UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934

For the quarterly period ended:SEPTEMBER 30, 2008MARCH 31, 2009

OR

o¨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:  0-13646 001-13646

DREW INDUSTRIES INCORPORATED
(Exact name of registrant as specified in its charter)

Delaware
13-3250533
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)
(I.R.S. EmployerIdentificationIdentification No.)

200 Mamaroneck Avenue, White Plains, NY 10601
(Address of principal executive offices)  (Zip Code)

(914) 428-9098
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)   N/A

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 x  No o¨

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (paragraph 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 whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  Large accelerated filer o¨ Accelerated filer xNon-accelerated filer o ¨ (Do not check if a smaller reporting company) Smaller reporting company o¨

Indicated by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o ¨No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 21,491,72921,575,533 shares of common stock as of October 31, 2008.April 30, 2009.
 

1
DREW INDUSTRIES INCORPORATED

INDEX TO FINANCIAL STATEMENTS FILED WITH
QUARTERLY REPORT OF REGISTRANT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2008MARCH 31, 2009

(UNAUDITED)
 

 Page
PART I -      FINANCIAL INFORMATION 
  
Item 1 - FINANCIAL STATEMENTS 
  
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS3
  
CONDENSED CONSOLIDATED BALANCE SHEETS4
  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS5
  
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY6
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS7-16
  
Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
17-32
17-31
  
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
33
32
  
Item 4 - CONTROLS AND PROCEDURES3433
  
PART II -      OTHER INFORMATION 
  
Item 1 - LEGAL PROCEEDINGS35-3634-35
  
Item 1A - RISK FACTORS36-3735
  
Item 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS37
Item 6 - EXHIBITS3835-36
  
SIGNATURES3937
  
EXHIBIT 31.1 - SECTION 302 CEO CERTIFICATION40
  
EXHIBIT 31.2 - SECTION 302 CFO CERTIFICATION41
  
EXHIBIT 32.1 - SECTION 906 CEO CERTIFICATION42
  
EXHIBIT 32.2 - SECTION 906 CFO CERTIFICATION43
 
2
DREW INDUSTRIES INCORPORATED

PART I - FINANCIAL INFORMATION
ITEM 1 -– FINANCIAL STATEMENTS
 

DREW INDUSTRIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
(Unaudited)


  Nine Months Ended Three Months Ended 
  September 30,  September 30, 
  2008 2007 2008 2007 
(In thousands, except per share amounts)
            
          
Net sales $433,945 $530,810 $124,274 $173,410 
Cost of sales  335,580  402,717  99,292  131,954 
Gross profit
  98,365  128,093  24,982  41,456 
Selling, general and administrative expenses  64,026  73,008  20,481  23,253 
Other income  675  707  29  51 
Operating profit
  35,014  55,792  4,530  18,254 
Interest expense, net  602  1,996  323  444 
Income before income taxes
  34,412  53,796  4,207  17,810 
Provision for income taxes  13,524  20,512  1,614  6,677 
Net income
 $20,888 $33,284 $2,593 $11,133 
              
Net income per common share:
             
Basic $0.95 $1.52 $0.12 $0.51 
Diluted $0.95 $1.51 $0.12 $0.50 
              
Weighted average common shares outstanding:             
Basic  21,879  21,856  21,702  21,936 
Diluted  22,023  22,089  21,815  22,219 
  Three Months Ended 
  March 31, 
  2009  2008 
(In thousands, except per share amounts)      
       
Net sales $71,019  $159,148 
Cost of sales  65,193   122,569 
Gross profit  5,826   36,579 
Selling, general and administrative expenses  17,250   22,248 
Goodwill impairment  45,040   - 
Other (income)  (200)  (646)
Operating (loss) profit  (56,264)  14,977 
Interest expense, net  200   82 
(Loss) income before income taxes  (56,464)  14,895 
(Benefit) provision for income taxes  (19,762)  5,790 
Net (loss) income $(36,702) $9,105 
         
Net (loss) income per common share:        
Basic $(1.70) $. 41 
Diluted $(1.70) $. 41 
         
Weighted average common shares outstanding:        
Basic  21,643   22,014 
Diluted  21,643   22,179 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

DREW INDUSTRIES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

  September 30, December 31, 
  2008 2007 2007 
(In thousands, except shares and per share amount)
        
        
ASSETS
        
Current assets
        
Cash and cash equivalents $9,185 $43,644 $56,213 
Accounts receivable, trade, less allowances  23,874  38,313  15,740 
Inventories  107,272  79,225  76,279 
Prepaid expenses and other current assets  11,924  13,703  12,702 
           
Total current assets
  152,255  174,885  160,934 
           
Fixed assets, net
  93,957  105,582  100,616 
Goodwill
  49,864  39,305  39,547 
Other intangible assets
  43,099  33,959  32,578 
Other assets
  6,386  11,380  12,062 
           
Total assets
 $345,561 $365,111 $345,737 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY
          
Current liabilities
          
Notes payable, including current maturities of          
long-term indebtedness $11,797 $11,309 $8,881 
Accounts payable, trade  14,273  25,012  17,524 
Accrued expenses and other current liabilities  41,585  48,400  44,668 
           
Total current liabilities
  67,655  84,721  71,073 
           
Long-term indebtedness
  5,315  31,328  18,381 
Other long-term liabilities
  5,660  4,876  4,747 
           
Total liabilities
  78,630  120,925  94,201 
           
Stockholders’ equity
          
Common stock, par value $.01 per share: authorized          
50,000,000 shares; issued 24,088,454 shares at September 2008,          
24,070,314 shares at September 2007 and 24,082,974 at          
December 2007  241  241  241 
Paid-in capital  63,802  60,138  60,919 
Retained earnings  230,693  203,322  209,805 
Accumulated other comprehensive (loss) income  (5) (48) 38 
   294,731  263,653  271,003 
Treasury stock, at cost - 2,596,725 shares at September 2008,          
2,149,325 at September 2007 and December 2007  (27,800) (19,467) (19,467)
Total stockholders’ equity
  266,931  244,186  251,536 
           
Total liabilities and stockholders’ equity
 $345,561 $365,111 $345,737 
  March 31,  December 31, 
  2009  2008  2008 
(In thousands, except shares and per share amount)         
          
ASSETS         
Current assets         
Cash and cash equivalents $14,326  $50,414  $8,692 
Accounts receivable, trade, less allowances  17,141   33,739   7,913 
Inventories  75,098   87,198   93,934 
Prepaid expenses and other current assets  18,470   11,061   16,556 
             
Total current assets  125,035   182,412   127,095 
             
Fixed assets, net  86,813   96,625   88,731 
Goodwill  -   39,591   44,113 
Other intangible assets  41,430   31,577   42,787 
Other assets  21,324   11,786   8,632 
             
Total assets $274,602  $361,991  $311,358 
             
LIABILITIES AND STOCKHOLDERS’ EQUITY            
Current liabilities            
Notes payable, including current maturities of            
long-term indebtedness $4,602  $8,750  $5,833 
Accounts payable, trade  7,191   23,690   4,660 
Accrued expenses and other current liabilities  30,058   46,484   32,224 
             
Total current liabilities  41,851   78,924   42,717 
             
Long-term indebtedness  1,825   15,600   2,850 
Other long-term liabilities  7,387   5,896   6,913 
             
Total liabilities  51,063   100,420   52,480 
             
Stockholders’ equity            
Common stock, par value $.01 per share: authorized            
50,000,000 shares; issued 24,172,258 shares at March 2009,            
24,087,654 shares at March 2008 and 24,122,054 at            
December 2008  242   241   241 
Paid-in capital  66,316   61,925   64,954 
Retained earnings  184,781   218,910   221,483 
Accumulated other comprehensive loss  -   (38)  - 
   251,339   281,038   286,678 
Treasury stock, at cost - 2,596,725 shares at March 2009            
 and December 2008, 2,149,325 shares at March 2008  (27,800)  (19,467)  (27,800)
Total stockholders’ equity  223,539   261,571   258,878 
             
Total liabilities and stockholders’ equity $274,602  $361,991  $311,358 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

DREW INDUSTRIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

  Nine Months Ended 
  September 30, 
  2008 2007 
(In thousands)
     
      
Cash flows from operating activities:
     
Net income $20,888 $33,284 
Adjustments to reconcile net income to cash flows (used for) provided by operating activities:
       
Depreciation and amortization  12,534  13,276 
Deferred taxes  -  102 
(Gain)/loss on disposal of fixed assets  (2,410) 541 
Stock-based compensation expense  2,809  1,809 
Changes in assets and liabilities, net of business acquisitions:       
Accounts receivable, net  (6,384) (19,512)
Inventories  (26,357) 6,165 
Prepaid expenses and other assets  115  1,317 
Accounts payable, accrued expenses and other liabilities  (4,703) 24,156 
Net cash flows (used for) provided by operating activities
  (3,508) 61,138 
        
Cash flows from investing activities:
       
Capital expenditures  (3,274) (7,452)
Acquisition of businesses  (28,442) (17,293)
Proceeds from sales of fixed assets  9,800  9,184 
Other investments  (3,195) (34)
Net cash flows used for investing activities
  (25,111) (15,595)
        
Cash flows from financing activities:
       
Proceeds from line of credit and other borrowings  -  23,797 
Repayments under line of credit and other borrowings  (10,150) (36,840)
Exercise of stock options  74  4,359 
Purchase of treasury stock  (8,333) - 
Net cash flows used for financing activities
  (18,409) (8,684)
        
Net (decrease) increase in cash
  (47,028) 36,859 
        
Cash and cash equivalents at beginning of period  56,213  6,785 
Cash and cash equivalents at end of period $9,185 $43,644 
        
Supplemental disclosure of cash flow information:
       
Cash paid during the period for:       
Interest on debt $1,021 $2,362 
Income taxes, net of refunds $13,577 $13,892 
  Three Months Ended 
  March 31, 
  2009  2008 
(In thousands)      
       
Cash flows from operating activities:      
Net (loss) income $(36,702) $9,105 
Adjustments to reconcile net (loss) income to cash flows provided by        
(used for) operating activities:        
Depreciation and amortization  5,070   4,087 
Deferred taxes  (15,660)  - 
Loss (gain) on disposal of fixed assets  584   (1,040)
Stock-based compensation expense  1,363   945 
Goodwill impairment  45,040   - 
Changes in assets and liabilities, net of business acquisitions:        
Accounts receivable, net  (9,228)  (17,999)
Inventories  18,836   (10,919)
Prepaid expenses and other assets  (847)  639 
Accounts payable, accrued expenses and other liabilities  (82)  9,069 
Net cash flows provided by (used for) operating activities  8,374   (6,113)
         
Cash flows from investing activities:        
Capital expenditures  (530)  (1,201)
Acquisition of businesses  -   (44)
Proceeds from sales of fixed assets  65   4,416 
Other investments  (2)  (6)
Net cash flows (used for) provided by investing activities
  (467)  3,165 
         
Cash flows from financing activities:        
Proceeds from line of credit and other borrowings  5,775   - 
Repayments under line of credit and other borrowings  (8,031)  (2,912)
Exercise of stock options  -   61 
Other financing activities  (17)  - 
Net cash flows used for financing activities  (2,273)  (2,851)
         
Net increase (decrease) in cash  5,634   (5,799)
         
Cash and cash equivalents at beginning of period  8,692   56,213 
Cash and cash equivalents at end of period $14,326  $50,414 
         
Supplemental disclosure of cash flow information:        
Cash paid during the period for:        
Interest on debt $184  $342 
Income taxes, net of refunds $354  $443 

The accompanying notes are an integral part of these condensed consolidated financial statements.
5
 
DREW INDUSTRIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)

   
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
 
 
Total
 
 
 
Common
 
Paid-in
 
Retained
 
Comprehensive
 
Treasury  
 
Stockholders’
 
 
 
Stock
 
Capital
 
Earnings
 
Income (Loss)
 
Stock
 
Equity 
(In thousands, except shares)
             
              
Balance - December 31, 2007
 $241 $60,919 $209,805 $38 $(19,467)$251,536 
Net income for the nine months ended
September 30, 2008
  -  -  20,888  -  -  20,888 
Unrealized loss on interest rate swap, net of taxes
  -  -  -  (43) -  (43)
Comprehensive income            20,845 
Issuance of 5,480 shares of common stock pursuant to stock options and deferred stock units exercised
  -  59  -  -  -  59 
Purchase of 447,400 shares of treasury stock
  -  -  -  -  (8,333) (8,333)
Income tax benefit relating to issuance of common stock pursuant to stock options exercised
  -  15  -  -  -  15 
Stock-based compensation expense  -  2,809  -  -  -  2,809 
Balance - September 30, 2008
 $241 $63,802 $230,693 $(5)$(27,800)$266,931 
              Total 
  Common  Paid-in  Retained  Treasury  Stockholders’ 
  Stock  Capital  Earnings  Stock  Equity 
(In thousands, except shares)               
                
Balance - December 31, 2008 $241  $64,954  $221,483  $(27,800) $258,878 
Net loss for the three months ended March 31, 2009  -   -   (36,702)  -   (36,702)
Issuance of 50,204 shares of common stock pursuant to deferred stock units  1   (1)  -   -   - 
Stock-based compensation expense  -   1,363   -   -   1,363 
                     
Balance - March 31, 2009 $242  $66,316  $184,781  $(27,800) $223,539 

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
6

 
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.
Basis of Presentation

The Condensed Consolidated Financial Statements include the accounts of Drew Industries Incorporated and its wholly-owned subsidiaries (“Drew” or the “Company”). Drew has no unconsolidated subsidiaries. Drew’s wholly-owned active subsidiaries are Kinro, Inc. and its subsidiaries (collectively “Kinro”), and Lippert Components, Inc. and its subsidiaries (collectively “Lippert”). Drew, through its wholly-owned subsidiaries, manufactures a broad array of components for recreational vehicles (“RVs”) and manufactured homes, and to a lesser extent manufactures specialty trailers and related axles. All significant intercompany balances and transactions have been eliminated. Certain prior year balances have been reclassified to conform to current year presentation.

The Condensed Consolidated Financial Statements presented herein have been prepared by the Company in accordance with the accounting policies described in its December 31, 20072008 Annual Report on Form 10-K and should be read in conjunction with the Notes to Consolidated Financial Statements which appear in that report.

In the opinion of management, the information furnished in this Form 10-Q reflects all adjustments necessary for a fair statement of the financial position and results of operations as of and for the nine and three month periods ended September 30, 2008March 31, 2009 and 2007.2008. All such adjustments are of a normal recurring nature. The Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include some information and notes necessary to conform with annual reporting requirements.

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"). The RV Segment, which accounted for 74 percent and 78 percent of consolidated net sales for the ninethree month periods ended September 30,March 31, 2009 and 2008, and 2007,respectively, manufactures a variety of products used primarily in the production of RVs, as follows:including:

●Towable RV steel chassis
·
●Aluminum windows and screens
●Towable RV axles and suspension solutions
●Chassis components
●RV slide-out mechanisms and solutions
●Furniture and mattresses
●Thermoformed products
●Entry and baggage doors
●Toy hauler ramp doors
●Entry steps
●Manual, electric and hydraulic stabilizer
●Other towable accessories
and lifting systems
●Specialty trailers for hauling boats, personal
watercraft, snowmobiles and equipment
·Doors
·Steel chassis
·Steel chassis parts
·Slide-out mechanisms and related power units
·Leveling devices
·Axles
·Steps
·Electric stabilizer jacks
·Bed lifts
·Suspension systems
·Ramp doors
·Thermoformed exterior panels
·Upholstered furniture
·Thermoformed bath and kitchen products
7


DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
More than 90 percent of the Company’s RV Segment sales are of products used in travel trailers and fifth wheelfifth-wheel RVs. The balance represents sales of components for motorhomes, andas well as sales of specialty trailers for hauling boats, personal watercraft, snowmobiles and equipment, as well as axles for specialty trailers.
 
7
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The MH Segment, which accounted for 26 percent and 22 percent of consolidated net sales for the ninethree month periods ended September 30,March 31, 2009 and 2008, and 2007,respectively, manufactures a variety of products used in the production of manufactured homes, and to a lesser extent, modular housing and office units, including:

·
●Vinyl and aluminum windows and screens
·
●Steel chassis
·Steel chassis parts
·Axles
·●Thermoformed bath and kitchen products
●Steel chassis parts
●Axles

Other than sales of specialty trailers, which aggregated $12 million and $16 million in the first nine months of 2008 and 2007, respectively, salesSales of products other than components for RVs and manufactured homes are not considered significant. However, certain of the Company’s MH Segment customers producemanufacture both manufactured homes and modular homes, and certain of the products manufactured by the Company are suitable for both.both manufactured homes and modular homes. As a result, the Company is not always able to determine in which type of home its products are installed.  Intersegment sales are insignificant.

Decisions concerning the allocation of the Company's resources are made by the Company's key executives. This group evaluates the performance of each segment based upon segment operating profit or loss, defined as income (loss) before interest, amortization of intangibles, corporate expenses, other items and income taxes. Decisions concerning the allocation of resources are also based on each segment’s utilization of operating assets. Management of debt is a corporate function. The accounting policies of the RV and MH segments are the same as those described in Note 1 of Notes to Consolidated Financial Statements of the Company’s December 31, 20072008 Annual Report on Form 10-K.

Information relating to segments follows for the three months ended March 31, (in thousands):

  2009  2008 
       
Net sales:      
RV Segment $52,280  $123,955 
MH Segment  18,739   35,193 
Total $71,019  $159,148 
         
Operating (loss) profit:        
RV Segment $(4,662) $14,254 
MH Segment  (2,023)  2,510 
Total segment operating (loss) profit  (6,685)  16,764 
Amortization of intangibles  (1,389)  (1,053)
Corporate  (1,530)  (1,950)
Goodwill impairment  (45,040)  - 
Other items  (1,620)  1,216 
Total operating (loss) profit
 $(56,264) $14,977 

  
 Nine Months Ended
 
Three Months Ended
 
 
 
September 30,
 
September 30,
 
 
 
2008
 
2007
 
2008
 
2007 
Net sales:         
RV Segment $320,941 $390,193 $85,694 $127,156 
MH Segment  113,004  140,617  38,580  46,254 
Total net sales $433,945 $530,810 $124,274 $173,410 
              
Operating profit:         
RV Segment $31,848 $53,128 $4,598 $17,007 
MH Segment  10,989  12,153  3,913  4,047 
Total segment operating profit  42,837  65,281  8,511  21,054 
Amortization of intangibles  (3,670) (3,014) (1,547) (1,111)
Corporate  (5,714) (5,801) (1,747) (1,884)
Other items  1,561  (674) (687) 195 
Total operating profit $35,014 $55,792 $4,530 $18,254 
3.Goodwill and Other Intangible Assets

Goodwill represents the excess of purchase price and related costs over the fair value assigned to the net tangible and identifiable intangible assets of businesses acquired. Under Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, goodwill and other intangible assets with indefinite lives are not amortized, but instead are tested at the reporting unit level for impairment annually, or more frequently if certain circumstances indicate a possible impairment may exist. The impairment tests are based on fair value, determined using discounted cash flows, appraised values or management’s estimates, depending upon the nature of the assets, as described in SFAS No. 142.
 
8

DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
3.
Acquisitions and Other Investments
Because the Company’s stock price on the New York Stock Exchange was below its book value, and due to the continued declines in industry shipments of RVs and manufactured homes, the Company conducted an impairment analysis of the goodwill of each of its reporting units in the first quarter of 2009.  The fair value of each reporting unit was estimated with a discounted cash flow model utilizing internal forecasts and observable market data to the extent available, to estimate future cash flows.  The forecast included an estimate of long-term future growth rates based on management’s most recent views of the long-term outlook for each reporting unit.
On July 1, 2008, Lippert acquired certain
At March 31, 2009, the discount rate used in the discounted cash flow model prepared for the goodwill impairment analysis was approximately 16.5 percent, derived by applying the weighted average cost of capital model which weights the cost of debt and equity financing.  The Company also considered the relationship of debt to equity of other companies similar to the respective reporting units, the risks and uncertainty inherent in the markets generally and in the Company’s internally developed forecasts.

Based on the analysis, the carrying value of the RV and manufactured housing reporting units exceeded their fair value.  As a result, the Company performed the second step of the impairment test, which required the Company to determine the fair value of each reporting unit’s assets and the business of Seating Technology, Inc. and its affiliated companies (“Seating Technology”). Seating Technology had annual sales of $40 million in 2007. The purchase price was $28.4 million, which was financed from available cash. The purchase price will be adjusted for changes in working capital asliabilities, including all of the closing date. Seating Technology manufactures a wide variety of furniture products primarily for towable RVs, including folding sofas for toy hauler RVs, a full line of upholstered furniture, mattresses, decorative pillows, wood-backed valancestangible and quilted soft good products. This acquisition has added an entirely new product line for the Company. Lippert is in the process of closing two of Seating Technology's five leased facilities in Indiana, and consolidating those operations into existing facilities.intangible assets, except goodwill.  The results of the acquired Seating Technology business have been included insecond step implied that the Company’s Condensed Consolidated Statementfair value of Income beginning July 1, 2008.goodwill was zero, therefore the Company recorded a non-cash impairment charge to write-off the entire $45.0 million of goodwill of these reporting units.

Total consideration forThe non-cash goodwill impairment charge is largely the Seating Technology acquisition was allocatedresult of uncertainties in the economy, and in the RV and manufactured housing industries, as well as a substantial increase during the first quarter of 2009 in the discount rate used to determine the present value of projected cash flows.

Estimating the fair value of reporting units, and the reporting unit’s asset and liabilities, involves the use of estimates and significant judgments that are based on an estimated basis, pendinga number of factors including actual operating results, future business plans, economic projections and market data. Actual results may differ from forecasted results.

Goodwill by reportable segment is as follows (in thousands):

  MH Segment  RV Segment  Total 
          
Balance - December 31, 2008 $9,251  $34,862  $44,113 
Adjustments related to Seating Technologies, acquired July 1, 2008  -   927   927 
Impairment charge  (9,251)  (35,789)  (45,040)
Balance - March 31, 2009 $-  $-  $- 

In addition, the final valuations for certain tangible andCompany reviewed the recoverability of other intangible assets and other long-lived assets, and determined that there was no impairment.  However, the Company will continue to monitor these assets for potential impairment, as follows (a continued downturn in thousands):the RV or manufactured housing industries, or in the profitability of the Company’s operations, could result in a non-cash impairment charge of these assets in the future.

Net tangible assets acquired $7,255 
Identifiable intangible assets  11,000 
Goodwill (tax deductible)  10,187 
Total cash consideration $28,442 
9

On July 1, 2008, Lippert acquired the patent for "JT's Strong Arm Jack Stabilizer," and other intellectual properties and assets. The purchase price was $3.0 million, which was financed from available cash. JT's Strong Arm Jack Stabilizer represents a significant advance in the elimination of side-to-side and front-to-back movement of a parked travel trailer or fifth wheel RV. Total consideration for the acquisition was allocated on an estimated basis to amortizable intangible assets, pending the final valuations.

DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4.
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. At March 31, 2009, all but $0.1 million of the Company’s cash balances were in fully FDIC insured accounts, and the Company did not have any investments. Investments, which are currentlywere in U.S. Treasuryhigh-quality, short-term money market instruments with a current yield of approximately 1 percent,issued and payable in U.S funds, are recorded at cost which approximates fair value. Investmentsvalue, and were $7.5 million and $40.8$46.2 million at September 30,March 31, 2008 and 2007, respectively, and $53.4$3.8 million at December 31, 2007.2008.

9

DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5.
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.

Inventories consist of the following (in thousands):

  September 30, December 31, 
  2008 2007 2007 
 Finished goods $12,276 $12,665 $12,698 
 Work in process  3,376  3,009  2,975 
 Raw material  91,620  63,551  60,606 
 Total $107,272 $79,225 $76,279 
  March 31,  December 31, 
  2009  2008  2008 
          
Finished goods $9,332  $13,343  $10,801 
Work in process  2,553   3,228   2,946 
Raw material  63,213   70,627   80,187 
Total $75,098  $87,198  $93,934 

6.
Long-termLong-Term Indebtedness

On February 11, 2005,November 25, 2008, the Company entered into an agreement (the “Credit Agreement”) refinancing itsfor a $50.0 million line of credit with JPMorgan Chase Bank, N.A., KeyBank National Association and HSBCWells Fargo Bank USA, National AssociationN.A. (collectively, the “Lenders”). The maximum borrowings under the Company’s line of credit are $70.0 million, and can be increased by an additional $20.0 million upon approval of the Lenders. Interest on borrowings under the line of credit is designated from time to time by the Company as either the Prime Rate, but not less than 2.5 percent, plus additional interest up to 0.8 percent (0 percent at March 31, 2009), or LIBOR plus additional interest ranging from 1.02.0 percent to 1.82.8 percent (1.0(2.0 percent at September 30, 2008)March 31, 2009) depending on the Company’s performance and financial condition. Availability under the Company’s line of credit was $58.2 million at September 30, 2008, as the Company had $5.0 million of borrowings and $6.8 million of letters of credit outstanding. The Credit Agreement expires June 30,December 1, 2011. At March 31, 2009, and as such, the $5.0Company had $7.6 million in outstanding letters of borrowingscredit under the line of credit are classified as current debt in the balance sheet. The Company expects to enter into a new $50.0 million long-term borrowing arrangement with JPMorganChase and Wells Fargo by the end of November 2008.credit.

TheSimultaneously, the Company hasentered into a $60$125.0 million “shelf-loan” facility with Prudential Investment Management, Inc., and its affiliates (“Prudential”) under which the Company had borrowed $35.0 million,, of which $7.0$5.0 million wasis outstanding at September 30, 2008. PursuantMarch 31, 2009. The facility provides for Prudential to the terms of the shelf-loan facility, the Company can issue, and Prudential’s affiliates may 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 an additional $25.0$125.0 million, to mature no more than seventwelve years after the date of original issue of each transaction.Note. Prudential and its affiliates havehas no obligation to purchase the additional Senior Promissory Notes. Interest payable on the Notes will be at rates determined by Prudential within five business days after the Company issues a request to Prudential. The shelf-loan facility expires on June 13, 2009. Simultaneous with the completion of the new long-term borrowing arrangement with JPMorganChase and Wells Fargo, the Company expects to complete an increase in its uncommitted “shelf-loan” facility with Prudential from $25.0 million to $125.0 million.November 25, 2011.
 
On October 18, 2004, the Company entered into a five-year interest rate swap with KeyBank National Association with an initial notional amount of $20.0 million from which it will receive periodic payments at the 3 month LIBOR rate (2.804 percent at September 30, 2008 based upon the August 15, 2008 reset date), and make periodic payments at a fixed rate of 3.35 percent, with settlement and rate reset dates every November 15, February 15, May 15 and August 15. The notional amount of the interest rate swap decreases by $1.0 million on each quarterly reset date. At September 30, 2008, the notional amount was $5.0 million. The fair value of the swap was zero at inception and ($7,000) at September 30, 2008. The Company has designated this swap as a cash flow hedge of certain borrowings under the line of credit and recognized the effective portion of the change in fair value as part of other comprehensive (loss) income, with the ineffective portion, which was insignificant, recognized in earnings currently.

10

DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Long-termBoth 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 consists ofto 2.5 times the following (dollars in thousands):
  September 30, December 31, 
  2008 2007 2007 
Senior Promissory Notes payable at the rate of $1,000 per       
quarter on January 29, April 29, July 29 and October 29,       
with interest payable quarterly at the rate of 5.01% per       
annum, final payment to be made on April 29, 2010 $7,000 $11,000 $10,000 
Senior Promissory Notes, prepaid in full on          
December 28, 2007  -  12,321  - 
Notes payable pursuant to the Credit Agreement expiring          
June 30, 2009 consisting of a line of credit, not to exceed          
$70,000, with interest at prime rate or LIBOR plus a rate          
margin based upon the Company’s performance  5,000  9,000  8,000 
Industrial Revenue Bonds, interest rates at September 30, 2008          
of 3.77% to 6.28%, due 2009 through 2017; secured by          
certain real estate and equipment  2,895  5,774  5,448 
Other loans primarily secured by certain real estate and          
equipment, due 2009 to 2011, with fixed interest rates          
at September 30, 2008 of 5.18% to 6.52%  2,217  4,440  3,727 
Other loan primarily secured by certain real estate,          
with a variable interest rate  -  102  87 
   17,112  42,637  27,262 
Less current portion  11,797  11,309  8,881 
Total long-term indebtedness $5,315 $31,328 $18,381 
The weighted average interest rate fortrailing twelve-month EBITDA; provided however, that if the Company’s indebtedness was 4.89 percenttrailing twelve-month EBITDA declines to less than $50 million, the maximum leverage ratio covenant declines to 1.25 times the trailing twelve-month EBITDA. Since the Company’s trailing twelve-month EBITDA declined to less than $50 million at September 30, 2008.March 31, 2009, the maximum leverage ratio covenant limits the remaining availability under these facilities collectively to $23.3 million. However, due to the current cash position, and the cash expected to be generated over the balance of 2009, it is anticipated that this restriction will not affect the Company.

Pursuant to the Credit Agreement, Senior Promissory Notes, Credit Agreement, and certain other loan agreements, the Company is required to maintain minimum net worth and interest and fixed charge coverages and to meet certain other financial requirements. At September 30, 2008,March 31, 2009, the Company was in compliance with all such requirements.requirements, and expects to remain in compliance for the next twelve months. Certain of the Company’s loan agreements contain prepayment penalties. The Senior Promissory Notes and

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 (oror other equity interests)interests of each of the Company’s direct and indirect subsidiaries.

Long-term indebtedness consists of the following (dollars in thousands):

  March 31,  December 31, 
  2009  2008  2008 
Senior Promissory Notes payable at the rate of $1,000 per         
quarter on January 29, April 29, July 29 and October 29,         
with interest payable quarterly at the rate of 5.01% per         
annum, final payment to be made on April 29, 2010 $5,000  $9,000  $6,000 
Notes payable pursuant to a Credit Agreement            
with interest at prime rate or LIBOR plus a rate            
margin based upon the Company’s performance  -   7,000   - 
Industrial Revenue Bonds, interest rates at March 31, 2009            
of 2.69% to 4.68%, due 2009 through 2017; secured by            
certain real estate and equipment  1,427   5,120   1,662 
Other loans primarily secured by certain real estate and            
equipment, with fixed interest rates  -   3,230   1,021 
   6,427   24,350   8,683 
Less current portion  4,602   8,750   5,833 
             
Total long-term indebtedness $1,825  $15,600  $2,850 

The weighted average interest rate for the Company’s indebtedness was 4.65 percent at March 31, 2009.
11

DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
7.
Weighted Average Common Shares Outstanding
Stockholders’ Equity

The Company’s Restated Certificate of Incorporation currently authorizes the issuance of 50 million shares of Common Stock, par value $0.01 per share. At the Annual Meeting of Stockholders to be held on May 20, 2009, there will be presented to stockholders a proposal to approve the adoption of an amendment to the Company’s Restated Certificate of Incorporation to decrease the number of shares of common stock authorized for issuance by 20 million shares.  There will also be presented to stockholders a proposal to approve the adoption of an amendment to the Drew Industries Incorporated 2002 Equity Award and Incentive Plan to increase the number of shares subject to awards by 900,000 shares.

On November 29, 2007 the Board of Directors authorized the Company to repurchase up to 1 million shares of the Company’s Common Stock, of which 447,400 shares were repurchased in 2008.  The Company is authorized to purchase shares from time to time in the open market, or privately negotiated transactions, or block trades. The number of shares ultimately repurchased, and the timing of the purchases, will depend upon market conditions, share price, and other factors. At present, due to current economic conditions, the Company believes it is prudent to conserve cash, and does not intend to repurchase shares. However, changing conditions may cause the Company to reconsider this position.

The following reconciliation details the denominator used in the computation of basic and diluted earnings per share for the three months ended March 31, (in thousands):

  Nine Months Ended Three Months Ended 
  September 30, September 30, 
  2008 2007 2008 2007 
          
Weighted average shares outstanding for basic earnings per share  21,879  21,856  21,702  21,936 
Common stock equivalents pertaining to stock options
  144  233  113  283 
Total for diluted shares  22,023  22,089  21,815  22,219 
  2009  2008 
Weighted average shares outstanding for basic earnings per share  21,643   22,014 
Common stock equivalents pertaining to stock options  -   165 
Total for diluted shares  21,643   22,179 

The weighted average diluted shares outstanding for the three months ended March 31, 2009 and 2008, respectively, excludes the effect of 1,981,740 and 1,168,940 stock options, respectively, as to include them in the calculation of total diluted shares would have been anti-dilutive.

8.
Commitments and Contingencies

Litigation

On or about January 3, 2007, an action was commenced in the United States District Court, Central District of California entitled Gonzalez vs. Drew Industries Incorporated, Kinro, Inc., Kinro Texas Limited Partnership d/b/a Better Bath Components; Skyline Corporation, and Skylines Homes, Inc. (Case No. CV06-08233). The case purports to be a class action on behalf of the named plaintiff and all others similarly situated in California. Plaintiff initially alleged, but has not sought certification of, a national class.

On April 1, 2008, the Court issued an order granting Drew’s motion to dismiss for lack of personal jurisdiction, resulting in the dismissal of Drew Industries Incorporated as one of the defendants in the case.

Plaintiff alleges that certain bathtubs manufactured by Kinro Texas Limited Partnership, a subsidiary of Kinro, Inc., and sold under the name “Better Bath” for use in manufactured homes, fail to comply with certain safety standards relating to flame spread established by the United States Department of Housing and Urban Development (“HUD”). Plaintiff alleges, among other things, that sale of these products is in violation of various provisions of the California Consumers Legal Remedies Act (Sec. 1770 et seq.), the Magnuson-Moss Warranty Act (Sec. 2301 et seq.), and the California Song-Beverly Consumer Warranty Act (Sec. 1790 et seq.).
 
12
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Plaintiff seeks to require defendants to notify members of the class of the allegations in the proceeding and the claims made, to repair or replace the allegedly defective products, to reimburse members of the class for repair, replacement and consequential costs, to cease the sale and distribution of the allegedly defective products, and to pay actual and punitive damages and plaintiff’s attorneys fees.

On January 29, 2008, the Court issued an Order denying certification of a class with plaintiff Gonzalez as the class representative. The Court ruled that plaintiff may not be an appropriate class representative for injunctive relief because her bathtub had been replaced. The Court granted plaintiff leave to amend the complaint to add a different plaintiff.
12

DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
On March 10, 2008, plaintiff amended her complaint to include an additional plaintiff, Robert Royalty. Plaintiff Royalty states that his bathtub was not tested to determine whether it complies with HUD standards.  Rather, his allegations are based on “information and belief”, including the testing of plaintiff Gonzalez’s bathtub and other evidence. Kinro denies plaintiff Royalty’s allegations, and intends to continue its vigorous defense against both plaintiffs’ claims.

On June 25, 2008, plaintiffs filed a renewed motion for class certification. On October 20, 2008, the Court again denied certification of a class, without prejudice, which allowsallowed plaintiffs to file a new motion for certification if plaintiffs are able to satisfy the Court’s concerns over the viability of plaintiffs’ case. Plaintiffs filed a third motion for class certification on December 23, 2008. Defendants’ initial motion seeking summary judgment against plaintiffs’ case, which was withdrawn pending further discovery, will bewas supplemented and refiled in Novemberon December 23, 2008.  A hearing on these motions was held on March 2, 2009, but a decision by the court has not yet been received.

Defendant Kinro has conducted a comprehensive investigation of the allegations made in connection with the claims, including with respect to the HUD safety standards, prior test results, testing procedures, and the use of labels. In addition, at Kinro’s initiative, independent laboratories conducted multiple tests on materials used by Kinro in the manufacture of bathtubs, the results of which tests indicate that Kinro’s bathtubs are in compliance with HUD regulations.

Although discovery by plaintiffs and by defendants is continuing, at this point, basedBased on the foregoing investigation and testing, Kinro believes that plaintiffs may not be able to prove the essential elements of their claims, and defendants intend to vigorously defend against the claimsclaims.

Moreover, Kinro believes that, because test results received by Kinro confirm that it is in compliance with HUD safety standards, no remedial action is required or appropriate.

In October 2007, the parties participated in voluntary non-binding mediation in an effort to reach a settlement. Kinro made an offer of settlement consistent with its belief regarding the merits of plaintiffs’ allegations. Although no settlement was reached, the parties have since had intermittent discussions. The outcome of such settlement efforts cannot be predicted.
 
13
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
If plaintiffs file a thirdplaintiffs’ motion for class certification and it is granted, and if settlementdefendants’ motion for summary judgment is not reacheddenied, and if plaintiffs pursue their claims, protracted litigation could result. Although the outcome of such litigation cannot be predicted, if certain essential findings are ultimately unfavorable to Kinro, the Company could sustain a material liability. The Company’s liability insurer denied coverage on the ground that plaintiffs did not sustain any personal injury or property damage.

In connection with a tax audit by the Indiana Department of Revenue pertaining to calendar years 1998 to 2000, the Company received an initial examination report asserting, in the aggregate, approximately $1.2 million of proposed tax adjustments, including interest and penalties. After two hearings with the Indiana Department of Revenue, the audit findings were upheld. The Company believes that it has properly reported its income and paid taxes in Indiana in accordance with applicable laws, and filed an appeal in December 2006 with the Indiana Tax Court. TheCourt and the matter has beenwas scheduled for trial in December 2008.  TheIn November 2008, the Company and the Indiana Department of Revenue are currentlysettled tax years 1998 to 2000 for $0.6 million, as well as 2001 to 2006 for $4.0 million. This amount was fully reserved prior to 2009, and was paid in settlement negotiations.April of 2009.

In the normal course of business, the Company is subject to proceedings, lawsuits and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, it is management’s opinion that after final disposition, including anticipated insurance recoveries, any monetary liability or financial impact to the Company beyond that provided in the consolidated balance sheetCondensed Consolidated Balance Sheet as of September 30, 2008,March 31, 2009, would not be material to the Company’s financial position or annual results of operations.

13
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Other Income

In February 2004, the Company sold certain intellectual property rights for $4.0 million, consisting of cash of $0.1 million at closing and a note of $3.9 million (the “Note”), payable over five years. The noteNote was initially recorded net of a reserve of $3.4 million. In both January 2008, and 2007, the Company received a scheduled paymentspayment of principal and interest of $0.8 million, which had been previously fully reserved. Therefore,reserved, and therefore recorded a pre-tax gain. The Company did not receive the final scheduled payment in January 2009; however, in both February and March 2009 the Company received principal payments of $0.1 million, which were previously fully reserved, and therefore recorded a pre-tax gain of $0.7 million in$0.2 million. The Company is currently attempting to collect the first nine monthsbalance due of both 2008 and 2007. The balance of the note is $1.0 million at September 30, 2008, which is fully reserved. Final payment on the note is due in January 2009.$0.8 million.

Sale-Leaseback

In April 2008, the Company sold for $3.1 million a mortgage note it had received in a 2006 sale of a facility, which note had been in default. In connection with the collection of this $3.1 million in cash, the Company recorded a gain of $2.1 million ($1.7 million after the direct effect of incentive compensation) during the second quarter of 2008. This gain is classified in selling, general, and administrative expenses in the condensed consolidated statements of income.
Facilities Consolidation

In response to the slowdowns in both the RV and manufactured housing industries, over the past threefew years the Company has consolidated the operations previously conducted at 1927 facilities and reduced staff levels. The severance and operational relocation costs incurred by the Company were not significant. In connection with the determination to close facilities, to reflect the net gains on the sold facilities and the write-downs to estimated current market value of facilities to be sold, the Company recorded a net gain of $2.5 million ($2.0 million after the direct effect of incentive compensation) in the first nine months of 2008, and a net charge of $0.3 million during the third quarter of 2008. For similar items, the Company recorded a net charge of $0.8 million ($0.7 million after the direct effect of incentive compensation) in the first nine months of 2007, and a net gain of $0.9 million during the third quarter of 2007 ($0.7 million after the direct effect of incentive compensation).

significant. The Company is currently implementing plans to close or “mothball”operated 28 facilities at least 5 additional manufacturing facilities over the next 3 to 6 months,March 31, 2009, and is continuing to explore additional facility consolidation opportunities.

Effective in the third quarter of 2008, gains or losses on sold manufacturing facilities, and charges for write-downs to estimated current market value of manufacturing facilities to be sold have been reclassified from cost of goods sold to selling, general, and administrative expenses in the condensed consolidated statements of income. Prior periods have been reclassified to conform to this presentation.

At September 30, 2008,March 31, 2009, the Company had five vacantseven facilities and vacant land listed for sale, with an aggregate bookcarrying value of $3.7$8.9 million. ThreeOne of thethese facilities, with a bookcarrying value of $1.1$0.5 million, arewas sold at a gain of $0.1 million in April 2009, and another facility is under contract to be sold in the 2008 fourthsecond quarter at book value.its carrying value of $0.4 million. In April 2009, the Company entered into a two year lease at $25,000 per month for one of these facilities, which has a carrying value of $3.0 million. This lease also contains an option for the lessee to purchase the facility for $3.4 million.
 
14
 
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Use of Estimates

The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to product returns, accounts receivable, inventories, notes receivable, goodwill and other intangible assets, income taxes, warranty obligations, self-insuranceself insurance obligations, lease terminations, asset retirement obligations, long-lived assets, post-retirement benefits, stock-based compensation, segment allocations, and contingencies and litigation. The Company bases its estimates on historical experience, other available information and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources. Actual results may differ from these estimates under different assumptions or conditions.

Goodwill and Other Intangible Assets

As a result ofDuring the continued downturn in industry shipments of RVs, manufactured homes and small and medium sized boats, during the thirdfirst quarter of 2008,2009, the Company conducted anreviewed the recoverability of other intangible assets and other long-lived assets, and determined that there was no impairment.  However, the Company will continue to monitor these assets for potential impairment, analysis on these operations. The estimated fair value of these operations currently exceeds the corresponding book values, thus no impairment has been recorded. However,as a continued downturn in thesethe RV, marine and leisure or manufactured housing industries, in particular small and medium sized boats, or in the profitability of the Company’s operations, could result in a non-cash impairment charge of these assets in the future.

9. Fair Value Measurements

Effective January 1, 2008, the Company adopted SFAS 157 for all financial assets and liabilities and for non-financial assets and liabilities that are recognized or disclosed in the financial statements at fair value on a recurring basis. Additionally, effective January 1, 2009, the Company adopted SFAS 157 for non-financial assets and liabilities that are recognized or disclosed in the financial statements at fair value on a non-recurring basis. Although such adoption did not have a material impact on the Company’s condensed consolidated financial statements for the three months ended March 31, 2009, the pronouncement may impact the Company’s accounting for future business combinations, impairment charges and restructuring charges.

SFAS 157 establishes a new framework for measuring fair value and expands related disclosures. The SFAS 157 framework requires fair value to be determined based on the exchange price that would be received for an asset, or paid to transfer a liability (an exit price), in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.

The valuation techniques required by SFAS 157 are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. SFAS 157 requires the following fair value hierarchy:
·Level 1 - Quoted prices (unadjusted) for identical assets and liabilities in active markets that the Company has the ability to access at the measurement date.

·Level 2 - Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and inputs other than quoted prices that are observable for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from or corroborated by observable market data through correlation.
15
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
·Level 3 - Values determined by models, significant inputs to which are unobservable and are primarily based on internally derived assumptions regarding the timing and amount of expected cash flows.

            Long-lived assets, including goodwill and other intangible assets, inmay be measured at fair value if such assets are held for sale or if there is a determination that the future. At September 30, 2008,asset is impaired. The determination of fair value is based on the Company had $10.7 million of goodwill and other intangible assets related to its marine and leisure operation, which sells trailers and axles for small and medium sized boats.

9.
Stockholders’ Equity

On November 29, 2007, the Company announced a stock repurchase of up to 1,000,000 shares of the Company’s Common Stock. During 2008, the Company repurchased 447,400 sharesbest information available, including internal cash flow estimates discounted at an average cost of $18.58 per share, or $8.3 million in total, including 250,000 shares at an average cost of $15.38 per share, or $3.9 million, during the third quarter of 2008. The repurchases were funded from the Company’sappropriate interest rate, quoted market prices when available, cash. These shares are being held in treasury.market prices for similar assets, broker quotes and independent appraisals, as appropriate under SFAS 157.

AtBecause the Company’s Annual Meeting of Stockholdersstock price on May 28, 2008, the stockholders ratified an amendmentNew York Stock Exchange was below its book value, and due to the 2002 Equity Awardcontinued declines in industry shipments of RVs and Incentive Planmanufactured homes, the Company conducted an impairment analysis of its goodwill in the first quarter of 2009, and recorded a non-cash impairment charge of $45.0 million.  This evaluation was completed using Level 3 inputs.  See Note 3 to increaseNotes to Condensed Consolidated Financial Statements.

In addition, the numberCompany reviewed the recoverability of sharesfacilities and vacant land listed for sale using broker quotes and management’s estimates.  During the first quarter of Common Stock available for issuance pursuant to grants by 500,000 shares. The stockholders also ratified2009, an amendment to the Company’s Restated Certificateimpairment charge of Incorporation to increase the authorized number$0.5 million was recorded on three of sharessuch properties with a carrying value of Common Stock from 30,000,000 shares to 50,000,000.$1.7 million at March 31, 2009.  This evaluation was completed using Level 3 inputs.

10.
New Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”)SFAS No. 157, “Fair Value Measurements”, which establishes a framework for reporting fair value and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. However, the FASB deferred the effective date of SFAS No. 157, until fiscal years beginning after November 15, 2008, as it relates to fair value measurement requirements for non-financialnonfinancial assets and liabilities that are not remeasured at fair value on a recurring basis. The adoption ofCompany adopted the applicable portionsprovisions of this standard did not have a material impact on the Company,January 1, 2009 and the balance of the standard is not expected2008, respectively.  See Note 9 to have a material impact on the Company.
15
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option forNotes to Condensed Consolidated Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value at specified election dates, and report unrealized gains and losses on items for which the fair value option has been elected in earnings. The provisions of SFAS No. 159 are effective for fiscal years beginning after November 15, 2007. The Company has elected not to measure any financial instruments or other items at fair value, and as such the adoption of this standard did not have an impact on the Company.Statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.”Combinations”. SFAS No. 141(R) requires assets acquired and liabilities assumed in connection with a business combination to be measured at fair value as of the acquisition date, acquisition related costs incurred prior to the acquisition to be expensed, and contractual contingencies to be recognized at fair value as of the acquisition date. The provisions of SFAS No. 141(R) are effective for fiscal years beginning after December 15, 2008. The Company is currently evaluatingadoption of this standard on January 1, 2009 did not have a material impact on the impact of adopting this standard.Company.

16

DREW INDUSTRIES INCORPORATED

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The Company has two reportable segments, the recreational vehicle (“RV”) products segment (the “RV Segment”) and the manufactured housing products segment (the “MH Segment”). The Company’s operations are conducted through its wholly-owned operating subsidiaries, Kinro, Inc. and its subsidiaries (collectively, “Kinro”) and Lippert Components, Inc. and its subsidiaries (collectively, “Lippert”). Each has operations in both the RV and MH segments.Segments. At September 30, 2008,March 31, 2009, the Company’s subsidiariesCompany operated 3628 plants in the United States.

The RV Segment accounted for 74 percent of consolidated net sales for the ninethree months ended September 30, 2008March 31, 2009 and 2007.72 percent of the annual consolidated net sales for 2008. The RV Segment manufactures a variety of products used primarily in the production of recreational vehicles as follows:RVs, including:

●Towable RV steel chassis
·
●Aluminum windows and screens
●Towable RV axles and suspension solutions
●Chassis components
●RV slide-out mechanisms and solutions
●Furniture and mattresses
●Thermoformed products
●Entry and baggage doors
●Toy hauler ramp doors
●Entry steps
●Manual, electric and hydraulic stabilizer
●Other towable accessories
and lifting systems
●Specialty trailers for hauling boats, personal
watercraft, snowmobiles and equipment
·Doors
·Steel chassis
·Steel chassis parts
·Slide-out mechanisms and related power units
·Leveling devices
·Axles
·Steps
·Electric stabilizer jacks
·Bed lifts
·Suspension systems
·Ramp doors
·Thermoformed exterior panels
·Upholstered furniture
·Thermoformed bath and kitchen products

More than 90 percent of the Company’s RV Segment sales are of products used in travel trailers and fifth wheelfifth-wheel RVs. The balance represents sales of components for motorhomes, andas well as sales of specialty trailers for hauling boats, personal watercraft, snowmobiles and equipment, as well as axles for specialty trailers. Travel trailers and fifth wheelfifth-wheel RVs accounted for 78 percent and 74 percent of all RVs shipped by the industry in the first nine months of 2008 and 2007, respectively, up from 61 percent in 2001.

The MH Segment, which accounted for 26 percent of consolidated net sales for the ninethree months ended September 30,March 31, 2009 and 28 percent of the annual consolidated net sales for 2008, and 2007, manufactures a variety of products used in the production of manufactured homes and to a lesser extent, modular housing and office units, including:

·
●Vinyl and aluminum windows and screens
·
●Steel chassis
·Steel chassis parts
·Axles
·●Thermoformed bath and kitchen products
●Steel chassis parts
●Axles

Other than sales of specialty trailers, which aggregated $12 million and $16 million in the first nine months of 2008 and 2007, respectively, and $21 million in all of 2007, salesSales of products other than components for RVs and manufactured homes are not considered significant. However, certain of the Company’s MH Segment customers producemanufacture both manufactured homes and modular homes, and certain of the products manufactured by the Company are suitable for both manufactured homes and modular homes. As a result, the Company is not always able to determine in which type of home its products are installed. Intersegment sales are insignificant.

17

DREW INDUSTRIES INCORPORATED

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
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 wheelfifth-wheel travel trailers, folding camping trailers and truck campers). Towable RVs represented 88 percent of the 211,900237,000 RVs produced in the first nine months of 2008, while motorhomes represented the remaining 12 percent of RVs produced. Motorhomes have a significantly higher average retail selling price than towable RVs, and as a result, sales of motorhomes in 2007 represented approximately 50 percent of total RV retail sales dollars.RVs. The Company sells minimal content for folding camping trailers or truck campers.

In 2007, U.S industry-wide unitDuring 2008, and continuing into the first quarter of 2009, because of severe economic conditions, including low consumer confidence, limited credit availability for both dealers and consumers, and continued weakness in the real estate and mortgage markets, retail sales of travel trailersRVs declined. As a result, RV manufacturers significantly reduced their output, which reduced sales by the Company.  In particular, due to reduced demand, many RV manufacturers temporarily closed a number of production facilities in November 2008, and fifth wheel RVs, the Company’s primary market, increased 2 percent, while industry-wide wholesale shipments declined 10 percent, an indication that dealers were reducing inventories. In the first nine monthsdid not resume production until late January 2009. As a result of 2008, industry-wide wholesale shipments of travel trailers and fifth wheel RVs declined 21 percentthese conditions, according to the Recreational Vehicle Industry Association (“RVIA”), while Statistical Surveys, Inc. reported that retail salesindustry-wide wholesale shipments of travel trailers and fifth wheelfifth-wheel RVs, the Company’s primary RV markets, declined 2061 percent to 24,800 units for the first eight monthsquarter of 2008. August 2008 is2009, although trends improved slightly during the latter part of the quarter, with March wholesale shipments down 55 percent compared to last month for which retail information is available. Retail statistics reported by Statistical Surveys, Inc. do not include sales of RVs in Canada, however wholesale shipment statistics include shipments to Canada. The RVIA reported that nearly one in five towable RVs was shipped to Canada in 2007. Recent RV dealer surveys indicate that inventories, although below year-earlier levels, are still higher than dealers would prefer in this uncertain economic environment and in light of reduced demand.March.

While the Company tends to measure its RV sales against industry-wide wholesale shipment statistics, it believes the underlying health of the RV industry is determined by retail demand, which has declined throughout 2008.2008 and the first quarter of 2009. A comparison of the year over year percentage change in industry-wide wholesale shipments and retail shipments, as reported by Statistical Surveys, Inc., of travel trailers and fifth wheelfifth-wheel RVs for 2008 is as follows:

  Wholesale Retail
Quarter ended March 31  
(8%)
  
(17%)
Quarter ended June 30  
(18%)
  
(19%)
July  
(33%)
  
(26%)
August  
(41%)
  
(26%)
September  
(39%)
  Not yet available

  Wholesale  Retail 
Quarter ended March 31, 2008 
 
(8)%   (16)% 
Quarter ended June 30, 2008  (18)%
 
  (19)% 
Quarter ended September 30, 2008  (38)% 
 
 (27)% 
Quarter ended December 31, 2008  (63)%   (36)% 
Quarter ended March 31, 2009  (61)%   
(45)%(1)
 
(1) For first two months of 2009, the latest period for which retail information is available. 
         
Year ended December 31, 2008  (29)%   (23)% 
Year ended December 31, 2007  (10)%   4% 
Over the past few quarters, retail sales of travel trailers and fifth-wheel RVs did not decline as sharply as industry-wide wholesale shipments, indicating that dealer inventories declined. However, recent RV dealer surveys indicate that inventories, although below year-earlier levels, are still higher than dealers would prefer in this uncertain economic environment and in light of reduced demand and limited credit availability for floor plan financing.
18
DREW INDUSTRIES INCORPORATED
 ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Industry-wide wholesale shipments of motorhomes, components for which represent about 53 percent of Drew’s RV segmentSegment net sales, were down 4278 percent during the first nine monthsquarter of 2008.2009. Retail sales of motorhomes were down 3757 percent for the first eighttwo months of 2008. August 2008 is2009, the last monthlatest period for which retail industry information is available.

For the remainder of 2008 and into 2009, the Company anticipates a weakthe economy volatile fuel prices, low consumer confidence, a tight credit market, and continued weakness in the real estate and mortgage markets. All of these factors arewill remain weak. This is expected to cause consumers to be extremely cautious which in turn will likely impact the purchases ofabout purchasing discretionary big-ticket items, such as RVs. In response to slow retail sales during 2008, RV manufacturers have significantly reduced their output, which has negatively affected the Company in 2008, and will likely continue into 2009.

18
DREW INDUSTRIES INCORPORATED

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The RVIA has projected a 2043 percent decline in wholesale shipments of travel trailers and fifth wheel RVs in 2008, and an additional 4 percent decline of wholesale shipments of travel trailers and fifth wheel RVs in 2009. Based upon the further decline in industry-wide wholesale shipments of travel trailers and fifth wheelfifth-wheel RVs subsequentfor 2009, to 105,300 units. In addition, the RVIA forecast,demand for larger travel trailer and fifth-wheel RVs, which typically contain more of the actual decline for 2008 is likelyCompany’s product than smaller units, has experienced a steeper decline. On a positive note, in February 2009, the Federal Reserve indicated that RV consumer and dealer floor-plan loans would be included in the Term Asset-Backed Securities Loan Facility (TALF) under the Troubled Assets Relief Program (TARP).  The Small Business Administration also recently announced the expansion of eligibility to include  RV dealers. The timing and extent of the impact of these stimulus programs cannot be greater than the 20 percent projected.determined at this point.

In the long-term, the Company expects RV sales are expected to be driven by positive demographics, as demand for RVs is strongest from the over 50 age group, which is the fastest growing segment of the U.S. population. U.S. Census Bureau projections released in March 2004 project that there will be in excess of 20 million more people over the age of 50 by 2014.

In 1997, the RVIA began a generic advertising campaign promoting the RV lifestyle. The current phase is targeted at both parents aged 30-49 with children at home, andas well as couples aged 50-64 with no children at home. The popularity of traveling in RVs to NASCAR and other sporting events, and using RVs as second homes, also appears to motivate consumer demand for RVs.

Manufactured Housing Industry

Manufactured homes are built entirely in a factory on permanent steel undercarriages or chassis, transported to the site, and installed pursuant to a federal building code administered by the U.S. Department of Housing and Urban Development (“HUD”). The federal standards regulate manufactured housing design and construction, strength and durability, transportability, fire resistance, energy efficiency and quality. The HUD Code also sets performance standards for the heating, plumbing, air conditioning, thermal and electrical systems. It is the only federally regulated national building code. On-site additions, such as garages, decks and porches, often add to the attractiveness of manufactured homes and must be built to local, state or regional building codes. A manufactured home may be sited on owned or leased land.

Industry-wide wholesale production of manufactured homes has declined approximately 7478 percent since 1998, including an 18a 14 percent decline in 2007,2008, to 95,80081,900 homes. This 74 percentdecade-long decline over the past ten years was primarily the result of limited credit availability because of high credit standards applied to purchases of manufactured homes, high down payments,payment requirements, and high interest rate spreads between conventional mortgages for site-built homes and chattel loans for manufactured homes (chattel loans are loans secured only by the home which is sited on leased land). In addition, in the several years leading up to 2008, many traditional buyers of manufactured homes were able to purchase site-built homes instead of manufactured homes, as subprime mortgages were readily available at unrealistic terms for site-built homes.

19
DREW INDUSTRIES INCORPORATED
 ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Institute for Building Technology and Safety (“IBTS”) reported that for the nine months ended September 30, 2008,first quarter of 2009, industry-wide wholesale production of manufactured homes decreased 1046 percent over the samefirst quarter of 2008. During this period, in the prior year, including a 16 percent decrease in larger, multi-section homes produced bysize of the industry, partially offset by a 4 percent increase in smaller, single-section homes, in which the Company has less average content per home. However, over the past 3 months,manufactured home also declined. Industry production of smaller single-section manufactured homes has(1,100 average square footage) decreased 42 percent during the first quarter of 2009, while production of larger multi-section manufactured homes (1,800 average square footage) declined by 648 percent largely offsettingin the positive comparisons from earlier in 2008.same period. As a result, total “floors” produced declined 47 percent during the first quarter of 2009. For the first nine monthsquarter of 2008,2009, multi-section manufactured homes represented 6360 percent of the total manufactured homes produced, down from 6963 percent and 68 percent for the same period last year,2008 and 2007, respectively, and 80 percent in all2003. Multi-section manufactured homes contain more of 2003.
19
DREW INDUSTRIES INCORPORATEDthe Company’s products than single-section manufactured homes.

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The decline in multi-section homes over the past few years was apparently partly due to the weak site-built housing market, as a result of which many retirees have not been able to sell their primary residence, or may have been unwilling to sell at currently depressed prices, and purchase a more affordable manufactured home. In the several years leading up to 2007, many traditional buyers of manufactured homes were instead able to purchase site-built homes, as subprime mortgages were readily available at unrealistic terms.

The Company believes that long-term growth prospects for manufactured housing are positive because of (i) the quality and affordability of the home, (ii) the favorable demographic trends, including the increasing number of retirees who, in the past, had represented a significant market for manufactured homes, (iii) pent-up demand by retirees who have been unable or unwilling to sell their primary residence and purchase a manufactured home, and (iv) the unavailability of subprime mortgages for site-built homes. In addition, legislation enacted in July 2008 increased FHAFederal Housing Administration (“FHA”) insured lending limits for chattel mortgages for manufactured homes from less than $49,000 to nearly $70,000, and provides a tax credit$70,000. The final regulations for up to $7,500 for first-time homebuyers,the insured lending limits were put into place in March 2009, which could increase demand for new manufactured homes. Further, the American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence during 2009. The Company also believes the manufactured housing industry will begin to see a modest recovery once the inventory of foreclosed site-built homes is reduced to a more reasonable level, and Americans begin to look for other affordable housing alternatives. While these factors point to the potential for future growth, because of the current real estate and economic environment, low consumer confidence, and tight credit markets, the Company currently expects industry-wide wholesale production of manufactured homes to continue to decline for the balance of 2008.in 2009.
 
20
DREW INDUSTRIES INCORPORATED
 ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS

Net sales and operating (loss) profit are as follows for the three months ended March 31, (in thousands):

  Nine Months Ended  Three Months Ended  
  September 30,  September 30, 
  2008  2007  2008  2007 
Net sales:            
RV Segment $320,941 $390,193 $85,694 $127,156 
MH Segment  113,004  140,617  38,580  46,254 
Total net sales $433,945 $530,810 $124,274 $173,410 
              
Operating profit:             
RV Segment $31,848 $53,128 $4,598 $17,007 
MH Segment  10,989  12,153  3,913  4,047 
Total segment operating profit  42,837  65,281  8,511  21,054 
Amortization of intangibles  (3,670) (3,014) (1,547) (1,111)
Corporate  (5,714) (5,801) (1,747) (1,884)
Other items  1,561  (674) (687) 195 
Total operating profit $35,014 $55,792 $4,530 $18,254 
  2009  2008 
       
Net sales:      
RV Segment $52,280  $123,955 
MH Segment  18,739   35,193 
Total net sales $71,019  $159,148 
         
Operating (loss) profit:        
RV Segment $(4,662) $14,254 
MH Segment  (2,023)  2,510 
Total segment operating (loss) profit  (6,685)  16,764 
Amortization of intangibles  (1,389)  (1,053)
Corporate  (1,530)  (1,950)
Goodwill impairment  (45,040)  - 
Other items  (1,620)  1,216 
Total operating (loss) profit
 $(56,264) $14,977 

Consolidated Highlights

 §Net sales for the third quarter of 2008, excludingExcluding the impact of sales price increases and acquisitions, decreased $66there was a $98 million (38(62 percent) from“organic” decline in net sales in the thirdfirst quarter of 2007,2009, as compared to the first quarter of 2008, primarily as a result of the 3861 percent decline in industry-wide wholesale shipments of travel trailers and fifth wheelfifth-wheel RVs in the thirdfirst quarter of 2008,2009, as well as a 1546 percent decline in industryindustry-wide wholesale shipmentsproduction of manufactured homes. In addition, 2008 third2009 first quarter sales were negatively affected by the 6278 percent decline in industry-wide wholesale shipments of motorhomes, and the severe industry-wide decline in sales of small and medium sizedmedium-sized boats, particularly on the West Coast, for which the Company supplies specialty trailers.
20
DREW INDUSTRIES INCORPORATED

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
For the remainder of 2008 and into 2009, the Company anticipates a weak economy, volatile fuel prices, low consumer confidence, a tight credit market, and continued weakness in the real estate and mortgage markets. All of these factors are expected to cause consumers to be extremely cautious, which in turn will likely impact the purchases of discretionary big-ticket items, such as RVs. In response to slow retail sales during 2008, RV manufacturers have significantly reduced their output, which has negatively affected the Company in 2008, and will likely continue into 2009.

§Net income for Partially offsetting the thirdindustry declines during the first quarter of 2008 decreased 77 percent from2009, the third quarter of 2007, primarily dueCompany continued to the decreaseachieve market share gains, led by recently-introduced products, in net salesparticular, suspension products, jack stabilizers and higher raw material costs.RV entry doors.

 §FacilityThe Company incurred a net loss in the first quarter of 2009 due to the sales decline, as well as:

·A non-cash goodwill impairment charge of $45 million before taxes ($29 million after taxes, or $1.36 per diluted share). The non-cash goodwill impairment charge is largely the result of uncertainties in the economy, and in the RV and manufactured housing industries, as well as a substantial increase during the first quarter of 2009 in the discount rate used to determine the present value of projected cash flows.
·Extra pre-tax expenses of $4.9 million, which increased the net loss by $3.0 million, or $0.14 per diluted share. These extra expenses were due to the unprecedented conditions in the RV and manufactured housing industries, and included increased bad debts, obsolete inventory and tooling, as well as costs related to plant consolidations and fixed overhead reductions improved operating profitstaff reductions.
21
DREW INDUSTRIES INCORPORATED
 ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
§During the first quarter of 2009, the Company generated solid cash flow, increasing cash by $6 million, to more than $14 million, and reducing total debt by more than $2 million, to $6 million. This was accomplished by reducing inventory by $19 million during the first quarter of 2009, which more than offset the seasonal increase in accounts receivable. The Company expects this strong cash flow to continue over the next several quarters, as the Company anticipates it will further reduce inventory levels by $15 million to $20 million in addition to the $19 million reduction in the third quarter of 2008 by approximately $1.1 million, compared to the third quarter of 2007, and are expected to improve operating profit by over $5 million for all of 2008 as compared to 2007. These fixed cost reductions are expected to further benefit 2009 operating profit as compared to 2008 by over $1 million.first quarter.

 §On July 1,For the balance of 2009, the Company anticipates a continuing weak economy, a tight credit market, low consumer confidence, an excess inventory of foreclosed site-built homes, and continued weakness in the real estate and mortgage markets. All of these factors are expected to cause consumers to be extremely cautious, which would likely impact the purchases of discretionary big-ticket items, such as RVs and manufactured homes. Because of slow retail sales, RV manufacturers and manufactured home producers significantly reduced their output, which negatively affected the Company in the latter half of 2008 Lippert acquired certain assets and the businessfirst quarter of Seating Technology, Inc.2009, and its affiliated companies (“Seating Technology”). Seating Technology had annual sales of $40 million in 2007. The purchase price was $28.4 million, which was financed from available cash. Seating Technology manufactures a wide variety of furniture products primarily for towable RVs, including folding sofas for toy hauler RVs, a full line of upholstered furniture, mattresses, decorative pillows, wood-backed valances and quilted soft good products. This acquisition has added an entirely new product linewill likely continue for the Company.balance of 2009. In response to the current economic environment, the Company has been extremely proactive, taking the following steps:

·Reduced its workforce and production capacity to be more in line with anticipated demand.
·Reduced fixed overhead costs.
·Implemented synergies between the operations of Kinro and Lippert is in the process of closing two of Seating Technology's five leased facilities in Indiana,by combining certain administrative functions and consolidating those operations into existing facilities.sales efforts.

These factors benefitted the Company’s operating results in the first quarter of 2009 by nearly $2 million, compared to the first quarter of 2008, and will benefit the full year 2009 operating results by nearly $9 million as compared to the full year 2008. These steps also lowered the Company’s breakeven sales level. Additional cost savings measures are expected to be implemented in 2009.

Further, the Company’s strong balance sheet, with minimal debt, and available production capacity, puts it in an excellent competitive position to take advantage of opportunities to increase market share and expand product lines.

 §Steel and aluminum are among the Company’s principal raw materials. Since late 2007, the costcosts of steel and aluminum hashave been volatile. Assuming the cost of raw materials remains at the current escalated levels, the Company’s cost of sales would increase by approximately $40 million on an annualized basis. Althoughvolatile, and although the Company was able to raise sales prices, the higher cost raw materials, net of sales price increases, reduced 2008 third2009 first quarter earnings by approximately $0.06 to $0.08$0.02 per diluted share. Raw material costs have recently declined from their peak levels, largely due to the global economic downturn, but remain well above prior-year levels. However, the Company still has higher priced raw materials in inventory, which will adversely impact operating results for the fourthsecond quarter of 2008,2009, although the impact is estimatedexpected to be less than it was in the third quarter of 2008.modest.

The Company has implemented sales price increases to customers to offset most of the effect of raw material cost increases.
22
DREW INDUSTRIES INCORPORATED
 ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
While the Company has historically been able to obtain sales price increases to almost fully offset the majority of raw material cost increases, there can be no assurance that future cost increases, if any, can be partially or fully passed on to customers. There also can be no assurance that the Company can maintain sales prices for higher priced raw materials currently in inventory.  The Company also continues to explore improved product design, efficiency improvements, and alternative sources of raw materials and components, both domestic and imported.
21
DREW INDUSTRIES INCORPORATED

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

RV Segment - Third Quarter

Net sales of the RV Segment in the thirdfirst quarter of 20082009 decreased 3358 percent, or $41$72 million, as compared to the thirdfirst quarter of 20072008 due to:

·An organic‘organic’ sales decline of approximately $51$77 million, or 4264 percent, of RV-related products. This 4264 percent decline was due largely to the 3861 percent decrease in industry-wide wholesale shipments of travel trailers and fifth wheelfifth-wheel RVs, the Company’s primary RV market. Industry-wideFifth-wheel RVs, which typically contain more of the Company’s products, declined 67 percent during the first quarter of 2009. Also, many of the towable RVs produced by the industry over the last several months have included fewer of the features and options ordinarily provided by the Company. In addition, industry-wide wholesale shipments of motorhomes, components for which represent about 53 percent of the Company’s RV segmentSegment net sales, were down 6278 percent during the thirdfirst quarter of 2008.2009.
·An organic‘organic’ sales decline of approximately 70 percent or $3 million in specialty trailers due primarily to a severe industry-wide decline in sales of small and medium size boats, particularly on the West Coast, the Company’s primary specialty trailer market.
 
Partially offset by:
 
·Sales generated from 2008 acquisitions aggregating approximately $7$5 million.
·Sales price increases of approximately $5$3 million, primarily due to raw material cost increases.increases in 2008.
Because the Company’s stock price on the New York Stock Exchange was below its book value, and due to the continued declines in industry shipments of RVs, the Company conducted an impairment analysis of its goodwill in the first quarter of 2009.  The fair value of each reporting unit was determined using a discounted cash flow model utilizing observable market data to the extent available, and the Company’s weighted average cost of capital of approximately 16.5 percent.  Based on the analysis, the carrying value of the RV reporting units exceeded their fair value, and as a result, the Company recorded a non-cash impairment charge to write-off the entire $35.8 million of goodwill of these reporting units. The goodwill impairment charge is reported in Other non-segment items.

The trend in the Company’s average product content per RV is an indicator of the Company’s overall market share. Content per RV is also impacted by changes in selling prices for the Company’s products. The Company’s average product content per type of RV, calculated based upon the Company’s net sales of components for the different types of RVs, for the twelve months ended September 30,March 31, divided by the industry-wide wholesale shipments of the different types of RVs for the twelve months ended September 30,March 31, was as follows:
23

  2008 2007 Percent Change
Content per Travel Trailer and Fifth Wheel RVs
 $1,889 $1,673 13%
Content per Motorhomes $554 $403 37%
Content per all RVs $1,528 $1,295 18%
DREW INDUSTRIES INCORPORATED
 ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

  2009  2008  Percent Change 
Content per Travel Trailer and Fifth-Wheel RV $1,943  $1,715   13% 
Content per Motorhome $531  $463   15% 
Content per all RVs $1,596  $1,353   18% 

The above product content per travel trailer and fifth wheel RV for the twelve months ended September 30, 2008March 31, 2009 includes historical sales results for acquisitions completed during that period, under the assumption the acquisitions had been completed at the beginning of that twelve-monthindicated twelve month period. Sales of certain RV components have been reclassified between travel trailer and fifth wheelfifth-wheel RVs, and motorhomes in prior periods.

According to the RVIA, industry production for the twelve months ended September 30,March 31, was as follows:

  2008 2007 Percent Change
Travel Trailer and Fifth Wheel RVs
  218,900  261,600 (16)%
Motorhomes  37,300  55,900 (33)%
All RVs  284,200  355,500 (20)%
22
DREW INDUSTRIES INCORPORATED
  2009  2008  Percent Change 
Travel Trailer and Fifth-Wheel RVs  146,300   256,100   (43)% 
Motorhomes  19,700   51,800   (62)%
 
All RVs  184,700   342,400   (46)% 

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Operating profit of theThe RV Segment reported an operating loss of $4.7 million in the thirdfirst quarter of 2008 decreased 73 percent to $4.6 million2009, largely due to the decline in sales as well asand $2.9 million of extra expenses related to plant consolidations, staff reductions, increased bad debts, and obsolete inventory and tooling. Excluding these extra expenses, the Company’s RV Segment had an operating loss of $1.8 million in the first quarter of 2009, a decrease of 8.0 percent$16.1 million from the segment operating profit of $14.3 million in the operating profit margin to 5.4 percent of net sales in the third quarter of 2008 from 13.4 percent of net sales in the third quarter of 2007. Excluding sales price increases, thesame period last year. This adjusted decline in RV Segment operating profitresults was 2620 percent of the ‘organic’ decline in net sales, which is higher than weconsistent with what the Company would typically expect, largely due to the impact of increased raw material costs.expect.

The operating profit margin of the RV Segment in the thirdfirst quarter of 20082009 was adversely impacted by:

 ·Higher raw material costs.
 ·Labor inefficiencies due to the sharp drop in sales.
 ·The spreading of fixed manufacturing costs over a smaller sales base.
 ·Higher warranty, workers compensation and health insurance costs.
·Higher than expected integration costs of the Seating Technology acquisition, and costs incurred for prototype expenses for potential new customer accounts. New customer accounts have already been gained.
 ·An increase in selling, general and administrative expenses to 12.516.6 percent of net sales in the thirdfirst quarter of 20082009 from 11.011.9 percent of net sales in the thirdfirst quarter of 2007,2008, largely due to an increase in bad debt expense, and higher fuel and delivery costs, as well as the spreading of fixed administrative costs over a smaller sales base. ThisIn the first quarter of 2009 there was partially offset by lowerno incentive compensation as a percent of net salesrecorded due to reducedthe operating profit margins.loss.
Partially offsetOffset by:

 ·Implementation of cost-cutting measures.
 ·Lower overtime, supplies and repair costs.

 
As a result of
24

DREW INDUSTRIES INCORPORATED
 ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

During the continued downturn in industry shipments of RVs and small and medium sized boats, during the thirdfirst quarter of 2008,2009, the Company conducted anreviewed the recoverability of other intangible assets and other long-lived assets in this segment, and determined that there was no impairment.  However, the Company will continue to monitor these assets for potential impairment, analysis on these operations. The estimated fair value of these operations currently exceeds the corresponding book values, thus no impairment has been recorded. However,as a continued downturn in thesethe RV or marine and leisure industries, in particular small and medium sized boats, or in the profitability of the Company’s operations, could result in a non-cash impairment charge for goodwill and other intangibleof these assets in the future. At September 30, 2008, the Company had $10.7 million of goodwill and other intangible assets related to its marine and leisure operation, which sells trailers and axles for small and medium sized boats.

RV Segment - Year to Date

Net sales of the RV Segment in the first nine months of 2008 decreased 18 percent, or $69 million, as compared to the same period in 2007 due to:

·An organic sales decline of approximately $82 million, or 22 percent, of RV related products. This 22 percent decline was due largely to the 21 percent decrease in industry-wide wholesale shipments of travel trailers and fifth wheel RVs. Industry-wide wholesale shipments of motorhomes, components for which represent about 5 percent of the Company’s RV segment net sales, were down 42 percent during the first nine months of 2008.
23
DREW INDUSTRIES INCORPORATED

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
·An organic sales decline of approximately $11 million in specialty trailers, due primarily to a severe industry-wide decline in sales of small and medium size boats, particularly on the West Coast, the Company’s primary specialty trailer market.
Partially offset by:

·Sales generated from 2007 and 2008 acquisitions aggregating approximately $15 million.
·Sales price increases of approximately $9 million, primarily due to raw material cost increases.

Operating profit of the RV Segment in the first nine months of 2008 decreased 40 percent to $31.8 million due to the decline in sales, as well as a decrease of 3.7 percent in the operating profit margin to 9.9 percent of net sales in the first nine months of 2008 from 13.6 percent of net sales in the comparable period of 2007.

The operating profit margin of the RV Segment in the first nine months of 2008 was adversely impacted by:

·Higher raw material costs.
·Labor inefficiencies due to the sharp drop in sales.
·The spreading of fixed manufacturing costs over a smaller sales base.
·Higher health insurance costs.
·An increase in selling, general and administrative expenses to 12.1 percent of net sales in the first nine months of 2008 from 11.1 percent of net sales in the same period of 2007, largely due to an increase in bad debt expense, and higher fuel and delivery costs, as well as the spreading of fixed administrative costs over a smaller sales base. This was partially offset by lower incentive compensation as a percent of net sales due to reduced operating profit margins.
Partially offset by:

·Implementation of cost-cutting measures.
·Lower overtime and warranty costs.
MH Segment - Third Quarter

Net sales of the MH Segment in the thirdfirst quarter of 20082009 decreased 1747 percent, or $8$16 million, from the thirdfirst quarter of 2007.2008. Excluding $4$2 million in sales price increases, net sales of the MH Segment declined 2652 percent, compared to a 1546 percent decrease in industry-wide production of manufactured homes. The organic$18 million ‘organic’ decrease in sales of the Company’s MH Segment was greater than the manufactured housing industry decline due partly to a reduction in the average size of the homes produced by the manufactured housing industry, which require less of the Company’s products, a decline in modular and office units, and partly due to business the Company exited in the latter half of 2007 because of inadequate margins. The Company recently received an order to supply certain components for more than 2,500 park model homes being purchased by FEMA. This should result in incremental sales in excess of $5 million through early 2009.
24
DREW INDUSTRIES INCORPORATEDcustomer mix.

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OFMH Segment sales in the 2009 first quarter included $1 million of components for homes purchased by the Federal Emergency Management Agency (“FEMA”). The Company expects approximately $3 million to $4 million of additional FEMA-related sales in the second and third quarters of 2009.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

Because the Company’s stock price on the New York Stock Exchange was below its book value, and due to the continued declines in industry shipments of manufactured homes, the Company conducted an impairment analysis of its goodwill in the first quarter of 2009.  The fair value of each reporting unit was determined using a discounted cash flow model utilizing observable market data to the extent available, and the Company’s weighted average cost of capital of approximately 16.5 percent.  Based on the analysis, the carrying value of the manufactured housing reporting units exceeded their fair value, and as a result, the Company recorded a non-cash impairment charge to write-off the entire $9.3 million of goodwill of these reporting units. The goodwill impairment charge is reported in Other non-segment items.

The trend in the Company’s average product content per manufactured home is an indicator of the Company’s overall market share. Manufactured homes contain one or more “floors” or sections which can be joined to make larger homes. Content per manufactured home and content per floor is also impacted by changes in selling prices for the Company’s products. The Company’s average product content per manufactured home produced by the industry and total manufactured home floors produced by the industry, calculated based upon the Company’s net sales of components for manufactured homes for the twelve months ended September 30,March 31, divided by the number of manufactured homes and manufactured home floors produced by the industry, respectively, for the twelve months ended September 30,March 31, was as follows:

  2008 2007 Percent Change
Content per Home Produced $1,603 $1,826 (12)%
Content per Floor Produced $961 $1,056 (9)%
  2009  2008  Percent Change 
Content per Home Produced $1,653  $1,680   (2)% 
Content per Floor Produced $1,003  $993   1% 

According to the IBTS, industry production for the twelve months ended September 30,March 31, was as follows:

  2008 2007 Percent Change
Total Homes Produced  88,400  96,500 (8)%
Total Floors Produced  147,400  166,900 (12)%
  2009  2008  Percent Change 
Total Homes Produced  72,400   95,100   (24)% 
Total Floors Produced  119,300   161,000   (26)% 

25

DREW INDUSTRIES INCORPORATED
 ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

Operating profit of theThe MH Segment reported an operating loss of $2.0 million in the thirdfirst quarter of 2008 decreased 3 percent to $3.9 million primarily2009, largely due to the impactdecline in sales and $0.6 million of extra expenses related to plant consolidations, staff reductions, and obsolete inventory. Excluding these extra expenses, the Company’s MH Segment had an operating loss of $1.4 million in the first quarter of 2009, a decrease of $3.9 million from the segment operating profit of $2.5 million in the same period last year. The adjusted decline in MH Segment operating results was 22 percent of the decrease‘organic’ decline in net sales, partially offset by an increase inconsistent with what the operating profit margin to 10.1 percent of net sales in the third quarter of 2008, compared to 8.7 percent of net sales in the third quarter of 2007.Company would typically expect.

The operating profit margin of the MH Segment in the thirdfirst quarter of 20082009 was positively impacted by:

·Changes in product mix.
·The elimination of certain low margin business exited in the latter half of 2007.
·Improved production efficiencies.
 
Partially offset by:

 ·The spreading of fixed manufacturing costs over a smaller sales base.
 ·Labor inefficiencies due to the sharp drop in sales.
·Higher health insurance costs.
·An increase in selling, general and administrative expenses to 16.022.8 percent of net sales in the thirdfirst quarter of 20082009 from 14.315.5 percent of net sales in thirdthe first quarter of 20072008 due largely to higher fuel and delivery costs as a percent of net sales,an increase in bad debt expense, as well as the spreading of fixed administrative costs over a smaller sales base. In the first quarter of 2009 there was no incentive compensation recorded due to the operating loss.
Offset by:
·Changes in product mix.
·Implementation of cost-cutting measures.
 
As a result ofDuring the continued downturn in industry shipments of manufactured homes, during the thirdfirst quarter of 2008,2009, the Company conducted anreviewed the recoverability of other intangible assets and other long-lived assets in this segment, and determined that there was no impairment.  However, the Company will continue to monitor these assets for potential impairment, analysis on this operation. The estimated fair value of this operation currently exceeds the corresponding book value, thus no impairment has been recorded. However,as a continued downturn in the manufactured housing industry, or in the profitability of the Company’s operations, could result in a non-cash impairment charge for goodwill and other intangibleof these assets in the future.

MH Segment - Year to Date

Net sales of the MH Segment in the first nine months of 2008 decreased 20 percent, or $28 million, from the same period in 2007. Excluding $9 million in sales price increases, net sales of the MH Segment declined 26 percent, compared to a 10 percent decrease in industry-wide production of manufactured homes. The organic decrease in sales of the Company’s MH Segment was greater than the manufactured housing industry decline due partly to a reduction in the average size of the homes produced by the manufactured housing industry, which require less of the Company’s products, and partly due to business the Company exited in the latter half of 2007 because of inadequate margins.
25
DREW INDUSTRIES INCORPORATED

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

Operating profit of the MH Segment in the first nine months of 2008 decreased 10 percent to $11.0 million primarily due to the impact of the decrease in net sales, partially offset by an increase in the operating profit margin to 9.7 percent of net sales in the first nine months of 2008, compared to 8.6 percent of net sales in the same period of 2007.

The operating profit margin of the MH Segment in the first nine months of 2008 was positively impacted by:

·Changes in product mix.
·The elimination of certain low margin business exited in the latter half of 2007.
·Improved production efficiencies.
Partially offset by:

·The spreading of fixed manufacturing costs over a smaller sales base.
·Higher health insurance costs.
·An increase in selling, general and administrative expenses to 15.7 percent of net sales in the first nine months of 2008 from 14.3 percent of net sales in same period of 2007 due to higher fuel and delivery costs as a percent of net sales, as well as the spreading of fixed costs over a smaller sales base.
Corporate

Corporate expenses for both the first nine months and thirdquarter of 2009 decreased $0.4 million compared to the first quarter of 2008 were consistent with the same periodsdue primarily to a decrease in incentive-based compensation as a result of 2007.

Other Itemslower profits, as well as other cost reductions.

Other non-segment items is comprised of certain income and expenses that are part of consolidated operating income which the Company does not include in the analysis of segment operating results, as follows:

In February 2004, the Company sold certain intellectual property rights for $4.0 million, consisting of cash of $0.1 million at closing and a note of $3.9 million (the “Note”), payable over five years. The noteNote was initially recorded net of a reserve of $3.4 million. In both January 2008, and 2007, the Company received a scheduled paymentspayment of principal and interest of $0.8 million, which had been previously fully reserved. Therefore,reserved, and therefore recorded a pre-tax gain. The Company did not receive the final scheduled payment in January 2009; however, in both February and March 2009 the Company received principal payments of $0.1 million, which were previously fully reserved, and therefore recorded a pre-tax gain of $0.7 million in$0.2 million. The Company is currently attempting to collect the first nine monthsbalance due of both 2008 and 2007. The balance of the note is $1.0 million at September 30, 2008, which is fully reserved. Final payment on the note is due in January 2009.$0.8 million.

26

DREW INDUSTRIES INCORPORATED

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

In addition, otherOther non-segment items include the following for the three months ended March 31, (in thousands):

  Nine Months Ended  Three Months Ended  
  September 30,  September 30,  
  2008
 
2007
 
2008
 
2007 
Cost of sales:         
Other $- $(236)$- $- 
Selling, general and administrative expenses:         
Legal proceedings  1,382  1,048  530  698 
(Gain) on sold facilities  (3,523) (1,279) (248) (1,050)
Loss on sold facilities and write-         
downs to estimated current market         
value of facilities to be sold  1,005  2,080  558  160 
 Other
  -  (5) -  (4)
Incentive compensation impact of         
 above items
  250  (227) (123) 52 
  $(886)$1,381 $717 $(144)
  2009  2008 
       
Selling, general and administrative expenses:      
Legal proceedings  293   355 
Gain on sold facilities  -   (1,194)
Loss on sold facilities and write-downs to estimated current fair value of facilities to be sold  1,249   145 
Other  278   - 
Incentive compensation impact of other non-segment items  -   238 
Other (income) from the collection of the previously reserved Note  (200)  (760)
  $1,620  $(1,216)

Effective in the third quarter of 2008, gains or losses on sold manufacturing facilities and charges for write-downs to estimated current marketfair value of manufacturing facilities to be sold have been reclassifiedreclassified from cost of goods sold to selling, general, and administrative expenses in the condensed consolidated statementsConsolidated Statements of income.Operations. Prior periods have been reclassified to conform to this presentationpresentation..

Taxes

The effective tax rate for the first nine months of 2008 was 39.3 percent, compared to 38.1 percent in the first nine monthsquarter of 2007.2009 was 35.0 percent, which is a combination of a 34.8 percent rate on the goodwill impairment charge, and a 35.9 percent rate on the remaining operating results. A portion of the goodwill impairment charge is not deductible for tax purposes, thus lowering the tax benefit recorded. The effective tax35.9 percent rate on the remaining operations was lower than the 38.6 percent rate for all of 2008, as the thirdtax benefit on the losses incurred in the first quarter of 20082009 was 38.4 percent as compared to 37.5 percent for the third quarter of 2007. The effective tax rate for the full year 2007 was 37.2 percent. The increase in the effective tax rate for both the nine months and three months ended September 30, 2008 as compared to the same periods in 2007 was due primarily to the estimated annual effect of lower profits on state and federal tax rates as well as by a change in pre-tax income between legal entities and states, partiallyslightly offset by the expirationeffect of statutes of limitations for certain statepermanent tax differences and federal tax returns, and the completion of a 2005 federal tax audit with noreserve adjustments.

Interest Expense, Net

The $1.4 million and $0.1 million decreaseincrease in interest expense, net, for the first nine months and third quarter of 2008, respectively, as compared to the same periods in 2007,2009, was primarily due to a decrease in the average debt levels as a result of strong operating cash flows, which more than offset the $31 million the Company has invested in acquisitions during the last 12 months. In addition, for the first nine months of 2008, the Company earned $0.5 million inlower interest income.

27
DREW INDUSTRIES INCORPORATED

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
LIQUIDITY AND CAPITAL RESOURCES

The Statements of Cash Flows reflect the following for the ninethree months ended September 30, March 31, (in thousands):

  2008  2007 
Net cash flows (used for) provided by operating activities $(3,508)$61,138 
Net cash flows used for investing activities $(25,111)$(15,595)
Net cash flows used for financing activities $(18,409)$(8,684)
  2009  2008 
Net cash flows provided by (used for) operating activities $8,374  $(6,113)
Net cash flows (used for) provided by investment activities $(467) $3,165 
Net cash flows used for financing activities $(2,273) $(2,851)

27

DREW INDUSTRIES INCORPORATED
 ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

Cash Flows from Operations

Net cash flows from operating activities in the first nine monthsquarter of 20082009 were $64.6$14.5 million lessbetter than in the same period in 2007,first quarter of 2008, primarily as a result of (i) lower net incomeinventories in the first quarter of 2009 due to a significant reduction in inventory purchases and (ii) a smaller seasonal increase in accounts receivable due to the decline in sales, partially offset by lower after-tax operating results in the first quarter of 2009 and a smaller seasonal increase in accounts payable. Inventories increased inventories in 2008 due to the Company’s strategic purchase of raw materials in advance of price increases, andas well as higher priced raw materials in inventory. During the first quarter of 2009, the Company reduced inventory as well as the timing of payments for inventory purchases. This was partially offset by a smaller seasonal increase in accounts receivable due to the decline in sales. The Company$19 million and expects to lower inventory over the balance of 2009 by year endan additional $15 million to $20 million through consumption of higher priced inventory on hand, and reduced inventory purchases. In 2007, the seasonal increase in inventory was mitigated by management’s efforts to reduce inventory levels.

Depreciation and amortization which was $17.6$5.1 million in the 2009 first quarter, including $0.8 million of extra expenses related to tooling, and are expected to aggregate $17 million to $18 million in 2009. In addition, non-cash stock-based compensation was $1.4 million in the first quarter of 2009, and is expected to be nearly $4 million for the full year in 2007, is expected to be approximately $17 million for the full year in 2008.year.

Cash Flows from Investing Activities

Cash flows used for investing activities of $25.1$0.5 million in the first ninequarter of 2009 consisted primarily of capital expenditures. Capital expenditures for 2009 are expected to be approximately $4 million, and are expected to be funded by cash flows from operations.

At March 31, 2009, the Company had seven facilities and vacant land listed for sale, with an aggregate carrying value of $8.9 million. One of these facilities, with a carrying value of $0.5 million, was sold at a gain of $0.1 million in April 2009, and another facility is under contract to be sold in the second quarter at its carrying value of $0.4 million. In April 2009, the Company entered into a two year lease at $25,000 per month for one of these facilities, which has a carrying value of $3.0 million. This lease also contains an option for the lessee to purchase the facility for $3.4 million.

Cash flows provided by investing activities of $3.2 million in the first three months of 2008 included $31.6 million for an acquisition of a business and other investments, which was financed from available cash.

On July 1, 2008, Lippert acquired certain assets and the business of Seating Technology, Inc. and its affiliated companies (“Seating Technology”). Seating Technology had annual sales of $40 million in 2007. The purchase price was $28.4 million, which was financed from available cash. The purchase price will be adjusted for changes in working capital as of the closing date.

On July 1, 2008, Lippert acquired the patent for "JT's Strong Arm Jack Stabilizer," and other intellectual properties and assets. The purchase price was $3.0 million, which was financed from available cash.

In addition, cash flows from investing activities included proceeds of $9.8$4.4 million received from the sale of fixed assets in connection with the Company’s consolidation of production operations, partially offset by $3.3$1.2 million for capital expenditures. Capital expenditures were financed with available cash. Capital expenditures for 2008 are anticipated to be less than $5 million and are expected to be funded by cash flows from operations.

At September 30, 2008, the Company had five vacant facilities and vacant land listed for sale, with an aggregate book value of $3.7 million. Three of the facilities with a book value of $1.1 million are under contract to be sold in the fourth quarter at book value.

28
DREW INDUSTRIES INCORPORATED

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Cash flows used for investing activities of $15.6 million in the first nine months of 2007 include $17.3 million for the acquisition of businesses and $7.5 million for capital expenditures, partially offset by proceeds of $9.2 million received from the sale of fixed assets. Capital expenditures and the acquisitions were financed with borrowings under the Company’s line of credit and cash flows from operations.

Cash Flows from Financing Activities

Cash flows used for financing activities for the first nine monthsquarter of 2009 and 2008 of $18.4 million were primarily due to debt payments of $10.2$2.3 million and the purchase of treasury stock of $8.3 million.
Cash flows used for financing activities for the first nine months of 2007 of $8.7$2.9 million, included a net decrease in debt of $13.0 million, partially offset by cash flows provided by the exercise of employee stock options of $4.4 million, which includes the related tax benefits. The decrease in debt wasrespectively, were primarily due to net debt payments of $13.3 million.payments.

At September 30, 2008, the Company had $7.5March 31, 2009, all but $0.1 million of the Company’s cash investedbalances were in U.S. Treasuryfully FDIC insured accounts. Investments of $46.2 million at March 31, 2008, were in high-quality, short-term money market instruments with a current yield of approximately 1 percent. At September 30, 2007,issued and payable in U.S funds.

28

DREW INDUSTRIES INCORPORATED
 ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

On November 25, 2008, the Company had $40.8 million invested in tax free municipal money market funds.
Borrowings under the Company’s $70.0entered into an agreement (the “Credit Agreement”) for a $50.0 million line of credit at September 30, 2008 were $5.0 million.with JPMorgan Chase Bank, N.A., and Wells Fargo Bank N.A. (collectively, the “Lenders”). The maximum borrowings under the Company’s excess cash was not used to pay down theseline 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 these borrowings are associated with aneither the Prime Rate, but not less than 2.5 percent, plus additional interest rate swap which results in a favorable fixedup to 0.8 percent (0 percent at March 31, 2009), or LIBOR plus additional interest rate of 4.4 percent.ranging from 2.0 percent to 2.8 percent (2.0 percent at March 31, 2009) depending on the Company’s performance and financial condition. The Credit Agreement expires December 1, 2011. At March 31, 2009, the Company also had $6.8$7.6 million in outstanding letters of credit under the line of credit. Availability under

Simultaneously, the Company’s line of credit was $58.2 million at September 30, 2008. Such availability, along with available cash and anticipated cash flows from operations, is expected to be adequate to finance the Company’s anticipated working capital and anticipated capital expenditure requirements. The maximum borrowings under the line of credit can be increased by an additional $20.0 million, upon approval of the Lenders. The Credit Agreement expires June 30, 2009, and as such, the $5.0 million of borrowings under the line of credit are classified as current debt in the balance sheet. The Company expects to enterentered into a new $50.0 million long-term borrowing arrangement with JPMorganChase and Wells Fargo by the end of November 2008.

The Company has a $60$125.0 million “shelf-loan” facility with Prudential Investment Management, Inc., and its affiliates (“Prudential”) under which the Company had borrowed $35.0 million,, of which $7.0$5.0 million wasis outstanding at September 30, 2008. PursuantMarch 31, 2009. The facility provides for Prudential to the terms of the shelf-loan facility, the Company can issue, and Prudential’s affiliates may 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 an additional $25.0$125.0 million, to mature no more than seventwelve years after the date of original issue of each transaction.Note. Prudential and its affiliates havehas no obligation to purchase the additional Senior Promissory Notes. Interest payable on the Notes will be at rates determined by Prudential within five business days after the Company issues a request to Prudential. The shelf-loan facility expires on June 13, 2009. Simultaneous withNovember 25, 2011.

Both the completionline of credit pursuant to the new long-term borrowing arrangement with JPMorganChaseCredit Agreement and Wells Fargo, the Company expectsshelf-loan facility are subject to complete an increase in its uncommitted “shelf-loan” facility with Prudentiala maximum leverage ratio covenant which limits the amount of consolidated outstanding indebtedness to 2.5 times the trailing twelve-month EBITDA; provided however, that if the Company’s trailing twelve-month EBITDA declines to less than $50 million, the maximum leverage ratio covenant declines to 1.25 times the trailing twelve-month EBITDA. Since the Company’s trailing twelve-month EBITDA declined to less than $50 million at March 31, 2009, the maximum leverage ratio covenant limits the remaining availability under these facilities collectively to $23.3 million. However, due to the current cash position, and the cash expected to be generated over the balance of 2009, it is anticipated that this restriction will not affect the Company. Available cash and anticipated cash flows from $25.0 millionoperations is expected to $125.0 million.be adequate to finance the Company’s anticipated working capital and capital expenditure requirements.

At September 30, 2008,March 31, 2009, the Company was in compliance with all of its debt covenants and expects to remain in compliance for the next twelve months. Certain of the Company’s loan agreements contain prepayment penalties.

29
DREW INDUSTRIES INCORPORATED
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
On November 29, 2007 the Board of Directors authorized the Company to repurchase up to 1 million shares of the Company’s Common Stock.Stock, of which 447,400 shares were repurchased in 2008.  The Company is authorized to purchase shares from time to time in the open market, or privately negotiated transactions, or block trades. DuringThe number of shares ultimately repurchased, and the third quartertiming of 2008,the purchases, will depend upon market conditions, share price, and other factors. At present, due to current economic conditions, the Company repurchased 250,000 shares at an average cost of $15.38 per share, or $3.9 million in total. During the nine months ended September 30, 2008,believes it is prudent to conserve cash, and does not intend to repurchase shares. However, changing conditions may cause the Company repurchased a total of 447,400 shares at an aggregate cost of $8.3 million, or an average price $18.58 per share. The repurchases were funded from the Company’s available cash.to reconsider this position.

CORPORATE GOVERNANCE

The Company is in compliance with the corporate governance requirements of the Securities and Exchange Commission and the New York Stock Exchange. The Company’s governance documents and committee charters and key practices have been posted to the Company’s website (www.drewindustries.comwww.drewindustries.com) and are updated periodically. The website also contains, or provides direct links to, all SEC filings, press releases and investor presentations. The Company has also established a toll-free hotline (877-373-9123) to report complaints about the Company’s accounting, internal controls, auditing matters or other concerns.

29

DREW INDUSTRIES INCORPORATED
 ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

CONTINGENCIES

Additional information required by this item is included under Item 1 of Part II of this quarterly report on Form 10-Q.

INFLATION

The prices of key raw materials, consisting primarily of steel, vinyl, aluminum, glass and ABS resin, are influenced by demand and other factors specific to these commodities, such as the price of oil, rather than being directly affected by inflationary pressures. Prices of certain commodities have historically been volatile. The cost of certain raw materials has increased 25 to 100 percent or more in 2008; only declining somewhat from these historical highs in recent weeks. The Company did not experience any significant increase in its labor costs in the thirdfirst quarter of 20082009 related to inflation.

NEW ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”)SFAS No. 157, “Fair Value Measurements”, which establishes a framework for reporting fair value and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. However, the FASB deferred the effective date of SFAS No. 157, until fiscal years beginning after November 15, 2008, as it relates to fair value measurement requirements for non-financialnonfinancial assets and liabilities that are not remeasured at fair value on a recurring basis. The adoptionAdoption of the applicable portionsprovisions of this standard on January 1, 2009 and 2008, respectively, did not have a material impact on the Company, and the balance of the standard is not expected to have a material impact on the Company.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value at specified election dates, and report unrealized gains and losses on items for which the fair value option has been elected in earnings. The provisions of SFAS No. 159 are effective for fiscal years beginning after November 15, 2007. The Company has elected not to measure any financial instruments or other items at fair value, and as such the adoption of this standard did not have an impact on the Company.
30
DREW INDUSTRIES INCORPORATED
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.”Combinations”. SFAS No. 141(R) requires assets acquired and liabilities assumed in connection with a business combination to be measured at fair value as of the acquisition date, acquisition related costs incurred prior to the acquisition to be expensed, and contractual contingencies to be recognized at fair value as of the acquisition date. The provisions of SFAS No. 141(R) are effective for fiscal years beginning after December 15, 2008. The Company is currently evaluatingadoption of this standard on January 1, 2009 did not have a material impact on the impact of adopting this standard.Company.

USE OF ESTIMATES

The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to product returns, accounts receivable, inventories, notes receivable, goodwill and other intangible assets, income taxes, warranty obligations, self-insuranceself insurance obligations, lease terminations, asset retirement obligations, long-lived assets, post-retirement benefits, stock-based compensation, segment allocations, and contingencies and litigation. The Company bases its estimates on historical experience, other available information and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources. Actual results may differ from these estimates under different assumptions or conditions.

 
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DREW INDUSTRIES INCORPORATED
 ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

During the first quarter of 2009, the Company reviewed the recoverability of other intangible assets and other long-lived assets, and determined that there was no impairment.  However, the Company will continue to monitor these assets for potential impairment, as a continued downturn in the RV, marine and leisure or manufactured housing industries, or in the profitability of the Company’s operations, could result in a non-cash impairment charge of these assets in the future.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

This Form 10-Q may containcontains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities for existing products, plans and objectives of management, markets for the Company’s common stock and other matters. Statements in this Form 10-Q that are not historical facts are “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 27A of the Securities Act of 1933 (the “Securities Act”).

Forward-looking statements, including, without limitation, those relating to our future business prospects, revenues, expenses and income (loss), whenever they occur in this Form 10-Q are necessarily estimates reflecting the best judgment of our senior management at the time such statements were made, and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by forward-looking statements. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. You should consider forward-looking statements, therefore, in light of various important factors, as identifiedincluding those set forth in ourthis Form 10-K for the year ended December 31, 2007,10-Q, and in our subsequent Form 10-Qs filed with the SEC.Securities and Exchange Commission (“SEC”).
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DREW INDUSTRIES INCORPORATED
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

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-Q, pricing pressures due to domestic and foreign competition, costs and availability of raw materials (particularly steel and related components, vinyl, aluminum, glass and ABS resin), availability of credit for financing the retail and wholesale purchase of manufactured homes and recreational vehicles, availability and costs of labor, inventory levels of retailers and manufacturers, levels of repossessed manufactured homes and RVs, the disposition into the market by FEMA,the Federal Emergency Management Agency (“FEMA”), by sale or otherwise, of RVs or manufactured homes purchased by FEMA, in connection with natural disasters, changes in zoning regulations for manufactured homes, acontinuing sales decline in either the RV or manufactured housing industries, the financial condition of our customers, the financial condition of retail dealers of RVs and manufactured homes, retention of significant customers, interest rates, oil and gasoline prices, and the outcome of pending litigation, and adverse weather conditions impacting retail sales.litigation. In addition, national and regional economic conditions and consumer confidence may affect the retail sale of recreational vehiclesRVs and manufactured homes.

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Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to changes in interest rates primarily as a result of its financing activities.

On October 18, 2004, the Company entered into a five-year interest rate swap with KeyBank National Association with an initial notional amount of $20.0 million from which it will receive periodic payments at the 3 month LIBOR rate (2.804 percent at September 30, 2008 based upon the August 15, 2008 reset date), and make periodic payments at a fixed rate of 3.35 percent, with settlement and rate reset dates every November 15, February 15, May 15 and August 15. The notional amount of the interest rate swap decreases by $1.0 million on each quarterly reset date. At September 30, 2008, the notional amount was $5.0 million. The fair value of the swap was zero at inception and ($7,000) at September 30, 2008. The Company has designated this swap as a cash flow hedge of certain borrowings under the line of credit and recognized the effective portion of the change in fair value as part of other comprehensive (loss) income, with the ineffective portion, which was insignificant, recognized in earnings currently.

At September 30, 2008,March 31, 2009, the Company had $11.1$5.5 million of fixed rate debt plus $5.0 million outstanding under the line of credit associated with the interest rate swap.outstanding. Assuming there is a decrease of 100 basis points in the interest rate for borrowings of a similar nature subsequent to September 30, 2008,March 31, 2009, which the Company becomes unable to capitalize on in the short-term as a result of the structure of its fixed rate financing, future cash flows would be $0.2$0.1 million lower per annum than if the fixed rate financing could be obtained at current market rates.

At September 30, 2008,March 31, 2009, the Company had $1.0$0.9 million of variable rate debt excluding the $5.0 million outstanding under the line of credit associated with the interest rate swap.outstanding. Assuming there is an increase of 100 basis points in the interest rate for borrowings under these variable rate loans subsequent to September 30, 2008,March 31, 2009, and outstanding borrowings of $1.0 million, future cash flows would be reduced by less than $0.1 million per annum.

At September 30, 2008, the Company had $7.5 million of temporary investments in U.S. Treasury short-term money market instruments with a current yield of approximately 1 percent. Assuming there is a decrease of 100 basis points in the interest rate for these variable rate investments subsequent to September 30, 2008, and total investments of $7.5$0.9 million, future cash flows would be reduced by less than $0.1 million per annum.

If the actual change in interest rates is substantially different than 100 basis points, or the outstanding balancesborrowings change significantly, the net impact of interest rate risk on the Company’s cash flow may be materially different than that disclosed above.

Additional information required by this item is included under the caption “Inflation” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Report.

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Item 4.
Item 4. CONTROLS AND PROCEDURES

 a)Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer President, 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 system of internaldisclosure controls over financial reportingand 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-Q, the Company performed an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer the Company’s President, 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 President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Form 10-Q.effective.

 b)Changes in Internal Controls

There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2008March 31, 2009 or subsequent to the date the Company completed its evaluation, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controlscontrol over financial reporting.

During 2005, one of the Company’s subsidiariesLippert installed new computerenterprise resource planning (“ERP”) software and subsequently implemented certain functions of the newERP software. Over the last few years, the internal controls of the CompanyLippert have incrementally been strengthened due both to both the newERP software and business process changes. In the second quarter of 2009, the Company anticipates that it will begin to implement certain functions of the ERP software and business process changes for Kinro.  The Company also anticipates that it will continue to implement certain additional functionalities of the new computerERP software at both Lippert and Kinro to further strengthen the Company’s internal controls.control.

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PART II – OTHER INFORMATION

PART II - OTHER INFORMATION

Item 1 -– LEGAL PROCEEDINGS

On or about January 3, 2007, an action was commenced in the United States District Court, Central District of California entitled Gonzalez vs. Drew Industries Incorporated, Kinro, Inc., Kinro Texas Limited Partnership d/b/a Better Bath Components; Skyline Corporation, and Skylines Homes, Inc. (Case No. CV06-08233). The case purports to be a class action on behalf of the named plaintiff and all others similarly situated in California. Plaintiff initially alleged, but has not sought certification of, a national class.

On April 1, 2008, the Court issued an order granting Drew’s motion to dismiss for lack of personal jurisdiction, resulting in the dismissal of Drew Industries Incorporated as one of the defendants in the case.

Plaintiff alleges that certain bathtubs manufactured by Kinro Texas Limited Partnership, a subsidiary of Kinro, Inc., and sold under the name “Better Bath” for use in manufactured homes, fail to comply with certain safety standards relating to flame spread established by the United States Department of Housing and Urban Development (“HUD”). Plaintiff alleges, among other things, that sale of these products is in violation of various provisions of the California Consumers Legal Remedies Act (Sec. 1770 et seq.), the Magnuson-Moss Warranty Act (Sec. 2301 et seq.), and the California Song-Beverly Consumer Warranty Act (Sec. 1790 et seq.).

Plaintiff seeks to require defendants to notify members of the class of the allegations in the proceeding and the claims made, to repair or replace the allegedly defective products, to reimburse members of the class for repair, replacement and consequential costs, to cease the sale and distribution of the allegedly defective products, and to pay actual and punitive damages and plaintiff’s attorneys fees.

On January 29, 2008, the Court issued an Order denying certification of a class with plaintiff Gonzalez as the class representative. The Court ruled that plaintiff may not be an appropriate class representative for injunctive relief because her bathtub had been replaced. The Court granted plaintiff leave to amend the complaint to add a different plaintiff.

On March 10, 2008, plaintiff amended her complaint to include an additional plaintiff, Robert Royalty. Plaintiff Royalty states that his bathtub was not tested to determine whether it complies with HUD standards.  Rather, his allegations are based on “information and belief”, including the testing of plaintiff Gonzalez’s bathtub and other evidence. Kinro denies plaintiff Royalty’s allegations, and intends to continue its vigorous defense against both plaintiffs’ claims.

On June 25, 2008, plaintiffs filed a renewed motion for class certification. On October 20, 2008, the Court again denied certification of a class, without prejudice, which allowsallowed plaintiffs to file a new motion for certification if plaintiffs are able to satisfy the Court’s concerns over the viability of plaintiffs’ case. Plaintiffs filed a third motion for class certification on December 23, 2008. Defendants’ initial motion seeking summary judgment against plaintiffs’ case, which was withdrawn pending further discovery, will bewas supplemented and refiled in Novemberon December 23, 2008.  A hearing on these motions was held on March 2, 2009, but a decision by the court has not yet been received.

Defendant Kinro has conducted a comprehensive investigation of the allegations made in connection with the claims, including with respect to the HUD safety standards, prior test results, testing procedures, and the use of labels. In addition, at Kinro’s initiative, independent laboratories conducted multiple tests on materials used by Kinro in the manufacture of bathtubs, the results of which tests indicate that Kinro’s bathtubs are in compliance with HUD regulations.

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Although discovery by plaintiffs and by defendants is continuing, at this point, based
Based on the foregoing investigation and testing, Kinro believes that plaintiffs may not be able to prove the essential elements of their claims, and defendants intend to vigorously defend against the claimsclaims.

Moreover, Kinro believes that, because test results received by Kinro confirm that it is in compliance with HUD safety standards, no remedial action is required or appropriate.

In October 2007, the parties participated in voluntary non-binding mediation in an effort to reach a settlement. Kinro made an offer of settlement consistent with its belief regarding the merits of plaintiffs’ allegations. Although no settlement was reached, the parties have since had intermittent discussions. The outcome of such settlement efforts cannot be predicted.

If plaintiffs file a thirdplaintiffs’ motion for class certification and it is granted, and if settlementdefendants’ motion for summary judgment is not reacheddenied, and if plaintiffs pursue their claims, protracted litigation could result. Although the outcome of such litigation cannot be predicted, if certain essential findings are ultimately unfavorable to Kinro, the Company could sustain a material liability. The Company’s liability insurer denied coverage on the ground that plaintiffs did not sustain any personal injury or property damage.

In connection with a tax audit by the Indiana Department of Revenue pertaining to calendar years 1998 to 2000, the Company received an initial examination report asserting, in the aggregate, approximately $1.2 million of proposed tax adjustments, including interest and penalties. After two hearings with the Indiana Department of Revenue, the audit findings were upheld. The Company believes that it has properly reported its income and paid taxes in Indiana in accordance with applicable laws, and filed an appeal in December 2006 with the Indiana Tax Court. TheCourt and the matter has beenwas scheduled for trial in December 2008.  TheIn November 2008, the Company and the Indiana Department of Revenue are currentlysettled tax years 1998 to 2000 for $0.6 million, as well as 2001 to 2006 for $4.0 million. This amount was fully reserved prior to 2009, and was paid in settlement negotiations.April of 2009.

In the normal course of business, the Company is subject to proceedings, lawsuits and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, it is management’s opinion that after final disposition, including anticipated insurance recoveries, any monetary liability or financial impact to the Company beyond that provided in the consolidated balance sheetCondensed Consolidated Balance Sheet as of September 30, 2008,March 31, 2009, would not be material to the Company’s financial position or annual results of operations.

Item 1A -– RISK FACTORS

Economic and business conditions beyond our control have had a significant adverse impact on our earnings, and these conditions may continue.

Our net sales in the third quarter of 2008 fell 28 percent compared to the third quarter of 2007, and net income for the third quarter of 2008 declined 77 percent compared to the third quarter of 2007. Our net sales in the third quarter of 2008 fell 17 percent compared to the second quarter of 2008, and net income for the third quarter of 2008 declined 72 percent compared to the second quarter of 2008.

We attribute these declines to a combination of factors, including the deterioration in the real estate market, tighter credit terms, volatile oil and gas prices, and low consumer confidence. See Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

These factors have caused a decline in the demand for RVs and manufactured homes, which has reduced the demand for our products, and therefore significantly reduced our sales during the quarter. In addition, higher than anticipated costs of raw materials have impacted our operating results.

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Our results of operations may not improve if these conditions persist unabated, and may continue to decline.

A change in senior management has been implemented at our subsidiary Kinro, Inc. which could affect our operating results.

David L. Webster will retire as Chairman, President and Chief Executive Officer of Kinro, Inc., Drew’s subsidiary, by December 31, 2008. Jason D. Lippert has assumed responsibility for the operations of Kinro, and will continue as Chairman, President and CEO of Drew’s subsidiary, Lippert Components. Although we anticipate that the transition will result in savings due to synergies, and could provide additional opportunities for sale of each company’s products, there can be no assurance at this time that these benefits will be realized or that the transition will be successful.

There have been no other material changes to the matters discussed in Part I, Item 1A -– Risk Factors in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 17, 2008.
Item 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS12, 2009.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.Item 6 – EXHIBITS

Issuer Purchases of Equity Securities
     
 (a)(b)(c)(d)
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
August 1 - 31, 2008250,000$15.38250,000552,600

On November 29, 2007, the Company announced a stock repurchase of up to 1,000,000 shares, of which 447,400 shares have been repurchased at an average price of $18.58 per share, or $8.3 million in total.

The aggregate cost of the repurchases during the third quarter in the amount of $3.9 million was funded from the Company’s available cash. Additionally, during the quarter ended June 30, 2008, the Company repurchased 197,400 shares at an average cost of $22.62 per share. The aggregate cost of repurchases during the second quarter in the amount of $4.5 million was funded from the Company’s available cash.

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Item 6 - EXHIBITS

a)Exhibits as required by item 601 of Regulation S-K:8-K:

 1)31.1 Certification of Chief Executive Officer pursuant to 13a-14(a) under the Securities Exchange Act of 1934. Exhibit 31.1 is filed herewith.

 2)31.2 Certification of Chief Financial Officer pursuant to 13a-14(a) under the Securities Exchange Act of 1934. Exhibit 31.2 is filed herewith.

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 3)32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. Exhibit 32.1 is32.1is filed herewith.

 4)32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. Exhibit 32.2 is filed herewith.

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DREW INDUSTRIES INCORPORATED
SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DREW INDUSTRIES INCORPORATED
Registrant
  
By
DREW INDUSTRIES INCORPORATED
Registrant



By:  /s/ Joseph S. Giordano III
Joseph S. Giordano III
Chief Financial Officer and Treasurer

November 10, 2008May 8, 2009

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