UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20192020
or
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| ☐ | 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
LCI INDUSTRIES
(Exact name of registrant as specified in its charter)
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| Delaware | | | 13-3250533 |
| (State or other jurisdiction of | | | (I.R.S. Employer |
| incorporation or organization) | | | Identification Number) |
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| 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:
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| Title of each class | Trading Symbols(s) | Name of each exchange on which registered |
| Common Stock, $.01 par value | LCII | 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 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
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 $1,663,932,960.$2,108,137,750. 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 14, 2020)19, 2021), was 25,046,41325,159,069 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 20202021 Annual Meeting of Stockholders to be held on May 21, 202020, 2021 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), capital expenditures, tax rate, cash flow, and financial condition, liquidity, covenant compliance, retail and wholesale demand, integration of acquisitions, R&D investments, and industry trends, 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, the impacts of COVID-19, or other future pandemics, on the global economy and on the Company's customers, suppliers, employees, business and cash flows, pricing pressures due to domestic and foreign competition, costs and availability of, and tariffs on, 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, employeeteam member benefits, employeeteam member 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, and increased governmental regulation and oversight, information technology performance and security, the ability to protect intellectual property, warranty and product liability claims or product recalls, interest rates, oil and gasoline prices, 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.
LCI INDUSTRIES
TABLE OF CONTENTS
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PART I – | | |
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| | ITEM 1 - BUSINESS | |
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| | ITEM 1A - RISK FACTORS | |
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| | ITEM 1B - UNRESOLVED STAFF COMMENTS | |
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| | ITEM 2 - PROPERTIES | |
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| | ITEM 3 - LEGAL PROCEEDINGS | |
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| | ITEM 4 - MINE SAFETY DISCLOSURES | |
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PART II – | | |
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| | ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | |
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| | ITEM 6 - SELECTED FINANCIAL DATA | |
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| | ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |
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| ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | |
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| ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | |
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| ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | |
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| ITEM 9A - CONTROLS AND PROCEDURES | |
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| ITEM 9B - OTHER INFORMATION | |
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PART III – | | |
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| ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | |
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| ITEM 11 - EXECUTIVE COMPENSATION | |
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| ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | |
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| ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | |
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| ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES | |
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PART IV – | | |
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| ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES | |
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| ITEM 16 - FORM 10-K SUMMARY | |
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| SIGNATURES | | |
PART I
Item 1. BUSINESS.
Summary
LCI Industries (“LCII” and collectively with its subsidiaries, the “Company,” the “Registrant,” “we,” “us,” or “our”), through its wholly-owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, “Lippert Components”Components,” “LCI” or “LCI”“Lippert”), supplies, domestically and internationally, a broad array of engineered components for the leading original equipment manufacturers (“OEMs”) in the recreation and transportation product markets, consisting primarily 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 CompanyWe also suppliessupply engineered components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors, and service centers.
LCI’sOur 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; awning and awning accessories; branded towing products; truck accessories; electronic components; and other accessories.
The Company hasWe have two reportable segments: the original equipment manufacturers segment (the “OEM Segment”) and the aftermarket segment (the “Aftermarket Segment”).
The Company isWe are focused on profitable growth and margin stability in itsour industries, both organic and through acquisitions. In order to support this growth, over the past several years the Company haswe have expanded itsour geographic market and product lines, consolidated manufacturing facilities, and integrated manufacturing, distribution, and administrative functions. At December 31, 2019, the Company2020, we operated over 90100 manufacturing and distribution facilities located throughout North America and Europe, and reported consolidated net sales of $2.4$2.8 billion for the year ended December 31, 2019.2020.
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’sOur 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 makesWe make available free of charge on itsour website itsour 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
COVID-19 Pandemic
The coronavirus ("COVID-19") pandemic has caused significant uncertainty and disruption in the global economy and financial markets. We continue to closely monitor the impact of COVID-19 on all aspects of our business. For risks relating to the COVID-19 pandemic, see Item 1A. "Risk Factors" in Part I of this Report and for details on the impact of COVID-19 on the Company, see the section under the heading Impact of COVID-19 in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of this Report.
Sales and Profits
Consolidated net sales for the year ended December 31, 20192020 were $2.4$2.8 billion, a declinean increase of 418 percent from the consolidated net sales for the year ended December 31, 20182019 of $2.5$2.4 billion. The decreaseincrease in year-over-year net sales reflectswas primarily driven by the impact of acquisitions, organic growth in the Aftermarket Segment, and a continuationsignificant increase in RV retail demand following COVID-19 shutdowns in the first half of lowerthe year. We believe the rebound in RV wholesale shipments seen throughout the year as dealers continued to correct their inventory levels, partially offsetretail demand was driven by consumers seeking alternative vacation options that avoid large gatherings and allow for social distancing. The increase in year-over-year net sales was also positively impacted by continued growth in the Company'sour adjacent industries OEM, aftermarket and international markets.markets, all of which saw similar rebounds in demand following the initial COVID-19 shutdowns. Net sales from acquisitions completed by the Company over the twelve months ended December 31,in 2020 and 2019 contributed $93approximately $374.7 million to net sales in 2019.2020.
Net income for the full-year 20192020 was $146.5$158.4 million, or $5.84$6.27 per diluted share, compared to net income of $148.6$146.5 million, or $5.83$5.84 per diluted share, in 2018. Net income for 2018 included one-time non-cash charges of $0.6 million ($0.03 per diluted share) 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. 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 financial measures prepared in accordance with generally accepted accounting principles (“GAAP”).2019.
In Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company describeswe describe in detail the change in itsour sales and profits during 2019.2020.
Customer Concentrations
Thor Industries, Inc. (“Thor”), a customer of both segments, accounted for 21 percent, 27 percent, and 31 percent and 38 percent of the Company’sour consolidated net sales for the years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively. Berkshire Hathaway Inc. (through its subsidiaries Forest River, Inc. and Clayton Homes, Inc.), a customer of both segments, accounted for 19 percent, 21 percent, and 23 percent and 25 percent of the Company’sour consolidated net sales for the years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively. No other customer accounted for more than 10 percent of consolidated net sales in the years ended December 31, 2020, 2019, 2018, and 2017.2018. International sales, primarily in Europe and Australia, and export sales represented approximately eight percent, six percent, four percent, and twofour percent of consolidated net sales in 2020, 2019, 2018, and 2017,2018, respectively.
Acquisitions
During 2020, we completed three acquisitions:
In December 2020, the Company acquired 100 percent of the outstanding capital stock of Veada Industries, Inc. ("Veada"), a manufacturer and distributor of boat seating and marine accessories based in New Paris, Indiana. The purchase price was $69.0 million, net of cash acquired, which includes holdback payments of $12.2 million to be paid over the next two years. Net sales for Veada were approximately $82 million for the twelve months preceding the acquisition.
In November 2020, the Company acquired substantially all of the business assets of Challenger Door, LLC ("Challenger"), a leading manufacturer and distributor of branded doors for the RV industry and products for specialty and cargo trailers, based in Nappanee, Indiana. The purchase price was $35.0 million, which includes holdback payments of $4.5 million to be paid over the next two years. Net sales for Challenger were approximately $82 million for the twelve months preceding the acquisition.
In January 2020, the Company acquired 100 percent of the equity interests of Polyplastic Group B.V. (with its subsidiaries “Polyplastic”), a premier window supplier to the caravaning industry, headquartered in Rotterdam, Netherlands. The purchase price was $97.6$95.8 million, net of cash acquired, plus contingent consideration of $2.8 million, which was based on future sales by this operation. The results of the acquired business will be included primarily in the Company’s OEM Segment. The Company is in the process of determining the fair value of the assets acquired and liabilities assumedNet sales for Polyplastic were approximately $62 million for the opening balance sheet.
During 2019,twelve months preceding the Company completed seven acquisitions:
In December 2019, the Company acquired 100 percent of the equity interests of CURT Acquisition Holdings, Inc. (with its subsidiaries, “CURT”), a leading manufacturer and distributor of branded towing products and truck accessories for the aftermarket, headquartered in Eau Claire, Wisconsin. The purchase price was $337.6 million, net of cash acquired, and is subject to potential post-closing adjustments related to net working capital.
In November 2019, the Company acquired the PWR-ARM brand and electric powered Bimini business assets of Schwintek, Inc. (“PWR-ARM”), a premier electric sunshade solution for pontoon and smaller power boats. The purchase price was $45.0 million, which includes holdback payments of $5.0 million.
In October 2019, the Company acquired substantially all of the business assets (collectively referred to under the business name “SureShade”) of Rodan Enterprises, LLC, a designer and manufacturer of sunshade systems for the outdoor recreation industry in North America and Europe headquartered in Philadelphia, Pennsylvania. The purchase price was $14.0 million, subject to certain adjustments and a holdback of $1.4 million for indemnity matters and certain potential post-closing adjustments related to net working capital.
In August 2019, the Company acquired 100 percent of the equity interests of Ciesse Holdings S.r.l. and related entities (collectively, “Ciesse”), a supplier of railway interior products and systems, headquartered in Rignano sull’Arno, Italy. The purchase price was $5.4 million, net of cash acquired.
In August 2019, the Company acquired 100 percent of the equity interests of Lewmar Marine Ltd. and related entities (collectively, “Lewmar”), a supplier of leisure marine equipment, headquartered in Havant, United Kingdom. The purchase price was $43.2 million, net of cash acquired.
In June 2019, the Company acquired 100 percent of the equity interests of Lavet S.r.l. (“Lavet”), a manufacturer of window blind systems for European leisure vehicles, headquartered in Siena, Italy. The purchase price was $2.4 million, net of cash acquired.
In June 2019, the Company acquired 100 percent of the equity interests of Femto Engineering S.r.l. and related entities (collectively, “Femto”), an engineering company with a focus on designing and manufacturing of plastic moldings, headquartered in San Casciano, Italy. The purchase price was $6.5 million, net of cash acquired.acquisition.
Diversification Strategy
The Company is executing a strategic initiative to diversify the markets it serves away from the historical concentration within the North American RV OEM industry. The Company's goal is to have 60 percent of net sales be generated outside of the North American RV OEM industry by the yearend of 2022. Approximately 4250 percent of net sales for the year ended December 31, 20192020 were generated outside of the North American RV market.OEM market compared to 42 percent in 2019.
Other Developments
On December 19, 2019, the Company entered into an amendment to its amended credit agreement with several banks, which provided, among other things, for an incremental term loan in the amount of $300.0 million, which the Company borrowed to fund a portion of the purchase price for the acquisition of CURT. The credit agreement was also modified to allow the Company to request an increase to the facility of up to an additional $300.0 million as an increase to the revolving credit facility or one, or more, incremental term loan facilities upon approval of the lenders and the Company receiving certain other consents. As a result of the new incremental term loan, the total borrowing capacity under the credit agreement increased from $600.0 million to $900.0 million.
In August 2019, the Company and Furrion Limited (“Furrion”) agreed to terminate their exclusive distribution and supply agreement effective December 31, 2019, and transition all sale and distribution of Furrion products then handled by the Company to Furrion. Effective January 1, 2020, Furrion is responsibletook responsibility for distributing its products directly to the customer and assumed all responsibilities previously carried out by the Company relating to Furrion products. Upon termination of the agreement, Furrion agreed to purchase from the Company all non-obsolete stock and certain obsolete and slow-moving stock of Furrion products at the cost paid by the Company. Net sales of Furrion products were $100.4 million to the OEM Segment and $29.0 million to the Aftermarket Segment in 2019. These sales willwere not be recurring in 2020 following the termination of the agreement.
At December 31, 2020, a net receivable of $42.3 million was recorded for the purchases of inventory stock by Furrion. The agreement required Furrion to make periodic payments throughout 2020 and the first six months of 2021. Due to the impacts of the COVID-19 pandemic, we are currently in negotiations that would impact the timing of the repayment of this receivable. Accordingly, we classified $17.6 million of the receivable as long-term, and recorded the receivable at its present value at December 31, 2020 based on the currently proposed payment plan which extends through July 2022.
OEM Segment
Through itsour wholly-owned subsidiaries, the Company manufactureswe manufacture and distributesdistribute a broad array of engineered components for the leading OEMs in the recreation and transportation 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 2019,2020, the OEM Segment represented 8878 percent of the Company’sour consolidated net sales and 8370 percent of consolidated segment operating profit. Approximately 61 percent of the Company’sour OEM Segment net sales in 20192020 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’sour OEM Segment, consisting primarily of steel (coil, sheet, tube, and I-beam), extruded aluminum, glass, wood, fabric, and foam, are available from a number of sources, both domestic and foreign.
Operations of the Company’sour OEM Segment consist primarily of fabricating, welding, thermoforming, painting, sewing, and assembling components into finished products. The Company’sOur OEM Segment operations are conducted at manufacturing and distribution facilities throughout North America and Europe, strategically located in proximity to the customers they serve. See Item 2. “Properties.”
The Company’sOur 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 other adjacent industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured homes; and modular housing.
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 competesWe compete 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. Our 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 iswe believe we are a leading supplier for towable RVs for the following principal RV products:
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| ● 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 7four percent from $614.6 million in 2018 to $659.6 million in 2019 orto $688.2 million in 2020, and was consistent at 32 percent and 27 percent of total OEM Segment net sales in 2019each of 2020 and 2018, respectively.2019. Within adjacent industries, domestic and international OEM marine net sales were $167.5totaled $205.8 million in 2019,2020, an increase of $13.4$10.0 million compared to 2018.2019.
The Company’sOur market share for itsour products in adjacent industries cannot be readily determined; however, the Company continueswe continue to make investments in acquisitions, people, technology, and equipment and iswe are committed to expanding itsour presence in these industries.
Detailed narrative information about the results of operations of the OEM Segment is included in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Aftermarket Segment
Many of the Company’sour OEM Segment products are also sold through various aftermarket channels, including dealerships, warehousewholesale distributors, and service centers, as well as direct to retail customers. The Company hascustomers through e-commerce. We have teams dedicated to product training and marketing support for itsour Aftermarket Segment customers. The CompanyWe also supportssupport multiple 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, biminis, covers, buoys, and fenders to the marine industry, and towing products and truck accessories. Many of the optional upgrades and non-critical replacements for RVs are purchased outside the normal
product selling seasons, thereby causing these Aftermarket Segment sales to be counter-seasonal.counter-seasonal, but were different in 2020 and may be different in future years as a result of the COVID-19 pandemic and related impacts.
According to the Recreation Vehicle Industry Association (“RVIA”), estimated RV ownership in the United States has increasedis estimated to be over nine million units.households. 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 anticipateswe anticipate 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 20125 percent from $233.2 million in 2018 to $279.6 million in 2019. The Company continues2019 to $628.3 million in 2020. Sales from CURT, which we acquired in December 2019, accounted for approximately half of our Aftermarket Segment net sales in 2020. CURT is a leading manufacturer and distributor of branded towing products and truck accessories and sells products to the automotive and truck aftermarket, as well as the RV, marine, and trailer markets, all of which require towing products, which we believe compliments the OEM markets we serve.We continue to make investments in people and technology to grow the Aftermarket Segment and iswe are committed to continue these expansion efforts.
In December 2019, the Company acquired CURT, a leading manufacturer and distributor of branded towing products and truck accessories for the aftermarket. CURT maintains a robust product portfolio comprised of thousands of SKUs across various product lines, including hitches, towing electricals, ball mounts, and cargo management. CURT brands include CURT, Aries, Luverne, Retrac, and UWS. CURT's net sales were $268 million for the year ended December 31, 2019.
Detailed narrative information about the results of operations of the Aftermarket Segment is included in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Sales and Marketing
The Company’sOur sales activities are related to developing new customer relationships and maintaining existing customer relationships, primarily through the quality and reliability of itsour products, innovation, price, customer service, and customer satisfaction. As a result of the Company’sOur annual marketing and advertising expenditures were $10.4 million, $6.4 million, and $4.1 million, in 2020, 2019, and 2018, respectively, reflecting increased expenditures related to our strategic decision to increase itsour 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 $6.4 million, $4.1 million, and $3.2 million in 2019, 2018, and 2017, respectively.markets.
The Company hasWe have several supply agreements or other arrangements with certain of itsour 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 haswe have the right to renegotiate the prices on sixty-days’ notice. The Company hasWe have agreements with certain customers that indexesindex 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, 2019, the Company2020, we operated over 90100 manufacturing and distribution facilities across North America and Europe. For most products, the Company haswe have 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. The Company hasWe have adequate capacity to meet projected demand. Capital expenditures for 20192020 were $58$57 million, which included normal replacement expenditures along with $21$5 million in automation investments and over $24$21 million in capacity investments for operational improvements.
Seasonality
Most industries where the Company sellswe sell products or where itsour products are used historically have been seasonal and are generally at the highest levels when the weather is moderate. Accordingly, the Company’sour 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 recreationRVs and transportationother products for which the Company sells itswe sell our components, the timing of dealer orders, as well asand 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.years, particularly as a result of the COVID-19 pandemic and related impacts, which negatively impacted our sales in the first and second quarters in 2020 due to temporary shutdowns. Additionally, salesmany of certain components to the aftermarket channels ofoptional upgrades and non-critical replacement parts for RVs are purchased outside the normal product selling season, thereby causing these industries tendAftermarket Segment sales to be counter-seasonal.counter-seasonal, but were different in 2020 and may be different in future years as a result of the COVID-19 pandemic and related impacts.
International
Over the past several years, the Company haswe have been gradually growing international sales, primarily in Europe and Australia, and internationalAustralia. International and export sales represented approximately eight percent, six percent, four percent, and twofour percent of consolidated net sales in 2020, 2019, and 2018, and 2017, respectively. The Company continuesWe continue to focus on developing products tailored for international recreation and transportation markets. The Company participatesWe participate in the largest RVcaravan shows in Europe and hashave been receiving positive feedback on its products, especially its proprietary slide-outour products. The Company’sRecently, some of the product innovations we developed for European markets have been gaining popularity in the United States as well. Our international business development team spends timeworks with customers and prospects in Australia, Europe, and other international markets, assessing the dynamics of the local marketplace, building relationships with OEMs and helping the Company introduce itsour existing products and develop new products for those markets, with the goal of identifying long-term growth opportunities. The Company estimatesWe target the same international product markets that we supply to in the United States, including RV, adjacent industries such as marine, cargo trailers and high-speed trains, and the related aftermarkets. Our largest domestic customer, Thor, established a relatively new presence in the European caravan market through their 2019 acquisition of Erwin Hymer Group, which we anticipate will provide additional business opportunities for us in Europe. We estimate the addressable market for annual net sales of itsour products outside of North America to be over $1 billion. Financial information relating to certain of the Company’sour international acquisitions is included in Note 3 of the Notes to Consolidated Financial Statements in Item 8 of this Report.
Intellectual Property
The Company holdsWe hold approximately 350360 United States and foreign patents and hashave approximately 100150 patent applications pending that relate to various products sold by the Company. The Company haswe sell. We have also granted certain licenses that permit third parties to manufacture and sell products in consideration for royalty payments.
From time to time, the Company haswe have received notices or claims itwe may be infringing certain patent or other intellectual property rights of others, and the Company haswe have 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 itsWe believe our patents are valuable and we vigorously protects itsprotect our patents when appropriate.
Research and Development
The Company strivesWe strive to be an industry leader in product innovation and isare 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 $13 million, $14 million, and $16 million in 2020, 2019, and $14 million in 2019, 2018, and 2017, respectively.
Regulatory Matters
We are subject to numerous federal, state and local regulations governing the manufacture and sale of our products in the United States. Sales and manufacturing operations outside the United States 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 Product 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 isWe believe we are currently operating in compliance, in all material respects, with applicable laws and regulations and hashave made reports and submitted information as required. The Company doesWe do not believe the expense of compliance with these laws and regulations, as currently in effect, will have a material effect on the Company'sour 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’sOur 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 itswe believe our operations have been consistent with prevailing industry standards, and are in substantial compliance with applicable environmental laws and regulations, one or more of the Company’sour 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 Companywe 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’sour operations or financial condition; however, there can be no assurance that this trend will continue.
EmployeesHuman Capital
As of December 31, 2019, the Company2020, Lippert had approximately 10,50012,400 full-time employees. None of the employees of the Companyteam members, including 11,300 in theNorth America and 1,100 in Europe. Our U.S. team members are not subject to any collective bargaining agreements, although certain international employeesteam members are covered by national labor laws. The Company believesWe believe relations with its employeesour team members are good.
At Lippert, we believe that business can and should be a force for good in our world, and we strive to manifest that vision every day in how we lead our organization. Our mission is to make lives better by developing meaningful relationships with our customers, co-workers, and community. "Everyone Matters" is the overarching descriptor of our cultural strategy and we believe this fundamental appreciation of the men and women who make up our organization should guide how we lead our organization.
Leadership and Culture Development
We have a Leadership and Culture Development Team that focuses on leadership development, personal and professional development, training, and corporate and community impact. Our teams meet regularly with leaders and team members across the Company to develop action plans and goals focused on both personal and professional development. The team also supports our team member engagement survey twice a year to measure and evaluate engagement drivers, and helps build specific action plans in response to the survey results to continually improve our culture and team member engagement.
We believe our future success depends upon our continued ability to attract, retain, and motivate qualified team members. Our retention percentage for team members in North America for the year ended December 31, 2020 was 69 percent, a decline from the prior year retention of 72 percent. The decline was driven by the COVID-19 pandemic, as well as a more competitive labor market when the RV and marine industries rebounded following the initial COVID-19 shutdowns.
Community Involvement
We strive to create meaningful change and inspire a culture of giving by building positive relationships and aligning Company resources with our team members' time and talents to support the needs of our communities. From 2017 to 2019, our team members reached our collective goal of volunteering at least 100,000 hours of community service annually within the
communities where we live, work, and play. Although the COVID-19 pandemic prevented us from reaching our 100,000 hour goal in 2020, we were still able to volunteer over 67,000 hours. Through monetary donations, product donations, and company-wide fundraising events, we donate more than $1 million annually to support the needs of our communities. We focus our efforts in the areas of children and families in need, educational programs, community health and wellness, and LCI team members in crisis.
Benefits and Compensation
As part of our efforts to attract and motivate team members, we offer competitive compensation and benefits. We provide team members with compensation packages that include base salary/wages, and short and long-term incentives. We also offer team members benefits such as life, disability, and health (medical, dental, and vision) insurance, a 401(k) plan with a company match, paid time off, tuition reimbursement, military leave, and holiday pay.
Diversity, Inclusion, and Belonging
We are committed to creating and maintaining a workplace in which all team members have an opportunity to participate and contribute to the success of the business and are valued for their skills, experience, and unique perspectives. This commitment is embodied in our policies and the way we do business. While diversity is essential in our business practice, inclusion and belonging are very important as well. Diversity reflects the differences we have in our workforce, inclusion is defined as how we as team members include others, and belonging is how we feel as members of our LCI family. We are committed to fostering an environment where all three are expected.
We provide equal employment opportunity to all team members and applicants without regard to race, color, religion, sex, sexual orientation, gender identity, pregnancy, national origin, ancestry, age, genetic information, disability, citizen status, veteran status, military service, marital status or any other legally protected category as established by federal, state, or local law. Our equal employment opportunity policy governs all employment decisions, including recruitment, hiring, job assignment, compensation, training, promotion, discipline, transfer, leave-of-absence, access to benefits, layoff, recall, termination and other personnel matters.
Health and Safety
We maintain a work environment that provides a safe and healthy workplace for all team members. We accomplish this through compliance with applicable laws and regulations regarding workplace safety, including recognition and control of workplace hazards, tracking injury and illness rates, and providing safety equipment to our team members. During 2020, our experience and continuing focus on workplace safety have enabled us to preserve business continuity without sacrificing our commitment to keeping our team members safe during the COVID-19 pandemic.
Information About our Executive Officers
The following table sets forth our executive officers as of December 31, 2019:2020:
| | | | | |
| Name | Position |
| |
| Jason D. Lippert | President and Chief Executive Officer and Director |
| Brian M. Hall | Executive Vice President and Chief Financial Officer |
| Andrew J. Namenye | Executive Vice President, – Chief Legal Officer, and Corporate Secretary |
| Ryan R. Smith | Group President – North America |
| Jamie M. Schnur | Group President – Aftermarket |
| Nick C. Fletcher | Executive Vice President and Chief Human Resources Officer |
Officers are elected annually by the Board of Directors. There are no family relationships between or among any of the executive officers or directors of the Company. Additional information with respect to the Company’s directors is included in the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held on May 21, 2020.20, 2021.
JASON D. LIPPERT (age 47)48) became Chief Executive Officer of the Company effective May 10, 2013, and has been Chief Executive Officer of Lippert Components since February 2003. Effective May 23, 2019, Mr. Lippert also became President of the Company. 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 45)46) 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. Effective March 12, 2020, Mr. Hall also became an Executive Vice President of the Company. Prior to joining the Company, he spent more than 16 years in public accounting.
ANDREW J. NAMENYE (age 39)40) joined the Company in September 2017, and has been Vice President – Chief Legal Officer and Corporate Secretary since November 2017. Effective March 12, 2020, Mr. Namenye also became an Executive Vice President of the Company. 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.
RYAN R. SMITH (age 37) became Group President – North America of the Company in May 2020. Previously, he served as Senior Vice President of Sales and Operations of the Company beginning in August of 2018. Mr. Smith has over 12 years of experience with the Company, and has served in a wide range of leadership positions with Lippert Components.
JAMIE M. SCHNUR (age 48)49) became Group President – Aftermarket of the Company in October 2019.May 2020. Previously, he served as Chief Administrative Officer of the Company beginning in 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 59)60) joined the Company in February 2013 as Vice President of Human Resources. Since January 2015, he has been Chief Human Resources Officer. Effective March 12, 2020, Mr. Fletcher also became an Executive Vice President of the Company. 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 46)47) joined the Company in January 2017, and has been Vice President of Finance since September 2019 and 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.
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.
Risk Related to the COVID-19 Pandemic
The coronavirus (COVID-19) pandemic, or other outbreaks of disease or similar public health threats, has materially and adversely affected, and could in the future materially and adversely affect our business, financial condition, and results of operations, the nature and extent of which are highly uncertain and unpredictable.
The COVID-19 pandemic, and any other outbreaks of contagious diseases or other adverse public health developments in the United States or internationally, has had, and in the future could again have, a material adverse effect on our business, financial condition, and results of operations. COVID-19 has significantly impacted the global economy and financial markets, and it could continue to negatively impact our business in a number of ways. These effects include, but are not limited to:
•Disruptions or restrictions on our employees' ability to work effectively due to illness, quarantines, travel bans, shelter-in-place orders or other limitations.
•Temporary closures of our facilities or the facilities of our customers or suppliers, which could impact our ability to timely meet our customers' orders or negatively impact our supply chain.
•Our election to, or a government's requirement that we, allocate manufacturing capacity (for example, pursuant to the U.S. Defense Production Act) in an effort to increase the availability of needed medical and other supplies and
products in a way that adversely affects our regular operations and negatively impacts our reputation and customer and supplier relationships.
•Resulting cost increases from the effects of a pandemic such as COVID-19 may not be fully recoverable.
•The failure of third parties on which we rely, including our suppliers, customers, contractors, commercial banks and other business partners, to meet their respective obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties, including Furrion.
•Significant increases in economic and demand uncertainty have led to disruption and volatility in the global credit and financial markets, which increases the cost of capital and adversely impacts access to capital for both the Company and our customers and suppliers.
•Negative impacts of the COVID-19 pandemic could result in a breach of the covenants and/or restrictions contained in our debt agreements. 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 an adverse material impact on our business, results of operations and financial condition.
•Commodity costs have become more volatile due to the COVID-19 pandemic, and that volatility may worsen and/or last for an extended period of time.
•Recent increases in demand from retail consumers looking for vacation options that avoid large gatherings and allow for social distancing may dissipate if and when vaccines or other prevention or treatment options are developed and sufficiently distributed.
•Increased cybersecurity and privacy risks and risks related to the reliability of technology to support remote operations.
•The Company may not be able to return cash to shareholders through quarterly cash dividends at the same amount it has in the past, or at all.
•Disruptions or uncertainties related to the COVID-19 pandemic for an extended period of time could result in delays or modifications to our strategic plans and hinder our ability to achieve our strategic goals.
The extent to which the COVID-19 pandemic, or other outbreaks of disease or similar public health threats, materially and adversely impacts our business, financial condition, and results of operations is highly uncertain and will depend on future developments. Such developments may include the geographic spread and duration of the virus, the severity of the disease and the actions that may be taken by various governmental authorities and other third parties in response to the outbreak. In addition, how quickly, and to what extent, normal economic and operating conditions can resume cannot be predicted, and the resumption of normal operations may be delayed or constrained by lingering effects of the COVID-19 pandemic on our suppliers, third-party service providers, and/or customers.
In addition, the COVID-19 pandemic could exacerbate or trigger other risks discussed below, any of which could have a material and adverse effect on our business, results of operations, and financial condition.
Industry and Economic 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 is 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,
the timing of dealer orders, the impact of severe weather conditions on the timing of industry-wide shipments from time to time, and other factors,the impact of the COVID-19 pandemic, 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-plan financing, 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.
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 61 percent of our OEM Segment net sales in 2019,2020, 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 FactorsRisks Related to our Business, Operations and Strategy
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 2019,2020, the OEM Segment represented 8878 percent of our consolidated net sales, and 8370 percent of consolidated segment operating profit. Approximately 61 percent of our OEM Segment net sales in 20192020 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. 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 an adverse material impact on our operating results.
Two customers of both the OEM Segment and the Aftermarket Segment accounted for 4840 percent of our consolidated net sales in 2019.2020. The loss of either of these customers or other significant customers, or a substantial reduction in sales to any such customer, would have an adverse material 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 2019.2020. 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, in a timely and cost efficientcost-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 2019,2020, we imported, or purchased from suppliers who imported, approximately 30 percent of our raw materials and components. 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, epidemics, public health crises, 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, facilities closures, supply chain interruptions, or other disruptions, and could have an adverse impact on our operating results if we are unable to fulfill customer orders or are 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 sales, 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 an adverse material 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.
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.
Further, as a result of pandemic outbreaks, including the recent outbreak of respiratory illness caused by a novel coronavirus first identified in ChinaCOVID-19 pandemic, businesses can be shut down, supply chains can be interrupted, slowed or rendered inoperable and individuals can become ill, quarantined or otherwise unable to work and/or travel due to health reasons or governmental restrictions.restrictions, and worldwide economic downturns could occur. Such outbreaks could result in the operations of our third-party manufacturers and suppliers being disrupted or suspended, or could interfere with our supply chain, which could have an adverse effect on our business. See also the risk factorfactors “Inadequate or interrupted supply of raw materials or components used to make our products could adversely impact our financial condition and operating results.results” and "In addition, a significant outbreakThe coronavirus (COVID-19) pandemic, or other outbreaks of contagious diseasesdisease or similar public health threats, has materially and adversely affected, and could in the human population could result in a widespread health crisis that couldfuture materially and adversely affect our business, financial condition, and results of operations, the economiesnature and financial marketsextent of many countries, resulting in an economic downturn that could affect demand for our productswhich are highly uncertain and likely impact our operating results.unpredictable."
We have 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:
•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 are subject to new operational and financial risks.
We have been gradually growing sales overseas and plan to continue pursuing international opportunities. NineTen of our acquisitions since 20172016 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;
•trade protection measures, including tariffs, trade restrictions, trade agreements, and taxation;
•difficulties in managing or overseeing foreign operations and agents;
•differences in regulatory environments, including complex data privacy and labor relations laws, as well as differences in 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;
•different technology risks;
•the uncertainty surrounding the implementation and effects of Brexit;
•political, social and economic instability and uncertainty, including sovereign debt issues; 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.
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, cyber-attacks, ransomware and other malware, payment fraud, 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 been 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; suffer outages or disruptions in our operations or supply chains; 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.
Legal, Regulatory and Compliance Risks
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, 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 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. 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. From time to time, we also face claims of misappropriation by a third party that believes we or our employees have inappropriately obtained and used trade secrets or other confidential information of such third parties. Claims that we have misappropriated the trade secrets or other confidential
information of third parties could result in our payment of significant monetary damages, and we could be prevented from further using such trade secrets or confidential information, limiting our ability to develop our products, any of which may have an adverse effect on our business, financial condition, results of operations, and prospects.
Compliance with conflict mineral disclosure requirements creates 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, cyber-attacks, ransomware and other malware, payment fraud, 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 been 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; suffer outages or disruptions in our operations or supply chains; 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.
If we fail to comply with data privacy and security laws and regulations, we could face substantial penalties and our business, operations, and financial condition could be adversely affected.
We are subject to various data privacy and security laws and regulations. A number of U.S. states have enacted data privacy and security laws and regulations that govern the collection, use, disclosure, transfer, storage, disposal, and protection of personal information, such as social security numbers, financial information and other information. For example, several U.S. territories and all 50 states now have data breach laws that require timely notification to individuals, and at times regulators, the media or credit reporting agencies, if a company has experienced the unauthorized access or acquisition of personal information. Other state laws include the California Consumer Privacy Act (the “CCPA”), which largely took effect on January 1, 2020. The CCPA, among other things, contains new disclosure obligations for businesses that collect personal information about California residents and affords those individuals numerous rights relating to their personal information that
may affect our ability to use personal information or share it with our business partners. Additionally, a new privacy law, the California Privacy Rights Act ("CPRA"), was approved by California voters on November 3, 2020, and its substantive provisions become effective on January 1, 2023. The CPRA will revise and expand the CCPA and may potentially result in further uncertainty and require us to incur additional costs and expenses. Aspects of the interpretation and enforcement of the CCPA and CPRA remain unclear. We cannot fully predict the impact of the CCPA and CPRA on our business or operations, but they may require us to modify our data processing practices and policies and incur substantial costs and expenses in an effort to comply.
Other states have considered and/or enacted privacy laws like the CCPA. We will continue to monitor and assess the impact of these state laws, which may impose substantial penalties for violations, impose significant costs for investigations and compliance, allow private class-action litigation and carry significant potential liability for our business.
Outside of the U.S., data protection laws, including the EU General Data Protection Regulation (the “GDPR”), also apply to some of our operations in [the countries in which we provide services to our customers].operations. Legal requirements in these countries relating to the collection, storage, processing and transfer of personal data continue to evolve. The GDPR imposes, among other things, data protection requirements that include strict obligations and restrictions on the ability to collect, analyze and transfer EU personal data, a requirement for prompt notice of data breaches to data subjects and supervisory authorities in certain circumstances, and possible substantial fines for any violations (including possible fines for certain violations of up to the greater of 20 million Euros or 4%four percent of total worldwide annual revenue). Governmental authorities around the world have enacted similar types of legislative and regulatory requirements concerning data protection, and additional governments are considering similar legal frameworks.
The interpretation and enforcement of the laws and regulations described above are uncertain and subject to change, and may require substantial costs to monitor and implement compliance with those or any additional requirements. Failure to comply with U.S. and international data protection laws and regulations could result in government enforcement actions (which could include substantial civil and/or criminal penalties), private litigation and/or adverse publicity and could negatively affect our operating results and business.
Additionally, because we accept debit and credit cards for payment, we are subject to the Payment Card Industry Data Security Standard (the “PCI Standard”), issued by the Payment Card Industry Security Standards Council. The PCI Standard contains compliance guidelines with regard to our security surrounding the physical and electronic storage, processing, and transmission of cardholder data. Complying with the PCI Standard and implementing related procedures, technology, and information security measures requires significant resources and ongoing attention. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology such as those necessary to maintain compliance with the PCI Standard or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations. Any material interruptions or failures in our payment-related systems could have an adverse effect on our business, financial condition and results of operations.
We could incur warranty claims in excess of reserves.
We receive warranty claims from our customers in the ordinary course of our business. Although we maintain reserves for such claims, which to date have been adequate, there can be no assurance that warranty expense levels will remain at current levels or that such reserves will continue to be adequate. A significant increase in warranty claims exceeding our current warranty expense levels could have an adverse effect on our results of operations and financial condition.
In addition to the costs associated with the contractual warranty coverage provided on our products, we also occasionally incur costs as a result of additional service actions not covered by our warranties, including product recalls and customer satisfaction actions. Although we estimate and reserve for the cost of these service actions, there can be no assurance that expense levels will remain at current levels or such reserves will continue to be adequate.
We may be subject to product liability claims if people or property are harmed by the products we sell.
Some of the products we sell may expose us to product liability claims relating to personal injury, death, or property damage, and may require product recalls or other actions. Although we maintain liability and product recall insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. In addition, even if a product liability claim is not successful or is not fully pursued, the negative publicity surrounding a product recall or any assertion that our products caused property damage or personal injury could damage our brand identity and our reputation with existing and potential consumers and have an adverse effect on our business, financial condition and results of operations.
Financial, Credit and Liquidity Risks
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, 20192020 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, term loans, 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.
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 an adverse material 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 an adverse material impact on our business, results of operations and financial condition.
An increase in interest rates, or a phase-out or replacement of LIBOR with a benchmark rate that is higher or more volatile than LIBOR, could increase our cost of borrowing and could adversely impact our financial condition, results of operations and cash flows.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, itThe cessation date for submission and publication of rates for certain tenors of LIBOR has since been extended by the IBA until mid-2023. It is possible that commencing in 2022, theuncertain if applicable tenors of LIBOR will cease to exist after calendar year 2021, or whether additional reforms to LIBOR may no longer be availableenacted, or may no longer be deemed an appropriatewhether alternative reference rate upon which to determine the interest rate on eurocurrency loans.rates will gain market acceptance as a replacement for LIBOR. 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. In addition, there can be no assurance that we will be able to reach an agreement with the administrative agent for our lenders on any such replacement benchmark before experiencing adverse effects due to changes in interest rates, if at all. We will continue to monitor the situation and address the potential reference rate changes in future debt obligations that we may incur.incur, but the potential effect of the phase-out or replacement of LIBOR on our cost of capital cannot yet be determined and any increase in the interest we pay and a corresponding increase in our costs of capital or otherwise could have a material adverse impact on our financial condition, results of operations or cash flows.
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.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.
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’sOur manufacturing operations are conducted at facilities that are used for both manufacturing and distribution. Many of the properties manufacture and warehouse products sold through both the OEM Segment and Aftermarket Segment and are included in the OEM Segment in the table below. The Company believesWe believe that substantially all of itsour properties are in generally good condition and there is sufficient capacity to meet current and projected manufacturing and distribution requirements. In addition, the Company maintainswe maintain administrative facilities used for corporate and administrative functions. The Company’sOur primary administrative
offices are located in Elkhart and Mishawaka, Indiana. Total administrative space company-
widecompany-wide aggregates approximately 500,000450,000 square feet. At December 31, 2019, the Company’s2020, our key property holdings are summarized in the following table:
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| Segment | | Type | | North America Facilities | | Europe Facilities | | Total Facilities* | | Owned Facilities |
| OEM | | Manufacturing (a) | | 53 | | 14 | | 67 | | 34 |
| | Other (b) | | 12 | | 5 | | 17 | | 4 |
| Aftermarket | | Manufacturing (a) | | 2 | | — | | 2 | | — |
| | Other (b) | | 19 | | — | | 19 | | 1 |
| Total | | | | 86 | | 19 | | 105 | | 39 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Segment | | Type | | North America Facilities | | Europe Facilities | | Total Facilities* | | Owned Facilities |
| OEM | | Manufacturing (a) | | 61 | | 17 | | 78 | | 37 |
| | Other (b) | | 13 | | 5 | | 18 | | 7 |
| Aftermarket | | Manufacturing (a) | | 7 | | — | | 7 | | 1 |
| | Other (b) | | 19 | | — | | 19 | | 4 |
| Total | | | | 100 | | 22 | | 122 | | 49 |
(a) Includes multi-activity sites which are predominately manufacturing
(b) Includes engineering, administrative, and distribution locations
(*) Excludes threefour unutilized facilities
Item 3. LEGAL PROCEEDINGS.
In the normal course of business, the Company iswe are 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, 2019,2020, would not be material to the Company’sour financial position or annual results of operations.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
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 14, 2020,19, 2021, there were 274253 holders of the Company’s common stock, in addition to beneficial owners of shares held in broker and nominee names. The Company’sOur 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 2020our 2021 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. There were no share repurchases for the year ended December 31, 2019.2020.
In 2016, the Companywe initiated the payment of regular quarterly dividends. Future dividend policy with respect to the common stock will be determined by the Board of Directors of the Company in light of prevailing financial needs and earnings of the Company and other relevant factors, including any limitations in our debt agreements, such as maintenance of certain financial ratios.
Item 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected historical financial and operating information ofPart II, Item 6 is no longer required as the Company and is derived fromhas adopted 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 inamendments to Regulation S-K that eliminate Item 7 and Item 8 of this Report, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | | | | | |
| (In thousands, except per share amounts) | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| | | | | | | | | | |
| Operating Data: | | | | | | | | | | |
| Net sales | | $ | 2,371,482 | | | $ | 2,475,807 | | | $ | 2,147,770 | | | $ | 1,678,898 | | | $ | 1,403,066 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Operating profit | | 200,210 | | | 198,788 | | | 214,281 | | | 200,850 | | | 116,254 | |
| Income before income taxes | | 191,414 | | | 192,352 | | | 212,844 | | | 199,172 | | | 114,369 | |
Provision for income taxes(1) | | 44,905 | | | 43,801 | | | 79,960 | | | 69,501 | | | 40,024 | |
Net income(1) | | 146,509 | | | 148,551 | | | 132,884 | | | 129,671 | | | 74,345 | |
| | | | | | | | | | |
| Net income per common share: | | | | | | | | | | |
Basic(1) | | $ | 5.86 | | | $ | 5.90 | | | $ | 5.31 | | | $ | 5.26 | | | $ | 3.06 | |
Diluted(1) | | 5.84 | | | 5.83 | | | 5.24 | | | 5.20 | | | 3.02 | |
| | | | | | | | | | |
| Cash dividends per common share | | $ | 2.55 | | | $ | 2.35 | | | $ | 2.05 | | | $ | 1.40 | | | $ | 2.00 | |
| | | | | | | | | | |
| Financial Data: | | | | | | | | | | |
| Net working capital | | $ | 399,533 | | | $ | 349,069 | | | $ | 235,066 | | | $ | 218,043 | | | $ | 146,964 | |
| Total assets | | 1,862,595 | | | 1,243,893 | | | 945,858 | | | 786,904 | | | 622,856 | |
Long-term obligations(2) | | 790,665 | | | 360,056 | | | 111,100 | | | 87,284 | | | 85,419 | |
| Stockholders’ equity | | 800,672 | | | 706,255 | | | 652,745 | | | 550,269 | | | 438,575 | |
(1) 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.
(2) Long-term obligations at December 31, 2019 include $79.8 million of operating lease obligations following the Company's adoption of ASC 842 - Leases on January 1, 2019.301.
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’sour Consolidated Financial Statements and Notes thereto included in Part II, Item 8 of this Report.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations generally discusses 2020 and 2019 items and year-over-year comparisons between 2020 and 2019. A detailed discussion of 2018 items and year-over-year comparisons between 2019 and 2018 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 27, 2020.
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 transportation 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 CompanyWe also suppliessupply engineered components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors, and service centers.
The Company hasWe have two reportable segments, the OEM Segment and the Aftermarket Segment. At December 31, 2019, the Company2020, we operated over 90100 manufacturing and distribution facilities located throughout North America and Europe.
Net sales and operating profit were as follows for the years ended December 31:
| | (In thousands) | (In thousands) | 2019 | | 2018 | | 2017 | (In thousands) | 2020 | | 2019 | | 2018 |
| Net sales: | Net sales: | | | | | | Net sales: | | | | | |
| OEM Segment: | OEM Segment: | | OEM Segment: | |
| RV OEMs: | RV OEMs: | | RV OEMs: | |
| Travel trailers and fifth-wheels | Travel trailers and fifth-wheels | $ | 1,276,718 | | | $ | 1,440,730 | | | $ | 1,405,983 | | Travel trailers and fifth-wheels | $ | 1,321,567 | | | $ | 1,276,718 | | | $ | 1,440,730 | |
| Motorhomes | Motorhomes | 155,623 | | | 187,297 | | | 159,417 | | Motorhomes | 158,096 | | | 155,623 | | | 187,297 | |
| Adjacent Industries OEMs | Adjacent Industries OEMs | 659,560 | | | 614,589 | | | 411,223 | | Adjacent Industries OEMs | 688,248 | | | 659,560 | | | 614,589 | |
| Total OEM Segment net sales | Total OEM Segment net sales | 2,091,901 | | | 2,242,616 | | | 1,976,623 | | Total OEM Segment net sales | 2,167,911 | | | 2,091,901 | | | 2,242,616 | |
| Aftermarket Segment: | Aftermarket Segment: | | | | | | Aftermarket Segment: | | | | | |
| Total Aftermarket Segment net sales | Total Aftermarket Segment net sales | 279,581 | | | 233,191 | | | 171,147 | | Total Aftermarket Segment net sales | 628,255 | | | 279,581 | | | 233,191 | |
| Total net sales | Total net sales | $ | 2,371,482 | | | $ | 2,475,807 | | | $ | 2,147,770 | | Total net sales | $ | 2,796,166 | | | $ | 2,371,482 | | | $ | 2,475,807 | |
| | Operating profit: | Operating profit: | | Operating profit: | |
| OEM Segment | OEM Segment | $ | 165,290 | | | $ | 167,459 | | | $ | 190,276 | | OEM Segment | $ | 156,092 | | | $ | 165,290 | | | $ | 167,459 | |
| Aftermarket Segment | Aftermarket Segment | 34,920 | | | 31,329 | | | 24,005 | | Aftermarket Segment | 66,842 | | | 34,920 | | | 31,329 | |
| | Total operating profit | Total operating profit | $ | 200,210 | | | $ | 198,788 | | | $ | 214,281 | | Total operating profit | $ | 222,934 | | | $ | 200,210 | | | $ | 198,788 | |
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:
| | | 2019 | | 2018 | | 2017 | | 2020 | | 2019 | | 2018 |
| Net sales: | Net sales: | | | | | | Net sales: | | | | | |
| OEM Segment | OEM Segment | 88% | | | 91% | | | 92% | | OEM Segment | 78% | | 88% | | 91% |
| Aftermarket Segment | Aftermarket Segment | 12% | | | 9% | | | 8% | | Aftermarket Segment | 22% | | 12% | | 9% |
| Total net sales | Total net sales | 100% | | | 100% | | | 100% | | Total net sales | 100% | | 100% | | 100% |
| | Operating Profit: | Operating Profit: | | Operating Profit: | |
| OEM Segment | OEM Segment | 83% | | | 84% | | | 89% | | OEM Segment | 70% | | 83% | | 84% |
| Aftermarket Segment | Aftermarket Segment | 17% | | | 16% | | | 11% | | Aftermarket Segment | 30% | | 17% | | 16% |
| Total segment operating profit | Total segment operating profit | 100% | | | 100% | | | 100% | | Total segment operating profit | 100% | | 100% | | 100% |
Operating profit margin by segment was as follows for the years ended December 31:
| | | 2019 | | 2018 | | 2017 | | 2020 | | 2019 | | 2018 |
| OEM Segment | OEM Segment | 7.9% | | | 7.5% | | | 9.6% | | OEM Segment | 7.2% | | 7.9% | | 7.5% |
| Aftermarket Segment | Aftermarket Segment | 12.5% | | | 13.4% | | | 14.0% | | Aftermarket Segment | 10.6% | | 12.5% | | 13.4% |
The Company’sOperating profit margins were negatively impacted by government-mandated shutdowns related to the COVID-19 pandemic from late March through early May 2020, that caused a significant reduction in net sales while still incurring certain employee salary and wages, healthcare and safety expenses, and other fixed costs.
Our 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 61 percent of the Company’sour OEM Segment net sales for the year ended December 31, 20192020 were of components for travel trailer and fifth-wheel RVs, including:
| | | | | |
| ● Steel chassis and related components | ● Entry, luggage, patio and ramp doors |
| ● Axles and suspension solutions | ● Furniture and mattresses |
| ● Slide-out mechanisms and solutions | ● Electric and manual entry steps |
| ● Thermoformed bath, kitchen and other products | ● Awnings and awning accessories |
| ● Vinyl, aluminum and frameless windows | ● Electronic components |
● Manual, electric and hydraulic stabilizer and
leveling systems | ● Other accessories |
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.centers, as well as direct to retail customers through e-commerce. The Aftermarket Segment also
includes the sale of replacement glass and awnings to fulfill insurance claims, biminis, covers, buoys, and fenders to the marine industry, and towing products and truck accessories.
Diversification Strategy
The Company isWe are executing a strategic initiative to diversify the markets it serveswe serve away from the historical concentration within the North American RV OEM industry. The Company'sOur goal is to have 60 percent of net sales be generated outside of the North American RV OEM industry by the yearend of 2022. Approximately 4250 percent of net sales for the year ended December 31, 20192020 were generated outside of the North American RV market.OEM market compared to 42 percent in 2019. Over the past three years, each of our acquisitions have contributed to net sales growth outside of the North American RV OEM industry.
Impact of COVID-19
The COVID-19 pandemic has caused significant uncertainty and disruption in the global economy and financial markets. We continue to closely monitor the impact of COVID-19 on all aspects of our business. For risks relating to the COVID-19 pandemic, see Item 1A. "Risk Factors" in Part I of this Report.
Health and Safety
During this unprecedented crisis, the health and safety of our team members have remained our top priority. We instituted a travel ban for all team members in early March and on March 25, 2020, we issued a press release providing a business update regarding COVID-19, including that we were temporarily suspending production at select manufacturing facilities across North America and Europe. The temporary suspension of production was made on a plant-by-plant basis, consistent with government mandates or due to customer closures. Production at facilities considered essential continued, utilizing reduced staff in conjunction with heightened cleaning and sanitation processes. Team members that do not need to be physically present on the manufacturing floor to perform their work were required to work from home. We implemented a number of actions to ensure adherence to guidelines set forth by the World Health Organization and the Centers for Disease Control and Prevention.
We enacted rigorous health and safety protocols as we resumed production in early May. For example, we implemented health screenings of team members for potential symptoms, conducted extensive and frequent disinfecting of workspaces, implemented social distancing restrictions for production personnel, provided masks to team members who must be physically present, and set up temporary COVID-19 testing sites for team members with symptoms or potential exposure. We also leased a location to provide drive-thru rapid COVID-19 tests for our team members in northern Indiana and continued to provide full compensation to team members required to quarantine due to a positive test or contact tracing. These health and safety protocols remain in effect currently.
Operations
As a result of the COVID-19 pandemic, governmental authorities implemented and are continuing to implement numerous and constantly evolving measures in attempts to contain the virus, such as travel bans and restrictions, limits on gatherings, face mask requirements, quarantines, shelter-in-place orders, and business shutdowns. We temporarily suspended production at certain facilities, starting with locations in Italy and other parts of Europe. Certain of our North American operations, which were considered non-essential, were temporarily suspended starting the last week of March 2020, negatively impacting our results of operations for the first quarter of 2020, especially in the OEM Segment. These temporary production
shutdowns continued through April, and most of our facilities reopened in early May. By later in the second quarter, all of our facilities were fully operational, and continued to be fully operational through the end of 2020. As a result, the shutdowns negatively impacted our results of operations beginning in March through the first half of the second quarter of 2020.
We instituted several cost saving and cash preservation measures starting in late March and continuing into the second quarter of 2020 in an effort to conserve liquidity and mitigate the impact of lost revenue from suspended operations. The following list includes many, but not all, of the cost savings and cash preservation measures employed:
•temporary layoffs of production employees at suspended facilities;
•salary reductions for the executive leadership team;
•reduction of the quarterly retainer for the Board of Directors;
•elimination of discretionary spending;
•delay of non-essential capital expenditures;
•deferral of lease payments to lessors;
•temporary hiring freezes and furloughs of non-critical team members; and
•postponing merit increases for salaried employees until the end of the fiscal year.
As we returned to fully operational status later in the second quarter, several of the cost savings and cash preservation measures listed above were reversed, including executive salary and director retainer reductions, furloughs, and hiring freezes. Due to the uncertainty surrounding the COVID-19 pandemic, we remain disciplined with other cost savings and cash preservation measures, such as reducing or eliminating non-critical business expenses including travel.
Most of the OEM customers we supply in North America resumed operations in early May 2020 at reduced capacity to fulfill retail dealer backlog orders. We resumed operations to varying degrees for the majority of our facilities on May 4, 2020 to meet the demand requirements of our customers, and by later in the second quarter, all of our facilities were fully operational. Retail demand, especially in the RV and marine markets, picked up significantly later in the second quarter, leading to a record month of June for net sales for the Company with fully operational facilities. Retail demand continued at elevated levels through the second half of 2020 with our net sales remaining at record levels on a monthly basis. While production at our facilities continued through the end of 2020, the operational status of our facilities is subject to change as the ultimate duration, including new or continued surges, and impact of the COVID-19 pandemic on our and our customers' operations is presently unclear.
Customers and Demand
Prior to the COVID-19 impact beginning in mid-March, the RV industry experienced a return to positive retail sales growth starting in January 2020. This growth concluded 16 months of consecutive year-over-year declines, and provided an indication that the inventory re-balancing the industry had been addressing had reached its conclusion. As a result of the COVID-19 pandemic and many government mandated stay-at-home orders and campground closures, retail sales abruptly declined beginning in mid-March. Despite the abrupt decline in retail sales to our OEM channels, many aftermarket channels remained open through the period as dealerships remained open to service customers' products.
We stayed in close communication with our OEM customers in regards to their plans to resume operations and we ramped up production quickly to meet our customers' demand when facilities reopened in early May. As noted above, beginning later in the second quarter, retail demand in the North American RV and marine markets increased significantly resulting in the highest monthly total net sales in our history for each respective month from June through December 2020. The sharp rebound in sales following the shutdowns also resulted in a significant increase in accounts receivable. We continue to closely monitor cash collections of our trade receivables, and to date have not identified any significant collection concerns with our customers.
We experienced a positive impact following the initial shutdown from the COVID-19 pandemic, as interest rates and fuel prices remain at historic lows, both of which are favorable for the industries we serve, and we believe retail consumers are looking for vacation options that avoid large gatherings and allow for social distancing. The end products for many of the markets we supply, such as RVs and boats, can provide safer alternatives for vacations and recreation as opposed to air travel, visiting large cities, theme parks, and cruises. However, given the significant negative effects and uncertainties associated with the COVID-19 pandemic, other impacts, such as long-term U.S. and global economic disruptions, may ultimately be counter to, and outweigh, any positive vacation and recreation factors.
Suppliers
Certain of our suppliers have or are expected to face difficulties maintaining operations due to government-ordered restrictions, future outbreaks, and shelter-in-place mandates. Although we regularly monitor the financial health of companies in our supply chain, financial hardship on our suppliers caused by the COVID-19 pandemic could cause a disruption in our ability to obtain raw materials or components required to manufacture our products, adversely affecting operations. To mitigate the risk of any potential supply chain interruptions from the COVID-19 pandemic, we increased certain inventory levels during the first quarter of 2020, which continued through the end of 2020 and is expected to continue into the foreseeable future. Additionally, restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, could result in higher costs or delays, which could harm our profitability, make our products less competitive, or cause our customers to seek alternative suppliers.
Liquidity
In response to the COVID-19 pandemic, we borrowed a series of draws under our revolving credit facility to increase our cash position and improve financial flexibility in March and April 2020. During the second quarter, we also engaged with banking partners regarding options relative to future liquidity. We made net repayments on our revolving credit facility of approximately $181 million from May through October 31, 2020 (prior to net borrowings in November and December primarily to fund acquisitions) as production resumed and operating cash flow improved with the increase in retail demand. We also ceased our discussions with banking partners about additional or alternative financing options. See "Liquidity and Capital Resources - Credit Facilities" section below for further discussion on liquidity.
INDUSTRY BACKGROUND
OEM Segment
North American 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 2019 sawDue to the COVID-19 pandemic, the 2020 Open House was canceled. The seasonality of the RV industry has been, and will likely continue to be, impacted by the COVID-19 pandemic, and the timing of a disruption of wholesale shipments as dealers attemptedreturn to normalize their inventory levels, the Company expects wholesale and retail volumeshistorical seasonality is not possible to more closely align in 2020.predict at this time.
According to the RVIA, industry-wide wholesale shipments from the United States of travel trailer and fifth-wheel RVs in 2019,2020, the Company’s primary RV market, decreased 16increased 9 percent to 349,500380,100 units, compared to 2018.2019. The decreaseincrease was a result of an estimated 28,80051,900 units, or seven13 percent, decreaseincrease in retail sales in 2019,2020, as compared to 2018, and an effort2019, partially offset from OEM plant shutdowns in response to normalize retail inventories as evidenced by RV dealers decreasing inventory levels by an estimated 45,100 units for 2019, compared to a decreaseCOVID-19 in inventory levels of 8,300 units in 2018.early 2020. Retail demand is typically revised upward in subsequent months, primarily due to delayed RV registrations.
While the Company measures itswe measure our OEM Segment RV sales against industry-wide wholesale shipment statistics, the underlying health of the RV industry is determined by retail demand. A comparison of the number of units and the year-over-year percentage change in industry-wide wholesale shipments and retail sales of travel trailers and fifth-wheel RVs, as reported by Statistical Surveys, Inc., as well as the resulting estimated change in dealer inventories, for both the United States and Canada, is as follows:
| | | Wholesale | | | Retail | | | Estimated Unit Impact on Dealer Inventories | | Wholesale | | Retail | | Estimated Unit Impact on Dealer Inventories |
| | Units | | Change | | Units | | Change | | | Estimated Unit Impact on Dealer Inventories | | Units | | Change | | Units | | Change | | Estimated Unit Impact on Dealer Inventories |
| Year ended December 31, 2020 | | 380,100 | | | 9% | | 449,700 | | 13% | | (69,600) |
| Year ended December 31, 2019 | Year ended December 31, 2019 | 349,500 | | | (16)% | | | 394,600 | | | (7)% | | | (45,100) | | Year ended December 31, 2019 | 349,700 | | | (16)% | | 397,800 | | (6)% | | (48,100) |
| Year ended December 31, 2018 | Year ended December 31, 2018 | 415,100 | | | (3)% | | | 423,400 | | | 6% | | | (8,300) | | Year ended December 31, 2018 | 415,100 | | | (3)% | | 423,400 | | 6% | | (8,300) |
| Year ended December 31, 2017 | 429,500 | | | 15% | | | 401,200 | | | 11% | | | 28,300 | | |
According to the RVIA, industry-wide wholesale shipments of motorhome RVs in 20192020 decreased 1913 percent to 46,70040,700 units compared to 2018.2019, primarily due to OEM plant shutdowns in response to COVID-19. Retail demand for motorhome RVs also decreased 134 percent in 2019,2020, following a one12 percent decrease in retail demand in 2018.2019.
The RVIA has projected a modest decreasean 18 percent increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs to 507,200 units for 2020.2021. Several RV OEMs however, are introducing new product lines and additional features.features, and adding production capacity throughout the upcoming year. Retail sales of RVs historically have been closely tied to general economic conditions, as well as consumer confidence, which was above historical averagesdropped precipitously in 2019. Industry resources report strong attendance and high consumer interest at RV shows aroundresponse to the United States and CanadaCOVID-19 pandemic in the first half of 2020, thus far.but recovered partially in the second half of 2020.
Adjacent Industries
The Company’sOur 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 believesWe believe there are significant opportunities in these Adjacent Industries and, as a result, fivesix of the seven 2019ten business acquisitions we completed by the Companyin 2020 and 2019 were focused in Adjacent Industries.
The estimated potential content per unit the Companywe 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 208,400, 217,500,224,700, 218,800, and 210,200219,800 enclosed trailers were sold in 2020, 2019, 2018, and 2017,2018, respectively.
•Traditional power boats. Statistical Surveys also reported approximately 282,500, 210,500,225,900, 202,600, and 203,200210,700 traditional power boats were sold in 2020, 2019, 2018, and 2017,2018, respectively. Traditional power boats include bass, deck, jet, pontoon, ski-wake, and other boats. Included in this total, Statistical Surveys reported approximately 57,100, 58,600,68,400, 55,000, and 55,00056,200 pontoon boats were sold in 2020, 2019, 2018, and 2017,2018, respectively.
•School buses. According to School Bus Fleet, there were approximately 36,000, 44,400, and 44,400 school buses sold in each of2020, 2019, and 2018, and 2017.respectively.
•Manufactured housing. According to the Institute for Building Technology and Safety, there were approximately 94,400, 94,600, 96,600, and 92,90096,600 manufactured home wholesale shipments in 2020, 2019, 2018, and 2017,2018, respectively.
Aftermarket Segment
Many of the Company’sour OEM Segment products are also sold through various aftermarket channels, including dealerships, wholesale distributors, and service centers, as well as direct to retail customers via the Internet.through e-commerce. This includes discretionary accessories and replacement service parts. The Company hasWe have teams dedicated to product, technical, and installation training as well as marketing support for itsour Aftermarket Segment customers. The CompanyWe also supportssupport multiple call centers to provide responses to customers for both product delivery and technical support. This support is designed for a rapid response to critical repairs, sominimize customer downtime is minimized.for critical repairs. The Aftermarket Segment also includes the sale of replacement glass and awnings to fulfill insurance claims, biminis, covers, buoys, and fenders to the marine industry, and towing products and truck accessories. Many of the optional upgrades and non-critical replacements for RVs are purchased outside the normal product selling seasons, thereby causing certain Aftermarket Segment sales to be counter-seasonal.counter-seasonal, but were different in 2020 and may be different in future years as a result of the COVID-19 pandemic and related impacts.
According to the RVIA, estimated RV ownership in the United States has increasedis estimated to be over nine million units.households. 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 anticipateswe anticipate 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.
In December 2019, we acquired CURT, a leading manufacturer and distributor of branded towing products and truck accessories for the aftermarket. Our CURT products are sold to the automotive and truck aftermarket, as well as the RV, marine, and trailer markets, all of which require towing products, which we believe compliments the OEM markets we serve. Sales from CURT accounted for approximately half of our Aftermarket Segment net sales in 2020. In 2020, CURT sold 1.2 million hitches compared to 950 thousand sold in 2019. Additionally, the quantity of CURT products ordered via e-commerce increased 75 percent year-over-year in 2020.
RESULTS OF OPERATIONS
Year Ended December 31, 20192020 Compared to Year Ended December 31, 20182019
Consolidated HighlightsSummary
•Consolidated net sales for the full-year 20192020 were $2.4$2.8 billion, four18 percent lowerhigher than consolidated net sales for the full-year 20182019 of $2.5$2.4 billion. The decreaseincrease in year-over-year net sales reflects a continuationwas primarily driven by the impact of lower RV wholesale shipments seen throughoutnet sales from acquired businesses of $374.7 million primarily from the year as dealers continued to correct their inventory levels, partially offset by continuedCURT and Polyplastic acquisitions, organic growth in the Company's adjacent industries OEM, aftermarketAftermarket Segment, and international markets. Net sales from acquisitions completed byrecord monthly RV retail demand following COVID-19 shutdowns in the Company contributed $93.0 million in 2019.first half of the year.
•Net income for the full-year 2019 decreased2020 was $158.4 million, or $6.27 per diluted share, compared to $146.5 million, down from net income of $148.6$146.5 million, in 2018, while earnings per share increased toor $5.84 per diluted share, for 2019 compared to $5.83 per diluted share in 2018. Net income for 2018 included one-time non-cash charges of $0.6 million ($0.03 per diluted share), 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. Adjusted net income and adjusted net income per diluted share are non-GAAPfull-year 2019.
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 2019 increased one percent,2020 was $222.9 million compared to $200.2 million from $198.8 million in 2018.2019. Operating profit margin increasedwas 8.0 percent in 2020 compared to 8.4 percent in 2019, with the contraction primarily due to COVID-19-related shutdowns from 8.0 percent in 2018.late March through early May of 2020.
•The cost of aluminum and steel used in certain of the Company’s manufactured components decreased in 2020 compared to 2019. Raw material costs are subject to continued to decrease in 2019 from peak costs during the secondfluctuation and third quarter of 2018 and have favorably impacted margins whileare being offset, in part, by contractual reductions in customer selling prices that are indexed to select commodities. Raw material costs continue to fluctuatewere trending higher at the end of 2020 and are expected to remain volatile.
•LaborThe increase in selling, general, and administrative costs were favorable in 2019 as the Company seeks to continuously manage its labor cost while supporting the operations of the business. Lean manufacturing teams continue working to reduce cost$144.2 million was driven by incremental costs from recent acquisitions of $125.2 million, including warehousing and implement processes to better utilize manufacturing capacity. The Company has also reduced direct labor attrition, which improves efficiency and reduces otherdistribution costs of $44.7 million associated with workforce turnover.CURT, and incremental amortization on intangible assets from acquired businesses of $14.2 million in 2020 compared to 2019.
•The effective tax rate of 23.524.4 percent for the full-year 20192020 was higher than the prior year, primarily due to a year-over-year reductionan increase in the excess tax benefits related to the vesting of equity-based compensation awards,non-deductible expenses, as discussed below under “Provision for Income Taxes.”
•In 2019, the Company2020, we paid quarterly dividends aggregating $2.55$2.80 per share, or $63.8$70.4 million.
OEM Segment
Net sales of the OEM Segment in 2019 decreased 72020 increased 4 percent, or $150.7$76.0 million, compared to 2018.2019. Net sales of components to OEMs were to the following markets for the years ended December 31:
| | (In thousands) | (In thousands) | 2019 | | 2018 | | Change | (In thousands) | 2020 | | 2019 | | Change |
| RV OEMs: | RV OEMs: | | | | | | RV OEMs: | | | | | |
| Travel trailers and fifth-wheels | Travel trailers and fifth-wheels | $ | 1,276,718 | | | $ | 1,440,730 | | | (11)% | | Travel trailers and fifth-wheels | $ | 1,321,567 | | | $ | 1,276,718 | | | 4% |
| Motorhomes | Motorhomes | 155,623 | | | 187,297 | | | (17)% | | Motorhomes | 158,096 | | | 155,623 | | | 2% |
| Adjacent Industries OEMs | Adjacent Industries OEMs | 659,560 | | | 614,589 | | | 7% | | Adjacent Industries OEMs | 688,248 | | | 659,560 | | | 4% |
| Total OEM Segment net sales | Total OEM Segment net sales | $ | 2,091,901 | | | $ | 2,242,616 | | | (7)% | | Total OEM Segment net sales | $ | 2,167,911 | | | $ | 2,091,901 | | | 4% |
According to the RVIA, industry-wide wholesale shipments for the years ended December 31 were:
| | | 2019 | | 2018 | | Change | | 2020 | | 2019 | | Change |
| Travel trailer and fifth-wheel RVs | Travel trailer and fifth-wheel RVs | 349,500 | | | 415,100 | | | (16)% | | Travel trailer and fifth-wheel RVs | 380,100 | | | 349,700 | | | 9% |
| Motorhomes | Motorhomes | 46,700 | | | 57,600 | | | (19)% | | Motorhomes | 40,700 | | | 46,600 | | | (13)% |
Our calculations of content in the OEM Segment discussion that follows were adjusted to remove Furrion sales from all prior periods to enhance comparability between periods following the termination of the agreement at the end of 2019. Refer to Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations in our Quarterly Report on Form 10-Q for the period ended September 30, 2020 for historical Furrion sales.
The trend in the Company’sour average product content per RV produced is an indicator of the Company’sour overall market share of components for new RVs. The Company’sOur average product content per type of RV, calculated based upon the Company’sour net sales of components to domestic RV OEMs for the different types of RVs produced for the twelve months ended December 31, divided by the industry-wide wholesale shipments of the different product mix of RVs for the same period, was:
| | | | | | | | | | | | | | | | | |
| Content per: | 2019 | | 2018 | | Change |
| Travel trailer and fifth-wheel RV | $ | 3,618 | | | $ | 3,449 | | | 5% | |
| Motorhome | $ | 2,364 | | | $ | 2,491 | | | (5)% | |
| | | | | | | | | | | | | | | | | |
| Content per: | 2020 | | 2019 | | Change |
| Travel trailer and fifth-wheel RV | $ | 3,390 | | | $ | 3,346 | | | 1% |
| Motorhome | $ | 2,479 | | | $ | 2,287 | | | 8% |
The Company’sOur 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’sour products, as well asOEM inventories, and changes in the types of RVs produced industry-wide.
The Company’s decreaseincrease in net sales to RV OEMs of travel trailers, fifth-wheel, and motorhome components during 2019 related to declines in industry-wide wholesale unit shipments. The net sales decrease2020 of $47.3 million was primarily driven by organic growth, including new product introductions and industry and market share gains of $180.5 million, partially offset by the termination of the Furrion supply agreement of $98.6 million, and the increased demand for entry-level products of $12.7 million, which traditionally have less content per unit. In addition, price reductions passed to our customers during the twelve months ended December 31, 2020 of $21.9 million, primarily due to commodity indexed pricing, and changes of targeted products andin OEM inventory levels have negatively impacted content gains in travel trailers and fifth-wheels during 2019. Motorized content was impacted by a continued market shift to smaller units in 2019.growth.
The Company’sOur net sales to Adjacent Industries OEMs increased during 2020, primarily due to acquisitions completed in 2020 and 2019 as well as market share gains. Domestic and international OEM marine net sales totaled $205.8 million in 2020, an increase of $10.0 million compared to 2019, primarily due to acquisitions completed in 20192020 and market share gains. OEM marine net sales were $167.5 million in 2019, an increase of $13.4 million compared to 2018, primarily due to acquisitions completed in 2019 and 2018. The Company continues2019. We continue to believe there are significant opportunities in Adjacent Industries.
Operating profit of the OEM Segment was $165.3$156.1 million in 2019,2020, a decrease of $2.2$9.2 million compared to 2018.2019. The operating profit margin of the OEM Segment increaseddecreased to 7.2 percent in 2020 compared to 7.9 percent in 2019 compared to 7.5 percent in 2018 and was positivelynegatively impacted by:
•Pricing changesThe impact of targeted products, resultingCOVID-19 as OEMs suspended production beginning in an increaseMarch 2020 due to netgovernment mandates and a temporary reduction in customer demand during the COVID-19 pandemic, which dramatically reduced sales of $40.0 million in 2019 compared to 2018.while still incurring certain employee salaries and wages, healthcare and safety expenses, and other fixed costs.
•Investments over the past several yearsSelling price changes from contractual reductions indexed to improve operating efficiencies, including lean manufacturing initiatives, increased useselect commodities of automation, and employee retention initiatives,$26.5 million, which reduced direct labor costsgenerally lag actual commodity price changes by $15.0 million during 2019 comparedsix to 2018.nine months.
•ReductionsAdditional amortization related to intangible assets from acquisitions completed in insurance related costs of $11.2 million in 2019.2020 and 2019, which reduced operating profit by $6.9 million.
Partially offset by:
•Fixed costs being spread over an OEM Segment sales base thatReductions in material commodity pricing of $16.6 million, primarily related to decreased by $150.7 million.
•Increases in incentive compensation of $10.4 million as a result of improved operating margin.
•Investments in sellingsteel and administration resources of $8.8 million to support the complexities of international growth and acquisition-relatedaluminum costs.
•Higher production facility costs due to investments to expand capacity over the past couple of years, which increased expenses by $5.8 million in 2019.
Aftermarket Segment
Net sales of the Aftermarket Segment in 20192020 increased 20125 percent, or $46.4$348.7 million, compared to 2018.2019. Net sales of components in the Aftermarket Segment were as follows for the years ended December 31:
| | (In thousands) | (In thousands) | 2019 | | 2018 | | Change | (In thousands) | 2020 | | 2019 | | Change |
| Total Aftermarket Segment net sales | Total Aftermarket Segment net sales | $ | 279,581 | | | $ | 233,191 | | | 20% | | Total Aftermarket Segment net sales | $ | 628,255 | | | $ | 279,581 | | | 125% |
The Company’sOur net sales to the Aftermarket Segment increased during 20192020 primarily due to increasesnet sales from acquisitions completed in market share, acquisitions2020 and 2019, which contributed approximately $20.0$269.6 million, in sales, and the Company’s focus on building out well qualified, customer-focused teams, and infrastructure to service this market.organic growth of $79.1 million.
Operating profit of the Aftermarket Segment was $34.9$66.8 million in 2019,2020, an increase of $3.6$31.9 million compared to 2018.2019, primarily from acquisitions completed in 2020 and 2019, partially offset by the impact of COVID-19. The operating profit margin of the Aftermarket Segment was 10.6 percent in 2020, compared to 12.5 percent in 2019, compared to 13.4 percent in 2018, and was negatively impacted by:
•Increase inAdditional amortization and depreciation related to long-lived assets from the CURT and Lewmar acquisitions, which reduced operating profit by $8.9 million.
•The recognition of higher cost of sales due to the inventory fair value step-up for CURT determined as part of the purchase accounting of $7.3 million.
•Sales mix of lower margin Furrion productCURT and Lewmar products, which negatively impacted operating profit by $1.8$6.7 million.
•Higher production facility costs due to investments to expand capacity over the past couple of years, which increased expenses by $1.6 million in 2019.
•Acquisition integration costs, which reduced operating profit by $1.0 million.
Partially offset by:
•Fixed costs being spread over an Aftermarket Segment sales base that increased by $46.4 million.
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Consolidated Highlights
•Consolidated net sales for the year ended December 31, 2018 increased to a record $2.5 billion, 15 percent higher than consolidated net sales for the year ended December 31, 2017 of $2.1 billion. The increase in year-over-year 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, Inc., 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., 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.
•In February 2018, the Company acquired substantially all of the business assets of Hehr International Inc., 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, 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) | | 2018 | | 2017 | | Change |
| RV OEMs: | | | | | | |
| Travel trailers and fifth-wheels | | $ | 1,440,730 | | | $ | 1,405,983 | | | 2% | |
| Motorhomes | | 187,297 | | | 159,417 | | | 17% | |
| Adjacent industries | | 614,589 | | | 411,223 | | | 49% | |
| Total OEM Segment net sales | | $ | 2,242,616 | | | $ | 1,976,623 | | | 13% | |
According to the RVIA, industry-wide wholesale shipments for the years ended December 31, were:
| | | | | | | | | | | | | | | | | | | | |
| | 2018 | | 2017 | | Change |
| Travel trailer and fifth-wheel RVs | | 415,100 | | | 429,500 | | | (3)% | |
| Motorhomes | | 57,600 | | | 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.
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: | | 2018 | | 2017 | | Change |
| Travel trailer and fifth-wheel RV | | $ | 3,449 | | | $ | 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.
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, which increased material costs by $53.7 million in 2018. 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. Rent, utilities, and depreciation expense negatively impacted operating profit by $12.7 million in 2018 as a result of expansion of manufacturing capacity. 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, which were $1.4 million in 2018.
•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. Overall compensation, including benefits, negatively impacted operating profit by $22.4 million in 2018.
Partially offset by:
•Pricing changesThe benefit of certain products, resulting in an increaseorganic sales growth coupled with the termination of $65.7 million in net sales for 2018 compared to 2017.
•Increased sales to higher margin Adjacent Industries OEMs of $203.4 million, from $411.2 million in 2017 to $614.6 million in 2018,the low-margin Furrion supply agreement, which improvedincreased operating profit by $1.4 million in 2018.$8.9 million.
•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.
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) | | 2018 | | 2017 | | Change |
| 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.
Provision for Income Taxes
The effective income tax rate for 20192020 was 23.524.4 percent compared to 22.823.5 percent in 2018.2019. The effective tax rate of 23.524.4 percent for the full-year 20192020 was higher than the prior year, primarily due to a year-over-year reductionincrease in the excess tax benefitsnon-deductible items related to the vesting of equity-basedexecutive compensation awards. 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 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.limitations.
The Company estimatesWe estimate the 20202021 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 represented a significant charge that impacted the Company’s financial results in 2017 and, to a lesser extent, in 2018. 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 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 GAAP | $ | 192,352 | | | $ | 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 SEC guidance.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
We maintain a level of liquidity sufficient to allow us to meet our cash needs in the short term. Over the long term, we manage our cash and capital structure to maximize shareholder return, maintain our financial condition, and maintain flexibility for our future strategic investments. We continuously assess our capital requirements, working capital needs, debt and leverage levels, debt and lease maturity schedules, capital expenditure requirements, dividends, future investments or acquisitions, and potential share repurchases. We believe our operating cash flows, credit facilities, as well as any potential future borrowings, will be sufficient to fund our future payments and long-term initiatives.
As of December 31, 2020, we had $51.8 million in cash and cash equivalents, and $202.2 million of availability on our revolving credit facility. Additionally, we have the ability to request up to $150.0 million in additional Senior Promissory Notes be purchased by Prudential under our Shelf-Loan Facility (each as defined in Note 8 of the Notes to Consolidated Financial Statements), subject to Prudential's approval. See Note 8 of the Notes to Consolidated Financial Statements for a description of our credit facilities.
We believe the availability under the revolving credit facility under the Amended Credit Agreement (as defined in Note 8 of the Notes to Consolidated Financial Statements), along with our cash flows from operations, are adequate to finance our anticipated cash requirements for the next twelve months.
The Consolidated Statements of Cash Flows reflect the following for the years ended December 31:
| | (In thousands) | (In thousands) | | 2019 | | 2018 | | 2017 | (In thousands) | | 2020 | | 2019 | | 2018 |
| Net cash flows provided by operating activities | Net cash flows provided by operating activities | | $ | 269,525 | | | $ | 156,608 | | | $ | 152,702 | | Net cash flows provided by operating activities | | $ | 231,400 | | | $ | 269,525 | | | $ | 156,608 | |
| Net cash flows used in investing activities | Net cash flows used in investing activities | | (503,834) | | | (302,795) | | | (145,875) | | Net cash flows used in investing activities | | (232,301) | | | (503,834) | | | (302,795) | |
| Net cash flows provided by (used in) financing activities | | 254,971 | | | 135,066 | | | (66,948) | | |
| Net cash flows provided by financing activities | | Net cash flows provided by financing activities | | 14,048 | | | 254,971 | | | 135,066 | |
| Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | | (231) | | | — | | | — | | Effect of exchange rate changes on cash and cash equivalents | | 3,315 | | | (231) | | | — | |
| Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | | $ | 20,431 | | | $ | (11,121) | | | $ | (60,121) | | Net increase (decrease) in cash and cash equivalents | | $ | 16,462 | | | $ | 20,431 | | | $ | (11,121) | |
Discussion - Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Cash Flows from Operations
Net cash flows provided by operating activities were $231.4 million in 2020, compared to $269.5 million in 2019, compared to $156.6 million in 2018.2019. Changes in net assets and liabilities, net of acquisitions of businesses, in 20192020 generated $117.1$74.0 million moreless cash than in 2018.2019. This was partially offset by a $4.2$35.8 million decreaseincrease in net income, adjusted for depreciation and amortization, stock-based compensation expense, deferred taxes, and other non-cash items. Reduced inventory levels driven by lower commodity prices and reductions in Furrion inventory during 2019 wereInventory growth was the primary sourcesuse of cash generated from reductions in net assets.assets due to increased retail demand and rising material costs late in 2020.
Over the long term, based on the Company’sour 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 expectswe expect working capital to increase or decrease equivalent to approximately 10 to 15 percent of the increase or decrease, respectively, in net sales. However, there are many factors that can impact this relationship, especially in the short term.
Depreciation and amortization was $98.0 million and $75.4 million in 2020 and 2019, respectively, and is expected to be approximately $105 million$110 to $110$120 million in 2020.2021. Non-cash stock-based compensation was $18.5 million and $16.1 million in 2020 and 2019, was $16.1 million. Non-cash stock-based compensationrespectively, and is expected to be approximately $16 million$20 to $21$30 million in 2020.
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.2021.
Cash Flows from Investing Activities
Cash flows used in investing activities of $232.3 million in 2020 were primarily comprised of $182.1 million for the acquisition of businesses and $57.3 million for capital expenditures. Cash flows used in investing activities of $503.8 million in 2019 were primarily comprised of $447.8 million for the acquisition of businesses and $58.2 million for capital expenditures. Cash flows used in investing activities of $302.8 million in 2018 were primarily comprised of $184.8 million for the acquisition of businesses and $119.8 million for capital expenditures.
Cash flows used in investing activities of $145.9 million in 2017 were primarily comprised of $87.2 million for capital expenditures and $60.6 million for the acquisition of businesses.
The Company’sOur capital expenditures are primarily for replacement and growth. Over the long term, based on the Company’sour historical capital expenditures, the replacement portion has averaged approximately one to two percent of net sales, while the growth portion has averaged approximately two to three percent of net sales. However, there are many factors that can impact the actual spending compared to these historical averages. We estimate 2021 capital expenditures of $130 to $150 million, including capacity expansions to meet elevated demand, which we expect to fund with cash flows from operations or periodic borrowings under the revolving credit facility as needed.
The 20192020 capital expenditures and acquisitions were funded by cash from operations and borrowings under the Company’sour credit agreement. Capital expenditures and acquisitions in 20202021 are expected to be funded primarily from cash generated from operations, as well as periodic borrowings under the Company’sour revolving credit facility.
Cash Flows from Financing Activities
Cash flows provided by financing activities in 2020 primarily included net borrowings on the revolving credit facility of $113.6 million, partially offset by the payment of dividends to stockholders of $70.4 million, and repayments under our term loan and other borrowings of $22.4 million.
Cash flows provided by financing activities in 2019 primarily included term loan borrowings of $300.0 million, net borrowings on the revolving credit facility of $26.5 million, partially offset by the payment of dividends to stockholders of $63.8 million, and $8.1 million from the vesting of stock-based awards, net of shares tendered for the payment of taxes.
Cash flows provided by financing activitiesThe Amended Credit Agreement and Shelf-Loan Facility include both financial and non-financial covenants. The covenants dictate that we shall not permit our net leverage ratio to exceed certain limits, shall maintain a minimum debt service coverage ratio, and must meet certain other financial requirements. At December 31, 2020, we were in 2018 primarily included net borrowings oncompliance with all such requirements, and we expect to remain in compliance for the revolving credit facility of $240.1 million offset by the payment ofnext twelve months.
We have paid regular quarterly dividends since 2016. Future dividend policy with respect to stockholders of $59.3 million, repurchases ofour common stock will be determined by our Board of $28.7 million under theDirectors in light of our prevailing financial needs, earnings, and other relevant factors, including any limitations in our debt agreements, such as maintenance of certain financial ratios. In October 2018, our Board of Directors authorized a stock repurchase program,program. No shares were repurchased during the years ended December 31, 2020 and $16.1��million from2019. See Note 12 of the vesting of stock-based awards, net of shares tenderedNotes Consolidated Financial Statements for the payment of taxes.
Cash flows used in financing activities in 2017 primarily included the payment of dividends to stockholders of $51.1 million, $10.5 million from the vesting of stock-based awards, net of shares tendered for the payment of taxes, and $5.3 million in payments for contingent considerationadditional information related to acquisitions. our dividend and share repurchase programs.
Future Cash Requirements
The Company had no outstanding borrowingsfollowing table summarizes our material estimated future cash requirements under the revolving credit facility as of December 31, 2017, but borrowings reached a high of $9.8 million during 2017.
In connection with certain business acquisitions, if established sales targetsour contractual obligations for the acquired products are achieved, the Company is contractually obligated to pay additional cash consideration. The Company has recorded a $4.4 million liability for the aggregate fair value of these expected contingent consideration liabilitiesindebtedness and operating leases at December 31, 2019. For further information, see Note 11 of the Notes to the Consolidated Financial Statements.2020, in total and disaggregated into current (payable in 2021) and long-term (payable after 2021) obligations.
Credit Facilities | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Total | | Current | | Long-Term |
Total indebtedness (a) | | $ | 739,540 | | | $ | 17,831 | | | $ | 721,709 | |
Interest on indebtedness (a) | | 31,300 | | | 12,088 | | | 19,212 | |
Operating leases (b) | | 131,770 | | | 29,927 | | | 101,843 | |
| Total | | $ | 902,610 | | | $ | 59,846 | | | $ | 842,764 | |
a.See Note 8 of the Notes to Consolidated Financial Statements for a descriptionadditional information regarding the maturities of debt principal. Interest payments on our credit facilities.indebtedness are calculated using the outstanding balances and interest rates in effect on December 31, 2020.
The Company believes the availability under the revolving credit facility under the Amended Credit Agreement (as defined inb.See Note 810 of the Notes to Consolidated Financial Statements), along with its cash flows from operations, are adequate toStatements for additional information regarding the maturity of our lease obligations under operating leases. Our finance the Company’s anticipated cash requirements for the next twelve months.leases were not material at December 31, 2020.
Contractual ObligationsRetirement and CommitmentsOther Benefit Plans
FutureWe consider various factors when making funding decisions, such as regulatory requirements, actuarially determined minimum commitments relatingcontribution requirements and contributions required to avoid benefit restrictions for defined benefit pension plans. For the Company’s contractual obligations atyear ended December 31, 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments due by period | | | | | | | | | | |
| | | Less than | | | | | | More than | | |
| (In thousands) | Total | | 1 year | | 1-3 years | | 3-5 years | | 5 years | | Other |
| Total indebtedness | $ | 630,789 | | | $ | 17,883 | | | $ | 88,067 | | | $ | 513,517 | | | $ | 11,322 | | | $ | — | |
Interest on fixed rate indebtedness (a) | 46,302 | | | 17,695 | | | 21,973 | | | 6,634 | | | — | | | — | |
| Operating leases | 122,342 | | | 26,764 | | | 40,073 | | | 22,428 | | | 33,077 | | | — | |
Employment contracts (b) | 22,667 | | | 16,777 | | | 5,732 | | | 158 | | | — | | | — | |
Deferred compensation (c) | 30,479 | | | 211 | | | 8,181 | | | 3,732 | | | 8,616 | | | 9,739 | |
Contingent consideration and holdback payments (d) | 11,965 | | | 5,130 | | | 4,102 | | | 1,513 | | | 1,220 | | | — | |
Purchase obligations (e) | 150,036 | | | 147,535 | | | 1,863 | | | 638 | | | — | | | — | |
Taxes (f) | 7,900 | | | 7,900 | | | — | | | — | | | — | | | — | |
| Total | $ | 1,022,480 | | | $ | 239,895 | | | $ | 169,991 | | | $ | 548,620 | | | $ | 54,235 | | | $ | 9,739 | |
a.The Company has used2020, we contributed $1.2 million to our Dutch pension plans assumed with the contractual payment datesacquisition of Polyplastic, and the fixed interest ratesmade discretionary matching contributions of $9.0 million to our defined contribution 401(k) profit sharing plan. We anticipate making minimum required contributions of $1.3 million to our Dutch pension plans in effect as2021. We also expect to make matching contributions to our defined contribution 401(k) profit sharing plan in 2021 at a level similar to 2020; however, these contributions are discretionary and subject to change. See Note 7 of December31,2019, to determine the estimated future interest payments for fixed rate indebtedness.
b.Includes amounts payable under employment contracts and arrangements, and retirement and severance agreements.
c.Includes amounts payable under deferred compensation arrangements. The Other column represents the liability for deferred compensation for employees that have elected to receive payment upon separation from service from the Company.
d.Comprised of estimated future contingent consideration payments for which a liability has been recorded in connection with business acquisitions.
e.Primarily comprised of (i) purchase orders issued in the normal course of business and (ii) long term purchase commitments, for which the Company has estimated the expected future obligation based on current prices and usage.
f.Represents unrecognized tax benefits, as well as related interest and penalties.
Commitments are described more fully in the Notes to Consolidated Financial Statements.Statements for further information related to our retirement and other benefit plans.
Holdback Payments and Contingent Consideration
With certain business acquisitions, we hold back purchase consideration for the purposes of working capital adjustments, indemnity claims, and other items, as defined in each respective purchase agreement. At December 31, 2020, we had current holdback payments accrued of $17.4 million and long-term holdback payments accrued of $2.8 million related to certain acquisitions completed in 2020 and 2019. The ultimate cash settlement amounts of these holdback accruals are subject to change based on various factors defined in the respective purchase agreements.
In connection with certain business acquisitions, we agree that if certain sales targets for the acquired products are achieved, we will pay additional cash consideration. We record a liability for the fair value of this contingent consideration based on the present value of the expected future cash flows using a market participant's weighted average cost of capital. At December 31, 2020, we had current contingent consideration accrued of $2.7 million and long-term contingent consideration accrued of $1.9 million. The ultimate cash settlement amounts of these contingent consideration arrangements are subject to change based on the level of attainment of the performance targets in the respective agreements.
See Note 3 and Note 11 of the Notes to Consolidated Financial Statements for further information related to these holdback payments and contingent consideration.
Deferred Social Security Payments Under the CARES Act
In 2020, we elected to defer employer-side Social Security payments under provisions of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). We deferred $18 million of payments in 2020 under the CARES Act, and will pay $9 million of deferred Social Security taxes in each of 2021 and 2022.
CORPORATE GOVERNANCE
The Company isWe are in compliance with the corporate governance requirements of the SEC and the New York Stock Exchange. The Company’sOur governance documents and committee charters and key practices have been posted to the Company’sour website (www.lci1.com) and are updated periodically. The website also contains, or provides direct links to, all SEC filings, press releases and investor presentations. The Company hasWe have also established a Whistleblower Policy, which includes a toll-free hotline (877-373-9123) to report complaints about the Company’s accounting, internal controls, auditing matters or other concerns. The Whistleblower Policy and procedure for complaints can be found on the Company’sour website (www.lci1.com).
CONTINGENCIES
Additional information required by this item is included under Item 3 of Part I of this Annual Report on Form 10-K.
CRITICAL ACCOUNTING POLICIESESTIMATES
The Company’sOur Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which requires certain estimates and assumptions to be made that affect the amounts and disclosures reported in those financial statements and the related accompanying notes. Actual results could differ from these estimates and assumptions. The following critical accounting policies, some of which are impacted significantly by judgments, assumptions and estimates, affect the Company’s Consolidated Financial Statements. Management has discussed
the development and selection of its critical accounting policiesestimates with the Audit Committee of the Company’s Board of Directors and the Audit Committee has reviewed the disclosure presented below relating to the critical accounting policies.estimates.
Warranty
The Company providesWe provide warranty terms based upon the type of product sold. The Company estimatesWe estimate the warranty accrual based upon various factors, including historical warranty costs, warranty claim lag, current trends, product mix, and sales. The accounting for warranty accruals requires the Companyus to make assumptions and judgments, and to the extent actual results differ from original estimates, adjustments to recorded accruals may be required. In 2020, we experienced favorable trends as year-over-year claim payments declined despite continued growth in net sales. We believe the favorable trend is the result of concentrated efforts related to product quality and customer service. For further information on our warranty accrual, including a roll-forward of changes in the accrual, see Note 6 of the Notes to the Consolidated Financial Statements.
Fair Value of NetIntangible Assets of Acquired Businesses
The Company valuesWe value the intangible assets and liabilities associated with the acquisitions of businesses on the respective acquisition dates. Depending upon the type of intangible asset or liability acquired, the Company useswe use different valuation techniques in determining the fair value. Those techniques include comparable market prices, long-term sales, profitability and cash flow forecasts, assumptions regarding future industry-specific economic and market conditions and a market participant’s weighted average cost of capital, as well as other techniques as circumstances require. By their nature, these assumptions require judgment, and if management had chosen different assumptions, the fair value of netintangible assets of acquired businesses would have been different. For further information on acquired intangible assets, and liabilities, see Notes 3 of the Notes to Consolidated Financial Statements.
New Accounting Pronouncements
Information required by this item is included in Note 2 of the Notes to the Consolidated Financial Statements.
INFLATION
The prices of key raw materials, consisting primarily of steel and aluminum, and components used by the Companyus which are made from these raw materials, are influenced by demand and other factors specific to these commodities, rather than being directly affected by inflationary pressures. Prices of these commodities have historically been volatile, and over the past few months prices have continued to fluctuate. The CompanyWe did not experience any significant increases in itsour labor costs in 20192020 related to inflation.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
At December 31, 2019, the Company2020, we had $566.2$679.9 million of borrowings outstanding on itsour variable rate revolving credit facility and incremental term loan. Assuming consistent borrowing levels and an increase of 100 basis points in the interest rate for borrowings of a similar nature subsequent to December 31, 2019,2020, future cash flows would be reduced by approximately $5.7$6.8 million per annum.
At December 31, 2019, the Company had $50.0 million of fixed rate debt outstanding. Assuming there is a decrease of 100 basis points in the interest rate for borrowings of a similar nature subsequent to December 31, 2019, which the Company becomes unable to capitalize on in the short-term as a result of the structure of its fixed rate financing, future cash flows would be approximately $0.5 million lower per annum than if the fixed rate financing could be obtained at current market rates.
The Company is also exposed to changes in the prices of raw materials, specifically steel and aluminum. The Company has, from time to time, entered into derivative instruments for the purpose of managing a portion of the exposures associated with fluctuations in steel and aluminum prices. While these derivative instruments are subject to fluctuations in value, these fluctuations are generally offset by the changes in fair value of the underlying exposures. See Note 13 of the Notes to Consolidated Financial Statements for a more detailed discussion of derivative instruments.
The Company hasWe have historically been able to obtain sales price increases to partially offset the majority of raw material cost increases. However, there can be no assurance future cost increases, if any, can be partially or fully passed on to customers, or that the timing of such sales price increases will match raw material cost increases.
Additional information required by this item is included under the caption “Inflation” in the Management’sPart II, Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Report.
Operations."
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
LCI Industries:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of LCI Industries and subsidiaries (the Company) as of December 31, 20192020 and 2018,2019, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019,2020, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2019,2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192020 and 2018,2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019,2020, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 20192020 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company completed the CURT Acquisition Holdings,acquired Challenger Door LLC ("Challenger") and Veada Industries, Inc. (CURT), Lewmar Marine Ltd. (Lewmar), Rodan Enterprises, LLC (SureShade), Ciesse Holdings S.r.l (Ciesse), Lavet S.r.l. (Lavet), and Femto Engineering S.r.l. (Femto) acquisitions("Veada") during 2019,2020, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, CURT, Lewmar, SureShade, Ciesse, Lavet,2020, Challenger and FemtoVeada internal control over financial reporting associated with total assets of $568$138.9 million and total revenues of $65.4$8.1 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2019.2020. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of CURT, Lewmar, SureShade, Ciesse, Lavet,Challenger and Femto.Veada.
Change in Accounting Principle
As discussed in Note 10 to the consolidated financial statements, the Company changed its method of accounting for leases effectiveas of January 1, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842), and all related amendments, which established Accounting Standards Codification Topic 842, Leases.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit MattersMatter
The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the consolidated financial statements that werewas communicated or required to be communicated to the audit committee and that: (1) relaterelates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit mattersmatter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing separate opinions on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
Evaluation of acquisition date fair value of customer relationship intangible assets
As discussed in Note 3 to the consolidated financial statements, during fiscal year 2019, the Company acquired CURT for approximately $337.6 million. As a result of this transaction, the Company acquired $112 million of customer relationship intangible assets. The Company determined the fair value of customer relationships based on a discounted cash flow analyses that required the Company to make assumptions regarding cash flow forecasts, the customer attrition rate and the discount rate used in the valuation.
We identified the evaluation of the acquisition-date fair value of acquired customer relationship intangible assets as a critical audit matter. Evaluating the forecasted cash flow, customer attrition rate and discount rate assumptions required specialized skills and knowledge, and there was limited observable market information. Additionally, the acquisition date fair value of customer relationships was sensitive to changes in the assumptions used in the forecasted cash flows, specifically as it relates to customer attrition rates.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s acquisition-date fair value process, including controls related to the development of the relevant assumptions as identified above. We performed sensitivity analyses over the cash flow forecasts, customer attrition rate and discount rate assumptions to assess their impact on the Company’s determination of the fair value of the acquired customer relationship intangible assets. We evaluated the cash flow forecast by comparing it to the historical results of the acquired entity, industry benchmarks and publicly available market data, and the cash flow forecast and customer attrition rate of previous acquisitions made by the Company. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:
–evaluating the Company’s discount rate, by comparing it against a discount rate range that was independently developed using publicly available market data for comparable entities; and
–testing the estimate of the customer relationship intangible assets fair value using the Company’s cash flow assumptions and an independently developed discount rate, and comparing the result to the Company’s fair value estimate.
Estimation of product warranty accrual
As discussed in Notes 2 andNote 6 to the consolidated financial statements, the Company’s product warranty accrual as of December 31, 20192020 was $47.2$47.1 million. The Company provides warranty terms based upon the type of product sold and estimates the amount of warranty costs associated with future product warranty claims, which are accrued at the time revenue is recognized. The estimate of the likelihood and cost of future claims considersaccrual based upon various factors, including historical warranty costs, current trends, product mix and sales.
We identified the evaluation of the likelihood and cost of future claims that arecurrent trends used to estimate the product warranty accrual as a critical audit matter. The likelihood and costSubjective auditor judgment was required to evaluate the relevance of future claimscurrent trends on the determination of the product warranty accrual. In addition, minor changes in current trends used to determine the product warranty accrual can cause significant changes in the calculation were challenging to test as minor changes to those factors and assumptions had a significant effect on the Company’s estimation of the accrual.estimate.
The following are the primary procedures we performed to address this critical audit matter includedmatter. We evaluated the following. Wedesign and tested the operating effectiveness of certain internal controls overrelated to current trends used to determine the Company’sproduct warranty accrual. To assess the relevance of current trends used to determine the product warranty accrual, process including controls overwe compared the likelihood and costCompany's historical estimate of future claim assumptions used as inputsproduct warranty costs to the estimate.actual results. We identified and considered the relevance reliability, and sufficiencyreliability of the sources of data used by the Company in developing the estimate. We developed anperformed sensitivity analyses over the current trends to assess the impact on the Company's estimate of the product warranty accrual, based on actual warranty claims relativeaccrual. We evaluated the current trends by comparing them to sales for(1) recent historical experience, taking into account changes in conditions and events affecting the period,Company, and compared the results to the Company’s product warranty accrual estimate. We compared the Company’s historical product warranty estimates to actual results to assess the Company’s ability to accurately estimate the product warranty accrual.(2) market information.
/s/ KPMG LLP
We have served as the Company’s auditor since 1980.
Chicago, Illinois
February 27, 202025, 2021
LCI INDUSTRIES
CONSOLIDATED STATEMENTS OF INCOME
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | 2019 | | 2018 | | 2017 | | | 2020 | | 2019 | | 2018 | |
| (In thousands, except per share amounts) | (In thousands, except per share amounts) | | | | | | | (In thousands, except per share amounts) | | | | | | |
| | Net sales | Net sales | $ | 2,371,482 | | | $ | 2,475,807 | | | $ | 2,147,770 | | | Net sales | $ | 2,796,166 | | | $ | 2,371,482 | | | $ | 2,475,807 | | |
| Cost of sales | Cost of sales | 1,832,280 | | | 1,955,463 | | | 1,654,656 | | | Cost of sales | 2,090,076 | | | 1,832,280 | | | 1,955,463 | | |
| Gross profit | Gross profit | 539,202 | | | 520,344 | | | 493,114 | | | Gross profit | 706,090 | | | 539,202 | | | 520,344 | | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | 338,992 | | | 321,556 | | | 278,833 | | | Selling, general and administrative expenses | 483,156 | | | 338,992 | | | 321,556 | | |
| | Operating profit | Operating profit | 200,210 | | | 198,788 | | | 214,281 | | | Operating profit | 222,934 | | | 200,210 | | | 198,788 | | |
| Interest expense, net | Interest expense, net | 8,796 | | | 6,436 | | | 1,437 | | | Interest expense, net | 13,453 | | | 8,796 | | | 6,436 | | |
| Income before income taxes | Income before income taxes | 191,414 | | | 192,352 | | | 212,844 | | | Income before income taxes | 209,481 | | | 191,414 | | | 192,352 | | |
| Provision for income taxes | Provision for income taxes | 44,905 | | | 43,801 | | | 79,960 | | | Provision for income taxes | 51,041 | | | 44,905 | | | 43,801 | | |
| Net income | Net income | $ | 146,509 | | | $ | 148,551 | | | $ | 132,884 | | | Net income | $ | 158,440 | | | $ | 146,509 | | | $ | 148,551 | | |
| | Net income per common share: | Net income per common share: | | | Net income per common share: | | |
| Basic | Basic | $ | 5.86 | | | $ | 5.90 | | | $ | 5.31 | | | Basic | $ | 6.30 | | | $ | 5.86 | | | $ | 5.90 | | |
| Diluted | Diluted | $ | 5.84 | | | $ | 5.83 | | | $ | 5.24 | | | Diluted | $ | 6.27 | | | $ | 5.84 | | | $ | 5.83 | | |
| | Weighted average common shares outstanding: | Weighted average common shares outstanding: | | | Weighted average common shares outstanding: | | |
| Basic | Basic | 24,998 | | | 25,178 | | | 25,020 | | | Basic | 25,134 | | | 24,998 | | | 25,178 | | |
| Diluted | Diluted | 25,093 | | | 25,463 | | | 25,375 | | | Diluted | 25,255 | | | 25,093 | | | 25,463 | | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
LCI INDUSTRIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | Year Ended December 31, | | | Year Ended December 31, |
| | | 2019 | | 2018 | | 2017 | | 2020 | | 2019 | | 2018 |
| (In thousands) | (In thousands) | | | | | | (In thousands) | | | | | |
| | Net income | Net income | $ | 146,509 | | | $ | 148,551 | | | $ | 132,884 | | Net income | $ | 158,440 | | | $ | 146,509 | | | $ | 148,551 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
| Net foreign currency translation adjustment | Net foreign currency translation adjustment | 4,262 | | | (3,936) | | | 4,237 | | Net foreign currency translation adjustment | 4,531 | | | 4,262 | | | (3,936) | |
| Unrealized loss on fair value of derivative instruments | (534) | | | (1,108) | | | — | | |
| Actuarial loss on pension plans | | Actuarial loss on pension plans | (207) | | | 0 | | | 0 | |
| Unrealized gain (loss) on fair value of derivative instruments | | Unrealized gain (loss) on fair value of derivative instruments | 1,642 | | | (534) | | | (1,108) | |
| Total comprehensive income | Total comprehensive income | $ | 150,237 | | | $ | 143,507 | | | $ | 137,121 | | Total comprehensive income | $ | 164,406 | | | $ | 150,237 | | | $ | 143,507 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
LCI INDUSTRIES
CONSOLIDATED BALANCE SHEETS
| | | December 31, | | | December 31, | |
| | 2019 | | 2018 | | | 2020 | | 2019 | |
| (In thousands, except per share amount) | (In thousands, except per share amount) | | | | | (In thousands, except per share amount) | | | | |
| ASSETS | ASSETS | | | ASSETS | | |
| Current assets | Current assets | | | Current assets | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 35,359 | | | $ | 14,928 | | | Cash and cash equivalents | $ | 51,821 | | | $ | 35,359 | | |
Accounts receivable, net of allowances of $3,144 and $1,895 at December 31, 2019 and 2018, respectively | 199,976 | | | 121,812 | | | |
Accounts receivable, net of allowances of $5,642 and $3,144 at December 31, 2020 and 2019, respectively | | Accounts receivable, net of allowances of $5,642 and $3,144 at December 31, 2020 and 2019, respectively | 268,625 | | | 199,976 | | |
| Inventories, net | Inventories, net | 393,607 | | | 340,615 | | | Inventories, net | 493,899 | | | 393,607 | | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 41,849 | | | 49,296 | | | Prepaid expenses and other current assets | 55,456 | | | 41,849 | | |
| Total current assets | Total current assets | 670,791 | | | 526,651 | | | Total current assets | 869,801 | | | 670,791 | | |
| Fixed assets, net | Fixed assets, net | 366,309 | | | 322,876 | | | Fixed assets, net | 387,218 | | | 366,309 | | |
| Goodwill | Goodwill | 351,114 | | | 180,168 | | | Goodwill | 454,728 | | | 351,114 | | |
| Other intangible assets, net | Other intangible assets, net | 341,426 | | | 176,342 | | | Other intangible assets, net | 420,885 | | | 341,426 | | |
| Operating lease right-of-use assets | Operating lease right-of-use assets | 98,774 | | | — | | | Operating lease right-of-use assets | 104,179 | | | 98,774 | | |
| Deferred taxes | — | | | 10,948 | | | |
| | Other assets | Other assets | 34,181 | | | 26,908 | | | Other assets | 61,220 | | | 34,181 | | |
| Total assets | Total assets | $ | 1,862,595 | | | $ | 1,243,893 | | | Total assets | $ | 2,298,031 | | | $ | 1,862,595 | | |
| | LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | |
| Current liabilities | Current liabilities | | | Current liabilities | | |
| Current maturities of long-term indebtedness | Current maturities of long-term indebtedness | $ | 17,883 | | | $ | 596 | | | Current maturities of long-term indebtedness | $ | 17,831 | | | $ | 17,883 | | |
| Accounts payable, trade | Accounts payable, trade | 99,262 | | | 78,354 | | | Accounts payable, trade | 184,931 | | | 99,262 | | |
| Current portion of operating lease obligations | Current portion of operating lease obligations | 21,693 | | | — | | | Current portion of operating lease obligations | 25,432 | | | 21,693 | | |
| Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 132,420 | | | 98,632 | | | Accrued expenses and other current liabilities | 188,200 | | | 132,420 | | |
| Total current liabilities | Total current liabilities | 271,258 | | | 177,582 | | | Total current liabilities | 416,394 | | | 271,258 | | |
| Long-term indebtedness | Long-term indebtedness | 612,906 | | | 293,528 | | | Long-term indebtedness | 720,418 | | | 612,906 | | |
| Operating lease obligations | Operating lease obligations | 79,848 | | | — | | | Operating lease obligations | 82,707 | | | 79,848 | | |
| Deferred taxes | Deferred taxes | 35,740 | | | 8,501 | | | Deferred taxes | 53,833 | | | 35,740 | | |
| Other long-term liabilities | Other long-term liabilities | 62,171 | | | 58,027 | | | Other long-term liabilities | 116,353 | | | 62,171 | | |
| Total liabilities | Total liabilities | 1,061,923 | | | 537,638 | | | Total liabilities | 1,389,705 | | | 1,061,923 | | |
| Stockholders’ equity | Stockholders’ equity | | | Stockholders’ equity | | |
| Common stock, par value $.01 per share: authorized | | | |
| 75,000 shares; issued 28,133 shares at December 31, 2019 | | | |
| and 27,948 shares at December 31, 2018 | 281 | | | 280 | | | |
| Common stock, par value $.01 per share: 75,000 shares authorized; | | Common stock, par value $.01 per share: 75,000 shares authorized; | | |
| 28,243 and 28,133 shares issued, and 25,156 and 25,046 shares outstanding at | | 28,243 and 28,133 shares issued, and 25,156 and 25,046 shares outstanding at | | |
| December 31, 2020 and 2019, respectively | | December 31, 2020 and 2019, respectively | 282 | | | 281 | | |
| Paid-in capital | Paid-in capital | 212,485 | | | 203,246 | | | Paid-in capital | 227,407 | | | 212,485 | | |
| Retained earnings | Retained earnings | 644,945 | | | 563,496 | | | Retained earnings | 731,710 | | | 644,945 | | |
| Accumulated other comprehensive income (loss) | 1,123 | | | (2,605) | | | |
| Accumulated other comprehensive income | | Accumulated other comprehensive income | 7,089 | | | 1,123 | | |
| Stockholders’ equity before treasury stock | Stockholders’ equity before treasury stock | 858,834 | | | 764,417 | | | Stockholders’ equity before treasury stock | 966,488 | | | 858,834 | | |
| Treasury stock, at cost, 3,087 shares at December 31, 2019 and 2018 | (58,162) | | | (58,162) | | | |
| Treasury stock, at cost, 3,087 shares at December 31, 2020 and 2019 | | Treasury stock, at cost, 3,087 shares at December 31, 2020 and 2019 | (58,162) | | | (58,162) | | |
| Total stockholders’ equity | Total stockholders’ equity | 800,672 | | | 706,255 | | | Total stockholders’ equity | 908,326 | | | 800,672 | | |
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 1,862,595 | | | $ | 1,243,893 | | | Total liabilities and stockholders’ equity | $ | 2,298,031 | | | $ | 1,862,595 | | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
LCI INDUSTRIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
| Year Ended December 31, | |
| Year Ended December 31, |
| | 2019 | | 2018 | | 2017 | | 2020 | | 2019 | | 2018 |
| (In thousands) | (In thousands) | | | | | | (In thousands) | | | | | |
| Cash flows from operating activities: | Cash flows from operating activities: | | Cash flows from operating activities: | |
| Net income | Net income | $ | 146,509 | | | $ | 148,551 | | | $ | 132,884 | | Net income | $ | 158,440 | | | $ | 146,509 | | | $ | 148,551 | |
| Adjustments to reconcile net income to cash flows provided by operating activities: | Adjustments to reconcile net income to cash flows provided by operating activities: | | Adjustments to reconcile net income to cash flows provided by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 75,358 | | | 67,526 | | | 54,727 | | Depreciation and amortization | 97,980 | | | 75,358 | | | 67,526 | |
| Stock-based compensation expense | Stock-based compensation expense | 16,077 | | | 14,065 | | | 20,036 | | Stock-based compensation expense | 18,502 | | | 16,077 | | | 14,065 | |
| Deferred taxes | Deferred taxes | 3,416 | | | 13,874 | | | 6,808 | | Deferred taxes | (1,504) | | | 3,416 | | | 13,874 | |
| Other non-cash items | Other non-cash items | (1,553) | | | (13) | | | 4,371 | | Other non-cash items | 2,229 | | | (1,553) | | | (13) | |
| Changes in assets and liabilities, net of acquisitions of businesses: | Changes in assets and liabilities, net of acquisitions of businesses: | | Changes in assets and liabilities, net of acquisitions of businesses: | |
| Accounts receivable, net | Accounts receivable, net | (25,452) | | | (11,352) | | | (12,601) | | Accounts receivable, net | (45,028) | | | (25,452) | | | (11,352) | |
| Inventories, net | Inventories, net | 57,790 | | | (34,730) | | | (78,698) | | Inventories, net | (86,898) | | | 57,790 | | | (34,730) | |
| Prepaid expenses and other assets | Prepaid expenses and other assets | 6,882 | | | (17,691) | | | (10,898) | | Prepaid expenses and other assets | (29,158) | | | 6,882 | | | (17,691) | |
| Accounts payable, trade | Accounts payable, trade | (12,189) | | | (17,335) | | | 20,727 | | Accounts payable, trade | 67,679 | | | (12,189) | | | (17,335) | |
| Accrued expenses and other liabilities | Accrued expenses and other liabilities | 2,687 | | | (6,287) | | | 15,346 | | Accrued expenses and other liabilities | 49,158 | | | 2,687 | | | (6,287) | |
| Net cash flows provided by operating activities | Net cash flows provided by operating activities | 269,525 | | | 156,608 | | | 152,702 | | Net cash flows provided by operating activities | 231,400 | | | 269,525 | | | 156,608 | |
| Cash flows from investing activities: | Cash flows from investing activities: | | Cash flows from investing activities: | |
| Capital expenditures | Capital expenditures | (58,202) | | | (119,827) | | | (87,221) | | Capital expenditures | (57,346) | | | (58,202) | | | (119,827) | |
| Acquisitions of businesses, net of cash acquired | Acquisitions of businesses, net of cash acquired | (447,764) | | | (184,792) | | | (60,588) | | Acquisitions of businesses, net of cash acquired | (182,130) | | | (447,764) | | | (184,792) | |
| | Other investing activities | Other investing activities | 2,132 | | | 1,824 | | | 1,934 | | Other investing activities | 7,175 | | | 2,132 | | | 1,824 | |
| Net cash flows used in investing activities | Net cash flows used in investing activities | (503,834) | | | (302,795) | | | (145,875) | | Net cash flows used in investing activities | (232,301) | | | (503,834) | | | (302,795) | |
| Cash flows from financing activities: | Cash flows from financing activities: | | Cash flows from financing activities: | |
| Vesting of stock-based awards, net of shares tendered for payment of taxes | Vesting of stock-based awards, net of shares tendered for payment of taxes | (8,084) | | | (16,097) | | | (10,531) | | Vesting of stock-based awards, net of shares tendered for payment of taxes | (4,853) | | | (8,084) | | | (16,097) | |
| Proceeds from revolving credit facility borrowings | 655,387 | | | 1,387,013 | | | 28,130 | | |
| Repayments under revolving credit facility borrowings | (628,891) | | | (1,146,953) | | | (28,130) | | |
| Proceeds from revolving credit facility | | Proceeds from revolving credit facility | 543,991 | | | 655,387 | | | 1,387,013 | |
| Repayments under revolving credit facility | | Repayments under revolving credit facility | (430,390) | | | (628,891) | | | (1,146,953) | |
| Proceeds from term loan borrowings | Proceeds from term loan borrowings | 300,000 | | | | — | | | | — | | Proceeds from term loan borrowings | 0 | | | 300,000 | | | 0 | |
| Proceeds from other borrowings | — | | | 4,509 | | | — | | |
| Repayments under term loan and other borrowings | | Repayments under term loan and other borrowings | (22,444) | | | 0 | | | 0 | |
| | Payment of dividends | Payment of dividends | (63,813) | | | (59,270) | | | (51,057) | | Payment of dividends | (70,401) | | | (63,813) | | | (59,270) | |
| Payment of contingent consideration related to acquisitions | Payment of contingent consideration related to acquisitions | (10) | | | (3,068) | | | (5,301) | | Payment of contingent consideration related to acquisitions | (1,633) | | | (10) | | | (3,068) | |
| Repurchases of common stock | Repurchases of common stock | — | | | (28,695) | | | — | | Repurchases of common stock | 0 | | | 0 | | | (28,695) | |
| Other financing activities | Other financing activities | 382 | | | (2,373) | | | (59) | | Other financing activities | (222) | | | 382 | | | 2,136 | |
| Net cash flows provided by (used in) financing activities | 254,971 | | | 135,066 | | | (66,948) | | |
| Net cash flows provided by financing activities | | Net cash flows provided by financing activities | 14,048 | | | 254,971 | | | 135,066 | |
| Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (231) | | | — | | | — | | Effect of exchange rate changes on cash and cash equivalents | 3,315 | | | (231) | | | 0 | |
| Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | 20,431 | | | (11,121) | | | (60,121) | | Net increase (decrease) in cash and cash equivalents | 16,462 | | | 20,431 | | | (11,121) | |
| Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 14,928 | | | 26,049 | | | 86,170 | | Cash and cash equivalents at beginning of period | 35,359 | | | 14,928 | | | 26,049 | |
| Cash and cash equivalents at end of period | $ | 35,359 | | | $ | 14,928 | | | $ | 26,049 | | |
| Cash and cash equivalents cash at end of period | | Cash and cash equivalents cash at end of period | $ | 51,821 | | | $ | 35,359 | | | $ | 14,928 | |
| | Supplemental disclosure of cash flow information: | Supplemental disclosure of cash flow information: | | Supplemental disclosure of cash flow information: | |
| Cash paid during the period for interest | Cash paid during the period for interest | $ | 9,143 | | | $ | 5,645 | | | $ | 1,650 | | Cash paid during the period for interest | $ | 16,910 | | | $ | 9,143 | | | $ | 5,645 | |
| Cash paid during the period for income taxes, net of refunds | Cash paid during the period for income taxes, net of refunds | $ | 37,836 | | | $ | 39,991 | | | $ | 53,620 | | Cash paid during the period for income taxes, net of refunds | $ | 33,247 | | | $ | 37,836 | | | $ | 39,991 | |
| Purchase of property and equipment in accrued expenses | Purchase of property and equipment in accrued expenses | $ | 3,417 | | | $ | 385 | | | $ | 2,640 | | Purchase of property and equipment in accrued expenses | $ | 2,739 | | | $ | 3,417 | | | $ | 385 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
LCI INDUSTRIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
| | (In thousands, except shares and per share amounts) | (In thousands, except shares and per share amounts) | Common Stock | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Treasury Stock | Total Stockholders’ Equity | (In thousands, except shares and per share amounts) | Common Stock | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Treasury Stock | Total Stockholders’ Equity |
| Balance - January 1, 2017 | $ | 274 | | $ | 185,981 | | $ | 395,279 | | $ | (1,798) | | $ | (29,467) | | $ | 550,269 | | |
| Net income | — | | — | | 132,884 | | — | | — | | 132,884 | | |
Issuance of 239,854 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes
| 3 | | (10,534) | | — | | — | | — | | (10,531) | | |
| | Stock-based compensation expense | — | | 20,036 | | — | | — | | — | | 20,036 | | |
Issuance of 63,677 deferred stock units relating to prior year compensation
| — | | 6,907 | | — | | — | | — | | 6,907 | | |
| Other comprehensive income | — | | — | | — | | 4,237 | | — | | 4,237 | | |
Cash dividends ($2.05 per share)
| — | | — | | (51,057) | | — | | — | | (51,057) | | |
| Dividend equivalents on stock-based awards | — | | 1,600 | | (1,600) | | — | | — | | — | | |
| Balance - December 31, 2017 | 277 | | 203,990 | | 475,506 | | 2,439 | | (29,467) | | 652,745 | | |
| Balance - January 1, 2018 | | Balance - January 1, 2018 | $ | 277 | | $ | 203,990 | | $ | 475,506 | | $ | 2,439 | | $ | (29,467) | | $ | 652,745 | |
| Net income | Net income | — | | — | | 148,551 | | — | | — | | 148,551 | | Net income | — | | — | | 148,551 | | — | | — | | 148,551 | |
Issuance of 274,177 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes
| Issuance of 274,177 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes
| 3 | | (16,100) | | — | | — | | — | | (16,097) | | Issuance of 274,177 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes | 3 | | (16,100) | | — | | — | | — | | (16,097) | |
| | Stock-based compensation expense | Stock-based compensation expense | — | | 14,065 | | — | | — | | — | | 14,065 | | Stock-based compensation expense | — | | 14,065 | | — | | — | | — | | 14,065 | |
Repurchase of 402,570 shares of common stock
| Repurchase of 402,570 shares of common stock
| — | | — | | — | | — | | (28,695) | | (28,695) | | Repurchase of 402,570 shares of common stock | — | | — | | — | | — | | (28,695) | | (28,695) | |
| Other comprehensive loss | Other comprehensive loss | — | | — | | — | | (5,044) | | — | | (5,044) | | Other comprehensive loss | — | | — | | — | | (5,044) | | — | | (5,044) | |
| Cash dividends ($2.35 per share) | Cash dividends ($2.35 per share) | — | | — | | (59,270) | | — | | — | | (59,270) | | Cash dividends ($2.35 per share) | — | | — | | (59,270) | | — | | — | | (59,270) | |
| Dividend equivalents on stock-based awards | Dividend equivalents on stock-based awards | — | | 1,291 | | (1,291) | | — | | — | | — | | Dividend equivalents on stock-based awards | — | | 1,291 | | (1,291) | | — | | — | | 0 | |
| Balance - December 31, 2018 | Balance - December 31, 2018 | 280 | | 203,246 | | 563,496 | | (2,605) | | (58,162) | | 706,255 | | Balance - December 31, 2018 | 280 | | 203,246 | | 563,496 | | (2,605) | | (58,162) | | 706,255 | |
| Net income | Net income | — | | — | | 146,509 | | — | | — | | 146,509 | | Net income | — | | — | | 146,509 | | — | | — | | 146,509 | |
| Issuance of 185,020 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes | Issuance of 185,020 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes | 1 | | (8,085) | | — | | — | | — | | (8,084) | | Issuance of 185,020 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes | 1 | | (8,085) | | — | | — | | — | | (8,084) | |
| | Stock-based compensation expense | Stock-based compensation expense | — | | 16,077 | | — | | — | | — | | 16,077 | | Stock-based compensation expense | — | | 16,077 | | — | | — | | — | | 16,077 | |
| | Other comprehensive income | Other comprehensive income | — | | — | | — | | 3,728 | | — | | 3,728 | | Other comprehensive income | — | | — | | — | | 3,728 | | — | | 3,728 | |
| Cash dividends ($2.55 per share) | Cash dividends ($2.55 per share) | — | | — | | (63,813) | | — | | — | | (63,813) | | Cash dividends ($2.55 per share) | — | | — | | (63,813) | | — | | — | | (63,813) | |
| Dividend equivalents on stock-based awards | Dividend equivalents on stock-based awards | — | | 1,247 | | (1,247) | | — | | — | | — | | Dividend equivalents on stock-based awards | — | | 1,247 | | (1,247) | | — | | — | | 0 | |
| Balance - December 31, 2019 | Balance - December 31, 2019 | $ | 281 | | $ | 212,485 | | $ | 644,945 | | $ | 1,123 | | $ | (58,162) | | $ | 800,672 | | Balance - December 31, 2019 | 281 | | 212,485 | | 644,945 | | 1,123 | | (58,162) | | 800,672 | |
| Net income | | Net income | — | | — | | 158,440 | | — | | — | | 158,440 | |
| Issuance of 109,621 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes | | Issuance of 109,621 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes | 1 | | (4,854) | | — | | — | | — | | (4,853) | |
| | Stock-based compensation expense | | Stock-based compensation expense | — | | 18,502 | | — | | — | | — | | 18,502 | |
| | Other comprehensive income | | Other comprehensive income | — | | — | | — | | 5,966 | | — | | 5,966 | |
| Cash dividends ($2.80 per share) | | Cash dividends ($2.80 per share) | — | | — | | (70,401) | | — | | — | | (70,401) | |
| Dividend equivalents on stock-based awards | | Dividend equivalents on stock-based awards | — | | 1,274 | | (1,274) | | — | | — | | 0 | |
| Balance - December 31, 2020 | | Balance - December 31, 2020 | $ | 282 | | $ | 227,407 | | $ | 731,710 | | $ | 7,089 | | $ | (58,162) | | $ | 908,326 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
LCI INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The Consolidated Financial Statements include the accounts of LCI Industries and its wholly-owned subsidiaries (“LCII” and collectively with its subsidiaries, the “Company”). LCII has 0 unconsolidated subsidiaries. LCII, through its wholly-owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, “Lippert Components” or “LCI”), supplies, domestically and internationally, a broad array of engineered components for the leading original equipment manufacturers (“OEMs”) in the recreation and transportation product markets, consisting of recreational vehicles (“RVs”) and adjacent industries including buses; trailers used to haul boats, livestock, equipment, and other cargo; trucks; boats; trains; manufactured homes; and modular housing. The Company also supplies engineered components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors, and service centers. At December 31, 2019,2020, the Company operated over 90100 manufacturing and distribution facilities located throughout North America and Europe.
Most industries where the Company sells products or where its products are used historically have been seasonal and are generally at the highest levels when the weather is moderate. Accordingly, the Company’s sales and profits have generally been the highest in the second quarter and lowest in the fourth quarter. However, because of fluctuations in dealer inventories, the impact of international, national and regional economic conditions and consumer confidence on retail sales of recreationRVs, and transportationother products for which the Company sells its components, the timing of dealer orders, and the impact of severe weather conditions on the timing of industry-wide shipments from time to time, current and future seasonal industry trends may be different than in prior years.years, particularly as a result of the coronavirus ("COVID-19") pandemic and related impacts. Additionally, sales of certain engineered components to the aftermarket channels of these industries tend to be counter-seasonal.counter-seasonal, but were different in 2020 and may be different in future years as a result of the COVID-19 pandemic and related impacts.
The Company is not aware of any significant events, except as disclosed in the Notes to Consolidated Financial Statements, which occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on the Consolidated Financial Statements. All significant intercompany balances and transactions have been eliminated. Certain prior year balances have been reclassified to conform to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to product returns, sales and purchase rebates, accounts receivable, inventories, goodwill and other intangible assets, net assets of acquired businesses, income taxes, warranty and product recall obligations, self-insurance obligations, operating lease right-of-use assets and obligations, asset retirement obligations, long-lived assets, pension and post-retirement benefits, stock-based compensation, segment allocations, contingent consideration, environmental liabilities, contingencies, and litigation. The Company bases its estimates on historical experience, other available information, and various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other resources. Actual results and events could differ significantly from management estimates.
Impact of COVID-19
The COVID-19 pandemic has caused significant uncertainty and disruption in the global economy and financial markets.
On March 25, 2020, the Company issued a press release providing a business update regarding COVID-19, including that it was temporarily suspending production at select manufacturing facilities across North America and Europe. The temporary suspension of production was made on a plant-by-plant basis, consistent with government mandates or due to customer closures. Production at facilities considered essential continued, utilizing reduced staff in conjunction with heightened cleaning and sanitation processes. On April 8, 2020, the Company issued a press release with additional business updates related to COVID-19, including cost savings and cash preservation measures that it had taken, including temporary executive salary and director retainer reductions, rightsizing its workforce to match demand levels, delaying certain capital expenses and
reducing or eliminating non-critical business expenses, initiating temporary hiring freezes in all locations and furloughs for non-critical team members, lease payment deferrals, postponing merit increases for salaried employees until the end of the fiscal year, and engaging with banking partners regarding options relative to future financial liquidity. Additionally, the April 8 press release announced community support initiatives including donations of personal protective equipment and other supplies throughout local communities, manufacturing medical face shields used by doctors and nurses in Italy, and the establishment of a temporary emergency fund to aid team members who have faced personal and financial difficulties due to the COVID-19 pandemic.
The Company resumed operations to varying degrees for the majority of its facilities on May 4, 2020 to meet the demand requirements of its customers, and by later in the second quarter, the Company's facilities were fully operational. As the Company returned to fully operational status, several of the cost savings and cash preservation measures previously announced on April 8, 2020 were reversed, including executive salary and director retainer reductions, furloughs, and hiring freezes, and discussions with banking partners about additional or alternative financing options were halted.
The extent to which COVID-19 may impact the Company's future liquidity, financial condition, and results of operations remains uncertain.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents.
Accounts Receivable
Accounts receivable are stated at historical carrying value, net of write-offs and allowances. The Company establishes allowances based upon historical experience, current conditions, and any specific customer collection issues identified by the Company.reasonable forecasts. Uncollectible accounts receivable are written off when a settlement is reached or when the Company has determined the balance will not be collected.
Inventories
Inventories are stated at the lower of cost (using the first-in, first-out (FIFO) method) or net realizable value. Cost includes material, labor, and overhead.
Fixed Assets
Fixed assets which are owned are stated at cost less accumulated depreciation, and are depreciated on a straight-line basis over the estimated useful lives of the properties and equipment. Leasehold improvements and leased equipment are amortized over the shorter of the lives of the leases or the underlying assets. Maintenance and repair costs that do not improve service potential or extend economic life are expensed as incurred.
Leases
The Company leases certain manufacturing and distribution facilities, administrative office space, semi-tractors, trailers, forklifts, and other equipment through operating leases with unrelated third parties. At contract inception, the Company determines whether a contract is or contains a lease and whether the lease should be classified as an operating or finance lease. The Company recognizes operating lease right-of-use assets and operating lease liabilities based on the present value of the future minimum lease payments over the lease term at the commencement date. The Company uses its incremental borrowing rate based on information available at lease inception in determining the present value of the lease payments. The Company applies a portfolio approach for determining the incremental borrowing rate based on applicable lease terms and the current economic environment. Many of the Company's leases include renewal options, which are included in the lease term when it is reasonably certain the option will be exercised. Leases with an initial term of 12 months or less are recognized in lease expense on a straight-line basis over the lease term and not recorded on the Consolidated Balance Sheet.
Certain of the Company's lease arrangements contain lease components (such as minimum rent payments) and non-lease components (such as common-area or other maintenance costs and taxes). The Company generally accounts for each component separately based on the estimated standalone price of each component. Some of the Company's lease arrangements
include rental payments that are adjusted periodically for an index rate. These leases are initially measured using the projected payments in effect at the inception of the lease. Certain of the Company's leased semi-tractors, trailers, and forklifts include variable costs for usage or mileage. Such variable costs are expensed as incurred and included in variable lease costs.
Finance leases and lease arrangements under which the Company is the lessor are not material to the Company's consolidated financial statements. The Company's lease agreements typically do not contain any significant residual value guarantees or restrictive covenants.
Warranty
The Company provides warranty terms based upon the type of product sold. The Company estimates the warranty accrual based upon various factors, including historical warranty costs, warranty claim lag, current trends, product mix, and sales. The accounting for warranty accruals requires the Company to make assumptions and judgments, and to the extent actual results differ from original estimates, adjustments to recorded accruals may be required. See Note 6 - Accrued Expenses and Other Current Liabilities for further detail.
Income Taxes
Deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting and tax basis of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the differences are expected to reverse. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized.
The Tax Cuts and Jobs Act (the “TCJA”), enacted in 2017, created a new requirement that certain income earned by foreign subsidiaries, known as global intangible low-tax income (“GILTI”), must be included in the gross income of their U.S. shareholder. We have elected to account for GILTI tax in the year the tax is incurred.
The Company accounts for uncertainty in tax positions by recognizing in its financial statements the impact of a tax position only if that position is more likely than not of being sustained on audit, based on the technical merits of the position. Further, the Company assesses the tax benefits of the tax positions in its financial statements based on experience with similar tax positions, information obtained during the examination process and the advice of experts. The Company recognizes previously unrecognized tax benefits upon the earlier of the expiration of the period to assess tax in the applicable taxing jurisdiction or when the matter is constructively settled and upon changes in statutes or regulations and new case law or rulings. The Company classifies interest and penalties related to income taxes as a component of income tax expense in its Consolidated Statements of Income.
Goodwill
Goodwill represents the excess of the total consideration given in an acquisition of a business over the fair value of the net tangible and identifiable intangible assets acquired. Goodwill is not amortized, but instead is tested at the reporting unit level for impairment annually in November, or more frequently if certain circumstances indicate a possible impairment may exist. In 20192020 and 2018,2019, the Company assessed qualitative factors of its reporting units to determine whether it was more likely than not the fair value of the reporting unit was less than its carrying amount, including goodwill. The qualitative impairment test consists of an assessment of qualitative factors, including general economic and industry conditions, market share, and input costs.
Other Intangible Assets
Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment. Intangible assets are amortized using either an accelerated or straight-line method, whichever best reflects the pattern in which the estimated future economic benefits of the asset will be consumed. The useful lives of intangible assets are determined after considering the expected cash flows and other specific facts and circumstances related to each intangible asset. Intangible assets with indefinite lives are not amortized, but instead are tested for impairment annually in November, or more frequently if certain circumstances indicate a possible impairment may exist.
Impairment of Long-Lived Assets
Long-lived assets, other than goodwill, are tested for impairment when changes in circumstances indicate their carrying value may not be recoverable. A determination of impairment, if any, is made based on the undiscounted value of estimated future cash flows, salvage value or expected net sales proceeds, depending on the circumstances. Impairment is measured as the excess of the carrying value over the estimated fair value of such assets.
Environmental Liabilities
Accruals for environmental matters are recorded when it is probable a liability has been incurred and the amount of the liability can be reasonably estimated, based upon current law and existing technologies. These amounts, which are not discounted and are exclusive of claims against potentially responsible third parties, are adjusted periodically as assessment and remediation efforts progress or additional technical or legal information becomes available. Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites, developments at sites resulting from investigatory studies and remedial activities, advances in technology, changes in environmental laws and regulations and their application, the scarcity of reliable data pertaining to identified sites, the difficulty in assessing the involvement and financial capability of other potentially responsible parties and the Company’s ability to obtain contributions from other parties, and the lengthy time periods over which site remediation occurs. It is possible some of these matters (the outcomes of which are subject to various uncertainties) may be resolved unfavorably against the Company, and could materially affect operating results when resolved in future periods.
Foreign Currency Translation
The financial statements of the Company’s international subsidiaries generally are measured using the local currency as the functional currency. The translation from the applicable foreign currency to U.S. Dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using the weighted average exchange rate for the period. The resulting translation adjustments are recorded in accumulated other comprehensive income (loss) as a component of stockholders’ equity. The Company reflects net foreign exchange transaction gains and losses resulting from the conversion of the transaction currency to functional currency as a component of foreign currency exchange gains or losses in selling, general and administrative expenses in the Consolidated Statements of Income.
Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, derivative instruments, and accounts payable approximate their fair value due to the short-term nature of these instruments.
Stock-Based Compensation
All stock-based compensation awards are expensed over their vesting period, based on fair value. For awards having a service-only vesting condition, the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service periods. For awards with a performance vesting condition, which are subject to certain pre-established performance targets, the Company recognizes stock-based compensation expense on a graded-vesting basis to the extent it is probable the performance targets will be met. The fair values of deferred stock units, restricted stock units, restricted stock, and stock awards are based on the market price of the Company’s common stock, all on the date the stock-based awards are granted.
Revenue Recognition
The Company recognizes revenue when performance obligations under the terms of contracts with customers are satisfied, which occurs with the transfer of control of the Company’s products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring its products to its customers. Sales, value added and other taxes collected concurrent with revenue-producing activities are excluded from revenue.
For the majority of product sales, the Company transfers control and recognizes revenue when it ships the product from its facility to its customer. The amount of consideration the Company receives and the revenue recognized varies with sales discounts, volume rebate programs and indexed material pricing. When the Company offers customers retrospective
volume rebates, it estimates the expected rebates based on an analysis of historical experience. The Company adjusts its estimate of revenue related to volume rebates at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed. When the Company offers customers prompt pay sales discounts or agrees to variable pricing based on material indices, it estimates the expected discounts or pricing adjustments based on an analysis of historical experience. The Company adjusts its estimate of revenue related to sales discounts and indexed material pricing to the expected value of the consideration to which the Company will be entitled. The Company includes the variable consideration in the transaction price to the extent that it is probable that a significant reversal of cumulative revenue will not occur when the volume, discount or indexed material price uncertainties are resolved.
See Note 14 - Segment Reporting for the Company’s disclosures of disaggregated revenue.
Shipping and Handling Costs
The Company recognizes shipping and handling costs as fulfillment costs when control over products has transferred to the customer, and records the expense within selling, general and administrative expenses. Such costs aggregated $104.4 million, $77.3 million, $83.2 million, and $68.6$83.2 million in the years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively.
Legal Costs
The Company expenses all legal costs associated with litigation as incurred. Legal expenses are included in selling, general and administrative expenses in the Consolidated Statements of Income.
Fair Value Measurements
Fair value is determined using a hierarchy that has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant unobservable inputs.
Recent Accounting Pronouncements
Recently issued accounting pronouncements not yet adopted
In January 2017,December 2019, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting Standards Update (“ASU”("ASU") 2017-04,2019-12, Income Taxes (Topic 740): Simplifying the TestAccounting for Goodwill Impairment,Income Taxes, which amendssimplifies the accounting for income taxes, eliminates certain exceptions within Accounting Standards Codification (“ASC”Codifications ("ASC") 350,740, Intangibles - Goodwill Income Taxes, and Other. This ASU simplifies how an entity is requiredclarifies certain aspects of the current guidance to test goodwill for impairment by eliminating step 2 from the goodwill impairment test. Step 2 measures goodwill impairment loss by comparing the implied fair value of apromote consistency among reporting unit’s goodwill with the carrying amount of that goodwill. This ASUentities. The new standard is effective for interim and annual reporting periods,fiscal years beginning after December 15, 2019, and early adoption is permitted.2021. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company will adoptis evaluating the effect of adopting this ASU in the first quarter of 2020 and does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. This ASU is effective for interim and annual reporting periods, beginning after December 15, 2019, and early adoption is permitted. The Company will adopt this ASU in the first quarter of 2020 and does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
Recently adoptednew accounting pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases, and all related amendments, which established ASC Topic 842 (Topic 842), which requires, in most instances, a lessee to recognize on its balance sheet a liability to make lease payments (the lease liability) and also a right-of-use asset representing its right to use the underlying asset for the lease term. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company adopted Topic 842 on January 1, 2019, using the cumulative-effect adjustment transition method, which applies the new standard at the effective date without adjusting the comparative periods presented. The Company elected the package of practical expedients permitted under the transition guidance, which allowed the carryforward of historical lease classification, the assessment of whether a contract is or contains a lease, and initial direct costs for any leases that existed prior to adoption of the new standard. The Company also elected to keep leases with an initial term of 12 months or
less off its Consolidated Balance Sheet and recognize the associated lease payments in its Consolidated Statements of Income on a straight-line basis over the lease term.
The adoption of Topic 842 resulted in the recognition of right-of-use assets of $66.4 million and operating lease obligations of $69.0 million at January 1, 2019. The adoption did not result in a cumulative effect adjustment to beginning retained earnings and is not expected to materially impact the Company’s Consolidated Statements of Income or Cash Flows. See Note 10 of the Notes to Consolidated Financial Statements for expanded disclosures required under Topic 842.
3. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
Subsequent EventAcquisitions in 2020
PolyplasticVeada
In JanuaryDecember 2020, the Company acquired 100 percent of the equity interestsoutstanding capital stock of Polyplastic Group B.V. (with its subsidiaries “Polyplastic”Veada Industries, Inc. ("Veada"), a premier window supplier to the caravaning industry, headquarteredmanufacturer and distributor of boat seating and marine accessories based in Rotterdam, Netherlands.New Paris, Indiana. The purchase price was $97.6$69.0 million, net of cash acquired, plus contingent consideration upwhich includes holdback payments of $12.2 million to $7.7 million, based on future sales by this operation.be paid over the next two years. The results of the acquired business will be included primarilyholdback payments are recorded in the Company’s OEM Segment. The Company isConsolidated Balance Sheet in the process of determining the fair value of the assets acquiredaccrued expenses and other current liabilities assumed for the opening balance sheet.
Acquisitions in 2019
CURT
In($10.4 million) and other long-term liabilities ($1.8 million) at December 2019, the Company acquired 100 percent of the equity interests of CURT Acquisition Holdings, Inc. (with its subsidiaries “CURT”), a leading manufacturer and distributor of branded towing products and truck accessories for the aftermarket, headquartered in Eau Claire, Wisconsin. The purchase price was $337.6 million, net of cash acquired, and is subject to potential post-closing adjustments related to net working capital.31, 2020. The results of the acquired business have been included in the Consolidated Statements of Income since the acquisition date, primarily in the Company’s AftermarketCompany's OEM Segment. As the acquisition of Veada is not considered to have a material impact on the Company's financial statements, pro forma results of operations and other disclosures are not presented. The Company is validating account balances and finalizing the valuation for the acquisition. The acquisition of this business was preliminarily recorded on the acquisition date as follows (in thousands):
| | | | | |
Cash consideration net of cash acquired | $ | 337,64056,760 | |
| Holdback payment | 12,219 | |
Assets Acquired | | |
Accounts receivableTotal value of consideration given | $ | 28,61168,979 | |
Inventories | 88,765 | |
Fixed assets | 24,036 | |
| Customer relationship | 112,000 $ | 30,000 | |
Tradename and otherOther identifiable intangible assets | 37,7057,250 | |
Operating lease right-of-use assets | 27,925 | |
OtherNet tangible assets | 4,0608,864 | |
Liabilities Assumed | | |
Accounts payable | (18,577) | |
Current portion of operating lease obligations | (5,360) | |
Accrued expenses and other current liabilities | (10,002) | |
Operating lease obligations | (22,565) | |
Deferred taxes | (31,877) | |
| Total fair value of net assets acquired | $ | 234,72146,114 | |
| |
| Goodwill (not tax deductible) | $ | 102,91922,865 | |
The fair values of the customer relationship and tradename intangible assets areasset is being amortized over theirits estimated useful liveslife of 17 years and 20 years, respectively.15 years. The fair valuesvalue of these assets werethis asset was determined using a discounted cash flow model, which is a levelLevel 3 input in the fair value hierarchy. The consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company anticipates the attainment of synergies and an increase in the markets for the acquired products.
The results of CURT are included in the Company’s Consolidated Statements of Income since the December 19, 2019 acquisition date and were not material to the consolidated results.Challenger
The following unaudited pro forma information represents the Company’s results of operations as if the 2019 acquisition of CURT had occurred at the beginning of 2018. The disclosure of pro forma net sales and earnings does not purport to indicate the results that would actually have been obtained had the acquisition been completed on the assumed date for the periods presented, or which may be realized in the future. The unaudited pro forma information combines the reported results of the Company and CURT but does not reflect any operating efficiencies, cost savings, financing costs, step-up of assets, or other accounting related adjustments resulting from the acquisition.
| | | | | | | | | | | |
| (unaudited) | | |
| Year Ended December 31, | | |
| (In thousands, except per share amounts) | 2019 | | 2018 |
| Net sales | $ | 2,639,761 | | | | $ | 2,735,378 | |
| Net income | $ | 144,878 | | | | $ | 147,878 | |
| Basic net income per common share | $ | 5.80 | | | | $ | 5.87 | |
| Diluted net income per common share | $ | 5.77 | | | | $ | 5.81 | |
The pro forma earnings for the year ended December 31, 2019 were adjusted to exclude $20.2 million of costs incurred directly attributable to the acquisition. Nonrecurring expenses for goodwill amortization of $5.2 million and $5.0 million were excluded from pro forma earnings for the years ended December 31, 2019 and 2018, respectively. The pro forma earnings do not reflect adjustments for any changes in CURT's historical capital structure, which included interest charges of $14.8 million and $14.0 million for the years ended December 31, 2019 and 2018, respectively.
The Company incurred costs during the year ended December, 31 2019 related specifically to this acquisition of $1.0 million, which are included in selling, general, and administrative expenses in the Consolidated Statements of Income.
PWR-ARM
In November 2019,2020, the Company acquired substantially all of the PWR-ARM brand and electric powered Bimini business assets of Schwintek, Inc. (“PWR-ARM”Challenger Door, LLC ("Challenger"), a premier electric sunshade solutionleading manufacturer and distributor of branded doors for pontoonthe RV industry and smaller power boats.products for specialty and cargo trailers, based in Nappanee, Indiana. The purchase price was $45.0$35.0 million, which includes holdback payments of $5.0$4.5 million to be paid over the next two years. The holdback payments are recorded in the Consolidated Balance Sheet in accrued expenses and other current liabilities ($3.5 million) and other long-term liabilities ($1.0 million) at December 31, 2020. The results of the acquired business have been included in the Consolidated Statements of Income since the acquisition date, primarily in the Company’s OEM Segment. As the acquisition of PWR-ARMChallenger is not considered to have a material impact on the
Company’s financial statements, pro forma results of operations and other disclosures are not presented. The Company is validating account balances and finalizing the valuation for the acquisition. The acquisition of this business was preliminarily recorded on the acquisition date as follows (in thousands):
| | | | | |
| Cash consideration | $ | 40,00030,461 | |
| Holdback payment | 5,0004,500 | |
| Total value of consideration given | $ | 45,00034,961 | |
| |
Customer relationship and other identifiable intangible assets | $ | 7,030 | |
Net tangible assets | 520 | |
Total fair value of net assets acquired | $ | 7,550 | |
| |
Goodwill (tax deductible) | $ | 37,450 | |
The customer relationship intangible asset is being amortized over its estimated useful life of 5 years. The consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company anticipates an increase in the markets for the acquired products.
Lewmar Marine Ltd.
In August 2019, the Company acquired 100 percent of the equity interests of Lewmar Marine Ltd. and related entities (collectively, “Lewmar”), a supplier of leisure marine equipment, headquartered in Havant, United Kingdom. The purchase price was $43.2 million, net of cash acquired. The results of the acquired business have been included in the Consolidated Statements of Income since the acquisition date, primarily in the Company’s OEM Segment. The Company is validating account balances and finalizing the valuation for the acquisition. As the acquisition of Lewmar is not considered to have a material impact on the Company’s financial statements, pro forma results of operations and other disclosures are not presented. The acquisition of this business was preliminarily recorded on the acquisition date as follows (in thousands):
| | | | | |
Cash consideration, net of cash acquired | $ | 43,224 | |
| |
| Customer relationship and other identifiable intangible assets | $ | 19,57912,900 | |
| Net tangible assets | 3,2878,983 | |
| Total fair value of net assets acquired | $ | 22,86621,883 | |
| |
Goodwill (not tax(tax deductible) | $ | 20,35813,078 | |
The customer relationship intangible asset is being amortized over its estimated useful life of 157 years. The fair value of this asset was determined using a discounted cash flow model, which is a Level 3 input in the fair value hierarchy. The consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company anticipates the attainment of synergies and an increase in the markets for the acquired products.
Polyplastic
In January 2020, the Company acquired 100 percent of the equity interests of Polyplastic Group B.V. (with its subsidiaries “Polyplastic”), a premier window supplier to the caravaning industry, headquartered in Rotterdam, Netherlands. The purchase price was $95.8 million, net of cash acquired, plus contingent consideration up to $7.7 million, based on future sales by this operation. The results of the acquired business have been included in the Consolidated Statements of Income since the acquisition date, primarily in the Company’s OEM Segment. As the acquisition of Polyplastic is not considered to have a material impact on the Company's financial statements, pro forma results of operations and other disclosures are not presented. The acquisition of this business was recorded as of the acquisition date as follows (in thousands):
| | | | | |
| Cash consideration, net of cash acquired | $ | 95,766 | |
| Contingent consideration | 2,796 | |
| Total fair value of consideration given | $ | 98,562 | |
| |
| Customer relationship | $ | 37,012 | |
| Other identifiable intangible assets | 26,614 | |
| Net tangible assets, excluding pension obligation | 14,247 | |
| Unfunded pension benefit obligation | $ | (28,665) | |
| Total fair value of net assets acquired | $ | 49,208 | |
| |
| Goodwill (not tax deductible) | $ | 49,354 | |
The acquisition of Polyplastic included the assumption of two partially-funded defined benefit pension plans (the "Dutch pension plans") based in the Netherlands. See Note 7 for a description of the Dutch pension plans. The Company recorded the estimated unfunded pension benefit obligation of the Dutch pension plans during the quarter ended June 30, 2020 in other long-term liabilities on the Consolidated Balance Sheet, as information related to the plans and preliminary assumptions and actuarial reports became available. The key assumptions used to measure the benefit obligation at the acquisition date were a discount rate of 1.2 percent, an expected rate of return on plan assets of 1.2 percent, wage inflation of 2.0 percent, and expected indexation that conforms to the growth path established by Dutch pension law, which ranged from 0.0 percent at acquisition to 2.0 percent in 2034 and thereafter. The Company also recorded a deferred tax asset related to the Dutch pension plans, which is included in net tangible assets in the above table.
The customer relationship intangible asset is being amortized over its estimated useful life of 15 years. The fair value of this asset was determined using a discounted cash flow model, which is a Level 3 input in the fair value hierarchy. The consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company anticipates the attainment of synergies and an increase in the markets for the acquired products.
Acquisitions in 2019
CURT
In December 2019, the Company acquired 100 percent of the equity interests of CURT Acquisition Holdings, Inc. (with its subsidiaries “CURT”), a leading manufacturer and distributor of branded towing products and truck accessories for the aftermarket, headquartered in Eau Claire, Wisconsin. The purchase price was $336.6 million, net of cash acquired. The results of the acquired business have been included in the Consolidated Statements of Income since the acquisition date, primarily in the Company’s Aftermarket Segment.
During the year ended December 31, 2020, the Company adjusted the preliminary purchase price allocation reported at December 31, 2019 to account for updates to assumptions and estimates related to the fair value of intangible assets and inventories, and to adjust the purchase price for final net working capital balances. These measurement period adjustments would not have resulted in a material impact on the prior period results if the adjustments had been recognized as of the acquisition date. The acquisition of this business was recorded, as updated, on the acquisition date as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Preliminary at December 31, 2019 | | Measurement Period Adjustments | | As Adjusted at December 31, 2020 |
| Cash consideration, net of cash acquired | $ | 337,640 | | | $ | (1,053) | | | $ | 336,587 | |
| | | | | |
| Assets Acquired | | | | | |
| Accounts receivable | $ | 28,611 | | | $ | — | | | $ | 28,611 | |
| Inventories | 88,765 | | | (6,648) | | | 82,117 | |
| Fixed assets | 24,036 | | | — | | | 24,036 | |
| Customer relationship | 112,000 | | | (7,800) | | | 104,200 | |
| Tradename and other identifiable intangible assets | 37,705 | | | (300) | | | 37,405 | |
| Operating lease right-of-use assets | 27,925 | | | — | | | 27,925 | |
| Other tangible assets | 4,060 | | | (1,550) | | | 2,510 | |
| Liabilities Assumed | | | | | |
| Accounts payable | (18,577) | | | — | | | (18,577) | |
| Current portion of operating lease obligations | (5,360) | | | — | | | (5,360) | |
| Accrued expenses and other current liabilities | (10,002) | | | — | | | (10,002) | |
| Operating lease obligations | (22,565) | | | — | | | (22,565) | |
| Deferred taxes | (31,877) | | | 1,752 | | | (30,125) | |
| Total fair value of net assets acquired | $ | 234,721 | | | $ | (14,546) | | | $ | 220,175 | |
| | | | | |
| Goodwill (not tax deductible) | $ | 102,919 | | | $ | 13,493 | | | $ | 116,412 | |
The fair values of the customer relationship and tradename intangible assets are being amortized over their estimated useful lives of 16 years and 20 years, respectively. The fair values of these assets were determined using a discounted cash flow model, which is a Level 3 input in the fair value hierarchy. The consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company anticipates the attainment of synergies and an increase in the markets for the acquired products.
The Company incurred costs during the year ended December 31, 2019 related specifically to this acquisition of $1.0 million, which are included in selling, general, and administrative expenses in the Consolidated Statements of Income.
PWR-ARM
In November 2019, the Company acquired the PWR-ARM brand and electric powered Bimini business assets of Schwintek, Inc. (“PWR-ARM”), a premier electric sunshade solution for pontoon and smaller power boats. The purchase price was $45.0 million, which included holdback payments of $5.0 million to be paid over the subsequent two years. The results of the acquired business have been included in the Consolidated Statements of Income since the acquisition date, primarily in the Company’s OEM Segment.
Lewmar Marine Ltd.
In August 2019, the Company acquired 100 percent of the equity interests of Lewmar Marine Ltd. and related entities (collectively, “Lewmar”), a supplier of leisure marine equipment, headquartered in Havant, United Kingdom (“U.K.”). The purchase price was $43.2 million, net of cash acquired. The results of the acquired business have been included in the Consolidated Statements of Income since the acquisition date, primarily in the Company’s OEM Segment.
Other Acquisitions in 2019
During fiscal 2019, the Company completed 4 other acquisitions totaling $28.3$26.9 million of purchase consideration, net of cash acquired, and subject to potential post-closing adjustments related to net working capital. The preliminary purchase price allocations resulted in $11.6 million of goodwill, of which $5.8 million is not deductible for tax purposes, and $9.2 million of acquired identifiable intangible assets.
The accounting for these acquisitions is incomplete at December 31, 2019. The estimated fair values of assets acquired and liabilities assumed are based on preliminary allocations and will be finalized during the respective measurement periods which will not exceed 12 months from the respective acquisition dates. As these acquisitions are not considered to have a material impact on the Company’s financial statements, pro forma results of operations and other disclosures are not presented.acquired.
Acquisitions in 2018
Smoker Craft Furniture
In November 2018, the Company acquired the business and certain assets of the furniture manufacturing operation of Smoker Craft Inc., a leading pontoon, aluminum fishing, and fiberglass boat manufacturer located in New Paris, Indiana. The purchase price was $28.1 million paid at closing. The results of the acquired business have been included in the Consolidated Statements of Income since the acquisition date, primarily in the Company’s OEM Segment.
ST.LA. S.r.l.
In June 2018, the Company acquired 100 percent of the equity interests of ST.LA. S.r.l., 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. The results of the acquired business have been included in the Consolidated Statements of Income since the acquisition date, primarily in the Company’s OEM Segment.
Hehr
In February 2018, the Company acquired substantially all of the business assets of Hehr International Inc., (“Hehr”), a manufacturer of windows and tempered and laminated glass for the RV, transit, specialty vehicle, and other adjacent industries, headquartered in Los Angeles, California. The purchase price was $51.5 million paid at closing. The results of the acquired business have been included in the Consolidated Statements of Income since the acquisition date, primarily in the Company’s OEM Segment.
Taylor Made
In January 2018, the Company acquired 100 percent of the equity interests of Taylor Made Group, LLC, (“Taylor Made”), a marine supplier to boat builders and the aftermarket, as well as a key supplier to a host of other industrial end markets, headquartered in Gloversville, New York. The purchase price was $90.4 million, net of cash acquired, paid at closing. The results of the acquired business have been included in the Consolidated Statements of Income since the acquisition date, primarily in the Company’s OEM Segment.
Metallarte S.r.l.
In June 2017, the Company acquired 100 percent of the equity interests of Metallarte S.r.l., (“Metallarte”), a manufacturer of entry and compartment doors for the European caravan market located near Siena, Italy, and its subsidiary, RV Doors, S.r.l., a manufacturer of driver-side doors located near Venice, Italy. The purchase price was $14.1 million paid at closing, plus contingent consideration based on future sales by this operation. The results of the acquired business have been included in the Consolidated Statements of Income since the acquisition date, primarily in the Company’s OEM Segment.
Lexington
In May 2017, the Company acquired the business and certain assets of Lexington LLC, (“Lexington”), a manufacturer of high quality seating solutions for the marine, RV, transportation, medical and office furniture industries located in Elkhart, Indiana. The purchase price was $40.1 million paid at closing. The results of the acquired business have been included in the Consolidated Statements of Income since the acquisition date, primarily in the Company’s OEM Segment.
SessaKlein S.p.A.
In February 2017, the Company acquired 100 percent of the outstanding shares of SessaKlein S.p.A., (“SessaKlein”), a manufacturer of highly engineered side window systems for both high speed and commuter trains, located near Varese, Italy. The purchase price was $6.5 million paid at closing, net of cash acquired, plus contingent consideration based on future sales by this operation. The results of the acquired business have been included in the Consolidated Statements of Income since the acquisition date, primarily in the Company’s OEM Segment.
Goodwill
Changes in the carrying amount of goodwill by reportable segment were as follows:
| | (In thousands) | (In thousands) | OEM Segment | | Aftermarket Segment | | Total | (In thousands) | OEM Segment | | Aftermarket Segment | | Total |
| Net balance – December 31, 2017 | $ | 109,641 | | | $ | 14,542 | | | $ | 124,183 | | |
| Acquisitions – 2018 | 50,698 | | | 5,369 | | | 56,067 | | |
| Other | (82) | | | — | | | (82) | | |
| Net balance – December 31, 2018 | Net balance – December 31, 2018 | 160,257 | | | 19,911 | | | 180,168 | | Net balance – December 31, 2018 | $ | 160,257 | | | $ | 19,911 | | | $ | 180,168 | |
| Acquisitions – 2019 | Acquisitions – 2019 | 57,245 | | | 115,178 | | | 172,423 | | Acquisitions – 2019 | 57,245 | | | 115,178 | | | 172,423 | |
| Other | Other | (1,882) | | | 405 | | | (1,477) | | Other | (1,882) | | | 405 | | | (1,477) | |
| Net balance – December 31, 2019 | Net balance – December 31, 2019 | $ | 215,620 | | | $ | 135,494 | | | $ | 351,114 | | Net balance – December 31, 2019 | 215,620 | | | 135,494 | | | 351,114 | |
| Acquisitions – 2020 | | Acquisitions – 2020 | 84,774 | | | 523 | | | 85,297 | |
| Measurement period adjustments | | Measurement period adjustments | (2,251) | | | 12,613 | | | 10,362 | |
| Foreign currency translation | | Foreign currency translation | 7,810 | | | 145 | | | 7,955 | |
| Net balance – December 31, 2020 | | Net balance – December 31, 2020 | $ | 305,953 | | | $ | 148,775 | | | $ | 454,728 | |
The Company performed its annual goodwill impairment procedures for all of its reporting units as of November 30, 2020, 2019, 2018, and 2017,2018, and concluded no goodwill impairment existed at that time. The Company plans to update its assessment as of November 30, 2020,2021, or sooner if events occur or circumstances change that could more likely than not reduce the fair value of a reporting unit below its carrying value. The goodwill balance as of each of December 31, 2020, 2019, 2018, and 20172018 included $50.5 million of accumulated impairment, which occurred prior to December 31, 2017.
Any change in the goodwill amounts resulting from foreign currency translations and purchase accounting adjustments are presented as “Other” in the above table.2018.
Other Intangible Assets
Other intangible assets, by segment, at December 31 were as follows:
| | (In thousands) | (In thousands) | 2019 | | 2018 | (In thousands) | 2020 | | 2019 | |
| OEM Segment | OEM Segment | $ | 164,047 | | | $ | 159,803 | | OEM Segment | $ | 260,778 | | | $ | 164,047 | | |
| Aftermarket Segment | Aftermarket Segment | 177,379 | | | 16,539 | | Aftermarket Segment | 160,107 | | | 177,379 | | |
| Other intangible assets | Other intangible assets | $ | 341,426 | | | $ | 176,342 | | Other intangible assets | $ | 420,885 | | | $ | 341,426 | | |
Other intangible assets consisted of the following at December 31, 2019:2020:
| | (In thousands) | (In thousands) | Gross
Cost | | Accumulated
Amortization | | Net
Balance | | Estimated Useful
Life in Years | | (In thousands) | Gross
Cost | | Accumulated
Amortization | | Net
Balance | | Estimated Useful
Life in Years |
| Customer relationships | Customer relationships | $ | 319,934 | | | $ | 69,008 | | | $ | 250,926 | | | 6 | to | 17 | Customer relationships | $ | 398,613 | | | $ | 95,443 | | | $ | 303,170 | | | 6 | to | 17 |
| Patents | Patents | 76,206 | | | 44,611 | | | 31,595 | | | 3 | to | 19 | Patents | 92,128 | | | 47,090 | | | 45,038 | | | 3 | to | 20 |
| Trade names (finite life) | Trade names (finite life) | 50,917 | | | 7,086 | | | 43,831 | | | 3 | to | 20 | Trade names (finite life) | 69,686 | | | 11,272 | | | 58,414 | | | 3 | to | 20 |
| Trade names (indefinite life) | Trade names (indefinite life) | 7,600 | | | — | | | 7,600 | | | Indefinite | | Trade names (indefinite life) | 7,600 | | | — | | | 7,600 | | | Indefinite |
| Non-compete agreements | Non-compete agreements | 7,598 | | | 4,947 | | | 2,651 | | | 3 | to | 6 | Non-compete agreements | 6,478 | | | 4,617 | | | 1,861 | | | 3 | to | 6 |
| Other | Other | 309 | | | 173 | | | 136 | | | 2 | to | 12 | Other | 309 | | | 194 | | | 115 | | | 2 | to | 12 |
| Purchased research and development | Purchased research and development | 4,687 | | | — | | | 4,687 | | | Indefinite | | Purchased research and development | 4,687 | | | — | | | 4,687 | | | Indefinite |
| Other intangible assets | Other intangible assets | $ | 467,251 | | | $ | 125,825 | | | $ | 341,426 | | | Other intangible assets | $ | 579,501 | | | $ | 158,616 | | | $ | 420,885 | | |
The Company performed its annual impairment test for indefinite lived intangible assets as of November 30, 2020, 2019, 2018, and 2017,2018, and concluded no impairment existed at that time.
Other intangible assets consisted of the following at December 31, 2018:2019:
| | (In thousands) | (In thousands) | Gross
Cost | | Accumulated
Amortization | | Net
Balance | | Estimated Useful
Life in Years | | (In thousands) | Gross
Cost | | Accumulated
Amortization | | Net
Balance | | Estimated Useful
Life in Years |
| Customer relationships | Customer relationships | $ | 191,919 | | | $ | 54,889 | | | $ | 137,030 | | | 6 | to | 16 | Customer relationships | $ | 319,934 | | | $ | 69,008 | | | $ | 250,926 | | | 6 | to | 17 |
| Patents | Patents | 58,787 | | | 40,079 | | | 18,708 | | | 3 | to | 19 | Patents | 76,206 | | | 44,611 | | | 31,595 | | | 3 | to | 19 |
| Trade names (finite life) | Trade names (finite life) | 10,885 | | | 5,507 | | | 5,378 | | | 3 | to | 15 | Trade names (finite life) | 50,917 | | | 7,086 | | | 43,831 | | | 3 | to | 20 |
| Trade names (indefinite life) | Trade names (indefinite life) | 7,600 | | | — | | | 7,600 | | | Indefinite | | Trade names (indefinite life) | 7,600 | | | — | | | 7,600 | | | Indefinite |
| Non-compete agreements | Non-compete agreements | 6,919 | | | 4,148 | | | 2,771 | | | 3 | to | 6 | Non-compete agreements | 7,598 | | | 4,947 | | | 2,651 | | | 3 | to | 6 |
| Other | Other | 309 | | | 141 | | | 168 | | | 2 | to | 12 | Other | 309 | | | 173 | | | 136 | | | 2 | to | 12 |
| Purchased research and development | Purchased research and development | 4,687 | | | — | | | 4,687 | | | Indefinite | | Purchased research and development | 4,687 | | | — | | | 4,687 | | | Indefinite |
| Other intangible assets | Other intangible assets | $ | 281,106 | | | $ | 104,764 | | | $ | 176,342 | | | Other intangible assets | $ | 467,251 | | | $ | 125,825 | | | $ | 341,426 | | |
Amortization expense related to other intangible assets was as follows for the years ended December 31:
| | (In thousands) | (In thousands) | 2019 | | 2018 | | 2017 | (In thousands) | 2020 | | 2019 | | 2018 |
| Cost of sales | Cost of sales | $ | 5,200 | | | $ | 5,350 | | | $ | 5,631 | | Cost of sales | $ | 5,101 | | | $ | 5,200 | | | $ | 5,350 | |
| Selling, general and administrative expense | Selling, general and administrative expense | 18,558 | | | 15,912 | | | 13,942 | | Selling, general and administrative expense | 32,772 | | | 18,558 | | | 15,912 | |
| Amortization expense | Amortization expense | $ | 23,758 | | | $ | 21,262 | | | $ | 19,573 | | Amortization expense | $ | 37,873 | | | $ | 23,758 | | | $ | 21,262 | |
Estimated amortization expense for other intangible assets for the next five years is as follows:
| | (In thousands) | (In thousands) | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | (In thousands) | 2021 | | 2022 | | 2023 | | 2024 | | 2025 |
| Cost of sales | Cost of sales | $ | 4,469 | | | $ | 4,393 | | | $ | 4,180 | | | $ | 3,321 | | | $ | 2,566 | | Cost of sales | $ | 5,554 | | | $ | 5,208 | | | $ | 4,782 | | | $ | 4,329 | | | $ | 3,465 | |
| Selling, general and administrative expense | Selling, general and administrative expense | 28,887 | | | 28,372 | | | 28,227 | | | 27,484 | | | 27,038 | | Selling, general and administrative expense | 35,945 | | | 35,453 | | | 34,801 | | | 33,781 | | | 31,444 | |
| Amortization expense | Amortization expense | $ | 33,356 | | | $ | 32,765 | | | $ | 32,407 | | | $ | 30,805 | | | $ | 29,604 | | Amortization expense | $ | 41,499 | | | $ | 40,661 | | | $ | 39,583 | | | $ | 38,110 | | | $ | 34,909 | |
4. INVENTORIES
Inventories consisted of the following at December 31:
| | | (In thousands) | (In thousands) | 2019 | | 2018 | | | (In thousands) | 2020 | | 2019 | | |
| Raw materials | Raw materials | $ | 256,850 | | | $ | 284,467 | | | | Raw materials | $ | 356,921 | | | $ | 256,850 | | | |
| Work in process | Work in process | 23,653 | | | 12,291 | | | | Work in process | 24,189 | | | 23,653 | | | |
| Finished goods | Finished goods | 113,104 | | | 43,857 | | | | Finished goods | 112,789 | | | 113,104 | | | |
| Inventories, net | Inventories, net | $ | 393,607 | | | $ | 340,615 | | | | Inventories, net | $ | 493,899 | | | $ | 393,607 | | | |
5. FIXED ASSETS
Fixed assets consisted of the following at December 31:
| | | | | | | Estimated | | | | Estimated |
| | Useful Life | | Useful Life |
| (In thousands) | (In thousands) | 2019 | | 2018 | | in Years | (In thousands) | 2020 | | 2019 | | in Years |
| Land | Land | $ | 23,868 | | | $ | 22,962 | | | | Land | $ | 23,063 | | | $ | 23,868 | | | |
| Buildings and improvements | Buildings and improvements | 185,744 | | | 159,805 | | | 10 to 40 | Buildings and improvements | 197,291 | | | 185,744 | | | 10 to 40 |
| Leasehold improvements | Leasehold improvements | 23,012 | | | 16,132 | | | 3 to 12 | Leasehold improvements | 27,606 | | | 23,012 | | | 3 to 20 |
| Machinery and equipment | Machinery and equipment | 311,554 | | | 251,995 | | | 3 to 15 | Machinery and equipment | 369,990 | | | 311,554 | | | 3 to 15 |
| Furniture and fixtures | Furniture and fixtures | 85,901 | | | 51,893 | | | 3 to 8 | Furniture and fixtures | 94,055 | | | 85,901 | | | 3 to 15 |
| Construction in progress | Construction in progress | 48,288 | | | 56,447 | | | Construction in progress | 38,133 | | | 48,288 | | |
| Fixed assets, at cost | Fixed assets, at cost | 678,367 | | | 559,234 | | | Fixed assets, at cost | 750,138 | | | 678,367 | | |
| Less accumulated depreciation and amortization | Less accumulated depreciation and amortization | 312,058 | | | 236,358 | | | Less accumulated depreciation and amortization | 362,920 | | | 312,058 | | |
| Fixed assets, net | Fixed assets, net | $ | 366,309 | | | $ | 322,876 | | | Fixed assets, net | $ | 387,218 | | | $ | 366,309 | | |
Depreciation and amortization of fixed assets was as follows for the years ended December 31:
| | (In thousands) | (In thousands) | 2019 | | 2018 | | 2017 | (In thousands) | 2020 | | 2019 | | 2018 |
| Cost of sales | Cost of sales | $ | 39,442 | | | $ | 35,656 | | | $ | 27,042 | | Cost of sales | $ | 45,388 | | | $ | 39,442 | | | $ | 35,656 | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | 12,158 | | | 10,608 | | | 7,798 | | Selling, general and administrative expenses | 14,719 | | | 12,158 | | | 10,608 | |
| Total | Total | $ | 51,600 | | | $ | 46,264 | | | $ | 34,840 | | Total | $ | 60,107 | | | $ | 51,600 | | | $ | 46,264 | |
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following at December 31:
| | | (In thousands) | (In thousands) | 2019 | | 2018 | | (In thousands) | 2020 | | 2019 | |
| Employee compensation and benefits | Employee compensation and benefits | $ | 45,612 | | | $ | 33,835 | | | Employee compensation and benefits | $ | 62,555 | | | $ | 45,612 | | |
| Current portion of accrued warranty | Current portion of accrued warranty | 29,898 | | | 32,180 | | | Current portion of accrued warranty | 32,451 | | | 29,898 | | |
| Customer rebates | Customer rebates | 14,129 | | | 6,193 | | | Customer rebates | 23,670 | | | 14,129 | | |
| Other | Other | 42,781 | | | 26,424 | | | Other | 69,524 | | | 42,781 | | |
| Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | $ | 132,420 | | | $ | 98,632 | | | Accrued expenses and other current liabilities | $ | 188,200 | | | $ | 132,420 | | |
Estimated costs related to product warranties are accrued at the time products are sold. In estimating its future warranty obligations, the Company considers various factors, including the Company’s historical warranty costs, warranty claim lag, current trends, product mix, and sales.
The following table provides a reconciliation of the activity related to the Company’s accrued warranty, including both the current and long-term portions, for the years ended December 31:
| | (In thousands) | (In thousands) | 2019 | | 2018 | | 2017 | (In thousands) | 2020 | | 2019 | | 2018 |
| Balance at beginning of period | Balance at beginning of period | $ | 46,530 | | | $ | 38,502 | | | $ | 32,393 | | Balance at beginning of period | $ | 47,167 | | | $ | 46,530 | | | $ | 38,502 | |
| Provision for warranty expense | Provision for warranty expense | 30,520 | | | 31,819 | | | 25,399 | | Provision for warranty expense | 19,037 | | | 30,520 | | | 31,819 | |
| Warranty liability from acquired businesses | Warranty liability from acquired businesses | 287 | | | 760 | | | 150 | | Warranty liability from acquired businesses | 2,915 | | | 287 | | | 760 | |
| Warranty costs paid | Warranty costs paid | (30,170) | | | (24,551) | | | (19,440) | | Warranty costs paid | (22,028) | | | (30,170) | | | (24,551) | |
| Balance at end of period | Balance at end of period | 47,167 | | | 46,530 | | | 38,502 | | Balance at end of period | 47,091 | | | 47,167 | | | 46,530 | |
| Less long-term portion | Less long-term portion | 17,269 | | | 14,350 | | | 15,447 | | Less long-term portion | 14,640 | | | 17,269 | | | 14,350 | |
| Current portion of accrued warranty at end of period | Current portion of accrued warranty at end of period | $ | 29,898 | | | $ | 32,180 | | | $ | 23,055 | | Current portion of accrued warranty at end of period | $ | 32,451 | | | $ | 29,898 | | | $ | 32,180 | |
7. RETIREMENT AND OTHER BENEFIT PLANS
Defined Contribution Plan
The Company maintains a discretionary defined contribution 401(k) profit sharing plan covering all eligible employees. The Company contributed $9.0 million, $7.7 million, $6.8 million, and $4.2$6.8 million to this plan during the years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively.
Deferred Compensation Plan
The Company has an Executive Non-Qualified Deferred Compensation Plan (the “Plan”). Pursuant to the Plan, certain management employees are eligible to defer all or a portion of their regular salary and incentive compensation. Participants deferred $2.9 million, $0.9 million, $6.9 million, and $4.9$6.9 million during the years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively. The amounts deferred under this Plan are credited with earnings or losses based upon changes in values of the notional investments elected by the Plan participants. Each Plan participant is fully vested in their deferred compensation and earnings credited to his or her account as all contributions to the Plan are made by the participant. The Company is responsible for certain costs of Plan administration, which are not significant, and will not make any contributions to the Plan. Pursuant to the Plan, payments to the Plan participants are made from the general unrestricted assets of the Company, and the Company’s obligations pursuant to the Plan are unfunded and unsecured. Participants withdrew $1.7$0.2 million, $0.2$1.7 million, and $0.2 million from the Plan during the years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively. At December 31, 20192020 and 2018,2019, deferred compensation of $30.3$38.5 million and $25.9$30.3 million, respectively, was recorded in other long-term liabilities, and deferred compensation of $0.2 million and $0.4$0.2 million, respectively, was recorded in accrued expenses and other current liabilities. The Company invests approximately 99 percent of the amounts deferred by the Plan participants in life insurance contracts, matching the investments elected by the Plan participants. Deferred compensation assets and liabilities are recorded at contract value. At December 31, 20192020 and 2018,2019, life insurance contract assets of $30.1$35.3 million and $22.2$30.1 million, respectively, were recorded in other assets.
Dutch Pension Plans
The acquisition of Polyplastic in January 2020 included the assumption of two partially-funded defined benefit pension plans (the "Dutch pension plans") based in the Netherlands. The Dutch pension plans, which are qualified defined benefit pension plans, provide benefits based on years of service and average pay. The benefits earned by the employees are immediately vested. The Company funds the future obligations of the Dutch pension plans by purchasing an insurance contract from a large multi-national insurance company. Each year the Company will make premium payments to the insurance company (1) to provide for the benefit obligation of the current year of service based on each employee's age, gender, and current salary, and (2) for indexations for both active and post-active participants. The Company determines the fair value of the plan assets with the assistance of an actuary using unobservable inputs (Level 3), which is determined as the present value of the accrued benefits guaranteed by the insurer.
The following table summarizes the change in the projected benefit obligation and the fair value of plan assets for the Dutch pension plans for the year ended December 31, 2020 (in thousands):
| | | | | |
| Projected Benefit Obligation | |
| Projected benefit obligation at Polyplastic acquisition date | $ | 78,579 | |
| Interest cost | 1,007 | |
| Net service cost | 3,357 | |
| Employee contributions | 571 | |
| Benefits paid | (925) | |
| Actuarial loss, net | 5,453 | |
| Unrealized loss on foreign exchange | 8,670 | |
| Projected benefit obligation at end of year | 96,712 | |
| |
| Fair Value of Plan Assets | |
| Fair value of plan assets at Polyplastic acquisition date | $ | 49,914 | |
| Increase in plan asset value | 5,887 | |
| Employer contributions | 1,222 | |
| Employee contributions | 571 | |
| Benefits and administrative expenses paid | (1,201) | |
| Unrealized gain on foreign exchange | 5,543 | |
| Fair value of plan assets at end of year | 61,936 | |
| |
| Underfunded status of the plans at end of the year | $ | 34,776 | |
| |
| Accumulated benefit obligation | $ | 96,712 | |
The following actuarial assumptions were used to determine the actuarial present value of the projected benefit obligation and the net periodic pension costs for the Dutch pension plans at December 31, 2020:
| | | | | |
| Discount rate | 0.70 | % |
| Expected return on plan assets | 0.70 | % |
| Wage inflation | 2.00 | % |
Additionally, the Company assumed expected indexation that conforms to the growth path established by Dutch pension law, which ranged from 0.0 percent at acquisition to 2.0 percent in 2034 and thereafter.
Amounts recognized for the Dutch pension plans in the Consolidated Balance Sheet at December 31, 2020 consist of the following (in thousands):
| | | | | |
| Deferred taxes | $ | 8,694 | |
| Other long-term liabilities | 34,776 | |
| Accumulated other comprehensive income (loss) | (207) | |
The components of net periodic pension cost for the Dutch pension plans for the year ended December 31, 2020 included the following (in thousands):
| | | | | |
| Net service cost | $ | (3,357) | |
| Interest cost | (1,007) | |
| Expected return on plan assets | 626 | |
| Administrative charges | (276) | |
| Net periodic pension cost | $ | (4,014) | |
Plan assets at December 31, 2020 consisted of insurance contracts. Under Dutch pension law, the pension insurer is legally required to pay the funded benefits to the participants. The insurer cannot unilaterally return the obligation to the employer and the employer has no risks related to the assets. As the surrender value of the contract is less than the guarantee value, the guarantee value is used as the value of the plan assets. This value is the net present value of the accrued benefits against the same assumptions as applied in the valuation of the liability. As such, the expected return is equal to the discount rate.
The Company's 2021 minimum funding requirements are expected to be $1.3 million. The estimate of future annual contributions is based on current funding and the unconditional indexation requirements, and the Company believes these contributions will be sufficient to fund the Dutch pension plans.
Expected benefit payments to eligible participants under the Dutch pension plans for the next ten years are as follows (in thousands):
| | | | | |
| 2021 | $ | 1,139 | |
| 2022 | 1,245 | |
| 2023 | 1,301 | |
| 2024 | 1,390 | |
| 2025 | 1,515 | |
| 2026 - 2030 | 9,501 | |
8. LONG-TERM INDEBTEDNESS
Long-term debt consisted of the following at December 31:
| | (In thousands) | (In thousands) | 2019 | | 2018 | | (In thousands) | 2020 | | 2019 | |
| Term Loan | Term Loan | $ | 300,000 | | | $ | — | | | Term Loan | $ | 285,000 | | | $ | 300,000 | | |
| Revolving Credit Loan | Revolving Credit Loan | 266,214 | | | 240,060 | | | Revolving Credit Loan | 394,888 | | | 266,214 | | |
| Shelf-Loan Facility | Shelf-Loan Facility | 50,000 | | | 50,000 | | | Shelf-Loan Facility | 50,000 | | | 50,000 | | |
| Other | Other | 16,349 | | | 4,425 | | | Other | 9,652 | | | 16,349 | | |
| Unamortized deferred financing fees | Unamortized deferred financing fees | (1,774) | | | (361) | | | Unamortized deferred financing fees | (1,291) | | | (1,774) | | |
| | 630,789 | | | 294,124 | | | | 738,249 | | | 630,789 | | |
| Less current portion | Less current portion | (17,883) | | | (596) | | | Less current portion | (17,831) | | | (17,883) | | |
| Long-term indebtedness | Long-term indebtedness | $ | 612,906 | | | $ | 293,528 | | | Long-term indebtedness | $ | 720,418 | | | $ | 612,906 | | |
Amended Credit Agreement
On December 14, 2018, the Company refinanced its credit agreement with JPMorgan Chase, N.A., Wells Fargo Bank, N.A., Bank of America, N.A., and other bank lenders (as amended, the “Amended Credit Agreement”). The Amended Credit Agreement amended and restated an existing credit agreement dated April 27, 2016 and now expires on December 14, 2023. The Amended Credit Agreement increased the revolving credit facility from $325.0 million to $600.0 million, and permits the Company to borrow up to $250.0 million in approved foreign currencies, including Australian dollars, Canadian dollars, pounds sterling, and euros ($45.0169.9 million, or €40.0€138.0 million drawn at December 31, 2019)2020).
On December 19, 2019, the Company entered into an Incremental Joinder and Amendment No. 1 (“Amendment No. 1”) ofto the Amended Credit Agreement with several banks, which provided an incremental term loan in the amount of $300.0 million, which the Company borrowed to fund a portion of the purchase price for the acquisition of CURT. The term loan is required to be repaid in an amount equal to 1.25%1.25 percent of original principal amount of the term loan for the first eight quarterly periods commencing March 31, 2020, and then 1.875%1.875 percent of the original principal amount of the term loan for each quarter thereafter, until the maturity date of December 14, 2023. In addition, Amendment No. 1 modified the credit agreement to allow the Company to request an increase to the facility of up to an additional $300.0 million as an increase to the revolving credit facility or one, or more, incremental term loan facilities upon approval of the lenders and the Company receiving certain other consents. As a result of the new incremental term loan, the total borrowing capacity under the Amended Credit Agreement was increased from $600.0 million to $900.0 million.
Interest on borrowings under the revolving credit facility and incremental term loan are designated from time to time by the Company as either (i) the Alternate Base Rate (defined in the Amended Credit Agreement as the greatest of (a) the Prime Rate of JPMorgan Chase Bank, N.A., (b) the federal funds effective rate plus 0.5 percent, and (c) the Adjusted LIBO Rate (as defined in the Amended Credit Agreement) for a one month interest period plus 1.0 percent),percent, plus additional interest ranging from 0.0 percent to 0.625 percent (0.375 percent at December 31, 2019)2020) depending on the Company’s total net leverage ratio, or (ii) the Adjusted LIBO Rate for a period equal to one, two, three, six, or twelve months (with the consent of each lender) as selected by the Company, plus additional interest ranging from 0.875 percent to 1.625 percent (1.375 percent at December 31, 2019)2020) depending on the Company’s total net leverage ratio. At December 31, 20192020 and 2018,2019, the Company had $2.5$2.9 million and $2.2$2.5 million, respectively, in issued, but undrawn, standby letters of credit under the revolving credit facility. Availability under the Company’s revolving credit facility was $331.8$202.2 million at December 31, 2019.2020.
Shelf-Loan Facility
On February 24, 2014, the Company entered into a $150.0 million shelf-loan facility (as amended and restated, the “Shelf-Loan Facility”) with PGIM, Inc. (formerly Prudential Investment Management, Inc.) and its affiliates (“Prudential”). On March 20, 2015, the Company issued $50.0 million of Senior Promissory Notes (“Series A Notes”) to Prudential for a term of five years, at a fixed interest rate of 3.35 percent per annum, payable quarterly in arrears. On March 29, 2019, the Company issued $50.0 million of Series B Senior Notes (the “Series B Notes”) to certain affiliates of Prudential for a term of three years, at a fixed interest rate of 3.8 percent per annum, payable quarterly in arrears, of which the entire amount was outstanding at December 31, 2019.2020. The net proceeds of the Series B Notes were used to repay the Series A Notes. On November 11, 2019, the Company further amended and restated the Shelf-Loan Facility to provide for a new $200.0 million shelf facility pursuant to which the Series B Notes are currently outstanding.outstanding and to conform certain covenants to the Amended Credit Agreement. On March 31, 2020, the Company entered into a Consent and Amendment to the Shelf-Loan Facility to join certain Company subsidiaries that were acquired in the CURT acquisition as guarantors and permit other internal restructuring matters related to certain of the Company's subsidiaries. On September 21, 2020, the Company entered into a Second Amendment to the Shelf-Loan Facility to conform additional covenants to the Amended Credit Agreement. The Shelf-Loan Facility expires on November 11, 2022.
The Shelf-Loan Facility provides for Prudential to consider purchasing, at the Company’s request, in one or a series of transactions, additional Senior Promissory Notes of the Company in the aggregate principal amount of up to $150.0 million (excluding the Company’s Series B Notes already outstanding). Prudential has no obligation to purchase the Senior Promissory Notes. Interest payable on the Senior Promissory Notes will be at rates determined by Prudential within five business days after the Company issues a request to Prudential.
General
At December 31, 2019,2020, the fair value of the Company’s long-term debt under the Amended Credit Agreement and the Shelf-Loan Facility approximates the carrying value, as estimated using quoted market prices and discounted future cash flows based on similar borrowing arrangements.
Borrowings under both the Amended Credit Agreement and the Shelf-Loan Facility are secured on a pari-passu basis by first priority liens on the capital stock or other equity interests of the Company’s direct and indirect subsidiaries (including up to 65 percent of the equity interest of certain “controlled foreign corporations”).
Pursuant to the Amended Credit Agreement and Shelf-Loan Facility, the Company shall not permit its net leverage ratio to exceed certain limits, shall maintain a minimum debt service coverage ratio and must meet certain other financial
requirements. At December 31, 20192020 and 2018,2019, the Company was in compliance with all such requirements, and expects to remain in compliance for the next twelve months.
The Amended Credit Agreement and the Shelf-Loan Facility include a maximum net leverage ratio covenant which limits the amount of consolidated outstanding indebtedness that the Company may incur on a trailing twelve-month EBITDA, as defined.defined in the Amended Credit Agreement and the Shelf-Loan Facility. This limitation did not impact the Company’s ability to incur additional indebtedness under its revolving credit facility at December 31, 2019.2020. The combined remaining availability under the revolving credit facility and the potential additional notes issuable under the Shelf-Loan Facility was $481.8$352.2 million at December 31, 2019.2020. The Company believes the availability of $202.2 million under the revolving credit facility under the Amended Credit Agreement, along with its cash flows from operations, are adequate to finance the Company’s anticipated cash requirements for the next twelve months.
9. INCOME TAXES
The components of earnings (loss) before income taxes consisted of the following for the years ended December 31:
| | (In thousands) | (In thousands) | 2019 | | 2018 | | 2017 | (In thousands) | 2020 | | 2019 | | 2018 |
| United States | United States | $ | 189,834 | | | $ | 191,095 | | | $ | 213,967 | | United States | $ | 216,234 | | | $ | 189,834 | | | $ | 191,095 | |
| Foreign | Foreign | 1,580 | | | 1,257 | | | (1,123) | | Foreign | (6,753) | | | 1,580 | | | 1,257 | |
| Total earnings before income taxes | Total earnings before income taxes | $ | 191,414 | | | $ | 192,352 | | | $ | 212,844 | | Total earnings before income taxes | $ | 209,481 | | | $ | 191,414 | | | $ | 192,352 | |
The provision for income taxes in the Consolidated Statements of Income was as follows for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| (In thousands) | 2019 | | 2018 | | 2017 |
| Current: | | | | | |
| Federal | $ | 33,655 | | | $ | 22,297 | | | $ | 62,274 | |
| State and local | 6,764 | | | 6,416 | | | 10,720 | |
| Foreign | 1,070 | | | 1,214 | | | 158 | |
| Total current provision | 41,489 | | | 29,927 | | | 73,152 | |
| Deferred: | | | | | |
| Federal | 5,923 | | | | 12,478 | | | | 7,614 | |
| State and local | (969) | | | | 1,639 | | | | (806) | |
| Foreign | (1,538) | | | | (243) | | | | — | |
| Total deferred provision | 3,416 | | | 13,874 | | | 6,808 | |
| Provision for income taxes | $ | 44,905 | | | $ | 43,801 | | | $ | 79,960 | |
On December 22, 2017, the TCJA was signed into law making significant changes to the Internal Revenue Code (“IRC”). The TCJA changes included a reduction of the corporate income tax rate from 35 percent to 21 percent effective for tax years beginning after December 31, 2017, a provision that allows for full expensing of certain qualified property, repeal of the manufacturing deduction, and further limitations on the deductibility of certain executive compensation. The TCJA contains other provisions that have not materially affected the Company, including a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries, limitations on the deductibility of interest expense, and the creation of U.S. tax base erosion provisions.
Following the enactment of the TCJA, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance on the accounting and reporting impacts of the TCJA. For the year ended December 31, 2018, the Company finalized its tax accounting for the TCJA and pursuant to SAB 118 recorded a one-time non-cash charge of $0.6 million related to adjustments to deferred tax amounts provisionally recorded in the prior year. During the year ended December 31, 2017, the Company recorded a provisional one-time non-cash charge of $13.2 million related to the enactment of the TCJA, which resulted from the re-measurement of certain deferred tax assets using the lower U.S. corporate income tax rate. | | | | | | | | | | | | | | | | | |
| (In thousands) | 2020 | | 2019 | | 2018 |
| Current: | | | | | |
| Federal | $ | 42,541 | | | $ | 33,655 | | | $ | 22,297 | |
| State and local | 9,165 | | | 6,764 | | | 6,416 | |
| Foreign | 839 | | | 1,070 | | | 1,214 | |
| Total current provision | 52,545 | | | 41,489 | | | 29,927 | |
| Deferred: | | | | | |
| Federal | 2,342 | | | 5,923 | | | 12,478 | |
| State and local | (671) | | | (969) | | | 1,639 | |
| Foreign | (3,175) | | | (1,538) | | | (243) | |
| Total deferred provision | (1,504) | | | 3,416 | | | 13,874 | |
| Provision for income taxes | $ | 51,041 | | | $ | 44,905 | | | $ | 43,801 | |
The Company has historically reinvested all unremitted earnings of our foreign subsidiaries and affiliates, and therefore has not recognized any U.S. deferred tax liability on those earnings. However, the TCJATax Cuts and Jobs Act (the "TCJA") change in the U.S. taxation of foreign income has led the Company to reassess its position as it relates to permanent reinvestment and it has now determined that it will only assert permanent reinvestment in its Canadian subsidiaries. The Company examined the potential liabilities related to investments in foreign subsidiaries and concluded that there is no material deferred tax liabilities that should be recorded.
The provision for income taxes differs from the amount computed by applying the federal statutory rate of 21 percent for 2020, 2019, and 2018 and 35 percent for 2017 to income before income taxes for the following reasons for the years ended December 31:
| | (In thousands) | (In thousands) | 2019 | | 2018 | | 2017 | (In thousands) | 2020 | | 2019 | | 2018 |
| Income tax at federal statutory rate | Income tax at federal statutory rate | $ | 40,197 | | | $ | 40,394 | | | $ | 74,495 | | Income tax at federal statutory rate | $ | 43,991 | | | $ | 40,197 | | | $ | 40,394 | |
| State income tax, net of federal income tax impact | State income tax, net of federal income tax impact | 4,578 | | | 6,261 | | | 6,011 | | State income tax, net of federal income tax impact | 6,710 | | | 4,578 | | | 6,261 | |
| Domestic production deduction | — | | | — | | | (5,511) | | |
| Section 162(m) permanent addback | | Section 162(m) permanent addback | 3,015 | | | 587 | | | 894 | |
| | Federal tax credits | | Federal tax credits | (1,307) | | | (1,435) | | | (1,876) | |
| Share-based payment compensation excess tax benefit | Share-based payment compensation excess tax benefit | (1,579) | | | (2,914) | | | (7,683) | | Share-based payment compensation excess tax benefit | (190) | | | (1,579) | | | (2,914) | |
| Changes in tax law (TCJA) | Changes in tax law (TCJA) | — | | | 612 | | | 13,210 | | Changes in tax law (TCJA) | 0 | | | 0 | | | 612 | |
| Other | Other | 1,709 | | | (552) | | | (562) | | Other | (1,178) | | | 2,557 | | | 430 | |
| Provision for income taxes | Provision for income taxes | $ | 44,905 | | | $ | 43,801 | | | $ | 79,960 | | Provision for income taxes | $ | 51,041 | | | $ | 44,905 | | | $ | 43,801 | |
At December 31, 2020, the Company had domestic federal income taxes payable of $7.2 million, domestic state income taxes payable of $1.9 million, and foreign taxes receivable of $1.8 million recorded. At December 31, 2019, the Company had domestic federal income taxes receivable of $7.1 million, domestic state income taxes receivable of $4.6 million, and foreign taxes payable of $0.5 million recorded. At December 31, 2018, the Company had domestic federal income taxes receivable of $10.2 million, domestic state income taxes receivable of $0.4 million, and foreign taxes payable of $0.6 million recorded.
Deferred Income Tax Assets and Liabilities and Valuation Allowances
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows at December 31:
| | (In thousands) | (In thousands) | 2019 | | 2018 | | (In thousands) | 2020 | | 2019 | |
| Deferred tax assets: | Deferred tax assets: | | | | | Deferred tax assets: | | | | |
| Goodwill and other intangible assets | $ | — | | | $ | 3,854 | | | |
| | Stock-based compensation | Stock-based compensation | 2,290 | | | 2,956 | | | Stock-based compensation | $ | 2,084 | | | $ | 2,290 | | |
| Pension | | Pension | 8,694 | | | 0 | | |
| Deferred compensation | Deferred compensation | 5,976 | | | 6,710 | | | Deferred compensation | 13,325 | | | 5,976 | | |
| Warranty | Warranty | 11,246 | | | 10,931 | | | Warranty | 10,848 | | | 11,246 | | |
| Inventory | Inventory | 8,001 | | | 6,375 | | | Inventory | 7,443 | | | 8,001 | | |
| Other | Other | 2,585 | | | 3,454 | | | Other | 6,390 | | | 2,585 | | |
| Lease obligation asset | Lease obligation asset | 25,055 | | | 822 | | | Lease obligation asset | 22,488 | | | 25,055 | | |
| Net operating loss and interest carryforwards | Net operating loss and interest carryforwards | 7,352 | | | 1,467 | | | Net operating loss and interest carryforwards | 4,857 | | | 7,352 | | |
| Total deferred tax assets before valuation allowance | Total deferred tax assets before valuation allowance | 62,505 | | | 36,569 | | | Total deferred tax assets before valuation allowance | 76,129 | | | 62,505 | | |
| Less: Valuation allowance | Less: Valuation allowance | (1,662) | | | (1,261) | | | Less: Valuation allowance | (2,809) | | | (1,662) | | |
| Total deferred tax assets net of valuation allowance | Total deferred tax assets net of valuation allowance | 60,843 | | | 35,308 | | | Total deferred tax assets net of valuation allowance | 73,320 | | | 60,843 | | |
| Deferred tax liabilities: | Deferred tax liabilities: | | | Deferred tax liabilities: | | |
| Lease obligation liability | Lease obligation liability | (24,368) | | | — | | | Lease obligation liability | (21,523) | | | (24,368) | | |
| Fixed assets | Fixed assets | (27,898) | | | (24,360) | | | Fixed assets | (35,637) | | | (27,898) | | |
| Intangible assets | Intangible assets | (44,317) | | | (8,501) | | | Intangible assets | (69,992) | | | (44,317) | | |
| Total deferred tax liabilities | Total deferred tax liabilities | (96,583) | | | (32,861) | | | Total deferred tax liabilities | (127,152) | | | (96,583) | | |
| | Net deferred tax (liabilities) assets | $ | (35,740) | | | $ | 2,447 | | | |
| Net deferred tax liabilities | | Net deferred tax liabilities | $ | (53,832) | | | $ | (35,740) | | |
At December 31, 20192020 and 2018,2019, the Company had net foreign deferred tax liabilities of $17.3 million and $9.7 million, and $8.5 million, respectively, primarily related to goodwillintangible assets and other intangible assetsforeign pension obligations included in other long-term liabilities on the Consolidated Balance Sheets.
As of December 31, 2019,2020, the Company had deferred tax assets recorded related to foreign net operating losses and tax credit carryforwards of $2.6$4.3 million, net. This includes $1.7$2.6 million related to UKU.K. entities and $0.9$1.7 million related to Italian entities. The net operating losses and tax credit carryforwards have indefinite lives.
The U.K. valuation allowance for deferred tax assets as of December 31, 2020 and 2019 was $2.6 million and 2018 was $1.7 million, respectively. These valuation allowances at 2020 and $1.3 million, respectively. The valuation allowance at 2019 and 2018 waswere related to net operating losses and tax credit
carryforwards related to the UKU.K. entities. The net change in the total valuation allowance for the year ended December 31, 20192020 was an increase of $0.4$0.9 million. The increase in the valuation allowance relatesrelated to the current year losses in the UK.U.K. Based upon historical results and estimated future results, it is the judgment of management that these tax carryforward attributes related to the UKU.K. entities are not likely to be realized.
As of December 31, 2019, the Company had a domestic deferred tax asset recorded related to net operating losses acquired during the year of $0.3 million which will begin to expire as of December 31, 2029. Additionally, the Company had a domestic deferred tax asset recorded related to interest expense limitation of $4.4 million net, which has an indefinite life carry forward. No valuation allowance has been established against these net operating losses and interest carryforwards as they are more likely than not to be realized prior to expiration. Certain tax attributes are subject to annual limitations as defined under Internal Revenue Code Section 382 as a result of the stock acquisitions in 2019.was fully utilized during 2020.
The Company has concluded it is more likely than not that it will realize the benefit of all other existing deferred tax assets, net of the valuation allowances mentioned above.
Unrecognized Tax Benefits
The following table reconciles the total amounts of unrecognized tax benefits, at December 31:
| | (In thousands) | (In thousands) | 2019 | | 2018 | | 2017 | (In thousands) | 2020 | | 2019 | | 2018 |
| Balance at beginning of period | Balance at beginning of period | $ | 4,325 | | | $ | 4,145 | | | $ | 3,747 | | Balance at beginning of period | $ | 8,214 | | | $ | 4,325 | | | $ | 4,145 | |
| Changes in tax positions of prior years | Changes in tax positions of prior years | 480 | | | 114 | | | (174) | | Changes in tax positions of prior years | 0 | | | 480 | | | 114 | |
| Additions based on tax positions related to the current year | Additions based on tax positions related to the current year | 4,288 | | | 802 | | | 1,255 | | Additions based on tax positions related to the current year | 1,720 | | | 4,288 | | | 802 | |
| Payments | — | | | — | | | (211) | | |
| | Closure of tax years | Closure of tax years | (879) | | | (736) | | | (472) | | Closure of tax years | (1,013) | | | (879) | | | (736) | |
| Balance at end of period | Balance at end of period | $ | 8,214 | | | $ | 4,325 | | | $ | 4,145 | | Balance at end of period | $ | 8,921 | | | $ | 8,214 | | | $ | 4,325 | |
In addition, the total amount of accrued interest and penalties related to taxes, recognized as a liability, was $0.4$0.7 million, $0.2$0.4 million, and $0.2 million at December 31, 2020, 2019, 2018, and 2017,2018, respectively.
The total amount of unrecognized tax benefits, net of federal income tax benefits, of $8.8 million, $7.9 million, $3.9 million, and $3.7$3.9 million at December 31, 2020, 2019, 2018, and 2017,2018, respectively, would, if recognized, increase the Company’s earnings, and lower the Company’s annual effective tax rate in the year of recognition.
The Company is subject to taxation in the United States and various states and foreign jurisdictions. In the normal course of business, the Company is subject to examinations by taxing authorities in these jurisdictions. For U.S. federal and state income tax purposes, tax years 2019, 2018, 2017, and 20162017 remain subject to examination. The Company is currently under examination by the U.S. Internal Revenue Service for the tax year 2018.
The Company has assessed its risks associated with all tax return positions, and believes its tax reserve estimates reflect its best estimate of the deductions and positions it will be able to sustain, or it may be willing to concede as part of a settlement. At this time, the Company does not anticipate any material change in its tax reserves in the next twelve months. The Company will continue to monitor the progress and conclusion of all audits and will adjust its estimated liability as necessary.
10. LEASES
The Company leases certain manufacturing and distribution facilities, administrative office space, semi-tractors, trailers, forklifts, and other equipment through operating leases with unrelated third parties. The operating leases have remaining terms of up to 12 years and some leases include options to purchase, terminate, or extend for one or more years. The options are included in the lease term when it is reasonably certain the option will be exercised. Leases with an initial term of 12 months or less are recognized in lease expense on a straight-line basis over the lease term and not recorded on the Consolidated Balance Sheet.
The Company uses its incremental borrowing rate based on information available at lease inception in determining the present value of the lease payments. The Company applies a portfolio approach for determining the incremental borrowing rate based on applicable lease terms and the current economic environment.
Certain of the Company’s lease arrangements contain lease components (such as minimum rent payments) and non-lease components (such as common-area or other maintenance costs and taxes). The Company generally accounts for each component separately based on the estimated standalone price of each component. Some of the Company’s lease arrangements include rental payments that are adjusted periodically for an index rate. These leases are initially measured using the projected payments in effect at the inception of the lease. Certain of the Company’s leased semi-tractors, trailers, and forklifts include variable costs for usage or mileage. Such variable costs are expensed as incurred and included in the variable lease cost item noted in the table below. The Company’s lease agreements do not contain any significant residual value guarantees or restrictive covenants. The components of lease cost were as follows for the yearyears ended December 31, 2019 were as follows:31:
| | | | | | | |
(in thousands) | | | |
Operating lease cost | | | $ | 21,899 | |
Short-term lease cost | | | 2,611 |
Variable lease cost | | | 1,781 |
Total lease cost | | | $ | 26,291 | |
| | | | | | | | | | | |
| (in thousands) | 2020 | | 2019 |
| Operating lease cost | $ | 33,046 | | | $ | 21,899 | |
| Short-term lease cost | 2,272 | | | 2,611 | |
| Variable lease cost | 2,266 | | | 1,781 | |
| Total lease cost | $ | 37,584 | | | $ | 26,291 | |
Rent expense for operating leases was $24.2 million and $15.2 million for the yearsyear ended December 31, 2018 and 2017, respectively.
Future minimum lease payments under operating leases as of December 31, 2019 were as follows:
| | | | | | | | | | | |
| (in thousands) | | | |
| Year Ending December 31, | | | |
| 2020 | $ | 26,764 | | | |
| 2021 | 23,042 | | |
| 2022 | 17,031 | | |
| 2023 | 11,951 | | |
| 2024 | 10,477 | | |
| Thereafter | 33,077 | | |
Total future minimum lease payments (a) | 122,342 | | |
| Less: Interest | (20,801) | | |
| Present value of operating lease liabilities | $ | 101,541 | | | |
(a) Refer to the Company’s 2018 Annual Report on Form 10-K for disclosure of future minimum lease payments at December 31, 2018 under ASC Topic 840, the accounting standard applicable to leases prior to the adoption of Topic 842.2018.
At December 31, 2019,2020, the Company’s operating leases had a weighted-average remaining lease term of 6.67.0 years and a weighted-average discount rate of 5.55.2 percent.
Cash Flows
TheOn January 1, 2019, the Company adopted FASB ASU 2016-02, Leases (Topic 842), which requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet for leases greater than twelve months. As a result of the adoption, the initial right-of-use assets of $66.4 million were recognized as non-cash asset additions upon adoption of Topic 842.842 at January 1, 2019. Additional right-of use assets of $31.4 million and $50.5 million were recognized as non-cash asset additions that resulted from new operating lease obligations during the twelve months ended December 31, 2020 and 2019, respectively, which includesincluded $13.2 million and $34.3 million of right-of-use assets from acquisitions.acquisitions, respectively. Cash paid for amounts included in the present value of operating lease obligations and included in cash flows from operations was $29.6 million and $21.8 million for the twelve months ended December 31, 2019.2020 and 2019, respectively.
Finance Leases
The Company has variousFuture minimum lease payments under operating leases classified as finance leases, which are included in fixed assets, net and long-term indebtedness on the Consolidated Balance Sheets. These leases were not material to the Consolidated Financial Statements as of December 31, 2019.2020 were as follows:
Lessor
The Company has various lease arrangements to lease office space and other real estate under which the Company is the lessor. These leases are classified as operating leases and income associated with these leases is not material. | | | | | | | | | | | |
| (in thousands) | | | |
| Year Ending December 31, | | | |
| 2021 | $ | 29,927 | | | |
| 2022 | 23,812 | | | |
| 2023 | 16,992 | | | |
| 2024 | 14,157 | | | |
| 2025 | 11,827 | | | |
| Thereafter | 35,055 | | | |
| Total future minimum lease payments | 131,770 | | | |
| Less: Interest | (23,631) | | | |
| Present value of operating lease liabilities | $ | 108,139 | | | |
11. COMMITMENTS AND CONTINGENCIES
Contingent Consideration
In connection with several business acquisitions, if certain sales targets for the acquired products are achieved, the Company would pay additional cash consideration. The Company has recorded a liability for the fair value of this contingent consideration at December 31, 20192020 and 2018,2019, based on the present value of the expected future cash flows using a market participant’s weighted average cost of capital of 11.413.0 percent and 12.111.4 percent, respectively.
As required, the liability for this contingent consideration is measured at fair value quarterly, considering actual sales of the acquired products, updated sales projections, and the updated market participant weighted average cost of capital.
Depending upon the weighted average costs of capital and future sales of the products which are subject to contingent consideration, the Company could record adjustments in future periods.
The following table provides a reconciliation of the Company’s contingent consideration liability for the years ended December 31:
| | (In thousands) | (In thousands) | 2019 | | 2018 | | 2017 | (In thousands) | 2020 | | 2019 | | 2018 |
| Balance at beginning of period | Balance at beginning of period | $ | 7,302 | | | $ | 12,545 | | | $ | 9,241 | | Balance at beginning of period | $ | 4,396 | | | $ | 7,302 | | | $ | 12,545 | |
| Acquisitions | Acquisitions | — | | | 43 | | | 7,288 | | Acquisitions | 2,796 | | | 0 | | | 43 | |
| Payments | Payments | (10) | | | (4,803) | | | (7,682) | | Payments | (1,633) | | | (10) | | | (4,803) | |
Accretion (a) | Accretion (a) | 792 | | | 951 | | | 1,652 | | Accretion (a) | 601 | | | 792 | | | 951 | |
Fair value adjustments (a) (b) | Fair value adjustments (a) (b) | (3,691) | | | (944) | | | 1257 | | Fair value adjustments (a) (b) | (1,947) | | | (3,691) | | | (944) | |
| Net foreign currency translation adjustment | Net foreign currency translation adjustment | 3 | | | (490) | | | 789 | | Net foreign currency translation adjustment | 396 | | | 3 | | | (490) | |
Balance at end of the period (c) | Balance at end of the period (c) | 4,396 | | | 7,302 | | | 12,545 | | Balance at end of the period (c) | 4,609 | | | 4,396 | | | 7,302 | |
| Less current portion in accrued expenses and other current liabilities | Less current portion in accrued expenses and other current liabilities | (2,351) | | | (17) | | | (4,658) | | Less current portion in accrued expenses and other current liabilities | (2,683) | | | (2,351) | | | (17) | |
| Total long-term portion in other long-term liabilities | Total long-term portion in other long-term liabilities | $ | 2,045 | | | $ | 7,285 | | | $ | 7,887 | | Total long-term portion in other long-term liabilities | $ | 1,926 | | | $ | 2,045 | | | $ | 7,285 | |
g.a.Recorded in selling, general and administrative expenses in the Consolidated Statements of Income.
h.b.Includes adjustments to assumptions on weighted average cost of capital and relevant sales projections.
i.c.Amounts represent the fair value of estimated remaining payments. The total estimated remaining undiscounted payments as of December 31, 20192020 were $5.6 million. The liability for contingent consideration expires at various dates through September 2029. Certain of the contingent consideration arrangements are subject to a maximum payment amount, while the remaining arrangements have no maximum contingent consideration.
Furrion Distribution and Supply Agreement
In July 2015, the Company entered into a six-yearsix-year exclusive distribution and supply agreement with Furrion Limited (“Furrion”), a Hong Kong based firm that designs, engineers, and supplies premium electronics. This agreement provided the Company with the rights to distribute Furrion’s complete line of products to OEMs and aftermarket customers in the RV, specialty vehicle, utility trailer, horse trailer, marine, transit bus, manufactured housing, and school bus industries throughout the United States and Canada.
In August 2019, the Company and Furrion agreed to terminate the agreement effective December 31, 2019, and transition all sale and distribution of Furrion products then handled by the Company to Furrion. Effective January 1, 2020, Furrion is responsibletook responsibility for distributing its products directly to the customer and assumed all responsibilities previously carried out by the Company relating to Furrion products. Upon termination of the agreement, Furrion has agreed to purchasepurchased from the Company all non-obsolete stock and certain obsolete and slow-moving stock of Furrion products at the cost paid by the Company. At December 31, 2020 and 2019, the Company had receivables of $42.3 million and $40.0 million, respectively, recorded for purchases of inventory stock by Furrion. The agreement required Furrion to make periodic payments throughout 2020 and the first six months of 2021. Due to the impacts of the COVID-19 pandemic, the Company is currently in negotiations that would impact the timing of the repayment of this receivable. Accordingly, the Company has classified $17.6 million of the receivable as long-term, and recorded the receivable at its present value at December 31, 2020 based on the currently proposed payment plan which extends through July 2022.
Product Recalls
From time to time, the Company cooperates with and assists its customers on their product recalls and inquiries, and occasionally receives inquiries directly from the National Highway Traffic Safety Administration regarding reported incidents involving the Company’s products. As a result, the Company has incurred expenses associated with product recalls from time to time, and may incur expenditures for future investigations or product recalls.
Environmental
The Company’s operations are subject to certain Federal, state and local regulatory requirements relating to the use, storage, discharge and disposal of hazardous materials used during the manufacturing processes. Although the Company believes its operations have been consistent with prevailing industry standards, and are in substantial compliance with applicable environmental laws and regulations, one or more of the Company’s current or former operating sites, or adjacent sites owned by third-parties, have been affected, and may in the future be affected, by releases of hazardous materials. As a
result, the Company may incur expenditures for future investigation and remediation of these sites, including in conjunction with voluntary remediation programs or third-party claims.
Litigation
In the normal course of business, the Company is subject to proceedings, lawsuits, regulatory agency inquiries and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, management believes that, after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided in the Consolidated Balance Sheet as of December 31, 2019,2020, would not be material to the Company’s financial position or annual results of operations.
12. STOCKHOLDERS’ EQUITY
Dividends
In 2016, the Company initiated the payment of regular quarterly dividends. The table below summarizes the regular quarterly dividends declared and paid during the years ended December 31, 2020, 2019, 2018, and 2017:2018:
| | (In thousands, except per share data) | (In thousands, except per share data) | Per Share | | Record Date | | Payment Date | | Total Paid | (In thousands, except per share data) | Per Share | | Record Date | | Payment Date | | Total Paid |
| First Quarter 2017 | $ | 0.50 | | | 03/06/17 | | 03/17/17 | | $ | 12,442 | | |
| Second Quarter 2017 | 0.50 | | | 05/19/17 | | 06/02/17 | | 12,445 | | |
| Third Quarter 2017 | 0.50 | | | 08/18/17 | | 09/01/17 | | 12,459 | | |
| Fourth Quarter 2017 | 0.55 | | | 11/17/17 | | 12/01/17 | | 13,711 | | |
| Total 2017 | $ | 2.05 | | | $ | 51,057 | | |
| | First Quarter 2018 | First Quarter 2018 | $ | 0.55 | | | 03/16/18 | | 03/29/18 | | $ | 13,858 | | First Quarter 2018 | $ | 0.55 | | | 03/16/18 | | 03/29/18 | | $ | 13,858 | |
| Second Quarter 2018 | Second Quarter 2018 | 0.60 | | | 06/04/18 | | 06/15/18 | | 15,127 | | Second Quarter 2018 | 0.60 | | | 06/04/18 | | 06/15/18 | | 15,127 | |
| Third Quarter 2018 | Third Quarter 2018 | 0.60 | | | 08/31/18 | | 09/14/18 | | 15,129 | | Third Quarter 2018 | 0.60 | | | 08/31/18 | | 09/14/18 | | 15,129 | |
| Fourth Quarter 2018 | Fourth Quarter 2018 | 0.60 | | | 11/26/18 | | 12/07/18 | | 15,156 | | Fourth Quarter 2018 | 0.60 | | | 11/26/18 | | 12/07/18 | | 15,156 | |
| Total 2018 | Total 2018 | $ | 2.35 | | | $ | 59,270 | | Total 2018 | $ | 2.35 | | | $ | 59,270 | |
| | First Quarter 2019 | First Quarter 2019 | $ | 0.60 | | | 03/08/19 | | 03/22/19 | | $ | 14,999 | | First Quarter 2019 | $ | 0.60 | | | 03/08/19 | | 03/22/19 | | $ | 14,999 | |
| Second Quarter 2019 | Second Quarter 2019 | 0.65 | | | 06/07/19 | | 06/21/19 | | 16,267 | | Second Quarter 2019 | 0.65 | | | 06/07/19 | | 06/21/19 | | 16,267 | |
| Third Quarter 2019 | Third Quarter 2019 | 0.65 | | | 09/06/19 | | 09/20/19 | | 16,267 | | Third Quarter 2019 | 0.65 | | | 09/06/19 | | 09/20/19 | | 16,267 | |
| Fourth Quarter 2019 | Fourth Quarter 2019 | 0.65 | | | 12/06/19 | | 12/20/19 | | 16,280 | | Fourth Quarter 2019 | 0.65 | | | 12/06/19 | | 12/20/19 | | 16,280 | |
| Total 2019 | Total 2019 | $ | 2.55 | | | $ | 63,813 | | Total 2019 | $ | 2.55 | | | $ | 63,813 | |
| | First Quarter 2020 | | First Quarter 2020 | $ | 0.65 | | | 03/06/20 | | 03/20/20 | | $ | 16,321 | |
| Second Quarter 2020 | | Second Quarter 2020 | 0.65 | | | 06/05/20 | | 06/19/20 | | 16,349 | |
| Third Quarter 2020 | | Third Quarter 2020 | 0.75 | | | 09/04/20 | | 09/18/20 | | 18,865 | |
| Fourth Quarter 2020 | | Fourth Quarter 2020 | 0.75 | | | 12/04/20 | | 12/18/20 | | 18,866 | |
| Total 2020 | | Total 2020 | $ | 2.80 | | | $ | 70,401 | |
Stock-Based Awards
Prior to stockholder approval of the LCI Industries 2018 Omnibus Incentive Plan (the “2018 Plan) in May 2018, the Company granted to its directors, employees, and other eligible persons common stock-based awards, such as stock options, deferred and restricted stock units, restricted stock, and stock awards pursuant to the LCI Industries Equity Award and Incentive Plan, as Amended and Restated (the “2011 Plan”), which was approved by stockholders in May 2011. On May 24, 2018, the Company’s stockholders approved the 2018 Plan, which provides that the number of shares of common stock that may be the subject of awards and issued under the 2018 Plan is 1,500,000, plus shares subject to any awards outstanding as of May 24, 2018 under the 2011 Plan that subsequently expire, are forfeited or canceled, are settled for cash, are not issued in shares, or are tendered or withheld to pay the exercise price or satisfy any tax withholding obligations related to the award. Following the stockholders’ approval of the 2018 Plan, no further awards may be made under the 2011 Plan. Executive officers and other employees of the Company and its subsidiaries and affiliates, and independent directors, consultants, and others who provide substantial services to the Company and its subsidiaries and affiliates, are eligible to be granted awards under the 2018 Plan. Under the 2018 Plan, the Compensation Committee of LCII’s Board of Directors is authorized to grant stock options, stock appreciation rights, restricted stock awards, stock unit awards, other stock-based awards, and cash incentive awards.
The number of shares available for future awards under the 2018 Plan was 1,300,115, 1,361,748, and 2011 Plan, as applicable, was 1,361,748, 1,570,274 and 737,689 at December 31, 2020, 2019, 2018, and 2017,2018, respectively.
Stock-based compensation resulted in charges to operations as follows for the years ended December 31:
| | (In thousands) | (In thousands) | 2019 | | 2018 | | 2017 | (In thousands) | 2020 | | 2019 | | 2018 |
| | Deferred and restricted stock units | Deferred and restricted stock units | $ | 14,342 | | | $ | 12,427 | | | $ | 10,696 | | Deferred and restricted stock units | $ | 14,329 | | | $ | 14,342 | | | $ | 12,427 | |
| Restricted stock | Restricted stock | — | | | 590 | | | 1,191 | | Restricted stock | 0 | | | 0 | | | 590 | |
| Stock awards | Stock awards | 1,735 | | | 1,048 | | | 8,149 | | Stock awards | 4,173 | | | 1,735 | | | 1,048 | |
| Stock-based compensation expense | Stock-based compensation expense | $ | 16,077 | | | $ | 14,065 | | | $ | 20,036 | | Stock-based compensation expense | $ | 18,502 | | | $ | 16,077 | | | $ | 14,065 | |
Stock-based compensation expense is recorded in the Consolidated Statements of Income in the same line as cash compensation to those employees is recorded, primarily in selling, general and administrative expenses. In addition, the Company issued deferred stock units to certain executive officers in lieu of cash for a portion of prior year incentive compensation, in accordance with their compensation arrangements, of $6.9 million, for the year ended December 31, 2017.
Deferred and Restricted Stock Units
The 2018 Plan provides for the grant or issuance of stock units, including those that have deferral periods, such as deferred stock units (“DSUs”), and those with time-based vesting provisions, such as restricted stock units (“RSUs”), to directors, employees and other eligible persons. Recipients of DSUs and RSUs are entitled to receive shares at the end of a specified vesting or deferral period. Holders of DSUs and RSUs receive dividend equivalents based on dividends granted to holders of the common stock, which dividend equivalents are payable in additional DSUs and RSUs, and are subject to the same vesting criteria as the original grant.
DSUs vest (i) ratably over the service period, (ii) at a specified future date, or (iii) for certain officers, based on achievement of specified performance conditions. RSUs vest (i) ratably over the service period or (ii) at a specified future date. As a result of the Company’s executive succession, and corporate relocation, the vesting of certain deferred stock unitsDSUs was accelerated pursuant to contractual obligations with certain employees whose employment terminated. In addition, DSUs are issued in lieu of certain cash compensation. Transactions in DSUs and RSUs under the 2011 Plan or the 2018 Plan, as applicable, are summarized as follows:
| | | Number of Shares | | Weighted Average Price | | Number of Shares | | Weighted Average Price |
| | Outstanding at December 31, 2016 | 506,447 | | | $ | 50.00 | | |
| Issued | 68,340 | | | 108.61 | | |
| Granted | 95,079 | | | 109.50 | | |
| Dividend equivalents | 9,799 | | | 104.12 | | |
| Forfeited | (3,094) | | | 72.96 | | |
| Vested | (227,516) | | | 40.39 | | |
| Outstanding at December 31, 2017 | Outstanding at December 31, 2017 | 449,055 | | | $ | 72.55 | | Outstanding at December 31, 2017 | 449,055 | | | $ | 72.55 | |
| Issued | Issued | 5,354 | | | 106.10 | | Issued | 5,354 | | | 106.10 | |
| Granted | Granted | 101,650 | | | 103.20 | | Granted | 101,650 | | | 103.20 | |
| Dividend equivalents | Dividend equivalents | 8,036 | | | 89.66 | | Dividend equivalents | 8,036 | | | 89.66 | |
| Forfeited | Forfeited | (9,557) | | | 76.71 | | Forfeited | (9,557) | | | 76.71 | |
| Vested | Vested | (290,132) | | | 74.83 | | Vested | (290,132) | | | 74.83 | |
| Outstanding at December 31, 2018 | Outstanding at December 31, 2018 | 264,406 | | | $ | 83.84 | | Outstanding at December 31, 2018 | 264,406 | | | $ | 83.84 | |
| Issued | Issued | 6,073 | | | 89.82 | | Issued | 6,073 | | | 89.82 | |
| Granted | Granted | 252,068 | | | 81.07 | | Granted | 252,068 | | | 81.07 | |
| Dividend equivalents | Dividend equivalents | 10,243 | | | 89.65 | | Dividend equivalents | 10,243 | | | 89.65 | |
| Forfeited | Forfeited | (9,079) | | | 89.67 | | Forfeited | (9,079) | | | 89.67 | |
| Vested | Vested | (177,563) | | | 69.65 | | Vested | (177,563) | | | 69.65 | |
| Outstanding at December 31, 2019 | Outstanding at December 31, 2019 | 346,148 | | | $ | 87.54 | | Outstanding at December 31, 2019 | 346,148 | | | $ | 87.54 | |
| Issued | | Issued | 5,703 | | | 97.42 | |
| Granted | | Granted | 150,319 | | | 97.70 | |
| Dividend equivalents | | Dividend equivalents | 10,042 | | | 95.08 | |
| Forfeited | | Forfeited | (21,856) | | | 91.79 | |
| Vested | | Vested | (155,269) | | | 87.69 | |
| Outstanding at December 31, 2020 | | Outstanding at December 31, 2020 | 335,087 | | | $ | 90.04 | |
As of December 31, 2019,2020, there was $18.3$17.0 million of total unrecognized compensation cost related to DSUs and RSUs, which is expected to be recognized over a weighted average remaining period of 1.41.2 years.
Stock Awards and Performance Stock Units
The 2011 Plan provided for stock awards and the 2018 Plan provides for performance stock units (“PSUs”) that vest at a specific future date based on achievement of specified performance conditions. Transactions in performance-based stock awards and PSUs under the 2011 Plan or the 2018 Plan, as applicable, are summarized as follows:
| | | Number of Shares | | Stock Price | | Number of Shares | | Stock Price |
| | Outstanding at December 31, 2016 | 232,622 | | | $ | 55.60 | | |
| Granted | 103,382 | | | 90.36 | | |
| Dividend equivalents | 5,249 | | | 104.93 | | |
| | Vested | (69,434) | | | 51.20 | | |
| Outstanding at December 31, 2017 | Outstanding at December 31, 2017 | 271,819 | | | $ | 70.29 | | Outstanding at December 31, 2017 | 271,819 | | | $ | 70.29 | |
| Issued | Issued | 5,641 | | | 106.10 | | Issued | 5,641 | | | 106.10 | |
| Granted | Granted | 111,246 | | | 106.10 | | Granted | 111,246 | | | 106.10 | |
| Dividend equivalents | Dividend equivalents | 6,280 | | | 90.47 | | Dividend equivalents | 6,280 | | | 90.47 | |
| Forfeited | Forfeited | (71,618) | | | 86.65 | | Forfeited | (71,618) | | | 86.65 | |
| Vested | Vested | (136,000) | | | 64.32 | | Vested | (136,000) | | | 64.32 | |
| Outstanding at December 31, 2018 | Outstanding at December 31, 2018 | 187,368 | | | $ | 91.39 | | Outstanding at December 31, 2018 | 187,368 | | | $ | 91.39 | |
| | Granted | Granted | 48,995 | | | 78.11 | Granted | 48,995 | | | 78.11 | |
| Dividend equivalents | Dividend equivalents | 3,658 | | | 67.03 | Dividend equivalents | 3,658 | | | 67.03 | |
| Forfeited | Forfeited | (8,459) | | | 106.10 | Forfeited | (8,459) | | | 106.10 | |
| Vested | Vested | (102,434) | | | 77.93 | Vested | (102,434) | | | 77.93 | |
| Outstanding at December 31, 2019 | Outstanding at December 31, 2019 | 129,128 | | | $ | 96.21 | | Outstanding at December 31, 2019 | 129,128 | | | $ | 96.21 | |
| | Granted | | Granted | 66,029 | | | 98.98 |
| Dividend equivalents | | Dividend equivalents | 3,303 | | | 96.54 |
| Forfeited | | Forfeited | (73,581) | | | 107.91 |
| Vested | | Vested | (5,152) | | | 100.46 |
| Outstanding at December 31, 2020 | | Outstanding at December 31, 2020 | 119,727 | | | $ | 89.92 | |
As of December 31, 2019,2020, there was $2.9$5.2 million of total unrecognized compensation cost related to outstanding stock awards and PSUs, which is expected to be recognized over a weighted average remaining period of 0.9 years.
Weighted Average Common Shares Outstanding
The following reconciliation details the denominator used in the computation of basic and diluted earnings per share for the years ended December 31:
| | (In thousands) | (In thousands) | 2019 | | 2018 | | 2017 | (In thousands) | 2020 | | 2019 | | 2018 |
| Weighted average shares outstanding for basic earnings per share | Weighted average shares outstanding for basic earnings per share | 24,998 | | | 25,178 | | | 25,020 | | Weighted average shares outstanding for basic earnings per share | 25,134 | | | 24,998 | | | 25,178 | |
| Common stock equivalents pertaining to stock-based awards | Common stock equivalents pertaining to stock-based awards | 95 | | | 285 | | | 355 | | Common stock equivalents pertaining to stock-based awards | 121 | | | 95 | | | 285 | |
| Weighted average shares outstanding for diluted earnings per share | Weighted average shares outstanding for diluted earnings per share | 25,093 | | | 25,463 | | | 25,375 | | Weighted average shares outstanding for diluted earnings per share | 25,255 | | | 25,093 | | | 25,463 | |
The weighted average diluted shares outstanding for the years ended December 31, 2020, 2019, 2018, and 2017,2018, exclude the effect of 110,900, 122,775, 94,747, and 104,07394,747 shares of common stock, respectively, subject to stock-based awards. Such shares were excluded from total diluted shares because they were anti-dilutive or the specified performance conditions that those shares were subject to were not yet achieved.
Stock Repurchase Program
On October 31, 2018, the Company’s Board of Directors authorized a new stock repurchase program granting the Company authority to repurchase up to $150.0 million of the Company’s common stock over a three-yearthree-year period. The timing of stock repurchases and the number of shares repurchased will depend upon the market conditions and other factors. Share
repurchases, if any, will be made in the open market or in privately negotiated transactions in accordance with applicable securities laws. The stock repurchase program may be modified, suspended or terminated at any time by the Board of Directors.
In 2018, the Company purchased 402,570 shares at a weighted average price of $71.28 per share, totaling $28.7 million. There were no share repurchases for the yearyears ended December 31, 2020 and 2019.
13. FAIR VALUE MEASUREMENTS
Recurring
The following table presents the Company’s liabilities measured at fair value on a recurring basis at
December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | | | | 2018 | | | |
| (In thousands) | Total | Level 1 | Level 2 | Level 3 | | Total | Level 1 | Level 2 | Level 3 |
| | | | | | | | | |
| | | | | | | | | |
| Liabilities | | | | | | | | | |
| Contingent consideration | $ | 4,396 | | $ | — | | $ | — | | $ | 4,396 | | | $ | 7,302 | | $ | — | | $ | — | | $ | 7,302 | |
| Derivative liabilities | 679 | | — | | 679 | | — | | | 1,108 | | — | | 1,108 | | — | |
The Company did not have any assets measured at fair value on a recurring basis at December 31, 2019 or 2018.
Derivative Instruments
The Company’s objectives in using commodity derivatives are to add stability to expense and to manage its exposure to certain commodity price movements. To accomplish this objective, the Company uses commodity swaps as part of its commodity risk management strategy. Commodity swaps designated as cash flow hedges involve fixing the price on a fixed volume of a commodity on specified dates. The commodity swaps are typically cash settled for their fair value at or close to their settlement dates.
At December 31, 2019, the Company had 6 commodity swap derivative instruments for a total of 11.2 million pounds of steel used to hedge its commodity price risk on a portion of the exposure to movements associated with steel costs. These derivatives expire at various dates through April 2020, at an average steel price of $0.37 per pound. These derivatives are designated and qualify as cash flow hedges of commodity price risk; therefore, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified in the period during which the hedged transactions affects earnings within the same income statement line item as the earnings effect of the hedged transaction. These derivative instruments were valued at fair value using a market approach based on the quoted market prices of similar instruments at the end of the reporting period. At December 31, 2019, the $0.7 million corresponding liability was recorded in accrued expenses and other current liabilities as reflected in the Consolidated Balance Sheets.
At December 31, 2018, the Company had 5 commodity swap derivative instruments for a total of 34.4 million pounds of steel used to hedge its commodity price risk on a portion of the exposure to movements associated with steel costs. These derivatives expire at various dates through February 2020, at an average steel price of $0.39 per pound. These derivatives are designated and qualify as cash flow hedges of commodity price risk; therefore, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified in the period during which the hedged transactions affects earnings within the same income statement line item as the earnings effect of the hedged transaction. These derivative instruments were valued at fair value using a market approach based on the quoted market prices of similar instruments at the end of the reporting period. At December 31, 2018, the $1.1 million corresponding liability was recorded in accrued expenses and other current liabilities ($0.9 million) and other long-term liabilities ($0.2 million) as reflected in the Consolidated Balance Sheets. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 |
| (In thousands) | Total | Level 1 | Level 2 | Level 3 | | Total | Level 1 | Level 2 | Level 3 |
| Assets | | | | | | | | | |
| Pension plan assets (Note 7) | $ | 61,936 | | $ | 0 | | $ | 0 | | $ | 61,936 | | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Liabilities | | | | | | | | | |
| Contingent consideration | $ | 4,609 | | $ | 0 | | $ | 0 | | $ | 4,609 | | | $ | 4,396 | | $ | 0 | | $ | 0 | | $ | 4,396 | |
| Derivative liabilities | 0 | | 0 | | 0 | | 0 | | | 679 | | 0 | | 679 | | 0 | |
Contingent Consideration Related to Acquisitions
Liabilities for contingent consideration related to acquisitions were estimated at fair value using management’s projections for long-term sales forecasts, including assumptions regarding market share gains and future industry-specific economic and market conditions, and a market participant’s weighted average cost of capital. Over the next six years, the Company’s long-term sales growth forecasts for products subject to contingent consideration arrangements average approximately 1413 percent per year. For further information on the inputs used in determining the fair value, and a roll-forward of the contingent consideration liability, see Note 11 of the Notes to Consolidated Financial Statements.
Changes in either of the inputs in isolation would result in a change in the fair value measurement. A change in the assumptions used for sales forecasts would result in a directionally similar change in the fair value liability, while a change in the weighted average cost of capital would result in a directionally opposite change in the fair value liability. If there is an increase in the fair value liability, the Company would record a charge to selling, general and administrative expenses, and if there is a decrease in the fair value liability, the Company would record a benefit in selling, general and administrative expenses.
Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, derivative instruments, and accounts payable approximate their fair value due to the short-term nature of these instruments.
14. SEGMENT REPORTING
The Company has 2 reportable segments, the OEM Segment and the Aftermarket Segment. Intersegment sales are insignificant.
The OEM Segment, which accounted for 78 percent, 88 percent, 91 percent, and 9291 percent of consolidated net sales for each of the years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively, manufactures and distributes a broad array of engineered components for the leading OEMs in the recreation and industrial product markets, consisting of RVs and adjacent industries, including buses; trailers used to haul boats, livestock, equipment, and other cargo; trucks; boats; trains; manufactured homes; and modular housing. Approximately 61 percent, 6461 percent, and 7164 percent of the Company’s OEM Segment net sales in 2020, 2019, 2018, and 2017,2018, respectively, were of components for travel trailer and fifth-wheel RVs.
The Aftermarket Segment, which accounted for 22 percent, 12 percent, 9 percent, and 89 percent of consolidated net sales for each of the years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively, supplies engineered components to the related aftermarket channels of the RV and adjacent industries, primarily to retail dealers, wholesale distributors, e-commerce, and service centers.
The Aftermarket Segment also includes the sale of replacement glass and awnings to fulfill insurance claims, biminis, covers, buoys, and fenders to the marine industry, and towing products and truck accessories.
Decisions concerning the allocation of the Company’s resources are made by the Company’s Chief Operating Decision Maker (“CODM”), with oversight by the Board of Directors. The CODM evaluates the performance of each segment based upon segment operating profit or loss, generally defined as income or loss before interest and income taxes. Decisions concerning the allocation of resources are also based on each segment’s utilization of assets. Management of debt is a corporate function. The accounting policies of the OEM and Aftermarket Segments are the same as those described in Note 2 of the Notes to Consolidated Financial Statements.
The following tablestable presents the Company’s revenues disaggregated by segment and geography based on the billing address of the Company’s customers for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| | | 2020 | | |
| (In thousands) | U.S. (a) | | Int’l (b) | | Total |
| OEM Segment: | | | | | |
| RV OEMs: | | | | | |
| Travel trailers and fifth-wheels | $ | 1,288,209 | | | $ | 33,358 | | | $ | 1,321,567 | |
| Motorhomes | 100,950 | | | 57,146 | | | 158,096 | |
| Adjacent Industries OEMs | 563,082 | | | 125,166 | | | 688,248 | |
| Total OEM Segment net sales | 1,952,241 | | | 215,670 | | | 2,167,911 | |
| Aftermarket Segment: | | | | | |
| Total Aftermarket Segment net sales | 607,112 | | | 21,143 | | | 628,255 | |
| Total net sales | $ | 2,559,353 | | | $ | 236,813 | | | $ | 2,796,166 | |
| | | | | | | | | | | | | | | | | |
| | | 2019 | | |
| (In thousands) | U.S. (a) | | Int’l (b) | | Total |
| OEM Segment: | | | | | |
| RV OEMs: | | | | | |
| Travel trailers and fifth-wheels | $ | 1,264,404 | | | $ | 12,314 | | | $ | 1,276,718 | |
| Motorhomes | 110,405 | | | 45,218 | | | 155,623 |
| Adjacent Industries OEMs | 587,521 | | | 72,039 | | | 659,560 |
| Total OEM Segment net sales | 1,962,330 | | | 129,571 | | | 2,091,901 | |
| Aftermarket Segment: | | | | | |
| Total Aftermarket Segment net sales | 263,382 | | | 16,199 | | | 279,581 | |
| Total net sales | $ | 2,225,712 | | | $ | 145,770 | | | $ | 2,371,482 | |
| | | | | | | | | | | | | | | | | |
| | | 2018 | | |
| (In thousands) | U.S. (a) | | Int’l (b) | | Total |
| OEM Segment: | | | | | |
| RV OEMs: | | | | | |
| Travel trailers and fifth-wheels | $ | 1,431,574 | | | $ | 9,156 | | | $ | 1,440,730 | |
| Motorhomes | 143,488 | | | 43,809 | | | 187,297 |
| Adjacent Industries OEMs | 574,100 | | | 40,489 | | | 614,589 |
| Total OEM Segment net sales | 2,149,162 | | | 93,454 | | | 2,242,616 | |
| Aftermarket Segment: | | | | | |
| Total Aftermarket Segment net sales | 222,588 | | | 10,603 | | | 233,191 | |
| Total net sales | $ | 2,371,750 | | | $ | 104,057 | | | $ | 2,475,807 | |
| | | | | | | | | | | | | | | | | |
| | | 2018 | | |
| (In thousands) | U.S. (a) | | Int’l (b) | | Total |
| OEM Segment: | | | | | |
| RV OEMs: | | | | | |
| Travel trailers and fifth-wheels | $ | 1,431,574 | | | $ | 9,156 | | | $ | 1,440,730 | |
| Motorhomes | 143,488 | | | 43,809 | | | 187,297 |
| Adjacent Industries OEMs | 574,100 | | | 40,489 | | | 614,589 |
| Total OEM Segment net sales | 2,149,162 | | | 93,454 | | | 2,242,616 | |
| Aftermarket Segment: | | | | | |
| Total Aftermarket Segment net sales | 222,588 | | | 10,603 | | | 233,191 | |
| Total net sales | $ | 2,371,750 | | | $ | 104,057 | | | $ | 2,475,807 | |
| | | | | | | | | | | | | | | | | |
| | | 2017 | | |
| (In thousands) | U.S. (a) | | Int’l (b) | | Total |
| OEM Segment: | | | | | |
| RV OEMs: | | | | | |
| Travel trailers and fifth-wheels | $ | 1,403,079 | | | $ | 2,904 | | | $ | 1,405,983 | |
| Motorhomes | 138,895 | | | 20,522 | | | 159,417 |
| Adjacent Industries OEMs | 398,919 | | | 12,304 | | | 411,223 |
| Total OEM Segment net sales | 1,940,893 | | | 35,730 | | | 1,976,623 | |
| Aftermarket Segment: | | | | | |
| Total Aftermarket Segment net sales | 160,637 | | | 10,510 | | | 171,147 | |
| Total net sales | $ | 2,101,530 | | | $ | 46,240 | | | $ | 2,147,770 | |
(a) Net sales to customers in the United States of America
(b) Net sales to customers domiciled in countries outside of the United States of America
Long-lived assets, including net fixed assets, operating lease right-of-use assets, goodwill, and other net intangible assets, domiciled in countries outside of the United States of America were $306.8 million and $160.1 million as of December 31, 2020 and 2019, respectively.
Corporate expenses are allocated between the segments based upon net sales. Accretion related to contingent consideration and other non-segment items are included in the segment to which they relate. Information relating to segments follows for the years ended December 31:
| | | Segments | | | Corporate | | | Segments | | Corporate | |
| (In thousands) | (In thousands) | OEM | | Aftermarket | | Subtotal | | and Other | | Total | (In thousands) | OEM | | Aftermarket | | Subtotal | | and Other | | Total |
| | 2020 | | 2020 | |
Net sales to external customers (a) | | Net sales to external customers (a) | $ | 2,167,911 | | | $ | 628,255 | | | $ | 2,796,166 | | | $ | — | | | $ | 2,796,166 | |
Operating profit (b) | | Operating profit (b) | 156,092 | | | 66,842 | | | 222,934 | | | 0 | | | 222,934 | |
Total assets (c) | | Total assets (c) | 1,559,953 | | | 615,425 | | | 2,175,378 | | | 122,653 | | | 2,298,031 | |
Expenditures for long-lived assets (d) | | Expenditures for long-lived assets (d) | 284,109 | | | 15,150 | | | 299,259 | | | — | | | 299,259 | |
| Depreciation and amortization | | Depreciation and amortization | 74,088 | | | 23,892 | | | 97,980 | | | 0 | | | 97,980 | |
| | 2019 | 2019 | | 2019 | |
Net sales to external customers (a) | Net sales to external customers (a) | $ | 2,091,901 | | | $ | 279,581 | | | $ | 2,371,482 | | | $ | — | | | $ | 2,371,482 | | Net sales to external customers (a) | $ | 2,091,901 | | | $ | 279,581 | | | $ | 2,371,482 | | | $ | — | | | $ | 2,371,482 | |
Operating profit (b) | Operating profit (b) | 165,290 | | | 34,920 | | | 200,210 | | | — | | | 200,210 | | Operating profit (b) | 165,290 | | | 34,920 | | | 200,210 | | | 0 | | | 200,210 | |
Total assets (c) | Total assets (c) | 1,167,899 | | | 595,688 | | | 1,763,587 | | | 99,008 | | | 1,862,595 | | Total assets (c) | 1,167,899 | | | 595,688 | | | 1,763,587 | | | 99,008 | | | 1,862,595 | |
Expenditures for long-lived assets (d) | Expenditures for long-lived assets (d) | 166,331 | | | 302,857 | | | 469,188 | | | — | | | 469,188 | | Expenditures for long-lived assets (d) | 166,331 | | | 302,857 | | | 469,188 | | | — | | | 469,188 | |
| Depreciation and amortization | Depreciation and amortization | 70,136 | | | 5,222 | | | 75,358 | | | — | | | 75,358 | | Depreciation and amortization | 66,807 | | | 8,551 | | | 75,358 | | | 0 | | | 75,358 | |
| | 2018 | | 2018 | |
Net sales to external customers (a) | | Net sales to external customers (a) | $ | 2,242,616 | | | $ | 233,191 | | | $ | 2,475,807 | | | $ | — | | | $ | 2,475,807 | |
Operating profit (b) | | Operating profit (b) | 167,459 | | | 31,329 | | | 198,788 | | | 0 | | | 198,788 | |
Total assets (c) | | Total assets (c) | 1,034,254 | | | 129,776 | | | 1,164,030 | | | 79,863 | | | 1,243,893 | |
Expenditures for long-lived assets (d) | | Expenditures for long-lived assets (d) | 247,895 | | | 20,544 | | | 268,439 | | | — | | | 268,439 | |
| Depreciation and amortization | | Depreciation and amortization | 63,447 | | | 4,079 | | | 67,526 | | | 0 | | | 67,526 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Segments | | | | | | Corporate | | |
| (In thousands) | OEM | | Aftermarket | | Subtotal | | and Other | | Total |
| | | | | | | | | |
| | | | | | | | | |
| 2018 | | | | | | | | | |
Net sales to external customers (a) | $ | 2,242,616 | | | $ | 233,191 | | | $ | 2,475,807 | | | $ | — | | | $ | 2,475,807 | |
Operating profit (b) | 167,459 | | | 31,329 | | | 198,788 | | | — | | | 198,788 | |
Total assets (c) | 1,034,254 | | | 129,776 | | | 1,164,030 | | | 79,863 | | | 1,243,893 | |
Expenditures for long-lived assets (d) | 247,895 | | | 20,544 | | | 268,439 | | | — | | | 268,439 | |
| Depreciation and amortization | 63,447 | | | 4,079 | | | 67,526 | | | — | | | 67,526 | |
| | | | | | | | | |
| 2017 | | | | | | | | | |
Net sales to external customers (a) | $ | 1,976,623 | | | $ | 171,147 | | | $ | 2,147,770 | | | $ | — | | | $ | 2,147,770 | |
Operating profit (b) | 190,276 | | | 24,005 | | | 214,281 | | | — | | | 214,281 | |
Total assets (c) | 785,926 | | | 76,309 | | | 862,235 | | | 83,623 | | | 945,858 | |
Expenditures for long-lived assets (d) | 148,570 | | | 4,875 | | | 153,445 | | | — | | | 153,445 | |
| Depreciation and amortization | 50,751 | | | 3,662 | | | 54,413 | | | 314 | | | 54,727 | |
(a) ThorThor Industries, Inc. (“Thor”), a customer of both segments, accounted for 21 percent, 27 percent, 31 percent, and 3831 percent of the Company’s consolidated net sales for the years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively. Berkshire Hathaway Inc. (through its subsidiaries Forest River, Inc. and Clayton Homes, Inc.), a customer of both segments, accounted for 19 percent, 21 percent, 23 percent, and 2523 percent of the Company’s consolidated net sales for the years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively. No other customer accounted for more than 10 percent of consolidated net sales in the years ended December 31, 2020, 2019, 2018, and 2017.2018.
(b) Certain general and administrative expenses are allocated between the segments based upon net sales or operating profit, depending upon the nature of the expense.
(c) Segment assets include accounts receivable, inventories, fixed assets, goodwill and other intangible assets. Corporate and other assets include cash and cash equivalents, prepaid expenses and other current assets, deferred taxes, and other assets.
(d) Expenditures for long-lived assets include capital expenditures, as well as fixed assets, goodwill and other intangible assets purchased as part of the acquisition of businesses. The Company purchased $299.3 million, $395.6 million, $150.9 million, and $65.0$150.9 million of long-lived assets, as part of the acquisitions of businesses in the years ended December 31, 2020, 2019, 2018, and 2017,2018, respectively.
Net sales by OEM Segment product were as follows for the years ended December 31:
| | (In thousands) | (In thousands) | 2019 | | 2018 | | 2017 | (In thousands) | 2020 | | 2019 | | 2018 |
| OEM Segment: | OEM Segment: | | | | | | OEM Segment: | | | | | |
| Chassis, chassis parts, and slide-out mechanisms | Chassis, chassis parts, and slide-out mechanisms | $ | 796,434 | | | $ | 908,065 | | | $ | 914,397 | | Chassis, chassis parts, and slide-out mechanisms | $ | 815,706 | | | $ | 796,434 | | | $ | 908,065 | |
| Windows and doors | Windows and doors | 585,464 | | | 615,644 | | | 424,625 | | Windows and doors | 620,372 | | | 585,464 | | | 615,644 | |
| Furniture and mattresses | Furniture and mattresses | 342,691 | | | 380,514 | | | 342,680 | | Furniture and mattresses | 351,107 | | | 342,691 | | | 380,514 | |
| Axles and suspension solutions | Axles and suspension solutions | 129,471 | | | 122,897 | | | 123,513 | | Axles and suspension solutions | 145,989 | | | 129,471 | | | 122,897 | |
| Other | Other | 237,841 | | | 215,496 | | | 171,408 | | Other | 234,737 | | | 237,841 | | | 215,496 | |
| Total OEM Segment net sales | Total OEM Segment net sales | 2,091,901 | | | 2,242,616 | | | 1,976,623 | | Total OEM Segment net sales | 2,167,911 | | | 2,091,901 | | | 2,242,616 | |
| Total Aftermarket Segment net sales | Total Aftermarket Segment net sales | 279,581 | | | 233,191 | | | 171,147 | | Total Aftermarket Segment net sales | 628,255 | | | 279,581 | | | 233,191 | |
| Total net sales | Total net sales | $ | 2,371,482 | | | $ | 2,475,807 | | | $ | 2,147,770 | | Total net sales | $ | 2,796,166 | | | $ | 2,371,482 | | | $ | 2,475,807 | |
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Interim unaudited financial information follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands, except per share amounts) | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Year |
| Year ended December 31, 2019 | | | | | | | | | |
| Net sales | $ | 592,172 | | | $ | 629,068 | | | $ | 586,221 | | | $ | 564,021 | | | $ | 2,371,482 | |
| Gross profit | 132,594 | | | 148,653 | | | 135,473 | | | 122,482 | | | 539,202 | |
| Income before income taxes | 45,248 | | | 63,558 | | | 47,253 | | | 35,355 | | | 191,414 | |
| Net income | 34,366 | | | 47,527 | | | 35,809 | | | 28,807 | | | 146,509 | |
| | | | | | | | | |
| Net income per common share: | | | | | | | | | |
| Basic | $ | 1.38 | | | $ | 1.90 | | | $ | 1.43 | | | $ | 1.15 | | | $ | 5.86 | |
| Diluted | $ | 1.38 | | | $ | 1.89 | | | $ | 1.42 | | | $ | 1.14 | | | $ | 5.84 | |
| | | | | | | | | |
| Stock market price: | | | | | | | | | |
| High | $ | 86.13 | | | $ | 97.77 | | | $ | 95.52 | | | $ | 109.79 | | | $ | 109.79 | |
| Low | $ | 64.70 | | | $ | 75.59 | | | $ | 92.93 | | | $ | 87.15 | | | $ | 64.70 | |
| Close (at end of quarter) | $ | 76.82 | | | $ | 90.00 | | | $ | 91.85 | | | $ | 107.13 | | | $ | 107.13 | |
| | | | | | | | | |
| Year ended December 31, 2018 | | | | | | | | | |
| Net sales | $ | 650,492 | | | $ | 684,455 | | | $ | 604,244 | | | $ | 536,616 | | | $ | 2,475,807 | |
| Gross profit | 140,733 | | | 150,456 | | | 125,901 | | | 103,254 | | | 520,344 | |
| Income before income taxes | 58,719 | | | 62,428 | | | 43,633 | | | 27,572 | | | 192,352 | |
| Net income | 47,336 | | | 47,224 | | | 33,812 | | | 20,179 | | | 148,551 | |
| | | | | | | | | |
| Net income per common share: | | | | | | | | | |
| Basic | $ | 1.88 | | | $ | 1.87 | | | $ | 1.34 | | | $ | 0.80 | | | $ | 5.90 | |
| Diluted | $ | 1.86 | | | $ | 1.86 | | | $ | 1.33 | | | $ | 0.80 | | | $ | 5.83 | |
| | | | | | | | | |
| Stock market price: | | | | | | | | | |
| High | $ | 132.30 | | | $ | 104.90 | | | $ | 102.23 | | | $ | 80.89 | | | $ | 132.30 | |
| Low | $ | 99.46 | | | $ | 80.95 | | | $ | 98.40 | | | $ | 59.68 | | | $ | 59.68 | |
| Close (at end of quarter) | $ | 104.15 | | | $ | 90.15 | | | $ | 69.35 | | | $ | 66.80 | | | $ | 66.80 | |
The sum of per share amounts for the four quarters may not equal the total per share amounts for the year as a result of changes in the weighted average common shares outstanding or rounding.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Item 9A. CONTROLS AND PROCEDURES.
The Company maintainsWe maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’sour reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to the Company’sour management, including itsour Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, in accordance with the definition of “disclosure controls and procedures” in Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the desired control objectives. Management included in its evaluation the cost-benefit relationship of possible controls and procedures. The CompanyWe continually evaluates itsevaluate our disclosure controls and procedures to determine if changes are appropriate based upon changes in the Company’sour operations or the business environment in which it operates.we operate.
As of the end of the period covered by this Form 10-K, the Companywe performed an evaluation, under the supervision and with the participation of the Company’sour management, including the Company’sour Chief Executive Officer and the Company’sour Chief Financial Officer, of the effectiveness of the design and operation of the Company’sour disclosure controls and procedures. Based on the foregoing, the Company’sour Chief Executive Officer and Chief Financial Officer concluded that the Company’sour disclosure controls and procedures were effective as of December 31, 2019.2020.
(a) Management’s Annual Report on Internal Control over Financial Reporting.
We are responsible for the preparation and integrity of the Consolidated Financial Statements appearing in this Annual Report on Form 10-K. We are also responsible for establishing and maintaining adequate internal control over financial reporting for the Company. We maintain a system of internal control that is designed to provide reasonable assurance as to the fair and reliable preparation and presentation of the Consolidated Financial Statements, as well as to safeguard assets from unauthorized use or disposition. The CompanyWe continually evaluates itsevaluate our system of internal control over financial reporting to determine if changes are appropriate based upon changes in the Company’sour operations or the business environment in which it operates.we operate.
Our control environment is the foundation for our system of internal control over financial reporting and is embodied in our Guidelines for Business Conduct. It sets the tone of our organization and includes factors such as integrity and ethical values. Our internal control over financial reporting is supported by formal policies and procedures which are reviewed, modified and improved as changes occur in business conditions and operations.
We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Although there are inherent limitations in the effectiveness of any system of internal control over financial reporting, based on our evaluation, we have concluded that our internal control over financial reporting was effective as of December 31, 2019.2020.
During 2019,2020, the Company completed the CURT Acquisition Holdings, Inc. (CURT), Lewmar Marine Ltd. (Lewmar), Rodan Enterprises,Challenger Door, LLC (SureShade), Ciesse Holdings S.r.l (Ciesse), Lavet S.r.l. (Lavet)(Challenger), and Femto Engineering S.r.l. (Femto)Veada Industries, Inc. (Veada) acquisitions, which contributed $65.4$8.1 million of net sales for the year ended December 31, 2019.2020. Total assets from these acquisitions as of December 31, 20192020 were $568$138.9 million. As the CURT, Lewmar, SureShade, Ciesse, Lavet,Challenger and FemtoVeada acquisitions occurred in the year ended December 31, 2019,2020, the scope of the Company’sCompany's evaluation of the effectiveness of internal control over financial reporting does not include CURT, Lewmar, SureShade, Ciesse, Lavet,Challenger and Femto.Veada. This exclusion is in accordance with the SEC’s general guidance that an assessment of a recently acquired business may be omitted from the Company’sCompany's scope in the year of acquisition.
KPMG LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Annual Report on Form 10-K and, as part of their audit, has issued their attestation report on the effectiveness of our internal control over financial reporting, included elsewhere in this Form 10-K.
(b) Report of the Independent Registered Public Accounting Firm.
The report is included in Item 8. “Financial Statements and Supplementary Data.”
(c) Changes in Internal Control over Financial Reporting.
During the year ended December 31, 2019, the Company implemented controls to support the adoption of ASU 2016-02, Leases (Topic 842). There were no other changes in the Company’sour internal control over financial reporting during the quarter ended December 31, 2019,2020, that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.
The CompanyWe began implementation of a new enterprise resource planning (“ERP”) system in late 2013. To date, 34 locations have been put on this ERP system. The roll-out plan is continually evaluated in the context of priorities for the business and may change as needs of the business dictate. The Company anticipatesWe anticipate enhancements to controls due to both the installation of the new ERP system and business process changes resulting therefrom.
Item 9B. OTHER INFORMATION.
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Information with respect to the Company’sour directors, executive officers and corporate governance is incorporated by reference from the information contained under the proposal entitled “Election of Directors” and under the caption “Corporate Governance and Related Matters – Board Committees” in the Company’sour Proxy Statement for the Annual Meeting of Stockholders to be held on May 21, 202020, 2021 (the “2020“2021 Proxy Statement”) and from the information contained under “Information About our Executive Officers” in Part I, Item 1, “Business,” in this Report.
Information regarding Section 16 reporting compliance is incorporated by reference from the information contained under the caption “Voting Securities – Delinquent Section 16(a) Reports” in the Company’s 2020our 2021 Proxy Statement.
The Company hasWe have adopted Governance Principles, Guidelines for Business Conduct, a Whistleblower Policy, and a Code of Ethics for Senior Financial Officers (“Code of Ethics”), each of which, as well as the Charters and Key Practices, as applicable, of the Company’sour Audit Committee, Risk Committee, Compensation Committee, Corporate Governance and Nominating Committee, and Strategy and Acquisition Committee, are available on the Company’sour website at www.lci1.com/investors. A copy of any of these documents will be furnished, without charge, upon written request to Secretary, LCI Industries, 3501 County Road 6 East, Elkhart, Indiana 46514.
If the Company makeswe make any substantive amendment to the Code of Ethics or the Guidelines for Business Conduct, or grantsgrant a waiver to a director or executive officer from a provision of the Code of Ethics or the Guidelines for Business Conduct, the Companywe will disclose the nature of such amendment or waiver on itsour website or in a Current Report on Form 8-K. There have been no waivers to directors or executive officers of any provisions of the Code of Ethics or the Guidelines for Business Conduct.
Item 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the information contained under the captions “Executive Compensation,” “Director Compensation,” “CEO Pay Ratio,” and “Transactions with Related Persons - Compensation Committee Interlocks and Insider Participation” in the Company’s 2020our 2021 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by this item is incorporated by reference from the information contained under the captions “Voting Securities – Principal Holders of Voting Securities” and “Voting Securities – Security Ownership of Certain Beneficial Owners and Management” in the Company’s 2020our 2021 Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item with respect to transactions with related persons and director independence is incorporated by reference from the information contained under the captions “Transactions with Related Persons” and “Corporate Governance and Related Matters – Board of Directors and Director Independence” in the Company’s 2020our 2021 Proxy Statement.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this item is incorporated by reference from the information contained under the proposal entitled “Ratification of Appointment of Auditors – Fees for Independent Auditors” in the Company’s 2020our 2021 Proxy Statement.
PART IV
ITEM 15. EXHIBITS, AND FINANCIAL STATEMENT SCHEDULES.
(a)Documents Filed:
(1)Financial Statements.
(2)Exhibits. See Item 15 (b) - “List of Exhibits” incorporated herein by reference.
(b)Exhibits - List of Exhibits.
EXHIBIT INDEX
| | | | | |
Exhibit Number | Description |
| Stock Purchase Agreement, dated as of November 21, 2019, by and amoungamong Lippert Components, Inc., Curt Acquisition Holdings, LLC and Curt Acquisition Holdings, Inc. (incorporated by reference to Exhibit 2.1 included in the Registrant's Form 8-K filed November 22, 2019). |
| LCI Industries Restated Certificate of Incorporation, as amended effective December 30, 2016 (incorporated by reference to Exhibit 3.1 included in the Registrant's Form 10-K for the year ended December 31, 2016). |
| Amended and Restated Bylaws of LCI Industries, as amended May 25, 2017 (incorporated by reference to Exhibit 3.2 included in the Registrant’s Form 8-K filed on May 31, 2017). |
| Description of Registrant's Securities Registered under Section 12 of the Securities Exchange Act of 1934, as amended.amended (incorporated by reference to Exhibit 4.1 included in the Registrant's Form 10-K for the year ended December 31, 2019). |
| Form of Indemnification Agreement between Registrant and its officers and independent directors (incorporated by reference to Exhibit 10.1 included in the Registrant's Form 8-K filed on May 26, 2015). |
| Executive Non-Qualified Deferred Compensation Plan, as amended (incorporated by reference to Exhibit 10.231 included in the Registrant's Form 10-K for the year ended December 31, 2015). |
| LCI Industries Equity Award and Incentive Plan, As Amended and Restated (incorporated by reference to Appendix A included in the Registrant’s Definitive Proxy Statement on Schedule 14A filed on April 11, 2014). |
| Form of Executive Employment Agreement (incorporated by reference to Exhibit 10.1 included in the Registrant's Form 8-K filed March 4, 2015). |
| Form of Performance Stock Award (incorporated by reference to Exhibit 10.3 included in the Registrant's Form 8-K filed March 4, 2015). |
| Form of Deferred Stock Award (incorporated by reference to Exhibit 10.4 included in the Registrant's Form 8-K filed March 4, 2015). |
| | | | | |
Exhibit Number
| Description |
| Fourth Amended and Restated Pledge and Security Agreement dated as of April 27, 2016, made by Drew Industries Incorporated, Lippert Components, Inc. and certain subsidiaries thereof, in favor of JPMorgan Chase Bank, N.A. as Collateral Agent (incorporated by reference to Exhibit 10.3 included in the Registrant's Form 8-K filed May 3, 2016). |
| Fourth Amended and Restated Company Guarantee Agreement dated as of April 27, 2016, made by Drew Industries Incorporated, with and in favor of JPMorgan Chase Bank, N.A. as Administrative Agent (incorporated by reference to Exhibit 10.4 included in the Registrant's Form 8-K filed May 3, 2016). |
| Fourth Amended and Restated Subsidiary Guarantee Agreement dated as of April 27, 2016, made by certain subsidiaries of Drew Industries Incorporated and Lippert Components, Inc., with and in favor of JPMorgan Chase Bank, N.A. as Administrative Agent (incorporated by reference to Exhibit 10.5 included in the Registrant's Form 8-K filed May 3, 2016). |
| Fourth Amended and Restated Subordination Agreement dated as of April 27, 2016, made by Drew Industries Incorporated and certain subsidiaries of Drew Industries Incorporated, with and in favor of JPMorgan Chase Bank, N.A. as Administrative Agent (incorporated by reference to Exhibit 10.6 included in the Registrant's Form 8-K filed May 3, 2016). |
| | | | | |
Exhibit Number | Description |
| Second Amended and Restated Parent Guarantee Agreement dated as of April 27, 2016, made by Drew Industries Incorporated in favor of PGIM, Inc. and the Noteholders thereto from time to time (incorporated by reference to Exhibit 10.9 included in the Registrant's Form 8-K filed May 3, 2016). |
| Second Amended and Restated Subsidiary Guarantee Agreement dated as of April 27, 2016, made by certain subsidiaries (other than Lippert Components, Inc.) of Drew Industries Incorporated, in favor of PGIM, Inc. and the Noteholders thereto from time to time (incorporated by reference to Exhibit 10.10 included in the Registrant's Form 8-K filed May 3, 2016). |
| Second Amended and Restated Pledge and Security Agreement dated as of April 27, 2016, made by Drew Industries Incorporated, Lippert Components, Inc., Lippert Components Manufacturing, Inc. and the other Subsidiary Guarantors, in favor of JPMorgan Chase Bank, N.A., as Collateral Agent for the benefit of the Noteholders (incorporated by reference to Exhibit 10.11 included in the Registrant's Form 8-K filed May 3, 2016). |
| Second Amended and Restated Subordination Agreement dated as of April 27, 2016, made by Lippert Components, Inc., Drew Industries Incorporated and certain subsidiaries of Drew Industries Incorporated, with and in favor of PGIM, Inc. and the Noteholders thereto from time to time (incorporated by reference to Exhibit 10.12 included in the Registrant's Form 8-K filed May 3, 2016). |
| Second Amended and Restated Collateral Agency Agreement dated as of April 27, 2016, by and among Lippert Components, Inc. and PGIM, Inc. and the Noteholders thereto from time to time, and JPMorgan Chase Bank, N.A. as collateral agent for the Noteholders (incorporated by reference to Exhibit 10.13 included in the Registrant's Form 8-K filed May 3, 2016). |
| Third Amended and Restated Intercreditor Agreement dated as of April 27, 2016 by and among PGIM, Inc. and Affiliates, JPMorgan Chase Bank, N.A. (as Administrative Agent, as Credit Agreement Collateral Agent and Notes Collateral Agent) (incorporated by reference to Exhibit 10.14 included in the Registrant's Form 8-K filed May 3, 2016). |
| Grantor Trust Agreement, effective January 15, 2017, by and between LCI Industries and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.318 included in the Registrant's Form 10-K for the year ended December 31, 2016). |
| Second Amended and Restated Executive Non-Qualified Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 included in the Registrant's Form 8-K filed on March 22, 2017). |
| LCI Industries Performance Stock Unit Award Agreement Pursuant to LCI Industries Equity Award and Incentive Plan, As Amended and Restated (ROIC) (incorporated by reference to Exhibit 10.2 included in the Registrant’s Form 8-K filed March 5, 2018). |
| LCI Industries Performance Stock Unit Award Agreement Pursuant to LCI Industries Equity Award and Incentive Plan, As Amended and Restated (EPS) (incorporated by reference to Exhibit 10.3 included in the Registrant’s Form 8-K filed March 5, 2018). |
| | | | | |
Exhibit Number
| Description |
| LCI Industries Restricted Stock Unit Award Agreement Pursuant to LCI Industries Equity Award and Incentive Plan, As Amended and Restated (Executive Officers) (incorporated by reference to Exhibit 10.4 included in the Registrant’s Form 8-K filed March 5, 2018). |
| LCI Industries Restricted Stock Unit Award Agreement Pursuant to LCI Industries Equity Award and Incentive Plan, As Amended and Restated (Directors) (incorporated by reference to Exhibit 10.5 included in the Registrant’s Form 8-K filed March 5, 2018). |
| LCI Industries 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 included in the Registrant’s Form 8-K filed May 29, 2018). |
| Form of Restricted Stock Unit Award Agreement (Executives) under the LCI Industries 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 included in the Registrant’s Form 8-K filed May 29, 2018). |
| Form of Performance Stock Unit Award Agreement (EPS) under the LCI Industries 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.3 included in the Registrant’s Form 8-K filed May 29, 2018). |
| Form of Performance Stock Unit Award Agreement (ROIC) under the LCI Industries 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.4 included in the Registrant’s Form 8-K filed May 29, 2018). |
| Form of Restricted Stock Unit Award Agreement (Non-Employee Directors) under the LCI Industries 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.5 included in the Registrant’s Form 8-K filed May 29, 2018). |
| | | | | |
Exhibit Number | Description |
| Form of Deferred Stock Unit Master Agreement (Non-Employee Directors) under the LCI Industries 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.6 included in the Registrant’s Form 8-K filed May 29, 2018). |
| Form of Agreement for Common Stock in Lieu of Cash Compensation for Non-Employee Directors (incorporated by reference to Exhibit 10.7 included in the Registrant’s Form 8-K filed May 29, 2018). |
| Separation and General Release Agreement, dated as of November 16, 2018, by and between Lippert Components, Inc. and Scott T. Mereness (incorporated by reference to Exhibit 10.1 included in the Registrant’s Form 8-K filed November 19, 2018). |
| Fourth Amended and Restated Credit Agreement dated December 14, 2018 among LCI Industries, Lippert Components, Inc., LCI Industries B.V., LCI Industries C.V., JPMorgan Chase Bank, N.A., individually and as Administrative Agent, Wells Fargo Bank, N.A., individually and as Syndication Agent, Bank of America, N.A., individually and as Documentation Agent, and a syndicate of other lenders (incorporated by reference to Exhibit 10.1 included in the Registrant’s Form 8-K filed December 19, 2018). |
| Form of 2019 Performance Stock Unit Award Agreement under the LCI Industries 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 included in the Registrant’s Form 8-K filed March 12, 2019). |
| Form of Restricted Stock Unit Award Agreement (Executives) under the LCI Industries 2018 Omnibus Incentive Plan (Revised February 2019) (incorporated by reference to Exhibit 10.2 included in the Registrant’s Form 8-K filed March 12, 2019). |
| Form of Extension Agreement with certain officers (incorporated by reference to Exhibit 10.3 included in the Registrant’s Form 8-K filed March 12, 2019). |
| Form of Series B Note of Lippert Components, Inc. issued pursuant to the Fourth Amended and Restated Note Purchase and Private Shelf Agreement (incorporated by reference to Exhibit 10.1 included in the Registrant’s Form 8-K filed April 2, 2019). |
| LCI Industries 2019 Annual Incentive Program (incorporated by reference to Exhibit 10.1 included in the Registrant’s Form 10-Q/A filed June 21, 2019). |
| Form of Restricted Stock Unit Award Agreement (Non-Employee Directors) under the LCI Industries 2018 Omnibus Incentive Plan (Revised February 2019) (incorporated by reference to Exhibit 10.2 included in the Registrant’s Form 10-Q/A filed June 21, 2019). |
| | | | | |
Exhibit Number
| Description |
| Form of Deferred Stock Unit Master Agreement (Non-Employee Directors) under the LCI Industries 2018 Omnibus Incentive Plan (Revised February 2019) (incorporated by reference to Exhibit 10.3 included in the Registrant’s Form 10-Q/A filed June 21, 2019). |
| Fifth Amended and Restated Note Purchase and Private Shelf Agreement dated as of November 11, 2019, by and among PGIM, Inc. and certain of its affiliates, Lippert Components, Inc., guaranteed by LCI Industries (incorporated by reference to Exhibit 10.1 included in the Registrant’s Form 8-K filed November 14, 2019). |
| Incremental Joinder and Amendment No. 1, dated as of December 19, 2019, among LCI Industries, Lippert Components, Inc., LCI Industries B.V., LCI Industries C.V., LCI Industries Pte. Ltd., the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 included in the Registrant’s Form 8-K filed December 19, 2019). |
| Fourth Amended and Restated Credit Agreement dated December 14, 2018 among LCI Industries, Lippert Components, Inc., LCI Industries B.V., LCI Industries C.V., JPMorgan Chase Bank, N.A., individually and as Administrative Agent, Wells Fargo Bank, N.A., individually and as Syndication Agent, Bank of America, N.A., individually and as Documentation Agent, and a syndicate of other lenders, as amended by Incremental Joinder and Amendment No. 1, dated as of December 19, 2019.2019 (incorporated by reference to Exhibit 10.355 to the Registrant's Form 10-K for the year ended December 31, 2019). |
| Consent and Amendment to Fifth Amended and Restated Note Purchase and Private Shelf Agreement, dated as of March 31, 2020, among Lippert Components, Inc., LCI Industries, PGIM, Inc. and the Noteholders party thereto (incorporated by reference to Exhibit 10.1 included in the Registrant’s Form 10-Q filed May 7, 2020). |
| | | | | |
Exhibit Number | Description |
| Form of Performance Stock Unit Award Agreement under the LCI Industries 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-Q filed May 7, 2020). |
| Second Amendment to Fifth Amended and Restated Note Purchase and Private Shelf Agreement, dated as of September 21, 2020, among Lippert Components, Inc., LCI Industries, PGIM, Inc and the noteholders party thereto (incorporated by reference to Exhibit 10.1 included in the Registrant's Form 10-Q filed November 2, 2020). |
| Subsidiaries of the Registrant. |
| Consent of Independent Registered Public Accounting Firm. |
| Powers of Attorney (included on the signature page of this Report). |
| Certification of Chief Executive Officer required by Rule 13a-14(a). |
| Certification of Chief Financial Officer required by Rule 13a-14(a). |
| Certification of Chief Executive Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code. |
| Certification of Chief Financial Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code. |
| 101* | The following financial information from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019,2020, formatted in Inline XBRL: (i) Consolidated Statements of Income; (ii) Consolidated Statements of Comprehensive Income; (iii) Consolidated Balance Sheets; (iv) Consolidated Statements of Cash Flows; (v) Consolidated Statements of Stockholders’ Equity; and (vi) Notes to Consolidated Financial Statements. |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
*Filed herewith
†Denotes a management contract or compensation plan or arrangement
Item 16. FORM 10-K SUMMARY.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | |
| Date: | February 27, 202025, 2021 | LCI INDUSTRIES | | |
| | | | |
| | By: | /s/ Jason D. Lippert | |
| | | Jason D. Lippert | |
| | | Chief Executive Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Each person whose signature appears below hereby authorizes Jason D. Lippert and Brian M. Hall, or either of them, to file one or more amendments to the Annual Report on Form 10-K which amendments may make such changes in such Report as either of them deems appropriate, and each such person hereby appoints Jason D. Lippert and Brian M. Hall, or either of them, as attorneys-in-fact to execute in the name and on behalf of each such person individually, and in each capacity stated below, such amendments to such Report.
| | | | | | | | |
| Date | Signature | Title |
| | |
February 27, 202025, 2021 | By: /s/ Jason D. Lippert (Jason D. Lippert) | Chief Executive Officer and Director (principal executive officer) |
| | |
February 27, 202025, 2021 | By: /s/ Brian M. Hall (Brian M. Hall) | Chief Financial Officer (principal financial officer) |
| | |
February 27, 202025, 2021 | By: /s/ Kip A. Emenhiser (Kip A. Emenhiser) | Corporate Controller and VP of Finance (principal accounting officer) |
| | |
February 27, 202025, 2021 | By: /s/ James F. Gero (James F. Gero) | Chairman of the Board of Directors |
| | |
February 27, 202025, 2021 | By: /s/ Frank J. Crespo (Frank J. Crespo) | Director |
| | |
February 27, 202025, 2021 | By: /s/ Brendan J. Deely (Brendan J. Deely) | Director |
| | |
February 27, 202025, 2021 | By: /s/ Ronald Fenech (Ronald Fenech) | Director |
| | |
February 27, 202025, 2021 | By: /s/ Tracy D. Graham (Tracy D. Graham) | Director |
| | |
February 27, 202025, 2021 | By: /s/ Virginia L. Henkels (Virginia L. Henkels) | Director |
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February 27, 202025, 2021 | By: /s/ Kieran M. O’Sullivan (Kieran M. O’Sullivan) | Director |
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February 27, 202025, 2021 | By: /s/ David A. Reed (David A. Reed) | Director |
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February 27, 202025, 2021 | By: /s/ John A. Sirpilla (John A. Sirpilla) | Director |
