Company Quick10K Filing
Quick10K
LCI Industries
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$91.11 25 $2,280
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-04-23 Other Events, Exhibits
8-K 2019-03-29 Off-BS Arrangement, Exhibits
8-K 2019-03-15 Regulation FD, Exhibits
8-K 2019-03-07 Exhibits
8-K 2019-02-07 Earnings, Regulation FD, Exhibits
8-K 2019-02-07 Regulation FD, Exhibits
8-K 2019-01-24 Other Events, Exhibits
8-K 2019-01-24 Other Events, Exhibits
8-K 2019-01-22 Regulation FD, Exhibits
8-K 2018-12-14 Off-BS Arrangement, Exhibits
8-K 2018-11-30 Other Events, Exhibits
8-K 2018-11-16 Officers, Exhibits
8-K 2018-11-15 Other Events, Exhibits
8-K 2018-11-06 Regulation FD, Exhibits
8-K 2018-11-01 Regulation FD, Exhibits
8-K 2018-10-18 Other Events, Exhibits
8-K 2018-08-30 Regulation FD, Exhibits
8-K 2018-08-16 Other Events, Exhibits
8-K 2018-08-02 Regulation FD, Exhibits
8-K 2018-08-02 Earnings, Regulation FD, Exhibits
8-K 2018-07-19 Other Events, Exhibits
8-K 2018-06-04 Other Events, Exhibits
8-K 2018-05-24 Officers, Shareholder Vote, Exhibits
8-K 2018-05-04 Regulation FD, Exhibits
8-K 2018-04-20 Other Events, Exhibits
8-K 2018-03-08 Officers, Exhibits
8-K 2018-03-06 Other Events, Exhibits
8-K 2018-02-27 Officers, Exhibits
8-K 2018-02-20 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-02-16 Other Events, Exhibits
8-K 2018-02-08 Regulation FD, Exhibits
8-K 2018-01-26 Other Events, Exhibits
8-K 2018-01-25 Other Events, Exhibits
8-K 2018-01-17 Other Events, Exhibits
TCPC Blackrock Tcp Capital 846
FEP Franklin Electronic Publishers 636
UCFC United Community Financial 462
SAMG Silvercrest Asset Management Group 189
VCNX Vaccinex 64
DSWL Deswell Industries 48
CORI Corium 0
ZVVT ZEV Ventures 0
CRTN Cartesian 0
DGL Invesco DB Gold Fund 0
LCII 2018-12-31
Part I
Item 1. Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Mine Safety Disclosures.
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Part III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accountant Fees and Services.
Part IV
Item 15. Exhibits, and Financial Statement Schedules.
Item 16. Form 10-K Summary.
EX-21 lcii-12312018xex21.htm
EX-23 lcii-12312018xex23.htm
EX-31.1 lcii-12312018xex311.htm
EX-31.2 lcii-12312018xex312.htm
EX-32.1 lcii-12312018xex321.htm
EX-32.2 lcii-12312018xex322.htm

LCI Industries Earnings 2018-12-31

LCII 10K Annual Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-K
 
  (Mark One)
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2018
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from              to             

Commission file number 001-13646
lcii-20181231_g1.jpg
(Exact name of registrant as specified in its charter)

Delaware 13-3250533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
 
3501 County Road 6 East 46514 
Elkhart, Indiana (Zip Code)
(Address of principal executive offices)  
(574) 535-1125
(Registrant’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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)    Yes  ☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

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

Large accelerated filer ☒         Accelerated filer ☐

Non-accelerated filer ☐         Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $1,549,669,846. The registrant has no non-voting common equity.

The number of shares outstanding of the registrant’s common stock, as of the latest practicable date (February 15, 2019), was 24,863,161 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2019 Annual Meeting of Stockholders to be held on May 23, 2019 are incorporated by reference into Part III of this Annual Report on Form 10-K.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain “forward-looking statements” with respect to our financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities, acquisitions, plans and objectives of management, markets for the Company’s common stock, the impact of legal proceedings, and other matters. Statements in this Form 10-K that are not historical facts are “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, and involve a number of risks and uncertainties.

Forward-looking statements, including, without limitation, those relating to the Company’s future business prospects, net sales, expenses and income (loss), cash flow, and financial condition, whenever they occur in this Form 10-K are necessarily estimates reflecting the best judgment of the Company’s senior management at the time such statements were made. There are a number of factors, many of which are beyond the Company’s control, which could cause actual results and events to differ materially from those described in the forward-looking statements. These factors include, in addition to other matters described in this Form 10-K, pricing pressures due to domestic and foreign competition, costs and availability of raw materials (particularly steel and aluminum) and other components, seasonality and cyclicality in the industries to which we sell our products, availability of credit for financing the retail and wholesale purchase of products for which we sell our components, inventory levels of retail dealers and manufacturers, availability of transportation for products for which we sell our components, the financial condition of our customers, the financial condition of retail dealers of products for which we sell our components, retention and concentration of significant customers, the costs, pace of and successful integration of acquisitions and other growth initiatives, availability and costs of production facilities and labor, employee benefits, employee retention, realization and impact of expansion plans, efficiency improvements and cost reductions, the disruption of business resulting from natural disasters or other unforeseen events, the successful entry into new markets, the costs of compliance with environmental laws, laws of foreign jurisdictions in which we operate, other operational and financial risks related to conducting business internationally, increased governmental regulation and oversight, information technology performance and security, the ability to protect intellectual property, warranty and product liability claims or product recalls, interest rates, oil and gasoline prices and availability, the impact of international, national and regional economic conditions and consumer confidence on the retail sale of products for which we sell our components, and other risks and uncertainties discussed more fully under the caption “Risk Factors” in this Annual Report on Form 10-K, and in our subsequent filings with the Securities and Exchange Commission (“SEC”). Readers of this report are cautioned not to place undue reliance on these forward-looking statements, since there can be no assurance that these forward-looking statements will prove to be accurate. The Company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law.

INDUSTRY AND MARKET DATA

Certain market and industry data and forecasts included in this report were obtained from independent market research, industry publications and surveys, governmental agencies and publicly available information. Industry surveys, publications and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We believe the data from such third-party sources to be reliable. However, we have not independently verified any of such data and cannot guarantee its accuracy or completeness. Similarly, internal market research and industry forecasts, which we believe to be reliable based upon our management’s knowledge of the market and the industry, have not been verified by any independent sources. While we are not aware of any misstatements regarding the market or industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the headings “Special Note Regarding Forward-Looking Statements,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report.


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LCI INDUSTRIES

TABLE OF CONTENTS



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


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

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PART I

Item 1. BUSINESS.

Summary
LCI Industries (“LCII” and collectively with its subsidiaries, the “Company” or the “Registrant”), through its wholly-owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, “Lippert Components” or “LCI”), supplies, domestically and internationally, a broad array of engineered components for the leading original equipment manufacturers (“OEMs”) in the recreation and industrial product markets, consisting of recreational vehicles (“RVs”) and adjacent industries including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured homes; and modular housing. The Company also supplies components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors and service centers.

LCI’s products include steel chassis and related components; axles and suspension solutions; slide-out mechanisms and solutions; thermoformed bath, kitchen and other products; vinyl, aluminum and frameless windows; manual, electric and hydraulic stabilizer and leveling systems; furniture and mattresses; entry, luggage, patio, and ramp doors; electric and manual entry steps; awnings and awning accessories; electronic components; televisions and sound systems; navigation systems; backup cameras; appliances; and other accessories.
The Company has two reportable segments: the original equipment manufacturers segment (the “OEM Segment”) and the aftermarket segment (the “Aftermarket Segment”).
The Company is focused on profitable growth in its industries, both organic and through acquisitions. In order to support this growth, over the past several years the Company has expanded its geographic market and product lines, consolidated manufacturing facilities, and integrated manufacturing, distribution and administrative functions. At December 31, 2018, the Company operated over 65 manufacturing and distribution facilities located throughout the United States and in Canada, Ireland, Italy and the United Kingdom, and reported consolidated net sales of $2.5 billion for the year ended December 31, 2018.
The Company was incorporated under the laws of Delaware on March 20, 1984, and is the successor to Drew National Corporation, which was incorporated under the laws of Delaware in 1962. The Company’s principal executive and administrative offices are located at 3501 County Road 6 East, Elkhart, Indiana 46514; telephone number (574) 535-1125; website www.lci1.com; e-mail LCII@lci1.com. The Company makes available free of charge on its website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K (and amendments to those reports) filed or furnished with the SEC as soon as reasonably practicable after such materials are electronically filed or furnished.

Recent Developments

Sales and Profits
Consolidated net sales for the year ended December 31, 2018 increased to a record $2.5 billion, 15 percent higher than the consolidated net sales for the year ended December 31, 2017 of $2.1 billion. The increase in year-over-year net sales reflects growth across the Company’s segments, content growth, as well as the addition of sales from acquisitions completed by the Company over the twelve months ended December 31, 2018. Net sales from acquisitions completed by the Company over the twelve months ended December 31, 2018 contributed $231.0 million in 2018.
Net income for the full-year 2018 increased to $148.6 million, or $5.83 per diluted share, up from net income of $132.9 million, or $5.24 per diluted share, in 2017. Net income for 2018 and 2017 included one-time non-cash charges of $0.6 million ($0.03 per diluted share) and $13.2 million ($0.52 per diluted share), respectively, related to the impact of the Tax Cuts and Jobs Act (the “TCJA”). Excluding the estimated impact of the TCJA, adjusted net income was $149.2 million, or $5.86 per diluted share, in 2018 compared to $146.1 million, or $5.76 per diluted share, in 2017. Adjusted net income and adjusted net income per diluted share are non-GAAP financial measures. See “Non-GAAP Measures” included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information regarding the Company's use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures.
In Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company describes in detail the increase in its sales and profits during 2018.

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Customer Concentrations

Thor Industries, Inc. (“Thor”), a customer of both segments, accounted for 31 percent, 38 percent and 37 percent of the Company’s consolidated net sales for the years ended December 31, 2018, 2017 and 2016, respectively. Berkshire Hathaway Inc. (through its subsidiaries Forest River, Inc. and Clayton Homes, Inc.), a customer of both segments, accounted for 23 percent, 25 percent and 26 percent of the Company’s consolidated net sales for the years ended December 31, 2018, 2017 and 2016, respectively. No other customer accounted for more than 10 percent of consolidated net sales in the years ended December 31, 2018, 2017 and 2016. International sales, primarily in Europe and Australia, and export sales represented approximately four percent, two percent and one percent of consolidated net sales in 2018, 2017 and 2016, respectively.

Acquisitions

During 2018, the Company completed four acquisitions:

In November 2018, the Company acquired the business and certain assets of the furniture manufacturing operation of Smoker Craft Inc., (“Smoker Craft”), a leading pontoon, aluminum fishing, and fiberglass boat manufacturer located in New Paris, Indiana. The purchase price was $28.1 million paid at closing.

In June 2018, the Company acquired 100 percent of the equity interests of ST.LA. S.r.l., (“STLA”), a manufacturer of bed lifts and other RV components for the European caravan market, headquartered in Pontedera, Italy. The purchase price was $14.8 million, net of cash acquired, paid at closing, and is subject to potential post-closing adjustments related to net working capital.

In February 2018, the Company acquired substantially all of the business assets of Hehr International Inc., (“Hehr”), a manufacturer of windows and tempered and laminated glass for the RV, transit, specialty vehicle, and other adjacent industries, headquartered in Los Angeles, California. The purchase price was $51.5 million paid at closing.

In January 2018, the Company acquired 100 percent of the equity interests of Taylor Made Group, LLC (“Taylor Made”), a marine supplier to boat builders and the aftermarket, as well as a key supplier to a host of other industrial end markets, headquartered in Gloversville, New York. The purchase price was $90.4 million, net of cash acquired, paid at closing.

Other Developments

In November 2018, the Company announced its Board of Directors authorized a new $150.0 million stock purchase program over the next three years. The Company purchased 0.4 million of its common shares for $28.7 million in 2018.

In December 2018, the Company amended and restated its existing credit agreement (as amended and restated, the “Amended Credit Agreement”) providing for a senior secured revolving credit facility to increase the maximum borrowings thereunder from $325 million to $600 million, to allow for up to $250 million of borrowings by Foreign Borrowers (as defined in the Amended Credit Agreement) and to extend the maturity date of the revolving credit facility to December 14, 2023 (subject to certain extensions as provided in the Amended Credit Agreement).

OEM Segment

Through its wholly-owned subsidiaries, the Company manufactures and distributes a broad array of engineered components for the leading OEMs in the recreation and industrial product markets, consisting of RVs and adjacent industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured homes; and modular housing.

In 2018, the OEM Segment represented 91 percent of the Company’s consolidated net sales and 84 percent of consolidated segment operating profit. Approximately 64 percent of the Company’s OEM Segment net sales in 2018 were of products to manufacturers of travel trailer and fifth-wheel RVs. RVs may be motorized (motorhomes) or towable (travel trailers, fifth-wheel travel trailers, folding camping trailers and truck campers).

Raw materials used by the Company’s OEM Segment, consisting primarily of steel (coil, sheet, tube and I-beam), extruded aluminum, glass, wood, fabric and foam are available from a number of sources, both domestic and foreign.

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Operations of the Company’s OEM Segment consist primarily of fabricating, welding, thermoforming, painting, sewing and assembling components into finished products. The Company’s OEM Segment operations are conducted at over 65 manufacturing and distribution facilities throughout the United States, and in Canada, Ireland, Italy, and the United Kingdom, strategically located in proximity to the customers they serve. See Item 2. “Properties.”

The Company’s OEM Segment products are sold primarily to major manufacturers of RVs such as Thor Industries, Inc. (symbol: THO), Forest River, Inc. (a Berkshire Hathaway company, symbol: BRKA), Winnebago Industries, Inc. (symbol: WGO) and other RV OEMs, and to manufacturers in adjacent industries.

The RV industry is highly competitive, both among manufacturers of RVs and the suppliers of RV components, generally with low barriers to entry other than compliance with industry standards, codes and safety requirements, and the initial capital investment required to establish manufacturing operations. The Company competes with several other component suppliers on a regional and national basis with respect to a broad array of components for both towable and motorized RVs. The Company’s operations compete on the basis of product quality and reliability, product innovation, price, customer service and customer satisfaction. Although definitive information is not readily available, the Company believes it is a leading supplier for towable RVs for the following principal RV products:
● windows,● axles,
● doors,● furniture,
● chassis,● leveling systems, and
● slide-out mechanisms,● awnings.

In addition to LCI, Dexter Axle Company is also a leading supplier of axles and Carefree of Colorado and Dometic Corporation are also leading suppliers of awnings.

OEM Segment net sales to adjacent industries increased 49 percent from $411.2 million in 2017 to $614.6 million in 2018, or 27 percent and 21 percent of total OEM Segment net sales in 2018 and 2017, respectively. The Company’s market share for its products in adjacent industries cannot be readily determined; however, the Company continues to make investments in people, technology and equipment and is committed to expanding its presence in these industries.

Detailed narrative information about the results of operations of the OEM Segment is included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Aftermarket Segment

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

According to the Recreation Vehicle Industry Association (“RVIA”), estimated RV ownership in the United States has increased to over nine million units. Additionally, as a result of a vibrant secondary market, one-third of current owners purchased their RV new while the remaining two-thirds purchased a previously owned RV. This vibrant secondary market is a key driver for aftermarket sales, as the Company anticipates owners of previously owned RVs will likely upgrade their units as well as replace parts and accessories which have been subjected to normal wear and tear.

Aftermarket Segment net sales increased 36 percent from $171.1 million in 2017 to $233.2 million in 2018. The Company continues to make investments in people and technology to grow the Aftermarket Segment and is committed to continue these expansion efforts.

Detailed narrative information about the results of operations of the Aftermarket Segment is included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

8


Sales and Marketing

The Company’s sales activities are related to developing new customer relationships and maintaining existing customer relationships, primarily through the quality and reliability of its products, innovation, price, customer service and customer satisfaction. As a result of the Company’s strategic decision to increase its sales to the aftermarket and adjacent industries, as well as expand into international markets, the Company has increased its annual marketing and advertising expenditures over the past few years, which were $4.1 million, $3.2 million and $3.0 million in 2018, 2017 and 2016, respectively.

The Company has several supply agreements or other arrangements with certain of its customers that provide for prices of various products to be fixed for periods generally not in excess of eighteen months; however, in certain cases the Company has the right to renegotiate the prices on sixty-days’ notice. The Company has agreements with certain customers that indexes their pricing to select commodities. Both the OEM Segment and the Aftermarket Segment typically ship products on average within one to two weeks of receipt of orders from their customers and, as a result, neither segment has any significant backlog.

Capacity

At December 31, 2018, the Company operated over 65 manufacturing and distribution facilities across the U.S. and in Canada, Ireland, Italy, and the United Kingdom. In 2018, the Company’s facilities operated at an average of approximately 55 percent of their practical capacity, assuming at least two shifts of production at all facilities. Capacity by facility varies significantly based on seasonal demand, as well as by product line and geographic region, with certain facilities at times operating below 50 percent utilization, and other facilities at times operating above 90 percent utilization. For most products, the Company has the ability to fill excess demand by shifting production to other facilities, usually at an increased cost. The ability to adjust capacity in certain product areas through lean manufacturing and automation initiatives, reallocation of existing resources and/or additional capital expenditures is monitored regularly by management in an effort to achieve a high level of production efficiency and return on invested capital. Capital expenditures for 2018 were $120 million, which included approximately $75 million for growth, lean and automation initiatives, and approximately $45 million of replacement capital expenditures.

Seasonality

Most industries where the Company sells products or where its products are used, historically have been seasonal and generally at the highest levels when the weather is moderate. Accordingly, the Company’s sales and profits have generally been the highest in the second quarter and lowest in the fourth quarter. However, because of fluctuations in dealer inventories, the impact of international, national and regional economic conditions and consumer confidence on retail sales of RVs and other products for which the Company sells its components, the timing of dealer orders, as well as the impact of severe weather conditions on the timing of industry-wide shipments from time to time, current and future seasonal industry trends may be different than in prior years. Additionally, sales of certain components to the aftermarket channels of these industries tend to be counter-seasonal.

International

Over the past several years, the Company has been gradually growing international sales, primarily in Europe and Australia, and export sales represented approximately four percent, two percent and one percent of consolidated net sales in 2018, 2017 and 2016, respectively. The Company continues to focus on developing products tailored for international RV markets. The Company participates in the largest RV shows in Europe and has been receiving positive feedback on its products, especially its proprietary slide-out products. The Company’s Director of International Business Development spends time in Australia, Europe and other international markets, assessing the dynamics of the local marketplace, building relationships with OEMs and helping the Company introduce its existing products and develop new products for those markets, with the goal of identifying long-term growth opportunities. The Company estimates the addressable market for annual net sales of its products outside of North America to be over $1 billion. Financial information relating to the Company’s acquisitions is included in Note 4 of the Notes to Consolidated Financial Statements in Item 8 of this Report.

Intellectual Property

The Company holds approximately 200 United States and foreign patents and has approximately 80 patent applications pending that relate to various products sold by the Company. The Company has also granted certain licenses that permit third parties to manufacture and sell products in consideration for royalty payments.

9


From time to time, the Company has received notices or claims it may be infringing certain patent or other intellectual property rights of others, and the Company has given notices to, or asserted claims against, others that they may be infringing certain patent or other intellectual property rights of the Company. The Company believes its patents are valuable and vigorously protects its patents when appropriate.

Research and Development

The Company strives to be an industry leader in product innovation and is focused on developing new products, as well as improving existing products. Research and development expenditures are expensed as they are incurred. Research and development expenses were approximately $16 million, $14 million and $9 million in 2018, 2017 and 2016, respectively.

Regulatory Matters

We are subject to numerous federal, state and local regulations governing the manufacture and sale of our products. Sales and manufacturing operations in foreign countries are subject to similar regulations.

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

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

Windows and doors produced by the Company for the RV industry must comply with regulations promulgated by NHTSA governing safety glass performance, egress ability, door hinge and lock systems, egress window retention hardware, and baggage door ventilation. Windows produced by the Company for buses also must comply with FMVSS promulgated by NHTSA.

Upholstered products and mattresses produced by the Company for RVs and buses must comply with FMVSS promulgated by NHTSA regarding flammability. In addition, upholstered products and mattresses produced by the Company for RVs must comply with regulations promulgated by the Consumer Products Safety Commission regarding flammability, as well as standards for toxic chemical levels and labeling requirements promulgated by the California Office of Environmental Health Hazard Assessment. Plywood, particleboard and fiberboard used in RV products are required to comply with standards for formaldehyde emission levels promulgated by the California Air Resources Board and adopted by the RVIA.

Windows and entry doors produced by the Company for manufactured homes must comply with performance and construction regulations promulgated by the U.S. Department of Housing and Urban Development (“HUD”) and by the American Architectural Manufacturers Association relating to air and water 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.

The Company believes it is currently operating in compliance, in all material respects, with applicable laws and regulations and has made reports and submitted information as required. The Company does not believe the expense of compliance with these laws and regulations, as currently in effect, will have a material effect on the Company's operations, financial condition or competitive position; however, there can be no assurance this trend will continue as health and safety laws, regulations or other pertinent requirements evolve.

Environmental

The Company’s operations are subject to certain federal, state and local regulatory requirements relating to the use, storage, discharge, transport and disposal of hazardous materials used during the manufacturing processes. Although the Company believes its operations have been consistent with prevailing industry standards, and are in substantial compliance with
10


applicable environmental laws and regulations, one or more of the Company’s current or former operating sites, or adjacent sites owned by third parties, have been affected, and may in the future be affected, by releases of hazardous materials. As a result, the Company may incur expenditures for future investigation and remediation of these sites, including in conjunction with voluntary remediation programs or third-party claims. In the past, environmental compliance costs have not had, and are not expected in the future to have, a material effect on the Company’s operations or financial condition; however, there can be no assurance that this trend will continue.

Employees

As of December 31, 2018, the Company had 10,260 full-time employees. None of the employees of the Company in the U.S. are subject to collective bargaining agreements, although certain international employees are covered by national labor laws. The Company believes relations with its employees are good.

Executive Officers

The following table sets forth our executive officers as of December 31, 2018:
NamePosition
Jason D. LippertChief Executive Officer and Director
Brian M. HallChief Financial Officer
Andrew J. NamenyeVice 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 officers or directors of the Company. Additional information with respect to the Company’s directors is included in the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held on May 23, 2019.

JASON D. LIPPERT (age 46) became Chief Executive Officer of the Company effective May 10, 2013, and has been Chief Executive Officer of Lippert Components since February 2003. Mr. Lippert has over 20 years of experience with the Company, and has served in a wide range of leadership positions.

BRIAN M. HALL (age 44) joined the Company in March 2013, served as Corporate Controller from June 2013 until January 2017, and has served as Chief Financial Officer of the Company since November 2016. Prior to joining the Company, he spent more than 16 years in public accounting.

ANDREW J. NAMENYE (age 38) joined the Company in September 2017, and has been Vice President – Chief Legal Officer and Secretary since November 2017. Prior to joining the Company, he held roles in senior level positions at Thor Industries, Inc. and All American Group, Inc. (f/k/a Coachmen Industries), and practiced law at Barnes & Thornburg LLP.

JAMIE M. SCHNUR (age 47) became Chief Administrative Officer of the Company effective May 2013. Mr. Schnur has over 20 years of experience with the Company, and has served in a wide range of leadership positions with Lippert Components.

NICK C. FLETCHER (age 58) joined the Company in February 2013 as Vice President of Human Resources. Since January 2015, he has been Chief Human Resources Officer. Prior to joining the Company, Mr. Fletcher provided consulting services and held roles in senior level positions at American Commercial Lines, Continental Tire, Wabash National, Siemens and TRW.

Other Officers

KIP A. EMENHISER (age 45) joined the Company in January 2017, and has been Corporate Controller and our principal accounting officer since March 2017. Prior to joining the Company, he held various roles including Senior Vice President of Finance, Chief Accounting Officer and Vice President and Corporate Controller at Press Ganey Associates, Inc. Mr. Emenhiser is a Certified Public Accountant.

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Item 1A. RISK FACTORS.

The following risk factors should be considered carefully in addition to the other information contained in this Annual Report on Form 10-K. The risks and uncertainties described below are not the only ones we face, but represent the most significant risk factors that we believe may adversely affect the RV and other industries we supply our products to, as well as our business, operations or financial position. The risks and uncertainties discussed in this report are not exclusive and other risk factors that we may consider immaterial or do not anticipate may emerge as significant risks and uncertainties.

Industry Risk Factors

Economic and business factors beyond our control, including cyclicality and seasonality in the industries where we sell our products, could lead to fluctuations in our operating results.

The RV, recreational boat and other markets where we sell many of our products or where our products are used, have been characterized by cycles of growth and contraction in consumer demand, often because the purchase of such products are viewed as a consumer discretionary purchase. Periods of economic recession have adversely affected, and could again adversely affect, our operating results. Companies in these industries are subject to volatility in production levels, shipments, sales and operating results due to changes in external factors such as general economic conditions, including credit availability, consumer confidence, employment rates, prevailing interest rates, inflation, fuel prices and other economic conditions affecting consumer demand and discretionary consumer spending, as well as demographic and political changes, all of which are beyond our control. Consequently, our operating results for any prior period may not be indicative of results for any future period.

Additionally, manufacturing operations in most of the industries where we sell our products or where our products are used historically have been seasonal. However, because of fluctuations in dealer inventories, the impact of international, national and regional economic conditions and consumer confidence on retail sales of products which include our components, and other factors, current and future seasonal industry trends may be different than in prior years. Unusually severe weather conditions in some geographic areas may also, from time to time, impact the timing of industry-wide shipments from one period to another.

Reductions in the availability of wholesale financing limits the inventories carried by retail dealers of RVs and other products which use our components, which would cause reduced production by our customers, and therefore reduced demand for our products.

Retail dealers of RVs and other products which use our components generally finance their purchases of inventory with financing known as floor-plan financing provided by lending institutions. A dealer’s ability to obtain financing is significantly affected by the number of lending institutions offering floor planning, and by an institution’s lending limits, which are beyond our control. Reduction in the availability of floor-plan financing has in the past caused, and would in the future again likely cause, many dealers to reduce inventories, which would result in reduced production by OEMs, and consequently result in reduced demand for our products. Moreover, dealers which are unable to obtain adequate financing could cease operations. Their remaining inventories would likely be sold at discounts, disrupting the market. Such sales have historically caused a decline in orders for new inventory, which reduced demand for our products, and which could recur in the future.

Conditions in the credit market could limit the ability of consumers to obtain retail financing for RVs and other products which use our components, resulting in reduced demand for our products.

Retail consumers who purchase RVs and other products which use our components generally obtain retail financing from third-party lenders. The availability, terms and cost of retail financing depend on the lending practices of financial institutions, governmental policies and economic and other conditions, all of which are beyond our control. Restrictions on the availability of consumer financing and increases in the costs of such financing have in the past limited, and could again limit, the ability of consumers to purchase such discretionary products, which would result in reduced production of such products by our customers, and therefore reduce demand for our products.

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

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

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Gasoline shortages, or high prices for gasoline, could lead to reduced demand for our products.

Fuel shortages, and substantial increases in the price of fuel, have had an adverse effect on the RV industry as a whole in the past, and could again in the future. Travel trailer and fifth-wheel RVs, components for which represented approximately 64 percent of our OEM Segment net sales in 2018, are usually towed by light trucks or SUVs. Generally, these vehicles use more fuel than automobiles, particularly while towing RVs or other trailers. High prices for gasoline, or anticipation of potential fuel shortages, can affect consumer use and purchase of light trucks and SUVs, which could result in reduced demand for travel trailer and fifth-wheel RVs, and therefore reduced demand for our products.

Company-Specific Risk Factors

A significant percentage of our sales are concentrated in the RV industry, and declines in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs could reduce demand for our products and adversely impact our operating results and financial condition.

In 2018, the OEM Segment represented 91 percent of our consolidated net sales, and 84 percent of consolidated segment operating profit. Approximately 64 percent of our OEM Segment net sales in 2018 were of products to manufacturers of travel trailer and fifth-wheel RVs. While we measure our OEM Segment sales against industry-wide wholesale shipment statistics, the underlying health of the RV industry is determined by retail demand. Retail sales of RVs historically have been closely tied to general economic conditions, as well as consumer confidence, which was above historical averages in 2018. Declines in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs could reduce demand for our products and adversely affect our operating results and financial condition.

The loss of any key customer, or a significant reduction in purchases by such customers, could have a material adverse impact on our operating results.

Two customers of both the OEM Segment and the Aftermarket Segment accounted for 54 percent of our consolidated net sales in 2018. The loss of either of these customers or other significant customers, or a substantial reduction in sales to any such customer, would have a material adverse impact on our operating results and financial condition. In addition, we generally do not have long-term agreements with our customers and cannot predict that we will maintain our current relationships with these customers or that we will continue to supply them at current levels.

Volatile raw material costs could adversely impact our financial condition and operating results.

Steel and aluminum represented approximately 45 percent and 15 percent, respectively, of our raw material costs in 2018. The prices of these, and other key raw materials, have historically been volatile and can fluctuate dramatically with changes in the global demand and supply for such products.

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

Inadequate or interrupted supply of raw materials or components used to make our products could adversely impact our financial condition and operating results.

Our business depends on our ability to source raw materials, such as steel, aluminum, glass, wood, fabric and foam, and certain components, such as electric motors, televisions and appliances, in a timely and cost efficient manner. Most materials and components are readily available from a variety of sources. However, a few key components are currently produced by only a small group of quality suppliers that have the capacity to supply large quantities. If raw materials or components that are used in manufacturing our products or for which we act as a distributor, particularly those which we import, become unavailable, or if the supply of these raw materials and components is interrupted or delayed, our manufacturing and distribution operations could be adversely affected, which could adversely impact our financial condition and operating results.

In 2018, we imported, or purchased from suppliers who imported, approximately 30 percent of our raw materials and components. Additionally, we have the exclusive right to distribute Furrion Limited’s complete line of electronics and appliance products to OEMs and aftermarket customers in the RV, specialty vehicle, utility trailer, horse trailer, marine, transit bus and
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school bus industries throughout the United States and Canada, which products are imported from China. Consequently, we rely on the free flow of goods through open and operational ports and on a consistent basis for a significant portion of our raw materials and components. Adverse political conditions, trade embargoes, increased tariffs or import duties, inclement weather, natural disasters, war, terrorism or labor disputes at various ports or otherwise adversely impacting our suppliers create significant risks for our business, particularly if these conditions or disputes result in work slowdowns, lockouts, strikes or other disruptions, and could have an adverse impact on our operating results if we are unable to fulfill customer orders or required to accumulate excess inventory or find alternate sources of supply, if available, at higher costs.

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

We negotiate for the purchase of a significant portion of raw materials and semi-finished components with suppliers that are not located in the United States. As such, the prices we pay in part are dependent upon the rate of exchange for U.S. Dollars versus the currency of the local supplier. A dramatic weakening of the U.S. Dollar could increase our cost of goods sold, and such cost increases may not be offset through price increases for our products, adversely impacting our margins.

Changes in consumer preferences relating to our products, or the inability to develop innovative new products, could cause reduced sales.

Changes in consumer preferences for RV, manufactured housing and recreational boat models, and for the components we make for such products, occur over time. Our inability to anticipate changes in consumer preferences for such products, or delays in responding to such changes, could reduce demand for our products and adversely affect our net sales and operating results. Similarly, we believe our ability to remain competitive also depends on our ability to develop innovative new products or enhance features of existing products. Delays in the introduction or market acceptance of new products or product features could have an adverse effect on our net sales and operating results.

Competitive pressures could reduce demand for our products or impact our sales prices.

The industries in which we are engaged are highly competitive and generally characterized by low barriers to entry, and we have numerous existing and potential competitors. Competition is based primarily upon product quality and reliability, product innovation, price, customer service and customer satisfaction.

Competitive pressures have, from time to time, resulted in a reduction of our profit margins and/or reduction in our market share. Domestic and foreign competitors may lower prices on products which currently compete with our products, or develop product improvements, which could reduce demand for our products or cause us to reduce prices for our products. Sustained increases in these competitive pressures could have a material adverse effect on our results of operations. In addition, the manufacture by our customers themselves of products supplied by us could reduce demand for our products and adversely affect our operating results and financial condition.

Increases in demand could result in difficulty obtaining additional skilled labor, and available capacity may initially not be utilized efficiently.

In certain geographic regions in which we have a larger concentration of manufacturing facilities, we have experienced, and could again experience, shortages of qualified employees. Competition for skilled workers, especially during improving economic times, may increase the cost of our labor and create employee retention and recruitment challenges, as employees with knowledge and experience have the ability to change employers relatively easily. If such conditions become extreme, we may not be able to increase production to timely satisfy demand, and may incur higher labor and production costs, which could adversely impact our operating results and financial condition.

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We may incur unexpected expenses, or face delays and other obstacles, in connection with expansion plans or investments we make in our business, which could adversely impact our operating results.

It may take longer than initially anticipated for us to realize expected results from investments in research and development or acquired businesses, as well as initiatives we have implemented to increase capacity and improve production efficiencies, automation, customer service and other aspects of our business, or we may incur unexpected expenses in connection with these matters. Expansion plans may involve the acquisition of existing manufacturing facilities that require upgrades and improvements or the need to build new manufacturing facilities. Such activities may be delayed or incur unanticipated costs which could have an adverse effect on our operating results. Similarly, competition for desirable production facilities, especially during times of increasing production, may increase the cost of acquiring production facilities or limit the availability of obtaining such facilities. In addition, the start-up of operations in new facilities may incur unanticipated costs and inefficiencies which may adversely affect our profitability during the ramp up of production in those facilities. Delays in the construction, re-configuration or relocation of facilities could result in an adverse impact to our operating results or a loss of market share.

In addition, to the extent our expansion plans involve acquisitions or joint ventures, we may not be able to successfully identify suitable acquisition or joint venture opportunities or complete any acquisition, combination, joint venture or other transaction on acceptable terms. Our identification of suitable acquisition candidates and joint venture opportunities and the integration of acquired business operations involve risks inherent in assessing the values, strengths, weaknesses, risks and profitability of these opportunities, as well as significant financial, management and related resources that would otherwise be used for the ongoing development of our existing operations and internal expansion.

Natural disasters, unusual weather conditions, epidemic outbreaks, terrorist acts and political events could disrupt our business and result in lower sales and otherwise adversely affect our financial performance.

Our facilities may be affected by natural disasters, such as tornadoes, hurricanes, fires, floods, earthquakes, and unusual weather conditions, as well as other external events such as epidemic outbreaks, terrorist attacks or disruptive political events, any one of which could adversely affect our business and result in lower sales. In the event that one of our manufacturing or distribution facilities was affected by a disaster or other event, we could be forced to shift production to one of our other facilities, which we may not be able to do effectively or at all, or to cease operations. Although we maintain insurance for damage to our property and disruption of our business from casualties, such insurance may not be sufficient to cover all of our potential losses. Any disruption in our manufacturing capacity could have an adverse impact on our ability to produce sufficient inventory of our products or may require us to incur additional expenses in order to produce sufficient inventory, and therefore, may adversely affect our net sales and operating results. Any disruption or delay at our manufacturing or distribution facilities or customer service centers could impair our ability to meet the demands of our customers, and our customers may cancel orders with us or purchase products from our competitors, which could adversely affect our business and operating results.

We have recently entered new markets in an effort to enhance our growth potential, and uncertainties with respect to these new markets could impact our operating results.

Our ability to expand our market share for our products that are used as components for RVs is limited. We have made investments in an effort to expand the sale of our products in adjacent industries, such as buses, trucks, pontoon boats and trains, where we may have less familiarity with OEM or consumer preferences and could encounter difficulties in attracting customers due to a reduced level of familiarity with our brands. We have also made investments to expand the sale of our products in the aftermarket of our industries, and are exploring opportunities to increase export sales of our products to international markets. These investments involve significant resources, put a strain on our administrative, operational and financial capabilities and carry a risk of failure. Limited operating experience or limited brand recognition in new markets may limit our business expansion strategy. Lack of demand for our products in these markets or competitive pressures requiring us to lower prices for our products could adversely impact our business growth in these markets and our results of operations.

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

We have completed several business acquisitions and may continue to engage in acquisitions or similar activities, such as joint ventures and other business transactions. Our ability to grow through acquisitions will depend, in part, on the availability of suitable candidates at acceptable prices, terms, and conditions, our ability to compete effectively for acquisition candidates, and the availability of capital and personnel to complete such acquisitions and run the acquired business effectively. Such acquisitions, joint ventures and other business transactions involve potential risks, including:
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the failure to successfully integrate personnel, departments and systems, including IT and accounting systems, technologies, books and records and procedures;
the need for additional investments post-acquisition that could be greater than anticipated;
the assumption of liabilities of the acquired businesses that could be greater than anticipated;
incorrect estimates made in the accounting for acquisitions, incurrence of non-recurring charges, and write-off of significant amounts of goodwill or other assets that could adversely affect our operating results;
unforeseen difficulties related to entering geographic regions or industries in which we do not have prior experience; and
the potential loss of key employees or existing customers or adverse effects on existing business relationships with suppliers and customers.
Integrating acquired operations is a significant challenge and there is no assurance that we will be able to manage the integrations successfully. If we are unable to efficiently integrate these businesses, the attention of our management could be diverted from our existing operations and the ability of the management teams at these business units to meet operational and financial expectations could be adversely impacted, which could impair our ability to execute our business plans. Failure to successfully integrate acquired operations or to realize the expected benefits of such acquisitions may have an adverse impact on our results of operations and financial condition.

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

We have been gradually growing sales overseas, primarily in Europe and Australia, and export sales represented approximately four percent, two percent and one percent of consolidated net sales in 2018, 2017 and 2016, respectively. We plan to continue pursuing international opportunities. Five of our acquisitions since 2016 are headquartered in Europe or have international operations and customers.

Conducting business outside of the United States is subject to various risks, many of which are beyond our control, including:
adverse political and economic conditions;
changes in tariffs, trade restrictions, trade agreements, and taxation;
difficulties in managing or overseeing foreign operations and agents;
differences in regulatory environments, labor practices and market practices;
cultural and linguistic differences;
foreign currency fluctuations;
limitations on the repatriation of funds because of foreign exchange controls;
different liability standards;
potentially longer payment cycles;
different credit risks;
the uncertainty surrounding the implementation and effects of Brexit; and
intellectual property laws of countries which do not protect our rights in our intellectual property to the same  extent as the laws of the United States.

The occurrence or consequences of any of these factors may have an adverse impact on our operating results and financial condition, as well as impact our ability to operate in international markets.

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

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

Our business is subject to numerous international, federal, state and local regulations, and increased costs of compliance, failure in our compliance efforts or events beyond our control could result in damages, expenses or liabilities that could adversely impact our financial condition and operating results.
We are subject to numerous federal, state and local regulations governing the manufacture and sale of our products, including regulations and standards promulgated by the NHTSA of the DOT, the Consumer Products Safety Commission,
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HUD, and consumer safety standards promulgated by state regulatory agencies and industry associations. Sales and manufacturing operations in foreign countries may be subject to similar regulations. Any major recalls of our products, voluntary or involuntary, could adversely impact our reputation, net sales, financial condition and operating results. Changes in laws or regulations that impose additional regulatory requirements on us could increase our cost of doing business or restrict our actions, causing our results of operations to be adversely affected. Our failure to comply with present or future regulations and standards could result in fines, penalties, recalls or injunctions being imposed on us, administrative penalties, potential civil and criminal liability, suspension of sales or production or cessation of operations.

Further, certain other U.S. and foreign laws and regulations affect our activities. Areas of our business affected by such laws and regulations include, but are not limited to, labor, advertising, consumer protection, quality of services, warranty, product liability, real estate, intellectual property, tax, import and export duties, tariffs, competition, environmental, and health and safety. We are also subject to compliance with the U.S. Foreign Corrupt Practices Act (“FCPA”), and other anti-corruption and anti-bribery laws applicable to our operations. Compliance with these laws and others may be onerous and costly, and may be inconsistent from jurisdiction to jurisdiction, which further complicates compliance efforts. Violations of these laws and regulations could lead to significant penalties, including restraints on our export or import privileges, monetary fines, criminal proceedings and regulatory or other actions that could adversely affect our results of operations. We cannot assure you that our employees, contractors, vendors or agents will not violate such laws and regulations or our policies and procedures related to compliance.

In addition, potentially significant expenditures could be required in order to comply with evolving healthcare, health and safety laws, regulations or other pertinent requirements that may be adopted or imposed in the future by governmental authorities. Our operating profit margin in 2018 was impacted by higher health insurance costs, largely due to increased employee participation and improved retention and operating profit will likely continue to be impacted in future periods.

Our risk management policies and procedures may not be fully effective in achieving their purposes.

Our policies, procedures, controls and oversight to monitor and manage our enterprise risks may not be fully effective in achieving their purpose and may leave exposure to identified or unidentified risks. Past or future misconduct by our employees, contractors, vendors or agents could result in violations of law by us, regulatory sanctions and/or serious reputational harm or financial harm. We cannot assure you that our policies, procedures and controls will be sufficient to prevent all forms of misconduct. We review our compensation policies and practices as part of our overall enterprise risk management program, but it is possible that our compensation policies could incentivize inappropriate risk taking or misconduct. If such inappropriate risks or misconduct occurs, it could have an adverse effect on our results of operations and/or our financial condition.

Our operations are subject to certain environmental laws and regulations, and costs of compliance, investigation or remediation of environmental conditions could have an adverse effect on our business and results of operations.

Our operations are also subject to certain complex federal, state and local environmental laws and regulations relating to air, water, and noise pollution and the use, storage, discharge and disposal of hazardous materials used during the manufacturing processes. Under certain of these laws, namely the Comprehensive Environmental Response, Compensation, and Liability Act and its state counterparts, liability for investigation and remediation of hazardous substance contamination at currently or formerly owned or operated facilities or at third-party waste disposal sites is joint and several. Failure to comply with these regulations could cause us to become subject to fines and penalties or otherwise have an adverse impact on our business. Although we believe that our operations and facilities have been and are being operated in compliance, in all material respects, with such laws and regulations, one or more of our current or former operating sites, or adjacent sites owned by third-parties, have been affected, and may in the future be affected, by releases of hazardous materials. As a result, we may incur expenditures for future investigation and remediation, including in conjunction with voluntary remediation programs or third-party claims. If other potentially responsible persons are unable or otherwise not obligated to contribute to remediation costs, we could be held responsible for their portion of the remediation costs, and those costs could be material. The operation of our manufacturing facilities entails risks, and we cannot assure you that our costs in relation to these environmental matters or compliance with environmental laws in general will not have an adverse effect on our business and results of operations.
We may not be able to protect our intellectual property and may be subject to infringement claims.
We rely on certain trademarks, patents and other intellectual property rights, including contractual rights with third parties. Our success depends, in part, on our ability to protect our intellectual property against dilution, infringement, and competitive pressure by defending our intellectual property rights. We rely on intellectual property laws of the U.S., European Union, Canada, and other countries, as well as contractual and other legal rights, for the protection of our property rights.
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However, we cannot assure that these measures will be successful in any given instance, or that third parties will not infringe upon our intellectual property rights. We may be forced to take steps to protect our rights, including through litigation, which could result in a significant expenditure of funds and a diversion of resources. The inability to protect our intellectual property rights could result in competitors manufacturing and marketing similar products which could adversely affect our market share and results of operations. Competitors may challenge, invalidate or avoid the application of our existing or future intellectual property rights that we receive or license.
From time to time, we receive notices or claims that we may be infringing certain patent or other intellectual property rights of others. While it is not possible to predict the outcome of patent and other intellectual property litigation, such litigation could result in our payment of significant monetary damages and/or royalty payments, negatively impact our ability to sell current or future products, reduce the market value of our products and services, lower our profits, and could otherwise have an adverse effect on our business, financial condition or results of operation.

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

The SEC adopted rules pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act setting forth disclosure requirements concerning the use or potential use of certain minerals, deemed conflict minerals (tantalum, tin, gold and tungsten), that are mined from the Democratic Republic of Congo and adjoining countries. These requirements necessitate due diligence efforts on our part to assess whether such minerals are used in our products in order to make the relevant required annual disclosures that began in May 2014. We have incurred costs and diverted internal resources to comply with these disclosure requirements, including for diligence to determine the sources of those minerals that may be used in or necessary to the production of our products. Compliance costs are expected to continue in future periods, subject to any regulatory changes implemented by the current administration in Washington, D.C. Further action or clarification from the SEC or a court regarding required disclosures could result in reputational challenges that could impact future sales if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products and are required to make such disclosures.

If our information technology systems fail to perform adequately or are breached, our operations could be disrupted and it could adversely affect our business, reputation and results of operations.
The efficient operation of our business depends on our information technology systems. We rely on our information technology systems to effectively manage our business data, inventory, supply chain, order entry and fulfillment, manufacturing, distribution, warranty administration, invoicing, collection of payments, and other business processes. We use information systems to report and support the audit of our operational and financial results. Additionally, we rely upon information systems in our sales, marketing, human resources and communication efforts. The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in transaction errors, processing inefficiencies, and the loss of sales and customers, causing our business and results of operations to suffer.
In addition, our information technology systems may be vulnerable to damage, interruption or unauthorized access from circumstances beyond our control, including fire, natural disasters, security breaches, telecommunications failures, computer viruses, hackers, phishing attempts, and other manipulation or improper use of our systems. Any such events could result in legal claims or proceedings, liability or penalties under privacy laws, disruption in operations, and damage to our reputation, which could adversely affect our business. Further, we have selected and have begun implementing a new enterprise resource planning (“ERP”) system, the full implementation of which is expected to take several years; however, there may be other challenges and risks as we upgrade and standardize our ERP system on a company-wide basis.
Cyber-attacks, such as those involving the deployment of malware, are increasing in frequency, sophistication and intensity and have become increasingly difficult to detect. We have an information security team that deploys the latest firewalls and constantly monitors and continually updates our security protections to mitigate these risks, but despite these ongoing efforts, we cannot assure you that they will be effective or will work as designed. If we fail to maintain or protect our information systems and data integrity effectively, we could: lose existing customers; have difficulty attracting new customers; have difficulty preventing, detecting and controlling fraud; have disputes with customers and suppliers; have regulatory sanctions or penalties imposed; incur increased operating expenses; incur expenses or lose revenues as a result of a data privacy breach; or suffer other adverse consequences.
Additionally, because we accept debit and credit cards for payment, we are subject to the Payment Card Industry Data Security Standard (the “PCI Standard”), issued by the Payment Card Industry Security Standards Council. The PCI Standard contains compliance guidelines with regard to our security surrounding the physical and electronic storage, processing and transmission of cardholder data. Complying with the PCI Standard and implementing related procedures, technology and
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information security measures requires significant resources and ongoing attention. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology such as those necessary to maintain compliance with the PCI Standard or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations. Any material interruptions or failures in our payment-related systems could have an adverse effect on our business, financial condition and results of operations.

We could incur warranty claims in excess of reserves.

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

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

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

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

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

A portion of our total assets as of December 31, 2018 was comprised of goodwill, intangible assets and other long-lived assets. At least annually, we review goodwill for impairment. Long-lived assets, identifiable intangible assets and goodwill are also reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable from future cash flows. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. Our determination of future cash flows, future recoverability and fair value of our long-lived assets includes significant estimates and assumptions. Changes in those estimates or assumptions or lower than anticipated future financial performance may result in the identification of an impaired asset and a non-cash impairment charge, which could be material. Any such charge could adversely affect our operating results and financial condition.

We may become more leveraged.

Financing for our investments is typically provided through a combination of currently available cash and cash equivalents and use of our revolving credit facility. The incurrence of indebtedness may cause us to become more leveraged, which could (1) require us to dedicate a greater portion of our cash flow to the payment of debt service, (2) make us more vulnerable to a downturn in the economy, (3) limit our ability to obtain additional financing, or (4) negatively affect our outlook by one or more of our lenders.

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We are subject to covenants in our debt agreements that may restrict or limit our operations and acquisitions and our failure to comply with the covenants in our debt agreements could have a material adverse impact on our business, results of operations and financial condition.

Our debt agreements contain various covenants, restrictions and events of default. Among other things, these provisions require us to maintain certain financial ratios, including a maximum net leverage ratio and a minimum debt service coverage ratio, and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions. Breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness, which may permit the lenders under these debt agreements to exercise remedies. These defaults could have a material adverse impact on our business, results of operations and financial condition.

An increase in interest rates could adversely impact our financial condition, results of operations and cash flows.

Our financial condition, results of operations and cash flows could be significantly affected by changes in interest rates and actions taken by the Federal Reserve or changes in the London Interbank Offered Rate (“LIBOR”) or its replacement. Future increases in market interest rates would increase our interest expense. Borrowings under our Amended Credit Agreement currently bear interest at variable rates based on either an Alternate Base Rate or an Adjusted LIBOR plus, in each case, an applicable margin. In July 2017, the U.K. Financial Conduct Authority announced that, after the end of 2021, it would no longer persuade or compel contributing banks to make rate submissions to the ICE Benchmark Administration (together with any successor to the ICE Benchmark Administrator, the “IBA”) for purposes of the IBA setting the LIBOR. As a result, it is possible that commencing in 2022, the LIBOR may no longer be available or may no longer be deemed an appropriate reference rate upon which to determine the interest rate on eurocurrency loans. While our Amended Credit Agreement provides a mechanism for determining an alternative rate of interest in the event that LIBOR is no longer available, any such alternative, successor or replacement rate may not be similar to, or produce the same value or economic equivalence of, LIBOR or have the same volume or liquidity as did LIBOR prior to its discontinuance or unavailability, which may increase our overall interest expense.

Although we currently pay regular quarterly dividends on our common stock, we cannot assure you that we will continue to pay a regular quarterly dividend.

In March 2016, our Board of Directors approved the commencement of a dividend program under which we have paid regular quarterly cash dividends to holders of our common stock. Our ability to pay dividends, and our Board of Directors’ determination to maintain our current dividend policy, will depend on a number of factors, including:
the state of our business, competition, and changes in our industry;
changes in the factors, assumptions, and other considerations made by our Board of Directors in reviewing and revising our dividend policy;
our future results of operations, financial condition, liquidity needs, and capital resources;
limitations in our debt agreements; and
our various expected cash needs, including cash interest and principal payments on our indebtedness, capital expenditures, the purchase price of acquisitions, and taxes.
Each of the factors listed above could negatively affect our ability to pay dividends in accordance with our dividend policy or at all. In addition, our Board of Directors may elect to suspend or alter the current dividend policy at any time.

Although we have initiated a stock repurchase program, we cannot assure you that we will continue to repurchase shares or that we will repurchase shares at favorable prices.

In October 2018, our Board of Directors authorized a stock repurchase program granting the Company authority to repurchase up to $150.0 million of the Company’s common stock over a three-year period. The amount and timing of share repurchases are subject to capital availability and our determination that share repurchases are in the best interest of our shareholders. In addition, any share repurchases must comply with all respective laws and any agreements applicable to the repurchase of shares, including our debt agreements. Our ability to repurchase shares will depend upon, among other factors, our cash balances and potential future capital requirements for strategic investments, our results of operations, our financial condition and other factors beyond our control that we may deem relevant. A reduction in repurchases, or the completion of our stock repurchase program, could have a negative impact on our stock price. Additionally, we can provide no assurance that we will repurchase shares at favorable prices, if at all.

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Our stock price may be volatile.

The price of our common stock may fluctuate widely, depending upon a number of factors, many of which are beyond our control. These factors include:
the perceived prospects of our business and our industries as a whole;
differences between our actual financial and operating results and those expected by investors and analysts;
changes in analysts’ recommendations or projections;
changes affecting the availability of financing in the wholesale and consumer lending markets;
actions or announcements by competitors;
changes in laws and regulations affecting our business;
the gain or loss of significant customers;
significant sales of shares by a principal stockholder;
activity under our stock repurchase program;
changes in key personnel;
actions taken by stockholders that may be contrary to our Board of Directors’ recommendations; and
changes in general economic or market conditions.
In addition, stock markets generally experience significant price and volume volatility from time to time, which may adversely affect the market price of our common stock for reasons unrelated to our performance.

Item 1B. UNRESOLVED STAFF COMMENTS.

None.

Item 2. PROPERTIES.

The Company’s manufacturing operations are conducted at facilities that are used for both manufacturing and warehousing. Many of the properties listed manufacture and warehouse products sold through both the OEM Segment and Aftermarket Segment. Square footage is not allocated across the segments. In addition, the Company maintains administrative facilities used for corporate and administrative functions. The Company’s primary administrative offices are located in Elkhart and Mishawaka, Indiana. Total administrative space company-wide aggregates approximately 500,000 square feet. At December 31, 2018, the Company’s properties were as follows:

CityState/ProvinceSquare FeetOwnedLeased
Double SpringsAlabama109,000 
GilbertArizona11,600  
Los AngelesCalifornia82,500 
RialtoCalifornia62,700 
PomonaCalifornia54,273 
BradentonFlorida91,392 
LakelandFlorida15,000  
FitzgeraldGeorgia79,000 
NampaIdaho141,080  
NampaIdaho83,500   
NampaIdaho22,000 
Twin FallsIdaho16,060   
Fort WayneIndiana740,784 
GoshenIndiana410,000   
South BendIndiana379,902 
GoshenIndiana355,960   
GoshenIndiana341,000 
ElkhartIndiana308,864   
MishawakaIndiana303,923 
21


CityState/ProvinceSquare FeetOwnedLeased
ElkhartIndiana250,000 
ElkhartIndiana230,800 
Bristol(2)
Indiana177,408 
ElkhartIndiana160,000 
GoshenIndiana158,500 
GoshenIndiana153,200   
KendalvilleIndiana152,200   
ElkhartIndiana125,855 
MiddleburyIndiana122,226   
GoshenIndiana118,125 
GoshenIndiana110,000 
ElkhartIndiana102,900   
MiddleburyIndiana101,776   
GoshenIndiana95,960   
GoshenIndiana87,800   
GoshenIndiana74,200 
HoweIndiana60,000 
ElkhartIndiana57,000 
GoshenIndiana53,500   
New ParisIndiana50,000 
ElkhartIndiana27,200  
ElkhartIndiana18,000  
MillersburgIndiana10,000 
ElkhartIndiana7,300 
TemplemoreIreland73,000 
San CascianoItaly58,125 
MilanItaly55,176 
MonteriggioniItaly16,500 
CalenzanoItaly15,000 
VeniceItaly10,500 
PontederaItaly6,251 
NewtonKansas174,147 
ChesaningMichigan95,562 
ChesaningMichigan62,330 
Sterling HeightsMichigan56,248 
GloversvilleNew York140,000 
GloversvilleNew York140,000 
JohnstownNew York8,842 
PayneOhio170,000 
Jackson CenterOhio12,000 
TulsaOklahoma30,953 
PendletonOregon56,800   
McMinnvilleOregon35,700   
DenverPennsylvania40,200 
GranbyQuebec96,875 
GaffneySouth Carolina55,000 
22


CityState/ProvinceSquare FeetOwnedLeased
SpringfieldTennessee60,000 
WaxahachieTexas195,000   
CatfieldEngland135,000 
CheshireEngland1,700 
KaysvilleUtah70,000   
  7,983,397 
(1)
 
____________________________
(1) At December 31, 2017, the Company used an aggregate of 6,704,891 square feet for manufacturing and warehousing.
(2) Facilities under construction in preparation for manufacturing and warehousing at December 31, 2018.

At December 31, 2018, the Company maintained the following facilities, or partial facilities, not currently used in production.
CityState/ProvinceSquare FeetOwnedLeased
Phoenix(3)
Arizona61,000 
South Bend(3)
Indiana134,235 
ElkhartIndiana91,670 
ChesterSouth Carolina108,600 
  395,505   
________________________
(3) Currently leased to third parties.

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, management believes that, after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided for in the Consolidated Balance Sheet as of December 31, 2018, would not be material to the Company’s financial position or annual results of operations.

Item 4. MINE SAFETY DISCLOSURES.

Not applicable.
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PART II

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

Market and Stockholders

As of February 15, 2019, there were 297 holders of the Company’s common stock, in addition to beneficial owners of shares held in broker and nominee names. The Company’s common stock trades on the New York Stock Exchange under the symbol “LCII”.

The table and related information required for the Equity Compensation Plan is incorporated by reference from the information contained under the caption “Equity Compensation Plan Information” in the Company’s 2019 Proxy Statement.

Dividends and Share Repurchases

See Note 12 - Stockholders Equity of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion regarding dividends and share repurchases. Monthly stock repurchases for the fourth quarter of 2018 were as follows:
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased under the Plans or Programs
(in millions) 
November 2018141,143 74.58 141,143 $139.5 
December 2018261,427 69.50 402,570 $121.3 
Total 402,570 71.28 

The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards.
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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)20182017201620152014
Operating Data:
Net sales$2,475,807 $2,147,770 $1,678,898 $1,403,066 $1,190,782 
Operating profit198,788 214,281 200,850 116,254 95,487 
Income before income taxes192,352 212,844 199,172 114,369 95,057 
Provision for income taxes*43,801 79,960 69,501 40,024 32,791 
Net income*148,551 132,884 129,671 74,345 62,266 
Net income per common share:
Basic*$5.90 $5.31 $5.26 $3.06 $2.60 
Diluted*5.83 5.24 5.20 3.02 2.56 
Cash dividends per common share$2.35 $2.05 $1.40 $2.00 $2.00 
Financial Data:
Net working capital$349,069 $235,066 $218,043 $146,964 $100,451 
Total assets1,243,893 945,858 786,904 622,856 543,841 
Long-term obligations360,056 111,100 87,284 85,419 41,758 
Stockholders’ equity706,255 652,745 550,269 438,575 394,898 

Amounts include a one-time non-cash charge of $0.6 million ($0.03 per diluted share) and $13.2 million ($0.52 per diluted share) related to the impact of the TCJA for the years ended December 31, 2018 and 2017, respectively. See “Provision for Income Taxes” and “Non-GAAP Measures” included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further information related to the impact of the TCJA and for additional information regarding the Company’s use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in Item 8 of this Report.

The Company, through its wholly-owned subsidiary, LCI, supplies, domestically and internationally, a broad array of engineered components for the leading OEMs in the recreation and industrial product markets, consisting of RVs and adjacent industries including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured homes; and modular housing. The Company also supplies engineered components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors and service centers.

The Company has two reportable segments, the OEM Segment and the Aftermarket Segment. At December 31, 2018, the Company operated over 65 manufacturing and distribution facilities located throughout the United States and in Canada, Ireland, Italy and the United Kingdom.

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Net sales and operating profit were as follows for the years ended December 31:
(In thousands)201820172016
Net sales:
OEM Segment:
RV OEMs:
Travel trailers and fifth-wheels$1,440,730 $1,405,983 $1,099,882 
Motorhomes187,297 159,417 116,191 
Adjacent industries OEMs614,589 411,223 332,018 
Total OEM Segment net sales2,242,616 1,976,623 1,548,091 
Aftermarket Segment:
Total Aftermarket Segment net sales233,191 171,147 130,807 
Total net sales$2,475,807 $2,147,770 $1,678,898 
Operating profit:
OEM Segment$167,459 $190,276 $180,850 
Aftermarket Segment31,329 24,005 20,000 
Total operating profit$198,788 $214,281 $200,850 

Corporate expenses are allocated between the segments based upon net sales. Accretion related to contingent consideration is included in the segment to which it relates.

Net sales and operating profit by segment, as a percent of the total, were as follows for the years ended December 31:
201820172016
Net sales:
OEM Segment91%  92%  92%  
Aftermarket Segment9%  8%  8%  
Total net sales100%  100%  100%  
Operating Profit:
OEM Segment84%  89%  90%  
Aftermarket Segment16%  11%  10%  
Total segment operating profit100%  100%  100%  

Operating profit margin by segment was as follows for the years ended December 31:
201820172016
OEM Segment7.5%  9.6%  11.7%  
Aftermarket Segment13.4%  14.0%  15.3%  

The Company’s OEM Segment manufactures and distributes a broad array of engineered components for the leading OEMs of RVs and adjacent industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured homes; and modular housing. Approximately 64 percent of the Company’s OEM Segment net sales for the year ended December 31, 2018 were of components for travel trailer and fifth-wheel RVs, including:
● Steel chassis and related components● Furniture and mattresses
● Axles and suspension 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

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The Aftermarket Segment supplies many of these components to the related aftermarket channels of the RV and adjacent industries, primarily to retail dealers, wholesale distributors and service centers. The Aftermarket Segment also includes the sale of replacement glass and awnings to fulfill insurance claims.

INDUSTRY BACKGROUND

OEM Segment

Recreational Vehicle Industry

An RV is a vehicle designed as temporary living quarters for recreational, camping, travel or seasonal use. RVs may be motorized (motorhomes) or towable (travel trailers, fifth-wheel travel trailers, folding camping trailers and truck campers).
The annual sales cycle for the RV industry generally starts in October after the “Open House” in Elkhart, Indiana where many of the largest RV OEMs display product to RV retail dealers, and ends after the conclusion of the summer selling season in September in the following calendar year. Between October and March, industry-wide wholesale shipments of travel trailer and fifth-wheel RVs have historically exceeded retail sales as dealers build inventories to support anticipated sales. Between April and September, the spring and summer selling seasons, retail sales of travel trailer and fifth-wheel RVs have historically exceeded industry-wide wholesale shipments. Although the current year has seen a disruption of wholesales shipments as dealers normalize their inventory levels, the Company expects to return to the normal wholesale cycle mid-2019.
According to the RVIA, industry-wide wholesale shipments of travel trailer and fifth-wheel RVs in 2018, the Company’s primary RV market, decreased three percent to 415,000 units, compared to 2017, as a result of RV dealers decreasing inventory levels by an estimated 4,100 units in 2018, compared to an increase in inventory levels of 28,300 units in 2017. This was partially offset by an estimated 17,900 unit increase in retail demand in 2018, or four percent, as compared to 2017. In addition, retail demand is typically revised upward in subsequent months, primarily due to delayed RV registrations.
While the Company measures its OEM Segment RV sales against industry-wide wholesale shipment statistics, the underlying health of the RV industry is determined by retail demand. A comparison of the number of units and the year-over-year percentage change in industry-wide wholesale shipments and retail sales of travel trailers and fifth-wheel RVs, as reported by Statistical Surveys, Inc., as well as the resulting estimated change in dealer inventories, for both the United States and Canada, is as follows:
WholesaleRetail
Estimated Unit
Impact on
Dealer
UnitsChangeUnitsChangeInventories
Year ended December 31, 2018415,000 (3)% 419,100 4%  (4,100)
Year ended December 31, 2017429,500 18%  401,200 14%  28,300 
Year ended December 31, 2016362,700 15%  352,700 11%  10,000 

According to the RVIA, industry-wide wholesale shipments of motorhome RVs in 2018 decreased eight percent to 57,600 units compared to 2017. Retail demand for motorhome RVs also decreased two percent in 2018, following a 13 percent increase in retail demand in 2017.
The RVIA has projected a modest decrease in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs for 2019. Several RV OEMs, however, are introducing new product lines and additional features. Retail sales of RVs historically have been closely tied to general economic conditions, as well as consumer confidence, which was above historical averages in 2018. Additionally, retail sales of travel trailer and fifth-wheel RVs have increased in 106 of the last 108 months on a year-over-year basis. Industry resources report strong attendance and high consumer interest at RV shows around the United States and Canada in early 2019.
Although future retail demand is inherently uncertain, RV industry fundamentals in 2018, including generally low unemployment, steady fuel prices and available credit for dealers and RV consumers, were strong, as evidenced by the estimated four percent increase in industry-wide retail sales of travel trailer and fifth-wheel RVs.
Over the long term, the Company expects RV industry sales to be aided by positive demographics and the continued popularity of the “RV Lifestyle”. The number of consumers between the ages of 55 and 70 are projected to total 56 million by
27


2020, 27 percent higher than in 2010, according to U.S. Census figures, and one in ten vehicle-owning households between the ages of 50 and 64 own at least one RV. The RVIA reported much of the success of the RV industry has been driven by the Baby Boomer generation. The size of that generation is beginning to wane, and younger generations, Generation X and Millennials, are becoming more relevant to future industry growth. Generation X and Millennials are more diverse, requiring new and creative marketing approaches to attract them to the RV industry. The RVIA has an advertising campaign promoting the “RV Lifestyle” targeted at both parents aged 30 - 49 with children at home, as well as couples aged 50 - 64 with no children at home. In addition, the RV OEMs have developed more entry level units, specifically targeting younger families, in both towables and motorhomes. The popularity of traveling in RVs to NASCAR and other sporting events, more family-oriented domestic vacations, and using RVs as second homes, are trends that could continue to motivate consumer demand for RVs. RVIA studies indicate RV vacations cost significantly less than other forms of vacation travel, even when factoring in fuel prices and the cost of RV ownership. More details can be found at www.RVIA.org.

Adjacent Industries

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; boats; trains; manufactured homes; and modular housing (collectively, “Adjacent Industries”). In many cases, OEM customers of the Adjacent Industries are affiliated with RV OEMs through related subsidiaries. The Company believes there are significant opportunities in these Adjacent Industries and, as a result, three of the last four business acquisitions completed by the Company through the date of this report were focused in Adjacent Industries.

The estimated potential content per unit the Company may supply to the Adjacent Industries varies by OEM product and differs from RVs. As a means to understand the potential of each of these markets, management reviews the number of retail units sold. The following are key target markets for Adjacent Industries component sales:

Enclosed trailers. According to Statistical Surveys, approximately 214,000, 216,000 and 200,000 enclosed trailers were sold in 2018, 2017 and 2016, respectively.
Pontoon boats. Statistical Surveys also reported approximately 55,000, 52,400 and 49,000 pontoon boats were sold in 2018, 2017 and 2016, respectively.
School buses. According to School Bus Fleet, there were approximately 44,400, 44,400 and 40,900 school buses sold in 2018, 2017 and 2016, respectively.
Manufactured housing. According to the Institute for Building Technology and Safety, there were approximately 96,600, 92,900 and 81,100 manufactured home wholesale shipments in 2018, 2017 and 2016, respectively.

Aftermarket Segment

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

According to the RVIA, estimated RV ownership in the United States has increased to over nine million units. Additionally, as a result of a vibrant secondary market, one third of current owners purchased their RV new while the remaining two-thirds purchased a previously owned RV. This vibrant secondary market is a key driver for aftermarket sales, as the Company anticipates owners of previously owned RVs will likely upgrade their units as well as replace parts and accessories which have been subjected to normal wear and tear.

RESULTS OF OPERATIONS

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

Consolidated Highlights

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Consolidated net sales for the year ended December 31, 2018 increased to a record $2.5 billion, 15 percent higher than consolidated net sales for the year ended December 31, 2017 of $2.1 billion. The increase in year-over-year sales reflects growth across the Company’s segments, as well as acquisitions completed by the Company over the twelve months ended December 31, 2018 which added $231.4 million in net sales.
Net income for the full-year 2018 increased to $148.6 million, or $5.83 per diluted share, up from net income of $132.9 million, or $5.24 per diluted share, in 2017. Net income for 2018 and 2017 included one-time non-cash charges of $0.6 million ($0.03 per diluted share) and $13.2 million ($0.52 per diluted share), respectively, related to the impact of the TCJA. Excluding the estimated impact of the TCJA, adjusted net income was $149.2 million, or $5.86 per diluted share, in 2018 compared to $146.1 million, or $5.76 per diluted share, in 2017. Adjusted net income and adjusted net income per diluted share are non-GAAP financial measures. See “Non-GAAP Measures” for additional information regarding the Company’s use of non-GAAP financial measures and a reconciliation to the most directly comparable GAAP financial measures.
Consolidated operating profit during 2018 decreased seven percent, to $198.8 million from $214.3 million in 2017. Operating profit margin decreased to 8.0 percent in 2018 from 10.0 percent in 2017.
The cost of aluminum and steel used in certain of the Company’s manufactured components increased throughout 2018 from lows in 2016 and 2015, having a large impact on operating profits. Raw material costs continue to fluctuate and are expected to remain volatile.
The Company continues to take actions to improve its cost structure. The Company seeks to continuously manage its labor cost, particularly indirect labor, while supporting the growth of the business. Lean manufacturing teams continue working to reduce costs and implement processes to better utilize available floorspace. The Company has also reduced direct labor attrition, which improves efficiency and reduces other costs associated with workforce turnover.
During 2018, the Company completed four acquisitions:
In November 2018, the Company acquired the business and certain assets of the furniture manufacturing operation of Smoker Craft, a leading pontoon, aluminum fishing, and fiberglass boat manufacturer located in New Paris, Indiana. The purchase price was $28.1 million paid at closing.
In June 2018, the Company acquired 100 percent of the equity interests of STLA, a manufacturer of bed lifts and other RV components for the European caravan market, headquartered in Pontedera, Italy. The purchase price was $14.8 million, net of cash acquired, paid at closing, and is subject to potential post-closing adjustments related to net working capital.
In February 2018, the Company acquired substantially all of the business assets of Hehr, a manufacturer of windows and tempered and laminated glass for the RV, transit, specialty vehicle, and other adjacent industries, headquartered in Los Angeles, California. The purchase price was $51.5 million paid at closing.
In January 2018, the Company acquired 100 percent of the equity interests of Taylor Made, a marine supplier to boat builders and the aftermarket, as well as a key supplier to a host of other industrial end markets, headquartered in Gloversville, New York. The purchase price was $90.4 million, net of cash acquired, paid at closing.
Integration activities for these acquired businesses are underway and proceeding in line with established plans. The Company plans to leverage its purchasing power, manufacturing capabilities, engineering expertise and design resources to improve the cost structure of the acquired operations.
In March 2018, the Company paid a quarterly dividend of $0.55 per share, aggregating $13.9 million. In June, September and December 2018, the Company paid a quarterly dividend of $0.60 per share, aggregating $15.1 million, $15.1 million and $15.2 million, respectively.
In 2018, the Company repurchased 0.4 million of its common shares for $28.7 million of the authorized $150.0 million under its new stock repurchase program.

OEM Segment

Net sales of the OEM Segment in 2018 increased 13 percent, or $266.0 million, compared to 2017. Net sales of components to OEMs were to the following markets for the years ended December 31:
(In thousands)20182017Change
RV OEMs:
Travel trailers and fifth-wheels$1,440,730 $1,405,983 2%  
Motorhomes187,297 159,417 17%  
Adjacent industries OEMs614,589 411,223 49%  
Total OEM Segment net sales$2,242,616 $1,976,623 13%  

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According to the RVIA, industry-wide wholesale shipments for the years ended December 31, were:
20182017Change
Travel trailer and fifth-wheel RVs415,000 429,500 (3)% 
Motorhomes57,600 62,600 (8)% 

The Company’s net sales growth in components for travel trailer and fifth-wheel RVs during 2018 outperformed industry-wide wholesale shipments of travel trailer and fifth-wheel RVs during the same period primarily due to market share gains as a result of price increases, new product introductions and customer penetration.

The Company’s net sales growth in components for motorhomes during 2018 outperformed industry-wide wholesale shipments of motorhomes during the same period primarily due to acquisitions and market share gains in 2018. Over the past few years, the Company has been expanding its product line of components for motorhomes in order to increase its customer base and market penetration, and further growth is expected.

The trend in the Company’s average product content per RV produced is an indicator of the Company’s overall market share of components for new RVs. The Company’s average product content per type of RV, calculated based upon the Company’s net sales of components to RV OEMs for the different types of RVs produced for the years ended December 31, divided by the industry-wide wholesale shipments of the different types of RVs for the same period, was:
Content per:20182017Change
Travel trailer and fifth-wheel RV$3,450 $3,263 6%  
Motorhome$2,491 $2,219 12%  
The Company’s average product content per type of RV excludes international sales and sales to the Aftermarket Segment and Adjacent Industries. Content per RV is impacted by market share gains, acquisitions, new product introductions, and changes in selling prices for the Company’s products, as well as changes in the types of RVs produced industry-wide.

The Company’s net OEM sales to Adjacent Industries increased during 2018 primarily due to market share gains and acquisitions completed in 2018. The Company continues to believe there are significant opportunities in Adjacent Industries.

Operating profit of the OEM Segment was $167.5 million in 2018, a decrease of $22.8 million compared to 2017. The operating profit margin of the OEM Segment was negatively impacted by:
Higher material costs for certain raw materials. Steel, aluminum and foam costs continued to increase in 2018 primarily driven by tariffs and tariff speculation on steel and aluminum. Material costs are subject to global supply and demand forces, as well as tariff changes, and are expected to remain volatile.
The Company made significant investments over the past couple of years in manufacturing capacity, in both facilities and personnel, to prepare for the expected increase in net sales in 2018 and beyond. In addition to these investments, the Company has made improvements in marketing, human resources, engineering, customer service and other critical departments. The Company also added the teams from acquired businesses, and expenses were negatively impacted by amortization costs of intangible assets related to those businesses.
Higher labor costs. While the Company seeks to continuously manage its labor cost, it has added staff to support the growth of the business. Additionally, competition for skilled workers has continued to tighten the labor market which has increased the cost of labor.
Partially offset by:
Pricing changes of certain products.
Increased sales to Adjacent Industries OEMs.
Cost savings related to investments over the past several years to improve operating efficiencies, including lean manufacturing initiatives, increased use of automation and employee retention initiatives. The Company has also reduced direct labor attrition which improves efficiency and reduces other costs associated with workforce turnover.

30


Aftermarket Segment

Net sales of the Aftermarket Segment in 2018 increased 36 percent, or $62.0 million, compared to 2017. Net sales of components in the Aftermarket Segment were as follows for the years ended December 31:
(In thousands)20182017Change
Total Aftermarket Segment net sales$233,191 $171,147 36%  

The Company’s net sales to the Aftermarket Segment increased during 2018 primarily due to acquisitions and the Company’s focus on building out well qualified, customer-focused teams and infrastructure to service this market.

Operating profit of the Aftermarket Segment was $31.3 million in 2018, an increase of $7.3 million compared to 2017, primarily due to the increase in net sales. Operating profit margin of the Aftermarket Segment was 13.4 percent in 2018, compared to 14.0 percent in 2017.

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

Consolidated Highlights

Consolidated net sales for the year ended December 31, 2017 increased to $2.1 billion, 28 percent higher than consolidated net sales for the year ended December 31, 2016 of $1.7 billion. Acquisitions completed by the Company in 2017 added $42 million in net sales. The 18 percent increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs, the Company’s primary OEM market, as well as increased content per unit, positively impacted net sales growth in 2017. Further, the Company organically increased sales to adjacent industries and the aftermarket.
Net income for the full-year 2017 increased to $132.9 million, or $5.24 per diluted share, up from net income of $129.7 million, or $5.20 per diluted share, in 2016. Net income in 2017 included a one-time non-cash charge of $13.2 million ($0.52 per diluted share) related to the estimated impact of the TCJA. Excluding the impact of the TCJA, adjusted net income was $146.1 million, or $5.76 per diluted share, in 2017 compared with $129.7 million, or $5.20 per diluted share, in 2016. Adjusted net income and adjusted net income per diluted share are non-GAAP financial measures. See “Non-GAAP Measures” for additional information regarding the Company’s use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures.
Consolidated operating profits during 2017 increased seven percent, to $214.3 million from $200.9 million in 2016. Operating profit margin decreased to 10.0 percent in 2017 from 12.0 percent in 2016.
The Company continued to take actions to improve its cost structure. The Company seeks to continuously manage its labor cost, particularly indirect labor, while supporting the growth of the business. Lean manufacturing teams continued working to reduce cost and implement processes to better utilize available floorspace. The Company has also reduced direct labor attrition which improves efficiency and reduces other costs associated with workforce turnover.
The cost of aluminum and steel used in certain of the Company’s manufactured components increased throughout 2017 from recent lows in 2016 and 2015. Raw material costs continue to fluctuate and are expected to remain volatile.
During 2017, the Company completed three acquisitions:
Metallarte S.r.l. - An Italian manufacturer of entry and compartment doors for the European caravan market, with estimated annual sales of $12 million, completed in June 2017;
Lexington - An Elkhart, Indiana-based manufacturer of high quality seating solutions for the marine, RV, transportation, medical and office furniture industries with estimated annual sales of $60 million, completed in May 2017; and
SessaKlein S.p.A. - An Italian manufacturer of highly engineered side window systems for high speed and commuter rail trains with estimated annual sales of $11 million, completed in February 2017.
Integration activities for these acquired businesses were in line with established plans. The Company plans to leverage its purchasing power, manufacturing capabilities, engineering expertise and design resources to improve the cost structure of the acquired operations.
In March, June and September 2017, the Company paid a quarterly dividend of $0.50 per share, aggregating $12.4 million, $12.4 million and $12.5 million, respectively. In December 2017, the Company paid a quarterly dividend of $0.55 per share, aggregating $13.7 million.

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OEM Segment

Net sales of the OEM Segment in 2017 increased 28 percent, or $429 million, compared to 2016. Net sales of components to OEMs were to the following markets for the years ended December 31:
(In thousands)20172016Change
RV OEMs:
Travel trailers and fifth-wheels$1,405,983 $1,099,882 28%  
Motorhomes159,417 116,191 37%  
Adjacent industries411,223 332,018 24%  
Total OEM Segment net sales$1,976,623 $1,548,091 28%  

According to the RVIA, industry-wide wholesale shipments for the years ended December 31, were:
20172016Change
Travel trailer and fifth-wheel RVs429,500 362,700 18%  
Motorhomes62,600 54,800 14%  

The Company’s net sales growth in components for travel trailer and fifth-wheel RVs during 2017 exceeded the increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs during the same period primarily due to market share gains in 2017.

The Company’s net sales growth in components for motorhomes during 2017 exceeded the increase in industry-wide wholesale shipments of motorhomes during the same period primarily due to acquisitions and market share gains in 2017. Over the past few years, the Company has been expanding its product line of components for motorhomes in order to increase its customer base and market penetration, and further growth is expected.

The trend in the Company’s average product content per RV produced is an indicator of the Company’s overall market share of components for new RVs. The Company’s average product content per type of RV, calculated based upon the Company’s net sales of components to RV OEMs for the different types of RVs produced for the years ended December 31, divided by the industry-wide wholesale shipments of the different types of RVs for the same period, was:
Content per:20172016Change
Travel trailer and fifth-wheel RV$3,263 $3,022 8%  
Motorhome$2,219 $2,011 10%  

The Company’s average product content per type of RV excludes sales to the Aftermarket Segment and Adjacent Industries. Content per RV is impacted by market share gains, acquisitions, new product introductions, and changes in selling prices for the Company’s products, as well as changes in the types of RVs produced industry-wide.

The Company’s net OEM sales to Adjacent Industries increased during 2017 primarily due to market share gains and acquisitions completed in 2017. The Company continues to believe there are significant opportunities in Adjacent Industries.

Operating profit of the OEM Segment was $190.3 million in 2017, an improvement of $9.4 million compared to 2016. The operating profit margin of the OEM Segment in 2017 was negatively impacted by:
Higher material costs for certain raw materials. Steel and aluminum costs increased throughout 2017 from recent lows in 2016 and 2015. Material costs, which are subject to global supply and demand forces, are expected to remain volatile.
Fixed costs which were approximately $11 million to $12 million higher in 2017 compared to 2016. Over the past several years, the Company made significant investments in manufacturing capacity, both facilities and personnel, to prepare for the expected increase in net sales in 2017 and beyond. In addition to investments in fixed costs to expand manufacturing capacity, the Company has made improvements in marketing, human resources, engineering, customer service and other critical departments. The Company also added the teams from acquired businesses, as well as amortization costs of intangible assets related to those businesses.
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While the Company seeks to continuously manage its labor cost, it has added staff to support the growth of the business. The results also reflect variable compensation increases based on achieving profitability targets. Additionally, the highly competitive labor market in the industry has driven an increase in labor rates in 2017.
Partially offset by:
Better fixed cost absorption by spreading fixed costs over a $429 million larger sales base.
Increasing sales to Adjacent Industries OEMs, which generally have better margins.
Leverage from investments over the past several years to increase capacity and improve operating efficiencies. Further, the Company has implemented efficiency improvements, including lean manufacturing initiatives, increased use of automation and employee retention initiatives. The Company has also reduced direct labor attrition, which improves efficiency and reduces other costs associated with workforce turnover.
Strategic pricing changes of products.

Aftermarket Segment

Net sales of the Aftermarket Segment in 2017 increased 31 percent, or $40.3 million, compared to 2016. Net sales of components in the Aftermarket Segment were as follows for the years ended December 31:
(In thousands)20172016Change
Total Aftermarket Segment net sales$171,147 $130,807 31%  

The Company’s net sales to the Aftermarket Segment increased during 2017 primarily due to the Company’s focus on building out well qualified, customer-focused teams and infrastructure to service this market. With an estimated nine million households in North America owning an RV and the Company’s increasing content per unit, the Company continues to believe there are significant opportunities in the RV aftermarket as the components sold to OEMs are subject to normal wear and tear over time.

Operating profit of the Aftermarket Segment was $24.0 million in 2017, an increase of $4.0 million compared to 2016, primarily due to the increase in net sales and the higher margins traditionally experienced in aftermarket channels. Operating profit margin of the Aftermarket Segment was 14.0 percent in 2017, compared to 15.3 percent in 2016. The decrease in operating profit margin was primarily due to the mix of sales between warehouse distribution centers, which have lower margins, and retail dealerships.

Provision for Income Taxes

The effective income tax rate for 2018 was 22.8 percent compared to 37.6 percent in 2017. During the fourth quarter of 2018, the Company finalized its tax accounting for the TCJA and pursuant to Staff Accounting Bulletin No. 118 (“SAB 118”) recorded a one-time non-cash charge of $0.6 million related to adjustments to deferred tax amounts provisionally recorded in the prior year. During the fourth quarter of 2017, the Company recorded a provisional one-time non-cash charge of $13.2 million related to the enactment of the TCJA. The charge resulted from the re-measurement of the Company’s deferred tax assets considering the TCJA’s newly enacted tax rates. This provisional amount was subject to adjustment during the measurement period of up to one year following the December 2017 enactment of the TCJA, as provided by recent SEC guidance. Excluding the one-time charge, the Company’s effective tax rate for 2018 was 22.5 percent compared to 31.4 percent for 2017, as referenced in the “Non-GAAP Measures” section. The 2018 effective tax rate, adjusted for the impact of TCJA, was lower than 2017 primarily due to the reduction in the U.S. corporate income tax rate.

The Company estimates the 2019 effective income tax rate to be approximately 24 percent to 26 percent.

Non-GAAP Measures

In addition to reporting financial results in accordance with U.S. GAAP, the Company also has included in this Annual Report on Form 10-K non-GAAP measures that adjust for the impact of enactment of the TCJA. This item represents a significant charge that impacted the Company’s financial results. Net income, earnings per diluted share, the provision for income taxes and the effective tax rate are all measures for which the Company provides the reported GAAP measure and an adjusted measure. The adjusted measures are not in accordance with, nor are they a substitute for, GAAP measures. The Company considers these non-GAAP measures in evaluating and managing the Company’s operations. The Company believes that discussion of results adjusted for this item is meaningful to investors as it provides a useful analysis of ongoing underlying operating trends. In addition, from time to time, certain of these non-GAAP measures may also be used in our compensation
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programs. The determination of these non-GAAP financial measures may not be comparable to the determination of similarly titled measures used by other companies. The following are reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures.
Twelve months ended December 31, 2018
(In thousands, except per share amounts)Income before income taxes Provision for income taxes Net income Effective tax rate Diluted earnings per share
As reported GAAP192,352 $43,801 $148,551 23 %$5.83 
Impact of TCJA (1)
— (612)612 (1)%0.03 
Adjusted non-GAAP$192,352 $43,189 $149,163 22 %$5.86 
Twelve months ended December 31, 2017
(In thousands, except per share amounts)Income before income taxes Provision for income taxes Net income Effective tax rate Diluted earnings per share
As reported GAAP$212,844 $79,960 $132,884 38 %$5.24 
Impact of TCJA (1)
— (13,209)13,209 (7)%0.52 
Adjusted non-GAAP$212,844 $66,751 $146,093 31 %$5.76 
(1) During the fourth quarter of 2018, the Company finalized its tax accounting for the TCJA and pursuant to SAB 118 recorded a one-time non-cash charge of $0.6 million related to adjustments to deferred tax amounts provisionally recorded in the prior year. During the fourth quarter of 2017, the Company recorded a provisional one-time non-cash charge of $13.2 million related to the enactment of the TCJA. The charge resulted from the re-measurement of the Company’s deferred tax assets considering the TCJA’s newly enacted tax rates. This provisional amount was subject to adjustment during the measurement period of up to one year following the December 2017 enactment of the TCJA, as provided by recent SEC guidance. In addition to reporting financial results in accordance with U.S. GAAP, the Company also provides non-GAAP measures that adjust for the impact of enactment of the TCJA. These items represent significant charges that impacted the Company’s financial results. Net income, earnings per diluted share, and the effective tax rate are all measures for which the Company provides the reported GAAP measure and an adjusted measure. The adjusted measures are not in accordance with, nor are they a substitute for, GAAP measures. The Company considers these non-GAAP measures in evaluating and managing the Company’s operations. The Company believes that discussion of results adjusted for these items is meaningful to investors as it provides a useful analysis of ongoing underlying operating trends. The determination of these items may not be comparable to similarly titled measures used by other companies.

LIQUIDITY AND CAPITAL RESOURCES

The Consolidated Statements of Cash Flows reflect the following for the years ended December 31:
(In thousands)201820172016
Net cash flows provided by operating activities$156,608 $152,702 $201,667 
Net cash flows used in investing activities(302,795)(145,875)(91,707)
Net cash flows provided by (used in) financing activities135,066 (66,948)(36,095)
Net (decrease) increase in cash and cash equivalents$(11,121)$(60,121)$73,865 

Cash Flows from Operations

Net cash flows provided by operating activities were $156.6 million in 2018, compared to $152.7 million in 2017. The increase was primarily due to a $25.2 million increase in net income, adjusted for non-cash items, partially offset by a $21.3 million use of cash for net assets and liabilities. Inventory growth was the primary use of cash in net assets due to hedge buying of raw materials, the rapid industry slow-down at the end of 2018, and purchases in advance of the Chinese New Year.

Over the long term, based on the Company’s historical collection and payment patterns, as well as inventory turnover, and also giving consideration to emerging trends and changes to the sales mix, the Company expects working capital to increase
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or decrease equivalent to approximately 10 to 15 percent of the increase or decrease, respectively, in net sales. However, there are many factors that can impact this relationship, especially in the short term.

Depreciation and amortization was $67.5 million in 2018, and is expected to be approximately $73 million to $78 million in 2019. Non-cash stock-based compensation in 2018 was $14.1 million. Non-cash stock-based compensation is expected to be approximately $16 million to $18 million in 2019.

Net cash flows provided by operating activities were $152.7 million in 2017, compared to $201.7 million in 2016, primarily due to:
A $78.7 million increase in inventory for the year ended December 31, 2017, compared to a $7.9 million increase in 2016. Inventory turnover for the year ended December 31, 2017 increased to 7.7 turns compared to 7.5 turns for 2016.
A $36.1 million net increase in accounts payable and accrued expenses and other liabilities for the year ended December 31, 2017, compared to a $48.8 million net increase in 2016, primarily due to the timing of payments.
Partially offset by:
Increases in non-cash charges against net income in 2017 including:
An $8.6 million increase in depreciation and amortization primarily due to investments in acquisitions and capital expenditures.
A $4.6 million increase in stock-based compensation in 2017 compared to 2016.
A $10.9 million increase in prepaid expenses and other assets in 2017, compared to a $15.6 million increase in 2016.
A $3.2 million increase in net income in 2017 compared to 2016.

Cash Flows from Investing Activities
Cash flows used for investing activities of $302.8 million in 2018 were primarily comprised of $119.8 million for capital expenditures and $184.8 million for the acquisition of businesses as follows (in thousands):