PATRICK INDUSTRIES INC 10-Q

ITEM 1. FINANCIAL STATEMENTS PATRICK INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) First Quarter Ended (thousands except per share data) March 29, 2020 March 31, 2019 NET SALES $ 589,232 $ 608,218 Cost of goods sold 479,751 501,670 GROSS PROFIT 109,481 106,548 Operating Expenses: Warehouse and delivery 24,732 24,041 Selling, general and administrative 35,869 37,692 Amortization of intangible assets 9,601 8,989 Total operating expenses 70,202 70,722 OPERATING INCOME 39,279 35,826 Interest expense, net 10,492 8,983 Income before income taxes 28,787 26,843 Income taxes 7,600 5,994 NET INCOME $ 21,187 $ 20,849 BASIC NET INCOME PER COMMON SHARE $ 0.92 $ 0.90 DILUTED NET INCOME PER COMMON SHARE $ 0.91 $ 0.90 Weighted average shares outstanding – Basic 23,016 23,039 Weighted average shares outstanding – Diluted 23,267 23,248 See accompanying Notes to Condensed Consolidated Financial Statements. 3 PATRICK INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) First Quarter Ended (thousands) March 29, 2020 March 31, 2019 NET INCOME $ 21,187 $ 20,849 Other comprehensive (loss) income, net of tax: Unrealized (loss) gain of hedge derivatives ( 3,006 ) ( 1,054 ) Other ( 37 ) 27 Total other comprehensive loss ( 3,043 ) ( 1,027 ) COMPREHENSIVE INCOME $ 18,144 $ 19,822 See accompanying Notes to Condensed Consolidated Financial Statements. 4 PATRICK INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited) As of (thousands) March 29, 2020 December 31, 2019 ASSETS Current Assets Cash and cash equivalents $ 94,523 $ 139,390 Trade and other receivables, net 154,571 87,536 Inventories 273,545 253,870 Prepaid expenses and other 26,275 36,038 Total current assets 548,914 516,834 Property, plant and equipment, net 189,129 180,849 Operating lease right-of-use assets 98,291 93,546 Goodwill 325,916 319,349 Intangible assets, net 356,633 357,014 Deferred financing costs, net 2,868 2,978 Other non-current assets 407 423 TOTAL ASSETS $ 1,522,158 $ 1,470,993 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Current maturities of long-term debt $ 5,000 $ 5,000 Current operating lease liabilities 28,168 27,694 Accounts payable 138,146 96,208 Accrued liabilities 64,889 58,033 Total current liabilities 236,203 186,935 Long-term debt, less current maturities, net 672,235 670,354 Long-term operating lease liabilities 70,831 66,467 Deferred tax liabilities, net 26,546 27,284 Other long-term liabilities 20,967 22,472 TOTAL LIABILITIES 1,026,782 973,512 SHAREHOLDERS’ EQUITY Common stock 170,626 172,662 Additional paid-in-capital 24,534 25,014 Accumulated other comprehensive loss ( 8,741 ) ( 5,698 ) Retained earnings 308,957 305,503 TOTAL SHAREHOLDERS’ EQUITY 495,376 497,481 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,522,158 $ 1,470,993 See accompanying Notes to Condensed Consolidated Financial Statements. 5 PATRICK INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended (thousands) March 29, 2020 March 31, 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 21,187 $ 20,849 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,175 15,543 Stock-based compensation expense 4,311 3,947 Amortization of convertible notes debt discount 1,723 1,671 Other 750 1,048 Change in operating assets and liabilities, net of acquisitions of businesses: Trade receivables ( 66,453 ) ( 54,188 ) Inventories ( 18,211 ) 1,224 Prepaid expenses and other assets 9,649 5,216 Accounts payable, accrued liabilities and other 43,033 32,574 Net cash provided by operating activities 13,164 27,884 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ( 7,580 ) ( 10,005 ) Proceeds from sale of property, equipment and other investing activities 21 1,372 Business acquisitions, net of cash acquired ( 24,281 ) ( 1,222 ) Net cash used in investing activities ( 31,840 ) ( 9,855 ) CASH FLOWS FROM FINANCING ACTIVITIES Term debt repayments — ( 1,250 ) Borrowings on revolver 6,720 213,523 Repayments on revolver ( 6,720 ) ( 220,855 ) Stock repurchases under buyback program ( 15,550 ) — Cash dividends paid to shareholders ( 5,837 ) — Payments related to vesting of stock-based awards, net of shares tendered for taxes ( 2,747 ) ( 3,222 ) Payment of deferred financing costs and other ( 57 ) ( 250 ) Payment of contingent consideration from a business acquisition ( 2,000 ) ( 4,416 ) Net cash used in financing activities ( 26,191 ) ( 16,470 ) Increase (decrease) in cash and cash equivalents ( 44,867 ) 1,559 Cash and cash equivalents at beginning of year 139,390 6,895 Cash and cash equivalents at end of period $ 94,523 $ 8,454 See accompanying Notes to Condensed Consolidated Financial Statements. 6 PATRICK INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) First Quarter Ended March 29, 2020 (thousands) Common Stock Additional Paid-in- Capital Accumulated Other Comprehensive Loss Retained Earnings Total Balance December 31, 2019 $ 172,662 $ 25,014 $ ( 5,698 ) $ 305,503 $ 497,481 Net income — — — 21,187 21,187 Dividends declared — — — ( 5,978 ) ( 5,978 ) Other comprehensive loss, net of tax — — ( 3,043 ) — ( 3,043 ) Share repurchases under buyback program ( 3,315 ) ( 480 ) — ( 11,755 ) ( 15,550 ) Shares used to pay taxes on stock grants ( 3,032 ) — — — ( 3,032 ) Stock-based compensation expense 4,311 — — — 4,311 Balance March 29, 2020 $ 170,626 $ 24,534 $ ( 8,741 ) $ 308,957 $ 495,376 First Quarter Ended March 31, 2019 (thousands) Common Stock Additional Paid-in- Capital Accumulated Other Comprehensive Loss Retained Earnings Total Balance December 31, 2018 $ 161,436 $ 25,124 $ ( 2,680 ) $ 224,874 $ 408,754 Net income — — — 20,849 20,849 Other comprehensive loss, net of tax — — ( 1,027 ) — ( 1,027 ) Shares used to pay taxes on stock grants ( 3,437 ) — — — ( 3,437 ) Issuance of shares upon exercise of common stock options 3 — — — 3 Stock-based compensation expense 3,947 — — — 3,947 Balance March 31, 2019 $ 161,949 $ 25,124 $ ( 3,707 ) $ 245,723 $ 429,089 See accompanying Notes to Condensed Consolidated Financial Statements 7 PATRICK INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Patrick Industries, Inc. (“Patrick”, the “Company”, "we", "our") contain all adjustments (consisting of normal recurring adjustments) that we believe are necessary to present fairly the Company’s financial position as of March 29, 2020 and December 31, 2019 , and its results of operations and cash flows for the three months ended March 29, 2020 and March 31, 2019 . Patrick’s unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules or regulations. Certain immaterial reclassifications have been made to the prior period presentation to conform to the current period presentation. For a description of significant accounting policies used by the Company in the preparation of its consolidated financial statements, please refer to Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 . The December 31, 2019 condensed consolidated statement of financial position data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Operating results for the first quarter ended March 29, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020 . The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning approximately thirteen weeks. The first quarter ends on the Sunday closest to the end of the first thirteen-week period. The second and third quarters are thirteen weeks in duration and the fourth quarter is the remainder of the year. The first quarter of fiscal year 2020 ended on March 29, 2020 and the first quarter of fiscal year 2019 ended on March 31, 2019. In preparation of Patrick’s condensed consolidated financial statements as of and for the three months ended March 29, 2020 , management evaluated all subsequent events and transactions that occurred after the balance sheet date through the date of issuance of the Form 10-Q that required recognition or disclosure in the condensed consolidated financial statements. See Note 17 for more information. 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Goodwill Impairment In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-04, " Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ". This ASU simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. The standard requires that the impairment loss be measured as the excess of the reporting unit's carrying amount over its fair value. It eliminates the second step that requires the impairment to be measured between the implied value of a reporting unit's goodwill and its carrying value. The Company adopted ASU 2017-04 on January 1, 2020 and the adoption did not have a material impact on the condensed consolidated financial statements. Credit Losses In June 2016, the FASB issued ASU 2016-13, “ Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments ”, which amends certain provisions of ASC 326, “Financial Instruments-Credit Loss”. The ASU changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held to maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. Additionally, entities will be 8 required to disclose more information with respect to credit quality indicators, including information used to track credit quality by year of origination for most financing receivables. The Company adopted ASU 2016-13 on January 1, 2020 and the adoption did not have a material impact on the condensed consolidated financial statements. Income Taxes In December 2019, the FASB issued ASU 2019-12, " Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ", a new standard to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of this standard in our consolidated financial statements. Reference Rate Reform In March 2020, the FASB issued ASU 2020-04, " Reference Rate Reform (Topic 848) ", a new standard providing final guidance to provide temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. The guidance is effective upon issuance and generally can be applied through December 31, 2022. We are currently evaluating the impact of this standard in our consolidated financial statements. 3. REVENUE RECOGNITION In the following table, revenue from contracts with customers, net of intersegment sales, is disaggregated by market type and by reportable segment, consistent with how the Company believes the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors: First Quarter Ended March 29, 2020 (thousands) Manufacturing Distribution Total Reportable Segments Market type: Recreational Vehicle $ 226,785 $ 93,435 $ 320,220 Manufactured Housing 45,605 66,764 112,369 Industrial 71,447 7,145 78,592 Marine 75,429 2,622 78,051 Total $ 419,266 $ 169,966 $ 589,232 9 First Quarter Ended March 31, 2019 (thousands) Manufacturing Distribution Total Reportable Segments Market type: Recreational Vehicle $ 234,878 $ 107,558 $ 342,436 Manufactured Housing 42,203 63,816 106,019 Industrial 60,928 8,049 68,977 Marine 87,675 3,111 90,786 Total $ 425,684 $ 182,534 $ 608,218 ` Contract Liabilities Contract liabilities, representing upfront payments from customers received prior to satisfying performance obligations, were immaterial as of the beginning and end of all periods presented and changes in contract liabilities were immaterial during all periods presented. 4. INVENTORIES Inventories consist of the following: (thousands) March 29, 2020 December 31, 2019 Raw materials $ 179,804 $ 162,238 Work in process 15,981 14,272 Finished goods 31,033 28,446 Less: reserve for inventory obsolescence ( 11,473 ) ( 10,123 ) Total manufactured goods, net 215,345 194,833 Materials purchased for resale (distribution products) 60,261 60,918 Less: reserve for inventory obsolescence ( 2,061 ) ( 1,881 ) Total materials purchased for resale (distribution products), net 58,200 59,037 Total inventories $ 273,545 $ 253,870 5. GOODWILL AND INTANGIBLE ASSETS Changes in the carrying amount of goodwill for the three months ended March 29, 2020 by segment are as follows: (thousands) Manufacturing Distribution Total Balance - December 31, 2019 $ 268,402 $ 50,947 $ 319,349 Acquisitions 5,787 — 5,787 Adjustments to preliminary purchase price allocations 780 — 780 Balance - March 29, 2020 $ 274,969 $ 50,947 $ 325,916 10 Intangible assets, net consist of the following as of March 29, 2020 and December 31, 2019 : (thousands) March 29, 2020 Weighted Average Useful Life (in years) December 31, 2019 Weighted Average Useful Life (in years) Customer relationships $ 365,693 10.1 $ 357,513 10.1 Non-compete agreements 16,262 5.0 16,202 5.0 Patents 16,495 14.6 16,495 14.6 Trademarks 89,504 Indefinite 88,524 Indefinite 487,954 478,734 Less: accumulated amortization ( 131,321 ) ( 121,720 ) Intangible assets, net $ 356,633 $ 357,014 Changes in the carrying value of intangible assets for the three months ended March 29, 2020 by segment are as follows: (thousands) Manufacturing Distribution Total Balance - December 31, 2019 $ 282,123 $ 74,891 $ 357,014 Acquisitions 9,220 — 9,220 Amortization ( 7,833 ) ( 1,768 ) ( 9,601 ) Adjustments to preliminary purchase price allocations — — — Balance - March 29, 2020 $ 283,510 $ 73,123 $ 356,633 Valuation of Goodwill and Indefinite-Lived Intangibles We test goodwill and indefinite-lived intangible assets (trademarks) for impairment on an annual basis (as of September 30, 2019 for our most recent annual tests) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. Our 2019 tests indicated that there was no impairment, as fair value exceeded carrying values, and we concluded that none of our reporting units or trademarks were at risk of failing the impairment test. Despite the excess fair value identified in our 2019 impairment tests, we assessed during the quarter ended March 29, 2020 whether the impact of the COVID-19 pandemic on overall macroeconomic conditions and the global equity markets, which negatively affected the Company’s market capitalization, indicated that at March 29, 2020 it was more likely than not that our goodwill and trademarks were impaired. We evaluated amongst other factors (1) the results of our 2019 impairment tests; (2) our market capitalization at March 29, 2020 in relation to the carrying amount of shareholders’ equity at March 29, 2020 and to fair values determined during our 2019 impairment tests; (3) the results of our operations during the quarter ended March 29, 2020 in relation to our projections; and (4) our analysis of the impact on the fair values determined during our 2019 impairment tests using more recent projections and discount rates that account for various risks and uncertainties, including the duration and extent of impact to our business, related to the COVID-19 pandemic. Based on the results of our assessment, we determined it was more likely than not that our goodwill and trademarks were not impaired as of March 29, 2020. However, we are unable to predict how long the COVID-19-related conditions will persist, what additional measures may be introduced by governments or private parties, or what effect any such additional measures may have on demand for our products or those of our customers in each of our end markets. As such, we may be required to perform quantitative impairment tests in future periods preceding our annual impairment test date, and the outcome of such tests could result in an impairment of our goodwill or our trademarks. 11 6. ACQUISITIONS General The Company completed three acquisitions in the first quarter of 2020 (the "2020 Acquisitions"). For the first quarter ended March 29, 2020, net sales and operating income included in the Company's condensed consolidated statements of income related to the 2020 acquisitions were immaterial. Acquisition-related costs associated with the businesses acquired in the first quarter of 2020 were immaterial. The Company made no acquisitions in the first quarter of 2019. As of March 29, 2020 , the aggregate fair value of the estimated contingent consideration payments was $ 7.8 million, $ 5.9 million of which is included in the line item "Accrued liabilities" and $ 1.9 million is included in “Other long-term liabilities” on the condensed consolidated statement of financial position. At December 31, 2019, the aggregate fair value of the estimated contingent consideration payments was $ 9.6 million , $ 2.0 million of which was included in the line item "Accrued liabilities" and $ 7.6 million was included in "Other long-term liabilities". The liabilities for contingent consideration expire at various dates through December 2023. The contingent consideration arrangements are subject to a maximum payment amount of up to $ 12.3 million in the aggregate. In the first quarter of 2020, the Company made cash payments of $ 2.0 million related to contingent consideration liabilities, recording a corresponding reduction to accrued liabilities. 2020 Acquisitions Acquisitions completed in the first quarter of 2020 include the previously announced acquisitions of Maple City Woodworking Corporation, a Goshen, Indiana-based manufacturer of hardwood cabinet doors and fascia for the recreational vehicle market, and SEI Manufacturing, Inc., a Cromwell, Indiana-based manufacturer of towers, T-Tops, hardtops, rails, gates and other aluminum exterior products for the marine market. The total initial consideration for the 2020 Acquisitions was $ 24.9 million . The preliminary purchase price allocations are subject to valuation activities being finalized, and thus all required purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates. The 2020 Acquisitions are included in the Manufacturing segment. 2019 Acquisitions The Company completed three acquisitions in 2019 ( the "2019 Acquisitions"), including the previously announced acquisitions of Topline Counters, LLC, a Sumner, Washington-based designer and manufacturer of kitchen and bathroom countertops for residential and commercial markets, and G.G. Schmitt & Sons, Inc. ("G.G. Schmitt"), a Sarasota, Florida-based designer and manufacturer of customized hardware and structural components for the marine industry. The total initial consideration for the 2019 Acquisitions was $ 53.7 million , plus contingent consideration over a one -year period based on future performance in connection with the acquisition of G.G. Schmitt. The preliminary purchase price allocations are subject to valuation activities being finalized, and thus all required purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates. Changes to preliminary purchase accounting estimates recorded in the first quarter of 2020 related to the 2019 Acquisitions were immaterial. The 2019 Acquisitions are included in the Manufacturing segment. The following table summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition for the 2020 Acquisitions and the 2019 Acquisitions: (thousands) Trade receivables Inventories Property, plant and equipment Prepaid expenses & other Intangible assets Goodwill Less: Total liabilities Less: Deferred tax liability, net Total net assets acquired 2020 $ 986 $ 1,882 $ 7,913 $ — $ 9,220 $ 5,787 $ 851 $ — $ 24,937 2019 (1) $ 9,711 $ 6,837 $ 5,380 $ 20 $ 17,766 $ 24,869 $ 6,409 $ 1,922 $ 56,252 (1) Total net assets acquired for the 2019 Acquisitions reflect the preliminary estimated liability of $ 2.6 million pertaining to the fair value of contingent consideration based on future performance relating to the acquisition of G.G. Schmitt. 12 Pro Forma Information The following pro forma information for the first quarter ended March 29, 2020 and March 31, 2019 assumes the 2020 Acquisitions and the 2019 Acquisitions occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of the 2020 Acquisitions and 2019 Acquisitions combined with the results prior to their respective acquisition dates, adjusted to reflect the pro forma impact of the acquisitions occurring as of the beginning of the year immediately preceding each such acquisition. The pro forma information includes financing and interest expense charges based on incremental borrowings incurred in connection with each transaction. In addition, the pro forma information includes amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $ 0.2 million and $ 0.6 million for the first quarter ended March 29, 2020 and the first quarter ended March 31, 2019, respectively. First Quarter Ended (thousands except per share data) March 29, 2020 March 31, 2019 Revenue $ 594,586 $ 631,265 Net income 21,763 22,338 Basic net income per common share 0.95 0.97 Diluted net income per common share 0.94 0.96 The pro forma information is presented for informational purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of the periods indicated above. 7. STOCK-BASED COMPENSATION The Company recorded expense of $ 4.3 million and $ 3.9 million for the first quarter ended March 29, 2020 and March 31, 2019 , respectively, for its stock-based compensation plans in the condensed consolidated statements of income. The Board approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the first quarter of 2020 totaling 258,800 shares in the aggregate at an average fair value of $ 54.60 at grant date for a total fair value at grant date of $ 14.1 million. As of March 29, 2020 , there was approximately $ 29.6 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under incentive plans. That cost is expected to be recognized over a weighted-average period of 19.9 months. 13 8. NET INCOME PER COMMON SHARE Net income per common share calculated for the first quarter of 2020 and 2019 is as follows: First Quarter Ended (thousands except per share data) March 29, 2020 March 31, 2019 Net income for basic and diluted per share calculation $ 21,187 $ 20,849 Weighted average common shares outstanding - basic 23,016 23,039 Effect of potentially dilutive securities 251 209 Weighted average common shares outstanding - diluted 23,267 23,248 Basic net income per common share $ 0.92 $ 0.90 Diluted net income per common share $ 0.91 $ 0.90 9. DEBT A summary of total debt outstanding at March 29, 2020 and December 31, 2019 is as follows: (thousands) March 29, 2020 December 31, 2019 Long-term debt: Revolver due 2024 $ 135,000 $ 135,000 Term loan due 2024 97,500 97,500 7.5% senior notes due 2027 300,000 300,000 1.0% convertible notes due 2023 172,500 172,500 Total long-term debt 705,000 705,000 Less: convertible notes debt discount, net ( 21,536 ) ( 23,260 ) Less: senior notes deferred financing costs, net ( 5,707 ) ( 5,844 ) Less: current maturities of long-term debt ( 5,000 ) ( 5,000 ) Less: term loan deferred financing costs, net ( 522 ) ( 542 ) Total long-term debt, less current maturities, net $ 672,235 $ 670,354 There were no material changes to any of our debt arrangements during the quarter ended March 29, 2020. Interest rates for borrowings under the revolver and term loan are the prime rate or LIBOR plus a margin. At March 29, 2020 , all of the Company's borrowings under the revolver and term loan were under the LIBOR-based option. The interest rate for incremental borrowings at March 29, 2020 was LIBOR plus 1.5 % (or 3.13 % ) for the LIBOR-based option. The fee payable on committed but unused portions of the revolver was 0.20 % at March 29, 2020 . Total cash interest paid for the first quarter of 2020 and 2019 was $ 2.6 million and $ 6.5 million , respectively. 10. DERIVATIVE FINANCIAL INSTRUMENTS The Company's credit facility exposes the Company to risks associated with the variability in interest expense associated with fluctuations in LIBOR. To partially mitigate this risk, the Company entered into interest rate swaps. As of March 29, 2020 , the Company had a combined notional principal amount of $ 200.0 million of interest rate swap agreements, all of which are designated as cash flow hedges. These swap agreements effectively convert the interest expense associated with a portion of the Company's variable rate debt from variable interest rates to fixed interest rates and have maturities ranging from February 2022 to March 2022. 14 The following table summarizes the fair value of derivative contracts included in the condensed statements of financial position (in thousands): Fair value of derivative instruments Derivatives accounted for as cash flow hedges Balance sheet location March 29, 2020 December 31, 2019 Interest rate swaps Other long-term liabilities $ 9,914 $ 5,868 The interest rate swaps are comprised of over-the-counter derivatives, which are valued using models that primarily rely on observable inputs such as yield curves, which are classified as Level 2 in the fair value hierarchy. See Note 11 for information regarding accumulated other comprehensive loss on interest rate swaps. 11. ACCUMULATED OTHER COMPREHENSIVE LOSS Accumulated other comprehensive loss includes unrealized gains and losses on derivatives that qualify as hedges of cash flows, cumulative foreign currency translation and other adjustments. The activity in accumulated other comprehensive loss during the three months ended March 29, 2020 and March 31, 2019 was as follows: First Quarter Ended March 29, 2020 (thousands) Cash Flow Hedges Other Foreign Currency Items Total Balance at December 31, 2019 $ ( 4,374 ) $ ( 1,270 ) $ ( 54 ) $ ( 5,698 ) Other comprehensive loss (net of tax of $1,040, $0 and $0) ( 3,006 ) — ( 37 ) ( 3,043 ) Balance at March 29, 2020 $ ( 7,380 ) $ ( 1,270 ) $ ( 91 ) $ ( 8,741 ) First Quarter Ended March 31, 2019 (thousands) Cash Flow Hedges Other Foreign Currency Items Total Balance at December 31, 2018 $ ( 1,973 ) $ ( 675 ) $ ( 32 ) $ ( 2,680 ) Other comprehensive income (loss) (net of tax of $356, $0 and $0) ( 1,054 ) — 27 ( 1,027 ) Balance at March 31, 2019 $ ( 3,027 ) $ ( 675 ) $ ( 5 ) $ ( 3,707 ) Reclassification adjustments out of accumulated other comprehensive loss were immaterial for all periods presented. 15 12. LEASES Lease expense, supplemental cash flow information, and other information related to leases were as follows: First Quarter Ended First Quarter Ended (thousands) March 29, 2020 March 31, 2019 Operating lease cost $ 8,176 $ 7,787 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 8,084 $ 6,724 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 12,428 $ 577 Balance sheet information related to leases was as follows: (thousands, except lease term and discount rate) March 29, 2020 December 31, 2019 Assets Operating lease right-of-use assets $ 98,291 $ 93,546 Liabilities Operating lease liabilities, current portion $ 28,168 $ 27,694 Long-term operating lease liabilities 70,831 66,467 Total lease liabilities $ 98,999 $ 94,161 Weighted average remaining lease term, operating leases (in years) 4.2 4.2 Weighted average discount rate, operating leases 3.6 % 3.7 % Maturities of lease liabilities were as follows at March 29, 2020: (thousands) 2020 (excluding the three months ended March 29, 2020) $ 23,746 2021 27,394 2022 21,665 2023 15,987 2024 10,453 Thereafter 7,581 Total lease payments 106,826 Less imputed interest ( 7,827 ) Total $ 98,999 Leases have remaining lease terms of one year to ten years . 16 13. FAIR VALUE MEASUREMENTS The carrying amounts of cash equivalents, representing government and other money market funds traded in an active market, are reported on the condensed consolidated statements of financial position as a component of "Cash and cash equivalents". The carrying amount of cash equivalents, valued using level 1 inputs and approximating fair value because of their relatively short maturities, was approximately $ 83.9 million and $ 132.6 million at March 29, 2020 and December 31, 2019, respectively. The estimated fair value of our senior notes, calculated using level 2 inputs, was approximately $ 309.5 million and $ 320.3 million at March 29, 2020 and December 31, 2019, respectively. The carrying amounts of our term loan and our revolver, valued using level 2 inputs, approximated fair value as of March 29, 2020 and December 31, 2019 based upon terms and conditions available to the Company at those dates in comparison to the terms and conditions of its outstanding debt. The estimated fair value of our convertible notes, calculated using level 2 inputs, was approximately $ 134.6 million and $ 162.5 million as of March 29, 2020 and December 31, 2019, respectively. 14. INCOME TAXES The effective tax rate in the first quarter of 2020 and 2019 was 26.4 % and 22.3 % , respectively. The effective tax rate for the first quarter of 2019 includes the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense upon realization in the amount of $ 0.8 million . The Company made no income tax payments in the first quarter of 2020 and $ 1.5 million in income tax payments in the first quarter of 2019 . 15. SEGMENT INFORMATION The Company has two reportable segments, Manufacturing and Distribution, which are based on its method of internal reporting, which segregates its businesses based on the manner in which its chief operating decision maker allocates resources, evaluates financial results, and determines compensation. The tables below present information about the sales and operating income of those segments. First Quarter Ended March 29, 2020 (thousands) Manufacturing Distribution Total Net outside sales $ 419,266 $ 169,966 $ 589,232 Intersegment sales 7,573 1,300 8,873 Total sales 426,839 171,266 598,105 Operating income 45,704 9,968 55,672 First Quarter Ended March 31, 2019 (thousands) Manufacturing Distribution Total Net outside sales $ 425,684 $ 182,534 $ 608,218 Intersegment sales 7,720 1,165 8,885 Total sales 433,404 183,699 617,103 Operating income 44,437 8,291 52,728 17 The following table presents a reconciliation of segment operating income to consolidated operating income: First Quarter Ended (thousands) March 29, 2020 March 31, 2019 Operating income for reportable segments $ 55,672 $ 52,728 Unallocated corporate expenses ( 6,792 ) ( 7,913 ) Amortization ( 9,601 ) ( 8,989 ) Consolidated operating income $ 39,279 $ 35,826 Unallocated corporate expenses include corporate general and administrative expenses comprised of wages, insurance, taxes, supplies, travel and entertainment, professional fees and other. 16. STOCK REPURCHASE PROGRAMS In March 2020, the Board approved a new stock repurchase program for up to $ 50 million of its common stock, including amounts remaining under previous authorizations. Approximately $ 43.5 million remains in the amount of the Company's common stock that may be acquired under the current stock repurchase program as of March 29, 2020. In the first quarter ended March 29, 2020, the Company repurchased 456,155 shares of its common stock at an average price of $ 34.09 per share at an aggregate cost of $ 15.6 million. The Company did not repurchase any of its common stock in the first quarter of 2019. 17. SUBSEQUENT EVENTS The COVID-19 pandemic caused a disruption to our business beginning in late March 2020 and continuing throughout April and into May 2020, as many of the Company's customers reduced production levels and purchases of our products. In response, the Company temporarily suspended operations at certain facilities in late March and through the month of April 2020 and furloughed affected team members with benefits, in addition to taking various cost containment and financial management measures. In April 2020, the Company implemented certain actions to reduce its fixed cost structure, primarily in the form of labor cost reductions. We continue to analyze our cost structure and may implement additional measures as necessary due to the ongoing economic conditions resulting from the COVID-19 pandemic and related impact on demand levels within our market sectors.