LCI Industries 2018 Annual Report LCI Industries supplies a broad array of engineered components for the leading original equipment manufacturers and the related aftermarkets.
9,000+
team members
From over 65 manufacturing and distribution
facilities located throughout the United States and
in Canada, Ireland, Italy, and the United Kingdom,
LCI Industries, through its wholly-owned
subsidiary, Lippert Components, Inc. (LCI®),
supplies, domestically and internationally, a broad
array of engineered components for
the leading original equipment manufacturers
(“OEMs”) in the recreational vehicles (“RV”) and
adjacent industries, including buses; trailers used
to haul boats, livestock, equipment, and other
Introduction 2-3
cargo; trucks; boats; trains; manufactured homes;
To Our Stockholders 4-5
Financial Data 6-7
Corporate Information 8-9
2018 Form 10-K 1-82
and modular housing. The Company also supplies
components to the related aftermarkets of these
industries primarily by selling to retail dealers.
wholesale distributors, and service centers.
2 LC I I N D U S T R I E S 2 018 A N N UA L R E P O R T • l c i1.c o m
65+
facilities
$2.5 Billion
in annual sales
LCI Industries supplies a broad array of engineered components for the leading original equipment manufacturers and the related aftermarkets.
LCI’s products include steel chassis and related
In 2018, the OEM Segment accounted for 91
components; axles and suspension solutions;
percent of LCI Industries’ consolidated net sales,
slide-out mechanisms and solutions;
of which 58 percent were components sold to
thermoformed bath, kitchen, and other products;
manufacturers of travel trailer and fifth-wheel RVs.
vinyl, aluminum, and manual frameless windows;
The Aftermarket Segment accounted for nine
electric and hydraulic stabilizer and leveling
percent of LCI Industries’ consolidated net sales.
systems; furniture and mattresses; entry, luggage,
Executive leadership of LCI Industries is
patio, and ramp doors; electric and manual entry
committed to acting ethically and responsibly, and
steps; awnings and awning accessories;
to providing full and accurate disclosure to the
electronic components; televisions and sound
Company’s stockholders, team members, and
systems; navigation systems; backup cameras;
other stakeholders.
appliances and other accessories. Additional
information about LCI and its products can be
found at lci1.com.
LC I I N D U S T R I E S 2 018 A N N UA L R E P O R T • l c i1.c o m 3
We delivered another record year in 2018.
For the year, we grew revenue 15%, and reported
an operating profit of $199 million. Our strategy to
diversify our business through adjacent markets,
the aftermarket, and internationally is paying off.
We grew our adjacent OEM, Aftermarket, and
International business by 44%, 39%, and 125%,
respectively. Despite strong top-line results, we
did face headwinds during the year including a
short-term, lower volume environment and margin
compression, as a result of higher commodity
pricing and the uncertain trade environment.
We took a number of actions, including price
increases and moderating our planned capital
expenditures, to boost our return on investment
and cash flows.
For 2018, the RV industry reported nearly
484,000 units sold – a top-five, year-end finish
for the industry. We outperformed the industry
by further increasing our content per vehicle at
a time when many of our OEM customers were
removing content, which is a testament to the
value and innovation of our products. In fact, our
content per towable RV and motorhome both
increased, with content per towable RV up 6%
and motorhome content up 12%.
As we have discussed on many occasions, as
a leadership team, our strategy has been to not
only extend our leadership in the RV industry, but
also diversify our business into adjacent markets.
In 2018, RV represented approximately 66% of
our total revenues, which is down significantly
from approximately 90% shortly after the last
recession. In November, we announced our
acquisition of the business and certain assets of
the furniture manufacturing operation of Smoker
Craft, Inc., our fourth marine acquisition in the last
four years, which further expands our capabilities
for this attractive market. We also remain focused
on the building products markets, and now
have an array of products, including windows,
doors, and kitchen and bath products. Lastly,
we continue to capitalize on higher education
opportunities. To date, we have seen over 50
colleges and universities testing or buying our
newly designed green mattress products.
We are also excited about the opportunities to
grow our international business, both organically
and inorganically, as we continue looking to
acquire suppliers in the caravan, marine, and
rail markets. In 2018 we grew our international
businesses from $58 million in 2017 to $104
4 LC I I N D U S T R I E S 2 018 A N N UA L R E P O R T • l c i1.c o m
To Our Stockholders million, and we are thrilled about the prospect of
future growth opportunities given recent global
expansion by some of our customers. We see our
international business as a great opportunity to
take a fragmented supply base and strategically
bring larger and improved suppliers to that
market, much like we did in the RV market in the
U.S. 15 years ago.
As an organization we have embraced our focus
on innovation, continuous improvement, and a
positive working environment that our employees
are proud to be a part of. As a result of our
efforts, we have seen our attrition rates fall from
80% a few years ago to just 30%, well below
the industry average. This was possible through
our very intentional culture and leadership
development, and it is an area we expect to
remain committed to going forward.
There is a lot to be excited about as we look
to 2019. We are maintaining our focus on
diversifying into adjacent markets as we work
towards our goal of having RV OEM comprise
only 40% of total revenues by 2022. Based on
our trajectory over the past several years, we
believe we are well on track to achieve this goal.
This means focusing on markets like marine,
off- and on-highway vehicles, trailers, building
products, and our aftermarkets. Of course,
part of achieving this also means maintaining
our focus on what we’re best at – developing
innovative products and processes that our
customers have come to expect from us.
In closing, we would like to thank our employees
for their dedication and hard work over the
last year. We feel proud to lead such a strong
organization that focuses on delivering innovative
products to our customers day in and day out.
We believe we have a strong strategy in place and
look forward to delivering sustainable, long-term
value for our stockholders.
JASON D. LIPPERT
Chief Executive Officer
LC I I N D U S T R I E S 2 018 A N N UA L R E P O R T • l c i1.c o m 5
$2.5 billion in sales, an increase of 15% from 2017 Financial Data
OPERATING DATA:
Net sales
Operating profit
Income before income taxes
Provision for income taxes*
Net income*
Net income per common share:
Basic*
Diluted*
Cash dividends per common share
FINANCIAL DATA:
Working capital
Total assets
Long-term obligations
Stockholders’ equity
2014
2015
2016
2017
2018
Year Ended December 31
$ 1,190,782
$ 1,403,066
$ 1,678,898
$ 2,147,770
$ 2,475,807
95,487
95,057
32,791
116,254
114,369
40,024
200,850
199,172
69,501
214,281
212,844
79,960
198,788
192,352
43,801
$
62,266
$
74,345
$ 129,671
$ 132,884
$ 148,551
$
$
$
2.60
2.56
2.00
$
$
$
3.06
3.02
2.00
$
$
$
5.26
5.20
1.40
$
$
$
5.31
5.24
2.05
$
$
$
5.90
5.83
2.35
$ 100,451
$ 146,964
$ 218,043
$ 235,066
$ 543,841
$ 622,856
$ 786,904
$ 945,858
$
41,758
$
85,419
$
87,284
$
111,100
$ 394,898
$ 438,575
$ 550,269
$ 652,745
$ 349,069
$ 1,243,893
$ 360,056
$ 706,255
In thousands, except per share amounts
TOTAL SALES
TOTAL SALES (in millions)
NET INCOME PER COMMON SHARE
NET INCOME PER COMMON SHARE (diluted)
$2,476
$2,148
2,500
2,000
1,500
1,000
$1,191
$1,679
$1,403
500
0
'14
'15
'16
'17
'18
6
5
4
3
2
1
0
$5.86
$5.83*
$5.76
$5.24*
$5.20
$3.02
$2.56
'14
'15
'16
'17
'18
* Amounts include a non-cash charge of $612,000 ($0.02 per diluted share) and $13.2 million ($0.52 per diluted share), for the years ended December 31,
2018 and 2017, respectively, related to the enactment of the Tax Cuts and Jobs Act (the “TCJA”). See “Provision for Income Taxes” and “Non-GAAP
Measures” included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Form 10-K for further information
related to the impact of the TCJA and for additional information regarding the Company’s use of non-GAAP financial measures and a reconciliation to the
most directly comparable GAAP financial measures.
6 LC I I N D U S T R I E S 2 018 A N N UA L R E P O R T • l c i1.c o m
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*
Among LCI Industries, the Russell 2000 Index, and a Peer Group
300
250
200
150
100
50
0
12/13
12/14
12/15
12/16
12/17
12/18
LCI Industries
Russell 2000
Peer Group
*$100 invested on 12/31/13 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
LCI Industries
Russell 2000
Peer Group
12/13
100.00
100.00
100.00
12/14
99.75
104.89
102.51
12/15
122.82
100.26
101.04
12/16
220.94
121.63
142.13
12/17
271.90
139.44
190.17
12/18
143.53
124.09
108.78
The graph above matches the cumulative 5-Year total return of holders of LCI Industries’ common stock with the cumulative total returns of the Russell
2000 index and a customized peer group of seven companies that includes: Brunswick Corp, Cavco Industries Inc., Patrick Industries Inc., Spartan
Motors Inc., Thor Industries Inc., Trimas Corp, and Winnebago Industries Inc. The graph assumes that the value of the investment in our common stock,
in each index, and in the peer group (including reinvestment of dividends) was $100 on 12/31/2013 and tracks it through 12/31/2018.
LC I I N D U S T R I E S 2 018 A N N UA L R E P O R T • l c i1.c o m 7
1
2
3
4
5
9 Kieran M. O’Sullivan (1)(2)
President, Chief Executive
Officer and Chairman of the
Board of CTS Corporation
10 David A. Reed (2)(5)
President of a privately-held family
investment management company
Members of the Committees
of the Board of Directors, as follows:
(1) Compensation Committee
(2) Audit Committee
(3) Corporate Governance and Nominating
Committee
(4) Risk Committee
(5)Strategy and Acquisition Committee
CORPORATE OFFICERS
Jason D. Lippert
Chief Executive Officer
Brian M. Hall
Chief Financial Officer
Andrew J. Namenye
Vice President, Chief Legal Officer,
and Secretary
Jamie M. Schnur
Chief Administrative Officer
Nick C. Fletcher
Chief Human Resources Officer
Kip A. Emenhiser
Corporate Controller
EXECUTIVE OFFICES
3501 County Road 6 East
Elkhart, IN 46514
(574) 535-1125
website: www.lci1.com
E-mail: lcii@lci1.com
BOARD OF DIRECTORS
1 James F. Gero (2)(3)
Chairman of the Board
of LCI Industries,
and a Private Investor
2 Jason D. Lippert
Chief Executive Officer
of LCI Industries
3 Frank J. Crespo (3)(4)
Senior VP and Chief Supply
Chain Officer of Indigo Agriculture
4 Brendan J. Deely (1)(3)
Chief Executive Officer of
Banner Solutions
5 Ronald J. Fenech (4)(5)
Founding Partner, Grand Design
Recreational Vehicle Co.
6 Tracy D. Graham (1)(4)(5)
Chief Executive Officer of
Graham Allen Partners
7 Frederick B. Hegi, Jr. (2)(3)
Founding Partner,
Wingate Partners
8 Virginia L. Henkels (1)(2)
Retired Chief Financial Officer of
Swift Transportation Company
8 LC I I N D U S T R I E S 2 018 A N N UA L R E P O R T • l c i1.c o m
Corporate Information 6
7
8
9
10
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
KPMG LLP
Aon Center
200 East Randolph
Chicago, IL 60601
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
(212) 936-5100
(800) 937-5449
website: www.amstock.com
CORPORATE GOVERNANCE
Copies of the Company’s Governance Principles, Guidelines
for Business Conduct, Code of Ethics for Senior Financial
Officers, Whistleblower Policy, and the Charters and Key
Practices of the Audit, Compensation, and Corporate
Governance and Nominating Committees are on the Company’s
website at lci1.com/investors, and are available upon request,
without charge, by writing to:
Secretary
LCI Industries
4100 Edison Lakes Pkwy. Ste. 210
Mishawaka, IN 46545
CEO/CFO CERTIFICATIONS
The most recent certifications by our Chief Executive Officer and
Chief Financial Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 are filed as exhibits to our Form 10-K. We have
also filed with the New York Stock Exchange the most recent
Annual CEO Certification as required by Section 303A.12(a) of the
New York Stock Exchange Listed Company Manual.
PAY-FOR-PERFORMANCE
Through a combination of performance-based incentives and stock-
based awards, LCII strives to attract, motivate, and retain talented,
entrepreneurial, and innovative management.
We have designed our pay-for-performance incentive compensation
program to be the “workhorse” of our management compensation.
Performance-based incentive compensation has historically
represented the major portion of the overall compensation of our
key managers. We believe that those key employees who have
the greatest ability to influence the Company’s results should be
compensated primarily based on the financial results of those
operations for which they are responsible.
Our stock-based awards ensure that our managers have a continuing
personal interest in the long-term success of the Company and
create a culture of ownership among management, while also
rewarding long-term return to stockholders.
LC I I N D U S T R I E S 2 018 A N N UA L R E P O R T • l c i1.c o m 9
10 LC I I N D U S T R I E S 2 018 A N N UA L R E P O R T • l c i1.c o m
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2018
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 001-13646
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
3501 County Road 6 East
Elkhart, Indiana
(Address of principal executive offices)
13-3250533
(I.R.S. Employer
Identification Number)
46514
(Zip Code)
(574) 535-1125
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $.01 par value
Name of each exchange
on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
1
Indicate by check mark if the registrant
Act. Yes ☒ No ☐
Act. Y
is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐ No ☒
Act. Y
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Y
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files.) Y
fi l es.) Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this For m 1 0- K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Non-accelerated filer ☐
Accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Y
The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the
common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was
$1,549,669,846. The registrant has no non-voting common equity.
The number of shares outstanding of the registrant’s common stock, as of the latest practicable date (February 15, 2019), was
24,863,161 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2019 Annual Meeting of Stockholders to be held on May 23, 2019 are incorporated by
reference into Part III of this Annual Report on Form 10-K.
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain “forward-looking statements” with respect to our financial
condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth
opportunities, acquisitions, plans and objectives of management, markets for the Company’s common stock, the impact of legal
proceedings, and other matters. Statements in this Form 10-K that are not historical facts are “forward-looking statements” for
the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended, and involve a number of risks and uncertainties.
Forward-looking statements, including, without limitation, those relating to the Company’s future business prospects,
net sales, expenses and income (loss), cash flow, and financial condition, whenever they occur in this Form 10-K are necessarily
estimates reflecting the best judgment of the Company’s senior management at the time such statements were made. There are a
number of factors, many of which are beyond the Company’s control, which could cause actual results and events to differ
materially from those described in the forward-looking statements. These factors include, in addition to other matters described
in this Form 10-K, pricing pressures due to domestic and foreign competition, costs and availability of raw materials
(particularly steel and aluminum) and other components, seasonality and cyclicality in the industries to which we sell our
products, availability of credit for financing the retail and wholesale purchase of products for which we sell our components,
inventory levels of retail dealers and manufacturers, availability of transportation for products for which we sell our
components, the financial condition of our customers, the financial condition of retail dealers of products for which we sell our
components, retention and concentration of significant customers, the costs, pace of and successful integration of acquisitions
and other growth initiatives, availability and costs of production facilities and labor, employee benefits, employee retention,
realization and impact of expansion plans, efficiency improvements and cost reductions, the disruption of business resulting
from natural disasters or other unforeseen events, the successful entry into new markets, the costs of compliance with
environmental laws, laws of foreign jurisdictions in which we operate, other operational and financial risks related to
conducting business internationally, increased governmental regulation and oversight, information technology performance and
security, the ability to protect intellectual property, warranty and product liability claims or product recalls, interest rates, oil and
gasoline prices and availability,
the impact of international, national and regional economic conditions and consumer
confidence on the retail sale of products for which we sell our components, and other risks and uncertainties discussed more
fully under the caption “Risk Factors” in this Annual Report on Form 10-K, and in our subsequent filings with the Securities
and Exchange Commission (“SEC”). Readers of this report are cautioned not to place undue reliance on these forward-looking
statements, since there can be no assurance that these forward-looking statements will prove to be accurate. The Company
disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after
the date the forward-looking statements are made, except as required by law.
INDUSTRY AND MARKET DATA
Certain market and industry data and forecasts included in this report were obtained from independent market research,
industry publications and surveys, governmental agencies and publicly available information. Industry surveys, publications
and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable,
although they do not guarantee the accuracy or completeness of such information. We believe the data from such third-party
sources to be reliable. However, we have not independently verified any of such data and cannot guarantee its accuracy or
completeness. Similarly, internal market research and industry forecasts, which we believe to be reliable based upon our
management’s knowledge of the market and the industry, have not been verified by any independent sources. While we are not
aware of any misstatements regarding the market or industry data presented herein, our estimates involve risks and uncertainties
and are subject to change based on various factors, including those discussed under the headings “Special Note Regarding
Forward-Looking Statements,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in this report.
3
LCI INDUSTRIES
TABLE OF CONTENTS
PART I –
ITEM 1 - BUSINESS
ITEM 1A - RISK FACTORS
ITEM 1B - UNRESOLVED STAFF COMMENTS
ITEM 2 - PROPERTIES
ITEM 3 - LEGAL PROCEEDINGS
ITEM 4 - MINE SAFETY DISCLOSURES
PART II –
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6 - SELECTED FINANCIAL DATA
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
ITEM 9A - CONTROLS AND PROCEDURES
ITEM 9B - OTHER INFORMATION
PART III –
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11 - EXECUTIVE COMPENSATION
4
Page
6
12
21
21
23
23
24
25
25
38
40
75
75
76
76
76
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV –
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 16 - FORM 10-K SUMMARY
SIGNATURES
76
77
77
77
81
82
5
Item 1. BUSINESS.
Summary
PART I
LCI Industries (“LCII” and collectively with its subsidiaries, the “Company” or the “Registrant”), through its wholly-
owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, “Lippert Components” or “LCI”), supplies,
domestically and internationally, a broad array of engineered components for the leading original equipment manufacturers
(“OEMs”) in the recreation and industrial product markets, consisting of recreational vehicles (“RVs”) and adjacent industries
including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured homes;
and modular housing. The Company also supplies components to the related aftermarkets of these industries, primarily by
selling to retail dealers, wholesale distributors and service centers.
LCI’s products include steel chassis and related components; axles and suspension solutions; slide-out mechanisms
and solutions; thermoformed bath, kitchen and other products; vinyl, aluminum and frameless windows; manual, electric and
hydraulic stabilizer and leveling systems; furniture and mattresses; entry, luggage, patio, and ramp doors; electric and manual
entry steps; awnings and awning accessories; electronic components; televisions and sound systems; navigation systems;
backup cameras; appliances; and other accessories.
The Company has two reportable segments: the original equipment manufacturers segment (the “OEM Segment”) and
the aftermarket segment (the “Aftermarket Segment”).
The Company is focused on profitable growth in its industries, both organic and through acquisitions. In order to
support this growth, over the past several years the Company has expanded its geographic market and product lines,
consolidated manufacturing facilities, and integrated manufacturing, distribution and administrative functions. At December 31,
2018, the Company operated over 65 manufacturing and distribution facilities located throughout the United States and in
Canada, Ireland, Italy and the United Kingdom, and reported consolidated net sales of $2.5 billion for the year ended December
31, 2018.
The Company was incorporated under the laws of Delaware on March 20, 1984, and is the successor to Drew National
Corporation, which was incorporated under the laws of Delaware in 1962. The Company’s principal executive and
administrative offices are located at 3501 County Road 6 East, Elkhart, Indiana 46514; telephone number (574) 535-1125;
website www.lci1.com; e-mail LCII@lci1.com. The Company makes available free of charge on its website its Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K (and amendments to those reports) filed or
furnished with the SEC as soon as reasonably practicable after such materials are electronically filed or furnished.
Recent Developments
Sales and Profits
Consolidated net sales for the year ended December 31, 2018 increased to a record $2.5 billion, 15 percent higher than
the consolidated net sales for the year ended December 31, 2017 of $2.1 billion. The increase in year-over-year net sales reflects
growth across the Company’s segments, content growth, as well as the addition of sales from acquisitions completed by the
Company over the twelve months ended December 31, 2018. Net sales from acquisitions completed by the Company over the
twelve months ended December 31, 2018 contributed $231.0 million in 2018.
Net income for the full-year 2018 increased to $148.6 million, or $5.83 per diluted share, up from net income of
$132.9 million, or $5.24 per diluted share, in 2017. Net income for 2018 and 2017 included one-time non-cash charges of
$0.6 million ($0.03 per diluted share) and $13.2 million ($0.52 per diluted share), respectively, related to the impact of the Tax
Cuts and Jobs Act (the “TCJA”). Excluding the estimated impact of the TCJA, adjusted net income was $149.2 million, or
$5.86 per diluted share, in 2018 compared to $146.1 million, or $5.76 per diluted share, in 2017. Adjusted net income and
adjusted net income per diluted share are non-GAAP financial measures. See “Non-GAAP Measures” included in Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information
regarding the Company's use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP
financial measures.
In Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company
describes in detail the increase in its sales and profits during 2018.
6
Customer Concentrations
Thor Industries, Inc. (“Thor”), a customer of both segments, accounted for 31 percent, 38 percent and 37 percent of the
Company’s consolidated net sales for the years ended December 31, 2018, 2017 and 2016, respectively. Berkshire Hathaway
Inc. (through its subsidiaries Forest River, Inc. and Clayton Homes, Inc.), a customer of both segments, accounted for 23
percent, 25 percent and 26 percent of the Company’s consolidated net sales for the years ended December 31, 2018, 2017 and
2016, respectively. No other customer accounted for more than 10 percent of consolidated net sales in the years ended
December 31, 2018, 2017 and 2016. International sales, primarily in Europe and Australia, and export sales represented
approximately four percent, two percent and one percent of consolidated net sales in 2018, 2017 and 2016, respectively.
Acquisitions
During 2018, the Company completed four acquisitions:
In November 2018, the Company acquired the business and certain assets of the furniture manufacturing operation of
Smoker Craft Inc., (“Smoker Craft”), a leading pontoon, aluminum fishing, and fiberglass boat manufacturer located in New
Paris, Indiana. The purchase price was $28.1 million paid at closing.
In June 2018, the Company acquired 100 percent of the equity interests of ST.LA. S.r.l., (“STLA”), a manufacturer of
bed lifts and other RV components for the European caravan market, headquartered in Pontedera, Italy. The purchase price was
$14.8 million, net of cash acquired, paid at closing, and is subject to potential post-closing adjustments related to net working
capital.
In February 2018, the Company acquired substantially all of the business assets of Hehr International Inc., (“Hehr”), a
manufacturer of windows and tempered and laminated glass for the RV, transit, specialty vehicle, and other adjacent industries,
headquartered in Los Angeles, California. The purchase price was $51.5 million paid at closing.
In January 2018, the Company acquired 100 percent of the equity interests of Taylor Made Group, LLC (“Taylor
Made”), a marine supplier to boat builders and the aftermarket, as well as a key supplier to a host of other industrial end
markets, headquartered in Gloversville, New York. The purchase price was $90.4 million, net of cash acquired, paid at closing.
Other Developments
In November 2018, the Company announced its Board of Directors authorized a new $150.0 million stock purchase
program over the next three years. The Company purchased 0.4 million of its common shares for $28.7 million in 2018.
In December 2018, the Company amended and restated its existing credit agreement (as amended and restated, the
“Amended Credit Agreement”) providing for a senior secured revolving credit facility to increase the maximum borrowings
thereunder from $325 million to $600 million, to allow for up to $250 million of borrowings by Foreign Borrowers (as defined
in the Amended Credit Agreement) and to extend the maturity date of the revolving credit facility to December 14, 2023
(subject to certain extensions as provided in the Amended Credit Agreement).
OEM Segment
Through its wholly-owned subsidiaries, the Company manufactures and distributes a broad array of engineered
components for the leading OEMs in the recreation and industrial product markets, consisting of RVs and adjacent industries,
including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured homes;
and modular housing.
In 2018, the OEM Segment represented 91 percent of the Company’s consolidated net sales and 84 percent of
consolidated segment operating profit. Approximately 64 percent of the Company’s OEM Segment net sales in 2018 were of
products to manufacturers of travel trailer and fifth-wheel RVs. RVs may be motorized (motorhomes) or towable (travel trailers,
fifth-wheel travel trailers, folding camping trailers and truck campers).
Raw materials used by the Company’s OEM Segment, consisting primarily of steel (coil, sheet, tube and I-beam),
extruded aluminum, glass, wood, fabric and foam are available from a number of sources, both domestic and foreign.
7
Operations of the Company’s OEM Segment consist primarily of fabricating, welding, thermoforming, painting,
sewing and assembling components into finished products. The Company’s OEM Segment operations are conducted at over 65
manufacturing and distribution facilities throughout the United States, and in Canada, Ireland, Italy, and the United Kingdom,
strategically located in proximity to the customers they serve. See Item 2. “Properties.”
The Company’s OEM Segment products are sold primarily to major manufacturers of RVs such as Thor Industries,
Inc. (symbol: THO), Forest River, Inc. (a Berkshire Hathaway company, symbol: BRKA), Winnebago Industries, Inc. (symbol:
WGO) and other RV OEMs, and to manufacturers in adjacent industries.
The RV industry is highly competitive, both among manufacturers of RVs and the suppliers of RV components,
generally with low barriers to entry other than compliance with industry standards, codes and safety requirements, and the
initial capital investment required to establish manufacturing operations. The Company competes with several other component
suppliers on a regional and national basis with respect to a broad array of components for both towable and motorized RVs. The
Company’s operations compete on the basis of product quality and reliability, product innovation, price, customer service and
customer satisfaction. Although definitive information is not readily available, the Company believes it is a leading supplier for
towable RVs for the following principal RV products:
● windows,
● doors,
● chassis,
● slide-out mechanisms,
● axles,
● furniture,
● leveling systems, and
● awnings.
In addition to LCI, Dexter Axle Company is also a leading supplier of axles and Carefree of Colorado and Dometic
Corporation are also leading suppliers of awnings.
OEM Segment net sales to adjacent industries increased 49 percent from $411.2 million in 2017 to $614.6 million in
2018, or 27 percent and 21 percent of total OEM Segment net sales in 2018 and 2017, respectively. The Company’s market
share for its products in adjacent industries cannot be readily determined; however,
the Company continues to make
investments in people, technology and equipment and is committed to expanding its presence in these industries.
Detailed narrative information about
the results of operations of the OEM Segment
is included in Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Aftermarket Segment
Many of the Company’s OEM Segment products are also sold through various aftermarket channels, including
dealerships, warehouse distributors and service centers, as well as direct to retail customers. The Company has teams dedicated
to product training and marketing support for its Aftermarket Segment customers. The Company also supports two call centers
to provide quick responses to customers for both product delivery and technical support. This support is designed for a rapid
response to critical repairs so customer downtime is minimized. The Aftermarket Segment also includes the sale of replacement
glass and awnings to fulfill insurance claims. Many of the optional upgrades and non-critical replacements are purchased
outside the normal product selling seasons, thereby causing Aftermarket Segment sales to be counter-seasonal.
According to the Recreation Vehicle Industry Association (“RVIA”), estimated RV ownership in the United States has
increased to over nine million units. Additionally, as a result of a vibrant secondary market, one-third of current owners
purchased their RV new while the remaining two-thirds purchased a previously owned RV. This vibrant secondary market is a
key driver for aftermarket sales, as the Company anticipates owners of previously owned RVs will likely upgrade their units as
well as replace parts and accessories which have been subjected to normal wear and tear.
Aftermarket Segment net sales increased 36 percent from $171.1 million in 2017 to $233.2 million in 2018. The
Company continues to make investments in people and technology to grow the Aftermarket Segment and is committed to
continue these expansion efforts.
Detailed narrative information about the results of operations of the Aftermarket Segment is included in Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
8
Sales and Marketing
The Company’s sales activities are related to developing new customer relationships and maintaining existing
customer relationships, primarily through the quality and reliability of its products, innovation, price, customer service and
customer satisfaction. As a result of the Company’s strategic decision to increase its sales to the aftermarket and adjacent
industries, as well as expand into international markets, the Company has increased its annual marketing and advertising
expenditures over the past few years, which were $4.1 million, $3.2 million and $3.0 million in 2018, 2017 and 2016,
respectively.
The Company has several supply agreements or other arrangements with certain of its customers that provide for
prices of various products to be fixed for periods generally not in excess of eighteen months; however, in certain cases the
Company has the right to renegotiate the prices on sixty-days’ notice. The Company has agreements with certain customers that
indexes their pricing to select commodities. Both the OEM Segment and the Aftermarket Segment typically ship products on
average within one to two weeks of receipt of orders from their customers and, as a result, neither segment has any significant
backlog.
Capacity
At December 31, 2018, the Company operated over 65 manufacturing and distribution facilities across the U.S. and in
Canada, Ireland, Italy, and the United Kingdom. In 2018, the Company’s facilities operated at an average of approximately 55
percent of their practical capacity, assuming at least two shifts of production at all facilities. Capacity by facility varies
significantly based on seasonal demand, as well as by product line and geographic region, with certain facilities at times
operating below 50 percent utilization, and other facilities at times operating above 90 percent utilization. For most products,
the Company has the ability to fill excess demand by shifting production to other facilities, usually at an increased cost. The
ability to adjust capacity in certain product areas through lean manufacturing and automation initiatives, reallocation of existing
resources and/or additional capital expenditures is monitored regularly by management in an effort to achieve a high level of
production efficiency and return on invested capital. Capital expenditures for 2018 were $120 million, which included
approximately $75 million for growth, lean and automation initiatives, and approximately $45 million of replacement capital
expenditures.
Seasonality
Most industries where the Company sells products or where its products are used, historically have been seasonal and
generally at the highest levels when the weather is moderate. Accordingly, the Company’s sales and profits have generally been
the highest in the second quarter and lowest in the fourth quarter. However, because of fluctuations in dealer inventories, the
impact of international, national and regional economic conditions and consumer confidence on retail sales of RVs and other
products for which the Company sells its components, the timing of dealer orders, as well as the impact of severe weather
conditions on the timing of industry-wide shipments from time to time, current and future seasonal industry trends may be
different than in prior years. Additionally, sales of certain components to the aftermarket channels of these industries tend to be
counter-seasonal.
International
Over the past several years, the Company has been gradually growing international sales, primarily in Europe and
Australia, and export sales represented approximately four percent, two percent and one percent of consolidated net sales in
2018, 2017 and 2016, respectively. The Company continues to focus on developing products tailored for international RV
markets. The Company participates in the largest RV shows in Europe and has been receiving positive feedback on its products,
especially its proprietary slide-out products. The Company’s Director of International Business Development spends time in
Australia, Europe and other international markets, assessing the dynamics of the local marketplace, building relationships with
OEMs and helping the Company introduce its existing products and develop new products for those markets, with the goal of
identifying long-term growth opportunities. The Company estimates the addressable market for annual net sales of its products
outside of North America to be over $1 billion. Financial information relating to the Company’s acquisitions is included in Note
4 of the Notes to Consolidated Financial Statements in Item 8 of this Report.
Intellectual Property
The Company holds approximately 200 United States and foreign patents and has approximately 80 patent applications
pending that relate to various products sold by the Company. The Company has also granted certain licenses that permit third
parties to manufacture and sell products in consideration for royalty payments.
9
From time to time, the Company has received notices or claims it may be infringing certain patent or other intellectual
property rights of others, and the Company has given notices to, or asserted claims against, others that they may be infringing
certain patent or other intellectual property rights of the Company. The Company believes its patents are valuable and
vigorously protects its patents when appropriate.
Research and Development
The Company strives to be an industry leader in product innovation and is focused on developing new products, as
well as improving existing products. Research and development expenditures are expensed as they are incurred. Research and
development expenses were approximately $16 million, $14 million and $9 million in 2018, 2017 and 2016, respectively.
Regulatory Matters
We are subject to numerous federal, state and local regulations governing the manufacture and sale of our products.
Sales and manufacturing operations in foreign countries are subject to similar regulations.
Rules promulgated under the Transportation Recall Enhancement, Accountability and Documentation Act require
manufacturers of motor vehicles and certain motor vehicle related equipment to regularly make reports and submit documents
and certain historical data to the National Highway Traffic Safety Administration (“NHTSA”) of the United States Department
of Transportation (“DOT”) to enhance motor vehicle safety, and to respond to requests for information relating to specific
complaints or incidents.
Trailers produced by the Company for hauling boats, personal watercraft, snowmobiles and equipment must comply
with Federal Motor Vehicle Safety Standards (“FMVSS”) promulgated by NHTSA relating to lighting, braking, wheels, tires
and other vehicle systems.
Windows and doors produced by the Company for the RV industry must comply with regulations promulgated by
NHTSA governing safety glass performance, egress ability, door hinge and lock systems, egress window retention hardware,
and baggage door ventilation. Windows produced by the Company for buses also must comply with FMVSS promulgated by
NHTSA.
Upholstered products and mattresses produced by the Company for RVs and buses must comply with FMVSS
promulgated by NHTSA regarding flammability. In addition, upholstered products and mattresses produced by the Company
for RVs must comply with regulations promulgated by the Consumer Products Safety Commission regarding flammability, as
well as standards for toxic chemical levels and labeling requirements promulgated by the California Office of Environmental
Health Hazard Assessment. Plywood, particleboard and fiberboard used in RV products are required to comply with standards
for formaldehyde emission levels promulgated by the California Air Resources Board and adopted by the RVIA.
Windows and entry doors produced by the Company for manufactured homes must comply with performance and
construction regulations promulgated by the U.S. Department of Housing and Urban Development (“HUD”) and by the
American Architectural Manufacturers Association relating to air and water
thermal
performance, emergency exit conformance, and hurricane resistance. Certain of the Company’s products must also comply with
the International Code Council standards, such as the IRC (International Residential Code), the IBC (International Building
Code), and the IECC (International Energy Conservation Code) as well as state and local building codes. Thermoformed bath
products manufactured by the Company for manufactured homes must comply with performance and construction regulations
promulgated by HUD.
infiltration, structural
integrity,
The Company believes it is currently operating in compliance, in all material respects, with applicable laws and
regulations and has made reports and submitted information as required. The Company does not believe the expense of
compliance with these laws and regulations, as currently in effect, will have a material effect on the Company's operations,
financial condition or competitive position; however, there can be no assurance this trend will continue as health and safety
laws, regulations or other pertinent requirements evolve.
Environmental
The Company’s operations are subject to certain federal, state and local regulatory requirements relating to the use,
storage, discharge, transport and disposal of hazardous materials used during the manufacturing processes. Although the
Company believes its operations have been consistent with prevailing industry standards, and are in substantial compliance with
10
applicable environmental laws and regulations, one or more of the Company’s current or former operating sites, or adjacent
sites owned by third parties, have been affected, and may in the future be affected, by releases of hazardous materials. As a
result, the Company may incur expenditures for future investigation and remediation of these sites, including in conjunction
with voluntary remediation programs or third-party claims. In the past, environmental compliance costs have not had, and are
not expected in the future to have, a material effect on the Company’s operations or financial condition; however, there can be
no assurance that this trend will continue.
Employees
As of December 31, 2018, the Company had 10,260 full-time employees. None of the employees of the Company in
the U.S. are subject to collective bargaining agreements, although certain international employees are covered by national labor
laws. The Company believes relations with its employees are good.
Executive Officers
The following table sets forth our executive officers as of December 31, 2018:
Name
Jason D. Lippert
Brian M. Hall
Andrew J. Namenye
Jamie M. Schnur
Nick C. Fletcher
Position
Chief Executive Officer and Director
Chief Financial Officer
Vice President – Chief Legal Officer and Secretary
Chief Administrative Officer
Chief Human Resources Officer
Officers are elected annually by the Board of Directors. There are no family relationships between or among any of the
executive officers or directors of the Company. Additional information with respect to the Company’s directors is included in
the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held on May 23, 2019.
JASON D. LIPPERT (age 46) became Chief Executive Officer of the Company effective May 10, 2013, and has been
Chief Executive Officer of Lippert Components since February 2003. Mr. Lippert has over 20 years of experience with the
Company, and has served in a wide range of leadership positions.
BRIAN M. HALL (age 44) joined the Company in March 2013, served as Corporate Controller from June 2013 until
January 2017, and has served as Chief Financial Officer of the Company since November 2016. Prior to joining the Company,
he spent more than 16 years in public accounting.
ANDREW J. NAMENYE (age 38) joined the Company in September 2017, and has been Vice President – Chief Legal
Officer and Secretary since November 2017. Prior to joining the Company, he held roles in senior level positions at Thor
Industries, Inc. and All American Group, Inc. (f/k/a Coachmen Industries), and practiced law at Barnes & Thornburg LLP.
JAMIE M. SCHNUR (age 47) became Chief Administrative Officer of the Company effective May 2013. Mr. Schnur
has over 20 years of experience with the Company, and has served in a wide range of leadership positions with Lippert
Components.
NICK C. FLETCHER (age 58) joined the Company in February 2013 as Vice President of Human Resources. Since
January 2015, he has been Chief Human Resources Officer. Prior to joining the Company, Mr. Fletcher provided consulting
services and held roles in senior level positions at American Commercial Lines, Continental Tire, Wabash National, Siemens
and TRW.
Other Officers
KIP A. EMENHISER (age 45) joined the Company in January 2017, and has been Corporate Controller and our
principal accounting officer since March 2017. Prior to joining the Company, he held various roles including Senior Vice
President of Finance, Chief Accounting Officer and Vice President and Corporate Controller at Press Ganey Associates, Inc. Mr.
Emenhiser is a Certified Public Accountant.
11
Item 1A. RISK FACTORS.
The following risk factors should be considered carefully in addition to the other information contained in this Annual
Report on Form 10-K. The risks and uncertainties described below are not the only ones we face, but represent the most
significant risk factors that we believe may adversely affect the RV and other industries we supply our products to, as well as
our business, operations or financial position. The risks and uncertainties discussed in this report are not exclusive and other
risk factors that we may consider immaterial or do not anticipate may emerge as significant risks and uncertainties.
Industry Risk Factors
Economic and business factors beyond our control, including cyclicality and seasonality in the industries where we sell
our products, could lead to fluctuations in our operating results.
The RV, recreational boat and other markets where we sell many of our products or where our products are used, have
been characterized by cycles of growth and contraction in consumer demand, often because the purchase of such products are
viewed as a consumer discretionary purchase. Periods of economic recession have adversely affected, and could again
adversely affect, our operating results. Companies in these industries are subject to volatility in production levels, shipments,
sales and operating results due to changes in external factors such as general economic conditions, including credit availability,
consumer confidence, employment rates, prevailing interest rates, inflation, fuel prices and other economic conditions affecting
consumer demand and discretionary consumer spending, as well as demographic and political changes, all of which are beyond
our control. Consequently, our operating results for any prior period may not be indicative of results for any future period.
Additionally, manufacturing operations in most of the industries where we sell our products or where our products are
used historically have been seasonal. However, because of fluctuations in dealer inventories, the impact of international,
national and regional economic conditions and consumer confidence on retail sales of products which include our components,
and other factors, current and future seasonal industry trends may be different than in prior years. Unusually severe weather
conditions in some geographic areas may also, from time to time, impact the timing of industry-wide shipments from one
period to another.
Reductions in the availability of wholesale financing limits the inventories carried by retail dealers of RVs and other
products which use our components, which would cause reduced production by our customers, and therefore reduced demand
for our products.
Retail dealers of RVs and other products which use our components generally finance their purchases of inventory
with financing known as floor-plan financing provided by lending institutions. A dealer’s ability to obtain financing is
significantly affected by the number of lending institutions offering floor planning, and by an institution’s lending limits, which
are beyond our control. Reduction in the availability of floor-plan financing has in the past caused, and would in the future
again likely cause, many dealers to reduce inventories, which would result in reduced production by OEMs, and consequently
result in reduced demand for our products. Moreover, dealers which are unable to obtain adequate financing could cease
operations. Their remaining inventories would likely be sold at discounts, disrupting the market. Such sales have historically
caused a decline in orders for new inventory, which reduced demand for our products, and which could recur in the future.
Conditions in the credit market could limit the ability of consumers to obtain retail financing for RVs and other
products which use our components, resulting in reduced demand for our products.
Retail consumers who purchase RVs and other products which use our components generally obtain retail financing
from third-party lenders. The availability, terms and cost of retail financing depend on the lending practices of financial
institutions, governmental policies and economic and other conditions, all of which are beyond our control. Restrictions on the
availability of consumer financing and increases in the costs of such financing have in the past limited, and could again limit,
the ability of consumers to purchase such discretionary products, which would result in reduced production of such products by
our customers, and therefore reduce demand for our products.
Excess inventories at dealers and manufacturers can cause a decline in the demand for our products.
Dealers and manufacturers could accumulate unsold inventory. High levels of unsold inventory have in the past
caused, and would cause, a reduction in orders, which would likely cause a decline in demand for our products.
12
Gasoline shortages, or high prices for gasoline, could lead to reduced demand for our products.
Fuel shortages, and substantial increases in the price of fuel, have had an adverse effect on the RV industry as a whole
in the past, and could again in the future. Travel trailer and fifth-wheel RVs, components for which represented approximately
64 percent of our OEM Segment net sales in 2018, are usually towed by light trucks or SUVs. Generally, these vehicles use
more fuel than automobiles, particularly while towing RVs or other trailers. High prices for gasoline, or anticipation of potential
fuel shortages, can affect consumer use and purchase of light trucks and SUVs, which could result in reduced demand for travel
trailer and fifth-wheel RVs, and therefore reduced demand for our products.
Company-Specific Risk Factors
A significant percentage of our sales are concentrated in the RV industry, and declines in industry-wide wholesale
shipments of travel trailer and fifth-wheel RVs could reduce demand for our products and adversely impact our operating
results and financial condition.
In 2018, the OEM Segment represented 91 percent of our consolidated net sales, and 84 percent of consolidated
segment operating profit. Approximately 64 percent of our OEM Segment net sales in 2018 were of products to manufacturers
of travel trailer and fifth-wheel RVs. While we measure our OEM Segment sales against industry-wide wholesale shipment
statistics, the underlying health of the RV industry is determined by retail demand. Retail sales of RVs historically have been
closely tied to general economic conditions, as well as consumer confidence, which was above historical averages in 2018.
Declines in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs could reduce demand for our products and
adversely affect our operating results and financial condition.
The loss of any key customer, or a significant reduction in purchases by such customers, could have a material adverse
impact on our operating results.
Two customers of both the OEM Segment and the Aftermarket Segment accounted for 54 percent of our consolidated
net sales in 2018. The loss of either of these customers or other significant customers, or a substantial reduction in sales to any
such customer, would have a material adverse impact on our operating results and financial condition. In addition, we generally
do not have long-term agreements with our customers and cannot predict that we will maintain our current relationships with
these customers or that we will continue to supply them at current levels.
Volatile raw material costs could adversely impact our financial condition and operating results.
Steel and aluminum represented approximately 45 percent and 15 percent, respectively, of our raw material costs in
2018. The prices of these, and other key raw materials, have historically been volatile and can fluctuate dramatically with
changes in the global demand and supply for such products.
Because competition and business conditions may limit the amount or timing of increases in raw material costs that
can be passed through to our customers in the form of sales price increases, future increases in raw material costs could
adversely impact our financial condition and operating results. Conversely, as raw material costs decline, we may not be able to
maintain selling prices consistent with higher cost raw materials in our inventory, which could adversely affect our operating
results.
Inadequate or interrupted supply of raw materials or components used to make our products could adversely impact
our financial condition and operating results.
Our business depends on our ability to source raw materials, such as steel, aluminum, glass, wood, fabric and foam,
and certain components, such as electric motors, televisions and appliances, in a timely and cost efficient manner. Most
materials and components are readily available from a variety of sources. However, a few key components are currently
produced by only a small group of quality suppliers that have the capacity to supply large quantities. If raw materials or
components that are used in manufacturing our products or for which we act as a distributor, particularly those which we
import, become unavailable, or if the supply of these raw materials and components is interrupted or delayed, our
manufacturing and distribution operations could be adversely affected, which could adversely impact our financial condition
and operating results.
In 2018, we imported, or purchased from suppliers who imported, approximately 30 percent of our raw materials and
components. Additionally, we have the exclusive right to distribute Furrion Limited’s complete line of electronics and appliance
products to OEMs and aftermarket customers in the RV, specialty vehicle, utility trailer, horse trailer, marine, transit bus and
13
school bus industries throughout the United States and Canada, which products are imported from China. Consequently, we rely
on the free flow of goods through open and operational ports and on a consistent basis for a significant portion of our raw
materials and components. Adverse political conditions, trade embargoes, increased tariffs or import duties, inclement weather,
natural disasters, war, terrorism or labor disputes at various ports or otherwise adversely impacting our suppliers create
significant risks for our business, particularly if these conditions or disputes result in work slowdowns, lockouts, strikes or other
disruptions, and could have an adverse impact on our operating results if we are unable to fulfill customer orders or required to
accumulate excess inventory or find alternate sources of supply, if available, at higher costs.
We import a portion of our raw materials and the components we sell, and the effect of foreign exchange rates could
adversely affect our operating results.
We negotiate for the purchase of a significant portion of raw materials and semi-finished components with suppliers
that are not located in the United States. As such, the prices we pay in part are dependent upon the rate of exchange for U.S.
Dollars versus the currency of the local supplier. A dramatic weakening of the U.S. Dollar could increase our cost of goods sold,
and such cost increases may not be offset through price increases for our products, adversely impacting our margins.
Changes in consumer preferences relating to our products, or the inability to develop innovative new products, could
cause reduced sales.
Changes in consumer preferences for RV, manufactured housing and recreational boat models, and for the components
we make for such products, occur over time. Our inability to anticipate changes in consumer preferences for such products, or
delays in responding to such changes, could reduce demand for our products and adversely affect our net sales and operating
results. Similarly, we believe our ability to remain competitive also depends on our ability to develop innovative new products
or enhance features of existing products. Delays in the introduction or market acceptance of new products or product features
could have an adverse effect on our net sales and operating results.
Competitive pressures could reduce demand for our products or impact our sales prices.
The industries in which we are engaged are highly competitive and generally characterized by low barriers to entry,
and we have numerous existing and potential competitors. Competition is based primarily upon product quality and reliability,
product innovation, price, customer service and customer satisfaction.
Competitive pressures have, from time to time, resulted in a reduction of our profit margins and/or reduction in our
market share. Domestic and foreign competitors may lower prices on products which currently compete with our products, or
develop product improvements, which could reduce demand for our products or cause us to reduce prices for our products.
Sustained increases in these competitive pressures could have a material adverse effect on our results of operations. In addition,
the manufacture by our customers themselves of products supplied by us could reduce demand for our products and adversely
affect our operating results and financial condition.
Increases in demand could result in difficulty obtaining additional skilled labor, and available capacity may initially
not be utilized efficiently.
In certain geographic regions in which we have a larger concentration of manufacturing facilities, we have
experienced, and could again experience, shortages of qualified employees. Competition for skilled workers, especially during
improving economic times, may increase the cost of our labor and create employee retention and recruitment challenges, as
employees with knowledge and experience have the ability to change employers relatively easily. If such conditions become
extreme, we may not be able to increase production to timely satisfy demand, and may incur higher labor and production costs,
which could adversely impact our operating results and financial condition.
14
We may incur unexpected expenses, or face delays and other obstacles, in connection with expansion plans or
investments we make in our business, which could adversely impact our operating results.
It may take longer than initially anticipated for us to realize expected results from investments in research and
development or acquired businesses, as well as initiatives we have implemented to increase capacity and improve production
efficiencies, automation, customer service and other aspects of our business, or we may incur unexpected expenses in
connection with these matters. Expansion plans may involve the acquisition of existing manufacturing facilities that require
upgrades and improvements or the need to build new manufacturing facilities. Such activities may be delayed or incur
unanticipated costs which could have an adverse effect on our operating results. Similarly, competition for desirable production
facilities, especially during times of increasing production, may increase the cost of acquiring production facilities or limit the
availability of obtaining such facilities. In addition, the start-up of operations in new facilities may incur unanticipated costs and
inefficiencies which may adversely affect our profitability during the ramp up of production in those facilities. Delays in the
construction, re-configuration or relocation of facilities could result in an adverse impact to our operating results or a loss of
market share.
In addition, to the extent our expansion plans involve acquisitions or joint ventures, we may not be able to successfully
identify suitable acquisition or joint venture opportunities or complete any acquisition, combination, joint venture or other
transaction on acceptable terms. Our identification of suitable acquisition candidates and joint venture opportunities and the
integration of acquired business operations involve risks inherent in assessing the values, strengths, weaknesses, risks and
profitability of these opportunities, as well as significant financial, management and related resources that would otherwise be
used for the ongoing development of our existing operations and internal expansion.
Natural disasters, unusual weather conditions, epidemic outbreaks, terrorist acts and political events could disrupt our
business and result in lower sales and otherwise adversely affect our financial performance.
Our facilities may be affected by natural disasters, such as tornadoes, hurricanes, fires, floods, earthquakes, and
unusual weather conditions, as well as other external events such as epidemic outbreaks, terrorist attacks or disruptive political
events, any one of which could adversely affect our business and result in lower sales. In the event that one of our
manufacturing or distribution facilities was affected by a disaster or other event, we could be forced to shift production to one
of our other facilities, which we may not be able to do effectively or at all, or to cease operations. Although we maintain
insurance for damage to our property and disruption of our business from casualties, such insurance may not be sufficient to
cover all of our potential losses. Any disruption in our manufacturing capacity could have an adverse impact on our ability to
produce sufficient inventory of our products or may require us to incur additional expenses in order to produce sufficient
inventory, and therefore, may adversely affect our net sales and operating results. Any disruption or delay at our manufacturing
or distribution facilities or customer service centers could impair our ability to meet the demands of our customers, and our
customers may cancel orders with us or purchase products from our competitors, which could adversely affect our business and
operating results.
We have recently entered new markets in an effort to enhance our growth potential, and uncertainties with respect to
these new markets could impact our operating results.
Our ability to expand our market share for our products that are used as components for RVs is limited. We have made
investments in an effort to expand the sale of our products in adjacent industries, such as buses, trucks, pontoon boats and
trains, where we may have less familiarity with OEM or consumer preferences and could encounter difficulties in attracting
customers due to a reduced level of familiarity with our brands. We have also made investments to expand the sale of our
products in the aftermarket of our industries, and are exploring opportunities to increase export sales of our products to
international markets. These investments involve significant resources, put a strain on our administrative, operational and
financial capabilities and carry a risk of failure. Limited operating experience or limited brand recognition in new markets may
limit our business expansion strategy. Lack of demand for our products in these markets or competitive pressures requiring us to
lower prices for our products could adversely impact our business growth in these markets and our results of operations.
If acquired businesses are not successfully integrated into our operations, our financial condition and operating results
could be adversely impacted.
We have completed several business acquisitions and may continue to engage in acquisitions or similar activities, such
as joint ventures and other business transactions. Our ability to grow through acquisitions will depend, in part, on the
availability of suitable candidates at acceptable prices, terms, and conditions, our ability to compete effectively for acquisition
candidates, and the availability of capital and personnel to complete such acquisitions and run the acquired business effectively.
Such acquisitions, joint ventures and other business transactions involve potential risks, including:
15
•
•
•
•
•
•
the failure to successfully integrate personnel, departments and systems, including IT and accounting systems,
technologies, books and records and procedures;
the need for additional investments post-acquisition that could be greater than anticipated;
the assumption of liabilities of the acquired businesses that could be greater than anticipated;
incorrect estimates made in the accounting for acquisitions, incurrence of non-recurring charges, and write-off of
significant amounts of goodwill or other assets that could adversely affect our operating results;
unforeseen difficulties related to entering geographic regions or industries in which we do not have prior
experience; and
the potential loss of key employees or existing customers or adverse effects on existing business relationships with
suppliers and customers.
Integrating acquired operations is a significant challenge and there is no assurance that we will be able to manage the
integrations successfully. If we are unable to efficiently integrate these businesses, the attention of our management could be
diverted from our existing operations and the ability of the management teams at these business units to meet operational and
financial expectations could be adversely impacted, which could impair our ability to execute our business plans. Failure to
successfully integrate acquired operations or to realize the expected benefits of such acquisitions may have an adverse impact
on our results of operations and financial condition.
As we expand our business internationally, we will be subject to new operational and financial risks.
We have been gradually growing sales overseas, primarily in Europe and Australia, and export sales represented
approximately four percent, two percent and one percent of consolidated net sales in 2018, 2017 and 2016, respectively. We
plan to continue pursuing international opportunities. Five of our acquisitions since 2016 are headquartered in Europe or have
international operations and customers.
Conducting business outside of the United States is subject to various risks, many of which are beyond our control,
including:
•
•
•
•
•
•
•
•
•
•
•
•
adverse political and economic conditions;
changes in tariffs, trade restrictions, trade agreements, and taxation;
difficulties in managing or overseeing foreign operations and agents;
differences in regulatory environments, labor practices and market practices;
cultural and linguistic differences;
foreign currency fluctuations;
limitations on the repatriation of funds because of foreign exchange controls;
different liability standards;
potentially longer payment cycles;
different credit risks;
the uncertainty surrounding the implementation and effects of Brexit; and
intellectual property laws of countries which do not protect our rights in our intellectual property to the same
extent as the laws of the United States.
The occurrence or consequences of any of these factors may have an adverse impact on our operating results and
financial condition, as well as impact our ability to operate in international markets.
The loss of key management could reduce our ability to execute our business strategy and could adversely affect our
business and results of operations.
We are dependent on the knowledge, experience and skill of our leadership team. The loss of the services of one or
more key managers or the failure to attract or retain qualified managerial, technical, sales and marketing, operations and
customer service staff could impair our ability to conduct and manage our business and execute our business strategy, which
would have an adverse effect on our business, financial condition and results of operations.
Our business is subject to numerous international, federal, state and local regulations, and increased costs of
compliance, failure in our compliance efforts or events beyond our control could result in damages, expenses or liabilities that
could adversely impact our financial condition and operating results.
We are subject to numerous federal, state and local regulations governing the manufacture and sale of our products,
including regulations and standards promulgated by the NHTSA of the DOT, the Consumer Products Safety Commission,
16
HUD, and consumer safety standards promulgated by state regulatory agencies and industry associations. Sales and
manufacturing operations in foreign countries may be subject to similar regulations. Any major recalls of our products,
voluntary or involuntary, could adversely impact our reputation, net sales, financial condition and operating results. Changes in
laws or regulations that impose additional regulatory requirements on us could increase our cost of doing business or restrict
our actions, causing our results of operations to be adversely affected. Our failure to comply with present or future regulations
and standards could result in fines, penalties, recalls or injunctions being imposed on us, administrative penalties, potential civil
and criminal liability, suspension of sales or production or cessation of operations.
Further, certain other U.S. and foreign laws and regulations affect our activities. Areas of our business affected by such
laws and regulations include, but are not limited to, labor, advertising, consumer protection, quality of services, warranty,
product liability, real estate, intellectual property, tax, import and export duties, tariffs, competition, environmental, and health
and safety. We are also subject to compliance with the U.S. Foreign Corrupt Practices Act (“FCPA”), and other anti-corruption
and anti-bribery laws applicable to our operations. Compliance with these laws and others may be onerous and costly, and may
be inconsistent from jurisdiction to jurisdiction, which further complicates compliance efforts. Violations of these laws and
regulations could lead to significant penalties, including restraints on our export or import privileges, monetary fines, criminal
proceedings and regulatory or other actions that could adversely affect our results of operations. We cannot assure you that our
employees, contractors, vendors or agents will not violate such laws and regulations or our policies and procedures related to
compliance.
In addition, potentially significant expenditures could be required in order to comply with evolving healthcare, health
and safety laws, regulations or other pertinent requirements that may be adopted or imposed in the future by governmental
authorities. Our operating profit margin in 2018 was impacted by higher health insurance costs, largely due to increased
employee participation and improved retention and operating profit will likely continue to be impacted in future periods.
Our risk management policies and procedures may not be fully effective in achieving their purposes.
Our policies, procedures, controls and oversight to monitor and manage our enterprise risks may not be fully effective
in achieving their purpose and may leave exposure to identified or unidentified risks. Past or future misconduct by our
employees, contractors, vendors or agents could result in violations of law by us, regulatory sanctions and/or serious
reputational harm or financial harm. We cannot assure you that our policies, procedures and controls will be sufficient to
prevent all forms of misconduct. We review our compensation policies and practices as part of our overall enterprise risk
management program, but
is possible that our compensation policies could incentivize inappropriate risk taking or
misconduct. If such inappropriate risks or misconduct occurs, it could have an adverse effect on our results of operations and/or
our financial condition.
it
Our operations are subject to certain environmental laws and regulations, and costs of compliance, investigation or
remediation of environmental conditions could have an adverse effect on our business and results of operations.
Our operations are also subject to certain complex federal, state and local environmental laws and regulations relating
to air, water, and noise pollution and the use, storage, discharge and disposal of hazardous materials used during the
manufacturing processes. Under certain of these laws, namely the Comprehensive Environmental Response, Compensation, and
Liability Act and its state counterparts, liability for investigation and remediation of hazardous substance contamination at
currently or formerly owned or operated facilities or at third-party waste disposal sites is joint and several. Failure to comply
with these regulations could cause us to become subject to fines and penalties or otherwise have an adverse impact on our
business. Although we believe that our operations and facilities have been and are being operated in compliance, in all material
respects, with such laws and regulations, one or more of our current or former operating sites, or adjacent sites owned by third-
parties, have been affected, and may in the future be affected, by releases of hazardous materials. As a result, we may incur
expenditures for future investigation and remediation, including in conjunction with voluntary remediation programs or third-
party claims. If other potentially responsible persons are unable or otherwise not obligated to contribute to remediation costs,
we could be held responsible for their portion of the remediation costs, and those costs could be material. The operation of our
manufacturing facilities entails risks, and we cannot assure you that our costs in relation to these environmental matters or
compliance with environmental laws in general will not have an adverse effect on our business and results of operations.
We may not be able to protect our intellectual property and may be subject to infringement claims.
We rely on certain trademarks, patents and other intellectual property rights, including contractual rights with third
parties. Our success depends, in part, on our ability to protect our intellectual property against dilution, infringement, and
competitive pressure by defending our intellectual property rights. We rely on intellectual property laws of the U.S., European
Union, Canada, and other countries, as well as contractual and other legal rights, for the protection of our property rights.
17
However, we cannot assure that these measures will be successful in any given instance, or that third parties will not infringe
upon our intellectual property rights. We may be forced to take steps to protect our rights, including through litigation, which
could result in a significant expenditure of funds and a diversion of resources. The inability to protect our intellectual property
rights could result in competitors manufacturing and marketing similar products which could adversely affect our market share
and results of operations. Competitors may challenge, invalidate or avoid the application of our existing or future intellectual
property rights that we receive or license.
From time to time, we receive notices or claims that we may be infringing certain patent or other intellectual property
rights of others. While it is not possible to predict the outcome of patent and other intellectual property litigation, such litigation
could result in our payment of significant monetary damages and/or royalty payments, negatively impact our ability to sell
current or future products, reduce the market value of our products and services, lower our profits, and could otherwise have an
adverse effect on our business, financial condition or results of operation.
Compliance with conflict mineral disclosure requirements will create additional compliance cost and may create
reputational challenges.
The SEC adopted rules pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act
setting forth disclosure requirements concerning the use or potential use of certain minerals, deemed conflict minerals
(tantalum, tin, gold and tungsten), that are mined from the Democratic Republic of Congo and adjoining countries. These
requirements necessitate due diligence efforts on our part to assess whether such minerals are used in our products in order to
make the relevant required annual disclosures that began in May 2014. We have incurred costs and diverted internal resources
to comply with these disclosure requirements, including for diligence to determine the sources of those minerals that may be
used in or necessary to the production of our products. Compliance costs are expected to continue in future periods, subject to
any regulatory changes implemented by the current administration in Washington, D.C. Further action or clarification from the
SEC or a court regarding required disclosures could result in reputational challenges that could impact future sales if we
determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently
verify the origins for all conflict minerals used in our products and are required to make such disclosures.
If our information technology systems fail to perform adequately or are breached, our operations could be disrupted
and it could adversely affect our business, reputation and results of operations.
The efficient operation of our business depends on our information technology systems. We rely on our information
technology systems to effectively manage our business data,
inventory, supply chain, order entry and fulfillment,
manufacturing, distribution, warranty administration, invoicing, collection of payments, and other business processes. We use
information systems to report and support the audit of our operational and financial results. Additionally, we rely upon
information systems in our sales, marketing, human resources and communication efforts. The failure of our information
technology systems to perform as we anticipate could disrupt our business and could result in transaction errors, processing
inefficiencies, and the loss of sales and customers, causing our business and results of operations to suffer.
In addition, our information technology systems may be vulnerable to damage, interruption or unauthorized access
from circumstances beyond our control, including fire, natural disasters, security breaches, telecommunications failures,
computer viruses, hackers, phishing attempts, and other manipulation or improper use of our systems. Any such events could
result in legal claims or proceedings, liability or penalties under privacy laws, disruption in operations, and damage to our
reputation, which could adversely affect our business. Further, we have selected and have begun implementing a new enterprise
resource planning (“ERP”) system, the full implementation of which is expected to take several years; however, there may be
other challenges and risks as we upgrade and standardize our ERP system on a company-wide basis.
Cyber-attacks, such as those involving the deployment of malware, are increasing in frequency, sophistication and
intensity and have become increasingly difficult to detect. We have an information security team that deploys the latest firewalls
and constantly monitors and continually updates our security protections to mitigate these risks, but despite these ongoing
efforts, we cannot assure you that they will be effective or will work as designed. If we fail to maintain or protect our
information systems and data integrity effectively, we could: lose existing customers; have difficulty attracting new customers;
have difficulty preventing, detecting and controlling fraud; have disputes with customers and suppliers; have regulatory
sanctions or penalties imposed; incur increased operating expenses; incur expenses or lose revenues as a result of a data privacy
breach; or suffer other adverse consequences.
Additionally, because we accept debit and credit cards for payment, we are subject to the Payment Card Industry Data
Security Standard (the “PCI Standard”), issued by the Payment Card Industry Security Standards Council. The PCI Standard
contains compliance guidelines with regard to our security surrounding the physical and electronic storage, processing and
transmission of cardholder data. Complying with the PCI Standard and implementing related procedures, technology and
18
information security measures requires significant resources and ongoing attention. Costs and potential problems and
interruptions associated with the implementation of new or upgraded systems and technology such as those necessary to
maintain compliance with the PCI Standard or with maintenance or adequate support of existing systems could also disrupt or
reduce the efficiency of our operations. Any material interruptions or failures in our payment-related systems could have an
adverse effect on our business, financial condition and results of operations.
We could incur warranty claims in excess of reserves.
We receive warranty claims from our customers in the ordinary course of our business. Although we maintain reserves
for such claims, which to date have been adequate, there can be no assurance that warranty expense levels will remain at current
levels or that such reserves will continue to be adequate. A significant increase in warranty claims exceeding our current
warranty expense levels could have an adverse effect on our results of operations and financial condition.
In addition to the costs associated with the contractual warranty coverage provided on our products, we also
occasionally incur costs as a result of additional service actions not covered by our warranties, including product recalls and
customer satisfaction actions. Although we estimate and reserve for the cost of these service actions, there can be no assurance
that expense levels will remain at current levels or such reserves will continue to be adequate.
We may be subject to product liability claims if people or property are harmed by the products we sell.
Some of the products we sell may expose us to product liability claims relating to personal injury, death, or property
damage, and may require product recalls or other actions. Although we maintain liability and product recall insurance, we
cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be
available to us on economically reasonable terms, or at all. In addition, even if a product liability claim is not successful or is
not fully pursued, the negative publicity surrounding a product recall or any assertion that our products caused property damage
or personal injury could damage our brand identity and our reputation with existing and potential consumers and have an
adverse effect on our business, financial condition and results of operations.
We could incur asset impairment charges for goodwill, intangible assets or other long-lived assets.
A portion of our total assets as of December 31, 2018 was comprised of goodwill, intangible assets and other long-
lived assets. At least annually, we review goodwill for impairment. Long-lived assets, identifiable intangible assets and
goodwill are also reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable from future cash flows. These events or circumstances could include a significant change in the
business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the
business or other factors. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for
the amount by which the carrying value of the long-lived asset exceeds its fair value. Our determination of future cash flows,
future recoverability and fair value of our long-lived assets includes significant estimates and assumptions. Changes in those
estimates or assumptions or lower than anticipated future financial performance may result in the identification of an impaired
asset and a non-cash impairment charge, which could be material. Any such charge could adversely affect our operating results
and financial condition.
We may become more leveraged.
Financing for our investments is typically provided through a combination of currently available cash and cash
equivalents and use of our revolving credit facility. The incurrence of indebtedness may cause us to become more leveraged,
which could (1) require us to dedicate a greater portion of our cash flow to the payment of debt service, (2) make us more
vulnerable to a downturn in the economy, (3) limit our ability to obtain additional financing, or (4) negatively affect our outlook
by one or more of our lenders.
19
We are subject to covenants in our debt agreements that may restrict or limit our operations and acquisitions and our
failure to comply with the covenants in our debt agreements could have a material adverse impact on our business, results of
operations and financial condition.
Our debt agreements contain various covenants, restrictions and events of default. Among other things, these
provisions require us to maintain certain financial ratios, including a maximum net leverage ratio and a minimum debt service
coverage ratio, and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions.
Breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness, which may
permit the lenders under these debt agreements to exercise remedies. These defaults could have a material adverse impact on
our business, results of operations and financial condition.
An increase in interest rates could adversely impact our financial condition, results of operations and cash flows.
Our financial condition, results of operations and cash flows could be significantly affected by changes in interest rates
and actions taken by the Federal Reserve or changes in the London Interbank Offered Rate (“LIBOR”) or its replacement.
Future increases in market interest rates would increase our interest expense. Borrowings under our Amended Credit
Agreement currently bear interest at variable rates based on either an Alternate Base Rate or an Adjusted LIBOR plus, in each
case, an applicable margin. In July 2017, the U.K. Financial Conduct Authority announced that, after the end of 2021, it would
no longer persuade or compel contributing banks to make rate submissions to the ICE Benchmark Administration (together with
any successor to the ICE Benchmark Administrator, the “IBA”) for purposes of the IBA setting the LIBOR. As a result, it is
possible that commencing in 2022, the LIBOR may no longer be available or may no longer be deemed an appropriate
reference rate upon which to determine the interest rate on eurocurrency loans. While our Amended Credit Agreement provides
a mechanism for determining an alternative rate of interest in the event that LIBOR is no longer available, any such alternative,
successor or replacement rate may not be similar to, or produce the same value or economic equivalence of, LIBOR or have the
same volume or liquidity as did LIBOR prior to its discontinuance or unavailability, which may increase our overall interest
expense.
Although we currently pay regular quarterly dividends on our common stock, we cannot assure you that we will
continue to pay a regular quarterly dividend.
In March 2016, our Board of Directors approved the commencement of a dividend program under which we have paid
regular quarterly cash dividends to holders of our common stock. Our ability to pay dividends, and our Board of Directors’
determination to maintain our current dividend policy, will depend on a number of factors, including:
•
•
•
•
•
the state of our business, competition, and changes in our industry;
changes in the factors, assumptions, and other considerations made by our Board of Directors in reviewing and
revising our dividend policy;
our future results of operations, financial condition, liquidity needs, and capital resources;
limitations in our debt agreements; and
our various expected cash needs,
expenditures, the purchase price of acquisitions, and taxes.
including cash interest and principal payments on our indebtedness, capital
Each of the factors listed above could negatively affect our ability to pay dividends in accordance with our dividend
policy or at all. In addition, our Board of Directors may elect to suspend or alter the current dividend policy at any time.
Although we have initiated a stock repurchase program, we cannot assure you that we will continue to repurchase
shares or that we will repurchase shares at favorable prices.
In October 2018, our Board of Directors authorized a stock repurchase program granting the Company authority to
repurchase up to $150.0 million of the Company’s common stock over a three-year period. The amount and timing of share
repurchases are subject to capital availability and our determination that share repurchases are in the best interest of our
shareholders. In addition, any share repurchases must comply with all respective laws and any agreements applicable to the
repurchase of shares, including our debt agreements. Our ability to repurchase shares will depend upon, among other factors,
our cash balances and potential future capital requirements for strategic investments, our results of operations, our financial
condition and other factors beyond our control that we may deem relevant. A reduction in repurchases, or the completion of our
stock repurchase program, could have a negative impact on our stock price. Additionally, we can provide no assurance that we
will repurchase shares at favorable prices, if at all.
20
Our stock price may be volatile.
The price of our common stock may fluctuate widely, depending upon a number of factors, many of which are beyond
our control. These factors include:
•
•
•
•
•
•
•
•
•
•
•
•
the perceived prospects of our business and our industries as a whole;
differences between our actual financial and operating results and those expected by investors and analysts;
changes in analysts’ recommendations or projections;
changes affecting the availability of financing in the wholesale and consumer lending markets;
actions or announcements by competitors;
changes in laws and regulations affecting our business;
the gain or loss of significant customers;
significant sales of shares by a principal stockholder;
activity under our stock repurchase program;
changes in key personnel;
actions taken by stockholders that may be contrary to our Board of Directors’ recommendations; and
changes in general economic or market conditions.
In addition, stock markets generally experience significant price and volume volatility from time to time, which may
adversely affect the market price of our common stock for reasons unrelated to our performance.
Item 1B. UNRESOLVED STAFF COMMENTS.
None.
Item 2. PROPERTIES.
The Company’s manufacturing operations are conducted at facilities that are used for both manufacturing and
warehousing. Many of the properties listed manufacture and warehouse products sold through both the OEM Segment and
Aftermarket Segment. Square footage is not allocated across the segments. In addition, the Company maintains administrative
facilities used for corporate and administrative functions. The Company’s primary administrative offices are located in Elkhart
and Mishawaka, Indiana. Total administrative space company-wide aggregates approximately 500,000 square feet. At
December 31, 2018, the Company’s properties were as follows:
City
State/Province
Square Feet
Owned
Leased
Double Springs
Gilbert
Los Angeles
Rialto
Pomona
Bradenton
Lakeland
Fitzgerald
Nampa
Nampa
Nampa
Twin Falls
Fort Wayne
Goshen
South Bend
Goshen
Goshen
Elkhart
Mishawaka
Alabama
Arizona
California
California
California
Florida
Florida
Georgia
Idaho
Idaho
Idaho
Idaho
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
109,000
11,600
82,500
62,700
54,273
91,392
15,000
79,000
141,080
83,500
22,000
16,060
740,784
410,000
379,902
355,960
341,000
308,864
303,923
21
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
City
State/Province
Square Feet
Owned
Leased
Elkhart
Elkhart
Bristol(2)
Elkhart
Goshen
Goshen
Kendalville
Elkhart
Middlebury
Goshen
Goshen
Elkhart
Middlebury
Goshen
Goshen
Goshen
Howe
Elkhart
Goshen
New Paris
Elkhart
Elkhart
Millersburg
Elkhart
Templemore
San Casciano
Milan
Monteriggioni
Calenzano
Venice
Pontedera
Newton
Chesaning
Chesaning
Sterling Heights
Gloversville
Gloversville
Johnstown
Payne
Jackson Center
Tulsa
Pendleton
McMinnville
Denver
Granby
Gaffney
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Ireland
Italy
Italy
Italy
Italy
Italy
Italy
Kansas
Michigan
Michigan
Michigan
New York
New York
New York
Ohio
Ohio
Oklahoma
Oregon
Oregon
Pennsylvania
Quebec
South Carolina
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
250,000
230,800
177,408
160,000
158,500
153,200
152,200
125,855
122,226
118,125
110,000
102,900
101,776
95,960
87,800
74,200
60,000
57,000
53,500
50,000
27,200
18,000
10,000
7,300
73,000
58,125
55,176
16,500
15,000
10,500
6,251
174,147
95,562
62,330
56,248
140,000
140,000
8,842
170,000
12,000
30,953
56,800
35,700
40,200
96,875
55,000
22
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
City
State/Province
Square Feet
Owned
Leased
Springfield
Waxahachie
Catfield
Cheshire
Kaysville
Tennessee
Texas
England
England
Utah
60,000
195,000
135,000
1,700
70,000
7,983,397
(1)
☑
☑
☑
☑
☑
____________________________
(1)
(2)
At December 31, 2017, the Company used an aggregate of 6,704,891 square feet for manufacturing and warehousing.
Facilities under construction in preparation for manufacturing and warehousing at December 31, 2018.
At December 31, 2018, the Company maintained the following facilities, or partial facilities, not currently used in
production.
City
Phoenix(3)
South Bend(3)
Elkhart
Chester
State/Province
Arizona
Indiana
Indiana
South Carolina
________________________
(3)
Currently leased to third parties.
Item 3. LEGAL PROCEEDINGS.
Square Feet
Owned
Leased
61,000
134,235
91,670
108,600
395,505
☑
☑
☑
☑
In the normal course of business, the Company is subject to proceedings, lawsuits, regulatory agency inquiries and
other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these
matters could materially affect operating results when resolved in future periods, management believes that, after final
disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the
Company beyond that provided for in the Consolidated Balance Sheet as of December 31, 2018, would not be material to the
Company’s financial position or annual results of operations.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
23
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Market and Stockholders
As of February 15, 2019, there were 297 holders of the Company’s common stock, in addition to beneficial owners of
shares held in broker and nominee names. The Company’s common stock trades on the New York Stock Exchange under the
symbol “LCII”.
The table and related information required for the Equity Compensation Plan is incorporated by reference from the
information contained under the caption “Equity Compensation Plan Information” in the Company’s 2019 Proxy Statement.
Dividends and Share Repurchases
See Note 12 - Stockholders’ Equity of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-
K) for further discussion regarding dividends and share repurchases. Monthly stock repurchases for the fourth quarter of 2018
were as follows:
Period
November 2018
December 2018
Total
Total Number of
Shares Purchased
Average Price Paid
per Share
141,143
261,427
402,570
74.58
69.50
71.28
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value of Shares that
May Yet be
Purchased under the
Plans or Programs
(in millions)
141,143
402,570
$
$
139.5
121.3
The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards.
24
Item 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected historical financial and operating information of the Company and is
derived from the Company’s Consolidated Financial Statements. Historical financial data may not be indicative of the
Company’s future performance. The information set forth below should be read in conjunction with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and Notes thereto
included in Item 7 and Item 8 of this Report, respectively.
(In thousands, except per share amounts)
2018
Year Ended December 31,
2016
2015
2017
2014
Operating Data:
Net sales
Operating profit
Income before income taxes
Provision for income taxes*
Net income*
Net income per common share:
Basic*
Diluted*
Cash dividends per common share
Financial Data:
Net working capital
Total assets
Long-term obligations
Stockholders’ equity
$ 2,475,807
198,788
192,352
43,801
148,551
$ 2,147,770
214,281
212,844
79,960
132,884
$ 1,678,898
200,850
199,172
69,501
129,671
$ 1,403,066
116,254
114,369
40,024
74,345
$ 1,190,782
95,487
95,057
32,791
62,266
$
$
$
$
5.90
5.83
$
5.31
5.24
$
5.26
5.20
$
3.06
3.02
2.35
$
2.05
$
1.40
$
2.00
$
2.60
2.56
2.00
$
349,069
1,243,893
360,056
706,255
$
235,066
945,858
111,100
652,745
$
218,043
786,904
87,284
550,269
$
146,964
622,856
85,419
438,575
100,451
543,841
41,758
394,898
∗ Amounts include a one-time non-cash charge of $0.6 million ($0.03 per diluted share) and $13.2 million ($0.52 per diluted
share) related to the impact of the TCJA for the years ended December 31, 2018 and 2017, respectively. See “Provision for
Income Taxes” and “Non-GAAP Measures” included in Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” for further information related to the impact of the TCJA and for additional
information regarding the Company’s use of non-GAAP financial measures and reconciliations to the most directly
comparable GAAP financial measures.
Item 7. 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 Consolidated Financial Statements and Notes thereto included in Item 8 of this Report.
The Company, through its wholly-owned subsidiary, LCI, supplies, domestically and internationally, a broad array of
engineered components for the leading OEMs in the recreation and industrial product markets, consisting of RVs and adjacent
industries including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured
homes; and modular housing. The Company also supplies engineered components to the related aftermarkets of these
industries, primarily by selling to retail dealers, wholesale distributors and service centers.
The Company has two reportable segments, the OEM Segment and the Aftermarket Segment. At December 31, 2018,
the Company operated over 65 manufacturing and distribution facilities located throughout the United States and in Canada,
Ireland, Italy and the United Kingdom.
25
Net sales and operating profit were as follows for the years ended December 31:
(In thousands)
Net sales:
OEM Segment:
RV OEMs:
Travel trailers and fifth-wheels
Motorhomes
Adjacent industries OEMs
Total OEM Segment net sales
Aftermarket Segment:
Total Aftermarket Segment net sales
Total net sales
Operating profit:
OEM Segment
Aftermarket Segment
Total operating profit
2018
2017
2016
$
$
$
$
1,440,730
187,297
614,589
2,242,616
233,191
2,475,807
167,459
31,329
198,788
$
$
$
$
1,405,983
159,417
411,223
1,976,623
171,147
2,147,770
190,276
24,005
214,281
$
$
$
$
1,099,882
116,191
332,018
1,548,091
130,807
1,678,898
180,850
20,000
200,850
Corporate expenses are allocated between the segments based upon net sales. Accretion related to contingent
consideration is included in the segment to which it relates.
Net sales and operating profit by segment, as a percent of the total, were as follows for the years ended December 31:
Net sales:
OEM Segment
Aftermarket Segment
Total net sales
Operating Profit:
OEM Segment
Aftermarket Segment
Total segment operating profit
2018
91%
9%
100%
84%
16%
100%
2017
92%
8%
100%
89%
11%
100%
Operating profit margin by segment was as follows for the years ended December 31:
OEM Segment
Aftermarket Segment
2018
7.5%
13.4%
2017
9.6%
14.0%
2016
92%
8%
100%
90%
10%
100%
2016
11.7%
15.3%
The Company’s OEM Segment manufactures and distributes a broad array of engineered components for the leading
OEMs of RVs and adjacent industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks;
boats; trains; manufactured homes; and modular housing. Approximately 64 percent of the Company’s OEM Segment net sales
for the year ended December 31, 2018 were of components for travel trailer and fifth-wheel RVs, including:
● Steel chassis and related components
● Axles and suspension solutions
● Slide-out mechanisms and solutions
● Thermoformed bath, kitchen and other products
● Vinyl, aluminum and frameless windows
● Manual, electric and hydraulic stabilizer and
leveling systems
● Furniture and mattresses
● Electric and manual entry steps
● Awnings and awning accessories
● Electronic components
● Appliances
● Televisions, sound systems, navigation
systems and backup cameras
● Entry, luggage, patio and ramp doors
● Other accessories
26
The Aftermarket Segment supplies many of these components to the related aftermarket channels of the RV and
adjacent industries, primarily to retail dealers, wholesale distributors and service centers. The Aftermarket Segment also
includes the sale of replacement glass and awnings to fulfill insurance claims.
INDUSTRY BACKGROUND
OEM Segment
Recreational Vehicle Industry
An RV is a vehicle designed as temporary living quarters for recreational, camping, travel or seasonal use. RVs may be
motorized (motorhomes) or towable (travel trailers, fifth-wheel travel trailers, folding camping trailers and truck campers).
The annual sales cycle for the RV industry generally starts in October after the “Open House” in Elkhart, Indiana
where many of the largest RV OEMs display product to RV retail dealers, and ends after the conclusion of the summer selling
season in September in the following calendar year. Between October and March, industry-wide wholesale shipments of travel
trailer and fifth-wheel RVs have historically exceeded retail sales as dealers build inventories to support anticipated sales.
Between April and September, the spring and summer selling seasons, retail sales of travel trailer and fifth-wheel RVs have
historically exceeded industry-wide wholesale shipments. Although the current year has seen a disruption of wholesales
shipments as dealers normalize their inventory levels, the Company expects to return to the normal wholesale cycle mid-2019.
According to the RVIA, industry-wide wholesale shipments of travel trailer and fifth-wheel RVs in 2018, the
Company’s primary RV market, decreased three percent to 415,000 units, compared to 2017, as a result of RV dealers
decreasing inventory levels by an estimated 4,100 units in 2018, compared to an increase in inventory levels of 28,300 units in
2017. This was partially offset by an estimated 17,900 unit increase in retail demand in 2018, or four percent, as compared to
2017. In addition, retail demand is typically revised upward in subsequent months, primarily due to delayed RV registrations.
While the Company measures its OEM Segment RV sales against industry-wide wholesale shipment statistics, the
underlying health of the RV industry is determined by retail demand. A comparison of the number of units and the year-over-
year percentage change in industry-wide wholesale shipments and retail sales of travel trailers and fifth-wheel RVs, as reported
by Statistical Surveys, Inc., as well as the resulting estimated change in dealer inventories, for both the United States and
Canada, is as follows:
Year ended December 31, 2018
Year ended December 31, 2017
Year ended December 31, 2016
Wholesale
Retail
Units
415,000
429,500
362,700
Change
(3)%
18%
15%
Units
419,100
401,200
352,700
Change
4%
14%
11%
Estimated Unit
Impact on
Dealer
Inventories
(4,100)
28,300
10,000
According to the RVIA, industry-wide wholesale shipments of motorhome RVs in 2018 decreased eight percent to
57,600 units compared to 2017. Retail demand for motorhome RVs also decreased two percent in 2018, following a 13 percent
increase in retail demand in 2017.
The RVIA has projected a modest decrease in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs
for 2019. Several RV OEMs, however, are introducing new product lines and additional features. Retail sales of RVs
historically have been closely tied to general economic conditions, as well as consumer confidence, which was above historical
averages in 2018. Additionally, retail sales of travel trailer and fifth-wheel RVs have increased in 106 of the last 108 months on
a year-over-year basis. Industry resources report strong attendance and high consumer interest at RV shows around the United
States and Canada in early 2019.
Although future retail demand is inherently uncertain, RV industry fundamentals in 2018, including generally low
unemployment, steady fuel prices and available credit for dealers and RV consumers, were strong, as evidenced by the
estimated four percent increase in industry-wide retail sales of travel trailer and fifth-wheel RVs.
Over the long term, the Company expects RV industry sales to be aided by positive demographics and the continued
popularity of the “RV Lifestyle”. The number of consumers between the ages of 55 and 70 are projected to total 56 million by
27
2020, 27 percent higher than in 2010, according to U.S. Census figures, and one in ten vehicle-owning households between the
ages of 50 and 64 own at least one RV. The RVIA reported much of the success of the RV industry has been driven by the Baby
Boomer generation. The size of that generation is beginning to wane, and younger generations, Generation X and Millennials,
are becoming more relevant to future industry growth. Generation X and Millennials are more diverse, requiring new and
creative marketing approaches to attract them to the RV industry. The RVIA has an advertising campaign promoting the “RV
Lifestyle” targeted at both parents aged 30 - 49 with children at home, as well as couples aged 50 - 64 with no children at home.
In addition, the RV OEMs have developed more entry level units, specifically targeting younger families, in both towables and
motorhomes. The popularity of traveling in RVs to NASCAR and other sporting events, more family-oriented domestic
vacations, and using RVs as second homes, are trends that could continue to motivate consumer demand for RVs. RVIA studies
indicate RV vacations cost significantly less than other forms of vacation travel, even when factoring in fuel prices and the cost
of RV ownership. More details can be found at www.RVIA.org.
Adjacent Industries
livestock, equipment and other cargo;
The Company’s portfolio of products used in RVs can also be used in other applications, including buses; trailers used
trains; manufactured homes; and modular housing
to haul boats,
(collectively, “Adjacent Industries”). In many cases, OEM customers of the Adjacent Industries are affiliated with RV OEMs
through related subsidiaries. The Company believes there are significant opportunities in these Adjacent Industries and, as a
result, three of the last four business acquisitions completed by the Company through the date of this report were focused in
Adjacent Industries.
trucks; boats;
The estimated potential content per unit the Company may supply to the Adjacent Industries varies by OEM product
and differs from RVs. As a means to understand the potential of each of these markets, management reviews the number of
retail units sold. The following are key target markets for Adjacent Industries component sales:
•
•
•
Enclosed trailers. According to Statistical Surveys, approximately 214,000, 216,000 and 200,000 enclosed trailers
were sold in 2018, 2017 and 2016, respectively.
Pontoon boats. Statistical Surveys also reported approximately 55,000, 52,400 and 49,000 pontoon boats were sold in
2018, 2017 and 2016, respectively.
School buses. According to School Bus Fleet, there were approximately 44,400, 44,400 and 40,900 school buses sold
in 2018, 2017 and 2016, respectively.
• Manufactured housing. According to the Institute for Building Technology and Safety, there were approximately
96,600, 92,900 and 81,100 manufactured home wholesale shipments in 2018, 2017 and 2016, respectively.
Aftermarket Segment
Many of the Company’s OEM Segment products are also sold through various aftermarket channels, including
dealerships, warehouse distributors and service centers, as well as direct to retail customers. The Company has teams dedicated
to product training and marketing support for its Aftermarket Segment customers. The Company also supports two call centers
to provide quick responses to customers for both product delivery and technical support. This support is designed for a rapid
response to critical repairs so customer downtime is minimized. The Aftermarket Segment also includes the sale of replacement
glass and awnings to fulfill insurance claims. Many of the optional upgrades and non-critical replacements are purchased
outside the normal product selling seasons, thereby causing Aftermarket Segment sales to be counter-seasonal.
According to the RVIA, estimated RV ownership in the United States has increased to over nine million units.
Additionally, as a result of a vibrant secondary market, one third of current owners purchased their RV new while the remaining
two-thirds purchased a previously owned RV. This vibrant secondary market is a key driver for aftermarket sales, as the
Company anticipates owners of previously owned RVs will likely upgrade their units as well as replace parts and accessories
which have been subjected to normal wear and tear.
RESULTS OF OPERATIONS
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Consolidated Highlights
•
Consolidated net sales for the year ended December 31, 2018 increased to a record $2.5 billion, 15 percent higher
than consolidated net sales for the year ended December 31, 2017 of $2.1 billion. The increase in year-over-year
28
•
•
•
•
sales reflects growth across the Company’s segments, as well as acquisitions completed by the Company over the
twelve months ended December 31, 2018 which added $231.4 million in net sales.
Net income for the full-year 2018 increased to $148.6 million, or $5.83 per diluted share, up from net income of
$132.9 million, or $5.24 per diluted share, in 2017. Net income for 2018 and 2017 included one-time non-cash
charges of $0.6 million ($0.03 per diluted share) and $13.2 million ($0.52 per diluted share), respectively, related
to the impact of the TCJA. Excluding the estimated impact of the TCJA, adjusted net income was $149.2 million,
or $5.86 per diluted share, in 2018 compared to $146.1 million, or $5.76 per diluted share, in 2017. Adjusted net
income and adjusted net income per diluted share are non-GAAP financial measures. See “Non-GAAP Measures”
for additional information regarding the Company’s use of non-GAAP financial measures and a reconciliation to
the most directly comparable GAAP financial measures.
Consolidated operating profit during 2018 decreased seven percent, to $198.8 million from $214.3 million in
2017. Operating profit margin decreased to 8.0 percent in 2018 from 10.0 percent in 2017.
The cost of aluminum and steel used in certain of the Company’s manufactured components increased throughout
2018 from lows in 2016 and 2015, having a large impact on operating profits. Raw material costs continue to
fluctuate and are expected to remain volatile.
The Company continues to take actions to improve its cost structure. The Company seeks to continuously manage
its labor cost, particularly indirect labor, while supporting the growth of the business. Lean manufacturing teams
continue working to reduce costs and implement processes to better utilize available floorspace. The Company has
also reduced direct labor attrition, which improves efficiency and reduces other costs associated with workforce
turnover.
•
During 2018, the Company completed four acquisitions:
•
•
•
•
In November 2018, the Company acquired the business and certain assets of the furniture manufacturing
operation of Smoker Craft, a leading pontoon, aluminum fishing, and fiberglass boat manufacturer located in
New Paris, Indiana. The purchase price was $28.1 million paid at closing.
In June 2018, the Company acquired 100 percent of the equity interests of STLA, a manufacturer of bed lifts
and other RV components for the European caravan market, headquartered in Pontedera, Italy. The purchase
price was $14.8 million, net of cash acquired, paid at closing, and is subject to potential post-closing
adjustments related to net working capital.
In February 2018, the Company acquired substantially all of the business assets of Hehr, a manufacturer of
windows and tempered and laminated glass for the RV, transit, specialty vehicle, and other adjacent industries,
headquartered in Los Angeles, California. The purchase price was $51.5 million paid at closing.
In January 2018, the Company acquired 100 percent of the equity interests of Taylor Made, a marine supplier
to boat builders and the aftermarket, as well as a key supplier to a host of other industrial end markets,
headquartered in Gloversville, New York. The purchase price was $90.4 million, net of cash acquired, paid at
closing.
•
•
•
Integration activities for these acquired businesses are underway and proceeding in line with established plans.
The Company plans to leverage its purchasing power, manufacturing capabilities, engineering expertise and
design resources to improve the cost structure of the acquired operations.
In March 2018, the Company paid a quarterly dividend of $0.55 per share, aggregating $13.9 million. In June,
September and December 2018, the Company paid a quarterly dividend of $0.60 per share, aggregating $15.1
million, $15.1 million and $15.2 million, respectively.
In 2018, the Company repurchased 0.4 million of its common shares for $28.7 million of the authorized $150.0
million under its new stock repurchase program.
OEM Segment
Net sales of the OEM Segment in 2018 increased 13 percent, or $266.0 million, compared to 2017. Net sales of
components to OEMs were to the following markets for the years ended December 31:
(In thousands)
RV OEMs:
Travel trailers and fifth-wheels
Motorhomes
Adjacent industries OEMs
Total OEM Segment net sales
2018
2017
Change
$
$
1,440,730
187,297
614,589
2,242,616
$
$
1,405,983
159,417
411,223
1,976,623
2%
17%
49%
13%
29
According to the RVIA, industry-wide wholesale shipments for the years ended December 31, were:
Travel trailer and fifth-wheel RVs
Motorhomes
2018
2017
415,000
57,600
429,500
62,600
Change
(3)%
(8)%
The Company’s net sales growth in components for travel trailer and fifth-wheel RVs during 2018 outperformed
industry-wide wholesale shipments of travel trailer and fifth-wheel RVs during the same period primarily due to market share
gains as a result of price increases, new product introductions and customer penetration.
The Company’s net sales growth in components for motorhomes during 2018 outperformed industry-wide wholesale
shipments of motorhomes during the same period primarily due to acquisitions and market share gains in 2018. Over the past
few years, the Company has been expanding its product line of components for motorhomes in order to increase its customer
base and market penetration, and further growth is expected.
The trend in the Company’s average product content per RV produced is an indicator of the Company’s overall market
share of components for new RVs. The Company’s average product content per type of RV, calculated based upon the
Company’s net sales of components to RV OEMs for the different types of RVs produced for the years ended December 31,
divided by the industry-wide wholesale shipments of the different types of RVs for the same period, was:
Content per:
Travel trailer and fifth-wheel RV
Motorhome
2018
2017
$
$
3,450
2,491
$
$
3,263
2,219
Change
6%
12%
The Company’s average product content per type of RV excludes international sales and sales to the Aftermarket
Segment and Adjacent Industries. Content per RV is impacted by market share gains, acquisitions, new product introductions,
and changes in selling prices for the Company’s products, as well as changes in the types of RVs produced industry-wide.
The Company’s net OEM sales to Adjacent Industries increased during 2018 primarily due to market share gains and
acquisitions completed in 2018. The Company continues to believe there are significant opportunities in Adjacent Industries.
Operating profit of the OEM Segment was $167.5 million in 2018, a decrease of $22.8 million compared to 2017. The
operating profit margin of the OEM Segment was negatively impacted by:
•
•
•
Higher material costs for certain raw materials. Steel, aluminum and foam costs continued to increase in 2018
primarily driven by tariffs and tariff speculation on steel and aluminum. Material costs are subject to global supply
and demand forces, as well as tariff changes, and are expected to remain volatile.
The Company made significant investments over the past couple of years in manufacturing capacity, in both
facilities and personnel, to prepare for the expected increase in net sales in 2018 and beyond. In addition to these
investments, the Company has made improvements in marketing, human resources, engineering, customer service
and other critical departments. The Company also added the teams from acquired businesses, and expenses were
negatively impacted by amortization costs of intangible assets related to those businesses.
Higher labor costs. While the Company seeks to continuously manage its labor cost, it has added staff to support
the growth of the business. Additionally, competition for skilled workers has continued to tighten the labor market
which has increased the cost of labor.
Partially offset by:
•
•
•
Pricing changes of certain products.
Increased sales to Adjacent Industries OEMs.
Cost savings related to investments over the past several years to improve operating efficiencies, including lean
manufacturing initiatives, increased use of automation and employee retention initiatives. The Company has also
reduced direct labor attrition which improves efficiency and reduces other costs associated with workforce
turnover.
30
Aftermarket Segment
Net sales of the Aftermarket Segment in 2018 increased 36 percent, or $62.0 million, compared to 2017. Net sales of
components in the Aftermarket Segment were as follows for the years ended December 31:
(In thousands)
Total Aftermarket Segment net sales
2018
2017
$
233,191
$
171,147
Change
36%
The Company’s net sales to the Aftermarket Segment increased during 2018 primarily due to acquisitions and the
Company’s focus on building out well qualified, customer-focused teams and infrastructure to service this market.
Operating profit of the Aftermarket Segment was $31.3 million in 2018, an increase of $7.3 million compared to 2017,
primarily due to the increase in net sales. Operating profit margin of the Aftermarket Segment was 13.4 percent in 2018,
compared to 14.0 percent in 2017.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Consolidated Highlights
•
•
•
•
•
•
•
•
Consolidated net sales for the year ended December 31, 2017 increased to $2.1 billion, 28 percent higher than
consolidated net sales for the year ended December 31, 2016 of $1.7 billion. Acquisitions completed by the
Company in 2017 added $42 million in net sales. The 18 percent increase in industry-wide wholesale shipments of
travel trailer and fifth-wheel RVs, the Company’s primary OEM market, as well as increased content per unit,
positively impacted net sales growth in 2017. Further, the Company organically increased sales to adjacent
industries and the aftermarket.
Net income for the full-year 2017 increased to $132.9 million, or $5.24 per diluted share, up from net income of
$129.7 million, or $5.20 per diluted share, in 2016. Net income in 2017 included a one-time non-cash charge of
$13.2 million ($0.52 per diluted share) related to the estimated impact of the TCJA. Excluding the impact of the
TCJA, adjusted net income was $146.1 million, or $5.76 per diluted share, in 2017 compared with $129.7 million,
or $5.20 per diluted share, in 2016. Adjusted net income and adjusted net income per diluted share are non-GAAP
financial measures. See “Non-GAAP Measures” for additional information regarding the Company’s use of non-
GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures.
Consolidated operating profits during 2017 increased seven percent, to $214.3 million from $200.9 million in
2016. Operating profit margin decreased to 10.0 percent in 2017 from 12.0 percent in 2016.
The Company continued to take actions to improve its cost structure. The Company seeks to continuously manage
its labor cost, particularly indirect labor, while supporting the growth of the business. Lean manufacturing teams
continued working to reduce cost and implement processes to better utilize available floorspace. The Company
has also reduced direct labor attrition which improves efficiency and reduces other costs associated with
workforce turnover.
The cost of aluminum and steel used in certain of the Company’s manufactured components increased throughout
2017 from recent lows in 2016 and 2015. Raw material costs continue to fluctuate and are expected to remain
volatile.
During 2017, the Company completed three acquisitions:
• Metallarte S.r.l. - An Italian manufacturer of entry and compartment doors for the European caravan market,
with estimated annual sales of $12 million, completed in June 2017;
•
•
Lexington - An Elkhart, Indiana-based manufacturer of high quality seating solutions for the marine, RV,
transportation, medical and office furniture industries with estimated annual sales of $60 million, completed
in May 2017; and
SessaKlein S.p.A. - An Italian manufacturer of highly engineered side window systems for high speed and
commuter rail trains with estimated annual sales of $11 million, completed in February 2017.
Integration activities for these acquired businesses were in line with established plans. The Company plans to
leverage its purchasing power, manufacturing capabilities, engineering expertise and design resources to improve
the cost structure of the acquired operations.
In March, June and September 2017, the Company paid a quarterly dividend of $0.50 per share, aggregating $12.4
million, $12.4 million and $12.5 million, respectively. In December 2017, the Company paid a quarterly dividend
of $0.55 per share, aggregating $13.7 million.
31
OEM Segment
Net sales of the OEM Segment in 2017 increased 28 percent, or $429 million, compared to 2016. Net sales of
components to OEMs were to the following markets for the years ended December 31:
(In thousands)
RV OEMs:
Travel trailers and fifth-wheels
Motorhomes
Adjacent industries
Total OEM Segment net sales
2017
2016
Change
$
$
1,405,983
159,417
411,223
1,976,623
$
$
1,099,882
116,191
332,018
1,548,091
28%
37%
24%
28%
According to the RVIA, industry-wide wholesale shipments for the years ended December 31, were:
Travel trailer and fifth-wheel RVs
Motorhomes
2017
2016
429,500
62,600
362,700
54,800
Change
18%
14%
The Company’s net sales growth in components for travel trailer and fifth-wheel RVs during 2017 exceeded the
increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs during the same period primarily due to
market share gains in 2017.
The Company’s net sales growth in components for motorhomes during 2017 exceeded the increase in industry-wide
wholesale shipments of motorhomes during the same period primarily due to acquisitions and market share gains in 2017. Over
the past few years, the Company has been expanding its product line of components for motorhomes in order to increase its
customer base and market penetration, and further growth is expected.
The trend in the Company’s average product content per RV produced is an indicator of the Company’s overall market
share of components for new RVs. The Company’s average product content per type of RV, calculated based upon the
Company’s net sales of components to RV OEMs for the different types of RVs produced for the years ended December 31,
divided by the industry-wide wholesale shipments of the different types of RVs for the same period, was:
Content per:
Travel trailer and fifth-wheel RV
Motorhome
2017
2016
$
$
3,263
2,219
$
$
3,022
2,011
Change
8%
10%
The Company’s average product content per type of RV excludes sales to the Aftermarket Segment and Adjacent
Industries. Content per RV is impacted by market share gains, acquisitions, new product introductions, and changes in selling
prices for the Company’s products, as well as changes in the types of RVs produced industry-wide.
The Company’s net OEM sales to Adjacent Industries increased during 2017 primarily due to market share gains and
acquisitions completed in 2017. The Company continues to believe there are significant opportunities in Adjacent Industries.
Operating profit of the OEM Segment was $190.3 million in 2017, an improvement of $9.4 million compared to 2016.
The operating profit margin of the OEM Segment in 2017 was negatively impacted by:
•
•
Higher material costs for certain raw materials. Steel and aluminum costs increased throughout 2017 from recent
lows in 2016 and 2015. Material costs, which are subject to global supply and demand forces, are expected to
remain volatile.
Fixed costs which were approximately $11 million to $12 million higher in 2017 compared to 2016. Over the past
several years, the Company made significant investments in manufacturing capacity, both facilities and personnel,
to prepare for the expected increase in net sales in 2017 and beyond. In addition to investments in fixed costs to
expand manufacturing capacity,
the Company has made improvements in marketing, human resources,
engineering, customer service and other critical departments. The Company also added the teams from acquired
businesses, as well as amortization costs of intangible assets related to those businesses.
32
• While the Company seeks to continuously manage its labor cost, it has added staff to support the growth of the
business. The results also reflect variable compensation increases based on achieving profitability targets.
Additionally, the highly competitive labor market in the industry has driven an increase in labor rates in 2017.
Partially offset by:
•
•
•
•
Better fixed cost absorption by spreading fixed costs over a $429 million larger sales base.
Increasing sales to Adjacent Industries OEMs, which generally have better margins.
Leverage from investments over the past several years to increase capacity and improve operating efficiencies.
Further,
including lean manufacturing initiatives,
increased use of automation and employee retention initiatives. The Company has also reduced direct labor
attrition, which improves efficiency and reduces other costs associated with workforce turnover.
the Company has implemented efficiency improvements,
Strategic pricing changes of products.
Aftermarket Segment
Net sales of the Aftermarket Segment in 2017 increased 31 percent, or $40.3 million, compared to 2016. Net sales of
components in the Aftermarket Segment were as follows for the years ended December 31:
(In thousands)
Total Aftermarket Segment net sales
2017
2016
$
171,147
$
130,807
Change
31%
The Company’s net sales to the Aftermarket Segment increased during 2017 primarily due to the Company’s focus on
building out well qualified, customer-focused teams and infrastructure to service this market. With an estimated nine million
households in North America owning an RV and the Company’s increasing content per unit, the Company continues to believe
there are significant opportunities in the RV aftermarket as the components sold to OEMs are subject to normal wear and tear
over time.
Operating profit of the Aftermarket Segment was $24.0 million in 2017, an increase of $4.0 million compared to 2016,
primarily due to the increase in net sales and the higher margins traditionally experienced in aftermarket channels. Operating
profit margin of the Aftermarket Segment was 14.0 percent in 2017, compared to 15.3 percent in 2016. The decrease in
operating profit margin was primarily due to the mix of sales between warehouse distribution centers, which have lower
margins, and retail dealerships.
Provision for Income Taxes
The effective income tax rate for 2018 was 22.8 percent compared to 37.6 percent in 2017. During the fourth quarter
of 2018, the Company finalized its tax accounting for the TCJA and pursuant to Staff Accounting Bulletin No. 118 (“SAB 118”)
recorded a one-time non-cash charge of $0.6 million related to adjustments to deferred tax amounts provisionally recorded in
the prior year. During the fourth quarter of 2017,
the Company recorded a provisional one-time non-cash charge of
$13.2 million related to the enactment of the TCJA. The charge resulted from the re-measurement of the Company’s deferred
tax assets considering the TCJA’s newly enacted tax rates. This provisional amount was subject to adjustment during the
measurement period of up to one year following the December 2017 enactment of the TCJA, as provided by recent SEC
guidance. Excluding the one-time charge, the Company’s effective tax rate for 2018 was 22.5 percent compared to 31.4 percent
for 2017, as referenced in the “Non-GAAP Measures” section. The 2018 effective tax rate, adjusted for the impact of TCJA,
was lower than 2017 primarily due to the reduction in the U.S. corporate income tax rate.
The Company estimates the 2019 effective income tax rate to be approximately 24 percent to 26 percent.
Non-GAAP Measures
In addition to reporting financial results in accordance with U.S. GAAP, the Company also has included in this Annual
Report on Form 10-K non-GAAP measures that adjust for the impact of enactment of the TCJA. This item represents a
significant charge that impacted the Company’s financial results. Net income, earnings per diluted share, the provision for
income taxes and the effective tax rate are all measures for which the Company provides the reported GAAP measure and an
adjusted measure. The adjusted measures are not in accordance with, nor are they a substitute for, GAAP measures. The
Company considers these non-GAAP measures in evaluating and managing the Company’s operations. The Company believes
that discussion of results adjusted for this item is meaningful to investors as it provides a useful analysis of ongoing underlying
operating trends. In addition, from time to time, certain of these non-GAAP measures may also be used in our compensation
33
programs. The determination of these non-GAAP financial measures may not be comparable to the determination of similarly
titled measures used by other companies. The following are reconciliations of these non-GAAP financial measures to the most
directly comparable GAAP measures.
(In thousands, except per share amounts)
As reported GAAP
Impact of TCJA (1)
Adjusted non-GAAP
(In thousands, except per share amounts)
As reported GAAP
Impact of TCJA (1)
Adjusted non-GAAP
Income
before
income taxes
192,352
—
$
192,352
Income
before
income taxes
Twelve months ended December 31, 2018
Provision for
income taxes
Net income
Effective tax
rate
Diluted
earnings per
share
$
$
43,801
(612)
43,189
$
$
148,551
612
149,163
23 % $
(1)%
22 % $
5.83
0.03
5.86
Twelve months ended December 31, 2017
Provision for
income taxes
Net income
Effective tax
rate
Diluted
earnings per
share
$
$
212,844
—
212,844
$
$
79,960
(13,209)
66,751
$
$
132,884
13,209
146,093
38 % $
(7)%
31 % $
5.24
0.52
5.76
(1) During the fourth quarter of 2018, the Company finalized its tax accounting for the TCJA and pursuant to SAB 118 recorded
a one-time non-cash charge of $0.6 million related to adjustments to deferred tax amounts provisionally recorded in the prior
year. During the fourth quarter of 2017, the Company recorded a provisional one-time non-cash charge of $13.2 million related
to the enactment of the TCJA. The charge resulted from the re-measurement of the Company’s deferred tax assets considering
the TCJA’s newly enacted tax rates. This provisional amount was subject to adjustment during the measurement period of up to
one year following the December 2017 enactment of the TCJA, as provided by recent SEC guidance. In addition to reporting
financial results in accordance with U.S. GAAP, the Company also provides non-GAAP measures that adjust for the impact of
enactment of the TCJA. These items represent significant charges that impacted the Company’s financial results. Net income,
earnings per diluted share, and the effective tax rate are all measures for which the Company provides the reported GAAP
measure and an adjusted measure. The adjusted measures are not in accordance with, nor are they a substitute for, GAAP
measures. The Company considers these non-GAAP measures in evaluating and managing the Company’s operations. The
Company believes that discussion of results adjusted for these items is meaningful to investors as it provides a useful analysis
of ongoing underlying operating trends. The determination of these items may not be comparable to similarly titled measures
used by other companies.
LIQUIDITY AND CAPITAL RESOURCES
The Consolidated Statements of Cash Flows reflect the following for the years ended December 31:
(In thousands)
Net cash flows provided by operating activities
Net cash flows used in investing activities
Net cash flows provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents
2018
2017
2016
$
$
$
156,608
(302,795)
135,066
(11,121) $
$
152,702
(145,875)
(66,948)
(60,121) $
201,667
(91,707)
(36,095)
73,865
Cash Flows from Operations
Net cash flows provided by operating activities were $156.6 million in 2018, compared to $152.7 million in 2017. The
increase was primarily due to a $25.2 million increase in net income, adjusted for non-cash items, partially offset by a $21.3
million use of cash for net assets and liabilities. Inventory growth was the primary use of cash in net assets due to hedge buying
of raw materials, the rapid industry slow-down at the end of 2018, and purchases in advance of the Chinese New Year.
Over the long term, based on the Company’s historical collection and payment patterns, as well as inventory turnover,
and also giving consideration to emerging trends and changes to the sales mix, the Company expects working capital to increase
34
or decrease equivalent to approximately 10 to 15 percent of the increase or decrease, respectively, in net sales. However, there
are many factors that can impact this relationship, especially in the short term.
Depreciation and amortization was $67.5 million in 2018, and is expected to be approximately $73 million to $78
million in 2019. Non-cash stock-based compensation in 2018 was $14.1 million. Non-cash stock-based compensation is
expected to be approximately $16 million to $18 million in 2019.
Net cash flows provided by operating activities were $152.7 million in 2017, compared to $201.7 million in 2016,
primarily due to:
•
•
A $78.7 million increase in inventory for the year ended December 31, 2017, compared to a $7.9 million increase
in 2016. Inventory turnover for the year ended December 31, 2017 increased to 7.7 turns compared to 7.5 turns for
2016.
A $36.1 million net increase in accounts payable and accrued expenses and other liabilities for the year ended
December 31, 2017, compared to a $48.8 million net increase in 2016, primarily due to the timing of payments.
Partially offset by:
•
Increases in non-cash charges against net income in 2017 including:
•
•
An $8.6 million increase in depreciation and amortization primarily due to investments in acquisitions
and capital expenditures.
A $4.6 million increase in stock-based compensation in 2017 compared to 2016.
A $10.9 million increase in prepaid expenses and other assets in 2017, compared to a $15.6 million increase in
2016.
A $3.2 million increase in net income in 2017 compared to 2016.
•
•
Cash Flows from Investing Activities
Cash flows used for investing activities of $302.8 million in 2018 were primarily comprised of $119.8 million for
capital expenditures and $184.8 million for the acquisition of businesses as follows (in thousands):
Date Acquired
Acquired Company
January 2018
Taylor Made Group
February 2018
Hehr International Inc.
June 2018
ST.LA. S.r.l.
November 2018
Furniture manufacturing operations of Smoker Craft Inc.
Total 2018 Acquisitions
Purchase Price
$
$
90,396
51,460
14,845
28,091
184,792
The Company’s capital expenditures are primarily for replacement and growth. Over the long term, based on the
Company’s historical capital expenditures, the replacement portion has averaged approximately 2 percent of net sales, while the
growth portion has averaged approximately 7 to 10 percent of the annual increase in net sales. However, there are many factors
that can impact the actual spending compared to these historical averages.
The 2018 capital expenditures and acquisitions were funded by cash from operations and borrowings under the
Company’s revolving credit facility. Capital expenditures and acquisitions in 2019 are expected to be funded primarily from
cash generated from operations, as well as periodic borrowings under the Company’s revolving credit facility.
35
Cash flows used for investing activities of $145.9 million in 2017 were primarily comprised $87.2 million for capital
expenditures and $60.6 million for the acquisition of businesses as follows (in thousands):
Date Acquired
Acquired Company
February 2017
SessaKlein S.p.A.
May 2017
June 2017
Lexington LLC
Metallarte S.r.l.
Other
Total 2017 Acquisitions
Purchase Price
$
$
6,502
40,062
13,501
523
60,588
Cash flows used for investing activities of $91.7 million in 2016 were primarily comprised of $44.7 million for capital
expenditures and $48.7 million for the acquisition of businesses as follows (in thousands):
Date Acquired
Acquired Company
Purchase Price
January 2016
Pontoon furniture manufacturing operation of Highwater Marine, LLC
February 2016
Flair Interiors, Inc.
May 2016
Project 2000 S.r.l.
November 2016
Seating and chassis business of Atwood Mobile Products, LLC
November 2016
Camping Connection, Inc.
Other
Total
Cash Flows from Financing Activities
$
$
10,000
8,100
16,618
12,463
2,000
(456)
48,725
Cash flows provided by financing activities in 2018 primarily included net borrowings on the revolving credit facility
of $240.0 million offset by the payment of dividends to stockholders of $59.3 million, repurchases of common stock of $28.7
million under the newly authorized stock repurchase program and $16.1 million from the vesting of stock-based awards, net of
shares tendered for the payment of taxes.
Cash flows used for financing activities in 2017 primarily included the payment of dividends to stockholders of $51.1
million, $10.5 million from the exercise of stock-based awards, net of shares tendered for the payment of taxes, and $5.3
million in payments for contingent consideration related to acquisitions. The Company had no outstanding borrowings under
the revolving credit facility as of December 31, 2017, but borrowings reached a high of $9.8 million during 2017.
Cash flows used for financing activities in 2016 primarily included the payment of dividends to stockholders of $34.4
million and $3.2 million in payments for contingent consideration related to acquisitions. The Company had no outstanding
borrowings under the revolving credit facility at December 31, 2016, but borrowings reached a high of $33.0 million during
2016.
In connection with certain business acquisitions, if established sales targets for the acquired products are achieved, the
Company is contractually obligated to pay additional cash consideration. The Company has recorded a $7.3 million liability for
the aggregate fair value of these expected contingent consideration liabilities at December 31, 2018. For further information,
see Note 11 of the Notes to the Consolidated Financial Statements.
Credit Facilities
See Note 9 of the Notes to Consolidated Financial Statements for a description of our credit facilities.
The Company believes the availability under the Amended Credit Agreement and Shelf-Loan Facility (as defined in
Note 9 of the Notes to Consolidated Financial Statements) is adequate to finance the Company’s anticipated cash requirements
for the next twelve months.
36
Contractual Obligations and Commitments
Future minimum commitments relating to the Company’s contractual obligations at December 31, 2018 were as
follows:
(In thousands)
Total indebtedness
Interest on fixed rate
indebtedness (a)
Operating leases
Employment contracts (b)
Deferred compensation (c)
Royalty agreements and contingent
consideration payments (d)
Purchase obligations (e)
Taxes (f)
Total
$
Less than
1 year
Payments due by period
1-3 years
3-5 years
More than
5 years
Other
$
596
$
50,883
$
240944
$
2062
$
Total
294,485
$
5,860
86,003
16,007
26,331
9,139
340,623
4,100
782,548
$
2,439
18,807
12,793
416
41
335,609
4,100
374,801
1,892
27,562
3,214
8,242
6,361
3,741
1529
15,740
—
5,685
1,511
1273
—
101,895
$
—
266,682
$
$
—
23,894
—
2,780
1226
—
—
29,962
$
—
—
—
—
9,208
—
—
—
9,208
a. The Company has used the contractual payment dates and the fixed interest rates in effect as of December 31,
b.
c.
2018, to determine the estimated future interest payments for fixed rate indebtedness.
Includes amounts payable under employment contracts and arrangements, and retirement and severance
agreements.
Includes amounts payable under deferred compensation arrangements. The Other column represents the liability
for deferred compensation for employees that have elected to receive payment upon separation from service from
the Company.
d. Comprised of estimated future contingent consideration payments for which a liability has been recorded in
connection with business acquisitions.
e. Primarily comprised of (i) purchase orders issued in the normal course of business and (ii) long term purchase
commitments, for which the Company has estimated the expected future obligation based on current prices and
usage.
Represents unrecognized tax benefits, as well as related interest and penalties.
f.
Commitments are described more fully in the Notes to Consolidated Financial Statements.
CORPORATE GOVERNANCE
The Company is in compliance with the corporate governance requirements of the SEC and the New York Stock
Exchange. The Company’s governance documents and committee charters and key practices have been posted to the
Company’s website (www.lci1.com) and are updated periodically. The website also contains, or provides direct links to, all SEC
filings, press releases and investor presentations. The Company has also established a Whistleblower Policy, which includes a
toll-free hotline (877-373-9123) to report complaints about the Company’s accounting, internal controls, auditing matters or
other concerns. The Whistleblower Policy and procedure for complaints can be found on the Company’s website
(www.lci1.com).
CONTINGENCIES
Additional information required by this item is included under Item 3 of Part I of this Annual Report on Form 10-K.
37
CRITICAL ACCOUNTING POLICIES
The Company’s Consolidated Financial Statements have been prepared in conformity with accounting principles
generally accepted in the United States of America which requires certain estimates and assumptions to 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. Management has discussed the
development and selection of its critical accounting policies with the Audit Committee of the Company’s Board of Directors
and the Audit Committee has reviewed the disclosure presented below relating to the critical accounting policies.
Warranty
The Company provides warranty terms based upon the type of product sold. The Company estimates the warranty
accrual based upon various factors, including historical warranty costs, current trends, product mix, and sales. The accounting
for warranty accruals requires the Company to make assumptions and judgments, and to the extent actual results differ from
original estimates, adjustments to recorded accruals may be required.
Fair Value of Net Assets of Acquired Businesses
The Company values the assets and liabilities associated with the acquisitions of businesses on the respective
acquisition dates. Depending upon the type of asset or liability acquired, the Company uses different valuation techniques in
determining the fair value. Those techniques include comparable market prices, long-term sales, profitability and cash flow
forecasts, assumptions regarding future industry-specific economic and market conditions and a market participant’s weighted
average cost of capital, as well as other techniques as circumstances require. By their nature, these assumptions require
judgment, and if management had chosen different assumptions, the fair value of net assets of acquired businesses would have
been different. For further information on acquired assets and liabilities, see Notes 4 and 13 of the Notes to Consolidated
Financial Statements.
New Accounting Pronouncements
Information required by this item is included in Note 2 of the Notes to the Consolidated Financial Statements.
INFLATION
The prices of key raw materials, consisting primarily of steel and aluminum, and components used by the Company
which are made from these raw materials, are influenced by demand and other factors specific to these commodities, rather than
being directly affected by inflationary pressures. Prices of these commodities have historically been volatile, and over the past
few months prices have continued to fluctuate. The Company did not experience any significant increases in its labor costs in
2018 related to inflation.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
At December 31, 2018, the Company had $50.0 million of fixed rate debt outstanding. Assuming there is a decrease of
100 basis points in the interest rate for borrowings of a similar nature subsequent to December 31, 2018, which the Company
becomes unable to capitalize on in the short-term as a result of the structure of its fixed rate financing, future cash flows would
be approximately $0.5 million lower per annum than if the fixed rate financing could be obtained at current market rates.
At December 31, 2018, the Company had $240.1 million of borrowings outstanding on its variable rate revolving
credit facility. Assuming consistent borrowing levels and an increase of 100 basis points in the interest rate for borrowings of a
similar nature subsequent to December 31, 2018, future cash flows would be reduced by approximately $2.4 million per annum.
The Company is also exposed to changes in the prices of raw materials, specifically steel and aluminum. The
Company has, from time to time, entered into derivative instruments for the purpose of managing a portion of the exposures
associated with fluctuations in steel and aluminum prices. While these derivative instruments are subject to fluctuations in
value, these fluctuations are generally offset by the changes in fair value of the underlying exposures. See Note 13 of the Notes
to Consolidated Financial Statements for a more detailed discussion of derivative instruments.
38
The Company has historically been able to obtain sales price increases to partially offset the majority of raw material
cost increases. However, there can be no assurance future cost increases, if any, can be partially or fully passed on to customers,
or that the timing of such sales price increases will match raw material cost increases.
Additional information required by this item is included under the caption “Inflation” in the Management’s Discussion
and Analysis of Financial Condition and Results of Operations section of this Report.
39
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
LCI Industries:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of LCI Industries and subsidiaries (the “Company”) as
of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, stockholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes
(collectively, the “consolidated financial statements”). We also have audited the Company’s internal control over financial
reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 2018, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
The Company acquired Taylor Made Group, LLC (“Taylor Made”), Hehr International Inc. (“Hehr”), ST.LA. S.r.l.
(“STLA”), and Smoker Craft Inc. (“Smoker Craft”) during 2018, and management excluded from its assessment of the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, the acquired companies’
internal control over financial reporting associated with total assets of $190.5 million and total revenues of $211.2 million
included in the consolidated financial statements of the Company as of and for the year ended December 31, 2018. Our audit of
internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial
reporting of Taylor Made, Hehr, STLA, and Smoker Craft.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying “Management’s Annual Report on Internal Control Over Financial Reporting”. Our responsibility
is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control
over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in
all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
We have served as the Company’s auditor since 1980.
Chicago, Illinois
February 27, 2019
41
LCI INDUSTRIES
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 before income taxes
Provision for income taxes
Net income
Net income per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Year Ended December 31,
2018
2017
2016
$ 2,475,807
$ 2,147,770
$ 1,678,898
1,955,463
1,654,656
1,249,995
520,344
321,556
198,788
6,436
192,352
43,801
493,114
278,833
214,281
1,437
212,844
79,960
428,903
228,053
200,850
1,678
199,172
69,501
$
148,551
$
132,884
$
129,671
$
$
5.90
5.83
$
$
5.31
5.24
$
$
5.26
5.20
25,178
25,463
25,020
25,375
24,631
24,933
The accompanying notes are an integral part of these Consolidated Financial Statements.
42
LCI INDUSTRIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive (loss) income:
Net foreign currency translation adjustment
Unrealized loss on fair value of derivative instruments
Year Ended December 31,
2018
2017
2016
$
148,551
$
132,884
$
129,671
(3,936)
(1,108)
4,237
—
(1,798)
—
Total comprehensive income
$
143,507
$
137,121
$
127,873
The accompanying notes are an integral part of these Consolidated Financial Statements.
43
LCI INDUSTRIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amount)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable, net of allowances of $1,895 and $1,536 at December 31, 2018 and
2017, respectively
Inventories, net
Prepaid expenses and other current assets
Total current assets
Fixed assets, net
Goodwill
Other intangible assets, net
Deferred taxes
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable, trade
Accrued expenses and other current liabilities
Total current liabilities
Long-term indebtedness
Other long-term liabilities
Total liabilities
Stockholders’ equity
Common stock, par value $.01 per share: authorized
75,000 shares; issued 27,948 shares at December 31, 2018
and 27,674 shares at December 31, 2017
Paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income
Stockholders’ equity before treasury stock
Treasury stock, at cost, 3,087 shares at December 31, 2018
and 2,684 shares at December 31, 2017
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2018
2017
$
14,928
$
26,049
121,812
340,615
49,296
526,651
322,876
180,168
176,342
10,948
26,908
82,157
274,748
34,125
417,079
228,950
124,183
130,132
24,156
21,358
$
1,243,893
$
945,858
$
$
78,354
99,228
177,582
293,528
66,528
537,638
79,164
102,849
182,013
49,924
61,176
293,113
280
203,246
563,496
(2,605)
764,417
(58,162)
706,255
$
1,243,893
$
277
203,990
475,506
2,439
682,212
(29,467)
652,745
945,858
The accompanying notes are an integral part of these Consolidated Financial Statements.
44
LCI INDUSTRIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2018
2017
2016
$
148,551
$
132,884
$
129,671
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to cash flows provided by
operating activities:
Depreciation and amortization
Stock-based compensation expense
Deferred taxes
Other non-cash items
Changes in assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net
Inventories, net
Prepaid expenses and other assets
Accounts payable, trade
Accrued expenses and other liabilities
Net cash flows provided by operating activities
Cash flows from investing activities:
Capital expenditures
Acquisitions of businesses, net of cash acquired
Proceeds from note receivable
Other investing activities
67,526
14,065
13,874
(13)
(11,352)
(34,730)
(17,691)
(17,335)
(6,287)
156,608
(119,827)
(184,792)
2,000
(176)
54,727
20,036
6,808
4,371
(12,601)
(78,698)
(10,898)
20,727
15,346
152,702
(87,221)
(60,588)
1,500
434
Net cash flows used in investing activities
(302,795)
(145,875)
Cash flows from financing activities:
Vesting of stock-based awards, net of shares tendered for payment of
taxes
Proceeds from revolving credit facility borrowings
Repayments under revolving credit facility borrowings
Proceeds from other borrowings
Payment of dividends
Payment of contingent consideration related to acquisitions
Repurchases of common stock
Other financing activities
Net cash flows provided by (used in) financing activities
(16,097)
1,387,013
(1,146,953)
4,509
(59,270)
(3,068)
(28,695)
(2,373)
135,066
(10,531)
28,130
(28,130)
—
(51,057)
(5,301)
—
(59)
(66,948)
Net (decrease) increase in cash and cash equivalents
(11,121)
(60,121)
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Cash paid during the period for income taxes, net of refunds
Purchase of property and equipment in accrued expenses
26,049
14,928
5,645
39,991
385
$
$
$
$
86,170
26,049
1,650
53,620
2,640
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
45
46,167
15,420
(2,598)
1,540
(13,899)
(7,856)
(15,553)
18,800
29,975
201,667
(44,671)
(48,725)
2,000
(311)
(91,707)
2,574
81,458
(81,458)
—
(34,437)
(3,204)
—
(1,028)
(36,095)
73,865
12,305
86,170
1,992
65,792
1461
LCI INDUSTRIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands, except shares and per
share amounts)
Common
Stock
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Treasury
Stock
Total
Stockholders’
Equity
Balance - January 1, 2016
$
270 $ 166,566 $ 301,206 $
— $ (29,467) $
Net income
Issuance of 395,274 shares of common
stock pursuant to stock-based awards, net
of shares tendered for payment of taxes
Income tax benefit relating to issuance of
common stock pursuant to stock-based
awards
Stock-based compensation expense
Issuance of 4,784 deferred stock units
relating to prior year compensation
Other comprehensive loss
Cash dividends ($1.40 per share)
Dividend equivalents on stock-based
awards
Balance - December 31, 2016
Net income
Issuance of 239,854 shares of common
stock pursuant to stock-based awards, net
of shares tendered for payment of taxes
Stock-based compensation expense
Issuance of 63,677 deferred stock units
relating to prior year compensation
Other comprehensive income
Cash dividends ($2.05 per share)
Dividend equivalents on stock-based
awards
Balance - December 31, 2017
Net income
Issuance of 274,177 shares of common
stock pursuant to stock-based awards, net
of shares tendered for payment of taxes
Stock-based compensation expense
Repurchase of 402,570 shares of
common stock
Other comprehensive loss
Cash dividends ($2.35 per share)
Dividend equivalents on stock-based
awards
—
— 129,671
4
(5,413)
—
—
—
—
—
(34,437)
7,983
15,420
264
—
—
—
—
—
—
—
(1,798)
—
—
—
—
—
—
—
—
—
—
1,161
(1,161)
185,981
395,279
(1,798)
(29,467)
— 132,884
(10,534)
20,036
6,907
—
—
—
—
—
—
(51,057)
1,600
(1,600)
—
—
—
—
4,237
—
—
—
—
—
—
—
—
—
203,990
475,506
2,439
(29,467)
— 148,551
(16,100)
14,065
—
—
—
—
—
—
—
(59,270)
1,291
(1,291)
—
—
—
—
(5,044)
—
—
—
—
—
(28,695)
—
—
—
—
—
—
—
—
—
274
—
3
—
—
—
—
—
277
—
3
—
—
—
—
—
438,575
129,671
(5,409)
7,983
15,420
264
(1,798)
(34,437)
—
550,269
132,884
(10,531)
20,036
6,907
4,237
(51,057)
—
652,745
148,551
(16,097)
14,065
(28,695)
(5,044)
(59,270)
—
Balance - December 31, 2018
$
280 $ 203,246 $ 563,496 $
(2,605) $ (58,162) $
706,255
The accompanying notes are an integral part of these Consolidated Financial Statements.
46
LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
BASIS OF PRESENTATION
The Consolidated Financial Statements include the accounts of LCI Industries and its wholly-owned subsidiaries
(“LCII” and collectively with its subsidiaries, the “Company”). LCII has no unconsolidated subsidiaries. LCII, through its
wholly-owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, “Lippert Components” or “LCI”),
supplies, domestically and internationally, a broad array of engineered components for the leading original equipment
manufacturers (“OEMs”) in the recreation and industrial product markets, consisting of recreational vehicles (“RVs”) and
adjacent industries including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains;
manufactured homes; and modular housing. The Company also supplies engineered components to the related aftermarkets of
these industries, primarily by selling to retail dealers, wholesale distributors and service centers. At December 31, 2018, the
Company operated over 65 manufacturing and distribution facilities located throughout the United States and in Canada,
Ireland, Italy and the United Kingdom.
Most industries where the Company sells products or where its products are used historically have been seasonal and
are generally at the highest levels when the weather is moderate. Accordingly, the Company’s sales and profits have generally
been the highest in the second quarter and lowest in the fourth quarter. However, because of fluctuations in dealer inventories,
the impact of international, national and regional economic conditions and consumer confidence on retail sales of RVs and other
products for which the Company sells its components, the timing of dealer orders, and the impact of severe weather conditions
on the timing of industry-wide shipments from time to time, current and future seasonal industry trends may be different than in
prior years. Additionally, sales of certain engineered components to the aftermarket channels of these industries tend to be
counter-seasonal.
The Company is not aware of any significant events, except as disclosed in the Notes to Consolidated Financial
Statements, which occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material
impact on the Consolidated Financial Statements. All significant intercompany balances and transactions have been eliminated.
Certain prior year balances have been reclassified to conform to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities,
net sales and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates
its estimates, including, but not limited to, those related to product returns, sales and purchase rebates, accounts receivable,
inventories, goodwill and other intangible assets, net assets of acquired businesses, income taxes, warranty and product recall
obligations, self-insurance obligations, lease terminations, asset retirement obligations, long-lived assets, post-retirement
benefits, stock-based compensation, segment allocations, contingent consideration, environmental liabilities, contingencies and
litigation. The Company bases its estimates on historical experience, other available information and various other assumptions
believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities not readily apparent from other resources. Actual results and events could differ significantly
from management estimates.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Accounts Receivable
Accounts receivable are stated at historical carrying value, net of write-offs and allowances. The Company establishes
allowances based upon historical experience and any specific customer collection issues identified by the Company.
47
Uncollectible accounts receivable are written off when a settlement is reached or when the Company has determined the
balance will not be collected.
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 which are owned are stated at cost less accumulated depreciation, and are depreciated on a straight-line
basis over the estimated useful lives of the 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 repair costs that do not improve
service potential or extend economic life are expensed as incurred.
Warranty
The Company provides warranty terms based upon the type of product sold. The Company estimates the warranty
accrual based upon various factors, including historical warranty costs, current trends, product mix, and sales. The accounting
for warranty accruals requires the Company to make assumptions and judgments, and to the extent actual results differ from
original estimates, adjustments to recorded accruals may be required. See Note 7 - Accrued Expenses and Other Current
Liabilities for further detail.
Income Taxes
Deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting
and tax basis of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the differences are
expected to reverse.
The Company accounts for uncertainty in tax positions by recognizing in its financial statements the impact of a tax
position only if that position is more likely than not of being sustained on audit, based on the technical merits of the position.
Further, the Company assesses the tax benefits of the tax positions in its financial statements based on experience with similar
tax positions, information obtained during the examination process and the advice of experts. The Company recognizes
previously unrecognized tax benefits upon the earlier of the expiration of the period to assess tax in the applicable taxing
jurisdiction or when the matter is constructively settled and upon changes in statutes or regulations and new case law or rulings.
The Company classifies interest and penalties related to income taxes as a component of income tax expense in its Consolidated
Statements of Income.
Goodwill
Goodwill represents the excess of the total consideration given in an acquisition of a business over the fair value of the
net tangible and identifiable intangible assets acquired. Goodwill is not amortized, but instead is tested at the reporting unit
level for impairment annually in November, or more frequently if certain circumstances indicate a possible impairment may
exist. In 2018 and 2017, the Company assessed qualitative factors of its reporting units to determine whether it was more likely
than not the fair value of the reporting unit was less than its carrying amount, including goodwill. The qualitative impairment
test consists of an assessment of qualitative factors, including general economic and industry conditions, market share and input
costs.
Other Intangible Assets
Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment. Intangible assets are amortized using either an accelerated or straight-
line method, whichever best reflects the pattern in which the estimated future economic benefits of the asset will be consumed.
The useful lives of intangible assets are determined after considering the expected cash flows and other specific facts and
circumstances related to each intangible asset.
48
Impairment of Long-Lived Assets
Long-lived assets, other than goodwill, are tested for impairment when changes in circumstances indicate their
carrying value may not be recoverable. A determination of impairment, if any, is made based on the undiscounted value of
estimated future cash flows, salvage value or expected net sales proceeds, depending on the circumstances. Impairment is
measured as the excess of the carrying value over the estimated fair value of such assets.
Asset Retirement Obligations
Asset retirement obligations are legal obligations associated with the retirement of long-lived assets. The Company
records asset retirement obligations on certain of its owned and leased facilities and leased machinery and equipment. These
liabilities are initially recorded at fair value and are adjusted for changes resulting from revisions to the timing or the amount of
the original estimate.
Environmental Liabilities
Accruals for environmental matters are recorded when it is probable a liability has been incurred and the amount of the
liability can be reasonably estimated, based upon current law and existing technologies. These amounts, which are not
discounted and are exclusive of claims against potentially responsible third parties, are adjusted periodically as assessment and
remediation efforts progress or additional technical or legal information becomes available. Environmental exposures are
difficult to assess for numerous reasons, including the identification of new sites, developments at sites resulting from
investigatory studies and remedial activities, advances in technology, changes in environmental laws and regulations and their
application, the scarcity of reliable data pertaining to identified sites, the difficulty in assessing the involvement and financial
capability of other potentially responsible parties and the Company’s ability to obtain contributions from other parties, and the
lengthy time periods over which site remediation occurs. It is possible some of these matters (the outcomes of which are subject
to various uncertainties) may be resolved unfavorably against the Company, and could materially affect operating results when
resolved in future periods.
Foreign Currency Translation
The financial statements of the Company’s international subsidiaries generally are measured using the local currency
as the functional currency. The translation from the applicable foreign currency to U.S. Dollars is performed for balance sheet
accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using the weighted
average exchange rate for the period. The resulting translation adjustments are recorded in accumulated other comprehensive
income (loss) as a component of stockholders’ equity. The Company reflects net foreign exchange transaction gains and losses
resulting from the conversion of the transaction currency to functional currency as a component of foreign currency exchange
gains or losses in selling, general and administrative expenses in the Consolidated Statements of Income.
Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, derivative instruments, and accounts payable
approximate their fair value due to the short-term nature of these instruments.
Stock-Based Compensation
All stock-based compensation awards are expensed over their vesting period, based on fair value. For awards having a
service-only vesting condition, the Company recognizes stock-based compensation expense on a straight-line basis over the
requisite service periods. For awards with a performance vesting condition, which are subject to certain pre-established
performance targets, the Company recognizes stock-based compensation expense on a graded-vesting basis to the extent it is
probable the performance targets will be met. The fair value for stock options is determined using the Black-Scholes option-
pricing model, while the fair values of deferred stock units, restricted stock units, restricted stock and stock awards are based on
the market price of the Company’s common stock, all on the date the stock-based awards are granted.
Revenue Recognition
See Note 3 - Revenue for information regarding the Company’s revenue recognition policies.
49
Shipping and Handling Costs
The Company recognizes shipping and handling costs as fulfillment costs when control over products has transferred
to the customer, and records the expense within selling, general and administrative expenses. Such costs aggregated $83.2
million, $68.6 million and $51.8 million in the years ended December 31, 2018, 2017 and 2016, respectively.
Legal Costs
The Company expenses all legal costs associated with litigation as incurred. Legal expenses are included in selling,
general and administrative expenses in the Consolidated Statements of Income.
Fair Value Measurements
Fair value is determined using a hierarchy that has three levels based on the reliability of the inputs used to determine
fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to
fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant
unobservable inputs.
Recent Accounting Pronouncements
Recently issued accounting pronouncements not yet adopted
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2017-04, Simplifying the Test for Goodwill Impairment, which amends Accounting Standards Codification (“ASC”) 350,
Intangibles - Goodwill and Other. This ASU simplifies how an entity is required to test goodwill for impairment by eliminating
step 2 from the goodwill impairment test. Step 2 measures goodwill impairment loss by comparing the implied fair value of a
reporting unit’s goodwill with the carrying amount of that goodwill. This ASU is effective for interim and annual reporting
periods, beginning after December 15, 2019, and early adoption is permitted. The Company will adopt this guidance in the first
quarter of 2020 and does not expect the adoption to have a material impact on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments, which changes the methodology for measuring credit losses on financial instruments
and the timing of when such losses are recorded. This ASU is effective for interim and annual reporting periods, beginning after
December 15, 2019, and early adoption is permitted. The Company will adopt this guidance in the first quarter of 2020 and is
currently assessing the impact of this ASU on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires, in most instances, a lessee to
recognize on its balance sheet a liability to make lease payments (the lease liability) and also a right-of-use asset representing its
right to use the underlying asset for the lease term. Leases will be classified as finance or operating, with classification affecting
the pattern and classification of expense recognition in the income statement. The Company will adopt ASU 2016-02 in the first
quarter of 2019 using the cumulative-effect adjustment transition method approved by the FASB in July 2018. The Company
will elect the package of practical expedients permitted under the transition guidance, which allows the carryforward of
historical lease classification, the assessment of whether a contract is or contains a lease, and initial direct costs for any leases
that exist prior to adoption of the new standard. The Company also will elect to keep leases with an initial term of 12 months or
less off its Consolidated Balance Sheet and recognize the associated lease payments in its Consolidated Statements of Income
on a straight-line basis over the lease term.
The Company is finalizing its implementation related to policies, processes and internal controls to comply with ASU
2016-02. While the Company is continuing to assess the potential impacts of this standard, the Company estimates that the
adoption of ASU 2016-02 will result in the recognition of right-of-use assets and lease liabilities for operating leases of
approximately $60 million to $75 million on its Consolidated Balance Sheets, with no material impact to its Consolidated
Statements of Income or Cash Flows. The standard also requires expanded disclosure regarding the amounts, timing and
uncertainties of cash flows related to an entity’s lease portfolio. The Company is evaluating these disclosure requirements and is
incorporating the collection of relevant data into our processes in preparation for disclosure in 2019.
50
Recently adopted accounting pronouncements
In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, which
amends ASC 815, Derivatives and Hedging. This ASU better aligns an entity’s risk management activities and financial
reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging
relationships and the presentation of hedge results. This ASU is effective for interim and annual reporting periods beginning
after December 15, 2018, and early adoption is permitted. The Company adopted the provisions of ASU 2017-12 in the fourth
quarter of 2018. The adoption did not result in a material impact to our financial results. See Note 13 - Fair Value Measurements
for further detail.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”). Topic 606
supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and requires entities to recognize revenue
when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which
the entity expects to be entitled to in exchange for those goods or services. The Company adopted Topic 606 as of January 1,
2018 using the modified retrospective transition method. The adoption did not result in a cumulative effect adjustment to
beginning retained earnings. Comparative information has not been restated and continues to be reported under the accounting
standards in effect for those periods. See Note 3 - Revenue for further detail.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which
amends ASC 230, Statement of Cash Flows. This ASU provides guidance on the statement of cash flows presentation of certain
transactions where diversity in practice exists. This ASU is effective for annual and interim periods beginning after December
15, 2017, and should be applied retrospectively with early adoption permitted at the beginning of an interim or annual reporting
period. The Company adopted this ASU effective January 1, 2018, with retrospective disclosure. As a result, the Company
reclassified $2.4 million and $1.7 million of cash outflows from financing activities to cash outflows from operations for the
years ended December 31, 2017 and 2016, respectively.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which
amended ASC 718, Compensation - Stock Compensation. This ASU simplifies several aspects of the accounting for share-based
payment transactions, including income tax consequences, the classification of awards as either equity or liabilities, and the
classification on the statement of cash flows. Under the new standard, all excess tax benefits and tax deficiencies are recorded
as a component of the provision for income taxes in the reporting period in which they occur. Additionally, ASU 2016-09
requires that the Company present excess tax benefits on its Consolidated Statement of Cash Flows as an operating activity. The
Company adopted ASU 2016-09 in the first quarter of 2017 and elected to apply this adoption prospectively. Prior periods were
not adjusted. The adoption of the ASU resulted in the recognition of excess tax benefits in the provision for income taxes within
the Consolidated Financial Statements of $8.4 million for the year ended December 31, 2017. Additionally, the Consolidated
Statements of Cash Flows now present excess tax benefits as an operating activity, adjusted prospectively. Finally, the Company
elected to continue to estimate forfeitures based on historical data and recognizes forfeiture compensation expense over the
vesting period of the award.
3.
REVENUE
The Company recognizes revenue when performance obligations under the terms of contracts with customers are
satisfied, which occurs with the transfer of control of the Company’s products. Revenue is measured as the amount of
consideration the Company expects to receive in exchange for transferring its products to its customers. Sales, value added and
other taxes collected concurrent with revenue-producing activities are excluded from revenue. Incidental items, such as training,
customer service, instruction manuals and service requirements, are generally immaterial in the context of the contract and are
recognized as expense.
For the majority of product sales, the Company transfers control and recognizes revenue when it ships the product
from its facility to its customer. The amount of consideration the Company receives and the revenue recognized varies with
sales discounts, volume rebate programs and indexed material pricing. When the Company offers customers retrospective
volume rebates, it estimates the expected rebates based on an analysis of historical experience. The Company adjusts its
estimate of revenue related to volume rebates at the earlier of when the most likely amount of consideration expected to be
received changes or when the consideration becomes fixed. When the Company offers customers prompt pay sales discounts or
agrees to variable pricing based on material indices, it estimates the expected discounts or pricing adjustments based on an
analysis of historical experience. The Company adjusts its estimate of revenue related to sales discounts and indexed material
pricing to the expected value of the consideration to which the Company will be entitled. The Company includes the variable
51
consideration in the transaction price to the extent that it is probable that a significant reversal of cumulative revenue will not
occur when the volume, discount or indexed material price uncertainties are resolved.
The Company has elected to recognize shipping and handling costs as fulfillment costs when control over products has
transferred to the customer, and records the expense within selling, general and administrative expenses.
See Note 14 - Segment Reporting for the Company’s disclosures of disaggregated revenue.
4.
ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
Acquisitions in 2018
Smoker Craft Furniture
In November 2018, the Company acquired the business and certain assets of the furniture manufacturing operation of
Smoker Craft Inc., (“Smoker Craft”), a leading pontoon, aluminum fishing, and fiberglass boat manufacturer located in New
Paris, Indiana. The purchase price was $28.1 million paid at closing. The results of the acquired business have been included
primarily in the Company’s OEM Segment and in the Consolidated Statements of Income since the acquisition date. The
Company is validating account balances and finalizing the valuation for the acquisition. The acquisition of this business was
preliminarily recorded on the acquisition date as follows (in thousands):
Cash consideration
Customer relationship and other identifiable intangible assets
Net tangible assets
Total fair value of net assets acquired
Goodwill (tax deductible)
$
$
$
$
28,091
18,540
1,357
19,897
8,194
The customer relationship intangible asset is being amortized over its estimated useful life of 15 years. The
consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company
anticipates the attainment of synergies and an increase in the markets for the acquired products.
ST.LA. S.r.l.
In June 2018, the Company acquired 100 percent of the equity interests of ST.LA. S.r.l., (“STLA”), a manufacturer of
bed lifts and other RV components for the European caravan market, headquartered in Pontedera, Italy. The purchase price was
$14.8 million, net of cash acquired, paid at closing, and is subject to potential post-closing adjustments related to net working
capital. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the
Consolidated Statements of Income since the acquisition date. The Company is validating account balances and finalizing the
valuation for the acquisition. The acquisition of this business was preliminarily recorded on the acquisition date as follows (in
thousands):
Cash consideration, net of cash acquired
Customer relationships and other identifiable intangible assets
Net tangible assets
Total fair value of net assets acquired
Goodwill (not tax deductible)
$
$
$
$
14,845
7,000
296
7,296
7,549
52
The customer relationships intangible asset is being amortized over its estimated useful life of 15 years. The
consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company
anticipates the attainment of synergies and an increase in the markets for the acquired products.
Hehr
In February 2018, the Company acquired substantially all of the business assets of Hehr International Inc., (“Hehr”), a
manufacturer of windows and tempered and laminated glass for the RV, transit, specialty vehicle, and other adjacent industries,
headquartered in Los Angeles, California. The purchase price was $51.5 million paid at closing. The results of the acquired
business have been included primarily in the Company’s OEM Segment and in the Consolidated Statements of Income since the
acquisition date. The allocation of the purchase price was as follows (in thousands):
Cash consideration
Customer relationships and other identifiable intangible assets
Net tangible assets
Total fair value of net assets acquired
Goodwill (tax deductible)
$
$
$
$
51,460
21,500
11,990
33,490
17,970
The customer relationships intangible asset is being amortized over its estimated useful life of 13 years. The
consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company
anticipates the attainment of synergies and an increase in the markets for the acquired products.
Taylor Made
In January 2018, the Company acquired 100 percent of the equity interests of Taylor Made Group, LLC, (“Taylor
Made”), a marine supplier to boat builders and the aftermarket, as well as a key supplier to a host of other industrial end
markets, headquartered in Gloversville, New York. The purchase price was $90.4 million, net of cash acquired, paid at closing.
The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Consolidated
Statements of Income since the acquisition date. The allocation of the purchase price was as follows (in thousands):
Cash consideration, net of cash acquired
Customer relationships
Trade name
Other identifiable intangible assets
Net tangible assets
Total fair value of net assets acquired
Goodwill (tax deductible)
$
$
$
$
90,396
10,900
7,600
4,200
45,342
68,042
22,354
The customer relationships intangible asset is being amortized over its estimated useful life of 15 years. The trade
name intangible asset was determined to have an indefinite life and is not amortized, but will be evaluated annually for
impairment. The consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because
the Company anticipates the attainment of synergies and an increase in the markets for the acquired products.
53
Acquisitions in 2017
Metallarte S.r.l.
In June 2017, the Company acquired 100 percent of the equity interests of Metallarte S.r.l., (“Metallarte”), a
manufacturer of entry and compartment doors for the European caravan market located near Siena, Italy, and its subsidiary, RV
Doors, S.r.l., a manufacturer of driver-side doors located near Venice, Italy. The purchase price was $14.1 million paid at
closing, plus contingent consideration based on future sales by this operation. The results of the acquired business have been
included primarily in the Company’s OEM Segment and in the Consolidated Statements of Income since the acquisition date.
The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration, net of cash acquired
Contingent consideration
Total fair value of consideration given
Customer relationships
Other identifiable intangible assets
Net other liabilities
Total fair value of net assets acquired
Goodwill (not tax deductible)
$
$
$
$
$
13,501
2,366
15,867
7,311
1,942
(327)
8,926
6,941
The customer relationships intangible asset is being amortized over its estimated useful life of 15 years. The
consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company
anticipates the attainment of synergies and an increase in the markets for the acquired products.
Lexington
In May 2017, the Company acquired the business and certain assets of Lexington LLC, (“Lexington”), a manufacturer
of high quality seating solutions for the marine, RV, transportation, medical and office furniture industries located in Elkhart,
Indiana. The purchase price was $40.1 million paid at closing. The results of the acquired business have been included primarily
in the Company’s OEM Segment and in the Consolidated Statements of Income since the acquisition date. The acquisition of
this business was recorded on the acquisition date as follows (in thousands):
Cash consideration
Customer relationships
Other identifiable intangible assets
Net tangible assets
Total fair value of net assets acquired
Goodwill (tax deductible)
$
$
$
$
40,062
16,900
1,820
4,928
23,648
16,414
The customer relationships intangible asset is being amortized over its estimated useful life of 15 years. The
consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company
anticipates the attainment of synergies and an increase in the markets for the acquired products.
SessaKlein S.p.A.
In February 2017, the Company acquired 100 percent of the outstanding shares of SessaKlein S.p.A., (“SessaKlein”), a
manufacturer of highly engineered side window systems for both high speed and commuter trains, located near Varese, Italy.
The purchase price was $6.5 million paid at closing, net of cash acquired, plus contingent consideration based on future sales by
this operation. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the
54
Consolidated Statements of Income since the acquisition date. The acquisition of this business was recorded on the acquisition
date as follows (in thousands):
Cash consideration, net of cash acquired
Contingent consideration
Total fair value of consideration given
Identifiable intangible assets
Net tangible assets
Total fair value of net assets acquired
Goodwill (not tax deductible)
Acquisitions in 2016
Camping Connection
$
$
$
$
$
6,502
3,838
10,340
2,286
364
2,650
7,690
In November 2016, the Company acquired the service centers and related business of Camping Connection, Inc., an
RV repair and service provider located in Myrtle Beach, South Carolina and Kissimmee, Florida. The purchase price was $2.0
million paid at closing.
Atwood Seating and Chassis Components
In November 2016, the Company acquired the business, manufacturing facility and certain assets of the seating and
chassis components business of Atwood Mobile Products, LLC, (“Atwood”), a subsidiary of Dometic Group, located in
Elkhart, Indiana. The purchase price was $12.5 million paid at closing. The results of the acquired business have been included
primarily in the Company’s OEM Segment and in the Consolidated Statements of Income since the acquisition date. The
acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration
Customer relationships
Net other assets
Total fair value of net assets acquired
$
$
$
12,463
1,500
10,915
12,415
The customer relationships intangible asset is being amortized over its estimated useful life of 15 years.
Project 2000 S.r.l.
In May 2016, the Company acquired 100 percent of the equity interest of Project 2000 S.r.l., (“Project 2000”), a
manufacturer of innovative, space-saving bed lifts and retractable steps, located near Florence, Italy. The purchase price was
$18.8 million paid at closing, plus contingent consideration based on future sales by this operation. The results of the acquired
business have been included primarily in the Company’s OEM Segment and in the Consolidated Statements of Income since the
acquisition date.
55
The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration, net of cash acquired
Contingent consideration
Total fair value of consideration given
Customer relationships
Other identifiable intangible assets
Net other liabilities
Total fair value of net assets acquired
Goodwill (not tax deductible)
$
$
$
$
$
16,618
1,322
17,940
9,696
6,141
(3,482)
12,355
5,585
The customer relationships intangible asset is being amortized over its estimated useful life of 15 years. The
consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company
anticipates the attainment of synergies and an increase in the markets for the acquired products.
Flair Interiors
In February 2016,
the Company acquired the business and certain assets of Flair Interiors, Inc., (“Flair”), a
manufacturer of RV furniture located in Goshen, Indiana. The purchase price was $8.1 million paid at closing. The results of the
acquired business have been included primarily in the Company’s OEM Segment and in the Consolidated Statements of Income
since the acquisition date. The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration
Customer relationships
Net other assets
Total fair value of net assets acquired
Goodwill (tax deductible)
$
$
$
$
8,100
3,700
2,378
6,078
2,022
The customer relationships intangible asset is being amortized over its estimated useful life of 15 years. The
consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company
anticipates the attainment of synergies and an increase in the markets for the acquired products.
Highwater Marine Furniture
In January 2016, the Company acquired the business and certain assets of the pontoon furniture manufacturing
operation of Highwater Marine, LLC, (“Highwater”), a leading manufacturer of pontoon and other recreational boats located in
Elkhart, Indiana. The purchase price was $10.0 million paid at closing. The results of the acquired business have been included
primarily in the Company’s OEM Segment and in the Consolidated Statements of Income since the acquisition date. The
acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration
Customer relationship
Net tangible assets
Total fair value of net assets acquired
Goodwill (tax deductible)
56
$
$
$
$
10,000
8,100
1,307
9,407
593
The customer relationship intangible asset is being amortized over its estimated useful life of 15 years. The
consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company
anticipates leveraging its existing experience and manufacturing capacity with respect to these product lines.
Goodwill
Changes in the carrying amount of goodwill by reportable segment were as follows:
(In thousands)
Net balance – December 31, 2016
Acquisitions – 2017
Other
Net balance – December 31, 2017
Acquisitions – 2018
Other
OEM
Segment
Aftermarket
Segment
$
74,663
29,772
5,206
109,641
50,698
(82)
$
14,535
$
—
7
14,542
5,369
—
Total
89,198
29,772
5,213
124,183
56,067
(82)
Net balance – December 31, 2018
$
160,257
$
19,911
$
180,168
The Company performed its annual goodwill impairment procedures for all of its reporting units as of November 30,
2018, 2017 and 2016, and concluded no goodwill impairment existed at that time. The Company plans to update its assessment
as of November 30, 2019, or sooner if events occur or circumstances change that could more likely than not reduce the fair
value of a reporting unit below its carrying value. In conjunction with the Company’s change in reportable segments during the
second quarter of 2016, goodwill was reassigned to reporting units using a relative fair value allocation. In addition, the
Company completed an assessment of any potential goodwill impairment for all reporting units immediately prior to the
reallocation and determined that no impairment existed. The goodwill balance as of each of December 31, 2018, 2017 and 2016
included $50.5 million of accumulated impairment, which occurred prior to December 31, 2016.
Any change in the goodwill amounts resulting from foreign currency translations and purchase accounting adjustments
are presented as “Other” in the above table.
Other Intangible Assets
Other intangible assets, by segment, at December 31 were as follows:
(In thousands)
OEM Segment
Aftermarket Segment
Other intangible assets
2018
2017
$
$
159,803
16,539
176,342
$
$
116,648
13,484
130,132
Other intangible assets consisted of the following at December 31, 2018:
(In thousands)
Customer relationships
Patents
Trade names (finite life)
Trade names (indefinite life)
Non-compete agreements
Other
Purchased research and development
Gross
Cost
Accumulated
Amortization
Net
Balance
$
191,919
$
58,787
10,885
7,600
6,919
309
4,687
54,889
40,079
5,507
—
4,148
141
—
$
137,030
18,708
5,378
7,600
2,771
168
4,687
Estimated
Useful
Life in Years
6 to 16
3 to 19
3 to 15
Indefinite
3 to 6
2 to 12
Indefinite
Other intangible assets
$
281,106
$
104,764
$
176,342
57
The Company performed its annual intangible asset and other long-lived asset impairment procedures for all of its
reporting units as of November 30, 2018, 2017 and 2016, and concluded no intangible asset and other long-lived asset
impairment existed at that time.
Other intangible assets consisted of the following at December 31, 2017:
(In thousands)
Customer relationships
Patents
Trade names
Non-compete agreements
Other
Purchased research and development
Gross
Cost
Accumulated
Amortization
Net
Balance
$
138,687
$
57,576
10,995
8,536
309
4,687
$
42,276
38,764
5,381
4,128
109
—
96,411
18,812
5,614
4,408
200
4,687
Estimated
Useful
Life in Years
6 to 16
3 to 19
3 to 15
3 to 6
2 to 12
Indefinite
Other intangible assets
$
220,790
$
90,658
$
130,132
Amortization expense related to other intangible assets was as follows for the years ended December 31:
(In thousands)
Cost of sales
Selling, general and administrative
Amortization expense
2018
2017
2016
$
$
5,350
15,912
21,262
$
$
5,631
13,942
19,573
$
$
$
$
5,967
11,791
17,758
2023
1,300
14,300
15,600
Estimated amortization expense for other intangible assets for the next five years is as follows:
(In thousands)
Cost of sales
Selling, general and administrative
Amortization expense
5.
INVENTORIES
2019
2020
2021
2022
$
$
4,600
17,000
21,600
$
$
3,200
16,000
19,200
$
$
2,300
15,400
17,700
$
$
1,700
15,000
16,700
Inventories consisted of the following at December 31:
(In thousands)
Raw materials
Work in process
Finished goods
Inventories, net
2018
2017
$
$
284,467
12,291
43,857
340,615
$
$
233,187
10,408
31,153
274,748
58
6.
FIXED ASSETS
Fixed assets consisted of the following at December 31:
(In thousands)
Land
Buildings and improvements
Leasehold improvements
Machinery and equipment
Furniture and fixtures
Construction in progress
Fixed assets, at cost
Less accumulated depreciation and amortization
Fixed assets, net
$
2018
2017
$
22,962
$
159,805
16,132
251,995
51,893
56,447
559,234
236,358
322,876
$
19,176
118,555
12,707
201,081
39,047
33,490
424,056
195,106
228,950
Estimated
Useful Life
in Years
10 to 40
3 to 10
3 to 15
3 to 8
Depreciation and amortization of fixed assets was as follows for the years ended December 31:
(In thousands)
Cost of sales
Selling, general and administrative expenses
Total
2018
2017
2016
$
$
35,656
10,608
46,264
$
$
27,042
7,798
34,840
$
$
22,993
5,140
28,133
7.
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following at December 31:
(In thousands)
Employee compensation and benefits
Current portion of accrued warranty
Customer rebates
Other
Accrued expenses and other current liabilities
2018
2017
33,835
32,180
6,193
27,020
99,228
$
39,365
23,055
11,124
29,305
$
102,849
$
$
Estimated costs related to product warranties are accrued at the time products are sold. In estimating its future warranty
obligations, the Company considers various factors, including the Company’s historical warranty costs, current trends, product
mix, and sales.
The following table provides a reconciliation of the activity related to the Company’s accrued warranty, including both
the current and long-term portions, for the years ended December 31:
(In thousands)
Balance at beginning of period
Provision for warranty expense
Warranty liability from acquired businesses
Warranty costs paid
Balance at end of period
Less long-term portion
Current portion of accrued warranty at end of period
2018
2017
2016
$
$
38,502
31,819
760
(24,551)
46,530
14,350
32,180
$
$
32,393
25,399
150
(19,440)
38,502
15,447
23,055
$
$
26,204
20,985
125
(14,921)
32,393
12,000
20,393
59
8.
RETIREMENT AND OTHER BENEFIT PLANS
Defined Contribution Plan
The Company maintains a discretionary defined contribution 401(k) profit sharing plan covering all eligible
employees. The Company contributed $6.8 million, $4.2 million and $3.1 million to this plan during the years ended
December 31, 2018, 2017 and 2016, respectively.
Deferred Compensation Plan
The Company has an Executive Non-Qualified Deferred Compensation Plan (the “Plan”). Pursuant to the Plan, certain
management employees are eligible to defer all or a portion of their regular salary and incentive compensation. Participants
deferred $6.9 million, $4.9 million and $2.3 million during the years ended December 31, 2018, 2017 and 2016, respectively.
The amounts deferred under this Plan are credited with earnings or losses based upon changes in values of the notional
investments elected by the Plan participants. Each Plan participant is fully vested in their deferred compensation and earnings
credited to his or her account as all contributions to the Plan are made by the participant. The Company is responsible for
certain costs of Plan administration, which are not significant, and will not make any contributions to the Plan. Pursuant to the
Plan, payments to the Plan participants are made from the general unrestricted assets of the Company, and the Company’s
obligations pursuant to the Plan are unfunded and unsecured. Participants withdrew $0.2 million, $0.2 million and $1.5 million
from the Plan during the years ended December 31, 2018, 2017 and 2016, respectively. At December 31, 2018 and 2017,
deferred compensation of $25.9 million and $20.7 million, respectively, was recorded in other long-term liabilities, and deferred
compensation of $0.4 million and $0.2 million, respectively, was recorded in accrued expenses and other current liabilities. The
Company invests approximately 85 percent of the amounts deferred by the Plan participants in life insurance contracts,
matching the investments elected by the Plan participants. Deferred compensation assets and liabilities are recorded at contract
value. At December 31, 2018 and 2017, life insurance contract assets of $22.2 million and $18.2 million, respectively, were
recorded in other assets.
9.
LONG-TERM INDEBTEDNESS
Long-term debt consisted of the following at December 31:
(In thousands)
Revolving Credit Facility
Shelf-Loan Facility
Other (1)
Unamortized deferred financing fees
Less current portion
Long-term debt
2018
2017
$
240,060
$
50,000
4,425
(361)
294,124
(596)
$
293,528
$
—
50,000
—
(76)
49,924
—
49,924
(1) Mortgage loan originating at the Metallarte location.
On December 14, 2018, the Company refinanced its credit agreement with JPMorgan Chase, N.A., Wells Fargo Bank,
N.A., Bank of America, N.A., and other bank lenders (the “Amended Credit Agreement”). The Amended Credit Agreement
amended and restated an existing credit agreement dated April 27, 2016 and now expires on December 14, 2023.
The Amended Credit Agreement increased the revolving credit facility from $325.0 million to $600.0 million, and
permits the Company to borrow up to $250.0 million in approved foreign currencies, including Australian dollars, Canadian
dollars, pounds sterling and euros. The maximum borrowings under the credit facility may be further increased by $300.0
million in additional revolving loans or incremental term loans, subject to the consent of the lenders providing such incremental
facilities and certain other conditions. Interest on borrowings under the revolving credit facility is designated from time to time
by the Company as either (i) the Alternate Base Rate (defined in the Amended Credit Agreement as the greatest of (a) the Prime
Rate of JPMorgan Chase Bank, N.A., (b) the federal funds effective rate plus 0.5 percent and (c) the Adjusted LIBO Rate (as
defined in the Amended Credit Agreement) for a one month interest period plus 1.0 percent), plus additional interest ranging
from 0.0 percent to 0.625 percent (0.0 percent at December 31, 2018) depending on the Company’s total net leverage ratio, or
(ii) the Adjusted LIBO Rate for a period equal to one, two, three, six or twelve months (with the consent of each lender) as
(0.875 percent at
selected by the Company, plus additional
ranging from 0.875 percent
to 1.625 percent
interest
60
December 31, 2018) depending on the Company’s total net leverage ratio. At December 31, 2018 and 2017, the Company had
$2.2 million and $2.4 million, respectively, in issued, but undrawn, standby letters of credit under the revolving credit facility.
Availability under the Company’s revolving credit facility was $357.7 million at December 31, 2018.
On February 24, 2014, the Company entered into a $150.0 million shelf-loan facility (the “Shelf-Loan Facility”) with
Prudential Investment Management, Inc. and its affiliates (“Prudential”). On March 20, 2015, the Company issued $50.0
million of Senior Promissory Notes (“Series A Notes”) to Prudential for a term of five years, at a fixed interest rate of 3.35
percent per annum, payable quarterly in arrears, of which the entire amount was outstanding at December 31, 2018. At
December 31, 2018, the fair value of the Company’s long-term debt approximates the carrying value, as estimated using quoted
market prices and discounted future cash flows based on similar borrowing arrangements.
On March 30, 2017, the Company amended its Shelf-Loan Facility to extend the term through March 30, 2020. In
connection with this amendment, the facility provides for Prudential to consider purchasing, at the Company’s request, in one or
a series of transactions, Senior Promissory Notes of the Company in the aggregate principal amount of up to $150.0 million
(excluding the Company’s Series A Notes already outstanding). Prudential has no obligation to purchase the Senior Promissory
Notes. Interest payable on the Senior Promissory Notes will be at rates determined by Prudential within five business days after
the Company issues a request to Prudential.
Borrowings under both the Amended Credit Agreement and the Shelf-Loan Facility are secured on a pari-passu basis
by first priority liens on the capital stock or other equity interests of the Company’s direct and indirect subsidiaries (including
up to 65 percent of the equity interest of certain “controlled foreign corporations”).
Pursuant to the Amended Credit Agreement and Shelf-Loan Facility, the Company shall not permit its net leverage
ratio to exceed certain limits, shall maintain minimum debt service coverage ratio and must meet certain other financial
requirements. At December 31, 2018 and 2017, the Company was in compliance with all such requirements, and expects to
remain in compliance for the next twelve months.
Availability under the Amended Credit Agreement and the Shelf-Loan Facility is subject to a maximum net leverage
ratio covenant which limits the amount of consolidated outstanding indebtedness on a trailing twelve-month EBITDA, as
defined. This limitation did not impact the Company’s borrowing availability at December 31, 2018. The remaining availability
under these facilities was $507.7 million at December 31, 2018. The Company believes the availability under the Amended
Credit Agreement and Shelf-Loan Facility is adequate to finance the Company’s anticipated cash requirements for the next
twelve months.
10.
INCOME TAXES
The components of earnings before income taxes consisted of the following for the years ended December 31:
(In thousands)
United States
Foreign
Total earnings before income taxes
2018
2017
$
$
191,095
1,257
192,352
$
$
213,967
(1,123)
212,844
$
$
2016
196,827
2,345
199,172
61
The provision for income taxes in the Consolidated Statements of Income was as follows for the years ended
December 31:
(In thousands)
Current:
Federal
State and local
Foreign
Total current provision
Deferred:
Federal
State and local
Foreign
Total deferred provision
Provision for income taxes
2018
2017
2016
$
$
22,297
6,416
1,214
29,927
12,478
1,639
(243)
13,874
43,801
$
$
62,274
10,720
158
73,152
7,614
(806)
—
6,808
79,960
$
$
61,073
10,560
466
72,099
(2,506)
(110)
18
(2,598)
69,501
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was signed into law making significant changes to the
Internal Revenue Code (“IRC”). The TCJA changes included a reduction of the corporate income tax rate from 35 percent to 21
percent effective for tax years beginning after December 31, 2017, a provision that allows for full expensing of certain qualified
property, repeal of the manufacturing deduction, and further limitations on the deductibility of certain executive compensation.
The TCJA contains other provisions that are not expected to materially affect the Company, including a one-time transition tax
on certain unrepatriated earnings of foreign subsidiaries, limitations on the deductibility of interest expense, and the creation of
U.S. tax base erosion provisions.
Following the enactment of the TCJA, the Securities and Exchange Commission issued Staff Accounting Bulletin No.
118 (“SAB 118”) to provide guidance on the accounting and reporting impacts of the TCJA. For the year ended December 31,
2018, the Company finalized its tax accounting for the TCJA and pursuant to SAB 118 recorded a one-time non-cash charge of
$0.6 million related to adjustments to deferred tax amounts provisionally recorded in the prior year. During the year ended
December 31, 2017, the Company recorded a provisional one-time non-cash charge of $13.2 million related to the enactment of
the TCJA, which resulted from the re-measurement of certain deferred tax assets using the lower U.S. corporate income tax
rate.
The Company has historically reinvested all unremitted earnings of our foreign subsidiaries and affiliates, and
therefore has not recognized any U.S. deferred tax liability on those earnings. The Company’s intent is to permanently reinvest
these funds outside of the U.S.
The provision for income taxes differs from the amount computed by applying the federal statutory rate of 21 percent
for 2018 and 35 percent for 2017 and 2016 to income before income taxes for the following reasons for the years ended
December 31:
(In thousands)
Income tax at federal statutory rate
State income tax, net of federal income tax impact
Foreign tax rate differential
Section 162(m) permanent addback
Domestic production deduction
Share-based payment compensation excess tax benefit
Federal tax credits
Changes in tax law (TCJA)
Other
Provision for income taxes
2018
2017
2016
$
$
40,394
6,261
(598)
894
—
(2,914)
(1,876)
612
1,028
43,801
$
$
74,495
6,011
(322)
—
(5,511)
(7683)
(1,110)
13,210
870
79,960
$
$
69,710
6,480
(614)
—
(5,067)
—
(1736)
—
728
69,501
At December 31, 2018, the Company had domestic federal income taxes receivable of $10.2 million, domestic state
income taxes receivable of $0.4 million, and foreign taxes payable of $0.6 million recorded. At December 31, 2017, the
Company had domestic federal income taxes payable of $2.3 million, domestic state income taxes payable of $1.7 million, and
foreign taxes receivable of $0.5 million recorded.
62
Deferred Income Tax Assets and Liabilities and Valuation Allowances
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax
liabilities were as follows at December 31:
(In thousands)
Deferred tax assets:
Goodwill and other intangible assets
Stock-based compensation
Deferred compensation
Warranty
Inventory
Other - domestic
Net operating loss and interest carryforwards - foreign
Total deferred tax assets before valuation allowance
Less: Valuation allowance - foreign
Total deferred tax assets net of valuation allowance
Deferred tax liabilities:
Fixed assets
Net deferred tax assets
$
2018
2017
$
3,854
2,956
6,710
10,931
6,375
4,276
1,467
36,569
(1,261)
35,308
5,773
7,607
5,387
9,282
5,591
2,966
12
36,618
—
36,618
(24,360)
10,948
$
(12,462)
24,156
$
At December 31, 2018 and 2017, the Company had foreign deferred tax liabilities of $8.5 million and $7.8 million,
respectively, related to goodwill and other intangible assets included in other long-term liabilities on the Consolidated Balance
Sheets.
As of December 31, 2018, the Company had deferred tax assets recorded related to foreign net operating loss
carryforwards of $1.3 million. All of the deferred tax assets at December 31, 2018 related to net operating loss carryforwards
have indefinite lives. Based upon historical results and indefinite future operating results, a valuation allowance has been
established in the amount of $1.3 million at December 31, 2018.
As of December 31, 2017, the Company had a valuation allowance recorded against other Italian deferred tax assets of
$0.8 million. The decrease in the valuation allowance relates to the full release of the $0.8 million booked against the Italian
deferred tax assets at December 31, 2017.
The Company has concluded it is more likely than not it will realize the benefit of all other existing deferred tax assets,
net of the valuation allowances mentioned above.
Unrecognized Tax Benefits
The following table reconciles the total amounts of unrecognized tax benefits, at December 31:
(In thousands)
Balance at beginning of period
Changes in tax positions of prior years
Additions based on tax positions related to the current year
Payments
Closure of tax years
Balance at end of period
2018
2017
2016
4,145
114
802
—
(736)
4,325
$
$
3,747
(174)
1,255
(211)
(472)
4,145
$
$
2,854
214
1,252
—
(573)
3,747
$
$
In addition, the total amount of accrued interest and penalties related to taxes, recognized as a liability, was $0.2
million, $0.2 million and $0.2 million at December 31, 2018, 2017 and 2016, respectively.
The total amount of unrecognized tax benefits, net of federal income tax benefits, of $3.9 million, $3.7 million and
$2.9 million at December 31, 2018, 2017 and 2016, respectively, would, if recognized, increase the Company’s earnings, and
lower the Company’s annual effective tax rate in the year of recognition.
63
The Company is subject to taxation in the United States and various states and foreign jurisdictions. In the normal
course of business, the Company is subject to examinations by taxing authorities in these jurisdictions. For U.S. federal and
state income tax purposes, tax years 2017, 2016 and 2015 remain subject to examination.
The Company has assessed its risks associated with all tax return positions, and believes its tax reserve estimates
reflect its best estimate of the deductions and positions it will be able to sustain, or it may be willing to concede as part of a
settlement. At this time, the Company does not anticipate any change in its tax reserves in the next twelve months. The
Company will continue to monitor the progress and conclusion of all audits and will adjust its estimated liability as necessary.
11.
COMMITMENTS AND CONTINGENCIES
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 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, 2018 are as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
$
$
18,807
15,113
12,449
9,113
6,627
23,894
86,003
Rent expense for operating leases was $24.2 million, $15.2 million and $11.5 million for the years ended
December 31, 2018, 2017 and 2016, respectively.
Contingent Consideration
In connection with several business acquisitions, if certain sales targets for the acquired products are achieved, the
Company would pay additional cash consideration. The Company has recorded a liability for the fair value of this contingent
consideration at December 31, 2018 and 2017, based on the present value of the expected future cash flows using a market
participant’s weighted average cost of capital of 12.1 percent and 13.6 percent, respectively.
As required, the liability for this contingent consideration is measured at fair value quarterly, considering actual sales
of the acquired products, updated sales projections, and the updated market participant weighted average cost of capital.
Depending upon the weighted average costs of capital and future sales of the products which are subject to contingent
consideration, the Company could record adjustments in future periods.
64
The following table provides a reconciliation of the Company’s contingent consideration liability for the years ended
December 31:
(In thousands)
Balance at beginning of period
Acquisitions
Payments
Accretion (a)
Fair value adjustments (a) (b)
Net foreign currency translation adjustment
Balance at end of the period (c)
Less current portion in accrued expenses and other current liabilities
2018
2017
2016
$
12,545
$
43
(4,803)
951
(944)
(490)
7,302
(17)
$
9,241
7,288
(7,682)
1,652
1,257
789
12,545
(4,658)
10,840
1,322
(4,944)
1,274
749
—
9,241
(5,829)
3,412
Total long-term portion in other long-term liabilities
$
7,285
$
7,887
$
a. Recorded in selling, general and administrative expenses in the Consolidated Statements of Income.
Includes adjustments to assumptions on weighted average cost of capital and relevant sales projections.
b.
c. Amounts represent the fair value of estimated remaining payments. The total estimated remaining undiscounted
payments as of December 31, 2018 were $9.1 million. The liability for contingent consideration expires at various
dates through September 2029. Certain of the contingent consideration arrangements are subject to a maximum
payment amount, while the remaining arrangements have no maximum contingent consideration.
Furrion Distribution and Supply Agreement
In July 2015, the Company entered into a six-year exclusive distribution and supply agreement with Furrion Limited
(“Furrion”), a Hong Kong based firm that designs, engineers and supplies premium electronics. This agreement provides the
Company with the rights to distribute Furrion’s complete line of products to OEMs and aftermarket customers in the RV,
specialty vehicle, utility trailer, horse trailer, marine, transit bus and school bus industries throughout the United States and
Canada. Furrion currently supplies a premium line of televisions, sound systems, navigation systems, wireless backup cameras,
solar prep units, power solutions and kitchen appliances, primarily to the RV industry.
In connection with this agreement, the Company entered into minimum purchase obligations (“MPOs”), which Furrion
and the Company agreed to review after the first year on an annual basis and adjust as necessary based upon current economic
and industry conditions, the development and customer acceptance of new Furrion products, competition and other factors
which impact demand for Furrion products.
Subject to agreed upon revisions to the MPOs, Furrion has the right to either terminate the distribution agreement with
six months’ notice or remove exclusivity from the Company if the Company misses an MPO in any given year by more than ten
percent, after taking into account excess purchases from the previous year. If exclusivity is withdrawn, the Company at its
election may terminate the distribution agreement with six months’ notice. Upon termination of the agreement, Furrion has
agreed to purchase from the Company any non-obsolete stocks of Furrion products at the cost paid by the Company.
Product Recalls
From time to time, the Company cooperates with and assists its customers on their product recalls and inquiries, and
occasionally receives inquiries directly from the National Highway Traffic Safety Administration regarding reported incidents
involving the Company’s products. As a result, the Company has incurred expenses associated with product recalls from time to
time, and may incur expenditures for future investigations or product recalls.
Environmental
The Company’s operations are subject to certain Federal, state and local regulatory requirements relating to the use,
storage, discharge and disposal of hazardous materials used during the manufacturing processes. Although the Company
believes its operations have been consistent with prevailing industry standards, and are in substantial compliance with
applicable environmental laws and regulations, one or more of the Company’s current or former operating sites, or adjacent
65
sites owned by third-parties, have been affected, and may in the future be affected, by releases of hazardous materials. As a
result, the Company may incur expenditures for future investigation and remediation of these sites, including in conjunction
with voluntary remediation programs or third-party claims.
Litigation
In the normal course of business, the Company is subject to proceedings, lawsuits, regulatory agency inquiries and
other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these
matters could materially affect operating results when resolved in future periods, management believes that, after final
disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the
Company beyond that provided in the Consolidated Balance Sheet as of December 31, 2018, would not be material to the
Company’s financial position or annual results of operations.
12.
STOCKHOLDERS’ EQUITY
Dividends
In 2016, the Company initiated the payment of regular quarterly dividends. The table below summarizes the regular
quarterly dividends declared and paid during the years ended December 31, 2018, 2017, and 2016:
(In thousands, except per share data)
Per Share
Record Date
Payment Date
Total Paid
First Quarter 2016
Second Quarter 2016
Third Quarter 2016
Fourth Quarter 2016
Total 2016
First Quarter 2017
Second Quarter 2017
Third Quarter 2017
Fourth Quarter 2017
Total 2017
First Quarter 2018
Second Quarter 2018
Third Quarter 2018
Fourth Quarter 2018
Total 2018
Stock-Based Awards
$
$
$
$
$
$
0.30
0.30
0.30
0.50
1.40
0.50
0.50
0.50
0.55
2.05
0.55
0.60
0.60
0.60
2.35
04/01/16
06/06/16
08/19/16
11/28/16
03/06/17
05/19/17
08/18/17
11/17/17
03/16/18
06/04/18
08/31/18
11/26/18
04/15/16
06/17/16
09/02/16
12/09/16
03/17/17
06/02/17
09/01/17
12/01/17
03/29/18
06/15/18
09/14/18
12/07/18
$
$
$
$
$
$
7,344
7,363
7,371
12,359
34,437
12,442
12,445
12,459
13,711
51,057
13,858
15,127
15,129
15,156
59,270
Prior to stockholder approval of the LCI Industries 2018 Omnibus Incentive Plan (the “2018 Plan) in May 2018, the
Company granted to its directors, employees, and other eligible persons common stock-based awards, such as stock options,
deferred and restricted stock units, restricted stock, and stock awards pursuant to the LCI Industries Equity Award and Incentive
Plan, as Amended and Restated (the “2011 Plan”), which was approved by stockholders in May 2011. On May 24, 2018, the
Company’s stockholders approved the 2018 Plan, which provides that the number of shares of common stock that may be the
subject of awards and issued under the 2018 Plan is 1,500,000, plus shares subject to any awards outstanding as of May 24,
2018 under the 2011 Plan that subsequently expire, are forfeited or canceled, are settled for cash, are not issued in shares, or are
tendered or withheld to pay the exercise price or satisfy any tax withholding obligations related to the award. Following the
stockholders’ approval of the 2018 Plan, no further awards may be made under the 2011 Plan. Executive officers and other
employees of the Company and its subsidiaries and affiliates, and independent directors, consultants, and others who provide
substantial services to the Company and its subsidiaries and affiliates, are eligible to be granted awards under the 2018 Plan.
Under the 2018 Plan, the Compensation Committee of LCII’s Board of Directors is authorized to grant stock options, stock
appreciation rights, restricted stock awards, stock unit awards, other stock-based awards, and cash incentive awards.
66
The number of shares available for future awards under the 2018 Plan and 2011 Plan, as applicable, was 1,570,274,
737,689 and 1,049,752 at December 31, 2018, 2017 and 2016, respectively.
Stock-based compensation resulted in charges to operations as follows for the years ended December 31:
(In thousands)
Stock options
Deferred and restricted stock units
Restricted stock
Stock awards
Stock-based compensation expense
2018
2017
2016
$
$
—
12,427
590
1,048
14,065
$
$
—
10,696
1,191
8,149
20,036
$
$
444
7,830
1,770
5,376
15,420
Stock-based compensation expense is recorded in the Consolidated Statements of Income in the same line as cash
compensation to those employees is recorded, primarily in selling, general and administrative expenses. In addition, the
Company issued deferred stock units to certain executive officers in lieu of cash for a portion of prior year incentive
compensation, in accordance with their compensation arrangements, of $6.9 million and $0.3 million, for the years ended
December 31, 2017 and 2016, respectively.
Stock Options
The 2018 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. The exercise price for stock options granted under the 2018 Plan must
be at least equal to 100 percent of the fair market value of the shares subject to such stock option on the date of grant. The
exercise price may be paid in cash, by withholding of shares otherwise issuable upon exercise, or by delivery of shares of the
Company’s common stock already owned. Historically, upon exercise of stock options, new shares have been issued instead of
using treasury shares.
No stock options were outstanding as of December 31, 2018 and 2017. Previously issued stock options expired six
years from the date of grant, and either vested ratably over the service period of five years for employees or, for certain
executive officers, based on achievement of specified performance conditions. As a result of the Company’s executive
succession and corporate relocation in 2014, the vesting of certain stock options was accelerated pursuant to contractual
obligations with certain employees whose employment terminated as a result of the relocation to Indiana. Transactions in stock
options under the 2011 Plan are summarized as follows:
Outstanding at December 31, 2015
Exercised
Forfeited
Outstanding at December 31, 2016
Exercised
Forfeited
Outstanding at December 31, 2017
Exercisable at December 31, 2017
Number of
Option Shares
212,030
(183,600)
(1,550)
26,880
(26,180)
(700)
—
—
Weighted
Average
Exercise Price
15.38
$
15.10
17.17
17.17
17.17
17.17
—
—
$
$
Additional information for the exercise of stock options is as follows for the years ended December 31:
(In thousands)
Intrinsic value of stock options exercised
Cash receipts from stock options exercised
Income tax benefits from stock option exercises
Grant date fair value of stock options vested
2017
2016
2,340
450
900
—
$
$
$
$
13,204
2,772
4,435
506
$
$
$
$
67
Deferred and Restricted Stock Units
The 2018 Plan provides for the grant or issuance of stock units, including those that have deferral periods, such as
deferred stock units (“DSUs”), those with time-based vesting provisions, such as restricted stock units (“RSUs”), and those to
directors, employees and other eligible persons. Recipients of DSUs and RSUs are entitled to receive shares at the end of a
specified vesting or deferral period. Holders of DSUs and RSUs receive dividend equivalents based on dividends granted to
holders of the common stock, which dividend equivalents are payable in additional DSUs and RSUs, and are subject to the
same vesting criteria as the original grant.
DSUs vest (i) ratably over the service period, (ii) at a specified future date, or (iii) for certain officers, based on
achievement of specified performance conditions. RSUs vest (i) ratably over the service period or (ii) at a specified future date.
As a result of the Company’s executive succession and corporate relocation, the vesting of certain deferred stock units was
accelerated pursuant to contractual obligations with certain employees whose employment terminated. In addition, DSUs are
issued in lieu of certain cash compensation. Transactions in DSUs and RSUs under the 2011 Plan or the 2018 Plan, as
applicable, are summarized as follows:
Outstanding at December 31, 2015
Issued
Granted
Dividend equivalents
Forfeited
Vested
Outstanding at December 31, 2016
Issued
Granted
Dividend equivalents
Forfeited
Vested
Outstanding at December 31, 2017
Issued
Granted
Dividend equivalents
Forfeited
Vested
Outstanding at December 31, 2018
Number of
Shares
527,513
10,742
173,097
9,075
(10,893)
(203,087)
506,447
68,340
95,079
9,799
(3,094)
(227,516)
449,055
5,354
101,650
8,036
(9,557)
(290,132)
264,406
$
Weighted
Average Price
44.94
$
72.01
54.67
87.01
48.98
43.55
50.00
108.61
109.50
104.12
72.96
40.39
72.55
106.10
103.20
89.66
76.71
74.83
83.84
$
$
As of December 31, 2018, there was $11.9 million of total unrecognized compensation cost related to DSUs and
RSUs, which is expected to be recognized over a weighted average remaining period of 1.2 years.
Restricted Stock
The 2011 Plan provided for, and the 2018 Plan provides for, the grant of restricted stock to directors, employees and
other eligible persons. As of December 31, 2018, no restricted stock awards had been granted under the 2018 Plan. The
restriction period is established by the Compensation Committee, but may not be less than one year. Holders of restricted stock
have all the rights of a stockholder of the Company, including the right to vote and the right to receive dividends granted to
holders of the common stock, payable in additional shares of restricted stock, and subject to the same vesting criteria as the
original grant. Shares of restricted stock are not transferable during the restriction period. Restricted stock grants, which were
all made to directors, were as follows (in thousands except share and per share amounts):
Granted
Weighted average stock price
Fair value of stock granted
2018
2017
2016
$
$
—
—
—
$
$
14,018
92.25
1,293
$
$
17,439
74.55
1,300
68
Stock Awards and Performance Stock Units
The 2011 Plan provides for stock awards and the 2018 Plan provides for performance stock units (“PSUs”s) that vest
at a specific future date based on achievement of specified performance conditions. Transactions under the 2011 Plan or the
2018 Plan, as applicable, are summarized as follows:
Outstanding at December 31, 2015
Granted
Dividend equivalents
Forfeited
Vested
Outstanding at December 31, 2016
Granted
Dividend equivalents
Vested
Outstanding at December 31, 2017
Issued
Granted
Dividend equivalents
Forfeited
Vested
Outstanding at December 31, 2018
Number of
Shares
Stock Price
262,456
$
86,918
3,811
(10,832)
(109,731)
232,622
103,382
5,249
(69,434)
$
271,819
$
5,641
111,246
6,280
(71,618)
(136,000)
187,368
$
49.36
54.47
88.04
53.95
39.94
55.60
90.36
104.93
51.20
70.29
106.10
106.10
90.47
86.65
64.32
91.39
As of December 31, 2018, there was $0.7 million of total unrecognized compensation cost related to outstanding stock
awards, which is expected to be recognized over a weighted average remaining period of 0.20 years.
Weighted Average Common Shares Outstanding
The following reconciliation details the denominator used in the computation of basic and diluted earnings per share
for the years ended December 31:
(In thousands)
Weighted average shares outstanding for basic earnings per share
Common stock equivalents pertaining to stock-based awards
Weighted average shares outstanding for diluted earnings per share
2018
2017
2016
25,178
285
25,463
25,020
355
25,375
24,631
302
24,933
The weighted average diluted shares outstanding for the years ended December 31, 2018, 2017 and 2016, exclude the
effect of 94,747, 104,073 and 184,277 shares of common stock, respectively, subject to stock-based awards. Such shares were
excluded from total diluted shares because they were anti-dilutive or the specified performance conditions that those shares
were subject to were not yet achieved.
Stock Repurchase Program
On October 31, 2018, the Company’s Board of Directors authorized a new stock repurchase program granting the
Company authority to repurchase up to $150.0 million of the Company’s common stock over a three-year period. The timing of
stock repurchases and the number of shares will depend upon the market conditions and other factors. Share repurchases, if any,
will be made in the open market or in privately negotiated transactions in accordance with applicable securities laws. The stock
repurchase program may be modified, suspended or terminated at any time by the Board of Directors. In 2018, the Company
purchased 402,570 shares at a weighted average price of $71.28 per share, totaling $28.7 million.
69
13.
FAIR VALUE MEASUREMENTS
Recurring
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at
December 31:
(In thousands)
Assets
Derivative assets
Liabilities
Contingent consideration
Derivative liabilities
Derivative Instruments
$
$
2018
2017
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
— $
— $
— $
— $
930 $
— $
930 $
—
7,302 $
— $
— $
7,302
$ 12,545 $
1,108
—
1,108
—
—
— $
—
— $ 12,545
—
—
The Company’s objectives in using commodity derivatives are to add stability to expense and to manage its exposure
to certain commodity price movements. To accomplish this objective, the Company uses commodity swaps as part of its
commodity risk management strategy. Commodity swaps designated as cash flow hedges involve fixing the price on a fixed
volume of a commodity on specified dates. The commodity swaps are typically cash settled for their fair value at or close to
their settlement dates.
At December 31, 2018, the Company had five commodity swap derivative instruments for a total of 34.4 million
pounds of steel used to hedge its commodity price risk on a portion of the exposure to movements associated with steel costs.
These derivatives expire at various dates through February 2020, at an average steel price of $0.39 per pound. These derivatives
are designated and qualify as cash flow hedges of commodity price risk; therefore, the gain or loss on the derivative is recorded
in accumulated other comprehensive income (loss) and subsequently reclassified in the period during which the hedged
transactions affects earnings within the same income statement line item as the earnings effect of the hedged transaction. These
derivative instruments were valued at fair value using a market approach based on the quoted market prices of similar
instruments at the end of the reporting period. At December 31, 2018, the $1.1 million corresponding liability was recorded in
accrued expenses and other current liabilities ($0.9 million) and other long-term liabilities ($0.2 million) as reflected in the
Consolidated Balance Sheets.
At December 31, 2017, the Company had derivative instruments for 12.0 million pounds of steel in order to manage a
portion of the exposure to movements associated with steel costs. These derivative instruments expired in December 2018, at an
average steel price of $0.25 per pound. While these derivative instruments were considered to be economic hedges of the
underlying movement in the price of steel, they were not designated or accounted for as a hedge. These derivative instruments
were valued at fair value using a market approach based on the quoted market prices of similar instruments at the end of each
reporting period, and the resulting net gain or loss was recorded in cost of sales in the Consolidated Statements of Income. At
December 31, 2017, the $0.9 million corresponding asset was recorded in prepaid expenses and other current assets as reflected
in the Consolidated Balance Sheets.
Contingent Consideration Related to Acquisitions
Liabilities for contingent consideration related to acquisitions were estimated at fair value using management’s
projections for long-term sales forecasts, including assumptions regarding market share gains and future industry-specific
economic and market conditions, and a market participant’s weighted average cost of capital. Over the next six years, the
Company’s long-term sales growth forecasts for products subject
to contingent consideration arrangements average
approximately 13 percent per year. For further information on the inputs used in determining the fair value, and a roll-forward
of the contingent consideration liability, see Note 11 of the Notes to Consolidated Financial Statements.
Changes in either of the inputs in isolation would result in a change in the fair value measurement. A change in the
assumptions used for sales forecasts would result in a directionally similar change in the fair value liability, while a change in
the weighted average cost of capital would result in a directionally opposite change in the fair value liability. If there is an
increase in the fair value liability, the Company would record a charge to selling, general and administrative expenses, and if
70
there is a decrease in the fair value liability, the Company would record a benefit in selling, general and administrative
expenses.
Non-recurring
The following table presents the carrying value at December 31 of any assets and liabilities which were measured at
fair value and recorded at the lower of cost or fair value, on a non-recurring basis, using significant unobservable inputs (Level
3), and the corresponding non-recurring losses or gains recognized during the years ended December 31:
2018
2017
2016
Carrying
Value
Non-
Recurring
Losses/
(Gains)
Carrying
Value
Non-
Recurring
Losses/
(Gains)
Carrying
Value
Non-
Recurring
Losses/
(Gains)
(In thousands)
Assets
Net assets of acquired businesses
$ 128,725
$
— $
35,224
$
— $
41,808
$
—
Net Assets of Acquired Businesses
The Company valued the assets and liabilities associated with the acquisitions of businesses on the respective
acquisition dates. Depending upon the type of asset or liability acquired, the Company used different valuation techniques in
determining the fair value. Those techniques included comparable market prices, long-term sales, profitability and cash flow
forecasts, assumptions regarding future industry-specific economic and market conditions, a market participant’s weighted
average cost of capital, as well as other techniques as circumstances required. For further information on acquired assets and
liabilities, see Note 4 of the Notes to Consolidated Financial Statements.
14.
SEGMENT REPORTING
The Company has two reportable segments, the OEM Segment and the Aftermarket Segment. Intersegment sales are
insignificant.
The OEM Segment, which accounted for 91 percent, 92 percent and 92 percent of consolidated net sales for each of
the years ended December 31, 2018, 2017 and 2016, respectively, manufactures and distributes a broad array of engineered
components for the leading OEMs in the recreation and industrial product markets, consisting of RVs and adjacent industries,
including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured homes;
and modular housing. Approximately 64 percent of the Company’s OEM Segment net sales in 2018 were of components for
travel trailer and fifth-wheel RVs.
The Aftermarket Segment, which accounted for 9 percent, 8 percent and 8 percent of consolidated net sales for each of
the years ended December 31, 2018, 2017 and 2016, respectively, supplies engineered components to the related aftermarket
channels of the RV and adjacent industries, primarily to retail dealers, wholesale distributors and service centers. The
Aftermarket Segment also includes the sale of replacement glass and awnings to fulfill insurance claims.
Decisions concerning the allocation of the Company’s resources are made by the Company’s Chief Operating Decision
Maker (“CODM”), with oversight by the Board of Directors. The CODM evaluates the performance of each segment based
upon segment operating profit or loss, generally defined as income or loss before interest and income taxes. Decisions
concerning the allocation of resources are also based on each segment’s utilization of assets. Management of debt is a corporate
function. The accounting policies of the OEM and Aftermarket Segments are the same as those described in Note 2 of the Notes
to Consolidated Financial Statements.
71
The following tables presents the Company’s revenues disaggregated by segment and geography based on the billing
address of the Company’s customers for the years ended December 31:
(In thousands)
OEM Segment:
RV OEMs:
Travel trailers and fifth-wheels
Motorhomes
Adjacent industries OEMs
Total OEM Segment net sales
Aftermarket Segment:
Total Aftermarket Segment net sales
Total net sales
(In thousands)
OEM Segment:
RV OEMs:
Travel trailers and fifth-wheels
Motorhomes
Adjacent industries OEMs
Total OEM Segment net sales
Aftermarket Segment:
Total Aftermarket Segment net sales
Total net sales
(In thousands)
OEM Segment:
RV OEMs:
Travel trailers and fifth-wheels
Motorhomes
Adjacent industries OEMs
Total OEM Segment net sales
Aftermarket Segment:
Total Aftermarket Segment net sales
Total net sales
U.S. (a)
2018
Int’l (b)
Total
$
1,431,574
$
9,156
$
1,440,730
143,488
574,100
2,149,162
43,809
40,489
93,454
187,297
614,589
2,242,616
222,588
10,603
233,191
$
2,371,750
$
104,057
$
2,475,807
U.S. (a)
2017
Int’l (b)
Total
$
1,403,079
$
2,904
$
1,405,983
138,895
398,919
1,940,893
20,522
12,304
35,730
159,417
411,223
1,976,623
160,637
10,510
171,147
$
2,101,530
$
46,240
$
2,147,770
U.S. (a)
2016
Int’l (b)
Total
$
1,097,385
$
2,497
$
1,099,882
108,961
325,550
1,531,896
7,230
6,468
16,195
116,191
332,018
1,548,091
124,733
6,074
130,807
$
1,656,629
$
22,269
$
1,678,898
(a) Net sales to customers in the United States of America
(b) Net sales to customers domiciled in countries outside of the United States of America
72
Corporate expenses are allocated between the segments based upon net sales. Accretion related to contingent
consideration and other non-segment items are included in the segment to which they relate. Information relating to segments
follows for the years ended December 31:
(In thousands)
2018
Net sales to external customers (a)
Operating profit (b)
Total assets (c)
Expenditures for long-lived assets (d)
Depreciation and amortization
2017
Net sales to external customers (a)
Operating profit (b)
Total assets (c)
Expenditures for long-lived assets (d)
Depreciation and amortization
2016
Net sales to external customers (a)
Operating profit (b)
Total assets (c)
Expenditures for long-lived assets (d)
Depreciation and amortization
Segments
OEM
Aftermarket
Subtotal
Corporate
and Other
Total
$
2,242,616
$
233,191
$
2,475,807
$
— $
2,475,807
167,459
1,034,254
247,895
63,447
31,329
129,776
20,544
4,079
198,788
1,164,030
268,439
67,526
—
79,863
—
—
198,788
1,243,893
268,439
67,526
$
1,976,623
$
171,147
$
2,147,770
$
— $
2,147,770
190,276
785,926
148,570
50,751
24,005
76,309
4,875
3,662
214,281
862,235
153,445
54,413
—
83,623
—
314
214,281
945,858
153,445
54,727
$
1,548,091
$
130,807
$
1,678,898
$
— $
1,678,898
180,850
569,385
80,588
42,593
20,000
65,211
6,014
3,298
200,850
634,596
86,602
45,891
—
152,308
—
276
200,850
786,904
86,602
46,167
(a)
(b)
(c)
(d)
Thor Industries, Inc. (“Thor”), a customer of both segments, accounted for 31 percent, 38 percent and 37 percent of the Company’s
consolidated net sales for the years ended December 31, 2018, 2017 and 2016, respectively. Berkshire Hathaway Inc. (through its
subsidiaries Forest River, Inc. and Clayton Homes, Inc.), a customer of both segments, accounted for 23 percent, 25 percent and 26
percent of the Company’s consolidated net sales for the years ended December 31, 2018, 2017 and 2016, respectively. No other
customer accounted for more than 10 percent of consolidated net sales in the years ended December 31, 2018, 2017 and 2016.
Certain general and administrative expenses are allocated between the segments based upon net sales or operating profit,
depending upon the nature of the expense.
Segment assets include accounts receivable, inventories, fixed assets, goodwill and other intangible assets. Corporate and other
assets include cash and cash equivalents, prepaid expenses and other current assets, deferred taxes, and other assets.
Expenditures for long-lived assets include capital expenditures, as well as fixed assets, goodwill and other intangible assets
purchased as part of the acquisition of businesses. The Company purchased $150.9 million, $65.0 million and $42.0 million of long-
lived assets, as part of the acquisitions of businesses in the years ended December 31, 2018, 2017 and 2016, respectively.
Net sales by OEM Segment product were as follows for the years ended December 31:
(In thousands)
OEM Segment:
Chassis, chassis parts and slide-out mechanisms
$
2018
2017
2016
908,065
615,644
380,514
122,897
215,496
2,242,616
233,191
$
914,397
424,625
342,680
123,513
171,408
1,976,623
171,147
$
743,160
335,717
245,596
115,538
108,080
1,548,091
130,807
$
2,475,807
$
2,147,770
$
1,678,898
73
Windows and doors
Furniture and mattresses
Axles and suspension solutions
Other
Total OEM Segment net sales
Total Aftermarket Segment net sales
Total net sales
15.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Interim unaudited financial information follows:
(In thousands, except per share amounts)
Year ended December 31, 2018
Net sales
Gross profit
Income before income taxes
Net income
Net income per common share:
Basic
Diluted
Stock market price:
High
Low
Close (at end of quarter)
Year ended December 31, 2017
Net sales
Gross profit
Income before income taxes
Net income
Net income per common share:
Basic
Diluted
Stock market price:
High
Low
Close (at end of quarter)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Year
$
$
$
$
$
$
$
$
$
$
$
$
650,492
140,733
58,719
47,336
1.88
1.86
132.30
99.46
104.15
498,336
124,014
58,692
43,145
1.73
1.71
117.15
94.98
99.80
$
$
$
$
$
$
$
$
$
$
$
$
684,455
150,456
62,428
47,224
1.87
1.86
104.90
80.95
90.15
547,483
131,087
62,626
40,137
1.61
1.59
106.23
86.25
102.40
$
$
$
$
$
$
$
$
$
$
$
$
604,244
125,901
43,633
33,812
1.34
1.33
102.23
98.40
69.35
554,814
121,220
47,616
32,138
1.28
1.26
116.63
93.08
115.85
$
$
$
$
$
$
$
$
$
$
$
$
536,616
103,254
27,572
20,179
$ 2,475,807
520,344
192,352
148,551
0.80
0.80
80.89
59.68
66.80
$
$
$
$
$
5.90
5.83
132.30
59.68
66.80
547,137
116,793
43,910
17,464
$ 2,147,770
493,114
212,844
132,884
0.70
0.68
132.73
104.15
130.00
$
$
$
$
$
5.31
5.24
132.73
86.25
130.00
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 or rounding.
74
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
Item 9A. CONTROLS AND PROCEDURES.
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be
disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the (“Exchange Act”) is (i)
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii)
accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure, in accordance with the definition of “disclosure
controls and procedures” in Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter how well designed and operated, cannot
provide absolute assurance of achieving the desired control objectives. Management included in its evaluation the cost-benefit
relationship of possible controls and procedures. The Company continually evaluates its disclosure controls and procedures to
determine if changes are appropriate based upon changes in the Company’s operations or the business environment in which it
operates.
As of the end of the period covered by this Form 10-K, the Company performed an evaluation, under the supervision
and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s
Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.
Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures were effective as of December 31, 2018.
(a)
Management’s Annual Report on Internal Control over Financial Reporting.
We are responsible for the preparation and integrity of the Consolidated Financial Statements appearing in the Annual
Report on Form 10-K. We are also responsible for establishing and maintaining adequate internal control over financial
reporting for the Company. We maintain a system of internal control that is designed to provide reasonable assurance as to the
fair and reliable preparation and presentation of the Consolidated Financial Statements, as well as to safeguard assets from
unauthorized use or disposition. The Company continually evaluates its system of internal control over financial reporting to
determine if changes are appropriate based upon changes in the Company’s operations or the business environment in which it
operates.
Our control environment is the foundation for our system of internal control over financial reporting and is embodied
in our Guidelines for Business Conduct. It sets the tone of our organization and includes factors such as integrity and ethical
values. Our internal control over financial reporting is supported by formal policies and procedures which are reviewed,
modified and improved as changes occur in business conditions and operations.
We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). This evaluation included review of the documentation of controls, evaluation of the design
effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Although there
are inherent limitations in the effectiveness of any system of internal control over financial reporting, based on our evaluation,
we have concluded that our internal control over financial reporting was effective as of December 31, 2018.
During 2018, the Company completed the Taylor Made, Hehr, STLA and Smoker Craft acquisitions, which contributed
$211.2 million of net sales for the year ended December 31, 2018. Total assets from these acquisitions as of December 31, 2018
were $190.5 million. As the Taylor Made, Hehr, STLA, and Smoker Craft acquisitions occurred in the year ended December 31,
2018, the scope of the Company’s evaluation of the effectiveness of internal control over financial reporting does not include
Taylor Made, Hehr, STLA, and Smoker Craft. This exclusion is in accordance with the SEC’s general guidance that an
assessment of a recently acquired business may be omitted from the Company’s scope in the year of acquisition.
KPMG LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements
included in this Annual Report on Form 10-K and, as part of their audit, has issued their attestation report on the effectiveness
of our internal control over financial reporting, included elsewhere in this Form 10-K.
(b)
Report of the Independent Registered Public Accounting Firm.
75
The report is included in Item 8. “Financial Statements and Supplementary Data.”
(c)
Changes in Internal Control over Financial Reporting.
There were no changes in the Company’s internal control over financial reporting during the quarter ended
December 31, 2018, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
The Company has selected a new enterprise resource planning (“ERP”) system. Implementation of the new ERP
software began in late 2013. To date, 24 locations have been put on this ERP software. The roll-out plan is continually
evaluated in the context of priorities for the business and may change as needs of the business dictate. The Company anticipates
enhancements to controls due to both the installation of the new ERP software and business process changes resulting
therefrom.
Item 9B. OTHER INFORMATION.
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Information with respect to the Company’s directors, executive officers and corporate governance is incorporated by
reference from the information contained under the proposal entitled “Election of Directors” and under the caption “Corporate
Governance and Related Matters – Board Committees” in the Company’s Proxy Statement for the Annual Meeting of
Stockholders to be held on May 23, 2019 (the “2019 Proxy Statement”) and from the information contained under “Executive
Officers” in Part I, Item 1, “Business,” in this Report.
Information regarding Section 16 reporting compliance is incorporated by reference from the information contained
under the caption “Voting Securities – Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s 2019
Proxy Statement.
The Company has adopted Governance Principles, Guidelines for Business Conduct, a Whistleblower Policy, and a
Code of Ethics for Senior Financial Officers (“Code of Ethics”), each of which, as well as the Charters and Key Practices of the
Company’s Audit Committee, Risk Committee, Compensation Committee, and Corporate Governance and Nominating
Committee, are available on the Company’s website at www.lci1.com/investors. A copy of any of these documents will be
furnished, without charge, upon written request to Secretary, LCI Industries, 3501 County Road 6 East, Elkhart, Indiana 46514.
If the Company makes any substantive amendment to the Code of Ethics or the Guidelines for Business Conduct, or
grants a waiver to a director or executive officer from a provision of the Code of Ethics or the Guidelines for Business Conduct,
the Company will disclose the nature of such amendment or waiver on its website or in a Current Report on Form 8-K. There
have been no waivers to directors or executive officers of any provisions of the Code of Ethics or the Guidelines for Business
Conduct.
Item 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the information contained under the caption
“Executive Compensation,” “Director Compensation,” “CEO Pay Ratio,” and “Transactions with Related Persons -
Compensation Committee Interlocks and Insider Participation” in the Company’s 2019 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The information required by this item is incorporated by reference from the information contained under the caption
“Voting Securities – Security Ownership of Certain Beneficial Owners and Management” in the Company’s 2019 Proxy
Statement.
76
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item with respect to transactions with related persons and director independence is
incorporated by reference from the information contained under the captions “Transactions with Related Persons” and
“Corporate Governance and Related Matters – Board of Directors and Director Independence” in the Company’s 2019 Proxy
Statement.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this item is incorporated by reference from the information contained under the proposal
entitled “Ratification of Appointment of Auditors – Fees for Independent Auditors” in the Company’s 2019 Proxy Statement.
ITEM 15. EXHIBITS, AND FINANCIAL STATEMENT SCHEDULES.
(a)
Documents Filed:
PART IV
(1)
(2)
Financial Statements.
Exhibits. See Item 15 (b) - “List of Exhibits” incorporated herein by reference.
(b)
Exhibits - List of Exhibits.
EXHIBIT INDEX
Exhibit
Number
3.1
3.2
10.221
10.231†
10.259†
10.294†
10.296†
10.297†
10.299
10.302†
Description
LCI Industries Restated Certificate of Incorporation, as amended effective December 30, 2016
(incorporated by reference to Exhibit 3.1 included in the Registrants' Form 10-K for the year
ended December 31, 2016).
Amended and Restated Bylaws of LCI Industries, as amended May 25, 2017 (incorporated by
reference to Exhibit 3.2 included in the Registrant’s Form 8-K filed on May 31, 2017).
Form of Indemnification Agreement between Registrant and its officers and independent directors
(incorporated by reference to Exhibit 10.1 included in the Registrant's Form 8-K filed on May 26,
2015).
Executive Non-Qualified Deferred Compensation Plan, as amended (incorporated by reference to
Exhibit 10.231 included in the Registrant's Form 10-K for the year ended December 31, 2015).
LCI Industries Equity Award and Incentive Plan, As Amended and Restated (incorporated by
reference to Appendix A included in the Registrant’s Definitive Proxy Statement on Schedule 14A
filed on April 11, 2014).
Form of Executive Employment Agreement (incorporated by reference to Exhibit 10.1 included in
the Registrant's Form 8-K filed March 4, 2015).
Form of Performance Stock Award (incorporated by reference to Exhibit 10.3 included in the
Registrant's Form 8-K filed March 4, 2015).
Form of Deferred Stock Award (incorporated by reference to Exhibit 10.4 included in the
Registrant's Form 8-K filed March 4, 2015).
Form of 3.35% Series A Senior Notes due March 20, 2020 of Lippert Components, Inc. pursuant
to the Third Amended and Restated Note Purchase and Private Shelf Agreement (incorporated by
reference to Exhibit 10.2 included in the Registrant's Form 8-K filed March 23, 2015).
2016 Annual Incentive Plan (incorporated by reference to Exhibit 10.1 included in the Registrant's
Form 8-K filed February 12, 2016).
77
Exhibit
Number
10.303
10.304
10.305
10.306
10.307
10.308
10.309
10.310
10.311
10.312
10.313
10.314
10.315
Description
Third Amended and Restated Credit Agreement dated as of April 27, 2016 among Drew Industries
Incorporated, Lippert Components, Inc., Lippert Components Canada, Inc., JPMorgan Chase
Bank, N.A., individually and as Administrative Agent, Wells Fargo Bank N.A., individually and
as Documentation Agent, Bank of America, N.A., and 1st Source Bank (together with JPMorgan
Chase Bank, N.A., Wells Fargo Bank, N.A. and Bank of America, N.A.,
the “Lenders”)
(incorporated by reference to Exhibit 10.1 included in the Registrant's Form 8-K filed May 3,
2016).
Form of Revolving Credit Note dated as of April 27, 2016 by Lippert Components, Inc., and
Lippert Components Canada, Inc., payable to the order of the Lenders pursuant to that certain
Third Amended and Restated Credit Agreement (incorporated by reference to 10.2 included in the
Registrant's Form 8-K filed May 3, 2016).
Fourth Amended and Restated Pledge and Security Agreement dated as of April 27, 2016, made
by Drew Industries Incorporated, Lippert Components, Inc. and certain subsidiaries thereof, in
favor of JPMorgan Chase Bank, N.A. as Collateral Agent (incorporated by reference to Exhibit
10.3 included in the Registrant's Form 8-K filed May 3, 2016).
Fourth Amended and Restated Company Guarantee Agreement dated as of April 27, 2016, made
by Drew Industries Incorporated, with and in favor of JPMorgan Chase Bank, N.A. as
Administrative Agent (incorporated by reference to Exhibit 10.4 included in the Registrant's Form
8-K filed May 3, 2016).
Fourth Amended and Restated Subsidiary Guarantee Agreement dated as of April 27, 2016, made
by certain subsidiaries of Drew Industries Incorporated and Lippert Components, Inc., with and in
favor of JPMorgan Chase Bank, N.A. as Administrative Agent (incorporated by reference to
Exhibit 10.5 included in the Registrant's Form 8-K filed May 3, 2016).
Fourth Amended and Restated Subordination Agreement dated as of April 27, 2016, made by
Drew Industries Incorporated and certain subsidiaries of Drew Industries Incorporated, with and
in favor of JPMorgan Chase Bank, N.A. as Administrative Agent (incorporated by reference to
Exhibit 10.6 included in the Registrant's Form 8-K filed May 3, 2016).
Fourth Amended and Restated Note Purchase and Private Shelf Agreement dated as of April 27,
2016, by and among PGIM, Inc. and Affiliates, and Lippert Components, Inc., guaranteed by
Drew Industries Incorporated (incorporated by reference to Exhibit 10.7 included in the
Registrant's Form 8-K filed May 3, 2016).
Form of Shelf Note of Lippert Components, Inc. pursuant to the Fourth Amended and Restated
Note Purchase and Private Shelf Agreement (incorporated by reference to Exhibit 10.8 included
in the Registrant's Form 8-K filed May 3, 2016).
Second Amended and Restated Parent Guarantee Agreement dated as of April 27, 2016, made by
Drew Industries Incorporated in favor of PGIM, Inc. and the Noteholders thereto from time to
time (incorporated by reference to Exhibit 10.9 included in the Registrant's Form 8-K filed May
3, 2016).
Second Amended and Restated Subsidiary Guarantee Agreement dated as of April 27, 2016, made
by certain subsidiaries (other than Lippert Components, Inc.) of Drew Industries Incorporated, in
favor of PGIM, Inc. and the Noteholders thereto from time to time (incorporated by reference to
Exhibit 10.10 included in the Registrant's Form 8-K filed May 3, 2016).
Second Amended and Restated Pledge and Security Agreement dated as of April 27, 2016, made
by Drew Industries Incorporated, Lippert Components, Inc., Lippert Components Manufacturing,
Inc. and the other Subsidiary Guarantors, in favor of JPMorgan Chase Bank, N.A., as Collateral
Agent for the benefit of the Noteholders (incorporated by reference to Exhibit 10.11 included in
the Registrant's Form 8-K filed May 3, 2016).
Second Amended and Restated Subordination Agreement dated as of April 27, 2016, made by
Lippert Components, Inc., Drew Industries Incorporated and certain subsidiaries of Drew
Industries Incorporated, with and in favor of PGIM, Inc. and the Noteholders thereto from time to
time (incorporated by reference to Exhibit 10.12 included in the Registrant's Form 8-K filed May
3, 2016).
Second Amended and Restated Collateral Agency Agreement dated as of April 27, 2016, by and
among Lippert Components, Inc. and PGIM, Inc. and the Noteholders thereto from time to time,
and JPMorgan Chase Bank, N.A. as collateral agent for the Noteholders (incorporated by
reference to Exhibit 10.13 included in the Registrant's Form 8-K filed May 3, 2016).
78
Exhibit
Number
10.316
10.318†
10.319†
10.320†
10.321
10.322
10.323
10.324†
10.325†
10.326†
10.327†
10.328†
10.329†
10.330†
10.331†
10.332†
10.333†
Description
Third Amended and Restated Intercreditor Agreement dated as of April 27, 2016 by and among
PGIM, Inc. and Affiliates, JPMorgan Chase Bank, N.A. (as Administrative Agent, as Credit
Agreement Collateral Agent and Notes Collateral Agent) (incorporated by reference to Exhibit
10.14 included in the Registrant's Form 8-K filed May 3, 2016).
Grantor Trust Agreement, effective January 15, 2017, by and between LCI Industries and Wells
Fargo Bank, National Association (incorporated by reference to Exhibit 10.318 included in the
Registrant's Form 10-K for the year ended December 31, 2016).
2017 Management Incentive Plan (incorporated by reference to Exhibit 10.1 included in the
Registrant's Form 8-K filed on March 22, 2017).
Second Amended and Restated Executive Non-Qualified Deferred Compensation Plan
(incorporated by reference to Exhibit 10.2 included in the Registrant's Form 8-K filed on March
22, 2017).
First Amendment, dated March 30, 2017, to Fourth Amended and Restated Note Purchase and
Private Shelf Agreement, by and among PGIM, Inc. and Affiliates, and Lippert Components, Inc.
guaranteed by LCI Industries (incorporated by reference to Exhibit 10.1 included in the
Registrant's Form 8-K filed on April 4, 2017).
Incremental Joinder and Amendment, dated as of February 20, 2018, among Lippert Components,
Inc., LCI Canada Group, Inc., LCI Industries, each subsidiary of LCI Industries listed therein,
JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., Bank of America, N.A. and 1st Source
Bank (incorporated by reference to Exhibit 10.1 included in the Registrant’s Form 8-K filed
February 26, 2018).
Waiver to Fourth Amended and Restated Note Purchase and Private Shelf Agreement, dated as of
February 20, 2018, among Lippert Components, Inc., LCI Industries, PGIM, Inc. and each of the
purchasers of Series A Notes named therein (incorporated by reference to Exhibit 10.2 included in
the Registrant’s Form 8-K filed February 26, 2018).
2018 Annual Incentive Program (incorporated by reference to Exhibit 10.1 included in the
Registrant’s Form 8-K filed March 5, 2018).
LCI Industries Performance Stock Unit Award Agreement Pursuant to LCI Industries Equity
Award and Incentive Plan, As Amended and Restated (ROIC) (incorporated by reference to
Exhibit 10.2 included in the Registrant’s Form 8-K filed March 5, 2018).
LCI Industries Performance Stock Unit Award Agreement Pursuant to LCI Industries Equity
Award and Incentive Plan, As Amended and Restated (EPS) (incorporated by reference to Exhibit
10.3 included in the Registrant’s Form 8-K filed March 5, 2018).
LCI Industries Restricted Stock Unit Award Agreement Pursuant to LCI Industries Equity Award
and Incentive Plan, As Amended and Restated (Executive Officers) (incorporated by reference to
Exhibit 10.4 included in the Registrant’s Form 8-K filed March 5, 2018).
LCI Industries Restricted Stock Unit Award Agreement Pursuant to LCI Industries Equity Award
and Incentive Plan, As Amended and Restated (Directors) (incorporated by reference to Exhibit
10.5 included in the Registrant’s Form 8-K filed March 5, 2018).
LCI Industries 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 included
in the Registrant’s Form 8-K filed May 29, 2018).
Form of Restricted Stock Unit Award Agreement (Executives) under the LCI Industries 2018
Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 included in the Registrant’s
Form 8-K filed May 29, 2018).
Form of Performance Stock Unit Award Agreement (EPS) under the LCI Industries 2018
Omnibus Incentive Plan (incorporated by reference to Exhibit 10.3 included in the Registrant’s
Form 8-K filed May 29, 2018).
Form of Performance Stock Unit Award Agreement (ROIC) under the LCI Industries 2018
Omnibus Incentive Plan (incorporated by reference to Exhibit 10.4 included in the Registrant’s
Form 8-K filed May 29, 2018).
Form of Restricted Stock Unit Award Agreement (Non-Employee Directors) under the LCI
Industries 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.5 included in
the Registrant’s Form 8-K filed May 29, 2018).
79
Exhibit
Number
10.334†
10.335†
10.336†
10.337
10.338
10.339
10.340
10.341
10.342
10.343
10.344
10.345
14.1
14.2
21*
23*
24*
31.1*
31.2*
Description
Form of Deferred Stock Unit Master Agreement (Non-Employee Directors) under the LCI
Industries 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.6 included in
the Registrant’s Form 8-K filed May 29, 2018).
Form of Agreement for Common Stock in Lieu of Cash Compensation for Non-Employee
Directors (incorporated by reference to Exhibit 10.7 included in the Registrant’s Form 8-K filed
May 29, 2018).
Separation and General Release Agreement, dated as of November 16, 2018, by and between
Lippert Components, Inc. and Scott T. Mereness (incorporated by reference to Exhibit 10.1
included in the Registrant’s Form 8-K filed November 19, 2018).
Fourth Amended and Restated Credit Agreement dated December 14, 2018 among LCI Industries,
Lippert Components, Inc., LCI Industries B.V., LCI Industries C.V., JPMorgan Chase Bank, N.A.,
individually and as Administrative Agent, Wells Fargo Bank, N.A.,
individually and as
Syndication Agent, Bank of America, N.A., individually and as Documentation Agent, and a
syndicate of other lenders (incorporated by reference to Exhibit 10.1 included in the Registrant’s
Form 8-K filed December 19, 2018) .
Omnibus Reaffirmation dated December 14, 2018 among LCI Industries, Lippert Components,
Inc., LCI Industries B.V., LCI Industries C.V., JPMorgan Chase Bank, N.A., individually and as
Administrative Agent, Wells Fargo Bank, N.A., individually and as Syndication Agent, Bank of
America, N.A., individually and as Documentation Agent, and a syndicate of other lenders
(incorporated by reference to Exhibit 10.2 included in the Registrant’s Form 8-K filed December
19, 2018).
Revolving Credit Note Dated December 14, 2018 by LCI Industries, Lippert Components, Inc.,
LCI Industries B.V., and LCI Industries C.V. in favor of Branch Banking and Trust (incorporated
by reference to Exhibit 10.3 included in the Registrant’s Form 8-K filed December 19, 2018).
Revolving Credit Note Dated December 14, 2018 by LCI Industries, Lippert Components, Inc.,
LCI Industries B.V., and LCI Industries C.V. in favor of Bank of the West (incorporated by
reference to Exhibit 10.4 included in the Registrant’s Form 8-K filed December 19, 2018).
Revolving Credit Note Dated December 14, 2018 by LCI Industries, Lippert Components, Inc.,
LCI Industries B.V., and LCI Industries C.V. in favor of BMO Harris (incorporated by reference
to Exhibit 10.5 included in the Registrant’s Form 8-K filed December 19, 2018).
Revolving Credit Note Dated December 14, 2018 by LCI Industries, Lippert Components, Inc.,
LCI Industries B.V., and LCI Industries C.V. in favor of U.S. Bank (incorporated by reference to
Exhibit 10.6 included in the Registrant’s Form 8-K filed December 19, 2018).
Amended and Restated Revolving Credit Note Dated December 14, 2018 by LCI Industries,
Lippert Components, Inc., LCI Industries B.V., and LCI Industries C.V. in favor of Bank of
America, N.A. (incorporated by reference to Exhibit 10.7 included in the Registrant’s Form 8-K
filed December 19, 2018).
Amended and Restated Revolving Credit Note Dated December 14, 2018 by LCI Industries,
Lippert Components, Inc., LCI Industries B.V., and LCI Industries C.V. in favor of JPMorgan
Chase Bank, N.A. (incorporated by reference to Exhibit 10.8 included in the Registrant’s Form 8-
K filed December 19, 2018).
Prudential Letter Agreement Dated December 14, 2018 consenting to the Credit Agreement and
releasing certain subsidiary Guarantees (incorporated by reference to Exhibit 10.9 included in the
Registrant’s Form 8-K filed December 19, 2018).
Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.1 included
in the Registrant’s Form 10-K for the year ended December 31, 2016).
Guidelines for Business Conduct (incorporated by reference to Exhibit 14.2 included in the
Registrant’s Form 10-K for the year ended December 31, 2016).
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Powers of Attorney (included on the signature page of this Report).
Certification of Chief Executive Officer required by Rule 13a-14(a).
Certification of Chief Financial Officer required by Rule 13a-14(a).
80
Exhibit
Number
32.1*
32.2*
101
Description
Certification of Chief Executive Officer required by Rule 13a-14(b) and Section 1350 of Chapter
63 of Title 18 of the United States Code.
Certification of Chief Financial Officer required by Rule 13a-14(b) and Section 1350 of Chapter
63 of Title 18 of the United States Code.
Interactive Data Files.
*Filed herewith
†Denotes a compensation plan or arrangement
Unless otherwise indicated, exhibits incorporated by reference herein were originally filed under SEC File No.
001-13646.
Item 16. FORM 10-K SUMMARY.
None.
81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 27, 2019
LCI INDUSTRIES
By:
/s/ Jason D. Lippert
Jason D. Lippert
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Each person whose signature appears below hereby authorizes Jason D. Lippert and Brian M. Hall, or either of them,
to file one or more amendments to the Annual Report on Form 10-K which amendments may make such changes in such
Report as either of them deems appropriate, and each such person hereby appoints Jason D. Lippert and Brian M. Hall, or either
of them, as attorneys-in-fact to execute in the name and on behalf of each such person individually, and in each capacity stated
below, such amendments to such Report.
Date
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
Signature
Title
Chief Executive Officer and Director
(principal executive officer)
Chief Financial Officer
(principal financial officer)
Corporate Controller
(principal accounting officer)
Chairman of the Board of Directors
Director
Director
Director
Director
Director
Director
Director
Director
By: /s/ Jason D. Lippert
(Jason D. Lippert)
By: /s/ Brian M. Hall
(Brian M. Hall)
By: /s/ Kip A. Emenhiser
(Kip A. Emenhiser)
By: /s/ James F. Gero
(James F. Gero)
By: /s/ Frank J. Crespo
(Frank J. Crespo)
By: /s/ Brendan J. Deely
(Brendan J. Deely)
By: /s/ Ronald Fenech
(Ronald Fenech)
By: /s/ Tracy D. Graham
(Tracy D. Graham)
By: /s/ Frederick B. Hegi, Jr.
(Frederick B. Hegi, Jr.)
By: /s/ Virginia L. Henkels
(Virginia L. Henkels)
By: /s/ Kieran M. O’Sullivan
(Kieran M. O’Sullivan)
By: /s/ David A. Reed
(David A. Reed)
82
Active Subsidiaries of Registrant
Name
State of Organization
Exhibit 21
Zieman Manufacturing Company
Lippert Components, Inc.
Lippert Components International Sales, Inc.
Lippert Components Manufacturing, Inc.
LCI Transit Corp.
Taylor Made Group, LLC
Taylor Made Credit, LLC
LCI Idaho Realty, LLC
LCI Idaho Realty II, LLC
LCI Service Corp.
KM Realty, LLC
KM Realty II, LLC
LCM Realty, LLC
LCM Realty II, LLC
LCM Realty III, LLC
LCM Realty IV, LLC
LCM Realty VI, LLC
LCM Realty VII, LLC
LCM Realty VIII, LLC
LCM Realty IX, LLC
LCM Realty X, LLC
LCM Realty XI, LLC
LCM Realty XII, LLC
Taylor Made Glass & Systems Limited
Ke-Star S.r.l.
LCI Italy S.r.l.
Metallarte S.r.l.
Project 2000 S.r.l.
RV Doors S.r.l.
Sessa Klein S.p.A.
ST.LA. S.r.l.
Innovative Design Solutions, Inc.
LCM Realty V, LLC
LCI Industries C.V.
LCI Industries B.V.
LCI Canada Group, Inc.
Kinro Texas, Inc.
LCI Industries UK, Ltd.
Taylor Made Holdings UK Limited
Trend Marine Products Limited
California
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Idaho
Idaho
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Ireland
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Michigan
Michigan
Netherlands
Netherlands
Quebec, Canada
Texas
United Kingdom
United Kingdom
United Kingdom
Exhibit 23
Consent of Independent Registered Public Accounting Firm
The Board of Directors
LCI Industries:
333-91174,
We consent to the incorporation by reference in the registration statement (No. 3 33‑ 225177,
333-141276, 333-152873, 333-161242, 333-181272, and 333-201336) on Form S-8 of LCI Industries of
our report dated February 27, 2019, with respect to the consolidated balance sheets of LCI Industries and
subsidiaries as of December 31, 2018 and 2017, and the related consolidated statements of income,
comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period
ended December 31, 2018, and the related notes (collectively, the “consolidated financial statements”),
and the effectiveness of internal control over financial reporting as of December 31, 2018, which report
appears in the December 31, 2018 annual report on Form 1
of LCI Industries and subsidiaries.
0‑ K
Our report dated February 27, 2019, on the effectiveness of internal control over financial reporting as of
December 31, 2018, contains an explanatory paragraph that states the Company acquired Taylor Made
Group, LLC (“Taylor Made”), Hehr International Inc. (“Hehr”), ST.LA. S.r.l. (“STLA”), and Smoker Craft
Inc. (“Smoker Craft”) during 2018, and management excluded from its assessment of the effectiveness of
the Company’s internal control over financial reporting as of December 31, 2018, the acquired companies’
internal control over financial reporting associated with total assets of $190.5 million and total revenues of
$211.2 million included in the consolidated financial statements of the Company as of and for the year
ended December 31, 2018. Our audit of internal control over financial reporting of the Company also
excluded an evaluation of the internal control over financial reporting of Taylor Made, Hehr, STLA, and
Smoker Craft.
/s/ KPMG LLP
Chicago, Illinois
February 27, 2019
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 31.1
I, Jason D. Lippert, Chief Executive Officer, certify that:
1.
I have reviewed this quarterly report on Form 10-K of LCI Industries;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: February 27, 2019
By /s/ Jason D. Lippert
Jason D. Lippert, Chief Executive Officer
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 31.2
I, Brian M. Hall, Chief Financial Officer, certify that:
1.
I have reviewed this quarterly report on Form 10-K of LCI Industries;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: February 27, 2019
By /s/ Brian M. Hall
Brian M. Hall, Chief Financial Officer
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the quarterly report on Form 10-K of LCI
the period ended
December 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Jason D. Lippert,
Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
Industries (the “Company”)
for
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by
the Company and furnished to the Securities and Exchange Commission or its staff upon request.
By /s/ Jason D. Lippert
Chief Executive Officer
Principal Executive Officer
February 27, 2019
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the quarterly report on Form 10-K of LCI
the period ended
December 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Brian M. Hall,
Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
Industries (the “Company”)
for
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by
the Company and furnished to the Securities and Exchange Commission or its staff upon request.
By /s/ Brian M. Hall
Chief Financial Officer
Principal Financial Officer
February 27, 2019
LCI Industries 2018 Annual Report