PATRICK INDUSTRIES INC 10-Q

ITEM 1. FINANCIAL STATEMENTS PATRICK INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) First Quarter Ended (thousands except per share data) March 28, 2021 March 29, 2020 NET SALES $ 850,483 $ 589,232 Cost of goods sold 688,951 479,751 GROSS PROFIT 161,532 109,481 Operating Expenses: Warehouse and delivery 29,913 24,732 Selling, general and administrative 51,232 35,869 Amortization of intangible assets 11,906 9,601 Total operating expenses 93,051 70,202 OPERATING INCOME 68,481 39,279 Interest expense, net 11,179 10,492 Income before income taxes 57,302 28,787 Income taxes 9,789 7,600 NET INCOME $ 47,513 $ 21,187 BASIC NET INCOME PER COMMON SHARE $ 2.09 $ 0.92 DILUTED NET INCOME PER COMMON SHARE $ 2.04 $ 0.91 Weighted average shares outstanding – Basic 22,737 23,016 Weighted average shares outstanding – Diluted 23,286 23,267 See accompanying Notes to Condensed Consolidated Financial Statements. 3 PATRICK INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) First Quarter Ended (thousands) March 28, 2021 March 29, 2020 NET INCOME $ 47,513 $ 21,187 Other comprehensive income (loss), net of tax: Unrealized gain (loss) of hedge derivatives 975 ( 3,006 ) Other ( 59 ) ( 37 ) Total other comprehensive income (loss) 916 ( 3,043 ) COMPREHENSIVE INCOME $ 48,429 $ 18,144 See accompanying Notes to Condensed Consolidated Financial Statements. 4 PATRICK INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) As of (thousands) March 28, 2021 December 31, 2020 ASSETS Current Assets Cash and cash equivalents $ 6,171 $ 44,767 Trade and other receivables, net 211,974 132,505 Inventories 345,244 312,809 Prepaid expenses and other 28,446 37,982 Total current assets 591,835 528,063 Property, plant and equipment, net 256,213 251,493 Operating lease right-of-use assets 124,384 117,816 Goodwill 405,382 395,800 Intangible assets, net 451,269 456,276 Deferred financing costs, net 2,220 2,382 Other non-current assets 3,575 1,605 TOTAL ASSETS $ 1,834,878 $ 1,753,435 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Current maturities of long-term debt $ 7,500 $ 7,500 Current operating lease liabilities 32,513 30,901 Accounts payable 154,291 105,786 Accrued liabilities 105,545 83,202 Total current liabilities 299,849 227,389 Long-term debt, less current maturities, net 785,849 810,907 Long-term operating lease liabilities 93,327 88,175 Deferred tax liabilities, net 40,998 39,516 Other long-term liabilities 19,580 28,007 TOTAL LIABILITIES 1,239,603 1,193,994 SHAREHOLDERS’ EQUITY Common stock 174,920 180,892 Additional paid-in-capital 24,387 24,387 Accumulated other comprehensive loss ( 5,136 ) ( 6,052 ) Retained earnings 401,104 360,214 TOTAL SHAREHOLDERS’ EQUITY 595,275 559,441 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,834,878 $ 1,753,435 See accompanying Notes to Condensed Consolidated Financial Statements. 5 PATRICK INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) First Quarter Ended (thousands) March 28, 2021 March 29, 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 47,513 $ 21,187 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 22,521 17,175 Stock-based compensation expense 4,298 4,311 Amortization of convertible notes debt discount 1,769 1,723 Other non-cash items 1,595 750 Change in operating assets and liabilities, net of acquisitions of businesses: Trade receivables ( 76,350 ) ( 66,453 ) Inventories ( 24,398 ) ( 18,211 ) Prepaid expenses and other assets 9,587 9,649 Accounts payable, accrued liabilities and other 63,757 43,033 Net cash provided by operating activities 50,292 13,164 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ( 14,239 ) ( 7,580 ) Proceeds from sale of property, plant and equipment 58 21 Business acquisitions, net of cash acquired ( 28,864 ) ( 24,281 ) Other ( 2,000 ) — Net cash used in investing activities ( 45,045 ) ( 31,840 ) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings on revolver 117,475 6,720 Repayments on revolver ( 144,475 ) ( 6,720 ) Stock repurchases under buyback program — ( 15,550 ) Cash dividends paid to shareholders ( 6,573 ) ( 5,837 ) Taxes paid for share-based payment arrangements ( 14,464 ) ( 2,747 ) Payment of deferred financing costs and other — ( 57 ) Payment of contingent consideration from a business acquisition — ( 2,000 ) Proceeds from exercise of common stock options 4,194 — Net cash used in financing activities ( 43,843 ) ( 26,191 ) Decrease in cash and cash equivalents ( 38,596 ) ( 44,867 ) Cash and cash equivalents at beginning of year 44,767 139,390 Cash and cash equivalents at end of period $ 6,171 $ 94,523 Supplemental Cash Flow Information: Increase (decrease) in accrued capital expenditures $ ( 2,816 ) $ 57 See accompanying Notes to Condensed Consolidated Financial Statements. 6 PATRICK INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) First Quarter Ended March 28, 2021 (thousands) Common Stock Additional Paid-in-Capital Accumulated Other Comprehensive Loss Retained Earnings Total Balance December 31, 2020 $ 180,892 $ 24,387 $ ( 6,052 ) $ 360,214 $ 559,441 Net income — — — 47,513 47,513 Dividends declared — — — ( 6,623 ) ( 6,623 ) Other comprehensive income, net of tax — — 916 — 916 Repurchases of shares for tax payments related to the vesting and exercise of share-based grants ( 14,464 ) — — — ( 14,464 ) Issuance of shares upon exercise of common stock options 4,194 — — — 4,194 Stock-based compensation expense 4,298 — — — 4,298 Balance March 28, 2021 $ 174,920 $ 24,387 $ ( 5,136 ) $ 401,104 $ 595,275 First Quarter Ended March 29, 2020 (thousands) Common Stock Additional Paid-in-Capital Accumulated Other Comprehensive Loss Retained Earnings Total Balance December 31, 2019 $ 172,662 $ 25,014 $ ( 5,698 ) $ 305,503 $ 497,481 Net income — — — 21,187 21,187 Dividends declared — — — ( 5,978 ) ( 5,978 ) Other comprehensive loss, net of tax — — ( 3,043 ) — ( 3,043 ) Share repurchases under buyback program ( 3,315 ) ( 480 ) — ( 11,755 ) ( 15,550 ) Repurchases of shares for tax payments related to the vesting and exercise of share-based grants ( 3,032 ) — — — ( 3,032 ) Stock-based compensation expense 4,311 — — — 4,311 Balance March 29, 2020 $ 170,626 $ 24,534 $ ( 8,741 ) $ 308,957 $ 495,376 See accompanying Notes to Condensed Consolidated Financial Statements 7 PATRICK INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Patrick Industries, Inc. (“Patrick”, the “Company”, "we", "our") contain all adjustments (consisting of normal recurring adjustments) that we believe are necessary to present fairly the Company’s financial position as of March 28, 2021 and December 31, 2020, and its results of operations and cash flows for the three months ended March 28, 2021 and March 29, 2020. Patrick’s unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules or regulations. Certain immaterial reclassifications have been made to the prior period presentation to conform to the current period presentation of accumulated other comprehensive income in Note 11. For a description of significant accounting policies used by the Company in the preparation of its consolidated financial statements, please refer to Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The December 31, 2020 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Operating results for the first quarter ended March 28, 2021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021. The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning approximately thirteen weeks. The first quarter ends on the Sunday closest to the end of the first thirteen-week period. The second and third quarters are thirteen weeks in duration and the fourth quarter is the remainder of the year. The first quarter of fiscal year 2021 ended on March 28, 2021 and the first quarter of fiscal year 2020 ended on March 29, 2020. In preparation of Patrick’s condensed consolidated financial statements as of and for the three months ended March 28, 2021, management evaluated all subsequent events and transactions that occurred after the balance sheet date through the date of issuance of the Form 10-Q that required recognition or disclosure in the condensed consolidated financial statements. See Note 17 for more information. 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Income Taxes In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 did not have a material effect on its condensed consolidated financial statements. 8 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 condensed 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 condensed consolidated financial statements. At this point in time, we anticipate the primary impact on our condensed consolidated financial statements as a result of the adoption of ASU 2020-06 will be a reduction in non-cash interest expense as well as a reduction in diluted net income per share attributable to the application of the if-converted method for our convertible notes discussed in Note 9. 3. REVENUE RECOGNITION In the following table, revenue from contracts with customers, net of intersegment sales, is disaggregated by market type and by reportable segment, consistent with how the Company believes the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors: First Quarter Ended March 28, 2021 (thousands) Manufacturing Distribution Total Market type: Recreational Vehicle $ 329,612 $ 171,814 $ 501,426 Marine 132,338 4,471 136,809 Manufactured Housing 56,634 64,084 120,718 Industrial 82,172 9,358 91,530 Total $ 600,756 $ 249,727 $ 850,483 9 First Quarter Ended March 29, 2020 (thousands) Manufacturing Distribution Total Market type: Recreational Vehicle $ 226,785 $ 93,435 $ 320,220 Marine 75,429 2,622 78,051 Manufactured Housing 45,605 66,764 112,369 Industrial 71,447 7,145 78,592 Total $ 419,266 $ 169,966 $ 589,232 Contract Liabilities Contract liabilities, representing upfront payments from customers received prior to satisfying performance obligations, were immaterial as of the beginning and end of all periods presented and changes in contract liabilities were immaterial during all periods presented. 4. INVENTORIES Inventories consist of the following: (thousands) March 28, 2021 December 31, 2020 Raw materials $ 174,676 $ 157,219 Work in process 23,641 19,282 Finished goods 34,257 37,632 Less: reserve for inventory obsolescence ( 9,171 ) ( 8,320 ) Total manufactured goods, net 223,403 205,813 Materials purchased for resale (distribution products) 127,214 112,158 Less: reserve for inventory obsolescence ( 5,373 ) ( 5,162 ) Total materials purchased for resale (distribution products), net 121,841 106,996 Total inventories $ 345,244 $ 312,809 5. GOODWILL AND INTANGIBLE ASSETS Changes in the carrying amount of goodwill for the three months ended March 28, 2021 by segment are as follows: (thousands) Manufacturing Distribution Total Balance - December 31, 2020 $ 338,045 $ 57,755 $ 395,800 Acquisitions 3,894 — 3,894 Adjustments to preliminary purchase price allocations 5,688 — 5,688 Balance - March 28, 2021 $ 347,627 $ 57,755 $ 405,382 10 Intangible assets, net consist of the following as of March 28, 2021 and December 31, 2020: (thousands) March 28, 2021 December 31, 2020 Customer relationships $ 466,458 $ 461,754 Non-compete agreements 16,282 15,949 Patents 23,078 23,025 Trademarks 115,605 113,796 621,423 614,524 Less: accumulated amortization ( 170,154 ) ( 158,248 ) Intangible assets, net $ 451,269 $ 456,276 Changes in the carrying value of intangible assets for the three months ended March 28, 2021 by segment are as follows: (thousands) Manufacturing Distribution Total Balance - December 31, 2020 $ 373,717 $ 82,559 $ 456,276 Acquisitions 11,988 — 11,988 Amortization ( 9,874 ) ( 2,032 ) ( 11,906 ) Adjustments to preliminary purchase price allocations ( 5,089 ) — ( 5,089 ) Balance - March 28, 2021 $ 370,742 $ 80,527 $ 451,269 6. ACQUISITIONS General The Company completed four acquisitions in the first quarter of 2021 (the "2021 Acquisitions"). For the first quarter ended March 28, 2021, net sales included in the Company's condensed consolidated statement of income related to the 2021 Acquisitions were $ 5.4 million and operating income was immaterial. Acquisition-related costs associated with the businesses acquired in the first quarter of 2021 were immaterial. Assets acquired and liabilities assumed in the individual acquisitions were recorded on the Company’s condensed consolidated balance sheet 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 the one year measurement period. The Company completed three acquisitions in the first quarter of 2020. Net sales and operating income included in the Company's condensed consolidated statement of income related to the 2020 Acquisitions in the first quarter ended March 29, 2020 were immaterial. 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. 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. As of March 28, 2021, the aggregate fair value of the estimated contingent consideration payments was $ 6.9 million, $ 3.3 million of which is included in the line item "Accrued liabilities" and $ 3.6 million is included in “Other long-term liabilities” on the condensed consolidated balance sheet. At December 31, 2020, the aggregate fair value of the estimated contingent consideration payments was $ 6.9 million, $ 1.6 million of which was included in the line item "Accrued liabilities" and $ 5.3 million was included in "Other long-term liabilities". The liabilities for contingent 11 consideration expire 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. In the first quarter of 2021, the Company made no cash payments related to contingent consideration liabilities. 2021 Acquisitions The Company completed the following previously announced acquisition in the three months ended March 28, 2021: Company Segment Description Sea-Dog Corporation & Sea-Lect Plastics (collectively, "Sea-Dog") Distribution & Manufacturing Distributor of a variety of marine and powersports hardware and accessories to distributors, wholesalers, retailer, and manufacturers Manufacturer that provides plastic injection molding, design, product development and expert tooling to companies and government entities Inclusive of three immaterial acquisitions not discussed above, total cash consideration for the 2021 Acquisitions was approximately $ 29.5 million. The preliminary purchase price allocations are subject to valuation activities being finalized, and thus all required purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates. Changes to preliminary purchase accounting estimates recorded in the first quarter ended March 28, 2021 related to the 2021 Acquisitions were immaterial. 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 ("OEMs") 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 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 12 Inclusive of four immaterial acquisitions not discussed above, total cash consideration for the 2020 Acquisitions was approximately $ 306.4 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 $ 32.6 million of goodwill. The measurement periods for Maple City Woodworking Corporation and SEI Manufacturing, Inc. have closed. Preliminary purchase price allocations on the remainder are substantially complete, pending valuation activities being finalized on fixed assets in connection with certain acquisitions. All required purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates. Changes to preliminary purchase accounting estimates recorded in the first quarter ended March 28, 2021 related to the 2020 Acquisitions were immaterial and relate primarily to the valuation of intangible assets. The following table summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition for the 2021 Acquisitions and the 2020 Acquisitions: (thousands) 2021 Acquisitions 2020 Acquisitions Consideration Cash, net of cash acquired $ 29,539 $ 306,353 Working capital holdback and other, net (1) 543 ( 128 ) Contingent consideration (2) — 4,763 Total consideration 30,082 310,988 Assets Acquired Trade receivables $ 3,739 $ 15,302 Inventories 8,685 25,353 Prepaid expenses & other 258 725 Property, plant & equipment 4,118 66,525 Operating lease right-of-use assets 3,961 20,029 Identifiable intangible assets 11,935 130,981 Liabilities Assumed Current portion of operating lease obligations ( 1,068 ) ( 2,721 ) Accounts payable & accrued liabilities ( 2,547 ) ( 12,402 ) Operating lease obligations ( 2,893 ) ( 17,308 ) Deferred tax liabilities — ( 4,322 ) Total fair value of net assets acquired 26,188 222,162 Goodwill (3) 3,894 88,826 $ 30,082 $ 310,988 (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 March 28, 2021. (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 2021 Acquisitions and the 2020 Acquisitions, except Front Range Stone (approximately $ 10.1 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. 13 The following table presents our estimates of identifiable intangible assets for the 2021 Acquisitions and the 2020 Acquisitions: (thousands, except year info) Estimated Useful Life (in years) 2021 Acquisitions 2020 Acquisitions Customer relationships 10 $ 9,597 $ 99,897 Non-compete agreements 5 393 1,150 Patents 10 — 6,470 Trademarks Indefinite 1,945 23,464 $ 11,935 $ 130,981 We estimate the value of customer relationships using the multi-period excess earnings method, which is a variation on the income approach, calculating the present value of incremental after-tax cash flows attributable to the asset. Non-compete agreements are valued using a discounted cash flow approach, which is a variation of an income approach, with and without the individual counterparties to the non-compete agreements. Trademarks are valued using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value. Pro Forma Information The following pro forma information for the first quarter ended March 28, 2021 and March 29, 2020 assumes the 2021 Acquisitions and the 2020 Acquisitions occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of the 2021 Acquisitions and 2020 Acquisitions combined with the results prior to their respective acquisition dates, adjusted to reflect the pro forma impact of the acquisitions occurring as of the beginning of the year immediately preceding each such acquisition. The pro forma information includes financing and interest expense charges based on incremental borrowings incurred in connection with each transaction. In addition, the pro forma information includes amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $ 0.1 million and $ 3.0 million for the first quarter ended March 28, 2021 and the first quarter ended March 29, 2020, respectively. First Quarter Ended (thousands except per share data) March 28, 2021 March 29, 2020 Revenue $ 857,009 $ 656,107 Net income 47,815 24,136 Basic net income per common share 2.10 1.05 Diluted net income per common share 2.05 1.04 The pro forma information is presented for informational purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of the periods indicated above. 7. STOCK-BASED COMPENSATION The Company recorded expense of approximately $ 4.3 million for each of the first quarters ended March 28, 2021 and March 29, 2020, for its stock-based compensation plans in the condensed consolidated statements of income. 14 The Board approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the first quarter of 2021 totaling 218,254 shares in the aggregate at an average fair value of $ 72.63 at grant date for a total fair value at grant date of $ 15.9 million. As of March 28, 2021, there was approximately $ 33.9 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under incentive plans. That cost is expected to be recognized over a weighted-average period of 22.8 months. 8. NET INCOME PER COMMON SHARE Net income per common share calculated for the first quarter of 2021 and 2020 is as follows: First Quarter Ended (thousands except per share data) March 28, 2021 March 29, 2020 Net income for basic and diluted per share calculation $ 47,513 $ 21,187 Weighted average common shares outstanding - basic 22,737 23,016 Effect of potentially dilutive securities 549 251 Weighted average common shares outstanding - diluted 23,286 23,267 Basic net income per common share $ 2.09 $ 0.92 Diluted net income per common share $ 2.04 $ 0.91 An immaterial amount of securities was not included in the computation of diluted income per share as they are considered anti-dilutive under the treasury stock method. 9. DEBT A summary of total debt outstanding at March 28, 2021 and December 31, 2020 is as follows: (thousands) March 28, 2021 December 31, 2020 Long-term debt: 1.0 % convertible notes due 2023 $ 172,500 $ 172,500 Term loan due 2024 92,500 92,500 Revolver due 2024 248,000 275,000 7.5 % senior notes due 2027 300,000 300,000 Total long-term debt 813,000 840,000 Less: convertible notes debt discount, net ( 14,304 ) ( 16,072 ) Less: term loan deferred financing costs, net ( 404 ) ( 434 ) Less: senior notes deferred financing costs, net ( 4,943 ) ( 5,087 ) Less: current maturities of long-term debt ( 7,500 ) ( 7,500 ) Total long-term debt, less current maturities, net $ 785,849 $ 810,907 There were no material changes to any of our debt arrangements during the quarter ended March 28, 2021. See Note 17 for a description of changes to our debt arrangements subsequent to March 28, 2021. 15 Interest rates for borrowings under the revolver and term loan are the prime rate or LIBOR plus a margin. At March 28, 2021, all of the Company's borrowings under the revolver and term loan were under the LIBOR-based option. The interest rate for incremental borrowings at March 28, 2021 was LIBOR plus 1.5 % (or 1.63 %) for the LIBOR-based option. The fee payable on committed but unused portions of the revolver was 0.20 % at March 28, 2021. Total cash interest paid for the first quarter of 2021 and 2020 was $ 3.3 million and $ 2.6 million, respectively. 10. DERIVATIVE FINANCIAL INSTRUMENTS The Company's credit facility exposes the Company to risks associated with the variability in interest expense associated with fluctuations in LIBOR. To partially mitigate this risk, the Company entered into interest rate swaps. As of March 28, 2021, the Company had a combined notional principal amount of $ 200 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 condensed consolidated balance sheets (in thousands): Fair value of derivative instruments Derivatives accounted for as cash flow hedges Balance sheet location March 28, 2021 December 31, 2020 Interest rate swaps Accrued liabilities $ 5,258 $ — Interest rate swaps Other long-term liabilities $ — $ 6,567 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. See Note 11 for information regarding accumulated other comprehensive loss on interest rate swaps, which qualify as cash flow hedges. 11. ACCUMULATED OTHER COMPREHENSIVE LOSS Accumulated other comprehensive loss includes unrealized gains and losses on derivatives that qualify as cash flow hedges, cumulative foreign currency translation and other adjustments. The activity in accumulated other comprehensive loss during the three months ended March 28, 2021 and March 29, 2020 was as follows: First Quarter Ended March 28, 2021 (thousands) Cash Flow Hedges Other Foreign Currency Translation Total Balance at December 31, 2020 $ ( 4,889 ) $ ( 1,263 ) $ 100 $ ( 6,052 ) Other comprehensive loss before reclassifications, net of tax ( 96 ) — ( 59 ) ( 155 ) Amounts reclassified from accumulated other comprehensive loss, net of tax 1,071 — — 1,071 Net current period other comprehensive income (loss) 975 — ( 59 ) 916 Balance at March 28, 2021 $ ( 3,914 ) $ ( 1,263 ) $ 41 $ ( 5,136 ) 16 First Quarter Ended March 29, 2020 (thousands) Cash Flow Hedges Other Foreign Currency Items Total Balance at December 31, 2019 $ ( 4,374 ) $ ( 1,270 ) $ ( 54 ) $ ( 5,698 ) Other comprehensive loss before reclassifications, net of tax ( 4,077 ) — ( 37 ) ( 4,114 ) Amounts reclassified from accumulated other comprehensive loss, net of tax 1,071 — — 1,071 Net current period other comprehensive loss ( 3,006 ) — ( 37 ) ( 3,043 ) Balance at March 29, 2020 $ ( 7,380 ) $ ( 1,270 ) $ ( 91 ) $ ( 8,741 ) 12. LEASES Lease expense, supplemental cash flow information, and other information related to leases were as follows: First Quarter Ended (thousands) March 28, 2021 March 29, 2020 Operating lease cost $ 9,585 $ 8,176 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 9,387 $ 8,084 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 15,185 $ 12,428 Balance sheet information related to leases was as follows: (thousands, except lease term and discount rate) March 28, 2021 December 31, 2020 Assets Operating lease right-of-use assets $ 124,384 $ 117,816 Liabilities Operating lease liabilities, current portion $ 32,513 $ 30,901 Long-term operating lease liabilities 93,327 88,175 Total lease liabilities $ 125,840 $ 119,076 Weighted average remaining lease term, operating leases (in years) 5.1 5.3 Weighted average discount rate, operating leases 4.0 % 4.1 % 17 Maturities of lease liabilities were as follows at March 28, 2021: (thousands) 2021 (excluding the three months ended March 28, 2021) $ 27,792 2022 33,939 2023 27,840 2024 20,307 2025 12,054 Thereafter 18,862 Total lease payments 140,794 Less imputed interest ( 14,954 ) Total $ 125,840 As of March 28, 2021, outstanding leases have remaining lease terms ranging from one year to 18 years. 13. FAIR VALUE MEASUREMENTS The following table presents fair values of certain assets and liabilities at March 28, 2021 and December 31, 2020: March 28, 2021 December 31, 2020 (in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Senior Note (1) — $ 351.6 — — $ 329.0 — Convertible Note (1) — 188.3 — — 180.0 — Interest Rate Swaps (2) — 5.3 — — 6.6 — Contingent consideration (3) — — $ 6.9 — — $ 6.9 (1) The amounts of these notes listed above are the current fair values for disclosure purposes only, and they are recorded in the Company's condensed consolidated balance sheets as of March 28, 2021 and December 31, 2020 using the interest rate method as described in Note 9. (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 10. (3) The estimated fair value of the Company's contingent consideration is valued using Level 3 inputs and is discussed further in Note 6. 14. INCOME TAXES The effective tax rate in the first quarter of 2021 and 2020 was 17.1 % and 26.4 %, respectively. The effective tax rate for the first quarter of 2021 includes the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense upon realization in the amount of $ 5.7 million. The Company made no income tax payments in the first quarters of 2021 and 2020. 15. SEGMENT INFORMATION The Company has two reportable segments, Manufacturing and Distribution, which are based on its method of internal reporting, which segregates its businesses based on the manner in which its chief operating decision maker allocates resources, evaluates financial results, and determines compensation. 18 The tables below present information about the sales and operating income of those segments. First Quarter Ended March 28, 2021 (thousands) Manufacturing Distribution Total Net outside sales $ 600,756 $ 249,727 $ 850,483 Intersegment sales 13,808 1,403 15,211 Total sales 614,564 251,130 865,694 Operating income 78,429 21,175 99,604 First Quarter Ended March 29, 2020 (thousands) Manufacturing Distribution Total Net outside sales $ 419,266 $ 169,966 $ 589,232 Intersegment sales 7,573 1,300 8,873 Total sales 426,839 171,266 598,105 Operating income 45,704 9,968 55,672 The following table presents a reconciliation of segment operating income to consolidated operating income: First Quarter Ended (thousands) March 28, 2021 March 29, 2020 Operating income for reportable segments $ 99,604 $ 55,672 Unallocated corporate expenses ( 19,217 ) ( 6,792 ) Amortization ( 11,906 ) ( 9,601 ) Consolidated operating income $ 68,481 $ 39,279 Unallocated corporate expenses include corporate general and administrative expenses comprised of wages, insurance, taxes, supplies, travel and entertainment, professional fees and other. 16. STOCK REPURCHASE PROGRAMS In March 2020, the Board approved a new stock repurchase program for up to $ 50 million of its common stock, including amounts remaining under previous authorizations. Approximately $ 36.0 million remains in the amount of the Company's common stock that may be acquired under the current stock repurchase program as of March 28, 2021. The Company did no t repurchase any of its common stock in the first quarter of 2021. In the first quarter ended March 29, 2020, the Company repurchased 456,155 shares of its common stock at an average price of $ 34.09 per share at an aggregate cost of $ 15.6 million. 17. SUBSEQUENT EVENTS In April 2021, we completed the acquisition of Hyperform Inc., a manufacturer of high-quality, non-slip foam flooring, operating under the SeaDek brand name, for the marine OEM market and aftermarket. Hyperform also serves the pool and spa, powersports and utility markets under the SwimDek and EndeavorDek brand names (collectively, “SeaDek”). SeaDek operates out of two manufacturing facilities located in Rockledge, Florida and in Cocoa, Florida. In April 2021, we completed the acquisition of Alpha Systems, LLC, a manufacturer and distributor of component products and accessories for the recreational vehicle, marine, manufactured housing and industrial end markets. Products include adhesives, sealants, rubber roofing, roto/blow molding, injection molding, flooring, insulation, 19 shutters, skylights, and various other products and accessories. Alpha Systems LLC operates out of nine manufacturing and distribution facilities located in Elkhart, Indiana. On April 20, 2021, we completed the issuance of $ 350 million aggregate principal amount of senior notes due 2029 in a private placement exempt from registration under the Securities Act of 1933. The notes, which were priced at par, carry an interest rate of 4.75 %. Following the completion of the offering, the Company amended and restated the credit agreement governing its existing $ 650 million senior secured credit facility to establish a new $ 700 million senior secured credit facility consisting of a $ 550 million revolving credit facility and a $ 150 million term loan facility. The maturity date for borrowings under the new senior secured credit facility was extended to April 2026. The new senior secured credit facility replaced the Company’s previously existing credit facility that was due to mature in September 2024. In addition to being used to repay a portion of existing borrowings, the net proceeds resulting from these transactions were used for general corporate purposes, including in connection with the acquisitions completed subsequent to the end of the first quarter, and will support the Company's strategic objectives and other general business needs.