PATRICK INDUSTRIES INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures The Company maintains “disclosure controls and procedures”, as such term is defined under Securities Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934, as amended (the “Exchange Act”) reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and the Company’s management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control Over Financial Reporting We are responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the fair and reliable preparation and presentation of our published financial statements. We continually evaluate our system of internal control over financial reporting to determine if changes are appropriate based upon changes in our operations or the business environment in which we operate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). This assessment included a review of the documentation of controls, an assessment of the design effectiveness of controls, testing of the operating effectiveness of controls, and a conclusion on this evaluation. As permitted under SEC guidance, management’s 35 assessment of and conclusion regarding the design and effectiveness of internal control over financial reporting excluded the internal control over financial reporting of the operations of businesses acquired in 2020, which are described in Note 4 of the Notes to Consolidated Financial Statements. Businesses acquired in 2020 represented less than 3% of consolidated net sales for the year ended December 31, 2020 and approximately 19% of consolidated total assets as of December 31, 2020. Based on our assessment, we have concluded that our internal control over financial reporting was effective as of December 31, 2020 . The Company’s independent registered public accounting firm, Deloitte & Touche LLP, audited our internal control over financial reporting as of December 31, 2020, as stated in their report in the section entitled “Report of Independent Registered Public Accounting Firm” included elsewhere in this Form 10-K, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. Changes in internal control over financial reporting There have been no changes in our internal control over financial reporting that occurred during the fourth quarter ended December 31, 2020 or subsequent to the date the Company completed its evaluation, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors of the Company The information required by this item with respect to directors is set forth in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2021, under the captions “Election of Directors” and “Delinquent Section 16(a) Reports,” which information is hereby incorporated herein by reference. Executive Officers of the Registrant The information required by this item is set forth under the caption “Executive Officers of the Company” in Part I of this Annual Report on Form 10-K. Audit Committee Information on our Audit Committee is contained under the caption “Audit Committee” in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2021 and is incorporated herein by reference. Code of Ethics and Business Conduct We have adopted a Code of Ethics and Business Conduct Policy applicable to all employees. Our Code of Ethics and Business Conduct Policy is available on the Company’s web site at www.patrickind.com under “Investor Relations”. We intend to post on our web site any substantive amendments to, or waivers from, our Code of Ethics and Business Conduct Policy as well as our Corporate Governance Guidelines. We will provide shareholders with a copy of these policies without charge upon written request directed to the Company’s Corporate Secretary at the Company’s address. 36 Corporate Governance Information on our corporate governance practices is contained under the caption “Corporate Governance” in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2021 and incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is set forth in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2021, under the caption “Executive Compensation," "Compensation Committee Interlocks and Director Participation," and "Compensation Committee Report," and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item is set forth in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2021, under the captions “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management,” and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item is set forth in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2021, under the captions “Related Party Transactions” and “Corporate Governance and Related Matters,” and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item is set forth in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2021, under the heading “Independent Public Accountants,” and is incorporated herein by reference. 37 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) (1) The financial statements listed in the accompanying Index to the Financial Statements on page F-1 of the separate financial section of this Report are incorporated herein by reference. (3) The exhibits required to be filed as part of this Annual Report on Form 10-K are listed under (c) below. (c) Exhibits Exhibit Number Exhibits 3.1 Articles of Incorporation of Patrick Industries, Inc. (filed as Exhibit 3.1 to the Company’s Form 10-K filed on March 30, 2010 and incorporated herein by reference). 3.2 Amendment to the Articles of Incorporation of Patrick Industries, Inc. dated June 5, 2018 (filed as E xhibit 3.2 to the Company's Form 10-K filed on February 28, 2019 and incorporated herein by reference). 3.3 Amended and Restated By-laws of Patrick Industries, Inc. (filed as Exhibit 3.1 to the Company's Form 8-K filed on May 8, 2020 and incorporated herein by reference). 4.1 Indenture (including Form of Note) with respect to the Company's 1.00% Convertible Senior Notes due 2023, dated as of January 22, 2018, between Patrick Industries, Inc. and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the Company's Form 8-K filed on January 24, 2018 and incorporated herein by reference). 4.2 Indenture (including Form of Note), dated as of September 17, 2019, among Patrick Industries, Inc., the guarantors from time to time party thereto and U.S. Bank, National Association, as Trustee (filed as Exhibit 4.1 to the Company's Form 8-K filed on September 18, 2019 and incorporated herein by reference). 4.3** Description of the Company’s common stock. 10.1 Patrick Industries, Inc. 2009 Omnibus Incentive Plan (filed as Appendix A to the Company’s revised Definitive Proxy Statement on Schedule 14A filed on October 20, 2009 and incorporated herein by reference). 10.2* Form of Employment Agreements with Executive Officers (filed as Exhibit 10.2 to the Company’s Form 10-K filed on March 30, 2010 and incorporated herein by reference). 10.3* Form of Non-Qualified Stock Option Award (filed as Exhibit 10.4 to the Company’s Form 10-K filed on March 14, 2014 and incorporated herein by reference). 10.4* Form of Officer and Employee Restricted Stock Award (filed as Exhibit 10.5 to the Company’s Form 10-K filed on March 30, 2010 and incorporated herein by reference). 10.5* Form of Officer and Employee Time Based Restricted Share Award and Performance Contingent Restricted Share Award (filed as Exhibit 10.7 to the Company’s Form 10-K filed on March 29, 2012 and incorporated herein by reference). 10.6* Form of Non-Employee Director Restricted Share Award (filed as Exhibit 10.2 to the Company’s Form 10-Q filed on November 8, 2011 and incorporated herein by reference). 10.7* Form of Stock Appreciation Rights Award (filed as Exhibit 10.9 to the Company’s Form 10-K filed on March 14, 2014 and incorporated herein by reference). 10.8* Form of Performance Share Unit Award (filed as Exhibit 10.1 to the Company’s Form 10-Q filed on May 8, 2014 and incorporated herein by reference). 10.9 Third Amended and Restated Credit Agreement dated September 17, 2019 by and among the Company, the Guarantors, the lenders from time to time a party thereto and Wells Fargo Bank, National Association (filed as Exhibit 10.1 to the Company's Form 8-K filed on September 18, 2019 and incorporated herein by reference). 38 10.10 Base Convertible Bond Hedge Transaction Confirmation, dated as of January 17, 2018, by and between Patrick Industries, Inc. and Bank of America, N.A. (filed as Exhibit 10.2 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference). 10.11 Base Convertible Bond Hedge Transaction Confirmation, dated as of January 17, 2018, by and between Patrick Industries, Inc. and Wells Fargo Bank, National Association (filed as Exhibit 10.3 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference). 10.12 Base Issuer Warrant Transaction Confirmation, dated as of January 17, 2018, by and between Patrick Industries, Inc. and Bank of America, N.A. (filed as Exhibit 10.4 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference). 10.13 Base Issuer Warrant Transaction Confirmation, dated as of January 17, 2018, by and between Patrick Industries, Inc. and Wells Fargo Bank, National Association. (filed as Exhibit 10.5 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference). 10.14 Additional Convertible Bond Hedge Transaction Confirmation, dated as of January 18, 2018, by and between Patrick Industries, Inc. and Bank of America, N.A. (filed as Exhibit 10.6 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference). 10.15 Additional Convertible Bond Hedge Transaction Confirmation, dated as of January 18, 2018, by and between Patrick Industries, Inc. and Wells Fargo Bank, National Association (filed as Exhibit 10.7 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference). 10.16 Additional Issuer Warrant Transaction Confirmation, dated as of January 18, 2018, by and between Patrick Industries, Inc. and Bank of America, N.A. (filed as Exhibit 10.8 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference). 10.17 Additional Issuer Warrant Transaction Confirmation, dated as of January 18, 2018, by and between Patrick Industries, Inc. and Well Fargo Bank, National Association (filed as Exhibit 10.9 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference). 16.1 Letter of Crowe LLP to the Securities and Exchange Commission dated June 7, 2019 (filed as Exhibit 16.1 to the Company's Form 8-K filed on June 7, 2019 and incorporated herein by reference). 21** Subsidiaries of the Registrant. 23.1** Consent of Deloitte & Touche LLP. 23.2** Consent of Crowe LLP. 31.1** Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer. 31.2** Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer. 32** Certification pursuant to 18 U.S.C. Section 1350. 39 XBRL Exhibits. Interactive Data Files. The following materials are filed electronically with this Annual Report on Form 10-K: 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Schema Document 101.CAL XBRL Taxonomy Calculation Linkbase Document 101.DEF XBRL Taxonomy Definition Linkbase Document 101.LAB XBRL Taxonomy Label Linkbase Document 101.PRE XBRL Taxonomy Presentation Linkbase Document Attached as Exhibits 101 to this report are the following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 formatted in XBRL (“eXtensible Business Reporting Language”): (i) the Consolidated Statements of Financial Position; (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Shareholders’ Equity; and (v) the Consolidated Statements of Cash Flows, and the related Notes to these financial statements in detail tagging format. *Management contract or compensatory plan or arrangement. **Filed herewith. All other financial statement schedules are omitted because they are not applicable or the required information is immaterial or is shown in the Notes to Consolidated Financial Statements. ITEM 16. FORM 10-K SUMMARY None. 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized PATRICK INDUSTRIES, INC. Date: February 26, 2021 By: /s/ Andy L. Nemeth Andy L. Nemeth President and Chief Executive Officer Pursuant to the Requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Andy L. Nemeth President and Chief Executive Officer February 26, 2021 Andy L. Nemeth (Principal Executive Officer) Director /s/ Jacob R. Petkovich Executive Vice President Finance, February 26, 2021 Jacob R. Petkovich Chief Financial Officer and Treasurer (Principal Financial Officer) /s/ James E. Rose Principal Accounting Officer February 26, 2021 James E. Rose (Principal Accounting Officer) /s/ Joseph M. Cerulli Director February 26, 2021 Joseph M. Cerulli /s/ Todd M. Cleveland Executive Chairman of the Board February 26, 2021 Todd M. Cleveland /s/ John A. Forbes Director February 26, 2021 John A. Forbes /s/ Michael A. Kitson Director February 26, 2021 Michael A. Kitson /s/ Pamela R. Klyn Director February 26, 2021 Pamela R. Klyn /s/ Derrick B. Mayes Director February 26, 2021 Derrick B. Mayes /s/ Denis G. Suggs Director February 26, 2021 Denis G. Suggs /s/ M. Scott Welch Lead Director February 26, 2021 M. Scott Welch 41 PATRICK INDUSTRIES, INC. Index to the Financial Statements Report of Independent Registered Public Accounting Firm, Deloitte & Touche LLP F-2 Report of Independent Registered Public Accounting Firm, Crowe LLP F-5 Financial Statements : Consolidated Statements of Income F-6 Consolidated Statements of Comprehensive Income F-7 Consolidated Statements of Financial Position F-8 Consolidated Statements of Cash Flows F-9 Consolidated Statements of Shareholders' Equity F-10 Notes to Consolidated Financial Statements F-11 F-1 Report of Independent Registered Public Accounting Firm To the shareholders and the Board of Directors of Patrick Industries, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated statements of financial position of Patrick Industries, Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows, for the years ended December 31, 2020 and 2019, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. As described in Management's Annual Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at the operations of businesses acquired in 2020, which are described in Note 4, whose financial statements constitute less than 3% of consolidated net sales for the year ended December 31, 2020 and approximately 19% of consolidated total assets as of December 31, 2020. Accordingly, our audit did not include the internal control over financial reporting at these businesses. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. F-2 Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Goodwill-Refer to Notes 1 and 7 to the financial statements Critical Audit Matter Description The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company uses a combination of market and income-based methodologies. The market approach includes a comparison of multiples of earnings before interest, taxes, depreciation and amortization (EBITDA) 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. The goodwill balance was $396 million as of December 31, 2020. The estimated fair value of each of the Company's reporting units was determined to exceed the carrying value for the year ended December 31, 2020, and so no impairment was recognized. Given the significant judgments made by management to estimate the fair value of certain of the Company’s reporting units, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rates and forecasts of sales and operating income, specifically due to the sensitivity of the Company’s operations to periods of volatility in the Company’s end customer markets, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the discount rate and forecasts of sales and operating income used by management to estimate the fair value of certain reporting units included the following, among others: F-3 • We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the Company’s reporting units, such as controls related to management’s selection of the discount rates and forecasts of sales and operating income. • We evaluated management’s ability to accurately forecast sales and operating income by comparing actual results to management’s historical forecasts. • We evaluated the reasonableness of management’s sales and operating income assumptions included in the income approach model, and extent to which forecast projection risk had been contemplated in the selection of the discount rates, by comparing the forecasts to historical sales and operating income, the strategic plans communicated to the Board of Directors, and forecasted information included in analyst and industry reports. • With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and discount rates by testing the source information underlying the determination of the discount rates and the mathematical accuracy of the calculations and developing a range of independent estimates and comparing those to the discount rates selected by management. /s/ Deloitte & Touche LLP Chicago, Illinois February 26, 2021 We have served as the Company's auditor since 2019. F-4 Report of Independent Registered Public Accounting Firm Shareholders and the Board of Directors of Patrick Industries, Inc. Elkhart, Indiana Opinion on the Financial Statements We have audited the accompanying consolidated statements of income, comprehensive income, cash flows, and shareholders’ equity of Patrick Industries, Inc. (the “Company”) for the year ended December 31, 2018, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements referred to above present fairly, in all material respects, the Company’s results of operations and cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Crowe LLP We served as the Company's auditor from 2009 to 2018. Oak Brook, Illinois February 28, 2019 F-5 PATRICK INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME (thousands except per share data) Year Ended December 31, 2020 2019 2018 NET SALES $ 2,486,597 $ 2,337,082 $ 2,263,061 Cost of goods sold 2,027,580 1,914,211 1,847,195 GROSS PROFIT 459,017 422,871 415,866 Operating Expenses: Warehouse and delivery 98,400 98,055 74,996 Selling, general and administrative 146,376 134,466 128,242 Amortization of intangible assets 40,868 35,908 34,213 Total operating expenses 285,644 268,429 237,451 OPERATING INCOME 173,373 154,442 178,415 Interest expense, net 43,001 36,616 26,436 Income before income taxes 130,372 117,826 151,979 Income taxes 33,311 28,260 32,147 NET INCOME $ 97,061 $ 89,566 $ 119,832 BASIC NET INCOME PER COMMON SHARE $ 4.27 $ 3.88 $ 4.99 DILUTED NET INCOME PER COMMON SHARE $ 4.20 $ 3.85 $ 4.93 Weighted average shares outstanding - Basic 22,730 23,058 23,995 Weighted average shares outstanding - Diluted 23,087 23,280 24,317 See accompanying Notes to Consolidated Financial Statements. F-6 PATRICK INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (thousands) Year Ended December 31, 2020 2019 2018 NET INCOME $ 97,061 $ 89,566 $ 119,832 Other comprehensive (loss) income, net of tax: Change in unrealized loss of hedge derivatives ( 515 ) ( 2,401 ) ( 1,973 ) Foreign currency translation gain (loss) 154 ( 22 ) ( 32 ) Other 7 ( 595 ) ( 741 ) Total other comprehensive loss ( 354 ) ( 3,018 ) ( 2,746 ) COMPREHENSIVE INCOME $ 96,707 $ 86,548 $ 117,086 See accompanying Notes to Consolidated Financial Statements. F-7 PATRICK INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION December 31, (thousands except share data) 2020 2019 ASSETS Current Assets Cash and cash equivalents $ 44,767 $ 139,390 Trade and other receivables, net 132,505 87,536 Inventories 312,809 253,870 Prepaid expenses and other 37,982 36,038 Total current assets 528,063 516,834 Property, plant and equipment, net 251,493 180,849 Operating lease right-of-use-assets 117,816 93,546 Goodwill 395,800 319,349 Intangible assets, net 456,276 357,014 Deferred financing costs, net 2,382 2,978 Other non-current assets 1,605 423 TOTAL ASSETS $ 1,753,435 $ 1,470,993 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Current maturities of long-term debt $ 7,500 $ 5,000 Current operating lease liabilities 30,901 27,694 Accounts payable 105,786 96,208 Accrued liabilities 83,202 58,033 Total current liabilities 227,389 186,935 Long-term debt, less current maturities, net 810,907 670,354 Long-term operating lease liabilities 88,175 66,467 Deferred tax liabilities, net 39,516 27,284 Other long-term liabilities 28,007 22,472 TOTAL LIABILITIES 1,193,994 973,512 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY Preferred stock, no par value; authorized 1,000,000 shares; none issued — — Common stock, no par value; authorized 40,000,000 shares; issued 2020 - 23,360,619 shares; issued 2019 - 23,753,551 shares 180,892 172,662 Additional paid-in-capital 24,387 25,014 Accumulated other comprehensive loss ( 6,052 ) ( 5,698 ) Retained earnings 360,214 305,503 TOTAL SHAREHOLDERS’ EQUITY 559,441 497,481 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,753,435 $ 1,470,993 See accompanying Notes to Consolidated Financial Statements. F-8 PATRICK INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (thousands) Year Ended December 31, 2020 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 97,061 $ 89,566 $ 119,832 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 73,270 62,795 55,052 Amortization of convertible notes debt discount 7,187 7,021 5,885 Stock-based compensation expense 15,960 15,436 13,981 Deferred income taxes 8,091 5,593 759 Other 3,991 ( 1,661 ) ( 2,841 ) Change in operating assets and liabilities, net of acquisitions of businesses: Trade and other receivables, net ( 29,190 ) 5,768 26,680 Inventories ( 34,554 ) 19,682 92 Prepaid expenses and other assets ( 2,414 ) ( 12,869 ) 1,654 Accounts payable, accrued liabilities and other 20,751 1,079 ( 21,081 ) Net cash provided by operating activities 160,153 192,410 200,013 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ( 32,100 ) ( 27,661 ) ( 34,486 ) Proceeds from sale of property, equipment, facility and other 211 4,402 6,463 Business acquisitions, net of cash acquired ( 305,995 ) ( 55,953 ) ( 343,347 ) Net cash used in investing activities ( 337,884 ) ( 79,212 ) ( 371,370 ) CASH FLOWS FROM FINANCING ACTIVITIES Term debt borrowings — 7,500 36,981 Term debt repayments ( 5,000 ) ( 6,250 ) ( 7,691 ) Borrowing on revolver 239,277 653,129 1,211,464 Repayments on revolver ( 99,277 ) ( 910,461 ) ( 1,106,528 ) Proceeds from senior notes offering — 300,000 — Proceeds from convertible notes offering — — 172,500 Purchase of convertible notes hedges — — ( 31,481 ) Proceeds from sale of warrants — — 18,147 Cash dividends paid to shareholders ( 23,630 ) ( 5,798 ) — Stock repurchases under buyback program ( 23,106 ) ( 3,815 ) ( 107,567 ) Payments related to vesting of stock-based awards, net of shares tendered for taxes ( 3,741 ) ( 3,380 ) ( 2,698 ) Payment of deferred financing costs ( 58 ) ( 7,219 ) ( 7,632 ) Payment of contingent consideration from a business acquisition ( 2,000 ) ( 4,416 ) — Other financing activities 643 7 ( 10 ) Net cash provided by financing activities 83,108 19,297 175,485 Increase (decrease) in cash and cash equivalents ( 94,623 ) 132,495 4,128 Cash and cash equivalents at beginning of year 139,390 6,895 2,767 Cash and cash equivalents at end of year $ 44,767 $ 139,390 $ 6,895 See accompanying Notes to Consolidated Financial Statements. F-9 PATRICK INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (thousands except share data) Common Stock Additional Paid-in- Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Balance January 1, 2018 $ 163,196 $ 8,243 $ 66 $ 199,180 $ 370,685 Net income — — — 119,832 119,832 Other comprehensive loss, net of tax — — ( 2,746 ) — ( 2,746 ) Stock repurchases under buyback program ( 12,783 ) ( 646 ) — ( 94,138 ) ( 107,567 ) Issuance of shares upon exercise of common stock options 3 — — — 3 Shares used to pay taxes on stock grants ( 2,961 ) — — — ( 2,961 ) Stock-based compensation expense 13,981 — — — 13,981 Purchase of convertible notes hedges — ( 31,481 ) — — ( 31,481 ) Proceeds from sale of warrants — 18,147 — — 18,147 Equity component of convertible note issuance — 30,861 — — 30,861 Balance December 31, 2018 $ 161,436 $ 25,124 $ ( 2,680 ) $ 224,874 $ 408,754 Net income — — — 89,566 89,566 Dividends declared — — — ( 5,938 ) ( 5,938 ) Other comprehensive loss, net of tax — — ( 3,018 ) — ( 3,018 ) Stock repurchases under buyback program ( 706 ) ( 110 ) — ( 2,999 ) ( 3,815 ) Issuance of shares upon exercise of common stock options 7 — — — 7 Shares used to pay taxes on stock grants ( 3,511 ) — — — ( 3,511 ) Stock-based compensation expense 15,436 — — — 15,436 Balance December 31, 2019 $ 172,662 $ 25,014 $ ( 5,698 ) $ 305,503 $ 497,481 Net income — — — 97,061 97,061 Dividends declared — — — ( 24,202 ) ( 24,202 ) Other comprehensive loss, net of tax — — ( 354 ) — ( 354 ) Stock repurchases under buyback program ( 4,331 ) ( 627 ) — ( 18,148 ) ( 23,106 ) Issuance of shares upon exercise of common stock options 643 — — — 643 Shares used to pay taxes on stock grants ( 4,042 ) — — — ( 4,042 ) Stock-based compensation expense 15,960 — — — 15,960 Balance December 31, 2020 $ 180,892 $ 24,387 $ ( 6,052 ) $ 360,214 $ 559,441 See accompanying Notes to Consolidated Financial Statements. F-10 PATRICK INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Nature of Business Patrick Industries, Inc. (“Patrick” or the “Company”) operations consist of the manufacture and distribution of component products and materials for use primarily by the recreational vehicle (“RV”), marine, manufactured housing (“MH”) and industrial markets for customers throughout the United States and Canada. At December 31, 2020, the Company maintained 141 manufacturing plants and 58 distribution facilities located in 23 states, China, Canada and the Netherlands. Patrick operates in two business segments: Manufacturing and Distribution. Principles of Consolidation The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of Patrick and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. In preparation of Patrick’s consolidated financial statements as of December 31, 2020, management evaluated all material subsequent events or transactions that occurred after the balance sheet date through the date of issuance of the Form 10-K to determine those requiring recognition or disclosure in the consolidated financial statements. Financial Periods The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning thirteen weeks, with the first, second and third quarters ending on the Sunday closest to the end of the first, second and third 13-week periods, respectively. The first three quarters of fiscal year 2020 ended on March 29, 2020, June 28, 2020 and September 27, 2020. The first three quarters of fiscal year 2019 ended on March 31, 2019, June 30, 2019 and September 29, 2019. The first three quarters of fiscal year 2018 ended on April 1, 2018, July 1, 2018 and September 30, 2018. Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates include the valuation of goodwill and indefinite-lived intangible assets, the valuation of long-lived assets, the allowance for doubtful accounts, excess and obsolete inventories, the valuation of estimated contingent consideration and deferred tax asset valuation allowances. Actual results could differ from the amounts reported. Revenue Recognition See Note 3 for further information on our revenue recognition accounting policies. Costs and Expenses Cost of goods sold includes material costs, direct and indirect labor, depreciation, overhead expenses, inbound freight charges, inspection costs, internal transfer costs, receiving costs, and other costs. Warehouse and delivery expenses include salaries and wages, building rent and insurance, and other overhead costs related to distribution operations and delivery costs related to the shipment of finished and distributed products to customers. F-11 Stock Based Compensation Compensation expense related to the fair value of restricted stock and restricted stock unit ("RSU") awards as of the grant date is calculated based on the Company’s closing stock price on the date of grant. In addition, the Company estimates the fair value of all stock option and stock appreciation rights (“SARS”) awards as of the grant date by applying the Black-Scholes option-pricing model. The use of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense, including the expected option term, dividend yield, risk-free interest rate and volatility of the Company's common stock. Expected volatilities take into consideration the historical volatility of the Company’s common stock. The expected term of options and SARS represents the period of time that the options and SARS granted are expected to be outstanding based on historical Company trends. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for instruments of a similar term. New shares are issued upon exercise of options. Forfeitures of stock based compensation are recognized as incurred. Net Income Per Common Share Basic net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding, plus the dilutive effect of stock options, SARS, and restricted stock and RSU awards (collectively, “Common Stock Equivalents”). The dilutive effect of Common Stock Equivalents is calculated under the treasury stock method using the average market price for the period. Common Stock Equivalents are not included in the computation of diluted net income per common share if their effect would be anti-dilutive. See Note 14 for the calculation of both basic and diluted net income per common share. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Trade and Other Receivables Trade receivables consist primarily of amounts due to the Company from its normal business activities. In assessing the carrying value of its trade receivables, the Company estimates the recoverability by making assumptions based on historical and forward-looking factors, such as historical and anticipated customer performance, current overall and industry-specific economic conditions, historical write-off and collection experience, the level of past-due amounts, and specific risks identified in the trade receivables portfolio. Allowance for doubtful accounts was immaterial at December 31, 2020 and 2019, and changes in the allowance were immaterial for the years ended December 31, 2020, 2019 and 2018. Inventories Inventories are stated at the lower of cost (first-in, first-out method) and net realizable value. Based on the inventory aging and other considerations for realizable value, the Company writes down the carrying value to net realizable value where appropriate. The Company reviews inventory on-hand and records provisions for excess and obsolete inventory based on current assessments of future demand, market conditions, and related management initiatives. The cost of manufactured inventories includes raw materials, inbound freight, labor and overhead. The Company’s distribution inventories include the cost of materials purchased for resale and inbound freight. F-12 Prepaid Expenses and Other Prepaid expenses and other consists of the following at December 31, 2020 and 2019: (thousands) 2020 2019 Vendor rebates receivable $ 6,527 $ 11,524 Income tax receivable — 3,895 Prepaid expenses 16,510 7,571 Deposits 14,945 1,409 Prepaid income taxes — 11,639 Total $ 37,982 $ 36,038 Property, Plant and Equipment Property, plant and equipment (“PP&E”) is generally recorded at cost. Depreciation is computed primarily by the straight-line method applied to individual items based on estimated useful lives, which generally range from 10 to 30 years for buildings and improvements, and from three to seven years for machinery, equipment and transportation equipment. Leasehold improvements are amortized over the lesser of their useful lives or the related lease term. The recoverability of PP&E is evaluated whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable, primarily based on estimated selling price, appraised value or projected future cash flows. Goodwill and Intangible Assets Goodwill and indefinite-lived intangible assets are not amortized but are subject to an annual impairment test based on their estimated fair value. The Company performs the required test for goodwill and indefinite-lived intangible assets for impairment in the fourth quarter, or more frequently, if events or changes in circumstances indicate that the carrying value may exceed the fair value. As part of the annual goodwill test, we estimate the fair value of our reporting units using both an income and market based approach. 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. The income approach calculates the present value of expected cash flows to determine the estimated fair value of our reporting units. Additionally, the income approach requires us to estimate future cash flows, the timing of these cash flows, and a discount rate (based on a weighted average cost of capital), which represents the time value of money and the inherent risk and uncertainty of the future cash flows. The assumptions we use to estimate future cash flows are consistent with the assumptions that our reporting units use for internal planning purposes. When calculating the present value of future cash flows under the income approach, we take into consideration multiple variables, including forecasted sales volumes and operating income, current industry and economic conditions, and historical results. If we determine that the estimated fair value of each reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. Our fourth quarter 2020 goodwill impairment test concluded that the fair values of each of our reporting units exceeded their carrying values. Our fourth quarter indefinite-lived intangibles test also concluded that the fair values of intangibles exceeded their respective carrying values. Definite-lived intangible assets are amortized over their useful lives, as detailed further in Note 7, and are also subject to an impairment test based on estimated undiscounted cash flows when impairment indicators exist. Impairment of Long-Lived Assets When events or conditions warrant, the Company evaluates the recoverability of long-lived assets other than goodwill and indefinite-lived intangible assets and considers whether these assets are impaired. The Company assesses the recoverability of these assets based upon several factors, including management's intention with respect F-13 to the assets and their projected future undiscounted cash flows. If projected undiscounted cash flows are less than the carrying amount of the assets, the Company adjusts the carrying amounts of such assets to their estimated fair value. A significant adverse change in the Company’s business climate in future periods could result in a significant loss of market share or the inability to achieve previously projected revenue growth and could lead to a required assessment of the recoverability of the Company’s long-lived assets, which may subsequently result in an impairment charge. Fair Value and Financial Instruments The Company accounts for certain assets and liabilities at fair value. The fair values are separated into three broad levels (Levels 1, 2 and 3) based on the assessment of the availability of observable market data and the significance of non-observable data used to determine fair value. Each fair value measurement must be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety. The three levels are as follows: • Level 1 inputs, which are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. • Level 2 inputs, which are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. • Level 3 inputs, which are unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data). 2020 2019 (in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Cash Equivalents (1) — — — 132.6 — — Senior Note — 329.0 — — 320.3 — Convertible Note — 180.0 — — 162.5 — Interest Rate Swaps (2) — 6.6 — — 5.9 — Contingent consideration (3) — — 6.9 — — 9.6 (1) The carrying amounts of cash equivalents, representing government and other money market funds traded in an active market, are reported on the consolidated statements of financial position as a component of "Cash and cash equivalents". The Company held no Cash Equivalents as of December 31, 2020. (2) 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, and are classified as Level 2 in the fair value hierarchy and discussed further in Note 9. (3) The estimated fair value of the Company's contingent consideration is valued using Level 3 inputs and is discussed further in Note 4. Income Taxes Deferred taxes are provided on an asset and liability method whereby deferred taxes are recognized based on temporary differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets may not be realized. The Company reports a liability, if any, for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. F-14 Reclassified Amounts Certain amounts have been reclassified in prior year financial statements to conform with current year presentation. These reclassifications have no impact on the overall financial information and relate to the following: • Gross versus net presentation of earnings in accumulated other comprehensive income (loss) - Note 10 • Presentation of discrete items in the Company's income tax rate reconciliation - Note 12 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Goodwill Impairment In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-04, " Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ". This ASU simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. The standard requires that the impairment loss be measured as the excess of the reporting unit's carrying amount over its fair value. It eliminates the second step that requires the impairment to be measured between the implied value of a reporting unit's goodwill and its carrying value. The standard is effective for annual and any interim impairment tests for periods beginning after December 15, 2019 and early adoption is permitted. The Company adopted this ASU 2017-04 on January 1, 2020 and the adoption did not have a material effect on its consolidated financial statements. Credit Losses In June 2016, the FASB issued ASU 2016-13 “ Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments ”, which amends certain provisions of Accounting Standards Codification ("ASC") 326, “Financial Instruments-Credit Loss”. The ASU changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held to maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. Additionally, entities will be required to disclose more information with respect to credit quality indicators, including information used to track credit quality by year of origination for most financing receivables. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years and will be applied as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period for which the guidance is effective. The Company adopted ASU 2016-13 on January 1, 2020 and the adoption did not have a material effect on its consolidated financial statements. Income Taxes In December 2019, the FASB issued ASU 2019-12, " Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ", a new standard to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU 2019-12 on January 1, 2021 and the adoption is not expected to have a material effect on its consolidated financial statements. F-15 Reference Rate Reform In March 2020, the FASB issued ASU 2020-04, " Reference Rate Reform (Topic 848) ", a new standard providing final guidance to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. The guidance is effective upon issuance and generally can be applied through December 31, 2022. We are currently evaluating the impact of this standard 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 net income per share 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. 3. REVENUE RECOGNITION The Company is a major manufacturer and distributor of component products and materials serving original equipment manufacturers in the RV, MH, marine, and industrial industries. Revenue is recognized when or as control of the promised goods transfers to the Company's customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. The Company’s contracts typically consist of a single performance obligation to manufacture and provide the promised goods. To the extent a contract is deemed to have multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation using the standalone selling price of each distinct good in the contract. The transaction price for contracts may include reductions to the transaction price for estimated volume discounts and rebates and other customer incentives. Manufacturing segment revenue is recognized when control of the products transfers to the customer which is the point when the customer gains the ability to direct the use of and obtain substantially all the remaining benefits from the asset, which is generally upon delivery of goods. In limited circumstances, where the products are customer specific with no alternative use to the Company, and the Company has a legally enforceable right to payment for performance to date with a reasonable margin, revenue is recognized over the contract term based on the cost-to-cost method. However, such revenue is not material to the consolidated financial statements. Distribution segment revenue from product sales is recognized on a gross basis upon shipment or delivery of goods at which point control transfers to the customer. The Company acts as a principal in such arrangements because it controls the promised goods before delivery to the customer. The Company uses direct shipment arrangements with certain vendors and suppliers to deliver products to its customers without having to physically hold the inventory at its warehouses. The Company is the principal in the transaction and recognizes revenue for direct shipment arrangements on a gross basis. Our role as principal in our distribution sales is generally characterized by (i) customers entering into contracts with the Company, not the vendor; (ii) our obligation to pay the vendor F-16 irrespective of our ability to collect from the customer; (iii) our discretion in determining the price of the good provided to the customer; (iv) our title to the goods before the customer receives or accept the goods; and (v) our responsibility for the quality and condition of goods delivered to the customer. 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: Year Ended December 31, 2020 (thousands) Manufacturing Distribution Total Market type: Recreational Vehicle $ 938,301 $ 453,907 $ 1,392,208 Manufactured Housing 180,136 252,227 432,363 Industrial 286,764 36,601 323,365 Marine 324,250 14,411 338,661 Total $ 1,729,451 $ 757,146 $ 2,486,597 Year Ended December 31, 2019 (thousands) Manufacturing Distribution Total Market type: Recreational Vehicle $ 897,848 $ 389,345 $ 1,287,193 Manufactured Housing 176,665 260,121 436,786 Industrial 250,969 33,595 284,564 Marine 316,781 11,758 328,539 Total $ 1,642,263 $ 694,819 $ 2,337,082 Year Ended December 31, 2018 (thousands) Manufacturing Distribution Total Market type: Recreational Vehicle $ 1,069,981 $ 364,276 $ 1,434,257 Manufactured Housing 163,513 111,178 274,691 Industrial 246,168 33,813 279,981 Marine 265,805 8,327 274,132 Total $ 1,745,467 $ 517,594 $ 2,263,061 Sales and other taxes collected concurrent with revenue-producing activities are excluded from net sales. The Company records freight billed to customers in net sales. The corresponding costs incurred for shipping and handling related to these customer billed freight costs are accounted for as costs to fulfill the contract and are included in warehouse and delivery expenses. The Company’s contracts across each of its businesses typically do not result in situations where there is a time period greater than one year between performance under the contract and collection of the related consideration. The Company does not account for a significant financing component when the Company expects, at contract inception, that the period between the Company's transfer of a promised good or service to a customer and the customer’s payment for that good or service will be one year or less. F-17 The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the incurred costs that the Company otherwise would have capitalized is one year or less. These costs, representing primarily sales commissions, are included in selling, general and administrative expenses. The Company does not disclose information about the transaction price being allocated to the remaining performance obligations at period end, as the Company does not have material contracts that have original expected durations of more than one year. Contract Liabilities Contract liabilities, representing upfront payments from customers received prior to satisfying performance obligations, were immaterial in all periods presented and changes in contract liabilities were immaterial in all periods presented. 4. ACQUISITIONS General The Company completed the acquisitions discussed below during the years ended December 31, 2020, 2019 and 2018. The acquisitions were funded through cash on hand or through borrowings under the Company’s credit facility in existence at the time of acquisition. Assets acquired and liabilities assumed in the individual acquisitions were recorded on the Company’s consolidated statements of financial position at their estimated fair values as of the respective dates of acquisition. For each acquisition, the Company completes its allocation of the purchase price to the fair value of acquired assets and liabilities within a one-year measurement period. For those acquisitions where the purchase price allocation is provisional, which includes certain acquisitions completed in 2020, the Company is still in the process of finalizing the fair values of acquired intangible assets and fixed assets. In general, the acquisitions described below provided the opportunity for the Company to either establish a new presence in a particular market and/or expand its product offerings in an existing market and increase its market share and per unit content. For each acquisition, the excess of the purchase consideration over the fair value of the net assets acquired is recorded as goodwill, which generally represents the combined value of the Company’s existing purchasing, manufacturing, sales, 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. For the years ended December 31, 2020, 2019 and 2018, revenue of approximately $ 81.9 million, $ 8.3 million and $ 249.3 million, respectively, was included in the Company’s consolidated statements of income pertaining to the businesses acquired in each such year. For the years ended December 31, 2020, 2019 and 2018, operating income of approximately $ 10.7 million, $ 0.9 million and $ 23.2 million, respectively, was included in the Company’s consolidated statements of income pertaining to the businesses acquired in each such year. Acquisition-related costs associated with the businesses acquired in 2020, 2019 and 2018 were immaterial in each respective year. Contingent Consideration In connection with certain acquisitions, if certain financial targets for the acquired businesses are achieved, the Company is required to pay additional cash consideration. The Company records a liability for the fair value of the contingent consideration related to each of these acquisitions as part of the initial purchase price based on the present value of the expected future cash flows and the probability of future payments at the date of acquisition. The liability for the contingent consideration is measured at fair value in subsequent periods, with the changes in fair value recorded in the consolidated statements of income. F-18 The aggregate fair value of the contingent consideration as of December 31, 2020 was $ 6.9 million, $ 1.6 million of which is included in the line item "Accrued liabilities" and $ 5.3 million is included in “Other long-term liabilities” on the consolidated statement of financial position. At December 31, 2019, the fair value was $ 9.6 million, $ 2.0 million of which was included in the line item "Accrued liabilities" and $ 7.6 million was included in "Other long-term liabilities". The liability for contingent consideration expires at various dates through December 2023. The contingent consideration arrangements are subject to a maximum payment amount of up to $ 14.5 million in the aggregate as of December 31, 2020. In 2020, the Company recorded a $ 4.2 million non-cash decrease to accrued liabilities, which is included within selling, general and administrative expense in the consolidated statement of income, partly offset by a $ 0.2 million non-cash accretion of other long term liabilities, representing changes in the amount of consideration expected to be paid. In 2020, the Company made cash payments of approximately $ 2.0 million related to contingent consideration liabilities, recording a corresponding reduction to accrued liabilities. 2020 Acquisitions The Company completed the following seven previously announced acquisitions in the year ended December 31, 2020 (the "2020 Acquisitions"): Company Segment Description Maple City Woodworking Corporation Manufacturing Manufacturer of hardwood cabinet doors and fascia for the RV market based in Goshen, Indiana SEI Manufacturing, Inc. Manufacturing Manufacturer of towers, T-Tops, hardtops, rails, gates and other aluminum exterior products for the marine market located in Cromwell, Indiana Inland Plywood Company Manufacturing 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 Distribution Transportation and logistics service provider primarily for original equipment manufacturers and dealers in the RV market located in Goshen, Indiana Front Range Stone Manufacturing 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 Geremarie Corporation Manufacturing Designer, manufacturer, and fabricator of a full suite of high-precision aluminum components serving the marine industry, in addition to the medical, aerospace, defense, commercial and industrial markets located in Lake Zurich, Illinois Taco Metals, LLC Manufacturing Manufacturer of boating products including rub rail systems, canvas and tower components, sport fishing and outrigger systems, helm chairs and pedestals, and specialty hardware for leading OEMs in the recreational boating industry and the related aftermarket headquartered in Miami, Florida, with manufacturing facilities in Tennessee and Florida, and distribution centers in Tennessee, Florida, South Carolina, and Massachusetts Inclusive of four immaterial acquisitions not discussed above, total cash consideration for the 2020 Acquisitions was approximately $ 307.0 million, plus contingent consideration over a one to three-year period based on future performance in connection with certain acquisitions. One acquisition in 2020 accounted for $ 129.7 million of cash consideration, $ 49.3 million of fixed assets, $ 49.1 million of intangible assets and $ 32.1 million of goodwill. The preliminary purchase price allocations are subject to valuation activities being finalized, and thus all required purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates. Changes to preliminary purchase accounting estimates recorded in 2020 related to the 2020 Acquisitions were immaterial. F-19 2019 Acquisitions The Company completed the following two previously announced acquisitions in the year ended December 31, 2019 (the "2019 Acquisitions"): Company Segment Description G.G. Schmitt & Sons, Inc. Manufacturing Designer and manufacturer of customized hardware and structural components for the marine industry based in Sarasota, Florida Topline Counters, LLC Manufacturing Designer and manufacturer of kitchen and bathroom countertops for residential and commercial markets based in Sumner, Washington Inclusive of two immaterial acquisitions not discussed above, total cash consideration for the 2019 Acquisitions was $ 53.3 million, plus contingent consideration over a one year period based on future performance in connection with one acquisition. Purchase price allocations and all valuation activities in connection with the 2019 Acquisitions have been finalized. 2018 Acquisitions The Company completed the following nine previously announced acquisitions in the year ended December 31, 2018 (the "2018 Acquisitions"): Company Segment Description Metal Moulding Corporation ("MAC") Manufacturing Manufacturer of custom metal fabricated products, primarily for the marine market, including hinges, arm rests, brackets, panels and trim, as well as plastic products including boxes, inlay tables, steps, and related components based in Madison, Tennessee Aluminum Metals Company, LLC Manufacturing Manufacturer of aluminum products including coil, fabricated sheets and extrusions and roofing products, primarily for the RV, industrial and marine markets based in Elkhart, Indiana IMP Holdings, LLC d/b/a Indiana Marine Products Manufacturing Manufacturer of fully-assembled helm assemblies, including electrical wiring harnesses, dash panels, instrumentation and gauges, and other products primarily for the marine market based in Angola, Indiana Collins & Company, Inc. Distribution Distributor of appliances, trim products, fuel systems, flooring, tile, and other related building materials primarily to the RV market as well as the housing and industrial markets based in Bristol, Indiana Dehco, Inc. Manufacturing & Distribution Distributor and manufacturer of flooring, kitchen and bath products, adhesives and sealants, electronics, appliances and accessories, LP tanks, and other related building materials, primarily for the RV market as well as the MH, marine, and other industrial markets operating facilities in Indiana, Oregon, Pennsylvania, and Alabama Dowco, Inc. Manufacturing Designer and manufacturer of custom designed boat covers and bimini tops, full boat enclosures, mounting hardware, and other accessories and components for the marine market operating facilities in Wisconsin, Missouri, Indiana, and Minnesota Marine Accessories Corporation Manufacturing & Distribution Manufacturer, distributor and aftermarket supplier of custom tower and canvas products and other related accessories to OEMs, dealers, retailers and distributors within the marine market, as well as direct to consumers based in Maryville, Tennessee Engineered Metals and Composites, Inc. Manufacturing Designer and manufacturer of custom marine towers, frames, and other fabricated component products for OEMs in the marine industry based in West Columbia, South Carolina LaSalle Bristol Distribution & Manufacturing Distributor and manufacturer of plumbing, flooring, tile, lighting, air handling and building products for the MH, RV, and industrial markets headquartered in Elkhart, Indiana and operating a total of 15 manufacturing and distribution centers located in North America F-20 Inclusive of one immaterial acquisition not discussed above, total cash consideration for the 2018 Acquisitions was $ 342.7 million, plus contingent consideration over a 3 -month to 3 -year period based on future performance in connection with certain acquisitions. Purchase price allocations and all valuation activities in connection with the 2018 Acquisitions have been finalized. The following table summarizes the fair values of the assets acquired and liabilities assumed as of the date of the acquisition for 2020, 2019 and 2018 Acquisitions: (thousands) 2020 Acquisitions 2019 Acquisitions 2018 Acquisitions Consideration Cash, net of cash acquired $ 307,011 $ 53,300 $ 342,696 Working capital holdback and other, net (1) ( 132 ) — — Contingent consideration (2) 4,763 1,160 11,775 Total consideration 311,642 54,460 354,471 Assets Acquired Trade receivables $ 15,359 $ 9,859 $ 32,109 Inventories 26,001 5,641 91,672 Prepaid expenses & other 949 20 8,362 Property, plant & equipment 66,574 6,469 46,015 Operating lease right-of-use assets 20,029 5,653 — Identifiable intangible assets 136,070 23,715 146,583 Liabilities Assumed Current portion of operating lease obligations ( 2,721 ) ( 2,328 ) — Accounts payable & accrued liabilities ( 12,127 ) ( 6,721 ) ( 50,667 ) Operating lease obligations ( 17,308 ) ( 3,325 ) — Deferred tax liabilities ( 4,322 ) ( 1,922 ) ( 6,969 ) Total fair value of net assets acquired 228,504 37,061 267,105 Goodwill (3) 83,138 17,399 87,366 $ 311,642 $ 54,460 $ 354,471 (1) Certain acquisitions contain working capital holdbacks which are typically settled in a 90-day period following the close of the acquisition. This value represents the remaining amounts due to (from) sellers as of December 31, 2020. (2) These amounts reflect the acquisition date fair value of contingent consideration based on future performance relating to certain acquisitions. (3) Goodwill is tax-deductible for the 2020 Acquisitions, except Front Range Stone (approximately $ 10.0 million); for the 2019 Acquisitions, except GG Schmitt (approximately $ 5.4 million); and for the 2018 Acquisitions, except MAC, whose goodwill is partially tax-deductible, and LaSalle Bristol, whose goodwill is not tax deductible (for total goodwill not tax-deductible for the 2018 Acquisitions of approximately $ 28.4 million). 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. F-21 The following table presents our estimates of identifiable intangibles for the 2020, 2019, and 2018 Acquisitions: (thousands except year data) Estimated Useful Life (in years) 2020 Acquisitions 2019 Acquisitions 2018 Acquisitions Customer relationships 10 $ 104,790 $ 18,112 $ 100,684 Non-compete agreements 5 1,210 150 1,674 Patents 10 - 18 6,470 — 15,290 Trademarks Indefinite 23,600 5,453 28,935 $ 136,070 $ 23,715 $ 146,583 We estimate the value of customer relationships using the multi-period excess earnings method, which is a variation of 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 the 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 (Unaudited) The following pro forma information assumes the 2020 Acquisitions and 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 each 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 the actual incremental borrowings incurred in connection with each transaction as if it occurred as of the beginning of the year immediately preceding each such acquisition. In addition, the pro forma information includes incremental amortization expense related to intangible assets acquired of $ 8.7 million and $ 11.7 million for the years ended December 31, 2020 and 2019, respectively, in connection with the acquisitions as if they occurred as of the beginning of the year immediately preceding each such acquisition. (thousands except per share data) 2020 2019 Net sales $ 2,633,388 $ 2,600,568 Net income 100,069 97,872 Basic net income per common share 4.40 4.24 Diluted net income per common share 4.33 4.21 The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time, nor is it intended to be a projection of future results. F-22 5. INVENTORIES Inventories as of December 31, 2020 and 2019 consist of the following: (thousands) 2020 2019 Raw materials $ 157,219 $ 162,238 Work in process 19,282 14,272 Finished goods 37,632 28,446 Less: reserve for inventory excess and obsolescence ( 8,320 ) ( 10,123 ) Total manufactured goods, net 205,813 194,833 Materials purchased for resale (distribution products) 112,158 60,918 Less: reserve for inventory excess and obsolescence ( 5,162 ) ( 1,881 ) Total materials purchased for resale (distribution products), net 106,996 59,037 Total inventories $ 312,809 $ 253,870 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net, consists of the following at December 31, 2020 and 2019: (thousands) 2020 2019 Land and improvements $ 12,670 $ 9,754 Building and improvements 73,433 67,493 Machinery and equipment 286,418 204,383 Transportation equipment 8,200 6,640 Leasehold improvements 18,928 14,738 Property, plant and equipment, at cost 399,649 303,008 Less: accumulated depreciation and amortization ( 148,156 ) ( 122,159 ) Property, plant and equipment, net $ 251,493 $ 180,849 Total depreciation expense for property, plant and equipment for fiscal 2020, 2019, and 2018 was $ 32.3 million, $ 26.9 million and $ 20.8 million, respectively. Accrued capital expenditures were approximately $ 3.8 million, $ 0.4 million and $ 0.1 million for the years ended December 31, 2020, 2019 and 2018. F-23 7. GOODWILL AND INTANGIBLE ASSETS Changes in the carrying amount of goodwill for the years ended December 31, 2020 and 2019 by segment are as follows: (thousands) Manufacturing Distribution Total Balance - January 1, 2019 $ 235,345 $ 46,389 $ 281,734 Acquisitions 21,488 — 21,488 Adjustment to prior year preliminary purchase price allocation 11,569 4,558 16,127 Balance - December 31, 2019 268,402 50,947 319,349 Acquisitions 78,055 5,083 83,138 Adjustment to prior year preliminary purchase price allocation ( 8,412 ) 1,725 ( 6,687 ) Balance - December 31, 2020 $ 338,045 $ 57,755 $ 395,800 As of December 31, 2020 and 2019, accumulated impairment of goodwill in the Manufacturing segment was $ 27.4 million. Intangible assets, net consist of the following at December 31, 2020 and 2019 : (thousands) 2020 2019 Customer relationships $ 461,754 $ 357,513 Non-compete agreements 15,949 16,202 Patents 23,025 16,495 Trademarks 113,796 88,524 614,524 478,734 Less: accumulated amortization ( 158,248 ) ( 121,720 ) Intangible assets, net $ 456,276 $ 357,014 Changes in the carrying value of intangible assets for the years ended December 31, 2020 and 2019 by segment are as follows: (thousands) Manufacturing Distribution Total Balance - January 1, 2019 $ 304,485 $ 78,497 $ 382,982 Acquisitions 17,922 — 17,922 Amortization ( 29,457 ) ( 6,451 ) ( 35,908 ) Adjustment to prior year preliminary purchase price allocation ( 10,827 ) 2,845 ( 7,982 ) Balance - December 31, 2019 282,123 74,891 357,014 Acquisitions 119,130 17,000 136,130 Amortization ( 33,505 ) ( 7,363 ) ( 40,868 ) Impairment of intangible assets (1) ( 119 ) ( 1,831 ) ( 1,950 ) Adjustment to prior year preliminary purchase price allocation 6,088 ( 138 ) 5,950 Balance - December 31, 2020 $ 373,717 $ 82,559 $ 456,276 (1) Certain operations permanently ceased activities during the year ended December 31, 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 consolidated statements of income for the year ended December 31, 2020. F-24 Amortization expense for the next five fiscal years ending December 31 related to definite-lived intangible assets as of December 31, 2020 is estimated to be as follows (in thousands): 2021 $ 48,918 2022 48,119 2023 47,030 2024 45,759 2025 42,009 8. DEBT A summary of total debt outstanding at December 31, 2020 and 2019 is as follows: (thousands) 2020 2019 Long-term debt: 1.0 % convertible notes due 2023 $ 172,500 $ 172,500 Term loan due 2024 92,500 97,500 Revolver due 2024 275,000 135,000 7.5 % senior notes due 2027 300,000 300,000 Total long-term debt 840,000 705,000 Less: convertible notes debt discount, net ( 16,072 ) ( 23,260 ) Less: term loan deferred financing costs, net ( 434 ) ( 542 ) Less: senior notes deferred financing costs, net ( 5,087 ) ( 5,844 ) Less: current maturities of long-term debt ( 7,500 ) ( 5,000 ) Total long-term debt, less current maturities, net $ 810,907 $ 670,354 Senior Notes On September 17, 2019, the Company issued $ 300 million aggregate principal amount of 7.50 % Senior Notes due 2027 (the “Senior Notes”). The Senior Notes will mature on October 15, 2027. Interest on the Senior Notes is payable semi-annually in cash in arrears on April 15 and October 15 of each year. The effective interest rate on the Senior Notes, which includes debt issuance costs, is 7.83 %. In connection with the issuance of the Senior Notes, the Company incurred and capitalized as a reduction of the principal amount of the Senior Notes approximately $ 6 million in deferred financing costs which is amortized using the effective interest rate over the term of the Senior Notes. The Senior Notes are senior unsecured indebtedness of the Company and are guaranteed by each of the Company’s subsidiaries that guarantee the obligations of the Company under the 2019 Credit Facility (as defined herein). The Company may redeem the Senior Notes, in whole or in part, at any time (a) prior to October 15, 2022, at a price equal to 100 % of the principal amount thereof, plus the applicable premium described in the associated indenture and accrued and unpaid interest and (b) on or after October 15, 2022 at specified redemption prices set forth in the indenture, plus accrued and unpaid interest. In addition, prior to October 15, 2022, the Company may redeem, in one or more transactions, up to an aggregate of 40 % of the original principal amount of the Senior Notes at a redemption price equal to 107.5 % of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of one or more equity offerings. If the Company experiences specific kinds of changes of control, the Company must offer to repurchase all of the Senior Notes (unless otherwise redeemed) at a price equal to 101 % of the aggregate principal amount thereof, plus accrued and unpaid interest. F-25 2019 Credit Facility Simultaneously with the issuance of the Senior Notes, the Company entered into the Third Amended and Restated Credit Agreement (the “2019 Credit Agreement”). The 2019 Credit Agreement amended and extended the Company’s 2018 Credit Agreement (as defined herein) and consists of a $ 550 million senior secured revolver (the “2019 Revolver”) and a $ 100 million senior secured term loan (the “2019 Term Loan” and together with the 2019 Revolver, the “2019 Credit Facility”). The maturity date for borrowings under the 2019 Credit Agreement is September 17, 2024. Upon the satisfaction of certain conditions, and obtaining incremental commitments from its lenders, the Company may be able to increase the borrowing capacity of the 2019 Credit Facility by up to $ 250 million. Borrowings under the 2019 Credit Facility are secured by substantially all personal property assets of the Company and any domestic subsidiary guarantors. Pursuant to the 2019 Credit Agreement: • The 2019 Term Loan is due in consecutive quarterly installments in the following amounts: (i) through and including June 30, 2021, $ 1,250,000 and (ii) beginning September 30, 2021, and each quarter thereafter, $ 2,500,000 , with the remaining balance due at maturity; • The interest rates for borrowings under the 2019 Revolver and the 2019 Term Loan are the Prime Rate or LIBOR plus a margin, which ranges from 0.00 % to 0.75 % for Prime Rate loans and from 1.00 % to 1.75 % for LIBOR loans depending on the Company’s consolidated total leverage ratio, as defined below. The Company is required to pay fees on unused but committed portions of the 2019 Revolver, which range from 0.15 % to 0.225 %; and • Covenants include requirements as to a maximum consolidated total net leverage ratio ( 4.00 :1.00, increasing to 4.50 :1.00 in certain circumstances in connection with Company acquisitions) and a minimum consolidated fixed charge coverage ratio ( 1.50 :1.00) that are tested on a quarterly basis, a minimum liquidity requirement applicable during the six-month period preceding the maturity of the Convertible Notes, and other customary covenants. At December 31, 2020, the Company had $ 92.5 million outstanding under the 2019 Term Loan under the LIBOR-based option, and borrowings outstanding under the 2019 Revolver of $ 275 million under the LIBOR-based option. The interest rate for incremental borrowings at December 31, 2020 was LIBOR plus 1.50 % (or 1.68 %) for the LIBOR-based option. The fee payable on committed but unused portions of the 2019 Revolver was 0.20 % at December 31, 2020. The weighted average interest rate was 4.14 % for 2020 borrowings under the 2019 Revolver, and 3.67 % for 2020 borrowings under the 2019 Term Loan. The weighted average interest rate was 4.59 % for 2019 borrowings under the 2018 Revolver (as defined herein) and 2019 Revolver, and 4.53 % for 2019 borrowings under the 2018 Term Loan (as defined herein) and 2019 Term Loan. 2018 Credit Facility The 2018 Credit Agreement was amended by the 2019 Credit Agreement on September 17, 2019 as discussed above. The Company recorded a $ 0.7 million loss on extinguishment of debt in the third quarter of 2019 in connection with the replacement of the 2018 Credit Facility (as defined herein) with the 2019 Credit Facility. The Company's previous credit agreement (the "2018 Credit Agreement") consisted of an $ 800 million revolving credit loan (the “2018 Revolver”) and a $ 100 million term loan (the “2018 Term Loan” and, together with the 2018 Revolver, the “2018 Credit Facility”). F-26 Convertible Senior Notes In January 2018, the Company issued $ 172.5 million aggregate principal amount of 1.00 % Convertible Senior Notes due 2023 (the “Convertible Notes”). The total debt discount of $ 36.0 million at issuance consisted of two components: (i) the conversion option component, recorded to shareholders' equity, in the amount of $ 31.9 million, representing the difference between the principal amount of the Convertible Notes upon issuance less the present value of the future cash flows of the Convertible Notes and (ii) debt issuance costs of $ 4.1 million. The unamortized portion of the total debt discount is being amortized to interest expense over the life of the Convertible Notes. The effective interest rate on the Convertible Notes, which includes the non-cash interest expense of debt discount amortization and debt issuance costs, was 5.25 % as of December 31, 2020 and 2019. The net proceeds from the issuance of the Convertible Notes were approximately $ 167.5 million, after deducting the initial purchasers’ discounts and commissions and offering expenses payable by the Company, but before deducting the net cost of the Convertible Note Hedge Transactions and the Warrant Transactions (each as defined herein) described in Note 9. The Convertible Notes are senior unsecured obligations of the Company and pay interest semi-annually in arrears on February 1 and August 1 of each year at an annual rate of 1.00 %. The Convertible Notes will mature on February 1, 2023 unless earlier repurchased or converted in accordance with their terms. The Convertible Notes are convertible by the noteholders, in certain circumstances and subject to certain conditions, into cash, shares of common stock of the Company, or a combination thereof, at the Company’s election. The initial conversion rate for the Convertible Notes is 11.3785 shares of the Company's common stock per $1,000 principal amount of the Convertible Notes (or 1,962,790 shares in the aggregate) and is equal to an initial conversion price of approximately $ 87.89 per share. If an event of default on the Convertible Notes occurs, the principal amount of the Convertible Notes, plus accrued and unpaid interest (including additional interest, if any) may be declared immediately due and payable, subject to certain conditions. Convertible Notes holders can convert their Convertibles Notes on or after August 1, 2022 at any time at their option. Holders may convert Convertible Notes prior to August 1, 2022, only under the following circumstances: (i) during any calendar quarter, if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day, (ii) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate on each such trading day and (iii) upon the occurrence of certain specified distributions or corporate events. Debt Maturities As of December 31, 2020, the aggregate maturities of total long-term debt for the next five fiscal years and thereafter are as follows (in thousands): 2021 $ 7,500 2022 10,000 2023 182,500 2024 340,000 2025 — Thereafter 300,000 Total $ 840,000 Letters of credit totaling $ 5.2 million were outstanding at December 31, 2020 that exist to meet credit requirements for the Company’s insurance providers. Cash paid for interest for the years ended December 31, 2020, 2019 and 2018 was $ 36.1 million, $ 22.1 million and $ 18.4 million, respectively. F-27 9. DERIVATIVE FINANCIAL INSTRUMENTS Convertible Note Hedge Transactions and Warrant Transactions In January 2018, in connection with the Convertible Notes offering, the Company entered into privately negotiated convertible note hedge transactions (together, the “Convertible Note Hedge Transactions”) with each of Bank of America, N.A. and Wells Fargo Bank, National Association (together, the “Hedge Counterparties”). Pursuant to the Convertible Note Hedge Transactions, the Company acquired options to purchase the same number of shares of the Company's common stock (or 1,962,790 shares) initially underlying the Convertibles Notes at an initial strike price equal to the initial strike price of the Convertible Notes of approximately $ 87.89 per share, subject to customary anti-dilution adjustments. The options expire on February 1, 2023, subject to earlier exercise. At the same time, the Company also entered into separate, privately negotiated warrant transactions (the “Warrant Transactions”) with each of the Hedge Counterparties, pursuant to which the Company sold warrants to purchase the same number of shares of the Company’s common stock (or 1,962,790 shares) underlying the Convertible Notes, at an initial strike price of approximately $ 113.93 per share, subject to customary anti-dilution adjustments. The warrants have a final expiration date of September 20, 2023. The Company paid $ 31.5 million associated with the cost of the Convertible Note Hedge Transactions and received proceeds of $ 18.1 million related to the Warrant Transactions. The Convertible Note Hedge Transactions are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of the Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Convertible Notes. However, the Warrant Transactions could separately have a dilutive effect on the Company's common stock to the extent that the market price per share of the common stock exceeds the strike price of the warrants. As these transactions meet certain accounting criteria, the Convertible Note Hedge Transactions and Warrant Transactions are recorded in stockholders’ equity and are not accounted for as derivatives. Interest Rate Swaps The Company's credit facility exposes the Company to risks associated with the variability in interest expense associated with fluctuations in LIBOR. To partially mitigate this risk, the Company entered into interest rate swaps. As of December 31, 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. The following table summarizes the fair value of derivative contracts included in the accompanying consolidated balance sheet (in thousands): Fair value of derivative liabilities Derivatives accounted for as cash flow hedges Balance sheet location December 31, 2020 December 31, 2019 Interest rate swap agreements Other long-term liabilities $ 6,567 $ 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, and are classified as Level 2 in the fair value hierarchy. F-28 10. ACCUMULATED OTHER COMPREHENSIVE LOSS Accumulated other comprehensive loss primarily includes unrealized gains and losses on derivatives that qualify as hedges of cash flows and cumulative foreign currency translation adjustments. The activity in accumulated other comprehensive loss for the years ended December 31, 2020 and 2019 was as follows: (thousands) Cash Flow Hedges Other Foreign Currency Translation Total Balance at January 1, 2019 $ ( 1,973 ) $ ( 675 ) $ ( 32 ) $ ( 2,680 ) Other comprehensive income (loss) before reclassifications, net of tax ( 3,340 ) ( 595 ) ( 22 ) ( 3,957 ) Amounts reclassified from accumulated other comprehensive loss, net of tax 939 — — 939 Net current period other comprehensive loss ( 2,401 ) ( 595 ) ( 22 ) ( 3,018 ) Balance at December 31, 2019 $ ( 4,374 ) $ ( 1,270 ) $ ( 54 ) $ ( 5,698 ) Other comprehensive income (loss) before reclassifications, net of tax ( 3,973 ) 7 154 ( 3,812 ) Amounts reclassified from accumulated other comprehensive loss, net of tax 3,458 — — 3,458 Net current period other comprehensive income (loss) ( 515 ) 7 154 ( 354 ) Balance at December 31, 2020 $ ( 4,889 ) $ ( 1,263 ) $ 100 $ ( 6,052 ) F-29 11. ACCRUED LIABILITIES Accrued liabilities as of December 31, 2020 and 2019 include the following: (thousands) 2020 2019 Employee compensation and benefits $ 46,061 $ 28,717 Property taxes 4,689 3,657 Customer incentives 18,071 12,297 Accrued interest 5,819 7,460 Other 8,562 5,902 Total accrued liabilities $ 83,202 $ 58,033 12. INCOME TAXES The provision for income taxes for the years ended December 31, 2020, 2019 and 2018 consists of the following: (thousands) 2020 2019 2018 Current: Federal $ 16,627 $ 17,587 $ 22,578 State 8,584 5,019 8,725 Foreign 9 61 85 Total current 25,220 22,667 31,388 Deferred: Federal 8,344 4,529 1,529 State ( 253 ) 1,064 ( 770 ) Total deferred 8,091 5,593 759 Income taxes $ 33,311 $ 28,260 $ 32,147 The Company has accounted for in its 2020, 2019 and 2018 income tax provision the impact of Global Intangible Low-Taxed Income, base-erosion anti-abuse tax, interest expense limitations under Section 163(j), and foreign-derived intangible income deductions, although such provisions were either not applicable or resulted in a zero or immaterial impact to the consolidated financial statements. A reconciliation of the differences between the actual provision for income taxes and income taxes at the federal statutory income tax rate of 21% for the years ended December 31, 2020, 2019 and 2018 is as follows: (thousands) 2020 2019 2018 Rate applied to pretax income $ 27,378 21.0 % $ 24,744 21.0 % $ 31,916 21.0 % State taxes, net of federal tax effect 6,026 4.6 % 5,147 4.4 % 6,427 4.2 % Research and development tax credits ( 1,647 ) ( 1.3 ) % ( 343 ) ( 0.3 ) % — — % Excess tax benefit on stock-based compensation ( 350 ) ( 0.3 ) % ( 833 ) ( 0.7 ) % ( 6,685 ) ( 4.4 ) % Other 1,904 1.6 % ( 455 ) ( 0.4 ) % 489 0.4 % Income taxes $ 33,311 25.6 % $ 28,260 24.0 % $ 32,147 21.2 % F-30 The composition of the deferred tax assets and liabilities as of December 31, 2020 and 2019 is as follows: (thousands) 2020 2019 Long-term deferred income tax assets (liabilities): Trade receivables allowance $ 426 $ 417 Inventory capitalization 2,796 2,226 Accrued expenses 8,988 5,987 Deferred compensation 447 413 Inventory reserves 5,235 4,651 Federal NOL carryforwards 1,288 1,113 State NOL carryforwards 1,040 953 Valuation allowance - NOL ( 767 ) ( 872 ) Share-based compensation 8,087 7,221 Operating lease right-of-use assets ( 15,292 ) ( 23,910 ) Operating lease liabilities 15,710 24,160 Other 1,454 2,015 Intangibles ( 28,992 ) ( 28,160 ) Depreciation expense ( 37,661 ) ( 22,368 ) Prepaid expenses ( 2,275 ) ( 1,130 ) Net deferred tax liabilities $ ( 39,516 ) $ ( 27,284 ) Cash paid by the Company for income taxes was $ 7.9 million, $ 36.1 million and $ 28.2 million in 2020, 2019 and 2018, respectively. As of December 31, 2020 and December 31, 2019, the Company had gross federal, state, and foreign net operating losses, of approximately $ 26.2 million and $ 24.5 million, respectively. These loss carryforwards generally expire between tax years ending December 31, 2020 and December 31, 2037. The components of the valuation allowance relate to certain acquired federal, state and foreign net operating loss carryforwards that the Company anticipates will not be utilized prior to their expiration, either due to income limitations or limitations under Section 382. The tax effected values of these net operating losses are $ 2.3 million and $ 2.0 million at December 31, 2020 and 2019, respectively, exclusive of valuation allowances of $ 0.8 million and $ 0.9 million at December 31, 2020 and 2019, respectively. The Company is subject to periodic audits by domestic tax authorities. For the majority of tax jurisdictions, the U.S. federal statute of limitations remains open for the years 2017 and later. Uncertain tax benefits were immaterial at December 31, 2020 and 2019 and activity related to uncertain tax benefits was immaterial for all periods presented. 13. STOCK REPURCHASE PROGRAMS In October 2018, the Company's Board of Directors ("the Board") approved an increase in the amount of the Company's common stock that may be acquired over 24 months under the current stock repurchase program to $ 50.0 million, including amounts remaining under previous authorizations. In March 2020, the Board approved a new stock repurchase program for up to $ 50.0 million of its common stock, including amounts remaining under previous authorizations. Approximately $ 36.0 million of common stock repurchases remains available at December F-31 31, 2020 as part of this authorization. Under the stock repurchase plans, the Company made repurchases of common stock for 2020, 2019 and 2018 as follows: 2020 2019 2018 Shares repurchased 595,805 102,932 1,984,095 Average price $ 38.78 $ 37.06 $ 54.21 Aggregate cost (in millions) $ 23.1 $ 3.8 $ 107.6 The Company’s common stock does not have a stated par value. As a result, repurchases of common stock have been reflected, using an average cost method, as a reduction of common stock, additional paid-in-capital and retained earnings in the Company’s consolidated statements of financial position. 14. NET INCOME PER COMMON SHARE Income per common share is calculated for the years ended December 31, 2020, 2019 and 2018 as follows: (thousands except per share data) 2020 2019 2018 Net income $ 97,061 $ 89,566 $ 119,832 Weighted average common shares outstanding - basic 22,730 23,058 23,995 Effect of potentially dilutive securities 357 222 322 Weighted average common shares outstanding - diluted 23,087 23,280 24,317 Basic net income per common share $ 4.27 $ 3.88 $ 4.99 Diluted net income per common share $ 4.20 $ 3.85 $ 4.93 Cash dividends paid per common share $ 1.03 $ 0.25 $ — The impact on diluted net income per common share from antidilutive securities excluded from the calculation was immaterial for all periods presented. 15. LEASES We lease certain facilities, trailers, forklifts and other assets. Leases with an initial term of 12 months or less are not recorded on the balance sheet and expense related to these short-term leases was immaterial for fiscal 2020 and 2019. Variable lease expense, principally related to trucks, forklifts, and index-related facility rent escalators, was immaterial for the years ended December 31, 2020 and 2019. Leases have remaining lease terms of one year to nineteen years . Certain leases include options to renew for an additional term. Where there is reasonable certainty to utilize a renewal option, we include the renewal option in the lease term used to calculate operating lease right-of-use assets and lease liabilities. F-32 Lease expense, supplemental cash flow information, and other information related to leases for the years ended December 31, 2020 and 2019 were as follows: (thousands) 2020 2019 Operating lease cost $ 34,243 $ 31,653 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 33,599 $ 30,677 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 56,526 $ 37,112 Balance sheet information related to leases as of December 31, 2020 and 2019 was as follows: (thousands, except lease term and discount rate) 2020 2019 Assets Operating lease right-of-use assets $ 117,816 $ 93,546 Liabilities Operating lease liabilities, current portion $ 30,901 $ 27,694 Long-term operating lease liabilities 88,175 66,467 Total lease liabilities $ 119,076 $ 94,161 Weighted average remaining lease term, operating leases (in years) 5.3 4.2 Weighted average discount rate, operating leases 4.1 % 3.7 % Maturities of operating lease liabilities were as follows at December 31, 2020 (in thousands): 2021 $ 34,996 2022 29,867 2023 23,970 2024 17,575 2025 10,182 Thereafter 17,489 Total lease payments 134,079 Less imputed interest ( 15,003 ) Total $ 119,076 16. COMMITMENTS AND CONTINGENCIES The Company is subject to proceedings, lawsuits, audits, and other claims arising in the normal course of business. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. Accruals for these items, when applicable, have been provided to the extent that losses are deemed probable and are reasonably estimable. These accruals are adjusted from time to time as developments warrant. Although the ultimate outcome of these matters cannot be ascertained, on the basis of present information, amounts already provided, availability of insurance coverage and legal advice received, it is the opinion of management that F-33 the ultimate resolution of these proceedings, lawsuits, and other claims will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows. In August 2019, a group of companies calling itself the Lusher Site Remediation Group (the “Group”) commenced litigation against the Company in Lusher Site Remediation Group v. Sturgis Iron & Metal Co., Inc., et al., Case Number 3:18-cv-00506, pending in the U.S. District Court for the Northern District of Indiana. The Group’s Second Amended Complaint, which was the first to assert claims against Patrick, asserted claims under the federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. § 9601 et seq., an Indiana state environmental statute and Indiana common law. One defendant in the case, Sturgis Iron & Metal Co., Inc. (“Sturgis”), subsequently filed two cross claims against Patrick, asserting against the Company a claim for (i) contribution under CERCLA and (ii) contractual indemnity. The Company moved to dismiss the Group’s claims and also moved to dismiss Sturgis’s cross claims. On August 21, 2020, the court granted Patrick’s two motions to dismiss. The Group subsequently moved for reconsideration of the court’s decision. That reconsideration motion is still pending. The Company does not currently believe that this matter is likely to have a material adverse impact on its financial condition, results of operations, or cash flows. However, any litigation is inherently uncertain, and any judgment or injunctive relief entered against us or any adverse settlement could materially and adversely impact our business, results of operations, financial condition, and prospects. 17. COMPENSATION PLANS Stock-Based Compensation The Company has various stock option and stock-based incentive plans and various agreements whereby stock options, restricted stock awards, and SARS were made available to certain key employees, directors, and others based upon meeting various individual, divisional or company-wide performance criteria and time-based criteria. All such awards qualify and are accounted for as equity awards. Equity incentive plan awards, which are granted under the Company's 2009 Omnibus Incentive Plan, are intended to retain and reward key employees for outstanding performance and efforts as they relate to the Company’s short-term and long-term objectives and its strategic plan. At December 31, 2020, approximately one million common shares remain available for stock-based compensation grants. Stock-based compensation expense was $ 16.0 million, $ 15.4 million and $ 14.0 million for the years ended December 31, 2020, 2019 and 2018, respectively. Income tax benefit for stock-based compensation expense was $ 4.1 million, $ 3.9 million and $ 3.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, there was approximately $ 23.8 million of total unrecognized compensation cost related to share-based compensation arrangements granted under incentive plans. That cost is expected to be recognized over a weighted-average period of approximately 13.9 months. Stock Options: Stock options vest ratably over either three or four years and have nine-year contractual terms. In 2020, we granted 495,000 stock options to certain employees at an average exercise price per share of $ 42.87 . The stock options vest 35 %, 35 % and 30 % over years one, two, and three, respectively, and have nine-year contractual terms. No stock options were granted in 2019 and 2018. F-34 The following table summarizes the Company’s option activity during the years ended December 31, 2020, 2019 and 2018: Years ended December 31 2020 2019 2018 (shares in thousands) Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price Outstanding beginning of year 536 $ 45.11 545 $ 44.35 548 $ 44.07 Granted during the year 495 42.87 — — — — Forfeited during the year ( 4 ) 53.83 — — — — Exercised during the year ( 12 ) 53.83 ( 9 ) 0.67 ( 3 ) 0.78 Outstanding end of year 1,015 $ 43.88 536 $ 45.11 545 $ 44.35 Vested Options: Vested during the year 115 $ 50.46 115 $ 50.46 115 $ 50.46 Eligible end of year for exercise 439 $ 43.19 336 $ 41.07 230 $ 34.72 Aggregate intrinsic value ($ in thousands): Total options outstanding $ 24,838 $ 4,398 $ 1,570 Options exercisable $ 11,047 $ 4,051 $ 1,570 Options exercised $ 97 $ 381 $ 195 Weighted average fair value of options granted during the year $ 15.17 N/A N/A The aggregate intrinsic value (excess of market value over the option exercise price) in the table above is before income taxes, and assuming the Company’s closing stock price of $ 68.35 , $ 52.43 and $ 29.61 per share as of December 31, 2020, 2019 and 2018, respectively, is the price that would have been received by the option holders had those option holders exercised their options as of that date. At December 31, 2020, the weighted average remaining contractual term for options outstanding was 6.4 years and the weighted average remaining contractual term for options exercisable was 4.4 years. The cash received from the exercise of stock options was $ 0.6 million in 2020 and immaterial in 2019 and 2018. The income tax benefit related to the stock options exercised in 2020, 2019 and 2018 was immaterial. The grant date fair value of stock options vested in 2020, 2019 and 2018 was $ 5.8 million, $ 5.8 million and $ 5.8 million, respectively. The following table presents assumptions used in the Black-Scholes model for the stock options granted in 2020: Dividend rate 2.37 % Risk-free interest rate 0.65 % Expected option life (years) 5.0 Price volatility 42.42 % As of December 31, 2020, there was approximately $ 6.2 million of total unrecognized compensation expense related to the stock options, which is expected to be recognized over a weighted-average remaining life of approximately 18.8 months. F-35 Stock Appreciation Rights (SARS): No SARS were granted in the years ended December 31, 2020, 2019 and 2018. The following table summarizes the Company’s SARS activity during the years ended December 31, 2020, 2019 and 2018: Years ended December 31 2020 2019 2018 (shares in thousands) Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price Total SARS: Outstanding beginning of year 535 $ 54.53 535 $ 54.53 535 $ 54.53 Granted during the year — — — — — — Forfeited during the year ( 10 ) 68.01 — — — — Exercised during the year ( 40 ) 22.39 — — — — Outstanding end of year 485 $ 56.96 535 $ 54.53 535 $ 54.53 Vested SARS: Vested during the year 115 $ 60.71 115 $ 60.71 115 $ 60.71 Eligible end of year for exercise 404 $ 55.58 336 $ 50.04 220 $ 44.46 Aggregate intrinsic value ($ in thousands): Total SARS outstanding $ 6,032 $ 3,190 $ 983 SARS exercisable $ 5,540 $ 3,066 $ 983 SARS exercised $ 1,918 $ — $ — Weighted average fair value of SARS granted during the year N/A N/A N/A The aggregate intrinsic value (excess of market value over the SARS exercise price) in the table above is before income taxes, and assuming the Company’s closing stock price of $ 68.35 , $ 52.43 and $ 29.61 per share as of December 31, 2020, 2019 and 2018, respectively, is the price that would have been received by the SARS holder had that SARS holder exercised the SARS as of that date. As of December 31, 2020, there was approximately $ 0.1 million of total unrecognized compensation expense related to the SARS which is expected to be recognized over a weighted-average remaining life of approximately one month . Restricted Stock: The Company’s stock-based awards include restricted stock awards. As of December 31, 2020, there was approximately $ 17.5 million of total unrecognized compensation expense related to restricted stock, which is expected to be recognized over a weighted-average remaining life of approximately 13.7 months. Restricted stock awards possess voting rights, are included in the calculation of actual shares outstanding, and include both performance- and time-based contingencies. The grant date fair value of the awards is expensed over the related service or performance period. Time-based shares cliff vest at the conclusion of the required service period, which ranges from one to three years . The performance contingent shares are earned based on the F-36 achievement of a cumulative financial performance target, which ranges from a one to five-year period and vest at the conclusion of the measurement period. The following table summarizes the activity for restricted stock for the years ended December 31, 2020, 2019 and 2018: 2020 2019 2018 (shares in thousands) Shares Weighted-Average Grant Date Stock Price Shares Weighted-Average Grant Date Stock Price Shares Weighted-Average Grant Date Stock Price Unvested beginning of year 738 $ 49.65 606 $ 48.56 634 $ 35.68 Granted during the year 309 55.03 378 39.74 182 65.35 Vested during the year ( 178 ) 52.80 ( 230 ) 30.46 ( 209 ) 23.98 Forfeited during the year ( 79 ) 55.87 ( 16 ) 50.49 ( 1 ) 57.93 Unvested end of year 790 $ 50.39 738 $ 49.65 606 $ 48.56 18. SEGMENT INFORMATION The Company has two reportable segments, Manufacturing and Distribution, which are based on its method of internal reporting, which segregates its businesses based on the way in which its chief operating decision maker allocates resources, evaluates financial results, and determines compensation. A description of the Company’s reportable segments is as follows: Manufacturing – This segment includes the following products: laminated products that are utilized to produce furniture, shelving, walls, countertops and cabinet products; cabinet doors; fiberglass bath fixtures and tile systems; hardwood furniture; vinyl printing; decorative vinyl and paper laminated panels; solid surface, granite, and quartz countertop fabrication; RV painting; fabricated aluminum products; fiberglass and plastic components; fiberglass bath fixtures and tile systems; softwoods lumber; treated, untreated and laminated plywood; custom cabinetry; polymer-based flooring; electrical systems components including instrument and dash panels; wrapped vinyl, paper and hardwood profile mouldings; interior passage doors; air handling products; slide-out trim and fascia; thermoformed shower surrounds; specialty bath and closet building products; fiberglass and plastic helm systems and components products; wiring and wire harnesses; boat covers, towers, tops and frames; marine hardware; aluminum and plastic fuel tanks; CNC molds and composite parts; slotwall panels and components; and other products. Distribution – The Company distributes pre-finished wall and ceiling panels; drywall and drywall finishing products; electronics and audio systems components; appliances; wiring, electrical and plumbing products; fiber reinforced polyester products; cement siding; raw and processed lumber; interior passage doors; roofing products; laminate and ceramic flooring; tile; shower doors; furniture; fireplaces and surrounds; interior and exterior lighting products; and other miscellaneous products in addition to providing transportation and logistics services. The accounting policies of the segments are the same as those described in Note 1, except that segment data includes intersegment sales. Assets are identified to the segments except for cash, prepaid expenses, land and buildings, and certain deferred assets, which are identified with the corporate division. The corporate division charges rents to the segments for use of the land and buildings based upon estimated market rates. The Company accounts for intersegment sales similar to third party transactions, which reflect current market prices. The Company also records certain income from purchase incentive agreements at the corporate division. The Company evaluates the F-37 performance of its segments and allocates resources to them based on a variety of indicators including but not limited to sales and operating income as presented in the tables below. The tables below present information that is provided to the chief operating decision maker of the Company as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 (in thousands): 2020 Manufacturing Distribution Total Net outside sales $ 1,729,451 $ 757,146 $ 2,486,597 Intersegment sales 36,367 5,326 41,693 Total sales 1,765,818 762,472 2,528,290 Operating income 190,518 54,376 244,894 Total assets 1,337,920 343,170 1,681,090 Capital expenditures 30,588 788 31,376 Depreciation and amortization 61,407 8,527 69,934 2019 Manufacturing Distribution Total Net outside sales $ 1,642,263 $ 694,819 $ 2,337,082 Intersegment sales 31,223 4,340 35,563 Total sales 1,673,486 699,159 2,372,645 Operating income 174,913 38,953 213,866 Total assets 990,692 304,230 1,294,922 Capital expenditures 25,291 1,973 27,264 Depreciation and amortization 52,036 7,534 59,570 2018 Manufacturing Distribution Total Net outside sales $ 1,745,467 $ 517,594 $ 2,263,061 Intersegment sales 33,581 3,641 37,222 Total sales 1,779,048 521,235 2,300,283 Operating income 215,246 31,491 246,737 Capital expenditures 31,152 1,852 33,004 Depreciation and amortization 44,747 7,613 52,360 F-38 A reconciliation of certain line items pertaining to the total reportable segments to the consolidated financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 is as follows (in thousands): 2020 2019 2018 Net sales: Total sales for reportable segments $ 2,528,290 $ 2,372,645 $ 2,300,283 Elimination of intersegment sales ( 41,693 ) ( 35,563 ) ( 37,222 ) Consolidated net sales $ 2,486,597 $ 2,337,082 $ 2,263,061 Operating income: Operating income for reportable segments $ 244,894 $ 213,866 $ 246,737 Unallocated corporate expenses ( 30,653 ) ( 23,516 ) ( 34,109 ) Amortization ( 40,868 ) ( 35,908 ) ( 34,213 ) Consolidated operating income $ 173,373 $ 154,442 $ 178,415 Total assets: Identifiable assets for reportable segments $ 1,681,090 $ 1,294,922 Corporate assets unallocated to segments 27,578 36,681 Cash and cash equivalents 44,767 139,390 Consolidated total assets $ 1,753,435 $ 1,470,993 Depreciation and amortization: Depreciation and amortization for reportable segments $ 69,934 $ 59,570 $ 52,360 Corporate depreciation and amortization 3,336 3,225 2,692 Consolidated depreciation and amortization $ 73,270 $ 62,795 $ 55,052 Capital expenditures: Capital expenditures for reportable segments $ 31,376 $ 27,264 $ 33,004 Corporate capital expenditures 724 397 1,482 Consolidated capital expenditures $ 32,100 $ 27,661 $ 34,486 Amortization expense related to intangible assets in the Manufacturing segment for the years ended December 31, 2020, 2019 and 2018 was $ 33.5 million, $ 29.5 million and $ 27.4 million, respectively. Intangible assets amortization expense in the Distribution segment was $ 7.4 million, $6.4 million and $ 6.8 million in 2020, 2019 and 2018, respectively. Unallocated corporate expenses include corporate general and administrative expenses comprised of wages, insurance, taxes, supplies, travel and entertainment, professional fees and other. F-39 Major Customers The Company had two major customers that accounted for the following sales for 2020, 2019, 2018 and trade receivables balances at December 31, 2020 and 2019 as shown in the table below: 2020 2019 2018 Customer 1 Net sales 22 % 23 % 29 % Trade receivables 13 % 6 % Customer 2 Net sales 17 % 17 % 20 % Trade receivables 17 % 14 % 19. QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data for the years ended December 31, 2020 and 2019 is as follows: (thousands except per share data) 1Q 2Q 3Q 4Q 2020 Net sales $ 589,232 $ 424,045 $ 700,707 $ 772,613 $ 2,486,597 Gross profit 109,481 73,721 133,497 142,318 459,017 Net income 21,187 714 37,336 37,824 97,061 Net income per common share (1) Basic $ 0.92 $ 0.03 $ 1.65 $ 1.68 $ 4.27 Diluted 0.91 0.03 1.62 1.64 4.20 Cash dividends paid per common share $ 0.25 $ 0.25 $ 0.25 $ 0.28 $ 1.03 (thousands except per share data) 1Q 2Q 3Q 4Q 2019 Net sales $ 608,218 $ 613,218 $ 566,186 $ 549,460 $ 2,337,082 Gross profit 106,548 112,661 104,335 99,327 422,871 Net income 20,849 27,416 21,317 19,984 89,566 Net income per common share (1) Basic $ 0.90 $ 1.19 $ 0.92 $ 0.87 $ 3.88 Diluted 0.90 1.18 0.92 0.86 3.85 Cash dividends paid per common share $ — $ — $ — $ 0.25 $ 0.25 (1) Basic and diluted net income per common share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted net income per common share information may not equal annual basic and diluted net income per common share. F-40