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Item 9A. Controls and Procedures

2024-02-29 compared with 2023-02-24 · 275 added, 375 removed, 979 unchanged (40% of the section changed)

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Disclosure Controls and Procedures

The Company maintains “disclosure controls and procedures”, as such term is defined under Securities Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934, as amended (the “Exchange Act”) reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures.

The Company maintains “disclosure controls and procedures”, as such term is defined under Securities Exchange Act Rule 13a-15(e) or 15d-15(e), that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934, as amended (the “Exchange Act”) reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures.

In designing and evaluating the disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and the Company’s management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

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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 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, 2023.

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Directors of the Company

The information required by this item with respect to directors is set forth in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 25, 2023, under the captions “Election of Directors” and “Delinquent Section 16(a) Reports,” which information is hereby incorporated herein by reference.

The information required by this item with respect to directors is set forth in our definitive Proxy Statement for our 2024 Annual Meeting of Shareholders to be filed with the SEC pursuant to Regulation 14A (the “2024 Proxy Statement”) under the captions “Election of Directors” and “Delinquent Section 16(a) Reports,” which information is hereby incorporated herein by reference.

Executive Officers of the Registrant

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Audit Committee

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

Information on our Audit Committee is contained under the caption “Audit Committee” in the Company's 2024 Proxy Statement and is incorporated herein by reference.

Code of Ethics and Business Conduct

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Corporate Governance

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.

Information on our corporate governance practices is contained under the caption “Corporate Governance Highlights” in the Company's 2024 Proxy Statement and incorporated herein by reference.

EXECUTIVE COMPENSATION

The information required by this item is set forth in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 25, 2023, under the caption “Executive Compensation," "Compensation Committee Interlocks and Director Participation," and "Compensation Committee Report," and is incorporated herein by reference.

The information required by this item is set forth in our 2024 Proxy Statement under the caption “Executive Compensation," "Compensation Committee Interlocks and Director Participation," and "Compensation Committee Report," and is incorporated herein by reference.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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 “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management,” and is incorporated herein by reference.

The information required by this item is set forth in our 2024 Proxy Statement under the captions “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management,” and is incorporated herein by reference.

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 25, 2023, under the captions “Related Party Transactions” and “Governance Values”, and is incorporated herein by reference.

PRINCIPAL ACCOUNTING FEES AND SERVICES

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 heading “Independent Public Accountants,” and is incorporated herein by reference.

The information required by this item is set forth in our 2024 Proxy Statement under the captions “Related Party Transactions” and “Corporate Governance Highlights”, and is incorporated herein by reference.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is set forth in our 2024 Proxy Statement under the heading “Independent Public Accountants,” and is incorporated herein by reference.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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(filed as Exhibit 3.1 to the Company's Form 8-K filed on May 8, 2020 and incorporated herein by reference).

4.1 Indenture (including Form of Note) with respect to the Company's 1.00% Convertible Senior Notes due 2023, dated as of January 22, 2018, between Patrick Industries, Inc.

Bank National Association, as trustee (filed as Exhibit 4.1 to the Company's Form 8-K filed on January 24, 2018 and incorporated herein by reference).

4.1 Indenture (including Form of Note), dated as of September 17, 2019, among Patrick Industries, Inc., the guarantors from time to time party thereto and U.S.

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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 .

10.3* Form of Non-Qualified Stock Option Agreement (filed as Exhibit 10.3 to the Company’s Form 10-K filed on February 24, 2023 and incorporated herein by reference) .

10.4* Form of Officer and Employee Time-Based Restricted Share Award (filed as Exhibit 10.

4 to the Company’s Form 10-K filed on February 24, 2023 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 10.5 to the Company's Form 10-K filed on February 24, 2023 and incorporated herein by reference) .

10.6* Form of Non-Employee Director Restricted Share Award (filed as Exhibit 10.6 to the Company’s Form 10-K filed on February 24, 2023 and incorporated herein by reference) .

10.7* Form of Stock Appreciation Rights Agreement (filed as Exhibit 10.7 to the Company’s Form 10-K filed on February 24, 2023 and incorporated herein by reference) .

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.

and Bank of America, N.A.

(filed as Exhibit 10.2 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference).

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

and Wells Fargo Bank, National Association (filed as Exhibit 10.3 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference).

10.11 Base Issuer Warrant Transaction Confirmation, dated as of January 17, 2018, by and between Patrick Industries, Inc.

and Bank of America, N.A.

(filed as Exhibit 10.4 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference).

10.12 Base Issuer Warrant Transaction Confirmation, dated as of January 17, 2018, by and between Patrick Industries, Inc.

and Wells Fargo Bank, National Association.

(filed as Exhibit 10.5 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference).

10.13 Additional Convertible Bond Hedge Transaction Confirmation, dated as of January 18, 2018, by and between Patrick Industries, Inc.

and Bank of America, N.A.

(filed as Exhibit 10.6 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference).

10.14 Additional Convertible Bond Hedge Transaction Confirmation, dated as of January 18, 2018, by and between Patrick Industries, Inc.

and Wells Fargo Bank, National Association (filed as Exhibit 10.7 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference).

10.15 Additional Issuer Warrant Transaction Confirmation, dated as of January 18, 2018, by and between Patrick Industries, Inc.

and Bank of America, N.A.

(filed as Exhibit 10.8 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference).

10.16 Additional Issuer Warrant Transaction Confirmation, dated as of January 18, 2018, by and between Patrick Industries, Inc.

and Well Fargo Bank, National Association (filed as Exhibit 10.9 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference).

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

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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 .

10.21* Employment Agreement with Executive Chairman of the Board of Directors.

(filed as Exhibit 10.1 to the Company's Form 8-K filed on January 10, 2022 and incorporated herein by reference)

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Section 1350.

97** Incentive Compensation Recovery Policy

XBRL Exhibits.

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The following materials are filed electronically with this Annual Report on Form 10-K:

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Schema Document

101.CAL XBRL Taxonomy Calculation Linkbase Document

101.DEF XBRL Taxonomy Definition Linkbase Document

101.LAB XBRL Taxonomy Label Linkbase Document

101.PRE XBRL Taxonomy Presentation Linkbase Document

101.INS Inline XBRL Instance Document

101.SCH Inline XBRL Taxonomy Schema Document

101.CAL Inline XBRL Taxonomy Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Label Linkbase Document

101.PRE Inline XBRL Taxonomy Presentation Linkbase Document

104 Cover Page Interactive Data File (embedded within the Inline XBRL document

Attached as Exhibits 101 to this report are the following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 formatted in XBRL (“eXtensible Business Reporting Language”):

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Nemeth (Principal Executive Officer)

Petkovich Executive Vice President Finance, February 24, 2023

Petkovich Chief Financial Officer and Treasurer

/s/ Matthew S.

Filer Interim Executive Vice President Finance, February 29, 2024

Filer Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

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Suggs Director February 29, 2024

Scott Welch Lead Director February 24, 2023

Scott Welch Lead Independent Director February 29, 2024

PATRICK INDUSTRIES, INC.

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Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

As described in the accompanying Management's Annual Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at the operations of businesses acquired in 2022, which are described in Note 4, whose financial statements constitute less than 2% of consolidated net sales for the year ended December 31, 2022 and approximately 3% of consolidated total assets as of December 31, 2022.

Accordingly, our audit did not include the internal control over financial reporting at these businesses.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control Over Financial Reporting.

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

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A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to

permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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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) relate 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) relates 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

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

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.

The purchase price allocation included a customer relationships intangible asset of $56 million and a trademark intangible asset of $16 million.

The Company estimated the value of the customer relationships using the multi-period excess earnings method.

The Company estimated the value of the trademark using the relief-from-royalty method.

The fair value determination of these intangible assets required management to make significant estimates and assumptions related to future cash flows and the selection of the discount rate, customer attrition rate, and royalty rate.

We identified this acquisition as a critical audit matter because of the significant estimates and assumptions management made to determine the fair value of the intangible assets discussed above.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate management’s valuation methodologies and the reasonableness of management’s assumptions related to future cash flows and the selection of the discount rate, customer attrition rate, and royalty rate.

Goodwill – Fiberglass Reporting Unit – Refer to Notes 1 and 6 to the Financial Statements

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

When calculating the present value of future cash flows under the income approach, the Company takes into consideration forecasted sales volumes, operating income, and a discount rate.

The Company uses a market approach as a secondary valuation method to evaluate the income approach.

The market approach includes a comparison of multiples of earnings before interest, taxes, depreciation, and amortization (EBITDA) for the reporting unit to similar businesses or guideline companies whose securities are actively traded in public markets.

The estimated fair value of the Company’s reporting unit was determined to exceed the carrying value for the year end December 31, 2023, and so no impairment was recognized.

We identified goodwill for the Fiberglass Reporting Unit as a critical audit matter because of the significant judgments made by management to estimate the fair value of the Fiberglass Reporting Unit and the difference between its fair value and carrying value.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rate and forecasts of future revenue and operating margin, specifically due to the sensitivity of the Fiberglass Reporting Unit’s operations.

How the Critical Audit Matter Was Addressed in the Audit

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, 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.

• We assessed the reasonableness of management’s forecast of future cash flows by comparing the projections to historical results and certain peer companies.

We also evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit.

Our audit procedures related to the discount rate and forecasts of sales and operating income used by management to estimate the fair value of certain reporting units included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the Fiberglass Reporting Unit related to management’s selection of the discount rates and forecasts of sales and operating income.

• We evaluated management’s ability to accurately forecast sales and operating income by comparing actual results to management’s historical forecasts.

• We evaluated the reasonableness of management’s sales and operating income assumptions included in the income approach model, and the extent to which forecast projection risk had been contemplated in the selection of the discount rate by comparing the forecasts to historical sales and operating income.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and discount rate by testing the source information underlying the determination of the discount rate, the mathematical accuracy of the calculations and developing a range of independent estimates and comparing those to the discount rate selected by management.

/s/ Deloitte & Touche LLP

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CONSOLIDATED STATEMENTS OF INCOME

(thousands except per share data) Year Ended December 31,

($ in thousands except per share data) Year Ended December 31,

2023 2022 2021

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(thousands) Year Ended December 31,

($ in thousands) Year Ended December 31,

2023 2022 2021

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Other comprehensive income (loss), net of tax:

Change in unrealized gain (loss) of hedge derivatives 757 4,131 ( 515 )

Change in unrealized gain on hedge derivatives — 757 4,131

Foreign currency translation gain (loss) ( 75 ) ( 97 ) 142

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CONSOLIDATED BALANCE SHEETS

(thousands except share data) 2022 2021

($ in thousands except share data) 2023 2022

Current Assets

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203,258 197,003

Additional paid-in-capital — 59,668

Accumulated other comprehensive loss ( 999 ) ( 695 )

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(thousands) Year Ended December 31,

($ in thousands) Year Ended December 31,

2023 2022 2021

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CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures ( 79,883 ) ( 64,804 ) ( 32,100 )

Purchases of property, plant, and equipment ( 58,987 ) ( 79,883 ) ( 64,804 )

Proceeds from sale of property, equipment, facility and other 1,362 7,620 197

Business acquisitions, net of cash acquired ( 25,859 ) ( 248,899 ) ( 508,127 )

Other investing activities ( 305 ) ( 2,000 ) —

Purchase of intangible assets and other investing activities ( 3,061 ) ( 305 ) ( 2,000 )

Net cash used in investing activities ( 86,545 ) ( 321,467 ) ( 574,734 )

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Repayments on revolver ( 568,728 ) ( 894,147 ) ( 972,500 )

Repayments of convertible notes ( 172,500 ) — —

Proceeds from senior notes offering — — 350,000

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1,413 195 4,950

Other financing activities ( 150 ) — —

Net cash (used in) provided by financing activities ( 333,565 ) ( 190,273 ) 400,686

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(thousands except share data) Common

($ in thousands, except share data) Common

Stock Additional

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Stock repurchases under buyback program ( 2,729 ) ( 368 ) — ( 21,550 ) ( 24,293 ) ( 48,940 )

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 )

Stock-based compensation expense 15,960 — — — — 15,960

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

Net income — — — — 224,915 224,915

Dividends declared — — — — ( 27,836 ) ( 27,836 )

Other comprehensive income, net of tax — — 3,824 — — 3,824

Share repurchases under buyback program ( 2,729 ) ( 368 ) — ( 21,550 ) ( 24,293 ) ( 48,940 )

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

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

Net income — — — — 142,897 142,897

Dividends declared — — — — ( 42,327 ) ( 42,327 )

Other comprehensive income, net of tax — — ( 304 ) — — ( 304 )

Share repurchases under buyback program ( 2,455 ) — — — ( 16,353 ) ( 18,808 )

Issuance of shares upon exercise of common stock options 1,413 — — — — 1,413

Repurchase of shares for tax payments related to the vesting and exercise of share-based grants ( 12,132 ) — — — — ( 12,132 )

Stock-based compensation expense 19,429 — — — — 19,429

Balance December 31, 2023 $ 203,258 $ — $ ( 999 ) $ — $ 843,078 $ 1,045,337

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

As of December 31, 2023, the Company maintained 179 manufacturing plants and 62 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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All intercompany accounts and transactions have been eliminated in consolidation.

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.

Financial Periods

The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning thirteen weeks, with the first, second and third quarters ending on the Sunday closest to the end of the first, second and third 13-week periods, respectively.

The first three quarters of fiscal year 2022 ended on March 27, 2022, June 26, 2022 and September 25, 2022.

The first three quarters of fiscal year 2021 ended on March 28, 2021, June 27, 2021 and September 26, 2021.

The first three quarters of fiscal year 2020 ended on March 29, 2020, June 28, 2020 and September 27, 2020.

Use of Estimates

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Revenue Recognition

See Note 3 for further information on our revenue recognition accounting policies.

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.

The Company’s contracts typically consist of a single performance obligation to manufacture and provide the promised goods.

To the extent a contract is deemed to have multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation using the standalone selling price of each distinct good in the contract.

The transaction price for contracts may include reductions to the transaction price for estimated volume discounts and rebates and other customer incentives.

Manufacturing segment revenue is recognized when control of the products transfers to the customer which is the point when the customer gains the ability to direct the use of and obtain substantially all the remaining benefits from the asset, which is generally upon delivery of goods, or upon shipment of goods in certain circumstances.

In limited circumstances, where the products are customer specific with no alternative use to the Company, and the Company has a legally enforceable right to payment for performance to date with a reasonable margin, revenue is recognized over the contract term based on the cost-to-cost method.

However, the financial impact of these contracts is immaterial considering the short production cycles and limited inventory days on hand.

Distribution segment revenue from product sales is recognized on a gross basis upon shipment or delivery of goods at which point control transfers to the customer.

The Company acts as a principal in such arrangements because it controls the promised goods before delivery to the customer.

The Company uses direct shipment arrangements with certain vendors and suppliers to deliver products to its customers without having to physically hold the inventory at its warehouses.

The Company is the principal in the transaction and recognizes revenue for direct shipment arrangements on a gross basis.

Our role as principal in our distribution sales is generally characterized by (i) customers entering into contracts with the Company, not the vendor;

(ii) our obligation to pay the vendor irrespective of our ability to collect from the customer;

(iii) our discretion in

determining the price of the good provided to the customer;

(iv) our title to the goods before the customer receives or accept the goods;

and (v) our responsibility for the quality and condition of goods delivered to the customer.

Sales and other taxes collected concurrent with revenue-producing activities are excluded from net sales.

The Company records freight billed to customers in net sales.

The corresponding costs incurred for shipping and handling related to these customer-billed freight costs are accounted for as costs to fulfill the contract and are included in warehouse and delivery expenses.

The Company’s contracts across each of its businesses typically do not result in situations where there is a time period greater than one year between performance under the contract and collection of the related consideration.

The Company does not account for a significant financing component when the Company expects, at contract inception, that the period between the Company's transfer of a promised good or service to a customer and the customer’s payment for that good or service will be one year or less.

The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the incurred costs that the Company otherwise would have capitalized is one year or less.

These costs, representing primarily sales commissions, are included in selling, general and administrative expenses.

The Company does not disclose information about the transaction price being allocated to the remaining performance obligations at period end, as the Company does not have material contracts that have original expected durations of more than one year.

Contract liabilities, representing upfront payments from customers received prior to satisfying performance obligations, were immaterial in all periods presented and changes in contract liabilities were immaterial in all periods presented.

Costs and Expenses

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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”).

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, as adopted in 2022) 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 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.

Common Stock Equivalents are not included in the computation of diluted earnings per common share if their effect would

be anti-dilutive.

See Note 12 "Earnings Per Common Share" for the calculation of both basic and diluted earnings per common share.

Cash and Cash Equivalents

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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

As of December 31

($ in thousands) 2023

Trade receivables $ 136,796 $ 144,301

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Prepaid Expenses and Other

Prepaid expenses and other consists of the following at December 31, 2022 and 2021:

(thousands) 2022

As of December 31

($ in thousands) 2023

Vendor rebates receivable $ 9,303 $ 12,366

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Vendor and other deposits 8,211 11,649

Prepaid income taxes 8,869 —

Total $ 49,251 $ 46,326

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Depreciation is computed primarily by the straight-line method applied to individual items based on estimated useful lives, which is as follows for 2023:

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

Asset Class Estimated life (years)

Buildings and improvements 10 - 30

Leasehold improvements 10

Capitalized software 3 - 5

Machinery and equipment and transportation equipment 3 - 7

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

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Goodwill and indefinite-lived intangible assets are not amortized but are subject to an annual impairment test based on their estimated fair value.

The Company performs the required test for goodwill and indefinite-lived intangible assets for impairment in the fourth quarter, or more frequently, if events or changes in circumstances indicate that the carrying value may exceed the fair value.

As part of the annual goodwill test, we estimate the fair value of our reporting units using both an income and market based approach.

The Company reviews goodwill and indefinite-lived intangible assets for impairment in the fourth quarter, or more frequently, if events or changes in circumstances indicate the assets might be impaired.

The impairment test was performed on October 1, 2023.

In conducting its impairment testing, the Company estimates the fair value of our reporting units using both an income and market based approach.

The market approach includes a comparison of multiples of earnings before interest, taxes, depreciation and amortization for the reporting units to similar businesses or guideline companies whose securities are actively traded in public markets.

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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.

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.

Finite-lived intangible assets are amortized over their useful lives, as detailed further in Note 6 "Goodwill and Intangible Assets", 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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These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data).

As of December 31

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

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$ — $ — $ — $ — $ 80.3 $ —

Interest rate swaps (4)

— — — — 1.0 —

Contingent consideration (4)

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

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

(4) The interest rate swaps are discussed further in Note 9.

(5) The estimated fair value of the Company's contingent consideration is discussed further in Note 4.

(3) The carrying amounts of our term loan and revolving credit facility approximate fair value as of December 31, 2023 and 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 3 "Acquisitions".

Income tax expense is calculated based on statutory tax rates of the federal, state, and international jurisdictions in which the Company operates and income earned or apportioned to each of these respective jurisdictions, as well as any additional tax planning available to the Company in these jurisdictions.

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The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Reclassified Amounts

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

Reference Rate Reform

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.

An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination.

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 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 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 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.

Accounting Pronouncements Not Yet Adopted

In October 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-06, "Disclosure Improvements." The amendments in this update modify the disclosure or presentation requirements of a variety of topics in the codification.

Certain of the amendments represent clarifications to or technical corrections of the current requirements.

The amendments in this ASU are effective for public business entities for interim periods beginning after June 30, 2027.

The Company is currently evaluating the impacts of the provisions of ASU 2023-06.

In November 2023, the FASB issued ASU 2023-07, "Improvements to Reportable Segment Disclosures".

This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss.

This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources.

The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements.

Early adoption is also permitted.

This ASU will

likely result in additional required disclosures when adopted.

The Company is currently evaluating this guidance to determine the impact on its disclosures;

however, adoption will not impact our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, "Improvements to Income Tax Disclosures" .

This ASU establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements.

Under the new guidance, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation.

They must also further disaggregate income taxes paid.

The new standard is effective for fiscal years beginning after December 15, 2024, with retrospective application permitted.

The Company is currently evaluating this guidance to determine the impact on its disclosures;

however, adoption will not impact our consolidated financial statements.

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, marine, MH, and industrial industries.

The Company’s contracts typically consist of a single performance obligation to manufacture and provide the promised goods.

The transaction price for contracts may include reductions to the transaction price for estimated volume discounts and rebates and other customer incentives.

However, such revenue is not material to the consolidated financial statements.

Distribution segment revenue from product sales is recognized on a gross basis upon shipment or delivery of goods at which point control transfers to the customer.

The Company acts as a principal in such arrangements because it controls the promised goods before delivery to the customer.

The Company uses direct shipment arrangements with certain vendors and suppliers to deliver products to its customers without having to physically hold the inventory at its warehouses.

The Company is the principal in the transaction and recognizes revenue for direct shipment arrangements on a gross basis.

Our role as principal in our distribution sales is generally characterized by (i) customers entering into contracts with the Company, not the vendor;

(ii) our obligation to pay the vendor irrespective of our ability to collect from the customer;

(iii) our discretion in determining the price of the good provided to the customer;

(iv) our title to the goods before the customer receives or accept the goods;

and (v) our responsibility for the quality and condition of goods delivered to the customer.

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:

Year Ended December 31, 2023

(thousands) Manufacturing Distribution Total

($ in thousands) Manufacturing Distribution Total

Recreational Vehicle $ 1,018,003 $ 485,339 $ 1,503,342

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Year Ended December 31, 2022

(thousands) Manufacturing Distribution Total

($ in thousands) Manufacturing Distribution Total

Recreational Vehicle $ 1,777,541 $ 815,478 $ 2,593,019

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Year Ended December 31, 2021

(thousands) Manufacturing Distribution Total

($ in thousands) Manufacturing Distribution Total

Recreational Vehicle $ 1,617,852 $ 786,590 $ 2,404,442

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Total $ 2,930,466 $ 1,147,626 $ 4,078,092

Sales and other taxes collected concurrent with revenue-producing activities are excluded from net sales.

The Company records freight billed to customers in net sales.

These costs, representing primarily sales commissions, are included in selling, general and administrative expenses.

Contract Liabilities

Business combinations generally take place to strengthen Patrick's positions in existing markets and increase its market share and per unit content, expand into additional markets, or gain key technology.

Acquisitions are accounted for under the acquisition method of accounting.

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 the acquisitions discussed below during the years ended December 31, 2023, 2022 and 2021.

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For those acquisitions where the purchase price allocation is provisional, which includes certain acquisitions completed in 2023, the Company is still in the process of finalizing the fair values of acquired intangible assets and fixed assets.

In general, the acquisitions described below provided the opportunity for the Company to either establish a new presence in a particular market and/or expand its product offerings in an existing market and increase its market share and per unit content.

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, revenue impact, market share growth and net income.

For the years ended December 31, 2023, 2022 and 2021, revenue of approximately $ 17.7 million, $ 121.8 million and $ 259.9 million, respectively, was included in the Company’s consolidated statements of income pertaining to the businesses acquired in each such respective year.

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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 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

The following table provides a reconciliation of the beginning and ending aggregate fair values of the contingent consideration:

Year Ended December 31

($ in thousands) 2023 2022

Beginning fair value - contingent consideration $ 9,213 $ 12,275

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Ending fair value - contingent consideration $ 8,510 $ 9,213

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

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:

As of December 31

($ in thousands) 2023 2022

Accrued liabilities $ 7,500 $ 5,250

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2023 Acquisitions

The Company completed three acquisitions in the year ended December 31, 2023, including the following previously announced acquisition (collectively, the "2023 Acquisitions"):

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 operates under the Patrick Marine Transport brand.

Inclusive of two acquisitions not discussed above, total cash consideration for the 2023 Acquisitions was approximately $ 26.3 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 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"):

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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.

Inclusive of two acquisitions not discussed above, total cash consideration for the 2022 Acquisitions was approximately $ 248.1 million, plus contingent consideration over a one to two-year period based on future performance in connection with certain acquisitions.

Changes to preliminary purchase accounting estimates recorded in 2022 related to the 2022 Acquisitions were immaterial.

Purchase price allocations and all valuation activities in connection with the 2022 Acquisitions have been finalized.

Changes to preliminary purchase accounting estimates recorded in 2023 related to the 2022 Acquisitions were immaterial and relate primarily to the valuation of intangible and fixed assets.

2021 Acquisitions

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

Company Segment Description

Maple City Woodworking Corporation Manufacturing Manufacturer of hardwood cabinet doors and fascia for the RV market based in Goshen, Indiana, acquired in March 2020.

SEI Manufacturing, Inc.

Manufacturing Manufacturer of towers, T-Tops, hardtops, rails, gates and other aluminum exterior products for the marine market located in Cromwell, Indiana, acquired in March 2020.

Inland Plywood Company Manufacturing Supplier, laminator, and wholesale distributor of treated, untreated, and laminated plywood, medium density overlay panels, and other specialty products, primarily serving the marine market as well as the RV and industrial markets headquartered in Pontiac, Michigan with an additional facility in Cocoa, Florida, acquired in August 2020.

Synergy RV Transport Distribution Transportation and logistics service provider primarily for original equipment manufacturers and dealers in the RV market located in Goshen, Indiana, acquired in August 2020.

Front Range Stone Manufacturing Fabricator and installer of natural stone, quartz, solid surface, and laminate countertops, primarily serving big box home improvement retailers, home builders and commercial contractors in the industrial market based in Englewood, Colorado, acquired in September 2020.

Geremarie Corporation Manufacturing Designer, manufacturer, and fabricator of a full suite of high-precision aluminum components serving the marine industry, in addition to the medical, aerospace, defense, commercial and industrial markets located in Lake Zurich, Illinois, acquired in November 2020.

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.

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 2021 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 2022 Acquisitions:

(thousands) Acquisition A Acquisition 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 2023, 2022, and 2021 Acquisitions:

2023 Acquisitions 2022 Acquisitions 2021 Acquisitions (2)

($ in thousands) Acquisition A Acquisition B All Others Total

Consideration

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( 26 ) — — — — —

Contingent consideration (2)

— — 1,750 1,750

Total consideration 132,557 94,833 22,519 249,909

Assets Acquired

Trade receivables $ 20,640 $ 4,882 $ 904 $ 26,426

Inventories 32,744 8,732 2,309 43,785

Prepaid expenses & other 2,502 161 93 2,756

Property, plant & equipment 5,270 6,026 1,638 12,934

Operating lease right-of-use assets 2,917 1,435 599 4,951

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

Current portion of operating lease obligations ( 512 ) ( 289 ) ( 273 ) ( 1,074 )

Accounts payable & accrued liabilities ( 25,681 ) ( 3,238 ) ( 1,253 ) ( 30,172 )

Operating lease obligations ( 2,405 ) ( 1,146 ) ( 326 ) ( 3,877 )

Deferred tax liabilities ( 19,540 ) ( 14,076 ) — ( 33,616 )

Total fair value of net assets acquired 95,835 58,657 12,291 166,783

36,722 36,176 10,228 83,126

$ 132,557 $ 94,833 $ 22,519 $ 249,909

(1) Certain acquisitions contain working capital holdbacks which are typically settled in a 90 -day period following the close of the acquisition.

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

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

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5,905 34,618 40,313 10,420 85,351 142,652

Bargain Purchase Gain (5)

( 1,745 ) — — — — —

(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.

$ 29,790 $ 132,557 $ 94,705 $ 22,664 $ 249,926 $ 524,005

(1) Certain acquisitions contain working capital holdbacks which are typically settled in a 90 -day period following the close of the acquisition.

This value represents the remaining amounts due to (from) sellers as of December 31, 2023.

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

Further detail of the 2021 Acquisitions can be found in the 2022 Form 10-K filed with the SEC on February 24, 2023.

(3) 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) .

(4) Goodwill is tax-deductible for the 2023 Acquisitions, for the 2022 Acquisitions, except Acquisition A and Acquisition B (totaling approximately $ 74.9 million), and for the 2021 Acquisitions, except Tumacs Covers (approximately $ 6.2 million).

(5) In connection with one of the 2023 Acquisitions, the Company recognized a $ 1.7 million 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 in that acquisition and is included in "Selling, general and administrative" in the consolidated statement of income for the year ended December 31, 2023.

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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In addition, the pro forma information includes incremental amortization expense related to intangible assets acquired of $ 0.4 million and $ 5.6 million for the years ended December 31, 2023 and 2022, respectively, in connection with the acquisitions as if they occurred as of the beginning of the year immediately preceding each such acquisition.

(thousands except per share data) 2022 2021

Year Ended December 31

($ in thousands except per share data) 2023 2022

Net sales $ 3,483,940 $ 4,994,679

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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.

Inventories as of December 31, 2022 and 2021 consist of the following:

(thousands) 2022 2021

As of December 31

($ in thousands) 2023 2022

Raw materials $ 269,786 $ 348,670

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PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net, consists of the following at December 31, 2022 and 2021:

(thousands) 2022 2021

As of December 31

($ in thousands) 2023 2022

Land and improvements $ 19,502 $ 19,242

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Changes in the carrying amount of goodwill for the years ended December 31, 2023 and 2022 by segment are as follows:

(thousands) Manufacturing Distribution Total

($ in thousands) Manufacturing Distribution Total

Balance - January 1, 2022 $ 481,906 $ 69,471 $ 551,377

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As of December 31, 2023 and 2022, accumulated impairment of goodwill in the Manufacturing segment was $ 27.4 million.

Intangible assets, net consist of the following at December 31, 2022 and 2021 :

(thousands) 2022 2021

Intangible assets, net consist of the following :

As of December 31

($ in thousands) 2023 2022

Customer relationships $ 729,664 $ 722,503

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Trademarks 197,027 195,957

1,008,036 855,033

Gross intangible assets 1,017,653 1,008,036

accumulated amortization ( 366,500 ) ( 287,806 )

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Changes in the carrying value of intangible assets for the years ended December 31, 2023 and 2022 by segment are as follows:

(thousands) Manufacturing Distribution Total

($ in thousands) Manufacturing Distribution Total

Balance - January 1, 2022 $ 534,827 $ 105,629 $ 640,456

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2024 $ 77,403

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

(thousands) 2022

2025 $ 73,316

2026 $ 67,455

2027 $ 61,001

2028 $ 47,877

T he following table presents a summary of total debt outstanding:

As of December 31

($ in thousands) 2023

Long-term debt:

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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 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.

Pursuant to the amendment, interest rates for borrowings under the 2021 Credit Agreement transitioned to a Secured Overnight Financing Rate ("SOFR") based option from a London Inter-Bank Offered Rate ("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.

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• 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, and other customary covenants.

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.

As of December 31, 2023, the Company had $ 129.4 million outstanding under the Term Loan due 2027 under the SOFR-based option, and no outstanding borrowings for the Revolver due 2027.

The interest rate for incremental borrowings as of December 31, 2023 was SOFR plus 1.75 % (or 7.20 %) for the SOFR-based option.

The fee payable on committed but unused portions of the Revolver due 2027 was 0.225 % as of December 31, 2023.

1.75 % Convertible Senior Notes due 2028

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The effective interest rate on the 1.75 % Convertible Notes, which includes the non-cash interest expense of debt discount amortization and debt issuance costs, was 2.14 % as of December 31, 2023.

The net proceeds from the issuance of the 1.75 % Convertible Notes were approximately $ 249.7 million, after deducting the initial purchasers’ discounts and commissions and offering expenses payable by the Company, but before deducting the net cost of the 1.75 % Convertible Note Hedge Transactions and the Warrant Transactions (each as defined herein) described in Note 9.

The net proceeds from the issuance of the 1.75 % Convertible Notes were approximately $ 249.7 million, after deducting the initial purchasers’ discounts and commissions and offering expenses payable by the Company, but before deducting the net cost of the 1.75 % Convertible Note Hedge Transactions and the 1.75 % Convertible Note Warrant Transactions (each as defined herein) described in Note 8 "Derivative Financial Instruments".

The 1.75 % Convertible Notes are senior unsecured obligations of the Company and pay interest semi-annually in arrears on June 1 and December 1 of each year at an annual rate of 1.75 %.

1 unchanged sentence

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.

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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.

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In January 2018, the Company issued $ 172.5 million aggregate principal amount of 1.00 % Convertible Senior Notes due 2023 (the “ 1.00 % Convertible Notes”).

The total debt discount of $ 36.2 million at issuance consisted of two components:

(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 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 %.

The 1.00 % Convertible Notes will mature on February 1, 2023 unless earlier repurchased or converted in accordance with their terms.

The 1.00 % Convertible Notes are convertible by the noteholders, in certain circumstances and subject to certain conditions, into cash, shares of common stock of the Company, or a combination thereof, at the Company’s election.

The initial conversion rate for the 1.00 % Convertible Notes is 11.3785 shares of the Company's common stock per $1,000 principal amount of the 1.00 % Convertible Notes (or 1,962,790 shares in the aggregate) and is equal to an initial conversion price of approximately $ 87.89 per share.

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 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.

On February 1, 2023, the Company utilized borrowing capacity under the Revolver due 2027 to satisfy its repayment obligation at maturity of the 1.00 % Convertible Notes.

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

Debt Maturities

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Total $ 1,038,125

(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.

Letters of credit totaling $ 6.9 million were outstanding as of December 31, 2023 that exist to meet credit requirements for the Company’s insurance providers.

Cash paid for interest for the years ended December 31, 2023, 2022 and 2021 was $ 66.3 million, $ 56.9 million and $ 45.0 million, respectively.

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The 1.75 % Convertible Note Hedge Transactions are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of the 1.75 % Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 1.75 % Convertible Notes.

However, the 1.75 % Convertible Note Warrant Transactions could separately have a dilutive effect on the Company's common stock to the extent that the market price per share of the common stock exceeds the strike price of the warrants.

However, the 1.75 % Convertible Note Warrant Transactions could separately have a

dilutive effect on the Company's common stock to the extent that the market price per share of the common stock exceeds the strike price of the warrants.

As these transactions meet certain accounting criteria, the 1.75 % Convertible Note Hedge Transactions and 1.75 % Convertible Note Warrant Transactions are recorded in stockholders’ equity and are not accounted for as derivatives.

1.00 % Convertible Note Hedge Transactions and Warrant Transactions

In January 2018, in connection with the 1.00 % Convertible Notes offering, the Company entered into privately negotiated convertible note hedge transactions (together, the “ 1.00 % Convertible Note Hedge Transactions”) with each of Bank of America, N.A.

and Wells Fargo Bank, National Association (together, the “ 1.00 % Convertible Note Hedge Counterparties”).

Pursuant to the 1.00 % Convertible Note Hedge Transactions, the Company acquired options to purchase the same number of shares of the Company's common stock (or 1,962,790 shares) initially underlying the 1.00 % Convertible Notes at an initial strike price equal to the initial strike price of the 1.00 % Convertible Notes of approximately $ 87.89 per share, subject to customary anti-dilution adjustments.

The options expire on February 1, 2023, subject to earlier exercise.

At the same time, the Company also entered into separate, privately negotiated warrant transactions (the “ 1.00 % Convertible Note Warrant Transactions”) with each of the 1.00 % Convertible Note Hedge Counterparties, pursuant to which the Company sold warrants to purchase the same number of shares of the Company’s common stock (or 1,962,790 shares) underlying the 1.00 % Convertible Notes, at an initial strike price of approximately $ 113.93 per share, subject to customary anti-dilution adjustments.

The warrants have a final expiration date of September 20, 2023.

The Company paid $ 31.5 million associated with the cost of the 1.00 % Convertible Note Hedge Transactions and received proceeds of $ 18.1 million related to the 1.00 % Convertible Note Warrant Transactions.

The 1.00 % Convertible Note Hedge Transactions are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of the 1.00 % Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 1.00 % Convertible Notes.

However, the 1.00 % Convertible Note Warrant Transactions could separately have a dilutive effect on the Company's common stock to the extent that the market price per share of the common stock exceeds the strike price of the warrants.

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 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):

Fair value of derivative liabilities

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

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.

In January 2018, in connection with the 1.00 % Convertible Note offering, the Company entered into privately negotiated convertible note hedge transactions (the “ 1.00 % Convertible Note Hedge Transactions”) and at the same time also entered into separate, privately negotiated warrant transactions (the “ 1.00 % Convertible Note Warrant Transactions”).

The 1.00 % Convertible Note Hedge Transactions expired as of February 1, 2023 and the 1.00 % Convertible Note Warrant Transactions expired as of September 20, 2023 in connection with the repayment at maturity of the 1.00 % Convertible Notes.

ACCRUED LIABILITIES

Accrued liabilities as of December 31, 2022 and 2021 include the following:

(thousands) 2022 2021

As of December 31

($ in thousands) 2023 2022

Employee compensation and benefits $ 57,702 $ 80,725

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Total accrued liabilities $ 111,711 $ 172,595

Changes in our accrued warranty liabilities for the years ended December 31, 2022, 2021, and 2020 are as follows:

(thousands) 2022

The table below summarizes the change in accrued warranty liabilities.

Year Ended December 31

($ in thousands) 2023

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

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Ending balance $ 6,130 $ 12,103 $ 13,827

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:

(thousands) 2022 2021 2020

The provision for income taxes consists of the following:

Year Ended December 31

($ in thousands) 2023 2022 2021

Federal $ 44,126 $ 92,783 $ 57,156

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The Company has accounted for in its 2023, 2022, and 2021 income tax provision the impact of Global Intangible Low-Taxed Income, base-erosion anti-abuse tax, interest expense limitations under Section 163(j), and foreign-derived intangible income deductions, although such provisions were either not applicable or resulted in a zero or immaterial impact to the consolidated financial statements.

A reconciliation of the differences between the actual provision for income taxes and income taxes at the federal statutory income tax rate of 21% for the years ended December 31, 2022, 2021, and 2020 is as follows:

(thousands) 2022 2021 2020

A reconciliation of the differences between the actual provision for income taxes and income taxes at the federal statutory income tax rate of 21% is as follows:

Year Ended December 31

($ in thousands) 2023 2022 2021

Rate applied to pretax income $ 40,201 21.0 % $ 91,436 21.0 % $ 61,598 21.0 %

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Income taxes $ 48,361 25.3 % $ 107,214 24.7 % $ 68,907 23.4 %

The composition of the deferred tax assets and liabilities as of December 31, 2022 and 2021 is as follows:

(thousands) 2022 2021

The composition of the deferred tax assets and liabilities is as follows:

As of December 31

($ in thousands) 2023 2022

Deferred tax assets:

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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 of the Internal Revenue Code of 1986.

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.

The tax effected values of these net operating losses are $ 1.2 million and $ 1.3 million as of December 31, 2023 and 2022, respectively, exclusive of valuation allowances of $ 0.5 million and $ 0.5 million as of December 31, 2023 and 2022, respectively.

The Company is subject to periodic audits by domestic tax authorities.

1 unchanged sentence

federal statute of limitations remains open for the years 2020 and later.

Uncertain tax benefits were immaterial at December 31, 2022 and 2021 and activity related to uncertain tax benefits was immaterial for all periods presented.

Uncertain tax benefits were immaterial as of December 31, 2023 and 2022 and activity related to uncertain tax benefits was immaterial for all periods presented.

STOCK REPURCHASE PROGRAMS

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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

Earnings per common share is calculated as follows:

Year Ended December 31

($ in thousands except per share data) 2023 2022 2021

Earnings for basic per share calculation $ 142,897 $ 328,196 $ 224,915

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Cash dividends paid per common share $ 1.90 $ 1.44 $ 1.17

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

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

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

1 unchanged sentence

Variable lease expense, principally related to trucks, forklifts, and index-related facility rent escalators, was immaterial for the years ended December 31, 2023, 2022 and 2021.

Leases have remaining lease terms of one to seventeen years .

Leases have remaining lease terms of 1 to 16 years.

Certain leases include options to renew for an additional term.

Where there is reasonable certainty to utilize a renewal option, we include the renewal option in the lease term used to calculate operating lease right-of-use assets and lease liabilities.

Lease expense, supplemental cash flow information, and other information related to leases for the years ended December 31, 2022, 2021 and 2020 were as follows:

(thousands) 2022 2021 2020

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

Year Ended December 31

($ in thousands) 2023 2022 2021

Operating lease cost $ 56,370 $ 50,674 $ 42,081

3 unchanged sentences

Operating leases $ 65,505 $ 50,719 $ 78,225

Balance sheet information related to leases as of December 31, 2022 and 2021 was as follows:

(thousands, except lease term and discount rate) 2022 2021

Balance sheet information related to leases was as follows:

As of December 31

($ in thousands, except lease term and discount rate) 2023 2022

Operating lease right-of-use assets $ 177,717 $ 163,674

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Weighted average discount rate, operating leases 5.4 % 4.4 %

Maturities of operating lease liabilities were as follows at December 31, 2022 (in thousands):

Maturities of operating lease liabilities were as follows as of December 31, 2023 (in thousands):

2024 $ 57,145

3 unchanged sentences

Total $ 181,205

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 first quarter of fiscal 2023 with lease terms of 5 to 7 years.

The Company has additional operating leases that have not yet commenced as of December 31, 2023, and therefore, approximately $ 2.9 million in operating lease right-of-use assets and corresponding operating lease liabilities were not included in our consolidated balance sheet as of December 31, 2023.

These leases are expected to commence in the first quarter of fiscal 2024 with lease terms of 5 years.

COMMITMENTS AND CONTINGENCIES

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

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.

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.

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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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.

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

2 unchanged sentences

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.

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

As of December 31, 2023, approximately 1.3 million common shares remain available for stock-based compensation grants.

Stock-based compensation expense was $ 19.4 million, $ 21.8 million and $ 22.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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Stock Options:

Stock options vest ratably over either three or four years and have nine-year contractual terms.

No stock options were granted in 2022 and 2021.

In 2020, we granted 495,000 stock options to certain employees at an average exercise price per share of $ 42.87 .

The stock options vest 35 %, 35 % and 30 % over years one, two, and three, respectively, and have nine-year contractual terms.

The following table summarizes the Company’s option activity during the years ended December 31, 2022, 2021 and 2020:

No stock options were granted during the years ended December 31, 2023, 2022 and 2021.

Outstanding stock options granted in prior years vest ratably over either three or four years and have nine-year contractual terms.

The following table summarizes the Company’s option activity:

Years ended December 31

2023 2022 2021

(shares in thousands) Shares Weighted

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Outstanding beginning of year 362 $ 43.76 368 $ 43.72 1,015 $ 43.88

Granted during the year — — — — 495 42.87

Forfeited during the year — — ( 1 ) 41.33 ( 32 ) 41.33

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Options exercised $ 10,888 $ 91 $ 26,348

Weighted average fair value of options granted during the year N/A N/A $ 15.17

Weighted average fair value of options granted during the year N/A N/A N/A

The aggregate intrinsic value (excess of market value over the option exercise price) in the table above is before income taxes, and assuming the Company’s closing stock price of $ 100.35 , $ 60.60 and $ 80.69 per share as of December 31, 2023, 2022 and 2021, respectively, is the price that would have been received by the option holders had those option holders exercised their options as of that date.

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.

As of December 31, 2023, the weighted average remaining contractual term for options outstanding was 5.4 years and the weighted average remaining contractual term for options exercisable was 5.4 years.

The cash received from the exercise of stock options was $ 1.4 million, $ 0.2 million and $ 4.9 million in 2023, 2022 and 2021, respectively.

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

The income tax benefit related to the stock options exercised was $ 6.7 million in 2021, and immaterial in 2023 and 2022.

The grant date fair value of stock options vested in 2023, 2022 and 2021 was $ 5.9 million, $ 6.9 million and $ 11.6 million, respectively.

The following table presents assumptions used in the Black-Scholes model for the stock options granted in 2020.

There were no stock options granted in 2022 and 2021.

Dividend rate 2.37 %

Risk-free interest rate 0.65 %

Expected option life (years) 5.0

Price volatility 42.42 %

As of December 31, 2022, there was approximately $ 0.9 million of total unrecognized compensation expense related to the stock options, which is expected to be recognized over a weighted-average remaining life of approximately 5 months.

As of December 31, 2023, there was no unrecognized compensation expense related to the stock options.

Stock Appreciation Rights (SARS):

No SARS were granted in the years ended December 31, 2022, 2021 and 2020.

The following table summarizes the Company’s SARS activity during the years ended December 31, 2022, 2021 and 2020:

No SARS were granted or forfeited in the years ended December 31, 2023, 2022 and 2021.

The following table summarizes the Company’s SARS activity:

Years ended December 31

2023 2022 2021

(shares in thousands) Shares Weighted

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

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

Exercised during the year — — — — ( 261 ) 50.63

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The performance contingent shares are earned based on the achievement of a cumulative financial performance target, which ranges from less than one year to a seven-year period and vest at the conclusion of the measurement period.

The following table summarizes the activity for restricted stock for the years ended December 31, 2022, 2021 and 2020:

The following table summarizes the activity for restricted stock:

Year Ended December 31

2023 2022 2021

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SEGMENT INFORMATION

The Company has two reportable segments, Manufacturing and Distribution, which are based on its method of internal reporting, which segregates its businesses based on the way in which its chief operating decision maker allocates resources, evaluates financial results, and determines compensation.

Financial results for the Company's reportable segments have been prepared using a management approach, which is consistent with the basis and manner in which financial information is evaluated by the Company's Chief Operating Decision Maker (CODM) in allocating resources and in assessing performance.

The Company has two reportable segments, Manufacturing and Distribution, which are based on its method of internal reporting, which segregates its businesses based on the way in which its CODM allocates resources, evaluates financial results, and determines compensation.

The Company does not measure profitability at the end market (RV, marine, MH and industrial) level.

A description of the Company’s reportable segments is as follows:

Manufacturing – This segment includes the following products:

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interior passage doors;

roofing products;

laminate and ceramic flooring;

3 unchanged sentences

and other miscellaneous products in addition to providing transportation and logistics services.

The accounting policies of the segments are the same as those described in Note 1, except that segment data includes intersegment sales.

The accounting policies of the segments are the same as those described in Note 1 "Basis of Presentation and Significant Accounting Policies" except that segment data includes intersegment sales.

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.

3 unchanged sentences

The Company evaluates the performance of its segments and allocates resources to them based on a variety of indicators including but not limited to sales and operating income as presented in the tables below.

The tables below present information that is provided to the chief operating decision maker of the Company as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020 (in thousands):

The tables below present information that is provided to the CODM of the Company as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021 (in thousands):

Year Ended December 31

Manufacturing Distribution Total

6 unchanged sentences

Depreciation and amortization 126,431 12,710 139,141

Year Ended December 31

Manufacturing Distribution Total

6 unchanged sentences

Depreciation and amortization 114,782 11,422 126,204

Year Ended December 31

Manufacturing Distribution Total

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A reconciliation of certain line items pertaining to the total reportable segments to the consolidated financial statements as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021 is as follows (in thousands):

Year Ended December 31

2023 2022 2021

7 unchanged sentences

Consolidated operating income $ 260,200 $ 496,170 $ 351,712

As of December 31

Total assets:

3 unchanged sentences

Consolidated total assets $ 2,562,448 $ 2,782,471

Year Ended December 31

Depreciation and amortization:

2023 2022 2021

Depreciation and amortization for reportable segments $ 139,141 $ 126,204 $ 100,689

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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, 2022, 2021 and 2020 and trade receivables balances at December 31, 2022 and 2021 as shown in the table below:

The Company had two major customers that accounted for the following sales in our Manufacturing and Distribution segments for the years ended December 31, 2023, 2022 and 2021 and trade receivables balances as of December 31, 2023 and 2022 as shown in the table below:

Year Ended December 31

Net sales 15 % 21 % 24 %

2 unchanged sentences

Trade receivables 5 % 6 %

QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly financial data for the years ended December 31, 2022 and 2021 is as follows:

(thousands except per share data) 1Q 2Q 3Q 4Q 2022

Net sales $ 1,342,175 $ 1,475,693 $ 1,112,089 $ 951,915 $ 4,881,872

Gross profit 295,345 327,104 236,451 201,038 1,059,938

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

Earnings per common share (1)

Basic $ 5.00 $ 5.24 $ 2.66 $ 1.85 $ 14.82

Diluted 4.54 4.79 2.43 1.68 13.49

Cash dividends paid per common share $ 0.33 $ 0.33 $ 0.33 $ 0.45 $ 1.44

(thousands except per share data) 1Q 2Q 3Q 4Q 2021

Net sales $ 850,483 $ 1,019,953 $ 1,060,177 $ 1,147,479 $ 4,078,092

Gross profit 161,532 204,477 208,161 227,024 801,194

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

Earnings per common share (1)

Basic $ 2.09 $ 2.57 $ 2.52 $ 2.69 $ 9.87

Diluted 2.04 2.52 2.45 2.62 9.63

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

(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.

SUBSEQUENT EVENTS

In January 2024, the Company announced that it completed its acquisition of Sportech, LLC, a leading designer and manufacturer of high-value, complex component solutions sold to powersports OEMs, adjacent market OEMs and the aftermarket.

The aggregate purchase price for the acquisition (excluding working capital adjustments) was $ 315 million which was funded with borrowings under the Revolver due 2027 and cash on hand.

As of the purchase date, we will record a preliminary purchase price allocation for the assets acquired and liabilities assumed in connection with the acquisition.

We expect to allocate a significant portion of the purchase price to identifiable intangible assets and goodwill.

Certain portions of the goodwill balance will not be deductible for tax purposes.

The Company will perform its valuation of net assets, based on facts and circumstances that existed as of the transaction date, over a period not to exceed 12 months, and adjustments will be recorded in the periods in which they are determined.

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