Quality Components for reCreational VehiCles
and manufaCtured homes
2 0 1 3 A n n u Al R e p oR t
Drew InDustrIes IncorporateD is a leading supplier of components for
recreational vehicles and manufactured homes. Drew operates through its
wholly-owned subsidiary, Lippert components, Inc.
From 34 factories located throughout the united states, Drew supplies the leading manufacturers
of recreational vehicles and manufactured homes, as well as the aftermarket for these industries. In
addition, Drew manufactures components for adjacent industries including buses, trailers used to haul
boats, livestock, equipment and other cargo, truck caps, modular housing and factory-built mobile office
units. In 2013, the rV products segment accounted for 88 percent of Drew’s con solidated net sales, of
which 81 percent were of components sold to manufacturers of travel trailer and fifth-wheel rVs. the
Manufactured Housing products segment accounted for 12 percent of Drew’s consolidated net sales.
Management of Drew is committed to acting ethically and responsibly, and to providing full and accurate
15.3%
disclosure to the company’s stockholders, employees and other stakeholders.
$1,012
$901
drew’s produ Cts inClude:
$681
$573
12.7$
11.0$ 11.4$
$398
steel chassis
Vinyl and aluminum windows and screens
slide-out mechanisms and solutions
axles and suspension solutions
Furniture and mattresses
thermoformed bath, kitchen and other products
chassis components
Manual, electric and hydraulic stabilizer and
lifting systems
entry, baggage, patio, and ramp doors
entry steps
awnings
electronics
Other accessories
2.2$
09
10
11
12
13
09
10
11
12
13
09
10
11
12
13
Drew’s saLes content per traVeL traILer anD
FIFtH-wHeeL rV proDuceD InDustry-wIDe
peak sales potential is estimated to be $5,000 per travel trailer and fifth-wheel RV
$2,690
$2,716
$2,337
$2,148
$2,010
$1,847
$1,716
$1,542
$1,281
$1,374
$1,012
$862
$1,666
$1,281
$1,330
$1,450 $1,429 $1,333
$1,368
$1,493 $1,465
$871
$796
$663
02
03
04
05
06
07
08
09
10
11
12
13
02
03
04
05
06
07
08
09
10
11
12
13
3000
2500
2000
1500
1000
500
0
2000
1500
1000
500
0
$1.92
$1.64
$1.34
$1.26
$0.24
Financial Data
(In thousands, except per share amounts)
2009(1)
2010
2011
2012
2013
Year Ended December 31,
Operating Data:
Net sales
Goodwill impairment
Executive succession
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
$ 397,839
$ 572,755
$ 681,166
$ 901,123
$ 1,015,576
$ 45,040
$
—
$
$
—
—
$
$
—
—
$
—
$ 1,456
$ (35,581)
$ 45,428
$ 48,548
$ 58,132
$ (36,370)
$ 45,210
$ 48,256
$ 57,802
$ (12,317)
$ 17,176
$ 18,197
$ 20,462
$ (24,053)
$ 28,034
$ 30,059
$ 37,340
$
$
(1.10)
(1.10)
$
$
1.27
1.26
$
$
1.35
1.34
$
$
1.66
1.64
$
$
$
$
$
$
$
$
—
1,876
78,298
77,947
27,828
50,119
2.15
2.11
$ 113,744
$ 97,791
$ 85,657
$ 84,243
$ 107,339
$ 288,065
$ 306,781
$ 351,083
$ 373,868
$ 453,184
$ 8,243
$ 18,248
$ 21,876
$ 19,843
$
21,380
$ 244,115
$ 243,459
$ 277,296
$ 284,245
$ 313,613
(1) The Company recorded an after-tax charge for goodwill impairment of $29.4 million in 2009. Excluding this charge, net income was $5.3 million, or $0.24 per
diluted share, in 2009. For a reconciliation to consolidated results, see Management’s Discussion and Analysis of Financial Condition and Results of Operations
in the 2010 Annual Report on Form 10-K.
Total Sales
(in millions)
Return on Equity
Adjusted Net
Income Per
Common Share
(diluted)
$1,016
$901
$681
$573
$398
16.0%
$2.11
12.7%
11.4%
11.0%
$1.64
$1.34
$1.26
2.2%
(a)
$0.24
(a)
09 10 11 12 13
09
10
11
12 13
09
10
11
12 13
Recreational Vehicle
Products Segment
Manufactured Housing
Products Segment
(a) Excludes a charge for impairment of goodwill in 2009. For a recon-
ciliation to consolidated results, see Management’s Discussion and
Analysis of Financial Condition and Results of Operations in the
2010 Annual Report on Form 10-K.
1
1200
1000
800
600
400
200
0
20
15
10
5
0
2.5
2.0
1.5
1.0
0.5
0.0
Letter to our StockhoLderS
To Our Stockholders:
In 2013, our net sales and market capitalization each reached a new milestone, exceeding
$1 billion. While these were quite the accomplishments for us, as we have said before, this
is not the time for us to relax. Rather, these milestones provide even more motivation for
everyone at Drew to continue putting forth a great effort to reach further goals.
In 2013, our net sales grew by $114 million, making
2013 our fourth consecutive year of consolidated net
sales growth of more than $100 million. To continue
this level of growth for many years to come, we must
continue to leverage our existing capabilities and
strengths by investing in our business—through
growth in existing products, acqui sitions, new and
existing product innovation, diversification into
adjacent markets and the aftermarket, as well as
strengthening relationships with both customers
and employees.
ACQUISITIONS
In 2013, we completed 2 acquisitions:
Fortress Technologies, a manufacturer of special-
ized RV chassis, provides us with an expanded
product line, as well as additional manufacturing
capacity for the future.
Midstates Tool & Die and Engineering, a manufac-
turer of tools and dies, as well as automation
equipment, gives us the internal capacity to
produce automated processes, which should in
turn improve our operating efficiencies.
To date in 2014, we have completed 2 acquisitions:
Innovative Design Solutions (“IDS”) is a designer,
developer and manufacturer of electronic systems
encompassing a wide variety of RV applications.
IDS also manufactures electronic systems for auto-
motive, medical and industrial applications. We
believe that the products IDS supplies will continue
to grow not only in the RV industry, but in adjacent
industries.
Star Design is a manufacturer of thermoformed
sheet plastic products for the RV, bus and spe-
cialty vehicle industries. In 2013, we relocated our
RV thermoforming plastic production from Texas
to an Elkhart, Indiana, location large enough to
accommodate expected growth. We have contin-
ued to grow our RV and specialty markets plastics
business since then and are excited about the
further growth that Star Design’s business should
bring us. Further, we continue to manufacture
thermoformed sheet plastic products for the man-
ufactured housing industry at our Texas facility.
2 : Drew Industries Incorporated
New ANd exISTINg PrOdUCT INNO vATION
Growth through the development of new products
and improvements to existing products, many of
which are patented, has been one of the keys to
our success, and starts with a very basic concept—
listening to our customers. When we understand
what products our customers are looking for, we are
better able to focus our efforts on exceeding their
expectations. Over the past few years, we have
invested in both personnel and equipment, building
a research and development group of more than 35
members that is stronger than ever. This department
has designed and developed many new products,
and has been instrumental in allowing us to produce
products such as entry doors and awnings over the
past few years. Also, by continually improving our
existing products, we are better able to stay ahead
of the competition and constantly raise the bar. We
will strive to maintain our reputation as the industry
leader in product innovation and continue to invest
in new technology to drive more business.
AdjACeNT MA rkeTS
Sales growth in new markets also continues to be
an important factor. Many of our quality products,
including windows, furniture, doors, axles and
awnings, are well-suited for use outside of our core
markets, and our efforts to diversify into new, adja-
cent markets continued to gain momentum in 2013.
Adjacent markets include cargo and utility trailers,
buses, pick-up trucks, modular homes and factory-
built mobile office units. In 2013, aggregate net sales
of components for adjacent industries increased
20 percent to $121 million, and now account for
12 percent of con solidated net sales. We believe the
market potential for our products in adjacent indus-
tries exceeds $600 million, and anticipate that our
continuing efforts to expand in these markets will
provide significant opportunities for growth well into
the future.
In September 2013, we hired a new Director of
International Business Development, who is spend-
ing time in Australia, Europe and other international
markets, assessing the dynamics of the local mar-
ketplace, building relationships with OEMs and help-
ing us to introduce our existing products and to
develop new products for those markets. Over the
past several years, we have been gradually growing
sales overseas, primarily in Europe and Australia.
We have a few key relationships in place, and are
exploring opportunities to increase export sales of
our products to these international markets.
AfTerMArke T
Over the last few years, we have increased our focus
on the $250 million aftermarket for our products in
the industries we serve. By creating dedicated sales
and distribution capabilities, developing new rela-
tionships and creating innovative packaging, we have
now established a platform from which we believe
we can grow. In 2013, aftermarket net sales increased
21 percent to $39 million. In part to help support this
initiative, we recently entered into a 12½-year lease
for a 539,000 square-foot building in South Bend,
Indiana. This facility will be used for warehousing, dis-
tribution and light manufacturing. We believe this new
facility will allow us to better serve our OEM and
aftermarket customers across the United States,
and provide us room for future growth.
in 2013, our net SaLeS Grew BY
$114 miLLion
3
Letter to our StockhoLderS
grOwTh IN e xISTINg PrOdUCTS
When asked to describe the RV industry over
the past few years, we have often used the word
“healthy.” Today, based on solid retail sales in 2013
and expectations for 2014, it now seems appropriate
to say the RV industry is “strong.” Many of our RV
customers are introducing new product lines and
offering new features on existing lines, as well as
increasing production capacity by hiring additional
workers and adding new plants to meet projected
industry-wide growth for 2014 and beyond.
Our net sales to manufacturers of travel trailer and
fifth-wheel RVs are significant, representing 72 per-
cent of our consolidated net sales in 2013. Despite
the magnitude of our sales to RV OEMs today, we
believe our potential for further content growth with
these customers remains substantial, and one to which
we will continue to devote considerable resources.
The motorhome market, while smaller in size due to
the number of units produced industry-wide, repre-
sents another large growth opportunity for us. In
2013, our net sales to manufacturers of motorhome
RVs was $48 million, or 5 percent of consolidated
net sales, an increase from $17 million in 2011.
Motor home sales were a highlight for the RV industry
in 2013, with both wholesale and retail activity up
more than 30 percent. We have devoted additional
resources over the last few years to develop more
products and reach more of our potential motorhome
customers, and we expect to see the benefits of
these efforts in the coming years.
PrOdUCTION effICIeNCIeS
The labor efficiencies we have realized in 2013, while
introducing new products and adjusting to industry
changes, have been significant. Improvements in
labor costs during 2013 were primarily due to com-
pleted production efficiency improvement projects,
as well as declines in the costs of implementing
facility consolidations and realignments.
Due in large part to the efficiency improvements we
implemented, our operating profit improved from 6.5
percent in 2012 to 7.7 percent in 2013. The impact
of many of the production improvement initiatives we
started back in 2012 and early 2013 are nearly fully
realized. However, there are new initiatives under-
way, including implementing lean manufacturing
and automation at additional facilities, and adminis-
tering comprehensive employee training to improve
employee retention, and we expect that there will be
further new initiatives in the coming quarters.
fINANCIAl P OSITION ANd reTUrNS TO
STOCkhOlder S
At December 31, our balance sheet remained strong,
with a cash balance of $66 million, prior to paying
the $2 per share special dividend in early 2014 of
$47 million. We had no debt and substantial unused
lines of credit. Our top priority for cash remains the
same—make attractive investments which we expect
will produce above-average returns.
This most recent dividend followed special dividends
of $45 million in 2012 and $33 million in 2010. Cumu-
latively, we have returned more than $120 million or
$5.50 per share to stockholders in the past three
years. These dividends, paid during a period when
we also made significant investments in our future
through capacity expansion, productivity initiatives
and acquisitions, demonstrate our strong cash flow
and our commitment to optimizing long-term stock-
holder returns. Our ability to generate strong cash
flows, and thus return cash to our stockholders, has
come from profits, as well as controlling the net
assets used in our business.
Despite the use of cash in the first quarter of 2014
for acquisitions and the payment of the special divi-
dend of $2 per share, we remain well-positioned to
take advantage of investment opportunities to further
improve results.
over the LaSt Few YearS, we have increaSed
our FocuS on the $250 miLLion aFtermarket For our
productS in the induStrieS we Serve.
4 : Drew Industries Incorporated
SUMMAry
During 2013, we saw many positive changes occur
at our Company, including the successful implemen-
tation of our executive succession plan, continued
expansion in adjacent markets, the introduction of
various new products and product improvements,
and improved operating efficiencies through lean
initiatives and automation. However, as much as
things change, we remain committed to what has
historically brought us success. Overall, the past year
was good for both our Company and the industries
we serve, and we are confident that our management
team has the ability to successfully execute our stra-
tegic goals for the long-term growth of the Company.
As we look forward, particularly at 2014, we are
optimistic about opportunities for continued growth.
The industries we serve are continually evolving and
changing, and so are the products we offer. We will
continue to explore new markets, foreign and domes-
tic, as well as invest in further market diversification,
and will continue to seek acquisitions with above-
average returns.
As a result of our talented management team, strong
balance sheet, and competitive strengths, we believe
Drew is in an excellent position to continue to grow
and prosper.
Jason D. Lippert
Chief Executive Officer
Leigh J. Abrams
Chairman of the Board
Jason D. Lippert
Chief Executive Officer
Leigh J. Abrams
Chairman of the Board
5
New and Existing Products
We take pride in providing top-quality, innovative components to our customers. We are known for bringing a
unique approach to the development of both new and existing products, which is largely due to continual customer
input. Customers often bring their ideas to us—essentially treating us as an extension of their Research and
Development department. Over the past few years, we have invested in both personnel and equipment, building
a research and development group that is stronger than ever, with a dedicated R&D staff of more than 35. Our
research and development and engineering teams consider customer feedback and conduct extensive research
and testing to develop innovative products. This year alone, we have developed dozens of new and updated
products. We strive to be the industry leader in product innovation and will continue to invest in the most
advanced technology.
Another way we have expanded our unrivaled line of quality products this year was by forming strategic partnerships
with established brands including Ashley Furniture and Denver Mattress.
A FEW SuCCESS STORIES FROM OuR PRODuCT LINES ARE AS FOLLOWS:
Solera RV Awnings
In 2012, we introduced our new RV Solera Awning product
line, with a market potential of approximately $100 million for
OEMs and an estimated $75 million of aftermarket potential.
At the end of 2013, just our second year of producing and
selling awnings, sales reached an annual run rate of approxi-
mately $25 million, capturing approximately 25 percent of the
OEM market for awnings. Additional market share growth in
awnings for both OEMs and the aftermarket is expected for
2014, aided by new Solera Awning features including LED
Solera Lights and a new patent-pending Solera Awning
Speaker system.
RV Leveling Systems
Another consistent area of growth over the past several years
has been leveling systems. We have been able to anticipate
and respond to the constant demand for new features by the
RV consumer. As consumers look for ways to make their RV
experience easier and more enjoyable, we have seen a sub-
stantial increase in demand for easier leveling systems for RVs.
As a result, our 2013 sales of leveling products, including our
patented Level Up system, were $50 million, compared to
less than $10 million in 2010. We continue to innovate in this
area and expect continued growth through new products
and features.
Furniture and Mattresses
We have also seen significant growth in our furniture and
mattress product lines, with sales exceeding $100 million in
2013, compared to less than $80 million in 2012, or a growth
rate of 25 percent. Looking back a little further, our furniture
and mattress sales have grown from $30 million in 2009 to
$100 million in 2013, or 230 percent, compared to an increase
in travel trailer and fifth-wheel RV production of 94 percent
over the same period. This portion of our business has grown
faster than expected over the past several years and has
reached capacity at existing facilities. As such, in January
2014 we entered into a 10-year lease for a 366,000 square-
foot facility to consolidate and expand furniture and mattress
operations.
6 : Drew Industries Incorporated
$894 miLLion $122 miLLion
recreationaL vehicLe
productS SaLeS in 2013
manuFactured houSinG
productS SaLeS in 2013
RV PRODUCTS SEGMENT REVENUE
[dollars in millions]
$728
Travel Trailer &
Fifth-Wheel—OEM
$93
Adjacent Industries
$48
Motorhome—OEM
$25
Aftermarket
MH PRODUCTS SEGMENT REVENUE
[dollars in millions]
$80
OEM
$28
Adjacent Industries
$14
Aftermarket
7
Customers
Maintaining top notch customer relationships is always our priority, and we invest in customer relationships every
day. We continually strive to provide our customers with new product ideas, upgrades on existing products and
improved quality, while also providing competitive prices and outstanding customer service and responsiveness.
We have renewed our focus on our customer support ser-
vices over the past few years, and we are planning further
improvements in 2014. We have implemented a series of
improvements to streamline communication and enhance our
customer support services as follows:
Consolidated aftermarket part sales and service support,
bringing all customer support operations into one unified
team with one unified vision.
Increased technical product training events for customers,
working with more than 380 dealers and training more than
1,400 service technicians.
Increased staff to meet industry demand, improving phone
response time and making every effort to take care of cus-
tomers in just one call.
Increased training so our employees can more quickly
respond to our customers’ needs, as well as improve the
quality of our products.
We have also implemented digital initiatives to keep our
customers up to date on our Company, as well as our prod-
uct information. We launched a new, user-friendly website
lippertcomponents.com and social media platforms to help
us stay connected with our customers. The newly revamped
website offers a modern design with easy-to- navigate func-
tionality, allowing our customers to easily and quickly find
product information, online customer support resources and
our online parts store.
Employees
Our outstanding employees are all critical to the success of our Company. We believe we have assembled some
of the most experienced minds in the industries we serve by searching out the best candidates and by investing
significantly in organic leadership growth through management training and promoting from within. We value
employee input and vision because we recognize that employees are essential to driving business forward. We also
emphasize comprehensive employee training on products, quality and proper safety practices.
Despite our rapid growth to more than 5,000 hard-working
and motivated employees in 34 facilities across 12 states,
we strive to maintain a small business feeling, showing
appreciation for the contribution each employee makes. We
understand that our employees’ hard work, combined with
their team’s experience and knowledge, is what provides a
strong network for solving problems, developing innovative
ideas and improving the business.
We provide a rewarding work environment, as well as a full
range of competitive benefits to meet employees’ individual
and family needs. We also have a formal Employee Service
Recognition program for all employees to recognize them for
their accomplishments and milestones with the Company.
We have made progress in the past year at improving our
employee retention, and are implementing improvements to
further increase employee retention in the years to come.
We attempt to make an impact on employees and the com-
munities we operate in through good business practices,
as well as through charitable giving and volunteer work.
We encourage our employees to volunteer locally to support
healthy and safe communities. From donating food to
responding to natural disasters, we encourage employees
to support activities that match their interests.
8 : Drew Industries Incorporated
our SucceSS iS BaSed in our
StronG and LaStinG reLationShipS
with cuStomerS and empLoYeeS.
Our net sales reached
the billion dollar mark
in 2013.
Our outstanding
employees are all
critical to the success
of our company.
Maintaining top
notch customer
relationships is always
our priority.
9
corporate inFormation
BOARD OF DIRECTORS
CORPORATE OFFICERS
Jason D. Lippert
Chief Executive Officer
Scott T. Mereness
President
Joseph S. Giordano III
Chief Financial Officer
and Treasurer
Robert A. Kuhns
Vice President, Chief Legal Officer
and Secretary
Brian M. Hall
Corporate Controller
EXECUTIVE OFFICES
3501 County Road 6 East
Elkhart, IN 46514
(574) 535-1125
website: www.drewindustries.com
E-mail: drew@drewindustries.com
LIPPERT COMPONENTS, INC.
Corporate Headquarters
3501 County Road 6 East
Elkhart, IN 46514
(574) 535-1125
INDEPENDENT REgISTERED PUBLIC
ACCOUNTINg FIRM
KPMG LLP
Aon Center
200 East Randolph
Chicago, IL 60601
TRANSFER AgENT AND REgISTRAR
American Stock Transfer
& Trust Company
59 Maiden Lane
New York, NY 10038
(212) 936-5100
(800) 937-5449
website: www.amstock.com
CORPORATE gOVERNANCE
Copies of the Company’s
Governance Principles, Guidelines
for Business Conduct, Code of
Ethics for Senior Financial Officers,
Whistleblower Policy, 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
3501 County Road 6 East
Elkhart, IN 46514
CEO/CFO CERTIFICATIONS
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-FOR-PERFORMANCE
Through a combination of performance-based incentives and stock-based awards, 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 influence the Company’s results should be compensated primarily based on the
financial results of those operations for which they are responsible.
Our stock-based awards 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.
1. Leigh J. Abrams
Chairman of the Board
of Drew Industries Incorporated
2. James F. Gero (1)(2)(3)
Lead Director of the Board
of Drew Industries Incorporated,
and a Private Investor
3. Jason D. Lippert
Chief Executive Officer of
Drew Industries Incorporated
4. Edward W. Rose, III (1)(3)
President of Cardinal Investment
Company, Inc.
5. Frederick B. Hegi, Jr. (1)(2)(3)
Founding Partner, Wingate
Partners
6. David A. Reed (1)(2)(3)
President of Causeway
Capital Management LLC
7. John B. Lowe, Jr. (1)(2)(3)
Chairman of TDIndustries, Inc.
8. Brendan J. Deely(1)(2)(3)
President and Chief Executive
Officer of L&W Supply
Corporation, a subsidiary of
USG Corporation
Members of the Committees of the
Board of Directors, as follows:
(1) Compensation Committee
(2) Audit Committee
(3) Corporate Governance and
Nominating Committee
10 : Drew Industries Incorporated
2013 Form 10-K
Drew InDustrIes IncorporateD
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
For the fiscal year ended December 31, 2013
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 001-13646
DREW INDUSTRIES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
3501 County Road 6 East
Elkhart, Indiana
(Address of principal executive offices)
13-3250533
(I.R.S. Employer
Identification Number)
46514
(Zip Code)
(574) 535-1125
(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
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 (§229-405 of this chapter) is
not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment 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. Large accelerated filer Accelerated filer Non-accelerated filer
Smaller reporting company
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 $770,779,400. 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 21, 2014) was
23,507,416 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement with respect to the 2014 Annual Meeting of Stockholders to be held on May 22, 2014 is incorporated by
reference into Items 10, 11, 12, 13 and 14 of Part III.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain “forward-looking statements” with respect to financial condition,
results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities,
acquisitions, 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, as amended (the “Exchange Act”), and Section 27A of the Securities
Act of 1933, as amended, and involve a number of risks and uncertainties.
Forward-looking statements, including, without limitation, those relating to our future business prospects, net sales,
expenses and 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. 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, steel-based components, and aluminum) and other components, availability of credit for financing the retail and
wholesale purchase of products for which we sell our components, availability and costs of labor, employee retention,
inventory levels of retail dealers and manufacturers, levels of repossessed products for which we sell our components,
changes in zoning regulations for manufactured homes, seasonality and cyclicality in the industries to which we sell our
products, the financial condition of our customers, the financial condition of retail dealers of products for which we sell our
components, retention and concentration of significant customers, the pace of and successful integration of acquisitions,
realization of efficiency improvements, the successful entry into new markets, the costs of compliance with increased
governmental regulation, interest rates, oil and gasoline prices, the impact of international, national and regional economic
conditions and consumer confidence on the retail sale of products for which we sell our components, and other risks and
uncertainties discussed more fully under the caption “Risk Factors” in this Annual Report on Form 10-K and in our
subsequent filings with the Securities and Exchange Commission. The Company disclaims any obligation or undertaking to
update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements
are made, except as required by law.
2
Item 1. BUSINESS.
Summary
PART I
Drew Industries Incorporated (“Drew” or the “Company” or the “Registrant”), through its wholly-owned
subsidiary Lippert Components, Inc. and its subsidiaries (collectively, “Lippert Components”), supplies a full line
of components for the leading manufacturers of recreational vehicles (“RVs”) and manufactured homes. To a
lesser extent, Drew, through Lippert Components, also manufactures components for adjacent industries including
buses; trailers used to haul boats, livestock, equipment and other cargo; truck caps; modular housing; and factory-
built mobile office units. Effective December 2013, the Company completed the tax-free reorganization of Kinro,
Inc. and its subsidiaries with and into Lippert Components.
The Company has two reportable operating segments: the RV products segment (the “RV Segment”), and
the manufactured housing products segment (the “MH Segment”). The RV Segment accounted for 88 percent of
consolidated net sales for 2013, and the MH Segment accounted for 12 percent of consolidated net sales for 2013.
Approximately 81 percent of the Company’s RV Segment net sales in 2013 were of products to manufacturers of
travel trailer and fifth-wheel RVs.
Over the last fifteen years, the Company acquired a number of manufacturers of components for RVs,
manufactured homes, specialty trailers and adjacent industries, expanded its geographic market and product lines,
consolidated manufacturing facilities, and integrated manufacturing, distribution and administrative functions. At
December 31, 2013, the Company operated 31 manufacturing facilities in 11 states, and achieved consolidated net
sales of $1.02 billion for the year ended December 31, 2013.
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 3501 County Road 6 East, Elkhart, Indiana 46514;
telephone number (574) 535-1125; 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
Executive Succession and Relocation
On May 10, 2013, Fredric M. Zinn retired as President and Chief Executive Officer of Drew. Jason D.
Lippert, Chairman and Chief Executive Officer of Lippert Components, succeeded Mr. Zinn as Chief Executive
Officer of Drew. Scott T. Mereness, President of Lippert Components, succeeded Mr. Zinn as President of Drew.
This leadership transition was the result of a comprehensive succession process initiated by the Board of Directors
in 2011.
In June 2013, the Company also relocated its corporate headquarters from White Plains, New York to
Elkhart County, Indiana, the location of the corporate headquarters of Lippert Components, and where more than
80 percent of all RVs produced in the U.S. are manufactured.
Sales and Profits
In Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
we describe in detail the increase in our sales and profits during 2013.
3
Net sales for 2013 reached a record $1.02 billion, a 13 percent increase over net sales of $901 million in
2012. Net sales of the Company’s RV Segment increased 14 percent, compared to a 10 percent increase in
industry-wide wholesale shipments of travel trailer and fifth-wheel RVs, the Company’s primary RV market.
Approximately 81 percent of the Company’s RV Segment net sales in 2013 were of products to manufacturers of
travel trailer and fifth-wheel RVs. The RV Segment represented 88 percent of consolidated net sales in 2013.
Sales growth in new markets and new products continued to be key factors in enabling Drew’s sales to exceed RV
industry growth rates. Acquisitions did not have a significant impact on the increase in net sales for 2013.
Significant additions to the Company’s RV product lines in recent years include advanced leveling devices, in-
wall slide-out systems, and awnings. Together, net sales of these products reached $90 million in 2013 as
compared to $65 million in 2012. Net sales of the Company’s MH Segment increased 1 percent in 2013. The MH
Segment represented 12 percent of consolidated net sales in 2013.
In 2013, the Company continued to grow outside its core RV and manufactured housing markets, with
aggregate net sales of components for adjacent industries increasing 20 percent to $121 million, and aftermarket
net sales increasing 21 percent to $39 million. Together, these markets now account for 16 percent of consolidated
net sales, an increase from 10 percent of consolidated net sales in 2010.
For 2013, the Company reported net income of $50.1 million, or $2.11 per diluted share, an increase of 34
percent from net income of $37.3 million, or $1.64 per diluted share, for 2012. Excluding charges related to
executive succession, net income would have been $51.3 million in 2013, or $2.16 per diluted share, up from net
income of $38.3 million, or $1.68 per diluted share, in 2012.
At December 31, 2013, the Company had $66 million in cash, no debt, and substantial available
borrowing capacity. On January 6, 2014, the Company paid a special cash dividend of $2.00 per share, an
aggregate of $47 million, to holders of record of its Common Stock on December 20, 2013.
Acquisitions
On February 27, 2014, the Company acquired Innovative Design Solutions, Inc. (“IDS”), located in Troy,
Michigan, a designer, developer and manufacturer of electronic systems encompassing a wide variety of RV
applications. IDS also manufactures electronic systems for automotive, medical and industrial applications. IDS
had annual sales of approximately $19 million in 2013, of which $13 million were to the Company. The purchase
price was $36.0 million, of which $34.2 million was paid at closing, with the balance to be paid out annually over
the subsequent three years, plus contingent consideration based on future sales. The acquisition of IDS provides
the Company with further access to unique and innovative electronic products for the RV industry, as well as
adjacent industries.
On December 13, 2013, the Company acquired the business and certain assets of Fortress Technologies,
LLC (“Fortress”), a manufacturer of specialized RV chassis located in Middlebury, Indiana. Fortress had
annualized sales of approximately $3 million. The purchase price was $3.3 million paid at closing. The
acquisition of Fortress allows the Company to increase capacity to meet projected industry-wide growth in
wholesale production of travel trailer and fifth-wheel RVs.
On June 24, 2013, the Company acquired the business and certain assets of Midstates Tool & Die and
Engineering, Inc. (“Midstates”) located in Elkhart, Indiana. Midstates is a manufacturer of tools and dies, as well
as automation equipment. The acquired business had annualized sales of approximately $2 million. The purchase
price was $1.5 million paid at closing. The acquisition of Midstates will help the Company further automate its
manufacturing processes to increase production efficiencies and improve product quality.
4
Other Developments
During the third quarter of 2013, the Company hired a new Director of International Business
Development, who will spend time in Australia, Europe and China, assessing the dynamics of the local
marketplace, building relationships with manufacturers and helping the Company introduce its existing products
and develop new products for those markets. Over the past several years, the Company has been gradually
growing sales overseas, primarily in Europe and Australia, and export sales represented approximately 1 percent
of consolidated net sales in 2013. Through this new position, the Company will explore opportunities to increase
sales of its products to international markets.
On February 24, 2014, the Company entered into a three-year extension of its existing $50 million
revolving line of credit facility with JPMorgan Chase and Wells Fargo, which now expires in January 2019, and
increased that facility from $50 million to $75 million. Simultaneously, the Company completed a three-year
renewal of its uncommitted $150 million “shelf-loan” facility with Prudential Investment Management, Inc.,
which now expires in February 2017.
RV Segment
Through its wholly-owned subsidiaries, the Company manufactures and markets a variety of products
used primarily in the production of RVs, including:
Steel chassis for towable RVs
Axles and suspension solutions
for towable RVs
Slide-out mechanisms and solutions
Thermoformed bath, kitchen and
other products
Manual, electric and hydraulic
stabilizer and leveling systems
Aluminum windows and screens
Chassis components
Furniture and mattresses
Entry, baggage, patio and ramp doors
Entry steps
Awnings
Other accessories
The Company also supplies certain of these products to the RV aftermarket, and to adjacent industries,
including manufacturers of buses, trailers used to haul boats, livestock, equipment and other cargo, and truck
caps.
In 2013, the RV Segment represented 88 percent of the Company's consolidated net sales, and 85 percent
of consolidated segment operating profit. Approximately 81 percent of the Company’s RV Segment net sales in
2013 were of products to manufacturers of travel trailer and fifth-wheel RVs.
Raw materials used by the Company's RV Segment, consisting primarily of steel (coil, sheet, tube and I-
beam), extruded aluminum, glass, wood, 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, thermoforming,
painting and assembling components into finished products. The Company's RV Segment operations are
conducted at 27 manufacturing and warehouse facilities throughout the United States, strategically located in
proximity to the customers they serve. Of these facilities, 6 also conduct operations in the Company's MH
Segment. See Item 2. “Properties.”
In late 2011, the Company launched a newly-developed line of RV awnings. The awnings are available in
both manual and electric versions. The market potential for the awning product line is in excess of $100 million
for manufacturers of RVs and an estimated $75 million for aftermarket sales. The Company’s awning sales for
5
2013 were $13 million, and reached an annual run rate of approximately $25 million at the end of 2013, capturing
approximately 25% of the original equipment manufacturer (“OEM”) market for awnings. The raw materials,
components, and manufacturing processes used to manufacture awnings are very similar to those the Company
uses in its other product lines. The Company markets its awnings directly to RV manufacturers, as well as through
aftermarket distributors. Additional market share growth in awnings for both RV manufacturers and the
aftermarket is expected for 2014.
The Company's RV Segment products are sold primarily to major manufacturers of RVs such as Thor
Industries (symbol: THO), Forest River (a subsidiary of Berkshire Hathaway, symbol: BRKA), Jayco (a private
company) and other OEMs, and, to a lesser extent, to distributors and retail dealers of aftermarket products.
The Company's RV Segment operations compete on the basis of customer service, product quality and
innovation, price and reliability. Although definitive information is not readily available, the Company believes
that with respect to its principal RV 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 is approximately 70
percent; (ii) the Company is the leading supplier of chassis and slide-out mechanisms for towable RVs, and the
Company's market share for chassis and slide-out mechanisms for towable RVs exceeds 90 percent; (iii) the
leading suppliers of axles for towable RVs are the Company, AL-KO Kober Corporation and Dexter Axle
Company, and the Company’s market share for axles for towable RVs is approximately 45 percent; (iv) its market
share for furniture for towable RVs is approximately 70 percent, and the Company competes with several other
manufacturers; and (v) the leading suppliers of awnings for towable RVs are the Company, Carefree of Colorado
and Dometic Corporation, and the Company’s market share for awnings for towable RVs is approximately 25
percent.
The Company’s share of the market for its products in adjacent industries cannot be readily determined;
however, RV Segment net sales to adjacent industries increased from $74 million in 2012 to $93 million in 2013.
The Company’s share of the aftermarket for RV parts also cannot be readily determined; however, RV Segment
net sales to the aftermarket increased from $19 million in 2012 to $25 million in 2013. The Company has made
investments to increase its share of both adjacent industries and the aftermarket, and is committed to continue
these expansion efforts.
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.” Financial
information relating to the Company’s business segments is included in Note 2 of the Notes to Consolidated
Financial Statements in Item 8 of this Report.
MH Segment
Through its wholly-owned subsidiaries, the Company manufactures and markets a variety of products
used in the production of manufactured homes and to a lesser extent, modular housing and mobile 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 certain of these products to the manufactured housing aftermarket, and to
adjacent industries.
In 2013, the MH Segment represented 12 percent of the Company's consolidated net sales, and 15 percent
of consolidated segment operating profit. Certain of the Company’s MH Segment customers manufacture both
6
manufactured homes and modular homes, and certain of the products manufactured by the Company are suitable
for both types of homes. As a result, the Company is not always able to determine in which type of home its
products are installed.
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 13 manufacturing and warehouse facilities throughout the United States, strategically located in
proximity to the customers they serve. Of these facilities, 6 also conduct operations in the Company's RV
Segment. See Item 2. “Properties.”
The Company's manufactured housing products are sold primarily to major producers of manufactured
homes such as Clayton Homes (a subsidiary of Berkshire Hathaway, symbol: BRKA), Cavco Industries, Inc.
(symbol: CVCO), and other OEMs, and, to a lesser extent, to distributors of aftermarket products.
The Company's MH Segment competes on the basis of customer service, product quality and innovation,
price and reliability. Although definitive information is not readily available, the Company believes that with
respect to its principal manufactured housing products (i) it is the leading supplier of windows for manufactured
homes, and the Company's market share for windows is approximately 70 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, many 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.
The Company’s share of the market for its products in adjacent industries cannot be readily determined;
however, MH Segment net sales to adjacent industries increased from $27 million in 2012 to $28 million in 2013.
The Company’s share of the aftermarket for manufactured housing parts is not significant. The Company has
made investments to increase its share of both adjacent industries and the aftermarket, and is committed to
continue these expansion efforts.
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.” Financial
information relating to the Company’s business segments is included in Note 2 of the Notes to Consolidated
Financial Statements in Item 8 of this Report.
Sales and Marketing
Other than the activities of its sales personnel and maintenance of customer relationships through quality
of its products, innovation, service, price 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.
7
Capacity
In 2013, the Company’s facilities operated at an average of approximately 60 percent of their practical
capacity, assuming at least two shifts of production at all facilities. However, while certain facilities could add a
second shift of production in the short term, the Company has found this to be inefficient over the long term.
Capacity varies significantly based on seasonal demand, as well as by facility, product line and geographic region,
with certain facilities at times operating below 50 percent utilization, and other facilities at times operating above
90 percent utilization.
At December 31, 2013, the Company operated 31 manufacturing 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 2013 were $33 million. In January 2014,
the Company entered into a nine year lease for a 350,000 square foot facility in Goshen, Indiana, to consolidate
manufacturing operations for efficiency improvements and expand capacity for its furniture and mattress
operations. 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 that the Company can
maintain a high level of production efficiencies throughout its operations.
Seasonality
Manufacturing operations in the RV and manufactured housing industries historically have been seasonal
and are generally at the highest levels when the weather is moderate. Accordingly, the Company’s sales and
profits have generally been the highest in the second quarter and lowest in the fourth quarter. However, because of
fluctuations in dealer inventories, and the impact of international, national and regional economic conditions and
consumer confidence on retail sales of RVs and other products for which the Company sells its components,
current and future seasonal industry trends may be different than in prior years.
International
During the third quarter of 2013, the Company hired a new Director of International Business
Development, who will spend time in Australia, Europe and China, assessing the dynamics of the local
marketplace, building relationships with manufacturers and helping the Company introduce its existing products
and develop new products for those markets. Over the past several years, the Company has been gradually
growing sales overseas, primarily in Europe and Australia, and export sales represented approximately 1 percent
of consolidated net sales in 2013. Through this new position, the Company will explore opportunities to increase
sales of its products to international markets.
Intellectual Property
The Company holds several United States and foreign 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. Approximately 10 percent of the Company’s consolidated
net sales are generated by products covered by patents and patent applications held by the Company. The
Company believes that its patents are valuable, and vigorously protects its patents when appropriate.
From time to time, the Company has received notices or claims that it may be infringing certain patent or
other intellectual property rights of others, and the Company has given notices to, or asserted claims against,
others that they may be infringing certain patent or other intellectual property rights of the Company. However,
no material litigation is currently pending as a result of these claims.
8
Research and Development
The Company strives to be an industry leader in product innovation, with a research and development
staff of more than 35 people focused on developing new products, as well as improving existing products.
Research and development expenditures are expensed as they are incurred. Research and development expenses
were approximately $5 million in 2013.
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 must comply with regulations
promulgated by the National Highway Traffic Safety Administration (“NHTSA”) of the United States Department
of Transportation (“DOT”) governing safety glass performance, egress ability, door hinge and lock systems,
egress window retention hardware, and baggage door ventilation. Windows produced by the Company for buses
must comply with Federal Motor Vehicle Safety Standards promulgated by NHTSA.
Trailers produced by the Company for hauling boats, personal watercraft, snowmobiles and equipment
must comply with Federal Motor Vehicle Safety Standards promulgated by NHTSA 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 and buses 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, as
well as standards for toxic chemical levels and labeling requirements promulgated by the California Office of
Environmental Health Hazard Assessment. 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 Recreation Vehicle Industry Association (“RVIA”).
The Company believes that it is currently operating in compliance, in all material respects, 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; however, there can be no
assurance that this trend will continue as health and safety laws, regulations or other pertinent requirements
evolve.
9
Environmental
The Company’s operations are subject to certain Federal, state and local regulatory requirements relating
to the use, storage, discharge and disposal of hazardous materials used during the manufacturing 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 effect on the
Company’s operations or financial condition; however, there can be no assurance that this trend will continue.
Employees
The number of persons employed full-time by the Company and its subsidiaries at December 31, 2013
was 5,109, compared to 5,179 at December 31, 2012. The total at December 31, 2013 included 4,251 in
manufacturing and product research and development, 245 in transportation, 50 in sales, 95 in customer support
and servicing, and 468 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.
Executive Officers
The following table sets forth our executive officers as of December 31, 2013:
Name
Position
Jason D. Lippert
Scott T. Mereness
Joseph S. Giordano III
Robert A. Kuhns
Chief Executive Officer and Director
President
Chief Financial Officer and Treasurer
Vice President – Chief Legal Officer and Secretary
Officers are elected annually by the Board of Directors. There are no family relationships between or
among any of the Executive Officers or Directors of the Company. 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 22, 2014.
JASON D. LIPPERT (age 41) became Chief Executive Officer of the Company effective May 10, 2013,
succeeding Fredric M. Zinn, and has been Chief Executive Officer of Lippert Components since February 2003.
Mr. Lippert has over 15 years of experience with Drew and its subsidiaries, and has served in a wide range of
leadership positions.
SCOTT T. MERENESS (age 42) became President of the Company effective May 10, 2013, succeeding
to a position also previously held by Fredric M. Zinn, and has been President of Lippert Components since July
2010. Mr. Mereness has over 15 years of experience with Drew and its subsidiaries, and has served in a wide
range of leadership positions.
JOSEPH S. GIORDANO III (age 44) has been Chief Financial Officer of the Company since May 2008,
and Treasurer since May 2003. Prior to that, he was Corporate Controller from May 2003 to May 2008. Prior to
joining the Company, 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.
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ROBERT A. KUHNS (age 48) joined the Company in March 2013, and has been Vice President – Chief
Legal Officer and Secretary since July 31, 2013. Prior to joining the Company, he was a partner in the Corporate
Group at the Minneapolis office of Dorsey & Whitney LLP, a full-service global law firm, for 13 years.
Other Officers
BRIAN M. HALL (age 39) joined the Company in March 2013, and has been Corporate Controller since
July 31, 2013. Prior to joining the Company, he was a Senior Manager at Crowe Horwath LLP for 8 years. Mr.
Hall is a Certified Public Accountant.
Item 1A. RISK FACTORS.
The following risk factors should be considered carefully in addition to the other information contained in
this Annual Report on Form 10-K. The risks and uncertainties described below are not the only ones we face, but
represent the most significant risk factors that we believe may adversely affect the RV, manufactured housing and
other industries we supply our products to, as well as our business, operations or financial position. The risks and
uncertainties discussed in this report are not exclusive and other risk factors that we may consider immaterial or
do not anticipate may emerge as significant risks and uncertainties.
Industry Risk Factors
Economic and business conditions beyond our control, including cyclicality and seasonality, have in the
past had a significant adverse impact on our earnings, and could negatively impact our future results.
The RV and manufactured housing markets, as well as other markets where we sell our products or where
our products are used, have been characterized by cycles of growth and contraction in consumer demand. Periods
of economic recession have adversely affected, and could again adversely affect, our operating results. Companies
in these industries are subject to volatility in production levels, shipments, sales and operating results due to
changes in external factors such as general economic conditions, including credit availability, consumer
confidence, employment rates, interest rates, inflation and other economic conditions affecting consumer demand,
as well as demographic and political changes. Consequently, the results for any prior period may not be indicative
of results for any future period.
Additionally, manufacturing operations in the RV and manufactured housing industries, as well as other
industries where we sell our products or where our products are used, historically have been seasonal and are
generally at the highest levels when the weather is moderate. Accordingly, our sales and profits have generally
been the highest in the second quarter and lowest in the fourth quarter. However, because of fluctuations in dealer
inventories, and the impact of international, national and regional economic conditions and consumer confidence
on retail sales of RVs and other products for which we sell our components, current and future seasonal industry
trends may be different than in prior years.
Reductions in the availability of wholesale financing limits the inventories carried by retail dealers of
RVs and manufactured homes and other products which use our components, which would cause reduced
production by our customers, and therefore reduced demand for our products.
Retail dealers of RVs and manufactured homes and other products which use our components 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 in the past caused, and would cause, many
dealers to reduce inventories, which would result in reduced production, resulting in reduced demand for our
products.
11
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.
Conditions in the credit market could limit the ability of consumers to obtain retail financing for RVs and
manufactured homes, resulting in reduced demand for our products.
Restrictions on the availability of financing for RVs and manufactured homes has limited, and could
again limit, the ability of consumers to purchase RVs and manufactured homes, which would result in reduced
production of RVs and manufactured homes by our customers, and therefore 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 higher than
historical criteria, and many potential buyers of manufactured homes may not qualify.
The availability, cost, and terms of these manufactured housing loans are also dependent on economic
conditions, lending practices of financial institutions, government 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. In addition, certain provisions of the recently enacted Dodd-Frank Act, which regulate financial
transactions, could make certain types of mortgages more difficult to obtain – in particular those historically used
to finance the purchase of manufactured homes. Although new legislation has been introduced to address this
matter, and the Bureau of Consumer Financial Protection is reviewing this matter, there can be no assurance of
the outcome.
Excess inventories at dealers and manufacturers can cause a decline in the demand for our products.
Dealers and manufacturers could accumulate excess unsold inventory. Existence of excess inventory has
in the past caused, and would cause, a reduction in orders, 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 in the past have resulted,
and could again 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 represented approximately 81 percent of our
RV Segment net sales in 2013, 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 travel trailer and fifth-wheel RVs, and therefore reduced demand for our products.
The manufactured housing industry has experienced a significant long-term decline in shipments, which
has led to reduced demand for our products.
12
Our MH Segment, which accounted for 12 percent of consolidated net sales for 2013, operates in an
industry which has experienced a decline in production of new homes compared to the peak of production in
1998. The downturn was caused, in part, by limited availability and high cost of financing for manufactured
homes, and has been exacerbated by economic and political conditions.
Moreover, during weak markets 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 as they have done in the past. In addition, the availability of foreclosed site-built homes at reduced prices
or changes in zoning regulations have impacted, and could again impact, the demand for manufactured homes,
and therefore reduce demand for our products.
Although industry-wide wholesale production of manufactured homes has improved in recent years, our
annual results of operations could decline if manufactured housing industry conditions worsen.
Company-specific Risk Factors
Volatile raw material costs could adversely impact our financial condition and operating results.
The prices we pay for steel and aluminum, which represented approximately 50 percent and 15 percent of
our raw material costs in 2013, respectively, 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 our customers in the form of sales 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. We currently import, or purchase from suppliers who
import, approximately 20 percent of our raw materials and components.
The loss of any customer accounting for more than 10 percent of our consolidated net sales could have a
material adverse impact on our operating results.
One customer of the RV Segment accounted for 31 percent, and another customer of both the RV
Segment and the MH Segment accounted for 28 percent, of our consolidated net sales in 2013. The loss of either
of these customers would have a material adverse impact on our operating results and financial condition.
Changes in consumer preferences relating to our products could cause reduced sales.
Changes in consumer preferences, or our inability to anticipate changes in consumer preferences, for RVs
or manufactured homes, or for the products we make for RVs and manufactured homes, could reduce demand for
our products and adversely affect our operating results and financial condition.
Competitive pressures could reduce demand for our products or impact our sales prices.
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 or cause us to reduce
13
prices for our products. In addition, the manufacture by our customers themselves of products supplied by us
could reduce demand for our products and adversely affect our operating results and financial condition.
Increases in demand could result in difficulty obtaining additional skilled labor, and available capacity
may initially not be utilized efficiently.
In certain geographic regions in which we have manufacturing facilities we have experienced, and could
again experience, shortages of qualified employees. If demand continues to increase, we may not be able to
increase production to timely satisfy demand, and may initially incur higher labor and production costs, which
could adversely impact our operating results and financial condition.
We may incur unexpected expenses, or face unanticipated delays, in connection with investments we
make in our business, which could adversely impact our results.
It may take longer than initially anticipated for us to realize expected results from investments we have
made in research and development or acquired businesses, as well as initiatives we have implemented to increase
capacity and improve production efficiencies, automation, customer service and other aspects of our business, or
we may incur unexpected expense in connection with these matters. These results would have an adverse effect on
our operating results and financial condition.
We have recently entered new markets in order to enhance our growth potential. Uncertainties with
respect to these new markets could impact our operating results.
We are a leading supplier of components for RVs and manufactured housing, and currently have a
significant share of the market for certain of our products, which limits our ability to expand our market share for
those products. We have made investments in order to expand the sale of our products in the RV and
manufactured housing aftermarket, and in adjacent industries beyond RVs and manufactured housing. We are also
exploring opportunities to increase export sales of our products to international markets. Lack of demand for our
products in these markets or competitive pressures requiring us to lower prices for our products would adversely
impact our business in these markets and our results of operations.
If acquired businesses are not successfully integrated into our operations, our financial condition and
operating results could be adversely impacted.
We have engaged, and may continue to engage, in acquisitions, and may participate in joint ventures and
other business transactions that involve potential risks, including failure to successfully integrate and realize the
expected benefits of such transactions, assumption of liabilities of the acquired businesses, and possible culture
conflicts. Integrating acquired operations is a significant challenge and there is no assurance that we will be able
to manage the integrations successfully. If we are unable to efficiently integrate these businesses into our existing
operations, the attention of our management could be diverted from our existing operations, which could impair
our ability to execute our business plans. Failure to successfully integrate acquired operations or to realize the
expected benefits of such acquisitions may have an adverse impact on our results of operations and financial
condition.
The loss of any of our key operating management could reduce our ability to execute our business
strategy and could adversely affect 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 on our business, financial condition and results of
operations.
14
Our business is subject to governmental and environmental regulations, and increased costs of
compliance, failure in our compliance efforts or events beyond our control could result in damages, expenses or
liabilities that could adversely impact our financial condition and operating results.
Our operations are subject to various governmental and environmental regulations, and the failure to
comply with present or future regulations could result in fines or potential civil or criminal liability. We believe
that our operations and facilities have been and are being operated in compliance, in all material respects, with
such laws and regulations. The operation of our manufacturing facilities entails risks, however, and there can be
no assurance that we will not incur material costs or liabilities. In addition, potentially significant expenditures
could be required in order to comply with evolving healthcare, environmental, health and safety laws, regulations
or other pertinent requirements that may be adopted or imposed in the future by governmental authorities.
Compliance with conflict mineral disclosure requirements will create additional compliance cost and may
create reputational challenges.
In August 2012, the SEC adopted new rules pursuant to Section 1502 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act setting forth new disclosure requirements concerning the use or potential
use of certain minerals, deemed conflict minerals (tantalum, tin, gold and tungsten), that are mined from the
Democratic Republic of Congo and adjoining countries. These new requirements will necessitate due diligence
efforts on our part to assess whether such minerals are used in our products in order to make the relevant required
disclosures beginning in May 2014. There will be costs associated with complying with these disclosure
requirements, including for diligence to determine the sources of conflict minerals used in our products and other
potential changes to products, processes or sources of supply as a consequence of such verification activities. The
implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in our
products. As there may be only a limited number of suppliers offering conflict-free minerals, we cannot be sure
that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at
competitive prices. We may also face reputational challenges if we determine that certain of our products contain
minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict
minerals used in our products through the procedures we may implement.
If we expand our business internationally, we will be subject to new operational and financial risks.
During the third quarter of 2013, we hired a new Director of International Business Development, who
will spend time in Australia, Europe and China, assessing the dynamics of the local marketplace, building
relationships with manufacturers and helping us introduce our existing products and develop new products for
those markets. Over the past several years, we have been gradually growing sales overseas, primarily in Europe
and Australia, and export sales represented approximately 1 percent of consolidated net sales in 2013.
Business outside of the United States is subject to various risks, many of which are beyond our control,
including: changes in tariffs, trade restrictions, trade agreements, and taxations; difficulties in managing or
overseeing foreign operations and agents; foreign currency fluctuations and limitations on the repatriation of
funds because of foreign exchange controls; different liability standards; and intellectual property laws of
countries which do not protect our rights in our intellectual property to the same extent as the laws of the United
States. The occurrence or consequences of any of these factors may have an adverse impact on our operating
results and financial condition, as well as impact our ability to operate in international markets.
Item 1B. UNRESOLVED STAFF COMMENTS.
None.
15
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, 2013, the Company's properties were as follows:
City
Rialto (1)
Nampa
Nampa(1)
Twin Falls
Goshen (1)
Goshen
Elkhart
Goshen
Goshen
Goshen (1)
Middlebury
Elkhart
Goshen
Middlebury
Elkhart
Goshen
Goshen
Topeka
Goshen
Goshen
Middlebury
Goshen
Elkhart
Pendleton
McMinnville (1)
Waxahachie (1)
Kaysville
State
California
Idaho
Idaho
Idaho
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Oregon
Oregon
Texas
Utah
RV SEGMENT
Square Feet
56,430
147,000
29,225
16,060
459,200
366,960
316,864
158,125
144,500
138,700
122,226
102,900
101,960
101,776
92,000
87,800
78,084
67,560
65,000
53,500
40,000
22,000
15,000
56,800
17,850
25,000
75,000
2,957,520
(2)
Owned
Leased
(1)
(2)
These plants also produce products for the MH Segment. The square footage indicated above represents that portion of the
building that is utilized for the manufacture of products for the RV Segment.
At December 31, 2012, the Company’s RV Segment used an aggregate of 2,643,999 square feet for manufacturing and
warehousing.
16
City
Double Springs
Rialto (1)
Nampa(1)
Fitzgerald
Goshen
Howe
Goshen (1)
Goshen (1)
Arkansas City
McMinnville (1)
Denver
Chester
Waxahachie (1)
State
Alabama
California
Florida
Georgia
Indiana
Indiana
Indiana
Indiana
Kansas
Oregon
Pennsylvania
South Carolina
Texas
MH SEGMENT
Square Feet
109,000
6,270
54,275
79,000
110,000
60,000
25,000
14,500
7,800
17,850
40,200
108,600
175,000
807,495
(2)
Owned
Leased
(1)
(2)
These plants also produce products for the RV Segment. The square footage indicated above represents that portion of the
building that is utilized for the manufacture of products for the MH Segment.
At December 31, 2012, the Company’s MH Segment used an aggregate of 819,783 square feet for manufacturing and
warehousing.
ADMINISTRATIVE
City
Double Springs
Phoenix
Goshen
Goshen
Goshen
Goshen
Goshen
Waxahachie
State
Alabama
Arizona
Indiana
Indiana
Indiana
Indiana
Indiana
Texas
Square Feet
7,200
1,000
49,200
15,500
5,156
4,500
1,680
16,000
100,236
Owned
Leased
In January 2014, the Company entered into a nine year lease for approximately 350,000 square feet of
manufacturing space in Goshen, Indiana to consolidate manufacturing operations for efficiency improvements and
expand capacity for its furniture and mattress operations.
17
At December 31, 2013, the Company owned the following facilities not currently used in production,
having an aggregate book value of $4.3 million:
City
Phoenix *
Ocala
Bristol *
Goshen
State
Arizona
Florida
Indiana
Indiana
Square Feet
61,000
47,100
97,500
4,874
* Currently leased to a third party.
Item 3. LEGAL PROCEEDINGS.
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 Sheet as of December 31, 2013,
would not be material to the Company's financial position or annual results of operations.
Item 4. NOT APPLICABLE.
18
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
As of February 21, 2014, there were 430 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 2013 and 2012 is set forth in Note 14 of the Notes to Consolidated Financial Statements in Item 8
of this Report.
Equity Compensation Plan Information as of December 31, 2013:
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)
1,610,224
N/A
1,610,224
(b)
$6.95
N/A
$6.95
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
246,368
N/A
246,368
Pursuant to the Drew Industries Incorporated Equity Award and Incentive Plan, As Amended and
Restated (the “Plan”), which was approved by stockholders in May 2011, the Company may grant to its directors,
employees, and consultants equity-based awards, such as stock options, restricted stock and deferred stock units.
The number of shares available for granting awards under the Plan was 246,368 at December 31, 2013, and
688,712 at December 31, 2012. The Plan is the Company’s only equity compensation plan.
19
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)
2013
Operating Data:
Year Ended December 31,
2011
2010
2012
2009
$ 1,015,576
Net sales
-
$
Goodwill impairment
1,876
$
Executive succession
78,298
$
Operating profit (loss)
77,947
Income (loss) before income taxes
$
27,828
Provision (benefit) for income taxes $
Net income (loss)
50,119
$
$ 901,123
$
-
1,456
$
58,132
$
57,802
$
20,462
$
37,340
$
$ 681,166
-
$
$
-
48,548
$
48,256
$
18,197
$
30,059
$
$ 572,755
-
$
-
$
45,428
$
45,210
$
17,176
$
28,034
$
$ 397,839
45,040
$
$
-
$ (35,581)
$ (36,370)
$ (12,317)
$ (24,053)
Net income (loss) per common share:
$
$
Basic
Diluted
2.15
2.11
$
$
1.66
1.64
$
$
1.35
1.34
$
$
1.27
1.26
$
$
(1.10)
(1.10)
Financial Data:
Working capital
Total assets
Long-term obligations
Stockholders' equity
Dividend Information
$
$
$
$
107,339
453,184
21,380
313,613
$
84,243
$ 373,868
$
19,843
$ 284,245
$
85,657
$ 351,083
$
21,876
$ 277,296
$
97,791
$ 306,781
$
18,248
$ 243,459
$ 113,744
$ 288,065
$
8,243
$ 244,115
On January 6, 2014, the Company paid a special cash dividend of $2.00 per share to holders of record of
its Common Stock on December 20, 2013, and on December 20, 2012, the Company paid a special cash dividend
of $2.00 per share to holders of record of its Common Stock on December 10, 2012. In 2011, the Company did
not pay any dividend and 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, prior to 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 specific restrictions in its financing agreements, but
rather is limited by certain of the debt covenant calculations.
20
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 subsidiary, Lippert Components, Inc.
and its subsidiaries (collectively, “Lippert Components”). Effective December 2013, the Company completed the
tax-free reorganization of Kinro, Inc. and its subsidiaries with and into Lippert Components. At December 31,
2013, the Company operated 31 manufacturing facilities in 11 states.
Effective with the second quarter of 2013, in connection with the management succession and relocation
of the corporate office from New York to Indiana, corporate expenses, accretion related to contingent
consideration and other non-segment items, which were previously reported on separate lines, have been included
as part of segment operating profit. Corporate expenses are allocated between the segments based upon net sales.
Accretion related to contingent consideration and other non-segment items are included in the segment to which
they relate. The segment disclosures from prior years have been reclassified to conform to the current year
presentation.
Net sales and operating profit were as follows for the years ended December 31:
(In thousands)
Net sales:
RV Segment:
RV OEMs
2013
2012
2011
Travel trailers and fifth-wheels
Motorhomes
RV aftermarket
Adjacent industries
Total RV Segment net sales
MH Segment:
Manufactured housing OEMs
Manufactured housing aftermarket
Adjacent industries
Total MH Segment net sales
$
$
$
$
727,783
47,937
25,334
92,640
893,694
80,245
13,719
27,918
121,882
Total net sales
$ 1,015,576
$
$
$
$
$
653,478
34,612
19,119
73,716
780,925
80,392
13,110
26,696
120,198
901,123
$
$
$
$
$
497,544
17,492
14,660
40,947
570,643
77,087
13,073
20,363
110,523
681,166
21
(In thousands)
Operating profit:
RV Segment
MH Segment
Total segment operating profit
Executive succession
Total operating profit
2013
2012
2011
$
$
68,248
11,926
80,174
(1,876)
78,298
$
$
47,172
12,416
59,588
(1,456)
58,132
$
$
37,715
10,833
48,548
-
48,548
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
2013
2012
2011
88%
12%
100%
85%
15%
100%
87%
13%
100%
79%
21%
100%
84%
16%
100%
78%
22%
100%
Operating profit margin by segment was as follows for the years ended December 31:
RV Segment
MH Segment
2013
2012
2011
7.6%
9.8%
6.0%
10.3%
6.6%
9.8%
The Company’s RV Segment manufactures a variety of products used primarily in the production of RVs,
including:
● Steel chassis for towable RVs
● Axles and suspension solutions for towable RVs
● Slide-out mechanisms and solutions
● Thermoformed bath, kitchen and other products
●Entry steps
● Manual, electric and hydraulic stabilizer
and leveling systems
● Aluminum windows and screens
● Chassis components
● Furniture and mattresses
● Entry, baggage, patio and ramp doors
● Awnings
● Other accessories
The Company also supplies certain of these products to the RV aftermarket. In addition, the Company
manufactures components for adjacent industries, including buses, trailers used to haul boats, livestock,
equipment and other cargo, and truck caps. Approximately 81 percent of the Company’s RV Segment net sales in
2013 were of products to OEMs of travel trailer and fifth-wheel RVs. Travel trailer and fifth-wheel RVs
accounted for 83 percent of all RVs shipped by the industry in 2013.
22
The Company’s MH Segment manufactures a variety of products used in the production of manufactured
homes and to a lesser extent, modular housing and mobile 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 certain of these products to the manufactured housing aftermarket, and to
adjacent industries. 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 types of
homes. As a result, the Company is not always able to determine in which type of home its products are installed.
Because of fluctuations in dealer inventories, and the impact of international, national and regional
economic conditions and consumer confidence on retail sales of RVs and other products for which we sell our
components, current and future seasonal industry trends may be 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 trailer and fifth-wheel RVs in 2013, the Company’s primary RV markets, increased 10 percent to
268,000 units compared to 2012, as a result of:
A 30,700 unit increase in retail demand in 2013, or 14 percent, as compared to 2012. In addition,
retail demand is typically revised upward in subsequent months.
RV dealers increasing inventory levels by 14,600 units in 2013, or 5,600 less units than in 2012. The
2013 increase occurred largely in the fourth quarter of 2013.
The annual sales cycle for the RV industry has historically started in October after the “Open House” in
Elkhart, Indiana where RV OEMs display product to RV retail dealers, and ended after the conclusion of the
Summer selling season in September. Between October and March, industry-wide wholesale shipments of travel
trailer and fifth-wheel RVs have historically exceeded retail sales, and between April and September, the Spring
and Summer selling seasons, retail sales of travel trailer and fifth-wheel RVs have historically exceeded industry-
wide wholesale shipments. Most industry analysts report dealer inventories of travel trailer and fifth-wheel RVs
are in-line with anticipated retail demand in the upcoming Spring 2014 selling season.
23
While the Company measures its RV sales against industry-wide wholesale shipment statistics, the
underlying health of the RV industry is determined by retail demand. A comparison of the number of units and
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., as well as the resulting change in dealer inventories, for
both the United States and Canada, is as follows:
Wholesale
Units Change
Retail
Estimated
Unit Impact on
Units Change Dealer Inventories
Year ended December 31, 2013
Year ended December 31, 2012
Year ended December 31, 2011
268,000
242,900
212,900
10% 253,400
14% 222,700
7% 206,000
14%
8%
11%
14,600
20,200
6,900
According to the RVIA, industry-wide wholesale shipments of motorhome RVs in 2013 increased 36
percent to 38,300 units compared to 2012. Retail demand for motorhome RVs increased 31 percent in 2013,
following a 6 percent increase in retail demand in 2012.
While RV production in 2013 was strong, unless retail demand matches these production levels, dealers
could reduce the pace of their orders, and our customers, the OEMs, would need to adjust their production levels
in future months. Ultimately, industry-wide retail sales, and therefore production levels of RVs, will depend to a
significant extent on the course of the economy. Retail sales of RVs historically have been closely tied to general
economic conditions, as well as consumer confidence which has fluctuated in recent months.
In November 2013, the RVIA projected a 4 percent increase in industry-wide wholesale shipments of
travel trailer and fifth-wheel RVs for 2014, to 279,100. The Company is also encouraged that several key
customers are introducing new product lines, as well as increasing production capacity. The Company also
remains confident in its ability to exceed industry growth rates through new product introductions, market share
gains, acquisitions and ongoing investments in research and development, engineering, quality and customer
service.
Over the long term, the Company expects RV industry sales to be aided by positive demographics, and
the continued popularity of the “RV Lifestyle”. Further, the number of consumers between the ages of 55 and 70
are projected to total 56 million by 2020, 27 percent higher than in 2010, according to U.S. Census figures, and
one in ten vehicle-owning households between 50 and 64 own at least one RV.
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
domestic vacations, and using RVs as second homes, also appear to motivate consumer demand for RVs. RVIA
studies indicate that RV vacations cost significantly less than other forms of vacation.
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, methods to site and secure the home at a home site,
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
24
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.
Manufactured homes contain one or more “floors” or sections which can be joined to make larger homes.
A typical section may range in size from 800 to 1,200 square feet. During 2013, multi-section homes were 53
percent of the total manufactured homes produced, consistent with 2012, and above the 51 percent for 2011.
Multi-section homes averaged 64 percent of the total manufactured homes produced between 2007 and 2010.
Multi-section manufactured homes contain more of the Company’s products than single-section manufactured
homes.
The Institute for Building Technology and Safety (“IBTS”) reported industry-wide wholesale shipments
of manufactured homes were 60,200 units in 2013, an increase of 10 percent from 2012. For the full year 2012,
there were 54,900 industry-wide wholesale shipments of manufactured homes, an increase of 6 percent compared
to 2011.
Industry-wide wholesale shipments by the manufactured housing industry have experienced a decline
from the peak of industry-wide production in 1998 for a variety of reasons. Because of the current real estate,
credit and economic environment, including the availability of foreclosed site built homes at low prices and high
interest rate spreads between conventional mortgages for site-built homes and loans for manufactured homes,
industry-wide wholesale shipments of manufactured homes may remain low until these conditions improve. In
addition, certain provisions of the recently enacted Dodd-Frank Act, which regulate financial transactions, could
make certain types of mortgages more difficult to obtain – in particular those historically used to finance the
purchase of manufactured homes. Although new legislation has been introduced to address this matter, and the
Bureau of Consumer Financial Protection is reviewing this matter, there can be no assurance of the outcome.
Nevertheless, the Company believes that long-term growth prospects for manufactured housing remain
positive because of (i) the quality and affordability of the home, (ii) favorable demographic trends, including the
increasing number of retirees who, in the past, had represented a significant market for manufactured homes, and
(iii) pent-up demand by retirees who have been unable or unwilling to sell their primary residence at current
market prices and purchase a manufactured home.
RESULTS OF OPERATIONS
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Consolidated Highlights
Net sales for the year ended December 31, 2013 increased by $114 million, to a record $1.02
billion. The Company’s RV Segment net sales increased 14 percent, compared to the 10 percent
increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs, the
Company's primary RV market. Sales growth in new markets and new products continued to be
key factors in enabling the Company’s sales to exceed RV industry growth rates. Acquisitions did
not have a significant impact on the increase in net sales for 2013.
In 2013, the Company continued to grow outside its core RV and manufactured housing markets,
with aggregate net sales of components for adjacent industries increasing 20 percent to $121
million, and aftermarket net sales increasing 21 percent to $39 million. Together, these markets
now account for 16 percent of consolidated net sales, an increase from 9 percent of consolidated
net sales in 2010.
Despite the negative impact of the severe winter weather conditions during January 2014 on
industry-wide production of RVs and manufactured homes, as well as on shipments of the
25
Company’s products, the Company’s net sales for the first two months of 2014 reached
approximately $176 million, 5 percent higher than the comparable period of 2013. However,
there can be no assurance that this trend will continue. The Company is optimistic that the
industry-wide production delays from January 2014 will be made up over the coming months.
For 2013, the Company’s net income increased to $50.1 million, or $2.11 per diluted share, up
from net income of $37.3 million, or $1.64 per diluted share, in 2012. Excluding charges related
to executive succession, net income would have been $51.3 million in 2013, or $2.16 per diluted
share, up from net income of $38.3 million, or $1.68 per diluted share, in 2012.
The Company’s operating profit margin in 2013 improved to 7.7 percent, compared to 6.5 percent
in 2012, primarily due to management’s recently implemented efficiency improvements. The
improvements in labor during 2013 were primarily due to completed production efficiency
projects, as well as declines in the costs of implementing facility consolidations and realignments.
These labor efficiencies were realized throughout 2013 while introducing new products and
adjusting to industry and market share growth. The Company is continuing to implement
additional efficiency improvements as they are identified.
In anticipation of future growth, the Company continues to expand and improve production
capacity, investing in personnel and facilities in excess of current needs. In addition, the
Company plans to invest in areas where it believes additional savings can be realized, such as
purchasing, automation and human resources. While some of these initiatives and related fixed
costs may have a negative impact on operating margins in the short term, the Company believes
they will benefit the long-term growth of the Company, and improve its industry-leading
customer service.
For 2013, the Company achieved a 16.0 percent return on equity, an improvement from the 12.7
percent return on equity in 2012.
On May 10, 2013, Fredric M. Zinn retired as President and Chief Executive Officer of Drew.
Jason D. Lippert, Chairman and Chief Executive Officer of Lippert Components, succeeded Mr.
Zinn as Chief Executive Officer of Drew. Scott T. Mereness, President of Lippert Components,
succeeded Mr. Zinn as President of Drew. In June 2013, the Company also relocated its corporate
headquarters from White Plains, New York to Elkhart County, Indiana, the location of the
corporate headquarters of Lippert Components. As a result of the executive succession and
corporate relocation, the Company expects to save an estimated $2 million annually in general
and administrative costs.
At December 31, 2013, the Company had $66 million in cash and no debt, and had almost $200
million in unused credit lines.
In January 2014, the Company paid a special dividend of $2.00 per share, aggregating $47
million.
On February 24, 2014, the Company entered into a three-year extension of its existing $50
million revolving line of credit facility with JPMorgan Chase and Wells Fargo, which now
expires in January 2019, and increased that facility from $50 million to $75 million.
Simultaneously, the Company completed a three-year renewal of its uncommitted $150 million
“shelf-loan” facility with Prudential Capital Group, which now expires in February 2017.
The Company remains well-positioned to continue to take advantage of investment opportunities
to further improve its results.
26
On February 27, 2014, the Company acquired Innovative Design Solutions, Inc. (“IDS”), a
designer, developer and manufacturer of electronic systems encompassing a wide variety of RV
applications. IDS also manufactures electronic systems for automotive, medical and industrial
applications. IDS had annual sales of approximately $19 million in 2013, of which $13 million
were to the Company. The purchase price was $36.0 million, of which $34.2 million was paid at
closing, with the balance to be paid out annually over the subsequent three years, plus contingent
consideration based on future sales. The acquisition of IDS provides the Company with further
access to unique and innovative electronic products for the RV industry, as well as adjacent
industries.
RV Segment
Net sales of the RV Segment in 2013 increased 14 percent, or $113 million, compared to 2012. Net sales
of components were to the following markets for the years ending December 31:
(In thousands)
RV OEMs:
Travel trailers and fifth-wheels
Motorhomes
RV aftermarket
Adjacent industries
Total RV Segment net sales
2013
2012
Change
$
$
727,783
47,937
25,334
92,640
893,694
$
$
653,478
34,612
19,119
73,716
780,925
11%
38%
33%
26%
14%
According to the RVIA, industry-wide wholesale shipments for the years ended December 31, were:
Travel trailer and fifth-wheel RVs
Motorhomes
2013
268,000
38,300
2012
242,900
28,200
Change
10%
36%
The Company’s net sales growth in components for travel trailer and fifth-wheel RVs during 2013
exceeded the increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs primarily due to
market share gains of $6 million.
The Company’s net sales growth in components for motorhomes during 2013 exceeded the increase in
industry-wide wholesale shipments of motorhomes primarily due to market share gains. Over the past few years,
the Company has been expanding its product line of components for motorhomes in order to increase its customer
base and market penetration, and further growth is expected.
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. The Company’s average product content per type of RV,
calculated based upon the Company’s net sales of components to RV OEMs 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 same period, was:
Content per:
Travel trailer and fifth-wheel RV
Motorhome
2013
2012
Change
$
$
2,716
1,252
$
$
2,690
1,227
1%
2%
27
The Company’s average product content per type of RV excludes sales to the aftermarket and adjacent
industries. Content per RV is impacted by market share gains, acquisitions, new product introductions, and
changes in selling prices for the Company’s products, as well as changes in the types of RVs produced industry-
wide. In the second quarter of 2013, the Company refined the calculation of content per unit. This refinement had
no impact on total RV Segment net sales or trends. Prior periods have been reclassified to conform to this
presentation.
The Company’s net sales to the RV aftermarket and adjacent industries, including components for buses,
trailers used to haul boats, livestock, equipment and other cargo, and truck caps, increased during 2013 primarily
due to market share gains. The Company believes there are significant opportunities in the RV aftermarket and
adjacent industries.
During the third quarter of 2013, the Company hired a new Director of International Business
Development, who will spend time in Australia, Europe and China, assessing the dynamics of the local
marketplace, building relationships with manufacturers and helping the Company introduce its existing products
and develop new products for those markets. Over the past several years, the Company has been gradually
growing sales overseas, primarily in Europe and Australia, and export sales represent approximately 1 percent of
consolidated net sales in 2013. Through this new position, the Company will explore opportunities to increase
sales of its products to international markets.
Operating profit of the RV Segment was $68.2 million in 2013, an improvement of $21.1 million
compared to 2012. This increase in RV Segment operating profit was consistent with the Company’s expected 15
– 20 percent incremental margin.
The operating profit margin of the RV Segment in 2013 was positively impacted by:
Lower material costs. After increasing temporarily in the latter part of 2012, steel and aluminum
costs declined during 2013. In addition, material costs in the latter half of 2012 were negatively
impacted by increased outsourcing costs due to capacity limitations, as well as higher scrap costs
due to production inefficiencies. However, material costs have increased in the beginning of 2014
and remain volatile.
Improved labor efficiencies, primarily due to completed production efficiency projects
implemented by management, as well as declines in the costs of implementing facility
consolidations and realignments. These labor efficiencies were realized throughout 2013 while
introducing new products and adjusting to industry and market share growth. The Company is
continuing to implement additional efficiency improvements as they are identified.
The spreading of fixed manufacturing and selling, general and administrative costs over a $113
million larger net sales base.
Partially offset by:
Fixed costs, which were approximately $18 million to $20 million higher than in 2012. In
response to the substantial increase in sales over the past several quarters, the Company added
significant resources, investing in personnel and facilities to expand and improve production
capacity and efficiencies, as well as to improve customer service.
In anticipation of future growth, the Company continues to expand and improve production
capacity, investing in personnel and facilities in excess of current needs. In addition, the
Company plans to invest in areas where it believes additional savings can be realized, such as
purchasing, automation and human resources. While some of these initiatives and related fixed
28
costs may have a negative impact on operating margins in the short term, the Company believes
they will benefit the long-term growth of the Company, and improve its customer service.
Incentive compensation, which is based on profits, rather than sales, did not change
proportionately with net sales.
Higher supplies and repairs expense.
MH Segment
Net sales of the MH Segment in 2013 increased 1 percent, or $2 million, compared to 2012. Net sales of
components were to the following markets for the years ending December 31:
(In thousands)
Manufactured housing OEMs
Manufactured housing aftermarket
Adjacent industries
Total MH Segment net sales
2013
80,245
13,719
27,918
121,882
$
$
2012
Change
$
$
80,392
13,110
26,696
120,198
0%
5%
5%
1%
According to the IBTS, industry-wide wholesale shipments for the years ended December 31, were:
Total homes produced
Total floors produced
2013
2012
Change
60,200
92,900
54,900
84,800
10%
10%
The Company’s net sales growth in components for new manufactured homes was less than the increase
in industry-wide wholesale shipments of manufactured homes, primarily due to customer mix, as the Company’s
content per unit varies between customers, and loss of market share for certain products. Content per
manufactured home and content per floor are impacted by market share changes, acquisitions and new product
introductions, as well as changes in selling prices for the Company’s products, as well as changes in the types of
floors produced industry-wide.
Net sales to the manufactured housing aftermarket and adjacent industries increased due to market share
gains. The Company believes there are opportunities in the manufactured housing aftermarket and adjacent
industries.
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. 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 to manufactured housing OEMs 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 same period, was:
Content per:
Home produced
Floor produced
2013
2012
Change
$
$
1,332
864
$
$
1,465
948
(9%)
(9%)
29
The Company’s average product content per manufactured home excludes sales of replacement parts to
the aftermarket and sales to adjacent industries. Content per manufactured home and content per floor are
impacted by market share changes, acquisitions and new product introductions, and changes in selling prices for
the Company’s products, as well as changes in the types of floors produced industry-wide.
Operating profit of the MH Segment was $11.9 million in 2013, a decrease of $0.5 million compared to
2012. This decrease was primarily due to increased labor and related costs, partially offset by lower raw material
costs. Further, during 2012, the Company recorded a gain of $0.4 million, which did not recur in 2013.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Consolidated Highlights
Net sales for 2012 reached $901 million, a 32 percent increase over net sales of $681 million in
2011, as both of the Company’s segments achieved greater net sales growth than the industries
they serve. This sales growth was primarily the result of a 37 percent sales increase by Drew’s
RV Segment, which accounted for 87 percent of Drew’s consolidated net sales in 2012. RV
Segment sales growth was primarily due to a 14 percent increase in industry-wide wholesale
shipments of travel trailer and fifth-wheel RVs, Drew’s primary RV market, as well as
acquisitions, new product introductions, market share gains, and increased sales to adjacent
industries, such as buses, truck caps, and trailers used to haul boats, livestock, equipment and
other cargo. Excluding the impact of acquisitions, consolidated net sales increased 23 percent.
In 2012, the Company continued to grow outside its core RV and manufactured housing markets,
with aggregate net sales of components for adjacent industries increasing 64 percent, to $100
million, and aftermarket sales increasing 16 percent to $32 million in 2012. Together, these
markets accounted for nearly 15 percent of consolidated net sales in 2012, as compared to 9
percent of consolidated net sales in 2010.
For 2012, the Company’s net income increased to $37.3 million, or $1.64 per diluted share.
Excluding charges related to executive succession, net income would have been $38.3 million in
2012, or $1.68 per diluted share, up from net income of $30.1 million, or $1.34 per diluted share
in 2011.
Net income in 2012 was impacted by lower operating efficiencies resulting from training in
excess of 1,000 new employees, overtime, outsourcing and other costs required to meet the
greater than expected $220 million net sales increase in 2012. In addition, the Company incurred
facility consolidation and realignment costs in order to meet the rising demand for its products.
Further, the Company continued to incur costs related to its investments in aluminum extrusion,
awnings, and the aftermarket, and also incurred costs related to process changes and lean
manufacturing initiatives.
Over the latter half of 2012, the Company developed and implemented action plans to increase
capacity and improve efficiencies. In certain product lines, the Company began to realize the
benefits of these initiatives in 2012.
For 2012, the Company achieved a 12.7 percent return on equity, an improvement from the 11.4
percent return on equity in 2011.
As a result of the Company’s executive succession and corporate relocation, the Company
recorded a pre-tax charge of $1.5 million in the fourth quarter of 2012 related to the contractual
30
obligations for severance and the acceleration of equity awards for certain employees whose
employment terminated as a result of the relocation to Indiana.
On December 20, 2012, a special dividend of $2.00 per share of the Company’s Common Stock,
or an aggregate of $45.0 million, was paid to stockholders of record as of December 10, 2012. At
December 31, 2012, after payment of the special dividend, the Company had $9.9 million of cash,
no debt, and substantial available borrowing capacity.
RV Segment
Net sales of the RV Segment in 2012 increased 37 percent, or $210 million, compared to 2011. Net sales
of components were to the following markets:
(In thousands)
RV OEMs:
Travel trailers and fifth-wheels
Motorhomes
RV aftermarket
Adjacent industries
Total RV Segment net sales
2012
2011
Change
$
$
653,478
34,612
19,119
73,716
780,925
$
$
497,544
17,492
14,660
40,947
570,643
31%
98%
30%
80%
37%
According to the RVIA, industry-wide wholesale shipments for the years ended December 31, were:
Travel trailer and fifth-wheel RVs
Motorhomes
2012
242,900
28,200
2011
212,900
24,800
Change
14%
14%
The Company’s net sales growth in components for travel trailer and fifth-wheel RVs during 2012
exceeded the increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs primarily due to
the acquisitions completed in 2011 and 2012, which added $40 million in net sales during 2012, and market share
gains of $35 million. The Company also implemented sales price increases of $8 million.
The Company’s net sales growth in components for motorhomes during 2012 exceeded the increase in
industry-wide wholesale shipments of motorhomes due to market share gains of $10 million, as well as
acquisitions completed in 2011 which added $4 million in net sales during 2012.
The Company’s net sales to the RV aftermarket increased during 2012 due to market share gains,
resulting from the dedicated sales team established in 2011 to focus on this market.
Net sales to adjacent industries, including components for buses, trailers used to haul boats, livestock,
equipment and other cargo, and truck caps, increased during 2012 due to market share gains of $20 million and
acquisitions in 2011 which added $13 million in net sales during 2012.
31
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. The Company’s average product content per type of RV,
calculated based upon the Company’s net sales of components to RV OEMs 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 same period, was:
Content per:
Travel trailer and fifth-wheel RV
Motorhome
2012
2011
Change
$
$
2,690
1,227
$
$
2,337
705
15%
74%
The Company’s average product content per type of RV excludes sales to the aftermarket and adjacent
industries. Content per RV is impacted by market share gains, acquisitions, new product introductions, and
changes in selling prices for the Company’s products, as well as changes in the types of RVs produced industry-
wide. In the first quarter of 2012 and the second quarter of 2013, the Company refined the calculation of content
per unit to better identify aftermarket sales, as well as sales to adjacent industries. There was no change in total
reported net sales for the RV Segment, and all prior periods have also been refined for consistency.
Operating profit of the RV Segment was $47.2 million in 2012, an improvement of $9.5 million
compared to 2011. This increase in RV Segment operating profit was less than the Company’s expected 15 to 20
percent incremental margin.
The operating margin of the RV Segment in 2012 was negatively impacted by:
Lower operating efficiencies resulting from training in excess of 1,000 new employees, overtime,
outsourcing and other costs required to meet the greater than expected $210 million net sales
increase in 2012. In addition, the Company incurred facility consolidation and realignment costs
in order to meet the rising demand for its products. Further, the Company continued to incur costs
related to its investments in aluminum extrusion, awnings, and the aftermarket, and also incurred
costs related to process changes and lean manufacturing initiatives. As a result of these factors,
the RV Segment operating margin was negatively impacted by more than 3 percent.
Over the latter half of 2012, the Company developed and implemented action plans to increase
capacity and improve efficiencies and customer service. In particular, among other initiatives, the
Company has:
Expanded its RV chassis and window production capacity,
Consolidated its furniture operation,
Purchased additional glass tempering equipment,
Begun implementing lean manufacturing principles, and
Hired a new Vice President of Customer Service and increased customer service
capabilities.
In certain product lines, the Company began to realize the benefits of these initiatives in 2012.
An increase in fixed costs of approximately $8 million, primarily due to additional staff and
facilities to expand capacity and meet the increase in sales demand, as well as higher
amortization, largely related to acquisitions and other investments.
Higher warranty and health insurance costs, primarily due to higher claims experience, as well as
higher repairs and supplies expense.
32
Partially offset by:
Lower material costs. After rising at the beginning of 2012, steel and aluminum costs have
declined over the past few quarters, which benefitted operating results in the latter half of 2012.
The spreading of fixed manufacturing and selling, general and administrative costs over a $210
million larger net sales base.
MH Segment
Net sales of the MH Segment in 2012 increased 9 percent, or $10 million, compared to 2011. Net sales of
components were to the following markets:
(In thousands)
Manufactured housing OEMs
Manufactured housing aftermarket
Adjacent industries
Total MH Segment net sales
2012
80,392
13,110
26,696
120,198
$
$
2011
Change
$
$
77,087
13,073
20,363
110,523
4%
0%
31%
9%
According to the IBTS, industry-wide wholesale shipments for the years ended December 31, were:
Total homes produced
Total floors produced
2012
2011
Change
54,900
84,800
51,600
78,500
6%
8%
Despite acquisitions completed in 2011 adding approximately $2 million in net sales to manufactured
housing OEMs in 2012, the Company’s net sales growth in components for new manufactured homes was less
than the increase in industry-wide wholesale shipments. This was primarily because of customer mix, as the
Company’s content per unit varies between customers, and 2011 industry-wide wholesale shipments included
approximately 2,000 homes purchased by FEMA which did not recur in 2012. FEMA homes typically contain
more of the Company’s products.
Net sales to adjacent industries increased due to market share gains of $5 million and sales from
acquisitions completed in 2011 which added $2 million in net sales during 2012.
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. 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 to manufactured housing OEMs 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 same period, was:
Content per:
Home produced
Floor produced
2012
2011
Change
$
$
1,465
948
$
$
1,493
982
(2%)
(3%)
The Company’s average product content per manufactured home excludes sales of replacement parts to
the aftermarket and sales to adjacent industries. Content per manufactured home and content per floor are
33
impacted by market share changes, acquisitions and new product introductions, and changes in selling prices for
the Company’s products, as well as changes in the types of floors produced industry-wide. In the first quarter of
2012, the Company refined the calculation of content per unit to better identify aftermarket sales, as well as sales
to adjacent industries. There was no change in total reported net sales for the MH Segment, and all prior periods
have also been refined for consistency.
Operating profit of the MH Segment was $12.4 million in 2012, an increase of $1.6 million compared to
2011, primarily due to the $10 million increase in net sales. This increase in MH Segment operating profit was 16
percent of the increase in net sales, consistent with the Company’s expected 15 to 20 percent incremental margin
for established products.
Executive Succession and Severance
On May 10, 2013, Fredric M. Zinn retired as President and Chief Executive Officer of Drew. Jason D.
Lippert, Chairman and Chief Executive Officer of Lippert Components, succeeded Mr. Zinn as Chief Executive
Officer of Drew. Scott T. Mereness, President of Lippert Components, succeeded Mr. Zinn as President of Drew.
In June 2013, the Company also relocated its corporate headquarters from White Plains, New York to Elkhart
County, Indiana, the location of the corporate headquarters of Lippert Components.
In connection with the Company’s executive succession and corporate relocation, the Company recorded
pre-tax charges of $1.5 million in the fourth quarter of 2012 and $1.8 million in the first six months of 2013,
related to contractual obligations for severance and the acceleration of equity awards held by certain employees
whose employment terminated as a result of the executive succession and relocation to Indiana. No charges were
recorded in the last six months of 2013, and no other related charges are expected. The liability for executive
succession and severance obligations will be paid through 2015. During the third quarter of 2013, the transition
and corporate office relocation were completed. As a result, the Company expects to save an estimated $2 million
annually in general and administrative costs.
Provision for Income Taxes
The effective income tax rate for 2013 was 35.7 percent, slightly higher than the 35.4 percent in 2012.
Both 2013 and 2012 benefited from federal and state tax credits, as well as the reversal of federal and state tax
reserves, due to the closure of federal and state tax years, with a larger benefit in 2012. The Company estimates
the 2014 effective income tax rate to be approximately 37 percent.
The effective income tax rate for 2012 was 35.4 percent, lower than the 37.7 percent in 2011 due to the
reversal of federal and state tax reserves, due to the closure of federal and state tax years, as well as higher federal
and state income tax credits.
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 provided by (used for) financing activities
Net increase (decrease) in cash
2013
2012
2011
$
$
82,677
(36,055)
9,719
56,341
$
$
72,689
(28,198)
(41,136)
3,355
$
$
36,831
(69,124)
(3)
(32,296)
34
Cash Flows from Operations
Net cash flows from operating activities in 2013 were $10.0 million higher than in 2012, primarily due to:
A $12.8 million increase in net income in 2013 compared to 2012.
A $8.4 million smaller increase in prepaid expenses and other assets in 2013 compared to 2012.
The increase of $2.3 million in 2013 was primarily due to an increase in investments associated
with the Company’s deferred compensation plan. The increase of $10.7 million in 2012 was
primarily due to a federal tax receivable at December 31, 2012 as compared to a federal tax
payable at December 31, 2011, as well as an increase in short-term deposits at December 31,
2012 related primarily to 2013 capital expenditures.
A $4.5 million increase in stock-based compensation in 2013 compared to 2012.
Partially offset by:
A $11.3 million smaller increase in accounts payable and accrued expenses and other liabilities in
2013 compared to 2012, primarily due to the timing of payments.
A $9.0 million increase in accounts receivable in 2013, compared to a $0.8 million decrease in
2012. This was primarily due to 24 percent higher net sales in the month of December 2013 as
compared to December 2012, as well as an increase in days sales outstanding to 16 at December
31, 2013, compared to 14 at December 31, 2012.
Over the long term, based on the Company’s historical collection and payment patterns, as well as
inventory turnover, the Company expects working capital to increase or decrease equivalent to approximately 10
percent to 12 percent of the increase or decrease, respectively, in net sales. However, there are many factors that
can impact this relationship, especially in the short term. Inventory turnover for 2013 was 7.9 turns, compared to
7.8 turns in 2012.
During the first few months of 2014, the Company expects to use $20 million to $30 million of cash to
fund seasonal working capital growth, which is typical. The 2014 working capital needs are expected to be funded
from available cash plus periodic borrowings under the Company’s amended line of credit.
Depreciation and amortization was $27.5 million in 2013, and is expected to aggregate $27 million to $29
million in 2014. Non-cash stock-based compensation in 2013 was $10.8 million, including $0.1 million of
deferred stock units issued to certain executive officers in lieu of cash for a portion of their 2012 incentive
compensation in accordance with their compensation arrangements. Non-cash stock-based compensation is
expected to be approximately $11 million to $13 million in 2014.
Net cash flows from operating activities in 2012 were $35.9 million higher than in 2011, primarily due to:
A $15.6 million increase in accrued expenses and other liabilities primarily due to the increase in
sales, production and earnings.
A $10.0 million smaller increase in inventories in 2012 as compared to 2011. The smaller
increase in inventories in 2012 was primarily due to the concerted effort of management to
improve inventory turns on a sustainable basis. In 2011, the Company experienced a more typical
increase in inventory, as well as an increase in raw material costs. Inventory turnover for 2012
improved to 7.8 turns from 6.3 turns for 2011.
A $7.3 million increase in net income in 2012 as compared to 2011.
A $0.8 million decrease in accounts receivable in 2012, compared to a $5.0 million increase in
2011, despite 15 percent higher net sales in the month of December 2012 as compared to
35
December 2011. This was primarily due to a decline in days sales outstanding to 14 at December
31, 2012, compared to 17 at December 31, 2011.
A $5.1 million increase in depreciation and amortization primarily due to the acquisitions
completed in the latter half of 2011 and capital expenditures.
Partially offset by:
An $8.9 million larger increase in prepaid expenses and other assets, primarily due to a federal
tax receivable at December 31, 2012 as compared to a federal tax payable at December 31, 2011,
as well as an increase in short-term deposits at December 31, 2012 related primarily to 2013
capital expenditures.
Cash Flows from Investing Activities
Cash flows used for investing activities in 2013 included capital expenditures of $32.6 million. In 2013,
in order to better serve its customers and meet the increased demand for its products, the Company continued to
invest in capacity expansion, automation and production improvement, as well as cost reduction initiatives. The
Company’s growth capital expenditures for 2013 included a new glass tempering line, metal fabrication
equipment and new ERP software, in addition to routine replacement capital expenditures.
The Company’s capital expenditures are primarily for replacement and growth. Over the long term, based
on the Company’s historical capital expenditures, the replacement portion has averaged approximately 1.5 percent
to 2.0 percent of net sales, while the growth portion has averaged approximately 10 percent to 12 percent of the
annual increase in net sales. However, there are many factors that can impact this relationship, such as new
initiatives by the Company, especially in the short term.
The Company estimates that capital expenditures will be $32 million to $36 million in 2014, including
$15 million to $20 million of ‘replacement’ capital expenditures and $12 million to $16 million of ‘growth’
capital expenditures. Additional capital expenditures may be required in 2014 depending on the extent of the sales
growth and other initiatives by the Company.
On February 27, 2014, the Company acquired Innovative Design Solutions, Inc. (“IDS”), a designer,
developer and manufacturer of electronic systems encompassing a wide variety of RV applications. IDS also
manufactures electronic systems for automotive, medical and industrial applications. IDS had annual sales of
approximately $19 million in 2013, of which $13 million were to the Company. The purchase price was $36.0
million, of which $34.2 million was paid at closing from available cash and borrowings under the Company’s $75
million line of credit, with the balance to be paid out annually over the subsequent three years, plus contingent
consideration based on future sales. The acquisition of IDS provides the Company with further access to unique
and innovative electronic products for the RV industry, as well as adjacent industries.
On December 13, 2013, the Company acquired the business and certain assets of Fortress Technologies,
LLC (“Fortress”). Fortress is a manufacturer of specialized RV chassis. The acquired business had annualized
sales of approximately $3 million. The purchase price was $3.3 million paid at closing.
On June 24, 2013, the Company acquired the business and certain assets of Midstates Tool & Die and
Engineering, Inc. (“Midstates”). Midstates is a manufacturer of tools and dies, as well as automation equipment.
The acquired business had annualized sales of approximately $2 million. The purchase price was $1.5 million
paid at closing.
The 2013 capital expenditures and acquisitions were funded from available cash plus periodic borrowings
under the Company’s previous $50 million line of credit. The 2014 capital expenditures and acquisitions are
36
expected to be funded from available cash plus periodic borrowings under the Company’s amended $75 million
line of credit.
Cash flows used for investing activities in 2012 included capital expenditures of $32.0 million. In 2012,
in order to better serve its customers and meet the increased demand for its products, the Company invested in
both capacity expansion and cost reduction initiatives. The Company’s capital expenditures for 2012 included the
purchase of a larger facility to consolidate all of its furniture operations, the completion of the aluminum
extrusion operation, and metal fabrication equipment, in addition to routine replacement capital expenditures.
On February 21, 2012, the Company acquired the business and certain assets of the United States RV
entry door operation of Euramax International, Inc. The acquired business had annualized sales of approximately
$6 million. The purchase price was $1.7 million, of which $1.2 million was paid at closing, with the balance to be
paid over the following three years.
During 2012, the Company received $5.4 million from sales of fixed assets, primarily from the sale of
two vacant owned facilities.
Cash Flows from Financing Activities
Cash flows provided by financing activities in 2013 of $9.7 million were primarily comprised of the
following:
$15.2 million in cash and the related tax benefits from the exercise of stock-based compensation.
Partially offset by:
$5.5 million in payments for contingent consideration related to acquisitions. In connection with
several business acquisitions, if certain sales targets for the acquired products are achieved, the
Company would pay additional cash consideration. The Company has recorded a $7.4 million
liability for the aggregate fair value of these expected contingent consideration liabilities at
December 31, 2013. The Company expects to pay $3.7 million in 2014 related to these contingent
consideration liabilities. For further information see Note 11 of the Notes to Consolidated
Financial Statements.
At December 31, 2013 the Company had no outstanding debt and $66.3 million of cash. However, due to
the seasonal increase in working capital in 2013 the Company borrowed periodically under its line of credit, with
such borrowings reaching a high of $21.2 million. Due to the seasonal nature of the business, the Company
expects to borrow periodically during 2014.
On January 6, 2014, a special dividend of $2.00 per share of the Company’s Common Stock, representing
an aggregate of $46.7 million, was paid to stockholders of record as of December 20, 2013.
Cash flows provided by financing activities in 2012 of $41.1 million were primarily comprised of the
following:
A special dividend of $2.00 per share of the Company’s Common Stock, representing an
aggregate of $45.0 million.
$4.3 million in payments for contingent consideration related to acquisitions.
Partially offset by:
$8.2 million in cash and the related tax benefits from the exercise of stock-based compensation.
37
The Company has a $50.0 million line of credit (the “Credit Agreement”) 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 (i) the Prime Rate, but not less than 2.5 percent,
plus additional interest up to 0.8 percent (0 percent at December 31, 2013 and 2012), or (ii) LIBOR plus additional
interest ranging from 2.0 percent to 2.8 percent (2.0 percent at December 31, 2013 and 2012) depending on the
Company’s performance and financial condition. The Credit Agreement, which was scheduled to expire on January
1, 2016, was amended and extended on February 24, 2014, and now expires on January 1, 2019. In connection with
this amendment, the line of credit was increased to $75.0 million. At December 31, 2013 and 2012, the Company
had $2.2 million and $3.0 million, respectively in outstanding letters of credit under the line of credit. Availability
under the Company’s line of credit was $47.8 million at December 31, 2013.
The Company also has a $150.0 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 $150.0 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. At December 31, 2013 and 2012, there were no Senior Promissory Notes
outstanding. This facility, which was scheduled to expire on February 24, 2014, was amended and extended on
February 24, 2014, and now expires on February 24, 2017.
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. This limitation did not impact the Company’s borrowing
availability at December 31, 2013. The remaining availability under these facilities was $197.8 million at
December 31, 2013. The Company believes the availability under the amended line of credit and “shelf-loan”
facility, together with the $66.3 million in cash at December 31, 2013, is more than adequate to finance the
Company’s anticipated cash requirements for 2014.
Pursuant to the Credit Agreement and “shelf-loan” facility, at December 31, 2013 and 2012 the Company
was required to maintain minimum interest and fixed charge coverages, and to meet certain other financial
requirements. At December 31, 2013 and 2012, the Company was in compliance with all such requirements, and
expects to remain in compliance during 2014.
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.
In 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, 535,135 shares were repurchased prior to 2013 at an average price of $18.64 per
share, or $10.0 million. The number of shares ultimately repurchased, and the timing of the purchases, will
depend upon market conditions, share price and other factors.
38
Future minimum commitments relating to the Company's contractual obligations at December 31, 2013
were as follows:
(In thousands)
Operating leases (a)
Employment contracts (b)
Deferred compensation (c)
Royalty agreements and
contingent consideration
payments (d)
Purchase obligations (e)
Taxes (f)
Total
Payments due by period
Total
$ 15,253
8,267
9,673
$
Less than
1 year
3,496
5,578
194
$
1-3 years 3-5 years
3,533
$
590
3,058
4,619
2,099
2,702
More than
5 years
3,605
-
1,482
$
$
Other
-
-
2,237
9,793
134,039
1,553
$ 178,578
4,025
131,239
1,553
$ 146,085
3,916
2,474
-
$ 15,810
$
1,852
127
-
9,160
$
-
199
-
5,286
$
-
-
-
2,237
(a)
(b)
(c)
In January 2014, the Company entered into a nine year lease with aggregate minimum lease payments of
$6.1 million, to consolidate manufacturing operations for efficiency improvements and expand capacity for
its furniture and mattress operations. Such amounts are not included in the above amounts.
Includes amounts payable under employment contracts and arrangements, and retirement and severance
agreements.
Includes amounts payable under deferred compensation arrangements. The Other column represents the
liability for deferred compensation for employees that have elected to receive payment upon separation from
service from the Company.
(d) Comprised of estimated future contingent consideration payments for which a liability has been recorded in
connection with business 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 amount of which cannot exceed
$3.3 million. The Company will pay $0.3 million in 2014 under this license agreement for sales of these slide-
out systems in 2013, which is included in these amounts.
(e)
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.
(f)
Represents unrecognized tax benefits, as well as related interest and penalties.
These commitments are described more fully in the Notes to Consolidated Financial Statements.
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 Whistleblower Policy, which includes a toll-free
hotline (877-373-9123) to report complaints about the Company’s accounting, internal controls, auditing matters
or other concerns. The whistleblower policy and procedure for complaints can be found on the Company’s
website (www.drewindustries.com).
39
CONTINGENCIES
Additional information required by this item is included under Item 3 of Part I of this Annual Report on
Form 10-K.
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 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.
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 actual demand or
market conditions in the future differ from original estimates, adjustments to recorded inventory reserves may be
required.
Self-Insurance
The Company is self-insured for certain health and workers' compensation benefits up to certain stop-loss
limits. Such costs are accrued based on known claims and an estimate of incurred, but not reported (“IBNR”)
claims. IBNR claims are estimated using historical lag information and other data provided by third-party claims
administrators. This estimation process is subjective, and to the extent 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 sold. The Company estimates the
warranty accrual based upon various factors, including (i) historical warranty costs, (ii) current trends, (iii)
product mix, and (iv) sales. The accounting for warranty accruals requires the Company to make assumptions and
judgments, and to the extent actual results differ from original estimates, adjustments to recorded accruals may be
required.
Income Taxes
The Company's tax provision is based on pre-tax income, statutory tax rates, federal and state tax credits,
and tax planning strategies. Significant management judgment is required in determining the tax provision and in
evaluating the Company's tax position. The Company establishes additional provisions for income taxes when,
despite the belief 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
40
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 10 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 long-
lived assets may not be recoverable or 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 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 consists of an assessment of qualitative factors, including general economic and industry conditions, market
share and input costs. If such qualitative factors do not support that the fair value of the reporting unit is greater
than the carrying amount, the Company then uses a discounted cash flow model to estimate the fair value of the
reporting unit. This model requires the use of long-term forecasts and assumptions regarding industry-specific
economic conditions outside the control of the Company. Actual results and events could differ significantly from
management estimates.
Contingent Consideration Payments
In connection with several acquisitions, in addition to the cash paid at closing, additional payments could
be required depending upon the level of sales generated from certain of the acquired products. The fair value of
the aggregate estimated contingent consideration 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 contingent consideration payments for such acquisitions. The fair value of the contingent consideration
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, weighted average cost of capital, 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, sales and purchase rebates, accounts receivable,
lease terminations, asset retirement obligations, long-lived assets, executive succession, post-retirement benefits,
stock-based compensation, segment allocations, environmental
litigation.
Establishing reserves for these matters requires management's estimate and judgment with regard to risk and
liabilities, contingencies and
41
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 and aluminum, and components used by the
Company which are made from these raw materials, are influenced by demand and other factors specific to these
commodities, rather than being directly affected by inflationary pressures. Prices of these commodities have
historically been volatile, and over the past few months prices have continued to fluctuate. The Company did not
experience significant increases in its labor costs in 2013 related to inflation.
42
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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, 2013, the Company had no outstanding borrowings.
The Company is also exposed to changes in the prices of raw materials, specifically steel and aluminum.
The Company has, from time to time, entered into derivative instruments for the purpose of managing a portion of
the exposures associated with fluctuations in aluminum prices. While these derivative instruments are subject to
fluctuations in value, these fluctuations are generally offset by the changes in fair value of the underlying
exposures. At December 31, 2013, the Company had no derivative instruments outstanding.
The Company has historically been able to obtain sales price increases to offset the majority of raw
material cost increases. However, there can be no assurance future cost increases, if any, can be partially or fully
passed on to customers, or the timing of such sales price increases will match raw material cost increases.
Additional information required by this item is included under the caption “Inflation” in the
Management’s Discussion and Analysis of Financial Condition and Results of Operations section 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
(the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31, 2013. We also have audited the Company’s
internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control –
Integrated Framework (1992) 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, 2013 and 2012, and the results of
their operations and their cash flows for each of the years in the three-year period ended December 31, 2013, 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, 2013, based on criteria established in Internal Control –
Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
/s/ KPMG LLP
Chicago, Illinois
February 28, 2014
44
Drew Industries Incorporated
Consolidated Statements of Income
(In thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Executive succession
Operating profit
Interest expense, net
Income before income taxes
Provision for income taxes
Net income
Net income per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Year Ended December 31,
2012
2011
2013
$ 1,015,576
802,467
213,109
132,935
1,876
78,298
351
77,947
27,828
50,119
$
$
$
2.15
2.11
$
$
$
$
901,123
732,464
168,659
109,071
1,456
58,132
330
57,802
20,462
37,340
1.66
1.64
$
$
$
$
681,166
541,445
139,721
91,173
-
48,548
292
48,256
18,197
30,059
1.35
1.34
23,321
23,753
22,558
22,828
22,267
22,444
The accompanying notes are an integral part of these Consolidated Financial Statements.
45
Drew Industries Incorporated
Consolidated Balance Sheets
(In thousands, except per share amount)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Deferred taxes
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
Dividend payable
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 shares; issued 26,058 shares at December 31, 2013
and 25,376 shares at December 31, 2012
Paid-in capital
Retained earnings
Stockholders’ equity before treasury stock
Treasury stock, at cost, 2,684 shares at December 31, 2013 and
December 31, 2012
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2013
2012
$
$
$
$
$
$
66,280
31,015
101,211
12,557
14,467
225,530
125,982
21,545
59,392
12,236
8,499
453,184
24,063
46,706
47,422
118,191
21,380
139,571
9,939
21,846
97,367
10,073
14,798
154,023
107,936
21,177
69,218
14,993
6,521
373,868
21,725
-
48,055
69,780
19,843
89,623
261
126,360
216,459
343,080
254
100,412
213,046
313,712
(29,467)
313,613
453,184
$
(29,467)
284,245
373,868
$
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
Adjustments to reconcile net income to cash flows provided
by operating activities:
Depreciation and amortization
Stock-based compensation expense
Deferred taxes
Other non-cash items
Changes in assets and liabilities, net of acquisitions
of businesses:
Accounts receivable, net
Inventories, net
Prepaid expenses and other assets
Accounts payable, trade
Accrued expenses and other liabilities
Net cash flows provided by operating activities
Cash flows from investing activities:
Capital expenditures
Acquisitions of businesses
Proceeds from sales of fixed assets
Proceeds from maturity of short-term investments
Other investing activities
Net cash flows used for investing activities
Cash flows from financing activities:
Exercise of stock options and deferred stock units
Proceeds from line of credit borrowings
Repayments under line of credit borrowings
Payment of special dividend
Payment of contingent consideration related to acquisitions
Purchase of treasury stock
Other financing activities
Net cash flows provided by (used for)
financing activities
Year Ended December 31,
2012
2011
2013
$
50,119
$
37,340
$
30,059
27,500
10,839
269
1,867
(9,013)
(3,403)
(2,288)
2,296
4,491
82,677
(32,595)
(4,750)
1,444
-
(154)
(36,055)
15,175
135,452
(135,452)
-
(5,456)
-
-
9,719
56,341
9,939
66,280
364
26,799
$
$
$
25,665
6,318
(668)
654
774
(4,727)
(10,738)
5,983
12,088
72,689
(32,026)
(1,473)
5,420
-
(119)
(28,198)
8,217
52,227
(52,227)
(45,038)
(4,315)
-
-
(41,136)
3,355
6,584
9,939
369
24,145
$
$
$
20,522
4,587
821
1,570
(5,007)
(14,738)
(1,848)
4,391
(3,526)
36,831
(24,317)
(50,302)
1,338
5,000
(843)
(69,124)
1,188
130,500
(130,500)
-
(398)
(626)
(167)
(3)
(32,296)
38,880
6,584
284
18,909
Net increase (decrease) in cash
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest
Income taxes, net of refunds
$
$
$
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
amounts)
Balance - December 31, 2010
Net income
Issuance of 151,150 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
Reversal of deferred tax assets due to
expiration of vested stock options
Stock-based compensation expense
Issuance of 47,506 deferred stock units
relating to prior year compensation
Purchase of 33,856 share of treasury stock
Balance - December 31, 2011
Net income
Issuance of 550,352 shares of common
stock pursuant to stock options,
deferred stock units and restricted stock
Income tax benefit relating to issuance of
common stock pursuant to stock options,
deferred stock units and restricted stock
Stock-based compensation expense
Issuance of 7,548 deferred stock units
relating to prior year compensation
Special cash dividend ($2.00 per share)
Dividend equivalents on deferred stock
units, stock awards and restricted stock
Balance - December 31, 2012
Net income
Issuance of 681,426 shares of common
stock pursuant to stock options,
deferred stock units and restricted stock
Income tax benefit relating to issuance of
common stock pursuant to stock options,
deferred stock units and restricted stock
Stock-based compensation expense
Issuance of 3,776 deferred stock units
relating to prior year compensation
Special cash dividend ($2.00 per share)
Balance - December 31, 2013
1
-
-
-
-
-
248
-
6
-
-
-
-
-
254
-
7
-
-
-
-
261
$
Common
Stock
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Total
Stockholders’
Equity
$
$
247
-
79,986
-
$ 192,067 $
30,059
(28,841)
-
$
243,459
30,059
996
216
(2,496)
4,587
1,100
-
84,389
-
7,853
270
6,318
200
-
1,382
100,412
-
13,440
1,534
10,839
135
-
-
-
-
-
-
-
-
-
-
-
222,126
37,340
-
(626)
(29,467)
-
-
-
-
-
(45,038)
(1,382)
213,046
50,119
-
-
-
-
(46,706)
-
-
-
-
-
-
(29,467)
-
-
-
-
-
-
(29,467)
$
997
216
(2,496)
4,587
1,100
(626)
277,296
37,340
7,859
270
6,318
200
(45,038)
-
284,245
50,119
13,447
1,534
10,839
135
(46,706)
313,613
$ 126,360 $ 216,459 $
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 (collectively, “Drew” or the “Company”). Drew has no unconsolidated subsidiaries.
Drew operates through its wholly-owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively,
“Lippert Components”). Effective December 2013, the Company completed the tax-free reorganization of Kinro,
Inc. and its subsidiaries with and into Lippert Components. Drew, through Lippert Components, manufactures a
broad array of components for recreational vehicles (“RVs”) and manufactured homes, and to a lesser extent
manufactures components for modular housing, truck caps and buses, as well as for trailers used to haul boats,
livestock, equipment and other cargo. At December 31, 2013, the Company operated 31 manufacturing facilities
in 11 states.
Because of fluctuations in dealer inventories, and the impact of international, national and regional
economic conditions and consumer confidence on retail sales of RVs and other products for which we sell our
components, current and future seasonal industry trends may be different than in prior years.
The Company is not aware of any significant events, except as disclosed in the Notes to Consolidated
Financial Statements, which 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 Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the time
of purchase to be cash equivalents.
Accounts Receivable
Accounts receivable are stated at 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 the balance will not be collected.
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
49
and repair costs that do not improve service potential or extend economic life are expensed as incurred; significant
improvements are capitalized.
Income Taxes
Deferred tax assets and liabilities are determined based on the temporary differences between the
financial reporting and tax basis of assets and liabilities, applying enacted statutory tax rates in effect for the year
in which the differences are expected to reverse.
The Company accounts for uncertainty in tax positions by recognizing 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. In 2013, the Company assessed qualitative factors of its
reporting units to determine whether it was more likely than not the fair value of the reporting unit was less than
its carrying amount, including goodwill. The qualitative impairment test consists of an assessment of qualitative
factors, including general economic and industry conditions, market share and input costs. In 2012 and 2011, the
impairment tests were based on fair value, determined using discounted cash flows, appraised values or
management’s estimates.
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
Long-lived assets, other than goodwill, are tested for impairment when changes in circumstances indicate
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.
Asset Retirement Obligations
Asset retirement obligations are legal obligations associated with the retirement of long-lived assets. The
Company records asset retirement obligations on certain of its owned and leased facilities and leased machinery
50
and equipment. These liabilities are initially recorded at fair value and are adjusted for changes resulting from
revisions to the timing or the amount of the original estimate.
Environmental Liabilities
Accruals for environmental matters are recorded when it is probable 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 potentially responsible 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 some of these matters (the outcomes of
which are subject to various uncertainties) may be resolved unfavorably against the Company, and could
materially affect operating results when resolved in future periods.
Financial Instruments
The carrying values of cash and cash equivalents, 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 expensed over their vesting period, based on fair value. For
awards that have a service only vesting condition, the Company recognizes stock-based compensation expense on
a straight-line basis over the requisite service periods. For awards with a performance vesting condition, which
are subject to certain pre-established performance targets, the Company recognizes stock-based compensation
expense on a graded-vesting basis to the extent it is probable the performance targets will be met. The fair value
for stock options is determined using the Black-Scholes option-pricing model, while the fair values of deferred
stock units and restricted stock are based on the market price of the Company’s Common Stock, all on the date
the stock-based awards are granted.
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 Income.
Shipping and Handling Costs
The Company records shipping and handling costs within selling, general and administrative expenses.
Such costs aggregated $36.4 million, $32.7 million and $24.6 million in the years ended December 31, 2013,
2012 and 2011, respectively.
Legal Costs
The Company expenses all legal costs associated with litigation as incurred. Legal expenses are included
in selling, general and administrative expenses in the Consolidated Statements of Income.
51
Fair Value Measurements
Fair value is determined using a hierarchy that has three levels based on the reliability of the inputs used
to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for
identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3
includes fair values estimated using significant unobservable inputs.
Use of Estimates
The preparation of 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,
sales and purchase rebates, accounts receivable, inventories, goodwill and other intangible assets, income taxes,
warranty obligations, self-insurance obligations, lease terminations, asset retirement obligations, long-lived assets,
executive succession, post-retirement benefits, stock-based compensation, segment allocations, contingent
consideration, environmental liabilities, contingencies and litigation. The Company bases its estimates on
historical experience, other available information and various other assumptions believed to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other resources. Actual results and events could differ
significantly from management estimates.
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 88 percent, 87 percent and 84 percent of consolidated net sales for
the years ended December 31, 2013, 2012 and 2011, respectively, manufactures a variety of products used
primarily in the production of RVs, including:
● Steel chassis for towable RVs
● Axles and suspension solutions for towable RVs
● Slide-out mechanisms and solutions
● Thermoformed bath, kitchen and other products
● Entry steps
● Manual, electric and hydraulic stabilizer
and leveling systems
● Aluminum windows and screens
● Chassis components
● Furniture and mattresses
● Entry, baggage, patio and ramp doors
● Awnings
● Other accessories
The Company also supplies certain of these products to the RV aftermarket. In addition, the Company
manufactures components for adjacent industries, including buses, trailers used to haul boats, livestock,
equipment and other cargo, and truck caps. Approximately 81 percent of the Company’s RV Segment net sales in
2013 were of products to original equipment manufacturers (“OEMs”) of travel trailer and fifth-wheel RVs.
52
The MH Segment, which accounted for 12 percent, 13 percent and 16 percent of consolidated net sales
for the years ended December 31, 2013, 2012 and 2011, respectively, manufactures a variety of products used in
the production of manufactured homes and to a lesser extent, modular housing and mobile 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 certain of these products to the manufactured housing aftermarket. 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 types of 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, with oversight by the Board of Directors. This group evaluates the performance of each segment based
upon segment operating profit or loss, defined as income or loss before interest, executive succession and income
taxes. Decisions concerning the allocation of resources are also based on each segment’s utilization of assets.
Management of debt is a corporate function. The accounting policies of the RV and MH Segments are the same as
those described in Note 1 of the Notes to Consolidated Financial Statements.
Effective with the second quarter of 2013, in connection with the management succession and relocation
of the corporate office from New York to Indiana, corporate expenses, accretion related to contingent
consideration and other non-segment items, which were previously reported on separate lines, have been included
as part of segment operating profit. Corporate expenses are allocated between the segments based upon net sales.
Accretion related to contingent consideration and other non-segment items are included in the segment to which
they relate. The segment disclosures from prior years have been reclassified to conform to the current year
presentation.
Information relating to segments follows for the years ended December 31:
(In thousands)
2013
Net sales to external customers(a)
Operating profit (loss)(b)
Total assets(c)
Expenditures for long-lived assets(d) $
$
Depreciation and amortization
$ 893,694
68,248
$
$ 306,139
34,989
24,615
RV
Segments
MH
Total
Corporate
and Other
Total
$ 121,882
11,926
$
32,948
$
2,682
$
2,806
$
$ 1,015,576
80,174
$
339,087
$
37,671
$
27,421
$
$
-
(1,876)
$
$ 114,097
-
$
79
$
$ 1,015,576
78,298
$
453,184
$
37,671
$
27,500
$
2012
Net sales to external customers(a)
Operating profit (loss)(b)
Total assets(c)
Expenditures for long-lived assets(d) $
$
Depreciation and amortization
$ 780,925
$
47,172
$ 281,728
30,893
22,750
$ 120,198
12,416
$
35,668
$
2,739
$
2,822
$
$
$
$
$
$
901,123
59,588
317,396
33,632
25,572
$
$
$
$
$
-
(1,456)
56,472
-
93
$
$
$
$
$
901,123
58,132
373,868
33,632
25,665
53
Segments
MH
Corporate
and Other
RV
Total
(Continued - In thousands)
2011
Net sales to external customers(a)
Operating profit(b)
Total assets(c)
Expenditures for long-lived assets(d) $
$
Depreciation and amortization
(a) Thor Industries, Inc., a customer of the RV Segment, accounted for 31 percent, 34 percent and 36 percent of the Company’s
consolidated net sales for the years ended December 31, 2013, 2012 and 2011, respectively. Berkshire Hathaway Inc. (through its
subsidiaries Forest River, Inc. and Clayton Homes, Inc.), a customer of both segments, accounted for 28 percent, 27 percent and 27
percent of the Company’s consolidated net sales for the years ended December 31, 2013, 2012 and 2011, respectively. No other
customer accounted for more than 10 percent of consolidated net sales in the years ended December 31, 2013, 2012 and 2011.
$ 110,523
10,833
$
40,737
$
3,378
$
2,834
$
$ 570,643
$
37,715
$ 268,395
66,931
17,593
681,166
48,548
309,132
70,309
20,427
681,166
48,548
351,083
70,412
20,522
-
-
41,951
103
95
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Total
(b) Certain general and administrative expenses are allocated between the segments based upon net sales or operating profit,
depending upon the nature of the expense.
(c) Segment assets include accounts receivable, inventories, fixed assets, goodwill and other intangible assets. Corporate and other
assets include cash and cash equivalents, prepaid expenses and other current assets, deferred taxes, and other assets.
(d) Expenditures for long-lived assets include capital expenditures, as well as fixed assets, goodwill and other intangible assets
purchased as part of the acquisition of businesses. The Company purchased $4.8 million, $1.5 million and $45.2 million of long-
lived assets, as part of the acquisitions of businesses in the years ended December 31, 2013, 2012 and 2011, respectively.
Net sales by product were as follows for the years ended December 31:
(In thousands)
RV Segment:
Chassis, chassis parts and
slide-out mechanisms
Windows, doors and screens
Furniture and mattresses
Axles and suspension solutions
Other
Total RV Segment net sales
MH Segment:
Windows, doors and screens
Chassis and chassis parts
Other
Total MH Segment net sales
2013
2012
2011
$
$
$
$
493,244
181,934
100,196
69,818
48,502
893,694
67,029
38,359
16,494
121,882
$
$
$
$
$
443,850
173,436
78,082
57,275
28,282
780,925
63,655
41,874
14,669
120,198
901,123
$
$
$
$
$
316,580
126,130
67,088
43,669
17,176
570,643
58,377
38,754
13,392
110,523
681,166
Total net sales
$ 1,015,576
54
The composition of net sales was as follows for the years ended December 31:
(In thousands)
Net sales:
RV Segment:
RV OEMs
2013
2012
2011
Travel trailers and fifth-wheels
Motorhomes
RV aftermarket
Adjacent industries
Total RV Segment net sales
MH Segment:
Manufactured housing OEMs
Manufactured housing aftermarket
Adjacent industries
Total MH Segment net sales
$
$
$
$
727,783
47,937
25,334
92,640
893,694
80,245
13,719
27,918
121,882
Total net sales
$ 1,015,576
$
$
$
$
$
653,478
34,612
19,119
73,716
780,925
80,392
13,110
26,696
120,198
901,123
$
$
$
$
$
497,544
17,492
14,660
40,947
570,643
77,087
13,073
20,363
110,523
681,166
3. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
Acquisition in 2014
Innovative Design Solutions, Inc.
On February 27, 2014, the Company acquired Innovative Design Solutions, Inc. (“IDS”), a designer,
developer and manufacturer of electronic systems encompassing a wide variety of RV applications. IDS also
manufactures electronic systems for automotive, medical and industrial applications. IDS had annual sales of
approximately $19 million in 2013, of which $13 million were to the Company. The purchase price was $36.0
million, of which $34.2 million was paid at closing, with the balance to be paid out annually over the subsequent
three years, plus contingent consideration based on future sales.
Acquisitions in 2013
Fortress Technologies, LLC
On December 13, 2013, the Company acquired the business and certain assets of Fortress Technologies,
LLC (“Fortress”). Fortress is a manufacturer of specialized RV chassis. The acquired business had annualized sales
of approximately $3 million. The results of the acquired business have been included in the Company's RV
Segment and in the Consolidated Statements of Income since the acquisition date.
55
The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration
Working capital, net
Net tangible assets
Total fair value of net assets acquired
Midstates Tool & Die and Engineering, Inc.
$
$
$
3,299
(111)
3,410
3,299
On June 24, 2013, the Company acquired the business and certain assets of Midstates Tool & Die and
Engineering, Inc. (“Midstates”). Midstates is a manufacturer of tools and dies, as well as automation equipment.
The acquired business had annualized sales of approximately $2 million. The results of the acquired business have
been included in the Company's RV Segment and in the Consolidated Statements of Income since the acquisition
date.
The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration
Working capital, net
Non-compete agreement
Net tangible assets
Total fair value of net assets acquired
Goodwill (tax deductible)
$
$
$
$
1,451
20
40
1,023
1,083
368
The consideration given was greater than the fair value of assets acquired, resulting in goodwill, because
the Company anticipates the automation capabilities of the acquired business will help to improve its operating
efficiencies.
Acquisition in 2012
RV Entry Door Operation
On February 21, 2012, the Company acquired the business and certain assets of the United States RV
entry door operation of Euramax International, Inc. The acquired business had annualized sales of approximately
$6 million. The purchase price was $1.7 million, of which $1.2 million was paid at closing, with the balance to be
paid over the next three years. The results of the acquired business have been included in the Company’s RV
Segment and in the Consolidated Statements of Income since the acquisition date.
56
The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration
Present value of future payments
Total fair value of consideration given
Customer relationships
Other identifiable intangible assets
Net tangible assets
Total fair value of net assets acquired
Goodwill (tax deductible)
$
$
$
$
$
1,164
482
1,646
270
40
785
1,095
551
The customer relationships are being amortized over their estimated useful life of 7 years. The
consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the
Company anticipates leveraging its existing manufacturing capacity and purchasing power to reduce costs in this
product line.
Acquisitions in 2011
The five acquisitions completed in 2011 added approximately $40 million in net sales for 2011
subsequent to their respective acquisition dates. Assuming that each of the acquisitions completed in 2011 had
been completed at the beginning of 2011, net sales for 2011 would have been $55 million higher.
M&M Fabricators
On December 1, 2011, the Company acquired the business and certain assets of M&M Fabricators. M&M
had annualized sales of approximately $3 million, comprised of chassis modification primarily for producers of
transit buses, specialized commercial vehicles, and Class A and Class C motorhome RVs. The purchase price was
$1.0 million paid at closing, plus contingent consideration based on future sales of this operation. The results of
the acquired business have been included in the Company’s RV Segment and in the Consolidated Statements of
Income since the acquisition date.
The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration
Contingent consideration
Total fair value of consideration given
Customer relationships
Net tangible assets
Total fair value of net assets acquired
Goodwill (tax deductible)
57
$
$
$
$
$
961
450
1,411
330
820
1,150
261
The consideration given was greater than the fair value of the assets acquired, resulting in goodwill,
because the Company anticipates leveraging its existing experience and purchasing power with respect to these
product lines.
Starquest Products, LLC
On August 29, 2011, the Company acquired the business and assets of Starquest Products, LLC and its
affiliated company. Starquest had annual sales of approximately $22 million, comprised primarily of windows for
truck caps, which are fiberglass enclosures that fit over the bed of pick-up trucks, painted to automotive standards
and designed to exact truck bed specifications. Starquest also manufactures windows and doors for horse trailers
and certain types of buses. The purchase price was $22.6 million paid at closing, plus contingent consideration
based on future sales of certain products. The results of the acquired business have been included in the
Company’s RV Segment and in the Consolidated Statements of Income since the acquisition date.
The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration
Contingent consideration
Total fair value of consideration given
Customer relationships
Other identifiable intangible assets
Net tangible assets
Total fair value of net assets acquired
Goodwill (tax deductible)
$
$
$
$
$
22,600
40
22,640
12,540
1,884
2,871
17,295
5,345
The customer relationships intangible asset is being amortized over its estimated useful life of 15 years.
The consideration given was greater than the fair value of the assets acquired, resulting in goodwill, because the
Company anticipates leveraging its existing experience and purchasing power with respect to these product lines.
EA Technologies, LLC
On August 22, 2011, the Company acquired from EA Technologies, LLC the business and certain assets
of the towable RV chassis and slide-out mechanism operation previously owned by Dexter Chassis Group. The
acquired business had annual sales of more than $40 million. The purchase price was $13.5 million paid at
closing. The results of the acquired business have been included in the Company’s RV Segment and in the
Consolidated Statements of Income since the acquisition date.
58
The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration
Customer relationships
Net tangible assets
Total fair value of net assets acquired
Goodwill (tax deductible)
$
$
$
$
13,500
6,960
2,339
9,299
4,201
The customer relationships intangible asset is being amortized over its estimated useful life of 15 years.
The consideration given was greater than the fair value of the assets acquired, resulting in goodwill, because the
Company anticipates leveraging its existing experience and manufacturing capacity with respect to these product
lines.
M-Tec Corporation
On July 19, 2011, the Company acquired certain assets and business of M-Tec Corporation. The acquired
business had annual sales of approximately $12 million comprised primarily of components for RVs, mobile
office units and manufactured homes. The purchase price was $6.0 million paid at closing, plus contingent
consideration based on future sales of existing products. The results of the acquired business have been included
in either the Company’s RV or MH Segments, as appropriate, and in the Consolidated Statements of Income since
the acquisition date.
The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration
Contingent consideration
Total fair value of consideration given
Customer relationships
Other identifiable intangible assets
Net tangible assets
Total fair value of net assets acquired
Goodwill (tax deductible)
$
$
$
$
$
5,990
450
6,440
2,310
315
1,723
4,348
2,092
The customer relationships intangible asset is being amortized over its estimated useful life of 15 years.
The consideration given was greater than the fair value of the assets acquired, resulting in goodwill, because the
Company anticipates leveraging its existing manufacturing expertise and purchasing power with respect to these
product lines.
59
Home-Style Industries
On January 28, 2011, the Company acquired the operating assets and business of Home-Style Industries,
Inc., and its affiliated companies. Home-Style had annual sales of approximately $12 million comprised primarily
of a full line of upholstered furniture and mattresses primarily for towable RVs, in the Northwest U.S. market.
The purchase price was $7.3 million paid at closing, plus contingent consideration based on future sales of
existing products in specific geographic regions. The results of the acquired business have been included in the
Company’s RV Segment and in the Consolidated Statements of Income since the acquisition date.
The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration
Contingent consideration
Total fair value of consideration given
Customer relationships
Other identifiable intangible assets
Net tangible assets
Total fair value of net assets acquired
Goodwill (tax deductible)
$
$
$
$
$
7,250
150
7,400
3,350
365
2,582
6,297
1,103
The customer relationships intangible asset is being amortized over its estimated useful life of 12 years.
The consideration given was greater than the fair value of the assets acquired, resulting in goodwill, because the
Company anticipates leveraging its existing experience and purchasing power with respect to these product lines.
Goodwill
Goodwill by reportable segment was as follows:
(In thousands)
RV Segment MH Segment
Total
Accumulated cost
Accumulated impairment
Net balance – December 31, 2010
Acquisitions – 2011
Net balance – December 31, 2011
Acquisitions – 2012
Net balance – December 31, 2012
Acquisitions – 2013
Net balance – December 31, 2013
Accumulated cost
Accumulated impairment
Net balance – December 31, 2013
9,251
(9,251)
-
774
774
-
774
-
774
10,025
(9,251)
774
$
$
$
$
58,024
(50,527)
7,497
13,002
20,499
678
21,177
368
21,545
72,072
(50,527)
21,545
$
$
$
$
48,773
(41,276)
7,497
12,228
19,725
678
20,403
368
20,771
62,047
(41,276)
20,771
$
$
$
$
60
The Company performed its annual goodwill impairment procedures for all of its reporting units as of
November 30 2013, 2012 and 2011, and concluded no goodwill impairment existed at that time. The Company
plans to update its review as of November 30, 2014, 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)
RV Segment
MH Segment
Other intangible assets
2013
2012
$
$
56,954
2,438
59,392
$
$
66,191
3,027
69,218
Other intangible assets consisted of the following at December 31, 2013:
(In thousands)
Gross
Cost
Accumulated
Amortization
Net
Balance
Estimated Useful
Life in Years
$
Customer relationships
Patents
Tradenames
Non-compete agreements
Purchased research and
development
Other intangible assets
$
50,105
41,651
7,959
3,866
4,457
108,038
$
$
21,999
18,461
5,976
2,210
-
48,646
$
$
28,106
23,190
1,983
1,656
4,457
59,392
6 to 16
3 to 19
5 to 15
3 to 6
Indefinite
Other intangible assets consisted of the following at December 31, 2012:
(In thousands)
Gross
Cost
Accumulated
Amortization
Net
Balance
Estimated Useful
Life in Years
$
Customer relationships
Patents
Tradenames
Non-compete agreements
Purchased research and
development
Other intangible assets
$
50,105
41,507
7,959
4,989
4,457
109,017
$
$
17,857
14,850
4,525
2,567
-
39,799
$
$
32,248
26,657
3,434
2,422
4,457
69,218
3 to 16
2 to 19
5 to 15
1 to 7
Indefinite
61
Amortization expense related to other intangible assets was as follows for the years ended December 31:
(In thousands)
2013
2012
2011
Cost of sales
Selling, general and administrative expenses
Amortization expense
$
$
3,610
6,398
10,008
$
$
4,492
6,760
11,252
$
$
3,393
4,958
8,351
Estimated amortization expense for other intangible assets for the next five years is as follows:
(In thousands)
2014
2015
2016
2017
2018
Cost of sales
Selling, general and
administrative expense
Amortization expense
$
$
$
3,890
5,217
9,107
$
$
$
4,028
4,566
8,594
$
$
$
4,175
3,696
7,871
$
$
$
3,816
3,331
7,147
$
$
$
3,081
3,037
6,118
4. ACCOUNTS RECEIVABLE
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)
2013
2012
2011
Balance at beginning of period
Provision for doubtful accounts
Additions related to acquired businesses
Recoveries
Accounts written off
Balance at end of period
$
$
677
194
5
1
(172)
705
$
$
858
304
-
8
(493)
677
$
$
499
72
129
340
(182)
858
In addition to the allowance for doubtful accounts receivable, the Company had an allowance for prompt
payment discounts in the amount of $0.3 million at December 31, 2013 and 2012, respectively.
5. INVENTORIES
Inventories consisted of the following at December 31:
(In thousands)
Raw materials
Work in process
Finished goods
Inventories, net
2013
2012
$
$
84,279
3,038
13,894
101,211
$
$
78,434
2,074
16,859
97,367
62
6. FIXED ASSETS
Fixed assets consisted of the following at December 31:
(In thousands)
2013
2012
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
$
$
12,018
76,577
2,044
130,461
17,745
2,771
241,616
10,445
69,805
1,329
109,582
13,738
6,190
211,089
115,634
125,982
$
103,153
107,936
$
Estimated Useful
Life in Years
10 to 40
3 to 10
3 to 15
3 to 8
Depreciation and amortization of fixed assets was as follows for the years ended December 31:
(In thousands)
2013
2012
2011
Cost of sales
Selling, general and administrative expenses
Total
$
$
14,667
2,773
17,440
$
$
11,886
2,475
14,361
$
$
10,130
1,990
12,120
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following at December 31:
(In thousands)
2013
2012
Employee compensation and benefits
Warranty
Sales rebates
Current portion of contingent consideration
$
related to acquisitions
Other
Accrued expenses and other
current liabilities
$
18,583
11,731
4,773
3,462
8,873
18,490
9,125
5,711
5,429
9,300
$
47,422
$
48,055
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 costs, (ii) current trends, (iii) product mix, and (iv) sales. The following table provides a reconciliation
63
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)
2013
2012
2011
Balance at beginning of period
Provision for warranty expense
Warranty liability from acquired businesses
Warranty costs paid
Total accrued warranty
Less long-term portion
Current accrued warranty
$
$
12,729
13,874
21
(9,299)
17,325
5,594
11,731
$
$
8,640
12,383
8
(8,302)
12,729
3,604
9,125
$
$
5,892
6,750
563
(4,565)
8,640
2,758
5,882
8. 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 $1.4 million, $1.1 million and $1.0 million to this plan during the
years ended December 31, 2013, 2012 and 2011, 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 $1.7 million, $1.9 million and $2.0 million during the years ended December
31, 2013, 2012 and 2011, 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 $0.2 million and $0.6 million from the
Plan during the years ended December 31, 2013, and 2011, respectively. There were no participant withdrawals in
2012. At December 31, 2013 and 2012, deferred compensation of $9.4 million and $7.0 million, respectively, was
recorded in other long-term liabilities, and at December 31, 2013, deferred compensation of $0.2 million was
recorded in accrued expenses and other current liabilities.
9. LONG-TERM INDEBTEDNESS
The Company had no debt outstanding at December 31, 2013 and 2012.
The Company has a $50.0 million line of credit (the “Credit Agreement”) 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 (i) the Prime Rate, but not less than 2.5 percent,
plus additional interest up to 0.8 percent (0 percent at December 31, 2013 and 2012), or (ii) LIBOR plus additional
interest ranging from 2.0 percent to 2.8 percent (2.0 percent at December 31, 2013 and 2012) depending on the
Company’s performance and financial condition. The Credit Agreement, which was scheduled to expire on January
64
1, 2016, was amended and extended on February 24, 2014, and now expires on January 1, 2019. In connection with
this amendment, the line of credit was increased to $75.0 million. At December 31, 2013 and 2012, the Company
had $2.2 million and $3.0 million, respectively in outstanding letters of credit under the line of credit. Availability
under the Company’s line of credit was $47.8 million at December 31, 2013.
The Company also has a $150.0 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 $150.0 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. At December 31, 2013 and 2012, there were no Senior Promissory Notes
outstanding. This facility, which was scheduled to expire on February 24, 2014, was amended and extended on
February 24, 2014, and now expires on February 24, 2017.
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. This limitation did not impact the Company’s borrowing
availability at December 31, 2013. The remaining availability under these facilities was $197.8 million at
December 31, 2013. The Company believes the availability under the amended line of credit and “shelf-loan”
facility, together with the $66.3 million in cash at December 31, 2013, is more than adequate to finance the
Company’s anticipated cash requirements for 2014.
Pursuant to the Credit Agreement and “shelf-loan” facility, at December 31, 2013 and 2012 the Company
was required to maintain minimum interest and fixed charge coverages, and to meet certain other financial
requirements. At December 31, 2013 and 2012, the Company was in compliance with all such requirements, and
expects to remain in compliance during 2014.
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.
10. INCOME TAXES
The provision for income taxes in the Consolidated Statements of Income was as follows for the years
ended December 31:
(In thousands)
Current:
Federal
State
Total current provision
Deferred:
Federal
State
Total deferred provision
Provision for income taxes
2013
2012
2011
$
$
$
$
23,430
4,129
27,559
68
201
269
27,828
$
$
$
$
17,483
3,647
21,130
(298)
(370)
(668)
20,462
$
$
$
$
13,875
3,501
17,376
590
231
821
18,197
65
The provision for income taxes differs from the amount computed by applying the federal statutory rate to
income before income taxes for the following reasons for the years ended December 31:
(In thousands)
2013
2012
2011
Income tax at federal statutory rate
State income taxes, net of federal income
tax impact
Manufacturing credit pursuant to Jobs
Creation Act
Other
Provision for income taxes
$
$
27,281
$
20,231
$
16,889
2,815
2,130
2,426
(1,444)
(824)
27,828
$
(1,101)
(798)
20,462
$
(828)
(290)
18,197
At December 31, 2013, federal and state income taxes receivable of $3.7 million were included in prepaid
expenses and other current assets. At December 31, 2012, federal income taxes receivable of $2.7 million were
included in prepaid expenses and other current assets, and state income taxes payable of $0.2 million were
included in accrued expenses and other current liabilities.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities were as follows at December 31:
(In thousands)
Deferred tax assets:
Goodwill and other intangible assets
Stock-based compensation
Deferred compensation
Warranty
Inventory
Other
Total deferred tax assets
Deferred tax liabilities:
Fixed assets
Net deferred tax assets
2013
2012
$
$
$
15,024
5,116
3,722
3,477
3,245
4,048
34,632
15,768
4,272
2,713
2,423
3,248
2,911
31,335
(9,839)
24,793
$
(6,269)
25,066
The Company concluded it is more likely than not that the deferred tax assets at December 31, 2013 will
be realized in the ordinary course of operations based on projected future taxable income and scheduling of
deferred tax liabilities.
Excess tax benefits on stock-based compensation of $1.5 million, $0.3 million and $0.2 million were
credited directly to stockholders' equity during the years ended December 31, 2013, 2012 and 2011, respectively,
relating to tax benefits which exceeded the compensation cost for stock-based compensation recognized in the
Consolidated Financial Statements.
In 2011, the Company reversed $2.5 million of deferred tax assets related to the expiration of vested stock
options granted in prior years. This reversal was recorded as a reduction of stockholders’ equity, against the pool
66
of available excess tax benefits from prior exercises of stock-based compensation. At December 31, 2013, the
remaining pool of excess tax benefits from prior exercises of stock-based compensation in stockholders’ equity
was $11.3 million.
Unrecognized Tax Benefits
The following table reconciles the total amounts of unrecognized tax benefits, at December 31:
(In thousands)
2013
2012
2011
Balance at beginning of period
Changes in tax positions of prior years
Additions based on tax positions
related to the current year
Payments
Closure of tax years
Balance at end of period
$
$
$
1,701
(29)
$
2,185
(297)
676
(126)
(853)
1,369
$
385
-
(572)
1,701
$
2,213
(341)
313
-
-
2,185
In addition, the total amount of accrued interest and penalties related to taxes was $0.2 million, $0.4
million and $0.6 million at December 31, 2013, 2012 and 2011, respectively.
The total amount of unrecognized tax benefits, net of federal income tax benefits, of $1.0 million, $1.2
million and $1.6 million at December 31, 2013, 2012 and 2011, 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 taxing authorities. The IRS and other taxing authorities may challenge certain deductions and
positions reported by the Company on its income tax returns. For federal income tax purposes, the tax years 2011
and 2012 remain subject to examination. For Indiana state income tax purposes, the tax years 2010 through 2012
remain subject to examination. Approximately 80 percent of the Company’s operations are located in Indiana.
The Company has assessed its risks associated with all tax return positions, and believes its tax reserve
estimates reflect its best estimate of the deductions and positions it will be able to sustain, or 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 2014. 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,
2013, would not be material to the Company’s financial position or annual results of operations.
11. 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.
67
Future minimum lease payments under operating leases at December 31, 2013 are as follows (in
thousands):
$
2014
2015
2016
2017
2018
Thereafter
Total minimum lease payments
$
3,496
2,518
2,101
1,867
1,666
3,605
15,253
In January 2014, the Company entered into a nine year operating lease with aggregate minimum lease
payments of $6.1 million to consolidate manufacturing operations for efficiency improvements and expand
capacity for its furniture and mattress operations.
Rent expense for operating leases was $7.1 million, $5.6 million and $5.4 million for the years ended
December 31, 2013, 2012 and 2011, respectively.
Contingent Consideration
In connection with several business acquisitions, if certain sales targets for the acquired products are
achieved, the Company would pay additional cash consideration. The Company has recorded a liability for the
fair value of this contingent consideration at December 31, 2013 and 2012, based on the present value of the
expected future cash flows using a market participant’s weighted average cost of capital of 15.5 percent and 14.9
percent, respectively.
The following table summarizes the contingent consideration liability as of December 31, 2013:
Acquisition (In thousands)
Schwintek products
Level-Up® six-point leveling system
Other acquired products
Total
Estimated
Remaining
Payments
5,188
4,033
240
9,461
$
$
Fair Value of
Estimated
Remaining
Payments
3,871
3,327
216
7,414
(a) $
(b)
(c)
$
(a) The remaining contingent consideration for two of the three products expires in March 2014. Contingent
consideration for the remaining product will cease five years after the product is first sold to customers. Two of the
three products acquired have a combined remaining maximum contingent consideration of $4.4 million, of which the
Company estimates $2.1 million will be paid. Other than expiration of the contingent consideration period, the
remaining product has no maximum contingent consideration.
(b) Other than expiration of the contingent consideration period in February 2016, this product has no maximum
contingent consideration.
(c) Contingent consideration expires at various dates through November 2025. Certain of these products have a
combined remaining maximum contingent consideration of $3.1 million, while the remaining products have no
maximum contingent consideration.
68
As required, the liability for this contingent consideration is measured at fair value quarterly, considering
actual sales of the acquired products, updated sales projections, and the updated market participant weighted
average cost of capital. Depending upon the weighted average costs of capital and future sales of the products
which are subject to contingent consideration, 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(a)
Fair value adjustments(a)
Total ending balance
Less current portion in accrued expenses
$
2013
2012
2011
$
11,519
-
(5,456)
1,308
43
7,414
$
14,561
67
(4,315)
1,756
(550)
11,519
12,104
1,090
(398)
1,886
(121)
14,561
and other current liabilities
(3,462)
(5,429)
(3,292)
Total long-term portion in other long-term
liabilities
$
3,952
$
6,090
$
11,269
(a) Recorded in selling, general and administrative expense in the Consolidated Statements of Income.
Litigation
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 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, 2013, would not be
material to the Company’s financial position or annual results of operations.
Executive Succession and Severance
On May 10, 2013, Fredric M. Zinn retired as President and Chief Executive Officer of Drew. Jason D.
Lippert, Chairman and Chief Executive Officer of Lippert Components, succeeded Mr. Zinn as Chief Executive
Officer of Drew. Scott T. Mereness, President of Lippert Components, succeeded Mr. Zinn as President of Drew.
In June 2013, the Company also relocated its corporate headquarters from White Plains, New York to Elkhart
County, Indiana, the location of the corporate headquarters of Lippert Components.
In connection with the Company’s executive succession and corporate relocation, the Company recorded
pre-tax charges of $1.5 million in the fourth quarter of 2012 and $1.9 million in the first six months of 2013,
related to contractual obligations for severance and the acceleration of equity awards held by certain employees
whose employment terminated as a result of the executive succession and relocation to Indiana. No charges were
recorded in the second half of 2013, and no other related charges are expected. The liability for executive
succession and severance obligations will be paid through 2015. During the third quarter of 2013, the transition and
corporate office relocation were completed. As a result, the Company expects to save an estimated $2 million
annually in general and administrative costs.
69
Unrelated to the executive succession, the Company incurred severance and relocation costs of $0.5
million, $0.2 million, and $0.1 million during the years ended December 31, 2013, 2012 and 2011, respectively,
which were recorded in selling, general and administrative expenses in the Consolidated Statements of Income.
The liability for executive succession and severance obligations, which will be paid through 2015, was
recorded as follows at December 31:
(In thousands)
Other accrued expenses and current liabilities $
Other long-term liabilities
2013
2012
2011
$
1,064
315
$
1,778
671
449
1,028
Total executive succession and
severance liability
$
1,379
$
2,449
$
1,477
12. STOCKHOLDERS' EQUITY
Special Dividend
On January 6, 2014, a special dividend of $2.00 per share of the Company’s Common Stock, representing
an aggregate of $46.7 million, was paid to stockholders of record as of December 20, 2013. On December 20,
2012, a special dividend of $2.00 per share of the Company’s Common Stock, representing an aggregate of $45.0
million, was paid to stockholders of record as of December 10, 2012. In connection with these special dividends,
holders of deferred stock units, restricted stock and stock awards were credited with deferred stock units,
restricted stock or stock equal to $2.00 per deferred stock unit, restricted stock or stock, representing $1.4 million
in total for each special dividend. In connection with these special cash dividends, the exercise price of all
outstanding stock options was reduced by $2.00 per share. These reductions in exercise price were made pursuant
to the terms of the outstanding awards, resulting in no incremental stock-based compensation expense.
Stock-Based Awards
Pursuant to the Drew Industries Incorporated Equity Award and Incentive Plan, as Amended and Restated
(the “Equity Plan”), which was approved by stockholders in May 2011, the Company may grant to its directors,
employees, and other eligible persons Common Stock-based awards, such as stock options, restricted stock and
deferred stock units. All such awards granted under the Equity Plan must be approved by the Compensation
Committee of Drew’s Board of Directors (the “Committee”). The Committee determines the period for which all
such awards may be exercisable, but in no event may such an award be exercisable more than 10 years from the
date of grant. The number of shares available under the Equity Plan, and the exercise price of all such awards
granted under the Equity Plan, are subject to adjustments by the Committee to reflect stock splits, dividends,
recapitalization, mergers, or other major corporate actions. The number of shares available for granting awards
was 246,368, 688,712 and 1,361,718 at December 31, 2013, 2012 and 2011, respectively.
Stock-based compensation resulted in charges to operations as follows for the years ended December 31:
70
(In thousands)
Stock options
Deferred stock units
Restricted stock
Stock awards
$
Stock-based compensation expense
$
2013
2012
2011
2,325
5,425
911
2,178
10,839
$
$
2,836
1,888
849
745
6,318
$
$
3,218
1,264
105
-
4,587
Stock-based compensation expense is recorded in the Consolidated Statements of Income in the same line
that cash compensation to those employees is recorded, primarily in selling, general and administrative expenses.
In addition, for the years ended December 31, 2013, 2012 and 2011, the Company issued deferred stock units to
certain executive officers in lieu of cash for a portion of prior year incentive compensation, in accordance with
their compensation arrangements, of $0.1 million, $0.2 million and $1.1 million, respectively. In February 2014,
the Company issued 43,188 deferred stock units at $45.98 per share, or $2.0 million, to certain officers in lieu of
cash for a portion of their 2013 salary and incentive compensation in accordance with their compensation
arrangements.
The fair value of each stock option grant was estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
Risk-free interest rate
Expected volatility
Expected life
Contractual life
Dividend yield
Fair value of stock options granted
2011
0.71%
55.20%
4.1 years
6.0 years
N/A
$
10.02
The fair value of deferred stock units, restricted stock and stock grants was the market price of the
Company’s Common Stock on the grant date.
Stock Options
The 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. The exercise price for stock options
granted under the 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. 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 either vest ratably over the service
period of five years for employees or, for certain executive officers, based on achievement of specified
performance conditions. As a result of the Company’s executive succession and corporate relocation, the vesting
of certain stock options was accelerated pursuant to contractual obligations with certain employees whose
employment terminated as a result of the relocation to Indiana.
71
Transactions in stock options under the Equity Plan are summarized as follows:
Outstanding at December 31, 2010
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2011
Exercised
Forfeited
Reduction for cash dividend
Outstanding at December 31, 2012
Exercised
Forfeited
Reduction for cash dividend
Outstanding at December 31, 2013
Exercisable at December 31, 2013
Number of
Option Shares
1,996,490
345,000
(87,300)
(100,900)
(342,640)
1,810,650
(422,131)
(67,700)
-
1,320,819
(574,288)
(22,870)
-
723,661
388,521
Weighted
Average
Stock Option
Exercise Price Exercise Price
$10.09 - $31.11
$23.17
$10.09 - $19.67
$10.09 - $31.11
$26.83 - $27.21
$10.09 - $31.11
$ 8.09 - $31.11
$10.09 - $31.11
$ 8.09 - $29.11
$ 8.09 - $29.11
$ 8.09 - $29.11
$ 8.09 - $29.11
$ 6.09 - $19.17
$ 6.09 - $19.17
$ 6.09 - $19.17
21.70
23.17
11.39
22.37
26.87
21.46
19.13
22.61
(2.00)
19.92
23.04
19.36
(2.00)
15.46
13.64
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
In 2013 and 2012, the Company granted deferred stock units in lieu of stock options.
Additional information for the exercise of stock options is as follows for the years ended December 31:
(In thousands)
Intrinsic value of stock options exercised
$
Cash receipts from stock options exercised $
Income tax benefits from stock option
exercises
$
Grant date fair value of stock options vested $
2013
9,062
13,231
3,473
2,252
$
$
$
$
2012
2011
4,838
8,075
1,852
2,814
$
$
$
$
1,079
997
422
3,207
72
The following table summarizes information about stock options outstanding at December 31, 2013:
Exercise
Price
$ 6.09
$ 7.53
$ 8.72
$ 15.49
$ 15.67
$ 19.17
Total Shares
Option
Shares
Outstanding
70,200
400
37,500
131,181
252,700
231,680
723,661
(a)
Remaining
Life
in Years
0.9
0.9
1.0
1.9
2.9
3.9
Option
Shares
Exercisable
70,200
400
37,500
94,281
139,100
47,040
388,521
(a)
(a) The aggregate intrinsic value for option shares outstanding and option shares exercisable is $25.9 million and
$14.6 million, respectively. The weighted average remaining term for option shares outstanding and option
shares exercisable is 2.7 years and 2.2 years, respectively. Recorded in selling, general and administrative
expense in the Consolidated Statements of Operations.
As of December 31, 2013, there was $2.7 million of total unrecognized compensation costs related to
unvested stock options, which are expected to be recognized over a weighted average remaining period of 2.4
years.
Deferred Stock Units
The Equity Plan provides for the grant or issuance of deferred stock units (“DSUs”) to directors,
employees and other eligible persons. Recipients of DSUs are entitled to receive shares at the end of a specified
deferral period. Holders of DSUs receive dividends granted to holders of the Common Stock, payable in
additional DSUs, and are subject to the same vesting criteria as the original grant.
DSUs vest (i) ratably over the service period, (ii) at a specified future date, or (iii) for certain officers,
based on achievement of specified performance conditions. As a result of the Company’s executive succession
and corporate relocation, the vesting of certain deferred stock units was accelerated pursuant to contractual
obligations with certain employees whose employment terminated as a result of the relocation to Indiana. In
addition, DSUs are issued in lieu of cash compensation.
73
Transactions in DSUs under the Equity Plan are summarized as follows:
Outstanding at December 31, 2010
Issued
Granted
Forfeited
Exercised
Outstanding at December 31, 2011
Issued
Granted
Dividend equivalents
Exercised
Outstanding at December 31, 2012
Issued
Granted
Forfeited
Exercised
Outstanding at December 31, 2013
Number of
Shares
266,216
79,714
53,450
(2,660)
(27,587)
369,133
23,713
282,925
34,568
(96,585)
613,754
32,462
140,461
(4,505)
(89,211)
692,961
Stock Price
$ 5.50 - $40.68
$18.67 - $25.48
$23.17
$20.89 - $23.49
$ 6.16 - $25.06
$ 5.50 - $40.68
$24.53 - $32.07
$26.54 - $30.50
$33.32
$ 5.50 - $40.68
$ 6.16 - $33.32
$33.84 - $48.53
$36.58 - $50.85
$30.50
$20.20 - $30.65
$ 6.16 - $50.85
As of December 31, 2013, there was $8.9 million of total unrecognized compensation costs related to
DSUs, which is expected to be recognized over a weighted average remaining period of 2.3 years.
Restricted Stock
The Equity Plan provides for the grant of restricted stock to directors, employees and other eligible
persons. The restriction period is established by the Committee, but may not be less than one year. Holders of
restricted stock have all the rights of a stockholder of the Company, including the right to vote and the right to
receive dividends granted to holders of the Common Stock, payable in additional shares of restricted stock, and
subject to the same vesting criteria as the original grant. All shares of restricted stock are not transferable during
the restriction period, which lapses one year from the date of grant. Restricted stock grants, which were all made
to directors, were as follows (in thousands except share and per share amounts):
Granted
Stock price
Fair value of stock granted
2013
2012
2011
17,885
50.89
910
$
$
29,841
30.50
910
$
$
36,260
23.17
840
$
$
As of December 31, 2013, there was $0.8 million of total unrecognized compensation costs related to
restricted stock, which is expected to be recognized over a weighted average remaining period of 0.9 years.
Stock Awards
In accordance with the Executive Employment and Non-Competition Agreements for 2012 – 2014 with
two of the Company’s named executive officers, they are entitled to receive an annual long-term award consisting
74
of the right to earn an aggregate of 85,000 shares of Common Stock. In accordance with compensation
arrangements for 2013 – 2014 with certain other officers of the Company, they are entitled to receive an annual
long-term award consisting of the right to earn an aggregate of 18,500 shares of the Common Stock. All of these
shares are earned during the subsequent three year period based on growth in the Company’s earnings per diluted
share over that same three year period. As of December 31, 2013, there was $2.9 million of total unrecognized
compensation costs related to outstanding stock awards, which is expected to be recognized over a weighted
average remaining period of 1.8 years. The grant date fair value of the January 1, 2014 awards was $5.2 million.
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:
(In thousands)
Weighted average shares outstanding
2013
2012
2011
for basic earnings per share
23,321
22,558
22,267
Common stock equivalents pertaining
to stock options and deferred
stock units
Weighted average shares outstanding
for diluted earnings per share
432
270
177
23,753
22,828
22,444
The weighted average diluted shares outstanding for the years ended December 31, 2013, 2012 and 2011,
exclude the effect of 303,240, 426,788 and 1,311,330 shares of common stock, respectively, subject to stock
options and deferred stock units. Such shares were excluded from total diluted shares because they were anti-
dilutive or the specified performance conditions those shares were subject to were not yet achieved.
Treasury Stock
In 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. The number of shares ultimately repurchased, and the timing of the purchases, will depend upon market
conditions, share price and other factors. Treasury stock transactions under this authorization were as follows (in
thousands except share and per share amounts):
Purchases through 2010
Purchases in 2011
Total purchases
Weighted
Average Price
Per Share
Shares
501,279 $
33,856 $
535,135 $
18.70 $
18.44 $
18.64 $
Cost
9,374
626
10,000
75
13. FAIR VALUE MEASUREMENTS
Recurring
The following table presents the Company’s assets and liabilities that were measured at fair value on a
recurring basis at December 31:
Total
(In thousands)
Assets
Deferred compensation $ 6,535
-
Derivative instruments
$ 6,535
Total assets
Liabilities
Contingent consideration $ 7,414
9,673
Deferred compensation
$ 17,087
Total liabilities
Deferred Compensation
2013
2012
Level 1 Level 2 Level 3
Total
Level 1
Level 2
Level 3
$ 6,535
-
$ 6,535
$
$
$
$
-
-
-
-
-
-
$ 4,540
223
$ 4,763
$ 4,540
-
$ 4,540
$
$
$
-
223
223
$
-
-
-
$
$
-
9,673
$ 9,673
$
$ 7,414
-
$ 7,414
-
-
-
$ 11,519
7,015
$ 18,534
$
$
-
7,015
$ 7,015
$
$ 11,519
-
$ 11,519
-
-
-
The Company has an Executive Non-Qualified Deferred Compensation Plan (the “Plan”). The amounts
deferred under the Plan are credited with earnings or losses based upon changes in values of the notional
investments elected by the Plan participants. The Company invests 65 percent of the amounts deferred by the Plan
participants in life insurance contracts, matching the investments elected by the Plan participants. Deferred
compensation assets and liabilities were valued using a market approach based on the quoted market prices of
identical instruments. For further information on deferred compensation, see Note 8 of the Notes to Consolidated
Financial Statements.
Contingent Consideration Related to Acquisitions
Liabilities for contingent consideration related to acquisitions were valued using management’s
projections for long-term sales forecasts, including assumptions regarding market share gains and future industry-
specific economic and market conditions, and a market participant’s weighted average cost of capital. Over the
next three years, the Company’s long-term sales growth forecasts for products subject to contingent consideration
arrangements average approximately 25 percent per year. For further information on the inputs used in
determining the fair value, and a roll-forward of the contingent consideration liability, see Note 11 of the Notes to
Consolidated Financial Statements.
Changes in either of the inputs in isolation would result in a change in the fair value measurement. A
change in the assumptions used for sales forecasts would result in a directionally similar change in the fair value
liability, while a change in the weighted average cost of capital would result in a directionally opposite change in
the fair value liability. If there is an increase in the fair value liability, the Company would record a charge to
selling, general and administrative expenses, and if there is a decrease in the fair value liability, the Company
would record a benefit in selling, general and administrative expenses.
Derivative Instruments
At December 31, 2013, the Company had no derivative instruments outstanding. While outstanding, these
derivative instruments were considered to be economic hedges of the underlying movement in the price of
aluminum, but were not designated or accounted for as a hedge. These derivative instruments were valued at fair
76
value using a market approach based on the quoted market prices of similar instruments at the end of each
reporting period, and the resulting net gain or loss was recorded in cost of sales in the Consolidated Statements of
Income. At December 31, 2012, the $0.2 million corresponding asset was recorded in prepaid expenses and other
current assets in the Consolidated Balance Sheets. During 2013, derivative instruments for 4.7 million pounds of
aluminum were settled at a loss of $0.3 million, which was recorded in cost of sales in the Consolidated Statements
of Income.
Non-recurring
The following table presents the carrying value on the measurement date of any assets and liabilities
which were measured at fair value and recorded at the lower of cost or fair value, on a non-recurring basis, using
significant unobservable inputs (Level 3), and the corresponding non-recurring losses recognized during the years
ended December 31:
Carrying
Value
(In thousands)
Assets
Vacant owned facilities $ 3,197
-
Other intangible assets
Net assets of acquired
$
businesses
Total assets
4,382
$ 7,579
$
Liabilities
Vacant leased facilities $
$
Total liabilities
$
-
$
-
Vacant Owned Facilities
2013
Non-Recurring
Losses
2012
Non-Recurring
Losses
Carrying
Value
2011
Non-Recurring
Losses
Carrying
Value
145
-
-
145
$ 5,009
-
$
523
1,228
$ 10,031
-
$
1,345
$ 6,354
$
-
1,751
38,389
$ 48,420
$
-
-
-
-
-
-
$
$
-
$
$
-
50
50
$
$
399
399
$
$
203
203
During 2013, 2012 and 2011, the Company reviewed the recoverability of the carrying value of its vacant
owned facilities. The determination of fair value was based on the best information available, including internal
cash flow estimates, market prices for similar assets, broker quotes and independent appraisals, as appropriate.
During 2013, the fair value of two vacant owned facilities did not exceed its carrying value; therefore an
impairment charge of $0.1 million was recorded in selling, general and administrative expenses in the Consolidated
Statements of Income. A sale agreement has been signed on one facility, with closing scheduled for the first quarter
of 2014. During 2013, the Company sold one of the facilities previously recorded as a vacant facility and reopened
two facilities. At December 31, 2013, the Company had three vacant owned facilities, with an estimated combined
fair value of $3.6 million and a combined carrying value of $3.2 million, including the one scheduled for closing in
the first quarter of 2014, classified in fixed assets in the Consolidated Balance Sheets.
During 2012, the carrying value of five vacant owned facilities exceeded their fair value; therefore an
impairment charge of $0.5 million was recorded. During 2012, the Company sold at a gain of $0.8 million two of
the facilities previously recorded as vacant facilities and reopened another. At December 31, 2012, the Company
had four vacant owned facilities, with a combined carrying value of $5.0 million, classified in fixed assets in the
Consolidated Balance Sheets.
77
During 2011, the fair value of six vacant owned facilities exceeded their carrying value; therefore no
impairment charges were recorded. At December 31, 2011, the Company had six vacant owned facilities with a
combined carrying value of $10.0 million, classified in fixed assets in the Consolidated Balance Sheets.
Other Intangible Assets
During 2012, the Company reviewed the recoverability of amortizable intangible assets associated with
an acquired patent. Based on the analyses, the $1.2 million carrying value of these intangible assets exceeded the
undiscounted cash flows expected to be generated. As a result, the Company was required to determine the fair
value of these intangible assets. Fair value was determined based on the present value of internal cash flow
estimates. The resulting fair value of these intangible assets was nominal, therefore the Company recorded a non-
cash impairment charge of $1.2 million, of which $1.0 million was recorded in cost of sales in the Consolidated
Statements of Income.
Net Assets of Acquired Businesses
The Company valued the assets and liabilities associated with the acquisitions of businesses on the
respective acquisition dates. Depending upon the type of asset or liability acquired, the Company used different
valuation techniques in determining the fair value. Those techniques included comparable market prices, long-
term sales, profitability and cash flow forecasts, assumptions regarding future industry-specific economic and
market conditions, a market participant’s weighted average cost of capital, as well as other techniques as
circumstances required. For further information on acquired assets and liabilities, see Note 3 of the Notes to
Consolidated Financial Statements.
Vacant Leased Facilities
The Company recorded charges of $0.1 million and $0.2 million for the years ended December 31, 2012
and 2011, respectively, in selling, general and administrative expenses in the Consolidated Statements of Income
related to the exit from leased facilities.
78
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Interim unaudited financial information follows:
(In thousands, except per share amounts)
Year ended December 31, 2013
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Net sales
Gross profit
Income before income taxes
Net income
$ 252,586
47,591
$
13,470
$
8,372
$
$ 287,192
61,433
$
25,623
$
15,865
$
$ 250,851
56,126
$
22,754
$
14,805
$
$ 224,947
47,959
$
16,100
$
11,077
$
Net income per common share:
Basic
Diluted
Stock market price:
High
Low
Close (at end of quarter)
Year ended December 31, 2012
Net sales
Gross profit
Income before income taxes
Net income
Net income per common share:
Basic
Diluted
Stock market price:
High
Low
Close (at end of quarter)
$
$
$
$
$
0.36
0.36
38.67
33.34
36.31
$
$
$
$
$
0.68
0.67
41.25
34.13
39.32
$
$
$
$
$
0.63
0.62
45.54
39.60
45.54
$
$
$
$
$
0.47
0.46
54.21
45.86
51.20
$ 223,552
44,823
$
17,299
$
11,116
$
$ 251,014
46,423
$
18,912
$
11,708
$
$ 226,323
41,542
$
14,832
$
9,771
$
$ 200,234
35,871
$
6,759
$
4,745
$
$
$
$
$
$
0.50
0.49
29.84
24.67
27.31
$
$
$
$
$
0.52
0.52
30.02
25.83
27.85
$
$
$
$
$
0.43
0.43
30.86
25.82
30.21
$
$
$
$
$
0.21
0.21
33.32
29.48
32.25
Year
1,015,576
213,109
77,947
50,119
2.15
2.11
54.21
33.34
51.20
901,123
168,659
57,802
37,340
1.66
1.64
33.32
24.67
32.25
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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.
79
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 (i) recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and (ii) 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.
We are responsible for the preparation and integrity of the Consolidated Financial Statements appearing
in the Annual Report on Form 10-K. 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 (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). This evaluation included review of the documentation of
controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a
conclusion on this evaluation. Although there are inherent limitations in the effectiveness of any system of
internal control over financial reporting, based on our evaluation, we have concluded that our internal control over
financial reporting was effective as of December 31, 2013.
80
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 attestation report on the
effectiveness of our internal control over financial reporting, included elsewhere in this Form 10-K.
/s/ Jason D. Lippert
Chief Executive Officer
/s/ Joseph S. Giordano III
Chief Financial Officer and Treasurer
(b)
Report of the Independent Registered Public Accounting Firm.
The attestation report of our independent registered public accounting firm on the effectiveness of our
internal control over financial reporting 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, 2013, that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
The Company has selected a new enterprise resource planning (“ERP”) system, and has begun
implementing that system. Although to date there have been no significant changes in the Company’s internal
controls, the Company anticipates internal controls will be strengthened incrementally due both to the installation
of the new ERP software and business process changes. The full implementation is expected to take several years.
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”
and “Corporate Governance – Board Committees” in the Company’s Proxy Statement for the Annual Meeting of
Stockholders to be held on May 22, 2014 (the “2014 Proxy Statement”) and from the information contained under
“Executive Officers of the Registrant” in Part I, Item 1, “Business,” in 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 2014 Proxy Statement.
The Company has adopted Governance Principles, Guidelines for Business Conduct, a Whistleblower
Policy, and a Code of Ethics for Senior Financial Officers (“Code of Ethics”), each of which, as well as the
Charter and Key Practices of the Company’s Audit Committee, Compensation Committee, and Corporate
Governance and Nominating Committee, are available on the Company’s website at www.drewindustries.com. A
copy of any of these documents will be furnished, without charge, upon written request to Secretary, Drew
Industries Incorporated, 3501 County Road 6 East, Elkhart, Indiana 46514.
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
81
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 “Executive Compensation” and “Director Compensation” in the Company’s 2014 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 Certain Beneficial Owners and Management” and
“Proposal 2. Amendment of Equity Award and Incentive Plan – Equity Compensation Plan Information” in the
Company’s 2014 Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
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 “Transactions with
Related Persons” and “Corporate Governance and Related Matters – Board of Directors” in the Company’s 2014
Proxy Statement.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this item is incorporated by reference from the information contained under
the proposal entitled “Appointment of Auditors – Fees for Independent Auditors” in the Company’s 2014 Proxy
Statement.
82
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
3.1
3.2
10.221
10.231†
10.233
10.257
10.259†
10.261†
Description
Drew Industries Incorporated Restated Certificate of Incorporation (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)).
Drew Industries Incorporated By-laws, as amended (incorporated by reference to the Exhibit
bearing the same number included in the Registrant’s Form 8-K filed on November 19, 2008).
Form of Indemnification Agreement between Registrant and its officers and independent
directors (incorporated by reference to Exhibit 99.1 included in the Registrant’s Form 8-K filed
on February 9, 2005).
Executive Non-Qualified Deferred Compensation Plan, as amended (incorporated by reference to
Exhibit 10.2 included in the Registrant’s Form 8-K filed on January 9, 2009).
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
(incorporated by reference to Exhibit 10.1 included in the Registrant’s Form 8-K filed on
December 2, 2008).
First Amendment dated February 24, 2011 to the Second Amended and Restated Credit
Agreement dated as of November 25, 2008 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 (incorporated by reference to Exhibit 10.1
included in the Registrant’s Form 8-K filed on February 25, 2011).
Drew Industries Incorporated Equity Award and Incentive Plan, As Amended and Restated
(incorporated by reference to Exhibit A included in the Registrant’s Definitive Schedule 14A
filed on April 8, 2011).
Executive Compensation and Non-Competition Agreement between Registrant and Fredric M.
Zinn, dated February 8, 2012 (incorporated by reference to Exhibit 10(iii)(A) included in the
Registrant’s Form 8-K filed on February 9, 2012).
83
Exhibit
Number
10.263†
10.267†
10.268†
10.269†
10.270†
10.271†
10.272†
10.273†
10.274†
10.275†
10.276†
Description
Executive Compensation and Non-Competition Agreement between Registrant and Joseph S.
Giordano III, dated February 10, 2012 (incorporated by reference to Exhibit 10(iii)(A) included
in the Registrant’s Form 8-K filed on February 13, 2012).
Amended and Restated Change in Control Agreement between Registrant and Joseph S.
Giordano, III, dated April 9, 2012 (incorporated by reference to Exhibit 10.04 included in the
Registrant’s Form 8-K filed on April 10, 2012).
Change in Control Agreement between Registrant and Jason D. Lippert, dated April 9, 2012
(incorporated by reference to Exhibit 10.02 included in the Registrant’s Form 8-K filed on April
10, 2012).
Change in Control Agreement between Registrant and Scott T. Mereness, dated April 9, 2012
(incorporated by reference to Exhibit 10.03 included in the Registrant’s Form 8-K filed on April
10, 2012).
Amended and Restated Executive Employment and Non-Competition Agreement among Drew
Industries Incorporated, Lippert Components Manufacturing, Inc., Kinro Manufacturing, Inc. and
Jason D. Lippert, dated February 26, 2013 (incorporated by reference to Exhibit 10(iii)(A)
included in the Registrant’s Form 8-K filed on February 26, 2013).
Amended and Restated Executive Employment and Non-Competition Agreement among Drew
Industries Incorporated, Lippert Components Manufacturing, Inc., Kinro Manufacturing, Inc. and
Scott T Mereness, dated March 4, 2013 (incorporated by reference to Exhibit 10(iii)(A) included
in the Registrant’s Form 8-K filed on March 5, 2013).
Amendment to Executive Compensation and Non-Competition Agreement between Registrant
and Joseph S. Giordano III, dated April 10, 2013 (incorporated by reference to Exhibit 10(iii)(A)
included in the Registrant’s Form 8-K filed on April 11, 2013).
Amendment to Change in Control Agreement between Registrant and Jason D. Lippert, dated
May 10, 2013 (incorporated by reference to Exhibit 10(ii)(A)-2 included in the Registrant’s Form
8-K filed on May 10, 2013).
Amendment to Change in Control Agreement between Registrant and Scott T. Mereness, dated
May 10, 2013 (incorporated by reference to Exhibit 10(ii)(A)-3 included in the Registrant’s Form
8-K filed on May 10, 2013).
Amendment to Amended and Restated Change in Control Agreement between Registrant and
Joseph S. Giordano III, dated May 10, 2013 (incorporated by reference to Exhibit 10(ii)(A)-4
included in the Registrant’s Form 8-K filed on May 10, 2013).
Severance Agreement between Registrant and Robert A. Kuhns, dated February 11, 2014
(incorporated by reference to Exhibit 10(iii)(A) included in the Registrant’s Form 8-K filed on
February 14, 2014).
84
Exhibit
Number
10.277†
Description
Description of 2014 executive compensation arrangement between Registrant and Robert A.
Kuhns (incorporated by reference to Item 5.02 included in the Registrant’s Form 8-K filed on
February 14, 2014).
10.278†*
Change in Control Agreement between Registrant and Robert A. Kuhns, dated April 4, 2013, as
amended May 20, 2013.
10.279
10.280
10.281
10.282
10.283
10.284
10.285
Second Amendment dated as of February 24, 2014 to Second Amended and Restated Credit
Agreement dated as of November 25, 2008 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 (incorporated by reference to Exhibit 10.1
included in the Registrant’s Form 8-K filed on February 27, 2014).
Restated Revolving Credit Note dated as of February 24, 2014 by Lippert Components, Inc.,
payable to the order of JPMorgan Chase Bank, N.A. in the principal amount of Forty-Five
Million ($45,000,000) Dollars (incorporated by reference to Exhibit 10.2 included in the
Registrant’s Form 8-K filed on February 27, 2014).
Restated Revolving Credit Note dated as of February 24, 2014 by Lippert Components, Inc.,
payable to the order of Wells Fargo Bank, N.A. in the principal amount of Thirty Million
($30,000,000) Dollars (incorporated by reference to Exhibit 10.3 included in the Registrant’s
Form 8-K filed on February 27, 2014).
Third Amended and Restated Pledge and Security Agreement dated as of February 24, 2014,
made by Drew Industries Incorporated, Lippert Components, Inc. and Lippert Components
Manufacturing, Inc., in favor of JPMorgan Chase Bank, N.A. as Collateral Agent (incorporated
by reference to Exhibit 10.4 included in the Registrant’s Form 8-K filed on February 27, 2014).
Third Amended and Restated Company Guarantee Agreement dated as of February 24, 2014,
made by Drew Industries Incorporated, with and in favor of JPMorgan Chase Bank, N.A. as
Administrative Agent (incorporated by reference to Exhibit 10.5 included in the Registrant’s
Form 8-K filed February 27, 2014).
Third Amended and Restated Subsidiary Guarantee Agreement dated as of February 24, 2014,
made by each direct and indirect subsidiary of Drew Industries Incorporated and Lippert
Components, Inc., with and in favor of JPMorgan Chase Bank, N.A. as Administrative Agent
(incorporated by reference to Exhibit 10.6 included in the Registrant’s Form 8-K filed on
February 27, 2014).
Third Amended and Restated Subordination Agreement dated as of February 24, 2014, made by
Drew Industries Incorporated and each direct and indirect subsidiary of Drew Industries
Incorporated, with and in favor of JPMorgan Chase Bank, N.A. as Administrative Agent
(incorporated by reference to Exhibit 10.7 included in the Registrant’s Form 8-K filed February
27, 2014).
85
Exhibit
Number
10.286
10.287
10.288
10.289
10.290
10.291
10.292
10.293
14.1*
14.2*
Description
Third Amended and Restated Note Purchase and Private Shelf Agreement dated as of February
24, 2014, by and among Prudential Investment Management, Inc. and Affiliates, and Lippert
Components, Inc., guaranteed by Drew Industries Incorporated (incorporated by reference to
Exhibit 10.8 included in the Registrant’s Form 8-K filed February 27, 2014).
Form of Shelf Note of Lippert Components, Inc. pursuant to the Third Amended and Restated
Note Purchase and Private Shelf Agreement (incorporated by reference to Exhibit 10.9 included
in the Registrant’s Form 8-K filed February 27, 2014).
Amended and Restated Parent Guarantee Agreement dated as of February 24, 2014, made by
Drew Industries Incorporated in favor of Prudential Investment Management, Inc. and the
Noteholders thereto from time to time (incorporated by reference to Exhibit 10.10 included in the
Registrant’s Form 8-K filed February 27, 2014).
Amended and Restated Subsidiary Guarantee Agreement dated as of February 24, 2014, made by
each direct and indirect subsidiary (other than Lippert Components, Inc.) of Drew Industries
Incorporated, in favor of Prudential Investment Management, Inc. and each of the Noteholders
thereto from time to time (incorporated by reference to Exhibit 10.11 included in the Registrant’s
Form 8-K filed February 27, 2014).
Amended and Restated Pledge and Security Agreement dated as of February 24, 2014, made by
Drew Industries Incorporated, Lippert Components, Inc., Lippert Components Manufacturing,
Inc. and the other Subsidiary Guarantors, in favor of JPMorgan Chase Bank, N.A., as Trustee for
the benefit of the Noteholders (incorporated by reference to Exhibit 10.12 included in the
Registrant’s Form 8-K filed February 27, 2014).
Amended and Restated Subordination Agreement dated as of February 24, 2014, made by Lippert
Components, Inc., Drew Industries Incorporated and each direct and indirect subsidiary of Drew
Industries Incorporated, with and in favor of Prudential Investment Management, Inc. and each of
the Noteholders thereto from time to time (incorporated by reference to Exhibit 10.13 included in
the Registrant’s Form 8-K filed February 27, 2014).
Amended and Restated Collateralized Trust Agreement dated as of February 24, 2014, by and
among Lippert Components, Inc. and Prudential Investment Management, Inc. and each of the
Noteholders thereto from time to time, and JPMorgan Chase Bank, N.A. as Trustee for the
Noteholders (incorporated by reference to Exhibit 10.14 included in the Registrant’s Form 8-K
filed February 27, 2014).
Second Amended and Restated Intercreditor Agreement dated as of February 24, 2014 by and
among Prudential Investment Management, Inc. and Affiliates, JPMorgan Chase Bank, N.A. (as
Lender and Administrative Agent), Wells Fargo Bank, N.A. (as Lender), and JPMorgan Chase
Bank, N.A. (as Collateral Agent and Trustee) (incorporated by reference to Exhibit 10.15
included in the Registrant’s Form 8-K filed February 27, 2014).
Code of Ethics for Senior Financial Officers.
Guidelines for Business Conduct.
86
Exhibit
Number
Description
21*
23*
24*
31.1*
31.2*
32.1*
32.2*
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Powers of Attorney (included on the signature page of this Report).
Certification of Chief Executive Officer required by Rule 13a-14(a).
Certification of Chief Financial Officer required by Rule 13a-14(a).
Certification of Chief Executive Officer required by Rule 13a-14(b) and Section 1350 of Chapter
63 of Title 18 of the United States Code.
Certification of Chief Financial Officer required by Rule 13a-14(b) and Section 1350 of Chapter
63 of Title 18 of the United States Code.
101
Interactive Data Files.
*Filed herewith
†Denotes a compensation plan or arrangement
87
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: February 28, 2014
DREW INDUSTRIES INCORPORATED
By: /s/ Jason D. Lippert
Jason D. Lippert
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 Jason D. Lippert 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 Jason D. Lippert 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
February 28, 2014
February 28, 2014
February 28, 2014
February 28, 2014
February 28, 2014
February 28, 2014
February 28, 2014
February 28, 2014
February 28, 2014
February 28, 2014
By: /s/ Jason D. Lippert
(Jason D. Lippert)
By: /s/ Joseph S. Giordano III
(Joseph S. Giordano III)
By: /s/ Brian M. Hall
(Brian M. Hall)
By: /s/ Leigh J. Abrams
(Leigh J. Abrams)
By: /s/ James F. Gero
(James F. Gero)
By: /s/ Edward W. Rose, III
(Edward W. Rose, III)
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/ Brendan J. Deely
(Brendan J. Deely)
88
Chief Executive Officer and
Director (principal executive
officer)
Chief Financial Officer and
Treasurer (principal financial
officer)
Corporate Controller (principal
accounting officer)
Chairman of the Board of
Directors
Lead Director
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, Jason D. Lippert, 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: February 28, 2014
By: /s/ Jason D. Lippert
Jason D. Lippert, Chief Executive Officer
89
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 31.2
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: February 28, 2014
By: /s/ Joseph S. Giordano III
Joseph S. Giordano III, Chief Financial Officer
90
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, 2013, as filed with the Securities and Exchange Commission on the date hereof
(the “Report”), Jason D. Lippert, 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/ Jason D. Lippert
Jason D. Lippert
Chief Executive Officer
Principal Executive Officer
February 28, 2014
91
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, 2013, 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
February 28, 2014
92
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. 333-91174, 333-
141276, 333-152873, 333-161242 and 333-181272) on Form S-8 of Drew Industries Incorporated of our report
dated February 28, 2014, with respect to the consolidated balance sheets of Drew Industries Incorporated and
subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of income, stockholders’
equity and cash flows for each of the years in the three-year period ended December 31, 2013 and the
effectiveness of internal control over financial reporting as of December 31, 2013, which report appears in the
December 31, 2013 annual report on Form 10-K of Drew Industries Incorporated and subsidiaries.
/s/ KPMG LLP
Chicago, Illinois
February 28, 2014
93
800
700
600
500
400
300
200
100
0
The graph below compares the cumulative 5-Year total return of holders of the Company’s common stock with the
cumulative total returns of the Russell 2000 index and a customized peer group of eight companies that includes:
Arctic CAT Inc., Brunswick Corporation, Cavco Industries, Inc., Patrick Industries, Inc., Spartan Motors, Inc., Thor
Industries, Inc., Trimas Corp. and Winnebago Industries, Inc. An investment of $100 (with reinvestment of all
dividends) is assumed to have been made in our common stock, in the index, and in the peer group on 12/31/2008
and its relative performance is tracked through 12/31/2013.
Comparison of 5-Year Cumulative Total Return*
Among Drew Industries Incorporated, the Russell 2000 Index, and the Peer Group
Drew Industries Incorporated
Russell 2000
Peer Group
$800
700
600
500
400
300
200
100
0
12/08
12/09
12/10
12/11
12/12
12/13
* $100 invested on 12/31/08 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2014 Russell Investment Group. All rights reserved.
Drew Industries Incorporated
Russell 2000
Peer Group
12/08
100.00
100.00
100.00
12/09
172.08
127.17
236.02
12/10
202.09
161.32
318.55
12/11
218.19
154.59
279.07
12/12
306.31
179.86
434.26
12/13
505.57
249.69
671.63
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
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www.drewindustries.com