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
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
Number)
|
200
Mamaroneck Avenue, White Plains,
|
NY
10601
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
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
|
16-27
|
|||
Item
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
28
|
|||
Item
4 - CONTROLS AND PROCEDURES
|
29
|
|||
PART
II - OTHER INFORMATION
|
||||
Item
1 - LEGAL PROCEEDINGS
|
30-31
|
|||
Item
1A - RISK FACTORS
|
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,
|
|||||||
2007
|
|
2006
|
|||||
(In
thousands, except per share amounts)
|
|||||||
Net
sales
|
$
|
172,944
|
$
|
208,461
|
|||
Cost
of sales
|
133,772
|
164,760
|
|||||
Gross
profit
|
39,172
|
43,701
|
|||||
Selling,
general and administrative expenses
|
23,274
|
26,573
|
|||||
Other
income
|
656
|
574
|
|||||
Operating
profit
|
16,554
|
17,702
|
|||||
Interest
expense, net
|
912
|
1,119
|
|||||
Income
before income taxes
|
15,642
|
16,583
|
|||||
Provision
for income taxes
|
6,053
|
6,378
|
|||||
Net
income
|
$
|
9,589
|
$
|
10,205
|
|||
Net
income per common share:
|
|||||||
Basic
|
$
|
.44
|
$
|
.47
|
|||
Diluted
|
$
|
.44
|
$
|
.47
|
|||
Weighted
average common shares outstanding:
|
|||||||
Basic
|
21,781
|
21,567
|
|||||
Diluted
|
21,958
|
21,898
|
|
|
March
31,
|
|
December
31,
|
|
|||||
|
|
2007
|
|
2006
|
|
2006
|
||||
(In
thousands, except shares and per share amount)
|
||||||||||
ASSETS
|
||||||||||
Current
assets
|
||||||||||
Cash
and cash equivalents
|
$
|
12,024
|
$
|
9,174
|
$
|
6,785
|
||||
Accounts
receivable, trade, less allowances
|
40,331
|
46,406
|
17,828
|
|||||||
Inventories
|
83,882
|
102,245
|
83,076
|
|||||||
Prepaid
expenses and other current assets
|
9,688
|
9,977
|
13,351
|
|||||||
Total
current assets
|
145,925
|
167,802
|
121,040
|
|||||||
Fixed
assets, net
|
121,211
|
123,465
|
124,558
|
|||||||
Goodwill
|
36,250
|
24,713
|
34,344
|
|||||||
Other
intangible assets
|
26,977
|
10,769
|
24,801
|
|||||||
Other
assets
|
6,573
|
6,724
|
6,533
|
|||||||
Total
assets
|
$
|
336,936
|
$
|
333,473
|
$
|
311,276
|
||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||||
Current
liabilities
|
||||||||||
Notes
payable, including current maturities of
|
||||||||||
long-term
indebtedness
|
$
|
9,971
|
$
|
10,948
|
$
|
9,714
|
||||
Accounts
payable, trade
|
25,236
|
31,999
|
12,027
|
|||||||
Accrued
expenses and other current liabilities
|
39,520
|
38,683
|
37,320
|
|||||||
Total
current liabilities
|
74,727
|
81,630
|
59,061
|
|||||||
|
||||||||||
Long-term
indebtedness
|
42,510
|
69,750
|
45,966
|
|||||||
Other
long-term liabilities
|
3,654
|
2,444
|
1,361
|
|||||||
Total
liabilities
|
120,891
|
153,824
|
106,388
|
|||||||
Stockholders’
equity
|
||||||||||
Common
stock, par value $.01 per share: authorized
|
||||||||||
30,000,000
shares; issued 23,900,885 shares at March 2007;
|
||||||||||
23,675,761
shares at March 2006 and 23,833,045 at
|
||||||||||
December
2006
|
239
|
237
|
238
|
|||||||
Paid-in
capital
|
55,604
|
49,349
|
53,973
|
|||||||
Retained
earnings
|
179,627
|
149,220
|
170,038
|
|||||||
Accumulated
other comprehensive income
|
42
|
310
|
106
|
|||||||
235,512
|
199,116
|
224,355
|
||||||||
Treasury
stock, at cost - 2,149,325 shares
|
(19,467
|
)
|
(19,467
|
)
|
(19,467
|
)
|
||||
Total
stockholders’ equity
|
216,045
|
179,649
|
204,888
|
|||||||
Total
liabilities and stockholders’ equity
|
$
|
336,936
|
$
|
333,473
|
$
|
311,276
|
|
Three
Months Ended March 31,
|
||||||
2007
|
|
2006
|
|||||
(In
thousands)
|
|||||||
Cash
flows from operating activities:
|
|||||||
Net
income
|
$
|
9,589
|
$
|
10,205
|
|||
Adjustments
to reconcile net income to cash flows provided by
|
|||||||
operating
activities:
|
|||||||
Depreciation
and amortization
|
4,465
|
3,531
|
|||||
Deferred
taxes
|
(262
|
)
|
1,050
|
||||
Loss
on disposal of fixed assets
|
684
|
246
|
|||||
Stock-based
compensation expense
|
625
|
656
|
|||||
Changes
in assets and liabilities, net of business acquisitions:
|
|||||||
Accounts
receivable, net
|
(22,195
|
)
|
(12,386
|
)
|
|||
Inventories
|
(200
|
)
|
(988
|
)
|
|||
Prepaid
expenses and other assets
|
901
|
1,182
|
|||||
Accounts
payable, accrued expenses and other liabilities
|
17,926
|
6,023
|
|||||
Net
cash flows provided by operating activities
|
11,533
|
9,519
|
|||||
Cash
flows from investing activities:
|
|||||||
Capital
expenditures
|
(2,555
|
)
|
(9,674
|
)
|
|||
Acquisition
of businesses
|
(3,472
|
)
|
(4,264
|
)
|
|||
Proceeds
from sales of fixed assets
|
1,936
|
14
|
|||||
Other
investments
|
(11
|
)
|
-
|
||||
Net
cash flows used for investing activities
|
(4,102
|
)
|
(13,924
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Proceeds
from line of credit and other borrowings
|
22,613
|
61,425
|
|||||
Repayments
under line of credit and other borrowings
|
(25,812
|
)
|
(53,960
|
)
|
|||
Exercise
of stock options
|
1,007
|
1,039
|
|||||
Other
|
-
|
(10
|
)
|
||||
Net
cash flows (used for) provided by financing
activities
|
(2,192
|
)
|
8,494
|
||||
Net
increase in cash
|
5,239
|
4,089
|
|||||
Cash
and cash equivalents at beginning of period
|
6,785
|
5,085
|
|||||
Cash
and cash equivalents at end of period
|
$
|
12,024
|
$
|
9,174
|
|||
Supplemental
disclosure of cash flows information:
|
|||||||
Cash
paid during the period for:
|
|||||||
Interest
on debt
|
$
|
870
|
$
|
1,010
|
|||
Income
taxes, net of refunds
|
$
|
282
|
$
|
126
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
Other
|
|
Total
|
|
||||||
|
|
Common
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
Treasury
|
|
Stockholders’
|
|
||||||
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
Income
|
|
Stock
|
|
Equity
|
|||||||
(In
thousands, except shares)
|
|||||||||||||||||||
Balance
- December 31, 2006
|
$
|
238
|
$
|
53,973
|
$
|
170,038
|
$
|
106
|
$
|
(19,467
|
)
|
$
|
204,888
|
||||||
Net
income for the three months
|
|||||||||||||||||||
ended
March 31, 2007
|
9,589
|
9,589
|
|||||||||||||||||
Unrealized
loss on interest rate
|
|||||||||||||||||||
swap,
net of taxes
|
(64
|
)
|
(64
|
)
|
|||||||||||||||
Comprehensive
income
|
9,525
|
||||||||||||||||||
Issuance
of 67,840 shares of
|
|||||||||||||||||||
common
stock pursuant to stock
|
|||||||||||||||||||
options
exercised
|
1
|
477
|
478
|
||||||||||||||||
Income
tax benefit relating to
|
|||||||||||||||||||
issuance
of common stock
|
|||||||||||||||||||
pursuant
to stock options exercised
|
529
|
529
|
|||||||||||||||||
Stock-based
compensation expense
|
625
|
625
|
|||||||||||||||||
Balance
- March 31, 2007
|
$
|
239
|
$
|
55,604
|
$
|
179,627
|
$
|
42
|
$
|
(19,467
|
)
|
$
|
216,045
|
2007
|
|
2006
|
|||||
Net
sales:
|
|
||||||
RV
Segment
|
$
|
129,132
|
$
|
149,416
|
|||
MH
Segment
|
43,812
|
59,045
|
|||||
Total
|
$
|
172,944
|
$
|
208,461
|
|||
Operating
profit:
|
|||||||
RV
Segment
|
$
|
15,866
|
$
|
13,544
|
|||
MH
Segment
|
2,800
|
5,921
|
|||||
Total
segment operating profit
|
18,666
|
19,465
|
|||||
Amortization
of intangibles
|
(881
|
)
|
(430
|
)
|
|||
Corporate
and other
|
(1,887
|
)
|
(1,907
|
)
|
|||
Other
income
|
656
|
574
|
|||||
Operating
profit
|
$
|
16,554
|
$
|
17,702
|
Net
tangible assets acquired
|
$
|
545
|
||
Identifiable
intangible assets
|
3,000
|
|||
Goodwill
|
1,906
|
|||
Total
consideration
|
5,451
|
|||
Less:
Present value of future minimum payments
|
(1,979
|
)
|
||
Total
cash consideration
|
$
|
3,472
|
March
31,
|
|
December
31,
|
|
|||||||
|
|
2007
|
|
2006
|
|
2006
|
||||
Finished
goods
|
$
|
12,308
|
$
|
17,763
|
$
|
13,513
|
||||
Work
in process
|
3,607
|
3,662
|
3,868
|
|||||||
Raw
material
|
67,967
|
80,820
|
65,695
|
|||||||
Total
|
$
|
83,882
|
$
|
102,245
|
$
|
83,076
|
March
31,
|
|
December
31,
|
|
|||||||
|
|
2007
|
|
2006
|
|
2006
|
||||
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
|
$
|
13,000
|
$
|
17,000
|
$
|
14,000
|
||||
Senior
Promissory Notes payable at the rate of $536 per
|
||||||||||
quarter
on the last business day of March, June, September,
|
||||||||||
and
December, with interest payable at the rate of LIBOR
|
||||||||||
plus
1.65 percent per annum, final payment to be
|
||||||||||
made
on June 28, 2013
|
13,393
|
-
|
13,929
|
|||||||
Notes
payable pursuant to a Credit Agreement expiring
|
||||||||||
June
30, 2009 consisting of a line of credit, not to exceed
|
||||||||||
$70,000,
with interest at prime rate or LIBOR plus a rate
|
||||||||||
margin
based upon the Company’s performance
|
11,000
|
41,000
|
12,000
|
|||||||
Industrial
Revenue Bonds, interest rates at March 31, 2007
|
||||||||||
of
4.68% to 6.28%, due 2008 through 2017; secured by
|
||||||||||
certain
real estate and equipment
|
7,733
|
9,087
|
8,077
|
|||||||
Other
loans primarily secured by certain real estate and
|
||||||||||
equipment,
due 2008 to 2011, with fixed interest rates
|
||||||||||
of
5.18% to 6.63%
|
5,507
|
9,814
|
5,780
|
|||||||
Other
loans primarily secured by certain real estate and
|
||||||||||
equipment,
due 2011 to 2016, with variable interest rates
|
||||||||||
of
7.00% to 8.50%
|
1,848
|
3,797
|
1,894
|
|||||||
52,481
|
80,698
|
55,680
|
||||||||
Less
current portion
|
9,971
|
10,948
|
9,714
|
|||||||
Total
long-term indebtedness
|
$
|
42,510
|
$
|
69,750
|
$
|
45,966
|
2007
|
2006
|
||||||
Weighted
average shares outstanding for
basic
earnings per share
|
21,781
|
21,567
|
|||||
Common
stock equivalents pertaining to
|
|||||||
stock
options
|
177
|
331
|
|||||
Total
for diluted shares
|
21,958
|
21,898
|
|
2007
|
|
2006
|
||||
Net
sales:
|
|||||||
RV
Segment
|
$
|
129,132
|
$
|
149,416
|
|||
MH
Segment
|
43,812
|
59,045
|
|||||
Total
|
$
|
172,944
|
$
|
208,461
|
|||
Operating
profit:
|
|||||||
RV
Segment
|
$
|
15,866
|
$
|
13,544
|
|||
MH
Segment
|
2,800
|
5,921
|
|||||
Total
segment operating profit
|
18,666
|
19,465
|
|||||
Amortization
of intangibles
|
(881
|
)
|
(430
|
)
|
|||
Corporate
and other
|
(1,887
|
)
|
(1,907
|
)
|
|||
Other
income
|
656
|
574
|
|||||
Operating
profit
|
$
|
16,554
|
$
|
17,702
|
· |
Net
sales for the first quarter of 2007 decreased $36 million (17 percent)
from the first quarter of 2006. The decrease in net sales this
quarter
consisted of a decline in hurricane-related sales of approximately
$20
million, and an organic sales decline of about $31 million (approximately
15 percent) due to the weakness in both the RV and manufactured
housing
industries, partially offset by sales price increases of $10 million
and
sales growth of about $6 million due to acquisitions.
|
· |
Net
income for the first quarter of 2007 decreased 6 percent from the
first
quarter of 2006, less than the 17 percent decrease in net sales
due
to:
|
· |
Losses
in 2006 reduced operating profit by approximately $0.8 million
($0.5
million after taxes) related to the Indiana specialty trailer operation
which was closed during the third quarter of 2006.
|
· |
In
response to the slowdowns in both the RV and manufactured housing
industries, the Company closed several facilities and consolidated
those
operations into other existing facilities, and reduced fixed overhead
where prudent, including reducing staff levels by more than 70
salaried
employees. These facility consolidations and fixed overhead reductions
increased operating profit in the first quarter of 2007 by approximately
$1.0 million ($0.6 million after taxes). These cost cutting measures,
along with others planned for the balance of 2007, are expected
to improve
operating profit by more than $5 million in 2007 (before
taxes).
|
· |
Improved
production and procurement
efficiencies.
|
· |
A
temporary decline in certain raw materials costs purchased during
the
fourth quarter of 2006, which favorably impacted cost of sales
during the
first quarter of 2007.
|
· |
Increased
profit margins on certain of the Company’s newer product lines which had
been underperforming.
|
· |
Lower
workers compensation costs which improved operating profit by
approximately $1.1 million ($0.7 million after
taxes).
|
· |
On
January 2, 2007, Lippert acquired Trailair, Inc. (“Trailair”) and certain
assets and the business of Equa-Flex, Inc. (“Equa-Flex”), two affiliated
companies, which manufacture several patented products, including
innovative suspension systems used primarily for towable RVs. The
minimum
aggregate purchase price was $5.5 million, of which $3.3 million
was paid
at closing and the balance will be paid annually over the next
five years.
The aggregate purchase price, including non-compete agreements,
could
increase to a maximum of $8.1 million if certain sales targets
for these
products are achieved by Lippert over the next five years. The
acquisition
was financed with borrowings under the Company’s line of credit. The
Company has integrated Trailair and Equa-Flex’s business into existing
Lippert facilities.
|
· |
During
the last few years, 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
include
slide-out mechanisms and leveling devices for motorhomes, axles
for
towable RVs and specialty trailers, entry steps and suspension
systems for
towable RVs, and bed lifts, thermoformed bath and kitchen products,
and
exterior parts for both towable RVs and motorhomes. The Company
estimates
that the market potential of these products is over $700 million.
In the
first quarter of 2007, the Company’s sales of these products were running
at an annualized rate of approximately $110 million, as compared
to an
annualized rate of approximately $85 million in the first quarter
of 2006,
an increase of more than 25
percent.
|
· |
A
decline of approximately $17 million in hurricane-related sales
as
compared to the first quarter of
2006.
|
· |
A
2007 organic sales decline of approximately $11 million, or 9 percent,
of
RV related products.
|
· |
A
decline of approximately $3 million in sales of specialty trailers
partly
due to the closure of the Indiana specialty trailer
operation.
|
· |
Sales
price increases of approximately $5
million.
|
· |
The
impact of sales from acquisitions of approximately $6 million.
|
2007
|
|
2006
|
|
Percent
Change
|
||||||
Content
per Travel Trailer and
|
||||||||||
Fifth
Wheel RVs
|
$
|
1,620
|
$
|
1,420
|
14
|
%
|
||||
Content
per Motorhomes
|
$
|
275
|
$
|
269
|
2
|
%
|
||||
Content
per all RVs
|
$
|
1,244
|
$
|
1,098
|
13
|
%
|
2007
|
2006
|
Percent
Change
|
||||||||
Travel
Trailer and Fifth
|
||||||||||
Wheel
RVs
|
277,000
|
297,300
|
(7
|
)%
|
||||||
Motorhomes
|
55,800
|
59,400
|
(6
|
)%
|
||||||
All
RVs
|
373,200
|
399,000
|
(6
|
)%
|
||||||
ELUs
|
2,100
|
68,200
|
(97
|
)%
|
· |
The
elimination of the losses incurred in the Company’s Indiana specialty
trailer operation of $0.8 million in the first quarter of
2006.
|
· |
Cost-cutting
measures implemented.
|
· |
Improved
production and procurement
efficiencies.
|
· |
A
temporary decline in certain raw materials costs purchased during
the
fourth quarter of 2006 which favorably impacted cost of sales during
the
first quarter of 2007.
|
· |
Increased
profit margins on certain of the Company’s newer product lines which had
been underperforming.
|
· |
Lower
workers compensation costs.
|
· |
The
negative impact on the first quarter of 2007 of spreading fixed
manufacturing costs over a smaller sales
base.
|
· |
Higher
health insurance costs.
|
· |
An
increase in selling, general and administrative expenses to 11.2
percent
of net sales in the first quarter of 2007 from 10.8 percent of
net sales
in the first quarter of 2006 due to the spreading of fixed costs
over a
smaller sales base and higher incentive
compensation.
|
2007
|
|
2006
|
|
Percent
Change
|
||||||
Content
per Homes Produced
|
$
|
1,854
|
$
|
1,547
|
20
|
%
|
||||
Content
per Floors Produced
|
$
|
1,054
|
$
|
927
|
14
|
%
|
|
2007
|
|
2006
|
|
Percent
Change
|
|||||
Total
Homes Produced
|
105,100
|
149,600
|
(30
|
)%
|
||||||
Total
Floors Produced
|
184,900
|
249,600
|
(26
|
)%
|
2007
|
|
2006
|
|||||
Net
cash flows provided by operating activities
|
$
|
11,533
|
$
|
9,519
|
|||
Net
cash flows used for investment activities
|
$
|
(4,102
|
)
|
$
|
(13,924
|
)
|
|
Net
cash flows (used for) provided by financing activities
|
$
|
(2,192
|
)
|
$
|
8,494
|
a) |
Evaluation
of Disclosure Controls and Procedures
|
b) |
Changes
in Internal Controls
|
a) |
Exhibits
as required by item 601 of Regulation
8-K:
|
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
|
||
May
9, 2007
|