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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED October 1, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ……………… to ………………
 
Commission file number 000-03922
 
Patrick_logo-01.jpg
PATRICK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

Indiana35-1057796
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
                              
107 WEST FRANKLIN STREET, P.O. Box 638
ELKHART, IN
46515
(Address of principal executive offices) (ZIP Code)
 (574) 294-7511
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
 Common Stock, no par value PATKNASDAQ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.                             
Large accelerated filer Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).         Yes ☐ No
As of October 27, 2023, there were 22,134,344 shares of the registrant’s common stock outstanding. 




PATRICK INDUSTRIES, INC.

 TABLE OF CONTENTS 

Page No.
PART I. FINANCIAL INFORMATION 
  
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Statements of Income
   Third Quarter and Nine Months ended October 1, 2023 and September 25, 2022
 
Condensed Consolidated Statements of Comprehensive Income
   Third Quarter and Nine Months ended October 1, 2023 and September 25, 2022
Condensed Consolidated Balance Sheets
   October 1, 2023 and December 31, 2022
Condensed Consolidated Statements of Cash Flows
   Nine Months ended October 1, 2023 and September 25, 2022
Condensed Consolidated Statements of Shareholders' Equity
   Third Quarter and Nine Months ended October 1, 2023 and September 25, 2022
Notes to Condensed Consolidated Financial Statements
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
ITEM 4. CONTROLS AND PROCEDURES
 
PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
 
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
 
SIGNATURES

2




PART 1: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

Third Quarter EndedNine Months Ended
($ in thousands, except per share data)October 1, 2023September 25, 2022October 1, 2023September 25, 2022
NET SALES$866,073 $1,112,089 $2,686,858 $3,929,957 
Cost of goods sold666,954 875,638 2,083,527 3,071,057 
GROSS PROFIT199,119 236,451 603,331 858,900 
Operating expenses:   
  Warehouse and delivery37,664 39,997 109,540 125,213 
  Selling, general and administrative70,873 84,924 231,814 250,969 
  Amortization of intangible assets19,507 18,769 59,093 54,175 
    Total operating expenses128,044 143,690 400,447 430,357 
OPERATING INCOME71,075 92,761 202,884 428,543 
Interest expense, net16,879 15,302 53,623 44,990 
Income before income taxes54,196 77,459 149,261 383,553 
Income taxes14,646 18,640 37,181 95,537 
NET INCOME$39,550 $58,819 $112,080 $288,016 
BASIC EARNINGS PER COMMON SHARE $1.84 $2.66 $5.20 $12.93 
DILUTED EARNINGS PER COMMON SHARE $1.81 $2.43 $5.09 $11.78 
Weighted average shares outstanding – Basic 21,51122,08721,54122,274
Weighted average shares outstanding – Diluted 21,88424,41322,06324,573
See accompanying Notes to Condensed Consolidated Financial Statements.




3



PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

Third Quarter EndedNine Months Ended
($ in thousands)October 1, 2023September 25, 2022October 1, 2023September 25, 2022
NET INCOME$39,550 $58,819 $112,080 $288,016 
Other comprehensive income, net of tax:
Unrealized gain of hedge derivatives   757 
Foreign currency translation loss(10)(118)(109)(164)
Total other comprehensive income (loss)(10)(118)(109)593 
COMPREHENSIVE INCOME$39,540 $58,701 $111,971 $288,609 
See accompanying Notes to Condensed Consolidated Financial Statements.

4



PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
As of
($ in thousands)October 1, 2023December 31, 2022
ASSETS
Current Assets
    Cash and cash equivalents$16,450 $22,847 
    Trade and other receivables, net240,850 172,890 
    Inventories517,657 667,841 
    Prepaid expenses and other36,296 46,326 
        Total current assets811,253 909,904 
Property, plant and equipment, net358,266 350,572 
Operating lease right-of-use assets170,128 163,674 
Goodwill637,393 629,263 
Intangible assets, net670,763 720,230 
Other non-current assets8,140 8,828 
        TOTAL ASSETS$2,655,943 $2,782,471 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
    Current maturities of long-term debt$7,500 $7,500 
    Current operating lease liabilities47,262 44,235 
    Accounts payable148,239 142,910 
    Accrued liabilities132,813 172,595 
        Total current liabilities335,814 367,240 
Long-term debt, less current maturities, net1,104,618 1,276,149 
Long-term operating lease liabilities126,231 122,471 
Deferred tax liabilities, net47,390 48,392 
Other long-term liabilities10,587 13,050 
        TOTAL LIABILITIES1,624,640 1,827,302 
SHAREHOLDERS’ EQUITY  
Common stock201,680 197,003 
Accumulated other comprehensive loss(804)(695)
Retained earnings830,427 758,861 
        TOTAL SHAREHOLDERS’ EQUITY1,031,303 955,169 
        TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$2,655,943 $2,782,471 

See accompanying Notes to Condensed Consolidated Financial Statements.

5



PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
($ in thousands)October 1, 2023September 25, 2022
CASH FLOWS FROM OPERATING ACTIVITIES  
Net income$112,080 $288,016 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization 107,976 96,256 
Stock-based compensation expense13,675 15,596 
Amortization of convertible notes debt discount823 1,399 
(Gain) loss on sale of property, plant and equipment242 (5,713)
Other non-cash items2,959 5,049 
Change in operating assets and liabilities, net of acquisitions of businesses: 
Trade and other receivables, net(68,114)(92,199)
Inventories154,634 (85,091)
Prepaid expenses and other assets9,098 31,058 
Accounts payable, accrued liabilities and other(39,543)(24,563)
Net cash provided by operating activities293,830 229,808 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment(47,430)(63,437)
Proceeds from sale of property, plant and equipment946 7,441 
Business acquisitions, net of cash acquired(26,009)(152,888)
Purchases of intangible assets(2,970) 
Net cash used in investing activities(75,463)(208,884)
CASH FLOWS FROM FINANCING ACTIVITIES
Term debt repayments(5,625)(3,750)
Borrowings on revolver482,194 703,402 
Repayments on revolver(477,482)(703,402)
Repayments of convertible notes(172,500) 
Stock repurchases under buyback program(12,230)(46,984)
Cash dividends paid to shareholders(30,260)(23,007)
Taxes paid for share-based payment arrangements(8,762)(10,036)
Payment of deferred financing costs and other (2,142)
Payment of contingent consideration from a business acquisition(1,430)(4,780)
Proceeds from exercise of common stock options1,413 195 
Other financing activities(82) 
Net cash used in financing activities(224,764)(90,504)
Decrease in cash and cash equivalents(6,397)(69,580)
Cash and cash equivalents at beginning of year22,847 122,849 
Cash and cash equivalents at end of period$16,450 $53,269 

See accompanying Notes to Condensed Consolidated Financial Statements.
6



PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

Third Quarter Ended October 1, 2023
($ in thousands)Common
Stock
Additional Paid-in CapitalAccumulated Other
Comprehensive Loss
Retained
Earnings
Total
Balance July 2, 2023$196,912 $ $(794)$801,304 $997,422 
Net income   39,550 39,550 
Dividends declared   (10,021)(10,021)
Other comprehensive loss, net of tax  (10) (10)
Stock repurchases under buyback program(54)  (406)(460)
Repurchases of shares for tax payments related to the vesting and exercising of share-based grants(1,177)   (1,177)
Issuance of shares upon exercise of common stock options270    270 
Stock-based compensation expense5,729    5,729 
Balance October 1, 2023$201,680 $ $(804)$830,427 $1,031,303 

Third Quarter Ended September 25, 2022
($ in thousands)Common
Stock
Additional Paid-in CapitalAccumulated Other
Comprehensive Loss
Retained
Earnings
Total
Balance June 26, 2022$191,295 $ $(1,517)$707,812 $897,590 
Net income— — — 58,819 58,819 
Dividends declared— — — (7,540)(7,540)
Other comprehensive loss, net of tax— — (118)— (118)
Stock repurchases under buyback program(1,293)— — (6,147)(7,440)
Repurchase of shares for tax payments related to the vesting and exercising of share-based grants(1)— — — (1)
Issuance of shares upon exercise of common stock options14 — — — 14 
Stock-based compensation expense5,352 — — — 5,352 
Balance September 25, 2022$195,367 $ $(1,635)$752,944 $946,676 
7



Nine Months Ended October 1, 2023
($ in thousands)Common
Stock
Additional Paid-in CapitalAccumulated Other
Comprehensive Loss
Retained
Earnings
Total
Balance December 31, 2022$197,003 $ $(695)$758,861 $955,169 
Net income   112,080 112,080 
Dividends declared   (29,927)(29,927)
Other comprehensive loss, net of tax  (109) (109)
Share repurchases under buyback program(1,649)  (10,587)(12,236)
Repurchases of shares for tax payments related to the vesting and exercise of share-based grants(8,762)   (8,762)
Issuance of shares upon exercise of common stock options1,413    1,413 
Stock-based compensation expense13,675    13,675 
Balance October 1, 2023$201,680 $ $(804)$830,427 $1,031,303 

Nine Months Ended September 25, 2022
($ in thousands)Common
Stock
Additional Paid-in CapitalAccumulated Other
Comprehensive Loss
Retained
Earnings
Total
Balance December 31, 2021$196,383 $59,668 $(2,228)$513,734 $767,557 
Impact of adoption of ASU 2020-06— (59,668)— 15,975 (43,693)
Net income— — — 288,016 288,016 
Dividends declared— — — (22,803)(22,803)
Other comprehensive income, net of tax— — 593 — 593 
Share repurchases under buyback program(6,771)— — (41,978)(48,749)
Repurchases of shares for tax payments related to the vesting and exercise of share-based grants(10,036)— — — (10,036)
Issuance of shares upon exercise of common stock options195 — — — 195 
Stock-based compensation expense15,596 — — — 15,596 
Balance September 25, 2022$195,367 $ $(1,635)$752,944 $946,676 

See accompanying Notes to Condensed Consolidated Financial Statements.
8




PATRICK INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Patrick Industries, Inc. (“Patrick”, the “Company”, "we", "our") contain all adjustments (consisting of normal recurring adjustments) that we believe are necessary to present fairly the Company’s financial position as of October 1, 2023 and December 31, 2022, its results of operations for the third quarter and nine months ended October 1, 2023 and September 25, 2022, and its cash flows for the nine months ended October 1, 2023 and September 25, 2022.
Patrick's unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The accompanying unaudited condensed consolidated financial statements for Patrick do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to Patrick’s Audited Consolidated Financial Statements for the year ended December 31, 2022, and corresponding notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 24, 2023.
The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning approximately thirteen weeks. The first quarter ends on the Sunday closest to the end of the first thirteen-week period. The second and third quarters are thirteen weeks in duration and the fourth quarter is the remainder of the year. The third quarter of fiscal year 2023 ended on October 1, 2023 and the third quarter of fiscal year 2022 ended on September 25, 2022.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 24, 2023
New Accounting Standards
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASUs”) to the FASB’s Accounting Standards Codification.
The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company’s unaudited condensed consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In October 2023, the 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.
9



NOTE 3. REVENUE RECOGNITION
In the following table, revenue from contracts with customers, net of intersegment sales, is disaggregated by market type and by reportable segment:
Third Quarter Ended October 1, 2023
($ in thousands)ManufacturingDistributionTotal
Market type:
Recreational Vehicle$273,804 $126,300 $400,104 
Marine193,066 12,148 205,214 
Manufactured Housing66,671 79,030 145,701 
Industrial107,644 7,410 115,054 
Total$641,185 $224,888 $866,073 
Third Quarter Ended September 25, 2022
($ in thousands)ManufacturingDistributionTotal
Market type:
Recreational Vehicle$355,791 $167,784 $523,575 
Marine256,357 14,768 271,125 
Manufactured Housing85,767 89,676 175,443 
Industrial130,495 11,451 141,946 
Total$828,410 $283,679 $1,112,089 
Nine Months Ended October 1, 2023
($ in thousands)ManufacturingDistributionTotal
Market type:
Recreational Vehicle$780,993 $369,643 $1,150,636 
Marine705,399 44,160 749,559 
Manufactured Housing196,179 226,919 423,098 
Industrial339,108 24,457 363,565 
Total$2,021,679 $665,179 $2,686,858 
Nine Months Ended September 25, 2022
($ in thousands)ManufacturingDistributionTotal
Market type:
Recreational Vehicle$1,501,151 $680,463 $2,181,614 
Marine736,854 45,568 782,422 
Manufactured Housing269,773 279,625 549,398 
Industrial384,216 32,307 416,523 
Total$2,891,994 $1,037,963 $3,929,957 
Contract Liabilities
Contract liabilities, representing upfront payments from customers received prior to satisfying performance obligations, were immaterial as of the beginning and end of all periods presented and changes in contract liabilities were immaterial during all periods presented.
10



NOTE 4. INVENTORY
Inventories consist of the following:
($ in thousands)October 1, 2023December 31, 2022
Raw materials$276,681 $348,670 
Work in process19,635 22,630 
Finished goods107,840 141,516 
Less: reserve for inventory obsolescence(20,297)(14,059)
  Total manufactured goods, net383,859 498,757 
Materials purchased for resale (distribution products)142,394 175,061 
Less: reserve for inventory obsolescence(8,596)(5,977)
  Total materials purchased for resale (distribution products), net133,798 169,084 
Total inventories$517,657 $667,841 
NOTE 5. GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the nine months ended October 1, 2023 by segment are as follows:
($ in thousands)ManufacturingDistributionTotal
Balance - December 31, 2022$558,362 $70,901 $629,263 
Acquisitions 5,905 5,905 
Adjustments to preliminary purchase price allocations2,008 217 2,225 
Balance - October 1, 2023
$560,370 $77,023 $637,393 
Intangible assets, net consist of the following as of October 1, 2023 and December 31, 2022:
($ in thousands)October 1, 2023December 31, 2022
Customer relationships$729,764 $722,503 
Non-compete agreements21,561 20,412 
Patents69,310 69,164 
Trademarks197,027 195,957 
Intangible assets, gross1,017,662 1,008,036 
Less: accumulated amortization(346,899)(287,806)
Intangible assets, net$670,763 $720,230 

Changes in the carrying value of intangible assets for the nine months ended October 1, 2023 by segment are as follows:
($ in thousands)ManufacturingDistributionTotal
Balance - December 31, 2022$622,647 $97,583 $720,230 
Additions2,970 11,100 14,070 
Amortization(50,905)(8,188)(59,093)
Adjustments to preliminary purchase price allocations(4,359)(85)(4,444)
Balance - October 1, 2023
$570,353 $100,410 $670,763 
11



NOTE 6. ACQUISITIONS
General 
Business combinations generally take place to gain key technology, expand into additional markets, or strengthen Patrick's positions in existing markets. Acquisitions are accounted for under the acquisition method of accounting. For each acquisition, the excess of the purchase consideration over the fair value of the net assets acquired is recorded as goodwill, which generally represents the combined value of the Company’s existing purchasing, manufacturing, sales, and systems resources with the organizational talent and expertise of the acquired companies’ respective management teams to maximize efficiencies, market share growth and net income.
The Company completed three acquisitions in the first nine months of 2023 (the "2023 Acquisitions"). For the third quarter and nine months ended October 1, 2023, net sales included in the Company's condensed consolidated statements of income related to the 2023 Acquisitions were $7.3 million and $9.8 million, respectively, and operating income was $(0.1) million and $0.1 million, respectively. Acquisition-related costs associated with the 2023 Acquisitions were immaterial. Assets acquired and liabilities assumed in the acquisitions were recorded on the Company's condensed consolidated balance sheet at their estimated fair values as of the respective dates of acquisition. For each acquisition, the Company completes its allocation of the purchase price to the fair value of acquired assets and liabilities within a one year measurement period. The Company completed three acquisitions in the first nine months of 2022. For the third quarter and nine months ended September 25, 2022, net sales included in the Company's condensed consolidated statements of income related to the acquisitions completed in the first nine months 2022 were $38.0 million and $87.3 million, respectively, and operating income was $6.9 million and $15.9 million, respectively.
Contingent Consideration
In connection with certain acquisitions, the Company is required to pay additional cash consideration if certain financial results of the acquired businesses are achieved. The Company records a liability for the estimated fair value of the contingent consideration related to each of these acquisitions as part of the initial purchase price based on the present value of the expected future cash flows and the probability of future payments at the date of acquisition.
Changes in the fair value of contingent consideration for the nine months ended October 1, 2023 are as follows:
($ in thousands)
Balance - December 31, 2022$9,213 
Additions3,590 
Fair value adjustments(1)
1,000 
Settlements(5,180)
Balance - October 1, 2023
$8,623 
(1) The Company records non-cash fair value adjustments to contingent consideration based on expected results, which are included in selling, general and administrative expenses in the Company's condensed consolidated statements of income for the first nine months of 2023.
12



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 October 1, 2023 and December 31, 2022:
($ in thousands)October 1, 2023December 31, 2022
Accrued liabilities$7,583 $5,250 
Other long-term liabilities1,040 3,963 
Total fair value of contingent consideration$8,623 $9,213 
Maximum amount of contingent consideration$10,167 $10,747 
2023 Acquisitions
The Company completed three acquisitions in the first nine months ended October 1, 2023, including the following previously announced acquisition:
CompanySegmentDescription
BTI TransportDistributionProvider 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 $26.4 million, plus contingent consideration over a two-year period based on future performance in connection with certain acquisitions. The preliminary purchase price allocations are subject to valuation activities being finalized, and thus certain purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates. Changes to preliminary purchase accounting estimates recorded in the third quarter and nine months ended October 1, 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"):
CompanySegmentDescription
Rockford CorporationManufacturingDesigner 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, LLCManufacturingManufacturer of wakeboard/ski towers and accessories for marine OEMs, based in Cocoa, Florida, acquired in May 2022.
TranshieldManufacturingDesigner 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. Purchase price allocations and all valuation activities in connection with the 2022 Acquisitions have been finalized, and adjustments made during the year related to changes in the preliminary purchase price allocation recorded in all periods related to the 2022 Acquisitions were immaterial and relate primarily to the valuation of intangible and fixed assets.

13



The following table summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition for the 2023 Acquisitions and 2022 Acquisitions:
2023 Acquisitions2022
Acquisitions
($ in thousands)Acquisition AAcquisition BAll OthersTotal
Consideration
Cash, net of cash acquired$26,359 $132,557 $94,705 $20,832 $248,094 
Working capital holdback and other, net(10)  (20)(20)
Contingent consideration(1)
3,500   1,840 1,840 
Total consideration$29,849 $132,557 $94,705 $22,652 $249,914 
Assets Acquired
Trade receivables$570 $20,640 $4,880 $904 $26,424 
Inventories4,407 32,744 8,732 2,352 43,828 
Prepaid expenses & other190 1,325 164 128 1,617 
Property, plant & equipment10,149 4,681 8,086 1,464 14,231 
Operating lease right-of-use assets1,044 2,917 1,435 599 4,951 
Identifiable intangible assets
Customer relationships10,370 58,000 30,970 7,055 96,025 
Non-compete agreements430 500  310 810 
Patents 7,500 9,500  17,000 
Trademarks 17,000 8,080 1,310 26,390 
Liabilities Assumed
Current portion of operating lease obligations(262)(512)(289)(273)(1,074)
Accounts payable & accrued liabilities(472)(24,521)(3,336)(1,291)(29,148)
Operating lease obligations(782)(2,405)(1,146)(326)(3,877)
Deferred tax liabilities (19,930)(12,684) (32,614)
Total fair value of net assets acquired25,644 97,939 54,392 12,232 164,563 
Goodwill(2)
5,905 34,618 40,313 10,420 85,351 
Bargain purchase gain(3)
(1,700)    
$29,849 $132,557 $94,705 $22,652 $249,914 
(1) These amounts reflect the acquisition date fair value of contingent consideration based on expected future results relating to certain acquisitions.
(2) Goodwill is not tax-deductible for Acquisition A and Acquisition B (totaling approximately $74.9 million) but is tax-deductible for the remaining 2022 Acquisitions and the 2023 Acquisitions.
(3) In connection with one of the 2023 Acquisitions, the Company anticipates it will recognize a bargain purchase gain. A bargain purchase gain is recognized when the net assets acquired in a business combination have a higher fair value than the consideration paid. This gain is primarily attributable to the fair value assigned to customer relationships, has been deferred for recognition until the Company finalizes all purchase accounting adjustments, and is included in "Accrued liabilities" on the condensed consolidated balance sheet.
14



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.
We estimate the value of customer relationships using the multi-period excess earnings method, which is a variation of the income approach, calculating the present value of incremental after-tax cash flows attributable to the asset. Non-compete agreements are valued using a discounted cash flow approach, which is a variation of the income approach, with and without the individual counterparties to the non-compete agreements. Trademarks and patents are valued using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value.
The estimated useful life for customer relationships is 10 years. The estimated useful life for non-compete agreements is 5 years. The weighted average estimated useful life for patents is 13 years, ranging from 10 to 18 years. Trademarks have an indefinite useful life.
Pro Forma Information
The following pro forma information for the third quarter and nine months ended October 1, 2023 and September 25, 2022 assumes the 2023 Acquisitions and 2022 Acquisitions occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of the 2023 Acquisitions and 2022 Acquisitions combined with the results prior to their respective acquisition dates, adjusted to reflect the pro forma impact of the acquisitions occurring as of the beginning of the year immediately preceding each such acquisition.

The pro forma information includes financing and interest expense charges based on incremental borrowings incurred in connection with each transaction. In addition, the pro forma information includes amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $0.0 million and $0.4 million, respectively, for the third quarter and nine months ended October 1, 2023, and $1.0 million and $5.1 million, respectively, for the third quarter and nine months ended September 25, 2022.
 
Third Quarter Ended
Nine Months Ended
($ in thousands, except per share data)October 1, 2023September 25, 2022October 1, 2023September 25, 2022
Revenue$866,073 $1,124,619 $2,702,753 $4,029,451 
Net income$39,550 $59,023 $112,876 $292,824 
Basic earnings per common share$1.84 $2.67 $5.24 $13.15 
Diluted earnings per common share$1.81 $2.44 $5.12 $11.97 
The pro forma information is presented for informational purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of the periods indicated above.
NOTE 7. STOCK-BASED COMPENSATION
The Company's Board of Directors (the "Board") approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the nine months ended October 1, 2023 totaling 330,359 shares in the aggregate at an average fair value of $56.28 at grant date for a total fair value at grant date of $18.6 million.
The Company recorded expense, net of forfeitures, of approximately $5.8 million and $13.7 million in the third quarter and nine months ended October 1, 2023, respectively, for its stock-based compensation plans in the condensed consolidated statements of income. Stock-based compensation expense of $5.4 million and $15.6 million was recorded in the third quarter and nine months ended September 25, 2022, respectively.
As of October 1, 2023, there was approximately $24.1 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under incentive plans. That cost is expected to be recognized over a weighted-average period of 12.4 months.
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NOTE 8. EARNINGS PER COMMON SHARE
Earnings per common share calculated for the third quarter and first nine months of 2023 and 2022 is as follows:
 
Third Quarter Ended
Nine Months Ended
($ in thousands, except per share data)October 1, 2023September 25, 2022October 1, 2023September 25, 2022
Numerator:
Earnings for basic earnings per common share calculation$39,550 $58,819 $112,080 $288,016 
Effect of interest on potentially dilutive convertible notes, net of tax 478 162 1,417 
Earnings for diluted earnings per common share calculation$39,550 $59,297 $112,242 $289,433 
Denominator:
Weighted average common shares outstanding - basic21,51122,08721,54122,274
Weighted average impact of potentially dilutive convertible notes2,0642212,053
Weighted average impact of potentially dilutive securities373262301246
Weighted average common shares outstanding - diluted21,88424,41322,06324,573
Earnings per common share:
Basic earnings per common share$1.84 $2.66 $5.20 $12.93 
Diluted earnings per common share$1.81 $2.43 $5.09 $11.78 
An immaterial amount of securities was not included in the computation of diluted earnings per common share as they are considered anti-dilutive under the treasury stock method for the periods presented.
NOTE 9. DEBT
A summary of total debt outstanding at October 1, 2023 and December 31, 2022 is as follows:
($ in thousands)October 1, 2023December 31, 2022
Long-term debt:
1.00% convertible notes due 2023
$ $172,500 
Term loan due 2027131,250 136,875 
Revolver due 202785,000 80,289 
7.50% senior notes due 2027
300,000 300,000 
1.75% convertible notes due 2028
258,750 258,750 
4.75% senior notes due 2029
350,000 350,000 
Total long-term debt1,125,000 1,298,414 
Less: convertible notes debt discount, net(5,166)(5,989)
Less: term loan deferred financing costs, net(587)(701)
Less: senior notes deferred financing costs, net(7,129)(8,075)
Less: current maturities of long-term debt(7,500)(7,500)
Total long-term debt, less current maturities, net$1,104,618 $1,276,149 
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The Company maintains a senior secured credit facility comprised of a $775 million revolving credit facility (the "Revolver due 2027") and the remaining balance of a $150 million term loan. 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 Senior Notes due 2023 (the "1.00% Convertible Notes"). All noteholders elected to receive cash in repayment of the 1.00% Convertible Notes.
The interest rate for incremental borrowings under the Revolver due 2027 at October 1, 2023 was the Secured Overnight Financing Rate (“SOFR”) plus 1.75% (or 7.17%) for the SOFR-based option. The fee payable on committed but unused portions of the Revolver due 2027 was 0.23% at October 1, 2023.
Total cash interest paid for the third quarter of 2023 and 2022 was $8.1 million and $3.8 million, respectively, and $40.8 million and $30.9 million for the comparative nine months periods, respectively.
NOTE 10. LEASES
Lease expense, supplemental cash flow information, and other information related to leases were as follows:
Third Quarter Ended
Nine Months Ended
($ in thousands)October 1, 2023September 25, 2022October 1, 2023September 25, 2022
Operating lease cost$14,350 $12,801 $41,602 $37,528 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$14,253 $12,673 $41,286 $36,909 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$14,078 $10,297 $45,420 $40,029 

Balance sheet information related to leases was as follows:
($ in thousands, except lease term and discount rate)October 1, 2023December 31, 2022
Assets
Operating lease right-of-use assets$170,128 $163,674 
Liabilities
Operating lease liabilities, current portion$47,262 $44,235 
Long-term operating lease liabilities126,231 122,471 
Total lease liabilities$173,493 $166,706 
Weighted average remaining lease term, operating leases (in years)4.85.1
Weighted average discount rate, operating leases5.1 %4.4 %
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Maturities of lease liabilities were as follows at October 1, 2023:
($ in thousands)
2023 (excluding the nine months ended October 1, 2023)$14,289 
202452,997 
202543,322 
202632,346 
202719,684 
Thereafter35,136 
Total lease payments197,774 
Less imputed interest(24,281)
Total$173,493 

As of October 1, 2023, outstanding leases have remaining lease terms ranging from one year to 16 years. The Company has additional operating leases that have not yet commenced as of October 1, 2023 and, therefore, were not included as operating right-of-use assets and corresponding operating lease liabilities on our condensed consolidated balance sheet at October 1, 2023. These operating leases are anticipated to commence in the first quarter of fiscal 2024 with lease terms of five years. The estimated fair value of these operating lease right-of-use assets and corresponding operating lease liabilities to be recorded on our balance sheet upon lease commencement is approximately $2.8 million.
NOTE 11. FAIR VALUE MEASUREMENTS
The following table presents fair values of certain assets and liabilities at October 1, 2023 and December 31, 2022:
October 1, 2023December 31, 2022
($ in millions)Level 1Level 2Level 3Level 1Level 2Level 3
Cash equivalents(1)
$7.1 $ $ $15.2 $ $ 
7.50% senior notes due 2027(2)
$ $288.1 $ $ $293.9 $ 
4.75% senior notes due 2029(2)
$ $292.6 $ $ $293.8 $ 
1.00% convertible notes due 2023(2)
$ $ $ $ $172.0 $ 
1.75% convertible notes due 2028(2)
$ $247.2 $ $ $219.9 $ 
Term loan due 2027(3)
$ $131.3 $ $ $136.9 $ 
Revolver due 2027(3)
$ $85.0 $ $ $80.3 $ 
Contingent consideration(4)
$ $ $8.6 $ $ $9.2 
(1) The carrying amounts of cash equivalents, representing government and other money market funds traded in an active market with relatively short maturities, are reported on the condensed consolidated balance sheet as of October 1, 2023 and December 31, 2022 as a component of "Cash and cash equivalents".
(2) The amounts of these notes listed above are the current fair values for disclosure purposes only, and they are recorded in the Company's condensed consolidated balance sheets as of October 1, 2023 and December 31, 2022 using the interest rate method. Repayment of the 1.00% Convertible Notes at maturity is discussed further in Note 9 "Debt".
(3) The carrying amounts of our Term loan due 2027 and Revolver due 2027 approximate fair value as of October 1, 2023 and December 31, 2022 based upon their terms and conditions in comparison to the terms and conditions of debt instruments with similar terms and conditions available at those dates.
(4) The estimated fair value of the Company's contingent consideration is discussed further in Note 6 "Acquisitions".
NOTE 12. INCOME TAXES
The effective tax rate in the third quarter of 2023 and 2022 was 27.0% and 24.1%, respectively, and the effective tax rate for the comparable nine months periods was 24.9% and 24.9%, respectively. The first nine months of 2023 and 2022
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rates include the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense in the amount of $2.3 million and $4.0 million, respectively.
 
Cash paid for income taxes, net of refunds, was $16.9 million and $65.9 million, respectively, in the third quarter and first nine months of 2023 and $38.4 million and $114.9 million, respectively, in the third quarter and first nine months of 2022.
NOTE 13. SEGMENT INFORMATION
Financial results for the Company's reportable segments have been prepared using a management approach, which is consistent with the basis and manner in which financial information is evaluated by the Company's Chief Operating Decision Maker (CODM) in allocating resources and in assessing performance. The Company has two reportable segments, Manufacturing and Distribution. The operating results of the operating segments are regularly reviewed by the Company’s CODM, the Chief Executive Officer, to assess the performance of the individual operating segments and to make decisions about resources to be allocated to the operating segments.
The tables below present information about the sales and operating income of those segments. 
Third Quarter Ended October 1, 2023   
($ in thousands)ManufacturingDistributionTotal
Net outside sales$641,185 $224,888 $866,073 
Intersegment sales18,308 1,971 20,279 
Total sales$659,493 $226,859 $886,352 
Operating income$80,777 $24,026 $104,803 
Third Quarter Ended September 25, 2022   
($ in thousands)ManufacturingDistributionTotal
Net outside sales$828,410 $283,679 $1,112,089 
Intersegment sales18,481 2,859 21,340 
Total sales$846,891 $286,538 $1,133,429 
Operating income$109,462 $27,228 $136,690 
Nine Months Ended October 1, 2023   
($ in thousands)ManufacturingDistributionTotal
Net outside sales$2,021,679 $665,179 $2,686,858 
Intersegment sales50,920 6,585 57,505 
Total sales$2,072,599 $671,764 $2,744,363 
Operating income$263,146 $68,172 $331,318 
Nine Months Ended September 25, 2022   
($ in thousands)ManufacturingDistributionTotal
Net outside sales$2,891,994 $1,037,963 $3,929,957 
Intersegment sales62,426 7,943 70,369 
Total sales$2,954,420 $1,045,906 $4,000,326 
Operating income$460,691 $116,835 $577,526 
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The following table presents a reconciliation of segment operating income to consolidated operating income:
 Third Quarter Ended Nine Months Ended
($ in thousands)October 1, 2023September 25, 2022October 1, 2023September 25, 2022
Operating income for reportable segments$104,803 $136,690 $331,318 $