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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 September 25, 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-20220925_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 October 21, 2022, there were 22,663,695 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 September 25, 2022 and September 26, 2021
 
Condensed Consolidated Statements of Comprehensive Income
   Third Quarter and Nine Months ended September 25, 2022 and September 26, 2021
Condensed Consolidated Balance Sheets
   September 25, 2022 and December 31, 2021
Condensed Consolidated Statements of Cash Flows
   Nine Months ended September 25, 2022 and September 26, 2021
Condensed Consolidated Statements of Shareholders' Equity
   Third Quarter and Nine Months ended September 25, 2022 and September 26, 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

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PART 1: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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

Third Quarter EndedNine Months Ended
(thousands except per share data)September 25, 2022September 26, 2021September 25, 2022September 26, 2021
NET SALES$1,112,089 $1,060,177 $3,929,957 $2,930,613 
Cost of goods sold875,638 852,016 3,071,057 2,356,443 
GROSS PROFIT236,451 208,161 858,900 574,170 
Operating Expenses:    
  Warehouse and delivery39,997 35,885 125,213 100,613 
  Selling, general and administrative84,924 64,245 250,969 175,842 
  Amortization of intangible assets18,769 14,758 54,175 40,695 
    Total operating expenses143,690 114,888 430,357 317,150 
OPERATING INCOME92,761 93,273 428,543 257,020 
Interest expense, net15,302 15,436 44,990 41,195 
Income before income taxes77,459 77,837 383,553 215,825 
Income taxes18,640 20,440 95,537 51,930 
NET INCOME$58,819 $57,397 $288,016 $163,895 
BASIC NET INCOME PER COMMON SHARE $2.66 $2.52 $12.93 $7.18 
DILUTED NET INCOME PER COMMON SHARE $2.43 $2.45 $11.78 $7.01 
Weighted average shares outstanding – Basic 22,08722,78922,27422,826
Weighted average shares outstanding – Diluted 24,41323,40324,57323,375
See accompanying Notes to Condensed Consolidated Financial Statements.




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

Third Quarter EndedNine Months Ended
(thousands)September 25, 2022September 26, 2021September 25, 2022September 26, 2021
NET INCOME$58,819 $57,397 $288,016 $163,895 
Other comprehensive income, net of tax:
Unrealized gain of hedge derivatives— 1,031 757 3,024 
Other(118)74 (164)4 
Total other comprehensive income(118)1,105 593 3,028 
COMPREHENSIVE INCOME$58,701 $58,502 $288,609 $166,923 
See accompanying Notes to Condensed Consolidated Financial Statements.

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PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
As of
(thousands)September 25, 2022December 31, 2021
ASSETS
Current Assets
    Cash and cash equivalents$53,269 $122,849 
    Trade and other receivables, net285,734 172,392 
    Inventories733,970 614,356 
    Prepaid expenses and other34,448 64,478 
        Total current assets1,107,421 974,075 
Property, plant and equipment, net343,262 319,493 
Operating lease right-of-use assets164,725 158,183 
Goodwill597,625 551,377 
Intangible assets, net675,440 640,456 
Other non-current assets8,177 7,147 
        TOTAL ASSETS$2,896,650 $2,650,731 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
    Current maturities of long-term debt$7,500 $7,500 
    Current operating lease liabilities43,352 40,301 
    Accounts payable188,691 203,537 
    Accrued liabilities196,361 181,439 
        Total current liabilities435,904 432,777 
Long-term debt, less current maturities, net1,333,455 1,278,989 
Long-term operating lease liabilities124,289 120,161 
Deferred tax liabilities, net42,812 36,453 
Other long-term liabilities13,514 14,794 
        TOTAL LIABILITIES1,949,974 1,883,174 
SHAREHOLDERS’ EQUITY  
Common stock195,367 196,383 
Additional paid-in-capital— 59,668 
Accumulated other comprehensive loss(1,635)(2,228)
Retained earnings752,944 513,734 
        TOTAL SHAREHOLDERS’ EQUITY946,676 767,557 
        TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$2,896,650 $2,650,731 

See accompanying Notes to Condensed Consolidated Financial Statements.

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PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
(thousands)September 25, 2022September 26, 2021
CASH FLOWS FROM OPERATING ACTIVITIES  
Net income$288,016 $163,895 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization 96,256 76,298 
Stock-based compensation expense15,596 17,307 
Amortization of convertible notes debt discount1,399 5,528 
Deferred income taxes6 6,540 
(Gain) loss on sale of property, plant and equipment(5,713)27 
Other non-cash items5,043 1,617 
Change in operating assets and liabilities, net of acquisitions of businesses: 
Trade and other receivables, net(92,199)(142,550)
Inventories(85,091)(127,464)
Prepaid expenses and other assets31,058 (593)
Accounts payable, accrued liabilities and other(24,563)146,812 
Net cash provided by operating activities229,808 147,417 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures(63,437)(44,155)
Proceeds from sale of property, plant and equipment7,441 140 
Business acquisitions, net of cash acquired(152,888)(297,701)
Other— (2,000)
Net cash used in investing activities(208,884)(343,716)
CASH FLOWS FROM FINANCING ACTIVITIES
Term debt borrowings— 58,750 
Term debt repayments(3,750)(3,125)
Borrowings on revolver703,402 425,930 
Repayments on revolver(703,402)(565,475)
Proceeds from senior notes offering— 350,000 
Stock repurchases under buyback program(46,984)(31,945)
Cash dividends paid to shareholders(23,007)(19,487)
Taxes paid for share-based payment arrangements(10,036)(14,898)
Payment of deferred financing costs and other(2,142)(6,638)
Payment of contingent consideration from a business acquisition(4,780)(1,600)
Proceeds from exercise of common stock options195 4,902 
Net cash (used in) provided by financing activities(90,504)196,414 
(Decrease) increase in cash and cash equivalents(69,580)115 
Cash and cash equivalents at beginning of year122,849 44,767 
Cash and cash equivalents at end of period$53,269 $44,882 

See accompanying Notes to Condensed Consolidated Financial Statements.
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PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Third Quarter Ended September 25, 2022
(thousands)Common
Stock		Additional Paid-in CapitalAccumulated Other
Comprehensive Loss		Treasury StockRetained
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)
Repurchases 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 

Third Quarter Ended September 26, 2021
(thousands)Common
Stock		Additional Paid-in CapitalAccumulated Other
Comprehensive Loss		Treasury StockRetained
Earnings		Total
Balance June 27, 2021$191,131 $24,387 $(4,129)$(21,550)$453,432 $643,271 
Net income— — — — 57,397 57,397 
Dividends declared— — — — (6,613)(6,613)
Other comprehensive income, net of tax— — 1,105 — — 1,105 
Share repurchases under buyback program(999)(135)— — (9,261)(10,395)
Retirement of treasury stock(2,013)(271)— 21,550 (19,266)— 
Repurchases of shares for tax payments related to the vesting and exercise of share-based grants(13)— — — — (13)
Issuance of shares upon exercise of common stock options325 — 325 
Stock-based compensation expense6,971 — — — — 6,971 
Balance September 26, 2021$195,402 $23,981 $(3,024)$— $475,689 $692,048 





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PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Nine Months Ended September 25, 2022
(thousands)Common
Stock		Additional Paid-in CapitalAccumulated Other
Comprehensive Loss		Treasury StockRetained
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 
Nine Months Ended September 26, 2021
(thousands)Common
Stock		Additional Paid-in CapitalAccumulated Other
Comprehensive Loss		Treasury StockRetained
Earnings		Total
Balance December 31, 2020$180,892 $24,387 $(6,052)$— $360,214 $559,441 
Net income— — — — 163,895 163,895 
Dividends declared— — — — (19,893)(19,893)
Other comprehensive income, net of tax— — 3,028 — — 3,028 
Share repurchases under buyback program(999)(135)— (21,550)(9,261)(31,945)
Retirement of treasury stock(2,013)(271)— 21,550 (19,266)— 
Repurchases of shares for tax payments related to the vesting and exercise of share-based grants(14,898)— — — — (14,898)
Issuance of shares in connection with a business combination10,211 — — — — 10,211 
Issuance of shares upon exercise of common stock options4,902 — — — — 4,902 
Stock-based compensation expense17,307 — — — — 17,307 
Balance September 26, 2021$195,402 $23,981 $(3,024)$— $475,689 $692,048 

See accompanying Notes to Condensed Consolidated Financial Statements.
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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 September 25, 2022 and December 31, 2021, its results of operations for the third quarter and nine months ended September 25, 2022 and September 26, 2021, and its cash flows for the nine months ended September 25, 2022 and September 26, 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. Intercompany balances and transactions have been eliminated in consolidation. 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 third quarter and nine months ended September 25, 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 third quarter of fiscal year 2022 ended on September 25, 2022 and the third quarter of fiscal year 2021 ended on September 26, 2021.
In preparation of Patrick’s condensed consolidated financial statements as of and for the third quarter and nine months ended September 25, 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
9


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 third quarter and first nine 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 third quarter and nine months ended September 25, 2022, a 9% increase. Net income used in the calculation of diluted net income per share increased $0.5 million and $1.4 million, respectively, for the third quarter and first nine 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 $0.20 and $1.01, respectively, to diluted net income per share for the third quarter and first nine 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 the London InterBank Offer Rate ("LIBOR") and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate ("SOFR"). Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. The guidance is effective upon issuance and generally can be applied through December 31, 2022. In the third quarter ended September 25, 2022, the Company amended its current credit agreement, which included a transition from a LIBOR-based rate to a SOFR-based rate. See Note 9 for further discussion of this amendment. The transition from LIBOR to SOFR in accordance with the amended agreement did not have a material impact on the Company's 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:
Third Quarter Ended September 25, 2022
(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 
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Third Quarter Ended September 26, 2021
(thousands)ManufacturingDistributionTotal
Market type:
Recreational Vehicle$434,029 $199,208 $633,237 
Marine164,535 8,491 173,026 
Manufactured Housing65,785 68,840 134,625 
Industrial107,886 11,403 119,289 
Total$772,235 $287,942 $1,060,177 
Nine Months Ended September 25, 2022
(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 
Nine Months Ended September 26, 2021
(thousands)ManufacturingDistributionTotal
Market type:
Recreational Vehicle$1,161,254 $568,840 $1,730,094 
Marine453,223 23,105 476,328 
Manufactured Housing190,786 203,648 394,434 
Industrial296,769 32,988 329,757 
Total$2,102,032 $828,581 $2,930,613 
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)September 25, 2022December 31, 2021
Raw materials$361,735 $315,269 
Work in process26,827 30,801 
Finished goods134,492 101,763 
Less: reserve for inventory obsolescence(14,745)(9,573)
  Total manufactured goods, net508,309 438,260 
Materials purchased for resale (distribution products)231,214 181,921 
Less: reserve for inventory obsolescence(5,553)(5,825)
  Total materials purchased for resale (distribution products), net225,661 176,096 
Total inventories$733,970 $614,356 
5.GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the nine months ended September 25, 2022 by segment are as follows:
(thousands)ManufacturingDistributionTotal
Balance - December 31, 2021$481,906 $69,471 $551,377 
Acquisitions46,417 — 46,417 
Adjustments to preliminary purchase price allocations(1,359)1,190 (169)
Balance - September 25, 2022
$526,964 $70,661 $597,625 
Intangible assets, net consist of the following as of September 25, 2022 and December 31, 2021:
(thousands)September 25, 2022December 31, 2021
Customer relationships$680,153 $617,814 
Non-compete agreements20,372 21,284 
Patents59,640 50,038 
Trademarks184,027 165,897 
944,192 855,033 
Less: accumulated amortization(268,752)(214,577)
Intangible assets, net$675,440 $640,456 

Changes in the carrying value of intangible assets for the nine months ended September 25, 2022 by segment are as follows:
(thousands)ManufacturingDistributionTotal
Balance - December 31, 2021$534,827 $105,629 $640,456 
Acquisitions88,910 — 88,910 
Amortization(46,327)(7,848)(54,175)
Adjustments to preliminary purchase price allocations(1,888)2,137 249 
Balance - September 25, 2022
$575,522 $99,918 $675,440 
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6.ACQUISITIONS
General 
The Company completed no acquisitions in the third quarter of 2022 and completed three acquisitions in the nine months ended September 25, 2022 (the "2022 Acquisitions"). 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 2022 Acquisitions were $38.0 million and $87.3 million, respectively, and operating income was $6.9 million and $15.9 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 third quarter of 2021 and completed ten acquisitions in the nine months ended September 26, 2021. For the third quarter and nine months ended September 26, 2021, net sales included in the Company's condensed consolidated statements of income related to the acquisitions completed in the first nine months of 2021 were $84.0 million and $146.1 million, respectively, and operating income was $6.6 million and $12.6 million, respectively.

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 September 25, 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 September 25, 2022. In the nine months ended September 25, 2022, the Company recorded $3.0 million 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. There were no non-cash increases to contingent consideration during the third quarter ended September 25, 2022. In the nine months ended September 25, 2022, the Company made cash payments of approximately $6.4 million related to contingent consideration liabilities, recording a corresponding reduction to accrued liabilities. The Company made no cash payments related to contingent consideration liabilities in the third quarter ended September 25, 2022.
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2022 Acquisitions
The Company completed three acquisitions in the nine months ended September 25, 2022, including the following two previously announced 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 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 $152.2 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, $79.9 million in intangible assets, $24.3 million in accounts payable and accrued liabilities, $2.9 million in operating right-of-use obligations, $19.5 million in deferred tax liabilities, and $36.4 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. Changes to preliminary purchase accounting estimates recorded in the third quarter ended September 25, 2022 related to the 2022 Acquisitions, individually and in the aggregate, were immaterial and relate primarily to the valuation of intangible assets.
14


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"):
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 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.
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 September 26, 2021. Changes to preliminary purchase accounting estimates recorded in the third quarter ended September 25, 2022 related to the 2021 Acquisitions, individually and in the aggregate, were immaterial and relate primarily to the valuation of intangible and fixed assets.
15


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 Acquisitions2021 Acquisitions
Consideration
Cash, net of cash acquired(1)
$152,235 $509,263 
Working capital holdback and other, net(2)
219 (190)
Common stock issuance(3)
— 10,211 
Contingent consideration(4)
1,600 4,730 
Total consideration$154,054 $524,014 
Assets Acquired
Trade receivables$21,454 $26,118 
Inventories34,680 69,343 
Prepaid expenses & other1,391 13,747 
Property, plant & equipment6,731 55,101 
Operating lease right-of-use assets3,516 25,530 
Identifiable intangible assets88,240 245,794 
Liabilities Assumed
Current portion of operating lease obligations(785)(5,518)
Accounts payable & accrued liabilities(25,383)(32,326)
Operating lease obligations(2,731)(20,012)
Deferred tax liabilities and other long-term liabilities(19,476)(1,486)
Total fair value of net assets acquired107,637 376,291 
Goodwill(5)
46,417 147,723 
$154,054 $524,014 
(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 sellers as of September 25, 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 $36.4 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.
16


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 Acquisitions2021 Acquisitions
Customer relationships10$62,880 $160,412 
Non-compete agreements5640 3,843 
Patents
10 - 18
7,500 28,850 
TrademarksIndefinite17,220 52,689 
$88,240 $245,794 
For the acquisition of Rockford Corporation previously mentioned, the $79.9 million of identifiable intangible assets consists of $56.0 million for customer relationships, $0.4 million for non-compete agreements, $7.5 million for patents (estimated useful life of 15 years), and $16.0 million for trademarks. These amounts were provisionally estimated at $70.0 million, consisting 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 in the prior two quarters but have been updated to the aforementioned values based on valuation procedures being performed.

Pro Forma Information
The following pro forma information for the third quarter and nine months ended September 25, 2022 and September 26, 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 $0.0 million and $1.1 million for the third quarter and nine months ended September 25, 2022, respectively, and $3.9 million and $14.6 million for the third quarter and nine months ended September 26, 2021, respectively.
 
Third Quarter Ended
Nine Months Ended
(thousands, except per share data)September 25, 2022September 26, 2021September 25, 2022September 26, 2021
Revenue$1,112,089 $1,145,730 $3,964,453 $3,253,080 
Net income58,819 67,288 290,262 193,258 
Basic net income per common share2.66