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Item 1. Financial Statements

2023-08-10 compared with 2023-05-11 · 184 added, 103 removed, 338 unchanged (46% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

First Quarter Ended

(thousands except per share data) April 2, 2023 March 27, 2022

Second Quarter Ended Six Months Ended

(In thousands, except per share data) July 2, 2023 June 26, 2022 July 2, 2023 June 26, 2022

NET SALES $ 920,685 $ 1,475,693 $ 1,820,785 $ 2,817,868

18 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

First Quarter Ended

(thousands) April 2, 2023 March 27, 2022

Second Quarter Ended Six Months Ended

(In thousands) July 2, 2023 June 26, 2022 July 2, 2023 June 26, 2022

NET INCOME $ 42,357 $ 116,524 $ 72,530 $ 229,197

1 unchanged sentence

Unrealized gain of hedge derivatives — — — 757

Foreign currency translation gain (loss) ( 9 ) 29

Foreign currency translation loss ( 90 ) ( 75 ) ( 99 ) ( 46 )

Total other comprehensive income (loss) ( 90 ) ( 75 ) ( 99 ) 711

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(thousands) April 2, 2023 December 31, 2022

(In thousands) July 2, 2023 December 31, 2022

Current Assets

31 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

First Quarter Ended

(thousands) April 2, 2023 March 27, 2022

Six Months Ended

(In thousands) July 2, 2023 June 26, 2022

CASH FLOWS FROM OPERATING ACTIVITIES

4 unchanged sentences

Amortization of convertible notes debt discount 574 924

Gain on sale of property, plant and equipment ( 23 ) ( 5,501 )

(Gain) loss on sale of property, plant and equipment 100 ( 5,548 )

Other non-cash items 2,304 4,193

4 unchanged sentences

Accounts payable, accrued liabilities and other ( 68,090 ) 10,951

Net cash used in operating activities ( 950 ) ( 23,039 )

Net cash provided by operating activities 178,351 74,296

CASH FLOWS FROM INVESTING ACTIVITIES

15 unchanged sentences

Other financing activities ( 75 ) —

Net cash provided by financing activities 32,463 107,155

Net cash (used in) provided by financing activities ( 101,740 ) 67,440

Increase (decrease) in cash and cash equivalents 11,064 ( 45,824 )

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

First Quarter Ended April 2, 2023

(thousands) Common

Second Quarter Ended July 2, 2023

(In thousands) Common

Stock Additional Paid-in Capital Accumulated Other

1 unchanged sentence

Earnings Total

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

Balance April 2, 2023 $ 194,753 $ — $ ( 704 ) $ 775,773 $ 969,822

Net income — — — 42,357 42,357

5 unchanged sentences

Stock-based compensation expense 2,704 — — — 2,704

Balance April 2, 2023 $ 194,753 $ — $ ( 704 ) $ 775,773 $ 969,822

First Quarter Ended March 27, 2022

(thousands) Common

Balance July 2, 2023 $ 196,912 $ — $ ( 794 ) $ 801,304 $ 997,422

Second Quarter Ended June 26, 2022

(In thousands) Common

Stock Additional Paid-in Capital Accumulated Other

1 unchanged sentence

Earnings Total

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

Net income — — — 116,524 116,524

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

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

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

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

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

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

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

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

Six Months Ended July 2, 2023

(In thousands) Common

Stock Additional Paid-in Capital Accumulated Other

Comprehensive Loss Retained

Earnings Total

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

Net income — — — 72,530 72,530

Dividends declared — — — ( 19,906 ) ( 19,906 )

Other comprehensive income, net of tax — — ( 99 ) — ( 99 )

Share repurchases under buyback program ( 1,595 ) — — ( 10,181 ) ( 11,776 )

Repurchases of shares for tax payments related to the vesting and exercise of share-based grants ( 7,585 ) — — — ( 7,585 )

Issuance of shares upon exercise of common stock options 1,143 — — — 1,143

Stock-based compensation expense 7,946 — — — 7,946

Balance July 2, 2023 $ 196,912 $ — $ ( 794 ) $ 801,304 $ 997,422

Six Months Ended June 26, 2022

(In thousands) Common

Stock Additional Paid-in Capital Accumulated Other

Comprehensive Loss Retained

Earnings Total

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

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

2 unchanged sentences

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

Stock repurchases under buyback program ( 3,062 ) — — ( 21,717 ) ( 24,779 )

Repurchase of shares for tax payments related to the vesting and exercising of share-based grants ( 9,999 ) — — — ( 9,999 )

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

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

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

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

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

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

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 April 2, 2023 and December 31, 2022, its results of operations for the first quarter ended April 2, 2023 and March 27, 2022, and its cash flows for the first quarter ended April 2, 2023 and March 27, 2022.

(“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 July 2, 2023 and December 31, 2022, its results of operations for the second quarter and six months ended July 2, 2023 and June 26, 2022, and its cash flows for the six months ended July 2, 2023 and June 26, 2022.

Patrick’s unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America (“U.S.

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The December 31, 2022 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S.

Operating results for the first quarter ended April 2, 2023 are not necessarily indicative of the results that we will realize or expect for the full year ending December 31, 2023.

Operating results for the second quarter and six months ended July 2, 2023 are not necessarily indicative of the results that we will realize or expect for the full year ending December 31, 2023.

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.

1 unchanged sentence

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

The first quarter of fiscal year 2023 ended on April 2, 2023 and the first quarter of fiscal year 2022 ended on March 27, 2022.

In preparation of Patrick’s condensed consolidated financial statements as of and for the first quarter ended April 2, 2023, management evaluated all subsequent events and transactions that occurred after the balance sheet date through the date of issuance of the Form 10-Q that required recognition or disclosure in the condensed consolidated financial statements.

See Note 15 for further information.

The second quarter of fiscal year 2023 ended on July 2, 2023 and the second quarter of fiscal year 2022 ended on June 26, 2022.

In preparation of Patrick’s condensed consolidated financial statements as of and for the second quarter and six months ended July 2, 2023, 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.

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:

First Quarter Ended April 2, 2023

(thousands) Manufacturing Distribution Total

In the following table, revenue from contracts with customers, net of intersegment sales, is disaggregated by market type and by reportable segment:

Second Quarter Ended July 2, 2023

(In thousands) Manufacturing Distribution Total

Recreational Vehicle $ 254,745 $ 128,827 $ 383,572

3 unchanged sentences

Total $ 688,098 $ 232,587 $ 920,685

First Quarter Ended March 27, 2022

(thousands) Manufacturing Distribution Total

Second Quarter Ended June 26, 2022

(In thousands) Manufacturing Distribution Total

Recreational Vehicle $ 575,338 $ 262,097 $ 837,435

3 unchanged sentences

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

Six Months Ended July 2, 2023

(In thousands) Manufacturing Distribution Total

Recreational Vehicle $ 507,189 $ 243,343 $ 750,532

Marine 512,333 32,012 544,345

Manufactured Housing 129,508 147,889 277,397

Industrial 231,464 17,047 248,511

Total $ 1,380,494 $ 440,291 $ 1,820,785

Six Months Ended June 26, 2022

(In thousands) Manufacturing Distribution Total

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

Marine 480,497 30,800 511,297

Manufactured Housing 184,006 189,949 373,955

Industrial 253,721 20,856 274,577

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

Contract Liabilities

1 unchanged sentence

Inventories consist of the following:

(thousands) April 2, 2023 December 31, 2022

(In thousands) July 2, 2023 December 31, 2022

Raw materials $ 282,532 $ 348,670

8 unchanged sentences

GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the first quarter ended April 2, 2023 by segment are as follows:

(thousands) Manufacturing Distribution Total

Changes in the carrying amount of goodwill for the six months ended July 2, 2023 by segment are as follows:

(In thousands) Manufacturing Distribution Total

Balance - December 31, 2022 $ 558,362 $ 70,901 $ 629,263

Acquisitions — 5,905 5,905

Adjustments to preliminary purchase price allocations ( 2,160 ) 175 ( 1,985 )

Balance - April 2, 2023

Balance - July 2, 2023

$ 556,202 $ 76,981 $ 633,183

Intangible assets, net consist of the following as of April 2, 2023 and December 31, 2022:

(thousands) April 2, 2023 December 31, 2022

Intangible assets, net consist of the following as of July 2, 2023 and December 31, 2022:

(In thousands) July 2, 2023 December 31, 2022

Customer relationships $ 737,424 $ 722,503

5 unchanged sentences

Intangible assets, net $ 697,866 $ 720,230

Changes in the carrying value of intangible assets for the first quarter ended April 2, 2023 by segment are as follows:

(thousands) Manufacturing Distribution Total

Changes in the carrying value of intangible assets for the six months ended July 2, 2023 by segment are as follows:

(In thousands) Manufacturing Distribution Total

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

2 unchanged sentences

Adjustments to preliminary purchase price allocations 3,260 ( 85 ) 3,175

Balance - April 2, 2023

Balance - July 2, 2023

$ 594,596 $ 103,270 $ 697,866

The Company completed no acquisitions in the first quarter of 2023.

The Company completed one acquisition in the first quarter of 2022.

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

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.

The Company completed three acquisitions in the second quarter and first six months of 2023 (the "2023 Acquisitions").

For the second quarter and six months ended July 2, 2023, net sales included in the Company's condensed consolidated statements of income related to the 2023 Acquisitions were $ 2.3 million, and operating income was $ 0.2 million.

Acquisition-related costs associated with the 2023 Acquisitions were immaterial.

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

For each acquisition, the Company completes its allocation of the purchase price to the fair value of acquired assets and liabilities within a one year measurement period.

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

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 acquisition completed in the second quarter and first six months of 2022 were $ 40.8 million and $ 49.2 million, respectively, and operating income was $ 7.6 million and $ 9.0 million, respectively.

Business combinations generally take place to gain key technology, expand into additional markets, or strengthen Patrick's positions in existing markets.

Acquisitions are accounted for under the acquisition method of accounting.

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.

Contingent Consideration

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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.

Changes in the fair value of contingent consideration for the first quarter ended April 2, 2023 are as follows:

(thousands) April 2, 2023

Changes in the fair value of contingent consideration for the six months ended July 2, 2023 are as follows:

(In thousands)

Balance - December 31, 2022 $ 9,213

Additions 3,590

Fair value adjustments (1)

Settlements ( 5,150 )

Balance - April 2, 2023

(1) The company records non-cash fair value adjustments to contingent consideration based on expected results, which are included in Selling, general and administrative expenses in the Company's condensed consolidated statements of income for the first quarter of 2023.

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 April 2, 2023 and December 31, 2022:

(thousands) April 2, 2023 December 31, 2022

Balance - July 2, 2023

(1) The Company records non-cash fair value adjustments to contingent consideration based on expected results, which are included in Selling, general and administrative expenses in the Company's condensed consolidated statements of income for the first six months of 2023.

(In thousands) July 2, 2023 December 31, 2022

Accrued liabilities $ 7,583 $ 5,250

3 unchanged sentences

2023 Acquisitions

The Company completed three acquisitions in the six months ended July 2, 2023, including the following previously announced acquisition:

Company Segment Description

BTI Transport Distribution Provider of transportation and logistics services to marine original equipment manufacturers ("OEMs") and dealers, based in Elkhart, Indiana, acquired in April 2023.

The acquired business will now operate under the Patrick Marine Transport brand.

Inclusive of two acquisitions not discussed above, total cash consideration for the 2023 Acquisitions was approximately $ 26.4 million, plus contingent consideration over a 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 the second quarter and six months ended July 2, 2023 related to the 2023 Acquisitions were immaterial.

2022 Acquisitions

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

1 unchanged sentence

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

Diamondback Towers, LLC Manufacturing Manufacturer of wakeboard/ski towers and accessories for marine 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.

1 unchanged sentence

Purchase price allocations and all valuation activities in connection with the acquisition completed in the first quarter of 2022 have been finalized.

Changes to preliminary purchase accounting estimates recorded in the first quarter ended April 2, 2023 related to the 2022 Acquisitions were immaterial.

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:

(thousands) Acquisition A Acquisition B All Others Total

Purchase price allocations and all valuation activities in connection with the acquisition completed in the first six months of 2022 have been finalized.

Changes to preliminary purchase accounting estimates recorded in the second quarter and six months ended July 2, 2023 related to the 2022 Acquisitions were immaterial.

The following table summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition for the 2023 Acquisitions and 2022 Acquisitions:

2023 Acquisitions 2022

(In thousands) Acquisition A Acquisition B All Others Total

Consideration

22 unchanged sentences

5,905 34,618 36,145 10,378 81,141

Bargain purchase gain (3)

( 1,700 ) — — — —

$ 29,738 $ 132,557 $ 94,664 $ 22,680 $ 249,901

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

(2) Goodwill is not tax-deductible for Acquisition A and Acquisition B (totaling approximately $ 70.8 million) but is tax-deductible for the remaining 2022 Acquisitions.

(2) Goodwill is not tax-deductible for Acquisition A and Acquisition B (totaling approximately $ 70.8 million) but is tax-deductible for the remaining 2022 Acquisitions and the 2023 Acquisitions.

(3) In connection with one of the 2023 Acquisitions, the Company anticipates it will recognize a bargain purchase gain.

A bargain purchase gain is recognized when the net assets acquired in a business combination have a higher fair value than the consideration paid.

This gain is primarily attributable to the fair value assigned to customer relationships, has been deferred for recognition until the Company finalizes all purchase accounting adjustments, and is included in "Accrued liabilities" on the condensed consolidated balance sheet.

We estimate the value of acquired property, plant, and equipment using a combination of the income, cost, and market approaches, such as estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the acquired businesses.

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Pro Forma Information

The following pro forma information for the first quarter ended April 2, 2023 and March 27, 2022 assumes the 2022 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 combined with the results prior to their respective acquisition dates, adjusted to reflect the pro forma impact of the acquisitions occurring as of the beginning of the year immediately preceding each such acquisition.

The following pro forma information for the second quarter and six months ended July 2, 2023 and June 26, 2022 assumes the 2023 Acquisitions and 2022 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 2023 Acquisitions and 2022 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 $ 1.7 million for the first quarter ended March 27, 2022.

First Quarter Ended

(thousands, except per share data) April 2, 2023 March 27, 2022

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 $ 0.4 million, respectively, for the second quarter and six months ended July 2, 2023, and $ 1.1 million and $ 3.8 million, respectively, for the second quarter and six months ended June 26, 2022.

Second Quarter Ended

Six Months Ended

(In thousands, except per share data) July 2, 2023 June 26, 2022 July 2, 2023 June 26, 2022

Revenue $ 927,443 $ 1,490,922 $ 1,836,680 $ 2,895,696

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STOCK-BASED COMPENSATION

The Company recorded expense of approximately $ 5.2 million and $ 5.1 million in the first quarter ended April 2, 2023 and March 27, 2022, respectively, for its stock-based compensation plans in the condensed consolidated statements of income.

The Company's Board of Directors (the "Board") approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the first quarter ended April 2, 2023 totaling 313,635 shares in the aggregate at an average fair value of $ 55.59 at grant date for a total fair value at grant date of $ 17.4 million.

As of April 2, 2023, there was approximately $ 33.6 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under incentive plans.

The Company recorded expense, net of forfeitures, of approximately $ 2.7 million and $ 7.9 million in the second quarter and six months ended July 2, 2023, respectively, for its stock-based compensation plans in the condensed consolidated statements of income.

Stock-based compensation expense of $ 5.1 million and $ 10.2 million was recorded in the second quarter and six months ended June 26, 2022, respectively.

The Company's Board of Directors (the "Board") approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the six months ended July 2, 2023 totaling 328,059 shares in the aggregate at an average fair value of $ 56.20 at grant date for a total fair value at grant date of $ 18.4 million.

As of July 2, 2023, there was approximately $ 27.1 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 19.6 months.

EARNINGS PER COMMON SHARE

Earnings per common share calculated for the first quarter of 2023 and 2022 is as follows:

First Quarter Ended

(thousands except per share data) April 2, 2023 March 27, 2022

Earnings per common share calculated for the second quarter and first six months of 2023 and 2022 is as follows:

Second Quarter Ended

Six Months Ended

(thousands except per share data) July 2, 2023 June 26, 2022 July 2, 2023 June 26, 2022

Earnings for basic earnings per common share calculation $ 42,357 $ 116,524 $ 72,530 $ 229,197

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An immaterial amount of securities was not included in the computation of diluted earnings per common share as they are considered anti-dilutive under the treasury stock method for all periods presented.

A summary of total debt outstanding at April 2, 2023 and December 31, 2022 is as follows:

(thousands) April 2, 2023 December 31, 2022

A summary of total debt outstanding at July 2, 2023 and December 31, 2022 is as follows:

(In thousands) July 2, 2023 December 31, 2022

Long-term debt:

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All noteholders elected to receive cash in repayment of the 1.00 % Convertible Notes.

The interest rate for incremental borrowings under the Revolver due 2027 at April 2, 2023 was SOFR plus 1.25 % (or 6.20 %) for the SOFR-based option.

The fee payable on committed but unused portions of the Revolver due 2027 was 0.18 % at April 2, 2023.

Total cash interest paid for the first quarter of 2023 and 2022 was $ 5.8 million and $ 3.2 million, respectively.

The interest rate for incremental borrowings under the Revolver due 2027 at July 2, 2023 was SOFR plus 1.50 % (or 6.70 %) for the SOFR-based option.

The fee payable on committed but unused portions of the Revolver due 2027 was 0.20 % at July 2, 2023.

Total cash interest paid for the second quarter of 2023 and 2022 was $ 26.9 million and $ 23.9 million, respectively, and $ 32.7 million and $ 27.1 million for the comparative six month periods, respectively.

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

First Quarter Ended

(thousands) April 2, 2023 March 27, 2022

Second Quarter Ended

Six Months Ended

(In thousands) July 2, 2023 June 26, 2022 July 2, 2023 June 26, 2022

Operating lease cost $ 13,788 $ 12,563 $ 27,252 $ 24,727

4 unchanged sentences

Balance sheet information related to leases was as follows:

(thousands, except lease term and discount rate) April 2, 2023 December 31, 2022

(In thousands, except lease term and discount rate) July 2, 2023 December 31, 2022

Operating lease right-of-use assets $ 170,575 $ 163,674

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Weighted average discount rate, operating leases 5.0 % 4.4 %

Maturities of lease liabilities were as follows at April 2, 2023:

2023 (excluding the three months ended April 2, 2023) $ 39,468

Maturities of lease liabilities were as follows at July 2, 2023:

(In thousands)

2023 (excluding the six months ended July 2, 2023) $ 27,622

Thereafter 34,064

2 unchanged sentences

Total $ 173,836

As of April 2, 2023, outstanding leases have remaining lease terms ranging from 1 year to 16 years.

The Company has additional operating leases that have not yet commenced as of April 2, 2023 and, therefore, were not included as operating right-of-use assets and corresponding operating lease liabilities on our condensed consolidated balance sheet at April 2, 2023.

These operating leases are anticipated to commence in the second quarter of fiscal 2023 with lease terms of 5 years to 7 years.

As of July 2, 2023, outstanding leases have remaining lease terms ranging from 1 year to 16 years.

The Company has additional operating leases that have not yet commenced as of July 2, 2023 and, therefore, were not included as operating right-of-use assets and corresponding operating lease liabilities on our condensed consolidated balance sheet at July 2, 2023.

These operating leases are anticipated to commence in the third and fourth quarters 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 $ 8.5 million.

FAIR VALUE MEASUREMENTS

The following table presents fair values of certain assets and liabilities at April 2, 2023 and December 31, 2022:

April 2, 2023 December 31, 2022

The following table presents fair values of certain assets and liabilities at July 2, 2023 and December 31, 2022:

July 2, 2023 December 31, 2022

(In millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

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— — 8.7 — — 9.2

(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 April 2, 2023 and December 31, 2022 as a component of "Cash and cash equivalents".

(2) The amounts of these notes listed above are the current fair values for disclosure purposes only, and they are recorded in the Company's condensed consolidated balance sheets as of April 2, 2023 and December 31, 2022 using the interest rate method.

(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 July 2, 2023 and December 31, 2022 as a component of "Cash and cash equivalents".

(2) The amounts of these notes listed above are the current fair values for disclosure purposes only, and they are recorded in the Company's condensed consolidated balance sheets as of July 2, 2023 and December 31, 2022 using the interest rate method.

Repayment of the 1.00 % Convertible Notes at maturity is discussed further in Note 8.

(3) The carrying amounts of our Term loan due 2027 and Revolver due 2027 approximate fair value as of April 2, 2023 and December 31, 2022 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.

(3) The carrying amounts of our Term loan due 2027 and Revolver due 2027 approximate fair value as of July 2, 2023 and December 31, 2022 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 estimated fair value of the Company's contingent consideration is discussed further in Note 5.

The effective tax rate in the first quarter of 2023 and 2022 was 20.1 % and 23.3 %, respectively.

The first quarter of 2023 and 2022 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 $ 2.3 million and $ 4.0 million, respectively.

Cash paid for income taxes, net of refunds, was $ 17.2 million in the first quarter of 2023 and $ 18.4 million in the first quarter of 2022.

The effective tax rate in the second quarter of 2023 and 2022 was 26.1 % and 26.8 %, respectively, and the effective tax rate for the comparable six month periods was 23.7 % and 25.1 %, respectively.

The first six months of 2023 and 2022 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 $ 1.8 million and $ 4.0 million, respectively.

Cash paid for income taxes, net of refunds, was $ 31.9 million and $ 49.0 million, respectively, in the second quarter and first six months of 2023 and $ 58.1 million and $ 76.5 million, respectively, in the second quarter and first six months of 2022.

SEGMENT INFORMATION

1 unchanged sentence

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

First Quarter Ended April 2, 2023

(thousands) Manufacturing Distribution Total

Second Quarter Ended July 2, 2023

(In thousands) Manufacturing Distribution Total

Net outside sales $ 688,098 $ 232,587 $ 920,685

2 unchanged sentences

Operating income $ 95,204 $ 25,839 $ 121,043

First Quarter Ended March 27, 2022

(thousands) Manufacturing Distribution Total

Second Quarter Ended June 26, 2022

(In thousands) Manufacturing Distribution Total

Net outside sales $ 1,083,975 $ 391,718 $ 1,475,693

2 unchanged sentences

Operating income $ 180,685 $ 43,641 $ 224,326

Six Months Ended July 2, 2023

(In thousands) Manufacturing Distribution Total

Net outside sales $ 1,380,494 $ 440,291 $ 1,820,785

Intersegment sales 32,612 4,614 37,226

Total sales $ 1,413,106 $ 444,905 $ 1,858,011

Operating income $ 182,369 $ 44,146 $ 226,515

Six Months Ended June 26, 2022

(In thousands) Manufacturing Distribution Total

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

Intersegment sales 43,945 5,084 49,029

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

Operating income $ 351,229 $ 89,607 $ 440,836

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

First Quarter Ended

(thousands) April 2, 2023 March 27, 2022

Second Quarter Ended Six Months Ended

(In thousands) July 2, 2023 June 26, 2022 July 2, 2023 June 26, 2022

Operating income for reportable segments $ 121,043 $ 224,326 $ 226,515 $ 440,836

5 unchanged sentences

In December 2022, 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 $ 92.7 million remains in the amount of the Company's common stock that may be acquired under the current stock repurchase program as of April 2, 2023.

Approximately $ 84.6 million remains in the amount of the Company's common stock that may be acquired under the current stock repurchase program as of July 2, 2023.

Under the stock repurchase plan, the Company made repurchases of common stock as follows for the respective periods:

First Quarter Ended

April 2, 2023 March 27, 2022

Second Quarter Ended

Six Months Ended

July 2, 2023 June 26, 2022 July 2, 2023 June 26, 2022

Shares repurchased 125,189 288,627 179,809 654,254

8 unchanged sentences

In the Company's Form 10-K for the year ended December 31, 2022, the Company described the current status of litigation concerning the Lusher Site Remediation Group.

There has been no change in the status of this litigation since that time.

In early July 2023, the court granted the Company’s Rule 54(b) Motion for Final Judgment on previously dismissed claims and granted the Company’s Motion to Dismiss the plaintiff’s remaining claims against the defendants, without prejudice (the Company’s Motion to Dismiss having been joined by the remaining defendants in the litigation.) The sole issue pending in the litigation for the Court’s determination is the plaintiff’s motion to bar contribution claims.

The Company has also been named as a potentially responsible party for the related Lusher Street Groundwater Contamination Superfund Site (the "Superfund Site") by the U.S.

1 unchanged sentence

The proceedings remain subject to a court-approved stay, granted in September 2021, pending negotiations with the EPA.

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

statements of income for the first six months of 2022.

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

No further proceedings have occurred in 2022 or the first three months of 2023.

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.

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.

SUBSEQUENT EVENTS

On May 1, 2023 the Company announced the acquisition of the assets of BTI Transport, a provider of transportation and logistics services to marine OEMs and dealers located in Elkhart, Indiana.

The purchase price is not material and will be primarily allocated to property, plant & equipment and intangible assets.

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