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Drew Industries Reports Second Quarter 2012 Results

August 2, 2012

WHITE PLAINS, N.Y., Aug. 2, 2012 /PRNewswire/ — Drew Industries Incorporated (NYSE: DW), a leading supplier of components for recreational vehicles (RVs) and manufactured homes, today reported net income of $11.7 million, or $0.52 per diluted share for the second quarter ended June 30, 2012, compared to net income of $11.0 million, or $0.49 per diluted share in the second quarter of 2011.

Net sales in the 2012 second quarter increased to $251 million, a record for any quarter, and 35 percent higher than in the 2011 second quarter. This sales growth was primarily the result of a 39 percent sales increase by Drew’s RV Segment, which accounted for 87 percent of Drew’s consolidated net sales. RV Segment sales growth was largely due to acquisitions, market share gains, and an 8 percent increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs, Drew’s primary RV market. In addition, sales to adjacent markets more than doubled this quarter, largely as a result of acquisitions and an increase in sales of axles to non-RV markets. Drew’s MH Segment also reported strong sales growth in the second quarter of 2012, due to an estimated 13 percent increase in industry-wide production of manufactured homes. Excluding the impact of acquisitions, consolidated sales were up 23 percent.

Drew’s sales growth continued in July 2012, during which sales reached approximately $73 million, 49 percent higher than in July 2011. Excluding the impact of acquisitions, net sales for July 2012 were up approximately 35 percent. It is estimated that industry-wide shipments of travel trailer and fifth-wheel RVs increased 20 to 25 percent in July 2012.

Drew’s operating profit margin was 7.6 percent in the second quarter of 2012 compared to 7.8 percent in the 2012 first quarter. Profit margins continue to be impacted by excess labor, overtime, and related costs, all of which reduced net income by approximately $3.0 million, or $0.13 per diluted share compared to expectations. These higher costs were the result of lower operating efficiencies due to greater-than-expected demand which caused the Company to hire, train and support 1,100 more employees than in the second quarter of 2011. Material cost as a percent of sales was also higher than in the first quarter, partly as a result of increased outsourcing costs due to capacity limitations, as well as higher scrap costs.

“As a result of higher-than-expected demand for our products throughout the second quarter of 2012, our operating margins did not improve sequentially as had been anticipated,” said Fred Zinn, Drew’s President and CEO. “In some product lines, demand exceeded our capability to efficiently produce. In order to maintain our commitments to customers for on-time delivery of quality products, we incurred substantial overtime costs and other inefficiencies. However, the increased demand for our products will ultimately benefit our long-term profitability, as we increase capacity and improve production efficiencies.”

“We continue to devote significant effort, and invest financial resources, to expand production capacity and improve production efficiencies,” said Jason Lippert, CEO of Drew’s subsidiaries, Lippert Components and Kinro. “Over the past year and a half we have added 700,000 square feet of production space, and plan to reopen some of the space we shuttered in prior years. Further, we are developing leaner manufacturing strategies, and exploring technology to improve our production capabilities. We have experienced growth surges in the past, and we have right-sized our capacity through investment in people, technology and facilities. While the full impact of such investments takes time to realize, we expect production efficiencies to improve, and we will continue to invest in order to realize our future potential.”

Recreational Vehicle (RV) Products Segment
As a result of market share gains and acquisitions, the Company’s content in travel trailers and fifth-wheel RVs reached $2,596 in the 12 months ended June 30, 2012, up from $2,188 in the prior 12 month period. On a pro forma basis, including the impact of acquisitions as if they had been completed at the beginning of the period, content per travel trailer and fifth-wheel RV was $2,650 in the 12 months ended June 30, 2012.

The factors that adversely affected Drew’s consolidated results in the second quarter of 2012 were almost entirely related to the RV Segment. Further, fixed costs were approximately $2 million higher than in the second quarter of 2011, primarily due to additional staff and facilities, as well as higher amortization, largely from acquisitions and other investments. As a result, the incremental profit margin on the increase in sales, which assumes fixed costs do not change, was lower than the Company would typically expect.

For the three months ended May 2012, retail sales of travel trailer and fifth-wheel RVs were up 9 percent from the year-earlier period, compared to the 7 percent increase in industry-wide wholesale production over the same period. Industry surveys indicate that RV dealers are cautious, but generally comfortable with their level of towable RV inventory. Future industry-wide production levels will depend largely on the strength of retail sales levels.

Manufactured Housing (MH) Products Segment
Year-over-year industry-wide production of manufactured homes was up an estimated 13 percent in the second quarter of 2012. Despite this increase in demand, production efficiencies remained favorable in this segment of the Company’s business, because the Company has the capacity to increase production levels. As a result, MH Segment operating profit increased $1.1 million compared to the second quarter of 2011, on a $3.7 million increase in net sales.

Other Items
The Company ended the second quarter with $43 million in cash, up from $7 million at the end of 2011. The Company had no debt at either June 30, 2012 or December 31, 2011.

Conference Call & Webcast
Drew will provide an online, real-time webcast of its second quarter 2012 earnings conference call on the Company’s website, www.drewindustries.com, on Thursday, August 2, 2012 at 11:00 a.m. Eastern time. The call can also be accessed at www.companyboardroom.com.

Institutional investors can access the call via the password-protected site, StreetEvents (www.streetevents.com). A replay of the call will be available by telephone by dialing (888) 286-8010 and referencing access code 77643709. A replay of the webcast will also be available on Drew’s website.

About Drew
Drew, through its wholly-owned subsidiaries, Kinro and Lippert Components, supplies a broad array of components for RVs, manufactured homes, modular housing, truck caps and buses, and trailers used to haul boats, livestock, equipment and other cargo. Currently, from 30 factories located throughout the United States, Drew serves most major national manufacturers of RVs and manufactured homes. Additional information about Drew and its products can be found at www.drewindustries.com.

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

Forward-looking statements, including, without limitation, those relating to our future business prospects, net sales, expenses and income (loss), cash flow, and financial condition, whenever they occur in this press release are necessarily estimates reflecting the best judgment of our senior management at the time such statements were made, and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by forward-looking statements. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. You should consider forward-looking statements, therefore, in light of various important factors, including those set forth in this press release, and in our subsequent filings with the Securities and Exchange Commission.

There are a number of factors, many of which are beyond the Company’s control, which could cause actual results and events to differ materially from those described in the forward-looking statements. These factors include, in addition to other matters described in this press release, pricing pressures due to domestic and foreign competition, costs and availability of raw materials (particularly steel, steel-based components, and aluminum) and other components, availability of credit for financing the retail and wholesale purchase of products for which we sell our components, availability and costs of labor, inventory levels of retail dealers and manufacturers, levels of repossessed manufactured homes and RVs, changes in zoning regulations for manufactured homes, sales declines in the industries to which we sell our products, the financial condition of our customers, the financial condition of retail dealers of products for which we sell our components, retention and concentration of significant customers, the successful integration of acquisitions, interest rates, oil and gasoline prices, and the outcome of litigation. In addition, international, national and regional economic conditions and consumer confidence affect the retail sale of products for which we sell our components.

                                                                                                                                           DREW INDUSTRIES INCORPORATED
                                                                                                                                                 OPERATING RESULTS
                                                                                                                                                    (unaudited)

                                                                                                                                                                                                                                                                                                                Six Months Ended          Three Months Ended
                                                                                                                                                                                                                                                                                                                    June 30,                                          Last Twelve
                                                                                                                                                                                                                                                                                                                                                June 30,
                                                                                                                                                                                                                                                                                                                                               --------
    (In thousands, except per share amounts)                                                                                                                                                                                                                                                                                2012                        2011                 2012              2011           Months
                                                                                                                                                                                                                                                                                                                            ----                        ----                 ----              ----           ------

    Net sales                                                                                                                                                                                                                                                                                                           $474,566                    $354,881             $251,014          $186,048          $800,851
    Cost of sales                                                                                                                                                                                                                                                                                                        383,320                     274,943              204,591           143,989           649,822
                                                                                                                                                                                                                                                                                                                         -------                     -------              -------           -------           -------
        Gross profit                                                                                                                                                                                                                                                                                                      91,246                      79,938               46,423            42,059           151,029
    Selling, general and administrative expenses                                                                                                                                                                                                                                                                          54,905                      46,485               27,455            24,149            99,593
                                                                                                                                                                                                                                                                                                                          ------                      ------               ------            ------            ------
            Operating profit                                                                                                                                                                                                                                                                                              36,341                      33,453               18,968            17,910            51,436
    Interest expense, net                                                                                                                                                                                                                                                                                                    130                         119                   56                61               303
                                                                                                                                                                                                                                                                                                                             ---                         ---                  ---               ---               ---
            Income before income taxes                                                                                                                                                                                                                                                                                    36,211                      33,334               18,912            17,849            51,133
    Provision for income taxes                                                                                                                                                                                                                                                                                            13,387                      12,982                7,204             6,884            18,602
                                                                                                                                                                                                                                                                                                                          ------                      ------                -----             -----            ------
            Net income                                                                                                                                                                                                                                                                                                   $22,824                     $20,352              $11,708           $10,965           $32,531
                                                                                                                                                                                                                                                                                                                         =======                     =======              =======           =======           =======

    Net income per common share:
            Basic                                                                                                                                                                                                                                                                                                          $1.02                       $0.91                $0.52             $0.49             $1.45
                                                                                                                                                                                                                                                                                                                           =====                       =====                =====             =====             =====
            Diluted                                                                                                                                                                                                                                                                                                        $1.01                       $0.91                $0.52             $0.49             $1.44
                                                                                                                                                                                                                                                                                                                           =====                       =====                =====             =====             =====

    Weighted average common shares outstanding:
            Basic                                                                                                                                                                                                                                                                                                         22,479                      22,244               22,516            22,270            22,385
                                                                                                                                                                                                                                                                                                                          ======                      ======               ======            ======            ======
            Diluted                                                                                                                                                                                                                                                                                                       22,686                      22,417               22,731            22,458            22,579
                                                                                                                                                                                                                                                                                                                          ======                      ======               ======            ======            ======

    Depreciation and amortization                                                                                                                                                                                                                                                                                        $12,361                     $10,016               $5,980            $5,126           $22,867
                                                                                                                                                                                                                                                                                                                         =======                     =======               ======            ======           =======
    Capital expenditures                                                                                                                                                                                                                                                                                                 $13,154                     $10,543               $7,470            $7,407           $26,928
                                                                                                                                                                                                                                                                                                                         =======                     =======               ======            ======           =======

                                                                                 DREW INDUSTRIES INCORPORATED
                                                                                        SEGMENT RESULTS
                                                                                          (unaudited)

                                                  Six Months Ended           Three Months Ended
                                                      June 30,                    June 30,                              Last Twelve
                                                      --------                    --------
    (In thousands)                                            2012            2011                                2012              2011           Months
                                                              ----            ----                                ----              ----           ------

    Net sales:
        RV Segment:
            RV OEMs:
                Travel Trailers and Fifth-Wheels                   $351,934                                   $269,800                   $183,855         $139,148  $581,986
                Motorhomes                                           14,192                                      8,940                      8,240            4,316    21,080
            RV Aftermarket                                            9,359                                      8,061                      5,369            4,092    15,958
            Adjacent Industries                                      38,501                                     16,627                     20,967            9,643    62,177
                                                                     ------                                     ------                     ------            -----    ------
                    Total RV Segment net sales                      413,986                                    303,428                    218,431          157,199   681,201
                                                                    -------                                    -------                    -------          -------   -------

        MH Segment:
            Manufactured Housing OEMs                                40,490                                     34,625                     21,778           19,775    82,952
            Manufactured Housing Aftermarket                          8,740                                      8,439                      4,471            4,449    16,485
            Adjacent Industries                                      11,350                                      8,389                      6,334            4,625    20,213
                                                                     ------                                      -----                      -----            -----    ------
                Total MH Segment net sales                           60,580                                     51,453                     32,583           28,849   119,650
                                                                     ------                                     ------                     ------           ------   -------

                Total net sales                                    $474,566                                   $354,881                   $251,014         $186,048  $800,851
                                                                   ========                                   ========                   ========         ========  ========

    Operating profit:
        RV Segment                                                  $34,264                                    $32,625                    $17,483          $17,324   $47,354
        MH Segment                                                    7,161                                      5,177                      4,030            2,953    13,964
                                                                      -----                                      -----                      -----            -----    ------
                Total segment operating profit                       41,425                                     37,802                     21,513           20,277    61,318
    Corporate                                                        (4,524)                                    (4,043)                    (2,216)          (1,946)   (7,964)
    Accretion related to contingent consideration                      (920)                                      (949)                      (432)            (474)   (1,857)
    Other non-segment items                                             360                                        643                        103               53       (61)
                                                                        ---                                        ---                        ---              ---       ---
                Total operating profit                              $36,341                                    $33,453                    $18,968          $17,910   $51,436
                                                                    =======                                    =======                    =======          =======   =======

                                               DREW INDUSTRIES INCORPORATED
                                                 BALANCE SHEET INFORMATION
                                                        (Unaudited)

                                 June 30,            December 31,
                                 --------            ------------
    (In
     thousands,
     except
     ratios)                          2012                   2011               2011
                                      ----                   ----               ----

     Current
     assets
          Cash
           and
           cash
           equivalents                      $42,514                          $36,774   $6,584
           Accounts
           receivable,
           net                               50,900                           44,050   22,620
          Inventories                        91,413                           83,556   92,052
           Deferred
           taxes                             10,125                           12,143   10,125
           Prepaid
           expenses
           and
           other
           current
           assets                             9,631                            6,163    6,187
                                              -----                            -----    -----
                  Total
                   current
                   assets                   204,583                          182,686  137,568
    Fixed
     assets,
     net                                     99,342                           85,308   95,050
    Goodwill                                 21,177                            8,600   20,499
    Other
     intangible
     assets,
     net                                     73,986                           58,433   79,059
     Deferred
     taxes                                   14,496                           15,385   14,496
    Other
     assets                                   5,618                            3,969    4,411
                                              -----                            -----    -----
                  Total
                   assets                  $419,202                         $354,381 $351,083
                                           ========                         ======== ========

     Current
     liabilities
           Accounts
           payable,
           trade                            $44,372                          $27,377  $15,742
           Accrued
           expenses
           and
           other
           current
           liabilities                       48,665                           39,101   36,169
                                             ------                           ------   ------
                  Total
                   current
                   liabilities               93,037                           66,478   51,911
    Other
     long-
     term
     liabilities                             21,305                           20,279   21,876
                                             ------                           ------   ------
                  Total
                   liabilities              114,342                           86,757   73,787
                  Total
                   stockholders'
                   equity                   304,860                          267,624  277,296
                                            -------                          -------  -------
                  Total
                   liabilities
                   and
                   stockholders'
                   equity                  $419,202                         $354,381 $351,083
                                           ========                         ======== ========

                                                                                            DREW INDUSTRIES INCORPORATED
                                                                                               SUMMARY OF CASH FLOWS
                                                                                                    (unaudited)

                                                                                                                         Six Months Ended
                                                                                                                             June 30,
                                                                                                                             --------
    (In thousands)                                                                                                                   2012
                                                                                                                                                   2011
                                                                                                                                                   ----

    Cash flows from operating activities:
        Net income                                                                                                                        $22,824       $20,352
        Adjustments to reconcile net income to cash flows provided by operating activities:
            Depreciation and amortization                                                                                                  12,361        10,016
            Stock-based compensation expense                                                                                                3,069         2,209
            Deferred taxes                                                                                                                      -           385
            Other non-cash items                                                                                                            1,131           162
            Changes in assets and liabilities, net of acquisitions of businesses:
                    Accounts receivable, net                                                                                              (28,280)      (31,160)
                    Inventories                                                                                                             1,227       (12,623)
                    Prepaid expenses and other assets                                                                                      (4,642)       (1,926)
                    Accounts payable                                                                                                       28,630        16,026
                    Accrued expenses and other liabilities                                                                                 12,241         6,965
                                                                                                                                           ------         -----
                                Net cash flows provided by operating activities                                                            48,561        10,406
                                                                                                                                           ------        ------

    Cash flows from investing activities:
        Capital expenditures                                                                                                              (13,154)      (10,543)
        Acquisitions of businesses                                                                                                         (1,473)       (7,250)
        Proceeds from maturity of short-term investments                                                                                        -         5,000
        Other investing activities                                                                                                          2,075           142
                                                                                                                                            -----           ---
                                Net cash flows used for investing activities                                                              (12,552)      (12,651)
                                                                                                                                          -------       -------

    Cash flows from financing activities:
        Exercise of stock options and deferred stock units                                                                                  1,471           504
        Proceeds from line of credit borrowings                                                                                            37,702             -
        Repayments under line of credit borrowings                                                                                        (37,702)            -
        Payment of contingent consideration related to acquisitions                                                                        (1,550)         (224)
        Other financing activities                                                                                                              -          (141)
                                                                                                                                              ---          ----
                                Net cash flows (used for) provided by financing activities                                                    (79)          139
                                                                                                                                              ---           ---

                                Net increase (decrease) in cash                                                                            35,930        (2,106)

    Cash and cash equivalents at beginning of period                                                                                        6,584        38,880
                                                                                                                                            -----        ------
    Cash and cash equivalents at end of period                                                                                            $42,514       $36,774
                                                                                                                                          =======       =======

                                                                                                         DREW INDUSTRIES INCORPORATED
                                                                                                           SUPPLEMENTARY INFORMATION
                                                                                                                  (Unaudited)

                                                                                                                               Six Months Ended                         Three Months Ended
                                                                                                                                   June 30,                                  June 30,                                   Last Twelve
                                                                                                                                   --------                                  --------
                                                                                                                                2012                    2011                                  2012                   2011                  Months
                                                                                                                                ----                    ----                                  ----                   ----                  ------

    Industry Data(1)(in thousands of units):
       Industry Wholesale Production:
          Travel Trailer and Fifth-Wheel RVs                                                                                   131.5                   120.2                                  71.1                   66.0                              224.2
          Motorhome RVs                                                                                                         14.5                    14.7                                   7.6                    7.8                               24.6
          Manufactured Homes                                                                                                 28.0(2)                    23.2                               15.2(2)                   13.4                            56.5(2)
       Industry Retail Sales:
          Travel Trailer and Fifth-Wheel RVs                                                                                117.2(3)                   108.5                               78.7(3)                   75.1                           206.0(3)

    (1)   Industry wholesale production data for travel trailer and fifth-wheel RVs and motorhome RVs provided by the Recreation Vehicle Industry Association
            ("RVIA"). Industry wholesale production data for manufactured homes provided by the Institute for Building Technology and Safety ("IBTS").
            Industry retail sales data provided by Statistical Surveys, Inc.
    (2)   June wholesale data for manufactured homes has not been published yet, therefore 2012 MH wholesale data includes an estimate for June 2012 units.
    (3)   June retail sales data for RVs has not been published yet, therefore 2012 retail data includes an estimate for June 2012 retail units.

                                                                                                                                                                                           Twelve Months Ended
                                                                                                                                                                                                 June 30,
                                                                                                                                                                                                 --------
                                                                                                                                                                                              2012                   2011
                                                                                                                                                                                              ----                   ----
    Drew Content Per Industry Unit Produced:
       Travel Trailer and Fifth-Wheel RV                                                                                                                               $2,596                               $2,188
       Motorhome RV                                                                                                                                                      $857                                 $612
       Manufactured Home                                                                                                                                            $1,468(1)                               $1,414

    (1)   June wholesale data for manufactured homes has not been published yet, therefore 2012 MH wholesale data includes an estimate for June 2012 units.

                                                                                                                                                                                                            June 30,                   December 31,
                                                                                                                                                                                                            --------                   ------------
                                                                                                                                                                         2012                                 2011                2011
                                                                                                                                                                         ----                                 ----                ----

    Balance Sheet Data:
       Current ratio                                                                                                                                                      2.2                                  2.7                 2.7
       Total indebtedness to stockholders' equity                                                                                                                           -                                    -                   -
       Days sales in accounts receivable                                                                                                                                 19.3                                 21.0                17.1
       Inventory turns, based on last twelve months                                                                                                                       7.1                                  6.2                 6.3

    Estimated Full Year Data:                                                                                                                           2012
                                                                                                                                                        ----
       Capital expenditures                                                                                                                                $  23 - 25 million
       Depreciation and amortization                                                                                                                       $  24 - 25 million
       Stock-based compensation expense                                                                                                                    $    6 - 7 million
       Annual tax rate                                                                                                                                                     38%

SOURCE Drew Industries Incorporated


Source: PR Newswire