QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934 001-13646 (I.R.S. Employer incorporation or organization) Identification No.) Yes Nine Months Ended September 30, Three Months Ended September 30, 2013 2012 2013 2012 (In thousands, except per share amounts) Net sales Cost of sales Gross profit Selling, general and administrative expenses Executive succession Operating profit Interest expense, net Income before income taxes Provision for income taxes Net income Net income per common share: Basic Diluted Weighted average common shares outstanding: Basic Diluted September 30, December 31, 2013 2012 2012 (In thousands, except per share amount) ASSETS Current assets Cash and cash equivalents Accounts receivable, net Inventories Deferred taxes Prepaid expenses and other current assets Total current assets Fixed assets, net Goodwill Other intangible assets, net Deferred taxes Other assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable, trade Accrued expenses and other current liabilities Total current liabilities Other long-term liabilities Total liabilities Stockholders’ equity Common stock, par value $.01 per share Paid-in capital Retained earnings Stockholders’ equity before treasury stock Treasury stock, at cost Total stockholders’ equity Total liabilities and stockholders’ equity Nine Months Ended September 30, 2013 2012 (In thousands) Cash flows from operating activities: Net income Adjustments to reconcile net income to cash flows provided by operating activities: Depreciation and amortization Stock-based compensation expense Other non-cash items Changes in assets and liabilities, net of acquisitions of businesses: Accounts receivable, net Inventories Prepaid expenses and other assets Accounts payable Accrued expenses and other liabilities Net cash flows provided by operating activities Cash flows from investing activities: Capital expenditures Acquisitions of businesses Proceeds from sales of fixed assets Other investing activities Net cash flows used for investing activities Cash flows from financing activities: Proceeds from exercise of stock options Proceeds from line of credit borrowings Repayments under line of credit borrowings Payment of contingent consideration related to acquisitions Net cash flows provided by (used for) financing activities Net increase in cash Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental disclosure of cash flow information: Cash paid during the period for: Interest Income taxes, net of refunds Common Stock Paid-in Capital Retained Earnings Treasury Stock Total Stockholders’ Equity (In thousands, except shares) Balance - December 31, 2012 Net income Issuance of 529,958 shares of common stock pursuant to stock options and deferred stock units Stock-based compensation expense Issuance of 3,776 deferred stock units relating to prior year compensation Balance - September 30, 2013 BASIS OF PRESENTATION SEGMENT REPORTING and Nine Months Ended September 30, Three Months Ended September 30, (In thousands) 2013 2012 2013 2012 Net sales: RV Segment: RV original equipment manufacturers ("OEMs"): Travel trailers and fifth-wheels Motorhomes RV aftermarket Adjacent industries Total RV Segment net sales MH Segment: Manufactured housing OEMs Manufactured housing aftermarket Adjacent industries Total MH Segment net sales Total net sales Operating profit: RV Segment MH Segment Total segment operating profit Executive succession Total operating profit ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS 2014 Cash consideration Working capital, net Non-compete agreement Net tangible assets Total fair value of net assets acquired Goodwill (tax deductible) Cash consideration Present value of future payments Total fair value of consideration given Customer relationships Other identifiable intangible assets Net tangible assets Total fair value of net assets acquired Goodwill (tax deductible) (in thousands): (In thousands) RV Segment MH Segment Total Accumulated cost – December 31, 2012 Accumulated impairment – December 31, 2012 Net balance – December 31, 2012 Acquisitions – 2013 Net balance – September 30, 2013 March 31, 2014. (In thousands) Gross Cost Accumulated Amortization Net Balance Estimated Useful Life in Years Customer relationships Patents Tradenames Non-compete agreements Other intangible assets March 31, 2014: (In thousands) Gross Cost Accumulated Amortization Net Balance Estimated Useful Life in Years Customer relationships Patents Tradenames Non-compete agreements Other intangible assets September 30, December 31, (In thousands) 2013 2012 2012 Cash in banks Cash and cash equivalents September 30, December 31, (In thousands) 2013 2012 2012 Raw materials Work in process Finished goods Inventories September 30, December 31, (In thousands) 2013 2012 2012 Fixed assets, at cost Less accumulated depreciation and amortization Fixed assets, net ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES September 30, December 31, (In thousands) 2013 2012 2012 Employee compensation and benefits Warranty Sales rebates Contingent consideration related to acquisitions Other Accrued expenses and other current liabilities (In thousands) 2013 2012 Balance at beginning of period – current Balance at beginning of period – long-term Balance at beginning of period – total Provision for warranty expense Warranty liability from acquired businesses Warranty costs paid Total accrued warranty Less long-term portion Current accrued warranty March 31: 2017. $0.7 million. Acquisition(In thousands) Estimated Remaining Payments Fair Value of Estimated Remaining Payments Schwintek products (a) Level-Up® six-point leveling system (b) Other acquired products (c) Total (In thousands) 2013 2012 Balance at beginning of period Acquisitions Payments Accretion Fair value adjustments Balance at end of the period Less current portion in accrued expenses and other current liabilities Total long-term portion in other long-term liabilities March 31: September 30, December 31, (Shares in thousands) 2013 2012 2012 Common stock authorized Common stock issued Treasury stock Nine Months Ended September 30, Three Months Ended September 30, (In thousands) 2013 2012 2013 2012 Weighted average shares outstanding for basic earnings per share Common stock equivalents pertaining to stock options and contingently issuable deferred stock units Weighted average shares outstanding for diluted earnings per share December 31, 2012 (In thousands) Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Assets Deferred compensation Derivative instruments Total assets Liabilities Contingent consideration Deferred compensation Derivative instruments Total liabilities 2013 2012 (In thousands) Carrying Value Non-Recurring Losses/(Gains) Carrying Value Non-Recurring Losses/(Gains) Assets Vacant owned facilities Other intangible assets Net assets of acquired businesses Total assets Liabilities Vacant leased facilities Total liabilities March 31: 2013. Nine Months Ended September 30, Three Months Ended September 30, (In thousands) 2013 2012 2013 2012 Net sales: RV Segment: RV original equipment manufacturers: Travel trailers and fifth-wheels Motorhomes RV aftermarket Adjacent industries Total RV Segment net sales MH Segment: Manufactured housing original equipment manufacturers Manufactured housing aftermarket Adjacent industries Total MH Segment net sales Total net sales Nine Months Ended September 30, Three Months Ended September 30, (In thousands) 2013 2012 2013 2012 Operating profit: RV Segment MH Segment Total segment operating profit Executive succession Total operating profit upcoming Spring 2014 selling season. Estimated Wholesale Retail Unit Impact on Units Change Units Change Dealer Inventories Quarter ended September 30, 2013(1) Quarter ended June 30, 2013 Quarter ended March 31, 2013 Quarter ended December 31, 2012 Twelve months ended September 30, 2013(1) Quarter ended September 30, 2012 Quarter ended June 30, 2012 Quarter ended March 31, 2012 Quarter ended December 31, 2011 Twelve months ended September 30, 2012 last couple of months are positive signs for the industry. Several industry analysts are also reporting the retail sales over the coming months could benefit from pent-up demand stemming from the prolonged winter. Retail sales in the traditionally strong Spring and Summer selling seasons will be a key indicator of consumer demand for RVs in 2014. 2013. April 2014 are not yet available. supplies. In connection with the On February 27, 2014, the Company acquired Innovative Design Solutions, Inc. (“IDS”), a designer, developer and manufacturer of electronic systems encompassing a wide variety of RV applications. IDS also manufactures electronic systems for automotive, medical and industrial applications. IDS had annual sales of approximately $19 million in 2013, of which $13 million were to the Company. The purchase price was $36.6 million, of which $34.2 million was paid at closing, with the balance to be paid out annually over the subsequent three years, plus contingent consideration based on future sales of this operation. The acquisition of IDS provides the Company with further access to unique and innovative electronic products for the RV industry, as well as adjacent industries. At (In thousands) 2013 2012 Change RV OEMs: Travel trailers and fifth-wheels Motorhomes RV aftermarket Adjacent industries Total RV Segment net sales 2013 2012 Change Travel trailer and fifth-wheel RV's Motorhomes period. Content per: 2013 2012 Change Travel trailer and fifth-wheel RV's Motorhomes (In thousands) 2013 2012 Change RV OEMs: Travel trailers and fifth-wheels Motorhomes RV aftermarket Adjacent industries Total RV Segment net sales 2013 2012 Change Travel trailer and fifth-wheel RV's Motorhomes (In thousands) 2013 2012 Change Manufactured housing OEMs Manufactured housing aftermarket Adjacent industries Total MH Segment net sales March 31: 2013 2012 Change Total homes produced Total floors produced Content per: 2013 2012 Change Home produced Floor produced types of floors produced industry-wide. (In thousands) 2013 2012 Change Manufactured housing OEMs Manufactured housing aftermarket Adjacent industries Total MH Segment net sales 2013 2012 Change Total homes produced Total floors produced net sales. (In thousands) 2013 2012 Net cash flows provided by operating activities Net cash flows used for investing activities Net cash flows provided by (used for) financing activities Net increase in cash March 31: 2014 compared to the first quarter of 2013, primarily due to increased sales, as well as the timing of payments by the Company’s customers. Accounts receivable balances remain current, with only 22 days sales outstanding at March 31, 2014. In the first quarter of 2013, the Company received $5.0 million in cash and the related tax benefits from the exercise of stock-based compensation, partially offset by $0.9 million in payments for contingent consideration related to acquisitions. 2017. as amended, and involve a number of risks and uncertainties. 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, borrowings of $10.0 million, future cash flows would be reduced by $0.1 million per annum. Evaluation of Disclosure Controls and Procedures Changes in Internal Controls 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. 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. 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. Exhibit 32.1 is filed herewith. 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. Exhibit 32.2 is filed herewith. 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Joseph S. Giordano III Chief Financial Officer and TreasurerDCD.C. 20549[ X ] SEPTEMBER 30, 2013MARCH 31, 2014OR[ ] File Number: 0-13646file number: Delaware13-3250533Delaware 13-3250533 (State or other jurisdiction of 3501 County Road 6 East 46514 Elkhart, Indiana (Zip Code) (Address of principal executive offices) 3501 County Road 6 East, Elkhart, Indiana 46514(Address of principal executive offices) (Zip Code)YesX No___(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). YesX No ______X Accelerated filerX __ Non-accelerated filer ___ (Do not check if a smaller reporting company) Smaller reporting company ___Indicate theeach of the issuer’s classes ofregistrant's common stock, as of the latest practicable date. 23,236,681date (May 1, 2014) was 23,625,918 shares of common stock as of October 31, 2013.stock.SEPTEMBER 30, 2013MARCH 31, 2014 Page ITEM 1–FINANCIAL STATEMENTSCONDENSED 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 7–19 ITEM 2–MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 20– 38 ITEM 3–QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 39 ITEM 4–CONTROLS AND PROCEDURES 39 PART II–OTHER INFORMATIONITEM 1–LEGAL PROCEEDINGS 40 ITEM 1A–RISK FACTORS 40 40 SIGNATURES41 EXHIBIT 31.1 - SECTION 302 CEO CERTIFICATION EXHIBIT 31.2 - SECTION 302 CEO CERTIFICATION EXHIBIT 32.1 - SECTION 906 CEO CERTIFICATION EXHIBIT 32.2 - SECTION 906 CEO CERTIFICATION $ 790,629 $ 700,889 $ 250,851 $ 226,323 625,479 568,101 194,725 184,781 165,150 132,788 56,126 41,542 101,148 81,499 33,296 26,594 1,876 - - - 62,126 51,289 22,830 14,948 279 246 76 116 61,847 51,043 22,754 14,832 22,805 18,448 7,949 5,061 $ 39,042 $ 32,595 $ 14,805 $ 9,771 $ 1.68 $ 1.45 $ 0.63 $ 0.43 $ 1.65 $ 1.43 $ 0.62 $ 0.43 23,243 22,507 23,451 22,563 23,644 22,724 23,838 22,800 Three Months Ended
March 31, 2014 2013 (In thousands, except per share amounts) Net sales $ 285,377 $ 252,586 Cost of sales 222,177 204,995 Gross profit 63,200 47,591 Selling, general and administrative expenses 37,154 32,860 Executive succession — 1,143 Operating profit 26,046 13,588 Interest expense, net 120 118 Income before income taxes 25,926 13,470 Provision for income taxes 9,762 5,098 Net income $ 16,164 $ 8,372 Net income per common share: Basic $ 0.68 $ 0.36 Diluted $ 0.67 $ 0.36 Weighted average common shares outstanding: Basic 23,774 23,017 Diluted 24,188 23,455 financial statements.Condensed Consolidated Financial Statements. $ 52,873 $ 32,584 $ 9,939 54,824 50,421 21,846 96,164 98,393 97,367 10,073 10,125 10,073 8,396 11,165 14,798 222,330 202,688 154,023 120,723 101,931 107,936 21,552 21,177 21,177 61,861 71,755 69,218 14,993 14,496 14,993 8,237 6,422 6,521 $ 449,696 $ 418,469 $ 373,868 $ 31,809 $ 33,392 $ 21,725 53,333 47,074 48,055 85,142 80,466 69,780 21,091 20,369 19,843 106,233 100,835 89,623 259 250 254 120,583 92,130 100,412 252,088 254,721 213,046 372,930 347,101 313,712 (29,467 ) (29,467 ) (29,467 ) 343,463 317,634 284,245 $ 449,696 $ 418,469 $ 373,868 March 31, December 31, 2014 2013 2013 (In thousands, except per share amount) ASSETS Current assets Cash and cash equivalents $ 6,132 $ 4,035 $ 66,280 Accounts receivable, net 75,763 54,249 31,015 Inventories, net 99,017 110,207 101,211 Deferred taxes 12,557 10,073 12,557 Prepaid expenses and other current assets 9,411 9,882 14,467 Total current assets 202,880 188,446 225,530 Fixed assets, net 129,060 112,783 125,982 Goodwill 48,445 21,177 21,545 Other intangible assets, net 75,456 66,759 59,392 Deferred taxes 12,236 14,993 12,236 Other assets 9,249 7,412 8,499 Total assets $ 477,326 $ 411,570 $ 453,184 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable, trade $ 48,406 $ 40,256 $ 24,063 Dividend payable — — 46,706 Accrued expenses and other current liabilities 56,187 49,326 47,422 Total current liabilities 104,593 89,582 118,191 Long-term indebtedness 10,000 — — Other long-term liabilities 25,025 21,122 21,380 Total liabilities 139,618 110,704 139,571 Stockholders’ equity Common stock, par value $.01 per share 263 256 261 Paid-in capital 136,100 108,659 126,360 Retained earnings 230,812 221,418 216,459 Stockholders’ equity before treasury stock 367,175 330,333 343,080 Treasury stock, at cost (29,467 ) (29,467 ) (29,467 ) Total stockholders’ equity 337,708 300,866 313,613 Total liabilities and stockholders’ equity $ 477,326 $ 411,570 $ 453,184 financial statements.Condensed Consolidated Financial Statements. $ 39,042 $ 32,595 20,388 19,211 8,224 4,703 1,787 889 (32,829 ) (27,801 ) 1,246 (5,753 ) 4,090 (6,993 ) 10,042 17,650 9,681 10,086 61,671 44,587 (26,080 ) (22,010 ) (1,451 ) (1,473 ) 1,381 5,397 (117 ) (88 ) (26,267 ) (18,174 ) 11,817 2,840 135,452 37,702 (135,452 ) (37,702 ) (4,287 ) (3,253 ) 7,530 (413 ) 42,934 26,000 9,939 6,584 $ 52,873 $ 32,584 $ 226 $ 289 $ 19,276 $ 16,121 Three Months Ended
March 31, 2014 2013 (In thousands) Cash flows from operating activities: Net income $ 16,164 $ 8,372 Adjustments to reconcile net income to cash flows provided by (used for) operating activities: Depreciation and amortization 7,240 6,552 Stock-based compensation expense 2,625 3,155 Other non-cash items 679 509 Changes in assets and liabilities, net of acquisitions of businesses: Accounts receivable, net (42,790 ) (32,403 ) Inventories, net 4,417 (12,840 ) Prepaid expenses and other assets 4,743 3,880 Accounts payable, trade 23,374 18,531 Accrued expenses and other liabilities 10,858 3,192 Net cash flows provided by (used for) operating activities 27,310 (1,052 ) Cash flows from investing activities: Capital expenditures (6,824 ) (8,938 ) Acquisitions of businesses (46,657 ) — Proceeds from sales of fixed assets 707 31 Other investing activities (4 ) (29 ) Net cash flows used for investing activities (52,778 ) (8,936 ) Cash flows from financing activities: Exercise of stock options and deferred stock units 3,320 4,959 Proceeds from line of credit borrowings 79,469 96,333 Repayments under line of credit borrowings (69,469 ) (96,333 ) Payment of special dividend (46,706 ) — Payment of contingent consideration related to acquisitions (1,098 ) (875 ) Other financing activities (196 ) — Net cash flows (used for) provided by financing activities (34,680 ) 4,084 Net decrease in cash (60,148 ) (5,904 ) Cash and cash equivalents at beginning of period 66,280 9,939 Cash and cash equivalents at end of period $ 6,132 $ 4,035 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 73 $ 64 Income taxes, net of refunds $ 922 $ 16 financial statements.Condensed Consolidated Financial Statements. $ 254 $ 100,412 $ 213,046 $ (29,467 ) $ 284,245 - - 39,042 - 39,042 5 11,812 - - 11,817 - 8,224 - - 8,224 - 135 - - 135 $ 259 $ 120,583 $ 252,088 $ (29,467 ) $ 343,463 (In thousands, except shares) Balance - December 31, 2013 $ 261 $ 126,360 $ 216,459 $ (29,467 ) $ 313,613 Net income — — 16,164 — 16,164 Issuance of 218,795 shares of common stock pursuant to stock options and deferred stock units 2 1,331 — — 1,333 Income tax benefit relating to issuance of common stock pursuant to stock options and deferred stock units — 1,987 — — 1,987 Stock-based compensation expense — 2,625 — — 2,625 Issuance of 43,188 deferred stock units relating to prior year compensation — 1,986 — — 1,986 Dividend equivalents on deferred stock units, stock awards and restricted stock — 1,811 (1,811 ) — — Balance - March 31, 2014 $ 263 $ 136,100 $ 230,812 $ (29,467 ) $ 337,708 financial statements.Condensed Consolidated Financial Statements.Basis of PresentationDrew’sDrew operates through its wholly-owned active subsidiaries aresubsidiary, Lippert Components, Inc. and its subsidiaries (collectively, “Lippert”), and Kinro, Inc. and its subsidiaries (collectively, “Kinro”“Lippert Components”). Drew, through Lippert and Kinro, manufacturesComponents, supplies a broad array of components for the leading manufacturers of recreational vehicles (“RVs”) and manufactured homes, and to a lesser extent manufacturessupplies components for modular housing, truck caps andadjacent industries including buses, as well as for trailers used to haul boats, livestock, equipment and other cargo.Becausecargo, truck campers, truck caps, modular housing and factory-built mobile office units. At March 31, 2014, the Company operated 34 manufacturing facilities in 12 states.RV dealer inventories, and changes inthe impact of international, national and regional economic conditions and consumer confidence on retail sales of RVs and other products for which the Company sells its components, current and future seasonal industry trends may be different than in prior years.20122013 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.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.nine and three month periods ended September 30, 2013March 31, 2014 and 2012.2013. 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.Segment Reportingsegments,segments; the recreational vehicle products segment (the "RV Segment") and the manufactured housing products segment (the "MH Segment"). Intersegment sales are insignificant.DREW INDUSTRIES INCORPORATEDNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)8891 percent and 8789 percent of consolidated net sales for the ninethree month periods ended September 30,March 31, 2014 and 2013, and 2012, respectively, manufactures a variety of products used primarily in the production of RVs, including:Aluminum windows and screensChassis componentsChassis componentsFurniture and mattressesFurnitureEntry, luggage, patio and mattressesramp doorsEntry, baggage, patio Electric and ramp doorsmanual entry stepsEntry steps Windows
leveling systemsaftermarket. In addition, the Company manufactures components for truck caps; buses;aftermarket, and to adjacent industries, including buses, trailers used to haul boats, livestock, equipment and other cargo.cargo, truck campers and truck caps. Approximately 8281 percent of the Company’s RV Segment net sales for the last twelve months were componentsof products to original equipment manufacturers ("OEMs") of travel trailer and fifth-wheel RVs.129 percent and 1311 percent of consolidated net sales for the ninethree month periods ended September 30,March 31, 2014 and 2013, and 2012, respectively, manufactures a variety of products used in the production of manufactured homes, and to a lesser extent, modular housing and mobile office units, including: and screens aftermarket.aftermarket, and to adjacent industries, including modular housing and mobile office units. Certain of the Company’s MH Segment customers manufacture both manufactured homes and modular homes, and certain of the products manufactured by the Company are suitable for both types of homes. As a result, the Company is not always able to determine in which type of home its products are installed.2012.Effective with the second quarter of 2013, in connection with the management succession and relocation of the corporate office from New York to Indiana, corporate expenses, accretion related to contingent consideration and other non-segment items, which were previously reported on separate lines, have been included as part of segment operating profit. Corporate expenses are allocated between the segments based upon net sales. Accretion related to contingent consideration and other non-segment items are included in the segment to which they relate. The segment disclosures from prior years have been reclassified to conform to the current year presentation. Three Months Ended
March 31,(In thousands) 2014 2013 Net sales: RV Segment: RV OEMs: Travel trailers and fifth-wheels $ 212,130 $ 184,601 Motorhomes 14,384 10,951 RV aftermarket 7,094 5,729 Adjacent industries 25,428 22,722 Total RV Segment net sales 259,036 224,003 MH Segment: Manufactured housing OEMs 16,517 17,779 Manufactured housing aftermarket 3,467 3,652 Adjacent industries 6,357 7,152 Total MH Segment net sales 26,341 28,583 Total net sales $ 285,377 $ 252,586 Information relating to segments follows for the: $ 570,404 $ 512,307 $ 175,892 $ 161,959 32,509 24,500 11,234 8,998 19,785 14,714 6,904 5,355 72,334 57,422 23,933 18,645 695,032 608,943 217,963 194,957 62,941 61,678 22,571 21,188 10,377 10,322 3,138 3,134 22,279 19,946 7,179 7,044 95,597 91,946 32,888 31,366 $ 790,629 $ 700,889 $ 250,851 $ 226,323 $ 54,098 $ 40,936 $ 19,234 $ 11,587 9,904 10,353 3,596 3,361 64,002 51,289 22,830 14,948 (1,876 ) - - - $ 62,126 $ 51,289 $ 22,830 $ 14,948 Three Months Ended
March 31,(In thousands) 2014 2013 Operating profit: RV Segment $ 23,729 $ 12,264 MH Segment 2,317 2,467 Total segment operating profit 26,046 14,731 Executive succession — (1,143 ) Total operating profit $ 26,046 $ 13,588 Acquisitions, Goodwill and Other Intangible Assets2013Midstates Tool & Die and Engineering, Inc.June 24, 2013,March 14, 2014, the Company acquired the business and certain assets of Midstates Tool & Die and Engineering, Inc. (“Midstates”). Midstates is a manufacturer of tools and dies, as well as automation equipment. The acquired businessStar Design, LLC. Star Design had annualizedannual sales of approximately $2 million.$10 million in 2013, comprised primarily of thermoformed sheet plastic products for the RV, bus and specialty vehicle industries. The purchase price was $12.2 million paid at closing. The results of the acquired business have been included in the Company's RV Segment and in the Condensed Consolidated StatementsStatement of IncomeOperations since the acquisition date.DREW INDUSTRIES INCORPORATEDNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited) $ 1,451 $ 13 40 1,023 $ 1,076 $ 375 The consideration given was greater than the fair value of assets acquired, resulting in goodwill, because the Company anticipates the automation capabilities of the acquired business will help to improve its operating efficiencies.Acquisitions in 2012RV Entry Door OperationOn February 21, 2012, the Company acquired the business and certain assets of the U.S. RV entry door operation of Euramax International, Inc. The acquired business had annualized sales of approximately $6 million. The purchase price was $1.7 million, of which $1.2 million was paid at closing, with the balance to be paid over the subsequent three years. The results of the acquired business have been included in the Company’s RV Segment and in the Condensed Consolidated Statement of Income since the acquisition date.The acquisition of this business was recorded on the acquisition date as follows(in thousands): $ 1,164 482 $ 1,646 $ 270 40 785 $ 1,095 $ 551 Cash consideration $ 12,232 Customer relationships $ 4,400 Other identifiable intangible assets 400 Net tangible assets 2,332 Total fair value of net assets acquired $ 7,132 Goodwill (tax deductible) $ 5,100 areintangible asset is being amortized over theirits estimated useful life of 714 years. The consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company anticipates leveraging its existing experience and manufacturing capacity with respect to these product lines, and purchasing power to reduce costs in this product line.(Unaudited)The acquisition of this business was preliminarily recorded on the acquisition date as follows Cash consideration $ 34,175 Present value of future payments 1,739 Contingent consideration 710 Total fair value of consideration given $ 36,624 Patents $ 6,000 Customer relationships 4,000 Other identifiable intangible assets 3,130 Net tangible assets 2,049 Total fair value of net assets acquired $ 15,179 Goodwill (tax deductible) $ 21,445 $ 61,679 $ 10,025 $ 71,704 (41,276 ) (9,251 ) (50,527 ) 20,403 774 21,177 375 - 375 $ 20,778 $ 774 $ 21,552 (In thousands) RV Segment MH Segment Total Accumulated cost – December 31, 2013 $ 62,047 $ 10,025 $ 72,072 Accumulated impairment – December 31, 2013 (41,276 ) (9,251 ) (50,527 ) Net balance – December 31, 2013 20,771 774 21,545 Acquisitions – 2014 26,900 — 26,900 Net balance – March 31, 2014 $ 47,671 $ 774 $ 48,445 The impairment tests are based on fair value, determined using discounted cash flows, appraised values or management’s estimates. No impairment tests were required or performed during the ninethree months ended September 30, 2013.September 30, 2013: $ 50,105 $ 20,963 $ 29,142 3 to 16 46,069 17,548 28,521 2 to 19 7,959 5,601 2,358 5 to 15 3,866 2,026 1,840 1 to 7 $ 107,999 $ 46,138 $ 61,861 (In thousands) Gross
Cost Accumulated
Amortization Net
Balance Estimated Useful
Life in YearsCustomer relationships $ 58,460 $ 22,825 $ 35,635 6 to 16 Patents 46,805 18,300 28,505 3 to 19 Tradenames 6,273 3,740 2,533 3 to 15 Non-compete agreements 3,788 1,702 2,086 3 to 6 Purchased research and development 6,697 — 6,697 Indefinite Other intangible assets $ 122,023 $ 46,567 $ 75,456 2012: $ 50,105 $ 17,857 $ 32,248 3 to 16 45,964 14,850 31,114 2 to 19 7,959 4,525 3,434 5 to 15 4,989 2,567 2,422 1 to 7 $ 109,017 $ 39,799 $ 69,218 (In thousands) Gross
Cost Accumulated
Amortization Net
Balance Estimated Useful
Life in YearsCustomer relationships $ 50,105 $ 21,999 $ 28,106 6 to 16 Patents 41,651 18,461 23,190 3 to 19 Tradenames 7,959 5,976 1,983 5 to 15 Non-compete agreements 3,866 2,210 1,656 3 to 6 Purchased research and development 4,457 — 4,457 Indefinite Other intangible assets $ 108,038 $ 48,646 $ 59,392 March 31, December 31, (In thousands) 2014 2013 2013 Raw materials $ 80,080 $ 90,719 $ 84,279 Work in process 4,583 3,000 3,038 Finished goods 14,354 16,488 13,894 Inventories, net $ 99,017 $ 110,207 $ 101,211 March 31, December 31, (In thousands) 2014 2013 2013 Fixed assets, at cost $ 248,190 $ 219,230 $ 241,616 Less accumulated depreciation and amortization 119,130 106,447 115,634 Fixed assets, net $ 129,060 $ 112,783 $ 125,982 4. Cash and cash equivalentsCash and cash equivalents consisted of the following at: $ 52,873 $ 32,584 $ 9,939 $ 52,873 $ 32,584 $ 9,939 5. InventoriesInventories consisted of the following at: $ 77,664 $ 79,117 $ 78,434 3,090 4,802 2,074 15,410 14,474 16,859 $ 96,164 $ 98,393 $ 97,367 Fixed AssetsFixed assets consisted of the following at: $ 233,292 $ 201,665 $ 211,089 112,569 99,734 103,153 $ 120,723 $ 101,931 $ 107,936 7. Accrued Expenses and Other Current Liabilities $ 22,966 $ 16,613 $ 18,555 11,351 8,013 9,125 4,856 4,866 5,711 4,608 5,667 5,429 9,552 11,915 9,235 $ 53,333 $ 47,074 $ 48,055 DREW INDUSTRIES INCORPORATEDNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited) March 31, December 31, (In thousands) 2014 2013 2013 Employee compensation and benefits $ 19,820 $ 16,288 $ 18,583 Current portion of accrued warranty 12,018 9,802 11,731 Sales rebates 6,021 5,959 4,773 Current portion of contingent consideration related to acquisitions 2,656 5,412 3,462 Other 15,672 11,865 8,873 Accrued expenses and other current liabilities $ 56,187 $ 49,326 $ 47,422 ninethree months ended September 30: $ 9,125 $ 5,882 3,604 2,758 12,729 8,640 11,010 8,548 21 12 (6,974 ) (5,813 ) 16,786 11,387 5,435 3,374 $ 11,351 $ 8,013 8. Long-Term Indebtedness(In thousands) 2014 2013 Balance at beginning of period $ 17,325 $ 12,729 Provision for warranty expense 2,402 3,499 Warranty liability from acquired businesses 75 — Warranty costs paid (1,945 ) (2,284 ) Total accrued warranty 17,857 13,944 Less long-term portion 5,839 4,142 Current accrued warranty $ 12,018 $ 9,802 September 30,March 31, 2013 and 2012, or December 31, 2012.The2013.hasentered into a $50.0$75.0 million line of credit (the “Credit Agreement”) 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 on January 1, 2016. The maximum borrowings under the Company’s new line of credit can be increased by $20.0$25.0 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, minus a rate ranging from 0.75 percent to 1.0 percent (minus 1.0 percent at March 31, 2014), but not less than 2.51.5 percent, plus additional interest up to 0.8 percent (0 percent at September 30, 2013), or (ii) LIBOR plus additional interest ranging from 1.75 percent to 2.0 percent to 2.8 percent (2.0(1.75 percent at September 30, 2013)March 31, 2014) depending on the Company’s performance and financial condition. The Credit Agreement expires on January 1, 2016.2019. At September 30, 2013,March 31, 2014, the Company had $2.2 million in outstanding letters of credit under the line of credit. Availability under the Company’s new line of credit was $47.8$62.8 million at September 30, 2013.TheMarch 31, 2014.hasentered into a $150.0 million “shelf-loan” facility with Prudential Investment Management, Inc. and its affiliates (“Prudential”)., amending the Company's previous $150.0 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. At September 30, 2013,March 31, 2014, there were no Senior Promissory Notes outstanding. This new facility expires on February 24, 2014.September 30, 2013.March 31, 2014. The remaining availability under these facilities was $197.8$212.8 million at September 30, 2013.March 31, 2014. The Company believes thisthe availability under the amended line of credit and "shelf-loan" facility, together with the $52.9$6.1 million in cash at September 30, 2013,March 31, 2014, is more than adequate to finance the Company’s anticipated cash requirements for the next twelve months.DREW INDUSTRIES INCORPORATEDNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)Pursuant to the Credit Agreement and “shelf-loan” facility, at September 30, 2013was requiredentered into a nine year operating lease for a 366,000 square foot facility located in Goshen, IN with aggregate minimum lease payments of $6.1 million. This facility will be used to maintain minimum interestconsolidate manufacturing operations for efficiency improvements and fixed charge coverages,expand capacity for its furniture and to meet certain other financial requirements. At September 30, 2013,mattress operations.wasentered into a twelve year operating lease for a 539,000 square foot facility located in compliance with all such requirements,South Bend, IN to expand warehousing and expects to remain in compliancedistribution capabilities. Annual lease payments are $1.0 million; however, the Company has entered into a sublease arrangement for approximately 238,000 square feet of the facility for the next twelve months.Borrowings under both the linefive years with annual sublease payments of credit and the “shelf-loan” facility are secured on a pari-passu basis by first priority liens on the capital stock or other equity interests of each of the Company’s direct and indirect subsidiaries.The Company is currently negotiating a three-year extension of its line of credit and shelf loan facility, as well as a $25 million increase in its line of credit. The Company is extending these arrangements now because the shelf loan facility expires in February 2014, and current market conditions are favorable.9. Commitments and Contingencies Related to AcquisitionsSeptember 30, 2013,March 31, 2014, based on the present value of the expected future cash flows using a market participant’s weighted average cost of capital of 15.4 percent.The following table summarizes the contingent consideration liability as of September 30, 2013: $ 6,478 $ 4,998 4,020 3,258 259 226 $ 10,757 $ 8,482 (a)The remaining contingent consideration for two of the three products expires in March 2014. Contingent consideration for the remaining product will cease five years after the product is first sold to customers. Two of the three products acquired have a combined remaining maximum contingent consideration of $5.5 million, of which the Company estimates $3.4 million will be paid. Other than expiration of the contingent consideration period, the remaining product has no maximum contingent consideration.(b)Other than expiration of the contingent consideration period in February 2016, this product has no maximum contingent consideration.(c)Contingent consideration expires at various dates through November 2025. Certain of these products have a combined remaining maximum contingent consideration of $3.1 million, while the remaining products have no maximum contingent consideration.DREW INDUSTRIES INCORPORATEDNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)In the first nine months of 2013 and 2012, the net impact of the quarterly fair value adjustments and accretion of the liability was an expense of $1.2 million and $1.3 million, respectively, recorded in selling, general and administrative expenses.ninethree months ended September 30: $ 11,519 $ 14,561 - 67 (4,287 ) (3,253 ) 1,041 1,324 209 (63 ) 8,482 12,636 (4,608 ) (5,667 ) $ 3,874 $ 6,969 (In thousands) 2014 2013 Balance at beginning of period $ 7,414 $ 11,519 Acquisitions 1,455 — Payments (1,098 ) (875 ) Accretion (a) 261 392 Fair value adjustments (a) 410 (148 ) Balance at end of the period (b) 8,442 10,888 Less current portion in accrued expenses and other current liabilities (2,656 ) (5,412 ) Total long-term portion in other long-term liabilities $ 5,786 $ 5,476 (a) Recorded in selling, general and administrative expense in the Condensed Consolidated Statements of Income. (b) 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 September 30, 2013,March 31, 2014, would not be material to the Company’s financial position or annual results of operations.Executive Succession and SeveranceOn May 10, 2013, Fredric M. Zinn retired as President and Chief Executive Officer of Drew. Jason D. Lippert, Chairman and Chief Executive Officer of Lippert Components and Kinro, succeeded Mr. Zinn as Chief Executive Officer of Drew. Scott T. Mereness, President of Lippert Components and Kinro, succeeded Mr. Zinn as President of Drew. In June 2013, the Company also relocated its corporate headquarters from White Plains, New York to Elkhart County, Indiana, the location of the corporate headquarters of Lippert Components and Kinro.In connection with the Company’s executive succession and corporate relocation, the Company recorded pre-tax charges of $1.5 million in the fourth quarter of 2012 and $1.8 million in the first six months of 2013, related to contractual obligations for severance and the acceleration of equity awards held by certain employees whose employment terminated as a result of the executive succession and relocation to Indiana. No charges were recorded in the third quarter of 2013, and no other related charges are expected. The liability for executive succession and severance obligations will be paid through 2015. During the third quarter of 2013, the transition and corporate office relocation were completed. As a result, the Company expects to save an estimated $2 million annually in general and administrative costs beginning in the fourth quarter of 2013.DREW INDUSTRIES INCORPORATEDNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)10. Stockholders’ Equity 30,000 30,000 30,000 25,906 25,070 25,376 2,684 2,684 2,684 March 31, December 31, (In thousands) 2014 2013 2013 Common stock authorized 30,000 30,000 30,000 Common stock issued 26,309 25,594 26,058 Treasury stock 2,684 2,684 2,684 23,243 22,507 23,451 22,563 401 217 387 237 23,644 22,724 23,838 22,800 The weighted average diluted shares outstanding for the nine months ended September 30, 2013 and 2012, excludes the effect of 332,391 and 758,546 shares of common stock, respectively, subject to stock options, deferred stock units and stock awards. Three Months Ended
March 31,(In thousands) 2014 2013 Weighted average shares outstanding for basic earnings per share 23,774 23,017 Common stock equivalents pertaining to stock options and deferred stock units 414 438 Weighted average shares outstanding for diluted earnings per share 24,188 23,455 September 30,March 31, 2014 and 2013 and 2012 excludesexclude the effect of 324,002322,542 and 592,038337,295 shares of common stock, respectively, subject to stock options, stock awards and deferred stock units and stock awards.units. Such shares were excluded from total diluted shares because they were anti-dilutive or the specified performance conditions to which those shares were subject to were not yet achieved.In 2007, the BoardDirectors authorized the Company to repurchase up to 1 million shares$2.00 per share of the Company’s Common Stock, from timerepresenting an aggregate of $46.7 million, was paid to timestockholders of record as of December 20, 2013. In connection with this special dividend, holders of deferred stock units, restricted stock and stock awards were credited with deferred stock units, restricted stock or stock equal to $2.00 per deferred stock unit, restricted stock or stock, representing $1.8 million in total for this special dividend. In connection with this special cash dividend, the open market, in privately negotiated transactions, or in block trades. Of this authorization, 535,135 shares were repurchased prior to 2013 at an averageexercise price of $18.64all outstanding stock options was reduced by $2.00 per share,share. These reductions in exercise price were made pursuant to the terms of the outstanding awards, resulting in no incremental stock-based compensation expense.$10.0 million. The$2.0 million, to executive officers in lieu of cash for a portion of their 2013 incentive compensation.ultimately repurchased, and the timing of the purchases, will depend upon market conditions, share price and other factors.11. Fair Value Measurementsthat were measured at fair value on a recurring basis at: September 30, 2013 $ 5,989 $ 5,989 $ - $ - $ 4,540 $ 4,540 $ - $ - - - - - 223 - 223 - $ 5,989 $ 5,989 $ - $ - $ 4,763 $ 4,540 $ 223 $ - $ 8,482 $ - $ - $ 8,482 $ 11,519 $ - $ - $ 11,519 9,110 9,110 - - 7,015 7,015 - - 31 - 31 - - - - - $ 17,623 $ 9,110 $ 31 $ 8,482 $ 18,534 $ 7,015 $ - $ 11,519 March 31, 2014 December 31, 2013 (In thousands) Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Assets Deferred compensation $ 6,878 $ 6,878 $ — $ — $ 6,535 $ 6,535 $ — $ — Total assets $ 6,878 $ 6,878 $ — $ — $ 6,535 $ 6,535 $ — $ — Liabilities Contingent consideration $ 8,442 $ — $ — $ 8,442 $ 7,414 $ — $ — $ 7,414 Deferred compensation 10,711 10,711 — — 9,673 9,673 — — Total liabilities $ 19,153 $ 10,711 $ — $ 8,442 $ 17,087 $ 9,673 $ — $ 7,414 thisthe Plan are credited with earnings or losses based upon changes in values of the notional investments elected by the Plan participants. The Company invests 65 percent of the amounts deferred by the Plan participants in life insurance contracts, matching the investments elected by the Plan participants. Deferred compensation assets and liabilities were valued using a market approach based on the quoted market prices of identical instruments.fourthree years, the Company’s long-term sales growth forecasts for these products subject to contingent consideration arrangements average approximately 20 percent per year. For further information on the inputs used in determining the fair value, and a roll-forward of the contingent consideration liability, see Note 98 of the Notes to Condensed Consolidated Financial Statements.Derivative InstrumentsAt September 30, 2013, the Company had no derivative instruments outstanding. While outstanding, these derivative instruments were considered to be economic hedges of the underlying movement in the price of aluminum, but were not designated or accounted for as a hedge. These derivative instruments were valued at fair value using a market approach based on the quoted market prices of similar instruments at the end of each reporting period, and the resulting net gain or loss was recorded in cost of sales in the Condensed Consolidated Statements of Income. At September 30, 2013, the corresponding liability for the expired derivative instruments was less than $0.1 million and was recorded in accrued expenses and other current liabilities, and at December 31, 2012, the $0.2 million corresponding asset was recorded in prepaid expenses and other current assets, both as reflected in the Condensed Consolidated Balance Sheets. During the first nine months of 2013, derivative instruments for 4.7 million pounds of aluminum were settled at a loss of $0.3 million, which was recorded in cost of sales in the Condensed Consolidated Statements of Income.DREW INDUSTRIES INCORPORATEDNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)Non-recurringninethree months ended September 30: $ 3,211 $ 145 $ 5,794 $ 486 - - - 1,228 1,076 - 1,345 - $ 4,287 $ 145 $ 7,139 $ 1,714 $ - $ - $ - $ 10 $ - $ - $ - $ 10 2014 2013 (In thousands) Carrying
Value Non-Recurring
Losses / (Gains) Carrying
Value Non-Recurring
Losses / (Gains)Assets Vacant owned facilities $ 2,727 $ — $ 5,225 $ — Net assets of acquired businesses 22,206 — — — Total assets $ 24,933 $ — $ 5,225 $ — ninethree months of 20132014 and 2012,2013, the Company reviewed the recoverability of the carrying value of six and eightits vacant owned facilities, respectively.facilities. The determination of fair value was based on the best information available, including internal cash flow estimates, market prices for similar assets, broker quotes and independent appraisals, as appropriate.ninethree months of 2013,2014, the fairCompany reviewed the recoverability of the carrying value of two of thesethree vacant owned facilities did not exceed its carrying value; therefore an impairment charge of $0.1 million was recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Income. A sale agreement has been signed on one facility, with closing scheduled for the fourth quarter of 2013. During the first nine months of 2013, the Company sold one of thethese facilities previously recorded as a vacant facility and reopenedfacility. At March 31, 2014, the Company had two facilities. At September 30, 2013, the remaining three vacant owned facilities, with an estimated combined fair value of $4.0$3.1 million including the one scheduled for closing in the fourth quarterand a combined carrying value of 2013, were$2.7 million, classified in fixed assets in the Condensed Consolidated Balance Sheets.DREW INDUSTRIES INCORPORATEDNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)ninethree months of 2012,2013, the fairCompany reviewed the recoverability of the carrying value of three of thesefour vacant owned facilities did not exceed their carrying value, therefore an impairment charge of $0.5 million was recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Income. During the first nine months of 2012,facilities. At March 31, 2013, the Company sold at carrying value two of the facilities previously recorded as a vacant facility and reopened another. At September 30, 2012, the fivehad four vacant owned facilities with an estimated combined fair value of $5.8$14.2 million wereand a combined carrying value of $5.2 million, classified in fixed assets in the Condensed Consolidated Balance Sheets.Other Intangible AssetsDuring the first nine months of 2012, the Company reviewed the recoverability of amortizable intangible assets associated with an acquired patent. Based on the analyses, the carrying value of these intangible assets exceeded the undiscounted cash flows expected to be generated. As a result, the Company was required to determine the fair value of these intangible assets. Fair value was determined based on the present value of internal cash flow estimates. The resulting fair value of these intangible assets was nominal; therefore the Company recorded a non-cash impairment charge of $1.2 million, of which $1.0 million was recorded in cost of sales in the Condensed Consolidated Statements of Income.Vacant Leased FacilitiesThe Company recorded a charge of less than $0.1 million in selling, general and administrative expenses in the Condensed Consolidated Statements of Income in the first nine months of 2012 due to the early termination of leases of vacant facilities.
162012.subsidiaries,subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, “Lippert”), and Kinro, Inc. and its subsidiaries (collectively, “Kinro”“Lippert Components”). Drew, through Lippert and Kinro, manufacturesComponents, supplies a broad array of components for the leading manufacturers of recreational vehicles (“RVs”) and manufactured homes, and to a lesser extent manufacturessupplies components for modular housing, truck caps and buses, as well as foradjacent industries including buses; trailers used to haul boats, livestock, equipment and other cargo.cargo; truck campers; truck caps; modular housing; and factory-built mobile office units. Drew has no unconsolidated subsidiaries.segments,segments; the recreational vehicle products segment (the "RV Segment") and the manufactured housing products segment (the "MH Segment"). Each of Lippert and Kinro has operations in both the RV and MH Segments. Intersegment sales are insignificant. At September 30, 2013,March 31, 2014, the Company operated 31 plants34 manufacturing facilities in the United States.Effective with the second quarter of 2013, in connection with the management succession and relocation of the corporate office from New York to Indiana, corporate expenses, accretion related to contingent consideration, and other non-segment items, which were previously reported on separate lines, have been included as part of segment operating profit. Corporate expenses are allocated between the segments based upon net sales. Accretion related to contingent consideration and other non-segment items are included in the segment to which they relate. The segment disclosures from prior years have been reclassified to conform to the current year presentation. $ 570,404 $ 512,307 $ 175,892 $ 161,959 32,509 24,500 11,234 8,998 19,785 14,714 6,904 5,355 72,334 57,422 23,933 18,645 695,032 608,943 217,963 194,957 62,941 61,678 22,571 21,188 10,377 10,322 3,138 3,134 22,279 19,946 7,179 7,044 95,597 91,946 32,888 31,366 $ 790,629 $ 700,889 $ 250,851 $ 226,323 Three Months Ended
March 31,(In thousands) 2014 2013 Net sales: RV Segment: RV OEMs: Travel trailers and fifth-wheels $ 212,130 $ 184,601 Motorhomes 14,384 10,951 RV aftermarket 7,094 5,729 Adjacent industries 25,428 22,722 Total RV Segment net sales 259,036 224,003 MH Segment: Manufactured housing OEMs 16,517 17,779 Manufactured housing aftermarket 3,467 3,652 Adjacent industries 6,357 7,152 Total MH Segment net sales 26,341 28,583 Total net sales $ 285,377 $ 252,586 Operating profit: RV Segment $ 23,729 $ 12,264 MH Segment 2,317 2,467 Total segment operating profit 26,046 14,731 Executive succession — (1,143 ) Total operating profit $ 26,046 $ 13,588 $ 54,098 $ 40,936 $ 19,234 $ 11,587 9,904 10,353 3,596 3,361 64,002 51,289 22,830 14,948 (1,876 ) - - - $ 62,126 $ 51,289 $ 22,830 $ 14,948 primarily in the production of RVs, including:Aluminum windows and screensChassis componentsChassis componentsFurniture and mattressesFurnitureEntry, luggage, patio and mattressesramp doors●Entry, baggage, patio Electric and ramp doorsmanual entry stepsEntry stepsWindowsstabilizerand stabilizer and and leveling systemsaftermarket. In addition, the Company manufactures components for truck caps; buses;aftermarket, and to adjacent industries, including buses, trailers used to haul boats, livestock, equipment and other cargo, (“Adjacent Industries”).truck campers and truck caps. Approximately 8281 percent of the Company’s RV Segment net sales for the last twelve months were componentsof products to original equipment manufacturers ("OEMs") of travel trailer and fifth-wheel RVs. Travel trailer and fifth-wheel RVs accounted for 8483 percent of all RVs shipped by the industry during the last twelve months.and to a lesser extent, modular housing and mobile office units, including: and screensaftermarket.aftermarket, and to adjacent industries, including modular housing and mobile office units. Certain of the Company’s MH Segment customers manufacture both manufactured homes and modular homes, and certain of the products manufactured by the Company are suitable for both types of homes. As a result, the Company is not always able to determine in which type of home its products are installed.Becausechanges inthe impact of international, national and regional economic conditions and consumer confidence on retail sales of RVs and other products for which the Company sells its components, current and future seasonal industry trends may be different than in prior years.DREW INDUSTRIES INCORPORATEDITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued)1013 percent in the first ninethree months of 20132014 to 207,90075,300 units, compared to the first ninethree months of 2012,2013, as a result of:●An estimated 23,600 unit increase inretail demand in the first nine months of 2013, or 12 percent, as compared to the same period of 2012.●Partially offset by RV dealers decreasing inventory levels by an estimated 6,200 units in the first nine months of 2013, compared to a decrease of 2,200 units in the first nine months of 2012.original equipment manufacturers ("OEMs")OEMs display product to RV retail dealers, and ended after the conclusion of the Summer selling season in September. Between October and March, industry-wide wholesale shipments of travel trailer and fifth-wheel RVs have historically exceeded retail sales, and between April and September, the Spring and Summer selling seasons, retail sales of travel trailer and fifth-wheel RVs have historically exceeded industry-wide wholesale shipments. The Company estimates that RV dealers across the U.S. and Canada added an estimated aggregateMost industry analysts report dealer inventories of 16,000 travel trailer and fifth-wheel RVs to their inventories between October 2012 and September 2013, in response to the increase in retail sales for the same period and in anticipation of strong retail demand. Despite this year-over-year increase, analysts believe dealer inventories are in-line with anticipated retail demand. Moreover, some analysts have reported that we may bedemand in the beginning stages of an RV replacement cycle.DREW INDUSTRIES INCORPORATEDITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued) 61,300 8 % 77,200 15 % (15,900) 79,900 12 % 94,100 12 % (14,200) 66,700 10 % 42,800 9 % 23,900 54,700 21 % 32,500 8 % 22,200 262,600 13 % 246,600 12 % 16,000 56,700 19 % 67,400 7 % (10,700) 71,100 8 % 84,000 6 % (12,900) 60,400 11 % 39,100 16 % 21,300 45,200 16 % 30,100 6 % 15,100 233,400 13 % 220,600 9 % 12,800 Estimated Wholesale Retail Unit Impact on Units Change Units Change Dealer Inventories 75,300 13 % 44,100 3 % 31,200 Quarter ended December 31, 2013 60,100 10 % 36,800 13 % 23,300 Quarter ended September 30, 2013 61,300 8 % 79,500 18 % (18,200) Quarter ended June 30, 2013 79,900 12 % 94,300 12 % (14,400) 276,600 11 % 254,700 12 % 21,900 Quarter ended March 31, 2013 66,700 10 % 42,800 9 % 23,900 Quarter ended December 31, 2012 54,700 21 % 32,500 8 % 22,200 Quarter ended September 30, 2012 56,700 19 % 67,300 7 % (10,600) Quarter ended June 30, 2012 71,100 8 % 83,900 6 % (12,800) Twelve months ended March 31, 2013 249,200 14 % 226,500 9 % 22,700 Retail sales data for September 2013March 2014 has not been published; therefore retail and dealer inventory data includes an estimate for retail units sold.nine monthsseveral quarters was strong, unless retail demand matches these production levels, dealers could reduce the pace of their orders, and our customers, the OEMs, would need to adjust their production levels in future months. Ultimately, industry-wide retail sales, and therefore production levels of RVs, will depend to a significant extent on the course of the economy. Retail sales of RVs historically have been closely tied to general economic conditions, as well as consumer confidence which as reported by The Conference Board, reached a more than five-year highhas fluctuated in June 2013. In the third quarterrecent months. Although future retail demand is still uncertain, reports of 2013,increased traffic and sales at consumer confidence declined, but remained well above consumer confidence levelsRV shows over the past five years.September 2013,February 2014, the RVIA projected a 5 percent increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs for 2014, to 281,100.280,600. The Company is also encouraged that several key customers are introducing new product lines, as well as increasing production capacity. Several industry analysts also report that the RV industry may benefit in the coming years from the release of pent-up demand resulting from the recession. The Company also remains confident in its ability to exceed industry growth rates through new product introductions, market share gains, acquisitions and ongoing investments in research and development, engineering, quality and customer service.Ina generican advertising campaign promoting the “RV lifestyle”. The current campaign is targeted at both parents aged 30-49 with children at home, as well as couples aged 50-64 with no children at home. The popularity of traveling in RVs to NASCAR and other sporting events, more family-oriented domestic vacations, and using RVs as second homes, also appear to motivate consumer demand for RVs. RVIA studies indicate that RV vacations cost significantly less than other forms of vacation.DREW INDUSTRIES INCORPORATED ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued) 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.ninethree months of 2013,2014, multi-section homes were 53 percent of the total manufactured homes produced, consistent with 2012, and above2013, but down from the 51 percent for 2011. Multi-section homes averaged 64 percent of the total manufactured homes produced between 2007 and 2010. Multi-section manufactured homes contain more of the Company’s products than single-section manufactured homes.ninethree months of 2013,2014, industry-wide wholesale shipments of manufactured homes were 45,30013,700 units, an increase of 86 percent compared to the first ninethree months of 2012. In the third quarter of 2013, industry-wide wholesale shipments of manufactured homes were 16,200 units, an increase of 14 percent compared to the same period of 2012.declined since 1999experienced a decline from the peak of industry-wide production in 1998 for a variety of reasons. Because of the current real estate, credit and economic environment, including the availability of foreclosed site built homes at abnormally low prices and high interest rate spreads between conventional mortgages for site-built homes and loans for manufactured homes, industry-wide wholesale shipments of manufactured homes may remain low until these conditions improve. In addition, certain provisions of the recently enacted Dodd-Frank Act, which regulate financial transactions, could make certain types of mortgages, including chattel loans, more difficult to obtain – in particular those historically used to finance the purchase of manufactured homes. Although new legislation has been introduced to address this matter, and the Bureau of Consumer Financial Protection is reviewing this matter, there can be no assurance of the outcome.and purchase a manufactured home.DREW INDUSTRIES INCORPORATED ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF(Continued) RESULTS OF OPERATIONS■▪ TheDespite the negative impact of the severe winter weather conditions in January 2014, the Company’s net sales in the 2013 thirdfirst quarter of 2014 increased to $251$285 million, 1113 percent higher than in the 2012 third2013 first quarter. This sales growth was primarily the result of a 1216 percent increase in net sales by Drew’sthe Company's RV Segment, which accounted for 8791 percent of Drew’s consolidated net sales in the quarter. RV Segment net sales growth was primarily due to an 8a 13 percent increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs, Drew’sthe Company's primary RV market. SalesIn addition, sales of recently introduced components for towable and motorhome RVs also contributed to the increase in net sales,increased, as did sales to adjacent industries and the aftermarket.■In October 2013, consolidated Recently completed acquisitions did not have a significant impact on the increase in net sales reached approximately $95 million – 12 percent higher than in October 2012 – as a result of continued solid growth in the Company’s RV Segment. The Company estimates that industry-wide wholesale shipmentsfirst quarter of travel trailer and fifth-wheel RVs increased 8 percent to 10 percent in October 2013 compared to October 2012. The Company also estimates that October 2013 industry-wide production of manufactured homes increased approximately 5 percent compared to October 2012. Industry statistics for October 2013 are not yet available.Netthe twelve months ended October 31, 2013 exceeded $1 billion, a Company record for any twelve month period.■▪ thirdfirst quarter of 2013,2014, the Company reported net income of $14.8$16.2 million, or $0.62$0.67 per diluted share, an increase of 5293 percent compared to net income of $9.8$8.4 million, or $0.43$0.36 per diluted share, in the thirdfirst quarter of 2012.2013. Excluding charges related to executive succession, net income would have been $9.1 million in the first quarter of 2013, or $0.39 per diluted share.Company’sCompany's operating profit margin in the thirdfirst quarter of 20132014 improved to 9.1 percent, compared to 6.65.4 percent in the 2012 third2013 first quarter. The 2013 third quarter operating profit margins were consistent with the second quarter of 2013 largelyimproved margin was in part due to management’s recently implemented efficiency improvements gaining momentum, partially offset by the anticipated impactelimination of spreading fixedproduction inefficiencies and costs overincurred as a seasonally smaller sales base. Manyresult of the production improvements resultedsignificant growth which occurred in larger than anticipated efficiency gains, including2012 and early 2013. In addition, the benefits realized from the Company’s new glass tempering equipment.Labor as a percent of sales in the third quarter of 2013 was consistent with the second quarter of 2013, despite the seasonal decline in net sales. The improvements inCompany improved labor during the first three quarters of 2013 were alsoefficiencies, primarily due to completed production efficiency improvement projects, as well as declines in the costs of implementing facility consolidations and realignments.processes implemented by management. These labor efficiencies were realized over the past several quarters while introducing new products and adjusting to industry and market share growth. The Company is continuing to implement additional efficiency improvements, including lean, automation and employee retention initiatives, as they are identified. However, the benefits of such improvements▪ In anticipation of future growth, the Company continues to expand and improve production capacity, investing in personnel and facilities in excess of current needs. While some of these initiatives and related fixed costs may have a negative impact on operating margins in the short term, the Company believes they will benefit the long-term growth of the Company, and improve its customer service. fourth quarter of 2013 will likely be offset by the spreading of fixed costs over a seasonally smaller sales base.DREW INDUSTRIES INCORPORATED ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued)In anticipation of future growth, the Company continues to expand and improve production capacity, investing in personnel and facilities in excess of current needs. In addition, the Company plans to invest in areas whereindustries it believes additional savings can be realized, such as purchasing, automation and human resources. While some of these initiatives and related fixed costs may have a negative impact on operating margins in the short term, the Company believes they will benefit the long-term growth of the Company, and improve its industry-leading customer service.■On May 10, 2013, Fredric M. Zinn retired as President and Chief Executive Officer of Drew. Jason D. Lippert, Chairman and Chief Executive Officer of Lippert Components and Kinro, succeeded Mr. Zinn as Chief Executive Officer of Drew. Scott T. Mereness, President of Lippert Components and Kinro, succeeded Mr. Zinn as President of Drew. In June 2013, the Company also relocated its corporate headquarters from White Plains, New York to Elkhart County, Indiana, the location of the corporate headquarters of Lippert Components and Kinro.Company’s executive succession and corporate relocation, the Company recorded pre-tax chargesopening of $1.5 million in the fourth quarter of 2012 and $1.8 million in the first six months of 2013, related to contractual obligations for severance and the acceleration of equity awards held by certain employees whose employment terminated as a result of the executive succession and relocation to Indiana. No charges were recorded in the third quarter of 2013, and no other related charges are expected. The liability for executive succession and severance obligations will be paid through 2015. During the third quarter of 2013, the transition and corporate office relocation were completed. As a result,these new leased facilities, the Company expectsanticipates incurring realignment costs over the next several quarters, but such costs are not expected to save an estimated $2 million annuallybe of the magnitude experienced in general2012 and administrative costs beginning in the fourth quarter ofearly 2013.■▪ ▪ On March 14, 2014, the Company acquired the business and certain assets of Star Design, LLC. Star Design had annual sales of approximately $10 million in 2013, comprised primarily of thermoformed sheet plastic products for the RV, bus and specialty vehicle industries. The purchase price was $12.2 million paid at closing. The acquisition of Star Design will help the Company continue to grow its RV and specialty thermoformed plastics business. ▪ In April 2014, the Company entered into a six-year aluminum extrusion supply agreement, and concurrently sold certain aluminum extrusion assets. The Company anticipates recording a pre-tax loss of approximately $2 million in the second quarter of 2014 on the sale of the aluminum extrusion-related assets. The outsourcing of these aluminum extrusion requirements is expected to be immediately accretive to earnings and will free up management time and production capacity for other opportunities. In 2013, the Company recorded an after-tax loss of approximately $1.5 million associated with the extrusion-related assets that are being sold. ▪ Return on equity for the twelve months ended September 30, 2013March 31, 2014 improved to 13.917.9 percent, from 12.511.5 percent in the year-earlier period.■▪ September 30, 2013,March 31, 2014, the Company had $52.9$6.1 million of cash, no$10.0 million of debt, and substantial available borrowing capacity. The Company remains well positioned to continue to take advantage of investment opportunities to further improve results.ThirdFirst Quarterthirdfirst quarter of 20132014 increased 1216 percent compared to the thirdfirst quarter of 2012.2013. After a slower than expected start to 2014 due to severe weather conditions, industry-wide production of RVs, as well as shipments of the Company's products rebounded in recent months. The increase in the Company's net sales in February and March were largely due to the projected increased retail demand, but also included sales to customers who were making up for production delays that occurred in January. Net sales of components were to the following markets for the three months ended September 30: $ 175,892 $ 161,959 9 % 11,234 8,998 25 % 6,904 5,355 29 % 23,933 18,645 28 % $ 217,963 $ 194,957 12 % DREW INDUSTRIES INCORPORATED ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued) (In thousands) 2014 2013 Change RV OEMs: Travel trailers and fifth-wheels $ 212,130 $ 184,601 15 % Motorhomes 14,384 10,951 31 % RV aftermarket 7,094 5,729 24 % Adjacent industries 25,428 22,722 12 % Total RV Segment net sales $ 259,036 $ 224,003 16 % September 30,March 31, were: 61,300 56,700 8 % 9,400 6,800 38 % 2014 2013 Change Travel trailer and fifth-wheel RV's 75,300 66,700 13 % Motorhomes 11,100 8,500 31 % thirdfirst quarter of 20132014 exceeded the increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs primarily due to market share gains.third quarter of 2013 was greater than the Company’s increase in net sales of motorhome components during the same period, primarily due to customer mix. Over the past few years, the Company has been expanding its product line of components for motorhomes in order to increase its customer base and market penetration.September 30,March 31, divided by the industry-wide wholesale shipments of the different types of RVs for the same period, was: $ 2,719 $ 2,673 2 % $ 1,137 $ 1,092 4 % Content per: 2014 2013 Change Travel trailer and fifth-wheel RV $ 2,731 $ 2,693 1 % Motorhome $ 1,256 $ 1,297 (3 )% In the second quarter of 2013, the Company refined the calculation of content per unit. This refinement had no impact on total RV Segment net sales or trends. Prior periods have been reclassified to conform to this presentation.truck caps, buses, and trailers used to haul boats, livestock, equipment and other cargo, truck campers and truck caps, increased during the thirdfirst quarter of 20132014 primarily due to market share gains. The Company believes there are significant opportunities in the RV aftermarket and adjacent industries.During the third quarter of 2013, the Company hired a new Director of International Business Development, who will spend time in Australia, Europe and other international markets, assessing the dynamics of the local marketplace, building relationships with OEMs and helping the Company introduce its existing products and develop new products for those markets. Over the past several years, the Company has been gradually growing sales overseas, primarily in Europe and Australia, and exports represent approximately 1 percent of consolidated net sales. Through this new position, the Company will explore opportunities to increase export sales of its products to international markets.DREW INDUSTRIES INCORPORATED ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued)$19.2$23.7 million in the thirdfirst quarter of 2013,2014, an improvement of $7.6$11.5 million compared to the thirdfirst quarter of 2012.2013. This increase in RV Segment operating profit was greater than the Company’s expected 15 –to 20 percent incremental margin. The operating profit margin of the RV Segment in the thirdfirst quarter of 20132014 was positively impacted by:●Lower material costs. After increasing temporarily in the latter part of 2012, steel and aluminum costs declined during the first nine months of 2013. In addition, material costs in the third quarter of 2012 were negatively impacted by increased outsourcing costs due to capacity limitations, as well as higher scrap costs due to production inefficiencies. The Company does not expect any significant changes in material costs as a percent of net sales for the fourth quarter of 2013. However, material costs remain volatile.●Improved labor efficiencies, primarily due to completed production processes implemented by management, as well as declines in the costs of implementing facility consolidations and realignments. These labor efficiencies were realized over the past several quarters while introducing new products and adjusting to industry and market share growth. The Company is continuing to implement additional efficiency improvements as they are identified.●The spreading of fixed manufacturing and selling, general and administrative costs over a $23 million larger sales base.●Fixed costs were approximately $4 million to $5 million higher than in the third quarter of 2012. In response to the substantial increase in sales over the past several quarters, the Company added significant resources, investing in personnel and facilities to expand and improve production capacity and efficiencies, as well as to improve customer service. In addition, the Company plans to invest in areas where it believes additional savings can be realized, such as purchasing, automation and human resources. While some of these initiatives and related fixed costs may have a negative impact on operating margins in the short term, the Company believes they will benefit the long-term growth of the Company, and improve its industry-leading customer service.●RV Segment – Year to DateNet sales of the RV Segment in the first nine months of 2013 increased 14 percent compared to the first nine months of 2012. Net sales of components were to the following markets for the nine months ended September 30: $ 570,404 $ 512,307 11 % 32,509 24,500 33 % 19,785 14,714 34 % 72,334 57,422 26 % $ 695,032 $ 608,943 14 % According to the RVIA, industry-wide wholesale shipments for the nine months ended September 30, were: 207,900 188,200 10 % 28,900 21,300 36 % The Company’s net sales growth in components for travel trailer and fifth-wheel RVs during the first nine months of 2013 exceeded the increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs primarily due to market share gains of $4 million.The increase in industry-wide wholesale shipments of motorhomes during the first nine months of 2013 was greater than the Company’s increase in net sales of motorhome components during the same period, primarily due to customer mix. Over the past few years, the Company has been expanding its product line of components for motorhomes in order to increase its customer base and market penetration.The Company’s net sales to the RV aftermarket and adjacent industries, including components for truck caps, buses, and trailers used to haul boats, livestock, equipment and other cargo, increased during the first nine months of 2013 primarily due to market share gains. The Company believes there are significant opportunities in the RV aftermarket and adjacent industries.Operating profit of the RV Segment was $54.1 million in the first nine months of 2013, an improvement of $13.2 million compared to the first nine months of 2012. This increase in RV Segment operating profit was consistent with the Company’s expected 15 – 20 percent incremental margin. The operating profit margin of the RV Segment in the first nine months of 2013 was positively impacted by: ●Lower material costs. After increasing temporarily in the latter part of 2012, steel and aluminum costs declined during the first nine months of 2013. In addition, material costs in the third quarter of 2012 were negatively impacted by increased outsourcing costs due to capacity limitations, as well as higher scrap costs due to production inefficiencies. The Company does not expect any significant changes in material costs as a percent of net sales for the fourth quarter of 2013. However, material costs remain volatile.DREW INDUSTRIES INCORPORATED ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued)●Improved labor efficiencies, primarily due to completed production processes implemented by management, as well as declines in the costs of implementing facility consolidations and realignments. These labor efficiencies were realized over the past several quarters while introducing new products and adjusting to industry and market share growth. The Company is continuing to implement additional efficiency improvements as they are identified.●The spreading of fixed manufacturing and selling, general and administrative costs over an $86 million larger sales base.Partially offset by:●Fixed costs were approximately $14 million to $16 million higher than in the first nine months of 2012. In response to the substantial increase in sales over the past several quarters, the Company added significant resources, investing in personnel and facilities to expand and improve production capacity and efficiencies, as well as to improve customer service.In anticipation of future growth, the Company continues to expand and improve production capacity, investing in personnel and facilities in excess of current needs. In addition, the Company plans to invest in areas where it believes additional savings can be realized, such as purchasing, automation and human resources. While some of these initiatives and related fixed costs may have a negative impact on operating margins in the short term, the Company believes they will benefit the long-term growth of the Company, and improve its industry-leading customer service.●Incentive compensation, which is based on profits, rather than sales, did not change proportionately with net sales.●Higher warranty costs, primarily due to higher claims experience, as well as higher supplies and repairs.ThirdFirst Quarterthirdfirst quarter of 2013 increased 52014 decreased 8 percent compared to the same period of 2012.2013. Net sales of components were to the following markets for the three months ended September 30: $ 22,571 $ 21,188 7 % 3,138 3,134 0 % 7,179 7,044 2 % $ 32,888 $ 31,366 5 % (In thousands) 2014 2013 Change Manufactured housing OEMs $ 16,517 $ 17,779 (7 )% Manufactured housing aftermarket 3,467 3,652 (5 )% Adjacent industries 6,357 7,152 (11 )% Total MH Segment net sales $ 26,341 $ 28,583 (8 )% September 30,March 31, were: 16,200 14,200 14 % 24,900 22,300 12 % DREW INDUSTRIES INCORPORATED ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued)The 2014 2013 Change Total homes produced 13,700 12,900 6 % Total floors produced 21,200 19,700 8 % growth inof components for new manufactured homes was less thandeclined during the increase in industry-wide wholesale shipmentssame period of manufactured homes2014, primarily due to customer mix, as the Company’s content per unit varies between customers, and loss of market share for certain products. As a result, the Company’s content per manufactured home produced for the twelve months ended September 30, 2013March 31, 2014 declined from the prior year period.September 30,March 31, divided by the number of manufactured homes and manufactured home floors produced by the industry, respectively, for the same period, was: $ 1,401 $ 1,464 -4 % $ 911 $ 962 -5 % Content per: 2014 2013 Change Home produced $ 1,294 $ 1,446 (11 )% Floor produced $ 836 $ 934 (10 )% as well asand changes in selling prices for the Company’s products.Net sales to adjacent industries increased due to market share gains. The Company believes there are opportunities in these adjacent industries,products, as well as changes in the manufactured housing aftermarket.$3.6$2.3 million in the thirdfirst quarter of 2013, an increase2014, a decrease of $0.2 million compared to the thirdfirst quarter of 2012, consistent with expectations based on the $1.5 million increase in net sales.MH Segment – Year to DateNet sales of the MH Segment in the first nine months of 2013 increased 4 percent compared to the same period of 2012. Net sales of components were to the following markets for the nine months ended September 30: $ 62,941 $ 61,678 2 % 10,377 10,322 1 % 22,279 19,946 12 % $ 95,597 $ 91,946 4 % DREW INDUSTRIES INCORPORATED ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued)According to the IBTS, industry-wide wholesale shipments for the nine months ended September 30, were: 45,300 41,900 8 % 69,700 64,700 8 % The Company’s net sales growth in components for new manufactured homes was less than the increase in industry-wide wholesale shipments of manufactured homes, primarily due to customer mix and loss of market share for certain products. The Company’s content per unit varies between customers.Net sales to adjacent industries increased due to market share gains. The Company believes there are opportunitiesthe decline in these adjacent industries, as well as in the manufactured housing aftermarket. Operating profit of the MH Segment was $9.9 million in the first nine months of 2013, a decrease of $0.4 million compared to the first nine months of 2012. This decrease was primarily due to increased labor and related costs, partially offset by lower raw material costs. Further, during the first nine months of 2012, the Company recorded a gain of $0.4 million, which did not recur in the first nine months of 2013.On May 10, 2013, Fredric M. Zinn retired as President and Chief Executive Officer of Drew. Jason D. Lippert, Chairman and Chief Executive Officer of Lippert Components and Kinro, succeeded Mr. Zinn as Chief Executive Officer of Drew. Scott T. Mereness, President of Lippert Components and Kinro, succeeded Mr. Zinn as President of Drew. In June 2013, the Company also relocated its corporate headquarters from White Plains, New York to Elkhart County, Indiana, the location of the corporate headquarters of Lippert Components and Kinro.chargescharge of $1.5 million in the fourth quarter of 2012 and $1.8$1.1 million in the first sixthree months of 2013, related to contractual obligations for severance and the acceleration of equity awards held by certain employees whose employment terminated as a result of the executive succession and relocation to Indiana. No charges were recorded in the third quarter of 2013, and no other related charges are expected. The liability for executive succession and severance obligations will be paid through 2015. During the third quarter of 2013, the transition and corporate office relocation were completed. As a result, the Company expects to save an estimated $2 million annually in general and administrative costs beginning in the fourth quarter of 2013. nine months and third quarter of 37.7 percent was consistent with the 2013 was 36.9 percent and 34.9 percent, respectively, both higher than thefirst quarter income tax rate for the comparable periods of 2012. The effective income tax rate for both the 2013 and 2012 periods benefitted from the reversal of federal and state tax reserves, due to the closure of federal and state tax years, with a larger benefit in the 2012 periods. In addition, the effective income tax rate for both the 2013 and 2012 periods benefitted from federal and state tax credits.37.8 percent. The Company estimates that the full year 2013 effective income tax rate will be approximately 37 percent. Further, the Company estimates that the 2014 full year effective tax rate is expected to be approximately 37 percent to 38 percent.DREW INDUSTRIES INCORPORATED ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued)ninethree months ended September 30: $ 61,671 $ 44,587 (26,267 ) (18,174 ) 7,530 (413 ) $ 42,934 $ 26,000 (In thousands) 2014 2013 Net cash flows provided by (used for) operating activities $ 27,310 $ (1,052 ) Net cash flows used for investing activities (52,778 ) (8,936 ) Net cash flows (used for) provided by financing activities (34,680 ) 4,084 Net decrease in cash $ (60,148 ) $ (5,904 ) Significant changes in the components ofoperations foroperating activities in the first ninethree months of 2014 were $28.4 million higher than the same period of 2013, primarily due to:were a result of:●A $4.1 million decrease in prepaid expenses and other current assets in the first nine months of 2013 compared to an increase of $7.0 million in the first nine months of 2012. The increase in the first nine months of 2012 was largely due to the timing of deposits. During the first nine months of 2013, the Company’s federal income tax overpayment from 2012 was applied against its estimated 2013 tax liability.●A decrease in inventories of $1.2 million in the first nine months of 2013 compared to an increase of $5.8 million in the first nine months of 2012. The decrease in inventories in the first nine months of 2013 was primarily due to the higher than expected sales during the first ninewas primarily to support the significant increase in April 2013 net sales. Inventory turnover for the twelve months ended March 31, 2014 increased to 8.1 turns from 7.9 turns for the full year 2013 and the twelve months ended March 31, 2013. through the concerted effort of management to improve inventory turns on a sustainable basis. In the first nine months of 2012, the Company experienced a more typical seasonal increase in inventory. Inventory turnover for the twelve months ended September 30, 2013 remained consistent with the full year 2012 at 7.8 turns, an improvement from the 7.5 turns for the twelve months ended September 30, 2012.●A $6.4 million increase in net income in the first nine months of 2013 compared to the first nine months of 2012.Partially offset by:●A $5.0 million larger seasonal increase in accounts receivable, primarily due to increased sales, partially offset by the timing of payments by the Company’s customers. Accounts receivable balances remain current, with only 20 days sales outstanding at September 30, 2013.●A $7.6 million smaller increase in accounts payable in the first nine months of 2013 compared to the first nine months of 2012, primarily due to the timing of purchases and payments for inventory.Due to the timing of the purchases and payments for inventory, the seasonal reductionsthese payments.working capital during the fourth quarter will likely experience a smaller seasonal changeaccounts payable in the fourthfirst three months of 2014 compared to the first three months of 2013, primarily due to the increase in sales, production and earnings, as well as the timing of these payments.2013.corresponding increase or decrease, respectively, in net sales. However, there are many factors that can impact this relationship, especially in the short term.Depreciation and amortization was $20.4 million in the first nine months of 2013, and is expected to aggregate $26 million to $28 million for the full year 2013. Further, the Company estimates depreciation and amortization will be approximately $26 million to $28 million in 2014.Non-cash stock-based compensation in the first nine months of 2013 was $8.2 million, and is expected to be approximately $10 million to $11 million for the full year 2013. Non-cash stock-based compensation is expected to be $10 million to $12 million for the full year 2014.$26.3$52.8 million in the first ninethree months of 2014 were primarily comprised of $46.7 million for the acquisition of businesses and $6.8 million for capital expenditures. In the first three months of 2013, cash flows used for investing activities of $8.9 million were primarily for capital expenditures. In order to better serve its customers and meet the increased demand for its products, the Company continues to invest in capacity expansion, automation and production improvement, as well as cost reduction initiatives.$33$32 million to $35$36 million in 2013,for the full year 2014, including $18 million to $20 million of “replacement” capital expenditures and $14 million to $16 million of “growth” capital expenditures. The growth capital expenditures for 2013 include a new glass tempering line, metal fabrication equipment and new ERP software.The Company estimates that capital expenditures will be $32 million to $36 million in 2014. However, certain capital projects included in the 2013 capital expenditure forecast may not be completed until next year. If delayed, this will not change the Company’s overall cash flow, but rather just the timing between years. Additional capital expenditures may also be required in 2014 depending on the extent of the sales growth and other initiatives by the Company.ninethree months of 20132014 were funded from available cash plus periodic borrowings under the Company’s $50 million line of credit. The capital expenditures for the balance of 2013 and for the full year 2014 are expected to be funded from available cash.On June 24, 2013,cash plus periodic borrowings under the Company acquired the business and certain assetsCompany's line of Midstates Tool & Die and Engineering, Inc. (“Midstates”). Midstates is a manufacturer of tools and dies, as well as automation equipment. The acquired business had annualized sales of approximately $2 million. The purchase price was $1.5 million paid at closing.In the first nine months of 2012, cash flows used for investing activities of $18.2 million were primarily for capital expenditures of $22.0 million, partially offset by proceeds from the sale of fixed assets of $5.4 million. In addition, on February 21, 2012, the Company acquired the business and certain assets of the United States RV entry door operation of Euramax International, Inc. The acquired business had annualized sales of approximately $6 million. The purchase price was $1.7 million, of which $1.2 million was paid at closing, with the balance to be paid over the subsequent three years.DREW INDUSTRIES INCORPORATED ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued)Inninethree months of 2014 include the payment of a special dividend of $2.00 per share of the Company’s Common Stock, representing an aggregate of $46.7 million, paid to stockholders of record as of December 20, 2013, partially offset by a net increase in debt of $10.0 million. The increase in debt was due to borrowings under the Company's line of credit. In addition, in the first three months of 2014, the Company received $11.8$3.3 million in cash and the related tax benefits from the exercise of stock-based compensation, partially offset by $4.3$1.1 million in payments for contingent consideration related to acquisitions. $8.5$8.4 million liability for the aggregate fair value of these expected contingent consideration liabilities at September 30, 2013.March 31, 2014. The Company expects to pay $5.0$2.7 million over the next twelve months related to these contingent consideration liabilities. For further information see Note 98 of the Notes to Condensed Consolidated Financial Statements.At September 30, 2013,had no outstanding debt and $52.9 million of cash. However, due to the seasonal increase in working capital during the first nine months of 2013, the Company borrowed periodically under its line of credit, with such borrowings reachingentered into a high of $21.2 million.The Company has a $50.0$75.0 million line of credit (the “Credit Agreement”) 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 on January 1, 2016. The maximum borrowings under the Company’s new line of credit can be increased by $20.0$25.0 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, minus a rate ranging from 0.75 percent to 1.0 percent (minus 1.0 percent at March 31, 2014), but not less than 2.51.5 percent, plus additional interest up to 0.8 percent (0 percent at September 30, 2013), or (ii) LIBOR plus additional interest ranging from 1.75 percent to 2.0 percent to 2.8 percent (2.0(1.75 percent at September 30, 2013)2016.2019. At September 30, 2013,March 31, 2014, the Company had $2.2 million in outstanding letters of credit under the line of credit. Availability under the Company’s new line of credit was $47.8$62.8 million at September 30, 2013.Thehasentered into a $150.0 million “shelf-loan” facility with Prudential Investment Management, Inc. and its affiliates (“Prudential”)., amending the Company's previous $150.0 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. At September 30, 2013,March 31, 2014, there were no Senior Promissory Notes outstanding. This new facility expires on February 24, 2014.September 30, 2013.March 31, 2014. The remaining availability under these facilities was $197.8$212.8 million at September 30, 2013.March 31, 2014. The Company believes thisthe availability under the amended line of credit and “shelf-loan” facility, together with the $52.9$6.1 million in cash at September 30, 2013,March 31, 2014, is more than adequate to finance the Company’s anticipated cash requirements for the next twelve months.DREW INDUSTRIES INCORPORATED ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued)Pursuant to the Credit Agreement and “shelf-loan” facility, at September 30, 2013 the Company was required to maintain minimum interest and fixed charge coverages, and to meet certain other financial requirements. At September 30, 2013, 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’s direct and indirect subsidiaries.The Company is currently negotiating a three-year extension of its line of credit and shelf loan facility, as well as a $25 million increase in its line of credit. The Company is extending these arrangements now because the shelf loan facility expires in February 2014, and current market conditions are favorable.In 2007, the Board of Directors authorized the Company to repurchase up to 1 million shares of the Company’s Common Stock from time to time in the open market, in privately negotiated transactions, or in block trades. Of this authorization, 535,135 shares were repurchased prior to 2013 at an average price of $18.64 per share, or $10.0 million. The number of shares ultimately repurchased, and the timing of the purchases, will depend upon market conditions, share price and other factors.Cash flows used for financing activities of $0.4 million in the first nine months of 2012 included payment of $3.3 million of contingent consideration, partially offset by $2.8 million received from the exercise of stock options and deferred stock units.increaseincreases in its labor costs in the first ninethree months of 20132014 related to inflation.DREW INDUSTRIES INCORPORATED ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued)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.within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities, for existing products, acquisitions, 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”)as amended, and Section 27A of the Securities Act of 1933, (the “Securities Act”).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 under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, and in our subsequent filings with the Securities and Exchange Commission (the “SEC”).DREW INDUSTRIES INCORPORATED ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued)steel-basedsteel based components and aluminum) and other components, availability of credit for financing the retail and wholesale purchase of products for which we sell our components, availability and costs of labor, employee retention, inventory levels of retail dealers and manufacturers, levels of repossessed products for which we sell our components, changes in zoning regulations for manufactured homes, seasonality and cyclicality in the industries to which we sell our products, the financial condition of our customers, the financial condition of retail dealers of products for which we sell our components, retention and concentration of significant customers, the pace of and successful integration of acquisitions, realization of efficiency improvements, the successful entry into new markets, the costs of compliance with increased governmental regulation, interest rates, oil and gasoline prices, and the successful implementationimpact of management succession. In addition, international, national and regional economic conditions and consumer confidence affecton the retail sale of products for which we sell our components.The Company has historically been exposed to changes in interest rates primarily as a result of its financing activities. September 30, 2013,March 31, 2014, the Company had no$10.0 million of variable rate debt outstanding. Assuming there is an increase of 100 basis points in the interest rate for borrowings under these variable rate loans subsequent to March 31, 2014, and outstanding borrowings.September 30, 2013,March 31, 2014, the Company had no derivative instruments outstanding. See Note 11 of the Notes to Condensed Consolidated Financial Statements for a more detailed discussion of derivative instruments.a) that such information is(ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, in accordance with the definition of “disclosure controls and procedures” in Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the desired control objectives. Management included in its evaluation the cost-benefit relationship of possible controls and procedures. The Company continually evaluates its disclosure controls and procedures to determine if changes are appropriate based upon changes in the Company’s operations or the business environment in which it operates.As of the end of the period covered by this Form 10-Q, the 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, performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.procedures as of the end of the period covered by this Form 10-Q. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective for the purpose for which they were designed as of the end of such period.b) September 30, 2013,March 31, 2014, which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.September 30, 2013,March 31, 2014, would not be material to the Company’s financial position or annual results of operations.March 12, 2013.February 28, 2014.1) 2) 3) 4) 5) 6) 7) 8) 9) 10) DREW INDUSTRIES INCORPORATED Registrant By By/s/ Joseph S. Giordano III November 8, 2013May 9, 2014 41