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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: June 30, 2022

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

For the transition period from _________________ to _________________

Commission File Number: 001-13646
lcii-20220630_g1.jpg
LCI INDUSTRIES
(Exact name of registrant as specified in its charter)
Delaware13-3250533
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification Number)
3501 County Road 6 East46514
Elkhart,Indiana(Zip Code)
(Address of principal executive offices)
(574) 535-1125
(Registrant’s telephone number, including area code)

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par valueLCIINew 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  

1


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 (July 29, 2022) was 25,429,715 shares of common stock.

2




LCI INDUSTRIES

TABLE OF CONTENTS
Page
PART I  
  
 
  
 
  
 
 
  
 
  
 
  
 
  
 
  
 
  
PART II
  
 
  
 
  
 
  
 
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 

3




PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS

LCI INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 Three Months Ended 
June 30,
Six Months Ended 
June 30,
 2022202120222021
(In thousands, except per share amounts)    
Net sales$1,536,150 $1,093,720 $3,180,718 $2,093,978 
Cost of sales1,127,065 836,109 2,307,390 1,594,590 
Gross profit409,085 257,611 873,328 499,388 
Selling, general and administrative expenses190,296 163,629 384,838 303,975 
Operating profit218,789 93,982 488,490 195,413 
Interest expense, net6,191 3,472 12,443 6,177 
Income before income taxes212,598 90,510 476,047 189,236 
Provision for income taxes58,068 22,621 125,336 47,227 
Net income$154,530 $67,889 $350,711 $142,009 
Net income per common share:    
Basic$6.07 $2.69 $13.82 $5.63 
Diluted$6.06 $2.67 $13.76 $5.60 
Weighted average common shares outstanding:    
Basic25,438 25,275 25,377 25,230 
Diluted25,518 25,385 25,483 25,351 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4


LCI INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 Three Months Ended 
June 30,
Six Months Ended 
June 30,
 2022202120222021
(In thousands)    
Net income$154,530 $67,889 $350,711 $142,009 
Other comprehensive income (loss):
Net foreign currency translation adjustment(13,688)1,507 (16,570)(2,082)
Actuarial gain on pension plans13,985 933 13,985 933 
Total comprehensive income$154,827 $70,329 $348,126 $140,860 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
5


LCI INDUSTRIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 June 30,December 31,
 20222021
(In thousands, except per share amount)  
ASSETS  
Current assets  
Cash and cash equivalents$54,988 $62,896 
Accounts receivable, net of allowances of $7,669 and $6,446 at June 30, 2022 and December 31, 2021, respectively
417,033 319,782 
Inventories, net1,155,171 1,095,907 
Prepaid expenses and other current assets70,510 88,300 
Total current assets1,697,702 1,566,885 
Fixed assets, net456,517 426,455 
Goodwill554,828 543,180 
Other intangible assets, net512,752 519,957 
Operating lease right-of-use assets203,221 164,618 
Other long-term assets57,676 66,999 
Total assets$3,482,696 $3,288,094 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities  
Current maturities of long-term indebtedness$20,979 $71,003 
Accounts payable, trade287,659 282,183 
Current portion of operating lease obligations34,167 30,592 
Accrued expenses and other current liabilities295,438 243,438 
Total current liabilities638,243 627,216 
Long-term indebtedness1,101,787 1,231,959 
Operating lease obligations179,854 143,436 
Deferred taxes28,376 43,184 
Other long-term liabilities140,079 149,424 
Total liabilities2,088,339 2,195,219 
Stockholders' equity
Common stock, par value $.01 per share
285 284 
Paid-in capital224,231 220,459 
Retained earnings1,231,089 930,795 
Accumulated other comprehensive loss(3,086)(501)
Stockholders' equity before treasury stock1,452,519 1,151,037 
Treasury stock, at cost(58,162)(58,162)
Total stockholders' equity1,394,357 1,092,875 
Total liabilities and stockholders' equity$3,482,696 $3,288,094 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6


LCI INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Months Ended 
June 30,
 20222021
(In thousands)  
Cash flows from operating activities:  
Net income$350,711 $142,009 
Adjustments to reconcile net income to cash flows provided by operating activities:  
Depreciation and amortization63,719 51,270 
Stock-based compensation expense13,701 13,859 
Deferred taxes(2,401) 
Other non-cash items2,025 4,305 
Changes in assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net(95,479)(142,489)
Inventories, net(51,811)(115,314)
Prepaid expenses and other assets25,746 (16,401)
Accounts payable, trade5,312 71,144 
Accrued expenses and other liabilities36,448 15,476 
Net cash flows provided by operating activities347,971 23,859 
Cash flows from investing activities:  
Capital expenditures(70,837)(42,005)
Acquisitions of businesses(51,789)(103,858)
Other investing activities2,204 (566)
Net cash flows used in investing activities(120,422)(146,429)
Cash flows from financing activities:  
Vesting of stock-based awards, net of shares tendered for payment of taxes(10,773)(7,925)
Proceeds from revolving credit facility729,400 554,693 
Repayments under revolving credit facility(836,500)(719,747)
Repayments under shelf loan, term loan, and other borrowings(60,902)(8,652)
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(4)(11,844)
Payment of dividends(49,572)(41,678)
Payment of contingent consideration and holdbacks related to acquisitions(6,039)(4,387)
Net cash flows (used in) provided by financing activities(234,390)168,802 
Effect of exchange rate changes on cash and cash equivalents (1,067)(92)
Net (decrease) increase in cash and cash equivalents(7,908)46,140 
Cash and cash equivalents at beginning of period62,896 51,821 
Cash and cash equivalents cash at end of period$54,988 $97,961 
Supplemental disclosure of cash flow information:  
Cash paid during the period for interest$10,558 $6,496 
Cash paid during the period for income taxes, net of refunds$110,871 $55,449 
Purchase of property and equipment in accrued expenses$3,157 $3,952 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
7


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

(In thousands, except shares and per share amounts)Common
Stock
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Treasury
Stock
Total
Stockholders’
Equity
Balance - December 31, 2020$282 $227,407 $731,710 $7,089 $(58,162)$908,326 
Net income— — 74,120 — — 74,120 
Issuance of 97,086 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes
1 (7,768)— — — (7,767)
Stock-based compensation expense— 7,436 — — — 7,436 
Other comprehensive loss— — — (3,589)— (3,589)
Cash dividends ($0.75 per share)
— — (18,939)— — (18,939)
Dividend equivalents on stock-based awards— 325 (325)— —  
Balance - March 31, 2021$283 $227,400 $786,566 $3,500 $(58,162)$959,587 
Net income— — 67,889 — — 67,889 
Issuance of 16,324 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes
1 (159)— — — (158)
Stock-based compensation expense— 6,423 — — — 6,423 
Purchase of convertible note hedge contracts, net of tax— (75,750)— — — (75,750)
Issuance of warrants— 48,484 — — — 48,484 
Other comprehensive income— — — 2,440 — 2,440 
Cash dividends ($0.90 per share)
— — (22,739)— — (22,739)
Dividend equivalents on stock-based awards— 388 (388)— —  
Balance - June 30, 2021$284 $206,786 $831,328 $5,940 $(58,162)$986,176 


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
8


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

(In thousands, except shares and per share amounts)Common
Stock
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Treasury
Stock
Total
Stockholders’
Equity
Balance - December 31, 2021$284 $220,459 $930,795 $(501)$(58,162)$1,092,875 
Net income— — 196,181 — — 196,181 
Issuance of 138,208 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes
1 (10,570)— — — (10,569)
Stock-based compensation expense— 6,517 — — — 6,517 
Other comprehensive loss— — — (2,882)— (2,882)
Cash dividends ($0.90 per share)
— — (22,870)— — (22,870)
Dividend equivalents on stock-based awards— 392 (392)— —  
Balance - March 31, 2022$285 $216,798 $1,103,714 $(3,383)$(58,162)$1,259,252 
Net income— — 154,530 — — 154,530 
Issuance of 18,245 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes
 (204)— — — (204)
Stock-based compensation expense— 7,184 — — — 7,184 
Other comprehensive income— — — 297 — 297 
Cash dividends ($1.05 per share)
— — (26,702)— — (26,702)
Dividend equivalents on stock-based awards— 453 (453)— —  
Balance - June 30, 2022$285 $224,231 $1,231,089 $(3,086)$(58,162)$1,394,357 


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
9




LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.    BASIS OF PRESENTATION

The Condensed Consolidated Financial Statements include the accounts of LCI Industries and its wholly-owned subsidiaries ("LCII" and collectively with its subsidiaries, the "Company," "we," "us," or "our"). LCII has no unconsolidated subsidiaries. LCII, through its wholly-owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, "Lippert Components," "LCI," or "Lippert"), supplies, domestically and internationally, a broad array of engineered components for the leading original equipment manufacturers ("OEMs") in the recreation and transportation product markets, consisting primarily of recreational vehicles ("RVs") and adjacent industries including buses; trailers used to haul boats, livestock, equipment, and other cargo; trucks; boats; trains; manufactured homes; and modular housing. The Company also supplies engineered components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors, and service centers, as well as direct to retail customers via the Internet. At June 30, 2022, the Company operated over 130 manufacturing and distribution facilities located throughout North America and Europe.

Most industries where the Company sells products or where its products are used historically have been seasonal and are generally at the highest levels when the weather is moderate. Accordingly, the Company's sales and profits have generally been the highest in the second quarter and lowest in the fourth quarter. However, current and future seasonal industry trends have been, and may in the future be, different than in prior years due to various factors, including fluctuations in dealer inventories and the timing of dealer orders, the impact of international, national, and regional economic conditions and consumer confidence on retail sales of RVs and other products for which the Company sells its components, the impact of severe weather conditions on the timing of industry-wide shipments from time to time, as well as the coronavirus ("COVID-19") pandemic and related impacts. Additionally, many of the optional upgrades and non-critical replacement parts for RVs are purchased outside the normal product selling season, thereby causing Aftermarket Segment sales to be counter-seasonal, but this has been, and may in the future be, different as a result of the COVID-19 pandemic and related impacts.

The Company is not aware of any significant events 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. All significant intercompany balances and transactions have been eliminated.

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.

10

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
COVID-19 and Russia-Ukraine War Update

The ongoing COVID-19 pandemic and the conflict between Russia and Ukraine (the "Russia-Ukraine War") have caused significant uncertainty and disruption in the global economy and financial markets. Management continues to closely monitor the impact of COVID-19 and the Russia-Ukraine War on all aspects of the business. The extent to which COVID-19 and/or the Russia-Ukraine War 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, 2021 Annual Report on Form 10-K and should be read in conjunction with the Notes to Consolidated Financial Statements which appear in that report.

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

3.    EARNINGS PER SHARE

The following reconciliation details the denominator used in the computation of basic and diluted earnings per share for the periods indicated:
 Three Months Ended 
June 30,
Six Months Ended 
June 30,
(In thousands)2022202120222021
Weighted average shares outstanding for basic earnings per share
25,438 25,275 25,377 25,230 
Common stock equivalents pertaining to stock-based awards
80 110 106 121 
Weighted average shares outstanding for diluted earnings per share
25,518 25,385 25,483 25,351 
Equity instruments excluded from diluted net earnings per share calculation as the effect would have been antidilutive112 139 111 143 
For the Company's 1.125 percent convertible senior notes due 2026 (the "Convertible Notes") issued in May 2021, the dilutive effect is calculated using the if-converted method. The Company is required, pursuant to the indenture governing the Convertible Notes, dated May 13, 2021, by and between the Company and U.S. Bank National Association, as trustee (the "Indenture"), to settle the principal amount of the Convertible Notes in cash and may elect to settle the remaining conversion obligation (i.e., the stock price in excess of the conversion price) in cash, shares of the Company's common stock, or a combination thereof. Under the if-converted method, the Company includes the number of shares required to satisfy the conversion obligation, assuming all the Convertible Notes are converted. Because the average closing price of the Company's common stock for the six months ended June 30, 2022, which is used as the basis for determining the dilutive effect on earnings per share, was less than the conversion price of $165.65, all associated shares were antidilutive.

In conjunction with the issuance of the Convertible Notes, the Company, in privately negotiated transactions with certain commercial banks (the "Counterparties") sold warrants to purchase 2.8 million shares of the Company's common stock (the "Warrants"). The Warrants have a strike price of $259.84 per share, subject to customary anti-dilution adjustments. For calculating the dilutive effect of the Warrants, the Company uses the treasury stock method. With this method, the Company assumes exercise of the Warrants at the beginning of the period, or at time of issuance if later, and issuance of common shares upon exercise. Proceeds from the exercise of the Warrants are assumed to be used to repurchase shares of the Company's common stock at the average market price during the period. The incremental shares, representing the number of shares assumed to be received upon the exercise of the Warrants less the number of shares repurchased, are included in diluted shares. For the six months ended June 30, 2022, the average share price was below the Warrant strike price of $259.84 per share, and therefore 2.8 million shares were considered antidilutive.

11

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In connection with the issuance of the Convertible Notes, the Company entered into privately negotiated call option contracts on the Company's common stock (the "Convertible Note Hedge Transactions") with the Counterparties. The Company paid an aggregate amount of $100.1 million to 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.

4.    ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

Acquisitions Completed During the Six Months Ended June 30, 2022

Girard

In March 2022, the Company acquired substantially all of the business assets of Girard Systems and Girard Products LLC (collectively "Girard"), a manufacturer and distributor of proprietary awnings and tankless water heaters for OEMs and aftermarket customers in the RV, specialty vehicle, and related industries. The total fair value of consideration was approximately $70.0 million. The Company paid $50.0 million in cash consideration at closing, with $20.0 million paid on July 1, 2022. The deferred acquisition fixed payment was recorded on the Condensed Consolidated Balance Sheet in accrued expenses and other current liabilities at June 30, 2022.

The purchase price is subject to customary adjustments for working capital. 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 the operations of this acquisition are not considered to have a material impact on the Company's financial statements, pro forma results of operations and other disclosures are not presented.

The Company is in the process of determining the fair value of the assets acquired and liabilities assumed for the opening balance sheet, including net working capital, deferred taxes, and the fair value of intangible assets. The current estimates for intangible assets are based on a preliminary valuation and these estimates are subject to change when the valuation is finalized within the measurement period (not to exceed 12 months from the acquisition date). The acquisition of this business was preliminarily recorded, as updated, as of the acquisition date as follows (in thousands):

Cash consideration$50,000 
Fixed deferred consideration20,000 
Total fair value of consideration given$70,000 
Identifiable intangible assets$45,020 
Other assets acquired and liabilities assumed, net13,673 
Total fair value of net assets acquired$58,693 
Goodwill (tax deductible)$11,307 

The consideration given was greater than the fair value of the net assets acquired, resulting in goodwill.

Other Acquisitions in 2022

During the six months ended June 30, 2022, the Company completed one other acquisition for $1.7 million of cash purchase consideration. The preliminary purchase price allocation resulted in $0.8 million of goodwill (tax deductible). 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.


12

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Acquisitions with Measurement Period Adjustments During the Six Months Ended June 30, 2022
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. The acquisition qualifies as a business combination for accounting purposes and supports the acquisition of Furrion Holdings Limited ("Furrion") by allowing the Company to provide logistics and warehousing to serve Furrion's North American customer base. 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 operations of this acquisition are not considered to have a material impact on the Company's financial statements, pro forma results of operations and other disclosures are not presented.

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

During the six months ended June 30, 2022, the Company adjusted the preliminary purchase price allocation reported at December 31, 2021 to account for updates to net working capital balances. These measurement period adjustments would not have resulted in a material impact on the prior period results if the adjustments had been recognized as of the acquisition date. The purchase price allocation is subject to adjustment for net working capital and the fair value of intangible assets as additional information is obtained within the measurement period (not to exceed 12 months from the acquisition date).

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 fixed payments of $31.3 million due on each of the first and second anniversaries of the acquisition in September 2022 and September 2023. The 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 June 30, 2022.

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

The results of the acquired business have been included 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.

During the six months ended June 30, 2022, the Company adjusted the preliminary purchase price allocation reported at December 31, 2021 to account for updates to net working capital, intangible assets, and fixed asset balances. These measurement period adjustments would not have resulted in a material impact on the prior period results if the adjustments had been recognized as of the acquisition date. 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 evaluation of technical tax matters regarding the transaction, and evaluating the various assumptions and forecasts which drove the purchase price allocation which could impact the fair value of intangible assets. The current estimates for intangible assets are based on a preliminary valuation and these estimates are subject to change when the valuation is finalized within the measurement period (not to exceed 12 months from the
13

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
acquisition date). The acquisition of this business was preliminarily recorded, as updated, as of the acquisition date as follows (in thousands):
Preliminary at December 31, 2021Measurement Period AdjustmentsAs Adjusted at June 30, 2022
Cash consideration, net of cash acquired$50,534 $— $50,534 
Effective settlement of Receivable from Furrion34,956 — 34,956 
Discounted value of fixed deferred consideration61,191 — 61,191 
Total fair value of consideration given$146,681 $— $146,681 
Customer relationships$66,300 $(10,600)$55,700 
Other identifiable intangible assets43,900 (1,200)42,700 
Other assets acquired and liabilities assumed, net(9,518)1,841 (7,677)
Total fair value of net assets acquired$100,682 $(9,959)$90,723 
Goodwill (tax deductible)$45,999 $9,959 $55,958 

Schaudt

In April 2021, the Company acquired 100 percent of the equity interests of Schaudt GmbH Elektrotechnik & Apparatebau ("Schaudt"), a leading supplier of electronic controls and energy management systems for the European caravan industry located in Markdorf, Germany. The purchase price was approximately $29.4 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 OEM Segment. As operations of this acquisition are not considered to have a material impact on the Company's financial statements, pro forma results of operations and other disclosures are not presented.

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

Goodwill

Changes in the carrying amount of goodwill by reportable segment were as follows:
(In thousands)OEM SegmentAftermarket SegmentTotal
Net balance – December 31, 2021$379,463 $163,717 $543,180 
Acquisitions – 202210,284 1,809 12,093 
Measurement period adjustments8,871 1,092 9,963 
Foreign currency translation(9,503)(905)(10,408)
Net balance – June 30, 2022
$389,115 $165,713 $554,828 
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.

14

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other Intangible Assets

Other intangible assets consisted of the following at June 30, 2022:
(In thousands)Gross
Cost
Accumulated
Amortization
Net
Balance
Estimated Useful
Life in Years
Customer relationships$506,528 $144,573 $361,955 6to17
Patents120,262 57,894 62,368 3to20
Trade names (finite life)93,703 17,979 75,724 3to20
Trade names (indefinite life)7,600 — 7,600 Indefinite
Non-compete agreements11,582 6,566 5,016 3to6
Other309 220 89 2to12
Other intangible assets$739,984 $227,232 $512,752    
Other intangible assets consisted of the following at December 31, 2021:
(In thousands)Gross
Cost
Accumulated
Amortization
Net
Balance
Estimated Useful
Life in Years
Customer relationships$487,853 $127,048 $360,805 6to17
Patents116,725 53,479 63,246 3to20
Trade names (finite life)93,994 16,497 77,497 3to20
Trade names (indefinite life)7,600 — 7,600 Indefinite
Non-compete agreements11,464 5,439 6,025 3to6
Other309 212 97 2to12
Purchased research and development4,687 — 4,687 Indefinite
Other intangible assets$722,632 $202,675 $519,957    

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:
 June 30,December 31,
(In thousands)20222021
Raw materials$829,437 $833,992 
Work in process57,704 48,250 
Finished goods268,030 213,665 
Inventories, net$1,155,171 $1,095,907 

15

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6.    FIXED ASSETS

Fixed assets consisted of the following at:
 June 30,December 31,
(In thousands)20222021
Fixed assets, at cost$907,345 $842,462 
Less accumulated depreciation and amortization450,828 416,007 
Fixed assets, net$456,517 $426,455 

7.    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following at:
 June 30,December 31,
(In thousands)20222021
Employee compensation and benefits$94,585 $85,760 
Deferred acquisition payments and contingent consideration*54,523 39,307 
Current portion of accrued warranty40,172 33,874 
Other106,158 84,497 
Accrued expenses and other current liabilities$295,438 $243,438 
* Includes current portion of contingent consideration (Note 11) and deferred acquisition payments (Note 4).
Estimated costs related to product warranties are accrued at the time products are sold. In estimating its future warranty obligations, the Company considers various factors, including the Company's historical warranty costs, warranty claim lag, and sales. The following table provides a reconciliation of the activity related to the Company's accrued warranty, including both the current and long-term portions, for the six months ended June 30:
(In thousands)20222021
Balance at beginning of period$52,114 $47,091 
Provision for warranty expense28,164 12,304 
Warranty liability from acquired businesses 125 
Warranty costs paid(18,646)(15,360)
Balance at end of period61,632 44,160 
Less long-term portion(21,460)(18,790)
Current portion of accrued warranty at end of period$40,172 $25,370 

8.    PENSION PLANS

The Company maintains two partially-funded defined benefit pension plans (the "Dutch pension plans") based in the Netherlands. The Dutch pension plans, which are qualified defined benefit pension plans, provide benefits based on years of service and average pay. The benefits earned by the employees are immediately vested. The Company funds the future obligations of the Dutch pension plans by purchasing non-participating annuities from a large multi-national insurance company that cover the vested pension benefit obligation of the participants, but do not cover future indexations or cost of living adjustments that are provided in plan benefits. Each year, the Company makes premium payments to the insurance company (1) to provide for the benefit obligation of the current year of service based on each employee's age, gender, and current salary, and (2) for indexations for both active and post-active participants. The Company determines the fair value of the plan assets with the assistance of an actuary using unobservable inputs (Level 3), which is determined as the present value of the accrued benefits guaranteed by the insurer. The components of net periodic pension cost for the Dutch pension plans were as follows:
16

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2022202120222021
Net service cost$(1,020)$(1,107)$(2,090)$(2,216)
Interest cost(263)(166)(539)(332)
Expected return on plan assets164 109 336 217 
Administrative charges(67)(72)(140)(143)
Net periodic pension cost$(1,186)$(1,236)$(2,433)$(2,474)

9.    LONG-TERM INDEBTEDNESS

Long-term debt consisted of the following:
 June 30,December 31,
(In thousands)20222021
Convertible Notes$460,000 $460,000 
Revolving Credit Loan283,900 403,953 
Term Loan385,000 395,000 
Shelf-Loan Facility 50,000 
Other4,359 5,997 
Unamortized deferred financing fees(10,493)(11,988)
1,122,766 1,302,962 
Less current portion(20,979)(71,003)
Long-term indebtedness$1,101,787 $1,231,959 

Credit Agreement

The Company and certain of its subsidiaries are party to a credit agreement dated December 14, 2018 with JPMorgan Chase, N.A., as a lender and administrative agent, and other bank lenders (as amended, the "Credit Agreement"). The Credit Agreement provides for a $600.0 million revolving credit facility (of which $50.0 million is available for the issuance of letters of credit (the "LC Facility") and up to $400.0 million is available in approved foreign currencies (the "Foreign Sublimit")). The Credit Agreement also provides for term loans (the "Term Loan") to the Company in an aggregate principal amount of $400.0 million. The maturity date of the Credit Agreement is December 7, 2026. The Term Loan is required to be repaid in an amount equal to 1.25 percent of the original principal amount of the Term Loan for the first eight quarterly periods commencing with the quarter ended December 31, 2021, 1.875 percent of the original principal amount of the Term Loan for the next eight quarterly periods, and then 2.50 percent of the original principal amount of the Term Loan of each additional payment until the maturity date. The Credit Agreement also permits the Company to request an increase to the revolving and/or term loan facility by up to an additional $400.0 million in the aggregate upon the approval of the lenders providing any such increase.

Borrowings under the Credit Agreement in U.S. dollars are designated from time to time by the Company as (i) base rate loans which bear interest at a base rate plus additional interest ranging from 0.0 percent to 0.625 percent (0.125 percent was applicable at June 30, 2022) depending on the Company’s total net leverage ratio or (ii) term benchmark loans which bear interest at LIBOR (or a relevant benchmark replacement rate) for an interest period selected by the Company plus additional interest ranging from 0.875 percent to 1.625 percent (1.125 percent was applicable at June 30, 2022) depending on the Company’s total net leverage ratio. Foreign currency borrowings, other than Pounds Sterling, have the same additional interest margins applicable to term benchmark loans based on the Company's total net leverage ratio. At June 30, 2022, the Company had $29.4 million in issued, but undrawn, standby letters of credit under the LC Facility. Availability under the Company’s revolving credit facility was $286.7 million at June 30, 2022. A commitment fee ranging from 0.150 percent to 0.225 percent (0.175 percent was applicable at June 30, 2022) depending on the Company's total net leverage ratio accrues on the actual daily amount that the revolving commitment exceeds the revolving credit exposure.

17

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Shelf-Loan Facility

The Company and certain of its subsidiaries have a shelf-loan facility (the "Shelf-Loan Facility") with PGIM, Inc. (formerly Prudential Investment Management, Inc.) and its affiliates ("Prudential"). 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. The Series B Notes were paid in full in March 2022, and the Shelf-Loan Facility expires on November 11, 2022.

The Shelf-Loan Facility provides for Prudential to consider purchasing, at the Company's request, in one or a series of transactions, additional senior promissory notes of the Company in the aggregate principal amount of up to $200.0 million. Prudential has no obligation to purchase the senior promissory notes. Interest payable on the senior promissory notes will be at rates determined by Prudential within five business days after the Company issues a request to Prudential.

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 $447.8 million after deducting the initial purchasers' discounts and offering expenses payable by the Company. The Convertible Notes bear interest at a coupon rate of 1.125 percent per annum, payable semiannually in arrears on May 15 and November 15 of each year, beginning on November 15, 2021. The Convertible Notes will mature on May 15, 2026, unless earlier converted, redeemed, or repurchased, in accordance with their terms.

As of June 30, 2022, the conversion rate was 6.0787 shares of the Company's common stock per $1,000 principal amount of the Convertible Notes. The conversion rate of the Convertible Notes is subject to further adjustment upon the occurrence of certain specified events. In addition, upon the occurrence of a make-whole fundamental change (as defined in the Indenture) or upon a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder that elects to convert its Convertible Notes in connection with such make-whole fundamental change or notice of redemption, as the case may be.

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

The Company may not redeem the Convertible Notes prior to May 20, 2024. On or after May 20, 2024, the Company may redeem for cash all or any portion of the Convertible Notes, at the Company's option, if the last reported sale price of the Company's common stock has been at least 130 percent of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 percent of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Upon the occurrence of a fundamental change (as defined in the Indenture), subject to certain conditions, holders of the Convertible Notes may require the Company to repurchase for cash all
18

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
or any portion of their Convertible Notes in principal amounts of $1,000 or an integral multiple thereof at a repurchase price equal to 100 percent of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest on such Convertible Notes to, but not including, the fundamental change repurchase date (as defined in the Indenture).

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

The Convertible Notes are not registered securities nor listed on any securities exchange but may be actively traded by qualified institutional buyers. The fair value of the Convertible Notes of $415.2 million at June 30, 2022 was estimated using Level 1 inputs, as it is based on quoted prices for these instruments in active markets.

General

At June 30, 2022, the fair value of the Company's long-term debt under the Credit Agreement approximates the carrying value, as estimated using quoted market prices and discounted future cash flows based on similar borrowing arrangements.

Borrowings under both the 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 certain of the Company's direct and indirect subsidiaries (including up to 65 percent of the equity interests of certain "controlled foreign corporations").

Pursuant to the 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 June 30, 2022, the Company was in compliance with all such requirements and expects to remain in such compliance for the next twelve months.

The 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. This limitation did not impact the Company's ability to incur additional indebtedness under its revolving credit facility at June 30, 2022. The Company believes the availability of $286.7 million under the revolving credit facility under the Credit Agreement, along with its cash flows from operations, are adequate to finance the Company's anticipated cash requirements for the next twelve months.

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 increase in lease costs for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 was primarily driven by capacity expansions and leases assumed in acquisitions. The components of lease cost were as follows:
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2022202120222021
Operating lease cost$13,236 $11,317 $26,148 $20,415 
Short-term lease cost