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: MARCH 31,JUNE 30, 2011

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

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

Delaware13-3250533
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification 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 ¨x  No ¨o N/A

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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 registrant 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. 22,069,22622,087,267 shares of common stock as of AprilJuly 29, 2011.

 
 
 

DREW INDUSTRIES INCORPORATED

INDEX TO FINANCIAL STATEMENTS FILED WITH
QUARTERLY REPORT OF REGISTRANT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31,JUNE 30, 2011

(UNAUDITED)

   Page
PART I –FINANCIAL INFORMATION  
PART I –
FINANCIAL INFORMATION
    
 
Item 1 – FINANCIAL STATEMENTS
  
    
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME 3
    
 CONDENSED CONSOLIDATED BALANCE SHEETS 4
    
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 5
    
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY 6
    
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
7 – 17
    
 
Item 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
18 – 3133
    
 
Item 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 34
ABOUT MARKET RISK32
    
 
Item 4 – CONTROLS AND PROCEDURES
 3234
    
PART II –
OTHER INFORMATION  
    
 
Item 1 – LEGAL PROCEEDINGS
 3335
    
 
Item 1A – RISK FACTORS
 3335
    
 
Item 6 – EXHIBITS
 3335
    
SIGNATURES 3436
    
EXHIBIT 31.1 – SECTION 302 CEO CERTIFICATION
  
    
EXHIBIT 31.2 – SECTION 302 CFO CERTIFICATION
  
    
EXHIBIT 32.1 – SECTION 906 CEO CERTIFICATION
  
    
EXHIBIT 32.2 – SECTION 906 CFO CERTIFICATION
  
 
 
2
 
DREW INDUSTRIES INCORPORATED
PART I –  FINANCIAL INFORMATION
DREW INDUSTRIES INCORPORATED

PART I –  FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS

DREW INDUSTRIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

  Three Months Ended 
  March 31, 
  2011  2010 
(In thousands, except per share amounts)      
       
Net sales $168,833  $146,217 
Cost of sales  130,954   112,558 
Gross profit  37,879   33,659 
Selling, general and administrative expenses  22,336   21,375 
Operating profit  15,543   12,284 
Interest expense, net  58   82 
Income before income taxes  15,485   12,202 
Provision for income taxes  6,098   4,874 
Net income $9,387  $7,328 
         
Net income per common share:        
Basic $0.42  $0.33 
Diluted $0.42  $0.33 
         
Weighted average common shares outstanding:        
Basic  22,219   22,102 
Diluted  22,377   22,248 
  Six Months Ended  Three Months Ended 
  June 30,  June 30, 
  2011  2010  2011  2010 
(In thousands, except per share amounts)            
             
Net sales $354,881  $319,719  $186,048  $173,502 
Cost of sales  274,943   248,502   143,989   135,944 
Gross profit  79,938   71,217   42,059   37,558 
Selling, general and administrative expenses  46,485   43,089   24,149   21,714 
Operating profit  33,453   28,128   17,910   15,844 
Interest expense, net  119   140   61   58 
Income before income taxes  33,334   27,988   17,849   15,786 
Provision for income taxes  12,982   11,068   6,884   6,194 
Net income $20,352  $16,920  $10,965  $9,592 
                 
Net income per common share:                
Basic $0.91  $0.77  $0.49  $0.43 
Diluted $0.91  $0.76  $0.49  $0.43 
                 
Weighted average common shares outstanding:                
Basic  22,244   22,112   22,270   22,121 
Diluted  22,417   22,262   22,458   22,276 

The accompanying notes are an integral part of these financial statements.
 
 
3
 
DREW INDUSTRIES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

  March 31,  December 31, 
  2011  2010  2010 
(In thousands, except per share amount)         
          
ASSETS         
Current assets         
Cash and cash equivalents $36,728  $41,733  $38,880 
Short-term investments  -   9,997   4,999 
Accounts receivable, trade, less allowances  43,244   34,608   12,890 
Inventories  77,612   61,813   69,328 
Prepaid expenses and other current assets  16,691   14,439   16,768 
Total current assets  174,275   162,590   142,865 
Fixed assets, net  81,151   78,962   79,848 
Goodwill  8,600   7,673   7,497 
Other intangible assets, net  59,250   62,076   57,419 
Deferred taxes  15,770   16,532   15,770 
Other assets  3,944   2,699   3,382 
Total assets $342,990  $330,532  $306,781 
             
LIABILITIES AND STOCKHOLDERS’ EQUITY            
Current liabilities            
Accounts payable, trade $29,209  $19,462  $11,351 
Accrued expenses and other current liabilities  38,891   39,517   33,723 
Total current liabilities  68,100   58,979   45,074 
Other long-term liabilities  19,492   19,083   18,248 
Total liabilities  87,592   78,062   63,322 
             
Stockholders’ equity            
Common stock, par value $.01 per share  247   246   247 
Paid-in capital  82,538   75,266   79,986 
Retained earnings  201,454   204,758   192,067 
   284,239   280,270   272,300 
Treasury stock, at cost  (28,841)  (27,800)  (28,841)
Total stockholders’ equity  255,398   252,470   243,459 
Total liabilities and stockholders’ equity $342,990  $330,532  $306,781 
  June 30,  December 31, 
  2011  2010  2010 
(In thousands, except per share amount)         
          
ASSETS         
Current assets         
Cash and cash equivalents $36,774  $47,073  $38,880 
Short-term investments  -   10,993   4,999 
Accounts receivable, trade, less allowances  44,050   41,267   12,890 
Inventories  83,556   69,175   69,328 
Prepaid expenses and other current assets  18,306   15,156   16,768 
Total current assets  182,686   183,664   142,865 
Fixed assets, net  85,308   79,930   79,848 
Goodwill  8,600   7,086   7,497 
Other intangible assets, net  58,433   60,421   57,419 
Deferred taxes  15,385   16,532   15,770 
Other assets  3,969   3,021   3,382 
Total assets $354,381  $350,654  $306,781 
             
LIABILITIES AND STOCKHOLDERS’ EQUITY            
Current liabilities            
Accounts payable, trade $27,377  $29,380  $11,351 
Accrued expenses and other current liabilities  39,101   42,127   33,723 
Total current liabilities  66,478   71,507   45,074 
Other long-term liabilities  20,279   16,211   18,248 
Total liabilities  86,757   87,718   63,322 
             
Stockholders’ equity            
Common stock, par value $.01 per share  247   246   247 
Paid-in capital  83,799   76,140   79,986 
Retained earnings  212,419   214,350   192,067 
Stockholders’ equity before treasury stock  296,465   290,736   272,300 
Treasury stock, at cost  (28,841)  (27,800)  (28,841)
Total stockholders’ equity  267,624   262,936   243,459 
Total liabilities and stockholders’ equity $354,381  $350,654  $306,781 

The accompanying notes are an integral part of these financial statements.
 
 
4
 
DREW INDUSTRIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

  Three Months Ended 
  March 31, 
  2011  2010 
(In thousands)      
       
Cash flows from operating activities:      
Net income $9,387  $7,328 
Adjustments to reconcile net income to cash flows provided by operating activities:        
Depreciation and amortization  4,890   3,994 
Gain on disposal of fixed assets and other non-cash items  (109)  (50)
Stock-based compensation expense  1,113   988 
Changes in assets and liabilities, net of business acquisitions:        
Accounts receivable, net  (30,354)  (22,059)
Inventories  (6,679)  (3,961)
Prepaid expenses and other assets  (262)  (730)
Accounts payable, accrued expenses and other liabilities  25,097   23,152 
Net cash flows provided by operating activities  3,083   8,662 
         
Cash flows from investing activities:        
Capital expenditures  (3,136)  (1,190)
Acquisitions of businesses  (7,250)  (21,400)
Purchase of short-term investments  -   (1,999)
Proceeds from maturities of short-term investments  5,000   5,000 
Other investing activities  (48)  256 
Net cash flows used for investing activities  (5,434)  (19,333)
         
Cash flows from financing activities:        
Exercise of stock options and deferred stock units  339   39 
Other financing activities  (140)  - 
Net cash flows provided by financing activities  199   39 
         
Net decrease in cash  (2,152)  (10,632)
         
Cash and cash equivalents at beginning of period  38,880   52,365 
Cash and cash equivalents at end of period $36,728  $41,733 
         
Supplemental disclosure of cash flow information:        
Cash paid during the period for:        
Interest $71  $85 
Income taxes, net of refunds $79  $888 

  Six Months Ended 
  June 30, 
  2011  2010 
(In thousands)      
       
Cash flows from operating activities:      
Net income $20,352  $16,920 
Adjustments to reconcile net income to cash flows provided by operating activities:        
Depreciation and amortization  10,016   8,457 
Stock-based compensation expense  2,209   1,831 
Deferred taxes  385   - 
Other non-cash items  162   (754)
Changes in assets and liabilities, net of business acquisitions:        
Accounts receivable, net  (31,160)  (28,718)
Inventories  (12,623)  (11,959)
Prepaid expenses and other assets  (1,926)  (953)
Accounts payable, accrued expenses and other liabilities  22,991   32,898 
Net cash flows provided by operating activities  10,406   17,722 
         
Cash flows from investing activities:        
Capital expenditures  (10,543)  (4,471)
Acquisitions of businesses  (7,250)  (21,400)
Purchase of short-term investments  -   (12,992)
Proceeds from maturity of short-term investments  5,000   15,000 
Other investing activities  142   782 
Net cash flows used for investing activities  (12,651)  (23,081)
         
Cash flows from financing activities:        
Exercise of stock options and deferred stock units  504   70 
Other financing activities  (365)  (3)
Net cash flows provided by financing activities  139   67 
         
Net decrease in cash  (2,106)  (5,292)
         
Cash and cash equivalents at beginning of period  38,880   52,365 
Cash and cash equivalents at end of period $36,774  $47,073 
         
Supplemental disclosure of cash flow information:        
Cash paid during the period for:        
Interest $138  $161 
Income taxes, net of refunds $12,558  $8,752 
The accompanying notes are an integral part of these financial statements.
 
 
5
 

DREW INDUSTRIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)

              Total 
  Common  Paid-in  Retained  Treasury  Stockholders’ 
  Stock  Capital  Earnings  Stock  Equity 
(In thousands, except shares)               
                
Balance - December 31, 2010 $247  $79,986  $192,067  $(28,841) $243,459 
Net income for the three months ended March 31, 2011  -   -   9,387   -   9,387 
Issuance of 25,200 shares of common stock pursuant to stock options and deferred stock units  -   262   -   -   262 
Income tax benefit relating to issuance of common stock pursuant to stock options and deferred stock units  -   77   -   -   77 
Stock-based compensation expense  -   1,113   -   -   1,113 
Issuance of 47,506 deferred stock units relating to 2010 compensation  -   1,100   -   -   1,100 
Balance - March 31, 2011 $247  $82,538  $201,454  $(28,841) $255,398 

  
Common
Stock
  
Paid-in
Capital
  
Retained
Earnings
  
Treasury
Stock
  
Total
Stockholders’
Equity
 
(In thousands, except shares)               
                
Balance - December 31, 2010 $247  $79,986  $192,067  $(28,841) $243,459 
Net income for the six months ended June 30, 2011  -   -   20,352   -   20,352 
Issuance of 55,749 shares of common stock pursuant to stock options and deferred stock units  -   416   -   -   416 
Income tax benefit relating to issuance of common stock pursuant to stock options and deferred stock units  -   88   -   -   88 
Stock-based compensation expense  -   2,209   -   -   2,209 
Issuance of 47,506 deferred stock units relating to 2010 compensation  -   1,100   -   -   1,100 
Balance - June 30, 2011 $247  $83,799  $212,419  $(28,841) $267,624 
The accompanying notes are an integral part of these 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 Lippert Components, Inc. and its subsidiaries (collectively “Lippert”), and Kinro, Inc. and its subsidiaries (collectively “Kinro”). Drew, through Lippert and Kinro, manufactures a broad array of components for recreational vehicles (“RVs”) and manufactured homes, and to a lesser extent manufactures components for modular housing and mid-size buses, as well as specialty trailers and related axles.

Because of the seasonality of the RV and manufactured housing industries, historically, the Company’s operating results in the first and fourth quarters have been the weakest, while the second and third quarters are traditionally stronger. However, because of fluctuations in RV dealer inventories and volatile raw material costs,economic conditions, current seasonal industry trends may be different than in prior years.

The Condensed Consolidated Financial Statements presented herein have been prepared by the Company in accordance with the accounting policies described in its December 31, 2010 Annual Report on Form 10-K and should be read in conjunction with the Notes to Consolidated Financial Statements which appear in that report. All significant intercompany balances and transactions have been eliminated. Certain prior year balances have been reclassified to conform to current year presentation.

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 six and three month periods ended March 31,June 30, 2011 and 2010. 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 necessary to conform to annual reporting requirements.

2.Segment Reporting

The Company has two reportable segments; the recreational vehicle products segment (the "RV Segment"“RV Segment”) and the manufactured housing products segment (the "MH Segment"“MH Segment”). Intersegment sales are insignificant.

The RV Segment, which accounted for 8786 percent and 8584 percent of consolidated net sales for the threesix month periods ended March 31,June 30, 2011 and 2010, respectively, manufactures a variety of products used primarily in the production of RVs, including:

● Towable steel chassis
 
● Aluminum windows and screens
● Towable axles and suspension solutions
 
● Chassis components
● Slide-out mechanisms and solutions
 
● Furniture and mattresses
● Thermoformed bath, kitchen and other products
 
● Entry and baggage doors
● Toy hauler ramp doors
 
● Entry steps
● Patio doors
 
● Other towable accessories
● Manual, electric and hydraulic stabilizer and liftingleveling systems
 
● Specialty trailers for hauling boats, personal watercraft, snowmobiles and equipment

The Company also supplies certain of these products as replacement parts to the RV aftermarket.aftermarket, and manufactures components for mid-size buses and for trailers used to haul boats, horses, livestock, equipment and other cargo. More than 90 percent of the Company’s RV Segment net sales are components for travel trailer and fifth-wheel RVs, with the balance primarily comprised of components for motorhomes and mid-size buses, as well as sales of specialty trailers and related axles.RVs.

 
7
 
 
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)

The MH Segment, which accounted for 1314 percent and 1516 percent of consolidated net sales for the threesix month periods ended March 31,June 30, 2011 and 2010, 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
● Thermoformed bath and kitchen products
 
●Steel chassis parts
● Steel and fiberglass entry doors
 
●Axles
● Aluminum and vinyl patio doors
  

The Company also supplies windows, doors and thermoformed bath products as replacement parts to the manufactured housing aftermarket.

Sales of products other than components for RVs and manufactured homes are not considered significant. However, certain Certain of the Company’s MH Segment customers manufacture both manufactured homes and modular homes, and certain of the products manufactured by the Company are suitable for both manufactured homes and modular homes. As a result, the Company is not always able to determine in which type of home its products are installed.

Decisions concerning the allocation of the Company'sCompany’s resources are made by the Company'sCompany’s key executives. This group evaluates the performance of each segment based upon segment operating profit or loss, defined as income or loss before interest, corporate expenses, goodwill impairment, other non-segment items and income taxes. Decisions concerning the allocation of resources are also based on each segment’s utilization of operating assets. Management of debt is a corporate function. The accounting policies of the RV and MH Segments are the same as those described in Note 1 of Notes to Consolidated Financial Statements of the Company’s December 31, 2010 Annual Report on Form 10-K.

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

  2011  2010 
       
Net sales:      
RV Segment $146,229  $124,362 
MH Segment  22,604   21,855 
Total net sales
 $168,833  $146,217 
         
Operating profit:        
RV Segment $15,301  $12,883 
MH Segment  2,224   1,566 
Total segment operating profit  17,525   14,449 
Corporate  (2,097)  (1,926)
Other non-segment items  115   (239)
Total operating profit $15,543  $12,284 
  Six Months Ended  Three Months Ended 
  June 30,  June 30, 
  2011  2010  2011  2010 
Net sales:            
RV Segment $303,428  $268,626  $157,199  $144,264 
MH Segment  51,453   51,093   28,849   29,238 
Total net sales $354,881  $319,719  $186,048  $173,502 
                 
Operating profit:                
RV Segment $32,625  $26,893  $17,324  $14,009 
MH Segment  5,177   5,302   2,953   3,736 
Total segment operating profit  37,802   32,195   20,277   17,745 
Corporate  (4,043)  (3,944)  (1,946)  (2,017)
Other non-segment items  (306)  (123)  (421)  116 
Total operating profit $33,453  $28,128  $17,910  $15,844 
 
 
8
 
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)

3.
Acquisitions,
3.           Acquisitions, Goodwill and Other Intangible Assets

Acquisitions

M-Tec Corporation

On July 19, 2011, the Company acquired certain assets and business of Indiana-based M-Tec Corporation. M-Tec manufactures components for RVs and mobile office units. The acquired business has annual sales of approximately $12 million. The purchase price was $6.0 million paid at closing from available cash, plus contingent consideration based on an earn-out. At the date of acquisition, the Company estimated the aggregate earn-out payments would be $0.6 million.
Home-Style Industries

On January 28, 2011, the Company acquired the operating assets and business of Home-Style Industries, and its affiliated companies. Home-Style manufactures a full line of upholstered furniture and mattresses primarily for towable RVs, in the Northwest U.S. market.  Home-Style’s sales for 2010 were $12 million. The purchase price was $7.3 million paid at closing from available cash, plus contingent consideration based on an earn-out. At the date of acquisition, the Company estimated the aggregate earn-out payments would be $0.2 million. The results of the acquired business have been included in the Company’s Condensed Consolidated Statement of Operations since the acquisition date.

The acquisition of this business was recorded on the acquisition date as follows (in thousands):

Cash consideration $7,250 
Contingent consideration  150 
Total fair value of consideration given $7,400 
     
Customer relationships $3,350 
Other identifiable intangible assets  365 
Net tangible assets  2,582 
Total fair value of assets acquired $6,297 
     
Goodwill (tax deductible) $1,103 

The customer relationships will be amortized over their estimated useful life of 12 years. The consideration given was greater than the fair value of the assets acquired, resulting in goodwill, because the Company anticipates leveraging its existing experience and purchasing power in these product lines.

9
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Goodwill

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

 MH Segment  RV Segment  Total 
 MH Segment  RV Segment  Total          
Accumulated cost – December 31, 2010 $9,251  $48,773  $58,024  $9,251  $48,773  $58,024 
Accumulated impairment – December 31, 2010  (9,251)  (41,276)  (50,527)  (9,251)  (41,276)  (50,527)
Net balance – December 31, 2010  -   7,497   7,497   -   7,497   7,497 
Acquisitions - 2011  -   1,103   1,103   -   1,103   1,103 
Net balance – March 31, 2011 $-  $8,600  $8,600 
Net balance – June 30, 2011 $-  $8,600  $8,600 

Goodwill represents the excess of the total consideration given in an acquisition of a business over the fair value of the net tangible and identifiable intangible assets acquired. Goodwill is not amortized, but instead is tested at the reporting unit level for impairment annually in November, or more frequently if certain circumstances indicate a possible impairment may exist, and is based on fair value, determined using discounted cash flows, appraised values or management’s estimates. No impairment tests were required or performed during the threesix months ended March 31,June 30, 2011.

9
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)

Other Intangible Assets

Other intangible assets consisted of the following at March 31,June 30, 2011 (in thousands):

  Gross  Accumulated  Net Estimated Useful 
  Cost  Amortization  Balance Life in Years 
            
Non-compete agreements $2,153  $657  $1,496 3 to 7 
Customer relationships  28,505   11,896   16,609 3 to 16 
Tradenames  6,759   2,685   4,074 3 to 15 
Patents  45,665   8,594   37,071 2 to 19 
Other intangible assets $83,082  $23,832  $59,250   

  
Gross
Cost
  
Accumulated
Amortization
  
Net
Balance
 
Estimated Useful
Life in Years
 
            
Non-compete agreements $3,247  $881  $2,366 3 to 7 
Customer relationships  28,505   12,589   15,916 3 to 16 
Tradenames  6,759   2,897   3,862 3 to 15 
Patents  45,688   9,399   36,289 2 to 19 
Other intangible assets $84,199  $25,766  $58,433   
At March 31,June 30, 2011, other intangible assets included $3.4$3.1 million related to the Company’s marine and leisure operation, which sells trailers primarily for small and medium-sized boats and related axles. Over the last few years, industry shipments of small and medium-sized boats have declined significantly. From time to time throughout this period, the Company conducted impairment analyses on these operations, and the estimated fair value of these operations continued to exceed the corresponding carrying values, thus no impairment has been recorded. A continuedfurther downturn in industry shipments of small and medium-sized boats, or in the profitability of the Company’s operations, could result in a future non-cash impairment charge for the related other intangible assets.

4.
Cash
10
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

4.           Cash and Investments

The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. The U.S. Treasury Bills are recorded at cost which approximates fair value. Effective January 1, 2011, cash in banks is fully FDIC insured.
 
Cash and investments consisted of the following at (in thousands):

  March 31,  December 31, 
  2011  2010  2010 
          
Cash in banks $31,727  $7,723  $11,664 
Money Market – Wells Fargo  5,001   12,005   9,039 
Money Market – JPMorgan Chase  -   10,006   4,177 
U.S. Treasury bills – cash equivalents  -   11,999   14,000 
Cash and cash equivalents  36,728   41,733   38,880 
U.S. Treasury bills – short-term investments  -   9,997   4,999 
Cash and investments $36,728  $51,730  $43,879 
  June 30,  December 31, 
  2011  2010  2010 
          
Cash in banks $31,772  $16,041  $11,664 
Money Market – Wells Fargo  5,002   12,020   9,039 
Money Market – JPMorgan Chase  -   5,012   4,177 
U.S. Treasury Bills – cash equivalents  -   14,000   14,000 
Cash and cash equivalents  36,774   47,073   38,880 
U.S. Treasury Bills – short-term investments  -   10,993   4,999 
Cash and investments $36,774  $58,066  $43,879 
 
10
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)

5.5.           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 consisted of the following at (in thousands):

  March 31,  December 31, 
  2011  2010  2010 
          
Raw material $66,197  $51,465  $59,204 
Work in process  1,916   2,184   1,683 
Finished goods  9,499   8,164   8,441 
Inventories $77,612  $61,813  $69,328 

  June 30,  December 31, 
  2011  2010  2010 
          
Raw material $72,367  $57,688  $59,204 
Work in process  2,181   1,792   1,683 
Finished goods  9,008   9,695   8,441 
Inventories $83,556  $69,175  $69,328 
6.
6.           Fixed Assets

Fixed assets consisted of the following at (in thousands):

  March 31,  December 31, 
  2011  2010  2010 
          
Fixed assets, at cost $170,023  $163,274  $166,125 
Less accumulated depreciation and amortization  88,872   84,312   86,277 
Fixed assets, net $81,151  $78,962  $79,848 

  June 30,  December 31, 
  2011  2010  2010 
          
Fixed assets, at cost $176,685  $166,685  $166,125 
Less accumulated depreciation and amortization  91,377   86,755   86,277 
Fixed assets, net $85,308  $79,930  $79,848 
7.
11
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7.           Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following at (in thousands):

 March 31,  December 31,  June 30,  December 31, 
 2011  2010  2010  2011  2010  2010 
                  
Employee compensation and benefits $12,352  $16,953  $16,643  $18,056  $19,232  $16,643 
Warranty  4,804   3,637   4,005   4,860   4,833   4,005 
Sales rebates  3,442   1,975   1,668   3,878   2,234   1,668 
Other  18,293   16,952   11,407   12,307   15,828   11,407 
Accrued expenses and current liabilities $38,891  $39,517  $33,723 
Accrued expenses and other current liabilities $39,101  $42,127  $33,723 
 
11
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)

Estimated costs related to product warranties are accrued at the time products are sold. In estimating its future warranty obligations the Company considers various factors, including the Company’s (i) historical warranty experience, (ii) product mix, and (iii) sales patterns. The following table provides a reconciliation of the activity related to the Company’s accrued warranty, including both the current and long-term portions, for the threesix months ended (in thousands):

  March 31, 
  2011  2010 
Balance at beginning of period $5,892  $4,591 
Provision for warranty expense  2,165   1,032 
Warranty costs paid  (1,078)  (649)
Total accrued warranty  6,979   4,974 
Less long-term portion of accrued warranty  2,175   1,337 
Current portion of accrued warranty $4,804  $3,637 

  June 30, 
  2011  2010 
       
Balance at beginning of period $5,892  $4,713 
Provision for warranty expense  3,515   2,427 
Warranty costs paid  (2,166)  (1,309)
Total accrued warranty  7,241   5,831 
Less long-term portion of accrued warranty  2,381   998 
Current portion of accrued warranty $4,860  $4,833 
8.           
Long-Term Indebtedness

The Company had no borrowings during the threesix months ended March 31,June 30, 2011 and 2010, and had no debt outstanding at March 31,June 30, 2011 and 2010.

On February 24, 2011, the Company entered into an agreement (the “Credit Agreement”) for a $50.0 million line of credit with JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A. (collectively, the “Lenders”), amending the Company’s previous $50.0 million line of credit that was scheduled to expire in December 2011. The maximum borrowings under the Company’s new line of credit can be increased by $20.0 million upon approval of the Lenders. Interest on borrowings under the new line of credit is designated from time to time by the Company as either (i) the Prime Rate, but not less than 2.5 percent, plus additional interest up to 0.8 percent (0 percent at March 31,June 30, 2011), or (ii) LIBOR plus additional interest ranging from 2.0 percent to 2.8 percent (2.0 percent at March 31,June 30, 2011) depending on the Company’s performance and financial condition. The Credit Agreement expires on January 1, 2016. At March 31,June 30, 2011, the Company had availability of $44.8 million, as there were $5.2 million in outstanding letters of credit under the new line of credit.

12
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Simultaneously, the Company entered into a $150.0 million “shelf-loan” facility with Prudential Investment Management, Inc. and its affiliates (“Prudential”), amending and increasing the Company’s previous $125.0 million “shelf-loan” facility with Prudential. The new facility provides for Prudential to consider purchasing, at the Company’s request, in one or a series of transactions, Senior Promissory Notes of the Company in the aggregate principal amount of up to $150.0 million, to mature no more than twelve years after the date of original issue of each Senior Promissory Note. Prudential has no obligation to purchase the Senior Promissory Notes. Interest payable on the Senior Promissory Notes will be at rates determined by Prudential within five business days after the Company issues a request to Prudential. This new facility expires on February 24, 2014.

12
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Both the line of credit pursuant to the Credit Agreement and the “shelf-loan” facility are subject to a maximum leverage ratio covenant which limits the amount of consolidated outstanding indebtedness to 2.5 times the trailing twelve-month EBITDA, as defined. As a result, the remaining availability under these facilities was $174.9$184.5 million at March 31,June 30, 2011. This availability, together with the $36.7$36.8 million in cash at March 31,June 30, 2011, are more than adequate to finance the Company’s anticipated working capital and capital expenditure requirements in 2011.

Pursuant to the Credit Agreement and “shelf-loan” facility at March 31,June 30, 2011, the Company is required to maintain minimum interest and fixed charge coverages, and to meet certain other financial requirements. At March 31,June 30, 2011, the Company was in compliance with all such requirements, and expects to remain in compliance for the next twelve months.

Borrowings under both the line of credit and the “shelf-loan” facility are secured on a pari passu basis by first priority liens on the capital stock or other equity interests of each of the Company’sDrew’s direct and indirect subsidiaries.

9.
Stockholders’9.           Stockholders’ Equity

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):

  2011  2010 
Weighted average shares outstanding for basic earnings per share  22,219   22,102 
Common stock equivalents pertaining to stock options and contingently issuable deferred stock units  158   146 
Weighted average shares outstanding for diluted earnings per share  22,377   22,248 

  Six Months Ended  Three Months Ended 
  June 30,  June 30, 
  2011  2010  2011  2010 
Weighted average shares outstanding for basic earnings per share  22,244   22,112   22,270   22,121 
Common stock equivalents pertaining to stock options and contingently issuable deferred stock units  173   150   188   155 
Weighted average shares outstanding for diluted earnings per share  22,417   22,262   22,458   22,276 
The weighted average diluted shares outstanding for the threesix months ended March 31,June 30, 2011 and 2010, excludes the effect of 1,476,5401,334,840 and 1,224,7901,175,140 shares of stock subject to stock options, respectively, because including themsuch shares in the calculation of total diluted shares would have been anti-dilutive.

In February 2011, the Company issued 47,506 deferred stock units at $23.15, or $1.1 million, to certain executive officers in lieu of cash for a portion of their 2010 incentive compensation.

13
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
In 2007, the Board of Directors authorized the Company to repurchase up to 1 million shares of the Company’s Common Stock from time to time in the open market, in privately negotiated transactions, or in block trades. Of this authorization, 501,279 shares have been repurchased at an average price of $18.65 per share, or $9.3 million in total. The aggregate cost of such repurchases was funded from the Company’s available cash. The number of shares ultimately repurchased, and the timing of the purchases, will depend upon market conditions, share price, and other factors.

The following table summarizes information about common stockthe Common Stock at (in thousands):

  March 31,  December 31, 
  2011  2010  2010 
Common stock authorized  30,000   30,000   30,000 
Common stock issued  24,720   24,581   24,675 
Treasury stock  2,651   2,597   2,651 
  June 30,  December 31, 
  2011  2010  2010 
          
Common stock authorized  30,000   30,000   30,000 
Common stock issued  24,730   24,584   24,675 
Treasury stock  2,651   2,597   2,651 
 
13
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

10.           Commitments and Contingencies

Litigation

There were no material developments during the first quarter in connection with the legal proceeding pending at December 31, 2010. See Item 3. “Legal Proceedings” in the Annual Report on Form 10-K for the year ended December 31, 2010. There were no material developments during the first six months of 2011 in connection with the identified legal proceeding pending at December 31, 2010, except that the Plaintiffs filed an appeal brief with the Ninth Circuit Court of Appeals and defendant Kinro filed an answering brief. A decision is pending.

In addition, in the normal course of business, the Company is subject to proceedings, lawsuits and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, it is management’s opinion that after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided in the Condensed Consolidated Balance Sheet as of March 31,June 30, 2011, would not be material to the Company’s financial position or annual results of operations.

Contingent Consideration

In connection with several acquisitions since 2009, if certain sales targets for the acquired products are achieved, the Company would pay earn-outs. The Company has recorded a liability for the fair value of these expected earn-out payments at March 31,June 30, 2011, based on the present value of the expected future cash flows using a market participant’s weighted average cost of capital of 17.716.4 percent.

14
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table summarizes the expected earn-outs as of March 31,June 30, 2011 (in thousands):

       Fair Value 
  Expiration Estimated  of Estimated 
Acquisition of Earn-out Payments  Payments 
Schwintek products 
March 2014(a)
 $14,878(b) $10,242 
Level-UpTM six-point leveling system
 February 2016  2,510(c)  1,576 
QuickBiteTM coupler
 October 2025  840(d)  178 
Home-Style products December 2014  229(c)  148 
Total   $18,457  $12,144 

Acquisition 
Expiration
of Earn-out
 
Estimated
Payments
  
Fair Value
of Estimated
Payments
 
Schwintek products 
March 2014(a)
 $14,806(b) $10,727 
Level-UpTM six-point leveling system
 February 2016  1,925(c)  1,248 
QuickBiteTM coupler
 October 2025  819(d)  190 
Home-Style products December 2014  229(c)  158 
Total   $17,779  $12,323 
 (a)
(a)
Earn-out payments for three of the four products expire in March 2014. Earn-out payments for the remaining product expire five years after the product is first sold to customers.
 
 (b)Two of the four products acquired have a combined remaining maximum earn-out payment of $12.7 million, which the Company has assumed will be achieved. Other than expiration of the earn-out period, the remaining products have no maximum on earn-out payments.
 
 (c)Other than expiration of the earn-out period, these products have no maximum on earn-out payments.
 
 (d)
This product has a maximum earn-out payment of $2.5 million.

As required, the liability for these estimated earn-out payments has been re-evaluated quarterly since inception, including most recently at March 31,June 30, 2011, considering actual sales of the acquired products, updated sales projections, and the updated market participant weighted average cost of capital. Depending upon the weighted average cost of capital and future sales of the products which are subject to earn-outs, the Company could record adjustments in future periods.
14

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

In the first quartersix months of 2011 and 2010, the net impact of the quarterly re-evaluation and accretion of the liability was a reductionan increase to selling, general, and administrative expenses of $0.1$0.3 million while in the first quarter of 2010 the net impact was an increase in selling, general, and administrative expenses of $0.1 million.$0.4 million, respectively.

The following table provides a reconciliation of the Company’s contingent consideration liability, for the threesix months ended March 31,June 30, 2011 (in thousands):

Balance at December 31, 2010 $12,104 
Acquisitions  150 
Payments  (3)
Accretion  474 
Fair value adjustments  (581)
Balance at March 31, 2011  12,144 
Less current portion in accrued expenses and other current liabilities  1,675 
Total long-term portion in other long-term liabilities $10,469 

Balance at December 31, 2010 $12,104 
Acquisitions  150 
Payments  (224)
Accretion  950 
Fair value adjustments  (657)
Balance at June 30, 2011  12,323 
Less current portion in accrued expenses and other current liabilities  1,675 
Total long-term portion in other long-term liabilities $10,648 
Environmental Liabilities

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based upon current law and existing technologies. These amounts, which are not discounted and are exclusive of claims against potentially responsible third parties, are adjusted periodically as assessment and remediation efforts progress or additional technical or legal information becomes available. Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites, developments at sites resulting from investigatory studies and remedial activities, advances in technology, changes in environmental laws and regulations and their application, the scarcity of reliable data pertaining to identified sites, the difficulty in assessing the involvement and financial capability of other potentially responsible parties and the Company’s ability to obtain contributions from other parties, and the lengthy time periods over which site remediation occurs. It is possible that some of these matters (the outcomes of which are subject to various uncertainties) may be resolved unfavorably against the Company.

15
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, net sales and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to product returns, accounts receivable, inventories, notes receivable, goodwill and other intangible assets, income taxes, warranty obligations, self-insurance obligations, lease terminations, asset retirement obligations, long-lived assets, post-retirement benefits, stock-based compensation, segment allocations, earn-out payments, environmental liabilities, contingencies and litigation. The Company bases its estimates on historical experience, other available information and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources. Actual results and events could differ significantly from management estimates.

15

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

11.           Fair Value Measurements

Recurring

Fair value is determined using a hierarchy that has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant unobservable inputs. The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis (in thousands):

   March 31, 2011  December 31, 2010 
  Total  Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3 
Assets                        
Money market funds $5,001  $5,001  $-  $-  $13,216  $13,216  $-  $- 
U.S. Treasury bills  -   -   -   -   18,999   18,999   -   - 
Total assets $5,001  $5,001  $-  $-  $32,215  $32,215  $-  $- 
                                 
Liabilities                                
Contingent consideration $12,144  $-  $-  $12,144  $12,104  $-  $-  $12,104 
Total liabilities $12,144  $-  $-  $12,144  $12,104  $-  $-  $12,104 

  June 30, 2011  December 31, 2010 
  Total  Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3 
Assets                        
Money market funds $5,002  $5,002  $-  $-  $13,216  $13,216  $-  $- 
U.S. Treasury Bills  -   -   -   -   18,999   18,999   -   - 
Total assets $5,002  $5,002  $-  $-  $32,215  $32,215  $-  $- 
                                 
Liabilities                                
Contingent consideration $12,323  $-  $-  $12,323  $12,104  $-  $-  $12,104 
Total liabilities $12,323  $-  $-  $12,323  $12,104  $-  $-  $12,104 
Money market funds and U.S. Treasury billsBills are valued using a market approach based on the quoted market prices of identical instruments. Contingent consideration liabilities are valued using Level 3 inputs. For further information on the inputs used in determining the fair value, and a roll-forward of the contingent consideration liability, see Note 10 of the Notes to Condensed Consolidated Financial Statements.

16
DREW INDUSTRIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The carrying values of cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximated their fair value due to the short-term nature of these instruments.

Non-recurring

Certain assets and liabilities have been measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3). The following table presents the non-recurring losses recognized using fair value measurements and the carrying value of any assets and liabilities which were measured using fair value estimates during the threesix months ended March 31,June 30, 2011 (in thousands):

  Carrying  Non-recurring 
  Value  Losses 
Assets      
Fixed assets $11,452  $- 
Acquisition of business  6,297   - 
Total assets $17,749  $- 
         
Liabilities        
Vacant leased facilities $1,069  $86 
Total liabilities $1,069  $86 
  Carrying  Non-recurring 
  Value  Losses 
Assets      
Fixed assets $11,327  $- 
Acquisition of business  6,297   - 
Total assets $17,624  $- 
         
Liabilities        
Vacant leased facilities $926  $172 
Total liabilities $926  $172 
 
16

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

At March 31,June 30, 2011, the Company hadowns seven owned facilities and vacant land which it is attempting to sell. In addition to the owned facilities which the Company is attempting to sell, the Company is attempting to sublease four vacant facilities which it leases. The determination of fair value is based on the best information available, using Level 3 inputs, including internal cash flow estimates discounted at an appropriate interest rate, market prices for similar assets, broker quotes and independent appraisals, as appropriate.

Assets acquired and liabilities assumed in a business combination are recorded at fair value as of the acquisition date. Depending upon the type of asset acquired, the Company used different valuation techniques in determining the fair value of each asset. Those techniques include comparable market prices, long-term sales, profitability and cash flow forecasts, assumptions regarding future industry specific economic and market conditions, weighted average cost of capital, as well as other techniques as circumstances require. For further information on acquired assets, see Note 3 of the Notes to Condensed Consolidated Financial Statements.

12.           New Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued updated standards related to additional requirements and guidance regarding disclosures of fair value measurements. The guidance requires new disclosures, including the reasons for and amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and separate presentation of purchases, sales, issuances and settlements in the reconciliation of activity for Level 3 fair value measurements. It also clarifies guidance related to determining the appropriate classes of assets and liabilities and the information to be provided for valuation techniques used to measure fair value. This guidance with respect to significant transfers in and out of Levels 1 and 2 was effective for interim or annual periods beginning after December 15, 2009, and with respect to Level 3 fair value measurements was effective for interim or annual periods beginning after December 15, 2010. The adoption of the guidance had no impact on the Company.

 
17
 

DREW INDUSTRIES INCORPORATED

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


This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and Notes thereto included in Item 1 of this Report.

The Company has two reportable segments; the recreational vehicle (“RV”) products segment (the “RV Segment”) and the manufactured housing products segment (the “MH Segment”). Intersegment sales are insignificant.

The Company’s operations are conducted through its wholly-owned operating subsidiaries, Lippert Components, Inc. and its subsidiaries (collectively, “Lippert”) and Kinro, Inc. and its subsidiaries (collectively, “Kinro”). Each has operations in both the RV and MH Segments. At March 31,June 30, 2011, the Company operated 26 facilities in the United States.

The RV Segment accounted for 8786 percent of consolidated net sales for the threesix months ended March 31,June 30, 2011 and 83 percent of the annual consolidated net sales for 2010. The RV Segment manufactures a variety of products used primarily in the production of RVs, including:

● Towable steel chassis ● Aluminum windows and screens
● Towable axles and suspension solutions ● Chassis components
● Slide-out mechanisms and solutions ● Furniture and mattresses
● Thermoformed bath, kitchen and other products ● Entry and baggage doors
● Toy hauler ramp doors ● Entry steps
● Patio doors ● Other accessories
● Manual, electric and hydraulic stabilizer● Specialty trailers for hauling boats, personal
and liftingleveling systems  watercraft, snowmobiles and equipment

The Company also supplies certain of these products as replacement parts to the RV aftermarket.aftermarket, and manufactures components for mid-size buses and for trailers used to haul boats, livestock, equipment and other cargo. More than 90 percent of the Company’s RV Segment net sales are components for travel trailer and fifth-wheel RVs, with the balance primarily comprised of components for motorhomes and mid-size buses, as well as sales of specialty trailers and related axles.RVs. Travel trailers and fifth-wheel RVs accounted for 82 percent of all RVs shipped by the industry in 2010, up from 61 percent in 2001.

The MH Segment, which accounted for 1314 percent of consolidated net sales for the threesix months ended March 31,June 30, 2011 and 17 percent of the annual consolidated net sales for 2010, 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
● Thermoformed bath and kitchen products ● Steel chassis parts
● Steel and fiberglass entry doors ● Axles
● Aluminum and vinyl patio doors  

The Company also supplies windows, doors, and thermoformed bath products as replacement parts to the manufactured housing aftermarket.

18

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

Sales of products other than components for RVs and manufactured homes are not considered significant. However, certain Certain of the Company’s MH Segment customers manufacture both manufactured homes and modular homes, and certain of the products manufactured by the Company are suitable for both manufactured homes and modulartypes of homes. As a result, the Company is not always able to determine in which type of home its products are installed.

18
DREW INDUSTRIES INCORPORATED
 ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Because of the seasonality of the RV and manufactured housing industries, historically, the Company’s operating results in the first and fourth quarters have been the weakest, while the second and third quarters are traditionally stronger. However, because of fluctuations in RV dealer inventories and volatile raw material costs,economic conditions, current seasonal industry trends may be different than in prior years.

INDUSTRY BACKGROUND

Recreational Vehicle Industry

An RV is a vehicle designed as temporary living quarters for recreational, camping, travel or seasonal use. RVs may be motorized (motorhomes) or towable (travel trailers, fifth-wheel travel trailers, folding camping trailers and truck campers).

According to the Recreation Vehicle Industry Association (“RVIA”), industry-wide wholesale shipments of travel trailers and fifth-wheel RVs, the Company’s primary RV markets, increased 108 percent, or 4,9008,600 units, during the first quarterhalf of 2011, as compared to the prior year first quarter. This higher wholesale production in the first quarterhalf of 2011 was due to increased retail demand of an estimated 3,400 units, or 11 percent, with the balance comprised of increased RV dealer inventories.2010.

While the Company measures its RV sales against industry-wide wholesale shipment statistics, it believes the underlying health of the RV industry is determined by retail demand. Retail salesSo far this year, industry-wide wholesale shipments of travel trailer and fifth-wheel RVs have been up year-over-year for twelve consecutiveexceeded retail sales, which increased an estimated 3 percent during the first six months through February 2011, the last month forof 2011. The increase in retail sales was less than previously expected by industry analysts, likely due to elevated gas prices, unfavorable weather and various negative economic factors which retail data is available. In anticipation of continued strong retail demandreduced consumer confidence. As a result, dealer inventories increased by about 16,000 units in the Spring and Summer selling seasons, RV dealers across the U.S. and Canada added an estimated aggregatefirst half of 27,600 travel trailer and fifth-wheel RVs to their inventories between December 2010 and March 2011, somewhatwhich is 5,000 units more than the 23,800 units added duringseasonal increase in the same period a year earlier.first half of 2010.

A comparison of the year-over-year percentage change in industry-wide wholesale shipments and retail sales of travel trailers and fifth-wheel RVs, as reported by Statistical Surveys, Inc., as well as the resulting increase or (decrease) in dealer inventories, is as follows:
  
Wholesale
Change
  
Retail
Change
  
Unit Impact on
Dealer Inventories
 
Quarter ended June 30, 2011  6% 2% (est.) (4,800) (est.)
Quarter ended March 31, 2011  10%  6%  21,200 
             
Year ended December 31, 2010  44%  13%  13,200 
Year ended December 31, 2009  (25%)  (27%)  (26,000)
Year ended December 31, 2008  (29%)  (19%)  (41,300)
Industry-wide shipments of RVs for the balance of 2011 will continue to depend to a significant extent on the course of the economy. Over the last few months, short-term forecasts for U.S. economic growth have been reduced. Retail demand for RVs, and therefore industry production levels, is highly dependent on economic conditions and consumer confidence. In addition, the seasonal increase in dealer inventories of towable RVs has been somewhat greater so far this year than last year. While dealer inventory levels are reportedly still in line with retail demand and lender expectations, most industry analysts expect RV dealers to be cautious in these uncertain economic times, and adjust their orders quickly based on changes in retail demand. These factors could impact industry production levels for the balance of 2011.

  Wholesale  Retail  Unit Impact on 
  Change  Change  Dealer Inventories 
Quarter ended March 31, 2011  10% 11%(est.) 19,600(est.)
Quarter ended March 31, 2010  99%  8%  18,200 
             
Year ended December 31, 2010  44%  13%  13,200 
Year ended December 31, 2009  (25)%  (27)%  (26,000)
Year ended December 31, 2008  (29)%  (38)%  (41,300)

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

Even though consumer confidence has recently been inconsistent, and gas prices continue to rise, recent reports cite continued strength in retailRetail sales as well as improving credit conditions. Consumer confidence andof RVs are also dependent on the availability of financingfinancing. Analyst reports have historically been important factors in the overall growth in theconsistently cited improving credit conditions for both wholesale and retail purchases.

The Company continues to be optimistic about its RV industry growth prospects for 2012 and although these factors have improved over the past couple years, there can be no assurance these factors will improve further.beyond, and remains confident in its ability to exceed industry growth rates, through ongoing investment in customer service, market share gains and new products.

In the long-term, the Company expects RV industry sales to be driven by positive demographics, and the continued popularity of the “RV Lifestyle”. Demand for RVs is strongest from the over 50 age group, which is the fastest growing segment of the U.S. population. U.S. Census Bureau projections released in December 2009 projectestimate that there will be 10 million morethe number of people over the age of 50 will increase significantly by 2015.
 
Further, the RVIA has a generic advertising campaign promoting the RV lifestyle. The current campaign is targeted at both parents aged 30-49 with children at home, as well as couples aged 50-64 with no children at home. The popularity of traveling in RVs to NASCAR and other sporting events, more family-oriented vacations, and using RVs as second homes, also appear to motivate consumer demand for RVs.

Manufactured Housing Industry

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

The Institute for Building Technology and Safety (“IBTS”) reported that for the first three months of 2011, industry-wide wholesale shipments of manufactured homes were 9,70013,400 units in the second quarter of 2011, a decline of 1312 percent compared to the first quartersame period of 2010. Industry-wide wholesale shipments of manufactured homes during the first quartersix months of 2010 likely benefitted fromwere positively impacted by a now expiredFederal tax credit for first-timefirst time home buyers.buyers, the benefits of which expired in the first half of 2010. For the first six months of 2011, industry-wide wholesale shipments of manufactured homes were 23,200 units, a decline of 12 percent compared to the first six months of 2010.

Since 1998, industry-wide wholesale shipments of manufactured homes have declined 87 percent. This decline was primarily the result of limited credit availability because of high credit standards applied to purchases of manufactured homes, high down payment requirements, and high interest rate spreads between conventional mortgages for site-built homes and loans for manufactured homes. Further, manufactured housing has declined in recent years due to the continued weakness in the entire housing market.

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

For the 20 years prior to the sub-prime boom in home financing, manufactured housing industry-wide wholesale shipments represented 20 percent or more of single-family housing starts. During the sub-prime years, 2003 to 2007, when extremely low cost loans were available for financing purchases of site-built homes, many traditional buyers of manufactured homes were able to purchase site-built homes instead of manufactured homes, and manufactured housing’s share of the single-family market dropped precipitously, to well below 10 percent. Since the sub-prime “bubble” burst in 2007 and 2008, this market share has increased somewhat, to about 1210 percent to 11 percent, despite that interest rates for manufactured home loans remain historically high relative to rates for site-built home loans. Accordingly, the Company believes the manufactured housing industry may begin to experience a modest recovery when the economy improves and home buyers begin to look for affordable housing. However, because of the current real estate and economic environment, including the availability of foreclosed site built homes at abnormally low prices, fluctuating consumer confidence, high interest rate spreads between conventional mortgages for site-built homes and loans for manufactured homes, and the current retail and wholesale credit markets, the Company expects industry-wide wholesale shipments of manufactured homes to remain low until these conditions improve.

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DREW INDUSTRIES INCORPORATED
 ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Company also believes that long-term growth prospects for manufactured housing may be positive because ofinfluenced by (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, and (iii) pent-up demand by retirees who have been unable or unwilling to sell their primary residence and purchase a manufactured home, and (iv) the unavailability of sub-prime mortgages for site-built homes.home.

Manufactured homes contain one or more “floors” or sections which can be joined to make larger homes. For 2010, larger multi-section manufactured homes represented 59 percent of the total manufactured homes produced, down from 63 percent in 2009 and down significantly from 80 percent in 2003. During the first threesix months of 2011, multi-section homes were 54 percent of the total manufactured homes produced. Multi-section manufactured homes contain more of the Company’s products than single-section manufactured homes. The decline in multi-section homes over the past few years may be 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 as many had done historically.

RESULTS OF OPERATIONS

Net sales and operating profit are as follows for the three months ended March 31, (in thousands):
 
  2011  2010 
Net sales:      
RV Segment $146,229  $124,362 
MH Segment  22,604   21,855 
Total net sales $168,833  $146,217 
         
Operating profit:        
RV Segment $15,301  $12,883 
MH Segment  2,224   1,566 
Total segment operating profit  17,525   14,449 
Corporate  (2,097)  (1,926)
Other non-segment items  115   (239)
Total operating profit
 $15,543  $12,284 

  Six Months Ended  Three Months Ended 
  June 30,  June 30, 
  2011  2010  2011  2010 
Net sales:            
RV Segment $303,428  $268,626  $157,199  $144,264 
MH Segment  51,453   51,093   28,849   29,238 
Total net sales $354,881  $319,719  $186,048  $173,502 
                 
Operating profit:                
RV Segment $32,625  $26,893  $17,324  $14,009 
MH Segment  5,177   5,302   2,953   3,736 
Total segment operating profit  37,802   32,195   20,277   17,745 
Corporate  (4,043)  (3,944)  (1,946)  (2,017)
Other non-segment items  (306)  (123)  (421)  116 
Total operating profit $33,453  $28,128  $17,910  $15,844 
 
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DREW INDUSTRIES INCORPORATED
 ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

Consolidated Highlights

 
§
Net sales in the 2011 firstsecond quarter increased 157 percent to $169$186 million, from $146$174 million in the firstsecond quarter of 2010, the result of a 9 percent increase in the Company’s RV Segment sales, and a 1 percent decline in the Company’s Manufactured Housing Segment sales. The RV Segment, which manufactures components primarily due to increases in industry-widefor travel trailer and fifth-wheel RVs, represented 84 percent of consolidated net sales, while Manufactured Housing Segment sales represented 16 percent. Industry-wide wholesale shipments of travel trailer and fifth-wheel RVs as well as continuing increases in Drew’s average product content in these types of RVs. Net sales of the Company’s RV Segmentincreased 6 percent in the first2011 second quarter, of 2011, which represented 87 percent of consolidated net sales, increased 18 percent, compared to a 10 percent increase in industry-wide wholesale shipments of travel trailers and fifth-wheel RVs. Net sales of the Company’s Manufactured Housing Segment in the first quarter of 2011, which represented 13 percent of consolidated net sales, increased 3 percent, compared to a 13 percent decrease inwhile industry-wide production of manufactured homes.homes declined 12 percent. The Company’s sales growth exceededoutperformed the RV and manufactured housing industry changeindustries during the firstsecond quarter of 2011, primarily because the Company increased its average product content per unit produced, as a result of new products, market share gains, and acquisitions.acquisitions, and increased sales to other industries, such as mid-size buses, modular housing and specialty trailers.

Because of the seasonality of the RV and manufactured housing industries, historically, the Company’s operating results in the first and fourth quarters have been the weakest, while the second and third quarters are traditionally stronger. However, because of fluctuations in RV dealer inventories and volatile raw material costs,economic conditions, current seasonal industry trends may be different than in prior years.

The Company’s net sales for the month of April 2011 were $60 million, a 6 percent increase from the month of April
§
The Company’s net sales for the month of July 2011 were $49 million, a 3 percent increase from the month of July 2010, despite having one less shipping day this year than the prior year. Compared to the second quarter, sales in July typically decline temporarily due to the annual one-week plant closures around July 4th by many RV manufacturers.

 §For the firstsecond quarter of 2011, the Company reported net income of $9.4$11.0 million ($0.420.49 per diluted share), a 2814 percent increase over net income of $7.3$9.6 million ($0.330.43 per diluted share) reported in the firstsecond quarter of 2010.

From 2006 through 2010, through facility consolidations, staff reductions and synergies, the Company reduced annual fixed costs by more than $20 million, and improved production efficiencies. Many of these fixed costs reductions and efficiency improvements are permanent, and will continue to benefit future operating results. However, in response to increased demand for its products, over the past few quarters the Company has added capacity and employees, adding about $2 million to $3 million of fixed costs on an annualized basis.

§On January 28, 2011, the Company acquired the operating assets and business of Home-Style Industries, and its affiliated companies. Home-Style manufactures a full line of upholstered furniture and mattresses primarily for towable RVs, in the Northwest U.S. market. Home-Style’s sales for 2010 were $12 million, which going forward would increase the Company’s content per travel trailer and fifth-wheel RV by $60 per unit. The purchase price was $7.3 million paid at closing from available cash, plus estimated contingent consideration of $0.2 million.

 §The cost of steel and aluminum, the Company’s primary raw materials, increased sharply sincebetween November 2010 adding $2 million toand March 2011, before leveling off. Since May 2011, the cost of sales in the first quarter of 2011.steel has declined slightly from its recent high, but remains above 2010 levels. The Company estimates that the effect of these higher costs on second quarter 2011 cost of sales will be greater than in the first quarter. The Company has worked closely with customers to significantly reduce the impact ofoffset these incremental cost increases throughwith sales price increases and increased market share, and has implemented new production efficiencies. As a result, the increased cost of raw materials did not have a significant impact on the Company’s consolidated results in the second quarter of 2011.

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

Over the past several years, material costs have been volatile. While the impact of material costs fluctuates significantly from quarter to quarter, on an annual basis from 2006 through 2010, material costs have remained relatively consistent as a percent of net sales, fluctuating by only a couple of percentage points. Strong relationships and cooperation with customers again reduced the impact of recent raw material cost increases, as it has in the past.

While the Company has historically been able to obtain sales price increases to offset the majority of raw material cost increases, there can be no assurance that future cost increases, if any, can be partially or fully passed on to customers, or that the timing of such increases will match the raw material cost increases. Also, to mitigate the impact of higher raw material costs, the Company attempts to gain additional sales volume from customers. Further, the Company continues to implement improved product design, efficiency improvements, and less costly alternative sources of raw materials and components, both domestic and imported.
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DREW INDUSTRIES INCORPORATED
 ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

§On July 19, 2011, the Company acquired certain assets and business of Indiana-based M-Tec Corporation. M-Tec manufactures components for RVs and mobile office units. The acquired business has annual sales of approximately $12 million. The purchase price was $6.0 million paid at closing from available cash, plus contingent consideration based on an earn-out. At the date of acquisition, the Company estimated the aggregate earn-out payments would be $0.6 million.

Approximately two-thirds of M-Tec’s historical sales were RV related, split evenly between towable RVs, and motorhomes. These new motorhome sales are expected to add approximately $150 in content per motorhome on an annual basis, and the new towable RV sales would increase content per towable RV by approximately $20 per unit on an annual basis. The remaining one-third of M-Tec’s sales will be included in the Company’s MH Segment.
The M-Tec acquisition was the Company’s second acquisition of the year, following the January 2011 acquisition of Home-Style, the leading manufacturer of RV furniture and mattresses in the growing Northwest RV market. The two acquisitions completed so far this year alone add an aggregate of nearly $25 million to the Company’s annual sales, and increase its profit potential. The Company plans to use its purchasing power and manufacturing expertise to reduce the cost structure of the acquired operations.

 §Estimates for the full year 2011 are that capital expenditures will be $21$24 million to $23$25 million for the full year, including $4 million for the purchase of four new facilities that have been purchased, three of which the Company had previously been leasing. Additionally, included inleasing, and $10 million to $11 million for the aluminum extrusion project. The full year 2011 capital expenditure estimate is approximately $2 million to $3 million higher than previously expected largely due to additional investments to improve information systems and increase planned production capacity at the Company’s new products and market share gains, and after completing an extensive analysis of return on investment, the Company has initiated a project to add the capability to extrude aluminum, primarily for internal use. Capital expenditures for this aluminum extrusion project are expected to aggregate $8 million to $9 million over the next six to twelve months.facility.

RV Segment – FirstSecond Quarter

Net sales of the RV Segment in the firstsecond quarter of 2011 increased 189 percent, or $22$13 million to $146$157 million, compared to the firstsecond quarter of 2010. The Company’s sales growth exceeded2010, largely due to the 106 percent increase in industry-wide wholesale production of travel trailers and fifth-wheel RVs, largely due to the Company’s market share gains and new product introductions.RVs. Sales to travel trailer and fifth-wheel RVs original equipment manufacturers (“OEMs”) increased $19$12 million to $132$142 million, or 179 percent, in the firstsecond quarter of 2011 as compared to the same period of 2010, including approximately $2 millionexceeding the 6 percent increase in industry-wide wholesale production of travel trailers and fifth-wheel RVs, primarily due to the acquisition of Home-Style in January 2011 which added $3 million in net sales during the second quarter of 2011. More than 90 percent of the Company’s RV Segment net sales were components for travel trailer and fifth-wheel RVs.

In addition, sales of the Company’s RV Segment in the second quarter of 2011 benefitted from sales to other industries, including components for mid-size buses and for trailers used to haul boats, livestock, equipment and other cargo, which increased 39 percent to $7 million. Sales to motorhome OEMs in the following:second quarter of 2011 declined 16 percent to $5 million, compared to flat industry-wide wholesale shipments of motorhomes, due to the loss of market share by some of the Company’s motorhome customers. However, in the past year the Company has been expanding its product line of components for motorhomes in order to increase its customer base and market penetration. Second quarter 2011 sales of replacement parts in the aftermarket remained constant at $3 million.

·Sales to motorhome OEMs increased 10 percent to $5 million. While this is less than the 21 percent increase in industry-wide wholesale production of motorhomes because of the loss of market share by some of the Company’s motorhome customers, in the past year the Company has been expanding its product line of components for motorhomes in order to increase its customer base and market penetration.
·Sales of replacement parts in the aftermarket increased 37 percent to $4 million.
·Sales to other industries, including specialty trailers and components for mid-size buses, increased 32 percent to $5 million.

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

According to the RVIA, industry-wide wholesale shipments for the three months ended March 31,June 30, were:

 2011  2010  Change  2011  2010  Change 
Travel Trailer and                  
Fifth-Wheel RVs  54,200   49,300   10%  66,000   62,300   6%
Motorhomes  6,900   5,700   21%  7,800   7,800   0%

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

 2011  2010  Change  2011  2010  Change 
Content per Travel Trailer and                  
Fifth-Wheel RV $2,210  $2,118   4% $2,229  $2,132   5%
Content per Motorhome $676  $860   (21)% $642  $813   (21%)

The Company’s average product content per type of RV excludes sales of replacement parts to the aftermarket, and sales to other industries. Content per RV is impacted by market share gains, acquisitions and new product introductions, as well as changes in selling prices for the Company’s products.

Operating profit of the RV Segment was $15.3$17.3 million in the firstsecond quarter of 2011, an increase of $2.4$3.3 million compared to the firstsecond quarter of 2010, largely due to the $22$13 million increase in net sales. This increase in RV Segment operating profit was 1126 percent of the increase in net sales, lessmore than the Company’s expected 20 percent incremental margin.
 
The operating margin of the RV Segment in the firstsecond quarter of 2011 was negativelypositively impacted by:
 
 ·Volatile raw material costs. Raw materialsImproved labor efficiencies. In the second quarter of 2010, the Company incurred higher production costs increased sharply since November 2010, adding $1.1 milliondue to cost of sales for the RV Segment.greater-than-expected increases in demand. While the Company still expects the impact of these higherto reduce labor costs on second quarter cost of sales will be greater than in the first quarter, the Company has worked closely with its customerscertain product lines, labor efficiencies generally improved compared to significantly reduce the impact of these incremental cost increases through sales price increases and increased market share.last year.
 
 ·Higher warrantyLower workers’ compensation costs largely due to product line expansion over the past few years.
Partially offset by:
·Improved operating efficiencies resulting in lower labor and overtime costs.improved claims experience.
 
 ·The spreading of fixed manufacturing and selling, general and administrative costs over a $22$13 million larger sales base.
Partially offset by:
·Increased promotional costs.
·An increase in annualized fixed costs of $2 million to $3 million, which have been added over the past year to expand capacity and meet the increase in sales demand.

 
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DREW INDUSTRIES INCORPORATED
 ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Material costs as a percent of net sales in the second quarter of 2011 were about the same as in the second quarter of 2010. The cost of steel and aluminum, the Company’s primary raw materials, increased sharply between November 2010 and March 2011, before leveling off. Since May 2011, the cost of steel has declined slightly from its recent high, but remains above 2010 levels. The Company worked closely with customers to offset these incremental cost increases with sales price increases and increased market share, and has implemented new production efficiencies.
Due to the Company’s new products and market share gains, and after completing an extensive analysis of return on investment, the Company has initiated a project to add the capability to extrude aluminum, primarily for internal use. During the second quarter of 2011, the Company expensed approximately $0.1 million in startup costs associated with the aluminum extrusion project. In the second half of 2011, the Company expects to incur $0.5 million to $0.8 million in additional startup costs, consistent with original estimates.
RV Segment – Year to Date

Net sales of the RV Segment in the first six months of 2011 increased 13 percent, or $35 million, to $303 million, compared to the same period of 2010, largely due to an 8 percent increase in industry-wide wholesale shipments of travel trailers and fifth-wheel RVs. Sales to travel trailer and fifth-wheel RVs OEMs increased $31 million to $275 million, or 13 percent, in the first six months of 2011 as compared to the same period of 2010, largely due to the 8 percent increase in industry-wide wholesale production of travel trailers and fifth-wheel RVs.  The Company exceeded the industry-wide increase primarily due to the acquisition of Home-Style in January 2011 which added $6 million in net sales, as well as new product introductions and market share gains. More than 90 percent of the Company’s RV Segment net sales were components for travel trailer and fifth-wheel RVs.

In addition, net sales of the Company’s RV Segment in the first six months of 2011 benefitted from the following:

·Sales to other industries, including components for mid-size buses and for trailers used to haul boats, livestock, equipment and other cargo, increased 36 percent to $12 million.
·Sales of replacement parts in the aftermarket increased 12 percent to $7 million.
Partially offset by:
·Sales to motorhome OEMs declined 4 percent to $9 million, less than the 9 percent increase in industry-wide wholesale production of motorhomes because of the loss of market share by some of the Company’s motorhome customers. However, in the past year the Company has been expanding its product line of components for motorhomes in order to increase its customer base and market penetration.
According to the RVIA, industry-wide wholesale shipments for the six months ended June 30, were:
  2011  2010  Change 
Travel Trailer and         
Fifth-Wheel RVs  120,200   111,600   8%
Motorhomes  14,700   13,500   9%
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DREW INDUSTRIES INCORPORATED
 ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Operating profit of the RV Segment was $32.6 million in the first six months of 2011, an improvement of $5.7 million compared to the same period of 2010, largely due to the $35 million increase in net sales. This increase in RV Segment operating profit was 16 percent of the increase in net sales, less than the Company’s expected 20 percent incremental margin.
The operating margin of the RV Segment in the first six months of 2011 was negatively impacted by:
·Volatile raw material costs. The cost of steel and aluminum, the Company’s primary raw materials, increased sharply between November 2010 and March 2011, before leveling off. Since May 2011, the cost of steel has declined slightly from its recent high, but remains above 2010 levels. The Company worked closely with customers to partially offset these incremental cost increases with sales price increases and increased market share, and has implemented new production efficiencies. As a result, material costs as a percent of net sales in the second quarter of 2011 were about the same as in the second quarter of 2010.
·Higher warranty costs largely due to product line expansion over the past several years.
·Increased promotional costs.
·An increase in annualized fixed costs of $2 million to $3 million, which have been added over the past year to expand capacity and meet the increase in sales demand.
Partially offset by:
·Improved labor efficiencies. In the first six months of 2010, the Company incurred higher production costs due to greater-than-expected increases in demand. While the Company still expects to reduce labor costs in certain product lines, labor efficiencies generally improved compared to last year.
·Lower workers’ compensation costs due to improved claims experience.
·The spreading of fixed manufacturing and selling, general and administrative costs over a $35 million larger sales base.

MH Segment – FirstSecond Quarter

Net sales of the MH Segment in the firstsecond quarter of 2011 increased 3of $29 million were 1 percent or $1 million to $23 million, compared toless than the firstsecond quarter of 2010.2010, despite a 12 percent decline in industry-wide wholesale production of manufactured homes. The Company’s sales growthCompany was largelyable to outperform the industry due to the following:
 
 ·Sales to OEMS of replacement parts inmanufactured homes decreased only 4 percent compared to the aftermarket increased 13%12 percent industry-wide decline, primarily due to $5 million.market share gains.
 
 ·Sales to other industries, including modular housing and office units, increased 58%51 percent to $3$4 million.
 
Partially offset by:
 
 ·Sales of replacement parts in the aftermarket declined 12 percent to OEMs of manufactured homes which decreased 4 percent, significantly less than the 13 percent decrease in industry-wide wholesale production of manufactured homes. The Company’s performance was better than the industry due to market share gains.$4 million.

According to the IBTS, industry-wide wholesale shipments for the three months ended March 31,June 30, were:

 2011  2010  Change  2011  2010  Change
Total Homes Produced  9,700   11,200   (13)%  13,400   15,200   (12%)
Total Floors Produced  15,100 �� 18,100   (16)%  20,800   24,700   (16%)

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DREW INDUSTRIES INCORPORATED
 ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The trend in the Company’s average product content per manufactured home produced is an indicator of the Company’s overall market share of components for new manufactured homes. Manufactured homes contain one or more “floors” or sections which can be joined to make larger homes. The larger homes typically contain more of the Company’s products. Content per manufactured home and content per floor are also impacted by changes in selling prices for the Company’s products. The Company’s average product content per manufactured home produced by the industry and total manufactured home floors produced by the industry, calculated based upon the Company’s net sales of components for newly produced manufactured homes for the twelve months ended March 31,June 30, divided by the number of manufactured homes and manufactured home floors produced by the industry, respectively, for the same period, was:

 2011  2010  Change  2011  2010  Change 
Content per Home Produced $1,401  $1,356   3% $1,434  $1,392   3%
Content per Floor Produced $877  $825   6% $910  $851   7%

The Company’s average product content per manufactured home excludes sales of replacement parts to the aftermarket, and sales to other industries. Content per manufactured home and content per floor are impacted by market share gains, acquisitions and new product introductions, as well as changes in selling prices for the Company’s products.

Operating profit of the MH Segment was $2.2$3.0 million in the firstsecond quarter of 2011, an increasea decrease of $0.7$0.8 million compared to the same period in 2010, partlyprimarily due to higher raw material costs. The cost of steel and aluminum, the $1 million increase in net sales.Company’s primary raw materials, increased sharply between November 2010 and March 2011, before leveling off. Since May 2011, the cost of steel has declined slightly from its recent high, but remains above 2010 levels. The Company worked closely with customers to partially offset these incremental cost increases with sales price increases and increased market share, and has implemented new production efficiencies.

The operating marginMH Segment – Year to Date

Net sales of the MH Segment infor the first quartersix months of 2011 increased 1 percent, to $51 million, compared to the same period of 2010. The Company’s sales growth was positively impacted by:largely due to the following:
 
 ·Lower retirement costs as comparedSales to the first quarter of 2010.other industries, including modular housing and office units, increased 46 percent to $7 million.
 
 ·The spreadingSales of fixed manufacturing and selling, general and administrative costs over a larger sales base.replacement parts in the aftermarket increased 2 percent to $9 million.
Partially offset by:
·Sales to OEMs of manufactured homes decreased 4 percent, significantly less than the 12 percent decrease in industry-wide wholesale production of manufactured homes, due to market share gains.

According to the IBTS, industry-wide wholesale shipments for the six months ended June 30, were:
  2011  2010  Change 
Total Homes Produced  23,200   26,400   (12%)
Total Floors Produced  36,000   42,800   (16%)
Operating profit of the MH Segment was $5.2 million in the first six months of 2011, a decrease of $0.1 million compared to the same period in 2010, despite a 1 percent increase in net sales over the same period.
 
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DREW INDUSTRIES INCORPORATED
 ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The operating margin of the MH Segment in the first six months of 2011 was negatively impacted by:
·Volatile raw material costs. The cost of steel and aluminum, the Company’s primary raw materials, increased sharply between November 2010 and March 2011, before leveling off. Since May 2011, the cost of steel has declined slightly from its recent high, but remains above 2010 levels. The Company worked closely with customers to partially offset these incremental cost increases with sales price increases and increased market share, and has implemented new production efficiencies.
 
Partially offset by:
 
 ·Volatile raw material costs. Raw materialsLower workers’ compensation, group health insurance and warranty costs have increased sharply since November 2010, adding $0.5 milliondue to cost of sales for the MH Segment. While the Company expects the impact of these higher costs on second quarter cost of sales will be greater than in the first quarter, the Company has worked closely with its customers to significantly reduce the impact of these incremental cost increases through sales price increases and increased market share.improved claims experience.

Corporate

Corporate expenses for the first quarter of 2011 increased $0.2 million compared to the first quarter of 2010, primarily due to higher professional fees, and higher stock option expense due to the November 2010 stock option grant.
·Lower retirement costs.

Other Non-Segment Items

Selling, general and administrative expenses include the following other non-segment items for the three months ended March 31, (in thousands):

  2011  2010 
Write-downs to estimated current fair value of facilities to be sold or subleased $-  $(126)
Earn-outs fair value adjustment  581   - 
Earn-outs accretion  (474)  (144)
Other income, net  8   31 
Total other non-segment items – income (expense) $115  $(239)
  Six Months Ended  Three Months Ended 
  June 30,  June 30, 
  2011  2010  2011  2010 
Write-downs to estimated current fair value of facilities to be sold or subleased $-  $(166) $-  $(40)
Acquisition related earn-outs:                
Fair value adjustment  656   105   75   105 
Accretion  (949)  (533)  (474)  (389)
Net gain on insurance claim  -   402   -   402 
Other  (13)  69   (22)  38 
Total other non-segment items $(306) $(123) $(421) $116 

Income Taxes

The income tax rate infor the first six months and second quarter of 2011 was 39.438.9 percent and 38.6 percent, respectively, lower than the 39.9tax rate of 39.6 percent and 39.2 percent for the same periods of 2010, respectively. In the second quarter of 2011, the Company recorded a benefit of $0.2 million from a credit available under the Hiring Incentives to Restore Employment (HIRE) Act of 2010, and identified other opportunities which will save the Company approximately $0.7 million in state taxes annually.

Further, in May 2011, Indiana lowered its corporate income tax rate from 8.5 percent currently, to 6.5 percent over 4 years, beginning in 2012. When fully implemented, this tax rate reduction will annually save the Company about $150,000 for every $10 million of pre-tax income. However, since the law was enacted in the firstsecond quarter of 2010. 2011, the Company is required to adjust its deferred tax benefits for the lower tax rates, and the Company recorded a tax charge of $0.3 million in the second quarter of 2011. In addition, as the tax rate reduction is phased in over the next four years, the Company will record an estimated $0.4 million of cumulative additional charges to adjust its future deferred tax benefits

The full year 2011 effective income tax rate is expected to be approximately 39 percent.

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DREW INDUSTRIES INCORPORATED
 ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Interest Expense, Net

Interest expense during 2011, primarily consisting of commitment and letter of credit fees under the line of credit, partially offset by interest income, for the first three months of 2011 was consistent with the same periodcomparable periods of 2010. Despite significant cash balances during the first quartersix months of 2011, interest income was not significant, due to low interest rates and the Company’s policy of investing in only extremely safe investments. Interest expense for the full year 2011 is expected to be approximately $0.2 million.

26

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 threesix months ended March 31,June 30, (in thousands):

 2011  2010  2011  2010 
Net cash flows provided by operating activities $3,083  $8,662  $10,406  $17,722 
Net cash flows used for investing activities  (5,434)  (19,333)  (12,651)  (23,081)
Net cash flows provided by financing activities  199   39   139   67 
Net decrease in cash $(2,152) $(10,632) $(2,106) $(5,292)

Cash Flows from Operations

Net cash flows from operating activities in the first threesix months of 2011 of $3.1$10.4 million were $5.6$7.3 million less than the $8.7$17.7 million in the first threesix months of 2010, asdespite a $3.4 million increase in net income. This decline was primarily a result of:

 ·An $8.3A $9.9 million larger increase in accounts receivable in the first three months of 2011, compared to the first three months of 2010, due to higher sales in March 2011 as compared to March 2010. Accounts receivable balances remain current, with only 20 days sales outstanding at March 31, 2011.
·A $2.7 million larger increase in inventories in the first three months of 2011, compared to the first three months of 2010, due to the seasonal increase in sales and the increase in raw material costs. Inventory turnover for the twelve months ended March 31, 2011 continues to be strong, at 6.4 turns, consistent with the 6.5 turns for the full year 2010, and better than the 6.1 turns for the twelve months ended March 31, 2010.
Partially offset by:
·A $2.1 million increase in net income in the first three months of 2011 compared to the first three months of 2010.
·A $1.9 million largersmaller increase in accounts payable, accrued expenses and other liabilities in the first threesix months of 2011, compared to the first threesix months of 2010, primarily due to the timing of payments for inventory purchases. In addition, accrued expensespurchases and other liabilities increasedoperational liabilities.
·A $2.4 million larger increase in accounts receivable in the first six months of 2011, duecompared to the increasefirst six months of 2010, due in part to higher net sales production and earnings.in June 2011 as compared to June 2010. Accounts receivable balances remain current, with only 21 days sales outstanding at June 30, 2011.

DuringInventory turnover for the second quarter oftwelve months ended June 30, 2011 continues to be strong, at 6.2 turns, lower than the Company expects6.5 turns for the inventory balancefull year 2010 and the 6.9 turns for the twelve months ended June 30, 2010, due largely to increase modestly, as lower priced inventory is replaced bythe higher priced raw materials.material costs.

Depreciation and amortization was $4.9$10.0 million in the first threesix months of 2011, and is expected to aggregate $18 million to $19 million for the full year 2011. Non-cash stock-based compensation expense was $2.2 million in the first threesix months of 2011, includingand certain executives were issued deferred stock units of $1.1 million for 2010 incentive compensation in lieu of cash andfor 2010 incentive compensation. Non-cash stock-based compensation is expected to be $5 million to $6 million for the full year 2011.

Cash Flows from Investing Activities

Cash flows used for investing activities of $5.4$12.7 million in the first threesix months of 2011 included the acquisition of Home-Style for $7.3 million and capital expenditures of $3.1$10.5 million, both of which were financed from available cash, partially offset by $5.0 million received from the maturity of U.S. Treasury Bills classified as short-term investments.

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

On January 28, 2011, the Company acquired the operating assets and business of Home-Style Industries, and its affiliated companies. Home-Style manufactures a full line of upholstered furniture and mattresses primarily for towable RVs, in the Northwest U.S. market. Home-Style’s sales for 2010 were $12 million, which going forward would increase the Company’s content per travel trailer and fifth-wheel RV by $60 per unit. The purchase price was $7.3 million paid at closing from available cash.cash, plus contingent consideration based on an earn-out. At the date of acquisition, the Company estimated the aggregate earn-out payments would be $0.2 million.

On July 19, 2011, the Company acquired certain assets and business of Indiana-based M-Tec Corporation. M-Tec manufactures components for RVs and mobile office units. The acquired business has annual sales of approximately $12 million. The purchase price was $6.0 million paid at closing from available cash, plus contingent consideration based on an earn-out. At the date of acquisition, the Company estimated the aggregate earn-out payments would be $0.6 million.

Estimates for the full year 2011 are that capital expenditures will be $21$24 million to $23$25 million for the full year, including $4 million for the purchase of four new facilities the Company has purchased, three of which the Company had previously been leasing. Additionally, included in the full year estimate, dueleasing, and $10 million to $11 million for the Company’s new products and market share gains, and after completing an extensive analysis of return on investment, the Company has initiated a project to add the capability to extrude aluminum, primarily for internal use. Capital expenditures for this aluminum extrusion project are expected to aggregate $8project. The full year 2011 capital expenditure estimate is approximately $2 million to $9$3 million overhigher than previously expected largely due to additional investments to improve information systems and increase planned production capacity at the next six to twelve months.new aluminum extrusion facility.

At March 31,June 30, 2011, the Company was attempting to sell seven owned facilities and vacant land with an aggregate carrying value of $11.5$11.3 million, which are not being used in production. The Company has leased to third parties four of these owned facilities with a combined carrying value of $8.7$8.6 million, for one to five year terms, for a combined rental income of $79,000$0.1 million per month. Each of these four leases also contains an option for the lessee to purchase the facility at an amount in excess of carrying value. In addition to these seven owned facilities, the Company is attempting to sublease four vacant facilities which it leases.

Cash flows used for investing activities of $19.3$23.1 million in the first quartersix months of 2010 consisted of the acquisition of Schwintek, Inc for $20.0 million and the acquisition of the patent-pending design for a six-point leveling system for fifth-wheel RVs for $1.4 million, as well as $1.2$4.5 million of capital expenditures, all of which were financed from available cash. In addition, the Company purchased $2.0$13.0 million of short-term U.S. Treasury bills classified as short-term investments. Thisinvestments, which was partiallymore than offset by $5.0$15.0 million received from the maturity of U.S. Treasury Bills classified as short-term investments.

Cash Flows from Financing Activities

There were no significant cash flows from financing activities for the threesix months ended March 31,June 30, 2011 and 2010. At March 31,June 30, 2011, the Company had no debt outstanding, and made no borrowings during the first threesix months ofended June 30, 2011.

In connection with several acquisitions since 2009, if certain sales targets for the acquired products are achieved, the Company would pay earn-outs to the sellers. The Company has recorded a $12.1$12.3 million liability for the fair value of these expected earn-out payments at March 31,June 30, 2011. For further information see Note 10 of the Notes to Condensed Consolidated Financial Statements.
30
DREW INDUSTRIES INCORPORATED
 ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

On February 24, 2011, the Company entered into an agreement (the “Credit Agreement”) for a $50.0 million line of credit with JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A. (collectively, the “Lenders”), amending the Company’s previous $50.0 million line of credit that was scheduled to expire in December 2011. The maximum borrowings under the Company’s new line of credit can be increased by $20.0 million upon approval of the Lenders. Interest on borrowings under the new line of credit is designated from time to time by the Company as either (i) the Prime Rate, but not less than 2.5 percent, plus additional interest up to 0.8 percent (0 percent at March 31,June 30, 2011), or (ii) LIBOR plus additional interest ranging from 2.0 percent to 2.8 percent (2.0 percent at March 31,June 30, 2011) depending on the Company’s performance and financial condition. The Credit Agreement expires on January 1, 2016. At March 31,June 30, 2011, the Company had availability of $44.8 million, as there were $5.2 million in outstanding letters of credit under the new line of credit.

28

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

Simultaneously, the Company entered into a $150.0 million “shelf-loan” facility with Prudential Investment Management, Inc. and its affiliates (“Prudential”), amending and increasing the Company’s previous $125.0 million “shelf-loan” facility with Prudential. The new facility provides for Prudential to consider purchasing, at the Company’s request, in one or a series of transactions, Senior Promissory Notes of the Company in the aggregate principal amount of up to $150.0 million, to mature no more than twelve years after the date of original issue of each Senior Promissory Note. Prudential has no obligation to purchase the Senior Promissory Notes. Interest payable on the Senior Promissory Notes will be at rates determined by Prudential within five business days after the Company issues a request to Prudential. This new facility expires on February 24, 2014.

Both the line of credit pursuant to the Credit Agreement and the “shelf-loan” facility are subject to a maximum leverage ratio covenant which limits the amount of consolidated outstanding indebtedness to 2.5 times the trailing twelve-month EBITDA, as defined. As a result, the remaining availability under these facilities was $174.9$184.5 million at March 31,June 30, 2011. This availability, together with the $36.7$36.8 million in cash at March 31,June 30, 2011, are more than adequate to finance the Company’s anticipated working capital and capital expenditure requirements in 2011.

Pursuant to the Credit Agreement and ”shelf-loan” facility at March 31,June 30, 2011, the Company is required to maintain minimum interest and fixed charge coverages, and to meet certain other financial requirements. At March 31,June 30, 2011, the Company was in compliance with all such requirements, and expects to remain in compliance for the next twelve months.

Borrowings under both the line of credit and the “shelf-loan” facility are secured on a pari passu basis by first priority liens on the capital stock or other equity interests of each of the Company’sDrew’s direct and indirect subsidiaries.

In 2007, the Board of Directors authorized the Company to repurchase up to 1 million shares of the Company’s Common Stock from time to time in the open market, in privately negotiated transactions, or in block trades. Of this authorization, 501,279 shares have been repurchased at an average price of $18.65 per share, or $9.3 million in total. The aggregate cost of such repurchases was funded from the Company’s available cash. The number of shares ultimately repurchased, and the timing of the purchases, will depend upon market conditions, share price, and other factors.

31
DREW INDUSTRIES INCORPORATED
 ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

CORPORATE GOVERNANCE

The Company is in compliance with the corporate governance requirements of the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange. The Company’s governance documents and committee charters and key practices have been posted to the Company’s website (www.drewindustries.com)(www.drewindustries.com) and are updated periodically. The website also contains, or provides direct links to, all SEC filings, press releases and investor presentations. The Company has also established a toll-free hotline (877-373-9123) to report complaints about the Company’s accounting, internal controls, auditing matters or other concerns.
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, and components used by the Company which are made from these raw materials, 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. Since November 2010,volatile, and after rising significantly during the costfirst part of these key2011, for certain raw materials, again increased.have recently moderated. The Company did not experience any significant increase in its labor costs in the first threesix months of 2011 related to inflation.

NEW ACCOUNTING PRONOUNCEMENTS

In January 2010, the Financial Accounting Standards Board (“FASB”) issued updated standards related to additional requirements and guidance regarding disclosures of fair value measurements. The guidance requires new disclosures, including the reasons for and amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and separate presentation of purchases, sales, issuances and settlements in the reconciliation of activity for Level 3 fair value measurements. It also clarifies guidance related to determining the appropriate classes of assets and liabilities and the information to be provided for valuation techniques used to measure fair value. This guidance with respect to significant transfers in and out of Levels 1 and 2 was effective for interim or annual periods beginning after December 15, 2009, and with respect to Level 3 fair value measurements was effective for interim or annual periods beginning after December 15, 2010. The adoption of the guidance had no impact on the 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, net sales and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to product returns, accounts receivable, inventories, notes receivable, goodwill and other intangible assets, income taxes, warranty obligations, self-insurance obligations, lease terminations, asset retirement obligations, long-lived assets, post-retirement benefits, stock-based compensation, segment allocations, earn-outs payments, environmental liabilities, contingencies and litigation. The Company bases its estimates on historical experience, other available information and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not 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)

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

This Form 10-Q contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities for existing products, plans and objectives of management, markets for the Company’s Common Stock and other matters. Statements in this Form 10-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, net sales, expenses and income (loss), cash flow, and financial condition, 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, including those set forth in this Form 10-Q, and in our subsequent filings with the Securities and Exchange Commission (“SEC”).Commission.

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 steel-based components, vinyl, aluminum, glass and ABS resin) and other components, availability of credit for financing the retail and wholesale purchase of manufactured homes and recreational vehicles (“RVs”), availability and costs of labor, inventory levels of retail dealers and manufacturers, levels of repossessed manufactured homes and RVs, changes in zoning regulations for manufactured homes, sales declines in the RV or manufactured housing industries, the financial condition of our customers, the financial condition of retail dealers of RVs and manufactured homes, retention and concentration of significant customers, interest rates, oil and gasoline prices, and the outcome of litigation. In addition, international, national and regional economic conditions and consumer confidence affect the retail sale of RVs and manufactured homes.

 
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DREW INDUSTRIES INCORPORATED

Item 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has historically been exposed to changes in interest rates primarily as a result of its financing activities. At March 31,June 30, 2011, the Company had no outstanding borrowings.

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.

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 and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, in accordance with the definition of “disclosure controls and procedures” in Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the desired control objectives. Management included in its evaluation the cost-benefit relationship of possible controls and procedures. The Company continually evaluates its disclosure controls and procedures to determine if changes are appropriate based upon changes in the Company’s operations or the business environment in which it operates.

As of the end of the period covered by this Form 10-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 and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

 b)Changes in Internal Controls

There were no changes in the Company’s internal controls over financial reporting during the quarter ended March 31,June 30, 2011 or subsequent to the date the Company completed its evaluation, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Over the last few years, the internal controls have been incrementally strengthened due both to the installation of enterprise resource planning (“ERP”) software and business process changes. In the last threesix months, the Company continued to implement certain significant functions of the ERP software and business process changes. Implementation of additional functions of the ERP software and business process changes are planned for the next couple of quarters to further strengthen the Company’s internal control.

 
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DREW INDUSTRIES INCORPORATED

PART II – OTHER INFORMATION

Item 1 – LEGAL PROCEEDINGS

There were no material developments during the first quarter in connection with the legal proceeding pending at December 31, 2010. See Item 3. “Legal Proceedings” in the Annual Report on Form 10-K for the year ended December 31, 2010. There were no material developments during the first six months of 2011 in connection with the identified legal proceeding pending at December 31, 2010, except that the Plaintiffs filed an appeal brief with the Ninth Circuit Court of Appeals and defendant Kinro filed an answering brief. A decision is pending.

In addition, in the normal course of business, the Company is subject to proceedings, lawsuits and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, it is management’s opinion that after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided in the Condensed Consolidated Balance Sheet as of March 31,June 30, 2011, would not be material to the Company’s financial position or annual results of operations.

Item 1A – RISK FACTORS

There have been no 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 11, 2011.

Item 6 – EXHIBITS

 a)Exhibits as required by item 601 of Regulation S-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.

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

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

 
3335
 

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
 Registrant
   
 By /s//s/ Joseph S. Giordano III
 Joseph S. Giordano III
 Chief Financial Officer and Treasurer
 May 9,August 8, 2011


 
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