principle
to
acquire the net assets and business of Kaysville, Utah-based Happijac
Company, a supplier of patented bed lift systems for recreational
vehicles. Happijac, which also manufactures other RV products such
as
slide-out systems, tie-down systems, camper jacks and several new
products
expected to be introduced to the marketplace, had annual sales in
excess
of $12 million in 2005. The Company expects closing of the acquisition
in
June 2006, subject to completion of due diligence, the execution
of
definitive agreements, and satisfaction of customary closing
conditions.
|
§
|
During
late 2004 and 2005, the Company introduced several new products for
the RV
and specialty trailer markets, including products for the motorhome
market, a relatively new RV category for the Company. New products
introduced in 2004 and 2005 included slide-out mechanisms and leveling
devices for motorhomes, axles for towable RVs and specialty trailers,
entry steps for towable RVs, and thermo-formed bath products and
exterior
parts for both towable RVs and motorhomes. The Company estimates
that the
market potential of these products is approximately $700 million,
and in
the first quarter of 2006, the Company’s sales of these products were
running at an annualized rate of more than $85
million.
|
March
31, 2006
|
March
31,
2005
|
December
31,
2005
|
||||||||
Travel
Trailer and Fifth Wheel RVs
|
$
|
1,403
|
$
|
1,341
|
$
|
1,365
|
||||
Motorhomes
|
$
|
269
|
$
|
76
|
$
|
241
|
||||
All
RVs
|
$
|
1,085
|
$
|
950
|
$
|
1,037
|
March
31, 2006
|
March
31,
2005
|
December
31, 2005
|
||||||||
Total
Homes Produced
|
$
|
1,544
|
$
|
1,505
|
$
|
1,506
|
||||
Total
Floors Produced
|
$
|
926
|
$
|
845
|
$
|
896
|
Three
Months Ended
March
31,
|
|||||||
|
2006
|
2005
|
|||||
Net
cash flows provided by operating activities
|
$
|
9,519
|
$
|
9,654
|
|||
Net
cash flows used for investment activities
|
$
|
(13,924
|
)
|
$
|
(3,850
|
)
|
|
Net
cash flows provided by (used for) financing activities
|
$
|
8,494
|
$
|
(2,685
|
)
|
a)
|
A
$13.1 million smaller increase in accounts payable, accrued expenses
and
other current liabilities in 2006, compared to 2005. The smaller
increase
in the first quarter of 2006 was primarily due to (i) an increase
in
purchases of inventory during the fourth quarter of 2005 to meet
FEMA
demand and the strategic buying of certain raw materials ahead of
announced price increases during the fourth quarter of 2005, and
(ii) the
timing of payments. Trade payables are generally paid within the
discount
period.
|
b)
|
A
$1.0 million smaller increase in inventories during 2006, as compared
to
2005. The lower increase in inventory in the first quarter of 2006,
despite the higher sales levels, resulted from (i) the Company’s strategic
buying of raw materials during the fourth quarter of 2005 in advance
of
announced price increases, and (ii) a concerted effort by management
to
reduce inventory on hand at all locations. The increase in inventory
in
the first quarter of 2005 resulted from additional inventory requirements
to meet the increased sales volume, offset by a concerted effort
by
management to reduce the number of days of inventory on hand at all
locations. The Company’s inventory requirements have generally increased
because of additional inventory purchased from overseas sources which
requires a longer lead time. On both March 31, 2006 and 2005, there
was
less than a two week supply of finished goods on hand.
|
c)
|
A
$3.6 million smaller increase in accounts receivable during 2006,
as
compared to 2005. The increase in accounts receivable for each of
the
first quarter of 2006 and 2005 was due largely to an increase in
net
sales. The increase in accounts receivable during the first quarter
of
2006 was reduced due to a decline in the days sales outstanding to
approximately 19 days, as compared to 21 days at December 31, 2005,
and 23
days at March 31, 2005. The decrease in days sales outstanding was
primarily due to the timing of
collections.
|
1)
|
31.1
Certification of Chief Executive Officer pursuant to 13a-14(a) under
the
Securities Exchange Act of 1934. Exhibit 31.1 is filed herewith.
|
2)
|
31.2
Certification of Chief Financial Officer pursuant to 13a-14(a) under
the
Securities Exchange Act of 1934. Exhibit 31.2 is filed herewith.
|
3)
|
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350. Exhibit 32.1is filed
herewith.
|
4)
|
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350. Exhibit 32.2 is filed
herewith.
|
DREW INDUSTRIES INCORPORATED | ||
Registrant | ||
|
|
|
By: | /s/ Fredric M. Zinn | |
Fredric M. Zinn |
||
Executive Vice President and | ||
Chief Financial Officer |