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Item 1. Financial Statements

2022-11-03 compared with 2022-08-04 · 130 added, 109 removed, 452 unchanged (35% 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 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

Third Quarter Ended Nine Months Ended

(thousands except per share data) September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021

NET SALES $ 1,112,089 $ 1,060,177 $ 3,929,957 $ 2,930,613

18 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

Second Quarter Ended Six Months Ended

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

Third Quarter Ended Nine Months Ended

(thousands) September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021

NET INCOME $ 58,819 $ 57,397 $ 288,016 $ 163,895

7 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(thousands) June 26, 2022 December 31, 2021

(thousands) September 25, 2022 December 31, 2021

Current Assets

32 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Six Months Ended

(thousands) June 26, 2022 June 27, 2021

Nine Months Ended

(thousands) September 25, 2022 September 26, 2021

CASH FLOWS FROM OPERATING ACTIVITIES

31 unchanged sentences

Proceeds from exercise of common stock options 195 4,902

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

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

Net cash (used in) provided by financing activities ( 90,504 ) 196,414

(Decrease) increase in cash and cash equivalents ( 69,580 ) 115

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

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

Second Quarter Ended June 26, 2022

Third Quarter Ended September 25, 2022

(thousands) Common

2 unchanged sentences

Earnings Total

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

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

Net income — — — — 58,819 58,819

2 unchanged sentences

Stock repurchases under buyback program ( 1,293 ) — — — ( 6,147 ) ( 7,440 )

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

Repurchases of shares for tax payments related to the vesting and exercising of share-based grants ( 1 ) — — — — ( 1 )

Issuance of shares upon exercise of common stock options 14 — — — — 14

Stock-based compensation expense 5,352 — — — — 5,352

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

Second Quarter Ended June 27, 2021

Balance September 25, 2022 $ 195,367 $ — $ ( 1,635 ) $ — $ 752,944 $ 946,676

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

2 unchanged sentences

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

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

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

Six Months Ended June 26, 2022

Nine Months Ended September 25, 2022

(thousands) Common

11 unchanged sentences

Stock-based compensation expense 15,596 — — — — 15,596

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

Six Months Ended June 27, 2021

Balance September 25, 2022 $ 195,367 $ — $ ( 1,635 ) $ — $ 752,944 $ 946,676

Nine Months Ended September 26, 2021

(thousands) Common

7 unchanged sentences

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 )

2 unchanged sentences

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

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 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”, 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 25, 2022 and December 31, 2021, its results of operations for the third quarter and nine months ended September 25, 2022 and September 26, 2021, and its cash flows for the nine months ended September 25, 2022 and September 26, 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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Certain immaterial reclassifications have been made to the prior period presentation to conform to the current period presentation of other non-cash items in the condensed consolidated statements of cash flows.

Intercompany balances and transactions have been eliminated in consolidation.

For a description of significant accounting policies used by the Company in the preparation of its consolidated financial statements, please refer to Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

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 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.

Operating results for the third quarter and nine months ended September 25, 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 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.

The third quarter of fiscal year 2022 ended on September 25, 2022 and the third quarter of fiscal year 2021 ended on September 26, 2021.

In preparation of Patrick’s condensed consolidated financial statements as of and for the third quarter and nine months ended September 25, 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 second quarter and first six months of 2022 attributable to the application of the if-converted method for such convertible notes.

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 third quarter and first nine 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.

In line with the adoption, our diluted share count increased by approximately 2.1 million shares for the third quarter and nine months ended September 25, 2022, a 9 % increase.

Net income used in the calculation of diluted net income per share increased $ 0.5 million and $ 1.4 million, respectively, for the third quarter and first nine 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 $ 0.20 and $ 1.01 , respectively, to diluted net income per share for the third quarter and first nine months of 2022.

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

1 unchanged sentence

In March 2020, the FASB issued ASU 2020-04, " Reference Rate Reform (Topic 848) ", a new standard providing final guidance to provide temporary optional expedients and exceptions to the U.S.

GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR.

GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London InterBank Offer Rate ("LIBOR") and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate ("SOFR").

Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met.

2 unchanged sentences

The guidance is effective upon issuance and generally can be applied through December 31, 2022.

The Company is currently evaluating the impact of this standard on our condensed consolidated financial statements.

In the third quarter ended September 25, 2022, the Company amended its current credit agreement, which included a transition from a LIBOR-based rate to a SOFR-based rate.

See Note 9 for further discussion of this amendment.

The transition from LIBOR to SOFR in accordance with the amended agreement did not have a material impact on the Company's condensed consolidated financial statements.

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 26, 2022

Third Quarter Ended September 25, 2022

(thousands) Manufacturing Distribution Total

4 unchanged sentences

Total $ 828,410 $ 283,679 $ 1,112,089

Second Quarter Ended June 27, 2021

Third Quarter Ended September 26, 2021

(thousands) Manufacturing Distribution Total

4 unchanged sentences

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

Six Months Ended June 26, 2022

Nine Months Ended September 25, 2022

(thousands) Manufacturing Distribution Total

4 unchanged sentences

Total $ 2,891,994 $ 1,037,963 $ 3,929,957

Six Months Ended June 27, 2021

Nine Months Ended September 26, 2021

(thousands) Manufacturing Distribution Total

7 unchanged sentences

Inventories consist of the following:

(thousands) June 26, 2022 December 31, 2021

(thousands) September 25, 2022 December 31, 2021

Raw materials $ 361,735 $ 315,269

8 unchanged sentences

GOODWILL AND INTANGIBLE ASSETS

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

Changes in the carrying amount of goodwill for the nine months ended September 25, 2022 by segment are as follows:

(thousands) Manufacturing Distribution Total

2 unchanged sentences

Adjustments to preliminary purchase price allocations ( 1,359 ) 1,190 ( 169 )

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

Balance - September 25, 2022

$ 526,964 $ 70,661 $ 597,625

Intangible assets, net consist of the following as of September 25, 2022 and December 31, 2021:

(thousands) September 25, 2022 December 31, 2021

Customer relationships $ 680,153 $ 617,814

5 unchanged sentences

Intangible assets, net $ 675,440 $ 640,456

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

Changes in the carrying value of intangible assets for the nine months ended September 25, 2022 by segment are as follows:

(thousands) Manufacturing Distribution Total

3 unchanged sentences

Adjustments to preliminary purchase price allocations ( 1,888 ) 2,137 249

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.

Balance - September 25, 2022

$ 575,522 $ 99,918 $ 675,440

The Company completed no acquisitions in the third quarter of 2022 and completed three acquisitions in the nine months ended September 25, 2022 (the "2022 Acquisitions").

For the third quarter and nine months ended September 25, 2022, net sales included in the Company's condensed consolidated statements of income related to the 2022 Acquisitions were $ 38.0 million and $ 87.3 million, respectively, and operating income was $ 6.9 million and $ 15.9 million, respectively.

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

1 unchanged sentence

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 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.

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

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 acquisitions completed in the first nine months of 2021 were $ 84.0 million and $ 146.1 million, respectively, and operating income was $ 6.6 million and $ 12.6 million, respectively.

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 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.

As of September 25, 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 $ 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.

The contingent consideration arrangements are subject to a maximum payment amount of up to $ 15.0 million in the aggregate as of September 25, 2022.

In the nine months ended September 25, 2022, the Company recorded $ 3.0 million 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 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.

There were no non-cash increases to contingent consideration during the third quarter ended September 25, 2022.

In the nine months ended September 25, 2022, the Company made cash payments of approximately $ 6.4 million related to contingent consideration liabilities, recording a corresponding reduction to accrued liabilities.

The Company made no cash payments related to contingent consideration liabilities in the third quarter ended September 25, 2022.

2022 Acquisitions

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

The Company completed three acquisitions in the nine months ended September 25, 2022, including the following two previously announced acquisitions:

Company Segment Description

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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 third quarter ended September 25, 2022 related to the 2022 Acquisitions, individually and in the aggregate, were immaterial and relate primarily to the valuation of intangible assets.

2021 Acquisitions

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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.

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.

Purchase accounting adjustments are complete for all 2021 Acquisitions completed through September 26, 2021.

Changes to preliminary purchase accounting estimates recorded in the third quarter ended September 25, 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:

4 unchanged sentences

Working capital holdback and other, net (2)

2,939 ( 279 )

Common stock issuance (3)

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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 June 26, 2022.

This value represents the remaining amounts due to sellers as of September 25, 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.

10 unchanged sentences

Patents 10 - 18

10,041 27,310

Trademarks Indefinite 17,220 52,689

1 unchanged sentence

For the acquisition of Rockford Corporation previously mentioned, the $ 79.9 million of identifiable intangible assets consists of $ 56.0 million for customer relationships, $ 0.4 million for non-compete agreements, $ 7.5 million for patents (estimated useful life of 15 years), and $ 16.0 million for trademarks.

These amounts were provisionally estimated at $ 70.0 million, consisting 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 in the prior two quarters but have been updated to the aforementioned values based on valuation procedures being performed.

Pro Forma Information

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 following pro forma information for the third quarter and nine months ended September 25, 2022 and September 26, 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 $ 0.1 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

In addition, the pro forma information includes amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $ 0.0 million and $ 1.1 million for the third quarter and nine months ended September 25, 2022, respectively, and $ 3.9 million and $ 14.6 million for the third quarter and nine months ended September 26, 2021, respectively.

Third Quarter Ended

Nine Months Ended

(thousands, except per share data) September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021

Revenue $ 1,112,089 $ 1,145,730 $ 3,964,453 $ 3,253,080

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STOCK-BASED COMPENSATION

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.

The Company recorded expense of approximately $ 5.4 million and $ 15.6 million in the third quarter and nine months ended September 25, 2022, respectively, for its stock-based compensation plans in the condensed consolidated statements of income.

Stock-based compensation expense of $ 7.0 million and $ 17.3 million was recorded in the third quarter and nine months ended September 26, 2021, respectively.

The Board approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the nine months ended September 25, 2022 totaling 237,069 shares in the aggregate at an average fair value of $ 64.73 at grant date for a total fair value at grant date of $ 15.3 million.

As of September 25, 2022, there was approximately $ 26.4 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 13.4 months.

NET INCOME PER COMMON SHARE

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 per common share calculated for the third quarter and first nine months of 2022 and 2021 is as follows:

Third Quarter Ended

Nine Months Ended

(thousands except per share data) September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021

Net income for basic per share calculation $ 58,819 $ 57,397 $ 288,016 $ 163,895

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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 June 26, 2022 and December 31, 2021 is as follows:

(thousands) June 26, 2022 December 31, 2021

A summary of total debt outstanding at September 25, 2022 and December 31, 2021 is as follows:

(thousands) September 25, 2022 December 31, 2021

Long-term debt:

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Total long-term debt, less current maturities, net $ 1,333,455 $ 1,278,989

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 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.

2021 Credit Facility

On August 11, 2022, the Company entered into the first amendment of its Fourth Amended and Restated Credit Agreement (as amended, the “2021 Credit Agreement”) dated April 20, 2021, under which the senior secured credit facility was increased to $ 925 million from $ 700 million and the maturity date was extended to August 11, 2027 from April 20, 2026.

The senior credit facility under the 2021 Credit Agreement is comprised of a $ 775 million revolving credit facility (the "Revolver due 2027") and the remaining balance of the $ 150 million term loan (the "Term Loan due 2027").

The Term Loan due 2027 quarterly repayment schedule was revised to be repaid in quarterly installments in the following amounts:

(i) beginning June 30, 2021, through and including June 30, 2025, in the amount of $ 1,875,000 , and (ii) beginning September 30, 2025, and each quarter thereafter, in the amount of $ 3,750,000 , with the remaining balance due at maturity.

The Company recorded a $ 0.3 million write-off of deferred financing costs pertaining to the amendment, which is included in "Selling, general and administrative" in the Company's condensed consolidated statements of income for the third quarter and first nine months of 2022.

Interest rates for borrowings under the 2021 Credit Agreement transitioned to a SOFR-based option from a LIBOR-based option.

The interest rate for incremental borrowings under the Revolver due 2027 at September 25, 2022 was SOFR plus 1.25 % (or 3.66 %) for the SOFR-based option.

The fee payable on committed but unused portions of the Revolver due 2027 was 0.18 % at September 25, 2022.

The Company intends to utilize available borrowing capacity under the Revolver due 2027 and cash on hand to satisfy its repayment obligation upon maturity of the 1.00 % Convertible Notes due 2023 if not previously converted or repurchased.

Total cash interest paid for the third quarter of 2022 and 2021 was $ 3.8 million and $ 3.7 million, respectively, and $ 30.9 million and $ 21.2 million for the comparative nine 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 June 26, 2022.

The Company's credit facility previously exposed 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 September 25, 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 June 26, 2022 December 31, 2021

Derivatives accounted for as cash flow hedges Balance sheet location September 25, 2022 December 31, 2021

Interest rate swaps Accrued liabilities $ — $ 1,017

1 unchanged sentence

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

Second Quarter Ended

(thousands) June 26, 2022 June 27, 2021

Third Quarter Ended

(thousands) September 25, 2022 September 26, 2021

Operating lease cost $ 12,801 $ 10,760

3 unchanged sentences

Operating leases $ 10,297 $ 12,573

Six Months Ended

(thousands) June 26, 2022 June 27, 2021

Nine Months Ended

(thousands) September 25, 2022 September 26, 2021

Operating lease cost $ 37,528 $ 30,697

4 unchanged sentences

Balance sheet information related to leases was as follows:

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

(thousands, except lease term and discount rate) September 25, 2022 December 31, 2021

Operating lease right-of-use assets $ 164,725 $ 158,183

4 unchanged sentences

Weighted average discount rate, operating leases 4.1 % 3.8 %

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

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

Maturities of lease liabilities were as follows at September 25, 2022:

2022 (excluding the nine months ended September 25, 2022) $ 12,678

Thereafter 36,903

2 unchanged sentences

Total $ 167,641

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

As of September 25, 2022, outstanding leases have remaining lease terms ranging from 1 year to 17 years.

The Company has additional operating leases that have not yet commenced as of September 25, 2022 and, therefore, were not included as operating right-of-use assets and corresponding operating lease liabilities on our condensed consolidated balance sheet at September 25, 2022.

These operating leases are anticipated to commence between the fourth quarter of fiscal 2022 and the second quarter of fiscal 2023 with lease terms of 5 years to 7 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 $ 9.2 million.

FAIR VALUE MEASUREMENTS

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

The following table presents fair values of certain assets and liabilities at September 25, 2022 and December 31, 2021:

September 25, 2022 December 31, 2021

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

17 unchanged sentences

— — 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 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.

(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 25, 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 September 25, 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 September 25, 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 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.

The effective tax rate in the third quarter of 2022 and 2021 was 24.1 % and 26.3 %, respectively, and the effective tax rate for the comparable nine month periods was 24.9 % and 24.1 %, respectively.

The first nine 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 $ 38.4 million and $ 114.9 million, respectively, in the third quarter and first nine months of 2022 and $ 19.7 million and $ 43.9 million, respectively, in the third quarter and first nine months of 2021.

SEGMENT INFORMATION

1 unchanged sentence

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

Second Quarter Ended June 26, 2022

Third Quarter Ended September 25, 2022

(thousands) Manufacturing Distribution Total

3 unchanged sentences

Operating income 109,462 27,228 136,690

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

Six Months Ended June 26, 2022

Nine Months Ended September 25, 2022

(thousands) Manufacturing Distribution Total

3 unchanged sentences

Operating income 460,691 116,835 577,526

Six Months Ended June 27, 2021

Nine Months Ended September 26, 2021

(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 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

Third Quarter Ended Nine Months Ended

(thousands) September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021

Operating income for reportable segments $ 136,690 $ 122,557 $ 577,526 $ 352,790

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 26, 2022 December 31, 2021

(thousands) September 25, 2022 December 31, 2021

Manufacturing assets $ 2,322,617 $ 2,031,465

6 unchanged sentences

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 $ 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.

Approximately $ 62.9 million remains in the amount of the Company's common stock that may be acquired under the current stock repurchase program as of September 25, 2022.

The Company repurchased 154,388 shares of its common stock at an average price of $ 48.18 per share for an aggregate cost of $ 7.4 million in the third quarter ended September 25, 2022, and 808,642 shares of its common stock at an average price of $ 60.28 per share for an aggregate cost of $ 48.7 million in the nine months ended September 25, 2022.

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

Accrued share repurchases included above were approximately $ 1.9 million and $ 0.1 million as of September 25, 2022 and December 31, 2021, respectively, to record trades executed on the Company's behalf but not settled.

COMMITMENTS AND CONTINGENCIES

7 unchanged sentences

Environmental Protection Agency (the "EPA").

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 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 nine 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 six months of 2022.

No further proceedings have occurred in the first nine 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.

1 unchanged sentence

Certain of our customers in the RV end market initiated recalls in 2021 involving certain products that were produced by a third party and sold by our Distribution segment.

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, 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.

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, 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, and subsequently reached agreements with certain customers in the second quarter of 2022 on the maximum financial obligation we may face.

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

No further settlements have occurred or charges have been recorded in the third 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