RecReational Vehicles &
ManufactuRed hoMes
20 08 A nnuAl Rep o Rt
Drew Industries Incorporated is a leading national supplier of components
for recreational vehicles and manufactured homes. Drew operates through
two wholly-owned subsidiaries, Kinro, Inc., and Lippert Components, Inc.
From 29 factories located throughout the United States, Drew supplies the foremost manufacturers of
recreational vehicles and manufactured homes. In 2008, recreational vehicle products accounted for
72 percent of Drew’s consolidated net sales, of which more than 90 percent are for travel trailer and
fifth-wheel RVs. Manufactured housing products accounted for 28 percent of Drew’s consolidated net sales.
Drew, through its wholly-owned subsidiaries, manufactures a broad array of components for recreational
vehicles and manufactured homes, including:
• Steel chassis
• Axles and suspension solutions
• RV slide-out mechanisms and solutions
• Thermoformed products
• Toy hauler ramp doors
• Manual, electric and hydraulic stabilizer
and lifting systems
• Specialty trailers for hauling boats, personal watercraft,
snowmobiles and equipment
• Vinyl and aluminum windows and doors
• Chassis components
• Furniture and mattresses
• Entry and baggage doors
• Entry steps
• Other towable accessories
Management of Drew is committed to acting ethically and responsibly, and to providing full and accurate
disclosure to the Company’s stockholders, employees and other stakeholders.
2008 net SAleS (in millions) $510.5
2008 net income (in millions) $11.7
In MEMORIAM
John Azzariti, our client service partner at KPMG LLP, the Company’s independent auditor, passed away on
December 13, 2008. John was a long-time valued advisor to Drew and its management. The guidance and quality
of service he brought to Drew was incomparable and irreplaceable. While words cannot convey how sorely John
Azzariti will be missed by the many that he touched in life, he was and will remain an inspiration to us all.
Financial highlights
(In thousands, except per share amounts)
2008(1)
2007
2006
2005
2004
Years Ended December 31,
Operating Data:
Net sales
Operating profit
Income before income taxes
Provision for income taxes
Net income
Net Income per common share:
Basic
Diluted
Financial Data:
Working capital
Total assets
Long-term obligations
Stockholders’ equity
$ 510,506
$ 668,625
$ 729,232
$ 669,147
$ 530,870
$ 19,898
$ 65,959
$ 55,295
$ 57,729
$ 43,996
$ 19,021
$ 63,344
$ 50,694
$ 54,063
$ 40,857
$ 7,343
$ 23,577
$ 19,671
$ 20,461
$ 15,749
$ 11,678
$ 39,767
$ 31,023
$ 33,602
$ 25,108
$
$
0.54
0.53
$
$
1.82
1.80
$
$
1.43
1.42
$
$
1.60
1.56
$
$
1.22
1.18
$ 84,378
$ 89,861
$ 61,979
$ 76,146
$ 57,204
$ 311,358
$ 345,737
$ 311,276
$ 307,428
$ 238,053
$ 9,763
$ 23,128
$ 47,327
$ 64,768
$ 61,806
$ 258,878
$ 251,536
$ 204,888
$ 167,709
$ 122,044
(1) The results in 2008 included charges for impairment of goodwill and executive retirement aggregating $4.9 million after taxes. Excluding
these charges, 2008 net income was $16.6 million, or $0.76 per diluted share.
800
700
600
500
400
300
200
100
0
15
12
9
6
3
0
Net Sales
(in millions)
Equity per
Common Share
Year-End Debt-to-
Equity Ratio
$729.2
$669.1
$668.6
$11.47
$12.03
0.6
$530.9
$510.5
$9.45
$7.81
0.4
$1.18
Net Income Per
Common Share
(diluted)
$1.80
$1.56
$1.42
$5.92
0.3
$0.53
0.1
0.0
2004
2005
2006
2007
2008
2004
2005
2006
2007
2008
2004
2005
2006
2007
2008
2004
2005
2006
2007
2008
Recreational Vehicle
Products Segment
Manufactured Housing
Products Segment
2 0 0 8 A n n u A l R e p o R t 1
0.6
0.5
0.4
0.3
0.2
0.1
0.0
2.0
1.5
1.0
0.5
0.0
L e t t e r t o S t o c k h o L d e r S
in these extraordinarily difficult times we are pleased to report that Drew is well-positioned
to both meet current economic challenges, and thrive when the economy and our
industries begin to recover. Despite unprecedented conditions in the latter part of 2008,
for the year Drew achieved a profit of $0.53 per share—or $0.76 per share excluding
goodwill impairment and executive retirement charges.
While we cannot control the economy, we can
significantly improved synergies between our operating
control the way we operate, our cost structure, and our
subsidiaries. All this was accomplished while maintain-
long-term strategy. Therefore, over the last several years
ing strong relationships with our customers, as well as
we have followed two parallel courses of action. First,
outstanding product quality and customer service. And
we have taken decisive steps to reduce costs, improve
we will do more.
production efficiencies, and build a strong balance
sheet through solid cash flow. Second, we have
expanded our product lines to provide new sources of
revenue and create new platforms for growth, when the
economy recovers.
coping with the Economy
In response to declines in the RV and manufactured
housing industries, and to improve operating efficien-
cies, we’ve made cost control and cash flow top priori-
As a result of these efforts and a conservative but
effective approach to growth, we’ve built a solid busi-
ness with a strong balance sheet and minimal debt. In
November 2008, we completed the refinancing of our
credit line and shelf-loan facilities, and we are extremely
pleased to have such solid partners as JPMorgan Chase,
Wells Fargo and Prudential. Further, despite weak eco-
nomic conditions, we expect to generate significant
cash flow in 2009.
ties. Since 2006, we have eliminated more than
Since recessions and the ebbing of industry cycles
$15 million of fixed costs, consolidated 26 facilities,
are unavoidable, we believe strong management teams
and reduced our workforce by more than half. We also
must know how to deal with these conditions in order
2
to prosper over the long term. In that sense, Drew’s
other products. We estimate that the RV components
management team has a solid history of success. Over
we supply now represent more than 10 percent of the
the past decade, we’ve successfully dealt with a
total manufacturing cost of the average travel trailer and
75 percent decline in the manufactured housing indus-
fifth-wheel RV produced by the industry.
try by adjusting our operations to match the level of
demand. In short, we can efficiently and quickly ramp
up capacity in the good times, and consolidate and
reduce costs on an orderly basis when market condi-
tions deteriorate.
Preparing for the Future
While we will continue to be conservative and fis-
cally responsible, we are also planning and preparing
for growth in the next phase of the economic cycle.
Over the last five years, we’ve expanded our product
We could not have achieved this level of product
content without the confidence of our customers. We
have worked extremely hard to demonstrate to our cus-
tomers that we can help them develop innovative prod-
ucts, and supply them with quality components, on
time, and at a fair price. We believe that our customers
will place an even greater value on partnering with a
supplier such as Drew, given our financial wherewithal
and management talent to remain strong during this
economic crisis. This should enable us to increase our
lines and increased our market share. We continue to
market share in the tough times, as we capitalize on
pursue prudent growth opportunities where we expect
our financial stability.
to realize significant returns on our investment with
minimal risk.
Further, as recovery in the economy and our
industries takes hold, we will begin to cautiously explore
In our RV segment, which accounted for 72 per-
opportunities in new industries and markets where we
cent of our 2008 consolidated sales, we’ve achieved
can utilize the skills and expertise that have enabled us
steady increases in our content per RV throughout the
to outperform the RV and manufactured housing indus-
last decade. In recent months, we have continued to
tries over the years. However, at this time, our first pri-
broaden our product lines with the addition of uphol-
ority is to maintain a strong balance sheet and solid
stered furniture, entry doors, stabilizing devices, and
cash flow.
2 0 0 8 A n n u A l R e p o R t 3
Of course despite our efforts, we cannot fully avoid
the past decade, are likely to lead to a recovery in the
the impact of the current pervasive economic and
RV industry.
industry conditions. As a supplier of components for
RVs and manufactured homes, both of which are
considered “big ticket” discretionary purchases by
many consumers, we face the “double-whammy”
of extremely tight credit markets and historically low
consumer confidence.
Further, the need for affordable homes provided by
the manufactured housing industry may well increase
as we recover from this recession. Many home buyers,
still remembering the pain they and others suffered
when they over-extended their finances to buy bigger,
more expensive homes, may be more likely to stay
Even those consumers confident enough and
within their means. Manufactured housing could help
financially healthy enough to purchase an RV or a man-
meet this potential increase in demand for more afford-
ufactured home may still have difficulty obtaining loans
able, yet quality homes.
for these purchases. At the same time, those dealers
experiencing healthy retail demand for their products
often cannot get inventory financing. Hopefully, the
government stimulus programs, some of which appear
When consumer confidence improves and credit
becomes more readily available, we will be in a position
to realize our potential for greater profits as a result of
our increased market share, broad product lines and
to be favorable for our industries, will have a positive and
strong balance sheet.
reasonably quick impact on the availability of loans for RV
consumers and dealers. While lenders are now focused
on reducing risk and leverage, we believe they will
eventually get back to their core business of providing
appropriately-priced loans to credit-worthy customers.
While the months ahead are likely to bring many
challenges, and even some disappointments, we are
confident in our ability to weather this economic storm,
due largely to our experienced, talented, and highly
motivated operating management team led by Jason
We also believe that consumers will get back to
Lippert. Jason and his team at Kinro and Lippert
buying RVs. Over time, demographic trends, along
Components have an outstanding track record of prod-
with the basic values and vacation preferences of
uct development, market share growth and cost control.
Americans which resulted in the growth of RVing over
Further, for many years we have had a highly effective
4
“pay-for-performance” incentive compensation program
potential of both the RV and manufactured housing
that motivated management to deliver superior operating
industries, and our long-standing strategy of organic
results. We recently enhanced that program to provide
growth, new product introductions, strategic acquisitions,
even greater motivation by placing more emphasis
and operational efficiencies.
on rewarding our executives for outperforming the
industries we serve, and focusing on long-term results
through equity compensation.
We continue to be extremely grateful to our many
dedicated employees who have had to work smarter,
harder, and longer in the face of uncertainty and diffi-
culty. And we deeply regret the need to have substan-
tially reduced our workforce.
In accordance with Drew’s executive succession
plan, in January 2009, Edward W. (Rusty) Rose,
On behalf of the Board of Directors and manage-
ment team, we thank you for your continued support
of Drew.
Edward W. Rose, iii
Lead Director
previously Chairman, was appointed Lead Director;
leigh J. abrams
Leigh J. Abrams, previously Chief Executive Officer, was
Chairman of the Board
appointed Chairman; and Fred Zinn, previously Chief
Financial Officer, was appointed Chief Executive Officer.
For nearly 30 years, the three of us have worked
together and devoted our efforts to Drew’s success.
While each of us has recently assumed a new role
and new responsibilities at the Company, we remain
committed to delivering superior operating results and
maximizing stockholder value. We continue to believe in
our outstanding operating management, the long-term
Fredric M. Zinn
President and Chief Executive Officer
2 0 0 8 A n n u A l R e p o R t 5
REcREatiOnal
VEhiclE
PRODucts
RV Products Segment Revenue =
$368 million
2000
drew’s rV Products Segment accounted for
72 percent of consolidated net sales in
2008, of which more than 90 percent were
used in travel trailers and fifth-wheel rVs.
1500
Since 2001, Drew’s content in the average RV produced
by the industry has increased 276%.
In the long term, the Company expects RV sales to be
driven by:
Positive demographic trends
Strong industry advertising campaign
Increasing popularity with younger families
Shift in US culture towards RV-related activities
Economical family vacations
1000
500
0
6
Drew Sales Content per RV
Produced Industry-wide
Peak sales potential is $3,500 to $3,800 per RV
$1,574
$1,326
$1,212
$1,048
$907
$684
$550
$419
Drew Sales Content per Manufactured
Home Produced Industry-wide
Peak sales potential is $3,600 to $4,000 per
manufactured home
$1,784
$1,754
$1,652
$1,507
$1,457
$1,021
$916
$763
2000
1500
1000
500
0
RV Products Segment Operating Profit Margins
8.7% 10.0% 11.6% 9.8% 9.7% 8.6% 12.8% 7.8%
MH Products Segment Operating Profit Margins
10.8% 10.9% 10.8% 10.5% 10.6% 9.1% 8.5% 7.7%
2001
2002
2003
2004
2005
2006
2007
2008
2001
2002
2003
2004
2005
2006
2007
2008
ManuFactuRED
hOusing
PRODucts
MH Products Segment Revenue =
$142 million
drew’s Mh Products Segment accounted for
28 percent of consolidated net sales in 2008.
Drew Sales Content per RV
Produced Industry-wide
Peak sales potential is $3,500 to $3,800 per RV
Since 2001, Drew’s content in the average manufactured
home produced by the industry has increased 117%.
$1,574
In the long term, the Company expects manufactured housing
sales to be driven by:
$907
$1,048
$1,326
Quality and affordability of the home
$1,212
Favorable demographic trends, including the increasing
number of retirees, who, in the past had represented a
significant market for manufactured homes
Pent-up demand by retirees who have been unable or
unwilling to sell their primary residence and purchase a
manufactured home
$419
Subprime mortgages with unrealistic terms, which lead to
greater demand for site-built homes, are no longer available
Favorable HUD code revisions
$684
$550
Drew Sales Content per Manufactured
Home Produced Industry-wide
Peak sales potential is $3,600 to $4,000 per
manufactured home
$1,784
$1,754
$1,652
$1,507
$1,457
$1,021
$916
$763
RV Products Segment Operating Profit Margins
8.7% 10.0% 11.6% 9.8% 9.7% 8.6% 12.8% 7.8%
MH Products Segment Operating Profit Margins
10.8% 10.9% 10.8% 10.5% 10.6% 9.1% 8.5% 7.7%
2001
2002
2003
2004
2005
2006
2007
2008
2001
2002
2003
2004
2005
2006
2007
2008
2 0 0 8 A n n u A l R e p o R t 7
2000
1500
1000
500
0
2000
1500
1000
500
0
C o rp o r ate Info rm atI o n
B oa rD o f D Ire C t o rS
C o rp o r at e o f fI C e rS
edward W. rose, III(1)
Lead Director of the Board of
Drew Industries Incorporated
President of Cardinal Investment
Company, Inc.
Leigh J. Abrams
Chairman of the Board
of Drew Industries Incorporated
Fredric M. Zinn
President and Chief Executive Officer
of Drew Industries Incorporated
Jason d. Lippert
Chairman, President and
Chief Executive Officer of
Lippert Components, Inc. and Kinro, Inc.
James F. Gero(1)(2)(3)
Private Investor and
Executive Chairman of Orthofix
International, N.V.
Frederick B. hegi, Jr.(1)(2)(3)
Founding Partner
Wingate Partners
david A. reed(1)(2)(3)
President of Causeway
Capital Management LLC
John B. Lowe, Jr.(1)(2)(3)
Chairman of TDIndustries, Inc.
Members of the Committees of the
Board of Directors, as follows:
(1) Compensation Committee
(2) Audit Committee
(3) Corporate Governance and
Nominating Committee
Fredric M. Zinn
President and Chief Executive Officer
Joseph S. Giordano III
Chief Financial Officer and Treasurer
harvey F. Milman, esq.
Vice President-Chief Legal Officer
and Secretary
christopher L. Smith
Corporate Controller
e X e C U tI V e o f fI C e S
200 Mamaroneck Avenue
White Plains, NY 10601
(914) 428-9098
website: www.drewindustries.com
E-mail: drew@drewindustries.com
K In r o, In C .
Corporate Headquarters
4381 Green Oaks Boulevard West
Arlington, TX 76016
(817) 483-7791
LIppe r t C o m p o n e n t S , In C .
Corporate Headquarters
2703 College Avenue
Goshen, IN 46528
(574) 535-1125
InD e pe nD e n t re gIS t e re D
pU B LI C a C C o U n tI n g fIrm
KPMG LLP
Stamford Square
3001 Summer Street
Stamford, CT 06905
BoarD of DIreCtorS
(LEFT TO RIgHT, TOP)
Edward W. Rose, III; Leigh J. Abrams;
Fredric M. Zinn; Jason D. Lippert
(LEFT TO RIgHT, BOTTOM)
James F. gero; Frederick B. Hegi, Jr.;
David A. Reed; John B. Lowe, Jr.
tr a nS fer ag en t a nD regIS tr a r
American Stock Transfer
& Trust Company
59 Maiden Lane
New York, NY 10038
(212) 936-5100
(800) 937-5449
website: www.amstock.com
C o rp o r at e g oV e rn a nC e
Copies of the Company’s Governance
Principles, Guidelines for Business
Conduct, Code of Ethics for Senior
Financial Officers, and the Charters
and Key Practices of the Audit,
Compensation, and Corporate
Governance and Nominating
Committees are on the Company’s
website, and are available upon
request, without charge, by
writing to:
Secretary
Drew Industries Incorporated
200 Mamaroneck Avenue
White Plains, NY 10601
C eo / C fo C e r t IfI C atI o n S
The most recent certifications by our
Chief Executive Officer and Chief
Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of
2002 are filed as exhibits to our
Form 10-K. We have also filed with
the New York Stock Exchange the
most recent Annual CEO Certification
as required by Section 303A.12 (a) of
the New York Stock Exchange Listed
Company Manual.
pay-f o r-p erfo rm a nC e
Through a combination of annual performance-based incentives and long-term stock options, Drew strives to attract, motivate
and retain talented, entrepreneurial and innovative management.
We have designed our pay-for-performance incentive compensation program to be the “workhorse” of our management
compensation. Performance-based incentive compensation has historically represented the major portion of the overall compensation
of our key managers. We believe that those key employees who have the greatest ability to inf luence the Company’s results
should be compensated primarily based on the financial results of those operations for which they are responsible.
Further, our stock option and deferred stock unit programs ensure that our managers have a continuing personal interest in the
long-term success of the Company and create a culture of ownership among management, while also rewarding long-term
return to stockholders.
8
2008 Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2008
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECUTITIES EXCHANGE ACT OF
1934 For the transition period from to ___________________
Commission file number: 001-13646
State or other jurisdiction of incorporation or organization
Delaware
13-3250533
(I.R.S. Employer Identification No.)
Drew Industries Incorporated
(Exact name of registrant as specified in its charter)
200 Mamaroneck Avenue, White Plains, NY
(Address of principal executive offices)
Registrant’s telephone number, including area code: (914) 428-9098
10601
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the securities Act.
(cid:1) Yes (cid:2) No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
(cid:1) Yes (cid:2) No
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. (cid:2) Yes (cid:1) No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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 of this Form 10-K. (cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12(b)-2 of the Exchange Act. Accelerated filer (cid:2)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). (cid:1) Yes (cid:2) No
The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which
the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal quarter was $221,339,282. Registrant has no non-voting common stock.
The number of shares outstanding of the registrant’s common stock, as of the latest practicable date (February 27, 2009) was
21,575,533 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement with respect to the 2009 Annual Meeting of Stockholders to be held on May 20, 2009 is incorporated by
reference into Items 10, 11, 12 and 14 of Part III.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to financial condition, results of operations, business
strategies, operating efficiencies or synergies, competitive position, growth opportunities for existing products,
plans and objectives of management, markets for the Company’s common stock and other matters. Statements in
this Form 10-K that are not historical facts are “forward-looking statements” for the purpose of the safe harbor
provided by Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 27A of the
Securities Act of 1933 (the “Securities Act”).
Forward-looking statements, including, without limitation, those relating to our future business prospects,
revenues, expenses, and income, whenever they occur in this Form 10-K are necessarily estimates reflecting the
best judgment of our senior management at the time such statements were made, and involve a number of risks
and uncertainties that could cause actual results to differ materially from those suggested by forward-looking
statements. 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. You should consider forward-looking
statements, therefore, in light of various important factors, including those set forth in this Form 10-K, and in our
subsequent Form 10-Qs filed with the Securities and Exchange Commission (“SEC”).
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 domestic and foreign competition, costs and availability of raw materials
(particularly steel and related components, vinyl, aluminum, glass and ABS resin), availability of credit for
financing the retail and wholesale purchase of manufactured homes and recreational vehicles, availability and
costs of labor, inventory levels of retailers and manufacturers, levels of repossessed manufactured homes and
RVs, the disposition into the market by the Federal Emergency Management Agency (“FEMA”), by sale or
otherwise, of RVs or manufactured homes purchased by FEMA in connection with natural disasters, changes in
zoning regulations for manufactured homes, continuing sales decline in either the RV or manufactured housing
industries, the financial condition of our customers, the financial condition of retail dealers of RVs and
manufactured homes, retention of significant customers, interest rates, oil and gasoline prices, and the outcome of
litigation. In addition, national and regional economic conditions and consumer confidence may affect the retail
sale of recreational vehicles and manufactured homes.
PART I
Item 1. BUSINESS.
Summary
Drew Industries Incorporated (“Drew” or the “Company” or the “Registrant”) has two reportable
operating segments: the recreational vehicle (“RV”) products segment (the “RV Segment”), and the manufactured
housing products segment (the “MH Segment”). The RV Segment accounted for 72 percent of consolidated net
sales for 2008, and the MH Segment accounted for 28 percent of consolidated net sales for 2008. More than 90
percent of the RV Segment sales were of products for travel trailers and fifth-wheel RVs. The balance represents
sales of components for motorhomes, and sales of specialty trailers for hauling boats, personal watercraft,
snowmobiles and equipment, as well as axles for specialty trailers. Drew’s operations are conducted through its
wholly-owned subsidiaries, Kinro, Inc. and its subsidiaries (collectively, “Kinro”), and Lippert Components, Inc.
and its subsidiaries (collectively, “Lippert”), each of which has operations in both the RV Segment and the MH
Segment.
Kinro manufactures and markets components primarily for RVs and manufactured homes including vinyl
and aluminum windows, doors and screens, and thermoformed products. Lippert manufactures and markets
components primarily for RVs and manufactured homes, including steel chassis, chassis components, RV slide-
out mechanisms and solutions, manual, electric and hydraulic stabilizer and lifting systems, entry and baggage
doors, axles and suspension solutions, toy hauler ramp doors, furniture and mattresses, entry steps, and other
towable accessories. Lippert also manufactures specialty trailers for hauling boats, personal watercraft,
2
snowmobiles and equipment, as well as axles for specialty trailers. Certain products manufactured by Kinro and
Lippert are also used in modular homes and office units.
Over the last ten years, the Company acquired a number of manufacturers of products for RVs,
manufactured homes, and specialty trailers, expanded its geographic market and product lines, consolidated
manufacturing facilities, and integrated manufacturing, distribution and administrative functions. At December
31, 2008, the Company operated 29 manufacturing facilities in 12 states, and achieved consolidated sales of $511
million for the year.
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; website www.drewindustries.com; e-mail drew@drewindustries.com.
The Company makes available free of charge on its website its Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K (and amendments to those reports) filed with the Securities and
Exchange Commission as soon as reasonably practicable after such materials are electronically filed.
Recent Developments
Management and Board Succession
In accordance with the Company’s executive succession plan, Edward W. Rose, III, Chairman of the
Board of Directors since 1984, was appointed Lead Director; Leigh J. Abrams, President, Chief Executive Officer
and a Director since 1984, was appointed Chairman of the Board of Directors; and Fredric M. Zinn, Executive
Vice President from 2001, Chief Financial Officer from 1984, and President and a Director since May 2008, was,
in addition to President, appointed Chief Executive Officer of the Company. Each of these appointments became
effective January 1, 2009.
In connection with the retirement, effective December 31, 2008, of David L. Webster as a Director of the
Company and as Chairman, President and Chief Executive Officer of Kinro, after approximately 30 years with
Kinro, and in accordance with the Company’s executive succession plan, the Board of Directors appointed Jason
D. Lippert to assume responsibility for the operations of Kinro while continuing his duties as Chairman, President
and Chief Executive Officer of Lippert. Mr. Lippert was appointed Chairman, President and Chief Executive
Officer of Kinro effective January 1, 2009.
In May 2008, Joseph S. Giordano III, formerly Corporate Controller and Treasurer of the Company, was
promoted to Chief Financial Officer and Treasurer, and Christopher L. Smith, formerly Assistant Controller, was
promoted to Corporate Controller.
Decline in Sales and Profits
In 2008, industry-wide wholesale shipments of travel trailers and fifth wheel RVs, the Company’s
primary RV markets, declined 29 percent according to the Recreational Vehicle Industry Association (“RVIA”),
and Statistical Surveys, Inc. reported that retail sales of travel trailers and fifth wheel RVs declined 23 percent.
Retail statistics do not include sales of RVs in Canada, however, industry-wide wholesale shipment statistics
include shipments to Canada. The RVIA reported that nearly one in five towable RVs in 2007 was shipped to
Canada. Recent RV dealer surveys indicate that inventories at most dealers, while lower than last year, are still
higher than would be preferred in this economic environment and in light of reduced demand.
Industry-wide wholesale production of manufactured homes has declined 78 percent since 1998,
including a 14 percent decline in 2008, to 81,900 homes. The Institute for Building Technology and Safety
reported that for 2008, industry-wide wholesale production of multi-section manufactured homes decreased 21
percent over the prior year, and smaller single-section homes, in which the Company has less average content per
home, declined 1 percent.
3
In Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
we describe in detail the effect on our operations of the substantial decline in sales in both the RV Segment and
the MH Segment during 2008 and 2007.
Briefly, during 2008, as a result of the severe economic downturn and the resulting decline in shipments
by the recreational vehicle and manufactured housing industries, the two industries to which we sell our products,
we suffered a 24 percent decline in our sales from $669 million in 2007 to $511 million in 2008. Our net income
declined 71 percent from $39.8 million in 2007 to $11.7 million in 2008. The drop in industry shipments was
most severe during the 2008 fourth quarter and, as a result, we experienced a net loss of $9.2 million, for the 2008
fourth quarter, which included $4.9 million related to goodwill impairment and executive retirement charges,
compared to net income of $6.5 million for the 2007 fourth quarter. However, the decline in our net income for
the year and fourth quarter would have been substantially greater had it not been for an aggressive program of
cost-cutting measures and efficiency improvements implemented beginning in the latter part of 2006, as well as
the introduction of a variety of new products.
On February 27, 2009, the RVIA published its latest forecast of industry production for 2009, which
projects a 43 percent decline in the production of travel trailers and fifth wheel RVs as compared to 2008. In
response, the Company expects to further reduce fixed costs, workforce, and production capacity to be more in line
with anticipated demand. The Company expects that these steps, in conjunction with reductions in working capital,
will enable the Company to generate cash flow in 2009.
Financing
On November 25, 2008, the Company and its subsidiaries entered into a new $50 million revolving line
of credit facility with JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A. (collectively, the “Lenders”),
which expires in December 2011. This new credit facility replaced the Company’s previous $70 million credit
facility which was scheduled to expire in June 2009. Interest rates under the new credit facility are generally
higher than under the prior credit facility.
Simultaneously, the Company entered into a $125 million “shelf-loan” facility with Prudential Investment
Management, Inc., and its affiliates (“Prudential”), replacing the Company’s previous $60 million shelf-loan
facility with Prudential. The new shelf-loan facility provides for Prudential to consider purchasing, at the
Company’s request, in one or a series of transactions, Senior Promissory Notes of the Company in the aggregate
principal amount of up to $125 million, to mature no more than twelve years after the date of original issue of
each Note. Prudential has no obligation to purchase the Notes. Interest payable on the Notes will be at rates
determined within five business days after the Company issues a request to Prudential. The shelf-loan facility
expires in November 2011.
Acquisitions
On July 1, 2008, Lippert acquired certain assets and liabilities, and the business of Seating Technology,
Inc. and its affiliated companies (“Seating Technology”), a manufacturer of a wide variety of furniture products
primarily for towable RVs, including a full line of upholstered furniture, mattresses, decorative pillows, wood-
backed valances and quilted soft good products. Seating Technology had annual sales of $40 million in 2007. The
purchase price was $28.7 million, which was financed from available cash. Subsequent to the acquisition, Lippert
closed two of Seating Technology's five leased facilities in Indiana, and consolidated those operations into
existing facilities.
Stock Repurchase
On November 29, 2007, the Company announced a stock repurchase of up to one million shares of its
Common Stock. The Company is authorized to purchase shares from time to time on the open market, or in
privately negotiated transactions or block trades. The number of shares ultimately repurchased, and the timing of
the purchases, will depend upon market conditions, share price, and other factors. During 2008, the Company
repurchased 447,400 shares of its Common Stock at an average price of $18.58 per share or an aggregate of $8.3
million. At present, due to the current economic conditions, the Company believes it is to prudent conserve cash,
4
and does not intend to repurchase shares in the short-term. However, changing conditions may cause the
Company to reconsider this position.
RV Segment
Through its wholly-owned subsidiaries, the Company manufactures and markets a number of components
used in the production of RVs, primarily travel trailers and “fifth-wheel” RVs, including:
●Towable RV steel chassis
●Towable RV axles and suspension solutions
●RV slide-out mechanisms and solutions
●Thermoformed products
●Toy hauler ramp doors
●Manual, electric and hydraulic stabilizer
and lifting systems
●Aluminum windows and screens
●Chassis components
●Furniture and mattresses
●Entry and baggage doors
●Entry steps
●Other towable accessories
●Specialty trailers for hauling boats, personal
watercraft, snowmobiles and equipment
In 2008, the RV Segment represented 72 percent of the Company's consolidated net sales, and 72 percent
of consolidated segment operating profit. More than 90 percent of the Company’s RV Segment sales are of
products used in travel trailers and fifth-wheel RVs. The balance represents sales of components for motorhomes,
and sales of specialty trailers, as well as axles for specialty trailers.
Raw materials used by the Company's RV Segment, consisting primarily of fabricated steel (coil, sheet,
tube and I-beam), extruded aluminum, glass, fabric and polyfoam are available from a number of sources.
Operations of the Company's RV Segment consist primarily of fabricating, welding, painting and
assembling components into finished products, and tempering glass. The Company's RV Segment operations are
conducted at 19 manufacturing and warehouse facilities throughout the United States, strategically located in
proximity to the customers they serve. Of these facilities, 7 also conduct operations in the Company's MH
Segment. See Item 2. “Properties.”
The Company's RV Segment products are sold primarily to major manufacturers of RVs such as Thor
Industries (ticker symbol: THO), Forest River (a subsidiary of Berkshire Hathaway (ticker symbol: BRKA)), and
Heartland Recreational Vehicles.
The Company's RV Segment operations compete on the basis of price, customer service, product quality,
and reliability. Although definitive information is not readily available, the Company believes that (i) its market
share for most of its towable recreational vehicle window and door products exceeds 75 percent; (ii) the two
leading suppliers of RV chassis and chassis parts are the Company and Dexter, a division of Tomkins plc, and the
Company's market share for RV chassis, chassis parts and slide-out mechanisms for travel trailers and fifth wheel
RVs is approximately 70 percent; (iii) the leading suppliers of axles for towable RVs are the Company, Al-Ko
Kober and Dexter, and the Company’s market share for axles for towable RVs is approximately 50 percent, and
(iv) its market share for upholstered furniture for RVs is approximately 20 percent, and the Company competes
with several other manufacturers. See Item 1. “Business – Intellectual Property” for a description of the patent
license agreement applicable to the Company’s slide-out mechanisms.
Detailed narrative information about the results of operations of the RV Segment is included in Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
MH Segment
The Company’s subsidiaries in the MH Segment manufacture and market a number of components for
manufactured homes and, to a lesser extent, modular housing and office units, including vinyl and aluminum
windows and screens, steel chassis, steel chassis parts, axles and thermoformed bath and kitchen products. In
2008, the MH Segment represented 28 percent of the Company's consolidated sales, and 28 percent of
consolidated segment operating profit. Certain of the Company’s MH Segment customers manufacture both
5
manufactured homes and modular homes, and certain of the products manufactured by the Company are suitable
for both manufactured homes and modular homes. As a result, the Company is not always able to determine in
which type of home its products are installed. The MH Segment also supplies related products to other industries,
representing approximately 5 percent of sales of this segment.
Raw materials used by the Company's MH Segment, consisting of fabricated steel (coil, sheet, and I-
beam), extruded aluminum and vinyl, glass, and ABS resin, are available from a number of sources.
Operations of the Company's MH Segment consist primarily of fabricating, welding, thermoforming,
painting and assembling components into finished products. The Company's MH Segment operations are
conducted at 17 manufacturing and warehouse facilities throughout the United States, strategically located in
proximity to the customers they serve. Of these facilities, 7 also conduct operations in the Company's RV
Segment. See Item 2. “Properties.”
The Company's manufactured housing products are sold primarily to major builders of manufactured
homes such as Clayton Homes (a subsidiary of Berkshire Hathaway (ticker symbol: BRKA)), Champion
Enterprises (ticker symbol: CHB), and Skyline Corporation (ticker symbol: SKY).
The Company's MH Segment competes on the basis of price, customer service, product quality, and
reliability. Although definitive information is not readily available, the Company believes that (i) the two leading
suppliers of windows for manufactured homes are the Company and Philips Industries, a subsidiary of Tomkins
plc, and the Company's market share for windows and screens exceeds 75 percent; (ii) the Company's
manufactured housing chassis and chassis parts operations compete with several other manufacturers of chassis
and chassis parts, as well as with builders of manufactured homes, most of which produce their own chassis and
chassis parts, and the Company’s market share for chassis and chassis parts for manufactured homes is
approximately 35 percent; and (iii) the Company’s thermoformed bath and kitchen unit operation competes with
three other manufacturers of bath and kitchen units and the Company’s market share for bath and kitchen products
in the product lines the Company supplies exceeds 50 percent.
Detailed narrative information about the results of operations of the MH Segment is included in Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Sales and Manufacturing
Other than the activities of its sales personnel and maintenance of customer relationships through price,
quality of its products, service, and customer satisfaction, the Company does not engage in significant marketing
efforts nor incur significant marketing or advertising expenditures.
The Company has several supply agreements or other formal relationships with certain of its customers
that provide for prices of various products to be fixed for periods generally not in excess of one year; however, in
certain cases the Company has the right to renegotiate the prices on sixty-days’ notice. Both the RV Segment and
the MH Segment typically ship products on average within one to two weeks of receipt of orders from their
customers and, as a result, neither segment has any significant backlog.
In 2008, the Company’s facilities operated at an average of approximately 35 percent of their practical
capacity, and typically ran one shift of production per day. Therefore, the Company has the ability to more than
double production should demand increase in the RV or manufactured housing industries. Due to seasonal
demand, capacity utilization varies during the year. At December 31, 2008, the Company had 29 facilities, and for
most products has the ability to fill demand in excess of capacity at individual facilities by shifting production to
other facilities, but the Company would incur additional freight costs. Capital expenditures for 2008 were $4.2
million. The ability to expand capacity in certain product areas, if necessary, as well as the potential reallocation
of existing resources, is monitored regularly by management.
The Company’s operations are somewhat seasonal, as sales are slower in the first and fourth quarters,
consistent with the industries which the Company supplies.
6
Intellectual Property
The Company manufactures and sells certain of its slide-out mechanisms pursuant to a non-exclusive
license granted by the exclusive licensee and owner of three patents until October 24, 2017, the date of the last to
expire of the patents. Pursuant to the license, remaining royalties are payable by the Company on an annual basis
until expiration of the patents at the rate of one percent of sales of certain slide-out mechanisms produced by the
Company. For 2008, the Company paid royalties of $0.2 million on sales of applicable slide-out systems.
Pursuant to the license, royalty payments subsequent to December 31, 2008 through the expiration of the patents
can not exceed an aggregate of $4.4 million.
The Company holds several United States patents that relate to various products sold by the Company,
and has granted certain licenses that permit third parties to manufacture and sell products in consideration for
royalty payments. While the Company believes that its patents are valuable, and vigorously protects its patents
when appropriate, none of the individual patents is essential to the Company or its business segments.
From time to time the Company has received notices that it may be infringing certain patent rights of
others, and the Company has given notices to others that they may be infringing certain patent rights of the
Company. Although the Company has asserted patent infringement claims against others, no material litigation is
currently pending as a result of these claims.
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, structural
integrity, thermal performance, emergency exit conformance and, hurricane resistance. Certain of the Company’s
products must also comply with the International Code Council standards, such as the IRC (International
Residential Code), the IBC (International Building Code), and the IECC (International Energy Conservation
Code) as well as state and local building codes. Thermoformed bath products manufactured by the Company for
manufactured homes must comply with performance and construction regulations promulgated by HUD.
Windows and doors produced by the Company for the RV industry are regulated by The United States
Department of Transportation Federal Highway Administration (“DOT”) and National Highway Traffic Safety
Administration division of the DOT 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. The Company also sells
new tires and axles. New tires distributed by the Company are subject to regulations promulgated by DOT and by
HUD relating to weight tolerance, maximum speed, size, and components.
Trailers produced by the Company for hauling boats, personal watercraft, snowmobiles and equipment
must comply with regulations promulgated by the National Highway Traffic Safety Administration (“NHTSA”)
and Federal Motor Vehicle Safety Standards relating to lighting, breaking, wheels, tires and other vehicle systems.
Rules promulgated under the Transportation Recall Enhancement, Accountability and Documentation Act
(the “Tread Act”) require manufacturers of motor vehicles and certain motor vehicle related equipment to
regularly make reports and submit documents and certain historical data to NHTSA to enhance motor vehicle
safety, and to respond to requests for information relating to specific complaints or incidents.
Upholstered products and mattresses produced by the Company for motorized RVs must comply with
Federal Motor Vehicle Safety Standards promulgated by NHTSA and regulations promulgated by the Consumer
Products Safety Commission regarding flammability. Plywood, particleboard and fiberboard used in these
products are required to comply with standards for formaldehyde emission levels promulgated by the California
Air Resources Board and adopted by the RVIA.
7
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 has made reports and submitted information as required. The Company 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.
Employees
The number of persons employed full-time by the Company and its subsidiaries at December 31, 2008
was 2,223, compared to 3,499 at December 31, 2007. Of the total, 1,827 were in manufacturing and product
research and development, 86 in transportation, 34 in sales, 83 in customer support and servicing, and 193 in
administration. None of the employees of the Company and its subsidiaries are subject to collective bargaining
agreements. The Company and its subsidiaries believe that relations with its employees are good.
Item 1A. RISK FACTORS.
Industry Risk Factors
Economic and business conditions beyond our control have had a significant adverse impact on our
earnings, and these conditions may continue.
Our net sales in 2008 fell 24 percent compared to 2007, and net income for 2008 declined 71 percent
compared to 2007, primarily as a result of the 29 percent decline in industry-wide wholesale shipments of travel
trailers and fifth wheel RVs in 2008, as well as a 14 percent decline in industry-wide wholesale production of
manufactured homes. This decline in sales accelerated during the latter part of 2008, and is continuing in 2009.
On February 27, 2009, the RVIA published its latest forecast of industry production for 2009, which projects a 43
percent decline in the production of travel trailers and fifth wheel RVs as compared to 2008.
We attribute these declines to a combination of factors, including the weak economy and resulting
recession, tight credit, low consumer confidence, and the deterioration in the real estate and mortgage markets,.
As a result, it appears that consumers are reluctant to make purchases of discretionary “big-ticket” items such as
RVs and manufactured homes. See Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations”.
These factors have caused a severe decline in the demand and production of RVs and manufactured
homes, which has reduced the demand for our products, and therefore significantly reduced our sales during 2008.
Our annual results of operations will likely decline if these conditions persist unabated.
Reductions in the availability of wholesale financing limits the inventories carried by retail dealers of
RVs and manufactured homes, which causes reduced production of RVs and manufactured homes and reduced
demand for our products.
Retailer dealers of RVs and manufactured homes generally finance their purchases of inventory with
financing provided by lending institutions, often called floor-plan financing. Reduction in the availability of
wholesale financing has prevented many retailers from carrying adequate inventories of RVs and manufactured
homes, which has caused reduced production of RVs and manufactured homes, resulting in reduced demand for
our products.
Moreover, dealers which are unable to obtain adequate financing could cease operations. Their remaining
inventories would likely be sold at deep discounts. Such sales would cause a decline in orders for new inventory,
which would reduce demand for our products.
8
The recession and conditions in the credit market have limited, and could continue to limit, the ability of
consumers to obtain financing for RVs and manufactured homes, resulting in reduced demand for our products.
There have been significant changes in the lending practices of financial institutions, and many lenders
have severely restricted loan availability. Limitations on the availability of financing for RVs and manufactured
homes limit the ability of consumers to purchase RVs and manufactured homes, resulting in reduced production
of RVs and manufactured homes, and reduced demand for our products.
Limited availability of financing for manufactured homes on leased land and higher costs of this
financing limits the ability of consumers to purchase manufactured homes, which would result in reduced demand
for our products.
Frequently, manufactured homes are purchased, and the land on which they are placed is leased. Loans
used to finance the purchase of manufactured homes without land, also known as chattel loans, usually have
shorter terms and higher interest rates, and are more difficult to obtain than mortgages for manufactured or site-
built homes that are on owned land. Historically, lenders required higher credit scores and other criteria for these
loans. Current lending criteria are even higher, and many potential buyers of manufactured homes may not
qualify. The availability, cost, and terms of these chattel loans are also dependent on economic conditions,
lending practices of financial institutions, governmental policies, and other factors, all of which are beyond our
control. Reductions in the availability of financing for manufactured homes and increases in the costs of this
financing have limited, and could continue to limit, the ability of consumers to purchase manufactured homes,
resulting in reduced production of manufactured homes and reduced demand for our products.
Excess inventories by retailers and manufacturers has caused a decline in the demand for our products.
As a result of the severe decline in sales of RVs and manufactured homes, retailers and manufacturers of
RVs and manufactured homes may have excess unsold inventory. Existence of excess inventory causes a
reduction in orders for new RVs and manufactured homes. Accordingly, in 2008 manufacturers of RVs and
manufactured homes reduced production, which caused a decline in demand for our products. If these conditions
persist, our sales may continue to decline.
High levels of repossessions of manufactured homes and RVs could cause manufacturers to reduce
production of new manufactured homes and RVs, resulting in reduced demand for our products.
Repossessed homes are resold by lenders, often at substantially reduced prices, which reduces the demand
for new manufactured homes. Currently prevailing economic conditions could result in loan defaults and cause
high levels of repossessions, which would cause manufacturers to reduce production of new manufactured homes,
resulting in reduced demand for our products.
In addition, currently prevailing economic conditions could result in defaults of loans used to purchase
RVs, resulting in repossessions. Repossessed RVs are resold by lenders, often at substantially reduced prices.
High levels of repossessed RVs would cause manufacturers to reduce production of new RVs resulting in reduced
demand for our products.
Gasoline shortages, or high prices for gasoline, could lead to reduced demand for our products.
Fifth-wheel RVs and travel trailers, components for which represent 90 percent of our RV Segment sales,
are usually towed by SUVs or light trucks. Generally, these vehicles use more fuel than automobiles, particularly
while towing RVs. High prices for gasoline, or anticipation of potential fuel shortages, can affect consumer use
and purchase of SUVs and light trucks which would result in reduced demand for fifth-wheel RVs and travel
trailers, and therefore reduced demand for our products.
9
The manufactured housing industry has been experiencing a significant decline in shipments.
Our MH Segment, which accounted for 28 percent of consolidated net sales for 2008, operates in an
industry which has been experiencing a decline in production of new homes since 1998. Initially, the downturn
was caused, in part, by limited availability of financing, but has been exacerbated by current economic conditions.
Moreover, because of the weak market for conventional housing, retirees may not be able to sell their
primary residences, or may be unwilling to sell at currently depressed prices, and purchase less expensive
manufactured homes. In addition, the availability of foreclosed site-built homes at reduced prices could impact the
demand for manufactured homes.
If these conditions persist, it is not likely that the manufactured housing industry will improve in the
short-term, and certain of our customers could experience financial difficulties. These factors could result in
reduced demand for products from our MH Segment, as well as difficulties in collecting accounts receivable.
Changes in zoning regulations for manufactured homes could lead to reduced demand for our products.
Manufactured housing communities and individual home placements are subject to local zoning
regulations. In the past, there has been resistance by local property owners and zoning officials to zoning
ordinances allowing the location of manufactured homes in certain areas comprised of conventional residences.
Continued resistance to these zoning ordinances could have an adverse impact on sales and production of
manufactured homes, which would reduce demand for our products.
Company-specific Risk Factors
Changes in executive management have been implemented which could affect our operating results.
In November 2008, in accordance with our management succession plan, Fredric M. Zinn, Executive
Vice President from 2001 to 2008, Chief Financial Officer from 1984 to 2008, and President and a Director since
May 2008, was, in addition to President, appointed Chief Executive Officer. This appointment became effective
January 1, 2009.
David L. Webster retired as Chairman, President and Chief Executive Officer of Kinro, effective January
1, 2009 after more than 30 years with Kinro. Jason D. Lippert has assumed responsibility for the operations of
Kinro, and will also continue as Chairman, President and CEO of Lippert.
In May 2008, Joseph S. Giordano III, formerly Corporate Controller and Treasurer of the Company, was
promoted to Chief Financial Officer and Treasurer, and Christopher L. Smith, formerly Assistant Controller, was
promoted to Corporate Controller.
Although we anticipate that these management transitions will be successful, there can be no assurance at
this time.
Volatile raw material costs could adversely impact our financial condition and operating results.
The prices we pay for steel, which represents about 55 percent of our raw material costs, and other key
raw materials, have been volatile and have increased significantly since 2004. The impact of higher raw materials
costs historically has been substantially offset by sales price increases to our customers. However, there can be no
assurance that such price increases can be continued during the current economic downturn and the decline in the
RV and manufactured housing industries.
Because competition and business conditions may limit the amount or timing of increases in raw material
costs that can be passed through to customers in the form of price increases, future increases in raw material costs
would adversely impact our financial condition and operating results. Conversely, as raw material costs decline,
we may not be able to maintain selling prices consistent with higher cost raw materials in our inventory, which
would adversely affect our operating results
10
Inadequate supply of raw materials used to make our products could adversely impact our financial
condition and operating results.
If raw materials or components that are used in manufacturing our products, particularly those which we
import, become unavailable, or if the supply of these raw materials and components is interrupted, our
manufacturing operations could be adversely affected.
Increases in labor rates or reduced availability of labor could adversely impact our financial condition and
operating results.
Shortages of qualified eligible employees and other factors could result in increased labor costs. Because
the current economic downturn and decline in the RV and manufactured housing industries, as well as
competition, may limit the amount of labor increases that can be passed through to customers in the form of price
increases, increased labor costs could adversely impact our financial condition and operating results.
We are involved in certain litigation, which, if decided adversely to us, could have a material adverse
affect on our financial condition.
A case is pending against Kinro, purporting to be a class action, in which it is alleged that certain bathtubs
manufactured by Kinro for use in manufactured homes fail to comply with certain safety standards relating to
flame spread. Kinro denies the allegations, is vigorously defending against the claims, and based on extensive
investigation, believes that the bathtubs are in compliance with applicable regulations. Further detail regarding the
litigation is provided in this Report in Item 3. “Legal Proceedings.”
The loss of any customer accounting for more than 10 percent of our consolidated sales could have
material adverse impact on our operating results.
One customer of the RV Segment accounted for 21 percent, and another customer of both the RV
Segment and the MH Segment accounted for 22 percent, of the our consolidated net sales in 2008. The loss of
either of these customers could have a material adverse impact on our operating results; however, because we sell
a variety of products to these customers in several geographic regions, we believe it is unlikely that we would lose
the entire business of either of these customers.
The financial condition of several of our significant customers could adversely impact our financial
condition and operating results.
Financial difficulties experienced by certain of our significant customers as a result of the sharp decline in
sales of RVs and manufactured homes could result in reduced demand for our products, as well as losses due to
the inability to collect accounts receivable.
Competitive pressures could reduce demand for our products.
Domestic and foreign competitors may lower prices on products which currently compete with our
products, or develop product improvements, which could reduce demand for our products.
Our operating results could continue to decline in a prolonged recession which would affect our liquidity.
If the economic conditions that prevailed during the later part of 2008 and the first quarter of 2009
continue or worsen, production of RVs and manufactured homes will likely decline even further, resulting in
reduced demand for our products. A further decline in our operating results could affect our liquidity. However,
we have low debt levels and we believe that our cash flow, as well as our credit line and “shelf-loan” facilities,
provide adequate sources of liquidity, even though availability of borrowings under these facilities could be
limited by our operating results.
11
Additional non-cash charges for impairment to goodwill and other intangible assets may be required.
The declines in the industries to which we sell our products have been severe, and demand for our
products has declined. Continuation of the downturn in these industries could result in additional non-cash
impairment charges for goodwill and other intangible assets.
Item 1B. UNRESOLVED STAFF COMMENTS.
None.
Item 2. PROPERTIES.
The Company’s manufacturing operations are conducted at facilities that are used for both manufacturing
and warehousing. In addition, the Company maintains administrative facilities used for corporate and
administrative functions. At December 31, 2008, the Company's properties were as follows:
City
Fontana
Rialto (1)
Fitzgerald (1)
Burley
Goshen (1)
Goshen
Elkhart
Goshen
Goshen (1)
Topeka
Goshen
Goshen
Elkhart
Goshen
Pendleton
McMinnville (1)
Waxahachie (1)
Longview (1)
Kaysville
RV PRODUCTS SEGMENT
State
California
California
Georgia
Idaho
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Oregon
Oregon
Texas
Texas
Utah
Square Feet
108,800
56,430
15,800
17,000
340,000
171,000
100,000
93,000
69,900
67,560
65,000
53,500
53,289
41,500
56,800
12,350
40,000
29,450
75,000
1,466,379 (2)
Leased
Owned
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(1) These plants also produce products for manufactured homes. The square footage indicated
above represents that portion of the building that is utilized for manufacture of products for
RVs.
(2) At December 31, 2007, the Company’s RV Segment used an aggregate of 1,644,001 square feet
for manufacturing and warehousing.
12
City
Double Springs
Rialto (1)
Ocala
Cairo
Fitzgerald (1)
Nampa
Goshen
Goshen (1)
Middlebury
Goshen (1)
Arkansas City
McMinnville (1)
Denver
Dayton
Waxahachie (1)
Mansfield
Longview (1)
MH PRODUCTS SEGMENT
State
Alabama
California
Florida
Georgia
Georgia
Idaho
Indiana
Indiana
Indiana
Indiana
Kansas
Oregon
Pennsylvania
Tennessee
Texas
Texas
Texas
Square Feet
109,000
6,270
47,100
105,000
63,200
83,500
110,000
70,000
61,113
25,800
7,800
12,350
40,200
100,000
160,000
61,500
29,450
1,092,283 (2)
Owned
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
Leased
(cid:3)
(cid:3)
(cid:3)
(1) These plants also produce products for RVs. The square footage indicated above represents that
portion of the building that is utilized for manufacture of products for manufactured homes.
(2) At December 31, 2007, the Company’s MH Segment used an aggregate of 1,197,770 square feet
for manufacturing and warehousing.
.
ADMINISTRATIVE
City
White Plains
Goshen
Arlington
Goshen
Phoenix
Lake Havasu
State
New York
Indiana
Texas
Indiana
Arizona
Arizona
Square Feet
Owned
(cid:3)
4,059
15,500
8,500
22,000
1,000
2,000
53,059
Leased
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
At February 28, 2009, the Company owned the following properties held for sale, having an
aggregate book value of approximately $5.9 million:
City
Boaz
Elkhart *
Howe
Phoenix
Middlebury
Arkansas City
State
Alabama
Indiana
Indiana
Arizona
Indiana
Kansas
Square Feet
86,600
42,000
60,000
61,000
12 acres of land
5 acres of land
* Under contract for sale
13
Item 3. LEGAL PROCEEDINGS.
On or about January 3, 2007, an action was commenced in the United States District Court, Central
District of California entitled Gonzalez vs. Drew Industries Incorporated, Kinro, Inc., Kinro Texas Limited
Partnership d/b/a Better Bath Components; Skyline Corporation, and Skylines Homes, Inc. (Case No. CV06-
08233). The case purports to be a class action on behalf of the named plaintiff and all others similarly situated in
California. Plaintiff initially alleged, but has not sought certification of, a national class.
On April 1, 2008, the Court issued an order granting Drew’s motion to dismiss for lack of personal
jurisdiction, resulting in the dismissal of Drew Industries Incorporated as one of the defendants in the case.
Plaintiff alleges that certain bathtubs manufactured by Kinro Texas Limited Partnership, a subsidiary of
Kinro, Inc., and sold under the name “Better Bath” for use in manufactured homes, fail to comply with certain
safety standards relating to flame spread established by the United States Department of Housing and Urban
Development (“HUD”). Plaintiff alleges, among other things, that sale of these products is in violation of various
provisions of the California Consumers Legal Remedies Act (Sec. 1770 et seq.), the Magnuson-Moss Warranty
Act (Sec. 2301 et seq.), and the California Song-Beverly Consumer Warranty Act (Sec. 1790 et seq.).
Plaintiff seeks to require defendants to notify members of the class of the allegations in the proceeding
and the claims made, to repair or replace the allegedly defective products, to reimburse members of the class for
repair, replacement and consequential costs, to cease the sale and distribution of the allegedly defective products,
and to pay actual and punitive damages and plaintiff’s attorneys fees.
On January 29, 2008, the Court issued an Order denying certification of a class with plaintiff Gonzalez as
the class representative. The Court ruled that plaintiff may not be an appropriate class representative for injunctive
relief because her bathtub had been replaced. The Court granted plaintiff leave to amend the complaint to add a
different plaintiff.
On March 10, 2008, plaintiff amended her complaint to include an additional plaintiff, Robert Royalty.
Plaintiff Royalty states that his bathtub was not tested to determine whether it complies with HUD standards.
Rather, his allegations are based on “information and belief”, including the testing of plaintiff Gonzalez’s bathtub
and other evidence. Kinro denies plaintiff Royalty’s allegations, and intends to continue its vigorous defense
against both plaintiffs’ claims.
On June 25, 2008, plaintiffs filed a renewed motion for class certification. On October 20, 2008, the Court
again denied certification of a class, without prejudice, which allowed plaintiffs to file a new motion for
certification if plaintiffs are able to satisfy the Court’s concerns over the viability of plaintiffs’ case. Plaintiffs
filed a third motion for class certification on December 23, 2008. Defendants’ initial motion seeking summary
judgment against plaintiffs’ case, which was withdrawn pending further discovery, was supplemented and refiled
on December 23, 2008. A hearing on these motions was held on March 2, 2009, but a decision by the Court has
not yet been received.
Defendant Kinro has conducted a comprehensive investigation of the allegations made in connection with
the claims, including with respect to the HUD safety standards, prior test results, testing procedures, and the use
of labels. In addition, at Kinro’s initiative, independent laboratories conducted multiple tests on materials used by
Kinro in the manufacture of bathtubs, the results of which tests indicate that Kinro’s bathtubs are in compliance
with HUD regulations.
Based on the foregoing investigation and testing, Kinro believes that plaintiffs may not be able to prove
the essential elements of their claims, and defendants intend to vigorously defend against the claims.
Moreover, Kinro believes that, because test results received by Kinro confirm that it is in compliance with
HUD safety standards, no remedial action is required or appropriate.
In October 2007, the parties participated in voluntary non-binding mediation in an effort to reach a
settlement. Kinro made an offer of settlement consistent with its belief regarding the merits of plaintiffs’
14
allegations. Although no settlement was reached, the parties have since had intermittent discussions. The outcome
of such settlement efforts cannot be predicted.
If plaintiffs’ motion for class certification is granted, and defendants’ motion for summary judgment is
denied, and if plaintiffs pursue their claims, protracted litigation could result. Although the outcome of such
litigation cannot be predicted, if certain essential findings are ultimately unfavorable to Kinro, the Company could
sustain a material liability. The Company’s liability insurer denied coverage on the ground that plaintiffs did not
sustain any personal injury or property damage.
In connection with a tax audit by the Indiana Department of Revenue pertaining to calendar years 1998
to 2000, the Company received an initial examination report asserting, in the aggregate, approximately $1.2
million of proposed tax adjustments, including interest and penalties. After two hearings with the Indiana
Department of Revenue, the audit findings were upheld. The Company filed an appeal in December 2006 with the
Indiana Tax Court and the matter was scheduled for trial in December 2008. In November 2008, the Company
and the Indiana Department of Revenue reached an agreement in principle to settle tax years 1998 to 2000 for
$0.6 million, as well as 2001 to 2006 for $4.0 million, subject to final documentation. This amount has been fully
reserved, and is expected to be paid in the first half of 2009.
In the normal course of business, the Company is subject to proceedings, lawsuits and other claims. All
such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters
could materially affect operating results when resolved in future periods, it is management’s opinion that after
final disposition, including anticipated insurance recoveries, any monetary liability or financial impact to the
Company beyond that provided in the Consolidated Balance Sheet as of December 31, 2008, would not be
material to the Company’s financial position or annual results of operations.
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 January 1, 2009.
Name
Position
Fredric M. Zinn
(Age 57)
Leigh J. Abrams
(Age 66)
Edward W. Rose, III
(Age 67)
James F. Gero
(Age 63)
Frederick B. Hegi, Jr.
(Age 65)
David A. Reed
(Age 61)
John B. Lowe, Jr.
(Age 69)
Chief Executive Officer since January 1, 2009, President and Director
since May 2008.
Chairman of the Board of Directors since January 1, 2009.
Lead Director of the Board of Directors since January 1, 2009.
Director since May 1992.
Director since May 2002.
Director since May 2003.
Director since May 2005.
15
Jason D. Lippert
(Age 36)
Director since May 2007, President and Chief Executive Officer of
Lippert Components, Inc. since February 2003, and President and
Chief Executive Officer of Kinro, Inc. since January 1, 2009.
Joseph S. Giordano III
(Age 39)
Scott T. Mereness
(Age 37)
Chief Financial Officer since May 2008, Treasurer since May 2003.
Executive Vice President and Chief Operating Officer of Lippert
Components, Inc. since February 2003, Vice President of Kinro,
Inc. since January 1, 2009.
FREDRIC M. ZINN, was Executive Vice President from February 2001 to December 2008 and Chief
Financial Officer from March 1984 to May 2008. Mr. Zinn is a Certified Public Accountant.
LEIGH J. ABRAMS, was Chief Executive Officer from March 1984 to December 31, 2008 and President
until May 2008. Since April 2001, Mr. Abrams has also been a director of Impac Mortgage Holdings, Inc., a
publicly-owned specialty finance company organized as a real estate investment trust.
EDWARD W. ROSE, III, was Chairman of the Board of Directors from March 1984 to December 31,
2008. For more than the past five years, Mr. Rose has been President and sole stockholder of Cardinal Investment
Company, Inc., an investment firm. Mr. Rose also served as a director of ACE Cash Express, Inc., a public
company engaged in check cashing services, until October 5, 2006.
JAMES F. GERO, is a private investor. Mr. Gero also serves as Executive Chairman of the Board of
Orthofix International, N.V., a publicly-owned international supplier of orthopedic devices for bone fixation and
stimulation, and as a director of Intrusion.com, Inc., a publicly-owned supplier of security software.
FREDERICK B. HEGI, JR., is a founding partner of Wingate Partners, including the indirect general
partner of each of Wingate Partners L.P. and Wingate Partners II, L.P. Since May 1982, Mr. Hegi has served as
President of Valley View Capital Corporation, a private investment firm. Mr. Hegi is a director of Texas Capital
Bancshares, Inc., a publicly-owned regional and Internet bank; and is Chairman of the Board of United Stationers,
Inc., a publicly-owned wholesale distributor of business products.
DAVID A. REED, is President of Causeway Capital Management LLC, manager of a family investment
partnership. Mr. Reed retired as Senior Vice Chair for Ernst & Young LLP in 2000 where he held several senior
U.S. and global operating, administrative and marketing roles in his 26-year tenure with the firm. He served on
Ernst & Young LLP’s Management Committee and Global Executive Council from 1991-2000. Mr. Reed is a
director of Penson Worldwide, Inc., a publicly-owned company engaged in providing flexible technology-based
processing solutions to the investment industry.
JOHN B. LOWE, JR. has been Chairman of TDIndustries, Inc., a national mechanical/electrical/plumbing
construction and facility service company, since 1981. From January 1981 to January 2005, Mr. Lowe also served
as Chief Executive Officer of TD Industries. Mr. Lowe is Chairman of the Board of Zale Corporation, a publicly-
owned specialty retailer of fine jewelry. Mr. Lowe also serves as President of the Board of Trustees of the Dallas
Independent School District, and on the Board of Directors of the Texas Business and Education Coalition.
JASON D. LIPPERT, from May 2000 until February 2003 was Executive Vice President and Chief
Operating Officer of Lippert Components, Inc., and from 1998 until 2000, Mr. Lippert served as Regional
Director of Operations of Lippert Components, Inc. Mr. Lippert has been Chairman of Lippert Components, Inc.
since January 2007, and Chairman of Kinro, Inc. since January 1, 2009.
JOSEPH S. GIORDANO III, was Corporate Controller from May 2003 to May 2008. From July 1998 to
August 2002, Mr. Giordano was a Senior Manager at KPMG LLP, and from August 2002 to April 2003, Mr.
Giordano was a Senior Manager at Deloitte & Touche LLP. Mr. Giordano is a Certified Public Accountant.
16
SCOTT T. MERENESS, from February 2001 to 2003 was Vice President of Operations of Lippert
Components, Inc., and from 1999 to 2001, Mr. Mereness was Regional Vice President for Manufactured Housing
for Lippert Components, Inc.
Other Officers
HARVEY F. MILMAN, has been Vice President-Chief Legal Officer of the Company since March 2005.
Prior thereto, Mr. Milman was a partner of the firm of Phillips Nizer LLP, counsel to the Company. Mr. Milman
has served as Secretary of the Company since May 2007, and as Assistant Secretary of the Company for more
than five years prior thereto.
CHRISTOPHER L. SMITH, was Assistant Controller from August 2005 to May 2008, and has been
Corporate Controller since May 2008. From 2000 to 2005, Mr. Smith served as Assistant Controller of Key
Components, LLC, and from 1997 to 2000, Mr. Smith was Senior Associate at Ernst & Young LLP. Mr. Smith is
a certified public accountant.
PART II
Item 5.
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
As of February 27, 2009, there were 637 holders of the Company’s Common Stock, not including
beneficial owners of shares held in broker and nominee names. The Company’s Common Stock trades on the
New York Stock Exchange under the symbol “DW”.
Information concerning the high and low closing prices of the Company’s Common Stock for each
quarter during 2008 and 2007 is set forth in Note 12 of Notes to Consolidated Financial Statements in Item 8 of
this Report.
Equity Compensation Plan Information
Plan category
Number of securities
to be issued upon
exercise of outstanding
options, warrants
and rights
Weighted average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
(a)
2,201,522
N/A
2,201,522
(b)
$22.01
N/A
$22.01
(c)
346,921
N/A
346,921
Pursuant to the Drew Industries Incorporated 2002 Equity Award and Incentive Plan, as amended (the
“2002 Equity Plan”), which was approved by stockholders in May 2002, the Company may grant to its directors,
employees, and consultants Common Stock-based awards, such as stock options, restricted or deferred stock, and
deferred stock units. The number of shares available for granting awards under the 2002 Equity Plan was 346,921
and 323,816 at December 31, 2008 and 2007, respectively. At the Annual Meeting of Stockholders held in May
2008, stockholders approved an amendment to the 2002 Equity Plan to increase the number of shares available for
awards by 500,000 shares. At the Annual Meeting of Stockholders to be held on May 20, 2009, there will be
proposed for stockholder approval an amendment to the 2002 Equity Plan increasing the number of shares
available for awards by 750,000 shares. The 2002 Equity Plan is the Company’s only equity compensation plan.
17
Item 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected historical financial and operating information of the
Company and is derived from the Company’s Consolidated Financial Statements. Historical financial data may not
be indicative of the Company’s future performance. The information set forth below should be read in conjunction
with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the
Consolidated Financial Statements and Notes thereto included in Item 7 and Item 8 of this Report, respectively.
(In thousands, except per share amounts)
2008
Years Ended December 31,
2006
2005
2007
2004
Operating Data:
Net sales
Operating profit
Income before income taxes
Provision for income taxes
Net income
Net income per common share:
Basic
Diluted
Financial Data:
Working capital
Total assets
Long-term obligations
Stockholders’ equity
Dividend Information
$ 510,506
$ 19,898
$ 19,021
$ 7,343
$ 11,678
$ 668,625
$ 65,959
$ 63,344
$ 23,577
$ 39,767
$ 729,232
$ 55,295
$ 50,694
$ 19,671
$ 31,023
$ 669,147
$ 57,729
$ 54,063
$ 20,461
$ 33,602
$ 530,870
$ 43,996
$ 40,857
$ 15,749
$ 25,108
$ 0.54
$ 0.53
$
$
1.82
1.80
$
$
1.43
1.42
$
$
1.60
1.56
$
$
1.22
1.18
$ 84,378
$ 311,358
$ 9,763
$ 258,878
$ 89,861
$ 345,737
$ 23,128
$ 251,536
$ 61,979
$ 311,276
$ 47,327
$ 204,888
$ 76,146
$ 307,428
$ 64,768
$ 167,709
$ 57,204
$ 238,053
$ 61,806
$ 122,044
The Company has not paid any cash dividends on its outstanding shares of 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 not subject to restrictions in its financing agreements.
18
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be
read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in Item 8 of
this Report.
The Company has two reportable segments, the recreational vehicle (“RV”) products segment (the “RV
Segment”) and the manufactured housing products segment (the “MH Segment”). The Company’s operations are
conducted through its wholly-owned operating subsidiaries, Kinro, Inc. and its subsidiaries (collectively, “Kinro”)
and Lippert Components, Inc. and its subsidiaries (collectively, “Lippert”). Each has operations in both the RV and
MH Segments. At December 31, 2008, the Company operated 29 plants in 12 states.
The RV Segment accounted for 72 percent of consolidated net sales for 2008 and 74 percent for 2007. The
RV Segment manufactures a variety of products used primarily in the production of RVs, including:
●Towable RV steel chassis
●Towable RV axles and suspension solutions
●RV slide-out mechanisms and solutions
●Thermoformed products
●Toy hauler ramp doors
●Manual, electric and hydraulic stabilizer
and lifting systems
●Aluminum windows and screens
●Chassis components
●Furniture and mattresses
●Entry and baggage doors
●Entry steps
●Other towable accessories
●Specialty trailers for hauling boats, personal
watercraft, snowmobiles and equipment
More than 90 percent of the Company’s RV Segment sales are of products used in travel trailers and fifth
wheel RVs. The balance represents sales of components for motorhomes, as well as sales of specialty trailers and
axles for specialty trailers. Travel trailers and fifth wheel RVs accounted for 78 percent and 74 percent of all RVs
shipped by the industry in 2008 and 2007, respectively, up from 61 percent in 2001.
The MH Segment, which accounted for 28 percent of consolidated net sales for 2008, and 26 percent for
2007, manufactures a variety of products used in the production of manufactured homes and to a lesser extent,
modular housing and office units, including:
●Vinyl and aluminum windows and screens
●Thermoformed bath and kitchen products
●Axles
●Steel chassis
●Steel chassis parts
Other than sales of specialty trailers and related axles, which aggregated $14 million in 2008 and $21
million in 2007, sales of products other than components for RVs and manufactured homes are not considered
significant. However, certain of the Company’s MH Segment customers manufacture both manufactured homes
and modular homes, and certain of the products manufactured by the Company are suitable for both manufactured
homes and modular homes. As a result, the Company is not always able to determine in which type of home its
products are installed. Intersegment sales are insignificant.
INDUSTRY BACKGROUND
Recreational Vehicle Industry
An RV is a vehicle designed as temporary living quarters for recreational, camping, travel or seasonal use.
RVs may be motorized (motorhomes) or towable (travel trailers, fifth wheel travel trailers, folding camping trailers
and truck campers). Towable RVs represented 88 percent of the 237,000 RVs produced in 2008, while motorhomes
represented the remaining 12 percent of RVs produced. Motorhomes have a significantly higher average retail
selling price than towable RVs, and as a result, sales of motorhomes represented approximately 50 percent of total
RV retail sales dollars in 2007. The Company sells minimal content for folding camping trailers or truck campers.
19
During 2008, because of severe economic conditions, including low consumer confidence, limited credit
availability for both dealers and consumers, and continued weakness in the real estate and mortgage markets, retail
sales of RVs declined. As a result, RV manufacturers significantly reduced their output, which reduced sales by the
Company in 2008. In particular, due to reduced demand, many RV manufacturers temporarily closed a number of
production facilities in November 2008, and did not resume production until late January 2009. As a result of these
conditions, industry-wide wholesale shipments of travel trailers and fifth wheel RVs, the Company’s primary RV
markets, declined 29 percent to 185,100 units for all of 2008, including a 63 percent decline during the fourth
quarter of 2008, according to the Recreational Vehicle Industry Association (“RVIA”).
While the Company tends to measure its RV sales against industry-wide wholesale shipment statistics, it
believes the underlying health of the RV industry is determined by retail demand, which has declined throughout
2008. A comparison of the year over year percentage change in industry-wide wholesale shipments and retail
shipments, as reported by Statistical Surveys, Inc., of travel trailers and fifth wheel RVs for 2008 is as follows:
Quarter ended March 31, 2008
Quarter ended June 30, 2008
Quarter ended September 30, 2008
Quarter ended December 31, 2008
Wholesale
(8%)
(18%)
(38%)
(63%)
Year ended December 31, 2008
Year ended December 31, 2007
(29%)
(10%)
Retail
(16%)
(19%)
(27%)
(36%)
(23%)
4%
During 2007 and 2008, retail sales of travel trailers and fifth wheel RVs did not decline as sharply as
industry-wide wholesale shipments, indicating that dealer inventories declined. However, recent RV dealer surveys
indicate that inventories, although below year-earlier levels, are still higher than dealers would prefer in this
uncertain economic environment and in light of reduced demand.
Industry-wide wholesale shipments of motorhomes, components for which represent about 5 percent of
Drew’s RV Segment net sales, were down 49 percent during 2008. Retail sales of motorhomes were down 42
percent for 2008.
For 2009, the Company anticipates the economy will remain weak. This is expected to cause consumers to
be extremely cautious about purchasing discretionary big-ticket items, such as RVs. The RVIA has projected a 43
percent decline in industry-wide wholesale shipments of travel trailers and fifth wheel RVs for 2009 to 105,300
units. In addition, the demand for larger travel trailer and fifth wheel RVs, which typically contain more of the
Company’s product than smaller units, is declining more rapidly. On a positive note, in February 2009, the Federal
Reserve indicated that RV consumer and dealer floor-plan loans would be included in the Term Asset-Backed
Securities Loan Facility (TALF) under the Troubled Assets Relief Program (TARP).
In the long-term, the Company expects RV sales to be driven by positive demographics, as demand for
RVs is strongest from the over 50 age group, which is the fastest growing segment of the U.S. population. U.S.
Census Bureau projections released in March 2004 project that there will be in excess of 20 million more people
over the age of 50 by 2014.
In 1997, the RVIA began a generic advertising campaign promoting the RV lifestyle. The current phase is
targeted at both parents aged 30-49 with children at home, as well as couples aged 50-64 with no children at home.
The popularity of traveling in RVs to NASCAR and other sporting events, and using RVs as second homes, also
appears to motivate consumer demand for RVs.
Manufactured Housing Industry
Manufactured homes are built entirely in a factory on permanent steel undercarriages or chassis,
transported to the site, and installed pursuant to a federal building code administered by the U.S. Department of
Housing and Urban Development (“HUD”). The federal standards regulate manufactured housing design and
construction, strength and durability, transportability, fire resistance, energy efficiency and quality. The HUD Code
also sets performance standards for the heating, plumbing, air conditioning, thermal and electrical systems. It is the
20
only federally regulated national building code. On-site additions, such as garages, decks and porches, often add to
the attractiveness of manufactured homes and must be built to local, state or regional building codes. A
manufactured home may be sited on owned or leased land.
Industry-wide wholesale production of manufactured homes has declined approximately 78 percent since
1998, including a 14 percent decline in 2008, to 81,900 homes. This decade-long decline was primarily the result of
limited credit availability because of high credit standards applied to purchases of manufactured homes, high down
payment requirements, and high interest rate spreads between conventional mortgages for site-built homes and
chattel loans for manufactured homes (chattel loans are loans secured only by the home which is sited on leased
land). In addition, in the several years leading up to 2008, many traditional buyers of manufactured homes were
able to purchase site-built homes instead of manufactured homes, as subprime mortgages were readily available at
unrealistic terms.
The Institute for Building Technology and Safety (“IBTS”) reported that for 2008, industry-wide
wholesale production of manufactured homes decreased 14 percent over 2007. During 2008, the size of the average
manufactured home also declined. Industry production of smaller single-section manufactured homes (1,100
average square footage) decreased 1 percent during 2008, while larger multi-section manufactured homes (1,800
average square footage) were hit harder, with production declining 21 percent in 2008. As a result, total “floors”
produced declined 17 percent this year. For 2008, multi-section manufactured homes represented 63 percent of the
total manufactured homes produced, down from 68 percent for 2007, and 80 percent in 2003. Multi-section
manufactured homes contain more of the Company’s products than single-section manufactured homes.
The decline in multi-section homes over the past few years was apparently partly due to the weak site-built
housing market, as a result of which many retirees have not been able to sell their primary residence, or may have
been unwilling to sell at currently depressed prices, and purchase a more affordable manufactured home.
The Company believes that long-term growth prospects for manufactured housing are positive because of
(i) the quality and affordability of the home, (ii) the favorable demographic trends, including the increasing number
of retirees, who, in the past had represented a significant market for manufactured homes, (iii) pent-up demand by
retirees who have been unable or unwilling to sell their primary residence and purchase a manufactured home, and
(iv) the unavailability of subprime mortgages for site-built homes. In addition, legislation enacted in July 2008
increased Federal Housing Administration (“FHA”) insured lending limits for chattel mortgages for manufactured
homes from less than $49,000 to nearly $70,000. The final regulations were put into place in March 2009, and this
could increase demand for new manufactured homes. Further, on February 17, 2009, the American Recovery and
Reinvestment Act of 2009 was enacted. This law authorizes a tax credit of up to $8,000 for qualified first-time
home buyers purchasing a principal residence during 2009. While these factors point to the potential for future
growth, because of the current real estate and economic environment, low consumer confidence, and tight credit
markets, the Company currently expects industry-wide wholesale production of manufactured homes to continue to
decline in 2009.
RESULTS OF OPERATIONS
Net sales and operating profit were as follows for the years ended December 31, (in thousands):
Net sales:
RV Segment
MH Segment
Total net sales
Operating profit:
RV Segment
MH Segment
Total segment operating profit
Amortization of intangibles
Corporate
Other items
Total operating profit
2008
2007
2006
$ 368,092
142,414
$ 510,506
$ 491,830
176,795
$ 668,625
$ 28,725
11,016
39,741
(5,055)
(7,217)
(7,571)
$ 19,898
21
$ 63,132
15,061
78,193
(4,178)
(7,583)
(473)
$ 65,959
$ 508,824
220,408
$ 729,232
$ 43,623
20,131
63,754
(2,546)
(7,094)
1,181
$ 55,295
Net sales and operating profit by segment, as a percent of the total, were as follows for the years ended
December 31,:
Net sales:
RV Segment
MH Segment
Total net sales
Operating profit:
RV Segment
MH Segment
Total segment operating profit
2008
2007
2006
72 %
28 %
100 %
72 %
28 %
100 %
74 %
26 %
100 %
81 %
19 %
100 %
70 %
30 %
100 %
68 %
32 %
100 %
Operating profit margin by segment was as follows for the years ended December 31,:
RV Segment
MH Segment
2008
7.8 %
7.7 %
2007
12.8 %
8.5 %
2006
8.6 %
9.1 %
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
Consolidated Highlights
(cid:1)
(cid:1)
(cid:1)
Net sales for 2008, excluding the impact of sales price increases and acquisitions, decreased $202
million (30 percent) from 2007, primarily as a result of the 29 percent decline in industry-wide
wholesale shipments of travel trailers and fifth wheel RVs in 2008, as well as a 14 percent decline
in industry-wide wholesale production of manufactured homes. In addition, 2008 sales were
negatively affected by the 49 percent decline in industry-wide wholesale shipments of
motorhomes, and the severe industry-wide decline in sales of small and medium-sized boats,
particularly on the West Coast, for which the Company supplies specialty trailers.
Net income for 2008 decreased 71 percent from 2007, primarily due to the decrease in net sales
and higher raw material costs. In addition, the Company recorded a non-cash charge for
impairment of goodwill, as well as an executive retirement charge, aggregating $4.9 million after
taxes.
For 2009, the Company anticipates a continuing weak economy, a tight credit market, low
consumer confidence, volatile fuel prices, and continued weakness in the real estate and mortgage
markets. All of these factors are expected to cause consumers to be extremely cautious, which
would likely impact the purchases of discretionary big-ticket items, such as RVs. In response to
slow retail sales during 2008, RV manufacturers significantly reduced their output, which
negatively affected the Company in 2008, and will likely continue into 2009. In response to the
current economic environment, the Company has been extremely proactive and taken the
following steps:
• Reduced its workforce and production capacity to be more in line with anticipated
demand.
• Closed facilities and reduced fixed overhead costs.
•
Implemented synergies between the operations of Kinro and Lippert by combining certain
administrative functions and sales efforts.
These factors positively affected the Company’s operating profit in 2008 by approximately $5
million, compared to 2007. These fixed cost reductions will further benefit 2009 operating profit
as compared to 2008 by over $4 million. Additional cost savings measures are expected to be
implemented in 2009.
22
(cid:1)
(cid:1)
(cid:1)
These steps also lowered the Company’s breakeven sales level.
Further, the Company’s strong balance sheet, with minimal debt, and available production
capacity, puts it in an excellent competitive position to take advantage of opportunities to increase
market share and expand product lines.
On November 25, 2008, the Company entered into an agreement for a $50.0 million line of credit
with JPMorgan Chase Bank, N.A., and Wells Fargo Bank N.A. Simultaneously, the Company
entered into a $125.0 million “shelf-loan” facility with Prudential Investment Management, Inc.,
and its affiliates. At December 31, 2008, the collective availability under these facilities was
$117.2 million. Such availability, along with available cash and anticipated cash flows from
operations, is expected to be adequate to finance the Company’s anticipated working capital and
capital expenditure requirements during 2009.
On July 1, 2008, Lippert acquired certain assets and liabilities, and the business of Seating
Technology, Inc. and its affiliated companies (“Seating Technology”), a manufacturer of a wide
variety of furniture products primarily for towable RVs, including a full line of upholstered
furniture, mattresses, decorative pillows, wood-backed valances and quilted soft good products.
Seating Technology had annual sales of $40 million in 2007. The purchase price was $28.7
million, which was financed from available cash. Subsequent to the acquisition, Lippert closed two
of Seating Technology's five leased facilities in Indiana, and consolidated those operations into
existing facilities.
Steel and aluminum are among the Company’s principal raw materials. Since late 2007, the costs
of steel and aluminum have been volatile, and although the Company was able to raise sales
prices, higher cost raw materials, net of sales price increases, reduced 2008 earnings by
approximately $0.10 to $0.13 per diluted share. Raw material costs have recently declined from
their peak levels, largely due to the global economic downturn. However, the Company still has
higher priced raw materials in inventory, which will adversely impact operating results for the first
few months of 2009, although the impact is estimated to be less than it was in 2008.
While the Company has historically been able to obtain sales price increases to offset the majority
of raw material cost increases, there can be no assurance that future cost increases, if any, can be
partially or fully passed on to customers. The Company also continues to explore improved
product design, efficiency improvements, and alternative sources of raw materials and
components, both domestic and imported.
RV Segment
Net sales of the RV Segment in 2008 decreased 25 percent, or $124 million, as compared to 2007 due to:
• An organic sales decline of approximately $141 million, or 30 percent, of RV-related products.
This 30 percent decline was due largely to the 29 percent decrease in industry-wide wholesale
shipments of travel trailers and fifth wheel RVs, the Company’s primary RV market. In addition,
industry-wide wholesale shipments of motorhomes, components for which represent about 5
percent of the Company’s RV Segment net sales, were down 49 percent during 2008.
• An organic sales decline of approximately $14 million in specialty trailers, due primarily to a
severe industry-wide decline in sales of small and medium size boats, particularly on the West
Coast, the Company’s primary specialty trailer market.
Partially offset by:
• Sales generated from 2008 and 2007 acquisitions aggregating approximately $19 million.
• Sales price increases of approximately $12 million, primarily due to raw material cost increases.
In 2008, the severe industry-wide decline in sales of small and medium-sized boats, particularly on the
West Coast, for which the Company supplies specialty trailers, caused the Company to record an impairment of the
23
entire $5.5 million of goodwill of this reporting unit, which is included in the RV Segment. The goodwill
impairment charge is reported in Other non-segment items.
The trend in the Company’s average product content per RV is an indicator of the Company’s overall
market share. Content per RV is also impacted by changes in selling prices for the Company’s products. The
Company’s average product content per type of RV, calculated based upon the Company’s net sales of components
for the different types of RVs, for the years ended December 31, divided by the industry-wide wholesale shipments
of the different types of RVs for the years ended December 31, was as follows:
Content per Travel Trailer and
Fifth Wheel RV
Content per Motorhome
Content per all RVs
2008
$ 1,928
$
574
$ 1,574
2007
Percent Change
$ 1,700
$
429
$ 1,326
13%
34%
19%
The above product content per RV for the year ended December 31, 2008 includes historical sales results
for acquisitions, under the assumption the acquisitions had been completed at the beginning of that yearly period.
Sales of certain RV components have been reclassified between travel trailer and fifth wheel RVs, and motorhomes
in prior periods.
According to the RVIA, industry production for the years ended December 31, was as follows:
Travel Trailer and Fifth
Wheel RVs
Motorhomes
All RVs
2008
185,100
28,300
237,000
2007
Percent Change
261,700
55,400
353,400
(29)%
(49)%
(33)%
Operating profit of the RV Segment in 2008 decreased 55 percent to $28.7 million largely due to the
decline in sales, which was also a factor in the decrease of 5.0 percentage points in the operating profit margin to
7.8 percent of net sales in 2008 from 12.8 percent of net sales in 2007. The decline in RV Segment operating profit
was 25 percent of the decline in net sales, excluding sales price increases, which is higher than we would typically
expect, largely due to the impact of increased raw material costs.
The operating profit margin of the RV Segment in 2008 was adversely impacted by:
• Higher raw material costs.
• Labor inefficiencies due to the sharp drop in sales during the latter part of 2008.
• The spreading of fixed manufacturing costs over a smaller sales base.
• Higher health insurance costs.
• Higher than expected integration costs of the Seating Technology acquisition, and costs incurred
for prototype expenses for potential new customer accounts. New customer accounts were gained
as a result.
• An increase in selling, general and administrative expenses to 12.4 percent of net sales in 2008
from 11.3 percent of net sales in 2007, largely due to an increase in bad debt expense, and higher
fuel and delivery costs, as well as the spreading of fixed administrative costs over a smaller sales
base. This was partially offset by lower incentive compensation expense as a percent of net sales
due to reduced operating profit margins.
Partially offset by:
•
• Lower overtime and warranty costs.
Implementation of cost-cutting measures.
As a result of the significant declines in RV sales during 2008, the Company’s RV Segment, while
profitable for the year, was unprofitable in the fourth quarter of 2008. The Company did not have an impairment of
the goodwill, other intangible assets or long-lived assets in 2008 related to its RV business. At December 31, 2008,
24
the goodwill and other intangible assets of the RV Segment aggregated $34.9 million and $38.3 million,
respectively.
On February 27, 2009, the RVIA published its latest forecast of industry production for 2009, which
projects a 43 percent decline in the production of travel trailers and fifth wheel RVs as compared to 2008. In
response, the Company expects to further reduce fixed costs, workforce, and production capacity to be more in line
with anticipated demand. The Company expects that these steps, in conjunction with reductions in working capital,
will enable the Company to generate cash flow in 2009.
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, the Company will
perform its annual impairment test as of November 30, 2009, and will continue to monitor the need for additional
interim impairment tests. The Company expects to continue performing quarterly evaluations of the carrying value
of goodwill, other intangible assets and long-lived assets, based upon the Company’s stock price which has traded
below its book value in early 2009, and the impact of changing market conditions and the Company’s operating
results, which could result in a non-cash impairment charge of these assets in the future.
MH Segment
Net sales of the MH Segment in 2008 decreased 19 percent, or $34 million, from 2007. Excluding $13
million in sales price increases, net sales of the MH Segment declined 27 percent, compared to a 14 percent
decrease in industry-wide production of manufactured homes. The organic decrease in sales of the Company’s MH
Segment was greater than the manufactured housing industry decline due partly to a reduction in the average size
of the homes produced by the manufactured housing industry, which require less of the Company’s products, and
partly due to business the Company exited in the latter half of 2007 because of inadequate margins. However, in
the latter half of 2008, the Company gained market share in the MH Segment.
MH Segment sales in the 2008 fourth quarter included $3 million of components for homes purchased by
the Federal Emergency Management Agency (“FEMA”). The Company expects approximately $2 million of
additional FEMA-related sales in the first quarter of 2009.
The trend in the Company’s average product content per manufactured home is an indicator of the
Company’s overall market share. Manufactured homes contain one or more “floors” or sections which can be
joined to make larger homes. Content per manufactured home and content per floor is also impacted by changes in
selling prices for the Company’s products. The Company’s average product content per manufactured home
produced by the industry and total manufactured home floors produced by the industry, calculated based upon the
Company’s net sales of components for manufactured homes for the years ended December 31, divided by the
number of manufactured homes and manufactured home floors produced by the industry, respectively, for the years
ended December 31, was as follows:
Content per Home Produced
Content per Floor Produced
2008
$ 1,652
$ 1,000
2007
$ 1,754
$ 1,026
Percent Change
(6)%
(3)%
According to the IBTS, industry production for the years ended December 31, was as follows:
Total Homes Produced
Total Floors Produced
2008
81,900
135,300
2007
95,800
163,700
Percent Change
(14)%
(17)%
Operating profit of the MH Segment in 2008 decreased 27 percent to $11.0 million largely due to the
impact of the decrease in net sales, which was also a factor in the decline in the operating profit margin to 7.7
percent of net sales in 2008, compared to 8.5 percent of net sales in 2007.
The operating profit margin of the MH Segment in 2008 was adversely impacted by:
• The spreading of fixed manufacturing costs over a smaller sales base.
• Higher health insurance costs.
25
• An increase in selling, general and administrative expenses to 16.5 percent of net sales in 2008
from 14.6 percent of net sales in 2007 due to higher fuel and delivery costs as a percent of net
sales, as well as the spreading of fixed administrative costs over a smaller sales base.
Partially offset by:
• Changes in product mix.
• The elimination of certain low margin business exited in the latter half of 2007.
•
•
Implementation of cost-cutting measures.
Improved production efficiencies.
The Company has remained profitable in the MH Segment despite the 78 percent decline in manufactured
housing industry production since 1998. The Company did not have an impairment of the goodwill, other
intangible assets or long-lived assets in 2008 related to its manufactured housing business; however, the Company
will continue to monitor these assets for potential impairment, as a continued downturn in this industry or in the
profitability of the Company’s operations, could result in a non-cash impairment charge of these assets in the
future. At December 31, 2008, the goodwill and other intangible assets of the MH Segment aggregated $9.2 million
and $4.5 million, respectively.
Corporate
Corporate expenses for 2008 decreased $0.4 million compared to 2007 due primarily to a decrease in
incentive-based compensation as a result of lower profits, partly offset by higher professional fees.
Other non-segment items
In February 2004, the Company sold certain intellectual property rights for $4.0 million, consisting of cash
of $0.1 million at closing and a note of $3.9 million (the “Note”), payable over five years. The Note was initially
recorded net of a reserve of $3.4 million. In each of 2008 and 2007, the Company received payments of $0.8
million including interest, which had been previously fully reserved, and the Company therefore recorded a pre-tax
gain in Other Income. The balance of the note was $1.0 million at December 31, 2008, which is fully reserved. The
Company did not receive the final scheduled payment in January 2009; however in February 2009, the Company
received a payment of $0.1 million, and is currently attempting to collect the balance due.
Other non-segment items include the following (in thousands):
Cost of sales:
Other
Selling, general and administrative expenses:
Legal proceedings
Gain on sold facilities
Loss on sold facilities and write-downs to estimated
current market value of facilities to be sold
Incentive compensation impact of other non-segment items
Goodwill impairment (before the direct effect on incentive
compensation)
Executive retirement
Other (income) from the collection of the previously reserved Note
Year Ended
December 31,
2008
2007
$
-
$
(236)
2,109
(3,523)
1,616
(2,253)
1,602
(96)
2,231
(178)
5,487
2,667
(675)
$ 7,571
$
-
-
(707)
473
Effective in the third quarter of 2008, gains or losses on sold manufacturing facilities and charges for
write-downs to estimated current market value of manufacturing facilities to be sold have been reclassified from
cost of goods sold to selling, general, and administrative expenses in the Consolidated Statements of Income. Prior
periods have been reclassified to conform to this presentation.
26
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
Consolidated Highlights
(cid:1)
(cid:1)
(cid:1)
(cid:1)
Net sales for 2007 decreased $61 million (8 percent) from 2006. The decrease in net sales was due
to an organic sales decline of $106 million (15 percent) resulting from declines in both the RV and
manufactured housing industries, partially offset by sales of $18 million resulting from
acquisitions, and sales price increases of approximately $28 million, primarily to offset material
cost increases. The organic sales decline was due primarily to a 10 percent decline in industry-
wide wholesale shipments of travel trailers and fifth wheel RVs in 2007, as well as an 18 percent
decline in industry-wide wholesale production of manufactured homes.
Despite the sales decline, net income for 2007 increased 28 percent from 2006 for the following
reasons:
•
•
•
•
•
•
•
In response to the slowdowns in both the RV and manufactured housing industries, since
late 2006, the Company closed 18 facilities and consolidated those operations into
other existing facilities, and reduced fixed overhead where prudent, including
reducing staff levels by more than 120 salaried employees. These facility
consolidations and fixed overhead reductions increased operating profit in 2007 by
approximately $6.1 million ($3.8 million after taxes).
Improved production and procurement efficiencies.
Increased profit margins on certain of the Company’s newer product lines, particularly
in the axle product line, which had been underperforming.
2006 operating profit was reduced by $3.2 million ($2.0 million after taxes) due to
losses at the Indiana specialty trailer operation which was closed in September
2006.
Lower workers compensation costs which improved operating profit by approximately
$2.2 million ($1.4 million after taxes).
The impact of 3 acquisitions completed in 2007 and the incremental impact of 2
acquisitions completed in 2006.
A reduction in interest expense of $2.0 million ($1.2 million after taxes) due primarily to
a decrease in average debt levels.
These favorable factors were partially offset by:
•
•
The negative impact on 2007 of spreading fixed manufacturing and administrative costs
over a smaller sales base.
An increase in amortization expense of $1.6 million ($1.0 million after taxes) due to
acquisitions.
On July 6, 2007, Lippert acquired certain assets and liabilities, and the business of Extreme
Engineering, Inc. (“Extreme Engineering”), a manufacturer of specialty trailers for high-end boats,
along with its affiliate, Pivit Hitch, Inc. (“Pivit Hitch”). Extreme Engineering and Pivit Hitch had
combined annual sales of $12 million prior to the acquisition. The purchase price for the two
companies was $10.8 million, including transaction costs, which was financed from available cash.
In 2008, this business was impacted by prolonged declines in industry shipments of small and
medium-sized boats that worsened late in 2008, and as a result, the Company recorded an
impairment of the entire goodwill associated with this acquisition. The Company has taken
significant steps to improve the results of its specialty trailer business in 2008, including
consolidating this operation into one facility shared with other product lines.
On May 21, 2007, Lippert acquired certain assets and liabilities, and the business of Coach Step, a
manufacturer of patented electric steps for motorhomes. Coach Step had annual sales of $2 million
prior to the acquisition. The purchase price was $3.0 million, which was financed from available
27
(cid:1)
cash. Upon acquisition, the Company integrated Coach Step’s business into existing Lippert
facilities.
On January 2, 2007, Lippert acquired Trailair, Inc. (“Trailair”) and certain assets and liabilities,
and the business of Equa-Flex, Inc. (“Equa-Flex”), two affiliated companies, which manufacture
several patented products, including innovative suspension systems used primarily for towable
RVs. Trailair and Equa-Flex had combined annual sales of $3 million prior to the acquisition. The
minimum aggregate purchase price was $5.7 million, of which $3.5 million was paid at closing
and the balance is being paid annually over the five years subsequent to the acquisition. The
aggregate purchase price could increase to a maximum of $8.3 million if certain sales targets for
these products are achieved by Lippert over the five years subsequent to the acquisition. In 2007
and 2008, additional purchase price of less than $0.1 million has been paid. The acquisition was
financed with borrowings under the Company’s line of credit. Upon acquisition, the Company
integrated Trailair and Equa-Flex’s business into existing Lippert facilities.
RV Segment
Net sales of the RV Segment in 2007 decreased 3 percent, or $17 million, as compared to 2006 due to:
• An organic sales decline of approximately $24 million, or 5 percent, of RV related products. The 5
percent organic sales decline in the Company’s RV related products was lower than the 8 percent
decrease in industry-wide wholesale shipments of travel trailers and fifth wheel RVs (excluding an
estimated 9,000 units purchased by dealers in early 2006 related to the 2005 Gulf Coast
hurricanes), primarily because the Company introduced new products and gained market share.
• A decline of approximately $17 million in sales related to the 2005 Gulf Coast hurricanes
compared to 2006. Subsequent to March 2006, there was no significant hurricane-related business.
• A decline of approximately $10 million in sales of specialty trailers primarily due to the September
2006 closure of the Indiana specialty trailer operation and a decline in the West Coast marine
industry.
Partially offset by:
• Sales resulting from 2007 and 2006 acquisitions aggregating approximately $18 million.
• Sales price increases of approximately $16 million, primarily to offset material cost increases.
The trend in the Company’s average product content per RV is an indicator of the Company’s overall
market share. Content per RV is also impacted by changes in selling prices for the Company’s products. The
Company’s average product content per type of RV, calculated based upon the Company’s net sales of components
for the different types of RVs, for the years ended December 31, divided by the industry-wide wholesale shipments
of the different types of RVs for the years ended December 31, was as follows:
Content per Travel Trailer and
Fifth Wheel RV
Content per Motorhome
Content per all RVs
2007
$ 1,700
429
$
$ 1,326
2006
Percent Change
$ 1,555
336
$
$ 1,212
9%
28%
9%
Sales of certain RV components have been reclassified between travel trailer and fifth wheel RVs, and
motorhomes in prior periods.
According to the RVIA, industry production for the years ended December 31, was as follows:
Travel Trailer and Fifth
Wheel RVs
Motorhomes
All RVs
2007
261,700
55,400
353,400
28
2006
Percent Change
292,400
55,900
390,500
(10)%
(1)%
(10)%
Despite the $17 million decline in net sales, operating profit of the RV Segment in 2007 increased 45
percent to $63.1 million due to an increase in the operating profit margin to 12.8 percent of net sales in 2007,
compared to 8.6 percent of net sales in 2006, partially offset by the impact of the decline in sales.
The operating profit margin of the RV Segment in 2007 was favorably impacted by:
•
•
•
Implementation of cost-cutting measures.
Improved production efficiencies and global sourcing.
Increased profit margins on certain of the Company’s newer product lines, particularly in the axle
product line, which had been underperforming.
• The elimination of $3.3 million in segment operating losses incurred in the Company’s Indiana
specialty trailer operation in 2006. This operation was closed in September 2006.
• Lower workers compensation costs.
• A decrease in selling, general and administrative expenses to 11.3 percent of net sales in 2007
from 11.7 percent of net sales in 2006, largely due to cost cutting measures implemented and
lower delivery costs.
Partially offset by:
• The negative impact on 2007 of spreading fixed manufacturing and administrative costs over a
smaller sales base.
• Higher warranty costs, based on claims experience, an industry-wide increase in the number of
months between production and the retail sale of RVs, and an increase in the portion of the
Company’s products that are more complex.
MH Segment
Net sales of the MH Segment in 2007 decreased 20 percent, or $44 million, as compared to 2006.
Excluding the impact of sales price increases (approximately $11 million) primarily to offset material cost
increases, organic sales of the MH Segment decreased approximately $55 million, or 25 percent, compared to an 18
percent decrease in industry-wide production of manufactured homes. The organic decrease in sales of the
Company’s MH Segment was greater than the manufactured housing industry decline due partly to a reduction in
the average size of the homes produced by the manufactured housing industry, thus requiring less of the
Company’s products, and partly due to a small amount of business the Company exited because of inadequate
margins.
The trend in the Company’s average product content per manufactured home is an indicator of the
Company’s overall market share. Content per manufactured home and content per floor is also impacted by
changes in selling prices for the Company’s products. Manufactured homes contain one or more “floors” or
sections which can be joined to make larger homes. The Company’s average product content per manufactured
home produced by the industry and total manufactured home floors produced by the industry, calculated based
upon the Company’s net sales of components for manufactured homes for the years ended December 31, divided
by the number of manufactured homes and manufactured home floors produced by the industry, respectively, for
the years ended December 31, was as follows:
Content per Home Produced
Content per Floor Produced
2007
$ 1,754
$ 1,026
2006
$ 1,784
$ 1,014
Percent Change
(2)%
1 %
According to the IBTS, industry production for the years ended December 31, was as follows:
Total Homes Produced
Total Floors Produced
2007
95,800
163,700
2006
117,400
206,600
Percent Change
(18)%
(21)%
29
Operating profit of the MH Segment in 2007 decreased 25 percent to $15.1 million due to the impact of the
decrease in net sales, and a decrease in the operating profit margin to 8.5 percent of net sales in 2007, compared to
9.1 percent of net sales in 2006.
The operating profit margin of the MH Segment in 2007 was negatively impacted by:
• The spreading of fixed manufacturing costs over a smaller sales base.
• An increase in selling, general and administrative expenses to 14.6 percent of net sales in 2007
from 14.0 percent of net sales in 2006 partly due to higher delivery costs as a percent of net sales
and the spreading of fixed costs over a smaller sales base.
Partially offset by:
•
•
Implementation of cost-cutting measures.
Improved production and procurement efficiencies.
Corporate
Corporate expenses for 2007 increased $0.5 million compared to 2006 due primarily to an increase in
incentive-based compensation as a result of higher profits.
Other non-segment items
In February 2004, the Company sold certain intellectual property rights for $4.0 million, consisting of cash
of $0.1 million at closing and a Note of $3.9 million, payable over five years. The Note was initially recorded net
of a reserve of $3.4 million. In 2007 and 2006, the Company received payments aggregating $0.8 million and $0.7
million, respectively, including interest, which had been previously fully reserved, and the Company therefore
recorded a gain in Other Income.
Other non-segment items include the following (in thousands):
Cost of sales:
Other
Selling, general and administrative expenses:
Legal proceedings
Gain on sold facilities
Loss on sold facilities and write-downs to estimated
current market value of facilities to be sold
Due diligence costs for an acquisition which was
not completed
Other
Incentive compensation impact of other non-segment items
Other (income) from the collection of the previously reserved Note
Year Ended
December 31,
2007
2006
$
(236) $
(457)
1,616
(2,253)
(16)
(1,763)
2,231
889
486
-
114
-
204
(178)
(707)
(638)
(473) $ (1,181)
$
Effective in the third quarter of 2008, gains or losses on sold manufacturing facilities and charges for
write-downs to estimated current market value of manufacturing facilities to be sold have been reclassified from
cost of goods sold to selling, general, and administrative expenses in the Consolidated Statements of Income. Prior
periods have been reclassified to conform to this presentation.
Interest Expense, Net
The $1.7 million decrease in interest expense, net, for 2008 as compared to 2007, was primarily due to a
decrease in the average debt levels during the last 12 months. In addition, for 2008, the Company earned $0.5
million in interest income.
30
The $2.0 million decrease in interest expense, net, for 2007 as compared to 2006, was primarily due to a
decrease in the average debt levels as a result of strong operating cash flows, which more than offset the $50
million the Company has invested in acquisitions since early 2006. In addition, for 2007, the Company earned $1.0
million in interest income.
On October 18, 2004, the Company entered into a five-year interest rate swap with KeyBank National
Association with an initial notional amount of $20.0 million from which it received periodic payments at the 3
month LIBOR rate, and made periodic payments at a fixed rate of 3.35 percent, with settlement and rate reset dates
every November 15, February 15, May 15 and August 15. The notional amount of the interest rate swap decreased
by $1.0 million on each quarterly reset date beginning February 15, 2005. The fair value of the swap was zero at
inception. The Company designated this swap as a cash flow hedge of certain borrowings under the previous line
of credit and recognized the effective portion of the change in fair value as part of other comprehensive income,
with the ineffective portion, which was insignificant, recognized in earnings. In November 2008, the Company
repaid the borrowings under the previous line of credit, terminated this swap, and recorded a charge of less than
$0.1 million in interest expense related to the termination of this swap.
On June 13, 2006, the Company entered into a seven-year interest rate swap with HSBC Bank USA, NA
with an initial notional amount of $15.0 million from which it received periodic payments at the 3 month LIBOR
rate and made periodic payments at a fixed rate of 5.39 percent, with settlement and rate reset dates on the last
business day of every March, June, September and December. The notional amount of the interest rate swap
decreased by $0.5 million on each quarterly reset date beginning September 29, 2006. The Company designated
this swap as a cash flow hedge of Senior Promissory Notes due on June 28, 2013, and recognized the effective
portion of the change in fair value as part of other comprehensive income, with the ineffective portion, which was
insignificant, recognized in earnings. In December 2007, the Company repaid Senior Promissory Notes due on
June 28, 2013, terminated this swap, and recorded a charge of $0.4 million in interest expense related to the
termination of this swap.
Provision for Income Taxes
The effective tax rate for 2008 was 38.6 percent, compared to 37.2 percent in 2007. The increase in the
effective tax rate for 2008 as compared to 2007 was due primarily to the effect of lower profits on state and federal
tax rates, as well as a change in pre-tax income between legal entities and states, and an increase in the Company’s
tax reserves.
The effective tax rate for 2007 was 37.2 percent, compared to 38.8 percent in 2006. Compared to 2006, the
reduction in the effective tax rate for 2007 was primarily due to the Jobs Creation Act of 2004, which reduced the
effective Federal tax rate on manufacturing activities by approximately 1 percent in 2006, and approximately 2
percent in 2007. The effective tax rate for 2007 was also reduced by the impact of tax-free interest income earned
by the Company, and changes in deferred state taxes, partially offset by a change in pre-tax income for state tax
purposes.
In connection with a tax audit by the Indiana Department of Revenue pertaining to calendar years 1998 to
2000, the Company received an initial examination report asserting, in the aggregate, approximately $1.2 million of
proposed tax adjustments, including interest and penalties. After two hearings with the Indiana Department of
Revenue, the audit findings were upheld. The Company filed an appeal in December 2006 with the Indiana Tax
Court and the matter was scheduled for trial in December 2008. In November 2008, the Company and the Indiana
Department of Revenue reached an agreement in principle to settle tax years 1998 to 2000 for $0.6 million, as well
as 2001 to 2006 for $4.0 million, subject to final documentation. This amount has been fully reserved, and is
expected to be paid in the first half of 2009.
New Accounting Standards
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which establishes a
framework for reporting fair value and expands disclosures about fair value measurements. The provisions of
SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. However, the FASB deferred the
31
effective date of SFAS 157, until fiscal years beginning after November 15, 2008, as it relates to fair value
measurement requirements for nonfinancial assets and liabilities that are not remeasured at fair value on a recurring
basis. Adoption of the applicable provisions of this standard on January 1, 2009 and 2008, respectively, did not
have a material impact on the Company.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. SFAS 141(R) requires
assets acquired and liabilities assumed in connection with a business combination to be measured at fair value as of
the acquisition date, acquisition related costs incurred prior to the acquisition to be expensed, and contractual
contingencies to be recognized at fair value as of the acquisition date. The provisions of SFAS No. 141(R) are
effective for fiscal years beginning after December 15, 2008. The adoption of this standard on January 1, 2009 did
not have a material impact on the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Statements of Cash Flows reflect the following for the years ended December 31, (in thousands):
Net cash flows provided by operating activities
Net cash flows used for investing activities
Net cash flows used for financing activities
2008
$
4,657
$ (25,492)
$ (26,686)
2007
$ 84,910
$ (11,641)
$ (23,841)
2006
$ 67,021
$ (51,925)
$ (13,396)
Cash Flows from Operations
Net cash flows from operating activities in 2008 were $80.3 million less than 2007, primarily as a result of
(i) lower net income in 2008 (ii) increased inventories in 2008 due to the Company’s strategic purchase of raw
materials in advance of price increases and higher priced raw materials in inventory, and (iii) the timing of
payments for inventory purchases. This was partially offset by a decrease in accounts receivable due to the decline
in sales. The Company expects to lower inventory in 2009 by $20 million to $30 million through consumption of
higher priced inventory on hand, and reduced inventory quantities and purchases.
Depreciation and amortization, which decreased by $0.5 million to $17.1 million in 2008, is expected to
aggregate $16 million to $17 million in 2009. In addition, non-cash stock-based compensation was $3.6 million in
2008, and is expected to remain about the same in 2009.
Net cash flows from operating activities in 2007 increased by $17.9 million from 2006, primarily as a
result of higher net income and the timing of inventory purchases and payments, partially offset by a smaller
reduction in accounts receivable and inventory. In 2007, management continued their concerted effort to reduce
inventory on hand which began in the latter half of 2006. The larger decrease in accounts receivable and inventory
during 2006 was primarily because of higher working capital at January 1, 2006 due to the unusually high sales
levels during the fourth quarter of 2005 and first quarter of 2006 resulting from the sales related to the 2005 Gulf
Coast hurricanes.
Cash Flows from Investing Activities
Cash flows used for investing activities of $25.5 million in 2008 included $31.8 million for an acquisition
of a business and other investments, which were financed from available cash.
On July 1, 2008, Lippert acquired certain assets and liabilities, and the business of Seating Technology,
Inc. and its affiliated companies (“Seating Technology”), a manufacturer of a wide variety of furniture products
primarily for towable RVs, including a full line of upholstered furniture, mattresses, decorative pillows, wood-
backed valances and quilted soft good products. Seating Technology had annual sales of $40 million in 2007. The
purchase price was $28.7 million, which was financed from available cash. Subsequent to the acquisition, Lippert
closed two of Seating Technology's five leased facilities in Indiana, and consolidated those operations into existing
facilities.
32
On July 1, 2008, Lippert acquired the patent for “JT's Strong Arm Jack Stabilizer,” and other intellectual
properties and assets. The purchase price was $3.1 million, which was financed from available cash. JT's Strong
Arm Jack Stabilizer represents a significant advance in the elimination of side-to-side and front-to-back movement
of a parked travel trailer or fifth wheel RV.
In addition, cash flows from investing activities included proceeds of $10.5 million received from the sale
of seven facilities and other fixed assets in connection with the Company’s consolidation of production operations.
At December 31, 2008, the Company had four vacant facilities and vacant land listed for sale, with an aggregate
carrying value of $5.9 million. One of the facilities is under contract to be sold in 2009 at its carrying value of $0.4
million. The Company used $4.2 million for capital expenditures in 2008, which was financed with available cash.
Capital expenditures for 2009 are expected to be consistent with 2008, and are expected to be funded by cash flows
from operations.
Cash flows used for investing activities of $11.6 million in 2007 included $17.3 million for the acquisition
of businesses and $8.8 million for capital expenditures, offset by proceeds of $14.5 million received from the sale
of fixed assets, in connection with the Company’s consolidation of production operations. Capital expenditures and
the acquisitions were financed with borrowings under the Company’s line of credit, cash flow from operations, and
proceeds from the sale of fixed assets.
Cash Flows from Financing Activities
Cash flows used for financing activities for 2008 of $26.7 million were primarily due to a net decrease in
debt of $18.6 million and $8.3 million for the purchase of treasury stock.
Cash flows used for financing activities for 2007 of $23.8 million included a net decrease in debt of $28.4
million, offset by cash flows provided by the exercise of employee stock options of $4.6 million, which includes
the related tax benefits.
At December 31, 2008 and 2007, the Company had $3.8 million and $53.4 million, respectively, of cash
invested in U.S. Treasury short-term money market instruments with a current yield of less than 1 percent.
On November 25, 2008, the Company entered into an agreement (the “Credit Agreement”) for a $50.0
million line of credit with JPMorgan Chase Bank, N.A., and Wells Fargo Bank N.A. (collectively, the “Lenders”),
to replace the Company’s previous $70.0 million line of credit that was scheduled to expire in June 2009. The
maximum borrowings under the Company’s new line of credit can be increased by $20.0 million upon approval of
the Lenders. Interest on borrowings under the new line of credit is designated from time to time by the Company as
either the Prime Rate, but not less than 2.5 percent, plus additional interest up to 0.8 percent (0 percent at
December 31, 2008), or LIBOR plus additional interest ranging from 2.0 percent to 2.8 percent (2.0 percent at
December 31, 2008) depending on the Company’s performance and financial condition. The Credit Agreement
expires December 1, 2011. At December 31, 2008, the Company had $7.6 million in outstanding letters of credit
under the new line of credit, and availability under the Company’s new line of credit was $42.4 million. Such
availability, along with available cash and anticipated cash flows from operations is expected to be adequate to
finance the Company’s anticipated working capital and capital expenditure requirements.
Simultaneously, the Company entered into a $125.0 million “shelf-loan” facility with Prudential
Investment Management, Inc., and its affiliates (“Prudential”), to replace the Company’s previous $60.0 million
shelf-loan facility with Prudential, of which $6.0 million is outstanding at December 31, 2008. The new facility
provides for Prudential to consider purchasing, at the Company’s request, in one or a series of transactions, Senior
Promissory Notes of the Company in the aggregate principal amount of up to $125.0 million, to mature no more
than twelve years after the date of original issue of each Note. Prudential has no obligation to purchase the Notes.
Interest payable on the Notes will be at rates determined by Prudential within five business days after the Company
issues a request to Prudential. The shelf-loan facility expires November 25, 2011.
Both the line of credit pursuant to the Credit Agreement and the shelf-loan facility are subject to a
maximum leverage ratio debt covenant which limits the amount of consolidated outstanding indebtedness, as
defined, to 2.5 times EBITDA, as defined. At December 31, 2008, the maximum leverage ratio debt covenant
33
limits the remaining availability under these facilities collectively to $117.2 million. If the Company’s EBITDA
declines to less than $50 million for the trailing twelve month period, the maximum leverage ratio debt covenant
declines to 1.25 times EBITDA.
At December 31, 2008 the Company was in compliance with all of its debt covenants and expects to
remain in compliance for the next twelve months. Certain of the Company’s loan agreements contain prepayment
penalties.
On November 29, 2007 the Board of Directors authorized the Company to repurchase up to 1 million
shares of the Company’s Common Stock, of which 447,400 shares have been repurchased at an average price of
$18.58 per share, or $8.3 million in total. The aggregate cost of repurchases during the year was funded from the
Company’s available cash. The Company is authorized to purchase shares from time to time in the open market, or
privately negotiated transactions or block trades. The number of shares ultimately repurchased, and the timing of
the purchases, will depend upon market conditions, share price, and other factors. At present due to the current
economic conditions, the Company believes it is prudent to conserve cash, and does not intend to repurchase
shares. However, changing conditions may cause the Company to reconsider this position.
Future minimum commitments relating to the Company's contractual obligations at December 31, 2008 are
as follows (in thousands):
Payments due by period
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
$ 8,683 $ 5,833 $ 2,205 $
220 $
425
304
266
38
-
-
126
18,238
64
10,986
2,260
36,316
4,565
23
659
-
-
-
1,773
-
$ 81,542 $ 52,909 $ 19,695 $ 6,058 $ 2,880
27
5,474
44
5,147
741
30,812
4,565
32
3,816
-
193
520
1,277
-
44
8,289
20
5,646
999
2,454
-
Total indebtedness
Interest on fixed rate
indebtedness (a)
Interest on variable rate
indebtedness (b)
Operating leases
Capital leases
Employment contracts (c)
Royalty agreements (d)
Purchase obligations (e)
Taxes (f)
Total
(a)
(b)
(c)
(d)
(e)
(f)
The Company has used the contractual payment dates and fixed interest rates to determine the estimated future interest
payments on fixed rate indebtedness.
The Company has used the contractual payment dates and the variable interest rates in effect as of December 31, 2008, to
determine the estimated future interest payments for variable rate indebtedness.
This includes amounts payable under employment contracts and arrangements, retirement and severance agreements, and
deferred compensation. These amounts do not include $1.3 million in deferred compensation, as the timing of paying the
deferred compensation has not yet been determined as it is based on the participants’ elections.
In addition to the minimum commitments shown here, a license agreement provides for the Company to pay a royalty of 1
percent of sales of certain slide-out systems for the right to use certain patents related to slide-out systems through the
expiration of the patents. Pursuant to this license agreement, royalty payments subsequent to December 31, 2008 through the
expiration of the patents can not exceed an aggregate of $4.4 million.
These contractual obligations are primarily comprised of purchase orders issued in the normal course of business. Also
included are several longer term purchase commitments, for which the Company has estimated the expected future obligation
based on current prices and usage.
In November 2008, the Company and the Indiana Department of Revenue reached an agreement in principle to settle tax years
1998 to 2000 for $0.6 million, as well as 2001 to 2006 for $4.0 million, subject to final documentation. This amount has been
fully reserved, and is expected to be paid in the first half of 2009. At December 31, 2008, the Company has reserved $2.2 million
for additional uncertain tax positions and the related interest and penalties, the amount and timing of which cannot be
reasonably estimated, and as such have been excluded from the above table.
The above table also does not include the obligation to make payments of up to $2.6 million if certain sales targets for Equa-Flex
products are achieved by Lippert over the five year period subsequent to the January 2007 Equa-Flex acquisition. In 2007 and 2008,
less than $0.1 million has been paid under this potential obligation.
These commitments are described more fully in the Notes to Consolidated Financial Statements.
34
CORPORATE GOVERNANCE
The Company is in compliance with the corporate governance requirements of the Securities and Exchange
Commission and the New York Stock Exchange. The Company’s governance documents and committee charters
and key practices have been posted to the Company’s website (www.drewindustries.com) and are updated
periodically. The website also contains, or provides direct links to, all SEC filings, press releases and investor
presentations. The Company has also established a toll-free hotline (877-373-9123) to report complaints about the
Company’s accounting, internal controls, auditing matters or other concerns.
CONTINGENCIES
On or about January 3, 2007, an action was commenced in the United States District Court, Central District
of California entitled Gonzalez vs. Drew Industries Incorporated, Kinro, Inc., Kinro Texas Limited Partnership
d/b/a Better Bath Components; Skyline Corporation, and Skylines Homes, Inc. (Case No. CV06-08233). The case
purports to be a class action on behalf of the named plaintiff and all others similarly situated in California. Plaintiff
initially alleged, but has not sought certification of, a national class.
On April 1, 2008, the Court issued an order granting Drew’s motion to dismiss for lack of personal
jurisdiction, resulting in the dismissal of Drew Industries Incorporated as one of the defendants in the case.
Plaintiff alleges that certain bathtubs manufactured by Kinro Texas Limited Partnership, a subsidiary of
Kinro, Inc., and sold under the name “Better Bath” for use in manufactured homes, fail to comply with certain
safety standards relating to flame spread established by the United States Department of Housing and Urban
Development (“HUD”). Plaintiff alleges, among other things, that sale of these products is in violation of various
provisions of the California Consumers Legal Remedies Act (Sec. 1770 et seq.), the Magnuson-Moss Warranty Act
(Sec. 2301 et seq.), and the California Song-Beverly Consumer Warranty Act (Sec. 1790 et seq.).
Plaintiff seeks to require defendants to notify members of the class of the allegations in the proceeding and
the claims made, to repair or replace the allegedly defective products, to reimburse members of the class for repair,
replacement and consequential costs, to cease the sale and distribution of the allegedly defective products, and to
pay actual and punitive damages and plaintiff’s attorneys fees.
On January 29, 2008, the Court issued an Order denying certification of a class with plaintiff Gonzalez as
the class representative. The Court ruled that plaintiff may not be an appropriate class representative for injunctive
relief because her bathtub had been replaced. The Court granted plaintiff leave to amend the complaint to add a
different plaintiff.
On March 10, 2008, plaintiff amended her complaint to include an additional plaintiff, Robert Royalty.
Plaintiff Royalty states that his bathtub was not tested to determine whether it complies with HUD standards.
Rather, his allegations are based on “information and belief”, including the testing of plaintiff Gonzalez’s bathtub
and other evidence. Kinro denies plaintiff Royalty’s allegations, and intends to continue its vigorous defense
against both plaintiffs’ claims.
On June 25, 2008, plaintiffs filed a renewed motion for class certification. On October 20, 2008, the Court
again denied certification of a class, without prejudice, which allowed plaintiffs to file a new motion for
certification if plaintiffs are able to satisfy the Court’s concerns over the viability of plaintiffs’ case. Plaintiffs filed
a third motion for class certification on December 23, 2008. Defendants’ initial motion seeking summary judgment
against plaintiffs’ case, which was withdrawn pending further discovery, was supplemented and refiled on
December 23, 2008. A hearing on these motions was held on March 2, 2009, but a decision by the Court has not
yet been received.
Defendant Kinro has conducted a comprehensive investigation of the allegations made in connection with
the claims, including with respect to the HUD safety standards, prior test results, testing procedures, and the use of
labels. In addition, at Kinro’s initiative, independent laboratories conducted multiple tests on materials used by
35
Kinro in the manufacture of bathtubs, the results of which tests indicate that Kinro’s bathtubs are in compliance
with HUD regulations.
Based on the foregoing investigation and testing, Kinro believes that plaintiffs may not be able to prove the
essential elements of their claims, and defendants intend to vigorously defend against the claims.
Moreover, Kinro believes that, because test results received by Kinro confirm that it is in compliance with
HUD safety standards, no remedial action is required or appropriate.
In October 2007, the parties participated in voluntary non-binding mediation in an effort to reach a
settlement. Kinro made an offer of settlement consistent with its belief regarding the merits of plaintiffs’
allegations. Although no settlement was reached, the parties have since had intermittent discussions. The outcome
of such settlement efforts cannot be predicted.
If plaintiffs’ motion for class certification is granted, and defendants’ motion for summary judgment is
denied, and if plaintiffs pursue their claims, protracted litigation could result. Although the outcome of such
litigation cannot be predicted, if certain essential findings are ultimately unfavorable to Kinro, the Company could
sustain a material liability. The Company’s liability insurer denied coverage on the ground that plaintiffs did not
sustain any personal injury or property damage.
In connection with a tax audit by the Indiana Department of Revenue pertaining to calendar years 1998 to
2000, the Company received an initial examination report asserting, in the aggregate, approximately $1.2 million of
proposed tax adjustments, including interest and penalties. After two hearings with the Indiana Department of
Revenue, the audit findings were upheld. The Company filed an appeal in December 2006 with the Indiana Tax
Court and the matter was scheduled for trial in December 2008. In November 2008, the Company and the Indiana
Department of Revenue reached an agreement in principle to settle tax years 1998 to 2000 for $0.6 million, as well
as 2001 to 2006 for $4.0 million, subject to final documentation. This amount has been fully reserved, and is
expected to be paid in the first half of 2009.
In the normal course of business, the Company is subject to proceedings, lawsuits and other claims. All
such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters
could materially affect operating results when resolved in future periods, it is management’s opinion that after final
disposition, including anticipated insurance recoveries, any monetary liability or financial impact to the Company
beyond that provided in the Consolidated Balance Sheet as of December 31, 2008, would not be material to the
Company’s financial position or annual results of operations.
CRITICAL ACCOUNTING POLICIES
The Company's Consolidated Financial Statements have been prepared in conformity with accounting
principles generally accepted in the United States of America which requires that certain estimates and assumptions
be made that affect the amounts and disclosures reported in those financial statements and the related
accompanying notes. Actual results could differ from these estimates and assumptions. The following critical
accounting policies, some of which are impacted significantly by judgments, assumptions and estimates, affect the
Company's Consolidated Financial Statements. Management has discussed the development and selection of its
critical accounting policies with the Audit Committee of the Company’s Board of Directors and the Audit
Committee has reviewed the disclosure presented below relating to the critical accounting policies.
Accounts Receivable
The Company maintains an allowance for doubtful accounts that reduces accounts receivables to amounts
that are expected to be collected. In assessing the collectability of its accounts receivable, the Company considers
such factors as the current overall economic conditions, industry-specific economic conditions, historical and
anticipated customer performance, historical experience with write-offs and the level of past-due amounts. This
estimation process is subjective, and to the extent that future actual results differ from original estimates,
adjustments to recorded accruals may be necessary.
36
Inventories
Inventories (finished goods, work in process and raw materials) are stated at the lower of cost, determined
on a first-in, first-out basis, or market. Cost is determined based solely on those charges incurred in the acquisition
and production of the related inventory (i.e. material, labor and manufacturing overhead costs). The Company
estimates an inventory reserve for excess quantities and obsolete items based on specific identification and
historical write-offs, taking into account future demand and market conditions. If actual demand or market
conditions in the future are less favorable than those estimated, additional inventory reserves may be required.
Self-Insurance
The Company is self-insured for certain health and workers' compensation benefits up to certain stop-loss
limits. Such costs are accrued based on known claims and an estimate of incurred, but not reported (“IBNR”)
claims. IBNR claims are estimated using historical lag information and other data provided by claims
administrators. This estimation process is subjective, and to the extent that future actual results differ from original
estimates, adjustments to recorded accruals may be necessary.
Warranty
The Company provides warranty terms based upon the type of product that is sold. The Company
estimates the warranty accrual based upon various factors, including the Company’s (i) historical warranty
experience, (ii) product mix, and (iii) sales patterns. The accounting for warranty accruals requires the Company to
make assumptions and judgments, and to the extent that future actual results differ from original estimates,
adjustments to recorded accruals may be necessary.
Income Taxes
The Company's tax provision is based on pre-tax income, statutory tax rates and tax planning strategies.
Significant management judgment is required in determining the tax provision and in evaluating the Company's tax
position. The Company establishes additional provisions for income taxes when, despite the belief that the tax
positions are fully supportable, there remain certain tax positions that are likely to be challenged and may or may
not be sustained on review by tax authorities. The Company adjusts these tax accruals in light of changing facts and
circumstances. The effective tax rate in a given financial statement period may be materially impacted by changes
in the expected outcome of tax audits.
The Company's accompanying Consolidated Balance Sheets also include deferred tax assets resulting from
deductible temporary differences, which are expected to reduce future taxable income. These assets are based on
management's estimate of realizability based upon forecasted taxable income. Realizability of these assets is
reassessed at the end of each reporting period based upon the Company's forecast of future taxable income. Failure
to achieve forecasted taxable income could affect the ultimate realization of certain deferred tax assets, and may
result in the recognition of a valuation reserve. For additional information, see Note 9 of Notes to Consolidated
Financial Statements.
Impairment of Long-Lived Assets
The Company periodically evaluates whether events or circumstances have occurred that indicate that
long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events
or circumstances occur, the Company assesses the recoverability of long-lived assets by determining whether the
carrying value will be recovered through the expected undiscounted future cash flows resulting from the use of the
asset. In the event the sum of the expected undiscounted future cash flows is less than the carrying value of the
asset, an impairment loss equal to the excess of the asset's carrying value over its fair value would be recorded. The
long-term nature of these assets requires the estimation of their cash inflows and outflows several years into the
future. Actual results and events could differ significantly from management estimates.
37
Impairment of Goodwill and Other Intangible Assets
Goodwill and other intangible assets are evaluated for impairment at the reporting unit level on an annual
basis and between annual tests whenever events or circumstances indicate that the carrying value of a reporting unit
may exceed its fair value. The Company conducts its required annual impairment test as of November 30th each
fiscal year. The impairment test uses a discounted cash flow model to estimate the fair value of a reporting unit.
This model requires the use of long-term planning forecasts and assumptions regarding industry-specific economic
conditions that are outside the control of the Company. Actual results and events could differ significantly from
management estimates.
In accordance with SFAS No. 142, the Company conducted its annual impairment analysis of the goodwill
in all reporting units during the fourth quarter of 2008. The fair value of each reporting unit was determined using a
discounted cash flow model utilizing observable market data to the extent available, and the Company’s weighted
average cost of capital of approximately 13 percent. Based on the analysis, the carrying value of the specialty
trailer reporting unit exceeded its fair value, and as a result, the Company recorded an impairment of the entire $5.5
million of goodwill of this reporting unit. This business has been impacted by prolonged declines in industry
shipments of small and medium-sized boats that worsened late in 2008. The Company has taken significant steps to
improve the results of its specialty trailer business, including consolidating this operation into one facility shared
with other product lines.
The estimated fair value of the RV and manufactured housing reporting units exceeded their carrying value
in 2008, thus no additional impairment was recorded.
On February 27, 2009, the RVIA published its latest forecast of industry production for 2009, which
projects a 43 percent decline in the production of travel trailers and fifth wheel RVs as compared to 2008. In
response, the Company expects to further reduce fixed costs, workforce, and production capacity to be more in line
with anticipated demand. The Company expects that these steps, in conjunction with reductions in working capital,
will enable the Company to generate cash flow in 2009.
In accordance with SFAS No. 142, the Company will perform its annual impairment test as of November
30, 2009, and will continue to monitor the need for additional interim impairment tests. The Company expects to
continue performing quarterly evaluations of the carrying value of goodwill, other intangible assets and long-lived
assets, based upon the Company’s stock price which has traded below its book value in early 2009, and the impact
of changing market conditions and the Company’s operating results, which could result in a non-cash impairment
charge of these assets in the future.
Legal Contingencies
The Company is subject to proceedings, lawsuits and other claims in the normal course of business. Each
quarter, the Company formally evaluates pending proceedings, lawsuits and other claims with counsel. These
contingencies require the judgment of management in assessing the likelihood of adverse outcomes and the
potential range of probable losses. Liabilities for legal matters are accrued for when it is probable that a liability has
been incurred and the amount of the liability can be reasonably estimated, based upon current law and existing
information. Estimates of contingencies may change in the future due to new developments or changes in legal
approach. Actual results and events could differ significantly from management estimates.
Other Estimates
The Company makes a number of other estimates and judgments in the ordinary course of business related
to product returns, accounts receivable, notes receivable, lease terminations, asset retirement obligations, post-
retirement benefits, stock-based compensation, segment allocations, and contingencies. Establishing reserves for
these matters requires management's estimate and judgment with regard to risk and ultimate liability or realization.
As a result, these estimates are based on management's current understanding of the underlying facts and
circumstances and may also be developed in conjunction with outside advisors, as appropriate. Because of
uncertainties related to the ultimate outcome of these issues or the possibilities of changes in the underlying facts
and circumstances, additional charges related to these issues could be required in the future.
38
INFLATION
The prices of key raw materials, consisting primarily of steel, vinyl, aluminum, glass and ABS resin are
influenced by demand and other factors specific to these commodities, such as the price of oil, rather than being
directly affected by inflationary pressures. Prices of certain commodities have historically been volatile. The
Company did not experience any significant increase in its labor costs in 2008 related to inflation.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company is exposed to changes in interest rates primarily as a result of its financing activities.
At December 31, 2008, the Company had $7.7 million of fixed rate debt outstanding. Assuming there is a
decrease of 100 basis points in the interest rate for borrowings of a similar nature subsequent to December 31,
2008, 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 $0.1 million lower per annum than if the fixed rate financing could be
obtained at current market rates.
At December 31, 2008, the Company had $0.9 million of variable rate debt outstanding. Assuming there is
an increase of 100 basis points in the interest rate for borrowings under these variable rate loans subsequent to
December 31, 2008, and outstanding borrowings of $0.9 million, future cash flows would be reduced by less than
$0.1 million per annum.
At December 31, 2008, the Company had $3.8 million of temporary investments in U.S. Treasury short-
term money market instruments with a current yield of less than 1 percent. Assuming there is a decrease of 100
basis points in the interest rate for these variable rate investments subsequent to December 31, 2008, and total
investments of $3.8 million, future cash flows would be reduced by less than $0.1 million per annum.
If the actual change in interest rates is substantially different than 100 basis points, or the outstanding
borrowings change significantly, the net impact of interest rate risk on the Company’s cash flow may be materially
different than that disclosed above.
Additional information required by this item is included under the caption “Inflation” in Item 7 of this
Report.
39
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Drew Industries Incorporated:
We have audited the accompanying consolidated balance sheets of Drew Industries Incorporated and subsidiaries as
of December 31, 2008 and 2007, 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, 2008. We also have audited the Company’s internal control
over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management
is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
“Management’s Annual Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on
these consolidated financial statements and an opinion on the Company's internal control over financial reporting based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Drew Industries Incorporated and subsidiaries as of December 31, 2008 and 2007, and the results of
their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity
with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for
uncertainty in tax positions in 2007 due to the adoption of Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes.
/s/ KPMG LLP
Stamford, Connecticut
March 12, 2009
40
Drew Industries Incorporated
Consolidated Statements of Income
(In thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Goodwill impairment
Executive retirement
Other (income)
Operating profit
Interest expense, net
Income before income taxes
Provision for income taxes
Net income
Net income per common share:
Basic
Diluted
Year Ended December 31,
2008
2007
2006
$ 510,506
403,000
107,506
80,129
5,487
2,667
(675)
19,898
877
19,021
7,343
$ 11,678
$ 668,625
509,875
158,750
93,498
-
-
(707)
65,959
2,615
63,344
23,577
$ 39,767
$ 729,232
575,156
154,076
99,419
-
-
(638)
55,295
4,601
50,694
19,671
$ 31,023
$
$
0.54
0.53
$
$
1.82
1.80
$
$
1.43
1.42
The accompanying notes are an integral part of these Consolidated Financial Statements.
41
Drew Industries Incorporated
Consolidated Balance Sheets
(In thousands, except shares and per share amount)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable, trade, less allowances of
$1,666 in 2008 and $1,160 in 2007
Inventories
Prepaid expenses and other current assets
Total current assets
Fixed assets, net
Goodwill
Other intangible assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable, including current maturities
of long-term indebtedness
Accounts payable, trade
Accrued expenses and other current liabilities
Total current liabilities
Long-term indebtedness
Other long-term liabilities
Total liabilities
Stockholders' equity
Common stock, par value $.01 per share: authorized
50,000,000 shares; issued 24,122,054 shares at December 31, 2008
and 24,082,974 shares at December 31, 2007
Paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock, at cost: 2,596,725 shares in 2008 and
2,149,325 shares in 2007
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
2008
2007
$
8,692
$ 56,213
7,913
93,934
16,556
127,095
88,731
44,113
42,787
8,632
$ 311,358
15,740
76,279
12,702
160,934
100,616
39,547
32,578
12,062
$ 345,737
$
5,833
4,660
32,224
42,717
2,850
6,913
$ 52,480
$
8,881
17,524
44,668
71,073
18,381
4,747
$ 94,201
$
241
64,954
221,483
-
286,678
$
241
60,919
209,805
38
271,003
(27,800)
258,878
$ 311,358
(19,467)
251,536
$ 345,737
The accompanying notes are an integral part of these Consolidated Financial Statements.
42
Drew Industries Incorporated
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to cash flows
provided by operating activities:
Depreciation and amortization
Deferred taxes
Gain on disposal of fixed assets, net
Stock-based compensation expense
Goodwill impairment
Changes in assets and liabilities, net of business acquisitions:
Accounts receivable, net
Inventories
Prepaid expenses and other assets
Accounts payable, accrued expenses and other liabilities
Net cash flows provided by operating activities
Cash flows from investing activities:
Capital expenditures
Acquisition of businesses
Proceeds from sales of fixed assets
Other investing activities
Net cash flows used for investing activities
Cash flows from financing activities:
Proceeds from line of credit and other borrowings
Repayments under line of credit and other borrowings
Exercise of stock options
Purchase of treasury stock
Other financing activities
Net cash flows used for financing activities
Year Ended December 31,
2008 2007
2006
$ 11,678
$ 39,767
$ 31,023
17,078
(2,145)
(2,393)
3,636
5,487
9,497
(12,695)
(1,980)
(23,506)
4,657
(4,199)
(28,764)
10,541
(3,070)
(25,492)
14,600
(33,179)
402
(8,333)
(176)
(26,686)
17,557
(1,488)
(351)
2,489
-
3,061
8,994
1,478
13,403
84,910
(8,770)
(17,299)
14,492
(64)
(11,641)
23,800
(52,218)
4,577
-
-
(23,841)
15,669
653
(913)
2,981
-
17,272
20,219
(2,213)
(17,670)
67,021
(22,250)
(33,695)
4,032
(12)
(51,925)
182,670
(200,955)
3,339
-
1,550
(13,396)
Net (decrease) increase in cash
(47,521)
49,428
1,700
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
56,213
$ 8,692
6,785
$ 56,213
5,085
$ 6,785
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest on debt
Income taxes, net of refunds
$ 1,319
$ 13,852
$ 3,426
$ 16,881
$ 4,555
$ 18,619
The accompanying notes are an integral part of these Consolidated Financial Statements.
43
Drew Industries Incorporated
Consolidated Statements of Stockholders' Equity
(In thousands, except shares)
Accumulated
Other
Total
Common Paid-in Retained Comprehensive Treasury Stockholders’
Stock
Capital Earnings
Income
Equity
Stock
Balance - December 31, 2005
Net income
Unrealized loss on interest rate
swaps, net of taxes
Comprehensive income
Issuance of 199,940 shares of
common stock pursuant to stock
options and deferred stock units
Income tax benefit relating to
issuance of common stock
pursuant to stock options
Stock-based compensation expense
Balance - December 31, 2006
Net income
Unrealized loss on interest rate
swaps, net of taxes
Comprehensive income
Issuance of 249,929 shares of
common stock pursuant to stock
options and deferred stock units
Income tax benefit relating to
issuance of common stock
pursuant to stock options
Stock-based compensation expense
Balance - December 31, 2007
Net income
Unrealized loss on interest rate
swap, net of taxes
Comprehensive income
Issuance of 39,080 shares of
common stock pursuant to stock
options and deferred stock units
Income tax benefit relating to
issuance of common stock
pursuant to stock options
Stock-based compensation expense
Purchase of 447,400 shares of
treasury stock
Balance - December 31, 2008
$ 236
$ 47,655 $ 139,015
31,023
$
270
$ (19,467) $ 167,709
31,023
(164)
170,038
39,767
106
(19,467)
(68)
209,805
11,678
38
(19,467)
(38)
(164)
30,859
1,771
1,568
2,981
204,888
39,767
(68)
39,699
2,513
1,947
2,489
251,536
11,678
(38)
11,640
340
59
3,636
2
1,769
1,568
2,981
53,973
238
3
2,510
1,947
2,489
60,919
241
340
59
3,636
$ 241
$ 64,954 $ 221,483
$
-
(8,333)
(8,333)
$ (27,800) $ 258,878
The accompanying notes are an integral part of these Consolidated Financial Statements.
44
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Consolidated Financial Statements include the accounts of Drew Industries Incorporated and its
wholly-owned subsidiaries (“Drew” or the “Company”). Drew has no unconsolidated subsidiaries. Drew’s wholly-
owned active subsidiaries are Kinro, Inc. and its subsidiaries (collectively “Kinro”), and Lippert Components, Inc.
and its subsidiaries (collectively “Lippert”). Drew, through its wholly-owned subsidiaries, manufactures a broad
array of components for recreational vehicles (“RVs”) and manufactured homes, including:
●Steel chassis
●Axles and suspension solutions
●RV slide-out mechanisms and solutions
●Thermoformed products
●Toy hauler ramp doors
●Manual, electric and hydraulic stabilizer
and lifting systems
●Vinyl and aluminum windows and doors
●Chassis components
●Furniture and mattresses
●Entry and baggage doors
●Entry steps
●Other towable accessories
●Specialty trailers for hauling boats, personal
watercraft, snowmobiles and equipment
The recreational vehicle products segment (the “RV Segment”) accounted for 72 percent of the Company's
sales in 2008 and the manufactured housing products segment (the “MH Segment”) accounted for 28 percent. More
than 90 percent of the Company’s RV Segment sales are of products used in travel trailers and fifth wheel RVs.
The balance represents sales of components for motorhomes, as well as sales of specialty trailers and axles for
specialty trailers. At December 31, 2008, the Company operated 29 plants in 12 states.
All significant intercompany balances and transactions have been eliminated. Certain prior year balances
have been reclassified to conform to current year presentation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the time of
purchase to be cash equivalents. Investments, which are in high quality, short-term money market instruments
issued and payable in U.S funds, are recorded at cost which approximates fair value. Investments were $3.8 million
and $53.4 million at December 31, 2008 and 2007, respectively.
Accounts Receivable
Accounts receivable are stated at the historical carrying amount, net of write-offs and allowances. The
Company establishes allowances based upon historical experience and any specific customer collection issues
identified by the Company. Uncollectible accounts receivable are written off when a settlement is reached or when
the Company has determined that the balance will not be collected.
The following table provides a reconciliation of the activity related to the Company’s allowance for
doubtful accounts receivable, for the years ended December 31, (in thousands):
Balance at beginning of period
Provision for doubtful accounts
Additions related to acquired companies
Accounts written off, net of recoveries
Balance at end of period
2008
$
803
1,066
30
(413)
$ 1,486
2007
$ 1,081
(163)
85
(200)
803
$
2006
$ 1,313
273
69
(574)
$ 1,081
45
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.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation, and are depreciated on a straight-line basis
over the estimated useful lives of properties and equipment. Leasehold improvements and leased equipment are
amortized over the shorter of the lives of the leases or the underlying assets. Maintenance and repairs are charged
to operations as incurred; significant betterments are capitalized.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of Financial Accounting
Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” Deferred tax assets and liabilities are determined
based on the temporary differences between the financial reporting and tax bases of assets and liabilities, applying
enacted statutory tax rates in effect for the year in which the differences are expected to reverse.
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109,” (“FIN 48”). FIN 48
clarifies the accounting for uncertainty in tax positions and requires that a company recognize in its financial
statements the impact of a tax position, only if that position is more likely than not of being sustained on audit,
based on the technical merits of the position. The Company adopted the provisions of FIN 48 on January 1, 2007.
As a result of the implementation of FIN 48, the Company recognized no material adjustment to the liability for
unrecognized income tax benefits.
The Company classifies interest and penalties recognized in accordance with FIN 48 as income tax
expense in its Consolidated Financial Statements.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price and related costs over the fair value assigned to the net
tangible and identifiable intangible assets of businesses acquired. As of December 31, 2008 and 2007, goodwill
that arose from acquisitions was $44.1 million and $39.5 million, respectively. Under SFAS No. 142, “Goodwill
and Other Intangible Assets”, goodwill and other intangible assets with indefinite lives are not amortized, but
instead are tested at the reporting unit level for impairment annually, or more frequently if certain circumstances
indicate a possible impairment may exist. The impairment tests are based on fair value, determined using
discounted cash flows, appraised values or management’s estimates, depending upon the nature of the assets, as
described in SFAS No. 142.
SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The amortization of other
intangibles assets is done using a method, straight-line or accelerated, which best reflects the pattern in which the
estimated future economic benefits of the asset will be consumed.
In accordance with SFAS No. 142, the Company conducted an impairment analysis of the goodwill in all
reporting units, which resulted in the impairment and non-cash write-off of the entire $5.5 million of goodwill
related to the specialty trailer reporting unit. Based on the analysis, the estimated fair value of the RV and
manufactured housing reporting units exceeded the carrying value, thus no additional impairment was recorded.
See Note 3 in Notes to Consolidated Financial Statements for further information.
46
Impairment of Long-Lived Assets
The Company accounts for impairment of long-lived assets in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets.” The Company evaluates long-lived assets for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the
carrying amount of an asset to forecasted undiscounted future net cash flows expected to be generated by the asset.
If the carrying amount of the asset exceeds its estimated undiscounted future cash flows, an impairment charge is
recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. For long-
lived assets held for sale, assets are written down to fair value, less cost to sell. Fair value is determined based on
discounted cash flows, appraised values or management’s estimates, depending upon the nature of the assets.
In 2008, 2007 and 2006 the Company recorded a charge to operations of $1.0 million, $2.2 million and
$0.9 million, respectively, related to impairments of long-lived assets, and an additional charge to operations in
2008 of $0.6 million related to the exit of leased facilities, all of which are recorded in selling, general, and
administrative expenses in the Consolidated Statements of Income.
Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, accounts payable, and short-term
borrowings approximated fair values due to the short-term nature of maturities of these instruments. The fair value
of the Company's borrowings are estimated based on year-end prevailing market interest rates for similar debt
instruments.
Stock Options
In accordance with SFAS No. 123 (revised 2004) - “Share-Based Payment”(“SFAS No. 123R”), all stock
options granted are being expensed on a straight-line basis over the requisite service period, which is generally the
stock option vesting period, based on fair value, determined using the Black-Scholes option-pricing model, at the
date the stock options were granted. The accounting for stock options resulted in charges to operations of $3.2
million, $2.1 million and $2.3 million for the years ended December 31, 2008, 2007 and 2006, respectively. Stock
option expense is recorded in the Consolidated Statements of Income in the same line that cash compensation to
those employees is recorded; primarily in selling, general and administrative expenses.
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-
pricing model with the following weighted average assumptions:
Risk-free interest rate
Expected volatility
Expected life
Contractual life
Dividend yield
Fair value of stock options granted
2008
2007
2006
2.17%
42.5%
4.8 years
6.0 years
N/A
$4.68
3.83%
33.8%
5.0 years
6.0 years
N/A
$11.68
4.57%
33.1%
5.7 years
6.0 years
N/A
$10.58
Revenue Recognition
The Company recognizes revenue when products are shipped and the customer takes ownership and
assumes risk of loss, collectability is reasonably assured, and the sales price is fixed or determinable. Sales taxes
collected, which are not significant, from customers and remitted to governmental authorities are accounted for on
a net basis and therefore are excluded from revenues in the Consolidated Statements of Income.
47
Shipping and Handling Costs
The Company records shipping and handling costs within selling, general and administrative expenses.
Such costs aggregated $21.4 million, $25.6 million and $27.8 million in 2008, 2007 and 2006, respectively.
Legal Costs
The Company expenses all legal costs associated with litigation as incurred.
Use of Estimates
The preparation of these financial statements in conformity with accounting principles generally accepted
in the United States of America requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On
an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to product
returns, accounts receivable, inventories, notes receivable, goodwill and other intangible assets, income taxes,
warranty obligations, self-insurance obligations, lease terminations, asset retirement obligations, long-lived assets,
post-retirement benefits, stock-based compensation, segment allocations, and contingencies and litigation. The
Company bases its estimates on historical experience, other available information 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.
As a result of the significant declines in the RV industry, the Company’s RV Segment, while profitable for
the year, was unprofitable in the fourth quarter of 2008. The Company did not have an impairment of goodwill,
other intangible assets or long-lived assets in 2008 related to its RV business. At December 31, 2008, the goodwill
and other intangible assets of the RV Segment aggregated $34.9 million and $38.3 million, respectively.
On February 27, 2009, the Recreational Vehicle Industry Association (“RVIA”) published its latest
forecast of industry production for 2009, which projects a 43 percent decline in the production of travel trailers and
fifth wheel RVs as compared to 2008. In response, the Company expects to further reduce fixed costs, workforce,
and production capacity to be more in line with anticipated demand. The Company expects that these steps, in
conjunction with reductions in working capital, will enable the Company to generate cash flow in 2009.
In accordance with SFAS No. 142, the Company will perform its annual impairment test as of November
30, 2009, and will continue to monitor the need for additional interim impairment tests. The Company expects to
continue performing quarterly evaluations of the carrying value of goodwill, other intangible assets and long-lived
assets, based upon the Company’s stock price which has traded below its book value in early 2009, and the impact
of changing market conditions and the Company’s operating results, which could result in a non-cash impairment
charge of these assets in the future.
The Company has remained profitable in the MH Segment despite the 78 percent decline in manufactured
housing industry production since 1998. The Company did not have an impairment of goodwill, other intangible
assets or long-lived assets in 2008 related to its manufactured housing business; however, the Company will
continue to monitor these assets for potential impairment, as a continued downturn in this industry or in the
profitability of the Company’s operations, could result in a non-cash impairment charge of these assets in the
future. At December 31, 2008, the goodwill and other intangible assets of the MH Segment aggregated $9.2 million
and $4.5 million, respectively.
New Accounting Standards
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which establishes a
framework for reporting fair value and expands disclosures about fair value measurements. The provisions of
SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. However, the FASB deferred the
effective date of SFAS 157, until fiscal years beginning after November 15, 2008, as it relates to fair value
measurement requirements for nonfinancial assets and liabilities that are not remeasured at fair value on a recurring
48
basis. Adoption of the applicable provisions of this standard on January 1, 2009 and 2008, respectively, did not
have a material impact on the Company.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. SFAS 141(R) requires
assets acquired and liabilities assumed in connection with a business combination to be measured at fair value as of
the acquisition date, acquisition related costs incurred prior to the acquisition to be expensed, and contractual
contingencies to be recognized at fair value as of the acquisition date. The provisions of SFAS No. 141(R) are
effective for fiscal years beginning after December 15, 2008. The adoption of this standard on January 1, 2009 did
not have a material impact on the Company.
2. SEGMENT REPORTING
The Company has two reportable segments, the RV Segment and the MH Segment.
The RV Segment, which accounted for 72 percent, 74 percent and 70 percent of consolidated net sales for
2008, 2007 and 2006, respectively, manufactures a variety of products used primarily in the production of RVs,
including:
●Towable RV steel chassis
●Towable RV axles and suspension solutions
●RV slide-out mechanisms and solutions
●Thermoformed products
●Toy hauler ramp doors
●Manual, electric and hydraulic stabilizer
and lifting systems
●Aluminum windows and screens
●Chassis components
●Furniture and mattresses
●Entry and baggage doors
●Entry steps
●Other towable accessories
●Specialty trailers for hauling boats, personal
watercraft, snowmobiles and equipment
More than 90 percent of the Company’s RV Segment sales are of products used in travel trailers and fifth
wheel RVs. The balance represents sales of components for motorhomes, as well as sales of specialty trailers and
axles for specialty trailers.
The MH Segment, which accounted for 28 percent, 26 percent and 30 percent of consolidated net sales for
2008, 2007 and 2006, respectively, manufactures a variety of products used in the production of manufactured
homes and to a lesser extent, modular housing and office units, including:
●Vinyl and aluminum windows and screens
●Thermoformed bath and kitchen products
●Axles
●Steel chassis
●Steel chassis parts
Other than sales of specialty trailers and related axles, which aggregated $14 million, $21 million and $25
million in 2008, 2007 and 2006, respectively, sales of products other than components for RVs and manufactured
homes are not considered significant. However, certain of the Company’s MH Segment customers manufacture
both manufactured homes and modular homes, and certain of the products manufactured by the Company are
suitable for both manufactured homes and modular homes. As a result, the Company is not always able to
determine in which type of home its products are installed. 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 operating profit or loss,
defined as income before interest, amortization of intangibles, corporate expenses, other items and income taxes.
Decisions concerning the allocation of resources are also based on each segment’s utilization of operating assets.
Management of debt is 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.
49
Information relating to segments follows (in thousands):
RV
Segments
MH
Total
Corporate
and Other
Intangible
Assets
Total
Year ended December 31, 2008
Revenues from external
customers(a)
Operating profit (loss)(b)(e)
Total assets(c)
Expenditures for long-lived
assets(d)
Depreciation and amortization
Year ended December 31, 2007
Revenues from external
customers(a)
Operating profit (loss)(b)(e)
Total assets(c)
Expenditures for long-lived
assets(d)
Depreciation and amortization
Year ended December 31, 2006
Revenues from external
customers(a)
Operating profit (loss)(b)(e)
Total assets(c)
Expenditures for long-lived
assets(d)
Depreciation and amortization
$ 368,092 $ 142,414
11,016
47,373
28,725
143,205
$ 510,506
39,741
190,578
$ -
(14,788)
33,615
$ -
(5,055)
87,165
$ 510,506
19,898
311,358
5,488
8,636
719
3,353
6,207
11,989
31
34
-
5,055
6,238
17,078
$ 491,830 $ 176,795
15,061
51,969
63,132
140,531
$ 668,625
78,193
192,500
$ -
(8,056)
80,803
$ -
(4,178)
72,434
$ 668,625
65,959
345,737
8,080
9,017
1,002
4,346
9,082
13,363
119
16
-
4,178
9,201
17,557
$ 508,824 $ 220,408
20,131
75,468
43,623
149,961
$ 729,232
63,754
225,429
$ -
(5,913)
26,091
$ -
(2,546)
59,756
$ 729,232
55,295
311,276
17,009
7,816
6,598
5,290
23,607
13,106
4
17
-
2,546
23,611
15,669
a) Thor Industries, Inc., a customer of the RV Segment, accounted for 21 percent, 23 percent and 23 percent of the
Company’s consolidated net sales in the years ended December 31, 2008, 2007, and 2006, respectively. Berkshire
Hathaway Inc. (through its subsidiaries Forest River, Inc. and Clayton Homes, Inc.), a customer of both segments,
accounted for 22 percent, 20 percent and 19 percent of the Company’s consolidated net sales in the years ended
December 31, 2008, 2007 and 2006, respectively. No other customers accounted for more than 10 percent of
consolidated net sales in the years ended December 31, 2008, 2007 and 2006.
b) Certain general and administrative expenses of Kinro and Lippert are allocated between the segments based upon
sales or operating profit, depending upon the nature of the expense.
c) Segment assets include accounts receivable, inventories and fixed assets. Corporate and other assets include cash
and cash equivalents, prepaid expenses and other current assets, deferred taxes and other assets. Intangibles include
goodwill, other intangible assets and deferred charges which are not considered in the measurement of each
segment’s performance.
d) Segment expenditures for long-lived assets include capital expenditures and fixed assets purchased as part of the
acquisition of companies and businesses. The Company purchased $2.0 million, $0.4 million and $1.4 million of fixed
assets as part of the acquisitions of businesses in 2008, 2007 and 2006, respectively. Expenditures for other long-
lived assets, goodwill and other intangible assets are not included in the segment since they are not considered in the
measurement of each segment’s performance.
e) The operating loss for the Corporate and Other column is comprised of Corporate expenses of $7.2 million, $7.6
million and $7.1 million for 2008, 2007 and 2006, respectively, and Other non-segment items of $7.6 million, $0.5
million, and $(1.2) million for 2008, 2007, and 2006, respectively. In 2008, Other non-segment items included a
goodwill impairment charge of $5.5 million, as well as executive retirement charges of $2.7 million.
50
Net Sales by product was as follows for the years ended December 31, (in thousands):
Recreational Vehicles:
Chassis, chassis parts and
slide-out mechanisms
Windows, doors and screens
Axles
Specialty trailers
Furniture
Other
Manufactured Housing:
Windows, doors and screens
Chassis and chassis parts
Shower and bath units
Axles and tires
Other
2008
2007
2006
$ 228,310
79,279
30,024
13,773
11,726
4,980
368,092
62,924
56,869
18,108
3,811
702
142,414
$ 315,875
107,693
42,025
20,749
-
5,488
491,830
72,580
70,428
19,921
10,502
3,364
176,795
$ 321,168
117,985
39,153
24,983
-
5,535
508,824
88,827
87,221
19,792
18,390
6,178
220,408
Net Sales
$ 510,506
$ 668,625
$ 729,232
3. ACQUISITIONS, GOODWILL, AND INTANGIBLE ASSETS
Over the last 10 years, the Company has acquired numerous manufacturers of products for RVs,
manufactured homes and specialty trailers, expanded its geographic market and product lines, consolidated
manufacturing facilities, and integrated manufacturing, distribution and administrative functions. The Company
often acquires a significant amount of goodwill in these acquisitions, as the value of the acquired business to the
Company exceeds the fair value of the net tangible and other identifiable intangible assets acquired in the
transaction.
Acquisition of Seating Technology
On July 1, 2008, Lippert acquired certain assets and liabilities, and the business of Seating Technology,
Inc. and its affiliated companies (“Seating Technology”), a manufacturer of a wide variety of furniture products
primarily for towable RVs, including a full line of upholstered furniture, mattresses, decorative pillows, wood-
backed valances and quilted soft good products. Seating Technology had annual sales of $40 million in 2007. The
purchase price was $28.7 million, which was financed from available cash. The Company acquired intangible
assets from Seating Technology primarily related to customer relationships, which are being amortized over their
estimated remaining useful life, which at the date of acquisition was approximately 11 years. Subsequent to the
acquisition, Lippert closed two of Seating Technology's five leased facilities in Indiana, and consolidated those
operations into existing facilities. The results of the acquired Seating Technology business have been included in
the Company’s Consolidated Statement of Income beginning July 1, 2008.
Total consideration for the acquisitions was allocated as follows (in thousands):
Net tangible assets acquired
Customer relationships
Other identifiable intangible assets
Goodwill (tax deductible)
Total cash consideration
$ 6,693
9,400
2,575
9,991
$ 28,659
Patent for “JT’s Strong Arm Jack Stabilizer”
On July 1, 2008, Lippert acquired the patent for “JT's Strong Arm Jack Stabilizer” and other intellectual
properties and assets. The purchase price was $3.1 million, which was financed from available cash. JT's Strong
51
Arm Jack Stabilizer represents a significant advance in the elimination of side-to-side and front-to-back movement
of a parked travel trailer or fifth wheel RV. Total consideration for the acquisition was allocated to amortizable
intangible assets.
Acquisition of Extreme Engineering
On July 6, 2007, Lippert acquired certain assets and liabilities, and the business of Extreme Engineering,
Inc. (“Extreme Engineering”), a manufacturer of specialty trailers for high-end boats, along with its affiliate, Pivit
Hitch, Inc. (“Pivit Hitch”). Extreme Engineering and Pivit Hitch had combined annual sales of $12 million prior to
the acquisition. The purchase price for the two companies was $10.8 million, including transaction costs, which
was financed from available cash. The results of the acquired Extreme Engineering and Pivit Hitch businesses have
been included in the Company’s Consolidated Statement of Income beginning July 6, 2007.
Total consideration for the acquisitions was allocated as follows (in thousands):
Net tangible assets acquired
Identifiable intangible assets
Goodwill (tax deductible)
Total cash consideration
$ 1,238
5,600
3,974
$ 10,812
In 2008, this business was impacted by prolonged declines in industry shipments of small and medium-
sized boats that worsened late in 2008, and as a result, the Company recorded an impairment of the entire goodwill
associated with this acquisition. The Company has taken significant steps to improve the results of its specialty
trailer business in 2008, including consolidating this operation into one facility shared with other product lines.
Acquisition of Coach Step
On May 21, 2007, Lippert acquired certain assets and liabilities, and the business of Coach Step, a
manufacturer of patented electric steps for motorhomes. Coach Step had annual sales of $2 million prior to the
acquisition. The purchase price was $3.0 million, which was financed from available cash. Upon acquisition, the
Company integrated Coach Step’s business into existing Lippert facilities. The results of the acquired Coach Step
business have been included in the Company’s Consolidated Statements of Income beginning May 21, 2007.
Total consideration for the acquisition was allocated as follows (in thousands):
Net tangible assets acquired
Identifiable intangible assets
Goodwill (tax deductible)
Total cash consideration
604
$
1,830
598
$ 3,032
Acquisition of Trailair and Equa-Flex
On January 2, 2007, Lippert acquired Trailair, Inc. (“Trailair”) and certain assets and liabilities, and the
business of Equa-Flex, Inc. (“Equa-Flex”), two affiliated companies, which manufacture several patented products,
including innovative suspension systems used primarily for towable RVs. Trailair and Equa-Flex had combined
annual sales of $3 million prior to the acquisition. The minimum aggregate purchase price was $5.7 million, of
which $3.5 million was paid at closing and the balance is being paid annually over the five years subsequent to the
acquisition. The aggregate purchase price could increase to a maximum of $8.3 million if certain sales targets for
these products are achieved by Lippert over the five years subsequent to the acquisition. In 2007 and 2008,
additional purchase price of less than $0.1 million has been paid. The annual payments to be made over the five
years subsequent to the acquisition bear interest at the stated rate of 3 percent per annum from the date of the
acquisition. The acquisition was financed with borrowings under the Company's line of credit. Upon acquisition,
the Company integrated Trailair and Equa-Flex’s business into existing Lippert facilities. The results of the
acquired Trailair and Equa-Flex businesses have been included in the Company’s Consolidated Statements of
Income beginning January 2, 2007.
52
Total consideration for the acquisitions was allocated on as follows (in thousands):
Net tangible assets acquired
Identifiable intangible assets
Goodwill (tax deductible)
Goodwill (non tax deductible)
Total consideration
Less present value of future minimum payments
Total cash consideration
$
625
4,160
267
426
5,478
(1,961)
$ 3,517
Acquisition of Happijac
On June 12, 2006, Lippert acquired certain assets and liabilities, and the business of Happijac Company
(“Happijac”), a supplier of patented bed lift systems for recreational vehicles. Happijac, which also manufactures
other RV products such as slide-out systems, tie-down systems and camper jacks, had annualized sales of
approximately $15 million prior to the acquisition. The purchase price of $30.3 million was financed through the
issuance of $15.0 million of variable interest rate seven year Senior Promissory Notes, $14.6 million of borrowings
under the Company’s line of credit, and the assumption of $0.7 million of equipment loans. The Company entered
into a facility lease agreement with the former owners of Happijac, and production continues in this leased facility.
The Company acquired patents from Happijac primarily related to bed lifts, which are being amortized over their
estimated remaining useful life, which at the date of acquisition was approximately 19 years. The results of the
acquired Happijac business have been included in the Company’s Consolidated Statement of Income beginning
June 12, 2006.
Total consideration for the acquisition was allocated as follows (in thousands):
Net tangible assets acquired
Patents
Other identifiable intangible assets
Goodwill (tax deductible)
Total consideration
Less debt assumed
Total cash consideration
$ 3,925
9,600
6,400
10,338
30,263
(732)
$ 29,531
Acquisition of SteelCo.
On March 10, 2006, Lippert acquired certain assets and liabilities, and the business of SteelCo., Inc.
(“SteelCo”), which manufactures chassis and components for RVs and manufactured housing. SteelCo had annual
sales of approximately $8 million prior to the acquisition. The purchase price was $4.2 million which was funded
with borrowings under the Company’s line of credit. Upon acquisition, the Company integrated SteelCo’s business
into existing Lippert facilities. In connection with the transaction, Lippert and SteelCo terminated litigation
pending between them. The results of the acquired SteelCo business have been included in the Company’s
Consolidated Statement of Income beginning March 10, 2006.
Total consideration for the acquisition was allocated as follows (in thousands):
Net tangible assets acquired
Identifiable intangible assets
Goodwill (tax deductible)
Total cash consideration
756
$
1,520
1,888
$ 4,164
53
Goodwill and Other Intangible Assets
Other intangible assets consist of the following at December 31, 2008 (in thousands):
Non-compete agreements
Customer relationships
Tradenames
Patents
Other intangible assets
Gross
$ 3,231
24,870
6,251
21,183
$ 55,535
Accumulated
Amortization
Net
Estimated Useful
Life in Years
$ 1,130
6,225
1,846
3,547
$ 12,748
$ 2,101
18,645
4,405
17,636
$ 42,787
3 to 7
8 to 16
5 to 14
5 to 19
Other intangible assets consist of the following at December 31, 2007 (in thousands):
Non-compete agreements
Customer relationships
Tradenames
Patents
Other intangible assets
Gross
$ 2,596
15,470
4,220
18,205
$ 40,491
Accumulated
Amortization
Net
Estimated Useful
Life in Years
$
810
3,971
1,105
2,027
$ 7,913
$ 1,786
11,499
3,115
16,178
$ 32,578
3 to 7
8 to 16
5 to 14
5 to 19
The carrying value of other intangible assets in the RV and MH Segments were $38.3 million and $4.5
million at December 31, 2008, respectively, and $27.4 million and $5.2 million at December 31, 2007,
respectively. Amortization expense related to intangible assets amounted to $4.8 million, $3.9 million and $2.3
million for 2008, 2007 and 2006, respectively. Estimated amortization expense for the next five fiscal years is as
follows: $5.4 million (2009), $5.3 million (2010), $5.0 million (2011), $4.6 million (2012) and $3.9 million (2013).
Goodwill by reportable segment is as follows (in thousands):
MH Segment
RV Segment
Total
Balance - January 1, 2007
Acquisitions
Balance - December 31, 2007
Acquisitions
Impairments
Balance - December 31, 2008
$ 9,251
-
9,251
-
-
$ 9,251
$ 25,093
5,203
30,296
10,053
(5,487)
$ 34,862
$ 34,344
5,203
39,547
10,053
(5,487)
$ 44,113
In accordance with SFAS No. 142, the Company conducted its annual impairment analysis of the goodwill
in all reporting units during the fourth quarter of 2008. The fair value of each reporting unit was determined using a
discounted cash flow model utilizing observable market data to the extent available, and the Company’s weighted
average cost of capital of approximately 13 percent. Based on the analysis, the carrying value of the specialty
trailer reporting unit exceeded its fair value, and as a result, the Company recorded an impairment of the entire $5.5
million of goodwill of this reporting unit. This business has been impacted by prolonged declines in industry
shipments of small and medium-sized boats that worsened late in 2008. The Company has taken significant steps to
improve the results of its specialty trailer business, including consolidating this operation into one facility shared
with other product lines.
The estimated fair value of the RV and manufactured housing reporting units exceeded their carrying value
in 2008, thus no additional impairment was recorded.
On February 27, 2009, the RVIA published its latest forecast of industry production for 2009, which
projects a 43 percent decline in the production of travel trailers and fifth wheel RVs as compared to 2008. In
54
response, the Company expects to further reduce fixed costs, workforce, and production capacity to be more in line
with anticipated demand. The Company expects that these steps, in conjunction with reductions in working capital,
will enable the Company to generate cash flow in 2009.
In accordance with SFAS No. 142, the Company will perform its annual impairment test as of November
30, 2009, and will continue to monitor the need for additional interim impairment tests. The Company expects to
continue performing quarterly evaluations of the carrying value of goodwill, other intangible assets and long-lived
assets based upon the Company’s stock price which has traded below its book value in early 2009, and the impact
of changing market conditions and the Company’s operating results, which could result in a non-cash impairment
charge of these assets in the future.
4. INVENTORIES
Inventories consist of the following at December 31, (in thousands):
Finished goods
Work in process
Raw materials
Total
2008
$ 10,801
2,946
80,187
$ 93,934
2007
$ 12,698
2,975
60,606
$ 76,279
5. FIXED ASSETS
Fixed assets, at cost, consist of the following at December 31, (in thousands):
Land
Buildings and improvements
Leasehold improvements
Machinery and equipment
Transportation equipment
Furniture and fixtures
Construction in progress
Less accumulated depreciation and amortization
Fixed assets, net
Estimated Useful
Life in Years
10 to 40
3 to 10
3 to 12
3 to 7
2 to 10
$
2008
8,323
63,508
1,182
77,653
2,985
8,356
1,294
163,301
74,570
$ 88,731
2007
$ 10,488
66,814
1,475
74,657
3,352
8,739
255
165,780
65,164
$ 100,616
Depreciation and amortization of fixed assets is as follows for the years ended December 31, (in
thousands):
Charged to cost of sales
Charged to selling, general and
administrative expenses
Total
2008
$ 10,292
1,731
$ 12,023
2007
$ 11,497
1,882
$ 13,379
2006
$11,081
1,905
$ 12,986
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following at December 31, (in thousands):
Accrued employee compensation and benefits
Accrued warranty
Accrued expenses and other
Total
2008
$ 13,010
4,510
14,704
$ 32,224
2007
$ 20,833
4,360
19,475
$ 44,668
55
Estimated costs related to product warranties are accrued at the time products are sold. In estimating its
future warranty obligations, the Company considers various factors, including the Company’s (i) historical
warranty experience, (ii) product mix, and (iii) sales patterns. The following table provides a reconciliation of the
activity related to the Company’s accrued warranty, including both the current and long-term portions, for the years
ended December 31, (in thousands):
Balance at beginning of period
Provision for warranty expense
Warranty costs paid
Balance at end of period
2008
$ 5,762
3,984
(4,327)
$ 5,419
2007
$ 3,990
6,335
(4,563)
$ 5,762
2006
$ 3,139
5,160
(4,309)
$ 3,990
The total accrued warranty at December 31, 2008 and 2007 includes $0.9 million and $1.4 million,
respectively, classified as long-term.
7. RETIREMENT AND OTHER BENEFIT PLANS
Defined Contribution Plans
The Company has discretionary defined contribution 401(k) profit sharing plans covering all eligible
employees. The Company contributed $1.3 million, $1.4 million and $1.5 million to these plans during the years
ended December 31, 2008, 2007 and 2006, respectively.
Deferred Compensation Plan
Effective December 1, 2006, the Company adopted an Executive Non-Qualified Deferred Compensation
Plan (the “Plan”). Pursuant to the Plan, certain management employees are eligible to defer all or a portion of their
regular salary and incentive compensation. Participants deferred $1.9 million and $1.0 million in 2008 and 2007
respectively, and there were no deferrals in 2006. Each Plan participant is fully vested in their deferred
compensation and earnings credited to his or her account as all contributions to the Plan are made by the
participant. The Company is responsible for certain costs of Plan administration, which are not significant, but will
not make any contributions to the Plan. Pursuant to the Plan, payments to the Plan participants are made from the
general unrestricted assets of the Company, and the Company’s obligations pursuant to the Plan are unfunded and
unsecured.
Executive Retirement
The Company has a management succession plan designed to ensure an effective transition of management
of the Company’s operations to qualified executives upon the retirement of senior executives. In November 2008,
in accordance with the management succession plan, Edward W. Rose, III, Chairman of the Board of Directors
since 1984, was appointed Lead Director; Leigh J. Abrams, President, Chief Executive Officer and a Director since
1984 was appointed Chairman of the Board of Directors; and Fredric M. Zinn, Executive Vice President from
2001, Chief Financial Officer from 1984, and President and a Director since May 2008, was, in addition to
President, appointed Chief Executive Officer. Each of these appointments became effective January 1, 2009.
In connection with the retirement, effective December 31, 2008, of David L. Webster as a Director of the
Company and as Chairman, President and Chief Executive Officer of Kinro, after approximately 30 years with
Kinro, and in accordance with the Company’s executive succession plan, the Board of Directors appointed Jason
D. Lippert to assume responsibility for the operations of Kinro while continuing his duties as Chairman, President
and Chief Executive Officer of Lippert. Mr. Lippert was appointed Chairman, President and Chief Executive
Officer of Kinro effective January 1, 2009.
In connection with the management succession, the Company and Mr. Abrams entered into an Executive
Compensation and Benefits Agreement, effective as of January 1, 2009 (the “Abrams Agreement”). The Board of
Directors granted retirement compensation and benefits to Mr. Abrams in recognition of his 40-year commitment
56
to the success of the Company, the Company’s performance during his 29-year tenure as President and Chief
Executive Officer, and the overall increase in stockholder value during that period. In addition, as Chairman of the
Board, Mr. Abrams will continue to render significant services to the Company, for which he will be compensated
in accordance with the Abrams Agreement, and he has agreed to non-competition restrictions on his future business
activities.
Also in connection with the management succession, the Company and Mr. Webster entered into an
Executive Compensation and Benefits Agreement, effective as of January 1, 2009 (the “Webster Agreement”). Mr.
Webster’s existing employment agreement, which was to expire December 31, 2009, was cancelled as of the
effective date of the Webster Agreement. The Board of Directors granted retirement compensation and benefits to
Mr. Webster in recognition of his contribution to the Company’s business, growth and reputation during a 30-year
period. In addition, Mr. Webster agreed to non-competition restrictions on his future business activities.
During the fourth quarter of 2008, as a result of the Abrams Agreement and Webster Agreement, the
Company recognized $2.7 million of executive retirement expense in the Consolidated Statements of Income. At
December 31, 2008, $1.7 million has been recorded in other long-term liabilities with the balance in accrued
expenses and other current liabilities in the Consolidated Balance Sheets.
8. LONG-TERM INDEBTEDNESS
Long-term indebtedness consists of the following at December 31, (dollars in thousands):
Senior Promissory Notes payable at the rate of $1,000 per
quarter on January 29, April 29, July 29 and October 29,
with interest payable quarterly at the rate of 5.01 percent per
annum, final payment to be made on April 29, 2010
Notes payable pursuant to a Credit Agreement, with
interest at prime rate or LIBOR plus a rate margin based
upon the Company's performance (a) (b)
Industrial Revenue Bonds, interest rates at December 31,
2008 of 3.48 percent to 4.68 percent, due 2009 through 2017;
secured by certain real estate and equipment
Other loans primarily secured by certain real estate and
equipment, due in 2009, with fixed interest rates of
5.18 percent to 5.28 percent
Other loan primarily secured by certain real estate,
with a variable interest rate
Less current portion
Total long-term indebtedness
$
2008
2007
$
6,000
$ 10,000
-
8,000
1,662
5,448
1,021
-
8,683
5,833
2,850
3,727
87
27,262
8,881
$ 18,381
(a) The weighted average interest rate on these borrowings, including the effect of the interest rate swap
described below, was 4.35 percent at December 31, 2007. Pursuant to the performance schedule, the
interest rate on LIBOR loans was LIBOR plus 2.0 percent at December 31, 2008 and LIBOR plus 1.0
percent at December 31, 2007.
(b) As of December 31, 2008 and 2007, the Company had letters of credit of $7.6 million and $2.1 million,
respectively, outstanding under the existing line of credit.
The weighted average interest rate for the Company’s indebtedness was 4.85 percent and 4.99 percent at
December 31, 2008 and 2007, respectively.
On November 25, 2008, the Company entered into an agreement (the “Credit Agreement”) for a $50.0
million line of credit with JPMorgan Chase Bank, N.A., and Wells Fargo Bank N.A. (collectively, the “Lenders”),
to replace the Company’s previous $70.0 million line of credit that was scheduled to expire in June 2009. The
57
maximum borrowings under the Company’s new line of credit can be increased by $20.0 million upon approval of
the Lenders. Interest on borrowings under the new line of credit is designated from time to time by the Company as
either the Prime Rate, but not less than 2.5 percent, plus additional interest up to 0.8 percent (0 percent at
December 31, 2008), or LIBOR plus additional interest ranging from 2.0 percent to 2.8 percent (2.0 percent at
December 31, 2008) depending on the Company’s performance and financial condition. The Credit Agreement
expires December 1, 2011. At December 31, 2008, the Company had $7.6 million in outstanding letters of credit
under the new line of credit, and availability under the Company’s new line of credit was $42.4 million.
Simultaneously, the Company entered into a $125.0 million “shelf-loan” facility with Prudential
Investment Management, Inc., and its affiliates (“Prudential”), to replace the Company’s previous $60.0 million
shelf-loan facility with Prudential, of which $6.0 million is outstanding at December 31, 2008. The new facility
provides for Prudential to consider purchasing, at the Company’s request, in one or a series of transactions, Senior
Promissory Notes of the Company in the aggregate principal amount of up to $125.0 million, to mature no more
than twelve years after the date of original issue of each Note. Prudential has no obligation to purchase the Notes.
Interest payable on the Notes will be at rates determined by Prudential within five business days after the Company
issues a request to Prudential. The shelf-loan facility expires November 25, 2011.
Both the line of credit pursuant to the Credit Agreement and the shelf-loan facility are subject to a
maximum leverage ratio debt covenant which limits the amount of consolidated outstanding indebtedness, as
defined, to 2.5 times EBITDA, as defined. At December 31, 2008, the maximum leverage ratio debt covenant
limits the remaining availability under these facilities collectively to $117.2 million. If the Company’s EBITDA,
declines to less than $50 million for the trailing twelve month period, the maximum leverage ratio debt covenant
declines to 1.25 times EBITDA.
Pursuant to the Credit Agreement, Senior Promissory Notes, and certain 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. At December 31, 2008 and 2007, the Company was in compliance with all such
requirements, and expects to remain in compliance for the next twelve months. Certain of the Company’s loan
agreements contain prepayment penalties.
Borrowings under both the line of credit and the shelf-loan facility are secured on a pari passu basis by first
priority liens on the capital stock or other equity interests of each of the Company’s direct and indirect subsidiaries.
The Company has unsecured letters of credit outstanding, unrelated to the Credit Agreement, which
aggregate $0.6 million and $8.7 million at December 31, 2008 and 2007, respectively.
The amounts of maturities of long-term indebtedness are as follows (in thousands):
2009
2010
2011
2012
2013
Thereafter
$ 5,833
2,101
104
108
112
425
$ 8,683
On October 18, 2004, the Company entered into a five-year interest rate swap with KeyBank National
Association with an initial notional amount of $20.0 million from which it received periodic payments at the 3
month LIBOR rate, and made periodic payments at a fixed rate of 3.35 percent, with settlement and rate reset dates
every November 15, February 15, May 15 and August 15. The notional amount of the interest rate swap decreased
by $1.0 million on each quarterly reset date beginning February 15, 2005. The fair value of the swap was zero at
inception. The Company designated this swap as a cash flow hedge of certain borrowings under the previous line
of credit and recognized the effective portion of the change in fair value as part of other comprehensive income,
with the ineffective portion, which was insignificant, recognized in earnings. In November 2008, the Company
repaid the borrowings under the previous line of credit, terminated this swap, and recorded a charge of less than
$0.1 million in interest expense related to the termination of this swap.
58
On June 13, 2006, the Company entered into a seven-year interest rate swap with HSBC Bank USA, NA
with an initial notional amount of $15.0 million from which it received periodic payments at the 3 month LIBOR
rate and made periodic payments at a fixed rate of 5.39 percent, with settlement and rate reset dates on the last
business day of every March, June, September and December. The notional amount of the interest rate swap
decreased by $0.5 million on each quarterly reset date beginning September 29, 2006. The fair value of the swap
was zero at inception. The Company designated this swap as a cash flow hedge of Senior Promissory Notes due on
June 28, 2013, and recognized the effective portion of the change in fair value as part of other comprehensive
income, with the ineffective portion, which was insignificant, recognized in earnings. In December 2007, the
Company repaid Senior Promissory Notes due on June 28, 2013, terminated this swap, and recorded a charge of
$0.4 million in interest expense related to the termination of this swap.
While current interest rates on instruments similar to the Company’s debt are higher, the short-term nature
and low balance of the Company’s debt cause the carrying value of such debt to approximate fair value at
December 31, 2008 and 2007.
9. INCOME TAXES
The income tax provision in the Consolidated Statements of Income is as follows for the years ended
December 31, (in thousands):
Current:
Federal
State
Total Current
Deferred:
Federal
State
Total Deferred
Total income tax provision
2008
2007
2006
$ 7,312
2,176
9,488
(1,721)
(424)
(2,145)
$ 7,343
$ 20,774
4,291
25,065
(1,137)
(351)
(1,488)
$ 23,577
$ 15,284
3,734
19,018
807
(154)
653
$ 19,671
The provision for income taxes differs from the amount computed by applying the Federal statutory rate to
income before income taxes for the following reasons for the years ended December 31, (in thousands):
2008
2007
2006
Income tax at Federal statutory rate
State income taxes, net of Federal income tax benefit
Non-deductible expenses
Manufacturing credit pursuant to Jobs Creation Act
Tax free interest income
Other
Provision for income taxes
$ 6,657
1,139
169
(407)
(7)
(208)
$ 7,343
$ 22,171
2,561
135
(1,123)
(277)
110
$ 23,577
$ 17,743
2,327
197
(443)
-
(153)
$ 19,671
Included in prepaid expenses and other current assets are federal overpayments of $2.2 million at
December 31, 2008. Included in accrued expenses and other current liabilities are federal income taxes payable of
$1.0 million at December 31, 2007. Included in accrued expenses and other current liabilities are state income taxes
payable of $5.6 million and $6.4 million at December 31, 2008 and 2007, respectively.
Net deferred tax assets are classified in the Consolidated Balance Sheets as follows at December 31, (in
thousands):
Prepaid expenses and other current assets
Other long-term assets
59
2008
2007
$ 9,436
306
$ 9,742
$ 7,171
118
$ 7,289
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities are as follows at December 31, (in thousands):
Deferred tax assets:
Employee benefits
Goodwill and other intangible assets
Inventories
Post retirement
Deferred compensation
Accrued insurance
Accounts receivable
Other
Total deferred tax assets
Deferred tax liabilities:
Fixed assets
Other
Total deferred tax liabilities
Net deferred tax asset
2008
2007
$ 3,765
2,741
1,759
1,474
1,270
996
758
1,812
14,575
4,833
-
4,833
$ 9,742
$ 2,919
1,514
1,330
327
1,452
1,179
596
1,603
10,920
3,607
24
3,631
$ 7,289
The Company concluded that it is more likely than not that the deferred tax assets at December 31, 2008
will be realized in the ordinary course of operations based on scheduling of deferred tax liabilities and future
taxable income.
Tax benefits on stock option exercises of $0.1 million, $1.9 million and $1.6 million were credited directly
to stockholders' equity for 2008, 2007 and 2006, respectively, relating to tax benefits which exceeded the
compensation cost for stock options recognized in the Consolidated Financial Statements.
At December 31, 2008, the Company had deferred tax assets of $3.1 million related to unexercised stock
options. Due to the current recession and related declines in the RV and manufactured housing industries, the
Company’s stock price at December 31, 2008 was below the exercise price of nearly all unexercised stock options.
If the stock price remains below the exercise price of these stock options, the related deferred tax assets will not be
realized. The reversal of such deferred tax assets will be recorded as a reduction of stockholders' equity, to the
extent there are available excess tax benefits from prior stock option exercises, with any remaining deficiency
recorded as additional income tax expense in the Consolidated Statements of Income. At December 31, 2008 the
available excess tax benefits from prior stock option exercises in stockholders' equity was $11.2 million.
Unrecognized Tax Benefits
The following table reconciles the total amounts of unrecognized tax benefits, at December 31, (in
thousands):
Balance at beginning of period
Additions for tax positions of prior years
Additions based on tax positions
related to the current year
Expiration of statute of limitations
Balance at end of period
2008
$ 4,829
819
363
(229)
$ 5,782
2007
$ 3,752
373
791
(87)
$ 4,829
The total amount of unrecognized tax benefits, net of Federal income tax benefits, of $3.8 million and $3.2
million at December 31, 2008 and 2007, respectively, would, if recognized, increase the Company’s earnings, and
lower the Company’s annual effective tax rate in the year of recognition.
60
In addition, the total amount of accrued interest and penalties related to taxes was $1.0 million, $1.3
million and $0.9 million at December 31, 2008, 2007 and 2006, respectively.
The Company periodically undergoes examinations by the IRS, as well as various state jurisdictions. The
IRS and other taxing authorities routinely challenge certain deductions and positions reported by the Company on
its income tax returns. During the third quarter of 2008, the IRS completed an audit of the Company’s 2005 federal
tax return, and found no changes. For federal income tax purposes, the tax years 2006 through 2007 remain subject
to examination.
In connection with a tax audit by the Indiana Department of Revenue pertaining to calendar years 1998 to
2000, the Company received an initial examination report asserting, in the aggregate, approximately $1.2 million of
proposed tax adjustments, including interest and penalties. After two hearings with the Indiana Department of
Revenue, the audit findings were upheld. The Company filed an appeal in December 2006 with the Indiana Tax
Court and the matter was scheduled for trial in December 2008. In November 2008, the Company and the Indiana
Department of Revenue reached an agreement in principle to settle tax years 1998 to 2000 for $0.6 million, as well
as 2001 to 2006 for $4.0 million, subject to final documentation. This amount has been fully reserved, and is
expected to be paid in the first half of 2009.
The Company has assessed its risks associated with all tax return positions, and believes that its tax reserve
estimates reflect its best estimate of the deductions and positions that it will be able to sustain, or that it may be
willing to concede as part of a settlement. At this time, the Company cannot estimate the range of reasonably
possible change in its tax reserve estimates in 2009. While these tax matters could materially affect operating
results when resolved in future periods, it is management’s opinion that after final disposition, any monetary
liability or financial impact to the Company beyond that provided in the Consolidated Balance Sheet as of
December 31, 2008, would not be material to the Company’s financial position or annual results of operations.
10. COMMITMENTS AND CONTINGENCIES
Leases
The Company's lease commitments are primarily for real estate, machinery and equipment, and vehicles.
The significant real estate leases provide for renewal options and require the Company to pay for property taxes
and all other costs associated with the leased property.
Future minimum lease payments under operating leases at December 31, 2008 are summarized as follows
(in thousands):
2009
2010
2011
2012
2013
Thereafter
Total minimum lease payments
$ 5,474
4,482
3,807
2,558
1,258
659
$ 18,238
Rent expense for operating leases was $6.6 million, $6.1 million and $5.9 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
Employment Agreements
At December 31, 2008 the Company had employment contracts with fifteen of its employees and three
consultants, which expire on various dates through 2013. The minimum commitments under these contracts are
$4.1 million in 2009, $3.7 million in 2010, $1.9 million in 2011, and $0.1 million in 2012 and 2013. Included in
these minimum commitments are certain amounts payable to two retired senior executives which have been
accrued as of December 31, 2008. See Note 7 of the Notes to Consolidated Financial Statements for further
information regarding executive retirement charges.
61
Included in the foregoing are contracts with four employees which provided for incentives to be paid based
on a percentage of profits, as defined. Subsequent to December 31, 2008, the contract with one of these employees
was cancelled. In addition, the contracts with the remaining three employees were replaced, and along with the
Company’s new Chief Executive Officer, new contracts were entered into which provide for incentive
compensation to be paid based on a percentage of profits, as well as the Company’s financial performance as
compared to the RV, manufactured housing and related industries, as defined.
Royalty
In February 2003, the Company entered into an agreement for a non-exclusive license for certain patents
related to slide-out systems. Royalties are payable as a percentage of sales of certain slide-out systems produced by
the Company, with initial minimum annual royalties, including $1.3 million in 2006. The agreement also provides
for the Company to pay a royalty of 1 percent on sales of certain slide-out systems commencing January 1, 2007
through the expiration of the patents, with aggregate payments subsequent to January 1, 2007 not to exceed $5.0
million. The expense related to this royalty agreement of $0.2 million and $0.4 million for 2008 and 2007,
respectively, is classified in the Consolidated Statements of Income in Cost of Sales. Aggregate payments
subsequent to December 31, 2008 can not exceed $4.4 million.
Litigation
On or about January 3, 2007, an action was commenced in the United States District Court, Central
District of California entitled Gonzalez vs. Drew Industries Incorporated, Kinro, Inc., Kinro Texas Limited
Partnership d/b/a Better Bath Components; Skyline Corporation, and Skylines Homes, Inc. (Case No. CV06-
08233). The case purports to be a class action on behalf of the named plaintiff and all others similarly situated in
California. Plaintiff initially alleged, but has not sought certification of, a national class.
On April 1, 2008, the Court issued an order granting Drew’s motion to dismiss for lack of personal
jurisdiction, resulting in the dismissal of Drew Industries Incorporated as one of the defendants in the case.
Plaintiff alleges that certain bathtubs manufactured by Kinro Texas Limited Partnership, a subsidiary of
Kinro, Inc., and sold under the name “Better Bath” for use in manufactured homes, fail to comply with certain
safety standards relating to flame spread established by the United States Department of Housing and Urban
Development (“HUD”). Plaintiff alleges, among other things, that sale of these products is in violation of various
provisions of the California Consumers Legal Remedies Act (Sec. 1770 et seq.), the Magnuson-Moss Warranty
Act (Sec. 2301 et seq.), and the California Song-Beverly Consumer Warranty Act (Sec. 1790 et seq.).
Plaintiff seeks to require defendants to notify members of the class of the allegations in the proceeding
and the claims made, to repair or replace the allegedly defective products, to reimburse members of the class for
repair, replacement and consequential costs, to cease the sale and distribution of the allegedly defective products,
and to pay actual and punitive damages and plaintiff’s attorneys fees.
On January 29, 2008, the Court issued an Order denying certification of a class with plaintiff Gonzalez as
the class representative. The Court ruled that plaintiff may not be an appropriate class representative for injunctive
relief because her bathtub had been replaced. The Court granted plaintiff leave to amend the complaint to add a
different plaintiff.
On March 10, 2008, plaintiff amended her complaint to include an additional plaintiff, Robert Royalty.
Plaintiff Royalty states that his bathtub was not tested to determine whether it complies with HUD standards.
Rather, his allegations are based on “information and belief”, including the testing of plaintiff Gonzalez’s bathtub
and other evidence. Kinro denies plaintiff Royalty’s allegations, and intends to continue its vigorous defense
against both plaintiffs’ claims.
On June 25, 2008, plaintiffs filed a renewed motion for class certification. On October 20, 2008, the Court
again denied certification of a class, without prejudice, which allowed plaintiffs to file a new motion for
certification if plaintiffs are able to satisfy the Court’s concerns over the viability of plaintiffs’ case. Plaintiffs
62
filed a third motion for class certification on December 23, 2008. Defendants’ initial motion seeking summary
judgment against plaintiffs’ case, which was withdrawn pending further discovery, was supplemented and refiled
on December 23, 2008. A hearing on was held on for March 2, 2009, but a decision by the court has not yet been
received.
Defendant Kinro has conducted a comprehensive investigation of the allegations made in connection with
the claims, including with respect to the HUD safety standards, prior test results, testing procedures, and the use
of labels. In addition, at Kinro’s initiative, independent laboratories conducted multiple tests on materials used by
Kinro in the manufacture of bathtubs, the results of which tests indicate that Kinro’s bathtubs are in compliance
with HUD regulations.
Based on the foregoing investigation and testing, Kinro believes that plaintiffs may not be able to prove
the essential elements of their claims, and defendants intend to vigorously defend against the claims.
Moreover, Kinro believes that, because test results received by Kinro confirm that it is in compliance with
HUD safety standards, no remedial action is required or appropriate.
In October 2007, the parties participated in voluntary non-binding mediation in an effort to reach a
settlement. Kinro made an offer of settlement consistent with its belief regarding the merits of plaintiffs’
allegations. Although no settlement was reached, the parties have since had intermittent discussions. The outcome
of such settlement efforts cannot be predicted.
If plaintiffs’ motion for class certification is granted, and defendants’ motion for summary judgment is
denied, and if plaintiffs pursue their claims, protracted litigation could result. Although the outcome of such
litigation cannot be predicted, if certain essential findings are ultimately unfavorable to Kinro, the Company could
sustain a material liability. The Company’s liability insurer denied coverage on the ground that plaintiffs did not
sustain any personal injury or property damage.
In the normal course of business, the Company is subject to proceedings, lawsuits and other claims. All
such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters
could materially affect operating results when resolved in future periods, it is management’s opinion that after
final disposition, including anticipated insurance recoveries, any monetary liability or financial impact to the
Company beyond that provided in the Consolidated Balance Sheet as of December 31, 2008, would not be
material to the Company’s financial position or annual results of operations.
Sale-Leaseback
In April 2008, the Company sold for $3.1 million a mortgage note it had received in a 2006 sale of a
facility, which note had been in default. In connection with the collection of this $3.1 million in cash, the Company
recorded a gain of $2.1 million during 2008. This gain is classified in selling, general, and administrative expenses
in the Consolidated Statements of Income.
Facilities Consolidation
In response to the slowdowns in both the RV and manufactured housing industries, over the past few years
the Company has consolidated the operations previously conducted at 26 facilities and reduced staff levels. The
severance and operational relocation costs incurred by the Company were not significant. The Company operated
29 facilities at December 31, 2008, and is continuing to explore additional facility consolidation opportunities in
2009.
During 2008, the Company sold seven facilities, and at December 31, 2008, had four vacant facilities and
vacant land listed for sale, with an aggregate carrying value of $5.9 million, classified in other assets in the
Consolidated Balance Sheets. One of the facilities is under contract to be sold in 2009 at its carrying value of $0.4
million.
63
To reflect the net gains on the sold facilities and the write-downs to estimated fair value of facilities to be
sold, the Company recorded a net gain of $1.9 million in 2008. For similar items, the Company recorded a net gain
of less than $0.1 million in 2007, and a net gain of $1.1 million in 2006.
Effective in the third quarter of 2008, gains or losses on sold manufacturing facilities and charges for
write-downs to estimated current fair value of manufacturing facilities to be sold have been reclassified from cost
of goods sold to selling, general, and administrative expenses in the Consolidated Statements of Income. Prior
periods have been reclassified to conform to this presentation.
Other Income
In February 2004, the Company sold certain intellectual property rights for $4.0 million, consisting of cash
of $0.1 million at closing and a note of $3.9 million (the “Note”), payable over five years. The Note was initially
recorded net of a reserve of $3.4 million. In 2008, 2007 and 2006, the Company received scheduled payments of
principal and interest, which had been previously fully reserved. Therefore, the Company recorded a pre-tax gain
of $0.8 million, $0.8 million, and $0.7 million in 2008, 2007 and 2006, respectively. The balance of the note was
$1.0 million at December 31, 2008, which is fully reserved. The Company did not receive the final scheduled
payment in January 2009, however in February 2009, the Company received a payment of $0.1 million, and is
currently attempting to collect the balance due.
11. STOCKHOLDERS' EQUITY
Stock-Based Awards
Pursuant to the Drew Industries Incorporated 2002 Equity Award and Incentive Plan, as amended (the
“2002 Equity Plan”), which was approved by stockholders in May 2002, the Company may grant to its directors,
employees, and consultants Common Stock-based awards, such as stock options, restricted or deferred stock, and
deferred stock units. The number of shares available for granting awards under the 2002 Equity Plan was 346,921
and 323,816 at December 31, 2008 and 2007, respectively. At the Annual Meeting of Stockholders held in May
2008, stockholders approved an amendment to the 2002 Equity Plan to increase the number of shares available for
awards by 500,000 shares. The stockholders also ratified an amendment to the Company’s Restated Certificate of
Incorporation to increase the authorized number of shares of Common Stock from 30,000,000 shares to
50,000,000. At the Annual Meeting of Stockholders to be held on May 20, 2009, there will be proposed for
stockholder approval an amendment to the 2002 Equity Plan increasing the number of shares available for awards
by 750,000 shares.
The 2002 Equity Plan provides for the grant of stock options that qualify as incentive stock options under
Section 422 of the Internal Revenue Code, and non-qualified stock options. Under the 2002 Equity Plan, the
Compensation Committee of Drew’s Board of Directors (the “Committee”) determines the period for which each
stock option may be exercisable, but in no event may a stock option be exercisable more than 10 years from the
date of grant. The number of shares available under the 2002 Equity Plan, and the exercise price of stock options
granted under the 2002 Equity Plan, are subject to adjustments by the Committee to reflect stock splits, stock
dividends, recapitalization, mergers, or other major corporate actions.
The exercise price for stock options granted under the 2002 Equity Plan must be at least equal to 100
percent of the fair market value of the shares subject to such stock option on the date of grant. The exercise price
may be paid in cash or in shares of Drew Common Stock which have been held for a minimum of six months.
Stock options granted under the 2002 Equity Plan must be approved by, and become exercisable in annual
installments as determined by, the Committee. Historically, upon exercise of stock options, new shares have been
issued, instead of treasury shares.
The Company had historically granted stock options to employees in November every other year and to
Directors every year in December. In 2008 the Company began granting stock options to employees on an annual
basis. Outstanding stock options expire six years from the date of grant, and vest over service periods of one year
for Directors and five years for employees.
64
Transactions in stock options under the 2002 Equity Plan are summarized as follows:
Outstanding at December 31, 2005
Granted
Exercised
Forfeited
Outstanding at December 31, 2006
Granted
Exercised
Forfeited
Outstanding at December 31, 2007
Granted
Exercised
Forfeited
Outstanding at December 31, 2008
Exercisable at December 31, 2008
Number of
Option Shares
1,578,460
45,000
(197,480)
(61,900)
1,364,080
586,000
(248,840)
(41,600)
1,659,640
515,500
(38,200)
(60,600)
2,076,340
932,480
Stock Option
Exercise Price
$4.55 – $28.71
$26.39
$4.55 – $16.16
$4.55 – $28.33
$4.55 – $28.71
$28.09 – $32.61
$4.55 – $28.71
$12.78 – $28.33
$7.88 – $32.61
$11.59 – $14.22
$7.88 – $12.78
$12.78 – $32.61
$11.59 – $32.61
$12.78 – $32.61
Weighted
Average
Exercise
Price
$ 17.78
26.39
8.97
18.15
19.33
32.32
10.10
24.84
25.16
11.92
8.93
26.18
$ 22.14
$ 21.69
The total intrinsic value, defined as the excess of market value over the exercise price, of stock options
exercised during the years ended December 31, 2008, 2007 and 2006 was $0.2 million, $6.1 million and $3.8
million, respectively. The Company received cash of $0.3 million, $2.5 million and $1.8 million for years ended
December 31, 2008, 2007 and 2006, respectively, upon the exercise of stock options. In addition, the Company
recognized income tax benefits from the exercise of stock options of $0.1 million, $1.9 million and $1.6 million for
the years ended December 31, 2008, 2007 and 2006, respectively. At December 31, 2007 there were 626,400
options exercisable at a weighted average exercise price of $19.40.
The following table summarizes information about stock options outstanding at December 31, 2008:
Option
Exercise
Price
$ 12.78
$ 13.80
$ 16.15
$ 16.16
$ 28.33
$ 28.71
$ 26.39
$ 32.61
$ 28.09
$ 11.59
$ 13.03
$ 14.22
Shares
Outstanding
356,700
30,000
40,000
12,000
473,640
37,500
37,500
536,000
37,500
449,000
4,000
62,500
Option
Remaining
Life (Years)
0.9
1.0
2.0
1.9
2.9
3.0
4.0
4.9
5.0
5.9
5.9
6.0
Shares
Exercisable
356,700
30,000
40,000
9,000
277,080
37,500
37,500
107,200
37,500
-
-
-
At December 31, 2008, the aggregate intrinsic value was $0.2 million for outstanding in-the-money stock
options and there were no exercisable in-the-money stock options. The weighted average remaining contractual
term was 3.8 years for all outstanding stock options and 2.4 years for all exercisable stock options.
As of December 31, 2008, there was $9.1 million of total unrecognized compensation costs related to
unvested stock options, which is expected to be recognized over a weighted average remaining period of 3.5 years.
In 2008, 2007 and 2006 pursuant to the 2002 Equity Plan, certain non-employee directors elected to
receive deferred stock units in lieu of cash fees. The number of deferred stock units issued was determined by
65
dividing 115 percent of the fee earned by the closing price of the Common Stock on the date the fees were earned.
Deferred stock units are 100 percent vested upon issuance.
Transactions in deferred stock units under the 2002 Equity Plan are summarized as follows:
Outstanding at December 31, 2005
Issued
Exercised
Outstanding at December 31, 2006
Issued
Exercised
Outstanding at December 31, 2007
Issued
Exercised
Outstanding at December 31, 2008
Number of
Shares
59,506
9,451
(2,460)
66,497
10,589
(1,089)
75,997
21,995
(880)
97,112
Stock Price
at Date
of Issuance
$25.01 – $37.35
$13.90 – $29.95
$6.87 – $37.35
$26.01 – $43.02
$7.61 – $12.78
$6.87 – $43.02
$11.59 – $27.40
$25.01 – $37.35
$6.87 – $43.02
Beginning in 2009, a portion of certain senior executives’ salary or incentive compensation will be paid in
deferred stock units in lieu of cash compensation at 100 percent.
In 2006, the Company issued 10,868 shares of restricted stock in accordance with the performance-based
incentive compensation of an employee, pursuant to an employment agreement.
Weighted Average Common Shares Outstanding
The following reconciliation details the denominator used in the computation of basic and diluted earnings
per share for the years ended December 31,:
Weighted average shares outstanding for
basic earnings per share
Common stock equivalents pertaining to
stock options
Total for diluted shares
2008
2007
2006
21,808,073
21,892,656
21,619,455
109,048
21,917,121
233,244
22,125,900
247,542
21,866,997
The weighted average diluted shares outstanding for the year ended December 31, 2008 and 2007,
excludes the dilutive effect of 1,392,440 and 146,500 stock options, respectively, as to include them in the
calculation of total diluted shares would have been anti-dilutive. For 2006, all stock options were included.
On November 29, 2007 the Board of Directors authorized the Company to repurchase up to 1 million
shares of the Company’s Common Stock, of which 447,400 shares have been repurchased at an average price of
$18.58 per share, or $8.3 million in total. The aggregate cost of repurchases during the year was funded from the
Company’s available cash. The Company is authorized to purchase shares from time to time in the open market, or
privately negotiated transactions, or block trades. The number of shares ultimately repurchased, and the timing of
the purchases, will depend upon market conditions, share price, and other factors. At present due to the current
economic conditions, the Company believes it is prudent to conserve cash, and does not intend to repurchase
shares. However, changing conditions may cause the Company to reconsider this position.
66
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Interim unaudited financial information follows (in thousands, except per share amounts):
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Year
Year ended December 31, 2008
Net sales
Gross profit
Income (loss) before income taxes
Net income (loss)
Net income (loss) per common share:
Basic
Diluted
$159,148
36,579
14,895
$ 9,105
$
$
0.41
0.41
$150,523
36,804
15,310
$ 9,190
$
$
0.42
0.42
$124,274
24,982
4,207
$ 2,593
$ 76,561
9,141
(15,391)
$ (9,210)
$510,506
107,506
19,021
$ 11,678
$
$
0.12
0.12
$ (0.43)
$ (0.43)
$
$
0.54
0.53
Stock market price
High
Low
Close (at end of quarter)
Year ended December 31, 2007
Net sales
Gross profit
Income before income taxes
Net income
Net income per common share:
Basic
Diluted
Stock market price
High
Low
Close (at end of quarter)
$ 28.69
$ 21.47
$ 24.46
$ 26.81
$ 15.95
$ 15.95
$ 20.58
$ 14.80
$ 17.11
$ 16.05
$
9.65
$ 12.00
$ 28.69
$
9.65
$ 12.00
$172,944
39,887
15,642
$ 9,589
$
$
0.44
0.44
$184,456
46,750
20,344
$ 12,562
$
$
0.57
0.57
$173,410
41,456
17,810
$ 11,133
$137,815
30,657
9,548
$ 6,483
$668,625
158,750
63,344
$ 39,767
$
$
0.51
0.50
$
$
0.29
0.29
$
$
1.82
1.80
$ 30.72
$ 24.26
$ 28.68
$ 35.29
$ 28.21
$ 33.14
$ 41.98
$ 32.86
$ 40.68
$ 44.18
$ 26.75
$ 27.40
$ 44.18
$ 24.26
$ 27.40
The sum of per share amounts for the four quarters may not equal the total per share amounts for the year
as a result of changes in the weighted average common shares outstanding or rounding.
67
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
Item 9A. 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 Exchange Act reports is recorded, processed, summarized and reported
within the time periods specified in the SEC’s 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-15 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. The
Company continually evaluates its disclosure controls and procedures to determine if changes are appropriate
based upon changes in the Company’s operations or the business environment in which it operates.
As of the end of the period covered by this Form 10-K, 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 the Company’s 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.
(a)
Management’s Annual Report on Internal Control over Financial Reporting.
Management's Responsibility for Financial Statements
We are responsible for the preparation and integrity of the Consolidated Financial Statements appearing
in the Annual Report on Form 10-K. The Consolidated Financial Statements were prepared in conformity with
accounting principles generally accepted in the United States and include amounts based on management’s
estimates and judgments.
We are also responsible for establishing and maintaining adequate internal control over financial
reporting. We maintain a system of internal control that is designed to provide reasonable assurance as to the fair
and reliable preparation and presentation of the Consolidated Financial Statements, as well as to safeguard assets
from unauthorized use or disposition. The Company continually evaluates its system of internal control over
financial reporting to determine if changes are appropriate based upon changes in the Company’s operations or
the business environment in which it operates.
Our control environment is the foundation for our system of internal control over financial reporting and
is embodied in our Guidelines for Business Conduct. It sets the tone of our organization and includes factors such
as integrity and ethical values. Our internal control over financial reporting is supported by formal policies and
procedures which are reviewed, modified and improved as changes occur in business conditions and operations.
We conducted an evaluation of the effectiveness of our internal control over financial reporting based on
the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). This evaluation included review of the documentation of
controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a
conclusion on this evaluation. Although there are inherent limitations in the effectiveness of any system of
internal control over financial reporting, based on our evaluation, we have concluded that our internal control over
financial reporting was effective as of December 31, 2008.
68
KPMG LLP, an independent registered public accounting firm, has audited the Consolidated Financial
Statements included in this Report and, as part of their audit, has issued their report, on the effectiveness of our
internal control over financial reporting, included elsewhere in this Form 10-K.
/s/ Fredric M. Zinn
President and
Chief Executive Officer
/s/ Joseph S. Giordano III
Chief Financial Officer and
Treasurer
(b)
Report of the Independent Registered Public Accounting Firm.
The report of the independent registered public accounting firm is included in Item 8. “Financial
Statements and Supplementary Data.”
(c)
Changes in Internal Control over Financial Reporting.
There were no changes in the Company’s internal controls over financial reporting during the quarter
ended December 31, 2008 or subsequent to the date the Company completed its evaluation, that have materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
During 2005, one of the Company’s subsidiaries installed enterprise resource planning (“ERP”) software
and subsequently implemented certain functions of the ERP software. Over the last few years, the internal
controls of the Company have incrementally been strengthened due both to the ERP software and business
process changes. The Company anticipates that it will continue to implement certain additional functionalities of
the ERP software to further strengthen the Company’s internal control.
Item 9B. OTHER INFORMATION.
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Information with respect to the Company’s Directors, Executive Officers and Corporate Governance is
incorporated by reference from the information contained under the caption “Proposal 1. Election of Directors” in
the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held on May 20, 2009. (The “2009
Proxy Statement”) and from the information contained under “Directors and Executive Officers of the Registrant”
in Part I of this Report.
Information regarding Section 16 reporting compliance is incorporated by reference from the information
contained under the caption “Voting Securities – Compliance with Section 16(a) of the Exchange Act” in the
Company’s 2009 Proxy Statement.
The Company has adopted Governance Principles, Guidelines for Business Conduct, and a Code of
Ethics for Senior Financial Officers (“Code of Ethics”), each of which, as well as the Charter and Key Practices of
the Company’s Audit Committee, Compensation Committee, and Corporate Governance and Nominating
Committee, are available on the Company’s website at www.drewindustries.com. A copy of any of these
documents will be furnished, without charge, upon written request to Secretary, Drew Industries Incorporated,
200 Mamaroneck Avenue, White Plains, New York 10601.
If the Company makes any substantive amendment to the Code of Ethics or the Guidelines for Business
Conduct, or grants a waiver to a Director or Executive Officer from a provision of the Code of Ethics or the
Guidelines for Business Conduct, the Company will disclose the nature of such amendment or waiver on its
website or in a Current Report on Form 8-K. There have been no waivers to Directors or Executive Officers of
any provisions of the Code of Ethics or the Guidelines for Business Conduct.
69
Item 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the information contained under
the caption “Proposal 1. Election of Directors – Executive Compensation” and “Director Compensation” in the
Company’s 2009 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
The information required by this item is incorporated by reference from the information contained under
the caption “Voting Securities – Security Ownership of Management” and “Equity Award and Incentive Plan” in
the Company’s 2009 Proxy Statement.
Item 13.
INDEPENDENCE.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
No executive officer of the Company serves on the Company’s Compensation Committee, and there are
no “interlocks” as defined by the Securities and Exchange Commission.
The information required by this item with respect to transactions with related persons and director
independence is incorporated by reference from the information contained under the captions “Proposal 1.
Election of Directors – Transactions with Related Persons” and “Proposal 1. Election of Directors – Corporate
Governance and Related Matters – Board of Directors” in the Company’s 2009 Proxy Statement.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this item is incorporated by reference from the information contained under
“Proposal 4. Appointment of Auditors” in the Company’s 2009 Proxy Statement.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a)
Documents Filed:
Financial Statements.
Exhibits. See Item 15 (b) – “List of Exhibits” incorporated herein by reference.
(1)
(2)
Exhibit
Number
3
3.1
3.2
(b)
Exhibits – List of Exhibits.
Description
Articles of Incorporation and By-laws.
Drew Industries Incorporated Restated Certificate of Incorporation.
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
Company’s Form 8-K filed on November 19, 2008.
10
Material Contracts.
70
10.194*
Drew Industries Incorporated 2002 Equity Award and Incentive Plan, as amended.
10.195
10.197*
10.198
10.199
10.200
10.201
10.202
10.203
10.204
10.205
10.206
License Agreement, dated February 28, 2003, by and among Versa Technologies, Inc., VT
Holdings II, Inc. and Engineered Solutions LP, and Lippert Components, Inc.
Amended Change of Control Agreement by and between Fredric M. Zinn and Registrant, dated
March 3, 2006, as amended on July 18, 2006 and December 23, 2008.
Amended and Restated Credit Agreement dated as of February 11, 2005 by and among Kinro,
Inc., Lippert Components, Inc., KeyBank, National Association, HSBC Bank USA, National
Association, and JPMorgan Chase Bank, N.A., individually and as Administrative Agent.
Amended and Restated Subsidiary Guarantee Agreement dated as of February 11, 2005 by and
among Lippert Tire & Axle, Inc., Kinro Holding, Inc., Lippert Tire & Axle Holding, Inc., Lippert
Holding, Inc., Kinro Manufacturing, Inc., Lippert Components Manufacturing, Inc., Kinro Texas
Limited Partnership, Kinro Tennessee Limited Partnership, Lippert Tire & Axle Texas Limited
Partnership, Lippert Components Texas Limited Partnership, BBD Realty Texas Limited
Partnership, LD Realty, Inc., LTM Manufacturing, L.L.C., Coil Clip, Inc., Zieman Manufacturing
Company, with and in favor of JPMorgan Chase Bank, N.A., as Administrative Agent for the
Lenders.
Amended and Restated Company Guarantee Agreement dated as of February 11, 2005 by and
among Drew Industries Incorporated, with and in favor of JPMorgan Chase Bank, N.A., as
Administrative Agent for the Lenders.
Amended and Restated Subordination Agreement dated as of February 11, 2005 by and among
Kinro, Inc., Lippert Tire & Axle, Inc., Lippert Components, Inc., Kinro Holding, Inc., Lippert
Tire & Axle Holding, Inc., Lippert Holding, Inc., Kinro Manufacturing, Inc., Lippert Components
Manufacturing, Inc., Lippert Components of Canada, Inc., Coil Clip, Inc., Zieman Manufacturing
Company, Kinro Texas Limited Partnership, Kinro Tennessee Limited Partnership, Lippert Tire
& Axle Texas Limited Partnership, BBD Realty Texas Limited Partnership, Lippert Components
Texas Limited Partnership, LD Realty, Inc., LTM Manufacturing, L.L.C., with and in favor of
JPMorgan Chase Bank, N.A., as Administrative Agent.
Amended and Restated Pledge Agreement dated as of February 11, 2005 by and among Drew
Industries Incorporated, Kinro, Inc., Lippert Tire & Axle, Inc., Kinro Holding, Inc., Lippert Tire
& Axle Holding, Inc., Lippert Components, Inc., Lippert Holding, Inc., with and in favor of
JPMorgan Chase Bank, N.A., as Administrative Agent.
Revolving Credit Note dated as of February 11, 2005 by and among Kinro, Inc., Lippert
Components, Inc., payable to the order of JPMorgan Chase Bank, N.A. in the principal amount of
Twenty-Five Million ($25,000,000) Dollars.
Revolving Credit Note dated as of February 11, 2005 by and among Kinro, Inc., Lippert
Components, Inc., payable to the order of KeyBank National Association in the principal amount
of Twenty Million ($20,000,000) Dollars.
Revolving Credit Note dated as of February 11, 2005 by and among Kinro, Inc., Lippert
Components, Inc., payable to the order of HSBC USA, National Association in the principal
amount of Fifteen Million ($15,000,000) Dollars.
Note Purchase and Private Shelf Agreement dated as of February 11, 2005 by and among Kinro,
Inc., Lippert Components, Inc., Drew Industries Incorporated and Prudential Investment
Management, Inc.
71
10.207
Form of Senior Note (Shelf Note).
10.208
10.209
10.210
10.211
10.212
10.213
10.214*
10.221
10.222*
10.223*
10.224*
10.230
Parent Guarantee Agreement dated as of February 11, 2005 by and among Drew Industries
Incorporated, Prudential Investment Management, Inc. and the Noteholders.
Subsidiary Guaranty dated as of February 11, 2005 by and among Lippert Tire & Axle, Inc.,
Kinro Holding, Inc., Lippert Tire & Axle Holding, Inc., Lippert Holding, Inc., Kinro
Manufacturing, Inc., Lippert Components Manufacturing, Inc., Kinro Texas Limited Partnership,
Kinro Tennessee Limited Partnership, Lippert Tire & Axle Texas Limited Partnership, Lippert
Components Texas Limited Partnership, BBD Realty Texas Limited Partnership, LD Realty, Inc.,
LTM Manufacturing, L.L.C., Coil Clip, Inc., Zieman Manufacturing Company, with and in favor
of Prudential Investment Management, Inc. and the Noteholders listed thereto.
Intercreditor Agreement dated as of February 11, 2005 by and among Prudential Investment
Management, Inc., JPMorgan Bank, N.A. (as Lender and Administrative Agent), KeyBank,
National Association, HSBC Bank USA, National Association and JPMorgan Bank, N.A. (as
Trustee and Administrative Agent).
Subordination Agreement dated as of February 11, 2005 by and among Drew Industries
Incorporated, Kinro, Inc., Lippert Tire & Axle, Inc., Lippert Components, Inc., Kinro Holding,
Inc., Lippert Tire & Axle Holding, Inc., Lippert Holding, Inc., Kinro Manufacturing, Inc., Lippert
Components Manufacturing, Inc., Lippert Components of Canada, Inc., Coil Clip, Inc., Zieman
Manufacturing Company, Kinro Texas Limited Partnership, Kinro Tennessee Limited
Partnership, Lippert Tire & Axle Texas Limited Partnership, BBD Realty Texas Limited
Partnership, Lippert Components Texas Limited Partnership, LD Realty, Inc., LTM
Manufacturing, L.L.C., with and in favor of Prudential Investment Management, Inc.
Pledge Agreement dated as of February 11, 2005 by and among Drew Industries Incorporated,
Kinro, Inc., Lippert Tire & Axle, Inc., Kinro Holding, Inc., Lippert Tire & Axle Holding, Inc.,
Lippert Components, Inc., Lippert Holding, Inc. in favor of JPMorgan Chase Bank, N.A. as
security trustee.
Collateralized Trust Agreement dated as of February 11, 2005 by and among Kinro, Inc., Lippert
Components, Inc., Prudential Investment Management, Inc. and JPMorgan Chase Bank, N.A. as
security trustee for the Noteholders.
Amended and Restated Employment Agreement between Registrant and David L. Webster, dated
February 17, 2005.
Form of Indemnification Agreement between Registrant and its officers and independent
directors.
Employment Agreement by and between Lippert Components, Inc. and Jason D. Lippert,
effective January 1, 2006, as amended and supplemented.
Amended Change of Control Agreement by and between Harvey F. Milman and Registrant, dated
March 3, 2006, as amended on July 18, 2006 and December 23, 2008.
Memorandum to Leigh J. Abrams from the Compensation Committee of the Board of Directors
dated November 14, 2007.
Second Amendment to Amended and Restated Credit Agreement dated as of March 10, 2006 by
and among Kinro, Inc., Lippert Components, Inc., KeyBank, National Association, HSBC Bank
USA, National Association, and JPMorgan Chase Bank, N.A., individually and as Administrative
Agent.
72
10.231*
Executive Non-Qualified Deferred Compensation Plan, as amended.
10.232*
10.233
10.234
10.235
10.236
10.237
10.238
10.239
10.240
Compensation Memorandum of Lippert Components Manufacturing, Inc. to Scott T. Mereness
dated January 30, 2008.
Second Amended and Restated Credit Agreement dated as of November 25, 2008 by and among
Kinro, Inc., Lippert Components, Inc., JPMorgan Chase Bank, N.A., individually and as
Administrative Agent, and Wells Fargo Bank, N.A. individually and as Documentation Agent.
Second Amended and Restated Subsidiary Guarantee Agreement dated as of November 25,
2008 by and among Lippert Tire & Axle, Inc., Kinro Holding, Inc., Lippert Tire & Axle
Holding, Inc., Lippert Holding, Inc., Kinro Manufacturing, Inc., Lippert Components
Manufacturing, Inc., Kinro Texas Limited Partnership, Kinro Tennessee Limited Partnership,
Lippert Tire & Axle Texas Limited Partnership, Lippert Components Texas Limited
Partnership, BBD Realty Texas Limited Partnership, LD Realty, Inc., LTM Manufacturing,
L.L.C., Trailair, Inc., Coil Clip, Inc., Zieman Manufacturing Company, with and in favor of
JPMorgan Chase Bank, N.A., as Administrative Agent for the Lenders.
Second Amended and Restated Company Guarantee Agreement dated as of November 25, 2008
by and among Drew Industries Incorporated, with and in favor of JPMorgan Chase Bank, N.A.,
as Administrative Agent for the Lenders.
Second Amended and Restated Subordination Agreement dated as of November 25, 2008 by
and among Drew Industries Incorporated, Kinro, Inc., Lippert Tire & Axle, Inc., Lippert
Components, Inc., Kinro Holding, Inc., Lippert Tire & Axle Holding, Inc., Lippert Holding,
Inc., Kinro Manufacturing, Inc., Lippert Components Manufacturing, Inc., Coil Clip, Inc.,
Zieman Manufacturing Company, Kinro Texas Limited Partnership, Kinro Tennessee Limited
Partnership, Lippert Tire & Axle Texas Limited Partnership, BBD Realty Texas Limited
Partnership, Lippert Components Texas Limited Partnership, LD Realty, Inc., LTM
Manufacturing, L.L.C., Trailair, Inc, with and in favor of JPMorgan Chase Bank, N.A., as
Administrative Agent.
Second Amended and Restated Pledge and Security Agreement dated as of November 25, 2008
by and among Drew Industries Incorporated, Kinro, Inc., Lippert Tire & Axle, Inc., Kinro
Holding, Inc., Lippert Tire & Axle Holding, Inc., Lippert Components, Inc., Lippert Holding,
Inc., with and in favor of JPMorgan Chase Bank, N.A., as Administrative Agent.
Second Amended and Restated Revolving Credit Note dated as of November 25, 2008 by and
among Kinro, Inc., Lippert Components, Inc., payable to the order of JPMorgan Chase Bank,
N.A. in the principal amount of Thirty Million ($30,000,000) Dollars.
Revolving Credit Note dated as of November 25, 2008 by and among Kinro, Inc., Lippert
Components, Inc., payable to the order of Wells Fargo Bank, N.A. in the principal amount of
Twenty Million ($20,000,000) Dollars.
Second Amended and Restated Note Purchase and Private Shelf Agreement dated as of
November 25, 2008 by and among Prudential Investment Management, Inc. and Affiliates, and
Kinro, Inc. and Lippert Components, Inc., guaranteed by Drew Industries Incorporated.
10.241
Form of Fixed Rate Shelf Note.
10.242
Form of Floating Rate Shelf Note.
10.243
Confirmation, Reaffirmation and Amendment of Parent Guarantee Agreement dated as of
November 25, 2008 by and among Drew Industries Incorporated, Prudential Investment
Management, Inc. and the Noteholders listed thereto.
73
10.244
10.245
10.246
10.247
10.248
10.249*
10.250*
Confirmation, Reaffirmation and Amendment of Subsidiary Guaranty dated as of November 25,
2008 by and among Lippert Tire & Axle, Inc., Kinro Holding, Inc., Lippert Tire & Axle
Holding, Inc., Lippert Holding, Inc., Kinro Manufacturing, Inc., Lippert Components
Manufacturing, Inc., Kinro Texas Limited Partnership, Kinro Tennessee Limited Partnership,
Lippert Tire & Axle Texas Limited Partnership, Lippert Components Texas Limited
Partnership, BBD Realty Texas Limited Partnership, LD Realty, Inc., LTM Manufacturing,
L.L.C., Coil Clip, Inc., Zieman Manufacturing Company, with and in favor of Prudential
Investment Management, Inc. and Affiliates and the Noteholders listed thereto.
Amended and Restated Intercreditor Agreement dated as of November 25, 2008 by and among
Prudential Investment Management, Inc. and Affiliates, JPMorgan Bank, N.A. (as Lender),
Wells Fargo, N.A. (as Lender), and JPMorgan Bank, N.A. (as Administrative Agent, Collateral
Agent and Trustee).
Confirmation, Reaffirmation and Amendment of Subordination Agreement dated as of
November 25, 2008 by and among Drew Industries Incorporated, Kinro, Inc., Lippert Tire &
Axle, Inc., Lippert Components, Inc., Kinro Holding, Inc., Lippert Tire & Axle Holding, Inc.,
Lippert Holding, Inc., Kinro Manufacturing, Inc., Lippert Components Manufacturing, Inc., Coil
Clip, Inc., Zieman Manufacturing Company, Kinro Texas Limited Partnership, Kinro Tennessee
Limited Partnership, Lippert Tire & Axle Texas Limited Partnership, BBD Realty Texas
Limited Partnership, Lippert Components Texas Limited Partnership, LD Realty, Inc., LTM
Manufacturing, L.L.C., with and in favor of Prudential Investment Management, Inc. and
Affiliates.
Confirmation, Reaffirmation and Amendment of Pledge Agreement dated as of November 25,
2008 by and among Drew Industries Incorporated, Kinro, Inc., Lippert Tire & Axle, Inc., Kinro
Holding, Inc., Lippert Tire & Axle Holding, Inc., Lippert Components, Inc., Lippert Holding,
Inc. in favor of JPMorgan Chase Bank, N.A. as trustee.
Collateralized Trust Agreement dated as of November 25, 2008 by and among Kinro, Inc.,
Lippert Components, Inc., Prudential Investment Management, Inc. and Affiliates and
JPMorgan Chase Bank, N.A. as security trustee for the Noteholders.
Amended Change of Control Agreement by and between Joseph S. Giordano III and Registrant
dated July 18, 2006, as amended on December 23, 2008.
Amended Change of Control Agreement by and between Christopher L. Smith and Registrant
dated July 17, 2006, as amended on December 23, 2008 and March 5, 2009.
__________________________________
*Denotes a compensatory plan or arrangement.
Exhibit 10.194 is incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated
January 8, 2009.
Exhibit 10.195 is 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, 2003.
Exhibits 10.198-10.213 are incorporated by reference to Exhibits 10.1-10.16 included in the
Company’s Form 8-K filed on February 16, 2005.
Exhibit 10.214 is incorporated by reference to Exhibit 10.1 included in the Company’s Form 8-K
filed on February 23, 2005.
Exhibit 10.221 is incorporated by reference to Exhibit 99.1 included in the Company’s Form 8-K
filed on February 9, 2005.
74
Exhibit 10.222 is incorporated by reference to Exhibit 10.1 included in the Company’s Forms 8-K
filed on October 11, 2005 and January 18, 2008, and the Company’s Form 8-K filed on April 19,
2007.
Exhibit 10.224 is incorporated by reference to Exhibit 99.1 included in the Company’s Form 8-K
filed on November 19, 2007.
Exhibits 10.197 and 10.223 are incorporated by reference to Exhibits 10.1-10.2 included in the
Company’s Form 8-K filed on January 8, 2009.
Exhibit 10.230 is incorporated by reference to Exhibit 10.1 included in the Company’s Form 8-K
filed on March 14, 2006.
Exhibit 10.231 is incorporated by reference to Exhibit 10.1 included in the Company’s Form 8-K
filed on January 9, 2009.
Exhibit 10.232 is incorporated by reference to Exhibit 10.1 included in the Company’s Form 8-K
filed on February 1, 2008.
Exhibits 10.233 – 10.248 are incorporated by reference to Exhibits 10.1 - 10.16 included in the
Company’s Form 8-K filed on December 2, 2008.
Exhibit 10.249 is incorporated by reference to Exhibits 10.3 included in the Company’s Form 8-K
filed on January 8, 2009.
Exhibit 10.250 is incorporated by reference to Exhibit 10.4 included in the Company’s Form 8-K
filed on January 8, 2009 and to Exhibit 10.1 included in the Company’s Form 8-K filed on March
6, 2009.
Code of Ethics.
Code of Ethics for Senior Financial Officers.
Exhibit 14.1 is incorporated by reference to Exhibit 14 included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2003.
Guidelines for Business Conduct.
Exhibit 14.2 is filed herewith.
Subsidiaries of the Registrant.
Exhibit 21 is filed herewith.
Consent of Independent Registered Public Accounting Firm.
Exhibit 23 is filed herewith.
Powers of Attorney.
Powers of Attorney of persons signing this Report are included as part of this Report.
Rule 13a-14(a)/15d-14(a) Certifications.
Rule 13a-14(a) Certificate of Chief Executive Officer.
Rule 13a-14(a) Certificate of Chief Financial Officer.
Section 1350 Certifications.
Section 1350 Certificate of Chief Executive Officer.
Section 1350 Certificate of Chief Financial Officer.
Exhibits 31.1 - 32.2 are filed herewith.
75
14
14.1
14.2
21
23
24
31
31.1
31.2
32
32.1
32.2
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended,
Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: March 12, 2009
DREW INDUSTRIES INCORPORATED
By: /s/ Fredric M. Zinn
Fredric M. Zinn, President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, 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 Fredric M. Zinn and Joseph S. Giordano
III, 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 Fredric M. Zinn and Joseph S. Giordano III, 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 12, 2009
March 12, 2009
March 12, 2009
March 12, 2009
March 12, 2009
March 12, 2009
March 12, 2009
March 12, 2009
March 12, 2009
March 12, 2009
By:/s/ Fredric M. Zinn
(Fredric M. Zinn)
By: /s/ Joseph S. Giordano III
(Joseph S. Giordano III)
By: /s/ Christopher L. Smith
(Christopher L. Smith)
By: /s/ Edward W. Rose III
(Edward W. Rose III)
By: /s/ Leigh J. Abrams
(Leigh J. Abrams)
By: /s/ James F. Gero
(James F. Gero)
By: /s/ Frederick B. Hegi, Jr.
(Frederick B. Hegi, Jr.)
By: /s/ David A. Reed
(David A. Reed)
By: /s/ John B. Lowe, Jr.
(John B. Lowe, Jr.)
By: /s/ Jason D. Lippert
(Jason D. Lippert)
76
Director, President and
Chief Executive Officer
Chief Financial Officer and Treasurer
Corporate Controller
Lead Director
Chairman of the Board of Directors
Director
Director
Director
Director
Director
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Fredric M. Zinn, President and CEO, certify that:
1)
2)
3)
4)
I have reviewed this annual report on Form 10-K of Drew Industries Incorporated;
Based on my knowledge, this 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 report;
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, 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 report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5)
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: March 12, 2009
By: /s/ Fredric M. Zinn
Fredric M. Zinn, President and CEO
77
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Joseph S. Giordano III, Chief Financial Officer, certify that:
1)
2)
3)
4)
I have reviewed this annual report on Form 10-K of Drew Industries Incorporated;
Based on my knowledge, this 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 report;
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, 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 report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5)
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: March 12, 2009
By: /s/ Joseph S. Giordano III
Joseph S. Giordano III, Chief Financial Officer
78
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18. U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the annual report on Form 10-K of Drew Industries Incorporated (the “Company”) for the
period ended December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), Fredric M. Zinn, President and Chief Executive Officer of the Company, hereby certifies, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
By: /s/ Fredric M. Zinn
Fredric M. Zinn
President and Chief Executive Officer
Principal Executive Officer
March 12, 2009
79
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18. U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the annual report on Form 10-K of Drew Industries Incorporated (the “Company”) for the
period ended December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), Joseph S. Giordano III Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
By: /s/ Joseph S. Giordano III
Joseph S. Giordano III
Chief Financial Officer
Principal Financial Officer
March 12, 2009
80
Consent of Independent Registered Public Accounting Firm
EXHIBIT 23
The Board of Directors
Drew Industries Incorporated:
We consent to the incorporation by reference in the Registration Statements (Nos. 333-37194, 333-91174, 333-
152873 and 333-141276) on Form S-8 and the Registration Statement on Form S-3 (No. 333-128537) of Drew
Industries Incorporated and subsidiaries of our report dated March 12, 2009, with respect to the consolidated
balance sheets of Drew Industries Incorporated and subsidiaries as of December 31, 2008 and 2007, 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, 2008 and the effectiveness of internal control over financial reporting as of
December 31, 2008, which report appears in the December 31, 2008 annual report on Form 10-K of Drew
Industries Incorporated and subsidiaries.
Our report on the consolidated financial statements refers to the adoption of Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes in 2007.
/s/ KPMG LLP
Stamford, CT
March 12, 2009
81
250
200
150
100
50
0
The following graph compares the cumulative 5-year total return provided to stockholders on Drew Industries Incorporated’s
Common Stock relative to the cumulative total returns of the Russell 2000 index, and a customized peer group of four
companies that includes: Decorator Industries Inc., Patrick Industries Inc., Spartan Motors Inc. and Universal Forest Products Inc.
An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our Common Stock, in the
peer group, and the index on 12/31/2003 and its relative performance is tracked through 12/31/2008.
Comparison of 5–Year Cumulative Total Return(1)
Among Drew Industries Incorporated, The Russell 2000 Index and a Peer Group
Drew Industries Incorporated Russell 2000 Peer Group
$250
200
150
100
50
0
12/03
12/04
12/05
12/06
12/07
12/08
(1) $100 invested on 12/31/03 in stock or index-including reinvestment of dividends.
Fiscal year ending December 31.
12/03
12/04
12/05
12/06
12/07
12/08
Drew Industries Incorporated
$100.00
$130.11
$202.81
$187.12
$197.12
$86.33
Russell 2000
Peer Group
$100.00
$118.33
$123.72
$146.44
$144.15
$95.44
$100.00
$131.39
$157.69
$159.30
$107.17
$82.30
The stock price performance in this graph is not necessary indicative of future stock price performance.
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200 Mamaroneck Avenue, White Plains, NY 10601
www.drewindustries.com