What changed in this filing

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Item 1. Financial Statements

2021-11-04 compared with 2021-08-05 · 162 added, 136 removed, 460 unchanged (39% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

Second Quarter Ended Six Months Ended

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

Third Quarter Ended Nine Months Ended

(thousands except per share data) September 26, 2021 September 27, 2020 September 26, 2021 September 27, 2020

NET SALES $ 1,060,177 $ 700,707 $ 2,930,613 $ 1,713,984

18 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

Second Quarter Ended Six Months Ended

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

Third Quarter Ended Nine Months Ended

(thousands) September 26, 2021 September 27, 2020 September 26, 2021 September 27, 2020

NET INCOME $ 57,397 $ 37,336 $ 163,895 $ 59,237

7 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(thousands) June 27, 2021 December 31, 2020

(thousands) September 26, 2021 December 31, 2020

Current Assets

26 unchanged sentences

Accumulated other comprehensive loss ( 3,024 ) ( 6,052 )

Treasury stock ( 21,550 ) —

Retained earnings 475,689 360,214

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Six Months Ended

(thousands) June 27, 2021 June 28, 2020

Nine Months Ended

(thousands) September 26, 2021 September 27, 2020

CASH FLOWS FROM OPERATING ACTIVITIES

37 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

Second Quarter Ended June 27, 2021

Third Quarter Ended September 26, 2021

(thousands) Common

2 unchanged sentences

Earnings Total

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

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

Net income — — — — 57,397 57,397

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Share repurchases under buyback program ( 999 ) ( 135 ) — — ( 9,261 ) ( 10,395 )

Retirement of treasury stock ( 2,013 ) ( 271 ) — 21,550 ( 19,266 ) —

Repurchases of shares for tax payments related to the vesting and exercise of share-based grants ( 13 ) — — — — ( 13 )

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

Issuance of shares upon exercise of common stock options 325 — — — — 325

Stock-based compensation expense 6,971 — — — — 6,971

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

Six Months Ended June 27, 2021

Balance September 26, 2021 $ 195,402 $ 23,981 $ ( 3,024 ) $ — $ 475,689 $ 692,048

Nine Months Ended September 26, 2021

(thousands) Common

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Dividends declared — — — — ( 19,893 ) ( 19,893 )

Other comprehensive loss, net of tax — — 1,923 — — 1,923

Other comprehensive income, net of tax — — 3,028 — — 3,028

Share repurchases under buyback program ( 999 ) ( 135 ) — ( 21,550 ) ( 9,261 ) ( 31,945 )

Retirement of Treasury Stock ( 2,013 ) ( 271 ) — 21,550 ( 19,266 ) —

Repurchases of shares for tax payments related to the vesting and exercise of share-based grants ( 14,898 ) — — — — ( 14,898 )

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Stock-based compensation expense 17,307 — — — — 17,307

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

Balance September 26, 2021 $ 195,402 $ 23,981 $ ( 3,024 ) $ — $ 475,689 $ 692,048

PATRICK INDUSTRIES, INC.

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

Second Quarter Ended June 28, 2020

Third Quarter Ended September 27, 2020

(thousands) Common

2 unchanged sentences

Earnings Total

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

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

Net income — — — 37,336 37,336

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Other comprehensive income, net of tax — — 1,049 — 1,049

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

Repurchases of shares for tax payments related to the vesting and exercise of share-based grants ( 53 ) — — — ( 53 )

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

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

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

Six Months Ended June 28, 2020

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

Nine Months Ended September 27, 2020

(thousands) Common

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Other comprehensive loss, net of tax — — ( 1,545 ) — — ( 1,545 )

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 )

Stock repurchases under buyback program ( 3,962 ) ( 574 ) — — ( 15,750 ) ( 20,286 )

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

Repurchases of shares for tax payments related to the vesting and exercise of share-based grants ( 3,211 ) — — — — ( 3,211 )

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

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

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

See accompanying Notes to Condensed Consolidated Financial Statements

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

(“Patrick”, the “Company”, "we", "our") contain all adjustments (consisting of normal recurring adjustments) that we believe are necessary to present fairly the Company’s financial position as of June 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”, the “Company”, "we", "our") contain all adjustments (consisting of normal recurring adjustments) that we believe are necessary to present fairly the Company’s financial position as of September 26, 2021 and December 31, 2020, its results of operations for the third quarter and nine months ended September 26, 2021 and September 27, 2020, and its cash flows for the nine months ended September 26, 2021 and September 27, 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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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 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.

Operating results for the third quarter and nine months ended September 26, 2021 are not necessarily indicative of the results that we will realize or expect 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 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.

The third quarter of fiscal year 2021 ended on September 26, 2021 and the third quarter of fiscal year 2020 ended on September 27, 2020.

In preparation of Patrick’s condensed consolidated financial statements as of and for the third quarter and nine months ended September 26, 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 18 for further information.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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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.

REVENUE RECOGNITION

In the following table, revenue from contracts with customers, net of intersegment sales, is disaggregated by market type and by reportable segment, consistent with how the Company believes the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors:

Second Quarter Ended June 27, 2021

Third Quarter Ended September 26, 2021

(thousands) Manufacturing Distribution Total

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Total $ 772,235 $ 287,942 $ 1,060,177

Six Months Ended June 27, 2021

Nine Months Ended September 26, 2021

(thousands) Manufacturing Distribution Total

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Total $ 2,102,032 $ 828,581 $ 2,930,613

Second Quarter Ended June 28, 2020

Third Quarter Ended September 27, 2020

(thousands) Manufacturing Distribution Total

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

Six Months Ended June 28, 2020

Nine Months Ended September 27, 2020

(thousands) Manufacturing Distribution Total

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Inventories consist of the following:

(thousands) June 27, 2021 December 31, 2020

(thousands) September 26, 2021 December 31, 2020

Raw materials $ 261,775 $ 157,219

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GOODWILL AND INTANGIBLE ASSETS

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

Changes in the carrying amount of goodwill for the nine months ended September 26, 2021 by segment are as follows:

(thousands) Manufacturing Distribution Total

2 unchanged sentences

Adjustments to preliminary purchase price allocations 7,366 19 7,385

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

Balance - September 26, 2021 $ 409,723 $ 69,232 $ 478,955

Intangible assets, net consist of the following as of September 26, 2021 and December 31, 2020:

(thousands) September 26, 2021 December 31, 2020

Customer relationships $ 549,314 $ 461,754

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Intangible assets, net $ 558,040 $ 456,276

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

Changes in the carrying value of intangible assets for the nine months ended September 26, 2021 by segment are as follows:

(thousands) Manufacturing Distribution Total

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

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.

Balance - September 26, 2021 $ 449,918 $ 108,122 $ 558,040

The Company completed three acquisitions in the third quarter of 2021 and completed ten acquisitions in the nine months ended September 26, 2021 (the "2021 Acquisitions").

For the third quarter and nine months ended September 26, 2021, net sales included in the Company's condensed consolidated statements of income related to the 2021 Acquisitions were $ 84.0 million and $ 146.1 million, respectively, and operating income was $ 6.6 million and $ 12.6 million, respectively, for each of these periods.

One of the 2021 Acquisitions accounted for $ 53.5 million in net sales and $ 2.6 million in operating income for the third quarter of 2021 and $ 85.6 million in net sales and $ 4.5 million in operating income for the nine months ended September 26, 2021.

Acquisition-related costs associated with the businesses acquired in the third quarter of 2021 and first nine 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 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.

The Company completed six acquisitions in the third quarter of 2020 and nine acquisitions in the nine months ended September 27, 2020.

Net sales included in the Company's condensed consolidated statements of income in the third quarter and nine months ended September 27, 2020 related to acquisitions completed in the first nine months of 2020 were $ 19.6 million and $ 23.3 million, respectively, and operating income was $ 2.1 million and $ 2.2 million, respectively, for the same periods.

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, market share growth and net income.

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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.

As of September 26, 2021, the aggregate fair value of the estimated contingent consideration payments was $ 9.8 million, $ 3.7 million of which is included in "Accrued liabilities" and $ 6.1 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".

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The contingent consideration arrangements are subject to a maximum payment amount of up to $ 19.6 million in the aggregate.

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.

In the third quarter and nine months ended September 26, 2021, the Company made $ 1.5 million and $ 2.5 million in cash payments, respectively, related to contingent consideration liabilities.

In connection with cash payments on contingent consideration, the Company recorded a $ 0.9 million charge in selling general and administrative expense in the condensed consolidated statement of income for the nine months ended September 26, 2021, representing changes from the amounts initially expected to be paid to what was ultimately paid.

2021 Acquisitions

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

The Company completed ten acquisitions in the nine months ended September 26, 2021, including the following five 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, and manufacturer that provides plastic injection molding, design, product development and expert tooling to companies and government entities, based in Everett, Washington

(collectively, "Sea-Dog") Distribution & Manufacturing Distributor of a variety of marine and powersports hardware and accessories to distributors, wholesalers, retailers, and manufacturers 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.

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 that includes 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.

Coyote Manufacturing Company Manufacturing Designer, fabricator, and manufacturer of a variety of steel and aluminum products, including boat trailers, towers, T-tops, leaning posts, and other custom components primarily for the marine OEM market, based in Nashville, Georgia.

Tumacs Covers Manufacturing & Distribution Manufacturer of custom designed boat covers, canvas frames, and bimini tops, primary serving large marine OEMs and dealers, headquartered in Pittsburgh, Pennsylvania, with manufacturing facilities in Indiana and Pennsylvania, and a distribution/service center in Michigan.

Inclusive of five acquisitions not discussed above, total cash consideration for the 2021 Acquisitions was approximately $ 298.4 million, plus contingent consideration over a one to three-year period based on future results in connection with certain acquisitions.

One of the 2021 Acquisitions accounted for $ 149.3 million in cash and $ 10.2 million in common stock as consideration, $ 25.8 million in inventory, $ 28.4 million in fixed assets, $ 85.0 million in intangible assets, $ 18.1 million in accounts payable and accrued liabilities, $ 11.5 million in operating lease right-of-use assets and liabilities, and $ 33.6 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 second quarter and six months ended June 27, 2021 related to the 2021 Acquisitions were immaterial.

Changes to preliminary purchase accounting estimates recorded in the third quarter and nine months ended September 26, 2021 related to the 2021 Acquisitions were immaterial and relate primarily to the valuation of intangible and fixed assets.

2020 Acquisitions

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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 $ 306.3 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.

Inclusive of four 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, $ 2.9 million in inventory, $ 49.3 million in fixed assets, $ 49.1 million in intangible assets, $ 2.6 million in accounts payable and accrued liabilities, $ 4.9 million in operating lease right-of-use assets and liabilities, and $ 32.6 million in goodwill.

Purchase accounting adjustments are complete on all 2020 Acquisitio ns.

Changes to preliminary purchase accounting estimates recorded in the third quarter and nine months ended September 26, 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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(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.

This value represents the remaining amounts due to (from) sellers as of September 26, 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).

(4) Goodwill is tax-deductible for the 2021 Acquisitions, except Tumacs Covers (approximately $ 6.2 million), and the 2020 Acquisitions, except Front Range Stone (approximately $ 11.0 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.

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 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.

The following table presents our estimates of identifiable intangible assets for the 2021 Acquisitions and the 2020 Acquisitions:

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$ 147,495 $ 130,981

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 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 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 following pro forma information for the third quarter and nine months ended September 27, 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 $ 0.6 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

In addition, the pro forma information includes amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $ 0.2 million and $ 4.0 million for the third quarter and nine months ended September 26, 2021, respectively and $ 5.2 million and $ 16.3 million for the third quarter and nine months ended September 27, 2020, respectively.

Third Quarter Ended Nine Months Ended

(thousands, except per share data) September 26, 2021 September 27, 2020 September 26, 2021 September 27, 2020

Revenue $ 1,067,111 $ 802,753 $ 3,040,971 $ 2,049,211

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STOCK-BASED COMPENSATION

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.

The Company recorded expense of approximately $ 7.0 million and $ 17.3 million the third quarter and nine months ended September 26, 2021, respectively, for its stock-based compensation plans in the condensed consolidated statements of income.

Stock-based compensation expense of $ 4.9 million and $ 11.2 million was recorded in the third quarter and nine months ended September 27, 2020, which includes a $ 2.3 million reduction of expense in the nine month period due to certain forfeitures and adjustments.

The Board approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the first nine months of 2021 totaling 296,073 shares in the aggregate at an average fair value of $ 73.31 at grant date for a total fair value at grant date of $ 21.7 million.

As of September 26, 2021, there was approximately $ 31.5 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under incentive plans.

That cost is expected to be recognized over a weighted-average period of 18.5 months.

NET INCOME PER COMMON SHARE

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

Third Quarter Ended Nine Months Ended

(thousands except per share data) September 26, 2021 September 27, 2020 September 26, 2021 September 27, 2020

Net income for basic and diluted per share calculation $ 57,397 $ 37,336 $ 163,895 $ 59,237

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Diluted net income per common share $ 2.45 $ 1.62 $ 7.01 $ 2.57

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 June 27, 2021 and December 31, 2020 is as follows:

(thousands) June 27, 2021 December 31, 2020

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 for all periods presented.

A summary of total debt outstanding at September 26, 2021 and December 31, 2020 is as follows:

(thousands) September 26, 2021 December 31, 2020

Long-term debt:

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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.

Interest on the 4.75 % Senior Notes started accruing 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.

approximately $ 5.3 million in deferred financing costs which are being 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).

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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.

At September 26, 2021, the Company had $ 148.1 million outstanding under the 2021 Term Loan under the LIBOR-based option, and borrowings outstanding under the 2021 Revolver of $ 135.5 million under the LIBOR-based option.

The interest rate for incremental borrowings at September 26, 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 September 26, 2021.

Total cash interest paid for the third quarter of 2021 and 2020 was $ 3.7 million and $ 3.2 million, respectively, and $ 21.2 million and $ 21.4 million for the comparative nine month periods, respectively.

2019 Credit Facility

4 unchanged sentences

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

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.

As of September 26, 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 June 27, 2021 December 31, 2020

Derivatives accounted for as cash flow hedges Balance sheet location September 26, 2021 December 31, 2020

Interest rate swaps Accrued liabilities $ 2,506 $ —

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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 June 27, 2021 and June 28, 2020 was as follows:

Second Quarter Ended June 27, 2021

The activity in accumulated other comprehensive loss during the third quarter and nine months ended September 26, 2021 and September 27, 2020 was as follows:

Third Quarter Ended September 26, 2021

(thousands) Cash Flow Hedges Other Foreign Currency Translation Total

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

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

Amounts reclassified from accumulated other comprehensive loss, net of tax 973 — — 973

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

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

Six Months Ended June 27, 2021

Other comprehensive income (loss) before reclassifications, net of tax ( 19 ) — 74 55

Amounts reclassified from accumulated other comprehensive loss, net of tax 1,050 — — 1,050

Other comprehensive income 1,031 — 74 1,105

Balance at September 26, 2021 $ ( 1,865 ) $ ( 1,263 ) $ 104 $ ( 3,024 )

Nine Months Ended September 26, 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 ( 51 ) — ( 70 ) ( 121 )

Other comprehensive income (loss) before reclassifications, net of tax ( 70 ) — 4 ( 66 )

Amounts reclassified from accumulated other comprehensive loss, net of tax 3,094 — — 3,094

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

Other comprehensive income 3,024 — 4 3,028

Balance at September 26, 2021 $ ( 1,865 ) $ ( 1,263 ) $ 104 $ ( 3,024 )

Third Quarter Ended September 27, 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

Other comprehensive income (loss) before reclassifications, net of tax ( 38 ) — 60 22

Amounts reclassified from accumulated other comprehensive loss, net of tax 1,027 — — 1,027

Other comprehensive income 989 — 60 1,049

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

Nine Months Ended September 27, 2020

(thousands) Cash Flow Hedges Other Foreign Currency 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 )

Other comprehensive income (loss) before reclassifications, net of tax ( 3,940 ) — 8 ( 3,932 )

Amounts reclassified from accumulated other comprehensive loss, net of tax 2,387 — — 2,387

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

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

Other comprehensive income (loss) ( 1,553 ) — 8 ( 1,545 )

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

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

Second Quarter Ended

(thousands) June 27, 2021 June 28, 2020

Third Quarter Ended

(thousands) September 26, 2021 September 27, 2020

Operating lease cost $ 10,760 $ 8,525

3 unchanged sentences

Operating leases $ 12,573 $ 17,091

Six Months Ended

(thousands) June 27, 2021 June 28, 2020

Nine Months Ended

(thousands) September 26, 2021 September 27, 2020

Operating lease cost $ 30,697 $ 25,093

4 unchanged sentences

Balance sheet information related to leases was as follows:

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

(thousands, except lease term and discount rate) September 26, 2021 December 31, 2020

Operating lease right-of-use assets $ 142,719 $ 117,816

4 unchanged sentences

Weighted average discount rate, operating leases 3.9 % 4.1 %

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

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

Maturities of lease liabilities were as follows at September 26, 2021:

2021 (excluding the nine months ended September 26, 2021)

Thereafter 27,681

2 unchanged sentences

Total $ 144,708

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

As of September 26, 2021, outstanding leases have remaining lease terms ranging from 1 year to 18 years.

The Company has additional operating leases that have not yet commenced as of September 26, 2021 and, therefore, were not included as operating lease right-of-use assets and corresponding operating lease liabilities on our balance sheet at September 26, 2021.

These operating leases will commence between the fourth quarter of fiscal 2021 and the second quarter of fiscal 2022 with lease terms of 5 years to 10 years.

The estimated fair value of these operating lease right-of-use assets and corresponding operating lease liabilities to be recorded on our balance sheet upon lease commencement is approximately $ 5.8 million.

FAIR VALUE MEASUREMENTS

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

The following table presents fair values of certain assets and liabilities at September 26, 2021 and December 31, 2020:

September 26, 2021 December 31, 2020

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

Cash equivalents (1)

$ 41.0 $ — $ — $ — $ — $ —

7.50 % senior notes due 2027 (2)

4 unchanged sentences

— 193.0 — — 180.0 —

Term loan due 2026 (3)

— 148.1 — — 92.5 —

Revolver due 2026 (3)

— 135.5 — — 275.0 —

Interest rate swaps (4)

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

(1) The carrying amounts of cash equivalents, representing government and other money market funds traded in an active market with relatively short maturities, are reported on the condensed consolidated balance sheet as of September 26, 2021 as a component of "Cash and cash equivalents".

The Company held no cash equivalents as of December 31, 2020.

(2) The amounts of these notes listed above are the current fair values for disclosure purposes only, valued using Level 2 inputs, and they are recorded in the Company's condensed consolidated balance sheets as of September 26, 2021 and December 31, 2020 using the interest rate method as described in Note 9.

(3) The carrying amounts of our term loan and revolver, valued using Level 2 inputs, approximate fair value as of September 26, 2021 and December 31, 2020 based upon their terms and conditions in comparison to the terms and conditions available at those dates.

(4) The interest rate swaps are classified as Level 2 in the fair value hierarchy and discussed further in Note 10.

(5) 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 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.

The effective tax rate in the third quarter of 2021 and 2020 was 26.3 % and 24.3 %, respectively, and the effective tax rate for the comparable nine month periods was 24.1 % and 25.4 %, respectively.

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

In addition, the first nine 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, net of refunds, was $ 19.7 million and $ 43.9 million, respectively, in the third quarter and first nine months of 2021 and $ 1.8 million and $ 1.6 million, respectively, in the third quarter and nine months of 2020.

SEGMENT INFORMATION

1 unchanged sentence

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

Second Quarter Ended June 27, 2021

Third Quarter Ended September 26, 2021

(thousands) Manufacturing Distribution Total

3 unchanged sentences

Operating income 91,370 31,187 122,557

Second Quarter Ended June 28, 2020

Third Quarter Ended September 27, 2020

(thousands) Manufacturing Distribution Total

3 unchanged sentences

Operating income 63,312 16,444 79,756

Six Months Ended June 27, 2021

Nine Months Ended September 26, 2021

(thousands) Manufacturing Distribution Total

3 unchanged sentences

Operating income 269,227 83,563 352,790

Six Months Ended June 28, 2020

Nine Months Ended September 27, 2020

(thousands) Manufacturing Distribution Total

4 unchanged sentences

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

Second Quarter Ended Six Months Ended

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

Third Quarter Ended Nine Months Ended

(thousands) September 26, 2021 September 27, 2020 September 26, 2021 September 27, 2020

Operating income for reportable segments $ 122,557 $ 79,756 $ 352,790 $ 164,776

4 unchanged sentences

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

(thousands) September 26, 2021 December 31, 2020

Manufacturing assets $ 1,838,583 $ 1,337,920

6 unchanged sentences

In March 2020, the Board approved a new stock repurchase program for up to $ 50 million of its common stock, including amounts remaining under previous authorizations.

Approximately $ 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.

In August 2021, the Company's Board authorized an increase in the amount of the Company's common stock that may be acquired over the next 24 months under the current stock repurchase program to $ 50 million, including the $ 14.4 million remaining under the previous authorization.

Approximately $ 39.6 million remains in the amount of the Company's common stock that may be acquired under the current stock repurchase program as of September 26, 2021.

The Company repurchased 128,929 shares of its common stock at an average price of $ 80.62 for an aggregate cost of $ 10.4 million in the third quarter ended September 26, 2021 and repurchased 388,929 shares of its common stock at an average price of $ 82.14 for an aggregate cost of $ 31.9 million in the nine months ended September 26, 2021.

Prior to 2021, the Company retired shares as repurchased.

Beginning in 2021, the Company elected not to retire shares as repurchased and the shares repurchased in the first six months of 2021 were instead held as "Treasury Stock." However, the Company retired these shares during the third quarter ended September 26, 2021 and has elected to retire shares immediately upon repurchase going forward.

In the third quarter ended September 27, 2020, the Company repurchased 88,950 shares of its common stock at an average price of $ 53.24 per share for an aggregate cost of $ 4.7 million.

In the first nine months ended September 27, 2020, the Company repurchased 545,105 shares of its common stock at an average price of $ 37.22 per share for an aggregate cost of approximately $ 20.3 million.

COMMITMENTS AND CONTINGENCIES

The Company is subject to proceedings, lawsuits, audits, and other claims arising in the normal course of business.

All such matters are subject to uncertainties and outcomes that are not predictable with assurance.

Accruals for these items, when applicable, have been provided to the extent that losses are deemed probable and are reasonably estimable.

These accruals are adjusted from time to time as developments warrant.

Although the ultimate outcome of these matters cannot be ascertained, on the basis of present information, amounts already provided, availability of insurance coverage and legal advice received, it is the opinion of management that the ultimate resolution of these proceedings, lawsuits, and other claims will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.

Certain of our customers in the RV end market recently have initiated recalls involving certain products which are sold by our Distribution segment.

We are currently evaluating the extent to which this matter will impact our consolidated financial statements.

At this time, we are unable to reasonably estimate any such impact.

SUBSEQUENT EVENTS

In November 2021, we completed the acquisition of Wet Sounds, Inc., a manufacturer of premium audio products and accessories for the marine OEM market and aftermarket as well as other adjacent OEM markets and aftermarkets.

Products include speakers, subwoofers, amplifiers, soundbars, and media units.

Wet Sounds, Inc.

is headquartered in Rosenberg, Texas .

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