Summary
Drew Industries Incorporated (“Drew” or the “Company” or the “Registrant”) has two reportable operating segments: the recreational vehicle (“RV”) products segment (the “RV Segment”), and the manufactured housing products segment (the “MH Segment”). The RV Segment accounted for 84 percent of consolidated net sales for 2011, and the MH Segment accounted for 16 percent of consolidated net sales for 2011. Approximately 90 percent of the Company’s RV Segment net sales were of products to manufacturers of travel trailer and fifth-wheel RVs. The balance represents sales of components for motorhomes, truck caps and buses, as well as for trailers used to haul boats, livestock, equipment and other cargo, and for the aftermarket. Drew’s operations are conducted through its wholly-owned subsidiaries, Lippert Components, Inc. and its subsidiaries (collectively, “Lippert”) and Kinro, Inc. and its subsidiaries (collectively, “Kinro”), each of which has operations in both the RV Segment and the MH Segment.
Over the last fifteen years, the Company acquired a number of manufacturers of components for RVs, manufactured homes, specialty trailers and adjacent markets, expanded its geographic market and product lines, consolidated manufacturing facilities, and integrated manufacturing, distribution and administrative functions. At December 31, 2011, the Company operated 31 manufacturing facilities in 11 states, and achieved consolidated net sales of $681 million for the year.
The Company was incorporated under the laws of Delaware on March 20, 1984, and is the successor to Drew National Corporation, which was incorporated under the laws of Delaware in 1962. The Company's principal executive and administrative offices are located at 200 Mamaroneck Avenue, White Plains, New York 10601; telephone number (914) 428-9098; website www.drewindustries.com; e-mail drew@drewindustries.com. The Company makes available free of charge on its website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K (and amendments to those reports) filed with the SEC as soon as reasonably practicable after such materials are electronically filed.
Recent Developments
Sales and Profits
In Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we describe in detail the increase in our sales beginning in 2010 and continuing during 2011, following the substantial decline in sales in both the RV Segment and the MH Segment during the recession beginning in 2008, and continuing through the first half of 2009.
Net sales for 2011 reached $681 million, a 19 percent increase over net sales of $573 million in 2010, as both of the Company’s segments achieved greater net sales growth than the industries they serve. Net sales of the Company’s RV Segment increased 20 percent, compared to a 7 percent increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs. Approximately 90 percent of the Company’s RV Segment net sales are components to manufacturers of travel trailer and fifth-wheel RVs. The RV Segment represented 84 percent of consolidated net sales in 2011. Net sales of the Company’s MH Segment increased 16 percent, compared to a 3 percent increase in industry-wide production of manufactured homes. The MH Segment represented 16 percent of consolidated net sales in 2011. The Company’s net sales growth outperformed industry-wide wholesale shipments of RVs and manufactured homes during 2011 primarily because the Company increased its average product content per unit produced as a result of acquisitions, market share gains and the introduction of new products. In addition, the Company achieved increased sales of components to other industries, such as buses, modular housing, mobile office units, truck caps, and trailers used to haul boats, livestock, equipment and other cargo.
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For 2011, the Company reported net income of $30.1 million, or $1.34 per diluted share. For 2010, the Company reported net income of $28.0 million or $1.26 per diluted share.
Acquisitions
On January 28, 2011, the Company acquired the operating assets and the business of Home-Style Industries, 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. In addition, the Company may pay contingent consideration based on future sales of existing products in specific geographic regions.
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. In addition, the Company may pay contingent consideration based on future sales of existing products.
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.
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. In addition, the Company may pay contingent consideration based on future sales of certain products.
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. In addition, the Company may pay contingent consideration based on future sales of this 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.
Other Developments
In June 2011, the Company announced the formation of two dedicated sales teams to focus, respectively, on adjacent markets and on aftermarket sales. The adjacent markets sales team sells the Company’s components to a variety of original equipment manufacturers (“OEMs”) in various industries, including trailers for cargo, livestock, and equipment, as well as for ambulances and the transit and school bus industries. This sales team sells all Lippert Components and Kinro products in these markets, including doors, windows, furniture, slide-out mechanisms, axles, chassis parts and accessories, steel tubing, as well as aluminum extrusion from the Company’s new aluminum extrusion operation.
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The aftermarket team is devoted to gaining additional aftermarket business for the Company’s products. Many of the Company’s existing components, including doors, windows, mattresses, furniture, leveling devices, suspension products, slide-out mechanisms, and other accessories, have significant aftermarket potential with RV and manufactured home owners directly, and with dealers and distributors.
During 2011, the Company added the capability to extrude aluminum, and in January 2012 began full-time production on the first of three planned presses at its new aluminum extrusion plant. The Company anticipates that all three presses will be in operation by mid-2012. The extruded aluminum components produced will be used in a variety of the Company’s products, and the lighter weight and durability of aluminum is expected to be attractive to manufacturers of RVs and motorhomes. Further, the Company plans to market extruded aluminum parts to manufacturers in other industries. Through December 31, 2011, the Company has expended approximately $11 million for the facility, machinery and equipment, with an additional $3 million in capital expenditures planned for 2012.
In September 2011, the Company launched a newly-developed line of RV awnings. The awnings are manufactured in one of the Company’s existing facilities in Goshen, Indiana, and are available in both manual and electric versions. The raw materials, components, and manufacturing processes used in manufacturing the awnings are very similar to those the Company uses extensively in its existing product lines. The extruded aluminum components used in the awnings are intended to be produced in the Company’s new aluminum extrusion operation. The Company markets the awnings directly to RV manufacturers, as well as through aftermarket distributors.
Through its wholly-owned subsidiaries, the Company manufactures and markets a variety of products used in the production of RVs, primarily travel trailer and fifth-wheel RVs, including:
· Towable steel chassis
· Aluminum windows and screens
· Towable axles and suspension solutions
· Chassis components
· Slide-out mechanisms and solutions
· Furniture and mattresses
· Thermoformed bath, kitchen and other products
· Entry, baggage, patio and ramp doors
· Manual, electric and hydraulic stabilizer and lifting systems
· Entry steps
· Awnings
· Other accessories
The Company also supplies certain of these products as replacement parts to the RV aftermarket, and to adjacent markets, including manufacturers of truck caps, buses and trailers used to haul boats, livestock, equipment and other cargo.
In 2011, the RV Segment represented 84 percent of the Company's consolidated net sales, and 79 percent of consolidated segment operating profit. Approximately 90 percent of the Company’s RV Segment net sales are components 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, fabric and foam are available from a number of sources, both domestic and foreign.
Operations of the Company's RV Segment consist primarily of fabricating, welding, painting and assembling components into finished products. The Company's RV Segment operations are conducted at 23 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.”
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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) and other OEMs, and, to a lesser extent, to distributors of aftermarket products.
The Company's RV Segment operations compete on the basis of price, customer service, product quality, and reliability. Although definitive information is not readily available, the Company believes that with respect to its principal products (i) it is the leading supplier of windows and doors for towable RVs, and the Company’s market share for most of its towable RV window and door products is approximately 80 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 50 percent; and (iv) its market share for upholstered furniture for RVs is approximately 45 percent, and the Company competes with several other manufacturers.
The Company’s share of the aftermarket for RV replacement parts cannot be readily determined, but is currently not significant. The Company’s share of the market for its products in adjacent industries cannot be readily determined, but is currently not significant.
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.”
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
· Steel chassis
· Thermoformed bath and kitchen products
· Steel chassis parts
· Steel and fiberglass entry doors
· Axles
· Aluminum and vinyl patio doors
The Company also supplies windows, doors, and thermoformed bath products as replacement parts to the manufactured housing aftermarket.
In 2011, the MH Segment represented 16 percent of the Company's consolidated net sales, and 21 percent of consolidated segment operating profit. Certain of the Company’s MH Segment customers manufacture both manufactured homes and modular homes, and certain of the products manufactured by the Company are suitable for both types of homes. As a result, the Company is not always able to determine in which type of home its products are installed. The MH Segment also supplies related products to other industries, representing 7 percent of sales of this segment.