patk-20220626

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 June 26, 2022

☐ 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 INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)


Indiana			35-1057796
(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 class	Trading Symbol	Name of each exchange on which registered
Common Stock, no par value	PATK	NASDAQ

As of July 22, 2022, there were 22,864,264 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 Second Quarter and Six Months ended June 26, 2022 and June 27, 2021			3

Condensed Consolidated Statements of Comprehensive Income Second Quarter and Six Months ended June 26, 2022 and June 27, 2021			4

Condensed Consolidated Balance Sheets June 26, 2022 and December 31, 2021			5

Condensed Consolidated Statements of Cash Flows Six Months ended June 26, 2022 and June 27, 2021			6

Condensed Consolidated Statements of Shareholders' Equity Second Quarter and Six Months ended June 26, 2022 and June 27, 2021			7

Notes to Condensed Consolidated Financial Statements			9

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			23

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			32

ITEM 4. CONTROLS AND PROCEDURES			33

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS			33

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			34

ITEM 6. EXHIBITS			35

SIGNATURES			36

PART 1: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


	Second Quarter Ended				Six Months Ended
(thousands except per share data)	June 26, 2022		June 27, 2021		June 26, 2022		June 27, 2021
NET SALES	$	1,475,693	$	1,019,953	$	2,817,868	$	1,870,436
Cost of goods sold	1,148,589		815,476		2,195,419		1,504,427
GROSS PROFIT	327,104		204,477		622,449		366,009
Operating Expenses:
Warehouse and delivery	44,047		34,815		85,216		64,728
Selling, general and administrative	90,485		60,365		166,045		111,597
Amortization of intangible assets	18,545		14,031		35,406		25,937
Total operating expenses	153,077		109,211		286,667		202,262
OPERATING INCOME	174,027		95,266		335,782		163,747
Interest expense, net	14,802		14,580		29,688		25,759
Income before income taxes	159,225		80,686		306,094		137,988
Income taxes	42,701		21,701		76,897		31,490
NET INCOME	$	116,524	$	58,985	$	229,197	$	106,498

BASIC NET INCOME PER COMMON SHARE	$	5.24	$	2.57	$	10.25	$	4.66
DILUTED NET INCOME PER COMMON SHARE	$	4.79	$	2.52	$	9.33	$	4.56

Weighted average shares outstanding – Basic	22,230		22,948		22,369		22,844
Weighted average shares outstanding – Diluted	24,444		23,435		24,655		23,360

See accompanying Notes to Condensed Consolidated Financial Statements.

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


	Second Quarter Ended				Six Months Ended
(thousands)	June 26, 2022		June 27, 2021		June 26, 2022		June 27, 2021
NET INCOME	$	116,524	$	58,985	$	229,197	$	106,498
Other comprehensive income, net of tax:
Unrealized gain of hedge derivatives	—		1,018		757		1,993
Other	(75)		(11)		(46)		(70)
Total other comprehensive income	(75)		1,007		711		1,923
COMPREHENSIVE INCOME	$	116,449	$	59,992	$	229,908	$	108,421

See accompanying Notes to Condensed Consolidated Financial Statements.

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)


	As of
(thousands)	June 26, 2022		December 31, 2021
ASSETS
Current Assets
Cash and cash equivalents	$	77,025	$	122,849
Trade and other receivables, net	355,352		172,392
Inventories	738,908		614,356
Prepaid expenses and other	52,087		64,478
Total current assets	1,223,372		974,075
Property, plant and equipment, net	339,624		319,493
Operating lease right-of-use assets	165,631		158,183
Goodwill	605,086		551,377
Intangible assets, net	683,989		640,456
Other non-current assets	7,129		7,147
TOTAL ASSETS	$	3,024,831	$	2,650,731
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current maturities of long-term debt	$	7,500	$	7,500
Current operating lease liabilities	43,211		40,301
Accounts payable	219,315		203,537
Accrued liabilities	203,385		181,439
Total current liabilities	473,411		432,777
Long-term debt, less current maturities, net	1,474,743		1,278,989
Long-term operating lease liabilities	125,198		120,161
Deferred tax liabilities, net	40,515		36,453
Other long-term liabilities	13,374		14,794
TOTAL LIABILITIES	2,127,241		1,883,174
SHAREHOLDERS’ EQUITY
Common stock	191,295		196,383
Additional paid-in-capital	—		59,668
Accumulated other comprehensive loss	(1,517)		(2,228)
Retained earnings	707,812		513,734
TOTAL SHAREHOLDERS’ EQUITY	897,590		767,557
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	3,024,831	$	2,650,731

See accompanying Notes to Condensed Consolidated Financial Statements.

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Six Months Ended
(thousands)	June 26, 2022		June 27, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	229,197	$	106,498
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	62,975		48,715
Stock-based compensation expense	10,244		10,336
Amortization of convertible notes debt discount	924		3,643
Deferred income taxes	—		8,534
(Gain) loss on sale of property, plant and equipment	(5,548)		33
Other non-cash items	4,193		1,859
Change in operating assets and liabilities, net of acquisitions of businesses:
Trade and other receivables, net	(162,083)		(116,625)
Inventories	(90,020)		(54,646)
Prepaid expenses and other assets	13,463		3,998
Accounts payable, accrued liabilities and other	10,951		66,400
Net cash provided by operating activities	74,296		78,745
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(44,467)		(26,345)
Proceeds from sale of property, plant and equipment	7,296		112
Business acquisitions, net of cash acquired	(150,389)		(252,660)
Other	—		(2,000)
Net cash used in investing activities	(187,560)		(280,893)
CASH FLOWS FROM FINANCING ACTIVITIES
Term debt borrowings	—		58,750
Term debt repayments	(1,875)		(1,250)
Borrowings on revolver	595,882		425,475
Repayments on revolver	(455,882)		(565,475)
Proceeds from senior notes offering	—		350,000

Stock repurchases under buyback program	(40,385)		(21,550)
Cash dividends paid to shareholders	(15,666)		(13,061)
Taxes paid for share-based payment arrangements	(10,035)		(14,885)
Payment of deferred financing costs and other	—		(5,798)
Payment of contingent consideration from a business acquisition	(4,780)		(1,000)
Proceeds from exercise of common stock options	181		4,577
Net cash provided by financing activities	67,440		215,783
Increase (decrease) in cash and cash equivalents	(45,824)		13,635
Cash and cash equivalents at beginning of year	122,849		44,767
Cash and cash equivalents at end of period	$	77,025	$	58,402

See accompanying Notes to Condensed Consolidated Financial Statements.

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)


Second Quarter Ended June 26, 2022
(thousands)	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Treasury Stock		Retained Earnings		Total
Balance March 27, 2022	$	188,433	$	—	$	(1,442)	$	—	$	612,981	$	799,972
Net income	—		—		—		—		116,524		116,524
Dividends declared	—		—		—		—		(7,579)		(7,579)
Other comprehensive loss, net of tax	—		—		(75)		—		—		(75)
Stock repurchases under buyback program	(2,416)		—		—		—		(14,114)		(16,530)
Repurchase of shares for tax payments related to the vesting and exercising of share-based grants	(36)		—		—		—		—		(36)
Issuance of shares upon exercise of common stock options	181		—		—		—		—		181
Stock-based compensation expense	5,133		—		—		—		—		5,133
Balance June 26, 2022	$	191,295	$	—	$	(1,517)	$	—	$	707,812	$	897,590


Second Quarter Ended June 27, 2021
(thousands)	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Treasury Stock		Retained Earnings		Total
Balance March 28, 2021	$	174,920	$	24,387	$	(5,136)	$	—	$	401,104	$	595,275
Net income	—		—		—		—		58,985		58,985
Dividends declared	—		—		—		—		(6,657)		(6,657)
Other comprehensive income, net of tax	—		—		1,007		—		—		1,007
Share repurchases under buyback program	—		—		—		(21,550)		—		(21,550)
Repurchases of shares for tax payments related to the vesting and exercise of share-based grants	(421)		—		—		—		—		(421)
Issuance of shares in connection with a business combination	10,211		—		—		—		—		10,211
Issuance of shares upon exercise of common stock options	383						—				383
Stock-based compensation expense	6,038		—		—		—		—		6,038
Balance June 27, 2021	$	191,131	$	24,387	$	(4,129)	$	(21,550)	$	453,432	$	643,271

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)


Six Months Ended June 26, 2022
(thousands)	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Treasury Stock		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	—		—		—		—		229,197		229,197
Dividends declared	—		—		—		—		(15,263)		(15,263)
Other comprehensive income, net of tax	—		—		711		—		—		711
Share repurchases under buyback program	(5,478)		—		—		—		(35,831)		(41,309)
Repurchases of shares for tax payments related to the vesting and exercise of share-based grants	(10,035)		—		—		—		—		(10,035)
Issuance of shares upon exercise of common stock options	181		—		—		—		—		181
Stock-based compensation expense	10,244		—		—		—		—		10,244
Balance June 26, 2022	$	191,295	$	—	$	(1,517)	$	—	$	707,812	$	897,590


Six Months Ended June 27, 2021
(thousands)	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Treasury Stock		Retained Earnings		Total
Balance December 31, 2020	$	180,892	$	24,387	$	(6,052)	$	—	$	360,214	$	559,441
Net income	—		—		—		—		106,498		106,498
Dividends declared	—		—		—		—		(13,280)		(13,280)
Other comprehensive income, net of tax	—		—		1,923		—		—		1,923
Share repurchases under buyback program	—		—		—		(21,550)		—		(21,550)
Repurchases of shares for tax payments related to the vesting and exercise of share-based grants	(14,885)		—		—		—		—		(14,885)
Issuance of shares in connection with a business combination	10,211		—		—		—		—		10,211
Issuance of shares upon exercise of common stock options	4,577		—		—		—		—		4,577
Stock-based compensation expense	10,336		—		—		—		—		10,336
Balance June 27, 2021	$	191,131	$	24,387	$	(4,129)	$	(21,550)	$	453,432	$	643,271

See accompanying Notes to Condensed Consolidated Financial Statements.

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 June 26, 2022 and December 31, 2021, its results of operations for the second quarter and six months ended June 26, 2022 and June 27, 2021, and its cash flows for the six months ended June 26, 2022 and June 27, 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 second quarter and six months ended June 26, 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 second quarter of fiscal year 2022 ended on June 26, 2022 and the second quarter of fiscal year 2021 ended on June 27, 2021.

In preparation of Patrick’s condensed consolidated financial statements as of and for the second quarter and six months ended June 26, 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 second quarter and first six months of 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 second quarter and six months ended June 26, 2022, a 9% increase. Net income used in the calculation of diluted net income per share increased $0.5 million and $0.9 million, respectively, for the second quarter and first six months of 2022 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 $0.41 and $0.81, respectively, to diluted net income per share for the second quarter and first six months 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:


	Second Quarter Ended June 26, 2022
(thousands)	Manufacturing		Distribution		Total
Market type:
Recreational Vehicle	$	575,338	$	262,097	$	837,435
Marine	272,996		17,327		290,323
Manufactured Housing	99,020		101,371		200,391
Industrial	136,621		10,923		147,544
Total	$	1,083,975	$	391,718	$	1,475,693


	Second Quarter Ended June 27, 2021
(thousands)	Manufacturing		Distribution		Total
Market type:
Recreational Vehicle	$	397,613	$	197,818	$	595,431
Marine	156,350		10,143		166,493
Manufactured Housing	68,367		70,724		139,091
Industrial	106,711		12,227		118,938
Total	$	729,041	$	290,912	$	1,019,953


	Six Months Ended June 26, 2022
(thousands)	Manufacturing		Distribution		Total
Market Type:
Recreational Vehicle	$	1,145,360	$	512,679	$	1,658,039
Marine	480,497		30,800		511,297
Manufactured Housing	184,006		189,949		373,955
Industrial	253,721		20,856		274,577
Total	$	2,063,584	$	754,284	$	2,817,868


	Six Months Ended June 27, 2021
(thousands)	Manufacturing		Distribution		Total
Market type:
Recreational Vehicle	$	727,225	$	369,632	$	1,096,857
Marine	288,688		14,614		303,302
Manufactured Housing	125,001		134,808		259,809
Industrial	188,883		21,585		210,468
Total	$	1,329,797	$	540,639	$	1,870,436

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.


4.			INVENTORIES

Inventories consist of the following:


(thousands)	June 26, 2022		December 31, 2021
Raw materials	$	384,459	$	315,269
Work in process	28,718		30,801
Finished goods	123,806		101,763
Less: reserve for inventory obsolescence	(13,884)		(9,573)
Total manufactured goods, net	523,099		438,260
Materials purchased for resale (distribution products)	221,717		181,921
Less: reserve for inventory obsolescence	(5,908)		(5,825)
Total materials purchased for resale (distribution products), net	215,809		176,096
Total inventories	$	738,908	$	614,356


5.			GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the six months ended June 26, 2022 by segment are as follows:


(thousands)	Manufacturing		Distribution		Total
Balance - December 31, 2021	$	481,906	$	69,471	$	551,377
Acquisitions	53,972		—		53,972
Adjustments to preliminary purchase price allocations	(2,033)		1,770		(263)
Balance - June 26, 2022	$	533,845	$	71,241	$	605,086

Intangible assets, net consist of the following as of June 26, 2022 and December 31, 2021:


(thousands)	June 26, 2022		December 31, 2021
Customer relationships	$	667,003	$	617,814
Non-compete agreements	23,212		21,284
Patents	61,100		50,038
Trademarks	182,657		165,897
	933,972		855,033
Less: accumulated amortization	(249,983)		(214,577)
Intangible assets, net	$	683,989	$	640,456

Changes in the carrying value of intangible assets for the six months ended June 26, 2022 by segment are as follows:


(thousands)	Manufacturing		Distribution		Total
Balance - December 31, 2021	$	534,827	$	105,629	$	640,456
Acquisitions	78,560		—		78,560
Amortization	(30,217)		(5,189)		(35,406)
Adjustments to preliminary purchase price allocations	(1,178)		1,557		379
Balance - June 26, 2022	$	581,992	$	101,997	$	683,989


6.			ACQUISITIONS

General

The Company completed two acquisitions in the second quarter of 2022 and completed three acquisitions in the six months ended June 26, 2022 (the "2022 Acquisitions"). For the second quarter and six months ended June 26, 2022, net sales included in the Company's condensed consolidated statements of income related to the 2022 Acquisitions were $40.8 million and $49.2 million, respectively, and operating income was $7.6 million and $9.0 million, respectively. Acquisition-related costs associated with the 2022 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 second quarter of 2021 and completed seven acquisitions in the six months ended June 27, 2021. For the second quarter and six months ended June 27, 2021, net sales included in the Company's condensed consolidated statements of income related to the acquisitions completed in the first six months of 2021 were $56.7 million and $62.1 million, respectively, and operating income relating to acquisitions was $6.0 million for each of these periods.

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 June 26, 2022, the aggregate fair value of the estimated contingent consideration payments was $10.7 million, of which $7.2 million is included in "Accrued liabilities" and $3.5 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 $15.0 million in the aggregate as of June 26, 2022. In the second quarter and six months ended June 26, 2022, the Company recorded $1.9 million and $3.0 million, respectively, in non-cash increases to contingent consideration liabilities, which are 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 second quarter and six months ended June 26, 2022, the Company made cash payments of approximately $1.0 million and $6.4 million, respectively, related to contingent consideration liabilities, recording a corresponding reduction to accrued liabilities.

2022 Acquisitions

The Company completed three acquisitions in the six months ended June 26, 2022, including the following two previously announced acquisitions:

Company

Segment

Description

Rockford Corporation

Manufacturing

Designer and manufacturer of audio systems and components through its brand Rockford Fosgate®, primarily serving the powersports and automotive aftermarkets, based in Tempe, Arizona, acquired in March 2022

Diamondback Towers, LLC

Manufacturing

Manufacturer of wakeboard/ski towers and accessories for marine original equipment manufacturers ("OEMs"), based in Cocoa, Florida, acquired in May 2022

Inclusive of one acquisition not discussed above, total cash consideration for the 2022 Acquisitions was approximately $149.7 million. One of the 2022 Acquisitions, Rockford Corporation, accounted for $132.6 million in total consideration, $20.6 million in trade receivables, $32.7 million in inventory, $1.4 million in prepaid expenses, $5.3 million in fixed assets, $2.9 million in operating right-of-use assets, $70.0 million in intangible assets, $24.3 million in accounts payable and accrued liabilities, $2.9 million in operating right-of-use obligations, $16.7 million in deferred tax liabilities, and $43.5 million in goodwill. 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.

2021 Acquisitions

The Company completed 13 acquisitions in the year ended December 31, 2021, including the following seven previously announced acquisitions (together, the "2021 Acquisitions"):

Company

Segment

Description

Sea-Dog Corporation & Sea-Lect Plastics (collectively, "Sea-Dog")

Distribution & Manufacturing

Distributor of a variety of marine and powersports hardware and accessories to distributors, wholesalers, retailers, and manufacturers and provider of plastic injection molding, design, product development and tooling to companies and government entities, based in Everett, Washington, acquired in March 2021.

Hyperform, Inc.

Manufacturing

Manufacturer of high-quality, non-slip foam flooring, operating under the SeaDek brand name, for the marine OEM market and aftermarket as well as serving the pool and spa, powersports and utility markets under the SwimDek and EndeavorDek brand names, with manufacturing facilities in Rockledge, Florida and Cocoa, Florida, acquired in April 2021.

Alpha Systems, LLC

Manufacturing & Distribution

Manufacturer and distributor of component products and accessories for the RV, marine, manufactured housing and industrial end markets 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 Company

Manufacturing

Designer, 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 Covers

Manufacturing

Manufacturer 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")

Manufacturing

Designer, 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")

Manufacturing

Manufacturer of seating for the RV and marine end markets sold primarily to OEMs, based in Milford and Nappanee, Indiana, acquired in November 2021.

Inclusive of six acquisitions not discussed above, total cash consideration for the 2021 Acquisitions was approximately $509.3 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. Purchase accounting adjustments are complete for all 2021 Acquisitions completed through June 27, 2021. Changes to preliminary purchase accounting estimates recorded in the second quarter ended June 26, 2022 related to the 2021 Acquisitions, individually and in the aggregate, were immaterial and relate primarily to the valuation of intangible and fixed assets.

The following table summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition for the 2022 Acquisitions and the 2021 Acquisitions:


(thousands)			2022 Acquisitions		2021 Acquisitions
Consideration
	Cash, net of cash acquired(1)		$	149,736	$	509,339
	Working capital holdback and other, net(2)		2,939		(279)
	Common stock issuance(3)		—		10,211
	Contingent consideration(4)		1,600		4,730
		Total consideration	154,275		524,001

Assets Acquired
	Trade receivables		$	21,472	$	26,218
	Inventories		34,690		69,343
	Prepaid expenses & other		1,395		13,740
	Property, plant & equipment		6,813		55,470
	Operating lease right-of-use assets		3,516		25,530
	Identifiable intangible assets		77,890		245,924

Liabilities Assumed
	Current portion of operating lease obligations		(785)		(5,518)
	Accounts payable & accrued liabilities		(25,282)		(32,326)
	Operating lease obligations		(2,731)		(20,012)
	Deferred tax liabilities and other long-term liabilities		(16,675)		(1,996)
		Total fair value of net assets acquired	100,303		376,373
		Goodwill(5)	53,972		147,628
			$	154,275	$	524,001

(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 June 26, 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 expected future results relating to certain acquisitions.

(5) Goodwill is tax-deductible for the 2022 Acquisitions, except Rockford Corporation (approximately $43.5 million), and 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.

The following table presents our estimates of identifiable intangible assets for the 2022 Acquisitions and the 2021 Acquisitions:


(thousands, except year data)	Estimated Useful Life (in years)	2022 Acquisitions		2021 Acquisitions
Customer relationships	10	$	48,490	$	161,652
Non-compete agreements	5	2,410		4,913
Patents	10 - 18	10,041		27,310
Trademarks	Indefinite	16,949		52,049
		$	77,890	$	245,924

For the acquisition of Rockford Corporation previously mentioned, the $70.0 million of identifiable intangible assets consists of $42.0 million for customer relationships, $2.1 million for non-compete agreements, $10.5 million for patents (estimated useful life of 15 years), and $15.4 million for trademarks.

Pro Forma Information

The following pro forma information for the second quarter and six months ended June 26, 2022 and June 27, 2021 assumes the 2022 Acquisitions 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 Acquisitions 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 $0.1 million and $1.1 million for the second quarter and six months ended June 26, 2022, respectively, and $4.6 million and $10.8 million for the second quarter and six months ended June 27, 2021, respectively.


	Second Quarter Ended				Six Months Ended
(thousands, except per share data)	June 26, 2022		June 27, 2021		June 26, 2022		June 27, 2021
Revenue	$	1,478,392	$	1,123,924	$	2,852,364	$	2,114,986
Net income	116,560		69,338		231,928		128,097
Basic net income per common share	5.24		3.02		10.37		5.61
Diluted net income per common share	4.79		2.96		9.44		5.48

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 expense of approximately $5.1 million and $10.2 million in the second quarter and six months ended June 26, 2022, respectively, for its stock-based compensation plans in the condensed consolidated statements of income. Stock-based compensation expense of $6.0 million and $10.3 million was recorded in the second quarter and six months ended June 27, 2021, respectively.

The Board approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the six months ended June 26, 2022 totaling 235,869 shares in the aggregate at an average fair value of $64.63 at grant date for a total fair value at grant date of $15.2 million.

As of June 26, 2022, there was approximately $30.9 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 18.7 months.


8.			NET INCOME PER COMMON SHARE

Net income per common share calculated for the second quarter and six months of 2022 and 2021 is as follows:

Second Quarter Ended

Six Months Ended

(thousands except per share data)

June 26, 2022

June 27, 2021

June 26, 2022

June 27, 2021

Numerator:

Net income for basic per share calculation