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: September 30, ~~2017~~2019



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _________________

Commission File Number: 001-13646

LCI INDUSTRIES

(Exact name of registrant as specified in its charter)



Delaware			13-3250533
(State or other jurisdiction of			(I.R.S. Employer
incorporation or organization)			Identification Number)

3501 County Road 6 East			46514
Elkhart, ~~Indiana~~	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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value	LCII	New York Stock Exchange

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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth 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 31, ~~2017)~~2019) was ~~24,940,373~~25,027,515 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~~STATEMENTS OF STOCKHOLDERS’ EQUITY	8

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	910

	ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2225

	ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3334

	ITEM 4 – CONTROLS AND PROCEDURES	3334

PART II –	OTHER INFORMATION

	ITEM 1 – LEGAL PROCEEDINGS	3435

	ITEM 1A – RISK FACTORS	3435

	ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	35

	ITEM 6 – EXHIBITS	3436

SIGNATURES			3537

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)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		2019		2018
(In thousands, except per share amounts)

Net sales	$	586,221	$	604,244	$	1,807,461	$	1,939,191
Cost of sales	450,748		478,343		1,390,741		1,522,101
Gross profit	135,473		125,901		416,720		417,090
Selling, general and administrative expenses	86,320		80,548		254,155		247,829
Operating profit	49,153		45,353		162,565		169,261
Interest expense, net	1,900		1,720		6,506		4,481
Income before income taxes	47,253		43,633		156,059		164,780
Provision for income taxes	11,444		9,821		38,357		36,408
Net income	$	35,809	$	33,812	$	117,702	$	128,372

Net income per common share:
Basic	$	1.43	$	1.34	$	4.71	$	5.09
Diluted	$	1.42	$	1.33	$	4.70	$	5.03

Weighted average common shares outstanding:
Basic	25,031		25,235		24,984		25,208
Diluted	25,156		25,504		25,053		25,509

Nine Months Ended
September 30, Three Months Ended
September 30,
2017 2016 2017 2016
(In thousands, except per share amounts)

Net sales $ 1,600,633
$ 1,275,999
$ 554,814
$ 412,370
Cost of sales 1,224,312
945,104
433,594
306,820
Gross profit 376,321
330,895
121,220
105,550
Selling, general and administrative expenses 206,225
170,641
73,293
60,412
Operating profit 170,096
160,254
47,927
45,138
Interest expense, net 1,162
1,285
311
396
Income before income taxes 168,934
158,969
47,616
44,742
Provision for income taxes 53,514
55,597
15,478
14,898
Net income $ 115,420
$ 103,372

$ 32,138
$ 29,844

Net income per common share:
Basic $ 4.62
$ 4.20
$ 1.28
$ 1.21
Diluted $ 4.56
$ 4.15
$ 1.26
$ 1.19

Weighted average common shares outstanding:
Basic 24,993
24,587
25,060
24,724
Diluted 25,332
24,882
25,459
25,060

~~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,
2017 2016 2017 2016
(In thousands)

Consolidated net income $ 115,420
$ 103,372
$ 32,138
$ 29,844
Other comprehensive income (loss):
Net foreign currency translation adjustment 4,077
(595 ) 1,662
164
Total comprehensive income $ 119,497
$ 102,777
$ 33,800
$ 30,008

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

LCI INDUSTRIES

CONDENSED CONSOLIDATED ~~BALANCE SHEETS~~STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		2019		2018
(In thousands)

Net income	$	35,809	$	33,812	$	117,702	$	128,372
Other comprehensive income (loss):
Net foreign currency translation adjustment	819		(306)		(1,850)		(1,095)
Unrealized loss on fair value of derivative instruments	(19)		—		(2,061)		—
Total comprehensive income	$	36,609	$	33,506	$	113,791	$	127,277

September 30, December 31,
2017 2016 2016
(In thousands, except per share amount)

ASSETS
Current assets
Cash and cash equivalents $ 19,762
$ 95,060
$ 86,170
Accounts receivable, net 139,144
89,626
57,374
Inventories, net 229,763
161,312
188,743
Prepaid expenses and other current assets 45,384
28,572
35,107
Total current assets 434,053
374,570
367,394
Fixed assets, net 210,304
153,167
172,748
Goodwill 123,001
93,925
89,198
Other intangible assets, net 134,761
109,553
112,943
Deferred taxes 32,380
29,208
31,989
Other assets 21,277
14,095
12,632
Total assets $ 955,776
$ 774,518
$ 786,904

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable, trade $ 88,148
$ 55,681
$ 50,616
Accrued expenses and other current liabilities 109,849
97,733
98,735
Total current liabilities 197,997
153,414
149,351
Long-term indebtedness 49,918
49,940
49,949
Other long-term liabilities 60,805
39,796
37,335
Total liabilities 308,720
243,150
236,635

Stockholders’ equity
Common stock, par value $.01 per share 276
273
274
Paid-in capital 201,814
179,434
185,981
Retained earnings 472,154
381,723
395,279
Accumulated other comprehensive income (loss) 2,279
(595 ) (1,798 )
Stockholders’ equity before treasury stock 676,523
560,835
579,736
Treasury stock, at cost (29,467 ) (29,467 ) (29,467 )
Total stockholders’ equity 647,056
531,368
550,269
Total liabilities and stockholders’ equity $ 955,776
$ 774,518
$ 786,904

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

LCI INDUSTRIES

CONDENSED CONSOLIDATED ~~STATEMENTS OF CASH FLOWS~~BALANCE SHEETS

(Unaudited)

Nine Months Ended
September 30,
2017 2016
(In thousands)
Cash flows from operating activities:
Net income $ 115,420
$ 103,372
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation and amortization 39,856
33,720
Stock-based compensation expense 15,042
11,421
Deferred taxes —
183
Other non-cash items 3,655
1,728
Changes in assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net (69,720 ) (46,028 )
Inventories, net (33,780 ) 13,451
Prepaid expenses and other assets (18,662 ) (7,659 )
Accounts payable, trade 29,856
23,827
Accrued expenses and other liabilities 27,192
30,093
Net cash flows provided by operating activities 108,859
164,108
Cash flows from investing activities:
Capital expenditures (60,342 ) (21,927 )
Acquisitions of businesses, net of cash acquired (67,876 ) (34,237 )
Proceeds from sales of fixed assets 348
533
Other investing activities (105 ) (316 )
Net cash flows used for investing activities (127,975 ) (55,947 )
Cash flows from financing activities:
Exercise of stock-based awards, net of shares tendered for payment of taxes (7,313 ) 409
Proceeds from line of credit borrowings 9,715
81,458
Repayments under line of credit borrowings (9,715 ) (81,458 )
Payment of dividends (37,346 ) (22,078 )
Payment of contingent consideration related to acquisitions (2,574 ) (2,719 )
Other financing activities (59 ) (1,018 )
Net cash flows used for financing activities (47,292 ) (25,406 )

Net (decrease) increase in cash and cash equivalents (66,408 ) 82,755

Cash and cash equivalents at beginning of period 86,170
12,305
Cash and cash equivalents at end of period $ 19,762
$ 95,060

Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,291
$ 1,525
Cash paid during the period for income taxes, net of refunds $ 48,181
$ 51,524
Purchase of property and equipment in accrued expenses $ 1,205
$ 279


	September 30,		December 31,
	2019		2018
(In thousands, except per share amount)

ASSETS
Current assets
Cash and cash equivalents	$	24,168	$	14,928
Restricted cash	3,309		—
Accounts receivable, net of allowances of $2,559 and $1,895 at September 30, 2019 and December 31, 2018, respectively	185,821		121,812
Inventories, net	334,462		340,615

Prepaid expenses and other current assets	32,836		49,296
Total current assets	580,596		526,651
Fixed assets, net	343,883		322,876
Goodwill	203,505		180,168
Other intangible assets, net	177,310		176,342
Operating lease right-of-use assets	67,666		—
Deferred taxes	8,654		10,948
Other assets	33,199		26,908
Total assets	$	1,414,813	$	1,243,893

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities

Accounts payable, trade	$	99,899	$	78,354

Current portion of operating lease obligations	15,226		—
Accrued expenses and other current liabilities	140,947		99,228
Total current liabilities	256,072		177,582
Long-term indebtedness	261,631		293,528
Operating lease obligations	55,307		—
Other long-term liabilities	64,422		66,528
Total liabilities	637,432		537,638

Stockholders’ equity
Common stock, par value $.01 per share	281		280
Paid-in capital	209,053		203,246
Retained earnings	632,725		563,496
Accumulated other comprehensive loss	(6,516)		(2,605)
Stockholders’ equity before treasury stock	835,543		764,417
Treasury stock, at cost	(58,162)		(58,162)
Total stockholders’ equity	777,381		706,255
Total liabilities and stockholders’ equity	$	1,414,813	$	1,243,893

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

LCI INDUSTRIES

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF ~~STOCKHOLDERS’ EQUITY~~CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
	2019		2018
(In thousands)
Cash flows from operating activities:
Net income	$	117,702	$	128,372
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation and amortization	55,882		49,739
Stock-based compensation expense	12,061		13,852

Other non-cash items	837		(959)
Changes in assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net	(42,367)		(51,733)
Inventories, net	24,410		(16,475)
Prepaid expenses and other assets	15,119		(9,506)
Accounts payable, trade	8,437		(12,930)
Accrued expenses and other liabilities	17,461		7,232
Net cash flows provided by operating activities	209,542		107,592
Cash flows from investing activities:
Capital expenditures	(47,767)		(92,522)
Acquisitions of businesses, net of cash acquired	(53,923)		(156,701)
Proceeds from note receivable	—		2,000

Other investing activities	364		(875)
Net cash flows used in investing activities	(101,326)		(248,098)
Cash flows from financing activities:
Vesting of stock-based awards, net of shares tendered for payment of taxes	(7,194)		(14,114)
Proceeds from revolving credit facility borrowings	404,228		928,601
Repayments under revolving credit facility borrowings	(443,921)		(738,601)
Proceeds from other borrowings	—		4,509
Payment of dividends	(47,533)		(44,114)
Payment of contingent consideration related to acquisitions	(4)		(3,018)
Other financing activities	(401)		(556)
Net cash flows (used in) provided by financing activities	(94,825)		132,707
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(842)		—
Net increase (decrease) in cash, cash equivalents, and restricted cash	12,549		(7,799)
Cash, cash equivalents, and restricted cash at beginning of period	14,928		26,049
Cash, cash equivalents, and restricted cash at end of period	$	27,477	$	18,250

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	6,156	$	4,244
Cash paid during the period for income taxes, net of refunds	$	28,416	$	33,844
Purchase of property and equipment in accrued expenses	$	588	$	467

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 taxes 2
(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

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

LCI INDUSTRIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


(In thousands, except shares and per share amounts)	Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Stockholders’ Equity
Balance - December 31, 2018	$	280	$	203,246	$	563,496	$	(2,605)	$	(58,162)	$	706,255
Net income	—		—		34,366		—		—		34,366
Issuance of 137,040 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes	1		(6,349)		—		—		—		(6,348)
Stock-based compensation expense	—		3,733		—		—		—		3,733
Other comprehensive loss	—		—		—		(1,328)		—		(1,328)
Cash dividends ($0.60 per share)	—		—		(14,999)		—		—		(14,999)
Dividend equivalents on stock-based awards	—		304		(304)		—		—		—
Balance - March 31, 2019	281		200,934		582,559		(3,933)		(58,162)		721,679
Net income	—		—		47,527		—		—		47,527
Issuance of 27,965 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes	—		(795)		—		—		—		(795)
Stock-based compensation expense	—		4,115		—		—		—		4,115
Other comprehensive loss	—		—		—		(3,383)		—		(3,383)
Cash dividends ($0.65 per share)	—		—		(16,267)		—		—		(16,267)
Dividend equivalents on stock-based awards	—		318		(318)		—		—		—
Balance - June 30, 2019	281		204,572		613,501		(7,316)		(58,162)		752,876
Net income	—		—		35,809		—		—		35,809
Issuance of 1,429 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes	—		(50)		—		—		—		(50)
Stock-based compensation expense	—		4,213		—		—		—		4,213
Other comprehensive income	—		—		—		800		—		800
Cash dividends ($0.65 per share)	—		—		(16,267)		—		—		(16,267)
Dividend equivalents on stock-based awards	—		318		(318)		—		—		—
Balance - September 30, 2019	$	281	$	209,053	$	632,725	$	(6,516)	$	(58,162)	$	777,381

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

LCI INDUSTRIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


(In thousands, except shares and per share amounts)	Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Stockholders’ Equity
Balance - December 31, 2017	$	277	$	203,990	$	475,506	$	2,439	$	(29,467)	$	652,745
Net income	—		—		47,336		—		—		47,336
Issuance of 223,768 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes	2		(14,087)		—		—		—		(14,085)
Stock-based compensation expense	—		5,543		—		—		—		5,543
Other comprehensive income	—		—		—		1,110		—		1,110
Cash dividends ($0.55 per share)	—		—		(13,858)		—		—		(13,858)
Dividend equivalents on stock-based awards	—		319		(319)		—		—		—
Balance - March 31, 2018	279		195,765		508,665		3,549		(29,467)		678,791
Net income	—		—		47,224		—		—		47,224
Issuance of 2,419 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes	—		(29)		—		—		—		(29)
Stock-based compensation expense	—		4,219		—		—		—		4,219
Other comprehensive loss	—		—		—		(1,899)		—		(1,899)
Cash dividends ($0.60 per share)	—		—		(15,127)		—		—		(15,127)
Dividend equivalents on stock-based awards	—		351		(351)		—		—		—
Balance - June 30, 2018	279		200,306		540,411		1,650		(29,467)		713,179
Net income	—		—		33,812		—		—		33,812
Issuance of 1,959 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes	—		—		—		—		—		—
Stock-based compensation expense	—		4,090		—		—		—		4,090
Other comprehensive loss	—		—		—		(306)		—		(306)
Cash dividends ($0.60 per share)	—		—		(15,129)		—		—		(15,129)
Dividend equivalents on stock-based awards	—		352		(352)		—		—		—
Balance - September 30, 2018	$	279	$	204,748	$	558,742	$	1,344	$	(29,467)	$	735,646

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 transportation 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 engineered components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors, and service centers. At September 30, ~~2017,~~2019, the Company operated 52over 70 manufacturing and distribution facilities located throughout ~~the United States~~North America and ~~in Canada and Italy.~~Europe.

Most industries where the Company sells products or where its products are used historically have been seasonal and are generally at the highest levels when the weather is moderate. Accordingly, the Company’s sales and profits have generally been the highest in the second quarter and lowest in the fourth quarter. However, because of fluctuations in dealer inventories, the impact of international, national, and regional economic conditions, ~~and~~ consumer confidence on retail sales of 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 certain engineered components to the aftermarket channels of these industries tend to be counter-seasonal.

The Company is not aware of any significant events, except as disclosed in the Notes to Condensed Consolidated Financial Statements, which occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on the Condensed Consolidated Financial Statements.

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 ~~presented herein~~ have been prepared ~~by the Company~~ in accordance with the ~~accounting policies described in its December 31, 2016 Annual Report on~~instructions to Form ~~10-K~~10-Q, 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 reclassifiedtherefore do not include some information necessary to conform to ~~current year presentation.~~annual reporting requirements. Results for interim periods should not be considered indicative of results for the full year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to product returns, sales and purchase rebates, accounts receivable, inventories, goodwill and other intangible assets, net assets of acquired businesses, income taxes, warranty and product recall obligations, self-insurance obligations, operating lease ~~terminations,~~right-of-use assets and obligations, 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.

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Condensed Consolidated Financial Statements presented herein have been prepared by the Company in accordance with the ~~instructions~~accounting policies described in its December 31, 2018 Annual Report on Form 10-K and should be read in conjunction with the Notes to ~~Form 10-Q,~~Consolidated Financial Statements which appear in that report. All significant intercompany balances and ~~therefore do~~transactions have been eliminated.

Restricted Cash

Restricted cash represents the Company’s funds held in an escrow account designated for the acquisition of Lewmar Marine Ltd. (see Note 3). The following table provides a reconciliation of cash, cash equivalents, and restricted cash as reported in the Condensed Consolidated Balance Sheets that aggregates to the amounts presented in the Condensed Consolidated Statements of Cash Flows.


	September 30,
(In thousands)	2019		2018
Cash and cash equivalents	$	24,168	$	18,250
Restricted cash	3,309		—
Cash, cash equivalents, and restricted cash at end of period	$	27,477	$	18,250

Recent Accounting Pronouncements

Recently issued accounting pronouncements not ~~include some information necessary~~yet adopted

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Simplifying the Test for Goodwill Impairment, which amends Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other. This ASU simplifies how an entity is required to ~~conform 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 ~~requirements.~~periods, beginning after December 15, 2019, and early adoption is permitted. The Company will adopt this guidance in the first quarter of 2020 and does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. This ASU is effective for interim and annual reporting periods, beginning after December 15, 2019, and early adoption is permitted. The Company will adopt this guidance in the first quarter of 2020 and does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

Recently adopted accounting pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires, in most instances, a lessee to recognize on its balance sheet a liability to make lease payments (the lease liability) and also a right-of-use asset representing its right to use the underlying asset for the lease term. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company adopted Topic 842 on January 1, 2019, using the cumulative-effect adjustment transition method, which applies the new standard at the effective date without adjusting the comparative periods presented. The Company elected the package of practical expedients permitted under the transition guidance, which allowed the carryforward of historical lease classification, the assessment of whether a contract is or contains a lease, and initial direct costs for any leases that existed prior to adoption of the new standard. The Company also elected to keep leases with an initial term of 12 months or less off its Condensed Consolidated Balance Sheet and recognize the associated lease payments in its Condensed Consolidated Statements of Income on a straight-line basis over the lease term.

The adoption of Topic 842 resulted in the recognition of right-of-use assets of $66.4 million and operating lease obligations of $69.0 million at January 1, 2019. The adoption did not result in a cumulative effect adjustment to beginning retained earnings and is not expected to materially impact the Company’s Consolidated Statements of Income or Cash Flows. See Note 8 of the Notes to Condensed Consolidated Financial Statements for expanded disclosures required under Topic 842.

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

Subsequent Event

SureShade

In October 2019, the Company acquired substantially all of the business assets (collectively referred to under the business name “SureShade”) of Rodan Enterprises, LLC, a designer and manufacturer of sunshade systems for the outdoor recreation industry in North America and Europe headquartered in Philadelphia, Pennsylvania. The purchase price was $14.0 million, which includes holdback payments of $1.4 million. The results of the acquired business will be included primarily in the Company’s OEM Segment. The Company is in the process of determining the fair value of the assets acquired and liabilities assumed for the opening balance sheet.

Acquisitions Completed During the Nine Months Ended September 30, ~~2017~~2019

~~Metallarte~~Ciesse Holdings S.r.l.

In ~~June 2017,~~August 2019, the Company acquired 100 percent of the equity interests of ~~Metallarte~~Ciesse Holding S.r.l. ~~(“Metallarte”~~and related entities (collectively, “Ciesse”), a ~~manufacturer~~supplier of ~~entry~~railway interior products 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,~~systems, headquartered in Rignano sull’Arno, Italy. The purchase price was ~~$14.1~~$5.4 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. 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 accounting for the Ciesse business combination is incomplete. The estimated fair value of assets acquired and liabilities assumed is based on a preliminary allocation and will be finalized during the measurement period which will not exceed 12 months from the acquisition date. As the acquisition of Ciesse is not considered to have a material impact on the Company’s financial statements, proforma results of operations, and other disclosures are not presented.

Lewmar Marine Ltd.

In August 2019, the Company acquired 100 percent of the equity interests of Lewmar Marine Ltd. and related entities (collectively, “Lewmar”), a supplier of leisure marine equipment, headquartered in Havant, United Kingdom. The purchase price was $40.5 million, net of cash acquired, 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 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	$	40,453

Customer relationship and other identifiable intangible assets	$	15,000
Net tangible assets	3,348
Total fair value of net assets acquired	$	18,348

Goodwill (not tax deductible)	$	22,105

The customer relationship 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. As the acquisition of Lewmar is not considered to have a material impact on the Company’s financial statements, proforma results of operations and other disclosures are not presented.

Lavet S.r.l.

In June 2019, the Company acquired 100 percent of the equity interests of Lavet S.r.l. (“Lavet”), a manufacturer of window blind systems for European leisure vehicles, headquartered in Siena, Italy. The purchase price was $2.4 million, net of cash acquired, paid at closing, and is subject to potential post-closing adjustments related to net working capital. The results of

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Cash consideration, net of cash acquired $ 13,501
Contingent consideration 2,366
Total fair value of consideration given $ 15,867

Customer relationships $ 7,000
Other identifiable intangible assets 2,150
Net tangible assets 167
Total fair value of net assets acquired $ 9,317

Goodwill (not tax deductible) $ 6,550
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 accounting for the Lavet business combination is incomplete. The estimated fair value of assets acquired and liabilities assumed is based on a preliminary allocation and will be finalized during the measurement period which will not exceed 12 months from the acquisition date. As the acquisition of Lavet is not considered to have a material impact on the Company’s financial statements, proforma results of operations, and other disclosures are not presented.

Femto Engineering S.r.l.

In June 2019, the Company acquired 100 percent of the equity interests of Femto Engineering S.r.l. and related entities (collectively, “Femto”), an engineering company with focus on designing and manufacturing of plastic moldings, headquartered in San Casciano, Italy. The purchase price was $5.7 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 Consolidated Statements of Income since the acquisition date.

The accounting for the Femto business combination is incomplete. The purchase price was preliminarily recorded in goodwill with allocations to the acquired real estate and assumed debt on the real estate at September 30, 2019. The estimated fair value of other assets acquired and liabilities assumed is based on a preliminary allocation and will be finalized during the measurement period which will not exceed 12 months from the acquisition date. As the acquisition of Femto is not considered to have a material impact on the Company’s financial statements, proforma results of operations, and other disclosures are not presented.

Acquisitions Completed During the Year Ended December 31, 2018

Smoker Craft Furniture

In November 2018, the Company acquired the business and certain assets of the furniture manufacturing operation of Smoker Craft Inc., a leading pontoon, aluminum fishing, and fiberglass boat manufacturer located in New Paris, Indiana. The purchase price was $28.1 million paid at closing. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Consolidated Statements of Income since the acquisition date. The Company is validating account balances and finalizing the valuation for the acquisition. The acquisition of this business was recorded on the acquisition date as follows (in thousands):


Cash consideration	$	28,091

Customer relationship and other identifiable intangible assets	$	16,730
Net tangible assets	1,357
Total fair value of net assets acquired	$	18,087

Goodwill (tax deductible)	$	10,004

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

ST.LA. S.r.l.

In June 2018, the Company acquired 100 percent of the equity interests of ST.LA. S.r.l., a manufacturer of bed lifts and other RV components for the European caravan market, headquartered in Pontedera, Italy. The purchase price was $14.8 million, net of cash acquired, paid at closing. The results of the acquired business have been included 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 as of the acquisition date as follows (in thousands):


Cash consideration, net of cash acquired	$	14,845

Customer relationships and other identifiable intangible assets	$	6,354
Net tangible assets	4,099
Total fair value of net assets acquired	$	10,453

Goodwill (not tax deductible)	$	4,392

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.

~~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 assets 1,820
Net tangible assets 4,928
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 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 $ 6,502
Contingent consideration 4,922
Total fair value of consideration given $ 11,424

Customer relationships $ 3,189
Other identifiable intangible assets 1,329
Net tangible assets 585
Total fair value of net assets acquired $ 5,103

Goodwill (not tax deductible) $ 6,321

~~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 consideration 1,322
Total fair value of consideration given $ 17,940

Customer relationships $ 9,696
Other identifiable intangible assets 6,141
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 assets 2,378
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 assets 1,307
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.

Goodwill

Goodwill by reportable segment was as follows:


(In thousands)	OEM Segment		Aftermarket Segment		Total
Net balance – December 31, 2018	$	160,257	$	19,911	$	180,168
Acquisitions – 2019	18,204		8,842		27,046
Other	(3,609)		(100)		(3,709)
Net balance – September 30, 2019	$	174,852	$	28,653	$	203,505

(In thousands) OEM Segment Aftermarket Segment Total
Net balance – December 31, 2016 $ 74,663
$ 14,535
$ 89,198
Acquisitions – 2017 29,277
—
29,277
Other 4,519
7
4,526
Net balance – September 30, 2017 $ 108,459
$ 14,542
$ 123,001

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.

~~Changes~~Any 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 September 30, ~~2017:~~2019:


(In thousands)	Gross Cost		Accumulated Amortization		Net Balance		Estimated Useful Life in Years
Customer relationships	$	200,497	$	64,747	$	135,750	6	to	16
Patents	61,546		43,247		18,299		3	to	19
Trade names (finite life)	15,209		6,652		8,557		3	to	15
Trade names (indefinite life)	7,600		—		7,600		Indefinite
Non-compete agreements	7,193		4,919		2,274		3	to	6
Other	308		165		143		2	to	12
Purchased research and development	4,687		—		4,687		Indefinite
Other intangible assets	$	297,040	$	119,730	$	177,310

(In thousands) Gross
Cost Accumulated
Amortization Net
Balance Estimated Useful
Life in Years
Customer relationships $ 138,941
$ 39,792
$ 99,149
6 to 16
Patents 57,416
37,277
20,139
3 to 19
Trade names 10,416
4,708
5,708
3 to 15
Non-compete agreements 8,479
3,609
4,870
3 to 6
Other 309
101
208
2 to 12
Purchased research and development 4,687
—
4,687
Indefinite
Other intangible assets $ 220,248
$ 85,487
$ 134,761

~~Other intangible assets consisted of the following at September 30, 2016:~~

(In thousands) Gross
Cost Accumulated
Amortization Net
Balance Estimated Useful
Life in Years
Customer relationships $ 106,316
$ 30,226
$ 76,090
6 to 16
Patents 55,172
32,290
22,882
3 to 19
Trade names 9,876
5,332
4,544
3 to 15
Non-compete agreements 4,569
3,460
1,109
3 to 6
Other 309
68
241
2 to 12
Purchased research and development 4,687
—
4,687
Indefinite
Other intangible assets $ 180,929
$ 71,376
$ 109,553

Other intangible assets consisted of the following at December 31, ~~2016:~~2018:


(In thousands)	Gross Cost		Accumulated Amortization		Net Balance		Estimated Useful Life in Years
Customer relationships	$	191,919	$	54,889	$	137,030	6	to	16
Patents	58,787		40,079		18,708		3	to	19
Trade names (finite life)	10,885		5,507		5,378		3	to	15
Trade names (indefinite life)	7,600		—		7,600		Indefinite
Non-compete agreements	6,919		4,148		2,771		3	to	6
Other	309		141		168		2	to	12
Purchased research and development	4,687		—		4,687		Indefinite
Other intangible assets	$	281,106	$	104,764	$	176,342

(In thousands) Gross
Cost Accumulated
Amortization Net
Balance Estimated Useful
Life in Years
Customer relationships $ 110,784
$ 32,414
$ 78,370
6 to 16
Patents 56,468
34,066
22,402
3 to 19
Trade names 10,041
5,667
4,374
3 to 15
Non-compete agreements 5,852
2,975
2,877
3 to 6
Other 309
76
233
2 to 12
Purchased research and development 4,687
—
4,687
Indefinite
Other intangible assets $ 188,141
$ 75,198
$ 112,943

~~LCI INDUSTRIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~(Continued)~~

~~(Unaudited)~~

3.4. INVENTORIES

Inventories ~~valued~~are stated at the lower of cost (first-in, first-out (FIFO) method) or ~~market,~~net realizable value. Cost includes material, labor, and overhead. Inventories consisted of the following at:


	September 30,		December 31,
(In thousands)	2019		2018
Raw materials	$	270,732	$	284,467
Work in process	14,579		12,291
Finished goods	49,151		43,857
Inventories, net	$	334,462	$	340,615

September 30, December 31,
(In thousands) 2017 2016 2016
Raw materials $ 191,680
$ 127,708
$ 155,044
Work in process 10,562
11,227
7,509
Finished goods 27,521
22,377
26,190
Inventories, net $ 229,763
$ 161,312
$ 188,743

4.5. FIXED ASSETS

Fixed assets consisted of the following at:


	September 30,		December 31,
(In thousands)	2019		2018
Fixed assets, at cost	$	615,925	$	559,234
Less accumulated depreciation and amortization	272,042		236,358
Fixed assets, net	$	343,883	$	322,876

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 30,
December 31,
(In thousands) 2017 2016 2016
Fixed assets, at cost $ 396,789
$ 313,057
$ 337,362
Less accumulated depreciation and amortization 186,485
159,890
164,614
Fixed assets, net $ 210,304
$ 153,167
$ 172,748

5.6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following at:


	September 30,		December 31,
(In thousands)	2019		2018
Employee compensation and benefits	$	44,193	$	33,835
Current portion of accrued warranty	33,710		32,180


Other	63,044		33,213
Accrued expenses and other current liabilities	$	140,947	$	99,228

September 30, December 31,
(In thousands) 2017 2016 2016
Employee compensation and benefits $ 42,646
$ 45,299
$ 47,459
Current portion of accrued warranty 23,558
19,607
20,393
Taxes payable 5,613
—
41
Customer rebates 11,120
10,998
9,329
Other 26,912
21,829
21,513
Accrued expenses and other current liabilities $ 109,849
$ 97,733
$ 98,735

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 nine months ended September ~~30:~~30, 2019:


(In thousands)
Balance at beginning of period	$	46,530
Provision for warranty expense	24,861

Warranty costs paid	(21,741)
Balance at end of period	49,650
Less long-term portion	15,940
Current portion of accrued warranty at end of period	$	33,710

(In thousands) 2017 2016
Balance at beginning of period $ 32,393
$ 26,204

Provision for warranty expense 18,570
15,494

Warranty liability from acquired businesses 150
125

Warranty costs paid (13,963 ) (10,833 )
Balance at end of period 37,150
30,990

Less long-term portion 13,592
11,383

Current portion of accrued warranty $ 23,558
$ 19,607

~~LCI INDUSTRIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~(Continued)~~

~~(Unaudited)~~

6.7. LONG-TERM INDEBTEDNESS

~~At September 30, 2017 and 2016, and December 31, 2016,~~Long-term indebtedness consisted of the ~~Company had no outstanding borrowings on its line of credit.~~following at:


	September 30,		December 31,
(In thousands)	2019		2018
Revolving Credit Facility	$	198,745	$	240,060
Shelf-Loan Facility	50,000		50,000
Other	23,939		4,425
Unamortized deferred financing fees	(298)		(361)
	272,386		294,124
Less current portion	(10,755)		(596)
Long-term indebtedness	$	261,631	$	293,528

On ~~April 27, 2016,~~December 14, 2018, 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 now expires on April 27, 2021~~other bank lenders (the “Amended Credit Agreement”). ~~In connection with this amendment~~The Amended Credit Agreement amended and ~~restatement,~~restated an existing credit agreement dated April 27, 2016 and now expires on December 14, 2023.

The Amended Credit Agreement increased the ~~line of~~revolving credit ~~was increased~~facility from ~~$100.0~~$325.0 million to ~~$200.0~~$600.0 million, and ~~contains a feature allowing~~permits the Company to ~~draw~~borrow up to ~~$50.0~~$250.0 million in approved foreign currencies, including Australian dollars, Canadian dollars, ~~pound~~pounds sterling, and ~~euros.~~euros ($43.7 million, or €40.0 million drawn at September 30, 2019). The maximum borrowings under the ~~line of~~ credit ~~can~~facility may be further increased by ~~$125.0~~$300.0 million in additional revolving loans or incremental term loans, subject to the consent of the lenders providing such incremental facilities and certain other conditions. Interest on borrowings under the ~~line of~~revolving credit facility 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 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 September 30, ~~2017)~~2019) depending on the Company’s ~~performance and financial condition,~~total net leverage ratio, or (ii) the Adjusted LIBO Rate for a period equal to one, two, three, six, or twelve months (with the consent of each lender) as selected by the Company, plus additional interest ranging from ~~1.0~~0.875 percent to 1.625 percent ~~(1.0~~(0.875 percent at September 30, ~~2017)~~2019) depending on the Company’s ~~performance and financial condition.~~total net

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

leverage ratio. At September 30, ~~2017 and 2016,~~2019, the Company had ~~$2.4 million and~~ $2.5 million ~~respectively,~~ in issued, but undrawn, standby letters of credit under the ~~line of credit.~~revolving credit facility. Availability under the Company’s ~~line of~~revolving credit facility was ~~$197.6~~$398.7 million at September 30, ~~2017.~~2019.

On February 24, 2014, the Company entered into a $150.0 million ~~“shelf-loan”~~shelf-loan facility (as amended, the “Shelf-Loan Facility”) with PGIM, Inc. (formerly Prudential Investment Management, Inc.) and its affiliates (“Prudential”). On March 20, 2015, the Company issued $50.0 million of Senior Promissory Notes (“Series A Notes”) to Prudential for a term of five years, at a fixed interest rate of 3.35 percent per annum, payable quarterly in arrears. On March 29, 2019, the Company issued $50.0 million of Series B Senior Notes (the “Series B Notes”) to certain affiliates of Prudential for a term of three years, at a fixed interest rate of 3.80 percent per annum, payable quarterly in arrears, of which the entire amount was outstanding at September 30, ~~2017.~~2019. The net proceeds of the Series B Notes were used to repay the Series A Notes. At September 30, ~~2017,~~2019, the fair value of the Company’s long-term debt approximates the carrying value, as estimated using quoted market prices and discounted future cash flows based on similar borrowing arrangements.

~~On March 30, 2017, the Company amended its “shelf-loan” facility to extend the term through March 30, 2020. In connection with this amendment, the facility~~The Shelf-Loan 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 AB 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 $100.0 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.

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

Pursuant to the Amended Credit Agreement and ~~“shelf-loan” facility,~~Shelf-Loan Facility, the Company ~~is required~~shall not permit its net leverage ratio to exceed certain limits, shall maintain a minimum ~~interest~~debt service coverage ratio, and ~~fixed charge coverages, and to~~must meet certain other financial requirements. At September 30, ~~2017 and 2016,~~2019, 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~~Shelf-Loan Facility is subject to a maximum net leverage ratio covenant which limits the amount of consolidated outstanding indebtedness ~~to 2.5 times the~~on a trailing twelve-month EBITDA, as defined. This limitation did not impact the Company’s borrowing availability at September 30, ~~2017.~~2019. The remaining availability under these facilities was ~~$297.6~~$548.7 million at September 30, ~~2017.~~2019. The Company believes the availability under the Amended Credit Agreement and ~~“shelf-loan” facility~~Shelf-Loan Facility, along with its cash flows from operations, is adequate to finance the Company’s anticipated cash requirements for the next twelve months.

8. LEASES

The Company leases certain manufacturing and warehouse facilities, administrative office space, semi-tractors, trailers, forklifts, and other equipment through operating leases with unrelated third parties. The operating leases have remaining terms of up to 12 years and some leases include options to purchase, terminate, or extend for one or more years. The options are included in the lease term when it is reasonably certain the option will be exercised. Leases with an initial term of 12 months or less are recognized in lease expense on a straight-line basis over the lease term and not recorded on the Condensed Consolidated Balance Sheet.

The Company uses its incremental borrowing rate based on information available at lease inception in determining the present value of the lease payments. The Company applies a portfolio approach for determining the incremental borrowing rate based on applicable lease terms and the current economic environment.

Certain of the Company’s lease arrangements contain lease components (such as minimum rent payments) and non-lease components (such as common-area or other maintenance costs and taxes). The Company generally accounts for each component separately based on the estimated standalone price of each component. Some of the Company’s lease arrangements include rental payments that are adjusted periodically for an index rate. These leases are initially measured using the projected payments in effect at the inception of the lease. Certain of the Company’s leased semi-tractors, trailers, and forklifts include variable costs for usage or mileage. Such variable costs are expensed as incurred and included in the variable lease cost item noted in the table below. The Company’s lease agreements do not contain any significant residual value guarantees or restrictive covenants. The components of lease cost for the periods ended September 30, 2019 were as follows:

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

(Unaudited)


(in thousands)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	$	5,481	$	16,263
Short-term lease cost	522		1,996
Variable lease cost	501		1,331
Total lease cost	$	6,504	$	19,590

Future minimum lease payments under operating leases as of September 30, 2019 were as follows:


(in thousands)
Year Ending December 31,
2019 (excluding the nine months ended September 30, 2019)	$	5,401
2020	17,384
2021	14,518
2022	10,824
2023	7,817
Thereafter	28,947
Total future minimum lease payments ^(a)	84,891
Less: Interest	(14,358)
Present value of operating lease liabilities	$	70,533

^(a)Refer to the Company’s 2018 Annual Report on Form 10-K for disclosure of future minimum lease payments at December 31, 2018 under ASC Topic 840, the accounting standard applicable to leases prior to the adoption of Topic 842.

At September 30, 2019, the Company’s operating leases had a weighted-average remaining lease term of 6.5 years and a weighted-average discount rate of 5.7 percent.

Cash Flows

The initial right-of-use assets of $66.4 million were recognized as non-cash asset additions upon adoption of Topic 842. Additional right-of use assets of $12.3 million were recognized as non-cash asset additions that resulted from new operating lease obligations during the nine months ended September 30, 2019. Cash paid for amounts included in the present value of operating lease obligations and included in cash flows from operations was $15.4 million for the nine months ended September 30, 2019.

Finance Leases

The Company has various leases classified as finance leases, which are included in fixed assets, net and long-term indebtedness on the Condensed Consolidated Balance Sheets. These leases were not material to the Condensed Consolidated Financial Statements as of September 30, 2019.

Lessor

The Company has various lease arrangements to lease office space and other real estate under which the Company is the lessor. These leases are classified as operating leases and income associated with these leases is not material.

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7.9. COMMITMENTS AND CONTINGENCIES

Contingent Consideration

In connection with several business acquisitions, if certain ~~sales~~performance targets for the acquired products are achieved, the Company ~~will be required to~~would pay additional cash consideration. The Company has recorded a liability for the fair value of this contingent consideration at September 30, ~~2017 and 2016,~~2019, based on the present value of the expected future cash flows using a market participant’s weighted average cost of capital of ~~13.6 percent and 12.4 percent, respectively.~~11.7 percent.

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 nine months ended September ~~30:~~30, 2019:

(In thousands) 2017 2016
Balance at beginning of period $ 9,241
$ 10,840
Acquisitions 7,288
1,322
Payments (2,574 ) (2,719 )
Accretion ^(a)
1,227
976
Fair value adjustments^(a)
1,204
1,046
Net foreign currency translation adjustment 659
—
Balance at end of the period^(b)
17,045
11,465
Less current portion in accrued expenses and other current liabilities (6,649 ) (4,984 )
Total long-term portion in other long-term liabilities $ 10,396
$ 6,481


(In thousands)
Balance at beginning of period	$	7,302

Payments	(4)
Accretion ^(a)	~~Recorded in selling, general and administrative expense in the Condensed Consolidated Statements of Income.~~564


Fair value adjustments^{(b) (a)}	Amounts represent the fair value of estimated remaining payments. The total estimated remaining payments as of September 30, 2017 are $20.2 million undiscounted. The liability for contingent consideration expires(214)
Net foreign currency translation adjustment	(148)
Balance at ~~various dates through September 2029. Certain~~end of the ~~contingent consideration arrangements are subject to a maximum payment amount, while the remaining arrangements have no maximum contingent consideration.~~period^(b)	7,500
Less current portion in accrued expenses and other current liabilities	(5,686)
Total long-term portion in other long-term liabilities	$	1,814

^(a) Recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Income.

^(b) Amount represents the fair value of estimated remaining payments. The total estimated remaining undiscounted payments as of September 30, 2019 were $9.1 million. The liability for contingent consideration expires at various dates through September 2029. Certain of the contingent consideration arrangements are subject to a maximum payment amount, while the remaining arrangements have no maximum contingent consideration.

Furrion Distribution and Supply Agreement

In July 2015, the Company entered into a ~~six-year~~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~~provided the Company with the rights to distribute Furrion’s complete line of products to OEMs and aftermarket customers in the RV, specialty vehicle, utility trailer, horse trailer, marine, transit bus, manufactured housing, and school bus industries throughout the United States and Canada.

In August 2019, the Company and Furrion agreed to terminate the agreement effective December 31, 2019, and transition all sale and distribution of Furrion products currently ~~supplies a premium line of televisions, sound systems, navigation systems, wireless backup cameras, solar prep units, power solutions, fireplaces and kitchen appliances, primarily~~handled by the Company to Furrion. Effective January 1, 2020, Furrion will distribute its products directly to the ~~RV industry.~~

~~In connection with this agreement,~~customer and assume all responsibilities previously carried out by the Company ~~entered into minimum purchase obligations (“MPOs”), which~~relating to 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~~stock and certain obsolete and slow-moving stock of Furrion products at the cost paid by the Company. This transition includes an option for Furrion to lease from the Company a designated warehouse and related equipment after January 1, 2020.

~~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.

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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,~~third-parties, have been affected, and may in the future be affected, by releases of hazardous materials. As a result, the Company may incur expenditures for future investigation and remediation of these sites, including in conjunction with voluntary remediation programs or third-party claims.

Litigation

In the normal course of business, the Company is subject to proceedings, lawsuits, regulatory agency inquiries, and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, ~~it is management’s opinion~~management believes that, after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided in the Condensed Consolidated Balance Sheet as of September 30, ~~2017,~~2019, would not be material to the Company’s financial position or ~~annual~~ results of operations.

8.10. STOCKHOLDERS’ EQUITY

The following table summarizes information about shares of the Company’s common stock at:


	September 30,	December 31,
(In thousands)	2019	2018
Common stock authorized	75,000	75,000
Common stock issued	28,115	27,948
Treasury stock	3,087	3,087

September 30, December 31,
(In thousands) 2017 2016 2016
Common stock authorized 75,000
75,000
75,000
Common stock issued 27,625
27,308
27,434
Treasury stock 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,
(In thousands) 2017 2016 2017 2016
Weighted average shares outstanding for basic earnings per share 24,993
24,587
25,060
24,724
Common stock equivalents pertaining to stock-based awards 339
295
399
336
Weighted average shares outstanding for diluted earnings per share 25,332
24,882
25,459
25,060

~~The weighted average diluted shares outstanding~~share for the nine months ended September 30, 2017 and 2016, exclude the effect of 117,223 and 219,302 shares of common stock, respectively, subject to stock-based awards. The weighted average diluted shares outstanding for the three months ended September 30, 2017 and 2016, exclude the effect of 64,353 and 171,514 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.periods:


	Three Months Ended September 30,			Nine Months Ended September 30,
(In thousands)	2019	2018	2019	2018
Weighted average shares outstanding for basic earnings per share	25,031	25,235	24,984	25,208
Common stock equivalents pertaining to stock-based awards	125	269	69	301
Weighted average shares outstanding for diluted earnings per share	25,156	25,504	25,053	25,509

Equity instruments excluded from diluted net earnings per share calculation as the effect would have been anti-dilutive	123	114	122	106

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 September 30, ~~2017~~2019 and December 31, ~~2016:~~2018:


(In thousands, except per share data)	Per Share		Record Date	Payment Date	Total Paid
First Quarter 2018	$	0.55	03/16/18	03/29/18	$	13,858
Second Quarter 2018	0.60		06/04/18	06/15/18	15,127
Third Quarter 2018	0.60		08/31/18	09/14/18	15,129
Fourth Quarter 2018	0.60		11/26/18	12/07/18	15,156
Total 2018	$	2.35			$	59,270

First Quarter 2019	$	0.60	03/08/19	03/22/19	$	14,999
Second Quarter 2019	0.65		06/07/19	06/21/19	16,267
Third Quarter 2019	0.65		09/06/19	09/20/19	16,267
Total 2019	$	1.90			$	47,533

(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 2016 0.30
06/06/16 06/17/16 7,363
Third Quarter 2016 0.30
08/19/16 09/02/16 7,371
Fourth Quarter 2016 0.50
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 2017 0.50
05/19/17 06/02/17 12,445
Third Quarter 2017 0.50
08/18/17 09/01/17 12,459
Nine Months Ended September 30, 2017 $ 1.50
$ 37,346

Deferred and Restricted Stock Units

~~In February 2017,~~

The LCI Industries 2018 Omnibus Incentive Plan (“the ~~Company issued 63,677~~2018 Plan”) provides for the grant or issuance of stock units, including those that have deferral periods, such as deferred stock units (“DSUs”), and those with time-based vesting provisions, such as restricted stock units (“RSUs”), to directors, employees, and other eligible persons. Recipients of DSUs and RSUs are entitled to receive shares at the ~~average price~~end of ~~$108.47,~~a specified vesting or ~~$6.9 million,~~deferral period. Holders of DSUs and RSUs receive dividend equivalents based on dividends granted to ~~executive~~holders of the common stock, which dividend equivalents are payable in additional DSUs and RSUs, and are subject to the same vesting criteria as the original grant.

DSUs vest (i) ratably over the service period, (ii) at a specified future date, or (iii) for certain officers, based on achievement of specified performance conditions. RSUs vest (i) ratably over the service period or (ii) at a specified future date. In addition, DSUs are issued in lieu of certain cash compensation.

Transactions in DSUs and RSUs under the LCI Industries Equity Award and Incentive Plan, as Amended and Restated (“the 2011 Plan”) or the 2018 Plan, as applicable, are summarized as follows:


	Number of Shares	Weighted Average Price
Outstanding at December 31, 2018	264,406	$	83.84
Issued	4,856	85.48
Granted	248,043	80.89
Dividend equivalents	8,163	85.19
Forfeited	(7,858)	90.83
Vested	(150,538)	74.74
Outstanding at September 30, 2019	367,072	$	84.43

Stock Awards and Performance Stock Units

The 2011 Plan provides for ~~a portion of their 2016 incentive compensation. In February 2016,~~stock awards and the ~~Company issued 4,784 deferred~~2018 Plan provides for performance stock units (“PSUs”) that vest at a specific future date based on achievement of specified performance conditions.

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Transactions in performance-based stock awards and PSUs under the ~~average price of $55.22,~~2011 Plan or ~~$0.3 million, to executive officers in lieu of cash for a portion of their 2015 incentive compensation.~~the 2018 Plan, as applicable, are summarized as follows:


	Number of Shares	Weighted Average Price
Outstanding at December 31, 2018	187,368	$	91.39

Granted	48,995	78.11
Dividend equivalents	2,881	85.10
Forfeited	(8,459)	106.10
Vested	(102,434)	77.93
Outstanding at September 30, 2019	128,351	$	96.21

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, 2019													December 31, 2018
(In thousands)	Total		Level 1		Level 2		Level 3	Total		Level 1		Level 2		Level 3


Liabilities
Contingent consideration	$	7,500	$	—	$	—	7,500	$	7,302	$	—	$	—	$	7,302
Derivative liabilities	2,450		—		2,450		—	1,108		—		1,108		—

September 30, 2017 December 31, 2016
(In thousands) Total 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
$ —
Liabilities
Contingent consideration $ 17,045
$ —
$ —
$ 17,045
$ 9,241
$ —
$ —
$ 9,241

Contingent Consideration Related to Acquisitions

Liabilities for contingent consideration related to acquisitions were estimated at fair ~~valued~~value using management’s projections for long-term sales forecasts, including assumptions regarding market share gains and future industry-specific economic and market conditions, and a market participant’s weighted average cost of capital. Over the next six years, the Company’s long-term sales growth forecasts for products subject to contingent consideration arrangements average approximately 1413 percent per year. For further information on the inputs used in determining the fair value, and a ~~roll-forward~~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

The Company’s objectives in using commodity derivatives are to add stability to expense and to manage its exposure to certain commodity price movements. To accomplish this objective, the Company uses commodity swaps as part of its commodity risk management strategy. Commodity swaps designated as cash flow hedges involve fixing the price on a fixed volume of a commodity on specified dates. The commodity swaps are typically cash settled for their fair value at or close to their settlement dates.

At September 30, ~~2017,~~2019, the Company had 6 commodity swap derivative instruments for ~~19.2~~a total of 25.0 million pounds of steel ~~in order~~used to ~~manage~~hedge its commodity price risk on a portion of the exposure to movements associated with steel ~~costs. These derivative instruments expire through December 2018,~~costs at an average steel price of ~~$0.25~~$0.37 per pound. ~~While these~~These derivatives expire at various dates through April 2020. At December 31, 2018, the Company had 5 commodity swap derivative instruments for a total of 34.4 million pounds of steel at an average steel price of $0.39 per pound. These derivatives are ~~considered to be economic~~designated and qualify as cash flow hedges of commodity price risk; therefore, the

gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified in the period during which the hedged transactions affect earnings within the same income statement line item as the earnings

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

(Unaudited)

~~underlying movement in~~effect of the ~~price of steel, they are not designated or accounted for as a hedge.~~hedged transaction. These derivative instruments were valued at fair value using a market approach based on the quoted market prices of similar instruments at the end of ~~each~~the reporting ~~period, and~~period. At September 30, 2019, the ~~resulting net loss~~$2.5 million corresponding liability was recorded in ~~selling, general~~accrued expenses and ~~administrative expenses in the Condensed Consolidated Statements of Income. At September 30, 2017, the $1.2 million corresponding asset was recorded in~~ other current ~~assets~~liabilities as reflected in the Condensed Consolidated Balance Sheets. ~~A net loss of~~At December 31, 2018, the $1.1 million corresponding liability was recorded in ~~selling, general~~accrued expenses and ~~administrative expenses~~other current liabilities ($0.9 million) and other long-term liabilities ($0.2 million) as reflected in the ~~Condensed Consolidated Statements of Income during the nine months ended September 30, 2017.~~

~~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 nine months ended September 30:

2017 2016
(In thousands) Carrying
Value Non-Recurring
Losses/(Gains) Carrying
Value Non-Recurring
Losses/(Gains)
Vacant owned facilities $ 2,464
$ —
$ 2,506
$ —
Net assets of acquired businesses 38,068
—
27,840
—
Total assets $ 40,532
$ —
$ 30,346
$ —

~~Vacant Owned Facilities~~

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 2 of the Notes to Condensed Consolidated Financial Statements.

~~10.~~12. SEGMENT REPORTING

The Company has ~~two~~2 reportable segments, the OEM Segment and the Aftermarket Segment. Intersegment sales are insignificant.

The OEM Segment, which accounted for 9288 percent and 91 percent of consolidated net sales for ~~each of~~ the nine ~~month periods~~months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively, manufactures or distributes a broad array of engineered components for the leading OEMs in the recreation and transportation product markets, consisting of RVs and adjacent industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; ~~pontoon~~ boats; trains; manufactured homes; and modular housing. Approximately 7161 percent of the Company’s OEM Segment net sales for the nine months ended September 30, ~~2017~~2019 were of components for travel trailer and fifth-wheel RVs.

The Aftermarket Segment, which accounted for 812 percent and 9 percent of consolidated net sales for ~~each of~~ the nine ~~month periods~~months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively, supplies engineered components to the related aftermarket channels of the RVrecreation and ~~adjacent industries,~~

~~LCI INDUSTRIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~(Continued)~~

~~(Unaudited)~~

transportation product markets, 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.~~2018.

Information relating to segments follows for the:
Nine Months Ended
September 30, Three Months Ended
September 30,
(In thousands) 2017 2016 2017 2016
Net sales:
OEM Segment:
RV OEMs:
Travel trailers and fifth-wheels $ 1,045,465
$ 836,634
$ 357,940
$ 263,579
Motorhomes 114,887
85,762
41,595
29,373
Adjacent industries OEMs 310,373
253,088
106,386
82,963
Total OEM Segment net sales 1,470,725
1,175,484
505,921
375,915
Aftermarket Segment:
Total Aftermarket Segment net sales 129,908
100,515
48,893
36,455
Total net sales $ 1,600,633
$ 1,275,999
$ 554,814
$ 412,370
Operating profit:
OEM Segment $ 151,867
$ 144,102
$ 41,025
$ 39,049
Aftermarket Segment 18,229
16,152
6,902
6,089
Total operating profit $ 170,096
$ 160,254
$ 47,927
$ 45,138

~~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 impactfollowing table presents 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~~revenues disaggregated by segment 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 impactgeography based on the billing address of the Company’s ~~consolidated financial statements.~~customers:

~~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~~


	Three Months Ended September 30, 2019										Three Months Ended September 30, 2018
(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	$	311,446	$	2,610	$	314,056	$	335,842	$	2,988	$	338,830
Motorhomes	25,944		8,866		34,810		32,929		10,315		43,244
Adjacent Industries OEMs	143,264		19,420		162,684		147,016		10,888		157,904
Total OEM Segment net sales	480,654		30,896		511,550		515,787		24,191		539,978
Aftermarket Segment:
Total Aftermarket Segment net sales	70,284		4,387		74,671		61,736		2,530		64,266
Total net sales	$	550,938	$	35,283	$	586,221	$	577,523	$	26,721	$	604,244

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~

(Unaudited)


	Nine Months Ended September 30, 2019										Nine Months Ended September 30, 2018
(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	$	964,838	$	9,140	$	973,978	$	1,137,095	$	6,156	$	1,143,251
Motorhomes	86,808		34,359		121,167		113,888		31,342		145,230
Adjacent Industries OEMs	455,754		45,799		501,553		439,304		29,290		468,594
Total OEM Segment net sales	1,507,400		89,298		1,596,698		1,690,287		66,788		1,757,075
Aftermarket Segment:
Total Aftermarket Segment net sales	199,686		11,077		210,763		173,511		8,605		182,116
Total net sales	$	1,707,086	$	100,375	$	1,807,461	$	1,863,798	$	75,393	$	1,939,191

~~whether transactions should be accounted for as acquisition (or disposals)~~

^(a)Net sales to customers in the United States of ~~assets or businesses. This ASU is effective for interim and annual reporting periods beginning after December 15, 2017.~~ America

^(b)Net sales to customers in countries domiciled outside of the United States of America

The ~~adoption of this ASU 2017-01 is not expected to have a material impact on~~following table presents the Company’s ~~consolidated financial statements.~~operating profit by segment:


	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2019		2018		2019		2018
Operating profit:
OEM Segment	$	38,347	$	36,905	$	131,434	$	144,436
Aftermarket Segment	10,806		8,448		31,131		24,825
Total operating profit	$	49,153	$	45,353	$	162,565	$	169,261

~~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 is evaluating the effect of adopting this new accounting guidance, but does not expect adoption will have a material impact on~~following table presents the Company’s ~~consolidated financial statements.~~revenue disaggregated by product:


	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2019		2018		2019		2018
OEM Segment:
Chassis, chassis parts, and slide-out mechanisms	$	193,354	$	214,272	$	610,946	$	714,786
Windows and doors	145,360		157,336		453,343		476,228
Furniture and mattresses	79,512		88,411		264,431		299,207
Axles and suspension solutions	31,405		30,148		97,597		96,901
Other	61,919		49,811		170,381		169,953
Total OEM Segment net sales	511,550		539,978		1,596,698		1,757,075
Total Aftermarket Segment net sales	74,671		64,266		210,763		182,116
Total net sales	$	586,221	$	604,244	$	1,807,461	$	1,939,191

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting, which amended ASC 718,~~ ~~Compensation - Stock Compensation~~. This ASU simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. 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.

The Company does not anticipate the adoption of this standard will have a material impact on its reported current net sales; however, given its acquisition strategy, there may be additional revenue streams acquired prior to the adoption date. The Company’s technical analysis is on-going with respect to variable consideration, whether certain contracts’ revenues will be recognized over time or at a point in time, and whether costs to obtain a contract will be capitalized. Further, the Company is continuing to assess what 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.

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.~~2018.

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 transportation 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 engineered components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors, and service centers.

The Company has two reportable segments, the OEM Segment and the Aftermarket Segment. Intersegment sales are insignificant. At September 30, ~~2017,~~2019, the Company operated 52over 70 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.~~Statements for further information regarding the Company’s segments.

The Company’s OEM Segment manufactures or distributes a broad array of engineered components for the leading OEMs of ~~RVs~~leisure and ~~adjacent~~mobile transportation industries. Approximately 7161 percent of the Company’s OEM Segment net sales for the twelve months ended September 30, ~~2017~~2019 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 engineered components to the related aftermarket channels of the RVrecreation and ~~adjacent industries,~~transportation product markets, 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 engineered 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 September in the following calendar year. Between October and March, industry-wide wholesale shipments of travel trailer and

LCI INDUSTRIES

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

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~~Despite a recent disruption in wholesale shipments due to ~~report that RV~~ dealer inventory ~~is in line with anticipated retail demand.~~correction, which appears to be nearing completion, the Company expects to return to normalized levels by the end of this year.

According to the Recreation Vehicle Industry Association (“RVIA”), industry-wide wholesale shipments of travel trailer and fifth-wheel RVs, the Company’s primary RV market, decreased 18 percent to 266,300 units in the first nine months of ~~2017, the Company’s primary RV market, increased 18 percent to 321,300 units, compared to the same period of 2016, as a result of:~~

~~An estimated 30,100 unit increase in retail demand in the first nine months of 2017, or 10 percent,~~2019, as compared to the same period of ~~2016. In addition,~~2018. The decrease was a result of an estimated 28,100 units, or eight percent, decrease in retail sales in the first nine months of 2019, as compared to the same period of 2018, and a normalization of retail inventories as evidenced by RV dealers decreasing inventory levels by an estimated 61,200 units for the first nine months of 2019, compared to a decrease in inventory levels of 30,800 units in the same period of 2018. Retail demand is typically revised upward ~~over the~~in subsequent ~~quarter by approximately five to ten percent,~~months, primarily due to delayed RV registrations.

Partially offset by RV dealers seasonally decreasing inventory levels by an estimated 3,200 units for the period ended September 30, 2017, lower than the decrease in inventory levels of 22,000 units in the same period of 2016.

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, 2017 115,900
17% 138,000
12% (22,100)
Quarter ended March 31, 2017 101,500
12% 72,800
16% 28,700
Quarter ended December 31, 2016 90,300
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, 2016 82,400
20% 108,700
9% (26,300)
Quarter ended June 30, 2016 99,200
12% 122,800
9% (23,600)
Quarter ended March 31, 2016 90,800
11% 62,900
15% 27,900
Quarter ended December 31, 2015 75,000
4% 49,900
16% 25,100
Twelve months ended September 30, 2016 347,400
12% 344,300
12% 3,100


⁽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.~~


					Estimated
	Wholesale			Retail		Unit Impact on
	Units	Change	Units	Change	Dealer Inventories
Quarter ended September 30, 2019	80,600	(13)%	112,200	(10)%	(31,600)
Quarter ended June 30, 2019	101,000	(13)%	138,100	(8)%	(37,100)
Quarter ended March 31, 2019	84,700	(28)%	77,200	(5)%	7,500
Quarter ended December 31, 2018	90,300	(17)%	67,000	(2)%	23,300
Twelve months ended September 30, 2019	356,600	(18)%	394,500	(7)%	(37,900)

Quarter ended September 30, 2018	92,400	(11)%	124,600	3%	(32,200)
Quarter ended June 30, 2018	115,500	—%	149,400	7%	(33,900)
Quarter ended March 31, 2018	116,900	15%	81,600	12%	35,300
Quarter ended December 31, 2017	108,200	20%	68,100	17%	40,100
Twelve months ended September 30, 2018	433,000	5%	423,700	8%	9,300

According to the RVIA, industry-wide wholesale shipments of motorhome RVs in the first nine months of ~~2017 increased 14~~2019 decreased 13 percent to ~~47,300~~40,800 units compared to the same period of ~~2016. The Company estimates~~2018. Additionally, retail demand for motorhome RVs ~~increased 13~~decreased 15 percent in the first nine months of ~~2017,~~2019, following ~~an 11~~a one percent ~~increase~~decrease in retail demand in ~~2016.~~full year 2018.

The RVIA has projected ~~an 11 percent increase~~a modest decrease in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs for ~~2017 and a two percent increase for 2018.~~2019. Several RV OEMs, however, are introducing new product lines and additional ~~features and adding production capacity.~~features. Retail sales of RVs historically have been closely tied to general economic conditions, as well as consumer confidence, which was above historical averages in ~~2016. Additionally, retail sales of travel trailer and fifth-wheel RVs have increased in 93 of the last 95 months on a year-over-year basis.~~2019. Industry resources report strong attendance and high consumer interest at RV shows around the United States and Canada ~~thus far~~ in ~~2017.~~

Although future retail demand is inherently uncertain, RV industry fundamentals in the first nine months of 2017, including generally low unemployment, low fuel prices and available credit for dealers and RV consumers, were strong, as evidenced by the 10 percent increase in industry-wide retail sales of travel trailer and fifth-wheel RVs in the first nine months of 2017. 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

~~LCI INDUSTRIES~~

~~ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~(Continued)~~

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.2019.

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~~Generation X and ~~Millennials)~~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

LCI INDUSTRIES

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

at home. In addition, the RV OEMs have developed more entry level units, specifically targeting younger families, in both towables and motorhomes. The popularity of traveling in RVs to NASCAR and other sporting events, more family-oriented domestic vacations, and using RVs as second homes, are trends that could continue to motivate consumer demand for RVs. RVIA studies indicate RV vacations cost significantly less than other forms of vacation travel, even when factoring in fuel prices and the cost of RV ownership. More details can be found at www.RVIA.org.

Adjacent Industries

The Company’s portfolio of products used in RVs can also be used in other applications, including buses; trailers used to haul boats, livestock, equipment, and other cargo; trucks; ~~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 ~~eight~~six business acquisitions completed by the Company through the date of this report were focused in Adjacent Industries.

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

•Enclosed trailers. According to Statistical Surveys, approximately ~~192,000~~214,000 and ~~183,500~~216,000 enclosed trailers were sold in ~~2016~~2018 and ~~2015,~~2017, respectively.

~~Pontoon~~•Traditional power boats. Statistical Surveys also reported approximately ~~49,600~~210,500 and ~~45,400~~203,200 traditional power boats were sold in 2018 and 2017, respectively. Traditional power boats include bass, deck, jet, pontoon, ski-wake, and other boats. Included in this total, Statistical Surveys reported approximately 55,900 and 52,400 pontoon boats were sold in ~~2016~~2018 and ~~2015,~~2017, respectively.

•School buses. According to ~~Wards Communications and R.L. Polk & Co.,~~School Bus Fleet, there were approximately ~~32,800 and 29,600~~44,400 school buses sold in ~~2016~~each of 2018 and ~~2015, respectively.~~2017.

•Manufactured housing. According to the Institute for Building Technology and Safety, there were approximately ~~81,100~~96,600 and ~~70,500~~92,900 manufactured home wholesale shipments in ~~2016~~2018 and ~~2015,~~2017, respectively.

Aftermarket Segment

Many of the Company’s OEM Segment products are also sold through various aftermarket channels, including dealerships, ~~warehouse~~wholesale distributors, and service centers, as well as direct to retail ~~customers.~~customers via the Internet. This includes discretionary accessories and replacement service parts. The Company has teams dedicated to product technical and installation training ~~and~~as well as marketing support for its Aftermarket Segment customers. The Company also supports ~~two~~three 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. It also has expanded into biminis, covers, buoys, and fenders to the marine industry. Many of the optional upgrades and non-critical replacements are purchased outside the normal product selling seasons, thereby causing Aftermarket Segment sales to be counter-seasonal.

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

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 third quarter of ~~2017 increased to $555~~2019 were $586.2 million, 35three percent ~~higher~~lower than consolidated net sales for the ~~third quarter~~same period of ~~2016~~2018 of ~~$412~~$604.2 million. ~~Acquisitions~~The decline was primarily driven by declining shipments in the RV OEM industry, partially offset by acquisitions completed by the Company over the twelve months ended September 30, ~~2017,~~2019, which added ~~$24~~$18.4 million in net sales in the third quarter of ~~2017. The 26 percent increase in industry-wide wholesale shipments of travel trailer~~2019, and ~~fifth-wheel RVs, LCI’s primary OEM market, as well as increased content per RV unit, positively impacted net sales~~organic growth in the ~~third quarter of 2017. Further, the Company organically increased sales to adjacent industries and the aftermarket.~~Aftermarket Segment.

•Net income for the third quarter of ~~2017 increased to $32.1~~2019 was $35.8 million, or ~~$1.26 per diluted share, up from net income of $29.8 million, or $1.19~~$1.42 per diluted share, compared to net income of $33.8 million, or $1.33 per diluted share, for the ~~third quarter~~same period of ~~2016.~~2018.

•Consolidated operating ~~profits~~profit during the third quarter of ~~2017 increased six percent,~~2019 was $49.2 million compared to ~~$47.9 million from $45.1~~$45.4 million in the ~~third quarter~~same period of ~~2016.~~2018. Operating profit margin ~~decreased to nine~~was 8.4 percent in the third quarter of ~~2017 from 11~~2019 compared to 7.5 percent ~~compared~~in the same period of 2018, primarily due to pricing changes of targeted products and operational efficiencies.

•The cost of aluminum and steel used in certain of the Company’s manufactured components decreased in the third quarter of ~~2016.~~

~~The improvement in~~2019 compared to the ~~Company’s operating results were partially offset by continued increases in input~~same period for 2018 but are still above prior year-to-date levels. Raw material costs ~~primarily steel, aluminum~~continue to fluctuate and ~~direct labor. Aluminum costs have increased in excess of 20 percent over the prior year. Labor continues~~are expected to remain ~~a challenge with Elkhart County unemployment rates at less than three percent,~~volatile. Prices have decreased from recent highs and ~~as a result,~~are expected to favorably impact margins while being offset, in part, by contractual reductions in customer selling prices that are indexed to select commodities.

•The Company seeks to continuously manage its labor cost, particularly indirect labor, while supporting the ~~Company has initiated price increases that will be fully implemented by~~growth of the ~~first quarter of 2018.~~

business. Lean manufacturing teams continue working to reduce cost and implement processes to better utilize ~~available floorspace.~~manufacturing capacity. The Company has also ~~has~~ reduced direct labor attrition, which improves efficiency and ~~on-time deliveries, while reducing~~reduces 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, the Company completed three acquisitions:~~

◦

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.


◦	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.


◦	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 million paid at closing, plus contingent consideration based on future sales by this operation.

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 of 24.6 percent for the nine months ended September 30, ~~2017,~~2019 was ~~substantially lower~~higher than the comparable prior year period, primarily due to a year-over-year reduction in the ~~recognition of~~ excess tax benefits ~~attributable~~related to the ~~adoption by the Company~~vesting of ~~Accounting Standards Update 2016-09, which simplified several aspects of the accounting for share-based payment transactions, including~~equity-based compensation awards and an increase in state income ~~tax consequences. The excess tax benefit equated to $5.9 million recognized in the first nine months of 2017.~~taxes, as discussed below under “Income Taxes.”

~~Return on equity for the twelve months ended September 30, 2017, which is calculated by taking net income over equity, was 24.2 percent.~~

•In March, June, and September ~~2017,~~2019, the Company paid a quarterly dividend of ~~$0.50~~$0.60, $0.65, and $0.65 per share, aggregating to ~~$12.4~~$15.0 million, ~~$12.4~~$16.3 million, and ~~$12.5~~$16.3 million, respectively.

~~LCI INDUSTRIES~~

~~ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~(Continued)~~

OEM Segment - Third Quarter

Net sales of the OEM Segment in the third quarter of ~~2017 increased 35~~2019 decreased five percent, or ~~$130~~$28.4 million, compared to the same period of ~~2016.~~2018. Net sales of components to OEMs were to the following markets for the three months ended September 30:


(In thousands)	2019		2018		Change
RV OEMs:
Travel trailers and fifth-wheels	$	314,056	$	338,830	(7)	%
Motorhomes	34,810		43,244		(20)	%
Adjacent Industries OEMs	162,684		157,904		3	%
Total OEM Segment net sales	$	511,550	$	539,978	(5)	%

(In thousands) 2017 2016 Change
RV OEMs:
Travel trailers and fifth-wheels $ 357,940
$ 263,579
36 %
Motorhomes 41,595
29,373
42 %
Adjacent industries OEMs 106,386
82,963
28 %
Total OEM Segment net sales $ 505,921
$ 375,915
35 %

According to the RVIA, industry-wide wholesale unit shipments for the three months ended September 30 were:


	2019	2018	Change
Travel trailer and fifth-wheel RVs	80,600	92,400	(13)	%
Motorhomes	10,800	12,400	(13)	%

2017 2016 Change
Travel trailer and fifth-wheel RVs 103,900
82,400
26 %
Motorhomes 14,500
12,800
13 %

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

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

The trend in the Company’s average product content per RV produced is an indicator of the Company’s overall market share of components for new RVs. The Company’s average product content per type of RV, calculated based upon the Company’s net sales of components to domestic RV OEMs for the different types of RVs produced for the twelve months

LCI INDUSTRIES

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

ended September 30, divided by the industry-wide wholesale shipments of the different ~~types~~product mix of RVs for the same period, was:


Content per:	2019		2018		Change
Travel trailer and fifth-wheel RV	$	3,531	$	3,454	2	%
Motorhome	$	2,405	$	2,476	(3)	%

Content per: 2017 2016 Change
Travel trailer and fifth-wheel RV $ 3,172
$ 3,025
5 %
Motorhome $ 2,152
$ 1,957
10 %

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

The Company’s decrease in net ~~OEM~~ sales to ~~Adjacent Industries increased~~RV OEMs of travel trailers, fifth-wheel, and motorhome components during the third quarter of ~~2017 primarily due~~2019 related to ~~acquisitions completed~~declines in ~~2017 and 2016 and market share gains.~~industry-wide wholesale unit shipments. The ~~Company continues to believe there are significant opportunities in Adjacent Industries.~~net sales decrease was partially offset by content gains during the third quarter of 2019.

Operating profit of the OEM Segment was ~~$41.0~~$38.3 million in the third quarter of ~~2017,~~2019, an ~~improvement~~increase of ~~$2.0~~$1.4 million compared to the same period of ~~2016.~~2018. The operating profit margin of the OEM Segment in the third quarter of ~~2017~~2019 also increased to 7.5 percent compared to 6.8 percent for the same period of 2018 and was positively impacted by:

~~Better fixed cost absorption by spreading fixed~~•Reductions in insurance related costs ~~over a sales base that increased by $130 million.~~of $4.7 million in the third quarter of 2019.

~~Increased sales to Adjacent Industries OEMs.~~

•Pricing changes of targeted ~~products.~~products, resulting in an increase of $3.5 million in net sales of these products in the third quarter of 2019 compared to the same period of 2018.

•Investments over the past several years to ~~increase capacity and~~ improve operating ~~efficiencies. Further, the Company has implemented efficiency improvements,~~efficiencies, including lean manufacturing initiatives, increased use of automation and employee retention initiatives, which reduced direct labor costs by $3.0 million in third quarter of 2019 compared to the same period of 2018.

Partially offset by:

•Fixed costs being spread over an OEM Segment sales base that decreased by $28.4 million.

•Significant investments over the past several years in manufacturing capacity to prepare for future sales growth resulting in higher facility costs, including rent, utilities, and depreciation expense that negatively impacted operating profit by $2.4 million in the third quarter of 2019.

OEM Segment – Year to Date

Net sales of the OEM Segment in the first nine months of 2019 decreased nine percent, or $160.4 million, compared to the first nine months of 2018. Net sales of components to OEMs were to the following markets for the nine months ended September 30:


(In thousands)	2019		2018		Change
RV OEMs:
Travel trailers and fifth-wheels	$	973,978	$	1,143,251	(15)	%
Motorhomes	121,167		145,230		(17)	%
Adjacent Industries OEMs	501,553		468,594		7	%
Total OEM Segment net sales	$	1,596,698	$	1,757,075	(9)	%

According to the RVIA, industry-wide wholesale unit shipments for the nine months ended September 30, were:


	2019	2018	Change
Travel trailer and fifth-wheel RVs	266,300	324,800	(18)	%
Motorhomes	40,800	45,500	(10)	%

The Company’s decrease in net sales to RV OEMs of travel trailers, fifth-wheel, and motorhome components during the first nine months of 2019 related to declines in industry-wide wholesale unit shipments. The net sales decrease was partially offset by content gains in travel trailers and fifth-wheels during the first nine months of 2019.

LCI INDUSTRIES

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

The Company’s net sales to Adjacent Industries OEMs increased during the first nine months of 2019, primarily due to acquisitions completed in 2019 and 2018 and market share gains. OEM marine net sales were $127.0 million in the first nine months of 2019, an increase of $13.0 million compared to the same period of 2018. The Company continues to believe there are significant opportunities in Adjacent Industries.

Operating profit of the OEM Segment was $131.4 million in the first nine months of 2019, a decrease of $13.0 million compared to the same period of 2018. The operating profit margin of the OEM Segment in the first nine months of 2019 remained consistent at 8.2 percent compared to the same period of 2018 and was positively impacted by:

•Pricing changes of targeted products, resulting in an increase of $38.5 million in net sales of these products for the first nine months of 2019 compared to the same period of 2018.

•Investments over the past several years to improve operating efficiencies, including lean manufacturing initiatives, increased use of automation, and employee retention ~~initiatives. The Company has also~~initiatives, which reduced direct labor ~~attrition which improves efficiency and reduces other~~ costs ~~associated with workforce turnover.~~by $11.5 million during the first nine months of 2019 compared to the first nine months of 2018.

•Reductions in insurance related costs of $7.5 million in the first nine months of 2019.

Offset by:

•Fixed costs being spread over an OEM Segment sales base that decreased by $160.4 million.

•Higher production facility costs due to acquired businesses and capacity expansions, which negatively impacted operating profit by $9.0 million in the first nine months of 2019.

•Higher material costs for certain raw materials. Steel, aluminum and foam costs ~~increased~~continued to be at elevated levels in the ~~third quarter~~first nine months of ~~2017.~~2019, primarily driven by tariffs on steel and aluminum, which increased material costs by $2.0 million in the first nine months of 2019 compared to the same period of 2018, as well as reductions in scrap pricing of $3.4 million. 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~~

Aftermarket Segment - Third Quarter

Net sales 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~~Aftermarket Segment in the third quarter of ~~2016. Over~~2019 increased 16 percent, or $10.4 million, compared to the ~~past couple~~same period of ~~years,~~2018. Net sales of components in the ~~Company made significant investments in manufacturing capacity, both facilities and personnel, to prepare~~Aftermarket Segment were as follows for the ~~expected~~three months ended September 30:


(In thousands)	2019		2018		Change
Total Aftermarket Segment net sales	$	74,671	$	64,266	16	%

The Company’s net sales to the Aftermarket Segment increased during the third quarter of 2019 primarily due to organic growth of $6.0 million and sales from acquisitions of $4.4 million.

Operating profit of the Aftermarket Segment was $10.8 million in the third quarter of 2019, an increase of $2.4 million compared to the same period of 2018, primarily due to an increase in net sales. Operating profit margin of the Aftermarket Segment increased to 14.5 percent in the third quarter of 2019, compared to 13.1 percent in the same period of 2018, due to leveraging sales in 2017 and beyond. In addition to investments in fixed costs to expand manufacturing capacity, the Company has made improvements in marketing, human resources, engineering, customer service and other critical departments. The Company also added the teams from acquired businesses, as well as amortization costs of intangible assets related to those businesses.growth.

~~OEM~~Aftermarket Segment – Year to Date

Net sales of the ~~OEM~~Aftermarket Segment in the first nine months of ~~2017~~2019 increased 2516 percent, or ~~$295~~$28.6 million, compared to the ~~first nine months~~same period of ~~2016.~~2018. Net sales of components ~~to OEMs~~in the Aftermarket Segment were ~~to the following markets~~as follows for the nine months ended September 30:


(In thousands)	2019		2018		Change
Total Aftermarket Segment net sales	$	210,763	$	182,116	16	%

(In thousands) 2017 2016 Change
RV OEMs:
Travel trailers and fifth-wheels $ 1,045,465
$ 836,634
25 %
Motorhomes 114,887
85,762
34 %
Adjacent industries OEMs 310,373
253,088
23 %
Total OEM Segment net sales $ 1,470,725
$ 1,175,484
25 %

~~According to the RVIA, industry-wide wholesale unit shipments for the nine months ended September 30, were:~~

2017 2016 Change
Travel trailer and fifth-wheel RVs 321,300
272,400
18 %
Motorhomes 47,300
41,600
14 %

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

The Company’s net sales growth in components for motorhomes during the first nine months of 2017 exceeded the increase in industry-wide wholesale shipments of motorhomes during the same period, primarily due to acquisitions completed in 2017 and 2016 and market share gains. 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~~the Aftermarket Segment increased during the first nine months of ~~2017,~~2019 primarily due to organic growth of $21.6 million and sales from acquisitions ~~completed in the fourth quarter~~ of 2016 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.$7.0 million.

Operating profit of the OEM Segment was $151.9 million in the first nine months of 2017, an improvement of $7.8 million compared to the first nine months of 2016. The operating profit margin of the OEM Segment in the first nine months of 2017 was impacted by:

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~~Operating profit 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. 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~~Aftermarket Segment was $31.1 million ~~to $9 million higher than~~ in the first nine months of ~~2016. Over the past couple~~2019, an increase of years, the Company made significant investments in manufacturing capacity, both facilities and personnel, to prepare for the expected increase in net sales in 2017 and beyond. In addition to investments in fixed costs to expand manufacturing capacity, the Company has made improvements in marketing, human resources, engineering, customer service and other critical departments. The Company also added the teams from acquired businesses, as well as amortization costs of intangible assets related to those businesses.

Higher material costs for certain raw materials. Steel, aluminum and foam costs increased in the first nine months of 2017. 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 - Third Quarter~~

~~Net sales of the Aftermarket Segment in the third quarter of 2017 increased 34 percent, or $12~~$6.3 million compared to the same period of ~~2016. Net sales of components were as follows for the three months ended September 30:~~

(In thousands) 2017 2016 Change
Total Aftermarket Segment net sales $ 48,893
$ 36,455
34 %

~~The Company’s net sales to the Aftermarket increased during the third quarter of 2017~~2018, primarily due to ~~the Company’s focus on building out well qualified, customer-focused teams~~an increase in net sales, partially offset by additional investments in facilities and ~~infrastructure~~acquisitions 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.

support sales growth. Operating profit margin of the Aftermarket Segment ~~was $6.9 million in the third quarter of 2017, an increase of $0.8 million compared~~increased to the same period of 2016; however, 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.

~~Aftermarket Segment – Year to Date~~

~~Net sales of the Aftermarket Segment~~14.8 percent in the first nine months of ~~2017 increased 29~~2019, compared to 13.6 percent ~~or $29 million, compared to~~in the same period of ~~2016. Net sales of components were as follows for the nine months ended September 30:~~

(In thousands) 2017 2016 Change
Total Aftermarket Segment net sales $ 129,908
$ 100,515
29 %

~~The Company’s net sales to the Aftermarket increased during the first nine months of 2017 primarily~~2018, due to ~~the Company’s focus on building out well qualified, customer-focused teams and infrastructure to service this market. With an estimated nine~~leveraging sales growth.

~~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 million in the first nine months of 2017, an increase of $2.1 million compared to the same period of 2016; however, 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.

Income Taxes

The effective tax rates for the nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 were ~~31.7%~~24.6 percent and ~~35.0%,~~22.1 percent, respectively. The effective tax rate for the nine months ended September 30, ~~2017~~2019 differed from the Federal statutory rate primarily due to state taxes, foreign taxes, and non-deductible expenses, partially offset by the recognition of excess tax benefits as a component of the provision for income taxes attributable to the adoption of ~~ASU~~Accounting Standards Update (“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.~~credits. The ~~decrease~~increase in effective tax rate for the nine months ended September 30, ~~2017~~2019 as compared to the same period in ~~2016~~2018 was due primarily to a reduction in the ~~recognition of~~ excess tax benefits ~~attributable~~related to the ~~adoption~~vesting of ~~ASU 2016-09~~equity-based compensation awards and an increase in ~~the first quarter of 2017.~~

~~Generally, calendar years 2014 - 2016 remain open for federal and~~ state income ~~tax purposes. The Company is currently being audited by the Internal Revenue Service for the tax year ended December 31, 2014.~~taxes.

The net amount of tax liability for unrecognized tax benefits may change within the next twelve months due to changes in audit status, expiration 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.

LIQUIDITY AND CAPITAL RESOURCES

The Condensed Consolidated Statements of Cash Flows reflect the following for the nine months ended September 30:


(In thousands)	2019		2018
Net cash flows provided by operating activities	$	209,542	$	107,592
Net cash flows used in investing activities	(101,326)		(248,098)
Net cash flows (used in) provided by financing activities	(94,825)		132,707
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(842)		—
Net increase (decrease) in cash, cash equivalents, and restricted cash	$	12,549	$	(7,799)

(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

Cash Flows from Operations

Net cash flows ~~from~~provided by operating activities ~~in first nine months of 2017~~ were ~~$55.2~~$209.5 million ~~lower than the same period of 2016, primarily due to:~~

~~A $69.7 million seasonal increase in accounts receivable~~ in the first nine months of ~~2017~~2019, compared to ~~a $46.0~~$107.6 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)~~

~~however, inventory turns may trend lower due to growth in product categories such as imported furniture~~2018. Net assets and ~~Furrion electronics.~~

~~A $27.2 million increase in accrued expenses and other~~ liabilities in the first nine months of ~~2017 compared to a $30.1~~2019 generated $106.5 million ~~increase in~~more cash than the same period ~~of 2016, primarily due to timing of these payments.~~

~~Partially~~in the prior year. This was partially offset ~~by:~~

~~A $12.0~~by a $4.5 million ~~increase~~decrease in net income, adjusted for depreciation and amortization, stock-based compensation expense, and other non-cash items. Reduced inventory levels as the Company worked through elevated year-end inventory levels in the first nine months of ~~2017~~2019 compared to the same period of ~~2016.~~2018, were the primary sources of cash in net assets.

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

Depreciation and amortization was ~~$39.9~~$55.9 million in the first nine months of ~~2017,~~2019, and is expected to be approximately ~~$55~~$70 million to ~~$60~~$75 million for ~~fiscal~~the full year ~~2017.~~2019. Non-cash stock-based compensation expense in the first nine months of ~~2017~~2019 was ~~$15.0~~$12.1 million. Non-cash stock-based compensation expense is expected to be approximately ~~$19~~$15 million to ~~$21~~$17 million ~~in 2017.~~for the full year 2019.

Cash Flows from Investing Activities

Cash flows used ~~for~~in investing activities of ~~$128.0~~$101.3 million in the first nine months of ~~2017~~2019 were primarily comprised of ~~$60.3~~$53.9 million for the acquisitions of businesses and $47.8 million for capital ~~expenditures and $67.9 million for the acquisition of businesses.~~expenditures. Cash flows used ~~for~~in investing activities of ~~$55.9~~$248.1 million in the first nine months of ~~2016~~2018 were primarily comprised of ~~$21.9~~$156.7 million for the acquisitions of businesses and $92.5 million for capital expenditures and $34.2 million for the acquisition of businesses. Information detailing out the acquisitions in the first nine months of 2017 and 2016 are included in Note 2 of the Notes to the Condensed Consolidated Financial Statements.expenditures.

The Company’s capital expenditures are primarily for replacement and growth. Over the long term, based on the Company’s historical capital expenditures, the replacement portion has averaged approximately 2two percent of net sales, while the growth portion has averaged approximately 8seven to 11ten 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,~~

LCI INDUSTRIES

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

Capital expenditures and acquisitions in the ~~Company has focused capital investment in growth, automation and lean manufacturing initiatives.~~

~~The~~ first nine months of ~~2017 capital expenditures and acquisitions~~2019 were ~~primarily~~ funded by cash from operations. Capital expenditures and acquisitions in ~~2017~~the remainder of fiscal year 2019 are expected to be funded primarily from cash generated from operations, as well as periodic borrowings under the Company’s ~~line of credit.~~revolving credit facility.

Cash Flows from Financing Activities

Cash flows used ~~for~~in financing activities in the first nine months of ~~2017~~2019 were primarily comprised of $39.7 million in net repayments under the Company’s line of credit and payments of quarterly 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, May 19, 2017 and August 18, 2017, respectively.totaling $47.5 million. In addition, the Company had ~~$7.3~~$7.2 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~~provided by financing activities in the first nine months of ~~2016~~2018 were primarily ~~comprised~~from net borrowings under the Company’s line of credit to fund acquisitions, partially offset by payments of quarterly 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.totaling $44.1 million. 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~~had $14.1 million of shares tendered for payment of ~~taxes. Further, the Company paid $2.7~~taxes and payment of $3.0 million in contingent consideration paid 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~~$7.5 million liability for the aggregate fair value of these expected contingent consideration liabilities at September 30, ~~2017, including $6.6 million recorded as a current liability.~~2019. For further information, see Note 79 of the Notes to ~~the~~ Condensed Consolidated Financial Statements.

~~On April 27, 2016,~~Credit Facilities

See Note 7 in the Notes to Condensed Consolidated Financial Statements for a description of our credit facilities.

The Company ~~refinanced~~believes its ~~line of credit through an agreement with JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., Bank of America, N.A.,~~cash flows from operations 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 and~~

~~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 borrowingsavailability 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~~and Shelf-Loan Facility (as defined 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 CompanyNote 7 in the ~~aggregate principal amount of up~~Notes 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 Agreement and “shelf-loan” facilityCondensed Consolidated Financial Statements) is adequate to finance the Company’s anticipated cash requirements for the next twelve months.

~~Additional information on the Company’s Amended Credit Agreement and “shelf-loan” facility is included in Note 6 of the Notes to the Condensed Consolidated Financial Statements.~~

CORPORATE GOVERNANCE

The Company is in compliance with the corporate governance requirements of the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange. The Company’s governance documents and committee charters and key practices have been posted to the “Investors” section of the Company’s website (~~www.lci1.com/investors~~www.lci1.com) and are updated periodically. The website also contains, or provides direct links to, all SEC filings, press releases and investor presentations. The Company 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~~www.lci1.com).

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.~~Statements.

INFLATION

The prices of key raw materials, consisting primarily of steel ~~aluminum,~~ and ~~foam,~~aluminum, and components used by the Company which are made from these raw materials, are influenced by demand and other factors specific to these commodities, rather than being directly affected by inflationary pressures. Prices of these commodities have historically been volatile, and over the past few months prices have continued to fluctuate. The Company did not experience any significant increases in its labor costs in the first nine months of 2019 related to inflation.

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, operating lease ~~terminations,~~right-of-use assets and obligations, 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~~management 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 Stock~~common stock, the impact of legal proceedings, 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 (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, and involve a number of risks and uncertainties.

Forward-looking statements, including, without limitation, those relating to 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 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, and tariffs on, 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,~~the Company operates, other operational and financial risks related to conducting business internationally, increased governmental regulation and oversight, information technology performance and security, the ability to protect intellectual property, warranty and product liability claims or product recalls, interest rates, oil and gasoline prices and availability, the impact of international, national and regional economic conditions and consumer confidence on the retail sale of products for which 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,~~2018, and in the Company’s subsequent filings with the ~~Securities and Exchange Commission.~~SEC. Readers of this report are cautioned not to place undue reliance on these forward-looking statements, since there can be no assurance that these forward-looking statements will prove to be accurate. The Company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law.

LCI INDUSTRIES

ITEM 3 – QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

~~At September 30, 2017, the~~The Company ~~had $49.9 million of fixed~~is 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 in~~debt. Depending on the interest rate ~~for~~option selected as fully described in Note 7 of the Notes to Condensed Consolidated Financial Statements, interest is charged based on an indexed rate plus an applicable margin. Assuming a hypothetical increase of 0.25 percent in the indexed interest rate (which approximates a ten percent increase of the weighted-average interest rate on our borrowings as of ~~a similar nature subsequent to~~ September 30, ~~2017, which the Company becomes unable to capitalize on in the short-term as a result~~2019), our results of ~~the structure of its fixed rate financing, future cash flows~~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~~

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.~~effective as of September 30, 2019.


b)	~~Changes in Internal Control over Financial Reporting~~

b.Changes in Internal Control over Financial Reporting

During the nine months ended September 30, 2019, the Company implemented controls to support the adoption of ASU 2016-02, Leases (Topic 842). There were no other changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2019, which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company ~~has selected~~began implementation of a new enterprise resource planning (“ERP”) ~~system. Implementation of the new ERP software began~~system in late 2013. To date, 2330 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.

There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2017, 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~~Sheet as of September 30, ~~2017,~~2019, 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~~SEC on February ~~28, 2017.~~27, 2019.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There has been no activity with respect to the Company’s stock repurchase program during the nine months ended September 30, 2019. At September 30, 2019, the Company has $121.3 million remaining in the current share repurchase authorization. Please refer to our Annual Report on Form 10-K as filed with the SEC on February 27, 2019 for further information on the program.

ITEM 6 – EXHIBITS

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

~~31.1~~ ~~Certification of Chief Executive Officer required by Rule 13a-14(a). Exhibit 31.1 is filed herewith.~~


1	3.1	LCI Industries Restated Certificate of Incorporation, as amended effective December 30, 2016 (incorporated by reference to Exhibit 3.1 included in the Registrant’s Form 10-K for the year ended December 31, 2016).
2	3.2	Amended and Restated Bylaws of LCI Industries, as amended May 25, 2017 (incorporated by reference to Exhibit 3.2 included in the Registrant’s Form 8-K filed on May 31, 2017).
3	31.1	Certification of Chief Executive Officer required by Rule 13a-14(a). Exhibit 31.1 is filed herewith.
4	31.2	Certification of Chief Financial Officer required by Rule 13a-14(a). Exhibit 31.2 is filed herewith.
5	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.
6	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.
7	101	The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Income; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Cash Flows; (v) Condensed Consolidated Statements of Stockholders’ Equity; and (vi) Notes to Condensed Consolidated Financial Statements.
8	104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


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

~~LCI INDUSTRIES~~
~~Registrant~~
By

By	/s/ Brian M. Hall
Brian M. Hall
Chief Financial Officer
November ~~7, 2017~~5, 2019



	Nine Months Ended September 30,				Three Months Ended September 30,
	2017		2016		2017		2016
(In thousands, except per share amounts)

Net sales	$	1,600,633	$	1,275,999	$	554,814	$	412,370
Cost of sales	1,224,312		945,104		433,594		306,820
Gross profit	376,321		330,895		121,220		105,550
Selling, general and administrative expenses	206,225		170,641		73,293		60,412
Operating profit	170,096		160,254		47,927		45,138
Interest expense, net	1,162		1,285		311		396
Income before income taxes	168,934		158,969		47,616		44,742
Provision for income taxes	53,514		55,597		15,478		14,898
Net income	$	115,420	$	103,372	$	32,138	$	29,844

Net income per common share:
Basic	$	4.62	$	4.20	$	1.28	$	1.21
Diluted	$	4.56	$	4.15	$	1.26	$	1.19

Weighted average common shares outstanding:
Basic	24,993		24,587		25,060		24,724
Diluted	25,332		24,882		25,459		25,060



Cash consideration, net of cash acquired	$	13,501
Contingent consideration	2,366
Total fair value of consideration given	$	15,867

Customer relationships	$	7,000
Other identifiable intangible assets	2,150
Net tangible assets	167
Total fair value of net assets acquired	$	9,317

Goodwill (not tax deductible)	$	6,550



Cash consideration	$	40,062

Customer relationships	$	16,900
Other identifiable intangible assets	1,820
Net tangible assets	4,928
Total fair value of net assets acquired	$	23,648

Goodwill (tax deductible)	$	16,414



Cash consideration, net of cash acquired	$	6,502
Contingent consideration	4,922
Total fair value of consideration given	$	11,424

Customer relationships	$	3,189
Other identifiable intangible assets	1,329
Net tangible assets	585
Total fair value of net assets acquired	$	5,103

Goodwill (not tax deductible)	$	6,321



Cash consideration, net of cash acquired	$	16,618
Contingent consideration	1,322
Total fair value of consideration given	$	17,940

Customer relationships	$	9,696
Other identifiable intangible assets	6,141
Net other liabilities	(3,482		)
Total fair value of net assets acquired	$	12,355

Goodwill (not tax deductible)	$	5,585



Cash consideration	$	8,100

Customer relationships	$	3,700
Net other assets	2,378
Total fair value of net assets acquired	$	6,078

Goodwill (tax deductible)	$	2,022



Cash consideration	$	10,000

Customer relationships	$	8,100
Net tangible assets	1,307
Total fair value of net assets acquired	$	9,407

Goodwill (tax deductible)	$	593



	September 30, 2017								December 31, 2016
(In thousands)	Total		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	$	—
Liabilities
Contingent consideration	$	17,045	$	—	$	—	$	17,045	$	9,241	$	—	$	—	$	9,241