UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: SeptemberJune 30, 20172018

or
☐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
lciia01.jpglciindustrieslogojpeg.jpg
(Exact name of registrant as specified in its charter)

Delaware13-3250533
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification Number)
  
3501 County Road 6 East46514
Elkhart, Indiana(Zip Code)
(Address of principal executive offices) 
(574) 535-1125
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report) N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

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

Large accelerated filer ☒                           Accelerated filer ☐

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



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

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

The number of shares outstanding of the registrant’s common stock, as of the latest practicable date (October(July 31, 2017)2018) was 24,940,37325,215,661 shares of common stock.


LCI INDUSTRIES

TABLE OF CONTENTS

  Page
PART I – 
FINANCIAL INFORMATION
 
   
 
ITEM 1 – FINANCIAL STATEMENTS
 
   
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
4
   
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
5
   
 
CONDENSED CONSOLIDATED BALANCE SHEETS
6
   
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
7
   
 
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
8
   
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9
   
 
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
22
   
 
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
3332
   
 
ITEM 4 – CONTROLS AND PROCEDURES
3332
   
PART II –
OTHER INFORMATION
 
   
 
ITEM 1 – LEGAL PROCEEDINGS
3433
   
 
ITEM 1A – RISK FACTORS
3433
   
 
ITEM 6 – EXHIBITS
3433
   
SIGNATURES
3534
  
EXHIBIT 31.1 - SECTION 302 CEO CERTIFICATION 
  
EXHIBIT 31.2 - SECTION 302 CFO CERTIFICATION 
  
EXHIBIT 32.1 - SECTION 906 CEO CERTIFICATION 
  
EXHIBIT 32.2 - SECTION 906 CFO CERTIFICATION 




PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS

LCI INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

Nine Months Ended 
 September 30,		 Three Months Ended 
 September 30,		Six Months Ended 
 June 30,		 Three Months Ended 
 June 30,
2017 2016 2017 20162018 2017 2018 2017
(In thousands, except per share amounts)              
              
Net sales$1,600,633
 $1,275,999
 $554,814
 $412,370
$1,334,947
 $1,045,819
 $684,455
 $547,483
Cost of sales1,224,312
 945,104
 433,594
 306,820
1,043,758
 790,718
 533,999
 416,396
Gross profit376,321
 330,895
 121,220
 105,550
291,189
 255,101
 150,456
 131,087
Selling, general and administrative expenses206,225
 170,641
 73,293
 60,412
167,281
 132,932
 86,368
 68,047
Operating profit170,096
 160,254
 47,927
 45,138
123,908
 122,169
 64,088
 63,040
Interest expense, net1,162
 1,285
 311
 396
2,761
 851
 1,660
 414
Income before income taxes168,934
 158,969
 47,616
 44,742
121,147
 121,318
 62,428
 62,626
Provision for income taxes53,514
 55,597
 15,478
 14,898
26,587
 38,036
 15,204
 22,489
Net income$115,420
 $103,372

$32,138
 $29,844
$94,560
 $83,282

$47,224
 $40,137
              
Net income per common share:              
Basic$4.62
 $4.20
 $1.28
 $1.21
$3.75
 $3.34
 $1.87
 $1.61
Diluted$4.56
 $4.15
 $1.26
 $1.19
$3.70
 $3.29
 $1.86
 $1.59
              
Weighted average common shares outstanding:              
Basic24,993
 24,587
 25,060
 24,724
25,195
 24,959
 25,233
 24,992
Diluted25,332
 24,882
 25,459
 25,060
25,527
 25,296
 25,454
 25,305


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

LCI INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Nine Months Ended 
 September 30,		 Three Months Ended 
 September 30,		Six Months Ended 
 June 30,		 Three Months Ended 
 June 30,
2017 2016 2017 20162018 2017 2018 2017
(In thousands)              
              
Consolidated net income$115,420
 $103,372
 $32,138
 $29,844
Other comprehensive income (loss):       
Net income$94,560
 $83,282
 $47,224
 $40,137
Other comprehensive (loss) income:       
Net foreign currency translation adjustment4,077
 (595) 1,662
 164
(789) 2,415
 (1,900) 2,066
Total comprehensive income$119,497
 $102,777
 $33,800
 $30,008
$93,771
 $85,697
 $45,324
 $42,203


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



LCI INDUSTRIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

September 30, December 31,June 30, December 31,
2017 2016 20162018 2017 2017
(In thousands, except per share amount)          
          
ASSETS          
Current assets          
Cash and cash equivalents$19,762
 $95,060
 $86,170
$17,851
 $37,961
 $26,049
Accounts receivable, net139,144
 89,626
 57,374
Accounts receivable, net of allowances of $2,991, $2,226, and $1,536 at June 30, 2018, June 30, 2017, and December 31, 2017, respectively163,249
 130,514
 82,157
Inventories, net229,763
 161,312
 188,743
323,893
 202,635
 274,748
Prepaid expenses and other current assets45,384
 28,572
 35,107
43,961
 43,977
 34,125
Total current assets434,053
 374,570
 367,394
548,954
 415,087
 417,079
Fixed assets, net210,304
 153,167
 172,748
282,142
 203,204
 228,950
Goodwill123,001
 93,925
 89,198
151,831
 122,275
 124,183
Other intangible assets, net134,761
 109,553
 112,943
181,426
 138,876
 130,132
Deferred taxes32,380
 29,208
 31,989
17,947
 31,864
 24,156
Other assets21,277
 14,095
 12,632
22,513
 13,344
 21,358
Total assets$955,776
 $774,518
 $786,904
$1,204,813
 $924,650
 $945,858
          
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Accounts payable, trade$88,148
 $55,681
 $50,616
$99,085
 $80,596
 $79,164
Accrued expenses and other current liabilities109,849
 97,733
 98,735
104,281
 114,454
 102,849
Total current liabilities197,997
 153,414
 149,351
203,366
 195,050
 182,013
Long-term indebtedness49,918
 49,940
 49,949
215,327
 49,911
 49,924
Other long-term liabilities60,805
 39,796
 37,335
72,941
 59,934
 61,176
Total liabilities308,720
 243,150
 236,635
491,634
 304,895
 293,113
          
Stockholders’ equity          
Common stock, par value $.01 per share276
 273
 274
279
 276
 277
Paid-in capital201,814
 179,434
 185,981
200,306
 195,452
 203,990
Retained earnings472,154
 381,723
 395,279
540,411
 452,877
 475,506
Accumulated other comprehensive income (loss)2,279
 (595) (1,798)
Accumulated other comprehensive income1,650
 617
 2,439
Stockholders’ equity before treasury stock676,523
 560,835
 579,736
742,646
 649,222
 682,212
Treasury stock, at cost(29,467) (29,467) (29,467)(29,467) (29,467) (29,467)
Total stockholders’ equity647,056
 531,368
 550,269
713,179
 619,755
 652,745
Total liabilities and stockholders’ equity$955,776
 $774,518
 $786,904
$1,204,813
 $924,650
 $945,858


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


LCI INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended 
 September 30,		Six Months Ended 
 June 30,
2017 20162018 2017
(In thousands)      
Cash flows from operating activities:      
Net income$115,420
 $103,372
$94,560
 $83,282
Adjustments to reconcile net income to cash flows provided by operating activities:      
Depreciation and amortization39,856
 33,720
32,476
 25,530
Stock-based compensation expense15,042
 11,421
9,762
 9,312
Deferred taxes—
 183
Other non-cash items3,655
 1,728
(927) 2,198
Changes in assets and liabilities, net of acquisitions of businesses:      
Accounts receivable, net(69,720) (46,028)(52,236) (61,455)
Inventories, net(33,780) 13,451
(14,556) (6,804)
Prepaid expenses and other assets(18,662) (7,659)(5,743) (9,337)
Accounts payable, trade29,856
 23,827
5,412
 22,542
Accrued expenses and other liabilities27,192
 30,093
10,181
 31,431
Net cash flows provided by operating activities108,859
 164,108
78,929
 96,699
Cash flows from investing activities:      
Capital expenditures(60,342) (21,927)(54,539) (43,276)
Acquisitions of businesses, net of cash acquired(67,876) (34,237)(153,415) (67,876)
Proceeds from sales of fixed assets348
 533
Proceeds from note receivable2,000
 —
Other investing activities(105) (316)(1,016) 257
Net cash flows used for investing activities(127,975) (55,947)
Net cash flows used in investing activities(206,970) (110,895)
Cash flows from financing activities:      
Exercise of stock-based awards, net of shares tendered for payment of taxes(7,313) 409
(14,114) (7,543)
Proceeds from line of credit borrowings9,715
 81,458
631,148
 —
Repayments under line of credit borrowings(9,715) (81,458)(469,148) —
Proceeds from other borrowings4,509
 —
Payment of dividends(37,346) (22,078)(28,985) (24,887)
Payment of contingent consideration related to acquisitions(2,574) (2,719)(3,011) (1,524)
Other financing activities(59) (1,018)(556) (59)
Net cash flows used for financing activities(47,292) (25,406)
   
Net (decrease) increase in cash and cash equivalents(66,408) 82,755
   
Net cash flows provided by (used in) financing activities119,843
 (34,013)
Net decrease in cash and cash equivalents(8,198) (48,209)
Cash and cash equivalents at beginning of period86,170
 12,305
26,049
 86,170
Cash and cash equivalents at end of period$19,762
 $95,060
$17,851
 $37,961
      
Supplemental disclosure of cash flow information:      
Cash paid during the period for interest$1,291
 $1,525
$2,582
 $941
Cash paid during the period for income taxes, net of refunds$48,181
 $51,524
$24,907
 $17,620
Purchase of property and equipment in accrued expenses$1,205
 $279
$664
 $2,072

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


LCI INDUSTRIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)

 
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)      
Balance - December 31, 2016$274
$185,981
$395,279
$(1,798)$(29,467)$550,269
Net income—
—
115,420
—
—
115,420
Issuance of 190,753 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes2
(7,315)—
—
—
(7,313)
Stock-based compensation expense—
15,042
—
—
—
15,042
Issuance of 63,677 deferred stock units relating to prior year compensation—
6,907
—
—
—
6,907
Other comprehensive income—
—
—
4,077
—
4,077
Cash dividends ($1.50 per share)—
—
(37,346)—
—
(37,346)
Dividend equivalents on stock-based awards—
1,199
(1,199)—
—
—
Balance - September 30, 2017$276
$201,814
$472,154
$2,279
$(29,467)$647,056
 
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 Accumulated Other Comprehensive Income 
Treasury
Stock
 
Total
Stockholders’
Equity
(In thousands, except shares and per share amounts)           
Balance - December 31, 2017$277
 $203,990
 $475,506
 $2,439
 $(29,467) $652,745
Net income—
 —
 94,560
 —
 —
 94,560
Issuance of 226,187 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes2
 (14,116) —
 —
 —
 (14,114)
Stock-based compensation expense—
 9,762
 —
 —
 —
 9,762
Other comprehensive loss—
 —
 —
 (789) —
 (789)
Cash dividends ($1.15 per share)—
 —
 (28,985) —
 —
 (28,985)
Dividend equivalents on stock-based awards—
 670
 (670) —
 —
 —
Balance - June 30, 2018$279
 $200,306
 $540,411
 $1,650
 $(29,467) $713,179


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


LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.    BASIS OF PRESENTATION

The Condensed Consolidated Financial Statements include the accounts of LCI Industries and its wholly-owned subsidiaries (“LCII” and collectively with its subsidiaries, the “Company”). LCII has no unconsolidated subsidiaries. LCII, through its wholly-owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, “Lippert Components” or “LCI”), supplies, domestically and internationally, a broad array of engineered components for the leading original equipment manufacturers (“OEMs”) in the recreation and industrial product markets, consisting of recreational vehicles (“RVs”) and adjacent industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; pontoon boats; trains; manufactured homes; and modular housing. The Company also supplies components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors and service centers. At SeptemberJune 30, 2017,2018, the Company operated 52over 65 manufacturing and distribution facilities located throughout the United States and in Canada, Ireland, Italy and Italy.the United Kingdom.

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

The Condensed Consolidated Financial Statements presented herein have been prepared by the Company in accordance with the accounting policies described in its December 31, 2016 Annual Report on Form 10-K and should be read in conjunction with the Notes to Consolidated Financial Statements which appear in that report. All significant intercompany balances and transactions have been eliminated. Certain prior year balances have been reclassified to conform to current year presentation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to product returns, sales and purchase rebates, accounts receivable, inventories, goodwill and other intangible assets, net assets of acquired businesses, income taxes, warranty and product recall obligations, self-insurance obligations, lease terminations, asset retirement obligations, long-lived assets, post-retirement benefits, stock-based compensation, segment allocations, contingent consideration, environmental liabilities, contingencies and litigation. The Company bases its estimates on historical experience, other available information and various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other resources. Actual results and events could differ significantly from management estimates.

In the opinion of management, the information furnished in this Form 10-Q reflects all adjustments necessary for a fair statement of the financial position and results of operations for the interim periods presented. The Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q, and therefore do not include some information necessary to conform to annual reporting requirements.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Condensed Consolidated Financial Statements presented herein have been prepared by the Company in accordance with the accounting policies described in its December 31, 2017 Annual Report on Form 10-K and should be read in conjunction with the Notes to Consolidated Financial Statements which appear in that report. All significant intercompany balances and transactions have been eliminated. Certain prior year balances have been reclassified to conform to current year presentation.

Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends ASC 815, Derivatives and Hedging. This ASU better aligns an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. This ASU is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated financial statements.


9
LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which amends ASC 350, Intangibles - Goodwill and Other. This ASU simplifies how an entity is required to test goodwill for impairment by eliminating step 2 from the goodwill impairment test. Step 2 measures goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This ASU is effective for interim and annual reporting periods, beginning after December 15, 2019, and early adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU requires, in most instances, a lessee to recognize on its balance sheet a liability to make lease payments (the lease liability) and also a right of use asset representing its right to use the underlying asset for the lease term. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company will adopt ASU 2016-02 on January 1, 2019 using the modified retrospective approach. While the Company continues to execute on its implementation plan and is currently gathering lease data to derive the impact of adoption, the most significant expected change relates to the recognition of the new right-of-use assets and lease liabilities on the consolidated balance sheet for real estate, machinery and equipment, and vehicle operating leases. The Company does not expect the adoption to have a material impact to its consolidated statements of income or cash flows.

Recently adopted accounting pronouncements

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which amends ASC 230, Statement of Cash Flows. This ASU provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. This ASU is effective for annual and interim periods beginning after December 15, 2017, and should be applied retrospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Company adopted this ASU effective January 1, 2018, with retrospective disclosure. As a result, the Company reclassified $1.0 million of cash outflow from financing activities to cash outflow from operations for the six months ended June 30, 2017. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operations.

In May 2014, the FASB issued ASU 2014-09 (Topic 606), Revenue from Contracts with Customers. Topic 606 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method. The adoption did not result in a cumulative effect adjustment to beginning retained earnings. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company expects the impact of the adoption of the new standard to be immaterial to net income on an ongoing basis. See Note 3 for further detail.

3.     REVENUE

The Company recognizes revenue when performance obligations under the terms of contracts with customers are satisfied, which occurs with the transfer of control of the Company’s products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring its products to its customers. Sales, value add and other taxes collected concurrent with revenue-producing activities are excluded from revenue. Incidental items, such as training, customer service, instruction manuals and service requirements, are generally immaterial in the context of the contract and are recognized as expense.
For the majority of product sales, the Company transfers control and recognizes revenue when it ships the product from its facility to its customer. The amount of consideration the Company receives and the revenue recognized varies with sales discounts, volume rebate programs and indexed material pricing. When the Company offers customers retrospective volume rebates, it estimates the expected rebates based on an analysis of historical experience. The Company adjusts its estimate of revenue related to volume rebates at the earlier of when the most likely amount of consideration expected to receive 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

10
LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


the extent that it is probable that a significant reversal of cumulative revenue will not occur when the volume, discount or indexed material price uncertainties are resolved.
The Company has elected to recognize shipping and handling costs as fulfillment costs when control over products has transferred to the customer, and records the expense within selling, general and administrative expense.
See Note 12 - Segment Reporting for the Company’s disclosures of disaggregated revenue.
4.    ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

Acquisitions During the NineSix Months Ended SeptemberJune 30, 2018

STLA

In June 2018, the Company acquired 100 percent of the equity interests of ST.LA. S.R.L., (“STLA”), a manufacturer of bed lifts and other RV components for the European caravan market, headquartered in Pontedera, Italy. The preliminary purchase price was $14.8 million, net of cash acquired, paid at closing, and is subject to potential post-closing adjustments related to net working capital. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Condensed Consolidated Statements of Income since the acquisition date. The Company is validating account balances and finalizing the valuation for the acquisition. The acquisition of this business was preliminarily recorded on the acquisition date as follows (in thousands):
Cash consideration, net of cash acquired$14,845
  
Customer relationships and other identifiable intangible assets$7,000
Net tangible assets2,280
Total fair value of net assets acquired$9,280
  
Goodwill (not tax deductible)$5,565

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

Hehr

In February 2018, the Company acquired substantially all of the business assets of Hehr International Inc. (“Hehr”), a manufacturer of windows and tempered and laminated glass for the RV, transit, specialty vehicle and other adjacent industries, headquartered in Los Angeles, California. The preliminary purchase price was $50.1 million paid at closing, and is subject to potential post-closing adjustments related to net working capital. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Condensed Consolidated Statements of Income since the acquisition date. The Company is validating account balances and finalizing the valuation for the acquisition.

The acquisition of this business was preliminarily recorded on the acquisition date as follows (in thousands):
Cash consideration$50,125
  
Customer relationships and other identifiable intangible assets$25,500
Net tangible assets17,355
Total fair value of net assets acquired$42,855
  
Goodwill (tax deductible)$7,270


11
LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


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

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 preliminary purchase price was $88.4 million, net of cash acquired, paid at closing, and is subject to potential post-closing adjustments related to net working capital. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Condensed Consolidated Statements of Income since the acquisition date. The Company is validating account balances and finalizing the valuation for the acquisition. The acquisition of this business was preliminarily recorded on the acquisition date as follows (in thousands):
Cash consideration, net of cash acquired$88,445
  
Customer relationships$25,000
Other identifiable intangible assets7,000
Net tangible assets42,133
Total fair value of net assets acquired$74,133
  
Goodwill (tax deductible)$14,312

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

Acquisitions During the Six Months Ended June 30, 2017

Metallarte S.r.l.

In June 2017, the Company acquired 100 percent of the equity interests of Metallarte S.r.l. (“Metallarte”), a manufacturer of entry and compartment doors for the European caravan market located near Siena, Italy, and its subsidiary, RV Doors, S.r.l., a manufacturer of driver-side doors located near Venice, Italy. The purchase price was $14.1 million paid at closing, plus contingent consideration based on future sales by this operation. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Condensed Consolidated Statements of Income since the acquisition date. The Company is validating account balances and finalizing the valuation for the acquisition.

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


The acquisition of this business was preliminarily recorded on the acquisition date as follows (in thousands):
Cash consideration, net of cash acquired$13,501
$13,501
Contingent consideration2,366
2,366
Total fair value of consideration given$15,867
$15,867
  
Customer relationships$7,000
$7,311
Other identifiable intangible assets2,150
1,942
Net tangible assets167
Net other liabilities(327)
Total fair value of net assets acquired$9,317
$8,926
  
Goodwill (not tax deductible)$6,550
$6,941

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

12
LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Lexington

In May 2017, the Company acquired the business and certain assets of Lexington LLC (“Lexington”), a manufacturer of high quality seating solutions for the marine, RV, transportation, medical and office furniture industries located in Elkhart, Indiana. The purchase price was $40.1 million paid at closing. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Condensed Consolidated Statements of Income since the acquisition date. The Company is validating account balances and finalizing the valuation for the acquisition. The acquisition of this business was preliminarily recorded on the acquisition date as follows (in thousands):
Cash consideration$40,062
  
Customer relationships$16,900
Other identifiable intangible assets1,820
Net tangible assets4,928
Total fair value of net assets acquired$23,648
  
Goodwill (tax deductible)$16,414

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

Sessa Klein S.p.A.

In February 2017, the Company acquired 100 percent of the outstanding shares of Sessa Klein S.p.A. (“Sessa Klein”), a manufacturer of highly engineered side window systems for both high speed and commuter trains, located near Varese, Italy. The purchase price was $8.5$6.5 million paid at closing, net of cash acquired, plus contingent consideration based on future sales by this operation. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Condensed Consolidated Statements of Income since the acquisition date. The Company is validating account balances and finalizing the valuation for the acquisition.

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


The acquisition of this business was preliminarily recorded on the acquisition date as follows (in thousands):
Cash consideration, net of cash acquired$6,502
Contingent consideration4,922
Total fair value of consideration given$11,424
  
Customer relationships$3,189
Other identifiable intangible assets1,329
Net tangible assets585
Total fair value of net assets acquired$5,103
  
Goodwill (not tax deductible)$6,321

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

Acquisitions During the Nine Months Ended September 30, 2016

Project 2000 S.r.l.

In May 2016, the Company acquired 100 percent of the equity interest of Project 2000 S.r.l. (“Project 2000”), a manufacturer of innovative, space-saving bed lifts and retractable steps, located near Florence, Italy. The purchase price was $18.8 million paid at closing, plus contingent consideration based on future sales by this operation. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Consolidated Statements of Income since the acquisition date. The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration, net of cash acquired$16,618
Contingent consideration1,322
Total fair value of consideration given$17,940
  
Customer relationships$9,696
Other identifiable intangible assets6,141
Net other liabilities(3,482)
Total fair value of net assets acquired$12,355
  
Goodwill (not tax deductible)$5,585

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

Flair Interiors

In February 2016, the Company acquired the business and certain assets of Flair Interiors, Inc. (“Flair”), a manufacturer of RV furniture located in Goshen, Indiana. The purchase price was $8.1 million paid at closing. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Condensed Consolidated Statements of Income since the acquisition date.
LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration$8,100
  
Customer relationships$3,700
Net other assets2,378
Total fair value of net assets acquired$6,078
  
Goodwill (tax deductible)$2,022

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

Highwater Marine Furniture

In January 2016, the Company acquired the business and certain assets of the pontoon furniture manufacturing operation of Highwater Marine, LLC (“Highwater”), a leading manufacturer of pontoon and other recreational boats located in Elkhart, Indiana. The purchase price was $10.0 million paid at closing. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Condensed Consolidated Statements of Income since the acquisition date. The acquisition of this business was recorded on the acquisition date as follows (in thousands):
Cash consideration$10,000
  
Customer relationships$8,100
Net tangible assets1,307
Total fair value of net assets acquired$9,407
  
Goodwill (tax deductible)$593

The customer relationships intangible asset is being amortized over its estimated useful life of 15 years. The consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company anticipates leveraging its existing experience and manufacturing capacity with respect to these product lines.
Cash consideration, net of cash acquired$6,502
Contingent consideration3,838
Total fair value of consideration given$10,340
  
Identifiable intangible assets$2,286
Net tangible assets364
Total fair value of net assets acquired$2,650
  
Goodwill (not tax deductible)$7,690

Goodwill

Goodwill by reportable segment was as follows:
(In thousands)OEM Segment Aftermarket Segment Total
Net balance – December 31, 2016$74,663
 $14,535
 $89,198
Acquisitions – 201729,277
 —
 29,277
Other4,519
 7
 4,526
Net balance – September 30, 2017$108,459
 $14,542
 $123,001
(In thousands)OEM Segment Aftermarket Segment Total
Net balance – December 31, 2017$109,641
 $14,542
 $124,183
Acquisitions – 201823,921
 3,226
 27,147
Other501
 —
 501
Net balance – June 30, 2018$134,063
 $17,768
 $151,831

13
LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



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.

ChangesAny change in the goodwill amounts resulting from foreign currency translations and purchase accounting adjustments are presented as “Other” in the above table.

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


Other Intangible Assets

Other intangible assets consisted of the following at SeptemberJune 30, 2017:2018:
(In thousands)Gross
Cost		 Accumulated
Amortization		 Net
Balance		 Estimated Useful
Life in Years		Gross
Cost		 Accumulated
Amortization		 Net
Balance		 Estimated Useful
Life in Years
Customer relationships$138,941
 $39,792
 $99,149
 6to16$191,533
 $49,131
 $142,402
 6to16
Patents57,416
 37,277
 20,139
 3to1959,102
 40,351
 18,751
 3to19
Trade names10,416
 4,708
 5,708
 3to1516,440
 5,715
 10,725
 3to15
Non-compete agreements8,479
 3,609
 4,870
 3to68,261
 3,584
 4,677
 3to6
Other309
 101
 208
 2to12309
 125
 184
 2to12
Purchased research and development4,687
 —
 4,687
 Indefinite4,687
 —
 4,687
 Indefinite
Other intangible assets$220,248
 $85,487
 $134,761
  $280,332
 $98,906
 $181,426
  

Other intangible assets consisted of the following at SeptemberJune 30, 2016:2017:
(In thousands)Gross
Cost		 Accumulated
Amortization		 Net
Balance		 Estimated Useful
Life in Years		Gross
Cost		 Accumulated
Amortization		 Net
Balance		 Estimated Useful
Life in Years
Customer relationships$106,316
 $30,226
 $76,090
 6to16$138,258
 $37,190
 $101,068
 6to16
Patents55,172
 32,290
 22,882
 3to1957,202
 35,874
 21,328
 3to19
Trade names9,876
 5,332
 4,544
 3to1510,337
 4,068
 6,269
 3to15
Non-compete agreements4,569
 3,460
 1,109
 3to68,354
 3,046
 5,308
 3to6
Other309
 68
 241
 2to12309
 93
 216
 2to12
Purchased research and development4,687
 —
 4,687
 Indefinite4,687
 —
 4,687
 Indefinite
Other intangible assets$180,929
 $71,376
 $109,553
  $219,147
 $80,271
 $138,876
  

Other intangible assets consisted of the following at December 31, 2016:2017:
(In thousands)Gross
Cost		 Accumulated
Amortization		 Net
Balance		 Estimated Useful
Life in Years
Customer relationships$110,784
 $32,414
 $78,370
 6to16
Patents56,468
 34,066
 22,402
 3to19
Trade names10,041
 5,667
 4,374
 3to15
Non-compete agreements5,852
 2,975
 2,877
 3to6
Other309
 76
 233
 2to12
Purchased research and development4,687
 —
 4,687
 Indefinite
Other intangible assets$188,141
 $75,198
 $112,943
    

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

(In thousands)Gross
Cost		 Accumulated
Amortization		 Net
Balance		 Estimated Useful
Life in Years
Customer relationships$138,687
 $42,276
 $96,411
 6to16
Patents57,576
 38,764
 18,812
 3to19
Trade names10,995
 5,381
 5,614
 3to15
Non-compete agreements8,536
 4,128
 4,408
 3to6
Other309
 109
 200
 2to12
Purchased research and development4,687
 —
 4,687
 Indefinite
Other intangible assets$220,790
 $90,658
 $130,132
    

3.
5.    INVENTORIES

Inventories, valued at the lower of cost (first-in, first-out (FIFO) method) or market, consisted of the following at:
September 30, December 31,June 30, December 31,
(In thousands)2017 2016 20162018 2017 2017
Raw materials$191,680
 $127,708
 $155,044
$276,424
 $164,964
 $233,187
Work in process10,562
 11,227
 7,509
12,490
 10,358
 10,408
Finished goods27,521
 22,377
 26,190
34,979
 27,313
 31,153
Inventories, net$229,763
 $161,312
 $188,743
$323,893
 $202,635
 $274,748

4.6.    FIXED ASSETS

Fixed assets consisted of the following at:
September 30,
December 31,June 30,
December 31,
(In thousands)2017 2016 20162018 2017 2017
Fixed assets, at cost$396,789
 $313,057
 $337,362
$496,701
 $381,650
 $424,056
Less accumulated depreciation and amortization186,485
 159,890
 164,614
214,559
 178,446
 195,106
Fixed assets, net$210,304
 $153,167
 $172,748
$282,142
 $203,204
 $228,950


14
5.
LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


7.    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following at:
September 30, December 31,June 30, December 31,
(In thousands)2017 2016 20162018 2017 2017
Employee compensation and benefits$42,646
 $45,299
 $47,459
$34,230
 $36,861
 $39,365
Current portion of accrued warranty23,558
 19,607
 20,393
25,319
 21,705
 23,055
Taxes payable5,613
 —
 41
Income taxes payable2,591
 19,235
 3,561
Customer rebates11,120
 10,998
 9,329
12,063
 11,397
 11,124
Other26,912
 21,829
 21,513
30,078
 25,256
 25,744
Accrued expenses and other current liabilities$109,849
 $97,733
 $98,735
$104,281
 $114,454
 $102,849

Estimated costs related to product warranties are accrued at the time products are sold. In estimating its future warranty obligations, the Company considers various factors, including the Company’s (i) historical warranty costs, (ii) current trends, (iii) product mix, and (iv) sales. The following table provides a reconciliation of the activity related to the Company’s accrued warranty, including both the current and long-term portions, for the ninesix months ended SeptemberJune 30:
(In thousands)2017 2016  
Balance at beginning of period$32,393
 $26,204
  
Provision for warranty expense18,570
 15,494
  
Warranty liability from acquired businesses150
 125
  
Warranty costs paid(13,963) (10,833)  
Balance at end of period37,150
 30,990
  
Less long-term portion13,592
 11,383
  
Current portion of accrued warranty$23,558
 $19,607
  

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

(In thousands)2018 2017  
Balance at beginning of period$38,502
 $32,393
  
Provision for warranty expense16,132
 11,833
  
Warranty liability from acquired businesses482
 150
  
Warranty costs paid(11,510) (9,079)  
Balance at end of period43,606
 35,297
  
Less long-term portion18,287
 13,592
  
Current portion of accrued warranty$25,319
 $21,705
  

6.
8.    LONG-TERM INDEBTEDNESS

At September 30, 2017 and 2016, and December 31, 2016,Long-term debt consisted of the Company had no outstanding borrowings on its line of credit.following at:
 June 30, December 31,
(In thousands)2018 2017 2017
Line of Credit$161,999
 $—
 $—
Shelf Loan50,000
 50,000
 50,000
Other4,509
 —
 —
Unamortized deferred financing fees(707) (89) (76)
 215,801
 49,911
 49,924
Less current portion(474) —
 —
Long-term debt$215,327
 $49,911
 $49,924

On April 27, 2016, the Company refinanced its line of credit through an agreement with JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., Bank of America, N.A., and 1st Source Bank. The agreement amended and restated the existing line of credit which nowand expires on April 27, 2021 (the “Amended Credit Agreement”). In connection with this amendment and restatement, the line of credit was increased from $100.0 million to $200.0 million, and contains a feature allowing the Company to draw up to $50.0 million in approved foreign currencies, including Australian dollars, Canadian dollars, poundpounds sterling and euros. TheIn February 2018, the Company exercised its right to increase the maximum borrowings under the lineAmended Credit Agreement from $200 million to $325 million. The terms and conditions of credit can be further increased by $125.0 million, subject to certain conditions.this incremental amendment remain the same, although an additional LIBO Rate period of one week was added. Interest on borrowings under the line of credit is designated from time to time by the Company as either (i) the Alternate Base Rate (defined in the Amended Credit Agreement as the greatest of (a) the Prime Rate of JPMorgan Chase Bank, N.A., (b) the federal funds effective rate plus 0.5 percent and (c) the Adjusted LIBO Rate (as defined in the Amended

15
LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


Credit Agreement) for a one month interest period plus 1.0 percent), plus additional interest ranging from 0.0 percent to 0.625 percent (0.0 percent at SeptemberJune 30, 2017)2018) depending on the Company’s performance and financial condition, or (ii) the Adjusted LIBO Rate for a period equal to one week and one, two, three, six or twelve months as selected by the Company, plus additional interest ranging from 1.0 percent to 1.625 percent (1.0 percent at SeptemberJune 30, 2017)2018) depending on the Company’s performance and financial condition. At SeptemberJune 30, 20172018, the line of credit had a weighted average interest rate of 3.0 percent. At June 30, 2018 and 2016,2017, the Company had $2.4 million and $2.5 million, respectively, in issued, but undrawn, standby letters of credit under the line of credit. Availability under the Company’s line of credit was $197.6$160.6 million at SeptemberJune 30, 2017.2018.

On February 24, 2014, the Company entered into a $150.0 million “shelf-loan”shelf-loan facility (the “Shelf-Loan” Facility) with Prudential Investment Management, Inc. and its affiliates (“Prudential”). On March 20, 2015, the Company issued $50.0 million of Senior Promissory Notes (“Series A Notes”) to Prudential for a term of five years, at a fixed interest rate of 3.35 percent per annum, payable quarterly in arrears, of which the entire amount was outstanding at SeptemberJune 30, 2017. At September 30, 2017, the fair value of the Company’s long-term debt approximates the carrying value, as estimated using quoted market prices and discounted future cash flows based on similar borrowing arrangements.2018.

On March 30, 2017, the Company amended its “shelf-loan” facilityShelf-Loan Facility to extend the term through March 30, 2020. In connection with this amendment, the facility provides for Prudential to consider purchasing, at the Company’s request, in one or a series of transactions, Senior Promissory Notes of the Company in the aggregate principal amount of up to $150.0 million (excluding the Company’s Series A Notes already outstanding). Prudential has no obligation to purchase the Senior Promissory Notes. Interest payable on the Senior Promissory Notes will be at rates determined by Prudential within five business days after the Company issues a request to Prudential. Availability under the Company’s “shelf-loan” facilityShelf-Loan Facility was $150.0 million at SeptemberJune 30, 2017.2018. However, the Amended Credit Agreement limits the aggregate indebtedness outstanding to Prudential from time to time to $150.0 million; therefore, currently the Company can only access an additional $100.0 million under the shelf-loan facility. The Company is currently discussing a proposed amendment to the Amended Credit Agreement with JPMorgan Chase and the other lenders to address this limitation.Shelf-Loan Facility.

Borrowings under both the line of credit and the “shelf-loan” facilityShelf-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,Shelf-Loan Facility, the Company is required to maintain minimum interest and fixed charge coverages, and to meet certain other financial requirements. At SeptemberJune 30, 20172018 and 2016,2017, the Company was in compliance with all such requirements, and expects to remain in compliance for the next twelve months.

Availability under both the Amended Credit Agreement and the “shelf-loan” facilityShelf-Loan Facility is subject to a maximum net leverage ratio covenant which limits the amount of consolidated outstanding indebtedness to 2.5 times the trailing twelve-month EBITDA, as defined. This limitation did not impact the Company’s borrowing availability at SeptemberJune 30, 2017.2018. The remaining availability under these facilities was $297.6$260.6 million at SeptemberJune 30, 2017.2018. The Company believes the availability under the Amended Credit Agreement and “shelf-loan” facilityShelf-Loan Facility is adequate to finance the Company’s anticipated cash requirements for the next twelve months.

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

At June 30, 2018, the fair value of the Company’s long-term debt approximates the carrying value, as estimated using quoted market prices and discounted future cash flows based on similar borrowing arrangements.

7.
9.    COMMITMENTS AND CONTINGENCIES

Contingent Consideration

In connection with several business acquisitions, if certain sales targets for the acquired products are achieved, the Company will be required to pay additional cash consideration. The Company has recorded a liability for the fair value of this contingent consideration at SeptemberJune 30, 20172018 and 2016,2017, based on the present value of the expected future cash flows using a market participant’s weighted average cost of capital of 13.612.4 percent and 12.413.6 percent, respectively.

As required, the liability for this contingent consideration is measured at fair value quarterly, considering actual sales of the acquired products, updated sales projections and the updated market participant weighted average cost of capital. Depending upon the weighted average costs of capital and future sales of the products which are subject to contingent consideration, the Company could record adjustments in future periods.

The following table provides a reconciliation of the Company’s contingent consideration liability for the ninesix months ended SeptemberJune 30:
(In thousands)2017 20162018 2017
Balance at beginning of period$9,241
 $10,840
$12,545
 $9,241
Acquisitions7,288
 1,322
—
 7,288
Payments(2,574) (2,719)(4,870) (2,569)
Accretion (a)
1,227
 976
536
 716
Fair value adjustments (a)
1,204
 1,046
(1,081) 1,137
Net foreign currency translation adjustment659
 —
(135) 353
Balance at end of the period (b)
17,045
 11,465
6,995
 16,166
Less current portion in accrued expenses and other current liabilities(6,649) (4,984)(47) (6,263)
Total long-term portion in other long-term liabilities$10,396
 $6,481
$6,948
 $9,903


16
LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


(a) 
Recorded in selling, general and administrative expenseexpenses in the Condensed Consolidated Statements of Income.
(b) 
Amounts represent the fair value of estimated remaining payments. The total estimated remaining payments as of SeptemberJune 30, 20172018 are $20.2$8.9 million undiscounted. The liability for contingent consideration expires at various dates through September 2029. Certain of the contingent consideration arrangements are subject to a maximum payment amount, while the remaining arrangements have no maximum contingent consideration.

Furrion Distribution and Supply Agreement

In July 2015, the Company entered into a six-year exclusive distribution and supply agreement with Furrion Limited (“Furrion”), a Hong Kong based firm that designs, engineers and supplies premium electronics. This agreement provides the Company with the rights to distribute Furrion’s complete line of products to OEMs and aftermarket customers in the RV, specialty vehicle, utility trailer, horse trailer, marine, transit bus and school bus industries throughout the United States and Canada. Furrion currently supplies a premium line of televisions, sound systems, navigation systems, wireless backup cameras, solar prep units, power solutions, fireplaces and kitchen appliances, primarily to the RV industry.

In connection with this agreement, the Company entered into minimum purchase obligations (“MPOs”), which Furrion and the Company agreed to review after the first year on an annual basis and adjust as necessary based upon current economic and industry conditions, the development and customer acceptance of new Furrion products, competition and other factors which impact demand for Furrion products.

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

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


Product Recalls

From time to time, the Company cooperates with and assists its customers on their product recalls and inquiries, and occasionally receives inquiries directly from the National Highway Traffic Safety Administration (“NHTSA”) regarding reported incidents involving the Company’s products. As a result, the Company has incurred expenses associated with product recalls from time to time, and may incur expenditures for future investigations or product recalls.

Environmental

The Company’s operations are subject to certain Federal, state and local regulatory requirements relating to the use, storage, discharge and disposal of hazardous materials used during the manufacturing processes. Although the Company believes its operations have been consistent with prevailing industry standards, and are in substantial compliance with applicable environmental laws and regulations, one or more of the Company’s current or former operating sites, or adjacent sites owned by third parties, have been affected by releases of hazardous materials. As a result, the Company may incur expenditures for future investigation and remediation of these sites, including in conjunction with voluntary remediation programs or third-party claims.

Litigation

In the normal course of business, the Company is subject to proceedings, lawsuits, regulatory agency inquiries and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, it is management’s opinion that, after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided in the Condensed Consolidated Balance Sheet as of SeptemberJune 30, 2017,2018, would not be material to the Company’s financial position or annual results of operations.


17
8.
LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


10.    STOCKHOLDERS’ EQUITY

The following table summarizes information about shares of the Company’s common stock at:
September 30, December 31,June 30, December 31,
(In thousands)2017 2016 20162018 2017 2017
Common stock authorized75,000
 75,000
 75,000
75,000
 75,000
 75,000
Common stock issued27,625
 27,308
 27,434
27,900
 27,610
 27,674
Treasury stock2,684
 2,684
 2,684
2,684
 2,684
 2,684

The following reconciliation details the denominator used in the computation of basic and diluted earnings per share:
Nine Months Ended 
 September 30,		 Three Months Ended 
 September 30,		Six Months Ended 
 June 30,		 Three Months Ended 
 June 30,
(In thousands)2017 2016 2017 20162018 2017 2018 2017
Weighted average shares outstanding for basic earnings per share24,993
 24,587
 25,060
 24,724
25,195
 24,959
 25,233
 24,992
Common stock equivalents pertaining to stock-based awards339
 295
 399
 336
332
 337
 221
 313
Weighted average shares outstanding for diluted earnings per share25,332
 24,882
 25,459
 25,060
25,527
 25,296
 25,454
 25,305

The weighted average diluted shares outstanding for the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, exclude the effect of 117,223463,479 and 219,302143,658 shares of common stock, respectively, subject to stock-based awards. The weighted average diluted shares outstanding for the three months ended SeptemberJune 30, 20172018 and 2016,2017, exclude the effect of 64,353463,711 and 171,514144,046 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 those shares were subject to were not yet achieved.

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


In 2016, the Company initiated the payment of regular quarterly dividends. The table below summarizes the regular quarterly dividends declared and paid during the periods ended SeptemberJune 30, 20172018 and December 31, 2016:2017:
(In thousands, except per share data)Per Share Record Date Payment Date Total Paid
First Quarter 2016$0.30
 04/01/16 04/15/16 $7,344
Second Quarter 20160.30
 06/06/16 06/17/16 7,363
Third Quarter 20160.30
 08/19/16 09/02/16 7,371
Fourth Quarter 20160.50
 11/28/16 12/09/16 12,359
Total 2016$1.40
     $34,437
        
First Quarter 2017$0.50
 03/06/17 03/17/17 $12,442
Second Quarter 20170.50
 05/19/17 06/02/17 12,445
Third Quarter 20170.50
 08/18/17 09/01/17 12,459
Nine Months Ended September 30, 2017$1.50
     $37,346
(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 20170.50
 05/19/17 06/02/17 12,445
Third Quarter 20170.50
 08/18/17 09/01/17 12,459
Fourth Quarter 20170.55
 11/17/17 12/01/17 13,711
Total 2017$2.05
     $51,057
        
First Quarter 2018$0.55
 03/16/18 03/29/18 $13,858
Second Quarter 20180.60
 06/04/18 06/15/18 15,127
Total 2018$1.15
     $28,985

In February 2017, the Company issued 63,677 deferred stock units at the average price of $108.47, or $6.9 million, to executive officers in lieu of cash for a portion of their 2016 incentive compensation. In February 2016, the Company issued 4,784 deferred stock units at the average price of $55.22, or $0.3 million, to executive officers in lieu of cash for a portion of their 2015 incentive compensation.


18
9.
LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


11.    FAIR VALUE MEASUREMENTS

Recurring

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at:
September 30, 2017 December 31, 2016June 30, 2018 December 31, 2017
(In thousands)TotalLevel 1Level 2Level 3 TotalLevel 1Level 2Level 3Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Assets                  
Unrealized gain on derivative
instruments		$1,180
$—
$1,180
$—
 $2,296
$—
$2,296
$—
Derivative instruments$1,272
 $—
 $1,272
 $—
 $930
 $—
 $930
 $—
Liabilities                  
Contingent consideration$17,045
$—
$—
$17,045
 $9,241
$—
$—
$9,241
$6,995
 $—
 $—
 $6,995
 $12,545
 $—
 $—
 $12,545

Contingent Consideration Related to Acquisitions

Liabilities for contingent consideration related to acquisitions were fair valued using management’s projections for long-term sales forecasts, including assumptions regarding market share gains and future industry-specific economic and market conditions, and a market participant’s weighted average cost of capital. Over the next six years, the Company’s long-term sales growth forecasts for products subject to contingent consideration arrangements average approximately 1411 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 79 of the Notes to Condensed Consolidated Financial Statements.

Changes in either of the inputs in isolation would result in a change in the fair value measurement. A change in the assumptions used for sales forecasts would result in a directionally similar change in the fair value liability, while a change in the weighted average cost of capital would result in a directionally opposite change in the fair value liability. If there is an increase in the fair value liability, the Company would record a charge to selling, general and administrative expenses, and if there is a decrease in the fair value liability, the Company would record a benefit in selling, general and administrative expenses.

Derivative Instruments

At SeptemberJune 30, 2017,2018, the Company had derivative instruments for 19.26.0 million pounds of steel in order to manage a portion of the exposure to movements associated with steel costs. These derivative instruments expire throughin December 2018, at an average steel price of $0.25 per pound. While these derivative instruments are considered to be economic hedges of the
LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


underlying movement in the price of steel, they are not designated or accounted for as a hedge. These derivative instruments were valued at fair value using a market approach based on the quoted market prices of similar instruments at the end of each reporting period, and the resulting net loss was recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Income. At SeptemberJune 30, 2017,2018, the $1.2$1.3 million corresponding asset was recorded in other current assets as reflected in the Condensed Consolidated Balance Sheets. A net lossgain of $1.1$0.3 million was recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Income during the ninesix months ended SeptemberJune 30, 2017.2018.

Non-recurring

The following table presents the carrying value on the measurement date of any assets and liabilities which were measured at fair value and recorded at the lower of cost or fair value, on a non-recurring basis, using significant unobservable inputs (Level 3), and the corresponding non-recurring losses or (gains) recognized during the ninesix months ended SeptemberJune 30:
2017 20162018 2017
(In thousands)Carrying
Value		 Non-Recurring
Losses/(Gains)		 Carrying
Value		 Non-Recurring
Losses/(Gains)		Carrying
Value		 Non-Recurring
Losses/(Gains)		 Carrying
Value		 Non-Recurring
Losses/(Gains)
Vacant owned facilities$2,464
 $—
 $2,506
 $—
Assets       
Net assets of acquired businesses38,068
 —
 27,840
 —
126,268
 —
 35,224
 —
Total assets$40,532
 $—
 $30,346
 $—

Vacant Owned Facilities
19
LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

During the first nine months of 2017, the Company reviewed the recoverability of the carrying value of one vacant owned facility. At September 30, 2017, the Company had one vacant owned facility with an estimated fair value of over $3.0 million and a carrying value of $2.5 million, classified in fixed assets in the Condensed Consolidated Balance Sheets.

During the first nine months of 2016, the Company reviewed the recoverability of the carrying value of one vacant owned facility. At September 30, 2016, the Company had one vacant owned facility with an estimated fair value of over $3.0 million and a carrying value of $2.5 million, classified in fixed assets in the Condensed Consolidated Balance Sheets.

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

Net Assets of Acquired Businesses

The Company valued the assets and liabilities associated with the acquisitions of businesses on the respective acquisition dates. Depending upon the type of asset acquired or liability assumed, the Company used different valuation techniques in determining the fair value. Those techniques included comparable market prices, long-term sales, profitability and cash flow forecasts, assumptions regarding future industry-specific economic and market conditions, a market participant’s weighted average cost of capital, as well as other techniques as circumstances required. For further information on acquired assets and assumed liabilities, see Note 24 of the Notes to Condensed Consolidated Financial Statements.

10.12.    SEGMENT REPORTING

The Company has two reportable segments, the OEM Segment and the Aftermarket Segment. Intersegment sales are insignificant.

The OEM Segment, which accounted for 91 percent and 92 percent of consolidated net sales for each of the nine month periodssix months ended SeptemberJune 30, 2018 and 2017, and 2016,respectively, manufactures or distributes a broad array of componentsengineered products for the leading OEMs in the leisure and mobile transportation markets, consisting of RVs and adjacent industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; pontoon boats; trains; manufactured homes; and modular housing. Approximately 7166 percent of the Company’s OEM Segment net sales for the ninesix months ended SeptemberJune 30, 20172018 were of components for travel trailer and fifth-wheel RVs.

The Aftermarket Segment, which accounted for 8nine percent and eight percent of consolidated net sales for each of the ninesix month periods ended SeptemberJune 30, 2018 and 2017, and 2016,respectively, supplies components to the related aftermarket channels of the RVleisure and adjacentmobile transportation industries,
LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


primarily to retail dealers, wholesale distributors and service centers. The Aftermarket Segment also includes the sale of replacement glass and awnings to fulfill insurance claims.

Decisions concerning the allocation of the Company’s resources are made by the Company’s chief operating decision maker (“CODM”), with oversight by the Board of Directors. The CODM evaluates the performance of each segment based upon segment operating profit or loss, generally defined as income or loss before interest and income taxes. Decisions concerning the allocation of resources are also based on each segment’s utilization of assets. Management of debt is a corporate function. The accounting policies of the OEM and Aftermarket Segments are the same as those described in Note 12 of the Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2017.

The following table presents the Company’s revenues disaggregated by segment and geography based on the billing address of the Company’s customers:
Information relating to segments follows for the:      
Nine Months Ended 
 September 30,		 Three Months Ended 
 September 30,		Six Months Ended June 30, 2018 Six Months Ended June 30, 2017
(In thousands)2017 2016 2017 2016
U.S. (a)
 
Int’l (b)
 Total 
U.S. (a)
 
Int’l (b)
 Total
Net sales:       
OEM Segment:                  
RV OEMs:                  
Travel trailers and fifth-wheels$1,045,465
 $836,634
 $357,940
 $263,579
$801,253
 $3,168
 $804,421
 $686,007
 $1,518
 $687,525
Motorhomes114,887
 85,762
 41,595
 29,373
80,959
 21,027
 101,986
 66,503
 6,789
 73,292
Adjacent industries OEMs310,373
 253,088
 106,386
 82,963
292,288
 18,402
 310,690
 198,921
 5,066
 203,987
Total OEM Segment net sales1,470,725
 1,175,484
 505,921
 375,915
1,174,500
 42,597
 1,217,097
 951,431
 13,373
 964,804
Aftermarket Segment:                  
Total Aftermarket Segment net sales129,908
 100,515
 48,893
 36,455
111,775
 6,075
 117,850
 75,971
 5,044
 81,015
Total net sales$1,600,633
 $1,275,999
 $554,814
 $412,370
$1,286,275
 $48,672
 $1,334,947
 $1,027,402
 $18,417
 $1,045,819
Operating profit:       
OEM Segment$151,867
 $144,102
 $41,025
 $39,049
Aftermarket Segment18,229
 16,152
 6,902
 6,089
Total operating profit$170,096
 $160,254
 $47,927
 $45,138

20
11.    NEW ACCOUNTING PRONOUNCEMENTS

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends ASC 815, Derivatives and Hedging. This ASU better aligns an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. This ASU is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company is evaluating the effect of adopting this new accounting guidance.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting. This ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The updated guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The Company does not believe the updated requirements will materially impact the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which amends ASC 350, Intangibles - Goodwill and Other. This ASU simplifies how an entity is required to test goodwill for impairment by eliminating step 2 from the goodwill impairment test. Step 2 measures goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This ASU is effective for interim and annual reporting periods, beginning after December 15, 2019 with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, which amends ASC 805, Business Combinations. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating
LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


whether transactions should be accounted for as acquisition (or disposals) of assets or businesses. This ASU is effective for interim and annual reporting periods beginning after December 15, 2017. The adoption of this ASU 2017-01 is not expected to have a material impact on the Company’s consolidated financial statements.
 Three Months Ended June 30, 2018 Three Months Ended June 30, 2017
(In thousands)
U.S. (a)
 
Int’l (b)
 Total 
U.S. (a)
 
Int’l (b)
 Total
OEM Segment:           
RV OEMs:           
Travel trailers and fifth-wheels$397,511
 $1,953
 $399,464
 $356,689
 $562
 $357,251
Motorhomes37,553
 11,518
 49,071
 32,741
 3,507
 36,248
Adjacent industries OEMs158,880
 9,503
 168,383
 106,388
 2,888
 109,276
Total OEM Segment net sales593,944
 22,974
 616,918
 495,818
 6,957
 502,775
Aftermarket Segment:           
Total Aftermarket Segment net sales64,429
 3,108
 67,537
 42,010
 2,698
 44,708
Total net sales$658,373
 $26,082
 $684,455
 $537,828
 $9,655
 $547,483

In August 2016,(a) Net sales to customers in the FASB issued ASU 2016-15, ClassificationUnited States of Certain Cash Receipts and Cash Payments, which amends ASC 230, Statement of Cash Flows. This ASU provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. This ASU is effective for annual and interim periods beginning after December 15, 2017, and should be applied retrospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect adoption will have a material impact on the Company’s consolidated financial statements.America

In March 2016, the FASB issued ASU 2016-09, (b) ImprovementsNet sales to Employee Share-Based Payment Accounting, which amended ASC 718, Compensation - Stock Compensation. This ASU simplifies several aspectscustomers in countries domiciled outside of the accounting for share-based payment transactions, including income tax consequences, the classificationUnited States of awards as either equity or liabilities, and the classification on the statement of cash flows. Under the new standard, all excess tax benefits and tax deficiencies are recorded as a component of the provision for income taxes in the reporting period in which they occur. Additionally, ASU 2016-09 requires that the Company present excess tax benefits on the consolidated statement of cash flows as an operating activity. The adoption of the ASU resulted in the recognition of excess tax benefits in the provision for income taxes within the Condensed Consolidated Financial Statements of $5.2 million for the nine months ended September 30, 2017. Additionally, the Condensed Consolidated Statement of Cash Flows now present excess tax benefits as an operating activity, adjusted prospectively. Finally, the Company elected to continue to estimate forfeitures based on historical data and recognizes forfeiture compensation expense over the vesting period of the award. The Company adopted ASU 2016-09 in the first quarter of 2017 and elected to apply this adoption prospectively. Prior periods have not been adjusted.

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

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance issued by the FASB, including industry specific guidance. ASU 2014-09 provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts with customers to provide goods and services. The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain non-financial assets, such as property and equipment, including real estate. ASU 2014-09 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2017. The new standard must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. ASU 2014-09 also requires entities to disclose both quantitative and qualitative information to enable users of the financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.America

The Company does not anticipatefollowing table presents the adoption of this standard will have a material impact on its reported current net sales; however, given its acquisition strategy, there may be additionalCompany’s operating profit by segment:
 Six Months Ended 
 June 30,		 Three Months Ended 
 June 30,
(In thousands)2018 2017 2018 2017
Operating profit:       
OEM Segment$107,531
 $110,842
 $53,591
 $56,445
Aftermarket Segment16,377
 11,327
 10,497
 6,595
Total operating profit$123,908
 $122,169
 $64,088
 $63,040

The following table presents the Company’s revenue streams acquired prior to the adoption date. The Company’s technical analysis is on-going with respect to variable consideration, whether certain contracts’ revenues will be recognized over time or at a point in time, and whether costs to obtain a contract will be capitalized. Further, the Company is continuing to assess what disaggregated revenue disclosures, in addition to current disclosures in Note 10 - Segment Reporting, will be required in its consolidated financial statements. The Company plans to adopt ASU 2014-09 using the modified retrospective approach on January 1, 2018.by product:
 Six Months Ended 
 June 30,		 Three Months Ended 
 June 30,
(In thousands)2018 2017 2018 2017
OEM Segment:       
Chassis, chassis parts and slide-out mechanisms$500,514
 $458,465
 $247,811
 $235,516
Windows and doors318,892
 206,593
 169,372
 109,393
Furniture and mattresses210,796
 153,914
 105,278
 82,740
Axles and suspension solutions66,753
 64,540
 33,148
 32,359
Other120,142
 81,292
 61,309
 42,767
Total OEM Segment net sales1,217,097
 964,804
 616,918
 502,775
Total Aftermarket Segment net sales117,850
 81,015
 67,537
 44,708
Total net sales$1,334,947
 $1,045,819
 $684,455
 $547,483


21
LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and Notes thereto included in Item 1 of Part 1 of this Report, as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2017.

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

The Company has two reportable segments, the OEM Segment and the Aftermarket Segment. Intersegment sales are insignificant. At SeptemberJune 30, 2017,2018, the Company operated 52over 65 manufacturing and distribution facilities located throughout the United States and in Canada, Ireland, Italy and Italy.the United Kingdom. See Note 1012 of the Notes to the Condensed Consolidated Financial Statements.

The Company’s OEM Segment manufactures or distributes a broad array of components for the leading OEMs of RVsleisure and adjacentmobile transportation industries. Approximately 7168 percent of the Company’s OEM Segment net sales for the twelve months ended SeptemberJune 30, 20172018 were of components for travel trailer and fifth-wheel RVs, including:
● Steel chassis and related components● Furniture and mattresses
● Axles and suspension solutions● Electric and manual entry steps
● Slide-out mechanisms and solutions● Awnings and awning accessories
● Thermoformed bath, kitchen and other products● Electronic components
● Vinyl, aluminum and frameless windows● Appliances
● Manual, electric and hydraulic stabilizer and 
   leveling systems		● Televisions, sound systems, navigation 
   systems and backup cameras
● Entry, luggage, patio and ramp doors● Other accessories

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

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

INDUSTRY BACKGROUND

OEM Segment

Recreational Vehicle Industry

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

22
LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

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
LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

industry-wide wholesale shipments. Based on the strength of retail sales and the current outlook from several RV OEMs and their dealer networks, most industry analysts continue to report that RV dealer inventory is in line with anticipated retail demand.
According to the Recreation Vehicle Industry Association (“RVIA”), industry-wide wholesale shipments of travel trailer and fifth-wheel RVs in the first ninesix months of 2017,2018, the Company’s primary RV market, increased 18seven percent to 321,300232,400 units, compared to the same period of 2016,2017, as a result of:
An estimated 30,10014,200 unit increase in retail demand in the first ninesix months of 2017,2018, or 10seven percent, as compared to the same period of 2016.2017. In addition, retail demand is typically revised upward over thein subsequent quarter by approximately five to ten percent,months, primarily due to delayed RV registrations.
Partially offset by RV dealers seasonally decreasingincreasing inventory levels by an estimated 3,2005,900 units for the period ended September 30, 2017, lowerfirst six months of 2018, higher than the decreaseincrease in inventory levels of 22,0005,100 units in the same period of 2016.2017.

While the Company measures its OEM Segment RV sales against industry-wide wholesale shipment statistics, the underlying health of the RV industry is determined by retail demand. A comparison of the number of units and the year-over-year percentage change in industry-wide wholesale shipments and retail sales of travel trailers and fifth-wheel RVs, as reported by Statistical Surveys, Inc., as well as the resulting estimated change in dealer inventories, for both the United States and Canada, is as follows:
         Estimated
 Wholesale Retail Unit Impact on
 Units Change Units Change Dealer Inventories
Quarter ended September 30, 2017(1)
103,900
 26% 113,700
 5% (9,800)
Quarter ended June 30, 2017115,900
 17% 138,000
 12% (22,100)
Quarter ended March 31, 2017101,500
 12% 72,800
 16% 28,700
Quarter ended December 31, 201690,300
 20% 58,300
 17% 32,000
Twelve months ended September 30, 2017(1)
411,600
 18% 382,800
 11% 28,800
          
Quarter ended September 30, 201682,400
 20% 108,700
 9% (26,300)
Quarter ended June 30, 201699,200
 12% 122,800
 9% (23,600)
Quarter ended March 31, 201690,800
 11% 62,900
 15% 27,900
Quarter ended December 31, 201575,000
 4% 49,900
 16% 25,100
Twelve months ended September 30, 2016347,400
 12% 344,300
 12% 3,100
          
         Estimated
 Wholesale Retail Unit Impact on
 Units Change Units Change Dealer Inventories
Quarter ended June 30, 2018115,500
 0% 145,300
 4% (29,800)
Quarter ended March 31, 2018116,900
 15% 81,200
 11% 35,700
Quarter ended December 31, 2017108,200
 20% 68,000
 17% 40,200
Quarter ended September 30, 2017103,900
 26% 120,600
 11% (16,700)
Twelve months ended June 30, 2018444,500
 14% 415,100
 9% 29,400
          
Quarter ended June 30, 2017115,900
 17% 139,200
 13% (23,300)
Quarter ended March 31, 2017101,500
 12% 73,100
 16% 28,400
Quarter ended December 31, 201690,300
 20% 58,300
 17% 32,000
Quarter ended September 30, 201682,400
 20% 108,700
 9% (26,300)
Twelve months ended June 30, 2017390,100
 17% 379,300
 13% 10,800
          
(1)
Retail sales data for September 2017 has not been published; therefore retail and dealer inventory data includes a Company estimate for retail units sold in September.

According to the RVIA, industry-wide wholesale shipments of motorhome RVs in the first ninesix months of 20172018 increased 14one percent to 47,30033,100 units compared to the same period of 2016. The Company estimates2017. Additionally, retail demand for motorhome RVs increased 13three percent in the first ninesix months of 2017,2018, following an 11a 17 percent increase in retail demand in 2016.2017.
The RVIA has projected an 11a seven percent increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs for 20172018 and a two percent increase for 2018.in 2019. Several RV OEMs, however, are introducing new product lines, additional features and adding production capacity. Retail sales of RVs historically have been closely tied to general economic conditions, as well as consumer confidence which was above historical averages in 2016.2017. Additionally, retail sales of travel trailer and fifth-wheel RVs have increased in 93100 of the last 95102 months on a year-over-year basis. Industry resources report strong attendance and high consumer interest at RV shows around the United States and Canada thus far in 2017.late 2017 and early 2018.
Although future retail demand is inherently uncertain, RV industry fundamentals in the first ninesix months of 2017,2018, including generally low unemployment, low fuel prices and available credit for dealers and RV consumers, were strong, as evidenced by the 10estimated seven percent increase in industry-wide retail sales of travel trailer and fifth-wheel RVs in the first ninesix months of 2017.2018. The Company believes the strong RV industry fundamentals, aided by product innovation, demographic tailwinds, industry promotion and the advent of stronger dealer networks, are positive signs for the remainder of 2017. The Company also remains confident in its ability

23
LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

promotion and the advent of stronger dealer networks, are positive signs for the remainder of 2018. The Company also remains confident in its ability to exceed industry growth rates through new product introductions, market share gains, aftermarket sales, acquisitions and ongoing investments in research and development, engineering, quality and customer service.
Over the long term, the Company expects RV industry sales to be aided by positive demographics and the continued popularity of the “RV Lifestyle”. The number of consumers between the ages of 55 and 70 are projected to total 56 million by 2020, 27 percent higher than in 2010, according to U.S. Census figures, and one in ten vehicle-owning households between the ages of 50 and 64 own at least one RV. The RVIA reported much of the success of the RV industry has been driven by the Baby Boomer generation. The size of that generation is beginning to wane, and younger generations (Generation X and Millennials) are becoming more relevant to future industry growth. Generation X and Millennials are more diverse, requiring new and creative marketing approaches to attract them to the RV industry. The RVIA has an advertising campaign promoting the “RV Lifestyle” targeted at both parents aged 30 - 49 with children at home, as well as couples aged 50 - 64 with no children at home. In addition, the RV OEMs have developed more entry level units, specifically targeting younger families, in both towables and motorhomes. The popularity of traveling in RVs to NASCAR and other sporting events, more family-oriented domestic vacations, and using RVs as second homes, are trends that could continue to motivate consumer demand for RVs. RVIA studies indicate RV vacations cost significantly less than other forms of vacation travel, even when factoring in fuel prices and the cost of RV ownership. More details can be found at www.RVIA.org.

Adjacent Industries

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

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

Enclosed trailers. According to Statistical Surveys, Inc., approximately 192,000210,000 and 183,500192,000 enclosed trailers were sold in 20162017 and 2015,2016, respectively.
Pontoon boats. Statistical Surveys Inc., also reported approximately 49,60050,200 and 45,40049,000 pontoon boats were sold in 20162017 and 2015,2016, respectively.
School buses. According to Wards Communications and R.L. Polk & Co., there were approximately 32,80036,800 and 29,60036,200 school buses sold in 20162017 and 2015,2016, respectively.
Manufactured housing. According to the Institute for Building Technology and Safety, there were approximately 81,10092,900 and 70,50081,100 manufactured home wholesale shipments in 20162017 and 2015,2016, respectively.

Aftermarket Segment

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

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


24
LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

RESULTS OF OPERATIONS

Consolidated Highlights

Consolidated net sales in the thirdsecond quarter of 20172018 increased to $555$684 million, 3525 percent higher than consolidated net sales for the thirdsecond quarter of 20162017 of $412$547 million. Acquisitions completed by the Company over the twelve months ended SeptemberJune 30, 2017,2018, added $24$64 million in net sales in the thirdsecond quarter of 2017. The 26 percent increase2018. Despite the short-term correction in industry-wideindustry wholesale shipments of travel trailer and fifth-wheel RVs, LCI’s primary OEM market, as well as increaseddealers normalize their inventory levels, content per RV unit has increased, positively impactedimpacting net sales growth in the thirdsecond quarter of 2017.2018. Further, the Company organically increased sales to adjacent industries and the aftermarket.
Net income for the thirdsecond quarter of 20172018 increased to $32.1$47.2 million, or $1.26$1.86 per diluted share, up from net income of $29.8$40.1 million, or $1.19$1.59 per diluted share, compared to the thirdsecond quarter of 2016.2017.
Consolidated operating profits during the thirdsecond quarter of 20172018 increased six percent, to $47.9$64.1 million from $45.1$63.0 million in the thirdsecond quarter of 2016.2017. Operating profit margin decreased towas nine percent in the thirdsecond quarter of 2018 compared to 12 percent in the second quarter of 2017 from 11 percent compareddue to higher labor and material costs.
The cost of aluminum and steel used in certain of the thirdCompany’s manufactured components continued to increase in the second quarter of 2016.2018 primarily driven by new tariffs on these commodities. Raw material costs continue to fluctuate and are expected to remain volatile.
The improvement inCompany seeks to continuously manage its labor cost, particularly indirect labor, while supporting the Company’s operating results were partially offset by continued increases in input costs, primarily steel, aluminum and direct labor. Aluminum costs have increased in excessgrowth of 20 percent over the prior year. Labor continues to remain a challenge with Elkhart County unemployment rates at less than three percent, and, as a result, the Company has initiated price increases that will be fully implemented by the first quarter of 2018.
business. Lean manufacturing teams continue working to reduce cost and implement processes to better utilize available floorspace. The Company has also has reduced direct labor attrition, which improves efficiency and on-time deliveries, while reducingreduces other costs associated with workforce turnover. The Company has implemented a number of cost saving initiatives during the third quarter of 2017.
The cost of aluminum, steel and foam used in certain of the Company’s manufactured components declined during the first half of 2016; however, certain commodities experienced cost increases in the second half of 2016 and the first nine months of 2017 from market low points. Raw material costs continue to fluctuate and are expected to remain volatile.
Thus far in 2017,2018, the Company completed three acquisitions:
◦In June 2017,2018, the Company acquired 100 percent of the equity interests of Metallarte S.r.l.ST.LA. S.R.L., (“Metallarte”STLA”), a manufacturer of entrybed lifts and compartment doorsother RV components 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,headquartered in Pontedera, Italy. The preliminary purchase price was $14.1$14.8 million, net of cash acquired, paid at closing, plus contingent consideration based on future sales by this operation.
◦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.is subject to potential post-closing adjustments related to net working capital.
◦In February 2017,2018, 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 preliminary purchase price was $50.1 million paid at closing, and is subject to potential post-closing adjustments related to net working capital.
◦In January 2018, the Company acquired 100 percent of the outstanding sharesequity interests of Sessa Klein S.p.A.Taylor Made Group, LLC (“Sessa Klein”Taylor Made”), a manufacturermarine supplier to boat builders and the aftermarket, as well as a key supplier to a host of highly engineered side window systems for both high speed and commuter trains, located near Varese, Italy.other industrial end markets, headquartered in Gloversville, New York. The preliminary purchase price was $8.5$88.4 million, net of cash acquired, paid at closing, plus contingent consideration based on future sales by this operation.and is subject to potential post-closing adjustments related to net working capital.
Integration activities for these and previously acquired businesses are underway and proceeding in line with established plans. The Company plans to grow sales and leverage its purchasing power, manufacturing capabilities, engineering expertise and design resources to improve the cost structure of the acquired operations.
The effective tax rate for the ninesix months ended SeptemberJune 30, 2017,2018, was substantially lower than the comparable prior year period primarily due to the recognition of excess tax benefits attributablerelated to equity-based compensation and the adoption bylower rates resulting from the Company of Accounting Standards Update 2016-09, which simplified several aspects of the accounting for share-based payment transactions, including income tax consequences. The excess tax benefit equated to $5.9 million recognized in the first nine months of 2017.
Return on equity for the twelve months ended September 30, 2017, which is calculated by taking net income over equity, was 24.2 percent.Tax Cuts and Jobs Act (the “TCJA”), as discussed under “Income Taxes.”
In March and June and September 2017,2018, the Company paid a quarterly dividend of $0.50$0.55 and $0.60 per share, aggregating to $12.4 million, $12.4$13.9 million and $12.5$15.1 million, respectively.


25
LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

OEM Segment - ThirdSecond Quarter

Net sales of the OEM Segment in the thirdsecond quarter of 20172018 increased 3523 percent, or $130$114 million, compared to the same period of 2016.2017. Net sales of components to OEMs were to the following markets for the three months ended SeptemberJune 30:
(In thousands)2017 2016 Change2018 2017 Change
RV OEMs:          
Travel trailers and fifth-wheels$357,940
 $263,579
 36%$399,464
 $357,251
 12%
Motorhomes41,595
 29,373
 42%49,071
 36,248
 35%
Adjacent industries OEMs106,386
 82,963
 28%168,383
 109,276
 54%
Total OEM Segment net sales$505,921
 $375,915
 35%$616,918
 $502,775
 23%

According to the RVIA, industry-wide wholesale unit shipments for the three months ended SeptemberJune 30 were:
2017 2016 Change2018 2017 Change
Travel trailer and fifth-wheel RVs103,900
 82,400
 26%115,500
 115,900
 0 %
Motorhomes14,500
 12,800
 13%15,600
 16,500
 (5)%

The Company’s net sales growth in components for travel trailer and fifth-wheel RVs during the thirdsecond quarter of 2017 exceeded the increase in2018 outperformed industry-wide wholesale shipments of travel trailer and fifth-wheel RVs during the same period, primarily due to market share gains.gains as a result of new product introductions and customer penetration.

The Company’s net sales growth in components for motorhomes during the thirdsecond quarter of 2017 exceeded the increase in2018 outperformed industry-wide wholesale shipments of motorhomes during the same period, primarily due to acquisitions completed in 2018 and 2017. Over the past few years, the Company has been expanding its product line of components for motorhomes in order to increase its customer base and market penetration, and further growth is expected.

The trend in the Company’s average product content per RV produced is an indicator of the Company’s overall market share of components for new RVs. The Company’s average product content per type of RV, calculated based upon the Company’s net sales of components to domestic RV OEMs for the different types of RVs produced for the twelve months ended SeptemberJune 30, divided by the industry-wide wholesale shipments of the different types of RVs for the same period, was:
Content per:2017 2016 Change2018 2017 Change
Travel trailer and fifth-wheel RV$3,172
 $3,025
 5%$3,412
 $3,104
 10%
Motorhome$2,152
 $1,957
 10%$2,438
 $2,072
 18%

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

The Company’s net OEM sales to Adjacent Industries increased during the thirdsecond quarter of 20172018 primarily due to acquisitions completed in 20172018 and 20162017 and market share gains. The Company continues to believe there are significant opportunities in Adjacent Industries.

Operating profit of the OEM Segment was $41.0$53.6 million in the thirdsecond quarter of 2017, an improvement2018, a decrease of $2.0$2.9 million compared to the same period of 2016.2017. The operating profit margin of the OEM Segment in the thirdsecond quarter of 20172018 was positively impacted by:
Better fixed cost absorption by spreading fixed costs over a sales base that increased by $130$114 million.
Increased sales to Adjacent Industries OEMs.
Pricing changes of targeted products.
Investments over the past several years to increase capacity and improve operating efficiencies. Further, the Company has implemented efficiency improvements, including lean manufacturing initiatives, increased use of automation

26
LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

and employee retention initiatives. The Company has also reduced direct labor attrition which improves efficiency and reduces other costs associated with workforce turnover.
Offset by:
Higher material costs for certain raw materials. Steel, aluminum and foam costs increasedcontinued to increase in the thirdsecond quarter of 2017.2018 primarily driven by new tariffs on steel and aluminum. Material costs are subject to global supply and demand forces and are expected to remain volatile.
Higher labor costs. While the Company seeks to continuously manage its labor cost, it has added staff to support the growth of the business. The results also reflect variable compensation increases based on achieving profitability targets. Additionally, competition for skilled workers has continued to tighten the labor market which has increased the cost of labor.
Fixed costs, which were approximately $3 million to $4 million higher than in the third quarter of 2016. OverThe Company made significant investments over the past couple of years the Company made significant investments in manufacturing capacity, in both facilities and personnel, to prepare for the expected increase in net sales in 20172018 and beyond. In addition to these investments, in fixed costs to expand manufacturing capacity, the Company has made improvements in marketing, human resources, engineering, customer service and other critical departments. The Company also added the teams from acquired businesses, as well as amortization costs of intangible assets related to those businesses.

OEM Segment – Year to Date

Net sales of the OEM Segment in the first ninesix months of 20172018 increased 2526 percent, or $295$252 million, compared to the first ninesix months of 2016.2017. Net sales of components to OEMs were to the following markets for the ninesix months ended SeptemberJune 30:
(In thousands)2017 2016 Change2018 2017 Change
RV OEMs:          
Travel trailers and fifth-wheels$1,045,465
 $836,634
 25%$804,421
 $687,525
 17%
Motorhomes114,887
 85,762
 34%101,986
 73,292
 39%
Adjacent industries OEMs310,373
 253,088
 23%310,690
 203,987
 52%
Total OEM Segment net sales$1,470,725
 $1,175,484
 25%$1,217,097
 $964,804
 26%

According to the RVIA, industry-wide wholesale unit shipments for the ninesix months ended SeptemberJune 30, were:
2017 2016 Change2018 2017 Change
Travel trailer and fifth-wheel RVs321,300
 272,400
 18%232,400
 217,400
 7%
Motorhomes47,300
 41,600
 14%33,100
 32,800
 1%

The Company’s net sales growth in components for travel trailer and fifth-wheel RVs during the first ninesix months of 20172018 exceeded the increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs during the same period primarily due to market share gains and acquisitions completed in 2017 and 2016.gains.

The Company’s net sales growth in components for motorhomes during the first ninesix months of 20172018 exceeded the increase in industry-wide wholesale shipments of motorhomes during the same period, primarily due to acquisitions completed in 20172018 and 2016 and market share gains.2017. Over the past few years, the Company has been expanding its product line of components for motorhomes in order to increase its customer base and market penetration, and further growth is expected.

The Company’s net sales to Adjacent Industries increased during the first ninesix months of 2017,2018, primarily due to acquisitions completed in the fourth quarter of 20162018 and the first nine months of 2017 and market share gains. Acquisitions added $33 million in net sales during the first nine months of 2017. The Company continues to believe there are significant opportunities in Adjacent Industries.

Operating profit of the OEM Segment was $151.9$107.5 million in the first ninesix months of 2017, an improvement2018, a decrease of $7.8$3.3 million compared to the first ninesix months of 2016.2017. The operating profit margin of the OEM Segment in the first ninesix months of 20172018 was positively impacted by:
Better fixed cost absorption by spreading fixed costs over a sales base that increased by $252 million.
Increased sales to Adjacent Industries OEMs.

27
LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

Better fixed cost absorption by spreading fixed costs over a sales base that increased by $295 million.
Increased sales to Adjacent Industries OEMs.
Pricing changes of targeted products.
Investments over the past several years to increase capacity and improve operating efficiencies. Further, the Company has implemented efficiency improvements, including lean manufacturing initiatives, increased use of automation and employee retention initiatives. The Company has also reduced direct labor attrition which improves efficiency and reduces other costs associated with workforce turnover.
Lower group health claims. Offset by:
The Company actively works to manage and reduce these costs, however, these costs remain subject to fluctuation.
Partially offset by:
Fixed costs, which were approximately $8 million to $9 million higher than in the first nine months of 2016. Overmade significant investments over the past couple of years the Company made significant investments in manufacturing capacity, in both facilities and personnel, to prepare for the expected increase in net sales in 20172018 and beyond. In addition to these investments, in fixed costs to expand manufacturing capacity, the Company has made improvements in marketing, human resources, engineering, customer service and other critical departments. The Company also added the teams from acquired businesses, as well as amortization costs of intangible assets related to those businesses.
Higher material costs for certain raw materials. Steel, aluminum and foam costs increased in the first ninesix months of 2017.2018. Material costs are subject to global supply and demand forces and are expected to remain volatile.
Higher labor costs. While the Company seeks to continuously manage its labor cost, it has added staff to support the growth of the business. The results also reflect variable compensation increases based on achieving profitability targets. Additionally, competition for skilled workers has continued to tighten the labor market which has increased the cost of labor.

Aftermarket Segment - ThirdSecond Quarter

Net sales of the Aftermarket Segment in the thirdsecond quarter of 20172018 increased 3451 percent, or $12$23 million, compared to the same period of 2016.2017. Net sales of components were as follows for the three months ended SeptemberJune 30:
(In thousands)2017 2016 Change2018 2017 Change
Total Aftermarket Segment net sales$48,893
 $36,455
 34%$67,537
 $44,708
 51%

The Company’s net sales to the Aftermarket increased during the thirdsecond quarter of 20172018 primarily due to acquisitions and the Company’s focus on building out well qualified, customer-focused teams and infrastructure to service this market. With an estimated nine million households in North America owning an RV and the Company’s increasing content per unit, the Company continues to believe there are significant opportunities in the RV aftermarket as the components sold to OEMs are subject to normal wear and tear over time.

Operating profit of the Aftermarket Segment was $6.9$10.5 million in the thirdsecond quarter of 2017,2018, an increase of $0.8$3.9 million compared to the same period of 2016; however,2017 and operating margin has decreased primarily dueincreased to the increase in net sales to wholesale distributors with lower margins traditionally experienced in aftermarket channels.16 percent. As indicated, this business is still in an early growth stage and the Company has added staff to support anticipated growth and anticipates further cost increases in this area as it builds up the capabilities of this business.

Aftermarket Segment – Year to Date

Net sales of the Aftermarket Segment in the first ninesix months of 20172018 increased 2945 percent, or $29$37 million, compared to the same period of 2016.2017. Net sales of components were as follows for the ninesix months ended SeptemberJune 30:
(In thousands)2017 2016 Change2018 2017 Change
Total Aftermarket Segment net sales$129,908
 $100,515
 29%$117,850
 $81,015
 45%

The Company’s net sales to the Aftermarket increased during the first ninesix months of 20172018 primarily due to acquisitions and the Company’s focus on building out well qualified, customer-focused teams and infrastructure to service this market. With an estimated nine
LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

million households in North America owning an RV and the Company’s increasing content per unit, the Company continues to believe there are significant opportunities in the RV aftermarket as the components sold to OEMs are subject to normal wear and tear over time.

Operating profit of the Aftermarket Segment was $18.2$16.4 million in the first ninesix months of 2017,2018, an increase of $2.1$5.1 million compared to the same period of 2016; however,2017 and operating margin has decreased primarily due to the increase in net sales to wholesale distributors with lower margins traditionally experienced in aftermarket channels. As indicated, this business is still in an early growth stage and the Company has added staff to support anticipated growth and anticipates further cost increases in this area as it builds up the capabilities of this business.remained consistent at 14 percent.

Income Taxes

The effective tax rates for the ninesix months ended SeptemberJune 30, 2018 and 2017 were 21.9 percent and 2016 were 31.7% and 35.0%,31.4 percent, respectively. The effective tax rate for the ninesix months ended SeptemberJune 30, 20172018 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits as a component of the provision for income taxes attributable to the adoption of ASU 2016-09, the tax benefit relating to U.S. manufacturer’s deduction and Federal and Indiana research and development (“R&D”) credits offset by state taxes, foreign taxes and non-deductible expenses. The decrease in effective tax rate for the ninesix months ended SeptemberJune 30, 20172018 as compared to the same period in 20162017 was due primarily to the recognition of excessTCJA reduction in the federal tax benefits attributablerate.
On December 22, 2017, the TCJA was signed into law making significant changes to the adoptionInternal Revenue Code. The TCJA changes included a reduction of the corporate income tax rate from 35 percent to 21 percent effective for tax years beginning after December 31, 2017, a provision that allows for full expensing of certain qualified property, repeal of the manufacturing deduction, and further limitations on the deductibility of certain executive compensation. The TCJA contains other provisions that are not expected to materially affect the Company, including a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries, limitations on the deductibility of interest expense, and the creation of U.S. tax base erosion provisions.
In accordance with ASU 2016-092018-05 and SAB 118, the Company recorded a one-time non-cash charge of $13.3 million related to the enactment of the TCJA which resulted in the first quarterre-measurement of 2017.
Generally, calendar years 2014 - 2016 remain open for federal and statecertain deferred tax assets using the lower U.S. corporate income tax purposes. The Company is currently being auditedrate during the year ended December 31, 2017. As of June 30, 2018, we have not made any additional measurement-period adjustments. Such adjustments may be necessary in future periods due to, among other things, the significant complexity of the TCJA and anticipated additional regulatory guidance that may be issued by the Internal Revenue Service (“IRS”), changes in analysis, interpretations and assumptions the Company has made and actions the Company may take as a result of the TCJA. We are continuing to gather information to assess the application of the TCJA and expect to complete our analysis with the filing of our 2017 income tax returns.
During the six months ended June 30, 2018 and 2017, we recognized a reduction in our income tax expense of $3.2 million and $5.2 million, respectively, for the tax year ended December 31, 2014.
The net amount of tax liability for unrecognizedexcess tax benefits may change withinrelated to the next twelve months due to changes in audit status, expirationvesting or exercise of statutes of limitations, settlements of tax assessments and other events which could impact our determination of unrecognized tax benefits. Although the ultimate timing for resolution of the disputed tax issues is uncertain, we may resolve certain tax matters within the next twelve months and pay amounts for other unresolved tax matters in order to limit the potential impact of interest charges. The resolution of these audits are not expected to be material to our consolidated financial statements.equity-based compensation awards.

LIQUIDITY AND CAPITAL RESOURCES

The Condensed Consolidated Statements of Cash Flows reflect the following for the ninesix months ended SeptemberJune 30:
(In thousands)2017 2016
Net cash flows provided by operating activities$108,859
 $164,108
Net cash flows used for investing activities(127,975) (55,947)
Net cash flows used for financing activities(47,292) (25,406)
Net (decrease) increase in cash and cash equivalents$(66,408) $82,755
(In thousands)2018 2017
Net cash flows provided by operating activities$78,929
 $96,699
Net cash flows used in investing activities(206,970) (110,895)
Net cash flows provided by (used in) financing activities119,843
 (34,013)
Net decrease in cash and cash equivalents$(8,198) $(48,209)

Cash Flows from Operations

Net cash flows from operating activities in first nine months of 2017 were $55.2 million lower than the same period of 2016, primarily due to:
28
A $69.7 million seasonal increase in accounts receivable in the first nine months of 2017 compared to a $46.0 million increase in the same period of 2016, primarily due to increased net sales partially offset by the timing of payments by the Company’s customers. Overall, accounts receivable balances remain current with an increase in days sales outstanding to 22 at September 30, 2017, compared to 19 at September 30, 2016. The increase in days sales outstanding is due to growth in sales to adjacent and international customers which pay with longer terms.
A $33.8 million increase in inventory in the first nine months of 2017 compared to a $13.5 million decrease in the same period of 2016. Inventory turnover for the twelve months ended September 30, 2017 increased to 7.8 turns compared to 7.3 turns for the same period of 2016. The Company is working to improve inventory turnover;
LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

Cash Flows from Operations

Net cash flows from operating activities in first six months of 2018 were $17.8 million lower than the same period of 2017, primarily due to:
A $5.4 million increase in accounts payable in the first six months of 2018 compared to a $22.5 million increase in the same period of 2017, primarily due to timing of these payments.
A $10.2 million increase in accrued expenses and other liabilities in the first six months of 2018 compared to a $31.4 million increase in the same period of 2017, primarily due to timing of these payments.
A $14.6 million increase in inventory in the first six months of 2018 compared to a $6.8 million increase in the same period of 2017 reflecting higher material costs. Inventory turnover for the twelve months ended June 30, 2018 decreased to 7.0 turns compared to 7.8 turns for the same period of 2017. The Company is working to improve inventory turnover; however, inventory turns may trend lower due to growth in product categories such as imported furniture and Furrion electronics.
A $27.2Partially offset by:
An $11.3 million increase in accrued expenses and other liabilitiesnet income in first six months of 2018 compared to the same period of 2017.
A $52.2 million increase in accounts receivable in the first ninesix months of 20172018 compared to a $30.1$61.5 million increase in the same period of 2016,2017, primarily due to the timing of these payments.
Partially offset by:
A $12.0 millionpayments by the Company's customers. Overall, accounts receivable balances remain current with an increase in net income in first nine months of 2017days sales outstanding to 23 at June 30, 2018, compared to the same period of 2016.20 at June 30, 2017.
Over the long term, based on the Company’s collection and payment patterns, inventory turnover, changes to the sales mix and other emerging trends, the Company expects working capital to increase or decrease approximately 10 to 15 percent of the increase or decrease in net sales, respectively. However, there are many factors that can impact this relationship, especially in the short term.

Depreciation and amortization was $39.9$32.5 million in the first ninesix months of 2017,2018, and is expected to be approximately $55$70 million to $60$75 million for fiscal year 2017.2018. Non-cash stock-based compensation in the first ninesix months of 20172018 was $15.0$9.8 million. Non-cash stock-based compensation is expected to be approximately $19$20 million to $21$22 million in 2017.for fiscal year 2018.

Cash Flows from Investing Activities
Cash flows used forfrom investing activities of $128.0$207.0 million in the first ninesix months of 20172018 were primarily comprised of $60.3$54.5 million for capital expenditures and $67.9$153.4 million for the acquisition of businesses. Cash flows used forfrom investing activities of $55.9$110.9 million in the first ninesix months of 20162017 were primarily comprised of $21.9$43.3 million for capital expenditures and $34.2$67.9 million for the acquisition of businesses. Information detailing out the acquisitions in the first ninesix months of 20172018 and 20162017 are included in Note 24 of the Notes to the Condensed Consolidated Financial Statements.
The Company’s capital expenditures are primarily for automation, replacement and growth. Over the long term, based on the Company’s historical capital expenditures, the replacement portion has averaged approximately 2two percent of net sales, while the growth portion has averaged approximately 8 to 11 percent of the annual increase in net sales. However, there are many factors that can impact the actual spending compared to these historical averages. During 2017,2018, the Company has focusedcontinues to focus capital investment in growth, automation and lean manufacturing initiatives.
The first ninesix months of 20172018 capital expenditures and acquisitions were primarily funded by cash from periodic borrowings under the Company’s line of credit and cash from operations. Capital expenditures in 20172018 are expected to be funded primarily from cash generated from operations, as well as periodic borrowings under the Company’s line of credit.

Cash Flows from Financing Activities

Cash flows used forfrom financing activities in the first ninesix months of 2018 were primarily comprised of payments of dividends of $0.55 and $0.60 per share, respectively, of the Company’s common stock, representing an aggregate of $13.9 million and $15.1 million, respectively, paid to stockholders of record as of March 16, 2018 and June 4, 2018, respectively. The increase in debt was due to borrowings under the Company’s line of credit to fund acqusitions. In addition, the Company had $14.1 million of shares tendered for payment of taxes. Further, the Company paid $3.0 million in contingent consideration related to acquisitions.
Cash flows from financing activities in the first six months of 2017 were primarily comprised of paymentsa payment of dividends of $0.50 per share of the Company’s common stock, representing an aggregate of $12.4 million, $12.4 million and $12.5 million, respectively, paid to stockholders of record as of March 6, 2017 and May 19, 2017 and August 18, 2017, respectively. In addition, the Company had $7.3$7.5 million of shares tendered for payment of taxes. Further, the Company paid $2.6 million in contingent consideration related to acquisitions.
Cash flows used for financing activities in the first nine months of 2016 were primarily comprised of payments of dividends of $0.30 per share of the Company’s common stock, representing an aggregate of $7.3 million, $7.4 million and $7.4 million, respectively, paid to stockholders of record as of April 1, 2016, June 6, 2016 and August 19, 2016, respectively. In addition, the Company received $3.6 million in cash and the related tax benefits from the exercise of stock-based compensation, which was partially offset by $3.2 million of shares tendered for payment of taxes. Further, the Company paid $2.7$1.5 million in contingent consideration related to acquisitions.
In connection with certain business acquisitions, if established sales targets for the acquired business are achieved, the Company will pay additional cash consideration. The Company has recorded a $17.0$7.0 million liability for the aggregate fair value of these expected contingent consideration liabilities at SeptemberJune 30, 2017, including $6.6 million recorded as a current liability.2018. For further information, see Note 79 of the Notes to the Condensed Consolidated Financial Statements.
On April 27, 2016,Credit Facilities
See Note 8 in the Company refinanced its lineNotes to Condensed Consolidated Financial Statements for a description of our credit through an agreement with JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., Bank of America, N.A., and 1st Source Bank. The agreement amended and restated the existing line of credit, which now expires on April 27, 2021 (the “Amended Credit Agreement”). In connection with this amendment andfacilities.

29
LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

restatement, the line of credit was increased from $100.0 million to $200.0 million, and contains a feature allowing the Company to draw up to $50.0 million in approved foreign currencies, including Australian dollars, Canadian dollars, pound sterling and euros. The maximum borrowings under the line of credit can be further increased by $125.0 million, subject to certain conditions. At September 30, 2017, the Company had $2.4 million in issued, but undrawn, standby letters of credit under the line of credit. Availability under the Company’s line of credit was $197.6 million at September 30, 2017.
On March 30, 2017, the Company amended its “shelf-loan” facility with Prudential Investment Management, Inc. and its affiliates (“Prudential”) to extend the term through March 30, 2020. In connection with this amendment, the facility provides for Prudential to consider purchasing, at the Company’s request, in one or a series of transactions, Senior Promissory Notes of the Company in the aggregate principal amount of up to $150.0 million (excluding the Company’s Series A Notes already outstanding). Prudential has no obligation to purchase the Senior Promissory Notes. Interest payable on the Senior Promissory Notes will be at rates determined by Prudential within five business days after the Company issues a request to Prudential. Availability under the Company’s “shelf-loan” facility was $150.0 million at September 30, 2017. However, the Amended Credit Agreement limits the aggregate indebtedness outstanding to Prudential from time to time to $150.0 million; therefore, currently the Company can only access an additional $100 million under the shelf-loan facility.
Pursuant to the Amended Credit Agreement and “shelf-loan” facility, the Company is required to maintain minimum interest and fixed charge coverages, and to meet certain other financial requirements. At September 30, 2017, the Company was in compliance with all such requirements, and expects to remain in compliance for the next twelve months.
Availability under both the Amended Credit Agreement and the “shelf-loan” facility is subject to a maximum leverage ratio covenant which limits the amount of consolidated outstanding indebtedness to 2.5 times the trailing twelve-month EBITDA, as defined. This limitation did not impact the Company’s borrowing availability at September 30, 2017. The remaining availability under these facilities, not including the potential increase of $125 million under the Amended Credit Agreement, was $297.6 million at September 30, 2017. The Company believes the availability under the Amended Credit Agreementline of credit and “shelf-loan”shelf-loan facility (as defined in Note 8 in the Notes to Condensed Consolidated Financial Statements) is adequate to finance the Company’s anticipated cash requirements for the next twelve months.
Additional information on The Company is currently discussing a proposed amendment to the Company’s Amended Credit Agreement with JPMorgan Chase Bank N.A. and “shelf-loan” facility is included in Note 6 of the Notesother lenders to address the Condensed Consolidated Financial Statements.limitation on aggregate indebtedness outstanding to Prudential under the shelf-loan facility.

CORPORATE GOVERNANCE

The Company is in compliance with the corporate governance requirements of the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange. The Company’s governance documents and committee charters and key practices have been posted to the Company’s website (www.lci1.com/investors) and are updated periodically. The website also contains, or provides direct links to, all SEC filings, press releases and investor presentations. The Company has also established a Whistleblower Policy, which includes a toll-free hotline (877-373-9123) to report complaints about the Company’s accounting, internal controls, auditing matters or other concerns. The Whistleblower Policy and procedure for complaints can be found on the Company’s website (www.lci1.com/investors).

CONTINGENCIES

Information required by this item is included in Note 79 of the Notes to the Condensed Consolidated Financial Statements and under Item 1 of Part I of this Quarterly Report on Form 10-Q.

INFLATION

The prices of key raw materials, consisting primarily of steel, aluminum, and foam and components used by the Company which are made from these raw materials, are influenced by demand and other factors specific to these commodities, including tariffs, 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.

NEW ACCOUNTING PRONOUNCEMENTS

Information required by this item is included in Note 112 of the Notes to the Condensed Consolidated Financial Statements.

LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to product returns, sales and purchase rebates, accounts receivable, inventories, goodwill and other intangible assets, net assets of acquired businesses, income taxes, warranty and product recall obligations, self-insurance obligations, lease terminations, asset retirement obligations, long-lived assets, post-retirement benefits, stock-based compensation, segment allocations, contingent consideration, environmental liabilities, contingencies and litigation. The Company bases its estimates on historical experience, other available information and various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other resources. Actual results and events could differ significantly from management's estimates.

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains certain “forward-looking statements” with respect to the Company’s 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 Stockcommon stock and other matters. Statements in this Form 10-Q that are not historical facts are “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, and involve a number of risks and uncertainties.

Forward-looking statements, including, without limitation, those relating to the Company’s future business prospects, net sales, expenses and income (loss), cash flow, and financial condition, whenever they occur in this Form 10-Q are necessarily

30
LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

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-Q, pricing pressures due to domestic and foreign competition, costs and availability of raw materials (particularly steel and aluminum) and other components, seasonality and cyclicality in the industries to which the Company sells its products, availability of credit for financing the retail and wholesale purchase of products for which the Company sells its components, inventory levels of retail dealers and manufacturers, availability of transportation for products for which the Company sells its components, the financial condition of the Company’s customers, the financial condition of retail dealers of products for which the Company sells its components, retention and concentration of significant customers, the costs, pace of and successful integration of acquisitions and other growth initiatives, availability and costs of production facilities and labor, employee benefits, employee retention, realization and impact of expansion plans, efficiency improvements and cost reductions, the disruption of business resulting from natural disasters or other unforeseen events, the successful entry into new markets, the costs of compliance with environmental laws, laws of foreign jurisdictions in which we operate, and increased governmental regulation and oversight, information technology performance and security, the ability to protect intellectual property, warranty and product liability claims or product recalls, interest rates, oil and gasoline prices, the impact of international, national and regional economic conditions and consumer confidence on the retail sale of products for which the Company sells its components, and other risks and uncertainties discussed more fully under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2017, and in the Company’s subsequent filings with the Securities and Exchange Commission. The Company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law.



LCI INDUSTRIES
ITEM 3 – QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
At September 30, 2017, theThe Company had $49.9 million of fixedis exposed to market risk related to changes in short-term interest rates on our variable rate debt outstanding. Assuming there is a decrease of 100 basis points indebt. Depending on the interest rate for borrowingsoption selected as fully described in Note 8 of the Notes to Condensed Consolidated Financial Statements, interest is charged based on an indexed rate plus an applicable margin. Assuming a similar nature subsequent to September 30, 2017, which the Company becomes unable to capitalize onhypothetical increase of 0.25 percent in the short-term asindexed interest rate (which approximates a resultten percent increase of the structureweighted-average interest rate on our borrowings as of its fixed rate financing, future cash flowsJune 30, 2018), our results of operations would not be approximately $0.5 million lower per annum than if the fixed rate financing could be obtained at current market rates.materially affected.
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 911 of the Notes to Condensed Consolidated Financial Statements for a more detailed discussion of derivative instruments.
The Company has historically been able to obtain sales price increases to partially offset the majority of raw material cost increases. However, there can be no assurance future cost increases, if any, can be partially or fully passed on to customers, or that the timing of such sales price increases will match raw material cost increases.
Additional information required by this item is included under the caption “Inflation” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Report.

ITEM 4 – CONTROLS AND PROCEDURES
a)Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure, in accordance with the definition of “disclosure controls and procedures” in Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the desired control objectives. Management included in its evaluation the cost-benefit relationship of possible controls and procedures. The Company continually evaluates its disclosure controls and procedures to determine if changes are appropriate based upon changes in the Company’s operations or the business environment in which it operates.
As of the end of the period covered by this Form 10-Q, the Company performed an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and the Company’s principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective.
b)Changes in Internal Control over Financial Reporting
The Company has selectedbegan implementation of a new enterprise resource planning (“ERP”) system. Implementation of the new ERP software begansystem in late 2013. To date, 2325 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 anticipates enhancements to controls due to both the installation of the new ERP system and business process changes resulting therefrom.
During the six months ended June 30, 2018, the Company completed the Taylor Made, Hehr and STLA acquisitions, which contributed $61.8 million of net sales for quarter ended June 30, 2018. Total assets from these acquisitions as of June 30, 2018 were $183.7 million. As the Taylor Made, Hehr and STLA acquisitions occurred in the first six months of 2018, the scope of the Company’s evaluation of the effectiveness of internal control over financial reporting does not include Taylor Made, Hehr and STLA. This exclusion is in accordance with the SEC’s general guidance that an assessment of a recently acquired business may be omitted from the Company’s scope in the year of acquisition.
There were no changes in the Company’s internal controls over financial reporting during the quarter ended SeptemberJune 30, 2017,2018, which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


LCI INDUSTRIES

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS
In the normal course of business, the Company is subject to proceedings, lawsuits, regulatory agency inquiries and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, it is management’s opinion that after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided in the Condensed Consolidated Balance Sheets as of SeptemberJune 30, 2017,2018, would not be material to the Company’s financial position or annual results of operations.

ITEM 1A – RISK FACTORS
There have been no material changes to the matters discussed in Part I, Item 1A – Risk Factors in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 28, 2017.2018.

ITEM 6 – EXHIBITS

a)    Exhibits as required by item 601 of Regulation S-K:

1)
31.1 Certification of Chief Executive Officer required by Rule 13a-14(a). Exhibit 31.1 is filed herewith.
2)
31.2 Certification of Chief Financial Officer required by Rule 13a-14(a). Exhibit 31.2 is filed herewith.
3)
32.1 Certification of Chief Executive Officer required by Rule 13a-14(b) and Section 1350 Chapter 63 of Title 18 of the United States Code. Exhibit 32.1 is filed herewith.
4)
32.2 Certification of Chief Financial Officer required by Rule 13a-14(b) and Section 1350 Chapter 63 of Title 18 of the United States Code. Exhibit 32.2 is filed herewith.
5)101 Interactive Data Files.

LCI INDUSTRIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

LCI INDUSTRIES
Registrant
  
  
By/s/ Brian M. Hall
Brian M. Hall
Chief Financial Officer
NovemberAugust 7, 20172018