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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number: 0-13646
DREW INDUSTRIES INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3250533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Mamaroneck Avenue, White Plains, N.Y. 10601
(Address of principal executive offices)
(Zip Code)
(914) 428-9098
(Registrant's Telephone Number including Area Code)
(Former name, former address and former fiscal year,
if changed since last year) N/A
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act). Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 10,010,843 shares of common
stock as of April 30, 2003.
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DREW INDUSTRIES INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS FILED WITH
QUARTERLY REPORT OF REGISTRANT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2003
(UNAUDITED)
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' 6
EQUITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7-11
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12-19
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 20
Item 4 - CONTROLS AND PROCEDURES 21
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS 22
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K 22
SIGNATURES 23
SECTION 302 CERTIFICATION 24-27
EXHIBIT 99.1 - SECTION 906 CERTIFICATION 28
2
DREW INDUSTRIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
----------------------------
2003 2002
- --------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net sales $ 80,827 $ 72,187
Cost of sales 62,877 54,139
-------- --------
Gross profit 17,950 18,048
Selling, general and administrative expenses 12,001 11,146
-------- --------
Operating profit 5,949 6,902
Interest expense, net 811 931
-------- --------
Income from continuing operations before income taxes
and cumulative effect of change in accounting principle 5,138 5,971
Provision for income taxes 2,010 2,322
-------- --------
Income from continuing operations before cumulative effect
of change in accounting principle 3,128 3,649
Discontinued operations (net of taxes of $75 in 2003 and ($63) in 2002) 138 (117)
-------- --------
Income before cumulative effect of change in accounting principle 3,266 3,532
Cumulative effect of change in accounting principle for goodwill
(net of taxes of $2,825) (30,080)
--------
Net income (loss) $ 3,266 $(26,548)
======== ========
Net income (loss) per common
share:
Income from continuing operations before cumulative effect of change in
accounting principle:
Basic $ 0.31 $ 0.38
======== ========
Diluted $ 0.31 $ 0.37
======== ========
Discontinued operations, net of taxes:
Basic $ 0.02 $ (0.01)
======== ========
Diluted $ 0.01 $ (0.01)
======== ========
Cumulative effect of change in accounting principle for goodwill, net of taxes:
Basic $ (3.11)
========
Diluted $ (3.05)
========
Net income (loss):
Basic $ 0.33 $ (2.74)
======== ========
Diluted $ 0.32 $ (2.69)
======== ========
Weighted average common shares outstanding:
Basic 9,969 9,681
======== ========
Diluted 10,181 9,862
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
DREW INDUSTRIES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
----------------------- December 31,
2003 2002 2002
- -------------------------------------------------------------------------------------------------
(In thousands, except shares and per share amounts)
ASSETS
Current assets
Cash and cash equivalents $ 3,032 $ 1,373 $ 316
Accounts receivable, trade, less allowances 19,853 20,243 12,969
Inventories 34,349 25,696 37,143
Prepaid expenses and other current assets 5,925 4,513 8,618
Discontinued operations 18 3,630 1,211
--------- --------- ---------
Total current assets 63,177 55,455 60,257
Fixed assets, net 73,471 70,619 74,041
Goodwill 7,043 5,972 7,043
Other intangible assets 4,843 977 814
Other assets 3,198 5,739 3,241
--------- --------- ---------
Total assets $ 151,732 $ 138,762 $ 145,396
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable, including current maturities of
long-term indebtedness $ 9,963 $ 9,653 $ 9,993
Accounts payable, trade 8,808 11,363 7,998
Accrued expenses and other current liabilities 16,511 17,163 17,699
Discontinued operations 196 1,194 500
--------- --------- ---------
Total current liabilities 35,478 39,373 36,190
Long-term indebtedness 38,449 44,324 38,812
Other long-term liabilities 3,500 245 290
--------- --------- ---------
Total liabilities 77,427 83,942 75,292
--------- --------- ---------
Commitments and Contingencies
Stockholders' equity
Common stock, par value $.01 per share: authorized
20,000,000 shares; issued 12,150,168 shares at
March 2003; 11,836,488 shares at March 2002 and
12,084,788 shares at December 2002 122 118 121
Paid-in capital 29,502 25,237 28,568
Retained earnings 64,148 48,932 60,882
--------- --------- ---------
93,772 74,287 89,571
Treasury stock, at cost - 2,149,325 shares (19,467) (19,467) (19,467)
--------- --------- ---------
Total stockholders' equity 74,305 54,820 70,104
--------- --------- ---------
Total liabilities and stockholders' equity $ 151,732 $ 138,762 $ 145,396
========= ========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
DREW INDUSTRIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
---------------------
2003 2002
- --------------------------------------------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net income (loss) $ 3,266 $(26,548)
Adjustments to reconcile net income (loss) to
cash flows provided by operating activities:
Cumulative effect of change in accounting principle for goodwill, net of taxes 30,080
Discontinued operations, net of taxes (138) 117
-------- --------
Income from continuing operations 3,128 3,649
Depreciation and amortization 1,962 1,700
Gain on disposal of fixed assets (1)
Deferred compensation 86
Changes in assets and liabilities:
Accounts receivable, net (6,884) (9,750)
Inventories 2,794 (170)
Prepaid expenses and other assets 2,602 (612)
Accounts payable, accrued expenses and other current liabilities (1,309) 7,363
-------- --------
Net cash flows provided by continuing operating activities 2,378 2,180
Income (loss) from discontinued operations 138 (117)
Changes in discontinued operations 887 (256)
-------- --------
Net cash flows provided by operating activities 3,403 1,807
-------- --------
Cash flows from investing
activities:
Capital expenditures (1,167) (2,447)
Proceeds from sales of fixed assets 19 8
-------- --------
Net cash flows used for investing activities (1,148) (2,439)
-------- --------
Cash flows from financing activities:
Proceeds from line of credit 22,050 23,250
Repayments under line of credit and other borrowings (22,443) (22,594)
Exercise of stock options and other 854 158
-------- --------
Net cash flows provided by financing activities 461 814
-------- --------
Net increase in cash 2,716 182
Cash and cash equivalents at beginning of period 316 1,191
-------- --------
Cash and cash equivalents at end of period $ 3,032 $ 1,373
======== ========
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest on debt $ 1,208 $ 1,529
Income taxes paid $ 83 $ 557
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
DREW INDUSTRIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Total
Common Paid-in Retained Treasury Stockholders'
Stock Capital Earnings Stock Equity
- -----------------------------------------------------------------------------------------------------------------
(In thousands, except shares)
Balance - December 31, 2002 $ 121 $ 28,568 $ 60,882 $(19,467) $ 70,104
Net income for three months ended
March 31, 2003 3,266 3,266
Issuance of 65,380 shares of common
stock pursuant to stock option plan 1 751 752
Income tax benefit relating to issuance
of common stock pursuant to stock option plan 97 97
Deferred stock compensation expense and other 86 86
-------- -------- -------- -------- --------
Balance - March 31, 2003 $ 122 $ 29,502 $ 64,148 $(19,467) $ 74,305
======== ======== ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The Condensed 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 year presentation.
The Condensed Consolidated Financial Statements presented herein have been
prepared by the Company in accordance with the accounting policies described in
its December 31, 2002 Annual Report on Form 10-K and should be read in
conjunction with the Notes to Consolidated Financial Statements which appear in
that report.
In the opinion of management, the information furnished in this Form 10-Q
reflects all adjustments necessary for a fair statement of the results of
operations as of and for the three month periods ended March 31, 2003 and 2002.
All such adjustments are of a normal recurring nature. The Condensed
Consolidated Financial Statements have been prepared in accordance with the
instructions to Form 10-Q and therefore do not include some information and
notes necessary to conform with annual reporting requirements.
2. Segment Reporting
The Company has two reportable operating segments, the recreational
vehicle products segment (the "RV segment") and the manufactured housing
products segment (the "MH segment"). The RV segment, which accounted for 62
percent of consolidated net sales for three months ended March 31, 2003 and 53
percent of the annual consolidated net sales for 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 38 percent of consolidated net sales for the three months
ended March 31, 2003 and 47 percent of the annual consolidated net sales for
2002, manufactures a variety of components used in the construction of
manufactured homes, and to a lesser extent, modular housing and office units,
including aluminum and vinyl windows and screens, chassis, chassis parts and
thermo-formed bath and shower units. This shift in sales between segments
resulted partly from the growth in the RV industry and the decline in the MH
industry. 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. Intersegment sales are
insignificant.
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,
of the Company's December 31, 2002 Annual Report on Form 10-K.
7
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Information relating to segments follows (in thousands):
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
Net sales:
RV segment $ 50,257 $ 34,708
MH segment 30,570 37,479
-------- --------
Total $ 80,827 $ 72,187
======== ========
Operating profit:
RV segment $ 4,530 $ 3,582
MH segment 2,541 4,244
-------- --------
Total segments operating profit 7,071 7,826
Amortization of intangibles (193) (177)
Corporate and other (929) (747)
-------- --------
Operating profit $ 5,949 $ 6,902
======== ========
3. 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.
Inventories consist of the following (in thousands):
March 31,
-------------------- December 31,
2003 2002 2002
---- ---- ----
Finished goods $ 6,816 $ 6,265 $ 7,681
Work in process 1,506 1,505 1,408
Raw material 26,027 17,926 28,054
------- ------- -------
Total $34,349 $25,696 $37,143
======= ======= =======
4. 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". 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.
8
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 its 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 $2,825,000. Such
charge has been recorded as a cumulative effect of change in accounting
principle in the quarter ended March 31, 2002.
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 concluded that no additional goodwill impairment existed at that time.
The Company plans to 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.
5. Discontinued Operations
The axle and tire refurbishing business of the Company's Lippert Tire and
Axle, Inc. subsidiary ("LTA") did not perform well over the past several years,
primarily due to increased competition and the decline in the manufactured
housing industry, which severely affected operating margins. 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 a 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 is classified as discontinued operations in the Condensed
Consolidated Financial Statements pursuant to SFAS No. 144, 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
Condensed Consolidated Financial Statements.
The proceeds from the disposition of all remaining significant assets of
LTA's axle and tire refurbishing business, consisting primarily of inventory and
accounts receivable, have been collected during the first quarter of 2003.
The discontinued axle and tire refurbishing business had previously been
included in the Company's MH segment, and had revenues of $2.5 million in the
first quarter of 2002.
9
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Long Term Indebtedness
Long-term indebtedness consists of the following (in thousands):
March 31,
------------------ December 31,
2003 2002 2002
---- ---- ----
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 $16,000 $24,000 $24,000
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 11,000 9,250 2,900
Industrial Revenue Bonds, interest rates at
March 31, 2003 of 3.52% to 6.28%, due 2008
through 2017; secured by certain real estate
and equipment 8,655 6,697 8,871
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 4,795 5,178 4,894
Other loans secured by certain real estate and
equipment, due 2006 to 2016, primarily
fixed rates of 7.25% to 8.72% 7,962 8,852 8,140
------- ------- -------
48,412 53,977 48,805
Less current portion 9,963 9,653 9,993
------- ------- -------
Total long-term indebtedness $38,449 $44,324 $38,812
======= ======= =======
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 to 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 3/8 of 1 percent
per annum, on the daily unused amount of the revolving line of credit.
10
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Weighted Average Common Shares Outstanding
Net income per diluted common share reflects the dilution of the weighted
average common shares by the assumed issuance of common stock pertaining to
stock options and deferred stock units. The numerator, which is equal to net
income, is constant for both the basic and diluted earnings per share
calculations. Weighted average common shares outstanding - diluted is calculated
as follows (in thousands):
Three Months Ended
March 31,
------------------
2003 2002
---- ----
Weighted average common shares outstanding - basic 9,969 9,681
Assumed issuance of common stock pertaining to
stock options and deferred stock units 212 181
------ ------
Weighted average common shares outstanding - diluted 10,181 9,862
====== ======
8. Stock Options
As of April 1, 2002, the Company adopted the fair value method of
accounting for stock options contained in Statement of Financial Standards No.
123 ("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 subsequent to
April 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.
Historically the Company had applied the "disclosure only" option of SFAS
No.123. Accordingly, no compensation cost had been recognized for stock options
granted prior to January 1, 2002.
The adoption of this new accounting policy for stock options resulted in a
pretax charge of $30,000 for the three months ended March 2003. Had the Company
previously adopted this new accounting policy on January 1, 2002, there would
have been no impact on the consolidated financial statements for the three
months ended March 31, 2002, since no stock options were granted during that
period.
11
DREW INDUSTRIES INCORPORATED
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 62
percent of consolidated net sales for the quarter ended March 31, 2003 and 53
percent of the annual consolidated net sales for 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 38 percent of consolidated net sales for the quarter ended
March 31, 2003 and 47 percent of the annual consolidated net sales for 2002,
manufactures a variety of components used in the construction of manufactured
homes, and to a lesser extent, modular housing and office units, including
aluminum and vinyl windows and screens, chassis, chassis parts and thermo-formed
bath and shower units. This shift in sales between segments resulted partly from
the growth in the RV industry and the decline in the MH industry. 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. Intersegment sales are insignificant.
The Company's operations are performed through its operating subsidiaries.
Its two primary operating subsidiaries, Kinro, Inc. ("Kinro") and Lippert
Components, Inc. ("LCI") have operations in both the MH and RV segments. At
March 31, 2003, the Company's subsidiaries operated 39 plants in 18 states and
one in Canada.
INDUSTRY BACKGROUND
The Recreational Vehicle Industrial Association ("RVIA") reported an 8
percent increase in shipments in the first quarter of 2003 as compared to the
first quarter of 2002. Within the RVIA reports, our primary market of travel
trailers and fifth wheel RVs reported an 18 percent increase in shipments. In
2002, the RVIA reported a 21 percent increase in shipments for the year. This
growth continues to be bolstered by the low interest rates and the preference
for domestic vacations, rather than foreign travel. Increasing RV sales are also
being driven by positive demographics, as demand for RVs is strongest from the
over 50 population, which is the fastest growing segment of the population. In
recent years, the RVIA has had an advertising campaign to attract customers in
the 35 to 54 age group. Recently, 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 chattel loans for
manufactured homes, and excessive repossessions of manufactured homes, remain
problems for the industry. Based upon industry reports, retail sales of
manufactured homes have remained fairly steady at 250,000 to 300,000 homes
annually since 2000. However, some of these retail sales have been filled by
inventory reductions and the resale of repossessed homes. 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, the Manufactured Housing Institute ("MHI")
reported industry production of manufactured homes fell 26 percent in the first
quarter of 2003, as compared to the same period in 2002, and are now about 60
percent below the peak levels of 1998. Industry projections for 2003 production
range between 150,000 and 172,000
12
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
manufactured homes, compared to 373,000 manufactured homes produced in 1998 and
168,000 homes in 2002. The reduced availability of chattel loans has also been a
concern for the manufactured housing industry as several lenders have either
exited the manufactured housing industry or tightened their credit approval
criteria. However, 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 MH 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.
RESULTS OF OPERATIONS
Net sales and operating profit are as follows (in thousands):
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
Net sales:
RV segment $ 50,257 $ 34,708
MH segment 30,570 37,479
-------- --------
Total $ 80,827 $ 72,187
======== ========
Operating profit:
RV segment $ 4,530 $ 3,582
MH segment 2,541 4,244
-------- --------
Total segments operating profit 7,071 7,826
Amortization of intangibles (193) (177)
Corporate and other (929) (747)
-------- --------
Total $ 5,949 $ 6,902
======== ========
RV Segment
The RV segment achieved a 45 percent sales increase, or $15.5 million, in
the first quarter of 2003 compared to the first quarter of 2002, on increases in
market share of all product lines in this segment, including chassis, chassis
slide-out systems, and windows and doors. The Company's primary markets of
travel trailers and fifth wheel RVs increased 18 percent in the quarter, while
industry-wide shipments of all RVs increased 8 percent in the quarter. Long-term
growth in RV sales may result from demographic trends, as demand for RVs is
strongest from the over 50 population, which is the fastest growing segment of
the population.
13
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Operating profit of the RV segment increased $0.9 million (26 percent) for
the quarter. This increase is primarily attributable to the increase in sales.
However, the segment's operating profit margin declined to 9.0 percent for the
quarter, from 10.3 percent for the 2002 quarter as a result of legal and other
costs related to the settlement of patent litigation on the Company's slide-out
systems in February 2003, higher steel costs, higher insurance costs and start
up costs at the Company's Bristol, Indiana plant. These costs were partially
offset by the spreading of fixed costs over higher sales. There have been no
significant changes in sales prices by the Company's RV segment in the quarter
or since the first quarter of 2002.
MH Segment
Net sales of the MH segment declined 18 percent, or $6.9 million, in the
quarter ended March 31, 2003, from the same period last year, while
industry-wide production of manufactured homes declined approximately 26
percent. An increase in sales by this segment of chassis for modular homes and
office units partially offset the sales reduction caused by the industry
decline.
Operating profit of the MH segment decreased $1.7 million (40 percent) in
the first quarter of 2003 from the same period in 2002 largely as a result of
the decrease in sales. This segment's profit was 8.3 percent of sales in the
first quarter of 2003, compared to 11.3 percent for the same quarter last year,
as steel costs were higher this quarter than in last year's first quarter, after
rising in the second half of last year. However, steel prices paid by the
Company have recently declined from the extremely high levels of the second half
of 2002 and the first quarter of 2003. In addition, higher insurance costs and
the impact of lower volume on fixed costs negatively impacted operating profit.
Selling, general and administrative expenses were down in dollar terms, largely
following the trend of sales, but remained steady as a percent of sales. There
have been no significant changes in sales prices by the Company's MH segment in
the quarter or since the first quarter of 2002, except selling price increases
for chassis parts in the second half of 2002.
On April 15, 2003, the Company announced that it will debut a new
one-piece tub/shower unit featuring two new innovations, the VEC(TM) technology
and the VEC Shield (TM) finish at the National Plastic Exposition (NPE) in
Chicago June 23-27, 2003. The Company believes that the VEC Shield (TM) finish
represents a significant improvement over traditional gel coated fiberglass. The
Company intends to use the VEC (TM) technology and the VEC Shield (TM) finish
innovations, first with bath products for the manufactured housing industry
through its Kinro subsidiary's Better Bath Components division, then to other
markets including the marine industry.
Corporate and Other
Corporate and other expenses were $182,000 higher than last year's quarter
primarily as a result of higher insurance costs, stock option expense resulting
from the adoption of SFAS 123 and expenses related to corporate governance due
to the implementation of the Sarbanes-Oxley requirements.
Taxes
The effective tax rate for the first quarter of 2003 was approximately
39.1 percent as compared to 38.9 percent in the first quarter of 2002.
14
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Interest Expense, Net
Interest expense, net, decreased $120,000 from the 2002 quarter, as a
result of the reduction in debt levels, and to a lesser extent, savings
resulting from interest rate reductions.
New Accounting Standards
As of April 1, 2002, the Company adopted the fair value method of
accounting for stock options contained in Statement of Financial Standards No.
123 ("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 subsequent to
April 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.
Historically the Company had applied the "disclosure only" option of SFAS
No. 123. Accordingly, no compensation cost had been recognized for stock options
granted prior to January 1, 2002.
The adoption of this new accounting policy for stock options resulted in a
pretax charge of $30,000 for the three months ended March 2003. Had the Company
previously adopted this new accounting policy on January 1, 2002, there would
have been no impact on the financial statements for the three months ended March
31, 2002, since no stock options were granted during that period.
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". Statement 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. Statement 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 Statement No. 144, "Accounting for
the Impairment of Long-Lived Assets to Be Disposed Of". 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.
15
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
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 $2,825,000. Such
charge has been recorded as a cumulative effect of change in accounting
principle in the quarter ended March 31, 2002.
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
upon the comparison of the carrying values to the estimated fair values, the
Company concluded that no additional goodwill impairment exists. The Company
plans to 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.
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. Accordingly, the Company adopted the
provisions of SFAS No.143 effective January 1, 2003. The implementation of SFAS
No. 143 did not have a material impact on the earnings or financial position of
the Company.
Also in August 2001, the FASB issued SFAS No.144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No.144 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 are effective for fiscal years beginning after December 15, 2001.
Accordingly, the Company adopted the provisions of SFAS No. 144 effective
January 1, 2002. The implementation of SFAS No. 144 did not have a material
impact on the earnings or financial position of the Company.
16
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
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 Exist 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.
Accordingly, the Company adopted the provisions of SFAS No. 146 effective
January 1, 2003. The implementation of SFAS No. 146 did not have a material
impact on the earnings or financial position of the Company.
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. Accordingly, the Company adopted the
provisions of FIN 45, effective January 1, 2003. The implementation of FIN 45
did not have an impact on the earnings or financial position of the company.
LIQUIDITY AND CAPITAL RESOURCES
The Statements of Cash Flows reflect the following (in thousands):
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
Net cash flows provided by operating activities $ 3,403 $ 1,807
Net cash flows used for investment activities $(1,148) $(2,439)
Net cash flows provided by financing activities $ 461 $ 814
The increase in net cash flows from operating activities this quarter
resulted primarily from the reduction in net assets of discontinued operations.
Net changes in assets and liabilities of continuing operations were
approximately the same during the first quarter of 2003 and 2002, although the
components of these changes differed. Inventories declined $2.8 million in the
first quarter of 2003 as a result of management's efforts, causing payables to
decline as raw material purchases were reduced. The seasonal increase in
receivables was less in the first quarter of 2003, than in the comparable period
of 2002 primarily because of the timing of collections, as receivables remain
current with less than 25 days sales outstanding.
17
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Cash flows used for investing activities of $1.1 million consist of
capital expenditures. Capital expenditures for 2003 are expected to approximate
$8.5 million and are expected to be funded by cash flow from operations. Capital
expenditures for 2002 were $10.5 million, including $2.4 million in the first
quarter of 2002.
Cash flows provided by financing activities for the 2003 quarter include
$0.8 million received from the exercise of employee stock options offset by a
net decrease in debt of $0.4 million. Cash flows provided by financing
activities for the first quarter of 2002 include a net increase in debt of $0.7
million. Total debt has been reduced by $5.6 million since March 2002.
Availability under the Company's line of credit, which availability was
$16.4 million at March 31, 2003, along with anticipated cash flows from
operations, is adequate to finance the Company's working capital and anticipated
capital expenditure requirements. The Company is in compliance with all of its
debt covenants and expects to remain in compliance for the next twelve months.
The Company has outstanding $16 million of 6.95 percent, seven year Senior
Notes. The notes originally aggregated $40 million, and repayment of these notes
is $8 million annually, of which the first three payments were made annually
since January 2001.
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, engaged 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.
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. Since
the first quarter of 2002, the Company experienced modest increases in its labor
costs related to inflation.
18
DREW INDUSTRIES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
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 on going 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.
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.
19
DREW INDUSTRIES INCORPORATED
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk in the normal course of its
operations due to its purchases of certain commodities, and its investing and
financing activities. Certain raw materials, particularly aluminum, steel,
vinyl, glass and ABS resins are subject to price volatility.
The Company is exposed to changes in interest rates primarily as a result
of its financing activities. At March 31, 2003, the Company had $34.7 million of
fixed rate debt. Assuming a decrease of 100 basis points in the interest rate
for borrowings of a similar nature, which the Company becomes unable to
capitalize on in the short-term as a result of the structure of its fixed rate
financing, future cash flows would be approximately $347,000 lower per annum,
than if the fixed rate financing could be done at current market rates.
The Company also has a $30 million line of credit. At March 31, 2003, the
Company had outstanding borrowings of $11.0 million on the line of credit.
Assuming an increase of 100 basis points in the interest rate for borrowings
under these variable rate loans, and outstanding borrowings of $11.0 million,
future cash flows would be affected by $110,000 per annum.
In addition, the Company is exposed to changes in interest rates as a
result of temporary investments in government backed money market funds;
however, such investing activity is not material to the Company's financial
position, results of operations, or cash flow.
If the actual change in interest rates is substantially different than 100
basis points, the net impact of interest rate risk on the Company's cash flow
may be materially different than that disclosed above.
20
DREW INDUSTRIES INCORPORATED
Item 4. CONTROL AND PROCEDURES
a) Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's Securities
Exchange Act of 1934 ("The Exchange Act") reports is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's ("SEC") rules and forms, and that such information is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure, in accordance with the definition of
"disclosure controls and procedures" in Rule 13a - 14 (c) under the Exchange
Act. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, cannot provide absolute assurance of achieving the
desired control objectives. Management included in its evaluation the
cost-benefit relationship of possible controls and procedures.
Within 90-days prior to the date of this report, the Company performed an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on the foregoing, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective.
b) Changes in Internal Controls
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect the internal controls
subsequent to the date the Company completed its evaluation.
21
DREW INDUSTRIES INCORPORATED
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
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.
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits as required by item 601 of Regulation 8-K
99.l Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. Exhibit 99.1 is filed herewith.
b) Reports on Form 8-K filed during the quarter ended March 31, 2003.
On February 5, 2003, Registrant filed a current report on Form 8-K
disclosing the time of the Company's conference call and webcast to
announce Year-End and Fourth Quarter results for 2002.
On February 11, 2003 the Company ("Registrant") filed a current
report on Form 8-K wherein the Company announced Year-End and Fourth
Quarter results for 2002.
22
DREW INDUSTRIES INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DREW INDUSTRIES INCORPORATED
Registrant
By /s/ Fredric M. Zinn
-------------------
Fredric M. Zinn
Executive Vice President and
Chief Financial Officer
May 9, 2003
23
DREW INDUSTRIES INCORPORATED
SECTION 302 CERTIFICATION
I, Leigh J. Abrams, President and CEO, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Drew
Industries Incorporated;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
24
DREW INDUSTRIES INCORPORATED
SECTION 302 CERTIFICATION (Continued)
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 9, 2003
By /s/ Leigh J. Abrams
- ----------------------
Leigh J. Abrams, President and CEO
25
DREW INDUSTRIES INCORPORATED
SECTION 302 CERTIFICATION
I, Fredric M. Zinn, Executive Vice President and CFO, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Drew
Industries Incorporated;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
26
DREW INDUSTRIES INCORPORATED
SECTION 302 CERTIFICATION (Continued)
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 9, 2003
By /s/ Fredric M. Zinn
- ----------------------
Fredric M. Zinn, Executive Vice President and CFO
27