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Item 1. Financial Statements

2022-08-04 compared with 2022-05-05 · 186 added, 109 removed, 375 unchanged (44% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

First Quarter Ended

(thousands except per share data) March 27, 2022 March 28, 2021

Second Quarter Ended Six Months Ended

(thousands except per share data) June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

NET SALES $ 1,475,693 $ 1,019,953 $ 2,817,868 $ 1,870,436

18 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

First Quarter Ended

(thousands) March 27, 2022 March 28, 2021

Second Quarter Ended Six Months Ended

(thousands) June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

NET INCOME $ 116,524 $ 58,985 $ 229,197 $ 106,498

7 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(thousands) March 27, 2022 December 31, 2021

(thousands) June 26, 2022 December 31, 2021

Current Assets

32 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

First Quarter Ended

(thousands) March 27, 2022 March 28, 2021

Six Months Ended

(thousands) June 26, 2022 June 27, 2021

CASH FLOWS FROM OPERATING ACTIVITIES

4 unchanged sentences

Amortization of convertible notes debt discount 924 3,643

Deferred income taxes — 8,534

(Gain) loss on sale of property, plant and equipment ( 5,548 ) 33

5 unchanged sentences

Accounts payable, accrued liabilities and other 10,951 66,400

Net cash (used in) provided by operating activities ( 23,039 ) 50,292

Net cash provided by operating activities 74,296 78,745

CASH FLOWS FROM INVESTING ACTIVITIES

5 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Term debt borrowings — 58,750

Term debt repayments ( 1,875 ) ( 1,250 )

Borrowings on revolver 595,882 425,475

Repayments on revolver ( 455,882 ) ( 565,475 )

Proceeds from senior notes offering — 350,000

Stock repurchases under buyback program ( 40,385 ) ( 21,550 )

1 unchanged sentence

Taxes paid for share-based payment arrangements ( 10,035 ) ( 14,885 )

Payment of deferred financing costs and other — ( 5,798 )

Payment of contingent consideration from a business acquisition ( 4,780 ) ( 1,000 )

Proceeds from exercise of common stock options 181 4,577

Net cash provided by (used in) financing activities 107,155 ( 43,843 )

Decrease in cash and cash equivalents ( 59,003 ) ( 38,596 )

Net cash provided by financing activities 67,440 215,783

Increase (decrease) in cash and cash equivalents ( 45,824 ) 13,635

Cash and cash equivalents at beginning of year 122,849 44,767

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

First Quarter Ended March 27, 2022

Second Quarter Ended June 26, 2022

(thousands) Common

Stock Additional Paid-in Capital Accumulated Other

Comprehensive Loss Retained

Comprehensive Loss Treasury Stock Retained

Earnings Total

Balance December 31, 2021 $ 196,383 $ 59,668 $ ( 2,228 ) $ 513,734 $ 767,557

Impact of adoption of ASU 2020-06 — ( 59,668 ) — 15,975 ( 43,693 )

Balance March 27, 2022 $ 188,433 $ — $ ( 1,442 ) $ — $ 612,981 $ 799,972

Net income — — — — 116,524 116,524

Dividends declared — — — — ( 7,579 ) ( 7,579 )

Other comprehensive income, net of tax — — 786 — 786

Other comprehensive loss, net of tax — — ( 75 ) — — ( 75 )

Stock repurchases under buyback program ( 2,416 ) — — — ( 14,114 ) ( 16,530 )

Repurchase of shares for tax payments related to the vesting and exercising of share-based grants ( 36 ) — — — — ( 36 )

Issuance of shares upon exercise of common stock options 181 — — — — 181

Stock-based compensation expense 5,133 — — — — 5,133

Balance June 26, 2022 $ 191,295 $ — $ ( 1,517 ) $ — $ 707,812 $ 897,590

Second Quarter Ended June 27, 2021

(thousands) Common

Stock Additional Paid-in Capital Accumulated Other

Comprehensive Loss Treasury Stock Retained

Earnings Total

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

First Quarter Ended March 28, 2021

Net income — — — — 58,985 58,985

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

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

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

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)

Six Months Ended June 26, 2022

(thousands) Common

Stock Additional Paid-in Capital Accumulated Other

Comprehensive Loss Retained

Comprehensive Loss Treasury Stock Retained

Earnings Total

Balance December 31, 2021 $ 196,383 $ 59,668 $ ( 2,228 ) $ — $ 513,734 $ 767,557

Impact of adoption of ASU 2020-06 — ( 59,668 ) — — 15,975 ( 43,693 )

Net income — — — — 229,197 229,197

1 unchanged sentence

Other comprehensive income, net of tax — — 711 — — 711

Share repurchases under buyback program ( 5,478 ) — — — ( 35,831 ) ( 41,309 )

Repurchases of shares for tax payments related to the vesting and exercise of share-based grants ( 10,035 ) — — — — ( 10,035 )

1 unchanged sentence

Stock-based compensation expense 10,244 — — — — 10,244

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

Balance June 26, 2022 $ 191,295 $ — $ ( 1,517 ) $ — $ 707,812 $ 897,590

Six Months Ended June 27, 2021

(thousands) Common

Stock Additional Paid-in Capital Accumulated Other

Comprehensive Loss Treasury Stock Retained

Earnings Total

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

Net income — — — — 106,498 106,498

Dividends declared — — — — ( 13,280 ) ( 13,280 )

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

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 ( 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

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 27, 2022 and December 31, 2021, and its results of operations and cash flows for the three months ended March 27, 2022 and March 28, 2021.

(“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 26, 2022 and December 31, 2021, its results of operations for the second quarter and six months ended June 26, 2022 and June 27, 2021, and its cash flows for the six months ended June 26, 2022 and June 27, 2021.

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, 2021 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 three months ended March 27, 2022 are not necessarily indicative of the results that we will realize or expect for the full year ending December 31, 2022.

Operating results for the second quarter and six months ended June 26, 2022 are not necessarily indicative of the results that we will realize or expect for the full year ending December 31, 2022.

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 2022 ended on March 27, 2022 and the first quarter of fiscal year 2021 ended on March 28, 2021.

In preparation of Patrick’s condensed consolidated financial statements as of and for the three months ended March 27, 2022, 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 second quarter of fiscal year 2022 ended on June 26, 2022 and the second quarter of fiscal year 2021 ended on June 27, 2021.

In preparation of Patrick’s condensed consolidated financial statements as of and for the second quarter and six months ended June 26, 2022, 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

6 unchanged sentences

We adopted ASU 2020-06 on January 1, 2022 using a modified retrospective transition approach.

The primary impact on our condensed consolidated financial statements as a result of the adoption of ASU 2020-06 was a reduction in non-cash interest expense for our 1.00 % Convertible Notes due 2023, an increase in diluted shares outstanding used to calculate diluted net income per share and a resulting reduction in diluted net income per share for the first quarter of

2022 attributable to the application of the if-converted method for such convertible notes.

In addition, the adoption resulted in the recognition of a $ 56.0 million increase to the carrying value of convertible notes payable, a $ 12.4 million decrease in "Deferred tax liabilities, net", and a $ 59.7 million decrease in "Additional paid-in-capital", resulting in a cumulative adjustment to the opening balance of retained earnings as an increase of $ 16.0 million.

Additionally, in line with the adoption, our diluted share count increased by approximately 2.0 million shares, a 9.0 % increase.

Diluted net income per share increased $ 0.3 million in relation to the effect of interest on potentially dilutive convertible notes, as shown in Note 8.

The adoption resulted in an overall decrease of $ 0.39 to diluted net income per share for the first quarter of 2022.

calculate diluted net income per share and a resulting reduction in diluted net income per share for the second quarter and first six months of 2022 attributable to the application of the if-converted method for such convertible notes.

In addition, the adoption resulted in the recognition of a $ 56.0 million increase to the carrying value of convertible notes payable through a decrease in the convertible notes debt discount, a $ 12.4 million decrease in "Deferred tax liabilities, net", and a $ 59.7 million decrease in "Additional paid-in-capital", resulting in a cumulative adjustment to the opening balance of retained earnings as an increase of $ 16.0 million as of January 1, 2022.

In line with the adoption, our diluted share count increased by approximately 2.1 million shares for the second quarter and six months ended June 26, 2022, a 9 % increase.

Net income used in the calculation of diluted net income per share increased $ 0.5 million and $ 0.9 million, respectively, for the second quarter and first six months of 2022 in relation to the effect of interest on potentially dilutive convertible notes, as shown in Note 8.

The adoption resulted in an overall decrease of $ 0.41 and $ 0.81 , respectively, to diluted net income per share for the second quarter and first six months of 2022.

There was no impact on the Company's condensed consolidated statement of cash flows upon adoption of ASU 2020-06.

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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 27, 2022

Second Quarter Ended June 26, 2022

(thousands) Manufacturing Distribution Total

4 unchanged sentences

Total $ 1,083,975 $ 391,718 $ 1,475,693

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

Six Months Ended June 26, 2022

(thousands) Manufacturing Distribution Total

Recreational Vehicle $ 1,145,360 $ 512,679 $ 1,658,039

Marine 480,497 30,800 511,297

Manufactured Housing 184,006 189,949 373,955

Industrial 253,721 20,856 274,577

Total $ 2,063,584 $ 754,284 $ 2,817,868

Six Months Ended June 27, 2021

(thousands) Manufacturing Distribution Total

Recreational Vehicle $ 727,225 $ 369,632 $ 1,096,857

Marine 288,688 14,614 303,302

Manufactured Housing 125,001 134,808 259,809

Industrial 188,883 21,585 210,468

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

Contract Liabilities

1 unchanged sentence

Inventories consist of the following:

(thousands) March 27, 2022 December 31, 2021

(thousands) June 26, 2022 December 31, 2021

Raw materials $ 384,459 $ 315,269

8 unchanged sentences

GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the three months ended March 27, 2022 by segment are as follows:

Changes in the carrying amount of goodwill for the six months ended June 26, 2022 by segment are as follows:

(thousands) Manufacturing Distribution Total

2 unchanged sentences

Adjustments to preliminary purchase price allocations ( 2,033 ) 1,770 ( 263 )

Balance - March 27, 2022 $ 530,538 $ 69,581 $ 600,119

Intangible assets, net consist of the following as of March 27, 2022 and December 31, 2021:

(thousands) March 27, 2022 December 31, 2021

Balance - June 26, 2022 $ 533,845 $ 71,241 $ 605,086

Intangible assets, net consist of the following as of June 26, 2022 and December 31, 2021:

(thousands) June 26, 2022 December 31, 2021

Customer relationships $ 667,003 $ 617,814

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Intangible assets, net $ 683,989 $ 640,456

Changes in the carrying value of intangible assets for the three months ended March 27, 2022 by segment are as follows:

Changes in the carrying value of intangible assets for the six months ended June 26, 2022 by segment are as follows:

(thousands) Manufacturing Distribution Total

3 unchanged sentences

Adjustments to preliminary purchase price allocations ( 1,178 ) 1,557 379

Balance - March 27, 2022 $ 587,858 $ 102,752 $ 690,610

The Company completed one acquisition in the first quarter of 2022 (the "2022 Acquisition").

For the first quarter ended March 27, 2022, net sales included in the Company's condensed consolidated statements of income related to the 2022 Acquisition were $ 8.4 million, and operating income was $ 1.4 million.

Acquisition-related costs associated with the 2022 Acquisition were immaterial.

Assets acquired and liabilities assumed in the acquisition were recorded on the Company’s condensed consolidated balance sheet at their estimated fair values as of the respective date of acquisition.

Balance - June 26, 2022 $ 581,992 $ 101,997 $ 683,989

The Company completed two acquisitions in the second quarter of 2022 and completed three acquisitions in the six months ended June 26, 2022 (the "2022 Acquisitions").

For the second quarter and six months ended June 26, 2022, net sales included in the Company's condensed consolidated statements of income related to the 2022 Acquisitions were $ 40.8 million and $ 49.2 million, respectively, and operating income was $ 7.6 million and $ 9.0 million, respectively.

Acquisition-related costs associated with the 2022 Acquisitions were immaterial.

Assets acquired and liabilities assumed in the 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.

The Company completed four acquisitions in the first quarter of 2021.

Net sales included in the Company's condensed consolidated statements of income in the first quarter ended March 28, 2021 related to acquisitions completed in the first three months of 2021 were $ 5.4 million, and operating income relating to acquisitions was immaterial for the same period.

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

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 acquisitions completed in the first six months of 2021 were $ 56.7 million and $ 62.1 million, respectively, and operating income relating to acquisitions was $ 6.0 million for each of these 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 March 27, 2022, the aggregate fair value of the estimated contingent consideration payments was $ 8.1 million, of which $ 3.7 million is included in "Accrued liabilities" and $ 4.4 million is included in “Other long-term liabilities” on the condensed consolidated balance sheet.

As of June 26, 2022, the aggregate fair value of the estimated contingent consideration payments was $ 10.7 million, of which $ 7.2 million is included in "Accrued liabilities" and $ 3.5 million is included in “Other long-term liabilities” on the condensed consolidated balance sheet.

At December 31, 2021, the fair value of the estimated contingent consideration payments was $ 12.3 million, of which $ 7.0 million 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 contingent consideration arrangements are subject to a maximum payment amount of up to $ 14.0 million in the aggregate as of March 27, 2022.

In the first quarter ended March 27, 2022, the Company recorded $ 1.1 million in non-cash increases to contingent consideration liabilities, which is reflected as charges within selling, general and administrative expense in the condensed consolidated statement of income, representing changes in the amount of consideration expected to be paid.

The contingent consideration arrangements are subject to a maximum payment amount of up to $ 15.0 million in the aggregate as of June 26, 2022.

In the second quarter and six months ended June 26, 2022, the Company recorded $ 1.9 million and $ 3.0 million, respectively, in non-cash increases to contingent consideration liabilities, which are reflected as charges within selling, general and administrative expense in the condensed consolidated statement of income, representing changes in the amount of consideration expected to be paid.

These charges relate to changes in projected performance of certain acquisitions compared to the projected performance originally used in calculating the projected fair values of the contingent consideration of such acquisitions.

In the first quarter ended March 27, 2022, the Company made cash payments of approximately $ 5.4 million related to contingent consideration liabilities, recording a corresponding reduction to accrued liabilities.

2022 Acquisition

The Company completed the following previously announced acquisition in the three months ended March 27, 2022:

In the second quarter and six months ended June 26, 2022, the Company made cash payments of approximately $ 1.0 million and $ 6.4 million, respectively, related to contingent consideration liabilities, recording a corresponding reduction to accrued liabilities.

2022 Acquisitions

The Company completed three acquisitions in the six months ended June 26, 2022, including the following two previously announced acquisitions:

Company Segment Description

Rockford Corporation Manufacturing Designs and produces audio systems and components through its brand Rockford Fosgate®, primarily serving the powersports and automotive aftermarkets, based in Tempe, Arizona, acquired in March 2022

Total cash consideration for the 2022 Acquisition was approximately $ 130.1 million.

Rockford Corporation Manufacturing Designer and manufacturer of audio systems and components through its brand Rockford Fosgate®, primarily serving the powersports and automotive aftermarkets, based in Tempe, Arizona, acquired in March 2022

Diamondback Towers, LLC Manufacturing Manufacturer of wakeboard/ski towers and accessories for marine original equipment manufacturers ("OEMs"), based in Cocoa, Florida, acquired in May 2022

Inclusive of one acquisition not discussed above, total cash consideration for the 2022 Acquisitions was approximately $ 149.7 million.

One of the 2022 Acquisitions, Rockford Corporation, accounted for $ 132.6 million in total consideration, $ 20.6 million in trade receivables, $ 32.7 million in inventory, $ 1.4 million in prepaid expenses, $ 5.3 million in fixed assets, $ 2.9 million in operating right-of-use assets, $ 70.0 million in intangible assets, $ 24.3 million in accounts payable and accrued liabilities, $ 2.9 million in operating right-of-use obligations, $ 16.7 million in deferred tax liabilities, and $ 43.5 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.

2021 Acquisitions

The Company completed the following seven previously announced acquisitions in the year ended December 31, 2021 (together with six acquisitions not described below, the "2021 Acquisitions"):

The Company completed 13 acquisitions in the year ended December 31, 2021, including the following seven previously announced acquisitions (together, the "2021 Acquisitions"):

Company Segment Description

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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, acquired in April 2021.

Manufacturing Manufacturer of high-quality, non-slip foam flooring, operating under the SeaDek brand name, for the marine 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, acquired in April 2021.

Alpha Systems, LLC Manufacturing & Distribution Manufacturer and distributor of component products and accessories for the RV, marine, manufactured housing and industrial end markets including adhesives, sealants, rubber roofing, roto/blow molding and injection molding products, flooring, insulation, shutters, skylights, and various other products and accessories, operating out of nine facilities in Elkhart, Indiana, acquired in May 2021.

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(collectively "Williamsburg") Manufacturing Manufacturer of seating for the RV and marine end markets sold primarily to OEMs, based in Milford and Nappanee, Indiana, acquired in November 2021.

Total cash consideration for the 2021 Acquisitions was approximately $ 510.2 million, plus contingent consideration over a one to three-year period based on future performance in connection with certain acquisitions.

Inclusive of six acquisitions not discussed above, total cash consideration for the 2021 Acquisitions was approximately $ 509.3 million, plus contingent consideration over a one to three-year period based on future performance in connection with certain acquisitions.

The preliminary purchase price allocations are subject to valuation activities being finalized, primarily related to the valuation of property, plant, and equipment and intangible assets, and thus certain 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 27, 2022 related to the 2021 Acquisitions, individually and in the aggregate, 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 2022 Acquisition and the 2021 Acquisitions:

(thousands) 2022 Acquisition 2021 Acquisitions

Purchase accounting adjustments are complete for all 2021 Acquisitions completed through June 27, 2021.

Changes to preliminary purchase accounting estimates recorded in the second quarter ended June 26, 2022 related to the 2021 Acquisitions, individually and in the aggregate, 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 2022 Acquisitions and the 2021 Acquisitions:

(thousands) 2022 Acquisitions 2021 Acquisitions

Consideration

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Operating lease obligations ( 2,731 ) ( 20,012 )

Deferred tax liabilities ( 16,155 ) ( 1,996 )

Deferred tax liabilities and other long-term liabilities ( 16,675 ) ( 1,996 )

Total fair value of net assets acquired 100,303 376,373

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(2) 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 March 27, 2022.

This value represents the remaining amounts due to (from) sellers as of June 26, 2022.

(3) In connection with one of the 2021 Acquisitions, the Company issued 113,961 shares of common stock at a closing price of $ 89.60 as of the acquisition date.

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

(5) Goodwill is not tax-deductible for the 2022 Acquisition and is tax-deductible for the 2021 Acquisitions, except Tumacs Covers (approximately $ 6.2 million).

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

(5) Goodwill is tax-deductible for the 2022 Acquisitions, except Rockford Corporation (approximately $ 43.5 million), and for the 2021 Acquisitions, except Tumacs Covers (approximately $ 6.2 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.

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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 2022 Acquisition and the 2021 Acquisitions:

(thousands, except year data) Estimated Useful Life (in years) 2022 Acquisition 2021 Acquisitions

The following table presents our estimates of identifiable intangible assets for the 2022 Acquisitions and the 2021 Acquisitions:

(thousands, except year data) Estimated Useful Life (in years) 2022 Acquisitions 2021 Acquisitions

Customer relationships 10 $ 48,490 $ 161,652

4 unchanged sentences

$ 77,890 $ 245,924

For the acquisition of Rockford Corporation previously mentioned, the $ 70.0 million of identifiable intangible assets consists of $ 42.0 million for customer relationships, $ 2.1 million for non-compete agreements, $ 10.5 million for patents (estimated useful life of 15 years), and $ 15.4 million for trademarks.

Pro Forma Information

The following pro forma information for the first quarter ended March 27, 2022 and March 28, 2021 assumes the 2022 Acquisition and the 2021 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 2022 Acquisition and 2021 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 following pro forma information for the second quarter and six months ended June 26, 2022 and June 27, 2021 assumes the 2022 Acquisitions and the 2021 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 2022 Acquisitions and 2021 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 $ 0.8 million and $ 5.9 million for the first quarter ended March 27, 2022 and March 28, 2021, respectively.

First Quarter Ended

(thousands, except per share data) March 27, 2022 March 28, 2021

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 $ 1.1 million for the second quarter and six months ended June 26, 2022, respectively, and $ 4.6 million and $ 10.8 million for the second quarter and six months ended June 27, 2021, respectively.

Second Quarter Ended Six Months Ended

(thousands, except per share data) June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

Revenue $ 1,478,392 $ 1,123,924 $ 2,852,364 $ 2,114,986

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STOCK-BASED COMPENSATION

The Company recorded stock-based compensation expense of approximately $ 5.1 million and $ 4.3 million in the first quarter ended March 27, 2022 and March 28, 2021, respectively, 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 ended March 27, 2022 totaling 220,450 shares in the aggregate at an average fair value of $ 64.74 at grant date for a total fair value at grant date of $ 14.4 million.

As of March 27, 2022, there was approximately $ 35.3 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under incentive plans.

The Company recorded expense of approximately $ 5.1 million and $ 10.2 million in the second quarter and six months ended June 26, 2022, respectively, for its stock-based compensation plans in the condensed consolidated statements of income.

Stock-based compensation expense of $ 6.0 million and $ 10.3 million was recorded in the second quarter and six months ended June 27, 2021, respectively.

The Board approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the six months ended June 26, 2022 totaling 235,869 shares in the aggregate at an average fair value of $ 64.63 at grant date for a total fair value at grant date of $ 15.2 million.

As of June 26, 2022, there was approximately $ 30.9 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under incentive plans.

That cost is expected to be recognized over a weighted-average period of 18.7 months.

NET INCOME PER COMMON SHARE

Net income per common share calculated for the first quarter of 2022 and 2021 is as follows:

First Quarter Ended

(thousands except per share data) March 27, 2022 March 28, 2021

Net income per common share calculated for the second quarter and six months of 2022 and 2021 is as follows:

Second Quarter Ended Six Months Ended

(thousands except per share data) June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

Net income for basic per share calculation $ 116,524 $ 58,985 $ 229,197 $ 106,498

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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 for all periods presented.

A summary of total debt outstanding at March 27, 2022 and December 31, 2021 is as follows:

(thousands) March 27, 2022 December 31, 2021

A summary of total debt outstanding at June 26, 2022 and December 31, 2021 is as follows:

(thousands) June 26, 2022 December 31, 2021

Long-term debt:

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Total long-term debt, less current maturities, net $ 1,474,743 $ 1,278,989

There were no material changes to any of our debt arrangements during the quarter ended March 27, 2022.

There were no material changes to any of our debt arrangements during the second quarter and six months ended June 26, 2022.

The decrease in the convertible notes debt discount reflects the impact of the adoption of ASU 2020-06 on the carrying value of the convertible notes.

The interest rate for incremental borrowings at March 27, 2022 was LIBOR plus 1.50 % (or 1.75 %) for the LIBOR-based option.

The fee payable on committed but unused portions of the Revolver due 2026 was 0.20 % at March 27, 2022.

Total cash interest paid for the first quarter of 2022 and 2021 was $ 3.2 million and $ 3.3 million, respectively.

The interest rate for incremental borrowings under the Revolver due 2026 at June 26, 2022 was LIBOR plus 1.50 % (or 2.52 %) for the LIBOR-based option.

The fee payable on committed but unused portions of the Revolver due 2026 was 0.20 % at June 26, 2022.

Total cash interest paid for the second quarter of 2022 and 2021 was $ 23.9 million and $ 14.1 million, respectively, and $ 27.1 million and $ 17.4 million for the comparative six month periods, respectively.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company's credit facility exposes the Company to risks associated with the variability in interest expense associated with fluctuations in LIBOR.

To partially mitigate this risk, the Company previously entered into interest rate swaps, which matured in March 2022, and therefore have no further associated liability as of March 27, 2022.

To partially mitigate this risk, the Company previously entered into interest rate swaps, which matured in March 2022, and therefore have no further associated liability as of June 26, 2022.

The following table summarizes the fair value of derivative contracts included in the condensed consolidated balance sheets (in thousands):

Fair value of derivative instruments

Derivatives accounted for as cash flow hedges Balance sheet location March 27, 2022 December 31, 2021

Derivatives accounted for as cash flow hedges Balance sheet location June 26, 2022 December 31, 2021

Interest rate swaps Accrued liabilities $ — $ 1,017

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

First Quarter Ended

(thousands) March 27, 2022 March 28, 2021

Second Quarter Ended

(thousands) June 26, 2022 June 27, 2021

Operating lease cost $ 12,563 $ 10,353

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Operating leases $ 6,007 $ 24,806

Six Months Ended

(thousands) June 26, 2022 June 27, 2021

Operating lease cost $ 24,727 $ 19,938

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

Operating cash flows for operating leases $ 24,235 $ 19,504

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

Operating leases $ 29,732 $ 39,991

Balance sheet information related to leases was as follows:

(thousands, except lease term and discount rate) March 27, 2022 December 31, 2021

(thousands, except lease term and discount rate) June 26, 2022 December 31, 2021

Operating lease right-of-use assets $ 165,631 $ 158,183

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Weighted average discount rate, operating leases 3.8 % 3.8 %

Maturities of lease liabilities were as follows at March 27, 2022:

2022 (excluding the three months ended March 27, 2022) $ 36,617

Maturities of lease liabilities were as follows at June 26, 2022:

2022 (excluding the six months ended June 26, 2022) $ 24,868

Thereafter 31,741

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Total $ 168,409

As of March 27, 2022, outstanding leases have remaining lease terms ranging from 1 year to 17 years.

As of June 26, 2022, outstanding leases have remaining lease terms ranging from 1 year to 17 years.

FAIR VALUE MEASUREMENTS

The following table presents fair values of certain assets and liabilities at March 27, 2022 and December 31, 2021:

March 27, 2022 December 31, 2021

The following table presents fair values of certain assets and liabilities at June 26, 2022 and December 31, 2021:

June 26, 2022 December 31, 2021

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

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— — 10.7 — — 12.3

(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 March 27, 2022 as a component of "Cash and cash equivalents".

(2) 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 27, 2022 and December 31, 2021 using the interest rate method.

(3) The carrying amounts of our term loan and revolver approximate fair value as of March 27, 2022 and December 31, 2021 based upon their terms and conditions in comparison to the terms and conditions of debt instruments with similar terms and conditions available at those dates.

(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 June 26, 2022 and December 31, 2021 as a component of "Cash and cash equivalents".

(2) 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 26, 2022 and December 31, 2021 using the interest rate method.

(3) The carrying amounts of our term loan and revolver approximate fair value as of June 26, 2022 and December 31, 2021 based upon their terms and conditions in comparison to the terms and conditions of debt instruments with similar terms and conditions available at those dates.

(4) The interest rate swaps are discussed further in Note 10.

(5) The estimated fair value of the Company's contingent consideration is discussed further in Note 6.

The effective tax rate in the first quarter of 2022 and 2021 was 23.3 % and 17.1 %, respectively.

The 2022 and 2021 rates include the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense in the amount of $ 4.0 million and $ 5.7 million, respectively.

Cash paid for income taxes, net of refunds, in the first quarter of 2022 was $ 18.4 million.

No income tax payments were made in the first quarter of 2021.

The effective tax rate in the second quarter of 2022 and 2021 was 26.8 % and 26.9 %, respectively, and the effective tax rate for the comparable six month periods was 25.1 % and 22.8 %, respectively.

The first six months of 2022 and 2021 rates include the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense in the amount of $ 4.0 million and $ 5.7 million, respectively.

Cash paid for income taxes, net of refunds, was $ 58.1 million and $ 76.5 million, respectively, in the second quarter and first six months of 2022 and $ 24.0 million and $ 24.1 million, respectively, in the second quarter and first six months of 2021.

SEGMENT INFORMATION

1 unchanged sentence

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

First Quarter Ended March 27, 2022

Second Quarter Ended June 26, 2022

(thousands) Manufacturing Distribution Total

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Operating income 180,685 43,641 224,326

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

Six Months Ended June 26, 2022

(thousands) Manufacturing Distribution Total

Net outside sales $ 2,063,584 $ 754,284 $ 2,817,868

Intersegment sales 43,945 5,084 49,029

Total sales 2,107,529 759,368 2,866,897

Operating income 351,229 89,607 440,836

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

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

First Quarter Ended

(thousands) March 27, 2022 March 28, 2021

Second Quarter Ended Six Months Ended

(thousands) June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

Operating income for reportable segments $ 224,326 $ 130,629 $ 440,836 $ 230,233

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

(thousands) March 27, 2022 December 31, 2021

(thousands) June 26, 2022 December 31, 2021

Manufacturing assets $ 2,392,993 $ 2,031,465

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In January 2022, 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 $ 100 million, including the $ 11.0 million remaining under the previous authorization.

Approximately $ 86.8 million remains in the amount of the Company's common stock that may be acquired under the current stock repurchase program as of March 27, 2022.

The Company repurchased 365,627 shares of its common stock at an average price of $ 67.77 for an aggregate cost of $ 24.8 million in the first quarter ended March 27, 2022.

The Company did no t repurchase any of its common stock in the first quarter ended March 28, 2021.

Approximately $ 70.3 million remains in the amount of the Company's common stock that may be acquired under the current stock repurchase program as of June 26, 2022.

The Company repurchased 288,627 shares of its common stock at an average price of $ 57.28 for an aggregate cost of $ 16.5 million in the second quarter ended June 26, 2022, and 654,254 shares of its common stock at an average price of $ 63.14 for an aggregate cost of $ 41.3 million in the six months ended June 26, 2022.

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

COMMITMENTS AND CONTINGENCIES

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Environmental Protection Agency (the "EPA").

The Company sold certain parcels of real property that the EPA contends are connected to the Superfund Site (the "Divested Properties") in January 2022 for a pretax gain on disposal of $ 5.5 million that is included in Selling, general and administrative expenses in the Company's Condensed Consolidated Statements of Income for the first quarter of 2022.

Company sold certain parcels of real property that the EPA contends are connected to the Superfund Site (the "Divested Properties") in January 2022 for a pretax gain on disposal of $ 5.5 million that is included in Selling, general and administrative expenses in the Company's condensed consolidated statements of income for the first six months of 2022.

The purchaser agreed to indemnify, defend and hold the Company harmless for all liability and exposure, both private and to all EPA claims, concerning and relating to the Divested Properties.

No further proceedings have occurred in the first quarter of 2022.

No further proceedings have occurred in the first six months of 2022.

As to the real properties that were not among the Divested Properties but remain the subject of the litigation, the Company does not currently believe that the litigation or the Superfund Site matter are likely to have a material adverse impact on its financial condition, results of operations, or cash flows.

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Although we do not believe we are legally responsible for costs related to the product recall, based on discussions with our customers and other developments subsequent to when these recalls were initiated, we believe it is probable that the Company will bear a portion of the total cost of the recalls.

In the fourth quarter of 2021, we recorded an estimate of the Company's cost related to this matter.

We do not expect this matter to have a material effect on our financial position, results of operations, or cash flows, and there have been no further proceedings in the first quarter of 2022.

In the fourth quarter of 2021, we recorded an estimate of the Company's cost related to this matter, and have further reached agreements with certain customers in the second quarter of 2022 on the maximum financial obligation we may face.

We have recorded an additional immaterial estimate of the Company's costs related to these agreements in the second quarter of 2022.

We do not expect this matter to have a material adverse effect on our financial position, results of operations, or cash flows.

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