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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: September 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
LCI INDUSTRIES
(Exact name of registrant as specified in its charter)

Delaware | 13-3250533
(State or other jurisdiction of | (I.R.S. Employer
incorporation or organization) | Identification Number)
3501 County Road 6 East | 46514
Elkhart, | Indiana | (Zip Code)
(Address of principal executive offices) |

(574) 535-1125
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report) N/A
Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
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 (October 31, 2022) was 25,430,293 shares of common stock.
2

LCI INDUSTRIES
TABLE OF CONTENTS

|  | Page
PART I – | FINANCIAL INFORMATION |
| ITEM 1 – FINANCIAL STATEMENTS |
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | 4
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | 5
| CONDENSED CONSOLIDATED BALANCE SHEETS | 6
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | 7
| CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY | 8
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | 10
| ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 26
| ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 37
| ITEM 4 – CONTROLS AND PROCEDURES | 37
PART II – | OTHER INFORMATION |
| ITEM 1 – LEGAL PROCEEDINGS | 38
| ITEM 1A – RISK FACTORS | 38
| ITEM 6 – EXHIBITS | 38
SIGNATURES | 39
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 September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
(In thousands, except per share amounts) |  |  |  |  |  |  |
Net sales | $ | 1,132,079 |  |  | $ | 1,165,309 |  |  | $ | 4,312,797 |  |  | $ | 3,259,287 |
Cost of sales | 879,025 |  |  | 913,728 |  |  | 3,186,415 |  |  | 2,508,318 |
Gross profit | 253,054 |  |  | 251,581 |  |  | 1,126,382 |  |  | 750,969 |
Selling, general and administrative expenses | 165,479 |  |  | 162,557 |  |  | 550,317 |  |  | 466,532 |
Operating profit | 87,575 |  |  | 89,024 |  |  | 576,065 |  |  | 284,437 |
Interest expense, net | 6,910 |  |  | 4,667 |  |  | 19,353 |  |  | 10,844 |
Income before income taxes | 80,665 |  |  | 84,357 |  |  | 556,712 |  |  | 273,593 |
Provision for income taxes | 19,273 |  |  | 20,956 |  |  | 144,609 |  |  | 68,183 |
Net income | $ | 61,392 |  |  | $ | 63,401 |  |  | $ | 412,103 |  |  | $ | 205,410 |
Net income per common share: |  |  |  |  |  |  |
Basic | $ | 2.41 |  |  | $ | 2.51 |  |  | $ | 16.23 |  |  | $ | 8.14 |
Diluted | $ | 2.40 |  |  | $ | 2.49 |  |  | $ | 16.15 |  |  | $ | 8.10 |
Weighted average common shares outstanding: |  |  |  |  |  |  |
Basic | 25,447 |  |  | 25,286 |  |  | 25,398 |  |  | 25,247 |
Diluted | 25,600 |  |  | 25,417 |  |  | 25,520 |  |  | 25,371 |

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 September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
(In thousands) |  |  |  |  |  |  |
Net income | $ | 61,392 |  |  | $ | 63,401 |  |  | $ | 412,103 |  |  | $ | 205,410 |
Other comprehensive income (loss): |  |  |  |  |  |  |
Net foreign currency translation adjustment | (12,197) |  |  | (1,793) |  |  | (28,767) |  |  | (3,875) |
Actuarial (loss) gain on pension plans | (125) |  |  | — |  |  | 13,860 |  |  | 933 |
Total comprehensive income | $ | 49,070 |  |  | $ | 61,608 |  |  | $ | 397,196 |  |  | $ | 202,468 |

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

LCI INDUSTRIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

| September 30, |  | December 31,
| 2022 |  |  |  | 2021
(In thousands, except per share amount) |  |  |  |  |
ASSETS |  |  |  |  |
Current assets |  |  |  |  |
Cash and cash equivalents | $ | 23,403 |  |  |  |  | $ | 62,896 |
Accounts receivable, net of allowances of $7,769 and $6,446 at September 30, 2022 and December 31, 2021, respectively | 335,945 |  |  |  |  | 319,782 |
Inventories, net | 1,079,902 |  |  |  |  | 1,095,907 |
Prepaid expenses and other current assets | 66,236 |  |  |  |  | 88,300 |
Total current assets | 1,505,486 |  |  |  |  | 1,566,885 |
Fixed assets, net | 470,571 |  |  |  |  | 426,455 |
Goodwill | 551,615 |  |  |  |  | 543,180 |
Other intangible assets, net | 489,555 |  |  |  |  | 519,957 |
Operating lease right-of-use assets | 195,877 |  |  |  |  | 164,618 |
Other long-term assets | 55,867 |  |  |  |  | 66,999 |
Total assets | $ | 3,268,971 |  |  |  |  | $ | 3,288,094 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |
Current liabilities |  |  |  |  |
Current maturities of long-term indebtedness | $ | 22,089 |  |  |  |  | $ | 71,003 |
Accounts payable, trade | 201,032 |  |  |  |  | 282,183 |
Current portion of operating lease obligations | 33,862 |  |  |  |  | 30,592 |
Accrued expenses and other current liabilities | 243,138 |  |  |  |  | 243,438 |
Total current liabilities | 500,121 |  |  |  |  | 627,216 |
Long-term indebtedness | 1,039,870 |  |  |  |  | 1,231,959 |
Operating lease obligations | 172,643 |  |  |  |  | 143,436 |
Deferred taxes | 26,816 |  |  |  |  | 43,184 |
Other long-term liabilities | 105,964 |  |  |  |  | 149,424 |
Total liabilities | 1,845,414 |  |  |  |  | 2,195,219 |
Stockholders' equity |  |  |  |  |
Common stock, par value $.01 per share | 285 |  |  |  |  | 284 |
Paid-in capital | 231,518 |  |  |  |  | 220,459 |
Retained earnings | 1,265,324 |  |  |  |  | 930,795 |
Accumulated other comprehensive loss | (15,408) |  |  |  |  | (501) |
Stockholders' equity before treasury stock | 1,481,719 |  |  |  |  | 1,151,037 |
Treasury stock, at cost | (58,162) |  |  |  |  | (58,162) |
Total stockholders' equity | 1,423,557 |  |  |  |  | 1,092,875 |
Total liabilities and stockholders' equity | $ | 3,268,971 |  |  |  |  | $ | 3,288,094 |

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

LCI INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

| Nine Months Ended September 30,
(In thousands) | 2022 |  | 2021
Cash flows from operating activities: |  |  |
Net income | $ | 412,103 |  |  | $ | 205,410 |
Adjustments to reconcile net income to cash flows provided by operating activities: |  |  |
Depreciation and amortization | 95,966 |  |  | 80,211 |
Stock-based compensation expense | 20,564 |  |  | 20,295 |
Deferred taxes | (2,401) |  |  | — |
Other non-cash items | 1,174 |  |  | 5,418 |
Changes in assets and liabilities, net of acquisitions of businesses: |  |  |
Accounts receivable, net | (18,128) |  |  | (140,768) |
Inventories, net | 26,508 |  |  | (253,031) |
Prepaid expenses and other assets | 31,304 |  |  | (28,274) |
Accounts payable, trade | (82,054) |  |  | 97,071 |
Accrued expenses and other liabilities | 471 |  |  | 25,961 |
Net cash flows provided by operating activities | 485,507 |  |  | 12,293 |
Cash flows from investing activities: |  |  |
Capital expenditures | (103,748) |  |  | (73,872) |
Acquisitions of businesses | (55,709) |  |  | (154,544) |
Other investing activities | 2,137 |  |  | 11,544 |
Net cash flows used in investing activities | (157,320) |  |  | (216,872) |
Cash flows from financing activities: |  |  |
Vesting of stock-based awards, net of shares tendered for payment of taxes | (10,805) |  |  | (8,258) |
Proceeds from revolving credit facility | 844,900 |  |  | 832,493 |
Repayments under revolving credit facility | (1,001,040) |  |  | (912,547) |
Repayments under shelf loan, term loan, and other borrowings | (65,852) |  |  | (13,375) |
Proceeds from issuance of convertible notes | — |  |  | 460,000 |
Purchases of convertible note hedge contracts | — |  |  | (100,142) |
Proceeds from issuance of warrants concurrent with note hedge contracts | — |  |  | 48,484 |
Payment of debt issuance costs | — |  |  | (11,955) |
Payment of dividends | (76,273) |  |  | (64,425) |
Payment of contingent consideration and holdbacks related to acquisitions | (57,328) |  |  | (8,061) |
Other financing activities | 1,468 |  |  | 1,972 |
Net cash flows (used in) provided by financing activities | (364,930) |  |  | 224,186 |
Effect of exchange rate changes on cash and cash equivalents | (2,750) |  |  | 1,187 |
Net (decrease) increase in cash and cash equivalents | (39,493) |  |  | 20,794 |
Cash and cash equivalents at beginning of period | 62,896 |  |  | 51,821 |
Cash and cash equivalents cash at end of period | $ | 23,403 |  |  | $ | 72,615 |
Supplemental disclosure of cash flow information: |  |  |
Cash paid during the period for interest | $ | 16,326 |  |  | $ | 9,127 |
Cash paid during the period for income taxes, net of refunds | $ | 144,121 |  |  | $ | 75,822 |
Purchase of property and equipment in accrued expenses | $ | 2,019 |  |  | $ | 4,036 |

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 |
Net income | — |  |  | — |  |  | 63,401 |  |  | — |  |  | — |  |  | 63,401 |
Issuance of 3,385 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes | — |  |  | (333) |  |  | — |  |  | — |  |  | — |  |  | (333) |
Stock-based compensation expense | — |  |  | 6,436 |  |  | — |  |  | — |  |  | — |  |  | 6,436 |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | (1,793) |  |  | — |  |  | (1,793) |
Cash dividends ($0.90 per share) | — |  |  | — |  |  | (22,747) |  |  | — |  |  | — |  |  | (22,747) |
Dividend equivalents on stock-based awards | — |  |  | 382 |  |  | (382) |  |  | — |  |  | — |  |  | — |
Balance - September 30, 2021 | $ | 284 |  |  | $ | 213,271 |  |  | $ | 871,600 |  |  | $ | 4,147 |  |  | $ | (58,162) |  |  | $ | 1,031,140 |

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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 |
Net income | — |  |  | — |  |  | 61,392 |  |  | — |  |  | — |  |  | 61,392 |
Issuance of 578 shares of common stock pursuant to stock-based awards, net of shares tendered for payment of taxes | — |  |  | (32) |  |  | — |  |  | — |  |  | — |  |  | (32) |
Stock-based compensation expense | — |  |  | 6,863 |  |  | — |  |  | — |  |  | — |  |  | 6,863 |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | (12,322) |  |  | — |  |  | (12,322) |
Cash dividends ($1.05 per share) | — |  |  | — |  |  | (26,701) |  |  | — |  |  | — |  |  | (26,701) |
Dividend equivalents on stock-based awards | — |  |  | 456 |  |  | (456) |  |  | — |  |  | — |  |  | — |
Balance - September 30, 2022 | $ | 285 |  |  | $ | 231,518 |  |  | $ | 1,265,324 |  |  | $ | (15,408) |  |  | $ | (58,162) |  |  | $ | 1,423,557 |

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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 September 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.
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LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Risks and Uncertainties
The 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, as well as heightened tensions between China and Taiwan, on all aspects of the business. The extent to which COVID-19, the Russia-Ukraine War, and/or relations between China and Taiwan may impact the Company's liquidity, financial 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 September 30, |  | Nine Months Ended September 30,
(In thousands) | 2022 |  | 2021 |  | 2022 |  | 2021
Weighted average shares outstanding for basic earnings per share | 25,447 |  |  | 25,286 |  |  | 25,398 |  |  | 25,247 |
Common stock equivalents pertaining to stock-based awards | 153 |  |  | 131 |  |  | 122 |  |  | 124 |
Weighted average shares outstanding for diluted earnings per share | 25,600 |  |  | 25,417 |  |  | 25,520 |  |  | 25,371 |
Equity instruments excluded from diluted net earnings per share calculation as the effect would have been antidilutive | 113 |  |  | 140 |  |  | 112 |  |  | 142 |

For the Company's 1.125 percent convertible senior notes due 2026 (the "Convertible Notes") issued in May 2021, the dilutive effect is calculated using the if-converted method. The Company is required, pursuant to the indenture governing the Convertible Notes, dated May 13, 2021, by and between the Company and U.S. Bank National Association, as trustee (the "Indenture"), to settle the principal amount of the Convertible Notes in cash and may elect to settle the remaining conversion obligation (i.e., the stock price in excess of the conversion price) in cash, shares of the Company's common stock, or a combination thereof. Under the if-converted method, the Company includes the number of shares required to satisfy the conversion obligation, assuming all the Convertible Notes are converted. Because the average closing price of the Company's common stock for the nine months ended September 30, 2022, which is used as the basis for determining the dilutive effect on earnings per share, was less than the conversion price of $165.65, all associated shares were antidilutive.
In conjunction with the issuance of the Convertible Notes, the Company, in privately negotiated transactions with certain commercial banks (the "Counterparties") sold warrants to purchase 2.8 million shares of the Company's common stock (the "Warrants"). The Warrants have a strike price of $259.84 per share, subject to customary anti-dilution adjustments. For calculating the dilutive effect of the Warrants, the Company uses the treasury stock method. With this method, the Company assumes exercise of the Warrants at the beginning of the period, or at time of issuance if later, and issuance of common shares upon exercise. Proceeds from the exercise of the Warrants are assumed to be used to repurchase shares of the Company's common stock at the average market price during the period. The incremental shares, representing the number of shares assumed to be received upon the exercise of the Warrants less the number of shares repurchased, are included in diluted shares. For the nine months ended September 30, 2022, the average share price was below the Warrant strike price of $259.84 per share, and therefore 2.8 million shares were considered antidilutive.
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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 Nine Months Ended September 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 $70.7 million. The Company paid $50.0 million in cash consideration at closing, with fixed deferred consideration of $20.0 million paid in July 2022 and $0.7 million paid to true up net working capital in September 2022.
The results of the acquired business have been included 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 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 | $ | 50,664 |
Fixed deferred consideration | 20,000 |
Total fair value of consideration given | $ | 70,664 |
Identifiable intangible assets | $ | 43,520 |
Other assets acquired and liabilities assumed, net | 14,442 |
Total fair value of net assets acquired | $ | 57,962 |
Goodwill (tax deductible) | $ | 12,702 |

The consideration given was greater than the fair value of the net assets acquired, resulting in goodwill.
Other Acquisitions in 2022
During the nine months ended September 30, 2022, the Company completed two other acquisitions for $5.0 million of cash purchase consideration. The preliminary purchase price allocations resulted in $0.8 million of goodwill (tax deductible). As these acquisitions are not considered to have a material impact on the Company's financial statements, pro forma results of operations and other disclosures are not presented.
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LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Acquisitions with Measurement Period Adjustments During the Nine Months Ended September 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 nine months ended September 30, 2022, the Company adjusted the preliminary purchase price allocation reported at December 31, 2021 to account for updates to net working capital balances. These measurement period adjustments would not have resulted in a material impact on the prior period results if the adjustments had been recognized as of the acquisition date. The 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 Company paid the first anniversary fixed payment in September 2022, and the remaining deferred acquisition fixed payment is recorded at its discounted present value in the Condensed Consolidated Balance Sheet in accrued expenses and other current liabilities at September 30, 2022.
In 2019, the Company and Furrion agreed to terminate an exclusive distribution and supply agreement and transition all sale and distribution of Furrion products then handled by the Company to Furrion. Effective January 1, 2020, Furrion took responsibility for distributing its products directly to the customer and assumed all responsibilities previously carried out by the Company relating to Furrion products. Upon termination of the agreement, Furrion purchased from the Company all non-obsolete stock and certain obsolete and slow-moving stock of Furrion products at the cost paid by the Company. At the date of the Furrion acquisition in September 2021, the Company had a receivable balance of $35.0 million (the "Receivable from Furrion") and Furrion had a corresponding payable balance. In direct connection with the acquisition negotiations, the receivable and payable were effectively settled in the acquisition and the receivable balance is included within the approximate $146.7 million of consideration 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 nine months ended September 30, 2022, the Company adjusted and finalized the preliminary purchase price allocation reported at December 31, 2021 to account for updates to net working capital, intangible assets, fixed asset balances, and deferred tax balances. These measurement period adjustments would not have resulted in a material impact on the prior
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LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
period results if the adjustments had been recognized as of the acquisition date. The acquisition of this business was preliminarily recorded as of the acquisition date, and subsequently adjusted and finalized, as follows (in thousands):

| Preliminary at December 31, 2021 |  | Measurement Period Adjustments |  | As Adjusted at September 30, 2022
Cash consideration, net of cash acquired | $ | 50,534 |  |  | $ | — |  |  | $ | 50,534 |
Effective settlement of Receivable from Furrion | 34,956 |  |  | — |  |  | 34,956 |
Discounted value of fixed deferred consideration | 61,191 |  |  | — |  |  | 61,191 |
Total fair value of consideration given | $ | 146,681 |  |  | $ | — |  |  | $ | 146,681 |
Customer relationships | $ | 66,300 |  |  | $ | (10,600) |  |  | $ | 55,700 |
Other identifiable intangible assets | 43,900 |  |  | (1,200) |  |  | 42,700 |
Other assets acquired and liabilities assumed, net | (9,518) |  |  | (1,483) |  |  | (11,001) |
Total fair value of net assets acquired | $ | 100,682 |  |  | $ | (13,283) |  |  | $ | 87,399 |
Goodwill (tax deductible) | $ | 45,999 |  |  | $ | 13,283 |  |  | $ | 59,282 |

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

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

Goodwill represents the excess of the total consideration given in an acquisition of a business over the fair value of the net tangible and identifiable intangible assets acquired. Goodwill is not amortized, but instead is tested at the reporting unit level for impairment annually in November, or more frequently if certain circumstances indicate a possible impairment may exist.
14

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other Intangible Assets
Other intangible assets consisted of the following at September 30, 2022:

(In thousands) | Gross Cost |  | Accumulated Amortization |  | Net Balance |  | Estimated Useful Life in Years
Customer relationships | $ | 500,432 |  |  | $ | 154,075 |  |  | $ | 346,357 |  |  | 6 | to | 17
Patents | 118,484 |  |  | 60,402 |  |  | 58,082 |  |  | 3 | to | 20
Trade names (finite life) | 92,312 |  |  | 19,628 |  |  | 72,684 |  |  | 3 | to | 20
Trade names (indefinite life) | 7,600 |  |  | — |  |  | 7,600 |  |  | Indefinite
Non-compete agreements | 11,584 |  |  | 7,131 |  |  | 4,453 |  |  | 3 | to | 6
Other | 609 |  |  | 230 |  |  | 379 |  |  | 2 | to | 12
Other intangible assets | $ | 731,021 |  |  | $ | 241,466 |  |  | $ | 489,555 |  |  |  |  |

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 |  |  | 6 | to | 17
Patents | 116,725 |  |  | 53,479 |  |  | 63,246 |  |  | 3 | to | 20
Trade names (finite life) | 93,994 |  |  | 16,497 |  |  | 77,497 |  |  | 3 | to | 20
Trade names (indefinite life) | 7,600 |  |  | — |  |  | 7,600 |  |  | Indefinite
Non-compete agreements | 11,464 |  |  | 5,439 |  |  | 6,025 |  |  | 3 | to | 6
Other | 309 |  |  | 212 |  |  | 97 |  |  | 2 | to | 12
Purchased research and development | 4,687 |  |  | — |  |  | 4,687 |  |  | Indefinite
Other intangible assets | $ | 722,632 |  |  | $ | 202,675 |  |  | $ | 519,957 |  |  |  |  |

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

| September 30, |  | December 31,
(In thousands) | 2022 |  |  |  | 2021
Raw materials | $ | 662,480 |  |  |  |  | $ | 833,992 |
Work in process | 49,870 |  |  |  |  | 48,250 |
Finished goods | 367,552 |  |  |  |  | 213,665 |
Inventories, net | $ | 1,079,902 |  |  |  |  | $ | 1,095,907 |

15

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. FIXED ASSETS
Fixed assets consisted of the following at:

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

7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following at:

| September 30, |  | December 31,
(In thousands) | 2022 |  |  |  | 2021
Employee compensation and benefits | $ | 83,566 |  |  |  |  | $ | 85,760 |
Deferred acquisition payments and contingent consideration* | 33,959 |  |  |  |  | 39,307 |
Current portion of accrued warranty | 39,583 |  |  |  |  | 33,874 |
Other | 86,030 |  |  |  |  | 84,497 |
Accrued expenses and other current liabilities | $ | 243,138 |  |  |  |  | $ | 243,438 |

* 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 nine months ended September 30:

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

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

9. LONG-TERM INDEBTEDNESS
Long-term debt consisted of the following:

| September 30, |  | December 31,
(In thousands) | 2022 |  |  |  | 2021
Convertible Notes | $ | 460,000 |  |  |  |  | $ | 460,000 |
Revolving Credit Loan | 226,367 |  |  |  |  | 403,953 |
Term Loan | 380,000 |  |  |  |  | 395,000 |
Shelf-Loan Facility | — |  |  |  |  | 50,000 |
Other | 5,365 |  |  |  |  | 5,997 |
Unamortized deferred financing fees | (9,773) |  |  |  |  | (11,988) |
| 1,061,959 |  |  |  |  | 1,302,962 |
Less current portion | (22,089) |  |  |  |  | (71,003) |
Long-term indebtedness | $ | 1,039,870 |  |  |  |  | $ | 1,231,959 |

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 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 September 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 September 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 September 30, 2022, the Company had $4.4 million in issued, but undrawn, standby letters of credit under the LC Facility. Availability under the Company’s revolving credit facility was $369.2 million at September 30, 2022. A commitment fee ranging from 0.150 percent to 0.225 percent (0.175 percent was applicable at September 30, 2022) depending on the Company's total net leverage ratio accrues on the actual daily amount that the revolving commitment exceeds the revolving credit exposure.
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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 Notes due 2026 in a private placement to certain qualified institutional buyers, resulting in net proceeds to the Company of approximately $447.8 million after deducting the initial purchasers' discounts and offering expenses payable by the Company. The Convertible Notes bear interest at a coupon rate of 1.125 percent per annum, payable semiannually in arrears on May 15 and November 15 of each year, beginning on November 15, 2021. The Convertible Notes will mature on May 15, 2026, unless earlier converted, redeemed, or repurchased, in accordance with their terms.
As of September 30, 2022, the conversion rate was 6.0946 shares of the Company's common stock per $1,000 principal amount of the Convertible Notes. The conversion rate of the Convertible Notes is subject to further adjustment upon the occurrence of certain specified events. In addition, upon the occurrence of a make-whole fundamental change (as defined in the Indenture) or upon a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder that elects to convert its Convertible Notes in connection with such make-whole fundamental change or notice of redemption, as the case may be.
Prior to the close of business on the business day immediately preceding January 15, 2026, the Convertible Notes are convertible at the option of the holders only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price (as defined in the Indenture) per share of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 percent of the conversion price for the Convertible Notes on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the "measurement period") in which the 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
18

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Indenture), subject to certain conditions, holders of the Convertible Notes may require the Company to repurchase for cash all or any portion of their Convertible Notes in principal amounts of $1,000 or an integral multiple thereof at a repurchase price equal to 100 percent of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest on such Convertible Notes to, but not including, the fundamental change repurchase date (as defined in the Indenture).
The Convertible Notes are senior unsecured obligations and rank senior in right of payment to all of the Company's indebtedness that is expressly subordinated in right of payment to the Convertible Notes, equal in right of payment with all the Company's liabilities that are not so subordinated, effectively junior to any of the Company's secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries. The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the named trustee or the holders of at least 25 percent of the aggregate principal amount of the outstanding Convertible Notes may declare 100 percent of the principal of, and accrued and unpaid interest, if any, on all the outstanding Convertible Notes to be due and payable.
The Convertible Notes are not registered securities nor listed on any securities exchange but may be actively traded by qualified institutional buyers. The fair value of the Convertible Notes of $394.5 million at September 30, 2022 was estimated using Level 1 inputs, as it is based on quoted prices for these instruments in active markets.
General
At September 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 September 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 September 30, 2022. The Company believes the availability of $369.2 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 expense for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 was primarily driven by capacity expansions and leases assumed in acquisitions. The components of lease expense were as follows:

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

19

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. 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. As required, the liability for this contingent consideration is measured at fair value quarterly, considering actual sales of the acquired products, updated sales projections, and the updated market participant weighted average cost of capital. Depending upon the weighted average costs of capital and future sales of the products which are subject to contingent consideration, the Company could record adjustments in future periods. The following table provides a reconciliation of the Company’s contingent consideration liability for the nine months ended September 30, 2022:

(In thousands) |  |  |
Balance at beginning of period | $ | 6,911 |  |  |
Payments | (5,008) |  |  |
Accretion (a) | 93 |  |  |
Fair value adjustments (a) (b) | (1,886) |  |  |
Balance at end of the period | 110 |  |  |
Less current portion in accrued expenses and other current liabilities | (7) |  |  |
Total long-term portion in other long-term liabilities | $ | 103 |  |  |

(a) Recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Income.
(b) During the nine months ended September 30, 2022, the Company updated its sales projections for a product subject to contingent consideration and determined the probability of payment under the contingent arrangement to be remote. Consequently, the fair value of the contingent consideration liability related to this product was reduced by $1.9 million.
Product Recalls
From time to time, the Company cooperates with and assists its customers on their product recalls and inquiries, and occasionally receives inquiries directly from the National Highway Traffic Safety Administration regarding reported incidents involving the Company’s products. As a result, the Company has incurred expenses associated with product recalls from time to time and may incur expenditures for future investigations or product recalls.
Environmental
The Company's operations are subject to certain Federal, state, and local regulatory requirements relating to the use, storage, discharge, and disposal of hazardous materials used during the manufacturing processes. Although the Company believes its operations have been consistent with prevailing industry standards and are in substantial compliance with applicable environmental laws and regulations, one or more of the Company’s current or former operating sites, or adjacent sites owned by third-parties, have been affected, and may in the future be affected, by releases of hazardous materials. As a result, the Company may incur expenditures for future investigation and remediation of these sites, including in conjunction with voluntary remediation programs or third-party claims.
Litigation
In the normal course of business, the Company is subject to proceedings, lawsuits, regulatory agency inquiries, and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, management believes that, after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided in the Condensed Consolidated Balance Sheet as of September 30, 2022, would not be material to the Company's financial position or results of operations.
20

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. STOCKHOLDERS' EQUITY
The following table summarizes information about shares of the Company's common stock at:

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

The table below summarizes the regular quarterly dividends declared and paid during the periods ended September 30, 2022 and December 31, 2021:

(In thousands, except per share data) | Per Share |  | Record Date |  | Payment Date |  | Total Paid
First Quarter 2021 | $ | 0.75 |  |  | 03/12/21 |  | 03/26/21 |  | $ | 18,939 |
Second Quarter 2021 | 0.90 |  |  | 06/04/21 |  | 06/18/21 |  | 22,739 |
Third Quarter 2021 | 0.90 |  |  | 09/03/21 |  | 09/17/21 |  | 22,747 |
Fourth Quarter 2021 | 0.90 |  |  | 12/03/21 |  | 12/17/21 |  | 22,746 |
Total 2021 | $ | 3.45 |  |  |  |  |  |  | $ | 87,171 |
First Quarter 2022 | $ | 0.90 |  |  | 03/11/22 |  | 03/25/22 |  | $ | 22,870 |
Second Quarter 2022 | 1.05 |  |  | 06/03/22 |  | 06/17/22 |  | 26,702 |
Third Quarter 2022 | 1.05 |  |  | 09/02/22 |  | 09/16/22 |  | 26,701 |
Total 2022 | $ | 3.00 |  |  |  |  |  |  | $ | 76,273 |

Deferred and Restricted Stock Units
The LCI Industries 2018 Omnibus Incentive Plan (the "2018 Plan") provides for the grant or issuance of stock units, including those that have deferral periods, such as deferred stock units ("DSUs"), and those with time-based vesting provisions, such as restricted stock units ("RSUs"), to directors, employees, and other eligible persons. Recipients of DSUs and RSUs are entitled to receive shares at the end of a specified vesting or deferral period. Holders of DSUs and RSUs receive dividend equivalents based on dividends granted to holders of the common stock, which dividend equivalents are payable in additional DSUs and RSUs, and are subject to the same vesting criteria as the original grant. DSUs vest (i) ratably over the service period, (ii) at a specified future date, or (iii) for certain officers, based on achievement of specified performance conditions. RSUs vest (i) ratably over the service period or (ii) at a specified future date. Transactions in DSUs and RSUs under the 2018 Plan are summarized as follows:

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

21

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Performance Stock Units
The 2018 Plan provides for performance stock units ("PSUs") that vest at a specific future date based on achievement of specified performance conditions. Transactions in PSUs under the 2018 Plan are summarized as follows:

| Number of Shares |  | Weighted Average Price
Outstanding at December 31, 2021 | 149,961 |  |  | $ | 104.01 |
Granted | 91,988 |  |  | 110.83
Dividend equivalents | 4,413 |  |  | 107.18
Forfeited | (4,840) |  |  | 78.11
Vested | (80,938) |  |  | 82.40
Outstanding at September 30, 2022 | 160,584 |  |  | $ | 120.12 |

Convertible Note Hedge Transactions
The Company paid an aggregate amount of $100.1 million in May 2021 to the Counterparties pursuant to the Convertible Note Hedge Transactions. The Convertible Note Hedge Transactions cover, subject to anti-dilution adjustments substantially similar to those in the Convertible Notes, approximately 2.8 million shares of the Company's common stock, the same number of shares initially underlying the Convertible Notes, at a strike price of approximately $165.65, subject to customary anti-dilution adjustments. The Convertible Note Hedge Transactions will expire upon the maturity of the Convertible Notes, subject to earlier exercise or termination. The Convertible Note Hedge Transactions are expected generally to reduce the potential dilutive effect to the Company's common stock of the conversion of the Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the Convertible Notes which are converted, as the case may be, in the event the price per share of the Company's common stock, as measured under the terms of the Convertible Note Hedge Transactions, is greater than the strike price of the Convertible Note Hedge Transactions. The Convertible Note Hedge Transactions meet the criteria in Accounting Standards Codification ("ASC") 815-40 to be classified within stockholders' equity, and therefore the Convertible Note Hedge Transactions are not revalued after their issuance.
The Convertible Notes and the Convertible Note Hedge Transactions will be integrated for tax purposes. The accounting impact of this tax treatment makes the Convertible Note Hedge Transactions deductible as original issue discount for tax purposes over the term of the Convertible Notes and resulted in a $24.4 million deferred tax asset recognized through equity.
Warrant Transactions
In addition, concurrently with entering into the Convertible Note Hedge Transactions, the Company entered into separate, privately-negotiated Warrant transactions with the Counterparties, whereby the Company sold Warrants to purchase 2.8 million shares of the Company's common stock at an initial strike price of $259.84 per share, subject to customary anti-dilution adjustments, which is approximately 100 percent above the last reported sale price of the Company's common stock on May 10, 2021 (the "Warrant Transactions"). The Company received aggregate proceeds of $48.5 million from the Warrant Transactions with the Counterparties, with such proceeds partially offsetting the costs of entering into the Convertible Note Hedge Transactions. The Warrants expire in August 2026. If the market value per share of the Company's common stock, as measured under the Warrant Transactions, exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on the Company's earnings per share, unless the Company elects, subject to certain conditions, to settle the Warrants in cash. The Warrants meet the criteria in ASC 815-40 to be classified within stockholders' equity, and therefore the Warrants are not revalued after issuance.
22

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13. FAIR VALUE MEASUREMENTS
Recurring
The following table presents the Company's assets and liabilities measured at fair value on a recurring basis at:

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

Contingent Consideration Related to Acquisitions
Liabilities for contingent consideration related to acquisitions were estimated at fair value using management's projections for long-term sales forecasts, including assumptions regarding market share gains and future industry-specific economic and market conditions, and a market participant's weighted average cost of capital. For further information on the inputs used in determining the fair value, and a roll forward of the contingent consideration liability, see Note 11 of the Notes to Condensed Consolidated Financial Statements.
Changes in either of the inputs in isolation would result in a change in the fair value measurement. A change in the assumptions used for sales forecasts would result in a directionally similar change in the fair value liability, while a change in the weighted average cost of capital would result in a directionally opposite change in the fair value liability. If there is an increase in the fair value liability, the Company would record a charge to selling, general and administrative expenses, and if there were a decrease in the fair value liability, the Company would record a benefit in selling, general and administrative expenses.
14. SEGMENT REPORTING
The Company has two reportable segments, the OEM Segment and the Aftermarket Segment. Intersegment sales are insignificant.
The OEM Segment, which accounted for 83 percent and 81 percent of consolidated net sales for the nine months ended September 30, 2022 and 2021, respectively, manufactures and distributes a broad array of engineered components for the leading OEMs in the recreation and transportation product markets, consisting primarily of RVs and adjacent industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured homes; and modular housing. Approximately 63 percent of the Company's OEM Segment net sales for the nine months ended September 30, 2022 were of components for travel trailer and fifth-wheel RVs.
The Aftermarket Segment, which accounted for 17 percent and 19 percent of consolidated net sales for the nine months ended September 30, 2022 and 2021, respectively, supplies engineered components to the related aftermarket channels of the recreation and transportation product markets, primarily to retail dealers, wholesale distributors, and service centers, as well as direct to retail customers via the Internet. The Aftermarket Segment also includes biminis, covers, buoys, fenders to the marine industry, towing products, truck accessories, appliances, air conditioners, televisions, sound systems, and the sale of replacement glass and awnings to fulfill insurance claims.
Decisions concerning the allocation of the Company's resources are made by the Company's chief operating decision maker ("CODM"), with oversight by the Board of Directors. The CODM evaluates the performance of each segment based upon segment operating profit or loss, generally defined as income or loss before interest and income taxes. Decisions concerning the allocation of resources are also based on each segment's utilization of assets. Management of debt is a corporate function. The accounting policies of the OEM and Aftermarket Segments are the same as those described in Note 2 of the Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
23

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables present the Company's revenues disaggregated by segment and geography based on the billing address of the Company's customers:

| Three Months Ended September 30, 2022 |  | Three Months Ended September 30, 2021
(In thousands) | U.S. (a) |  | Int’l (b) |  | Total |  | U.S. (a) |  | Int’l (b) |  | Total
OEM Segment: |  |  |  |  |  |  |  |  |  |  |
RV OEMs: |  |  |  |  |  |  |  |  |  |  |
Travel trailers and fifth-wheels | $ | 480,207 |  |  | $ | 13,308 |  |  | $ | 493,515 |  |  | $ | 586,830 |  |  | $ | 15,599 |  |  | $ | 602,429 |
Motorhomes | 60,964 |  |  | 21,958 |  |  | 82,922 |  |  | 39,679 |  |  | 23,580 |  |  | 63,259 |
Adjacent Industries OEMs | 295,173 |  |  | 40,810 |  |  | 335,983 |  |  | 246,582 |  |  | 34,011 |  |  | 280,593 |
Total OEM Segment net sales | 836,344 |  |  | 76,076 |  |  | 912,420 |  |  | 873,091 |  |  | 73,190 |  |  | 946,281 |
Aftermarket Segment: |  |  |  |  |  |  |  |  |  |  |
Total Aftermarket Segment net sales | 203,106 |  |  | 16,553 |  |  | 219,659 |  |  | 204,566 |  |  | 14,462 |  |  | 219,028 |
Total net sales | $ | 1,039,450 |  |  | $ | 92,629 |  |  | $ | 1,132,079 |  |  | $ | 1,077,657 |  |  | $ | 87,652 |  |  | $ | 1,165,309 |
| Nine Months Ended September 30, 2022 |  | Nine Months Ended September 30, 2021
(In thousands) | U.S. (a) |  | Int’l (b) |  | Total |  | U.S. (a) |  | Int’l (b) |  | Total
OEM Segment: |  |  |  |  |  |  |  |  |  |  |
RV OEMs: |  |  |  |  |  |  |  |  |  |  |
Travel trailers and fifth-wheels | $ | 2,218,157 |  |  | $ | 43,093 |  |  | $ | 2,261,250 |  |  | $ | 1,582,182 |  |  | $ | 50,877 |  |  | $ | 1,633,059 |
Motorhomes | 185,118 |  |  | 76,538 |  |  | 261,656 |  |  | 118,872 |  |  | 74,233 |  |  | 193,105 |
Adjacent Industries OEMs | 930,536 |  |  | 131,838 |  |  | 1,062,374 |  |  | 690,759 |  |  | 110,262 |  |  | 801,021 |
Total OEM Segment net sales | 3,333,811 |  |  | 251,469 |  |  | 3,585,280 |  |  | 2,391,813 |  |  | 235,372 |  |  | 2,627,185 |
Aftermarket Segment: |  |  |  |  |  |  |  |  |  |  |
Total Aftermarket Segment net sales | 673,519 |  |  | 53,998 |  |  | 727,517 |  |  | 585,973 |  |  | 46,129 |  |  | 632,102 |
Total net sales | $ | 4,007,330 |  |  | $ | 305,467 |  |  | $ | 4,312,797 |  |  | $ | 2,977,786 |  |  | $ | 281,501 |  |  | $ | 3,259,287 |

(a) Net sales to customers in the United States of America
(b) Net sales to customers in countries domiciled outside of the United States of America
The following table presents the Company's operating profit by segment:

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

24

LCI INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the Company's revenue disaggregated by product:

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

25

LCI INDUSTRIES
ITEM 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company's Condensed Consolidated Financial Statements and Notes thereto included in Item 1 of Part 1 of this report, as well as the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
LCI Industries ("LCII" and collectively with its subsidiaries, the "Company," "we," "us," or "our"), 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. We also supply 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.
We have two reportable segments, the OEM Segment and the Aftermarket Segment. Intersegment sales are insignificant. At September 30, 2022, we operated over 130 manufacturing and distribution facilities located throughout North America and Europe. See Note 14 of the Notes to Condensed Consolidated Financial Statements for further information regarding our segments.
Our OEM Segment manufactures or distributes a broad array of engineered components for the leading OEMs of RVs and adjacent industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured homes; and modular housing. Approximately 65 percent of our OEM Segment net sales for the twelve months ended September 30, 2022 were of components for travel trailer and fifth-wheel RVs, including:

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

The Aftermarket Segment supplies many of these engineered components to the related aftermarket channels of the recreation and transportation product markets, primarily to retail dealers, wholesale distributors, and service centers, as well as direct to retail customers via the Internet. The Aftermarket Segment also includes biminis, covers, buoys, fenders to the marine industry, towing products, truck accessories, appliances, air conditioners, televisions, sound systems, and the sale of replacement glass and awnings to fulfill insurance claims.
Most industries where we sell products or where our products are used historically have been seasonal and are generally at the highest levels when the weather is moderate. Accordingly, our 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 COVID-19 pandemic has caused significant uncertainty and disruption in the global economy and financial markets since early 2020. With RV retail demand at record levels throughout 2021, the industry faced challenges with supply chain constraints, rising material and freight costs, and increases in direct labor costs due to higher production volumes and a tightened labor market, especially in Northern Indiana. These trends have continued through the first nine months of 2022, and,
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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
with regard to supply chain constraints and freight costs, have also been impacted by the conflict between Russia and Ukraine (the "Russia-Ukraine War"), as well as heightened tensions between China and Taiwan. To address these challenges, we have continued to strategically manage working capital, including carrying elevated levels of certain inventory items to avoid future shortages. We continue to focus on our culture and leadership development programs to focus on team member retention. We continue to closely monitor the impact of COVID-19, the Russia-Ukraine War, and relations between China and Taiwan on all aspects of our business. The extent to which COVID-19, the Russia-Ukraine War, and/or relations between China and Taiwan may impact our liquidity, financial condition, and results of operations in the future remains uncertain.
INDUSTRY BACKGROUND
OEM Segment
North American Recreational Vehicle Industry
An RV is a vehicle designed as temporary living quarters for recreational, camping, travel or seasonal use. RVs may be motorized (motorhomes) or towable (travel trailers, fifth-wheel travel trailers, folding camping trailers, and truck campers).
The annual sales cycle for the RV industry generally starts in October after the "Open House" in Elkhart, Indiana where many of the largest RV OEMs display product to RV retail dealers and ends after the conclusion of the summer selling season in September in the following calendar year. Between October and March, industry-wide wholesale shipments of travel trailer and fifth-wheel RVs have historically exceeded retail sales as dealers build inventories to support anticipated sales. Between April and September, the spring and summer selling seasons, retail sales of travel trailer and fifth-wheel RVs have historically exceeded industry-wide wholesale shipments. Due to the COVID-19 pandemic, the 2021 and 2020 Open Houses were canceled, but an Open House was held in September 2022. The seasonality of the RV industry has been impacted by the COVID-19 pandemic, and the timing of a return to historical seasonality is not possible to predict at this time.
According to the Recreation Vehicle Industry Association ("RVIA"), industry-wide wholesale shipments from the United States of travel trailer and fifth-wheel RVs in the first nine months of 2022, our primary RV market, decreased ten percent to 359,300 units, compared to the first nine months of 2021, primarily due to a decrease in retail demand. Retail demand for travel trailer and fifth-wheel RVs decreased 24 percent in the first nine months of 2022 compared to the same period in 2021. Retail demand has declined from recent elevated levels, partially driven by elevated fuel prices and rising interest rates impacting retail consumers. Retail demand is typically revised upward in subsequent months, primarily due to delayed RV registrations.
While we measure our OEM Segment RV sales against industry-wide wholesale shipment statistics, the underlying health of the RV industry is determined by retail demand. A comparison of the number of units and the year-over-year percentage change in industry-wide wholesale shipments and retail sales of travel trailers and fifth-wheel RVs, as reported by Statistical Surveys, Inc., as well as the resulting estimated change in dealer inventories, for both the United States and Canada, is as follows:

|  |  |  |  |  |  |  |  | Estimated
| Wholesale |  | Retail |  | Unit Impact on
| Units |  | Change |  | Units |  | Change |  | Dealer Inventories
Quarter ended September 30, 2022 | 73,400 |  |  | (46)% |  | 102,400 |  |  | (22)% |  | (29,000)
Quarter ended June 30, 2022 | 133,700 |  |  | —% |  | 129,200 |  |  | (28)% |  | 4,500
Quarter ended March 31, 2022 | 152,200 |  |  | 16% |  | 93,500 |  |  | (18)% |  | 58,700
Quarter ended December 31, 2021 | 130,400 |  |  | 13% |  | 76,600 |  |  | (14)% |  | 53,800
Twelve months ended September 30, 2022 | 489,700 |  |  | (5)% |  | 401,700 |  |  | (22)% |  | 88,000

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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

|  |  |  |  |  |  |  |  | Estimated
| Wholesale |  | Retail |  | Unit Impact on
| Units |  | Change |  | Units |  | Change |  | Dealer Inventories
Quarter ended September 30, 2021 | 136,000 |  |  | 24% |  | 131,000 |  |  | (18)% |  | 5,000
Quarter ended June 30, 2021 | 133,800 |  |  | 100% |  | 180,600 |  |  | 36% |  | (46,800)
Quarter ended March 31, 2021 | 131,200 |  |  | 49% |  | 114,500 |  |  | 53% |  | 16,700
Quarter ended December 31, 2020 | 115,200 |  |  | 38% |  | 89,400 |  |  | 40% |  | 25,800
Twelve months ended September 30, 2021 | 516,200 |  |  | 48% |  | 515,500 |  |  | 20% |  | 700

According to the RVIA, industry-wide wholesale shipments of motorhome RVs in the first nine months of 2022 increased eight percent to 45,800 units compared to the first nine months of 2021, primarily due to dealers rebuilding inventory levels. Retail demand for motorhome RVs decreased 14 percent year-over-year in the first nine months of 2022, compared to an eight percent year-over-year increase in retail demand in the same period of 2021. Retail demand has declined from recent elevated levels, partially driven by elevated fuel prices and rising interest rates impacting retail consumers.
Our current estimate for full-year 2022 industry-wide wholesale shipments from the United States of travel trailer, fifth-wheel, and motorhome RVs are approximately 480,000 to 500,000 units. This estimate suggests a decrease of 45 to 50 percent in the second half of 2022 compared to actual wholesale shipments in the first half of 2022. This projected decline is being driven by current dealer inventory levels, as well as elevated gas prices and rising interest rates impacting retail consumers.
Adjacent Industries
Our portfolio of products used in RVs can also be used in other applications, including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured homes; and modular housing (collectively, "Adjacent Industries"). In many cases, OEM customers of the Adjacent Industries are affiliated with RV OEMs through related subsidiaries. We believe there are significant opportunities in these Adjacent Industries.
We currently expect production in the marine and manufactured housing markets to remain at or near current run rates through the remainder of 2022.
Aftermarket Segment
Many of our OEM Segment products are also sold through various aftermarket channels of the recreation and transportation product markets, primarily to retail dealers, wholesale distributors, and service centers, as well as direct to retail customers via the Internet. This includes discretionary accessories and replacement service parts. We have teams dedicated to product, technical, and installation training as well as marketing support for our Aftermarket Segment customers. We also support multiple call centers to provide responses to customers for product, delivery, and technical support. This support is designed for a rapid response to critical repairs, so customer downtime is minimal. The Aftermarket Segment also includes biminis, covers, buoys, fenders to the marine industry, towing products, truck accessories, appliances, air conditioners, televisions, sound systems, and the sale of replacement glass and awnings to fulfill insurance claims. Many of the optional upgrades and non-critical replacements for RVs are purchased outside the normal product selling seasons, thereby causing certain Aftermarket Segment sales to be counter-seasonal, but this has been, and may in the future be, different as a result of the COVID-19 pandemic and related impacts.
According to Go RVing, estimated RV ownership in the United States as of 2020 had increased to over 11 million households. This vibrant market is a key driver for aftermarket sales, as we anticipate owners will likely upgrade their units as well as replace parts and accessories which have been subjected to normal wear and tear.
We currently expect to see continued reduction in aftermarket volumes in the remainder of 2022 as a result of fully stocked distribution channels, chip shortages impacting truck markets, and the impacts of inflation and rising interest rates on consumers' discretionary spending.
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS
Consolidated Highlights
•Consolidated net sales in the third quarter of 2022 were $1.1 billion, three percent lower than consolidated net sales for the same period of 2021 of $1.2 billion. The decrease was primarily driven by a nearly 40 percent decrease in wholesale RV OEM shipments, partially offset by price realization, market share growth, acquisitions, and an increase in net sales to OEMs in Adjacent Industries. Net sales from acquisitions completed in the twelve months ended September 30, 2022, primarily Furrion Holdings Limited ("Furrion") and Girard Systems and Girard Products LLC, contributed approximately $38.7 million in the third quarter of 2022.
•Net income for the third quarter of 2022 was $61.4 million, or $2.40 per diluted share, compared to net income of $63.4 million, or $2.49 per diluted share, for the same period of 2021.
•Consolidated operating profit during the third quarter of 2022 was $87.6 million compared to $89.0 million in the same period of 2021. Operating profit margin was 7.7 percent in the third quarter of 2022 compared to 7.6 percent in the same period of 2021. The increase was primarily a result of increased selling prices which are indexed to select commodities and pricing changes to targeted products, partially offset by increased raw material and freight costs as well as higher fixed costs over lower sales volumes.
•The cost of aluminum and steel consumed in certain of our manufactured components increased in the third quarter of 2022 compared to the same period of 2021. Raw material costs are subject to continued fluctuation and are being partially offset by contractual selling prices which are indexed to select commodities.
•The effective tax rate of 26.0 percent for the nine months ended September 30, 2022 was higher than the comparable prior year period of 24.9 percent, primarily due to decreases in the excess tax benefit related to the vesting of equity-based compensation awards and the cash surrender value of life insurance, plus a discrete tax adjustment for an acquisition-related tax election in the current year period, as discussed below under "Income Taxes."
•In September 2022, we paid a quarterly dividend of $1.05 per share, aggregating to $26.7 million.
OEM Segment - Third Quarter
Net sales of the OEM Segment in the third quarter of 2022 decreased $33.9 million, compared to the same period of 2021. Net sales of components to the following OEMs markets for the three months ended September 30 were:

(In thousands) | 2022 |  | 2021 |  | Change
RV OEMs: |  |  |  |  |
Travel trailers and fifth-wheels | $ | 493,515 |  |  | $ | 602,429 |  |  | (18) | %
Motorhomes | 82,922 |  |  | 63,259 |  |  | 31 | %
Adjacent Industries OEMs | 335,983 |  |  | 280,593 |  |  | 20 | %
Total OEM Segment net sales | $ | 912,420 |  |  | $ | 946,281 |  |  | (4) | %

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

| 2022 |  | 2021 |  | Change
Travel trailer and fifth-wheel RVs | 73,400 |  |  | 136,000 |  |  | (46) | %
Motorhomes | 15,300 |  |  | 13,300 |  |  | 15 | %

The trend in our average product content per RV produced is an indicator of our overall market share of components for new RVs. Our average product content per type of RV, calculated based upon our net sales of components to domestic RV OEMs for the different types of RVs produced for the twelve months ended September 30, divided by the industry-wide wholesale shipments of the different product mix of RVs for the same period, was:

Content per: | 2022 |  | 2021 |  | Change
Travel trailer and fifth-wheel RV | $ | 5,853 |  |  | $ | 3,786 |  |  | 55 | %
Motorhome | $ | 3,806 |  |  | $ | 2,732 |  |  | 39 | %

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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
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(Continued)
Our average product content per type of RV excludes international sales and sales to the Aftermarket Segment and Adjacent Industries. Content per RV is impacted by changes in selling prices for our products, market share gains, and acquisitions.
Our decrease in net sales to RV OEMs during the third quarter of 2022 was driven by a nearly 40 percent reduction in North American wholesale shipments during the third quarter of 2022.
Our increase in net sales to OEMs in Adjacent Industries during the third quarter of 2022 was driven by selling price increases and market share gains.
Operating profit of the OEM Segment was $65.2 million in the third quarter of 2022, an increase of $1.1 million compared to the same period of 2021. The operating profit margin of the OEM Segment in the third quarter of 2022 increased to 7.1 percent compared to 6.8 percent for the same period of 2021 and was positively impacted by:
•Pricing changes to targeted products, resulting in an increase in operating profit of $40.9 million compared to the same period of 2021.
•Selling prices contractually tied to indices of select commodities increased, resulting in an increase in operating profit of $35.2 million compared to the same period of 2021.
Partially offset by:
•Increases in material commodity costs, which negatively impacted operating profit by $35.6 million, primarily related to increased steel and aluminum costs.
•The impact of fixed costs due to reduced organic volumes, which decreased operating profit by $11.5 million related to fixed selling, general, and administrative costs and $9.6 million related to fixed overhead costs.
•Higher production facility costs resulting from previous investments to expand capacity, which increased expenses by $10.0 million.
•Sales mix increase of lower margin products from recent acquisitions and related integration costs, which negatively impacted operating profit by $2.3 million.
•Additional amortization related to intangible assets from acquisitions completed in the last twelve months, which reduced operating profit by $2.3 million.
Amortization expense on intangible assets for the OEM Segment was $10.5 million in the third quarter of 2022, compared to $8.6 million in the same period in 2021. Depreciation expense on fixed assets for the OEM Segment was $14.2 million in the third quarter of 2022, compared to $12.8 million in the same period of 2021.
OEM Segment – Year to Date
Net sales of the OEM Segment in the first nine months of 2022 increased 36 percent, or $1.0 billion, compared to the first nine months of 2021. Net sales of components to OEMs were to the following markets for the nine months ended September 30:

(In thousands) | 2022 |  | 2021 |  | Change
RV OEMs: |  |  |  |  |
Travel trailers and fifth-wheels | $ | 2,261,250 |  |  | $ | 1,633,059 |  |  | 38 | %
Motorhomes | 261,656 |  |  | 193,105 |  |  | 35 | %
Adjacent Industries OEMs | 1,062,374 |  |  | 801,021 |  |  | 33 | %
Total OEM Segment net sales | $ | 3,585,280 |  |  | $ | 2,627,185 |  |  | 36 | %

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

| 2022 |  | 2021 |  | Change
Travel trailer and fifth-wheel RVs | 359,300 |  |  | 401,000 |  |  | (10) | %
Motorhomes | 45,800 |  |  | 42,400 |  |  | 8 | %

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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Our increase in net sales to RV OEMs of travel trailers, fifth-wheel, and motorhome components during the first nine months of 2022 was driven by selling price increases, market share gains, and acquisitions during the first nine months of 2022.
Our increase in net sales to OEMs in Adjacent Industries during the first nine months of 2022 was driven by selling price increases, market share gains, and wholesale production growth. We continue to believe there are significant opportunities in Adjacent Industries.
Operating profit of the OEM Segment was $501.1 million in the first nine months of 2022, an increase of $294.4 million compared to the same period of 2021. The operating profit margin of the OEM Segment in the first nine months of 2022 increased to 14.0 percent, compared to 7.9 percent for the same period of 2021, and was positively impacted by:
•Selling prices contractually tied to indices of select commodities increased, resulting in an increase in operating profit of $296.4 million compared to the same period of 2021.
•Pricing changes to targeted products, resulting in an increase in operating profit of $186.8 million compared to the same period of 2021.
Partially offset by:
•Increases in material commodity costs, which negatively impacted operating profit by $211.5 million, primarily related to increased steel and aluminum costs.
•Sales mix increase of lower margin products from recent acquisitions and related integration costs, which negatively impacted operating profit by $13.5 million.
•Higher production facility costs resulting from previous investments to expand capacity, which reduced operating profit by $11.1 million.
•Additional amortization related to intangible assets from acquisitions completed in the last twelve months, which reduced operating profit by $9.0 million.
Amortization expense on intangible assets for the OEM Segment was $30.7 million in the first nine months of 2022, compared to $22.9 million in the same period of 2021. Depreciation expense on fixed assets for the OEM Segment was $43.1 million in the first nine months of 2022, compared to $37.1 million in the same period of 2021.
Aftermarket Segment - Third Quarter
Net sales of the Aftermarket Segment in the third quarter of 2022 increased $0.6 million, compared to the same period of 2021. Net sales of components in the Aftermarket Segment were as follows for the three months ended September 30:

(In thousands) | 2022 |  | 2021 |  | Change
Total Aftermarket Segment net sales | $ | 219,659 |  |  | $ | 219,028 |  |  | — | %

The slight increase in net sales of the Aftermarket Segment was primarily due to selling price increases to targeted products and acquisitions, mostly offset by lower volumes due fully stocked distribution channels, chip shortages impacting truck markets, and the impacts of inflation and rising interest rates on consumers' discretionary spending.
Operating profit of the Aftermarket Segment was $22.4 million in the third quarter of 2022, a decrease of $2.5 million compared to the same period of 2021. The operating profit margin of the Aftermarket Segment was 10.2 percent in the third quarter of 2022, compared to 11.4 percent in the same period in 2021, and was negatively impacted by:
•Increases in material commodity costs and production supplies, which negatively impacted operating profit by $18.9 million, primarily related to increased steel and aluminum costs.
•The impact of fixed costs due to reduced organic volumes, which decreased operating profit by $7.6 million related to fixed selling, general, and administrative costs and $2.9 million related to fixed overhead costs.
•Investments in marketing activities and administrative structure of $2.6 million.
•Increases in production overhead costs in the current period resulting from investments to expand capacity over the past year, which negatively impacted operating profit by $2.4 million in the current period.
•Increases in direct labor costs due to production volumes and a tight labor market, which reduced operating profit by $2.2 million.
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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Partially offset by:
•Pricing changes to targeted products, resulting in an increase in operating profit of $33.0 million compared to the same period of 2021.
•Sales mix increase of higher margin products from the acquisition of Furrion, which positively impacted operating profit by $1.4 million.
Amortization expense on intangible assets for the Aftermarket Segment was $3.8 million in the third quarter of 2022, compared to $3.9 million in the same period of 2021. Depreciation expense on fixed assets for the Aftermarket Segment was $3.8 million in the third quarter of 2022, compared to $3.7 million in the same period of 2021.
Aftermarket Segment – Year to Date
Net sales of the Aftermarket Segment in the first nine months of 2022 increased 15 percent, or $95.4 million, compared to the same period of 2021. Net sales of components in the Aftermarket Segment were as follows for the nine months ended September 30:

(In thousands) | 2022 |  | 2021 |  | Change
Total Aftermarket Segment net sales | $ | 727,517 |  |  | $ | 632,102 |  |  | 15 | %

Net sales of the Aftermarket Segment increased during the first nine months of 2022 primarily due to selling price increases and sales from acquisitions.
Operating profit of the Aftermarket Segment was $74.9 million in the first nine months of 2022, a decrease of $2.8 million compared to the same period of 2021. The operating profit margin of the Aftermarket Segment was 10.3 percent in the first nine months of 2022, compared to 12.3 percent in the same period in 2021, and was negatively impacted by:
•Increases in material commodity costs and production supplies, which negatively impacted operating profit by $76.0 million, primarily related to increased steel and aluminum costs.
•The impact of fixed costs due to reduced organic volumes, which decreased operating profit by $12.2 million related to fixed selling, general, and administrative costs and $4.9 million related to fixed overhead costs.
•Investments in marketing costs and administrative structure of $10.7 million.
•Increases in production labor costs due to production volumes and a tight labor market, which reduced operating profit by $10.0 million.
•Increases in transportation costs, primarily for third party freight, which reduced operating profit by $6.6 million.
•Higher production facility costs in the current period resulting from investments to expand capacity over the past year, which reduced operating profit by $3.5 million in the current period.
Partially offset by:
•Pricing changes to targeted products, resulting in an increase in operating profit of $101.9 million compared to the same period of 2021.
•Sales mix increase of higher margin products from the acquisition of Furrion, which positively impacted operating profit by $9.0 million.
Amortization expense on intangible assets for the Aftermarket Segment was $11.3 million in the first nine months of 2022, compared to $10.3 million in the same period of 2021. Depreciation expense on fixed assets for the Aftermarket Segment was $10.9 million in the first nine months of 2022, compared to $10.0 million in the same period of 2021.
Interest Expense
Interest expense, net was $19.4 million for the nine months ended September 30, 2022, compared to $10.8 million in the same period of 2021. The increase in interest expense for the nine months ended September 30, 2022 as compared to the same period in 2021 was primarily due to higher global interest rates on our adjustable rate Term Loan and revolving credit facility, partially offset by principal payments on the Term Loan, net repayments of our revolving credit facility, and the payoff
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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
of the shelf loan balance in March 2022. See Note 9 of the Notes to Condensed Consolidated Financial Statements for a description of our credit facilities.
Income Taxes
The effective tax rates for the nine months ended September 30, 2022 and 2021 were 26.0 percent and 24.9 percent, respectively. The effective tax rate for the nine months ended September 30, 2022 differed from the Federal statutory rate primarily due to state taxes, foreign taxes, and non-deductible expenses, partially offset by the recognition of excess tax benefits as a component of the provision for income taxes, and Federal and Indiana research and development credits. The increase in the effective tax rate for the nine months ended September 30, 2022 as compared to the same period in 2021 was primarily due to decreases in the excess tax benefit related to the vesting of equity-based compensation awards and the cash surrender value of life insurance, plus a discrete tax adjustment in the current year period for an acquisition-related tax election.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
As of September 30, 2022, we had $23.4 million in cash and cash equivalents, and $369.2 million of availability under our revolving credit facility under the Credit Agreement. We paid off the full outstanding $50.0 million balance of our Shelf-Loan Facility in March 2022. See Note 9 of the Notes to Condensed Consolidated Financial Statements for a description of our credit facilities.
We maintain a level of liquidity sufficient to allow us to meet our cash needs in the short term. Over the long term, we manage our cash and capital structure to maximize shareholder return, maintain our financial condition, and maintain flexibility for our future strategic investments. We continuously assess our capital requirements, working capital needs, debt and leverage levels, debt and lease maturity schedules, capital expenditure requirements, dividends, future investments or acquisitions, and potential share repurchases. With elevated demand through the first half of 2022, the industry has faced challenges with supply chain constraints, rising material costs, and a tightened labor market, especially in northern Indiana. To address these challenges, we have strategically managed working capital, including intentionally building up levels of certain inventory items to avoid future shortages, and have expanded our production capacity. As we reinvest in the business, we also closely monitor our liquidity. In the event additional needs for cash arise, or if we refinance our existing debt, we may raise additional funds from a combination of sources, including the potential issuance of debt or equity securities. Additional financing might not be available on terms favorable to us, or at all.
We believe the availability under the revolving credit facility under the Credit Agreement, along with our cash flows from operations, are adequate to finance our anticipated cash requirements for the next twelve months.
The Condensed Consolidated Statements of Cash Flows reflect the following for the nine months ended September 30:

(In thousands) | 2022 |  | 2021
Net cash flows provided by operating activities | $ | 485,507 |  |  | $ | 12,293 |
Net cash flows used in investing activities | (157,320) |  |  | (216,872) |
Net cash flows (used in) provided by financing activities | (364,930) |  |  | 224,186 |
Effect of exchange rate changes on cash and cash equivalents | (2,750) |  |  | 1,187 |
Net (decrease) increase in cash and cash equivalents | $ | (39,493) |  |  | $ | 20,794 |

Cash Flows from Operations
Net cash flows provided by operating activities were $485.5 million in the first nine months of 2022, compared to $12.3 million in the first nine months of 2021. The increase in net cash flows provided by operating activities was due to an increase in net income of $206.7 million and an increase in depreciation and amortization of $15.8 million. Additionally, the net change in assets and liabilities, net of acquired businesses, used $257.1 million less cash in the first nine months of 2022 compared to the same period in 2021. The primary uses of cash in net assets were increases in accounts receivable and investments in inventories driven by record sales and rising commodity costs in the first nine months of 2021.
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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Over the long term, based on our historical collection and payment patterns, as well as inventory turnover, and also giving consideration to emerging trends and changes to the sales mix, we expect working capital to increase or decrease equivalent to approximately 10 to 15 percent of the increase or decrease, respectively, in net sales. However, there are many factors that can impact this relationship, especially in the short term.
Depreciation and amortization was $96.0 million in the first nine months of 2022, and is expected to be approximately $130 to $140 million for the full year 2022. Non-cash stock-based compensation expense in the first nine months of 2022 was $20.6 million. Non-cash stock-based compensation expense is expected to be approximately $25 to $30 million for the full year 2022.
Cash Flows from Investing Activities
Cash flows used in investing activities of $157.3 million in the first nine months of 2022 were primarily comprised of $103.7 million for capital expenditures and $55.7 million for the acquisitions of businesses. Cash flows used in investing activities of $216.9 million in the first nine months of 2021 were primarily comprised of $154.5 million for the acquisitions of businesses, net of cash acquired and $73.9 million for capital expenditures.
Our capital expenditures are primarily for replacement and growth, and during the first nine months of 2022 included capacity expansions designed to meet elevated demand. Over the long term, based on our historical capital expenditures, the replacement portion of our capital expenditures has averaged approximately one to two percent of net sales, while the growth portion has averaged approximately two to three percent of net sales. However, there are many factors that can impact the actual spending compared to these historical averages. We estimate full year 2022 capital expenditures of $110 to $130 million, including investments in automation and capacity expansions to meet elevated demand.
Capital expenditures and acquisitions in the first nine months of 2022 were funded by cash from operations and borrowings under our Credit Agreement. Capital expenditures and acquisitions in the remainder of fiscal year 2022 are expected to be funded primarily from cash generated from operations, as well as periodic borrowings under our revolving credit facility.
Cash Flows from Financing Activities
Cash flows used in financing activities of $364.9 million in the first nine months of 2022 were primarily comprised of $156.1 million in net repayments under our revolving credit facility, payments of quarterly dividends of $76.3 million, $65.9 million in repayments under our shelf loan, term loan and other borrowings, payment of contingent consideration and holdbacks related to acquisitions of $57.3 million, and cash outflows of $10.8 million related to vesting of stock-based awards, net of shares tendered for payment of taxes.
Cash flows provided by financing activities of $224.2 million in the first nine months of 2021 were primarily comprised of proceeds from the issuance of the Convertible Notes and Warrants to purchase 2.8 million shares of the Company's common stock, net of debt issuance costs, and from the privately negotiated call option contracts on the Company's common stock of $396.5 million, partially offset by $80.1 million in net payments under our revolving credit facility, payments of quarterly dividends of $64.4 million, repayments of $13.4 million under the term loan and other borrowings, and cash outflows of $8.3 million related to vesting of stock-based awards, net of shares tendered for payment of taxes.
The Credit Agreement and Shelf-Loan Facility include both financial and non-financial covenants. The covenants dictate that we shall not permit our net leverage ratio to exceed certain limits, shall maintain a minimum debt service coverage ratio, and must meet certain other financial requirements. At September 30, 2022, we were in compliance with all such requirements, and we expect to remain in compliance for the next twelve months.
We have paid regular quarterly dividends since 2016. Future dividend policy with respect to our common stock will be determined by our Board of Directors in light of our prevailing financial needs, earnings, and other relevant factors, including any limitations in our debt agreements, such as maintenance of certain financial ratios.
CORPORATE GOVERNANCE
We are in compliance with the corporate governance requirements of the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange. Our governance documents and committee charters and key practices have been posted to the “Investors” section of our website (www.lci1.com) and are updated periodically. The website also contains, or
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LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
provides direct links to, all SEC filings, press releases and investor presentations. We have also established a Whistleblower Policy, which includes a toll-free hotline (877-373-9123) to report complaints about our accounting, internal controls, auditing matters or other concerns. The Whistleblower Policy and procedure for complaints can be found on our website (www.lci1.com).
CONTINGENCIES
Information required by this item is included in Note 11 of the Notes to Condensed Consolidated Financial Statements and is incorporated herein by reference.
INFLATION
The prices of key raw materials, consisting primarily of steel and aluminum, and components used by us which are made from these raw materials, are influenced by demand and other factors specific to these commodities, as well as by inflationary pressures. We experienced elevated prices of these commodities in the first nine months of 2022, and we expect commodity prices to remain elevated in the near term. Prices of these commodities have historically been volatile, and over the past few months prices have continued to fluctuate. Please see "Results of Operations" above for additional information regarding the impact of raw material costs on our results of operations for the first nine months of 2022.
As a result of the competitive labor market and strong demand for our products, we experienced increased labor costs in the first nine months of 2022 attributable to higher wages and increased overtime and additional shifts for our team members. We expect some relief in labor costs in the near term as dealer inventory levels have balanced, which we project will reduce overtime and temporary staffing spend. Please see "Results of Operations" above for additional information regarding the impact of labor costs on our results of operations for the first nine months of 2022.
NEW ACCOUNTING PRONOUNCEMENTS
Information required by this item is included in Note 2 of the Notes to Condensed Consolidated Financial Statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including, but not limited to, those related to product returns, sales and purchase rebates, accounts receivable, inventories, goodwill and other intangible assets, net assets of acquired businesses, income taxes, warranty and product recall obligations, self-insurance obligations, operating lease right-of-use assets and obligations, asset retirement obligations, long-lived assets, pension and post-retirement benefits, stock-based compensation, segment allocations, contingent consideration, environmental liabilities, contingencies and litigation. We base our estimates on historical experience, other available information and various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other resources. Actual results and events could differ significantly from management estimates.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain "forward-looking statements" with respect to our financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities, acquisitions, plans and objectives of management, markets for the Company's common stock, the impact of legal proceedings, and other matters. Statements in this Form 10-Q that are not historical facts are "forward-looking statements" for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act of 1933, as amended, and involve a number of risks and uncertainties.
Forward-looking statements, including, without limitation, those relating to the Company's future business prospects, net sales, expenses and income (loss), capital expenditures, tax rate, cash flow, financial condition, liquidity, covenant compliance, retail and wholesale demand, integration of acquisitions, R&D investments, and industry trends, whenever they occur in this Form 10-Q are necessarily estimates reflecting the best judgment of the Company's senior management at the time such statements were made. There are a number of factors, many of which are beyond the Company’s control, which could
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LCI INDUSTRIES
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
cause actual results and events to differ materially from those described in the forward-looking statements. These factors include, in addition to other matters described in this Form 10-Q, the impacts of COVID-19, or other future pandemics, the Russia-Ukraine War, and heightened tensions between China and Taiwan on the global economy and on the Company's customers, suppliers, employees, business and cash flows, pricing pressures due to domestic and foreign competition, costs and availability of, and tariffs on, raw materials (particularly steel and aluminum) and other components, seasonality and cyclicality in the industries to which we sell our products, availability of credit for financing the retail and wholesale purchase of products for which we sell our components, inventory levels of retail dealers and manufacturers, availability of transportation for products for which we sell our components, the financial condition of our customers, the financial condition of retail dealers of products for which we sell our components, retention and concentration of significant customers, the costs, pace of and successful integration of acquisitions and other growth initiatives, availability and costs of production facilities and labor, team member benefits, team member retention, realization and impact of expansion plans, efficiency improvements and cost reductions, the disruption of business resulting from natural disasters or other unforeseen events, the successful entry into new markets, the costs of compliance with environmental laws, laws of foreign jurisdictions in which we operate, other operational and financial risks related to conducting business internationally, and increased governmental regulation and oversight, information technology performance and security, the ability to protect intellectual property, warranty and product liability claims or product recalls, interest rates, oil and gasoline prices, and availability, the impact of international, national and regional economic conditions and consumer confidence on the retail sale of products for which we sell our components, and other risks and uncertainties discussed more fully under the caption "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, and in the Company's subsequent filings with the SEC, including the Company's Quarterly Reports on Form 10-Q. Readers of this report are cautioned not to place undue reliance on these forward-looking statements, since there can be no assurance that these forward-looking statements will prove to be accurate. The Company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law.
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LCI INDUSTRIES
ITEM 3 – QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to changes in short-term interest rates on our variable rate debt. Depending on the interest rate option selected as more fully described in Note 9 of the Notes to Condensed Consolidated Financial Statements, interest is charged based on an indexed rate plus an applicable margin. Assuming a hypothetical increase of 0.25 percent in the indexed interest rate (which approximates a 10 percent increase of the weighted-average interest rate on our borrowings as of September 30, 2022), our results of operations would not be materially affected.
We are also exposed to changes in the prices of raw materials, specifically steel and aluminum. We have, from time to time, entered into derivative instruments for the purpose of managing a portion of the exposures associated with fluctuations in steel and aluminum prices. While these derivative instruments are subject to fluctuations in value, these fluctuations are generally offset by the changes in fair value of the underlying exposures. We had no outstanding derivative instruments on commodities at September 30, 2022 and December 31, 2021.
We have historically been able to obtain sales price increases to partially offset the majority of raw material cost increases. However, there can be no assurance future cost increases, if any, can be partially or fully passed on to customers, or that the timing of such sales price increases will match raw material cost increases.
Additional information required by this item is included under the caption "Inflation" in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of this report.
ITEM 4 – CONTROLS AND PROCEDURES
a. Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure, in accordance with the definition of "disclosure controls and procedures" in Rule 13a-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the desired control objectives. Management included in its evaluation the cost-benefit relationship of possible controls and procedures. We continually evaluate our disclosure controls and procedures to determine if changes are appropriate based upon changes in our operations or the business environment in which we operate.
As of the end of the period covered by this Form 10-Q, we performed an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2022.
b. Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2022, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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LCI INDUSTRIES
PART II – OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
In the normal course of business, we are subject to proceedings, lawsuits, regulatory agency inquiries and other claims. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. While these matters could materially affect operating results when resolved in future periods, it is management’s opinion that after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided in the Condensed Consolidated Balance Sheet as of September 30, 2022, would not be material to our financial position or results of operations.
ITEM 1A – RISK FACTORS
There have been no material changes to the matters discussed in Part I, Item 1A – Risk Factors in our Annual Report on Form 10-K as filed with the SEC on February 25, 2022.
ITEM 6 – EXHIBITS
a) Exhibits as required by item 601 of Regulation S-K:

1 | 3.1 | LCI Industries Restated Certificate of Incorporation, as amended effective December 30, 2016 (incorporated by reference to Exhibit 3.1 included in the Registrant’s Form 10-K for the year ended December 31, 2016).
2 | 3.2 | Amended and Restated Bylaws of LCI Industries, as amended May 25, 2017 (incorporated by reference to Exhibit 3.2 included in the Registrant’s Form 8-K filed on May 31, 2017).
3 | 31.1 | Certification of Chief Executive Officer required by Rule 13a-14(a).
4 | 31.2 | Certification of Chief Financial Officer required by Rule 13a-14(a).
5 | 32.1 | Certification of Chief Executive Officer required by Rule 13a-14(b) and Section 1350 Chapter 63 of Title 18 of the United States Code.
6 | 32.2 | Certification of Chief Financial Officer required by Rule 13a-14(b) and Section 1350 Chapter 63 of Title 18 of the United States Code.
7 | 101 | The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Income; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Cash Flows; (v) Condensed Consolidated Statements of Stockholders’ Equity; and (vi) Notes to Condensed Consolidated Financial Statements.
8 | 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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

LCI INDUSTRIES
Registrant
By | /s/ Brian M. Hall
Brian M. Hall
Chief Financial Officer
November 1, 2022

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