- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Year End Commission File Number December 31, 1998 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) Registrant's Telephone Number including Area Code: (914) 428-9098 Securities Registered pursuant to Section 12(b) of the Act: None Securities Registered pursuant to Section 12(g) of the Act: Common Stock (Title of Class) Check mark indicates 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 check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| Aggregate market value of voting stock (Common Stock, $.01 par value) held by non-affiliates of Registrant (computed by reference to the closing price as of March 12, 1999) was $84,138,280. The number of shares outstanding of the Registrant's Common Stock, as of the latest practicable date (March 12, 1999) was 11,443,457 shares of Common Stock. Documents Incorporated by Reference Annual Report to Stockholders for year ended December 31, 1998 is incorporated by reference into Items 6, 7 and 8 of Part II. Proxy Statement with respect to Annual Meeting of Stockholders to be held on May 20, 1999 is incorporated by reference into Part III. - --------------------------------------------------------------------------------
FORWARD LOOKING STATEMENTS AND RISK FACTORS This Form 10-K contains certain statements, including the Company's plans regarding its operating strategy, its products and performance and its views of industry prospects, which could be construed to be forward looking statements within the meaning of the Securities Exchange Act of 1934. These statements reflect the Company's current views with respect to future plans, events and financial performance. The Company has identified certain risk factors which could cause actual plans and results to differ substantially from those included in the forward looking statements. These factors include pricing pressures due to competition, raw material costs (particularly aluminum, steel, vinyl and glass), adverse weather conditions impacting retail sales, inventory adjustments by retailers, availability and costs of labor, and interest rates. In addition, general economic conditions may affect the retail sale of manufactured homes and RV's. Item 1. BUSINESS Introduction Drew Industries Incorporated ("Drew" or the "Company"), through its wholly-owned subsidiaries Kinro, Inc. ("Kinro"), Lippert Components, Inc. ("Lippert"), and Shoals Supply, Inc. ("Shoals") is a leading supplier of a variety of products for manufactured homes and recreational vehicles. Kinro manufactures and markets aluminum and vinyl windows for manufactured homes, and aluminum windows and doors for recreational vehicles. Lippert manufactures and markets steel chassis and steel chassis parts and galvanized roofing for manufactured homes, and manufactures and markets steel chassis and steel chassis parts for recreational vehicles. Shoals manufactures and markets new axles, and distributes refurbished axles and new and refurbished tires, for manufactured homes. Several of the Company's customers produce both manufactured homes and recreational vehicles, and the Company supplies products having similar characteristics for use in both these lines of business. Since 1980, the Company has acquired ten manufacturers of products for both manufactured homes and recreational vehicles, expanded its geographic market and product lines, added manufacturing facilities, integrated manufacturing, distribution and administrative functions, and developed new and innovative products. As a result, the Company currently operates 34 manufacturing facilities in 16 states, and achieved consolidated sales of $331 million for 1998. The Company was incorporated under the laws of Delaware on March 20, 1984, and is the successor to Drew National Corporation, which was incorporated under the laws of Delaware in 1962. The Company's principal executive and administrative offices are located at 200 Mamaroneck Avenue, White Plains, New York 10601; telephone number (914) 428-9098. The Common Stock of the Company is traded on the American Stock Exchange (symbol: DW). Recent Event On May 14, 1998, Lippert acquired the manufactured homes steel processing business of Coil Clip, Inc. ("Coil Clip") for cash of approximately $3.5 million and entered into a supply agreement to purchase steel from Coil Clip. On December 16, 1998, Lippert acquired all the remaining assets and business of Coil Clip for cash of $6 million and a two-year $500,000 promissory note. The acquisition of the business of Coil Clip will add approximately $12 million of annualized sales to the Company's existing business. Manufactured Housing Products Segment Through its wholly-owned subsidiaries, the Company manufactures and markets a number of components for manufactured homes, including aluminum and vinyl windows and screens, steel chassis and steel chassis parts, galvanized roofing, and new axles, and the Company distributes refurbished axles and new and refurbished tires. The manufactured housing products segment represents approximately 82% of the Company's consolidated sales. This segment also supplies related products to other industries, representing less than 5% of sales of this segment. Page - 2 -
Raw materials used by the Company in its manufactured housing products segment, consisting of extruded aluminum and vinyl, glass, various adhesive and insulating components, and fabricated steel (coil, sheet, galvanized and I-beam), are available from a number of sources. Used axles and tires, which are refurbished by the Company, are purchased from dealers of manufactured homes and independent agents, and their availability is subject to competitive pricing. The Company maintains an aluminum hedging program under which it purchases future contracts on the London Metal Exchange to hedge the prices of a portion of its anticipated requirements. The Company recently acquired the business of Coil Clip, Inc., a steel processor, to expand its supply and reduce costs for certain coil steel and sheet steel components used by the Company. Operations of the Company's manufactured housing products segment consist primarily of fabricating, welding, painting and assembling components into finished products, and refurbishing used axles and tires. The Company's manufactured housing products operations are conducted at 26 manufacturing and warehouse facilities throughout the United States, strategically located in proximity to the customers they serve. Four of these facilities also conduct operations in the Company's recreational vehicles products segment. See Item 2. "Properties." The Company's manufactured housing products are sold by 19 sales personnel working exclusively for the Company to major builders of manufactured homes such as Clayton Homes, Oakwood Homes, Champion Enterprises, Skyline and Fleetwood Enterprises. The Company's manufactured housing products operations compete on the basis of price, customer service, product quality, and reliability. Although definitive information is not readily available, the Company believes that the three leading suppliers of windows for manufactured homes are the Company, Philips Industries and Care-Free Windows, and that the Company's market share for windows and screens is approximately 40%. The Company's manufactured homes chassis and chassis parts operations compete with several other manufactures of chassis and chassis parts, as well as with certain builders of manufactured homes which produce their own chassis and chassis parts. Although definitive information is not readily available, the Company believes that its market share for chassis and chassis parts for manufactured homes is approximately 15%. The market for refurbished axles and tires is highly fragmented, has low entry barriers, and is therefore highly competitive. During 1998, several new suppliers of refurbished axles and tires entered the market. As a result of these competitive pressures, the Company's profit margins for its axles and tires product line declined significantly. Although definitive information is not readily available, the Company believes that its market share for refurbished and new axles and tires is approximately 25%. Recreational Vehicles Products Segment Through its wholly-owned subsidiaries, the Company manufactures and markets a number of components for recreational vehicles, including aluminum and vinyl windows and screens, a variety of doors, steel chassis and steel chassis parts. The recreational vehicles products segment represents approximately 18% of the Company's consolidated sales. Raw materials used by the Company in its recreational vehicles products segment, consisting of extruded aluminum and vinyl, glass, various adhesive and insulating components, and fabricated steel (coil, sheet and I-beam), are available from a number of sources. The Company maintains an aluminum hedging program under which it purchases future contracts on the London Metal Exchange to hedge the prices of a portion of its anticipated requirements. Operations of the Company's recreational vehicles products segment consist primarily of fabricating, welding, painting and assembling components into finished products, and tempering glass for its own use and for sale to other window manufacturers. The Company's recreational vehicles products operations are conducted at 12 manufacturing and warehouse facilities throughout the United States, strategically located in proximity to the customers they serve. Four of these facilities also conduct operations in the Company's manufactured housing products segment. See Item 2. "Properties." Page - 3 -
The Company's recreational vehicles products are sold by 5 sales personnel working exclusively for the Company to major manufacturers of recreational vehicles such as Fleetwood Enterprises, Thor Industries and Skyline. The Company's recreational vehicles products operations compete on the basis of price, customer service, product quality, and reliability. Although definitive information is not readily available, the Company believes that there are approximately 10 significant suppliers of windows and doors for recreational vehicles, several of which are substantially larger than the Company. The Company's recreational vehicles chassis and chassis parts operations compete with several other manufactures of chassis and chassis parts, as well as with certain manufacturers of recreational vehicles which produce their own chassis and chassis parts. The Company's operation as a supplier of chassis and chassis parts for recreational vehicles had only a small market share in 1997, but the Company's market share has been increasing substantially. Although definitive information is not readily available, the Company believes that its market share for chassis and chassis parts for recreational vehicles is currently 8%. Regulatory Matters Windows produced by the Company for manufactured homes must comply with performance and construction regulations promulgated by the United States Housing and Urban Development Authority ("HUD") and by the American Architectural Manufacturers Association relating to air and water infiltration, thermal performance, emergency exit conformance, and hurricane resistance. Windows and doors produced by the Company for the recreational vehicle industry are regulated by The United States Department of Transportation Federal Highway Administration ("DOT"), National Fire and Protection Agency, and the National Electric Code governing safety glass performance, egressability, door hinge and lock systems, egress window retention hardware, and baggage door ventilation. Manufactured homes are built on steel chassis which are fitted with axles and tires sufficient in number to support the weight of the home and are transported by producers to dealers via roadway. When the home is installed at the site, the axles and tires are usually repurchased from the homeowner and removed by the dealer or installer. Regulations promulgated by HUD require the axles to be inspected after each use and refurbished or, if necessary, replaced. The Company purchases from dealers and independent agents, and repairs and refurbishes, used axles and tires, and markets the refurbished axles and tires to producers of manufactured homes. In accordance with regulations promulgated by HUD, refurbished axle assemblies distributed by the Company are refurbished in accordance with a detailed Quality Control Program formulated by an independent inspection agency. Compliance with the Quality Control Program is monitored by the inspection agency on a monthly basis. All expenses of formulating the program, inspection, and monitoring are paid for by the Company. In addition, new and refurbished tires distributed by the Company are subject to regulations promulgated by DOT and by HUD relating to weight tolerance, maximum speed, size, and components. In accordance with new regulations promulgated in November 1998, transporters of manufactured homes are utilizing tires with new specifications. As a result, at December 31, 1998 the Company had excess inventory of tires previously used by its customers, and the Company reduced the inventory value of such tires. In addition, the supply of used tires with new specifications which are available for the Company's tire refurbishing operation is temporarily limited. The Company's operations are also subject to certain federal, state and local regulatory requirements relating to the use, storage, discharge and disposal of hazardous chemicals used during their manufacturing processes. The Company believes that it is currently operating in compliance with applicable laws and regulations, and does not believe that the expense of compliance with these laws and regulations, as currently in effect, will have a material effect on the Company's capital expenditures, earnings or competitive position. Page - 4 -
Employees The approximate number of persons employed full-time by the Company and its subsidiaries at December 31, 1998 was 2,656. The Company and its subsidiaries believe that relations with its employees are good. Other In connection with the spin-off by the Company of Leslie Building Products, Inc. ("Leslie Building Products"), now known as "LBP, Inc." ("LBP"), and its wholly-owned subsidiary, Leslie-Locke, Inc. ("Leslie-Locke"), now known as Prime Acquisition Corp. ("Prime"), which was effective on July 29, 1994, the Company and LBP entered into a Shared Services Agreement. Pursuant to the Shared Services Agreement, the Company and LBP agreed to share certain administrative functions and employee services, such as management overview and planning, tax preparation, financial reporting, coordination of independent audit, stockholder relations, and regulatory matters. The Company is reimbursed by LBP for the fair market value of such services. The Shared Services Agreement was extended to December 31, 1999. Item 2. PROPERTIES The Company's manufacturing is done out of buildings that are used for both manufacturing and warehousing. In addition, there are administrative facilities used for corporate and administrative functions. The following is a chart of the properties from which the Company operates: City State Square Feet Owned Leased ---- ----- ----------- ----- ------ MH SEGMENT Bear Creek Alabama 150,000 x Double Springs Alabama 72,500 x Phil Campbell Alabama 53,200 x Ocala Florida 47,094 x Thomasville Georgia 70,000 x Fitzgerald Georgia 55,300 x Americus Georgia 36,950 x Nampa Idaho 39,500 x Goshen Indiana 100,000 x Goshen Indiana 58,000 x Goshen (Frame) Indiana 57,000 x Bristol Indiana 40,000 x Arkansas City Kansas 7,800 x Bossier City Louisiana 11,400 x Whitehall New York 12,675 x Harrisburg North Carolina 57,950 x Liberty North Carolina 47,000 x Rockwell North Carolina 14,000 x Sugarcreek Ohio 14,480 x Mc Adoo Pennsylvania 25,088 x Dayton Tennessee 100,000 x Maynardville Tennessee 20,000 x Mansfield Texas 61,500 x Alvarado Texas 49,700 x Waco Texas 23,000 x Lancaster Wisconsin 12,250 x ---------- 1,236,387 ========== In addition a 21,600 square foot facility is under construction in Garret, Indiana. Page - 5 -
City State Square Feet Owned Leased ---- ----- ----------- ----- ------ RV SEGMENT Fontana California 108,750 x Fitzgerald Georgia 23,700 x Goshen (Frame) Indiana 20,000 x Elkhart Indiana 36,600 x Goshen Indiana 97,974 x Crawfordsville Indiana 17,800 x Goshen (Tempering Plant) Indiana 53,000 x Edgerton Ohio 10,000 x Mc Adoo Pennsylvania 8,362 x Alvarado Texas 21,300 x Longview Texas 58,900 x Berkley Springs West Virginia 38,600 x ------- 494,986 ======= ADMINISTRATIVE Alma Michigan 10,800 x Naples Florida 4,500 x Arlington Texas 8,464 x Arlington Texas 900 x White Plains New York 2,800 x -------- 27,464 ======== Item 3. LEGAL PROCEEDINGS The Company is not a party to any legal proceedings which, in the opinion of Management, could have a material adverse effect on the Company or its consolidated financial position. See Note 10 of Notes to Consolidated Financial Statements with respect to certain product liability claims pending against White Metal Rolling and Stamping Corp. ("White Metal"), a subsidiary of Prime, arising in connection with the ladder manufacturing business formerly conducted by White Metal. Although the Company was named as a defendant in certain actions commenced in connection with these claims, the Company has not been held responsible, and the Company disclaims any liability for the obligations of White Metal. See Note 10 of Notes to Consolidated Financial Statements with respect to the filing by White Metal, on September 30, 1994, of a voluntary petition seeking liquidation under the provisions of chapter 7 of the United States Bankruptcy Code. On May 7, 1996, the Company and its subsidiary, Kinro, Inc., and LBP and its subsidiary, Prime, were served with a summons and complaint in an adversary proceeding commenced by the chapter 7 trustee of White Metal. The complaint, which appears to have alleged several duplicate claims, sought damages in the aggregate amount of $10.6 million plus attorneys fees, of which up to approximately $7.5 million of tax-related claims was sought, jointly and severally, from the Company, Kinro, LBP and Prime. On July 14, 1998, the Bankruptcy Court granted defendants' motion to dismiss the trustee's tax-related claims. The Court permitted the trustee to replead the dismissed claims, but the trustee elected not to replead. The trustee could appeal the Court's decision dismissing these claims on termination of the proceeding. Other than the dismissed tax-related claims, the trustee alleges that White Metal made certain payments to the Company which were preferential and are recoverable by White Metal, in the approximate amount of $900,000. Although these claims were not dismissed, the Company believes that the claims are without merit, denies liability for any such amount, and is vigorously defending against the allegations. However, an estimate of potential loss, if any, cannot be made at this time. The Company believes that the defense of this proceeding will not have a material adverse impact on the Company's financial condition or results of operations. Page - 6 -
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following tables set forth certain information with respect to the Directors and Executive Officers of the Company as of December 31, 1998. Name Position ---- -------- Leigh J. Abrams President, Chief Executive Officer and Director (Age 56) of the Company since March 1984. Edward W. Rose, III Chairman of the Board of Directors of the Company (Age 57) since March 1984. David L. Webster Director of the Company since March 1984. (Age 63) L. Douglas Lippert Director of the Company since November 1997. (Age 51) James F. Gero Director of the Company since May 1992. (Age 53) Gene H. Bishop Director of the Company since June 1995. (Age 69) Fredric M. Zinn Chief Financial Officer of the Company since (Age 47) January 1986. Harvey J. Kaplan Secretary and Treasurer of the Company since (Age 64) March 1984. LEIGH J. ABRAMS has also been President, Chief Executive Officer and a Director of LBP since July 1994. EDWARD W. ROSE, III, for more than the past five years, has been President and principal stockholder of Cardinal Investment Company, Inc., an investment firm. Mr. Rose also serves as a director of the following public companies: Osprey Holding, Inc., previously engaged in selling computer software for hospitals; Liberte Investors, Inc., engaged in real estate loans and investments; and ACE Cash Express, Inc., engaged in check cashing services. Since July 1994, Mr. Rose has also been Chairman of the Board of LBP. DAVID L. WEBSTER, since November 1980, has been President and Chief Executive Officer of Kinro, Inc., a subsidiary of the Company, and Chairman of Kinro, Inc. since November 1984. Mr. Webster has also been President and Chief Executive Officer of Shoals Supply, Inc., a subsidiary of the Company, since its acquisition in February 1996. L. DOUGLAS LIPPERT, since October 1997, has been President and Chief Executive Officer of Lippert Components, Inc., a subsidiary of the Company, and President of the predecessor of Lippert Components, Inc. since 1978. Mr. Lippert has also been President of Coil Clip, Inc., a subsidiary of the Company, since its acquisition in December 1998. The Board of Directors appointed Mr. Lippert as a Director in connection with Page - 7 -
the acquisition of Lippert Components, Inc. in October 1997, and Mr. Lippert was elected to his present term as a director at the Annual Meeting of Stockholders held on May 21, 1998. JAMES F. GERO, since March 1992, has been Chairman and Chief Executive Officer of Sierra Technologies, Inc., a manufacturer of defense systems technologies. From July 1987 to October 1989, Mr. Gero was Chairman and Chief Executive Officer of Varo, Inc., a manufacturer of defense electronics, and from 1985 to 1987, Mr. Gero was President and Chief Executive Officer of Varo, Inc. Mr. Gero also serves as a director of the following public companies: Orthofix International, N.V.,an international supplier of orthopedic devices for bone fixation and stimulation; and Spar Aerospace Ltd., engaged in space robotics, communications equipment and aerospace products and services. Since July 1994, Mr. Gero has also been a Director of LBP. GENE H. BISHOP, from March 1975 until July 1990, was Chief Executive Officer of MCorp, a bank holding company, and from October 1990 to November 1991, was Vice Chairman and Chief Financial Officer of Lomas Financial Corporation, a financial services company. From November 1991 until his retirement in October 1994, Mr. Bishop served as Chairman and Chief Executive Officer of Life Partners Group, Inc., a life insurance holding company. Mr. Bishop also serves as a director of the following publicly-owned companies: Liberte Investors, Inc., engaged in real estate loans and investments; Southwest Airlines Co., a regional airline; and Paymentech, Inc., a credit card payment processor. FREDRIC M. ZINN has also been Chief Financial Officer of LBP since July 1994. Mr. Zinn is a Certified Public Accountant. HARVEY J. KAPLAN has also been Secretary and Treasurer of LBP since July 1994. Mr. Kaplan is a Certified Public Accountant. Compliance with Section 16(a) of the Securities Exchange Act Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers and directors, and persons who beneficially own more than ten percent of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the American Stock Exchange. Officers, directors and greater than ten-percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based on its review of the copies of such forms received by it, the Company believes that during 1998 all such filing requirements applicable to its officers and directors (the Company not being aware of any ten percent holder during 1998 other than Edward W. Rose, III and L. Douglas Lippert, directors of the Company, and FMR Corp.) were complied with. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Per Share Market Price Information The Common Stock of the Company is traded on the American Stock Exchange (symbol: DW). On March 12, 1999, there were 2,204 holders of record of the Common Stock. The Company estimates that 2,000 to 4,000 additional stockholders own shares of its Common Stock held in the name of Cede & Co. and other broker and nominee names. The table below sets forth, for the periods indicated, the range of high and low closing prices per share for the Common Stock as reported by the American Stock Exchange. Page - 8 -
All of the following prices have been retroactively adjusted to reflect the two-for-one split effective March 21, 1997. High Low ---- --- Calendar 1998 Quarter ended March 31........ $13.38 $11.75 Quarter ended June 30......... $15.13 $12.63 Quarter ended September 30.... $15.00 $11.50 Quarter ended December 31..... $12.88 $10.13 High Low ---- --- Calendar 1997 Quarter ended March 31........ $13.81 $10.75 Quarter ended June 30......... $13.00 $10.63 Quarter ended September 30.... $14.38 $11.75 Quarter ended December 31..... $14.13 $11.06 The closing price per share for the Common Stock on March 12, 1999, was $12.25. Dividend Information The Company has not paid any cash dividends on its Common Stock. Future dividend policy with respect to the Common Stock will be determined by the Board of Directors of the Company in light of prevailing financial needs and earnings of the Company and other relevant factors. The Company's dividend policy is subject to certain restrictions contained in its 6.95% Senior Notes and in financing agreements relating to its credit facility. Item 6. SELECTED FINANCIAL DATA, Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, and Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, are incorporated by reference to the Company's Annual Report to Stockholders for the year ended December 31, 1998. Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III Part III of Form 10-K is incorporated by reference to the Company's Proxy Statement with respect to its Annual Meeting of Stockholders to be held on May 20, 1999. Page - 9 -
PART IV Item 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES and REPORTS ON FORM 8-K (a) Documents Filed (1) Financial Statements. The Consolidated Financial Statements of the Company and its subsidiaries are incorporated by reference to the Consolidated Financial Statements and Notes to Consolidated Financial Statements in the Company's Annual Report to Stockholders for the year ended December 31, 1998. (2) Schedules. Schedule II - Valuation and Qualifying Accounts. (3) Exhibits. See "List of Exhibits" at the end of this report incorporated herein by reference. (b) Reports on Form 8-K On December 23, 1998, the Company filed a Current Report on Form 8-K reporting the acquisition of Coil Clip, Inc. Page - 10 -
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. DREW INDUSTRIES INCORPORATED Date: March 24, 1999 By: /s/ Leigh J. Abrams --------------------------- Leigh J. Abrams, President Pursuant to the requirements of the Securities and Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and dates indicated. Each person whose signature appears below hereby authorizes Leigh J. Abrams and Harvey J. Kaplan, or either of them, to file one or more amendments to the Annual Report on Form 10-K which amendments may make such changes in such Report as either of them deems appropriate, and each such person hereby appoints Leigh J. Abrams and Harvey J. Kaplan, or either of them, as attorneys-in-fact to execute in the name and on behalf of each such person individually, and in each capacity stated below, such amendments to such Report. Date Signature Title - ---- --------- ----- March 24, 1999 By: /s/Leigh J. Abrams Director, President and -------------------- Chief Executive Officer (Leigh J. Abrams) March 24, 1999 By: /s/Harvey J. Kaplan Secretary and Treasurer -------------------- (Harvey J. Kaplan) March 24, 1999 By: /s/Fredric M. Zinn Chief Financial Officer -------------------- (Fredric M. Zinn) March 24, 1999 By: /s/John F. Cupak Controller -------------------- (John F. Cupak) March 24, 1999 By: /s/Edward W. Rose III Director -------------------- (Edward W. Rose, III) March 24, 1999 By: /s/David L. Webster Director -------------------- (David L. Webster) March 24, 1999 By: /s/L. Douglas Lippert Director -------------------- (L. Douglas Lippert) March 24, 1999 By: /s/James F. Gero Director -------------------- (James F. Gero) March 24, 1999 By: /s/Gene H. Bishop Director -------------------- (Gene H. Bishop) Page - 11 -
Report of Independent Auditors The Board of Directors Drew Industries Incorporated: Under date of February 10, 1999, we reported on the consolidated balance sheets of Drew Industries Incorporated and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, as contained on pages 12 through 23 in the 1998 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1998. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed on Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Stamford, Connecticut February 10, 1999 Page - 12 -
DREW INDUSTRIES INCORPORATED AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands) <TABLE> <CAPTION> COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------- -------- ---------------------- -------- -------- Additions ---------------------- Balance At Charged To Charged To Balance At Beginning Costs and Other End Of Period Expenses Accounts Deductions Of Period - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> YEAR ENDED DECEMBER 31, 1998: Allowance for doubtful accounts receivable, trade $ 528 $266 $50(a) $ 154 $690 Reserve for liquidation losses - disposal of businesses 9 (9) Reserve for revaluation of loans 60 (60) Reserve for notes receivable 436 (91) 345(c) YEAR ENDED DECEMBER 31, 1997: Allowance for doubtful accounts receivable, trade $ 308 $(10) $231(a) $ 1(b) $528 Reserve for liquidation losses - disposal of businesses 9 9 Reserve for revaluation of loans 361 (301) 60 Reserve for notes receivable 498 (86) (24)(c) 436 YEAR ENDED DECEMBER 31, 1996: Allowance for doubtful accounts receivable, trade $ 266 $ 23 $30(a) $ 11(b) $308 Reserve for liquidation losses - disposal of businesses 9 9 Reserve for revaluation of loans 334 27 361 Reserve for notes receivable 692 (321) (127)(c) 498 </TABLE> (a) Represents balance at date of acquisition of acquired companies. (b) Represents accounts written-off net of recoveries. (c) Represents write-off of uncollectible portion of notes, net of recoveries. Page - 13 -
EXHIBIT INDEX Exhibit Sequentially Number Description Numbered Page - ------ ----------- ------------- 3. Articles of Incorporation and By-laws. 3.1 Drew Industries Incorporated Restated Certificate of Incorporation. 3.2 Drew Industries Incorporated By-laws, as amended. Exhibit 3.1 is incorporated by reference to Exhibit III to the Proxy Statement-Prospectus constituting Part I of the Drew National Corporation and Drew Industries Incorporated Registration Statement on Form S-14 (Registration No. 2-94693). Exhibit 3.2 is incorporated by reference to the Exhibit bearing the same number included in the Annual Report of Drew Industries Incorporated on Form 10-K for the fiscal year ended August 31, 1985. 10 Material Contracts. 10.27 Lease between Kinro, Inc. and Robert A. White and Larry B. White, dated June 1, 1979, as amended. 10.39 Leases between Robert A. White, Larry B. White and Kinro, Inc. dated July 25, 1983, as amended. 10.47 Registration Agreement among Drew Industries Incorporated and the Leslie-Locke Shareholders dated August 28, 1985. 10.66 Employment Agreement by and between Kinro, Inc. and David L. Webster, dated March 31, 1996. 10.100 Drew Industries Incorporated Stock Option Plan. 10.134 Letter, dated April 28, 1988, from Drew Industries Incorporated to Leigh J. Abrams confirming compensation arrangement. 10.135 Description of split-dollar life insurance plan for certain executive officers. 10.146 Form of Plan and Agreement of Distribution between Leslie Building Products, Inc. and Drew Industries Incorporated dated July 29, 1994. 10.147 Form of Shared Services Agreement between Leslie Building Products, Inc. and Drew Industries Incorporated dated July 29, 1994. 10.148 Form of Tax Matters Agreement between Leslie Building Products, Inc. and Drew Industries Incorporated dated July 29, 1994. 10.151 Asset Purchase Agreement, dated February 15, 1996, by and among Shoals Supply, Inc., Lecil V. Thomas, and Drew Industries Incorporated. 10.152 Non-Negotiable Promissory Note, dated February 15, 1996, of Shoals Acquisition Corp., to the order of Shoals Supply, Inc. in the principal amount of $760,000, guaranteed by Drew Industries Incorporated. Page - 14 -
10.153 Bill of Sale, dated February 15, 1996 by and between Shoals Supply, Inc. and Drew Industries Incorporated. 10.154 Registration Rights Agreement, dated February 15, 1996, by and among Drew Industries Incorporated, Shoals Supply, Inc., and Lecil V. Thomas. 10.155 Consulting and Non-Competition Agreement, dated February 15, 1996, by and between Drew Industries Incorporated and Lecil V. Thomas. 10.156 Leases, dated February 15, 1996, between Thomas Family Partnership, Ltd. and Shoals Acquisition Corp. 10.157 Employment Bonus Agreements, dated February 15, 1996, by and between Shoals Supply, Inc. and the employees named therein. 10.158 Assignment, dated February 15, 1996, by and among Shoals Supply, Inc., Lecil V. Thomas and Drew Industries Incorporated. 10.159 Stock Purchase and Pledge Agreement and Non-Negotiable Promissory Note, dated March 7, 1997 by and between Drew Industries Incorporated and Edward W. Rose, III. 10.160 Agreement and Plan of Merger, dated October 7, 1997, by and among Drew Industries Incorporated, Lippert Acquisition Corp., Lippert Components, Inc. and the shareholders of Lippert Components, Inc. named therein. 10.161 Registration Rights Agreement, dated October 7, 1997, by and among Drew Industries Incorporated, Lippert Acquisition Corp., and certain shareholders of Lippert Components, Inc. named therein. 10.162 Contingency Escrow Agreement, dated October 7, 1997 by and among Drew Industries Incorporated, Lippert Acquisition Corp., The Chase Manhattan Bank, and certain shareholders of Lippert Components, Inc. named therein. 10.163 Indemnity Escrow Agreement, dated October 7, 1997, by and among Drew Industries Incorporated, Lippert Acquisition Corp., The Chase Manhattan Bank, and The L. Douglas Lippert Living Trust dated June 6, 1989. 10.164 Executive Employment and Non-Competition Agreement, dated October 7, 1997, by and between Lippert Components, Inc. and L. Douglas Lippert. 10.165 Note Purchase Agreement, dated January 28, 1998, by and among Kinro, Inc, Lippert Components, Inc. and Shoals Supply, Inc. (collectively, the "Note Co-Issuers") and Teachers Insurance and Annuity Association of America, ING Investment Management, Inc. as agent for Midwestern Life Insurance Company, Security Life of Denver Insurance Company, Equitable Life Insurance Company of Iowa and USG Annuity & Life Insurance Company (collectively, the "Note Purchasers"). 10.166 6.95% Senior Notes due January 28, 2005 in the aggregate principal amount of $40,000,000 issued by the Note Co-Issuers to the Note Purchasers. 10.167 Pledge Agreements, dated January 28, 1998, by and between The Chase Manhattan Bank, as trustee for the benefit of the Note Purchasers and, separately, Registrant, Kinro, Inc., Shoals Supply, Inc., Kinro Manufacturing. 10.168 Guarantee Agreement, dated January 28, 1998, by and among Registrant and the Note Purchasers. Page - 15 -
10.169 Subsidiary Guaranty, dated January 28 1998, by Kinro Holding Inc., Kinro Manufacturing, Inc., Shoals Holding, Inc., Kinro Texas Limited Partnership, Kinro Tennessee Limited Partnership, Shoals Supply Texas Limited Partnership and Shoals Supply Tennessee Limited Partnership (collectively, the "Subsidiaries") in favor of the Note Purchasers. 10.170 Collateralized Trust Agreement, dated January 28, 1998, by and among the Note Co-Issuers and the Note Purchasers. 10.171 Subordination Agreement, dated January 28, 1998, by and among Registrant, the Note Co-Issuers, Lippert Components, Inc., the Subsidiaries, and the Note Purchasers. 10.172 $25,000,000 Revolving Credit Facility - Credit Agreement, dated January 28 1998, by and among Kinro, Inc., Shoals Supply, Inc. and Lippert Components, Inc. (The "Borrowers") and The Chase Manhattan Bank ("Chase") and KeyBank National Association ("KeyBank") (together, the "Lenders"). 10.173 $15,000,000 Revolving Credit Note, dated January 28, 1998, made by the Borrowers to Chase. 10.174 $10,000,000 Revolving Credit Note, dated January 28, 1998, made by the Borrowers to KeyBank. 10.175 Company Guarantee Agreement, dated January 28, 1998, made by Registrant to Chase, as agent for the Lenders. 10.176 Subsidiary Guarantee Agreement, dated January 28, 1998, made by each direct and indirect subsidiary of Registrant (other than the Borrowers) in favor of Chase, as agent for the Lenders. 10.177 Subordination Agreement, dated January 29, 1998, made by each direct and indirect subsidiary of Registrant and Chase, as agent for the Lenders. 10.178 Pledge and Security Agreement, dated January 28, 1998, made by Registrant, the Borrowers, and certain indirect subsidiaries of Registrant in favor of Chase, as collateral agent. Exhibit 10.27 is incorporated by reference to the Exhibits bearing the same number indicated on the Registration Statement of Drew National Corporation on Form S-1 (Registration No. 2-72492). Exhibit 10.39 is incorporated by reference to the Exhibit included in the Annual Report of Drew National Corporation on Form 10-K for the fiscal year ended August 31, 1983. Exhibits 10.47 is incorporated by reference to the Exhibits included in the Company's Current Report on Form 8-K dated September 6, 1985. Exhibit 10.66 is incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Exhibit 10.100 is incorporated by reference to Exhibit A to the Proxy Statement of the Company dated May 10, 1995. Exhibit 10.134 is incorporated by reference to the Exhibit bearing the same number included in the Company's Transition Report on Form 10-K for the period September 1, 1992 to December 31, 1993. Exhibit 10.135 is incorporated by reference to the Exhibit bearing the same number included in the Company's Transition Report on Form 10-K for the period September 1, 1992 to December 31, 1993. Page - 16 -
Exhibits 10.146-10.148 are incorporated by reference to the Exhibits bearing numbers 10.1, 10.3 and 10.4, respectively, included in Post-Effective amendment No. 1 on Form 10/A, dated August 30, 1994, to the Registration Statement of Leslie Building Products, Inc. on Form 10 (Registration No. 0-24094). Exhibits 10.151 - 10.158 are incorporated by reference to the Exhibits included in the Company's Current Report on Form 8-K dated February 29, 1996. Exhibit 10.159 is incorporated by reference to the Exhibit bearing the same number included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Exhibits 10.160 - 10.164 are incorporated by reference to the Exhibits included in the Company's Current Report on Form 8-K dated October 16, 1997. Exhibits 10.165 - 10.178 are incorporated by reference to the Exhibits bearing the same numbers included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 13. 1998 Annual Report to Stockholders. Exhibit 13 is filed herewith. _______________ 21. Subsidiaries Exhibit 21 is filed herewith. _______________ 23. Consent of Independent Auditors. Exhibit 23 is filed herewith. _______________ 24. Powers of Attorney. Powers of Attorney of persons signing this Report are included as part of this Report. Page - 17 -