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, 20142016
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from              to             
Commission file number 001-13646
DREW INDUSTRIES INCORPORATED
(Exact name of registrant as specified in its charter)

Delaware 13-3250533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
 
3501 County Road 6 East 46514
Elkhart, Indiana (Zip Code)
(Address of principal executive offices)  
(574) 535-1125
(Registrant'sRegistrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
   
Title of each class  
Name of each exchange
    on which registered    
Common Stock, $.01 par value  New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None
 
 


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

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  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232-405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)    Yes  ☒    No  ☐

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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'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12(b)-212b-2 of the Exchange Act.

Large accelerated filer ☒                           Accelerated filer ☐

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

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

The 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 or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $990,082,027.$1,940,584,601. The registrant has no non-voting common stock.equity.

The number of shares outstanding of the registrant’s common stock, as of the latest practicable date (February 23, 2015)15, 2017) was 23,925,271 shares of common stock.24,756,229 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement with respect to the 20152017 Annual Meeting of Stockholders to be held on May 21, 201525, 2017 is incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III.



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'sCompany’s Common Stock 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'sCompany’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'sCompany’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 steel based components 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, and 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, 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. 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.



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DREWLCI INDUSTRIES INCORPORATED

TABLE OF CONTENTS



  Page
PART I  
  
   
 ITEM 1 - BUSINESS
 56
   
 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
   

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 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
   
  
EXHIBIT 23 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
  
EXHIBIT 31.1 - SECTION 302 CEO CERTIFICATION 
  
EXHIBIT 31.2 - SECTION 302 CFO CERTIFICATION 
  
EXHIBIT 32.1 - SECTION 906 CEO CERTIFICATION 
  
EXHIBIT 32.2 - SECTION 906 CFO CERTIFICATION 
   

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PART I

Item 1.    BUSINESS.

Summary
DrewLCI Industries Incorporated (“Drew” orLCII” 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 components for the leading original equipment manufacturers (“OEMs”) of recreational vehicles (“RVs”) and manufactured homes. To a lesser extent, the Company also supplies components for adjacent industries including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; pontoon boats; trains; manufactured homes; and modular housing;housing. The Company also supplies components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors and factory-built mobile office units.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 operating segments: the RV productsoriginal equipment manufacturers segment (the “RV“OEM Segment”), and the manufactured housing productsaftermarket segment (the “MH“Aftermarket Segment”). The RVOEM Segment accounted for 9092 percent of consolidated net sales for 2014,2016, and the MHAftermarket Segment accounted for 108 percent of consolidated net sales for 2014. RVs may be motorized (motorhomes) or towable (travel trailers, fifth-wheel travel trailers, folding camping trailers and truck campers).2016. Approximately 7971 percent of the Company’s RVOEM Segment net sales in 20142016 were of products sold to manufacturers of travel trailer and fifth-wheel RVs.
OverThe Company is focused on profitable growth in its industries, both organic and through acquisitions. In order to support this growth, over the past fifteenseveral years the Company acquired a number of manufacturers of components for RVs, manufactured homes, specialty trailers and adjacent industries,has expanded its geographic market and product lines, consolidated manufacturing facilities, and integrated manufacturing, distribution and administrative functions. At December 31, 2014,2016, the Company operated 3748 manufacturing and distribution facilities located throughout the United States and in 14 states,Canada and achievedItaly, and reported consolidated net sales of $1.19$1.7 billion for the year ended December 31, 2014.2016.
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'sCompany’s principal executive and administrative offices are located at 3501 County Road 6 East, Elkhart, Indiana 46514; telephone number (574) 535-1125; website www.drewindustries.comwww.lci1.com; e-mail drew@drewindustries.comLCII@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 with the SEC as soon as reasonably practicable after such materials are electronically filed.

Recent Developments

Sales and Profits
Consolidated net sales for 2014 reachedthe year ended December 31, 2016 increased to a Company record of $1.19$1.7 billion, a 1720 percent increase overhigher than the consolidated net sales for the year ended December 31, 2015 of $1.02 billion$1.4 billion. Acquisitions completed by the Company in 2013. Net sales of the Company’s RV Segment increased 20 percent, compared to a 122016 added $64 million in net sales. A 15 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 RV market. Approximately 79 percent of the Company’s RV Segmentunit, positively impacted net sales in 2014 were of products to manufacturers of travel trailer and fifth-wheel RVs. The RV Segment represented 90 percent of consolidated net sales in 2014. Sales growth in new markets and new products continued to be key factors in enabling Drew’sgrowth. Further, the Company organically increased sales to exceed RV industry growth rates. The acquisitions completed by the Company in 2014 added $36 million in net sales in 2014, all of which related to the Company's RV Segment. Net sales of the Company’s MH Segment decreased 5 percent in 2014. The MH Segment represented 10 percent of consolidated net sales in 2014.

In 2014, the Company continued to grow outside its core RV and manufactured housing markets, with aggregate net sales of components for adjacent industries increasing 14 percent to $138 million, and aftermarket net sales increasing 63 percent to $64 million. Together, these markets now accountthe aftermarket. Net income for 17 percent of consolidated net sales, an increase from 10 percent of consolidated net sales in 2010.

For 2014, the Company's net incomefull-year 2016 increased to $62.3$129.7 million, or $2.56$5.20 per diluted share, up from net income of $50.1$74.3 million, or $2.11$3.02 per diluted share, in 2013. Excluding the loss related to the sale of the Company’s aluminum extrusion-related assets in 2014 and charges for executive succession in 2013, net income would have been $63.5 million in 2014, or $2.61 per diluted share, up from net income of $51.3 million, or $2.16 per diluted share, in 2013.2015.
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 2014.2016.




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Acquisitions

During 20142016 and early 20152017, the Company completed five acquisitions, which add approximately $85 million of acquired annual sales, and represent significant sales and profit potential.six acquisitions:

On February 27, 2014, the Company acquired Innovative Design Solutions, Inc. (“IDS”), located in Troy, Michigan, a designer, developer and manufacturer of electronic systems encompassing a wide variety of RV applications. IDS also manufactures electronic systems for automotive, medical and industrial applications. IDS had annual sales of $19 million in 2013, of which $15 million were to the Company. The purchase price was $36.0 million, of which $34.2 million was paid at closing, with the balance to be paid out annually over the subsequent three years, plus contingent consideration based on future sales. The acquisition of IDS provides the Company with further access to unique and innovative electronic products for the RV industry, as well as adjacent industries.

On March 14, 2014,In January 2016, the Company acquired the business and certain assets of Star Design,the pontoon furniture manufacturing operation of Highwater Marine, LLC ("Star Design"(“Highwater”). Star Design had annual sales, a leading manufacturer of $10 millionpontoon and other recreational boats located in 2013, comprised primarily of thermoformed sheet plastic products for the RV, bus and specialty vehicle industries.Elkhart, Indiana. The purchase price was $12.2$10.0 million paid at closing.

On June 13, 2014, the Company acquired the RV business of Actuant Corporation, which manufactures leveling systems, slideout mechanisms and steps, primarily for motorhome RVs, under the Power Gear® and Kwikee® brands. Sales of the acquired business for the twelve months ended May 2014 were $28 million, consisting of sales to OEMs and the aftermarket. The purchase price was $35.5 million, paid at closing.

On August 15, 2014,In February 2016, the Company acquired the business and certain assets of Duncan Systems,Flair Interiors, Inc. ("Duncan Systems"(“Flair”), an aftermarket distributora manufacturer of replacement motorhome windshields, awnings, and RV heavy truck and specialty vehicle glass and windows, primarily to fulfill insurance claims. Sales of Duncan Systems for the twelve months ended July 2014 were $26 million.furniture located in Goshen, Indiana. The purchase price was $18.0$8.1 million paid at closing.

In May 2016, the Company acquired 100 percent of the equity interest of Project 2000 S.r.l. (“Project 2000”), 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 ofby this operation.

On January 16, 2015,In November 2016, the Company acquired the business, manufacturing facility and certain assets of EA Technologies,the seating and chassis components business of Atwood Mobile Products, LLC ("EA Technologies"(“Atwood”) for $9.4 million,, a subsidiary of which $6.8Dometic Group, located in Elkhart, Indiana. The purchase price was $12.5 million was paid in the fourth quarter of 2014, with the balance paid at closing. EA Technologies is

In November 2016, the Company acquired the service centers and related business of Camping Connection, Inc., an Elkhart, Indiana-basedRV repair and service provider located in Myrtle Beach, South Carolina and Kissimmee, Florida. The purchase price was $2.0 million paid at closing.

In February 2017, the Company acquired 100 percent of the outstanding shares of Sessa Klein S.p.A. (“SessaKlein”), a manufacturer of custom steelhighly engineered side window systems for both high speed and aluminum parts and provider of electro-deposition (‘e-coat’) and powder coating services for RV, bus, medium-duty truck, automotive, recreational marine, specialty and utility trailer, and military applications. Sales of the acquired business for 2014 were $17 million. In connection withcommuter trains, located near Varese, Italy. The purchase price was $8.5 million paid at closing, plus contingent consideration based on future sales by this acquisition, the Company also acquired a 250,000 square foot facility, which provides room for capacity expansion.operation.

Other Developments

On January 6, 2014,In March 2016, the Company paidinitiated a special cashregular quarterly dividend of $2.00$0.30 per share, which was increased later in the year to $0.50 per share. During 2016, total dividends of $1.40 per share of common stock, representing an aggregate of $47$34.4 million, were paid to holders of record of its Common Stock on December 20, 2013.stockholders.

During 2014,In December 2016, the Company increased its capacity by approximately 700,000 square feet, bringing its total manufacturing capacityannounced a change of the Company’s corporate name to approximately 4 million square feet. TheLCI Industries from Drew Industries Incorporated. Lippert Components’ business has grown considerably over the past decade, and the new capacity included a new furniture and mattress facility and a new aftermarket and customer service facility, as well as laminated door and chassis product line capacity expansions.corporate name was selected to better align the investment community with the strength of the LCI brand in the industries it serves.

RVOEM Segment

Through its wholly-owned subsidiaries, the Company manufactures and marketsor distributes a varietybroad array of products used primarily incomponents for the productionleading OEMs of RVs including:
● Steel chassis for towable RVs● Chassis components
● Axles and suspension solutions for towable RVs● Furniture and mattresses
● Slide-out mechanisms and solutions● Entry, luggage, patio and ramp doors
● Thermoformed bath, kitchen and other products● Electric and manual entry steps
● Windows● Awnings and slide toppers
● Manual, electric and hydraulic stabilizer and leveling
   systems
● Other accessories and electronic components

The Company also supplies certain of these products to the RV aftermarket, and to adjacent industries, including manufacturers of buses andbuses; trailers used to haul boats, livestock, equipment and other cargo.cargo; trucks; pontoon boats; trains; manufactured homes; and modular housing.

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In 2014,2016, the RVOEM Segment represented 9092 percent of the Company'sCompany’s consolidated net sales and 8990 percent of consolidated segment operating profit. Approximately 7971 percent of the Company’s RVOEM Segment net sales in 20142016 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 RVCompany’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.

Operations of the Company's RVCompany’s OEM Segment consist primarily of fabricating, welding, thermoforming, painting, sewing and assembling components into finished products. The Company's RVCompany’s OEM Segment operations are conducted at 3248 manufacturing and warehouse facilities throughout the United States, and in Canada and Italy, strategically located in proximity to the customers they serve. Of these facilities, 7 also conduct operations in the Company's MH Segment. See Item 2. “Properties.”

The Company's RVCompany’s OEM Segment products are sold primarily to major manufacturers of RVs such as Thor Industries (symbol: THO), Forest River (a subsidiary of Berkshire Hathaway company, symbol: BRKA), Jayco (a private company)Winnebago (symbol: WGO) and other RV OEMs, and to a lesser extent, to manufacturers in adjacent industries and distributors and retail dealers of aftermarket products.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 RV SegmentCompany’s operations compete on the basis of customer service, product quality and reliability, product innovation, price, customer service and reliability.customer satisfaction. Although definitive information is not readily available, the Company believes that with respect to its principal RV products (i) it is the leading supplier of windows and doors for towable RVs, and the Company’s market share for most of its towable RV window and door products is approximately 70 percent;RVs; (ii) the Companyit is the leading supplier of chassis and slide-out mechanisms


for towable RVs, and the Company's combined market share for chassis and slide-out mechanisms for towable RVs exceeds 80 percent;RVs; (iii) the leading suppliers of axles for towable RVs are the Company and Dexter Axle Company, and the Company’s market share for axles for towable RVs is approximately 50 percent;Company; (iv) the Companyit is the leading supplier of furniture for towable RVs, and the Company's market share is approximately 75 percent, and the Company competes with several other manufacturers; (v) the Company is the leading supplier of leveling systems for towable RVs and the Company's market share exceeds 80 percent;RVs; and (vi) the leading suppliers of awnings for towable RVs are the Company, Carefree of Colorado and Dometic Corporation, and the Company’s market share for awnings for towable RVs is approximately 40 percent.Corporation.

The Company’s share of the market for its products in adjacent industries cannot be readily determined; however, RVOEM Segment net sales to adjacent industries increased from $93$275 million in 20132015 to $113$332 million in 2014. The Company’s share2016, 21 percent of the aftermarket for RV parts also cannot be readily determined; however, RVtotal OEM Segment net sales to the aftermarket increased from $25 million in 2013 to $50 million in 2014.sales. The Company has made investments in people, technology and equipment to increase its share of boththe market in adjacent industries and the aftermarket, and is committed to continue these expansion efforts.

Detailed narrative information about the results of operations of the RVOEM Segment is included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Financial information relating to the Company’s business segments is included in Note 214 of the Notes to Consolidated Financial Statements in Item 8 of this Report.

MHAftermarket Segment

ThroughMany 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 wholly-owned subsidiaries, the Company manufactures and markets a variety of products used in the production of manufactured homes, including:
●Vinyl and aluminum windows●Steel chassis
●Thermoformed bath and kitchen products●Steel chassis parts
●Steel and fiberglass entry doors●Axles
●Aluminum and vinyl patio doors
Aftermarket customers. The Company also supplies certainsupports 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 these productsreplacement glass and awnings to fulfill insurance claims. Many of the optional upgrades and non-critical replacements are purchased outside the normal product selling seasons, thereby causing Aftermarket sales to be counter-seasonal.

According to the manufactured housingRecreation Vehicle Industry Association (“RVIA”), current estimated RV ownership had increased to nearly 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 the aftermarket, and to adjacent industries, including modular housing and mobile office units.

In 2014, the MH Segment represented 10 percent of the Company's consolidated net sales, and 11 percent of consolidated segment operating profit. Certain of the Company’s MH Segment customers manufacture both manufactured homes and modular

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homes, and certain of the products manufactured byas the Company are suitable for both typesanticipates owners of homes. As a result, the Company is not always able to determine in which type of home its products are installed.

Raw materials used by the Company's MH Segment, consisting primarily of steel (coil, sheet and I-beam), extruded aluminum and vinyl, glass, and ABS resin, are available from a number of sources, both domestic and foreign.

Operations of the Company's MH Segment consist primarily of fabricating, welding, thermoforming, painting and assembling components into finished products. The Company's MH Segment operations are conducted at 13 manufacturing and warehouse facilities throughout the United States, strategically located in proximity to the customers they serve. Of these facilities, 7 also conduct operations in the Company's RV Segment. See Item 2. “Properties.”

The Company's manufactured housing products are sold primarily to major producers of manufactured homes such as Clayton Homes (a subsidiary of Berkshire Hathaway, symbol: BRKA), Cavco Industries, Inc. (symbol: CVCO), and other OEMs, and, to a lesser extent, to manufacturers in adjacent industries and distributors of aftermarket products.

The manufactured housing industry is also highly competitive among manufacturers and suppliers. The Company competes with several other component suppliers with respect to a broad array of components,previously owned RVs will likely upgrade their units as well as with manufacturers of manufactured homes with vertically integrated operations. The Company's MH Segment competes on the basis of customer service, product quality and innovation, price and reliability. Although definitive information is not readily available, the Company believes that with respect to its principal manufactured housing products (i) it is the leading supplier of windows for manufactured homes, and the Company's market share for windows is approximately 60 percent; (ii) the Company's manufactured housing chassis and chassis parts operations compete with several other manufacturers of chassis and chassis parts, as well as with builders of manufactured homes, many of which produce their own chassis and chassisreplace parts and the Company’s market share for chassisaccessories which have been subjected to normal wear and chassis parts for manufactured homes is approximately 15 percent; and (iii) the Company’s thermoformed bath and kitchen unit operation competes with several other manufacturers of bath and kitchen units, and the Company’s market share for bath and kitchen products in the product lines the Company supplies is approximately 50 percent.tear.

The Company’s share of the market for its products in adjacent industries and the aftermarket cannot be readily determined. MH SegmentAftermarket net sales to adjacent industries and the aftermarket combined was $39increased from $103 million in 2014.2015 to $131 million in 2016. The Company has madecontinues to make investments in people and technology to increase its share of both adjacent industries andgrow the aftermarket,Aftermarket Segment and is committed to continue these expansion efforts.

Detailed narrative information about the results of operations of the MHAftermarket Segment is included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Financial information relating to the Company’s business segments is included in Note 214 of the Notes to Consolidated Financial Statements in Item 8 of this Report.

Sales and Marketing

The Company'sCompany’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 price and customer satisfaction. As a result of the Company'sCompany’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 approximately $2$3 million in 2014.2016.

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-dayssixty-days’ notice. Both the RVOEM Segment and the MHAftermarket 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

In 2014,2016, 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. However, while certain facilities could add a second shift of production in the short term, the Company has found this to be inefficient over the long term. Capacity varies significantly based on seasonal demand, as well as by facility, 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.



At December 31, 2014,2016, the Company operated 3748 manufacturing and distribution facilities, and for most products has the ability to fill demand in excess of capacity at individual facilities by shifting production to other facilities, but the Company would incur

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additional freight costs. Capital expenditures for 20142016 were $42$45 million, and included approximately $20$25 million of "replacement"“replacement” capital expenditures and approximately $22$20 million of "growth"“growth” capital expenditures. The ability to expand capacity in certain product areas, if necessary, as well as the potential to reallocate existing resources, is monitored regularly by management to help ensure that the Company can maintain a high level of production efficiencies throughout its operations.

Seasonality

The RV and manufactured housing industries, as well as otherMost 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, and 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, andthe 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 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, overseas, primarily in Europe and Australia, and export sales represented approximately 2 percent, 1 percent and 1 percent of consolidated net sales in 2014.2016, 2015 and 2014, respectively. The Company continues to focus on developing products tailored for international RV markets. In September 2014, theThe Company participatedparticipates in the largest RV showshows in Europe and receivedhas been receiving positive feedback on its products, especially its proprietary slide-out products. The Company has spent more than two years developing three slide-out systems suited to the needs of the European market, which were recently featured on new RV models. As a result, the Company believes it will see additional orders from European OEMs, which would be shipped from its facilities in the United States.RV OEMs. The Company’s Director of International Business Development will continue to spendspends 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 $750 million.

In May 2016, the Company acquired Project 2000 S.r.l., a manufacturer of motorized entry steps, bed lifts and RV accessories located near Florence, Italy, as a foundation for LCI in the European RV market. In February 2017, the Company also acquired Sessa Klein S.p.A., a manufacturer of highly engineered side window systems for both high speed and commuter trains located near Varese, Italy. The acquisition of Sessa Klein introduces the Company to a new adjacent industry for the European and U.S. train markets, and, the Company believes, will accelerate the opportunities to expand LCI's product offerings for the European RV market.

Intellectual Property

The Company holds severalover 200 United States and foreign patents and has nearly 60 patent applications pending that relate to various products sold by the Company. The Company and has also granted certain licenses that permit third parties to manufacture and sell products in consideration for royalty payments. Approximately 9 percent of the Company’s consolidated net sales are generated by products covered by patents and patent applications held by the Company. The Company believes that its patents are valuable, and vigorously protects its patents when appropriate.

From time to time, the Company has received notices or claims that 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. However, no material litigation is currently pending as a result of these claims.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 with a research and development staff of more than 35 peopleis 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 $9 million, $8 million and $5 million in 2016, 2015 and 2014, and 2013.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 may be subject to similar regulations.



Rules promulgated under the Transportation Recall Enhancement, Accountability and Documentation Act (the “Tread 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 United StatesU.S. Department of Housing and Urban Development (“HUD”) and by the American Architectural Manufacturers Association relating to air and water infiltration, structural integrity, 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.

Windows and doors produced by the Company for the RV industry must comply with regulations promulgated by the National Highway Traffic Safety Administration (“NHTSA”) of the United States Department of Transportation (“DOT”) governing safety glass performance, egress ability, door hinge and lock systems, egress window retention hardware, and baggage

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door ventilation. Windows produced by the Company for buses must comply with Federal Motor Vehicle Safety Standards promulgated by NHTSA.

Trailers produced by the Company for hauling boats, personal watercraft, snowmobiles and equipment must comply with Federal Motor Vehicle Safety Standards promulgated by NHTSA relating to lighting, braking, wheels, tires and other vehicle systems.

Rules promulgated under the Transportation Recall Enhancement, Accountability and Documentation Act (the “Tread Act”) require manufacturers of motor vehicles and certain motor vehicle related equipment to regularly make reports and submit documents and certain historical data to NHTSA to enhance motor vehicle safety, and to respond to requests for information relating to specific complaints or incidents.

Upholstered products and mattresses produced by the Company for motorized RVs and buses must comply with Federal Motor Vehicle Safety Standards promulgated by NHTSA regarding flammability. In addition, upholstered products and mattresses produced by the Company for motorized and towable 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 Recreation Vehicle Industry Association (“RVIA”).

The Company believes that 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 that 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 that 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,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 applicable environmental laws and regulations, one or more of the Company’s current or former operating sites, or adjacent sites owned by third-parties, have been affected by releases of hazardous materials. As a result, the Company may incur expenditures for future investigation and remediation of these sites.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

The number of persons employed full-time by the Company and its subsidiaries at December 31, 20142016 was 5,845,7,654, compared to 5,1096,576 and 6,187 at December 31, 2013.2015 and 2014, respectively. The total at December 31, 20142016 included 4,7816,295 in manufacturing, and product research and development, 255337 in transportation, 72103 in sales, 168230 in customer support and servicing, and 569689 in administration. None of the employees of the Company and its subsidiaries are subject to collective bargaining agreements. The Company and its subsidiaries believebelieves that relations with its employees are good.



Executive Officers

The following table sets forth our executive officers as of December 31, 2014:2016:
NamePosition
  
Jason D. LippertChief Executive Officer and Director
Scott T. MerenessPresident
Joseph S. Giordano IIIBrian M. HallChief Financial Officer and Treasurer
Robert A. KuhnsVice President – Chief Legal Officer and Secretary
Jamie M. SchnurChief Administrative Officer
Nick C. FletcherChief Human Resources Officer


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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 21, 2015.25, 2017.

JASON D. LIPPERT (age 42)44) 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 1520 years of experience with DrewLCII and its subsidiaries, and has served in a wide range of leadership positions.

SCOTT T. MERENESS (age 43)45) became President of the Company effective May 10, 2013, and has been President of Lippert Components since July 2010. Mr. Mereness has over 1520 years of experience with DrewLCII and its subsidiaries, and has served in a wide range of leadership positions.

JOSEPH S. GIORDANO IIIBRIAN M. HALL (age 45)42) joined the Company in March 2013, and has beenserved as Corporate Controller since June 2013, and Chief Financial Officer of the Company since May 2008, and Treasurer since May 2003. Prior to that, he was Corporate Controller from May 2003 to May 2008.November 2016. Prior to joining the Company, from July 1998 to August 2002, Mr. Giordano was a Senior Manager at KPMG LLP, and from August 2002 to April 2003, Mr. Giordano was a Senior Manager at Deloitte & Touche LLP. Mr. Giordano is a Certified Public Accountant.he spent more than 16 years in public accounting.

ROBERT A. KUHNS (age 49)51) joined the Company in March 2013, and has been Vice President – Chief Legal Officer and Secretary since July 31, 2013. Prior to joining the Company, he was a partner in the Corporate Group at the Minneapolis office of Dorsey & Whitney LLP, a full-service global law firm, for 13 years.firm.

Other OfficersJAMIE M. SCHNUR (age 45) 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.

BRIAN M. HALLNICK C. FLETCHER (age 40)56) joined the Company in MarchFebruary 2013 andas Vice President of Human Resources. Since January 2015, he has been Corporate Controller since July 31, 2013.Chief Human Resources Officer. Prior to joining the Company, he was a Senior ManagerMr. Fletcher provided consulting services and held roles in senior level positions at Crowe Horwath LLP for 8 years. Mr. Hall is a Certified Public Accountant.American Commercial Lines, Continental Tire, Wabash National, Siemens and TRW.

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 manufactured housing 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 manufactured housing markets, as well as 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.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.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 RV and manufactured housing industries, as well as other industries where we sell our products or where our products are used, historically have been seasonal and are generally at the highest levels when the weather is moderate. Accordingly, our sales and profits have generally been the highest in the second quarter and lowest in the fourth quarter.seasonal. However, because of fluctuations in dealer inventories, and the impact of international, national and regional economic conditions and consumer confidence on retail sales of RVsproducts which include our components, and other products for which we sell our components,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 manufactured homes and other products which use our components, which would cause reduced production by our customers, and therefore reduced demand for our products.


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Retail dealers of RVs and manufactured homes 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 likely cause, many dealers to reduce inventories, which would result in reduced production by OEMs, and consequently resulting 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 deep discounts.discounts, disrupting the market. Such sales would causehave historically caused a decline in orders for new inventory, which would reducereduced demand for our products.

Conditions in the credit market could limit the ability of consumers to obtain retail financing for RVs and manufactured homes,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 for RVs and manufactured homes and increases in the costs of such financing have in the past limited, and could again limit, the ability of consumers to purchase RVs and manufactured homes,such discretionary products, which would result in reduced production of RVs and manufactured homessuch products by our customers, and therefore reducedreduce demand for our products.

Loans used to finance the purchase of manufactured homes usually have shorter terms and higher interest rates, and are more difficult to obtain, than mortgages for site-built homes. Historically, lenders required higher down payment, higher credit scores and other criteria for these loans. Current lending criteria are higher than historical criteria, and many potential buyers of manufactured homes may not qualify.

The availability, cost, and terms of these manufactured housing loans are also dependent on economic conditions, lending practices of financial institutions, government policies, and other factors, all of which are beyond our control. Reductions in the availability of financing for manufactured homes and increases in the costs of this financing have limited, and could continue to limit, the ability of consumers to purchase manufactured homes, resulting in reduced production of manufactured homes by our customers, and therefore reduced demand for our products. In addition, certain provisions of the Dodd-Frank Act, which regulate financial transactions, could make certain types of mortgages more difficult to obtain – in particular those historically used to finance the purchase of manufactured homes. Although legislation has been introduced to address this matter, and the Bureau of Consumer Financial Protection has been reviewing this matter, there can be no assurance of the outcome.

Excess inventories at dealers and manufacturers can cause a decline in the demand for our products.

Dealers and manufacturers could accumulate excess unsold inventory. ExistenceHigh levels of excessunsold inventory hashave in the past caused, and would cause, a reduction in orders, which would likely cause a decline in demand for our products.

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 a materialan 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 7971 percent of our RVOEM Segment net sales in 2014,2016, are usually towed by light trucks or SUVs. Generally, these vehicles use more fuel than automobiles, particularly while towing RVs.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.

The manufactured housing industry has experienced a significant long-term decline in shipments, which has led to reduced demand for our products.

Our MH Segment, which accounted for 10 percent of consolidated net sales for 2014, operates in an industry which has experienced a decline in production of new homes compared to the peak of production in 1998. The downturn was caused, in part, by limited availability and high cost of financing for manufactured homes, and has been exacerbated by economic and political conditions.

Moreover, during weak markets for conventional housing, retirees may not be able to sell their primary residence, or may be unwilling to sell at currently depressed prices, and purchase less expensive manufactured homes as they have done in the past. In addition, the availability of foreclosed site-built homes at reduced prices or changes in zoning regulations have impacted, and could again impact, the demand for manufactured homes, and therefore reduce demand for our products.

Although industry-wide wholesale production of manufactured homes has improved in recent years, our annual results of operations could decline if manufactured housing industry conditions worsen.


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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 2014,2016, the RVOEM Segment represented 9092 percent of our consolidated net sales, and 8990 percent of consolidated segment operating profit. Approximately 7971 percent of our RVOEM Segment net sales in 20142016 were of products to manufacturers of travel trailer and fifth-wheel RVs. While we measure our RVOEM 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 recently reported at an eight year high.above historical averages in 2016. Declines in industry-wideindustry-

wide wholesale shipments of travel trailer and fifth-wheel RVs could reduce demand for our products and adversely affect our operating results and financial conditioncondition.

Although we have a large number of customers, the loss of any customer accounting for more than 10 percent of our consolidated net sales could have a material adverse impact on our operating results.

Two customers of both the OEM Segment and the Aftermarket Segment accounted for 63 percent of our consolidated net sales in future periods.2016. The loss of either of these customers 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.

The prices we pay for steel and aluminum which represented approximately 5045 percent and 15 percent, respectively, of our raw material costs in 2014, respectively,2016. These, and other key raw materials, have historically been volatile and can changefluctuate dramatically with changes in the global demand and supply and demand.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 supply of raw materials or components used to make our products could adversely impact our financial condition and operating results.results.

Our business depends on our ability to source raw materials, such as steel, aluminum, glass, fabric and aluminum,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. We currently import, or purchase from suppliers who import, approximately 2325 percent of our raw materials and components. Additionally, we have the exclusive right to distribute Furrion’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 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. LaborAdverse political conditions, trade embargoes, increased tariffs or import duties, inclement weather, natural disasters, war, terrorism or labor disputes at various ports or atotherwise adversely impacting our suppliers create significant risks for our business, particularly if these conditions or disputes result in work slow downs,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.

The loss of any customer accounting for more than 10 percentWe import a portion of our consolidated net salesraw materials and the components we sell and the effect of foreign exchange rates could have a material adverse impact onadversely affect our operating results.

One customerWe 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 US Dollars versus the currency of the RV Segment accountedlocal supplier. A dramatic weakening of the US Dollar could increase our cost of goods sold and such cost increases may not be offset through price increases for 33 percent, and another customer of both the RV Segment and the MH Segment accounted for 28 percent, of our consolidated net sales in 2014. The loss of either of these customers would have a material adverse impact onproducts, adversely impacting our operating results and financial condition.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 or ourfor 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 RVssuch products, or manufactured homes, or for the products we make for RVs and manufactured homes,delays in responding to such changes, could reduce demand for our products and adversely affect our net sales and operating resultsresults. Similarly, we believe our ability to remain competitive also depends on our ability to develop innovative new products or enhanced 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 financial condition.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 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.


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Increases in demand could result in difficulty obtaining additional skilled labor, and available capacity may initially not be utilized efficiently.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 demand continues to increase,such conditions become extreme, we may not be able to increase production to timely satisfy demand, and may initially incur higher labor and production costs, which could adversely impact our operating results and financial condition.

We may incur unexpected expenses, or face unanticipated delays, 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 we have made 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 expenseexpenses in connection with these matters. These results wouldExpansion 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 and financial condition.or a loss of market share.

Natural disasters, whether or not caused by climate change, unusual weather conditions, epidemic outbreaks, terrorist acts and political events could disrupt 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 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 or purchase products from our competitors, which could adversely affect our business and operating results.

We have recently entered new markets in order to enhance our growth potential. Uncertainties with respect to these new markets could impact our operating results.results.

We are a leading supplier of components for RVs and manufactured housing, and currently have a significant share of the market for certain of our products, which limits our ability to expand our market share for those products. We have made investments in order to expand the sale of our products in the RV and manufactured housing aftermarket, and in adjacent industries, beyond RVssuch as buses, trucks, pontoon boats and manufactured housing.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 arehave 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. 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 wouldcould adversely impact our business growth in these markets and our results of operations.

As we grow, we will face the risk that our existing resources and systems, including management resources, accounting and finance personnel and operating systems, may be inadequate to support our growth. We cannot assure you that we will be able to retain the personnel or make the changes in our systems that may be required to support our growth. Failure to secure these resources and implement these systems on a timely basis could have an adverse effect on our results of operations. In addition, hiring additional personnel and implementing changes and enhancements to our systems will require capital expenditures and other increased costs that could also have an adverse impact on our results of operations.

If acquired businesses are not successfully integrated into our operations, our financial condition and operating results could be adversely impacted.impacted.

We have engaged,completed several business acquisitions and may continue to engage in acquisitions or similar activities, such as joint ventures and may participateother 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 that involve potential risks, includingincluding:
the failure to successfully integrate departments and realize systems, including IT and accounting systems, technologies, books and records and procedures,
the expected benefits of such transactions,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 possible culture conflicts. write-off of significant amounts of goodwill or other assets that could adversely affect our operating results, 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, into our existing operations, 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 2 percent, 1 percent and 1 percent of consolidated net sales in 2016, 2015 and 2014, respectively. We plan to continue pursuing international opportunities. In May 2016, we acquired Project 2000 S.r.l., a manufacturer of motorized entry steps, bed lifts and RV accessories, located near Florence, Italy, as a foundation for LCI in the European RV market. In February 2017, we also acquired Sessa Klein S.p.A., a manufacturer of highly engineered side window systems for both high speed and commuter trains, located near Varese, Italy. The acquisition of Sessa Klein introduces us to a new adjacent industry for the European and U.S. train markets, and, we believe, will accelerate the opportunities to expand our product offerings for the European RV market.

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 and limitations on the repatriation of funds because of foreign exchange controls; different liability standards; 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.operations.


We are dependent to a significant extent uponon the knowledge, experience and skill of our management.leadership team. The loss of the services of one or more of our key managementmanagers or the failure to attract or retain qualified managementmanagerial, 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 a materialan 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 National Highway Traffic Safety Administration (“NHTSA”) of the United States Department of Transportation (“DOT”), the Consumer Products Safety Commission, the United States Department of Housing and Urban Development (“HUD”), and consumer safety standards promulgated by state regulatory agencies and industry associations, and theassociations. The failure to comply with present or future regulations and standards could subject us to lawsuits, administrative penalties, and civil remedies, including fines, injunctions, and recalls of our products. Sales intoand manufacturing operations in foreign countries may be subject

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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. In addition, our failure to comply with present or future regulations could result in fines being imposed on us, potential civil and criminal liability, suspension of sales or production or cessation of operations.

Further, certain 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 competition. International operationshealth and safety. We are also subject to compliance with the U.S. Foreign Corrupt Practices Act or FCPA,(“FCPA”), and other anti-corruption and anti-bribery laws applicable to our operations. Compliance with these laws and others may be onerous and costly, at times, and may be inconsistent from jurisdiction to jurisdiction, which further complicates compliance efforts. Violations of anythese 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 have instituted various policies and procedures to ensure compliance. However, we cannot assure you that employees, contractors, vendors or our agents will not violate such laws could subject us to sanctionsand regulations or other penalties that could negatively affect our reputation, businesspolicies and operating results.procedures.

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 20142016 was impacted by higher health insurance costs, largely due to increased employee participation, which we believe is largely due to the new healthcare requirements, 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 or vendors could result in violations of law by us, regulatory sanctions and/or serious reputational harm or financial harm. We monitor our policies, procedures and controls; however, 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 it is possible that our compensation policies could incentivize inappropriate risk taking or misconduct. If such inappropriate risks or misconduct occurs, it is possible that it could have an adverse effect on our results of operations and/or our financial condition.

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, 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. Our 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 by releases of hazardous materials. As a result, we may incur expenditures for future investigation and remediation.remediation, including in conjunction with voluntary remediation programs or third party claims. If other potentially responsible persons (“PRPs”) 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 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 and patents, 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. To protect our 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. However, we cannot assure you that these measures will be successful in any given instance, particularly in countries outside the U.S. We endeavor to protect our rights; however, third parties may infringe upon our intellectual property rights. We may be forced to take steps to protect our rights, including through litigation. This could result in a diversion of resources. The inability to protect our intellectual property rights could have a material adverse effect onresult in competitors manufacturing and marketing similar products which could adversely affect our business.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. We may also be subject to claims by third parties, seeking to enforce their claimed intellectual property rights. The loss of protection for our intellectual property could 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 new 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. There will bedisclosures that began in May 2014. We have incurred costs associated with complyingand diverted internal resources to comply with these disclosure requirements, including for diligence to determine the sources of conflictthose minerals that may be used in our products and other potential changesor necessary to products, processes or sourcesthe production of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be onlyCompliance costs are expected to continue in future periods, subject to any regulatory changes implemented by the new administration in Washington, D.C. Further action or clarification from the SEC or a limited number of suppliers offering conflict-free minerals, we cannot be surecourt regarding required disclosures could result in reputational challenges that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. We may also face reputational challengescould 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 through the procedures we may implement.and are required to make such disclosures.


15


If our information technology systems fail to perform adequately or are breached, our operations could be disrupted and could adversely affect our business, reputation and results of operation.
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, and 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 or interruption from circumstances beyond our control, including fire, natural disasters, security breaches, telecommunications failures, computer viruses, hackers, 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. Due to our reliance on our information systems, we have established various levels of security, backup and disaster recovery procedures. 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.
IfAdditionally, because we expandaccept 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 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, internationally, we will be subject to new operationalfinancial condition and financial risksresults of operations.

We could incur warranty claims in excess of reserves.

OverWe receive warranty claims from our customers in the past several years,ordinary course of our business. Although we maintain reserves for such claims, which to date have been gradually growing sales overseas, primarilyadequate, 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 Europewarranty claims exceeding our current warranty expense levels could have an adverse effect on our results of operations and Australia,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 export sales represented approximately 1 percentcustomer satisfaction actions. Although we estimate and reserve for the cost of consolidated net sales in 2014. 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 planmay be subject to continue pursuing international opportunities. Business outsideproduct liability claims if people or property are harmed by the products we sell.

Some of the United Statesproducts 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 subject to various risks,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, 2016 are 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.

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, including: changes in tariffs, trade restrictions, trade agreements,control. These factors include: the perceived prospects of our business and taxations; difficulties in managing or overseeing foreign operationsour industries as a whole; differences between our actual financial and agents; differences in regulatory environments, labor practices and market practices; cultural and linguistic differences; foreign currency fluctuations and limitations on the repatriation of funds because of foreign exchange controls; different liability standards; 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 impactthose 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 the regulatory environment in which we operate; significant sales of shares by a principal stockholder; actions taken by stockholders that may be contrary to Board of Director 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 abilitycommon stock for reasons unrelated to operate in international markets.our performance.

Item 1B. UNRESOLVED STAFF COMMENTS.

None.


16




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 Goshen, Indiana. Total administrative space company-wide aggregates approximately 251,000 square feet. At December 31, 2014,2016, the Company'sCompany’s properties were as follows:
RV SEGMENT
City StateState/Province Square Feet Owned Leased
Double Springs(1)
 Alabama 54,500109,000
     
Gilbert Arizona 11,600
     
Rialto(1)
 California 56,43062,700
     
Lakeland Florida 9,50015,000
KissimmeeFlorida4,246
FitzgeraldGeorgia79,000
NampaIdaho125,000
     
Nampa Idaho 147,00083,500
NampaIdaho22,000
     
Nampa(1)
Idaho29,225
Twin Falls Idaho 16,060
     
Goshen(1)
 Indiana 385,000410,000
     
South BendIndiana379,902
Goshen Indiana 355,960
     
Goshen Indiana 341,000
     
Elkhart Indiana 308,864
     
South BendElkhart Indiana 300,973250,000
   
ElkhartIndiana160,000
  
GoshenIndiana153,200
Goshen Indiana 144,500
     
Goshen (1)
Fort Wayne
 Indiana 138,700140,000
MiddleburyIndiana122,226
     
MiddleburyAuburn Indiana 122,226119,000
GoshenIndiana118,125
GoshenIndiana110,000
     
Elkhart Indiana 102,900
     
Middlebury Indiana 101,776
     
Goshen Indiana 95,960
     
Elkhart Indiana 92,000
     
Goshen Indiana 87,800
     
MishawakaElkhart Indiana 67,00087,000
     
Goshen Indiana 53,50074,200
     
ElkhartHowe Indiana 53,00060,000
GoshenIndiana53,500
     
Elkhart Indiana 28,000
     
Goshen Indiana 22,000
     
Elkhart Indiana 20,00018,000
    
ElkhartMillersburg Indiana 11,38010,000
CalenzanoItaly15,000
     
Sterling Heights Michigan 27,36337,018


CityState/ProvinceSquare FeetOwnedLeased
Jackson CenterOhio12,000
     
Pendleton Oregon 56,800
     
McMinnville(1)
 Oregon 17,85035,700
     
Denver
Pennsylvania40,200
GranbyQuebec65,000
ChesterSouth Carolina108,600
GaffneySouth Carolina55,000
Myrtle BeachSouth Carolina9,800
SpringfieldTennessee60,000
Waxahachie(1) Texas 25,000195,000
     
Kaysville Utah 70,000
     
    3,353,8675,234,137
 
(2)(1) 
    
____________________________
(1)At December 31, 2015, the Company used an aggregate of 4,791,182 square feet for manufacturing and warehousing.
(1)    These plants also produce products for the MH Segment. The square footage indicated above represents that portion of the building that is utilized for the manufacture of products for the RV Segment.
(2)    At December 31, 2013,2016, the Company’s RV SegmentCompany maintained the following facilities, or partial facilities, not currently used an aggregate of2,957,520 square feet for manufacturingin production. The Elkhart property lease expires in May 2017 and warehousing.

17




the remaining properties are currently leased to third parties.
MH SEGMENT
City StateState/Province Square Feet Owned Leased
Double Springs (1)
Phoenix
 AlabamaArizona 54,50061,000
     
Rialto (1)
Mishawaka
 CaliforniaIndiana 6,270332,356
     
FitzgeraldGeorgia79,000
Nampa(1)
Idaho54,275
GoshenElkhart Indiana 110,000
HoweIndiana60,000
Goshen (1)
Indiana25,000
Goshen (1)
Indiana14,500
Arkansas CityKansas7,800144,000
     
McMinnville (1)
South Bend
 OregonIndiana 17,850
DenverPennsylvania40,200134,235
     
ChesterMishawaka South CarolinaIndiana 108,600
Waxahachie (1)
Texas170,000107,600
     
    747,995779,191
 
(2)
    

____________________________
(1)    These plants also produce products for the RV Segment. The square footage indicated above represents that portion of the building that is utilized for the manufacture of products for the MH Segment.
(2)    At December 31, 2013, the Company’s MH Segment used an aggregate of 807,495 square feet for manufacturing and warehousing.

ADMINISTRATIVE
CityStateSquare FeetOwnedLeased
Double SpringsAlabama7,200
ElkhartIndiana49,200
GoshenIndiana25,000
GoshenIndiana15,500
GoshenIndiana11,000
ElkhartIndiana8,000
GoshenIndiana6,000
GoshenIndiana5,156
MishawakaIndiana3,000
GoshenIndiana1,680
Sterling HeightsMichigan6,387
WaxahachieTexas16,000
WaxahachieTexas5,000
KaysvilleUtah5,000
164,123


18



At December 31, 2014, the Company maintained the following facilities not currently used in production. The owned facilities had an aggregate book value of $11.5 million.
CityStateSquare Feet
Phoenix*Arizona61,000
LakelandFlorida15,000
Elkhart**Indiana250,000
South Bend*Indiana238,164
GoshenIndiana158,125
Elkhart***Indiana78,084
GoshenIndiana74,200
Topeka***Indiana67,560
GoshenIndiana4,874
____________________________
*Currently leased to a third party.
**Leased to EA Technologies at December 31, 2014, which was subsequently acquired in January 2015.
***Exited lease in Q1 2015

Item 3.LEGAL PROCEEDINGS.
Item 3.    LEGAL PROCEEDINGS.

In the normal course of business, the Company is subject to proceedings, lawsuits, regulatory agency inquiries and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, it is management'smanagement’s opinion that, after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided for in the Consolidated Balance Sheet as of December 31, 2014,2016, would not be material to the Company'sCompany’s financial position or annual results of operations.

Item 4.    MINE SAFETY DISCLOSURES.

Not applicable.


19



PART II

Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

As of February 23, 2015,January 31, 2017, there were 385343 holders of the Company’s Common Stock,common stock, in addition to beneficial owners of shares held in broker and nominee names. The Company’s Common Stockcommon stock trades on the New York Stock Exchange under the symbol “DW”“LCII”.

Information concerning the high and low closing prices of the Company’s Common Stockcommon stock for each quarter during 20142016 and 20132015 is set forth in Note 1516 of the Notes to Consolidated Financial Statements in Item 8 of this Report.

Equity Compensation Plan Information as of December 31, 20142016:
Plan category
Number of securities
to be issued upon
exercise of outstanding
options, warrants
and rights
 
 
Weighted average
exercise price of outstanding options, warrants and rights
 
 
 
 
Number of securities
remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Number of securities
to be issued upon
exercise of outstanding
options, warrants
and rights
 
 
Weighted average
exercise price of outstanding options, warrants and rights
 
 
 
 
Number of securities
remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(a)(b)(c)(a)(b)(c)
Equity compensation plans approved by security holders1,496,396$5.121,389,506765,949$0.601,049,752
Equity compensation plans not approved by security holdersN/AN/AN/AN/AN/AN/A
Total1,496,396$5.121,389,506765,949$0.601,049,752

Pursuant to the DrewLCI Industries Incorporated Equity Award and Incentive Plan, As Amended and Restated (the “Plan”), which was approved by stockholders in May 2011, the Company may grant to its directors, employees, and consultants equity-based awards, such as stock options, restricted stock and deferred stock units. The number of shares available for granting awards under the Plan was 1,389,5061,049,752 at December 31, 2014,2016, and 246,3681,305,440 at December 31, 2013.2015. The Plan is the Company’s only equity compensation plan.

Dividend Information

On January 6,In each of 2014 and 2015, the Company paid a special cash dividend of $2.00 per share to holders of record of its Common Stock on December 20, 2013, and on December 20, 2012,common stock. In 2016, the Company paidinitiated a special cashregular quarterly dividend of $2.00$0.30 per share, which was increased later in the year to holders$0.50 per share. During 2016, total dividends of record$1.40 per share of its Common Stock on December 10, 2012. common stock, representing an aggregate of $34.4 million, were paid to stockholders.

Future dividend policy with respect to the Common Stockcommon stock will be determined by the Board of Directors of the Company in light of prevailing financial needs and earnings of the Company and other relevant factors. The Company’s dividend policy is not subject to specific restrictions in its financing agreements, but rather is limited by certain of the debt covenant calculations.


20




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.
 Year Ended December 31, Year Ended December 31,
(In thousands, except per share amounts) 2014 2013 2012 2011 2010 2016 2015 2014 2013 2012
                    
Operating Data:                    
Net sales $1,190,782
 $1,015,576
 $901,123
 $681,166
 $572,755
 $1,678,898
 $1,403,066
 $1,190,782
 $1,015,576
 $901,123
Severance $
 $3,716
 $
 $
 $
Sale of extrusion assets $1,954
 $
 $
 $
 $
 $
 $
 $1,954
 $
 $
Executive succession $
 $1,876
 $1,456
 $
 $
 $
 $
 $
 $1,876
 $1,456
Operating profit $95,487
 $78,298
 $58,132
 $48,548
 $45,428
 $200,850
 $116,254
 $95,487
 $78,298
 $58,132
Income before income taxes $95,057
 $77,947
 $57,802
 $48,256
 $45,210
 $199,172
 $114,369
 $95,057
 $77,947
 $57,802
Provision for income taxes $32,791
 $27,828
 $20,462
 $18,197
 $17,176
 $69,501
 $40,024
 $32,791
 $27,828
 $20,462
Net income $62,266
 $50,119
 $37,340
 $30,059
 $28,034
 $129,671
 $74,345
 $62,266
 $50,119
 $37,340
                    
Net income per common share:                    
Basic $2.60
 $2.15
 $1.66
 $1.35
 $1.27
 $5.26
 $3.06
 $2.60
 $2.15
 $1.66
Diluted $2.56
 $2.11
 $1.64
 $1.34
 $1.26
 $5.20
 $3.02
 $2.56
 $2.11
 $1.64
                    
Cash dividends per common share $1.40
 $2.00
 $2.00
 $
 $2.00
          
Financial Data:                    
Working capital $100,451
 $107,339
 $84,243
 $85,657
 $97,791
Net working capital $218,043
 $146,964
 $100,451
 $107,339
 $84,243
Total assets $543,841
 $453,184
 $373,868
 $351,083
 $306,781
 $786,904
 $622,856
 $543,841
 $453,184
 $373,868
Long-term obligations $41,758
 $21,380
 $19,843
 $21,876
 $18,248
 $87,284
 $85,419
 $41,758
 $21,380
 $19,843
Stockholders, equity $394,898
 $313,613
 $284,245
 $277,296
 $243,459
Stockholders’ equity $550,269
 $438,575
 $394,898
 $313,613
 $284,245



21



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 conductsLCI Industries (“LCII”, and collectively with its operationssubsidiaries, the “Company”), through its wholly-owned operating subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, “Lippert Components” or “LCI”). The Company, through Lippert Components,, supplies, domestically and internationally, a broad array of components for the leading original equipment manufacturers (“OEMs”) of recreational vehicles (“RVs”) and manufactured homes, and to a lesser extent supplies components for adjacent industries including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; pontoon boats; trains; manufactured homes; and modular housing; and factory-built mobile office units.housing. The Company has no unconsolidated subsidiaries.also supplies components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors and service centers.

The Company haspreviously had two reportable segments;segments, the recreational vehicle products segment (the “RV Segment”) and the manufactured housing products segment (the “MH Segment”). The Company has recently increased its focus on the significant opportunities in the aftermarket for its products, primarily sales to retail dealers, wholesale distributors and service centers. Additionally, over the past several years, sales of components for manufactured homes have become a smaller part of the Company’s business, largely due to the growth the Company has experienced with respect to its components sold to customers for traditional recreational vehicles as well as the expanded use of its components in other non-RV applications, which we refer to as adjacent industries. Unit growth for MH Segment products has also been lower over the last decade, primarily due to the real estate, credit and economic environment, including the availability of site built homes at stable prices and high interest rate spreads between conventional mortgages for site-built homes and loans for manufactured homes. In response to these changes in


the Company’s business, subsequent to March 31, 2016, the Company modified its internal reporting structure, reflecting a change in how its chief operating decision maker (“CODM”) assesses the performance of the Company’s operating results and makes decisions about resource allocations. The Company’s new reportable segments are the OEM Segment and the Aftermarket Segment. Intersegment sales are insignificant. At December 31, 2014,2016, the Company operated 3748 manufacturing and distribution facilities located throughout the United States and in 14 states.

Effective with the second quarter of 2013, in connection with the management successionCanada and relocation of the corporate office from New York to Indiana, corporate expenses, accretion related to contingent consideration and other non-segment items, which were previously reported on separate lines, have been included as part of segment operating profit. 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. The segment disclosures from prior years have been reclassified to conform to the current year presentation.Italy.

Net sales and operating profit were as follows for the years ended December 31:
(In thousands)2014 2013 2012
Net sales:     
RV Segment:     
RV OEMs:     
Travel trailers and fifth-wheels$844,096
 $727,783
 $653,478
Motorhomes67,774
 47,937
 34,612
RV aftermarket49,570
 25,334
 19,119
Adjacent industries113,008
 92,640
 73,716
Total RV Segment net sales$1,074,448
 $893,694
 $780,925
      
MH Segment:     
Manufactured housing OEMs$77,421
 $80,245
 $80,392
Manufactured housing aftermarket14,186
 13,719
 13,110
Adjacent industries24,727
 27,918
 26,696
Total MH Segment net sales$116,334
 $121,882
 $120,198
      
Total net sales$1,190,782
 $1,015,576
 $901,123
(In thousands)2016 2015 2014
Net sales:     
OEM Segment:     
RV OEMs:     
Travel trailers and fifth-wheels$1,099,882
 $938,787
 $841,497
Motorhomes116,191
 86,513
 70,332
Adjacent industries OEMs332,018
 274,760
 215,197
Total OEM Segment net sales1,548,091
 1,300,060
 1,127,026
Aftermarket Segment:     
Total Aftermarket Segment net sales130,807
 103,006
 63,756
Total net sales$1,678,898
 $1,403,066
 $1,190,782
      
Operating profit:     
OEM Segment$180,850
 $105,224
 $88,744
Aftermarket Segment20,000
 14,746
 8,697
Total segment operating profit200,850
 119,970
 97,441
Severance
 (3,716) 
Sale of extrusion assets
 
 (1,954)
Total operating profit$200,850
 $116,254
 $95,487

(In thousands)2014 2013 2012
Operating profit:     
RV Segment$86,571
 $68,248
 $47,172
MH Segment10,870
 11,926
 12,416
Total segment operating profit97,441
 80,174
 59,588
Sale of extrusion assets(1,954) 
 
Executive succession
 (1,876) (1,456)
Total operating profit$95,487
 $78,298
 $58,132
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.


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Net sales and operating profit by segment, as a percent of the total, were as follows for the years ended December 31:
 2014 2013 2012
Net sales     
RV Segment90% 88% 87%
MH Segment10% 12% 13%
Total net sales100% 100% 100%
      
Operating Profit:     
RV Segment89% 85% 79%
MH Segment11% 15% 21%
Total segment operating profit100% 100% 100%
 2016 2015 2014
Net sales:     
OEM Segment92% 93% 95%
Aftermarket Segment8% 7% 5%
Total net sales100% 100% 100%
      
Operating Profit:     
OEM Segment90% 88% 91%
Aftermarket Segment10% 12% 9%
Total segment operating profit100% 100% 100%

Operating profit margin by segment was as follows for the years ended December 31:
 2014 2013 2012
RV Segment8.1% 7.6% 6.0%
MH Segment9.3% 9.8% 10.3%
 2016 2015 2014
OEM Segment11.7% 8.1% 7.9%
Aftermarket Segment15.3% 14.3% 13.6%

The Company’s RVOEM Segment manufactures or distributes a varietybroad array of products used primarily incomponents for the productionleading OEMs of RVs and adjacent industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; pontoon boats; trains; manufactured homes; and modular housing. Approximately 71 percent of the Company’s OEM Segment net sales for the year ended December 31, 2016 were of components for travel trailer and fifth-wheel RVs, including:


● Steel chassis for towable RVsand related componentsChassis componentsFurniture and mattresses
● Axles and suspension solutions for towable RVsFurnitureElectric and mattressesmanual entry steps
● Slide-out mechanisms and solutionsEntry, luggage, patioAwnings and ramp doorsawning accessories
● Thermoformed bath, kitchen and other productsElectric and manual entry stepsElectronic components
WindowsVinyl, aluminum and frameless windowsAwnings and slide toppersAppliances
● Manual, electric and hydraulic stabilizer and 
leveling
systems
● Televisions, sound systems, navigation 
   systems and backup cameras
● Entry, luggage, patio and ramp doors● Other accessories and electronic components

The Company alsoAftermarket Segment supplies certainmany of these productscomponents to the related aftermarket channels of the RV aftermarket, and to adjacent industries, including busesprimarily to retail dealers, wholesale distributors and trailers usedservice centers. The Aftermarket Segment also includes the sale of replacement glass and awnings to haul boats, livestock, equipment and other cargo. Approximately 79 percent of the Company’s RV Segment net sales in 2014 were of products to original equipment manufacturers ("OEMs") of travel trailer and fifth-wheel RVs. Travel trailer and fifth-wheel RVs accounted for 81 percent of all RVs shipped by the industry in 2014.fulfill insurance claims.

The Company’s MH Segment manufactures a variety of products used in the production of manufactured homes, including:
●Vinyl and aluminum windows●Steel chassis
●Thermoformed bath and kitchen products●Steel chassis parts
●Steel and fiberglass entry doors●Axles
●Aluminum and vinyl patio doors

The Company also supplies certain of these products to the manufactured housing aftermarket, and to adjacent industries, including modular housing and mobile office units. Certain of the Company’s MH Segment customers manufacture both manufactured homes and modular homes, and certain of the products manufactured by the Company are suitable for both types of homes. As a result, the Company is not always able to determine in which type of home its products are installed.

The RV and manufactured housing industries, as well as otherMost 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 components to the aftermarket channels of these industries tend to be counter-seasonal.

Over the past several years, largely due to the growth the Company has experienced in its RV Segment, the MH Segment
is now a smaller part of the Company. Net sales to manufactured housing OEMs are 7 percent of consolidated 2014 net sales. In addition, the Company has recently increased its focus on the significant opportunities in the RV aftermarket, which is currently

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included in the RV Segment. While there were no changes to the Company’s segment reporting through December 31, 2014, the Company will continue to evaluate the information provided to its Chief Operating Decision Maker ("CODM"), and assess the impact of any changes to its reporting structures that will reflect how its CODM will assess the performance of the Company's operating segments and make decisions about resource allocations which impact the operating segments the Company reports.INDUSTRY BACKGROUND

INDUSTRY BACKGROUNDOEM 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. Based on the strength of retail sales and the current outlook from several RV OEMs and their dealer networks, most industry analysts continue to report that RV dealer inventory is in line with anticipated retail demand.
According to the Recreation Vehicle Industry Association (“RVIA”), industry-wide wholesale shipments of travel trailer and fifth-wheel RVs in 2014,2016, the Company’s primary RV markets,market, increased 1215 percent to 298,900362,700 units, compared to 2013,2015, as a result of:

An estimated 20,20033,300 unit increase in retail demand in 2014,2016, or 811 percent, as compared to 2013.2015. In addition, retail demand is typically revised upward in subsequent months, primarily due to delayed RV registrations.
RV dealers increasing inventory levels by 27,900an estimated 12,300 units in 2014, or 10,700 more2016, compared to the decrease in inventory levels of 2,700 units than in 2013. The 2014 increase occurred largely in the fourth quarter of 2014, consistent with prior years.2015.
The annual sales cycle for the RV industry has historically started in October after the “Open House” in Elkhart, Indiana where RV OEMs display product to RV retail dealers, and ended after the conclusion of the Summer selling season in September. Between October and March, industry-wide wholesale shipments of travel trailer and fifth-wheel RVs have historically exceeded retail sales, and between April and September, the Spring and Summer selling seasons, retail sales of travel trailer and fifth-wheel RVs have historically exceeded industry-wide wholesale shipments. Based on dealer surveys and information from wholesale finance companies, most industry analysts report dealer inventories of travel trailer and fifth-wheel RVs are in-line with anticipated retail demand in the upcoming Spring 2015 selling season.
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:


 Wholesale Retail 
Estimated Unit
Impact on
Dealer
 Units Change Units Change Inventories
Year ended December 31, 2014298,900
 12% 271,000 8% 27,900
Year ended December 31, 2013268,000
 10% 250,800 13% 17,200
Year ended December 31, 2012242,900
 14% 222,800 8% 20,100
 Wholesale Retail 
Estimated Unit
Impact on
Dealer
 Units Change Units Change Inventories
Year ended December 31, 2016362,700
 15% 350,400 11% 12,300
Year ended December 31, 2015314,400
 5% 317,100 14% (2,700)
Year ended December 31, 2014298,900
 12% 277,300 11% 21,600

According to the RVIA, industry-wide wholesale shipments of motorhome RVs in 20142016 increased 1516 percent to 43,90054,800 units compared to 2013.2015. Retail demand for motorhome RVs also increased 1511 percent in 2014,2016, following a 3115 percent increase in retail demand in 2013.2015.

While productionThe RVIA has projected a modest increase in 2014 was strong,industry-wide wholesale shipments of travel trailer and several customersfifth-wheel RVs for 2017. Several RV OEMs, however, are introducing new product lines and additional features, and adding production capacity, unless retail demand matches these production levels, dealers could reduce the pace of their orders, and our customers, the OEMs, would need to adjust their production levels in future months.capacity. Retail sales of RVs historically have been closely tied to general economic conditions, as well as consumer confidence which was recently reported at an eight year high. Retailabove historical averages in 2016. Additionally, retail sales of travel trailer and fifth-wheel RVs have increased in 5884 of the last 6186 months on a year-over-year basis, corresponding withbasis. Industry resources report strong attendance and high consumer interest at RV shows around the improvementUnited States and Canada in consumer confidence. Several industry analysts also report that thelate 2016 and into early 2017.
Although future retail demand is inherently uncertain, RV industry may benefit fromfundamentals in 2016, including generally low unemployment, low fuel prices and available credit for dealers and RV consumers, were strong, as evidenced by the growing popularityestimated 11 percent increase in industry-wide retail sales of the RV lifestyletravel trailer and the addition of new 'entry-level' RV units.

Retail RV shows for the first part of 2015 have been strong, with reports of higher traffic and increased sales activity.fifth-wheel RVs. The Company believes that the strong RV industry fundamentals, aided by product innovation, demographic tailwinds, industry promotion and the advent of stronger dealer networks, are positive signs for 2015.2017. The Company also remains confident in its ability to exceed industry growth rates through new product introductions, market share gains, aftermarket sales, acquisitions and ongoing investments in research and development, engineering, quality and customer service.

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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 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. Further,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”. The current campaign isLifestyle” targeted at both parents aged 30-4930 - 49 with children at home, as well as couples aged 50-6450 - 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, will all hopefullyare trends that could continue to motivate consumer demand for RVs. RVIA studies indicate that 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.

Manufactured Housing Industry

Manufactured homes are built entirely in a factory on permanent steel undercarriages or chassis to which axles and wheels are attached. The homes are then transported to a manufactured housing dealer which sells and transports the home to the buyer’s home site. The manufactured home is installed pursuant to a federal building code administered by the U.S. Department of Housing and Urban Development (“HUD”). The federal standards regulate manufactured housing design and construction, methods to site and secure the home at a home site, strength and durability, transportability, fire resistance, energy efficiency and quality. The HUD code also sets performance standards for the heating, plumbing, air conditioning, thermal and electrical systems. It is the only federally regulated national building code.

Manufactured homes contain one or more “floors” or sections which can be joined to make larger homes. A typical section may range in size from 800 to 1,200 square feet. During 2014, multi-section homes were 53 percent of the total manufactured homes produced, consistent with 2013 and 2012. Multi-section homes averaged 64 percent of the total manufactured homes produced between 2007 and 2010. Multi-section manufactured homes contain more of the Company’s products than single-section manufactured homes.Adjacent Industries

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

The estimated potential content per unit the Company may supply to the Adjacent Industries varies by OEM product and differs from 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 176,000, 184,000 and 174,000 enclosed trailers were sold in 2016, 2015 and 2014, respectively.
Pontoon boats. Statistical Surveys also reported approximately 44,800, 41,300 and 38,500 pontoon boats were sold in 2016, 2015 and 2014, respectively.


School buses. According to Wards Communications and R.L. Polk & Co., there were approximately 32,800, 29,600 and 28,200 school buses sold in 2016, 2015 and 2014, respectively.
Manufactured housing. According to the Institute for Building Technology and Safety, (“IBTS”) reported industry-widethere were approximately 81,100, 70,500 and 64,300 manufactured home wholesale shipments of manufactured homes were 64,300 units in 2016, 2015 and 2014, an increase of 7 percent from 2013. For the full year 2013, there were 60,200 industry-wide wholesale shipments of manufactured homes, an increase of 10 percent compared to 2012.respectively.

ForAftermarket Segment

Many of the 20 years priorCompany’s OEM Segment products are also sold through various aftermarket channels, including dealerships, warehouse distributors and service centers, as well as direct to retail customers. The Company has teams dedicated to product training and marketing support for its Aftermarket customers. The Company also supports two call centers to provide quick responses to customers for both product delivery and technical support. This support is designed for a rapid response to critical repairs so customer downtime is minimized. The Aftermarket Segment also includes the sale of replacement glass and awnings to fulfill insurance claims. Many of the optional upgrades and non-critical replacements are purchased outside the normal product selling seasons, thereby causing Aftermarket sales to be counter-seasonal.

According to the sub-prime boom in home financing, manufactured housing industry-wide wholesale shipments represented 20 percent or moreRVIA, current estimated RV ownership had increased to nearly nine million units. Additionally, as a result of single-family housing starts. Duringa vibrant secondary market, one third of current owners purchased their RV new while the sub-prime years, 2003 to 2007, when extremely low cost loans were availableremaining two-thirds purchased a previously owned RV. This vibrant secondary market is a key driver for financing purchases of site-built homes, many traditional buyers of manufactured homes were able to purchase site-built homes instead of manufactured homes, and manufactured housing’s share of the single-family market dropped precipitously, to below 10 percent. Since the sub-prime “bubble” burst in 2007 and 2008, this market share has averaged about 11 percent, despite interest rates for manufactured home loans remaining historically high relative to interest rates for site-built home loans. Accordingly,aftermarket, as the Company believes the manufactured housing industry may experience a modest recoveryanticipates owners of previously owned RVs will likely upgrade their units as the economy continueswell as replace parts and accessories which have been subjected to improvenormal wear and home buyers look at affordable housing options. However, because of the current real estate, credit and economic environment, including the availability of site built homes at stable prices and high interest rate spreads between conventional mortgages for site-built homes and loans for manufactured homes, the Company expects industry-wide wholesale shipments of manufactured homes to remain low until these conditions improve.tear.

In addition, certain provisions of the Dodd-Frank Act, which regulate financial transactions, have made certain types of mortgages, including chattel loans, more difficult or more expensive to obtain – in particular those historically used to finance the purchase of manufactured homes. Although new legislation has been introduced to address this matter, and the Consumer Financial Protection Bureau has been reviewing this matter, there can be no assurance of the outcome.

Nevertheless, the Company believes that long-term growth prospects for manufactured housing remain positive because of (i) the quality and affordability of the home, (ii) favorable demographic trends, including the increasing number of retirees who, in the past, had represented a significant market for manufactured homes, and (iii) pent-up demand by retirees who could potentially purchase a manufactured home, but have been unable or unwilling to sell their primary residence while market prices were recovering from recession levels.


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RESULTS OF OPERATIONS

Year Ended December 31, 20142016 Compared to Year Ended December 31, 20132015

Consolidated Highlights

NetConsolidated net sales for the year ended December 31, 20142016 increased by $175 million, or 17 percent, to a record $1.19$1.7 billion, primarily due to the 20 percent increase in net sales of the Company's RV Segment. The Company's RV Segment accounted for 90 percent ofhigher than consolidated net sales for 2014. Excluding the impactyear ended December 31, 2015 of acquisitions,$1.4 billion. Acquisitions completed by the Company's RV SegmentCompany in 2016 added $64 million in net sales increased 16 percent, compared to the 12sales. The 15 percent increase in industry-wide wholesale shipments of travel trailerstrailer and fifth-wheel RVs. The four acquisitions completed by the Company in 2014 added $36 million ($67 million annualized) in net sales in 2014, all of which related to the Company's RV Segment. Sales growth in new and existing markets and new products continued to be key factors in enabling the Company's sales to exceed RV industry growth rates.
In 2014, the Company continued to grow outside its core RV and manufactured housing markets, with aggregate net sales of components for adjacent industries increasing 14 percent to $138 million and aftermarket net sales increasing 63 percent to $64 million. Together, these markets now account for 17 percent of consolidated net sales, an increase from 10 percent of consolidated net sales in 2010.
In January 2015, the Company's consolidated net sales reached approximately $115 million, 41 percent higher than January 2014, a record for the month of January. Excluding the impact of acquisitions, the Company’s consolidated net sales for January 2015 were up approximately 34 percent. In January 2014, severe winter weather conditions had a negative impact on industry-wide production of RVs, LCI’s primary OEM market, as well as on shipments ofincreased content per RV unit, positively impacted net sales growth in 2016. Further, the Company’s products, which did not recurCompany organically increased sales to adjacent industries and the same magnitude in January 2015.aftermarket.
ForNet income for the full year 2014, the Company's net incomefull-year 2016 increased to $62.3$129.7 million, or $2.56$5.20 per diluted share, up from net income of $50.1$74.3 million, or $2.11$3.02 per diluted share, in 2013. Excluding2015.
Consolidated operating profits during 2016 increased 73 percent, to $200.9 million from $116.3 million in 2015. Operating profit margin increased to 12.0 percent in 2016 from 8.3 percent in 2015.
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 loss relatedgrowth of the business. Lean manufacturing teams continue working to the salereduce 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 aluminum extrusion-related assetsmanufactured components declined during the second half of 2015 and continued into 2016; however, certain commodities have experienced cost increases in 2014the second half of 2016 from market low points. Raw material costs continue to fluctuate and chargesare expected to remain volatile.
During 2016, the Company completed five acquisitions, all of which have been accretive to earnings:
Camping Connection -- A Myrtle Beach, South Carolina and Kissimmee, Florida RV repair and service provider, with estimated annual sales of $2 million, completed November 2016;
Atwood Seating and Chassis Components -- An Elkhart, Indiana-based seating and chassis components business of Atwood Mobile Products, a subsidiary of Dometic Group, with estimated annual sales of $30 million, completed November 2016;
Project 2000 S.r.l. -- An Italian manufacturer of innovative, space-saving bed lifts and retractable steps, with estimated annual sales of $14 million, completed May 2016;
Flair Interiors -- A Goshen, Indiana-based manufacturer of RV furniture, with estimated annual sales of $25 million, completed February 2016; and


Highwater Marine Furniture -- An Elkhart, Indiana-based marine furniture operation providing furniture solutions for executive successionHighwater Marine, LLC, a manufacturer of pontoon boats. Estimated annual sales for the marine furniture operation were $20 million, completed January 2016.
Integration activities for these acquired businesses are underway and proceeding in 2013,line with established plans. The Company plans to grow sales and leverage its purchasing power, manufacturing capabilities, engineering expertise and design resources to improve the cost structure of the acquired operations.
Return on equity for 2016, which is calculated by taking net income would haveover equity, improved to 26.0 percent, from the 18.4 percent return on equity in 2015.
In April, June and September 2016, the Company paid a quarterly dividend of $0.30 per share, aggregating $7.3 million, $7.4 million and $7.4 million, respectively. In December 2016, the Company paid a quarterly dividend of $0.50 per share, aggregating $12.4 million.

OEM Segment

Net sales of the OEM Segment in 2016 increased 19 percent, or $248 million, compared to 2015. Net sales of components to OEMs were to the following markets for the years ending December 31:
(In thousands)2016 2015 Change
RV OEMs:     
Travel trailers and fifth-wheels$1,099,882
 $938,787
 17%
Motorhomes116,191
 86,513
 34%
Adjacent industries OEMs332,018
 274,760
 21%
Total OEM Segment net sales$1,548,091
 $1,300,060
 19%

According to the RVIA, industry-wide wholesale shipments for the years ended December 31, were:
 2016 2015 Change
Travel trailer and fifth-wheel RVs362,700
 314,400
 15%
Motorhomes54,800
 47,300
 16%

The Company’s net sales growth in components for travel trailer and fifth-wheel RVs during 2016 exceeded the increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs during the same period primarily due to acquisitions completed in 2016.

The Company’s net sales growth in components for motorhomes during 2016 exceeded the increase in industry-wide wholesale shipments of motorhomes during the same period primarily due to market share gains and acquisitions completed in 2016. Over the past few years, the Company has been $63.5expanding 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:2016 2015 Change
Travel trailer and fifth-wheel RV$3,022
 $2,987
 1%
Motorhome$2,011
 $1,810
 11%
The Company’s average product content per type of RV excludes international sales and sales to the Aftermarket and Adjacent Industries. Content per RV is impacted by market share gains, acquisitions, new product introductions, and changes in selling prices for the Company’s products, as well as changes in the types of RVs produced industry-wide.

The Company’s net OEM sales to Adjacent Industries increased during 2016 primarily due to market share gains and acquisitions completed in 2016 and 2015. The Company continues to believe there are significant opportunities in Adjacent Industries.



Operating profit of the OEM Segment was $180.9 million in 2014,2016, an improvement of $75.6 million compared to 2015. The operating profit margin of the OEM Segment in 2016 was impacted by:
Better fixed cost absorption by spreading fixed costs over a $248 million larger sales base.
Increasing sales to Adjacent Industries OEMs.
Lower material costs for certain raw materials. Steel and aluminum costs declined in the second half of 2015 and continued into 2016. Costs for these commodities experienced some increases in the second and third quarters of 2016. Material costs, which are subject to global supply and demand forces, are expected to remain volatile.
Sales mix and pricing changes of products, including increased sales of fifth-wheel products which has a higher margin.
Indirect labor cost savings initiated in the fourth quarter of 2015 to reduce such costs on an annualized basis.
Investments over the past several years to increase capacity and improve operating efficiencies. Further, the Company has implemented efficiency improvements, including lean manufacturing initiatives, increased use of automation and employee retention initiatives. The Company has also reduced direct labor attrition which improves efficiency and reduces other costs associated with workforce turnover.
Lower group health and workers’ compensation claims. The Company actively works to manage and reduce these costs, however, these costs remain subject to fluctuation.
Partially offset by:
Fixed costs which were approximately $6 million to $7 million higher than in 2015. Over the past couple of years, the Company made significant investments in manufacturing capacity, both facilities and personnel, to prepare for the expected increase in net sales in 2016 and beyond. In addition to investments in fixed costs to expand manufacturing capacity, the Company has made improvements in marketing, human resources, engineering, customer service and other critical departments. The Company also added the teams from acquired businesses, as well as amortization costs of intangible assets related to those businesses.
While the Company seeks to continuously manage its labor cost, it has added staff to support the growth of the business. The results also reflect variable compensation increases based on achieving profitability targets.

Aftermarket Segment

Net sales of the Aftermarket Segment in 2016 increased 27 percent, or $2.61$28 million, compared to the same period of 2015. Net sales of components were as follows for the years ended December 31:
(In thousands) 2016 2015 Change
Total Aftermarket Segment net sales $130,807
 $103,006
 27%

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

Operating profit of the Aftermarket Segment was $20.0 million in 2016, an increase of $5.3 million compared to 2015, primarily due to the increase in net sales and the higher margins traditionally experienced in aftermarket channels. As indicated, this business is still in an early growth stage and the Company has added staff to support anticipated growth and anticipates further cost increases in this area as it builds up the capabilities of this business.

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Consolidated Highlights

Consolidated net sales for the year ended December 31, 2015 increased to $1.4 billion, 18 percent higher than the year ended December 31, 2014. Acquisitions completed by the Company in 2015, as well as the Furrion Limited (“Furrion”) distribution and supply agreement for premium electronics (the “Furrion Agreement”), added $52 million in net sales in 2015. The five 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 through market share gains, positively impacted net sales growth in 2015. Further, the Company organically increased sales to adjacent industries and the aftermarket.


For the full-year 2015, the Company’s net income increased to $74.3 million, or $3.02 per diluted share, up from net income of $51.3$62.3 million, or $2.16$2.56 per diluted share, in 2013. Net income in 2014 was also impacted by facility start-up and realignment costs, which reduced net income per diluted share by approximately $0.09.2014.
Consolidated operating profits during 20142015 increased 22 percent, to $116.3 million from $95.5 million in 2014 from $78.3 million in 2013.2014. Operating profit margin increased to 8.3 percent in 2015 from 8.0 percent in 2014 from 7.7 percent in 2013. As a result of facility start-up and realignment costs, as well as higher health insurance costs, the Company’s incremental margin in 2014 was lower than its historical average.
Health insurance costs were higher, largely due to increased employee participation, which the Company believes is largely due to the new health care requirements. Health insurance costs had a negative impact on net income in 2014 of $0.11 per diluted share, as compared to 2013. The Company expects health insurance costs in 2015 to remain - as a percent of sales - in line with 2014.
Raw material costs also continuecontinued to remain volatile.fluctuate. In particular, aluminum rose nearly 20 percent during the second half of 2014, and despite a declinedropped during the second half of 2015. Similarly, the cost of steel used in recent months, remains higher than the beginning of 2014.
To help mitigate the impact of higher raw material, health insurance and other costs, the Company is improving product designs, making efficiency improvements and working with its vendors to identify opportunities to reduce input costs. Further, the Company implemented sales price increases, which should largely be in place by the endcertain of the first quarterCompany’s manufactured components dropped during the course of 2015. The Company will continue to implement sales price adjustments as the costs of raw materials change.
During 2014 and early 2015, the Company completed five acquisitions, which add approximately $85 million of acquired annual sales, of which $36 million occurred in 2014. These acquisitions represent significant sales growth and profit potential. The five operations acquired by the Company during 2014 and early 2015 were:three acquisitions:
Innovative Design Solutions, Inc. (“IDS”) -Signature Seating -- A designer, developer andFt. Wayne, Indiana-based manufacturer of electronic systems encompassing a wide variety of RV, automotive, medical and industrial applications,furniture solutions for fresh water boat manufacturers, primarily pontoon boats, with annual sales of $19 million, of which $15 million were to the Company;approximately $16 million;
Star Design, LLC ("Star Design") -Spectal Industries -- A Quebec, Canada-based manufacturer of thermoformed sheet plastic products for the RV, buswindows and specialty vehicle industries, with annual sales of $10 million;
Power Gear® and Kwikee® brands (RV business of Actuant Corporation) - A manufacturer of leveling systems, slide-out mechanisms and steps,doors primarily for motorhomeschool buses, as well as commercial buses, emergency vehicles, trucks, agricultural equipment and RVs, with annual sales of $28 million;

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Duncan Systems, Inc. ("Duncan Systems") - A supplier of replacement motorhome windshields, awnings, and RV, heavy truck, and specialty vehicle glass and windows, primarily to fulfill insurance claims, with annual sales of $26$25 million; and
EA Technologies LLC ("EA Technologies") - A-- An Elkhart, Indiana-based manufacturer of custom steel and aluminum parts and provider of electro-deposition (‘e-coat’) and powder coating services for RV, bus, medium-duty truck, automotive, recreational marine, specialty and utility trailer, and military applications, with annual sales of $17 million. In connection with this acquisition, the Company also acquired a 250,000 square foot facility, which provides room for capacity expansion.
The Company plans to use its purchasing power and manufacturing capabilities to reduce the cost structure of the acquired operations. After funding these acquisitions, the Company remains well-positioned with both financial capital and human resources to take advantage of additional investment opportunities.
For 2014,2015, the Company achieved a 17.5an 18.4 percent return on equity, an improvement from the 16.017.5 percent return on equity in 2013.2014.
In January 2014,April 2015, the Company paid a special dividend of $2.00 per share, aggregating $47$48.2 million.

RVOEM Segment

Net sales of the RVOEM Segment in 20142015 increased 2015 percent, or $181$173 million, compared to 2013.2014. Net sales of components to OEMs were to the following markets for the years ending December 31:
(In thousands)2014 2013 Change 2015 2014 Change
RV OEMs:         
Travel trailers and fifth-wheels$844,096
 $727,783
 16% $938,787
 $841,497
 12%
Motorhomes67,774
 47,937
 41% 86,513
 70,332
 23%
RV aftermarket49,570
 25,334
 96%
Adjacent industries113,008
 92,640
 22% 274,760
 215,197
 28%
Total RV Segment net sales$1,074,448
 $893,694
 20%
Total OEM Segment net sales $1,300,060
 $1,127,026
 15%

According to the RVIA, industry-wide wholesale shipments for the years ended December 31, were:
2014 2013 Change 2015 2014 Change
Travel trailer and fifth-wheel RVs298,900
 268,000
 12% 314,400
 298,900
 5%
Motorhomes43,900
 38,300
 15% 47,300
 43,900
 8%

The Company’s net sales growth in components for travel trailer and fifth-wheel RVs during 20142015 exceeded the increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs during the same period primarily due to market shareshares gains and acquisitions completed in 2014, which acquisitions added $4 million in net sales during 2014.2015.

The Company’s net sales growth in components for motorhomes during 20142015 exceeded the increase in industry-wide wholesale shipments of motorhomes during the same period primarily due to market share gains and acquisitionsan acquisition completed in 2014, which acquisitions added $9 million in net sales during 2014. 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:2014 2013 Change 2015 2014 Change
Travel trailer and fifth-wheel RV$2,825
 $2,716
 4% $2,987
 $2,816
 6%
Motorhome$1,544
 $1,252
 23% $1,810
 $1,602
 13%



The Company’s average product content per type of RV excludes sales to the aftermarketAftermarket and adjacent industries.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.


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The Company'sCompany’s net OEM sales to the RV aftermarketAdjacent Industries increased during 20142015 primarily due to market share gains and acquisitions completed in 2014, which acquisitions added $15 million in net sales during 2014. With an estimated 10 million households in North America owning an RV, the Company continues to believe there are significant opportunities in the RV aftermarket.

The Company’s net sales to adjacent industries, including components for buses, trailers used to haul boats, livestock, equipment and other cargo, truck campers and truck caps, increased during 2014 primarily due to market share gains and acquisitions completed in 2014, which acquisitions added $8 million in net sales during 2014. The Company also recently began shipping school bus windows to Blue Bird Corporation ("Blue Bird") under a new 12 year supply agreement for nearly all their bus windows. Annual sales to Blue Bird are expected to be approximately $10 million. The Company continues to believe there are significant opportunities in adjacent industries.

Over the past several years, the Company has been gradually growing sales overseas, primarily in Europe and Australia, and export sales represented approximately 1 percent of consolidated net sales in 2014. The Company continues to focus on developing products tailored for international markets. In September 2014, the Company participated in the largest RV show in Europe and received positive feedback on its products. As a result, the Company believes it will see additional orders from European OEMs, which would be shipped from its facilities in the United States. The Company’s Director of International Business Development will continue to spend 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.2015.

Operating profit of the RVOEM Segment was $86.6$105.2 million in 2014,2015, an improvement of $18.3$16.5 million compared to 2013. This increase in RV Segment operating profit was less than the Company’s expected 15 to 20 percent incremental margin.2014. The operating profit margin of the RVOEM Segment in 20142015 was impacted by:

Higher health insurance costs, largely due to increased employee participation, which the Company believes is largely due to the new health care requirements. The Company expects health insurance costs in 2015 to remain - as a percent of sales - in line with 2014.
Fixed costs which were approximately $15 to $20 million higher than in 2013. In response2014. Over the past couple of years, the Company made significant investments in manufacturing capacity, both facilities and personnel, to prepare for the expected increase in net sales in 2015 and beyond. In addition to investments in fixed costs to expand manufacturing capacity, the Company bolstered its administrative staff during 2014, includingmade improvements in marketing, human resources, engineering, customer service and other critical departments. The Company also added the teams that werefrom acquired through acquisitions and new employees hired in preparation for future growth and investment opportunities. In anticipation of future growth, the Company continues to expand and improve production capacity, investing in personnel and facilities in excess of current needs.
In early 2014, the Company entered into two new leases which added more than 700,000 square feet of production and distribution capacity. These two new leased facilities became operational during the latter half of 2014 and the realignment of the related operations were completed. While these and other capacity expansion initiatives had a short-term negative impact on margins, over the long term these investments should allow the Company to improve its operating results,businesses as well as continuerelated amortization of intangible assets. As industry-wide wholesale shipments growth slowed from multi-year double-digit rates to mid-single-digit rates, the Company evaluated its expenses and in the fourth quarter of 2015 initiated a focused program to reduce indirect labor costs to improve operating leverage. Annual cost savings of approximately $8 to $10 million were identified and implemented late in 2015 and came from aligning staff levels more closely to anticipated growth.
An increase in stock-based compensation of approximately $3.2 million due to the implementation of the new 2015 compensation program for management.
Sales mix changes of its customer serviceproducts, including lower sales of fifth-wheel products.
A charge of $1.5 million related to environmental costs.
A voluntary safety recall of the Company’s double and operating efficiencies.triple Coach Steps, for which the Company recorded a reserve of $1.1 million for the contingent obligation in selling, general and administrative expenses.
Partially offset by:
The elimination of production inefficienciesInvestments over the past several years to increase capacity and costs incurred as a result of significant growthimprove operating efficiencies, which occurred in 2012 and early 2013.benefit operating results. The Company is continuingadded capacity ahead of projected demand, which enabled it to implementefficiently fulfill customer orders as demand increased. Further, the Company implemented additional efficiency improvements, including lean, automation and employee retention initiatives as they are identified.to improve operating efficiencies going forward.
Lower payrollmaterial costs as a percentfor certain raw material inputs. After increasing in the latter part of sales, largely due to a reduction in state unemployment tax rates2014, steel and improved employee retention.aluminum costs declined over the course of 2015.
Lower warrantyBetter fixed costs as a percent of sales, largely due to lower claim experience.
Theabsorption by spreading of fixed costs over a $181$173 million larger sales base.

Raw material costs also continue to remain volatile. In particular, aluminum rose nearly 20 percent during the second half of 2014, and despite a decline in recent months, remains higher than the beginning of 2014. To help mitigate the impact of higher raw material, health insurance and other costs, the Company is improving product designs, making efficiency improvements and working with its vendors to identify opportunities to reduce input costs. Further, the Company implemented sales price increases, which should largely be in place by the end of the first quarter of 2015. The Company will continue to implement sales price adjustments as the costs of raw materials change.


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MHAftermarket Segment

Net sales of the MHAftermarket Segment in 2014 decreased 52015 increased 62 percent, or $6$39 million, compared to 2013.the same period of 2014. Net sales of components were to the following marketsas follows for the years endingended December 31:
(In thousands) 2014 2013 Change
Manufactured housing OEMs $77,421
 $80,245
 (4)%
Manufactured housing aftermarket 14,186
 13,719
 3%
Adjacent industries 24,727
 27,918
 (11)%
Total MH Segment net sales $116,334
 $121,882
 (5)%
(In thousands) 2015 2014 Change
Total Aftermarket Segment net sales $103,006
 $63,756
 62%

According to the IBTS, industry-wide wholesale shipments for the years ended December 31, were:
  2014 2013 Change
Total homes produced 64,300
 60,200
 7%
Total floors produced 99,200
 92,900
 7%

Industry-wide wholesale shipments of manufactured homes increased during 2014 when compared to 2013, while the Company’s net sales of components for new manufactured homes declined during 2014, primarily due to customer mix, as the Company’s content per unit varies between customers, and loss of market share for certain products. As a result, the Company’s content per manufactured home produced for the year ended December 31, 2014 declined from the prior year.

The trend in the Company’s average product content per manufactured home produced is an indicator of the Company’s overall market share of components for new manufactured homes. Manufactured homes contain one or more “floors” or sections which can be joined to make larger homes. The larger homes typically contain more of the Company’s products. The Company’s average product content per manufactured home produced by the industry and total manufactured home floors produced by the industry, calculated based upon the Company’s net sales of components to manufactured housing OEMs for newly produced manufactured homes for the years ended December 31, divided by the number of manufactured homes and manufactured home floors produced by the industry, respectively, for the same period, was:
Content per: 2014 2013 Change
Home produced $1,203
 $1,332
 (10)%
Floor produced $783
 $864
 (9)%

The Company’s average product content per manufactured home excludes sales of replacement parts to the aftermarket and sales to adjacent industries. Content per manufactured home and content per floor are impacted by market share changes, acquisitions and new product introductions, and changes in selling prices for the Company’s products, as well as changes in the types of floors produced industry-wide.

Operating profit of the MH Segment was $10.9 million in 2014, a decrease of $1.1 million compared to 2013 primarily due to the decline in net sales.

RESULTS OF OPERATIONS

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Consolidated Highlights

Net sales for the year ended December 31, 2013 increased by $114 million, to $1.02 billion. The Company’s RV Segment net sales increased 14 percent, compared to the 10 percent increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs, the Company's primary RV market. Sales growth in new markets and new products continued to be key factors in enabling the Company’s sales to exceed RV industry growth rates. Acquisitions did not have a significant impact on the increase in net sales for 2013.
In 2013, aggregate net sales of components for adjacent industries increased 20 percent to $121 million, and aftermarket net sales increased 21 percent to $39 million. Together, these markets accounted for 16 percent of consolidated net sales in 2013.
For 2013, the Company’s net income increased to $50.1 million, or $2.11 per diluted share, up from net income of $37.3 million, or $1.64 per diluted share, in 2012. Excluding charges related to executive succession, net income

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would have been $51.3 million in 2013, or $2.16 per diluted share, up from net income of $38.3 million, or $1.68 per diluted share, in 2012.
The Company’s operating profit margin in 2013 improved to 7.7 percent, compared to 6.5 percent in 2012, primarily due to efficiency improvements. The improvements in labor during 2013 were primarily due to completed production efficiency projects, as well as declines in the costs of implementing facility consolidations and realignments. These labor efficiencies were realized throughout 2013 while introducing new products and adjusting to industry and market share growth.
For 2013, the Company achieved a 16.0 percent return on equity, an improvement from the 12.7 percent return on equity in 2012.
On May 10, 2013, Fredric M. Zinn retired as President and Chief Executive Officer of Drew. Jason D. Lippert, Chief Executive Officer of Lippert Components, succeeded Mr. Zinn as Chief Executive Officer of Drew. Scott T. Mereness, President of Lippert Components, succeeded Mr. Zinn as President of Drew. In June 2013, the Company also relocated its corporate headquarters from White Plains, New York to Elkhart County, Indiana, the location of the corporate headquarters of Lippert Components.
At December 31, 2013, the Company had $66 million in cash and no debt, and had almost $200 million in unused credit lines.

RV Segment

Net sales of the RV Segment in 2013 increased 14 percent, or $113 million, compared to 2012. Net sales of components were to the following markets for the years ending December 31:
(In thousands) 2013 2012 Change
RV OEMs:      
Travel trailers and fifth-wheels $727,783
 $653,478
 11%
Motorhomes 47,937
 34,612
 38%
RV aftermarket 25,334
 19,119
 33%
Adjacent industries 92,640
 73,716
 26%
Total RV Segment net sales $893,694
 $780,925
 14%

According to the RVIA, industry-wide wholesale shipments for the years ended December 31, were:
  2013 2012 Change
Travel trailer and fifth-wheel RVs 268,000
 242,900
 10%
Motorhomes 38,300
 28,200
 36%

The Company’s net sales growth in components for travel trailer and fifth-wheel RVs during 2013 exceeded the increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs primarily due to market share gains of $6 million.

The Company’s net sales growth in components for motorhomes during 2013 exceeded the increase in industry-wide wholesale shipments of motorhomes primarily due to market share gains.

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: 2013 2012 Change
Travel trailer and fifth-wheel RV $2,716
 $2,690
 1%
Motorhome $1,252
 $1,227
 2%

The Company’s average product content per type of RV excludes sales to the aftermarket and adjacent industries. Content per RV is impacted by market share gains, acquisitions, new product introductions, and changes in selling prices for the Company’s products, as well as changes in the types of RVs produced industry-wide. In the second quarter of 2013, the Company refined the calculation of content per unit. This refinement had no impact on total RV Segment net sales or trends. Prior periods have been reclassified to conform to this presentation.

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The Company’s net sales to the RV aftermarket and adjacent industries, including components for buses, trailers used to haul boats, livestock, equipment and other cargo, and truck caps,Aftermarket increased during 20132015 primarily due to market share gains.the Company’s focus on building out well qualified, customer-focused teams and infrastructure to service this market.

Operating profit of the RVAftermarket Segment was $68.2$15 million in 2013,2015, an improvementincrease of $21.1$6 million compared to 2012. This increase in RV Segment operating profit was consistent with the Company’s expected 15 to 20 percent incremental margin.

The operating profit margin of the RV Segment in 2013 was positively impacted by:

Lower material costs. After increasing temporarily in the latter part of 2012, steel and aluminum costs declined during 2013. In addition, material costs in the latter half of 2012 were negatively impacted by increased outsourcing costs due to capacity limitations, as well as higher scrap costs due to production inefficiencies.
Improved labor efficiencies,2014, primarily due to completed production efficiency projects implemented by management, as well as declinesthe increase in the costs of implementing facility consolidations and realignments. These labor efficiencies were realized throughout 2013 while introducing new products and adjusting to industry and market share growth.
The spreading of fixed manufacturing and selling, general and administrative costs over a $113 million larger net sales base.
Partially offset by:
Fixed costs, which were approximately $18 million to $20 millionand the higher thanmargins traditionally experienced in 2012. In response to the substantial increaseaftermarket channels. As indicated, this business is still in sales over the past several quarters,an early growth stage and the Company added significant resources, investing in personnel and facilitiesstaff to expand and improve production capacity and efficiencies, as well as to improve customer service.
Incentive compensation, which is based on profits, rather than sales, did not change proportionately with net sales.
Higher supplies and repairs expense.

MH Segment

Net sales of the MH Segment in 2013 increased 1 percent, or $2 million, compared to 2012. Net sales of components were to the following markets for the years ending December 31:
(In thousands) 2013 2012 Change
Manufactured housing OEMs $80,245
 $80,392
 —%
Manufactured housing aftermarket 13,719
 13,110
 5%
Adjacent industries 27,918
 26,696
 5%
Total MH Segment net sales $121,882
 $120,198
 1%

According to the IBTS, industry-wide wholesale shipments for the years ended December 31, were:
  2013 2012 Change
Total homes produced 60,200
 54,900
 10%
Total floors produced 92,900
 84,800
 10%

The Company’s net sales growth in components for new manufactured homes was less than the increase in industry-wide wholesale shipments of manufactured homes, primarily due to customer mix, as the Company’s content per unit varies between customers, and loss of market share for certain products. Content per manufactured home and content per floor are impacted by market share changes, acquisitions and new product introductions, changes in selling prices for the Company’s products, as well as changes in the types of floors produced industry-wide.

Net sales to the manufactured housing aftermarket and adjacent industries increased due to market share gains.


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The trend in the Company’s average product content per manufactured home produced is an indicator of the Company’s overall market share of components for new manufactured homes. Manufactured homes contain one or more “floors” or sections which can be joined to make larger homes. The larger homes typically contain more of the Company’s products. The Company’s average product content per manufactured home produced by the industry and total manufactured home floors produced by the industry, calculated based upon the Company’s net sales of components to manufactured housing OEMs for newly produced manufactured homes for the years ended December 31, divided by the number of manufactured homes and manufactured home floors produced by the industry, respectively, for the same period, was:
Content per: 2013 2012 Change
Home produced $1,332
 $1,465
 (9)%
Floor produced $864
 $948
 (9)%

The Company’s average product content per manufactured home excludes sales of replacement parts to the aftermarket and sales to adjacent industries. Content per manufactured home and content per floor are impacted by market share changes, acquisitions and new product introductions, and changes in selling prices for the Company’s products, as well as changes in the types of floors produced industry-wide.

Operating profit of the MH Segment was $11.9 million in 2013, a decrease of $0.5 million compared to 2012. This decrease was primarily due to increased labor and related costs, partially offset by lower raw material costs. Further, during 2012, the Company recorded a gain of $0.4 million, which did not recur in 2013.support anticipated growth.

Sale of Extrusion Assets

In April 2014, the Company entered into a six-year aluminum extrusion supply agreement, and concurrently sold certain aluminum extrusion assets. The Company recorded a pre-tax loss of $2.0 million in the second quarter of 2014 on the sale of the aluminum extrusion-related assets. In connection with the sale, the Company received $0.3 million at closing and a $7.2 million note receivable payablecollectible over the next four years, recorded at its present value of $6.4 million on the date of closing. During


2016 - 2014, the Company received installments of $5.8 million under the note. At December 31, 2014, $5.5 million2016, the present value of the remaining amount due under the note receivable remained outstanding.

Executive Succession and Severance

On May 10, 2013, Fredric M. Zinn retired as President and Chief Executive Officer of Drew. Jason D. Lippert, Chief Executive Officer of Lippert Components, succeeded Mr. Zinn as Chief Executive Officer of Drew. Scott T. Mereness, President of Lippert Components, succeeded Mr. Zinn as President of Drew. In June 2013, the Company also relocated its corporate headquarters from White Plains, New York to Elkhart County, Indiana, the location of the corporate headquarters of Lippert Components.was $1.4 million.

In July 2015, the Company agreed to terminate the supply agreement, and as consideration the Company received a $2.0 million note receivable collectible in 2019 and 2020. The Company recorded this note receivable at its present value of $1.6 million and a corresponding gain of $1.6 million in the 2015 third quarter. At December 31, 2016, the present value of the remaining amount due under the note receivable was $1.7 million.

Severance

In 2015, the Company initiated a focused program to reduce indirect labor costs. In connection with this cost reduction program and certain changes at the Company’s executive succession and corporate relocation,level, the Company recorded pre-taxincurred severance charges of $1.9 million and $1.5 million in 2013 and 2012, respectively, related to contractual obligations for severance and the acceleration of equity awards held by certain employees whose employment terminated as a result of the executive succession and relocation to Indiana. The liability for executive succession and severance obligations will be paid through 2015. During the third quarter of 2013, the transition and corporate office relocation were completed.$3.7 million.

Provision for Income Taxes

The effective income tax rate for 20142016 was 34.534.9 percent less than the 35.7compared to 35.0 percent in 2013.2015. Both 20142016 and 20132015 benefited from federal and state tax credits, as well as the reversal of federal and state tax reserves, due to the closure of the statutes of limitation of federal and state tax years, with a larger benefit in 2014.2016. The Company estimates the 20152017 effective income tax rate to be approximately 3734 percent to 3836 percent.

The effective income tax rate for 20132015 was 35.735.0 percent relatively consistent with the 35.4compared to 34.5 percent in 2012.2014.


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LIQUIDITY AND CAPITAL RESOURCES

The Consolidated Statements of Cash Flows reflect the following for the years ended December 31:
(In thousands) 2014 2013 2012 2016 2015 2014
Net cash flows provided by operating activities $107,020
 $82,677
 $72,689
 $203,407
 $95,018
 $107,020
Net cash flows used for investing activities (144,074) (36,055) (28,198) (91,707) (66,116) (144,074)
Net cash flows (used for) provided by financing activities (29,222) 9,719
 (41,136)
Net (decrease) increase in cash $(66,276) $56,341
 $3,355
Net cash flows used for financing activities (37,835) (16,601) (29,222)
Net increase (decrease) in cash and cash equivalents $73,865
 $12,301
 $(66,276)

Cash Flows from Operations

Net cash flows from operating activities in 2016 were $108.4 million higher than in 2015, primarily due to:
A $56.5 million increase in the change for accounts payable and accrued expenses and other liabilities in 2016 compared to a $37.1 million decrease in 2015, primarily due to the increases in sales, production and earnings, as well as the timing of these payments.
A $55.3 million increase in net income in 2016 compared to 2015.
A smaller increase in the change for inventories of $23.4 million in 2016 compared to 2015. The increase in inventories in 2016 was primarily due to increases in sourced products and acquisitions completed in 2016. Inventory turnover for 2016 increased to 7.5 turns compared to 6.9 turns for 2015. The Company is working to improve inventory turnover, however, inventory turns may trend lower due to growth in product categories such as imported furniture and Furrion electronics.
Increases in non-cash charges against net income in 2016 including:
A $4.5 million increase in depreciation and amortization primarily due to investments in acquisitions and capital expenditures.
A $1.4 million increase in stock-based compensation in 2016 compared to 2015.
Partially offset by:
A $13.9 million increase in accounts receivable in 2016 compared to a $2.1 million decrease in 2015, primarily due to an increase in days sales outstanding to 16 at December 31, 2016, compared to 14 at December 31, 2015.
A higher increase in the change for prepaid expense and other assets of $13.3 million in 2016 compared to 2015. The increase in 2016 was primarily due to a $4.5 million higher tax receivable at December 31, 2016, as well as an increase in short-term deposits related to 2017 capital expenditures and inventory.


Over the long term, based on the Company’s historical collection and payment patterns, as well as inventory turnover, and also giving consideration to emerging trends and changes to the sales mix, the Company expects working capital to increase or decrease equivalent to approximately 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 $46.2 million in 2016, and is expected to be approximately $50 million to $55 million for fiscal year 2017. Non-cash stock-based compensation in 2016 was $15.7 million, including $0.3 million of deferred stock units issued to certain executive officers in lieu of cash for a portion of their 2015 incentive compensation in accordance with their compensation arrangements. Non-cash stock-based compensation is expected to be approximately $17 million to $19 million in 2017.
Net cash flows from operating activities in 2015 were $12.0 million lower than in 2014, primarily due to:
A larger increase in the change for inventories of $9.3 million in 2015 compared to 2014. The increase in inventories in 2015 was primarily due to increases in sourced products, including inventory to support the Furrion Agreement (discussed immediately below) and acquisitions completed in 2015. A portion of the increase in inventory was also due to strategic positions to take advantage of favorable market conditions and included the strategic onboarding of a new supplier. Inventory turnover for 2015 decreased to 6.9 turns compared to 8.2 turns for 2014.
In July 2015, the Company entered into a 6-year exclusive distribution and supply agreement with Furrion Limited (“Furrion”), a Hong Kong based firm that designs, engineers and manufactures premium electronics. In connection with this agreement, the Company acquired Furrion’s current inventory, as well as Furrion’s deposits on inventory scheduled for delivery, for approximately $11 million.
A $5.9 million decrease in accounts payable and accrued expenses and other liabilities in 2015 compared to a $31.2 million increase in 2014, primarily due to increased imports and other prepaid inventories, efforts to increase consignments, as well as the timing of purchases.
Partially offset by:
A $12.1 million increase in net income in 2015 compared to 2014.
Increases in non-cash charges against net income in 2015 including:
A $9.0 million increase in depreciation and amortization primarily due to investments in acquisitions and capital expenditures.
A $3.2 million increase in stock-based compensation in 2015 compared to 2014.
An increase in deferred taxes of $1.1 million in 2015 compared to a $5.5 million decrease in 2014 due to an increase in certain expenses currently not deductible for tax purposes in 2015.
Net cash flows from operating activities in 2014 were $24.3 million higher than in 2013, primarily due to:

A $12.1 million increase in net income in 2014 compared to 2013.
A $24.0 million larger increase in the change for accounts payable and accrued expenses and other liabilities in 2014 compared to 2013, primarily due to the increases in sales, production and earnings, as well as the timing of these payments.
An $8.5 million smaller increase in the change for accounts receivable in 2014 compared to 2013, primarily due to a decrease in days sales outstanding to 15 at December 31, 2014, compared to 17 at December 31, 2013.
A $5.1 million increase in depreciation and amortization primarily due to the acquisitions completed during 2014 and capital expenditures over the last couple years.
Partially offset by:
An $18.5 million larger increase in the change for inventories in 2014 as compared to 2013. The larger increase in inventories in 2014 was primarily to support the 41 percent increase in net sales in January 2015. Higher raw material costs and increased lead time on imports also contributed to the increase in inventory. Inventory turnover for 2014 improved to 8.2 turns compared to 7.9 turns for 2013.
An increase in deferred taxes of $5.5 million in 2014 compared to a $0.3 million decrease in 2013 due to an increase in certain expenses not currently deductible for tax purposes in 2014.
Cash Flows from Investing Activities
Cash flows used for investing activities of $91.7 million in 2016 were primarily comprised of $48.7 million for the acquisition of businesses and $44.7 million for capital expenditures.


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.
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.
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.
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.
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.
The Company’s capital expenditures are primarily for replacement and growth. Over the long term, based on the Company’s historical collection and payment patterns, as well as inventory turnover,capital expenditures, the Company expects working capitalreplacement portion has averaged approximately 2 percent of net sales, while the growth portion has averaged approximately 8 to increase or decrease equivalent to approximately 10 percent to 1211 percent of the annual increase or decrease, respectively, in net sales. However, there are many factors that can impact this relationship, especiallythe actual spending compared to these historical averages. In 2016 and 2015 capital expenditures of $44.7 million and $29.0 million, respectively, were in line with historical averages.
The 2016 capital expenditures and acquisitions were funded by cash from operations and periodic borrowings under the short term.

During the first few monthsCompany’s line of 2015, the Company expects to use $20 million to $30credit and $50 million of cash to fund seasonal working capital growth, which is typical. The 2015 working capital needsSenior Promissory Notes issued under the “shelf-loan” facility with Prudential. Capital expenditures in 2017 are expected to be funded byprimarily from cash generated from operations, as well as periodic borrowings under the Company’s line of credit.

Depreciation and amortization was $32.6Cash flows used for investing activities of $66.1 million in 2014,2015 were primarily comprised of $29.0 million for capital expenditures and is expected to aggregate $36$41.1 million to $38 million in 2015. Non-cash stock-based compensation in 2014for the acquisition of businesses.

In January 2015, the Company acquired the business and certain assets of EA Technologies, LLC (“EA Technologies”), a manufacturer of custom steel and aluminum parts and provider of electro-deposition (‘e-coat’) and powder coating services for RV, bus, medium-duty truck, automotive, recreational marine, specialty and utility trailer, and military applications. The purchase price was $12.8 million, including $2.0$9.2 million, of deferred stock units issued to certain executive officerswhich $6.6 million was paid in lieuthe fourth quarter of cash for a portion of their 2013 incentive compensation in accordance2014, with their compensation arrangements. Non-cash stock-based compensation is expected to be approximately $13 million to $15 million in 2015.the balance paid at closing.

Net cash flows from operating activities in 2013 were $10.0 million higher than in 2012,In April 2015, the Company acquired the business and certain assets of Industries Spectal, Inc. (“Spectal”), a Quebec, Canada-based manufacturer of windows and doors primarily due to:

A $12.8 million increase in net income in 2013 compared to 2012.
An $8.4 million smaller increase in prepaid expenses and other assets in 2013 compared to 2012. The increase of $2.3 million in 2013 was primarily due to an increase in investments associated with the Company’s deferred compensation plan. The increase of $10.7 million in 2012 was primarily due to a federal tax receivable at December 31, 2012 as compared to a federal tax payable at December 31, 2011,for school buses, as well as an increase in short-term depositscommercial buses, emergency vehicles, trucks, agricultural equipment and RVs. The purchase price was $22.3 million paid at December 31, 2012 relatedclosing, plus contingent consideration based on future sales of this operation.
In August 2015, the Company acquired the business and certain assets of Roehm Marine, LLC, also known as Signature Seating (“Signature”), a manufacturer of furniture solutions for fresh water boat manufacturers, primarily to 2013 capital expenditures.
A $4.5pontoon boats. The purchase price was $16.0 million increase in stock-based compensation in 2013 compared to 2012.

33



Partially offset by:
An $11.3 million smaller increase in accounts payable and accrued expenses and other liabilities in 2013 compared to 2012, primarily due to the timingpaid at closing, plus contingent consideration based on future sales of payments.
A $9.0 million increase in accounts receivable in 2013, compared to a $0.8 million decrease in 2012. This was primarily due to 24 percent higher net sales in the month of December 2013 as compared to December 2012, as well as an increase in days sales outstanding to 16 at December 31, 2013, compared to 14 at December 31, 2012.
Cash Flows from Investing Activities

this operation.
Cash flows used for investing activities of $144.1 million in 2014 included capital expenditureswere primarily comprised of $42.5 million and included approximately $20 million of “replacement”for capital expenditures and approximately $22$106.8 million for the acquisition of “growth” capital expenditures. businesses.
In 2014, in order to better serve its customers and meet the increased demand for its products, the Company continued to invest in capacity expansion, automation and production improvement, as well as cost reduction initiatives. The growth capital expenditures were comprised of numerous projects, including a new furniture and mattress facility and a new aftermarket and customer service facility, as well as laminated door and chassis product line capacity expansions. Collectively, these projects comprised $14 million of growth capital expenditures.

During 2014 and early 2015, the Company completed five acquisitions, using over $105 million of cash. The five operations acquired by the Company during 2014 and early 2015 were as follows:

On February 27, 2014, the Company acquired IDS, a designer, developer and manufacturer of electronic systems encompassing a wide variety of RV applications. IDS also manufactures electronic systems for automotive, medical and industrial applications. IDS had annual sales of $19 million in 2013, of which $13 million were to the Company. The purchase price was $35.9 million, of which $34.2 million was paid at closing, with the balance to be paid out annually over the subsequent three years, plus contingent consideration based on future sales of this operation.
OnIn March 14, 2014, the Company acquired the business and certain assets of Star Design. Star Design, had annual sales of $10 million in 2013, comprised primarily ofLLC, which manufactures thermoformed sheet plastic products for the RV, bus and specialty vehicle industries. The purchase price was $12.2 million paid at closing.
OnIn June 13, 2014, the Company acquired the RV business of Actuant Corporation, which manufacturedmanufactures leveling systems, slideoutslide-out mechanisms and steps, primarily for motorhome RVs, under the Power Gear and Kwikee brands. Sales of the acquired business for the twelve months ended May 2014 were $28 million, consisting of sales to OEMs and the aftermarket. The purchase price was $35.5 million, paid at closing.
On

In August 15, 2014, the Company acquired the business and certain assets of Duncan Systems, Inc., an aftermarket distributor of replacement motorhome windshields, awnings, and RV, heavy truck and specialty vehicle glass and windows, primarily to fulfill insurance claims. Sales of Duncan Systems for the twelve months ended July 2014 were $26 million. The purchase price was $18.0 million paid at closing, plus contingent consideration based on future sales of this operation.
On January 16, 2015, the Company acquired the business and certain assets of EA Technologies, a manufacturer of custom steel and aluminum parts and provider of electro-deposition (‘e-coat’) and powder coating services for RV, bus, medium-duty truck, automotive, recreational marine, specialty and utility trailer, and military applications. Sales of EA Technologies for 2014 were $17 million. The purchase price was $9.4 million, of which $6.8 million was paid in the fourth quarter of 2014, with the balance paid at closing on January 16, 2015. In connection with this acquisition, the Company also acquired a 250,000 square foot facility, which provides room for capacity expansion.

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 2.0 percent of net sales, while the growth portion has averaged approximately 10 percent to 12 percent of the annual increase in net sales. However, there are many factors that can impact this relationship, such as new initiatives by the Company, especially in the short term.

The Company estimates capital expenditures will be $30 million to $35 million in 2015, including $15 million to $20 million of “replacement’ capital expenditures and $14 million to $17 million of “growth’ capital expenditures. Additional capital expenditures may be required in 2015 depending on the extent of the sales growth and other initiatives by the Company.

The 2014 capital expenditures and acquisitions were funded from available cash plus periodic borrowings under the Company’s $75 million line of credit. The 2015 capital expenditures and acquisitions are expected to be funded by cash generated from operations, as well as borrowings under the Company's line of credit.

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Cash flows used for investing activities in 2013 included capital expenditures of $32.6 million. In 2013, in order to better serve its customers and meet the increased demand for its products, the Company invested in both capacity expansion and cost reduction initiatives. The Company’s capital expenditures for 2013 included a new glass tempering line, metal fabrication equipment and new ERP software, in addition to routine replacement capital expenditures.

On June 24, 2013, the Company acquired the business and certain assets of Midstates Tool & Die and Engineering, Inc. (“Midstates”). Midstates was a manufacturer of tools and dies, as well as automation equipment. The acquired business had annualized sales of $2 million. The purchase price was $1.5 million paid at closing.

On December 13, 2013, the Company acquired the business and certain assets of Fortress Technologies, LLC (“Fortress”). Fortress was a manufacturer of specialized RV chassis. The acquired business had annualized sales of $3 million. The purchase price was $3.3 million paid at closing.

Cash Flows from Financing Activities

Cash flows used for financing activities in 20142016 primarily included the payment of $29.2dividends of $34.4 million were primarily comprisedpaid to stockholders. The Company had no outstanding borrowings under the line of credit as of December 31, 2016, but borrowings reached a high of $33.0 million during 2016. In addition, the following:Company made $4.9 million in payments for contingent consideration related to acquisitions.

ACash flows used for financing activities in 2015 included the payment of a special dividend of $2.00 per share of the Company'sCompany’s Common Stock, representing an aggregate of $48.2 million, paid to stockholders of record as of March 27, 2015, partially offset by a net increase in indebtedness of $34.4 million. The increase in indebtedness included new debt comprised of $50.0 million of Senior Promissory Notes drawn in March 2015 under the Prudential Investment Management, Inc. “shelf-loan” facility, partially offset by a $15.7 million decrease in debt due to paying down the Company’s line of credit. The Company had no outstanding borrowings under the line of credit as of December 31, 2015, but borrowings reached a high of $71.6 million during 2015. In addition, in 2015, the Company made $4.0 million in payments for contingent consideration related to acquisitions.
Cash flows used for financing activities in 2014 included the payment of a special dividend of $2.00 per share of the Company’s Common Stock, representing an aggregate of $46.7 million, paid on January 6, 2014 to stockholders of record as of December 20, 2013.
$3.72013, partially offset by a net increase in indebtedness of $15.7 million. The increase in indebtedness was due to borrowings under the Company’s line of credit. In addition, in 2014, the Company received $5.8 million in cash and the related tax benefits from the exercise of stock-based compensation, offset by $3.7 million in payments for contingent consideration related to acquisitions.
In connection with severalcertain business acquisitions, if certainestablished sales targets for the acquired products are achieved, the Company wouldis contractually obligated to pay additional cash consideration. The Company has recorded an $8.1a $9.2 million liability for the aggregate fair value of these expected contingent consideration liabilities at December 31, 2014,2016, including $3.6$5.8 million recorded as a current liability. For further information, see Note 11 of the Notes to the Consolidated Financial Statements.
Partially offset by:
$5.8 million in cash and the related tax benefits from the exercise of stock-based awards.
A net increase in debt of $15.7 million. The increase in debt was due to borrowings under the Company's line of credit, with such borrowings reaching a high of $61.8 million during 2014. The Company expects to continue borrowing during 2015.

Cash flows provided by financing activities in 2013 of $9.7 million were primarily comprised of the following:

$15.2 million in cash and the related tax benefits from the exercise of stock-based awards.
Partially offset by:
$5.5 million in payments for contingent consideration related to acquisitions. For further information see Note 11 of the Notes to Consolidated Financial Statements.

On February 24, 2014, the Company entered into a $75.0 million line of credit (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A. (collectively,On March 3, 2015, in accordance with the “Lenders”), which can beterms of the Credit Agreement, the Company increased its line of credit by $25.0 million upon approvalto $100.0 million. Interest on borrowings under the line of credit was designated from time to time by the Lenders.Company as either (i) the Prime Rate, minus a rate ranging from 0.75 to 1.0 percent (minus 1.0 percent at December 31, 2015), but not less than 1.5 percent, or (ii) LIBOR, plus additional interest ranging from 1.75 to 2.0 percent (plus 1.75 percent at December 31, 2015) depending on the Company’s performance and financial condition.
On April 27, 2016, the Company announced the refinancing of its line of credit through an agreement with JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., Bank of America, N.A., and 1st Source Bank. The Credit Agreement expiresagreement amends and restates the existing line of credit, which was scheduled to expire on January 1, 2019.2019, and now expires on April 27, 2021 (the “Amended Credit Agreement”). In connection with this amendment and restatement, the line of credit was increased from $100.0 million to $200.0 million, and contains a feature allowing the Company to draw up to $50.0 million in approved foreign currencies, including Australian dollars, Canadian dollars, pound sterling and euros. The maximum borrowings under the line of credit can be further increased by $125.0 million, subject to certain conditions. At December 31, 2014,2016 and 2015, the Company had $1.9$2.5 million and $2.7 million, respectively, in outstanding, but undrawn, standby letters of credit under the line of credit. Availability under the Company'sCompany’s line of credit was $57.4$197.5 million at December 31, 2014.2016.

Simultaneously,On February 24, 2014, the Company also entered into a $150.0 million “shelf-loan” facility with Prudential Investment Management, Inc. and its affiliates (“Prudential”). The facility provides for Prudential to consider purchasing, at the Company’s request, in one or a series of transactions, Senior Promissory Notes of the Company in the aggregate principal amount of up to $150.0 million, to mature no more than twelve12 years after the date of original issue of each Senior Promissory Note. On March 20, 2015, the Company issued $50.0 million of Senior Promissory Notes to Prudential for a term of five years, at a fixed interest rate of 3.35 percent per annum, payable quarterly in arrears, of which the entire amount was outstanding at December 31, 2016. At December 31, 2016, the fair value of the Company’s long-term debt approximates the carrying value, as estimated using quoted market prices and discounted future cash flows based on similar borrowing arrangements.
On April 27, 2016, the Company also amended and restated its “shelf-loan” facility with Prudential to conform certain covenants and other terms to the Amended Credit Agreement. Prudential has no obligation to purchase the Senior Promissory Notes. This facility expiresInterest payable on February 24, 2017. At December 31, 2014, there were nothe Senior Promissory Notes outstanding.will be at rates determined by Prudential within five business days after


the Company issues a request to Prudential. Availability under the Company’s “shelf-loan” facility, subject to the approval of Prudential, was $100.0 million at December 31, 2016.
Pursuant to the Amended Credit Agreement and “shelf-loan” facility, at December 31, 2014, the Company wasis required to maintain minimum interest and fixed charge coverages, and to meet certain other financial requirements. At December 31, 2014,2016 and 2015, the Company was in compliance with all such requirements, and expects to remain in compliance for the next twelve months. Both
Availability under both the line of credit pursuant to theAmended Credit Agreement and the “shelf-loan” facility areis subject to a maximum leverage ratio covenant which

35



limits the amount of consolidated outstanding indebtedness to 2.5 times the trailing twelve-month EBITDA, as defined. This limitation did not impact the Company’s borrowing availability at December 31, 2014.2016. The remaining availability under these facilities was $207.4$297.5 million at December 31, 2014.2016. The undrawn “shelf-loan” facility expired February 24, 2017, and the Company and Prudential are currently discussing renewal terms. The Company believes the availability under the line of credit and "shelf-loan" facilityAmended Credit Agreement is more than adequate to finance the Company’s anticipated cash requirements for the next twelve months.

The Company is working with the Lenders to increase the maximum borrowing under the line of credit from $75.0 million to $100.0 million, as provided in the Credit Agreement. In addition, the Company is currently negotiating a one-year extension of its line of credit and "shelf-loan" facility as well as an increase in its line of credit to $125.0 million. The Company is extending these arrangements now to meet the anticipated growth of the Company and to add the ability to borrow in international locations and currencies. Further, to take advantage of current interest rates, the Company may borrow under the "shelf-loan" facility in 2015.

Additional information on the Company'sCompany’s Credit Agreement and "shelf loan"“shelf-loan” facility is included in Note 9 of the Notes to the Consolidated Financial Statements.
Future minimum commitments relating to the Company'sCompany’s contractual obligations at December 31, 20142016 were as follows:
Payments due by periodPayments due by period
  Less than     More than    Less than     More than  
(In thousands)Total 1 year 1-3 years 3-5 years 5 years OtherTotal 1 year 1-3 years 3-5 years 5 years Other
Total indebtedness$15,650
 $
 $
 $15,650
 $
 $
$50,000
 $
 $
 $50,000
 $
 $
Interest on variable rate indebtedness (a)
1,199
 300
 599
 300
 
 
Interest on fixed rate
indebtedness (a)
5,388
 1,675
 3,350
 363
 
 
Operating leases37,240
 6,297
 9,959
 8,085
 12,899
 
40,503
 9,388
 14,046
 9,052
 8,017
 
Employment contracts (b)
6,870
 4,165
 2,705
 
 
 
7,441
 7,070
 221
 150
 
 
Deferred compensation (c)
11,478
 767
 1,855
 1,933
 3,654
 3,269
13,574
 160
 609
 3,486
 5,380
 3,939
Royalty agreements and contingent consideration payments (d)
11,705
 3,997
 3,613
 2,571
 1,524
 
11,639
 6,252
 2,275
 1,560
 1,552
 
Purchase obligations (e)
310,098
 142,875
 71,787
 63,816
 31,620
 
539,891
 300,741
 238,280
 870
 
 
Taxes (f)
1,751
 1,751
 
 
 
 
3,100
 3,100
 
 
 
 
Total$395,991
 $160,152
 $90,518
 $92,355
 $49,697
 $3,269
$671,536
 $328,386
 $258,781
 $65,481
 $14,949
 $3,939

(a)The Company has used the contractual payment dates and the variablefixed interest rates in effect as of December 31, 2014,2016, to determine the estimated future interest payments for variablefixed rate indebtedness.
(b)Includes amounts payable under employment contracts and arrangements, and retirement and severance agreements.
(c)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 over the past few years.acquisitions.
(e)Primarily comprised of (i) purchase orders issued in the normal course of business. Also included are several longerbusiness and (ii) long term purchase commitments, for which the Company has estimated the expected future obligation based on current prices and usage. Excluded from these amounts, because the future payments are not ascertainable, are payments contingent upon the Company's performance of its contractual obligations.
(f)Represents unrecognized tax benefits, as well as related interest and penalties.

These 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 Securities and Exchange Commission (“SEC”) and the New York Stock Exchange. The Company’s governance documents and committee charters and key practices have been posted to the Company’s website (www.drewindustries.comwww.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.drewindustries.comwww.lci1.com).

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CONTINGENCIES

Additional information required by this item is included under Item 3 of Part I of this Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES

The Company'sCompany’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 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'sCompany’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.

Inventories

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

Self-Insurance

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

Warranty

The Company provides warranty terms based upon the type of product sold. The Company estimates the warranty accrual based upon various factors, including (i) historical warranty costs, (ii) current trends, (iii) product mix, and (iv) 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.

Income Taxes

The Company'sCompany’s tax provision is based on pre-tax income, statutory tax rates, federal and state tax credits, and tax planning strategies. Significant management judgment is required in determining the tax provision and in evaluating the Company'sCompany’s tax position. The Company establishes additional provisions for income taxes when, despite the belief the tax positions are fully supportable, there remain certain tax positions that are likely to be challenged and may or may not be sustained on review by tax authorities. The Company adjusts these tax accruals in light of changing facts and circumstances. The effective tax rate in a given financial statement period may be materially impacted by changes in the expected outcome of tax audits.The Company'saudits. The Company’s accompanying Consolidated Balance Sheets also include deferred tax assets resulting from deductible temporary differences, which are expected to reduce future taxable income. These assets are based on management'smanagement’s estimate of realizability, which is reassessed each quarter based upon the Company'sCompany’s forecast of future taxable income. Failure to achieve forecasted taxable income could affect the ultimate realization of certain deferred tax assets, and may result in the recognition of a valuation reserve. For additional information, see Note 10 of the Notes to Consolidated Financial Statements.

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, a market participant’s weighted average cost of capital, as well as other techniques as circumstances required. By their nature, these assumptions require judgment, and if management had

37




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 32 and 13 of the Notes to Consolidated Financial Statements.

Impairment of Long-Lived Assets, including Other Intangible Assets and Goodwill

The Company performs recoverability and impairment tests of noncurrent assets in accordance with accounting principles generally accepted in the United States. For certain assets, recoverability and/or impairment tests are required only when conditions exist that indicate the carrying value may not be recoverable. When such events or circumstances occur, the Company assesses the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected undiscounted future cash flows resulting from the use of the asset. In the event the sum of the expected undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the excess of the asset'sasset’s carrying value over its fair value would be recorded.

For other assets, impairment tests are required at least annually, or more frequently, if events or circumstances indicate that an asset may be impaired. The impairment test for other assets consists of an assessment of qualitative factors. If such qualitative factors do not support that the fair value of the reporting unit is greater than the carrying amount, the Company then uses a discounted cash flow model to estimate the fair value of the reporting unit.

The Company’s assessment of the recoverability and impairment tests of noncurrent assets involve critical accounting estimates. These estimates require significant management judgment, include inherent uncertainties and are often interdependent; therefore, they do not change in isolation. Factors that management must estimate include, among others, the economic life of the asset, sales volume, pricing, cost of raw materials, delivery costs, inflation, cost of capital, tax rates, capital spending and proceeds from the sale of assets. These factors are even more difficult to predict when financial markets are highly volatile. The estimates management uses when assessing the recoverability of noncurrent assets are consistent with those management uses in its internal planning. When performing impairment tests, management estimates the fair values of the assets using management'smanagement’s best assumptions, which is believed to be consistent with what a hypothetical marketplace participant would use. Estimates and assumptions used in these tests are evaluated and updated as appropriate. The variability of these factors depends on a number of conditions, including uncertainty about future events, and thus accounting estimates may change from period to period. If other assumptions and estimates had been used when these tests were performed, impairment charges could have resulted. As mentioned above, these factors do not change in isolation and, therefore, the Company does not believe it is practicable or meaningful to present the impact of changing a single factor. Furthermore, if management uses different assumptions or if different conditions occur in future periods, future impairment charges could result.

Contingent Consideration Payments

In connection with several acquisitions, in addition to the cash paid at closing, additional payments could be required depending upon the level of sales generated from certain of the acquired products. The fair value of the aggregate estimated contingent consideration payments has been recorded as a liability in the Consolidated Balance Sheets. Each quarter, the Company is required to re-evaluate the fair value of the liability for the estimated contingent consideration payments for such acquisitions. The fair value of the contingent consideration payments is estimated using a discounted cash flow model. This model involves the use of estimates and significant judgments that are based on a number of factors including sales of certain products, future business plans, economic projections, weighted average cost of capital, and market data. Actual results may differ from forecasted results.

Other Estimates

The Company makes a number of other estimates and judgments in the ordinary course of business including, but not limited to, those related to product returns, sales and purchase rebates, accounts receivable, lease terminations, asset retirement obligations, long-lived assets, executive succession, post-retirement benefits, stock-based compensation, segment allocations, environmental liabilities, contingencies and litigation. Establishing reserves for these matters requires management'smanagement’s estimate and judgment with regard to risk and ultimate liability or realization. As a result, these estimates are based on management'smanagement’s current understanding of the underlying facts and circumstances and may also be developed in conjunction with outside advisors, as appropriate. Because ofDue to uncertainties related to the ultimate outcome of these issues or the possibilities of changes in the underlying facts and circumstances, actual results and events could differ significantly from management estimates.

New Accounting Pronouncements

Information required by this item is included in Note 1415 of the Notes to the Consolidated Financial Statements.


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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 20142016 related to inflation.


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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

At December 31, 2014,2016, the Company had $15.7$49.9 million of variablefixed rate debt outstanding. Assuming there is an increasedecrease of 100 basis points in the interest rate for borrowings under these variable rate loansof a similar nature subsequent to December 31, 2014, and outstanding borrowings2016, which the Company becomes unable to capitalize on in the short-term as a result of $15.7 million,the structure of its fixed rate financing, future cash flows would be reduced by $0.2approximately $0.3 million lower per annum.annum than if the fixed rate financing could be obtained at current market rates.

The Company is also exposed to changes in the prices of raw materials, specifically steel and aluminum. The Company has, from time to time, entered into derivative instruments for the purpose of managing a portion of the exposures associated with fluctuations in 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. At December 31, 2014,See Note 13 of the Company had noNotes to Consolidated Financial Statements for a more detailed discussion of derivative instruments outstanding.instruments.

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.


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Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Drew Industries Incorporated:LCI Industries:

We have audited the accompanying consolidated balance sheets of DrewLCI Industries Incorporated and subsidiaries (the “Company”) as of December 31, 20142016 and 2013,2015, and the related consolidated statements of income, stockholders' equity, andcomprehensive income, cash flows, and stockholders’ equity for each of the years in the three-year period ended December 31, 2014.2016. We also have audited the Company’s internal control over financial reporting as of December 31, 2014,2016, based on criteria established in Internal Control – Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 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 these consolidated financial statements and an opinion on the Company'sCompany’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. 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.

A company'scompany’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'scompany’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'scompany’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.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DrewLCI Industries Incorporated and subsidiaries as of December 31, 20142016 and 2013,2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014,2016, 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, 2014,2016, based on criteria established in Internal Control – Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ KPMG LLP

Chicago, Illinois
March 2, 2015February 28, 2017


41




DREW

LCI INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME


Year ended December 31,Year ended December 31,
2014 2013 20122016 2015 2014
(In thousands, except per share amounts)          
          
Net sales$1,190,782
 $1,015,576
 $901,123
$1,678,898
 $1,403,066
 $1,190,782
Cost of sales935,859
 802,467
 732,464
1,249,995
 1,097,064
 935,859
Gross profit254,923
 213,109
 168,659
428,903
 306,002
 254,923
Selling, general and administrative expenses157,482
 132,935
 109,071
228,053
 186,032
 157,482
Severance
 3,716
 
Sale of extrusion assets1,954
 
 

 
 1,954
Executive succession
 1,876
 1,456
Operating profit95,487
 78,298
 58,132
200,850
 116,254
 95,487
Interest expense, net430
 351
 330
1,678
 1,885
 430
Income before income taxes95,057
 77,947
 57,802
199,172
 114,369
 95,057
Provision for income taxes32,791
 27,828
 20,462
69,501
 40,024
 32,791
Net income$62,266
 $50,119
 $37,340
$129,671
 $74,345
 $62,266
          
Net income per common share:          
Basic$2.60
 $2.15
 $1.66
$5.26
 $3.06
 $2.60
Diluted$2.56
 $2.11
 $1.64
$5.20
 $3.02
 $2.56
          
Weighted average common shares outstanding:          
Basic23,911
 23,321
 22,558
24,631
 24,295
 23,911
Diluted24,334
 23,753
 22,828
24,933
 24,650
 24,334


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

42



LCI INDUSTRIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

DREW
 Year Ended December 31,
 2016 2015 2014
(In thousands)     
      
Consolidated net income$129,671
 $74,345
 $62,266
Other comprehensive loss:     
Net foreign currency translation adjustment(1,798) 
 
Total comprehensive income$127,873
 $74,345
 $62,266

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



LCI INDUSTRIES INCORPORATED
CONSOLIDATED BALANCE SHEETS


December 31,December 31,
2014 20132016 2015
(In thousands, except per share amount)      
      
ASSETS      
Current assets      
Cash and cash equivalents$4
 $66,280
$86,170
 $12,305
Accounts receivable, net37,987
 31,015
57,374
 41,509
Inventories, net132,492
 101,211
188,743
 170,834
Deferred taxes18,709
 12,557
Prepaid expenses and other current assets18,444
 14,467
35,107
 21,178
Total current assets207,636
 225,530
367,394
 245,826
Fixed assets, net146,788
 125,982
172,748
 150,600
Goodwill66,521
 21,545
89,198
 83,619
Other intangible assets, net96,959
 59,392
112,943
 100,935
Deferred taxes11,744
 12,236
31,989
 29,391
Other assets14,193
 8,499
12,632
 12,485
Total assets$543,841
 $453,184
$786,904
 $622,856
      
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities      
Accounts payable, trade$49,534
 $24,063
$50,616
 $29,700
Dividend payable
 46,706
Accrued expenses and other current liabilities57,651
 47,422
98,735
 69,162
Total current liabilities107,185
 118,191
149,351
 98,862
Long-term indebtedness15,650
 
49,949
 49,910
Other long-term liabilities26,108
 21,380
37,335
 35,509
Total liabilities148,943
 139,571
236,635
 184,281
      
Stockholders’ equity      
Common stock, par value $.01 per share: authorized      
30,000 shares; issued 26,534 shares at December 31, 2014   
and 26,058 shares at December 31, 2013265
 261
75,000 shares; issued 27,434 shares at December 31, 2016   
and 27,039 shares at December 31, 2015274
 270
Paid-in capital147,186
 126,360
185,981
 166,566
Retained earnings276,914
 216,459
395,279
 301,206
Accumulated other comprehensive loss(1,798) 
Stockholders’ equity before treasury stock424,365
 343,080
579,736
 468,042
Treasury stock, at cost, 2,684 shares at December 31, 2014   
and December 31, 2013(29,467) (29,467)
Treasury stock, at cost, 2,684 shares at December 31, 2016   
and December 31, 2015(29,467) (29,467)
Total stockholders’ equity394,898
 313,613
550,269
 438,575
Total liabilities and stockholders’ equity$543,841
 $453,184
$786,904
 $622,856


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

43




DREWLCI INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,Year Ended December 31,
2014 2013 20122016 2015 2014
(In thousands)          
     
Cash flows from operating activities:          
Net income$62,266
 $50,119
 $37,340
$129,671
 $74,345
 $62,266
Adjustments to reconcile net income to cash flows provided by operating activities:          
Depreciation and amortization32,596
 27,500
 25,665
46,167
 41,624
 32,596
Stock-based compensation expense10,817
 10,839
 6,318
15,420
 14,043
 10,817
Deferred taxes(5,493) 269
 (668)(2,598) 1,062
 (5,493)
Other non-cash items2,796
 1,867
 654
1,540
 1,335
 2,796
Changes in assets and liabilities, net of acquisitions of businesses:          
Accounts receivable, net(606) (9,013) 774
(13,899) 2,082
 (606)
Inventories, net(21,940) (3,403) (4,727)(7,856) (31,276) (21,940)
Prepaid expenses and other assets(4,610) (2,288) (10,738)(15,553) (2,249) (4,610)
Accounts payable, trade21,269
 2,296
 5,983
18,800
 (21,783) 21,269
Accrued expenses and other liabilities9,925
 4,491
 12,088
31,715
 15,835
 9,925
Net cash flows provided by operating activities107,020
 82,677
 72,689
203,407
 95,018
 107,020
     
Cash flows from investing activities:          
Capital expenditures(42,458) (32,595) (32,026)(44,671) (28,989) (42,458)
Acquisitions of businesses(106,782) (4,750) (1,473)
Acquisitions of businesses, net of cash acquired(48,725) (41,058) (106,782)
Proceeds from note receivable1,750
 
 
2,000
 2,000
 1,750
Proceeds from sales of fixed assets3,587
 1,444
 5,420
698
 2,337
 3,587
Other investing activities(171) (154) (119)(1,009) (406) (171)
Net cash flows used for investing activities(144,074) (36,055) (28,198)(91,707) (66,116) (144,074)
     
Cash flows from financing activities:          
Exercise of stock-based awards, net of shares tendered for payment5,769
 15,175
 8,217
Exercise of stock-based awards, net of shares tendered for
payment of taxes
2,574
 1,470
 5,769
Proceeds from line of credit borrowings425,330
 135,452
 52,227
81,458
 614,629
 425,330
Repayments under line of credit borrowings(409,680) (135,452) (52,227)(81,458) (630,279) (409,680)
Payment of special dividend(46,706) 
 (45,038)
Payment of dividends(34,437) (48,227) (46,706)
Proceeds from shelf-loan borrowing
 50,000
 
Payment of contingent consideration related to acquisitions(3,739) (5,456) (4,315)(4,944) (3,974) (3,739)
Other financing activities(196) 
 
(1,028) (220) (196)
Net cash flows (used for) provided by financing activities(29,222) 9,719
 (41,136)
Net cash flows used for financing activities(37,835) (16,601) (29,222)
          
Net (decrease) increase in cash(66,276) 56,341
 3,355
Net increase (decrease) in cash and cash equivalents73,865
 12,301
 (66,276)
          
Cash and cash equivalents at beginning of year66,280
 9,939
 6,584
12,305
 4
 66,280
Cash and cash equivalents at end of year$4
 $66,280
 $9,939
$86,170
 $12,305
 $4
          
Supplemental disclosure of cash flow information:          
Cash paid during the year for:          
Interest$641
 $364
 $369
$1,992
 $2,113
 $641
Income taxes, net of refunds$30,947
 $26,799
 $24,145
$65,792
 $33,782
 $30,947

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

44




DREWLCI INDUSTRIES INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY


Common
Stock
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Total
Stockholders’
Equity
Common
Stock
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Loss
Treasury
Stock
Total
Stockholders’
Equity
(In thousands, except shares and per share amounts)  
Balance - December 31, 2011$248
$84,389
$222,126
$(29,467)$277,296
Net income

37,340

37,340
Issuance of 550,352 shares of common stock pursuant to stock-based awards6
7,853


7,859
Income tax benefit relating to issuance of common stock pursuant to stock-based awards
270


270
Stock-based compensation expense
6,318


6,318
Issuance of 7,548 deferred stock units relating to prior year compensation
200


200
Special cash dividend ($2.00 per share)

(45,038)
(45,038)
Dividend equivalents on stock-based awards
1,382
(1,382)

Balance - December 31, 2012254
100,412
213,046
(29,467)284,245
Net income

50,119

50,119
Issuance of 681,426 shares of common stock pursuant to stock-based awards7
13,440


13,447
Income tax benefit relating to issuance of common stock pursuant to stock-based awards
1,534


1,534
Stock-based compensation expense
10,839


10,839
Issuance of 3,776 deferred stock units relating to prior year compensation
135


135
Special cash dividend ($2.00 per share)

(46,706)
(46,706)
Balance - December 31, 2013261
126,360
216,459
(29,467)313,613
$261
$126,360
$216,459
$
$(29,467)$313,613
Net income

62,266

62,266


62,266


62,266
Issuance of 476,047 shares of common stock pursuant to stock-based awards4
2,298


2,302
4
2,298



2,302
Income tax benefit relating to issuance of common stock pursuant to stock-based awards
3,914


3,914

3,914



3,914
Stock-based compensation expense
10,817


10,817

10,817



10,817
Issuance of 43,188 deferred stock units relating to prior year compensation
1,986


1,986

1,986



1,986
Dividend equivalents on stock-based awards
1,811
(1,811)


1,811
(1,811)


Balance - December 31, 2014$265
$147,186
$276,914
$(29,467)$394,898
265
147,186
276,914

(29,467)394,898
Net income

74,345


74,345
Issuance of 505,312 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes5
(7,563)


(7,558)
Income tax benefit relating to issuance of common stock pursuant to stock-based awards
9,028



9,028
Stock-based compensation expense
14,043



14,043
Issuance of 36,578 deferred stock units relating to prior year compensation
2,046



2,046
Special cash dividend ($2.00 per share)

(48,227)

(48,227)
Dividend equivalents on stock-based awards
1,826
(1,826)


Balance - December 31, 2015270
166,566
301,206

(29,467)438,575
Net income

129,671


129,671
Issuance of 395,274 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes4
(5,413)


(5,409)
Income tax benefit relating to issuance of common stock pursuant to stock-based awards
7,983



7,983
Stock-based compensation expense
15,420



15,420
Issuance of 4,784 deferred stock units relating to prior year compensation
264



264
Other comprehensive loss


(1,798)
(1,798)
Cash dividends ($1.40 per share)

(34,437)

(34,437)
Dividend equivalents on stock-based awards
1,161
(1,161)


Balance - December 31, 2016$274
$185,981
$395,279
$(1,798)$(29,467)$550,269

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

45




DREWLCI INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Consolidated Financial Statements include the accounts of DrewLCI Industries Incorporated and its wholly-owned subsidiaries (collectively, “Drew” or(“LCII” and collectively with its subsidiaries, the “Company”). DrewLCII has no unconsolidated subsidiaries. Drew operatesLCII, through its wholly-owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, “Lippert Components” or “LCI”). Drew, through Lippert Components, manufactures, supplies, domestically and internationally, a broad array of components for the leading original equipment manufacturers (“OEMs”) of recreational vehicles (“RVs”) and manufactured homes, and to a lesser extent supplies components for adjacent industries including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; pontoon boats; trains; manufactured homes; and modular housing;housing. The Company also supplies components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors and factory-built mobile office units.service centers. At December 31, 2014,2016, the Company operated 3748 manufacturing facilities.and distribution facilities located throughout the United States and in Canada and Italy.

The RV and manufactured housing industries, as well as otherMost 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 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 current year presentation.

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. 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; significant improvements are capitalized.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 (i) historical warranty costs, (ii) current trends, (iii) product mix, and (iv) sales. The accounting
LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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.

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.

46

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)




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 income tax expense in its Consolidated Financial Statements.

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 20142016 and 2013,2015, 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. In 2012, the impairment tests were based on fair value, determined using discounted cash flows, appraised values or management’s estimates.

Other Intangible Assets
Intangible assets with estimable useful lives are amortized, primarily on an accelerated basis, over their respective estimated useful lives to their estimated residual values, and reviewed for impairment. The amortization of other intangible assets is done using a method, straight-line or accelerated, which 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.

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
LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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.


47

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)Foreign Currency Translation

The “functional currency” of the Company’s subsidiaries in Italy is the respective local 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 as a component of Accumulated Other Comprehensive Income (Loss).


Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximated 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 that havehaving 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

The Company recognizes revenue when products are shipped and the customer takes ownership and assumes risk of loss, collectability is reasonably assured, and the sales price is fixed or determinable. Sales taxes collected from customers and remitted to governmental authorities, which are not significant, are accounted for on a net basis and therefore are excluded from net sales in the Consolidated Statements of Income.

Shipping and Handling Costs

The Company records shipping and handling costs within selling, general and administrative expenses. Such costs aggregated $40.9$51.8 million, $36.4$45.8 million and $32.7$40.9 million in the years ended December 31, 2014, 20132016, 2015 and 2012,2014, 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.

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,
LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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, executive succession, 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.    SEGMENT REPORTING

The Company has two reportable segments; the recreational vehicle products segment (the "RV Segment") and the manufactured housing products segment (the "MH Segment"). Intersegment sales are insignificant.


48

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



The RV Segment, which accounted for 90 percent, 88 percent, and 87 percent of consolidated net sales for the years ended December 31, 2014, 2013 and 2012 respectively, manufactures a variety of products used in the production of RVs, including:
Steel chassis for towable RVs
Chassis components
Axles and suspension solutions for towable RVs
Furniture and mattresses
Slide-out mechanisms and solutions
Entry, luggage, patio and ramp doors
Thermoformed bath, kitchen and other products
 Electric and manual entry steps
 Windows
Awnings and slide toppers
 Manual, electric and hydraulic stabilizer and 
   leveling systems
 Other accessories and electronic components

The Company also supplies certain of these products to the RV aftermarket, and to adjacent industries, including buses and trailers used to haul boats, livestock, equipment and other cargo. Approximately 79 percent of the Company’s RV Segment net sales in 2014 were of products to original equipment manufacturers ("OEMs") of travel trailer and fifth-wheel RVs.

The MH Segment, which accounted for 10 percent, 12 percent and 13 percent of consolidated net sales for the years ended December 31, 2014, 2013 and 2012, respectively, manufactures a variety of products used in the production of manufactured homes, including:
Vinyl and aluminum windows
Steel chassis
Thermoformed bath and kitchen products
Steel chassis parts
Steel and fiberglass entry doors
Axles
Aluminum and vinyl patio doors

The Company also supplies certain of these products to the manufactured housing aftermarket, and to adjacent industries, including modular housing and mobile office units. Certain of the Company’s MH Segment customers manufacture both manufactured homes and modular homes, and certain of the products manufactured by the Company are suitable for both types of homes. As a result, the Company is not always able to determine in which type of home its products are installed.

Decisions concerning the allocation of the Company's resources are made by the Company's key executives, with oversight by the Board of Directors. This group 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 RV and MH Segments are the same as those described in Note 1 of the Notes to Consolidated Financial Statements.

Effective with the second quarter of 2013, in connection with the management succession and relocation of the corporate office from New York to Indiana, corporate expenses, accretion related to contingent consideration and other non-segment items, which were previously reported on separate lines, have been included as part of segment operating profit. 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. The segment disclosures from prior years have been reclassified to conform to the current year presentation.

Information relating to segments follows for the years ended December 31:
 SegmentsCorporate 
(In thousands)RVMHTotaland OtherTotal
2014     
Net sales to external customers (a)
$1,074,448
$116,334
$1,190,782
$
$1,190,782
Operating profit (loss) (b)
$86,571
$10,870
$97,441
$(1,954)$95,487
Total assets (c)
$451,264
$29,482
$480,746
$63,095
$543,841
Expenditures for long - lived assets (d)
$145,406
$2,039
$147,445
$
$147,445
Depreciation and amortization$29,933
$2,568
$32,501
$95
$32,596
      

49

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



 SegmentsCorporate 
(In thousands)RVMHTotaland OtherTotal
2013     
Net sales to external customers (a)
$893,694
$121,882
$1,015,576
$
$1,015,576
Operating profit (loss) (b)
$68,248
$11,926
$80,174
$(1,876)$78,298
Total assets (c)
$306,139
$32,948
$339,087
$114,097
$453,184
Expenditures for long - lived assets (d)
$34,989
$2,682
$37,671
$
$37,671
Depreciation and amortization$24,615
$2,806
$27,421
$79
$27,500
      
2012     
Net sales to external customers (a)
$780,925
$120,198
$901,123
$
$901,123
Operating profit (loss) (b)
$47,172
$12,416
$59,588
$(1,456)$58,132
Total assets (c)
$281,728
$35,668
$317,396
$56,472
$373,868
Expenditures for long - lived assets (d)
$30,893
$2,739
$33,632
$
$33,632
Depreciation and amortization$22,750
$2,822
$25,572
$93
$25,665

(a)Thor Industries, Inc., a customer of the RV Segment, accounted for 33 percent, 34 percent and 37 percent of the Company’s consolidated net sales for the years ended December 31, 2014, 2013 and 2012, respectively. Berkshire Hathaway Inc. (through its subsidiaries Forest River, Inc. and Clayton Homes, Inc.), a customer of both segments, accounted for 28 percent, 28 percent and 27 percent of the Company’s consolidated net sales for the years ended December 31, 2014, 2013 and 2012, respectively. No other customer accounted for more than 10 percent of consolidated net sales in the years ended December 31, 2014, 2013 and 2012.
(b)Certain general and administrative expenses are allocated between the segments based upon net sales or operating profit, depending upon the nature of the expense.
(c)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.
(d)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 $105.0 million, $4.8 million and $1.5 million of long-lived assets, as part of the acquisitions of businesses in the years ended December 31, 2014, 2013 and 2012, respectively.

Net sales by product were as follows for the years ended December 31:
(In thousands)2014 2013 2012
RV Segment:     
Chassis, chassis parts and slide-out mechanisms$564,543
 $493,244
 $443,850
Windows and doors204,054
 181,934
 173,436
Furniture and mattresses133,371
 100,196
 78,082
Axles and suspension solutions92,261
 69,818
 57,275
Other80,219
 48,502
 28,282
Total RV Segment net sales$1,074,448
 $893,694
 $780,925
      
MH Segment:     
Windows and doors$66,140
 $67,029
 $63,655
Chassis and chassis parts33,842
 38,359
 41,874
Other16,352
 16,494
 14,669
Total MH Segment net sales$116,334
 $121,882
 $120,198
      
Total net sales$1,190,782
 $1,015,576
 $901,123


50

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



The composition of net sales was as follows for the years ended December 31:
(In thousands)2014 2013 2012
Net sales:     
RV Segment:     
RV OEMs:     
Travel trailers and fifth-wheels$844,096
 $727,783
 $653,478
Motorhomes67,774
 47,937
 34,612
RV aftermarket49,570
 25,334
 19,119
Adjacent industries113,008
 92,640
 73,716
Total RV Segment net sales$1,074,448
 $893,694
 $780,925
      
MH Segment:     
Manufactured housing OEMs$77,421
 $80,245
 $80,392
Manufactured housing aftermarket14,186
 13,719
 13,110
Adjacent industries24,727
 27,918
 26,696
Total MH Segment net sales$116,334
 $121,882
 $120,198
      
Total net sales$1,190,782
 $1,015,576
 $901,123

Potential Future Changes to Reporting Segments

Over the past several years, largely due to the growth the Company has experienced in its RV Segment, the MH Segment is now a smaller part of the Company. Net sales to manufactured housing OEMs are 7 percent of consolidated net sales for the year ending December 31, 2014. In addition, the Company has recently increased its focus on the significant opportunities in the RV aftermarket, which is currently included in the RV Segment. While there were no changes to the Company’s segment reporting through December 31, 2014, the Company will continue to evaluate the information provided to its Chief Operating Decision Maker ("CODM"), and assess the impact of any changes to its reporting structures that will reflect how its CODM will assess the performance of the Company's operating segments and make decisions about resource allocations which impact the operating segments the Company reports.

3.    ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

Acquisitions in 2017

SessaKlein S.p.A.

In February 2017, the Company acquired 100 percent of the outstanding shares of Sessa Klein 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 $8.5 million paid at closing, plus contingent consideration based on future sales by this operation. The Company is unable to make all the disclosures required by ASC 805-10-50-2 at this time as the initial accounting and pro forma analysis for this business combination is incomplete.

Acquisitions in 2016

Camping Connection

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 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$12,463
  
Customer relationships$2,116
Net other assets10,347
Total fair value of net assets acquired$12,463

The customer relationships intangible asset is being amortized over its preliminary 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. The Company is validating account balances and finalizing the valuation for the acquisition.
LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The acquisition of this business was preliminarily recorded on the acquisition date as follows (in thousands):
Cash consideration net of cash acquired$16,137
Contingent consideration1,322
Total fair value of consideration given$17,459
  
Customer relationships$9,694
Other identifiable intangible assets5,193
Net other assets128
Total fair value of net assets acquired$15,015
  
Goodwill (not tax deductible)$2,444

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

Flair Interiors

In February 2016, the Company acquired the business and certain assets of Flair Interiors, Inc. (“Flair”), a manufacturer of RV furniture 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$8,100
  
Customer relationships$3,700
Net other assets2,378
Total fair value of net assets acquired$6,078
  
Goodwill (tax deductible)$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$10,000
  
Customer relationships$8,100
Net tangible assets1,307
Total fair value of net assets acquired$9,407
  
Goodwill (tax deductible)$593

LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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

Acquisitions in 2015

Signature Seating

In August 2015, the Company acquired the business and certain assets of Roehm Marine, LLC, also known as Signature Seating (“Signature”), a manufacturer of furniture solutions for fresh water boat manufacturers, primarily pontoon boats. The purchase price was $16.0 million paid at closing, plus contingent consideration based on future sales of this operation. The results of the acquired business have been included 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$16,000
Contingent consideration3,556
Total fair value of consideration given$19,556
  
Customer relationships$7,500
Net other assets4,023
Total fair value of net assets acquired$11,523
  
Goodwill (tax deductible)$8,033

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

Spectal Industries

In April 2015, the Company acquired the business and certain assets of Industries Spectal, Inc. (“Spectal”), a Quebec, Canada-based manufacturer of windows and doors primarily for school buses, as well as commercial buses, emergency vehicles, trucks, agricultural equipment and RVs. The purchase price was $22.3 million paid at closing, plus contingent consideration based on future sales of this operation. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Consolidated Statements of Income since the acquisition date. The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration$22,335
Contingent consideration1,211
Total fair value of consideration given$23,546
  
Customer relationships$10,100
Net other assets4,381
Total fair value of net assets acquired$14,481
  
Goodwill (tax deductible)$9,065

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

LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

EA Technologies LLC

OnIn January 16, 2015, the Company acquired the business and certain assets of EA Technologies, LLC ("(“EA Technologies"Technologies”), a manufacturer of custom steel and aluminum parts and provider of electro-deposition (‘e-coat’) and powder coating services for RV, bus, medium-duty truck, automotive, recreational marine, specialty and utility trailer, and military applications. Sales of the acquired business for 2014 were $17 million. The purchase price was $9.4$9.2 million, of which $6.8$6.6 million was paid in the fourth quarter of 2014, with the balance paid at closing on January 16, 2015.closing. The results of the acquired business will be included in the Company's RV Segment and in the Consolidated Statements of Income subsequent to the acquisition date. The Company is in the process of allocating the consideration to the fair value of the assets acquired.

Acquisitions in 2014

Duncan Systems, Inc.

On August 15, 2014, the Company acquired the business and certain assets of Duncan Systems, Inc. ("Duncan Systems"), an aftermarket distributor of replacement motorhome windshields, awnings, and RV, heavy truck and specialty vehicle glass and windows, primarily to fulfill insurance claims. Sales of Duncan Systems for the twelve months ended July 2014 were $26 million. The purchase price was $18.0 million paid at closing, plus contingent consideration based on future sales of this operation. The

51

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



results of the acquired business have been included in the Company's RVCompany’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$18,000
Contingent consideration1,914
Total fair value of consideration given$19,914
  
Customer relationships$10,500
Other identifiable intangible assets930
Net tangible assets4,070
Total fair value of net assets acquired$15,500
  
Goodwill (tax deductible)$4,414
Cash consideration$9,248
  
Identifiable intangible assets$480
Net tangible assets8,868
Total fair value of net assets acquired$9,348
  
Gain on bargain purchase$100

Acquisitions in 2014

Duncan Systems

In August 2014, the Company acquired the business and certain assets of Duncan Systems, Inc. (“Duncan Systems”), an aftermarket distributor of replacement motorhome windshields, awnings, and RV, heavy truck and specialty vehicle glass and windows, primarily to fulfill insurance claims. The purchase price was $18.0 million paid at closing, plus contingent consideration based on future sales of this operation. The results of the acquired business have been included in the Company’s Aftermarket 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$18,000
Contingent consideration1,914
Total fair value of consideration given$19,914
  
Customer relationships$10,500
Net other assets5,000
Total fair value of net assets acquired$15,500
  
Goodwill (tax deductible)$4,414

The customer relationships intangible asset is being amortized over its estimated useful life of 14 years. The consideration given was greater than the fair value of the assets acquired, resulting in goodwill, because the Company anticipates the attainment of synergies and an increase in market share for the distributed products.

Power Gear and Kwikee Brands

OnIn June 13, 2014, the Company acquired the RV business of Actuant Corporation, which manufacturedmanufactures leveling systems, slideoutslide-out mechanisms and steps, primarily for motorhome RVs, under the Power Gear and Kwikee brands. Sales of the acquired business for the twelve months ended May 2014 were $28 million, consisting of sales to OEMs and the aftermarket. The purchase price was $35.5 million, paid at closing. The results of the acquired business have been included primarily in the Company's RVCompany’s OEM Segment and in the Consolidated Statements of Income since the acquisition date.

LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration$35,500
  
Customer relationships$12,300
Patents5,300
Other identifiable intangible assets2,130
Net tangible assets2,227
Total fair value of net assets acquired$21,957
  
Goodwill (tax deductible)$13,543

The customer relationships intangible asset is being amortized over its estimated useful life of 14 years and the patents are being amortized over their estimated useful life of 8eight years. The consideration given was greater than the fair value of the assets acquired, resulting in goodwill, because the Company anticipates the attainment of synergies and an increase in the markets for the acquired products.

Star Design LLC

OnIn March 14, 2014, the Company acquired the business and certain assets of Star Design, LLC ("(“Star Design"Design”). Star Design had annual sales of $10 million in 2013, comprised primarily of thermoformed sheet plastic products for the RV, bus and specialty vehicle industries. The.The purchase price was $12.2 million paid at closing. The results of the acquired business have been included primarily in the Company's RVCompany’s OEM Segment and in the Consolidated Statements of Income since the acquisition date.

52

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration$12,232
$12,232
  
Customer relationships$4,400
$4,400
Other identifiable intangible assets610
Net tangible assets2,108
Net other assets2,718
Total fair value of net assets acquired$7,118
$7,118
  
Goodwill (tax deductible)$5,114
$5,114

The customer relationships intangible asset is being amortized over its estimated useful life of 14 years. The consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company anticipates leveraging its existing experience and manufacturing capacity with respect to these product lines, and also believes the diversified customer base will further its expansion into adjacent industries.

Innovative Design Solutions Inc.

OnIn February 27, 2014, the Company acquired Innovative Design Solutions, Inc. (“IDS”), a designer, developer and manufacturer of electronic systems encompassing a wide variety of RV applications. IDS also manufactures electronic systems for automotive, medical and industrial applications. IDS had annual sales of $19 million in 2013, of which $15 million were to the Company. The purchase price was $35.9 million, of which $34.2 million was paid at closing, with the balance to be paid out annually over the subsequent three years, plus contingent consideration based on future sales of this operation. The results of the acquired business have been included primarily in the Company's RVCompany’s OEM Segment and in the Consolidated Statements of Income since the acquisition date.

LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration$34,175
Present value of future payments1,739
Contingent consideration710
Total fair value of consideration given$36,624
  
Patents$6,000
Customer relationships4,000
Other identifiable intangible assets3,180
Net tangible assets1,894
Total fair value of net assets acquired$15,074
  
Goodwill (tax deductible)$21,550

The patents are being amortized over their estimated useful life of 10 years and the customer relationships intangible asset is being amortized over its estimated useful life of 12 years. The consideration given was greater than the fair value of the assets acquired, resulting in goodwill, because the Company anticipates an increase in the markets for the acquired products, market share growth in both existing and new markets, as well as attainment of synergies.

Acquisitions in 2013Goodwill

Fortress Technologies, LLCGoodwill by reportable segment was as follows:
(In thousands)OEM Segment Aftermarket Segment Total
Net balance – December 31, 2014$52,815
 $13,706
 $66,521
Acquisitions – 201517,007
 91
 17,098
Net balance – December 31, 201569,822
 13,797
 83,619
Acquisitions – 20165,059
 738
 5,797
Other(218) 
 (218)
Net balance – December 31, 2016$74,663
 $14,535
 $89,198

On December 13, 2013,The Company performed its annual goodwill impairment procedures for all of its reporting units as of November 30, 2016, 2015 and 2014, and concluded no goodwill impairment existed at that time. The Company plans to update its review as of November 30, 2017, 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 (see Note 14), goodwill was reassigned to reporting units using a relative fair value allocation. In addition, the Company acquiredcompleted an assessment of any potential goodwill impairment for all reporting units immediately prior to the businessreallocation and certaindetermined that no impairment existed. The goodwill balance includes $50.5 million of accumulated impairment, which occurred prior to December 31, 2014.

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, of Fortress Technologies, LLC (“Fortress”). Fortress was a manufacturer of specialized RV chassis. The acquired business had annualized sales of $3 million. The resultsby segment, consisted of the acquired business have been included in the Company's RV Segment and in the Consolidated Statements of Income since the acquisition date.following at December 31:

53

(In thousands)2016 2015
OEM Segment$97,689
 $84,752
Aftermarket Segment15,254
 16,183
Other intangible assets$112,943
 $100,935
DREWLCI INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



The acquisitionOther intangible assets consisted of this business was recorded on the acquisition date as follows (in thousands):following at December 31, 2016:
Cash consideration$3,299
  
Working capital, net$(111)
Net tangible assets3,410
Total fair value of net assets acquired$3,299
(In thousands)Gross
Cost
 Accumulated
Amortization
 Net
Balance
 Estimated Useful
Life in Years
Customer relationships$110,784
 $32,414
 $78,370
 6to16
Patents56,468
 34,066
 22,402
 3to19
Tradenames10,041
 5,667
 4,374
 3to15
Non-compete agreements5,852
 2,975
 2,877
 3to6
Other309
 76
 233
 2to12
Purchased research and development4,687
 
 4,687
 Indefinite
Other intangible assets$188,141
 $75,198
 $112,943
    

Midstates Tool & Die and Engineering, Inc.

On June 24, 2013, the Company acquired the business and certainOther intangible assets of Midstates Tool & Die and Engineering, Inc. (“Midstates”). Midstates was a manufacturer of tools and dies, as well as automation equipment. The acquired business had annualized sales of $2 million. The resultsconsisted of the acquired business have been included in the Company's RV 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):following at December 31, 2015:
Cash consideration$1,451
  
Non-compete agreement$40
Net tangible assets1,043
Total fair value of net assets acquired$1,083
  
Goodwill (tax deductible)$368
(In thousands)Gross
Cost
 Accumulated
Amortization
 Net
Balance
 Estimated Useful
Life in Years
Customer relationships$94,560
 $30,514
 $64,046
 6to16
Patents54,293
 28,255
 26,038
 3to19
Tradenames8,935
 4,751
 4,184
 3to15
Non-compete agreements4,493
 2,800
 1,693
 3to6
Other594
 307
 287
 2to12
Purchased research and development4,687
 
 4,687
 Indefinite
Other intangible assets$167,562
 $66,627
 $100,935
    

The consideration givenAmortization expense related to other intangible assets was greater than the fair value of assets acquired, resulting in goodwill, because the Company anticipates the tool and die and automation capabilities of the acquired business will help improve its operating efficiencies.

Acquisition in 2012

RV Entry Door Operation

On February 21, 2012, the Company acquired the business and certain assets of the United States RV entry door operation of Euramax International, Inc. The acquired business had annualized sales of $6 million. The purchase price was $1.7 million, of which $1.2 million was paid at closing, with the balance to be paid over the next three years. The results of the acquired business have been included in the Company’s RV 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):for the years ended December 31:
Cash consideration$1,164
Present value of future payments482
Total fair value of consideration given$1,646
  
Customer relationships270
Other identifiable intangible assets40
Net tangible assets785
Total fair value of net assets acquired$1,095
  
Goodwill (tax deductible)$551
(In thousands)2016 2015 2014
Cost of sales$5,967
 $6,017
 $5,092
Selling, general and administrative11,791
 10,038
 7,612
Amortization expense$17,758
 $16,055
 $12,704

The customer relationships are being amortized over their estimated useful life of 7 years. The consideration given was greater thanEstimated amortization expense for other intangible assets for the fair value of the net assets acquired, resulting in goodwill, because the Company anticipates leveraging its existing manufacturing capacity and purchasing power to reduce costs in this product line.next five years is as follows:
(In thousands)20172018201920202021
Cost of sales$5,809
$4,973
$4,330
$3,283
$2,743
Selling, general and administrative10,989
10,405
9,362
8,060
7,466
Amortization expense$16,798
$15,378
$13,692
$11,343
$10,209


54

DREWLCI INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

3.    RECEIVABLES


SaleThe following table provides a reconciliation of Extrusion Assetsthe activity related to the Company’s allowance for doubtful accounts receivable, for the years ended December 31:
(In thousands)2016 2015 2014
Balance at beginning of period$844
 $917
 $705
Provision for doubtful accounts(83) (5) 178
Additions related to acquired businesses29
 33
 58
Recoveries
 8
 4
Accounts written off(135) (109) (28)
Balance at end of period$655
 $844
 $917

In addition to the allowance for doubtful accounts receivable, the Company had an allowance for prompt payment discounts in the amount of $0.5 million and $0.4 million at December 31, 2016 and 2015, respectively.

4.    INVENTORIES

Inventories consisted of the following at December 31:
(In thousands)2016 2015  
Raw materials$155,044
 $144,397
  
Work in process7,509
 4,932
  
Finished goods26,190
 21,505
  
Inventories, net$188,743
 $170,834
  

5.    NOTES RECEIVABLE

In April 2014, the Company entered into a six-year aluminum extrusion supply agreement, and concurrently sold certain aluminum extrusion assets. The Company recorded a pre-tax loss of $2.0 million in the second quarter of 2014 on the sale of the aluminum extrusion-related assets. In connection with the sale, the Company received $0.3 million at closing and a $7.2 million note receivable payablecollectible over the next four years, recorded at its present value of $6.4 million on the date of closing. During 2016 - 2014, the Company received installments of $1.8$5.8 million under the note. At December 31, 2014,2016, the present value of the remaining amount due under the note receivable was $4.8 million.$1.4 million included in prepaid expenses and other current assets.

GoodwillIn July 2015, the Company agreed to terminate the supply agreement, and as consideration the Company received a $2.0 million note receivable collectible in 2019 and 2020. The Company recorded this note receivable at its present value of $1.6 million and a corresponding gain of $1.6 million in the 2015 third quarter. At December 31, 2016, the present value of the remaining amount due under the note receivable was $1.7 million included in other assets.

Goodwill by reportable segment was as follows:
(In thousands)RV Segment MH Segment Total
Accumulated cost$61,001
 $10,025
 $71,026
Accumulated impairment(41,276) (9,251) (50,527)
Net balance – December 31, 201119,725
 774
 20,499
Acquisitions – 2012678
 
 678
Net balance – December 31, 201220,403
 774
 21,177
Acquisitions – 2013368
 
 368
Net balance – December 31, 201320,771
 774
 21,545
Acquisitions – 201444,976
 
 44,976
Net balance – December 31, 2014$65,747
 $774
 $66,521
      
Accumulated cost$107,023
 $10,025
 $117,048
Accumulated impairment(41,276) (9,251) (50,527)
Net balance – December 31, 2014$65,747
 $774
 $66,521

The Company performed its annual goodwill impairment procedures for all of its reporting units as of November 30, 2014, 2013 and 2012, and concluded no goodwill impairment existed at that time. The Company plans to update its review as of November 30, 2015, or sooner if events occur or circumstances change that could reduce the fair value of a reporting unit below its carrying value.

Other Intangible Assets

Other intangible assets, by segment, consisted of the following at December 31:
(In thousands)2014 2013
RV Segment$95,075
 $56,954
MH Segment1,884
 2,438
Other intangible assets$96,959
 $59,392

Other intangible assets consisted of the following at December 31, 2014:
(In thousands)Gross
Cost
 Accumulated
Amortization
 Net
Balance
 Estimated Useful
Life in Years
Customer relationships$81,260
 $27,553
 $53,707
 6to16
Patents54,333
 22,389
 31,944
 3to19
Tradenames9,173
 4,525
 4,648
 3to15
Non-compete agreements3,948
 2,233
 1,715
 3to6
Other360
 102
 258
 2to12
Purchased research and development4,687
 
 4,687
 Indefinite
Other intangible assets$153,761
 $56,802
 $96,959
    

55

DREWLCI INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)




Other intangible assets consisted of the following at December 31, 2013:
(In thousands)Gross
Cost
 Accumulated
Amortization
 Net
Balance
 Estimated Useful
Life in Years
Customer relationships$50,105
 $21,999
 $28,106
 6to16
Patents41,651
 18,461
 23,190
 3to19
Tradenames7,959
 5,976
 1,983
 5to15
Non-compete agreements3,866
 2,210
 1,656
 3to6
Purchased research and development4,457
 
 4,457
 Indefinite
Other intangible assets$108,038
 $48,646
 $59,392
    

Amortization expense related to other intangible assets was as follows for the years ended December 31:
(In thousands)2014 2013 2012
Cost of sales$5,092
 $3,610
 $4,492
Selling, general and administrative7,612
 6,398
 6,760
Amortization expense$12,704
 $10,008
 $11,252

Estimated amortization expense for other intangible assets for the next five years is as follows:
(In thousands)20152016201720182019
Cost of sales$6,311
$6,273
$5,814
$4,984
$4,206
Selling, general and administrative8,802
7,583
6,722
6,157
5,652
Amortization expense$15,113
$13,856
$12,536
$11,141
$9,858


4.    RECEIVABLES

The following table provides a reconciliation of the activity related to the Company's allowance for doubtful accounts receivable, for the years ended December 31:
(In thousands)2014 2013 2012
Balance at beginning of period$705
 $677
 $858
Provision for doubtful accounts178
 194
 304
Additions related to acquired businesses58
 5
 
Recoveries4
 1
 8
Accounts written off(28) (172) (493)
Balance at end of period$917
 $705
 $677

In addition to the allowance for doubtful accounts receivable, the Company had an allowance for prompt payment discounts in the amount of $0.4 million and $0.3 million at December 31, 2014 and 2013, respectively.

5.    INVENTORIES

Inventories consisted of the following at December 31:
(In thousands)2014 2013  
Raw materials$111,366
 $84,279
  
Work in process2,624
 3,038
  
Finished goods18,502
 13,894
  
Inventories, net$132,492
 $101,211
  


56

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



6.    FIXED ASSETS

Fixed assets consisted of the following at December 31:
   Estimated Useful   Estimated Useful
(In thousands)2014 2013Life in Years2016 2015Life in Years
Land$10,792
 $12,018
 $13,802
 $11,064
 
Buildings and improvements85,002
 76,577
10 to 40106,831
 89,616
10 to 40
Leasehold improvements8,114
 2,044
3 to 1011,918
 11,147
3 to 10
Machinery and equipment138,025
 130,461
3 to 15167,691
 153,784
3 to 15
Furniture and fixtures20,729
 17,745
3 to 827,053
 20,653
3 to 8
Construction in progress9,515
 2,771
 10,067
 5,512
 
Fixed assets, at cost272,177
 241,616
 337,362
 291,776
 
Less accumulated depreciation and amortization125,389
 115,634
 164,614
 141,176
 
Fixed assets, net$146,788
 $125,982
 $172,748
 $150,600
 

Depreciation and amortization of fixed assets was as follows for the years ended December 31:
(In thousands)2014 2013 20122016 2015 2014
Cost of sales$16,364
 $14,667
 $11,886
$22,993
 $21,289
 $16,364
Selling, general and administrative expenses3,440
 2,773
 2,475
5,140
 4,137
 3,440
Total$19,804
 $17,440
 $14,361
$28,133
 $25,426
 $19,804

7.    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following at December 31:
(In thousands)2014 2013 2016 2015 
Employee compensation and benefits$21,473
 $18,583
 $47,459
 $25,147
 
Current portion of accrued warranty14,516
 11,731
 20,393
 17,020
 
Customer rebates9,329
 7,993
 
Other21,662
 17,108
 21,554
 19,002
 
Accrued expenses and other current liabilities$57,651
 $47,422
 $98,735
 $69,162
 

Estimated costs related to product warranties are accrued at the time products are sold. In estimating its future warranty obligations, the Company considers various factors, including the Company’s (i) historical warranty costs, (ii) current trends, (iii) product mix, and (iv) sales.

The following table provides a reconciliation of the activity related to the Company’s accrued warranty, including both the current and long-term portions, for the years ended December 31:
(In thousands)2014 2013 20122016 2015 2014
Balance at beginning of period$17,325
 $12,729
 $8,640
$26,204
 $21,641
 $17,325
Provision for warranty expense12,860
 13,874
 12,383
20,985
 17,267
 12,860
Warranty liability from acquired businesses688
 21
 8
125
 240
 688
Warranty costs paid(9,232) (9,299) (8,302)(14,921) (12,944) (9,232)
Balance at end of period21,641
 17,325
 12,729
32,393
 26,204
 21,641
Less long-term portion7,125
 5,594
 3,604
12,000
 9,184
 7,125
Current portion of accrued warranty$14,516
 $11,731
 $9,125
$20,393
 $17,020
 $14,516


57

DREWLCI INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



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 $1.8$3.1 million, $1.4$2.5 million and $1.1$1.8 million to this plan during the years ended December 31, 2014, 20132016, 2015 and 2012,2014, 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 $1.6$2.3 million, $1.7$1.2 million and $1.9$1.6 million during the years ended December 31, 2014, 20132016, 2015 and 2012,2014, 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 $0.4$1.5 million, $0.8 million and $0.2$0.4 million from the Plan during the years ended December 31, 2016, 2015 and 2014, and 2013, respectively. There were no participant withdrawals in 2012. At December 31, 20142016 and 2013,2015, deferred compensation of $10.7$13.4 million and $9.4$11.7 million, respectively, was recorded in other long-term liabilities, and deferred compensation of $0.8$0.2 million and $0.2 million, respectively, was recorded in accrued expenses and other current liabilities. The Company invests approximately 60 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, 2016 and 2015, life insurance contract assets of $8.2 million and $7.8 million, respectively, were recorded in other assets.

9.    LONG-TERM INDEBTEDNESS

At December 31, 2014,2016 and 2015, the Company had $15.7 million ofno outstanding borrowings on its line of credit at a weighted average interest rate of 1.9 percent. The Company had no debt outstanding at December 31, 2013.credit.

On February 24, 2014, the Company entered into a $75.0 million line of credit (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A. (collectively,On March 3, 2015, in accordance with the “Lenders”), amendingterms of the Company's previous $50.0 millionCredit Agreement, the Company increased its line of credit that was scheduled to expire on January 1, 2016. The maximum borrowings under the Company’s line of credit can be increased by $25.0 million upon approval of the Lenders.to $100.0 million. Interest on borrowings under the line of credit iswas designated from time to time by the Company as either (i) the Prime Rate, minus a rate ranging from 0.75 percent to 1.0 percent (minus 1.0 percent at December 31, 2014)2015), but not less than 1.5 percent, or (ii) LIBOR, plus additional interest ranging from 1.75 percent to 2.0 percent (plus 1.75 percent at December 31, 2014)2015) depending on the Company’s performance and financial condition.

On April 27, 2016, the Company announced the refinancing of its line of credit through an agreement with JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., Bank of America, N.A., and 1st Source Bank. The Credit Agreement expiresagreement amends and restates the existing line of credit, which was scheduled to expire on January 1, 2019.2019, and now expires on April 27, 2021 (the “Amended Credit Agreement”). In connection with this amendment and restatement, the line of credit was increased from $100.0 million to $200.0 million, and contains a feature allowing the Company to draw up to $50.0 million in approved foreign currencies, including Australian dollars, Canadian dollars, pound sterling and euros. The maximum borrowings under the line of credit can be further increased by $125.0 million, subject to certain conditions. Interest on borrowings under the new line of credit is designated from time to time by the Company as either (i) the Alternate Base Rate (defined in the Amended Credit Agreement as the greatest of (a) the Prime Rate of JPMorgan Chase, (b) the federal funds effective rate plus 0.5 percent and (c) the Adjusted LIBO Rate (as defined in the Amended Credit Agreement) for a one month interest period plus 1.0 percent), plus additional interest ranging from 0.0 percent to 0.625 percent (0.0 percent at December 31, 2016) depending on the Company’s performance and financial condition, or (ii) the Adjusted LIBO Rate for a period equal to one, two, three, six or twelve months as selected by the Company, plus additional interest ranging from 1.0 percent to 1.625 percent (1.0 percent at December 31, 2016) depending on the Company’s performance and financial condition. At December 31, 20142016 and 2013,2015, the Company had $1.9$2.5 million and $2.2$2.7 million, respectively, in outstanding, but undrawn, standby letters of credit under the line of credit. Availability under the Company’s line of credit was $57.4$197.5 million at December 31, 2014.2016.

Simultaneously,On February 24, 2014, the Company also entered into a $150.0 million “shelf-loan” facility with Prudential Investment Management, Inc. and its affiliates (“Prudential”), amending the Company's previous $150.0 million "shelf-loan" facility with Prudential.. The facility provides for Prudential to consider purchasing, at the Company’s request, in one or a series of transactions, Senior Promissory Notes of the Company in the aggregate principal amount of up to $150.0
LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

$150.0 million, to mature no more than twelve12 years after the date of original issue of each Senior Promissory Note. On March 20, 2015, the Company issued $50.0 million of Senior Promissory Notes to Prudential for a term of five years, at a fixed interest rate of 3.35 percent per annum, payable quarterly in arrears, of which the entire amount was outstanding at December 31, 2016. At December 31, 2016, the fair value of the Company’s long-term debt approximates the carrying value, as estimated using quoted market prices and discounted future cash flows based on similar borrowing arrangements.

On April 27, 2016, the Company also amended and restated its “shelf-loan” facility with Prudential to conform certain covenants and other terms to the Amended Credit Agreement. 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. AtAvailability under the Company’s “shelf-loan” facility, subject to the approval of Prudential, was $100.0 million at December 31, 2014 and 2013, there were no Senior Promissory Notes outstanding. This facility expires on February 24, 2017.2016.

Borrowings under both the line of credit and the “shelf-loan” facility are secured on a pari-passu basis by first priority liens on the capital stock or other equity interests of each of the Company’s direct and indirect subsidiaries.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, at December 31, 2014 and 2013, the Company wasis required to maintain minimum interest and fixed charge coverages, and to meet certain other financial requirements. At December 31, 20142016 and 2013,2015, the Company was in compliance with all such requirements, and expects to remain in compliance for the next twelve months.


58

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



BothAvailability under both the line of credit pursuant to theAmended Credit Agreement and the “shelf-loan” facility areis subject to a maximum leverage ratio covenant which limits the amount of consolidated outstanding indebtedness to 2.5 times the trailing twelve-month EBITDA, as defined. This limitation did not impact the Company’s borrowing availability at December 31, 2014.2016. The remaining availability under these facilities was $207.4$297.5 million at December 31, 2014.2016. The undrawn “shelf-loan” facility expired February 24, 2017, and the Company and Prudential are currently discussing renewal terms. The Company believes the availability under the line of credit and "shelf-loan" facilityAmended Credit Agreement is more than adequate to finance the Company’s anticipated cash requirements for the next twelve months.

The Company is working with the Lenders to increase the maximum borrowing under the line of credit from $75.0 million to $100.0 million, as provided in the Credit Agreement. Further, the Company is currently negotiating a one-year extension of its line of credit and "shelf-loan" facility as well as an increase in its line of credit to $125.0 million. The Company is extending these arrangements now to meet the anticipated growth of the Company and to add the ability to borrow in international locations and currencies.

10.    INCOME TAXES

The components of earnings before income taxes consisted of the following for the years ended December 31:
(In thousands)2016 2015 2014
United States$196,827
 $113,280
 $95,057
Foreign2,345
 1,089
 
Total earnings before income taxes$199,172
 $114,369
 $95,057

The provision for income taxes in the Consolidated Statements of Income was as follows for the years ended December 31:
(In thousands)2014 2013 20122016 2015 2014
Current:          
Federal$32,142
 $23,430
 $17,483
$61,073
 $31,132
 $32,142
State6,142
 4,129
 3,647
State and local10,560
 7,670
 6,142
Foreign466
 160
 
Total current provision$38,284
 $27,559
 $21,130
72,099
 38,962
 38,284
Deferred:          
Federal$(4,545) $68
 $(298)(2,506) 466
 (4,545)
State(948) 201
 (370)
State and local(110) 596
 (948)
Foreign18
 
 
Total deferred provision$(5,493) $269
 $(668)(2,598) 1,062
 (5,493)
Provision for income taxes$32,791
 $27,828
 $20,462
$69,501
 $40,024
 $32,791

LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The provision for income taxes differs from the amount computed by applying the federal statutory rate to income before income taxes for the following reasons for the years ended December 31:
(In thousands)2014 2013 20122016 2015 2014
Income tax at federal statutory rate$33,270
 $27,281
 $20,231
$69,710
 $40,029
 $33,270
State income tax, net of federal income tax impact3,376
 2,815
 2,130
6,480
 4,386
 3,376
Foreign tax rate differential(614) (82) 
Manufacturing credit pursuant to Jobs Creation Act(2,258) (1,444) (1,101)(5,067) (2,336) (2,258)
Federal tax credits(1,736) (919) (681)
Other(1,597) (824) (798)728
 (1,054) (916)
Provision for income taxes$32,791
 $27,828
 $20,462
$69,501
 $40,024
 $32,791

At December 31, 2014,2016, federal income taxes receivable of $1.3$12.7 million and state income taxes receivable of $0.4 million were included in prepaid expenses and other current assets. At December 31, 2015, federal and state income taxes receivable of $8.1 million were included in prepaid expenses and other current assets, and state income taxes payable of $0.8$0.4 million were included in accrued expenses and other current liabilities. At December 31, 2013, federal and state income taxes receivable of $3.7 million were included in prepaid expenses and other current assets.


59

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



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)2014 2013 2016 2015 
Deferred tax assets:        
Goodwill and other intangible assets$14,066
 $15,024
 $10,952
 $11,879
 
Stock-based compensation7,172
 5,116
 7,550
 7,428
 
Deferred compensation5,040
 3,722
 5,184
 5,310
 
Warranty7,845
 3,477
 11,679
 8,809
 
Inventory3,897
 3,245
 6,572
 5,974
 
Other3,189
 4,048
 5,000
 4,922
 
Total deferred tax assets41,209
 34,632
 46,937
 44,322
 
Deferred tax liabilities:        
Fixed assets(10,756) (9,839) (14,948) (14,931) 
Net deferred tax assets$30,453
 $24,793
 $31,989
 $29,391
 

The Company concluded it is more likely than not that the deferred tax assets at December 31, 20142016 will be realized in the ordinary course of operations based on projected future taxable income and scheduling of deferred tax liabilities.

Excess tax benefits on stock-based compensation of $3.9$8.0 million, $1.5$9.0 million and $0.3$3.9 million were credited directly to stockholders'stockholders’ equity during the years ended December 31, 2014, 20132016, 2015 and 2012,2014, respectively, relating to tax benefits which exceeded the compensation cost for stock-based compensation recognized in the Consolidated Financial Statements.

At December 31, 2014,2016, the remaining pool of excess tax benefits from prior exercises of stock-based compensation in stockholders’ equity was $15.3$31.5 million.

Unrecognized Tax Benefits

The following table reconciles the total amounts of unrecognized tax benefits, at December 31:
(In thousands)2014 2013 20122016 2015 2014
Balance at beginning of period$1,369
 $1,701
 $2,185
$2,854
 $1,526
 $1,369
Changes in tax positions of prior years84
 (29) (297)214
 912
 84
Additions based on tax positions related to the current year603
 676
 385
1,252
 866
 603
Payments
 (126) 

 (85) 
Closure of tax years(530) (853) (572)(573) (365) (530)
Balance at end of period$1,526
 $1,369
 $1,701
$3,747
 $2,854
 $1,526
LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


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 $0.4$0.2 million at December 31, 2014, 20132016, 2015 and 2012,2014, respectively.

The total amount of unrecognized tax benefits, net of federal income tax benefits, of $1.2$2.9 million, $1.0$2.7 million and $1.2 million at December 31, 2014, 20132016, 2015 and 2012,2014, respectively, would, if recognized, increase the Company’s earnings, and lower the Company’s annual effective tax rate in the year of recognition.

The Company is subject to taxation in the United States and various states and foreign jurisdictions. The Company periodically undergoes examinations by the Internal Revenue Service (“IRS”), as well as various state and foreign taxing authorities. The IRS and other taxing authorities may challenge certain deductions and positions reported by the Company on its income tax returns. For U.S. federal income tax purposes, the tax year 2014 is currently under audit, while tax years 2011 through 2013 and 2015 remain subject to examination. For Indiana state income tax purposes, the tax years 20112013 through 20132015 remain subject to examination. Approximately 80 percent of the Company’s operations are located in Indiana. In other major jurisdictions, open years are generally 2013 or later.

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 cannot estimate the range of reasonably possible change in its tax reserve estimates in 2015.2017. While these tax matters could materially affect operating results when resolved in future periods, it is management’s opinion that after

60

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



final disposition, any monetary liability or financial impact to the Company beyond that provided for in the Consolidated Balance Sheet as of December 31, 2014,2016, would not be material to the Company’s financial position or annual results of operations.

11.    COMMITMENTS AND CONTINGENCIES

Leases

The Company'sCompany’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, 20142016 are as follows (in thousands):
2015$6,297
 
20165,269
 
20174,690
 $9,388
 
20184,240
 7,978
 
20193,845
 6,068
 
20204,936
 
20214,116
 
Thereafter12,899
 8,017
 
Total minimum lease payments$37,240
 $40,503
 

Rent expense for operating leases was $8.6$11.5 million, $7.1$9.8 million and $5.6$8.6 million for the years ended December 31, 2014, 20132016, 2015 and 2012,2014, 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, 20142016 and 2013,2015, based on the present value of the expected future cash flows using a market participant’s weighted average cost of capital of 15.013.7 percent and 15.513.9 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.

LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The following table provides a reconciliation of the Company’s contingent consideration liability for the years ended December 31:
(In thousands)2014 2013 20122016 2015 2014
Balance at beginning of period$7,414
 $11,519
 $14,561
$10,840
 $8,129
 $7,414
Acquisitions3,370
 
 67
1,322
 4,766
 3,370
Payments(3,739) (5,456) (4,315)(4,944) (3,974) (3,739)
Accretion (a)
1,075
 1,308
 1,756
1,274
 1,196
 1,075
Fair value adjustments (a)
9
 43
 (550)749
 723
 9
Balance at end of the period (b)
8,129
 7,414
 11,519
9,241
 10,840
 8,129
Less current portion in accrued expenses and other current liabilities(3,622) (3,462) (5,429)(5,829) (3,877) (3,622)
Total long-term portion in other long-term liabilities$4,507
 $3,952
 $6,090
$3,412
 $6,963
 $4,507

(a)Recorded in selling, general and administrative expense in the Consolidated Statements of Income.
(b)Amounts represent the fair value of estimated remaining payments. The total estimated remaining undiscounted payments as of December 31, 20142016 are $11.7$11.6 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 the following minimum purchase obligations (“MPOs”), which the Company anticipates will be revised from time to time:
61

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

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

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

Product Recalls

From time to time, the Company cooperates with and assists its customers on their product recalls and inquiries, and occasionally receives inquiries directly from the National Highway Traffic Safety Administration (“NHTSA”) regarding reported 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.
DREWLCI INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


Environmental

The Company’s operations are subject to certain Federal, state and local regulatory requirements relating to the use, storage, discharge and disposal of hazardous materials used during the manufacturing processes. Although the Company believes its operations have been consistent with prevailing industry standards, and are in substantial compliance with applicable environmental laws and regulations, one or more of the Company’s current or former operating sites, or adjacent sites owned by third-parties, have been affected by releases of hazardous materials. As a result, the Company may incur expenditures for future investigation and remediation of these sites, 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, it is management’s opinion that, after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided in the Consolidated Balance Sheet as of December 31, 2014,2016, would not be material to the Company’s financial position or annual results of operations.

Executive SuccessionSeverance

In 2015, the Company initiated a focused program to reduce indirect labor costs. In connection with this cost reduction program and certain changes at the Company’s executive succession and corporate relocation from White Plains, New York to Elkhart County, Indiana,level, the Company recorded pre-taxincurred severance charges of $1.9 million and $1.5 million in 2013 and 2012, respectively, related to contractual obligations for severance and the acceleration of equity awards held by certain employees whose employment terminated as a result of the executive succession and relocation to Indiana. The liability for executive succession and severance obligations will be paid through 2015. During the third quarter of 2013, the transition and corporate office relocation were completed.$3.7 million.

12.    STOCKHOLDERS'STOCKHOLDERS’ EQUITY

Special DividendDividends

On April 10, 2015, a special dividend of $2.00 per share of the Company’s Common Stock, representing an aggregate of $48.2 million, was paid to stockholders of record as of March 27, 2015. On January 6, 2014, a special dividend of $2.00 per share of the Company’s common stock,Common Stock, representing an aggregate of $46.7 million, was paid to stockholders of record as of December 20, 2013. On December 20, 2012, a special dividend of $2.00 per share of the Company's Common Stock, representing an aggregate of $45.0 million, was paid to stockholders of record as of December 10, 2012. In connection with these special dividends, holders of deferred stock units, restricted stock and stock awards were credited with deferred stock units, restricted stock or stock equal to $2.00 per special dividend for each deferred stock unit, share of restricted stock or stock award, representing $1.8 million in total for each of the 2015 and 2014 special dividend and $1.4 million in total for the 2012 special dividend.dividends. In connection with each of these special cash dividends, the exercise price of all outstanding stock options was reduced by $2.00 per share. These reductions in exercise price were made pursuant to the terms of the outstanding awards, resulting in no incremental stock-based compensation expense.

In 2016, the Company initiated the payment of regular quarterly dividends. The table below summarizes the regular quarterly dividends declared and paid during the year ended December 31, 2016:
(In thousands, except per share data)Per Share Record Date Payment Date Total Paid
First Quarter 2016$0.30
 04/01/16 04/15/16 $7,344
Second Quarter 20160.30
 06/06/16 06/17/16 7,363
Third Quarter 20160.30
 08/19/16 09/02/16 7,371
Fourth Quarter 20160.50
 11/28/16 12/09/16 12,359
Total 2016$1.40
     $34,437

Stock-Based Awards

Pursuant to the DrewLCI Industries Incorporated Equity Award and Incentive Plan, as Amended and Restated (the “Equity Plan”), which was approved by stockholders in May 2011, the Company may grant to its directors, employees, and other eligible persons Common Stock-based awards, such as stock options, restricted stock and deferred stock units. All such awards granted under the Equity Plan must be approved by the Compensation Committee of Drew’sLCII’s Board of Directors (the “Committee”). The Committee determines the period for which all such awards may be exercisable, but in no event may such an award be exercisable more than 10 years from the date of grant. The number of shares available under the Equity Plan, and the exercise price of all such awards granted
LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

under the Equity Plan, are subject to adjustments by the Committee to reflect stock splits, dividends, recapitalization, mergers, or other major corporate actions.

At the Annual Meeting of Stockholders held on May 22, 2014, stockholders approved an amendment to the Equity Plan to increase the number of shares of common stock available for issuance pursuant to awards by 1,678,632 shares.

The number of shares available for granting awards was 1,389,506, 246,3681,049,752, 1,305,440 and 688,7121,389,506 at December 31, 2014, 20132016, 2015 and 2012,2014, respectively.
Stock-based compensation resulted in charges to operations as follows for the years ended December 31:
(In thousands)2014 2013 20122016 2015 2014
Stock options$1,412
 $2,325
 $2,836
$444
 $974
 $1,412
Deferred stock units4,343
 5,425
 1,888
7,830
 7,023
 4,343
Restricted stock910
 911
 849
1,770
 1,031
 910
Stock awards4,152
 2,178
 745
5,376
 5,015
 4,152
Stock-based compensation expense$10,817
 $10,839
 $6,318
$15,420
 $14,043
 $10,817


62

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



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, for the years ended December 31, 2014, 20132016, 2015 and 2012,2014, 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 $0.3 million, $2.0 million $0.1 million and $0.2$2.0 million, respectively. In February 2015,2017, the Company issued deferred stock units valued at $2.0$6.9 million, to certain officers in lieu of cash for a portion of their 20142016 incentive compensation in accordance with their compensation arrangements.

Stock Options

The Equity Plan provides for the grant of stock options that qualify as incentive stock options under Section 422 of the Internal Revenue Code, and non-qualified stock options. The exercise price for stock options granted under the Equity 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 or in shares of the Company’s Common Stock which have been held for a minimum of six months. Historically, upon exercise of stock options, new shares have been issued instead of using treasury shares.

Outstanding stock options expire six years from the date of grant, and either vest 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, 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 Equity Plan are summarized as follows:
Number of Option Shares Stock Option Exercise Price 
Weighted Average
Exercise Price
Number of Option Shares
Weighted Average
Exercise Price
Outstanding at December 31, 20111,810,650
$10.09 - $31.11$21.46
Exercised(422,131)$ 8.09 - $31.11$19.13
Forfeited(67,700)$10.09 - $31.11$22.61
Reduction for cash dividend
$ 8.09 - $29.11$(2.00)
Outstanding at December 31, 20121,320,819
$ 8.09 - $29.11$19.92
Exercised(574,288)$ 8.09 - $29.11$23.04
Forfeited(22,870)$ 8.09 - $29.11$19.36
Reduction for cash dividend
$ 6.09 - $19.17$(2.00)
Outstanding at December 31, 2013723,661
$ 6.09 - $19.17$15.46
723,661
$15.46
Exercised(258,530)$ 6.09 - $19.17
$12.89
(258,530)$12.89
Forfeited(11,800)$6.09 - $19.17
$16.93
(11,800)$16.93
Reduction for special cash dividend
$(2.00)
Outstanding at December 31, 2014453,331
$15.49 - $19.17
$16.89
453,331
$16.89
Exercisable at December 31, 2014289,971
$15.49 - $19.17
$16.27
Exercised(214,601)$14.48
Forfeited(26,700)$14.30
Reduction for special cash dividend
$(2.00)
Outstanding at December 31, 2015212,030
$15.38
Exercised(183,600)$15.10
Forfeited(1,550)$17.17
Outstanding at December 31, 2016 (a)
26,880
$17.17
Exercisable at December 31, 2016 (a)
26,880
$17.17
LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


(a)The aggregate intrinsic value for option shares outstanding and option shares exercisable is $2.4 million. The weighted average remaining term for option shares outstanding and option shares exercisable is 0.9 years.

Additional information for the exercise of stock options is as follows for the years ended December 31:
(In thousands)2014 2013 2012
Intrinsic value of stock options exercised$7,860
 $9,062
 $4,838
Cash receipts from stock options exercised$3,333
 $13,231
 $8,075
Income tax benefits from stock option exercises$3,660
 $3,473
 $1,852
Grant date fair value of stock options vested$1,561
 $2,252
 $2,814

63

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



The following table summarizes information about stock options outstanding at December 31, 2014:
Exercise Price Option Shares Outstanding Remaining Life in Years Option Shares Exercisable
$15.49
 93,881
 0.9 93,881
$15.67
 196,350
 1.9 141,350
$19.17
 163,100
 2.9 54,740
Total Shares 
453,331(a)

   
289,971(a)


(a)The aggregate intrinsic value for option shares outstanding and option shares exercisable is $15.5 million and $10.1 million, respectively. The weighted average remaining term for option shares outstanding and option shares exercisable is 2.0 years and 1.8 years, respectively.

As of December 31, 2014, there was $1.4 million of total unrecognized compensation costs related to unvested stock options, which are expected to be recognized over a weighted average remaining period of 1.3 years.
(In thousands)2016 2015 2014
Intrinsic value of stock options exercised$13,204
 $9,424
 $7,860
Cash receipts from stock options exercised$2,772
 $3,280
 $3,333
Income tax benefits from stock option exercises$4,435
 $2,885
 $3,660
Grant date fair value of stock options vested$506
 $1,055
 $1,561

Deferred and Restricted Stock Units

The Equity Plan provides for the grant or issuance of deferred stock units (“DSUs”) and restricted stock units (“RSUs”) 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 dividends granted to holders of the Common Stock, 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 as a result of the relocation to Indiana.terminated. In addition, DSUs are issued in lieu of cash compensation.
Transactions in DSUs and RSUs under the Equity Plan are summarized as follows:
Number of SharesStock PriceNumber of SharesWeighted Average Price
Outstanding at December 31, 2011369,133
$ 5.50 - $40.68
Issued23,713
$24.53 - $32.07
Granted282,925
$26.54 - $30.50
Dividend equivalents34,568
$33.32
Exercised(96,585)$ 5.50 - $40.68
Outstanding at December 31, 2012613,754
$ 6.16 - $33.32
Issued32,462
$33.84 - $48.53
Granted140,461
$36.58 - $50.85
Forfeited(4,505)$30.50
Exercised(89,211)$20.20 - $30.65
Outstanding at December 31, 2013692,961
$ 6.16 - $50.85692,961
$30.26
Issued56,212
$36.68 - $51.4656,212
$46.08
Granted187,490
$45.98 - $46.95187,490
$46.94
Dividend equivalents27,532
$50.4527,532
$50.45
Forfeited(38,855)$26.98 - $50.89(38,855)$29.83
Exercised(187,052)$19.98 - $50.89(187,052)$29.90
Outstanding at December 31, 2014738,288
$ 6.16 - $51.46738,288
$36.96
Issued54,982
$47.51
Granted90,184
$60.22
Dividend equivalents20,922
$59.94
Forfeited(23,604)$44.78
Exercised(353,259)$32.62
Outstanding at December 31, 2015527,513
$44.94
Issued10,742
$72.01
Granted173,097
$54.67
Dividend equivalents9,075
$87.01
Forfeited(10,893)$48.98
Exercised(203,087)$43.55
Outstanding at December 31, 2016506,447
$50.00

As of December 31, 2014,2016, there was $13.3$14.4 million of total unrecognized compensation costs related to DSUs and RSUs, which is expected to be recognized over a weighted average remaining period of 2.01.5 years.


64

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



Restricted Stock

The Equity Plan provides for the grant of restricted stock to directors, employees and other eligible persons. The restriction period is established by the Committee, but may not be less than one year. Holders of restricted stock have all the rights of a
LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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, which lapses one year from the date of grant.period. Restricted stock grants, which were all made to directors, were as follows (in thousands except share and per share amounts):
2014 2013 20122016 2015 2014
Granted19,439
 17,885
 29,841
17,439
 20,558
 19,439
Stock price$46.82
 $50.89
 $30.50
Weighted average stock price$74.55
 $59.60
 $46.82
Fair value of stock granted$910
 $910
 $910
$1,300
 $1,220
 $910

As of December 31, 2014,2016, there was $0.8$0.5 million of total unrecognized compensation costs related to restricted stock, which is expected to be recognized over a weighted average remaining period of 0.90.4 years.
Stock Awards

In accordance with the Executive Employment and Non-Competition Agreementsemployment agreements for 2012 – 2014 with two of the Company’s named executive officers, such officers are entitled to receive an annual long-term award consisting of the right to earn an aggregate of 85,000 shares of Common Stock. In accordance with compensation arrangements for 2013 – 2014 with certain othervarious officers of the Company, such officers are entitled to receive an annual long-term award consisting of the right to earn an aggregate of 18,500 shares of the Common Stock. All of thesecommon stock. These shares are earned during the subsequent three year period based on growth in the Company’s earnings per diluted share over that same three year period. share. Transactions in stock awards under the Equity Plan are summarized as follows:
 Number of SharesStock Price
Outstanding at December 31, 2013193,602
$30.84
Granted103,500
$51.20
Dividend equivalents7,675
$50.45
Exercised(31,959)$26.88
Outstanding at December 31, 2014
272,818
$39.03
Granted96,010
$60.29
Dividend equivalents8,992
$59.94
Forfeited(16,534)$60.29
Exercised(98,830)$29.70
Outstanding at December 31, 2015262,456
$49.36
Granted86,918
$54.47
Dividend equivalents3,811
$88.04
Forfeited(10,832)$53.95
Exercised(109,731)$39.94
Outstanding at December 31, 2016232,622
$55.60

As of December 31, 2014,2016, there was $4.1$7.6 million of total unrecognized compensation costs related to outstanding stock awards, which is expected to be recognized over a weighted average remaining period of 1.31.4 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)2014 2013 20122016 2015 2014
Weighted average shares outstanding for basic earnings per share23,911
 23,321
 22,558
24,631
 24,295
 23,911
Common stock equivalents pertaining to stock-based awards423
 432
 270
302
 355
 423
Weighted average shares outstanding for diluted earnings per share24,334
 23,753
 22,828
24,933
 24,650
 24,334

The weighted average diluted shares outstanding for the years ended December 31, 2014, 20132016, 2015 and 2012,2014, exclude the effect of 293,860, 303,240184,277, 255,547 and 426,788293,860 shares of common stock, respectively, subject to stock-based awards. Such shares were
LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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.


65

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



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:
 2014 2013
(In thousands)TotalLevel 1Level 2Level 3 TotalLevel 1Level 2Level 3
Assets         
Deferred compensation$7,388
$7,388
$
$
 $6,535
$6,535
$
$
Total assets$7,388
$7,388
$
$
 $6,535
$6,535
$
$
          
Liabilities         
Contingent consideration$8,129
$
$
$8,129
 $7,414
$
$
$7,414
Deferred compensation11,478
11,478


 9,673
9,673


Total liabilities$19,607
$11,478
$
$8,129
 $17,087
$9,673
$
$7,414

Deferred Compensation

The Company has an Executive Non-Qualified Deferred Compensation Plan (the “Plan”). The amounts deferred under the Plan are credited with earnings or losses based upon changes in values of the notional investments elected by the Plan participants. The Company invests approximately 65 percent of the amounts deferred by the Plan participants in life insurance contracts, matching the investments elected by the Plan participants. Deferred compensation assets and liabilities were valued using a market approach based on the quoted market prices of identical instruments.
 2016 2015
(In thousands)TotalLevel 1Level 2Level 3 TotalLevel 1Level 2Level 3
Assets         
Unrealized gain on derivative
   instruments
$2,296
$
$2,296
$
 $
$
$
$
Liabilities         
Contingent consideration$9,241
$
$
$9,241
 $10,836
$
$
$10,836

Contingent Consideration Related to Acquisitions

Liabilities for contingent consideration related to acquisitions were fair valued using management’s projections for long-term sales forecasts, including assumptions regarding market share gains and future industry-specific economic and market conditions, and a market participant’s weighted average cost of capital. Over the next threesix years, the Company’s long-term sales growth forecasts for products subject to contingent consideration arrangements average approximately 3014 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 there is a decrease in the fair value liability, the Company would record a benefit in selling, general and administrative expenses.


66

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)Derivative Instruments

At December 31, 2016, the Company had derivative instruments for 40.8 million pounds of steel, in order to manage a portion of the exposure to movements associated with steel costs. These derivative instruments expire through December 2018, at an average steel price of $0.25 per pound. While these derivative instruments are considered to be economic hedges of the underlying movement in the price of steel, they are 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 was recorded in cost of sales in the Consolidated Statements of Income. At December 31, 2016 the $2.3 million corresponding asset was recorded in other current assets as reflected in the Consolidated Balance Sheets.


Non-recurring

The following table presents the carrying value on the measurement date of any assets and liabilities which were measured at fair value and recorded at the lower of cost or fair value, on a non-recurring basis, using significant unobservable inputs (Level 3), and the corresponding non-recurring losses recognized during the years ended December 31:
2014 2013 20122016 2015 2014
(In thousands)Carrying
Value
 Non-Recurring
Losses
 Carrying
Value
 Non-Recurring
Losses
 Carrying
Value
 Non-Recurring
Losses
Carrying
Value
 Non-Recurring
Losses
 Carrying
Value
 Non-Recurring
Losses
 Carrying
Value
 Non-Recurring
Losses
Assets                      
Vacant owned facilities$3,863
 $
 $3,197
 $145
 $5,009
 $523
$2,496
 $
 $2,537
 $
 $3,863
 $
Other intangible assets
 
 
 
 
 1,228
Net assets of acquired businesses68,083
 
 4,382
 
 1,345
 
44,250
 
 28,727
 
 66,169
 
Total assets$71,946
 $
 $7,579
 $145
 $6,354
 $1,751
$46,746
 $
 $31,264
 $
 $70,032
 $
           
Liabilities           
Vacant leased facilities$
 $
 $
 $
 $
 $50
Total liabilities$
 $
 $
 $
 $
 $50
LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


Vacant Owned Facilities

During 2014, 2013 and 2012,2016, the Company reviewed the recoverability of the carrying value of itsone vacant owned facilities. The determination offacility. At December 31, 2016, the Company had one vacant owned facility, with an estimated fair value of over $3.0 million and a carrying value of $2.5 million, classified in fixed assets in the Consolidated Balance Sheets.

During 2015, the Company reviewed the recoverability of the carrying value of three vacant owned facilities, of which one of these facilities was based onsold and one was reopened. At December 31, 2015, the best information available, including internal cash flow estimates, market prices for similarCompany had one vacant owned facility with an estimated fair value of over $3.0 million and a carrying value of $2.5 million, classified in fixed assets broker quotes and independent appraisals, as appropriate.in the Consolidated Balance Sheets.

During 2014, the Company reviewed the recoverability of the carrying value of four vacant owned facilities. At December 31, 2014, the Company had three vacant owned facilities, with an combined estimated combined fair value of $4.2 million and a combined carrying value of $3.9 million, classified in fixed assets in the Consolidated Balance Sheets.

During 2013, the Company reviewed the recoverabilityThe determination of the carrying value of six vacant owned facilities. The fair value of two of these vacant owned facilities did not exceed its carrying value, therefore an impairment charge of $0.1 million was recorded in selling, general, and administrative expenses in the Consolidated Statements of Income. At December 31, 2013, the Company had three vacant owned facilities with an estimated combined fair value of $3.6 million and a combined carrying value of $3.2 million, classified in fixed assets in the Consolidated Balance Sheets.

During 2012, the Company reviewed the recoverability of the carrying value of eight vacant owned facilities. The carrying value of five vacant owned facilities exceeded their fair value; therefore an impairment charge of $0.5 million was recorded. At December 31, 2012, the Company had four vacant owned facilities, with an estimated combined fair value of $6.6 million and a combined carrying value of $5.0 million, classified in fixed assets in the Consolidated Balance Sheets.

Other Intangible Assets

During 2012, the Company reviewed the recoverability of amortizable intangible assets associated with an acquired patent. Based on the analyses, the $1.2 million carrying value of these intangible assets exceeded the undiscounted cash flows expected to be generated. As a result, the Company was required to determine the fair value of these intangible assets. Fair value was determined based on the present value ofbest information available, including internal cash flow estimates. The resulting fair value of these intangibleestimates, market prices for similar assets, was nominal, therefore the Company recorded a non-cash impairment charge of $1.2 million, of which $1.0 million was recorded in cost of sales in the Consolidated Statements of Income.broker quotes and independent appraisals, as appropriate.

Net Assets of Acquired Businesses

The Company valued the assets and liabilities associated with the acquisitions of businesses on the respective acquisition dates. Depending upon the type of asset or liability acquired, the Company used different valuation techniques in determining the fair value. Those techniques included comparable market prices, long-term sales, profitability and cash flow forecasts, assumptions

67

DREW INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



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 32 of the Notes to Consolidated Financial Statements.

14.    SEGMENT REPORTING

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

The OEM Segment, which accounted for 92 percent, 93 percent and 95 percent of consolidated net sales for each of the years ended December 31, 2016, 2015 and 2014, respectively, manufactures or distributes a broad array of components for the leading OEMs of RVs and adjacent industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; pontoon boats; trains; manufactured homes; and modular housing. Approximately 71 percent of the Company’s OEM Segment net sales in 2016 were of components for travel trailer and fifth-wheel RVs.

The Aftermarket Segment, which accounted for 8 percent, 7 percent and 5 percent of consolidated net sales for each of the years ended December 31, 2016, 2015 and 2014, respectively, supplies components to the related aftermarket channels of the RV and adjacent industries, primarily to retail dealers, wholesale distributors and service centers. The Aftermarket Segment also includes the sale of replacement glass and awnings to fulfill insurance claims.

Decisions concerning the allocation of the Company’s resources are made by the Company’s CODM, with oversight by the Board of Directors. The CODM evaluates the performance of each segment based upon segment operating profit or loss,
LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

generally defined as income or loss before interest and income taxes. Decisions concerning the allocation of resources are also based on each segment’s utilization of assets. Management of debt is a corporate function. The accounting policies of the OEM and Aftermarket Segments are the same as those described in Note 1 of the Notes to Consolidated Financial Statements. The change in reported segments had no effect on the Company’s net income, total assets or liabilities, or stockholders’ equity.

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:
 SegmentsCorporate 
(In thousands)OEMAftermarketTotaland OtherTotal
2016     
Net sales to external customers (a)
$1,548,091
$130,807
$1,678,898
$
$1,678,898
Operating profit (b)
180,850
20,000
200,850

200,850
Total assets (c)
569,385
65,211
634,596
152,308
786,904
Expenditures for long - lived assets (d)
80,588
6,014
86,602

86,602
Depreciation and amortization$42,593
$3,298
$45,891
$276
$46,167
      
2015     
Net sales to external customers (a)
$1,300,060
$103,006
$1,403,066
$
$1,403,066
Operating profit (loss) (b)
105,224
14,746
119,970
(3,716)116,254
Total assets (c)
500,734
56,683
557,417
65,439
622,856
Expenditures for long - lived assets (d)
65,492
2,095
67,587

67,587
Depreciation and amortization$38,583
$2,898
$41,481
$143
$41,624
      
2014     
Net sales to external customers (a)
$1,127,026
$63,756
$1,190,782
$
$1,190,782
Operating profit (loss) (b)
88,744
8,697
97,441
(1,954)95,487
Total assets (c)
441,127
54,489
495,616
48,225
543,841
Expenditures for long - lived assets (d)
119,715
27,655
147,370

147,370
Depreciation and amortization$30,954
$1,554
$32,508
$88
$32,596

(a)Thor Industries, Inc. (“Thor”), a customer of both segments, accounted for 37 percent, 28 percent and 33 percent of the Company’s consolidated net sales for the years ended December 31, 2016, 2015 and 2014, respectively. Berkshire Hathaway Inc. (through its subsidiaries Forest River, Inc. and Clayton Homes, Inc.), a customer of both segments, accounted for 26 percent, 26 percent and 28 percent of the Company’s consolidated net sales for the years ended December 31, 2016, 2015 and 2014, respectively. Jayco, Inc., a customer of both segments, accounted for 10 percent of the Company’s consolidated net sales for the year ended December 31, 2015, this customer was subsequently acquired by Thor and is included in the Thor’s 2016 percentage above. No other customer accounted for more than 10 percent of consolidated net sales in the years ended December 31, 2016, 2015 and 2014. International sales, primarily in Europe and Australia, and export sales represented approximately 2 percent, 1 percent and 1 percent of consolidated net sales in 2016, 2015 and 2014, respectively.
(b)Certain general and administrative expenses are allocated between the segments based upon net sales or operating profit, depending upon the nature of the expense.
(c)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.
(d)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 $42.0 million, $38.6 million and $105.0 million of long-lived assets, as part of the acquisitions of businesses in the years ended December 31, 2016, 2015 and 2014, respectively.

LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Net sales by product were as follows for the years ended December 31:
(In thousands)2016 2015 2014
OEM Segment:     
Chassis, chassis parts and slide-out mechanisms$743,160
 $664,542
 $593,756
Windows and doors335,717
 301,171
 258,915
Furniture and mattresses245,596
 161,840
 132,356
Axles and suspension solutions115,538
 108,464
 88,909
Other108,080
 64,043
 53,090
Total OEM Segment net sales1,548,091
 1,300,060
 1,127,026
Total Aftermarket Segment net sales130,807
 103,006
 63,756
Total net sales$1,678,898
 $1,403,066
 $1,190,782

The composition of net sales was as follows for the years ended December 31:
(In thousands)2016 2015 2014
Net sales:     
OEM Segment:     
RV OEMs:     
Travel trailers and fifth-wheels$1,099,882
 $938,787
 $841,497
Motorhomes116,191
 86,513
 70,332
Adjacent industries OEMs332,018
 274,760
 215,197
Total OEM Segment net sales1,548,091
 1,300,060
 1,127,026
Aftermarket Segment:     
Total Aftermarket Segment net sales130,807
 103,006
 63,756
Total net sales$1,678,898
 $1,403,066
 $1,190,782

15.    NEW ACCOUNTING PRONOUNCEMENTS

In May 2014,August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,2016-15, Revenue from Contracts with CustomersClassification of Certain Cash Receipts and Cash Payments, which amends ASC 230, Statement of Cash Flows. This ASU provides a five-step analysisguidance on the statement of cash flows presentation of certain transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customerswhere diversity in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.practice exists. This ASU is effective for annual periods, and interim periods within those years, beginning after December 15, 20162017, and shallshould be applied retrospectively to each period presentedwith early adoption permitted at the beginning of an interim or as a cumulative-effect adjustment as of the date of adoption.annual reporting period. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect adoption will have a material impact on the Company'sCompany’s results of operations, cash flows or financial position.

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. This pronouncement is effective for reporting periods beginning after December 15, 2016. The guidance will be applied either prospectively, retrospectively or using a modified retrospective transition method, depending on the area covered in this update. Upon adoption, any future excess tax benefits or deficiencies will be recorded to the provision for income taxes in the consolidated statement of income, instead of additional paid-in capital in the consolidated balance sheet. For the years ended December 31, 2016, 2015 and 2014, $8.0 million, $9.0 million and $3.9 million, respectively, of excess tax benefits were recorded to additional paid-in capital that would have been recorded as a reduction to the provision for income taxes if this new guidance had been adopted as of the respective dates. Additionally, excess tax benefits will be classified as operating activities in the consolidated statement of cash flow instead of in financing activities as required under the current guidance. The Company has not selected a transition method, and except as described above, does not expect the provisions of ASU 2016-09 to have an impact on the Company’s consolidated financial position or results of operations.

LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. This ASU requires entities with a classified balance sheet to present all deferred tax assets and liabilities as non-current. During the first quarter of 2016, the Company elected to retrospectively adopt ASU 2015-17, thus reclassifying current deferred tax assets to non-current on the accompanying Consolidated Balance Sheet. As a result, the Company reclassified $22,616 from current assets to long-term assets as of December 31, 2015. The adoption of this guidance has no impact on the Company’s results of operations and cash flows.

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

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

In May 2014, the FASB issued ASU 2014-08,2014-09, Reporting Discontinued Operations and Disclosures of Disposals of Components of an EntityRevenue from Contracts with Customers. This ASU raisesoutlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance issued by the thresholdFASB, including industry specific guidance. ASU 2014-09 provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts with customers to provide goods and services. The guidance also provides a disposal to qualifymodel for the measurement and recognition of gains and losses on the sale of certain non-financial assets, such as discontinued operationsproperty and requires new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. Under thisequipment, including real estate. ASU companies report discontinued operations when they have a disposal that represents a strategic shift that has or will have a major impact on operations or financial results. This ASU2014-09 is effective for annual reporting periods, andincluding interim reporting periods within those years,periods, beginning after December 15, 2014. Early2017. The new standard must be adopted using either a full retrospective approach for all periods presented in the period of adoption is permitted, providedor a modified retrospective approach. ASU 2014-09 also requires entities to disclose both quantitative and qualitative information to enable users of the disposal wasfinancial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

The Company does not previously disclosed. This new accounting guidance is not expected toanticipate the adoption of this standard will have a material impact on its reported current net sales; however, given its acquisition strategy, there may be additional revenue streams acquired prior to the Company's results of operations, cash flowsadoption date. The Company’s technical analysis is on-going with respect to variable consideration, whether certain contracts’ revenues will be recognized over time or at a point in time, and whether costs to obtain a contract will be capitalized. Further, the Company is continuing to assess what incremental disaggregated revenue disclosures will be required in its consolidated financial position.statements. The Company continues to evaluate transition methods, and expect to finalize its determination once all other significant matters are concluded.


68

DREWLCI INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



15.16.    QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Interim unaudited financial information follows:
(In thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Year First Quarter Second Quarter Third Quarter Fourth Quarter Year
Year ended December 31, 2014          
Year ended December 31, 2016          
Net sales $285,377
 $321,783
 $294,271
 $289,351
 $1,190,782
 $422,798
 $440,831
 $412,370
 $402,899
 $1,678,898
Gross profit $63,200
 $72,012
 $62,483
 $57,228
 $254,923
 $108,441
 $116,904
 $105,550
 $98,008
 $428,903
Income before income taxes $25,926
 $29,075
 $22,941
 $17,115
 $95,057
 $55,252
 $58,975
 $44,742
 $40,203
 $199,172
Net income $16,164
 $18,618
 $15,488
 $11,996
 $62,266
 $35,959
 $37,569
 $29,844
 $26,299
 $129,671
                    
Net income per common share:                    
Basic $0.68
 $0.78
 $0.65
 $0.50
 $2.60
 $1.46
 $1.52
 $1.21
 $1.06
 $5.26
Diluted $0.67
 $0.77
 $0.64
 $0.49
 $2.56
 $1.45
 $1.51
 $1.19
 $1.05
 $5.20
                    
Stock market price:                    
High $54.20
 $54.15
 $50.83
 $51.69
 $54.20
 $64.46
 $85.09
 $102.46
 $112.95
 $112.95
Low $45.53
 $45.80
 $41.00
 $41.95
 $41.00
 $52.85
 $60.75
 $84.61
 $84.20
 $52.85
Close (at end of quarter) $54.20
 $50.01
 $42.19
 $51.07
 $51.07
 $64.46
 $84.84
 $98.02
 $107.75
 $107.75
                    
Year ended December 31, 2013          
Year ended December 31, 2015          
Net sales $252,586
 $287,192
 $250,851
 $224,947
 $1,015,576
 $361,457
 $362,085
 $345,296
 $334,228
 $1,403,066
Gross profit $47,591
 $61,433
 $56,126
 $47,959
 $213,109
 $76,403
 $82,060
 $74,125
 $73,414
 $306,002
Income before income taxes $13,470
 $25,623
 $22,754
 $16,100
 $77,947
 $31,649
 $33,019
 $26,576
 $23,125
 $114,369
Net income $8,372
 $15,865
 $14,805
 $11,077
 $50,119
 $20,073
 $20,869
 $17,263
 $16,140
 $74,345
                    
Net income per common share:                    
Basic $0.36
 $0.68
 $0.63
 $0.47
 $2.15
 $0.83
 $0.86
 $0.71
 $0.66
 $3.06
Diluted $0.36
 $0.67
 $0.62
 $0.46
 $2.11
 $0.82
 $0.85
 $0.70
 $0.65
 $3.02
                    
Stock market price:                    
High $38.67
 $41.25
 $45.54
 $54.21
 $54.21
 $64.61
 $62.60
 $59.42
 $61.90
 $64.61
Low $33.34
 $34.13
 $39.60
 $45.86
 $33.34
 $47.63
 $55.26
 $52.42
 $53.55
 $47.63
Close (at end of quarter) $36.31
 $39.32
 $45.54
 $51.20
 $51.20
 $61.54
 $58.02
 $54.61
 $60.89
 $60.89

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.


69




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

As of the end of the period covered by this Form 10-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.

(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. 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 (1992)(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, 2014.2016.

KPMG LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Report 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.
  
/s/ Jason D. Lippert/s/ Joseph S. Giordano IIIBrian M. Hall
Chief Executive OfficerChief Financial Officer and Treasurer
  

(b)    Report of the Independent Registered Public Accounting Firm.

The attestation report of our independent registered public accounting firm on the effectiveness of our internal control over financial reporting is included in Item 8. “Financial Statements and Supplementary Data.”

70





(c)    Changes in Internal Control over Financial Reporting.

There were no changes in the Company’s internal controls over financial reporting during the quarter ended December 31, 2014,2016, 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, and has begun implementing that system. Although toImplementation of the new ERP software began in late 2013. To date, there21 locations have been no significant changesput on this ERP software. The roll-out plan is continually evaluated in the Company’s internal controls,context of priorities for the business and may change as needs of the business dictate. The Company anticipates internalenhancements to controls will be strengthened incrementally due to both to the installation of the new ERP software and business process changes. The full implementation is expected to take several years.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 caption “Proposal 1. Electionproposal 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 21, 201525, 2017 (the “2015“2017 Proxy Statement”) and from the information contained under “Executive Officers of the Registrant” 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 – Compliance with Section 16(a) of the Exchange Act” in the Company’s 20152017 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 Charter 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.drewindustries.comwww.lci1.com/investors. A copy of any of these documents will be furnished, without charge, upon written request to Secretary, DrewLCI Industries, Incorporated, 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” and “Director Compensation” in the Company’s 20152017 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 20152017 Proxy Statement and the Equity Compensation Plan Information contained in Part I, Item 5 in this Report.

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 20152017 Proxy Statement.



Item 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES.

71




The information required by this item is incorporated by reference from the information contained under the proposal entitled “Appointment of Auditors – Fees for Independent Auditors” in the Company’s 20152017 Proxy Statement.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULESSCHEDULES.

(a)    Documents Filed:
(1)    Financial Statements.
(2)    Exhibits. See Item 15 (b) - “List of Exhibits” incorporated herein by reference.
(b)    Exhibits - List of Exhibits.

Exhibit Number
Description
3.13.1*DrewLCI Industries Incorporated Restated Certificate of Incorporation, (incorporated by reference to Exhibit 4.1 included in the Registrant's Registration Statement on Form S-8 filed onas amended effective December 31, 2014 (Registration No. 333-201336)).30, 2016.
3.2Amended and Restated By-laws of DrewLCI Industries Incorporated (incorporated by reference to Exhibit 4.23.2 included in the Registrant’s Registration Statement on Form S-88-K filed on December 31, 2014 (Registration No. 333-201336))19, 2016).
10.221Form of Indemnification Agreement between Registrant and its officers and independent directors (incorporated by reference to Exhibit 99.110.1 included in the Registrant’sRegistrant's Form 8-K filed on February 9, 2005)May 26, 2015).
10.231†Executive Non-Qualified Deferred Compensation Plan, as amended (incorporated by reference to Exhibit 10.210.231 included in the Registrant’sRegistrant's Form 8-K filed on January 9, 2009).
10.233Second Amended and Restated Credit Agreement dated as of November 25, 2008 by and among Kinro, Inc., Lippert Components, Inc., JPMorgan Chase Bank, N.A., individually and as Administrative Agent, and Wells Fargo Bank, N.A. individually and as Documentation Agent (incorporated by reference to Exhibit 10.1 included in10-K for the Registrant’s Form 8-K filed onyear ended December 2, 2008).
10.257First Amendment dated February 24, 2011 to the Second Amended and Restated Credit Agreement dated as of November 25, 2008 among Kinro, Inc., Lippert Components, Inc., JPMorgan Chase Bank, N.A., individually and as Administrative Agent, and Wells Fargo Bank, N.A. individually and as Documentation Agent (incorporated by reference to Exhibit 10.1 included in the Registrant’s Form 8-K filed on February 25, 2011)31, 2015).
10.259†DrewLCI Industries Incorporated 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).
10.261†Executive Compensation and Non-Competition Agreement between Registrant and Fredric M. Zinn, dated February 8, 2012 (incorporated by reference to Exhibit 10(iii)(A) included in the Registrant’s Form 8-K filed on February 9, 2012).
10.263†Executive Compensation and Non-Competition Agreement between Registrant and Joseph S. Giordano III, dated February 10, 2012 (incorporated by reference to Exhibit 10(iii)(A) included in the Registrant’s Form 8-K filed on February 13, 2012).

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10.267†Amended and Restated Change in Control Agreement between Registrant and Joseph S. Giordano, III, dated April 9, 2012 (incorporated by reference to Exhibit 10.04 included in the Registrant’s Form 8-K filed on April 10, 2012).
10.268†Change in Control Agreement between Registrant and Jason D. Lippert, dated April 9, 2012 (incorporated by reference to Exhibit 10.02 included in the Registrant’s Form 8-K filed on April 10, 2012).
10.269†Change in Control Agreement between Registrant and Scott T. Mereness, dated April 9, 2012 (incorporated by reference to Exhibit 10.03 included in the Registrant’s Form 8-K filed on April 10, 2012).
10.270†Amended and Restated Executive Employment and Non-Competition Agreement among Drew Industries Incorporated, Lippert Components Manufacturing, Inc., Kinro Manufacturing, Inc. and Jason D. Lippert, dated February 26, 2013 (incorporated by reference to Exhibit 10(iii)(A) included in the Registrant’s Form 8-K filed on February 26, 2013).
10.271†Amended and Restated Executive Employment and Non-Competition Agreement among Drew Industries Incorporated, Lippert Components Manufacturing, Inc., Kinro Manufacturing, Inc. and Scott T Mereness, dated March 4, 2013 (incorporated by reference to Exhibit 10(iii)(A) included in the Registrant’s Form 8-K filed on March 5, 2013).
10.272†Amendment to Executive Compensation and Non-Competition Agreement between Registrant and Joseph S. Giordano III, dated April 10, 2013 (incorporated by reference to Exhibit 10(iii)(A) included in the Registrant’s Form 8-K filed on April 11, 2013).
10.273†Amendment to Change in Control Agreement between Registrant and Jason D. Lippert, dated May 10, 2013 (incorporated by reference to Exhibit 10(ii)(A)-2 included in the Registrant’s Form 8-K filed on May 10, 2013).
10.274†Amendment to Change in Control Agreement between Registrant and Scott T. Mereness, dated May 10, 2013 (incorporated by reference to Exhibit 10(ii)(A)-3 included in the Registrant’s Form 8-K filed on May 10, 2013).
10.275†Amendment to Amended and Restated Change in Control Agreement between Registrant and Joseph S. Giordano III, dated May 10, 2013 (incorporated by reference to Exhibit 10(ii)(A)-4 included in the Registrant’s Form 8-K filed on May 10, 2013).
10.276†Severance Agreement between Registrant and Robert A. Kuhns, dated February 11, 2014 (incorporated by reference to Exhibit 10(iii)(A) included in the Registrant’s Form 8-K filed on February 14, 2014).
10.277†Description of 2014 executive compensation arrangement between Registrant and Robert A. Kuhns (incorporated by reference to Item 5.02 included in the Registrant’s Form 8-K filed on February 14, 2014).
10.278†Change in Control Agreement between Registrant and Robert A. Kuhns, dated April 4, 2013, as amended May 20, 2013.
10.279Second Amendment dated as of February 24, 2014 to Second Amended and Restated Credit Agreement dated as of November 25, 2008 among Kinro, Inc., Lippert Components, Inc., JPMorgan Chase Bank, N.A., individually and as Administrative Agent, and Wells Fargo Bank N.A., individually and as Documentation Agent2013 (incorporated by reference to Exhibit 10.110.278 included in the Registrant’s Form 8-K filed on February 26, 2014).
10.280Restated Revolving Credit Note dated as of February 24, 2014 by Lippert Components, Inc., payable to10-K for the order of JPMorgan Chase Bank, N.A. in the principal amount of Forty-Five Million ($45,000,000) Dollars (incorporated by reference to Exhibit 10.2 included in the Registrant’s Form 8-K filed on February 26, 2014)year ended December 31, 2013).

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10.281Restated Revolving Credit Note dated as of February 24, 2014 by Lippert Components, Inc., payable to the order of Wells Fargo Bank, N.A. in the principal amount of Thirty Million ($30,000,000) Dollars (incorporated by reference to Exhibit 10.3 included in the Registrant’s Form 8-K filed on February 26, 2014).
10.282Third Amended and Restated Pledge and Security Agreement dated as of February 24, 2014, made by Drew Industries Incorporated, Lippert Components, Inc. and Lippert Components Manufacturing, Inc., in favor of JPMorgan Chase Bank, N.A. as Collateral Agent (incorporated by reference to Exhibit 10.4 included in the Registrant’s Form 8-K filed on February 26, 2014).
10.283Third Amended and Restated Company Guarantee Agreement dated as of February 24, 2014, made by Drew Industries Incorporated, 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 February 26, 2014).
10.284Third Amended and Restated Subsidiary Guarantee Agreement dated as of February 24, 2014, made by each direct and indirect subsidiary 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 10.6 included in the Registrant’s Form 8-K filed on February 26, 2014).
10.285Third Amended and Restated Subordination Agreement dated as of February 24, 2014, made by Drew Industries Incorporated and each direct and indirect subsidiary of Drew Industries Incorporated, with and in favor of JPMorgan Chase Bank, N.A. as Administrative Agent (incorporated by reference to Exhibit 10.7 included in the Registrant’s Form 8-K filed February 26, 2014).
10.286Third Amended and Restated Note Purchase and Private Shelf Agreement dated as of February 24, 2014, by and among Prudential Investment Management, Inc. and Affiliates, and Lippert Components, Inc., guaranteed by Drew Industries Incorporated (incorporated by reference to Exhibit 10.8 included in the Registrant’s Form 8-K filed February 26, 2014).
10.287Form of Shelf Note of Lippert Components, Inc. pursuant to the Third Amended and Restated Note Purchase and Private Shelf Agreement (incorporated by reference to Exhibit 10.9 included in the Registrant’s Form 8-K filed February 26, 2014).
10.28810.294†Form of Executive Employment Agreement (incorporated by reference to Exhibit 10.1 included in the Registrant's Form 8-K filed March 4, 2015).
10.296†Form of Performance Stock Award (incorporated by reference to Exhibit 10.3 included in the Registrant's Form 8-K filed March 4, 2015).
10.297†Form of Deferred Stock Award (incorporated by reference to Exhibit 10.4 included in the Registrant's Form 8-K filed March 4, 2015).
10.299Form 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).
10.300†Transition, Separation and General Release Agreement, dated August 14, 2015, between Drew Industries Incorporated and Joseph S. Giordano III (incorporated by reference to Exhibit 10.1 included in the Registrant's Form 8-K filed August 20, 2015).
10.301†Transition, Separation and General Release Agreement, dated January 1, 2016, between Drew Industries Incorporated and Todd Driver (incorporated by reference to Exhibit 10.1 included in the Registrant's Form 8-K filed January 7, 2016).
10.302†2016 Annual Incentive Plan (incorporated by reference to Exhibit 10.1 included in the Registrant's Form 8-K filed February 12, 2016).
10.303Third 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).
10.304
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).

10.305Fourth 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).
10.306
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).

10.307Fourth 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).


10.308Fourth 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).
10.309Fourth 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).
10.310
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).

10.311Second Amended and Restated Parent Guarantee Agreement dated as of February 24, 2014,April 27, 2016, made by Drew Industries Incorporated in favor of Prudential Investment Management,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).
10.312Second 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’sRegistrant's Form 8-K filed February 26, 2014)May 3, 2016).
10.28910.313Amended and Restated Subsidiary Guarantee Agreement dated as of February 24, 2014, made by each direct and indirect subsidiary (other than Lippert Components, Inc.) of Drew Industries Incorporated, in favor of Prudential Investment Management, Inc. and each of the Noteholders thereto from time to time (incorporated by reference to Exhibit 10.11 included in the Registrant’s Form 8-K filed February 26, 2014).
10.290Second Amended and Restated Pledge and Security Agreement dated as of February 24, 2014,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 TrusteeCollateral Agent for the benefit of the Noteholders (incorporated by reference to Exhibit 10.1210.11 included in the Registrant’sRegistrant's Form 8-K filed February 26, 2014)May 3, 2016).
10.29110.314Second Amended and Restated Subordination Agreement dated as of February 24, 2014,April 27, 2016, made by Lippert Components, Inc., Drew Industries Incorporated and each direct and indirect subsidiarycertain subsidiaries of Drew Industries Incorporated, with and in favor of Prudential Investment Management,PGIM, Inc. and each of the Noteholders thereto from time to time (incorporated by reference to Exhibit 10.1310.12 included in the Registrant’sRegistrant's Form 8-K filed February 26, 2014)May 3, 2016).
10.29210.315Second Amended and Restated Collateralized TrustCollateral Agency Agreement dated as of February 24, 2014,April 27, 2016, by and among Lippert Components, Inc. and Prudential Investment Management,PGIM, Inc. and each of the Noteholders thereto from time to time, and JPMorgan Chase Bank, N.A. as Trusteecollateral agent for the Noteholders (incorporated by reference to Exhibit 10.13 included in the Registrant's Form 8-K filed May 3, 2016).
10.316Third 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’sRegistrant's Form 8-K filed February 26, 2014)May 3, 2016).

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10.317†
10.293Second AmendedDescription of the transition, separation and Restated Intercreditor Agreement dated as of February 24, 2014 byseverance compensation arrangement between Registrant and among Prudential Investment Management, Inc. and Affiliates, JPMorgan Chase Bank, N.A. (as Lender and Administrative Agent), Wells Fargo Bank, N.A. (as Lender), and JPMorgan Chase Bank, N.A. (as Collateral Agent and Trustee)David M. Smith (incorporated by reference to Exhibit 10.15Item 5.02 included in the Registrant’sRegistrant's Form 8-K filed FebruarySeptember 26, 2014)2016).
10.318†*Grantor Trust Agreement, effective January 15, 2017, between Registrant and Wells Fargo Bank, National Association.
14.1*Code of Ethics for Senior Financial Officers.
14.2*Guidelines for Business Conduct.
21*Subsidiaries of the Registrant.
23*Consent of Independent Registered Public Accounting Firm.
24*Powers of Attorney (included on the signature page of this Report).
31.1*Certification of Chief Executive Officer required by Rule 13a-14(a).


31.2*Certification of Chief Financial Officer required by Rule 13a-14(a).
32.1*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.
32.2*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.
101Interactive Data Files.

                                        
*Filed herewith
†Denotes a compensation plan or arrangement



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Item 16. FORM 10-K SUMMARY.

None.


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 2, 2015DREWFebruary 28, 2017LCI INDUSTRIES INCORPORATED 
    
 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 dates indicated.

Each person whose signature appears below hereby authorizes Jason D. Lippert and Joseph S. Giordano III,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 Joseph S. Giordano III,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.

DateSignatureTitle
   
March 2, 2015February 28, 2017
By: /s/ Jason D. Lippert
      (Jason D. Lippert)
Chief Executive Officer and Director (principal executive officer)
   
March 2, 2015

By: /s/ Joseph S. Giordano III
      (Joseph S. Giordano III)
Chief Financial Officer and Treasurer (principal financial officer)
March 2, 2015

February 28, 2017
By: /s/ Brian M. Hall
      (Brian M. Hall)
Corporate Controller (principal
Chief Financial Officer
(principal financial and accounting officer)
   
March 2, 2015

February 28, 2017
By: /s/ James F. Gero
      (James F. Gero)
Chairman of the Board of Directors
   
March 2, 2015February 28, 2017
By: /s/ Leigh J. Abrams
      (Leigh J. Abrams)
Director
   
March 2, 2015

February 28, 2017
By: /s/ Edward W. Rose, IIIFrank J. Crespo
      (Edward W. Rose, III)(Frank J. Crespo)
Director
   
March 2, 2015February 28, 2017
By: /s/ Brendan J. Deely
      (Brendan J. Deely)
Director
February 28, 2017
By: /s/ Tracy D. Graham
      (Tracy D. Graham)
Director
February 28, 2017
By: /s/ Frederick B. Hegi, Jr.
      (Frederick B. Hegi, Jr.)
Director
   
March 2, 2015
By: /s/ David A. Reed
      (David A. Reed)
Director
March 2, 2015

February 28, 2017
By: /s/ John B. Lowe, Jr.
      (John B. Lowe, Jr.)
Director
   
March 2, 2015February 28, 2017
By: /s/ Brendan J. DeelyKieran M. O’Sullivan
      (Kieran M. O’Sullivan)
Director
February 28, 2017
By: /s/ David A. Reed
      (Brendan J. Deely)(David A. Reed)
Director


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