LCI Industries Annual Report 2003

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FY2003 Annual Report · LCI Industries

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INDUSTRIES INCORPORATED

2 0 0 3 A N N U A L R E P O R T

Quality Products for
RECREATIONAL VEHICLES
and MANUFACTURED HOMES

C O R P O R AT E P R O F I L E

Drew, through its wholly-owned subsidiaries, Kinro, Inc., and

Lippert Components, Inc., is a leading national supplier of a

wide variety of components for recreational vehicles and

manufactured homes. Drew manufactures windows, doors,

chassis, RV slide-out mechanisms and power units, electric

stabilizer jacks, and bath and shower units.

Drew sells to nearly all of the leading producers of both RVs

and manufactured homes, and is the market share leader in

most of its product categories. Drew’s 2,900 employees, at

41 facilities in the United States and one in Canada, provide

customers with outstanding service and quality products at

Net Sales
(in millions)

$353

$325

$269

$253

$255

competitive prices, while maintaining the highest operating

1999 2000 2001 2002 2003

efficiencies.

The management of Drew is committed to acting ethically

and responsibly, and to providing full and accurate disclo-

sures to the Company’s stockholders, employees and other

stakeholders.

…….Record Sales and
PROFITS IN 2003

F I N A N C I A L H I G H L I G H T S

The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and the historical Consolidated Financial Statements and Notes thereto
included herein:

Years Ended December 31,

(In thousands, except per share amounts)

2003

2002

2001

2000

1999

Operating Data:
Net sales
Operating profit
Income from continuing operations

before income taxes and cumulative
effect of change in accounting principle

Provision for income taxes
Income from continuing operations

before cumulative effect of change
in accounting principle

Discontinued operations1 (net of taxes)
Cumulative effect of change in accounting

principle for goodwill (net of taxes)

Net income (loss)
Income (loss) per common share:

Income from continuing operations:

Basic
Diluted

Discontinued operations:

Basic
Diluted

Cumulative effect of change in accounting

principle for goodwill:

Basic
Diluted
Net income (loss):

Basic
Diluted
Financial Data:
Working capital
Total assets
Long-term obligations
Stockholders’ equity

$353,116
$ 34,277

$325,431
$ 29,213

$254,770
$ 20,345

$253,129
$ 17,067

$268,951
$ 33,269

$ 31,243
$ 11,868

$ 25,647
$ 9,883

$ 16,194
$ 6,364

$ 13,646
$ 5,652

$ 30,595
$ 12,105

$ 19,375
48
$

$ 15,764
(200)
$

$ 9,830
(896)
$

$ 7,994
$ (6,447)2

$ 18,490
$ (1,299)

$ 19,423

$ (30,162)
$ (14,598)

$ 8,934

$ 1,547

$ 17,191

$
$

1.92
1.88

$
$

1.92
1.88

$ 29,700
$160,104
$ 27,737
$ 93,653

$
$

1.61
1.57

(.02)
(.02)

(3.08)
(3.01)

(1.49)
(1.46)

$
$

1.02
1.02

(.10)
(.10)

.92
.92

$
$

.77
.77

(.62)
(.62)

.15
.15

$
$

1.62
1.62

(.11)
(.11)

1.51
1.51

$ 24,067
$145,396
$ 39,102
$ 70,104

$ 12,816
$156,975
$ 43,936
$ 81,210

$ 23,400
$159,298
$ 58,275
$ 72,1643

$ 42,669
$156,044
$ 46,451
$ 84,089

1 Refers to the operations of the Company’s discontinued axle and tire refurbishing operation.
2 After a non-cash charge of $6.9 million in 2000 to reflect an impairment related to the Company’s axle and tire refurbishing operation.
3 In 2000, the Company purchased treasury stock for $13.5 million.

Equity Per Common Share

Year End Debt to Equity Ratio

Year-End Stock Prices

$7.44

$7.47

$8.40

$7.06

$9.18

0.9

0.7

0.6

0.4

$27.80

$16.05

$10.75

$9.00

$5.75

1999 2000 2001 2002 2003

The closing price per share for the common
stock on March 17, 2004 was $36.10.

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

D E A R S T O C K H O L D E R :

We are pleased to report that 2003 was the best year in our history, marked by sales
growth, record profitability, market share gains and new product introductions.

Drew Industries reported a 23 percent increase in
income from continuing operations to a record $19.4 mil-
lion, or $1.88 per diluted share, in 2003. Net sales grew
9 percent to a record $353 million, driven by our recre-
ational vehicle (“RV”) products segment, which continues
to outperform overall growth in the RV industry. In fact,
we gained market share in all our RV product lines and
continue to add complementary lines through new prod-
uct development, as well as acquisitions.

Our market share gains, along with new product intro-
ductions, superior customer service and stringent cost
controls combined to yield a truly outstanding year for
Drew, particularly in view of the continuing decline in the
manufactured housing industry. Yet, even as the manu-
factured housing market continued to decline, down 65
percent from its high five years ago, we were able to
maintain our margins and stay profitable in this segment.

OUTPACING THE MARKET

In 2003, RV industry shipments of both towable RVs and
motorhomes increased 3 percent to 321,000 units, follow-
ing a 21 percent increase in 2002. Industry shipments in
Drew’s primary market, travel trailers and fifth wheel
RVs, have been stronger than other RV categories, increas-
ing more than 9 percent to 214,000 units during 2003.

Outpacing industry growth, sales by Drew’s RV prod-
ucts segment increased 28 percent to $219.5 million for
2003. These results were bolstered by Drew’s continued
market share gains, particularly in slide-out mechanisms,
the addition of new products, and to a lesser extent, the
effects of the two recent acquisitions. The Company’s RV
segment accounted for 62 percent of consolidated sales
and 63 percent of consolidated segment operating profit
for 2003.

Net sales by the Company’s MH segment declined
13 percent to $133.6 million for 2003. These results

were better than the industry-wide 22 percent decline
in production of manufactured homes to 131,000 homes
in 2003. Despite the decline in sales, the segment was
profitable and the operating margin of this segment was
on par with last year.

Notably, it appears the slump in the MH industry finally
may be nearing the bottom. Industry sales fell only 17 per-
cent in the fourth quarter of 2003 and only 9 percent in
December 2003, compared to last year. Reports indicate
that the level of repossessions of manufactured homes
and the level of inventory of both repossessed homes and
new homes have declined significantly from last year.
These are all good signs for the industry. We believe that
the quality and cost advantages of manufactured homes
will result in a much stronger future for both the industry
and Drew’s MH segment. In fact, we are advocating for an
industry-wide awareness campaign, similar to the “Go
RVing” promotion in the RV industry, to build the reputa-
tion of manufactured housing and its progress as a true
segment of the real estate industry.

On the new product front, Drew acquired certain
assets and the specialty chassis and towable RV chassis
business of ET&T Frames in October 2003. This acquisi-
tion, along with the Company’s July 2003 acquisition of
specialty RV product maker LTM Manufacturing, had only
a modest impact this year. However, both acquisitions
were accretive to earnings on day one, and each repre-
sents a significant sales growth opportunity from their
combined $11.5 million historical annual sales run-rate.

SHAREHOLDER VALUE CREATION

2003 was also a year of milestones in enhancing share-
holder value as we moved our stock listing to the New York
Stock Exchange and were recognized by Institutional
(ISS) Corporate Governance
Shareholder Services’
Quotient, as scoring in the 99.9th percentile among the

EDWARD W. ROSE, III AND LEIGH J. ABRAMS

5,500 companies rated. The NYSE should provide our
stockholders with an excellent trading environment and
a platform of greater liquidity and transparency.
Likewise, the ISS rating reflects our long-standing com-
mitment to corporate governance best practices.

We also further strengthened our board of directors in
2003 with the appointment of David A. Reed as an inde-
pendent director and chairman of the Audit Committee.
David also serves on our Corporate Governance and
Nominating Committee. David retired in 2000 as Senior
Vice Chair for the international accounting firm Ernst &
Young LLP and provides another highly experienced
expert to Drew’s eight-member board, the majority of
which are independent directors.

LOOKING AHEAD

While we are confident about our growth prospects in
2004, increased steel prices remain a challenge. In mid-
December 2003 and continuing into 2004, Drew was noti-
fied by its steel suppliers of unprecedented price
increases, which have now aggregated more than 60 per-
cent. In response to the steel price increases, we took
quick action to limit the impact on our operations, and as
a result, the steel price increase is expected to have only a
minimal effect on 2004 results.

In January 2004, the Company sold certain intellectual
property rights related to a process used to manufacture
a new composite material that is stronger, requires less
maintenance, and has a better overall appearance than
fiberglass. The sale price was $4 million, including a note
of $3.9 million payable over five years. Drew anticipates
that it will record a net gain of about $300,000 in the
first quarter of 2004. Additional gains will be recorded in
subsequent quarters as the $3.5 million balance of the
note is collected.

Simultaneously with the sale, Drew entered into an
equipment lease and a license agreement with the buyer.
As a result, our Better Bath division is expected to be able
to compete favorably in the estimated $20 million market
for fiberglass bathtub products for manufactured homes.

In the future, we anticipate introducing products using
this same process for modular homes and recreational
vehicles. While the introduction of these products will
not have a significant impact on results for 2004, we do
believe it’s an important opportunity for growth in 2005
and beyond.

Our goal for 2004 will be to continue to gain market
share with our innovative products for travel trailers
and fifth wheel RVs, while at the same time accelerating
growth in sales of our windows and recently intro-
duced slide-out mechanisms and leveling systems for
motorhomes.

Finally, we recognize the contributions of Harvey J.
Kaplan, our Treasurer and Secretary, who retired in 2003
after faithfully serving Drew for more than 34 years. Our
heartfelt thanks go to Harvey and his family. Harvey has
agreed to assist Drew on a consulting basis with the com-
pliance requirements of the Sarbanes-Oxley Act, and we
appreciate the opportunity to continue to tap his expert-
ise. At the same time, we welcome Joseph S. Giordano III,
who joined Drew this year as our new Treasurer and
Corporate Controller. Prior to joining Drew, Joe spent 12
years at major public accounting firms.

As always, we want to thank our employees for their
dedication, creativity and hard work on behalf of Drew.
We also recognize our suppliers, customers, and associ-
ates, all of whom played an important part in our excep-
tional results in 2003.

EDWARD W. ROSE, III
Chairman of the Board

LEIGH J. ABRAMS
President and Chief Executive Officer

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

O U R M A R K E T S

I N D U S T R I E S

Drew Industries is focused on serving the recreational vehicle and manufactured hous-
ing markets. Through our wholly-owned subsidiaries, Kinro and Lippert Components,
Drew supplies both industries with a broad array of components, including windows,
doors, chassis, RV slide-out mechanisms and power units, electric stabilizer jacks, and
bath and shower units.

From 41 facilities located throughout the U.S., and one in Canada, we supply most of
the leading national manufacturers in these markets, such as customers like Cavalier,
Champion, Clayton Homes, Coachmen, Fleetwood, Forest River, Oakwood Homes,
Skyline, Thor and others. By leveraging highly efficient factories, state-of-the-art manu-
facturing technology and national purchasing power, Drew has positioned itself as the
lowest-cost producer in both the markets it serves.

At the same time, we have invested resources and made strategic acquisitions to
enhance new product development and innovation, in order to ensure that our compet-
itive advantage extends to market leadership. Our goals are simple:
• Become the leading supplier of components and systems to the RV market
• Enhance our position as a value-added supplier to the manufactured housing market

We are accomplishing these objectives through operational discipline, a passionate
drive for quality and customer service, forward-thinking innovation, and a focus on
being a partner, not just a supplier, with our customers.

Supporting our internal initiatives are two markets—RVs and manufactured homes—
that are experiencing dramatically different cycles, yet represent equal growth opportu-
nities for Drew. The recreational vehicle market is expanding due to positive economic
developments, and more pronounced demographic trends. The manufactured housing
market, in a slump for the past five years, is now showing signs of recovery. In both mar-
kets, Drew is poised to continue to build market share and extend our three-year trend
of increasing profitability.

Kinro, our wholly-owned subsidiary, is America’s premier manufacturer of
windows and doors for RVs and windows for manufactured homes, as well
as a producer of bath products for the manufactured housing industry.
Kinro enjoys a reputation in its markets as a total quality supplier and a
leader in leveraging technology to develop new, innovative products.

Our wholly-owned subsidiary Lippert Components is a steel engineering
and fabrication company serving the RV and manufactured housing indus-
tries. Lippert is the nation’s leading producer of chassis and chassis parts
for towable RVs. Lippert also makes slide-out mechanisms and power units,
leveling and electric stabilizer jacks, specialty slide-out components and other products
for the RV market, as well as chassis and chassis parts for manufactured homes.

D R E W P R O D U C T S

Our products are well known in our markets for quality,
innovation and fair prices. This reputation has gained us
market share and positioned Drew as an industry leader
and national partner to our customers.

Through both innovative R&D and acquisitions, Drew has
introduced new product lines to customers over the last few
years, including specialty chassis, slide-out mechanisms, and
motorhome components for its recreational vehicle segment.
We also have added bath products to our manufactured
housing segment and are in the process of developing bath
products for RVs as well. Here are some of the highlights:

Slide-out Systems

Modern RVs include “slide-out” systems that literally
move the walls of the recreational vehicle to expand the
interior living space for added comfort while the RV is
parked. With the touch of a button, slide-outs can signifi-
cantly expand the living area of an RV and have become
an important feature on most new RVs. Drew’s slide-out
mechanisms sales grew from prototypes just two years ago
to approximately $37 million in 2003.

With the acquisition of LTM Manufacturing by Drew
in July 2003, we now offer an expanded product line in
specialty slide-out systems, including decks, storage units,
battery trays and other convenience products.

Bath & Shower

Drew’s Better Bath division currently produces thermo-
plastic bath and shower units for manufactured homes and
is working to expand its product line into the RV market.
Our bath and shower products have a reputation for high
quality and technological innovation.

Better Bath recently announced that it will be introduc-
ing bath and shower products using a new composite
material that serves as an alternative to fiberglass bath
products which the Company does not make. Products
manufactured with this new composite material have been
shown to be stronger, require less maintenance and have
an overall better appearance and performance than tradi-
tional fiberglass products.

We intend to introduce this new composite bath prod-
uct first to the manufactured housing industry, then to the
RV and other markets.

Chassis

A chassis is the frame or structure upon which the RV is
built. Drew is recognized as the industry leader in the pro-
duction of RV chassis, a position it strengthened with new
innovations and market share gains in 2003.

With the acquisition in October 2003 of ET&T Frames,
Drew has expanded its chassis product line in specialty
trailer units, consisting of park models, office units, and
cargo trailers.

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

R E C R E AT I O N A L V E H I C L E S
R E C R E AT I O N A L V E H I C L E S
R E C R E AT I O N A L V E H I C L E S

$220 million
Through new product introductions, market
share gains and acquisitions, Drew’s sales of
RV products have more than doubled, to
nearly $220 million, in the last two years.

Segment Results RV Products
Drew's Sales Content
Per RV Shipped by Industry

10
10

8
8

6
6

4
4

2
2

0
0

$684

$550

$419

$337

$243

1999 2000 2001 2002 2003

Nearly 7 million families in the United States will “Go
RVing” this year in a recreational vehicle, and more fami-
lies are expected to join them over the next decade.

Demographic trends favor continuing growth in the RV
industry, as demand for RVs has historically been strongest
among the 50 and over age group, the fastest growing
segment of the U.S. population. By the year 2010, there will
be about 46 million households in this category, an increase
of 25 percent over the number of households in 2000.

Drew produces a growing line of components for RVs,
including windows, doors, chassis, slide-out mechanisms
and power units, and electric stabilizer jacks, primarily for
travel trailers and fifth wheel RVs. In 2003, Drew achieved
sales gains in every product line of its RV segment. Also,
while Drew’s strength lies in towable RVs, we continue to
develop new products and gain market share in the
motorhome segment.

After RV industry growth of 21 percent during 2002, RV
industry shipments of both towable RVs and motorhomes
increased another 3 percent during 2003 to 321,000 units.
Industry shipments in Drew’s primary market, travel trailers
and fifth wheel RVs, have been stronger than other RV cat-
egories, increasing more than 9 percent to 214,000 units
during 2003.

Outpacing industry growth, sales by our RV products
segment increased 28 percent to $219.5 million for 2003.
This is a result of Drew’s continued market share gains,
particularly in slide-out mechanisms, the addition of new
products, and to a lesser extent, the effects of two recent
acquisitions.

The future of the RV industry is bright, and Drew is well
positioned to supply this market as one of the only
national suppliers to the RV market for our type of products.

demographics favor
GROWTH OF RV
industry

The above photo
shows an RV slide-out
mechanism.

The left photo
is a fifth wheel RV.

22 million people
reside in 10 million manufactured
homes across the U.S.

M A N U F A C T U R E D H O M E S

Approximately 22 million people live in nearly 10 million manufactured homes across the United States.
Manufactured homes today are a far cry from the “mobile homes” of the past. These homes come in a wide range of
styles and sizes and offer many of the advantages of traditional homes, but at a lower cost. For millions of Americans,
manufactured homes will continue to provide quality, affordable housing, and the opportunity to realize the
American dream of home ownership.

Easy credit in the 1990s, high interest rates for manufactured homes versus site built homes, and excess inventory
of new and repossessed homes have contributed to the five year, 65 percent decline in the manufactured housing
industry. However, it appears that the slump in the MH industry finally may be nearing a bottom, as the level of repos-
sessions of manufactured homes and the level of inventory of both repossessed homes and new homes have declined
significantly from last year.

Throughout the five-year industry downturn, Drew’s manufactured housing products segment has remained highly
profitable as a result of a strategy of maximizing operating efficiencies, pursuing acquisitions and concentrating on
market share gains. Drew is a leading supplier to the manufactured housing industry of vinyl and aluminum windows
and screens, chassis, chassis parts, and bath and shower units. Net sales in Drew’s MH segment declined 13 percent to
$133.6 million for 2003, better than the industry-wide 22 percent decline in production of manufactured homes to
131,000 homes in 2003.

Despite the market dynamics of the past five years, manufactured housing remains a significant profit and growth

opportunity for Drew, particularly with a pending recovery in sight.

Segment Results MH Products
Drew's Sales Content
Per Home Produced by Industry

$1,021

$916

$763

$606

$548

1999 2000 2001 2002 2003

$10 million increase
For every additional 10,000
homes produced by the MH
industry in 2004 over 2003
levels, Drew’s sales would likely
increase $10 million, based on
Drew’s current sales content per
home. With little new fixed
overhead required to increase
production, this growth should
be at favorable margins.

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

Organic Growth
Acquisitions
Management/Shareholder Alignment

L O O K I N G B A C K . . . M O V I N G F O R W A R D

Our long-term goal is simple —
enhance shareholder value.

In 2003, we accomplished this objective by many meas-
ures and through a variety of means. We made two acqui-
sitions, which were immediately accretive to earnings and
brought us new products and new channels for growth.
We continued our investments in new product develop-
ment, which helped us grow sales and profitability in every
single product line in our RV segment. We also stayed
focused on execution, which allowed us to grow faster
than a strong RV market and buffered us from the down-
turn in manufactured housing.

The results showed in sales growth and 23 percent
increase in income from continuing operations. It showed
in our return on equity (ROE) of 24 percent, and our ability
to generate $31 million in “cash flow from operating activ-
ities” which enabled us to reduce debt by $14 million.
Most importantly, our success in delivering enhanced
shareholder value in 2003 included a sizable gain in the
most tangible metric, our stock price.

Drew’s stock price increased 73 percent in 2003 and has
climbed even farther in the first quarter of 2004. Since the
end of 2000, our stock price is up nearly five fold, an
accomplishment that every Drew employee should take
great pride in and every stockholder can applaud.

So, what made a difference for Drew in 2003? The same
things that will make the difference in the coming year
and in the foreseeable future:
• Our Highly Experienced and Motivated Management
• Low Cost Producer in our Markets
• Outstanding Customer Service
• National Supplier Serving National Customers
• Proven Product Line Expansion Abilities
• Strategic Acquisition Discipline and Execution

NYSE OPENING CEREMONY

Drew’s board and management rang the bell
to open trading on the New York Stock
Exchange on December 11, 2003. Drew
moved its stock listing to the NYSE the
same day in a move to improve exposure
and liquidity for the stock.

David L. Webster
Chairman, President and
Chief Executive Officer of Kinro, Inc.

Jason Lippert
President and Chief Executive Officer
of Lippert Components, Inc.

L. Douglas Lippert
Chairman of Lippert Components, Inc.

“The Exchange is privileged to welcome Drew Industries to its family

of listed companies.”

NYSE President and co-COO Catherine Kinney.

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 historical Consolidated Financial Statements and Notes thereto.

The Company has two reportable operating segments, the recreational vehicle products segment (the “RV segment”)
and the manufactured housing products segment (the “MH segment”). The RV segment, which accounted for 62 percent
of consolidated net sales for 2003 and 53 percent of consolidated net sales for 2002, manufactures a variety of products
used in the production of recreational vehicles, including windows, doors, chassis, chassis parts, RV slide-out mechanisms
and related power units, and electric stabilizer jacks. The MH segment, which accounted for 38 percent of consolidated net
sales for 2003 and 47 percent of consolidated net sales in 2002, manufactures a variety of components used in the construction
of manufactured homes, and to a lesser extent, modular housing and office units, including vinyl and aluminum windows
and screens, chassis, chassis parts and thermo-formed bath and shower units.

This shift in sales between segments resulted partly from the growth in the RV industry and the decline in
the MH industry. Intersegment sales and sales to industries other than manufacturers of RVs and manufactured homes
are insignificant.

The Company’s operations are conducted through its operating subsidiaries. Its two primary operating subsidiaries,
Kinro, Inc. (“Kinro”) and Lippert Components, Inc. (“LCI”), have operations in both the MH and RV segments.
At December 31, 2003, the Company’s subsidiaries operated 41 plants in 17 states and one in Canada.

I N D U S T R Y B A C K G R O U N D

Recreational Vehicle Industry

The Recreation Vehicle Industry Association (“RVIA”) reported a three percent increase in total industry shipments of
recreational vehicles (“RVs”) in 2003, while industry shipments of travel trailers and fifth wheel RVs only, the Company’s
primary market, increased nine percent for 2003. The 2003 growth builds upon 2002, when the RVIA reported an increase
of 21 percent in total RV shipments to near record levels and an increase of 25 percent for travel trailers and fifth wheel
RVs for the year. Increasing industry RV sales are expected to continue 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 population. Industry growth
also continues to be bolstered by the preference for domestic vacations, rather than foreign travel, and low interest
rates. In recent years, the RVIA has employed an advertising campaign to attract customers in the 35 to 54 age group,
and the number of RVs owned by those 35 to 54 grew faster than all other age groups.

Manufactured Housing Industry

As a result of limited credit availability for purchases of manufactured homes, high interest rate spreads between
conventional mortgages on site built homes and chattel loans for manufactured homes, and unusually high repossessions
of manufactured homes, industry production has declined approximately 65 percent since 1998 to 131,000 homes in
2003, the lowest production level in 40 years. However, based upon industry reports, retail sales of manufactured homes
have declined much less severely to an estimated 250,000 homes in 2003. However, almost 50 percent of these retail sales
have been filled by inventory reductions by dealers and manufacturers, and the resale of repossessed homes, rather than
new production. It has been estimated that approximately 90,000 manufactured homes per year were repossessed in
2000 to 2002, with estimates of 100,000 or more homes repossessed in 2003, far in excess of historical repossession levels.
Repossessions and the limited availability of chattel loans for home buyers have been continuing concerns for the
manufactured housing industry. However, recently there have been some signs that repossessions are beginning to ease
and the retail inventory of new and repossessed homes per retail dealer location has declined from December 2002 levels.
The availability of financing for manufactured homes is expected to increase in 2004 as a result of Fannie Mae’s
announcement in February 2004 that they were easing their financing requirements for manufactured homes. In addition,
Berkshire Hathaway Inc. acquired Clayton Homes in August 2003, and Clayton has since received substantial funds to provide
financing for manufactured homes. Long-term prospects for manufactured housing are still favorable because it provides
quality, affordable housing which the country needs.

As a result of market share gains and efficiency improvements, Drew’s MH segment has remained profitable
throughout this extended industry-wide slump. Based upon the Company’s current sales content per manufactured
home, the Company has estimated that for every 10,000 new manufactured homes produced, the Company’s net sales
should increase approximately $10 million, and the operating profit on the incremental sales should be higher than current
segment operating margins.

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

Management’s Discussion and Analysis of Financial Condition
and Results of Operations (Continued)

Steel Prices

In mid December 2003 and continuing into 2004, the Company was notified by its steel suppliers of unprecedented
steel cost increases, which through February 2004 have aggregated more than 60 percent. Steel is one of the Company’s
primary raw materials. This situation apparently arose as the result of an increase in world-wide steel demand, particularly
in China. In addition, due to the weakened value of the United States dollar, which has declined about 15 percent versus
the Euro over the last year, and the increased cost of oceanic shipping, it has become uneconomical to import steel.

In response to the steel cost increases, the Company took the following immediate actions: a) contacted other steel
vendors, both domestic and foreign, in an attempt to obtain better pricing, but to no avail; b) ordered as much steel as
possible in December 2003, and January and February 2004, before the monthly cost increases became effective in each
month; c) raised prices to customers, which was followed with a second round of price increases; and d) cut operating
costs wherever possible. These actions were taken quickly and as a result, the steel cost increases to date are not expected
to have a significant effect on 2004 results.

R E S U LT S O F O P E R AT I O N S

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

Net sales:

RV segment
MH segment

Total

Operating profit:
RV segment
MH segment
Amortization of intangibles
Corporate and other

Total

Year Ended December 31,

2003

2002

2001

$219,505
133,611

$171,094
154,337

$107,504
147,266

$353,116

$325,431

$254,770

$ 24,779
14,358
(782)
(4,078)

$ 16,162
16,900
(746)
(3,103)

$ 9,208
15,940
(2,591)
(2,212)

$ 34,277

$ 29,213

$ 20,345

Net sales and operating profit by segment, as a percent of the total, are as follows:

Net sales:

RV segment
MH segment

Total

Operating profit:
RV segment
MH segment
Amortization of intangibles
Corporate and other

Total

Year Ended December 31,

2003

2002

2001

62%
38%

53%
47%

42%
58%

100% 100% 100%

72%
42%
(2)%

45%
55%
58%
78%
(2)% (12)%
(12)% (11)% (11)%

100% 100% 100%

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Consolidated Highlights
• Income from continuing operations was up 23 percent in 2003, to a record $19.4 million.

• Operating profit margin increased to 9.7 percent for 2003, from 9.0 percent in 2002.

• Net sales grew by 9 percent.

• On October 3, the Company completed the acquisition of Indiana-based ET&T Frames, Inc. (“ET&T”), a manufacturer
of specialty chassis and towable RV chassis products with annual sales of approximately $7 million, for $3.6 million.

• On July 17, the Company completed the acquisition of Kansas-based LTM Manufacturing, LLC (“LTM”), a manufacturer

of innovative RV products with annual sales of approximately $4.5 million, for $4.1 million.

RV Segment

Net sales of the RV segment increased $48.4 million (28 percent) from 2002, largely due to increases in the
Company’s market share of all its primary RV product lines, including RV slide-out mechanisms and related power units,
chassis, and windows and doors. Sales of RV slide-out mechanisms and related power units doubled from 2002, to
approximately $37 million. The growth of this segment also resulted from the industry-wide growth in RV shipments, in
particular the Company’s primary market of travel trailers and fifth wheel RVs, as well as the continued trend towards
using more slide-out mechanisms in travel trailers and fifth wheel RVs. Long-term growth in industry-wide RV sales may
result from demographic trends, as demand for RVs is strongest from the over 50 age population, which is the fastest
growing segment of the population, although RV sales may be subject to periodic swings. There were no significant
changes in sales prices by the Company’s RV segment in 2003.

The acquisitions of LTM and ET&T, completed in 2003, added only approximately $4 million in sales in 2003, but have
substantial growth potential to exceed their combined pre-acquisition annual historical sales of approximately $11.5 million.
Recently, the Company’s research and development departments designed and developed new products such as leveling
systems and slide out mechanisms for motor homes, and bath and shower units for RVs. The Company plans to aggressively
market these products in 2004. For 2003, the Company only had minimal sales to the motor home segment of the RV industry.
Operating profit of the RV segment increased $8.6 million (53 percent) in 2003 over 2002. This growth is attributable to
both an increase in unit sales and an increase in the segment’s operating profit margin. Operating profit margin increased
to 11.3 percent for 2003 from 9.4 percent in 2002 primarily because of (i) the spreading of fixed costs over higher sales;
(ii) greater purchasing leverage for certain components; (iii) improved operating efficiencies; and (iv) temporarily moderate
steel costs during the middle of 2003. The Company was notified by its steel suppliers of unprecedented steel cost
increases which began in late 2003 and accelerated in 2004, and have now aggregated more than 60 percent as described
in “Industry Background” above. Partially offsetting these increases in operating profit margin were legal and other costs
related to the settlement of patent litigation on the Company’s slide-out mechanisms in February 2003 and higher health
and workers compensation insurance costs.

MH Segment

Net sales of the MH segment declined $20.7 million (13 percent) in 2003, which was less of a decline than that expe-
rienced by the industry as a whole. The Company has captured market share and increased sales of products for modular
homes and office units partially offsetting the sales reduction caused by the decline in industry shipments. There were no
significant changes in sales prices by the Company’s MH segment during 2003.

Operating profit of the MH segment decreased $2.5 million (15 percent) in 2003 largely because of the decline in sales.
This segment’s operating profit margin was 10.7 percent of sales in 2003, which was slightly lower than the 11.0 percent
achieved for 2002, primarily because of higher health and workers compensation insurance costs and the negative impact
of lower volume on fixed costs, partially offset by temporarily moderate steel costs during the middle of 2003.
The Company was notified by its steel suppliers of unprecedented steel cost increases which began in late 2003 and accel-
erated in 2004, and have now aggregated more than 60 percent as described in “Industry Background” above. Selling,
general and administrative expenses for 2003 were down in dollar terms following the trend of sales.

As of November 30, 2003, the Company evaluated the fair value of the goodwill associated with the MH segment,
which had a book value of $3.2 million, and determined that no impairment had occurred. The Company will continue to
monitor such goodwill in light of conditions in the MH industry.

Corporate and Other

Corporate and other expenses increased $975,000, primarily as a result of higher Directors and Officers insurance
costs ($101,000), incentive compensation due to increased profits ($151,000), stock option expense resulting from the
adoption of SFAS 123 ($120,000), expenses associated with the listing of the Company’s stock on the New York Stock
Exchange ($203,000) and expenses related to corporate governance due to the implementation of the Sarbanes-Oxley
requirements ($225,000).

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

RV Segment

The RV segment achieved a 59 percent net sales increase in 2002, as a result of industry growth and a significant
increase in the market share of both its RV chassis and its RV window and door product lines. In addition, the introduction
of slide-out mechanisms and related components to the RV chassis product line was a major contribution to the segment’s
sales increase, accounting for sales of approximately 10 percent of segment net sales. The sales gains of the RV segment
far exceeded the 21 percent increase in industry-wide shipments of RVs in 2002.

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

1 1

Management’s Discussion and Analysis of Financial Condition
and Results of Operations (Continued)

In August 2002, the Company acquired the business and certain assets of the RV chassis division of Elkhart, Indiana-based
Quality Frames, Inc., with chassis sales of approximately $7 million. Production of these chassis was moved to the Company’s
existing manufacturing facilities. In addition, the Company is also selling other products to these new customers.

Operating profit of the RV segment increased $7.0 million (76 percent) in 2002 over 2001. This increase is primarily
attributable to the increase in sales. The segment’s profit margin increased to 9.4 percent for 2002 from 8.6 percent for
2001, primarily because of the effect of fixed costs and higher sales as well as improved operating efficiencies of this fast
growing segment, which more than offset the effect of the higher steel costs experienced in the second half of 2002.
There were no significant selling price increases in 2001 and 2002.

MH Segment

Net sales of the MH segment increased 5 percent in 2002, despite the 13 percent decline in industry-wide production
of manufactured homes. Excluding sales of the Better Bath operation, acquired in June 2001, sales of this segment
increased 1 percent in 2002. The Company outperformed the industry primarily because of market share gains from sales
of its high-end vinyl window products. In early October 2002, the Company expanded its capacity in order to accommodate
the increased demand for these vinyl window products.

The operating profit margin of the MH segment increased slightly to 11.0 percent in 2002 from 10.8 percent in 2001.
The 2002 results were enhanced by the improved operating profit margin achieved by Better Bath, partially as a result of
reduced product costs, and lower selling, general and administrative costs. This improvement in operating profit margins
by Better Bath, was partially offset by substantial increases in certain steel costs, primarily as a result of new import tariffs.
Steel costs in early 2003 remain significantly higher than during the comparable period in 2002. The Company has had
some success in passing a portion of these increases on to its customers. Also, labor costs increased on the Company’s fast
growing vinyl window product line as a result of capacity constraints, which have been alleviated by the addition of a
new production line in Alabama, opened in October 2002. Higher sales caused selling, general and administrative
expenses to increase, but such costs were stable as a percentage of sales. Included in selling, general and administrative
costs in 2002 is a charge of $0.5 million relating to the chapter 11 filing of Oakwood Homes. As of December 31, 2002,
the Company had fully reserved the $0.8 million pre-bankruptcy receivable from this customer. The Company continues
to sell to Oakwood Homes pursuant to authorization of the Bankruptcy Court.

Amortization of Intangibles

Amortization of intangibles decreased $1,845,000 in 2002 from 2001, primarily as a result of the Company’s adoption
of Statement of Financial Accounting Standards No. 142, which requires that goodwill and intangible assets with indefinite
lives no longer be amortized, but rather be tested for impairment at least annually.

The following schedule shows pro forma income for the year ended December 31, 2001, excluding goodwill amorti-

zation expense (in thousands, except per share data):

Income from continuing operations, as reported
Goodwill amortization expense, net of taxes

Pro forma income from continuing operations

Corporate and Other

Year Ended December 31, 2001

Net
Income

$ 9,830
1,623

$11,453

Earnings Per Share

Basic

$1.02
.17

$1.19

Diluted

$1.02
.16

$1.18

Corporate and other expenses for the year 2002 were $891,000 higher than last year, as a result of increases in
incentive compensation based upon higher profits, higher professional fees for special projects, a new investor relations
program, and increased insurance and benefit costs.

Cumulative Effect of Change in Accounting Principle for Goodwill

During the first quarter of 2002, in accordance with the goodwill impairment provisions of SFAS No. 142, the
Company identified its reporting units and allocated its assets and liabilities, including goodwill, to its reporting units. In
addition, the Company had a valuation of certain of its reporting units done by an independent appraiser, as of January 1,
2002, to assist the Company in determining if there had been an impairment in the goodwill of any of such reporting
units. Based on this appraisal and additional analyses performed by the Company, it was determined that there had been
an impairment of goodwill in two reporting units. As a result, the Company recorded an impairment charge of
$32,905,000 offset by a tax benefit of $2,743,000. Such charge has been recorded as a cumulative effect of change in
accounting principle.

A substantial portion of the impairment charge related to the 1997 acquisition of LCI. At the time of that acquisition,
LCI was primarily involved in the MH segment, and was just beginning its RV products business. Since that time the MH
industry has declined substantially causing a reduction in LCI’s MH sales and profits. During the same period, LCI’s RV
business has grown very substantially in both sales and profits.

As of November 30, 2002, the Company reevaluated the fair value of the remaining goodwill, which had a book

value of $7.0 million, and determined that no additional impairment had occurred.

Interest Expense, Net

Interest expense, net decreased $0.5 million to $3.0 million in 2003, as a result of reductions in debt levels, and to a
lesser extent, savings resulting from interest rate reductions. The interest expense for 2003 also includes $228,000 related
to imputed interest on the liability recorded for minimum royalty payments for fiscal years 2003 through 2006. Interest
expense, net decreased $0.6 million to $3.6 million in 2002, as a result of reductions in debt levels.

Provision for Income Taxes

The effective tax rate for 2003 was approximately 38.0%, compared to 38.5% in 2002 and 39.3% in 2001. The decline

in the effective tax rate is due to a change in the composition of pretax income for state tax purposes.

Discontinued Operations

The axle and tire refurbishing business of LTA did not perform well from 2000 through 2002, primarily due to
increased competition and the decline in the manufactured housing industry, which severely affected operating margins.
In January 2001, the axle and tire refurbishing business closed two of its five factories and in July 2001, a third such operation
was sold. In September 2002, the Company converted one of its two remaining axle and tire refurbishing facilities to
an RV window production facility. The last axle and tire refurbishing operation was sold in January 2003 at a small gain.
As a result, the axle and tire refurbishing business of LTA is classified as discontinued operations in the Consolidated
Financial Statements pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets” adopted by the Company effective January 1, 2002.

LTA continues to own a factory in Texas which was previously utilized in its axle and tire refurbishing business. This
factory is being leased to the purchaser of LTA’s Texas operation. Since it is not probable that this factory will be sold
within one year, it is not considered as held for sale under SFAS No.144, and is not included in discontinued operations in
the Consolidated Financial Statements.

The proceeds from the disposition of all other significant assets of LTA’s axle and tire refurbishing business, consisting

primarily of inventory and accounts receivable, were collected in January 2003 and resulted in a small gain.

The discontinued axle and tire refurbishing business had previously been included in the Company’s MH segment,

and had revenues of $11.2 million and $14.7 million, in 2002 and 2001, respectively.

Recently Adopted and New Accounting Standards

As of April 1, 2002, the Company adopted the fair value method of accounting for stock options contained in SFAS
No. 123,”Accounting for Stock-Based Compensation,” which is considered the preferable method of accounting for
stock-based employee compensation. During the transition period, the Company will be utilizing the prospective method
under SFAS No. 148 “Accounting for Stock-Based Compensation—Transition and Disclosures.” All employee stock options
granted after January 1, 2002 have been expensed over the stock option vesting period based on fair value, determined
using the Black-Scholes option-pricing method, at the date the options were granted. This resulted in a $197,000 and
$10,000 charge to operations for the years ended December 31, 2003 and 2002, respectively, relating to options for
396,500 and 20,000 shares granted in the fourth quarter of 2003 and 2002, respectively. Historically, the Company had
applied the “disclosure only” option of SFAS No. 123. Accordingly, no compensation cost has been recognized for stock
options granted prior to January 1, 2002. Had the Company previously adopted this new accounting policy, diluted earnings
per share would have been reduced by $.02 for 2003, $.04 for 2002 and $.04 for 2001.

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

1 3

Management’s Discussion and Analysis of Financial Condition
and Results of Operations (Continued)

event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the
guarantee at its inception. The recognition of the liability is required even if it is not probable that payments will be
required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with
multiple elements. FIN 45 also requires additional disclosures related to guarantees. The recognition measurement provisions
of FIN 45 are effective for all guarantees entered into or modified after December 31, 2002. FIN 45 also requires additional
disclosures related to guarantees in interim and annual financial statements. Accordingly, the Company adopted the pro-
visions of FIN 45, effective January 1, 2003. The implementation of FIN 45 did not have an impact on the earnings or the
financial position of the Company.

L I Q U I D I T Y A N D C A P I TA L R E S O U R C E S

The Statements of Cash Flows reflect the following (in thousands):

Net cash flows provided by operating activities
Net cash flows used for investing activities
Net cash flows used for financing activities

Cash Flows from Operations

Year Ended December 31,

2003

2002

2001

$ 31,541
$(12,392)
$(10,684)

$ 12,200
$(12,013)
$ (1,062)

$ 28,166
$(17,141)
$(10,060)

Net cash flows from operating activities increased approximately $19.3 million in 2003, as a result of a $3.6 million

increase in income from continuing operations, as well as:

a) A smaller increase in accounts receivable for 2003. The increase in accounts receivable was lower than 2002, even
though sales were higher in 2003, due to a reduction in the days sales outstanding in receivables to approximately 19 days.
This was due to the timing of collections.

b) A decline in inventories this year, excluding the effect of business acquisitions, compared to an increase in inventories
in the prior year. The decline in the current year resulted from a concerted effort by management to reduce inventories
at all locations, as well as strategic buying of certain raw materials at December 31, 2002. The inventory decrease is
substantially all in raw materials, as there was only approximately a two week supply of finished goods on hand at
December 31, 2003 and 2002. The impact of the rise in steel prices on inventory and the Company’s strategic buying of
steel before the steel price increases took effect, did not impact inventory until 2004.

c) A decline in prepaid expenses and other current assets compared to an increase in the prior year. The decline in 2003
was primarily due to the utilization of prepaid Federal income taxes and an escrow deposit, both of which were uses
of cash in 2002.

d) The above items were partially offset by a smaller increase in accounts payable, accrued expenses and other current
liabilities. This change is primarily from the timing of payments and purchases at the end of 2003. Trade payables are
generally paid within the discount period.

Net cash flows from operating activities declined approximately $16.0 million in 2002, despite the $6.6 million
increase in income before the cumulative effect of change in accounting principle for goodwill. The lower net cash flows
from operating activities in the current year is primarily attributable to:

a) An increase in accounts receivable due to the increase in sales over the prior year. Days sales outstanding of receiv-

ables were the same at December 2002 as they were at December 2001.

b) An increase in inventories this year compared to a decline in inventories in the prior year. Inventories at December 31,
2002 are up 46 percent from December 31, 2001 compared to a 26 percent increase in sales in the fourth quarter. The
difference is partially attributable to strategic buying of certain raw materials. The inventory increase is substantially
all in raw materials; there is only approximately a two week supply of finished goods on hand at December 31, 2002,
and December 31, 2001.

c) The above items were partially offset by the increase in accounts payable, accrued expenses and other current liabilities
resulting primarily from the timing of payment due dates and purchases. Trade payables increased in proportion to
the increase in inventories. Accruals for incentive compensation based upon profits (affecting in excess of 150 employees)
were $1.8 million higher than at December 2001.

Cash Flows from Investing Activities

Cash flows used for investing activities of $12.4 million in 2003 consists of capital expenditures ($5.1 million) and the
acquisitions of LTM and ET&T for a combined $7.4 million. The capital expenditures and acquisitions in 2003 were funded
with the Company’s available cash. Cash flows used for investing activities for 2002 of $12.0 million include capital expen-
ditures of $10.5 million as well as $2.1 million for acquisitions. Capital expenditures and the acquisition in 2002 were
funded by cash flow from operations and a new $2.8 million Industrial Development Bond, which partially financed the
construction of a larger factory and related equipment to replace a leased facility to provide additional capacity for the
Company’s vinyl window line. Capital expenditures for 2004 are anticipated to be approximately $14 million and are
expected to be funded by cash flows from operations. The budgeted capital expenditures for 2004 include expanding
glass tempering capacity, adding a powder coat paint line, building a new facility to replace a leased facility and certain
projects which were deferred from 2003.

On July 17, 2003, the Company acquired Kansas-based LTM, with annual sales of approximately $4.5 million. LTM
manufactures a variety of products for RVs, including slide-out mechanisms and specialty slide-out trays for batteries,
LP tanks and storage, as well as electric stabilizer jacks, flexguard slide-out wire protection systems, and slide-out patio
decks. The purchase price was $4.1 million, including $250,000 of LTM’s debt which the Company repaid on closing. The
purchase price was funded with $3.8 million of Drew’s available cash and a $350,000 note to the seller, bearing interest
at the prime rate, payable in equal installments over the next five years.

On October 3, 2003, the Company acquired certain assets and liabilities of Indiana-based ET&T Frames, Inc. (“ET&T”),
with annual sales of approximately $7 million. ET&T manufactures chassis primarily for specialty trailer units, consisting of
park models, office units, cargo trailers and, to a lesser extent chassis for towable recreational vehicles. This acquisition
represents an expansion of Drew’s chassis manufacturing business into specialty chassis. The $3.6 million purchase price
included the accounts receivable and certain inventory and fixed assets of ET&T. Production of ET&T’s products was
immediately transferred to the Company’s existing factories, without adding any overhead. The purchase price was
funded with Drew’s available cash.

Cash Flows from Financing Activities

Cash flows used for financing activities for 2003 include a net decrease in debt of $14.4 million, partially funded by
$3.7 million received from the exercise of employee stock options. Cash flows used for financing activities for 2002
include a net decrease in debt of $4.5 million partially funded by $3.3 million received from the exercise of employee
stock options.

Availability under the Company’s line of credit was $27.1 million at December 31, 2003, net of $2.9 million in letters
of credit. Such availability, along with anticipated cash flows from operations, is adequate to finance the Company’s
working capital and anticipated capital expenditure requirements. The Company is in compliance with all of its debt
covenants and expects to remain in compliance for the next twelve months. Certain of the Company’s loan agreements
contain prepayment penalties.

At December 31, 2003, the Company had outstanding $16 million of 6.95 percent, seven year Senior Notes. The notes
originally aggregated $40 million, and repayment of these notes is $8 million annually, of which the first three payments
were made annually since January 2001. A fourth scheduled payment of $8 million was made in January 2004.

Future minimum commitments relating to the Company’s contractual obligations at December 31, 2003 are as follows

(in thousands):

Long-term indebtedness
Operating leases
Employment contracts
Royalty agreement

Total

2004

2005

2006

After 2006

Total

$ 9,931
3,094
1,793
1,250

$ 9,693
1,682
699
1,250

$16,068

$13,324

$4,751
1,021
269
1,250

$7,291

$10,381
1,205
155
313

$34,756
7,002
2,916
4,063

$12,054

$48,737

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

1 5

Management’s Discussion and Analysis of Financial Condition
and Results of Operations (Continued)

S U B S E Q U E N T E V E N T

In February 2004, the Company sold certain intellectual property rights relating to a process used to manufacture a
new composite material. Simultaneously with the sale, the Company entered into an equipment lease and a license
agreement with the buyer. As a result, the Company plans to use the new composite material to produce certain bath
products for the manufactured housing, modular housing, and recreational vehicle industries on an exclusive, royalty-
free basis. This new composite material will enable the Company to compete against fiberglass bath products in these
industries. The Company will also have the right to use the new composite material on a royalty-free, non-exclusive basis to
manufacture various other products for the manufactured housing, modular housing, and recreational vehicle industries.
Sales of these new products, if any, are not expected to be significant in 2004.

The sale price for the intellectual property rights was $4.0 million, consisting of cash of $100,000 at closing and a
note of $3.9 million, payable over five years. The note bears interest at increasing annual interest rates, and is secured by
a lien on the intellectual property rights sold, a right of offset against the lease, and a guaranty. The note is convertible
by the Company into an equity interest in any new venture that the buyer may form to promote this process. In February
2004, the Company received the first payment under the note for $400,000.

Drew is evaluating the potential gain on sale, and currently anticipates that it will record a first quarter pre-tax gain
of approximately $500,000 ($300,000, or $.03 per diluted share, after tax) after all related costs and valuations. Future
gain, if any, will be recorded when any payments on the remaining $3.5 million balance of the note are received.

C O R P O R AT E G O V E R N A N C E

The Company is in compliance with the new corporate governance requirements of the Securities and Exchange
Commission 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 toll-free hotline to report complaints about the Company’s accounting, internal controls, auditing matters
or other concerns.

The Company received notification in November from Institutional Stockholders Services, Inc., (“ISS”) a Rockville,
Maryland-based independent research firm that advises institutional investors, that Drew’s corporate governance policies
outranked 99.9 percent of all companies listed in the Russell 3000 index. Drew has no business relationships with ISS.

C O N T I N G E N C I E S

LCI is a defendant in an action entitled SteelCo, Inc. vs. Lippert Components, Inc. and DOES 1 through 20, inclusive
commenced in the Superior Court of the State of California, County of San Bernardino, San Bernardino District on July 16, 2002.
Plaintiff alleges that LCI violated certain provisions of the California Business and Professions Code (Sec. 17000 et. seq.)
by allegedly selling chassis and component parts below LCI’s costs, engaging in acts intended to destroy competition,
wrongfully interfering with plaintiff’s economic advantage, and engaging in unfair competition. Plaintiff seeks damages in
an unspecified amount, treble damages, punitive damages, costs and expenses incurred in the proceeding and injunctive relief.
LCI is vigorously defending against the allegations in the complaint, and has asserted counterclaims against Plaintiff.

The case is in discovery.

C R I T I C A L A C C O U N T I N G P O L I C I E S

The Company’s consolidated financial statements have been prepared in conformity with accounting principles gen-
erally accepted in the United States of America which requires that certain estimates and assumptions be made that
affect the amounts and disclosures reported in those financial statements and the related accompanying notes. Actual
results could differ from these estimates and assumptions. The following critical accounting policies, some of which are
impacted significantly by judgments, assumptions and estimates, affect the Company’s consolidated financial statements.

Inventories

Inventories (finished goods, work in process and raw materials) are stated at the lower of cost, determined on a first-in,
first-out basis, or market. Cost is determined based solely on those charges incurred in the acquisition and production of
the related inventory (i.e. material, labor and manufacturing overhead costs). The Company estimates an inventory
reserve for excess quantities and obsolete items based on specific identification and historical write-offs, taking into
account future demand and market conditions. If actual demand or market conditions in the future are less favorable
than those estimated, additional inventory write-downs may be required.

Self Insurance

The Company is self-insured for certain health and workers’ compensation benefits up to certain stop-loss limits.
Such costs are accrued based on known claims and an estimate of incurred, but not reported (IBNR) claims. IBNR claims
are estimated using historical lag information and other data provided by claims administrators. This estimation process
is subjective, and to the extent that future actual results differ from original estimates, adjustments to recorded accruals
may be necessary.

Income Taxes

The Company’s effective tax rate is based on pre-tax income, statutory tax rates and tax planning strategies.
Significant management judgment is required in determining the effective tax rate and in evaluating the Company’s
tax position. The Company’s accompanying Consolidated Balance Sheets include certain deferred tax assets resulting
from deductible temporary differences, which are expected to reduce future taxable income. These assets are based on
management’s estimate of realizability based upon forecasted taxable income. Realizability of these assets is reassessed
at the end of each reporting period based upon the Company’s forecast of future taxable income. Failure to achieve fore-
casted taxable income could affect the ultimate realization of certain deferred tax assets, and may result in the recording
of a valuation reserve. For additional information, see Note 9 of Notes to Consolidated Financial Statements.

Impairment of Long-Lived Assets

The Company periodically evaluates whether events or circumstances have occurred that indicate that long-lived
assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances
are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value will
be recovered through the expected undiscounted future cash flows resulting from the use of the asset. In the event the
sum of the expected undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal
to the excess of the asset’s carrying value over its fair value would be recorded. The long-term nature of these assets
requires the estimation of its cash inflows and outflows several years into the future. Actual results and events could
differ significantly from management estimates.

Impairment of Goodwill and Other Intangible Assets

Goodwill and other intangible assets are evaluated for impairment at the reporting unit level on an annual basis and
between annual tests whenever events or circumstances indicate that the carrying value of a reporting unit may exceed
its fair value. The Company conducts its required annual impairment test during the fourth quarter of each fiscal year. The
impairment test uses a discounted cash flow model to estimate the fair value of a reporting unit. This model requires the
use of long-term planning forecasts and assumptions regarding industry-specific economic conditions that are outside
the control of the Company. Actual results and events could differ significantly from management estimates.

Stock Options

As of April 1, 2002, the Company adopted the fair value method of accounting for stock options contained in SFAS
No. 123, “Accounting for Stock-Based Compensation,” which is considered the preferable method of accounting for stock
options. As a result, the fair value of all employee stock options granted after January 1, 2002 is being charged against
earnings over the period of time during which the options vest. To determine fair value, the Company uses a method
known as the Black-Scholes option-pricing method. Fair value is determined as of the date the option is granted.

The fair value of options granted before January 1, 2002 are not being charged against earnings since the Company
is using the prospective method, as allowed under SFAS No. 148 “Accounting for Stock-Based Compensation—Transition
and Disclosures.”

In past years, the “disclosure only” option of SFAS No. 123 was used. Therefore, no compensation cost was charged

against earnings for stock options granted before January 1, 2002.

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

1 7

Management’s Discussion and Analysis of Financial Condition
and Results of Operations (Continued)

If the Company had charged compensation cost of options granted prior to January 1, 2002 to earnings, by using
the prospective method under SFAS No. 148, net income (loss) would have been reduced to the pro forma amounts
indicated below (in thousands, except per share amounts):

Net income (loss), as reported
Add: Stock-based employee compensation expense for stock options
included in reported net income (loss), net of related tax effects

Deduct: Total stock-based employee compensation expense
for stock options determined under fair value method for
all stock option awards, net of related tax effects

Pro forma net income (loss)

Net income (loss) per common share:

Basic—as reported

Basic—pro forma

Diluted—as reported

Diluted—pro forma

Other Estimates

Year Ended December 31,

2003

2002

2001

$19,423

$(14,598)

$8,934

122

—

(409)

(392)

(415)

$19,136

$(14,984)

$8,519

$ 1.92

$ (1.49)

$ .92

$ 1.90

$ (1.53)

$ .88

$ 1.88

$ (1.46)

$ .92

$ 1.86

$ (1.50)

$ .88

The Company makes a number of other estimates and judgments in the ordinary course of business related to product
returns, doubtful accounts, warranty obligations, lease terminations and asset retirement obligations, post retirement
benefits, and contingencies and litigation. Establishing reserves for these matters requires management’s estimate and
judgment with regard to risk and ultimate liability or realization. As a result, these estimates are based on management’s
current understanding of the underlying facts and circumstances and may also be developed in conjunction with outside
advisors, as appropriate. Because of uncertainties related to the ultimate outcome of these issues or the possibilities
of changes in the underlying facts and circumstances, additional charges related to these issues could be required in
the future.

I N F L AT I O N

The prices of raw materials, consisting primarily of steel, vinyl, aluminum, glass and ABS resin, are influenced by
demand and other factors specific to these commodities rather than being directly affected by inflationary pressures.
Prices of certain commodities have historically been volatile. The Company experienced modest increases in its labor costs
in 2003 and 2002 related to inflation.

Consolidated Statements of Income
(In thousands, except per share amounts)

Net sales
Cost of sales

Gross profit

Selling, general and administrative expenses

Operating profit
Interest expense, net

Income from continuing operations before income taxes

and cumulative effect of change in accounting principle

Provision for income taxes

Income from continuing operations before cumulative effect

of change in accounting principle
Discontinued operations (net of taxes)

Income before cumulative effect of change in accounting principle

Cumulative effect of change in accounting principle for goodwill

(net of taxes of $2,743)

Net income (loss)

Income (loss) per common share:

Income from continuing operations before cumulative

effect of change in accounting principle:

Basic
Diluted

Discontinued operations, net of taxes:

Basic
Diluted

Cumulative effect of change in accounting principle

for goodwill, net of taxes:

Basic
Diluted
Net income (loss):

Basic
Diluted

The accompanying notes are an integral part of these consolidated financial statements.

Year Ended December 31,

2003

2002

2001

$353,116
266,435

$325,431
246,844

$254,770
194,309

86,681
52,404

34,277
3,034

31,243
11,868

19,375
48

19,423

78,587
49,374

29,213
3,566

25,647
9,883

15,764
(200)

15,564

(30,162)

60,461
40,116

20,345
4,151

16,194
6,364

9,830
(896)

8,934

$ 19,423

$ (14,598)

$ 8,934

$
$

1.92
1.88

$
$

1.92
1.88

$
$

1.61
1.57

(.02)
(.02)

(3.08)
(3.01)

(1.49)
(1.46)

$
$

1.02
1.02

(.10)
(.10)

.92
.92

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

1 9

Consolidated Balance Sheets
(In thousands, except shares and per share amount)

ASSETS
Current assets

Cash and cash equivalents
Accounts receivable, trade, less allowances of $1,400 in 2003 and $1,354 in 2002
Inventories
Prepaid expenses and other current assets
Discontinued operations

Total current assets

Fixed assets, net
Goodwill
Other intangible assets
Other assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities

Notes payable, including current maturities of long-term indebtedness
Accounts payable, trade
Accrued expenses and other current liabilities
Discontinued operations

Total current liabilities

Long-term indebtedness
Other long-term liabilities

Total liabilities

Commitments and contingencies
Stockholders’ equity

Common stock, par value $.01 per share: authorized 20,000,000 shares;

issued 12,353,168 shares in 2003 and 12,084,788 shares in 2002

Paid-in capital
Retained earnings

Treasury stock, at cost—2,149,325 shares in 2003 and 2002

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these consolidated financial statements.

December 31,

2003

2002

$ 8,781
14,844
37,311
7,478

68,414
72,211
12,333
4,953
2,193

316
12,969
37,143
8,618
1,211

60,257
74,041
7,043
814
3,241

$160,104

$145,396

$ 9,931
9,089
19,694

38,714
24,825
2,912

$ 9,993
7,998
17,699
500

36,190
38,812
290

$ 66,451

$ 75,292

124
32,691
80,305

113,120
(19,467)

93,653

121
28,568
60,882

89,571
(19,467)

70,104

$160,104

$145,396

Consolidated Statements of Cash Flows
(In thousands)

Cash flows from operating activities:

Net income (loss)
Adjustments to reconcile net income (loss) to cash flows

provided by operating activities:

Cumulative effect of change in accounting principle

for goodwill, net of taxes

Discontinued operations, net of taxes

Income from continuing operations

Provision for doubtful accounts
Depreciation and amortization
Deferred taxes
Loss on disposal of fixed assets
Deferred stock compensation
Changes in assets and liabilities, net of business acquisitions:

Accounts receivable, net
Inventories
Prepaid expenses and other assets
Accounts payable, accrued expenses and other liabilities

Net cash flows provided by continuing operating activities

Income (loss) from discontinued operations
Changes in discontinued operations

Net cash flows provided by operating activities

Cash flows from investing activities:

Capital expenditures
Business acquisitions, net of cash acquired
Proceeds from sales of fixed assets

Year Ended December 31,

2003

2002

2001

$ 19,423

$(14,598)

$ 8,934

(48)

19,375
106
7,863
383
92
411

(1,107)
218
2,524
926

30,791
48
702

31,541

(5,073)
(7,397)
78

30,162
200

15,764
837
7,332
1,748
125
83

(3,313)
(11,501)
(4,542)
4,534

11,067
(200)
1,333

12,200

(10,538)
(2,070)
595

896

9,830
181
8,332
(37)
156

3,430
4,244
(692)
1,516

26,960
(896)
2,102

28,166

(8,194)
(11,492)
2,545

Net cash flows used for investing activities

(12,392)

(12,013)

(17,141)

Cash flows from financing activities:

Proceeds from line of credit and other borrowings
Repayments under line of credit and other borrowings
Exercise of stock options
Other

31,550
(45,949)
3,715

77,350
(81,866)
3,348
106

78,916
(88,598)
112
(490)

Net cash flows used for financing activities

(10,684)

(1,062)

(10,060)

Net increase (decrease) in cash

Cash and cash equivalents at beginning of year

8,465
316

(875)
1,191

965
226

Cash and cash equivalents at end of year

$ 8,781

316

$ 1,191

Supplemental disclosure of cash flows information:

Cash paid during the year for:

Interest on debt
Income taxes, net of refunds

The accompanying notes are an integral part of these consolidated financial statements.

$ 3,071
$ 9,449

$ 3,895
$ 10,038

$ 4,567
$ 4,998

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

2 1

Consolidated Statements of Stockholders’ Equity
(In thousands, except shares)

Balance—December 31, 2000
Net income
Issuance of 14,324 shares of common stock

pursuant to stock option plan

Income tax benefit relating to issuance of

common stock pursuant to stock option plan

Balance—December 31, 2001
Net loss
Issuance of 264,710 shares of common stock

pursuant to stock option plan

Income tax benefit relating to issuance of

common stock pursuant to stock option plan
Deferred stock compensation expense and other

Balance—December 31, 2002
Net income
Issuance of 268,380 shares of common stock

pursuant to stock option plan

Income tax benefit relating to issuance of

common stock pursuant to stock option plan

Deferred stock compensation expense

Common
Stock

Paid-in
Capital

Retained
Earnings

Treasury
Stock

$118

$24,967

$ 66,546
8,934

$(19,467)

Total
Stockholders’
Equity

$ 72,164
8,934

118

25,079

75,480
(14,598)

(19,467)

81,210
(14,598)

2,877

468
144

121

28,568

60,882
19,423

(19,467)

2,848

864
411

2,880

468
144

70,104
19,423

2,851

864
411

Balance—December 31, 2003

$124

$32,691

$ 80,305

$(19,467)

$ 93,653

The accompanying notes are an integral part of these consolidated financial statements.

Notes to Consolidated Financial Statements

1 . S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S

Basis of Presentation

The Consolidated Financial Statements include the accounts of Drew Industries Incorporated and its subsidiaries.
There are no unconsolidated subsidiaries. Drew’s wholly-owned active subsidiaries are Kinro, Inc. and its subsidiaries
(“Kinro”) and Lippert Components, Inc. and its subsidiaries (“LCI”). Drew, through its wholly-owned subsidiaries, supplies a
broad array of components for recreational vehicles and manufactured homes. All significant intercompany balances and
transactions have been eliminated. Certain prior year balances may have been reclassified to conform to current presentation.
Manufactured products include vinyl and aluminum windows and doors, chassis, chassis parts, RV slide-out mechanisms
and related power units, electric stabilizer jacks, and bath and shower units. The axle and tire refurbishing business of
Lippert Tire and Axle, Inc. (“LTA”), the Company’s wholly-owned subsidiary, has been discontinued. The last of LTA’s operations
was sold in January 2003.

Approximately 62 percent of the Company’s sales in 2003 were made by its recreational vehicles products segment
and 38 percent were made by its manufactured housing products segment. At December 31, 2003, the Company operated
41 plants in 17 states and one plant in Canada.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to
be cash equivalents. Investments, which consist of money market funds, are recorded at cost which approximates market value.

Inventories

Inventories are stated at the lower of cost (using the first-in, first-out method) or market. Cost includes material,

labor and overhead; market is replacement cost or realizable value after allowance for costs of distribution.

Fixed Assets

Fixed assets are depreciated on a straight-line basis over the estimated useful lives of properties and equipment.
Leasehold improvements and leased equipment are amortized over the shorter of the lives of the leases or the underlying
assets. Maintenance and repairs are charged to operations as incurred; significant betterments are capitalized.

Income Taxes

The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes.”
Deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting
and tax bases of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the differences
are expected to reverse.

Goodwill and Other Intangible Assets

Effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards
(“SFAS”) No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141
requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method of
accounting. It also specifies criteria that intangible assets acquired in a purchase combination must meet to be recog-
nized apart from goodwill. SFAS No. 142 requires that the useful lives of all existing intangible assets be reviewed and
adjusted if necessary. It also requires that goodwill and intangible assets with indefinite lives no longer be amortized, but
rather be tested for impairment annually, or more frequently if events and circumstances indicate that the asset might be
impaired. Other intangible assets will continue to be amortized over their useful lives and reviewed for impairment in
accordance with SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets to Be Disposed Of.”

In accordance with SFAS No. 142, the Company stopped amortizing goodwill effective January 1, 2002. The Company
has reassessed the useful lives of its intangible assets as required by SFAS No. 142 and determined that the existing use-
ful lives are reasonable. Prior to the adoption of SFAS No. 142, goodwill was amortized on a straight-line basis primarily
over twenty to thirty years. The Company periodically reviewed the value of its goodwill to determine if impairment had
occurred. The Company measured the potential impairment of recorded goodwill by the undiscounted value of expected
future operating cash flows in relation to the goodwill and other long-lived assets of the subsidiary.

Impairment of Long-Lived Assets

SFAS No. 144 provides a single accounting model for long-lived assets to be disposed of. SFAS No. 144 also changes
the criteria for classifying an asset as held for sale; and broadens the scope of businesses to be disposed of that qualify
for reporting as discontinued operations and changes the timing of recognizing losses on such operations. The Company
adopted SFAS No. 144 on January 1, 2002.

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

2 3

Notes to Consolidated Financial Statements (Continued)

In accordance with SFAS No. 144, long-lived assets, such as fixed assets and purchased intangibles subject to amortization,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount
of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance
sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The
assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset
and liability sections of the balance sheet.

Prior to the adoption of SFAS No. 144, the Company accounted for long-lived assets in accordance with SFAS No. 121,

“Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.”

Stock Options

As of April 1, 2002, the Company adopted the fair value method of accounting for stock options as contained in SFAS
No. 123,”Accounting for Stock-Based Compensation,” which is considered the preferable method of accounting for
stock-based employee compensation. During the transition period, the Company will be utilizing the prospective method
under SFAS No. 148, ”Accounting for Stock-Based Compensation—Transition and Disclosures.” All employee stock
options granted after January 1, 2002 are being expensed over the stock option vesting period based on fair value, deter-
mined using the Black-Scholes option-pricing method, at the date the options were granted. This resulted in a $197,000
and $10,000 charge to operations for the years ended December 31, 2003 and 2002, respectively, relating to options for
396,500 and 20,000 shares granted in the fourth quarter of 2003 and 2002, respectively.

Historically, the Company had applied the “disclosure only” option of SFAS No. 123. Accordingly, no compensation
cost has been recognized for stock options granted prior to January 1, 2002, but for disclosure purposes the fair value of
each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following
weighted average assumptions:

Risk-free interest rate
Expected volatility
Expected life
Contractual life
Dividend yield
Fair value of options granted

2003

2002

2001

3.30%
32.5%
4.8 years
6.0 years
N/A
$8.62

3.14%
37.5%
5.0 years
6.0 years
N/A
$5.96

4.90%
33.0%
5.9 years
5.9 years
N/A
$2.34

If compensation cost for the Company’s stock option plan had been recognized in the income statement based upon the
fair value method, net income (loss) would have been reduced to the pro forma amounts indicated below (in thousands,
except per share amounts):

Net income (loss), as reported
Add: Stock-based employee compensation expense for stock options
included in reported net income (loss), net of related tax effects

Deduct: Total stock-based employee compensation expense for
stock options determined under fair value method for all
stock option awards, net of related tax effects

Pro forma net income (loss)

Net income (loss) per common share:

Basic—as reported

Basic—pro forma

Diluted—as reported

Diluted—pro forma

Year Ended December 31,

2003

2002

2001

$19,423

$(14,598)

$8,934

122

—

(409)

(392)

(415)

$19,136

$(14,984)

$8,519

$ 1.92

$ 1.90

$ 1.88

$ 1.86

$ (1.49)

$ (1.53)

$ (1.46)

$ (1.50)

$ .92

$ .88

$ .92

$ .88

Revenue Recognition

Revenue is recognized upon shipment of goods to customers.

Shipping and Handling Costs

The Company records shipping and handling costs within selling, general and administrative expenses. Such costs

aggregated $14,621,000, $13,473,000 and $11,289,000 in 2003, 2002, and 2001, respectively.

Use of Estimates

The preparation of these financial statements in conformity with accounting principles generally accepted in the
United States of America requires the Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis,
the Company evaluates its estimates, including those related to product returns, doubtful accounts, inventories, goodwill
and other intangible assets, income taxes, warranty obligations, insurance obligations, lease terminations and asset
retirement obligations, long-lived assets, post-retirement benefits, and contingencies and litigation. The Company bases
its estimates on historical experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other resources. Actual results may differ from these estimates under different
assumptions or conditions.

New Accounting Standards

In August 2001, the FASB issued SFAS No.143, “Accounting for Asset Retirement Obligations.” SFAS No.143 requires
companies to record a liability for asset retirement obligations associated with the retirement of long-lived assets. Such
liabilities should be recorded at fair value in the period in which a legal obligation is created, which typically would be
upon acquisition or completion of construction. The provisions of SFAS No. 143 are effective for fiscal years beginning
after June 15, 2002. Accordingly, the Company adopted the provisions of SFAS No. 143 effective January 1, 2003. The
implementation of SFAS No. 143 did not have a material impact on the earnings or the financial position of the Company.
In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires the guarantor to
recognize a liability for the non-contingent component of a guarantee; that is, the obligation to stand ready to perform
in the event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value
of the guarantee at its inception. The recognition of the liability is required even if it is not probable that payments will
be required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with
multiple elements. FIN 45 also requires additional disclosures related to guarantees. The recognition measurement pro-
visions of FIN 45 are effective for all guarantees entered into or modified after December 31, 2002. FIN 45 also requires
additional disclosures related to guarantees in interim and annual financial statements. Accordingly, the Company
adopted the provisions of FIN 45, effective January 1, 2003. The implementation of FIN 45 did not have an impact on the
earnings or the financial position of the Company.

2 . S E G M E N T R E P O R T I N G

The Company has two reportable operating segments, the recreational vehicle products segment (the “RV segment”)
and the manufactured housing products segment (the “MH segment”). The RV segment manufactures a variety of products
used in the production of recreational vehicles, including windows, doors, chassis, chassis parts, RV slide-out mechanisms
and related power units, and electric stabilizer jacks. The MH segment manufactures a variety of products used in
the construction of manufactured homes and to a lesser extent, modular housing and office units, including vinyl and
aluminum windows, chassis, chassis parts, and thermo-formed bath and shower units. Intersegment sales and sales to
industries other than manufacturers of RVs and manufactured homes are insignificant.

Decisions concerning the allocation of the Company’s resources are made by the Company’s key executives. This group
evaluates the performance of each segment based upon segment profit or loss, defined as income before interest, amor-
tization of intangibles and income taxes. Management of debt is considered a corporate function. The accounting policies
of the RV and MH segments are the same as those described in Note 1 of Notes to Consolidated Financial Statements.

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

2 5

Notes to Consolidated Financial Statements (Continued)

Information relating to segments follows (in thousands):

Year ended December 31, 2003

Revenues from external customers (a)
Segment operating profit (loss)
Segment assets (b)
Expenditures for long-lived assets (c)
Depreciation and amortization

Year ended December 31, 2002

Revenues from external customers (a)
Segment operating profit (loss)
Segment assets (b)
Expenditures for long-lived assets (c)
Depreciation and amortization

Year ended December 31, 2001

Revenues from external customers (a)
Segment operating profit (loss)
Segment assets (b)
Expenditures for long-lived assets (c)
Depreciation and amortization

Segments

Total

Corporate
and Other

Intangibles

Total

$219,505
24,779
69,158
3,725
3,055

$171,094
16,162
61,320
3,781
2,795

$107,504
9,208
46,755
4,129
2,353

$133,611
14,358
55,172
1,798
4,007

$154,337
16,900
62,804
7,475
3,774

$147,266
15,940
58,866
9,329
3,371

$353,116
39,137
124,330
5,524
7,062

$325,431
33,062
124,124
11,256
6,569

$254,770
25,148
105,621
13,458
5,724

$ (4,078)
17,822
26
19

$ (782)
17,952

782

$ (3,103)
12,543
16
17

$ (746)
8,729

746

$ (2,212)
10,290

$ (2,591)
41,064

2,591

$353,116
34,277
160,104
5,550
7,863

$325,431
29,213
145,396
11,272
7,332

$254,770
20,345
156,975
13,458
8,332

(a) One customer of the RV segment accounted for 23 percent, 20 percent and 15 percent of the Company’s consolidated net sales in the years ended
December 31, 2003, 2002, and 2001, respectively. Another customer of the RV segment accounted for 11 percent of the Company’s consolidated
net sales in the year ended December 31, 2003. One customer of both segments accounted for 12 percent of the Company’s consolidated net
sales in each of the three years ended December 31, 2003.

(b) Segment assets include accounts receivable, inventories and fixed assets. Corporate and other assets include cash and cash equivalents, prepaid
expenses and other current assets, discontinued operations, deferred taxes and other assets, excluding intangible assets. Intangibles include
goodwill, other intangible assets and deferred charges which are not considered in the measurement of each segment’s performance.

(c) Segment expenditures for long-lived assets include capital expenditures and fixed assets purchased as part of the acquisition of companies and
businesses. The Company purchased $477,000, $734,000 and $5,264,000 of fixed assets as part of the acquisitions of businesses in 2003, 2002
and 2001, respectively. Expenditures for other long-lived assets, goodwill and other intangibles are not included in the segment since they are
not considered in the measurement of each segment’s performance.

3 . A C Q U I S I T I O N S , G O O D W I L L , I N TA N G I B L E A S S E T S A N D D I S C O N T I N U E D O P E R AT I O N S

Acquisition of Better Bath

On June 1, 2001, the Company’s subsidiary, Kinro, acquired the assets and business of the Better Bath division of
Kevco, Inc. Better Bath manufactures and sells thermo-formed bath and shower units for the manufactured housing
industry and had sales of approximately $22.3 million in 2001, including $13.2 million in the seven months after its acquisition
by the Company.

The acquisition has been accounted for as a purchase. The aggregate purchase price of approximately $10.2 million
has been allocated to the underlying assets based upon their respective estimated fair values. The excess of purchase
price over the fair value of net assets acquired (“goodwill”) was approximately $3.1 million, which, prior to the adoption of
SFAS No. 142, was being amortized over 20 years. The Company has not recorded any impairment of this goodwill. The results
of the acquired business have been included in the Company’s consolidated statements of income beginning June 1, 2001.
Assuming that the acquisition had occurred at the beginning of 2001, the unaudited pro forma net sales, income
from continuing operations and income from continuing operations per common share, both basic and diluted, would
have been $263,803,000, $10,031,000 and $1.04, respectively.

Other Acquisitions

On July 17, 2003, the Company acquired Kansas-based LTM Manufacturing LLC (“LTM”), with annual sales of approx-
imately $4.5 million. LTM, the holder of several innovative patents, manufactures a variety of products for RVs, including
slide-out mechanisms and specialty slide-out trays for batteries, LP tanks and storage, as well as electric stabilizer jacks,
flexguard slide-out wire protection systems, and slide-out patio decks. The purchase price was $4.1 million, including
$250,000 of LTM’s debt which the Company repaid on closing. The purchase price was funded with $3.8 million of Drew’s
available cash and a $350,000 note to the seller, bearing interest at the prime rate, payable in equal installments over the
next five years.

On October 3, 2003, the Company acquired certain assets and liabilities of Indiana-based ET&T Frames, Inc. (“ET&T”),
with annual sales of approximately $7 million. ET&T manufactures chassis primarily for specialty trailer units, consisting of
park models, office units, cargo trailers and, to a lesser extent, chassis for towable recreational vehicles. This acquisition
represents an expansion of Drew’s chassis manufacturing business into specialty chassis. The $3.6 million purchase price
included the accounts receivable and certain inventory and fixed assets of ET&T. Production of ET&T’s products was
immediately transferred to the Company’s existing factories, without adding any overhead. The purchase price was
funded with Drew’s available cash.

Total consideration for the LTM and ET&T acquisitions was allocated as follows (in thousands):

Net tangible assets acquired
Identifiable intangible assets
Goodwill

Total cash consideration

$ 777
1,330
5,290

$7,397

In 2002, the Company acquired, for $1.4 million, the business of a manufacturer of RV chassis, which had approxi-
mately $7 million of annual sales. Production for these newly acquired accounts has been integrated into the Company’s
existing factories.

In 2001, the Company also acquired, for an aggregate of $1.4 million, the businesses of two small manufacturers of
RV chassis, which added new customers, and manufacturing facilities closer to existing customers. The manufacturing
facility of one of those businesses was originally leased, then purchased in 2002.

Goodwill and Other Intangible Assets

In accordance with SFAS No. 142, the Company stopped amortizing goodwill effective January 1, 2002. Amortization
of goodwill was $1,613,000 for the year ended December 31, 2001. The Company has reassessed the useful lives of its
intangible assets as required by SFAS No. 142 and determined that the existing useful lives are reasonable. In accordance
with SFAS No. 141, the Company reclassified certain intangible assets to goodwill since they can no longer be recognized
apart from goodwill. The amortization of such assets was $322,000 for the year ended December 31, 2001.

Other intangible assets consist of the following at December 31, 2003 (in thousands):

Non-compete agreements
Customer relationships
Patents

Royalty agreement (a)

Other intangible assets

Gross

$2,480
900
452

Accumulated
Amortization

$2,088
41
9

Estimated Useful
Life in Years

5 to 7
8
12

Net

$ 392
859
443

1,694
3,259

$4,953

(a) In February 2003, the Company entered into an agreement for a non-exclusive license for certain patents related to slide-out-systems. Royalties
are payable on an annual declining percentage of sales of certain slide-out systems produced by the Company, with annual minimum royalties
of $1,250,000 for fiscal years 2003 through 2006. At December 31, 2003, the Company has a liability of $3,673,000 relating to the present value
of the remaining minimum royalties, classified in the Balance Sheet in accrued expenses and other current liabilities ($1,049,000) and other
long-term liabilities ($2,624,000). For 2003, the royalty agreement asset was reduced by $1,086,000. In 2003, payments of $938,000 were made
and the balance due of $312,000 for 2003 was paid in January 2004. The expense of the royalty agreement asset is classified in the Statement
of Income in Cost of Goods Sold. In addition, the Company recorded $228,000 of interest expense related to the accretion of the minimum
royalty payments liability.

Other intangible assets of $814,000 in 2002 consisted solely of non-compete agreements, which are amortized over
5 to 7 years, and are reflected net of accumulated amortization of $1,666,000 at December 31, 2002. Amortization
expense related to intangible assets (excluding goodwill) amounted to $472,000, $409,000 and $373,000 for 2003, 2002
and 2001, respectively. Estimated amortization expense for the next five fiscal years is as follows: $398,000 (2004),
$296,000 (2005), $274,000 (2006), $206,000 (2007) and $141,000 (2008).

During the first quarter of 2002, in accordance with the goodwill impairment provisions of SFAS No. 142, the
Company identified its reporting units and allocated its assets and liabilities, including goodwill, to its reporting units. In
addition, the Company had a valuation of certain of its reporting units done by an independent appraiser, as of January 1,
2002, to assist the Company in determining if there had been an impairment in the goodwill of any of its reporting units.
Based on this appraisal and additional analyses performed by the Company, it was determined that there had been an
impairment of goodwill in two reporting units. As a result, the Company recorded an impairment charge of $32,905,000
offset by a tax benefit of $2,743,000. Such charge was recorded as a cumulative effect of change in accounting principle
in 2002.

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

2 7

Notes to Consolidated Financial Statements (Continued)

As a result of the allocation of the goodwill and the recognition of the impairment charge, goodwill by reportable

segment is as follows (in thousands):

Balance—January 1, 2002
Impairment charge
Acquisitions in 2002

Balance—December 31, 2002

Acquisitions in 2003

Balance—December 31, 2003

MH Segment

RV Segment

Total

$ 33,859
(30,698)

3,161

$ 5,018
(2,207)
1,071

3,882
5,290

$ 38,877
(32,905)
1,071

7,043
5,290

$ 3,161

$ 9,172

$ 12,333

The Company has elected to perform its annual goodwill impairment procedures for all of its reporting units as of
November 30, and therefore, the Company updated its carrying value calculations and fair value estimates for each of its
reporting units as of November 30, 2003. Based on the comparison of the carrying values to the estimated fair values, the
Company has concluded that no additional goodwill impairment existed at that time. The Company plans to update its
review as of November 30, 2004, or sooner, if events occur or circumstances change that could reduce the fair value of a
reporting unit below its carrying value.

The following is a reconciliation to adjust previously reported annual financial information to exclude goodwill

amortization expense (in thousands, except per share amounts):

Year Ended December 31, 2001

Income from continuing operations, as reported
Goodwill amortization expense, net of taxes

Adjusted income from continuing operations

Income per share (basic and diluted):

As reported
Adjusted

Discontinued Operations

$ 9,830
1,623

$11,453

$ 1.02
$ 1.18

The axle and tire refurbishing business of LTA did not perform well from 2000 through 2002, primarily due to
increased competition and the decline in the manufactured housing industry, which severely affected operating margins. In
January 2001, the axle and tire refurbishing business closed two of its five factories and in July 2001, a third such operation
was sold. In September 2002, the Company converted one of its two remaining tire and axle refurbishing facilities to an
RV window production facility. The last axle and tire refurbishing operation was sold in January 2003 at a small gain. As a
result, the axle and tire refurbishing business is classified as discontinued operations in the Consolidated Financial Statements
pursuant to SFAS No. 144, adopted by the Company effective January 1, 2002. Discontinued operations is presented net
of tax expense (benefit) of $26,000, $(102,000) and $(503,000) for the years ended December 31, 2003, 2002 and 2001.

Discontinued operations consisted of the following at December 31, 2002 (in thousands):

Cash
Accounts receivable
Inventories
Prepaid expenses and other current assets
Fixed assets
Deferred charges and other assets

Total assets

Accounts payable
Accrued liabilities

Total liabilities

$ 122
271
604
100
107
7

$1,211

$ 129
371

$ 500

The proceeds from the disposition of all other significant assets of LTA’s axle and tire refurbishing business, consisting

primarily of inventory and accounts receivable, were collected in January 2003 and resulted in a small gain.

The discontinued axle and tire refurbishing business had previously been included in the Company’s MH segment,

and had revenues of $11.2 million and $14.7 million, in 2002 and 2001, respectively.

4 .

I N V E N T O R I E S
Inventories consist of the following (in thousands):

Finished goods
Work in process
Raw materials

Total

5 . F I X E D A S S E T S

Fixed assets, at cost, consist of the following (in thousands):

Land
Buildings and improvements
Leasehold improvements
Machinery and equipment
Transportation equipment
Furniture and fixtures
Construction in progress

Less accumulated depreciation and amortization

December 31,

2003

2002

$ 7,438
1,165
28,708

$37,311

$ 7,681
1,408
28,054

$37,143

December 31,

2003

2002

Estimated
Useful
Life in Years

$ 6,897
54,329
1,616
39,617
2,452
4,432
144

109,487
37,276

$ 6,883
53,360
1,464
35,838
2,568
3,775
1,041

104,929
30,888

10 to 39
2 to 11
3 to 10
3 to 7
3 to 10

Fixed assets, net

$ 72,211

$ 74,041

Depreciation and amortization of fixed assets consists of (in thousands):

Charged to cost of sales
Charged to selling, general and administrative expenses

Total

6 . A C C R U E D E X P E N S E S A N D O T H E R C U R R E N T L I A B I L I T I E S

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

Accrued employee compensation and fringes
Income taxes
Accrued expenses and other

Total

Year Ended December 31,

2003

$6,354
726

$7,080

2002

$5,604
694

$6,298

2001

$4,944
678

$5,622

December 31,

2003

2002

$12,033
1,171
6,490

$ 9,556
1,047
7,096

$19,694

$17,699

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

2 9

Notes to Consolidated Financial Statements (Continued)

7 . R E T I R E M E N T A N D O T H E R B E N E F I T P L A N S

The Company has discretionary defined contribution profit sharing plans covering substantially all eligible employees.
The Company contributed $994,000, $914,000 and $608,000 to these Plans during the years ended December 31, 2003,
2002 and 2001, respectively.

8 . L O N G - T E R M I N D E B T E D N E S S

Long-term indebtedness consists of the following (in thousands):

December 31,

2003

2002

Senior Notes payable at the rate of $8,000 per annum on January 28, with interest

payable semi-annually at the rate of 6.95% per annum

$16,000

$24,000

Notes payable pursuant to a Credit Agreement expiring October 15, 2005 consisting
of a line of credit, not to exceed $30,000; interest at prime rate or LIBOR plus
a rate margin based upon the Company’s performance (a) (b)

Industrial Revenue Bonds, interest rates at December 31, 2003, 3.18% to 6.28%,

due 2008 through 2017; secured by certain real estate and equipment

Real estate mortgage payable at the rate of $70 per month with a balloon payment

of $3,371 in May 2006, interest at 9.03% per annum

Other loans primarily secured by certain real estate and equipment, due 2006 to 2016,

primarily fixed rates of 6.52% to 7.75% (c)

Less current portion

Total long-term indebtedness

2,900

7,858

8,871

4,484

4,894

6,414

34,756
9,931

8,140

48,805
9,993

$24,825

$38,812

(a) Pursuant to the performance schedule, the interest rate on LIBOR loans was LIBOR plus 1.5 percent at December 31, 2003 and 2002.

(b) As of December 31, 2003, the Company had letters of credit of $2.9 million outstanding under this Credit Agreement.

(c) During 2003, the Company prepaid $1.4 million of other loans with interest rates of 7.75 percent to 7.90 percent. There were no penalties on

such pre-payment. The Company also negotiated the lowering of a fixed interest rate on one instrument from 8.72% to 6.52%.

Pursuant to the Senior Notes, the Credit Agreement, and certain of the other loan agreements, the Company is
required to maintain minimum net worth and interest and fixed charge coverages and to meet certain other financial
requirements. The Company is in compliance with all such requirements. Certain of the Company’s loan agreements
contain prepayment penalties. Borrowings under the Senior Notes and the Credit Agreement are secured only by capital
stock of the Company’s subsidiaries.

The Company pays a commitment fee, accrued at the rate of 3/8 of 1 percent per annum, on the daily unused

amount of the revolving line of credit.

The Company has unsecured letters of credit outstanding, unrelated to the Credit Agreement, which aggregate

$1.7 million at December 31, 2003.

The approximate amount of maturities of long-term indebtedness (in thousands) are:

2004
2005
2006
2007
2008
Thereafter

Less current portion

Total long-term indebtedness

$ 9,931
9,693
4,751
1,226
2,715
6,440

34,756
9,931

$24,825

The Company believes the interest rates on instruments similar to its debt approximate the rates paid by the

Company. Therefore, the book value of such debt approximates fair value at December 31, 2003 and 2002.

9 .

I N C O M E TA X E S
The income tax provision in the Consolidated Statements of Income is as follows (in thousands):

Current:

Federal
State
Deferred:
Federal
State

Total income tax provision

Year Ended December 31,

2003

2002

2001

$10,009
1,476

516
(133)

$7,137
998

1,475
273

$5,706
574

111
(27)

$11,868

$9,883

$6,364

The provision for income taxes differs from the amount computed by applying the Federal statutory rate to income

before income taxes for the following reasons (in thousands):

Income tax at Federal statutory rate
State income taxes, net of Federal income tax benefit
Non-deductible expenses
Other

Provision for income taxes

Year Ended December 31,

2003

$10,935
873
90
(30)

$11,868

2002

$8,976
826
79
2

$9,883

2001

$5,668
356
465
(125)

$6,364

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred

tax liabilities at December 31, 2003 and 2002 are as follows (in thousands):

Deferred tax assets:

Accounts receivable
Inventories
Goodwill and other assets
Accrued insurance
Employee benefits
Other accruals

Total deferred tax assets

Deferred tax liabilities:

Fixed assets

Net deferred tax asset

December 31,

2003

2002

$ 465
885
4,055
764
836
711

7,716

$ 452
683
4,454
349
793
867

7,598

3,920

3,517

$3,796

$4,081

The Company concluded that it is more likely than not that the deferred tax assets at December 31, 2003 will be realized
in the ordinary course of operations based on scheduling of deferred tax liabilities and income from operating activities.
Tax benefits on stock option exercises of $864,000, $468,000 and $13,000 were credited directly to stockholders’

equity for 2003, 2002 and 2001, respectively.

Net deferred tax assets are classified in the Consolidated Balance Sheets as follows (in thousands):

Prepaid expenses and other current assets
Other assets

December 31,

2003

$3,547
249

$3,796

2002

$3,214
867

$4,081

Also, included in prepaid expenses and other current assets are Federal income tax refunds receivable of $852,000

and $1,742,000 at December 31, 2003 and 2002, respectively.

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

3 1

Notes to Consolidated Financial Statements (Continued)

1 0 . C O M M I T M E N T S A N D C O N T I N G E N C I E S

Leases

The Company’s lease commitments are primarily for real estate, machinery and equipment, and vehicles. The significant
real estate leases provide for renewal options and periodic rental adjustments to reflect price index changes and require
the Company to pay for property taxes and all other costs associated with the leased property.

Future minimum lease payments under operating leases at December 31, 2003 are summarized as follows (in thousands):

2004
2005
2006
2007
2008
Thereafter

Total lease obligations

$3,094
1,682
1,021
610
381
214

$7,002

Included in the above table are the remaining commitments regarding a sale and leaseback of equipment made during

2001. In addition, the Company has an option to repurchase such equipment for $1,554,000 in 2004.

Rent expense was $4,896,000, $4,608,000 and $4,256,000 for the years ended December 31, 2003, 2002 and 2001,

respectively.

The Company has employment contracts with six of its employees and six consultants, which expire on various dates
through July 2008. The minimum commitments under these contracts are $1,793,000 in 2004, $699,000 in 2005, $269,000 in
2006, $100,000 in 2007 and $55,000 in 2008. In addition, the contracts with three of the employees, and an arrangement
with one other employee of the Company, provide for incentives to be paid based on a percentage of profits, as defined.

1 1 . S T O C K H O L D E R S ’ E Q U I T Y

Stock-Based Awards

In May 2002, the Company’s Stockholders voted to adopt the Drew Industries Incorporated 2002 Equity Award and
Incentive Plan (the “2002 Equity Plan”), to replace the prior Stock Option Plan (“Prior Plan”). Pursuant to the 2002 Equity
Plan, the Company may grant its directors, employees, and consultants Drew Common Stock-based awards, such as
options and restricted or deferred stock. The number of shares of Common Stock reserved for awards was 850,000 plus
the 70,666 shares that remained available for grant under the Prior Plan.

The 2002 Equity Plan provides for the grant of stock options that qualify as incentive stock options under Section 422
of the Internal Revenue Code, and non-qualified stock options. Under the 2002 Equity Plan, as under the Prior Plan, the
Compensation Committee (“the Committee”) determines the period for which each stock option may be exercisable, but
in no event may a stock option be exercisable more than 10 years from the date of grant thereof. The number of shares
available under the 2002 Equity Plan, and the exercise price of options granted under the 2002 Equity Plan, are subject to
adjustments that may be made by the Committee to reflect stock splits, stock dividends, recapitalization, mergers, or
other major corporate actions.

The exercise price for options granted under the 2002 Equity Plan shall be at least equal to 100 percent of the fair
market value of the shares subject to such option on the date of grant. The exercise price may be paid in cash or in shares
of Drew Common Stock held for a minimum of six months. Options granted under the 2002 Equity Plan become exercis-
able in annual installments as determined by the Committee.

In 2003 and 2002, pursuant to the 2002 Equity Plan, the Company awarded 12,503 and 4,604 deferred stock units,
respectively, to certain directors in lieu of cash fees earned by such directors. The number of deferred stock units awarded
is determined by dividing 115% of the fee earned by the closing price of the Common Stock on the date the fees were
earned. The deferral period is generally two years from the date of the election to defer, unless extended.

Transactions in stock options and deferred stock units under the 2002 Equity Plan and the Prior Plan are summarized

as follows:

Deferred Stock Units

Stock Options

Number of
Shares

Stock Price at
Date of Issuance

Number of
Option Shares

Option Price

Outstanding at December 31, 2000

Granted
Exercised
Canceled
Expired

Outstanding at December 31, 2001

Issued
Granted
Exercised

Outstanding at December 31, 2002

Issued
Granted
Exercised
Canceled

4,604

$13.74–$16.30

12,503

$15.17–$25.56

906,734
262,500
(14,324)
(33,000)
(15,000)

1,106,910

20,000
(264,710)

862,200

396,500
(268,380)
(6,000)

$ 9.10–$ 9.25
$ 6.94
$ 8.82–$12.50
$10.75

$15.75
$ 5.68–$12.48

$25.56–$27.60
$ 8.81–$12.50
$ 8.81–$12.50

Outstanding at December 31, 2003

17,107

$13.74–$25.56

984,320

$ 5.68–$27.60

Exercisable at December 31, 2003

336,520

$ 5.68–$15.75

The number of shares available for granting awards under the 2002 Equity Plan was 493,059 and 896,062 at
December 31, 2003 and 2002, respectively. The number of shares available for awards under the Prior Plan was 70,666 at
December 31, 2001.

The following table summarizes information about stock options outstanding at December 31, 2003:

Option
Exercise Price

Shares
Outstanding

Option Remaining
Life (Years)

Shares
Exercisable

$ 5.68
$ 8.81
$ 9.10
$ 9.20
$ 9.25
$ 9.31
$11.63
$15.75
$25.56
$27.60

15,000
159,000
204,820
15,000
15,000
150,000
9,000
20,000
371,500
25,000

2.0
1.9
3.9
2.0
3.0
1.9
1.3
5.0
5.9
6.0

15,000
94,600
56,920
15,000
15,000
120,000
2,400
20,000
—
—

Outstanding stock options expire in five to six years from the date they are granted; options vest over service periods

that range from one to five years.

Weighted Average Common Shares Outstanding

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

Weighted average shares outstanding for basic earnings per share
Common stock equivalents pertaining to:

Stock options

Total for diluted shares

Year Ended December 31,

2003

2002

2001

10,075,406

9,789,513

9,660,501

221,502

219,114

5,368

10,296,908

10,008,627

9,665,869

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

3 3

Notes to Consolidated Financial Statements (Continued)

1 2 . Q U A R T E R LY R E S U LT S O F O P E R AT I O N S ( U N A U D I T E D )

The sum of per share amounts for the four quarters may not equal the total per share amounts for the year as a

result of changes in the weighted average common shares outstanding.

Interim unaudited financial information follows (in thousands, except per share amounts):

Year Ended December 31, 2003

Net sales
Gross profit
Income from continuing operations
Discontinued operations
Net income
Net income per common share:

Income from continuing operations

Basic
Diluted

Discontinued operations

Basic
Diluted
Net income
Basic
Diluted
Stock Market Price (a)

High
Low
Close (at end of quarter)

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Year

$80,827
17,950
5,138
138
3,266

$89,410
22,883
8,778
—
5,345

$96,107
25,470
10,768
—
6,582

$86,772
20,378
6,559
(90)
4,230

$353,116
86,681
31,243
48
19,423

.31
.31

.02
.01

.33
.32

.53
.52

—
—

.53
.52

.65
.64

—
—

.65
.64

.42
.41

—
—

.42
.41

1.92
1.88

—
—

1.92
1.88

$ 16.24
$ 14.95
$ 15.21

$ 18.25
$ 15.01
$ 18.20

$ 19.10
$ 17.90
$ 18.51

$ 28.28
$ 18.69
$ 27.80

$ 28.28
$ 14.95
$ 27.80

(a) On December 11, 2003, the Company’s stock was listed for trading on the New York Stock Exchange under the symbol “DW.” Simultaneously,

the Company’s stock ceased trading on the American Stock Exchange.

Year Ended December 31, 2002

Net sales
Gross profit
Income from continuing operations
Discontinued operations
Cumulative effect of change in accounting principle
Net income (loss)
Net income per common share:

Income from continuing operations

Basic
Diluted

Discontinued operations

Basic
Diluted

Cumulative effect of change in accounting principle

Basic
Diluted

Net income (loss)

Basic
Diluted

Stock Market Price

High
Low
Close (at end of quarter)

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Year

$ 72,187
18,048
3,649
(117)
(30,080)
(26,548)

$85,718
21,507
4,807
(40)

$89,217
21,112
4,691
9

4,767

4,700

$78,309
17,920
2,617
(52)
(82)
2,483

$325,431
78,587
15,764
(200)
(30,162)
(14,598)

.38
.37

(.01)
(.01)

(3.11)
(3.05)

(2.74)
(2.69)

.49
.48

—
—

.49
.48

.48
.47

—
—

.48
.47

.26
.26

—
—

(.01)
(.01)

.25
.25

1.61
1.57

(.02)
(.02)

(3.08)
(3.01)

(1.49)
(1.46)

$ 14.98
$ 10.90
$ 12.70

$ 17.03
$ 11.50
$ 16.45

$ 16.90
$ 13.50
$ 15.55

$ 16.50
$ 15.25
$ 16.05

$ 17.03
$ 10.90
$ 16.05

1 3 . S U B S E Q U E N T E V E N T

In February 2004, the Company sold certain intellectual property rights relating to a process used to manufacture a
new composite material. Simultaneously with the sale, the Company entered into an equipment lease and a license
agreement with the buyer. As a result, the Company plans to produce the new composite material for use in certain bath
products for the manufactured housing, modular housing, and recreational vehicle industries on an exclusive, royalty-free
basis. The Company will also have the right to use the new composite material on a royalty-free, non-exclusive basis to
manufacture various other products for the manufactured housing, modular housing, and recreational vehicle industries.
Sales of these new products, if any, are not expected to be significant in 2004.

The sale price for the intellectual property rights was $4.0 million, consisting of cash of $100,000 at closing and a
note of $3.9 million, payable over five years. The note bears interest at increasing annual interest rates, and is secured by
a lien on the intellectual property rights sold, a right of offset against the lease, and a guaranty. The note is convertible
into an equity interest in any new venture that the buyer may form to promote this process. In February 2004 the
Company received the first payment under the note for $400,000.

Per Share Market Price Range

The Company’s common stock is traded on the New York Stock Exchange. A summary of the high and low closing

prices of the Company’s common stock on the New York Stock Exchange is as follows:

Quarter Ended March 31
Quarter Ended June 30
Quarter Ended September 31
Quarter Ended December 31

2003

2002

High

Low

High

Low

$16.24
$18.25
$19.10
$28.28

$14.95
$15.01
$17.90
$18.69

$14.98
$17.03
$16.90
$16.50

$10.90
$11.50
$13.50
$15.25

The closing price per share for the common stock on February 27, 2004 was $36.41 and there were 733 holders of

Drew Common Stock, not including beneficial owners of shares held in broker and nominee names.

Dividend Information

Drew has not paid any cash dividends on its outstanding shares of Common Stock.

Forward-Looking Statements and Risk Factors

This report 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, plan and objectives of management, markets for Drew common stock and other matters. Statements in

this report that are not historical facts are “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the

Exchange Act and Section 27A of the Securities Act. Forward-looking statements, including, without limitation those relating to our future

business prospects, revenues and income, wherever they occur in this report, 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 report.

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 pricing pressures due to competition, raw material

costs (particularly steel, vinyl, aluminum, glass, and ABS resin), availability of retail and wholesale financing for manufactured homes, availability

and costs of labor, inventory levels of retailers and manufacturers, levels of repossessed manufactured homes, the financial condition of our

customers, interest rates, and adverse weather conditions impacting retail sales. In addition, national and regional economic conditions and
consumer confidence may affect the retail sale of recreational vehicles and manufactured homes.

D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 3 A N N U A L R E P O R T

3 5

Independent Auditors’ Report

The Board of Directors and Stockholders
Drew Industries Incorporated:

We have audited the accompanying consolidated balance sheets of Drew Industries Incorporated and subsidiaries as
of December 31, 2003 and 2002, and the related consolidated statements of income, stockholders’ equity, and cash flows
for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Drew Industries Incorporated and subsidiaries as of December 31, 2003 and 2002, and the results
of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company adopted SFAS No. 142, “Goodwill and

Other Intangible Assets” as of January 1, 2002.

Stamford, Connecticut
February 11, 2004

Management’s Responsibility for Financial Statements

The management of the Company has prepared and is responsible for the consolidated financial statements and
related financial information included in this report. These consolidated financial statements were prepared in accordance
with accounting principles generally accepted in the United States of America, which are consistently applied and appro-
priate in the circumstances. These consolidated financial statements necessarily include amounts determined using
management’s best judgements and estimates. Such estimates, which are evaluated on an ongoing basis, are based on
historical experience and other factors believed to be reasonable under the circumstances.

The Company maintains accounting and other control systems which provide reasonable assurance that assets are
safeguarded and that the books and records reflect the authorized transactions of the Company. Although accounting
controls are designed to achieve this objective, it must be recognized that errors or irregularities may occur. In addition,
it is necessary to assess and consider the relative costs and the expected benefits of the internal accounting controls.

The Company’s independent auditors, KPMG LLP, provide an independent, objective review of the consolidated
financial statements and underlying transactions. They perform such tests and other procedures as they deem necessary to
express an opinion on the financial statements. The report of KPMG LLP accompanies the consolidated financial statements.

LEIGH J. ABRAMS
President and
Chief Executive Officer

FREDRIC M. ZINN
Executive Vice President and
Chief Financial Officer

Corporate Information

B O A R D O F D I R E C T O R S

F O R M 1 0 - K

A copy of the Annual Report on Form 10-K
as filed by the Corporation with the
Securities and Exchange Commission is
available upon request, without charge,
by writing to:
Secretary
Drew Industries Incorporated
200 Mamaroneck Avenue
White Plains, NY 10601

G E N E R A L C O U N S E L

Harvey F. Milman, Esq.
Phillips Nizer LLP
666 Fifth Avenue
New York, NY 10103

I N D E P E N D E N T C E RT I F I E D P U B L I C
A C C O U N TA N T S

KPMG LLP
Stamford Square
3001 Summer Street
Stamford, CT 06905

T R A N S F E R A G E N T A N D R E G I S T R A R

American Stock Transfer
& Trust Company
59 Maiden Lane
New York, NY 10038
(212) 936-5100
(800) 937-5449
website: www.amstock.com

Edward W. Rose, III(1)
Chairman of the Board of
Drew Industries Incorporated
President of Cardinal Investment Company
James F. Gero(1)(2)(3)
Chairman and Chief Executive Officer
of Sierra Technologies, Inc.
Gene H. Bishop(1)(3)
Retired Bank Executive
Frederick B. Hegi, Jr.(2)(3)
Founding Partner
Wingate Partners
David A. Reed(2)(3)
Managing Partner of Causeway Capital
Partners, L.P.
Leigh J. Abrams
President and Chief Executive Officer of
Drew Industries Incorporated
L. Douglas Lippert
Chairman of Lippert Components, Inc.
David L. Webster
Chairman, President and Chief Executive
Officer of Kinro, Inc.

Members of the Committees of the Board of
Directors, as follows:
(1) Compensation Committee
(2) Audit Committee
(3) Corporate Governance and
Nominating Committee

C O R P O R AT E O F F I C E R S

Leigh J. Abrams
President and Chief Executive Officer
Fredric M. Zinn
Executive Vice President and
Chief Financial Officer
John F. Cupak
Director of Taxation and Internal Audit,
and Secretary
Joseph S. Giordano III
Corporate Controller and Treasurer

TOP PHOTO (FROM LEFT TO RIGHT):
David L. Webster, L. Douglas Lippert,
James F. Gero, Edward W. Rose, III,
Leigh J. Abrams, Frederick B. Hegi, Jr.,
Gene H. Bishop, David A. Reed.

E X E C U T I V E O F F I C E S

200 Mamaroneck Avenue
White Plains, NY 10601
(914) 428-9098
website: www.drewindustries.com
E-mail: drew@drewindustries.com

K I N R O , I N C .

Better Bath, a division of Kinro, Inc.

David L. Webster
Chairman, President and
Chief Executive Officer

Corporate Headquarters

4381 Green Oaks Boulevard West
Arlington, TX 76016
(817) 483-7791

L I P P E RT C O M P O N E N T S , I N C .

L. Douglas Lippert
Chairman
Jason Lippert
President and Chief Executive Officer

Corporate Headquarters
2766 College Avenue
Goshen, IN 46526
(574) 535-2085

C O R P O R AT E G O V E R N A N C E

Copies of the Company’s Governance
Principles, Guidelines for Business Conduct,
Code of Ethics for Senior Financial Officers,
and the Charters and Key Practices of
the Audit, Compensation, and Corporate
Governance and Nominating Committees
are on the Company’s website, and are
available upon request, without charge,
by writing to:
Secretary
Drew Industries Incorporated
200 Mamaroneck Avenue
White Plains, NY 10601

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D R E W I N D U S T R I E S I N C O R P O R A T E D

2 0 0 M a m a r o n e c k A v e n u e , W h i t e P l a i n s , N Y 1 0 6 0 1
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