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 29, 201927, 2020
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)
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Indiana | 35-1057796 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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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.
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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:
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| | | | | | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, no par value | PATK | NASDAQ |
As of October 25, 2019,23, 2020, there were 23,764,45823,363,124 shares of the registrant’s common stock outstanding.
PATRICK INDUSTRIES, INC.
TABLE OF CONTENTS
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| Page No. |
PART I. FINANCIAL INFORMATION | |
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ITEM 1. FINANCIAL STATEMENTS (Unaudited) | |
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Condensed Consolidated Statements of Income Third Quarter and Nine Months ended September 27, 2020 and September 29, 2019 | Page No. |
PART I. FINANCIAL INFORMATION | |
Condensed Consolidated Statements of Comprehensive Income Third Quarter and Nine Months ended September 27, 2020 and September 29, 2019 | |
ITEM 1. FINANCIAL STATEMENTS (Unaudited) | |
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Condensed Consolidated Statements of Financial Position September 29, 201927, 2020 and December 31, 2018 2019 | |
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Condensed Consolidated Statements of Income Third Quarter and Cash Flows Nine Months Endedended September 27, 2020 and September 29, 2019 and September 30, 2018
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Condensed Consolidated Statements of Comprehensive Income
Third Quarter and Nine Months Ended September 29, 2019 and September 30, 2018
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Condensed Consolidated Statements of Shareholders' Equity Third Quarter and Nine Months Endedended September 27, 2020 and September 29, 2019 and September 30, 2018
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Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 29, 2019 and September 30, 2018
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Notes to Condensed Consolidated Financial Statements | |
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | |
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ITEM 4. CONTROLS AND PROCEDURES | |
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PART II. OTHER INFORMATION | |
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ITEM 1. LEGAL PROCEEDINGS | |
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ITEM 1A. RISK FACTORS | |
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | |
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ITEM 6. EXHIBITS | |
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SIGNATURES | |
PART 1: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter Ended | | Nine Months Ended |
(thousands except per share data) | | September 27, 2020 | | September 29, 2019 | | September 27, 2020 | | September 29, 2019 |
NET SALES | | $ | 700,707 | | | $ | 566,186 | | | $ | 1,713,984 | | | $ | 1,787,622 | |
Cost of goods sold | | 567,210 | | | 461,851 | | | 1,397,285 | | | 1,464,078 | |
GROSS PROFIT | | 133,497 | | | 104,335 | | | 316,699 | | | 323,544 | |
Operating Expenses: | | | | | | | | |
Warehouse and delivery | | 25,263 | | | 23,917 | | | 70,204 | | | 74,228 | |
Selling, general and administrative | | 38,184 | | | 33,817 | | | 105,681 | | | 104,403 | |
Amortization of intangible assets | | 10,221 | | | 9,191 | | | 29,600 | | | 26,448 | |
Total operating expenses | | 73,668 | | | 66,925 | | | 205,485 | | | 205,079 | |
OPERATING INCOME | | 59,829 | | | 37,410 | | | 111,214 | | | 118,465 | |
Interest expense, net | | 10,507 | | | 8,603 | | | 31,820 | | | 26,222 | |
Income before income taxes | | 49,322 | | | 28,807 | | | 79,394 | | | 92,243 | |
Income taxes | | 11,986 | | | 7,490 | | | 20,157 | | | 22,661 | |
NET INCOME | | $ | 37,336 | | | $ | 21,317 | | | $ | 59,237 | | | $ | 69,582 | |
| | | | | | | | |
BASIC NET INCOME PER COMMON SHARE | | $ | 1.65 | | | $ | 0.92 | | | $ | 2.60 | | | $ | 3.02 | |
DILUTED NET INCOME PER COMMON SHARE | | $ | 1.62 | | | $ | 0.92 | | | $ | 2.57 | | | $ | 2.99 | |
| | | | | | | | |
Weighted average shares outstanding – Basic | | 22,674 | | | 23,076 | | | 22,784 | | | 23,073 | |
Weighted average shares outstanding – Diluted | | 23,072 | | | 23,273 | | | 23,088 | | | 23,279 | |
| | | | | | | | |
See accompanying Notes to Condensed Consolidated Financial Statements. |
PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter Ended | | Nine Months Ended |
(thousands) | | September 27, 2020 | | September 29, 2019 | | September 27, 2020 | | September 29, 2019 |
NET INCOME | | $ | 37,336 | | | $ | 21,317 | | | $ | 59,237 | | | $ | 69,582 | |
Other comprehensive (loss) income, net of tax: | | | | | | | | |
Unrealized gain (loss) of hedge derivatives | | 989 | | | (240) | | | (1,553) | | | (3,225) | |
Other | | 60 | | | 19 | | | 8 | | | (48) | |
Total other comprehensive income (loss) | | 1,049 | | | (221) | | | (1,545) | | | (3,273) | |
COMPREHENSIVE INCOME | | $ | 38,385 | | | $ | 21,096 | | | $ | 57,692 | | | $ | 66,309 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)
| | | | | | | | | | | | | | |
| | As of |
(thousands) | | September 27, 2020 | | December 31, 2019 |
ASSETS | | | | |
Current Assets | | | | |
Cash and cash equivalents | | $ | 62,347 | | | $ | 139,390 | |
Trade and other receivables, net | | 175,533 | | | 87,536 | |
Inventories | | 281,374 | | | 253,870 | |
Prepaid expenses and other | | 12,580 | | | 36,038 | |
Total current assets | | 531,834 | | | 516,834 | |
Property, plant and equipment, net | | 197,415 | | | 180,849 | |
Operating lease right-of-use assets | | 105,410 | | | 93,546 | |
Goodwill | | 356,433 | | | 319,349 | |
Intangible assets, net | | 380,919 | | | 357,014 | |
Deferred financing costs, net | | 2,544 | | | 2,978 | |
Other non-current assets | | 384 | | | 423 | |
TOTAL ASSETS | | $ | 1,574,939 | | | $ | 1,470,993 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | |
Current Liabilities | | | | |
Current maturities of long-term debt | | $ | 5,000 | | | $ | 5,000 | |
Current operating lease liabilities | | 29,565 | | | 27,694 | |
Accounts payable | | 117,088 | | | 96,208 | |
Accrued liabilities | | 101,296 | | | 58,033 | |
Total current liabilities | | 252,949 | | | 186,935 | |
Long-term debt, less current maturities, net | | 673,852 | | | 670,354 | |
Long-term operating lease liabilities | | 76,873 | | | 66,467 | |
Deferred tax liabilities, net | | 26,100 | | | 27,284 | |
Other long-term liabilities | | 19,336 | | | 22,472 | |
TOTAL LIABILITIES | | 1,049,110 | | | 973,512 | |
SHAREHOLDERS’ EQUITY | | | | |
Common stock | | 177,308 | | | 172,662 | |
Additional paid-in-capital | | 24,440 | | | 25,014 | |
Accumulated other comprehensive loss | | (7,243) | | | (5,698) | |
Retained earnings | | 331,324 | | | 305,503 | |
TOTAL SHAREHOLDERS’ EQUITY | | 525,829 | | | 497,481 | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 1,574,939 | | | $ | 1,470,993 | |
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| | | | | | | | |
|
| As of |
(thousands) |
| September 29, 2019 |
| December 31, 2018 |
ASSETS |
| |
| |
Current Assets |
| |
| |
Cash and cash equivalents |
| $ | 116,712 |
|
| $ | 6,895 |
|
Trade and other receivables, net |
| 129,837 |
|
| 82,499 |
|
Inventories |
| 262,558 |
|
| 272,898 |
|
Prepaid expenses and other |
| 18,897 |
|
| 22,875 |
|
Total current assets |
| 528,004 |
|
| 385,167 |
|
Property, plant and equipment, net |
| 179,884 |
|
| 177,145 |
|
Operating lease right-of-use assets | | 81,064 |
| | — |
|
Goodwill |
| 308,358 |
|
| 281,734 |
|
Intangible assets, net |
| 350,216 |
|
| 382,982 |
|
Deferred financing costs, net |
| 3,130 |
|
| 3,688 |
|
Other non-current assets |
| 474 |
|
| 515 |
|
TOTAL ASSETS | | $ | 1,451,130 |
|
| $ | 1,231,231 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
| |
| |
Current Liabilities |
| |
| |
Current maturities of long-term debt |
| $ | 5,000 |
|
| $ | 8,750 |
|
Current operating lease liabilities | | 25,990 |
| | — |
|
Accounts payable |
| 117,862 |
|
| 89,803 |
|
Accrued liabilities |
| 53,423 |
|
| 59,202 |
|
Total current liabilities |
| 202,275 |
|
| 157,755 |
|
Long-term debt, less current maturities, net |
| 670,928 |
|
| 621,751 |
|
Long-term operating lease liabilities | | 55,553 |
| | — |
|
Deferred tax liabilities, net |
| 19,735 |
|
| 22,699 |
|
Other long-term liabilities |
| 22,701 |
|
| 20,272 |
|
TOTAL LIABILITIES |
| 971,192 |
|
| 822,477 |
|
SHAREHOLDERS’ EQUITY |
| |
| |
Common stock |
| 169,220 |
|
| 161,436 |
|
Additional paid-in-capital |
| 25,020 |
|
| 25,124 |
|
Accumulated other comprehensive loss |
| (5,953 | ) |
| (2,680 | ) |
Retained earnings |
| 291,651 |
|
| 224,874 |
|
TOTAL SHAREHOLDERS’ EQUITY |
| 479,938 |
|
| 408,754 |
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $ | 1,451,130 |
|
| $ | 1,231,231 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOMECASH FLOWS (Unaudited)
|
| | | | | | | | | | | | | | | | |
|
| Third Quarter Ended | | Nine Months Ended |
(thousands except per share data) |
| September 29, 2019 |
| September 30, 2018 | | September 29, 2019 | | September 30, 2018 |
NET SALES |
| $ | 566,186 |
|
| $ | 575,139 |
| | $ | 1,787,622 |
| | $ | 1,731,850 |
|
Cost of goods sold |
| 461,851 |
|
| 468,484 |
| | 1,464,078 |
| | 1,412,649 |
|
GROSS PROFIT |
| 104,335 |
|
| 106,655 |
| | 323,544 |
| | 319,201 |
|
Operating Expenses: |
| |
| | | | | |
Warehouse and delivery |
| 23,917 |
|
| 19,789 |
| | 74,228 |
| | 55,540 |
|
Selling, general and administrative |
| 33,817 |
|
| 33,284 |
| | 104,403 |
| | 98,999 |
|
Amortization of intangible assets |
| 9,191 |
|
| 8,873 |
| | 26,448 |
| | 25,140 |
|
Total operating expenses |
| 66,925 |
|
| 61,946 |
| | 205,079 |
| | 179,679 |
|
OPERATING INCOME |
| 37,410 |
|
| 44,709 |
| | 118,465 |
| | 139,522 |
|
Interest expense, net |
| 8,603 |
|
| 7,338 |
| | 26,222 |
| | 17,980 |
|
Income before income taxes |
| 28,807 |
|
| 37,371 |
| | 92,243 |
| | 121,542 |
|
Income taxes |
| 7,490 |
|
| 9,437 |
| | 22,661 |
| | 28,680 |
|
NET INCOME |
| $ | 21,317 |
|
| $ | 27,934 |
| | $ | 69,582 |
| | $ | 92,862 |
|
|
|
|
|
|
|
| | | | |
BASIC NET INCOME PER COMMON SHARE |
| $ | 0.92 |
|
| $ | 1.17 |
| | $ | 3.02 |
| | $ | 3.82 |
|
DILUTED NET INCOME PER COMMON SHARE |
| $ | 0.92 |
|
| $ | 1.15 |
| | $ | 2.99 |
| | $ | 3.77 |
|
|
|
|
|
|
|
| | | | |
Weighted average shares outstanding – Basic |
| 23,076 |
|
| 23,894 |
| | 23,073 |
| | 24,279 |
|
Weighted average shares outstanding – Diluted |
| 23,273 |
|
| 24,232 |
| | 23,279 |
| | 24,619 |
|
| | | | | | | | |
See accompanying Notes to Condensed Consolidated Financial Statements. |
PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
|
| | | | | | | | | | | | | | | | |
| | Third Quarter Ended | | Nine Months Ended |
(thousands) | | September 29, 2019 | | September 30, 2018 | | September 29, 2019 | | September 30, 2018 |
NET INCOME | | $ | 21,317 |
| | $ | 27,934 |
| | $ | 69,582 |
| | $ | 92,862 |
|
Other comprehensive (loss) income, net of tax: | | | | | | | | |
Unrealized (loss) gain of hedge derivatives | | (240 | ) | | 80 |
| | (3,225 | ) | | 80 |
|
Foreign currency translation gain (loss) | | 19 |
| | (28 | ) | | (48 | ) | | (31 | ) |
Total other comprehensive (loss) gain | | (221 | ) | | 52 |
| | (3,273 | ) | | 49 |
|
COMPREHENSIVE INCOME | | $ | 21,096 |
| | $ | 27,986 |
| | $ | 66,309 |
| | $ | 92,911 |
|
| | | | | | | | | | | | | | |
| | Nine Months Ended |
(thousands) | | September 27, 2020 | | September 29, 2019 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
Net income | | $ | 59,237 | | | $ | 69,582 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 52,955 | | | 46,449 | |
Stock-based compensation expense | | 11,177 | | | 12,039 | |
Amortization of convertible notes debt discount | | 5,302 | | | 5,123 | |
Deferred income taxes | | (4,057) | | | (794) | |
Other | | 3,521 | | | 235 | |
Change in operating assets and liabilities, net of acquisitions of businesses: | | | | |
Trade receivables | | (78,701) | | | (44,359) | |
Inventories | | (12,885) | | | 9,084 |
Prepaid expenses and other assets | | 23,787 | | | 4,319 | |
Accounts payable, accrued liabilities and other | | 52,422 | | | 20,355 | |
Net cash provided by operating activities | | 112,758 | | | 122,033 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | |
Capital expenditures | | (22,159) | | | (22,227) | |
Proceeds from sale of property, equipment and other investing activities | | 117 | | | 4,509 |
Business acquisitions, net of cash acquired | | (123,382) | | | (22,350) | |
Net cash used in investing activities | | (145,424) | | | (40,068) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
Term debt borrowings | | 0 | | | 7,500 | |
Term debt repayments | | (2,500) | | | (3,750) | |
Borrowings on revolver | | 8,198 | | | 648,460 | |
Repayments on revolver | | (8,198) | | | (905,792) | |
Stock repurchases under buyback program | | (20,286) | | | (3,583) | |
Proceeds from issuance of senior notes | | 0 | | | 300,000 | |
Cash dividends paid to shareholders | | (17,265) | | | 0 | |
Payments related to vesting of stock-based awards, net of shares tendered for taxes | | (2,910) | | | (3,359) | |
Payment of deferred financing costs | | (58) | | | (7,214) | |
Proceeds from exercise of stock options | | 642 | | | 6 |
Payment of contingent consideration from a business acquisition | | (2,000) | | | (4,416) | |
Net cash (used in) provided by financing activities | | (44,377) | | | 27,852 | |
Increase (decrease) in cash and cash equivalents | | (77,043) | | | 109,817 | |
Cash and cash equivalents at beginning of year | | 139,390 | | | 6,895 | |
Cash and cash equivalents at end of period | | $ | 62,347 | | | $ | 116,712 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Third Quarter Ended September 27, 2020 |
(thousands) | | Common Stock | | Additional Paid-in- Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total |
Balance June 28, 2020 | | $ | 173,178 | | | $ | 24,534 | | | $ | (8,292) | | | $ | 303,848 | | | $ | 493,268 | |
Net income | | — | | | — | | | — | | | 37,336 | | | 37,336 | |
Dividends declared | | — | | | — | | | — | | | (5,865) | | | (5,865) | |
Other comprehensive income, net of tax | | — | | | — | | | 1,049 | | | — | | | 1,049 | |
Share repurchases under buyback program | | (647) | | | (94) | | | — | | | (3,995) | | | (4,736) | |
Shares used to pay taxes on stock grants | | (53) | | | — | | | — | | | — | | | (53) | |
Stock-based compensation expense | | 4,830 | | | — | | | — | | | — | | | 4,830 | |
Balance September 27, 2020 | | $ | 177,308 | | | $ | 24,440 | | | $ | (7,243) | | | $ | 331,324 | | | $ | 525,829 | |
| | | | | | | | | | |
Nine Months Ended September 27, 2020 |
(thousands) | | Common Stock | | Additional Paid-in- Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total |
Balance December 31, 2019 | | $ | 172,662 | | | $ | 25,014 | | | $ | (5,698) | | | $ | 305,503 | | | $ | 497,481 | |
Net income | | — | | | — | | | — | | | 59,237 | | | 59,237 | |
Dividends declared | | — | | | — | | | — | | | (17,666) | | | (17,666) | |
Other comprehensive loss, net of tax | | — | | | — | | | (1,545) | | | — | | | (1,545) | |
Share repurchases under buyback program | | (3,962) | | | (574) | | | — | | | (15,750) | | | (20,286) | |
Issuance of shares upon exercise of common stock options | | 642 | | | — | | | — | | | — | | | 642 | |
Shares used to pay taxes on stock grants | | (3,211) | | | — | | | — | | | — | | | (3,211) | |
Stock-based compensation expense | | 11,177 | | | — | | | — | | | — | | | 11,177 | |
Balance September 27, 2020 | | $ | 177,308 | | | $ | 24,440 | | | $ | (7,243) | | | $ | 331,324 | | | $ | 525,829 | |
| | | | | | | | | | |
Third Quarter Ended September 29, 2019
|
(thousands) | | Common Stock | | Additional Paid-in- Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total |
Balance June 30, 2019 | | $ | 166,086 | | | $ | 25,124 | | | $ | (5,732) | | | $ | 273,139 | | | $ | 458,617 | |
Net income | | — | | | — | | | — | | | 21,317 | | | 21,317 | |
Other comprehensive loss, net of tax | | — | | | — | | | (221) | | | — | | | (221) | |
Stock repurchases under buyback program | | (674) | | | (104) | | | — | | | (2,805) | | | (3,583) | |
Shares used to pay taxes on stock grants | | (59) | | | — | | | — | | | — | | | (59) | |
Stock-based compensation expense | | 3,867 | | | — | | | — | | | — | | | 3,867 | |
Balance September 29, 2019 | | $ | 169,220 | | | $ | 25,020 | | | $ | (5,953) | | | $ | 291,651 | | | $ | 479,938 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | Third Quarter Ended September 29, 2019 | |
(thousands) | | Common Stock | | Additional Paid-in- Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total | |
Balance June 30, 2019 | | $ | 166,086 |
| | $ | 25,124 |
| | $ | (5,732 | ) | | $ | 273,139 |
| | $ | 458,617 |
| |
Net income | | — |
| | — |
| | — |
| | 21,317 |
| | 21,317 |
| |
Other comprehensive loss, net of tax | | — |
| | — |
| | (221 | ) | | — |
| | (221 | ) | |
Share repurchases under buyback program | | (674 | ) | | (104 | ) | | — |
| | (2,805 | ) | | (3,583 | ) | |
Shares used to pay taxes on stock grants | | (59 | ) | | — |
| | — |
| | — |
| | (59 | ) | |
Stock-based compensation expense | | 3,867 |
| | — |
| | — |
| | — |
| | 3,867 |
| |
Balance September 29, 2019 | | $ | 169,220 |
| | $ | 25,020 |
| | $ | (5,953 | ) | | $ | 291,651 |
| | $ | 479,938 |
| |
| | | | | | | | | | | |
PATRICK INDUSTRIES, INC. | | PATRICK INDUSTRIES, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (cont.) | | CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (cont.) |
Nine Months Ended September 29, 2019 | Nine Months Ended September 29, 2019 | Nine Months Ended September 29, 2019 |
(thousands) | | Common Stock | | Additional Paid-in- Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total | (thousands) | | Common Stock | | Additional Paid-in- Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total |
Balance December 31, 2018 | | $ | 161,436 |
| | $ | 25,124 |
| | $ | (2,680 | ) | | $ | 224,874 |
| | $ | 408,754 |
| Balance December 31, 2018 | | $ | 161,436 | | | $ | 25,124 | | | $ | (2,680) | | | $ | 224,874 | | | $ | 408,754 | |
Net income | | — |
| | — |
| | — |
| | 69,582 |
| | 69,582 |
| Net income | | — | | | — | | | — | | | 69,582 | | | 69,582 | |
Other comprehensive loss, net of tax | | — |
| | — |
| | (3,273 | ) | | — |
| | (3,273 | ) | Other comprehensive loss, net of tax | | — | | | — | | | (3,273) | | | — | | | (3,273) | |
Share repurchases under buyback program | | (674 | ) | | (104 | ) | | — |
| | (2,805 | ) | | (3,583 | ) | |
Stock repurchases under buyback program | | Stock repurchases under buyback program | | (674) | | | (104) | | | — | | | (2,805) | | | (3,583) | |
Shares used to pay taxes on stock grants | | (3,587 | ) | | — |
| | — |
| | — |
| | (3,587 | ) | Shares used to pay taxes on stock grants | | (3,587) | | | — | | | — | | | — | | | (3,587) | |
Issuance of shares upon exercise of common stock options | | 6 |
| | — |
| | — |
| | — |
| | 6 |
| Issuance of shares upon exercise of common stock options | | 6 | | | — | | | — | | | — | | | 6 | |
Stock-based compensation expense | | 12,039 |
| | — |
| | — |
| | — |
| | 12,039 |
| Stock-based compensation expense | | 12,039 | | | — | | | — | | | — | | | 12,039 | |
Balance September 29, 2019 | | $ | 169,220 |
| | $ | 25,020 |
| | $ | (5,953 | ) | | $ | 291,651 |
| | $ | 479,938 |
| Balance September 29, 2019 | | $ | 169,220 | | | $ | 25,020 | | | $ | (5,953) | | | $ | 291,651 | | | $ | 479,938 | |
| | | | | | | | | | | |
Third Quarter Ended September 30, 2018 | |
(thousands) | | Common Stock | | Additional Paid-in- Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total | |
Balance July 1, 2018 | | $ | 161,648 |
| | $ | 25,552 |
| | $ | 63 |
| | $ | 216,357 |
| | $ | 403,620 |
| |
Net income | | — |
| | — |
| | — |
| | 27,934 |
| | 27,934 |
| |
Other comprehensive income, net of tax | | — |
| | — |
| | 52 |
| | — |
| | 52 |
| |
Stock repurchases under buyback program | | (2,237 | ) | | (113 | ) | | — |
| | (18,593 | ) | | (20,943 | ) | |
Issuance of shares upon exercise of common stock options | | (37 | ) | | — |
| | — |
| | — |
| | (37 | ) | |
Shares used to pay taxes on stock grants | | 9 |
| | — |
| | — |
| | — |
| | 9 |
| |
Stock-based compensation expense | | 3,542 |
| | — |
| | — |
| | — |
| | 3,542 |
| |
Equity component of convertible notes issuance | | — |
| | 41 |
| | — |
| | — |
| | 41 |
| |
Balance September 30, 2018 | | $ | 162,925 |
| | $ | 25,480 |
| | $ | 115 |
| | $ | 225,698 |
| | $ | 414,218 |
| |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
PATRICK INDUSTRIES, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (cont.) |
Nine Months Ended September 30, 2018 |
(thousands) | | Common Stock | | Additional Paid-in- Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total |
Balance December 31, 2017 | | $ | 163,196 |
| | $ | 8,243 |
| | $ | 66 |
| | $ | 199,180 |
| | $ | 370,685 |
|
Net income | | — |
| | — |
| | — |
| | 92,862 |
| | 92,862 |
|
Other comprehensive loss, net of tax | | — |
| | — |
| | 49 |
| | — |
| | 49 |
|
Stock repurchases under buyback program | | (8,266 | ) | | (418 | ) | | — |
| | (66,344 | ) | | (75,028 | ) |
Issuance of shares upon exercise of common stock options | | 3 |
| | — |
| | — |
| | — |
| | 3 |
|
Shares used to pay taxes on stock grants | | (2,919 | ) | | — |
| | — |
| | — |
| | (2,919 | ) |
Stock-based compensation expense | | 10,911 |
| | — |
| | — |
| | — |
| | 10,911 |
|
Purchase of convertible notes hedges | | — |
| | (31,481 | ) | | — |
| | — |
| | (31,481 | ) |
Proceeds from sale of warrants | | — |
| | 18,147 |
| | — |
| | — |
| | 18,147 |
|
Equity component of convertible notes issuance | | — |
| | 30,989 |
| | — |
| | — |
| | 30,989 |
|
Balance September 30, 2018 | | $ | 162,925 |
| | $ | 25,480 |
| | $ | 115 |
| | $ | 225,698 |
| | $ | 414,218 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
| | | | | | | | |
|
| Nine Months Ended |
(thousands) |
| September 29, 2019 |
| September 30, 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
Net income |
| $ | 69,582 |
|
| $ | 92,862 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
| |
| |
Depreciation and amortization |
| 46,449 |
|
| 39,893 |
|
Stock-based compensation expense |
| 12,039 |
|
| 10,911 |
|
Amortization of convertible notes debt discount |
| 5,123 |
|
| 4,495 |
|
Deferred income taxes |
| (794 | ) |
| (1,088 | ) |
Other |
| 235 |
|
| (2,739 | ) |
Change in operating assets and liabilities, net of acquisitions of businesses: |
| |
| |
Trade receivables |
| (44,359 | ) |
| (29,295 | ) |
Inventories |
| 9,084 |
|
| (13,238 | ) |
Prepaid expenses and other assets |
| 4,319 |
|
| 4,299 |
|
Accounts payable, accrued liabilities and other |
| 20,355 |
|
| 21,313 |
|
Net cash provided by operating activities |
| 122,033 |
|
| 127,413 |
|
CASH FLOWS FROM INVESTING ACTIVITIES |
| |
| |
Capital expenditures |
| (22,227 | ) |
| (26,073 | ) |
Proceeds from sale of property, equipment and other investing activities |
| 4,509 |
|
| 5,125 |
|
Business acquisitions, net of cash acquired |
| (22,350 | ) |
| (290,052 | ) |
Net cash used in investing activities |
| (40,068 | ) | | (311,000 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES |
| |
| |
Term debt borrowings |
| 7,500 |
|
| 36,981 |
|
Term debt repayments |
| (3,750 | ) |
| (6,441 | ) |
Borrowings on revolver |
| 648,460 |
|
| 954,535 |
|
Repayments on revolver |
| (905,792 | ) |
| (877,931 | ) |
Stock repurchases under buyback program |
| (3,583 | ) |
| (75,028 | ) |
Proceeds from issuance of senior notes | | 300,000 |
| | — |
|
Proceeds from convertible notes offering |
| — |
| | 172,500 |
|
Purchase of convertible notes hedges |
| — |
| | (31,481 | ) |
Proceeds from sale of warrants |
| — |
| | 18,147 |
|
Payments related to vesting of stock-based awards, net of shares tendered for taxes |
| (3,359 | ) | | (2,659 | ) |
Payment of deferred financing costs |
| (7,214 | ) | | (7,485 | ) |
Payment of contingent consideration from a business acquisition | | (4,416 | ) | | — |
|
Other financing activities |
| 6 |
| | (12 | ) |
Net cash provided by financing activities |
| 27,852 |
| | 181,126 |
|
Increase (decrease) in cash and cash equivalents |
| 109,817 |
| | (2,461 | ) |
Cash and cash equivalents at beginning of year |
| 6,895 |
| | 2,767 |
|
Cash and cash equivalents at end of period |
| $ | 116,712 |
| | $ | 306 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
PATRICK INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 29, 201927, 2020 and December 31, 2018, and2019, its results of operations for the threethird quarter and nine months ended September 27, 2020 and September 29, 2019 and September 30, 2018 andits statements of cash flows for the nine months ended September 29, 201927, 2020 and September 30, 2018.29, 2019.
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 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. For a description of significant accounting policies used by the Company in the preparation of its consolidated financial statements, please refer to Note 2 to Notes1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019. The December 31, 20182019 condensed consolidated statement of financial position 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 29, 201927, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2019.2020.
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 20192020 ended on September 29, 201927, 2020 and the third quarter of fiscal year 20182019 ended on September 30, 2018.29, 2019.
In preparation of Patrick’s condensed consolidated financial statements as of and for the threethird quarter and nine months ended September 29, 2019,27, 2020, management evaluated all material subsequent events orand 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 |
LeasesGoodwill Impairment
In February 2016,January 2017, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting Standards Update (“ASU”("ASU") 2016-02, "Leases (Topic 842)", which requires in part that an entity recognize lease assets and lease liabilities on its statement of financial position for leases that were previously classified as operating leases under U.S. GAAP.
In July 2018, the FASB issued ASU 2018-11, "Leases (Topic 842): Targeted Improvements", which offered practical expedient alternatives to the modified retrospective adoption of Accounting Standards Codification (“ASC”) 842.
The Company adopted ASC 842 effective January 1, 2019, and recorded approximately $80 million in lease right-of-use assets and corresponding lease liabilities, with no material impact on the condensed consolidated statement of shareholders' equity, income, comprehensive income or cash flows. See Note 12 for further information.
Goodwill Impairment
In January 2017, the FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". This ASU simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. The standard requires that the impairment loss be measured as the excess of the reporting unit's carrying amount over its fair value. It eliminates the second step that requires the impairment to be measured between the implied value of a reporting unit's goodwill and its carrying value. The standard is effective for annualCompany adopted ASU 2017-04 on January 1, 2020 and any interim impairment tests for periods beginning after December 15, 2019 and earlythe adoption is permitted. The Company is currently evaluating the effect of adopting this new accounting standard, which will dependdid not have a material impact on the outcomes of future goodwill impairment tests.condensed consolidated financial statements.
Credit Losses
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments”, which amends certain provisions of ASCAccounting Standards Codification ("ASC") 326, “Financial Instruments-Credit Loss”. The ASU changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held to maturity debt securities, loans and other instruments, entities will beare required to use a
new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. Additionally, entities will beare required to disclose more information with respect to credit quality indicators, including information used to track credit quality by year of origination for most financing receivables. The Company adopted ASU 2016-13 on January 1, 2020 and the adoption did not have a material impact on the condensed consolidated financial statements.
Income Taxes
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", a new standard to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years and will be applied as a cumulative effect adjustment to retained earnings as2020, with early adoption permitted. We are currently evaluating the impact of the beginning of the first reporting period for which the guidance is effective. The Company does not expect that the adoption of the ASU will have a material effectthis standard on its condensedour consolidated financial statements.
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)", a new standard providing final guidance to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. The guidance is effective upon issuance and generally can be applied through December 31, 2022. We are currently evaluating the impact of this standard on our consolidated financial statements.
Accounting for Convertible Instruments and Contracts in an Entity's Own Equity
In August 2020, the FASB issued 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 EPS 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 are currently evaluating the impact of this standard on our consolidated financial statements.
In the following table, revenue from contracts with customers, net of intersegment sales, is disaggregated by market type and by reportable segments,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 27, 2020 |
(thousands) | | Manufacturing | | Distribution | | Total |
Market type: | | | | | | |
Recreational Vehicle | | $ | 290,326 | | | $ | 130,845 | | | $ | 421,171 | |
Manufactured Housing | | 45,845 | | | 61,908 | | | 107,753 | |
Industrial | | 69,242 | | | 9,090 | | | 78,332 | |
Marine | | 88,861 | | | 4,590 | | | 93,451 | |
Total | | $ | 494,274 | | | $ | 206,433 | | | $ | 700,707 | |
|
| | | | | | | | | | | | |
| | Third Quarter Ended September 29, 2019 |
(thousands) | | Manufacturing | | Distribution | | Total Reportable Segments |
Market type: | | | | | | |
Recreational Vehicle | | $ | 218,706 |
| | $ | 91,313 |
| | $ | 310,019 |
|
Manufactured Housing | | 44,159 |
| | 64,959 |
| | 109,118 |
|
Industrial | | 64,541 |
| | 7,566 |
| | 72,107 |
|
Marine | | 72,306 |
| | 2,636 |
| | 74,942 |
|
Total | | $ | 399,712 |
| | $ | 166,474 |
| | $ | 566,186 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 27, 2020 |
(thousands) | | Manufacturing | | Distribution | | Total |
Market type: | | | | | | |
Recreational Vehicle | | $ | 656,739 | | | $ | 288,778 | | | $ | 945,517 | |
Manufactured Housing | | 127,857 | | | 182,579 | | | 310,436 | |
Industrial | | 202,368 | | | 25,113 | | | 227,481 | |
Marine | | 219,150 | | | 11,400 | | | 230,550 | |
Total | | $ | 1,206,114 | | | $ | 507,870 | | | $ | 1,713,984 | |
|
| | | | | | | | | | | | |
| | Nine Months Ended September 29, 2019 |
(thousands) | | Manufacturing | | Distribution | | Total Reportable Segments |
Market type: | | | | | | |
Recreational Vehicle | | $ | 694,261 |
| | $ | 299,115 |
| | $ | 993,376 |
|
Manufactured Housing | | 131,101 |
| | 193,975 |
| | 325,076 |
|
Industrial | | 188,292 |
| | 25,149 |
| | 213,441 |
|
Marine | | 246,017 |
| | 9,712 |
| | 255,729 |
|
Total | | $ | 1,259,671 |
| | $ | 527,951 |
| | $ | 1,787,622 |
|
| | | | Third Quarter Ended September 30, 2018 | | Third Quarter Ended September 29, 2019 |
(thousands) | | Manufacturing | | Distribution | | Total Reportable Segments | (thousands) | | Manufacturing | | Distribution | | Total |
Market type: | | | | | | | Market type: | |
Recreational Vehicle | | $ | 262,936 |
| | $ | 91,637 |
| | $ | 354,573 |
| Recreational Vehicle | | $ | 218,706 | | | $ | 91,313 | | | $ | 310,019 | |
Manufactured Housing | | 41,428 |
| | 26,334 |
| | 67,762 |
| Manufactured Housing | | 44,159 | | | 64,959 | | | 109,118�� | |
Industrial | | 63,429 |
| | 8,906 |
| | 72,335 |
| Industrial | | 64,541 | | | 7,566 | | | 72,107 | |
Marine | | 77,421 |
| | 3,048 |
| | 80,469 |
| Marine | | 72,306 | | | 2,636 | | | 74,942 | |
Total | | $ | 445,214 |
| | $ | 129,925 |
| | $ | 575,139 |
| Total | | $ | 399,712 | | | $ | 166,474 | | | $ | 566,186 | |
`
|
| | | | | | | | | | | | |
| | Nine Months Ended September 30, 2018 |
(thousands) | | Manufacturing | | Distribution | | Total Reportable Segments |
Market type: | | | | | | |
Recreational Vehicle | | $ | 847,944 |
| | $ | 280,082 |
| | $ | 1,128,026 |
|
Manufactured Housing | | 124,406 |
| | 75,946 |
| | 200,352 |
|
Industrial | | 186,890 |
| | 25,701 |
| | 212,591 |
|
Marine | | 184,848 |
| | 6,033 |
| | 190,881 |
|
Total | | $ | 1,344,088 |
| | $ | 387,762 |
| | $ | 1,731,850 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 29, 2019 |
(thousands) | | Manufacturing | | Distribution | | Total |
Market type: | | | | | | |
Recreational Vehicle | | $ | 694,261 | | | $ | 299,115 | | | $ | 993,376 | |
Manufactured Housing | | 131,101 | | | 193,975 | | | 325,076 | |
Industrial | | 188,292 | | | 25,149 | | | 213,441 | |
Marine | | 246,017 | | | 9,712 | | | 255,729 | |
Total | | $ | 1,259,671 | | | $ | 527,951 | | | $ | 1,787,622 | |
The following table provides information about contract balances:Contract Liabilities
|
| | | | | | | |
(thousands) | September 29, 2019 | | December 31, 2018 |
Receivables, which are included in trade and other receivables, net | $ | 128,672 |
| | $ | 74,196 |
|
Contract liabilities | $ | 2,692 |
| | $ | 2,642 |
|
SignificantContract 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 the contract liabilities balancewere immaterial during the nine months ended September 29, 2019 are as follows:all periods presented.
|
| | | | |
(thousands) | | Contract Liabilities |
Revenue recognized that was included in the contract liability balance at the beginning of the period | | $ | (1,006 | ) |
Increases due to cash received, excluding amounts recognized as revenue during the period | | $ | 1,056 |
|
Inventories consist of the following:
| | | | | | | | | | | | | | |
(thousands) | | September 27, 2020 | | December 31, 2019 |
Raw materials | | $ | 196,298 | | | $ | 162,238 | |
Work in process | | 15,955 | | | 14,272 | |
Finished goods | | 28,225 | | | 28,446 | |
Less: reserve for inventory obsolescence | | (13,301) | | | (10,123) | |
Total manufactured goods, net | | 227,177 | | | 194,833 | |
Materials purchased for resale (distribution products) | | 56,676 | | | 60,918 | |
Less: reserve for inventory obsolescence | | (2,479) | | | (1,881) | |
Total materials purchased for resale (distribution products), net | | 54,197 | | | 59,037 | |
Total inventories | | $ | 281,374 | | | $ | 253,870 | |
|
| | | | | | | | |
(thousands) | | September 29, 2019 | | December 31, 2018 |
Raw materials | | $ | 172,775 |
| | $ | 164,408 |
|
Work in process | | 14,235 |
| | 12,829 |
|
Finished goods | | 25,403 |
| | 28,341 |
|
Less: reserve for inventory obsolescence | | (10,258 | ) | | (5,354 | ) |
Total manufactured goods, net | | 202,155 |
| | 200,224 |
|
Materials purchased for resale (distribution products) | | 62,616 |
| | 74,914 |
|
Less: reserve for inventory obsolescence | | (2,213 | ) | | (2,240 | ) |
Total materials purchased for resale (distribution products), net | | 60,403 |
| | 72,674 |
|
Total inventories | | $ | 262,558 |
| | $ | 272,898 |
|
|
| | | | |
5. | GOODWILL AND INTANGIBLE ASSETS |
Changes in the carrying amount of goodwill for the nine months ended September 29, 201927, 2020 by segment are as follows: | | | | | | | | | | | | | | | | | | | | |
(thousands) | | Manufacturing | | Distribution | | Total |
Balance - December 31, 2019 | | $ | 268,402 | | | $ | 50,947 | | | $ | 319,349 | |
Acquisitions | | 35,087 | | | 8,980 | | | 44,067 | |
Adjustments to preliminary purchase price allocations | | (8,708) | | | 1,725 | | | (6,983) | |
Balance - September 27, 2020 | | $ | 294,781 | | | $ | 61,652 | | | $ | 356,433 | |
|
| | | | | | | | | | | | |
(thousands) | | Manufacturing | | Distribution | | Total |
Balance - December 31, 2018 | | $ | 235,345 |
| | $ | 46,389 |
| | $ | 281,734 |
|
Acquisitions | | 7,177 |
| | — |
| | 7,177 |
|
Adjustments to preliminary purchase price allocations | | 8,428 |
| | 11,019 |
| | 19,447 |
|
Balance - September 29, 2019 | | $ | 250,950 |
| | $ | 57,408 |
| | $ | 308,358 |
|
Intangible assets, net consist of the following as of September 29, 201927, 2020 and December 31, 2018:2019:
| | | | | | | | | | | | | | |
(thousands) | | September 27, 2020 | | December 31, 2019 |
Customer relationships | | $ | 394,687 | | | $ | 357,513 | |
Non-compete agreements | | 15,231 | | | 16,202 | |
Patents | | 16,555 | | | 16,495 | |
Trademarks | | 101,426 | | | 88,524 | |
| | 527,899 | | | 478,734 | |
Less: accumulated amortization | | (146,980) | | | (121,720) | |
Intangible assets, net | | $ | 380,919 | | | $ | 357,014 | |
|
| | | | | | | | | | | | |
(thousands) |
| September 29, 2019 |
| Weighted Average Useful Life (in years) |
| December 31, 2018 |
| Weighted Average Useful Life (in years) |
Customer relationships |
| $ | 348,947 |
|
| 10.1 |
| $ | 366,228 |
|
| 10.1 |
Non-compete agreements |
| 16,405 |
|
| 4.9 |
| 19,159 |
|
| 4.9 |
Patents |
| 16,338 |
|
| 14.6 |
| 1,048 |
|
| 8.9 |
Trademarks | | 80,786 |
| | Indefinite | | 82,358 |
| | Indefinite |
|
| 462,476 |
|
| |
| 468,793 |
|
| |
Less: accumulated amortization |
| (112,260 | ) |
|
|
| (85,811 | ) |
| |
Intangible assets, net |
| $ | 350,216 |
|
| |
| $ | 382,982 |
|
| |
Changes in the carrying value of intangible assets for the nine months ended September 29, 201927, 2020 by segment are as follows:
| | | | | | | | | | | | | | | | | | | | |
(thousands) | | Manufacturing | | Distribution | | Total |
Balance - December 31, 2019 | | $ | 282,123 | | | $ | 74,891 | | | $ | 357,014 | |
Acquisitions and other | | 36,409 | | | 13,096 | | | 49,505 | |
Amortization | | (24,313) | | | (5,287) | | | (29,600) | |
Impairment of intangible assets (1) | | (119) | | | (1,831) | | | (1,950) | |
Adjustments to preliminary purchase price allocations | | 6,095 | | | (145) | | | 5,950 | |
Balance - September 27, 2020 | | $ | 300,195 | | | $ | 80,724 | | | $ | 380,919 | |
|
| | | | | | | | | | | | |
(thousands) |
| Manufacturing |
| Distribution |
| Total |
Balance - December 31, 2018 |
| $ | 304,485 |
|
| $ | 78,497 |
|
| $ | 382,982 |
|
Acquisitions |
| 8,329 |
|
| — |
|
| 8,329 |
|
Amortization |
| (21,808 | ) |
| (4,640 | ) |
| (26,448 | ) |
Adjustments to preliminary purchase price allocations |
| (12,023 | ) |
| (2,624 | ) |
| (14,647 | ) |
Balance - September 29, 2019 |
| $ | 278,983 |
|
| $ | 71,233 |
|
| $ | 350,216 |
|
(1) Certain immaterial operations permanently ceased activities during the nine months ended September 27, 2020. As a result, we recorded a $2.0 million pre-tax impairment of customer relationships and trademarks of these operations after determining the net carrying value of the assets was no longer recoverable. The impairment was calculated using our internal projections of discounted cash flows, which rely on Level 3 inputs in the fair value hierarchy based on the unobservable nature of the underlying data. The impairment was recorded in selling, general and administrative in our condensed consolidated statements of income for the nine months ended September 27, 2020.Valuation of Goodwill and Indefinite-Lived Intangibles
We test goodwill and indefinite-lived intangible assets (trademarks) for impairment on an annual basis (as of September 30, 2019 for our most recent annual tests) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. Our 2019 tests indicated that there was no impairment, as fair value exceeded carrying values, and we concluded that none of our reporting units or trademarks were at risk of failing the impairment test.
Despite the excess fair value identified in our 2019 impairment tests, we assessed during the quarter and nine months ended September 27, 2020 whether the impact of the COVID-19 pandemic on overall macroeconomic conditions and our results of operations for the third quarter and nine months ended September 27, 2020 indicated that at September 27, 2020 it was more likely than not that our goodwill and trademarks were impaired. We evaluated among other factors (i) the results of our 2019 impairment tests; (ii) our market capitalization at September 27, 2020 in relation to the carrying amount of shareholders’ equity at September 27, 2020 and to fair values determined during our 2019 impairment tests; (iii) the results of our operations during the third quarter and nine months ended September 27, 2020 in relation to our projections; and (iv) our analysis of the impact on the fair values determined during our 2019 impairment tests using more recent projections and discount rates that account for various risks and uncertainties, including the duration and extent of impact to our business, related to the COVID-19 pandemic.
Based on the results of our assessment, and other than immaterial impairments discussed above, we concluded that no triggering events had occurred which would indicate the fair values of our goodwill and trademarks may be less than the carrying values at September 27, 2020. However, we are unable to predict how long the COVID-19-related conditions will persist, what additional measures may be introduced by governments or private parties, or what effect any such additional measures may have on demand for our products or those of our customers in each of our end markets. As such, the outcome of our 2020 impairment tests, which we will perform in the fourth quarter of 2020, could result in an impairment of our goodwill or our trademarks.
General
In additionThe Company completed 6 acquisitions in the third quarter of 2020 and completed 9 acquisitions in the first nine months of 2020 (the "2020 Acquisitions"). For the third quarter and nine months ended September 27, 2020, net sales included in the Company's condensed consolidated statements of income related to the acquisitions completed2020 Acquisitions were $19.6 million and $23.3 million, respectively. Operating income related to the 2020 Acquisitions for the third quarter and nine months ended September 27, 2020 was approximately $2.1 million and $2.2 million, respectively. Acquisition-related costs incurred in 2018 as discussed below, the first nine months of 2020 were immaterial. The Company completed 2 acquisitions in the first nine months of 2019. For the third quarter and first nine months ended September 29, 2019, revenue and operating income included in the Company's condensed consolidated statements of income related to the 2019 acquisitions were immaterial. For the third quarter ended September 30, 2018, revenue and operating income of approximately $82.4 million and $8.8 million, respectively, were included in the Company’s condensed consolidated statements of income relating to the businesses acquired in the first nine months of 2018. The first nine months of 2018 included revenue and operating income of approximately $160.0 million and $17.3 million, respectively, related to these acquisitions. Acquisition-related costs in the aggregate associated with the businesses acquiredincurred in the first nine months of 2019 and 2018 were immaterial.
Contingent Consideration
In connection with certain acquisitions, if certain financial targets for the acquired businesses are achieved, the Company will be required to pay additional cash consideration. The Company has recorded a liability for the 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. As required, the liabilities for the contingent consideration associated with each of these acquisitions will be remeasured quarterly at fair value.
As of September 29, 2019,27, 2020, the aggregate fair value of the estimated contingent consideration payments was $12.0$8.0 million, $4.5$6.1 million of which is included in the line item "Accrued liabilities" and $7.5$1.9 million is included in “Other long-term liabilities” on the condensed consolidated statement of financial position. At December 31, 2018,2019, the aggregate fair value of the estimated contingent consideration payments was $13.8$9.6 million, $4.4$2.0 million of which was included in the line item "Accrued liabilities" and $9.4$7.6 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 $17.2$14.8 million in the aggregate. In the first quarternine months of 2019,2020, the Company made cash payments of approximately $4.4$2.0 million related to contingent consideration liabilities,arrangements, recording a corresponding reduction to accrued liabilities.
20192020 Acquisitions
Acquisitions completed in the first nine months of 2020 include the following previously announced acquisitions:
| | | | | |
Company | Description |
Maple City Woodworking Corporation | Manufacturer of hardwood cabinet doors and fascia for the recreational vehicle ("RV") market based in Goshen, Indiana |
SEI Manufacturing, Inc. | Manufacturer of towers, T-Tops, hardtops, rails, gates and other aluminum exterior products for the marine market located in Cromwell, Indiana |
Inland Plywood Company | Supplier, laminator, and wholesale distributor of treated, untreated, and laminated plywood, medium density overlay panels, and other specialty products, primarily serving the marine market as well as the RV and industrial markets headquartered in Pontiac, Michigan with an additional facility in Cocoa, Florida |
Synergy RV Transport | Transportation and logistics service provider primarily for original equipment manufacturers and dealers in the RV market located in Goshen, Indiana |
Front Range Stone | Fabricator and installer of natural stone, quartz, solid surface, and laminate countertops, primarily serving big box home improvement retailers, home builders and commercial contractors in the industrial market based in Englewood, Colorado |
Inclusive of 4 immaterial acquisitions not discussed above, total cash consideration for the 2020 Acquisitions was approximately $124 million, plus contingent consideration over a maximum of a one-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 all required purchase accounting adjustments are subject to change within the measurement period as the Company completed 2 acquisitionsfinalizes its estimates. Changes to preliminary purchase accounting estimates recorded in the third quarter and first nine months ended September 29, of 2020 related to the 2020 Acquisitions were immaterial. The 2020 Acquisitions are included in the Manufacturing segment except for Synergy RV Transport, which is included in the Distribution segment.
2019 Acquisitions
The Company completed 4 acquisitions in 2019 (the "2019 Acquisitions"), including the previously announced acquisitionacquisitions of Topline Counters, LLC ("Topline Counters"), a Sumner, Washington-based designer and manufacturer of
kitchen and bathroom countertops for residential and commercial markets, and G.G. Schmitt & Sons, Inc. ("G.G. Schmitt"), a Sarasota, Florida-based designer and manufacturer of customized hardware and structural components for the marine industry. The total initialcash consideration for these acquisitionsthe 2019 Acquisitions was $21.1$53.1 million, plus subsequent contingent consideration payments over a one-year period based on future performance in connection with the acquisition of G.G. Schmitt. The preliminary purchase price allocation is subject to final reviewValuation activities and approval, and thus all required purchase accounting adjustments are subjecthave been finalized on all 2019 Acquisitions, except for the finalization of tangible assets for Topline Counters. Changes to change withinpreliminary purchase accounting estimates recorded in the measurement period asthird quarter and first nine months of 2020 related to the Company finalizes its fair value estimates.
2019 Acquisitions were immaterial. The results of operations for these acquisitions2019 Acquisitions are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from their respective dates of acquisition.
2018 Acquisitionssegment.
Metal Moulding Corporation (
“MMC”)
In February 2018, the Company completed the acquisition of the business and certain assets of Madison, Tennessee-based MMC, a manufacturer of custom metal fabricated products, primarily for the marine market, including hinges, arm rests, brackets, panels and trim, as well as plastic products including boxes, inlay tables, steps, and related components, for a net initial purchase price of $19.9 million, plus contingent consideration payments over a one-year period based on future performance.
The results of operations for MMC are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition.
Aluminum Metals Company, LLC (“AMC”)
In February 2018, the Company completed the acquisition of the business and certain assets of Elkhart, Indiana-based AMC, a manufacturer of aluminum products including coil, fabricated sheets and extrusions, in addition to roofing products, primarily for the recreational vehicle (“RV”), industrial, and marine markets, for a net purchase price of $17.8 million.
The results of operations for AMC are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition.
IMP Holdings, LLC d/b/a Indiana Marine Products (“IMP”)
In March 2018, the Company completed the acquisition of the business and certain assets of Angola, Indiana-based IMP, a manufacturer of fully-assembled helm assemblies, including electrical wiring harnesses, dash panels, instrumentation and gauges, and other products primarily for the marine market, for a net initial purchase price of $18.6 million, plus subsequent contingent consideration payments over a three-year period based on future performance.
The results of operations for IMP are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition.
Collins & Company, Inc. (“Collins”)
In March 2018, the Company completed the acquisition of the business and certain assets of Bristol, Indiana-based Collins, a distributor of appliances, trim products, fuel systems, flooring, tile, and other related building materials primarily to the RV market as well as the housing and industrial markets, for a net purchase price of $40.0 million.
The results of operations for Collins are included in the Company’s condensed consolidated financial statements and the Distribution operating segment from the date of acquisition. Changes from previously reported estimated amounts as of December 31, 2018 include a decrease to intangible assets of $3.6 million and a $3.6 million offsetting increase to goodwill. There was no material impact to the condensed consolidated statement of income related to these changes in the period in which the purchase price allocation and all purchase accounting adjustments were finalized.
Dehco, Inc. (“Dehco”)
In April 2018, the Company completed the acquisition of Dehco, a distributor and manufacturer of flooring, kitchen and bath products, adhesives and sealants, electronics, appliances and accessories, LP tanks, and other related building materials, primarily for the RV market as well as the manufactured housing (“MH”), marine and other industrial markets, for a net purchase price of $52.8 million. Dehco has operating facilities in Indiana, Oregon, Pennsylvania and Alabama.
The results of operations for Dehco are included in the Company’s condensed consolidated financial statements and the Manufacturing and Distribution operating segments from the date of acquisition. Changes from previously reported estimated amounts as of December 31, 2018 include a decrease to intangible assets of $0.3 million and a $0.3 million offsetting increase to goodwill. There was no material impact to the condensed consolidated statement of income related to these changes in the period in which the purchase price allocation and all purchase accounting adjustments were finalized.
Dowco, Inc. (“Dowco”)
In May 2018, the Company completed the acquisition of Dowco, a designer and manufacturer of custom designed boat covers and bimini tops, full boat enclosures, mounting hardware, and other accessories and components for the marine market, for a net purchase price of $56.3 million, net of cash acquired. Dowco has operating facilities in Wisconsin, Missouri, Indiana, and Minnesota.
The results of operations for Dowco are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition. Changes from previously reported estimated amounts as of December 31, 2018 include a $2.7 million increase to property, plant and equipment and a $3.3 million increase to goodwill, offset by a $5.9 million decrease to intangible assets and a $0.1 million increase in accounts payable and accrued liabilities. There was no material impact to the condensed consolidated statement of income related to these changes in the period in which the purchase price allocation and all purchase accounting adjustments were finalized.
Marine Accessories Corporation (“MAC”)
In June 2018, the Company acquired 100% of the membership interests of Maryville, Tennessee-based MAC, a manufacturer, distributor and aftermarket supplier of custom tower and canvas products and other related accessories to OEMs, dealers, retailers and distributors within the marine market, as well as direct to consumers, for a net purchase price of $57.0 million, net of cash acquired.
The results of operations for MAC are included in the Company’s condensed consolidated financial statements and the Manufacturing and Distribution operating segments from the date of acquisition. Changes from previously reported estimated amounts as of December 31, 2018 include a $6.5 million decrease to intangible assets and a $1.0 million decrease to property, plant and equipment, offset by a decrease in deferred taxes and other liabilities of $1.1 million and an increase to goodwill of $6.4 million. There was no material impact to the condensed consolidated statement of income related to these changes in the period in which the purchase price allocation and all purchase accounting adjustments were finalized.
Engineered Metals and Composites, Inc. (“EMC”)
In September 2018, the Company completed the acquisition of the business and certain assets of West Columbia, South Carolina-based EMC, a designer and manufacturer of custom marine towers, frames, and other fabricated component products for OEMs in the marine industry, for a net initial purchase price of $25.3 million, plus contingent consideration over a three-month period based on future performance.
The results of operations for EMC are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition. After adjusting for a $0.1 million increase to the estimated purchase price reported at December 31, 2018 due to a final working capital adjustment of $0.1 million, changes from previously reported estimated amounts as of December 31, 2018 include an increase to intangible assets of $1.6 million, an increase to inventory of $0.1 million, a decrease to property, plant and equipment of $0.8 million, a decrease to goodwill of $0.6 million and an increase to accounts payable of $0.2 million. There was no material impact to the condensed consolidated statement of income related to these changes in the period in which the purchase price allocation and all purchase accounting adjustments were finalized.
LaSalle Bristol (“LaSalle”)
In November 2018, the Company completed the acquisition of LaSalle, a distributor and manufacturer of plumbing, flooring, tile, lighting, air handling and building products for the MH, RV, and industrial markets, for a net purchase price of $51.1 million, net of cash acquired. LaSalle is headquartered in Elkhart, Indiana and operates a total of 15 manufacturing and distribution centers located in North America.
The results of operations for LaSalle are included in the Company’s condensed consolidated financial statements and the Manufacturing and Distribution operating segments from the date of acquisition. The preliminary purchase price allocation is subject to final review and approval, and thus all required purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its fair value estimates.
After adjusting for a $1.1 million increase in the estimated purchase price reported at December 31, 2018 due to a final working capital adjustment of $1.1 million, changes from previously reported estimated amounts as of December 31, 2018 are related primarily to a $6.7 million decrease to inventory, offset partly by a $0.8 million increase to accounts receivable, a $0.3 million increase to prepaid expenses and a $6.7 million increase to goodwill. There was no material impact to the condensed consolidated statement of income related to these changes.
The following table summarizes the fair values of the consideration paid, assets acquired, and the liabilities assumed as of the date of the acquisition for the 2020 Acquisitions and the 2019 and 2018 acquisitions:Acquisitions:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(thousands) | Trade receivables | Inventories | Property, plant and equipment | Prepaid expenses & other | Intangible assets | Goodwill | Less: Total liabilities | Less: Deferred tax liability, net | Total net assets acquired |
| | | | | | | | | |
2019 (1) | $ | 2,245 |
| $ | 5,296 |
| $ | 1,650 |
| $ | 133 |
| $ | 8,329 |
| $ | 7,177 |
| $ | 1,135 |
| $ | — |
| $ | 23,695 |
|
| | | | | | | | | |
2018 |
|
|
|
|
|
|
|
|
|
MMC (2) | $ | 1,463 |
| $ | 2,324 |
| $ | 2,085 |
| $ | — |
| $ | 8,540 |
| $ | 7,668 |
| $ | 827 |
| $ | — |
| $ | 21,253 |
|
AMC | 3,942 |
| 5,623 |
| 2,321 |
| 39 |
| 6,550 |
| 1,755 |
| 2,463 |
| — |
| 17,767 |
|
IMP (3) | 1,943 |
| 4,286 |
| 1,463 |
| 13 |
| 12,920 |
| 8,803 |
| 2,930 |
| — |
| 26,498 |
|
Collins | 2,830 |
| 9,903 |
| 1,188 |
| 5 |
| 18,430 |
| 10,237 |
| 2,586 |
| — |
| 40,007 |
|
Dehco | 4,771 |
| 16,923 |
| 13,755 |
| 208 |
| 13,950 |
| 6,580 |
| 3,392 |
| — |
| 52,795 |
|
Dowco | 4,053 |
| 4,498 |
| 8,566 |
| 1,240 |
| 28,435 |
| 13,732 |
| 4,178 |
| — |
| 56,346 |
|
MAC | 3,054 |
| 6,815 |
| 7,003 |
| 284 |
| 26,190 |
| 25,669 |
| 4,226 |
| 7,767 |
| 57,022 |
|
EMC (4) | 623 |
| 1,678 |
| 1,684 |
| — |
| 17,350 |
| 7,483 |
| 987 |
| — |
| 27,831 |
|
LaSalle | 9,002 |
| 39,344 |
| 8,500 |
| 6,547 |
| 5,885 |
| 10,441 |
| 28,601 |
| 41 |
| 51,077 |
|
Other | 473 | 329 |
| 280 |
| 13 |
| 1,667 |
| 919 |
| 195 |
| — |
| 3,486 |
|
2018 Totals | $ | 32,154 |
| $ | 91,723 |
| $ | 46,845 |
| $ | 8,349 |
| $ | 139,917 |
| $ | 93,287 |
| $ | 50,385 |
| $ | 7,808 |
| $ | 354,082 |
|
| | | | | | | | | | | | | | | | | | | | |
(thousands) | | 2020 Acquisitions | | 2019 Acquisitions |
Consideration | | | | |
| Cash, net of cash acquired | | $ | 124,013 | | | $ | 53,307 | |
| Contingent consideration(1) | | 1,813 | | | 1,160 | |
| | Total consideration | | 125,826 | | | 54,467 | |
| | | | | | |
Assets Acquired | | | | |
| Trade receivables | | $ | 9,785 | | | $ | 9,692 | |
| Inventories | | 16,073 | | | 5,803 | |
| Prepaid expenses & other | | 502 | | | 20 | |
| Property, plant & equipment | | 15,633 | | | 6,567 | |
| Operating lease right-of-use assets | | 6,222 | | | 5,653 | |
| Identifiable intangible assets | | 49,445 | | | 23,715 | |
Liabilities Assumed | | | | |
| Accounts payable & accrued liabilities | | (6,264) | | | (6,514) | |
| Operating lease obligations | | (6,222) | | | (5,653) | |
| Deferred tax liabilities, net | | (3,415) | | | (1,922) | |
| | Total fair value of net assets acquired | | 81,759 | | | 37,361 | |
| | Goodwill(2) | | 44,067 | | | 17,106 | |
| | | | $ | 125,826 | | | $ | 54,467 | |
(1) Total net assets acquired for the 2019 acquisitions These amounts reflect the preliminary estimated liability of $2.6 million pertaining to the fair value of contingent consideration based on future performance relating to certain acquisitions.
(2) Goodwill is tax-deductible for the acquisition2020 Acquisitions, except Front Range Stone (approximately $14.1 million), and for the 2019 Acquisitions, except GG Schmitt (approximately $5.4 million). For acquisitions, the excess of G.G. Schmitt.
(2) Total net assets acquired for MMC reflect the preliminary estimated liability of $1.4 million pertaining topurchase price consideration over the fair value of the contingent consideration based on future performance.
(3) Total net assets acquired for IMP reflectis recorded as goodwill, which generally represents the preliminary estimated liability of $7.9 million pertaining to the faircombined value of the contingent consideration basedCompany's existing purchasing, manufacturing, sales, industry relationships, and systems resources with the organizational talent and expertise of the acquired companies' respective management teams to maximize efficiencies, revenue impact, market share growth, and net income.
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.
The following table presents our estimates of identifiable intangibles for the 2020 Acquisitions and the 2019 Acquisitions:
| | | | | | | | | | | | | | | | | | | | |
| | | | (thousands) |
| | Estimated Useful Life (in years) | | 2020 Acquisitions | | 2019 Acquisitions |
Customer relationships | | 10 | | $ | 37,723 | | | $ | 18,112 | |
Non-compete agreements | | 5 | | 492 | | | 150 | |
Trademarks | | Indefinite | | 11,230 | | | 5,453 | |
| | | | $ | 49,445 | | | $ | 23,715 | |
We estimate the value of customer relationships using the multi-period excess earnings method, which is a variation on future performance.
(4) Total net assets acquired for EMC reflect the preliminary estimated liabilityincome approach, calculating the present value of $2.5 million pertainingincremental after-tax cash flows attributable to the fair valueasset. Non-compete agreements are valued using a discounted cash flow approach, which is a variation of an income approach, with and without the contingent consideration based onindividual counterparties to the non-compete agreements. Trademarks are valued using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future performance.cash flows, discounted to present value.
Pro Forma Information
The following pro forma information for the third quarter and first nine months ended September 27, 2020 and September 29, 2019 and September 30, 2018 assumes the 2020 Acquisitions and the 2019 and 2018 acquisitionsAcquisitions occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of the 2020 Acquisitions and 2019 and 2018 acquisitionsAcquisitions 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 $0.5 million and $2.2 million$0.2 for the third quarter and nine months ended September 27, 2020, respectively, and $1.4 million and $0.5$4.0 million for the third quarter and nine months ended September 29, 2019, respectively, and$0.7 million and $5.7 million for the third quarter and nine months ended September 30, 2018, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter Ended | | Nine Months Ended |
(thousands except per share data) | | September 27, 2020 | | September 29, 2019 | | September 27, 2020 | | September 29, 2019 |
Revenue | | $ | 719,953 | | | $ | 621,936 | | | $ | 1,798,914 | | | $ | 1,961,263 | |
Net income | | 38,412 | | | 24,914 | | | 65,392 | | | 80,077 | |
Basic net income per common share | | 1.69 | | | 1.08 | | | 2.87 | | | 3.47 | |
Diluted net income per common share | | 1.66 | | | 1.07 | | | 2.83 | | | 3.44 | |
|
| | | | | | | | | | | | | | | | |
|
| Third Quarter Ended | | Nine Months Ended |
(thousands except per share data) |
| September 29, 2019 | | September 30, 2018 | | September 29, 2019 | | September 30, 2018 |
Revenue |
| $ | 571,734 |
| | $ | 660,873 |
| | $ | 1,806,933 |
| | $ | 2,049,540 |
|
Net income |
| 21,346 |
| | 30,377 |
| | 70,067 |
| | 103,502 |
|
Basic net income per common share |
| 0.93 |
| | 1.27 |
| | 3.04 |
| | 4.26 |
|
Diluted net income per common share |
| 0.92 |
| | 1.25 |
| | 3.01 |
| | 4.20 |
|
The pro forma information is presented for informational purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of the periods indicated above.
|
| | | | |
7. | STOCK-BASED COMPENSATION |
The Company recorded expense of $3.8$4.9 million and $3.5$11.2 million for the third quarter and nine months ended September 29, 2019 and September 30, 2018,27, 2020, respectively, for its stock-based compensation plans in the condensed consolidated statements of income. Stock-based compensation expense for the nine months ended September 27, 2020 includes a reduction of expense due to certain forfeitures and adjustments in the amount of $2.3 million. For the firstthird quarter and nine months ofended September 29, 2019, and 2018, the Company recorded $12.0 million and $10.9 million in stock-based compensation expense of $3.8 million and $12.0 million, respectively.
The Board approved various sharestock-based grants under the Company’s 2009 Omnibus Incentive Plan in the first nine months of 20192020 totaling 376,186275,740 shares in the aggregate.aggregate at an average fair value of $53.78 per share at grant date for a total fair value at grant date of $14.8 million. In addition, in the second quarter of 2020, the Board approved stock option grants representing 465,000 shares in the aggregate at an exercise price of $41.33 per share. The total cost to be expensed over the three-year vesting period will be $6.6 million, or $14.25 per share, with an underlying volatility of 42% under the Black Scholes option pricing model.
As of September 29, 2019,27, 2020, there was approximately $23.8$25.5 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under incentive plans. That cost is expected to be recognized over a weighted-average period of 18.017.4 months.
|
| | | | |
8. | NET INCOME PER COMMON SHARE |
Net income per common share calculated for the third quarter and nine months of 20192020 and 20182019 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter Ended | | Nine Months Ended |
(thousands except per share data) | | September 27, 2020 | | September 29, 2019 | | September 27, 2020 | | September 29, 2019 |
Net income for basic and diluted per share calculation | | $ | 37,336 | | | $ | 21,317 | | | $ | 59,237 | | | $ | 69,582 | |
Weighted average common shares outstanding - basic | | 22,674 | | | 23,076 | | | 22,784 | | | 23,073 | |
Effect of potentially dilutive securities | | 398 | | | 197 | | | 304 | | | 206 | |
Weighted average common shares outstanding - diluted | | 23,072 | | | 23,273 | | | 23,088 | | | 23,279 | |
Basic net income per common share | | $ | 1.65 | | | $ | 0.92 | | | $ | 2.60 | | | $ | 3.02 | |
Diluted net income per common share | | $ | 1.62 | | | $ | 0.92 | | | $ | 2.57 | | | $ | 2.99 | |
|
| | | | | | | | | | | | | | | | |
| | Third Quarter Ended | | Nine Months Ended |
(thousands except per share data) | | September 29, 2019 | | September 30, 2018 | | September 29, 2019 | | September 30, 2018 |
Net income for basic and diluted per share calculation | | $ | 21,317 |
| | $ | 27,934 |
| | $ | 69,582 |
| | $ | 92,862 |
|
Weighted average common shares outstanding - basic | | 23,076 |
| | 23,894 |
| | 23,073 |
| | 24,279 |
|
Effect of potentially dilutive securities | | 197 |
| | 338 |
| | 206 |
| | 340 |
|
Weighted average common shares outstanding - diluted | | 23,273 |
| | 24,232 |
| | 23,279 |
| | 24,619 |
|
Basic net income per common share | | $ | 0.92 |
| | $ | 1.17 |
| | $ | 3.02 |
| | $ | 3.82 |
|
Diluted net income per common share | | $ | 0.92 |
| | $ | 1.15 |
| | $ | 2.99 |
| | $ | 3.77 |
|
An immaterial amount of securities was not included in the computation of diluted income per share as they are considered anti-dilutive under the treasury stock method.
A summary of total debt outstanding at September 29, 201927, 2020 and December 31, 20182019 is as follows:
| | | | | | | | | | | | | | |
(thousands) | | September 27, 2020 | | December 31, 2019 |
Long-term debt: | | | | |
1.0% convertible notes due 2023 | | $ | 172,500 | | | $ | 172,500 | |
Term loan due 2024 | | 95,000 | | | 97,500 | |
Revolver due 2024 | | 135,000 | | | 135,000 | |
7.5% senior notes due 2027 | | 300,000 | | | 300,000 | |
Total long-term debt | | 702,500 | | | 705,000 | |
Less: convertible notes debt discount, net | | (17,958) | | | (23,260) | |
Less: term loan deferred financing costs, net | | (463) | | | (542) | |
Less: senior notes deferred financing costs, net | | (5,227) | | | (5,844) | |
Less: current maturities of long-term debt | | (5,000) | | | (5,000) | |
Total long-term debt, less current maturities, net | | $ | 673,852 | | | $ | 670,354 | |
|
| | | | | | | | |
(thousands) |
| September 29, 2019 |
| December 31, 2018 |
Long-term debt: |
| |
| |
Revolver |
| $ | 135,000 |
|
| $ | 392,332 |
|
Term Loan |
| 100,000 |
|
| 96,250 |
|
Senior Notes | | 300,000 |
| | — |
|
Convertible Notes |
| 172,500 |
|
| 172,500 |
|
Total long-term debt |
| 707,500 |
|
| 661,082 |
|
Less: Convertible Notes debt discount, net |
| (25,023 | ) |
| (30,125 | ) |
Less: Senior Notes deferred financing costs, net | | (5,979 | ) | | — |
|
Less: current maturities of long-term debt |
| (5,000 | ) |
| (8,750 | ) |
Less: Term Loan deferred financing costs, net |
| (570 | ) |
| (456 | ) |
Total long-term debt, less current maturities, net |
| $ | 670,928 |
|
| $ | 621,751 |
|
There were no material changes to any of our debt arrangements during the third quarter and nine months ended September 27, 2020.
Senior Notes
On September 17, 2019, the Company issued $300 million aggregate principal amount of 7.50% Senior Notes due 2027 (the “Senior Notes”). The Senior Notes were not registered under the Securities Act of 1933, as amended (the "Securities Act") and were offered under Rule 144A under the Securities Act. The Senior Notes will mature on October 15, 2027. Interest on the Senior Notes will accrue from September 17, 2019 and is payable semi-annually in cash in arrears on April 15 and October 15 of each year, beginning on April 15, 2020. The effective interest rate on the Senior Notes, which includes debt issuance costs, was 7.83%. In connection with the issuance of the Senior Notes, the Company incurred and capitalized as a reduction of the principal amount of the Senior Notes approximately $6.0 million in deferred financing costs which will be amortized using the effective interest rate over the term of the Senior Notes.
The Senior Notes are senior unsecured indebtedness of the Company and are guaranteed by each of the Company’s subsidiaries that guarantee the obligations of the Company under the 2019 Credit Facility (as defined herein). The Company may redeem the Senior Notes, in whole or in part, at any time (a) prior to October 15, 2022, at a price equal to 100% of the principal amount thereof, plus the applicable premium described in the associated indenture and accrued and unpaid interest and (b) on or after October 15, 2022 at specified redemption prices set forth in the indenture, plus accrued and unpaid interest. In addition, prior to October 15, 2022, the Company may redeem, in one or more transactions, up to an aggregate of 40% of the original principal amount of the Senior Notes at a redemption price equal to 107.5% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of one or more equity offerings. If the Company experiences specific kinds of changes of control, the Company must offer to repurchase all of the Senior Notes (unless otherwise redeemed) at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest.
2019 Credit Facility
Simultaneously with the issuance of the Senior Notes, the Company entered into the Third Amended and Restated Credit Agreement (the “2019 Credit Agreement”). The 2019 Credit Agreement amended and extended the Company’s 2018 Credit Agreement (as defined herein) and consists of a $550 million senior secured revolver (the “2019 Revolver”) and a $100 million senior secured term loan (the “2019 Term Loan” and together with the 2019 Revolver, the “2019 Credit Facility”). The maturity daterates for borrowings under the 2019 Credit Agreement isrevolver and term loan are the prime rate or LIBOR plus a margin. At September 17, 2024. Upon the satisfaction of certain conditions, and obtaining incremental commitments from its lenders, the Company may be able to increase the borrowing capacity27, 2020, all of the 2019 Credit Facility by up to $250 million.
BorrowingsCompany's borrowings under the 2019 Credit Facility are secured by substantially all personal property assets of the Companyrevolver and any domestic subsidiary guarantors. Pursuant to the 2019 Credit Agreement:
| |
• | The 2019 Term Loan is due in consecutive quarterly installments in the following amounts: (i) beginning September 30, 2019, through and including June 30, 2021, $1,250,000 and (ii) beginning September 30, 2021, and each quarter thereafter, $2,500,000, with the remaining balance due at maturity;
|
| |
• | The interest rates for borrowings under the 2019 Revolver and the 2019 Term Loan are the Prime Rate or LIBOR plus a margin, which ranges from 0.00% to 0.75% for Prime Rate loans and from 1.00% to 1.75% for LIBOR loans depending on the Company’s consolidated total leverage ratio, as defined below. The Company is required to pay fees on unused but committed portions of the 2019 Revolver, which range from 0.15% to 0.225%; and
|
Covenants include requirements as to a maximum consolidated total net leverage ratio (4.00:1.00, increasing to 4.50:1.00 in certain circumstances in connection with Company acquisitions) and a minimum consolidated fixed charge coverage ratio (1.50 :1.00) that are tested on a quarterly basis, a minimum liquidity requirement applicable during the six-month period preceding the maturity of the Convertible Notes (as defined herein), and other customary covenants.
At September 29, 2019, the Company had $100.0 million outstanding under the 2019 Term Loan under the LIBOR-based option, and borrowings outstanding under the 2019 Revolver of $135.0 millionterm loan were under the LIBOR-based option. The interest rate for incremental borrowings at September 29, 201927, 2020 was LIBOR plus 1.5% (or 3.54%1.69%) for the LIBOR-based option. The fee payable on committed but unused portions of the 2019 Revolverrevolver was 0.20% at September 29, 2019.27, 2020.
Total cash interest paid was $3.2 million and $6.9 million for the third quarter of 2020 and 2019, respectively, and 2018 was $6.9$21.4 million and $6.6 million, respectively, and $19.7 million and $12.2 million for the comparativefirst nine month periods,months of 2020 and 2019, respectively.
2018 Credit Facility
See Note 9 of the Notes to Consolidated Financial Statements section of the Fiscal 2018 Form 10-K regarding the Company's previous credit agreement (the "2018 Credit Agreement") which established an $800 million revolving credit loan (the “2018 Revolver”) and a $100 million term loan (the “2018 Term Loan” and, together with the 2018 Revolver, the “2018 Credit Facility”). The 2018 Credit Agreement was amended by the 2019 Credit Agreement on September 17, 2019 as discussed above. The Company recorded a $0.7 million loss on extinguishment of debt in the third quarter of 2019 in connection with the replacement of the 2018 Credit Facility with the 2019 Credit Facility.
Convertible Senior Notes
In January 2018, the Company issued $172.5 million aggregate principal amount of 1.00% Convertible Senior Notes due 2023 (the “Convertible Notes”). See Note 9 of the Notes to Consolidated Financial Statements section of the Fiscal 2018 Form 10-K for further information. The effective interest rate on the Convertible Notes, which includes the non-cash interest expense of debt discount amortization and debt issuance costs, was 5.25% as of September 29, 2019 and December 31, 2018. The unamortized portion of the debt discount and debt issuance costs as of September 29, 2019 and December 31, 2018 was $25.0 million and $30.1 million, respectively.
|
| | | | |
10. | DERIVATIVE FINANCIAL INSTRUMENTS |
Convertible Note Hedge Transactions and Warrant Transactions
In January 2018, in connection with the Convertible Notes offering, the Company entered into privately negotiated convertible note hedge transactions (together, the “Convertible Note Hedge Transactions”) with each of Bank of America, N.A. and Wells Fargo Bank, National Association (together, the “Hedge Counterparties”), pursuant to which the Company acquired options to purchase the same number of shares of its common stock initially underlying the Convertible Notes. See Note 10 of the Notes to Consolidated Financial Statements section of the Fiscal 2018 Form 10-K for information regarding the Convertible Note Hedge Transactions.
At the same time, the Company also entered into separate, privately negotiated warrant transactions (the “Warrant Transactions”) with each of the Hedge Counterparties, pursuant to which the Company sold warrants to purchase the same number of shares of its common stock initially underlying the Convertible Notes. See Note 10 of the Notes to Consolidated Financial Statements section of the Fiscal 2018 Form 10-K for further information regarding the Warrant Transactions.
There have been no material changes to the terms of the Convertible Note Hedge Transactions or the Warrant Transactions during the nine month period ended September 29, 2019.
As these transactions meet certain accounting criteria, the Convertible Note Hedges Transactions and Warrant Transactions are recorded in shareholders’ equity and are not accounted for as derivatives.
Interest Rate Swaps
The 2019 Credit FacilityCompany's credit facility exposes the Company to riskrisks associated with the variability in interest expense associated with fluctuations in LIBOR. To partially mitigate this risk, the Company has historically entered into interest rate swaps on a portion of its 2018 Credit Facility, now amended by the 2019 Credit Facility.swaps. As of September 29, 2019,27, 2020, the Company had a combined notional principal amount of $200.0 million of interest rate swap agreements, all of which are designated as cash flow hedges. These swap agreements effectively convert the interest expense associated with a portion of the 2019 Term Loan and a portion of the 2019 RevolverCompany's variable rate debt from variable interest rates to fixed interest rates and have maturities ranging from February 2022 to March 2022.
Fair Value of Derivative Contracts
The following table summarizes the fair value of derivative contracts included in the condensed statementconsolidated statements of financial position (in thousands):
| | | | | | | | | | | | | | | | | |
| | Fair value of derivative instruments |
Derivatives accounted for as cash flow hedges | | Balance sheet location | September 27, 2020 | | December 31, 2019 |
Interest rate swaps | | Other long-term liabilities | $ | 7,964 | | | $ | 5,868 | |
|
| | | | | | | | | |
| | Fair value of derivative instruments |
Derivatives accounted for as cash flow hedges | | Balance sheet location | September 29, 2019 | | December 31, 2018 |
Interest rate swaps | | Other long-term liabilities | $ | 6,974 |
| | $ | 2,652 |
|
The interest rate swaps are comprised of over-the-counter derivatives, which are valued using models that primarily rely on observable inputs such as yield curves, which are classified as Level 2 in the fair value hierarchy.
See Note 11 for information regarding accumulated other comprehensive loss on interest rate swaps.
|
| | | | |
11. | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)LOSS |
Accumulated other comprehensive income (loss)loss includes unrealized gains and losses on derivatives that qualify as hedges of cash flows, unrecognized pension-related costs and cumulative foreign currency translation and other adjustments. The activity in accumulated other comprehensive loss during the threethird quarter and nine months ended September 29, 201927, 2020 and September 30, 201829, 2019 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
Third Quarter Ended September 27, 2020 |
(thousands) | Cash Flow Hedges | | Other | | Foreign Currency Items | | Total |
Balance at June 28, 2020 | $ | (6,916) | | | $ | (1,270) | | | $ | (106) | | | $ | (8,292) | |
Other comprehensive income (net of tax of $340, $0 and $0) | 989 | | | 0 | | | 60 | | | 1,049 | |
Balance at September 27, 2020 | $ | (5,927) | | | $ | (1,270) | | | $ | (46) | | | $ | (7,243) | |
|
| | | | | | | | | | | | | | | |
Third Quarter Ended September 29, 2019 |
(thousands) | Cash Flow Hedges | | Defined Benefit Pension | | Foreign Currency Items | | Total |
Balance at June 30, 2019 | $ | (4,958 | ) | | $ | (675 | ) | | $ | (99 | ) | | $ | (5,732 | ) |
Other comprehensive income (loss) (net of tax of $83, $0 and $0) | (240 | ) | | — |
| | 19 |
| | (221 | ) |
Balance at September 29, 2019 | $ | (5,198 | ) | | $ | (675 | ) | | $ | (80 | ) | | $ | (5,953 | ) |
|
| | | | | | | | | | | | | | | |
Nine Months Ended September 29, 2019 |
(thousands) | Cash Flow Hedges | | Defined Benefit Pension | | Foreign Currency Items | | Total |
Balance at December 31, 2018 | $ | (1,973 | ) | | $ | (675 | ) | | $ | (32 | ) | | $ | (2,680 | ) |
Other comprehensive loss (net of tax of $1,098, $0 and $0) | (3,225 | ) | | — |
| | (48 | ) | | (3,273 | ) |
Balance at September 29, 2019 | $ | (5,198 | ) | | $ | (675 | ) | | $ | (80 | ) | | $ | (5,953 | ) |
|
| | | | | | | | | | | | | | | |
Third Quarter Ended September 30, 2018 |
(thousands) | Cash Flow Hedges | | Defined Benefit Pension | | Foreign Currency Items | | Total |
Balance at July 1, 2018 | $ | — |
| | $ | 66 |
| | $ | (3 | ) | | $ | 63 |
|
Other comprehensive income (loss) (net of tax of $28, $0 and $0) | 80 |
| | — |
| | (28 | ) | | 52 |
|
Balance at September 30, 2018 | $ | 80 |
| | $ | 66 |
| | $ | (31 | ) | | $ | 115 |
|
|
| | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2018 |
(thousands) | Cash Flow Hedges | | Defined Benefit Pension | | Foreign Currency Items | | Total |
Balance at December 31, 2017 | $ | — |
| | $ | 66 |
| | $ | — |
| | $ | 66 |
|
Other comprehensive income (loss) (net of tax of $28, $0 and $0) | 80 |
| | — |
| | (31 | ) | | 49 |
|
Balance at September 30, 2018 | $ | 80 |
| | $ | 66 |
| | $ | (31 | ) | | $ | 115 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 27, 2020 |
(thousands) | Cash Flow Hedges | | Other | | Foreign Currency Items | | Total |
Balance at December 31, 2019 | $ | (4,374) | | | $ | (1,270) | | | $ | (54) | | | $ | (5,698) | |
Other comprehensive income (loss) (net of tax benefit of $542, $0 and $0) | (1,553) | | | 0 | | | 8 | | | (1,545) | |
Balance at September 27, 2020 | $ | (5,927) | | | $ | (1,270) | | | $ | (46) | | | $ | (7,243) | |
| | | | | | | | | | | | | | | | | | | | | | | |
Third Quarter Ended September 29, 2019 |
(thousands) | Cash Flow Hedges | | Other | | Foreign Currency Items | | Total |
Balance at June 30, 2019 | $ | (4,958) | | | $ | (675) | | | $ | (99) | | | $ | (5,732) | |
Other comprehensive income (loss) (net of tax benefit of $83, $0 and $0) | (240) | | | 0 | | | 19 | | | (221) | |
Balance at September 29, 2019 | $ | (5,198) | | | $ | (675) | | | $ | (80) | | | $ | (5,953) | |
| | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 29, 2019 |
(thousands) | Cash Flow Hedges | | Other | | Foreign Currency Items | | Total |
Balance at December 31, 2018 | $ | (1,973) | | | $ | (675) | | | $ | (32) | | | $ | (2,680) | |
Other comprehensive loss (net of tax benefit of $1,098, $0 and $0) | (3,225) | | | 0 | | | (48) | | | (3,273) | |
Balance at September 29, 2019 | $ | (5,198) | | | $ | (675) | | | $ | (80) | | | $ | (5,953) | |
Reclassification adjustments out of accumulated other comprehensive loss were immaterial for all periods presented.
As discussed in Note 2, the Company adopted the provisions of ASC 842 on January 1, 2019 using the modified retrospective approach as of the effective date of ASC 842 (the effective date method). Under the effective date method, financial results in periods reported prior to 2019 are unchanged.
As a result of the adoption of ASC 842, operating leases for certain warehouses, buildings, forklifts, trucks, trailers and other equipment are now recognized as right-of-use assets and corresponding short-term and long-term lease liabilities. The Company utilized a package of available practical expedients in the adoption of ASC 842, which, among them, does not require the reassessment of operating versus capital lease classification.
Leases with an initial term of 12 months or less are not recorded on the balance sheet and expense related to these short term leases is immaterial. Lease and non-lease components in the fixed base rent of facility and equipment leases are included as a single component and accounted for as a lease. Pursuant to ASC 842, the Company elected to use the remaining non-cancellable lease term as of January 1, 2019 in determining the lease term at the date of adoption and the corresponding incremental borrowing rate for such leases. Variable lease expense, principally related to trucks, forklifts, and index-related facility rent escalators, was immaterial for the third quarter and nine months ended September 29, 2019. Leases have remaining lease terms of one year to eleven years. Certain leases include options to renew for an additional term. Where there is reasonable certainty to utilize a renewal option, we include the renewal option in the lease term used to calculate operating lease right-of-use assets and lease liabilities.
Lease expense, supplemental cash flow information, and other information related to leases were as follows: | | | | | | | | | | | |
| Third Quarter Ended |
(thousands) | September 27, 2020 | | September 29, 2019 |
Operating lease cost | $ | 8,525 | | | $ | 7,848 | |
| | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows for operating leases | $ | 8,317 | | | $ | 6,946 | |
| | | |
Right-of-use assets obtained in exchange for lease obligations: | | | |
Operating leases | $ | 17,091 | | | $ | 5,522 | |
|
| | | | | | | |
(thousands) | Third Quarter Ended | | Nine Months Ended |
| September 29, 2019 | | September 29, 2019 |
Operating lease cost | $ | 7,848 |
| | $ | 23,536 |
|
| | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows for operating leases | $ | 6,946 |
| | $ | 20,545 |
|
| | | |
Right-of-use assets obtained in exchange for lease obligations: | | | |
Operating leases | $ | 5,522 |
| | $ | 14,767 |
|
| | | | | | | | | | | |
| Nine Months Ended |
(thousands) | September 27, 2020 | | September 29, 2019 |
Operating lease cost | $ | 25,093 | | | $ | 23,536 | |
| | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows for operating leases | $ | 24,680 | | | $ | 20,545 | |
| | | |
Right-of-use assets obtained in exchange for lease obligations: | | | |
Operating leases | $ | 34,993 | | | $ | 14,767 | |
Balance sheet information related to leases was as follows:
| | | | | | | | | | | |
(thousands, except lease term and discount rate) | September 27, 2020 | | December 31, 2019 |
Assets | | | |
Operating lease right-of-use assets | $ | 105,410 | | | $ | 93,546 | |
Liabilities | | | |
Operating lease liabilities, current portion | $ | 29,565 | | | $ | 27,694 | |
Long-term operating lease liabilities | 76,873 | | | 66,467 | |
Total lease liabilities | $ | 106,438 | | | $ | 94,161 | |
|
| | | |
(thousands, except lease term and discount rate) | September 29, 2019 |
Assets | |
Operating lease right-of-use assets | $ | 81,064 |
|
Liabilities | |
Operating lease liabilities, current portion | $ | 25,990 |
|
Long-term operating lease liabilities | 55,553 |
|
Total lease liabilities | $ | 81,543 |
|
| | | | | | | | | | | |
| | | |
Weighted average remaining lease term, operating leases (in years) | 4.2 | | 4.2 |
Weighted average discount rate, operating leases | 3.9 | % | | 3.7 | % |
|
| | |
Weighted average remaining lease term, operating leases (in years) | 4.04 |
|
Weighted average discount rate, operating leases | 3.83 | % |
Maturities of lease liabilities were as follows at September 29, 2019:27, 2020:
| | | | | |
(thousands) | |
2020 (excluding the nine months ended September 27, 2020) | $ | 8,561 | |
2021 | 31,924 | |
2022 | 26,328 | |
2023 | 20,593 | |
2024 | 14,552 | |
Thereafter | 14,283 | |
Total lease payments | 116,241 | |
Less imputed interest | (9,803) | |
Total | $ | 106,438 | |
|
| | | |
(thousands) | |
2019 (excluding the nine months ended September 29, 2019) | $ | 8,150 |
|
2020 | 26,916 |
|
2021 | 20,512 |
|
2022 | 13,556 |
|
2023 | 8,954 |
|
Thereafter | 10,158 |
|
Total lease payments | 88,246 |
|
Less imputed interest | (6,703 | ) |
Total | $ | 81,543 |
|
Leases have remaining lease terms of one year to ten years.
Disclosures related to periods prior to the adoption of ASC 842:
Maturities of lease liabilities were as follows at December 31, 2018:
|
| | | |
(thousands) | |
2019 | $ | 29,345 |
|
2020 | 23,344 |
|
2021 | 16,165 |
|
2022 | 9,602 |
|
2023 | 5,357 |
|
Thereafter | 4,883 |
|
Total | $ | 88,696 |
|
|
| | | | |
13. | FAIR VALUE MEASUREMENTS |
The carrying amounts of cash equivalents, representing government and other money market funds traded in an active market, are reported on the condensed consolidated statements of financial position as a component of "Cash and cash equivalents". The carrying amount of cash equivalents, valued using Level 1 inputs and approximating fair value because of their relatively short maturities, was approximately $31.0 million and $132.6 million at September 29,27, 2020 and December 31, 2019, approximatedrespectively. The estimated fair value whichof our senior notes, calculated using Level 2 inputs, was approximately $108.0$326.1 million and $320.3 million at September 27, 2020 and December 31, 2019, respectively. The carrying amounts of our term loan and our revolver, valued using level 1 inputs, with no corresponding amount at December 31, 2018. The carrying amount of the Senior Notes at September 29, 2019 approximated fair value given their recent issuance and based upon terms and conditions available to the Company, with no corresponding amount at December 31, 2018. The 2019 Term Loan and the 2019 Revolver, valued using levelLevel 2 inputs, approximated fair value as of September 29, 201927, 2020 and the 2018 Term Loan and the 2018 Revolver, valued using level 2 inputs, approximated fair value ss of December 31, 2018, respectively,2019 based upon terms and conditions available to the Company at those dates in comparison to the terms and conditions of its outstanding debt. The estimated fair value of the Convertible Notes,our convertible notes, calculated using Level 2 inputs, was approximately $152.1$166.9 million and $130.3$162.5 million as of September 29, 201927, 2020 and December 31, 2018,2019, respectively. The estimated fair value of the Company's interest rate swaps is valued using Level 2 inputs and discussed in further detail in Note 10. The estimated fair value of the Company's contingent consideration is valued using Level 3 inputs and is discussed further in Note 6.
The effective tax rate in the third quarter of 2020 and 2019 was 24.3% and 2018 was 26.0% and 25.3%, respectively, and the effective tax rate for the comparable nine month periods was 24.6%25.4% and 23.6%24.6%, respectively. The effective tax rate for the periods presentedthird quarter of 2020 reflects the impact of certain federal and state income tax benefits and the first nine months of 2020 reflects the impact of $2.2 million of permanent tax differences due to certain Coronavirus Aid, Relief, and Economic Security Act payroll tax credits. In addition, the effective tax rate for the first nine months of 2019 includes the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense upon realization in the amount of $0.9 million.
Cash paid for income taxes, net of refunds, was $1.8 million and $2.2$1.6 million for the third quarter and nine months ended September 29, 2019of 2020, respectively, and September 30, 2018, respectively, with no corresponding amounts in the corresponding quarterly periods.
The Company made income tax payments of $7.4 million and $5.6$30.0 million in the third quarter of 2019 and 2018, respectively, and $30.0 million and $21.0 million in the first nine months of 2019, and 2018, respectively.
The Company has 2 reportable segments, Manufacturing and Distribution, which are those based on its method of internal reporting, which segregates its businesses based on the manner in which its Chief Operating Decision Makerchief 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.
| | | | | | | | | | | | | | | | | | | | |
Third Quarter Ended September 27, 2020 | | | | | | |
(thousands) | | Manufacturing | | Distribution | | Total |
Net outside sales | | $ | 494,274 | | | $ | 206,433 | | | $ | 700,707 | |
Intersegment sales | | 12,004 | | | 1,640 | | | 13,644 | |
Total sales | | 506,278 | | | 208,073 | | | 714,351 | |
Operating income | | 63,312 | | | 16,444 | | | 79,756 | |
| | | | | | | | | | | | | | | | | | | | |
Third Quarter Ended September 29, 2019 | | | | | | |
(thousands) | | Manufacturing | | Distribution | | Total |
Net outside sales | | $ | 399,712 | | | $ | 166,474 | | | $ | 566,186 | |
Intersegment sales | | 8,102 | | | 1,078 | | | 9,180 | |
Total sales | | 407,814 | | | 167,552 | | | 575,366 | |
Operating income | | 42,353 | | | 9,041 | | | 51,394 | |
| | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 27, 2020 | | | | | | |
(thousands) | | Manufacturing | | Distribution | | Total |
Net outside sales | | $ | 1,206,114 | | | $ | 507,870 | | | $ | 1,713,984 | |
Intersegment sales | | 24,691 | | | 4,025 | | | 28,716 | |
Total sales | | 1,230,805 | | | 511,895 | | | 1,742,700 | |
Operating income | | 131,426 | | | 33,350 | | | 164,776 | |
|
| | | | | | | | | | | | |
Third Quarter Ended September 30, 2018 | | | | | | |
(thousands) | | Manufacturing | | Distribution | | Total |
Net outside sales | | $ | 445,214 |
| | $ | 129,925 |
| | $ | 575,139 |
|
Intersegment sales | | 8,182 |
| | 1,097 |
| | 9,279 |
|
Total sales | | 453,396 |
| | 131,022 |
| | 584,418 |
|
Operating income | | 54,887 |
| | 7,606 |
| | 62,493 |
|
| | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 29, 2019 | | | | | | |
(thousands) | | Manufacturing | | Distribution | | Total |
Net outside sales | | $ | 1,259,671 | | | $ | 527,951 | | | $ | 1,787,622 | |
Intersegment sales | | 24,153 | | | 3,361 | | | 27,514 | |
Total sales | | 1,283,824 | | | 531,312 | | | 1,815,136 | |
Operating income | | 135,577 | | | 28,132 | | | 163,709 | |
|
| | | | | | | | | | | | |
Nine Months Ended September 30, 2018 | | | | | | |
(thousands) | | Manufacturing | | Distribution | | Total |
Net outside sales | | $ | 1,344,088 |
| | $ | 387,762 |
| | $ | 1,731,850 |
|
Intersegment sales | | 27,464 |
| | 2,840 |
| | 30,304 |
|
Total sales | | 1,371,552 |
| | 390,602 |
| | 1,762,154 |
|
Operating income | | 172,799 |
| | 25,092 |
| | 197,891 |
|
The following table presents a reconciliation of segment operating income to consolidated operating income:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter Ended | | Nine Months Ended |
(thousands) | | September 27, 2020 | | September 29, 2019 | | September 27, 2020 | | September 29, 2019 |
Operating income for reportable segments | | $ | 79,756 | | | $ | 51,394 | | | $ | 164,776 | | | $ | 163,709 | |
Unallocated corporate expenses | | (9,706) | | | (4,793) | | | (23,962) | | | (18,796) | |
Amortization | | (10,221) | | | (9,191) | | | (29,600) | | | (26,448) | |
Consolidated operating income | | $ | 59,829 | | | $ | 37,410 | | | $ | 111,214 | | | $ | 118,465 | |
|
| | | | | | | | | | | | | | | | |
| | Third Quarter Ended | | Nine Months Ended |
(thousands) | | September 29, 2019 | | September 30, 2018 | | September 29, 2019 | | September 30, 2018 |
Operating income for reportable segments | | $ | 51,394 |
| | $ | 62,493 |
| | $ | 163,709 |
| | $ | 197,891 |
|
Unallocated corporate expenses | | (4,793 | ) | | (8,911 | ) | | (18,796 | ) | | (33,229 | ) |
Amortization | | (9,191 | ) | | (8,873 | ) | | (26,448 | ) | | (25,140 | ) |
Consolidated operating income | | $ | 37,410 |
| | $ | 44,709 |
| | $ | 118,465 |
| | $ | 139,522 |
|
Unallocated corporate expenses include corporate general and administrative expenses comprised of wages, insurance, taxes, supplies, travel and entertainment, professional fees and other.
|
| | | | |
16. | STOCK REPURCHASE PROGRAMS |
In 2018,March 2020, the Board approved a new stock repurchase program for up to $50 million of its common stock, as well as two additions totaling $87.9including amounts remaining under previous authorizations. Approximately $38.8 million to this program. Approximately $26.7 million remains available in the amount of the Company's common stock that may be acquired under the current stock repurchase program.program as of September 27, 2020. In the third quarter and first nine months ended September 29, 2019,of 2020, the Company repurchased 98,20188,950 shares of its common stock at an average price of $36.50 per share at$53.24 for an aggregate cost of $3.6approximately $4.7 million. In the third quarterfirst nine months of 2018,2020, the Company repurchased 347,235545,105 shares of its common stock at an average price of $60.32$37.22 per share atfor an aggregate cost of $20.9approximately $20.3 million. InDuring the first nine months of 2018, the Company repurchased 1,282,930 shares of its common stock at an average price of $58.48 per share at an aggregate cost of $75.0 million.
|
| |
17. | RELATED PARTY TRANSACTIONS |
In thethird quarter and first nine months of 2019, the Company entered into transactions with companies affiliated with 2repurchased 98,201 shares at an average price of its independent Board members. The Company purchased$36.50 per share for an aggregate cost of approximately $0.8 million of corrugated packaging materials from Welch Packaging Group, an independently owned company established by M. Scott Welch who serves as its President and CEO. The Company also sold approximately $0.4 million of RV component products to DNA Enterprises, Inc. ("DNA") in the first six months of 2019. After June 30, 2019, sales to DNA no longer qualified as related party transactions, as Walter E. Wells, whose son is affiliated with DNA, retired from Patrick's Board on May 15, 2019.$3.6 million.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and Notes thereto included in Item 1 of this Report. In addition, this MD&A contains certain statements relating to future results which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. See “Information Concerning Forward-Looking Statements” on pages 34 and 35page 31 of this Report. The Company undertakes no obligation to update these forward-looking statements.
The MD&A is divided into seven major sections:
OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE
Our four primary end markets each experienced sharp recoveries in the third quarter of 2020 following the production disruptions related to the COVID-19 pandemic in the second quarter of 2020. In aggregate, we achieved our highest quarterly sales in the Company's history in the third quarter of 2020, with revenue from the RV, marine and industrial end markets increasing in the third quarter of 2020 compared to the prior year. RV and marine original equipment manufacturers ("OEMs") experienced a strong increase in dealer demand in the third quarter of 2020, when compared to the prior year quarter, driven by increases in RV and marine retail sales against a background of low RV and marine dealer inventories. Our industrial end market benefited in the third quarter of 2020 from increases in housing starts and an increase in home improvement activity. Our MH end market recovered in the third quarter of 2020 from COVID-19 production disruptions in the second quarter of 2020, and OEM demand in this end market is strong despite short-term OEM labor and supply constraints experienced in the third quarter of 2020. In addition, our team members are currently working full production schedules, having adopted CDC, state, and local best practice safety protocols.
REVIEW OF CONSOLIDATEDOPERATINGRESULTS
Third Quarter and Nine Months Ended September 29, 2019 Compared to 2018
Use of2020 Financial Metrics
REVIEW BY BUSINESS SEGMENTOverview
Third Quarter and Nine Months Ended September 29, 2019 Compared to 2018
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Summary of Liquidity and Capital Resources
CRITICAL ACCOUNTING POLICIES
OTHER
Seasonality
Cyber Security Incident
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE
Recreational Vehicle ("RV") Industry
The RV industry is our primarylargest market and comprised 55%60% and 56%55% of the Company’s sales in the third quarter ended September 27, 2020 and September 29, 2019, respectively, and 55% and 56% for the comparative 2020 and 2019 nine month periods. Sales to the RV industry increased 36% in the third quarter of 2020 and decreased 5% in the first nine months of 2019, respectively. Sales from2020, compared to the RV industryprior year periods.
According to the Recreation Vehicle Industry Association, wholesale shipments totaled 124,033 units in the third quarter of 2020, increasing 33% compared to 93,357 units in the third quarter of 2019. Towable and motorized wholesale unit shipments increased 37% and 5%, respectively, for the third quarter of 2020 compared to the prior year quarter. Wholesale unit shipments for the first nine months of 2020 decreased 13%3%, totaling 300,100 units compared to 309,938 units in the
prior year period. Towable and 12% inmotorized wholesale unit shipments decreased 1% and 20%, respectively, for the first nine months of 2020 compared to the prior year period. Retail unit sales are estimated to have increased between 25%-30% and between 4%-6% during the third quarter and first nine months of 2019, respectively, compared to the prior year periods.
According to the Recreation Vehicle Industry Association (“RVIA”),2020, respectively. The increase in wholesale and retail RV shipments totaled 93,357 units in the third quarter of 2019, a decline of 13% compared2020 was attributed to 107,130 unitsan increase in consumer demand in the third quarterRV industry against a background of 2018, whilelow dealer inventory. The decrease in wholesale shipments in the first nine months of 2020 is largely attributed to COVID-19 market disruptions. The increase in retail unit sales for the first nine months of 2019, wholesale unit shipments decreased 18% versus2020 is largely due to the prior year period.increase in consumer demand in the RV industry, partially offset by COVID-19 market disruptions. Based on actual retail sales data through August,our estimates, RV dealer inventories at the Company estimates that retail unit shipments declined 6% and 7%, respectively, forend of the third quarter of 2019 and first nine months of 2019 versus the comparable prior year periods. With estimated retail unit shipments outpacing wholesale unit shipments in the third quarter and first nine months of 2019, RV dealer inventories declined in both periods. The RVIA’s latest published expectations for fiscal 2019 project wholesale unit shipments to be approximately 401,000 units, representing a decline of 17% from 2018. On the retail side, the Company expects RV retail unit shipments to decline2020 were at a mid-to-high single digit rate in 2019. For the full year 2019, RV dealer inventories are expected to decline by more than 50,000 units, positioning the industry to return to a more direct relationship between wholesale unit shipments and retail unit shipments for the upcoming 2020 selling season.
their lowest level since 2014.
Marine Industry
Sales to the marine industry, which represented approximately 13%14% and 14%13% of the Company's consolidated net sales in the third quarter of 2020 and 2019, respectively, increased 25% in the third quarter of 2020 compared to the prior year quarter. Sales to the marine industry, representing 14% of sales in the first nine months of 2020 and 2019, respectively, decreased 7% and increased 34%10% in the 2020 period compared to the third quarter and first nine months of 2018, respectively. prior year period.
For the third quarter and first nine months of 2019,2020, overall marine retailwholesale unit shipments in the powerboat sector, which is the Company's primary marine market, increased approximately 2% and decreased approximately 5%an estimated 4%, respectively, with aluminum fishing sales decreasing 5% and 11% in the third quarter and first nine months of 2019, respectively;an estimated 7%; pontoon sales increasing 11% and decreasing 1%, respectively;an estimated 2%; fiberglass sales decreasing 1% and 3%, respectively;an estimated 4% and ski and wake sales increasing 12% and 4%, respectively.
Adverse weather and floodingdecreasing an estimated 2%. The decrease in certain regions of the country impactedwholesale marine retail unit shipments in the first half of 2019, particularly in the pontoon and aluminum fishing categories. Reflecting this retail softness in the first half of 2019, we saw inventory recalibration by marine dealers in the third quarter of 2019, which we believe contributed2020 was attributed to marine OEM capacity constraints that were the result of an rapid transition from production shutdowns related to the COVID-19 pandemic in the late first quarter and early second quarter of 2020 to production acceleration in response to a declinesharp increase in consumer demand in the third quarter of 2020. For the first nine months of 2020, overall marine wholesale unit shipments in the powerboat sector decreased an estimated 19%, with aluminum fishing sales decreasing an estimated 11%; pontoon sales decreasing an estimated 25%; fiberglass sales decreasing an estimated 22% and ski and wake sales decreasing an estimated 20%. The decrease in wholesale unit shipments during the first nine months of 2020 is primarily attributed to temporary OEM production shutdowns during the late first quarter despite the increaseand early second quarter of 2020 in overall retail unit shipments. Factoringaddition to OEM capacity constraints in the impactthird quarter of weather in the first half of 2019 and the related dealer inventory re-calibration, we anticipate that the powerboat sector of this market will experience a retail unit percentage decline in the low-to-mid single digits for fiscal 2019 and a wholesale unit percentage decline in the high-single digits.2020, discussed above.
Manufactured Housing ("MH") Industry
Sales to the MH industry, which represented 19%15% and 18%19% of the Company’s sales in the third quarter of 2020 and 2019, respectively, decreased 1% in the third quarter of 2020 compared to the third quarter of 2019. MH sales represented 18% of the Company's sales for the first nine months of 2020 and 2019 respectively, increased 61% and 62%decreased 5% in the first nine months of 2020 compared to the respective prior year periods.period. Based on industry
data from the Manufactured Housing Institute, MH wholesale unit shipments increased by approximately 2% and decreased by approximately 5%2% in the third quarter of 2020 compared to the prior year quarter and decreased 2% for the first nine months of 2019, respectively. Manufactured housing was negatively impacted in2020 compared to the first half of 2019 by wet weather conditions in certain regions of the country where moving inventory and setting foundations and houses were difficult, and as a result our current estimates indicate an overall percentage decline inprior year period. MH wholesale unit shipments for fiscal 2019were impacted by OEM labor and supply constraints in the low-to-mid single digits.third quarter of 2020 and temporary OEM plant shutdowns in the first nine months of 2020 related to the COVID-19 pandemic.
Industrial Market
The industrial market is comprised primarily of the kitchen cabinet industry, hospitality market, retail and commercial fixtures market, office and household furniture market and regional distributors. Sales to this market represented 11% and 13% of our sales in the third quarter of 2020 and 2019, respectively, and increased 9% in the third quarter of 2020 compared to the prior year quarter. Sales to the industrial market represented 13% and 12% of our consolidated sales in the third quarter and first nine months of 2019, respectively, and were virtually unchanged in the third quarter andfor the first nine months of 2020 and 2019, respectively, and increased 7% in the first nine months of 2020 compared to the prior year periods.period. Overall, our revenues in these markets are focused on the residential housing, hospitality, high-rise housing and office, commercial construction and institutional furniture markets. We estimate that approximately 60% of our industrial business is directly tied to the residential housing market, with the remaining 40% directly tied to the non-residential and commercial markets.
Combined new housing starts increased 4%11% in the third quarter of 20192020 compared to the prior year quarter, with single family housing starts increasing 4%17% and multifamily residential starts increasing 6% for the same period.decreasing 1%. For the first nine months of 2019,2020, combined new housing starts increased 5% compared to the prior year period, with single family housing starts decreased 2%, whileincreasing 6% and multifamily housingresidential starts were virtually flat, with combined housing starts decreasing 1%increasing 4%. Our industrial products are generally among the last components installed in new unit construction and as such our related sales typically trail new housing starts by four to sixnine months. Because of this lag in the relationship between new housing starts and our sale of related industrial products, we expect our industrial sales to benefit in the next two quarters from recent growth in residential housing starts. We expect a low-single digit growth rate in new housing starts overall for fiscal 2019.
REVIEW OF CONSOLIDATED OPERATING RESULTS
ThirdQuarter and Nine Months EndedSeptember 29, 201927, 2020 Compared to 20182019
The following table sets forth the percentage relationship to net sales of certain items on the Company’s Condensed Consolidated Statements of Income.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter Ended | | Nine Months Ended |
| | September 27, 2020 | | September 29, 2019 | | September 27, 2020 | | September 29, 2019 |
Net sales | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of goods sold | | 80.9 | | | 81.6 | | | 81.5 | | | 81.9 | |
Gross profit | | 19.1 | | | 18.4 | | | 18.5 | | | 18.1 | |
Warehouse and delivery | | 3.6 | | | 4.2 | | | 4.1 | | | 4.2 | |
Selling, general and administrative | | 5.4 | | | 6.0 | | | 6.2 | | | 5.8 | |
Amortization of intangible assets | | 1.5 | | | 1.6 | | | 1.7 | | | 1.5 | |
Operating income | | 8.5 | | | 6.6 | | | 6.5 | | | 6.6 | |
Interest expense, net | | 1.5 | | | 1.5 | | | 1.9 | | | 1.5 | |
Income taxes | | 1.7 | | | 1.3 | | | 1.2 | | | 1.3 | |
Net income | | 5.3 | | | 3.8 | | | 3.5 | | | 3.9 | |
|
| | | | | | | | | | | | |
|
| Third Quarter Ended | | Nine Months Ended |
|
| September 29, 2019
|
| September 30, 2018
| | September 29, 2019
| | September 30, 2018
|
Net sales |
| 100.0 | % |
| 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of goods sold |
| 81.6 |
|
| 81.5 |
| | 81.9 |
| | 81.6 |
|
Gross profit | | 18.4 |
| | 18.5 |
| | 18.1 |
| | 18.4 |
|
Warehouse and delivery expenses |
| 4.2 |
|
| 3.4 |
| | 4.2 |
| | 3.2 |
|
Selling, general and administrative expenses |
| 6.0 |
|
| 5.8 |
| | 5.8 |
| | 5.7 |
|
Amortization of intangible assets |
| 1.6 |
|
| 1.5 |
| | 1.5 |
| | 1.4 |
|
Operating income |
| 6.6 |
|
| 7.8 |
| | 6.6 |
| | 8.1 |
|
Interest expense, net |
| 1.5 |
|
| 1.3 |
| | 1.5 |
| | 1.0 |
|
Income taxes |
| 1.3 |
|
| 1.6 |
| | 1.3 |
| | 1.7 |
|
Net income |
| 3.8 |
|
| 4.9 |
| | 3.9 |
| | 5.4 |
|
Net Sales. Net sales in the third quarter of 2019 decreased $8.92020 increased $134.5 million, or 2%24%, to $566.2$700.7 million from $575.1$566.2 million in the third quarter of 2018.2019. The Company'sconsolidated net sales decreasedincrease in twothe third quarter of its primary markets, with a decrease2020 was attributed to sales increases in three of our end markets. The Company's RV market sales of 13% and a decrease inincreased 36%, marine market sales of 7%increased 25%, while industrial market sales were virtually flatincreased 9% and MH market sales increased 61%decreased 1% when compared to the prior year quarter.
Net sales in the first nine months of 2019 increased $55.82020 decreased $73.6 million, or 3%4%, to $1.79 billion$1,714.0 million from $1.73 billion in the prior year period. The Company's net sales increased in two of its primary markets$1,787.6 million in the first nine months of 2019 with increases of 62% in MH and 34% in marine, while industrial market sales were virtually unchanged and RV market sales decreased 12% compared to 2018.
2019. The consolidated net sales decrease in the third quarter of 2019 primarily reflected decreases in OEM wholesale unit shipments in the RV and marine industries, partly offset by an increase in revenue from the acquisition of LaSalle Bristol ("LaSalle"), completed in the fourth quarter of 2018. The consolidated net sales increase in the first nine months of 20192020 was mostly attributed to sales decreases in three of our end markets. The Company's RV market sales decreased 5%, marine market sales decreased 10% and MH market sales decreased 5% while industrial market sales increased 7% when compared to the contributionprior year period.
During the nine months ended September 27, 2020, all four of revenue from LaSalle.our end markets were impacted by business disruptions and associated lost production and shipping days due to the COVID-19 pandemic, which primarily affected our end markets in the second quarter of 2020.
Revenue attributable to acquisitions completed in 2020 was $19.6 million and $23.3 million for the third quarter and first nine months of 2020, respectively. Revenue attributable to acquisitions completed in the first nine months of 2019 was immaterial for both the third quarter and first nine months of 2019. Revenue attributable to acquisitions completed in first nine months of 2018 was $82.4 million and $160.0 million for the third quarter and first nine months of 2018, respectively.
The Company’s RV content per wholesale unit (on a trailing twelve-month basis) for the third quarter of 2019 increased approximately 9% to2020 was relative1y flat at $3,140 versus $3,132 from $2,875 for the third quarter of 2018. Marine2019. Estimated marine content per retailwholesale powerboat unit (on a trailing twelve-month basis) for the third quarter of 20192020 increased approximately 54%16% to an estimated $1,624 from $1,054$1,915 for the third quarter of 2018.2020 from $1,651 for the third quarter of 2019. Beginning in the third quarter of 2020, we calculate marine content per unit based on estimated wholesale powerboat unit shipments, which we believe better represents the relationship between our sales and marine OEM production, rather than based on estimated retail powerboat unit sales. Estimated MH content per wholesale unit (on a trailing twelve-month basis) for the third quarter of 20192020 increased approximately 65%4% to an estimated$4,503 from $4,327 from $2,628 for the third quarter of 2018.2019.
Cost of Goods Sold. Cost of goods sold decreased $6.6increased $105.3 million, or 1%23%, to $461.9$567.2 million in the third quarter of 20192020 from $468.5$461.9 million in 2018.2019, primarily reflecting the increase in net sales in the quarter. As a percentage of net sales, cost of goods sold increaseddecreased during the third quarter of 2020 to 80.9% from 81.6% in 2019. This percentage decrease is largely attributed to an increase in sales relative to certain fixed components of cost of goods sold, synergies achieved and realized in the first quarter of 2020 from acquisitions completed in 2018 and 2019 and a decrease in commodity cost inputs.
Cost of goods sold decreased $66.8 million, or 5%, to 81.6% from 81.5%$1,397.3 million in 2018. For the first nine months of 2019, cost of goods sold increased $51.4 million, or 4%, to2020 from $1,464.1 million from $1,412.6 million in 2018.2019, primarily reflecting the decrease in net sales in the period. As a percentage of net sales, cost of goods sold increaseddecreased during the first nine months of 20192020 to 81.5% from 81.9% from 81.6% in 2018.2019.
Cost of goods sold as a percentage of net sales was impacted duringdecreased in the third quarter and first nine months of 2019 by:2020 primarily as a result of (i) higher overall fixed overhead costs relative to RV and marine revenue; (ii) the lower margin profile of LaSalle, which was acquiredcost reductions we initiated in the fourththird quarter of 2019, (ii) synergies achieved and realized in the first nine months of 2020 from our 2018 and 2019 acquisitions and (iii) a temporary disruptiondecreases in operations and associated inefficiencies related to the cybersecurity incident, discussed below. In general, the Company'scommodity cost inputs. These decreases in cost of goods sold percentage can be impacted from quarter-to-quarterwere partially offset by demand changes in certain market sectors that can result in fluctuatingadditional costs of certain raw materialsincurred and commodity-based components that are utilized in the production and labor inefficiencies related to business disruption of our products.end markets as a result of the COVID-19 pandemic.
Gross Profit. Gross profit decreased $2.4increased $29.2 million, or 2%28%, to $104.3$133.5 million in the third quarter of 20192020 from $106.7$104.3 million in 2018. For the first nine months of 2019, gross profit increased $4.3 million, or 1%, to $323.5 million from $319.2 million in 2018.2019. As a percentage of net sales, gross profit decreasedincreased to 18.4%19.1% in the third quarter of 2019 from 18.5% in the same period in 2018, and decreased to 18.1% for the first nine months of 20192020 from 18.4% in the same period in 2018. 2019. Gross profit decreased $6.8 million, or 2%, to $316.7 million in the first nine months of 2020 from $323.5 million in 2019. As a percentage of net sales, gross profit increased to 18.5% in the first nine months of 2020 from 18.1% in the same period in 2019.
The changes in gross profit as a percentage of net sales in the third quarter and first nine months of 20192020 compared to the same periods in 20182019 reflect the impact of the factors discussed above under “Cost of Goods Sold”.
Economic or industry-wide factors affecting the profitability of our RV, MH, marine and industrial businesses include the costs of commodities and the labor used to manufacture our products as well as the competitive environment that can cause gross margins to fluctuate from quarter-to-quarter and year-to-year.
Warehouse and Delivery Expenses. Warehouse and delivery expenses increased $4.1$1.4 million, or 21%6%, to $25.3 million in the third quarter of 2020 from $23.9 million in the third quarter of 2019, from $19.8 millionprimarily reflecting the increase in 2018. Fornet sales in the first nine months in 2019, warehouse and delivery expenses increased $18.7 million, or 34%, to $74.2 million from $55.5 million in 2018.quarter. As a percentage of net sales, warehouse and delivery expenses were 3.6% in the third quarter of 2020 compared to 4.2% in the third quarter of 2019 compared2019. Warehouse and delivery expenses decreased $4.0 million, or 5%, to 3.4%$70.2 million in the third quarterfirst nine months of 2018 and 4.2%2020 from $74.2 million in the first nine months of 2019, compared to 3.2%primarily reflecting the decrease in net sales in the period. As a percentage of net sales, warehouse and delivery expenses were 4.1% in the first nine months of 2018. The increase in expense2020 compared to 4.2% in the third quarter and first nine months of 2019 compared to the prior year periods was primarily attributable to the impact of certain acquisitions completedsame period in 2018 that had higher2019.
The decrease in warehouse and delivery expenses as a percentage of net sales when compared to the consolidated percentage. For the first nine months of 2019 compared to the prior year period, increased sales volumes also contributed to the increase in warehouse and delivery expense. In addition, the Company's shipments to OEMs infor the third quarter and first nine months of 2019 were generally lower volume2020 primarily reflects the fixed nature of certain of these expenses and higher frequency, andoperating efficiencies as a result transportation costs relativenet sales increased in the third quarter of 2020 compared to sales levels of products delivered increased as a percentage of net sales.the prior year period.
Selling, General and Administrative ("SG&A") Expenses. SG&A expenses increased $0.5$4.4 million, or 2%13%, to $33.8$38.2 million in the third quarter of 20192020 from $33.3$33.8 million in 2018. For the first nine months of 2019, SG&A expenses increased $5.4 million, or 5%, to $104.4 million from $99.0 million in 2018.prior year quarter. As a percentage of net sales, SG&A expenses were 5.4% in the third quarter of 2020 compared to 6.0% in the third quarter of 2019 compared2019.
SG&A expenses increased $1.3 million, or 1%, to 5.8% in the third quarter of 2018 and 5.8%$105.7 million in the first nine months of 20192020 from $104.4 million in the prior year period. As a percentage of net sales, SG&A expenses were 6.2% in the first nine months of 2020 compared to 5.7%5.8% in 2018.the prior year period.
The increase in SG&A expenses in the third quarter and first nine months of 20192020 compared to 20182019 is primarily due to: (i) an increase in professional service feesgeneral and other costs associated withadministrative expenses as the cyber security event discussed below; (ii) a loss on extinguishment of debt associated with the amendment of the Company's credit facility and (iii) the impact of certain acquisitions completedCompany expanded resources to support end market demand. The decrease in 2018 that had higher SG&A expenses as a percentage of net sales whenin the third quarter of 2020 is primarily attributed to the increase in net sales compared to the consolidated percentage. Partially offsetting these factors wasprior year period.
The increase in SG&A expenses in the first nine months of 2020 as a decreasepercentage of revenue is attributed to the decline in incentive compensation andnet sales commissions.from the impact of COVID-19, discussed above.
Amortization of Intangible Assets. Amortization of intangible assets increased $0.3$1.0 million, or 4%11%, to $10.2 million in the third quarter of 2019 compared to2020 from $9.2 million in the prior year quarter and increased $1.3$3.2 million, or 5%12%, to $29.6 million in the first nine months of 2019 compared to2020 from $26.4 million in the prior year period. The increase in the third quarter and first nine months of 20192020 compared to the prior year periods primarily reflects the impact of businesses acquired in 2018, partly offset by purchase accounting adjustments to intangible assets2019 and the associated impact to amortization expense.2020.
Operating Income. Operating income decreased $7.3increased $22.4 million, or 16%60%, to $37.4$59.8 million in the third quarter of 20192020 from $44.7$37.4 million in 2018. For the first nine months of 2019, operating income decreased $21.1 million, or 15%, to $118.5 million from $139.5 million in the prior year period.2019. As a percentage of net sales, operating income was 6.6%8.5% in the third quarter of 20192020 versus 7.8%6.6% in the same period in 2018 and 6.6% for2019. Operating income decreased $7.3 million, or 6%, to $111.2 million in the first nine months of 2019 versus 8.1%
2020 from $118.5 million in the prior year period. Operating2019. As a percentage of net sales, operating income in the third quarter and first nine months of 2019 attributable to acquisitions completedwas 6.5% in the first nine months of 2019 was immaterial.2020 versus 6.6% in the same period in 2019. Operating income inrelated to the 2020 acquisitions for the third quarter and the first nine months of 2018 included $8.8ended September 27, 2020 was approximately $2.1 million and $17.3$2.2 million, respectively, attributable to acquisitions completed in the first nine months of 2018.respectively. The change in operating income and operating marginincome percentage is primarily attributable to the items discussed above.
Interest Expense, Net. Interest expense increased $1.3$1.9 million, or 17%22%, to $8.6$10.5 million in the third quarter of 20192020 from $7.3$8.6 million in the prior year. For the first nine months of 2019,2020, interest expense increased $8.2$5.6 million, or 46%21%, to $26.2$31.8 million from $18.0$26.2 million in the prior year period.
The increase in interest expense reflects: (i) increased borrowings related to 2018 acquisitions, (ii) increases in the average interest rate on the variable rate portion of the Company's debt, which reflects increases in LIBOR in the third quarter and first nine months of 2020 reflects increased borrowings related to 2019 compared to the prior year periods and (iii)2020 acquisitions and an increase in the Company's overall average interest rate resulting from the issuance of the Company's$300 million aggregate principal amount of 7.5% Senior Notes due 2027 (the "Senior Notes")senior notes in the third quarter of 2019.
Income Taxes. Income tax expense decreased $1.9increased $4.5 million, or 21%60%, to $7.5$12.0 million in the third quarter of 2020 from $9.4$7.5 million in the prior year period. For the first nine months of 2019,2020, income tax expense decreased $6.0$2.5 million, or 21%11%, to $22.7$20.2 million for the first nine months of 2020 from $28.7$22.7 million in the prior year period. For
The effective tax rate in the third quarter of 2020 and 2019 was 24.3% and 26.0%, respectively, and the effective tax rate for the comparable nine month periods was 26.0% compared to 25.3%25.4% and 24.6%, respectively. The effective tax rate in the comparable 2018 period. Forthird quarter of 2020 reflects the impact of certain federal and state income tax benefits, and the effective tax rate in the first nine months of 2019,2020 reflects $2.2 million of permanent tax differences due to certain Coronavirus Aid, Relief, and Economic Security Act payroll tax credits. In addition, the effective tax rate was 24.6% compared to 23.6% for the prior year period. The effective tax rate for the periods presentedfirst nine months of 2019 includes the impact of the recognition of excess tax benefits on share-based compensation that werewas recorded as a reduction to income tax expense upon realization. Amounts recorded includerealization in the amount of $0.9 million and $2.2 million for the nine-month 2019 and 2018 periods, respectively, with no amounts for the comparable quarterly periods.
The Company's combined effective income tax rate from period to period and for the full year 2019 could further fluctuate due to: (i) refinements in federal and state income tax estimates, which are impacted by the availability of tax credits; (ii) permanent differences impacting the effective tax rate; (iii) shifts in apportionment factors among states as a result of recent acquisition activity and other factors and (iv) the timing of the recognition of excess tax benefits related to the vesting of share-based payments awards as previously discussed.
million.
Net Income. Net income for the third quarter of 2019 was $21.3 million, or $0.92 per diluted share, compared to $27.9 million, or $1.15 per diluted share for 2018. For the first nine months of 2019, net income was $69.6 million, or $2.99 per diluted share, compared to $92.9 million, or $3.77 per diluted share for 2018. The changes in net income for the third quarter and first nine months of 2019 compared to prior year periods reflect the impact of the items previously discussed.
Use of Financial Metrics
Our MD&A includes financial metrics, such as RV, marine and MH content per unit, which we believe are important measures of the Company's business performance. Content per unit metrics are generally calculated using our market sales divided by third-party measures of industry volume. These metrics should not be considered alternatives to U.S. GAAP. Our computations of content per unit may differ from similarly titled measures used by others. YouThese metrics should not consider these metricsbe considered in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP.
REVIEW BY BUSINESS SEGMENT
The Company has determined that itsCompany's reportable segments, Manufacturing and Distribution, are those based on its method of internal reporting, which segregates its businessesreporting. The Company regularly evaluates the performance of the Manufacturing and Distribution segments and allocates resources to them based on the manner in which its Chief Operating Decision Maker allocates resources, evaluates financial results,a variety of indicators including sales and determines compensation.
The Company’s reportable business segments are as follows:
Manufacturing – This segment includes the following: laminated products that are utilized to produce furniture, shelving, walls, countertops, and cabinet products, cabinet doors, fiberglass bath fixtures and tile systems, hardwood furniture, vinyl printing, decorative vinyl and paper laminated panels, solid surface, granite, and quartz countertop fabrication, RV painting, fabricated aluminum products, fiberglass and plastic components, softwoods lumber, custom cabinetry, polymer-based flooring, electrical systems components including instrument and dash panels, wrapped vinyl, paper and hardwood profile mouldings, interior passage doors, air handling products, slide-out trim and fascia, thermoformed shower surrounds, specialty bath and closet building products, fiberglass and plastic helm systems and components products, wiring and wire harnesses, boat covers, towers, tops and frames, aluminum fuel tanks, CNC molds and composite parts, slotwall panels and components and other products.
Distribution –operating income. The Company distributes pre-finished walldoes not measure profitability at the customer market (RV, marine, MH and ceiling panels, drywall and drywall finishing products, electronics and audio systems components, appliances, wiring, electrical and plumbing products, fiber reinforced polyester products, cement siding, raw and processed lumber, interior passage doors, roofing products, laminate and ceramicindustrial) level.
flooring, tile, shower doors, furniture, fireplaces and surrounds, interior and exterior lighting products, and other miscellaneous products, in addition to providing transportation and logistics services.
ThirdQuarter and Nine Months EndedSeptember 29, 201927, 2020 Compared to 20182019
General
In the discussion that follows, sales attributable to the Company’s operatingreportable segments include intersegment sales and gross profit includes the impact of intersegment operating activity.
The table below presents information about the sales, gross profit and operating income of the Company’s operatingreportable segments. A reconciliation of consolidated operating income is presented in Note 15 toof the Notes to Condensed Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter Ended | | Nine Months Ended |
(thousands) | | September 27, 2020 | | September 29, 2019 | | September 27, 2020 | | September 29, 2019 |
Sales | | | | | | | | |
Manufacturing | | $ | 506,278 | | | $ | 407,814 | | | $ | 1,230,805 | | | $ | 1,283,824 | |
Distribution | | 208,073 | | | 167,552 | | | 511,895 | | | 531,312 | |
Gross Profit | | | | | | | | |
Manufacturing | | 97,543 | | | 73,700 | | | 225,447 | | | 231,227 | |
Distribution | | 36,293 | | | 27,965 | | | 88,627 | | | 87,738 | |
Operating Income | | | | | | | | |
Manufacturing | | 63,312 | | | 42,353 | | | 131,426 | | | 135,577 | |
Distribution | | 16,444 | | | 9,041 | | | 33,350 | | | 28,132 | |
|
| | | | | | | | | | | | | | | | |
| | Third Quarter Ended | | Nine Months Ended |
(thousands) | | September 29, 2019
| | September 30, 2018 | | September 29, 2019
| | September 30, 2018 |
Sales | | |
| | |
| | | | |
Manufacturing | | $ | 407,814 |
| | $ | 453,396 |
| | $ | 1,283,824 |
| | $ | 1,371,552 |
|
Distribution | | 167,552 |
| | 131,022 |
| | 531,312 |
| | 390,602 |
|
Gross Profit | | |
| | |
| | | | |
Manufacturing | | 73,700 |
|
| 86,015 |
| | 231,227 |
| | 262,824 |
|
Distribution | | 27,965 |
|
| 21,974 |
| | 87,738 |
| | 63,668 |
|
Operating Income | | |
| | |
| | | | |
Manufacturing | | 42,353 |
| | 54,887 |
| | 135,577 |
| | 172,799 |
|
Distribution | | 9,041 |
| | 7,606 |
| | 28,132 |
| | 25,092 |
|
Manufacturing
Sales. Sales decreased $45.6increased $98.5 million, or 10%24%, to $407.8$506.3 million in the third quarter of 20192020 from $453.4$407.8 million in 2018.the prior year quarter. For the first nine months of 2019,2020, sales decreased $87.7$53.0 million, or 6%4%, to $1,283.8$1,230.8 million from $1,371.6$1,283.8 million in the prior year period. This segment accounted for approximately 71% and 70% of the Company’s consolidated net sales for the third quarter of 2020 and 2019, and 70% of the Company's consolidated net sales for the first nine months of 20192020 and 77% and 78% for the third quarter and first nine months of 2018.2019. The sales decreaseincrease in the third quarter of 20192020 largely reflected a decrease in wholesale unit shipmentssales increases in the RV, marine, and marine industries, and inindustrial markets compared to the RV, MH and marine industries inprior year quarter. The sales decrease for the first nine months of 2019.
Revenue2020 was primarily attributed to sales decreases in our primary end markets as a result of business disruptions and lost production and shipping days due to the COVID-19 pandemic that occurred primarily in the thirdsecond quarter and first nine months of 2019 was immaterial related to acquisitions completed in the first nine months of 2019. Revenue in the third quarter and first nine months of 2018 included $51.8 million and $99.0 million, respectively, related to acquisitions completed in the first nine months of 2018.2020.
Gross Profit. Gross profit decreased $12.3increased $23.8 million, or 14%32%, to $97.5 million in the third quarter of 2020 from $73.7 million in the third quarter of 2019 from $86.0 million in the third quarter of 2018.2019. For the first nine months of 2019,2020, gross profit decreased $31.6$5.8 million, or 12%2%, to $225.4 million from $231.2 million from $262.8 million in 2018.2019. As a percentage of sales, gross profit decreasedincreased to 19.3% in the third quarter of 2020 from 18.1% in the third quarter of 2019 from 19.0% in 2018 and decreasedincreased to 18.0%18.3% in the first nine months of 20192020 from 19.2%18.0% in 2018.
the prior year period. Gross profit decreasedas a percentage of net sales increased during the third quarter andof 2020 primarily due to an increase in net sales relative to certain fixed components of costs of goods sold as well as a decrease in commodity cost inputs. Gross profit as a percentage of net sales increased in first nine months of 20192020 compared to the corresponding prior year periodsperiod primarily due to decreased revenue relative to overall fixed overhead costs.a decrease in commodity cost inputs, partially offset by operational and labor inefficiencies as a result of business disruptions from the COVID-19 pandemic incurred in the second quarter of 2020.
Operating Income. Operating income decreased $12.5increased $20.9 million, or 23%49%, to $42.4$63.3 million in the third quarter of 20192020 from $54.9$42.4 million in the prior year.year quarter. For the first nine months of 2019,2020, operating income decreased $37.2$4.2 million, or 22%3%, to $131.4 million from $135.6 million from $172.8in the prior year. The overall increase in operating income in the third quarter of 2020 and the overall decrease in operating income in the first nine months of 2020 primarily reflects the items discussed above.
Distribution
Sales. Sales increased $40.6 million, or 24%, to $208.1 million in 2018.the third quarter of 2020 from $167.5 million in the prior year quarter. For the first nine months of 2020, sales decreased $19.4 million, or 4%, to $511.9 million from $531.3 million in the prior year period. This segment accounted for approximately 29% of the Company’s consolidated net sales for the third quarter of 2020 and 2019, and 30% of consolidated net sales for the first nine months of 2020 and 2019. The sales increase in the third quarter of 2020 was primarily attributed to sales increases in our RV, marine, and industrial markets. The decrease in sales in the first nine months of 2020 was primarily attributed to sales decreases in our primary end
markets as a result of business disruptions and lost production and shipping days due to the COVID-19 pandemic, primarily in the second quarter of 2020.
Gross Profit. Gross profit increased $8.3 million, or 30%, to $36.3 million in the third quarter of 2020 from $28.0 million in the third quarter of 2019. For the first nine months of 2020, gross profit increased $0.9 million, or 1%, to $88.6 million from $87.7 million in 2019. As a percentage of sales, gross profit increased to 17.4% in the third quarter of 2020 from 16.7% in the third quarter of 2019 and increased to 17.3% in the first nine months of 2020 from 16.5% in the prior year period.
As a percentage of sales, gross profit increased during the third quarter of 2020 compared to the prior year quarter primarily due to realized synergies from certain 2018 and 2019 acquisitions. For the first nine months of 2020, gross profit as a percentage of sales increased primarily due to realized synergies from certain 2018 and 2019 acquisitions, partially offset by additional costs and operational inefficiencies as a result of business disruptions from the COVID-19 pandemic primarily in the second quarter of 2020.
Operating Income. Operating income increased $7.4 million, or 82%, to $16.4 million in the third quarter of 2020 from $9.0 million in the prior year quarter. For the first nine months of 2020, operating income increased $5.2 million, or 19%, to $33.3 million from $28.1 million in the prior year. The overall decreaseincrease in operating income in the third quarter and first nine months of 20192020 primarily reflects the items discussed above.
Operating income in the third quarter and first nine months of 2019 attributable to acquisitions completed in the first nine months of 2019 was immaterial, and operating income in the third quarter and first nine months of 2018 included $7.0 million and $12.9 million, respectively, attributable to acquisitions completed in the first nine months of 2018.
Distribution
Sales. Sales increased $36.5 million, or 28%, to $167.5 million in the third quarter of 2019 from $131.0 million in 2018. For the first nine months of 2019, sales increased $140.7 million, or 36%, to $531.3 million from $390.6 million in 2018. This segment accounted for approximately 29% and 30%, respectively, of the Company’s consolidated net sales for the third quarter and first nine months of 2019, and 23% and 22%, respectively, for the third quarter and first nine months of 2018. The sales increase in the third quarter and first nine months of 2019 compared to the prior year periods was largely attributed to the revenue contribution of LaSalle, which was acquired during the fourth quarter of 2018. Revenue in the third quarter and first nine months of 2018 included $30.6 million and $61.0 million, respectively, related to acquisitions completed in the first nine months of 2018.
Gross Profit. Gross profit increased $6.0 million, or 27%, to $28.0 million in the third quarter of 2019 from $22.0 million in the third quarter of 2018. For the first nine months of 2019, gross profit increased $24.0 million, or 38%, to $87.7 million from $63.7 million in 2018. As a percentage of sales, gross profit decreased to 16.7% in the third quarter of 2019 from 16.8% in the third quarter of 2018 and increased to 16.5% for the first nine months of 2019 from 16.3% for the first nine months of 2018. The decrease in gross profit margin in the third quarter of 2019 compared to the third quarter of 2018 is primarily attributed to higher overall fixed costs relative to RV and MH distribution product revenue. The increase in gross profit margin for the first nine months of 2019 compared to 2018 primarily reflects the impact of acquisitions completed during 2018.
Operating Income. Operating income increased $1.4 million, or 19%, to $9.0 million in the third quarter of 2019 from $7.6 million in the prior year. For the first nine months of 2019, operating income increased $3.0 million, or 12%, to $28.1 million from $25.1 million for the first nine months of 2018. Operating income in the third quarter and first nine months of 2018 included $1.8 million and $4.4 million, respectively, related to distribution acquisitions completed in the first nine months of 2018. The overall net improvement in operating income in the third quarter and first nine months of 2019 primarily reflects the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity at September 27, 2020 consisted of cash and cash equivalents of $62.3 million and $410.3 million of unused borrowing availability under our credit facility.
Cash Flows
Operating Activities
Cash flows from operating activities are one of the Company's primary sources of liquidity, representing the net income the Company earned in the reported periods, adjusted for non-cash items and changes in operating assets and liabilities.
Net cash provided by operating activities decreased $5.4$9.2 million to $112.8 million in the first nine months of 2020 from $122.0 million in the first nine months of 2019 from $127.4 million in the first nine months of 2018 primarily due to:to (i) a decrease inof net income of $23.3$10.4 million partlydue to disruptions in our end markets as a result of the COVID-19 pandemic; (ii) an increase in the use of cash from working capital of $4.8 million and (iii) a decrease of deferred income tax liabilities of $3.3 million. These decreases in operating cash flows were partially offset by (i) an increase of depreciation and amortization of $6.6$6.5 million (ii) an increase in stock based compensation expense, amortization of debt discount, deferred income taxes and other operating items of $5.0 million and (iii) a net source of cash from changes in operating assets and liabilities of $6.3$2.8 million.
Investing Activities
Net cash used in investing activities decreased $270.9increased $105.3 million to $145.4 million in the first nine months of 2020 from $40.1 million in the first nine months of 2019 from $311.0 million in the first nine months of 2018 primarily due to: a decreaseto an increase in cash used in business acquisitions of $267.7$101.0 million and a decrease in capital expendituresproceeds from sale of $3.8property, plant, and equipment and other investing activities of $4.4 million.
The Company's current operating model forecasts capital expenditures for fiscal 2019 of approximately $30 million.
Financing Activities
Cash flows from financing activities are one of the Company's primary sources of liquidity through borrowings under the Company's credit facility as well as convertible and senior note issuances in 2018 and 2019, respectively.
Net cash flows providedused by financing activities decreased $153.2increased $72.2 million to $27.9$44.4 million in first nine months of 2020 from a source of cash of $27.8 million in the first nine months of 2019 from $181.1 million in the first nine months of 2018 primarily due to: (i) cash used for net repayments on the Company's credit facility of $253.6 million in the first nine months of 2019 compared to a source of cash from net borrowings on the Company's credit facility of $107.1 million in the first nine months of 2018; (ii) gross proceeds of $172.5 million from the third quarter 2018 issuance of 1% Convertible Senior Notes due 2023 (the "Convertible Notes") with no comparable amount in the first nine months of 2019; (iii) a source of cash in the first nine months of 2018 of $18.1 million from the related sale of warrants with no comparable amount in the first nine months of 2019 and (iv) a use of cash of $4.4 million in the first nine months of 2019 from payment of contingent consideration resulting from a business acquisition with no comparable amount in the first nine months of 2018. Partially offsetting these items were: (i) the issuance of $300 million of Senior Notessenior notes in the first nine months of 2019 with no comparable amount in the first nine months of 2018; 2020; (ii) a usecash dividends paid to shareholders of cash in the first nine months of 2018 of $31.5 million from the purchase of Convertible Notes hedges with no comparable amount in the first nine months of 2019 and (iii) a decrease in the use of cash for stock repurchases of $71.4$17.3 million in the first nine months of 2019 from2020 with no corresponding amount in the prior year period.
See Notes 9, 10period and 16 of the Notes to Condensed Consolidated Financial Statements for further information on the Company's indebtedness, derivative financial instruments and(iii) an increase in stock repurchases respectively.under our buyback program of $16.7 million. These increases in cash used in financing activities were partially offset by (i) a decrease in repayments on our revolving credit facility and term loan of $251.1 million; (ii) a decrease in payment of deferred financing costs of $7.2 million and (iii) a decrease in the payment of contingent consideration from a business acquisition and other financing activities of $3.5 million.
Summary of Liquidity and Capital Resources
The Company's existing cash and cash equivalents, cash generated from operations, and available borrowings under its current credit facility (the "2019 Credit Facility") are expected to be sufficient to meet anticipated cash needs for working capital and capital expenditures for at least the next 12 months, exclusive of any acquisitions, based on its current cash flow budgets and forecast of short-term and long-term liquidity needs.
The Company's credit facility consists of a $550 million senior secured revolver and a $100 million senior secured term loan. The maturity date for borrowings under the credit agreement that established the credit facility is September 17, 2024. Upon the satisfaction of certain conditions, and obtaining incremental commitments from its lenders, the Company may be able to increase the borrowing capacity of the credit facility by up to $250 million. Borrowings under the credit facility are secured by substantially all personal property assets of the Company and any domestic subsidiary guarantors. Pursuant to the credit agreement:
•The term loan is due in consecutive quarterly installments in the following amounts: (i) through and including June 30, 2021, $1,250,000 and (ii) beginning September 30, 2021, and each quarter thereafter, $2,500,000, with the remaining balance due at maturity;
•The interest rates for borrowings under the revolver and the term loan are the Prime Rate or LIBOR
plus a margin, which ranges from 0.00% to 0.75% for Prime Rate loans and from 1.00% to 1.75% for LIBOR
loans depending on the Company’s consolidated total leverage ratio. The Company is required to pay fees on unused but committed portions of the revolver, which range from 0.15% to 0.225%.
On July 27, 2017, the Financial Conduct Authority, which regulates the London Interbank Offered Rate ("LIBOR"), announced that it intends to phase out LIBOR by the end of 2021. We expect that widespread use of LIBOR as a reference borrowing rate will transition to alternative interest rates in the near future. Since interest rates on loans made under our credit facility may be based on LIBOR based loans, the phasing out of LIBOR may adversely affect interest rates under our credit facility and result in higher borrowing costs. The Company is currently evaluating its options under our credit facility, but at this time we cannot reasonably estimate the impact to our financial statements from the phasing out of LIBOR.
At September 27, 2020, the Company had $410.3 million of unused borrowing availability under its credit facility. The ability to access unused borrowing capacity under the 2019 Credit Facilitycredit facility as a source of liquidity is dependent on maintaining compliance with the financial covenants as specified under the terms of the credit agreement that established the 2019 Credit Facility (the "2019 Credit Agreement").agreement.
As of and for the September 29, 201927, 2020 reporting date, the Company was in compliance with its financial debt covenants as required under the terms of the 2019 Credit Agreement.its credit agreement. The required maximum consolidated total leverage ratio and the required minimum consolidated fixed charge coverage ratio, as such ratios are defined in the credit agreement, compared to the actual amounts as of September 29, 201927, 2020 and for the fiscal period then ended are as follows:
| | | | | | | | | | | | | | |
| | Required | | Actual |
Maximum consolidated total leverage ratio (12-month period) | | 4.00 | | | 2.24 | |
Minimum consolidated fixed charge coverage ratio (12-month period) | | 1.50 | | | 5.76 | |
|
| | | | | | |
|
| Required |
|
| Actual |
|
Consolidated total leverage ratio (12-month period) |
| 4.00 |
|
| 2.30 |
|
Consolidated fixed charge coverage ratio (12-month period) |
| 1.50 |
|
| 4.05 |
|
The indenture associated with the Senior Notes places restrictions on the Company’s ability to, among other items, (i) incur additional indebtedness or issue certain preferred shares; (ii) pay dividends, redeem stock or make other distributions; (iii) make investments; (iv) transfer or sell assets; and (v) merge or consolidate. The Senior Note indenture also provides for customary events of default, which could require the Senior Notes to become due and payable immediately, and also contains customary covenant provisions with which the Company is in compliance as of September 29, 2019.
Working capital requirements vary from period to period depending on manufacturing volumes, primarily related to the RV, MH and marine industries as well as the industrial markets we serve, the timing of deliveries, and the payment cycles of customers. In the event that operating cash flow is inadequate and one or more of the Company's capital resources were to become unavailable, the Company would seek to revise its operating strategies accordingly. The Company will continue to assess its liquidity position and potential sources of supplemental liquidity in view of operating performance, current economic and capital market conditions, and other relevant circumstances.
Borrowings under the revolving credit loan (the "2019 Revolver") and the term loan (the "2019 Term Loan") comprising the 2019 Credit Facility, which are subject to variable rates of interest, are subject to a maximum total borrowing limit of $650.0 million (effective September 17, 2019). See Note 9 of the Notes to the Condensed Consolidated Financial Statements for further information. See Note 10 of the Notes to Condensed Consolidated Financial Statements for information on interest rate swaps used to partially hedge variable interest rates under the 2019 Revolver and 2019 Term Loan. The unused availability under the 2019 Credit Facility as of September 29, 2019 was $411.1 million.
CRITICAL ACCOUNTING POLICIES
There have been no material changes to our critical accounting policies which are summarized in the MD&A in our Annual Report on Form 10-K for the year ended December 31, 2018. 2019.
OTHER
Seasonality
Manufacturing operationsOperations in the RV, marine and MH industries historically have been seasonal and at their highest levels when the weather is moderate. Accordingly, the Company’s sales and profits had generally been the highest in the secondthird quarter and lowest in the fourth quarter. Seasonal industry trends in the past several years have included the impact related to the addition of major RV manufacturer open houses for dealers in the August/September timeframe as well as marine open houses in the January/February timeframe, resulting in dealers delaying certain restocking purchases until new product lines are introduced at these shows. In addition, current and future seasonal industry trends may be different than in prior years due to the impact of national and regional economic conditions and consumer confidence on retail sales of RVs and other products for which the Company sells its components, timing of dealer orders, fluctuations in dealer inventories, and from time to time, the impact of severe weather conditions on the timing of industry-wide wholesale shipments.
Cyber Security Incident
At the end of the third quarter of 2019, the Company experienced a highly-sophisticated third-party malware cyberattack that impacted certain of the Company's administrative and production servers and resulted in a disruption of administrative and network operations for approximately two business days. In response to the attack, the Company immediately took steps to ensure customer commitments were honored and to remediate the attack to minimize the disruption. Further, although the Company has programs in place to detect, contain and respond to data security incidents, the Company began an investigation of the attack, including engaging external forensic and other IT experts, and is in the process of implementing further security measures and processes designed to prevent unauthorized access to its information systems and mitigate cybersecurity related risks. Estimated after-tax costs incurred in the third quarter of 2019 related to the cyberattack were approximately $1.5 million, which included incremental consulting and professional fees, administrative, operating, and production inefficiencies, and equipment replacement and repair. No additional material costs are expected to be incurred in future quarters related to the cyber incident.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
The Company makes forward-looking statements with respect to financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities for existing products, plans and objectives of management, markets for the common stock of Patrick Industries, Inc. and other matters from time to time and desires to take advantage of the “safe harbor” which is afforded such statements under the Private Securities Litigation Reform Act of 1995 when they are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements. The statements contained in the foregoing “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as other statements contained in thethis quarterly report and statements contained in future filings with the Securities and Exchange Commission (“SEC”), publicly disseminated press releases, quarterly earnings conference calls, and statements which may be made from time to time in the future by management of the Company in presentations to shareholders, prospective investors, and others interested in the business and financial affairs of the Company, which are not historical facts, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. Any projections of financial performance or statements concerning expectations as to future developments should not be construed in any manner as a guarantee that such results or developments will, in fact, occur. There can be no assurance that any forward-looking statement will be realized or that
actual results will not be significantly different from that set forth in such forward-looking statement. The Company does not undertake to publicly update or revise any forward-looking statements except as required by law. Information about certain risks that could affect our business and cause actual results to differ from those expressed or implied in the forward-looking statements are contained in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018,2019, and in the Company's Form 10-QsForms 10-Q for subsequent quarterly periods, which are filed with the SEC and are available on the SEC’s website at www.sec.gov.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Debt Obligations under Credit Agreement
At September 29, 2019,27, 2020, our total debt obligations under our 2019 Credit Agreementcredit agreement were under LIBOR-based interest rates. A 100-basis point increase in the underlying LIBOR and prime rates would result in additional annual interest cost of approximately $0.4$0.3 million, assuming average borrowings, including the 2019 Term Loan,our term loan, subject to variable rates of $35.0$30.0 million, which was the amount of such borrowings outstanding at September 29, 201927, 2020 subject to variable rates. The $35.0$30.0 million excludes deferred financing costs related to the 2019 Term Loanterm loan and $200.0 million of borrowings outstanding under the 2019 Credit Facilityrevolver and term loan that are hedged at a fixed interest rate through interest rate swaps.
Inflation Commodity Price Volatility
The prices of key raw materials, consisting primarily of lauan, gypsum, particleboard, aluminum, softwoods lumber, and petroleum-based products are influenced by demand and other factors specific to these commodities, such as the price of oil, rather than being directly affected by inflationary pressures. Prices of certain commodities have historically been volatile and continued to fluctuate in the third quarter and first nine months of 2019.2020. During periods of risingvolatile commodity prices, we have generally been able to pass the increased costsboth price increases and decreases to our customers in the form of surcharges and price increases. However,adjustments. We are exposed to risks during periods of commodity volatility because there can be no assurance that future cost increases or decreases, if any, can be partially or fully passed on to customers, or that the timing of such sales price
increases or decreases will match raw material cost increases.increases or decreases. We do not believe that inflationcommodity price volatility had a material effect on results of operations for the periods presented.
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ITEM 4. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
The Company maintains “disclosure controls and procedures”, as such term is defined under Securities Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934, as amended (the “Exchange Act”) reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and the Company’s management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, requiredrequired to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the third quarter ended September 29, 2019 or subsequent to the date the Company completed its evaluation,27, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
Items 1, 3, 4 and 5 of Part II are not applicable and have been omitted.
ITEM 1. LEGAL PROCEEDINGS
In August 2019, a group of companies calling itself the Lusher Site Remediation Group (the “Group”) commenced litigation against the Company in Lusher Site Remediation Group v. Sturgis Iron & Metal Co., Inc., et al., Case Number 3:18-cv-00506, pending in the U.S. District Court for the Northern District of Indiana. The Group’s Second Amended Complaint, which was the first to assert claims against Patrick, asserted claims under the federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. § 9601 et seq., an Indiana state environmental statute and Indiana common law. One defendant in the case, Sturgis Iron & Metal Co., Inc. (“Sturgis”) subsequently filed two cross claims against Patrick, asserting against the Company a claim for (i) contribution under CERCLA and (ii) contractual indemnity. The Company moved to dismiss the Group’s claims and also moved to dismiss Sturgis’s cross claims. On August 21, 2020, the court granted Patrick’s two motions to dismiss. The Group subsequently moved for reconsideration of the court’s decision. That reconsideration motion is still pending. The Company does not currently believe that this matter is likely to have a material adverse impact on its financial condition, results of operations, or cash flows. However, any litigation is inherently uncertain, 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.
There have been no material changes to“Item 1A. Risk Factors” of our Form 10-K includes a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors previouslyand information disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. Except as presented below, there have been no material changes from the risk factors described in our Form 10-K for the year ended December 31, 2019.
The global spread of the COVID-19 virus and measures implemented to combat it have had, and are expected to continue to have, a material adverse effect on our business.
The global spread of the novel coronavirus (COVID-19) in recent months has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption in financial markets. The impact of this pandemic has created significant uncertainty in the global economy and has had, and is expected to continue to have, a material adverse effect on our business, employees, suppliers, and customers. The duration and magnitude of the impact of the COVID-19 pandemic cannot be precisely estimated at this time, as each is affected by a number of factors, many of which are outside of our control. As a result of the COVID-19 pandemic and potential future pandemic outbreaks, we face significant risks including, but not limited to:
•Decreases in consumer confidence and disposable income and increases in unemployment could reduce demand for our products by our customers in all of our end markets.
•Tightening credit standards could negatively impact credit availability to consumers which could have an adverse effect on all of our end markets.
•Supply chain and shipping interruptions and constraints, volatility in demand for our products caused by sudden and significant changes in production levels by our customers or other restrictions affecting our business could adversely impact our planning and forecasting, our revenues and our operations.
•Disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other finished product components, transportation, workforce, or other manufacturing and distribution capabilities could result in our inability to meet our end market customer needs and achieve cost targets.
•Significant changes in the conditions in markets in which we manufacture, sell or distribute our products, including additional or expanded quarantines or "stay at home" orders, governmental or regulatory actions,
closures or other restrictions that further limit or close our operating and manufacturing facilities, restrict our employees’ ability to travel or perform necessary business functions, restrict or prevent consumers from having access to our products, or otherwise prevent our suppliers or customers from sufficiently staffing operations, could adversely impact operations necessary for the production, distribution, sale, and support of our products.
•Failure of third parties on which we rely, including our customers, suppliers, distributors, commercial banks, and other external business partners, to meet their obligations to the Company or to timely meet those obligations, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties, may adversely impact our operations.
•Certain of our customers may experience financial difficulties, including bankruptcy or insolvency, as a result of the impact of COVID-19. If any of our customers suffer significant financial difficulties, they may be unable to pay amounts due to us fully, partially, or timely. Further, we may have to negotiate significant discounts and/or extended financing terms with these customers in such a situation. If we are unable to collect our accounts receivable as they come due, there may be a material adverse effect on our financial condition, results of operations and cash flows.
•If we are unable to maintain normal operations, or subsequently are unable to resume normal operations in a timely fashion, our cash flows could be adversely affected, making it difficult to maintain adequate liquidity or meet debt covenants. As a result, the Company may be required to pursue additional sources of financing to meet our financial obligations and fund our operations and obtaining such financing is not guaranteed and is largely dependent upon market conditions and other factors.
•Disruptions to our operations related to COVID-19 as a result of absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others at our facilities, or due to quarantines.
•The COVID-19 pandemic has led to and could continue to lead to severe disruption and volatility in the United States and global capital markets, which could increase our cost of capital and adversely affect our ability to access the capital markets in the future. In addition, trading prices in the public equity markets, including prices of our common stock, have been highly volatile as a result of the COVID-19 pandemic.
•Sustained adverse impacts to the Company, certain suppliers, and customers may also affect the Company’s future valuation of certain assets and therefore may increase the likelihood of an impairment charge, write-off, or reserve associated with such assets, including goodwill, indefinite and finite-lived intangible assets, property and equipment, inventories, accounts receivable, tax assets, and other assets.
The ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is highly uncertain and cannot be accurately predicted and is dependent on future developments, including the duration of the pandemic and the length of its impact on the global economy, as well as any new information that may emerge concerning the COVID-19 pandemic and the actions taken to contain it or mitigate its impact. The continued impact on our business as a result of the COVID-19 pandemic could materially adversely affect our business, results of operations, financial condition, cash flows, prospects and the trading prices of our securities in the near-term and beyond 2020.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
(a) None.
(b) None.
(c) Issuer Purchases of Equity Securities
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| | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share (1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
July 1 - July 28, 2019 | | — |
| | $ | — |
| | — |
| | $ | 30,306,041 |
|
July 29 - September 1, 2019 | | 69,399 |
| | 37.00 |
| | 68,122 |
| | 27,794,558 |
|
September 2 - September 29, 2019 | | 30,079 |
| | 35.65 |
| | 30,079 |
| | 26,722,195 |
|
| | 99,478 |
| | | | 98,201 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share (1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
June 29 - July 26, 2020 | | 857 | | | $ | 59.00 | | | — | | | $ | 43,515,568 | |
July 27 - August 30, 2020 | | 5,000 | | | 58.84 | | | 5,000 | | | 43,221,354 | |
August 31 - September 27, 2020 | | 83,950 | | | 52.91 | | | 83,950 | | | 38,779,489 | |
| | 89,807 | | | | | 88,950 | | | |
(1) Includes 857Amount includes 1,277 shares of common stock purchased by the Company in August 2019July 2020 for the sole purpose of satisfying the minimum tax withholding obligations of employees upon the vesting of stock awards held by the employees.
(2) See Note 16 toof the Notes to Condensed Consolidated Financial Statements for additional information about the Company's stock repurchase program.
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Exhibits (1) | Description |
31.1 | |
31.2 | |
32 | |
101 | Interactive Data Files. The following materials are filed electronically with this Quarterly Report on Form 10-Q: |
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| | | | | | | |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Schema Document |
| 101.CAL | XBRL Taxonomy Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Presentation Linkbase Document |
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104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | | | | |
| PATRICK INDUSTRIES, INC. |
| (Registrant) |
| | |
Date: November 7, 20195, 2020 | By: | /s/ Todd M. ClevelandAndy L. Nemeth |
| | Todd M. ClevelandAndy L. Nemeth
|
| | President and Chief Executive Officer |
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| | | | | | | |
| | |
Date: November 7, 20195, 2020 | By: | /s/ JoshuaJohn A. BooneForbes |
| | JoshuaJohn A. BooneForbes
|
| | Vice President-Finance andInterim Chief Financial Officer |