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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED October 1, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ……………… to ………………
Commission file number 000-03922
PATRICK 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 October 27, 2023, there were 22,134,344 shares of the registrant’s common stock outstanding.
PATRICK INDUSTRIES, INC.
TABLE OF CONTENTS
| | | | | |
| Page No. |
| PART I. FINANCIAL INFORMATION | |
| | |
| ITEM 1. FINANCIAL STATEMENTS (Unaudited) | |
| |
Condensed Consolidated Statements of Income Third Quarter and Nine Months ended October 1, 2023 and September 25, 2022 | |
| | |
Condensed Consolidated Statements of Comprehensive Income Third Quarter and Nine Months ended October 1, 2023 and September 25, 2022 | |
| |
Condensed Consolidated Balance Sheets October 1, 2023 and December 31, 2022 | |
| |
Condensed Consolidated Statements of Cash Flows Nine Months ended October 1, 2023 and September 25, 2022 | |
| |
Condensed Consolidated Statements of Shareholders' Equity Third Quarter and Nine Months ended October 1, 2023 and September 25, 2022 | |
| |
| Notes to Condensed Consolidated Financial Statements | |
| | |
| ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |
| | |
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | |
| | |
| ITEM 4. CONTROLS AND PROCEDURES | |
| | |
| PART II. OTHER INFORMATION | |
| | |
| ITEM 1. LEGAL PROCEEDINGS | |
| |
| ITEM 1A. RISK FACTORS | |
| | |
| ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES | |
| | |
| ITEM 5. OTHER INFORMATION | |
| |
| ITEM 6. EXHIBITS | |
| | |
| SIGNATURES | |
PART 1: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter Ended | | Nine Months Ended |
| ($ in thousands, except per share data) | | October 1, 2023 | | September 25, 2022 | | October 1, 2023 | | September 25, 2022 |
| NET SALES | | $ | 866,073 | | | $ | 1,112,089 | | | $ | 2,686,858 | | | $ | 3,929,957 | |
| Cost of goods sold | | 666,954 | | | 875,638 | | | 2,083,527 | | | 3,071,057 | |
| GROSS PROFIT | | 199,119 | | | 236,451 | | | 603,331 | | | 858,900 | |
| Operating expenses: | | | | | | | | |
| Warehouse and delivery | | 37,664 | | | 39,997 | | | 109,540 | | | 125,213 | |
| Selling, general and administrative | | 70,873 | | | 84,924 | | | 231,814 | | | 250,969 | |
| Amortization of intangible assets | | 19,507 | | | 18,769 | | | 59,093 | | | 54,175 | |
| Total operating expenses | | 128,044 | | | 143,690 | | | 400,447 | | | 430,357 | |
| OPERATING INCOME | | 71,075 | | | 92,761 | | | 202,884 | | | 428,543 | |
| Interest expense, net | | 16,879 | | | 15,302 | | | 53,623 | | | 44,990 | |
| Income before income taxes | | 54,196 | | | 77,459 | | | 149,261 | | | 383,553 | |
| Income taxes | | 14,646 | | | 18,640 | | | 37,181 | | | 95,537 | |
| NET INCOME | | $ | 39,550 | | | $ | 58,819 | | | $ | 112,080 | | | $ | 288,016 | |
| | | | | | | | |
| BASIC EARNINGS PER COMMON SHARE | | $ | 1.84 | | | $ | 2.66 | | | $ | 5.20 | | | $ | 12.93 | |
| DILUTED EARNINGS PER COMMON SHARE | | $ | 1.81 | | | $ | 2.43 | | | $ | 5.09 | | | $ | 11.78 | |
| | | | | | | | |
| Weighted average shares outstanding – Basic | | 21,511 | | 22,087 | | 21,541 | | 22,274 |
| Weighted average shares outstanding – Diluted | | 21,884 | | 24,413 | | 22,063 | | 24,573 |
| | | | | | | | |
| See accompanying Notes to Condensed Consolidated Financial Statements. | | | | |
| | | | | | | | |
| | | | | | | | |
PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter Ended | | Nine Months Ended |
| ($ in thousands) | | October 1, 2023 | | September 25, 2022 | | October 1, 2023 | | September 25, 2022 |
| NET INCOME | | $ | 39,550 | | | $ | 58,819 | | | $ | 112,080 | | | $ | 288,016 | |
| Other comprehensive income, net of tax: | | | | | | | | |
| Unrealized gain of hedge derivatives | | — | | | — | | | — | | | 757 | |
| Foreign currency translation loss | | (10) | | | (118) | | | (109) | | | (164) | |
| Total other comprehensive income (loss) | | (10) | | | (118) | | | (109) | | | 593 | |
| COMPREHENSIVE INCOME | | $ | 39,540 | | | $ | 58,701 | | | $ | 111,971 | | | $ | 288,609 | |
| | | | | | | | |
See accompanying Notes to Condensed Consolidated Financial Statements.
PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
| | | | | | | | | | | | | | |
| | As of |
| ($ in thousands) | | October 1, 2023 | | December 31, 2022 |
| ASSETS | | | | |
| Current Assets | | | | |
| Cash and cash equivalents | | $ | 16,450 | | | $ | 22,847 | |
| Trade and other receivables, net | | 240,850 | | | 172,890 | |
| Inventories | | 517,657 | | | 667,841 | |
| Prepaid expenses and other | | 36,296 | | | 46,326 | |
| Total current assets | | 811,253 | | | 909,904 | |
| Property, plant and equipment, net | | 358,266 | | | 350,572 | |
| Operating lease right-of-use assets | | 170,128 | | | 163,674 | |
| Goodwill | | 637,393 | | | 629,263 | |
| Intangible assets, net | | 670,763 | | | 720,230 | |
| Other non-current assets | | 8,140 | | | 8,828 | |
| TOTAL ASSETS | | $ | 2,655,943 | | | $ | 2,782,471 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | |
| Current Liabilities | | | | |
| Current maturities of long-term debt | | $ | 7,500 | | | $ | 7,500 | |
| Current operating lease liabilities | | 47,262 | | | 44,235 | |
| Accounts payable | | 148,239 | | | 142,910 | |
| Accrued liabilities | | 132,813 | | | 172,595 | |
| Total current liabilities | | 335,814 | | | 367,240 | |
| Long-term debt, less current maturities, net | | 1,104,618 | | | 1,276,149 | |
| Long-term operating lease liabilities | | 126,231 | | | 122,471 | |
| Deferred tax liabilities, net | | 47,390 | | | 48,392 | |
| Other long-term liabilities | | 10,587 | | | 13,050 | |
| TOTAL LIABILITIES | | 1,624,640 | | | 1,827,302 | |
| SHAREHOLDERS’ EQUITY | | | | |
| Common stock | | 201,680 | | | 197,003 | |
| | | | |
| Accumulated other comprehensive loss | | (804) | | | (695) | |
| Retained earnings | | 830,427 | | | 758,861 | |
| TOTAL SHAREHOLDERS’ EQUITY | | 1,031,303 | | | 955,169 | |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 2,655,943 | | | $ | 2,782,471 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| | | | | | | | | | | | | | |
| | Nine Months Ended |
| ($ in thousands) | | October 1, 2023 | | September 25, 2022 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
| Net income | | $ | 112,080 | | | $ | 288,016 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
| Depreciation and amortization | | 107,976 | | | 96,256 | |
| Stock-based compensation expense | | 13,675 | | | 15,596 | |
| Amortization of convertible notes debt discount | | 823 | | | 1,399 | |
| | | | |
| (Gain) loss on sale of property, plant and equipment | | 242 | | | (5,713) | |
| Other non-cash items | | 2,959 | | | 5,049 | |
| Change in operating assets and liabilities, net of acquisitions of businesses: | | | | |
| Trade and other receivables, net | | (68,114) | | | (92,199) | |
| Inventories | | 154,634 | | | (85,091) | |
| Prepaid expenses and other assets | | 9,098 | | | 31,058 | |
| Accounts payable, accrued liabilities and other | | (39,543) | | | (24,563) | |
| Net cash provided by operating activities | | 293,830 | | | 229,808 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | |
| Purchases of property, plant and equipment | | (47,430) | | | (63,437) | |
| Proceeds from sale of property, plant and equipment | | 946 | | | 7,441 | |
| Business acquisitions, net of cash acquired | | (26,009) | | | (152,888) | |
| Purchases of intangible assets | | (2,970) | | | — | |
| Net cash used in investing activities | | (75,463) | | | (208,884) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
| | | | |
| Term debt repayments | | (5,625) | | | (3,750) | |
| Borrowings on revolver | | 482,194 | | | 703,402 | |
| Repayments on revolver | | (477,482) | | | (703,402) | |
| | | | |
| Repayments of convertible notes | | (172,500) | | | — | |
| Stock repurchases under buyback program | | (12,230) | | | (46,984) | |
| Cash dividends paid to shareholders | | (30,260) | | | (23,007) | |
| Taxes paid for share-based payment arrangements | | (8,762) | | | (10,036) | |
| Payment of deferred financing costs and other | | — | | | (2,142) | |
| Payment of contingent consideration from a business acquisition | | (1,430) | | | (4,780) | |
| Proceeds from exercise of common stock options | | 1,413 | | | 195 | |
| Other financing activities | | (82) | | | — | |
| Net cash used in financing activities | | (224,764) | | | (90,504) | |
| Decrease in cash and cash equivalents | | (6,397) | | | (69,580) | |
| Cash and cash equivalents at beginning of year | | 22,847 | | | 122,849 | |
| Cash and cash equivalents at end of period | | $ | 16,450 | | | $ | 53,269 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter Ended October 1, 2023 |
| ($ in thousands) | | Common
Stock | | Additional Paid-in Capital | | Accumulated Other
Comprehensive Loss | | | | Retained
Earnings | | Total |
| Balance July 2, 2023 | | $ | 196,912 | | | $ | — | | | $ | (794) | | | | | $ | 801,304 | | | $ | 997,422 | |
| Net income | | — | | | — | | | — | | | | | 39,550 | | | 39,550 | |
| Dividends declared | | — | | | — | | | — | | | | | (10,021) | | | (10,021) | |
| Other comprehensive loss, net of tax | | — | | | — | | | (10) | | | | | — | | | (10) | |
| Stock repurchases under buyback program | | (54) | | | — | | | — | | | | | (406) | | | (460) | |
| Repurchases of shares for tax payments related to the vesting and exercising of share-based grants | | (1,177) | | | — | | | — | | | | | — | | | (1,177) | |
| Issuance of shares upon exercise of common stock options | | 270 | | | — | | | — | | | | | — | | | 270 | |
| Stock-based compensation expense | | 5,729 | | | — | | | — | | | | | — | | | 5,729 | |
| Balance October 1, 2023 | | $ | 201,680 | | | $ | — | | | $ | (804) | | | | | $ | 830,427 | | | $ | 1,031,303 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Third Quarter Ended September 25, 2022 |
| ($ in thousands) | | Common
Stock | | Additional Paid-in Capital | | Accumulated Other
Comprehensive Loss | | | | Retained
Earnings | | Total |
| Balance June 26, 2022 | | $ | 191,295 | | | $ | — | | | $ | (1,517) | | | | | $ | 707,812 | | | $ | 897,590 | |
| Net income | | — | | | — | | | — | | | | | 58,819 | | | 58,819 | |
| Dividends declared | | — | | | — | | | — | | | | | (7,540) | | | (7,540) | |
| Other comprehensive loss, net of tax | | — | | | — | | | (118) | | | | | — | | | (118) | |
| Stock repurchases under buyback program | | (1,293) | | | — | | | — | | | | | (6,147) | | | (7,440) | |
| Repurchase of shares for tax payments related to the vesting and exercising of share-based grants | | (1) | | | — | | | — | | | | | — | | | (1) | |
| Issuance of shares upon exercise of common stock options | | 14 | | | — | | | — | | | | | — | | | 14 | |
| Stock-based compensation expense | | 5,352 | | | — | | | — | | | | | — | | | 5,352 | |
| Balance September 25, 2022 | | $ | 195,367 | | | $ | — | | | $ | (1,635) | | | | | $ | 752,944 | | | $ | 946,676 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended October 1, 2023 |
| ($ in 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 | | — | | | — | | | — | | | | | 112,080 | | | 112,080 | |
| Dividends declared | | — | | | — | | | — | | | | | (29,927) | | | (29,927) | |
| Other comprehensive loss, net of tax | | — | | | — | | | (109) | | | | | — | | | (109) | |
| Share repurchases under buyback program | | (1,649) | | | — | | | — | | | | | (10,587) | | | (12,236) | |
| Repurchases of shares for tax payments related to the vesting and exercise of share-based grants | | (8,762) | | | — | | | — | | | | | — | | | (8,762) | |
| Issuance of shares upon exercise of common stock options | | 1,413 | | | — | | | — | | | | | — | | | 1,413 | |
| Stock-based compensation expense | | 13,675 | | | — | | | — | | | | | — | | | 13,675 | |
| Balance October 1, 2023 | | $ | 201,680 | | | $ | — | | | $ | (804) | | | | | $ | 830,427 | | | $ | 1,031,303 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 25, 2022 |
| ($ in thousands) | | Common
Stock | | Additional Paid-in 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 | | — | | | — | | | — | | | | | 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 options | | 195 | | | — | | | — | | | | | — | | | 195 | |
| Stock-based compensation expense | | 15,596 | | | — | | | — | | | | | — | | | 15,596 | |
| Balance September 25, 2022 | | $ | 195,367 | | | $ | — | | | $ | (1,635) | | | | | $ | 752,944 | | | $ | 946,676 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
PATRICK INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Patrick Industries, Inc. (“Patrick”, the “Company”, "we", "our") contain all adjustments (consisting of normal recurring adjustments) that we believe are necessary to present fairly the Company’s financial position as of October 1, 2023 and December 31, 2022, its results of operations for the third quarter and nine months ended October 1, 2023 and September 25, 2022, and its cash flows for the nine months ended October 1, 2023 and September 25, 2022.
Patrick's unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The accompanying unaudited condensed consolidated financial statements for Patrick do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to Patrick’s Audited Consolidated Financial Statements for the year ended December 31, 2022, and corresponding notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 24, 2023.
The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning approximately thirteen weeks. The first quarter ends on the Sunday closest to the end of the first thirteen-week period. The second and third quarters are thirteen weeks in duration and the fourth quarter is the remainder of the year. The third quarter of fiscal year 2023 ended on October 1, 2023 and the third quarter of fiscal year 2022 ended on September 25, 2022.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 24, 2023
New Accounting Standards
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASUs”) to the FASB’s Accounting Standards Codification.
The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company’s unaudited condensed consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In October 2023, the FASB issued ASU 2023-06, "Disclosure Improvements." The amendments in this update modify the disclosure or presentation requirements of a variety of topics in the codification. Certain of the amendments represent clarifications to or technical corrections of the current requirements. The amendments in this ASU are effective for public business entities for interim periods beginning after June 30, 2027. The Company is currently evaluating the impacts of the provisions of ASU 2023-06.
NOTE 3. REVENUE RECOGNITION
In the following table, revenue from contracts with customers, net of intersegment sales, is disaggregated by market type and by reportable segment:
| | | | | | | | | | | | | | | | | | | | |
| | Third Quarter Ended October 1, 2023 |
| ($ in thousands) | | Manufacturing | | Distribution | | Total |
| Market type: | | | | | | |
| Recreational Vehicle | | $ | 273,804 | | | $ | 126,300 | | | $ | 400,104 | |
| Marine | | 193,066 | | | 12,148 | | | 205,214 | |
| Manufactured Housing | | 66,671 | | | 79,030 | | | 145,701 | |
| Industrial | | 107,644 | | | 7,410 | | | 115,054 | |
| Total | | $ | 641,185 | | | $ | 224,888 | | | $ | 866,073 | |
| | | | | | | | | | | | | | | | | | | | |
| | Third Quarter Ended September 25, 2022 |
| ($ in thousands) | | Manufacturing | | Distribution | | Total |
| Market type: | | | | | | |
| Recreational Vehicle | | $ | 355,791 | | | $ | 167,784 | | | $ | 523,575 | |
| Marine | | 256,357 | | | 14,768 | | | 271,125 | |
| Manufactured Housing | | 85,767 | | | 89,676 | | | 175,443 | |
| Industrial | | 130,495 | | | 11,451 | | | 141,946 | |
| Total | | $ | 828,410 | | | $ | 283,679 | | | $ | 1,112,089 | |
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended October 1, 2023 |
| ($ in thousands) | | Manufacturing | | Distribution | | Total |
| Market type: | | | | | | |
| Recreational Vehicle | | $ | 780,993 | | | $ | 369,643 | | | $ | 1,150,636 | |
| Marine | | 705,399 | | | 44,160 | | | 749,559 | |
| Manufactured Housing | | 196,179 | | | 226,919 | | | 423,098 | |
| Industrial | | 339,108 | | | 24,457 | | | 363,565 | |
| Total | | $ | 2,021,679 | | | $ | 665,179 | | | $ | 2,686,858 | |
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 25, 2022 |
| ($ in thousands) | | Manufacturing | | Distribution | | Total |
| Market type: | | | | | | |
| Recreational Vehicle | | $ | 1,501,151 | | | $ | 680,463 | | | $ | 2,181,614 | |
| Marine | | 736,854 | | | 45,568 | | | 782,422 | |
| Manufactured Housing | | 269,773 | | | 279,625 | | | 549,398 | |
| Industrial | | 384,216 | | | 32,307 | | | 416,523 | |
| Total | | $ | 2,891,994 | | | $ | 1,037,963 | | | $ | 3,929,957 | |
Contract Liabilities
Contract liabilities, representing upfront payments from customers received prior to satisfying performance obligations, were immaterial as of the beginning and end of all periods presented and changes in contract liabilities were immaterial during all periods presented.
NOTE 4. INVENTORY
Inventories consist of the following:
| | | | | | | | | | | | | | |
| ($ in thousands) | | October 1, 2023 | | December 31, 2022 |
| Raw materials | | $ | 276,681 | | | $ | 348,670 | |
| Work in process | | 19,635 | | | 22,630 | |
| Finished goods | | 107,840 | | | 141,516 | |
| Less: reserve for inventory obsolescence | | (20,297) | | | (14,059) | |
| Total manufactured goods, net | | 383,859 | | | 498,757 | |
| Materials purchased for resale (distribution products) | | 142,394 | | | 175,061 | |
| Less: reserve for inventory obsolescence | | (8,596) | | | (5,977) | |
| Total materials purchased for resale (distribution products), net | | 133,798 | | | 169,084 | |
| Total inventories | | $ | 517,657 | | | $ | 667,841 | |
NOTE 5. GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the nine months ended October 1, 2023 by segment are as follows:
| | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | | Manufacturing | | Distribution | | Total |
| Balance - December 31, 2022 | | $ | 558,362 | | | $ | 70,901 | | | $ | 629,263 | |
| Acquisitions | | — | | | 5,905 | | | 5,905 | |
| Adjustments to preliminary purchase price allocations | | 2,008 | | | 217 | | | 2,225 | |
Balance - October 1, 2023 | | $ | 560,370 | | | $ | 77,023 | | | $ | 637,393 | |
Intangible assets, net consist of the following as of October 1, 2023 and December 31, 2022:
| | | | | | | | | | | | | | |
| ($ in thousands) | | October 1, 2023 | | December 31, 2022 |
| Customer relationships | | $ | 729,764 | | | $ | 722,503 | |
| Non-compete agreements | | 21,561 | | | 20,412 | |
| Patents | | 69,310 | | | 69,164 | |
| Trademarks | | 197,027 | | | 195,957 | |
| Intangible assets, gross | | 1,017,662 | | | 1,008,036 | |
| Less: accumulated amortization | | (346,899) | | | (287,806) | |
| Intangible assets, net | | $ | 670,763 | | | $ | 720,230 | |
Changes in the carrying value of intangible assets for the nine months ended October 1, 2023 by segment are as follows:
| | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | | Manufacturing | | Distribution | | Total |
| Balance - December 31, 2022 | | $ | 622,647 | | | $ | 97,583 | | | $ | 720,230 | |
| Additions | | 2,970 | | | 11,100 | | | 14,070 | |
| Amortization | | (50,905) | | | (8,188) | | | (59,093) | |
| Adjustments to preliminary purchase price allocations | | (4,359) | | | (85) | | | (4,444) | |
Balance - October 1, 2023 | | $ | 570,353 | | | $ | 100,410 | | | $ | 670,763 | |
NOTE 6. ACQUISITIONS
General
Business combinations generally take place to gain key technology, expand into additional markets, or strengthen Patrick's positions in existing markets. Acquisitions are accounted for under the acquisition method of accounting. For each acquisition, the excess of the purchase consideration over the fair value of the net assets acquired is recorded as goodwill, which generally represents the combined value of the Company’s existing purchasing, manufacturing, sales, and systems resources with the organizational talent and expertise of the acquired companies’ respective management teams to maximize efficiencies, market share growth and net income.
The Company completed three acquisitions in the first nine months of 2023 (the "2023 Acquisitions"). For the third quarter and nine months ended October 1, 2023, net sales included in the Company's condensed consolidated statements of income related to the 2023 Acquisitions were $7.3 million and $9.8 million, respectively, and operating income was $(0.1) million and $0.1 million, respectively. Acquisition-related costs associated with the 2023 Acquisitions were immaterial. Assets acquired and liabilities assumed in the acquisitions were recorded on the Company's condensed consolidated balance sheet at their estimated fair values as of the respective dates of acquisition. For each acquisition, the Company completes its allocation of the purchase price to the fair value of acquired assets and liabilities within a one year measurement period. The Company completed three acquisitions in the first nine months of 2022. For the third quarter and nine months ended September 25, 2022, net sales included in the Company's condensed consolidated statements of income related to the acquisitions completed in the first nine months 2022 were $38.0 million and $87.3 million, respectively, and operating income was $6.9 million and $15.9 million, respectively.
Contingent Consideration
In connection with certain acquisitions, the Company is required to pay additional cash consideration if certain financial results of the acquired businesses are achieved. The Company records a liability for the estimated fair value of the contingent consideration related to each of these acquisitions as part of the initial purchase price based on the present value of the expected future cash flows and the probability of future payments at the date of acquisition.
Changes in the fair value of contingent consideration for the nine months ended October 1, 2023 are as follows:
| | | | | | | | |
| ($ in thousands) | | |
| Balance - December 31, 2022 | | $ | 9,213 | |
| Additions | | 3,590 | |
Fair value adjustments(1) | | 1,000 | |
| Settlements | | (5,180) | |
Balance - October 1, 2023 | | $ | 8,623 | |
(1) The Company records non-cash fair value adjustments to contingent consideration based on expected results, which are included in selling, general and administrative expenses in the Company's condensed consolidated statements of income for the first nine months of 2023.
The following table shows the balance sheet location of the fair value of contingent consideration and the maximum amount of contingent consideration payments the Company may be subject to at October 1, 2023 and December 31, 2022:
| | | | | | | | | | | | | | |
| ($ in thousands) | | October 1, 2023 | | December 31, 2022 |
| Accrued liabilities | | $ | 7,583 | | | $ | 5,250 | |
| Other long-term liabilities | | 1,040 | | | 3,963 | |
| Total fair value of contingent consideration | | $ | 8,623 | | | $ | 9,213 | |
| Maximum amount of contingent consideration | | $ | 10,167 | | | $ | 10,747 | |
2023 Acquisitions
The Company completed three acquisitions in the first nine months ended October 1, 2023, including the following previously announced acquisition:
| | | | | | | | | | | | | | |
| Company | | Segment | | Description |
| BTI Transport | | Distribution | | Provider of transportation and logistics services to marine original equipment manufacturers ("OEMs") and dealers, based in Elkhart, Indiana, acquired in April 2023. The acquired business operates under the Patrick Marine Transport brand. |
Inclusive of two acquisitions not discussed above, total cash consideration for the 2023 Acquisitions was approximately $26.4 million, plus contingent consideration over a two-year period based on future performance in connection with certain acquisitions. The preliminary purchase price allocations are subject to valuation activities being finalized, and thus certain purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates. Changes to preliminary purchase accounting estimates recorded in the third quarter and nine months ended October 1, 2023 related to the 2023 Acquisitions were immaterial.
2022 Acquisitions
The Company completed five acquisitions in the year ended December 31, 2022, including the following three previously announced acquisitions (collectively, the "2022 Acquisitions"):
| | | | | | | | | | | | | | |
| 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 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 $248.1 million, plus contingent consideration over a one to two-year period based on future performance in connection with certain acquisitions. Purchase price allocations and all valuation activities in connection with the 2022 Acquisitions have been finalized, and adjustments made during the year related to changes in the preliminary purchase price allocation recorded in all periods related to the 2022 Acquisitions were immaterial and relate primarily to the valuation of intangible and fixed assets.
The following table summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition for the 2023 Acquisitions and 2022 Acquisitions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2023 Acquisitions | | 2022
Acquisitions |
| ($ in thousands) | | | | Acquisition A | | Acquisition B | | All Others | | Total |
| Consideration | | | | | | | | | | |
| Cash, net of cash acquired | | $ | 26,359 | | | $ | 132,557 | | | $ | 94,705 | | | $ | 20,832 | | | $ | 248,094 | |
| Working capital holdback and other, net | | (10) | | | — | | | — | | | (20) | | | (20) | |
| | | | | | | | | | | |
| Contingent consideration(1) | | 3,500 | | | — | | | — | | | 1,840 | | | 1,840 | |
| | Total consideration | | $ | 29,849 | | | $ | 132,557 | | | $ | 94,705 | | | $ | 22,652 | | | $ | 249,914 | |
| | | | | | | | | | | | |
| Assets Acquired | | | | | | | | | | |
| Trade receivables | | $ | 570 | | | $ | 20,640 | | | $ | 4,880 | | | $ | 904 | | | $ | 26,424 | |
| Inventories | | 4,407 | | | 32,744 | | | 8,732 | | | 2,352 | | | 43,828 | |
| Prepaid expenses & other | | 190 | | | 1,325 | | | 164 | | | 128 | | | 1,617 | |
| Property, plant & equipment | | 10,149 | | | 4,681 | | | 8,086 | | | 1,464 | | | 14,231 | |
| Operating lease right-of-use assets | | 1,044 | | | 2,917 | | | 1,435 | | | 599 | | | 4,951 | |
| Identifiable intangible assets | | | | | | | | | | |
| | Customer relationships | | 10,370 | | | 58,000 | | | 30,970 | | | 7,055 | | | 96,025 | |
| | Non-compete agreements | | 430 | | | 500 | | | — | | | 310 | | | 810 | |
| | Patents | | — | | | 7,500 | | | 9,500 | | | — | | | 17,000 | |
| | Trademarks | | — | | | 17,000 | | | 8,080 | | | 1,310 | | | 26,390 | |
| Liabilities Assumed | | | | | | | | | | |
| Current portion of operating lease obligations | | (262) | | | (512) | | | (289) | | | (273) | | | (1,074) | |
| Accounts payable & accrued liabilities | | (472) | | | (24,521) | | | (3,336) | | | (1,291) | | | (29,148) | |
| Operating lease obligations | | (782) | | | (2,405) | | | (1,146) | | | (326) | | | (3,877) | |
| Deferred tax liabilities | | — | | | (19,930) | | | (12,684) | | | — | | | (32,614) | |
| | Total fair value of net assets acquired | | 25,644 | | | 97,939 | | | 54,392 | | | 12,232 | | | 164,563 | |
| | Goodwill(2) | | 5,905 | | | 34,618 | | | 40,313 | | | 10,420 | | | 85,351 | |
| | Bargain purchase gain(3) | | (1,700) | | | — | | | — | | | — | | | — | |
| | | | $ | 29,849 | | | $ | 132,557 | | | $ | 94,705 | | | $ | 22,652 | | | $ | 249,914 | |
(1) These amounts reflect the acquisition date fair value of contingent consideration based on expected future results relating to certain acquisitions.
(2) Goodwill is not tax-deductible for Acquisition A and Acquisition B (totaling approximately $74.9 million) but is tax-deductible for the remaining 2022 Acquisitions and the 2023 Acquisitions.
(3) In connection with one of the 2023 Acquisitions, the Company anticipates it will recognize a bargain purchase gain. A bargain purchase gain is recognized when the net assets acquired in a business combination have a higher fair value than the consideration paid. This gain is primarily attributable to the fair value assigned to customer relationships, has been deferred for recognition until the Company finalizes all purchase accounting adjustments, and is included in "Accrued liabilities" on the condensed consolidated balance sheet.
We estimate the value of acquired property, plant, and equipment using a combination of the income, cost, and market approaches, such as estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the acquired businesses.
We estimate the value of customer relationships using the multi-period excess earnings method, which is a variation of the income approach, calculating the present value of incremental after-tax cash flows attributable to the asset. Non-compete agreements are valued using a discounted cash flow approach, which is a variation of the income approach, with and without the individual counterparties to the non-compete agreements. Trademarks and patents are valued using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value.
The estimated useful life for customer relationships is 10 years. The estimated useful life for non-compete agreements is 5 years. The weighted average estimated useful life for patents is 13 years, ranging from 10 to 18 years. Trademarks have an indefinite useful life.
Pro Forma Information
The following pro forma information for the third quarter and nine months ended October 1, 2023 and September 25, 2022 assumes the 2023 Acquisitions and 2022 Acquisitions occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of the 2023 Acquisitions and 2022 Acquisitions combined with the results prior to their respective acquisition dates, adjusted to reflect the pro forma impact of the acquisitions occurring as of the beginning of the year immediately preceding each such acquisition.
The pro forma information includes financing and interest expense charges based on incremental borrowings incurred in connection with each transaction. In addition, the pro forma information includes amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $0.0 million and $0.4 million, respectively, for the third quarter and nine months ended October 1, 2023, and $1.0 million and $5.1 million, respectively, for the third quarter and nine months ended September 25, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Third Quarter Ended | | Nine Months Ended |
| ($ in thousands, except per share data) | | October 1, 2023 | | September 25, 2022 | | October 1, 2023 | | September 25, 2022 |
| Revenue | | $ | 866,073 | | | $ | 1,124,619 | | | $ | 2,702,753 | | | $ | 4,029,451 | |
| Net income | | $ | 39,550 | | | $ | 59,023 | | | $ | 112,876 | | | $ | 292,824 | |
| Basic earnings per common share | | $ | 1.84 | | | $ | 2.67 | | | $ | 5.24 | | | $ | 13.15 | |
| Diluted earnings per common share | | $ | 1.81 | | | $ | 2.44 | | | $ | 5.12 | | | $ | 11.97 | |
The pro forma information is presented for informational purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of the periods indicated above.
NOTE 7. STOCK-BASED COMPENSATION
The Company's Board of Directors (the "Board") approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the nine months ended October 1, 2023 totaling 330,359 shares in the aggregate at an average fair value of $56.28 at grant date for a total fair value at grant date of $18.6 million.
The Company recorded expense, net of forfeitures, of approximately $5.8 million and $13.7 million in the third quarter and nine months ended October 1, 2023, respectively, for its stock-based compensation plans in the condensed consolidated statements of income. Stock-based compensation expense of $5.4 million and $15.6 million was recorded in the third quarter and nine months ended September 25, 2022, respectively.
As of October 1, 2023, there was approximately $24.1 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under incentive plans. That cost is expected to be recognized over a weighted-average period of 12.4 months.
NOTE 8. EARNINGS PER COMMON SHARE
Earnings per common share calculated for the third quarter and first nine months of 2023 and 2022 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Third Quarter Ended | | Nine Months Ended |
| ($ in thousands, except per share data) | | October 1, 2023 | | September 25, 2022 | | October 1, 2023 | | September 25, 2022 |
| Numerator: | | | | | | | | |
| Earnings for basic earnings per common share calculation | | $ | 39,550 | | | $ | 58,819 | | | $ | 112,080 | | | $ | 288,016 | |
| Effect of interest on potentially dilutive convertible notes, net of tax | | — | | | 478 | | | 162 | | | 1,417 | |
| Earnings for diluted earnings per common share calculation | | $ | 39,550 | | | $ | 59,297 | | | $ | 112,242 | | | $ | 289,433 | |
| Denominator: | | | | | | | | |
| Weighted average common shares outstanding - basic | | 21,511 | | 22,087 | | 21,541 | | 22,274 |
| Weighted average impact of potentially dilutive convertible notes | | — | | 2,064 | | 221 | | 2,053 |
| Weighted average impact of potentially dilutive securities | | 373 | | 262 | | 301 | | 246 |
| Weighted average common shares outstanding - diluted | | 21,884 | | 24,413 | | 22,063 | | 24,573 |
| Earnings per common share: | | | | | | | | |
| Basic earnings per common share | | $ | 1.84 | | | $ | 2.66 | | | $ | 5.20 | | | $ | 12.93 | |
| Diluted earnings per common share | | $ | 1.81 | | | $ | 2.43 | | | $ | 5.09 | | | $ | 11.78 | |
An immaterial amount of securities was not included in the computation of diluted earnings per common share as they are considered anti-dilutive under the treasury stock method for the periods presented.
NOTE 9. DEBT
A summary of total debt outstanding at October 1, 2023 and December 31, 2022 is as follows:
| | | | | | | | | | | | | | |
| ($ in thousands) | | October 1, 2023 | | December 31, 2022 |
| Long-term debt: | | | | |
1.00% convertible notes due 2023 | | $ | — | | | $ | 172,500 | |
| Term loan due 2027 | | 131,250 | | | 136,875 | |
| Revolver due 2027 | | 85,000 | | | 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 | | 1,125,000 | | | 1,298,414 | |
| Less: convertible notes debt discount, net | | (5,166) | | | (5,989) | |
| Less: term loan deferred financing costs, net | | (587) | | | (701) | |
| Less: senior notes deferred financing costs, net | | (7,129) | | | (8,075) | |
| Less: current maturities of long-term debt | | (7,500) | | | (7,500) | |
| Total long-term debt, less current maturities, net | | $ | 1,104,618 | | | $ | 1,276,149 | |
The Company maintains a senior secured credit facility comprised of a $775 million revolving credit facility (the "Revolver due 2027") and the remaining balance of a $150 million term loan. On February 1, 2023, the Company utilized borrowing capacity under the Revolver due 2027 to satisfy its repayment obligation at maturity of the 1.00% Convertible Senior Notes due 2023 (the "1.00% Convertible Notes"). All noteholders elected to receive cash in repayment of the 1.00% Convertible Notes.
The interest rate for incremental borrowings under the Revolver due 2027 at October 1, 2023 was the Secured Overnight Financing Rate (“SOFR”) plus 1.75% (or 7.17%) for the SOFR-based option. The fee payable on committed but unused portions of the Revolver due 2027 was 0.23% at October 1, 2023.
Total cash interest paid for the third quarter of 2023 and 2022 was $8.1 million and $3.8 million, respectively, and $40.8 million and $30.9 million for the comparative nine months periods, respectively.
NOTE 10. LEASES
Lease expense, supplemental cash flow information, and other information related to leases were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter Ended | | Nine Months Ended |
| ($ in thousands) | | October 1, 2023 | | September 25, 2022 | | October 1, 2023 | | September 25, 2022 |
| Operating lease cost | | $ | 14,350 | | | $ | 12,801 | | | $ | 41,602 | | | $ | 37,528 | |
| | | | | | | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | |
| Operating cash flows for operating leases | | $ | 14,253 | | | $ | 12,673 | | | $ | 41,286 | | | $ | 36,909 | |
| | | | | | | | |
| Right-of-use assets obtained in exchange for lease obligations: | | | | | | | | |
| Operating leases | | $ | 14,078 | | | $ | 10,297 | | | $ | 45,420 | | | $ | 40,029 | |
Balance sheet information related to leases was as follows:
| | | | | | | | | | | | | | |
| ($ in thousands, except lease term and discount rate) | | October 1, 2023 | | December 31, 2022 |
| Assets | | | | |
| Operating lease right-of-use assets | | $ | 170,128 | | | $ | 163,674 | |
| Liabilities | | | | |
| Operating lease liabilities, current portion | | $ | 47,262 | | | $ | 44,235 | |
| Long-term operating lease liabilities | | 126,231 | | | 122,471 | |
| Total lease liabilities | | $ | 173,493 | | | $ | 166,706 | |
| | | | | | | | | | | | | | |
| Weighted average remaining lease term, operating leases (in years) | | 4.8 | | 5.1 |
| Weighted average discount rate, operating leases | | 5.1 | % | | 4.4 | % |
Maturities of lease liabilities were as follows at October 1, 2023:
| | | | | |
| ($ in thousands) | |
| 2023 (excluding the nine months ended October 1, 2023) | $ | 14,289 | |
| 2024 | 52,997 | |
| 2025 | 43,322 | |
| 2026 | 32,346 | |
| 2027 | 19,684 | |
| Thereafter | 35,136 | |
| Total lease payments | 197,774 | |
| Less imputed interest | (24,281) | |
| Total | $ | 173,493 | |
As of October 1, 2023, outstanding leases have remaining lease terms ranging from one year to 16 years. The Company has additional operating leases that have not yet commenced as of October 1, 2023 and, therefore, were not included as operating right-of-use assets and corresponding operating lease liabilities on our condensed consolidated balance sheet at October 1, 2023. These operating leases are anticipated to commence in the first quarter of fiscal 2024 with lease terms of five years. The estimated fair value of these operating lease right-of-use assets and corresponding operating lease liabilities to be recorded on our balance sheet upon lease commencement is approximately $2.8 million.
NOTE 11. FAIR VALUE MEASUREMENTS
The following table presents fair values of certain assets and liabilities at October 1, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | October 1, 2023 | | December 31, 2022 |
| ($ in millions) | | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
Cash equivalents(1) | | $ | 7.1 | | | $ | — | | | $ | — | | | $ | 15.2 | | | $ | — | | | $ | — | |
7.50% senior notes due 2027(2) | | $ | — | | | $ | 288.1 | | | $ | — | | | $ | — | | | $ | 293.9 | | | $ | — | |
4.75% senior notes due 2029(2) | | $ | — | | | $ | 292.6 | | | $ | — | | | $ | — | | | $ | 293.8 | | | $ | — | |
1.00% convertible notes due 2023(2) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 172.0 | | | $ | — | |
1.75% convertible notes due 2028(2) | | $ | — | | | $ | 247.2 | | | $ | — | | | $ | — | | | $ | 219.9 | | | $ | — | |
Term loan due 2027(3) | | $ | — | | | $ | 131.3 | | | $ | — | | | $ | — | | | $ | 136.9 | | | $ | — | |
Revolver due 2027(3) | | $ | — | | | $ | 85.0 | | | $ | — | | | $ | — | | | $ | 80.3 | | | $ | — | |
Contingent consideration(4) | | $ | — | | | $ | — | | | $ | 8.6 | | | $ | — | | | $ | — | | | $ | 9.2 | |
(1) The carrying amounts of cash equivalents, representing government and other money market funds traded in an active market with relatively short maturities, are reported on the condensed consolidated balance sheet as of October 1, 2023 and December 31, 2022 as a component of "Cash and cash equivalents".
(2) The amounts of these notes listed above are the current fair values for disclosure purposes only, and they are recorded in the Company's condensed consolidated balance sheets as of October 1, 2023 and December 31, 2022 using the interest rate method. Repayment of the 1.00% Convertible Notes at maturity is discussed further in Note 9 "Debt".
(3) The carrying amounts of our Term loan due 2027 and Revolver due 2027 approximate fair value as of October 1, 2023 and December 31, 2022 based upon their terms and conditions in comparison to the terms and conditions of debt instruments with similar terms and conditions available at those dates.
(4) The estimated fair value of the Company's contingent consideration is discussed further in Note 6 "Acquisitions".
NOTE 12. INCOME TAXES
The effective tax rate in the third quarter of 2023 and 2022 was 27.0% and 24.1%, respectively, and the effective tax rate for the comparable nine months periods was 24.9% and 24.9%, respectively. The first nine months of 2023 and 2022
rates include the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense in the amount of $2.3 million and $4.0 million, respectively.
Cash paid for income taxes, net of refunds, was $16.9 million and $65.9 million, respectively, in the third quarter and first nine months of 2023 and $38.4 million and $114.9 million, respectively, in the third quarter and first nine months of 2022.
NOTE 13. SEGMENT INFORMATION
Financial results for the Company's reportable segments have been prepared using a management approach, which is consistent with the basis and manner in which financial information is evaluated by the Company's Chief Operating Decision Maker (CODM) in allocating resources and in assessing performance. The Company has two reportable segments, Manufacturing and Distribution. The operating results of the operating segments are regularly reviewed by the Company’s CODM, the Chief Executive Officer, to assess the performance of the individual operating segments and to make decisions about resources to be allocated to the operating segments.
The tables below present information about the sales and operating income of those segments. | | | | | | | | | | | | | | | | | | | | |
| Third Quarter Ended October 1, 2023 | | | | | | |
| ($ in thousands) | | Manufacturing | | Distribution | | Total |
| Net outside sales | | $ | 641,185 | | | $ | 224,888 | | | $ | 866,073 | |
| Intersegment sales | | 18,308 | | | 1,971 | | | 20,279 | |
| Total sales | | $ | 659,493 | | | $ | 226,859 | | | $ | 886,352 | |
| Operating income | | $ | 80,777 | | | $ | 24,026 | | | $ | 104,803 | |
| | | | | | | | | | | | | | | | | | | | |
| Third Quarter Ended September 25, 2022 | | | | | | |
| ($ in thousands) | | Manufacturing | | Distribution | | Total |
| Net outside sales | | $ | 828,410 | | | $ | 283,679 | | | $ | 1,112,089 | |
| Intersegment sales | | 18,481 | | | 2,859 | | | 21,340 | |
| Total sales | | $ | 846,891 | | | $ | 286,538 | | | $ | 1,133,429 | |
| Operating income | | $ | 109,462 | | | $ | 27,228 | | | $ | 136,690 | |
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended October 1, 2023 | | | | | | |
| ($ in thousands) | | Manufacturing | | Distribution | | Total |
| Net outside sales | | $ | 2,021,679 | | | $ | 665,179 | | | $ | 2,686,858 | |
| Intersegment sales | | 50,920 | | | 6,585 | | | 57,505 | |
| Total sales | | $ | 2,072,599 | | | $ | 671,764 | | | $ | 2,744,363 | |
| Operating income | | $ | 263,146 | | | $ | 68,172 | | | $ | 331,318 | |
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 25, 2022 | | | | | | |
| ($ in thousands) | | Manufacturing | | Distribution | | Total |
| Net outside sales | | $ | 2,891,994 | | | $ | 1,037,963 | | | $ | 3,929,957 | |
| Intersegment sales | | 62,426 | | | 7,943 | | | 70,369 | |
| Total sales | | $ | 2,954,420 | | | $ | 1,045,906 | | | $ | 4,000,326 | |
| Operating income | | $ | 460,691 | | | $ | 116,835 | | | $ | 577,526 | |
The following table presents a reconciliation of segment operating income to consolidated operating income:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Third Quarter Ended | | Nine Months Ended |
| ($ in thousands) | | October 1, 2023 | | September 25, 2022 | | October 1, 2023 | | September 25, 2022 |
| Operating income for reportable segments | | $ | 104,803 | | | $ | 136,690 | | | $ | 331,318 | | | $ | 577,526 | |
| Unallocated corporate expenses | | (14,221) | | | (25,160) | | | (69,341) | | | (94,808) | |
| Amortization | | (19,507) | | | (18,769) | | | (59,093) | | | (54,175) | |
| Consolidated operating income | | $ | 71,075 | | | $ | 92,761 | | | $ | 202,884 | | | $ | 428,543 | |
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.
NOTE 14. 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 $84.1 million remains in the amount of the Company's common stock that may be acquired under the current stock repurchase program as of October 1, 2023. Under the stock repurchase plan, the Company made repurchases of common stock as follows for the respective periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Third Quarter Ended | | Nine Months Ended |
| | October 1, 2023 | | September 25, 2022 | | October 1, 2023 | | September 25, 2022 |
| Shares repurchased | | 6,184 | | 154,388 | | 185,993 | | 808,642 |
| Average price | | $ | 74.43 | | | $ | 48.18 | | | $ | 65.79 | | | $ | 60.28 | |
| Aggregate cost (in millions) | | $ | 0.5 |
