SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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

Commission File Number: 001-13646

(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 ☐

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)~~2022) was ~~24,940,373~~25,430,293 shares of common stock.

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

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,
	2022		2021		2022		2021
(In thousands)

Net income	$	61,392	$	63,401	$	412,103	$	205,410
Other comprehensive income (loss):
Net foreign currency translation adjustment	(12,197)		(1,793)		(28,767)		(3,875)
Actuarial (loss) gain on pension plans	(125)		—		13,860		933

Total comprehensive income	$	49,070	$	61,608	$	397,196	$	202,468

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)


	September 30,		December 31,
	2022			2021
(In thousands, except per share amount)

ASSETS
Current assets
Cash and cash equivalents	$	23,403		$	62,896

Accounts receivable, net of allowances of $7,769 and $6,446 at September 30, 2022 and December 31, 2021, respectively	335,945			319,782
Inventories, net	1,079,902			1,095,907

Prepaid expenses and other current assets	66,236			88,300
Total current assets	1,505,486			1,566,885
Fixed assets, net	470,571			426,455
Goodwill	551,615			543,180
Other intangible assets, net	489,555			519,957
Operating lease right-of-use assets	195,877			164,618

Other long-term assets	55,867			66,999
Total assets	$	3,268,971		$	3,288,094

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term indebtedness	$	22,089		$	71,003
Accounts payable, trade	201,032			282,183

Current portion of operating lease obligations	33,862			30,592
Accrued expenses and other current liabilities	243,138			243,438
Total current liabilities	500,121			627,216
Long-term indebtedness	1,039,870			1,231,959
Operating lease obligations	172,643			143,436
Deferred taxes	26,816			43,184
Other long-term liabilities	105,964			149,424
Total liabilities	1,845,414			2,195,219
Stockholders' equity
Common stock, par value $.01 per share	285			284
Paid-in capital	231,518			220,459
Retained earnings	1,265,324			930,795
Accumulated other comprehensive loss	(15,408)			(501)
Stockholders' equity before treasury stock	1,481,719			1,151,037
Treasury stock, at cost	(58,162)			(58,162)
Total stockholders' equity	1,423,557			1,092,875
Total liabilities and stockholders' equity	$	3,268,971		$	3,288,094

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

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,
(In thousands)	2022		2021

Cash flows from operating activities:
Net income	$	412,103	$	205,410
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation and amortization	95,966		80,211
Stock-based compensation expense	20,564		20,295
Deferred taxes	(2,401)		—
Other non-cash items	1,174		5,418
Changes in assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net	(18,128)		(140,768)
Inventories, net	26,508		(253,031)
Prepaid expenses and other assets	31,304		(28,274)
Accounts payable, trade	(82,054)		97,071
Accrued expenses and other liabilities	471		25,961
Net cash flows provided by operating activities	485,507		12,293
Cash flows from investing activities:
Capital expenditures	(103,748)		(73,872)
Acquisitions of businesses	(55,709)		(154,544)


Other investing activities	2,137		11,544
Net cash flows used in investing activities	(157,320)		(216,872)
Cash flows from financing activities:
Vesting of stock-based awards, net of shares tendered for payment of taxes	(10,805)		(8,258)
Proceeds from revolving credit facility	844,900		832,493
Repayments under revolving credit facility	(1,001,040)		(912,547)
Repayments under shelf loan, term loan, and other borrowings	(65,852)		(13,375)
Proceeds from issuance of convertible notes	—		460,000
Purchases of convertible note hedge contracts	—		(100,142)
Proceeds from issuance of warrants concurrent with note hedge contracts	—		48,484
Payment of debt issuance costs	—		(11,955)
Payment of dividends	(76,273)		(64,425)
Payment of contingent consideration and holdbacks related to acquisitions	(57,328)		(8,061)
Other financing activities	1,468		1,972
Net cash flows (used in) provided by financing activities	(364,930)		224,186
Effect of exchange rate changes on cash and cash equivalents	(2,750)		1,187
Net (decrease) increase in cash and cash equivalents	(39,493)		20,794
Cash and cash equivalents at beginning of period	62,896		51,821
Cash and cash equivalents cash at end of period	$	23,403	$	72,615
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	16,326	$	9,127
Cash paid during the period for income taxes, net of refunds	$	144,121	$	75,822
Purchase of property and equipment in accrued expenses	$	2,019	$	4,036

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, 2020	$	282	$	227,407	$	731,710	$	7,089	$	(58,162)	$	908,326
Net income	—		—		74,120		—		—		74,120
Issuance of 97,086 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes	1		(7,768)		—		—		—		(7,767)
Stock-based compensation expense	—		7,436		—		—		—		7,436
Other comprehensive loss	—		—		—		(3,589)		—		(3,589)
Cash dividends ($0.75 per share)	—		—		(18,939)		—		—		(18,939)
Dividend equivalents on stock-based awards	—		325		(325)		—		—		—
Balance - March 31, 2021	$	283	$	227,400	$	786,566	$	3,500	$	(58,162)	$	959,587
Net income	—		—		67,889		—		—		67,889
Issuance of 16,324 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes	1		(159)		—		—		—		(158)
Stock-based compensation expense	—		6,423		—		—		—		6,423
Purchase of convertible note hedge contracts, net of tax	—		(75,750)		—		—		—		(75,750)
Issuance of warrants	—		48,484		—		—		—		48,484
Other comprehensive income	—		—		—		2,440		—		2,440
Cash dividends ($0.90 per share)	—		—		(22,739)		—		—		(22,739)
Dividend equivalents on stock-based awards	—		388		(388)		—		—		—
Balance - June 30, 2021	$	284	$	206,786	$	831,328	$	5,940	$	(58,162)	$	986,176
Net income	—		—		63,401		—		—		63,401
Issuance of 3,385 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes	—		(333)		—		—		—		(333)
Stock-based compensation expense	—		6,436		—		—		—		6,436
Other comprehensive loss	—		—		—		(1,793)		—		(1,793)
Cash dividends ($0.90 per share)	—		—		(22,747)		—		—		(22,747)
Dividend equivalents on stock-based awards	—		382		(382)		—		—		—
Balance - September 30, 2021	$	284	$	213,271	$	871,600	$	4,147	$	(58,162)	$	1,031,140

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, 2021	$	284	$	220,459	$	930,795	$	(501)	$	(58,162)	$	1,092,875
Net income	—		—		196,181		—		—		196,181
Issuance of 138,208 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes	1		(10,570)		—		—		—		(10,569)
Stock-based compensation expense	—		6,517		—		—		—		6,517
Other comprehensive loss	—		—		—		(2,882)		—		(2,882)
Cash dividends ($0.90 per share)	—		—		(22,870)		—		—		(22,870)
Dividend equivalents on stock-based awards	—		392		(392)		—		—		—
Balance - March 31, 2022	$	285	$	216,798	$	1,103,714	$	(3,383)	$	(58,162)	$	1,259,252
Net income	—		—		154,530		—		—		154,530
Issuance of 18,245 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes	—		(204)		—		—		—		(204)
Stock-based compensation expense	—		7,184		—		—		—		7,184


Other comprehensive income	—		—		—		297		—		297
Cash dividends ($1.05 per share)	—		—		(26,702)		—		—		(26,702)
Dividend equivalents on stock-based awards	—		453		(453)		—		—		—
Balance - June 30, 2022	$	285	$	224,231	$	1,231,089	$	(3,086)	$	(58,162)	$	1,394,357
Net income	—		—		61,392		—		—		61,392
Issuance of 578 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes	—		(32)		—		—		—		(32)
Stock-based compensation expense	—		6,863		—		—		—		6,863
Other comprehensive loss	—		—		—		(12,322)		—		(12,322)
Cash dividends ($1.05 per share)	—		—		(26,701)		—		—		(26,701)
Dividend equivalents on stock-based awards	—		456		(456)		—		—		—
Balance - September 30, 2022	$	285	$	231,518	$	1,265,324	$	(15,408)	$	(58,162)	$	1,423,557

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”~~("LCII" and collectively with its subsidiaries, the ~~“Company”~~"Company," "we," "us," or "our"). LCII has no unconsolidated subsidiaries. LCII, through its wholly-owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, ~~“Lippert Components”~~"Lippert Components," "LCI," or ~~“LCI”~~"Lippert"), supplies, domestically and internationally, a broad array of engineered components for the leading original equipment manufacturers ~~(“OEMs”~~("OEMs") in the recreation and transportation product markets, consisting primarily of recreational vehicles ~~(“RVs”~~("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.~~centers, as well as direct to retail customers via the Internet. At September 30, ~~2017,~~2022, the Company operated 52over 130 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~~Company's sales and profits have generally been the highest in the second quarter and lowest in the fourth quarter. However, ~~because of~~current and future seasonal industry trends have been, and may in the future be, different than in prior years due to various factors, including fluctuations in dealer inventories and the timing of dealer orders, 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~~as well as the coronavirus ("COVID-19") pandemic and related impacts. Additionally, many of the optional upgrades and non-critical replacement parts for RVs are purchased outside the normal product selling season, thereby causing Aftermarket Segment sales to be counter-seasonal, but this has been, and may in the future ~~seasonal industry trends may~~ be, different ~~than in prior years. Additionally, sales~~as a result of ~~components~~the COVID-19 pandemic and related impacts.

The Company is not aware of any significant events which occurred subsequent to the ~~aftermarket channels~~balance sheet date but prior to the filing of ~~these industries tend to be counter-seasonal.~~

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

In the opinion of management, the information furnished in this Form 10-Q reflects all adjustments necessary for a fair statement of the financial position and results of operations for the interim periods presented. The Condensed Consolidated Financial Statements have been ~~reclassified~~prepared in accordance with the instructions to Form 10-Q, and therefore 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, pension and post-retirement benefits, stock-based compensation, segment allocations, contingent consideration, environmental liabilities, contingencies, and litigation. The Company bases its estimates on historical experience, other available information, and various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other resources. Actual results and events could differ significantly from management estimates.

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Risks and Uncertainties

The COVID-19 pandemic and the ~~opinion~~conflict between Russia and Ukraine (the "Russia-Ukraine War") have caused significant uncertainty and disruption in the global economy and financial markets. Management continues to closely monitor the impact of ~~management,~~COVID-19 and the ~~information furnished in this Form 10-Q reflects~~Russia-Ukraine War, as well as heightened tensions between China and Taiwan, on all ~~adjustments necessary for a fair statement~~aspects of the business. The extent to which COVID-19, the Russia-Ukraine War, and/or relations between China and Taiwan may impact the Company's liquidity, financial ~~position~~condition, and results of operations ~~for~~in the ~~interim periods presented.~~ future remains uncertain.

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, 2021 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.

There are no recent accounting pronouncements that have been issued and not yet adopted that are expected to have a material impact on our Condensed Consolidated Financial Statements.

3. EARNINGS PER SHARE

The following reconciliation details the denominator used in the computation of basic and diluted earnings per share for the periods indicated:


	Three Months Ended September 30,		Nine Months Ended September 30,
(In thousands)	2022	2021	2022	2021
Weighted average shares outstanding for basic earnings per share	25,447	25,286	25,398	25,247
Common stock equivalents pertaining to stock-based awards	153	131	122	124
Weighted average shares outstanding for diluted earnings per share	25,600	25,417	25,520	25,371

Equity instruments excluded from diluted net earnings per share calculation as the effect would have been antidilutive	113	140	112	142

For the Company's 1.125 percent convertible senior notes due 2026 (the "Convertible Notes") issued in May 2021, the dilutive effect is calculated using the if-converted method. The Company is required, pursuant to the indenture governing the Convertible Notes, dated May 13, 2021, by and between the Company and U.S. Bank National Association, as trustee (the "Indenture"), to settle the principal amount of the Convertible Notes in cash and may elect to settle the remaining conversion obligation (i.e., the stock price in excess of the conversion price) in cash, shares of the Company's common stock, or a combination thereof. Under the if-converted method, the Company includes the number of shares required to satisfy the conversion obligation, assuming all the Convertible Notes are converted. Because the average closing price of the Company's common stock for the nine months ended September 30, 2022, which is used as the basis for determining the dilutive effect on earnings per share, was less than the conversion price of $165.65, all associated shares were antidilutive.

In conjunction with the issuance of the Convertible Notes, the Company, in privately negotiated transactions with certain commercial banks (the "Counterparties") sold warrants to purchase 2.8 million shares of the Company's common stock (the "Warrants"). The Warrants have a strike price of $259.84 per share, subject to customary anti-dilution adjustments. For calculating the dilutive effect of the Warrants, the Company uses the treasury stock method. With this method, the Company assumes exercise of the Warrants at the beginning of the period, or at time of issuance if later, and issuance of common shares upon exercise. Proceeds from the exercise of the Warrants are assumed to be used to repurchase shares of the Company's common stock at the average market price during the period. The incremental shares, representing the number of shares assumed to be received upon the exercise of the Warrants less the number of shares repurchased, are included in diluted shares. For the nine months ended September 30, 2022, the average share price was below the Warrant strike price of $259.84 per share, and therefore ~~do not include some information necessary~~2.8 million shares were considered antidilutive.

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In connection with the issuance of the Convertible Notes, the Company entered into privately negotiated call option contracts on the Company's common stock (the "Convertible Note Hedge Transactions") with the Counterparties. The Company paid an aggregate amount of $100.1 million to ~~conform~~the Counterparties pursuant to ~~annual reporting requirements.~~the Convertible Note Hedge Transactions. The Convertible Note Hedge Transactions cover, subject to anti-dilution adjustments substantially similar to those in the Convertible Notes, approximately 2.8 million shares of the Company's common stock, the same number of shares initially underlying the Convertible Notes, at a strike price of approximately $165.65, subject to customary anti-dilution adjustments. The Convertible Note Hedge Transactions will expire upon the maturity of the Convertible Notes, subject to earlier exercise or termination. Exercise of the Convertible Note Hedge Transactions would reduce the number of shares of the Company's common stock outstanding, and therefore would be antidilutive.

2.4. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

Acquisitions Completed During the Nine Months Ended September 30, ~~2017~~2022

~~Metallarte S.r.l.~~Girard

In ~~June 2017,~~March 2022, the Company acquired ~~100 percent~~substantially all of the ~~equity interests~~business assets of ~~Metallarte S.r.l. (“Metallarte”~~Girard Systems and Girard Products LLC (collectively "Girard"), a manufacturer and distributor of ~~entry~~proprietary awnings and ~~compartment doors~~tankless water heaters for OEMs and aftermarket customers in the ~~European caravan market located near Siena, Italy,~~RV, specialty vehicle, and ~~its subsidiary, RV Doors, S.r.l., a manufacturer~~related industries. The total fair value of ~~driver-side doors located near Venice, Italy.~~consideration was approximately $70.7 million. The ~~purchase price was $14.1~~Company paid $50.0 million in cash consideration at closing, with fixed deferred consideration of $20.0 million paid ~~at closing, plus contingent consideration based on future sales by this operation.~~ in July 2022 and $0.7 million paid to true up net working capital in September 2022.

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.~~ date, in both the Company's OEM and Aftermarket Segments. As the operations of this acquisition are not considered to have a material impact on the Company's financial statements, pro forma results of operations and other disclosures are not presented.

The Company is ~~validating account balances~~in the process of determining the fair value of the assets acquired and ~~finalizing~~liabilities assumed for the opening balance sheet, including deferred taxes and the fair value of intangible assets. The current estimates for intangible assets are based on a preliminary valuation and these estimates are subject to change when the valuation ~~for~~is finalized within the ~~acquisition.~~

~~LCI INDUSTRIES~~

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

~~(Unaudited)~~

measurement period (not to exceed 12 months from the acquisition date). The acquisition of this business was preliminarily recorded, onas updated, as of the acquisition date as follows (in thousands):

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	$	50,664
Fixed deferred consideration	20,000
Total fair value of consideration given	$	70,664


Identifiable intangible assets	$	43,520
Other assets acquired and liabilities assumed, net	14,442
Total fair value of net assets acquired	$	57,962

Goodwill (tax deductible)	$	12,702

~~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~~goodwill.

Other Acquisitions in 2022

During the nine months ended September 30, 2022, the Company ~~anticipates~~completed two other acquisitions for $5.0 million of cash purchase consideration. The preliminary purchase price allocations resulted in $0.8 million of goodwill (tax deductible). As these acquisitions are not considered to have a material impact on the ~~attainment~~Company's financial statements, pro forma results of ~~synergies~~operations and ~~an increase in~~other disclosures are not presented.

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Acquisitions with Measurement Period Adjustments During the ~~markets for the acquired products.~~Nine Months Ended September 30, 2022

Exertis

~~Lexington~~

In ~~May 2017,~~October 2021, the Company acquired ~~the~~certain business ~~and certain~~ assets of ~~Lexington LLC (“Lexington”~~Stampede Presentation Products, Inc. d/b/a Exertis ("Exertis"), a ~~manufacturer~~global distribution company, in exchange for $39.7 million. The acquisition qualifies as a business combination for accounting purposes and supports the acquisition of ~~high quality seating solutions for~~Furrion Holdings Limited ("Furrion") by allowing the ~~marine, RV, transportation, medical~~Company to provide logistics and ~~office furniture industries located in Elkhart, Indiana. The purchase price was $40.1 million paid at closing.~~warehousing to serve Furrion's North American customer base. 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, primarily in the Company's OEM Segment. As the operations of this acquisition are not considered to have a material impact on the Company's financial statements, pro forma results of operations and other disclosures are not presented.

The Company had a pre-existing relationship with Exertis where Exertis had a prepaid asset and the Company had an equal and offsetting deferred revenue liability of $24.8 million, which was effectively settled immediately prior to the business combination. No gain or loss was recognized in the effective settlement of the deferred revenue liability.

During the nine months ended September 30, 2022, the Company adjusted the preliminary purchase price allocation reported at December 31, 2021 to account for updates to net working capital balances. These measurement period adjustments would not have resulted in a material impact on the prior period results if the adjustments had been recognized as of the acquisition date. The ~~Company~~purchase price allocation is ~~validating account balances~~subject to adjustment for net working capital 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 intangible assets as additional information is obtained within the ~~net assets acquired, resulting in goodwill, because~~measurement period (not to exceed 12 months from the ~~Company anticipates the attainment of synergies and an increase in the markets for the acquired products.~~acquisition date).

~~Sessa Klein S.p.A.~~Furrion

In ~~February 2017,~~September 2021, the Company acquired 100 percent of the ~~outstanding shares~~share capital of ~~Sessa Klein S.p.A. (“Sessa Klein”),~~Furrion, a ~~manufacturer~~leading distributor of ~~highly engineered side window systems for both high speed~~a large range of appliances and ~~commuter trains, located near Varese, Italy.~~other products to OEMs and aftermarket customers in the RV, specialty vehicle, utility trailer, horse trailer, marine, transit bus, and school bus industries. The ~~purchase price~~total fair value of consideration, net of cash acquired, was ~~$8.5~~approximately $146.7 million. The Company paid $50.5 million ~~paid~~in cash consideration at closing, ~~plus contingent~~net of cash acquired, with fixed payments of $31.3 million due on each of the first and second anniversaries of the acquisition in September 2022 and September 2023. The Company paid the first anniversary fixed payment in September 2022, and the remaining deferred acquisition fixed payment is recorded at its discounted present value in the Condensed Consolidated Balance Sheet in accrued expenses and other current liabilities at September 30, 2022.

In 2019, the Company and Furrion agreed to terminate an exclusive distribution and supply agreement and transition all sale and distribution of Furrion products then handled by the Company to Furrion. Effective January 1, 2020, Furrion took responsibility for distributing its products directly to the customer and assumed all responsibilities previously carried out by the Company relating to Furrion products. Upon termination of the agreement, Furrion purchased from the Company all non-obsolete stock and certain obsolete and slow-moving stock of Furrion products at the cost paid by the Company. At the date of the Furrion acquisition in September 2021, the Company had a receivable balance of $35.0 million (the "Receivable from Furrion") and Furrion had a corresponding payable balance. In direct connection with the acquisition negotiations, the receivable and payable were effectively settled in the acquisition and the receivable balance is included within the approximate $146.7 million of consideration ~~based on future sales by this operation.~~ transferred. No gain or loss was recognized in the effective settlement of the Receivable from Furrion.

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~~date, in both the Company's OEM and Aftermarket Segments. As this acquisition is not considered to have a material impact on the Company's financial statements, pro forma results of operations and other disclosures are not presented.

During the nine months ended September 30, 2022, the Company ~~is validating~~adjusted and finalized the preliminary purchase price allocation reported at December 31, 2021 to account for updates to net working capital, intangible assets, fixed asset balances, and ~~finalizing~~deferred tax balances. These measurement period adjustments would not have resulted in a material impact on the ~~valuation for the acquisition.~~

prior

LCI INDUSTRIES

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

(Unaudited)

period results if the adjustments had been recognized as of the acquisition date. The acquisition of this business was preliminarily recorded onas of the acquisition date, and subsequently adjusted and finalized, as follows (in thousands):


	Preliminary at December 31, 2021		Measurement Period Adjustments		As Adjusted at September 30, 2022
Cash consideration, net of cash acquired	$	50,534	$	—	$	50,534
Effective settlement of Receivable from Furrion	34,956		—		34,956
Discounted value of fixed deferred consideration	61,191		—		61,191
Total fair value of consideration given	$	146,681	$	—	$	146,681

Customer relationships	$	66,300	$	(10,600)	$	55,700
Other identifiable intangible assets	43,900		(1,200)		42,700
Other assets acquired and liabilities assumed, net	(9,518)		(1,483)		(11,001)
Total fair value of net assets acquired	$	100,682	$	(13,283)	$	87,399

Goodwill (tax deductible)	$	45,999	$	13,283	$	59,282

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

Schaudt

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

~~Acquisitions During the Nine Months Ended September 30, 2016~~

~~Project 2000 S.r.l.~~

In ~~May 2016,~~April 2021, the Company acquired 100 percent of the equity ~~interest~~interests of ~~Project 2000 S.r.l. (“Project 2000”~~Schaudt GmbH Elektrotechnik & Apparatebau ("Schaudt"), a ~~manufacturer~~leading supplier of ~~innovative, space-saving bed lifts~~electronic controls and ~~retractable steps,~~energy management systems for the European caravan industry located ~~near Florence, Italy.~~in Markdorf, Germany. The purchase price was ~~$18.8 million paid at closing, plus contingent consideration based on future sales by this operation.~~approximately $29.4 million. 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

~~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~~Company's OEM ~~Segment~~Segment. As operations of this acquisition are not considered to have a material impact on the Company's financial statements, pro forma results of operations and other disclosures are not presented.

During the nine months ended September 30, 2022, the Company adjusted and finalized the preliminary purchase price allocation reported at December 31, 2021 to account for updates to net working capital and fixed asset balances. These measurement period adjustments would not have resulted in a material impact on the prior period results if the adjustments had been recognized as of the acquisition date.

Goodwill

Changes in the ~~Condensed Consolidated Statements~~carrying amount 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~~were as follows:

(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


(In thousands)	OEM Segment		Aftermarket Segment		Total
Net balance – December 31, 2021	$	379,463	$	163,717	$	543,180
Acquisitions – 2022	11,460		2,032		13,492
Measurement period adjustments	11,830		1,457		13,287
Foreign currency translation	(16,218)		(2,126)		(18,344)
Net balance – September 30, 2022	$	386,535	$	165,080	$	551,615

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 in goodwill 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:~~2022:

(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			(In thousands)	Gross Cost		Accumulated Amortization		Net Balance		Estimated Useful Life in Years
Customer relationships	$	106,316	$	30,226	$	76,090	6	to	16	Customer relationships	$	500,432	$	154,075	$	346,357	6	to	17
Patents	55,172		32,290		22,882		3	to	19	Patents	118,484		60,402		58,082		3	to	20
Trade names	9,876		5,332		4,544		3	to	15
Trade names (finite life)										Trade names (finite life)	92,312		19,628		72,684		3	to	20
Trade names (indefinite life)										Trade names (indefinite life)	7,600		—		7,600		Indefinite
Non-compete agreements	4,569		3,460		1,109		3	to	6	Non-compete agreements	11,584		7,131		4,453		3	to	6
Other	309		68		241		2	to	12	Other	609		230		379		2	to	12
Purchased research and development	4,687		—		4,687		Indefinite

Other intangible assets	$	180,929	$	71,376	$	109,553				Other intangible assets	$	731,021	$	241,466	$	489,555

Other intangible assets consisted of the following at December 31, ~~2016:~~2021:


(In thousands)	Gross Cost		Accumulated Amortization		Net Balance		Estimated Useful Life in Years
Customer relationships	$	487,853	$	127,048	$	360,805	6	to	17
Patents	116,725		53,479		63,246		3	to	20
Trade names (finite life)	93,994		16,497		77,497		3	to	20
Trade names (indefinite life)	7,600		—		7,600		Indefinite
Non-compete agreements	11,464		5,439		6,025		3	to	6
Other	309		212		97		2	to	12
Purchased research and development	4,687		—		4,687		Indefinite
Other intangible assets	$	722,632	$	202,675	$	519,957

~~LCI INDUSTRIES~~

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

~~(Unaudited)~~

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)	2022			2021
Raw materials	$	662,480		$	833,992
Work in process	49,870			48,250
Finished goods	367,552			213,665
Inventories, net	$	1,079,902		$	1,095,907

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

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Fixed assets consisted of the following at:


	September 30,		December 31,
(In thousands)	2022			2021
Fixed assets, at cost	$	922,469		$	842,462
Less accumulated depreciation and amortization	451,898			416,007
Fixed assets, net	$	470,571		$	426,455

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

5.7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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


	September 30,		December 31,
(In thousands)	2022			2021
Employee compensation and benefits	$	83,566		$	85,760

Deferred acquisition payments and contingent consideration*	33,959			39,307
Current portion of accrued warranty	39,583			33,874

Other	86,030			84,497
Accrued expenses and other current liabilities	$	243,138		$	243,438

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

* Includes current portion of contingent consideration (Note 11) and deferred acquisition payments (Note 4).

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)~~Company's historical warranty costs, ~~(ii) current trends, (iii) product mix,~~warranty claim lag, and ~~(iv)~~ sales. The following table provides a reconciliation of the activity related to the ~~Company’s~~Company's accrued warranty, including both the current and long-term portions, for the nine months ended September 30:


(In thousands)	2022		2021
Balance at beginning of period	$	52,114	$	47,091
Provision for warranty expense	36,362		18,798
Warranty liability from acquired businesses	—		5,611
Warranty costs paid	(29,373)		(22,054)
Balance at end of period	59,103		49,446
Less long-term portion	(19,520)		(19,010)
Current portion of accrued warranty at end of period	$	39,583	$	30,436

(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

The Company maintains two partially-funded defined benefit pension plans (the "Dutch pension plans") based in the Netherlands. The Dutch pension plans, which are qualified defined benefit pension plans, provide benefits based on years of service and average pay. The benefits earned by the employees are immediately vested. The Company funds the future obligations of the Dutch pension plans by purchasing non-participating annuities from a large multi-national insurance company that cover the vested pension benefit obligation of the participants, but do not cover future indexations or cost of living adjustments that are provided in plan benefits. Each year, the Company makes premium payments to the insurance company (1) to provide for the benefit obligation of the current year of service based on each employee's age, gender, and current salary, and (2) for indexations for both active and post-active participants. The Company determines the fair value of the plan assets with the assistance of an actuary using unobservable inputs (Level 3), which is determined as the present value of the accrued benefits guaranteed by the insurer. The components of net periodic pension cost for the Dutch pension plans were as follows:

LCI INDUSTRIES

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

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2022		2021		2022		2021
Net service cost	$	(300)	$	(1,084)	$	(2,390)	$	(3,300)
Interest cost	(322)		(163)		(861)		(495)
Expected return on plan assets	213		105		549		322
Amortization of actuarial gain	95		—		95		—
Administrative charges	(87)		(71)		(227)		(214)
Net periodic pension cost	$	(401)	$	(1,213)	$	(2,834)	$	(3,687)

9. LONG-TERM INDEBTEDNESS

~~At September 30, 2017~~Long-term debt consisted of the following:


	September 30,		December 31,
(In thousands)	2022			2021

Convertible Notes	$	460,000		$	460,000
Revolving Credit Loan	226,367			403,953
Term Loan	380,000			395,000
Shelf-Loan Facility	—			50,000
Other	5,365			5,997
Unamortized deferred financing fees	(9,773)			(11,988)
	1,061,959			1,302,962
Less current portion	(22,089)			(71,003)
Long-term indebtedness	$	1,039,870		$	1,231,959

The Company and ~~2016, and~~certain of its subsidiaries are party to a credit agreement dated December ~~31, 2016, the Company had no outstanding borrowings on its line of credit.~~

~~On April 27, 2016, the Company refinanced its line of credit through an agreement~~14, 2018 with JPMorgan Chase, ~~Bank,~~ N.A., ~~Wells Fargo Bank, N.A., Bank~~as a lender and administrative agent, and other bank lenders (as amended, the "Credit Agreement"). The Credit Agreement provides for a $600.0 million revolving credit facility (of which $50.0 million is available for the issuance of ~~America, N.A., and 1st Source Bank. The agreement amended and restated the existing line~~letters of credit ~~which now expires on April 27,~~(the "LC Facility") and up to $400.0 million is available in approved foreign currencies). The Credit Agreement also provides for term loans (the "Term Loan") to the Company in an aggregate principal amount of $400.0 million. The maturity date of the Credit Agreement is December 7, 2026. The Term Loan is required to be repaid in an amount equal to 1.25 percent of the original principal amount of the Term Loan for the first eight quarterly periods commencing with the quarter ended December 31, 2021, ~~(the “Amended~~1.875 percent of the original principal amount of the Term Loan for the next eight quarterly periods, and then 2.50 percent of the original principal amount of the Term Loan of each additional payment until the maturity date. The Credit ~~Agreement”). In connection with this amendment and restatement, the line of credit was increased from $100.0 million to $200.0 million, and contains a feature allowing~~Agreement also permits the Company to ~~draw~~request an increase to the revolving and/or term loan facility by up to ~~$50.0~~an additional $400.0 million in ~~approved foreign currencies, including Australian dollars, Canadian dollars, pound sterling and euros. The maximum borrowings~~the aggregate upon the approval of the lenders providing any such increase.

Borrowings under the ~~line of credit can be further increased by $125.0 million, subject to certain conditions. Interest on borrowings under the line of credit is~~Credit Agreement in U.S. dollars are designated from time to time by the Company as ~~either~~ (i) ~~the Alternate Base Rate (defined in the Amended Credit Agreement as the greatest of (a) the Prime Rate of JPMorgan Chase, (b) the federal funds effective~~base rate ~~plus 0.5 percent and (c) the Adjusted LIBO Rate (as defined in the Amended Credit Agreement) for~~loans which bear interest at a ~~one month interest period plus 1.0 percent),~~base rate plus additional interest ranging from 0.0 percent to 0.625 percent ~~(0.0~~(0.125 percent was applicable at September 30, ~~2017)~~2022) depending on the Company’s ~~performance and financial condition,~~total net leverage ratio or (ii) ~~the Adjusted LIBO Rate~~term benchmark loans which bear interest at LIBOR (or a relevant benchmark replacement rate) for aan interest period ~~equal to one, two, three, six or twelve months as~~ selected by the Company plus additional interest ranging from ~~1.0~~0.875 percent to 1.625 percent ~~(1.0~~(1.125 percent was applicable at September 30, ~~2017)~~2022) depending on the Company’s ~~performance and financial condition.~~total net leverage ratio. Foreign currency borrowings, other than Pounds Sterling, have the same additional interest margins applicable to term benchmark loans based on the Company's total net leverage ratio. At September 30, ~~2017 and 2016,~~2022, the Company had ~~$2.4~~$4.4 million ~~and $2.5 million, respectively,~~ in issued, but undrawn, standby letters of credit under the ~~line of credit.~~LC Facility. Availability under the Company’s ~~line of~~revolving credit facility was ~~$197.6~~$369.2 million at September 30, ~~2017.~~2022. A commitment fee ranging from 0.150 percent to 0.225 percent (0.175 percent was applicable at September 30, 2022) depending on the Company's total net leverage ratio accrues on the actual daily amount that the revolving commitment exceeds the revolving credit exposure.

LCI INDUSTRIES

~~On February 24, 2014, the~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company ~~entered into~~and certain of its subsidiaries have a ~~$150.0 million “shelf-loan”~~shelf-loan facility (the "Shelf-Loan Facility") with PGIM, Inc. (formerly Prudential Investment Management, Inc.) and its affiliates ~~(“Prudential”~~("Prudential"). On March ~~20, 2015,~~29, 2019, the Company issued $50.0 million of Series B Senior ~~Promissory~~ Notes ~~(“Series A Notes”~~(the "Series B Notes") to certain affiliates of Prudential for a term of ~~five~~three years, at a fixed interest rate of ~~3.35~~3.80 percent per annum, payable quarterly in arrears. The Series B Notes were paid in full in March 2022, and the Shelf-Loan Facility expires on November 11, 2022.

The Shelf-Loan Facility provides for Prudential to consider purchasing, at the Company's request, in one or a series of transactions, additional senior promissory notes of the Company in the aggregate principal amount of up to $200.0 million. 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.

On May 13, 2021, the Company issued $460.0 million in aggregate principal amount of 1.125 percent Convertible Notes due 2026 in a private placement to certain qualified institutional buyers, resulting in net proceeds to the Company of approximately $447.8 million after deducting the initial purchasers' discounts and offering expenses payable by the Company. The Convertible Notes bear interest at a coupon rate of 1.125 percent per annum, payable semiannually in arrears on May 15 and November 15 of each year, beginning on November 15, 2021. The Convertible Notes will mature on May 15, 2026, unless earlier converted, redeemed, or repurchased, in accordance with their terms.

As of September 30, 2022, the conversion rate was 6.0946 shares of the Company's common stock per $1,000 principal amount of the Convertible Notes. The conversion rate of the Convertible Notes is subject to further adjustment upon the occurrence of certain specified events. In addition, upon the occurrence of a make-whole fundamental change (as defined in the Indenture) or upon a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder that elects to convert its Convertible Notes in connection with such make-whole fundamental change or notice of redemption, as the case may be.

Prior to the close of business on the business day immediately preceding January 15, 2026, the Convertible Notes are convertible at the option of the holders only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price (as defined in the Indenture) per share of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 percent of the conversion price for the Convertible Notes on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the "measurement period") in which the ~~entire~~trading price (as defined in the Indenture) per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98 percent of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day; (3) if the Company calls such Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Convertible Notes called (or deemed called) for redemption; or (4) upon the occurrence of certain specified corporate events described in the Indenture. On or after January 15, 2026, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay cash up to the aggregate principal amount of the Convertible Notes to be converted and pay or deliver, as the case may be, cash, shares of the Company's common stock, or a combination of cash and shares of the Company's common stock, at the Company's election, in respect of the remainder, if any, of the Company's conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted.

The Company may not redeem the Convertible Notes prior to May 20, 2024. On or after May 20, 2024, the Company may redeem for cash all or any portion of the Convertible Notes, at the Company's option, if the last reported sale price of the Company's common stock has been at least 130 percent of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 percent of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Upon the occurrence of a fundamental change (as defined in the

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Indenture), subject to certain conditions, holders of the Convertible Notes may require the Company to repurchase for cash all or any portion of their Convertible Notes in principal amounts of $1,000 or an integral multiple thereof at a repurchase price equal to 100 percent of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest on such Convertible Notes to, but not including, the fundamental change repurchase date (as defined in the Indenture).

The Convertible Notes are senior unsecured obligations and rank senior in right of payment to all of the Company's indebtedness that is expressly subordinated in right of payment to the Convertible Notes, equal in right of payment with all the Company's liabilities that are not so subordinated, effectively junior to any of the Company's secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries. The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the named trustee or the holders of at least 25 percent of the aggregate principal amount of the outstanding Convertible Notes may declare 100 percent of the principal of, and accrued and unpaid interest, if any, on all the outstanding Convertible Notes to be due and payable.

The Convertible Notes are not registered securities nor listed on any securities exchange but may be actively traded by qualified institutional buyers. The fair value of the Convertible Notes of $394.5 million at September 30, ~~2017.~~ 2022 was estimated using Level 1 inputs, as it is based on quoted prices for these instruments in active markets.

At September 30, ~~2017,~~2022, the fair value of the ~~Company’s~~Company's long-term debt under the Credit Agreement 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 provides for Prudential to consider purchasing, at the Company’s request, in one or a series of transactions, Senior Promissory Notes of the Company in the aggregate principal amount of up to $150.0 million (excluding the Company’s Series A Notes already outstanding). Prudential has no obligation to purchase the Senior Promissory Notes. Interest payable on the Senior Promissory Notes will be at rates determined by Prudential within five business days after the Company issues a request to Prudential. Availability under the Company’s “shelf-loan” facility was $150.0 million at September 30, 2017. However, the Amended Credit Agreement limits the aggregate indebtedness outstanding to Prudential from time to time to $150.0 million; therefore, currently the Company can only access an additional $100.0 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~~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 certain of the ~~Company’s~~Company's direct and indirect subsidiaries (including up to 65 percent of the equity ~~interest~~interests of certain ~~“controlled~~"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,~~2022, the Company was in compliance with all such requirements and expects to remain in such compliance for the next twelve months.

~~Availability under both the Amended~~The Credit Agreement and the ~~“shelf-loan” facility is subject to~~Shelf-Loan Facility include a maximum net leverage ratio covenant which limits the amount of consolidated outstanding indebtedness ~~to 2.5 times~~that the Company may incur on a trailing twelve-month ~~EBITDA, as defined.~~EBITDA. This limitation did not impact the ~~Company’s borrowing availability~~Company's ability to incur additional indebtedness under its revolving credit facility at September 30, ~~2017. The remaining availability under these facilities was $297.6 million at September 30, 2017.~~2022. The Company believes the availability of $369.2 million under the ~~Amended~~revolving credit facility under the Credit Agreement, ~~and “shelf-loan” facility is~~along with its cash flows from operations, are adequate to finance the ~~Company’s~~Company's anticipated cash requirements for the next twelve months.

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 increase in lease expense for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 was primarily driven by capacity expansions and leases assumed in acquisitions. The components of lease expense were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2022		2021		2022		2021
Operating lease expense	$	14,081	$	11,280	$	40,229	$	31,695
Short-term lease expense	2,019		1,247		5,793		3,122
Variable lease expense	1,175		923		2,824		2,354
Total lease expense	$	17,275	$	13,450	$	48,846	$	37,171

LCI INDUSTRIES

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

(Unaudited)

7.11. COMMITMENTS AND CONTINGENCIES

Contingent Consideration

In connection with several business acquisitions, if certain sales targets for the acquired products are achieved, the Company ~~will be required to~~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, 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.

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, 2022:

(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

^{Fair value adjustments (a) (b)}

~~Furrion Distribution~~(a) Recorded in selling, general and ~~Supply Agreement~~administrative expenses in the Condensed Consolidated Statements of Income.

~~In July 2015,~~(b) During the nine months ended September 30, 2022, the Company ~~entered into~~updated its sales projections for a ~~six-year exclusive distribution~~product subject to contingent consideration and ~~supply agreement with Furrion Limited (“Furrion”), a Hong Kong based firm that designs, engineers and supplies premium electronics. This agreement provides~~determined the ~~Company with~~probability of payment under the ~~rights~~contingent arrangement to ~~distribute Furrion’s complete line of products to OEMs and aftermarket customers in~~be remote. Consequently, the RV, specialty vehicle, utility trailer, horse trailer, marine, transit bus and school bus industries throughout the United States and Canada. Furrion currently supplies a premium line of televisions, sound systems, navigation systems, wireless backup cameras, solar prep units, power solutions, fireplaces and kitchen appliances, primarily to the RV industry.

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

Subject to agreed upon revisions to the MPOs, Furrion has the right to either terminate the distribution agreement with six months’ notice or remove exclusivity from the Company if the Company misses an MPO in any given year by more than ten percent, after taking into account excess purchases from the previous year. If exclusivity is withdrawn, the Company at its election may terminate the distribution agreement with six months’ notice. Upon terminationfair value of the ~~agreement, Furrion has agreed~~contingent consideration liability related to ~~purchase from the Company any non-obsolete stocks of Furrion products at the cost paid~~this product was reduced by ~~the Company.~~$1.9 million.

~~LCI INDUSTRIES~~

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

~~(Unaudited)~~

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.

The ~~Company’s~~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.

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,~~2022, would not be material to the ~~Company’s~~Company's financial position or ~~annual~~ results of operations.

~~8. STOCKHOLDERS’~~

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12. STOCKHOLDERS' EQUITY

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


	September 30,	December 31,
(In thousands)	2022		2021
Common stock authorized	75,000		75,000
Common stock issued	28,517		28,360
Treasury stock	3,087		3,087
Common stock outstanding	25,430		25,273

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 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.

~~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~~2022 and December 31, ~~2016:~~2021:


(In thousands, except per share data)	Per Share		Record Date	Payment Date	Total Paid
First Quarter 2021	$	0.75	03/12/21	03/26/21	$	18,939
Second Quarter 2021	0.90		06/04/21	06/18/21	22,739
Third Quarter 2021	0.90		09/03/21	09/17/21	22,747
Fourth Quarter 2021	0.90		12/03/21	12/17/21	22,746
Total 2021	$	3.45			$	87,171

First Quarter 2022	$	0.90	03/11/22	03/25/22	$	22,870
Second Quarter 2022	1.05		06/03/22	06/17/22	26,702
Third Quarter 2022	1.05		09/02/22	09/16/22	26,701
Total 2022	$	3.00			$	76,273

(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 "2018 Plan") provides for the ~~Company issued 63,677~~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~~end of a specified vesting or deferral period. Holders of DSUs and RSUs receive dividend equivalents based on dividends granted to holders of the common stock, which dividend equivalents are payable in additional DSUs and RSUs, and are subject to the same vesting criteria as the original grant. DSUs vest (i) ratably over the service period, (ii) at a specified future date, or (iii) for certain officers, based on achievement of specified performance conditions. RSUs vest (i) ratably over the service period or (ii) at a specified future date. Transactions in DSUs and RSUs under the 2018 Plan are summarized as follows:


	Number of Shares	Weighted Average Price
Outstanding at December 31, 2021	285,711	$	110.41
Issued	3,923	105.48
Granted	156,919	120.64
Dividend equivalents	7,729	107.15
Forfeited	(7,988)	121.12
Vested	(168,203)	95.98
Outstanding at September 30, 2022	278,091	$	121.51

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The 2018 Plan provides for performance stock units ("PSUs") that vest at a specific future date based on achievement of specified performance conditions. Transactions in PSUs under the 2018 Plan are summarized as follows:


	Number of Shares	Weighted Average Price
Outstanding at December 31, 2021	149,961	$	104.01

Granted	91,988	110.83
Dividend equivalents	4,413	107.18
Forfeited	(4,840)	78.11
Vested	(80,938)	82.40
Outstanding at September 30, 2022	160,584	$	120.12

The Company paid an aggregate amount of $100.1 million in May 2021 to the Counterparties pursuant to the Convertible Note Hedge Transactions. The Convertible Note Hedge Transactions cover, subject to anti-dilution adjustments substantially similar to those in the Convertible Notes, approximately 2.8 million shares of the Company's common stock, the same number of shares initially underlying the Convertible Notes, at a strike price of ~~$108.47,~~approximately $165.65, subject to customary anti-dilution adjustments. The Convertible Note Hedge Transactions will expire upon the maturity of the Convertible Notes, subject to earlier exercise or ~~$6.9 million,~~termination. The Convertible Note Hedge Transactions are expected generally to ~~executive officers in lieu~~reduce the potential dilutive effect to the Company's common stock of the conversion of the Convertible Notes and/or offset any cash ~~for a portion of their 2016 incentive compensation. In February 2016,~~payments the Company ~~issued 4,784 deferred~~is required to make in excess of the principal amount of the Convertible Notes which are converted, as the case may be, in the event the price per share of the Company's common stock, ~~units at~~as measured under the ~~average~~terms of the Convertible Note Hedge Transactions, is greater than the strike price of ~~$55.22, or $0.3~~the Convertible Note Hedge Transactions. The Convertible Note Hedge Transactions meet the criteria in Accounting Standards Codification ("ASC") 815-40 to be classified within stockholders' equity, and therefore the Convertible Note Hedge Transactions are not revalued after their issuance.

The Convertible Notes and the Convertible Note Hedge Transactions will be integrated for tax purposes. The accounting impact of this tax treatment makes the Convertible Note Hedge Transactions deductible as original issue discount for tax purposes over the term of the Convertible Notes and resulted in a $24.4 million deferred tax asset recognized through equity.

In addition, concurrently with entering into the Convertible Note Hedge Transactions, the Company entered into separate, privately-negotiated Warrant transactions with the Counterparties, whereby the Company sold Warrants to ~~executive officers~~purchase 2.8 million shares of the Company's common stock at an initial strike price of $259.84 per share, subject to customary anti-dilution adjustments, which is approximately 100 percent above the last reported sale price of the Company's common stock on May 10, 2021 (the "Warrant Transactions"). The Company received aggregate proceeds of $48.5 million from the Warrant Transactions with the Counterparties, with such proceeds partially offsetting the costs of entering into the Convertible Note Hedge Transactions. The Warrants expire in ~~lieu~~August 2026. If the market value per share of ~~cash for~~the Company's common stock, as measured under the Warrant Transactions, exceeds the strike price of the Warrants, the Warrants will have a ~~portion of their 2015 incentive compensation.~~dilutive effect on the Company's earnings per share, unless the Company elects, subject to certain conditions, to settle the Warrants in cash. The Warrants meet the criteria in ASC 815-40 to be classified within stockholders' equity, and therefore the Warrants are not revalued after issuance.

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the ~~Company’s~~Company's assets and liabilities measured at fair value on a recurring basis at:


	September 30, 2022								December 31, 2021
(In thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets
Pension plan assets (Note 8)	$	31,109	$	—	$	—	$	31,109	$	52,296	$	—	$	—	$	52,296
Liabilities
Contingent consideration	$	110	$	—	$	—	$	110	$	6,911	$	—	$	—	$	6,911

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~~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~~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 14 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 711 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 iswere a decrease in the fair value liability, the Company would record a benefit in selling, general and administrative expenses.

~~Derivative Instruments~~

At September 30, 2017, the Company had derivative instruments for 19.2 million pounds of steel, in order to manage a portion of the exposure to movements associated with steel costs. These derivative instruments expire through December 2018, at an average steel price of $0.25 per pound. While these derivative instruments are considered to be economic hedges of the

~~LCI INDUSTRIES~~

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

~~(Unaudited)~~

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.~~14. SEGMENT REPORTING

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

The OEM Segment, which accounted for 9283 percent and 81 percent of consolidated net sales for ~~each of~~ the nine ~~month periods~~months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, manufactures orand distributes a broad array of engineered components for the leading OEMs in the recreation and transportation product markets, consisting primarily 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 7163 percent of the ~~Company’s~~Company's OEM Segment net sales for the nine months ended September 30, ~~2017~~2022 were of components for travel trailer and fifth-wheel RVs.

The Aftermarket Segment, which accounted for 817 percent and 19 percent of consolidated net sales for ~~each of~~ the nine ~~month periods~~months ended September 30, ~~2017~~2022 and ~~2016,~~2021, 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)~~

Decisions concerning the allocation of the ~~Company’s~~Company's resources are made by the ~~Company’s~~Company's chief operating decision maker ~~(“CODM”~~("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~~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 ofin the ~~Company’s~~Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021.

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 impact the Company’s consolidated financial statements.

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

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Clarifying the Definition of a Business,~~ ~~which amends ASC 805,~~ ~~Business Combinations. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating~~

LCI INDUSTRIES

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

(Unaudited)

~~whether transactions should be accounted for as acquisition (or disposals) of assets or businesses. This ASU is effective for interim~~The following tables present the Company's revenues disaggregated by segment and ~~annual reporting periods beginning after December 15, 2017. The adoption of this ASU 2017-01 is not expected to have a material impact~~geography based on the ~~Company’s consolidated financial statements.~~

~~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 the Company’s consolidated financial statements.

~~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~~billing address of the ~~accounting for share-based payment transactions, including income tax consequences,~~Company's customers:


	Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
(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	$	480,207	$	13,308	$	493,515	$	586,830	$	15,599	$	602,429
Motorhomes	60,964		21,958		82,922		39,679		23,580		63,259
Adjacent Industries OEMs	295,173		40,810		335,983		246,582		34,011		280,593
Total OEM Segment net sales	836,344		76,076		912,420		873,091		73,190		946,281
Aftermarket Segment:
Total Aftermarket Segment net sales	203,106		16,553		219,659		204,566		14,462		219,028
Total net sales	$	1,039,450	$	92,629	$	1,132,079	$	1,077,657	$	87,652	$	1,165,309

	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
(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	$	2,218,157	$	43,093	$	2,261,250	$	1,582,182	$	50,877	$	1,633,059
Motorhomes	185,118		76,538		261,656		118,872		74,233		193,105
Adjacent Industries OEMs	930,536		131,838		1,062,374		690,759		110,262		801,021
Total OEM Segment net sales	3,333,811		251,469		3,585,280		2,391,813		235,372		2,627,185
Aftermarket Segment:
Total Aftermarket Segment net sales	673,519		53,998		727,517		585,973		46,129		632,102
Total net sales	$	4,007,330	$	305,467	$	4,312,797	$	2,977,786	$	281,501	$	3,259,287

(a) Net sales to customers in the ~~classification~~United States of ~~awards as either equity or liabilities, and the classification on the statement of cash flows. Under the new standard, all excess tax benefits and tax deficiencies are recorded as a component~~America

(b) Net sales to customers in countries domiciled outside 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~~United States 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.America

~~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~~following table presents the adoption of this standard will have a material impact on its reported current net sales; however, given its acquisition strategy, there may be 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.Company's operating profit by segment:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2022		2021		2022		2021
Operating profit:
OEM Segment	$	65,186	$	64,136	$	501,137	$	206,757
Aftermarket Segment	22,389		24,888		74,928		77,680
Total operating profit	$	87,575	$	89,024	$	576,065	$	284,437

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the Company's revenue disaggregated by product:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2022		2021		2022		2021
OEM Segment:
Chassis, chassis parts, and slide-out mechanisms	$	295,256	$	351,837	$	1,341,567	$	948,135
Windows and doors	244,011		254,526		876,354		761,168
Furniture and mattresses	179,710		184,741		651,456		508,789
Axles and suspension solutions	67,343		68,120		257,766		184,092
Other	126,100		87,057		458,137		225,001
Total OEM Segment net sales	912,420		946,281		3,585,280		2,627,185
Total Aftermarket Segment net sales	219,659		219,028		727,517		632,102
Total net sales	$	1,132,079	$	1,165,309	$	4,312,797	$	3,259,287

LCI INDUSTRIES

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

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the ~~Company’s~~Company's Condensed Consolidated Financial Statements and Notes thereto included in Item 1 of Part 1 of this ~~Report,~~report, as well as the ~~Company’s~~Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021.

LCI Industries ~~(“LCII”,~~("LCII" and collectively with its subsidiaries, the ~~“Company”~~"Company," "we," "us," or "our"), through its wholly-owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, ~~“Lippert Components”~~"Lippert Components," "LCI," or ~~“LCI”~~"Lippert"), supplies, domestically and internationally, a broad array of engineered components for the leading original equipment manufacturers ~~(“OEMs”~~("OEMs") in the recreation and transportation product markets, consisting primarily of recreational vehicles ~~(“RVs”~~("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~~We also ~~supplies~~supply engineered components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors, and service ~~centers.~~centers, as well as direct to retail customers via the Internet.

~~The Company has~~We have two reportable segments, the OEM Segment and the Aftermarket Segment. Intersegment sales are insignificant. At September 30, ~~2017, the Company~~2022, we operated 52over 130 manufacturing and distribution facilities located throughout ~~the United States~~North America and ~~in Canada and Italy.~~Europe. See Note 1014 of the Notes to ~~the~~ Condensed Consolidated Financial ~~Statements.~~Statements for further information regarding our segments.

~~The Company’s~~Our OEM Segment manufactures or distributes a broad array of engineered components for the leading OEMs of RVs and adjacent ~~industries.~~industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured homes; and modular housing. Approximately 7165 percent of ~~the Company’s~~our OEM Segment net sales for the twelve months ended September 30, ~~2017~~2022 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
● Axles and suspension solutions		● Awnings and awning accessories
● Slide-out mechanisms and solutions		● ~~Awnings and awning accessories~~Electronic components
● Thermoformed bath, kitchen, and other products		● ~~Electronic components~~Appliances
● Vinyl, aluminum, and frameless windows		● ~~Appliances~~Air conditioners
● Manual, electric, and hydraulic stabilizer and leveling systems		● Televisions and sound systems ~~navigation~~ ~~systems and backup cameras~~
● Entry, luggage, patio, and ramp doors		● Tankless water heaters
● Furniture and mattresses		● 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.~~centers, as well as direct to retail customers via the Internet. The Aftermarket Segment also includes biminis, covers, buoys, fenders to the marine industry, towing products, truck accessories, appliances, air conditioners, televisions, sound systems, and the sale of replacement glass and awnings to fulfill insurance claims.

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

~~INDUSTRY BACKGROUND~~

~~OEM Segment~~

~~Recreational Vehicle Industry~~

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

The annual sales cycle for the RV industry generally starts in October after the “Open House” in Elkhart, Indiana where many of the largest RV OEMs display product to RV retail dealers, and ends after the conclusion of the summer selling season in September in the following calendar year. Between October and March, industry-wide wholesale shipments of travel trailer and fifth-wheel RVs have historically exceeded retail sales as dealers build inventories to support anticipated sales. Between April and September, the spring and summer selling seasons, retail sales of travel trailer and fifth-wheel RVs have historically exceeded

~~LCI INDUSTRIES~~

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

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~(Continued)~~

industry-wide wholesale shipments. Based on the strength of retail sales and the current outlook from several RV OEMs and their dealer networks, most industry analysts continue to report that RV dealer inventory is in line with anticipated retail demand.

According to the Recreation Vehicle Industry Association (“RVIA”), industry-wide wholesale shipments of travel trailer and fifth-wheel RVs in the first 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, as compared to the same period of 2016. In addition, retail demand is typically revised upward over the subsequent quarter by approximately five to ten percent, 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~~coronavirus ("COVID-19") pandemic 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.~~

According to the RVIA, industry-wide wholesale shipments of motorhome RVs in the first nine months of 2017 increased 14 percent to 47,300 units compared to the same period of 2016. The Company estimates retail demand for motorhome RVs increased 13 percent in the first nine months of 2017, following an 11 percent increase in retail demand in 2016.

The RVIA has projected an 11 percent increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs for 2017 and a two percent increase for 2018. Several RV OEMs, however, are introducing new product lines, additional features and adding production capacity. Retail sales of RVs historically have been closely tied to general economic conditions, as well as consumer confidence which was above historical averages in 2016.related impacts. 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. 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.

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

~~Adjacent Industries~~

The Company’s portfolio of products used in RVs can also be used in 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 business acquisitions completed by the Company were focused in Adjacent Industries.

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

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

~~Pontoon boats. Statistical Surveys also reported approximately 49,600 and 45,400 pontoon boats were sold in 2016 and 2015, respectively.~~

~~School buses. According to Wards Communications and R.L. Polk & Co., there were approximately 32,800 and 29,600 school buses sold in 2016 and 2015, respectively.~~

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

~~Aftermarket Segment~~

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

~~According to~~counter-seasonal, but this has been, and may in the ~~RVIA, current estimated RV ownership is nearly nine million units. Additionally,~~future be, different as a result of ~~a vibrant secondary market, one-third of current owners purchased their RV new while~~ the remaining two-thirds purchased a previously owned RV. This vibrant secondary market is a key driver for the aftermarket, as the Company anticipates owners of previously owned RVs will likely upgrade their units as well as replace partsCOVID-19 pandemic and ~~accessories which have been subjected to normal wear~~related impacts.

The COVID-19 pandemic has caused significant uncertainty 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~~disruption in the ~~third quarter of 2017 increased to $555 million, 35 percent higher than consolidated net sales for~~global economy and financial markets since early 2020. With RV retail demand at record levels throughout 2021, the third quarter of 2016 of $412 million. Acquisitions completed by the Company over the twelve months ended September 30, 2017, added $24 million in net sales in the third quarter of 2017. The 26 percent increase in industry-wide wholesale shipments of travel trailerindustry faced challenges with supply chain constraints, rising material and fifth-wheel RVs, LCI’s primary OEM market, as well as increased content per RV unit, positively impacted net sales growth in the third quarter of 2017. Further, the Company organically increased sales to adjacent industriesfreight costs, and ~~the aftermarket.~~

~~Net income for the third quarter of 2017 increased to $32.1 million, or $1.26 per diluted share, up from net income of $29.8 million, or $1.19 per diluted share, compared to the third quarter of 2016.~~

Consolidated operating profits during the third quarter of 2017 increased six percent, to $47.9 million from $45.1 million in the third quarter of 2016. Operating profit margin decreased to nine percent in the third quarter of 2017 from 11 percent compared to the third quarter of 2016.

~~The improvement in the Company’s operating results were partially offset by continued~~ increases in input costs, primarily steel, aluminum and direct labor. Aluminum costs have increased in excess of 20 percent over the prior year. Labor continues to remain a challenge with Elkhart County unemployment rates at less than three percent, and, as a result, the Company has initiated price increases that will be fully implemented by the first quarter of 2018.

~~Lean manufacturing teams continue working to reduce cost and implement processes to better utilize available floorspace. The Company also has reduced~~ direct labor ~~attrition which improves efficiency~~costs due to higher production volumes and ~~on-time deliveries, while reducing 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~~tightened labor market, especially 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~~Northern Indiana. These trends have continued through the first nine months of ~~2017 from market low points. Raw material costs continue to fluctuate~~2022, 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 for the nine months ended September 30, 2017, was substantially lower than the comparable prior year period, primarily due to the recognition of excess tax benefits attributable to the adoption by the Company of Accounting Standards Update 2016-09, which simplified several aspects of the accounting for share-based payment transactions, including income tax consequences. The excess tax benefit equated to $5.9 million recognized in the first nine months of 2017.

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

~~In March, June and September 2017, the Company paid a quarterly dividend of $0.50 per share, aggregating to $12.4 million, $12.4 million and $12.5 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 percent, or $130 million, compared to the same period of 2016. Net sales of components to OEMs were to the following markets for the three months ended September 30:

(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:~~

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 RV OEMs for the different types of RVs produced for the twelve months ended September 30, divided by the industry-wide wholesale shipments of the different types of RVs for the same period, was:

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

The Company’s net OEM sales to Adjacent Industries increased during the third quarter of 2017 primarily due to acquisitions completed in 2017 and 2016 and market share gains. The Company continues to believe there are significant opportunities in Adjacent Industries.

Operating profit of the OEM Segment was $41.0 million in the third quarter of 2017, an improvement of $2.0 million compared to the same period of 2016. The operating profit margin of the OEM Segment in the third quarter of 2017 was positively impacted by:

~~Better fixed cost absorption by spreading fixed costs over a sales base that increased by $130 million.~~

~~Increased sales to Adjacent Industries OEMs.~~

~~Pricing changes of targeted products.~~

Investments over the past several years to increase capacity and improve operating efficiencies. Further, the Company has implemented efficiency improvements, including lean manufacturing initiatives, increased use of automation

LCI INDUSTRIES

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

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~(Continued)~~

~~and employee retention initiatives. The Company has also reduced direct labor attrition which improves efficiency and reduces other costs associated with workforce turnover.~~

~~OEM Segment – Year to Date~~

Net sales of the OEM Segment in the first nine months of 2017 increased 25 percent, or $295 million, compared to the first nine months of 2016. Net sales of components to OEMs were to the following markets for the nine months ended September 30:

(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 increased during the first nine months of 2017, primarily due to 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.

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)~~

~~Pricing changes of targeted products.~~

~~Partially offset by:~~

~~Aftermarket Segment - Third Quarter~~

Net sales of the Aftermarket Segment in the third quarter of 2017 increased 34 percent, or $12 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 primarily due to the Company’s focus on building out well qualified, customer-focused teams and infrastructure to service this market. With an estimated nine million households in North America owning an RV and the Company’s increasing content per unit, the Company continues to believe there are significant opportunities in the RV aftermarket as the components sold to OEMs are subject to normal wear and tear over time.

Operating profit of the Aftermarket Segment was $6.9 million in the third quarter of 2017, an increase of $0.8 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.

~~Aftermarket Segment – Year to Date~~

Net sales of the Aftermarket Segment in the first nine months of 2017 increased 29 percent, or $29 million, compared to 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 due to the Company’s focus on building out well qualified, customer-focused teams and infrastructure to service this market. With an estimated nine

~~LCI INDUSTRIES~~

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

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~(Continued)~~

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.

The effective tax rates for the nine months ended September 30, 2017 and 2016 were 31.7% and 35.0%, respectively. The effective tax rate for the nine months ended September 30, 2017 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits as a component of the provision for income taxes attributable to the adoption of ASU 2016-09, the tax benefit relating to U.S. manufacturer’s deduction and Federal and Indiana research and development (“R&D”) credits offset by state taxes, foreign taxes and non-deductible expenses. The decrease in effective tax rate for the nine months ended September 30, 2017 as compared to the same period in 2016 was due primarily to the recognition of excess tax benefits attributable to the adoption of ASU 2016-09 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.

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:~~

~~Cash Flows from Operations~~

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

~~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 and Furrion electronics.~~

~~Partially offset by:~~

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

Depreciation and amortization was $39.9 million in the first nine months of 2017, and is expected to be approximately $55 million to $60 million for fiscal year 2017. Non-cash stock-based compensation in the first nine months of 2017 was $15.0 million. Non-cash stock-based compensation is expected to be approximately $19 million to $21 million in 2017.

~~Cash Flows from Investing Activities~~

Cash flows used for investing activities of $128.0 million in the first nine months of 2017 were primarily comprised of $60.3 million for capital expenditures and $67.9 million for the acquisition of businesses. Cash flows used for investing activities of $55.9 million in the first nine months of 2016 were primarily comprised of $21.9 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.

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 2 percent of net sales, while the growth portion has averaged approximately 8 to 11 percent of the annual increase in net sales. However, there are many factors that can impact the actual spending compared to these historical averages. During 2017, the Company has focused capital investment in growth, automation and lean manufacturing initiatives.

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

~~Cash Flows from Financing Activities~~

Cash flows used for financing activities in the first nine months of 2017 were primarily comprised of payments of dividends of $0.50 per share of the Company’s common stock, representing an aggregate of $12.4 million, $12.4 million and $12.5 million, respectively, paid to stockholders of record as of March 6, 2017, May 19, 2017 and August 18, 2017, respectively. In addition, the Company had $7.3 million of shares tendered for payment of taxes. Further, the Company paid $2.6 million in contingent consideration related to acquisitions.

Cash flows used for financing activities in the first nine months of 2016 were primarily comprised of payments of dividends of $0.30 per share of the Company’s common stock, representing an aggregate of $7.3 million, $7.4 million and $7.4 million, respectively, paid to stockholders of record as of April 1, 2016, June 6, 2016 and August 19, 2016, respectively. In addition, the Company received $3.6 million in cash and the related tax benefits from the exercise of stock-based compensation, which was partially offset by $3.2 million of shares tendered for payment of taxes. Further, the Company paid $2.7 million in contingent consideration related to acquisitions.

In connection with certain business acquisitions, if established sales targets for the acquired business are achieved, the Company will pay additional cash consideration. The Company has recorded a $17.0 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. For further information, see Note 7 of the Notes to the Condensed Consolidated Financial Statements.

On April 27, 2016, the Company refinanced its line of credit through an agreement with JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., Bank of America, N.A., and 1st Source Bank. The agreement amended and restated the existing line of credit, which 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 borrowings under the line of credit can be further increased by $125.0 million, subject to certain conditions. At September 30, 2017, the Company had $2.4 million in issued, but undrawn, standby letters of credit under the line of credit. Availability under the Company’s line of credit was $197.6 million at September 30, 2017.

On March 30, 2017, the Company amended its “shelf-loan” facility with Prudential Investment Management, Inc. and its affiliates (“Prudential”) to extend the term through March 30, 2020. In connection with this amendment, the facility provides for Prudential to consider purchasing, at the Company’s request, in one or a series of transactions, Senior Promissory Notes of the Company in the aggregate principal amount of up to $150.0 million (excluding the Company’s Series A Notes already outstanding). Prudential has no obligation to purchase the Senior Promissory Notes. Interest payable on the Senior Promissory Notes will be at rates determined by Prudential within five business days after the Company issues a request to Prudential. Availability under the Company’s “shelf-loan” facility was $150.0 million at September 30, 2017. However, the Amended Credit Agreement limits the aggregate indebtedness outstanding to Prudential from time to time to $150.0 million; therefore, currently the Company can only access an additional $100 million under the shelf-loan facility.

Pursuant to the Amended Credit Agreement and “shelf-loan” facility, the Company is required to maintain minimum interest and fixed charge coverages, and to meet certain other financial requirements. At September 30, 2017, the Company was in compliance with all such requirements, and expects to remain in compliance for the next twelve months.

Availability under both the Amended Credit Agreement and the “shelf-loan” facility is subject to a maximum leverage ratio covenant which limits the amount of consolidated outstanding indebtedness to 2.5 times the trailing twelve-month EBITDA, as defined. This limitation did not impact the Company’s borrowing availability at September 30, 2017. The remaining availability under these facilities, not including the potential increase of $125 million under the Amended Credit Agreement, was $297.6 million at September 30, 2017. The Company believes the availability under the Amended Credit Agreement and “shelf-loan” facility 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 Company’s website (~~www.lci1.com/investors~~) and are updated periodically. The website also contains, or provides direct links to, all SEC filings, press releases and investor presentations. The Company has also established a Whistleblower Policy, which includes a toll-free hotline (877-373-9123) to report complaints about the Company’s accounting, internal controls, auditing matters or other concerns. The Whistleblower Policy and procedure for complaints can be found on the Company’s website (~~www.lci1.com/investors~~).

~~Information required by this item is included in Note 7 of the Notes to the Condensed Consolidated Financial Statements and under Item 1 of Part I of this Quarterly Report on Form 10-Q.~~

The prices of key raw materials, consisting primarily of steel, aluminum, and foam, and components used by the Company which are made from these raw materials, are influenced by demand and other factors specific to these commodities, rather than being directly affected by inflationary pressures. Prices of these commodities have historically been volatile, and over the past few months prices have continued to fluctuate.

~~NEW ACCOUNTING PRONOUNCEMENTS~~

~~Information required by this item is included in Note 11 of the Notes to the Condensed Consolidated Financial Statements.~~

~~LCI INDUSTRIES~~

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

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~(Continued)~~

~~USE OF ESTIMATES~~

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

~~FORWARD-LOOKING STATEMENTS~~

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

Forward-looking statements, including, without limitation, those relating to the Company’s future business prospects, net sales, expenses and income (loss), cash flow, and financial condition, whenever they occur in this Form 10-Q are necessarily estimates reflecting the best judgment of the Company’s senior management at the time such statements were made. There are a number of factors, many of which are beyond the Company’s control, which could cause actual results and events to differ materially from those described in the forward-looking statements. These factors include, in addition to other matters described in this Form 10-Q, pricing pressures due to domestic and foreign competition, costs and availability of raw materials (particularly steel and aluminum) and other components, seasonality and cyclicality in the industries to which the Company sells its products, availability of credit for financing the retail and wholesale purchase of products for which the Company sells its components, inventory levels of retail dealers and manufacturers, availability of transportation for products for which the Company sells its components, the financial condition of the Company’s customers, the financial condition of retail dealers of products for which the Company sells its components, retention and concentration of significant customers, the costs, pace of and successful integration of acquisitions and other growth initiatives, availability and costs of production facilities and labor, employee benefits, employee retention, realization and impact of expansion plans, efficiency improvements and cost reductions, the disruption of business resulting from natural disasters or other unforeseen events, the successful entry into new markets, the costs of compliance with environmental laws, laws of foreign jurisdictions in which we operate, and increased governmental regulation and oversight, information technology performance and security, the ability to protect intellectual property, warranty and product liability claims or product recalls, interest rates, oil and gasoline prices, the impact of international, national and regional economic conditions and consumer confidence on the retail sale of products for which the Company sells its components, and other risks and uncertainties discussed more fully under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, and in the Company’s subsequent filings with the Securities and Exchange Commission. The Company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law.

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

with regard to supply chain constraints and freight costs, have also been impacted by the conflict between Russia and Ukraine (the "Russia-Ukraine War"), as well as heightened tensions between China and Taiwan. To address these challenges, we have continued to strategically manage working capital, including carrying elevated levels of certain inventory items to avoid future shortages. We continue to focus on our culture and leadership development programs to focus on team member retention. We continue to closely monitor the impact of COVID-19, the Russia-Ukraine War, and relations between China and Taiwan on all aspects of our business. The extent to which COVID-19, the Russia-Ukraine War, and/or relations between China and Taiwan may impact our liquidity, financial condition, and results of operations in the future remains uncertain.

North American Recreational Vehicle Industry

The annual sales cycle for the RV industry generally starts in October after the "Open House" in Elkhart, Indiana where many of the largest RV OEMs display product to RV retail dealers and ends after the conclusion of the summer selling season in September in the following calendar year. Between October and March, industry-wide wholesale shipments of travel trailer and fifth-wheel RVs have historically exceeded retail sales as dealers build inventories to support anticipated sales. Between April and September, the spring and summer selling seasons, retail sales of travel trailer and fifth-wheel RVs have historically exceeded industry-wide wholesale shipments. Due to the COVID-19 pandemic, the 2021 and 2020 Open Houses were canceled, but an Open House was held in September 2022. The seasonality of the RV industry has been impacted by the COVID-19 pandemic, and the timing of a return to historical seasonality is not possible to predict at this time.



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)



	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	2226

		ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3337

		ITEM 4 – CONTROLS AND PROCEDURES	3337

PART II –		OTHER INFORMATION

		ITEM 1 – LEGAL PROCEEDINGS	3438

		ITEM 1A – RISK FACTORS	3438

		ITEM 6 – EXHIBITS	3438

SIGNATURES			3539

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



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



	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


^{Fair value adjustments (a) (b)}	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(1,886)

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	110
Less current portion in accrued expenses and other current liabilities	(7)
Total long-term portion in other long-term liabilities	$	103



	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



					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



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


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.~~


LCI INDUSTRIES
Registrant


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

By	/s/ Brian M. Hall
Brian M. Hall
Chief Financial Officer
November ~~7, 2017~~1, 2022