patk-20230402

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 April 2, 2023

☐ 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)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 28, 2023, there were 22,321,577 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 April 2, 2023 and March 27, 2022			3

Condensed Consolidated Statements of Comprehensive Income First Quarter ended April 2, 2023 and March 27, 2022			4

Condensed Consolidated Balance Sheets April 2, 2023 and December 31, 2022			5

Condensed Consolidated Statements of Cash Flows First Quarter ended April 2, 2023 and March 27, 2022			6

Condensed Consolidated Statements of Shareholders' Equity First Quarter ended April 2, 2023 and March 27, 2022			7

Notes to Condensed Consolidated Financial Statements			8

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			18

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			25

ITEM 4. CONTROLS AND PROCEDURES			26

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS			26

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			27

ITEM 6. EXHIBITS			27

SIGNATURES			28

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)	April 2, 2023		March 27, 2022
NET SALES	$	900,100	$	1,342,175
Cost of goods sold	705,856		1,046,830
GROSS PROFIT	194,244		295,345
Operating Expenses:
Warehouse and delivery	35,845		41,169
Selling, general and administrative	82,401		75,560
Amortization of intangible assets	19,764		16,861
Total operating expenses	138,010		133,590
OPERATING INCOME	56,234		161,755
Interest expense, net	18,484		14,886
Income before income taxes	37,750		146,869
Income taxes	7,577		34,196
NET INCOME	$	30,173	$	112,673

BASIC EARNINGS PER COMMON SHARE	$	1.40	$	5.00
DILUTED EARNINGS PER COMMON SHARE	$	1.35	$	4.54

Weighted average shares outstanding – Basic	21,591		22,517
Weighted average shares outstanding – Diluted	22,512		24,882

See accompanying Notes to Condensed Consolidated Financial Statements.

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


	First Quarter Ended
(thousands)	April 2, 2023		March 27, 2022
NET INCOME	$	30,173	$	112,673
Other comprehensive income, net of tax:
Unrealized gain of hedge derivatives	—		757
Foreign currency translation gain (loss)	(9)		29
Total other comprehensive income (loss)	(9)		786
COMPREHENSIVE INCOME	$	30,164	$	113,459

See accompanying Notes to Condensed Consolidated Financial Statements.

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)


	As of
(thousands)	April 2, 2023		December 31, 2022
ASSETS
Current Assets
Cash and cash equivalents	$	30,783	$	22,847
Trade and other receivables, net	256,440		172,890
Inventories	628,383		667,841
Prepaid expenses and other	38,872		46,326
Total current assets	954,478		909,904
Property, plant and equipment, net	353,599		350,572
Operating lease right-of-use assets	166,222		163,674
Goodwill	627,306		629,263
Intangible assets, net	706,706		720,230
Other non-current assets	8,519		8,828
TOTAL ASSETS	$	2,816,830	$	2,782,471
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current maturities of long-term debt	$	7,500	$	7,500
Current operating lease liabilities	44,977		44,235
Accounts payable	149,260		142,910
Accrued liabilities	130,943		172,595
Total current liabilities	332,680		367,240
Long-term debt, less current maturities, net	1,332,158		1,276,149
Long-term operating lease liabilities	124,373		122,471
Deferred tax liabilities, net	48,782		48,392
Other long-term liabilities	9,015		13,050
TOTAL LIABILITIES	1,847,008		1,827,302
SHAREHOLDERS’ EQUITY
Common stock	194,753		197,003

Accumulated other comprehensive loss	(704)		(695)
Retained earnings	775,773		758,861
TOTAL SHAREHOLDERS’ EQUITY	969,822		955,169
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,816,830	$	2,782,471

See accompanying Notes to Condensed Consolidated Financial Statements.

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	First Quarter Ended
(thousands)	April 2, 2023		March 27, 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	30,173	$	112,673
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	35,510		30,201
Stock-based compensation expense	5,242		5,111
Amortization of convertible notes debt discount	324		449

Gain on sale of property, plant and equipment	(23)		(5,501)
Other non-cash items	1,755		1,697
Change in operating assets and liabilities, net of acquisitions of businesses:
Trade and other receivables, net	(83,354)		(160,883)
Inventories	39,502		(51,769)
Prepaid expenses and other assets	6,314		7,198
Accounts payable, accrued liabilities and other	(36,393)		37,785
Net cash used in operating activities	(950)		(23,039)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment	(20,266)		(18,668)
Proceeds from sale of property and equipment and other investing activities	92		7,146
Business acquisitions, net of cash acquired	(478)		(131,597)
Purchases of intangible assets and other investing activities	(2,925)		—
Net cash used in investing activities	(23,577)		(143,119)
CASH FLOWS FROM FINANCING ACTIVITIES

Term debt repayments	(1,875)		—
Borrowings on revolver	354,324		303,712
Repayments on revolver	(124,613)		(149,712)

Repayments of convertible notes	(172,500)		—
Stock repurchases under buyback program	(3,660)		(24,778)
Cash dividends paid to shareholders	(10,761)		(8,288)
Taxes paid for share-based payment arrangements	(7,499)		(9,999)

Payment of contingent consideration from a business acquisition	(1,370)		(3,780)
Proceeds from exercise of common stock options	492		—
Other financing activities	(75)		—
Net cash provided by financing activities	32,463		107,155
Increase (decrease) in cash and cash equivalents	7,936		(59,003)
Cash and cash equivalents at beginning of year	22,847		122,849
Cash and cash equivalents at end of period	$	30,783	$	63,846

See accompanying Notes to Condensed Consolidated Financial Statements.

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)


First Quarter Ended April 2, 2023
(thousands)	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total
Balance December 31, 2022	$	197,003	$	—	$	(695)	$	758,861	$	955,169
Net income	—		—		—		30,173		30,173
Dividends declared	—		—		—		(10,086)		(10,086)
Other comprehensive loss, net of tax	—		—		(9)		—		(9)
Stock repurchases under buyback program	(485)		—		—		(3,175)		(3,660)
Repurchases of shares for tax payments related to the vesting and exercising of share-based grants	(7,499)		—		—		—		(7,499)
Issuance of shares upon exercise of common stock options	492		—		—		—		492
Stock-based compensation expense	5,242		—		—		—		5,242
Balance April 2, 2023	$	194,753	$	—	$	(704)	$	775,773	$	969,822


First Quarter Ended March 27, 2022
(thousands)	Common Stock		Additional Paid-in Capital		Accumulated 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 expense	5,111		—		—		—		5,111
Balance March 27, 2022	188,433		—		(1,442)		612,981		799,972

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 April 2, 2023 and December 31, 2022, its results of operations for the first quarter ended April 2, 2023 and March 27, 2022, and its cash flows for the first quarter ended April 2, 2023 and March 27, 2022.

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. 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, 2022. The December 31, 2022 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 first quarter ended April 2, 2023 are not necessarily indicative of the results that we will realize or expect for the full year ending December 31, 2023.

The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning approximately thirteen weeks. The first quarter ends on the Sunday closest to the end of the first thirteen-week period. The second and third quarters are thirteen weeks in duration and the fourth quarter is the remainder of the year. The first quarter of fiscal year 2023 ended on April 2, 2023 and the first quarter of fiscal year 2022 ended on March 27, 2022.

In preparation of Patrick’s condensed consolidated financial statements as of and for the first quarter ended April 2, 2023, 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. See Note 15 for further information.


2.			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 April 2, 2023
(thousands)	Manufacturing		Distribution		Total
Market type:
Recreational Vehicle	$	252,444	$	114,516	$	366,960
Marine	261,020		14,884		275,904
Manufactured Housing	64,189		69,235		133,424
Industrial	114,743		9,069		123,812
Total	$	692,396	$	207,704	$	900,100


	First Quarter Ended March 27, 2022
(thousands)	Manufacturing		Distribution		Total
Market type:
Recreational Vehicle	$	570,022	$	250,582	$	820,604
Marine	207,501		13,473		220,974
Manufactured Housing	84,986		88,578		173,564
Industrial	117,100		9,933		127,033
Total	$	979,609	$	362,566	$	1,342,175

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.


3.			INVENTORIES

Inventories consist of the following:


(thousands)	April 2, 2023		December 31, 2022
Raw materials	$	315,559	$	348,670
Work in process	22,640		22,630
Finished goods	132,348		141,516
Less: reserve for inventory obsolescence	(17,074)		(14,059)
Total manufactured goods, net	453,473		498,757
Materials purchased for resale (distribution products)	182,198		175,061
Less: reserve for inventory obsolescence	(7,288)		(5,977)
Total materials purchased for resale (distribution products), net	174,910		169,084
Total inventories	$	628,383	$	667,841


4.			GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the first quarter ended April 2, 2023 by segment are as follows:


(thousands)	Manufacturing		Distribution		Total
Balance - December 31, 2022	$	558,362	$	70,901	$	629,263

Adjustments to preliminary purchase price allocations	(2,132)		175		(1,957)
Balance - April 2, 2023	$	556,230	$	71,076	$	627,306

Intangible assets, net consist of the following as of April 2, 2023 and December 31, 2022:


(thousands)	April 2, 2023		December 31, 2022
Customer relationships	$	727,044	$	722,503
Non-compete agreements	21,301		20,412
Patents	69,164		69,164
Trademarks	196,767		195,957
	1,014,276		1,008,036
Less: accumulated amortization	(307,570)		(287,806)
Intangible assets, net	$	706,706	$	720,230

Changes in the carrying value of intangible assets for the first quarter ended April 2, 2023 by segment are as follows:


(thousands)	Manufacturing		Distribution		Total
Balance - December 31, 2022	$	622,647	$	97,583	$	720,230
Additions	2,925		300		3,225
Amortization	(17,183)		(2,581)		(19,764)
Adjustments to preliminary purchase price allocations	3,100		(85)		3,015
Balance - April 2, 2023	$	611,489	$	95,217	$	706,706


5.			ACQUISITIONS

General

The Company completed no acquisitions in the first quarter of 2023. The Company completed one acquisition in the first quarter of 2022. For the first quarter ended March 27, 2022, net sales included in the Company's condensed consolidated statements of income related to the acquisition completed in the first quarter of 2022 were $8.4 million, and operating income was $1.4 million.

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.

Contingent Consideration

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.

Changes in the fair value of contingent consideration for the first quarter ended April 2, 2023 are as follows:


(thousands)	April 2, 2023
Balance - December 31, 2022	$	9,213
Additions	90
Fair value adjustments(1)	1,000
Settlements	(5,120)
Balance - April 2, 2023	5,183

(1) The company records non-cash fair value adjustments to contingent consideration based on expected results, which are included in Selling, general and administrative expenses in the Company's condensed consolidated statements of income for the first quarter of 2023.

The following table shows the balance sheet location of the fair value of contingent consideration and the maximum amount of contingent consideration payments the Company may be subject to at April 2, 2023 and December 31, 2022:


(thousands)	April 2, 2023		December 31, 2022
Accrued liabilities	$	5,083	$	5,250
Other long-term liabilities	100		3,963
Total fair value of contingent consideration	5,183		9,213
Maximum amount of contingent consideration	6,770		10,747

2022 Acquisitions

The Company completed five acquisitions in the year ended December 31, 2022, including the following three previously announced acquisitions (collectively, the "2022 Acquisitions"):

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

Transhield

Manufacturing

Designer and manufacturer of customized and proprietary protection solutions for the marine, military and industrial markets, including covers and shrinkable packaging, to protect equipment during transport and storage, based in Elkhart, Indiana, acquired in November 2022.

Inclusive of two acquisitions not discussed above, total cash consideration for the 2022 Acquisitions was approximately $248.7 million, plus contingent consideration over a one to two-year period based on future performance in connection with certain acquisitions. The preliminary purchase price allocations are subject to valuation activities being finalized, and thus certain purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates. Purchase price allocations and all valuation activities in connection with the acquisition completed in the first quarter of 2022 have been finalized. Changes to preliminary purchase accounting estimates recorded in the first quarter ended April 2, 2023 related to the 2022 Acquisitions were immaterial.

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:


			2022 Acquisitions
(thousands)			Acquisition A		Acquisition B		All Others		Total
Consideration
	Cash, net of cash acquired		$	132,557	$	95,571	$	20,526	$	248,655
	Working capital holdback and other, net		—		(1,291)		315		(977)

	Contingent consideration(1)		—		—		1,840		1,840
		Total consideration	$	132,557	$	94,280	$	22,681	$	249,518

Assets Acquired
	Trade receivables		$	20,640	$	4,917	$	904	$	26,461
	Inventories		32,744		8,732		2,353		43,829
	Prepaid expenses & other		1,325		164		120		1,609
	Property, plant & equipment		4,681		6,026		1,638		12,345
	Operating lease right-of-use assets		2,917		1,435		599		4,951
	Identifiable intangible assets
		Customer relationships	58,000		38,630		7,045		103,675
		Non-compete agreements	500		230		250		980
		Patents	7,500		9,400		—		16,900
		Trademarks	17,000		7,910		1,220		26,130
Liabilities Assumed
	Current portion of operating lease obligations		(512)		(289)		(273)		(1,074)
	Accounts payable & accrued liabilities		(24,521)		(3,408)		(1,255)		(29,184)
	Operating lease obligations		(2,405)		(1,146)		(326)		(3,877)
	Deferred tax liabilities		(19,930)		(14,466)		—		(34,396)
		Total fair value of net assets acquired	97,939		58,135		12,275		168,349
		Goodwill(2)	34,618		36,145		10,406		81,169
			$	132,557	$	94,280	$	22,681	$	249,518

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

(2) Goodwill is not tax-deductible for Acquisition A and Acquisition B (totaling approximately $70.8 million) but is tax-deductible for the remaining 2022 Acquisitions.

We estimate the value of acquired property, plant, and equipment using a combination of the income, cost, and market approaches, such as estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the acquired businesses.

We estimate the value of customer relationships using the multi-period excess earnings method, which is a variation of the income approach, calculating the present value of incremental after-tax cash flows attributable to the asset. Non-compete agreements are valued using a discounted cash flow approach, which is a variation of the income approach, with and without the individual counterparties to the non-compete agreements. Trademarks and patents are valued using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value.

The estimated useful life for customer relationships is 10 years. The estimated useful life for non-compete agreements is 5 years. The weighted average estimated useful life for patents is 13 years, ranging from 10 to 18 years. Trademarks have an indefinite useful life.

Pro Forma Information

The following pro forma information for the first quarter ended April 2, 2023 and March 27, 2022 assumes the 2022 Acquisitions occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of the 2022 Acquisitions combined with the results prior to their respective acquisition dates, adjusted to reflect the pro forma impact of the acquisitions occurring as of the beginning of the year immediately preceding each such acquisition.

The pro forma information includes financing and interest expense charges based on incremental borrowings incurred in connection with each transaction. In addition, the pro forma information includes amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $1.7 million for the first quarter ended March 27, 2022.


	First Quarter Ended
(thousands, except per share data)	April 2, 2023		March 27, 2022
Revenue	$	900,100	$	1,373,573
Net income	30,173		113,769
Basic earnings per common share	1.40		5.05
Diluted earnings per common share	1.35		4.59

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.


6.			STOCK-BASED COMPENSATION

The Company recorded expense of approximately $5.2 million and $5.1 million in the first quarter ended April 2, 2023 and March 27, 2022, respectively, for its stock-based compensation plans in the condensed consolidated statements of income.

The Company's Board of Directors (the "Board") approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the first quarter ended April 2, 2023 totaling 313,635 shares in the aggregate at an average fair value of $55.59 at grant date for a total fair value at grant date of $17.4 million.

As of April 2, 2023, there was approximately $33.6 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 19.4 months.


7.			EARNINGS PER COMMON SHARE

Earnings per common share calculated for the first quarter of 2023 and 2022 is as follows:


	First Quarter Ended
(thousands except per share data)	April 2, 2023		March 27, 2022
Numerator:
Earnings for basic earnings per common share calculation	$	30,173	$	112,673
Effect of interest on potentially dilutive convertible notes, net of tax	162		317
Earnings for diluted earnings per common share calculation	$	30,335	$	112,990
Denominator:
Weighted average common shares outstanding - basic	21,591		22,517
Weighted average impact of potentially dilutive convertible notes	658		2,046
Weighted average impact of potentially dilutive securities	263		319
Weighted average common shares outstanding - diluted	22,512		24,882
Earnings per common share:
Basic earnings per common share	$	1.40	$	5.00
Diluted earnings per common share	$	1.35	$	4.54

An immaterial amount of securities was not included in the computation of diluted earnings per common share as they are considered anti-dilutive under the treasury stock method for all periods presented.


8.			DEBT

A summary of total debt outstanding at April 2, 2023 and December 31, 2022 is as follows:


(thousands)	April 2, 2023		December 31, 2022
Long-term debt:
1.00% convertible notes due 2023	$	—	$	172,500
Term loan due 2027	135,000		136,875
Revolver due 2027	310,000		80,289
7.50% senior notes due 2027	300,000		300,000
1.75% convertible notes due 2028	258,750		258,750
4.75% senior notes due 2029	350,000		350,000
Total long-term debt	1,353,750		1,298,414
Less: convertible notes debt discount, net	(5,664)		(5,989)
Less: term loan deferred financing costs, net	(663)		(701)
Less: senior notes deferred financing costs, net	(7,765)		(8,075)
Less: current maturities of long-term debt	(7,500)		(7,500)
Total long-term debt, less current maturities, net	$	1,332,158	$	1,276,149

The Company maintains a senior secured credit facility comprised of a $775 million revolving credit facility (the "Revolver due 2027") and the remaining balance of a $150 million term loan. On February 1, 2023, the Company utilized borrowing capacity under the Revolver due 2027 to satisfy its repayment obligation at maturity of the 1.00% Convertible Senior Notes due 2023 (the "1.00% Convertible Notes"). All noteholders elected to receive cash in repayment of the 1.00% Convertible Notes.

The interest rate for incremental borrowings under the Revolver due 2027 at April 2, 2023 was SOFR plus 1.25% (or 6.20%) for the SOFR-based option. The fee payable on committed but unused portions of the Revolver due 2027 was 0.18% at April 2, 2023.

Total cash interest paid for the first quarter of 2023 and 2022 was $5.8 million and $3.2 million, respectively.


9.			LEASES

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


	First Quarter Ended
(thousands)	April 2, 2023		March 27, 2022
Operating lease cost	$	13,464	$	12,164

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	13,378	$	11,927

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	15,034	$	23,725

Balance sheet information related to leases was as follows:


(thousands, except lease term and discount rate)	April 2, 2023		December 31, 2022
Assets
Operating lease right-of-use assets	$	166,222	$	163,674
Liabilities
Operating lease liabilities, current portion	$	44,977	$	44,235
Long-term operating lease liabilities	124,373		122,471
Total lease liabilities	$	169,350	$	166,706


Weighted average remaining lease term, operating leases (in years)	5.2		5.1
Weighted average discount rate, operating leases	4.8	%	4.4	%

Maturities of lease liabilities were as follows at April 2, 2023:


(thousands)
2023 (excluding the three months ended April 2, 2023)	$	39,468
2024	46,218
2025	36,333
2026	25,824
2027	14,806
Thereafter	30,476
Total lease payments	193,125
Less imputed interest	(23,775)
Total	$	169,350

As of April 2, 2023, outstanding leases have remaining lease terms ranging from 1 year to 16 years. The Company has additional operating leases that have not yet commenced as of April 2, 2023 and, therefore, were not included as operating right-of-use assets and corresponding operating lease liabilities on our condensed consolidated balance sheet at April 2, 2023. These operating leases are anticipated to commence in the second quarter of fiscal 2023 with lease terms of 5 years to 7 years. The estimated fair value of these operating lease right-of-use assets and corresponding operating lease liabilities to be recorded on our balance sheet upon lease commencement is approximately $9.9 million.


10.			FAIR VALUE MEASUREMENTS

The following table presents fair values of certain assets and liabilities at April 2, 2023 and December 31, 2022:


	April 2, 2023						December 31, 2022
(in millions)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Cash equivalents(1)	$	21.1	$	—	$	—	$	15.2	$	—	$	—
7.50% senior notes due 2027(2)	—		294.4		—		—		293.9		—
4.75% senior notes due 2029(2)	—		304.4		—		—		293.8		—
1.00% convertible notes due 2023(2)	—		—		—		—		172.0		—
1.75% convertible notes due 2028(2)	—		233.7		—		—		219.9		—
Term loan due 2027(3)	—		135.0		—		—		136.9		—
Revolver due 2027(3)	—		310.0		—		—		80.3		—
Contingent consideration(4)	—		—		5.2		—		—		9.2

(1) The carrying amounts of cash equivalents, representing government and other money market funds traded in an active market with relatively short maturities, are reported on the condensed consolidated balance sheet as of April 2, 2023 and December 31, 2022 as a component of "Cash and cash equivalents".

(2) The amounts of these notes listed above are the current fair values for disclosure purposes only, and they are recorded in the Company's condensed consolidated balance sheets as of April 2, 2023 and December 31, 2022 using the interest rate method. Repayment of the 1.00% Convertible Notes at maturity is discussed further in Note 8.

(3) The carrying amounts of our Term loan due 2027 and Revolver due 2027 approximate fair value as of April 2, 2023 and December 31, 2022 based upon their terms and conditions in comparison to the terms and conditions of debt instruments with similar terms and conditions available at those dates.

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


11.			INCOME TAXES

The effective tax rate in the first quarter of 2023 and 2022 was 20.1% and 23.3%, respectively. The first quarter of 2023 and 2022 rates include the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense in the amount of $2.3 million and $4.0 million, respectively.

Cash paid for income taxes, net of refunds, was $17.2 million in the first quarter of 2023 and $18.4 million in the first quarter of 2022.


12.			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 April 2, 2023
(thousands)	Manufacturing		Distribution		Total
Net outside sales	$	692,396	$	207,704	$	900,100
Intersegment sales	16,419		2,455		18,874
Total sales	708,815		210,159		918,974
Operating income	87,165		18,307		105,472


First Quarter Ended March 27, 2022
(thousands)	Manufacturing		Distribution		Total
Net outside sales	$	979,609	$	362,566	$	1,342,175
Intersegment sales	18,976		3,168		22,144
Total sales	998,585		365,734		1,364,319
Operating income	170,544		45,966		216,510

The following table presents a reconciliation of segment operating income to consolidated operating income:


	First Quarter Ended
(thousands)	April 2, 2023		March 27, 2022
Operating income for reportable segments	$	105,472	$	216,510
Unallocated corporate expenses	(29,474)		(37,894)
Amortization	(19,764)		(16,861)
Consolidated operating income	$	56,234	$	161,755

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.


13.			STOCK REPURCHASE PROGRAMS

In December 2022, the 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 $38.2 million remaining under the previous authorization. Approximately $92.7 million remains in the amount of the Company's common stock that may be acquired under the current stock repurchase program as of April 2, 2023. Under the stock repurchase plan, the Company made repurchases of common stock as follows for the respective periods:


	First Quarter Ended
	April 2, 2023		March 27, 2022
Shares repurchased	54,620		365,627
Average price	$	67.01	$	67.77
Aggregate cost (in millions)	$	3.7	$	24.8


14.			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.

In the Company's Form 10-K for the year ended December 31, 2022, the Company described the current status of litigation concerning the Lusher Site Remediation Group. There has been no change in the status of this litigation since that time. 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 proceedings remain subject to a court-approved stay, granted in September 2021, pending negotiations with 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 2022 or the first three months of 2023. 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.


15.			SUBSEQUENT EVENTS

On May 1, 2023 the Company announced the acquisition of the assets of BTI Transport, a provider of transportation and logistics services to marine OEMs and dealers located in Elkhart, Indiana. The purchase price is not material and will be primarily allocated to property, plant & equipment and intangible assets.

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 Res