Company Quick10K Filing
Quick10K
LCI Industries
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$90.39 25 $2,260
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-06 Earnings, Exhibits
8-K 2019-08-06 Regulation FD, Exhibits
8-K 2019-08-01 Other Events, Exhibits
8-K 2019-07-23 Other Events, Exhibits
8-K 2019-06-28 Other Events, Exhibits
8-K 2019-06-11 Other Events, Exhibits
8-K 2019-05-28 Other Events, Exhibits
8-K 2019-05-23 Shareholder Vote
8-K 2019-05-23 Other Events, Exhibits
8-K 2019-05-13 Regulation FD, Exhibits
8-K 2019-05-07 Regulation FD, Exhibits
8-K 2019-05-07 Earnings, Exhibits
8-K 2019-04-23 Other Events, Exhibits
8-K 2019-03-29 Off-BS Arrangement, Exhibits
8-K 2019-03-15 Regulation FD, Exhibits
8-K 2019-03-07 Exhibits
8-K 2019-02-07 Regulation FD, Exhibits
8-K 2019-02-07 Earnings, Regulation FD, Exhibits
8-K 2019-01-24 Other Events, Exhibits
8-K 2019-01-24 Other Events, Exhibits
8-K 2019-01-22 Regulation FD, Exhibits
8-K 2018-12-14 Off-BS Arrangement, Exhibits
8-K 2018-11-30 Other Events, Exhibits
8-K 2018-11-16 Officers, Exhibits
8-K 2018-11-15 Other Events, Exhibits
8-K 2018-11-06 Regulation FD, Exhibits
8-K 2018-11-01 Regulation FD, Exhibits
8-K 2018-10-18 Other Events, Exhibits
8-K 2018-08-30 Regulation FD, Exhibits
8-K 2018-08-16 Other Events, Exhibits
8-K 2018-08-02 Earnings, Regulation FD, Exhibits
8-K 2018-08-02 Regulation FD, Exhibits
8-K 2018-07-19 Other Events, Exhibits
8-K 2018-06-04 Other Events, Exhibits
8-K 2018-05-24 Officers, Shareholder Vote, Exhibits
8-K 2018-05-04 Regulation FD, Exhibits
8-K 2018-04-20 Other Events, Exhibits
8-K 2018-03-08 Officers, Exhibits
8-K 2018-03-06 Other Events, Exhibits
8-K 2018-02-27 Officers, Exhibits
8-K 2018-02-20 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-02-16 Other Events, Exhibits
8-K 2018-02-08 Regulation FD, Exhibits
8-K 2018-01-26 Other Events, Exhibits
8-K 2018-01-25 Other Events, Exhibits
8-K 2018-01-17 Other Events, Exhibits
EXPO Exponent 2,890
ATU Actuant 1,510
VKTX Viking Therapeutics 622
ATXI Avenue Therapeutics 74
LBY Libbey 57
SSI Stage Stores 32
CNTF China Techfaith Wireless Communication Technology 9
VETS Pet DRx 3
FNHI Franchise Holdings International 0
ATPT All State Properties Holdings 0
LCII 2019-06-30
Part I - Financial Information
Item 1 - Financial Statements
Item 2 - Management's Discussion and Analysis Of
Item 3 - Quantitative and Qualitative
Item 4 - Controls and Procedures
Part II - Other Information
Item 1 - Legal Proceedings
Item 1A - Risk Factors
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Item 6 - Exhibits
EX-31.1 lcii-06302019xex311.htm
EX-31.2 lcii-06302019xex312.htm
EX-32.1 lcii-06302019xex321.htm
EX-32.2 lcii-06302019xex322.htm

LCI Industries Earnings 2019-06-30

LCII 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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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, 2019

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-20190630_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 31, 2019) was 25,026,086 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,
 2019201820192018
(In thousands, except per share amounts)    
Net sales$629,068 $684,455 $1,221,240 $1,334,947 
Cost of sales480,415 533,999 939,993 1,043,758 
Gross profit148,653 150,456 281,247 291,189 
Selling, general and administrative expenses82,996 86,368 167,835 167,281 
Operating profit65,657 64,088 113,412 123,908 
Interest expense, net2,099 1,660 4,606 2,761 
Income before income taxes63,558 62,428 108,806 121,147 
Provision for income taxes16,031 15,204 26,913 26,587 
Net income$47,527 $47,224 $81,893 $94,560 
Net income per common share:    
Basic$1.90 $1.87 $3.28 $3.75 
Diluted$1.89 $1.86 $3.28 $3.70 
Weighted average common shares outstanding:    
Basic25,024 25,233 24,963 25,195 
Diluted25,091 25,454 25,005 25,527 

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,
 2019201820192018
(In thousands)    
Net income$47,527 $47,224 $81,893 $94,560 
Other comprehensive (loss) income:
Net foreign currency translation adjustment(1,495)(1,899)(2,669)(789)
Unrealized loss on fair value of derivative instruments(1,888) (2,042) 
Total comprehensive income$44,144 $45,325 $77,182 $93,771 

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,
 20192018
(In thousands, except per share amount)  
ASSETS  
Current assets  
Cash and cash equivalents$15,128 $14,928 
Restricted cash 45,532  
Accounts receivable, net of allowances of $2,512 and $1,895 at June 30, 2019 and December 31, 2018, respectively
143,111 121,812 
Inventories, net301,159 340,615 
Prepaid expenses and other current assets33,168 49,296 
Total current assets538,098 526,651 
Fixed assets, net339,613 322,876 
Goodwill182,224 180,168 
Other intangible assets, net165,170 176,342 
Operating lease right-of-use assets62,898  
Deferred taxes9,219 10,948 
Other assets32,997 26,908 
Total assets$1,330,219 $1,243,893 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities  
Accounts payable, trade$89,323 $78,354 
Current portion of operating lease obligations14,141  
Accrued expenses and other current liabilities116,928 99,228 
Total current liabilities220,392 177,582 
Long-term indebtedness245,310 293,528 
Operating lease obligations51,408  
Other long-term liabilities60,233 66,528 
Total liabilities577,343 537,638 
Stockholders’ equity
Common stock, par value $.01 per share281 280 
Paid-in capital204,572 203,246 
Retained earnings613,501 563,496 
Accumulated other comprehensive loss(7,316)(2,605)
Stockholders’ equity before treasury stock811,038 764,417 
Treasury stock, at cost(58,162)(58,162)
Total stockholders’ equity752,876 706,255 
Total liabilities and stockholders’ equity$1,330,219 $1,243,893 

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,
 20192018
(In thousands)  
Cash flows from operating activities:  
Net income$81,893 $94,560 
Adjustments to reconcile net income to cash flows provided by operating activities:  
Depreciation and amortization37,115 32,476 
Stock-based compensation expense7,848 9,762 
Other non-cash items705 (927)
Changes in assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net(22,345)(52,236)
Inventories, net39,944 (14,556)
Prepaid expenses and other assets11,444 (5,743)
Accounts payable, trade11,567 5,412 
Accrued expenses and other liabilities11,944 10,181 
Net cash flows provided by operating activities180,115 78,929 
Cash flows from investing activities:  
Capital expenditures(35,786)(54,539)
Acquisitions of businesses, net of cash acquired(8,530)(153,415)
Proceeds from note receivable 2,000 
Other investing activities251 (1,016)
Net cash flows used in investing activities(44,065)(206,970)
Cash flows from financing activities:  
Vesting of stock-based awards, net of shares tendered for payment of taxes(7,144)(14,114)
Proceeds from revolving credit facility borrowings305,288 631,148 
Repayments under revolving credit facility borrowings(354,981)(469,148)
Proceeds from other borrowings 4,509 
Payment of dividends(31,266)(28,985)
Payment of contingent consideration related to acquisitions(4)(3,011)
Other financing activities(393)(556)
Net cash flows (used in) provided by financing activities(88,500)119,843 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(1,818) 
Net increase (decrease) in cash, cash equivalents, and restricted cash45,732 (8,198)
Cash, cash equivalents, and restricted cash at beginning of period14,928 26,049 
Cash, cash equivalents, and restricted cash at end of period$60,660 $17,851 
Supplemental disclosure of cash flow information:  
Cash paid during the period for interest$3,948 $2,582 
Cash paid during the period for income taxes, net of refunds$13,890 $24,907 
Purchase of property and equipment in accrued expenses$298 $664 

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, 2018$280 $203,246 $563,496 $(2,605)$(58,162)$706,255 
Net income— — 34,366 — — 34,366 
Issuance of 137,040 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes1 (6,349)— — — (6,348)
Stock-based compensation expense— 3,733 — — — 3,733 
Other comprehensive loss— — — (1,328)— (1,328)
Cash dividends ($0.60 per share)— — (14,999)— — (14,999)
Dividend equivalents on stock-based awards— 304 (304)— —  
Balance - March 31, 2019281 200,934 582,559 (3,933)(58,162)721,679 
Net income— — 47,527 — — 47,527 
Issuance of 27,965 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes— (795)— — — (795)
Stock-based compensation expense— 4,115 — — — 4,115 
Other comprehensive loss— — — (3,383)— (3,383)
Cash dividends ($0.65 per share)— — (16,267)— — (16,267)
Dividend equivalents on stock-based awards— 318 (318)— —  
Balance - June 30, 2019$281 $204,572 $613,501 $(7,316)$(58,162)$752,876 

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, 2017$277 $203,990 $475,506 $2,439 $(29,467)$652,745 
Net income— — 47,336 — — 47,336 
Issuance of 223,768 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes2 (14,087)— — — (14,085)
Stock-based compensation expense— 5,543 — — — 5,543 
Other comprehensive income— — — 1,110 — 1,110 
Cash dividends ($0.55 per share)— — (13,858)— — (13,858)
Dividend equivalents on stock-based awards— 319 (319)— —  
Balance - March 31, 2018279 195,765 508,665 3,549 (29,467)678,791 
Net income— — 47,224 — — 47,224 
Issuance of 2,419 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes— (29)— — — (29)
Stock-based compensation expense— 4,219 — — — 4,219 
Other comprehensive loss— — — (1,899)— (1,899)
Cash dividends ($0.60 per share)— — (15,127)— — (15,127)
Dividend equivalents on stock-based awards— 351 (351)— —  
Balance - June 30, 2018$279 $200,306 $540,411 $1,650 $(29,467)$713,179 

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”). LCII has no unconsolidated subsidiaries. LCII, through its wholly-owned subsidiary, Lippert Components, Inc. and its subsidiaries (collectively, “Lippert Components” or “LCI”), supplies, domestically and internationally, a broad array of engineered components for the leading original equipment manufacturers (“OEMs”) in the recreation and industrial product markets, consisting of recreational vehicles (“RVs”) and adjacent industries including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; 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 June 30, 2019, the Company operated over 65 manufacturing and distribution facilities located throughout the United States and in Canada, Ireland, Italy and the United Kingdom.

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

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

In the opinion of management, the information furnished in this Form 10-Q reflects all adjustments necessary for a fair statement of the financial position and results of operations for the interim periods presented. The Condensed Consolidated Financial Statements 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, 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)
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, 2018 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.

Restricted Cash

Restricted cash represents the Company's funds held in an escrow account designated for the acquisition of Lewmar Marine Limited (see Note 3). The following table provides a reconciliation of cash, cash equivalents, and restricted cash as reported in the Condensed Consolidated Balance Sheets that aggregates to the amounts presented in the Condensed Consolidated Statements of Cash Flows.
June 30,
(In thousands)20192018
Cash and cash equivalents$15,128 $17,851 
Restricted cash 45,532 — 
Cash, cash equivalents, and restricted cash at end of period$60,660 $17,851 

Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Simplifying the Test for Goodwill Impairment, which amends Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other. This ASU simplifies how an entity is required to test goodwill for impairment by eliminating step 2 from the goodwill impairment test. Step 2 measures goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This ASU is effective for interim and annual reporting periods, beginning after December 15, 2019, and early adoption is permitted. The Company will adopt this guidance in the first quarter of 2020 and does not expect the adoption of this ASU to have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. This ASU is effective for interim and annual reporting periods, beginning after December 15, 2019, and early adoption is permitted. The Company will adopt this guidance in the first quarter of 2020 and is currently assessing the impact of this ASU on its consolidated financial statements.

Recently adopted accounting pronouncements

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

The adoption of Topic 842 resulted in the recognition of right-of-use assets of $66.4 million and operating lease obligations of $69.0 million at January 1, 2019. The adoption did not result in a cumulative effect adjustment to beginning
11

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
retained earnings and is not expected to materially impact the Company’s Consolidated Statements of Income or Cash Flows. See Note 8 of the Notes to Condensed Consolidated Financial Statements for expanded disclosures required under Topic 842.

3. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

Subsequent Event

Lewmar Marine Limited

In August 2019, the Company acquired 100 percent of the equity interests of Lewmar Marine Limited, a supplier of leisure marine equipment, headquartered in Havant, United Kingdom. The purchase price was $43.5 million and is subject to potential post-closing adjustments related to net working capital. The results of the acquired business will be included primarily in the Company’s OEM Segment. The Company is in the process of determining the fair value of the opening balance sheet, and will disclose the allocation of the purchase price in its Quarterly Report on Form 10-Q for the third quarter 2019.

Acquisitions Completed During the Six Months Ended June 30, 2019

Lavet S.r.l.

In June 2019, the Company acquired 100 percent of the equity interests of Lavet S.r.l. (“Lavet”), a manufacturer of window blind systems for European leisure vehicles, headquartered in Siena, Italy. The purchase price was $2.0 million, net of cash acquired, paid at closing, and is subject to potential post-closing adjustments related to net working capital. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Consolidated Statements of Income since the acquisition date.

Based on the timing of the transaction, the accounting for the Lavet business combination is incomplete. The estimated fair value of assets acquired and liabilities assumed will be allocated accordingly during the measurement period which will not exceed 12 months from the acquisition date. As the acquisition of Lavet is not considered to have a material impact on the Company’s financial statements, proforma results of operations, and other disclosures are not presented.

Femto Engineering S.r.l.

In June 2019, the Company acquired 100 percent of the equity interests of Femto Engineering S.r.l. and related entities (collectively, “Femto”), an engineering company with focus on designing and manufacturing of plastic moldings, headquartered in San Casciano, Italy. The purchase price was $6.5 million, net of cash acquired, paid at closing, and is subject to potential post-closing adjustments related to net working capital. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Consolidated Statements of Income since the acquisition date.

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

Acquisitions Completed During the Year Ended December 31, 2018

Smoker Craft Furniture

In November 2018, the Company acquired the business and certain assets of the furniture manufacturing operation of Smoker Craft Inc., a leading pontoon, aluminum fishing, and fiberglass boat manufacturer located in New Paris, Indiana. The purchase price was $28.1 million paid at closing. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Consolidated Statements of Income since the acquisition date. The Company is validating
12

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
account balances and finalizing the valuation for the acquisition. The acquisition of this business was preliminarily recorded on the acquisition date as follows (in thousands):
Cash consideration$28,091 
Customer relationship and other identifiable intangible assets$16,730 
Net tangible assets1,357 
Total fair value of net assets acquired$18,087 
Goodwill (tax deductible)$10,004 

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.

ST.LA. S.r.l.

In June 2018, the Company acquired 100 percent of the equity interests of ST.LA. S.r.l., a manufacturer of bed lifts and other RV components for the European caravan market, headquartered in Pontedera, Italy. The purchase price was $14.6 million, net of cash acquired, paid at closing. The results of the acquired business have been included primarily in the Company’s OEM Segment and in the Consolidated Statements of Income since the acquisition date. The acquisition of this business was recorded as of the acquisition date as follows (in thousands):
Cash consideration, net of cash acquired$14,845 
Customer relationships and other identifiable intangible assets$6,354 
Net tangible assets4,099 
Total fair value of net assets acquired$10,453 
Goodwill (not tax deductible)$4,392 

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

Goodwill

Goodwill by reportable segment was as follows:
(In thousands)OEM SegmentAftermarket SegmentTotal
Net balance – December 31, 2018$160,257 $19,911 $180,168 
Acquisitions – 20194,791  4,791 
Other(2,635)(100)(2,735)
Net balance – June 30, 2019$162,413 $19,811 $182,224 

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.

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

13

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

Other intangible assets consisted of the following at June 30, 2019:
(In thousands)Gross
Cost
Accumulated
Amortization
Net
Balance
Estimated Useful
Life in Years
Customer relationships$191,709 $61,022 $130,687 6to16
Patents57,975 42,022 15,953 3to19
Trade names (finite life)10,310 6,106 4,204 3to15
Trade names (indefinite life)7,600 — 7,600 Indefinite
Non-compete agreements6,428 4,541 1,887 3to6
Other309 157 152 2to12
Purchased research and development4,687 — 4,687 Indefinite
Other intangible assets$279,018 $113,848 $165,170    

Other intangible assets consisted of the following at December 31, 2018:
(In thousands)Gross
Cost
Accumulated
Amortization
Net
Balance
Estimated Useful
Life in Years
Customer relationships$191,919 $54,889 $137,030 6to16
Patents58,787 40,079 18,708 3to19
Trade names (finite life)10,885 5,507 5,378 3to15
Trade names (indefinite life)7,600 — 7,600 Indefinite
Non-compete agreements6,919 4,148 2,771 3to6
Other309 141 168 2to12
Purchased research and development4,687 — 4,687 Indefinite
Other intangible assets$281,106 $104,764 $176,342    

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:
 June 30,December 31,
(In thousands)20192018
Raw materials$246,504 $284,467 
Work in process11,529 12,291 
Finished goods43,126 43,857 
Inventories, net$301,159 $340,615 

5. FIXED ASSETS

Fixed assets consisted of the following at:
 June 30,December 31,
(In thousands)20192018
Fixed assets, at cost$599,781 $559,234 
Less accumulated depreciation and amortization260,168 236,358 
Fixed assets, net$339,613 $322,876 

14

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:
 June 30,December 31,
(In thousands)20192018
Employee compensation and benefits$36,214 $33,835 
Current portion of accrued warranty36,760 32,180 
Other43,954 33,213 
Accrued expenses and other current liabilities$116,928 $99,228 

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 six months ended June 30, 2019:
(In thousands)
Balance at beginning of period$46,530 
Provision for warranty expense19,958 
Warranty costs paid(14,588)
Balance at end of period51,900 
Less long-term portion15,140 
Current portion of accrued warranty at end of period$36,760 

7. LONG-TERM INDEBTEDNESS

Long-term indebtedness consisted of the following at:
 June 30,December 31,
(In thousands)20192018
Revolving Credit Facility$190,600 $240,060 
Shelf-Loan Facility50,000 50,000 
Other5,651 4,425 
Unamortized deferred financing fees(328)(361)
245,923 294,124 
Less current portion(613)(596)
Long-term indebtedness$245,310 $293,528 

On December 14, 2018, the Company refinanced its credit agreement with JPMorgan Chase, N.A., Wells Fargo Bank, N.A., Bank of America, N.A., and other bank lenders (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 ($45.6 million, or €40.0 million drawn at June 30, 2019). The maximum borrowings under the credit facility may be further increased by $300.0 million in additional revolving loans or incremental term loans, subject to the consent of the lenders providing such incremental facilities and certain other conditions. Interest on borrowings under the revolving credit facility is designated from time to time by the Company as either (i) the Alternate Base Rate (defined in the Amended Credit Agreement as the greatest of (a) the Prime Rate of JPMorgan Chase Bank, N.A., (b) the federal funds effective rate plus 0.5 percent and (c) the Adjusted LIBO Rate (as defined in the Amended Credit Agreement) for a one month interest period plus 1.0 percent), plus additional interest ranging from 0.0 percent to 0.625 percent (0.0 percent at June 30, 2019) 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 (0.875 percent at June 30, 2019) depending on the Company’s total net leverage ratio. At
15

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2019, the Company had $2.5 million in issued, but undrawn, standby letters of credit under the revolving credit facility. Availability under the Company’s revolving credit facility was $406.9 million at June 30, 2019.

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

The Shelf-Loan Facility provides for Prudential to consider purchasing, at the Company’s request, in one or a series of transactions, Senior Promissory Notes of the Company in the aggregate principal amount of up to $150.0 million (excluding the Company’s Series 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.

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 (including up to 65 percent of the equity interest 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 minimum debt service coverage ratio and must meet certain other financial requirements. At June 30, 2019, the Company was in compliance with all such requirements, and expects to remain in compliance for the next twelve months.

Availability under the Amended Credit Agreement and the Shelf-Loan Facility is subject to a maximum net leverage ratio covenant which limits the amount of consolidated outstanding indebtedness on a trailing twelve-month EBITDA, as defined. This limitation did not impact the Company’s borrowing availability at June 30, 2019. The remaining availability under these facilities was $556.9 million at June 30, 2019. The Company believes the availability under the Amended Credit Agreement and Shelf-Loan Facility is adequate to finance the Company’s anticipated cash requirements for the next twelve months.

8. LEASES

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

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

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

16

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)Three Months Ended 
June 30, 2019
Six Months Ended 
June 30, 2019
Operating lease cost$5,873 $10,782 
Short-term lease cost676 1,474 
Variable lease cost424 830 
Total lease cost$6,973 $13,086 

Future minimum lease payments under operating leases as of June 30, 2019 were as follows:
(in thousands)
Year Ending December 31,
2019 (excluding the six months ended June 30, 2019)$9,388 
202015,729 
202113,032 
20229,465 
20236,748 
Thereafter25,491 
Total future minimum lease payments (a)
79,853 
Less: Interest(14,304
Present value of operating lease liabilities$65,549 

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

At June 30, 2019, the Company’s operating leases had a weighted-average remaining lease term of 6.7 years and a weighted-average discount rate of 5.7 percent.

Cash Flows

The initial right-of-use assets of $66.4 million were recognized as non-cash asset additions upon adoption of Topic 842. Additional right-of use assets of $4.3 million were recognized as non-cash asset additions that resulted from new operating lease obligations during the six months ended June 30, 2019. Cash paid for amounts included in the present value of operating lease obligations and included in cash flows from operations was $10.6 million for the six months ended June 30, 2019.

Finance Leases

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

Lessor

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

9. COMMITMENTS AND CONTINGENCIES

Contingent Consideration

In connection with several business acquisitions, if certain sales 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
17

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
consideration at June 30, 2019, based on the present value of the expected future cash flows using a market participant’s weighted average cost of capital of 11.7 percent.

As required, the liability for this contingent consideration is measured at fair value quarterly, considering actual sales of the acquired products, updated sales projections and the updated market participant weighted average cost of capital. Depending upon the weighted average costs of capital and future sales of the products which are subject to contingent consideration, the Company could record adjustments in future periods. The following table provides a reconciliation of the Company’s contingent consideration liability for the six months ended June 30, 2019:
(In thousands)
Balance at beginning of period$7,302 
Payments(4)
Accretion (a)
409 
Net foreign currency translation adjustment15 
Balance at end of the period (b)
7,722 
Less current portion in accrued expenses and other current liabilities(5,624)
Total long-term portion in other long-term liabilities$2,098 
(a) Recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Income.
(b) Amounts represent the fair value of estimated remaining payments. The total estimated remaining undiscounted payments as of June 30, 2019 were $9.1 million. The liability for contingent consideration expires at various dates through September 2029. Certain of the contingent consideration arrangements are subject to a maximum payment amount, while the remaining arrangements have no maximum contingent consideration.

Furrion Distribution and Supply Agreement

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

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

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

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