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Item 9A. Controls and Procedures

2023-02-24 compared with 2022-02-25 · 253 added, 227 removed, 1101 unchanged (30% of the section changed)

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This assessment included a review of the documentation of controls, an assessment of the design effectiveness of controls, testing of the operating effectiveness of controls, and a conclusion on this evaluation.

As permitted under SEC guidance, management’s assessment of and conclusion regarding the design and effectiveness of internal control over financial reporting excluded the internal control over financial reporting of the operations of businesses acquired in 2021, which are described in Note 4 of the Notes to Consolidated Financial Statements included elsewhere in this

Businesses acquired in 2021 represented less than 7% of consolidated net sales for the year ended December 31, 2021 and approximately 8% of consolidated total assets as of December 31, 2021.

As permitted under SEC guidance, management’s assessment of and conclusion regarding the design and effectiveness of internal control over financial reporting excluded the internal control over financial reporting of the operations of businesses acquired in 2022, which are described in Note 4 of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K.

Businesses acquired in 2022 represented approximately 2% of consolidated net sales for the year ended December 31, 2022 and approximately 3% of consolidated total assets as of December 31, 2022.

Based on our assessment, we have concluded that our internal control over financial reporting was effective as of December 31, 2022 .

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OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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Corporate Governance

Information on our corporate governance practices is contained under the caption “Corporate Governance” in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 12, 2022 and incorporated herein by reference.

Information on our corporate governance practices is contained under the caption “Governance Values” in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 25, 2023 and incorporated herein by reference.

EXECUTIVE COMPENSATION

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is set forth in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 12, 2022, under the captions “Related Party Transactions” and “Corporate Governance”, and is incorporated herein by reference.

The information required by this item is set forth in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 25, 2023, under the captions “Related Party Transactions” and “Governance Values”, and is incorporated herein by reference.

PRINCIPAL ACCOUNTING FEES AND SERVICES

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2009 Omnibus Incentive Plan (filed as Appendix A to the Company’s revised Definitive Proxy Statement on Schedule 14A filed on October 20, 2009 and incorporated herein by reference).

10.2* Form of Employment Agreements with Executive Officers (filed as Exhibit 10.2 to the Company’s Form 10-K filed on March 30, 2010 and incorporated herein by reference).

10.3* Form of Non-Qualified Stock Option Award (filed as Exhibit 10.4 to the Company’s Form 10-K filed on March 14, 2014 and incorporated herein by reference).

10.4* Form of Officer and Employee Restricted Stock Award (filed as Exhibit 10.5 to the Company’s Form 10-K filed on March 30, 2010 and incorporated herein by reference).

10.5* Form of Officer and Employee Time Based Restricted Share Award and Performance Contingent Restricted Share Award (filed as Exhibit 10.7 to the Company’s Form 10-K filed on March 29, 2012 and incorporated herein by reference).

10.6* Form of Non-Employee Director Restricted Share Award (filed as Exhibit 10.2 to the Company’s Form 10-Q filed on November 8, 2011 and incorporated herein by reference).

10.7* Form of Stock Appreciation Rights Award (filed as Exhibit 10.9 to the Company’s Form 10-K filed on March 14, 2014 and incorporated herein by reference).

10.8* Form of Performance Share Unit Award (filed as Exhibit 10.1 to the Company’s Form 10-Q filed on May 8, 2014 and incorporated herein by reference).

10.9 Fourth Amended and Restated Credit Agreement dated April 20, 2021 by and among the Company, the Guarantors, the lenders from time to time a party thereto and Wells Fargo Bank, National Association (filed as Exhibit 10.1 to the Company's Form 8-K filed on April 20, 2021 and incorporated herein by reference).

10.2* Form of Employment Agreement with Executive Officers (filed as Exhibit 10.2 to the Company’s Form 10-K filed on March 30, 2010 and incorporated herein by reference).

10.3*** Form of Non-Qualified Stock Option A greement .

10.4*** Form of Officer and Employee Time - B a s e d Restricted Share Award .

10.5*** Form of Officer and Employee Time - Based Restricted Share Award and Performance Contingent Restricted Share Award .

10.6*** Form of Non-Employee Director Restricted Share Award .

10.7*** Form of Stock Appreciation Rights Agreement .

10.8 First amendment to Fourth Amended and Restated Credit Agreement dated August 11, 2022 by and among the Company, the Guarantors, the lenders from time to time a party thereto and Wells Fargo Bank, National Association (filed as Exhibit 10.1 to the Company's Form 8-K filed on August 15, 2022 and incorporated herein by reference).

10.9 Base Convertible Bond Hedge Transaction Confirmation, dated as of January 17, 2018, by and between Patrick Industries, Inc.

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and Nomura Global Financial Products Inc.

(filed as Exhibit 10.

2 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

(filed as Exhibit 10.2 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

10.19 Base Convertible Bond Hedge Transaction Confirmation, dated as of December 7, 2021, by and between Patrick Industries.

and Wells Fargo Bank, National Association.

(filed as Exhibit 10.

3 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

(filed as Exhibit 10.3 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

10.20 Base Issuer Warrant Transaction Confirmation, dated as of December 7, 2021, by and between Patrick Industries.

and Bank of America, N.A.

(filed as Exhibit 10.

4 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

(filed as Exhibit 10.4 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

10.21 Base Issuer Warrant Transaction Confirmation, dated as of December 7, 2021, by and between Patrick Industries.

and Nomura Global Financial Products Inc.

(filed as Exhibit 10.

5 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

(filed as Exhibit 10.5 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

10.22 Base Issuer Warrant Transaction Confirmation, dated as of December 7, 2021, by and between Patrick Industries.

and Wells Fargo Bank, National Association.

(filed as Exhibit 10.

6 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

(filed as Exhibit 10.6 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

10.23 Additional Convertible Bond Hedge Transaction Confirmation, dated as of December 9, 2021, by and between Patrick Industries, Inc.

and Bank of America, N.A.

(filed as Exhibit 10.

7 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

(filed as Exhibit 10.7 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

10.24 Additional Convertible Bond Hedge Transaction Confirmation, dated as of December 9, 2021, by and between Patrick Industries, Inc.

and Nomura Global Financial Products Inc.

(filed as Exhibit 10.

8 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

(filed as Exhibit 10.8 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

10.25 Additional Convertible Bond Hedge Transaction Confirmation, dated as of December 9, 2021, by and between Patrick Industries, Inc.

and Wells Fargo Bank, National Association.

(filed as Exhibit 10.

9 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

(filed as Exhibit 10.9 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

10.26 Additional Issuer Warrant Transaction Confirmation, dated as of December 9, 2021, by and between Patrick Industries, Inc.

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(filed as Exhibit 10.12 to the Company's Form 8-K filed on December 13, 2021 and incorporated herein by reference)

10.29* Employment Agreement with Executive C h airman of the Board of Directors .

(filed as Exhibit 10.1 to the Company's Form 8-K filed on January 1 0 , 202 2 and incorporated herein by reference)

21** Subsidiaries of the Registrant.

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**Filed herewith.

***Management contract or compensatory plan or arrangement and filed herewith.

All other financial statement schedules are omitted because they are not applicable or the required information is immaterial or is shown in the Notes to Consolidated Financial Statements.

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Petkovich Chief Financial Officer and Treasurer

(Principal Financial Officer)

Rose Vice President Finance February 25, 2022

Rose and Principal Accounting Officer

(Principal Accounting Officer)

(Principal Financial and Accounting Officer)

/s/ Joseph M.

Cerulli Director February 24, 2023

Cleveland Executive Chairman of the Board February 25, 2022

Cleveland Chairman of the Board February 24, 2023

Forbes Director February 24, 2023

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Acquisitions - Refer to Note 4 to the financial statements

Critical Audit Matter Description

The Company completed several acquisitions during the year ended December 31, 2022.

One of these acquisitions included total consideration of approximately $163 million.

One of these acquisitions completed in the current year included total consideration of approximately $133 million.

The Company accounted for this acquisition under the acquisition method of accounting for business combinations and allocated the purchase price to the assets acquired and liabilities assumed based on their respective fair values.

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Our audit procedures related to the fair value of the acquired intangible assets discussed above included the following, among others:

• We tested the effectiveness of controls over the purchase price allocation, including management’s controls over the appropriateness of the valuation methodology, forecasts of future cash flows and selection of the discount rate, customer attrition rate, and royalty rate.

• With the assistance of our internal fair value specialists, we evaluated the reasonableness of the valuation methodology, the discount rate, customer attrition rate, and royalty rate by:

◦ Testing the source information underlying the determination of these rates and testing the mathematical accuracy of the calculations.

• We tested the effectiveness of controls over the purchase price allocation, including management’s controls over the appropriateness of the valuation methodology, forecast of future cash flows, and selection of the discount rate, customer attrition rate, and royalty rate.

• With the assistance of our internal fair value specialists, we evaluated the reasonableness of the valuation methodology, discount rate, customer attrition rate, and royalty rate by:

◦ Testing the mathematical accuracy of the calculations.

◦ Testing the source information underlying the determination of the discount rate.

◦ Developing ranges of independent estimates and comparing those to the rates selected by management.

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NET INCOME $ 328,196 $ 224,915 $ 97,061

BASIC NET INCOME PER COMMON SHARE $ 9.87 $ 4.27 $ 3.88

DILUTED NET INCOME PER COMMON SHARE $ 9.63 $ 4.20 $ 3.85

BASIC EARNINGS PER COMMON SHARE $ 14.82 $ 9.87 $ 4.27

DILUTED EARNINGS PER COMMON SHARE $ 13.49 $ 9.63 $ 4.20

Weighted average shares outstanding - Basic 22,140 22,780 22,730

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Deferred income taxes ( 9,349 ) ( 3,943 ) 8,091

(Gain) loss on sale of property, plant and equipment ( 5,560 ) 583 91

Other 4,785 4,971 3,900

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Proceeds from exercise of common stock options

Net cash provided by financing activities 400,686 83,108 19,297

Increase (decrease) in cash and cash equivalents 78,082 ( 94,623 ) 132,495

195 4,950 643

Net cash (used in) provided by financing activities ( 190,273 ) 400,686 83,108

(Decrease) increase in cash and cash equivalents ( 100,002 ) 78,082 ( 94,623 )

Cash and cash equivalents at beginning of year 122,849 44,767 139,390

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Issuance of shares upon exercise of common stock options 643 — — — — 643

Shares used to pay taxes on stock grants ( 3,511 ) — — — — ( 3,511 )

Stock-based compensation expense 15,436 — — — — 15,436

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

Net income — — — — 97,061 97,061

Dividends declared — — — — ( 24,202 ) ( 24,202 )

Other comprehensive loss, net of tax — — ( 354 ) — — ( 354 )

Stock repurchases under buyback program ( 4,331 ) ( 627 ) — — ( 18,148 ) ( 23,106 )

Issuance of shares upon exercise of common stock options 643 — — — — 643

Repurchase of shares for tax payments related to the vesting and exercise of share-based grants ( 4,042 ) — — — — ( 4,042 )

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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 — — — — 328,196 328,196

Dividends declared — — — — ( 33,160 ) ( 33,160 )

Other comprehensive income, net of tax — — 1,533 — — 1,533

Share repurchases under buyback program ( 11,099 ) — — — ( 65,884 ) ( 76,983 )

Issuance of shares upon exercise of common stock options 195 — — — — 195

Repurchase of shares for tax payments related to the vesting and exercise of share-based grants ( 10,227 ) — — — — ( 10,227 )

Stock-based compensation expense 21,751 — — — — 21,751

Balance December 31, 2022 $ 197,003 $ — $ ( 695 ) $ — $ 758,861 $ 955,169

See accompanying Notes to Consolidated Financial Statements.

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(“Patrick” or the “Company”) operations consist of the manufacture and distribution of component products and materials for use primarily by the recreational vehicle (“RV”), marine, manufactured housing (“MH”) and industrial markets for customers throughout the United States and Canada.

At December 31, 2021, the Company maintained 174 manufacturing plants and 64 distribution facilities located in 23 states with a small presence in China and Canada.

At December 31, 2022, the Company maintained 185 manufacturing plants and 67 distribution facilities located in 23 states with a small presence in Mexico, China and Canada.

Patrick operates in two business segments:

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In preparation of Patrick’s consolidated financial statements as of December 31, 2022, management evaluated all material subsequent events or transactions that occurred after the balance sheet date through the date of issuance of the Form 10-K to determine those requiring recognition or disclosure in the consolidated financial statements.

See Note 20 for additional information relating to subsequent events.

Financial Periods

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GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

Estimates include the valuation of goodwill and indefinite-lived intangible assets, the valuation of long-lived assets, the allowance for doubtful accounts, excess and obsolete inventories, assets acquired and liabilities assumed in a business combination, the valuation of estimated contingent consideration and deferred tax asset valuation allowances.

Actual results could differ from the amounts reported.

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Forfeitures of stock based compensation are recognized as incurred.

Net Income Per Common Share

Basic net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding.

Diluted net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding, plus the dilutive effect of stock optio ns, SARS, and certain restricted stock awards (collectively, “Common Stock Equivalents”).

Earnings Per Common Share

Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding.

Diluted earnings per common share is computed by dividing net income available for diluted shares (calculated as net income plus the after-tax effect of interest on potentially dilutive convertible notes, as defined by Accounting Standards Update ("ASU") 2020-06) by the weighted-average number of common shares outstanding, plus the weighted-average impact of potentially dilutive convertible notes as defined by ASU 2020-06, plus the dilutive effect of stock options, SARS, and certain restricted stock awards (collectively, “Common Stock Equivalents”).

The dilutive effect of Common Stock Equivalents is calculated under the treasury stock method using the average market price for the period.

Common Stock Equivalents are not included in the computation of diluted net income per common share if their effect would be anti-dilutive.

See Note 14 for the calculation of both basic and diluted net income per common share.

Common Stock Equivalents are not included in the computation of diluted earnings per common share if their effect would be anti-dilutive.

See Note 2 for further discussion on the adoption of ASU 2020-06.

See Note 13 for the calculation of both basic and diluted earnings per common share.

Cash and Cash Equivalents

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In assessing the carrying value of its trade receivables, the Company estimates the recoverability by making assumptions based on historical and forward-looking factors, such as historical and anticipated customer performance, current overall and industry-specific economic conditions, historical write-off and collection experience, the level of past-due amounts, and specific risks identified in the trade receivables portfolio.

Other receivables consist of employee advances, insurance claims and other miscellaneous items.

Allowance for doubtful accounts was immaterial at December 31, 2021 and 2020, and changes in the allowance were immaterial for the years ended December 31, 2021, 2020, and 2019.

Other receivables consist of employee advances, insurance claims, amounts owed from vendors pertaining to importation costs, and other miscellaneous items.

Trade and other receivables, net consists of the following at December 31, 2022 and 2021:

(thousands) 2022

Trade receivables $ 144,301 $ 157,222

Other receivables 30,787 16,311

Allowance for doubtful accounts ( 2,198 ) ( 1,141 )

Total $ 172,890 $ 172,392

Inventories are generally stated at the lower of cost (first-in, first-out method or, for certain inventories, average costing method) and net realizable value.

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Property, plant and equipment (“PP&E”) is generally recorded at cost.

Depreciation is computed primarily by the straight-line method applied to individual items based on estimated useful lives, which generally range from 10 to 30 years for buildings and improvements, and from three to seven years for machinery, equipment and transportation equipment.

Depreciation is computed primarily by the straight-line method applied to individual items based on estimated useful lives, which is as follows for 2022:

Asset Class Useful Life

Buildings and improvements 10 - 30 years

Leasehold improvements 10 years

Capitalized software 3 - 5 years

Machinery and equipment and transportation equipment 3 - 7 years

Leasehold improvements are amortized over the lesser of their useful lives or the related lease term.

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A significant adverse change in the Company’s business climate in future periods could result in a significant loss of market share or the inability to achieve previously projected revenue growth and could lead to a required assessment of the recoverability of the Company’s long-lived assets, which may subsequently result in an impairment charge.

Definite-lived intangible assets are amortized over their useful lives, as detailed further in Note 7, and are also subject to an impairment test based on estimated undiscounted cash flows when impairment indicators exist.

Finite-lived intangible assets are amortized over their

useful lives, as detailed further in Note 7, and are also subject to an impairment test based on estimated undiscounted cash flows when impairment indicators exist.

Fair Value and Financial Instruments

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Reclassified Amounts

Certain amounts have been reclassified in prior year financial statements to conform with current year presentation, and these reclassifications have no impact on the overall financial information.

Certain immaterial reclassifications have been made to the prior period presentation to conform to the current period presentation of "(Gain) loss on sale of property, plant and equipment" and "Other" non-cash items in the consolidated statements of cash flows.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2019, the FASB issued ASU 2019-12, " Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes ", a new standard to simplify the accounting for income taxes.

The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries.

The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.

The standard was effective for fiscal years beginning after December 15, 2020, with early adoption permitted.

The Company adopted ASU 2019-12 on January 1, 2021 and the adoption did not have a material effect on its consolidated financial statements.

Reference Rate Reform

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

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

In March 2020, the Financial Accounting Standards Board ("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 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.

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Entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met.

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

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

Accounting fo r Convertible Instruments and Contracts in an Entity's Own Equity

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

In the third quarter ended September 25, 2022, the Company entered into an amendment of its credit agreement, which included a transition from a LIBOR-based rate to a SOFR-based rate.

See Note 8 for further discussion of this amendment.

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

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity

In August 2020, the FASB issued ASU 2020-06, " Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ", a new standard that simplifies certain accounting treatments for convertible debt instruments.

The guidance eliminates certain requirements that require separate accounting for embedded conversion features and simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification.

In addition, the new guidance requires entities use the if-converted method for certain convertible instruments in the diluted net income per share calculation and include the effect of potential share settlement for instruments that may be settled in cash or shares, with certain exceptions.

In addition, the new guidance requires entities use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of potential share settlement for instruments that may be settled in cash or shares, with certain exceptions.

Furthermore, the guidance requires new disclosures about events that occur during the reporting period that cause conversion contingencies to be met and about the fair value of convertible debt at the instrument level, among other things.

The guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted.

We expect to adopt ASU 2020-06 using a modified transition approach.

T he primary impact on our consolidated financial statements as a result of the adoption of ASU 2020-06 will be a reduction in non-cash interest expense for our 1.00 % Convertible Notes due 2023 (described in Note 8) as well as a reduction in diluted net income per share attributable to the application of the if-converted method for our 1.00 % Convertible Notes due 2023.

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

The primary impact on our 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 earnings per share and a resulting reduction in diluted earnings per share for 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 year ended December 31, 2022, a 9 % increase.

Net income used in the calculation of diluted earnings per share increased $ 1.9 million for the year ended December 31, 2022 in relation to the effect of interest on potentially dilutive convertible notes, net of tax, as shown in Note 13.

The adoption resulted in an overall decrease of $ 1.15 to diluted earnings per share for the year ended December 31, 2022.

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

REVENUE RECOGNITION

The Company is a major manufacturer and distributor of component products and materials serving original equipment manufacturers and other customers in the RV, MH, marine, and industrial industries.

The Company is a major manufacturer and distributor of component products and materials serving original equipment manufacturers and other customers in the RV, marine, MH, and industrial industries.

Revenue is recognized when or as control of the promised goods transfers to the Company's customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods.

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The Company records a liability for the fair value of the contingent consideration related to each of these acquisitions as part of the initial purchase price based on the present value of the expected future cash flows and the probability of future payments at the date of acquisition.

The aggregate fair value of the contingent consideration as of December 31, 2021 was $ 12.3 million, $ 7.0 million of which is included in the line item "Accrued liabilities" and $ 5.3 million is included in “Other long-term liabilities” on the consolidated balance sheet.

At December 31, 2020, the fair value was $ 6.9 million, $ 1.6 million of which was included in the line item "Accrued liabilities" and $ 5.3 million was included in "Other long-term liabilities".

The liability for contingent consideration expires at various dates through December 2023.

The contingent consideration arrangements are subject to a maximum payment amount of up to $ 19.6 million in the aggregate as of December 31, 2021.

In 2021, the Company recorded a $ 3.4 million in non-cash increases to contingent consideration liabilities, which is included within selling, general and administrative expense in the 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 2021, the Company made cash payments of approximately $ 2.5 million related to contingent consideration liabilities, recording a corresponding reduction to accrued liabilities.

The following table provides a reconciliation of the beginning and ending aggregate fair values of the contingent consideration as of December 31, 2022 and 2021:

(thousands) 2022 2021

Beginning fair value - contingent consideration $ 12,275 $ 6,885

Additions 1,940 4,540

Fair value adjustments 2,228 3,350

Settlements ( 7,230 ) ( 2,500 )

Ending fair value - contingent consideration 9,213 12,275

The following table shows the balance sheet location of the fair value of contingent consideration and the maximum amount of contingent consideration payments the Company may be subject to at December 31, 2022 and 2021:

(thousands) 2022 2021

Accrued liabilities $ 5,250 $ 7,040

Other long-term liabilities 3,963 5,235

Total fair value of contingent consideration 9,213 12,275

Maximum amount of contingent consideration 10,747 19,600

2022 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 five acquisitions in the year ended December 31, 2022, including the following three previously announced acquisitions (collectively, the "2022 Acquisitions"):

Company Segment Description

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.

Transhield Manufacturing Designer and manufacturer of customized and proprietary protection solutions for the marine, military and industrial markets, including covers and shrinkable packaging, to protect equipment during transport and storage, based in Elkhart, Indiana, acquired in November 2022.

Inclusive of two acquisitions not discussed above, total cash consideration for the 2022 Acquisitions was approximately $ 248.5 million, plus contingent consideration over a one to two-year period based on future performance in connection with certain acquisitions.

The preliminary purchase price allocations are subject to valuation activities being finalized, 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 2022 related to the 2022 Acquisitions were immaterial.

2021 Acquisitions

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

Company Segment Description

Sea-Dog Corporation & Sea-Lect Plastics (collectively, "Sea-Dog") Distribution & Manufacturing Distributor of a variety of marine and powersports hardware and accessories to distributors, wholesalers, retailers, and manufacturers and provider of plastic injection molding, design, product development and expert tooling to companies and government entities, based in Everett, Washington, acquired in March 2021.

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 that includes 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 $ 509.8 million, plus contingent consideration over a one to three-year period based on future performance in connection with certain acquisitions.

Changes to preliminary purchase accounting estimates recorded in 2021 related to the 2021 Acquisitions were immaterial.

Inclusive of six acquisitions not discussed above, total cash consideration for the 2021 Acquisitions was approximately $ 509.1 million, plus contingent consideration over a one to three-year period based on future performance in connection with certain acquisitions.

Purchase price allocations and all valuation activities in connection with the 2021 Acquisitions have been finalized, and adjustments made during the year related to changes in the preliminary purchase price allocation recorded in 2022 related to the 2021 Acquisitions were immaterial and relate primarily to the valuation of intangible and fixed assets.

2020 Acquisitions

The Company completed the following seven previously announced acquisitions in the year ended December 31, 2020 (together with four acquisitions not mentioned below, the "2020 Acquisitions"):

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

Company Segment Description

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Taco Metals, LLC Manufacturing Manufacturer of boating products including rub rail systems, canvas and tower components, sport fishing and outrigger systems, helm chairs and pedestals, and specialty hardware for leading OEMs in the recreational boating industry and the related aftermarket headquartered in Miami, Florida, with manufacturing facilities in Tennessee and Florida, and distribution centers in Tennessee, Florida, South Carolina, and Massachusetts, acquired in November 2020.

Total cash consideration for the 2020 Acquisitions was approximately $ 307.0 million, plus contingent consideration over a one to three-year period based on future performance in connection with certain acquisitions.

Inclusive of four acquisitions not discussed above, total cash consideration for the 2020 Acquisitions was approximately $ 306.5 million, plus contingent consideration over a one to three-year period based on future performance in connection with certain acquisitions.

One acquisition in 2020 accounted for $ 129.7 million in cash consideration, contingent consideration with an initial fair value of $ 3.4 million (subject to a $ 10.0 million maximum), $ 1.6 million in accounts receivable, $ 2.9 million in inventory, $ 49.0 million in fixed assets, $ 49.1 million in intangible assets (composed of $ 42.6 million in customer relationships, $ 0.6 million in non-competition agreements, and $ 5.9 million in trademarks), $ 2.6 million in accounts payable and accrued liabilities, $ 4.9 million in operating lease right-of-use assets and liabilities, and $ 32.9 million in goodwill.

Purchase price allocations and all valuation activities in connection with the 2020 Acquisitions have been finalized.

Changes to preliminary purchase accounting estimates recorded in 2021 related to the 2020 Acquisitions were immaterial and relate primarily to the valuation of intangible and fixed assets.

2019 Acquisitions

The Company completed the following two previously announced acquisitions in the year ended December 31, 2019 (together with two acquisitions not mentioned below, the "2019 Acquisitions"):

Company Segment Description

Schmitt & Sons, Inc.

Manufacturing Designer and manufacturer of customized hardware and structural components for the marine industry based in Sarasota, Florida, acquired in September 2019.

Topline Counters, LLC Manufacturing Designer and manufacturer of kitchen and bathroom countertops for residential and commercial markets based in Sumner, Washington, acquired in December 2019.

Total cash consideration for the 2019 Acquisitions was $ 53.3 million, plus contingent consideration over a one year period based on future performance in connection with one acquisition.

Purchase price allocations and all valuation activities in connection with the 2019 Acquisitions have been finalized.

The following table summarizes the fair values of the assets acquired and liabilities assumed as of the date of the acquisition for 2021, 2020 and 2019 Acquisitions:

Acquisitions 2020 Acquisitions 2019

(thousands) A B All Others Total

The following table summarizes the fair values of the assets acquired and liabilities assumed as of the date of the acquisition for 2022 Acquisitions:

(thousands) Acquisition A Acquisition B All Others Total

Consideration

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— ( 749 ) 414 ( 335 )

Common stock issuance (2)

10,211 — — 10,211 — —

Contingent consideration (2)

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Identifiable intangible assets:

Customer relationships 56,000 38,630 6,940 101,570

Non-compete agreements 400 230 250 880

Patents 7,500 9,400 — 16,900

Trademarks 16,000 7,910 1,410 25,320

Liabilities Assumed

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This value represents the remaining amounts due to (from) sellers as of December 31, 2022.

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

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

Contingent consideration associated with Company A is valued at $ 3.5 million, but subject to a $ 6.0 million maximum.

(4) Goodwill is tax-deductible for the 2021 Acquisitions, except Tumacs Covers (approximately $ 6.2 million);

for the 2020 Acquisitions, except Front Range Stone (approximately $ 11.0 million);

and for the 2019 Acquisitions, except GG Schmitt (approximately $ 5.4 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.

The following table presents our estimates of identifiable intangibles for the 2021, 2020, and 2019 Acquisitions:

(thousands except year data) Estimated Useful Life (in years) 2021 Acquisitions 2020 Acquisitions 2019 Acquisitions

(3) Goodwill is tax-deductible for the 2022 Acquisitions, except Acquisition A and Acquisition B (totaling approximately $ 72.9 million).

The following table summarizes the fair values of the assets acquired and liabilities assumed as of the date of the acquisition for 2021 and 2020 Acquisitions:

Acquisitions 2020 Acquisitions

(thousands) Acquisition A Acquisition B All Others Total

Consideration

Cash, net of cash acquired $ 149,304 $ 165,387 $ 194,373 $ 509,064 $ 306,482

Common stock issuance (1)

10,211 — — 10,211 —

Contingent consideration (2)

3,500 — 1,230 4,730 4,763

Total consideration 163,015 165,387 195,603 524,005 311,245

Assets Acquired

Trade receivables $ 8,370 $ 4,483 $ 13,265 $ 26,118 $ 15,324

Inventories 25,760 16,647 24,898 67,305 25,583

Prepaid expenses & other 46 12,210 1,491 13,747 733

Property, plant & equipment 27,573 867 26,454 54,894 64,790

Operating lease right-of-use assets 11,507 5,267 8,756 25,530 20,029

Identifiable intangible assets:

Customer relationships 47,700 50,660 65,712 164,072 99,897

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Patents 8,600 15,050 5,200 28,850 6,470

Trademarks 27,450 12,360 16,709 56,519 23,464

Liabilities Assumed

Current portion of operating lease obligations ( 2,385 ) ( 1,072 ) ( 2,061 ) ( 5,518 ) ( 2,721 )

Accounts payable & accrued liabilities ( 18,100 ) ( 1,687 ) ( 12,522 ) ( 32,309 ) ( 12,405 )

Operating lease obligations ( 9,122 ) ( 4,195 ) ( 6,695 ) ( 20,012 ) ( 17,308 )

Deferred tax liabilities — — ( 1,486 ) ( 1,486 ) ( 4,584 )

Total fair value of net assets acquired 128,599 111,270 141,484 381,353 220,422

34,416 54,117 54,119 142,652 90,823

Trademarks Indefinite 52,237 23,464 5,453

$ 163,015 $ 165,387 $ 195,603 $ 524,005 $ 311,245

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

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

Contingent consideration associated with Company A is valued at $ 3.5 million, but subject to a $ 6.0 million maximum.

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

We estimate the value of customer relationships using the multi-period excess earnings method, which is a variation of the income approach, calculating the present value of incremental after-tax cash flows attributable to the asset.

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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.

For the first of our 2021 Acquisitions individually outlined in the purchase price allocation table above, the $ 85.0 million in identifiable intangible assets consists of $ 47.7 million in customer relationships, $ 1.2 million in non-compete agreements, $ 8.6 million in patents (estimated useful life of 12 to 14 years), and $ 27.5 million in trademarks.

For the second of our 2021 Acquisitions individually outlined in the purchase price allocation table above, the $ 78.3 million in identifiable intangible assets consists of provisional estimates of $ 51.8 million in customer relationships, $ 1.7 million in non-compete agreements, $ 13.5 million in patents (estimated useful life of 10 to 12 years), and $ 11.4 million in trademarks.

The estimated useful life for customer relationships is 10 years.

The estimated useful life for non-compete agreements is 5 years.

The weighted average estimated useful life for patents is 13 years, ranging from 10 to 18 years.

Trademarks have an indefinite useful life.

Pro Forma Information (Unaudited)

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Net income 330,206 258,413

Basic net income per common share 10.79 4.63

Diluted net income per common share 10.52 4.56

Basic earnings per common share 14.91 11.34

Diluted earnings per common share 13.57 11.06

The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time, nor is it intended to be a projection of future results.

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Amortization ( 46,684 ) ( 9,645 ) ( 56,329 )

Impairment of intangible assets (1)

( 119 ) ( 1,831 ) ( 1,950 )

Adjustment to prior year preliminary purchase price allocation ( 5,089 ) — ( 5,089 )

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Balance - December 31, 2022 $ 622,647 $ 97,583 $ 720,230

(1) Certain operations permanently ceased activities during the year ended December 31, 2020.

As a result, we recorded approximately $ 2.0 million in pre-tax impairment of customer relationships and trademarks of these operations after determining the net carrying value of the assets was no longer recoverable.

The impairment was calculated using our internal projections of discounted cash flows, which rely on Level 3 inputs in the fair value hierarchy based on the unobservable nature of the underlying data.

The impairment was recorded in selling, general and administrative in our consolidated statements of income for the year ended December 31, 2020.

Amortization expense for the next five fiscal years ending December 31 related to definite-lived intangible assets as of December 31, 2021 is estimated to be as follows (in thousands):

Amortization expense for the next five fiscal years ending December 31 related to finite-lived intangible assets as of December 31, 2022 is estimated to be as follows (in thousands):

2023 $ 77,584

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1.75 % convertible notes due 2028

258,750 258,750

4.75 % senior notes due 2029

350,000 350,000

Total long-term debt 1,298,414 1,360,625

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Total long-term debt, less current maturities, net $ 1,276,149 $ 1,278,989

2021 Credit Facility

On August 11, 2022, the Company entered into the first amendment of its Fourth Amended and Restated Credit Agreement dated April 20, 2021 (as amended, the “2021 Credit Agreement”), 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" and together with

the Revolver due 2027, the "2021 Credit Facility").

The Company recorded a $ 0.3 million write-off of deferred financing costs as a result of the amendment, which is included in "Selling, general and administrative" in the Company's consolidated statements of income for the year ended December 31, 2022.

Pursuant to the amendment, interest rates for borrowings under the 2021 Credit Agreement transitioned to a SOFR-based option from a LIBOR-based option.

The Company determined that the amended terms of the 2021 Credit Agreement were not substantially different from the terms of the Company’s 2021 Credit Agreement prior to the amendment.

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

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

Pursuant to the 2021 Credit Agreement:

• The quarterly repayment schedule for the Term Loan due 2027 was revised, with 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 interest rates for borrowings under the Revolver due 2027 and the Term Loan due 2027 are the Prime Rate or SOFR plus a margin, which ranges from 0.00 % to 0.75 % for Prime Rate loans and from 1.00 % to 1.75 % for SOFR loans depending on the Company's consolidated total leverage ratio, as defined below.

The Company is required to pay fees on unused but committed portions of the Revolver due 2027, which range from 0.15 % to 0.225 %;

In addition, the Company has a minimum liquidity requirement applicable during the six-month period preceding the maturity of the Company's 1.00 % Convertible Notes due 2023 of $ 202.5 million.

The total face value of the Term Loan due 2027 is $ 150.0 million.

Total available borrowing capacity under the Revolver due 2027 is $ 775.0 million.

At December 31, 2022, the Company had $ 136.9 million outstanding under the Term Loan due 2027 under the SOFR-based option, and borrowings outstanding under the Revolver due 2027 of $ 80.3 million under the SOFR-based option.

The interest rate for incremental borrowings at December 31, 2022 was SOFR plus 1.25 % (or 5.55 %) for the SOFR-based option.

The fee payable on committed but unused portions of the Revolver due 2027 was 0.18 % at December 31, 2022.

1.75 % Convertible Senior Notes due 2028

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Prior to June 1, 2028, the 1.75 % Convertible Notes may be converted at the option of the holders only upon the occurrence of specified events and during certain periods, and thereafter until the close of business on the second scheduled trading day immediately preceding the maturity date.

The Company will satisfy any conversion by paying cash up to the aggregate principal amount of the 1.75 % Convertible Notes to be converted and by paying or delivering, as the case may be, cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at its election, in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of the 1.75 % Convertible Notes being converted.

The Company will satisfy any conversion by paying cash up to the aggregate principal amount of the 1.75 %

Convertible Notes to be converted and by paying or delivering, as the case may be, cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at its election, in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of the 1.75 % Convertible Notes being converted.

The initial conversion rate for the 1.75 % Convertible Notes is 9.9887 shares of the Company's common stock per $1,000 principal amount of the 1.75 % Convertible Notes (or 2,584,578 shares in the aggregate) and is equal to an initial conversion price of approximately $ 100.11 per share.

If an event of default on the 1.75 % Convertible Notes occurs, the principal amount of the 1.75 % Convertible Notes, plus accrued and unpaid interest (including additional interest, if any) may be declared immediately due and payable, subject to certain conditions.

The 1.75 % Convertible Notes are senior unsecured indebtedness of the Company and are guaranteed by each of the Company’s subsidiaries that guarantee the obligations of the Company under the 2021 Credit Facility (as defined herein).

1.75 % Convertible Notes holders may convert their Convertibles Notes on or after June 28, 2028 at any time at their option.

The 1.75 % Convertible Notes are guaranteed by each of the Company’s subsidiaries that guarantee the obligations of the Company under the 2021 Credit Facility.

1.75 % Convertible Notes holders may convert their Convertible Notes on or after June 28, 2028 at any time at their option.

Holders may convert 1.75 % Convertible Notes prior to June 28, 2028, only under the following circumstances:

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The Company may redeem the 7.50 % Senior Notes, in whole or in part, at any time (a) prior to October 15, 2022, at a price equal to 100 % of the principal amount thereof, plus the applicable premium described in the associated indenture and accrued and unpaid interest and (b) on or after October 15, 2022 at specified redemption prices set forth in the indenture, plus accrued and unpaid interest.

In addition, prior to October 15, 2022, the Company may redeem, in one or more transactions, up to an aggregate of 40 % of the original principal amount of the 7.50 % Senior Notes at a redemption price equal to 107.5 % of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of one or more equity offerings.

In addition, prior to October 15, 2022, the Company may redeem, in one or more transactions, up to an aggregate of 40 % of the

original principal amount of the 7.50 % Senior Notes at a redemption price equal to 107.5 % of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of one or more equity offerings.

If the Company experiences specific kinds of changes of control, the Company must offer to repurchase all of the 7.50 % Senior Notes (unless otherwise redeemed) at a price equal to 101 % of the aggregate principal amount thereof, plus accrued and unpaid interest.

2021 Credit Facility

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

The 2021 Credit Agreement amended and extended the Company's 2019 Credit Agreement (as defined herein) and consists of a $ 550 million senior secured revolver (the "2021 Revolver") and a $ 150 million senior secured term loan (the "2021 Term Loan" and together with the 2021 Revolver, the "2021 Credit Facility").

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

Upon the satisfaction of certain conditions, and obtaining incremental commitments from its lenders, the Company may be able to increase the borrowing capacity of the 2021 Credit Facility by up to $ 250.0 million for acquisitions.

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

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

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

Pursuant to the 2021 Credit Agreement:

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

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

• The interest rates for borrowings under the 2021 Revolver and the 2021 Term Loan are the Prime Rate or LIBOR plus a margin, which ranges from 0.00 % to 0.75 % for Prime Rate loans and from 1.00 % to 1.75 % for LIBOR loans depending on the Company's consolidated total leverage ratio, as defined below.

The Company is required to pay fees on unused but committed portions of the 2021 Revolver, which range from 0.15 % to 0.225 %;

• Covenants include requirements as to a maximum consolidated secured net leverage ratio ( 2.75 :1.00, increasing to 3.25 :1.00 in certain circumstances in connection with Company acquisitions) and a minimum consolidated fixed charge coverage ratio ( 1.50 :1.00) that are tested on a quarterly basis, a minimum liquidity requirement applicable during the six-month period preceding the maturity of the Company's 1.00 % Convertible Notes due 2023, and other customary covenants.

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

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

At December 31, 2021, the Company had $ 144.4 million outstanding under the 2021 Term Loan under the LIBOR-based option, and borrowings outstanding under the 2021 Revolver of $ 135.0 million under the LIBOR-based option.

The interest rate for incremental borrowings at December 31, 2021 was LIBOR plus 1.50 % (or 1.63 %) for the LIBOR-based option.

The fee payable on committed but unused portions of the 2021 Revolver was 0.20 % at December 31, 2021.

2019 Credit Facility

The Company's previous credit agreement (the "2019 Credit Agreement") was amended by the 2021 Credit Agreement in April 2021 as discussed above.

The 2019 Credit Agreement consisted of a $ 550 million senior secured revolver (the “2019 Revolver”) and a $ 100 million senior secured term loan (the “2019 Term Loan” and together with the 2019 Revolver, the “2019 Credit Facility”).

1.00 % Convertible Senior Notes due 2023

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(i) the conversion option component, recorded to shareholders' equity, in the amount of $ 31.9 million, representing the difference between the principal amount of the 1.00 % Convertible Notes upon issuance less the present value of the future cash flows of the 1.00 % Convertible Notes using a borrowing rate for a similar non-convertible instrument and (ii) debt issuance costs of $ 4.3 million.

The unamortized portion of the total debt discount is being amortized to interest expense over the life of the 1.00 % Convertible Notes.

The effective interest rate on the 1.00 % Convertible Notes, which includes the non-cash interest expense of debt discount amortization and debt issuance costs, was 5.25 % as of December 31, 2021 and 2020.

cost of the 1.00 % Convertible Note Hedge Transactions and the Warrant Transactions (each as defined herein) described in Note 9.

The unamortized portion of the total debt discount was previously being amortized to interest expense over the life of the 1.00 % Convertible Notes.

See Note 2 for the impacts of the adoption of ASU 2020-06 on interest expense and the reversal of the conversion option component of the total debt discount.

The effective interest rate on the 1.00 % Convertible Notes, which includes the non-cash interest expense of debt issuance costs, was 1.50 % as of December 31, 2022.

The net proceeds from the issuance of the 1.00 % Convertible Notes were approximately $ 167.5 million, after deducting the initial purchasers’ discounts and commissions and offering expenses payable by the Company, but before deducting the net cost of the 1.00 % Convertible Note Hedge Transactions and the Warrant Transactions (each as defined herein) described in Note 9.

The 1.00 % Convertible Notes are senior unsecured obligations of the Company and pay interest semi-annually in arrears on February 1 and August 1 of each year at an annual rate of 1.00 %.

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If an event of default on the 1.00 % Convertible Notes occurs, the principal amount of the 1.00 % Convertible Notes, plus accrued and unpaid interest (including additional interest, if any) may be declared immediately due and payable, subject to certain conditions.

The 1.00 % Convertible Notes are senior unsecured indebtedness of the Company and are guaranteed by each of the Company’s subsidiaries that guarantee the obligations of the Company under the 2021 Credit Facility.

1.00 % Convertible Notes holders may convert their 1.00 % Convertibles Notes on or after August 1, 2022 at any time at their option.

The 1.00 % Convertible Notes are guaranteed by each of the Company’s subsidiaries that guarantee the obligations of the Company under the 2021 Credit Facility.

1.00 % Convertible Notes holders may convert their 1.00 % Convertible Notes on or after August 1, 2022 at any time at their option.

Holders may convert 1.00 % Convertible Notes prior to August 1, 2022, only under the following circumstances:

(i) during any calendar quarter, if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day, (ii) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate on each such trading day and (iii) upon the occurrence of certain specified distributions or corporate events.

In February 2023, the Company utilized available borrowing capacity under the Revolver due 2027 and cash on hand to satisfy its repayment obligation at maturity for the 1.00 % Convertible Notes.

Debt Maturities

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Total $ 1,298,414

(1) In February 2023, the Company utilized available borrowing capacity under the Revolver due 2027 and cash on hand to satisfy its repayment obligation at maturity for the 1.00 % Convertible Notes.

Letters of credit totaling $ 7.1 million were outstanding at December 31, 2022 that exist to meet credit requirements for the Company’s insurance providers.

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As these transactions meet certain accounting criteria, the 1.00 % Convertible Note Hedge Transactions and 1.00 % Convertible Note Warrant Transactions are recorded in stockholders’ equity and are not accounted for as derivatives.

The 1.00 % Convertible Note Hedge Transactions expired as of February 1, 2023.

Interest Rate Swaps

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

To partially mitigate this risk, the Company entered into interest rate swaps in 2018.

As of December 31, 2021, the Company had a combined notional principal amount of $ 200.0 million of interest rate swap agreements, all of which are designated as cash flow hedges.

These swap agreements effectively convert the interest expense associated with a portion of the Company's variable rate debt from variable interest rates to fixed interest rates and have maturities ranging from February 2022 to March 2022.

The 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 December 31, 2022.

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

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

Interest rate swaps Accrued liabilities $ 1,017 $ —

Interest rate swaps Other long-term liabilities $ — $ 1,017

The interest rate swaps are comprised of over-the-counter derivatives, which are valued using models that primarily rely on observable inputs such as yield curves.

ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss primarily includes unrealized gains and losses on derivatives that qualify as hedges of cash flows and cumulative foreign currency translation adjustments.

The activity in accumulated other comprehensive loss for the years ended December 31, 2021 and 2020 was as follows:

(thousands) Cash Flow Hedges Other Foreign Currency Translation Total

Balance at January 1, 2020 $ ( 4,374 ) $ ( 1,270 ) $ ( 54 ) $ ( 5,698 )

Other comprehensive income (loss) before reclassifications, net of tax ( 3,973 ) 7 154 ( 3,812 )

Amounts reclassified from accumulated other comprehensive loss, net of tax 3,458 — — 3,458

Net current period other comprehensive income (loss) ( 515 ) 7 154 ( 354 )

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

Other comprehensive income (loss) before reclassifications, net of tax ( 83 ) ( 449 ) 142 ( 390 )

Amounts reclassified from accumulated other comprehensive loss, net of tax 4,214 — — 4,214

Net current period other comprehensive income (loss) 4,131 ( 449 ) 142 3,824

Balance at December 31, 2021 $ ( 758 ) $ ( 1,712 ) $ 242 $ ( 2,228 )

ACCRUED LIABILITIES

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Provision 29,918 24,202 11,227

Payments ( 17,725 ) ( 10,342 ) ( 11,872 )

Settlements made (in cash or in kind) ( 32,998 ) ( 17,725 ) ( 10,342 )

Acquisitions 1,356 3,478 37

Ending balance $ 12,103 $ 13,827 $ 3,872

Accrued warranty and provision as of and for the year ended December 31, 2021 includes the cost of the recall matter discussed in Note 16.

Accrued warranty and provision as of and for the years ended December 31, 2022 and 2021 includes the cost of the recall matter discussed in Note 15.

The provision for income taxes for the years ended December 31, 2022, 2021 and 2020 consists of the following:

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State ( 2,027 ) ( 2,089 ) ( 253 )

Foreign 26 — —

Total deferred ( 9,349 ) ( 3,943 ) 8,091

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(thousands) 2022 2021

Long-term deferred income tax assets (liabilities):

Deferred tax assets:

Trade receivables allowance $ 1,325 $ 1,022

Inventory capitalization 4,454 2,393

Accrued expenses 19,793 8,988

Deferred compensation 578 447

Inventory reserves 8,318 6,413

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State NOL carryforwards 572 911

Valuation allowance - NOL ( 712 ) ( 767 )

Accrued expenses 27,865 19,793

Deferred compensation 625 578

Operating lease liabilities 41,739 40,751

Share-based compensation 7,921 6,753

Capitalized research & experimentation costs 14,037 —

Total deferred tax assets before valuation allowance 107,592 79,611

valuation allowance ( 459 ) ( 712 )

Total deferred tax assets, net of valuation allowance $ 107,133 $ 78,899

Deferred tax liabilities:

Prepaid expenses ( 2,939 ) ( 2,955 )

Operating lease right-of-use assets ( 40,980 ) ( 40,082 )

Operating lease liabilities 40,751 15,710

Other 231 1,454

Intangibles ( 29,422 ) ( 28,992 )

Depreciation expense ( 47,050 ) ( 43,124 )

Prepaid expenses ( 2,955 ) ( 2,275 )

Intangibles ( 64,012 ) ( 29,422 )

Other ( 544 ) 231

Total deferred tax liabilities $ ( 155,525 ) $ ( 115,352 )

Net deferred tax liabilities $ ( 48,392 ) $ ( 36,453 )

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These loss carryforwards generally expire between tax years ending December 31, 2023 and December 31, 2041.

The components of the valuation allowance relate to certain acquired federal, state and foreign net operating loss carryforwards that the Company anticipates will not be utilized prior to their expiration, either due to income limitations or limitations under Section 382.

The tax effected values of these net operating losses are $ 1.3 million and $ 1.9 million at December 31, 2022 and 2021, respectively, exclusive of valuation allowances of $ 0.5 million and $ 0.7 million at December 31, 2022 and 2021, respectively.

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STOCK REPURCHASE PROGRAMS

In March 2020, the Company's Board of Directors ("the Board") approved an increase in the amount of the Company's common stock that may be acquired over 24 months under the current stock repurchase program to $ 50.0 million, including amounts remaining under previous authorizations.

In August 2021, the Board approved a new stock repurchase program for up to $ 50.0 million of its common stock, including amounts remaining under previous authorizations.

Approximately $ 22.6 million of common stock repurchases remains available at December 31, 2021 as part of this authorization.

In December 2022, the Company's Board of Directors ("the 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 $ 38.2 million remaining under the previous authorization.

Approximately $ 96.4 million remains in the amount

of the Company's common stock that may be acquired under the current stock repurchase program as of December 31, 2022.

Under the stock repurchase plans, the Company made repurchases of common stock for 2022, 2021, and 2020 as follows:

2021 2020 2019

Shares repurchased 1,325,564 612,325 595,805

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As a result, repurchases of common stock have been reflected, using an average cost method, as a reduction of common stock, additional paid-in-capital and retained earnings in the Company’s consolidated balance sheet.

See Note 20 for information regarding an additional increase to the stock repurchase authorization subsequent to the year ended December 31, 2021.

NET INCOME PER COMMON SHARE

EARNINGS PER COMMON SHARE

Income per common share is calculated for the years ended December 31, 2022, 2021 and 2020 as follows:

(thousands except per share data) 2022 2021 2020

Net income $ 224,915 $ 97,061 $ 89,566

Earnings for basic per share calculation $ 328,196 $ 224,915 $ 97,061

Effect of interest on potentially dilutive convertible notes, net of tax $ 1,927 $ — $ —

Earnings for dilutive per share calculation $ 330,123 $ 224,915 $ 97,061

Weighted average common shares outstanding - basic 22,140 22,780 22,730

Weighted average impact of potentially dilutive convertible notes 2,059 — —

Effect of potentially dilutive securities 272 575 357

Weighted average common shares outstanding - diluted 24,471 23,355 23,087

Basic net income per common share $ 9.87 $ 4.27 $ 3.88

Diluted net income per common share $ 9.63 $ 4.20 $ 3.85

Earnings per common share:

Basic earnings per common share $ 14.82 $ 9.87 $ 4.27

Diluted earnings per common share $ 13.49 $ 9.63 $ 4.20

Cash dividends paid per common share $ 1.44 $ 1.17 $ 1.03

The impact on diluted net income per common share from antidilutive securities excluded from the calculation was immaterial for all periods presented.

The impact on diluted earnings per common share from antidilutive securities excluded from the calculation was immaterial for all periods presented.

We lease certain facilities, trailers, forklifts and other assets.

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Variable lease expense, principally related to trucks, forklifts, and index-related facility rent escalators, was immaterial for the years ended December 31, 2022, 2021 and 2020.

Leases have remaining lease terms of one year to eighteen years .

Leases have remaining lease terms of one to seventeen years .

Certain leases include options to renew for an additional term.

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The Company has additional operating leases that have not yet commenced as of December 31, 2022, and therefore, approximately $ 11.3 million in operating lease right-of-use assets and corresponding operating lease liabilities were not included in our consolidated balance sheet at December 31, 2022.

These leases will commence through the second quarter of fiscal 2022 with lease terms of 5 to 10 years.

These leases will commence through the first quarter of fiscal 2023 with lease terms of 5 to 7 years.

COMMITMENTS AND CONTINGENCIES

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

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

resolution of these proceedings, lawsuits, and other claims will not have a material adverse effect on the Company’s consolidated balance sheet, results of operations, or cash flows.

In August 2019, a group of companies calling itself the Lusher Site Remediation Group (the “Group”) commenced litigation against the Company in Lusher Site Remediation Group v.

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The proceedings remain subject to the Court-approved stay.

On January 26, 2022, the Company closed on the sale of certain parcels of real property that are subject to the litigation (the “Divested Properties”).

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, including as it concerns this litigation.

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

However, any litigation is inherently uncertain, and any judgment or injunctive relief entered against us or any adverse settlement could materially and adversely impact our business, results of operations, financial condition, and prospects.

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 consolidated statements of income for year ended December 31, 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 occurred in the year ended December 31, 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.

However, any litigation is inherently uncertain, the EPA has yet to select a final remedy for the Superfund Site, and any judgment or injunctive relief entered against us or any adverse settlement could materially and adversely impact our business, results of operations, financial condition, and prospects.

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.

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 consolidated financial statements.

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 determined that it was likely that we would agree to bear a portion of the total cost of the recalls, and as a result, in the fourth quarter of 2021, we recorded an estimate of the Company's cost related to this matter.

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

We recorded additional immaterial estimates of the Company's costs related to these agreements in the second quarter and fourth 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.

COMPENSATION PLANS

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All such awards qualify and are accounted for as equity awards.

Equity incentive plan awards, which are granted under the Company's 2009 Omnibus Incentive Plan, are intended to retain and reward key employees for outstanding performance and efforts as they relate to the Company’s short-term and long-term objectives and its strategic plan.

Company’s short-term and long-term objectives and its strategic plan.

At December 31, 2022, approximately 1.3 million common shares remain available for stock-based compensation grants.

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At December 31, 2022, the weighted average remaining contractual term for options outstanding was 6.1 years and the weighted average remaining contractual term for options exercisable was 5.9 years.

The cash received from the exercise of stock options was $ 4.9 million and $ 0.6 million in 2021 and 2020, respectively, and immaterial in 2019.

The income tax benefit related to the stock options exercised was $ 6.7 million in 2021, and immaterial in 2020 and 2019.

The cash received from the exercise of stock options was $ 0.2 million, $ 4.9 million and $ 0.6 million in 2022, 2021 and 2020, respectively.

The income tax benefit related to the stock options exercised was $ 6.7 million in 2021, and immaterial in 2022

The grant date fair value of stock options vested in 2022, 2021 and 2020 was $ 6.9 million, $ 11.6 million and $ 5.8 million, respectively.

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Outstanding beginning of year 224 $ 64.33 485 $ 56.96 535 $ 54.53

Granted during the year — — — — — —

Forfeited during the year — — — — ( 10 ) 68.01

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adhesives and sealants;

boat covers, towers, tops, trailers and frames;

boat towers, tops, trailers and frames;

marine hardware and accessories;

protective covers for boats, RVs, aircraft, and military and industrial equipment;

aluminum and plastic fuel tanks;

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interior passage doors;

roofing products;

laminate and ceramic flooring;

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Assets are identified to the segments except for cash, prepaid expenses, land and buildings, and certain deferred assets, which are identified with the corporate division.

The corporate division charges rents to the segments for use of the land and buildings based upon estimated market rates.

The corporate division charges rent to the segments for use of the land and buildings based upon estimated market rates.

The Company accounts for intersegment sales similar to third party transactions, which reflect current market prices.

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Intangible assets amortization expense in the Distribution segment was $ 10.4 million, $ 9.6 million and $ 7.4 million in 2022, 2021 and 2020, respectively.

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

Unallocated corporate expenses include corporate general and administrative expenses comprised of wages and other compensation, insurance, taxes, supplies, travel and entertainment, professional fees, amortization of inventory step-up adjustments, and other.

Major Customers

The Company had two major customers that accounted for the following sales in our Manufacturing and Distribution segments for the years ended December 31, 2021, 2020, 2019 and trade receivables balances at December 31, 2021 and 2020 as shown in the table below:

2021 2020 2019

The Company had two major customers that accounted for the following sales in our Manufacturing and Distribution segments for the years ended December 31, 2022, 2021 and 2020 and trade receivables balances at December 31, 2022 and 2021 as shown in the table below:

Net sales 21 % 24 % 22 %

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Net income 112,673 116,524 58,819 40,180 328,196

Net income per common share (1)

Earnings per common share (1)

Basic $ 5.00 $ 5.24 $ 2.66 $ 1.85 $ 14.82

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Net income 47,513 58,985 57,397 61,020 224,915

Net income per common share (1)

Earnings per common share (1)

Basic $ 2.09 $ 2.57 $ 2.52 $ 2.69 $ 9.87

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Cash dividends paid per common share $ 0.28 $ 0.28 $ 0.28 $ 0.33 $ 1.17

(1) Basic and diluted net income per common share are computed independently for each of the quarters presented.

Therefore, the sum of quarterly basic and diluted net income per common share information may not equal annual basic and diluted net income per common share.

SUBSEQUENT EVENTS

In January 2022, the Company announced that the Board of Directors 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 $ 100.0 million, including the $ 11.0 million remaining under the previous authorization.

In February 2022, we signed a definitive agreement under which Arizona-based Rockford Corporation (“Rockford”) will become a wholly-owned subsidiary of Patrick by merger.

Rockford, through its brand Rockford Fosgate®, designs and distributes audio systems and components, primarily serving the powersports and the automotive aftermarkets.

The transaction is expected to close in March 2022.

(1) Basic and diluted earnings per common share are computed independently for each of the quarters presented.

Therefore, the sum of quarterly basic and diluted earnings per common share information may not equal annual basic and diluted earnings per common share.

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-K

Item 9A. Controls and Procedures