LCI INDUSTRIES (LCII) FY 2023 MD&A

Item 7.    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 our Consolidated Financial Statements and Notes thereto included in Part II, Item 8 of this Report.

This Management's Discussion and Analysis of Financial Condition and Results of Operations generally discusses 2023 and 2022 items and year-over-year comparisons between 2023 and 2022. A detailed discussion of 2021 items and year-over-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 24, 2023.

The Company, through its wholly-owned subsidiary, LCI, supplies, domestically and internationally, a broad array of highly engineered components for the leading OEMs in the recreation and transportation markets, consisting primarily of RVs and adjacent industries including boats; buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; 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.

23

We have two reportable segments, the OEM Segment and the Aftermarket Segment. At December 31, 2023, we operated over 110 manufacturing and distribution facilities located throughout North America and Europe. Net sales and operating profit were as follows for the years ended December 31:

Corporate expenses are allocated between the segments based upon net sales.

Net sales and operating profit by segment, as a percent of the total, were as follows for the years ended December 31:

Operating profit margin by segment was as follows for the years ended December 31:

Operating profit margins in 2023 were impacted by a number of factors, as further described below under “Results of Operations – Year Ended December 31, 2023 Compared to Year Ended December 31, 2022.”

Our OEM Segment manufactures and distributes a broad array of engineered components for the leading OEMs of RVs and adjacent industries, including boats; buses; trailers used to haul boats, livestock, equipment and other cargo; trucks;

24

trains; manufactured homes; and modular housing. Approximately 47 percent of our OEM Segment net sales for the year ended December 31, 2023 were of components for travel trailer and fifth-wheel RVs, including:

The Aftermarket Segment supplies many of these engineered components to the related aftermarket channels of the recreation and transportation 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, tankless water heaters, and the sale of replacement glass and awnings to fulfill insurance claims.

Diversification Strategy

We are executing a strategic initiative to diversify the markets we serve away from the historical concentration within the North American RV OEM industry. Approximately 61 percent of net sales for the year ended December 31, 2023 were generated outside of the North American RV OEM market compared to 46 percent in 2022, demonstrating positive results from our diversification strategy in 2023. While North American RV OEM wholesale shipments declined 37 percent year-over year, due to the effectiveness of our diversification strategy, consolidated net sales were only down 27 percent.

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.

According to the RVIA, industry-wide wholesale shipments from the United States of travel trailer and fifth-wheel RVs, the Company's primary RV market, decreased 39 percent to 259,100 units in 2023, compared to 2022, primarily due to decreased retail demand. Retail demand for travel trailer and fifth-wheel RVs decreased 17 percent in 2023 compared to 2022. Retail demand has declined from elevated post-pandemic levels, primarily driven by inflation and higher interest rates impacting retail consumers' discretionary spending. 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

25

Statistical Surveys, Inc., as well as the resulting estimated change in dealer inventories, for both the United States and Canada, is as follows:

According to the RVIA, industry-wide wholesale shipments of motorhome RVs in 2023 decreased 21 percent to 45,900 units compared to 2022. Retail demand for motorhome RVs decreased eight percent in 2023, compared to a 13 percent decrease in retail demand in 2022. Retail demand has declined from post-pandemic elevated levels, partially driven by inflation and higher interest rates impacting retail consumers' discretionary spending.

Adjacent Industries

Our portfolio of products used in RVs can also be used in other applications, including boats; buses; trailers used to haul boats, livestock, equipment, and other cargo; trucks; 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.

The estimated potential content per unit we may supply to the Adjacent Industries varies by OEM product and differs from RVs. As a means to understand the potential of each of these markets, management reviews the number of retail units sold. The following are key target markets for Adjacent Industries component sales:

•Enclosed trailers. According to Statistical Surveys, approximately 184,300, 198,700, and 239,700 enclosed trailers were sold in 2023, 2022, and 2021, respectively.

•Traditional power boats. Statistical Surveys also reported approximately 178,900, 185,400, and 216,900 traditional power boats were sold in 2023, 2022, and 2021, respectively. Traditional power boats include bass, deck, jet, pontoon, ski-wake, and other boats. Included in this total, Statistical Surveys reported approximately 62,300, 62,300, and 67,800 pontoon boats were sold in 2023, 2022, and 2021, respectively.

•School buses. According to School Bus Fleet, there were approximately 41,200, 40,600, and 30,600 school buses sold in 2023, 2022, and 2021, respectively.

•Manufactured housing. According to the Institute for Building Technology and Safety, there were approximately 89.200, 112,900, and 105,800 manufactured home wholesale shipments in 2023, 2022, and 2021, respectively.

Aftermarket Segment

Many of our OEM Segment products are also sold through various aftermarket channels of the recreation and transportation 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, tankless water heaters, and the sale of replacement glass and awnings to fulfill insurance claims. Many of the optional upgrades and non-critical replacement parts for RVs are purchased outside the normal product selling season, thereby causing certain Aftermarket Segment sales to be counter-seasonal.

According to Go RVing, estimated RV ownership in the United States as of 2021 increased to a record-high 11.2 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.

In December 2019, we acquired CURT, a leading manufacturer and distributor of branded towing products and truck accessories for the aftermarket. Our CURT products are sold to the automotive and truck aftermarket, as well as the RV, marine, and trailer markets, all of which require towing products, which we believe complements the OEM markets we serve. Sales from CURT products accounted for approximately half of our Aftermarket Segment net sales in each of 2023 and 2022.

26

CURT sold 910,000 hitches in 2023 compared to 860,000 in 2022. Additionally, with the acquisition of Kaspar Ranch Hand Equipment, LLC in April 2021, we continued to expand our product offering to include custom bumpers, grill guards, and steps for the automotive aftermarket.

RESULTS OF OPERATIONS

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Consolidated Summary

•Consolidated net sales for 2023 were $3.8 billion, 27 percent lower than consolidated net sales for 2022 of $5.2 billion. The decrease was primarily driven by a nearly 37 percent decrease in total North American RV wholesale shipments, decreased selling prices which are indexed to select commodities, and lower North American marine production levels, partially offset by net sales from recent acquisitions. Net sales from acquisitions completed in 2022 and 2023 contributed approximately $73.6 million in 2023.

•Net income for 2023 was $64.2 million, or $2.52 per diluted share, compared to net income of $395.0 million, or $15.48 per diluted share, for 2022.

•Consolidated operating profit during 2023 was $123.4 million compared to $553.0 million in 2022. Operating profit margin was 3.3 percent in 2023 compared to 10.6 percent in 2022. The decrease was primarily due to decreased selling prices which are indexed to select commodities and the impact of fixed costs on reduced sales, partially offset by decreases in material commodity costs.

•The cost of steel and aluminum consumed in certain of our manufactured components decreased in 2023 compared to 2022. Raw material costs are subject to continued fluctuation and impact certain contractual selling prices which are indexed to select commodities.

•The decrease in selling, general and administrative costs of $67.5 million in 2023 was primarily driven by personnel costs reductions of $41.5 million, discretionary spend reductions of $22.3 million, and a decrease in transportation costs of $17.5 million, due to lower volumes in 2023 compared to 2022, partially offset by incremental costs from recent acquisitions of $7.6 million.

•The effective tax rate of 22.7 percent for the full-year 2023 was lower than the prior year, primarily due to tax adjustments as discussed below under "Income Taxes."

•Interest expense in 2023 was $40.4 million compared to $27.6 million in 2022. The increase was primarily due to interest rate increases throughout the year on our variable rate indebtedness, partially offset by net repayments of indebtedness of $277.0 million in 2023.

•In 2023, we paid quarterly dividends aggregating $4.20 per share, or $106.3 million.

OEM Segment

Net sales of the OEM Segment in 2023 decreased 33 percent, or $1.4 billion, compared to 2022. Net sales of components to OEMs were to the following markets for the years ended December 31:

According to the RVIA, industry-wide wholesale shipments for the years ended December 31 were:

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

27

OEMs for the different types of RVs produced for the twelve months ended December 31, divided by the industry-wide wholesale shipments of the different product mix of RVs for the same period, was:

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. The declines in content in 2023 compared to 2022 were driven primarily by decreased selling prices contractually tied to indices of select commodities, partially offset by organic and acquisition growth.

Our decrease in net sales to RV OEMs during 2023 was driven by a 37 percent reduction in North American wholesale shipments during 2023, primarily driven by dealer inventory levels, inflation, and higher interest rates impacting retail consumers.

Our decrease in net sales to OEMs in Adjacent Industries during 2023 was primarily due to lower sales to North American OEMs in the marine and manufactured housing markets, primarily driven by dealer inventory levels, inflation, and elevated interest rates impacting retail consumers.

Operating profit of the OEM Segment was $17.4 million in 2023, a decrease of $461.8 million compared to 2022. The operating profit margin of the OEM Segment decreased to 0.6 percent in 2023 compared to 11.1 percent in 2022 and was negatively impacted by:

•Selling prices contractually tied to indices of select commodities decreased, resulting in a decrease in operating profit of $213.7 million compared to 2022.

•The impact of fixed costs on reduced sales, which decreased operating profit by $84.7 million related to fixed production overhead costs and $63.8 million related to fixed selling, general, and administrative costs.

•Warranty costs decreased operating profit by $29.4 million due to increased warranty claim payments driven by retail dealers seeking service work to offset retail sales which declined in 2023 and higher claim activity associated with certain products.

•Incremental costs incurred due to volatile OEM schedules, resulting in a decrease in operating profit of $20.2 million compared to 2022.

•Sales mix increase of lower margin products from recent acquisitions and related integration costs, which negatively impacted operating profit by $19.7 million.

Partially offset by:

•Decreases in material commodity costs, which positively impacted operating profit by $114.7 million, primarily related to decreased steel and aluminum costs.

•A decrease in production labor primarily related to reduced overtime and temporary staffing, resulting in an increase in operating profit of $12.6 million compared to 2022.

•Pricing changes to targeted products, resulting in an increase in operating profit of $9.5 million compared to 2022.

Amortization expense on intangible assets for the OEM Segment was $41.6 million in 2023, compared to $41.3 million in 2022. Depreciation expense on fixed assets for the OEM Segment was $58.4 million in 2023, compared to $58.2 million in 2022.

Aftermarket Segment

Net sales of the Aftermarket Segment in 2023 decreased 1 percent, or $10.2 million, compared to 2022. Net sales of components in the Aftermarket Segment were as follows for the years ended December 31:

Our net sales to the Aftermarket Segment decreased during 2023 primarily driven by lower volumes within marine markets and the impacts of inflation and elevated interest rates on consumers' discretionary spending. The declines in the marine aftermarket were partially offset by strength in the automotive and RV aftermarkets, especially in the second half of 2023. The automotive aftermarket, in particular, experienced growth in the second half of 2023 primarily due to market share gains.

28

Operating profit of the Aftermarket Segment was $106.1 million in 2023, an increase of $32.2 million compared to 2022. The operating profit margin of the Aftermarket Segment was 12.0 percent in 2023, compared to 8.3 percent in 2022, and was positively impacted by:

•Decreases in material commodity costs, which positively impacted operating profit by $34.4 million, primarily related to decreased steel and aluminum costs.

•Pricing changes to targeted products, resulting in an increase in operating profit of $6.8 million compared to the same period of 2022.

Partially offset by:

•Increases in outbound transportation costs due to changes in customer mix, which reduced operating profit by $5.1 million.

•The impact of fixed costs due to reduced volumes, which decreased operating profit by $2.7 million related to fixed selling, general, and administrative costs and $1.4 million related to fixed overhead costs.

Amortization expense on intangible assets for the Aftermarket Segment was $15.5 million in 2023, compared to $15.1 million in 2022. Depreciation expense on fixed assets for the Aftermarket Segment was $16.3 million in 2023, compared to $14.7 million in 2022.

Interest Expense

Interest expense, net was $40.4 million in 2023, compared to $27.6 million in 2022. The increase in interest expense was primarily due to higher global interest rates on our adjustable rate Term Loan (as defined in Note 9 of the Notes to Consolidated Financial Statements) and revolving credit facility, partially offset by principal payments on the Term Loan, net repayments on our revolving credit facility, and the payoff of the shelf loan balance in March 2022. We prepaid $37.5 million of principal on the Term Loan during 2023. These prepayments were applied to pay in full the scheduled principal amortization payments due through March 31, 2025, and are projected to save us approximately $1.9 million in annual interest expense based on interest rates in effect at December 31, 2023. See Note 9 of the Notes to Consolidated Financial Statements for a description of our credit facilities.

Income Taxes

The effective income tax rate for 2023 was 22.7 percent compared to 24.8 percent in 2022. The lower effective tax rate for 2023 was primarily due to an increase in the cash surrender value of life insurance, a decrease in non-deductible executive compensation expenses, and a decrease in the state effective tax rate. We estimate the 2024 effective income tax rate to be approximately 24 to 26 percent.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

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. We believe our operating cash flows, credit facilities, as well as any potential future borrowings, will be sufficient to fund our future payments and long-term initiatives.

As of December 31, 2023, we had $66.2 million in cash and cash equivalents, and $245.3 million of availability under our revolving credit facility under the Credit Agreement (as defined in Note 9 of the Notes to Consolidated Financial Statements). We also have the ability to request an increase to the revolving and/or incremental term loan facilities by up to an additional $400.0 million in the aggregate upon approval of the lenders providing any such increase and the satisfaction of certain other conditions. See Note 9 of the Notes to Consolidated Financial Statements for a description of our credit facilities.

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.

29

The Consolidated Statements of Cash Flows reflect the following for the years ended December 31:

Discussion - Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Cash Flows from Operations

Net cash flows provided by operating activities were $527.2 million in 2023, compared to $602.5 million in 2022. The decrease in net cash flows provided by operating activities was primarily due to a decrease in net income adjusted for depreciation and amortization, stock-based compensation expense, deferred taxes, and other non-cash items of $318.1 million. The decrease in net income was partially offset by the net change in assets and liabilities, net of acquired businesses, as it generated $242.8 million more cash than in 2022. The primary provider of cash generated from net assets in 2023 was the decrease in inventory of $235.3 million, due to decreasing material commodity costs and initiatives to reduce inventory as RV production demand has slowed from elevated post-pandemic levels seen during the first half of 2022.

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 $131.8 million and $129.2 million in 2023 and 2022, respectively, and is expected to be approximately $130 to $140 million in 2024. Non-cash stock-based compensation expense was $18.2 million and $23.7 million in 2023 and 2022, respectively, and is expected to be approximately $20 to $25 million in 2024.

Cash Flows from Investing Activities

Cash flows used in investing activities of $83.7 million in 2023 were primarily comprised of $62.2 million for capital expenditures and $25.9 million for the acquisition of businesses. Cash flows used in investing activities of $241.8 million in 2022 were primarily comprised of $130.6 million for capital expenditures and $108.5 million for the acquisition of businesses.

Our capital expenditures are primarily for replacement and growth. Over the long term, based on our historical capital expenditures, the replacement portion 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 2024 capital expenditures of $55 to $75 million, including investments in automation and lean projects, which we expect to fund with cash flows from operations or periodic borrowings under the revolving credit facility as needed.

The 2023 capital expenditures and acquisitions were funded by cash generated from operations and borrowings under our Credit Agreement. Capital expenditures and acquisitions in 2024 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 $426.2 million in 2023 were primarily comprised of $215.9 million in net repayments under our revolving credit facility, payments of quarterly dividends of $106.3 million, $61.1 million in repayments under our Term Loan and other borrowings, $31.9 million related to payments of contingent consideration and holdbacks related to acquisitions, and cash outflows of $9.6 million related to vesting of stock-based awards, net of shares tendered for payment of taxes. Included in the repayments under our Term Loan were $37.5 million of principal prepayments in 2023. These prepayments were applied to pay in full the scheduled principal amortization payments due through March 31, 2025.

Cash flows used in financing activities of $374.9 million in 2022 were primarily comprised of $105.3 million in net repayments under our revolving credit facility, payments of quarterly dividends of $102.7 million, $73.0 million in repayments under our shelf loan, Term Loan, and other borrowings, $60.2 million related to payment of contingent consideration and

30

holdbacks related to acquisitions, $24.1 million in repurchases of common stock, and cash outflows of $11.0 million related to vesting of stock-based awards, net of shares tendered for payment of taxes.

The Credit Agreement includes 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. During 2023, we entered into two amendments to the Credit Agreement that provided for adjustments to certain of the financial covenants for the second, third, and fourth fiscal quarters of 2023. At December 31, 2023, we were in compliance with all applicable financial covenants and expect to remain in compliance for the next twelve months.

We have paid regular quarterly dividends since 2016. Future dividend policy with respect to our common stock will be determined by our Board of Directors in light of our prevailing financial needs, earnings, and other relevant factors, including any limitations in our debt agreements, such as maintenance of certain financial ratios. In May 2022, our Board of Directors authorized a stock repurchase program for the purchase of up to $200.0 million of our common stock over a three-year period ending on May 19, 2025. Under this stock repurchase program, we purchased 253,490 shares at a weighted average price of $94.89 per share, totaling $24.1 million, during the year ended December 31, 2022. No shares were repurchased during the year ended December 31, 2023. See Note 13 of the Notes to Consolidated Financial Statements for additional information related to our dividend and share repurchase programs.

Future Cash Requirements

The following table summarizes our material estimated future cash requirements under our contractual obligations for indebtedness and operating leases at December 31, 2023, in total and disaggregated into current (payable in 2024) and long-term (payable after 2024) obligations.

a.See Note 9 of the Notes to Consolidated Financial Statements for additional information regarding the maturities of debt principal. Interest payments on our indebtedness are calculated using the outstanding balances and interest rates in effect on December 31, 2023.

b.See Note 11 of the Notes to Consolidated Financial Statements for additional information regarding the maturity of our lease obligations under operating leases. Our finance leases were not material at December 31, 2023.

Retirement and Other Benefit Plans

We consider various factors when making funding decisions, such as regulatory requirements, actuarially determined minimum contribution requirements, and contributions required to avoid benefit restrictions for defined benefit pension plans. For the year ended December 31, 2023, we made discretionary matching contributions of $12.1 million to our defined contribution 401(k) profit sharing plan. We anticipate making minimum required contributions of approximately $0.7 million to our Dutch pension plans in 2024 following curtailment of the plans at the end of 2022. We also expect to make matching contributions to our defined contribution 401(k) profit sharing plan in 2024 at a level similar to 2023; however, these contributions are discretionary and subject to change. See Note 8 of the Notes to Consolidated Financial Statements for further information related to our retirement and other benefit plans.

CORPORATE GOVERNANCE

We are in compliance with the corporate governance requirements of the 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 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 (800-461-9330) to report complaints about the Company’s accounting, internal controls, auditing matters or other concerns. The Whistleblower Policy and procedure for complaints can be found on our website (www.lci1.com).

31

CONTINGENCIES

Additional information required by this item is included under Item 3 of Part I of this Annual Report on Form 10-K.

CRITICAL ACCOUNTING ESTIMATES

Our Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which requires certain estimates and assumptions to be made that affect the amounts and disclosures reported in those financial statements and the related accompanying notes. Actual results could differ from these estimates and assumptions. While our significant accounting policies are more fully described in Note 2 of the Notes to Consolidated Financial Statements, the following discussion addresses our most critical accounting estimates, which are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. Management has discussed the development and selection of its critical accounting estimates with the Audit Committee of the Company’s Board of Directors and the Audit Committee has reviewed the disclosure presented below relating to the critical accounting estimates.

Warranty

We provide warranty terms based upon the type of product sold. We estimate the warranty accrual based upon various factors, including historical warranty costs, warranty claim lag, and sales. The accounting for warranty accruals requires us to make assumptions and judgments, and to the extent actual results differ from original estimates, adjustments to recorded accruals may be required. In 2023, we experienced an increase in warranty claims paid year-over-year, which grew while net sales contracted. We believe the unfavorable trend in relation to net sales is due to increased warranty claim payments driven by retail dealers seeking service work to offset retail sales which declined in 2023 and higher claim activity associated with certain products. The increase in warranty claim lag time was driven by units remaining on dealer lots for longer periods due to the slower sales environment. For further information on our warranty accrual, including a roll-forward of changes in the accrual, see Note 7 of the Notes to Consolidated Financial Statements.

Fair Value of Intangible Assets of Acquired Businesses

We value the intangible assets associated with the acquisitions of businesses on the respective acquisition dates. Depending upon the type of intangible asset acquired, we use different valuation techniques in determining the fair value. Those techniques include comparable market prices, long-term sales, profitability and cash flow forecasts, assumptions regarding future industry-specific economic and market conditions and a market participant’s weighted average cost of capital, as well as other techniques as circumstances require. By their nature, these assumptions require judgment, and if management had chosen different assumptions, the fair value of intangible assets of acquired businesses would have been different. For further information on acquired intangible assets, see Note 4 of the Notes to Consolidated Financial Statements.

New Accounting Pronouncements

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

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. Prices of these commodities have historically been volatile, and over the past few months prices have continued to fluctuate. Overall, we experienced reduced prices of these commodities in 2023, and at this time, we expect commodity prices to be generally stable in 2024. Please see "Results of Operations" above for additional information regarding the impact of raw material costs on our results of operations for the year ended December 31, 2023.

While we experienced deflation in the prices of our key raw materials in 2023, inflation on consumer products and interest rates that increased throughout 2023 impacted retail consumers' discretionary spending, which we believe contributed to our decline in sales, especially in our RV OEM and certain adjacent industries OEM markets such as marine. Additionally, increasing interest rates in 2023 impacted retail dealers' cost of floorplan financing, which elevates the carrying cost of inventory on retail dealer lots. We expect that the potential for interest rate reductions later in 2024 would favorably impact retail consumers, as well as retail dealers' floorplan financing.

32