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ACQUISITIONS
 9 Months Ended
Oct. 01, 2023
Business Combination and Asset Acquisition [Abstract]  
ACQUISITIONS ACQUISITIONS
General 
Business combinations generally take place to gain key technology, expand into additional markets, or strengthen Patrick's positions in existing markets. Acquisitions are accounted for under the acquisition method of accounting. For each acquisition, the excess of the purchase consideration over the fair value of the net assets acquired is recorded as goodwill, which generally represents the combined value of the Company’s existing purchasing, manufacturing, sales, and systems resources with the organizational talent and expertise of the acquired companies’ respective management teams to maximize efficiencies, market share growth and net income.
The Company completed three acquisitions in the first nine months of 2023 (the "2023 Acquisitions"). For the third quarter and nine months ended October 1, 2023, net sales included in the Company's condensed consolidated statements of income related to the 2023 Acquisitions were $7.3 million and $9.8 million, respectively, and operating income was $(0.1) million and $0.1 million, respectively. Acquisition-related costs associated with the 2023 Acquisitions were immaterial. Assets acquired and liabilities assumed in the acquisitions were recorded on the Company's condensed consolidated balance sheet at their estimated fair values as of the respective dates of acquisition. For each acquisition, the Company completes its allocation of the purchase price to the fair value of acquired assets and liabilities within a one year measurement period. The Company completed three acquisitions in the first nine months of 2022. For the third quarter and nine months ended September 25, 2022, net sales included in the Company's condensed consolidated statements of income related to the acquisitions completed in the first nine months 2022 were $38.0 million and $87.3 million, respectively, and operating income was $6.9 million and $15.9 million, respectively.
Contingent Consideration
In connection with certain acquisitions, the Company is required to pay additional cash consideration if certain financial results of the acquired businesses are achieved. The Company records a liability for the estimated fair value of the contingent consideration related to each of these acquisitions as part of the initial purchase price based on the present value of the expected future cash flows and the probability of future payments at the date of acquisition.
Changes in the fair value of contingent consideration for the nine months ended October 1, 2023 are as follows:
($ in thousands)
Balance - December 31, 2022$9,213 
Additions3,590 
Fair value adjustments(1)
1,000 
Settlements(5,180)
Balance - October 1, 2023
$8,623 
(1) The Company records non-cash fair value adjustments to contingent consideration based on expected results, which are included in selling, general and administrative expenses in the Company's condensed consolidated statements of income for the first nine months of 2023.
The following table shows the balance sheet location of the fair value of contingent consideration and the maximum amount of contingent consideration payments the Company may be subject to at October 1, 2023 and December 31, 2022:
($ in thousands)October 1, 2023December 31, 2022
Accrued liabilities$7,583 $5,250 
Other long-term liabilities1,040 3,963 
Total fair value of contingent consideration$8,623 $9,213 
Maximum amount of contingent consideration$10,167 $10,747 
2023 Acquisitions
The Company completed three acquisitions in the first nine months ended October 1, 2023, including the following previously announced acquisition:
CompanySegmentDescription
BTI TransportDistributionProvider of transportation and logistics services to marine original equipment manufacturers ("OEMs") and dealers, based in Elkhart, Indiana, acquired in April 2023. The acquired business operates under the Patrick Marine Transport brand.
Inclusive of two acquisitions not discussed above, total cash consideration for the 2023 Acquisitions was approximately $26.4 million, plus contingent consideration over a two-year period based on future performance in connection with certain acquisitions. The preliminary purchase price allocations are subject to valuation activities being finalized, and thus certain purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates. Changes to preliminary purchase accounting estimates recorded in the third quarter and nine months ended October 1, 2023 related to the 2023 Acquisitions were immaterial.
2022 Acquisitions
The Company completed five acquisitions in the year ended December 31, 2022, including the following three previously announced acquisitions (collectively, the "2022 Acquisitions"):
CompanySegmentDescription
Rockford CorporationManufacturingDesigner and manufacturer of audio systems and components through its brand Rockford Fosgate®, primarily serving the powersports and automotive aftermarkets, based in Tempe, Arizona, acquired in March 2022.
Diamondback Towers, LLCManufacturingManufacturer of wakeboard/ski towers and accessories for marine OEMs, based in Cocoa, Florida, acquired in May 2022.
TranshieldManufacturingDesigner and manufacturer of customized and proprietary protection solutions for the marine, military and industrial markets, including covers and shrinkable packaging, to protect equipment during transport and storage, based in Elkhart, Indiana, acquired in November 2022.
Inclusive of two acquisitions not discussed above, total cash consideration for the 2022 Acquisitions was approximately $248.1 million, plus contingent consideration over a one to two-year period based on future performance in connection with certain acquisitions. Purchase price allocations and all valuation activities in connection with the 2022 Acquisitions have been finalized, and adjustments made during the year related to changes in the preliminary purchase price allocation recorded in all periods related to the 2022 Acquisitions were immaterial and relate primarily to the valuation of intangible and fixed assets.
The following table summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition for the 2023 Acquisitions and 2022 Acquisitions:
2023 Acquisitions2022
Acquisitions
($ in thousands)Acquisition AAcquisition BAll OthersTotal
Consideration
Cash, net of cash acquired$26,359 $132,557 $94,705 $20,832 $248,094 
Working capital holdback and other, net(10)— — (20)(20)
Contingent consideration(1)
3,500 — — 1,840 1,840 
Total consideration$29,849 $132,557 $94,705 $22,652 $249,914 
Assets Acquired
Trade receivables$570 $20,640 $4,880 $904 $26,424 
Inventories4,407 32,744 8,732 2,352 43,828 
Prepaid expenses & other190 1,325 164 128 1,617 
Property, plant & equipment10,149 4,681 8,086 1,464 14,231 
Operating lease right-of-use assets1,044 2,917 1,435 599 4,951 
Identifiable intangible assets
Customer relationships10,370 58,000 30,970 7,055 96,025 
Non-compete agreements430 500 — 310 810 
Patents— 7,500 9,500 — 17,000 
Trademarks— 17,000 8,080 1,310 26,390 
Liabilities Assumed
Current portion of operating lease obligations(262)(512)(289)(273)(1,074)
Accounts payable & accrued liabilities(472)(24,521)(3,336)(1,291)(29,148)
Operating lease obligations(782)(2,405)(1,146)(326)(3,877)
Deferred tax liabilities— (19,930)(12,684)— (32,614)
Total fair value of net assets acquired25,644 97,939 54,392 12,232 164,563 
Goodwill(2)
5,905 34,618 40,313 10,420 85,351 
Bargain purchase gain(3)
(1,700)— — — — 
$29,849 $132,557 $94,705 $22,652 $249,914 
(1) These amounts reflect the acquisition date fair value of contingent consideration based on expected future results relating to certain acquisitions.
(2) Goodwill is not tax-deductible for Acquisition A and Acquisition B (totaling approximately $74.9 million) but is tax-deductible for the remaining 2022 Acquisitions and the 2023 Acquisitions.
(3) In connection with one of the 2023 Acquisitions, the Company anticipates it will recognize a bargain purchase gain. A bargain purchase gain is recognized when the net assets acquired in a business combination have a higher fair value than the consideration paid. This gain is primarily attributable to the fair value assigned to customer relationships, has been deferred for recognition until the Company finalizes all purchase accounting adjustments, and is included in "Accrued liabilities" on the condensed consolidated balance sheet.
We estimate the value of acquired property, plant, and equipment using a combination of the income, cost, and market approaches, such as estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the acquired businesses.
We estimate the value of customer relationships using the multi-period excess earnings method, which is a variation of the income approach, calculating the present value of incremental after-tax cash flows attributable to the asset. Non-compete agreements are valued using a discounted cash flow approach, which is a variation of the income approach, with and without the individual counterparties to the non-compete agreements. Trademarks and patents are valued using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value.
The estimated useful life for customer relationships is 10 years. The estimated useful life for non-compete agreements is 5 years. The weighted average estimated useful life for patents is 13 years, ranging from 10 to 18 years. Trademarks have an indefinite useful life.
Pro Forma Information
The following pro forma information for the third quarter and nine months ended October 1, 2023 and September 25, 2022 assumes the 2023 Acquisitions and 2022 Acquisitions occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of the 2023 Acquisitions and 2022 Acquisitions combined with the results prior to their respective acquisition dates, adjusted to reflect the pro forma impact of the acquisitions occurring as of the beginning of the year immediately preceding each such acquisition.

The pro forma information includes financing and interest expense charges based on incremental borrowings incurred in connection with each transaction. In addition, the pro forma information includes amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $0.0 million and $0.4 million, respectively, for the third quarter and nine months ended October 1, 2023, and $1.0 million and $5.1 million, respectively, for the third quarter and nine months ended September 25, 2022.
 
Third Quarter Ended
Nine Months Ended
($ in thousands, except per share data)October 1, 2023September 25, 2022October 1, 2023September 25, 2022
Revenue$866,073 $1,124,619 $2,702,753 $4,029,451 
Net income$39,550 $59,023 $112,876 $292,824 
Basic earnings per common share$1.84 $2.67 $5.24 $13.15 
Diluted earnings per common share$1.81 $2.44 $5.12 $11.97 
The pro forma information is presented for informational purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of the periods indicated above.