UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended: September 30, ~~2020~~2021


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

For the transition period from _________________ to _________________

Commission File Number: 001-13646

LCI INDUSTRIES

(Exact name of registrant as specified in its charter)


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

3501 County Road 6 East		46514
Elkhart,	Indiana	(Zip Code)
(Address of principal executive offices)

(574) 535-1125

(Registrant’s telephone number, including area code)

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

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


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

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

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

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

Large accelerated filer ☒ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

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

Indicate by check mark whether the registrant 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 ~~30, 2020)~~29, 2021) was ~~25,154,183~~25,272,517 shares of common stock.

LCI INDUSTRIES

TABLE OF CONTENTS


		Page
PART I –	FINANCIAL INFORMATION

	ITEM 1 – FINANCIAL STATEMENTS

	CONDENSED CONSOLIDATED STATEMENTS OF INCOME	4

	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	5

	CONDENSED CONSOLIDATED BALANCE SHEETS	6

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	7

	CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	8

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	10

	ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2528

	ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3739

	ITEM 4 – CONTROLS AND PROCEDURES	3739

PART II –	OTHER INFORMATION

	ITEM 1 – LEGAL PROCEEDINGS	3840

	ITEM 1A – RISK FACTORS	3840

	ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3941

	ITEM 6 – EXHIBITS	4042

SIGNATURES		4143

EXHIBIT 31.1 - SECTION 302 CEO CERTIFICATION

EXHIBIT 31.2 - SECTION 302 CFO CERTIFICATION

EXHIBIT 32.1 - SECTION 906 CEO CERTIFICATION

EXHIBIT 32.2 - SECTION 906 CFO CERTIFICATION

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

LCI INDUSTRIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
(In thousands, except per share amounts)	(In thousands, except per share amounts)									(In thousands, except per share amounts)

Net sales	Net sales	$	827,729	$	586,221	$	2,013,164	$	1,807,461	Net sales	$	1,165,309	$	827,729	$	3,259,287	$	2,013,164
Cost of sales	Cost of sales	606,290		450,748		1,504,378		1,390,741		Cost of sales	913,728		606,290		2,508,318		1,504,378
Gross profit	Gross profit	221,439		135,473		508,786		416,720		Gross profit	251,581		221,439		750,969		508,786
Selling, general and administrative expenses	Selling, general and administrative expenses	127,006		86,320		349,305		254,155		Selling, general and administrative expenses	162,557		127,006		466,532		349,305
Operating profit	Operating profit	94,433		49,153		159,481		162,565		Operating profit	89,024		94,433		284,437		159,481
Interest expense, net	Interest expense, net	1,948		1,900		10,843		6,506		Interest expense, net	4,667		1,948		10,844		10,843
Income before income taxes	Income before income taxes	92,485		47,253		148,638		156,059		Income before income taxes	84,357		92,485		273,593		148,638
Provision for income taxes	Provision for income taxes	24,138		11,444		38,891		38,357		Provision for income taxes	20,956		24,138		68,183		38,891
Net income	Net income	$	68,347	$	35,809	$	109,747	$	117,702	Net income	$	63,401	$	68,347	$	205,410	$	109,747

Net income per common share:	Net income per common share:									Net income per common share:
Basic	Basic	$	2.72	$	1.43	$	4.37	$	4.71	Basic	$	2.51	$	2.72	$	8.14	$	4.37
Diluted	Diluted	$	2.70	$	1.42	$	4.35	$	4.70	Diluted	$	2.49	$	2.70	$	8.10	$	4.35

Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	25,162		25,031		25,125		24,984		Basic	25,286		25,162		25,247		25,125
Diluted	Diluted	25,313		25,156		25,220		25,053		Diluted	25,417		25,313		25,371		25,220

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

LCI INDUSTRIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
(In thousands)	(In thousands)									(In thousands)

Net income	Net income	$	68,347	$	35,809	$	109,747	$	117,702	Net income	$	63,401	$	68,347	$	205,410	$	109,747
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Net foreign currency translation adjustment	Net foreign currency translation adjustment	3,399		819		(102)		(1,850)		Net foreign currency translation adjustment	(1,793)		3,399		(3,875)		(102)
Actuarial gain on Dutch pension plans		0		0		6,299		0
Unrealized gain (loss) on fair value of derivative instruments		0		(19)		1,642		(2,061)
Actuarial gain on pension plans										Actuarial gain on pension plans	—		—		933		6,299
Unrealized gain on fair value of derivative instruments										Unrealized gain on fair value of derivative instruments	—		—		—		1,642
Total comprehensive income	Total comprehensive income	$	71,746	$	36,609	$	117,586	$	113,791	Total comprehensive income	$	61,608	$	71,746	$	202,468	$	117,586

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

LCI INDUSTRIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


		September 30,		December 31,	September 30,				December 31,
		2020				2019			2021		2020
(In thousands, except per share amount)	(In thousands, except per share amount)							(In thousands, except per share amount)

ASSETS	ASSETS							ASSETS
Current assets	Current assets							Current assets
Cash and cash equivalents	Cash and cash equivalents	$	68,187			$	35,359	Cash and cash equivalents	$	72,615	$	51,821

Accounts receivable, net of allowances of $6,060 and $3,144 at September 30, 2020 and December 31, 2019, respectively		313,264				199,976
Accounts receivable, net of allowances of $7,454 and $5,642 at September 30, 2021 and December 31, 2020, respectively								Accounts receivable, net of allowances of $7,454 and $5,642 at September 30, 2021 and December 31, 2020, respectively	394,766		268,625
Inventories, net	Inventories, net	369,160				393,607		Inventories, net	790,651		493,899

Prepaid expenses and other current assets	Prepaid expenses and other current assets	45,061				41,849		Prepaid expenses and other current assets	102,434		55,456
Total current assets	Total current assets	795,672				670,791		Total current assets	1,360,466		869,801
Fixed assets, net	Fixed assets, net	368,422				366,309		Fixed assets, net	421,053		387,218
Goodwill	Goodwill	413,068				351,114		Goodwill	568,885		454,728
Other intangible assets, net	Other intangible assets, net	373,941				341,426		Other intangible assets, net	518,300		420,885
Operating lease right-of-use assets	Operating lease right-of-use assets	97,580				98,774		Operating lease right-of-use assets	164,142		104,179

Other assets	Other assets	62,000				34,181		Other assets	55,339		61,220
Total assets	Total assets	$	2,110,683			$	1,862,595	Total assets	$	3,088,185	$	2,298,031

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities	Current liabilities							Current liabilities
Current maturities of long-term indebtedness	Current maturities of long-term indebtedness	$	19,861			$	17,883	Current maturities of long-term indebtedness	$	74,311	$	17,831
Accounts payable, trade	Accounts payable, trade	175,492				99,262		Accounts payable, trade	297,347		184,931

Current portion of operating lease obligations	Current portion of operating lease obligations	23,772				21,693		Current portion of operating lease obligations	28,751		25,432
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	181,398				132,420		Accrued expenses and other current liabilities	283,722		188,200
Total current liabilities	Total current liabilities	400,523				271,258		Total current liabilities	684,131		416,394
Long-term indebtedness	Long-term indebtedness	616,076				612,906		Long-term indebtedness	1,012,078		720,418
Operating lease obligations	Operating lease obligations	77,619				79,848		Operating lease obligations	143,839		82,707
Deferred taxes	Deferred taxes	46,946				35,740		Deferred taxes	56,309		53,833
Other long-term liabilities	Other long-term liabilities	93,957				62,171		Other long-term liabilities	160,688		116,353
Total liabilities	Total liabilities	1,235,121				1,061,923		Total liabilities	2,057,045		1,389,705

Stockholders’ equity	Stockholders’ equity							Stockholders’ equity
Common stock, par value $.01 per share	Common stock, par value $.01 per share	282				281		Common stock, par value $.01 per share	284		282
Paid-in capital	Paid-in capital	222,257				212,485		Paid-in capital	213,271		227,407
Retained earnings	Retained earnings	702,223				644,945		Retained earnings	871,600		731,710
Accumulated other comprehensive income	Accumulated other comprehensive income	8,962				1,123		Accumulated other comprehensive income	4,147		7,089
Stockholders’ equity before treasury stock	Stockholders’ equity before treasury stock	933,724				858,834		Stockholders’ equity before treasury stock	1,089,302		966,488
Treasury stock, at cost	Treasury stock, at cost	(58,162)				(58,162)		Treasury stock, at cost	(58,162)		(58,162)
Total stockholders’ equity	Total stockholders’ equity	875,562				800,672		Total stockholders’ equity	1,031,140		908,326
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,110,683			$	1,862,595	Total liabilities and stockholders’ equity	$	3,088,185	$	2,298,031

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

LCI INDUSTRIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended
September 30,
2020 2019
(In thousands)
Cash flows from operating activities:
Net income $ 109,747 $ 117,702
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation and amortization 73,366 55,882
Stock-based compensation expense 13,646 12,061
Other non-cash items 1,818 837
Changes in assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net (103,209) (42,367)
Inventories, net 24,423 24,410
Prepaid expenses and other assets (29,489) 15,119
Accounts payable, trade 68,379 8,437
Accrued expenses and other liabilities 53,806 17,461
Net cash flows provided by operating activities 212,487 209,542
Cash flows from investing activities:
Capital expenditures (28,663) (47,767)
Acquisitions of businesses, net of cash acquired (94,909) (53,923)
Other investing activities 3,972 364
Net cash flows used in investing activities (119,600) (101,326)
Cash flows from financing activities:
Vesting of stock-based awards, net of shares tendered for payment of taxes (4,807) (7,194)
Proceeds from revolving credit facility 285,827 404,228
Repayments under revolving credit facility (273,130) (443,921)
Repayments under term loan and other borrowings (15,385) 0
Payment of dividends (51,535) (47,533)
Other financing activities (176) (405)
Net cash flows used in financing activities (59,206) (94,825)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (853) (842)
Net increase in cash, cash equivalents, and restricted cash 32,828 12,549
Cash, cash equivalents, and restricted cash at beginning of period 35,359 14,928
Cash, cash equivalents, and restricted cash at end of period $ 68,187 $ 27,477
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 12,743 $ 6,156
Cash paid during the period for income taxes, net of refunds $ 16,457 $ 28,416
Purchase of property and equipment in accrued expenses $ 2,588 $ 588


	Nine Months Ended September 30,
	2021		2020
(In thousands)
Cash flows from operating activities:
Net income	$	205,410	$	109,747
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation and amortization	80,211		73,366
Stock-based compensation expense	20,295		13,646

Other non-cash items	5,418		1,818
Changes in assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net	(140,768)		(103,209)
Inventories, net	(253,031)		24,423
Prepaid expenses and other assets	(28,274)		(29,489)
Accounts payable, trade	97,071		68,379
Accrued expenses and other liabilities	25,961		53,806
Net cash flows provided by operating activities	12,293		212,487
Cash flows from investing activities:
Capital expenditures	(73,872)		(28,663)
Acquisitions of businesses, net of cash acquired	(154,544)		(94,909)


Other investing activities	11,544		3,972
Net cash flows used in investing activities	(216,872)		(119,600)
Cash flows from financing activities:
Vesting of stock-based awards, net of shares tendered for payment of taxes	(8,258)		(4,807)
Proceeds from revolving credit facility	832,493		285,827
Repayments under revolving credit facility	(912,547)		(273,130)
Repayments under term loan and other borrowings	(13,375)		(15,385)
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	(64,425)		(51,535)
Payment of contingent consideration and holdbacks related to acquisitions	(8,061)		(9)
Other financing activities	1,972		(167)
Net cash flows provided by (used in) financing activities	224,186		(59,206)
Effect of exchange rate changes on cash and cash equivalents	1,187		(853)
Net increase in cash and cash equivalents	20,794		32,828
Cash and cash equivalents at beginning of period	51,821		35,359
Cash and cash equivalents cash at end of period	$	72,615	$	68,187
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	9,127	$	12,743
Cash paid during the period for income taxes, net of refunds	$	75,822	$	16,457
Purchase of property and equipment in accrued expenses	$	4,036	$	2,588

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)	(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		(In thousands, except shares and per share amounts)	Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Stockholders’ Equity
Balance - December 31, 2018		$	280	$	203,246	$	563,496	$	(2,605)	$	(58,162)	$	706,255
Balance - December 31, 2019														Balance - December 31, 2019	$	281	$	212,485	$	644,945	$	1,123	$	(58,162)	$	800,672
Net income	Net income	—		—		34,366		—		—		34,366		Net income	—		—		28,214		—		—		28,214
Issuance of 137,040 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes		1		(6,349)		—		—		—		(6,348)
Stock-based compensation expense		—		3,733		—		—		—		3,733
Other comprehensive loss		—		—		—		(1,328)		—		(1,328)
Cash dividends ($0.60 per share)		—		—		(14,999)		—		—		(14,999)
Dividend equivalents on stock-based awards		—		304		(304)		—		—		0
Balance - March 31, 2019		281		200,934		582,559		(3,933)		(58,162)		721,679
Net income		—		—		47,527		—		—		47,527
Issuance of 27,965 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes		—		(795)		—		—		—		(795)
Issuance of 87,833 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes														Issuance of 87,833 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes	1		(4,518)		—		—		—		(4,517)
Stock-based compensation expense	Stock-based compensation expense	—		4,115		—		—		—		4,115		Stock-based compensation expense	—		3,295		—		—		—		3,295
Other comprehensive loss	Other comprehensive loss	—		—		—		(3,383)		—		(3,383)		Other comprehensive loss	—		—		—		(3,540)		—		(3,540)
Cash dividends ($0.65 per share)	Cash dividends ($0.65 per share)	—		—		(16,267)		—		—		(16,267)		Cash dividends ($0.65 per share)	—		—		(16,321)		—		—		(16,321)
Dividend equivalents on stock-based awards	Dividend equivalents on stock-based awards	—		318		(318)		—		—		0		Dividend equivalents on stock-based awards	—		297		(297)		—		—		—
Balance - June 30, 2019		281		204,572		613,501		(7,316)		(58,162)		752,876
Balance - March 31, 2020														Balance - March 31, 2020	282		211,559		656,541		(2,417)		(58,162)		807,803
Net income	Net income	—		—		35,809		—		—		35,809		Net income	—		—		13,186		—		—		13,186
Issuance of 1,429 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes		—		(50)		—		—		—		(50)
Issuance of 16,251 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes														Issuance of 16,251 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes	—		(99)		—		—		—		(99)
Stock-based compensation expense	Stock-based compensation expense	—		4,213		—		—		—		4,213		Stock-based compensation expense	—		4,109		—		—		—		4,109
Other comprehensive income	Other comprehensive income	—		—				800		—		800		Other comprehensive income	—		—		—		7,980		—		7,980
Cash dividends ($0.65 per share)	Cash dividends ($0.65 per share)	—				(16,267)		—		—		(16,267)		Cash dividends ($0.65 per share)	—		—		(16,349)		—		—		(16,349)
Dividend equivalents on stock-based awards	Dividend equivalents on stock-based awards	—		318		(318)		—		—		0		Dividend equivalents on stock-based awards	—		295		(295)		—		—		—
Balance - September 30, 2019		$	281	$	209,053	$	632,725	$	(6,516)	$	(58,162)	$	777,381
Balance - June 30, 2020														Balance - June 30, 2020	282		215,864		653,083		5,563		(58,162)		816,630
Net income														Net income	—		—		68,347		—		—		68,347
Issuance of 3,998 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes														Issuance of 3,998 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes	—		(191)		—		—		—		(191)
Stock-based compensation expense														Stock-based compensation expense	—		6,242		—		—		—		6,242
Other comprehensive income														Other comprehensive income	—		—				3,399		—		3,399
Cash dividends ($0.75 per share)														Cash dividends ($0.75 per share)	—				(18,865)		—		—		(18,865)
Dividend equivalents on stock-based awards														Dividend equivalents on stock-based awards	—		342		(342)		—		—		—
Balance - September 30, 2020														Balance - September 30, 2020	$	282	$	222,257	$	702,223	$	8,962	$	(58,162)	$	875,562

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)	(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		(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, 2019		$	281	$	212,485	$	644,945	$	1,123	$	(58,162)	$	800,672
Balance - December 31, 2020														Balance - December 31, 2020	$	282	$	227,407	$	731,710	$	7,089	$	(58,162)	$	908,326
Net income	Net income	—		—		28,214		—		—		28,214		Net income	—		—		74,120		—		—		74,120
Issuance of 87,833 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes		1		(4,518)		—		—		—		(4,517)
Issuance of 97,086 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes														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	Stock-based compensation expense	—		3,295		—		—		—		3,295		Stock-based compensation expense	—		7,436		—		—		—		7,436
Other comprehensive loss	Other comprehensive loss	—		—		—		(3,540)		—		(3,540)		Other comprehensive loss	—		—		—		(3,589)		—		(3,589)
Cash dividends ($0.65 per share)		—		—		(16,321)		—		—		(16,321)
Dividend equivalents on stock-based awards		—		297		(297)		—		—		0
Balance - March 31, 2020		282		211,559		656,541		(2,417)		(58,162)		807,803
Net income		—		—		13,186		—		—		13,186
Issuance of 16,251 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes		—		(99)		—		—		—		(99)
Stock-based compensation expense		—		4,109		—		—		—		4,109
Other comprehensive income		—		—		—		7,980		—		7,980
Cash dividends ($0.65 per share)		—		—		(16,349)		—		—		(16,349)
Dividend equivalents on stock-based awards		—		295		(295)		—		—		0
Balance - June 30, 2020		282		215,864		653,083		5,563		(58,162)		816,630
Net income		—		—		68,347		—		—		68,347
Issuance of 3,998 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes		—		(191)		—		—		—		(191)
Stock-based compensation expense		—		6,242		—		—		—		6,242
Other comprehensive income		—		—		—		3,399		—		3,399
Cash dividends ($0.75 per share)	Cash dividends ($0.75 per share)	—		—		(18,865)		—		—		(18,865)		Cash dividends ($0.75 per share)	—		—		(18,939)		—		—		(18,939)
Dividend equivalents on stock-based awards	Dividend equivalents on stock-based awards	—		342		(342)		—		—		0		Dividend equivalents on stock-based awards	—		325		(325)		—		—		—
Balance - September 30, 2020		$	282	$	222,257	$	702,223	$	8,962	$	(58,162)	$	875,562
Balance - March 31, 2021														Balance - March 31, 2021	283		227,400		786,566		3,500		(58,162)		959,587
Net income														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														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														Stock-based compensation expense	—		6,423		—		—		—		6,423
Purchase of convertible note hedge contracts, net of tax														Purchase of convertible note hedge contracts, net of tax	—		(75,750)		—		—		—		(75,750)
Issuance of warrants														Issuance of warrants	—		48,484		—		—		—		48,484
Other comprehensive income														Other comprehensive income	—		—		—		2,440		—		2,440
Cash dividends ($0.90 per share)														Cash dividends ($0.90 per share)	—		—		(22,739)		—		—		(22,739)
Dividend equivalents on stock-based awards														Dividend equivalents on stock-based awards	—		388		(388)		—		—		—
Balance - June 30, 2021														Balance - June 30, 2021	284		206,786		831,328		5,940		(58,162)		986,176
Net income														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														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														Stock-based compensation expense	—		6,436		—		—		—		6,436
Other comprehensive loss														Other comprehensive loss	—		—		—		(1,793)		—		(1,793)
Cash dividends ($0.90 per share)														Cash dividends ($0.90 per share)	—		—		(22,747)		—		—		(22,747)
Dividend equivalents on stock-based awards														Dividend equivalents on stock-based awards	—		382		(382)		—		—		—
Balance - September 30, 2021														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

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; boats; trains; manufactured homes; and modular housing. The Company also supplies engineered components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors, and service centers. At September 30, ~~2020,~~2021, the Company operated over 90100 manufacturing and distribution facilities located throughout North America, Europe, and ~~Europe.~~Asia.

Most industries where the Company sells products or where its products are used historically have been seasonal and are generally at the highest levels when the weather is moderate. Accordingly, the Company’s sales and profits have generally been the highest in the second quarter and lowest in the fourth quarter. However, because of fluctuations in dealer inventories, the impact of international, national, and regional economic conditions, 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, particularly as a result of the coronavirus ("COVID-19") pandemic and related impacts. Additionally, sales of certain engineered components to the aftermarket channels of these industries tend to be counter-seasonal, but may be different in ~~2020~~the remainder of 2021 and future years as a result of the COVID-19 pandemic and related impacts.

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

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

COVID-19 Update

The COVID-19 pandemic has caused significant uncertainty and disruption in the global economy and financial markets. The COVID-19 pandemic had an adverse effect on the Company's financial results during the first half of 2020 due to

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Impact~~government-mandated plant shutdowns. The Company took a variety of ~~COVID-19~~

~~On March 11,~~actions during 2020 to help mitigate the ~~World Health Organization declared~~adverse impacts, including temporary cost savings measures and delays and reductions in capital expenditures. Activity in most of the ~~outbreak~~end markets the Company serves sequentially improved as 2020 progressed, and this trend has continued through the first nine months of 2021, especially in the RV and marine OEM markets and the Company's Aftermarket Segment. Management continues to closely monitor the impact of COVID-19 ~~a pandemic, and~~ on ~~March 13, 2020, the United States declared a national emergency related to COVID-19. The pandemic has caused significant uncertainty and disruption in the global economy and financial markets.~~

On March 25, 2020, the Company issued a press release providing a business update regarding COVID-19, including that it was temporarily suspending production at select manufacturing facilities across North America and Europe. The temporary suspension of production was made on a plant-by-plant basis, consistent with government mandates or due to customer closures. Production at facilities considered essential continued, utilizing reduced staff in conjunction with heightened cleaning and sanitation processes. On April 8, 2020, the Company issued a press release with additional business updates related to COVID-19, including cost savings and cash preservation measures that it had taken, including temporary executive salary and director retainer reductions, rightsizing its workforce to match demand levels, delaying certain capital expenses and reducing or eliminating non-critical business expenses, initiating temporary hiring freezes in all ~~locations and furloughs for non-critical team members, lease payment deferrals, postponing merit increases for salaried employees until the end~~aspects of the fiscal year, and engaging with banking partners regarding options relative to future financial liquidity. Additionally, the April 8 press release announced community support initiatives including donations of personal protective equipment and other supplies throughout local communities, manufacturing medical face shields used by doctors and nurses in Italy, and the establishment of a temporary emergency fund to aid team members who have faced personal and financial difficulties due to the COVID-19 pandemic.

The Company resumed operations to varying degrees for the majority of its facilities on May 4, 2020 to meet the demand requirements of its customers, and by later in the second quarter, the Company's facilities were fully operational. As the Company returned to fully operational status, several of the cost savings and cash preservation measures previously announced on April 8, 2020 were reversed, including executive salary and director retainer reductions, furloughs, and hiring freezes, and discussions with banking partners about financing options were halted. Due to the uncertainty surrounding the COVID-19 pandemic, the Company remains disciplined with other cost savings and cash preservation measures, such as delaying certain capital expenditures and reducing or eliminating non-critical business expenses including travel.

business. The extent to which COVID-19 may impact the Company's liquidity, financial condition, and results of operations in the 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 accounting policies described in its December 31, ~~2019~~2020 Annual Report on Form 10-K and should be read in conjunction with the Notes to Consolidated Financial Statements which appear in that report. All significant intercompany balances and transactions have been eliminated.

~~Recent Accounting Pronouncements~~The Company's accounting policies related to the convertible note hedge and warrant transactions, including the related earnings per share considerations, are disclosed in Note 3 and Note 12 of the Notes to Condensed Consolidated Financial Statements.

Recently ~~issued~~adopted accounting ~~pronouncements not yet adopted~~pronouncement

In ~~December 2019,~~August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~2019-12,~~2020-06, ~~Income Taxes (Topic 740)~~Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): ~~Simplifying the~~ Accounting for ~~Income Taxes,~~ Convertible Instruments and Contracts in an Entity's Own Equity~~which~~ ("ASU 2020-06"). This ASU simplifies the accounting for ~~income taxes, eliminates~~ certain ~~exceptions within Accounting Standards Codification ("ASC") 740,~~ ~~Income Taxes,~~ financial instruments with characteristics of liabilities and ~~clarifies certain aspects~~equity, including convertible instruments and contracts in an entity’s own equity. ASU 2020-06 also amends the diluted earnings per share calculation for convertible instruments by requiring the use of the current guidance to promote consistency among reporting entities. The new standard is effective for fiscal years beginning after December 15, 2021. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.if-converted method. The Company ~~is evaluating~~has chosen to early adopt ASU 2020-06 in 2021. This ASU had no retrospective changes but impacted how the ~~effect of adopting this new accounting guidance.~~convertible debt the Company issued in May 2021 was both recognized and disclosed.

~~Recently adopted accounting pronouncements~~

3. EARNINGS PER SHARE

~~In June 2016,~~The following reconciliation details the ~~FASB~~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)	2021	2020	2021	2020
Weighted average shares outstanding for basic earnings per share	25,286	25,162	25,247	25,125
Common stock equivalents pertaining to stock-based awards	131	151	124	95
Weighted average shares outstanding for diluted earnings per share	25,417	25,313	25,371	25,220

Equity instruments excluded from diluted net earnings per share calculation as the effect would have been antidilutive	140	119	142	113

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 in accordance with ASU ~~2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,~~ ~~which requires~~2020-06. 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 ~~measure~~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, we include the number of shares required to satisfy the conversion obligation, assuming all ~~expected credit losses~~the Convertible Notes are converted. The average closing price of the Company's common stock for ~~financial instruments held at~~ the ~~reporting date based~~three and nine months ended September 30, 2021 is used as the basis for determining the dilutive effect on ~~historical experience, current conditions,~~earnings per share. The average price of the Company's common stock for each of the three and ~~reasonable forecasts. This ASU replaced~~nine months ended September 30, 2021 was less than the ~~previous incurred loss model~~conversion price of $165.65, and, ~~is applicable to the measurement of credit losses on financial assets, including~~therefore, all associated shares were antidilutive.

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~trade receivables.~~

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 ~~Company adopted this ASU effective January 1, 2020 using the modified retrospective transition method. The adoption did not~~Warrants have a ~~material impact~~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 periods where the Warrants' strike price of $259.84 per share is greater than the average share price of the Company's common stock for the period, the Warrants would be antidilutive. For each of the three and nine months ended September 30, 2021, the average share price was below the Warrant strike price, and therefore 2.8 million shares were considered antidilutive.

In connection with the issuance of the Convertible Notes, the Company entered into privately negotiated call option contracts on the Company's ~~consolidated financial statements.~~common stock (the "Convertible Note Hedge Transactions") with the Counterparties. The Company paid an aggregate amount of $100.1 million 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 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.

3.4. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

Subsequent Event

Exertis

In October 2021, the Company acquired certain business assets of Stampede Presentation Products, Inc. d/b/a Exertis (“Exertis”), a global distribution company, in exchange for $39.7 million, subject to customary adjustments related to working capital. The acquisition qualifies as a business combination for accounting purposes and will support the recent acquisition of Furrion Holdings Limited ("Furrion") by allowing the Company to provide logistics and warehousing to serve Furrion's North American customer base.

Acquisitions Completed During the Nine Months Ended September 30, ~~2020~~2021

~~Polyplastic~~Furrion

In September 2021, the Company acquired 100 percent of the share capital of Furrion, a leading distributor of a large range of appliances and other products to OEMs and aftermarket customers in the RV, specialty vehicle, utility trailer, horse trailer, marine, transit bus, and school bus industries. The total fair value of consideration, net of cash acquired, was approximately $146.7 million. The Company paid $50.5 million in cash consideration at closing, net of cash acquired, with $31.3 million due on each of the first and second anniversaries of the acquisition in September 2022 and September 2023. The deferred acquisition fixed payments are recorded at their respective discounted present values in the Condensed Consolidated Balance Sheet in accrued expenses and other current liabilities and other long-term liabilities at September 30, 2021.

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 and Furrion had a corresponding payable balance. In direct connection with the acquisition negotiations, the receivable and payable were

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

effectively settled in the acquisition and the receivable balance is included within the approximate $146.7 million of consideration transferred. No gain or loss was recognized in the effective settlement of the receivable.

The purchase price is subject to customary adjustments for cash, working capital, and indebtedness. The results of the acquired business have been included in the Condensed Consolidated Statements of Income since the acquisition 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.

The Company is in the process of determining the fair value of the assets acquired and liabilities assumed for the opening balance sheet, including net working capital, leases, fixed assets, deferred taxes, uncertain tax positions, and the fair value of intangible assets. The current estimates for intangible assets are based on the Company's historical acquisitions and estimated projections for the acquired company. These estimates will be updated to the valuation when it is finalized within the measurement period (not to exceed 12 months from the acquisition date). The acquisition of this business was preliminarily recorded as of the acquisition date as follows (in thousands):


Cash consideration, net of cash acquired	$	50,534
Effective settlement of receivable	34,956
Discounted value of fixed deferred consideration	61,191
Total fair value of consideration given	$	146,681

Identifiable intangible assets	$	95,000
Other assets acquired and liabilities assumed, net	5,811
Tax liabilities	(28,704)
Total fair value of net assets acquired	$	72,107

Goodwill (not tax deductible)	$	74,574

The Company incurred costs during the three and nine months ended September 30, 2021 related specifically to this acquisition of $0.8 million and $2.1 million, respectively, which are included in selling, general, and administrative expenses in the Condensed Consolidated Statement of Income.

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.

Schaudt

In April 2021, the Company acquired 100 percent of the equity interests of ~~Polyplastic Group B.V. (with its subsidiaries “Polyplastic”~~Schaudt GmbH Elektrotechnik & Apparatebau ("Schaudt"), a ~~premier window~~leading supplier toof electronic controls and energy management systems for the ~~caravanning~~European caravan industry ~~headquartered~~located in ~~Rotterdam, Netherlands.~~Markdorf, Germany. The purchase price was ~~$95.8~~approximately $29.4 million. The purchase price is subject to customary adjustments for cash, working capital, and indebtedness. The results of the acquired business have been included in the Condensed Consolidated Statements of Income since the acquisition date, primarily in the Company's OEM Segment. The Company is in the process of determining the fair value of the assets acquired and liabilities assumed for the opening balance sheet, including net working capital, fixed assets, and the fair value of intangible assets. As this acquisition is not considered to

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

have a material impact on the Company's financial statements, pro forma results of operations and other disclosures are not presented. The acquisition of this business was preliminarily recorded as of the acquisition date as follows (in thousands):


Cash consideration, net of cash acquired	$	29,383

Customer relationships	$	10,000
Other identifiable intangible assets	2,500
Net tangible assets	564
Total fair value of net assets acquired	$	13,064

Goodwill (not tax deductible)	$	16,319

The customer relationships intangible asset is being amortized over its estimated useful life of 8 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.

Ranch Hand

In April 2021, the Company acquired 100 percent of the equity interests of Kaspar Ranch Hand Equipment, LLC ("Ranch Hand"), a manufacturer of custom bumpers, grill guards, and steps for the automotive aftermarket headquartered in Shiner, Texas. The purchase price was approximately $56.9 million, plus contingent consideration up to $3.0 million. The results of the acquired business have been included in the Condensed Consolidated Statements of Income since the acquisition date, primarily in the Company's Aftermarket Segment. The Company is in the process of determining the fair value of the assets acquired and liabilities assumed for the opening balance sheet, including the fair value of intangible assets. 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. The acquisition of this business was preliminarily recorded on the acquisition date as follows (in thousands):


Cash consideration, net of cash acquired	$	56,857
Contingent consideration	3,000
Total fair value of consideration given	$	59,857

Customer relationships	$	24,200
Other identifiable intangible assets	9,100
Net tangible assets	16,923
Total fair value of net assets acquired	$	50,223

Goodwill (tax deductible)	$	9,634

The customer relationships intangible asset is being amortized over its estimated useful life of 13 years. The fair value of this asset was determined using a discounted cash flow model, which is a Level 3 input in the fair value hierarchy. The consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company anticipates the attainment of synergies and an increase in the markets for the acquired products.

Other Acquisitions in 2021

During the first nine months of 2021, the Company completed 2 other acquisitions totaling $17.8 million of cash purchase consideration, plus holdback payments of $2.1 million to be paid over the next two years and contingent consideration of up to $2.0 million. Holdback payments of $0.5 million were paid during the nine months ended September 30, 2021. The preliminary purchase price allocations resulted in $8.7 million of goodwill (tax deductible) and $7.8 million of acquired identifiable intangible assets.

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The accounting for these acquisitions is incomplete at September 30, 2021. The estimated fair values of assets acquired and liabilities assumed are based on preliminary allocations and will be finalized during the respective measurement periods, which will not exceed 12 months from the respective acquisition dates. As these acquisitions are not considered to have a material impact on the Company's financial statements, pro forma results of operations and other disclosures are not presented.

Acquisitions with Measurement Period Adjustments During the Nine Months Ended September 30, 2021

Veada

In December 2020, the Company acquired 100 percent of the outstanding capital stock of Veada Industries, Inc. ("Veada"), a manufacturer and distributor of boat seating and marine accessories based in New Paris, Indiana. The purchase price was $69.0 million, net of cash acquired, ~~plus contingent consideration~~which included initial holdback payments of $12.2 million to be paid over the next two years. Holdback payments of $3.9 million were paid; these holdback payment requirements were reduced by $0.5 million during the nine months ended September 30, 2021 due to net working capital true-ups. The remaining holdback payments are recorded in the Condensed Consolidated Balance Sheet in accrued expenses and other current liabilities ($6.0 million) and other long-term liabilities ($1.8 million) at September 30, 2021. The results of the acquired business have been included in the Condensed Consolidated Statements of Income since the acquisition date, primarily in the Company's OEM Segment.

During the nine months ended September 30, 2021, the Company adjusted the preliminary purchase price allocation reported at December 31, 2020 to account for updates to net working capital balances and assumptions and estimates related to the fair value of fixed assets and intangible assets. 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.

Challenger

In November 2020, the Company acquired substantially all of the business assets of Challenger Door, LLC ("Challenger"), a leading manufacturer and distributor of branded doors for the RV industry and products for specialty and cargo trailers, based in Nappanee, Indiana. The purchase price was $35.0 million, which included holdback payments of up to ~~$7.7~~$4.5 million ~~based on future sales~~to be paid over the next two years. These holdback payment requirements were reduced by ~~this operation.~~$1.7 million during the nine months ended September 30, 2021 due to net working capital true-ups. The remaining holdback payments are recorded in the Condensed Consolidated Balance Sheet in accrued expenses and other current liabilities ($1.8 million) and other long-term liabilities ($1.0 million) at September 30, 2021. The results of the acquired business have been included in the Condensed Consolidated Statements of Income since the acquisition date, primarily in the Company’s OEM Segment. ~~As the acquisition of Polyplastic is not considered to have a material impact on the Company’s financial statements, pro forma results of operations and other disclosures are not presented.~~

During the ~~three~~nine months ended September 30, ~~2020,~~2021, the Company adjusted the preliminary purchase price allocation reported at ~~June 30,~~December 31, 2020 to account for updates to net working capital balances and assumptions and estimates ~~which increased~~related to the fair value of ~~customer relationships~~fixed assets and ~~other~~ intangible ~~assets by $10.0 million, and decreased net tangible assets, excluding pension obligations by $0.4 million. The valuations~~assets. 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 ~~assumed pension plan obligations and intangible assets are still in process.~~acquisition date. The purchase price allocation is subject to adjustment for the fair value of intangible assets as additional information is obtained within the measurement period (not to exceed 12 months from the acquisition date). ~~The~~

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Goodwill

Goodwill by reportable segment was as follows:


(In thousands)	OEM Segment		Aftermarket Segment		Total
Net balance – December 31, 2020	$	305,953	$	148,775	$	454,728
Acquisitions – 2021	74,059		35,194		109,253
Measurement period adjustments	9,456		(23)		9,433
Foreign currency translation	(4,539)		10		(4,529)
Net balance – September 30, 2021	$	384,929	$	183,956	$	568,885

Goodwill represents the excess of the total consideration given in an acquisition of ~~this~~a business ~~was recorded, as updated, on~~over the ~~acquisition date as follows~~fair value of the net tangible and identifiable intangible assets acquired. Goodwill is not amortized, but instead is tested at the reporting unit level for impairment annually in November, or more frequently if certain circumstances indicate a possible impairment may exist.

~~(in thousands)~~:


~~Cash consideration, net of cash acquired~~	$	~~95,766~~
~~Contingent consideration~~	~~2,796~~
~~Total fair value of consideration given~~	$	~~98,562~~

~~Customer relationship and other identifiable intangible assets~~	$	~~63,626~~
~~Net tangible assets, excluding pension obligation~~	~~15,460~~
~~Unfunded pension benefit obligation~~	~~(28,665)~~
~~Total fair value of net assets acquired~~	$	~~50,421~~

~~Goodwill (not tax deductible)~~	$	~~48,141~~

Other Intangible Assets

Other intangible assets consisted of the following at September 30, 2021:


(In thousands)	Gross Cost		Accumulated Amortization		Net Balance		Estimated Useful Life in Years
Customer relationships	$	450,736	$	118,405	$	332,331	6	to	17
Patents	109,195		51,517		57,678		3	to	20
Trade names (finite life)	125,012		16,284		108,728		3	to	20
Trade names (indefinite life)	7,600		—		7,600		Indefinite
Non-compete agreements	12,064		4,890		7,174		3	to	6
Other	309		207		102		2	to	12
Purchased research and development	4,687		—		4,687		Indefinite
Other intangible assets	$	709,603	$	191,303	$	518,300

Other intangible assets consisted of the following at December 31, 2020:


(In thousands)	Gross Cost		Accumulated Amortization		Net Balance		Estimated Useful Life in Years
Customer relationships	$	398,613	$	95,443	$	303,170	6	to	17
Patents	92,128		47,090		45,038		3	to	20
Trade names (finite life)	69,686		11,272		58,414		3	to	20
Trade names (indefinite life)	7,600		—		7,600		Indefinite
Non-compete agreements	6,478		4,617		1,861		3	to	6
Other	309		194		115		2	to	12
Purchased research and development	4,687		—		4,687		Indefinite
Other intangible assets	$	579,501	$	158,616	$	420,885

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. INVENTORIES

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


	September 30,		December 31,
(In thousands)	2021			2020
Raw materials	$	590,194		$	356,921
Work in process	46,646			24,189
Finished goods	153,811			112,789
Inventories, net	$	790,651		$	493,899

6. FIXED ASSETS

Fixed assets consisted of the following at:


	September 30,		December 31,
(In thousands)	2021			2020
Fixed assets, at cost	$	825,415		$	750,138
Less accumulated depreciation and amortization	404,362			362,920
Fixed assets, net	$	421,053		$	387,218

7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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


	September 30,		December 31,
(In thousands)	2021			2020
Employee compensation and benefits	$	95,870		$	62,555
Deferred acquisition payments and contingent consideration*	53,637			16,627

Current portion of accrued warranty	30,436			32,451
Customer rebates	7,206			23,670
Other	96,573			52,897
Accrued expenses and other current liabilities	$	283,722		$	188,200

* Includes current portion of contingent consideration (Note 11) and deferred consideration and holdback payments related to acquisitions (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) historical warranty costs, (ii) current trends, (iii) product mix, and (iv) sales. The following table provides a reconciliation of the activity related to the Company's accrued warranty, including both the current and long-term portions, for the nine months ended September 30:

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


(In thousands)	2021		2020
Balance at beginning of period	$	47,091	$	47,167
Provision for warranty expense	18,798		14,443
Warranty liability from acquired businesses	5,611		—
Warranty costs paid	(22,054)		(16,568)
Balance at end of period	49,446		45,042
Less long-term portion	19,010		15,320
Current portion of accrued warranty at end of period	$	30,436	$	29,722

Warranty costs paid for the nine months ended September 30, 2021 include $3.0 million of payments related to a specific warranty issue known at the time of acquisition of CURT Acquisition Holdings, Inc. (with its subsidiaries, "CURT") in December 2019. These payments will be reimbursed to the Company by the sellers of CURT under the terms of the stock purchase agreement.

8. PENSION PLANS

The acquisition of Polyplastic Group B.V. in January 2020 included the assumption of two partially-funded defined benefit pension plans (the "Dutch pension plans") based in the Netherlands. The Dutch pension plans, which are qualified defined benefit pension plans, provide benefits based on years of service and average pay. The benefits earned by the employees are immediately vested. The Company funds the future obligations of the Dutch pension plans by purchasing an insurance contract from a large multi-national insurance company. Each year, the Company ~~will make~~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 ~~asset~~assets with the assistance of an actuary using ~~observable~~unobservable inputs (Level 2)3), which is determined as the present value of the accrued benefits guaranteed by the insurer. The ~~Company recorded the estimated unfunded pension benefit obligation~~components of the Dutch pension plans in other long-term liabilities on the Condensed Consolidated Balance Sheet. The key assumptions used to measure the benefit obligation at the acquisition date were a discount rate of 1.2 percent, an expected rate of return on plan assets of 1.2 percent, wage inflation of 2.0 percent, and expected indexation that conforms to the growth path established by Dutch pension law, which ranged from 0.0 percent at acquisition to 2.0 percent in 2033. The Company also recorded a deferred tax asset related to the Dutch pension plans, which is included in net tangible assets in the above table. Contributions and net periodic pension ~~costs~~cost for the Dutch pension plans were ~~not material for the period from the acquisition date through September 30, 2020.~~as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2021		2020		2021		2020
Net service cost	$	(1,084)	$	(859)	$	(3,300)	$	(2,484)
Interest cost	(163)		(259)		(495)		(745)
Expected return on plan assets	105		161		322		463
Administrative charges	(71)		(73)		(214)		(203)
Net periodic pension cost	$	(1,213)	$	(1,030)	$	(3,687)	$	(2,969)

The customer relationship intangible asset is being amortized over its estimated useful life of 15 years. The fair value of this asset was determined using a discounted cash flow model, which is a level 3 input in the fair value hierarchy. The

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 with Measurement Period Adjustments During the Nine Months Ended September 30, 2020~~

~~CURT~~

In December 2019, the Company acquired 100 percent of the equity interests of CURT Acquisition Holdings, Inc. (with its subsidiaries “CURT”), a leading manufacturer and distributor of branded towing products and truck accessories for the aftermarket, headquartered in Eau Claire, Wisconsin. The purchase price was $336.6 million, net of cash acquired. The results of the acquired business have been included in the Condensed Consolidated Statements of Income since the acquisition date, primarily in the Company’s Aftermarket Segment.

During the nine months ended September 30, 2020, the Company adjusted the preliminary purchase price allocation reported at December 31, 2019 to account for updates to assumptions and estimates related to the fair value of intangible assets and inventories, and to adjust the purchase price for final net working capital balances. These measurement period adjustments would not have resulted in a material impact on the prior period results if the adjustments had been recognized as of the acquisition date. The purchase price allocation is subject to adjustment as additional information is obtained within the measurement period (not to exceed 12 months from the acquisition date). The acquisition of this business was recorded, as updated, on the acquisition date as follows ~~(in thousands)~~:

Preliminary at December 31, 2019 Measurement Period Adjustments As Adjusted at September 30, 2020
Cash consideration, net of cash acquired $ 337,640 $ (1,053) $ 336,587
Assets Acquired
Accounts receivable $ 28,611 $ — $ 28,611
Inventories 88,765 (6,648) 82,117
Fixed assets 24,036 — 24,036
Customer relationship 112,000 (7,800) 104,200
Tradename and other identifiable intangible assets 37,705 (300) 37,405
Operating lease right-of-use assets 27,925 — 27,925
Other tangible assets 4,060 (1,550) 2,510
Liabilities Assumed
Accounts payable (18,577) — (18,577)
Current portion of operating lease obligations (5,360) — (5,360)
Accrued expenses and other current liabilities (10,002) — (10,002)
Operating lease obligations (22,565) — (22,565)
Deferred taxes (31,877) 1,752 (30,125)
Total fair value of net assets acquired $ 234,721 $ (14,546) $ 220,175
Goodwill (not tax deductible) $ 102,919 $ 13,493 $ 116,412

The fair values of the customer relationship and tradename intangible assets are being amortized over their estimated useful lives of 16 years and 20 years, respectively. The fair values of these assets were determined using a discounted cash flow model, which is a level 3 input in the fair value hierarchy. The consideration given was greater than the fair value of the net assets acquired, resulting in goodwill, because the Company anticipates the attainment of synergies and an increase in the markets for the acquired products.

~~LCI INDUSTRIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Lewmar Marine Ltd.~~

In August 2019, the Company acquired 100 percent of the equity interests of Lewmar Marine Ltd. and related entities (collectively, “Lewmar”), a supplier of leisure marine equipment, headquartered in Havant, United Kingdom. The purchase price was $43.2 million, net of cash acquired. The results of the acquired business have been included in the Condensed Consolidated Statements of Income since the acquisition date in the Company’s OEM Segment and Aftermarket Segment.

Preliminary at December 31, 2019 Measurement Period Adjustments As Adjusted at September 30, 2020
Cash consideration, net of cash acquired $ 43,224 $ — $ 43,224
Customer relationship and other identifiable intangible assets $ 19,580 $ 2,170 $ 21,750
Net tangible assets 3,286 (705) 2,581
Total fair value of net assets acquired $ 22,866 $ 1,465 $ 24,331
Goodwill (not tax deductible) $ 20,358 $ (1,465) $ 18,893

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

~~Goodwill~~

~~Goodwill by reportable segment was as follows:~~

(In thousands) OEM Segment Aftermarket Segment Total
Net balance – December 31, 2019 $ 215,620 $ 135,494 $ 351,114
Acquisitions – 2020 48,141 0 48,141
Measurement period adjustments (2,251) 12,613 10,362
Foreign currency translation 3,575 (124) 3,451
Net balance – September 30, 2020 $ 265,085 $ 147,983 $ 413,068

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.

~~LCI INDUSTRIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Other Intangible Assets~~

~~Other intangible assets consisted of the following at September 30, 2020:~~

(In thousands) Gross
Cost Accumulated
Amortization Net
Balance Estimated Useful
Life in Years
Customer relationships $ 352,370 $ 88,674 $ 263,696 6 to 17
Patents 88,340 45,691 42,649 3 to 20
Trade names (finite life) 63,766 10,516 53,250 3 to 20
Trade names (indefinite life) 7,600 — 7,600 Indefinite
Non-compete agreements 6,379 4,439 1,940 3 to 6
Other 309 190 119 2 to 12
Purchased research and development 4,687 — 4,687 Indefinite
Other intangible assets $ 523,451 $ 149,510 $ 373,941

~~Other intangible assets consisted of the following at December 31, 2019:~~

(In thousands) Gross
Cost Accumulated
Amortization Net
Balance Estimated Useful
Life in Years
Customer relationships $ 319,934 $ 69,008 $ 250,926 6 to 17
Patents 76,206 44,611 31,595 3 to 19
Trade names (finite life) 50,917 7,086 43,831 3 to 20
Trade names (indefinite life) 7,600 — 7,600 Indefinite
Non-compete agreements 7,598 4,947 2,651 3 to 6
Other 309 173 136 2 to 12
Purchased research and development 4,687 — 4,687 Indefinite
Other intangible assets $ 467,251 $ 125,825 $ 341,426

~~4. INVENTORIES~~

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

September 30, December 31,
(In thousands) 2020 2019
Raw materials $ 261,724 $ 256,850
Work in process 19,186 23,653
Finished goods 88,250 113,104
Inventories, net $ 369,160 $ 393,607

~~5. FIXED ASSETS~~

~~Fixed assets consisted of the following at:~~

September 30, December 31,
(In thousands) 2020 2019
Fixed assets, at cost $ 719,007 $ 678,367
Less accumulated depreciation and amortization 350,585 312,058
Fixed assets, net $ 368,422 $ 366,309

~~LCI INDUSTRIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES~~

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

September 30, December 31,
(In thousands) 2020 2019
Employee compensation and benefits $ 68,125 $ 45,612
Current portion of accrued warranty 29,722 29,898
Customer rebates 23,094 14,129
Other 60,457 42,781
Accrued expenses and other current liabilities $ 181,398 $ 132,420

Estimated costs related to product warranties are accrued at the time products are sold. In estimating its future warranty obligations, the Company considers various factors, including the Company’s (i) historical warranty costs, (ii) current trends, (iii) product mix, and (iv) sales. The following table provides a reconciliation of the activity related to the Company’s accrued warranty, including both the current and long-term portions, for the nine months ended September 30:

(In thousands) 2020 2019
Balance at beginning of period $ 47,167 $ 46,530
Provision for warranty expense 14,443 24,861
Warranty costs paid (16,568) (21,741)
Balance at end of period 45,042 49,650
Less long-term portion 15,320 15,940
Current portion of accrued warranty at end of period $ 29,722 $ 33,710

7.9. LONG-TERM INDEBTEDNESS

Long-term indebtedness consisted of the following at:


		September 30,		December 31,	September 30,				December 31,
(In thousands)	(In thousands)	2020				2019		(In thousands)	2021		2020

Convertible Notes								Convertible Notes	$	460,000	$	—
Revolving Credit Loan								Revolving Credit Loan	305,074		394,888
Term Loan	Term Loan	$	288,750			$	300,000	Term Loan	273,750		285,000
Revolving Credit Loan		286,140				266,214
Shelf-Loan Facility	Shelf-Loan Facility	50,000				50,000		Shelf-Loan Facility	50,000		50,000
Other	Other	12,426				16,349		Other	9,324		9,652
Unamortized deferred financing fees	Unamortized deferred financing fees	(1,379)				(1,774)		Unamortized deferred financing fees	(11,759)		(1,291)
		635,937				630,789			1,086,389		738,249
Less current portion	Less current portion	(19,861)				(17,883)		Less current portion	(74,311)		(17,831)
Long-term indebtedness	Long-term indebtedness	$	616,076			$	612,906	Long-term indebtedness	$	1,012,078	$	720,418

Amended Credit Agreement

On December 14, 2018, the Company and certain of its subsidiaries refinanced its credit agreement with JPMorgan Chase, N.A., Wells Fargo Bank, N.A., Bank of America, N.A., and other bank lenders (as amended, the “Amended Credit Agreement”). The Amended Credit Agreement amended and restated an existing credit agreement dated April 27, 2016 and now expires on December 14, 2023. The Amended Credit Agreement increased the revolving credit facility from $325.0 million to $600.0 million, and permits the Company to borrow up to $250.0 million in approved foreign currencies, including Australian dollars, Canadian dollars, pounds sterling, and euros ($~~156.1~~160.1 million, or ~~€133.0~~€138.0 million drawn at September 30, ~~2020)~~2021).

~~LCI INDUSTRIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

On December 19, 2019, the Company and certain of its subsidiaries entered into an Incremental Joinder and Amendment No. 1 (“Amendment No. 1”) of the Amended Credit Agreement with several banks, which provided an incremental term loan in the amount of $300.0 million, which the Company borrowed to fund a portion of the purchase price for the acquisition of CURT. The term loan is required to be repaid in an amount equal to 1.25% of original principal amount of the term loan for the first eight quarterly periods commencing March 31, 2020, and then 1.875% of the original principal amount of the term loan for each quarter thereafter, until the maturity date of December 14, 2023. In addition, Amendment No. 1 modified the credit agreement to allow the Company to request an increase to the facility of up to an additional $300.0 million as an increase to the revolving credit facility or one, or more, incremental term loan facilities upon approval of the lenders and the Company receiving certain other consents. As a result of the new incremental term loan, the total borrowing capacity under the Amended Credit Agreement was increased from $600.0 million to $900.0 million.

On May 7, 2021, the Company and certain of its subsidiaries entered into an Amendment No. 2 of the Amended Credit Agreement with several banks, which modified provisions to, among other things, permit the issuance of the Convertible Notes and permit the entry into the related Convertible Note Hedge Transactions and Warrant transactions ("Warrant Transactions"). See Note 12 of the Notes to Condensed Consolidated Financial Statements for further details of the Convertible Note Hedge Transactions and Warrant Transactions.

On September 7, 2021, the Company and certain of its subsidiaries entered into an Amendment No. 3 of the Amended Credit Agreement with several banks, which modified provisions of the Amended Credit Agreement, to, among other things, permit the Company to acquire Furrion and to revise the benchmark replacement language relating to Eurocurrency borrowings.

Interest on borrowings under the revolving credit facility and incremental term loan are designated from time to time by the Company as either (i) the Alternate Base Rate (defined in the Amended Credit Agreement as the greatest of (a) the Prime Rate of JPMorgan Chase Bank, N.A., (b) the federal funds effective rate plus 0.5 percent, and (c) the Adjusted LIBO Rate (as defined in the Amended Credit Agreement) for a one month interest period plus 1.0 percent), plus additional interest ranging from 0.0 percent to 0.625 percent ~~(0.4~~(0.375 percent at September 30, ~~2020)~~2021) depending on the Company’s total net leverage ratio, or (ii) the Adjusted LIBO Rate for a period equal to one, two, three, six, or twelve months (with the consent of each lender) as selected by the Company, plus additional interest ranging from 0.875 percent to 1.625 percent ~~(1.625~~(1.375 percent at

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 30, ~~2020)~~2021) depending on the Company’s total net leverage ratio. At September 30, ~~2020,~~2021, the Company had ~~$2.9~~$27.8 million in issued, but undrawn, standby letters of credit under the revolving credit facility. Availability under the Company’s revolving credit facility was ~~$310.9~~$267.2 million at September 30, ~~2020.~~2021.

Shelf-Loan Facility

On February 24, 2014, the Company and certain of its subsidiaries entered into a $150.0 million shelf-loan facility (as amended and restated, the “Shelf-Loan Facility”) with PGIM, Inc. (formerly Prudential Investment Management, Inc.) and its affiliates (“Prudential”). On March 20, 2015, the Company issued $50.0 million of Senior Promissory Notes (“Series A Notes”) to Prudential for a term of five years, at a fixed interest rate of 3.35 percent per annum, payable quarterly in arrears. On March 29, 2019, the Company issued $50.0 million of Series B Senior Notes (the “Series B Notes”) to certain affiliates of Prudential for a term of three years, at a fixed interest rate of 3.80 percent per annum, payable quarterly in arrears, of which the entire amount was outstanding at September 30, ~~2020.~~2021. The net proceeds of the Series B Notes were used to repay the Series A Notes. On November 11, 2019, the Company and certain of its subsidiaries amended and restated the Shelf-Loan Facility to provide for a new $200.0 million shelf facility pursuant to which the Series B Notes are currently outstanding and to conform certain covenants to the Amended Credit Agreement. The Shelf-Loan Facility expires on November 11, 2022.

On March 31, 2020, the Company and certain of its subsidiaries entered into a Consent and Amendment to the Shelf-Loan Facility to join certain Company subsidiaries that were acquired in the CURT acquisition as guarantors and permit other internal restructuring matters related to certain of the Company's subsidiaries. On September 21, 2020, the Company and certain of its subsidiaries entered into a Second Amendment to the Shelf-Loan Facility to conform additional covenants to the Amended Credit Agreement. ~~The~~On May 7, 2021, the Company and certain of its subsidiaries entered into a Third Amendment to the Shelf-Loan Facility ~~expires on November 11, 2022.~~to permit the issuance of the Convertible Notes and permit the entry into the related Convertible Note Hedge Transactions and Warrant Transactions. On September 7, 2021, the Company and certain of its subsidiaries entered into a Fourth Amendment to the Shelf-Loan Facility to permit the Company to, among other things, acquire Furrion.

The Shelf-Loan Facility provides for Prudential to consider purchasing, at the Company’s request, in one or a series of transactions, additional Senior Promissory Notes of the Company in the aggregate principal amount of up to $150.0 million (excluding the Company’s Series B Notes already outstanding). Prudential has no obligation to purchase the Senior Promissory Notes. Interest payable on the Senior Promissory Notes will be at rates determined by Prudential within five business days after the Company issues a request to Prudential.

Convertible Notes

On May 13, 2021, the Company issued $460.0 million in aggregate principal amount of 1.125 percent convertible senior notes due 2026 in a private placement to certain qualified institutional buyers, resulting in net proceeds to the Company of approximately $448.0 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. No sinking fund is provided for the Convertible Notes. There are no registration rights associated with the Convertible Notes or the common stock issuable upon conversion of the Convertible Notes.

The initial conversion rate of the Convertible Notes is 6.0369 shares of the Company's common stock per $1,000 principal amount of the Convertible Notes, which is equal to an initial conversion price of approximately $165.65 per share of the Company's common stock. The conversion rate of the Convertible Notes is subject to adjustment upon the occurrence of certain specified events, but will not be adjusted for accrued and unpaid interest on any Convertible Note being converted, except in limited circumstances. 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

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 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 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 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 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 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 $478.4 million at September 30, 2021 was estimated using Level 1 inputs, as it is based on quoted prices for these instruments in active markets.

General

At September 30, ~~2020,~~2021, the fair value of the ~~Company’s~~Company's long-term debt under the Amended Credit Agreement and the Shelf-Loan Facility approximates the carrying value, as estimated using quoted market prices and discounted future cash flows based on similar borrowing arrangements.

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

Pursuant to the Amended Credit Agreement and Shelf-Loan Facility, the Company shall not permit its net leverage ratio to exceed certain limits, shall maintain a minimum debt service coverage ratio, and must meet certain other financial requirements. At September 30, ~~2020,~~2021, the Company was in compliance with all such requirements.

~~LCI INDUSTRIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The Amended Credit Agreement and the Shelf-Loan Facility include a maximum net leverage ratio covenant which limits the amount of consolidated outstanding indebtedness that the Company may incur on a trailing twelve-month EBITDA, as defined in the Amended Credit Agreement and the Shelf-Loan Facility. This limitation did not impact the ~~Company’s~~Company's ability to incur additional indebtedness under its revolving credit facility at September 30, ~~2020.~~2021. The ~~aggregate~~combined remaining availability

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

under the revolving credit facility and the potential additional notes issuable under the Shelf-Loan Facility was ~~$460.9~~$417.2 million at September 30, ~~2020.~~2021. The Company believes the availability of $267.2 million under the revolving credit facility ~~and the potential issuances~~ under the ~~Shelf-Loan Facility,~~Amended Credit Agreement, along with its cash flows from operations, are adequate to finance the Company’s anticipated cash requirements for the next twelve months.

8.10. LEASES

The Company leases certain manufacturing and warehouse facilities, administrative office space, semi-tractors, trailers, forklifts, and other equipment through operating leases with unrelated third parties. The operating leases have remaining terms of up to 66 years and some leases include options to purchase, terminate, or extend for one or more years. The options are included in the lease term when it is reasonably certain the option will be exercised. Leases with an initial term of 12 months or less are recognizedincrease in lease ~~expense on a straight-line basis over the lease term and not recorded on the Condensed Consolidated Balance Sheet.~~

Certain of the Company’s lease arrangements contain lease components (such as minimum rent payments) and non-lease components (such as common-area or other maintenance costs and taxes). The Company generally accounts for each component separately based on the estimated standalone price of each component. Some of the Company’s lease arrangements include rental payments that are adjusted periodically for an index rate. These leases are initially measured using the projected payments in effect at the inception of the lease. Certain of the Company’s leased semi-tractors, trailers, and forklifts include variable costs for ~~usage or mileage. Such variable costs are expensed as incurred~~the three and ~~included~~nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 was primarily driven by capacity expansions and leases assumed in ~~the variable lease cost item noted in the table below. The Company’s lease agreements do not contain any significant residual value guarantees or restrictive covenants.~~recent acquisitions. The components of lease cost were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020		2021		2020
Operating lease cost	Operating lease cost	$	8,343	$	5,481	$	24,319	$	16,263	Operating lease cost	$	11,280	$	8,343	$	31,695	$	24,319
Short-term lease cost	Short-term lease cost	475		522		1,744		1,996		Short-term lease cost	1,247		475		3,122		1,744
Variable lease cost	Variable lease cost	553		501		1,700		1,331		Variable lease cost	923		553		2,354		1,700
Total lease cost	Total lease cost	$	9,371	$	6,504	$	27,763	$	19,590	Total lease cost	$	13,450	$	9,371	$	37,171	$	27,763

9.11. COMMITMENTS AND CONTINGENCIES

Contingent Consideration

In connection with several business acquisitions, if certain performance targets for the acquired products are achieved, the Company would pay additional cash consideration. The Company has recorded a liability for the fair value of this contingent consideration at September 30, ~~2020,~~2021, based on the present value of the expected future cash flows using a market participant’s weighted average cost of capital of ~~11.5~~13.3 percent.

As required, the liability for this contingent consideration is measured at fair value quarterly, considering actual sales of the acquired products, updated sales projections, and the updated market participant weighted average cost of capital. Depending upon the weighted average costs of capital and future sales of the products which are subject to contingent consideration, the Company could record adjustments in future periods. The following table provides a reconciliation of the Company’s contingent consideration liability for the nine months ended September 30, ~~2020:~~

~~LCI INDUSTRIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

2021:


(In thousands)
Balance at beginning of period	$	~~4,396~~4,609
Acquisitions	~~2,796~~5,000
Payments	~~(9)~~(3,183)
Accretion (a)	~~591~~173
Fair value adjustments (a) (b)	~~(1,885)~~394
Net foreign currency translation adjustment	~~269~~ (141)
Balance at end of the period ~~(c)~~(b)	~~6,158~~6,852
Less current portion in accrued expenses and other current liabilities	~~(4,163)~~(5,006)
Total long-term portion in other long-term liabilities	$	~~1,995~~1,846

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

(b) ~~Includes adjustments to assumptions on weighted average cost of capital and relevant sales projections.~~

~~(c)~~Amount represents the fair value of estimated remaining payments. The total estimated remaining undiscounted payments as of September 30, ~~2020~~2021 were ~~$7.3~~$8.4 million. The liability for contingent consideration expires at various dates through September 2029. Certain of the contingent consideration arrangements are subject to a maximum payment amount, while the remaining arrangements have no maximum contingent consideration.

~~Furrion Distribution and Supply Agreement~~

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In July 2015, the Company entered into a six-year exclusive distribution and supply agreement with Furrion Limited (“Furrion”), a Hong Kong based firm that designs, engineers, and supplies premium electronics. This agreement provided the Company with the rights to distribute Furrion’s complete line of products to OEMs and aftermarket customers in the RV, specialty vehicle, utility trailer, horse trailer, marine, transit bus, manufactured housing, and school bus industries throughout the United States and Canada.(Unaudited)

In August 2019, the Company and Furrion agreed to terminate the agreement effective December 31, 2019, and transition all sale and distribution of Furrion products then handled by the Company to Furrion. Effective January 1, 2020, Furrion 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 September 30, 2020 and December 31, 2019, the Company had a receivable of $49.0 million and $40.0 million, respectively, recorded for purchases of inventory stock by Furrion. The agreement required Furrion to make periodic payments throughout 2020 and the first six months of 2021. Due to the impacts of the COVID-19 pandemic, the Company is currently in negotiations that would impact the timing of the repayment of this receivable. Accordingly, the Company has classified $27.0 million of the receivable as long-term, and recorded the receivable at its present value at September 30, 2020 based on the currently proposed payment plan.

Product Recalls

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

Environmental

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

~~LCI INDUSTRIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Litigation

In the normal course of business, the Company is subject to proceedings, lawsuits, regulatory agency inquiries, and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, management believes that, after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided in the Condensed Consolidated Balance Sheet as of September 30, ~~2020,~~2021, would not be material to the Company’s financial position or results of operations.

~~10.~~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) 2020 2019
Common stock authorized 75,000 75,000
Common stock issued 28,241 28,133
Treasury stock 3,087 3,087

~~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) 2020 2019 2020 2019
Weighted average shares outstanding for basic earnings per share 25,162 25,031 25,125 24,984
Common stock equivalents pertaining to stock-based awards 151 125 95 69
Weighted average shares outstanding for diluted earnings per share 25,313 25,156 25,220 25,053
Equity instruments excluded from diluted net earnings per share calculation as the effect would have been anti-dilutive 119 123 113 122


	September 30,	December 31,
(In thousands)	2021		2020
Common stock authorized	75,000		75,000
Common stock issued	28,360		28,243
Treasury stock	3,087		3,087
Common stock outstanding	25,273		25,156

The table below summarizes the regular quarterly dividends declared and paid during the periods ended September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


(In thousands, except per share data)	(In thousands, except per share data)	Per Share		Record Date	Payment Date	Total Paid		(In thousands, except per share data)	Per Share		Record Date	Payment Date	Total Paid
First Quarter 2019		$	0.60	03/08/19	03/22/19	$	14,999
Second Quarter 2019		0.65		06/07/19	06/21/19	16,267
Third Quarter 2019		0.65		09/06/19	09/20/19	16,267
Fourth Quarter 2019		0.65		12/06/19	12/20/19	16,280
Total 2019		$	2.55			$	63,813

First Quarter 2020	First Quarter 2020	$	0.65	03/06/20	03/20/20	$	16,321	First Quarter 2020	$	0.65	03/06/20	03/20/20	$	16,321
Second Quarter 2020	Second Quarter 2020	0.65		06/05/20	06/19/20	16,349		Second Quarter 2020	0.65		06/05/20	06/19/20	16,349
Third Quarter 2020	Third Quarter 2020	0.75		09/04/20	09/18/20	18,865		Third Quarter 2020	0.75		09/04/20	09/18/20	18,865
Fourth Quarter 2020								Fourth Quarter 2020	0.75		12/04/20	12/18/20	18,866
Total 2020	Total 2020	$	2.05			$	51,535	Total 2020	$	2.80			$	70,401

First Quarter 2021								First Quarter 2021	$	0.75	03/12/21	03/26/21	$	18,939
Second Quarter 2021								Second Quarter 2021	0.90		06/04/21	06/18/21	22,739
Third Quarter 2021								Third Quarter 2021	0.90		09/03/21	09/17/21	22,747
Total 2021								Total 2021	$	2.55			$	64,425

2023

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Deferred and Restricted Stock Units

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

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

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


		Number of Shares	Weighted Average Price			Number of Shares	Weighted Average Price
Outstanding at December 31, 2019		346,148	$	87.54
Outstanding at December 31, 2020					Outstanding at December 31, 2020	335,087	$	90.04
Issued	Issued	4,582	89.53		Issued	3,662	132.68
Granted	Granted	150,319	97.70		Granted	104,930	142.98
Dividend equivalents	Dividend equivalents	8,185	86.22		Dividend equivalents	5,547	129.82
Forfeited	Forfeited	(15,219)	91.53		Forfeited	(4,883)	115.05
Vested	Vested	(153,411)	87.64		Vested	(163,179)	87.63
Outstanding at September 30, 2020		340,604	$	89.98
Outstanding at September 30, 2021					Outstanding at September 30, 2021	281,164	$	109.85

~~Stock Awards and~~ Performance Stock Units

The ~~2011 Plan provides for stock awards and the~~ 2018 Plan provides for performance stock units ~~(“PSUs”~~("PSUs") that vest at a specific future date based on achievement of specified performance conditions.

Transactions in ~~performance-based stock awards and~~ PSUs under the ~~2011 Plan or the~~ 2018 Plan ~~as applicable,~~ are summarized as follows:


		Number of Shares	Weighted Average Price			Number of Shares	Weighted Average Price
Outstanding at December 31, 2019		129,128	$	96.21
Outstanding at December 31, 2020					Outstanding at December 31, 2020	119,727	$	89.92

Granted	Granted	66,029	98.98		Granted	40,102	143.54
Dividend equivalents	Dividend equivalents	2,636	87.02		Dividend equivalents	2,891	129.79
Forfeited	Forfeited	(73,581)	107.91		Forfeited	(1,053)	96.55
Vested	Vested	(5,152)	100.46		Vested	(12,593)	95.03
Outstanding at September 30, 2020		119,060	$	89.92
Outstanding at September 30, 2021					Outstanding at September 30, 2021	149,074	$	104.01

Convertible Note Hedge Transactions

The Company paid an aggregate amount of $100.1 million 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 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. The Convertible Note Hedge Transactions are expected generally to reduce the potential dilutive effect to the Company's common stock of the conversion of the Convertible Notes and/or offset any cash payments the Company 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, as measured under the terms of the Convertible Note Hedge Transactions, is greater than the strike price of 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

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

for tax purposes over the term of the Convertible Notes, and results in a $24.4 million deferred tax asset recognized through equity.

Warrant Transactions

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 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 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 August 2026. If the market value per share of the Company's common stock, as measured under the Warrant Transactions, exceeds the strike price of the Warrants, the Warrants will have a 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.

~~11.~~13. FAIR VALUE MEASUREMENTS

Recurring

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


		September 30, 2020							December 31, 2019									September 30, 2021								December 31, 2020
(In thousands)	(In thousands)	Total		Level 1		Level 2		Level 3	Total		Level 1		Level 2		Level 3		(In thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3

Assets																	Assets
Pension plan assets (Note 8)																	Pension plan assets (Note 8)	$	52,123	$	—	$	—	$	52,123	$	61,936	$	—	$	—	$	61,936
Liabilities	Liabilities																Liabilities
Contingent consideration	Contingent consideration	$	6,158	$	0	$	0	6,158	$	4,396	$	0	$	0	$	4,396	Contingent consideration	$	6,852	$	—	$	—	$	6,852	$	4,609	$	—	$	—	$	4,609

~~LCI INDUSTRIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Contingent Consideration Related to Acquisitions

Liabilities for contingent consideration related to acquisitions were estimated at fair 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~~Company's long-term sales growth forecasts for products subject to contingent consideration arrangements average approximately 1413 percent per year. For further information on the inputs used in determining the fair value, and a roll forward of the contingent consideration liability, see Note 911 of the Notes to Condensed Consolidated Financial Statements.

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

~~12.~~14. SEGMENT REPORTING

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

The OEM Segment, which accounted for 7781 percent and 8877 percent of consolidated net sales for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, manufactures or 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; boats; trains; manufactured homes;

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

and modular housing. Approximately 6162 percent of the ~~Company’s~~Company's OEM Segment net sales for the nine months ended September 30, ~~2020~~2021 were of components for travel trailer and fifth-wheel RVs.

The Aftermarket Segment, which accounted for 2319 percent and 1223 percent of consolidated net sales for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, supplies engineered components to the related aftermarket channels of the recreation and transportation product markets, primarily to retail dealers, wholesale distributors, and service centers. The Aftermarket Segment also includes biminis, covers, buoys, fenders to the marine industry, towing products, truck accessories, and the sale of replacement glass and awnings to fulfill insurance claims.

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 2 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, ~~2019.~~2020.

~~LCI INDUSTRIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The following tables present the ~~Company’s~~Company's revenues disaggregated by segment and geography based on the billing address of the ~~Company’s~~Company's customers:

Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
(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 $ 407,485 $ 9,565 $ 417,050 $ 311,446 $ 2,610 $ 314,056
Motorhomes 29,707 14,734 44,441 25,944 8,866 34,810
Adjacent Industries OEMs 151,572 28,991 180,563 143,264 19,420 162,684
Total OEM Segment net sales 588,764 53,290 642,054 480,654 30,896 511,550
Aftermarket Segment:
Total Aftermarket Segment net sales 179,510 6,165 185,675 70,284 4,387 74,671
Total net sales $ 768,274 $ 59,455 $ 827,729 $ 550,938 $ 35,283 $ 586,221

Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019
(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 $ 916,144 $ 20,532 $ 936,676 $ 964,838 $ 9,140 $ 973,978
Motorhomes 70,126 37,115 107,241 86,808 34,359 121,167
Adjacent Industries OEMs 406,727 91,579 498,306 455,754 45,799 501,553
Total OEM Segment net sales 1,392,997 149,226 1,542,223 1,507,400 89,298 1,596,698
Aftermarket Segment:
Total Aftermarket Segment net sales 455,799 15,142 470,941 199,686 11,077 210,763
Total net sales $ 1,848,796 $ 164,368 $ 2,013,164 $ 1,707,086 $ 100,375 $ 1,807,461


	Three Months Ended September 30, 2021						Three Months Ended September 30, 2020
(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	$	586,830	$	15,599	$	602,429	$	407,485	$	9,565	$	417,050
Motorhomes	39,679		23,580		63,259		29,707		14,734		44,441
Adjacent Industries OEMs	246,582		34,011		280,593		151,572		28,991		180,563
Total OEM Segment net sales	873,091		73,190		946,281		588,764		53,290		642,054
Aftermarket Segment:
Total Aftermarket Segment net sales	204,566		14,462		219,028		179,510		6,165		185,675
Total net sales	$	1,077,657	$	87,652	$	1,165,309	$	768,274	$	59,455	$	827,729

	Nine Months Ended September 30, 2021						Nine Months Ended September 30, 2020
(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	$	1,582,182	$	50,877	$	1,633,059	$	916,144	$	20,532	$	936,676
Motorhomes	118,872		74,233		193,105		70,126		37,115		107,241
Adjacent Industries OEMs	690,759		110,262		801,021		406,727		91,579		498,306
Total OEM Segment net sales	2,391,813		235,372		2,627,185		1,392,997		149,226		1,542,223
Aftermarket Segment:
Total Aftermarket Segment net sales	585,973		46,129		632,102		455,799		15,142		470,941
Total net sales	$	2,977,786	$	281,501	$	3,259,287	$	1,848,796	$	164,368	$	2,013,164

(a) Net sales to customers in the United States of America

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

~~The following table presents the Company’s operating profit by segment:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2020 2019 2020 2019
Operating profit:
OEM Segment $ 65,533 $ 38,347 $ 110,485 $ 131,434
Aftermarket Segment 28,900 10,806 48,996 31,131
Total operating profit $ 94,433 $ 49,153 $ 159,481 $ 162,565

2326

LCI INDUSTRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the ~~Company’s~~Company's operating profit by segment:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2021		2020		2021		2020
Operating profit:
OEM Segment	$	64,136	$	65,533	$	206,757	$	110,485
Aftermarket Segment	24,888		28,900		77,680		48,996
Total operating profit	$	89,024	$	94,433	$	284,437	$	159,481

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

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2020 2019 2020 2019
OEM Segment:
Chassis, chassis parts, and slide-out mechanisms $ 253,182 $ 193,354 $ 586,985 $ 610,946
Windows and doors 173,102 145,360 438,829 453,343
Furniture and mattresses 105,226 79,512 250,068 264,431
Axles and suspension solutions 42,708 31,405 103,450 97,597
Other 67,836 61,919 162,891 170,381
Total OEM Segment net sales 642,054 511,550 1,542,223 1,596,698
Total Aftermarket Segment net sales 185,675 74,671 470,941 210,763
Total net sales $ 827,729 $ 586,221 $ 2,013,164 $ 1,807,461


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2021		2020		2021		2020
OEM Segment:
Chassis, chassis parts, and slide-out mechanisms	$	351,837	$	253,182	$	948,135	$	586,985
Windows and doors	254,526		173,102		761,168		438,829
Furniture and mattresses	184,741		105,226		508,789		250,068
Axles and suspension solutions	68,120		42,708		184,092		103,450
Other	87,057		67,836		225,001		162,891
Total OEM Segment net sales	946,281		642,054		2,627,185		1,542,223
Total Aftermarket Segment net sales	219,028		185,675		632,102		470,941
Total net sales	$	1,165,309	$	827,729	$	3,259,287	$	2,013,164

2427

LCI INDUSTRIES

ITEM 2 – 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, ~~2019.~~2020.

LCI Industries ~~(“LCII”~~("LCII" and collectively with its subsidiaries, the ~~“Company,” “we,” “us,”~~"Company," "we," "us," or ~~“our”~~"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; 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.

~~The Company has~~We have two reportable segments, the OEM Segment and the Aftermarket Segment. Intersegment sales are insignificant. At September 30, ~~2020, the Company~~2021, we operated over 90100 manufacturing and distribution facilities located throughout the United States and in Canada, Germany, Ireland, Italy, the Netherlands, and the United Kingdom. See Note 1214 of the Notes to Condensed Consolidated Financial Statements for further information regarding ~~the Company’s~~our segments.

~~The Company’s~~Our OEM Segment manufactures or distributes a broad array of engineered components for the leading OEMs of leisure and mobile transportation industries. Approximately 6162 percent of ~~the Company’s~~our OEM Segment net sales for the twelve months ended September 30, ~~2020~~2021 were of components for travel trailer and fifth-wheel RVs, including:


● Steel chassis and related components			● ~~Entry, luggage, patio,~~Electric and ~~ramp doors~~manual entry steps
● Axles and suspension solutions			● ~~Furniture~~Awnings and ~~mattresses~~awning accessories
● Slide-out mechanisms and solutions			● ~~Electric and manual entry steps~~Electronic components
● Thermoformed bath, kitchen, and other products			● ~~Awnings and awning accessories~~Appliances
● Vinyl, aluminum, and frameless windows			● ~~Electronic components~~Air conditioners
● Manual, electric, and hydraulic stabilizer and leveling systems			● Televisions and sound systems
● Entry, luggage, patio, and ramp doors			● Other accessories
● Furniture and mattresses

The Aftermarket Segment supplies many of these engineered components to the related aftermarket channels of the recreation and transportation product markets, primarily to retail dealers, wholesale distributors, and service centers. The Aftermarket Segment also includes biminis, covers, buoys, fenders to the marine industry, towing products, truck accessories, appliances, air conditioners, 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 fluctuations in dealer inventories, the impact of international, national and regional economic conditions, consumer confidence on retail sales of RVs and other products for which ~~the Company sells its~~we sell our 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, particularly as a result of the 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 these Aftermarket Segment sales to be counter-seasonal, but this may be different in ~~2020~~the remainder of 2021 and future years as a result of the COVID-19 pandemic and related impacts.

~~IMPACT OF~~ COVID-19 UPDATE

On March 11, 2020, the World Health Organization declared the outbreak of coronavirus ("COVID-19") a pandemic, and on March 13, 2020 the United States declared a national emergency related to COVID-19. The COVID-19 pandemic has caused significant uncertainty and disruption in the global economy and financial markets. The ~~Company continues~~COVID-19 pandemic had an adverse effect on our financial results during the first half of 2020 due to ~~closely monitor the impact of COVID-19 on all aspects of its business. For risks relating to the COVID-19 outbreak, see Item 1A. Risk Factors in Part II of this Report.~~

2528

LCI INDUSTRIES

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

~~Health~~government-mandated plant shutdowns. We took a variety of actions during 2020 to help mitigate the adverse impacts, including temporary cost savings measures and ~~Safety~~delays and reductions in capital expenditures.

~~During this unprecedented crisis, the health and safety of the Company's team members has remained the top priority. The Company instituted a travel ban for all team members~~Activity in early March and on March 25, 2020, the Company issued a press release providing a business update regarding COVID-19, including that it was temporarily suspending production at select manufacturing facilities across North America and Europe. The temporary suspension of production was made on a plant-by-plant basis, consistent with government mandates or due to customer closures. Production at facilities considered essential continued, utilizing reduced staff in conjunction with heightened cleaning and sanitation processes. Team members that do not need to be physically present on the manufacturing floor to perform their work were required to work from home. The Company implemented a number of actions to ensure adherence to guidelines set forth by the World Health Organization and the Centers for Disease Control and Prevention.

The Company enacted rigorous health and safety protocols as it resumed production in early May. For example, the Company implemented health screenings of team members for potential symptoms, conducts extensive and frequent disinfecting of workspaces, implemented social distancing restrictions for production personnel, provided masks to team members who must be physically present, and set up temporary COVID-19 testing sites for team members with symptoms or potential exposure. These health and safety protocols remain in effect currently.

~~Operations~~

As a result of the COVID-19 pandemic, governmental authorities have implemented and are continuing to implement numerous and constantly evolving measures in attempts to contain the virus, such as travel bans and restrictions, limits on gatherings, face mask requirements, quarantines, shelter-in-place orders, and business shutdowns. The Company temporarily suspended production at certain facilities, starting with locations in Italy and other parts of Europe. Certain of the Company's North American operations, which were considered non-essential, were temporarily suspended starting the last week of March, negatively impacting the Company's results of operations for the first quarter of 2020, especially in the OEM Segment. These temporary production shutdowns continued through April, and most of the ~~Company's facilities reopened in early May. By later in the second quarter, all of the Company's facilities were fully operational,~~end markets we serve sequentially improved as 2020 progressed, and ~~they~~this trend has continued ~~to be fully operational through the third quarter of 2020. The shutdowns negatively impacted the Company's results of operations~~ through the first ~~half~~nine months of ~~the second quarter of 2020.~~

The Company instituted several cost saving and cash preservation measures starting in late March and continuing into the second quarter in an effort to conserve liquidity and mitigate the impact of lost revenue from suspended operations. The following list includes many, but not all, of the cost savings and cash preservation measures employed to date:

•~~temporary layoffs of production employees at suspended facilities;~~

•~~salary reductions for the executive leadership team;~~

•~~reduction of the quarterly retainer for the Board of Directors;~~

•~~elimination of discretionary spending;~~

•~~delay of non-essential capital expenditures;~~

•~~deferral of lease payments to lessors;~~

•~~temporary hiring freezes and furloughs of non-critical team members; and~~

•~~postponing merit increases for salaried employees until the end of the fiscal year.~~

The Company cannot assure you that these cost-saving efforts will be successful in mitigating the impact of the COVID-19 pandemic on its business, liquidity, results of operations, or financial condition. As the Company returned to fully operational status later in the second quarter, several of the cost savings and cash preservation measures listed above were reversed, including executive salary and director retainer reductions, furloughs, and hiring freezes. Due to the uncertainty surrounding the COVID-19 pandemic, the Company remains disciplined with other cost savings and cash preservation measures, such as delaying certain capital expenditures and reducing or eliminating non-critical business expenses including travel.

Most of the OEM customers the Company supplies in North America resumed operations in early May 2020 at reduced capacity to fulfill retail dealer backlog orders. The Company resumed operations to varying degrees for the majority of its facilities on May 4, 2020 to meet the demand requirements of its customers, and by later in the second quarter, all of the Company's facilities were fully operational. Retail demand,2021, especially in the RV and marine OEM markets ~~picked up significantly~~

~~LCI INDUSTRIES~~

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

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~(Continued)~~

~~later in the second quarter, leading to a~~and our Aftermarket Segment. With RV retail demand at record ~~month of June for net sales for the Company with fully operational facilities. Retail demand continued at elevated~~ levels through the third quarter of 2020 with net sales for the Company remaining at record levels. While production at the Company's facilities has continued through the third quarter, current plans are subject to change as the ultimate duration and impact of the COVID-19 pandemic on the Company's and its customers' operations is presently unclear.

~~Customers and Demand~~

~~Prior to the COVID-19 impact in mid-March, the RV industry experienced a return to positive retail sales growth. This growth concluded 16~~first nine months of ~~consecutive year-over-year declines, and provided an indication that the inventory re-balancing~~2021, the industry ~~had been addressing had reached its conclusion.~~has faced challenges with supply chain constraints, rising material costs, and a tightened labor market, especially in northern Indiana. To address these challenges, we have strategically managed working capital, including intentionally building up 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 and regularly hold hiring events, with COVID-19 safety measures, to fill open positions. As ~~a result of the COVID-19 pandemic~~we build inventory levels and ~~many government mandated stay-at-home orders~~invest in additional production capacity, we also closely monitor our liquidity, and ~~campground closures, retail sales abruptly declined beginning in mid-March. Despite the abrupt decline in retail sales~~may need to ~~the Company's OEM channels, many aftermarket channels remained open through the period as dealerships remained open~~seek additional financing, though such additional financing may not be available on terms favorable to ~~service customers' products.~~us, or at all. See "Liquidity and Capital Resources" below for further discussion.

The ~~Company stayed~~health and safety of our team members have remained our top priority. We continue to maintain the rigorous health and safety protocols we established in ~~close communication~~2020. We leased a location to provide drive-thru rapid COVID-19 tests for our team members in northern Indiana. We have encouraged team members to seek vaccination when eligible and partnered with ~~its OEM customers in regards~~a local hospital to host private vaccination days for our eligible northern Indiana team members and their plans to resume operations and ramped up production quickly to meet its customers' demand when facilities reopened in early May. As noted above, later in the second quarter, retail demand in the North American RV and marine markets increased significantly resulting in the highest monthly total net sales in Company history in June, July, August and September. The sharp rebound in sales following the shutdowns also resulted in a significant increase in accounts receivable. The Company continuesfamilies.

We continue to closely monitor ~~cash collections~~the impact of ~~its trade receivables, and to date has not identified any significant collection concerns with its customers.~~

~~The Company experienced a positive impact following the initial shutdown from the~~ COVID-19 pandemic, as interest rates and fuel prices remain at historic lows, both of which are favorable for the industries the Company serves, and retail consumers are looking for vacation options that avoid large gatherings and allow for social distancing. The end products for many of the markets the Company supplies, such as RVs and boats, can provide safer alternatives for vacations and recreation as opposed to air travel, visiting large cities, theme parks, and cruises. However, given the significant negative effects and uncertainties associated with the COVID-19 pandemic, other impacts, such as long-term U.S. and global economic disruptions, may ultimately be counter to, and outweigh, any positive vacation and recreation factors.

~~Suppliers~~

~~Certain~~on all aspects of our suppliers have or are expected to face difficulties maintaining operations due to government-ordered restrictions, future outbreaks, and shelter-in-place mandates. Although the Company regularly monitors the financial health of companies in the Company's supply chain, financial hardship on the Company's suppliers caused by the COVID-19 pandemic could cause a disruption in the Company's ability to obtain raw materials or components required to manufacture its products, adversely affecting operations. To mitigate the risk of any potential supply chain interruptions from the COVID-19 pandemic, the Company increased certain inventory levels during the first quarter of 2020, which has continued through the third quarter and is expected to continue into the foreseeable future. Additionally, restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, could result in higher costs or delays, which could harm our profitability, make our products less competitive, or cause our customers to seek alternative suppliers.

~~Liquidity~~

In response to the COVID-19 pandemic, the Company borrowed a series of draws under its revolving credit facility to increase its cash position and improve financial flexibility in March and April 2020. During the second quarter, the Company also engaged with banking partners regarding options relative to future liquidity. The Company made net repayments on its revolving credit facility of approximately $162 million from May through September 30, 2020 as production resumed and operating cash flow improved with the increase in retail demand. The Company also ceased its discussions with banking partners about financing options. See "Liquidity and Capital Resources - Credit Facilities" section below for further discussion on liquidity.

~~LCI INDUSTRIES~~

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

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~(Continued)~~

~~FURRION UPDATE~~

In August 2019, the Company and Furrion Limited ("Furrion") agreed to terminate their distribution and supply agreement effective December 31, 2019, and transition all sale and distribution of Furrion products then handled by the Company to Furrion. Effective January 1, 2020, Furrion 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 September 30, 2020 the Company had a receivable of $49.0 million recorded for purchases of inventory stock by Furrion. The agreement required Furrion to make periodic payments throughout 2020 and the first six months of 2021. Due to the impacts of the COVID-19 pandemic, the Company is currently in negotiations that would impact the timing of the repayment of this receivable. Accordingly, the Company has classified $27.0 million of the receivable as long-term, and recorded the receivable at its present value at September 30, 2020 based on the currently proposed payment plan.

Due to the nature of the Furrion distribution and supply arrangement, the historical operating margin related to sales of Furrion products were dilutive to the Company's consolidated operating margin. Sales of Furrion products included in the historical results of the Company are presented below by period and by market within the Company's segments.

(In thousands) Q1 2019 Q2 2019 Q3 2019 Q4 2019 Full Year 2019
OEM Segment Furrion sales:
RV OEMs:
Travel trailers and fifth-wheel RVs $ 23,574 $ 25,636 $ 23,375 $ 22,393 $ 94,978
Motorhomes 830 1,037 971 780 3,618
Adjacent industries OEMs 490 612 573 607 2,282
Total OEM Segment Furrion sales 24,894 27,285 24,919 23,780 100,878
Aftermarket Segment Furrion sales:
Total Aftermarket Segment Furrion sales 8,915 9,545 8,473 3,614 30,547
Total Furrion Sales $ 33,809 $ 36,830 $ 33,392 $ 27,394 $ 131,425

(In thousands) Q1 2018 Q2 2018 Q3 2018 Q4 2018 Full Year 2018
OEM Segment Furrion sales:
RV OEMs:
Travel trailers and fifth-wheel RVs $ 23,367 $ 22,964 $ 23,117 $ 21,572 $ 91,020
Motorhomes 739 812 828 875 3,254
Adjacent industries OEMs 468 485 309 281 1,543
Total OEM Segment Furrion sales 24,574 24,261 24,254 22,728 95,817
Aftermarket Segment Furrion sales:
Total Aftermarket Segment Furrion sales 3,951 7,011 5,454 3,250 19,666
Total Furrion Sales $ 28,525 $ 31,272 $ 29,708 $ 25,978 $ 115,483
business.

INDUSTRY BACKGROUND

OEM Segment

North American Recreational Vehicle Industry

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

~~LCI INDUSTRIES~~

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

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~(Continued)~~

The annual sales cycle for the RV industry generally starts in October after the ~~“Open House”~~"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 ~~House was~~Houses were canceled. The seasonality of the RV industry has been, and will likely continue to be, impacted by the COVID-19 pandemic, and the timing of a return to historical seasonality is not possible to predict at this time.

According to the Recreation Vehicle Industry Association ("RVIA"), industry-wide wholesale shipments from the United States of travel trailer and fifth-wheel RVs in the first nine months of ~~2020, the Company’s~~2021, our primary RV market, ~~decreased one~~increased 51 percent to ~~264,900~~401,000 units, compared to the first nine months of ~~2019,~~2020, primarily due to ~~OEM plant shutdowns in response to COVID-19, partially offset by higher~~increased retail ~~demand.~~demand and dealers rebuilding inventory levels. Retail demand for travel trailer and fifth-wheel RVs increased ~~seven~~15 percent in the first nine months of ~~2020~~2021 compared to the same period in ~~2019.~~2020. Retail demand is typically revised upward in subsequent months, primarily due to delayed RV registrations.

While ~~the Company measures its~~we measure our OEM Segment RV sales against industry-wide wholesale shipment statistics, the underlying health of the RV industry is determined by retail demand. A comparison of the number of units and the year-over-year percentage change in industry-wide wholesale shipments and retail sales of travel trailers and fifth-wheel RVs, as reported by Statistical Surveys, Inc., as well as the resulting estimated change in dealer inventories, for both the United States and Canada, is as follows:

Estimated
Wholesale Retail Unit Impact on
Units Change Units Change Dealer Inventories
Quarter ended September 30, 2020 110,100 37% 151,100 28% (41,000)
Quarter ended June 30, 2020 66,800 (34)% 131,100 (6)% (64,300)
Quarter ended March 31, 2020 88,000 4% 74,500 (4)% 13,500
Quarter ended December 31, 2019 83,300 (8)% 63,600 (6)% 19,700
Twelve months ended September 30, 2020 348,200 (2)% 420,300 5% (72,100)
Quarter ended September 30, 2019 80,600 (13)% 118,000 (6)% (37,400)
Quarter ended June 30, 2019 101,000 (13)% 138,800 (7)% (37,800)
Quarter ended March 31, 2019 84,800 (27)% 77,400 (5)% 7,400
Quarter ended December 31, 2018 90,300 (17)% 67,500 (1)% 22,800
Twelve months ended September 30, 2019 356,700 (18)% 401,700 (5)% (45,000)

LCI INDUSTRIES

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)


					Estimated
	Wholesale		Retail		Unit Impact on
	Units	Change	Units	Change	Dealer Inventories
Quarter ended September 30, 2021	136,000	24%	126,300	(21)%	9,700
Quarter ended June 30, 2021	133,800	100%	180,200	36%	(46,400)
Quarter ended March 31, 2021	131,200	49%	114,400	52%	16,800
Quarter ended December 31, 2020	115,200	38%	89,400	41%	25,800
Twelve months ended September 30, 2021	516,200	48%	510,300	19%	5,900

Quarter ended September 30, 2020	110,100	37%	159,100	35%	(49,000)
Quarter ended June 30, 2020	66,800	(34)%	132,500	(5)%	(65,700)
Quarter ended March 31, 2020	88,000	4%	75,100	(3)%	12,900
Quarter ended December 31, 2019	83,300	(8)%	63,600	(6)%	19,700
Twelve months ended September 30, 2020	348,200	(2)%	430,300	7%	(82,100)

According to the RVIA, industry-wide wholesale shipments of motorhome RVs in the first nine months of ~~2020 decreased 22~~2021 increased 51 percent to ~~28,300~~42,800 units compared to the first nine months of ~~2019,~~2020, primarily due to OEM plant shutdowns in response to ~~COVID-19.~~COVID-19 in the 2020 period. Retail demand for motorhome RVs ~~decreased 10~~increased 4 percent year-over-year in the first nine months of ~~2020, following~~2021, compared to a 132 percent year-over-year decrease in retail demand in the same period of ~~2019.~~2020.

Adjacent Industries

~~The Company’s~~Our portfolio of products used in RVs can also be used in other applications, including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured homes; and modular housing (collectively, ~~“Adjacent Industries”~~"Adjacent Industries"). In many cases, OEM customers of the Adjacent Industries are affiliated with RV OEMs through related subsidiaries. ~~The Company believes~~We believe 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.

~~LCI INDUSTRIES~~

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

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~(Continued)~~

Aftermarket Segment

Many of ~~the Company’s~~our OEM Segment products are also sold through various aftermarket channels, including dealerships, wholesale distributors, and service centers, as well as direct to retail customers via the Internet. This includes discretionary accessories and replacement service parts. ~~The Company has~~We have teams dedicated to product technical and installation training as well as marketing support for ~~its~~our Aftermarket Segment customers. ~~The Company~~We also ~~supports~~support multiple call centers to provide responses to customers for both product delivery and technical support. This support is designed for a rapid response to critical repairs, so customer downtime is minimized. The ~~Company's call centers are considered essential services and have continued to provide service throughout the COVID-19 pandemic. 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. Many of the optional upgrades and non-critical replacements for RVs are purchased outside the normal product selling seasons, thereby causing certain Aftermarket Segment sales to be counter-seasonal, but this may be different in ~~2020~~the remainder of 2021 and future years as a result of the COVID-19 pandemic and related impacts.

According to ~~the RVIA,~~Go RVing, estimated RV ownership in the United States ~~has~~as of 2020 had increased to over ~~nine~~11 million ~~units. Additionally, as a result of a vibrant secondary market, one-third of current owners purchased their RV new while the remaining two-thirds purchased a previously owned RV.~~households. This vibrant ~~secondary~~ market is a key driver for aftermarket sales, as ~~the Company anticipates~~we anticipate owners ~~of previously owned RVs~~ will likely upgrade their units as well as replace parts and accessories which have been subjected to normal wear and tear.

RESULTS OF OPERATIONS

Consolidated Highlights

•Consolidated net sales in the third quarter of ~~2020~~2021 were ~~$827.7 million,~~$1.2 billion, 41 percent higher than consolidated net sales for the same period of ~~2019~~2020 of ~~$586.2~~$827.7 million. The increase was primarily driven by ~~a recovery in~~record RV retail demand and strong Aftermarket Segment sales growth. Net sales from acquisitions completed in 2020 and the RVfirst nine months

LCI INDUSTRIES

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

of 2021, primarily Furrion Holdings Limited ("Furrion"), Veada Industries, Inc. and ~~marine markets beginning later~~Challenger Door, LLC, contributed approximately $78.5 million in ~~the second quarter and continuing into~~ the third quarter of ~~2020, as well as sales from acquired businesses of $98.6 million primarily from the CURT and Polyplastic acquisitions.~~2021.

•Net income for the third quarter of ~~2020~~2021 was ~~$68.3~~$63.4 million, or ~~$2.70~~$2.49 per diluted share, compared to net income of ~~$35.8~~$68.3 million, or ~~$1.42~~$2.70 per diluted share, for the same period of ~~2019.~~2020.

•Consolidated operating profit during the third quarter of ~~2020~~2021 was ~~$94.4~~$89.0 million compared to ~~$49.2~~$94.4 million in the same period of ~~2019.~~2020. Operating profit margin was ~~11.4~~7.6 percent in the third quarter of ~~2020~~2021 compared to ~~8.4~~11.4 percent in the same period of ~~2019,~~2020. The decline is primarily as a result of ~~fixed costs being spread over a larger sales base.~~increased raw material, labor, and freight costs.

•The cost of aluminum and steel used in certain of ~~the Company’s~~our manufactured components ~~decreased~~increased in the third quarter of ~~2020~~2021 compared to the same period of ~~2019.~~2020. Raw material costs are subject to continued fluctuation and are being offset, in part, by contractual selling prices that are indexed to select commodities.

•The increase in selling, general, and administrative costs of $40.7 million was driven by incremental costs from recent acquisitions of $30.7 million, including warehousing and distribution costs of $13.1 million associated with CURT, and amortization on intangible assets from acquired businesses of $4.2 million, in the third quarter of 2020 compared to the same period of 2019.

•~~The~~ effective tax rate of ~~26.2~~24.9 percent for the nine months ended September 30, ~~2020~~2021 was ~~higher~~lower than the comparable prior year period of ~~24.6~~26.2 percent, primarily due to ~~a year-over-year reduction~~the reduced rate impact of permanent tax differences with the growth in income before income taxes and an increase in the excess tax ~~benefits~~benefit related to the vesting of equity-based compensation awards ~~the reduction of income before income taxes,~~ and ~~an increase~~investments in ~~non-deductible expenses,~~life insurance contracts, as discussed below under ~~“Income~~"Income Taxes.”"

•In March, June, and September ~~2020, the Company~~2021, we paid a quarterly dividend of ~~$0.65, $0.65,~~$0.75, $0.90, and ~~$0.75~~$0.90 per share, aggregating to ~~$16.3~~$18.9 million, ~~$16.3~~$22.7 million, and ~~$18.9~~$22.7 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 ~~2020~~2021 increased ~~$130.5~~$304.2 million, compared to the same period of ~~2019.~~2020. Net sales of components to ~~OEMs were to~~ the following OEMs markets for the three months ended September ~~30:~~30 were:


(In thousands)	(In thousands)	2020		2019		Change		(In thousands)	2021		2020		Change
RV OEMs:	RV OEMs:							RV OEMs:
Travel trailers and fifth-wheels	Travel trailers and fifth-wheels	$	417,050	$	314,056	33	%	Travel trailers and fifth-wheels	$	602,429	$	417,050	44	%
Motorhomes	Motorhomes	44,441		34,810		28	%	Motorhomes	63,259		44,441		42	%
Adjacent Industries OEMs	Adjacent Industries OEMs	180,563		162,684		11	%	Adjacent Industries OEMs	280,593		180,563		55	%
Total OEM Segment net sales	Total OEM Segment net sales	$	642,054	$	511,550	26	%	Total OEM Segment net sales	$	946,281	$	642,054	47	%

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


		2020	2019	Change			2021	2020	Change
Travel trailer and fifth-wheel RVs	Travel trailer and fifth-wheel RVs	110,100	80,600	37	%	Travel trailer and fifth-wheel RVs	136,200	110,100	24	%
Motorhomes	Motorhomes	11,300	10,800	5	%	Motorhomes	13,300	11,300	18	%

~~The Company's~~In order to enhance comparability, our calculations of content in the OEM Segment discussion that follows were adjusted to remove the Company's sales of Furrion ~~sales~~products from ~~all~~periods prior ~~periods~~ to ~~enhance comparability between periods following~~ the termination of the Company's distribution and supply agreement with Furrion at the end of 2019.

The trend in ~~the Company’s~~our average product content per RV produced is an indicator of ~~the Company’s~~our overall market share of components for new RVs. ~~The Company’s~~Our average product content per type of RV, calculated based upon ~~the Company’s~~our net sales of components to domestic 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 product mix of RVs for the same period, was:


Content per:	Content per:	2020		2019		Change		Content per:	2021		2020		Change
Travel trailer and fifth-wheel RV	Travel trailer and fifth-wheel RV	$	3,428	$	3,268	5	%	Travel trailer and fifth-wheel RV	$	3,786	$	3,428	10	%
Motorhome	Motorhome	$	2,399	$	2,328	3	%	Motorhome	$	2,732	$	2,399	14	%

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

The Company’s increase in net sales to RV OEMs of travel trailers, fifth-wheel, and motorhome components during the third quarter of 2020 was primarily driven by a recovery in RV retail demand beginning later in the second quarter and continuing into the third quarter of 2020, partially offset by the termination of the Furrion supply agreement. The net sales increase further benefited from content gains during the third quarter of 2020.

The Company's increase in net sales to OEMs in Adjacent Industries during the third quarter of 2020 was driven by a recovery in retail demand for the marine industry and other adjacent markets beginning later in the second quarter and continuing into the third quarter of 2020.

Operating profit of the OEM Segment was $65.5 million in the third quarter of 2020, an increase of $27.2 million compared to the same period of 2019. The operating profit margin of the OEM Segment in the third quarter of 2020 increased to 10.2 percent compared to 7.5 percent for the same period of 2019 and was positively impacted by:

•Leveraging of fixed costs over a larger sales base, net of lost Furrion product sales, which increased operating profit by $6.9 million related to fixed overhead costs and $9.5 million related to fixed selling, general, and administrative costs.

LCI INDUSTRIES

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

Our increase in net sales to RV OEMs of travel trailers, fifth-wheel, and motorhome components during the third quarter of 2021 was primarily driven by a recovery in RV retail demand beginning later in the second quarter of 2020 and continuing through the third quarter of 2021. The net sales increase further benefited from content gains and price increases during the third quarter of 2021.

Our increase in net sales to OEMs in Adjacent Industries during the third quarter of 2021 was driven by acquisitions and a recovery in retail demand for the marine industry and other adjacent markets beginning later in the second quarter of 2020 and continuing through the third quarter of 2021.

Operating profit of the OEM Segment was $64.1 million in the third quarter of 2021, a decrease of $1.4 million compared to the same period of 2020. The operating profit margin of the OEM Segment in the third quarter of 2021 decreased to 6.8 percent compared to 10.2 percent for the same period of 2020 and the operating profit margin was negatively impacted by:

•~~Reductions~~Increases in material commodity pricing ~~of $5.6~~and production supplies, which negatively impacted operating profit by $98.3 million, primarily related to ~~decreased~~increased steel and aluminum costs.

•Increases in production labor costs due to higher production volumes and a tight labor market, which reduced operating profit by $15.7 million.

•Increases in transportation costs, primarily for third party freight, which reduced operating profit by $5.7 million.

Partially offset by:

•Selling ~~price changes from contractual reductions indexed~~prices contractually tied to indexes of select commodities increased, resulting in an increase in operating profit of ~~$5.3 million.~~$52.5 million compared to the same period of 2020.

•~~Additional amortization related~~Pricing changes to ~~intangible assets from acquisitions~~targeted products, resulting in an increase in operating profit of $31.4 million compared to the ~~past twelve months,~~same period of 2020.

•Leveraging of fixed costs over a larger sales base, which ~~reduced~~increased operating profit by ~~$2.0 million.~~$11.5 million related to fixed selling, general, and administrative costs and $5.4 million related to fixed overhead costs.

Amortization expense on intangible assets for the OEM Segment was ~~$6.9~~$8.6 million in the third quarter of ~~2020,~~2021, compared to ~~$5.3~~$6.9 million in the same period ~~of 2019.~~in 2020. Depreciation expense on fixed assets for the OEM Segment was ~~$11.9~~$12.8 million in the third quarter of ~~2020,~~2021, compared to ~~$11.4~~$11.9 million in the same period of ~~2019.~~2020.

OEM Segment – Year to Date

Net sales of the OEM Segment in the first nine months of ~~2020 decreased 3~~2021 increased 70 percent, or ~~$54.5 million,~~$1.1 billion, compared to the first nine months of ~~2019.~~2020. Net sales of components to OEMs were to the following markets for the nine months ended September 30:


(In thousands)	(In thousands)	2020		2019		Change		(In thousands)	2021		2020		Change
RV OEMs:	RV OEMs:							RV OEMs:
Travel trailers and fifth-wheels	Travel trailers and fifth-wheels	$	936,676	$	973,978	(4)	%	Travel trailers and fifth-wheels	$	1,633,059	$	936,676	74	%
Motorhomes	Motorhomes	107,241		121,167		(11)	%	Motorhomes	193,105		107,241		80	%
Adjacent Industries OEMs	Adjacent Industries OEMs	498,306		501,553		(1)	%	Adjacent Industries OEMs	801,021		498,306		61	%
Total OEM Segment net sales	Total OEM Segment net sales	$	1,542,223	$	1,596,698	(3)	%	Total OEM Segment net sales	$	2,627,185	$	1,542,223	70	%

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


		2020	2019	Change			2021	2020	Change
Travel trailer and fifth-wheel RVs	Travel trailer and fifth-wheel RVs	264,900	266,400	(1)	%	Travel trailer and fifth-wheel RVs	401,000	264,800	51	%
Motorhomes	Motorhomes	28,300	36,400	(22)	%	Motorhomes	42,400	28,300	50	%

~~The Company’s decrease~~Our increase in net sales to RV OEMs of travel trailers, fifth-wheel, and motorhome components during the first nine months of ~~2020 related to the termination of the Furrion supply agreement as well as declines~~2021 was primarily driven by a recovery in ~~motorhome wholesale unit shipments. The net sales decrease was partially offset by content gains during the first nine months of 2020 for both travel trailer and fifth-wheel RVs and motorhomes.~~

The Company’s net sales to Adjacent Industries OEMs decreased during the first nine months of 2020, primarily due to OEM plant shutdowns in response to COVID-19. The net sales decrease was almost fully offset by market share gains. OEM marine net sales were $118.1 millionRV retail demand beginning later in the first nine months of 2020 ~~a decrease of $8.9 million compared to the same period of 2019. The Company continues to believe there are significant opportunities in Adjacent Industries.~~

Operating profit of the OEM Segment was $110.5 million in the first nine months of 2020, a decrease of $20.9 million compared to the same period of 2019. The operating profit margin of the OEM Segment in the first nine months of 2020 decreased to 7.2 percent compared to 8.2 percent for the same period of 2019 and ~~was negatively impacted by:~~

•The impact of COVID-19 as OEMs suspended production beginning in March 2020 due to government mandates and a temporary reduction in customer demand during the COVID-19 pandemic, which negatively impacted operating profit by an estimated $31.0 million.

•~~Selling price changes from contractual reductions indexed to select commodities of $18.8 million.~~

•~~Additional amortization related to intangible assets from acquisitions in the past twelve months, which reduced operating profit by $5.8 million.~~

~~Partially offset by:~~

•~~Reductions in material commodity pricing of $15.1 million, primarily related to decreased steel and aluminum costs.~~

LCI INDUSTRIES

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

continuing through the first nine months of 2021. The net sales increase further benefited from content gains during the first nine months of 2021.

Our increase in net sales to OEMs in Adjacent Industries during the first nine months of 2021 was driven by acquisitions and a recovery in retail demand for the marine industry and other adjacent markets beginning later in the first nine months of 2020 and continuing through the first nine months of 2021. We continue to believe there are significant opportunities in Adjacent Industries.

Operating profit of the OEM Segment was $206.8 million in the first nine months of 2021, an increase of $96.3 million compared to the same period of 2020. The operating profit margin of the OEM Segment in the first nine months of 2021 increased to 7.9 percent compared to 7.2 percent for the same period of 2020 and the operating profit margin was positively impacted by:

•~~Investments~~Leveraging of fixed costs over a larger sales base, partially related to COVID-19 shutdowns in 2020, which increased operating profit by $72.2 million related to fixed selling, general, and administrative costs and $36.0 million related to fixed overhead costs.

•Selling prices contractually tied to indexes of select commodities increased, resulting in an increase in operating profit of $69.9 million compared to the ~~past several years~~same period of 2020.

•Pricing changes to ~~improve~~targeted products, resulting in an increase in operating ~~efficiencies, including lean manufacturing initiatives~~profit of $51.3 million compared to the same period of 2020.

Partially offset by:

•Increases in material commodity pricing, which negatively impacted operating profit by $165.8 million, primarily related to increased steel and ~~increased use of automation,~~aluminum costs.

•Increases in direct labor costs due to higher production volumes and a tight labor market, which reduced ~~labor expenses~~operating profit by ~~$9.8~~$28.6 million.

•Increases in transportation costs, primarily for third party freight, which reduced operating profit by $12.7 million.

Aftermarket Segment - Third Quarter

Net sales of the Aftermarket Segment in the third quarter of ~~2020~~2021 increased ~~149~~18 percent, or ~~$111.0~~$33.4 million, compared to the same period of ~~2019.~~2020. Net sales of components in the Aftermarket Segment were as follows for the three months ended September 30:


(In thousands)	(In thousands)	2020		2019		Change		(In thousands)	2021		2020		Change
Total Aftermarket Segment net sales	Total Aftermarket Segment net sales	$	185,675	$	74,671	149	%	Total Aftermarket Segment net sales	$	219,028	$	185,675	18	%

~~The Company’s~~Our net sales to the Aftermarket Segment increased during the third quarter of ~~2020,~~2021, primarily due to ~~acquisitions that contributed approximately $78.0 million~~increased consumer demand in ~~sales, increases in~~the outdoor recreational and transportation market ~~share,~~ and the Company’s focus on building out well-qualified, customer-focused teams, and infrastructure to service this market. The increase was partially offset by lost sales related to the termination of the Furrion supply agreement.our distributor customers rebuilding their inventory levels.

Operating profit of the Aftermarket Segment was ~~$28.9~~$24.9 million in the third quarter of ~~2020, an increase~~2021, a decrease of ~~$18.1~~$4.0 million compared to the same period of ~~2019 primarily due to sales from acquisitions.~~2020. The operating profit margin of the Aftermarket Segment was 11.4 percent in the third quarter of 2021, compared to 15.6 percent in the same period in 2020, ~~compared to 14.5 percent in 2019,~~ and the operating profit margin was ~~positively~~negatively impacted by:

•~~Leveraging of fixed~~Increases in material commodity pricing and production supplies, which negatively impacted operating profit by $9.9 million, primarily related to increased steel and aluminum costs.

•Increases in transportation costs, ~~over~~primarily for third party freight, which reduced operating profit by $3.9 million.

•Increases in direct labor costs due to higher production volumes and a ~~larger sales base, net of lost Furrion product sales,~~tight labor market, which ~~increased~~reduced operating profit by $1.8 ~~million related to fixed overhead costs and $1.7 million related to fixed selling, general, and administrative costs.~~million.

~~Partially offset by:~~

•Additional amortization ~~and depreciation~~ related to long-lived assets from ~~the CURT and Lewmar~~recent acquisitions, which reduced operating profit by ~~$2.2~~$1.0 million.

Amortization expense on intangible assets for the Aftermarket Segment was $2.9 million in the third quarter of 2020, compared to $0.7 million in the same period of 2019. Depreciation expense on fixed assets for the Aftermarket Segment was $2.9 million in the third quarter of 2020, compared to $1.4 million in the same period of 2019.

~~Aftermarket Segment – Year to Date~~

Net sales of the Aftermarket Segment in the first nine months of 2020 increased 123 percent, or $260.2 million, compared to the same period of 2019. Net sales of components in the Aftermarket Segment were as follows for the nine months ended September 30:

(In thousands) 2020 2019 Change
Total Aftermarket Segment net sales $ 470,941 $ 210,763 123 %

~~The Company’s net sales to the Aftermarket Segment increased during the first nine months of 2020 primarily due to sales from acquisitions of $220.7 million and organic growth of $39.5 million.~~

Operating profit of the Aftermarket Segment was $49.0 million in the first nine months of 2020, an increase of $17.9 million compared to the same period of 2019, primarily due to sales from acquisitions, partially offset by the impact of COVID-19. The operating profit margin of the Aftermarket Segment was 10.4 percent in 2020, compared to 14.8 percent in 2019, and was negatively impacted by:

•~~Sales mix of lower margin CURT and Lewmar products, which negatively impacted operating profit by $9.3 million.~~

•~~The recognition of higher cost of sales due to the inventory fair value step-up for CURT of $7.3 million.~~

•~~Additional amortization and depreciation related to long-lived assets from the CURT and Lewmar acquisitions, which reduced operating profit by $6.8million.~~

LCI INDUSTRIES

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

Partially offset by:

•~~The benefit~~Pricing changes to targeted products, resulting in an increase in operating profit of ~~organic sales growth coupled with no~~$9.8 million compared to the same period of 2020.

Amortization expense on intangible assets for the Aftermarket Segment was $3.9 million in the third quarter of 2021, compared to $2.9 million in the same period of 2020. Depreciation expense on fixed assets for the Aftermarket Segment was $3.7 million in the third quarter of 2021, compared to $2.9 million in the same period of 2020.

Aftermarket Segment – Year to Date

Net sales of ~~lower-margin Furrion products~~the Aftermarket Segment in the first nine months of 2021 increased 34 percent, or $161.2 million, compared to the same period of 2020. Net sales of components in the Aftermarket Segment were as ~~a result~~follows for the nine months ended September 30:


(In thousands)	2021		2020		Change
Total Aftermarket Segment net sales	$	632,102	$	470,941	34	%

Our net sales to the Aftermarket Segment increased during the first nine months of 2021 primarily due to organic growth of $135.8 million and sales from acquisitions of $25.4 million.

Operating profit of the ~~termination~~Aftermarket Segment was $77.7 million in the first nine months of 2021, an increase of $28.7 million compared to the same period of 2020, primarily due to sales from organic growth, and the impact of COVID-19 in 2020. The operating profit margin of the ~~Furrion supply agreement,~~Aftermarket Segment was 12.3 percent in the first nine months of 2021, compared to 10.4 percent in the same period in 2020, and the operating profit margin was positively impacted by:

•Leveraging of fixed costs over a larger sales base, partially related to COVID-19 shutdowns in 2020, which increased operating profit by ~~$6.0~~$16.8 million related to fixed selling, general, and administrative costs and $10.0 million related to fixed overhead costs.

•Pricing changes to targeted products, resulting in an increase in operating profit of $17.5 million compared to the same period of 2020.

•The recognition of higher cost of sales during the first nine months of 2020 due to the inventory fair value step-up for CURT of $7.3 million.

Partially offset by:

•Increases in material commodity pricing and production supplies, which negatively impacted operating profit by $21.4 million, primarily related to increased steel and aluminum costs.

•Increases in transportation costs, primarily for third party freight, which reduced operating profit by $13.7 million.

•Increases in direct labor costs due to higher production volumes and a tight labor market, which reduced operating profit by $4.4 million.

Income Taxes

The effective tax rates for the nine months ended September 30, 2021 and 2020 ~~and 2019~~ were ~~26.2~~24.9 percent and ~~24.6~~26.2 percent, respectively. The effective tax rate for the nine months ended September 30, ~~2020~~2021 differed from the Federal statutory rate primarily due to state taxes, foreign taxes, and non-deductible expenses, partially offset by the recognition of excess tax benefits as a component of the provision for income taxes, and Federal and Indiana research and development credits. The ~~increase~~decrease in the effective tax rate for the nine months ended September 30, ~~2020~~2021 as compared to the same period in ~~2019~~2020 was primarily due ~~primarily~~ to ~~a reduction~~the decreased rate impact of permanent tax differences with the growth in income before income taxes and an increase in the excess tax ~~benefits~~benefit related to the vesting of equity-based compensation awards ~~an increase~~and investments in ~~non-deductible expenses, and lower income before income taxes.~~life insurance contracts.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

As of September 30, 2021, we had $72.6 million in cash and cash equivalents, and $267.2 million of availability under our revolving credit facility under the Amended Credit Agreement (as defined in Note 9 of the Notes to Condensed

LCI INDUSTRIES

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

Consolidated Financial Statements). Additionally, we have the ability to request up to $150.0 million in additional Senior Promissory Notes be purchased by Prudential under our Shelf-Loan Facility (each as defined in Note 9 of the Notes to Condensed Consolidated Financial Statements), subject to Prudential's approval. See Note 9 of the Notes to Condensed Consolidated Financial Statements for a description of our credit facilities.

We maintain a level of liquidity sufficient to allow us to meet our cash needs in the short term. Over the long term, we manage our cash and capital structure to maximize shareholder return, maintain our financial condition, and maintain flexibility for our future strategic investments. We continuously assess our capital requirements, working capital needs, debt and leverage levels, debt and lease maturity schedules, capital expenditure requirements, dividends, future investments or acquisitions, and potential share repurchases. As discussed above under "COVID-19 Update," with RV retail demand at record levels through the first nine months of 2021, the industry has faced challenges with supply chain constraints, rising material costs, and a tightened labor market, especially in northern Indiana. To address these challenges, we have strategically managed working capital, including intentionally building up levels of certain inventory items to avoid future shortages, and have expanded our production capacity. As we build inventory levels and invest in additional production capacity, we also closely monitor our liquidity. In the event additional needs for cash arise, or if we refinance our existing debt, we may raise additional funds from a combination of sources, including the potential issuance of debt or equity securities. Additional financing might not be available on terms favorable to us, or at all.

We believe the availability under the revolving credit facility under the Amended Credit Agreement, along with our cash flows from operations, are adequate to finance our anticipated cash requirements for the next twelve months.

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


(In thousands)	(In thousands)	2020		2019		(In thousands)	2021		2020
Net cash flows provided by operating activities	Net cash flows provided by operating activities	$	212,487	$	209,542	Net cash flows provided by operating activities	$	12,293	$	212,487
Net cash flows used in investing activities	Net cash flows used in investing activities	(119,600)		(101,326)		Net cash flows used in investing activities	(216,872)		(119,600)
Net cash flows used in financing activities		(59,206)		(94,825)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		(853)		(842)
Net increase in cash, cash equivalents, and restricted cash		$	32,828	$	12,549
Net cash flows provided by (used in) financing activities						Net cash flows provided by (used in) financing activities	224,186		(59,206)
Effect of exchange rate changes on cash and cash equivalents						Effect of exchange rate changes on cash and cash equivalents	1,187		(853)
Net increase in cash and cash equivalents						Net increase in cash and cash equivalents	$	20,794	$	32,828

Cash Flows from Operations

Net cash flows provided by operating activities were $12.3 million in the first nine months of 2021, compared to $212.5 million in the first nine months of ~~2020, compared to $209.5 million in the first nine months of 2019.~~2020. The ~~increase~~decrease in net cash flows provided by operating activities was primarily due to changes in net assets and liabilities, net of acquisitions of businesses, which generated $313.0 million less cash than in the first nine months of 2020. During the first nine months of 2021, in an effort to address challenges with supply chain constraints, rising material costs, and a ~~$12.1~~tightened labor market, we strategically managed working capital, including intentionally building up levels of certain inventory items and expanding production capacity. As a result, increases in inventory and receivables related to increased wholesale RV demand were the primary uses of cash generated from net assets. The decrease was partially offset by a $112.8 million increase in net income, adjusted for depreciation and amortization, stock-based compensation expense, ~~deferred taxes,~~ and other non-cash items. Changes in net assets and liabilities, net of acquisitions of businesses, in the first nine months of 2020 generated $9.2 million less cash than in the first nine months of 2019. Increased receivables as OEMs resumed production was the primary use of cash generated from net assets.

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

Depreciation and amortization was ~~$73.4~~$80.2 million in the first nine months of ~~2020,~~2021, and is expected to be approximately ~~$95 million~~$110 to ~~$105~~$120 million for the full year ~~2020.~~2021. Non-cash stock-based compensation expense in the first nine months of ~~2020~~2021 was ~~$13.6~~$20.3 million. Non-cash stock-based compensation expense is expected to be approximately ~~$15 million~~$25 to ~~$20~~$30 million for the full year ~~2020.~~2021.

Cash Flows from Investing Activities

Cash flows used in investing activities of $216.9 million in the first nine months of 2021 were primarily comprised of $154.5 million for the acquisitions of businesses, net of cash acquired, and $73.9 million for capital expenditures. Cash flows

LCI INDUSTRIES

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

used in investing activities of $119.6 million in the first nine months of 2020 were primarily comprised of $94.9 million for the acquisitions of businesses, net of cash acquired, and $28.7 million for capital expenditures. Cash flows used in investing activities of $101.3 million in the first nine months of 2019 were primarily comprised of $53.9 million for the acquisitions of businesses, net of cash acquired, and $47.8 million for capital expenditures.

~~The Company’s~~Our capital expenditures are primarily for replacement and ~~growth.~~growth, and during the first nine months of 2021 have included capacity expansions to meet elevated demand. Over the long term, based on ~~the Company’s~~our historical capital expenditures, the replacement portion of capital expenditures has averaged approximately one to two percent of net sales, while the growth portion has averaged approximately two to three percent of net sales. However, there are many factors that can impact actual spending compared to these historical averages.

~~LCI INDUSTRIES~~

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

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~(Continued)~~

We estimate full year 2021 capital expenditures of $130 to $150 million, including capacity expansions to meet elevated demand, which we expect to fund with cash flows from operations or periodic borrowings under the revolving credit facility as needed.

Capital expenditures and acquisitions in the first nine months of ~~2020~~2021 were funded by cash from operations, ~~and~~ borrowings under our credit agreement, and net proceeds from the ~~Company's credit agreement. In response to the COVID-19 pandemic, the Company delayed certain non-essential capital expenditures. Although sales volume rebounded beginning in the second half~~issuance of ~~the second quarter, the Company plans to remain disciplined with capital spending going forward.~~our 1.125 percent convertible senior notes due 2026 (the "Convertible Notes"). Capital expenditures and acquisitions in the remainder of fiscal year ~~2020~~2021 are expected to be funded primarily from cash generated from operations, as well as periodic borrowings under ~~the Company’s~~our revolving credit facility.

Cash Flows from Financing Activities

Cash flows provided by financing activities of $224.2 million in the first nine months of 2021 were primarily comprised of proceeds from the issuance of the Convertible Notes and warrants to purchase 2.8 million shares of the Company's common stock (the "Warrants"), net of debt issuance costs, and from the privately negotiated call option contracts on the Company's common stock (the "Convertible Note Hedge Transactions") of $396.6 million, partially offset by $80.1 million in net repayments under our revolving credit facility, payments of quarterly dividends of $64.4 million, repayments of $13.4 million under the term loan and other borrowings, and cash outflows of $8.3 million related to vesting of stock-based awards, net of shares tendered for payment of taxes.

On May 13, 2021, we issued $460.0 million in aggregate principal amount of the Convertible Notes in a private placement to certain qualified institutional buyers, resulting in net proceeds to us of approximately $448.0 million after deducting initial purchasers' discounts and offering expenses payable by us on the Convertible Notes. In connection with the issuance of the Convertible Notes, we entered into the Convertible Note Hedge Transactions and Warrant Transactions. We used approximately $51.6 million of the net proceeds of the offering of the Convertible Notes to pay the $100.1 million cost of the Convertible Note Hedge Transactions (after such cost was partially offset by the $48.5 million of proceeds from the Warrant Transactions). The remainder of the net proceeds from the Convertible Notes were used to repay outstanding borrowings under our revolving credit facility, and for general corporate purposes. See Note 9 and Note 12 to the Notes to Condensed Consolidated Financial Statements for further description of these transactions.

Cash flows used in financing activities of $59.2 million in the first nine months of 2020 were primarily comprised of payments of quarterly dividends of $51.5 million, repayments of $15.4 million under ~~the~~our term loan and other borrowings, and ~~$12.7 million in net borrowings under the Company’s revolving credit facility. In addition, the Company had~~ cash outflows of $4.8 ~~million related to vesting of stock-based awards, net of shares tendered for payment of taxes.~~

Cash flows used in financing activities in the first nine months of 2019 were primarily comprised of $39.7 million in net repayments under the Company's revolving credit facility. In addition, the Company had cash outflows of $7.2 million related to the vesting of stock-based awards, net of shares tendered for payment of ~~taxes.~~taxes, partially offset by $12.7 million of net borrowings under our revolving credit facility.

In connection with certain business acquisitions, if established sales targets for the acquired business are achieved, ~~the Company~~we will pay additional cash consideration. ~~The Company has~~We have recorded a ~~$6.2~~$6.9 million liability for the aggregate fair value of these expected contingent consideration liabilities at September 30, ~~2020.~~2021. For further information, see Note 911 of the Notes to Condensed Consolidated Financial Statements.

The Amended Credit ~~Facilities~~Agreement and Shelf-Loan Facility include both financial and non-financial covenants. The covenants dictate that we shall not permit our net leverage ratio to exceed certain limits, shall maintain a minimum debt service coverage ratio, and must meet certain other financial requirements. At September 30, 2021, we were in compliance with all such requirements, and we expect to remain in compliance for the next twelve months.

We have paid regular quarterly dividends since 2016. Future dividend policy with respect to our common stock will be determined by our Board of Directors in light of our prevailing financial needs, earnings, and other relevant factors, including any limitations in our debt agreements, such as maintenance of certain financial ratios. In October 2018, our Board of Directors authorized a stock repurchase program. No shares were repurchased in the first nine months of 2021. See Note 712 of the Notes to Condensed Consolidated Financial Statements for ~~a description of~~additional information related to our ~~credit facilities.~~

The Company believes its cash flows from operations and the availability under the revolving credit facility and potential note issuances under the Shelf-Loan Facility (as defined in Note 7 of the Notes to Condensed Consolidated Financial Statements) are adequate to finance the Company’s anticipated cash requirements for the next twelve months.

The Company's debt agreements require that it maintain certain financial and other covenants. Although the Company currently expects continued compliance with its debt covenants and believes it has adequate liquidity, events resulting from the effects of COVID-19 may negatively impact the Company's ability to comply with these covenants or require the Company to pursue alternative financing.dividend program.

LCI INDUSTRIES

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

CORPORATE GOVERNANCE

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

CONTINGENCIES

Information required by this item is included in Note 911 of the Notes to Condensed Consolidated Financial ~~Statements.~~Statements and is incorporated herein by reference.

INFLATION

The prices of key raw materials, consisting primarily of steel and aluminum, and components used by ~~the Company~~us which are made from these raw materials, are influenced by demand and other factors specific to these commodities, rather than being directly affected by inflationary pressures. Prices of these commodities have historically been volatile, and over the past few months prices have continued to ~~fluctuate. The Company~~increase. We did not experience any significant increases in ~~its~~our labor costs in the first nine months of ~~2020~~2021 related to inflation. The increase in labor costs experienced in the first nine months of 2021 was primarily driven by increased overtime and temporary staffing due to a tight labor market.

~~LCI INDUSTRIES~~

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

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~(Continued)~~

NEW ACCOUNTING PRONOUNCEMENTS

Information required by this item is included in Note 2 of the Notes to Condensed Consolidated Financial Statements.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires ~~the Company~~us 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~~we evaluate our estimates, including, but not limited to, those related to product returns, sales and purchase rebates, accounts receivable, inventories, goodwill and other intangible assets, net assets of acquired businesses, income taxes, warranty and product recall obligations, self-insurance obligations, operating lease right-of-use assets and obligations, asset retirement obligations, long-lived assets, post-retirement benefits, stock-based compensation, segment allocations, contingent consideration, environmental liabilities, contingencies and litigation. ~~The Company bases its~~We base our 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.

FORWARD-LOOKING STATEMENTS

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

Forward-looking statements, including, without limitation, those relating to the Company’s future business prospects, net sales, expenses and income (loss), capital expenditures, tax rate, cash flow, financial condition, liquidity, covenant compliance, ~~consumer~~retail and wholesale demand, integration of acquisitions, R&D investments, and ~~resumption or suspension of normal operations,~~industry trends, 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

LCI INDUSTRIES

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

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, the impacts of COVID-19, or other future pandemics, on the global economy and on the Company's customers, suppliers, employees, business and cash flows, pricing pressures due to domestic and foreign competition, costs and availability of, and tariffs on, raw materials (particularly steel and aluminum) and other components, seasonality and cyclicality in the industries to which ~~the Company sells its~~we sell our products, availability of credit for financing the retail and wholesale purchase of products for which ~~the Company sells its~~we sell our components, inventory levels of retail dealers and manufacturers, availability of transportation for products for which ~~the Company sells its~~we sell our components, the financial condition of ~~the Company’s~~our customers, the financial condition of retail dealers of products for which ~~the Company sells its~~we sell our components, retention and concentration of significant customers, the costs, pace of and successful integration of acquisitions and other growth initiatives, availability and costs of production facilities and labor, team member benefits, team member retention, realization and impact of expansion plans, efficiency improvements and cost reductions, the disruption of business resulting from natural disasters or other unforeseen events, the successful entry into new markets, the costs of compliance with environmental laws, laws of foreign jurisdictions in which ~~the Company operates,~~we operate, other operational and financial risks related to conducting business internationally, and increased governmental regulation and oversight, information technology performance and security, the ability to protect intellectual property, warranty and product liability claims or product recalls, interest rates, oil and gasoline prices, and availability, the impact of international, national and regional economic conditions and consumer confidence on the retail sale of products for which ~~the Company sells its~~we sell our 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, ~~2019,~~2020, and in the Company’s subsequent filings with the SEC, including the Company's Quarterly Reports ~~on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, and this Quarterly Report~~ on Form 10-Q. Readers of this report are cautioned not to place undue reliance on these forward-looking statements, since there can be no assurance that these forward-looking statements will prove to be accurate. The Company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law.

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LCI INDUSTRIES

ITEM 3 – QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

~~The Company is~~We are exposed to market risk related to changes in short-term interest rates on our variable rate debt. Depending on the interest rate option selected as more fully described in Note 79 of the Notes to Condensed Consolidated Financial Statements, interest is charged based on an indexed rate plus an applicable margin. Assuming a hypothetical increase of 0.25 percent in the indexed interest rate (which approximates a ten percent increase of the weighted-average interest rate on our borrowings as of September 30, ~~2020)~~2021), our results of operations would not be materially affected.

~~The Company is~~We are also exposed to changes in the prices of raw materials, specifically steel and aluminum. ~~The Company has,~~We have, from time to time, entered into derivative instruments for the purpose of managing a portion of the exposures associated with fluctuations in steel and aluminum prices. While these derivative instruments are subject to fluctuations in value, these fluctuations are generally offset by the changes in fair value of the underlying exposures. We had no outstanding derivative instruments on commodities at September 30, 2021 and December 31, 2020.

~~The Company has~~We have historically been able to obtain sales price increases to partially offset the majority of raw material cost increases. However, there can be no assurance future cost increases, if any, can be partially or fully passed on to customers, or that the timing of such sales price increases will match raw material cost increases.

Additional information required by this item is included under the caption ~~“Inflation”~~"Inflation" in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this ~~Report.~~report.

ITEM 4 – CONTROLS AND PROCEDURES

a.Evaluation of Disclosure Controls and Procedures

~~The Company maintains~~We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in ~~the Company’s~~our Exchange Act reports is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to ~~the Company’s~~our management, including ~~its~~our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure, in accordance with the definition of “disclosure controls and procedures” in Rule ~~13a-15~~13a-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the desired control objectives. Management included in its evaluation the cost-benefit relationship of possible controls and procedures. ~~The Company~~We continually ~~evaluates its~~evaluate our disclosure controls and procedures to determine if changes are appropriate based upon changes in ~~the Company’s~~our operations or the business environment in which ~~it operates.~~we operate.

As of the end of the period covered by this Form 10-Q, ~~the Company~~we performed an evaluation, under the supervision and with the participation of ~~the Company’s~~our management, including ~~the Company’s~~our principal executive officer and ~~the Company’s~~our principal financial officer, of the effectiveness of the design and operation of ~~the Company’s~~our disclosure controls and procedures. Based on the foregoing, ~~the Company’s~~our principal executive officer and principal financial officer concluded that ~~the Company’s~~our disclosure controls and procedures were effective as of September 30, ~~2020.~~2021.

b.Changes in Internal Control over Financial Reporting

There were no changes in ~~the Company’s~~our internal control over financial reporting during the quarter ended September 30, ~~2020,~~2021, which have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

~~The Company~~We began implementation of a new enterprise resource planning (“ERP”) system in late 2013. ~~To date, 35 locations have been put on this ERP system.~~ The roll-out plan is continually evaluated in the context of priorities for the business and may change as the needs of the business dictate. ~~The Company anticipates~~We anticipate enhancements to controls due to both the installation of the new ERP system and business process changes resulting therefrom.

3739

LCI INDUSTRIES

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

In the normal course of business, ~~the Company is~~we are subject to proceedings, lawsuits, regulatory agency inquiries and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, it is management’s opinion that after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided in the Condensed Consolidated Balance Sheet as of September 30, ~~2020,~~2021, would not be material to ~~the Company’s~~our financial position or results of operations.

ITEM 1A – RISK FACTORS

There have been no material changes to the matters discussed in Part I, Item 1A – Risk Factors in our Annual Report on Form 10-K as filed with the SEC on February ~~27, 2020,~~26, 2021, except ~~for~~that the ~~following:~~following risk factors are added or updated:

~~The coronavirus (COVID-19) pandemic,~~

Inadequate or ~~other outbreaks~~interrupted supply of ~~disease~~raw materials or ~~similar public health threats, has materially and~~components used to make our products could adversely ~~affected, and could in the future materially and adversely affect~~impact our ~~business,~~ financial condition and operating results ~~of operations, the nature and extent of which are highly uncertain and unpredictable.~~.

The recent COVID-19 pandemic, and any other outbreaks of contagious diseases or other adverse public health developments in the United States or internationally, has had, and in the future could again have a material adverse effect

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

In 2020, ~~COVID-19 has significantly impacted~~we imported, or purchased from suppliers who imported, approximately 30 percent of our raw materials and components. Consequently, we rely on the ~~global economy~~free flow of goods through open and ~~financial markets,~~operational ports and ~~it could continue to negatively impact~~on a consistent basis for a significant portion of our raw materials and components. Adverse political conditions, trade embargoes, increased tariffs or import duties, inclement weather, natural disasters, epidemics, public health crises, war, terrorism or labor disputes at various ports or otherwise adversely impacting our suppliers create significant risks for our business, particularly if these conditions or disputes result in ~~a number of ways. These effects include, but are not limited to:~~

•~~Disruptions or restrictions on our employees' ability to~~ work ~~effectively due to illness, quarantines, travel bans, shelter-in-place orders~~slowdowns, lockouts, strikes, facilities closures, supply chain interruptions, or other ~~limitations.~~

•~~Temporary closures of our facilities or the facilities of our customers or suppliers, which could impact our ability to timely meet our customers' orders or negatively impact our supply chain.~~

•Our election to, or a government's requirement that we, allocate manufacturing capacity (for example, pursuant to the U.S. Defense Production Act) in an effort to increase the availability of needed medicaldisruptions, and ~~other supplies and products in a way that adversely affects our regular operations and negatively impacts our reputation and customer and supplier relationships.~~

•~~Resulting costs increases from the effects of a pandemic such as COVID-19 may not be fully recoverable.~~

•The failure of third parties on which we rely, including our suppliers, customers, contractors, commercial banks and other business partners, to meet their respective obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties.

•Significant increases in economic and demand uncertainty have led to disruption and volatility in the global credit and financial markets, which increases the cost of capital and adversely impacts access to capital for both the Company and our customers and suppliers.

•Negative impacts of the COVID-19 pandemic could result in a breach of the covenants and/or restrictions contained in our debt agreements. Breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness, which may permit the lenders under these debt agreements to exercise remedies. These defaults could have an adverse ~~material~~ impact on our ~~business,~~operating results if we are unable to fulfill customer orders or are required to accumulate excess inventory or find alternate sources of ~~operations and financial condition.~~supply, if available, at higher costs.

•~~Commodity costs have~~The raw materials and components used in the manufacture of Furrion products are provided by a small group of suppliers that are principally located in China. If those raw materials or components become ~~more volatile due to the COVID-19 pandemic, and that volatility may worsen and/~~unavailable or ~~last for an extended period of time.~~

•~~Reduced demand by our OEMs~~their supply is interrupted or ~~consumers, potentially for an extended period of time.~~

•~~Increased cybersecurity and privacy risks and risks related to the reliability of technology to support remote operations.~~

•~~The Company~~delayed, we may not be able to ~~return cash to shareholders through quarterly cash dividends~~identify alternative sources in a timely or cost-effective manner, or at all. Further as a result of our acquisition of Furrion, the ~~same amount it has~~portion of our raw materials and components that are exported from their country of origin will increase, which could heighten the risks set forth in the ~~past,~~immediately preceding paragraph, including in particular increased tariffs or ~~at all.~~import duties.

Conversion of the Convertible Notes may dilute the ownership interest of our stockholders or may otherwise depress the price of our common stock.

The conversion of some or all of the Convertible Notes may dilute the ownership interests of our stockholders. Upon conversion of the Convertible Notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the notes being converted. If we elect to settle the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted in shares of our common stock or a combination of cash and shares of our common stock, any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Convertible Notes may encourage short selling by market participants because the conversion of the Convertible Notes could be used to satisfy short positions, or anticipated conversion of the Convertible Notes into shares of our common stock could depress the price of our common stock.

3840

Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.

•
~~Disruptions~~

Our ability to make scheduled payments of the principal of, to pay interest on or ~~uncertainties related~~ to refinance our indebtedness, including the ~~COVID-19 pandemic for an extended period~~Convertible Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of ~~time~~these activities or engage in these activities on desirable terms, which could result in ~~delays or modifications to~~a default on our ~~strategic plans and hinder our ability to achieve our strategic goals.~~debt obligations.

The ~~extent to which~~conditional conversion feature of the ~~COVID-19 pandemic, or other outbreaks of disease or similar public health threats, materially and~~Convertible Notes, if triggered, may adversely ~~impacts~~affect our ~~business,~~ financial condition and results of operations is highly uncertain and will depend on future developments. Such developments may include the geographic spread and duration of the virus, the severity of the disease and the actions that may be taken by various governmental authorities and other third parties in response to the outbreak. In addition, how quickly, and to what extent, normal economic and operating conditions can resume cannot be predicted, and the resumption of normal operations may be delayed or constrained by lingering effects of the COVID-19 pandemic on our suppliers, third-party service providers, and/or customers.results.

In ~~addition,~~ the ~~COVID-19 pandemic could exacerbate~~event the conditional conversion feature of the Convertible Notes is triggered, holders will be entitled to convert their Convertible Notes at any time during specified periods at their option. If one or ~~trigger other risks discussed in our Annual Report on Form 10-K as filed with~~more holders elect to convert their Convertible Notes, we would be required to settle any converted principal amount of such Convertible Notes through the ~~SEC on February 27, 2020, any~~payment of cash, which could ~~have~~adversely affect our liquidity. In addition, even if holders do not elect to convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

Certain provisions in the Indenture governing the Convertible Notes may delay or prevent an otherwise beneficial takeover attempt of us.

Certain provisions in the Indenture may make it more difficult or expensive for a third party to acquire us. For example, the Indenture will require us, subject to certain exceptions, to repurchase the Convertible Notes for cash upon the occurrence of a fundamental change and, ~~adverse~~in certain circumstances, to increase the conversion rate for a holder that converts its Convertible Notes in connection with a make-whole fundamental change. A takeover of us may trigger the requirement that we repurchase the Convertible Notes and/or increase the conversion rate, which could make it more costly for a potential acquirer to engage in such takeover. Such additional costs may have the effect ~~on our business, results~~ of ~~operations, and financial condition.~~delaying or preventing a takeover of us that would otherwise be beneficial to investors.

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

There has been no activity with respect to ~~the Company’s~~our stock repurchase program during the nine months ended September 30, ~~2020.~~2021. At September 30, ~~2020, the Company has~~2021, we had $121.3 million remaining in the current share repurchase authorization. Please refer to our Annual Report on Form 10-K as filed with the SEC on February ~~27, 2020~~26, 2021 for further information on the program.

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ITEM 6 – EXHIBITS

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

1
3.1
LCI Industries Restated Certificate of Incorporation, as amended effective December 30, 2016 (incorporated by reference to Exhibit 3.1 included in the Registrant’s Form 10-K for the year ended December 31, 2016).
2
3.2
Amended and Restated Bylaws of LCI Industries, as amended May 25, 2017 (incorporated by reference to Exhibit 3.2 included in the Registrant’s Form 8-K filed on May 31, 2017).
3.
10.1
Second Amendment to Fifth Amended and Restated Note Purchase and Private Shelf Agreement, dated as of September 21, 2020, among Lippert Components, Inc., LCI Industries, PGIM, Inc. and the Noteholders party thereto. Exhibit 10.1 is filed herewith.
4.
31.1
Certification of Chief Executive Officer required by Rule 13a-14(a). Exhibit 31.1 is filed herewith.
5.
31.2
Certification of Chief Financial Officer required by Rule 13a-14(a). Exhibit 31.2 is filed herewith.
6.
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.
7.
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.
8. 101
The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Income; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Cash Flows; (v) Condensed Consolidated Statements of Stockholders’ Equity; and (vi) Notes to Condensed Consolidated Financial Statements.
9. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


1	3.1	LCI Industries Restated Certificate of Incorporation, as amended effective December 30, 2016 (incorporated by reference to Exhibit 3.1 included in the Registrant’s Form 10-K for the year ended December 31, 2016).
2	3.2	Amended and Restated Bylaws of LCI Industries, as amended May 25, 2017 (incorporated by reference to Exhibit 3.2 included in the Registrant’s Form 8-K filed on May 31, 2017).
3	10.1	Amendment No. 3 to Fourth Amended and Restated Credit Agreement, dated as of September 7, 2021, by and among LCI Industries, Lippert Components, Inc., LCI Industries B.V., LCI Industries Pte. Ltd., each other Subsidiary of the Company listed on the signature pages thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
4	10.2	Fourth Amendment to Fifth Amended and Restated Note Purchase and Private Shelf Agreement, dated as of September 7, 2021, by and among PGIM, Inc. and the noteholders party thereto, Lippert Components, Inc., LCI Industries and the other parties thereto.
5	31.1	Certification of Chief Executive Officer required by Rule 13a-14(a).
6	31.2	Certification of Chief Financial Officer required by Rule 13a-14(a).
7	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.
8	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.
9	101	The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Income; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Cash Flows; (v) Condensed Consolidated Statements of Stockholders’ Equity; and (vi) Notes to Condensed Consolidated Financial Statements.
10	104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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LCI INDUSTRIES

SIGNATURES

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


LCI INDUSTRIES
Registrant


By			/s/ Brian M. Hall
Brian M. Hall
Chief Financial Officer
November 2, ~~2020~~2021

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	Preliminary at December 31, 2019		Measurement Period Adjustments		As Adjusted at September 30, 2020
Cash consideration, net of cash acquired	$	337,640	$	(1,053)	$	336,587

Assets Acquired
Accounts receivable	$	28,611	$	—	$	28,611
Inventories	88,765		(6,648)		82,117
Fixed assets	24,036		—		24,036
Customer relationship	112,000		(7,800)		104,200
Tradename and other identifiable intangible assets	37,705		(300)		37,405
Operating lease right-of-use assets	27,925		—		27,925
Other tangible assets	4,060		(1,550)		2,510
Liabilities Assumed
Accounts payable	(18,577)		—		(18,577)
Current portion of operating lease obligations	(5,360)		—		(5,360)
Accrued expenses and other current liabilities	(10,002)		—		(10,002)
Operating lease obligations	(22,565)		—		(22,565)
Deferred taxes	(31,877)		1,752		(30,125)
Total fair value of net assets acquired	$	234,721	$	(14,546)	$	220,175

Goodwill (not tax deductible)	$	102,919	$	13,493	$	116,412


	Three Months Ended September 30, 2020						Three Months Ended September 30, 2019
(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	$	407,485	$	9,565	$	417,050	$	311,446	$	2,610	$	314,056
Motorhomes	29,707		14,734		44,441		25,944		8,866		34,810
Adjacent Industries OEMs	151,572		28,991		180,563		143,264		19,420		162,684
Total OEM Segment net sales	588,764		53,290		642,054		480,654		30,896		511,550
Aftermarket Segment:
Total Aftermarket Segment net sales	179,510		6,165		185,675		70,284		4,387		74,671
Total net sales	$	768,274	$	59,455	$	827,729	$	550,938	$	35,283	$	586,221


	Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019
(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	$	916,144	$	20,532	$	936,676	$	964,838	$	9,140	$	973,978
Motorhomes	70,126		37,115		107,241		86,808		34,359		121,167
Adjacent Industries OEMs	406,727		91,579		498,306		455,754		45,799		501,553
Total OEM Segment net sales	1,392,997		149,226		1,542,223		1,507,400		89,298		1,596,698
Aftermarket Segment:
Total Aftermarket Segment net sales	455,799		15,142		470,941		199,686		11,077		210,763
Total net sales	$	1,848,796	$	164,368	$	2,013,164	$	1,707,086	$	100,375	$	1,807,461


(In thousands)	Q1 2019		Q2 2019		Q3 2019		Q4 2019		Full Year 2019
OEM Segment Furrion sales:
RV OEMs:
Travel trailers and fifth-wheel RVs	$	23,574	$	25,636	$	23,375	$	22,393	$	94,978
Motorhomes	830		1,037		971		780		3,618
Adjacent industries OEMs	490		612		573		607		2,282
Total OEM Segment Furrion sales	24,894		27,285		24,919		23,780		100,878
Aftermarket Segment Furrion sales:
Total Aftermarket Segment Furrion sales	8,915		9,545		8,473		3,614		30,547
Total Furrion Sales	$	33,809	$	36,830	$	33,392	$	27,394	$	131,425


(In thousands)	Q1 2018		Q2 2018		Q3 2018		Q4 2018		Full Year 2018
OEM Segment Furrion sales:
RV OEMs:
Travel trailers and fifth-wheel RVs	$	23,367	$	22,964	$	23,117	$	21,572	$	91,020
Motorhomes	739		812		828		875		3,254
Adjacent industries OEMs	468		485		309		281		1,543
Total OEM Segment Furrion sales	24,574		24,261		24,254		22,728		95,817
Aftermarket Segment Furrion sales:
Total Aftermarket Segment Furrion sales	3,951		7,011		5,454		3,250		19,666
Total Furrion Sales	$	28,525	$	31,272	$	29,708	$	25,978	$	115,483