LCII 10-Q Quarterly Report June 30, 2016

LCI INDUSTRIES

10-Ks and 10-Qs

10-Q	Quarter ended Sept. 30, 2025
10-Q	Quarter ended June 30, 2025
10-Q	Quarter ended March 31, 2025
10-K	Fiscal year ended Dec. 31, 2024
10-Q	Quarter ended Sept. 30, 2024
10-Q	Quarter ended June 30, 2024
10-Q	Quarter ended March 31, 2024
10-K	Fiscal year ended Dec. 31, 2023
10-Q	Quarter ended Sept. 30, 2023
10-Q	Quarter ended June 30, 2023
10-Q	Quarter ended March 31, 2023
10-K	Fiscal year ended Dec. 31, 2022
10-Q	Quarter ended Sept. 30, 2022
10-Q	Quarter ended June 30, 2022
10-Q	Quarter ended March 31, 2022
10-K	Fiscal year ended Dec. 31, 2021
10-Q	Quarter ended Sept. 30, 2021
10-Q	Quarter ended June 30, 2021
10-Q	Quarter ended March 31, 2021
10-K	Fiscal year ended Dec. 31, 2020
10-Q	Quarter ended Sept. 30, 2020
10-Q	Quarter ended June 30, 2020
10-Q	Quarter ended March 31, 2020
10-K	Fiscal year ended Dec. 31, 2019
10-Q	Quarter ended Sept. 30, 2019
10-Q	Quarter ended June 30, 2019
10-Q	Quarter ended March 31, 2019
10-K	Fiscal year ended Dec. 31, 2018
10-Q	Quarter ended Sept. 30, 2018
10-Q	Quarter ended June 30, 2018
10-Q	Quarter ended March 31, 2018
10-K	Fiscal year ended Dec. 31, 2017
10-Q	Quarter ended Sept. 30, 2017
10-Q	Quarter ended June 30, 2017
10-Q	Quarter ended March 31, 2017
10-K	Fiscal year ended Dec. 31, 2016
10-Q	Quarter ended Sept. 30, 2016
10-Q	Quarter ended June 30, 2016
10-Q	Quarter ended March 31, 2016
10-K	Fiscal year ended Dec. 31, 2015
10-Q	Quarter ended Sept. 30, 2015
10-Q	Quarter ended June 30, 2015
10-Q	Quarter ended March 31, 2015
10-K	Fiscal year ended Dec. 31, 2014
10-Q	Quarter ended Sept. 30, 2014
10-Q	Quarter ended June 30, 2014
10-Q	Quarter ended March 31, 2014
10-K	Fiscal year ended Dec. 31, 2013
10-Q	Quarter ended Sept. 30, 2013
10-Q	Quarter ended June 30, 2013
10-Q	Quarter ended March 31, 2013
10-K	Fiscal year ended Dec. 31, 2012
10-Q	Quarter ended Sept. 30, 2012
10-Q	Quarter ended June 30, 2012
10-Q	Quarter ended March 31, 2012
10-K	Fiscal year ended Dec. 31, 2011
10-Q	Quarter ended Sept. 30, 2011
10-Q	Quarter ended June 30, 2011
10-Q	Quarter ended March 31, 2011
10-K	Fiscal year ended Dec. 31, 2010
10-Q	Quarter ended Sept. 30, 2010
10-Q	Quarter ended June 30, 2010
10-Q	Quarter ended March 31, 2010
10-K	Fiscal year ended Dec. 31, 2009

PROXIES

DEF 14A	Filed on May 15, 2025
DEF 14A	Filed on March 28, 2025
DEF 14A	Filed on May 16, 2024
DEF 14A	Filed on April 4, 2024
DEF 14A	Filed on April 6, 2023
DEF 14A	Filed on May 19, 2022
DEF 14A	Filed on April 4, 2022
DEF 14A	Filed on April 5, 2021
DEF 14A	Filed on April 6, 2020
DEF 14A	Filed on April 9, 2019
DEF 14A	Filed on April 10, 2018
DEF 14A	Filed on April 11, 2017
DEF 14A	Filed on April 15, 2016
DEF 14A	Filed on April 10, 2015
DEF 14A	Filed on April 11, 2014
DEF 14A	Filed on April 11, 2013
DEF 14A	Filed on April 12, 2012
DEF 14A	Filed on April 8, 2011
DEF 14A	Filed on April 6, 2010

10-Q 1 dw-6302016x10q.htm 10-Q Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: JUNE 30, 2016



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _________________

Commission File Number: 001-13646

DREW INDUSTRIES INCORPORATED

(Exact name of registrant as specified in its charter)



Delaware	13-3250533
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

3501 County Road 6 East	46514
Elkhart, Indiana	(Zip Code)
(Address of principal executive offices)

(574) 535-1125

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐

Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock, as of the latest practicable date ( July 29, 2016 ) was 24,586,925 shares of common stock.

DREW INDUSTRIES INCORPORATED

TABLE OF CONTENTS



		Page
PART I –	FINANCIAL INFORMATION

	ITEM 1 – FINANCIAL STATEMENTS

	CONDENSED CONSOLIDATED STATEMENTS OF INCOME	3

	CONDENSED CONSOLIDATED BALANCE SHEETS	4

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	5

	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	6

	CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY	7

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	8

	ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21

	ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	33

	ITEM 4 – CONTROLS AND PROCEDURES	33

PART II –	OTHER INFORMATION

	ITEM 1 – LEGAL PROCEEDINGS	34

	ITEM 1A – RISK FACTORS	34

	ITEM 6 – EXHIBITS	34

SIGNATURES		35

EXHIBIT 31.1 - SECTION 302 CEO CERTIFICATION

EXHIBIT 31.2 - SECTION 302 CFO CERTIFICATION

EXHIBIT 32.1 - SECTION 906 CEO CERTIFICATION

EXHIBIT 32.2 - SECTION 906 CFO CERTIFICATION

DREW INDUSTRIES INCORPORATED

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

DREW INDUSTRIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



	Six Months Ended June 30,				Three Months Ended June 30,
	2016		2015		2016		2015
(In thousands, except per share amounts)

Net sales	$	863,629	$	723,542	$	440,831	$	362,085
Cost of sales	638,284		565,079		323,927		280,025
Gross profit	225,345		158,463		116,904		82,060
Selling, general and administrative expenses	110,229		92,991		57,516		48,426
Operating profit	115,116		65,472		59,388		33,634
Interest expense, net	889		804		413		615
Income before income taxes	114,227		64,668		58,975		33,019
Provision for income taxes	40,699		23,726		21,406		12,150
Net income	$	73,528	$	40,942	$	37,569	$	20,869

Net income per common share:
Basic	$	3.00	$	1.69	$	1.52	$	0.86
Diluted	$	2.96	$	1.67	$	1.51	$	0.85

Weighted average common shares outstanding:
Basic	24,542		24,247		24,662		24,279
Diluted	24,822		24,578		24,916		24,615

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

DREW INDUSTRIES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	June 30,						December 31,
	2016			2015			2015
(In thousands, except per share amount)

ASSETS
Current assets
Cash and cash equivalents	$	78,560		$	11,782		$	12,305
Accounts receivable, net	102,355			72,902			41,509
Inventories, net	149,163			163,448			170,834
Prepaid expenses and other current assets	25,613			17,340			21,178
Total current assets	355,691			265,472			245,826
Fixed assets, net	151,250			148,639			150,600
Goodwill	93,831			72,922			83,619
Other intangible assets, net	114,000			102,862			100,935
Deferred taxes	29,391			30,453			29,391
Other assets	13,656			13,175			12,485
Total assets	$	757,819		$	633,523		$	622,856

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable, trade	$	53,330		$	52,505		$	29,700
Accrued expenses and other current liabilities	113,244			77,752			69,162
Total current liabilities	166,574			130,257			98,862
Long-term indebtedness	49,930			79,890			49,910
Other long-term liabilities	38,284			27,336			35,509
Total liabilities	254,788			237,483			184,281

Stockholders’ equity
Common stock, par value $.01 per share	273			268			270
Paid-in capital	173,474			157,436			166,566
Retained earnings	359,510			267,803			301,206
Accumulated other comprehensive loss	(759		)	—			—
Stockholders’ equity before treasury stock	532,498			425,507			468,042
Treasury stock, at cost	(29,467		)	(29,467		)	(29,467		)
Total stockholders’ equity	503,031			396,040			438,575
Total liabilities and stockholders’ equity	$	757,819		$	633,523		$	622,856

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

DREW INDUSTRIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Six Months Ended June 30,
	2016			2015
(In thousands)
Cash flows from operating activities:
Net income	$	73,528		$	40,942
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation and amortization	22,190			19,855
Stock-based compensation expense	7,274			7,069
Other non-cash items	809			162
Changes in assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net	(58,777		)	(30,536		)
Inventories, net	25,590			(24,361		)
Prepaid expenses and other assets	(4,199		)	2,333
Accounts payable, trade	21,496			1,250
Accrued expenses and other liabilities	45,102			19,645
Net cash flows provided by operating activities	133,013			36,359

Cash flows from investing activities:
Capital expenditures	(12,971		)	(14,668		)
Acquisitions of businesses, net of cash acquired	(34,237		)	(25,058		)
Proceeds from sales of fixed assets	337			1,958
Other investing activities	(237		)	(213		)
Net cash flows used for investing activities	(47,108		)	(37,981		)

Cash flows from financing activities:
Exercise of stock-based awards, net of shares tendered for payment of taxes	(1,144		)	(688		)
Proceeds from line of credit borrowings	81,458			390,870
Repayments under line of credit borrowings	(81,458		)	(376,520		)
Proceeds from shelf-loan borrowing	—			50,000
Payment of dividends	(14,707		)	(48,227		)
Payment of contingent consideration related to acquisitions	(2,715		)	(1,874		)
Other financing activities	(1,084		)	(161		)
Net cash flows (used for) provided by financing activities	(19,650		)	13,400

Net increase in cash	66,255			11,778

Cash and cash equivalents at beginning of period	12,305			4
Cash and cash equivalents at end of period	$	78,560		$	11,782

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	1,082		$	788
Income taxes, net of refunds	$	19,134		$	8,613

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

DREW INDUSTRIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Six Months Ended June 30,					Three Months Ended June 30,
	2016			2015		2016			2015
(In thousands)

Consolidated net income	$	73,528		$	40,942	$	37,569		$	20,869
Other comprehensive loss:
Net foreign currency translation adjustment	(759		)	—		(759		)	—
Total comprehensive income	$	72,769		$	40,942	$	36,810		$	20,869

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

DREW INDUSTRIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)



	Common Stock		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Stockholders’ Equity
(In thousands, except shares and per share amounts)
Balance - December 31, 2015	$	270	$	166,566		$	301,206		$	—		$	(29,467	)	$	438,575
Net income	—		—			73,528			—			—			73,528
Issuance of 231,979 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes	3		(3,806		)	—			—			—			(3,803		)
Income tax benefit relating to issuance of common stock pursuant to stock-based awards	—		2,659			—			—			—			2,659
Stock-based compensation expense	—		7,274			—			—			—			7,274
Issuance of 4,784 deferred stock units relating to prior year compensation	—		264			—			—			—			264
Other comprehensive loss	—		—			—			(759		)	—			(759		)
Cash dividends ($0.60 per share)	—		—			(14,707		)	—			—			(14,707		)
Dividend equivalents on stock-based awards	—		517			(517		)	—			—			—
Balance - June 30, 2016	$	273	$	173,474		$	359,510		$	(759	)	$	(29,467	)	$	503,031

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

DREW INDUSTRIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The Condensed Consolidated Financial Statements include the accounts of Drew Industries Incorporated and its wholly-owned subsidiaries (“Drew” and collectively with its subsidiaries, the “Company”). Drew has no unconsolidated subsidiaries. Drew, through its wholly-owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, “Lippert Components” or “LCI”), supplies a broad array of components for the leading original equipment manufacturers (“OEMs”) of recreational vehicles (“RVs”) and adjacent industries including buses; trailers used to haul boats, livestock, equipment and other cargo; pontoon boats; manufactured homes; modular housing; and factory-built mobile office units . The Company also supplies components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors and service centers. At June 30, 2016 , the Company operated 45 manufacturing and distribution facilities located throughout the United States and in Canada and Italy.

Most industries where the Company sells products or where its products are used historically have been seasonal and are generally at the highest levels when the weather is moderate. Accordingly, the Company’s sales and profits have generally been the highest in the second quarter and lowest in the fourth quarter. However, because of fluctuations in dealer inventories, the impact of international, national and regional economic conditions and consumer confidence on retail sales of RVs and other products for which the Company sells its components, the timing of dealer orders, and the impact of severe weather conditions on the timing of industry-wide shipments from time to time, current and future seasonal industry trends may be different than in prior years Additionally, sale of components to the aftermarket channels of these industries tend to be counter-seasonal.

The Condensed Consolidated Financial Statements presented herein have been prepared by the Company in accordance with the accounting policies described in its December 31, 2015 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.

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

In the opinion of management, the information furnished in this Form 10-Q reflects all adjustments necessary for a fair statement of the financial position and results of operations for the interim periods presented. The Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q, and therefore do not include some information necessary to conform to annual reporting requirements.

2. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

Acquisitions During the Six Months Ended June 30, 2016

Project 2000 S.r.l.

In May 2016 , the Company acquired 100 percent of the equity interest of Project 2000 S.r.l. (“Project 2000”), an Italy-based manufacturer of innovative, space-saving bed lifts and retractable steps. Net sales reported by Project 2000 for 2015 were approximately $12 million . The purchase price was $18.8 million paid at closing, plus contingent consideration based on future sales by this operation. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Condensed Consolidated Statements of Income since the acquisition date. The Company is validating account balances and finalizing the valuation for the acquisition.

DREW INDUSTRIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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



Cash consideration net of cash acquired	$	16,137
Contingent consideration	1,322
Total fair value of consideration given	$	17,459

Customer relationships	$	6,925
Other identifiable intangible assets	2,308
Net tangible assets	128
Total fair value of net assets acquired	$	9,361

Goodwill (not tax deductible)	$	8,098

The customer relationships intangible asset is being amortized over its preliminary estimated useful life of 15 years . The consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company anticipates the attainment of synergies and an increase in the markets for the acquired products.

Flair Interiors

In February 2016 , the Company acquired the business and certain assets of Flair Interiors, Inc. (“Flair”), a manufacturer of RV furniture. Net sales reported by Flair for 2015 were approximately $25 million . The purchase price was $8.1 million paid at closing. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Condensed Consolidated Statements of Income since the acquisition date. The acquisition of this business was preliminarily recorded on the acquisition date as follows (in thousands) :



Cash consideration	$	8,100

Customer relationships	$	4,000
Net other assets	2,279
Total fair value of net assets acquired	$	6,279

Goodwill (tax deductible)	$	1,821

The customer relationships intangible asset is being amortized over its preliminary estimated useful life of 10 years . The consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company anticipates the attainment of synergies and an increase in the markets for the acquired products.

Highwater Marine Furniture

In January 2016 , the Company acquired the business and certain assets of the pontoon furniture manufacturing operation of Highwater Marine, LLC (“Highwater”), a leading manufacturer of pontoon and other recreational boats located in Elkhart, Indiana. Estimated 2015 net sales of the marine furniture business were approximately $20 million . The purchase price was $10.0 million paid at closing. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Condensed Consolidated Statements of Income since the acquisition date.

DREW INDUSTRIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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



Cash consideration	$	10,000

Customer relationships	$	8,100
Net tangible assets	1,307
Total fair value of net assets acquired	$	9,407

Goodwill (tax deductible)	$	593

The customer relationships intangible asset is being amortized over its preliminary estimated useful life of 15 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.

Acquisitions During the Six Months Ended June 30, 2015

Spectal Industries

In April 2015 , the Company acquired the business and certain assets of Industries Spectal, Inc. (“Spectal”), a Canada-based manufacturer of windows and doors primarily for school buses, as well as commercial buses, emergency vehicles, trucks, agricultural equipment and RVs. Net sales reported by Spectal for 2014 were $25 million . The purchase price was $22.3 million paid at closing, plus contingent consideration based on future sales of this operation. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Condensed Consolidated Statements of Income since the acquisition date. The acquisition of this business was recorded on the acquisition date as follows (in thousands) :



Cash consideration	$	22,335
Contingent consideration	1,211
Total fair value of consideration given	$	23,546

Customer relationships	$	10,100
Other identifiable intangible assets	700
Net tangible assets	3,681
Total fair value of net assets acquired	$	14,481

Goodwill (tax deductible)	$	9,065

The customer relationships intangible asset is being amortized over its estimated useful life of 15 years . The consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company anticipates leveraging its existing experience and manufacturing capacity with respect to these product lines, and also believes the diversified customer base will further its expansion into adjacent industries.

EA Technologies

In January 2015 , the Company acquired the business and certain assets of EA Technologies, LLC (“EA Technologies”), a manufacturer of custom steel and aluminum parts and provider of electro-deposition (‘e-coat’) and powder coating services for RV, bus, medium-duty truck, automotive, recreational marine, specialty and utility trailer, and military applications. Net sales reported by EA Technologies for 2014 were $17 million . The purchase price was $9.2 million , of which $6.6 million was paid in the fourth quarter of 2014, with the balance paid at closing. The results of the acquired business have been included in the Company’s OEM Segment and in the Condensed Consolidated Statements of Income since the acquisition date.

DREW INDUSTRIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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



Cash consideration	$	9,248

Customer relationships	$	400
Other identifiable intangible assets	80
Net tangible assets	8,868
Total fair value of net assets acquired	$	9,348

Gain on bargain purchase	$	100

Goodwill

Goodwill by reportable segment was as follows:



(In thousands)	OEM Segment			Aftermarket Segment		Total
Net balance – December 31, 2015	$	79,206		$	4,413	$	83,619
Acquisitions	10,512			—		10,512
Other	(300		)	—		(300		)
Net balance – June 30, 2016	$	89,418		$	4,413	$	93,831

Goodwill represents the excess of the total consideration given in an acquisition of a business over the fair value of the net tangible and identifiable intangible assets acquired. Goodwill is not amortized, but instead is tested at the reporting unit level for impairment annually in November, or more frequently if certain circumstances indicate a possible impairment may exist. In conjunction with the Company’s change in reportable operating segments (see Note 11), goodwill was reassigned to reporting units using a relative fair value allocation. In addition, the Company completed an assessment of any potential goodwill impairment for all reporting units immediately prior to the reallocation and determined that no impairment existed.

Any change in the goodwill amounts resulting from foreign currency translations and purchase accounting adjustments are presented as “Other” in the above table.

Other Intangible Assets

Other intangible assets consisted of the following at June 30, 2016 :



(In thousands)	Gross Cost		Accumulated Amortization		Net Balance		Estimated Useful Life in Years
Customer relationships	$	106,552	$	27,989	$	78,563	6	to	16
Patents	55,082		30,738		24,344		3	to	19
Tradenames	9,766		4,932		4,834		3	to	15
Non-compete agreements	4,569		3,246		1,323		3	to	6
Other	309		60		249		2	to	12
Purchased research and development	4,687		—		4,687		Indefinite
Other intangible assets	$	180,965	$	66,965	$	114,000

DREW INDUSTRIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Other intangible assets consisted of the following at December 31, 2015 :



(In thousands)	Gross Cost		Accumulated Amortization		Net Balance		Estimated Useful Life in Years
Customer relationships	$	94,560	$	30,514	$	64,046	6	to	16
Patents	54,293		28,255		26,038		3	to	19
Tradenames	8,935		4,751		4,184		3	to	15
Non-compete agreements	4,493		2,800		1,693		3	to	6
Other	594		307		287		2	to	12
Purchased research and development	4,687		—		4,687		Indefinite
Other intangible assets	$	167,562	$	66,627	$	100,935

3. INVENTORIES

Inventories, valued at the lower of cost (first-in, first-out (FIFO) method) or market, consisted of the following at:



	June 30,				December 31,
(In thousands)	2016		2015		2015
Raw materials	$	122,049	$	145,154	$	144,397
Work in process	9,256		3,666		4,932
Finished goods	17,858		14,628		21,505
Inventories, net	$	149,163	$	163,448	$	170,834

4. FIXED ASSETS

Fixed assets consisted of the following at:



	June 30,				December 31,
(In thousands)	2016		2015		2015
Fixed assets, at cost	$	304,982	$	284,660	$	291,776
Less accumulated depreciation and amortization	153,732		136,021		141,176
Fixed assets, net	$	151,250	$	148,639	$	150,600

5. NOTES RECEIVABLE

In April 2014, the Company entered into a six -year aluminum extrusion supply agreement, and concurrently sold certain aluminum extrusion assets. In connection with the sale, the Company received $0.3 million at closing and a $7.2 million note receivable collectible over the next four years , recorded at its present value of $6.4 million on the date of closing. At June 30, 2016 , the present value of the remaining amount due under the note receivable was $3.3 million .

In July 2015, the Company agreed to terminate the supply agreement, and as consideration the Company received a $2.0 million note receivable collectible in 2019 and 2020. The Company recorded this note receivable at its present value of $1.6 million and a corresponding gain of $1.6 million in the 2015 third quarter. At June 30, 2016 , the present value of the remaining amount due under the note receivable was $1.7 million .

DREW INDUSTRIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following at:



	June 30,				December 31,
(In thousands)	2016		2015		2015
Employee compensation and benefits	$	41,467	$	27,750	$	25,147
Taxes payable	19,028		8,228		—
Current portion of accrued warranty	18,914		15,985		17,020
Sales rebates	11,711		7,561		7,993
Other	22,124		18,228		19,002
Accrued expenses and other current liabilities	$	113,244	$	77,752	$	69,162

Estimated costs related to product warranties are accrued at the time products are sold. In estimating its future warranty obligations, the Company considers various factors, including the Company’s (i) historical warranty costs, (ii) current trends, (iii) product mix, and (iv) sales. The following table provides a reconciliation of the activity related to the Company’s accrued warranty, including both the current and long-term portions, for the six months ended June 30 :



(In thousands)	2016			2015
Balance at beginning of period	$	26,204		$	21,641
Provision for warranty expense	10,472			8,367
Warranty liability from acquired businesses	125			165
Warranty costs paid	(7,038		)	(5,789		)
Balance at end of period	29,763			24,384
Less long-term portion	10,849			8,399
Current portion of accrued warranty	$	18,914		$	15,985

7. LONG-TERM INDEBTEDNESS

At June 30, 2016 and December 31, 2015 , the Company had no outstanding borrowings on its line of credit. At June 30, 2015 , the Company had $30.0 million of outstanding borrowings on its line of credit with a weighted average interest rate of 1.9 percent .

On February 24, 2014, the Company entered into a $75.0 million line of credit (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A. On March 3, 2015, in accordance with the terms of the Credit Agreement, the Company increased its line of credit by $25.0 million to $100.0 million . Interest on borrowings under the line of credit was designated from time to time by the Company as either (i) the Prime Rate, minus a rate ranging from 0.75 to 1.0 percent (minus 1.0 percent at June 30, 2015 ), but not less than 1.5 percent , or (ii) LIBOR, plus additional interest ranging from 1.75 to 2.0 percent (plus 1.75 percent at June 30, 2015 ) depending on the Company’s performance and financial condition.

On April 27, 2016, the Company announced the successful refinancing of its line of credit through an agreement with JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., Bank of America, N.A., and 1st Source Bank. The agreement amends and restates the existing line of credit, which was scheduled to expire on January 1, 2019, and now expires on April 27, 2021 (the “Amended Credit Agreement”). In connection with this amendment and restatement, the line of credit was increased from $100.0 million to $200.0 million , and contains a feature allowing the Company to draw up to $50.0 million in approved foreign currencies, including Australian dollars, Canadian dollars, pound sterling and euros. The maximum borrowings under the line of credit can be further increased by $125.0 million , subject to certain conditions. Interest on borrowings under the new line of credit is designated from time to time by the Company as either (i) the Alternate Base Rate (defined in the Amended Credit Agreement as the greatest of (a) the Prime Rate of JPMorgan Chase, (b) the federal funds effective rate plus 0.5 percent and (c) the Adjusted LIBO Rate (as defined in the Amended Credit Agreement) for a one month interest period plus 1.0 percent ), plus additional interest ranging from 0.0 percent to 0.625 percent ( 0.0 percent at June 30, 2016 ) depending on the Company’s performance and financial condition, or (ii) the Adjusted LIBO Rate for a period equal to one, two, three, six or twelve months as selected by the Company, plus additional interest ranging from 1.0 percent to 1.625 percent ( 1.0 percent at June 30, 2016 ) depending on the Company’s performance and

DREW INDUSTRIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

financial condition. At June 30, 2016 , the Company had $2.5 million in outstanding, but undrawn, standby letters of credit under the line of credit. Availability under the Company’s line of credit was $197.5 million at June 30, 2016 .

On February 24, 2014, the Company also entered into a $150.0 million “shelf-loan” facility with Prudential Investment Management, Inc. and its affiliates (“Prudential”) . The facility provides for Prudential to consider purchasing, at the Company’s request, in one or a series of transactions, Senior Promissory Notes of the Company in the aggregate principal amount of up to $150.0 million , to mature no more than 12 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. On March 20, 2015, the Company issued $50.0 million of Senior Promissory Notes to Prudential for a term of five years, at a fixed interest rate of 3.35 percent per annum, payable quarterly in arrears, of which the entire amount was outstanding at June 30, 2016 . Availability under the Company’s “shelf-loan” facility, subject to the approval of Prudential, was $100.0 million at June 30, 2016 . At June 30, 2016 , the fair value of the Company’s long-term debt approximates the carrying value, as estimated using quoted market prices and discounted future cash flows based on similar borrowing arrangements.

On April 27, 2016, the Company also amended and restated its “shelf-loan” facility with Prudential to conform certain covenants and other terms to the Amended Credit Agreement. The undrawn “shelf-loan” facility expires February 24, 2017. The Company is considering renewal options.

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 the Company’s direct and indirect subsidiaries (including up to 65 percent of the equity interest of certain “controlled foreign corporations.”)

Pursuant to the Amended Credit Agreement and “shelf-loan” facility, the Company is required to maintain minimum interest and fixed charge coverages, and to meet certain other financial requirements. At June 30, 2016 , the Company was in compliance with all such requirements, and expects to remain in compliance for the next twelve months.

Availability under both the Amended Credit Agreement and the “shelf-loan” facility is subject to a maximum leverage ratio covenant which limits the amount of consolidated outstanding indebtedness to 2.5 times the trailing twelve-month EBITDA, as defined. This limitation did not impact the Company’s borrowing availability at June 30, 2016 . The remaining availability under these facilities was $297.5 million at June 30, 2016 . The Company believes the availability under the Amended Credit Agreement and “shelf-loan” facility is adequate to finance the Company’s anticipated cash requirements for the next twelve months.

8. COMMITMENTS AND CONTINGENCIES

Contingent Consideration

In connection with certain business acquisitions, if agreed upon sales targets for the acquired products are achieved, the Company would pay additional cash consideration. The Company has recorded a liability for the fair value of this contingent consideration at June 30, 2016 , based on the present value of the expected future cash flows using a market participant’s weighted average cost of capital of 12.4 percent .

As required, the liability for this contingent consideration is measured at fair value quarterly, considering actual sales of the acquired products, updated sales projections, and the updated market participant weighted average cost of capital. Depending upon the weighted average costs of capital and future sales of the products which are subject to contingent consideration, the Company could record adjustments in future periods which may increase or decrease the liability.

DREW INDUSTRIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table provides a reconciliation of the Company’s contingent consideration liability for the six months ended June 30 :



(In thousands)	2016			2015
Balance at beginning of period	$	10,840		$	8,129
Acquisitions	1,322			1,093
Payments	(2,715		)	(1,874		)
Accretion ^(a)	664			559
Fair value adjustments ^(a)	421			90
Balance at end of the period ^(b)	10,532			7,997
Less current portion in accrued expenses and other current liabilities	(4,720		)	(4,264		)
Total long-term portion in other long-term liabilities	$	5,812		$	3,733


^(a)	Recorded in selling, general and administrative expense in the Condensed Consolidated Statements of Income.

^(b)

Amounts represent the fair value of estimated remaining payments. The total estimated remaining payments as of June 30, 2016 are $13.1 million . The liability for contingent consideration expires at various dates through September 2029. Certain of the contingent consideration arrangements are subject to a maximum payment amount, while the remaining arrangements have no maximum contingent consideration.

Furrion Distribution and Supply Agreement

In July 2015, the Company entered into a six -year exclusive distribution and supply agreement with Furrion Limited (“Furrion”), a Hong Kong based firm that designs, engineers and supplies premium electronics. This agreement provides the Company with the rights to distribute Furrion’s complete line of products to OEMs and aftermarket customers in the RV, specialty vehicle, utility trailer, horse trailer, marine, transit bus and school bus industries throughout the United States and Canada. Furrion currently supplies a premium line of LED televisions, sound systems, navigation systems, wireless backup cameras, solar prep units, power solutions and kitchen appliances, primarily to the RV industry.

In connection with this agreement, the Company entered into the following minimum purchase obligations (“MPOs”), which the Company anticipates will be revised from time to time:



	July 2015 - June 2016	$ 60 million
	July 2016 - June 2017	$ 90 million
	July 2017 - June 2018	$127 million
	July 2018 - June 2019	$172 million

After the first year, Furrion and the Company have agreed to review these MPOs on an annual basis and adjust the MPOs as necessary based upon current economic and industry conditions, the development and customer acceptance of new Furrion products, competition and other factors which impact demand for Furrion products. There has been good market acceptance of Furrion products during the first year of the distribution agreement; however, the MPO was not achieved for the year ended June 30, 2016 , primarily due to the timing of development and availability of anticipated new products from Furrion. As a result, the parties are currently in discussions to revise the MPOs, and the Company and Furrion are working together to increase product availability and new product introductions.

Subject to agreed upon revisions to the MPOs, Furrion has the right to either terminate the distribution agreement with six months’ notice or remove exclusivity from the Company if the Company misses an MPO in any given year by more than ten percent, after taking into account excess purchases from the previous year. If exclusivity is withdrawn, the Company at its election may terminate the distribution agreement with six months’ notice. Upon termination of the agreement, Furrion has agreed to purchase from the Company any non-obsolete stocks of Furrion products at the cost paid by the Company.

Product Recalls

From time to time, the Company cooperates with and assists its customers on their product recalls and inquiries, and occasionally receives inquiries directly from the National Highway Traffic Safety Administration (“NHTSA”) regarding reported

DREW INDUSTRIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

incidents involving the Company’s products. As a result, the Company may incur expenditures for future investigations or product recalls.

Environmental

The Company’s operations are subject to certain Federal, state and local regulatory requirements relating to the use, storage, discharge and disposal of hazardous materials used during the manufacturing processes. Although the Company believes its operations have been consistent with prevailing industry standards, and are in substantial compliance with applicable environmental laws and regulations, one or more of the Company’s current or former operating sites, or adjacent sites owned by third-parties, have been affected by releases of hazardous materials. As a result, the Company may incur expenditures for future investigation and remediation of these sites.

Litigation

In the normal course of business, the Company is subject to proceedings, lawsuits, regulatory agency inquiries and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, it is management’s opinion that, after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided in the Condensed Consolidated Balance Sheet as of June 30, 2016 , would not be material to the Company’s financial position or annual results of operations.

9. STOCKHOLDERS’ EQUITY

The following table summarizes information about shares of the Company’s common stock at:



	June 30,		December 31,
(In thousands)	2016	2015	2015
Common stock authorized	75,000	75,000	75,000
Common stock issued	27,271	26,826	27,039
Treasury stock	2,684	2,684	2,684

The following reconciliation details the denominator used in the computation of basic and diluted earnings per share:



	Six Months Ended June 30,		Three Months Ended June 30,
(In thousands)	2016	2015	2016	2015
Weighted average shares outstanding for basic earnings per share	24,542	24,247	24,662	24,279
Common stock equivalents pertaining to stock options and deferred stock units	280	331	254	336
Weighted average shares outstanding for diluted earnings per share	24,822	24,578	24,916	24,615

The weighted average diluted shares outstanding for the six months ended June 30, 2016 and 2015 exclude the effect of 243,197 and 308,634 shares of common stock, respectively, subject to stock-based performance awards. The weighted average diluted shares outstanding for the three months ended June 30, 2016 and 2015 exclude the effect of 244,219 and 313,944 shares of common stock, respectively, subject to stock-based performance awards. Such shares were excluded from total diluted shares because they were anti-dilutive or the specified performance conditions those shares were subject to were not yet achieved.

On April 15, 2016 and June 17, 2016 , a dividend of $0.30 per share of the Company’s common stock, representing an aggregate of $7.3 million and $7.4 million , respectively, was paid to stockholders of record as of April 1, 2016 and June 6, 2016 , respectively. In connection with these dividends, holders of deferred stock units, restricted stock and stock awards were credited with deferred stock units, restricted stock or stock equal to $0.30 for each deferred stock unit, share of restricted stock or stock award, representing $0.3 million for each of these dividends, respectively.

DREW INDUSTRIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

On April 10, 2015 , a special dividend of $2.00 per share of the Company’s common stock, representing an aggregate of $48.2 million , was paid to stockholders of record as of March 27, 2015 . 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 for each deferred stock unit, share of restricted stock or stock award, representing $1.8 million in total for this special dividend. In connection with this special cash dividend, the exercise price of all outstanding stock options was reduced by $2.00 per share. The reductions in exercise price were made pursuant to the terms of the outstanding awards, resulting in no incremental stock-based compensation expense.

In February 2016 , the Company issued 4,784 deferred stock units at the average price of $55.22 , or $0.3 million , to executive officers in lieu of cash for a portion of their 2015 incentive compensation. In February 2015 , the Company issued 36,579 deferred stock units at the average price of $55.95 , or $2.0 million , to executive officers in lieu of cash for a portion of their 2014 incentive compensation.

10. FAIR VALUE MEASUREMENTS

Recurring

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at:



	June 30, 2016								December 31, 2015
(In thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets
Deferred compensation	$	7,882	$	7,882	$	—	$	—	$	7,774	$	7,774	$	—	$	—
Total assets	$	7,882	$	7,882	$	—	$	—	$	7,774	$	7,774	$	—	$	—

Liabilities
Contingent consideration	$	10,532	$	—	$	—	$	10,532	$	10,840	$	—	$	—	$	10,840
Deferred compensation	14,222		14,222		—		—		11,836		11,836		—		—
Total liabilities	$	24,754	$	14,222	$	—	$	10,532	$	22,676	$	11,836	$	—	$	10,840

Deferred Compensation

The Company has an Executive Non-Qualified Deferred Compensation Plan (the “Plan”). The amounts deferred under the Plan are credited with earnings or losses based upon changes in values of the notional investments elected by the Plan participants. The Company invests approximately 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.

Contingent Consideration Related to Acquisitions

Liabilities for contingent consideration related to acquisitions were fair valued using management’s projections for long-term sales forecasts, including assumptions regarding market share gains, foreign currency rates and future industry-specific economic and market conditions, and a market participant’s weighted average cost of capital. Over the next six years , the Company’s long-term sales growth forecasts for products subject to contingent consideration arrangements average approximately 14 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 8 of the Notes to Condensed Consolidated Financial Statements.

Changes in either of the inputs in isolation would result in a change in the fair value measurement. A change in the assumptions used for sales forecasts would result in a directionally similar change in the fair value liability, while a change in the weighted average cost of capital would result in a directionally opposite change in the fair value liability. If there is an increase in the fair value liability, the Company would record a charge to selling, general and administrative expenses, and if there is a decrease in the fair value liability, the Company would record a benefit in selling, general and administrative expenses.

DREW INDUSTRIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Non-recurring

The following table presents the carrying value on the measurement date of any assets and liabilities which were measured at fair value and recorded at the lower of cost or fair value, on a non-recurring basis, using significant unobservable inputs (Level 3), and the corresponding non-recurring losses or (gains) recognized during the six months ended June 30 :



	2016				2015
(In thousands)	Carrying Value		Non-Recurring Losses / (Gains)		Carrying Value		Non-Recurring Losses / (Gains)
Vacant owned facilities	$	2,520	$	—	$	3,725	$	—
Net assets of acquired businesses	25,047		—		17,204		—
Total assets	$	27,567	$	—	$	20,929	$	—

Vacant Owned Facilities

During the first six months of 2016 , the Company reviewed the recoverability of the carrying value of one vacant owned facility. At June 30, 2016 , the Company had one vacant owned facility, with an estimated fair value of over $3.0 million and a carrying value of $2.5 million , classified in fixed assets in the Condensed Consolidated Balance Sheets.

During the first six months of 2015 , the Company reviewed the recoverability of the carrying value of three vacant owned facilities, of which one of these facilities was sold. At June 30, 2015 , the Company had two vacant owned facilities, with an estimated combined fair value of $ 4.0 million and a combined carrying value of $3.7 million , classified in fixed assets in the Condensed Consolidated Balance Sheets.

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.

Net Assets of Acquired Businesses

The Company valued the assets and liabilities associated with the acquisitions of businesses on the respective acquisition dates. Depending upon the type of asset or liability acquired, the Company used different valuation techniques in determining the fair value. Those techniques included comparable market prices, long-term sales, profitability and cash flow forecasts, assumptions regarding future industry-specific economic and market conditions, a market participant’s weighted average cost of capital, as well as other techniques as circumstances required. For further information on acquired assets and liabilities, see Note 2 of the Notes to Condensed Consolidated Financial Statements.

11. SEGMENT REPORTING

The Company previously had two reportable segments, the recreational vehicle products segment (the “RV Segment”) and the manufactured housing products segment (the “MH Segment”). The Company has recently increased its focus on the significant opportunities in the aftermarket for its products, primarily sales to retail dealers, wholesale distributors and service centers. Additionally, over the past several years, sales of components for manufactured homes have become a smaller part of the Company’s business, largely due to the growth the Company has experienced with respect to its components sold to customers for traditional recreational vehicles as well as the expanded use of its components in other non-RV applications, which we refer to as adjacent industries. Unit growth for MH Segment products has also been lower over the last decade, primarily due to the current real estate, credit and economic environment, including the availability of site built homes at stable prices and high interest rate spreads between conventional mortgages for site-built homes and loans for manufactured homes. In response to these changes in the Company’s business, subsequent to March 31, 2016, the Company modified its internal reporting structure, reflecting a change in how its chief operating decision maker (“CODM”) assesses the performance of the Company’s operating results and make decisions about resource allocations. The Company’s new reportable segments are the OEM Segment and the Aftermarket Segment. Intersegment sales are insignificant.

The OEM Segment, which accounted for 93 percent and 94 percent of consolidated net sales for each of the six month periods ended June 30, 2016 and 2015 , respectively, manufactures or distributes a broad array of components for the leading OEMs of RVs and adjacent industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; pontoon boats;

DREW INDUSTRIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

manufactured homes; modular housing; and mobile office units. Approximately 71 percent of the Company’s OEM Segment net sales for the twelve months ended June 30, 2016 were of components for travel trailer and fifth-wheel RVs.

The Aftermarket Segment, which accounted for 7 percent and 6 percent of consolidated net sales for each of the six month periods ended June 30, 2016 and 2015 , respectively, supplies components to the related aftermarket channels of the RV and adjacent industries, primarily to retail dealers, wholesale distributors and service centers. The Aftermarket Segment also includes the sale of replacement glass and awnings to fulfill insurance claims.

Decisions concerning the allocation of the Company’s resources are made by the Company’s CODM, with oversight by the Board of Directors. The CODM evaluates the performance of each segment based upon segment operating profit or loss, generally defined as income or loss before interest and income taxes. Decisions concerning the allocation of resources are also based on each segment’s utilization of assets. Management of debt is a corporate function. The accounting policies of the OEM and Aftermarket Segments are the same as those described in Note 1 of the Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 . The change in reported segments will have no effect on the Company’s net income, total assets or liabilities, or stockholders’ equity.



Information relating to segments follows for the:
	Six Months Ended June 30,				Three Months Ended June 30,
(In thousands)	2016		2015		2016		2015
Net sales:
OEM Segment:
RV OEMs:
Travel trailers and fifth-wheels	$	573,055	$	506,064	$	289,686	$	245,707
Motorhomes	56,389		40,546		27,866		18,899
Adjacent industries OEMs	170,125		130,109		89,364		71,694
Total OEM Segment net sales	799,569		676,719		406,916		336,300
Aftermarket Segment:
Total Aftermarket Segment net sales	64,060		46,823		33,915		25,785
Total net sales	$	863,629	$	723,542	$	440,831	$	362,085

Operating profit:
OEM Segment	$	105,053	$	59,203	$	54,402	$	29,917
Aftermarket Segment	10,063		6,269		4,986		3,717
Total operating profit	$	115,116	$	65,472	$	59,388	$	33,634

12. NEW ACCOUNTING PRONOUNCEMENTS

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting , which amended ASC 718, Compensation - Stock Compensation . This ASU simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016 with early adoption permitted at the beginning of an interim or annual reporting period. The Company is evaluating the effect of adopting this new accounting guidance.

In February 2016, the FASB issued ASU 2016-02, Leases . This ASU requires, in most instances, a lessee to recognize on its balance sheet a liability to make lease payments (the lease liability) and also a right-of-use asset representing its right to use the underlying asset for the lease term. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those periods, using a modified retrospective approach with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. This ASU requires entities with a classified balance sheet to present all deferred tax assets and liabilities as non-current. During the first quarter of

DREW INDUSTRIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

2016, the Company elected to retrospectively adopt ASU 2015-17, thus reclassifying current deferred tax assets to non-current on the accompanying Condensed Consolidated Balance Sheet. As a result, the Company reclassified $18,709 and $22,616 from current assets to long-term assets as of June 30, 2015 and December 31, 2015, respectively. The adoption of this guidance has no impact on the Company’s results of operations and cash flows.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. This ASU applies to inventory measured using the first-in, first-out (“FIFO”) or average cost methods. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. Adoption of this ASU will not have a material impact on the Company’s results of operations, cash flows or financial position.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs . This ASU requires debt issuance costs be presented on the balance sheet as a reduction from the carrying amount of the related debt liability. In August 2015, the FASB issued an ASU that allows the presentation of debt issuance costs related to line-of-credit arrangements to continue to be an asset on the balance sheet under the simplified guidance, regardless of whether there are any outstanding borrowings on the related arrangements. The amendments in these ASUs are to be applied retrospectively and are effective for interim and annual reporting periods beginning after December 15, 2015. The Company adopted these ASUs retrospectively effective January 1, 2016, and have reclassified all debt issuance costs, with the exception of those related to the revolving credit facility, as a reduction from the carrying amount of the related debt liability for both current and prior periods. The adoption of this guidance had no impact on the Company’s results of operations and cash flows.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers . This ASU provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU is for annual periods, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted for years beginning after December 15, 2016, to be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect adoption will have a material impact on the Company’s results of operations, cash flows or financial position.

DREW INDUSTRIES INCORPORATED

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and Notes thereto included in Item 1 of Part 1 of this Report, as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 .

Drew Industries Incorporated (“Drew”, and collectively with its subsidiaries, the “Company”), through its wholly-owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, “Lippert Components” or “LCI”), supplies a broad array of components for the leading original equipment manufacturers (“OEMs”) of recreational vehicles (“RVs”) and adjacent industries including buses; trailers used to haul boats, livestock, equipment and other cargo; pontoon boats; manufactured homes; modular housing; and factory-built mobile office units . The Company also supplies components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors and service centers. At June 30, 2016 , the Company operated 45 manufacturing and distribution facilities located throughout the United States and in Canada and Italy.

Net sales and operating profit were as follows for the:



	Six Months Ended				Three Months Ended
	June 30,				June 30,
(In thousands)	2016		2015		2016		2015
Net sales:
OEM Segment:
RV OEMs:
Travel trailers and fifth-wheels	$	573,055	$	506,064	$	289,686	$	245,707
Motorhomes	56,389		40,546		27,866		18,899
Adjacent industries OEMs	170,125		130,109		89,364		71,694
Total OEM Segment net sales	799,569		676,719		406,916		336,300
Aftermarket Segment:
Total Aftermarket Segment net sales	64,060		46,823		33,915		25,785
Total net sales	$	863,629	$	723,542	$	440,831	$	362,085

Operating profit:
OEM Segment	$	105,053	$	59,203	$	54,402	$	29,917
Aftermarket Segment	10,063		6,269		4,986		3,717
Total operating profit	$	115,116	$	65,472	$	59,388	$	33,634

The Company’s OEM Segment manufactures or distributes a broad array of components for the leading OEMs of RVs and adjacent industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; pontoon boats; manufactured homes; modular housing; and mobile office units. Approximately 71 percent of the Company’s OEM Segment net sales for the twelve months ended June 30, 2016 were of components for travel trailer and fifth-wheel RVs, including:

DREW INDUSTRIES INCORPORATED

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)



● Steel chassis and related components	● Furniture and mattresses
● Axles and suspension solutions	● Electric and manual entry steps
● Slide-out mechanisms and solutions	● Awnings and awning accessories
● Thermoformed bath, kitchen and other products	● Electronic components
● Vinyl, aluminum and frameless windows	● Appliances
● Manual, electric and hydraulic stabilizer and leveling systems	● LED televisions, sound systems, navigation systems and wireless backup cameras
● Entry, luggage, patio and ramp doors	● Other accessories

The Aftermarket Segment supplies many of these components to the related aftermarket channels of the RV and adjacent industries, primarily to retail dealers, wholesale distributors and service centers. The Aftermarket Segment also includes the sale of replacement glass and awnings to fulfill insurance claims.

INDUSTRY BACKGROUND

OEM

Recreational Vehicle Industry

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

The annual sales cycle for the RV industry generally starts in October after the “Open House” in Elkhart, Indiana where many of the largest RV OEMs display product to RV retail dealers, and ends after the conclusion of the summer selling season in September in the following calendar year. Between October and March, industry-wide wholesale shipments of travel trailer and fifth-wheel RVs have historically exceeded retail sales as dealers build inventories to support anticipated sales. 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. Based on the strength of retail sales and the current outlook from several RV OEMs and their dealer networks, most industry analysts continue to report that RV dealer inventory is in line with anticipated retail demand.

According to the Recreation Vehicle Industry Association (“RVIA”), industry-wide wholesale shipments of travel trailer and fifth-wheel RVs in the first six months of 2016 , the Company’s primary RV market, increased 11 percent to 190,000 units, compared to the first six months of 2015 , as a result of:


•	An estimated 10,500 unit increase in retail demand in the first six months of 2016 , or six percent , as compared to the same period of 2015 . In addition, retail demand is typically revised upward in subsequent months, primarily due to delayed RV registrations.


•	RV dealers seasonally increasing inventory levels by an estimated 11,700 units in the first six months of 2016 , higher than the increase in inventory levels of 2,900 units in the first six months of 2015 .

While the Company measures its OEM Segment RV sales against industry-wide wholesale shipment statistics, the underlying health of the RV industry is determined by retail demand. A comparison of the number of units and the year-over-year percentage change in industry-wide wholesale shipments and retail sales of travel trailers and fifth-wheel RVs, as reported by Statistical Surveys, Inc., as well as the resulting estimated change in dealer inventories, for both the United States and Canada, is as follows:

DREW INDUSTRIES INCORPORATED

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)



					Estimated
	Wholesale		Retail		Unit Impact on
	Units	Change	Units	Change	Dealer Inventories
Quarter ended June 30, 2016 ⁽¹⁾	99,200	12%	116,100	3%	(16,900)
Quarter ended March 31, 2016	90,800	11%	62,200	13%	28,600
Quarter ended December 31, 2015	75,000	4%	49,900	16%	25,100
Quarter ended September 30, 2015	68,700	5%	99,500	13%	(30,800)
Twelve months ended June 30, 2016 ⁽¹⁾	333,700	8%	327,700	10%	6,000

Quarter ended June 30, 2015	88,900	4%	112,700	12%	(23,800)
Quarter ended March 31, 2015	81,800	8%	55,100	19%	26,700
Quarter ended December 31, 2014	72,300	20%	42,900	18%	29,400
Quarter ended September 30, 2014	65,500	7%	88,000	12%	(22,500)
Twelve months ended June 30, 2015	308,500	9%	298,700	14%	9,800


⁽¹⁾	Retail sales data for June 2016 has not been published; therefore retail and dealer inventory data includes a Company estimate for retail units sold in June.

According to the RVIA, industry-wide wholesale shipments of motorhome RVs in the first six months of 2016 increased 17 percent to 28,800 units compared to the same period of 2015 . The Company estimates retail demand for motorhome RVs increased six percent in the first six months of 2016 .

The RVIA has projected a six percent increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs for 2016. Further, the RVIA has also projected a two percent increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs for 2017. Several RV OEMs, however, are introducing new product lines, additional features and adding production capacity. Retail sales of RVs historically have been closely tied to general economic conditions, as well as consumer confidence which was above historical averages in 2015. Additionally, retail sales of travel trailer and fifth-wheel RVs have increased in 78 of the last 80 months on a year-over-year basis. Industry resources report strong attendance and high consumer interest at RV shows around the United States in late 2015 and into 2016. The U.S. dollar, which has appreciated by more than 20 percent since the beginning of 2014, has impacted sales in Canada as total RV shipments to Canada represent 11 percent of total North American RV shipments down from historical levels of approximately 18 percent.

Although future retail demand is inherently uncertain, RV industry fundamentals in the first six months of 2016 , including generally low unemployment, low fuel prices and available credit for dealers and RV consumers, were strong, as evidenced by the six percent increase in industry-wide retail sales of travel trailer and fifth-wheel RVs in the first six months of 2016 . The Company believes the strong RV industry fundamentals, aided by product innovation, demographic tailwinds, industry promotion and the advent of stronger dealer networks, are positive signs for 2016 . The Company also remains confident in its ability to exceed industry growth rates through new product introductions, market share gains, aftermarket sales, acquisitions and ongoing investments in research and development, engineering, quality and customer service.

Adjacent Industries

The Company’s portfolio of products used in RVs can also be used in other applications, including buses; trailers used to haul boats, livestock, equipment and other cargo; pontoon boats; manufactured homes; modular housing; and factory-built mobile office units (collectively, “Adjacent Industries”). In many cases, OEM customers of the Adjacent Industries are affiliated with RV OEMs through related subsidiaries. The Company believes there are significant opportunities in these Adjacent Industries and, as a result, four of the last six business acquisitions completed by the Company were focused in Adjacent Industries.

The estimated potential content per unit the Company may supply to the Adjacent Industries varies by OEM product and differs from RV's and motorhomes. As a means to understand the potential of each of these markets, management reviews the number of retail units sold. The following are key target markets for Adjacent Industries component sales:


•	Enclosed trailers. According to Statistical Surveys, approximately 183,000 and 167,000 enclosed trailers were sold in 2015 and 2014, respectively.

DREW INDUSTRIES INCORPORATED

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)


•	Pontoon boats. Statistical Surveys also reported approximately 41,300 and 38,500 pontoon boats were sold in 2015 and 2014, respectively.


•	School buses. According to Wards Communications and R.L. Polk & Co., there were approximately 29,600 and 28,200 school buses sold in 2015 and 2014, respectively.


•	Manufactured housing. According to the Institute for Building Technology and Safety, there were approximately 70,500 and 64,300 manufactured home wholesale shipments in 2015 and 2014, respectively.

Aftermarket

Many of the Company’s OEM Segment products are also sold through various aftermarket channels, including dealerships, warehouse distributors and service centers, as well as direct to retail customers. The Company has teams dedicated to product training and marketing support for its Aftermarket customers. The Company also supports two call centers to provide quick responses to customers for both product delivery and technical support. This support is designed for a rapid response to critical repairs so customer downtime is minimized. The Aftermarket Segment also includes the sale of replacement glass and awnings to fulfill insurance claims. Many of the optional upgrades and non-critical replacements are purchased outside the normal product selling seasons, thereby causing Aftermarket sales to be counter-seasonal.

Following the last recession, approximately 1.9 million RVs have been built and sold, bringing current estimated RV ownership up to nearly nine million units, according to the RVIA. Additionally, as a result of a vibrant secondary market, one-third of current owners purchased their RV new while the remaining two-thirds purchased a previously owned RV. This vibrant secondary market is a key driver for the aftermarket, as the Company anticipates owners of previously owned RVs will likely upgrade their units as well as replace parts and accessories which have been subjected to normal wear and tear.

RESULTS OF OPERATIONS

Consolidated Highlights

•

Consolidated net sales in the second quarter of 2016 increased to $441 million , 22 percent higher than the 2015 second quarter. The increase in year over year net sales reflects industry-wide growth in wholesale shipments of towable RVs by OEMs, which increased by 12 percent in the second quarter of 2016 , enhanced by acquisitions completed by the Company over the twelve months ended June 30, 2016 , as well as the July 2015 distribution and supply agreement for premium electronics with Furrion, which together added $29 million in net sales in the second quarter of 2016 .


•	OEM Segment net sales increased 21 percent , or $71 million , while Aftermarket Segment net sales increased 32 percent , or $8 million , compared to the second quarter of 2015 .


•	For the second quarter of 2016 , the Company’s net income increased to $37.6 million , or $1.51 per diluted share, up from net income of $20.9 million , or $0.85 per diluted share, in the second quarter of 2015 .

•

Consolidated operating profits increased to $59.4 million in the second quarter of 2016 from $33.6 million in the second quarter of 2015 . Operating profit margin increased to 13.5 percent in the second quarter of 2016 from 9.3 percent in the second quarter of 2015 . The increased profitability is the result of several factors, primarily including higher sales leading to better overhead utilization, the impact of lower material costs, accretive acquisitions in both 2015 and 2016, cost management initiatives and changes in product sales mix including growth in the aftermarket.

•

The Company continues to take actions to improve its cost structure. The Company seeks to continuously manage its labor cost, particularly indirect labor, while supporting the growth of the business. Lean manufacturing teams continue working to reduce cost and implement processes to better utilize available floorspace. The Company has also reduced direct labor attrition which improves efficiency and reduces other costs associated with workforce turnover.


•	Raw material costs continue to fluctuate and are expected to remain volatile. In particular, the cost of aluminum and steel used in certain of the Company’s manufactured components dropped during the second half of 2015 and reached significant low points; however, certain of these prices increased in the second quarter of 2016 from those low points experienced during 2015.


•	Thus far in 2016 , the Company completed three acquisitions, all of which have been accretive to earnings:


•	Project 2000 S.r.l. -- An Italian manufacturer of innovative, space-saving bed lifts and retractable steps, with estimated annual sales of €13 million (US$14), completed May 2016;

DREW INDUSTRIES INCORPORATED

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)


•	Flair Interiors -- A Goshen, Indiana manufacturer of RV furniture, with estimated annual sales of $25 million, completed February 2016; and


•	Highwater Marine Furniture -- An Elkhart, Indiana marine furniture operation providing furniture solutions for Highwater Marine, LLC, a manufacturer of pontoon boats. Estimated annual sales for the marine furniture operation were $20 million, completed January 2016.

Integration activities for these acquired businesses are underway and proceeding in line with established plans. The Company plans to grow sales and leverage its purchasing power, manufacturing capabilities, engineering expertise and design resources to improve the cost structure of the acquired operations. After funding these acquisitions, the Company believes it has access to sufficient financial capital and staff to take advantage of additional investment opportunities.


•	Return on equity for the twelve months ended June 30, 2016 , which is calculated by taking net income over equity, improved to 24.1 percent, from the 18.4 percent return on equity in 2015.


•	In April and June 2016, the Company paid a quarterly dividend of $0.30 per share, aggregating $7.3 million and $7.4 million , respectively.

OEM Segment - Second Quarter

Net sales of the OEM Segment in the second quarter of 2016 increased 21 percent, or $71 million , compared to the second quarter of 2015 . Net sales of components to OEMs were to the following markets for the three months ended June 30 :



(In thousands)	2016		2015		Change
RV OEMs:
Travel trailers and fifth-wheels	$	289,686	$	245,707	18	%
Motorhomes	27,866		18,899		47	%
Adjacent industries OEMs	89,364		71,694		25	%
Total OEM Segment net sales	$	406,916	$	336,300	21	%

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



	2016	2015	Change
Travel trailer and fifth-wheel RV’s	99,200	88,900	12	%
Motorhomes	14,800	12,800	16	%

The Company’s net sales growth in components for travel trailer and fifth-wheel RVs during the second quarter of 2016 exceeded the increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs during the same period. This is the combined result of organic sales growth, acquisitions completed in 2016 and increased unit sales of fifth-wheel travel trailers which typically contain more content per unit. Fifth-wheel unit sales in the second quarter of 2016 increased by 900 units over the second quarter of 2015.

The Company’s net sales growth in components for motorhomes during the second quarter of 2016 exceeded the increase in industry-wide wholesale shipments of motorhomes during the same period primarily due to market share gains and acquisitions. Over the past few years, the Company has been expanding its product line of components for motorhomes in order to increase its customer base and market penetration, and further growth is expected.

DREW INDUSTRIES INCORPORATED

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

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



Content per:	2016		2015		Change
Travel trailer and fifth-wheel RV	$	3,013	$	2,918	3	%
Motorhome	$	1,920	$	1,782	8	%

The Company’s average product content per type of RV excludes sales to the Aftermarket and Adjacent Industries. Content per RV is impacted by market share gains, acquisitions, new product introductions, and changes in selling prices for the Company’s products, as well as changes in the types of RVs produced industry-wide.

The Company’s net OEM sales to Adjacent Industries increased during the second quarter of 2016 , primarily due to acquisitions completed in 2015 and the first six months of 2016 , which added $11 million, and market share gains. The Company continues to believe there are significant opportunities in Adjacent Industries.

Operating profit of the OEM Segment was $54.4 million in the second quarter of 2016 , an improvement of $24.5 million compared to the second quarter of 2015 . The operating profit margin of the OEM Segment in the second quarter of 2016 was positively impacted by:


•	Better fixed cost absorption by spreading fixed costs over a $71 million larger sales base.


•	Increasing sales to Adjacent Industries OEMs.


•	Lower material costs for certain raw materials. After increasing in the latter part of 2014, steel and aluminum costs declined in the second half of 2015 and continued into 2016. Costs for these commodities experienced some increases since the beginning of 2016. Material costs, which are subject to global supply and demand forces, are expected to remain volatile.


•	Sales mix changes of its products, including increased sales of fifth-wheel products.


•	Indirect labor cost savings initiated in the fourth quarter of 2015 to reduce such costs on an annualized basis.

•

Investments over the past several years to increase capacity and improve operating efficiencies. Further, the Company has implemented efficiency improvements, including lean manufacturing initiatives, increased use of automation and employee retention initiatives. The Company has also reduced direct labor attrition which improves efficiency and reduces other costs associated with workforce turnover.


•	Lower group health and workers’ compensation claims. The Company actively works to manage and reduce these costs, however, these costs remain subject to fluctuation.

Partially offset by:

•

Fixed costs which were approximately $3 million higher than in the second quarter of 2015 . Over the past couple of years, the Company made significant investments in manufacturing capacity, both facilities and personnel, to prepare for the expected increase in net sales in 2016 and beyond. In addition to investments in fixed costs to expand manufacturing capacity, the Company has made improvements in marketing, human resources, engineering, customer service and other critical departments. The Company also added the teams from acquired businesses, as well amortization costs of intangible assets related to those businesses.


•	While the Company seeks to continuously manage its labor cost, it has added staff to support the growth of the business. The results also reflect variable compensation increases based on achieving profitability targets.

DREW INDUSTRIES INCORPORATED

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

OEM Segment – Year to Date

Net sales of the OEM Segment in the first six months of 2016 increased 18 percent , or $123 million , compared to the first six months of 2015 . Net sales of components to OEMs were to the following markets for the six months ended June 30 :



(In thousands)	2016		2015		Change
RV OEMs:
Travel trailers and fifth-wheels	$	573,055	$	506,064	13	%
Motorhomes	56,389		40,546		39	%
Adjacent industries OEMs	170,125		130,109		31	%
Total OEM Segment net sales	$	799,569	$	676,719	18	%

According to the RVIA, industry-wide wholesale unit shipments for the six months ended June 30, were:



	2016	2015	Change
Travel trailer and fifth-wheel RV’s	190,000	170,700	11	%
Motorhomes	28,800	24,700	17	%

The Company’s net sales growth in components for travel trailer and fifth-wheel RVs during the first six months of 2016 exceeded the increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs during the same period primarily due to acquisitions completed in the first six months of 2016 and Furrion product sales, which added $26 million in net sales during the first six months of 2016 , and market share gains.

The Company’s net sales growth in components for motorhomes during the first six months of 2016 exceeded the increase in industry-wide wholesale shipments of motorhomes during the same period primarily due to market share gains and acquisitions completed during 2016, which added $3 million in net sales. Over the past few years, the Company has been expanding its product line of components for motorhomes in order to increase its customer base and market penetration, and further growth is expected.

The Company’s net sales to Adjacent Industries increased during the first six months of 2016 , primarily due to acquisitions completed in the second half of 2015 and the first six months of 2016 , and market share gains. Acquisitions added $23 million in net sales during the first six months of 2016 . The Company continues to believe there are significant opportunities in Adjacent Industries.

Operating profit of the OEM Segment was $105.1 million in the first six months of 2016 , an improvement of $45.9 million compared to the first six months of 2015 . The operating profit margin of the OEM Segment in the first six months of 2016 was impacted by:


•	Better fixed cost absorption by spreading fixed costs over a $123 million larger sales base.


•	Increasing sales to Adjacent Industries OEMs.


•	Lower material costs for certain raw materials. After increasing in the latter part of 2014, steel and aluminum costs declined in the second half of 2015 and continued into 2016. Costs for these commodities experienced some increases since the beginning of 2016. Material costs, which are subject to global supply and demand forces, are expected to remain volatile.


•	Sales mix changes of its products, including increased sales of fifth-wheel products.


•	Indirect labor cost savings initiated in the fourth quarter of 2015 to reduce such costs on an annualized basis.

•


•	Lower group health and workers’ compensation claims. The Company actively works to manage and reduce these costs, however, these costs remain subject to fluctuation.

DREW INDUSTRIES INCORPORATED

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

Partially offset by:

•

Fixed costs which were approximately $4 million to $5 million higher than in the first six months of 2015 . Over the past couple of years, the Company made significant investments in manufacturing capacity, both facilities and personnel, to prepare for the expected increase in net sales in 2016 and beyond. In addition to investments in fixed costs to expand manufacturing capacity, the Company has made improvements in marketing, human resources, engineering, customer service and other critical departments. The Company also added the teams from acquired businesses, as well amortization costs of intangible assets related to those businesses.


•	While the Company seeks to continuously manage its labor cost, it has added staff to support the growth of the business. The results also reflect variable compensation increases based on achieving profitability targets.

Aftermarket Segment - Second Quarter

Net sales of the Aftermarket Segment in the second quarter of 2016 increased 32 percent , or $8 million , compared to the same period of 2015 . Net sales of components were as follows for the three months ended June 30 :



(In thousands)	2016		2015		Change
Total Aftermarket Segment net sales	$	33,915	$	25,785	32	%

The Company’s net sales to the Aftermarket increased during the second quarter of 2016 primarily due to the Company’s focus on building out well qualified, customer-focused teams and infrastructure to service this market. With an estimated nine million households in North America owning an RV and the Company’s increasing content per unit, the Company continues to believe there are significant opportunities in the RV aftermarket as the components sold to OEMs are subject to normal wear and tear over time.

Operating profit of the Aftermarket Segment was $5.0 million in the second quarter of 2016 , an increase of $1.3 million compared to the second quarter of 2015 , primarily due to the increase in net sales and the higher margins traditionally experienced in aftermarket channels. This business is still in an early growth stage and the Company has added staff to support anticipated growth in areas including sales and marketing, customer service, order fulfillment and overall management. The Company anticipates further cost increases in this area as it builds up the capabilities of this business.

Aftermarket Segment – Year to Date

Net sales of the Aftermarket Segment in the first six months of 2016 increased 37 percent , or $17 million , compared to the same period of 2015 . Net sales of components were as follows for the six months ended June 30 :



(In thousands)	2016		2015		Change
Total Aftermarket Segment net sales	$	64,060	$	46,823	37	%

The Company’s net sales to the Aftermarket increased during the first six months of 2016 primarily due to the Company’s focus on building out well qualified, customer-focused teams and infrastructure to service this market. With an estimated nine million households in North America owning an RV and the Company’s increasing content per unit, the Company continues to believe there are significant opportunities in the RV aftermarket as the components sold to OEMs are subject to normal wear and tear over time.

Operating profit of the Aftermarket Segment was $10.1 million in the second quarter of 2016 , an increase of $3.8 million compared to the first six months of 2015 , primarily due to the increase in net sales and the higher margins traditionally experienced in aftermarket channels. As indicated, this business is still in an early growth stage and the Company has added staff to support anticipated growth and the Company anticipates further cost increases in this area as it builds up the capabilities of this business.

Income Taxes

The effective tax rate for the first six months of 2016 of 35.6 percent was lower than the effective tax rate for the first six months of 2015 of 36.7 percent, benefiting from higher federal and state tax credits. The Company estimates the 2016 full year effective tax rate to be approximately 35 - 36 percent.

DREW INDUSTRIES INCORPORATED

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

Generally, calendar years 2012 - 2015 remain open for federal and state income tax purposes. The Company is currently being audited by the Internal Revenue Service for the tax year ended December 31, 2014.

The net amount of tax liability for unrecognized tax benefits may change within the next twelve months due to changes in audit status, expiration of statutes of limitations, settlements of tax assessments and other events which could impact our determination of unrecognized tax benefits. Although the ultimate timing for resolution of the disputed tax issues is uncertain, we may resolve certain tax matters within the next twelve months and pay amounts for other unresolved tax matters in order to limit the potential impact of interest charges. The resolution of these audits are not expected to be material to our consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

The Condensed Consolidated Statements of Cash Flows reflect the following for the six months ended June 30 :



(In thousands)	2016			2015
Net cash flows provided by operating activities	$	133,013		$	36,359
Net cash flows used for investing activities	(47,108		)	(37,981		)
Net cash flows (used for) provided by financing activities	(19,650		)	13,400
Net increase in cash	$	66,255		$	11,778

Cash Flows from Operations

Net cash flows from operating activities in the first six months of 2016 were $96.7 million higher than the same period of 2015 , primarily due to:


•	A $32.6 million increase in net income in the first six months of 2016 compared to the first six months of 2015 .


•	A $45.7 million larger increase in accounts payable and accrued expenses and other liabilities in first six months of 2016 compared to the first six months of 2015 , primarily due to the timing of payments related to income taxes and employee compensation.

•

A decrease in inventories of $25.6 million in the first six months of 2016 compared to an increase of $24.4 million in the first six months of 2015 . The decrease in inventories in the first six months of 2016 was primarily due to an inventory reduction initiative. Inventory turnover for the twelve months ended June 30, 2016 decreased to 7.0 turns compared to June 30, 2015 at 7.6 turns. The Company is working to improve inventory turnover over the coming quarters, however, inventory turns may trend lower due to growth in product categories such as import furniture and Furrion electronics.


•	A $2.3 million increase in depreciation and amortization due to the investments in acquisitions and capital expenditures.

Partially offset by:


•	A $28.2 million larger seasonal increase in accounts receivable in the first six months of 2016 compared to the first six months of 2015 . This larger increase was primarily due to increase d net sales partially offset by the timing of payments by the Company’s customers. Overall, accounts receivable balances remain current, with an average of 20 days sales outstanding at June 30, 2016 .

Over the long term, based on the Company’s historical collection and payment patterns, as well as inventory turnover, and also giving consideration to emerging trends and changes to the sales mix, the Company expects working capital to increase or decrease equivalent to approximately 11 - 14 percent of the increase or decrease, respectively, in net sales. However, there are many factors that can impact this relationship, especially in the short term.

Depreciation and amortization was $22.2 million in the first six months of 2016 , and is expected to aggregate $42 million to $47 million for the full year 2016 . Non-cash stock-based compensation in the first six months of 2016 was $7.3 million , including $0.3 million of deferred stock units issued to certain executive officers in lieu of cash for a portion of their 2015 incentive compensation in accordance with their compensation arrangements. Non-cash stock-based compensation is expected to be approximately $15 million to $17 million for the full year 2016 .

DREW INDUSTRIES INCORPORATED

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

Cash Flows from Investing Activities

Cash flows used for investing activities of $47.1 million in the first six months of 2016 were primarily comprised of $13.0 million for capital expenditures and $34.2 million for the acquisition of businesses. Cash flows used for investing activities of $38.0 million in the first six months of 2015 were primarily comprised of $14.7 million for capital expenditures and $25.1 million for the acquisition of businesses.

In January 2016 , the Company acquired the business and certain assets of the pontoon furniture manufacturing operation of Highwater Marine, a manufacturer of pontoon boats located in Elkhart, Indiana. The purchase price was $10.0 million paid at closing.

In February 2016 , the Company acquired the business and certain assets of Flair Interiors, a manufacturer of RV furniture. The purchase price was $8.1 million paid at closing.

In May 2016 , the Company acquired 100 percent of the equity interest of Project 2000 S.r.l. (“Project 2000”), an Italy-based manufacturer of innovative, space-saving bed lifts and retractable steps. The purchase price was $18.8 million paid at closing, plus contingent consideration based on future sales by this operation.

The Company’s capital expenditures are primarily for replacement and growth. Over the long term, based on the Company’s historical capital expenditures, the replacement portion has averaged approximately two percent of net sales, while the growth portion has averaged approximately 10 - 12 percent of the annual increase in net sales. However, there are many factors that can impact the actual spending compared to these historical averages. In the first six months of 2016 capital expenditures of $13.0 million were in line with historical averages. As such, coupled with the success achieved in lean manufacturing to free up additional manufacturing space, the Company believes it is well positioned to meet the increased manufacturing demands expected for 2016 and into 2017 with capital expenditures at or below historical levels.

The Company estimates capital expenditures will be $20 million to $26 million in 2016 , including $11 million to $14 million of “replacement” capital expenditures and $9 million to $12 million of “growth” capital expenditures. Additional capital expenditures may be required in 2016 depending on the extent of the sales growth, the impact of any acquisitions and other initiatives by the Company.

The capital expenditures and acquisitions during the first six months of 2016 were funded from operations and periodic borrowings under the Company’s line of credit. The capital expenditures for the balance of 2016 are expected to be funded primarily from cash generated from operations, as well as periodic borrowings under the Company’s line of credit as necessary.

Cash Flows from Financing Activities

Cash flows used for financing activities in the first six months of 2016 were primarily comprised of payments of dividends of $0.30 per share of the Company’s common stock, representing an aggregate of $7.3 million and $7.4 million , respectively, paid to stockholders of record as of April 1, 2016 and June 6, 2016 , respectively. In addition, the Company received $2.7 million in cash and the related tax benefits from the exercise of stock-based compensation, which was more than offset by $3.8 million of shares tendered for payment of taxes. Further, the Company made $2.7 million in payments for contingent consideration related to acquisitions.

Cash flows provided by financing activities in the first six months of 2015 were primarily comprised of a net increase in indebtedness of $64.4 million partially offset by the payment of a special dividend of $2.00 per share of the Company’s Common Stock, representing an aggregate of $48.2 million, paid to stockholders of record as of March 27, 2015. The increase in indebtedness included new debt comprised of $50.0 million of Senior Promissory Notes, offset by a net increase in the amount borrowed under the Company’s line of credit of $14.4 million. Borrowings under the Company’s line of credit reached a high of $71.6 million during the first six months of 2015. In addition, in the first six months of 2015, the Company received $6.3 million in cash and the related tax benefits from the exercise of stock-based compensation, which was more than offset by $7.0 million of shares tendered for payment of taxes and $1.9 million in payments for contingent consideration related to acquisitions.

In connection with certain business acquisitions, if established sales targets for the acquired products are achieved, the Company will pay additional cash consideration. The Company has recorded a $10.5 million liability for the aggregate fair value of these expected contingent consideration liabilities at June 30, 2016 , including $4.7 million recorded as a current liability. For further information, see Note 8 of the Notes to the Condensed Consolidated Financial Statements.

DREW INDUSTRIES INCORPORATED

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

On April 27, 2016, the Company also amended and restated its $150.0 million “shelf-loan” facility with Prudential Investment Management, Inc. and its affiliates (“Prudential”) to conform certain covenants and other terms to the Amended Credit Agreement. The facility provides for Prudential to consider purchasing, at the Company’s request, in one or a series of transactions, Senior Promissory Notes of the Company in the aggregate principal amount of up to $150.0 million , to mature no more than 12 years after the date of original issue of each Senior Promissory Note. Prudential has no obligation to purchase the Senior Promissory Notes. On March 20, 2015, the Company issued $50.0 million of Senior Promissory Notes to Prudential for a term of five years, at a fixed interest rate of 3.35 percent per annum, payable quarterly in arrears, of which the entire amount was outstanding at June 30, 2016 . Availability under the Company’s “shelf-loan” facility, subject to the approval of Prudential, was $100.0 million at June 30, 2016 . The undrawn “shelf-loan” facility expires February 24, 2017. The Company is considering renewal options.

Availability under both the Amended Credit Agreement and the “shelf-loan” facility is subject to a maximum leverage ratio covenant which limits the amount of consolidated outstanding indebtedness to 2.5 times the trailing twelve-month EBITDA, as defined. This limitation did not impact the Company’s borrowing availability at June 30, 2016 . The remaining availability under these facilities, not including the potential increase of $125 million under the Amended Credit Agreement, was $297.5 million at June 30, 2016 . The Company believes the availability under the Amended Credit Agreement and “shelf-loan” facility is adequate to finance the Company’s anticipated cash requirements for the next twelve months.

Additional information on the Company’s Amended Credit Agreement and “shelf-loan” facility is included in Note 7 of the Notes to the Condensed Consolidated Financial Statements.

CORPORATE GOVERNANCE

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

CONTINGENCIES

Information required by this item is included in Note 8 of the Notes to the Condensed Consolidated Financial Statements and under Item 1 of Part I of this Quarterly Report on Form 10-Q.

INFLATION

The prices of key raw materials, consisting primarily of steel and aluminum, and components used by the Company which are made from these raw materials, are influenced by demand and other factors specific to these commodities, rather than being directly affected by inflationary pressures. Prices of these commodities have historically been volatile, and over the past few months prices have continued to fluctuate. The Company did not experience any significant increases in its labor costs in the first six months of 2016 related to inflation.

DREW INDUSTRIES INCORPORATED

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

NEW ACCOUNTING PRONOUNCEMENTS

Information required by this item is included in Note 12 of the Notes to the Condensed Consolidated Financial Statements.

USE OF ESTIMATES

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains certain “forward-looking statements” with respect to the Company’s financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities, acquisitions, plans and objectives of management 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, as amended, and Section 27A of the Securities Act of 1933, as amended, and involve a number of risks and uncertainties.

Forward-looking statements, including, without limitation, those relating to the Company’s future business prospects, net sales, expenses and income (loss), cash flow, and financial condition, whenever they occur in this Form 10-Q are necessarily estimates reflecting the best judgment of the Company’s senior management at the time such statements were made. There are a number of factors, many of which are beyond the Company’s control, which could cause actual results and events to differ materially from those described in the forward-looking statements. These factors include, in addition to other matters described in this Form 10-Q, pricing pressures due to domestic and foreign competition, costs and availability of raw materials (particularly steel, steel based components and aluminum) and other components, seasonality and cyclicality in the industries to which the Company sells its products, availability of credit for financing the retail and wholesale purchase of products for which the Company sells its components, inventory levels of retail dealers and manufacturers, availability of transportation for products for which the Company sells its components, the financial condition of the Company’s customers, the financial condition of retail dealers of products for which the Company sells its components, retention and concentration of significant customers, the costs, pace of and successful integration of acquisitions and other growth initiatives, availability and costs of labor, employee benefits, employee retention, realization and impact of efficiency improvements and cost reductions, the successful entry into new markets, the costs of compliance with environmental laws and increased governmental regulation and oversight, information technology performance and security, the ability to protect intellectual property, interest rates, oil and gasoline prices, the impact of international, national and regional economic conditions and consumer confidence on the retail sale of products for which the Company sells its components, and other risks and uncertainties discussed more fully under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 , and in the Company’s subsequent filings with the Securities and Exchange Commission. The Company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law.

DREW INDUSTRIES INCORPORATED

ITEM 3 – QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

At June 30, 2016 , the Company had $50.0 million of fixed rate debt outstanding. Assuming there is a decrease of 100 basis points in the interest rate for borrowings of a similar nature subsequent to June 30, 2016 , which the Company becomes unable to capitalize on in the short-term as a result of the structure of its fixed rate financing, future cash flows would be approximately $0.5 million lower per annum than if the fixed rate financing could be obtained at current market rates.

The Company is also exposed to changes in the prices of raw materials, specifically steel and aluminum. The Company has, from time to time, entered into derivative instruments for the purpose of managing a portion of the exposures associated with fluctuations in aluminum prices. At June 30, 2016 , the Company had no derivative instruments outstanding.

The Company has historically been able to obtain sales price increases to partially offset the majority of raw material cost increases. However, there can be no assurance future cost increases, if any, can be partially or fully passed on to customers, or that the timing of such sales price increases will match raw material cost increases.

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

ITEM 4 – CONTROLS AND PROCEDURES


a)	Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, in accordance with the definition of “disclosure controls and procedures” in Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the desired control objectives. Management included in its evaluation the cost-benefit relationship of possible controls and procedures. The Company continually evaluates its disclosure controls and procedures to determine if changes are appropriate based upon changes in the Company’s operations or the business environment in which it operates.

As of the end of the period covered by this Form 10-Q, the Company performed an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.


b)	Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting during the quarter ended June 30, 2016 , which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company has selected a new enterprise resource planning (“ERP”) system. Implementation of the new ERP software began in late 2013. To date, 21 locations have been put on this ERP software. The roll-out plan is continually evaluated in the context of priorities for the business and may change as needs of the business dictate. The Company anticipates enhancements to controls due to both the installation of the new ERP software and business process changes resulting therefrom.

DREW INDUSTRIES INCORPORATED

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

In the normal course of business, the Company is subject to proceedings, lawsuits, regulatory agency inquiries and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, it is management’s opinion that after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided in the Condensed Consolidated Balance Sheets as of June 30, 2016 , would not be material to the Company’s financial position or annual results of operations.

ITEM 1A – RISK FACTORS

There have been no material changes to the matters discussed in Part I, Item 1A – Risk Factors in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 29, 2016.

ITEM 6 – EXHIBITS

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


1)	31.1 Certification of Chief Executive Officer required by Rule 13a-14(a). Exhibit 31.1 is filed herewith.


2)	31.2 Certification of Chief Financial Officer required by Rule 13a-14(a). Exhibit 31.2 is filed herewith.


3)	32.1 Certification of Chief Executive Officer required by Rule 13a-14(b) and Section 1350 Chapter 63 of Title 18 of the United States Code. Exhibit 32.1 is filed herewith.


4)	32.2 Certification of Chief Financial Officer required by Rule 13a-14(b) and Section 1350 Chapter 63 of Title 18 of the United States Code. Exhibit 32.2 is filed herewith.


5)	101 Interactive Data Files.

DREW INDUSTRIES INCORPORATED

SIGNATURES

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



DREW INDUSTRIES INCORPORATED
Registrant


By	/s/ David M. Smith
David M. Smith
Chief Financial Officer
August 9, 2016

TABLE OF CONTENTS

Part I Financial Information Item 1 Financial Statements Item 2 Management S Discussion and Analysis Of Item 3 Quantitative and Qualitative Item 4 Controls and Procedures Part II Other Information Item 1 Legal Proceedings Item 1A Risk Factors Item 6 Exhibits

LCII 10-Q Quarter ended June 30, 2016