LCI Industries(US:LCII)2022-02-25 19:35Part I Business Overview LCI Industries is a leading component supplier for RVs and adjacent markets, achieving record 2021 net sales of $4.5 billion Financial Highlights | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Consolidated Net Sales | $4.5 billion | $2.8 billion | +60% | | Net Income | $287.7 million | $158.4 million | +81.6% | | Diluted EPS | $11.32 | $6.27 | +80.5% | - The company operates through two reportable segments: the Original Equipment Manufacturers (OEM) Segment and the Aftermarket Segment, with over 120 facilities across North America and Europe as of December 31, 20212122 Major Customers | Customer | % of 2021 Consolidated Net Sales | | :--- | :--- | | Thor Industries, Inc. | 23% | | Berkshire Hathaway Inc. (Forest River, Clayton Homes) | 20% | - Completed six acquisitions in 2021, including Furrion and Ranch Hand, which contributed approximately $269.9 million to 2021 net sales252932 - The company's diversification strategy resulted in 47% of net sales generated outside the North American RV OEM market, a slight decrease from 50% in 2020 due to record RV demand34 - As of December 31, 2021, the company had approximately 13,900 full-time team members62 Risk Factors The company faces risks from the COVID-19 pandemic, economic cyclicality, customer concentration, and supply chain disruptions - The COVID-19 pandemic presents ongoing risks, including supply chain disruptions, cost increases, potential demand volatility, and cybersecurity risks808182 - The business is subject to industry and economic risks, as the RV and boat markets are cyclical and sensitive to consumer discretionary spending858790 - Significant customer concentration risk exists, with two customers (Thor Industries and Berkshire Hathaway) accounting for 43% of consolidated net sales in 202194 - The company faces risks from volatile raw material costs, particularly for steel and aluminum, which represented approximately 45% and 15% of raw material costs in 2021, respectively95 - International expansion subjects the company to risks including adverse political conditions, trade protection measures, and currency fluctuations115116117 - Financial risks include servicing substantial debt, adhering to debt covenants, and potential dilution from the conversion of the company's Convertible Notes146147151 Properties As of year-end 2021, the company operated 143 owned and leased facilities across North America and Europe Facilities by Segment and Location | Segment | Type | North America | Europe | Total | Owned | | :--- | :--- | :--- | :--- | :--- | :--- | | OEM | Manufacturing | 67 | 20 | 87 | 36 | | | Other | 16 | 5 | 21 | 5 | | Aftermarket | Manufacturing | 12 | — | 12 | — | | | Other | 23 | — | 23 | 1 | | Total | | 118 | 25 | 143 | 42 | Legal Proceedings The company is subject to various legal proceedings not expected to have a material financial impact - In the normal course of business, the company is subject to various legal proceedings, but management does not expect the outcomes to have a material financial impact159 Mine Safety Disclosures This item is not applicable to the company Part II Market for Common Equity and Related Matters The company's stock trades on the NYSE under "LCII" and it has maintained a regular quarterly dividend program since 2016 - The company's common stock trades on the New York Stock Exchange under the symbol "LCII"163 - The company initiated a regular quarterly dividend program in 2016, with future policy determined by the Board of Directors166 Management's Discussion and Analysis (MD&A) Management discusses the significant 60% growth in net sales to $4.5 billion, segment performance, and overall financial condition Key Financial Results | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Total net sales | $4,472,697 | $2,796,166 | | Total operating profit | $398,410 | $222,934 | - The company's diversification strategy resulted in 47% of net sales for 2021 being generated outside the North American RV OEM market, compared to 50% in 2020176 Results of Operations Consolidated net sales grew 60% to $4.5 billion in 2021, driven by strong performance in both OEM and Aftermarket segments OEM Segment Net Sales (In thousands) | OEM Segment Net Sales (In thousands) | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Travel trailers and fifth-wheels | $2,295,612 | $1,321,567 | 74% | | Motorhomes | $258,995 | $158,096 | 64% | | Adjacent Industries OEMs | $1,089,005 | $688,248 | 58% | | Total OEM Segment | $3,643,612 | $2,167,911 | 68% | Average Product Content per RV | Average Product Content per RV | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Travel trailer and fifth-wheel RV | $4,198 | $3,390 | 24% | | Motorhome | $2,856 | $2,479 | 15% | - Aftermarket Segment net sales increased 32% to $829.1 million in 2021, driven by $149.0 million in organic growth and $51.8 million from acquisitions197 - Operating profit margins increased in both segments (OEM: 7.2% to 8.4%; Aftermarket: 10.6% to 11.3%) due to leveraging fixed costs over higher sales196198 Liquidity and Capital Resources Operating cash flow turned negative due to a strategic inventory build, while financing was bolstered by a convertible notes issuance Cash Flow Activity (In thousands) | Cash Flow Activity (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash from operating activities | $(111,573) | $231,400 | | Net cash used in investing activities | $(281,218) | $(232,301) | | Net cash from financing activities | $404,563 | $14,048 | - The negative operating cash flow in 2021 was primarily due to a strategic increase in inventory of $516.7 million to address supply chain constraints203 - In May 2021, the company issued $460.0 million in convertible senior notes, which provided net proceeds of $396.6 million after hedges and costs209210 Future Cash Requirements (In thousands) | Future Cash Requirements (In thousands) | Total | Current (2022) | Long-Term | | :--- | :--- | :--- | :--- | | Total indebtedness | $1,314,950 | $71,382 | $1,243,568 | | Interest on indebtedness | $77,913 | $17,276 | $60,637 | | Operating leases | $210,426 | $36,416 | $174,010 | Critical Accounting Estimates Key estimates include product warranty accruals and the fair value of intangible assets from business acquisitions - Product warranty accrual is a critical estimate, with the accrual balance at $52.1 million at the end of 2021, up from $47.1 million in 2020226244329 - The fair value of intangible assets of acquired businesses is another critical estimate, determined using techniques like discounted cash flow forecasts228 Market Risk Disclosures The company is primarily exposed to market risk from interest rate fluctuations and raw material price volatility - The company is exposed to interest rate risk on its $799.0 million of variable-rate debt; a hypothetical 100 basis point increase would reduce annual cash flows by approximately $8.0 million232 - The company experienced elevated prices for key raw materials like steel and aluminum in 2021 and expects them to remain elevated in 2022230 Financial Statements and Supplementary Data This section presents the audited 2021 consolidated financial statements, the auditor's report, and accompanying notes Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion, identifying product warranty accruals as a critical audit matter - KPMG LLP issued an unqualified opinion, stating the financial statements are presented fairly and the company maintained effective internal control236 - The audit of internal controls excluded the 2021 acquisitions of Furrion Holdings Limited and Exertis, as permitted by SEC guidance237 - The estimation of certain product warranty accruals was identified as a Critical Audit Matter, requiring complex auditor judgment244245 Consolidated Financial Statements The statements show significant 2021 growth, with net sales of $4.47B, net income of $287.7M, and assets of $3.29B Consolidated Statements of Income Data | (In thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net sales | $4,472,697 | $2,796,166 | $2,371,482 | | Gross profit | $1,043,035 | $706,090 | $539,202 | | Operating profit | $398,410 | $222,934 | $200,210 | | Net income | $287,739 | $158,440 | $146,509 | | Diluted EPS | $11.32 | $6.27 | $5.84 | Consolidated Balance Sheets Data | (In thousands) | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total current assets | $1,566,885 | $869,801 | | Total assets | $3,288,094 | $2,298,031 | | Total current liabilities | $627,216 | $416,394 | | Total liabilities | $2,195,219 | $1,389,705 | | Total stockholders' equity | $1,092,875 | $908,326 | Notes to Consolidated Financial Statements The notes detail accounting policies, 2021 acquisitions, debt structure including new convertible notes, and segment reporting - Note 4 details the six acquisitions completed in 2021, including Furrion for total consideration of ~$146.7M and Ranch Hand for ~$59.9M298300310 - Note 9 describes the company's long-term debt, which totaled $1.3B at year-end, including a $400M New Term Loan and a $460M issuance of convertible notes338343348 - Note 15 provides a detailed breakdown of revenue, showing the OEM segment at 81% of sales and the Aftermarket at 19%, with Thor and Berkshire Hathaway as top customers399400403 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of year-end 2021 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2021408 - Management concluded that internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework411 - The assessment of internal control over financial reporting excluded the 2021 acquisitions of Furrion and Exertis, as permitted by SEC guidance412 Part III Directors, Executive Compensation, and Corporate Governance Information on directors, compensation, and governance is incorporated by reference from the 2022 Proxy Statement - Information regarding directors, executive officers, corporate governance, executive compensation, and security ownership is incorporated by reference from the company's 2022 Proxy Statement418422423424 - The company's independent registered public accounting firm is KPMG LLP425 Part IV Exhibits and Financial Statement Schedules This section lists all financial statements and exhibits filed with the Form 10-K, including key agreements and certifications - This section contains a comprehensive list of all exhibits filed with the 10-K, including governance documents, debt agreements, and executive certifications429430431 Form 10-K Summary This item is not applicable