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, 20132016

☐

☐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

(Exact name of registrant as specified in its charter)

Delaware13-3250533
(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  ☐


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 $770,779,400.$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 21, 2014)15, 2017) was 23,507,416 shares of common stock.

24,756,229 shares.


DOCUMENTS INCORPORATED BY REFERENCE


Proxy Statement with respect to the 20142017 Annual Meeting of Stockholders to be held on May 22, 201425, 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’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, (the “Exchange Act”), 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 ourthe Company’s future business prospects, net sales, expenses and income (loss), cash flow, and financial condition, whenever they occur in this Form 10-K are necessarily estimates reflecting the best judgment of ourthe Company’s senior management at the time such statements were made. There are a number of factors, many of which are beyond the Company’s control, which could cause actual results and events to differ materially from those described in the forward-looking statements. These factors include, in addition to other matters described in this Form 10-K, pricing pressures due to domestic and foreign competition, costs and availability of raw materials (particularly steel 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, availability and costs of labor, employee retention, inventory levels of retail dealers and manufacturers, levelsavailability of repossessedtransportation for products for which we sell our components, changes in zoning regulations for manufactured homes, seasonality and cyclicality in the industries to which we sell our products, the financial condition of our customers, the financial condition of retail dealers of products for which we sell our components, retention and concentration of significant customers, the 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.





LCI INDUSTRIES

TABLE OF CONTENTS



Page
PART I –
ITEM 1 - BUSINESS
6
ITEM 1A - RISK FACTORS
11
ITEM 1B - UNRESOLVED STAFF COMMENTS
18
ITEM 2 - PROPERTIES
19
ITEM 3 - LEGAL PROCEEDINGS
20
ITEM 4 - MINE SAFETY DISCLOSURES
20
PART II –
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
21
ITEM 6 - SELECTED FINANCIAL DATA
22
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
22
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
38
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
39
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
72
ITEM 9A - CONTROLS AND PROCEDURES
72
ITEM 9B - OTHER INFORMATION
73
PART III –
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
73
ITEM 11 - EXECUTIVE COMPENSATION
73


ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
73
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
73
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
74
PART IV –
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
74
ITEM 16 - FORM 10-K SUMMARY
77
SIGNATURES
78
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


PART I


Item 1.    BUSINESS.


Summary
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 full linebroad array of components for the leading original equipment manufacturers (“OEMs”) of recreational vehicles (“RVs”) and manufactured homes. To a lesser extent, Drew, through Lippert Components, also manufactures components for adjacent industries including buses; trailers used to haul boats, livestock, equipment and other cargo; truck caps;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. Effective December 2013, the Company completed the tax-free reorganization of Kinro, Inc.service centers.


LCI’s products include steel chassis and its subsidiaries withrelated components; axles and into Lippert Components.

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 8892 percent of consolidated net sales for 2013,2016, and the MHAftermarket Segment accounted for 128 percent of consolidated net sales for 2013.2016. Approximately 8171 percent of the Company’s RVOEM Segment net sales in 20132016 were of products sold to manufacturers of travel trailer and fifth-wheel RVs.

Over

The Company is focused on profitable growth in its industries, both organic and through acquisitions. In order to support this growth, over the last fifteenpast several 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, 2013,2016, the Company operated 3148 manufacturing and distribution facilities located throughout the United States and in 11 states,Canada and achievedItaly, and reported consolidated net sales of $1.02$1.7 billion for the year ended December 31, 2013.

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; websitewww.drewindustries.comwww.lci1.com; e-maildrew@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

Executive Succession


Sales and Relocation

On May 10, 2013, Fredric M. Zinn retired as President and Chief Executive OfficerProfits

Consolidated net sales for the year ended December 31, 2016 increased to a record $1.7 billion, 20 percent higher than the consolidated net sales for the year ended December 31, 2015 of Drew. Jason D. Lippert, Chairman and 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. This leadership transition was the result of a comprehensive succession process initiated$1.4 billion. Acquisitions completed by the Board of DirectorsCompany in 2011.

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, and where more than 80 percent of all RVs produced in the U.S. are manufactured.

Sales and Profits

In Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we describe in detail the increase in our sales and profits during 2013.


Net sales for 2013 reached a record $1.02 billion, a 13 percent increase over net sales of $9012016 added $64 million in 2012. Net sales of the Company’s RV Segment increased 14 percent, compared to a 10net 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 81unit, positively impacted net sales growth. Further, the Company organically increased sales to adjacent industries and the aftermarket. Net income for the full-year 2016 increased to $129.7 million, or $5.20 per diluted share, up from net income of $74.3 million, or $3.02 per diluted share, in 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 2016.

Acquisitions

During 2016 and early 2017, the Company completed six acquisitions:

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.

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.

Other Developments

In March 2016, the Company initiated a regular quarterly dividend of $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 $34.4 million, were paid to stockholders.

In December 2016, the Company announced a change of the Company’s corporate name to LCI Industries from Drew Industries Incorporated. Lippert Components’ business has grown considerably over the past decade, and the new corporate name was selected to better align the investment community with the strength of the LCI brand in the industries it serves.

OEM Segment

Through its wholly-owned subsidiaries, the Company 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.

In 2016, the OEM Segment represented 92 percent of the Company’s RVconsolidated net sales and 90 percent of consolidated segment operating profit. Approximately 71 percent of the Company’s OEM Segment net sales in 20132016 were of products to manufacturers of travel trailer and fifth-wheel RVs. The RV Segment represented 88 percent of consolidated net sales in 2013. Sales growth in new marketsRVs may be motorized (motorhomes) or towable (travel trailers, fifth-wheel travel trailers, folding camping trailers and new products continued to be key factors in enabling Drew’s sales to exceed RV industry growth rates. Acquisitions did not have a significant impact on the increase in net sales for 2013. Significant additions to the Company’s RV product lines in recent years include advanced leveling devices, in-wall slide-out systems, and awnings. Together, net sales of these products reached $90 million in 2013 as compared to $65 million in 2012. Net sales of the Company’s MH Segment increased 1 percent in 2013. The MH Segment represented 12 percent of consolidated net sales in 2013.

In 2013, the Company continued to grow outside its core RV and manufactured housing markets, with aggregate net sales of components for adjacent industries increasing 20 percent to $121 million, and aftermarket net sales increasing 21 percent to $39 million. Together, these markets now account for 16 percent of consolidated net sales, an increase from 10 percent of consolidated net sales in 2010.

For 2013, the Company reported net income of $50.1 million, or $2.11 per diluted share, an increase of 34 percent from net income of $37.3 million, or $1.64 per diluted share, for 2012. Excluding charges related to executive succession, net income 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.

At December 31, 2013, the Company had $66 million in cash, no debt, and substantial available borrowing capacity. On January 6, 2014, the Company paid a special cash dividend of $2.00 per share, an aggregate of $47 million, to holders of record of its Common Stock on December 20, 2013.

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 approximately $19 million in 2013, of which $13 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 December 13, 2013, the Company acquired the business and certain assets of Fortress Technologies, LLC (“Fortress”), a manufacturer of specialized RV chassis located in Middlebury, Indiana. Fortress had annualized sales of approximately $3 million. The purchase price was $3.3 million paid at closing. The acquisition of Fortress allows the Company to increase capacity to meet projected industry-wide growth in wholesale production of travel trailer and fifth-wheel RVs.

On June 24, 2013, the Company acquired the business and certain assets of Midstates Tool & Die and Engineering, Inc. (“Midstates”) located in Elkhart, Indiana. Midstates is a manufacturer of tools and dies, as well as automation equipment. The acquired business had annualized sales of approximately $2 million. The purchase price was $1.5 million paid at closing. The acquisition of Midstates will help the Company further automate its manufacturing processes to increase production efficiencies and improve product quality.

truck campers).

Other Developments

During the third quarter of 2013, the Company hired a new Director of International Business Development, who will spend time in Australia, Europe and China, assessing the dynamics of the local marketplace, building relationships with manufacturers and helping the Company introduce its existing products and develop new products for those markets. 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 2013. Through this new position, the Company will explore opportunities to increase sales of its products to international markets.

On February 24, 2014, the Company entered into a three-year extension of its existing $50 million revolving line of credit facility with JPMorgan Chase and Wells Fargo, which now expires in January 2019, and increased that facility from $50 million to $75 million. Simultaneously, the Company completed a three-year renewal of its uncommitted $150 million “shelf-loan” facility with Prudential Investment Management, Inc., which now expires in February 2017.

RV Segment

Through its wholly-owned subsidiaries, the Company manufactures and markets a variety of products used primarily in the production of RVs, including:

●

Steel chassis for towable RVs

●

Aluminum windows and screens

●

Axles and suspension solutions 

●

Chassis components

for towable RVs●Furniture and mattresses
●Slide-out mechanisms and solutions●Entry, baggage, patio and ramp doors
●

Thermoformed bath, kitchen and

●

Entry Steps

other products●Awnings
●

Manual, electric and hydraulic stabilizer and leveling systems

●

Other accessories

The Company also supplies certain of these products to the RV aftermarket, and to adjacent industries, including manufacturers of buses, trailers used to haul boats, livestock, equipment and other cargo, and truck caps.

In 2013, the RV Segment represented 88 percent of the Company's consolidated net sales, and 85 percent of consolidated segment operating profit. Approximately 81 percent of the Company’s RV Segment net sales in 2013 were of products to manufacturers of travel trailer and fifth-wheel RVs.

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 2748 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, 6 also conduct operations in the Company's MH Segment. See Item 2. “Properties.”


In late 2011, the Company launched a newly-developed line of RV awnings. The awnings are available in both manual and electric versions. The market potential for the awning product line is in excess of $100 million for manufacturers of RVs and an estimated $75 million for aftermarket sales.

The Company’s awning sales for 2013 were $13 million, and reached an annual run rate of approximately $25 million at the end of 2013, capturing approximately 25% of the original equipment manufacturer (“OEM”) market for awnings. The raw materials, components, and manufacturing processes used to manufacture awnings are very similar to those the Company uses in its other product lines. The Company markets its awnings directly to RV manufacturers, as well as through aftermarket distributors. Additional market share growth in awnings for both RV manufacturers and the aftermarket is expected for 2014.

The Company's RVOEM 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 manufacturers in adjacent industries.


The RV industry is highly competitive, both among manufacturers of RVs and the suppliers of RV components, generally with low barriers to entry other than compliance with industry standards, codes and safety requirements, and the initial capital investment required to establish manufacturing operations. The Company competes with several other component suppliers on a lesser extent,regional and national basis with respect to distributorsa broad array of components for both towable and retail dealers of aftermarket products.

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 market share for chassis and slide-out mechanisms for towable RVs exceeds 90 percent;RVs; (iii) the leading suppliers of axles for towable RVs are the Company AL-KO Kober Corporation and Dexter Axle Company, andCompany; (iv) it is the Company’s market share for axles for towable RVs is approximately 45 percent; (iv) its market share forleading supplier of furniture for towable RVs, is approximately 70 percent, and the Company competes with several other manufacturers; (v) the Company is the leading supplier of leveling systems for towable RVs; and (v)(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 25 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 $74$275 million in 20122015 to $93$332 million in 2013. 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 $19 million in 2012 to $25 million in 2013.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.

MH


Aftermarket Segment

Through


Many of the Company’s OEM Segment products are also sold through various aftermarket channels, including dealerships, warehouse distributors and service centers, as well as direct to retail customers. The Company has teams dedicated to product training and marketing support for its wholly-owned subsidiaries, the Company manufactures and markets a variety of products used in the production of manufactured homes and to a lesser extent, modular housing and mobile office units, including:

●    Vinyl and aluminum windows and screens

●    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.

In 2013, the MH Segment represented 12 percent of the Company's consolidated net sales, and 15 percent of consolidated segment operating profit. Certain of the Company’s MH Segment customers manufacture both manufactured homes and modular 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, 6 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 distributors of aftermarket products.

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 70 percent; (ii) the Company's manufactured housing chassis and chassis parts operations compete with several other manufacturers of chassis and chassis parts,previously owned RVs will likely upgrade their units 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 20 percent; and (iii) the Company’s thermoformed bath and kitchen unit operation competes with three 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 60 percent.

The Company’s share of the market for its products in adjacent industries cannot be readily determined; however, MH Segmenttear.


Aftermarket net sales to adjacent industries increased from $27$103 million in 20122015 to $28$131 million in 2013. The Company’s share of the aftermarket for manufactured housing parts is not significant.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

Other than the


The Company’s sales activities of its sales personnel and maintenance ofare 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,satisfaction. As a result of the Company’s strategic decision to increase its sales to the aftermarket and adjacent industries, as well as expand into international markets, the Company does not engagehas increased its annual marketing and advertising expenditures over the past few years, which were approximately $3 million in significant marketing efforts, and does not incur significant marketing or advertising expenditures.

2016.


The CompanyhasCompany 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

Capacity


In 2013,2016, the Company’s facilities operated at an average of approximately 6055 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, 2013,2016, the Company operated 3148 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 additional freight costs. Capital expenditures for 20132016 were $33 million. In January 2014, the Company entered into a nine year lease for a 350,000 square foot facility in Goshen, Indiana, to consolidate manufacturing operations for efficiency improvements$45 million, and expand capacity for its furnitureincluded approximately $25 million of “replacement” capital expenditures and mattress operations.approximately $20 million of “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

Manufacturing operations in


Most industries where the RV and manufactured housing industriesCompany 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, the timing of dealer orders, as well as the impact of severe weather conditions on the timing of industry-wide shipments from time to time, current and future seasonal industry trends may be different than in prior years.

International

During Additionally, sales of components to the third quarteraftermarket channels of 2013,these industries tend to be counter-seasonal.


International

Over the past several years, the Company hiredhas been gradually growing 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. The Company continues to focus on developing products tailored for international RV markets. The Company participates in the largest RV shows in Europe and has been receiving positive feedback on its products, especially its proprietary slide-out products. The Company 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 newresult, the Company believes it will see additional orders from European RV OEMs. The Company’s Director of International Business Development who will spendspends time in Australia, Europe and China,other international markets, assessing the dynamics of the local marketplace, building relationships with manufacturersOEMs and helping the Company introduce its existing products and develop new products for those markets. Overmarkets, with the past several years,goal of identifying long-term growth opportunities. The Company estimates the Company has been gradually growing sales overseas, primarily in Europe and Australia, and export sales represented approximately 1 percent of consolidatedaddressable market for annual net sales in 2013. Through this new position, the Company will explore opportunities to increase sales of its products outside of North America to international markets.

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 10 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 2013.

2016, 2015 and 2014, 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 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

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, 20132016 was 5,109,7,654, compared to 5,1796,576 and 6,187 at December 31, 2012.2015 and 2014, respectively. The total at December 31, 20132016 included 4,2516,295 in manufacturing, and product research and development, 245337 in transportation, 50103 in sales, 95230 in customer support and servicing, and 468689 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, 2013:

2016:

Name

NamePosition

  

Jason D. Lippert

Chief Executive Officer and Director

Scott T. Mereness

President

Joseph S. Giordano III

Brian M. Hall

Chief Financial Officer and Treasurer

Robert A. Kuhns

Vice President – Chief Legal Officer and Secretary

Jamie M. SchnurChief Administrative Officer
Nick C. FletcherChief Human Resources Officer


Officers are elected annually by the Board of Directors. There are no family relationships between or among any of the Executive Officersexecutive 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 22, 2014.

25, 2017.


JASON D. LIPPERT (age 41)44) became Chief Executive Officer of the Company effective May 10, 2013, succeeding Fredric M. Zinn, 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 42)45) became President of the Company effective May 10, 2013, succeeding to a position also previously held by Fredric M. Zinn, 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 III


BRIAN M. HALL (age 44)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 48)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.

Other Officers

BRIANfirm.


JAMIE M. HALLSCHNUR (age 39)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.

NICK C. FLETCHER (age 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 conditionsfactors beyond our control, including cyclicality and seasonality have in the past had a significant adverse impact onindustries where we sell our earnings, andproducts, could negatively impactlead to fluctuations in our futureoperating 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, theour 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.


Retail dealers of RVs and manufactured homesand 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 hasincreases 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 recently enacted 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 new legislation has been introduced to address this matter, and the Bureau of Consumer Financial Protection is 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.


High levels of repossessions of manufactured homes and RVs could cause manufacturers to reduce production of new manufactured homes and RVs, resulting in reduced demand for our products.

Repossessed manufactured homes and RVs are resold by lenders, often at substantially reduced prices, which reduces the demand for new manufactured homes and RVs. Economic conditions in the past have resulted, and could again result, in loan defaults and cause high levels of repossessions, which would cause manufacturers to reduce production of new manufactured homes and RVs, resulting in reduced 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 an adverse effect on the RV industry as a whole in the past, and could again in the future. Travel trailer and fifth-wheel RVs, components for which represented approximately 8171 percent of our RVOEM Segment net sales in 2013,2016, 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 wouldcould result in reduced demand for travel trailer and fifth-wheel RVs, and therefore reduced demand for our products.


Company-Specific Risk Factors


The manufactured housingA significant percentage of our sales are concentrated in the RV industry, has experienced a significant long-term declineand declines in industry-wide wholesale shipments which has led to reducedof travel trailer and fifth-wheel RVs could reduce demand for our products and adversely impact our operating results and financial condition.

Our MH


In 2016, the OEM Segment which accounted for 12represented 92 percent of our consolidated net sales, and 90 percent of consolidated segment operating profit. Approximately 71 percent of our OEM Segment net sales for 2013, operates in an2016 were of products to manufacturers of travel trailer and fifth-wheel RVs. While we measure our OEM Segment sales against industry-wide wholesale shipment statistics, the underlying health of the RV industry is determined by retail demand. Retail sales of RVs historically have been closely tied to general economic conditions, as well as consumer confidence which has experienced a declinewas above historical averages in production2016. Declines in industry-

wide wholesale shipments of new homes compared to the peak of production in 1998. The downturn was caused, in part, by limited availabilitytravel trailer 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, andfifth-wheel RVs could again impact, the demand for manufactured homes, and therefore reduce demand for our products.

products and adversely affect our operating results and financial condition.


Although industry-wide wholesale productionwe have a large number of manufactured homes has improvedcustomers, 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 recent years,2016. The loss of either of these customers would have a material adverse impact on our annualoperating results of operations could decline if manufactured housing industry conditions worsen.

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.


Company-specific Risk Factors

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 2013, respectively,2016. These, and other key raw materials, have historically been volatile.

volatile and can fluctuate dramatically with changes in the global demand and supply for such products.


Because competition and business conditions may limit the amount or timing of increases in raw material costs that can be passed through to our customers in the form of sales price increases, future increases in raw material costs could adversely impact our financial condition and operating results. Conversely, as raw material costs decline, we may not be able to maintain selling prices consistent with higher cost raw materials in our inventory, which could adversely affect our operating results.


Inadequate 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 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 2025 percent of our raw materials and components.

The loss Additionally, we have the exclusive right to distribute Furrion’s complete line of any customer accountingelectronics 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 more than 10 percenta significant portion of our consolidated net salesraw materials and components. Adverse political conditions, trade embargoes, increased tariffs or import duties, inclement weather, natural disasters, war, terrorism or labor disputes at various ports or otherwise adversely impacting our suppliers create significant risks for our business, particularly if these conditions or disputes result in work slowdowns, lockouts, strikes or other disruptions, and could have a materialan adverse impact on our operating results if we are unable to fulfill customer orders or required to accumulate excess inventory or find alternate sources of supply, if available, at higher costs.


We import a portion of our raw materials and the components we sell and the effect of foreign exchange rates could adversely affect our operating results.

One customer


We negotiate for the purchase of a significant portion of raw materials and semi-finished components with suppliers that are not located in the United States. As such, the prices we pay in part are dependent upon the rate of exchange for 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 31 percent, and another customer of both the RV Segment and the MH Segment accounted for 28 percent, of our consolidated net sales in 2013. 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.


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 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 condition.

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.

The loss of any of our key operating management could reduce our ability to execute our business strategy and could adversely affect our business and results of operations.

We are dependent to a significant extent upon the efforts of our key operating management. The loss of the services of one or more of our key operating management could impair our ability to execute our business strategy, which would have a material adverse effect on our business, financial condition and results of operations.


Our business is subject to governmental and environmental 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.

Our operations are subject to various governmental and environmental regulations, and the failure to comply with present or future regulations could result in fines or potential civil or criminal liability. We believe that our operations and facilities have been and are being operated in compliance, in all material respects, with such laws and regulations. The operation of our manufacturing facilities entails risks, however, and there can be no assurance that we will not incur material costs or liabilities. In addition, potentially significant expenditures could be required in order to comply with evolving healthcare, environmental, health and safety laws, regulations or other pertinent requirements that may be adopted or imposed in the future by governmental authorities.

Compliance with conflict mineral disclosure requirements will create additional compliance cost and may create reputational challenges.

In August 2012, the SEC adopted new 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 new requirements will necessitate due diligence efforts on our part to assess whether such minerals are used in our products in order to make the relevant required disclosures beginning in May 2014. There will be costs associated with complying with these disclosure requirements, including for diligence to determine the sources of conflict minerals used in our products and other potential changes to products, processes or sources 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 only a limited number of suppliers offering conflict-free minerals, we cannot be sure 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 challenges 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.

If we expand our business internationally, we will be subject to new operational and financial risks.

During the third quarter of 2013, we hired a new Director of International Business Development, who will spend time in Australia, Europe and China, assessing the dynamics of the local marketplace, building relationships with manufacturers and helping us introduce our existing products and develop new products for those markets. Over the past several years, we


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 2013.

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 taxations;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.


We are dependent on the knowledge, experience and skill of our leadership team. The loss of the services of one or more key managers or the failure to attract or retain qualified managerial, technical, sales and marketing, operations and customer service staff could impair our ability to conduct and manage our business and execute our business strategy, which would have an adverse effect on our business, financial condition and results of operations.

Our business is subject to numerous international, federal, state and local regulations, and increased costs of compliance, failure in our compliance efforts or events beyond our control could result in damages, expenses or liabilities that could adversely impact our financial condition and operating results.
We are subject to numerous federal, state and local regulations governing the manufacture and sale of our products, including regulations and standards promulgated by the 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. 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 and manufacturing operations in foreign countries may be subject to similar regulations. Any major recalls of our products, voluntary or involuntary, could adversely impact our reputation, net sales, financial condition and operating results. Changes in laws or regulations that impose additional regulatory requirements on us could increase our cost of doing business or restrict our actions, causing our results of operations to be adversely affected. 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 health and safety. We are also subject to compliance with the U.S. Foreign Corrupt Practices Act (“FCPA”), and other anti-corruption and anti-bribery laws applicable to our operations. Compliance with these laws and others may be onerous and costly, at times, and may be inconsistent from jurisdiction to jurisdiction, which further complicates compliance efforts. Violations of these laws and regulations could lead to significant penalties, including restraints on our export or import privileges, monetary fines, criminal proceedings and regulatory or other actions that could adversely affect our results of operations. We 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 and regulations or our policies and 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 2016 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, 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 result in competitors manufacturing and marketing similar products which could adversely affect our market share and results of operations. Competitors may challenge, invalidate or avoid the application of our existing or future intellectual property rights that we receive or license. 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 that began in May 2014. We have incurred costs and diverted internal resources to comply with these disclosure requirements, including for diligence to determine the sources of those minerals that may be used or necessary to the production of our products. Compliance costs are expected to continue in future periods, subject to any regulatory changes implemented by the new administration in Washington, D.C. Further action or clarification from the SEC or a court regarding required disclosures could result in reputational challenges that could impact future sales if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products and are required to make such disclosures.

If our information technology systems fail to perform adequately or are breached, our operations could be disrupted and 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, 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.
Additionally, because we accept debit and credit cards for payment, we are subject to the Payment Card Industry Data Security Standard (the “PCI Standard”), issued by the Payment Card Industry Security Standards Council. The PCI Standard contains compliance guidelines with regard to our security surrounding the physical and electronic storage, processing and

transmission of cardholder data. Complying with the PCI Standard and implementing related procedures, technology and information security measures requires significant resources and ongoing attention. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology such as those necessary to maintain compliance with the PCI Standard or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations. Any material interruptions or failures in our payment-related systems could have an adverse effect on our business, financial condition and results of operations.

We could incur warranty claims in excess of reserves.

We receive warranty claims from our customers in the ordinary course of our business. Although we maintain reserves for such claims, which to date have been adequate, there can be no assurance that warranty expense levels will remain at current levels or that such reserves will continue to be adequate. A significant increase in warranty claims exceeding our current warranty expense levels could have an adverse effect on our results of operations and financial condition.

In addition to the costs associated with the contractual warranty coverage provided on our products, we also occasionally incur costs as a result of additional service actions not covered by our warranties, including product recalls and customer satisfaction actions. Although we estimate and reserve for the cost of these service actions, there can be no assurance that expense levels will remain at current levels or such reserves will continue to be adequate.

We may be subject to product liability claims if people or property are harmed by the products we sell.

Some of the products we sell may expose us to product liability claims relating to personal injury, death, or property damage, and may require product recalls or other actions. Although we maintain liability and product recall insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. In addition, even if a product liability claim is not successful or is not fully pursued, the negative publicity surrounding a product recall or any assertion that our products caused property damage or personal injury could damage our brand identity and our reputation with existing and potential consumers and have an adverse effect on our business, financial condition and results of operations.

We could incur asset impairment charges for goodwill, intangible assets or other long-lived assets.

A portion of our total assets as of December 31, 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. These factors include: the perceived prospects of our business and our industries as a whole; differences between our actual financial and operating results and those expected by investors and analysts; changes in analysts’ recommendations or projections; changes affecting the availability of financing in the wholesale and consumer lending markets; actions or announcements by competitors; changes in 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 common stock for reasons unrelated to our performance.

Item 1B. UNRESOLVED STAFF COMMENTS.

None.


None.




Item 2.    PROPERTIES.


The Company’s manufacturing operations are conducted at facilities that are used for both manufacturing and warehousing. Many of the properties listed manufacture and warehouse products sold through both the OEM Segment and Aftermarket Segment. Square footage is not allocated across the segments. In addition, the Company maintains administrative facilities used for corporate and administrative functions. The Company’s primary administrative offices are located in Elkhart and Goshen, Indiana. Total administrative space company-wide aggregates approximately 251,000 square feet. At December 31, 2013,2016, the Company'sCompany’s properties were as follows:

CityState/ProvinceSquare FeetOwnedLeased
Double SpringsAlabama109,000
☑
GilbertArizona11,600
☑
RialtoCalifornia62,700
☑
LakelandFlorida15,000
☑
KissimmeeFlorida4,246
☑
FitzgeraldGeorgia79,000
☑
NampaIdaho125,000
☑
NampaIdaho83,500
☑
NampaIdaho22,000
☑
Twin FallsIdaho16,060
☑
GoshenIndiana410,000
☑
South BendIndiana379,902
☑
GoshenIndiana355,960
☑
GoshenIndiana341,000
☑
ElkhartIndiana308,864
☑
ElkhartIndiana250,000
☑
ElkhartIndiana160,000
☑
GoshenIndiana153,200
☑
GoshenIndiana144,500
☑
Fort WayneIndiana140,000
☑
MiddleburyIndiana122,226
☑
AuburnIndiana119,000
☑
GoshenIndiana118,125
☑
GoshenIndiana110,000
☑
ElkhartIndiana102,900
☑
MiddleburyIndiana101,776
☑
GoshenIndiana95,960
☑
ElkhartIndiana92,000
☑
GoshenIndiana87,800
☑
ElkhartIndiana87,000
☑
GoshenIndiana74,200
☑
HoweIndiana60,000
☑
GoshenIndiana53,500
☑
ElkhartIndiana28,000
☑
GoshenIndiana22,000
☑
ElkhartIndiana18,000
☑
MillersburgIndiana10,000
☑
CalenzanoItaly15,000
☑
Sterling HeightsMichigan37,018
☑


CityState/ProvinceSquare FeetOwnedLeased
Jackson CenterOhio12,000
☑
PendletonOregon56,800
☑
McMinnvilleOregon35,700
☑
DenverPennsylvania40,200
☑
GranbyQuebec65,000
☑
ChesterSouth Carolina108,600
☑
GaffneySouth Carolina55,000
☑
Myrtle BeachSouth Carolina9,800
☑
SpringfieldTennessee60,000
☑
WaxahachieTexas195,000
☑
KaysvilleUtah70,000
☑
  

5,234,137
RV SEGMENT(1)

____________________________
(1)At December 31, 2015, the Company used an aggregate of 4,791,182 square feet for manufacturing and warehousing.

At December 31, 2016, the Company maintained the following facilities, or partial facilities, not currently used in production. The Elkhart property lease expires in May 2017 and the remaining properties are currently leased to third parties.
CityState/ProvinceSquare FeetOwnedLeased
PhoenixArizona61,000
☑
MishawakaIndiana332,356
☑
ElkhartIndiana144,000
☑
South BendIndiana134,235
☑
MishawakaIndiana107,600
☑  
    779,191

City

State

Square Feet

Owned

Leased

Rialto(1)

California

56,430

☑

Nampa

Idaho

147,000

☑

Nampa(1)

Idaho

29,225

☑

Twin Falls

Idaho

16,060

☑

Goshen(1)

Indiana

459,200

☑

Goshen

Indiana

366,960

☑

Elkhart

Indiana

316,864

☑

Goshen

Indiana

158,125

☑

Goshen

Indiana

144,500

☑

Goshen(1)

Indiana

138,700

☑

Middlebury

Indiana

122,226

☑

Elkhart

Indiana

102,900

☑

Goshen

Indiana

101,960

☑

Middlebury

Indiana

101,776

☑

Elkhart

Indiana

92,000

☑

Goshen

Indiana

87,800

☑

Goshen

Indiana

78,084

☑

Topeka

Indiana

67,560

☑

Goshen

Indiana

65,000

☑

Goshen

Indiana

53,500

☑

Middlebury

Indiana

40,000

☑

Goshen

Indiana

22,000

☑

Elkhart

Indiana

15,000

☑

Pendleton

Oregon

56,800

☑

McMinnville (1)

Oregon

17,850

☑

Waxahachie (1)

Texas

25,000

☑

Kaysville

Utah

75,000

☑

2,957,520(2)

(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, 2012, the Company’s RV Segment used an aggregate of2,643,999 square feet for manufacturing and warehousing.


MH SEGMENT

      

City

State

Square Feet

Owned

Leased

Double Springs

Alabama

109,000

☑

Rialto(1)

California

6,270

☑

Nampa(1)

Florida

54,275

☑

Fitzgerald

Georgia

79,000

☑

Goshen

Indiana

110,000

☑

Howe

Indiana

60,000

☑

Goshen(1)

Indiana

25,000

☑

Goshen(1)

Indiana

14,500

☑

Arkansas City

Kansas

7,800

☑

McMinnville (1)

Oregon

17,850

☑

Denver

Pennsylvania

40,200

☑

Chester

South Carolina

108,600

☑

Waxahachie (1)

Texas

175,000

☑

807,495(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, 2012, the Company’s MH Segment used an aggregate of 819,783 square feet for manufacturing and warehousing.

ADMINISTRATIVE

City

State

Square Feet

Owned

Leased

Double Springs

Alabama

7,200

☑

Phoenix

Arizona

1,000

☑

Goshen

Indiana

49,200

☑

Goshen

Indiana

15,500

☑

Goshen

Indiana

5,156

☑

Goshen

Indiana

4,500

☑

Goshen

Indiana

1,680

☑

Waxahachie

Texas

16,000

☑

100,236

In January 2014, the Company entered into a nine year lease for approximately 350,000 square feet of manufacturing space in Goshen, Indiana to consolidate manufacturing operations for efficiency improvements and expand capacity for its furniture and mattress operations.


At December 31, 2013, the Company owned the following facilities not currently used in production, having an aggregate book value of $4.3 million:

City

State

Square Feet

Phoenix *

Arizona

61,000

Ocala

Florida

47,100

Bristol *

Indiana

97,500

Goshen

Indiana

4,874

* Currently leased to a third party.

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, 2013,2016, would not be material to the Company'sCompany’s financial position or annual results of operations.


Item 4.    NOT APPLICABLE.

MINE SAFETY DISCLOSURES.

Not applicable.



PART II


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


As of February 21, 2014,January 31, 2017, there were 430343 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 20132016 and 20122015 is set forth in Note 1416 of the Notes to Consolidated Financial Statements in Item 8 of this Report.


Equity Compensation Plan Information as of December 31, 20132016:

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))

 
   (a)   (b)   (c) 

Equity compensation plans approved by security holders

  1,610,224  $6.95   246,368 

Equity compensation plans not approved by security holders

 

    N/A

  

   N/A

  

    N/A

 

Total

  1,610,224  $6.95   246,368 

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))
 (a)(b)(c)
Equity compensation plans approved by security holders765,949$0.601,049,752
Equity compensation plans not approved by security holdersN/AN/AN/A
Total765,949$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 246,3681,049,752 at December 31, 2013,2016, and 688,7121,305,440 at December 31, 2012.2015. The Plan is the Company’s only equity compensation plan.


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. In 2016, the Company initiated a regular quarterly dividend of $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 $34.4 million, were paid to stockholders.


Future dividend policy with respect to the common 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.



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, 

(In thousands, except per share amounts)

 

2013

  

2012

  

2011

  

2010

  

2009

 
                     

Operating Data:

                    

Net sales

 $1,015,576  $901,123  $681,166  $572,755  $397,839 

Goodwill impairment

 $-  $-  $-  $-  $45,040 

Executive succession

 $1,876  $1,456  $-  $-  $- 

Operating profit (loss)

 $78,298  $58,132  $48,548  $45,428  $(35,581)

Income (loss) before income taxes

 $77,947  $57,802  $48,256  $45,210  $(36,370)

Provision (benefit) for income taxes

 $27,828  $20,462  $18,197  $17,176  $(12,317)

Net income (loss)

 $50,119  $37,340  $30,059  $28,034  $(24,053)
                     

Net income (loss) per common share:

                    

Basic

 $2.15  $1.66  $1.35  $1.27  $(1.10)

Diluted

 $2.11  $1.64  $1.34  $1.26  $(1.10)
                     

Financial Data:

                    

Working capital

 $107,339  $84,243  $85,657  $97,791  $113,744 

Total assets

 $453,184  $373,868  $351,083  $306,781  $288,065 

Long-term obligations

 $21,380  $19,843  $21,876  $18,248  $8,243 

Stockholders' equity

 $313,613  $284,245  $277,296  $243,459  $244,115 

Dividend Information

On January 6, 2014, 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, the Company paid a special cash dividend of $2.00 per share to holders of record of its Common Stock on December 10, 2012. In 2011, the Company did not pay any dividend and on December 28, 2010, the Company paid a special cash dividend of $1.50 per share to holders of record of its Common Stock on December 20, 2010, prior to 2010 the Company had not previously paid a cash dividend. Future dividend policy with respect to the Common 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.

  Year Ended December 31,
(In thousands, except per share amounts) 2016 2015 2014 2013 2012
           
Operating Data:          
Net sales $1,678,898
 $1,403,066
 $1,190,782
 $1,015,576
 $901,123
Severance $—
 $3,716
 $—
 $—
 $—
Sale of extrusion assets $—
 $—
 $1,954
 $—
 $—
Executive succession $—
 $—
 $—
 $1,876
 $1,456
Operating profit $200,850
 $116,254
 $95,487
 $78,298
 $58,132
Income before income taxes $199,172
 $114,369
 $95,057
 $77,947
 $57,802
Provision for income taxes $69,501
 $40,024
 $32,791
 $27,828
 $20,462
Net income $129,671
 $74,345
 $62,266
 $50,119
 $37,340
           
Net income per common share:          
Basic $5.26
 $3.06
 $2.60
 $2.15
 $1.66
Diluted $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:          
Net working capital $218,043
 $146,964
 $100,451
 $107,339
 $84,243
Total assets $786,904
 $622,856
 $543,841
 $453,184
 $373,868
Long-term obligations $87,284
 $85,419
 $41,758
 $21,380
 $19,843
Stockholders’ equity $550,269
 $438,575
 $394,898
 $313,613
 $284,245

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.


LCI Industries (“LCII”, and collectively with its subsidiaries, the “Company”), 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 adjacent industries including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; pontoon boats; trains; manufactured homes; and modular housing. The Company hasalso supplies components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors and service centers.

The Company previously had two reportable segments;segments, the recreational vehicle (“RV”) 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 Company’s operations are conducted through its wholly-owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, “Lippert Components”). Effective December 2013, the Company completed the tax-free reorganization of Kinro, Inc. and its subsidiaries with and into Lippert Components. At December 31, 2013,2016, the Company operated 3148 manufacturing and distribution facilities located throughout the United States and in 11 states.

Effective withCanada and Italy.


Net sales and operating profit were as follows for 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. 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
      
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

Corporate expenses are allocated between the segments based upon net sales. Accretion related to contingent consideration and other non-segment items areis included in the segment to which they relate. The segment disclosures from prior years have been reclassified to conform to the current year presentation.

Net sales and operating profit were as follows for the years ended December 31:

(In thousands)

 

2013

  

2012

  

2011

 

Net sales:

            

RV Segment:

            

RV OEMs

            

Travel trailers and fifth-wheels

 $727,783  $653,478  $497,544 

Motorhomes

  47,937   34,612   17,492 

RV aftermarket

  25,334   19,119   14,660 

Adjacent industries

  92,640   73,716   40,947 

Total RV Segment net sales

 $893,694  $780,925  $570,643 
             

MH Segment:

            

Manufactured housing OEMs

 $80,245  $80,392  $77,087 

Manufactured housing aftermarket

  13,719   13,110   13,073 

Adjacent industries

  27,918   26,696   20,363 

Total MH Segment net sales

 $121,882  $120,198  $110,523 
             

Total net sales

 $1,015,576  $901,123  $681,166 

it relates.

(In thousands)

 

2013

  

2012

  

2011

 

Operating profit:

            

RV Segment

 $68,248  $47,172  $37,715 

MH Segment

  11,926   12,416   10,833 

Total segment operating profit

  80,174   59,588   48,548 

Executive succession

  (1,876)  (1,456)  - 

Total operating profit

 $78,298  $58,132  $48,548 

Net sales and operating profit by segment, as a percent of the total, were as follows for the years ended December 31:

  2013  2012  2011 

Net sales:

            

RV Segment

  88%   87%   84% 

MH Segment

  12%   13%   16% 

Total net sales

  100%     100%     100%   
             

Operating profit:

            

RV Segment

  85%   79%   78% 

MH Segment

  15%   21%   22% 

Total segment operating profit

  100%     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:

  2013  2012  2011 

RV Segment

  7.6%   6.0%   6.6% 

MH Segment

  9.8%   10.3%     9.8% 

 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 including:

 ● Steel chassis for towable RVs

 ● Aluminum windows and screens

 ● Axles and suspension solutions for towable RVs

 ● Chassis components

 ● Slide-out mechanisms and solutions

 ● Furniture and mattresses

 ● Thermoformed bath, kitchen and other products

 ● Entry, baggage, patio and ramp doors

 ● Entry steps

 ● Awnings

 ● Manual, electric and hydraulic stabilizer and leveling systems

 ● Other accessories

The Company also supplies certain of these products to the RV aftermarket. In addition, the Company manufactures components for adjacent industries, including buses,buses; trailers used to haul boats, livestock, equipment and other cargo,cargo; trucks; pontoon boats; trains; manufactured homes; and truck caps.modular housing. Approximately 8171 percent of the Company’s RVOEM Segment net sales in 2013for the year ended December 31, 2016 were of products to OEMs ofcomponents for travel trailer and fifth-wheel RVs. Travel trailer and fifth-wheel RVs, accounted for 83 percent of all RVs shipped by the industry in 2013.

including:


The Company’s MH Segment manufactures a variety of products used in the production of manufactured homes and to a lesser extent, modular housing and mobile office units, including:

 ●Vinyl and aluminum windows and screens

 ●Steel chassis

 ●Thermoformed bath and kitchen products

 ●Steel chassis parts

 ●Steel● Steel chassis and fiberglass entry doors

related components

 ●Axles

● Furniture and mattresses

 ●Aluminum● Axles and vinylsuspension solutions

● Electric and manual entry steps
● Slide-out mechanisms and solutions● Awnings and awning accessories
● Thermoformed bath, kitchen and other products● Electronic components
● Vinyl, aluminum and frameless windows● Appliances
● Manual, electric and hydraulic stabilizer and 
   leveling systems		● Televisions, sound systems, navigation 
   systems and backup cameras
● Entry, luggage, patio and ramp doors

● Other accessories


The Company alsoAftermarket Segment supplies certainmany of these productscomponents to the manufactured housingrelated aftermarket and to adjacent industries. Certainchannels of the Company’s MHRV and adjacent industries, primarily to retail dealers, wholesale distributors and service centers. The Aftermarket Segment customers manufacture both manufactured homesalso includes the sale of replacement glass and modular homes, and certain of the products manufactured byawnings to fulfill insurance claims.

Most industries where the Company are suitable for both types of homes. As a result, the Company is not always able to determine in which type of homesells products or where its products are installed.

Becauseused 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 we sell ourthe 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.


INDUSTRY BACKGROUND


OEM Segment

Recreational Vehicle Industry


An RV is a vehicle designed as temporary living quarters for recreational, camping, travel or seasonal use. RVs may be motorized (motorhomes) or towable (travel trailers, fifth-wheel travel trailers, folding camping trailers and truck campers).

According to the Recreation Vehicle Industry Association (“RVIA”), industry-widewholesale shipments of travel trailer and fifth-wheel RVs in 2013, the Company’s primary RV markets, increased 10 percent to 268,000 units compared to 2012, as a result of:

●

A 30,700 unit increase inretail demand in 2013, or 14 percent, as compared to 2012. In addition, retail demand is typically revised upward in subsequent months.

●

RV dealers increasing inventory levels by 14,600 units in 2013, or 5,600 less units than in 2012. The 2013 increase occurred largely in the fourth quarter of 2013.

The annual sales cycle for the RV industry has historically startedgenerally starts in October after the “Open House” in Elkhart, Indiana where many of the largest RV OEMs display product to RV retail dealers, and endedends after the conclusion of the Summersummer selling season in September.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 and betweenas dealers build inventories to support anticipated sales. Between April and September, the Springspring and Summersummer selling seasons, retail sales of travel trailer and fifth-wheel RVs have historically exceeded industry-wide wholesale shipments. MostBased 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 inventoriesinventory 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 are in-line with anticipatedin 2016, the Company’s primary RV market, increased 15 percent to 362,700 units, compared to 2015, as a result of:
An estimated 33,300 unit increase in retail demand in 2016, or 11 percent, as compared to 2015. In addition, retail demand is typically revised upward in subsequent months, primarily due to delayed RV registrations.
RV dealers increasing inventory levels by an estimated 12,300 units in 2016, compared to the upcoming Spring 2014 selling season.

decrease in inventory levels of 2,700 units in 2015.

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, 2013

  268,000   10%   253,400   14%   14,600 

Year ended December 31, 2012

  242,900   14%   222,700     8%   20,200 

Year ended December 31, 2011

  212,900     7%   206,000   11%   6,900 



 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-widewholesale shipments of motorhome RVs in 20132016 increased 3616 percent to 38,30054,800 units compared to 2012.2015. Retail demand for motorhome RVs also increased 3111 percent in 2013,2016, following a 615 percent increase in retail demand in 2012.

While2015.

The RVIA has projected a modest increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs for 2017. Several RV OEMs, however, are introducing new product lines and additional features, and adding production in 2013 was strong, 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. Ultimately, industry-wide retail sales, and therefore production levels of RVs, will depend to a significant extent on the course of the economy.capacity. Retail sales of RVs historically have been closely tied to general economic conditions, as well as consumer confidence which has fluctuatedwas above historical averages in recent months.

In November 2013, the RVIA projected a 4 percent increase in industry-wide wholesale shipments2016. Additionally, retail sales of travel trailer and fifth-wheel RVs have increased in 84 of the last 86 months on a year-over-year basis. Industry resources report strong attendance and high consumer interest at RV shows around the United States and Canada in late 2016 and into early 2017.

Although future retail demand is inherently uncertain, RV industry fundamentals in 2016, including generally low unemployment, low fuel prices and available credit for 2014, to 279,100.dealers and RV consumers, were strong, as evidenced by the estimated 11 percent increase in industry-wide retail sales of travel trailer and fifth-wheel RVs. The Company is also encouraged that several key customersbelieves the strong RV industry fundamentals, aided by product innovation, demographic tailwinds, industry promotion and the advent of stronger dealer networks, are introducing new product lines, as well as increasing production capacity.positive signs for 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.

Over the long term, the Company expects RV industry sales to be aided by positive demographics and the continued popularity of the “RV Lifestyle”. Further, theThe 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 a generican 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, also appearare trends that could continue to motivate consumer demand for RVs. RVIA studies indicate that RV vacations cost significantly less than other forms of vacation.

Manufactured Housing Industry

Manufactured homesvacation travel, even when factoring in fuel prices and the cost of RV ownership. More details can be found at www.RVIA.org.


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 built entirelyaffiliated with RV OEMs through related subsidiaries. The Company believes there are significant opportunities in these Adjacent Industries and, as a factory on permanent steel undercarriages or chassis to which axles and wheels are attached. result, four of the last six business acquisitions completed by the Company were focused in Adjacent Industries.

The homes are then transported to a manufactured housing dealer which sells and transportsestimated potential content per unit the homeCompany may supply to the buyer’s home site.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 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 standardsfollowing are key target markets for the heating, plumbing, air conditioning, thermal and electrical systems. It is the only federally regulated national building code. On-site additions, such as garages, decks and porches, often add to the attractiveness of manufactured homes and must be built to local, state or regional building codes. A manufactured home may be sited on owned or leased land.

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 homes contain one or more “floors” or sections which can be joinedhousing. According to make larger homes. A typical section may range in size from 800 to 1,200 square feet. During 2013, multi-section homes were 53 percent of the total manufactured homes produced, consistent with 2012, and above the 51 percent for 2011. 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.

The Institute for Building Technology and Safety, (“IBTS”) reported industry-widethere were approximately 81,100, 70,500 and 64,300 manufactured home wholesale shipments in 2016, 2015 and 2014, respectively.


Aftermarket Segment

Many of manufactured homes were 60,200 units in 2013, an increase of 10 percent from 2012. For the full year 2012, there were 54,900 industry-wide wholesale shipments of manufactured homes, an increase of 6 percent comparedCompany’s OEM Segment products are also sold through various aftermarket channels, including dealerships, warehouse distributors and service centers, as well as direct to 2011.

Industry-wide wholesale shipments by the manufactured housing industry have experienced a decline from the peak of industry-wide production in 1998retail 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 varietyrapid response to critical repairs so customer downtime is minimized. The Aftermarket Segment also includes the sale of reasons. Becausereplacement 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 RVIA, current real estate, credit and economic environment, includingestimated 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 availability of foreclosed site built homes at low prices and high interest rate spreads between conventional mortgagesremaining two-thirds purchased a previously owned RV. This vibrant secondary market is a key driver for site-built homes and loans for manufactured homes, industry-wide wholesale shipments of manufactured homes may remain low until these conditions improve. In addition, certain provisions of the recently enacted 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 new legislation has been introduced to address this matter, and the Bureau of Consumer Financial Protection is reviewing this matter, there can be no assurance of the outcome.

Nevertheless,aftermarket, as the Company believes that long-term growth prospects for manufactured housing remain positive becauseanticipates owners of (i) the qualitypreviously owned RVs will likely upgrade their units as well as replace parts 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 whoaccessories which have been unable or unwillingsubjected to sell their primary residence at current market pricesnormal wear and purchase a manufactured home.

tear.


RESULTS OF OPERATIONS


Year Ended December 31, 20132016 Compared to Year Ended December 31, 2012

Consolidated Highlights

■

Net sales for the year ended December 31, 2013 increased by $114 million, to a record $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, the Company continued to grow outside its core RV and manufactured housing markets, with aggregate net sales of components for adjacent industries increasing 20 percent to $121 million, and aftermarket net sales increasing 21 percent to $39 million. Together, these markets now account for 16 percent of consolidated net sales, an increase from 9 percent of consolidated net sales in 2010.

■

Despite the negative impact of the severe winter weather conditions during January 2014 on industry-wide production of RVs and manufactured homes, as well as on shipments of the Company’s products, the Company’s net sales for the first two months of 2014 reached approximately $176 million, 5 percent higher than the comparable period of 2013. However, there can be no assurance that this trend will continue. The Company is optimistic that the industry-wide production delays from January 2014 will be made up over the coming months.

2015

Consolidated Highlights

■

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 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.


Consolidated net sales for the year ended December 31, 2016 increased to a record $1.7 billion, 20 percent higher than consolidated net sales for the year ended December 31, 2015 of $1.4 billion. Acquisitions completed by the Company in 2016 added $64 million in net sales. The Company’s operating profit margin15 percent increase in 2013 improved to 7.7 percent, compared to 6.5 percent in 2012, primarily due to management’s recently implemented efficiency improvements. The improvements in labor during 2013 were primarily due to completed production efficiency projects,industry-wide wholesale shipments of travel trailer and fifth-wheel RVs, LCI’s primary OEM market, as well as declinesincreased content per RV unit, positively impacted net sales growth in 2016. Further, the costsCompany organically increased sales to adjacent industries and the aftermarket.
Net income for the full-year 2016 increased to $129.7 million, or $5.20 per diluted share, up from net income of implementing facility consolidations and realignments. These labor efficiencies were realized throughout 2013 while introducing new products and adjusting$74.3 million, or $3.02 per diluted share, in 2015.
Consolidated operating profits during 2016 increased 73 percent, to industry and market share growth. The Company is continuing$200.9 million from $116.3 million in 2015. Operating profit margin increased to implement additional efficiency improvements as they are identified.

In anticipation of future growth, the12.0 percent in 2016 from 8.3 percent in 2015.

The Company continues to expandtake actions to improve its cost structure. The Company seeks to continuously manage its labor cost, particularly indirect labor, while supporting the growth of the business. Lean manufacturing teams continue working to reduce cost and improve production capacity, investingimplement 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 personnelcertain of the Company’s manufactured components declined during the second half of 2015 and facilitiescontinued into 2016; however, certain commodities have experienced cost increases in excessthe second half of current needs. In addition,2016 from market low points. Raw material costs continue to fluctuate and are 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 Highwater 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 line with established plans. The Company plans to invest in areas where it believes additional savings can be realized, such asgrow sales and leverage its purchasing automationpower, manufacturing capabilities, engineering expertise and human resources. While some of these initiatives and related fixed costs may have a negative impact on operating margins indesign resources to improve the short term, the Company believes they will benefit the long-term growthcost structure of the Company,acquired operations.
Return on equity for 2016, which is calculated by taking net income over equity, improved to 26.0 percent, from the 18.4 percent return on equity in 2015.
In April, June and improve its industry-leading customer service.

■

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, Chairman and 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. As a result of the executive succession and corporate relocation, the Company expects to save an estimated $2 million annually in general and administrative costs.

■

At December 31, 2013, the Company had $66 million in cash and no debt, and had almost $200 million in unused credit lines.

In January 2014,September 2016, the Company paid a specialquarterly dividend of $2.00$0.30 per share, aggregating $47 million.

On February 24, 2014,$7.3 million, $7.4 million and $7.4 million, respectively. In December 2016, the Company entered intopaid a three-year extensionquarterly dividend of its existing $50 million revolving line of credit facility with JPMorgan Chase and Wells Fargo, which now expires in January 2019, and increased that facility from $50 million to $75$0.50 per share, aggregating $12.4 million. Simultaneously, the Company completed a three-year renewal of its uncommitted $150 million “shelf-loan” facility with Prudential Capital Group, which now expires in February 2017.

The Company remains well-positioned to continue to take advantage of investment opportunities to further improve its results.


OEM Segment

■

On 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 approximately $19 million in 2013, of which $13 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.

RV Segment


Net sales of the RVOEM Segment in 20132016 increased 1419 percent, or $113$248 million, compared to 2012.2015. Net sales of components to OEMs 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% 

(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:

  2013  2012  Change 

Travel trailer and fifth-wheel RVs

  268,000   242,900   10% 

Motorhomes

  38,300   28,200   36% 

 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 20132016 exceeded the increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs during the same period primarily due to market share gains of $6 million.

acquisitions completed in 2016.


The Company’s net sales growth in components for motorhomes during 20132016 exceeded the increase in industry-wide wholesale shipments of motorhomes during the same period primarily due to market share gains.gains and acquisitions completed in 2016. 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:

 2013  2012  Change 

Travel trailer and fifth-wheel RV

 $2,716  $2,690   1% 

Motorhome

 $1,252  $1,227   2% 


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 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. In

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 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 2013,2015 to reduce such costs on an annualized basis.
Investments over the past several years to increase capacity and improve operating efficiencies. Further, the Company refinedhas 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 calculationpast couple of content per unit. This refinement had no impact on total RV Segmentyears, 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 trends. Prior periods have been reclassified$28 million, compared to conform to this presentation.

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 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 20132016 primarily due to market share gains. Thethe 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 believescontinues to believe there are significant opportunities in the RV aftermarket as the components sold to OEMs are subject to normal wear and adjacent industries.

During the third quarter of 2013, the Company hired a new Director of International Business Development, who will spend time in Australia, Europe and China, assessing the dynamics of the local marketplace, building relationships with manufacturers and helping the Company introduce its existing products and develop new products for those markets. Over the past several years, the Company has been gradually growing sales overseas, primarily in Europe and Australia, and export sales represent approximately 1 percent of consolidated net sales in 2013. Through this new position, the Company will explore opportunities to increase sales of its products to international markets.

tear over time.


Operating profit of the RVAftermarket Segment was $68.2$20.0 million in 2013,2016, an improvementincrease of $21.1$5.3 million compared to 2012. This2015, primarily due to the increase in RV Segment operating profit was consistent withnet 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 expected 15primary 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 $62.3 million, or $2.56 per diluted share, in 2014.
Consolidated operating profits during 2015 increased 22 percent, to $116.3 million from $95.5 million in 2014. Operating profit margin increased to 8.3 percent in 2015 from 8.0 percent in 2014.
Raw material costs continued to fluctuate. In particular, aluminum rose nearly 20 percent incremental margin.

The operating profit marginduring the second half of 2014, and dropped during the second half of 2015. Similarly, the cost of steel used in certain of the Company’s manufactured components dropped during the course of 2015.

During 2015, the Company completed three acquisitions:
Signature Seating -- A Ft. Wayne, Indiana-based manufacturer of furniture solutions for fresh water boat manufacturers, primarily pontoon boats, with annual sales of approximately $16 million;
Spectal Industries -- 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, with annual sales of $25 million; and
EA Technologies -- An Elkhart, Indiana-based manufacturer of custom steel and aluminum parts and provider of electro-deposition (‘e-coat’) and powder coating services for RV, Segmentbus, medium-duty truck, automotive, recreational marine, specialty and utility trailer, and military applications, with annual sales of $17 million.
For 2015, the Company achieved an 18.4 percent return on equity, an improvement from the 17.5 percent return on equity 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. However, material costs have increased in the beginning of 2014 and remain volatile.

●

Improved labor efficiencies, primarily due to completed production efficiency projects implemented by management, 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. The Company is continuing to implement additional efficiency improvements as they are identified.

●

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 million higher than in 2012. In response to the substantial increase in sales over the past several quarters, the Company added significant resources, investing in personnel and facilities to expand and improve production capacity and efficiencies, as well as to improve customer service.

2014.
In April 2015, the Company paid a special dividend of $2.00 per share, aggregating $48.2 million.

OEM Segment

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 addition, the Company plans to invest in areas where it believes additional savings can be realized, such as purchasing, automation and human resources. While some of these initiatives and related fixed costs may have a negative impact on operating margins in the short term, the Company believes they will benefit the long-term growth of the Company, and improve its 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 MHOEM Segment in 20132015 increased 115 percent, or $2$173 million, compared to 2012.2014. Net sales of components to OEMs were to the following markets for the years ending December 31:

(In thousands)

 2013  2012  Change 

Manufactured housing OEMs

 $80,245  $80,392   0% 

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. The Company believes there are opportunities in the manufactured housing aftermarket and adjacent industries.

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%) 

(In thousands) 2015 2014 Change
RV OEMs:      
Travel trailers and fifth-wheels $938,787
 $841,497
 12%
Motorhomes 86,513
 70,332
 23%
Adjacent industries 274,760
 215,197
 28%
Total OEM Segment net sales $1,300,060
 $1,127,026
 15%

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.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Consolidated Highlights

■

Net sales for 2012 reached $901 million, a 32 percent increase over net sales of $681 million in 2011, as both of the Company’s segments achieved greater net sales growth than the industries they serve. This sales growth was primarily the result of a 37 percent sales increase by Drew’s RV Segment, which accounted for 87 percent of Drew’s consolidated net sales in 2012. RV Segment sales growth was primarily due to a 14 percent increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs, Drew’s primary RV market, as well as acquisitions, new product introductions, market share gains, and increased sales to adjacent industries, such as buses, truck caps, and trailers used to haul boats, livestock, equipment and other cargo. Excluding the impact of acquisitions, consolidated net sales increased 23 percent.

■

In 2012, the Company continued to grow outside its core RV and manufactured housing markets, with aggregate net sales of components for adjacent industries increasing 64 percent, to $100 million, and aftermarket sales increasing 16 percent to $32 million in 2012. Together, these markets accounted for nearly 15 percent of consolidated net sales in 2012, as compared to 9 percent of consolidated net sales in 2010.

■

For 2012, the Company’s net income increased to $37.3 million, or $1.64 per diluted share. Excluding charges related to executive succession, net income would have been $38.3 million in 2012, or $1.68 per diluted share, up from net income of $30.1 million, or $1.34 per diluted share in 2011.

Net income in 2012 was impacted by lower operating efficiencies resulting from training in excess of 1,000 new employees, overtime, outsourcing and other costs required to meet the greater than expected $220 million net sales increase in 2012. In addition, the Company incurred facility consolidation and realignment costs in order to meet the rising demand for its products. Further, the Company continued to incur costs related to its investments in aluminum extrusion, awnings, and the aftermarket, and also incurred costs related to process changes and lean manufacturing initiatives.

Over the latter half of 2012, the Company developed and implemented action plans to increase capacity and improve efficiencies. In certain product lines, the Company began to realize the benefits of these initiatives in 2012.

■

For 2012, the Company achieved a 12.7 percent return on equity, an improvement from the 11.4 percent return on equity in 2011.

■

As a result of the Company’s executive succession and corporate relocation, the Company recorded a pre-tax charge of $1.5 million in the fourth quarter of 2012 related to the contractual obligations for severance and the acceleration of equity awards for certain employees whose employment terminated as a result of the relocation to Indiana.

■

On December 20, 2012, a special dividend of $2.00 per share of the Company’s Common Stock, or an aggregate of $45.0 million, was paid to stockholders of record as of December 10, 2012. At December 31, 2012, after payment of the special dividend, the Company had $9.9 million of cash, no debt, and substantial available borrowing capacity.


RV Segment

Net sales of the RV Segment in 2012 increased 37 percent, or $210 million, compared to 2011. Net sales of components were to the following markets:

(In thousands)

 2012  2011  Change 

RV OEMs:

            

Travel trailers and fifth-wheels

 $653,478  $497,544   31% 

Motorhomes

  34,612   17,492   98% 

RV aftermarket

  19,119   14,660   30% 

Adjacent industries

  73,716   40,947   80% 

Total RV Segment net sales

 $780,925  $570,643   37% 

According to the RVIA, industry-wide wholesale shipments for the years ended December 31, were:

  2012  2011  Change 

Travel trailer and fifth-wheel RVs

  242,900   212,900   14% 

Motorhomes

  28,200   24,800   14% 

  2015 2014 Change
Travel trailer and fifth-wheel RVs 314,400
 298,900
 5%
Motorhomes 47,300
 43,900
 8%

The Company’s net sales growth in components for travel trailer and fifth-wheel RVs during 20122015 exceeded the increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs during the same period primarily due to themarket shares gains and acquisitions completed in 2011 and 2012, which added $40 million in net sales during 2012, and market share gains of $35 million. The Company also implemented sales price increases of $8 million.

2015.


The Company’s net sales growth in components for motorhomes during 20122015 exceeded the increase in industry-wide wholesale shipments of motorhomes during the same period primarily due to market share gains of $10 million, as well as acquisitionsand an acquisition completed in 2011 which added $4 million in net sales during 2012.

The Company’s net sales to2014. Over the RV aftermarket increased during 2012 due to market share gains, resulting frompast few years, the dedicated sales team established in 2011 to focus on this market.

Net sales to adjacent industries, includingCompany has been expanding its product line of components for buses, trailers usedmotorhomes in order to haul boats, livestock, equipmentincrease its customer base and other cargo,market penetration, and truck caps, increased during 2012 due to market share gains of $20 million and acquisitions in 2011 which added $13 million in net sales during 2012.

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:

 2012  2011  Change 

Travel trailer and fifth-wheel RV

 $2,690  $2,337   15% 

Motorhome

 $1,227  $705   74% 

Content per: 2015 2014 Change
Travel trailer and fifth-wheel RV $2,987
 $2,816
 6%
Motorhome $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. In the first quarter of 2012 and the second quarter of 2013, the Company refined the calculation of content per unit to better identify aftermarket sales, as well as

The Company’s net OEM sales to adjacent industries. There was no changeAdjacent Industries increased during 2015 primarily due to market share gains and acquisitions completed in total reported net sales for the RV Segment, and all prior periods have also been refined for consistency.

2015.


Operating profit of the RVOEM Segment was $47.2$105.2 million in 2012,2015, an improvement of $9.5$16.5 million compared to 2011. This increase in RV Segment2014. The operating profit was less than the Company’s expected 15 to 20 percent incremental margin.

The operating margin of the RVOEM Segment in 20122015 was negatively impacted by:

●

Lower operating efficiencies resulting from training in excess of 1,000 new employees, overtime, outsourcing and other costs required to meet the greater than expected $210 million net sales increase in 2012. In addition, the Company incurred facility consolidation and realignment costs in order to meet the rising demand for its products. Further, the Company continued to incur costs related to its investments in aluminum extrusion, awnings, and the aftermarket, and also incurred costs related to process changes and lean manufacturing initiatives. As a result of these factors, the RV Segment operating margin was negatively impacted by more than 3 percent.

Over the latter half of 2012, the Company developed and implemented action plans to increase capacity and improve efficiencies and customer service. In particular, among other initiatives, the Company has:

●

Expanded its RV chassis and window production capacity,

●

Consolidated its furniture operation,

●

Purchased additional glass tempering equipment,

●

Begun implementing lean manufacturing principles, and

●Hired a new Vice President of Customer Service and increased customer service capabilities.

In certain product lines, the Company began to realize the benefits of these initiatives in 2012.

●

An increase in fixed costs of approximately $8 million, primarily due to additional staff and facilities to expand capacity and meet the increase in sales demand, as well as higher amortization, largely related to acquisitions and other investments.

●

Higher warranty and health insurance costs, primarily due to higher claims experience, as well as higher repairs and supplies expense.


Fixed costs which were approximately $15 to $20 million higher than in 2014. 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 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 related 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 products, 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 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:

●

Lower material costs. After rising at the beginning of 2012, steel and aluminum costs have declined over the past few quarters, which benefitted operating results in the latter half of 2012.

●

The spreading of fixed manufacturing and selling, general and administrative costs over a $210 million larger net sales base.

MH

Investments over the past several years to increase capacity and improve operating efficiencies, which benefit operating results. The Company added capacity ahead of projected demand, which enabled it to efficiently fulfill customer orders as demand increased. Further, the Company implemented additional efficiency improvements, including lean, automation and employee retention initiatives to improve operating efficiencies going forward.
Lower material costs for certain raw material inputs. After increasing in the latter part of 2014, steel and aluminum costs declined over the course of 2015.
Better fixed costs absorption by spreading fixed costs over a $173 million larger sales base.

Aftermarket Segment


Net sales of the MHAftermarket Segment in 20122015 increased 962 percent, or $10$39 million, compared to 2011.the same period of 2014. Net sales of components were to the following markets:

(In thousands)

 2012  2011  Change 

Manufactured housing OEMs

 $80,392  $77,087   4% 

Manufactured housing aftermarket

  13,110   13,073   0% 

Adjacent industries

  26,696   20,363   31%   

Total MH Segment net sales

 $120,198  $110,523   9% 

According to the IBTS, industry-wide wholesale shipmentsas follows for the years ended December 31, were:

  2012  2011  Change 

Total homes produced

  54,900   51,600   6% 

Total floors produced

  84,800   78,500   8% 

Despite acquisitions completed in 2011 adding approximately $2 million in31:

(In thousands) 2015 2014 Change
Total Aftermarket Segment net sales $103,006
 $63,756
 62%

The Company’s net sales to manufactured housing OEMs in 2012,the Aftermarket increased during 2015 primarily due to the Company’s net sales growth in components for new manufactured homes was less than the increase in industry-wide wholesale shipments. This was primarily because of customer mix, as the Company’s content per unit varies between customers,focus on building out well qualified, customer-focused teams and 2011 industry-wide wholesale shipments included approximately 2,000 homes purchased by FEMA which did not recur in 2012. FEMA homes typically contain more of the Company’s products.

Net salesinfrastructure to adjacent industries increased due to market share gains of $5 million and sales from acquisitions completed in 2011 which added $2 million in net sales during 2012.

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:

 2012  2011  Change 

Home produced

 $1,465  $1,493   (2%) 

Floor produced

 $948  $982   (3%) 

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. In the first quarter of 2012, the Company refined the calculation of content per unit to better identify aftermarket sales, as well as sales to adjacent industries. There was no change in total reported net sales for the MH Segment, and all prior periods have also been refined for consistency.

service this market.

Operating profit of the MHAftermarket Segment was $12.4$15 million in 2012,2015, an increase of $1.6$6 million compared to 2011,2014, primarily due to the $10 million increase in net sales. This increase in MH Segment operating profit was 16 percent of the increase in net sales consistent withand the Company’s expected 15 to 20 percent incremental margin for established products.

Executive Successionhigher margins traditionally experienced in aftermarket channels. As indicated, this business is still in an early growth stage and Severance

On May 10, 2013, Fredric M. Zinn retired as President and Chief Executive Officer of Drew. Jason D. Lippert, Chairman and 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 Yorkadded staff to Elkhart County, Indiana,support anticipated growth.


Sale of Extrusion Assets

In April 2014, the locationCompany 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 corporate headquarters of Lippert Components.

aluminum extrusion-related assets. In connection with the Company’s executive succession and corporate relocation,sale, the Company received $0.3 million at closing and a $7.2 million note receivable collectible over the next four years, recorded pre-tax chargesat its present value of $1.5$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, 2016, the present value of the remaining amount due under the note receivable 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 fourth quarter of 2012 and $1.8 million in2015 third quarter. At December 31, 2016, the first six months of 2013, related to contractual obligations for severance and the acceleration of equity awards held by certain employees whose employment terminated as a resultpresent value of the executive succession and relocation to Indiana. No charges were recorded inremaining amount due under the last six months of 2013, and no other related charges are expected. 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. As a result,note receivable was $1.7 million.

Severance

In 2015, the Company expectsinitiated a focused program to save an estimated $2 million annually in generalreduce indirect labor costs. In connection with this cost reduction program and administrative costs.

certain changes at the executive level, the Company incurred severance charges of $3.7 million.


Provision for Income Taxes


The effective income tax rate for 20132016 was 35.734.9 percent slightly higher than the 35.4compared to 35.0 percent in 2012.2015. Both 20132016 and 20122015 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 2012.2016. The Company estimates the 20142017 effective income tax rate to be approximately 3734 percent to 36 percent.


The effective income tax rate for 20122015 was 35.435.0 percent lower than the 37.7compared to 34.5 percent in 2011 due to the reversal of federal and state tax reserves, due to the closure of federal and state tax years, as well as higher federal and state income tax credits.

2014.


LIQUIDITY AND CAPITAL RESOURCES


The Consolidated Statements of Cash Flows reflect the following for the years ended December 31:

(In thousands)

 2013  2012  2011 

Net cash flows provided by operating activities

 $82,677  $72,689  $36,831 

Net cash flows used for investing activities

  (36,055)  (28,198)  (69,124)

Net cash flows provided by (used for) financing activities

  9,719   (41,136)  (3)

Net increase (decrease) in cash

 $56,341  $3,355  $(32,296)

(In thousands) 2016 2015 2014
Net cash flows provided by operating activities $203,407
 $95,018
 $107,020
Net cash flows used for investing activities (91,707) (66,116) (144,074)
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 20132016 were $10.0$108.4 million higher than in 2012,2015, primarily due to:

●

A $12.8 million increase in net income in 2013 compared to 2012.

●

A $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, as well as an increase in short-term deposits at December 31, 2012 related primarily to 2013 capital expenditures.

●

A $4.5 million increase in stock-based compensation in 2013 compared to 2012.

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 $11.3 million smaller increase in accounts payable and accrued expenses and other liabilities in 2013 compared to 2012, primarily due to the timing 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.

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 percent to 1215 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. Inventory turnover for 2013 was 7.9 turns, compared to 7.8 turns in 2012.

During the first few months of 2014, the Company expects to use $20 million to $30 million of cash to fund seasonal working capital growth, which is typical. The 2014 working capital needs are expected to be funded from available cash plus periodic borrowings under the Company’s amended line of credit.


Depreciation and amortization was $27.5$46.2 million in 2013,2016, and is expected to aggregate $27be approximately $50 million to $29$55 million in 2014.for fiscal year 2017. Non-cash stock-based compensation in 20132016 was $10.8$15.7 million, including $0.1$0.3 million of deferred stock units issued to certain executive officers in lieu of cash for a portion of their 20122015 incentive compensation in accordance with their compensation arrangements. Non-cash stock-based compensation is expected to be approximately $11$17 million to $13$19 million in 2014.

2017.

Net cash flows from operating activities in 20122015 were $35.9$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 2011,2013, primarily due to:

●

A $15.6 million increase in accrued expenses and other liabilities primarily due to the increase in sales, production and earnings.

●

A $10.0 million smaller increase in inventories in 2012 as compared to 2011. The smaller increase in inventories in 2012 was primarily due to the concerted effort of management to improve inventory turns on a sustainable basis. In 2011, the Company experienced a more typical increase in inventory, as well as an increase in raw material costs. Inventory turnover for 2012 improved to 7.8 turns from 6.3 turns for 2011.

●

A $7.3 million increase in net income in 2012 as compared to 2011.

●

A $0.8 million decrease in accounts receivable in 2012, compared to a $5.0 million increase in 2011, despite 15 percent higher net sales in the month of December 2012 as compared to December 2011. This was primarily due to a decline in days sales outstanding to 14 at December 31, 2012, compared to 17 at December 31, 2011.

●

A $5.1 million increase in depreciation and amortization primarily due to the acquisitions completed in the latter half of 2011 and capital expenditures.

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 $8.9 million larger increase in prepaid expenses and other assets, primarily due to a federal tax receivable at December 31, 2012 as compared to a federal tax payable at December 31, 2011, as well as an increase in short-term deposits at December 31, 2012 related primarily to 2013 capital expenditures.


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 2013 included2016 were primarily comprised of $48.7 million for the acquisition of businesses and $44.7 million for capital expenditures of $32.6 million. expenditures.


In 2013, in order to better serve its customers and meet the increased demand for its products,January 2016, the Company continued to investacquired 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 capacity expansion, automationElkhart, Indiana. The purchase price was $10.0 million paid at closing.
In February 2016, the Company acquired the business and production improvement, as well as cost reduction initiatives.certain assets of Flair Interiors, Inc. (“Flair”), a manufacturer of RV furniture located in Goshen, Indiana. The Company’s growth capital expenditures for 2013 includedpurchase 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 new glass tempering line, metal fabrication equipmentmanufacturer of innovative, space-saving bed lifts and new ERP software,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 addition to routine replacement capital expenditures.

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 capital expenditures, the replacement portion has averaged approximately 1.5 percent to 2.02 percent of net sales, while the growth portion has averaged approximately 10 percent8 to 1211 percent of the annual increase in net sales. However, there are many factors that can impact this relationship, suchthe 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 Company’s line of credit and $50 million of Senior Promissory Notes issued under the “shelf-loan” facility with Prudential. Capital expenditures in 2017 are expected to be funded primarily from cash generated from operations, as new initiatives bywell as periodic borrowings under the Company’s line of credit.
Cash flows used for investing activities of $66.1 million in 2015 were primarily comprised of $29.0 million for capital expenditures and $41.1 million for the acquisition of businesses.

In January 2015, the Company especiallyacquired 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 $9.2 million, of which $6.6 million was paid in the short term.

fourth quarter of 2014, with the balance paid at closing.


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.
In August 2015, the Company estimates that capital expenditures will be $32acquired 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 to $36paid at closing, plus contingent consideration based on future sales of this operation.
Cash flows used for investing activities of $144.1 million in 2014 including $15were primarily comprised of $42.5 million to $20 million of “replacement’for capital expenditures and $12$106.8 million to $16 millionfor the acquisition of “growth’ capital expenditures. Additional capital expenditures may be required in 2014 depending on the extent of the sales growth and other initiatives by the Company.

Onbusinesses.

In February 27, 2014, the Company acquired Innovative Design Solutions, Inc. (“IDS”),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 approximately $19 million in 2013, of which $13 million were to the Company. The purchase price was $36.0$35.9 million, of which $34.2 million was paid at closing, from available cash and borrowings under the Company’s $75 million line of credit, with the balance to be paid out annually over the subsequent three years, plus contingent consideration based on future sales. The acquisitionsales of IDS provides the Company with further access to unique and innovative electronic products for the RV industry, as well as adjacent industries.

On December 13, 2013,this operation.

In March 2014, the Company acquired the business and certain assets of Fortress Technologies,Star Design, LLC, (“Fortress”). Fortress is a manufacturer of specializedwhich manufactures thermoformed sheet plastic products for the RV, chassis. The acquired business had annualized sales of approximately $3 million.bus and specialty vehicle industries. The purchase price was $3.3$12.2 million paid at closing.

On

In June 24, 2013,2014, the Company acquired the RV business of Actuant Corporation, which manufactures leveling systems, slide-out mechanisms and steps, primarily for motorhome RVs, under the Power Gear and Kwikee brands. The purchase price was $35.5 million, paid at closing.


In August 2014, the Company acquired the business and certain assets of Midstates Tool & DieDuncan Systems, Inc., an aftermarket distributor of replacement motorhome windshields, awnings, and Engineering, Inc. (“Midstates”). Midstates is a manufacturer of toolsRV, heavy truck and dies, as well as automation equipment. The acquired business had annualized sales of approximately $2 million.specialty vehicle glass and windows, primarily to fulfill insurance claims. The purchase price was $1.5$18.0 million paid at closing.

closing, plus contingent consideration based on future sales of this operation.


Cash Flows from Financing Activities

Cash flows used for financing activities in 2016 primarily included the payment of dividends of $34.4 million paid to stockholders. The 2013 capital expenditures and acquisitions were funded from available cash plus periodicCompany 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 Company made $4.9 million in payments for contingent consideration related to acquisitions.
Cash flows used for financing activities in 2015 included the payment of a special dividend of $2.00 per share of the Company’s previous $50Common 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 2014 capital expenditures and acquisitions are expected to be funded from available cash plus periodicCompany had no outstanding borrowings under the Company’s amended $75 million line of credit.

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 investing activities in 2012 included capital expenditures of $32.0 million. In 2012, 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 2012 included the purchase of a larger facility to consolidate all of its furniture operations, the completion of the aluminum extrusion operation, and metal fabrication equipment, in addition to routine replacement capital expenditures.

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 approximately $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 following three years.

During 2012, the Company received $5.4 million from sales of fixed assets, primarily from the sale of two vacant owned facilities.

Cash Flows from Financing Activities

Cash flows provided by financing activities in 20132014 included the payment 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 compensation.

 Partially offset by:

●

$5.5 million in payments for contingent consideration related to acquisitions. 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 $7.4 million liability for the aggregate fair value of these expected contingent consideration liabilities at December 31, 2013. The Company expects to pay $3.7 million in 2014 related to these contingent consideration liabilities. For further information see Note 11 of the Notes to Consolidated Financial Statements.

At December 31, 2013 the Company had no outstanding debt and $66.3 million of cash. However, due to the seasonal increase in working capital in 2013 the Company borrowed periodically under its line of credit, with such borrowings reaching a high of $21.2 million. Due to the seasonal nature of the business, the Company expects to borrow periodically during 2014.

On January 6, 2014, a special dividend of $2.00 per share of the Company’s Common Stock, representing an aggregate of $46.7 million, was paid to stockholders of record as of December 20, 2013.

Cash flows provided2013, partially offset by financing activitiesa net increase in 2012indebtedness of $41.1$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 were primarily comprisedin 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 certain business acquisitions, if established sales targets for the following:

●

A special dividend of $2.00 per share of the Company’s Common Stock, representing an aggregate of $45.0 million.

●

$4.3 million in payments for contingent consideration related to acquisitions.

Partially offset by:

●

$8.2 million in cash and the related tax benefits from the exercise of stock-based compensation.


acquired products are achieved, the Company is contractually obligated to pay additional cash consideration. The Company has recorded a $50.0$9.2 million liability for the aggregate fair value of these expected contingent consideration liabilities at December 31, 2016, including $5.8 million recorded as a current liability. For further information, see Note 11 of the Notes to the 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”). The maximum borrowings underterms of the Company’sCredit Agreement, the Company increased its line of credit can be increased by $20.0$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 to 1.0 percent (minus 1.0 percent at December 31, 2015), but not less than 2.51.5 percent, plus additional interest up to 0.8 percent (0 percent at December 31, 2013 and 2012), or (ii) LIBOR, plus additional interest ranging from 1.75 to 2.0 percent to 2.8 percent (2.0(plus 1.75 percent at December 31, 2013 and 2012)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,agreement amends and restates the existing line of credit, which was scheduled to expire on January 1, 2016, was amended and extended on February 24, 2014,2019, and now expires on January 1, 2019.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 $75.0 million.$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, 20132016 and 2012,2015, the Company had $2.2$2.5 million and $3.0$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 $47.8$197.5 million at December 31, 2013.

The2016.

On February 24, 2014, the Company also hasentered 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. 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. AtDecemberAvailability under the Company’s “shelf-loan” facility, subject to the approval of Prudential, was $100.0 million at December 31, 20132016.
Pursuant to the Amended Credit Agreement and 2012, there were no Senior Promissory Notes outstanding. This“shelf-loan” facility, whichthe Company is required to maintain minimum interest and fixed charge coverages, and to meet certain other financial requirements. At December 31, 2016 and 2015, the Company was scheduledin compliance with all such requirements, and expects to expire on February 24, 2014, was amended and extended on February 24, 2014, and now expires on February 24, 2017.

Bothremain in compliance for the line of credit pursuant tonext twelve months.

Availability under both the Amended 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, 2013.2016. The remaining availability under these facilities was $197.8$297.5 million at December 31, 2013.2016. 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 amended line of credit and “shelf-loan” facility, together with the $66.3 million in cash at December 31, 2013,Amended Credit Agreement is more than adequate to finance the Company’s anticipated cash requirements for 2014.

Pursuant to the next twelve months.

Additional information on the Company’s Credit Agreement and “shelf-loan” facility atDecember 31, 2013 and 2012 the Company was required to maintain minimum interest and fixed charge coverages, and to meet certain other financial requirements. AtDecember 31, 2013 and 2012, the Company wasis included in compliance with all such requirements, and expects to remain in compliance during 2014.

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 eachNote 9 of the Company’s direct and indirect subsidiaries.

In 2007,Notes to the Board of Directors authorized the Company to repurchase up to 1 million shares of the Company’s Common Stock from time to time in the open market, in privately negotiated transactions, or in block trades. Of this authorization, 535,135 shares were repurchased prior to 2013 at an average price of $18.64 per share, or $10.0 million. The number of shares ultimately repurchased, and the timing of the purchases, will depend upon market conditions, share price and other factors.

Consolidated Financial Statements.

Future minimum commitments relating to the Company'sCompany’s contractual obligations at December 31, 20132016 were as follows:

  

Payments due by period

 
      

Less than

          

More than

     

(In thousands)

 

Total

  

1 year

  

1-3 years

  

3-5 years

  

5 years

  

Other

 

Operating leases (a)

 $15,253  $3,496  $4,619  $3,533  $3,605  $- 

Employment contracts (b)

  8,267   5,578   2,099   590   -   - 

Deferred compensation (c)

  9,673   194   2,702   3,058   1,482   2,237 

Royalty agreements andcontingent considerationpayments (d)

  9,793   4,025   3,916   1,852   -   - 

Purchase obligations (e)

  134,039   131,239   2,474   127   199   - 

Taxes (f)

  1,553   1,553   -   -   -   - 

Total

 $178,578  $146,085  $15,810  $9,160  $5,286  $2,237 

 Payments due by period
   Less than     More than  
(In thousands)Total 1 year 1-3 years 3-5 years 5 years Other
Total indebtedness$50,000
 $—
 $—
 $50,000
 $—
 $—
Interest on fixed rate
indebtedness (a)
5,388
 1,675
 3,350
 363
 —
 —
Operating leases40,503
 9,388
 14,046
 9,052
 8,017
 —
Employment contracts (b)
7,441
 7,070
 221
 150
 —
 —
Deferred compensation (c)
13,574
 160
 609
 3,486
 5,380
 3,939
Royalty agreements and contingent consideration payments (d)
11,639
 6,252
 2,275
 1,560
 1,552
 —
Purchase obligations (e)
539,891
 300,741
 238,280
 870
 —
 —
Taxes (f)
3,100
 3,100
 —
 —
 —
 —
Total$671,536
 $328,386
 $258,781
 $65,481
 $14,949
 $3,939

(a)

In January 2014,The Company has used the Company entered into a nine year lease with aggregate minimum leasecontractual payment dates and the fixed interest rates in effect as of December 31, 2016, to determine the estimated future interest payments of $6.1 million, to consolidate manufacturing operations for efficiency improvements and expand capacity for its furniture and mattress operations. Such amounts are not included in the above amounts.

fixed 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. Excluded from these amounts, because the future payments are not ascertainable, is a license agreement that provides for the Company to pay a royalty of 1 percent of sales of certain slide-out systems, the remaining aggregate amount of which cannot exceed $3.3 million. The Company will pay $0.3 million in 2014 under this license agreement for sales of these slide-out systems in 2013, which is included in these amounts.

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.

(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 policyWhistleblower Policy and procedure for complaints can be found on the Company’s website (www.drewindustries.comwww.lci1.com).




CONTINGENCIES


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


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 uponvariousupon 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 berequired.

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'sCompany’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


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 2 and 13 of the Notes to Consolidated Financial Statements.

Impairment of Long-Lived Assets, including Other Intangible Assets

and Goodwill


The Company periodically evaluates whether events 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 circumstances have occurredimpairment tests are required only when conditions exist that indicate long-lived assetsthe carrying value may not be recoverable or the remaining useful life may warrant revision.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. The long-term nature of these

For other assets, requires the estimation of their cash inflows and outflows several years into the future. Actual results and events could differ significantly from management estimates.

Impairment of Goodwill

Goodwill is evaluated for impairment tests are required at the reporting unit level on an annual basis and between annual tests wheneverleast annually, or more frequently, if events or circumstances indicate the carrying value of a reporting unitthat an asset may exceed its fair value.be impaired. The Company conducts its required annual impairment test as of November 30th each fiscal year. The impairment testfor other assets consists of an assessment of qualitative factors, including general economic and industry conditions, market share and input costs.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. This model requires


The Company’s assessment of the userecoverability and impairment tests of long-term forecastsnoncurrent 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’s best assumptions, which is believed to be consistent with what a hypothetical marketplace participant would use. Estimates and assumptions regarding industry-specific economicused in these tests are evaluated and updated as appropriate. The variability of these factors depends on a number of conditions, outsideincluding 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 controlCompany does not believe it is practicable or meaningful to present the impact of the Company. Actual results and eventschanging a single factor. Furthermore, if management uses different assumptions or if different conditions occur in future periods, future impairment charges could differ significantly from management estimates.

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 15 of the Notes to the Consolidated Financial Statements.



INFLATION


The prices of key raw materials, consisting primarily of steel and aluminum, and components used by the Company which are made from these raw materials, are influenced by demand and other factors specific to these commodities, rather than being directly affected by inflationary pressures. Prices of these commodities have historically been volatile, and over the past few months prices have continued to fluctuate. The Company did not experience any significant increases in its labor costs in 20132016 related to inflation.


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

The


At December 31, 2016, the Company has historically been exposedhad $49.9 million of fixed rate debt outstanding. Assuming there is an decrease of 100 basis points in the interest rate for borrowings of a similar nature subsequent to changesDecember 31, 2016, which the Company becomes unable to capitalize on in interest rates primarilythe short-term as a result of the structure of its fixed rate financing, activities. At December 31, 2013,future cash flows would be approximately $0.3 million lower per annum than if the Company had no outstanding borrowings.

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, 2013,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.



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 consolidatedbalanceconsolidated balance sheets of DrewLCI Industries Incorporated and subsidiaries (the “Company”) as of December 31, 20132016 and 2012,2015, 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, 2013.2016. We also have audited the Company’s internal control over financial reporting as of December 31, 2013,2016, 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 theconsolidatedthe 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, 20132016 and 2012,2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013,2016, 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, 2013,2016, 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

February 28, 2014

2017


Drew Industries Incorporated

Consolidated Statements of Income

  

Year Ended December 31,

 
  2013  2012  2011 

(In thousands, except per share amounts)

            
             

Net sales

 $1,015,576  $901,123  $681,166 

Cost of sales

  802,467   732,464   541,445 

Gross profit

  213,109   168,659   139,721 

Selling, general and administrative expenses

  132,935   109,071   91,173 

Executive succession

  1,876   1,456   - 

Operating profit

  78,298   58,132   48,548 

Interest expense, net

  351   330   292 

Income before income taxes

  77,947   57,802   48,256 

Provision for income taxes

  27,828   20,462   18,197 

Net income

 $50,119  $37,340  $30,059 
             

Net income per common share:

            

Basic

 $2.15  $1.66  $1.35 

Diluted

 $2.11  $1.64  $1.34 
             

Weighted average common shares outstanding:

            

Basic

  23,321   22,558   22,267 

Diluted

  23,753   22,828   22,444 



LCI INDUSTRIES
CONSOLIDATED STATEMENTS OF INCOME


 Year ended December 31,
 2016 2015 2014
(In thousands, except per share amounts)     
      
Net sales$1,678,898
 $1,403,066
 $1,190,782
Cost of sales1,249,995
 1,097,064
 935,859
Gross profit428,903
 306,002
 254,923
Selling, general and administrative expenses228,053
 186,032
 157,482
Severance—
 3,716
 —
Sale of extrusion assets—
 —
 1,954
Operating profit200,850
 116,254
 95,487
Interest expense, net1,678
 1,885
 430
Income before income taxes199,172
 114,369
 95,057
Provision for income taxes69,501
 40,024
 32,791
Net income$129,671
 $74,345
 $62,266
      
Net income per common share:     
Basic$5.26
 $3.06
 $2.60
Diluted$5.20
 $3.02
 $2.56
      
Weighted average common shares outstanding:     
Basic24,631
 24,295
 23,911
Diluted24,933
 24,650
 24,334


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



LCI INDUSTRIES

Drew Industries Incorporated

Consolidated Balance Sheets

  December 31, 
  2013  2012 

(In thousands, except per share amount)

        
         

ASSETS

        

Current assets

        

Cash and cash equivalents

 $66,280  $9,939 

Accounts receivable, net

  31,015   21,846 

Inventories, net

  101,211   97,367 

Deferred taxes

  12,557   10,073 

Prepaid expenses and other current assets

  14,467   14,798 

Total current assets

  225,530   154,023 

Fixed assets, net

  125,982   107,936 

Goodwill

  21,545   21,177 

Other intangible assets, net

  59,392   69,218 

Deferred taxes

  12,236   14,993 

Other assets

  8,499   6,521 

Total assets

 $453,184  $373,868 
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Current liabilities

        

Accounts payable, trade

 $24,063  $21,725 

Dividend payable

  46,706   - 

Accrued expenses and other current liabilities

  47,422   48,055 

Total current liabilities

  118,191   69,780 

Other long-term liabilities

  21,380   19,843 

Total liabilities

  139,571   89,623 
         

Stockholders’ equity

        

Common stock, par value $.01 per share: authorized30,000 shares; issued 26,058 shares at December 31, 2013and 25,376 shares at December 31, 2012

  261   254 

Paid-in capital

  126,360   100,412 

Retained earnings

  216,459   213,046 

Stockholders’ equity before treasury stock

  343,080   313,712 

Treasury stock, at cost, 2,684 shares at December 31, 2013 andDecember 31, 2012

  (29,467)  (29,467)

Total stockholders’ equity

  313,613   284,245 

Total liabilities and stockholders’ equity

 $453,184  $373,868 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 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.



Drew Industries Incorporated

Consolidated Statements of Cash Flows

  

Year Ended December 31,

 
  2013  2012  2011 

(In thousands)

            
             

Cash flows from operating activities:

            

Net income

 $50,119  $37,340  $30,059 

Adjustments to reconcile net income to cash flows providedby operating activities:

            

Depreciation and amortization

  27,500   25,665   20,522 

Stock-based compensation expense

  10,839   6,318   4,587 

Deferred taxes

  269   (668)  821 

Other non-cash items

  1,867   654   1,570 

Changes in assets and liabilities, net of acquisitionsof businesses:

            

Accounts receivable, net

  (9,013)  774   (5,007)

Inventories, net

  (3,403)  (4,727)  (14,738)

Prepaid expenses and other assets

  (2,288)  (10,738)  (1,848)

Accounts payable, trade

  2,296   5,983   4,391 

Accrued expenses and other liabilities

  4,491   12,088   (3,526)

Net cash flows provided by operating activities

  82,677   72,689   36,831 
             

Cash flows from investing activities:

            

Capital expenditures

  (32,595)  (32,026)  (24,317)

Acquisitions of businesses

  (4,750)  (1,473)  (50,302)

Proceeds from sales of fixed assets

  1,444   5,420   1,338 

Proceeds from maturity of short-term investments

  -   -   5,000 

Other investing activities

  (154)  (119)  (843)

Net cash flows used for investing activities

  (36,055)  (28,198)  (69,124)
             

Cash flows from financing activities:

            

Exercise of stock options and deferred stock units

  15,175   8,217   1,188 

Proceeds from line of credit borrowings

  135,452   52,227   130,500 

Repayments under line of credit borrowings

  (135,452)  (52,227)  (130,500)

Payment of special dividend

  -   (45,038)  - 

Payment of contingent consideration related to acquisitions

  (5,456)  (4,315)  (398)

Purchase of treasury stock

  -   -   (626)

Other financing activities

  -   -   (167)

Net cash flows provided by (used for)financing activities

  9,719   (41,136)  (3)
             

Net increase (decrease) in cash

  56,341   3,355   (32,296)
             

Cash and cash equivalents at beginning of year

  9,939   6,584   38,880 

Cash and cash equivalents at end of year

 $66,280  $9,939  $6,584 
             

Supplemental disclosure of cash flow information:

            

Cash paid during the year for:

            

Interest

 $364  $369  $284 

Income taxes, net of refunds

 $26,799  $24,145  $18,909 


LCI INDUSTRIES
CONSOLIDATED BALANCE SHEETS


 December 31,
 2016 2015
(In thousands, except per share amount)   
    
ASSETS   
Current assets   
Cash and cash equivalents$86,170
 $12,305
Accounts receivable, net57,374
 41,509
Inventories, net188,743
 170,834
Prepaid expenses and other current assets35,107
 21,178
Total current assets367,394
 245,826
Fixed assets, net172,748
 150,600
Goodwill89,198
 83,619
Other intangible assets, net112,943
 100,935
Deferred taxes31,989
 29,391
Other assets12,632
 12,485
Total assets$786,904
 $622,856
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities   
Accounts payable, trade$50,616
 $29,700
Accrued expenses and other current liabilities98,735
 69,162
Total current liabilities149,351
 98,862
Long-term indebtedness49,949
 49,910
Other long-term liabilities37,335
 35,509
Total liabilities236,635
 184,281
    
Stockholders’ equity   
Common stock, par value $.01 per share: authorized   
75,000 shares; issued 27,434 shares at December 31, 2016   
and 27,039 shares at December 31, 2015274
 270
Paid-in capital185,981
 166,566
Retained earnings395,279
 301,206
Accumulated other comprehensive loss(1,798) —
Stockholders’ equity before treasury stock579,736
 468,042
Treasury stock, at cost, 2,684 shares at December 31, 2016   
and December 31, 2015(29,467) (29,467)
Total stockholders’ equity550,269
 438,575
Total liabilities and stockholders’ equity$786,904
 $622,856


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



LCI INDUSTRIES

Drew Industries Incorporated

Consolidated Statements of Stockholders' Equity

  

Common Stock

  Paid-in Capital  Retained Earnings  Treasury Stock  Total Stockholders’ Equity 

(In thousands, except shares and per share amounts)

                    
                     

Balance - December 31, 2010

 $247  $79,986  $192,067  $(28,841) $243,459 

Net income

  -   -   30,059   -   30,059 

Issuance of 151,150 shares of commonstock pursuant to stock options anddeferred stock units

  1   996   -   -   997 

Income tax benefit relating to issuance ofcommon stock pursuant to stock optionsand deferred stock units

  -   216   -   -   216 

Reversal of deferred tax assets due toexpiration of vested stock options

  -   (2,496)  -   -   (2,496)

Stock-based compensation expense

  -   4,587   -   -   4,587 

Issuance of 47,506 deferred stock unitsrelating to prior year compensation

  -   1,100   -   -   1,100 

Purchase of 33,856 share of treasury stock

  -   -   -   (626)  (626)

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 commonstock pursuant to stock options,deferred stock units and restricted stock

  6   7,853   -   -   7,859 

Income tax benefit relating to issuance ofcommon stock pursuant to stock options,deferred stock units and restricted stock

  -   270   -   -   270 

Stock-based compensation expense

  -   6,318   -   -   6,318 

Issuance of 7,548 deferred stock unitsrelating to prior year compensation

  -   200   -   -   200 

Special cash dividend ($2.00 per share)

  -   -   (45,038)  -   (45,038)

Dividend equivalents on deferred stockunits, stock awards and restricted stock

  -   1,382   (1,382)  -   - 

Balance - December 31, 2012

  254   100,412   213,046   (29,467)  284,245 

Net income

  -   -   50,119   -   50,119 

Issuance of 681,426 shares of commonstock pursuant to stock options,deferred stock units and restricted stock

  7   13,440   -   -   13,447 

Income tax benefit relating to issuance ofcommon stock pursuant to stock options,deferred stock units and restricted stock

  -   1,534   -   -   1,534 

Stock-based compensation expense

  -   10,839   -   -   10,839 

Issuance of 3,776 deferred stock unitsrelating to prior year compensation

  -   135   -   -   135 

Special cash dividend ($2.00 per share)

  -   -   (46,706)  -   (46,706)

Balance - December 31, 2013

 $261  $126,360  $216,459  $(29,467) $313,613 

CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,
 2016 2015 2014
(In thousands)     
Cash flows from operating activities:     
Net income$129,671
 $74,345
 $62,266
Adjustments to reconcile net income to cash flows provided by operating activities:     
Depreciation and amortization46,167
 41,624
 32,596
Stock-based compensation expense15,420
 14,043
 10,817
Deferred taxes(2,598) 1,062
 (5,493)
Other non-cash items1,540
 1,335
 2,796
Changes in assets and liabilities, net of acquisitions of businesses:     
Accounts receivable, net(13,899) 2,082
 (606)
Inventories, net(7,856) (31,276) (21,940)
Prepaid expenses and other assets(15,553) (2,249) (4,610)
Accounts payable, trade18,800
 (21,783) 21,269
Accrued expenses and other liabilities31,715
 15,835
 9,925
Net cash flows provided by operating activities203,407
 95,018
 107,020
Cash flows from investing activities:     
Capital expenditures(44,671) (28,989) (42,458)
Acquisitions of businesses, net of cash acquired(48,725) (41,058) (106,782)
Proceeds from note receivable2,000
 2,000
 1,750
Proceeds from sales of fixed assets698
 2,337
 3,587
Other investing activities(1,009) (406) (171)
Net cash flows used for investing activities(91,707) (66,116) (144,074)
Cash flows from financing activities:     
Exercise of stock-based awards, net of shares tendered for
payment of taxes		2,574
 1,470
 5,769
Proceeds from line of credit borrowings81,458
 614,629
 425,330
Repayments under line of credit borrowings(81,458) (630,279) (409,680)
Payment of dividends(34,437) (48,227) (46,706)
Proceeds from shelf-loan borrowing—
 50,000
 —
Payment of contingent consideration related to acquisitions(4,944) (3,974) (3,739)
Other financing activities(1,028) (220) (196)
Net cash flows used for financing activities(37,835) (16,601) (29,222)
      
Net increase (decrease) in cash and cash equivalents73,865
 12,301
 (66,276)
      
Cash and cash equivalents at beginning of year12,305
 4
 66,280
Cash and cash equivalents at end of year$86,170
 $12,305
 $4
      
Supplemental disclosure of cash flow information:     
Cash paid during the year for:     
Interest$1,992
 $2,113
 $641
Income taxes, net of refunds$65,792
 $33,782
 $30,947

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



LCI INDUSTRIES

Notes to

CONSOLIDATED STATEMENT OF 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, 2013$261
$126,360
$216,459
$—
$(29,467)$313,613
Net income—
—
62,266
—
—
62,266
Issuance of 476,047 shares of common stock pursuant to stock-based awards4
2,298
—
—
—
2,302
Income tax benefit relating to issuance of common stock pursuant to stock-based awards—
3,914
—
—
—
3,914
Stock-based compensation expense—
10,817
—
—
—
10,817
Issuance of 43,188 deferred stock units relating to prior year compensation—
1,986
—
—
—
1,986
Dividend equivalents on stock-based awards—
1,811
(1,811)—
—
—
Balance - December 31, 2014265
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

Statements.



LCI INDUSTRIES
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”). Effective December 2013, the Company completed the tax-free reorganization of Kinro, Inc., supplies, domestically and its subsidiaries with and into Lippert Components. Drew, through Lippert Components, manufacturesinternationally, a broad array of components for the leading original equipment manufacturers (“OEMs”) of recreational vehicles (“RVs”) and manufactured homes, and to a lesser extent manufactures components for modular housing, truck caps and buses, as well as foradjacent industries including buses; trailers used to haul boats, livestock, equipment and other cargo.cargo; trucks; pontoon boats; trains; manufactured homes; and modular housing. The Company also supplies components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors and service centers. At December 31, 2013,2016, the Company operated 3148 manufacturing and distribution facilities located throughout the United States and in 11 states.

BecauseCanada and Italy.


Most industries where the Company sells products or where its products are used historically have been seasonal and are generally at the highest levels when the weather is moderate. Accordingly, the Company’s sales and profits have generally been the highest in the second quarter and lowest in the fourth quarter. However, because of fluctuations in dealer inventories, and the impact of international, national and regional economic conditions and consumer confidence on retail sales of RVs and other products for which we sell ourthe 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.


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 2013,2016 and 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 and 2011, 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.


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 onlyservice-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, and 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 $36.4$51.8 million, $32.7$45.8 million and $24.6$40.9 million in the years ended December 31, 2013, 20122016, 2015 and 2011,2014, 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 that are 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.

The RV Segment, which accounted for 88 percent, 87 percent and 84 percent of consolidated net sales for the years ended December 31, 2013, 2012 and 2011, respectively, manufactures a variety of products used primarily in the production of RVs, including:

●

Steel chassis for towable RVs

●

Aluminum windows and screens

●

Axles and suspension solutions for towable RVs

●

Chassis components

●

Slide-out mechanisms and solutions

●

Furniture and mattresses

●

Thermoformed bath, kitchen and other products

●

Entry, baggage, patio and ramp doors

●

Entry steps

●

Awnings

●

Manual, electric and hydraulic stabilizer and leveling systems

●

Other accessories

The Company also supplies certain of these products to the RV aftermarket. In addition, the Company manufactures components for adjacent industries, including buses, trailers used to haul boats, livestock, equipment and other cargo, and truck caps. Approximately 81 percent of the Company’s RV Segment net sales in 2013 were of products to original equipment manufacturers (“OEMs”) of travel trailer and fifth-wheel RVs.


The MH Segment, which accounted for 12 percent, 13 percent and 16 percent of consolidated net sales for the years ended December 31, 2013, 2012 and 2011, respectively, manufactures a variety of products used in the production of manufactured homes and to a lesser extent, modular housing and mobile office units, including:

●

Vinyl and aluminum windows and screens

●

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. 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, defined as income or loss before interest, executive succession 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:

  

Segments

  Corporate     

(In thousands)

 

RV

  

MH

  

Total

  

and Other

  

Total

 

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 


  Segments  Corporate     

(Continued - In thousands)

 

RV

  

MH

  

Total

  

and Other

  

Total

 

2011

                    

Net sales to external customers(a)

 $570,643  $110,523  $681,166  $-  $681,166 

Operating profit(b)

 $37,715  $10,833  $48,548  $-  $48,548 

Total assets(c)

 $268,395  $40,737  $309,132  $41,951  $351,083 

Expenditures for long-lived assets(d)

 $66,931  $3,378  $70,309  $103  $70,412 

Depreciation and amortization

 $17,593  $2,834  $20,427  $95  $20,522 

(a)

Thor Industries, Inc., a customer of the RV Segment, accounted for 31 percent, 34 percent and 36 percent of the Company’s consolidated net sales for the years ended December 31, 2013, 2012 and 2011, respectively. Berkshire Hathaway Inc. (through its subsidiaries Forest River, Inc. and Clayton Homes, Inc.), a customer of both segments, accounted for 28 percent, 27 percent and 27 percent of the Company’s consolidated net sales for the years ended December 31, 2013, 2012 and 2011, respectively. No other customer accounted for more than 10 percent of consolidated net sales in the years ended December 31, 2013, 2012 and 2011.

(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 $4.8 million, $1.5 million and $45.2 million of long-lived assets, as part of the acquisitions of businesses in the years ended December 31, 2013, 2012 and 2011, respectively.

Net sales by product were as follows for the years ended December 31:

(In thousands)

 2013  2012  2011 

RV Segment:

            

Chassis, chassis parts andslide-out mechanisms

 $493,244  $443,850  $316,580 

Windows, doors and screens

  181,934   173,436   126,130 

Furniture and mattresses

  100,196   78,082   67,088 

Axles and suspension solutions

  69,818   57,275   43,669 

Other

  48,502   28,282   17,176 

Total RV Segment net sales

 $893,694  $780,925  $570,643 
             

MH Segment:

            

Windows, doors and screens

 $67,029  $63,655  $58,377 

Chassis and chassis parts

  38,359   41,874   38,754 

Other

  16,494   14,669   13,392 

Total MH Segment net sales

 $121,882  $120,198  $110,523 
             

Total net sales

 $1,015,576  $901,123  $681,166 


The composition of net sales was as follows for the years ended December 31:

(In thousands)

 2013  2012  2011 

Net sales:

            

RV Segment:

            

RV OEMs

            

Travel trailers and fifth-wheels

 $727,783  $653,478  $497,544 

Motorhomes

  47,937   34,612   17,492 

RV aftermarket

  25,334   19,119   14,660 

Adjacent industries

  92,640   73,716   40,947 

Total RV Segment net sales

 $893,694  $780,925  $570,643 
             

MH Segment:

            

Manufactured housing OEMs

 $80,245  $80,392  $77,087 

Manufactured housing aftermarket

  13,719   13,110   13,073 

Adjacent industries

  27,918   26,696   20,363 

Total MH Segment net sales

 $121,882  $120,198  $110,523 
             

Total net sales

 $1,015,576  $901,123  $681,166 

3.2.    ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

Acquisition


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

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 $9.2 million, of which $6.6 million was paid in the fourth quarter of 2014, with the balance paid at closing. 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$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

In June 2014, the Company acquired the RV business of Actuant Corporation, which manufactures leveling systems, slide-out mechanisms and steps, primarily for motorhome RVs, under the Power Gear and Kwikee brands. The purchase price was $35.5 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.

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 eight 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

In March 2014, the Company acquired the business and certain assets of Star Design, LLC (“Star Design”).The purchase price was $12.2 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$12,232
  
Customer relationships$4,400
Net other assets2,718
Total fair value of net assets acquired$7,118
  
Goodwill (tax deductible)$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.

On


In 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 approximately $19 million in 2013, of which $13 million were to the Company. The purchase price was $36.0$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.

Acquisitions in 2013

Fortress Technologies, LLC

On December 13, 2013, the Company acquired the business and certain assets of Fortress Technologies, LLC (“Fortress”). Fortress is a manufacturer of specialized RV chassis. The acquired business had annualized sales of approximately $3 million.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

 $3,299 
     

Working capital, net

 $(111)

Net tangible assets

  3,410 

Total fair value of net assets acquired

 $3,299 

Midstates Tool & Die and Engineering, Inc.

On June 24, 2013, the Company acquired the business and certain assets of Midstates Tool & Die and Engineering, Inc. (“Midstates”). Midstates is a manufacturer of tools and dies, as well as automation equipment. The acquired business had annualized sales of approximately $2 million. 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):

Cash consideration

 $1,451 
     

Working capital, net

 $20 

Non-compete agreement

  40 

Net tangible assets

  1,023 

Total fair value of net assets acquired

 $1,083 
     

Goodwill (tax deductible)

 $368 

The consideration given was greater than the fair value of assets acquired, resulting in goodwill, because the Company anticipates the automation capabilities of the acquired business will help to 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 approximately $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.

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 acquisition of this business was recorded on the acquisition date as follows(in thousands):

Cash consideration

 $1,164 

Present value of future payments

  482 

Total fair value of consideration given

 $1,646 
     

Customer relationships

 $270 

Other identifiable intangible assets

  40 

Net tangible assets

  785 

Total fair value of net assets acquired

 $1,095 
     

Goodwill (tax deductible)

 $551 

The customer relationshipspatents are being amortized over their estimated useful life of 7 years. The consideration given was greater than10 years and 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.

Acquisitions in 2011

The five acquisitions completed in 2011 added approximately $40 million in net sales for 2011 subsequent to their respective acquisition dates. Assuming that each of the acquisitions completed in 2011 had been completed at the beginning of 2011, net sales for 2011 would have been $55 million higher.

M&M Fabricators

On December 1, 2011, the Company acquired the business and certain assets of M&M Fabricators. M&M had annualized sales of approximately $3 million, comprised of chassis modification primarily for producers of transit buses, specialized commercial vehicles, and Class A and Class C motorhome RVs. The purchase price was $1.0 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 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):

Cash consideration

 $961 

Contingent consideration

  450 

Total fair value of consideration given

 $1,411 
     

Customer relationships

 $330 

Net tangible assets

  820 

Total fair value of net assets acquired

 $1,150 
     

Goodwill (tax deductible)

 $261 


The consideration given was greater than the fair value of the assets acquired, resulting in goodwill, because the Company anticipates leveraging its existing experience and purchasing power with respect to these product lines.

Starquest Products, LLC

On August 29, 2011, the Company acquired the business and assets of Starquest Products, LLC and its affiliated company. Starquest had annual sales of approximately $22 million, comprised primarily of windows for truck caps, which are fiberglass enclosures that fit over the bed of pick-up trucks, painted to automotive standards and designed to exact truck bed specifications. Starquest also manufactures windows and doors for horse trailers and certain types of buses. The purchase price was $22.6 million paid at closing, plus contingent consideration based on future sales of certain products. 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):

Cash consideration

 $22,600 

Contingent consideration

  40 

Total fair value of consideration given

 $22,640 
     

Customer relationships

 $12,540 

Other identifiable intangible assets

  1,884 

Net tangible assets

  2,871 

Total fair value of net assets acquired

 $17,295 
     

Goodwill (tax deductible)

 $5,345 

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 assets acquired, resulting in goodwill, because the Company anticipates leveraging its existing experience and purchasing power with respect to these product lines.

EA Technologies, LLC

On August 22, 2011, the Company acquired from EA Technologies, LLC the business and certain assets of the towable RV chassis and slide-out mechanism operation previously owned by Dexter Chassis Group. The acquired business had annual sales of more than $40 million. The purchase price was $13.5 million paid at closing. 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):

Cash consideration

 $13,500 
     

Customer relationships

 $6,960 

Net tangible assets

  2,339 

Total fair value of net assets acquired

 $9,299 
     

Goodwill (tax deductible)

 $4,201 

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 assets acquired, resulting in goodwill, because the Company anticipates leveraging its existing experience and manufacturing capacity with respect to these product lines.

M-Tec Corporation

On July 19, 2011, the Company acquired certain assets and business of M-Tec Corporation. The acquired business had annual sales of approximately $12 million comprised primarily of components for RVs, mobile office units and manufactured homes. The purchase price was $6.0 million paid at closing, plus contingent consideration based on future sales of existing products. The results of the acquired business have been included in either the Company’s RV or MH Segments, as appropriate, 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

 $5,990 

Contingent consideration

  450 

Total fair value of consideration given

 $6,440 
     

Customer relationships

 $2,310 

Other identifiable intangible assets

  315 

Net tangible assets

  1,723 

Total fair value of net assets acquired

 $4,348 
     

Goodwill (tax deductible)

 $2,092 

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 assets acquired, resulting in goodwill, because the Company anticipates leveraging its existing manufacturing expertise and purchasing power with respect to these product lines.


Home-Style Industries

On January 28, 2011, the Company acquired the operating assets and business of Home-Style Industries, Inc., and its affiliated companies. Home-Style had annual sales of approximately $12 million comprised primarily of a full line of upholstered furniture and mattresses primarily for towable RVs, in the Northwest U.S. market. The purchase price was $7.3 million paid at closing, plus contingent consideration based on future sales of existing products in specific geographic regions. 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):

Cash consideration

 $7,250 

Contingent consideration

  150 

Total fair value of consideration given

 $7,400 
     

Customer relationships

 $3,350 

Other identifiable intangible assets

  365 

Net tangible assets

  2,582 

Total fair value of net assets acquired

 $6,297 
     

Goodwill (tax deductible)

 $1,103 

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 leveraging itsan increase in the markets for the acquired products, market share growth in both existing experience and purchasing power with respect to these product lines.

new markets, as well as attainment of synergies.


Goodwill


Goodwill by reportable segment was as follows:

(In thousands)

 

RV Segment

  

MH Segment

  

Total

 
             

Accumulated cost

 $48,773  $9,251  $58,024 

Accumulated impairment

  (41,276)  (9,251)  (50,527)

Net balance – December 31, 2010

  7,497   -   7,497 

Acquisitions – 2011

  12,228   774   13,002 

Net balance – December 31, 2011

  19,725   774   20,499 

Acquisitions – 2012

  678   -   678 

Net balance – December 31, 2012

  20,403   774   21,177 

Acquisitions – 2013

  368   -   368 

Net balance – December 31, 2013

 $20,771  $774  $21,545 
             

Accumulated cost

 $62,047  $10,025  $72,072 

Accumulated impairment

  (41,276)  (9,251)  (50,527)

Net balance – December 31, 2013

 $20,771  $774  $21,545 

(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

The Company performed its annual goodwill impairment procedures for all of its reporting units as of November 30, 2013, 20122016, 2015 and 2011,2014, and concluded no goodwill impairment existed at that time. The Company plans to update its review as of November 30, 2014,2017, 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 completed an assessment of any potential goodwill impairment for all reporting units immediately prior to the reallocation and determined that no impairment existed. The goodwill balance 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, by segment, consisted of the following at December 31:

(In thousands)

 

2013

  

2012

  
          

RV Segment

 $56,954  $66,191  

MH Segment

  2,438   3,027  

Other intangible assets

 $59,392  $69,218  

(In thousands)2016 2015
OEM Segment$97,689
 $84,752
Aftermarket Segment15,254
 16,183
Other intangible assets$112,943
 $100,935
LCI INDUSTRIES
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  6 to 16 

Patents

  41,651   18,461   23,190  3 to 19 

Tradenames

  7,959   5,976   1,983  5 to 15 

Non-compete agreements

  3,866   2,210   1,656  3 to 6   

Purchased research and development

  4,457   -   4,457  

Indefinite

 

Other intangible assets

 $108,038  $48,646  $59,392    

2016:

(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
    

Other intangible assets consisted of the following at December 31, 2012:

(In thousands)

 

Gross Cost

  

Accumulated Amortization

  

Net Balance

  

Estimated Useful Life in Years

 
                

Customer relationships

 $50,105  $17,857  $32,248  3 to 16 

Patents

  41,507   14,850   26,657  2 to 19 

Tradenames

  7,959   4,525   3,434  5 to 15 

Non-compete agreements

  4,989   2,567   2,422  1 to 7   

Purchased research and development

  4,457   -   4,457  Indefinite 

Other intangible assets

 $109,017  $39,799  $69,218    

2015:
(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
    

Amortization expense related to other intangible assets was as follows for the years ended December 31:

(In thousands)

 

2013

  

2012

  

2011

 
             

Cost of sales

 $3,610  $4,492  $3,393 

Selling, general and administrative expenses

  6,398   6,760   4,958 

Amortization expense

 $10,008  $11,252  $8,351 

(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

Estimated amortization expense for other intangible assets for the 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


LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands)

 

2014

  

2015

  

2016

  

2017

  

2018

 
                     

Cost of sales

 $3,890  $4,028  $4,175  $3,816  $3,081 

Selling, general andadministrative expense

  5,217   4,566   3,696   3,331   3,037 

Amortization expense

 $9,107  $8,594  $7,871  $7,147  $6,118 

4. ACCOUNTS RECEIVABLE

(Continued)

3.    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)

 

2013

  

2012

  

2011

 
             

Balance at beginning of period

 $677  $858  $499 

Provision for doubtful accounts

  194   304   72 

Additions related to acquired businesses

  5   -   129 

Recoveries

  1   8   340 

Accounts written off

  (172)  (493)  (182)

Balance at end of period

 $705  $677  $858 

(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 $0.3$0.5 million and $0.4 million at December 31, 20132016 and 2012,2015, respectively.

5.


4.    INVENTORIES


Inventories consisted of the following at December 31:

(In thousands)

 

2013

  

2012

  
          

Raw materials

 $84,279  $78,434  

Work in process

  3,038   2,074  

Finished goods

  13,894   16,859  

Inventories, net

 $101,211  $97,367  

(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 collectible 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, 2016, the present value of the remaining amount due under the note receivable was $1.4 million included in prepaid expenses and other current assets.

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 included in other assets.

LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

6.    FIXED ASSETS


Fixed assets consisted of the following at December 31:

(In thousands)

 

2013

  

2012

  Estimated Useful Life in Years 
             

Land

 $12,018  $10,445     

Buildings and improvements

  76,577   69,805   10 to 40   

Leasehold improvements

  2,044   1,329   3 to 10 

Machinery and equipment

  130,461   109,582   3 to 15 

Furniture and fixtures

  17,745   13,738   3 to 8   

Construction in progress

  2,771   6,190     

Fixed assets, at cost

  241,616   211,089     

Less accumulated depreciation andamortization

  115,634   103,153     

Fixed assets, net

 $125,982  $107,936     

    Estimated Useful
(In thousands)2016 2015Life in Years
Land$13,802
 $11,064
  
Buildings and improvements106,831
 89,616
10 to 40
Leasehold improvements11,918
 11,147
3 to 10
Machinery and equipment167,691
 153,784
3 to 15
Furniture and fixtures27,053
 20,653
3 to 8
Construction in progress10,067
 5,512
  
Fixed assets, at cost337,362
 291,776
  
Less accumulated depreciation and amortization164,614
 141,176
  
Fixed assets, net$172,748
 $150,600
  

Depreciation and amortization of fixed assets was as follows for the years ended December 31:

(In thousands)

 

2013

  

2012

  

2011

 
             

Cost of sales

 $14,667  $11,886  $10,130 

Selling, general and administrative expenses

  2,773   2,475   1,990 

Total

 $17,440  $14,361  $12,120 

(In thousands)2016 2015 2014
Cost of sales$22,993
 $21,289
 $16,364
Selling, general and administrative expenses5,140
 4,137
 3,440
Total$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)

 

2013

  

2012

  
          

Employee compensation and benefits

 $18,583  $18,490  

Warranty

  11,731   9,125  

Sales rebates

  4,773   5,711  

Current portion of contingent considerationrelated to acquisitions

  3,462   5,429  

Other

  8,873   9,300  

Accrued expenses and othercurrent liabilities

 $47,422  $48,055  

(In thousands)2016 2015  
Employee compensation and benefits$47,459
 $25,147
  
Current portion of accrued warranty20,393
 17,020
  
Customer rebates9,329
 7,993
  
Other21,554
 19,002
  
Accrued expenses and other current liabilities$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)2016 2015 2014
Balance at beginning of period$26,204
 $21,641
 $17,325
Provision for warranty expense20,985
 17,267
 12,860
Warranty liability from acquired businesses125
 240
 688
Warranty costs paid(14,921) (12,944) (9,232)
Balance at end of period32,393
 26,204
 21,641
Less long-term portion12,000
 9,184
 7,125
Current portion of accrued warranty$20,393
 $17,020
 $14,516

LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands)

 

2013

  

2012

  

2011

 
             

Balance at beginning of period

 $12,729  $8,640  $5,892 

Provision for warranty expense

  13,874   12,383   6,750 

Warranty liability from acquired businesses

  21   8   563 

Warranty costs paid

  (9,299)  (8,302)  (4,565)

Total accrued warranty

  17,325   12,729   8,640 

Less long-term portion

  5,594   3,604   2,758 

Current accrued warranty

 $11,731  $9,125  $5,882 

(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 $1.4$3.1 million, $1.1$2.5 million and $1.0$1.8 million to this plan during the years ended December 31, 2013, 20122016, 2015 and 2011,2014, 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 $1.7$2.3 million, $1.9$1.2 million and $2.0$1.6 million during the years ended December 31, 2013, 20122016, 2015 and 2011,2014, 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 $0.2$1.5 million, $0.8 million and $0.6$0.4 million from the Plan during the years ended December 31, 2013,2016, 2015 and 2011,2014, respectively. There were no participant withdrawals in 2012. At December 31, 20132016 and 2012,2015, deferred compensation of $9.4$13.4 million and $7.0$11.7 million, respectively, was recorded in other long-term liabilities, and at December 31, 2013, deferred compensation of $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

The


At December 31, 2016 and 2015, the Company had no debt outstanding at December 31, 2013 and 2012.

Theborrowings on its line of credit.


On February 24, 2014, the Company hasentered into a $50.0$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”terms of the Credit Agreement, the Company increased its line of credit by $25.0 million to $100.0 million. Interest on borrowings under the line of credit was designated from time to time by the 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 agreement amends and restates the existing line of credit, which was scheduled to expire on January 1, 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 Company’s line of credit can be further increased by $20.0$125.0 million, upon approval of the Lenders.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 but not less than 2.5of 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 additional interest up to 0.8 percent (0 percent at December 31, 2013 and 2012)1.0 percent), or (ii) LIBOR plus additional interest ranging from 2.00.0 percent to 2.80.625 percent (2.0(0.0 percent at December 31, 20132016) depending on the Company’s performance and 2012)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. The Credit Agreement, which was scheduled to expire on January 1, 2016, was amended and extended on February 24, 2014, and now expires on January 1, 2019. In connection with this amendment, the line of credit was increased to $75.0 million. At December 31, 20132016 and 2012,2015, the Company had $2.2$2.5 million and $3.0$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 $47.8$197.5 million at December 31, 2013.

2016.

The

On February 24, 2014, the Company also hasentered 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
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. AtDecemberAvailability under the Company’s “shelf-loan” facility, subject to the approval of Prudential, was $100.0 million at December 31, 2013 and 2012, there were no Senior Promissory Notes outstanding. This facility, which was scheduled to expire on February 24, 2014, was amended and extended on February 24, 2014, and now expires on February 24, 2017.

Both2016.


Borrowings under both the line of credit pursuantand the “shelf-loan” facility are secured on a pari-passu basis by first priority liens on the capital stock or other equity interests of the Company’s direct and indirect subsidiaries (including up to 65 percent of the equity interest of certain “controlled foreign corporations.”)

Pursuant to the Amended Credit Agreement and “shelf-loan” facility, the Company is required to maintain minimum interest and fixed charge coverages, and to meet certain other financial requirements. At December 31, 2016 and 2015, the Company was in compliance with all such requirements, and expects to remain in compliance for the next twelve months.

Availability under both the Amended 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, 2013.2016. The remaining availability under these facilities was $197.8$297.5 million at December 31, 2013.2016. 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 amended line of credit and “shelf-loan” facility, together with the $66.3 million in cash at December 31, 2013,Amended Credit Agreement is more than adequate to finance the Company’s anticipated cash requirements for 2014.

Pursuant to the Credit Agreement and “shelf-loan” facility, atDecember 31, 2013 and 2012 the Company was required to maintain minimum interest and fixed charge coverages, and to meet certain other financial requirements. AtDecember 31, 2013 and 2012, the Company was in compliance with all such requirements, and expects to remain in compliance during 2014.

Borrowings under both the linenext twelve months.


10.    INCOME TAXES

The components 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 eachearnings before income taxes consisted of the Company’s direct and indirect subsidiaries.

10. INCOME TAXES

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)

 

2013

  

2012

  

2011

 

Current:

            

Federal

 $23,430  $17,483  $13,875 

State

  4,129   3,647   3,501 

Total current provision

 $27,559  $21,130  $17,376 

Deferred:

            

Federal

  68   (298)  590 

State

  201   (370)  231 

Total deferred provision

 $269  $(668) $821 

Provision for income taxes

 $27,828  $20,462  $18,197 

(In thousands)2016 2015 2014
Current:     
Federal$61,073
 $31,132
 $32,142
State and local10,560
 7,670
 6,142
Foreign466
 160
 —
Total current provision72,099
 38,962
 38,284
Deferred:     
Federal(2,506) 466
 (4,545)
State and local(110) 596
 (948)
Foreign18
 —
 —
Total deferred provision(2,598) 1,062
 (5,493)
Provision for income taxes$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)

 

2013

  

2012

  

2011

 
             

Income tax at federal statutory rate

 $27,281  $20,231  $16,889 

State income taxes, net of federal incometax impact

  2,815   2,130   2,426 

Manufacturing credit pursuant to JobsCreation Act

  (1,444)  (1,101)  (828)

Other

  (824)  (798)  (290)

Provision for income taxes

 $27,828  $20,462  $18,197 

(In thousands)2016 2015 2014
Income tax at federal statutory rate$69,710
 $40,029
 $33,270
State income tax, net of federal income tax impact6,480
 4,386
 3,376
Foreign tax rate differential(614) (82) —
Manufacturing credit pursuant to Jobs Creation Act(5,067) (2,336) (2,258)
Federal tax credits(1,736) (919) (681)
Other728
 (1,054) (916)
Provision for income taxes$69,501
 $40,024
 $32,791

At December 31, 2013,2016, federal income taxes receivable of $12.7 million and state income taxes receivable of $3.7$0.4 million were included in prepaid expenses and other current assets. At December 31, 2012,2015, federal and state income taxes receivable of $2.7$8.1 million were included in prepaid expenses and other current assets, and state income taxes payable of $0.2$0.4 million were included in accrued expenses and other current liabilities.


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)

 

2013

  

2012

  

Deferred tax assets:

         

Goodwill and other intangible assets

 $15,024  $15,768  

Stock-based compensation

  5,116   4,272  

Deferred compensation

  3,722   2,713  

Warranty

  3,477   2,423  

Inventory

  3,245   3,248  

Other

  4,048   2,911  

Total deferred tax assets

  34,632   31,335  

Deferred tax liabilities:

         

Fixed assets

  (9,839)  (6,269) 

Net deferred tax assets

 $24,793  $25,066  

(In thousands)2016 2015  
Deferred tax assets:     
Goodwill and other intangible assets$10,952
 $11,879
  
Stock-based compensation7,550
 7,428
  
Deferred compensation5,184
 5,310
  
Warranty11,679
 8,809
  
Inventory6,572
 5,974
  
Other5,000
 4,922
  
Total deferred tax assets46,937
 44,322
  
Deferred tax liabilities:     
Fixed assets(14,948) (14,931)  
Net deferred tax assets$31,989
 $29,391
  

The Company concluded it is more likely than not that the deferred tax assets at December 31, 20132016 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 $1.5$8.0 million, $0.3$9.0 million and $0.2$3.9 million were credited directly to stockholders'stockholders’ equity during the years ended December 31, 2013, 20122016, 2015 and 2011,2014, respectively, relating to tax benefits which exceeded the compensation cost for stock-based compensation recognized in the Consolidated Financial Statements.

In 2011, the Company reversed $2.5 million of deferred tax assets related to the expiration of vested stock options granted in prior years. This reversal was recorded as a reduction of stockholders’ equity, against the pool of available excess tax benefits from prior exercises of stock-based compensation.


At December 31, 2013,2016, the remaining pool of excess tax benefits from prior exercises of stock-based compensation in stockholders’ equity was $11.3$31.5 million.


Unrecognized Tax Benefits


The following table reconciles the total amounts of unrecognized tax benefits, at December 31:

(In thousands)

 

2013

  

2012

  

2011

 
             

Balance at beginning of period

 $1,701  $2,185  $2,213 

Changes in tax positions of prior years

  (29)  (297)  (341)

Additions based on tax positionsrelated to the current year

  676   385   313 

Payments

  (126)  -   - 

Closure of tax years

  (853)  (572)  - 

Balance at end of period

 $1,369  $1,701  $2,185 

(In thousands)2016 2015 2014
Balance at beginning of period$2,854
 $1,526
 $1,369
Changes in tax positions of prior years214
 912
 84
Additions based on tax positions related to the current year1,252
 866
 603
Payments—
 (85) —
Closure of tax years(573) (365) (530)
Balance at end of period$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, $0.4$0.2 million and $0.6$0.2 million at December 31, 2013, 20122016, 2015 and 2011,2014, respectively.


The total amount of unrecognized tax benefits, net of federal income tax benefits, of $1.0$2.9 million, $1.2$2.7 million and $1.6$1.2 million at December 31, 2013, 20122016, 2015 and 2011,2014, 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 20112013 and 20122015 remain subject to examination. For Indiana state income tax purposes, the tax years 20102013 through 20122015 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 2014.2017. While these tax matters could materially affect operating results when resolved in future periods, it is management’s opinion that after final disposition, any monetary liability or financial impact to the Company beyond that provided for in the Consolidated Balance Sheet as of December 31, 2013,2016, 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, 20132016 are as follows(in thousands)thousands):

2014

 $3,496   

2015

  2,518   

2016

  2,101   

2017

  1,867   

2018

  1,666   

Thereafter

  3,605   

Total minimum lease payments

 $15,253   

In January 2014, the Company entered into a nine year operating lease with aggregate minimum lease payments of $6.1 million to consolidate manufacturing operations for efficiency improvements and expand capacity for its furniture and mattress operations.

2017$9,388
   
20187,978
   
20196,068
   
20204,936
   
20214,116
   
Thereafter8,017
   
Total minimum lease payments$40,503
   

Rent expense for operating leases was $7.1$11.5 million, $5.6$9.8 million and $5.4$8.6 million for the years ended December 31, 2013, 20122016, 2015 and 2011,2014, 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, 20132016 and 2012,2015, based on the present value of the expected future cash flows using a market participant’s weighted average cost of capital of 15.513.7 percent and 14.913.9 percent, respectively.

The following table summarizes the contingent consideration liability as of December 31, 2013:

Acquisition(In thousands)

 

Estimated Remaining Payments

   

Fair Value of Estimated Remaining Payments

 

Schwintek products

 $5,188 

(a)

 $3,871 

Level-Up® six-point leveling system

  4,033 

(b)

  3,327 

Other acquired products

  240 

(c)

  216 

Total

 $9,461   $7,414 

(a)

The remaining contingent consideration for two of the three products expires in March 2014. Contingent consideration for the remaining product will cease five years after the product is first sold to customers. Two of the three products acquired have a combined remaining maximum contingent consideration of $4.4 million, of which the Company estimates $2.1 million will be paid. Other than expiration of the contingent consideration period, the remaining product has no maximum contingent consideration.

(b)

Other than expiration of the contingent consideration period in February 2016, this product has no maximum contingent consideration.

(c)

Contingent consideration expires at various dates through November 2025. Certain of these products have a combined remaining maximum contingent consideration of $3.1 million, while the remaining products have no maximum contingent consideration.


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)

 

2013

  

2012

  

2011

 

Beginning balance

 $11,519  $14,561  $12,104 

Acquisitions

  -   67   1,090 

Payments

  (5,456)  (4,315)  (398)

Accretion(a)

  1,308   1,756   1,886 

Fair value adjustments(a)

  43   (550)  (121)

Total ending balance

  7,414   11,519   14,561 

Less current portion in accrued expensesand other current liabilities

  (3,462)  (5,429)  (3,292)

Total long-term portion in other long-termliabilities

 $3,952  $6,090  $11,269 

(In thousands)2016 2015 2014
Balance at beginning of period$10,840
 $8,129
 $7,414
Acquisitions1,322
 4,766
 3,370
Payments(4,944) (3,974) (3,739)
Accretion (a)
1,274
 1,196
 1,075
Fair value adjustments (a)
749
 723
 9
Balance at end of the period (b)
9,241
 10,840
 8,129
Less current portion in accrued expenses and other current liabilities(5,829) (3,877) (3,622)
Total long-term portion in other long-term liabilities$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, 2016 are $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:
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.
LCI INDUSTRIES
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, 2013,2016, would not be material to the Company’s financial position or annual results of operations.

Executive Succession and


Severance

On May 10, 2013, Fredric M. Zinn retired as President and Chief Executive Officer of Drew. Jason D. Lippert, Chairman and 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 2013,2015, the Company also relocated its corporate headquarters from White Plains, New Yorkinitiated a focused program to Elkhart County, Indiana, the location of the corporate headquarters of Lippert Components.

reduce indirect labor costs. In connection with the Company’s executive successionthis cost reduction program and corporate relocation, the Company recorded pre-tax charges of $1.5 million in the fourth quarter of 2012 and $1.9 million in the first six months of 2013, related to contractual obligations for severance and the acceleration of equity awards held by certain employees whose employment terminated as a result ofchanges at the executive succession and relocation to Indiana. No charges were recorded in the second half of 2013, and no other related charges are expected. 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. As a result, the Company expects to save an estimated $2 million annually in general and administrative costs.


Unrelated to the executive succession,level, the Company incurred severance and relocation costscharges of $0.5$3.7 million.


12.    STOCKHOLDERS’ EQUITY

Dividends

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, $0.2 million, and $0.1 million during the years ended December 31, 2013, 2012 and 2011, respectively, which were recorded in selling, general and administrative expenses in the Consolidated Statementswas paid to stockholders of Income.

The liability for executive succession and severance obligations, which will be paid through 2015, was recordedrecord as follows at December 31:

(In thousands)

 

2013

  

2012

  

2011

 

Other accrued expenses and current liabilities

 $1,064  $1,778  $449 

Other long-term liabilities

  315   671   1,028 

Total executive succession andseverance liability

 $1,379  $2,449  $1,477 

12. STOCKHOLDERS' EQUITY

Special Dividend

of March 27, 2015. On January 6, 2014, a special dividend of $2.00 per share of the Company’s 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 $1.4$1.8 million in total for each of the 2015 and 2014 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 246,368, 688,7121,049,752, 1,305,440 and 1,361,7181,389,506 at December 31, 2013, 20122016, 2015 and 2011,2014, respectively.


Stock-based compensation resulted in charges to operations as follows for the years ended December 31:

(In thousands)

 

2013

  

2012

  

2011

 

Stock options

 $2,325  $2,836  $3,218 

Deferred stock units

  5,425   1,888   1,264 

Restricted stock

  911   849   105 

Stock awards

  2,178   745   - 

Stock-based compensation expense

 $10,839  $6,318  $4,587 

(In thousands)2016 2015 2014
Stock options$444
 $974
 $1,412
Deferred stock units7,830
 7,023
 4,343
Restricted stock1,770
 1,031
 910
Stock awards5,376
 5,015
 4,152
Stock-based compensation expense$15,420
 $14,043
 $10,817

Stock-based compensation expense is recorded in the Consolidated Statements of Income in the same line thatas cash compensation to those employees is recorded, primarily in selling, general and administrative expenses. In addition, for the years ended December 31, 2013, 20122016, 2015 and 2011,2014, 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 $0.1$0.3 million, $0.2$2.0 million and $1.1$2.0 million, respectively. In February 2014,2017, the Company issued 43,188 deferred stock units valued at $45.98 per share, or $2.0$6.9 million, to certain officers in lieu of cash for a portion of their 2013 salary and2016 incentive compensation in accordance with their compensation arrangements.

The fair value of each stock option grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

  

2011

  

Risk-free interest rate

  0.71% 

Expected volatility

  55.20% 

Expected life (years)

  4.1  

Contractual life (years)

  6.0  

Dividend yield

 

N/A

  

Fair value of stock options granted

 $10.02  

The fair value of deferred stock units, restricted stock and stock grants was the market price of the Company’s Common Stock on the grant date.


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

 

Outstanding at December 31, 2010

  1,996,490  $10.09 - 31.11  $21.70 

Granted

  345,000  $23.17  $23.17 

Exercised

  (87,300) $10.09 - 19.67  $11.39 

Forfeited

  (100,900) $10.09 - 31.11  $22.37 

Expired

  (342,640) $26.83 - 27.21  $26.87 

Outstanding at December 31, 2011

  1,810,650  $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, 2012

  1,320,819  $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, 2013

  723,661  $6.09 - 19.17  $15.46 

Exercisable at December 31, 2013

  388,521  $6.09 - 19.17  $13.64 

In 2013 and 2012, the Company granted deferred stock units in lieu of stock options.

 Number of Option Shares
Weighted Average
Exercise Price
Outstanding at December 31, 2013723,661
$15.46
Exercised(258,530)$12.89
Forfeited(11,800)$16.93
Reduction for special cash dividend—
$(2.00)
Outstanding at December 31, 2014
453,331
$16.89
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)

 

2013

  

2012

  

2011

 

Intrinsic value of stock options exercised

 $9,062  $4,838  $1,079 

Cash receipts from stock options exercised

 $13,231  $8,075  $997 

Income tax benefits from stock optionexercises

 $3,473  $1,852  $422 

Grant date fair value of stock options vested

 $2,252  $2,814  $3,207 

(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

The following table summarizes information about stock options outstanding at December 31, 2013:

 

Exercise Price

  

Option Shares Outstanding

  

Remaining Life in Years

  

Option Shares Exercisable

 
 $6.09   70,200   0.9   70,200 
 $7.53   400   0.9   400 
 $8.72   37,500   1.0   37,500 
 $15.49   131,181   1.9   94,281 
 $15.67   252,700   2.9   139,100 
 $19.17   231,680   3.9   47,040 
 

Total Shares

  723,661(a)      388,521(a) 

(a)

The aggregate intrinsic value for option shares outstanding and option shares exercisable is $25.9 million and $14.6 million, respectively. The weighted average remaining term for option shares outstanding and option shares exercisable is 2.7 years and 2.2 years, respectively. Recorded in selling, general and administrative expense in the Consolidated Statements of Operations.

As of December 31, 2013, there was $2.7 million of total unrecognized compensation costs related to unvested stock options, which are expected to be recognized over a weighted average remaining period of 2.4 years.

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 Shares  Stock Price 

Outstanding at December 31, 2010

  266,216  $5.50 - 40.68 

Issued

  79,714  $18.67 - 25.48 

Granted

  53,450  $23.17 

Forfeited

  (2,660) $20.89 - 23.49 

Exercised

  (27,587) $6.16 - 25.06 

Outstanding at December 31, 2011

  369,133  $5.50 - 40.68 

Issued

  23,713  $24.53 - 32.07 

Granted

  282,925  $26.54 - 30.50 

Dividend equivalents

  34,568  $33.32 

Exercised

  (96,585) $5.50 - 40.68 

Outstanding at December 31, 2012

  613,754  $6.16 - 33.32 

Issued

  32,462  $33.84 - 48.53 

Granted

  140,461  $36.58 - 50.85 

Forfeited

  (4,505) $30.50 

Exercised

  (89,211) $20.20 - 30.65 

Outstanding at December 31, 2013

  692,961  $6.16 - 50.85 

 Number of SharesWeighted Average Price
Outstanding at December 31, 2013692,961
$30.26
Issued56,212
$46.08
Granted187,490
$46.94
Dividend equivalents27,532
$50.45
Forfeited(38,855)$29.83
Exercised(187,052)$29.90
Outstanding at December 31, 2014
738,288
$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, 2013,2016, there was $8.9$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 2.31.5 years.


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. All sharesShares 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):

  

2013

  

2012

  

2011

 

Granted

  17,885   29,841   36,260 

Stock price

 $50.89  $30.50  $23.17 

Fair value of stock granted

 $910  $910  $840 

 2016 2015 2014
Granted17,439
 20,558
 19,439
Weighted average stock price$74.55
 $59.60
 $46.82
Fair value of stock granted$1,300
 $1,220
 $910

As of December 31, 2013,2016, 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

Stock Awards

In accordance with the Executive Employment and Non-Competition Agreementsemployment agreements for 2012 – 2014 with twovarious officers of the Company’s named executiveCompany, such officers they 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 other officers of the Company, they 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, 2013,2016, there was $2.9$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 1.81.4 years. The grant date fair value of the January 1, 2014 awards was $5.2 million.


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)

 2013  2012  2011 

Weighted average shares outstandingfor basic earnings per share

  23,321   22,558   22,267 

Common stock equivalents pertainingto stock options and deferredstock units

  432   270   177 

Weighted average shares outstandingfor diluted earnings per share

  23,753   22,828   22,444 

(In thousands)2016 2015 2014
Weighted average shares outstanding for basic earnings per share24,631
 24,295
 23,911
Common stock equivalents pertaining to stock-based awards302
 355
 423
Weighted average shares outstanding for diluted earnings per share24,933
 24,650
 24,334

The weighted average diluted shares outstanding for the years ended December 31, 2013, 20122016, 2015 and 2011,2014, exclude the effect of 303,240, 426,788184,277, 255,547 and 1,311,330293,860 shares of common stock, respectively, subject to stock options and deferred stock units.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.

Treasury Stock

In 2007, the Board of Directors authorized the Company to repurchase up to 1 million shares of the Company’s Common Stock from time to time in the open market, in privately negotiated transactions, or in block trades. The number of shares ultimately repurchased, and the timing of the purchases, will depend upon market conditions, share price and other factors. Treasury stock transactions under this authorization were as follows(in thousands except share and per share amounts):

  

Shares

  

Weighted

Average Price

Per Share

  

Cost

 

Purchases through 2010

  501,279  $18.70  $9,374 

Purchases in 2011

  33,856  $18.44  $626 

Total purchases

  535,135  $18.64  $10,000 


13.    FAIR VALUE MEASUREMENTS


Recurring


The following table presents the Company’s assets and liabilities that were measured at fair value on a recurring basis at
December 31:

  

2013

  

2012

 

(In thousands)

 

Total

  

Level 1

  

Level 2

  

Level 3

  

Total

  

Level 1

  

Level 2

  

Level 3

 

Assets

                                

Deferred compensation

 $6,535  $6,535  $-  $-  $4,540  $4,540  $-  $- 

Derivative instruments

  -   -   -   -   223   -   223   - 

Total assets

 $6,535  $6,535  $-  $-  $4,763  $4,540  $223  $- 
                                 

Liabilities

                                

Contingent consideration

 $7,414  $-  $-  $7,414  $11,519  $-  $-  $11,519 

Deferred compensation

  9,673   9,673   -   -   7,015   7,015   -   - 

Total liabilities

 $17,087  $9,673  $-  $7,414  $18,534  $7,015  $-  $11,519 

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 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. For further information on deferred compensation, see Note 8 of the Notes to Consolidated Financial Statements.

 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 2514 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.


Derivative Instruments


At December 31, 2013,2016, the Company had no derivative instruments outstanding.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 outstanding, these derivative instruments wereare considered to be economic hedges of the underlying movement in the price of aluminum, but weresteel, 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 or loss was recorded in cost of sales in the Consolidated Statements of Income. At December 31, 2012,2016 the $0.2$2.3 million corresponding asset was recorded in prepaid expenses and other current assets as reflected in the Consolidated Balance Sheets. During 2013, derivative instruments for 4.7 million pounds of aluminum were settled at a loss of $0.3 million, which was recorded in cost of sales in the Consolidated Statements of Income.


Non-recurring

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:

  

2013

  

2012

  

2011

 

(In thousands)

 

Carrying

Value

  

Non-Recurring Losses

  

Carrying

Value

  

Non-Recurring Losses

  

Carrying

Value

  

Non-Recurring Losses

 

Assets

                        

Vacant owned facilities

 $3,197  $145  $5,009  $523  $10,031  $- 

Other intangible assets

  -   -   -   1,228   -   - 

Net assets of acquiredbusinesses

  4,382   -   1,345   -   38,389   - 

Total assets

 $7,579  $145  $6,354  $1,751  $48,420  $- 
                         

Liabilities

                        

Vacant leased facilities

 $-  $-  $-  $50  $399  $203 

Total liabilities

 $-  $-  $-  $50  $399  $203 

 2016 2015 2014
(In thousands)Carrying
Value		 Non-Recurring
Losses		 Carrying
Value		 Non-Recurring
Losses		 Carrying
Value		 Non-Recurring
Losses
Assets           
Vacant owned facilities$2,496
 $—
 $2,537
 $—
 $3,863
 $—
Net assets of acquired businesses44,250
 —
 28,727
 —
 66,169
 —
Total assets$46,746
 $—
 $31,264
 $—
 $70,032
 $—
LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


Vacant Owned Facilities


During 2013, 2012 and 2011,2016, the Company reviewed the recoverability of the carrying value of itsone vacant owned facility. 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 sold and one was reopened. At December 31, 2015, 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 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 fair value of $4.2 million and a combined carrying value of $3.9 million, classified in fixed assets in the Consolidated Balance Sheets.

The determination of fair value was based on the best information available, including internal cash flow estimates, market prices for similar assets, broker quotes and independent appraisals, as appropriate.

During 2013, the fair value of two 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. A sale agreement has been signed on one facility, with closing scheduled for the first quarter of 2014. During 2013, the Company sold one of the facilities previously recorded as a vacant facility and reopened two facilities. 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, including the one scheduled for closing in the first quarter of 2014, classified in fixed assets in the Consolidated Balance Sheets.

During 2012, the carrying value of five vacant owned facilities exceeded their fair value; therefore an impairment charge of $0.5 million was recorded. During 2012, the Company sold at a gain of $0.8 million two of the facilities previously recorded as vacant facilities and reopened another. At December 31, 2012, the Company had four vacant owned facilities, with a combined carrying value of $5.0 million, classified in fixed assets in the Consolidated Balance Sheets.


During 2011, the fair value of six vacant owned facilities exceeded their carrying value; therefore no impairment charges were recorded. At December 31, 2011, the Company had six vacant owned facilities with a combined carrying value of $10.0 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 of internal cash flow estimates. The resulting fair value of these intangible 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. 

Net Assets of Acquired Businesses


The Company valued the assets and liabilities associated with the acquisitions of businesses on the respective acquisition dates. Depending upon the type of asset or liability acquired, the Company used different valuation techniques in determining the fair value. Those techniques included comparable market prices, long-term sales, profitability and cash flow forecasts, assumptions regarding future industry-specific economic and market conditions, a market participant’s weighted average cost of capital, as well as other techniques as circumstances required. For further information on acquired assets and liabilities, see Note 32 of the Notes to Consolidated Financial Statements.

Vacant Leased Facilities


14.    SEGMENT REPORTING

The Company recorded chargespreviously 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 $0.1 millioncomponents 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 $0.2 millioneconomic 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, 2012 and 2011, respectively, in selling,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 August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, Classification of Certain Cash Receipts and Cash Payments, which amends ASC 230, Statement of Cash Flows. This ASU provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. This ASU is effective for annual and interim periods beginning after December 15, 2017, and should be applied retrospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect adoption will have a material impact on the Company’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 StatementsBalance Sheet. As a result, the Company reclassified $22,616 from current assets to long-term assets as of IncomeDecember 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 exitrevolving credit facility, as a reduction from leased facilities.

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 2014-09, Revenue from Contracts with Customers. This ASU outlines 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 FASB, 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 model for the measurement and recognition of gains and losses on the sale of certain non-financial assets, such as property and equipment, including real estate. ASU 2014-09 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2017. The new standard must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. ASU 2014-09 also requires entities to disclose both quantitative and qualitative information to enable users of the financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

14.


The Company does not anticipate 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 adoption 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 statements. The Company continues to evaluate transition methods, and expect to finalize its determination once all other significant matters are concluded.
LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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

 

Year ended December 31, 2013

                    

Net sales

 $252,586  $287,192  $250,851  $224,947  $1,015,576 

Gross profit

 $47,591  $61,433  $56,126  $47,959  $213,109 

Income before income taxes

 $13,470  $25,623  $22,754  $16,100  $77,947 

Net income

 $8,372  $15,865  $14,805  $11,077  $50,119 
                     

Net income per common share:

                    

Basic

 $0.36  $0.68  $0.63  $0.47  $2.15 

Diluted

 $0.36  $0.67  $0.62  $0.46  $2.11 
                     

Stock market price:

                    

High

 $38.67  $41.25  $45.54  $54.21  $54.21 

Low

 $33.34  $34.13  $39.60  $45.86  $33.34 

Close (at end of quarter)

 $36.31  $39.32  $45.54  $51.20  $51.20 
                     

Year ended December 31, 2012

                    

Net sales

 $223,552  $251,014  $226,323  $200,234  $901,123 

Gross profit

 $44,823  $46,423  $41,542  $35,871  $168,659 

Income before income taxes

 $17,299  $18,912  $14,832  $6,759  $57,802 

Net income

 $11,116  $11,708  $9,771  $4,745  $37,340 
                     

Net income per common share:

                    

Basic

 $0.50  $0.52  $0.43  $0.21  $1.66 

Diluted

 $0.49  $0.52  $0.43  $0.21  $1.64 
                     

Stock market price:

                    

High

 $29.84  $30.02  $30.86  $33.32  $33.32 

Low

 $24.67  $25.83  $25.82  $29.48  $24.67 

Close (at end of quarter)

 $27.31  $27.85  $30.21  $32.25  $32.25 

(In thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Year
Year ended December 31, 2016          
Net sales $422,798
 $440,831
 $412,370
 $402,899
 $1,678,898
Gross profit $108,441
 $116,904
 $105,550
 $98,008
 $428,903
Income before income taxes $55,252
 $58,975
 $44,742
 $40,203
 $199,172
Net income $35,959
 $37,569
 $29,844
 $26,299
 $129,671
           
Net income per common share:          
Basic $1.46
 $1.52
 $1.21
 $1.06
 $5.26
Diluted $1.45
 $1.51
 $1.19
 $1.05
 $5.20
           
Stock market price:          
High $64.46
 $85.09
 $102.46
 $112.95
 $112.95
Low $52.85
 $60.75
 $84.61
 $84.20
 $52.85
Close (at end of quarter) $64.46
 $84.84
 $98.02
 $107.75
 $107.75
           
Year ended December 31, 2015          
Net sales $361,457
 $362,085
 $345,296
 $334,228
 $1,403,066
Gross profit $76,403
 $82,060
 $74,125
 $73,414
 $306,002
Income before income taxes $31,649
 $33,019
 $26,576
 $23,125
 $114,369
Net income $20,073
 $20,869
 $17,263
 $16,140
 $74,345
           
Net income per common share:          
Basic $0.83
 $0.86
 $0.71
 $0.66
 $3.06
Diluted $0.82
 $0.85
 $0.70
 $0.65
 $3.02
           
Stock market price:          
High $64.61
 $62.60
 $59.42
 $61.90
 $64.61
Low $47.63
 $55.26
 $52.42
 $53.55
 $47.63
Close (at end of quarter) $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.




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, 2013.

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 Officer

Chief 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.”




(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, 2013,2016, 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 22, 201425, 2017 (the “2014“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 20142017 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 atwww.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 20142017 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 2017 Proxy Statement and “Proposal 2. Amendment of Equity Award and Incentive Plan –the Equity Compensation Plan Information”Information contained in the Company’s 2014 Proxy Statement.

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”Directors and Director Independence” in the Company’s 20142017 Proxy Statement.




Item 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES.


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 20142017 Proxy Statement.


PART IV

Item


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(a)

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

(a)

Documents Filed:

Exhibit Number

(1)     Financial Statements.

Description
3.1*

(2)     Exhibits. See Item 15 (b) – “List of Exhibits” incorporated herein by reference.

(b)

Exhibits – List of Exhibits.

Exhibit
Number


Description

3.1

DrewLCI Industries Incorporated Restated Certificate of Incorporation, as amended effective December 30, 2016.

3.2Amended and Restated By-laws of LCI Industries (incorporated by reference to Exhibit III to the Proxy Statement – Prospectus constituting Part I of the Drew National Corporation and Drew Industries Incorporated Registration Statement on Form S-14 (Registration No. 2-94693)).

3.2

Drew Industries Incorporated By-laws, as amended (incorporated by reference to the Exhibit bearing the same number included in the Registrant’s Form 8-K filed on NovemberDecember 19, 2008)2016).

10.221

10.221

Form 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†

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-K for the year ended December 31, 2015).

10.259†

10.233

Second 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 in the Registrant’s Form 8-K filed on December 2, 2008).

10.257

First 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).

10.259†

DrewLCI Industries Incorporated Equity Award and Incentive Plan, As Amended and Restated (incorporated by reference to ExhibitAppendix A included in the Registrant’s Definitive Proxy Statement on Schedule 14A filed on April 8, 2011)11, 2014).

10.268†

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).


Exhibit
Number
Description

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).

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†

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).

10.273†

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†

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).

10.278†

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).


Exhibit
Number


Description

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.

10.279

Second 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 27, 2014)10-K for the year ended December 31, 2013).



10.280

10.286

Restated Revolving Credit Note dated as of February 24, 2014 by Lippert Components, Inc., payable to 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 27, 2014).

10.281

Restated 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 27, 2014).

10.282

Third 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 27, 2014).

10.283

Third 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 27, 2014).

10.284

Third 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 27, 2014). 

10.285

Third 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 27, 2014).


Exhibit
Number
Description

10.286

Third 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 27,26, 2014).

10.287

10.287

Form 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 27,26, 2014).

10.294†Form of Executive Employment Agreement (incorporated by reference to Exhibit 10.1 included in the Registrant's Form 8-K filed March 4, 2015).

10.288

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 27, 2014)May 3, 2016).

10.313

10.289

Amended 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 27, 2014).

10.290

Second 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 27, 2014)May 3, 2016).

10.314

10.291

Second 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 27, 2014)May 3, 2016).

10.315

10.292

Second 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 27, 2014)May 3, 2016).

10.317†

10.293

Second 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 February 27, 2014)September 26, 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*

14.2*

Guidelines for Business Conduct.


Exhibit
Number
Description
21*

21*

Subsidiaries of the Registrant.

23*

23*

Consent of Independent Registered Public Accounting Firm.

24*

24*

Powers of Attorney (included on the signature page of this Report).

31.1*

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*

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*

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.

101

101

Interactive Data Files.


*Filed herewith

†Denotes a compensation plan or arrangement




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:February 28, 2014

2017

DREWLCI INDUSTRIES INCORPORATED

By:

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.


Date

Signature

DateSignatureTitle

   

February 28, 2014

2017

By:/s/ Jason D. Lippert
(Jason D. Lippert)

Chief Executive Officer and Director (principal executive officer)

   

February 28, 2014

2017

By: /s/ Joseph S. Giordano IIIBrian M. Hall

      (Joseph S. Giordano III)

      (Brian M. Hall)

Chief Financial Officer
(principal financial and Treasurer (principal financialaccounting officer)

   

February 28, 2014

2017

By: /s/ Brian M. Hall
      (Brian M. Hall)James F. Gero

      (James F. Gero)

Corporate Controller (principal accounting officer)

Chairman of the Board of Directors
   

February 28, 2014

2017

By: /s/ Leigh J. Abrams
      (Leigh J. Abrams)

Chairman of the Board of Directors

Director
   

February 28, 2014

2017

By: /s/ James F. Gero
      (James F. Gero)

Frank J. Crespo
      (Frank J. Crespo)

Lead Director

   

February 28, 2014

2017

By: /s/ Edward W. Rose, III
      (Edward W. Rose, III)Brendan J. Deely

      (Brendan J. Deely)

Director

   

February 28, 2014

2017

By: /s/ Frederick B. Hegi, Jr.
(Frederick B. Hegi, Jr.)Tracy D. Graham

      (Tracy D. Graham)

Director

   

February 28, 2014

2017

By: /s/ David A. ReedFrederick B. Hegi, Jr.

      (David A. Reed)

(Frederick B. Hegi, Jr.)

Director

   

February 28, 2014

2017

By: /s/ John B. Lowe, Jr.

      (John B. Lowe, Jr.)

Director

   

February 28, 2014

2017

By: /s/ Brendan J. DeelyKieran M. O’Sullivan

      (Brendan J. Deely)


      (Kieran M. O’Sullivan)

Director

February 28, 2017
By: /s/ David A. Reed
      (David A. Reed)
Director


78