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Item 7. Management’s Discussion and Analysis

2021-02-26 compared with 2020-02-27 · 97 added, 123 removed, 167 unchanged (57% of the section changed)

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Recreational Vehicle ("RV") Industry

The RV industry is our primary market and comprised 55% of the Company’s sales in 2019.

Sales from the RV industry decreased 10% in 2019 compared to 2018.

According to the Recreation Vehicle Industry Association (“RVIA”), wholesale industry shipments totaled 406,000 units in 2019, a decline of 16% compared to 484,000 units in 2018.

On the retail side, RV industry retail unit shipments declined 7% in 2019.

With retail industry unit shipments outpacing wholesale industry unit shipments in 2019, RV industry dealer inventories declined in 2019.

For the full year 2019, RV industry dealer inventories declined by more than 50,000 units, which we believe will position the industry to return to a more direct relationship between wholesale unit shipments and retail unit shipments for the upcoming 2020 selling season.

The RV industry is our primary market and comprised 56% of the Company’s consolidated net sales in 2020.

Sales from the RV industry increased 8% in 2020 compared to 2019.

This increase in sales occurred despite an approximate 6-week operations shutdown in the late first quarter and early second quarter of 2020 in certain of our RV facilities in alignment with production shutdowns by certain OEM customers in response to the COVID-19 pandemic.

In the second half of 2020, OEM production improved sharply in response to a strong increase in retail and wholesale demand for RVs, and our sales to RV OEMs also improved.

According to the Recreation Vehicle Industry Association (“RVIA”), wholesale industry shipments totaled 430,000 units in 2020, an increase of 6% compared to 406,000 units in 2019.

RV industry retail unit sales increased 12% in 2020 according to Statistical Surveys, Inc ("SSI"), outpacing wholesale industry unit shipments.

As a result, RV industry dealer inventories, which were already at historically low levels entering 2020, declined by more than 80,000 units in 2020, resulting in dealer inventories at their lowest levels in the last decade.

Marine Industry

Sales to the marine industry, which represented approximately 14% of the Company's consolidated net sales in 2020, increased 3% in 2020 compared to 2019.

For 2019, overall marine retail industry unit shipments in the powerboat sector, which is the Company's primary marine market, decreased an estimated 4%, with aluminum fishing industry shipments decreasing an estimated 10%;

pontoon industry shipments decreasing an estimated 2%;

fiberglass industry shipments decreasing an estimated 3%;

and ski and wake industry shipments increasing an estimated 4%.

Adverse weather and flooding in certain regions of the country impacted marine retail unit shipments in the first half of 2019, particularly in the pontoon and aluminum fishing categories.

Reflecting this retail softness in the first half of 2019, we saw inventory recalibration by marine dealers in the second half of 2019, which we believe contributed to a decline in wholesale unit shipments in the second half of 2019 despite the slight increase in overall retail unit shipments in the second half of 2019.

Due to the impact of weather in the first half of 2019 and the related dealer inventory re-calibration, the powerboat sector of this market experienced an estimated wholesale unit percentage decline of 13%.

Our marine revenue is generally correlated to marine wholesale powerboat unit shipments, which were impacted by marine OEM COVID-19 production shutdowns late in the first quarter and early in the second quarter of 2020.

While marine wholesale powerboat unit shipments began to improve in the second half of 2020, total 2020 marine wholesale powerboat unit shipments decreased an estimated 14% according to the National Marine Manufacturers Association.

At the same time, marine retail powerboat shipments increased 15% for 2020, benefiting from increased demand for powerboats, resulting in marine dealer inventory levels that are at their lowest since 2014 as retail sales outpaced marine wholesale unit shipments in 2020.

Manufactured Housing ("MH") Industry

Sales to the MH industry, which represented 19% of the Company’s sales in 2019, increased 59% in 2019 compared to 2018.

Based on industry data from the Manufactured Housing Institute, MH wholesale industry unit shipments decreased by 2% in 2019.

Manufactured housing was negatively impacted in the first half of 2019 by wet weather conditions in certain regions of the country where moving inventory and setting foundations and houses were difficult.

Sales to the MH industry, which represented 17% of the Company’s consolidated sales in 2020, decreased 1% in 2020 compared to 2019.

MH sales are correlated to MH industry wholesale unit shipments, which were impacted by temporary MH OEM production shutdowns as a result of COVID-19 in the late first quarter and early second quarter of 2020, slowly recovering in the second half of 2020 as MH OEMs worked through labor and supply constraints.

Based on industry data from the Manufactured Housing Institute, MH wholesale industry unit shipments were flat in 2020.

Industrial Market

The industrial market is comprised primarily of the kitchen cabinet industry, high-rise, hospitality market, retail and commercial fixtures market, office and household furniture market and regional distributors.

Sales to this market represented 12% of our consolidated sales in 2019, increasing 2% in 2019 compared to 2018.

The industrial market is comprised primarily of the kitchen cabinet industry, high-rise, hospitality, retail and commercial fixtures market, office and household furniture market and regional distributors.

Sales to this market represented 13% of our consolidated net sales in 2020, increasing 14% in 2020 compared to 2019.

Overall, our revenues in these markets are focused on the residential housing, hospitality, high-rise housing and office, commercial construction and institutional furniture markets.

We estimate that approximately 60% of our industrial business is directly tied to the residential housing market, with the remaining 40% directly tied to the non-residential and commercial markets.

Combined new housing starts increased 3% in 2019 compared to 2018, with single family housing starts increasing 1% and multifamily residential starts increasing 8% for the same period.

We estimate that a pproximately 60% of our industrial business is directly tied to the residential housing market, with the remaining 40% directly tied to the non-residential and commercial markets.

Combined new housing starts increased 7% in 2020 compared to 2019, with single family housing starts increasing 12% and multifamily residential starts decreasing 3% for the same period.

Our industrial products are generally among the last components installed in new unit construction and as such our related sales typically trail new housing starts by four to six months.

Because of this lag in the relationship between new housing starts and our sales of related industrial products, we expect our industrial sales to benefit in 2020 from recent growth in residential housing starts.

CONSOLIDATED OPERATING RESULTS

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Year Ended December 31,

(thousands) 2020 2019 2018

Net sales 2,486,597 100.0 % 2,337,082 100.0 % 2,263,061 100.0 %

Cost of goods sold 2,027,580 81.5 1,914,211 81.9 1,847,195 81.6

Gross profit 459,017 18.5 422,871 18.1 415,866 18.4

Warehouse and delivery expenses 98,400 4.0 98,055 4.2 74,996 3.3

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Interest expense, net 43,001 1.7 36,616 1.6 26,436 1.2

Income taxes 33,311 1.3 28,260 1.2 32,147 1.4

Net income 97,061 3.9 89,566 3.8 119,832 5.3

Year Ended December 31, 2020 Compared to 2019

Net sales in 2020 increased approximately $149.5 million, or 6%, to $2.49 billion from $2.34 billion in 2019.

The increase was attributable to a 59% increase in the Company’s sales from the MH industry, a 20% increase in revenues from the marine industry and a 2% increase in sales from the industrial markets, partly offset by a 10% decrease in sales from the RV industry.

The sales increase largely reflected the revenue contribution from the acquisition of LaSalle Bristol ("LaSalle"), completed in the fourth quarter of 2018.

The consolidated net sales decrease from the RV industry in 2019 primarily reflected decreases in RV OEM wholesale unit shipments.

In 2019 and 2018, revenue attributable to acquisitions completed in each of those periods was $8.3 million and $249.3 million, respectively.

The increase was attributable to an 8% increase in sales from the RV industry, a 14% increase in the Company’s sales from the industrial markets and a 3% increase in sales from the marine industry, partially offset by a 1% decrease in sales from the MH industry.

In 2020 and 2019, net sales attributable to acquisitions completed in each of those years was $81.9 million and $8.3 million, respectively.

The Company’s RV content per wholesale unit for 2020 increased 2% to $3,235 from $3,170 in 2019.

Marine powerboat content per retail unit for 2019 increased 26 % to an estimated $1,581 from $1,256 in 2018 .

The MH content per wholesale unit for 2019 increased 62% to $4,616 fr om $2,849 in 2018.

Marine powerboat content per wholesale unit for 2020 increased 24% to an estimated $2,098 from $1,696 in 2019.

MH content per wholesale unit for 2020 decreased 1% to $4,580 in 2020 from $4,616 in 2019.

Cost of Goods Sold.

Cost of goods sold increased $113.4 million, or 6%, to $2.03 billion in 2020 from $1.91 billion in 2019.

As a percentage of net sales, cost of goods sold increased during 2019 to 81.9% from 81.6% in 2018.

Cost of goods sold as a percentage of net sales was impacted during 2019 by:

(i) higher overall fixed overhead costs relative to RV and marine revenue and (ii) the lower margin profile of LaSalle, which was acquired in the fourth quarter of 2018.

As a percentage of net sales, cost of goods sold decreased during 2020 to 81.5% from 81.9% in 2019.

The decrease in cost of goods sold as a percentage of net sales is attributed to certain fixed overhead components against the overall increase in net sales in 2020, partially offset by an increase in labor as an overall percentage of net sales.

In general, the Company's cost of goods sold percentage can be impacted by demand changes in certain market sectors that can result in fluctuating costs of certain raw materials and commodity-based components that are utilized in the production of our products.

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Gross profit increased $36.1 million or 9%, to $459.0 million in 2020 from $422.9 million in 2019.

As a percentage of net sales, gross profit decreased to 18.1% in 2019 from 18.4% in 2018.

The decrease in gross profit as a percentage of net sales in 2019 compared to 2018 reflects the impact of the factors discussed above under “Cost of Goods Sold”.

Economic or industry-wide factors affecting the profitability of our RV, MH, marine and industrial businesses include the costs of commodities and the labor used to manufacture our products as well as the competitive environment that can cause gross margins to fluctuate from quarter-to-quarter and year-to-year.

As a percentage of net sales, gross profit increased to 18.5% in 2020 from 18.1% in 2019.

The increase in gross profit as a percentage of net sales in 2020 compared to 2019 reflects the impact of the factors discussed above under “Cost of Goods Sold”.

Economic or industry-wide factors affecting the profitability of our RV, MH, marine and industrial businesses include the costs of commodities and the labor used to manufacture our products, the competitive environment and the impact of different gross margin profiles of acquired companies, all of which can cause gross margins to fluctuate from quarter-to-quarter and year-to-year.

Warehouse and Delivery Expenses.

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As a percentage of net sales, warehouse and delivery expenses were 4.0% in 2020 and 4.2% in 2019.

The increase in expense 2019 compared to 2018 was primarily attributable to the impact of the LaSalle acquisition that had higher warehouse and delivery expenses as a percentage of net sales when compared to the consolidated percentage.

Increased sales volumes in 2019 compared to 2018 also contributed to the increase in warehouse and delivery expense.

In addition, the Company's shipments to OEMs in 2019 compared to 2018 were generally lower volume and higher frequency, and as a result transportation costs relative to sales levels of products delivered increased as a percentage of net sales.

The decrease as a percentage of net sales in 2020 compared to 2019 was primarily attributable to the lower proportion of MH industry net sales in 2020 compared to 2019, which have higher warehousing and delivery costs as a percentage of net sales.

Selling, General and Administrative ("SG&A") Expenses.

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As a percentage of net sales, SG&A expenses were 5.9% in 2020 and 5.8% in 2019.

The increase in SG&A expenses in 2019 compared to 2018 is primarily due to:

(i) a loss on extinguishment of debt associated with the amendment of the Company's credit facility in 2019 and (ii) the impact of certain acquisitions completed in 2018 that had higher SG&A expenses as a percentage of net sales when compared to the consolidated percentage.

Partially offsetting these factors was a decrease in incentive compensation and sales commissions in 2019 compared to 2018.

The increase in SG&A expenses as a percentage of net sales in 2020 is primarily due to an expansion of general and administrative resources to support end market demand.

Amortization of Intangible Assets.

Amortization of intangible assets increased $5.0 million, or 13.8%, in 2020 compared to 2019.

The increase in 2019 compared to 2018 primarily reflects the impact of businesses acquired in 2018, partly offset by purchase accounting adjustments to intangible assets and the associated impact to amortization expense.

The increase in 2020 compared to 2019 primarily reflects the impact of an increase in intangible assets from businesses acquired in 2019 and 2020.

Operating Income.

Operating income decreased $24.0 million, or 13%, to $154.4 million in 2019 from $178.4 million in 2018.

Operating income in 2019 and 2018 included $0.9 million and $23.2 million, respectively, from the businesses acquired in each such year.

Operating income increased $19.0 million, or 12%, to $173.4 million in 2020 from $154.4 million in 2019.

Operating income in 2020 and 2019 included $10.7 million and $0.9 million, respectively, from the businesses acquired in each year.

Operating income as a percentage of net sales was 7.0% in 2020 and 6.6% in 2019.

The decrease in operating income is primarily attributable to the items discussed above.

The increase in operating income is primarily attributable to the items discussed above as well as the operating margin profiles of businesses acquired in 2020.

Interest Expense, Net.

Interest expense, net, increased $6.4 million, or 17%, to $43.0 million in 2020 from $36.6 million in 2019.

The increase in net interest expense reflects:

(i) increased borrowings related to 2018 acquisitions, (ii) increases in the average interest rate on the variable rate portion of the Company's debt, which reflects a higher weighted average LIBOR in 2019 compared to 2018 and (iii) an increase in the Company's overall average interest rate resulting from the issuance of the Company's 7.5% Senior Notes due 2027 (the "Senior Notes") in the third quarter of 2019.

The increase in net interest expense reflects increased borrowings related to 2020 acquisitions, partly offset by decreases in the average interest rate on the variable rate portion of the Company's debt, which reflects a lower weighted average LIBOR in 2020 compared to 2019.

Income Taxes.

Income tax expense decreased $3.8 million, or 12%, to $28.3 million in 2019 from $32.1 million in 2018.

Income tax expense increased $5.0 million, or 18%, to $33.3 million in 2020 from $28.3 million in 2019.

For 2020, the effective tax rate was 25.6% compared to 24.0% in 2019.

The increase in the effective tax rate in 2019 was mostly attributable to a decrease in excess tax benefits on share-based compensation.

For the full year 2020, the Company estimates its effective tax rate to be between 25% and 26%.

The increase in the effective tax rate in 2020 was mostly attributable to a change in the mix of state taxes and decreased benefits from stock-based compensation.

See our Form 10-K for the year ended December 31, 2019 for a discussion of our consolidated operating results for the year ended December 31, 2019 compared to 2018.

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These metrics should not be considered in isolation or as substitutes for an analysis of our results as reported under U.S.

Beginning in the third quarter of 2020, we calculate marine content per unit based on estimated wholesale powerboat unit shipments, which we believe better represents the relationship between our sales and marine OEM production, rather than based on estimated retail powerboat unit sales.

BUSINESS SEGMENTS

The Company's reportable segments, manufacturing and distribution, are based on its method of internal reporting.

The Company regularly evaluates the performance of the manufacturing and distribution segments and allocates resources to them based on a variety of indicators including sales and operating income.

The Company does not measure profitability at the customer market (RV, marine, MH and industrial) level.

The Company regularly evaluates the performance of the manufacturing and distribution segments and allocates resources to them based on a variety of indicators including net sales and operating income.

The Company does not measure profitability at the end market (RV, marine, MH and industrial) level.

• Manufacturing – This segment includes the following products:

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cabinet doors;

fiberglass bath fixtures and tile systems;

fiberglass bath fixtures

and tile systems;

hardwood furniture;

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fiberglass and plastic helm systems and components products;

treated, untreated and laminated plywood;

wiring and wire harnesses;

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marine hardware;

aluminum fuel tanks;

aluminum and plastic fuel tanks;

CNC molds and composite parts;

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and other miscellaneous products in addition to providing transportation and logistics services.

Sales pertaining to the manufacturing and distribution segments as stated in the table below and in the following discussions include intersegment sales.

Net sales pertaining to the manufacturing and distribution segments as stated in the table below and in the following discussions include intersegment sales.

Gross profit includes the impact of intersegment operating activity.

The table below presents information about the sales, gross profit, and operating income of the Company’s segments.

The table below presents information about the net sales, gross profit, and operating income of the Company’s segments.

Reconciliations of the amounts below to consolidated totals are presented in Note 18 to Consolidated Financial Statements.

Year Ended December 31,

(thousands) 2020 2019 2018

Manufacturing $ 1,765,818 $ 1,673,486 $ 1,779,048

Distribution 762,472 699,159 521,235

Manufacturing 324,938 307,362 337,451

Distribution 133,291 110,957 81,016

Operating Income

Manufacturing 190,518 174,913 215,246

Distribution 54,376 38,953 31,491

Year Ended December 31, 2020 Compared to 2019

Manufacturing

Sales decreased $105.6 million, or 6%, to $1.67 billion from $1.78 billion in 2018.

This segment accounted for approximately 70% and 77% of the Company’s consolidated net sales in 2019 and 2018, respectively.

The sales decrease primarily reflected a decrease in revenue from of the Company's RV market.

In 2019 and 2018, revenue attributable to acquisitions completed in each of those periods was $8.3 million and $150.9 million, respectively.

Sales increased $92.3 million, or 6%, to $1.77 billion from $1.67 billion in 2019.

This segment accounted for approximately 70% of the Company’s consolidated net sales in 2020 and 2019.

The sales increase reflected increased net sales across all of our end markets.

In 2020 and 2019, net sales attributable to acquisitions completed in each of those periods was $52.5 million and $8.3 million, respectively.

Gross Profit.

Gross profit decreased $30.1 million, or 9%, to $307.4 million in 2019 from $337.5 million in 2018.

As a percentage of sales, gross profit decreased to 18.4% in 2019 from 19.0% in 2018.

The overall decrease in gross profit dollars and as a percentage of sales reflected higher overall fixed overhead costs relative to RV and marine revenue in 2019.

Gross profit increased $17.5 million, or 6%, to $324.9 million in 2020 from $307.4 million in 2019.

As a percentage of net sales, gross profit was 18.4% in 2020 and 2019.

Operating Income.

Operating income decreased $40.3 million, or 19%, to $174.9 million in 2019 from $215.2 million in 2018.

Operating income increased $15.6 million, or 9%, to $190.5 million in 2020 from $174.9 million in 2019.

Operating income attributable to acquisitions completed in 2020 and 2019 was $7.0 million and $0.9 million, respectively.

The decrease in operating income primarily reflects the decrease in gross profit mentioned above.

The increase in operating income primarily reflects the increase in gross profit mentioned above.

Sales increased $63.3 million, or 9%, to $762.5 million in 2020 from $699.2 million in 2019.

This segment accounted for approximately 30% and 23% of the Company’s consolidated net sales for 2019 and 2018, respectively.

The sales increase largely reflected the revenue contribution from the acquisition of LaSalle.

The businesses acquired in 2018 contributed $98.4 million to total sales in the Distribution segment in 2018.

There were no Distribution segment acquisitions in 2019.

This segment accounted for approximately 30% of the Company’s consolidated net sales for 2020 and 2019.

The increase in net sales in 2020 is primarily attributed to an increase in RV, industrial and marine end market net sales, partially offset by a decrease in net sales to the MH market.

Revenue attributable to acquisitions completed in 2020 was $29.4 million.

Gross Profit.

Gross profit increased $22.3 million, or 20%, to $133.3 million in 2020 from $111.0 million in 2019.

As a percentage of sales, gross profit was 15.9% in 2019 compared to 15.5% in 2018.

The increase in gross profit as a percentage of sales for 2019 reflected the contribution of increased sales in our higher margin transportation business and the positive impact of leveraging fixed costs on higher sales volumes in our other distribution businesses, partially offset by the lower gross margin profile of LaSalle, which was acquired in the fourth quarter of 2018, compared to our other distribution businesses.

As a percentage of net sales, gross profit was 17.5% in 2020 compared to 15.9% in 2019.

The increase in gross profit as a percentage of net sales for 2020 reflected the contribution of increased net sales in our higher margin transportation business and the positive impact of leveraging fixed costs on higher sales volumes in our other distribution businesses.

Operating Income.

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The businesses acquired in 2020 contributed approximately $3.7 million to operating income in the Distribution segment in 2020.

The overall net improvement in operating income in 2019 primarily reflects the items discussed above.

The overall improvement in operating income in 2020 primarily reflects the items discussed above.

Unallocated Corporate Expenses

As presented in Note 19 to the Consolidated Financial Statements, unallocated corporate expenses in 2019 decreased $10.6 million, or 31%, to $23.5 million from $34.1 million in 2018.

The decrease in 2019 was mostly attributed to a decrease in professional fees, administrative wages and incentive compensation.

As presented in Note 18 to the Consolidated Financial Statements, unallocated corporate expenses in 2020 increased $7.2 million, or 30%, to $30.7 million from $23.5 million in 2019.

The increase in 2020 was mostly attributed to an increase in professional fees, administrative wages and incentive compensation.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity are cash flow from operations, which includes selling its products and collecting receivables, available cash reserves and borrowing capacity available under its credit facility.

Principal uses of cash are to support working capital demands, meet debt service requirements and support the Company's capital allocation strategy, which includes acquisitions, capital expenditures, dividends and repurchases of the Company’s common stock, among others.

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Cash flows from operating activities are one of the Company's primary sources of liquidity, representing the net income the Company earned in the reported periods, adjusted for non-cash items and changes in operating assets and liabilities.

Net cash provided by operating activities decreased $7.6 million to $192.4 million 2019 from $200.0 million in 2018 primarily due to:

a decrease in net income of $30.2 million, partly offset by (i) an increase of depreciation and amortization of $7.7 million, (ii) an increase in stock based compensation expense, amortization of debt discount and other operating items of $3.8 million, (iii) an increase in deferred income taxes of $4.8 million and (iv) a net source of cash from changes in operating assets and liabilities of $6.3 million.

Changes in operating assets and liabilities were mostly attributable to a decrease in inventories due to improved working capital management and a decrease in accounts receivable, net of acquisitions, due to timing of collections, offset partly by an increase in prepaid expenses, mostly attributable to an increase in prepaid income taxes.

Net cash provided by operating activities decreased $32.2 million to $160.2 million in 2020 from $192.4 million in 2019 primarily due to:

(i) an increase in cash used by inventories of $54.2 million, which is primarily due to an increase in inventories purchased at year end to support a strong increase in end market demand for our products and (ii) an increase in cash used by trade and other receivables of $35.0 million, primarily due to an increase in year end sales as well as the timing of collection of trade receivables.

Partially offsetting the above increase in the use of operating cash flows were:

(i) an increase in cash from prepaid expenses, accounts payable, accrued liabilities and

other of $30.1 million;

(ii) an increase in depreciation and amortization of $10.5 million;

(iii) an increase in other operating items of $8.8 million and (iv) an increase in net income of $7.5 million.

Investing Activities

Net cash used in investing activities decreased $292.2 million to $79.2 million in 2019 from $371.4 million in 2018 primarily due to a decrease in cash used in business acquisitions of $287.4 million and a decrease in capital expenditures of $6.8 million, offset slightly by a decrease in proceeds from sale of property, plant, equipment and other investing activities of $2.0 million.

The Company's current operating model forecasts capital expenditures, primarily to enhance and expand our capabilities in our manufacturing facilities, for fiscal 2020 of approximately $30 million.

Net cash used in investing activities increased $258.7 million to $337.9 million in 2020 from $79.2 million in 2019 primarily due to (i) an increase in cash used in business acquisitions of $250.0 million;

an increase in capital expenditures of $4.4 million and (iii) a decrease in cash provided by proceeds from sale of property, plant and equipment and other investing activities of $4.1 million.

Financing Activities

Net cash flows provided by financing activities decreased $156.2 million to $19.3 million in 2019 from $175.5 million in 2018 primarily due to:

(i) cash used for net repayments on the Company's credit facility of $256.1 million in 2019 compared to a source of cash from net borrowings on the Company's credit facility of $134.2 million in 2018;

(ii) gross proceeds of $172.5 million from the third quarter 2018 issuance of 1% Convertible Senior Notes due 2023 (the "Convertible Notes") with no comparable amount in 2019;

(iii) a source of cash in 2018 of $18.1 million from the related sale of warrants with no comparable amount in 2019 (iv) a use of cash of $4.4 million in 2019 from payment of contingent consideration resulting from a business acquisition with no comparable amount in 2018 and (v) payment of dividends of $5.8 million in 2019 with no comparable amount in 2018.

Partially offsetting these items were:

(i) the issuance of $300.0 million of Senior Notes in 2019 with no comparable amount in 2018;

(ii) a use of cash in 2018 of $31.5 million from the purchase of Convertible Notes hedges with no comparable amount in 2019 and (iii) a decrease in the use of cash for stock repurchases of $103.8 million in 2019 compared to 2018.

Net cash flows provided by financing activities increased $63.7 million to $83.0 million in 2020 from $19.3 million in 2019 primarily due to:

(i) an increase in net borrowings of $135.0 million in 2020 compared to an increase in net borrowings of $43.9 million in 2019, due primarily to our use of the 2019 Revolver (as defined herein) to fund 2020 business acquisitions and (ii) a decrease in payments of deferred financing, debt issuance, contingent consideration and other of $9.9 million.

These increases in cash from financing activities were partially offset by increases in cash paid for dividends and stock repurchases under our buyback program of $37.1 million.

See our Form 10-K for the year ended December 31, 2019 for a discussion of cash flows for the year ended December 31, 2019 compared to 2018.

Summary of Liquidity and Capital Resources

The Company believes that existing cash and cash equivalents, cash generated from operations, and available borrowings under its 2019 Credit Facility (as defined herein) will be sufficient to meet anticipated cash needs for working capital and capital expenditures for at least the next 12 months, exclusive of any acquisitions, based on its current cash flow budgets and forecast of short-term and long-term liquidity needs.

The ability to access unused borrowing capacity under the 2019 Credit Facility as a source of liquidity is dependent on maintaining compliance with the financial covenants as specified under the terms of the credit agreement that

established the 2019 Credit Facility (the "2019 Credit Agreement").

The Company believes that existing cash and cash equivalents, cash generated from operations, and available borrowings under its 2019 Credit Facility will be sufficient to meet anticipated cash needs for working capital and capital expenditures for at least the next 12 months, exclusive of any acquisitions, based on its current cash flow budgets and forecast of short-term and long-term liquidity needs.

In 2020, the Company was in compliance with its financial debt covenants as required under the terms of the 2019 Credit Agreement.

The required maximum consolidated total leverage ratio and the required minimum consolidated fixed charge coverage ratio compared to the actual amounts as of December 31, 2019 and for the fiscal period then ended are as follows:

The required maximum consolidated total leverage ratio and the required minimum consolidated fixed charge coverage ratio compared to the actual amounts as of December 31, 2020 and for the fiscal year then ended are as follows:

Required Actual

Consolidated total leverage ratio (12-month period) 4.50 2.44

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The unused availability under the 2019 Credit Facility as of December 31, 2020 was $314.6 million.

Contractual Obligations

The following table summarizes the Company's contractual cash obligations at December 31, 2019 , and the future periods during which the Company expects to settle these obligations.

Payments due by period

Long-term debt

Interest payments on debt (1)

Deferred compensation payments

Minimum pension contributions

Purchase obligations (2)

Contingent consideration (3)

Leases payments

Total contractual cash obligations

Scheduled interest payments on debt obligations are calculated based on interest rates in effect at December 31, 2019 as follows:

(a) 2019 Revolver - 4.59%, (b) 2019 Term Loan - 4.53%, (c) Convertible Notes - 1.00% and (d) Senior Notes - 7.50%.

The projected interest payments exclude non-cash interest that would normally be included in interest expense on the Company’s Consolidated Statements of Income.

The purchase obligations are primarily comprised of purchase orders issued in the normal course of business.

Amount for 2020 represents actual contractual payment in 2020 achieved based on 2019 performance.

2021-2023 amounts represent undiscounted estimated contingent payments .

We also have commercial commitments as described below (in thousands):

Other Commercial

Total Amount Committed

Letters of Credit

September 17, 2024

The $25.0 million commitment for the Letters of Credit is a sub-limit contained within the 2019 Revolver as of December 31, 2019 .

Off-Balance Sheet Arrangements

Other than the commercial commitments set forth above, we have no off-balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES

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Although management believes that its estimates and assumptions are reasonable, they are based upon information available when they are made.

Actual results may differ significantly from these estimates under different assumptions or conditions.

Other significant accounting policies are described in Notes 1, 3 and 16 of the Notes to Consolidated Financial Statements.

Actual results may differ materially from these estimates under different assumptions or conditions.

Other material accounting policies are described in Notes 1, 3 and 15 of the Notes to Consolidated Financial Statements.

The Company has identified the following critical accounting policies and estimates:

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We test more frequently, if there are indicators of impairment, or whenever such circumstances suggest that the carrying value of goodwill or trademarks may not be recoverable.

These indicators include a sustained significant decline in our share price and market capitalization, a decline in expected future cash flows, or a significant adverse change in the business climate.

A significant adverse change in the business climate could result in a significant loss of market share or the inability to achieve previously projected revenue growth.

These indicators include a sustained material decline in our share price and market capitalization, a decline in expected future cash flows, or a material adverse change in the business climate.

A material adverse change in the business climate could result in a material loss of market share or the inability to achieve previously projected revenue growth.

Impairment reviews of goodwill are performed at the reporting unit level.

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The market approach includes a comparison of multiples of earnings before interest, taxes, depreciation and amortization for the reporting units to similar businesses or guideline companies whose securities are actively traded in public markets.

When calculating the present value of future cash flows under the income

approach, the Company takes into consideration multiple variables, including forecasted sales volumes and operating income, current industry and economic conditions, and historical results.

The income approach fair value estimate also includes estimates of long-term growth rates and discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units and the internally-developed forecasts.

When calculating the present value of future cash flows under the income approach, the Company takes into consideration multiple variables, including forecasted sales volumes and operating income, current industry and economic conditions, and historical results.

Impairment reviews of indefinite-lived intangible assets (trademarks) consist of a comparison of the fair value of the trademark to its carrying value.

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Based on the results of the Company's analyses, the estimated fair value of each of the Company's reporting units and trademarks was determined to exceed the carrying value for each of the years ended December 31, 2020, 2019 and 2018 and so no impairments were recognized.

Further, based on the results of the impairment analyses, none of the Company’s reporting units or trademarks were at risk of failing the impairment assessments discussed above that would have a material effect on the Company’s consolidated financial statements for any period presented.

Further, based on the results of the impairment analyses, none of

the Company’s reporting units or trademarks were at risk of failing the impairment assessments discussed above that would have a material effect on the Company’s Consolidated Financial Statements for any period presented.

See Note 7 of the Notes to Consolidated Financial Statements for information regarding immaterial impairments recorded in 2020 unrelated to the annual goodwill and trademark tests.

Finite-lived intangible assets that meet certain criteria continue to be amortized over their useful lives and are also subject to an impairment test based on estimated undiscounted cash flows when impairment indicators exist.

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We measure goodwill as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed.

The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of identifiable intangible assets and contingent consideration.

The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of property, plant and equipment, identifiable intangible assets, contingent consideration and other financial assets and liabilities.

Significant estimates and assumptions include subjective and/or complex judgments regarding items such as discount rates, customer attrition rates, royalty rates, economic lives and other factors, including estimated future cash flows that we expect to generate from the acquired assets.

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If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations.

No changes in fiscal 2019 to our fiscal 2018 provisional fair value estimates of assets and liabilities assumed in acquisitions were material.

No changes in fiscal 2020 to provisional fair value estimates of assets and liabilities assumed in acquisitions were material.

If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop the acquisition date fair value estimates, we could record future impairment charges.

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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-K

Item 7. Management’s Discussion and Analysis