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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 March 27, 2022
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
 
patk-20220327_g1.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)
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
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
As of April 22, 2022, there were 23,004,770 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
   First Quarter ended March 27, 2022 and March 28, 2021
 
Condensed Consolidated Statements of Comprehensive Income
   First Quarter ended March 27, 2022 and March 28, 2021
Condensed Consolidated Balance Sheets
   March 27, 2022 and December 31, 2021
Condensed Consolidated Statements of Cash Flows
   First Quarter ended March 27, 2022 and March 28, 2021
Condensed Consolidated Statements of Shareholders' Equity
   First Quarter ended March 27, 2022 and March 28, 2021
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 1A. RISK FACTORS
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
ITEM 6. EXHIBITS
 
SIGNATURES

2




PART 1: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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

First Quarter Ended
(thousands except per share data)March 27, 2022March 28, 2021
NET SALES$1,342,175 $850,483 
Cost of goods sold1,046,830 688,951 
GROSS PROFIT295,345 161,532 
Operating Expenses:  
  Warehouse and delivery41,169 29,913 
  Selling, general and administrative75,560 51,232 
  Amortization of intangible assets16,861 11,906 
    Total operating expenses133,590 93,051 
OPERATING INCOME161,755 68,481 
Interest expense, net14,886 11,179 
Income before income taxes146,869 57,302 
Income taxes34,196 9,789 
NET INCOME$112,673 $47,513 
BASIC NET INCOME PER COMMON SHARE $5.00 $2.09 
DILUTED NET INCOME PER COMMON SHARE $4.54 $2.04 
Weighted average shares outstanding – Basic 22,51722,737
Weighted average shares outstanding – Diluted 24,88223,286
See accompanying Notes to Condensed Consolidated Financial Statements.




3



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

First Quarter Ended
(thousands)March 27, 2022March 28, 2021
NET INCOME$112,673 $47,513 
Other comprehensive income, net of tax:
Unrealized gain of hedge derivatives757 975 
Other29 (59)
Total other comprehensive income786 916 
COMPREHENSIVE INCOME$113,459 $48,429 
See accompanying Notes to Condensed Consolidated Financial Statements.

4



PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
As of
(thousands)March 27, 2022December 31, 2021
ASSETS
Current Assets
    Cash and cash equivalents$63,846 $122,849 
    Trade and other receivables, net354,489 172,392 
    Inventories698,712 614,356 
    Prepaid expenses and other57,358 64,478 
        Total current assets1,174,405 974,075 
Property, plant and equipment, net328,003 319,493 
Operating lease right-of-use assets170,875 158,183 
Goodwill600,119 551,377 
Intangible assets, net690,610 640,456 
Other non-current assets7,368 7,147 
        TOTAL ASSETS$2,971,380 $2,650,731 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
    Current maturities of long-term debt$7,500 $7,500 
    Current operating lease liabilities42,841 40,301 
    Accounts payable240,694 203,537 
    Accrued liabilities205,280 181,439 
        Total current liabilities496,315 432,777 
Long-term debt, less current maturities, net1,489,811 1,278,989 
Long-term operating lease liabilities130,550 120,161 
Deferred tax liabilities, net40,515 36,453 
Other long-term liabilities14,217 14,794 
        TOTAL LIABILITIES2,171,408 1,883,174 
SHAREHOLDERS’ EQUITY  
Common stock188,433 196,383 
Additional paid-in-capital 59,668 
Accumulated other comprehensive loss(1,442)(2,228)
Retained earnings612,981 513,734 
        TOTAL SHAREHOLDERS’ EQUITY799,972 767,557 
        TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$2,971,380 $2,650,731 

See accompanying Notes to Condensed Consolidated Financial Statements.

5



PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
First Quarter Ended
(thousands)March 27, 2022March 28, 2021
CASH FLOWS FROM OPERATING ACTIVITIES  
Net income$112,673 $47,513 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization 30,201 22,521 
Stock-based compensation expense5,111 4,298 
Amortization of convertible notes debt discount449 1,769 
(Gain) loss on sale of property, plant and equipment(5,501)45 
Other non-cash items1,697 1,550 
Change in operating assets and liabilities, net of acquisitions of businesses: 
Trade and other receivables, net(160,883)(76,350)
Inventories(51,769)(24,398)
Prepaid expenses and other assets7,198 9,587 
Accounts payable, accrued liabilities and other37,785 63,757 
Net cash (used in) provided by operating activities(23,039)50,292 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures(18,668)(14,239)
Proceeds from sale of property, plant and equipment7,146 58 
Business acquisitions, net of cash acquired(131,597)(28,864)
Other (2,000)
Net cash used in investing activities(143,119)(45,045)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolver303,712 117,475 
Repayments on revolver(149,712)(144,475)
Stock repurchases under buyback program(24,778) 
Cash dividends paid to shareholders(8,288)(6,573)
Taxes paid for share-based payment arrangements(9,999)(14,464)
Payment of contingent consideration from a business acquisition(3,780) 
Proceeds from exercise of common stock options 4,194 
Net cash provided by (used in) financing activities107,155 (43,843)
Decrease in cash and cash equivalents(59,003)(38,596)
Cash and cash equivalents at beginning of year122,849 44,767 
Cash and cash equivalents at end of period$63,846 $6,171 

See accompanying Notes to Condensed Consolidated Financial Statements.
6



PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
First Quarter Ended March 27, 2022
(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   112,673 112,673 
Dividends declared   (7,684)(7,684)
Other comprehensive income, net of tax  786  786 
Stock repurchases under buyback program(3,062)  (21,717)(24,779)
Repurchase of shares for tax payments related to the vesting and exercising of share-based grants(9,999)   (9,999)
Stock-based compensation expense5,111    5,111 
Balance March 27, 2022$188,433 $ $(1,442)$612,981 $799,972 
First Quarter Ended March 28, 2021
(thousands)Common
Stock
Additional Paid-in CapitalAccumulated Other
Comprehensive Loss
Retained
Earnings
Total
Balance December 31, 2020$180,892 $24,387 $(6,052)$360,214 $559,441 
Net income— — — 47,513 47,513 
Dividends declared— — — (6,623)(6,623)
Other comprehensive income, net of tax— — 916 — 916 
Repurchases of shares for tax payments related to the vesting and exercise of share-based grants(14,464)— — — (14,464)
Issuance of shares upon exercise of common stock options4,194 — — — 4,194 
Stock-based compensation expense4,298 — — — 4,298 
Balance March 28, 2021$174,920 $24,387 $(5,136)$401,104 $595,275 

See accompanying Notes to Condensed Consolidated Financial Statements.

7




PATRICK INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 March 27, 2022 and December 31, 2021, and its results of operations and cash flows for the three months ended March 27, 2022 and March 28, 2021.
Patrick’s unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules or regulations. Certain immaterial reclassifications have been made to the prior period presentation to conform to the current period presentation of other non-cash items in the condensed consolidated statements of cash flows. For a description of significant accounting policies used by the Company in the preparation of its consolidated financial statements, please refer to Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The December 31, 2021 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Operating results for the three months ended March 27, 2022 are not necessarily indicative of the results that we will realize or expect for the full year ending December 31, 2022.
The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning approximately thirteen weeks. 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 first quarter of fiscal year 2022 ended on March 27, 2022 and the first quarter of fiscal year 2021 ended on March 28, 2021.
In preparation of Patrick’s condensed consolidated financial statements as of and for the three months ended March 27, 2022, management evaluated all subsequent events and transactions that occurred after the balance sheet date through the date of issuance of the Form 10-Q that required recognition or disclosure in the condensed consolidated financial statements.
2.RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Accounting for Convertible Instruments and Contracts in an Entity's Own Equity
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 net income per share calculation and include the effect of potential share settlement for instruments that may be settled in cash or shares, with certain exceptions. 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 condensed consolidated financial statements as a result of the adoption of ASU 2020-06 was a reduction in non-cash interest expense for our 1.00% Convertible Notes due 2023, an increase in diluted shares outstanding used to calculate diluted net income per share and a resulting reduction in diluted net income per share for the first quarter of
8



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, 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. Additionally, in line with the adoption, our diluted share count increased by approximately 2.0 million shares, a 9.0% increase. Diluted net income per share increased $0.3 million in relation to the effect of interest on potentially dilutive convertible notes, as shown in Note 8. The adoption resulted in an overall decrease of $0.39 to diluted net income per share for the first quarter of 2022. There was no impact on the Company's condensed consolidated statement of cash flows upon adoption of ASU 2020-06.
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)", a new standard providing final guidance to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. 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. The Company is currently evaluating the impact of this standard on our condensed consolidated financial statements.

 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, consistent with how the Company believes the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors:
First Quarter Ended March 27, 2022
(thousands)ManufacturingDistributionTotal
Market type:
Recreational Vehicle$570,022 $250,582 $820,604 
Marine207,501 13,473 220,974 
Manufactured Housing84,986 88,578 173,564 
Industrial117,100 9,933 127,033 
Total$979,609 $362,566 $1,342,175 
First Quarter Ended March 28, 2021
(thousands)ManufacturingDistributionTotal
Market type:
Recreational Vehicle$329,612 $171,814 $501,426 
Marine132,338 4,471 136,809 
Manufactured Housing56,634 64,084 120,718 
Industrial82,172 9,358 91,530 
Total$600,756 $249,727 $850,483 
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.
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4.INVENTORIES
Inventories consist of the following:
(thousands)March 27, 2022December 31, 2021
Raw materials$365,387 $315,269 
Work in process30,073 30,801 
Finished goods129,442 101,763 
Less: reserve for inventory obsolescence(16,865)(9,573)
  Total manufactured goods, net508,037 438,260 
Materials purchased for resale (distribution products)197,272 181,921 
Less: reserve for inventory obsolescence(6,597)(5,825)
  Total materials purchased for resale (distribution products), net190,675 176,096 
Total inventories$698,712 $614,356 
5.GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the three months ended March 27, 2022 by segment are as follows:
(thousands)ManufacturingDistributionTotal
Balance - December 31, 2021$481,906 $69,471 $551,377 
Acquisitions45,666  45,666 
Adjustments to preliminary purchase price allocations2,966 110 3,076 
Balance - March 27, 2022$530,538 $69,581 $600,119 
Intangible assets, net consist of the following as of March 27, 2022 and December 31, 2021:
(thousands)March 27, 2022December 31, 2021
Customer relationships$656,777 $617,814 
Non-compete agreements22,851 21,284 
Patents60,988 50,038 
Trademarks181,432 165,897 
922,048 855,033 
Less: accumulated amortization(231,438)(214,577)
Intangible assets, net$690,610 $640,456 

Changes in the carrying value of intangible assets for the three months ended March 27, 2022 by segment are as follows:
(thousands)ManufacturingDistributionTotal
Balance - December 31, 2021$534,827 $105,629 $640,456 
Acquisitions70,000  70,000 
Amortization(14,314)(2,547)(16,861)
Adjustments to preliminary purchase price allocations(2,655)(330)(2,985)
Balance - March 27, 2022$587,858 $102,752 $690,610 
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6.ACQUISITIONS
General 
The Company completed one acquisition in the first quarter of 2022 (the "2022 Acquisition"). For the first quarter ended March 27, 2022, net sales included in the Company's condensed consolidated statements of income related to the 2022 Acquisition were $8.4 million, and operating income was $1.4 million. Acquisition-related costs associated with the 2022 Acquisition were immaterial. Assets acquired and liabilities assumed in the acquisition were recorded on the Company’s condensed consolidated balance sheet at their estimated fair values as of the respective date 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 four acquisitions in the first quarter of 2021. Net sales included in the Company's condensed consolidated statements of income in the first quarter ended March 28, 2021 related to acquisitions completed in the first three months of 2021 were $5.4 million, and operating income relating to acquisitions was immaterial for the same period.

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.
In connection with certain acquisitions, if certain financial results for the acquired businesses are achieved, the Company is required to pay additional cash consideration. The Company records a liability for the estimated fair value of the contingent consideration related to each of these acquisitions as part of the initial purchase price based on the present value of the expected future cash flows and the probability of future payments at the date of acquisition. As of March 27, 2022, the aggregate fair value of the estimated contingent consideration payments was $8.1 million, of which $3.7 million is included in "Accrued liabilities" and $4.4 million is included in “Other long-term liabilities” on the condensed consolidated balance sheet. At December 31, 2021, the fair value of the estimated contingent consideration payments was $12.3 million, of which $7.0 million was included in the line item "Accrued liabilities" and $5.3 million was included in "Other long-term liabilities". The liabilities for contingent consideration expire at various dates through December 2023. The contingent consideration arrangements are subject to a maximum payment amount of up to $14.0 million in the aggregate as of March 27, 2022. In the first quarter ended March 27, 2022, the Company recorded $1.1 million in non-cash increases to contingent consideration liabilities, which is reflected as charges within selling, general and administrative expense in the condensed consolidated statement of income, representing changes in the amount of consideration expected to be paid. These charges relate to changes in projected performance of certain acquisitions compared to the projected performance originally used in calculating the projected fair values of the contingent consideration of such acquisitions. In the first quarter ended March 27, 2022, the Company made cash payments of approximately $5.4 million related to contingent consideration liabilities, recording a corresponding reduction to accrued liabilities.
2022 Acquisition
The Company completed the following previously announced acquisition in the three months ended March 27, 2022:
CompanySegmentDescription
Rockford CorporationManufacturingDesigns and produces audio systems and components through its brand Rockford Fosgate®, primarily serving the powersports and automotive aftermarkets, based in Tempe, Arizona, acquired in March 2022
Total cash consideration for the 2022 Acquisition was approximately $130.1 million. The preliminary purchase price allocations are subject to valuation activities being finalized, and thus all required purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates.
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2021 Acquisitions
The Company completed the following seven previously announced acquisitions in the year ended December 31, 2021 (together with six acquisitions not described below, the "2021 Acquisitions"):
CompanySegmentDescription
Sea-Dog Corporation & Sea-Lect Plastics (collectively, "Sea-Dog")Distribution & ManufacturingDistributor of a variety of marine and powersports hardware and accessories to distributors, wholesalers, retailers, and manufacturers and provider of plastic injection molding, design, product development and tooling to companies and government entities, based in Everett, Washington, acquired in March 2021.
Hyperform, Inc.ManufacturingManufacturer of high-quality, non-slip foam flooring, operating under the SeaDek brand name, for the marine original equipment manufacturer ("OEM") market and aftermarket as well as serving the pool and spa, powersports and utility markets under the SwimDek and EndeavorDek brand names, with manufacturing facilities in Rockledge, Florida and Cocoa, Florida, acquired in April 2021.
Alpha Systems, LLCManufacturing & Distribution
Manufacturer and distributor of component products and accessories for the RV, marine, manufactured housing and industrial end markets including adhesives, sealants, rubber roofing, roto/blow molding and injection molding products, flooring, insulation, shutters, skylights, and various other products and accessories, operating out of nine facilities in Elkhart, Indiana, acquired in May 2021.
Coyote Manufacturing CompanyManufacturingDesigner, fabricator, and manufacturer of a variety of steel and aluminum products, including boat trailers, towers, T-tops, leaning posts, and other custom components primarily for the marine OEM market, based in Nashville, Georgia, acquired in August 2021.
Tumacs CoversManufacturingManufacturer of custom designed boat covers, canvas frames, and bimini tops, primarily serving large marine OEMs and dealers, headquartered in Pittsburgh, Pennsylvania, with manufacturing facilities in Indiana and Pennsylvania, and a distribution/service center in Michigan, acquired in August 2021.
Wet Sounds, Inc. & Katalyst Industries LLC (collectively "Wet Sounds")ManufacturingDesigner, engineer, and fabricator of innovative audio systems and accessories, including amplifiers, tower speakers, soundbars, and subwoofers sold directly to OEMs and consumers, and to dealers and retailers, primarily within the marine market as well as to the home audio and powersports markets and aftermarkets, based in Rosenburg, Texas, acquired in November 2021.
Williamsburg Marine LLC & Williamsburg Furniture, Inc. (collectively "Williamsburg")ManufacturingManufacturer of seating for the RV and marine end markets sold primarily to OEMs, based in Milford and Nappanee, Indiana, acquired in November 2021.
Total cash consideration for the 2021 Acquisitions was approximately $510.2 million, plus contingent consideration over a one to three-year period based on future performance in connection with certain acquisitions. The preliminary purchase price allocations are subject to valuation activities being finalized, primarily related to the valuation of property, plant, and equipment and intangible assets, and thus certain purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates. Changes to preliminary purchase accounting estimates recorded in the first quarter ended March 27, 2022 related to the 2021 Acquisitions, individually and in the aggregate, were immaterial and relate primarily to the valuation of intangible and fixed assets.


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The following table summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition for the 2022 Acquisition and the 2021 Acquisitions:
(thousands)2022 Acquisition2021 Acquisitions
Consideration
Cash, net of cash acquired(1)
$130,058 $510,229 
Working capital holdback and other, net(2)
2,500 (1,190)
Common stock issuance(3)
 10,211 
Contingent consideration(4)
 4,730 
Total consideration132,558 523,980 
Assets Acquired
Trade receivables$20,526 $26,224 
Inventories32,744 69,343 
Prepaid expenses & other478 13,740 
Property, plant & equipment5,270 55,567 
Operating lease right-of-use assets2,917 25,530 
Identifiable intangible assets70,000 242,460 
Liabilities Assumed
Current portion of operating lease obligations(512)(5,518)
Accounts payable & accrued liabilities(25,452)(32,326)
Operating lease obligations(2,924)(20,012)
Deferred tax liabilities(16,155)(1,996)
Total fair value of net assets acquired86,892 373,012 
Goodwill(5)
45,666 150,968 
$132,558 $523,980 
(1) Amounts include cash used to pay off outstanding debt obligations at the time of acquisition.
(2) Certain acquisitions contain working capital holdbacks which are typically settled after a 90-day period following the close of the acquisition. This value represents the remaining amounts due to (from) sellers as of March 27, 2022.
(3) In connection with one of the 2021 Acquisitions, the Company issued 113,961 shares of common stock at a closing price of $89.60 as of the acquisition date.
(4) These amounts reflect the acquisition date fair value of contingent consideration based on future results relating to certain acquisitions.
(5) Goodwill is not tax-deductible for the 2022 Acquisition and is tax-deductible for the 2021 Acquisitions, except Tumacs Covers (approximately $6.2 million).

We estimate the value of acquired property, plant, and equipment using a combination of the income, cost, and market approaches, such as estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the acquired businesses.
We estimate the value of customer relationships using the multi-period excess earnings method, which is a variation on 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 an 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.
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The following table presents our estimates of identifiable intangible assets for the 2022 Acquisition and the 2021 Acquisitions:
(thousands, except year data)Estimated Useful Life (in years)2022 Acquisition2021 Acquisitions
Customer relationships10$42,000 $157,916 
Non-compete agreements52,100 4,862 
Patents
10 - 18
10,500 27,310 
TrademarksIndefinite15,400 52,372 
$70,000 $242,460 
Pro Forma Information
The following pro forma information for the first quarter ended March 27, 2022 and March 28, 2021 assumes the 2022 Acquisition and the 2021 Acquisitions occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of the 2022 Acquisition and 2021 Acquisitions combined with the results prior to their respective acquisition dates, adjusted to reflect the pro forma impact of the acquisitions occurring as of the beginning of the year immediately preceding each such acquisition.

The pro forma information includes financing and interest expense charges based on incremental borrowings incurred in connection with each transaction. In addition, the pro forma information includes amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $0.8 million and $5.9 million for the first quarter ended March 27, 2022 and March 28, 2021, respectively.
 First Quarter Ended
(thousands, except per share data)March 27, 2022March 28, 2021
Revenue$1,369,234 $989,281 
Net income114,665 58,986 
Basic net income per common share5.09 2.59 
Diluted net income per common share4.62 2.53 
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.
7.STOCK-BASED COMPENSATION
The Company recorded stock-based compensation expense of approximately $5.1 million and $4.3 million in the first quarter ended March 27, 2022 and March 28, 2021, respectively, for its stock-based compensation plans in the condensed consolidated statements of income.
The Board approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the first quarter ended March 27, 2022 totaling 220,450 shares in the aggregate at an average fair value of $64.74 at grant date for a total fair value at grant date of $14.4 million.
As of March 27, 2022, there was approximately $35.3 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 21.1 months.
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8.NET INCOME PER COMMON SHARE
Net income per common share calculated for the first quarter of 2022 and 2021 is as follows:
 First Quarter Ended
(thousands except per share data)March 27, 2022March 28, 2021
Numerator:
Net income for basic per share calculation$112,673 $47,513 
Effect of interest on potentially dilutive convertible notes, net of tax317  
Net income for dilutive per share calculation$112,990 $47,513 
Denominator:
Weighted average common shares outstanding - basic22,51722,737
Weighted average impact of potentially dilutive convertible notes2,046
Weighted average impact of potentially dilutive securities319549
Weighted average common shares outstanding - diluted24,88223,286
Net income per common share:
Basic net income per common share$5.00 $2.09 
Diluted net income per common share$4.54 $2.04 
An immaterial amount of securities was not included in the computation of diluted income per share as they are considered anti-dilutive under the treasury stock method for all periods presented.
9.DEBT
A summary of total debt outstanding at March 27, 2022 and December 31, 2021 is as follows:
(thousands)March 27, 2022December 31, 2021
Long-term debt:
1.00% convertible notes due 2023
$172,500 $172,500 
Term loan due 2026144,375 144,375 
Revolver due 2026289,000 135,000 
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 debt1,514,625 1,360,625 
Less: convertible notes debt discount, net(7,750)(64,245)
Less: term loan deferred financing costs, net(588)(624)
Less: senior notes deferred financing costs, net(8,976)(9,267)
Less: current maturities of long-term debt(7,500)(7,500)
Total long-term debt, less current maturities, net$1,489,811 $1,278,989 
There were no material changes to any of our debt arrangements during the quarter ended March 27, 2022. The decrease in the convertible notes debt discount reflects the impact of the adoption of ASU 2020-06 on the carrying value of the convertible notes.
15



The interest rate for incremental borrowings at March 27, 2022 was LIBOR plus 1.50% (or 1.75%) for the LIBOR-based option. The fee payable on committed but unused portions of the Revolver due 2026 was 0.20% at March 27, 2022.
Total cash interest paid for the first quarter of 2022 and 2021 was $3.2 million and $3.3 million, respectively.
10.DERIVATIVE FINANCIAL INSTRUMENTS
The Company's credit facility exposes the Company to risks associated with the variability in interest expense associated with fluctuations in LIBOR. To partially mitigate this risk, the Company previously entered into interest rate swaps, which matured in March 2022, and therefore have no further associated liability as of March 27, 2022.
The following table summarizes the fair value of derivative contracts included in the condensed consolidated balance sheets (in thousands):
Fair value of derivative instruments
Derivatives accounted for as cash flow hedgesBalance sheet locationMarch 27, 2022December 31, 2021
Interest rate swapsAccrued liabilities$ $1,017 
The interest rate swaps were comprised of over-the-counter derivatives, which are valued using models that primarily rely on observable inputs such as yield curves and are classified as Level 2 in the fair value hierarchy.
11.LEASES
Lease expense, supplemental cash flow information, and other information related to leases were as follows:
First Quarter Ended
(thousands)March 27, 2022March 28, 2021
Operating lease cost$12,164 $9,585 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$11,927 $9,387 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$23,725 $15,185 
Balance sheet information related to leases was as follows:
(thousands, except lease term and discount rate)March 27, 2022December 31, 2021
Assets
Operating lease right-of-use assets$170,875 $158,183 
Liabilities
Operating lease liabilities, current portion$42,841 $40,301 
Long-term operating lease liabilities130,550 120,161 
Total lease liabilities$173,391 $160,462 
Weighted average remaining lease term, operating leases (in years)5.1
Weighted average discount rate, operating leases3.8 %
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Maturities of lease liabilities were as follows at March 27, 2022:
(thousands)
2022 (excluding the three months ended March 27, 2022)$36,617 
202344,562 
202436,461 
202526,795 
202617,545 
Thereafter31,411 
Total lease payments193,391 
Less imputed interest(20,000)
Total$173,391 

As of March 27, 2022, outstanding leases have remaining lease terms ranging from 1 year to 17 years.

12.FAIR VALUE MEASUREMENTS
The following table presents fair values of certain assets and liabilities at March 27, 2022 and December 31, 2021:
March 27, 2022December 31, 2021
(in millions)Level 1Level 2Level 3Level 1Level 2Level 3
Cash equivalents(1)
$0.4 $ $ $118.4 $ $ 
7.50% senior notes due 2027(2)
 309.3   319.5  
4.75% senior notes due 2029(2)
 307.0   350.6  
1.75% convertible notes due 2028(2)
 237.2   269.8  
1.00% convertible notes due 2023(2)
 170.8   194.1  
Term loan due 2026(3)
 144.4   144.4  
Revolver due 2026(3)
 289.0   135.0  
Interest rate swaps(4)
    1.0  
Contingent consideration(5)
  8.1   12.3 
(1) The carrying amounts of cash equivalents, representing government and other money market funds traded in an active market with relatively short maturities, are reported on the condensed consolidated balance sheet as of March 27, 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 March 27, 2022 and December 31, 2021 using the interest rate method.
(3) The carrying amounts of our term loan and revolver approximate fair value as of March 27, 2022 and December 31, 2021 based upon their terms and conditions in comparison to the terms and conditions of debt instruments with similar terms and conditions available at those dates.
(4) The interest rate swaps are discussed further in Note 10.
(5) The estimated fair value of the Company's contingent consideration is discussed further in Note 6.
13.INCOME TAXES
The effective tax rate in the first quarter of 2022 and 2021 was 23.3% and 17.1%, respectively. The 2022 and 2021 rates include the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense in the amount of $4.0 million and $5.7 million, respectively.
 
Cash paid for income taxes, net of refunds, in the first quarter of 2022 was $18.4 million. No income tax payments were made in the first quarter of 2021.
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14.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 manner in which its chief operating decision maker allocates resources, evaluates financial results, and determines compensation.
The tables below present information about the sales and operating income of those segments. 
First Quarter Ended March 27, 2022   
(thousands)ManufacturingDistributionTotal
Net outside sales$979,609 $362,566 $1,342,175 
Intersegment sales18,976 3,168 22,144 
Total sales998,585 365,734 1,364,319 
Operating income170,544 45,966 216,510 
First Quarter Ended March 28, 2021   
(thousands)ManufacturingDistributionTotal
Net outside sales$600,756 $249,727 $850,483 
Intersegment sales13,808 1,403 15,211 
Total sales614,564 251,130 865,694 
Operating income78,429 21,175 99,604 

The following table presents a reconciliation of segment operating income to consolidated operating income:
 First Quarter Ended
(thousands)March 27, 2022March 28, 2021
Operating income for reportable segments$216,510 $99,604 
Unallocated corporate expenses(37,894)(19,217)
Amortization(16,861)(11,906)
Consolidated operating income$161,755 $68,481 
Unallocated corporate expenses include corporate general and administrative expenses comprised of wages and other compensation, insurance, taxes, supplies, travel and entertainment, professional fees, amortization of inventory step-up adjustments, and other.
The following table presents an allocation of total assets to the reportable segments of the Company and a reconciliation to consolidated total assets:
(thousands)March 27, 2022December 31, 2021
Manufacturing assets$2,359,183 $2,031,465 
Distribution assets517,143 464,575 
Assets for reportable segments2,876,326 2,496,040 
Corporate assets unallocated to segments31,208 31,842 
Cash and cash equivalents63,846 122,849 
Consolidated total assets$2,971,380 $2,650,731 
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15.
STOCK REPURCHASE PROGRAMS
In January 2022, the Company's Board authorized an increase in the amount of the Company's common stock that may be acquired over the next 24 months under the current stock repurchase program to $100 million, including the $11.0 million remaining under the previous authorization. Approximately $86.8 million remains in the amount of the Company's common stock that may be acquired under the current stock repurchase program as of March 27, 2022. The Company repurchased 365,627 shares of its common stock at an average price of $67.77 for an aggregate cost of $24.8 million in the first quarter ended March 27, 2022. The Company did not repurchase any of its common stock in the first quarter ended March 28, 2021.
16.COMMITMENTS AND CONTINGENCIES
The Company is subject to proceedings, lawsuits, audits, and other claims arising in the normal course of business. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. Accruals for these items, when applicable, have been provided to the extent that losses are deemed probable and are reasonably estimable. These accruals are adjusted from time to time as developments warrant.
Although the ultimate outcome of these matters cannot be ascertained, on the basis of present information, amounts already provided, availability of insurance coverage and legal advice received, it is the opinion of management that the ultimate resolution of these proceedings, lawsuits, and other claims will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
The Company disclosed litigation concerning the Lusher Site Remediation Group in the Company's 2021 Form 10-K. The Company has also been named as a potentially responsible party for the related Lusher Street Groundwater Contamination Superfund Site (the "Superfund Site") by the U.S. Environmental Protection Agency (the "EPA"). The Company sold certain parcels of real property that the EPA contends are connected to the Superfund Site (the "Divested Properties") in January 2022 for a pretax gain on disposal of $5.5 million that is included in Selling, general and administrative expenses in the Company's Condensed Consolidated Statements of Income for the first quarter of 2022. The purchaser agreed to indemnify, defend and hold the Company harmless for all liability and exposure, both private and to all EPA claims, concerning and relating to the Divested Properties. No further proceedings have occurred in the first quarter of 2022. As to the real properties that were not among the Divested Properties but remain the subject of the litigation, the Company does not currently believe that the litigation or the Superfund Site matter are likely to have a material adverse impact on its financial condition, results of operations, or cash flows. 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, we believe it is probable that the Company will bear a portion of the total cost of the recalls. In the fourth quarter of 2021, we recorded an estimate of the Company's cost related to this matter. We do not expect this matter to have a material effect on our financial position, results of operations, or cash flows, and there have been no further proceedings in the first quarter of 2022.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and Notes thereto included in Item 1 of this Report. In addition, this MD&A contains certain statements relating to future results which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. See “Information
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Concerning Forward-Looking Statements” on page 34 of this Report. The Company undertakes no obligation to update these forward-looking statements.
OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE
First Quarter 2022 Financial Overview
Recreational Vehicle ("RV") Industry 
The RV industry is our primary market and comprised 61% and 59% of the Company’s sales in the first quarter ended March 27, 2022 and March 28, 2021, respectively. Sales to the RV industry increased 64% in the first quarter of 2022, compared to the prior year period.
According to the Recreation Vehicle Industry Association ("RVIA"), wholesale shipments totaled approximately 171,500 units in the first quarter of 2022, an increase of 15% compared to approximately 148,500 units in the first quarter of 2021. The increase in wholesale unit shipments in the first quarter of 2022 is attributed to continued RV dealer demand for RV units. This increase in dealer demand is correlated with continued consumer demand for RV units, as dealers replenish inventories to match consumer demand and prepare for expected continued momentum in the RV industry. We estimate RV retail unit sales decreased 10-15% in the first quarter of 2022 in comparison to the first quarter of 2021 (which was a record quarter in relation to historical first quarter trends).
Marine Industry
Sales to the marine industry, which represented approximately 16% of the Company's consolidated net sales in both the first quarters of 2022 and 2021, increased 62% in the first quarter of 2022 compared to the prior year quarter.
Our marine revenue is generally correlated to marine wholesale powerboat unit shipments which, according to National Marine Manufacturers Association ("NMMA"), remained relatively constant for the first quarter of 2022 compared to the prior yea