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Item 1. Financial Statements

2021-08-05 compared with 2021-05-06 · 253 added, 134 removed, 343 unchanged (53% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

First Quarter Ended

(thousands except per share data) March 28, 2021 March 29, 2020

Second Quarter Ended Six Months Ended

(thousands except per share data) June 27, 2021 June 28, 2020 June 27, 2021 June 28, 2020

NET SALES $ 1,019,953 $ 424,045 $ 1,870,436 $ 1,013,277

18 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

First Quarter Ended

(thousands) March 28, 2021 March 29, 2020

Second Quarter Ended Six Months Ended

(thousands) June 27, 2021 June 28, 2020 June 27, 2021 June 28, 2020

NET INCOME $ 58,985 $ 714 $ 106,498 $ 21,901

7 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(thousands) March 28, 2021 December 31, 2020

(thousands) June 27, 2021 December 31, 2020

Current Assets

8 unchanged sentences

Intangible assets, net 563,288 456,276

Deferred financing costs, net 2,220 2,382

Other non-current assets 6,660 3,987

16 unchanged sentences

Accumulated other comprehensive loss ( 4,129 ) ( 6,052 )

Treasury stock ( 21,550 ) —

Retained earnings 453,432 360,214

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

First Quarter Ended

(thousands) March 28, 2021 March 29, 2020

Six Months Ended

(thousands) June 27, 2021 June 28, 2020

CASH FLOWS FROM OPERATING ACTIVITIES

4 unchanged sentences

Amortization of convertible notes debt discount 3,643 3,505

Deferred income taxes 8,534 ( 7,346 )

Other non-cash items 1,892 3,016

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

Trade receivables ( 76,350 ) ( 66,453 )

Trade and other receivables, net ( 116,625 ) ( 55,520 )

Inventories ( 54,646 ) ( 7,183 )

9 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Term debt borrowings 58,750 —

Term debt repayments ( 1,250 ) ( 1,250 )

Borrowings on revolver 425,475 8,022

Repayments on revolver ( 565,475 ) ( 8,022 )

Proceeds from senior notes offering 350,000 —

Stock repurchases under buyback program ( 21,550 ) ( 15,550 )

4 unchanged sentences

Proceeds from exercise of common stock options 4,577 642

Net cash used in financing activities ( 43,843 ) ( 26,191 )

Decrease in cash and cash equivalents ( 38,596 ) ( 44,867 )

Net cash provided by (used in) financing activities 215,783 ( 32,683 )

Increase (decrease) in cash and cash equivalents 13,635 ( 28,328 )

Cash and cash equivalents at beginning of year 44,767 139,390

Cash and cash equivalents at end of period $ 58,402 $ 111,062

Supplemental Cash Flow Information:

Increase (decrease) in accrued capital expenditures $ ( 2,816 ) $ 57

See accompanying Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

First Quarter Ended March 28, 2021

Second Quarter Ended June 27, 2021

(thousands) Common

Stock Additional Paid-in-Capital Accumulated Other

Comprehensive Loss Retained

Comprehensive Loss Treasury Stock Retained

Earnings Total

Balance December 31, 2020 $ 180,892 $ 24,387 $ ( 6,052 ) $ 360,214 $ 559,441

— — — 47,513 47,513

Balance March 28, 2021 $ 174,920 $ 24,387 $ ( 5,136 ) $ — $ 401,104 $ 595,275

Net income — — — — 58,985 58,985

Dividends declared — — — — ( 6,657 ) ( 6,657 )

— — — ( 6,623 ) ( 6,623 )

Other comprehensive income, net of tax — — 1,007 — — 1,007

Share repurchases under buyback program — — — ( 21,550 ) — ( 21,550 )

Repurchases of shares for tax payments related to the vesting and exercise of share-based grants ( 421 ) — — — — ( 421 )

Issuance of shares in connection with a business combination 10,211 — — — — 10,211

Issuance of shares upon exercise of common stock options 383 — — — — 383

4,194 — — — 4,194

Stock-based compensation expense 6,038 — — — — 6,038

Balance March 28, 2021 $ 174,920 $ 24,387 $ ( 5,136 ) $ 401,104 $ 595,275

First Quarter Ended March 29, 2020

Balance June 27, 2021 $ 191,131 $ 24,387 $ ( 4,129 ) $ ( 21,550 ) $ 453,432 $ 643,271

Six Months Ended June 27, 2021

(thousands) Common

Stock Additional Paid-in-Capital Accumulated Other

Comprehensive Loss Retained

Comprehensive Loss Treasury Stock Retained

Earnings Total

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Repurchases of shares for tax payments related to the vesting and exercise of share-based grants ( 14,885 ) — — — — ( 14,885 )

Issuance of shares in connection with a business combination 10,211 — — — — 10,211

Issuance of shares upon exercise of common stock options 4,577 — — — — 4,577

Stock-based compensation expense 10,336 — — — — 10,336

Balance June 27, 2021 $ 191,131 $ 24,387 $ ( 4,129 ) $ ( 21,550 ) $ 453,432 $ 643,271

PATRICK INDUSTRIES, INC.

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

Second Quarter Ended June 28, 2020

(thousands) Common

Stock Additional Paid-in-Capital Accumulated Other

Comprehensive Loss Treasury Stock Retained

Earnings Total

Balance March 29, 2020 $ 170,626 $ 24,534 $ ( 8,741 ) $ — $ 308,957 $ 495,376

Net income — — — — 714 714

Dividends declared — — — — ( 5,823 ) ( 5,823 )

Other comprehensive income, net of tax — — 449 — — 449

Repurchases of shares for tax payments related to the vesting and exercise of share-based grants ( 126 ) — — — — ( 126 )

Issuance of shares upon exercise of common stock options 642 — — — — 642

Stock-based compensation expense 2,036 — — — — 2,036

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

Six Months Ended June 28, 2020

(thousands) Common

Stock Additional Paid-in-Capital Accumulated Other

Comprehensive Loss Treasury Stock Retained

Earnings Total

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

Net income — — — — 21,901 21,901

Dividends declared — — — — ( 11,801 ) ( 11,801 )

Other comprehensive loss, net of tax — — ( 2,594 ) — — ( 2,594 )

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 ( 3,158 ) — — — — ( 3,158 )

Issuance of shares upon exercise of common stock options 642 — — — — 642

Stock-based compensation expense 6,347 — — — — 6,347

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

See accompanying Notes to Condensed Consolidated Financial Statements

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The accompanying unaudited condensed consolidated financial statements of Patrick Industries, Inc.

(“Patrick”, the “Company”, "we", "our") contain all adjustments (consisting of normal recurring adjustments) that we believe are necessary to present fairly the Company’s financial position as of 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”, the “Company”, "we", "our") contain all adjustments (consisting of normal recurring adjustments) that we believe are necessary to present fairly the Company’s financial position as of June 27, 2021 and December 31, 2020, its results of operations for the second quarter and six months ended June 27, 2021 and June 28, 2020, and its statements of cash flows for the six months ended June 27, 2021 and June 28, 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.

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GAAP have been condensed or omitted pursuant to those rules or regulations.

Certain immaterial reclassifications have been made to the prior period presentation to conform to the current period presentation of accumulated other comprehensive income in Note 11.

Certain immaterial reclassifications have been made to the prior period presentation to conform to the current period presentation of other non-current assets in the condensed consolidated balance sheets and accumulated other comprehensive loss 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.

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.

Operating results for the second quarter and six months ended June 27, 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.

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

The 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.

The second quarter of fiscal year 2021 ended on June 27, 2021 and the second quarter of fiscal year 2020 ended on June 28, 2020.

In preparation of Patrick’s condensed consolidated financial statements as of and for the second quarter and six months ended June 27, 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.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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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.

The Company is 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

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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.

The Company is 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.

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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

Second Quarter Ended June 27, 2021

(thousands) Manufacturing Distribution Total

4 unchanged sentences

Total $ 729,041 $ 290,912 $ 1,019,953

First Quarter Ended March 29, 2020

Six Months Ended June 27, 2021

(thousands) Manufacturing Distribution Total

4 unchanged sentences

Total $ 1,329,797 $ 540,639 $ 1,870,436

Second Quarter Ended June 28, 2020

(thousands) Manufacturing Distribution Total

Recreational Vehicle $ 139,628 $ 64,498 $ 204,126

Marine 54,860 4,188 59,048

Manufactured Housing 36,407 53,907 90,314

Industrial 61,679 8,878 70,557

Total $ 292,574 $ 131,471 $ 424,045

Six Months Ended June 28, 2020

(thousands) Manufacturing Distribution Total

Recreational Vehicle $ 366,413 $ 157,933 $ 524,346

Marine 130,289 6,810 137,099

Manufactured Housing 82,012 120,671 202,683

Industrial 133,126 16,023 149,149

Total $ 711,840 $ 301,437 $ 1,013,277

Contract Liabilities

1 unchanged sentence

Inventories consist of the following:

(thousands) March 28, 2021 December 31, 2020

(thousands) June 27, 2021 December 31, 2020

Raw materials $ 218,116 $ 157,219

8 unchanged sentences

GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the three months ended March 28, 2021 by segment are as follows:

Changes in the carrying amount of goodwill for the six months ended June 27, 2021 by segment are as follows:

(thousands) Manufacturing Distribution Total

2 unchanged sentences

Adjustments to preliminary purchase price allocations 7,111 19 7,130

Balance - March 28, 2021 $ 347,627 $ 57,755 $ 405,382

Intangible assets, net consist of the following as of March 28, 2021 and December 31, 2020:

(thousands) March 28, 2021 December 31, 2020

Balance - June 27, 2021 $ 385,704 $ 67,833 $ 453,537

Intangible assets, net consist of the following as of June 27, 2021 and December 31, 2020:

(thousands) June 27, 2021 December 31, 2020

Customer relationships $ 545,554 $ 461,754

1 unchanged sentence

Patents 33,428 23,025

Trademarks 115,605 113,796

Trademarks (non-amortizing, indefinite-lived) 149,777 113,796

747,473 614,524

1 unchanged sentence

Intangible assets, net $ 563,288 $ 456,276

Changes in the carrying value of intangible assets for the three months ended March 28, 2021 by segment are as follows:

Changes in the carrying value of intangible assets for the six months ended June 27, 2021 by segment are as follows:

(thousands) Manufacturing Distribution Total

3 unchanged sentences

Adjustments to preliminary purchase price allocations ( 5,089 ) — ( 5,089 )

Balance - March 28, 2021 $ 370,742 $ 80,527 $ 451,269

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.

Balance - June 27, 2021 $ 452,542 $ 110,746 $ 563,288

The Company completed three acquisitions in the second quarter of 2021 and completed seven acquisitions in the six months ended June 27, 2021 (the "2021 Acquisitions").

For the second quarter and six months ended June 27, 2021, net sales included in the Company's condensed consolidated statements of income related to the 2021 Acquisitions were $ 56.7 million and $ 62.1 million, respectively, and operating income was $ 6.0 million for each of these periods.

One of the 2021 Acquisitions accounted for $ 32.2 million in net sales and $ 1.9 million in operating income for the second quarter and six months ended June 27, 2021.

Acquisition-related costs associated with the businesses acquired in the second quarter and first six months 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.

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.

No acquisitions were completed in the second quarter of 2020 and three acquisitions were completed in the six months ended June 28, 2020.

Net sales included in the Company's condensed consolidated statements of income in the second quarter and six months ended June 28, 2020 related to acquisitions completed in the first six months of 2020 were $ 3.3 million and $ 3.8 million, respectively, and operating income was immaterial for the same periods.

In connection with certain acquisitions, if certain financial results for the acquired businesses are achieved, the Company is required to pay additional cash consideration.

The Company records a liability for the estimated 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 June 27, 2021, the aggregate fair value of the estimated contingent consideration payments was $ 9.8 million, $ 4.2 million of which is included in "Accrued liabilities" and $ 5.6 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

consideration expire at various dates through December 2023.

The liabilities for contingent consideration expire at various dates through December 2023.

The contingent consideration arrangements are subject to a maximum payment amount of up to $ 19.5 million in the aggregate.

In the first quarter of 2021, the Company made no cash payments related to contingent consideration liabilities.

In the second quarter and six months ended June 27, 2021, the Company made $ 1.0 million in cash payments related to contingent consideration liabilities and recorded a $ 0.9 million non-cash charge and a corresponding increase to accrued liabilities.

The non-cash charge is included in selling general and administrative expense in the condensed consolidated statement of income, representing changes in the expected amount of consideration to be paid.

2021 Acquisitions

The Company completed the following previously announced acquisition in the three months ended March 28, 2021:

The Company completed seven acquisitions in the six months ended June 27, 2021, including the following three previously announced acquisitions:

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.

(collectively, "Sea-Dog") Distribution & Manufacturing Distributor of a variety of marine and powersports hardware and accessories to distributors, wholesalers, retailer, and manufacturers, and manufacturer that provides plastic injection molding, design, product development and expert tooling to companies and government entities, based in Everett, Washington

Hyperform, Inc.

Manufacturing Manufacturer of high-quality, non-slip foam flooring, operating under the SeaDek brand name, for the marine original equipment manufacturer ("OEM") market and aftermarket as well as serving the pool and spa, powersports and utility markets under the SwimDek and EndeavorDek brand names, with manufacturing facilities in Rockledge, Florida and Cocoa, Florida

Alpha Systems, LLC Manufacturing & Distribution Manufacturer and distributor of component products and accessories for the recreational vehicle ("RV"), marine, manufactured housing and industrial end markets, such as adhesives, sealants, rubber roofing, roto/blow molding, injection molding, flooring, insulation, shutters, skylights, and various other products and accessories, operating out of nine facilities in Elkhart, Indiana

Inclusive of four immaterial acquisitions not discussed above, total cash consideration for the 2021 Acquisitions was approximately $ 253.3 million.

One of the 2021 Acquisitions accounted for $ 147.1 million in cash and $ 10.2 million in common stock as consideration, $ 26.8 million in fixed assets, $ 90.4 million in intangible assets, $ 18.2 million in accounts payable and accrued liabilities, $ 11.5 million in operating lease right-of-use assets and liabilities, and $ 28.9 million in 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 the first quarter ended March 28, 2021 related to the 2021 Acquisitions were immaterial.

Changes to preliminary purchase accounting estimates recorded in the second quarter and six months ended June 27, 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"):

The Company completed eleven acquisitions in the year ended December 31, 2020 (the "2020 Acquisitions"), including the following seven previously announced acquisitions:

Company Segment Description

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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

Synergy RV Transport Distribution Transportation and logistics service provider primarily for 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

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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

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.

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.

Inclusive of four immaterial acquisitions not discussed above, total cash consideration for the 2020 Acquisitions was approximately $ 306.3 million, plus contingent consideration over a one to three-year period based on future results in connection with certain acquisitions.

One of the 2020 Acquisitions accounted for $ 129.7 million in cash consideration, $ 49.3 million in fixed assets, $ 49.1 million in intangible assets and $ 32.6 million in goodwill.

Purchase accounting adjustments are complete for Maple City Woodworking Corporation and SEI Manufacturing, Inc.

Preliminary purchase price allocations, predominantly related to property, plant, and equipment and identifiable intangible assets, are still in the process of final valuation procedures on the remainder of the 2020 Acquisitions.

All 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 second quarter and six months ended June 27, 2021 related to the 2020 Acquisitions were immaterial and relate primarily to the valuation of intangible and fixed 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:

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Working capital holdback and other, net (1)

Common stock issuance (2)

Contingent consideration (3)

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50,607 90,268

(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.

$ 269,407 $ 311,045

(1) Certain acquisitions contain working capital holdbacks which are typically settled after a 90 -day period following the close of the acquisition.

This value represents the remaining amounts due to (from) sellers as of June 27, 2021.

(2) In connection with one acquisition, the company issued 113,961 shares of common stock at a closing price of $ 89.60 as of the acquisition date.

(3) These amounts reflect the acquisition date fair value of contingent consideration based on future results relating to certain acquisitions.

(4) Goodwill is tax-deductible for the 2021 Acquisitions and the 2020 Acquisitions, except Front Range Stone (approximately $ 10.8 million).

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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.

Trademarks and patents 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 following pro forma information for the second quarter and six months ended June 28, 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

In addition, the pro forma information includes amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $ 0.6 million and $ 3.1 million for the second quarter and six months ended June 27, 2021, respectively and $ 5.2 million and $ 10.5 million for the second quarter and six months ended June 28, 2020, respectively.

Second Quarter Ended Six Months Ended

(thousands, except per share data) June 27, 2021 June 28, 2020 June 27, 2021 June 28, 2020

Revenue $ 1,038,874 $ 515,104 $ 1,953,675 $ 1,215,622

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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.

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.

The Company recorded expense of approximately $ 6.0 million and $ 10.3 million the second quarter and six months ended June 27, 2021, respectively, for its stock-based compensation plans in the condensed consolidated statements of income.

Stock based compensation expense of $ 2.0 million and $ 6.3 million was recorded in the second quarter and six months ended June 28, 2020, which includes a $ 2.4 million reduction of expense in both periods due to certain forfeitures and adjustments.

The Board approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the first six months of 2021 totaling 230,073 shares in the aggregate at an average fair value of $ 73.53 at grant date for a total fair value at grant date of $ 16.9 million.

As of June 27, 2021, there was approximately $ 31.7 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 20.1 months.

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 per common share calculated for the second quarter and six months of 2021 and 2020 is as follows:

Second Quarter Ended Six Months Ended

(thousands except per share data) June 27, 2021 June 28, 2020 June 27, 2021 June 28, 2020

Net income for basic and diluted per share calculation $ 58,985 $ 714 $ 106,498 $ 21,901

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

A summary of total debt outstanding at March 28, 2021 and December 31, 2020 is as follows:

(thousands) March 28, 2021 December 31, 2020

A summary of total debt outstanding at June 27, 2021 and December 31, 2020 is as follows:

(thousands) June 27, 2021 December 31, 2020

Long-term debt:

5 unchanged sentences

300,000 300,000

4.75 % senior notes due 2029

Total long-term debt 1,107,500 840,000

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Total long-term debt, less current maturities, net $ 1,076,950 $ 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.

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.

4.75 % Senior Notes due 2029

On April 20, 2021, the Company issued $ 350 million aggregate principal amount of 4.75 % Senior Notes due 2029 (the " 4.75 % Senior Notes").

The 4.75 % Senior Notes were not registered under the Securities Act of 1933, as amended (the "Securities Act") and were offered under rule 144A under the Securities Act.

The 4.75 % Senior Notes will mature on May 1, 2029.

Interest on the 4.75 % Senior Notes will accrue from April 20, 2021 and is payable semi-annually in cash in arrears May 1 and November 1 of each year, beginning on November 1, 2021.

The effective interest rate on the 4.75 % Senior Notes, which includes debt issuance costs, is approximately 4.98 %.

In connection with the issuance of the 4.75 % Senior Notes, the Company incurred and capitalized as a reduction of the principal amount of the 4.75 % Senior Notes

approximately $ 5.3 million in deferred financing costs which will be amortized using the effective interest rate over the term of the 4.75 % Senior Notes.

The 4.75 % 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 2021 Credit Facility (as defined herein).

The Company may redeem the 4.75 % Senior Notes at any time according to the following timeframes with the respective restrictions and prices:

Timeframe Redemption Restrictions Redemption Prices

Prior to May 1, 2024 Up to 40 % of the notes

After May 1, 2024 In whole, or in part 102.375 %

After May 1, 2025 In whole, or in part 101.188 %

After May 1, 2026 In whole, or in part 100.000 %

2021 Credit Facility

Simultaneously with the issuance of the 4.75 % Senior Notes, the Company entered into the Fourth Amended and Restated Credit Agreement (the "2021 Credit Agreement").

The 2021 Credit Agreement amended and extended the Company's 2019 Credit Agreement (as defined herein) and consists of a senior secured revolver (the "2021 Revolver") and a senior secured term loan (the "2021 Term Loan" and together with the 2021 Revolver, the "2021 Credit Facility").

The maturity date for borrowings under the 2021 Credit Agreement is April 20, 2026.

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 2021 Credit Facility by up to $ 250 million for acquisitions.

The Company determined that the terms of the 2021 Credit Agreement were not substantially different from the terms of the Company’s 2019 Credit Agreement.

Accordingly, debt modification accounting treatment was applied and the related impacts were immaterial.

Borrowings under the 2021 Credit Facility are secured by substantially all personal property assets of the Company and any domestic subsidiary guarantors.

Pursuant to the 2021 Credit Agreement:

• The 2021 Term Loan is due in consecutive quarterly installments in the following amounts:

(i) beginning June 30, 2021, through and including March 31, 2024, $ 1,875,000 and (ii) beginning June 30, 2024, and each quarter thereafter, $ 3,750,000 , with the remaining balance due at maturity;

• The interest rates for borrowings under the 2021 Revolver and the 2021 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 2021 Revolver, which range from 0.15 % to 0.225 %;

• Covenants include requirements as to a maximum consolidated secured net leverage ratio ( 2.75 :1.00, increasing to 3.25 :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 Company's 1.00 % Convertible Notes due 2023, and other customary covenants.

The total face value of the 2021 Term Loan is $ 150.0 million.

Total available borrowing capacity under the 2021 Revolver is $ 550.0 million.

At June 27, 2021, the Company had $ 150.0 million outstanding under the 2021 Term Loan under the LIBOR-based option, and borrowings outstanding under the 2021 Revolver of $ 135.0 million under the LIBOR-based option.

The interest rate for incremental borrowings at June 27, 2021 was LIBOR plus 1.50 % (or 1.63 %) for the LIBOR-based option.

The fee payable on committed but unused portions of the 2021 Revolver was 0.20 % at June 27, 2021.

Total cash interest paid for the second quarter of 2021 and 2020 was $ 14.1 million and $ 15.6 million, respectively, and $ 17.4 million and $ 18.2 million for the comparative six month periods, respectively.

2019 Credit Facility

See Note 8 of the Notes to Consolidated Financial Statements section of the Fiscal 2020 Form 10-K regarding the Company's previous credit agreement (the "2019 Credit Agreement") which established a $ 550 million revolving credit loan (the "2019 Revolver") and a $ 100 million term loan (the "2019 Term Loan" and, together with 2019 Revolver, the "2019 Credit Facility").

The 2019 Credit Agreement was amended by the 2021 Credit Agreement on April 20, 2021 as discussed above.

DERIVATIVE FINANCIAL INSTRUMENTS

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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.

As of June 27, 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.

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Fair value of derivative instruments

Derivatives accounted

for as cash flow hedges

Balance sheet location March 28, 2021 December 31, 2020

Derivatives accounted for as cash flow hedges Balance sheet location June 27, 2021 December 31, 2020

Interest rate swaps Accrued liabilities $ 3,890 $ —

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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

The activity in accumulated other comprehensive loss during the three months ended June 27, 2021 and June 28, 2020 was as follows:

Second Quarter Ended June 27, 2021

(thousands) Cash Flow Hedges Other Foreign Currency Translation Total

Balance at December 31, 2020 $ ( 4,889 ) $ ( 1,263 ) $ 100 $ ( 6,052 )

Balance at March 28, 2021 $ ( 3,914 ) $ ( 1,263 ) $ 41 $ ( 5,136 )

Other comprehensive loss before reclassifications, net of tax 45 — ( 11 ) 34

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Net current period other comprehensive income (loss) 1,018 — ( 11 ) 1,007

Balance at March 28, 2021 $ ( 3,914 ) $ ( 1,263 ) $ 41 $ ( 5,136 )

First Quarter Ended March 29, 2020

(thousands) Cash Flow Hedges Other Foreign Currency Items Total

Balance at June 28, 2021 $ ( 2,896 ) $ ( 1,263 ) $ 30 $ ( 4,129 )

Six Months Ended June 27, 2021

(thousands) Cash Flow Hedges Other Foreign Currency Translation Total

Balance at December 31, 2020 $ ( 4,889 ) $ ( 1,263 ) $ 100 $ ( 6,052 )

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Net current period other comprehensive loss 1,993 — ( 70 ) 1,923

Balance at June 27, 2021 $ ( 2,896 ) $ ( 1,263 ) $ 30 $ ( 4,129 )

Second Quarter Ended June 28, 2020

(thousands) Cash Flow Hedges Other Foreign Currency Translation Total

Balance at March 29, 2020 $ ( 7,380 ) $ ( 1,270 ) $ ( 91 ) $ ( 8,741 )

Other comprehensive loss before reclassifications, net of tax 174 — ( 15 ) 159

Amounts reclassified from accumulated other comprehensive loss, net of tax 290 — — 290

Net current period other comprehensive loss 464 — ( 15 ) 449

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

Six Months Ended June 28, 2020

(thousands) Cash Flow Hedges Other Foreign Currency Translation Total

Balance at December 31, 2019 $ ( 4,374 ) $ ( 1,270 ) $ ( 54 ) $ ( 5,698 )

Other comprehensive loss before reclassifications, net of tax ( 3,903 ) — ( 52 ) ( 3,955 )

Amounts reclassified from accumulated other comprehensive loss, net of tax 1,361 — — 1,361

Net current period other comprehensive loss ( 2,542 ) — ( 52 ) ( 2,594 )

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

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

Second Quarter Ended

(thousands) June 27, 2021 June 28, 2020

Operating lease cost $ 10,353 $ 8,399

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Operating leases $ 24,806 $ 5,474

Six Months Ended

(thousands) June 27, 2021 June 28, 2020

Operating lease cost $ 19,938 $ 16,568

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases $ 19,504 $ 16,362

Right-of-use assets obtained in exchange for lease obligations:

Operating leases $ 39,991 $ 17,902

Balance sheet information related to leases was as follows:

(thousands, except lease term and discount rate) March 28, 2021 December 31, 2020

(thousands, except lease term and discount rate) June 27, 2021 December 31, 2020

Operating lease right-of-use assets $ 139,576 $ 117,816

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Weighted average discount rate, operating leases 3.9 % 4.1 %

Maturities of lease liabilities were as follows at March 28, 2021:

2021 (excluding the three months ended March 28, 2021)

Maturities of lease liabilities were as follows at June 27, 2021:

2021 (excluding the six months ended June 27, 2021)

Thereafter 23,153

2 unchanged sentences

Total $ 141,269

As of March 28, 2021, outstanding leases have remaining lease terms ranging from one year to 18 years.

As of June 27, 2021, outstanding leases have remaining lease terms ranging from one year to 18 years.

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

The following table presents fair values of certain assets and liabilities at June 27, 2021 and December 31, 2020:

June 27, 2021 December 31, 2020

(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

Senior Note (1)

7.50 % senior notes due 2027 (1)

— $ 325.0 — — $ 329.0 —

4.75 % senior notes due 2029 (1)

— 347.5 — — — —

Convertible note (1)

4 unchanged sentences

— — $ 9.8 — — $ 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.

(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 June 27, 2021 and December 31, 2020 using the interest rate method as described in Note 9.

(2) The interest rate swaps 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.

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.

The effective tax rate in the second quarter of 2021 and 2020 was 26.9 % and 44.4 %, respectively, and the effective tax rate for the comparable six month periods was 22.8 % and 27.2 %, respectively.

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

In addition, the first six months 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.

Cash paid for income taxes in the second quarter and first six months of 2021 was $ 24.0 million and $ 24.1 million, respectively.

The Company made an immaterial amount of income tax payments in the second quarter and first six months of 2020.

SEGMENT INFORMATION

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

First Quarter Ended March 28, 2021

Second Quarter Ended June 27, 2021

(thousands) Manufacturing Distribution Total

3 unchanged sentences

Operating income 99,428 31,201 130,629

First Quarter Ended March 29, 2020

Second Quarter Ended June 28, 2020

(thousands) Manufacturing Distribution Total

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Operating income 22,410 6,938 29,348

Six Months Ended June 27, 2021

(thousands) Manufacturing Distribution Total

Net outside sales $ 1,329,797 $ 540,639 $ 1,870,436

Intersegment sales 29,850 2,920 32,770

Total sales 1,359,647 543,559 1,903,206

Operating income 177,857 52,376 230,233

Six Months Ended June 28, 2020

(thousands) Manufacturing Distribution Total

Net outside sales $ 711,840 $ 301,437 $ 1,013,277

Intersegment sales 12,687 2,385 15,072

Total sales 724,527 303,822 1,028,349

Operating income 68,114 16,906 85,020

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

First Quarter Ended

(thousands) March 28, 2021 March 29, 2020

Second Quarter Ended Six Months Ended

(thousands) June 27, 2021 June 28, 2020 June 27, 2021 June 28, 2020

Operating income for reportable segments $ 130,629 $ 29,348 $ 230,233 $ 85,020

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Unallocated corporate expenses include corporate general and administrative expenses comprised of wages, insurance, taxes, supplies, travel and entertainment, professional fees and other.

The following table presents an allocation of total assets to the reportable segments of the Company and a reconciliation to consolidated total assets:

(thousands) June 27, 2021 December 31, 2020

Manufacturing assets $ 1,723,928 $ 1,337,920

Distribution assets 419,551 343,170

Assets for reportable segments 2,143,479 1,681,090

Corporate assets unallocated to segments 22,826 27,578

Cash and cash equivalents 58,402 44,767

Consolidated total assets $ 2,224,707 $ 1,753,435

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.

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,

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.

Approximately $ 14.4 million remains in the amount of the Company's common stock that may be acquired under the current stock repurchase program as of June 27, 2021.

The Company repurchased 260,000 shares of its common stock at an average price of $ 82.89 at an aggregate cost of $ 21.6 million in the second quarter and six months ended June 27, 2021.

In the second quarter and six months ended June 28, 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.

Previously, the Company would retire the shares upon repurchase.

However, beginning in 2021, the Company has now elected to hold these shares in treasury stock.

Accordingly, beginning in 2021, the Company has begun presenting stock repurchases within "Treasury Stock" on the condensed consolidated balance sheet and condensed consolidated statement of shareholders' equity.

Prior periods have not been adjusted to reflect the current presentation of stock repurchases.

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

What changed 10-Q

Item 1. Financial Statements