Drew Industries Incorporated is a leading supplier of components for recreational
vehicles and manufactured homes. Drew operates through two wholly-owned
subsidiaries, Lippert Components, Inc. and Kinro, Inc.
From 26 factories located throughout the United States, Drew supplies the leading manufacturers of recreational vehicles and manufactured
homes. In 2010, recreational vehicle products accounted for 83 percent of Drew’s consolidated net sales, of which more than 90 percent
were for travel trailer and fifth-wheel RVs. Manufactured housing products accounted for 17 percent of Drew’s consolidated net sales.
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.
Drew’s products include:
• Steel chassis
• Vinyl and aluminum windows and screens
• Axles and suspension solutions
• Slide-out mechanisms and solutions
• Thermoformed bath, kitchen and
other products
• Manual, electric and hydraulic
stabilizer and lifting systems
• Specialty trailers for hauling boats,
personal watercraft, snowmobiles
and equipment
• Chassis components
• Furniture and mattresses
• Entry, baggage, patio, and ramp doors
• Entry steps
• Other towable accessories
Financial highlights
(In thousands, except per share amounts)
2010
2009(1)
2008(1)
2007
2006
Years Ended December 31,
Operating Data:
Net sales
Goodwill impairment
Executive retirement
Operating Profit (loss)
$ 572,755
$ 397,839
$ 510,506
$ 668,625
$ 729,232
$
$
— $ 45,040
$ 5,487
— $
— $ 2,667
$
$
— $
— $
—
—
$ 45,428
$ (35,581) $ 19,898
$ 65,959
$ 55,295
Income (loss) before income taxes
$ 45,210
$ (36,370) $ 19,021
$ 63,344
$ 50,694
Provision (benefit) for income taxes
$ 17,176
$ (12,317) $ 7,343
$ 23,577
$ 19,671
Net income (loss)
$ 28,034
$ (24,053) $ 11,678
$ 39,767
$ 31,023
Net income (loss) per common share:
Basic
Diluted
Financial Data:
Working capital
Total assets
Long-term indebtedness
Other long-term obligations
Stockholders’ equity
$
$
1.27
1.26
$
$
(1.10) $
(1.10) $
0.54
0.53
$
$
1.82
1.80
$
$
1.43
1.42
$ 97,791
$ 113,744
$ 84,378
$ 89,861
$ 61,979
$ 306,781
$ 288,065
$ 311,358
$ 345,737
$ 311,276
$
— $
— $ 2,850
$ 18,381
$ 45,966
$ 18,248
$ 8,243
$ 6,913
$ 4,747
$ 1,361
$ 243,459
$ 244,115
$ 258,878
$ 251,536
$ 204,888
(1) The Company recorded after-tax charges for goodwill impairment of $29.4 million in 2009 and $3.3 million in 2008. In addition, during
2009 and 2008, the Company recorded after-tax expenses of $5.5 million and $1.5 million, respectively, due to plant closings and
start-ups, staff reductions and relocations, increased bad debts, and obsolete inventory and tooling, largely due to the recession related
unprecedented conditions in the RV and manufactured housing industries, as well as executive retirement in 2008.
Excluding these charges, net income was $10.8 million, or $0.50 per diluted share, in 2009, and net income was $16.5 million, or
$0.75 per diluted share, in 2008. For a reconciliation to consolidated results, see Management’s Discussion and Analysis of Financial
Condition and Results of Operations in the accompanying Annual Report on Form 10-K.
Total Sales
(in millions)
Equity per
Common Share
Year-End
DeBt-to-Equity
Ratio
Adjusted Net
Income Per
Common Share
(diluted)
$729
$669
$11.47
$12.03
$11.11
$11.05(1)
0.3
$573
$9.45
$511
$398
$1.80
$1.42
$1.26
$0.75(2)
$0.50(2)
0.1
0.0
0.0
0.0
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
(1) After payment of a special cash dividend of $1.50 per share in December 2010.
(2) Excludes charges for impairment of goodwill and expenses due to plant closings and start-ups, staff reductions and relocations, increased
bad debts, and obsolete inventory and tooling, largely due to the recession related unprecedented conditions in the RV and manufactured
housing industries in 2008 and 2009, as well as charges for executive retirement in 2008. For a reconciliation to consolidated results, see
Management’s Discussion and Analysis of Financial Condition and Results of Operations in the accompanying Annual Report on Form 10-K.
1000
800
600
400
200
0
800
700
600
500
400
300
200
100
0
$15
12
0.3
0.2
0.1
2.00
1.50
1.00
0.50
$800
600
400
200
0
0
0
9
6
3
0
Recreational
Vehicle
Products
Segment
Manufactured
Housing
Products
Segment
1000
800
600
400
200
0
15
12
9
6
3
0
Net Sales
(in millions)
Equity per
Common Share
Year-End Debt-to-
Equity Ratio
Net Income Per
Common Share
(diluted)
D r e w I n D u s t r I e s I n c o r p o r at e D 1
$729.2
$669.1
$668.6
$11.47
$12.03
0.6
$530.9
$510.5
$9.45
$7.81
$5.92
0.4
0.3
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
$0.53
0.1
0.0
2.0
1.5
1.0
0.5
0.0
15
12
9
6
3
0
800
700
600
500
400
300
200
100
0
2.0
1.5
1.0
0.5
0.0
0.6
0.5
0.4
0.3
0.2
0.1
0.0
0.3
0.2
0.1
0.0
0.6
0.5
0.4
0.3
0.2
0.1
0.0
2010 marked an impressive rebound for Drew. We reported solid sales
and earnings growth in both our Recreational Vehicle Products and
Manufactured Housing Products Segments, which significantly exceeded
industry growth in these markets. We also achieved strong gains outside
our traditional markets. Further, we continue to make investments
designed to help us grow in the coming years.
The dramatic improvement in Drew’s operating results in 2010 was very gratifying. As in prior
economic cycles, in 2010 the RV industry was a leading indicator that the economy was transitioning
from severe recession towards recovery. Retail sales of travel trailer and fifth wheel RVs, Drew’s
primary RV markets, increased 13 percent in 2010. Further, retail RV dealers across the United
States and Canada expressed their confidence in the future of the RV industry by adding to their
inventories, which they had depleted during the depths of the recession in 2008 and 2009.
In 2010, Drew also expressed its confidence by using its financial strength to continue to
expand its product lines and gain market share. During the year, we completed three acquisitions
and acquired the rights to a proprietary product. By adding a wide array of new product offerings for
our customers, we significantly increased our long-term revenue and earnings growth potential. We
also expanded our production capacity in several key product lines.
2 D r e w I n D u s t r I e s I n c o r p o r at e D
As a result of the improvement in the RV industry in 2010, our market share gains, and the
investments we made, Drew’s 2010 sales reached $573 million, a 44 percent increase over 2009
sales. Due to our operating leverage and continued focus on cost control, this sales growth led to a
far greater percentage improvement in our net income, which reached $28 million in 2010, or
$1.26 per diluted share.
We also significantly increased our after-tax return on equity in 2010, to 11 percent, and our
after-tax return on assets, to 9 percent. This was accomplished by improving our asset utilization, as
well as achieving increased profits.
Our improved operating results and asset utilization enabled us to generate more than $42 million
of cash from operations in 2010. Even after investing $22 million in acquisitions, we had significant
cash balances, enabling us to return $33 million to our stockholders in the form of a $1.50 per
share special cash dividend, paid in December 2010. After making these investments in growth and
providing a sizable cash return to our stockholders, Drew ended the year with more than $43 million
in cash and investments, no debt, and significant unused borrowing capacity.
Drew’s strong results continued into early 2011, with sales through February up more than 13
percent, compared to the same period in 2010. In addition, we continue to use our financial strength
to invest in future revenue and earnings growth. In January 2011, we completed the acquisition of
the leading manufacturer of RV furniture and mattresses in the growing Northwest RV market,
which, together with our Midwest furniture and mattress operation, will enable us to capitalize on
our experience and purchasing power in that product line. Longer term, we plan to continue to
invest in growth opportunities by way of both internal expansion and acquisitions, which are likely
to yield high returns in both the short-term and the long-term. Drew has both
the financial strength and the depth of operating management needed to accomplish these
goals. By doing so, we expect to continue to grow faster than our core markets, towable RVs and
manu factured homes.
Our ability to consistently exceed industry growth has been largely due to our talented and
experienced operating management. Our pay-for-performance compensation plans have been
designed to attract and retain management with excellent experience and capabilities, and provide
incentives for achieving outstanding profit performance, profit growth exceeding industry growth
rates, and return on investment substantially in excess of our cost of capital. Success in these areas
should align the interests of management with those of our stockholders. Our track record of growth
and profitability attests to the success of these compensation programs. Compensating management
for superior results will continue to be the cornerstone of Drew’s compensation plans.
D r e w I n D u s t r I e s I n c o r p o r at e D 3
Further, we are optimistic that both the RV and Manufactured Housing industries will grow over
the next few years for various reasons, including:
An increased focus by consumers on affordable lifestyles. The RV industry, which provides
less costly vacations, and the manufactured housing industry, which provides an affordable
housing alternative, would both benefit from a trend by consumers to live within their means.
Hassles and delays encountered with air travel favor alternative vacations, like RV vacations.
Even very small changes in consumer preferences for RV travel can make a big difference to
this relatively small industry. For example, RV purchases would increase by nearly 50 percent
if an additional 1/10 of 1 percent of U.S. families chose RVing next year.
Consumer confidence, an important factor in consumer decisions to purchase new homes or
big-ticket discretionary items like RVs, has been bolstered since 2009 by forecasts that the U.S.
economy will continue to improve over the next several years. Further, if these forecasts hold
true, the financial ability of consumers to make these purchases should improve.
Strategic planning is another key ingredient to Drew’s long-term success. In this regard, our
management team continues to explore opportunities for growth in other markets similar to our core
businesses. Examples are (1) sales of components for motorhome RVs, (2) sales of after-market
replacement components for manufactured homes and RVs, and (3) sales to other industries of
components similar to our core products.
Industry-wide sales of motorhome RVs declined more than 80 percent between 2004 and
2009, but this segment of the RV market has since begun to recapture some of the market share it
lost. Accordingly, during the past two years, we have significantly expanded our line of products for
motorhome RVs in response to this opportunity, and in 2011 we plan to increase our product
content in motorhomes.
In 2011, we expect to build on our recent success in sales of after-market products for both
manu factured homes and RVs, which increased 35 percent in 2010, to $29 million. In addition, our
sales of components to other industries, largely for modular housing and transit buses, increased
significantly in 2010 as well, to more than $21 million. We plan to further increase our sales to
these markets while continuing to explore opportunities to make investments in other markets,
through which we can utilize our experience, purchasing power, and manufacturing capabilities to
achieve superior returns while controlling risk.
4 D r e w I n D u s t r I e s I n c o r p o r at e D
FROM LEF T TO RIGHT:
Edward W. Rose, III
Leigh J. Abrams
Fredric M. Zinn
We continue to believe in our long-standing goal of profitable growth through new product
introductions, strategic acquisitions, market share gains and operating efficiencies. As always, we
will strive to conduct our business with honesty and integrity, continuing our policies of strong
corporate governance, transparency, risk management, and pay-for-performance compensation
programs developed under the guidance and leadership of our independent Directors.
Undoubtedly, Drew will face challenges in 2011, such as a slower than desirable economy, and
volatile raw material costs. We have successfully dealt with these and other such challenges before,
and turned them into opportunities to grow profitably. We thank all our employees for their contin-
ued dedication, and we are confident that they are motivated and capable of once again delivering
superior operating results in 2011.
Edward W. Rose, III
Lead Director
Leigh J. Abrams
Chairman of the Board
Fredric M. Zinn
President and Chief Executive Officer
D r e w I n D u s t r I e s I n c o r p o r at e D 5
RecReational Vehicle PRoducts
RV PRoducts
segment ReVenue=
$477 million
Drew’s RV Products Segment accounted for 83
percent of consolidated net sales in 2010, of which
more than 90 percent were used in travel trailer and
fifth-wheel RV’s.
Drew’s Sales Content
per TOWABLE RV
Produced Industry-wide
Peak sales potential is $4,500 to
$5,000 per towable RV
2500
$2,013
Drew continuously responds to the needs of our
customers for new and innovative components. Over
the past 10 plus years, we have added a wide array
of component offerings for our customers. Certain of
the components we supply for RVs are depicted in
the picture below as follows:
$1,716
$1,852
$1,542
2000
1500
$1,374
$1,281
$1,012
$862
$670
A Chassis
B Windows
1000
C Slide-Out Mechanisms
500
D Entry and Baggage Doors
E Entry Steps
0
F Axles and Suspension Products
$2,171
3
1
0
,
2
$
2
5
8
,
1
$
6
1
7
,
1
$
2
4
5
,
1
$
4
7
3
,
1
$
1
8
2
,
1
$
2
1
0
1
$
,
2
6
8
$
0
7
6
$
$2,500
2,000
1,500
1,000
500
0
2001
2002
2003 2004
2005
2006
2007
2008
2009
2010
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Drew’s Sales Content
per Manufactured Home
Produced Industry-wide
Peak sales potential is $3,600 to
$4,000 per manufactured home
6
6
6
,
1
$
$1,392
0
3
3
,
1
$
1
8
2
,
1
$
0
5
4
,
1
$
0
3
4
,
1
$
3
4
3
,
1
$
1
7
8
$
6
9
7
$
3
6
6
$
$2,000
1,500
1,000
500
0
2000
1500
1000
500
0
We also supply components for the interior of the
RV, including furniture, mattresses, kitchen and bath
sinks, remote controls, and many more.
Equity per
Common Share
$15
12
9
6
3
0
$11.11
2006
2007
2008
2009
2010
B
B
B
B
B
D
D
C
E
F
A
6 D r e w I n D u s t r I e s I n c o r p o r at e D
ManuFactuRed housing PRoducts
mH PRoducts
segment ReVenue=
Drew’s MH Products Segment accounted for 17 percent
of consolidated net sales in 2010.
Drew’s Sales Content
per TOWABLE RV
Produced Industry-wide
Peak sales potential is $4,500 to
$5,000 per towable RV
Drew’s Sales Content
per Manufactured Home
Produced Industry-wide
Peak sales potential is $3,600 to
$4,000 per manufactured home
In 2010, the Company introduced a line of entry
doors, a new $25 million to $30 million market, of
which approximately half is in the aftermarket for
existing homes. Largely due to this new entry door
product line, Drew’s content per manufactured home
increased in 2010. Certain of the components we
supply for manufactured homes are depicted in the
picture below as follows:
$2,171
3
1
0
2
5
8
6
1
7
$2,000
1,500
1
$
2
$
1
$
,
,
,
$2,013
$1,852
$1,716
$1,542
$1,374
$1,281
$1,012
$862
$670
2500
2000
1500
1000
500
0
$2,500
million
2,000
1,500
1,000
500
0
2
6
8
$
0
7
6
$
2001
2002
2
4
5
,
1
$
4
7
3
A Chassis
,
1
$
,
1
8
2
1
$
B Windows
2
1
0
1
$
,
6
6
6
1
$
,
0
5
4
1
$
,
0
3
4
,
1
$
$1,392
3
4
3
,
1
$
0
3
3
1
$
,
1
8
2
1
$
,
2000
1500
1000
500
0
1,000
500
1
7
8
$
6
9
7
$
3
6
6
$
C Entry Doors
We also supply components for the interior of manufac-
0
tured homes, including furniture, mattresses, kitchen and
bath sinks, and tubs and shower surrounds.
2010
2005
2009
2007
2008
2006
2003 2004
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
$11.11
Equity per
Common Share
$15
12
9
6
3
0
B
2006
2007
2008
2009
2010
B
B
C
B
A
D r e w I n D u s t r I e s I n c o r p o r at e D 7
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.
coRPoRate inFoRMation
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 and Chief Executive Officer of
Lippert Components, Inc. and Kinro, Inc.
James F. Gero(1)(2)(3)
Private Investor and
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
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
K In R o, In c .
Corporate Headquarters
4381 Green Oaks Boulevard West
Arlington, TX 76016
(817) 483-7791
In d e Pe n d e n t Re g Is t e Re d
Pu B LI c a c c o u n t In g FIRm
KPMG LLP
Stamford Square
3001 Summer Street
Stamford, CT 06905
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 n c 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 e o / c Fo c e R tIFI 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- Pe RFo Rm a n c e
Through a combination of annual performance-based incentives, deferred stock units, 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.
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 D r e w I n D u s t r I e s I n c o r p o r at e D
2010 Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2010
For the transition period from to
Commission file number 001-13646
DREW INDUSTRIES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
200 Mamaroneck Ave.
White Plains, New York
(Address of principal executive offices)
13-3250533
(I.R.S. Employer
Identification Number)
10601
(Zip Code)
(914) 428-9098
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $.01 par value
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. Yes 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. Yes 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. Yes No
1
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232-405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files.) Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes 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 $389,395,000. The 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 28, 2011) was
22,054,026 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement with respect to the 2011 Annual Meeting of Stockholders to be held on May 18, 2011 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, income (loss), cash flow, and financial condition, 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 filings 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, in
addition to other matters described in this Form 10-K, pricing pressures due to domestic and foreign competition, costs
and availability of raw materials (particularly steel and steel-based components, vinyl, aluminum, glass and ABS resin)
and other components, availability of credit for financing the retail and wholesale purchase of manufactured homes and
recreational vehicles (“RVs”), availability and costs of labor, inventory levels of retail dealers and manufacturers,
levels of repossessed manufactured homes and RVs, changes in zoning regulations for manufactured homes, sales
declines in the RV or manufactured housing industries, the financial condition of our customers, the financial condition
of retail dealers of RVs and manufactured homes, retention and concentration of significant customers, interest rates,
oil and gasoline prices, and the outcome of litigation. In addition, national and regional economic conditions and
consumer confidence affect the retail sale of RVs and manufactured homes.
2
Item 1. BUSINESS.
Summary
PART I
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 83 percent of consolidated net
sales for 2010, and the MH Segment accounted for 17 percent of consolidated net sales for 2010. More than 90
percent of the Company’s RV Segment net sales were of products for travel trailers and fifth-wheel RVs. The
balance represents sales of components for motorhomes and mid-size buses, 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, Lippert Components, Inc. and its subsidiaries
(collectively, “Lippert”) and Kinro, Inc. and its subsidiaries (collectively, “Kinro”), each of which has operations
in both the RV Segment and the MH Segment.
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, 2010, the Company operated 25 manufacturing facilities in 11 states, and achieved consolidated net sales of
$573 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 SEC as soon as
reasonably practicable after such materials are electronically filed.
Recent Developments
Sales and Profits
In Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
we describe in detail the improvement in our operations during 2010, following the substantial decline in sales in
both the RV Segment and the MH Segment during the recession beginning in 2008, and continuing through the
first half of 2009.
Our net sales for 2010 reached $573 million, 44 percent higher than the $398 million of net sales for
2009. This sales increase was largely the result of the 44 percent increase in industry-wide wholesale shipments of
travel trailers and fifth-wheel RVs, the Company’s primary market. In addition, primarily as a result of new
products, market share gains, and recent acquisitions, the Company’s product content for RVs increased 8 percent
in 2010, compared to 2009. The Company’s RV Segment represented 83 percent of consolidated net sales in
2010. The Company also increased its sales of aftermarket replacement components for both RVs and
manufactured homes. Industry-wide production of manufactured homes in 2010 increased 1 percent from 2009.
For 2010, the Company reported net income of $28.0 million, or $1.26 per diluted share. For 2009, the
Company reported a net loss of $24.1 million, or ($1.10) per diluted share. As reported in 2009, excluding a
goodwill impairment charge of $29.4 million, net of taxes, or ($1.34) per diluted share, net income for 2009 was
$5.2 million, or $0.24 per diluted share. During 2009, the Company also incurred expenses totaling $5.5 million,
3
net of taxes, or ($0.25) per diluted share, resulting from plant closings and start-ups, staff reductions and
relocations, increased bad debts, and obsolete inventory and tooling, largely due to the unprecedented conditions
in the RV and manufactured housing industries.
In February 2011, the Recreational Vehicle Industry Association (“RVIA”) published its latest forecast of
industry-wide wholesale shipments for 2011, which projects a 9 percent increase in the wholesale shipments of
travel trailers and fifth-wheel RVs as compared to 2010. Assuming no change in dealer inventories, this
projection implies a 17 percent increase in retail activity in 2011. There is no assurance that these RV industry-
wide wholesale shipments or retail sales levels will be achieved. There are no industry forecasts for the
manufactured housing industry.
Cash Dividend
On December 28, 2010, the Company paid a special cash dividend of $1.50 per share to holders of record
of its Common Stock on December 20, 2010, or an aggregate of $33 million.
Acquisitions
On January 28, 2011, the Company acquired the operating assets and business of Home-Style Industries,
Inc. and its affiliated companies. Home-Style manufactures a full line of upholstered furniture and mattresses
primarily for towable RVs, in the Northwest U.S. market. Home-Style’s sales for 2010 were $12 million. The
purchase price was $7.3 million paid at closing from available cash.
On August 30, 2010, the Company acquired the operating assets of Sellers Mfg., Inc., which modifies
chassis primarily for producers of Class A and Class C motorhome RVs, transit buses, and specialized
commercial trucks. In addition, Sellers manufactures the patented E-Z Cruise™, a suspension enhancement
system for transit buses and Class C motorhomes, which improves the vehicle’s ride performance. Sellers had
annualized sales of less than $1 million prior to the acquisition. The purchase price was $0.5 million, paid at
closing from available cash.
On August 30, 2010, the Company acquired by license the exclusive right to manufacture and sell the
patent-pending RVLOCKTM, a remotely operated locking system for towable RV entry doors, for $0.3 million,
plus a royalty based on sales.
On March 16, 2010, the Company acquired certain intellectual property and other assets from Schwintek,
Inc. The purchase included certain products for which patents are pending, consisting of an innovative RV wall
slide-out mechanism, an aluminum cylinder for use in leveling devices for motorhomes, and a power roof lift for
tent campers. Schwintek had annualized sales of approximately $5 million prior to the acquisition. The purchase
price was $20.0 million, paid at closing from available cash. In addition, the Company will pay earn-outs
depending on future unit sales of the acquired products in excess of pre-established hurdles over approximately
the next five years. Two of the products have a maximum aggregate earn-out of $12.7 million, which the
Company estimates will be achieved. The remaining products do not have a maximum; however, at December 31,
2010, the Company estimated the aggregate earn-out payments would be $1.5 million to $2.0 million for these
products.
On February 18, 2010, the Company acquired the patent-pending design for a six-point leveling system
for fifth-wheel RVs. The seller had annualized sales of this product of approximately $1 million prior to the
acquisition. The purchase price was $1.4 million, paid at closing from available cash. In addition, the Company
will pay an earn-out depending on future unit sales of the leveling system in excess of pre-established hurdles
over the next six years. The earn-out does not have a maximum; however, at December 31, 2010, the Company
estimated the aggregate earn-out payments would be $2.0 million to $2.5 million.
4
Liquidity
At December 31, 2010, after payment of the special dividend, and the $21.9 million of cash consideration
for acquisitions during 2010, the Company had $43.9 million of cash and investments, no debt and substantial
available borrowing capacity.
On February 24, 2011, the Company entered into a four-year extension of its existing $50 million
revolving line of credit facility with JPMorgan Chase and Wells Fargo, which now expires in January 2016.
Simultaneously, the Company completed a three-year renewal of its uncommitted “shelf-loan” facility with
Prudential Capital Group, which now expires in February 2014, and increased that facility from $125 million to
$150 million.
On November 29, 2007, the Board of Directors authorized the Company to repurchase up to 1 million
shares of the Company’s Common Stock from time to time in the open market, in privately negotiated
transactions, or in block trades. Of this authorization, 447,400 shares were repurchased in 2008 at an average
price of $18.58 per share, or $8.3 million in total. An additional 53,879 shares were repurchased during 2010 at an
average price of $19.27 per share, or $1.0 million. The aggregate cost of such repurchases was funded from the
Company’s available cash. The number of shares ultimately repurchased, and the timing of the purchases, will
depend upon market conditions, share price, and other factors.
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 steel chassis
Towable axles and suspension solutions
Slide-out mechanisms and solutions
Thermoformed bath, kitchen and
other 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
Patio Doors
The Company also supplies certain of these products as replacement parts to the RV aftermarket.
In 2010, the RV Segment represented 83 percent of the Company's consolidated net sales, and 82 percent
of consolidated segment operating profit. More than 90 percent of the Company’s RV Segment net sales are of
products used in travel trailers and fifth-wheel RVs. The balance represents sales of components for motorhomes
and mid-size buses, as well as sales of specialty trailers for hauling boats, personal watercraft, snowmobiles and
equipment, and axles for specialty trailers.
Raw materials used by the Company's RV Segment, consisting primarily of steel (coil, sheet, tube and I-
beam), extruded aluminum, glass, fabric and foam are available from a number of sources, both domestic and
foreign.
Operations of the Company's RV Segment consist primarily of fabricating, welding, painting and
assembling components into finished products. The Company's RV Segment operations are conducted at 16
manufacturing and warehouse facilities throughout the United States, strategically located in proximity to the
customers they serve. Of these facilities, 5 also conduct operations in the Company's MH Segment. See Item 2.
“Properties.”
5
The Company's RV Segment products are sold primarily to major manufacturers of RVs such as Thor
Industries (symbol: THO) and Forest River (a subsidiary of Berkshire Hathaway, symbol: BRKA).
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 with respect to
its principal products (i) it is the leading supplier of windows and doors for towable RVs, and the Company’s
market share for most of its towable RV window and door products exceeds 80 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 75 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 25 percent, and the Company competes
with several other manufacturers.
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
Through its wholly-owned subsidiaries, the Company manufactures and markets a number of components
for new 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
Aluminum and vinyl patio doors
Steel chassis
Steel chassis parts
Steel and fiberglass entry doors
The Company also supplies windows, doors, and thermoformed bath products as replacement parts to the
manufactured housing aftermarket.
In 2010, the MH Segment represented 17 percent of the Company's consolidated net sales, and 18 percent
of consolidated segment operating profit. 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. The MH Segment also supplies related products to other industries,
representing less than 4 percent of sales of this segment.
Raw materials used by the Company's MH Segment, consisting primarily of steel (coil, sheet and I-
beam), extruded aluminum and vinyl, glass, and ABS resin, are available from a number of sources, both
domestic and foreign.
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 14 manufacturing and warehouse facilities throughout the United States, strategically located in
proximity to the customers they serve. Of these facilities, 5 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, symbol: BRKA), Cavco Industries, Inc.
(symbol: CVCO), and Skyline Corporation (symbol: SKY) and, to a lesser extent, to distributors of aftermarket
products.
6
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 with respect to its
principal products (i) it is the leading supplier of windows for manufactured homes, and the Company's market
share for windows and screens exceeds 80 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 20 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 is
approximately 60 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 Marketing
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, and does not incur significant marketing or advertising expenditures.
The Company has several supply agreements or other arrangements with certain of its customers that
provide for prices of various products to be fixed for periods generally not in excess of eighteen months; 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.
Because of the seasonality of the RV and manufactured housing industries, historically, the Company’s
operating results in the first and fourth quarters have been the weakest, while the second and third quarters are
traditionally stronger. However, because of fluctuations in RV dealer inventories since the fourth quarter of 2009,
seasonal industry trends have been different than in prior years.
Capacity
In 2010, the Company’s facilities operated at an average of approximately 50 percent of their practical
capacity, and typically ran one shift of production per day. Due to seasonal demand, capacity utilization varies
during the year. Capacity utilization also varies significantly by product line and geographic region.
During the second and third quarters of 2010, the Company experienced greater than anticipated increases
in demand for certain products. In order to increase production, the Company incurred substantial overtime costs,
employed temporary workers, and increased the number of shifts, all of which created inefficiencies, and, as a
result, approximately $3 million of excess production costs were incurred. Significant steps to control these costs
have been implemented, including adding production capacity, and improving production flow and material
usage. The Company believes it has the ability to substantially increase production should demand increase
further in the RV or manufactured housing industries.
At December 31, 2010, the Company operated 25 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 2010 were $10.1 million. The ability to expand
capacity in certain product areas, if necessary, as well as the potential to reallocate existing resources, is
monitored regularly by management to help ensure it can maintain a high level of production efficiencies
throughout its operations.
7
Intellectual Property
The Company holds several United States patents and patent applications 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. The Company believes that its patents are valuable, and vigorously protects
its patents when appropriate.
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. The Company has asserted patent infringement claims against others, however, no litigation is
currently pending as a result of these claims.
Regulatory Matters
Windows and entry doors produced by the Company for manufactured homes must comply with
performance and construction regulations promulgated by the United States Department of Housing and Urban
Development (“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 the National Highway Traffic
Safety Administration (“NHTSA”) division of the DOT governing safety glass performance, egressability, door
hinge and lock systems, egress window retention hardware, and baggage door ventilation.
Trailers produced by the Company for hauling boats, personal watercraft, snowmobiles and equipment
must comply with regulations promulgated by the Federal Motor Vehicle Safety Standards relating to lighting,
braking, 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 regarding flammability. In addition, upholstered
products and mattresses produced by the Company for motorized and towable RVs must comply with regulations
promulgated by the Consumer Products Safety Commission regarding flammability. Plywood, particleboard and
fiberboard used in RV products are required to comply with standards for formaldehyde emission levels
promulgated by the California Air Resources Board and adopted by the RVIA.
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
operations, financial condition or competitive position.
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 the manufacturing
8
processes. Although the Company believes its operations have been consistent with prevailing industry standards,
and are in substantial compliance with applicable environmental laws and regulations, one or more of the
Company’s operating sites, or adjacent sites owned by third-parties, have been affected by releases of hazardous
materials. As a result, the Company may incur expenditures for future investigation and remediation of these sites.
In the past, environmental compliance costs have not had, and are not expected in the future to have, a material
adverse impact on the Company’s operations or financial condition; however, there can be no assurance that this
trend will continue. See Note 10 of the Notes to Consolidated Financial Statements for additional information.
Employees
The number of persons employed full-time by the Company and its subsidiaries at December 31, 2010
was 3,016, compared to 3,054 at December 31, 2009 and 2,223 at December 31, 2008. Of the total at December
31, 2010, 2,575 were in manufacturing and product research and development, 143 in transportation, 29 in sales,
68 in customer support and servicing, and 201 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 could negatively impact our future results.
Our net sales in 2009 fell 22 percent compared to 2008, which adversely impacted our operating results.
We attributed this 2009 decline to a combination of factors, including the weak economy and resulting recession,
tight credit, reduced availability of home equity credit lines, high unemployment, low consumer confidence, and
the deterioration in the real estate and mortgage markets. As a result of these conditions, during 2009 dealers
reduced inventories and consumers were cautious about making purchases of discretionary “big-ticket” items such
as RVs and manufactured homes. Although these conditions abated somewhat during 2010, and our net sales in
2010 increased 44 percent compared to 2009, if the severity of these conditions resumes or worsens in the future,
our earnings could be significantly impacted. See Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations”.
The long-term decline in the retail demand and wholesale production of manufactured homes has reduced
the demand for our manufactured housing products. Our annual results of operations could decline if
manufactured housing industry conditions worsen.
Reductions in the availability of wholesale financing limits the inventories carried by retail dealers of
RVs and manufactured homes, which would cause reduced production of RVs and manufactured homes by our
customers, and therefore reduced demand for our products.
Retail dealers of RVs and manufactured homes generally finance their purchases of inventory with
financing known as floor-plan financing provided by lending institutions. Reduction in the availability of floor-
plan financing has caused, and would cause, many dealers to reduce inventories of RVs and manufactured homes,
which would result in 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.
9
Conditions in the credit market could limit the ability of consumers to obtain financing for RVs and
manufactured homes, resulting in reduced demand for our products.
As a result of the recession and the factors leading to it, 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 has limited, and could continue to limit, the ability of
consumers to purchase RVs and manufactured homes, resulting in reduced production of RVs and manufactured
homes by our customers, and therefore reduced demand for our products.
Limited availability of financing for manufactured homes, and higher costs of financing, limits the ability
of consumers to purchase manufactured homes, which would result in reduced demand for our products.
Loans used to finance the purchase of manufactured homes usually have shorter terms and higher interest
rates, and are more difficult to obtain than mortgages for site-built homes. Historically, lenders required higher
down payment, 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 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 by our customers, and therefore reduced demand for our products.
Excess inventories at dealers and manufacturers can cause a decline in the demand for our products.
In response to a decline in retail sales of RVs and manufactured homes, dealers and manufacturers of RVs
and manufactured homes could accumulate excess unsold inventory. Existence of excess inventory has caused,
and would cause, a reduction in orders for new RVs and manufactured homes, which would cause a decline in
demand for our products.
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 manufactured homes and RVs are resold by lenders, often at substantially reduced prices,
which reduces the demand for new manufactured homes and RVs. Economic conditions have resulted, and could
continue to result, in loan defaults and cause high levels of repossessions, which would cause manufacturers to
reduce production of new manufactured homes and RVs, resulting in reduced demand for our products.
Gasoline shortages, or high prices for gasoline, could lead to reduced demand for our products.
Travel trailer and fifth-wheel RVs, components for which represent more than 90 percent of our RV
Segment net sales, are usually towed by light trucks or SUVs. 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 light trucks and SUVs, which would result in reduced demand for fifth-
wheel RVs and travel trailers, and therefore reduced demand for our products.
The manufactured housing industry has been experiencing a significant decline in shipments, which may
continue.
Our MH Segment, which accounted for 17 percent of consolidated net sales for 2010, operates in an
industry which has been experiencing a decline in production of new homes since 1998. The downturn was
10
caused, in part, by limited availability and high cost of financing for manufactured homes, and has been
exacerbated by economic conditions.
Moreover, because of the weak market for conventional housing, retirees may not be able to sell their
primary residence, 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 has impacted,
and could continue to 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. Certain of our manufactured housing customers have experienced financial difficulties and more of
our manufactured housing customers may be similarly affected. 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. 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
Volatile raw material costs could adversely impact our financial condition and operating results.
The prices we pay for steel, which represents about 50 percent of our raw material costs, and other key
raw materials, have been volatile.
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 selling price increases, future increases in raw
material costs could 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 could adversely affect our operating results.
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. The Company currently imports approximately 15 percent
of its raw materials and components.
We are involved in certain litigation, which, if decided against us, could have a material adverse affect on
our financial condition.
A case was pending against Kinro, purporting to be a class action, in which it was alleged that certain
bathtubs manufactured by Kinro for use in manufactured homes failed to comply with certain safety standards
relating to flame spread. Kinro denied the allegations, vigorously defended against the claims and, based on
extensive investigation, believes that the bathtubs were in compliance with applicable regulations. The named
plaintiffs asserted seven claims against Kinro, all of which were dismissed by the Court during the course of the
proceedings. The named plaintiffs filed a notice of appeal. Further detail regarding the litigation is provided in
this Form 10-K in Item 3. “Legal Proceedings.”
11
The loss of any customer accounting for more than 10 percent of our consolidated net sales, and the
consolidation of customers in our industry, could have a material adverse impact on our operating results.
One customer of the RV Segment accounted for 41 percent, and another customer of both the RV
Segment and the MH Segment accounted for 26 percent, of our consolidated net sales in 2010. The loss of either
of these customers would have a material adverse impact on our operating results.
In the third quarter of 2010, two of our customers, which together represented 41 percent of our
consolidated 2010 net sales, combined. The concentration of sales of our products to fewer customers as a result
of consolidation of manufacturers in the industries we serve could impact our sales prices, which would adversely
impact our operating results.
The financial condition of our customers could adversely impact our financial condition and operating
results.
Financial difficulties experienced by certain of our customers 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. In addition, the
manufacture by our customers of products supplied by us could reduce demand for our products.
The loss of any of our key operating management could reduce our ability to execute our business
strategy and could have a material adverse effect on our business and results of operations
We are dependent to a significant extent upon the efforts of our key operating management. The loss of
the services of one or more of our key operating management could impair our ability to execute our business
strategy, which would have a material adverse effect upon our business, financial condition and results of
operations.
Item 1B. UNRESOLVED STAFF COMMENTS.
None.
12
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, 2010, the Company's properties were as follows:
RV SEGMENT
City
Rialto (1)
Burley
Goshen (1)
Goshen
Goshen
Goshen
Goshen (1)
Topeka
Goshen
Goshen
Milford
Pendleton
Pendleton
McMinnville (1)
Waxahachie (1)
Kaysville
State
California
Idaho
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Oregon
Oregon
Oregon
Texas
Utah
Square Feet
56,430
17,000
385,000
332,953
134,500
87,800
81,200
67,560
65,000
53,500
30,000
56,800
23,777
17,850
43,050
75,000
1,527,420
(2)
Owned
Leased
(1)
(2)
(1)
(2)
These plants also produce products for manufactured homes. The square footage indicated above represents that portion of
the building that is utilized for the manufacture of products for RVs.
At December 31, 2009, the Company’s RV Segment used an aggregate of 1,327,490 square feet for manufacturing and
warehousing.
MH SEGMENT
City
Double Springs
Rialto (1)
Cairo
Fitzgerald
Nampa
Goshen
Middlebury
Goshen (1)
Goshen (1)
Arkansas City
McMinnville (1)
Denver
Chester
Waxahachie (1)
State
Alabama
California
Georgia
Georgia
Idaho
Indiana
Indiana
Indiana
Indiana
Kansas
Oregon
Pennsylvania
South Carolina
Texas
Square Feet
109,000
6,270
105,000
79,000
83,500
110,000
61,113
25,000
14,500
7,800
17,850
40,200
78,579
156,950
894,762
(2)
Owned
Leased
These plants also produce products for RVs. The square footage indicated above represents that portion of the building that is
utilized for the manufacture of products for manufactured homes.
At December 31, 2009, the Company’s MH Segment used an aggregate of 926,062 square feet for manufacturing and
warehousing.
13
ADMINISTRATIVE
City
White Plains
Goshen
Arlington
Phoenix
State
New York
Indiana
Texas
Arizona
Square Feet
4,059
15,500
10,473
1,000
31,032
Owned
Leased
At December 31, 2010, the Company owned the following facilities and vacant land not currently used in
production, having an aggregate book value of $11.6 million:
City
Phoenix *
Fontana *
Ocala
Elkhart *
Bristol *
Howe
Dayton
Middlebury
Arkansas City
State
Arizona
California
Florida
Indiana
Indiana
Indiana
Tennessee
Indiana
Kansas
Square Feet
61,000
108,800
47,100
100,000
97,500
60,000
100,000
12 acres of land
5 acres of land
* Currently leased to a third party. See Note 10 of the Notes to Consolidated Financial Statements.
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, as amended, Gonzalez and Royalty vs. Drew Industries Incorporated, Kinro, Inc.,
Kinro Texas Limited Partnership d/b/a Better Bath Components; Skyline Corporation, and Skyline Homes Inc.
(Case No. CV06-08233).
The case purported to be a class action. At various times in the course of the proceedings during 2010, the
Court dismissed each of the seven claims asserted by the named plaintiffs. The named plaintiffs filed a notice of
appeal, and their appeal briefs are due in May 2011.
Plaintiffs alleged that certain bathtubs manufactured by Kinro Texas Limited Partnership, a subsidiary of
Kinro, and sold under the name "Better Bath" for use in manufactured homes, failed to comply with certain safety
standards relating to flame spread established by the U.S. Department of Housing and Urban Development
("HUD"). Plaintiffs alleged, among other things, that sale of these products is in violation of various provisions of
the California Consumers Legal Remedies Act (Cal. Civ. Code Sec. 1770 et seq.), the Magnuson-Moss Warranty
Act (15 U.S.C. Sec. 2301 et seq.), the California Song-Beverly Consumer Warranty Act (Cal. Civ. Code Sec.
1790 et seq.), and the California Unfair Competition Law (Cal. Bus. & Prof. Code Sec. 17200 et seq.).
Plaintiffs sought 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 plaintiffs' attorneys fees. The Company's liability insurer denied
coverage on the ground that plaintiffs did not sustain any personal injury or property damage.
Kinro conducted a comprehensive investigation of the allegations made in connection with the claims,
including with respect to the HUD safety standards, test results, testing procedures, and the use of labels. In
14
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.
If the Court of Appeals reverses the District Court’s rulings, which dismissed all claims asserted by the
named plaintiffs, 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. However, based upon all the developments in this case to date, the Company
believes that it will not incur a material liability in connection with this case.
In addition, 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 in certain cases, any monetary liability or
financial impact to the Company beyond that provided for in the Consolidated Balance Sheets as of December 31,
2010, would not be material to the Company's financial position or annual results of operations.
Item 4. RESERVED.
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, 2011. Additional information with respect to the Company’s Directors is included
in the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held on May 18, 2011.
Name
Position
Edward W. Rose, III
(Age 69)
Lead Director of the Board of Directors since January 2009. Director since
March 1984.
Leigh J. Abrams
(Age 68)
Fredric M. Zinn
(Age 59)
James F. Gero
(Age 65)
Frederick B. Hegi, Jr.
(Age 67)
David A. Reed
(Age 63)
John B. Lowe, Jr.
(Age 71)
Jason D. Lippert
(Age 38)
Joseph S. Giordano III
(Age 41)
Scott T. Mereness
(Age 39)
Chairman of the Board of Directors since January 2009. Director since
March 1984.
Chief Executive Officer since January 2009, President and Director since
May 2008.
Director since May 1992.
Director since May 2002.
Director since May 2003.
Director since May 2005.
Chief Executive Officer of Lippert Components, Inc. since February 2003,
and Chief Executive Officer of Kinro, Inc. since January 2009. Director
since May 2007.
Chief Financial Officer since May 2008, Treasurer since May 2003.
President of Lippert Components, Inc. and Kinro, Inc. since July 2010.
15
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 publicly-
owned company engaged in check cashing services, until its sale in October 2006. From April 1999 to January
2003, Mr. Rose was a director of TX C.C., Inc., a privately-owned restaurant chain, against which an involuntary
petition for relief under Chapter 11 of the U.S. Bankruptcy Code was filed on February 21, 2003 in the U.S.
Bankruptcy Court for the Northern District of Texas. A plan of reorganization was confirmed on January 28,
2004. Cardinal Investment Company, Inc., of which Mr. Rose is the sole stockholder, was an indirect General
Partner of MJ Designs, L.P., a privately-owned retailer of arts and crafts products, which filed a petition for relief
under Chapter 11 of the U.S. Bankruptcy Code in January 2003 in the U.S. Bankruptcy Court for the Northern
District of Texas, later converted to a Chapter 7 liquidation.
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 company engaged in a mortgage services platform providing solutions to the mortgage and real
estate markets, and Lead Director of Impac Mortgage Holdings, Inc. since June 2004. Mr. Abrams is a Certified
Public Accountant.
FREDRIC M. ZINN, was Executive Vice President from February 2001 to May 2008 and Chief Financial
Officer from March 1984 to May 2008. Mr. Zinn is a Certified Public Accountant.
JAMES F. GERO, is a private investor. Since 2004, Mr. Gero has also served as 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, a private equity firm, including
the indirect general partner of 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 bank; and is Chairman of the Board of United Stationers, Inc., a publicly-owned
wholesale distributor of business products. From 1986 until its acquisition in 2007, Mr. Hegi was a director of
Lone Star Technologies, Inc., a diversified publicly-owned company engaged in the manufacture of tubular
products. From 1999 to 2001, Mr. Hegi was Chairman, President and Chief Executive Officer of Kevco, Inc., a
publicly-owned distributor of building products to the manufactured housing and recreational vehicle industries,
which filed for protection under Chapter 11 of the United States Bankruptcy Code on February 5, 2001, later
converted to a Chapter 7 liquidation.
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. From 2005 until its acquisition in 2007, Mr. Reed was a director
of Lone Star Technologies, Inc., a diversified publicly-owned company engaged in the manufacture of tubular
products.
has
JR.,
JOHN B. LOWE,
national
been Chairman
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 TDIndustries. Mr. Lowe is Chairman of the
Board of Zale Corporation, a publicly-owned specialty retailer of fine jewelry, and is a director of KDC Platform,
LLC, engaged in real estate development. Mr. Lowe also serves on the Board of Trustees of the Dallas
Independent School District.
of TDIndustries,
Inc.,
a
16
JASON D. LIPPERT, was President of Lippert Components, Inc. from February 2003 to July 2010 and
President of Kinro from January 2009 to July 2010, Executive Vice President and Chief Operating Officer of
Lippert Components, Inc., from May 2000 until February 2003, and served as Regional Director of Operations of
Lippert Components, Inc. from 1998 until 2000. Mr. Lippert has been Chairman of Lippert Components, Inc.
since January 2007, and Chairman of Kinro, Inc. since January 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.
SCOTT T. MERENESS, was Executive Vice President and Chief Operating Officer of Lippert
Components, Inc. from February 2003 to July 2010, Executive Vice President and Chief Operating Officer of
Kinro, Inc. from February 2010 to July 2010, Vice President of Operations of Lippert Components, Inc., from
February 2001 to February 2003, and was Vice President of Kinro, Inc., from January 2009 until February 2010.
Mr. Mereness was Regional Vice President for Manufactured Housing for Lippert Components, Inc., from 1999
to 2001.
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, has been Corporate Controller since May 2008, and was Assistant
Controller of the Company from August 2005 to May 2008. From January 2000 to June 2005, Mr. Smith served
as Assistant Controller of Key Components, LLC, a diversified manufacturer, and from August 1997 to January
2000, Mr. Smith was Senior Associate at Ernst & Young LLP. Mr. Smith is a Certified Public Accountant.
17
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
As of February 28, 2011, there were 531 holders of the Company’s Common Stock, in addition to
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 2010 and 2009 is set forth in Note 12 of the Notes to Consolidated Financial Statements in Item 8
of this Report.
Equity Compensation Plan Information as of December 31, 2010:
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
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
(a)
2,256,320
N/A
2,256,320
(b)
$21.92
N/A
$21.92
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
605,145
N/A
605,145
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 605,145
and 990,019 at December 31, 2010 and 2009, respectively. The 2002 Equity Plan is the Company’s only equity
compensation plan.
At the Annual Meeting of Stockholders scheduled for May 18, 2011, the Company intends to submit for
stockholders’ approval an amended and restated equity award and incentive plan. The amended and restated plan
will incorporate developments since 2002 with respect to incentive compensation, equity ownership, performance
criteria, and other matters relating to executive compensation.
18
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)
2010
Year Ended December 31,
2008
2007
2009
2006
Operating Data:
Net sales
Goodwill impairment
Executive retirement
Operating profit (loss)
Income (loss) before income taxes
Provision (benefit) for income taxes
Net income (loss)
Net income (loss) per common share:
Basic
Diluted
Financial Data:
Working capital
Total assets
Long-term obligations
Stockholders’ equity
Dividend Information
$ 572,755
-
$
$
-
$ 45,428
$ 45,210
$ 17,176
$ 28,034
$ 510,506
$ 397,839
$ 5,487
$ 45,040
$
$ 2,667
-
$ (35,581) $ 19,898
$ (36,370) $ 19,021
$ (12,317) $ 7,343
$ (24,053) $ 11,678
$ 668,625
-
$
$
-
$ 65,959
$ 63,344
$ 23,577
$ 39,767
$ 729,232
-
$
$
-
$ 55,295
$ 50,694
$ 19,671
$ 31,023
$ 1.27
$ 1.26
$ (1.10) $
$ (1.10) $
0.54
0.53
$
$
1.82
1.80
$
$
1.43
1.42
$113,744
$ 97,791
$ 306,781
$ 288,065
$ 18,248 $ 8,243
$ 244,115
$ 243,459
$ 84,378
$ 311,358
$ 9,763
$ 258,878
$ 89,861
$ 345,737
$ 23,128
$ 251,536
$ 61,979
$ 311,276
$ 47,327
$ 204,888
On December 28, 2010, the Company paid a special cash dividend of $1.50 per share to holders of record
of its Common Stock on December 20, 2010. The Company had not previously paid a cash dividend. 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.
19
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”). Intersegment sales are
insignificant.
The Company’s operations are conducted through its wholly-owned operating subsidiaries, Lippert
Components, Inc. and its subsidiaries (collectively, “Lippert”) and Kinro, Inc. and its subsidiaries (collectively,
“Kinro”). Each has operations in both the RV and MH Segments. At December 31, 2010, the Company operated
25 plants in 11 states.
The RV Segment accounted for 83 percent of consolidated net sales for 2010 and 79 percent for 2009.
The RV Segment manufactures a variety of products used primarily in the production of RVs, including:
● Towable steel chassis
● Towable axles and suspension solutions
● Slide-out mechanisms and solutions
● Thermoformed bath, kitchen and other products
● Toy hauler ramp doors
● Patio 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
The Company also supplies certain of these products as replacement parts to the RV aftermarket. More
than 90 percent of the Company’s RV Segment net sales are components for travel trailer and fifth-wheel RVs,
with the balance primarily comprised of components for motorhomes and mid-size buses, as well as sales of
specialty trailers and related axles. Travel trailers and fifth-wheel RVs accounted for 82 percent of all RVs
shipped by the industry in 2010, up from 61 percent in 2001.
The MH Segment, which accounted for 17 percent of consolidated net sales for 2010 and 21 percent for
2009, 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
● Steel and fiberglass entry doors
● Aluminum and vinyl patio doors
● Steel chassis
● Steel chassis parts
● Axles
The Company also supplies windows, doors, and thermoformed bath products as replacement parts to the
manufactured housing aftermarket.
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.
20
Because of the seasonality of the RV and manufactured housing industries, historically, the Company’s
operating results in the first and fourth quarters have been the weakest, while the second and third quarters are
traditionally stronger. However, because of fluctuations in RV dealer inventories since the fourth quarter of 2009,
seasonal industry trends have been different than in prior years.
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).
According to the Recreation Vehicle Industry Association (“RVIA”), industry-wide wholesale shipments
of travel trailers and fifth-wheel RVs, the Company’s primary RV markets, increased 44 percent to 199,200 units
for 2010 compared to 2009. The increase in industry-wide wholesale production in 2010 was due to the
following:
In 2009, 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 demand declined and dealers reduced inventory levels by 26,000 units.
In 2010, retail demand increased by 21,800 units, or 13 percent, as compared to 2009.
As a result of this improved retail demand, RV dealers increased inventory levels by 13,200 units in
2010 to 186,000.
In December 2010, RV dealers expressed their confidence by boosting purchases in anticipation of strong
retail demand in the upcoming Spring selling season. While RV dealer purchases and inventory levels may
continue to fluctuate, the Company believes continued strength in retail sales is the key to an ongoing recovery in
the RV industry. Although there are still uncertainties regarding future retail demand, recent reports of increased
traffic and sales at consumer RV shows over the first few months of 2011, as well as indications that credit
availability has been improving, along with higher consumer confidence readings in five of the last six months,
with the February 2011 reading being the highest reading since February 2008, are all encouraging signs for the
RV industry. Retail sales in the traditionally strong Spring selling season will be a key indicator of consumer
demand for RVs in 2011. Continued increases in retail sales would spur dealer orders and factory production in
2011.
While the Company measures its RV sales against industry-wide wholesale shipment statistics, it believes
the underlying health of the RV industry is determined by retail demand. A comparison of the year-over-year
percentage change in industry-wide wholesale shipments and retail sales of travel trailers and fifth-wheel RVs, as
reported by Statistical Surveys, Inc., for both the United States and Canada, is as follows:
Year ended December 31, 2010
Year ended December 31, 2009
Year ended December 31, 2008
Wholesale
Change
44%
(25%)
(29%)
Retail
Unit Impact on
Change Dealer Inventories
13%
(27%)
(38%)
13,200
(26,000)
(41,300)
The RVIA has projected a 9 percent increase in industry-wide wholesale shipments of travel trailers and
fifth-wheel RVs for 2011, to 217,200 units. Assuming no change in dealer inventories, this projection implies a 17
percent increase in retail activity of travel trailers and fifth-wheel RVs in 2011. Consumer confidence and the
21
availability of financing have historically been important factors in the overall growth in the RV industry, and
although these factors improved in 2010, there can be no assurance these factors will improve further in 2011.
In the long-term, the Company expects RV industry sales to be driven by positive demographics, and the
continued popularity of the “RV Lifestyle”. 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 December 2009
project that there will be 10 million more people over the age of 50 by 2015.
Further, the RVIA has a generic advertising campaign promoting the RV lifestyle. The current campaign
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, more family-oriented vacations,
and using RVs as second homes, also appear to motivate consumer demand for RVs.
Manufactured Housing Industry
Manufactured homes are built entirely in a factory on permanent steel undercarriages or chassis to which
axles and wheels are attached. The homes are then transported to a manufactured housing dealer which sells and
transports the home to the buyer’s home site. The manufactured home is 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 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.
The Institute for Building Technology and Safety (“IBTS”) reported that for 2010, industry-wide
wholesale shipments of manufactured homes were 50,000 units, an increase of one percent compared to 2009.
This increase was apparently partially due to a tax credit for first-time home buyers, which was available in the
first half of 2010, while industry-wide wholesale shipments of manufactured homes decreased 7 percent in the
second half of 2010, as compared to the same period of 2009, after the tax credit expired.
Since 1998, industry-wide wholesale shipments of manufactured homes have declined 87 percent. This
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 loans for manufactured homes.
For the 20 years prior to the sub-prime boom in home financing, manufactured housing industry-wide
wholesale shipments represented 20 percent or more of single-family housing starts. During the sub-prime years,
2003 to 2007, when extremely low cost loans were available for financing site-built homes, many traditional
buyers of manufactured homes were able to purchase site-built homes instead of manufactured homes, and
manufactured housing’s share of the single-family market dropped precipitously, to well below 10 percent. Since
the sub-prime “bubble” burst in 2007 and 2008, this market share has increased somewhat, to about 12 percent,
despite that interest rates for manufactured home loans remain historically high relative to rates for site-built
home loans. Accordingly, the Company believes the manufactured housing industry may begin to experience a
modest recovery when the economy improves and home buyers begin to look for affordable housing. However,
because of the current real estate and economic environment, including the availability of foreclosed site built
homes at abnormally low prices, fluctuating consumer confidence, high interest rate spreads between
conventional mortgages for site-built homes and loans for manufactured homes, and the current retail and
wholesale credit markets, the Company expects industry-wide wholesale shipments of manufactured homes to
remain low until these conditions improve.
22
The Company believes that long-term growth prospects for manufactured housing may be positive
because of (i) the quality and affordability of the homes, (ii) favorable demographic trends, including an
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 sub-prime mortgages for site-built homes.
RESULTS OF OPERATIONS
Effective with the first quarter of 2010, amortization of intangibles, which was previously reported on a
separate line, has been included as part of segment operating profit (loss). The segment disclosures from 2009 and
2008 have been reclassified to conform to the current year presentation. Net sales and operating profit (loss) were
as follows for the years ended December 31, (in thousands):
Net sales:
RV Segment
MH Segment
Total net sales
Operating profit (loss):
RV Segment
MH Segment
Total segment operating profit
Corporate
Goodwill impairment
Other items
Total operating profit (loss)
2010
2009
2008
$ 477,202
95,553
$ 572,755
$ 312,535
85,304
$ 397,839
$ 368,092
142,414
$ 510,506
$ 44,388
9,590
53,978
(7,990)
-
(560)
$ 45,428
$ 15,660
3,216
18,876
(6,542)
(45,040)
(2,875)
$ (35,581)
$ 24,615
10,290
34,905
(7,436)
(5,487)
(2,084)
$ 19,898
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
2010
2009
2008
83 %
17 %
100 %
82 %
18 %
100 %
79 %
21 %
100 %
83 %
17 %
100 %
72 %
28 %
100 %
71 %
29 %
100 %
Operating profit margin by segment was as follows for the years ended December 31,:
RV Segment
MH Segment
2010
9.3 %
10.0 %
2009
5.0 %
3.8 %
2008
6.7 %
7.2 %
During 2009 and 2008, the Company recorded “extra” expenses resulting primarily from plant closings
and start-ups, staff reductions and relocations, increased bad debts and obsolete inventory and tooling. These
expenses were largely due to the unprecedented conditions in the RV and manufactured housing industries
resulting from the severe economic downturn. In addition, the Company recorded charges for goodwill
impairment during 2009 and 2008, and charges for executive retirement in 2008.
23
The following tables reconcile cost of sales, selling, general and administrative expenses, goodwill
impairment, executive retirement, operating (loss) profit, net (loss) income and net (loss) income per diluted share
for the years ended December 31, 2009 and 2008 to these same items before the “extra” expenses and charges for
goodwill impairment and executive retirement. The Company finds this information useful in analyzing and
reviewing the results of operations. These tables are intended to provide investors with this useful information on
the Company’s results of operations before the “extra” expenses and charges for goodwill impairment and
executive retirement to provide comparability between the years.
(In thousands)
Year Ended December 31, 2009
GAAP Adjustments Non-GAAP
$ 314,343
$ 4,786
$ 319,129
Year Ended December 31, 2008
GAAP Adjustments Non-GAAP
$ 402,836
164
$
$ 403,000
Cost of sales
Selling, general and
administrative expenses
Goodwill impairment
Executive retirement
Operating (loss) profit
Net (loss) income
Net (loss) income per
diluted share
$ 4,180
$ 69,489
$ 45,040
$ 45,040
$
-
$
-
$ (35,581) $ 54,006
$ (24,053) $ 34,891
$ 65,309
-
$
$
-
$ 18,425
$ 10,838
$
(1.10)
$ 1.60
$
0.50
$
$
$
$
$
$
80,129
5,487
2,667
19,898
11,678
$
$ 5,487
$ 2,667
$ 7,858
$ 4,825
(460) $ 80,589
-
$
$
-
$ 27,756
$ 16,503
0.53
$
0.22
$
0.75
The following tables reconcile RV Segment and MH Segment operating profit, goodwill impairment,
other items, and operating (loss) profit for the years ended December 31, 2009 and 2008 to these same items
before the “extra” expenses and charges for goodwill impairment and executive retirement. The Company finds
this information useful in analyzing and reviewing the results of operations. These tables are intended to provide
investors with this useful information on the Company’s results of operations before the “extra” expenses and
charges for goodwill impairment and executive retirement to provide comparability between the years ended
December 31, 2009 and 2008.
(In thousands)
Year Ended December 31, 2009
RV Segment operating profit $ 15,660
MH Segment operating profit $
3,216
Goodwill impairment
Other items
Operating (loss) profit
GAAP Adjustments Non-GAAP
$ 20,937
4,147
$
-
$
$
(117)
$ 18,425
$ 5,277
931
$
$ (45,040) $ 45,040
$
(2,875) $ 2,758
$ (35,581) $ 54,006
Year Ended December 31, 2008
GAAP Adjustments Non-GAAP
$ 25,440
24,615
$ 10,694
10,290
-
$
(5,487)
$
(2,084)
(942)
$ 27,756
19,898
825
$
$
404
$ 5,487
$ 1,142
$ 7,858
$
$
$
$
$
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Consolidated Highlights
Net sales for the year ended December 31, 2010 reached $573 million, a 44 percent increase over
net sales of $398 million in 2009, as both of the Company’s segments achieved greater growth
than the industries they serve. Net sales of the Company’s RV Segment increased 53 percent,
compared to a 44 percent increase in industry-wide wholesale shipments of travel trailers and
fifth-wheel RVs. The RV Segment represented 83 percent of consolidated net sales in 2010. Net
sales of the Company’s Manufactured Housing Segment increased 12 percent, compared to a 1
percent increase in industry-wide production of manufactured homes. The MH Segment
represented 17 percent of consolidated net sales in 2010.
Because of the seasonality of the RV and manufactured housing industries, historically, the
Company’s operating results in the first and fourth quarters have been the weakest, while the
second and third quarters are traditionally stronger. However, because of fluctuations in RV
24
dealer inventories since the fourth quarter of 2009, seasonal industry trends have been different
than in prior years.
The Company’s net sales for the first two months of 2011 were $102 million, a 13 percent
increase from the comparable period of 2010. This increase was despite the fact that sales in
January 2010 were bolstered by inventory restocking by RV dealers following the drastic
downturn of late 2008 and most of 2009.
For 2010, the Company’s net income increased to $28.0 million, or $1.26 per diluted share. For
2009 the Company reported a net loss of $24.1 million, or ($1.10) per diluted share, including a
goodwill impairment charge of $29.4 million, net of taxes, or ($1.34) per diluted share, and
“extra” expenses totaling $5.5 million, net of taxes, or ($0.25) per diluted share, largely due to the
unprecedented conditions in the RV and manufactured housing industries resulting from the
severe economic downturn.
Raw material costs as a percent of net sales have been volatile between quarters for the past two
years. After increasing as much as 50 percent during the first part of 2010, raw material costs, in
particular steel, aluminum and ABS resin prices, began to level off in the latter part of the second
quarter of 2010. During the third quarter of 2010, steel prices generally remained constant,
however the cost of aluminum and certain other raw materials increased. Further, in November
2010, our raw material costs, in particular steel, began to increase. Such increases have continued
through March 2011.
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 these cost increases, as well as
future cost increases, if any, can be partially or fully passed on to customers, or that the timing of
such increases will match the raw material cost increases. Also, to mitigate the impact of higher
raw material costs, the Company attempts to gain additional sales volume from customers.
Further, the Company continues to explore improved product design, efficiency improvements,
and alternative sources of raw materials and components, both domestic and imported.
During 2010, the Company completed the acquisition of three businesses, for aggregate cash
consideration of $21.9 million paid at closing, and also acquired the exclusive rights to use a
patent for $0.3 million. Contingent earn-outs related to those acquisitions could be paid over
approximately the next 6 years depending upon the level of sales generated from certain of the
acquired products. These acquisitions included a series of new patent-pending RV products,
including an innovative wall slide-out mechanism, new leveling devices, a new power roof lift for
tent campers, and an advanced remote locking system for entry doors, as well as an operation
with the capability to customize standard chassis for motorhomes, transit buses and specialized
commercial trucks.
On December 28, 2010, a special dividend of $1.50 per share of the Company’s Common Stock,
or an aggregate of $33.0 million, was paid to stockholders of record as of December 20, 2010. At
December 31, 2010, after payment of the special dividend, and the $21.9 million of cash
consideration for the acquisitions during 2010, the Company had $43.9 million of cash and short-
term investments, no debt and substantial available borrowing capacity.
On January 28, 2011, the Company acquired the operating assets and business of Home-Style
Industries, and its affiliated companies. Home-Style manufactures a full line of upholstered
furniture and mattresses primarily for towable RVs, in the Northwest U.S. market. Home-Style’s
sales for 2010 were $12 million, which going forward would increase the Company’s content per
25
travel trailer and fifth-wheel RV by $60 per unit. The purchase price was $7.3 million paid at
closing from available cash.
RV Segment
Net sales of the RV Segment in 2010 increased 53 percent, or $165 million, compared to 2009. The
Company’s sales growth exceeded the 44 percent increase in industry-wide wholesale production of travel trailers
and fifth-wheel RVs, largely due to the Company’s market share gains and new product introductions. The
Company’s sales of components for motorhomes in 2010 increased 64 percent to $16 million, compared to 2009.
This was less than the 91 percent increase in industry-wide wholesale production of motorhomes because of the
loss of market share by the Company’s motorhome customers. However, in the past year the Company has been
expanding its product line of components for motorhomes in order to increase market penetration.
According to the RVIA, industry-wide wholesale shipments for the years ended December 31, were as
follows:
Travel Trailer and
Fifth-Wheel RVs
Motorhomes
2010
2009
Change
199,200
25,200
138,300
13,200
44%
91%
The trend in the Company’s average product content per RV produced is an indicator of the Company’s
overall market share of components for new RVs. 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 produced 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:
Content per Travel Trailer and
Fifth-Wheel RV
Content per Motorhome
2010
2009
Change
$ 2,171
619
$
$ 2,013
720
$
8%
(14)%
The Company’s average product content per type of RV excludes sales of replacement parts to the
aftermarket, and sales to other industries. In 2010, the Company refined the calculation of content per unit to
better identify aftermarket sales, as well as sales to other industries. This refinement had no impact on total RV
Segment sales or trends of content per unit. Prior periods have been reclassified to conform to this presentation.
Further, the Company’s RV Segment sales of replacement parts in the aftermarket for existing RVs were
approximately $12 million for 2010, an increase of 31 percent from 2009. The Company is increasing its efforts
to gain market share in sales of replacement parts in the aftermarket.
Operating profit of the RV Segment was $44.4 million in 2010, an improvement of $28.7 million
compared to 2009, largely due to the $165 million increase in net sales. The Company incurred $5.3 million of
“extra” expenses in 2009 related to plant closings and start-ups, staff reductions and relocations, increased bad
debts, equipment write-downs, and obsolete inventory and tooling, largely due to the unprecedented conditions in
the RV industry at that time. Excluding these “extra” expenses in 2009, the Company’s RV Segment operating
profit increased $23.4 million from last year. This adjusted increase in RV Segment operating profit was 14
percent of the increase in net sales, less than the Company’s expected 20 percent incremental margin.
26
The operating margin of the RV Segment in 2010 was negatively impacted by:
Approximately $3 million of excess production costs incurred as a result of greater than
anticipated increases in demand for certain products. In order to increase production, the
Company incurred substantial overtime costs, employed temporary workers, and increased the
number of shifts, all of which created inefficiencies. Significant steps to control these costs have
been implemented, including adding production capacity, and improving production flow and
material usage.
Higher incentive compensation compared to 2009, when incentive compensation was lower than
normal because 2009 operating profit for certain operations was below the previously established
annual incentive compensation hurdles.
Volatile raw material costs. Raw material costs as a percent of sales during 2010 were higher than
during 2009. In November 2010, the cost of key raw materials, consisting primarily of steel,
vinyl, aluminum, glass and ABS resin, once again began to increase. Such increases have
continued through March 2011.
Partially offset by:
The spreading of fixed manufacturing and selling, general and administrative costs over a $165
million larger sales base.
Improved operating efficiencies in certain product lines due to the increase in sales.
At December 31, 2010, other intangible assets included $3.6 million related to the Company’s marine and
leisure operation, which sells trailers primarily for small and medium-sized boats and related axles. Over the last
few years, industry shipments of small and medium-sized boats have declined significantly. From time to time,
throughout this period, the Company conducted an impairment analysis on these operations, and the estimated fair
value of these operations continued to exceed the corresponding book values, thus no impairment has been
recorded. A continued downturn in industry shipments of small and medium-sized boats, or in the profitability of
the Company’s operations, could result in a non-cash impairment charge for the related other intangible assets in
the future.
MH Segment
Net sales of the MH Segment for 2010 increased 12 percent, or $10 million, from 2009. This increase was
significantly better than the one percent increase in industry-wide wholesale shipments of manufactured homes,
largely as a result of new products, market share gains and increased sales of replacement parts to the aftermarket,
partially offset by customer mix. While industry-wide shipments of manufactured homes in 2010 increased one
percent compared to last year, industry-wide shipments of larger, multi-section homes, in which the Company has
more content, declined five percent, while smaller single-section homes increased 10 percent.
According to the IBTS, industry-wide wholesale shipments for the years ended December 31, were as
follows:
Total Homes Produced
Total Floors Produced
2010
50,000
80,600
2009
49,700
81,900
Change
1%
(2%)
The trend in the Company’s average product content per manufactured home produced is an indicator of
the Company’s overall market share of components for new manufactured homes. Manufactured homes contain
one or more “floors” or sections which can be joined to make larger homes. The larger homes typically contain
more of the Company’s products. Content per manufactured home and content per floor are also impacted by
changes in selling prices for the Company’s products. The Company’s average product content per manufactured
27
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 newly produced 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:
Content per Home Produced
Content per Floor Produced
2010
$ 1,392
867
$
2009
$ 1,343
815
$
Change
4%
6%
The Company’s average product content per manufactured home excludes sales of replacement parts to
the aftermarket, and sales to other industries. In 2010, the Company refined the calculation of content per unit to
better identify aftermarket sales, as well as sales to other industries. This refinement had no impact on total MH
Segment sales or trends of content per unit. Prior periods have been reclassified to conform to this presentation.
Net sales by the MH Segment of replacement parts in the aftermarket increased 38 percent from 2009 to
approximately $18 million in 2010. The Company has increased its efforts to gain market share in sales of
replacement parts in the aftermarket.
Operating profit of the MH Segment was $9.6 million in 2010, an increase of $6.4 million compared to
2009, partly due to the $10 million increase in net sales. In 2009, the Company incurred $0.9 million of “extra”
expenses related to plant closings and start-ups, staff reductions and relocations and obsolete inventory, largely
due to the unprecedented conditions in the manufactured housing industry at that time.
The operating margin of the MH Segment in 2010 was positively impacted by:
Volatile raw material costs. For the full year 2010, raw material costs as a percent of sales were
lower than during 2009. However, in the second half of 2010, raw material costs were higher than
during the second half of 2009, when raw material costs were unusually low. Further, in
November 2010, the cost of key raw materials, consisting primarily of steel, vinyl, aluminum,
glass and ABS resin, began to increase. Such increases have continued through March 2011.
The spreading of fixed manufacturing and selling, general and administrative costs over a $10
million larger sales base.
Improved operating efficiencies due to the increase in sales.
Partially offset by:
Higher incentive compensation compared to 2009, when incentive compensation was lower than
normal because 2009 operating profit for certain operations was below the previously established
annual incentive compensation hurdles.
Corporate
Corporate expenses for 2010 increased $1.4 million compared to 2009, due primarily to an increase in
performance-based incentive compensation as a result of higher profits. Also, in connection with the special cash
dividend of $1.50 per share of the Company’s Common Stock declared and paid in December 2010, the
Compensation Committee of the Company’s Board of Directors reduced the exercise price of all the outstanding
stock options by $1.50 per share. As a result of this stock option modification, the Company recorded a charge of
$0.4 million in 2010.
28
Other Non-Segment Items
Other non-segment items include the following (in thousands):
Selling, general and administrative expenses:
Net loss on sold facilities and write-downs to estimated
current fair value of facilities to be sold
Net gain on insurance claim
Earn-outs fair value adjustment
Earn-outs accretion
Incentive compensation impact of other non-segment items
Other expenses, net
Other income from the collection of a previously reserved note
Total other non-segment items
Year Ended
December 31,
2010
2009
$
$
491 $ 3,260
-
(859)
-
(1,173)
-
1,582
(575)
75
428
523
(79)
(238)
560 $ 2,875
In connection with certain of the acquisitions completed over the last two years, the Company is required
to record an expense, or accretion, equivalent to interest on the recorded liability for future earn-out payments.
Accretion expense was $1.6 million for 2010, and is estimated to be approximately $2.2 million in 2011. In
addition, each quarter the Company is required to re-evaluate the fair value of the liability for estimated earn-out
payments based upon the projected timing and extent of future sales, as well as the discount rate. Depending upon
the discount rate and future sales of the products which are subject to earn-outs, the Company could record
adjustments in future periods.
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Consolidated Highlights
During the first six months of 2009, as a result of the economic downturn and the resulting severe
declines in industry-wide wholesale shipments by the RV and manufactured housing industries,
the Company experienced a 45 percent decline in net sales, from $310 million in the first six
months of 2008 to $172 million in the first six months of 2009. As a result, in the first six months
of 2009, the Company reported a net loss of $34.1 million, including an after-tax charge of $29.4
million for goodwill impairment, as compared to net income of $18.3 million in the first six
months of 2008.
During the second half of 2009, industry-wide wholesale shipments of travel trailer and fifth-
wheel RVs, the Company’s primary RV market, increased 32 percent compared to the second
half of 2008, offset by a decline in manufactured housing industry-wide wholesale shipments of
33 percent. As a result, the Company’s net sales increased to $226 million in the second half of
2009, 13 percent more than in the comparable period of 2008. The Company reported net income
of $10.1 million in the second half of 2009 as compared to a net loss of $6.6 million in the
comparable period of 2008, which included an after-tax charge of $3.3 million for goodwill
impairment recorded in the fourth quarter of 2008.
In response to the impact of the recession, the Company focused on increasing market share for
existing products, introducing new products, reducing fixed costs, improving efficiencies, and
strengthening its financial condition.
29
In 2009, the Company identified and introduced new and improved RV products that
focused on consumer safety and convenience, including the Quick-BiteTM coupler, an
improved suspension system, entry doors with alarm systems and keyless entry, and a
“new-look” line of windows. As a result, the Company’s RV Segment continued to
achieve market share gains.
In July 2009, a supplier of manufactured housing windows and doors exited the
market. Since then, the Company has gained new window business of more than $7
million on an annualized basis. In addition, in September 2009, the Company
purchased production equipment and inventory for manufactured housing entry doors
from the same supplier, and began production during the fourth quarter of 2009,
entering a new market, estimated to be $25 million to $30 million. Approximately
half of this new potential is in aftermarket replacement entry doors for manufactured
homes.
The decline in the Company’s results for 2009 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. Cost reduction
measures benefitted the Company’s operating results in 2009 by $9 million,
compared to 2008. Collectively, the fixed cost reductions since 2006 have improved
the Company’s annual operating profit by over $20 million compared to results if
these steps had not been taken. The Company anticipates that a significant portion of
the fixed cost reductions and production efficiencies implemented will continue, even
as sales increase.
During 2009 and 2008, as a result of the unprecedented conditions in the RV and
manufactured housing
taken by
management, the Company recorded $9.0 million and $2.4 million, respectively, of
“extra” expenses. These “extra” expenses resulted primarily from the following (in
millions):
the cost cutting measures
industries, and
Plant closings and start-ups
Obsolete equipment, inventory
and tooling
Staff reductions and relocations
Executive retirement
Other
2009
$ 4.4
2008
$ (1.5)
3.1
1.1
-
0.4
$ 9.0
0.2
0.6
2.7
0.4
$ 2.4
During 2009, the Company continued to generate significant cash flow, increasing
cash and short-term investments by nearly $57 million, to over $65 million, and
paying off the entire $9 million debt balance that existed at December 31, 2008. This
was largely accomplished by cash flows provided by operating activities of $63
million, including a reduction in inventory of more than $37 million.
Steel and aluminum are among the Company’s principal raw materials. Since late 2007, the costs
of steel and aluminum have been volatile. During the first half of 2009, raw material costs
temporarily declined, but subsequently increased 10 percent to 30 percent in the second half of
2009, depending upon the type of raw material, but did not have a significant impact on the
30
second half of 2009 as the lower priced raw materials were consumed first, and the higher priced
raw materials remained in inventory.
RV Segment
Net sales of the RV Segment in 2009 decreased 15 percent, or $56 million, compared to 2008 due to:
An ‘organic’ sales decline (excluding the impact of acquisitions and sales price changes) of
approximately $68 million. This 19 percent ‘organic’ sales decline during 2009 was due to the 25
percent decrease in industry-wide wholesale shipments of travel trailers and fifth-wheel RVs, the
Company’s primary RV market. During the first six months of 2009 the ‘organic’ sales decline of
RV-related products was approximately $118 million, or 52 percent. However, this was partially
offset by an ‘organic’ sales increase of approximately $50 million, or 40 percent, of RV-related
products in the second half of 2009.
An ‘organic’ sales decline of approximately 52 percent or $7 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:
Full year impact in 2009 of sales from acquisitions completed in 2008, aggregating approximately
$13 million.
Sales price increases of approximately $7 million, primarily due to raw material cost increases in
2008.
According to the RVIA, industry-wide wholesale shipments for the years ended December 31, were as
follows:
Travel Trailer and
Fifth-Wheel RVs
Motorhomes
2009
2008
Change
138,800
13,200
185,100
28,300
(25)%
(53)%
The trend in the Company’s average product content per RV produced is an indicator of the Company’s
overall market share of components for new RVs. 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 produced 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:
Content per Travel Trailer and
Fifth-Wheel RV
Content per Motorhome
2009
2008
Change
$ 2,013
720
$
$ 1,852
593
$
9%
21%
The Company’s average product content per type of RV excludes sales of replacement parts to the
aftermarket, and sales to other industries. In 2010, the Company refined the calculation of content per unit to
better identify aftermarket sales, as well as sales to other industries. This refinement had no impact on total RV
Segment sales or trends of content per unit. Prior periods have been reclassified to conform to this presentation.
The Company’s RV Segment aftermarket sales were approximately $9 million for 2009, consistent with
2008.
31
Operating profit of the RV Segment in 2009 decreased $9.0 million compared to 2008, largely due to the
$56 million decline in net sales, and $5.3 million of “extra” expenses in 2009 related to plant closings and start-
ups, staff reductions and relocations, increased bad debts, and obsolete inventory and tooling, compared to $0.8
million of “extra” expenses in 2008. Excluding “extra” expenses, the Company’s RV Segment had an operating
profit of $20.9 million in 2009, a decrease of $4.5 million from the segment operating profit of $25.4 million in
2008. This adjusted decline in RV Segment operating profit was 7 percent of the ‘organic’ decline in net sales, a
smaller percentage decline than the Company would typically expect.
The operating margin of the RV Segment in 2009 was positively impacted by:
Implementation of cost-cutting measures which reduced cost of sales.
Lower health insurance costs largely due to the implementation of a new plan.
Lower warranty costs.
Lower raw material costs in the second half of 2009 compared to the same period of 2008 when
raw material costs were unusually high, partially offset by higher raw material costs during the
first six months of 2009.
Partially offset by:
The spreading of fixed manufacturing costs over a smaller sales base.
Higher overtime and labor inefficiencies due to rapid changes in sales volumes.
Excluding the “extra” expenses, an increase in selling, general and administrative expenses to
12.3 percent of net sales in 2009 from 12.2 percent of net sales in 2008, largely due to the
spreading of fixed administrative costs over a smaller sales base, partially offset by the
implementation of fixed cost reductions. In addition, incentive compensation was lower as a
percent of sales in 2009 because incentive compensation is only recorded on operating profit in
excess of pre-established hurdles.
MH Segment
Net sales of the MH Segment in 2009 decreased 40 percent, or $57 million, from 2008. Excluding $2
million in sales price increases, net sales of the MH Segment declined 41 percent, consistent with the decrease in
industry-wide wholesale shipments of manufactured homes.
According to the IBTS, industry-wide wholesale shipments for the years ended December 31, were as
follows:
Total Homes Produced
Total Floors Produced
2009
49,700
81,900
2008
81,900
135,300
Change
(39)%
(39)%
In July 2009, a supplier of manufactured housing windows and doors exited the market. Since then, the
Company has gained new window business of more than $7 million annually, partially offsetting the other
declines. In addition, in September 2009, the Company purchased production equipment and inventory for
manufactured housing entry doors from the same supplier, and began production during the fourth quarter of
2009, entering a new market, estimated to be $25 million to $30 million. Approximately half of this new potential
is in aftermarket replacement entry doors for manufactured homes. The Company’s MH Segment aftermarket
sales, primarily comprised of windows and thermoformed bath products, were approximately $13 million for
2009, consistent with 2008.
32
The trend in the Company’s average product content per manufactured home produced is an indicator of
the Company’s overall market share of components for new manufactured homes. Manufactured homes contain
one or more “floors” or sections which can be joined to make larger homes. The larger homes typically contain
more of the Company’s products. Content per manufactured home and content per floor are 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 newly produced manufactured homes for the year ended
December 31, divided by the number of manufactured homes and manufactured home floors produced by the
industry, respectively, for the year ended December 31, was:
Content per Home Produced
Content per Floor Produced
2009
$ 1,343
815
$
2008
$ 1,430
865
$
Change
(6)%
(6)%
The Company’s average product content per manufactured home excludes sales of replacement parts to
the aftermarket, and sales to other industries. In 2010, the Company refined the calculation of content per unit to
better identify aftermarket sales, as well as sales to other industries. This refinement had no impact on total MH
Segment sales or trends of content per unit. Prior periods have been reclassified to conform to this presentation.
Operating profit of the MH Segment in 2009 decreased $7.1 million compared to 2008, largely due to the
$57 million decline in net sales. In addition, the Company had $0.9 million and $0.4 million of “extra” expenses
in 2009 and 2008, respectively, related to plant closings and start-ups, staff reductions and relocations, and
obsolete inventory. Excluding “extra” expenses, the Company’s MH Segment had an operating profit of $4.1
million in 2009, a decrease of $6.6 million from the segment operating profit of $10.7 million in the same period
last year. The adjusted decline in MH Segment operating profit was 11 percent of the ‘organic’ decline in net
sales, a smaller percentage decline than the Company would typically expect.
The operating margin of the MH Segment in 2009 was positively impacted by:
Implementation of cost-cutting measures which reduced cost of sales.
Lower raw material costs.
Lower health insurance costs largely due to the implementation of a new plan.
Partially offset by:
The spreading of fixed manufacturing costs over a smaller sales base.
Labor inefficiencies due to the sharp drop in sales.
Excluding the “extra” expenses, an increase in selling, general and administrative expenses to
19.0 percent of net sales in 2009 from 16.1 percent of net sales in 2008 due largely to the
spreading of fixed administrative costs over a smaller sales base, partially offset by fixed cost
reductions. Also, incentive compensation was lower as a percent of sales in 2009 because year-to-
date operating profit for certain MH Segment operations were below the previously established
annual incentive compensation hurdles.
Corporate
Corporate expenses for 2009 decreased $0.8 million compared to 2008 due primarily to fixed cost
reductions.
33
Goodwill Impairment
During the first quarter of 2009, because the Company’s stock price on the New York Stock Exchange
was below its book value, and due to the continued declines in industry-wide wholesale shipments of RVs and
manufactured homes, the Company conducted an impairment analysis of the goodwill of each of its reporting
units. The fair value of each reporting unit was estimated with a discounted cash flow model utilizing internal
forecasts and observable market data, to the extent available, to estimate future cash flows, and the Company’s
weighted average cost of capital of 16.5 percent. The forecast included an estimate of long-term future growth
rates based on management’s most recent views of the long-term outlook for each reporting unit.
Based on the analyses, the carrying value of the RV and manufactured housing reporting units exceeded
their fair value. As a result, the Company performed the second step of the impairment test, which required the
Company to determine the fair value of each reporting unit’s assets and liabilities, including all of the tangible and
identifiable intangible assets of each reporting unit, excluding goodwill. The results of the second step implied
that the fair value of goodwill was zero, therefore during the first quarter of 2009, the Company recorded a non-
cash impairment charge to write-off the entire $45.0 million of goodwill of these reporting units.
Other Non-Segment Items
Other non-segment items include the following (in thousands):
Selling, general and administrative expenses:
Legal proceedings
Gain on sold facilities
Loss on sold facilities and write-downs to estimated
current fair value of facilities to be sold
Incentive compensation impact of other non-segment items
Other expenses, net
Executive retirement
Other (income) from the collection of a previously reserved note
Total other non-segment items
Interest Expense, Net
Year Ended
December 31,
2009
2008
$
416 $ 2,109
(89)
(3,523)
3,349
(575)
12
-
(238)
1,602
(96)
-
2,667
(675)
$ 2,875 $ 2,084
Interest expense, net, for 2010 was $0.2 million, primarily consisting of commitment and letter of credit
fees under the line of credit, partially offset by interest income. Interest income for 2010 on the Company’s cash
and investments was not significant, due to low interest rates and the Company’s policy of investing in only
extremely safe investments.
The $0.1 million decrease in interest expense, net, for 2009 as compared to 2008, was partially due to a
decrease in the average debt levels in 2009. The Company earned less than $0.1 million in interest income in
2009, while the Company earned $0.5 million in interest income in 2008.
Provision for Income Taxes
The effective tax rate for 2010 was 38.0 percent, benefiting from a higher Federal domestic
manufacturing credit, as compared to 38.5 percent for 2009, excluding the impact of the goodwill impairment
charge. The annual effective tax rate for 2011 is expected to be 38 percent to 39 percent.
34
The effective tax rate for 2009 was 33.9 percent, which was a combination of a 34.8 percent rate on the
goodwill impairment charge, and a 38.5 percent rate for the remaining pre-tax income. A portion of the goodwill
impairment charge is not deductible for tax purposes, which reduced the tax benefit recorded. The 38.5 percent
rate on the remaining pre-tax income was consistent with the 38.6 percent rate for 2008, as the tax rate benefits
from federal tax credits and tax reserve adjustments were offset by the negative impact of lower pre-tax income
on permanent tax differences.
In connection with a tax audit, and after several negotiations, the Company and the Indiana Department of
Revenue settled tax years 1998 to 2000 for $0.6 million, as well as tax years 2001 to 2006 for $4.0 million,
including interest. The aggregate settlement amount was fully reserved prior to 2009, and was paid in April of
2009. In connection with the settlement, the Indiana Department of Revenue reserved the right to further examine
tax years 2001 through 2006. The years 2001 through 2006 are currently under such examination.
New Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (“FASB”) issued updated standards related to
additional requirements and guidance regarding disclosures of fair value measurements. The guidance requires
new disclosures, including the reasons for and amounts of significant transfers in and out of Levels 1 and 2 fair
value measurements and separate presentation of purchases, sales, issuances and settlements in the reconciliation
of activity for Level 3 fair value measurements. It also clarifies guidance related to determining the appropriate
classes of assets and liabilities and the information to be provided for valuation techniques used to measure fair
value. The guidance with respect to significant transfers in and out of Levels 1 and 2 was effective for interim or
annual periods beginning after December 15, 2009. The adoption of this portion of the guidance had no impact on
the Company. The guidance with respect to Level 3 fair value measurements is effective for interim and annual
periods beginning after December 15, 2010 and is not expected to have an impact on the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Consolidated 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
Net (decrease) increase in cash
2010
$ 42,063
(22,548)
(33,000)
$ (13,485)
2009
$ 63,256
(16,445)
(3,138)
$ 43,673
$
2008
4,657
(25,492)
(26,686)
$ (47,521)
Cash Flows from Operations
Net cash flows from operating activities in 2010 of $42.1 million were $21.2 million less than the $63.3
million in 2009 as a result of:
An $11.8 million increase in inventories in 2010, compared to a $37.5 million decrease in 2009.
During 2009, the Company reduced inventory through consumption of higher priced inventory on
hand, and reduced inventory purchases. In response to the 44 percent increase in net sales for
2010, the Company increased inventory balances by $11.8 million during the same period.
However, inventory turned 6.5 times in 2010, compared to 4.8 turns in 2009.
Partially offset by:
An increase in after-tax operating results in 2010 of $22.7 million.
35
A $7.9 million increase in accounts payable, accrued expenses and other liabilities in 2010,
compared to a decrease of $1.9 million in 2009. The decrease in 2009 was due largely to the
timing of payments for inventory purchases. Accounts payable, and accrued liabilities and other
current liabilities increased in 2010 due to the increase in sales, production and earnings.
During the first few months of 2011, the Company expects to use $10 million to $20 million of its
available cash to fund typical seasonal working capital growth.
Depreciation and amortization was $17.1 million in 2010, and is expected to aggregate approximately $16
million in 2011. Non-cash stock-based compensation was $4.2 million in 2010, and is expected to be
approximately $5 million to $6 million for 2011, including $1.1 million of deferred stock units issued in February
2011 in lieu of cash for 2010 incentive compensation.
Net cash flows from operating activities in 2009 were $58.6 million more than in 2008, primarily as a
result of:
A $37.5 million reduction in inventories in 2009, compared to a $12.7 million increase in 2008.
Inventories increased in 2008 due to the Company’s strategic purchase of raw materials in
advance of price increases, as well as higher priced raw materials in inventory. During 2009, the
Company reduced inventory through consumption of higher priced inventory on hand, and
reduced inventory purchases.
A $1.9 million decrease in accounts payable, accrued expenses and other liabilities in 2009,
compared to a decrease of $23.5 million in 2008 due largely to the timing of payments for
inventory purchases.
Partially offset by:
A $4.6 million increase in accounts receivable in 2009, compared to a $9.5 million decrease in
2008. Accounts receivable increased in 2009 due to an increase in sales in December 2009 as
compared to December 2008.
Depreciation and amortization increased by $1.4 million to $18.5 million in 2009, while non-cash stock-
based compensation decreased by $0.1 million to $3.7 million in 2009.
Cash Flows from Investing Activities
Cash flows used for investing activities of $22.5 million in 2010 included $21.9 million for acquisitions
of businesses and capital expenditures of $10.1 million, both of which were paid from available cash. The
Company estimates that capital expenditures will be $13 million to $15 million in 2011, including $3 million of
facility purchases planned for 2010, but not completed by the end of 2010. The 2011 capital expenditures are
expected to be funded by cash flows from operations. Additional capital expenditures may be required in 2011
depending on the extent of sales growth, and other initiatives by the Company.
At December 31, 2010, the Company was attempting to sell seven owned facilities and vacant land with
an aggregate carrying value of $11.6 million, which are not being used in production. The Company has leased to
third parties four of these owned facilities with a combined carrying value of $8.7 million, for one to five year
terms, for a combined rental income of $79,000 per month. Each of these four leases also contains an option for
the lessee to purchase the facility at an amount in excess of carrying value. In addition to these seven owned
facilities, the Company is attempting to sublease four vacant facilities which it leases.
On February 18, 2010, the Company acquired the patent-pending design for a six-point leveling system
for fifth-wheel RVs. The purchase price was $1.4 million paid at closing from available cash, plus an earn-out
36
depending on future unit sales of the leveling system in excess of pre-established hurdles over the next six years.
In 2010, the Company paid less than $0.1 million on this earn-out. At December 31, 2010, Company estimates
that these earn-out payments will be $2.4 million, and has recorded a $1.5 million liability for the present value of
such estimated earn-out payments.
On March 16, 2010, the Company acquired certain intellectual property and other assets from Schwintek,
Inc. The purchase included certain products for which patents are pending, consisting of an innovative RV wall
slide-out mechanism, an aluminum cylinder for use in leveling devices for motorhomes, and a power roof lift for
tent campers. The purchase price was $20.0 million paid at closing from available cash, plus earn-outs depending
on future unit sales of these products in excess of pre-established hurdles over approximately the next five years.
In 2010, the Company paid less than $0.1 million on this earn-out. At December 31, 2010, the Company estimates
that these earn-out payments will be $14.6 million, and has recorded a $10.3 million liability for the present value
of such estimated earn-out payments.
On January 28, 2011, the Company acquired the operating assets and business of Home-Style Industries,
and its affiliated companies. Home-Style manufactures a full line of upholstered furniture and mattresses
primarily for towable RVs, in the Northwest U.S. market. Home-Style’s sales for 2010 were $12 million. The
purchase price was $7.3 million paid at closing from available cash.
During 2010, the Company purchased $21.0 million of U.S. Treasury Bills classified as short-term
investments, and received $29.0 million from the maturity of U.S. Treasury Bills classified as short-term
investments. The Company’s priorities for its cash are liquidity and security, and as such, the Company has
chosen to invest in short-term U.S. Treasury Bills.
Cash and investments consisted of the following at December 31, 2010 (in thousands):
Cash in banks
Money Market – Wells Fargo
Money Market – JPMorgan Chase
U.S. Treasury bills – cash equivalents
Total cash and cash equivalents
U.S. Treasury bills – short-term investments
Total cash and investments
$ 11,664
9,039
4,177
14,000
38,880
4,999
$ 43,879
Cash flows used for investing activities of $16.4 million in 2009 included capital expenditures of $3.1
million, which was financed with available cash.
On May 15, 2009, the Company acquired the patents for the QuickBiteTM coupler, and other intellectual
properties and assets. The minimum aggregate purchase price was $0.5 million, of which $0.3 million was paid at
closing from available cash and the balance was paid on May 15, 2010, plus an earn-out depending on future unit
sales of the product. In 2010 and 2009, the Company paid less than $0.1 million on this earn-out. At December
31, 2010, Company estimates that these earn-out payments will be $1.2 million, and has recorded a $0.3 million
liability for the present value of such estimated earn-out payments.
On September 11, 2009, Lippert acquired the patent-pending design for a tool box containing a slide-out
storage tray. This newly-designed product, used in pick-up trucks, tow trucks and other mobile service vehicles, is
being produced at the Company’s existing manufacturing plants, with existing management, utilizing production
techniques with which the Company has extensive experience. The purchase price was $0.4 million, which was
paid at closing from available cash.
37
On September 29, 2009, Kinro acquired certain inventory and equipment used for the production of front
entry doors for manufactured homes. This acquisition has increased Kinro’s content per manufactured home and
also added a new product category. The Company estimates that the current annual market for front entry doors
for manufactured homes is about $25 million to $30 million, and that half of this new potential is in aftermarket
replacement doors for the millions of existing manufactured homes. Kinro began manufacturing entry doors at
plants in Indiana and South Carolina in the 2009 fourth quarter. The purchase price was $0.9 million, which was
paid at closing from available cash.
During 2009, the Company purchased $15.0 million of U.S. Treasury Bills classified as short-term
investments, of which $2.0 million matured in December 2009, and the balance matured at various dates through
June 2010.
Cash Flows from Financing Activities
Cash flows used for financing activities in 2010 of $33.0 million were primarily comprised of the special
dividend of $1.50 per share of the Company’s Common Stock, or an aggregate of $33.0 million, as well as $1.0
million for the purchase of treasury stock, partially offset by $1.0 million in cash and the related tax benefits from
the exercise of stock options. At December 31, 2010, the Company had no debt outstanding, and did not have any
borrowings during 2010.
Cash flows used for financing activities in 2009 of $3.1 million were primarily due to net debt payments
of $8.7 million, partially offset by $5.6 million in cash and the related tax benefits from the exercise of stock
options. At December 31, 2009, the Company had no debt outstanding.
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”).
The maximum borrowings under the Company’s line of credit can be increased by $20.0 million upon approval of
the Lenders. Interest on borrowings under the 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, 2010 and 2009), or LIBOR plus additional interest ranging from 2.0 percent to 2.8 percent (2.0
percent at December 31, 2010 and 2009) depending on the Company’s performance and financial condition. The
Credit Agreement, which was scheduled to expire on December 1, 2011, was amended and extended on February
24, 2011, and now expires on January 1, 2016. At December 31, 2010, the Company had availability of $44.5
million as there were $5.5 million in outstanding letters of credit under the line of credit.
Simultaneously, the Company entered into a $125.0 million “shelf-loan” facility with Prudential
Investment Management, Inc. and its affiliates (“Prudential”). The 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 Senior Promissory Note. Prudential has no obligation to purchase the Senior Promissory
Notes. Interest payable on the Senior Promissory Notes will be at rates determined by Prudential within five
business days after the Company issues a request to Prudential. This facility, which was scheduled to expire on
November 25, 2011, was amended and extended on February 24, 2011, and now expires on February 24, 2014. In
connection with this amendment, the “shelf-loan” facility was increased to $150.0 million.
Both the line of credit pursuant to the Credit Agreement and the “shelf-loan” facility are subject to a
maximum leverage ratio covenant which limits the amount of consolidated outstanding indebtedness to 2.5 times
the trailing twelve-month EBITDA, as defined. As such, the remaining availability under these facilities was
$161.1 million at December 31, 2010. This availability, together with the $43.9 million in cash and short-term
investments at December 31, 2010, are more than adequate to finance the Company’s anticipated working capital
and capital expenditure requirements in 2011, and no borrowings under these facilities are expected.
38
Pursuant to the Credit Agreement and Senior Promissory Notes at December 31, 2010, the Company was
required to maintain minimum net worth, interest and fixed charge coverages, and to meet certain other financial
requirements. At December 31, 2010, the Company was in compliance with all such requirements. In connection
with the amendment of the Credit Agreement and the “shelf-loan” facility on February 24, 2011, the minimum net
worth requirement was eliminated. The Company expects to remain in compliance with all financial requirements
during 2011.
On November 29, 2007 the Board of Directors authorized the Company to repurchase up to 1 million
shares of the Company’s Common Stock from time to time in the open market, in privately negotiated
transactions, or in block trades. Of this authorization, 447,400 shares were repurchased in 2008 at an average
price of $18.58 per share, or $8.3 million in total. An additional 53,879 shares at an average price of $19.27 per
share, or $1.0 million, were repurchased during 2010. The aggregate cost of repurchases was funded from the
Company’s available cash. The number of shares ultimately repurchased, and the timing of the purchases, will
depend upon market conditions, share price, and other factors.
Future minimum commitments relating to the Company's contractual obligations at December 31, 2010
are as follows (in thousands):
Payments due by period
Operating leases
Employment contracts (a)
Deferred compensation (b)
Royalty agreements and
earn-out payments (c)
Purchase obligations (d)
Taxes (e)
Total
Total
$ 9,695
4,727
3,261
18,332
68,753
2,747
$107,515
Less than
1 year
$ 4,309
3,323
118
More than
1-3 years 3-5 years 5 years
196
$ 4,443
1,207
-
2,591
-
747
197
-
$
$
281
65,917
2,747
$ 76,695
8,111
1,503
-
$ 15,264
7,762
1,238
-
$ 9,944
2,178
95
-
$ 5,060
$
Other
-
-
552
-
-
-
552
$
(a)
(b)
(c)
(d)
This includes amounts payable under employment contracts and arrangements, and retirement and severance
agreements.
This includes amounts payable under deferred compensation arrangements. Amounts in Other of $0.6 million
represent the liability for deferred compensation for employees that have elected to receive payment upon
separation from service from the Company.
These amounts are comprised of estimated future earn-out payments for which a liability has been recorded, in
connection with acquisitions over the past few years. Excluded from these amounts, because the future payments
are not ascertainable, is a license agreement that provides for the Company to pay a royalty of 1 percent of sales
of certain slide-out systems, the remaining aggregate of which cannot exceed $4.1 million. The Company paid
$0.2 million in 2010 under this license agreement for sales of these slide-out systems.
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.
(e)
This amount includes $2.7 million for unrecognized tax benefits as well as related interest and penalties.
These commitments are described more fully in the Notes to Consolidated Financial Statements.
39
CORPORATE GOVERNANCE
The Company is in compliance with the corporate governance requirements of the Securities and
Exchange Commission (“SEC”) 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
Additional information required by this item is included under Item 3 of Part I of this Annual Report on
Form 10-K.
In connection with a tax audit, and after several negotiations, the Company and the Indiana Department of
Revenue settled tax years 1998 to 2000 for $0.6 million, as well as tax years 2001 to 2006 for $4.0 million,
including interest. The aggregate settlement amount was fully reserved prior to 2009, and was paid in April of
2009. In connection with the settlement, the Indiana Department of Revenue reserved the right to further examine
tax years 2001 through 2006. The years 2001 through 2006 are currently under such examination.
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 required.
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. To the extent that actual demand
or market conditions in the future differ from original estimates, adjustments to recorded inventory reserves may
be required.
40
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 third-party 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 required.
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 (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 required.
Income Taxes
The Company's tax provision (benefit) is based on pre-tax income (loss), statutory tax rates and tax
planning strategies. Significant management judgment is required in determining the tax provision (benefit) 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, which is reassessed each quarter 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 the Notes to Consolidated Financial Statements.
Impairment of Long-Lived Assets, including Other Intangible 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.
Impairment of Goodwill
Goodwill is 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 forecasts and assumptions regarding industry-specific economic conditions that are
41
outside the control of the Company. Actual results and events could differ significantly from management
estimates.
In 2008, the Company conducted its annual 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. During the first quarter of 2009, because the Company’s stock price on the New
York Stock Exchange was below its book value, and due to the continued declines in industry-wide wholesale
shipments of RVs and manufactured homes, the Company also conducted an impairment analysis of the goodwill
of each of its reporting units, resulting in the impairment and non-cash write-off of the remaining $45.0 million of
goodwill.
In both periods, the fair value of each reporting unit was estimated with a discounted cash flow model
utilizing internal forecasts and observable market data, to the extent available, to estimate future cash flows. The
forecast included an estimate of long-term future growth rates based on management’s most recent views of the
long-term outlook for each reporting unit.
At March 31, 2009 and November 30, 2008, the discount rate used in the discounted cash flow model
prepared for the goodwill impairment analysis was 16.5 percent and 13.0 percent, respectively, derived by
applying the weighted average cost of capital model, which weights the cost of debt and equity financing. The
Company also considered the relationship of debt to equity of other similar companies, as well as the risks and
uncertainty inherent in the markets generally and in the Company’s internally developed forecasts.
Based on the analyses, the carrying value of the RV, manufactured housing and specialty trailer reporting
units exceeded their fair value. As a result, the Company performed the second step of the impairment test, which
required the Company to determine the fair value of each reporting unit’s assets and liabilities, including all of the
tangible and identifiable intangible assets of each reporting unit, excluding goodwill. The results of the second
step implied that the fair value of goodwill was zero, therefore the Company recorded a non-cash impairment
charge to write-off the entire goodwill of the specialty trailer reporting unit in the fourth quarter of 2008, and the
RV and manufactured housing reporting units in the first quarter of 2009.
These non-cash goodwill impairment charges were largely the result of uncertainties in the economy, and
in the RV, manufactured housing and marine and leisure industries, as well as the discount rates used to determine
the present value of projected cash flows. Estimating the fair value of reporting units, and the reporting unit’s
asset and liabilities, involves the use of estimates and significant judgments that are based on a number of factors
including actual operating results, future business plans, economic projections and market data. Actual results
may differ from forecasted results.
The Company has elected to perform its annual goodwill impairment procedures for all of its reporting
units as of November 30, and therefore, the Company updated its carrying value calculations and fair value
estimates for each of its reporting units as of November 30, 2010. Based on the comparison of the carrying values
to the estimated fair values, the Company has concluded that no goodwill impairment existed at that time. The
Company plans to update its review as of November 30, 2011, or sooner, if events occur or circumstances change
that could reduce the fair value of a reporting unit below its carrying value.
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 management’s judgment 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
42
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.
Earn-out Payments
In connection with several acquisitions completed in 2010 and 2009, in addition to the cash paid at
closing, additional amounts could be paid over the next 6 years depending upon the level of sales generated from
certain of the acquired products. The fair value of the aggregate estimated earn-out payments has been recorded as
a liability in the Consolidated Balance Sheets. Each quarter, the Company is required to re-evaluate the fair value
of the liability for the estimated earn-out payments for such acquisitions. The fair value of the earn-out payments
is estimated using a discounted cash flow model. This model involves the use of estimates and significant
judgments that are based on a number of factors including sales of certain products, future business plans,
economic projections, discount rate, and market data. Actual results may differ from forecasted results.
Other Estimates
The Company makes a number of other estimates and judgments in the ordinary course of business
including, but not limited to, those related to product returns, accounts receivable, notes receivable, lease
terminations, asset retirement obligations, post-retirement benefits, stock-based compensation, segment
allocations, environmental liabilities, 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, actual
results and events could differ significantly from management estimates.
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. In
November 2010, the cost of these key raw materials again began to increase, and have continued to increase
through March 2011. The Company did not experience any significant increase in its labor costs in 2010 related to
inflation.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company has historically been exposed to changes in interest rates primarily as a result of its
financing activities. At December 31, 2010, the Company had no outstanding borrowings.
At December 31, 2010, the Company had $38.9 million of cash equivalents and $5.0 million of
short-term investments in U.S. Treasuries. Due to the short-term nature of the Company’s cash equivalents and
short-term investments, the exposure to changes in interest rates is minimal.
Additional information required by this item is included under the caption “Inflation” in Item 7 of this
Report.
43
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, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 2010. We also have audited the Company’s internal control
over financial reporting as of December 31, 2010, 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, 2010 and 2009, and the results of
their operations and their cash flows for each of the years in the three-year period ended December 31, 2010, 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, 2010, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
/s/ KPMG LLP
Stamford, Connecticut
March 11, 2011
44
Drew Industries Incorporated
Consolidated Statements of Operations
(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 (loss)
Interest expense, net
Income (loss) before income taxes
Provision (benefit) for income taxes
Net income (loss)
Net income (loss) per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Year Ended December 31,
2010
2009
2008
$ 572,755
446,585
126,170
80,821
-
-
(79)
45,428
218
45,210
17,176
$ 28,034
$ 397,839
319,129
78,710
69,489
45,040
-
(238)
(35,581)
789
(36,370)
(12,317)
$ (24,053)
$ 510,506
403,000
107,506
80,129
5,487
2,667
(675)
19,898
877
19,021
7,343
$ 11,678
$
$
1.27
1.26
$
$
(1.10)
(1.10)
$
$
0.54
0.53
22,123
22,266
21,807
21,807
21,808
21,917
The accompanying notes are an integral part of these Consolidated Financial Statements.
45
Drew Industries Incorporated
Consolidated Balance Sheets
(In thousands, except shares and per share amount)
ASSETS
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable, trade, less allowances
Inventories
Prepaid expenses and other current assets
Total current assets
Fixed assets, net
Goodwill
Other intangible assets, net
Deferred taxes
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable, trade
Accrued expenses and other current liabilities
Total current liabilities
Other long-term liabilities
Total liabilities
Stockholders' equity
Common stock, par value $.01 per share: authorized
30,000,000 shares; issued 24,674,581 shares at December 31, 2010
and 24,561,358 shares at December 31, 2009
Paid-in capital
Retained earnings
Treasury stock, at cost, 2,650,604 shares at December 31, 2010 and
2,596,725 at December 21, 2009
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
2010
2009
$ 38,880
4,999
12,890
69,328
16,768
142,865
79,848
7,497
57,419
15,770
3,382
$ 306,781
$ 52,365
12,995
12,541
57,757
13,793
149,451
80,276
-
39,171
16,532
2,635
$ 288,065
11,351
33,723
45,074
18,248
63,322
7,513
28,194
35,707
8,243
43,950
247
79,986
192,067
272,300
246
74,239
197,430
271,915
(28,841)
243,459
$ 306,781
(27,800)
244,115
$ 288,065
The accompanying notes are an integral part of these Consolidated Financial Statements.
46
Drew Industries Incorporated
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to cash flows
provided by operating activities:
Depreciation and amortization
Year Ended December 31,
2010 2009
2008
$ 28,034
$ (24,053)
$ 11,678
Deferred taxes
(Gain) loss on disposal of fixed assets and other non-cash items
Stock-based compensation expense
Goodwill impairment
Changes in assets and liabilities, net of business acquisitions:
17,087
(1,438)
(613)
4,176
-
Accounts receivable, net
Inventories
Prepaid expenses and other assets
Accounts payable, accrued expenses and other liabilities
Net cash flows provided by operating activities
(341)
(11,757)
(951)
7,866
42,063
Cash flows from investing activities:
Capital expenditures
Acquisitions of businesses
Proceeds from sales of fixed assets
Purchases of short-term investments
Proceeds from maturities of short-term investments
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 and deferred stock units
Purchase of treasury stock
Payment of special dividend
Other financing activities
Net cash flows used for financing activities
(10,148)
(21,900)
1,788
(20,985)
29,000
(303)
(22,548)
-
-
1,082
(1,041)
(33,032)
(9)
(33,000)
18,468
(16,685)
2,836
3,494
45,040
(4,628)
37,505
3,226
(1,947)
63,256
(3,107)
(1,679)
1,367
(14,992)
2,000
(34)
(16,445)
5,775
(14,458)
5,562
-
-
(17)
(3,138)
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)
Net (decrease) increase in cash
(13,485)
43,673
(47,521)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
52,365
$ 38,880
8,692
$ 52,365
56,213
$ 8,692
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest
Income taxes, net of refunds
$
311
$ 19,862
$
499
$ 3,290
$ 1,319
$ 13,852
The accompanying notes are an integral part of these Consolidated Financial Statements.
47
Drew Industries Incorporated
Consolidated Statements of Stockholders' Equity
(In thousands, except shares and per share amount)
Accumulated
Other
Total
Balance - December 31, 2007
Net income
Unrealized loss on interest rate
swaps, 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 and
deferred stock units
Stock-based compensation expense
Purchase of 447,400 shares of
treasury stock
Balance - December 31, 2008
Net income
Issuance of 439,304 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 and
deferred stock units
Stock-based compensation expense
Issuance of deferred stock units
relating to prior year compensation
Balance - December 31, 2009
Net income
Issuance of 113,223 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 and
deferred stock units
Stock-based compensation expense
Issuance of deferred stock units
relating to prior year compensation
Special cash dividend ($1.50 per share)
Dividend equivalents on deferred
stock units
Purchase of 53,879 shares of
treasury stock
Common
Stock
$ 241
Paid-in
Capital
Retained
Earnings
$ 60,919 $ 209,805
11,678
Comprehensive Treasury Stockholders’
Stock
$ (19,467) $ 251,536
11,678
Income
38
$
Equity
(38)
(38)
11,640
340
59
3,636
340
59
3,636
241
64,954
221,483
(24,053)
-
(8,333)
(27,800)
(8,333)
258,878
(24,053)
5
5,010
531
3,494
250
74,239
246
1
1,134
197,430
28,034
-
(27,800)
11
4,176
61
(33,032)
365
(365)
5,015
531
3,494
250
244,115
28,034
1,135
11
4,176
61
(33,032)
-
Balance - December 31, 2010
$ 247
$ 79,986 $ 192,067
$
-
(1,041)
(1,041)
$ (28,841) $ 243,459
The accompanying notes are an integral part of these Consolidated Financial Statements.
48
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 Lippert Components, Inc. and its subsidiaries (collectively “Lippert”) and
Kinro, Inc. and its subsidiaries (collectively “Kinro”). Drew, through its wholly-owned subsidiaries, manufactures
a broad array of components for recreational vehicles (“RVs”) and manufactured homes, and to a lesser extent
manufactures components for modular housing and mid-size buses, as well as specialty trailers and related axles,
including:
● Steel chassis
● Axles and suspension solutions
● Slide-out mechanisms and solutions
● Thermoformed bath, kitchen and other products
● Toy hauler ramp doors
● Patio 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 83 percent of the
Company's net sales in 2010, and the manufactured housing products segment (the “MH Segment”) accounted for
17 percent. More than 90 percent of the Company’s RV Segment net sales are components for travel trailer and
fifth-wheel RVs, with the balance primarily comprised of components for motorhomes and mid-size buses, as
well as sales of specialty trailers and related axles. At December 31, 2010, the Company operated 25 plants in 11
states.
Because of the seasonality of the RV and manufactured housing industries, historically, the Company’s
operating results in the first and fourth quarters have been the weakest, while the second and third quarters are
traditionally stronger. However, because of fluctuations in RV dealer inventories since the fourth quarter of 2009,
seasonal industry trends have been different than in prior years.
The Company is not aware of any significant events, except as disclosed in the Notes to Consolidated
Financial Statements, that occurred subsequent to the balance sheet date but prior to the filing of this report that
would have a material impact on the Consolidated Financial Statements.
All significant intercompany balances and transactions have been eliminated. Certain prior year balances
have been reclassified to conform to current year presentation.
Cash and Investments
The Company considers all highly liquid investments with a maturity of three months or less at the time
of purchase to be cash equivalents. The U.S. Treasury Bills are recorded at cost which approximates fair value.
49
Cash and investments consisted of the following at December 31 (in thousands):
Cash in banks
Money Market – Wells Fargo
Money Market – JPMorgan Chase
U.S. Treasury Bills – cash equivalents
Total cash and cash equivalents
U.S. Treasury Bills – short-term investments
Total cash and investments
2010
$ 11,664
9,039
4,177
14,000
38,880
4,999
$ 43,879
2009
$ 49,365
-
-
3,000
52,365
12,995
$ 65,360
Accounts Receivable
Accounts receivable are stated at the historical carrying value, 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
2010
$ 1,003
425
-
(929)
499
$
2009
$ 1,486
998
-
(1,481)
$ 1,003
2008
$
803
1,066
30
(413)
$ 1,486
In addition to the allowance for doubtful accounts receivable, the Company had an allowance for prompt
payment discounts in the amount of $0.2 million at each of December 31, 2010, 2009 and 2008.
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 which are owned are stated at cost less accumulated depreciation, and are depreciated on a
straight-line basis over the estimated useful lives of the 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
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.
50
The Company accounts for uncertainty in tax positions in accordance with the current accounting
guidance, which 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.
Further, the Company assesses the tax benefits of the tax positions in its financial statements based on experience
with similar tax positions, information obtained during the examination process and the advice of experts. The
Company recognizes previously unrecognized tax benefits upon the earlier of the expiration of the period to
assess tax in the applicable taxing jurisdiction or when the matter is constructively settled and upon changes in
statutes or regulations and new case law or rulings.
The Company classifies interest and penalties related to income taxes as income tax expense in its
Consolidated Financial Statements.
Goodwill
Goodwill represents the excess of the total consideration given in an acquisition of a business over the fair
value of the net tangible and identifiable intangible assets acquired. Goodwill is not amortized, but instead is
tested at the reporting unit level for impairment annually in November, 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.
In 2008, the Company conducted its annual 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. During the first quarter of 2009, because the Company’s stock price on the New
York Stock Exchange was below its book value, and due to the continued declines in industry-wide wholesale
shipments of RVs and manufactured homes, the Company also conducted an impairment analysis of the goodwill
of each of its reporting units, resulting in the impairment and non-cash write-off of the remaining $45.0 million of
goodwill. The impairment analysis of goodwill conducted during the first quarter of 2009 was completed using
Level 3 fair value inputs.
In both periods, the fair value of each reporting unit was estimated with a discounted cash flow model
utilizing internal forecasts and observable market data, to the extent available, to estimate future cash flows. The
forecast included an estimate of long-term future growth rates based on management’s most recent views of the
long-term outlook for each reporting unit.
At March 31, 2009 and November 30, 2008, the discount rate used in the discounted cash flow model
prepared for the goodwill impairment analysis was 16.5 percent and 13.0 percent, respectively, derived by
applying the weighted average cost of capital model, which weights the cost of debt and equity financing. The
Company also considered the relationship of debt to equity of other similar companies, as well as the risks and
uncertainty inherent in the markets generally and in the Company’s internally developed forecasts.
Based on the analyses, the carrying value of the RV, manufactured housing and specialty trailer reporting
units exceeded their fair value. As a result, the Company performed the second step of the impairment test, which
required the Company to determine the fair value of each reporting unit’s assets and liabilities, including all of the
tangible and identifiable intangible assets of each reporting unit, excluding goodwill. The results of the second
step implied that the fair value of goodwill was zero, therefore the Company recorded a non-cash impairment
charge to write-off the entire goodwill of the specialty trailer reporting unit in the fourth quarter of 2008, and the
RV and manufactured housing reporting units in the first quarter of 2009.
These non-cash goodwill impairment charges were largely the result of uncertainties in the economy, and
in the RV, manufactured housing and marine and leisure industries, as well as the discount rates used to determine
the present value of projected cash flows. Estimating the fair value of reporting units, and the reporting unit’s
51
asset and liabilities, involves the use of estimates and significant judgments that are based on a number of factors
including actual operating results, future business plans, economic projections and market data. Actual results
may differ from forecasted results.
Other Intangible Assets
Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to
their estimated residual values, and reviewed for impairment. The amortization of other intangible 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.
Impairment of Long-Lived Assets
The impairment of long-lived assets, other than goodwill, is assessed when changes in circumstances
indicate that their carrying value may not be recoverable. A determination of impairment, if any, is made based on
the undiscounted value of estimated future cash flows, salvage value or expected net sales proceeds, depending on
the circumstances. Impairment is measured as the excess of the carrying value over the estimated fair value of
such assets.
In 2010, the Company reviewed the recoverability of the carrying value of vacant facilities and land not
being used in production, using broker quotes and management’s estimates, which are Level 3 fair value inputs.
As a result, in 2010, the Company recorded impairment charges of $0.4 million on facilities that have an adjusted
carrying value of $11.6 million at December 31, 2010. In 2009 and 2008, the Company recorded impairment
charges for facilities of $2.5 million and $1.0 million, respectively. Impairment charges are included in selling,
general and administrative expenses in the Consolidated Statements of Operations.
Additionally, the Company recorded charges to operations of $0.1 million, $0.8 million and $0.6 million
in 2010, 2009 and 2008, respectively, related to the exit from leased facilities, which are recorded in selling,
general and administrative expenses in the Consolidated Statements of Operations.
During 2010, the Company did not experience any events or changes in circumstances which could
indicate that the carrying value of the other intangible assets or remaining other long-lived assets may not be
recoverable. As a result, no impairment testing was required. During 2009, as a result of the unprecedented
conditions in the RV and Manufactured Housing industries, the Company reviewed the recoverability of the
carrying value of other intangible assets and the remaining other long-lived assets. This review determined that
there was no impairment of these assets.
Financial Instruments
The carrying values of cash and cash equivalents, short-term investments, accounts receivable and
accounts payable approximated their fair value due to the short-term nature of these instruments.
Stock-Based Compensation
All stock-based compensation awards are being expensed on a straight-line basis over their requisite
service period, which is generally the vesting period, based on fair value. The fair value for stock options is
determined using the Black-Scholes option-pricing model at the date the stock options are granted, while the fair
value of deferred stock units are based on the market price of the Company’s Common Stock. The accounting for
stock-based compensation resulted in charges to operations of $4.2 million, $3.5 million and $3.6 million for the
years ended December 31, 2010, 2009 and 2008, respectively. In addition, for the years ended December 31, 2010
and 2009, the Company issued deferred stock units to certain executive officers relating to prior year
52
compensation of $0.1 million and $0.3 million, respectively. Stock-based compensation expense is recorded in the
Consolidated Statements of Operations in the same line that cash compensation to those employees is recorded,
primarily in selling, general and administrative expenses.
On December 28, 2010, in connection with the special dividend of $1.50 per share, the Compensation
Committee of the Company’s Board of Directors reduced the exercise price of all the outstanding stock options
for all 125 holders of such stock options by $1.50 per share. As a result of this stock option modification, the
Company recorded a charge of $0.4 million in 2010, and expects to record additional charges aggregating $0.5
million over the next five years. See Note 11 of the Notes to Consolidated Financial Statements.
The fair value of each stock option grant was estimated on the date of the grant, and estimated again on
the date of modification, 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
Modification
1.30%
57.5%
3.2 years
6.0 years
N/A
$10.03
2010
1.43%
55.8%
4.8 years
6.0 years
N/A
$10.09
2009
2.12%
53.2%
4.8 years
6.0 years
N/A
$9.87
2008
2.17%
42.5%
4.8 years
6.0 years
N/A
$4.68
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 from customers and remitted to governmental authorities, which are not significant, are accounted for on
a net basis and therefore are excluded from net sales in the Consolidated Statements of Operations.
Shipping and Handling Costs
The Company records shipping and handling costs within selling, general and administrative expenses.
Such costs aggregated $20.2 million, $15.4 million and $21.4 million in 2010, 2009 and 2008, 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, net sales 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, earn-out payments, environmental
liabilities, 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
53
readily apparent from other resources. Actual results and events could differ significantly from management
estimates.
Fair Value Measurements
Accounting guidance establishes a framework that requires fair value to be determined based on the
exchange price that would be received for an asset, or paid to transfer a liability (an exit price), in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants.
The valuation techniques required are based upon observable and unobservable inputs. Observable inputs
reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market
assumptions. The accounting guidance requires the following fair value hierarchy:
Level 1 - Quoted prices (unadjusted) for identical assets and liabilities in active markets that the
Company has the ability to access at the measurement date.
Level 2 - Quoted prices for similar assets and liabilities in active markets; quoted prices for
identical or similar assets and liabilities in markets that are not active; and inputs other than
quoted prices that are observable for the asset or liability, including interest rates, yield curves
and credit risks, or inputs that are derived principally from or corroborated by observable market
data through correlation.
Level 3 - Values determined by models, significant inputs to which are unobservable and are
primarily based on internally derived assumptions regarding the timing and amount of expected
cash flows.
Long-lived assets, including goodwill and other intangible assets, may be measured at fair value if such
assets are held for sale or if there is a determination that the asset is impaired. The determination of fair value is
based on the best information available, including internal cash flow estimates discounted at an appropriate
interest rate, quoted market prices when available, market prices for similar assets, broker quotes and independent
appraisals, as appropriate.
During 2010, the Company completed three business combinations by which it acquired $32.3 million of
assets, paid $21.9 million in cash, and agreed to potential future earn-out payments, the fair values of which were
estimated to be $10.3 million as of the respective acquisition dates. During 2009, the Company completed two
business combinations by which it acquired $3.2 million of assets, paid $1.8 million in cash, and agreed to
potential future earn-out payments, the fair values of which were estimated to be $1.2 million as of the respective
acquisition dates. The Company used Level 3 inputs to value the assets and liabilities associated with these
business combinations, as well as to update the fair values of the potential future earn-out payments. See Notes 3
and 10 of the Notes to Consolidated Financial Statements.
New Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (“FASB”) issued updated standards related to
additional requirements and guidance regarding disclosures of fair value measurements. The guidance requires
new disclosures, including the reasons for and amounts of significant transfers in and out of Levels 1 and 2 fair
value measurements and separate presentation of purchases, sales, issuances and settlements in the reconciliation
of activity for Level 3 fair value measurements. It also clarifies guidance related to determining the appropriate
classes of assets and liabilities and the information to be provided for valuation techniques used to measure fair
value. The guidance with respect to significant transfers in and out of Levels 1 and 2 was effective for interim or
annual periods beginning after December 15, 2009. The adoption of this portion of the guidance had no impact on
54
the Company. The guidance with respect to Level 3 fair value measurements is effective for interim and annual
periods beginning after December 15, 2010 and is not expected to have an impact on the Company.
2. SEGMENT REPORTING
The Company has two reportable segments; the recreational vehicle products segment (the “RV
Segment”) and the manufactured housing products segment (the “MH Segment”). Intersegment sales are
insignificant.
The RV Segment, which accounted for 83 percent, 79 percent and 72 percent of consolidated net sales for
2010, 2009 and 2008, respectively, manufactures a variety of products used primarily in the production of RVs,
including:
● Towable steel chassis
● Towable axles and suspension solutions
● Slide-out mechanisms and solutions
● Thermoformed bath, kitchen and other products
● Toy hauler ramp doors
● Patio 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
The Company also supplies certain of these products as replacement parts to the RV aftermarket. More
than 90 percent of the Company’s RV Segment net sales are components for travel trailer and fifth-wheel RVs,
with the balance primarily comprised of components for motorhomes and mid-size buses, as well as sales of
specialty trailers and related axles.
The MH Segment, which accounted for 17 percent, 21 percent and 28 percent of consolidated net sales
for 2010, 2009 and 2008, 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
● Steel and fiberglass entry doors
● Aluminum and vinyl patio doors
● Steel chassis
● Steel chassis parts
● Axles
The Company also supplies windows, doors and thermoformed bath products as replacement parts to the
manufactured housing aftermarket.
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.
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 or loss before interest, corporate expenses, goodwill impairment, other non-segment 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 the Notes to Consolidated Financial Statements.
55
Effective with the first quarter of 2010, amortization of intangibles, which was previously reported on a
separate line, has been included as part of segment operating profit (loss). In addition, the related intangible assets
are now included as part of segment assets. The segment disclosures from 2009 and 2008 have been reclassified
to conform to the current year presentation.
Information relating to segments follows for the years ended December 31, (in thousands):
RV
Segments
MH
Corporate
Total
and Other Goodwill
Total
2010
Net sales from external customers(a) $ 477,202 $ 95,553 $ 572,755 $
Operating profit (loss)(b)(e)
Total assets(c)
Expenditures for long-lived assets(d) $ 34,262 $ 1,016 $ 35,278 $
$ 13,820 $ 3,093 $ 16,913 $
Depreciation and amortization
- $
$ 44,388 $ 9,590 $ 53,978 $ (8,550) $
$ 179,000 $ 40,366 $ 219,366 $ 79,918 $
34 $
174 $
- $ 572,755
- $ 45,428
7,497 $ 306,781
7,497 $ 42,809
- $ 17,087
2009
Net sales from external customers(a) $ 312,535 $ 85,304 $ 397,839 $
Operating profit (loss)(b)(e)
Total assets(c)
Expenditures for long-lived assets(d) $
Depreciation and amortization
$ 15,660 $ 3,216 $ 18,876 $ (9,417) $ (45,040)
-
$ 144,031 $ 45,535 $ 189,566 $ 98,499 $
927
110 $
-
196 $
5,078 $
$ 14,332 $ 3,940 $ 18,272 $
4,213 $
865 $
- $
- $ 397,839
(35,581)
288,065
6,115
18,468
2008
Net sales from external customers(a) $ 368,092 $ 42,414 $ 510,506 $
Operating profit (loss)(b)(e)
Total assets(c)
Expenditures for long-lived assets(d) $ 20,533 $
Depreciation and amortization
- $ 510,506
- $
$ 24,615 $ 10,290 $ 34,905 $ (9,520) $
(5,487) $ 19,898
$ 181,497 $ 51,736 $ 233,233 $ 34,012 $ 44,113 $ 311,358
31 $ 10,053 $ 31,336
- $ 17,078
253 $
719 $ 21,252 $
$ 12,746 $ 4,079 $ 16,825 $
(a) Thor Industries, Inc., a customer of the RV Segment, accounted for 41 percent, 38 percent and 27 percent of the
Company’s consolidated net sales for the years ended December 31, 2010, 2009 and 2008, respectively. Thor
Industries, Inc. acquired Heartland Recreational Vehicles in 2010. The aforementioned sales percentages include the
combined net sales of Thor and Heartland. Berkshire Hathaway Inc. (through its subsidiaries Forest River, Inc. and
Clayton Homes, Inc.), a customer of both segments, accounted for 26 percent, 26 percent and 22 percent of the
Company’s consolidated net sales for the years ended December 31, 2010, 2009 and 2008, respectively. No other
customer accounted for more than 10 percent of consolidated net sales for the years ended December 31, 2010, 2009
and 2008.
(b) Certain general and administrative expenses of Lippert and Kinro 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, intangible assets and fixed assets. Corporate and other assets
include cash and cash equivalents, short-term investments, prepaid expenses and other current assets, deferred taxes,
and other assets. Goodwill is not considered in the measurement of each segment’s performance.
(d) Segment expenditures for long-lived assets include capital expenditures, as well as fixed assets and other intangible
assets purchased as part of the acquisition of businesses. The Company purchased $25.1 million, $2.0 million and
$17.1 million of long-lived assets as part of the acquisitions of businesses in the years ended December 31, 2010, 2009
and 2008, respectively. Expenditures for goodwill are not included in the segment since they are not considered in the
measurement of each segment’s performance.
56
(e) The operating loss for the Corporate and Other column is comprised of Corporate expenses of $8.0 million, $6.5
million and $7.4 million for the years ended December 31, 2010, 2009 and 2008, respectively, and Other non-segment
items of $0.6 million, $2.9 million and $2.1 million for the years ended December 31, 2010, 2009 and 2008,
respectively.
Net sales by product were as follows for the years ended December 31, (in thousands):
2010
2009
2008
Recreational Vehicles:
Chassis, chassis parts and
slide-out mechanisms
Windows, doors and screens
Furniture and mattresses
Axles and suspension solutions
Specialty trailers
Other
RV Segment net sales
Manufactured Housing:
$ 261,811
112,679
49,017
38,420
4,498
10,777
$ 477,202
$ 57,154
Windows, doors and screens
25,070
Chassis and chassis parts
Thermoformed bath and kitchen products 13,079
250
-
$ 95,553
Axles and tires
Other
MH Segment net sales
$ 178,563
64,684
30,290
26,343
6,810
5,845
$ 312,535
$ 46,961
24,892
12,636
757
58
$ 85,304
$ 228,310
79,279
11,726
30,024
13,773
4,980
$ 368,092
$ 62,924
56,869
18,108
3,811
702
$ 142,414
Consolidated net sales
$ 572,755
$ 397,839
$ 510,506
3. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
Over the last ten 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. In a number of
these acquisitions, the Company acquired a significant amount of goodwill, as the value of the acquired business
to the Company exceeded the fair value of the net tangible and other identifiable intangible assets acquired in the
transaction.
Recently Announced Acquisition
Home-Style Industries
On January 28, 2011, the Company acquired the operating assets and business of Home-Style Industries,
and its affiliated companies. Home-Style manufactures a full line of upholstered furniture and mattresses
primarily for towable RVs, in the Northwest U.S. market. Home-Style’s sales for 2010 were $12 million. The
purchase price was $7.3 million paid at closing from available cash.
Acquisitions in 2010
Level-UpTM System
On February 18, 2010, the Company acquired the patent-pending design for Level-UpTM, a six-point
leveling system for fifth-wheel RVs. Level-UpTM had annualized sales of approximately $1 million prior to the
57
acquisition. The purchase price was $1.4 million, paid at closing from available cash, plus an earn-out. The results
of the acquired business have been included in the Company’s Consolidated Statements of Operations since
February 18, 2010.
The acquisition of this business was recorded as follows (in thousands):
Cash consideration
Contingent consideration
Total fair value of consideration given
Patents
Other identifiable intangible assets
Total fair value of assets acquired
Goodwill (tax deductible)
$ 1,400
404
$ 1,804
$ 1,157
180
$ 1,337
$
467
The Company will pay an earn-out depending on future unit sales of the leveling system in excess of pre-
established hurdles over the next six years. The earn-out does not have a maximum; however, at the date of
acquisition, the Company estimated the aggregate earn-out payments would be $0.5 million to $1.0 million. The
Company recorded a $0.4 million liability for the present value of the estimated earn-out payments, using internal
sales projections, as well as the acquired company’s weighted average cost of capital of 17.4 percent at the date of
acquisition. Each period, an expense, similar to interest, will be recorded in selling, general and administrative
expenses over the term of the earn-out due to the accretion of the present value of the liability for the estimated
earn-out payments. For further information on the required quarterly re-evaluation of the liability for the estimated
earn-out payments, see Note 10 of the Notes to Consolidated Financial Statements.
The patents will be amortized over their estimated useful life of 13 years. The consideration given was
greater than the fair value of the assets acquired, resulting in goodwill, because the Company anticipates an
increase in the markets for the acquired product.
Wall Slide and Other RV Products
On March 16, 2010, the Company acquired certain intellectual property and other assets from Schwintek,
Inc. The purchase included certain products for which patents are pending, consisting of an innovative RV wall
slide-out mechanism, an aluminum cylinder for use in leveling devices for motorhomes, and a power roof lift for
tent campers. Schwintek had annualized sales of approximately $5 million prior to the acquisition. The purchase
price was $20.0 million, paid at closing from available cash, plus earn-outs. The results of the acquired business
have been included in the Company’s Consolidated Statements of Operations since March 16, 2010.
The acquisition of this business was recorded as follows (in thousands):
Cash consideration
Contingent consideration
Total fair value of consideration given
Patents
In-process research and development
Other identifiable intangible assets
Identifiable tangible assets acquired
Total fair value of assets acquired
Goodwill (tax deductible)
58
$ 20,000
9,929
$ 29,929
$ 16,840
4,457
1,603
410
$ 23,310
$ 6,619
The Company will pay earn-outs depending on future unit sales of the acquired products in excess of pre-
established hurdles over approximately the next five years. Two of the products have a maximum aggregate earn-
out of $12.7 million, which, at the date of acquisition, the Company assumed would be achieved. The remaining
products do not have a maximum; however, at the date of acquisition, the Company estimated the aggregate earn-
out payments would be $1.5 million to $2.0 million for these products. The Company recorded a $9.9 million
liability for the present value of the estimated earn-out payments, using internal sales projections, as well as the
acquired company’s weighted average cost of capital of 17.2 percent at the date of acquisition. Each period, an
expense, similar to interest, will be recorded in selling, general and administrative expenses over the term of the
earn-out due to the accretion of the present value of the liability for the estimated earn-out payments. For further
information on the required quarterly re-evaluation of the liability for the estimated earn-out payments, see Note
10 of the Notes to Consolidated Financial Statements.
The patents will be amortized over their estimated useful life of 13 years. The consideration given was
greater than the fair value of the assets acquired, resulting in goodwill, because the Company anticipates an
increase in the markets for the acquired products, market share growth in both existing and new markets, as well
as attainment of synergies.
Chassis Modification and Suspension Enhancement
On August 30, 2010, the Company acquired the operating assets of Sellers Mfg., Inc., which modifies
chassis primarily for producers of Class A and Class C motorhome RVs, transit buses, and specialized
commercial trucks. In addition, Sellers manufactures the patented E-Z CruiseTM, a suspension enhancement
system for transit buses and Class C motorhomes, which improves the vehicle’s ride performance. Sellers had
annualized sales of less than $1 million prior to the acquisition. The purchase price was $0.5 million, paid at
closing from available cash. The results of the acquired business have been included in the Company’s
Consolidated Statements of Operations since August 30, 2010.
Acquisitions in 2009
QuickBiteTM
On May 15, 2009, the Company acquired the patents for the QuickBiteTM coupler, and other intellectual
properties and assets. The minimum aggregate purchase price was $0.5 million, of which $0.3 million was paid at
closing from available cash and the balance was paid on May 15, 2010, plus an earn-out. The results of the
acquired business have been included in the Company’s Consolidated Statements of Operations since May 15,
2009.
The Company will pay an earn-out of $2.50 per unit sold, up to a maximum of $2.5 million, during the
life of the patents, which, at the date of acquisition, the Company assumed would be achieved. The Company
recorded a $1.1 million liability for the present value of the estimated earn-out payments, using internal sales
projections, as well as the acquired company’s weighted average cost of capital of 16.5 percent at the date of
acquisition. Each period, an expense, similar to interest, will be recorded in selling, general and administrative
expenses over the term of the earn-out due to the accretion of the present value of the liability for the estimated
earn-out payments. The patents will be amortized over their estimated useful life of 16 years. For further
information on the required quarterly re-evaluation of the liability for the estimated earn-out payments, see Note
10 of the Notes to Consolidated Financial Statements.
Slide-out Storage Box for Pick-up Trucks
On September 11, 2009, Lippert acquired the patent-pending design for a tool box containing a slide-out
storage tray. This newly-designed product, used in pick-up trucks, tow trucks and other mobile service vehicles, is
59
being produced at the Company’s existing manufacturing plants, with existing management, utilizing production
techniques with which the Company has extensive experience. The purchase price was $0.4 million, which was
paid at closing from available cash. The results of the acquired business have been included in the Company’s
Consolidated Statements of Operations since September 11, 2009.
Front Entry Doors for Manufactured Homes
On September 29, 2009, Kinro acquired certain inventory and equipment used for the production of front
entry doors for manufactured homes. This acquisition has increased Kinro’s content per manufactured home and
also added a new product category. Kinro began manufacturing entry doors at plants in Indiana and South
Carolina in the 2009 fourth quarter. The purchase price was $0.9 million, which was paid at closing from
available cash. The results of the acquired business have been included in the Company’s Consolidated
Statements of Operations since September 29, 2009.
In 2009, the aggregate consideration for the acquisitions of the QuickBiteTM coupler, slide-out storage box
for pick-up trucks, and front entry doors for manufactured homes was recorded as follows (in thousands):
Net tangible assets acquired
Intangible assets
Less: Present value of future estimated earn-out payments
Less: Other
Total cash consideration
$ 1,370
1,780
3,150
(1,204)
(267)
$ 1,679
Acquisitions in 2008
Seating Technology
On July 1, 2008, Lippert acquired certain assets and liabilities, and the business of Seating Technology,
Inc. and its affiliated companies, a manufacturer of a wide variety of furniture products primarily for towable
RVs, including a full line of upholstered furniture and mattresses. Seating Technology had annual sales of $40
million in 2007. The purchase price was $28.7 million, which was paid at closing 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. The results of the acquired business have been included in the Company’s Consolidated Statements of
Operations since July 1, 2008.
Total consideration for the acquisition was allocated as follows (in thousands):
Net tangible assets acquired
Customer relationships
Other identifiable intangible assets
Goodwill (tax deductible)
Total cash consideration
$ 5,766
9,400
2,575
10,918
$ 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 paid at closing 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. Total consideration for the acquisition was allocated to
60
amortizable intangible assets. The results of the acquired business have been included in the Company’s
Consolidated Statements of Operations since July 1, 2008.
Goodwill
Goodwill by reportable segment is as follows (in thousands):
MH Segment RV Segment
Net balance – December 31, 2007
Acquisitions - 2008
Impairment
Net balance – December 31, 2008
Acquisitions - 2009
Impairment
Net balance – December 31, 2009
Acquisitions – 2010
Net balance – December 31, 2010
Accumulated cost
Accumulated impairment
Net balance – December 31, 2010
$ 9,251
-
-
9,251
-
(9,251)
-
-
-
$
$ 9,251
(9,251)
-
$
$ 30,296
10,053
(5,487)
34,862
927
(35,789)
-
7,497
$ 7,497
Total
$ 39,547
10,053
(5,487)
44,113
927
(45,040)
-
7,497
$ 7,497
$ 48,773
(41,276)
$ 7,497
$ 58,024
(50,527)
$ 7,497
For more information on the impairment of goodwill, see Note 1 of the Notes to Consolidated Financial
Statements.
Goodwill represents the excess of the total consideration given in an acquisition of a business over the fair
value of the net tangible and identifiable intangible assets acquired. Goodwill and other intangible assets with
indefinite lives are not amortized, but instead are tested at the reporting unit level for impairment annually in
November, 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.
The Company has elected to perform its annual goodwill impairment procedures for all of its reporting
units as of November 30, and therefore, the Company updated its carrying value calculations and fair value
estimates for each of its reporting units as of November 30, 2010. Based on the comparison of the carrying values
to the estimated fair values, the Company has concluded that no goodwill impairment existed at that time. The
Company plans to update its review as of November 30, 2011, or sooner, if events occur or circumstances change
that could reduce the fair value of a reporting unit below its carrying value.
Other Intangible Assets
Other intangible assets, by segment, consisted of the following at December 31, (in thousands):
MH Segment
RV Segment
Other intangible assets
$
2010
3,246
54,173
$ 57,419
2009
$ 3,864
35,307
$ 39,171
61
Other intangible assets consisted of the following at December 31, 2010 (in thousands):
Non-compete agreements
Customer relationships
Tradenames
Patents
Other intangible assets
Gross
Cost
$ 3,078
25,155
7,270
45,599
$ 81,102
Accumulated
Amortization
$ 1,436
11,227
3,282
7,738
$ 23,683
Net
Balance
$ 1,642
13,928
3,988
37,861
$ 57,419
Estimated Useful
Life in Years
3 to 7
3 to 16
5 to 15
2 to 19
Other intangible assets consisted of the following at December 31, 2009 (in thousands):
Non-compete agreements
Customer relationships
Tradenames
Patents
Other intangible assets
Gross
Cost
$ 2,830
24,870
6,151
22,693
$ 56,544
Accumulated
Amortization
$
1,031
8,851
2,390
5,101
$ 17,373
Net
Balance
$ 1,799
16,019
3,761
17,592
$ 39,171
Estimated Useful
Life in Years
3 to 7
8 to 16
5 to 15
5 to 19
Amortization expense related to other intangible assets amounted to $6.5 million, $5.4 million and $4.8
million for 2010, 2009 and 2008, respectively.
Estimated amortization expense for other intangible assets for the next five years is as follows (in
thousands):
2011
2012
2013
2014
2015
$
$
$
$
$
7,160
7,258
6,785
6,600
6,110
At December 31, 2010, other intangible assets included $3.6 million related to the Company’s marine and
leisure operation, which sells trailers primarily for small and medium-sized boats and related axles. Over the last
few years, industry shipments of small and medium-sized boats have declined significantly. From time to time,
throughout this period, the Company conducted an impairment analysis on these operations, and the estimated fair
value of these operations continued to exceed the corresponding carrying values, thus no impairment has been
recorded. A continued downturn in industry shipments of small and medium-sized boats, or in the profitability of
the Company’s operations, could result in a non-cash impairment charge for the related other intangible assets in
the future.
4. INVENTORIES
Inventories consisted of the following at December 31, (in thousands):
Finished goods
Work in process
Raw materials
Total
2010
$ 8,441
1,683
59,204
$ 69,328
2009
$ 9,264
1,576
46,917
$ 57,757
62
5. FIXED ASSETS
Fixed assets, at cost, consisted of the following at December 31, (in thousands):
Land
Buildings and improvements
Leasehold improvements
Machinery and equipment
Furniture and fixtures
Construction in progress
Fixed assets, at cost
Less accumulated depreciation
and amortization
Fixed assets, net
2010
$ 9,967
64,611
1,255
80,121
9,524
647
166,125
86,277
$ 79,848
2009
$ 9,917
65,574
1,164
76,585
8,625
464
162,329
82,053
$ 80,276
Estimated Useful
Life in Years
10 to 40
2 to 20
3 to 10
3 to 8
Depreciation and amortization of fixed assets was as follows for the years ended December 31, (in
thousands):
Charged to cost of sales
Charged to selling, general and
administrative expenses
Total
2010
$ 8,832
1,685
$ 10,517
2009
$ 11,155
1,752
$ 12,907
2008
$ 10,292
1,731
$ 12,023
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following at December 31, (in thousands):
Accrued employee compensation
and benefits
Accrued warranty
Other accrued expenses and
current liabilities
Total
2010
2009
$ 16,643
4,005
13,075
$ 33,723
$ 11,815
3,340
13,039
$ 28,194
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
Total accrued warranty
Less long-term portion
Current accrued warranty
2010
$ 4,686
4,260
(3,054)
5,892
1,887
$ 4,005
2009
$ 5,419
2,279
(3,012)
4,686
1,346
$ 3,340
2008
$ 5,762
3,984
(4,327)
5,419
909
$ 4,510
63
7. RETIREMENT AND OTHER BENEFIT PLANS
Defined Contribution Plan
The Company maintains a discretionary defined contribution 401(k) profit sharing plan covering all
eligible employees. The Company contributed $1.0 million, $0.9 million and $1.3 million to this plan during the
years ended December 31, 2010, 2009 and 2008, respectively.
Deferred Compensation Plan
The Company has 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 $0.9 million, $0.3 million and $1.9 million in 2010, 2009 and 2008,
respectively. The amounts deferred under this plan are credited with earnings or losses based upon changes in
values of the notional investments elected by the Plan participants. 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, and
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. Participants withdrew $0.1 million and $0.5 million from the Plan in 2010 and 2009, respectively,
and none in 2008.
Deferred compensation is recorded as follows at December 31, (in thousands):
Other accrued expenses and current liabilities
Other long-term liabilities
Total deferred compensation
2010
$
-
3,262
$ 3,262
$
2009
103
2,004
$ 2,107
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 from 1984 to May 2008,
and 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 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
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 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.
64
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.
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 Operations.
The liability for executive retirement is recorded as follows at December 31, (in thousands):
Other accrued expenses and current liabilities
Other long-term liabilities
Total executive retirement liability
2010
$
$
343
169
512
2009
$ 1,184
498
$ 1,682
8. LONG-TERM INDEBTEDNESS
The Company had no debt at December 31, 2010 and 2009.
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”).
The maximum borrowings under the Company’s line of credit can be increased by $20.0 million upon approval of
the Lenders. Interest on borrowings under the 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, 2010 and 2009), or LIBOR plus additional interest ranging from 2.0 percent to 2.8 percent (2.0
percent at December 31, 2010 and 2009) depending on the Company’s performance and financial condition. The
Credit Agreement, which was scheduled to expire on December 1, 2011, was amended and extended on February
24, 2011, and now expires on January 1, 2016. At December 31, 2010 and 2009, the Company had $5.5 million
and $7.8 million, respectively, in outstanding letters of credit under the line of credit. Availability under the
Company’s line of credit was $44.5 million at December 31, 2010.
Simultaneously, the Company entered into a $125.0 million “shelf-loan” facility with Prudential
Investment Management, Inc. and its affiliates (“Prudential”). The 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 Senior Promissory Note. Prudential has no obligation to purchase the Senior Promissory
Notes. Interest payable on the Senior Promissory Notes will be at rates determined by Prudential within five
business days after the Company issues a request to Prudential. This facility, which was scheduled to expire on
November 25, 2011, was amended and extended on February 24, 2011, and now expires on February 24, 2014. In
connection with this amendment, the “shelf-loan” facility was increased to $150.0 million.
65
Both the line of credit pursuant to the Credit Agreement and the “shelf-loan” facility are subject to a
maximum leverage ratio covenant which limits the amount of consolidated outstanding indebtedness to 2.5 times
the trailing twelve-month EBITDA, as defined. As such, the remaining availability under these facilities was
$161.1 million at December 31, 2010. This availability, together with the $43.9 million in cash and short-term
investments at December 31, 2010, are more than adequate to finance the Company’s anticipated working capital
and capital expenditure requirements in 2011, and no borrowings under these facilities are expected.
Pursuant to the Credit Agreement and Senior Promissory Notes at December 31, 2010 and 2009, the
Company was required to maintain minimum net worth, interest and fixed charge coverages, and to meet certain
other financial requirements. At December 31, 2010 and 2009, the Company was in compliance with all such
requirements. In connection with the amendment of the Credit Agreement and the “shelf-loan” facility on
February 24, 2011, the minimum net worth requirement was eliminated. The Company expects to remain in
compliance with all financial requirements during 2011.
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 had an unsecured letter of credit outstanding, unrelated to the Credit Agreement, which
aggregated $0.2 million and $0.4 million at December 31, 2010 and 2009, respectively. This letter of credit
expired January 31, 2011, and was not renewed.
9. INCOME TAXES
The provision (benefit) for income taxes in the Consolidated Statements of Operations is as follows for
the years ended December 31, (in thousands):
Current:
Federal
State
Total current provision
Deferred:
Federal
State
Total deferred benefit
Provision (benefit) for income taxes
2010
2009
2008
$ 14,971
3,643
18,614
(1,481)
43
(1,438)
$ 17,176
$ 3,700
668
4,368
(13,485)
(3,200)
(16,685)
$ (12,317)
$ 7,312
2,176
9,488
(1,721)
(424)
(2,145)
$ 7,343
The provision (benefit) for income taxes differs from the amount computed by applying the federal
statutory rate to income (loss) before income taxes for the following reasons for the years ended December 31, (in
thousands):
Income tax at federal statutory rate
State income taxes, net of federal income tax impact
Non-deductible goodwill impairment
Research and development credit
Other non-deductible expenses
Manufacturing credit pursuant to Jobs Creation Act
Other
Provision (benefit) for income taxes
2010
$ 15,823
2,373
-
(66)
127
(1,110)
29
$ 17,176
2009
$ (12,366)
(1,671)
2,030
(354)
100
(50)
(6)
$ (12,317)
2008
$ 6,657
1,139
-
-
169
(407)
(215)
$ 7,343
66
At December 31, 2010 and 2009, respectively, federal and state income taxes payables of $2.7 million
and $3.9 million are included in accrued expenses and other current liabilities.
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
Net deferred tax assets
2010
$ 12,142
15,770
$ 27,912
2009
$ 9,879
16,532
$ 26,411
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:
Goodwill and other intangible assets
Stock options
Inventory
Deferred compensation
Accrued insurance
Post retirement
Accounts receivable
Other
Total deferred tax assets
Deferred tax liabilities:
Fixed assets
Net deferred tax assets
2010
2009
$ 15,604
4,826
2,717
2,103
1,796
872
485
3,425
31,828
3,916
$ 27,912
$ 16,299
3,619
2,145
1,460
1,218
986
559
2,523
28,809
2,398
$ 26,411
The Company concluded that it is more likely than not that the deferred tax assets at December 31, 2010
will be realized in the ordinary course of operations based on projected future taxable income and scheduling of
deferred tax liabilities.
Tax benefits on stock option and deferred stock unit exercises of $0.1 million, $0.5 million and $0.1
million were credited directly to stockholders' equity for 2010, 2009 and 2008, respectively, relating to tax
benefits which exceeded the compensation cost for stock options recognized in the Consolidated Financial
Statements.
At December 31, 2010, the Company had deferred tax assets of $4.8 million related to unexercised stock
options. The Company’s stock price at December 31, 2010, was below the exercise price of certain of the
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
Operations. At December 31, 2010 the available excess tax benefits from prior stock option exercises in
stockholders' equity was $11.7 million.
67
Unrecognized Tax Benefits
The following table reconciles the total amounts of unrecognized tax benefits, at December 31, (in
thousands):
Balance at beginning of period
Changes in tax positions of prior years
Additions based on tax positions
related to the current year
Payments
Expiration of statute of limitations
Balance at end of period
2010
$ 2,159
1
294
(41)
(166)
$ 2,247
2009
$ 5,782
(287)
661
(3,891)
(106)
$ 2,159
2008
$ 4,829
819
363
-
(229)
$ 5,782
In addition, the total amount of accrued interest and penalties related to taxes was $0.5 million, $0.4
million and $1.0 million at December 31, 2010, 2009 and 2008, respectively.
The total amount of unrecognized tax benefits, net of federal income tax benefits, of $1.7 million, $1.6
million and $3.8 million at December 31, 2010, 2009 and 2008, respectively, would, if recognized, increase the
Company’s earnings, and lower the Company’s annual effective tax rate in the year of recognition.
The Company periodically undergoes examinations by the Internal Revenue Service (“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 2007 through 2009 remain subject to examination.
In connection with a tax audit, and after several negotiations, the Company and the Indiana Department of
Revenue settled tax years 1998 to 2000 for $0.6 million, as well as tax years 2001 to 2006 for $4.0 million,
including interest. The aggregate settlement amount was fully reserved prior to 2009, and was paid in April of
2009. In connection with the settlement, the Indiana Department of Revenue reserved the right to further examine
tax years 2001 through 2006. The years 2001 through 2006 are currently under such examination. In addition, for
Indiana state income tax purposes, the tax years 2007 through 2009 remain subject to examination.
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 2011. 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 for in the Consolidated Balance Sheet
as of December 31, 2010, 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.
68
Future minimum lease payments under operating leases at December 31, 2010 are summarized as follows
(in thousands):
$ 4,309
2011
2,991
2012
1,452
2013
471
2014
276
2015
196
Thereafter
Total minimum lease payments $ 9,695
Rent expense for operating leases was $5.7 million, $6.7 million and $7.2 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
Employment Agreements
At December 31, 2010 the Company had employment contracts with eleven of its employees and seven
consultants, which expire on various dates through 2015. The minimum commitments under these contracts are
$3.3 million in 2011, $0.7 million in 2012, $0.5 million in 2013, $0.2 million in 2014 and $0.1 million in 2015.
Included in these minimum commitments are certain amounts payable to a retired senior executive which has
been accrued as of December 31, 2010. See Note 7 of the Notes to Consolidated Financial Statements for further
information regarding executive retirement charges.
Included in the foregoing are contracts with four employees which provide for incentives to be paid based
on some or all of the following; (i) profits, as defined, (ii) return on net assets, as defined, (iii) return on invested
capital, as defined, and (iv) the Company’s financial performance as compared to the RV and manufactured
housing industries, as defined.
Royalty
In February 2003, the Company entered into an agreement for a non-exclusive license for patents related
to certain slide-out systems. The agreement 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
was $0.2 million in each of 2010, 2009 and 2008, and is classified in the Consolidated Statements of Operations
in cost of sales. Aggregate payments subsequent to December 31, 2010 cannot exceed $4.1 million.
Contingent Consideration
In connection with the 2007 acquisition of Trailair and Equa-Flex, the Company could pay an earn-out of
up to $2.6 million, plus interest at 3 percent from the date of acquisition, if certain sales targets for the acquired
products are achieved by Lippert over the five years subsequent to the acquisition. Cumulatively, less than $0.1
million has been paid based on such sales targets, and the Company does not anticipate any further payments. In
accordance with the accounting guidance in effect at the time, the Company did not record a liability for the fair
value estimate of such earn-out payments, but rather these payments are recorded directly to goodwill.
In connection with the 2009 acquisition of the QuickBiteTM coupler, as well as the 2010 acquisitions of
the Level-UpTM six-point leveling system, and certain intellectual property and other assets from Schwintek, Inc.,
the Company could pay earn-outs if certain sales targets for the acquired products are achieved. The Company has
recorded a liability for the present value of these earn-out payments at December 31, 2010 and 2009 using the
acquired company’s weighted average cost of capital of 16.6 percent and 16.5 percent, respectively.
69
The following table summarizes the expected earn-outs as of December 31, 2010 (in thousands):
Expiration of
Earn-out
Acquisition
March 2014(a)
Schwintek products
Level-UpTM six-point leveling system February 2016
QuickBiteTM coupler
October 2025
Total
Estimated
Present Value
of Estimated
Earn-out Payments Earn-out Payments
$ 14,559(b)
2,389(c)
1,179(d)
$ 18,127
$ 10,345
1,466
293
$ 12,104
(a) Earn-out payments for three of the four products expire in March 2014. Earn-out payments for the remaining
product expire five years after the product is first sold to customers.
(b) Two of the four products acquired have a combined maximum earn-out payment of $12.7 million, which the
Company has assumed will be achieved. Other than expiration of the earn-out period, the remaining products have
no cap on earn-out payments.
(c) Other than expiration of the earn-out period, these products have no cap on earn-out payments.
(d) This product has a maximum earn-out payment of $2.5 million.
As required, the liability for these estimated earn-out payments was re-evaluated quarterly during 2010,
including most recently at December 31, 2010, considering actual sales of the acquired products, updated sales
projections, and an updated weighted average cost of capital of the acquired companies. Depending upon the
weighted average cost of capital and future sales of the products which are subject to earn-outs, the Company
could record adjustments in future periods.
The following table provides a reconciliation of the Company’s contingent consideration liability for the
years ended December 31, (in thousands):
Beginning balance
Acquisitions
Payments
Accretion
Fair value adjustments
Total ending balance
Less current portion in accrued expenses and other
current liabilities
Total long-term portion in other long-term liabilities
2010
$ 1,370
10,333
(8)
1,570
(1,161)
12,104
$
2009
-
1,204
(1)
167
-
1,370
(1,827)
$ 10,277
63
$ 1,307
Litigation
On or about January 3, 2007, an action was commenced in the United States District Court, Central
District of California, entitled, as amended, Gonzalez and Royalty 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 purported to be a class action. At various times in the course of the proceedings during 2010, the
Court dismissed each of the seven claims asserted by the named plaintiffs. The named plaintiffs filed a notice of
appeal, and their appeal briefs are due in May 2011.
70
Plaintiffs alleged that certain bathtubs manufactured by Kinro Texas Limited Partnership, a subsidiary of
Kinro, and sold under the name “Better Bath” for use in manufactured homes, failed to comply with certain safety
standards relating to flame spread established by the U.S. Department of Housing and Urban Development
(“HUD”). Plaintiffs alleged, among other things, that sale of these products is in violation of various provisions of
the California Consumers Legal Remedies Act (Cal. Civ. Code Sec. 1770 et seq.), the Magnuson-Moss Warranty
Act (15 U.S.C. Sec. 2301 et seq.), the California Song-Beverly Consumer Warranty Act (Cal. Civ. Code Sec.
1790 et seq.), and the California Unfair Competition Law (Cal. Bus. & Prof. Code Sec. 17200 et seq.).
Plaintiffs sought 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. The Company’s liability insurer denied
coverage on the ground that plaintiffs did not sustain any personal injury or property damage.
Kinro conducted a comprehensive investigation of the allegations made in connection with the claims,
including with respect to the HUD safety standards, 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.
If the Court of Appeals reverses the District Court’s rulings, which dismissed all claims asserted by the
named plaintiffs, 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. However, based upon all the developments in this case to date, the Company
believes that it is remote that a material loss will be incurred in connection with this case.
In addition, 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 in certain cases, any monetary liability or
financial impact to the Company beyond that provided in the Consolidated Balance Sheet as of December 31,
2010, would not be material to the Company’s financial position or annual results of operations.
Environmental Liabilities
Accruals for environmental matters are recorded 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 technologies. These
amounts, which are not discounted and are exclusive of claims against third parties, are adjusted periodically as
assessment and remediation efforts progress or additional technical or legal information becomes available.
Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites,
developments at sites resulting from investigatory studies and remedial activities, advances in technology,
changes in environmental laws and regulations and their application, the scarcity of reliable data pertaining to
identified sites, the difficulty in assessing the involvement and financial capability of other potentially responsible
parties and the Company’s ability to obtain contributions from other parties and the lengthy time periods over
which site remediation occurs. It is possible that some of these matters (the outcomes of which are subject to
various uncertainties) may be resolved unfavorably against the Company.
71
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 Operations.
Facilities
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 more than 35 facilities and reduced
staff levels. The Company incurred severance and relocation costs of $1.7 million, $1.6 million, and $1.6 million
in 2010, 2009 and 2008, respectively, which were recorded in selling, general and administrative expenses in the
Consolidated Statements of Operations. At December 31, 2010, 2009 and 2008, the Company had $0.4 million,
$0.7 million, and $0.9 million, respectively, of a remaining liability for these costs recorded in accrued expenses
and other current liabilities in the Consolidated Balance Sheets. The Company operated 25 facilities at December
31, 2010, and is continuing to explore additional facility consolidation opportunities, although the Company does
not anticipate incurring further significant severance and relocation costs.
At December 31, 2010, the Company was attempting to sell seven owned facilities and vacant land with
an aggregate carrying value of $11.6 million, which are not being used in production. The Company has leased to
third parties four of these owned facilities with a combined carrying value of $8.7 million, for one to five year
terms, for a combined rental income of $79,000 per month. Each of these four leases also contains an option for
the lessee to purchase the facility at an amount in excess of carrying value. As of December 31, 2010, all seven of
these owned facilities are classified in fixed assets in the Consolidated Balance Sheet since it is not probable that
these assets will be sold within a year due to uncertainty in the real estate markets. In addition to these seven
owned facilities, the Company is attempting to sublease four vacant facilities which it leases.
At December 31, 2009, the Company was attempting to sell ten owned facilities and vacant land with an
aggregate carrying value of $13.7 million, including three owned facilities which the Company was leasing to
third parties. As of December 31, 2009, all of these owned facilities were classified in other assets in the
Consolidated Balance Sheets.
To reflect the net losses and gains on sold facilities, and the write-downs to estimated fair value of
facilities to be sold or subleased, the Company recorded a net loss of $0.3 million and $3.3 million in 2010 and
2009, respectively, and a net gain of $1.9 million in 2008.
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 stock and deferred
stock units. The number of shares available for granting awards under the 2002 Equity Plan was 605,145 and
990,019 at December 31, 2010 and 2009, respectively. In May 2009, stockholders ratified amendments to the
2002 Equity Plan to increase the number of shares available for awards by 900,000 shares.
72
Special Dividend
On December 28, 2010, a special dividend of $1.50 per share of the Company’s Common Stock, or an
aggregate of $33.0 million, was paid to stockholders of record as of December 20, 2010. Further, holders of
deferred stock units were credited with deferred stock units equal to $1.50 per deferred stock unit, or $0.4 million
in total. In connection with the cash dividend, the Compensation Committee of the Company’s Board of Directors
reduced the exercise price of all the outstanding stock options by $1.50 per share. As a result of this stock option
modification, the Company recorded a charge of $0.4 million in 2010, and expects to record additional charges
aggregating $0.5 million over the next five years.
Stock Options
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 the Company’s 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 using treasury shares.
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.
Transactions in stock options under the 2002 Equity Plan are summarized as follows:
Outstanding at December 31, 2007
Granted
Exercised
Forfeited
Outstanding at December 31, 2008
Granted
Exercised
Forfeited / cancelled
Outstanding at December 31, 2009
Granted
Exercised
Forfeited
Modification for cash dividend
Outstanding at December 31, 2010
Exercisable at December 31, 2010
Weighted
Average
Exercise
Price
$ 25.16
$ 11.92
$ 8.93
$ 26.18
$ 22.14
$ 20.99
$ 12.88
$ 25.70
$ 23.46
$ 21.17
$ 14.03
$ 24.86
$ (1.50)
$ 21.70
$ 24.37
Number of
Option Shares
1,659,640
515,500
(38,200)
(60,600)
2,076,340
Stock Option
Exercise Price
$ 7.88 – $32.61
$ 11.59 – $14.22
$ 7.88 – $12.78
$ 12.78 – $32.61
$ 11.59 – $32.61
327,900 $ 20.99
(389,100)
(255,200)
1,759,940
$ 11.59 – $16.15
$ 11.59 – $32.61
$ 11.59 – $32.61
469,250 $ 21.17
(81,000)
(151,700)
-
1,996,490
939,090
$ 11.59 – $20.99
$ 11.59 – $32.61
$ 10.09 – $31.11
$ 10.09 – $31.11
$ 10.09 – $31.11
73
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, 2010, 2009 and 2008 was $0.6 million, $2.9 million and $0.2
million, respectively. The Company received cash of $1.1 million, $5.0 million and $0.3 million for the years
ended December 31, 2010, 2009 and 2008, respectively, upon the exercise of stock options. In addition, the
Company recognized income tax benefits from the exercise of stock options of $0.2 million, $1.1 million and $0.1
million for the years ended December 31, 2010, 2009 and 2008, respectively. The total fair value of stock options
that vested during the years ended December 31, 2010, 2009 and 2008 was $2.8 million, $2.5 million and $3.1
million, respectively.
The following table summarizes information about stock options outstanding at December 31, 2010
(dollars in thousands except per share amounts):
Original
Exercise
Price
$ 28.33
$ 28.71
$ 26.39
$ 32.61
$ 28.09
$ 11.59
$ 13.03
$ 14.22
$ 20.99
$ 21.17
Total Shares
Modified
Exercise
Price(a)
$ 26.83
$ 27.21
$ 24.89
$ 31.11
$ 26.59
$ 10.09
$ 11.53
$ 12.72
$ 19.49
$ 19.67
Option
Shares
Outstanding
324,640
37,500
37,500
401,250
37,500
324,150
1,600
62,500
300,600
469,250
1,996,490
Remaining
Life
in Years
0.9
1.0
2.0
2.9
3.0
3.9
3.9
4.0
4.9
5.9
Aggregate Intrinsic Value
Weighted Average Remaining Term
$ 7,139
3.7 years
Option
Shares
Exercisable
324,640
37,500
37,500
240,750
37,500
99,300
400
62,500
99,000
-
939,090
$ 2,203
2.5 years
(a) In connection with the special dividend, the Compensation Committee of the Company’s Board of Directors reduced
the exercise price of all the outstanding stock options by $1.50 per share.
As of December 31, 2010, there was $12.0 million of total unrecognized compensation costs related to
unvested stock options, which is expected to be recognized over a weighted average remaining period of 3.6
years.
Deferred Stock Units
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 dividing 115 percent of the fee
earned by the closing price of the Company’s Common Stock. Beginning in 2009, a portion of certain senior
executives’ salary or incentive compensation was paid in deferred stock units in lieu of cash compensation at 100
percent of the compensation earned. The number of deferred stock units issued was determined by dividing the
compensation to be paid by the closing price of the Company’s Common Stock. Deferred stock units issued in
lieu of cash for fees and compensation were 100 percent vested upon issuance.
In accordance with the executive compensation and employment agreement with the Company’s Chief
Executive Officer, 9,941 and 15,528 deferred stock units issued to him for 2010 and 2009, respectively, are
forfeitable if the Company’s return on invested capital for the three year period ended December 31, 2011 is
below a pre-defined peer group. Conversely, for every one percentage point that the Company’s return on
74
invested capital for the three year period ended December 31, 2011 exceeds the peer group, the Company’s Chief
Executive Officer will earn an additional 10,000 deferred stock units, up to a maximum of 100,000 deferred stock
units, which the Company currently estimates will be fully earned.
Transactions in deferred stock units under the 2002 Equity Plan are summarized as follows:
Outstanding at December 31, 2007
Issued
Exercised
Outstanding at December 31, 2008
Issued
Granted
Exercised
Outstanding at December 31, 2009
Issued
Granted
Dividend equivalents
Exercised
Outstanding at December 31, 2010
Number of Shares
75,997
21,995
(880)
97,112
84,202
100,000
(50,201)
231,113
31,803
20,000
15,521
(32,221)
266,216
Stock Price
$ 6.87 – $ 43.02
$ 11.59 – $ 27.40
$ 25.01 – $ 37.35
$ 6.87 – $ 43.02
$ 5.50 – $ 21.90
$ 6.16
$ 7.43 – $ 43.02
$ 5.50 – $ 40.68
$ 20.13 – $ 25.06
$ 20.89
$ 23.49
$ 5.50 – $ 21.90
$ 5.50 – $ 40.68
In February 2011, the Company issued 47,506 deferred stock units at $23.15, or $1.1 million, to certain
executive officers in lieu of cash for a portion of their 2010 incentive compensation.
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 and contingently
issuable deferred stock units
Weighted average shares outstanding
for diluted earnings per share
2010
2009
2008
22,123,280
21,807,413
21,808,073
142,294
-
109,048
22,265,574
21,807,413
21,917,121
The weighted average diluted shares outstanding for the year ended December 31, 2010, 2009 and 2008,
excludes the effect of 1,269,003, 1,856,390 and 1,392,440 stock options, respectively, because including them in
the calculation of total diluted shares would have been anti-dilutive.
At the Annual Meeting of Stockholders held in May 2009, stockholders ratified an amendment to the
Company’s Restated Certificate of Incorporation to decrease the authorized number of shares of the Company’s
Common Stock from 50 million shares to 30 million shares.
On November 29, 2007, the Board of Directors authorized the Company to repurchase up to 1 million
shares of the Company’s Common Stock from time to time in the open market, in privately negotiated
transactions, or in block trades. Of this authorization, 447,400 shares were repurchased in 2008 at an average
price of $18.58 per share, or $8.3 million in total. An additional 53,879 shares were repurchased during 2010 at an
average price of $19.27 per share, or $1.0 million. The aggregate cost of such repurchases was funded from the
75
Company’s available cash. The number of shares ultimately repurchased, and the timing of the purchases, will
depend upon market conditions, share price, and other factors.
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Interim unaudited financial information follows (in thousands, except per share amounts):
Year ended December 31, 2010
Net sales
Gross profit
Income before income taxes
Net income
Net income per common share:
First
Quarter
$ 146,217
$ 33,659
$ 12,202
7,328
$
Second
Quarter
$173,502
$ 37,558
$ 15,786
$ 9,592
Third
Quarter
Fourth
Quarter
Year
$146,833
$ 31,868
$ 12,671
$ 7,982
$106,203
$ 23,085
$ 4,551
$ 3,132
$ 572,755
$ 126,170
$ 45,210
$ 28,034
Basic
Diluted
$ 0.33
$ 0.33
$
$
0.43
0.43
$
$
0.36
0.36
$
$
0.14
0.14
$ 1.27
$ 1.26
Stock market price:
High
Low
Close (at end of quarter)
Year ended December 31, 2009
Net sales
Gross profit
(Loss) income before income taxes
Net (loss) income
Net (loss) income per common share:
$
$
$
25.06
18.60
22.02
$ 27.45
$ 19.35
$ 20.20
$ 22.05
$ 18.06
$ 20.86
$ 23.96
$ 19.52
$ 22.72
$ 27.45
$ 18.06
$ 22.72
$ 71,019
$
5,826
$ (56,464)
$ (36,702)
$100,563
$ 20,553
$ 3,958
$ 2,556
$121,666
$ 27,974
$ 11,134
$ 7,189
$104,591
$ 24,357
$ 5,002
$ 2,904
$ 397,839
$ 78,710
$ (36,370)
$ (24,053)
Basic
Diluted
$ (1.70)
$ (1.70)
$
$
0.12
0.12
$
$
0.33
0.33
$
$
0.13
0.13
$
$
(1.10)
(1.10)
Stock market price:
High
Low
Close (at end of quarter)
$
$
$
12.30
5.50
8.68
$ 15.40
$ 8.50
$ 12.17
$ 23.00
$ 10.36
$ 21.69
$ 23.56
$ 19.14
$ 20.65
$ 23.56
5.50
$
$ 20.65
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.
76
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
77
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, 2010.
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, 2010 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.
Over the last few years, the internal controls at Lippert have been incrementally strengthened due both to
the installation of enterprise resource planning (“ERP”) software and business process changes. In the last year,
the Company implemented certain significant functions of the ERP software and business process changes at
Kinro. Implementation of additional functions of the ERP software and business process changes are planned at
Kinro for the first half of 2011. The Company also anticipates that it will continue to implement additional
functionalities of the ERP software at both Lippert and Kinro 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 18, 2011 (the “2011
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 2011 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
78
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.
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 2011 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 2011 Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
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 2011 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 5. Appointment of Auditors” in the Company’s 2011 Proxy Statement.
79
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a)
Documents Filed:
PART IV
(1)
(2)
Financial Statements.
Exhibits. See Item 15 (b) – “List of Exhibits” incorporated herein by reference.
(b)
Exhibits – List of Exhibits.
Exhibit
Number
Description
3
3.1
3.2
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.
10.194*
Drew Industries Incorporated 2002 Equity Award and Incentive Plan, as amended.
10.197*
10.221
10.223*
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.
Form of Indemnification Agreement between Registrant and its officers and independent
directors.
Amended Change in Control Agreement by and between Harvey F. Milman and Registrant, dated
March 3, 2006, as amended and supplemented.
10.231*
Executive Non-Qualified Deferred Compensation Plan, as amended.
10.233
10.234
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.
80
Exhibit
Number
10.235
10.236
10.237
10.238
10.239
10.240
10.241
10.242
10.243
10.245
10.246
Description
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
Inc., LTM
Partnership, Lippert Components Texas Limited Partnership, LD Realty,
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.
Form of Fixed Rate Shelf Note.
Form of Floating Rate Shelf Note.
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.
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 Bank, 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
Inc., LTM
Partnership, Lippert Components Texas Limited Partnership, LD Realty,
81
Exhibit
Number
Description
10.247
10.248
10.249*
10.250*
10.251*
10.252*
10.253*
10.254*
10.255*
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.
Corrected Executive Compensation and Benefits Agreement between Registrant and David L.
Webster, dated December 31, 2008.
Executive Compensation and Benefits Agreement between Registrant and Leigh J. Abrams, dated
April 6, 2009.
Executive Employment and Non-Competition Agreement between Registrant and Jason D.
Lippert, dated May 6, 2009.
Executive Compensation and Non-Competition Agreement between Registrant and Fredric M.
Zinn, dated May 28, 2009.
Executive Employment and Non-Competition Agreement between Registrant and Scott T.
Mereness, dated June 24, 2009.
10.256*
Severance Agreement between Registrant and Joseph S. Giordano III, dated November 18, 2009.
10.257
10.258
First Amendment dated February 24, 2011 to the 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.
Amendment No. 1 dated February 24, 2011 to the 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.
________________________________
* Denotes a compensatory plan or arrangement
82
Exhibit 10.194 is incorporated by reference to Exhibit 10.1 included in the Company’s Form 8-K filed on January
8, 2009.
Exhibit 10.221 is incorporated by reference to Exhibit 99.1 included in the Company’s Form 8-K filed on
February 9, 2005.
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 10.231 is incorporated by reference to Exhibit 10.1 included in the Company’s Form 8-K filed on January
9, 2009.
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.
Exhibit 10.251 is incorporated by reference to Exhibit 10 (iii)(A) included in the Company’s Form 8-K/A filed on
January 6, 2009.
Exhibit 10.252 is incorporated by reference to Exhibit 10 (iii)(A) included in the Company’s Form 8-K/A filed on
April 8, 2009.
Exhibit 10.253 is incorporated by reference to Exhibit 10 (iii)(A) included in the Company’s Form 8-K/A filed on
May 6, 2009.
Exhibit 10.254 is incorporated by reference to Exhibit 10 (iii)(A) included in the Company’s Form 8-K/A filed on
May 28, 2009.
Exhibit 10.255 is incorporated by reference to Exhibit 10 (iii)(A) included in the Company’s Form 8-K/A filed on
June 25, 2009.
Exhibit 10.256 is incorporated by reference to Exhibit 10 (iii)(A) included in the Company’s Form 8-K filed on
November 19, 2009.
Exhibits 10.257 – 10.258 is incorporated by reference to Exhibits 10.1 – 10.2 included in the Company’s Form 8-
K filed on February 25, 2011.
83
Exhibit
Number
14
14.1
14.2
21
23
24
31
31.1
31.2
32
32.1
32.2
Description
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.
Exhibit 31.1 is filed herewith.
Rule 13a-14(a) Certificate of Chief Financial Officer.
Exhibit 31.2 is filed herewith.
Section 1350 Certifications.
Section 1350 Certificate of Chief Executive Officer.
Exhibit 32.1 is filed herewith.
Section 1350 Certificate of Chief Financial Officer.
Exhibit 32.2 is filed herewith.
84
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 11, 2011
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 11, 2011
March 11, 2011
March 11, 2011
March 11, 2011
March 11, 2011
March 11, 2011
March 11, 2011
March 11, 2011
March 11, 2011
March 11, 2011
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)
85
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 Chief Executive 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) 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 11, 2011
By: /s/ Fredric M. Zinn
Fredric M. Zinn, President and Chief Executive Officer
86
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 11, 2011
By: /s/ Joseph S. Giordano III
Joseph S. Giordano III, Chief Financial Officer
87
EXHIBIT 32.1
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
In connection with the annual report on Form 10-K of Drew Industries Incorporated (the “Company”) for
the period ended December 31, 2010, 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 11, 2011
88
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, 2010, 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 11, 2011
89
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,
333-141276, 333-152873 and 333-161242) 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 11, 2011, with respect to the
consolidated balance sheets of Drew Industries Incorporated and subsidiaries as of December 31, 2010 and 2009,
and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in
the three-year period ended December 31, 2010 and the effectiveness of internal control over financial reporting
as of December 31, 2010, which report appears in the December 31, 2010 annual report on Form 10-K of Drew
Industries Incorporated and subsidiaries.
/s/ KPMG LLP
Stamford, Connecticut
March 11, 2011
90
140
120
100
80
60
40
20
0
The following graph compares the cumulative 5-year total return 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.
The graph assumes that the value of the investment in the company’s common stock, in the peer group, and the index
(including reinvestment of dividends) was $100 on 12/31/2005 and tracks it through 12/31/2010.
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
$140
120
100
80
60
40
20
0
12/05
12/06
12/07
12/08
12/09
12/10
(1) $100 invested on 12/31/05 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
12/05
12/06
12/07
12/08
12/09
12/10
Drew Industries Incorporated
$100.00
$ 92.27
$ 97.20
$42.57
$73.25
$ 86.02
Russell 2000
Peer Group
$100.00
$118.37
$116.51
$77.15
$98.11
$124.46
$100.00
$101.03
$ 67.97
$52.19
$71.11
$ 75.99
The stock price performance in this graph is not necessarily indicative of future stock price performance.
200 Mamaroneck Avenue, White Plains, NY 10601
www.drewindustries.com