What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-06 · 264 added, 190 removed, 297 unchanged (60% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

Second Quarter Ended

Six Months Ended

(thousands except per share data)

June 28, 2020

June 30, 2019

June 28, 2020

June 30, 2019

Third Quarter Ended Nine Months Ended

(thousands except per share data) September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019

NET SALES $ 700,707 $ 566,186 $ 1,713,984 $ 1,787,622

Cost of goods sold 567,210 461,851 1,397,285 1,464,078

GROSS PROFIT 133,497 104,335 316,699 323,544

Operating Expenses:

6 unchanged sentences

Income before income taxes 49,322 28,807 79,394 92,243

Income taxes 11,986 7,490 20,157 22,661

NET INCOME $ 37,336 $ 21,317 $ 59,237 $ 69,582

BASIC NET INCOME PER COMMON SHARE $ 1.65 $ 0.92 $ 2.60 $ 3.02

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

Second Quarter Ended

Six Months Ended

June 28, 2020

June 30, 2019

June 28, 2020

June 30, 2019

Third Quarter Ended Nine Months Ended

(thousands) September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019

NET INCOME $ 37,336 $ 21,317 $ 59,237 $ 69,582

Other comprehensive (loss) income, net of tax:

Unrealized gain (loss) of hedge derivatives 989 ( 240 ) ( 1,553 ) ( 3,225 )

Other 60 19 8 ( 48 )

Total other comprehensive income (loss) 1,049 ( 221 ) ( 1,545 ) ( 3,273 )

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)

June 28, 2020

December 31, 2019

(thousands) September 27, 2020 December 31, 2019

Current Assets

1 unchanged sentence

Trade and other receivables, net 175,533 87,536

Inventories 281,374 253,870

Prepaid expenses and other 12,580 36,038

2 unchanged sentences

Operating lease right-of-use assets 105,410 93,546

Goodwill 356,433 319,349

Intangible assets, net 380,919 357,014

1 unchanged sentence

Other non-current assets 384 423

TOTAL ASSETS $ 1,574,939 $ 1,470,993

LIABILITIES AND SHAREHOLDERS’ EQUITY

11 unchanged sentences

SHAREHOLDERS’ EQUITY

Common stock 177,308 172,662

Additional paid-in-capital 24,440 25,014

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Six Months Ended

June 28, 2020

June 30, 2019

Nine Months Ended

(thousands) September 27, 2020 September 29, 2019

CASH FLOWS FROM OPERATING ACTIVITIES

Net income $ 59,237 $ 69,582

Adjustments to reconcile net income to net cash provided by operating activities:

3 unchanged sentences

Deferred income taxes ( 4,057 ) ( 794 )

Other 3,521 235

Change in operating assets and liabilities, net of acquisitions of businesses:

Trade receivables ( 78,701 ) ( 44,359 )

Inventories ( 12,885 ) 9,084

Prepaid expenses and other assets 23,787 4,319

7 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Term debt borrowings — 7,500

Term debt repayments ( 2,500 ) ( 3,750 )

2 unchanged sentences

Stock repurchases under buyback program ( 20,286 ) ( 3,583 )

Proceeds from issuance of senior notes — 300,000

Cash dividends paid to shareholders ( 17,265 ) —

3 unchanged sentences

Payment of contingent consideration from a business acquisition ( 2,000 ) ( 4,416 )

Net cash used in financing activities

Net cash (used in) provided by financing activities ( 44,377 ) 27,852

Increase (decrease) in cash and cash equivalents ( 77,043 ) 109,817

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

Second Quarter Ended June 28, 2020

Third Quarter Ended September 27, 2020

(thousands) Common

Stock Additional

Capital Accumulated

Comprehensive

Balance March 29, 2020

Loss Retained

Earnings Total

Balance June 28, 2020 $ 173,178 $ 24,534 $ ( 8,292 ) $ 303,848 $ 493,268

— — — 37,336 37,336

Dividends declared

— — — ( 5,865 ) ( 5,865 )

Other comprehensive income, net of tax

Issuance of shares upon exercise of common stock options

— — 1,049 — 1,049

Share repurchases under buyback program ( 647 ) ( 94 ) — ( 3,995 ) ( 4,736 )

Shares used to pay taxes on stock grants

( 53 ) — — — ( 53 )

Stock-based compensation expense 4,830 — — — 4,830

Balance June 28, 2020

Six Months Ended June 28, 2020

Balance September 27, 2020 $ 177,308 $ 24,440 $ ( 7,243 ) $ 331,324 $ 525,829

Nine Months Ended September 27, 2020

(thousands) Common

Stock Additional

Capital Accumulated

Comprehensive

Loss Retained

Earnings Total

Balance December 31, 2019 $ 172,662 $ 25,014 $ ( 5,698 ) $ 305,503 $ 497,481

Net income — — — 59,237 59,237

Dividends declared — — — ( 17,666 ) ( 17,666 )

2 unchanged sentences

Issuance of shares upon exercise of common stock options

642 — — — 642

Shares used to pay taxes on stock grants ( 3,211 ) — — — ( 3,211 )

Stock-based compensation expense 11,177 — — — 11,177

Balance June 28, 2020

Second Quarter Ended June 30, 2019

Balance September 27, 2020 $ 177,308 $ 24,440 $ ( 7,243 ) $ 331,324 $ 525,829

Third Quarter Ended September 29, 2019

(thousands) Common

Stock Additional

Capital Accumulated

Comprehensive

Balance March 31, 2019

Loss Retained

Earnings Total

Balance June 30, 2019 $ 166,086 $ 25,124 $ ( 5,732 ) $ 273,139 $ 458,617

— — — 21,317 21,317

Other comprehensive loss, net of tax

— — ( 221 ) — ( 221 )

Stock repurchases under buyback program ( 674 ) ( 104 ) — ( 2,805 ) ( 3,583 )

Shares used to pay taxes on stock grants

Issuance of shares upon exercise of common stock options

( 59 ) — — — ( 59 )

Stock-based compensation expense 3,867 — — — 3,867

Balance June 30, 2019

Balance September 29, 2019 $ 169,220 $ 25,020 $ ( 5,953 ) $ 291,651 $ 479,938

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (cont.)

Six Months Ended June 30, 2019

Nine Months Ended September 29, 2019

(thousands) Common

Stock Additional

Capital Accumulated

Comprehensive

Loss Retained

Earnings Total

Balance December 31, 2018 $ 161,436 $ 25,124 $ ( 2,680 ) $ 224,874 $ 408,754

— — — 69,582 69,582

Other comprehensive loss, net of tax

— — ( 3,273 ) — ( 3,273 )

Stock repurchases under buyback program ( 674 ) ( 104 ) — ( 2,805 ) ( 3,583 )

Shares used to pay taxes on stock grants ( 3,587 ) — — — ( 3,587 )

1 unchanged sentence

Stock-based compensation expense 12,039 — — — 12,039

Balance June 30, 2019

Balance September 29, 2019 $ 169,220 $ 25,020 $ ( 5,953 ) $ 291,651 $ 479,938

See accompanying Notes to Condensed Consolidated Financial Statements

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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 June 28, 2020 and December 31, 2019 , and its results of operations and cash flows for the second quarter and six months ended June 28, 2020 and June 30, 2019 .

(“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 September 27, 2020 and December 31, 2019, its results of operations for the third quarter and nine months ended September 27, 2020 and September 29, 2019 and its statements of cash flows for the nine months ended September 27, 2020 and September 29, 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.

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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.

Operating results for the second quarter and six months ended June 28, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020 .

Operating results for the third quarter and nine months ended September 27, 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.

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The second and third quarters are thirteen weeks in duration and the fourth quarter is the remainder of the year.

The second quarter of fiscal year 2020 ended on June 28, 2020 and the second quarter of fiscal year 2019 ended on June 30, 2019.

In preparation of Patrick’s condensed consolidated financial statements as of and for the second quarter and six months ended June 28, 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.

The third quarter of fiscal year 2020 ended on September 27, 2020 and the third quarter of fiscal year 2019 ended on September 29, 2019.

In preparation of Patrick’s condensed consolidated financial statements as of and for the third quarter and nine months ended September 27, 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.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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We are currently evaluating the impact of this standard on our consolidated financial statements.

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity

In August 2020, the FASB issued ASU 2020-06, " Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ", a new standard that simplifies certain accounting treatments for convertible debt instruments.

The guidance eliminates certain requirements that require separate accounting for embedded conversion features and simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification.

In addition, the new guidance requires entities use the if-converted method for all convertible instruments in the diluted EPS calculation and include the effect of potential share settlement for instruments that may be settled in cash or shares, with certain exceptions.

Furthermore, the guidance requires new disclosures about events that occur during the reporting period that cause conversion contingencies to be met and about the fair value of convertible debt at the instrument level, among other things.

The guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted.

We are currently evaluating the impact of this standard on our consolidated financial statements.

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:

Second Quarter Ended June 28, 2020

Manufacturing

Total Reportable Segments

Third Quarter Ended September 27, 2020

(thousands) Manufacturing Distribution Total

Recreational Vehicle $ 290,326 $ 130,845 $ 421,171

Manufactured Housing 45,845 61,908 107,753

Six Months Ended June 28, 2020

Manufacturing

Total Reportable Segments

Industrial 69,242 9,090 78,332

Marine 88,861 4,590 93,451

Total $ 494,274 $ 206,433 $ 700,707

Nine Months Ended September 27, 2020

(thousands) Manufacturing Distribution Total

Recreational Vehicle $ 656,739 $ 288,778 $ 945,517

Manufactured Housing 127,857 182,579 310,436

Second Quarter Ended June 30, 2019

Manufacturing

Total Reportable Segments

Industrial 202,368 25,113 227,481

Marine 219,150 11,400 230,550

Total $ 1,206,114 $ 507,870 $ 1,713,984

Third Quarter Ended September 29, 2019

(thousands) Manufacturing Distribution Total

Recreational Vehicle $ 218,706 $ 91,313 $ 310,019

Manufactured Housing 44,159 64,959 109,118

Six Months Ended June 30, 2019

Manufacturing

Total Reportable Segments

Industrial 64,541 7,566 72,107

Marine 72,306 2,636 74,942

Total $ 399,712 $ 166,474 $ 566,186

Nine Months Ended September 29, 2019

(thousands) Manufacturing Distribution Total

Recreational Vehicle $ 694,261 $ 299,115 $ 993,376

Manufactured Housing 131,101 193,975 325,076

Industrial 188,292 25,149 213,441

Marine 246,017 9,712 255,729

Total $ 1,259,671 $ 527,951 $ 1,787,622

Contract Liabilities

1 unchanged sentence

Inventories consist of the following:

June 28, 2020

December 31, 2019

(thousands) September 27, 2020 December 31, 2019

Raw materials $ 196,298 $ 162,238

8 unchanged sentences

GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the six months ended June 28, 2020 by segment are as follows:

Manufacturing

Changes in the carrying amount of goodwill for the nine months ended September 27, 2020 by segment are as follows:

(thousands) Manufacturing Distribution Total

Balance - December 31, 2019 $ 268,402 $ 50,947 $ 319,349

Acquisitions 35,087 8,980 44,067

Adjustments to preliminary purchase price allocations ( 8,708 ) 1,725 ( 6,983 )

Balance - June 28, 2020

Intangible assets, net consist of the following as of June 28, 2020 and December 31, 2019 :

Weighted Average Useful Life

Balance - September 27, 2020 $ 294,781 $ 61,652 $ 356,433

Intangible assets, net consist of the following as of September 27, 2020 and December 31, 2019:

(thousands) September 27,

2020 December 31,

Customer relationships $ 394,687 $ 357,513

Non-compete agreements 15,231 16,202

Patents 16,555 16,495

Trademarks 101,426 88,524

527,899 478,734

accumulated amortization ( 146,980 ) ( 121,720 )

Intangible assets, net $ 380,919 $ 357,014

Changes in the carrying value of intangible assets for the six months ended June 28, 2020 by segment are as follows:

Manufacturing

Changes in the carrying value of intangible assets for the nine months ended September 27, 2020 by segment are as follows:

(thousands) Manufacturing Distribution Total

Balance - December 31, 2019 $ 282,123 $ 74,891 $ 357,014

Acquisitions and other 36,409 13,096 49,505

Amortization ( 24,313 ) ( 5,287 ) ( 29,600 )

Impairment of intangible assets (1)

( 119 ) ( 1,831 ) ( 1,950 )

Adjustments to preliminary purchase price allocations 6,095 ( 145 ) 5,950

Balance - June 28, 2020

(1) Certain immaterial operations permanently ceased activities during the second quarter of 2020.

Balance - September 27, 2020 $ 300,195 $ 80,724 $ 380,919

(1) Certain immaterial operations permanently ceased activities during the nine months ended September 27, 2020.

As a result, we recorded a $ 2.0 million pre-tax impairment of customer relationships and trademarks of these operations after determining the net carrying value of the assets was no longer recoverable.

The impairment was calculated using our internal projections of discounted cash flows, which rely on Level 3 inputs in the fair value hierarchy based on the unobservable nature of the underlying data.

The impairment was recorded in selling, general and administrative in our condensed consolidated statements of income for the second quarter and six months ended June 28, 2020.

The impairment was recorded in selling, general and administrative in our condensed consolidated statements of income for the nine months ended September 27, 2020.

Valuation of Goodwill and Indefinite-Lived Intangibles

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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 and six months ended June 28, 2020 whether the impact of the COVID-19 pandemic on overall macroeconomic conditions and our operating income for the second quarter and six months ended June 28, 2020 indicated that at June 28, 2020 it was more likely than not that our goodwill and trademarks were impaired.

Despite the excess fair value identified in our 2019 impairment tests, we assessed during the quarter and nine months ended September 27, 2020 whether the impact of the COVID-19 pandemic on overall macroeconomic conditions and our results of operations for the third quarter and nine months ended September 27, 2020 indicated that at September 27, 2020 it was more likely than not that our goodwill and trademarks were impaired.

We evaluated among other factors (i) the results of our 2019 impairment tests;

(ii) our market capitalization at June 28, 2020 in relation to the carrying amount of shareholders’ equity at June 28, 2020 and to fair values determined during our 2019 impairment tests;

(iii) the results of our operations during the second quarter and six months ended June 28, 2020 in relation to our projections;

(ii) our market capitalization at September 27, 2020 in relation to the carrying amount of shareholders’ equity at September 27, 2020 and to fair values determined during our 2019 impairment tests;

(iii) the results of our operations during the third quarter and nine months ended September 27, 2020 in relation to our projections;

and (iv) 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, and other than immaterial impairments discussed above, we determined it was more likely than not that our goodwill and trademarks were not impaired as of June 28, 2020.

Based on the results of our assessment, and other than immaterial impairments discussed above, we concluded that no triggering events had occurred which would indicate the fair values of our goodwill and trademarks may be less than the carrying values at September 27, 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.

The Company did not make any acquisitions in the second quarter of 2020 and completed three acquisitions in the first six months of 2020 (the "2020 Acquisitions").

For the second quarter and six months ended June 28, 2020, net sales included in the Company's condensed consolidated statements of income related to the 2020 acquisitions were $ 3.3 million and $ 3.8 million , respectively.

Acquisition-related costs incurred in the first six months of 2020 were immaterial.

The Company made no acquisitions in the first six months of 2019.

As of June 28, 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.

As such, the outcome of our 2020 impairment tests, which we will perform in the fourth quarter of 2020, could result in an impairment of our goodwill or our trademarks.

The Company completed six acquisitions in the third quarter of 2020 and completed nine acquisitions in the first nine months of 2020 (the "2020 Acquisitions").

For the third quarter and nine months ended September 27, 2020, net sales included in the Company's condensed consolidated statements of income related to the 2020 Acquisitions were $ 19.6 million and $ 23.3 million, respectively.

Operating income related to the 2020 Acquisitions for the third quarter and nine months ended September 27, 2020 was approximately $ 2.1 million and $ 2.2 million, respectively.

Acquisition-related costs incurred in the first nine months of 2020 were immaterial.

The Company completed two acquisitions in the first nine months of 2019.

For the third quarter and first nine months ended September 29, 2019, revenue and operating income included in the Company's condensed consolidated statements of income were immaterial.

Acquisition-related costs incurred in the first nine months of 2019 were immaterial.

As of September 27, 2020, the aggregate fair value of the estimated contingent consideration payments was $ 8.0 million, $ 6.1 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".

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The contingent consideration arrangements are subject to a maximum payment amount of up to $ 14.8 million in the aggregate.

In the first six months of 2020, the Company made cash payments of $ 2.0 million related to contingent consideration arrangements, recording a corresponding reduction to accrued liabilities.

In the first nine months of 2020, the Company made cash payments of $ 2.0 million related to contingent consideration arrangements, recording a corresponding reduction to accrued liabilities.

2020 Acquisitions

Acquisitions completed in the first six months 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 cash consideration for the 2020 Acquisitions was $ 25.0 million .

Acquisitions completed in the first nine months of 2020 include the following previously announced acquisitions:

Company Description

Maple City Woodworking Corporation Manufacturer of hardwood cabinet doors and fascia for the recreational vehicle ("RV") market based in Goshen, Indiana

SEI Manufacturing, Inc.

Manufacturer of towers, T-Tops, hardtops, rails, gates and other aluminum exterior products for the marine market located in Cromwell, Indiana

Inland Plywood Company Supplier, laminator, and wholesale distributor of treated, untreated, and laminated plywood, medium density overlay panels, and other specialty products, primarily serving the marine market as well as the RV and industrial markets headquartered in Pontiac, Michigan with an additional facility in Cocoa, Florida

Synergy RV Transport Transportation and logistics service provider primarily for original equipment manufacturers and dealers in the RV market located in Goshen, Indiana

Front Range Stone Fabricator and installer of natural stone, quartz, solid surface, and laminate countertops, primarily serving big box home improvement retailers, home builders and commercial contractors in the industrial market based in Englewood, Colorado

Inclusive of four immaterial acquisitions not discussed above, total cash consideration for the 2020 Acquisitions was approximately $ 124 million, plus contingent consideration over a maximum of a one-year period based on future performance in connection with certain acquisitions.

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.

Changes to preliminary purchase accounting estimates recorded in the third quarter and first nine months of 2020 related to the 2020 Acquisitions were immaterial.

The 2020 Acquisitions are included in the Manufacturing segment except for Synergy RV Transport, which is included in the Distribution 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.

The Company completed four acquisitions in 2019 (the "2019 Acquisitions"), including the previously announced acquisitions of Topline Counters, LLC ("Topline Counters"), a Sumner, Washington-based designer and manufacturer of

kitchen and bathroom countertops for residential and commercial markets, and G.G.

Schmitt & Sons, Inc.

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The total cash consideration for the 2019 Acquisitions was $ 53.1 million, plus contingent consideration over a one-year period based on future performance in connection with the acquisition of G.G.

Changes to preliminary purchase accounting estimates recorded in the second quarter and first six months of 2020 related to the 2019 Acquisitions were immaterial.

Valuation activities and purchase accounting adjustments have been finalized on all 2019 Acquisitions, except for the finalization of tangible assets for Topline Counters.

Changes to preliminary purchase accounting estimates recorded in the third quarter and first nine months 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:

The following table summarizes the fair values of the consideration paid, assets acquired, and the liabilities assumed as of the date of acquisition for the 2020 Acquisitions and the 2019 Acquisitions:

(thousands) 2020 Acquisitions 2019 Acquisitions

Consideration

Cash, net of cash acquired $ 124,013 $ 53,307

Contingent consideration (1)

Total consideration 125,826 54,467

Assets Acquired

Trade receivables $ 9,785 $ 9,692

Property, plant and equipment

Inventories 16,073 5,803

Prepaid expenses & other 502 20

Intangible assets

Total liabilities

Deferred tax liability, net

Total net assets acquired

(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.

Property, plant & equipment 15,633 6,567

Operating lease right-of-use assets 6,222 5,653

Identifiable intangible assets 49,445 23,715

Liabilities Assumed

Accounts payable & accrued liabilities ( 6,264 ) ( 6,514 )

Operating lease obligations ( 6,222 ) ( 5,653 )

Deferred tax liabilities, net ( 3,415 ) ( 1,922 )

Total fair value of net assets acquired 81,759 37,361

44,067 17,106

$ 125,826 $ 54,467

(1) These amounts reflect the preliminary estimated liability pertaining to the fair value of contingent consideration based on future performance relating to certain acquisitions.

(2) Goodwill is tax-deductible for the 2020 Acquisitions, except Front Range Stone (approximately $ 14.1 million), and for the 2019 Acquisitions, except GG Schmitt (approximately $ 5.4 million).

For acquisitions, the excess of purchase price consideration over the fair value of net assets acquired is recorded as goodwill, which generally represents the combined value of the Company's existing purchasing, manufacturing, sales, industry relationships, and systems resources with the organizational talent and expertise of the acquired companies' respective management teams to maximize efficiencies, revenue impact, market share growth, and net income.

We estimate the value of acquired property, plant, and equipment using a combination of the income, cost, and market approaches, such as estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the acquired businesses.

The following table presents our estimates of identifiable intangibles for the 2020 Acquisitions and the 2019 Acquisitions:

Estimated Useful Life (in years) 2020 Acquisitions 2019 Acquisitions

Customer relationships 10 $ 37,723 $ 18,112

Non-compete agreements 5 492 150

Trademarks Indefinite 11,230 5,453

$ 49,445 $ 23,715

We estimate the value of customer relationships using the multi-period excess earnings method, which is a variation on the income approach, calculating the present value of incremental after-tax cash flows attributable to the asset.

Non-compete agreements are valued using a discounted cash flow approach, which is a variation of an income approach, with and without the individual counterparties to the non-compete agreements.

Trademarks are valued using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value.

Pro Forma Information

The following pro forma information for the second quarter and six months ended June 28, 2020 and June 30, 2019 assumes the 2020 Acquisitions and the 2019 Acquisitions occurred as of the beginning of the year immediately preceding each such acquisition.

The following pro forma information for the third quarter and nine months ended September 27, 2020 and September 29, 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 for the six months ended June 28, 2020 and $ 0.6 million and $ 1.2 million for the second quarter and six months ended June 30, 2019, respectively.

Second Quarter Ended

Six Months Ended

(thousands except per share data)

June 28, 2020

June 30, 2019

June 28, 2020

June 30, 2019

In addition, the pro forma information includes amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $ 0.5 million and $ 2.2 million for the third quarter and nine months ended September 27, 2020, respectively, and $ 1.4 million and $ 4.0 million for the third quarter and nine months ended September 29, 2019, respectively.

Third Quarter Ended Nine Months Ended

(thousands except per share data) September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019

Revenue $ 719,953 $ 621,936 $ 1,798,914 $ 1,961,263

Net income 38,412 24,914 65,392 80,077

Basic net income per common share 1.69 1.08 2.87 3.47

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STOCK-BASED COMPENSATION

The Company recorded expense of $ 2.0 million and $ 6.3 million for the second quarter and six months ended June 28, 2020, respectively, for its stock-based compensation plans in the condensed consolidated statements of income.

Stock-based compensation expense for the second quarter and six months ended June 28, 2020 includes a reduction of expense due to certain forfeitures and adjustments in the amount of $ 2.4 million.

For the second quarter and six months ended June 30, 2019, the Company recorded stock-based compensation expense of $ 4.3 million and $ 8.2 million , respectively.

The Board approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the first six months of 2020 totaling 275,740 shares in the aggregate at an average fair value of $ 53.78 at grant date for a total fair value at grant date of $ 14.8 million .

The Company recorded expense of $ 4.9 million and $ 11.2 million for the third quarter and nine months ended September 27, 2020, respectively, for its stock-based compensation plans in the condensed consolidated statements of income.

Stock-based compensation expense for the nine months ended September 27, 2020 includes a reduction of expense due to certain forfeitures and adjustments in the amount of $ 2.3 million.

For the third quarter and nine months ended September 29, 2019, the Company recorded stock-based compensation expense of $ 3.8 million and $ 12.0 million, respectively.

The Board approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the first nine months of 2020 totaling 275,740 shares in the aggregate at an average fair value of $ 53.78 per share at grant date for a total fair value at grant date of $ 14.8 million.

In addition, in the second quarter of 2020, the Board approved stock option grants representing 465,000 shares in the aggregate at an exercise price of $ 41.33 per share.

The total cost to be expensed over the three-year vesting period will be $ 6.6 million, or $ 14.25 per share, with an underlying volatility of 42 % under the Black Scholes option pricing model.

As of June 28, 2020, there was approximately $ 30.3 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under incentive plans.

As of September 27, 2020, there was approximately $ 25.5 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 17.4 months.

NET INCOME PER COMMON SHARE

Net income per common share calculated for the second quarter and six months of 2020 and 2019 is as follows:

Second Quarter Ended

Six Months Ended

(thousands except per share data)

June 28, 2020

June 30, 2019

June 28, 2020

June 30, 2019

Net income per common share calculated for the third quarter and nine months of 2020 and 2019 is as follows:

Third Quarter Ended Nine Months Ended

(thousands except per share data) September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019

Net income for basic and diluted per share calculation $ 37,336 $ 21,317 $ 59,237 $ 69,582

4 unchanged sentences

Diluted net income per common share $ 1.62 $ 0.92 $ 2.57 $ 2.99

A summary of total debt outstanding at June 28, 2020 and December 31, 2019 is as follows:

June 28, 2020

December 31, 2019

An immaterial amount of securities was not included in the computation of diluted income per share as they are considered anti-dilutive under the treasury stock method.

A summary of total debt outstanding at September 27, 2020 and December 31, 2019 is as follows:

(thousands) September 27, 2020 December 31, 2019

Long-term debt:

Revolver due 2024

1.0 % convertible notes due 2023

$ 172,500 $ 172,500

Term loan due 2024 95,000 97,500

Revolver due 2024 135,000 135,000

7.5 % senior notes due 2027

1.0% convertible notes due 2023

300,000 300,000

Total long-term debt 702,500 705,000

convertible notes debt discount, net ( 17,958 ) ( 23,260 )

term loan deferred financing costs, net ( 463 ) ( 542 )

senior notes deferred financing costs, net ( 5,227 ) ( 5,844 )

current maturities of long-term debt ( 5,000 ) ( 5,000 )

term loan deferred financing costs, net

Total long-term debt, less current maturities, net $ 673,852 $ 670,354

There were no material changes to any of our debt arrangements during the second quarter and six months ended June 28, 2020.

There were no material changes to any of our debt arrangements during the third quarter and nine months ended September 27, 2020.

Interest rates for borrowings under the revolver and term loan are the prime rate or LIBOR plus a margin.

At June 28, 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 June 28, 2020 was LIBOR plus 1.5 % (or 1.69 % ) for the LIBOR-based option.

The fee payable on committed but unused portions of the revolver was 0.20 % at June 28, 2020 .

Total cash interest paid was $ 15.6 million and $ 6.3 million for the second quarter of 2020 and 2019, respectively, and $ 18.2 million and $ 12.8 million for the first six months of 2020 and 2019, respectively.

At September 27, 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 September 27, 2020 was LIBOR plus 1.5 % (or 1.69 %) for the LIBOR-based option.

The fee payable on committed but unused portions of the revolver was 0.20 % at September 27, 2020.

Total cash interest paid was $ 3.2 million and $ 6.9 million for the third quarter of 2020 and 2019, respectively, and $ 21.4 million and $ 19.7 million for the first nine months of 2020 and 2019, respectively.

DERIVATIVE FINANCIAL INSTRUMENTS

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To partially mitigate this risk, the Company has historically entered into interest rate swaps.

As of June 28, 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.

As of September 27, 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.

1 unchanged sentence

Fair value of derivative instruments

Derivatives accounted for as cash flow hedges

Balance sheet location

June 28, 2020

December 31, 2019

Interest rate swaps

Other long-term liabilities

Derivatives accounted for as cash flow hedges Balance sheet location September 27, 2020 December 31, 2019

Interest rate swaps Other long-term liabilities $ 7,964 $ 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.

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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 second quarter and six months ended June 28, 2020 and June 30, 2019 was as follows:

Second Quarter Ended June 28, 2020

Cash Flow Hedges

Foreign Currency Items

Balance at March 29, 2020

Other comprehensive income (loss) (net of tax (benefit) of ($158), $0 and $0)

The activity in accumulated other comprehensive loss during the third quarter and nine months ended September 27, 2020 and September 29, 2019 was as follows:

Third Quarter Ended September 27, 2020

(thousands) Cash Flow Hedges Other Foreign Currency Items Total

Balance at June 28, 2020 $ ( 6,916 ) $ ( 1,270 ) $ ( 106 ) $ ( 8,292 )

Six Months Ended June 28, 2020

Cash Flow Hedges

Foreign Currency Items

Other comprehensive income (net of tax of $ 340 , $ 0 and $ 0 )

989 — 60 1,049

Balance at September 27, 2020 $ ( 5,927 ) $ ( 1,270 ) $ ( 46 ) $ ( 7,243 )

Nine Months Ended September 27, 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 $882, $0 and $0)

Balance at June 28, 2020

Second Quarter Ended June 30, 2019

Cash Flow Hedges

Foreign Currency Items

Balance at March 31, 2019

Other comprehensive loss (net of tax of $659, $0 and $0)

Other comprehensive income (loss) (net of tax benefit of $ 542 , $ 0 and $ 0 )

( 1,553 ) — 8 ( 1,545 )

Balance at September 27, 2020 $ ( 5,927 ) $ ( 1,270 ) $ ( 46 ) $ ( 7,243 )

Third Quarter Ended September 29, 2019

(thousands) Cash Flow Hedges Other Foreign Currency Items Total

Balance at June 30, 2019 $ ( 4,958 ) $ ( 675 ) $ ( 99 ) $ ( 5,732 )

Six Months Ended June 30, 2019

Cash Flow Hedges

Foreign Currency Items

Other comprehensive income (loss) (net of tax benefit of $ 83 , $ 0 and $ 0 )

( 240 ) — 19 ( 221 )

Balance at September 29, 2019 $ ( 5,198 ) $ ( 675 ) $ ( 80 ) $ ( 5,953 )

Nine Months Ended September 29, 2019

(thousands) Cash Flow Hedges Other Foreign Currency Items Total

Balance at December 31, 2018 $ ( 1,973 ) $ ( 675 ) $ ( 32 ) $ ( 2,680 )

Other comprehensive loss (net of tax of $1,015, $0 and $0)

Balance at June 30, 2019

Other comprehensive loss (net of tax benefit of $ 1,098 , $ 0 and $ 0 )

( 3,225 ) — ( 48 ) ( 3,273 )

Balance at September 29, 2019 $ ( 5,198 ) $ ( 675 ) $ ( 80 ) $ ( 5,953 )

Reclassification adjustments out of accumulated other comprehensive loss were immaterial for all periods presented.

Lease expense, supplemental cash flow information, and other information related to leases were as follows:

Second Quarter Ended

June 28, 2020

June 30, 2019

Third Quarter Ended

(thousands) September 27, 2020 September 29, 2019

Operating lease cost $ 8,525 $ 7,848

3 unchanged sentences

Operating leases $ 17,091 $ 5,522

Six Months Ended

June 28, 2020

June 30, 2019

Nine Months Ended

(thousands) September 27, 2020 September 29, 2019

Operating lease cost $ 25,093 $ 23,536

4 unchanged sentences

Balance sheet information related to leases was as follows:

(thousands, except lease term and discount rate)

June 28, 2020

December 31, 2019

(thousands, except lease term and discount rate) September 27, 2020 December 31, 2019

Operating lease right-of-use assets $ 105,410 $ 93,546

4 unchanged sentences

Weighted average discount rate, operating leases 3.9 % 3.7 %

Maturities of lease liabilities were as follows at June 28, 2020:

2020 (excluding the six months ended June 28, 2020)

Maturities of lease liabilities were as follows at September 27, 2020:

2020 (excluding the nine months ended September 27, 2020) $ 8,561

Thereafter 14,283

Total lease payments 116,241

Less imputed interest ( 9,803 )

Total $ 106,438

Leases have remaining lease terms of one year to ten years .

1 unchanged sentence

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 $ 90.0 million and $ 132.6 million at June 28, 2020 and December 31, 2019, respectively.

The estimated fair value of our senior notes, calculated using Level 2 inputs, was approximately $ 306.2 million and $ 320.3 million at June 28, 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 June 28, 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 $ 166.6 million and $ 162.5 million as of June 28, 2020 and December 31, 2019, respectively.

The effective tax rate in the second quarter of 2020 and 2019 was 44.4 % and 25.1 % , respectively, and the effective tax rate for the comparable six month periods was 27.2 % and 23.9 % , respectively.

The effective tax rate for the second quarter and six months of 2020 reflects the impact of $ 2.2 million of permanent tax differences due to certain Coronavirus Aid, Relief, and Economic Security Act payroll tax credits.

In addition, the effective tax rate for the first six months 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 $ 0.9 million.

Cash paid for income taxes for the second quarter and six months of 2020 was immaterial.

The Company paid income taxes of $ 21.1 million and $ 22.6 million in the second quarter and six months of 2019, respectively.

The carrying amount of cash equivalents, valued using Level 1 inputs and approximating fair value because of their relatively short maturities, was approximately $ 31.0 million and $ 132.6 million at September 27, 2020 and December 31, 2019, respectively.

The estimated fair value of our senior notes, calculated using Level 2 inputs, was approximately $ 326.1 million and $ 320.3 million at September 27, 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 September 27, 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 $ 166.9 million and $ 162.5 million as of September 27, 2020 and December 31, 2019, respectively.

The effective tax rate in the third quarter of 2020 and 2019 was 24.3 % and 26.0 %, respectively, and the effective tax rate for the comparable nine month periods was 25.4 % and 24.6 %, respectively.

The effective tax rate for the third quarter of 2020 reflects the impact of certain federal and state income tax benefits and the first nine months of 2020 reflects the impact of $ 2.2 million of permanent tax differences due to certain Coronavirus Aid, Relief, and Economic Security Act payroll tax credits.

In addition, the effective tax rate for the first nine months 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 $ 0.9 million.

Cash paid for income taxes, net of refunds, was $ 1.8 million and $ 1.6 million for the third quarter and nine months of 2020, respectively, and $ 7.4 million and $ 30.0 million in the third quarter and nine months of 2019, respectively.

SEGMENT INFORMATION

1 unchanged sentence

The tables below present information about the sales and operating income of those segments.

Second Quarter Ended June 28, 2020

Manufacturing

Third Quarter Ended September 27, 2020

(thousands) Manufacturing Distribution Total

Net outside sales $ 494,274 $ 206,433 $ 700,707

Intersegment sales 12,004 1,640 13,644

Total sales 506,278 208,073 714,351

Operating income 63,312 16,444 79,756

Second Quarter Ended June 30, 2019

Manufacturing

Third Quarter Ended September 29, 2019

(thousands) Manufacturing Distribution Total

Net outside sales $ 399,712 $ 166,474 $ 566,186

Intersegment sales 8,102 1,078 9,180

Total sales 407,814 167,552 575,366

Operating income 42,353 9,041 51,394

Six Months Ended June 28, 2020

Manufacturing

Nine Months Ended September 27, 2020

(thousands) Manufacturing Distribution Total

Net outside sales $ 1,206,114 $ 507,870 $ 1,713,984

Intersegment sales 24,691 4,025 28,716

Total sales 1,230,805 511,895 1,742,700

Operating income 131,426 33,350 164,776

Six Months Ended June 30, 2019

Manufacturing

Nine Months Ended September 29, 2019

(thousands) Manufacturing Distribution Total

Net outside sales $ 1,259,671 $ 527,951 $ 1,787,622

Intersegment sales 24,153 3,361 27,514

Total sales 1,283,824 531,312 1,815,136

Operating income 135,577 28,132 163,709

The following table presents a reconciliation of segment operating income to consolidated operating income:

Second Quarter Ended

Six Months Ended

June 28, 2020

June 30, 2019

June 28, 2020

June 30, 2019

Third Quarter Ended Nine Months Ended

(thousands) September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019

Operating income for reportable segments $ 79,756 $ 51,394 $ 164,776 $ 163,709

Unallocated corporate expenses ( 9,706 ) ( 4,793 ) ( 23,962 ) ( 18,796 )

Amortization ( 10,221 ) ( 9,191 ) ( 29,600 ) ( 26,448 )

Consolidated operating income $ 59,829 $ 37,410 $ 111,214 $ 118,465

2 unchanged sentences

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 June 28, 2020.

No stock repurchases were made in the second quarter of 2020.

In the first six months 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 second quarter and first six months of 2019.

SUBSEQUENT EVENT

In August 2020, the Company announced the completion of the acquisition of Inland Plywood Company (“Inland”), a supplier, laminator and wholesale distributor of treated, untreated, and laminated plywood, medium density overlay panels, and other specialty products, primarily serving the marine market as well as the recreational vehicle and industrial markets for a net initial purchase price of $ 46.0 million.

Inland is headquartered in Pontiac, Michigan with an additional facility located in Cocoa, Florida.

The acquisition of Inland includes the acquisition of working capital, machinery and equipment, and real estate.

Approximately $ 38.8 million remains available in the amount of the Company's common stock that may be acquired under the current stock repurchase program as of September 27, 2020.

In the third quarter of 2020, the Company repurchased 88,950 shares of its common stock at an average price of $ 53.24 for an aggregate cost of approximately $ 4.7 million.

In the first nine months of 2020, the Company repurchased 545,105 shares of its common stock at an average price of $ 37.22 per share for an aggregate cost of approximately $ 20.3 million.

During the third quarter and first nine months of 2019, the Company repurchased 98,201 shares at an average price of $ 36.50 per share for an aggregate cost of approximately $ 3.6 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements