The Company has two reportable segments, the recreational vehicle ("RV") products segment (the "RV Segment") and the manufactured housing products segment (the "MH Segment"). The Company's operations are conducted through its wholly-owned operating subsidiaries, Kinro, Inc. and its subsidiaries (collectively, "Kinro") and Lippert Components, Inc. and its subsidiaries (collectively, "Lippert"). Each has operations in both the RV and MH Segments. At September 30, 2009, the Company operated 27 facilities in the United States.

The RV Segment accounted for 77 percent of consolidated net sales for the nine months ended September 30, 2009 and 72 percent of the annual consolidated net sales for 2008. The RV Segment manufactures a variety of products used primarily in the production of RVs, including:

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

More than 90 percent of the Company's RV Segment sales are of products used in travel trailers and fifth-wheel RVs. The balance primarily consists of sales of components for motorhomes, as well as sales of specialty trailers and axles for specialty trailers. Travel trailers and fifth-wheel RVs accounted for 78 percent and 74 percent of all RVs shipped by the industry in 2008 and 2007, respectively, up from 61 percent in 2001.

The MH Segment, which accounted for 23 percent of consolidated net sales for the nine months ended September 30, 2009 and 28 percent of the annual consolidated net sales for 2008, manufactures a variety of products used in the production of manufactured homes and to a lesser extent, modular housing and office units, as well as replacement parts for manufactured homes, including:

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

In addition, in the fourth quarter of 2009, the Company began production of entry doors for manufactured homes.

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

BACKGROUND

Recreational Vehicle Industry

An RV is a vehicle designed as temporary living quarters for recreational, camping, travel or seasonal use. RVs may be motorized (motorhomes) or towable (travel trailers, fifth-wheel travel trailers, folding camping trailers and truck campers). Towable RVs represented 93 percent of the 121,400 RVs produced in the first nine months of 2009, while motorhomes represented the remaining 7 percent of RVs produced. Motorhomes have a significantly higher average retail selling price than towable RVs.

During 2008, and continuing into the first six months of 2009, retail sales of RVs declined because of severe economic conditions, including low consumer confidence, limited credit availability for both dealers and consumers, and continued weakness in the real estate and mortgage markets. As a result, RV manufacturers significantly reduced their output, and, according to the Recreation Vehicle Industry Association ("RVIA"), industry-wide wholesale shipments of travel trailers and fifth-wheel RVs, the Company's primary RV markets, declined 53 percent to 59,400 units for the first six months of 2009, which reduced sales by the Company of components for new RVs. However, trends improved during the third quarter of 2009, with industry-wide wholesale shipments of travel trailers and fifth-wheel RVs increasing 5 percent compared to the third quarter of 2008, to 41,500 units. This was the first year over year increase in quarterly shipments since the fourth quarter of 2007, and is reportedly due to both a restocking of inventory by dealers, and an improvement in retail demand.

While the Company measures its RV sales against industry-wide wholesale shipment statistics, it believes the underlying health of the RV industry is determined by retail demand. Throughout 2008 and the first eight months of 2009, retail sales remained below prior year levels. September 2009 retail sales information is not yet available.

A comparison of the year over year percentage change in industry-wide wholesale shipments and retail shipments of travel trailers and fifth-wheel RVs, as reported by Statistical Surveys, Inc., is as follows:

                                                               Wholesale               Retail
Quarter ended March 31, 2008                                              (8 )%               (16 )%
Quarter ended June 30, 2008                                              (18 )%               (19 )%
Quarter ended September 30, 2008                                         (38 )%               (27 )%
Quarter ended December 31, 2008                                          (63 )%               (36 )%
Quarter ended March 31, 2009                                             (61 )%               (38 )%
Quarter ended June 30, 2009                                              (44 )%               (30 )%
Quarter ended September 30, 2009                                           5 %                (21 )% (1)

Year ended December 31, 2008 (29 )% (23 )% Year ended December 31, 2007 (10 )% 4 %

Retail statistics, reported by Statistical Surveys, Inc., do not include sales of RVs in Canada. The RVIA reported that over one in five towable RVs was shipped to Canada in 2008. Towable RV shipments to Canada for 2009 are not yet available.

For the four quarters ended June 30, 2009, retail sales of travel trailers and fifth-wheel RVs did not decline as sharply as industry-wide wholesale shipments, indicating that dealers were selling, but not replacing inventories, and therefore dealer inventories declined. However, in the quarter ended September 30, industry-wide wholesale shipments of travel trailers and fifth-wheel RVs increased 5 percent, while retail sales for July and August 2009, the last months for which retail data is available, declined, indicating that dealers may have restocked inventory. A survey of RV dealers indicated that dealer inventories of towable RVs in the third quarter of 2009 were 90 days, consistent with the 87 days sales in the second quarter of 2009, but a significant decline from the 154 days sales reported for the third quarter of 2008. In that 2009 survey, only 16 percent of dealers said their inventories were too high.

The RVIA has projected a 35 percent decline in industry-wide wholesale shipments of travel trailers and fifth-wheel RVs for 2009, to 120,700 units. However, based upon the increase in industry-wide wholesale shipments of travel trailers and fifth wheel RVs subsequent to the September 2009 RVIA forecast, the actual industry-wide wholesale shipments in 2009 are likely to be greater than the RVIA projection.

The RVIA has projected an increase in industry-wide wholesale shipments of travel trailers and fifth-wheel RVs for 2010, to 155,700 units. Following the last three recessions, industry-wide shipments of RVs grew by more than 20 percent in the first year of the recovery. Consumer confidence and the availability of financing have historically been important factors in the overall growth in the RV industry.

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

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

Manufactured Housing Industry

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

The Institute for Building Technology and Safety ("IBTS") reported that for the first nine months of 2009, industry-wide wholesale production of manufactured homes decreased 42 percent over the first nine months of 2008, including a 37 percent decline during the third quarter of 2009. Manufactured homes contain one or more "floors" or sections which can be joined to make larger homes. For the first nine months of 2009, larger multi-section manufactured homes represented 63 percent of the total manufactured homes produced, down from 68 percent for all of 2007, and 80 percent in all of 2003. Multi-section manufactured homes contain more of the Company's products than single-section manufactured homes.

The decline in multi-section homes over the past few years is apparently partly due to the weak site-built housing market, as a result of which many retirees have not been able to sell their primary residence, or may have been unwilling to sell at currently depressed prices, and purchase a more affordable manufactured home as many retirees had done historically.

For the full year 2009, industry-wide wholesale production of manufactured homes is estimated to be approximately 45,000 to 50,000, a decline of over 85 percent since 1998. This decline was primarily the result of limited credit availability because of high credit standards applied to purchases of manufactured homes, high down payment requirements, and high interest rate spreads between conventional mortgages for site-built homes and chattel loans for manufactured homes (chattel loans are loans secured only by the home which is sited on leased land).

Legislation enacted in July 2008 increased Federal Housing Administration ("FHA") insured lending limits for chattel mortgages for manufactured homes from less than $49,000 to nearly $70,000, subject to future adjustments based on inflation. The final regulations for the insured lending limits were put into place in March 2009. The American Recovery and Reinvestment Act of 2009 also authorized a tax credit of the lesser of 10 percent of the purchase price, or $8,000, for qualified first-time home buyers purchasing a principal residence during 2009, which applies to manufactured housing. The Worker, Homeownership, and Business Assistance Act of 2009 extended the tax credit until April 30, 2010, and also authorized a tax credit of up to $6,500 for qualified repeat home buyers. The impact of these programs has been modest so far, and any future impact on demand for new manufactured homes cannot be determined at this time.

The Company believes the manufactured housing industry may begin to experience a modest recovery once the recession ends and home buyers begin to look for affordable housing. However, because of the current real estate and economic environment, low consumer confidence, and tight credit markets, the Company currently expects industry-wide wholesale production of manufactured homes to remain low for the balance of 2009 and the first half of 2010.

The Company also believes that long-term growth prospects for manufactured housing may be positive because of (i) the quality and affordability of the home, (ii) the favorable demographic trends, including the increasing number of retirees who, in the past, had represented a significant market for manufactured homes, (iii) pent-up demand by retirees who have been unable or unwilling to sell their primary residence and purchase a manufactured home, and (iv) the unavailability of subprime mortgages for site-built homes.

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

RESULTS OF OPERATIONS

Net sales and operating (loss) profit are as follows (in thousands):

                                    Nine Months Ended          Three Months Ended
                                      September 30,               September 30,
                                   2009          2008          2009          2008
Net sales:
RV Segment                       $ 225,621     $ 320,941     $  94,460     $  85,694
MH Segment                          67,627       113,004        27,206        38,580
Total net sales                  $ 293,248     $ 433,945     $ 121,666     $ 124,274

Operating profit:
RV Segment                       $  12,814     $  31,848     $  11,130     $   4,598
MH Segment                           2,559        10,989         2,831         3,913
Total segment operating profit      15,373        42,837        13,961         8,511
Amortization of intangibles         (4,185 )      (3,670 )      (1,410 )      (1,547 )
Corporate                           (4,819 )      (5,714 )      (1,701 )      (1,747 )
Goodwill impairment                (45,040 )           -             -             -
Other items                         (2,087 )       1,561           463          (687 )
Total operating (loss) profit    $ (40,758 )   $  35,014     $  11,313     $   4,530

Consolidated Highlights

† Net sales in the third quarter of 2009 decreased 2 percent, or $3 million, compared to the third quarter of 2008 due to:

· A 29 percent decline in net sales of the MH Segment due to the 37 percent decline in industry-wide wholesale production of manufactured homes, partially offset by market share gains.

Partially offset by:

· A 10 percent increase in net sales of the RV Segment due to the 5 percent increase in industry-wide wholesale shipments of travel trailers and fifth-wheel RVs, as well as market share gains.

The Company's RV Segment continued to achieve market share gains, led by recently-introduced products, in particular, RV entry doors and the Company's Seating Technology furniture products.

In July 2009, a supplier of manufactured housing windows and doors exited the market. Since then, the Company has gained new window business of $2 million in the third quarter of 2009, and more than $7 million annually.

In addition, with the purchase of entry door production equipment and inventory on September 29, 2009, the Company is entering the $25 million to $30 million market for manufactured housing entry doors. The Company will begin production of manufactured housing entry doors in the fourth quarter of 2009. Approximately half of this new potential is in aftermarket replacement entry doors for manufactured homes. The Company's aftermarket sales, primarily comprised of windows and thermoformed bath products, were approximately $10 million to $12 million for the twelve months ended September 2009, and could increase if the Company gains market share in aftermarket manufactured housing entry doors.

† Net income for the third quarter of 2009 increased $4.6 million, or 177 percent, from the third quarter of 2008, primarily due to lower raw material and health insurance costs, and fixed cost reductions. In addition, incentive compensation was lower in the third quarter of 2009 because year-to-date operating profit for certain operations were below the pro-rata portion of previously established annual incentive compensation hurdles.

† During the third quarter of 2009, the Company continued to generate significant cash flow, increasing cash and investments by over $20 million, to nearly $47 million, and paying off the $1 million of remaining debt. This was largely accomplished by cash flows provided by operating activities of $19 million.

† Net sales in October 2009 are expected to be up approximately 8 percent compared to October 2008, an improvement over the 2 percent net sales decline in the 2009 third quarter. October 2009 had one less shipping day than October 2008.

While there are uncertainties, it appears that many of the RV producers will continue to produce five days a week for the balance of the fourth quarter of 2009, as opposed to the reduced production schedules during the fourth quarter of 2008 and first few months of 2009. However, it is difficult to anticipate production levels beyond November 2009, particularly during the traditionally slower winter months. In addition, if retail sales slow further, RV manufacturers and manufactured home producers could reduce their output, which would negatively affect the Company.

† For the balance of 2009 and the first half of 2010, the Company does not expect significant changes in the economy, the credit market, consumer confidence, or the real estate and mortgage markets. In response to the current economic environment, the Company has taken the following steps:

· Increased market share for existing products.

· Introduced new products.

· Reduced its workforce and production capacity to be more in line with anticipated demand.

· Reduced fixed overhead costs.

· Reduced costs by combining certain administrative functions and sales efforts of its subsidiaries.

· Strengthened its balance sheet by reducing inventory and conserving cash.

Cost reduction measures benefitted the Company's operating results in the third quarter of 2009 by more than $2 million, compared to the third quarter of 2008, and will benefit the full year 2009 operating results by more than $9 million as compared to the full year 2008. The cost reduction measures taken in 2009 will benefit 2010 by an additional $2.5 million. In addition, management has improved production efficiencies. The Company anticipates that a significant portion of the fixed cost reductions and production efficiencies implemented will be retained even as sales increase.

Further, if exceptional opportunities for market share and product line expansion arise due to current economic conditions, the Company's experienced operating management team, strong balance sheet and solid cash flow should allow it to respond quickly to such opportunities.

† Steel and aluminum are among the Company's principal raw materials. Since late 2007, the costs of steel and aluminum have been volatile. Last years' third quarter net income was reduced by $0.06 to $0.08 per diluted share due to high material costs which impacts the comparison to the 2009 third quarter. Then, earlier this year, raw material costs temporarily declined, but have risen 10 percent to 30 percent in the last few months, depending upon the type of raw material. The Company anticipates that these recent cost increases will likely reduce operating profit in the fourth quarter of 2009 by $1 million to $1.5 million.

While the Company has historically been able to obtain sales price increases to offset the majority of raw material cost increases, there can be no assurance that future cost increases, if any, can be partially or fully passed on to customers. The Company also continues to explore improved product design, efficiency improvements, and alternative sources of raw materials and components, both domestic and imported.

RV Segment - Third Quarter

Net sales of the RV Segment in the third quarter of 2009 increased 10 percent, or $9 million, compared to the third quarter of 2008 due to:

· An 'organic' sales increase of approximately $10 million, or 12 percent, of RV-related products. This increase was greater than the 5 percent increase in industry-wide wholesale shipments of travel trailers and fifth-wheel RVs, the Company's primary RV market, primarily due to market share gains.

Partially offset by:

· An 'organic' sales decline of approximately 39 percent or $1 million in specialty trailers due primarily to a severe industry-wide decline in sales of small and medium size boats, particularly on the West Coast, the Company's primary specialty trailer market.

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

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

                                  2009        2008        Percent Change
Content per Travel Trailer and
Fifth-Wheel RV                   $ 2,088     $ 1,870                   12 %
Content per Motorhome            $   493     $   554                  -11 %
Content per all RVs              $ 1,762     $ 1,513                   16 %

Sales of certain RV components have been reclassified between travel trailer and fifth-wheel RVs, and motorhomes in prior periods. The Company's average product content per type of RV does not include sales of replacement parts to aftermarket customers. Prior periods have been adjusted to conform to this presentation.

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

                              2009          2008         Percent Change
Travel Trailer and Fifth-
Wheel RVs                     120,800       218,900                  -45 %
Motorhomes                     11,900        37,300                  -68 %
All RVs                       146,500       284,200                  -48 %

Operating profit of the RV Segment in the third quarter of 2009 increased $6.5 million, or 142 percent, to $11.1 million, compared to the third quarter of 2008. The increase in RV Segment operating profit was more than the Company would typically expect based on the increase in net sales of $9 million.

The operating margin of the RV Segment in the third quarter of 2009 was positively impacted by:

· Lower raw material costs than in the third quarter of 2008 when raw material costs were high. However, depending upon the type of raw material, costs have recently risen 10 percent to 30 percent.

· Implementation of cost-cutting measures which reduced cost of sales.

· Labor efficiencies due to operational improvements and the increase in sales.

· Lower warranty and health insurance costs.

· A decrease in selling, general and administrative expenses to 10.8 percent of net sales in the third quarter of 2009 from 12.5 percent of net sales in the third quarter of 2008, largely due to the implementation of fixed cost reductions, lower fuel costs, and the spreading of fixed administrative costs over a larger sales base. In addition, incentive compensation was lower as a percent of sales in the third quarter of 2009 because year-to-date operating profit for certain operations were below the pro-rata portion of previously established annual incentive compensation hurdles.

· The spreading of fixed manufacturing costs over a larger sales base.

Partially offset by:

· Equipment write-downs.

· Higher overtime costs.

RV Segment - Year to Date

Net sales of the RV Segment in the first nine months of 2009 decreased 30 percent, or $95 million, compared to the same period of 2008 due to:

· An 'organic' sales decline of approximately $118 million, or 52 percent, of RV-related products during the first six months of 2009, partially offset by an 'organic' sales increase of approximately $10 million, or 12 percent, of RV-related products in the third quarter of 2009. The 35 percent 'organic' sales decline during the first nine months of 2009 was due to the 39 percent decrease in industry-wide wholesale shipments of travel trailers and fifth-wheel RVs, the Company's primary RV market.

· An 'organic' sales decline of approximately 52 percent or $6 million in specialty trailers due primarily to a severe industry-wide decline in sales of . . .